Technical Assistance Consultant’s Report

Project Number: 42011 November 2009

People’s Republic of : Urban Environmental Improvement Project

Prepared by Easen International Co., Ltd

in association with Kocks Consult GmbH

For Wuhan Municipal Government

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

ADB TA No. 7177- PRC Project Preparatory Technical Assistance

WUHAN URBAN ENVIRONMENTAL IMPROVEMENT PROJECT

Final Report

November 2009

Volume I

Project Analysis

Consultant Executing Agency Easen International Co., Ltd. Wuhan Municipal Government in association with Kocks Consult GmbH

ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Table of Contents

WUHAN URBAN ENVIRONMENTAL IMPROVEMENT PROJECT ADB TA 7177-PRC

FINAL REPORT

VOLUME I

PROJECT ANALYSIS

TABLE OF CONTENTS

Abbreviations Executive Summary

Section 1 Introduction 1.1 Introduction 1-1 1.2 Objectives of the PPTA 1-1 1.3 Summary of Activities to Date 1-1 1.4 Implementation Arrangements 1-2

Section 2 Project Description 2.1 Project Rationale 2-1 2.2 Project Impact, Outcome and Benefits 2-2 2.3 Brief Description of the Project Components 2-3 2.4 Estimated Costs and Financial Plan 2-6 2.5 Synchronized ADB and Domestic Processes 2-6

Section 3 Technical Analysis 3.1 Introduction 3-1 3.2 Sludge Treatment and Disposal Component 3-1 3.3 Technical Analysis for Wuhan New Zone Lakes/Channels Rehabilitation, Sixin Pumping Station and Yangchun Lake Secondary Urban Center Lake Rehabilitation 3-51 3.4 Summary, Conclusions and Recommendations 3-108

Section 4 Environmental Impact Assessment 4.1 Status of EIAs and SEIA Approval 4-1 4.2 Overview of Chinese EIA Reports 4-1

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4.3 Overview of SEIA 4-3 4.4 Environmental Characteristics of Wuhan City 4-4 4.5 Water Quality and Pollution 4-5 4.6 Social and Economical Conditions 4-7 4.7 Alternatives 4-7 4.8 Environmental Benefits of the Project 4-8 4.9 Environmental Impacts and Mitigation Measures of the Project 4-9 4.10 Economic Assessment 4-13 4.11 Public Consultation and Information Disclosure 4-13 4.12 Environmental Management Plan 4-15 4.13 Potential Risks of the Project 4-16 4.14 Findings and Recommendations 4-17

Section 5 Financial and Least- Cost Analysis 5.1 Introduction and Objectives 5-1 5.2 Cost Estimates 5-1 5.3 Financing Plan 5-3 5.4 Financial Cost Benefit Analysis – Calculation of FIRR 5-4 5.5 IA’s Past Financial Performance and Financial Projections 5-6 5.6 Fiscal Capacity Review of Wuhan Finance Bureau (WFB) 5-6 5.7 The System of Wastewater Tariff Collection 5-10 5.8 WWTP – Tariffs, Cost Recovery and Affordability 5-14 5.9 Financial Management Assessment (FMA) 5-20 5.10 Conclusion and Recommendations 5-22

Section 6 Economic Analysis 6.1 Sludge Management Component 6-1 6.2 Lake and Channel Rehabilitation Components 6-13 6.3 Sixin Pumping Station Component 6-22 6.4 Summary of Overall Project Viability 6-29

Section 7 Poverty and Social Assessment 7.1 Introduction 7-1 7.2 Methodology 7-1 7.3 Description of Project Area 7-2 7.4 Social Profile 7-3 7.5 Poverty Analysis 7-6 7.6 Enterprises in Project Area 7-7 7.7 Housing and Health Analysis 7-7 7.8 Employment Generation 7-7 7.9 Community Participation and Public Awareness Action Plan 7-8 7.10 Willingness to Pay and Affordability 7-8

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7.11 Gender development 7-9 7.12 Social Safeguard issues and Other Social Risks 7-9 7.13 Social Development Action Plan 7-10 7.14 Conclusions 7-10 7.15 Recommendation 7-11

Section 8 Land Acquisition and Resettlement 8.1 Project Components 8-1 8.2 Project Impact 8-2 8.3 Policies and Regulations 8-3 8.4 Compensation Standard 8-3 8.5 Property Demolition and Livelihood Restoration Plan 8-6 8.6 Organization 8-8 8.7 Consultation, Complaint, Appeal and Information Disclosure 8-9 8.8 Monitoring and Evaluation 8-9 8.9 Budget 8-9 8.10 Results of the Acquired Land’s Due Diligence Report 8-9

Section 9 Institutional Analysis and Capacity Building 9.1 Introduction 9-1 9.2 PRC Sector Level Analysis 9-1 9.3 Sector analysis and institutional arrangements in Wuhan 9-6 9.4 Project Management and Implementing Arrangements 9-12 9.5 Analysis of Proposed Implementation Arrangements 9-21 9.6 Assessment of Capacity Building Needs 9-23 9.7 Assessment of Procurement Capacity 9-32 9.8 Proposed WUEIP Capacity Building 9-33 9.9 Opportunities for Private Sector Participation and Potential Constraints 9-43 9.10 Summary of Conclusions and Recommendations 9-45

Section 10 Policy Dialogue 10.1 Overall Policy Framework 10-1 10.2 Integrated Urban Development and Environmental Management 10-1 10.3 Sustainable Sludge Treatment and Disposal 10-2 10.4 Wastewater Management 10-3 10.5 Integrated Urban Surface Water Management 10-4 10.6 Point Source and Non-point Source Control Monitoring and Enforcement 10-5 10.7 Cost Recovery and Tariff Reform 10-5 10.8 Governance and Anti-corruption 10-7 10.9 Poverty Reduction 10-8

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10.10 Private Sector Participation 10-9 10.11 The Creation of a Circular Economy (Reduce, Recover & Reuse) 10-9 10.12 Climate Change Adaptation and Mitigation 10-10 10.13 Community Environmental and Health Awareness 10-11

Section 11 Project Design and Monitoring Framework 11.1 General 11-1 11.2 Design and Monitoring Framework 11-1 11.3 Project Monitoring and Evaluation 11-1

APPENDICES

3-1 Agreement of Intent for Steam Supply and Sludge Disposal 5-1 Detailed Cost Estimates and Financing Plan 5-2 Financial Project for WUDDC 5-3 Completed Financial Management Assessment Questionnaire 7-1 Poverty and Social Assessment 9-1 Procurement Capacity Assessment Questionnaire

VOLUME II SUMMARY ENVIRONMENTAL IMPACT ASSESSMENT

VOLUME III SUMMARY RESETTLEMENT PLAN WUHAN NEW ZONE LAKE/CHANNELS REHABILITATION AND PUMPING STATION COMPONENT RESETTLEMENT PLAN YANGCHUN LAKE SECONDARY URBAN CENTER LAKE/REHABILITATION COMPONENT RESETTLEMENT PLAN

VOLUME IV REPORT AND RECOMMENDATION OF THE PRESIDENT

Easen International Co. Ltd. iv Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project List of Abbreviations CURRENCY EQUIVALENTS (as of 12 May 2009)

Currency Unit – yuan (CNY) – USD ($) CNY1.00 = $0.1465 $1.00 = CNY6.8242

LIST OF ABBREVIATIONS Abbrev Full Name / Description ADB Asian Development Bank AFC Average Financial Cost AIFC Average Incremental Financial Cost AIEC Average Incremental Economic Cost AH Affected household AP Affected Person BCR Benefit Cost Ratio BOT Build Operate Transfer CBD Central Business CDM Clean Development Mechanism CF Commitment Fees CNY Chinese Currency (Yuan) CVM Consumer Valuation Methods DCF Discounted Cash Flow DFR Draft Final Report DMF Design and Monitoring Framework DWB District Water Bureau EA Executing Agency (which is WMG as represented by WPMO) EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EMP Environmental Management Plan ENPV Economic Net Present Value EOCC Economic Opportunity Cost of Capital EPB Environmental Protection Bureau FEF Front-End-Fee FGD Focus Group Discussion FIRR Financial Internal Rate or Return FNPV Financial Net Present Value FSR Feasibility Study Report GHG Greenhouse Gas GDP Gross Domestic Product GIS Geographic Information System HDWB Water Bureau HPG Provincial Government HPEPB Hubei Provincial Environmental Protection Bureau HUEP Hubei Urban Environment Project (WB funded) IA Implementing Agency IDC Interest During Construction

Easen International Co. Ltd. i Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project List of Abbreviations IEE Initial Environmental Examination (a short form of EIA) IFO International Financing Organisation IPP Incineration Power Plant IRRC Involuntary Resettlement Research Center LCA Least Cost Analysis MDG Millennium Development Goal MLG Minimum Living Guarantee Ministry of Environmental Protection (Former State Environmental Protection MOEP Administration) MOF Ministry of Finance MOHURD Ministry of Housing, Urban and Rural Development MOWR Ministry of Water Resources MSW Municipal Solid Waste NBS National Bureau of Statistics NDRC National Development and Reform Commission NPS Non-point Source NPV Net Present Value O & M Operation and Maintenance OCC Opportunity Cost of Capital OCL Opportunity Cost of Land PDMF Project Design and Monitoring Framework PHH Pollution Haven Hypothesis PLG Project Leading Group PME Project Monitoring and Evaluation PMO Project Management Office PPMS Project Performance Monitoring System PPTA Project Preparatory Technical Assistance PPP Public-Private Partnerships PRC People's Republic of China PSA Poverty and Social Assessment PSP Private Sector Participation RAP Resettlement Action Plan RMB Ren Min Bi (Yuan) RP Resettlement Plan SDAP Social Development Action Plan SEIA Summary Environmental Impact Assessment SEPA State Environmental Protection Administration SOE State Owned Enterprise SPA Social and Poverty Assessment SRP Soluble Reactive Phosphorous STP Sludge Treatment Plant TOR Terms Of Reference TP Total Phosphorous TSS Total Suspended Solid USD US Dollar WACC Weighted Average Cost of Capital WB World Bank

Easen International Co. Ltd. ii Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project List of Abbreviations WBSTC Wuhan Bishui Science and Technology Co., Ltd. WCC Wuhan Municipal Construction Commission WDI Wuhan Municipal Engineering Design Institute WDRC Wuhan Municipal Development and Reform Commission WEPB Wuhan Municipal Environmental Protection Bureau WEMC Wuhan Municipal Environmental Monitoring Centre WFB Wuhan Municipal Finance Bureau WFMO Wuhan Urban Construction Fund Management Office WHO World Health Organization WLRHMB Wuhan Municipal Land Resources and Housing Management Bureau WMG Wuhan Municipal Government WPB Wuhan Municipal Price Bureau Wuhan Urban Construction Utilization of Foreign Investment Project WPMO Management Office WSAMAC Wuhan Municipal State Assets Management and Administration Commission WNZCD Wuhan New Zone Construction Development Co., Ltd. WTP Willingness to Pay WUCID Wuhan Urban Construction Investment and Development (Group) Co., Ltd. WUDDC Wuhan Urban Drainage Development Co., Ltd. WUEIP Wuhan Urban Environmental Improvement Project WWB Wuhan Municipal Water Bureau WWGC Wuhan Water Group Co., Ltd. WWMP Wuhan Wastewater Management Project WWSMP Wuhan Wastewater and Stormwater Management Project WWTP Wastewater Treatment Plant YLSUC Yangchun Lake Secondary Urban Center

Easen International Co. Ltd. iii Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Executive Summary

EXECUTIVE SUMMARY

1 Introduction This executive summary summarizes the findings of the ADB TA 7177 Project Preparatory Technical Assistance (PPTA) Final Report (FR) for the proposed Wuhan Urban Environmental Improvement Project (WUEIP, or “the Project”). The FR is presented in accordance with the specific requirements as set in the contract, dated 29th April 2009 between the Asian Development Bank (ADB) and Easen International Co., Ltd. (Easen), the appointed PPTA Consultant (the Consultant). 2 PPTA Objective and Scope The PPTA is assisting Wuhan Municipal Government (WMG) to (i) identify the most environmentally sustainable infrastructure to improve the quality and the efficiency of the urban development; (ii) support and enhance the development of a new ecological urban area; (iii) prepare a feasibility study for each project component; and (iv) prepare an integrated municipal infrastructure project, including environmental impact assessments, social analyses, and Resettlement Plans (RPs) in accordance with ADB policy and guidelines. The PPTA has also identified institutional capacity building measures in urban environmental management and the implementation of policy reforms to ensure the sustainability of the Project and the related facilities. 3 Implementation Arrangement The WMG is the Executing Agency (EA) for the proposed Project and has established a Project Leading Group (PLG) to oversee the project preparation and implementation. The WMG has assigned day-to-day responsibility for the project preparations to the Wuhan Project Management Office (WPMO). The project Implementation Agency (IA) is the Wuhan Urban Construction Fund Management Office (WFMO). Both WPMO and WFMO have been successfully implementing several earlier ADB and World Bank (WB) financed projects, and therefore already possesses much relevant experience in both the preparatory and implementation phases of internationally funded projects similar to WUEIP. 4 Project Rationale The proposed Project has a strong rationale both in terms of urban development and environmental improvement. It follows and completes the previous ADB Loan 1996-PRC: Wuhan Wastewater Management Project (WWMP) approved in 2003 and on-going ADB Loan 2240-PRC: Wuhan Wastewater and Storm Water Management Project (WWSMP) approved in 2006. The proposed Project complies with the two main development agenda of "environmentally sustainable growth" and "inclusive economic growth" promoted in ADB's Strategy 2020. It is in line with and supports PRC's Country Partnership Strategy (2008-2010): promoting efficient infrastructure, strengthening environmental management, supporting inclusive growth, and balanced development. It also directly supports the achievement of Millennium Development Goal 7 by ensuring the environmental sustainability of urban development of the City. The Project is part of the key Wuhan master plan priorities in terms of sanitation, environment improvements, and urban development. The Project will also contribute to establishing Wuhan City as a model PRC city for sustainable development.

There are currently 11 WWTPs in the Wuhan urban area. These plants presently have a daily design treatment capacity of 1.7 million m3 and an actual daily treatment capacity of 1.5 million m3. A total of 657 tons of sewage sludge, with a dry solid content of 20%, were generated every day. According to the city's master plan, the disposal method of sewage sludge is to transport the dewatered sludge to a landfill site. However, this is creating serious operational problems at the landfills due to the high water content of the sludge and rapidly using up scarce landfill capacity. The proposed Project is tasked with treating sludge from six WWTPs. Initially,

Easen International Co. Ltd. ES - 1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Executive Summary the project sludge treatment facilities will accept sludge from four WWTPs and another two more during project implementation. Three of these WWTPs were built under the ADB-funded WWMP1 and the WWSMP2. The challenge is to treat and dispose of the massive quantities of sludge in an economically and environmentally sustainable manner. One of the options considered was to develop a centralized facility using incineration or co-incineration as a volume reduction method. However, ADB is promoting sustainable urban environmental development which is responsive to climate change pressures as well as the three Rs approach of reduce, reuse and recycle. The Project will accordingly address sludge volume reduction and reuse. While sludge incineration or carbonization might be other viable options under consideration by PRC urban planners, they do not reflect the three Rs policy of ADB and its climate change agenda. Sludge drying, and in particular, sludge digestion are fully in line with ADB policies and is also recognized by the PRC as a fully sustainable option.

During project preparation, available alternatives for sustainable and reliable sludge treatment and reuse were studied to avoid negative impacts on the environment and global warming. The key elements of the Project's sustainable sludge management component are: (i) a strategy or plan to manage the sludge in an environmentally responsible and socially acceptable manner; (ii) to promote recovery, reuse, and recycling of resources; (iii) to ensure that harmful materials are not transferred to the environment without proper safeguards; and (iv) cost effectiveness.

The creation of healthy well managed water systems in Wuhan will allow urban expansion in flood safe and environmentally clean areas to support the city's sustainable development. In the Hanyang district, the Project will allow a new urban development area around the rehabilitated lakes and channels. The new urban district will accommodate more than 400,000 new residents in 2020. The Project will alleviate urban pressures in the densely populated downtown areas and develop a model of sustainable urban development.

For these reasons, WMG has requested for a third ADB loan to support the Project. The expected ADB loan will be USD 100 million while the total estimated cost of the Project is USD 442.7 million. The Project has a strong rationale both in terms of facilitating continued urban development and achieving environmental improvements.

The Project aims to: (i) properly treat and dispose of the sludge generated from wastewater treatment plants; (ii) reduce pollution, improve the management of surface water and rehabilitate lakes and channels in two newly developed areas in the city; and (iii) eliminate flooding and other hazards associated with poor drainage. The Project is expected to benefit over 3 million urban residents through the improvement of living conditions, public health standards, and the urban environment of Wuhan municipality.

5 Project Description The Project is a key urban environmental initiative of Wuhan Municipal Government (WMG) with nation-wide demonstration effect. The Project will help WMG to (i) implement sustainable solutions for the management of WWTP sludge, including the potential for energy recovery and reuse of biosolids; (ii) improve water quality in the urban lakes and water channels; (iii) enhance surface water circulation and help alleviate flooding; (iv) promote integrated surface water management; (v) improve the environment, living conditions, and public health standards; (vi) enhance public awareness of urban environmental and related public health issues; and (vi) develop strategies to monitor and control point and non-point pollution sources.

1 Sanjintan WWTP. 2 Nantaizi WWTP and Huangpulu WWTP.

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The Project, which has been designed as a logical follow up to earlier ADB funded projects in Wuhan, consists of three components (i) sludge management (ii) lakes and water channel rehabilitation and (iii) capacity development and project management. The Project is comprised of four components: (a) Sludge Treatment and Disposal; (b) Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station; (c) Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation; and (d) Institutional Strengthening and Capacity Building. 6 Technical Analysis on Sludge Treatment and Disposal

6.1 Current Status of Sludge Treatment and Disposal Based on the 2008 data, a total of 657 tons of sewage sludge that contains 20% dry solid are generated every day in Wuhan. Currently, the only disposal method of sewage sludge is to transport the dewatered sludge from WWTPs to landfill site. This practice is becoming increasingly unsustainable due to: (i) the impact of the still high water content (i.e. 80% water content) of the dewatered sewage sludge on the normal operation of the landfill site; and (ii) the limited availability of landfill site capacity.

In addition to competing for landfill space for disposal, sludge contains large numbers of bacteria, parasite eggs and viruses that could also easily lead to the spread of infectious diseases when it is randomly discarded and exposed to the public. This environmental challenge to WMG has created an urgent need for a comprehensive and efficient approach to sludge treatment and disposal for Wuhan. 6.2 Technical Options for Sludge Disposal The characteristics of the sludge in terms of sludge quality, geographic locations, environmental conditions and the level of socio-economic development in the area should all be taken into consideration when determining the best sludge treatment and disposal options. Based on both international practices, and emerging Chinese practice, the following sludge disposal options should be considered: (i) Land application, (ii) Utilization of sludge as a construction material, and (iii) Landfill disposal. 6.3 Potential Applications of Sewage Sludge Treatment and Disposal in Wuhan City Based on the Municipal Solid Waste (MSW) master plan, there are two landfill sites in Wuhan. The Yangluo Chengjiachong landfill that is currently in operation and the Jiangxia Changshankou landfill that is under construction. The Yangluo Chenjiachong landfill is responsible for handling all the sewage sludge produced in the region. This landfill has a design service life of 20 years and a designed daily capacity of 2,000 tons/day of MSW. The site is equipped with complete leachate collection and treatment facilities as well as landfill gas collection and power generation facilities. The increased amount of MSW and sludge in need of disposal due to the rapid urbanization has caused the landfill to accept approximately 3,000 tons of MSW per day, including sludge. The other landfill at Changshankou will have a design service life of 50 years with a designed daily disposal capacity of 1,000 tons of MSW. It is still important to manage and reduce the amount of WWTP sludge disposed of in the landfills so that the precious landfill capacity can be more efficiently used for the disposal of MSW. Some potential beneficial reuse and disposal options for sewage sludge in Wuhan have been studied and recommended as follows: (i) As soil conditioner for garden and forest greening in and around Wuhan municipality as part of land application, (ii) Tang mountain soil rehabilitation project, and (iii) as raw material for organic fertilizer (composting) plants. 6.4 Methods and Preconditions for Sustainable Sludge Disposal A variant of the 3Rs principle will be applied when assessing the sustainability of the sludge disposal options: Reduce, Reuse/recycle and Removal. There are some proposed sludge treatment methods as the basic steps for changing and improving the sludge characteristics

Easen International Co. Ltd. ES - 3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Executive Summary and content: (i) Sludge stabilization, (ii) Sludge dewatering, and (iii) Sludge sterilization. Depending on the proposed sludge disposal process, different levels of above mentioned treatment methods are required. In general terms, the selection of appropriate sludge treatment technology should take into account the intended sludge disposal options. The sludge disposal method should be chosen based on the current status of the sludge with regard to the specific requirements or limitations of the area. The status of the sludge and requirements of the area are based on relevant PRC national laws, rules and policies. Only by considering all the above factors can a suitable, safe, reliable and sustainable sludge disposal program be developed.

6.5 Strategy for Sustainable Sludge Treatment and Disposal in Wuhan City In order to solve the increasingly serious and urgent problem of sludge disposal in Wuhan city, it is necessary to develop a sustainable sludge disposal program as soon as possible. This must be done by considering the sludge characteristics, the current status and potential future status of the sludge, the geographic position both of the city and its WWTPs, as well as economic developments. To obtain local government and relevant stakeholder support the sludge treatment and disposal options proposed for the Project should meet both Wuhan’s short term needs as well as be compatible with its long term plans. Therefore, the proposed treatment and disposal options should be capable of extension and continued utilization during future expansion and/or new construction of facilities. This will help ensure a sustainable development of sludge treatment and disposal in Wuhan.

6.6 A Sludge Treatment and Disposal Framework for the WUEIP Combining the consideration of sludge treatment (quantity reduction and stabilization) and beneficial reuse as a favored sludge disposal option, along with the ADB’s guidelines on urban development and climate change policy, four WUEIP sub-projects have been proposed for Wuhan City in the FSR prepared by the Wuhan Municipal Design and Engineering Institute Co., Ltd and the Wuhan Academy of Urban Planning and Design Institute (DI). These are: (i) Wuchangnan STP’s sludge drying, (ii) sludge treatment plant (STP)’s biogas utilization for sludge drying, (iii) Nantaizihu STP’s sludge lime stabilization and (iv) improvements to existing equipment for sludge dewatering, storage and transportation. 6.7 Water Sales and Wastewater Generation The per capita water consumption in Wuhan is based on a range of 270 to 290 liters/day. In accordance with current design specifications, the average daily sewage volume is usually calculated to be approximately 85% of the water consumption.

6.8 On-site Inspection of Sludge Quantity and Quality Based on an analysis between sewage sludge production amount and volume of sewage treated, the sludge production rate for secondary treatment WWTPs is in the range of 3-5 tons of sludge/10,000 m3 of sewage treated. National statistical data indicates that the usual sludge production rate for secondary WWTPs in China is in the range of 4.5-7.5 tons of sludge/10,000 m3 of sewage treated. This indicates that the sludge production rate in Wuhan is lower than the national level. This may be attributed to a generally low COD (BOD) concentration in Wuhan’s sewage. However, a more likely reason for this is a combination of the high water consumption per capita and the infiltration of groundwater into the sewage collection network. 6.9 Current Status of Solid Waste Management and Future planning In response to the lack of landfill capacity in Wuhan, the disposal method of municipal solid waste will be gradually changed from landfilling to incineration, as per the Wuhan Sanitation Master Plan. All solid waste which cannot be incinerated will be landfilled. According to the Master Plan, a total of 5 waste-to-energy (WTE) plants are to be constructed in Wuhan. These include the 1500 tons/d Guodingshan WTE plant in the Hanyang District of Hanyang, the 1000tons/d Qunlicun WTE plant in the Qingshan District of Wuchang, the 1000 tons/d Changshankou WTE plant in the of Wuchang, the 2000 tons/d Hankoubei WTE

Easen International Co. Ltd. ES - 4 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Executive Summary plant in Hankou and the 1000 tons/d Xingou WTE plant in the in Hankou. There will also be two landfill facilities, the Yangluo Chengjiachong and the Jiangxia Changshankou landfills. Following the site investigation carried out by the PPTA Consultants and based on the information received from relevant parties, requirements that must be met to ensure the safe and reliable disposal of sewage sludge at landfill sites are: (i) the sludge must meet the requirements of “The Disposal of Sludge from Municipal Wastewater Treatment Plant—Sludge Quality for Co-landfilling” (CJ/T 249); and (ii) an agreement between the relevant government department in charge of landfill sites and the WWTPs to accept treated sewage sludge must be signed and a feasibility study for disposing of sludge by co-landfilling with municipal solid waste and sewage sludge must be conducted. The outcome of this procedure should be a sound technical solution that allows the landfilling of sewage sludge without causing any adverse impact on the normal management of the landfill facilities.

7 Technical Analysis for Lakes/Rivers and Channels Rehabilitation

7.1 Current Status of Surface Water Resource The main rivers in Wuhan city are River and . The main water bodies between Yangtze River and Han River are the Houguan Lake, Longyang Lake, Moshui Lake, Sanjiao Lake, Nantaizi Lake and Beitaizi Lake. In the history of the six-lake area all lakes used to be connected. The construction of Qinduankou Gate, Dongfeng Gate, Donghu Pumping Station and various other gates and pumping stations has cut the connections between the lakes and the rivers, although the lake systems and the rivers are still closely connected through many of the pumping stations in the city. The discharge of lake and storm water runoff into the river is controlled by pumps and gates, which can be opened when needs arise during the flood seasons. The lakes and channels have functioned as storage and treatment for storm water and the discharged water, resulting in accumulation of silt and sediments.

The Han River flows into the Yangtze River at Wuhan. The Wuhan Environmental Monitoring Center has conducted an annual water quality analysis for the Han River and the Yangtze River for the year 2008. The water quality analysis is evaluated by reference to the Class III criteria of the “Surface Water Environmental Quality Standard (GB3838-2002)”. This evaluation indicates that the water quality of the Han River and the Yangtze River meet the Class III standards as per GB3838-2002.

The annual monitoring data from 2006 to 2008 for the lake water quality in Wuhan is summarized in Table 3-23. It is observed from the 2006 to 2008 data for the lake water quality in Wuhan, that until year 2007, the water quality in most of the city’s lakes was deteriorating. However, following the city’s implementation of the “Clean Water into Lake” project that started in 2006, the water quality showed signs of improvement in 2008.

7.2 Wuhan City Lake and Channel Rehabilitation Strategy The PPTA team has suggested seven strategies and guiding principles for lake rehabilitation in Wuhan which focus on the restoration and protection of the biological environment. The lake rehabilitation will promote sustainable urban development and solve the lake pollution problem. The first strategy is pollution source control in which clean production of enterprises is rigorously promoted in Yangtze River area and all wastewater is treated before discharge. Second is pollutant load control in which agricultural non-point sources pollution control and domestic sewage interception are promoted along with the development of ecological and water-saving agriculture. In this strategy, it is necessary to reduce the dosage of chemical fertilizer and pesticide application and new tourism and vacation village and restaurant projects around the lakes should be strictly controlled to reduce domestic sewage pollution of the lakes. The third required action should be the interception of wastewater flowing into the lakes and rivers by the installation of combined sewer overflow control gates. The fourth suggested action

Easen International Co. Ltd. ES - 5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Executive Summary is river and lake sediment dredging to increase the flow and exchange of water, and allow connections between lakes. This will also increase the water body’s assimilation capacity. The fifth is the flow of clean water into the lake system which is considered the most effective solution to restore and maintain a clean surface water environment. Lake biological rehabilitation is the sixth strategy which will propose a green ecological belt along the lakeshore and some ecological improvements in river ways to help clean the water flowing into lakes. Finally, the seventh strategy is long-term effective management in which all the water related agencies should plan and coordinate their efforts more efficiently.

Of course, in addition the methods proposed must meet the relevant laws, rules and policy requirements of Government, as detailed in Section 3 of this FR.

7.3 Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station The proposed component is based on the original environmental characteristics of the Six Lake Area and is a part of the original ‘Six Lakes Connection” Project that has been approved by the government. Its main focus is to protect, restore and improve the ecosystem of the Six Lake Area in accordance with the natural environment.

Currently, the Hanyang and Wuchang Districts are faced with severe pollution of their lakes and water channels (all class V water quality or worse) with severe consequences for the urban environment and public health, and despite recent attempts to intercept and treat wastewater and storm water from the area. Initiatives to address point and non-point sources pollution need to be augmented with a comprehensive scheme for urban water resources management. This shall include the rehabilitation of the lakes' natural water circulation and restoring their hydraulic and flood retention capacities. To address this issue, the proposed Project will unblock the channels connecting the lakes, dredge the silted lakes and channels, support the restoration of wetlands, and provide a platform for water regeneration and circulation. . There will be two development zones, three specialty industrial groupings, an interconnected four lake water system and the respective road structures. The interconnection of the Moshui Lake, Nantaizi Lake, Longyang Lake and Sanjiao Lake will result in a continuous ecosystem. The idea of the four interconnected lake ecosystem is clearly defined in the Wuhan New Zone’s Master Plan. The four lakes in the New Zone will be interconnected through the use of the water channels already present in the area. The purpose of the interconnection is to improve the water quality of the lakes and build some dynamic internal river networks within the lakes area. This component will also help to improve the economic development of the three counties in the New Zone.

In addition, the “Wuhan New Zone six lake dynamic water ecosystem plan” allocates the natural environmental and water network resources in the following six water bodies: Moshui Lake, Nantaizi Lake, Beitaizi Lake, Sanjiao Lake, Longyang Lake and Houguan Lake. The Six Lake Area is the foundation and background for the hybrid ecosystem that incorporates the lake, water channels, green belts and urban districts. This hybrid ecosystem will create a harmonious lake city that interconnects the natural environment with its residents. 7.4 Project Benefits of Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station The Project will introduce best practices in urban surface water resources management, apply an integrated approach for watershed management, and improve urban development practices. The Project will pioneer a number of features addressing both climate change and pollution challenges though conserving urban lakes and channels, improving management of surface water sources and establishing wetlands. The Project will improve the water quality of the lakes in the project area to reach class IV or better. The spatial development of the city will be balanced and integrated with the future urban population. The overall sustainability and attractiveness of Wuhan for executing business activities and everyday living conditions will be improved accordingly. The improved hydraulic capacity of the rehabilitated lake system and the

Easen International Co. Ltd. ES - 6 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Executive Summary construction of Sixin PS in particular, will reduce the risk of urban flooding in the area which is currently an impediment to local economic development. 7.5 Selection of Technical Options and Design Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station The proposed project components in the Hanyang area involve three lakes that are part of the “Six Lakes Connection” project. This project has been well studied and approved by the local and central government with the Hanyang area is being planned as the Wuhan new urban center. The three lakes chosen for ADB financed project are Longyang, Moshui and Nantaizi lakes.

Longyang Lake Rehabilitation. This subcomponent includes sediment dredging, wetland park, artificial wetland ecological project, aquatic plant and Tang Mountain rehabilitation. Moshui Lake Rehabilitation. This subcomponent includes sediment dredging, artificial wetland ecological project and aquatic plants. Nantaizi Lake Rehabilitation. This subcomponent includes sediment dredging, artificial wetland ecological project, aquatic plants and biological buffer area. Table ES-1 summarises the scale and content of the rehabilitation plans devised for each of these three lakes. Table ES-1: Wuhan New Zone Lake Rehabilitation Component Content Control area Dredging Artificial Aquatic plant Artificial Lake (km2) amount (m3) wetland (ha) plant (ha) Longyang 1.90 250,000 3 57.9 3.2 Lake* Moshui Lake 3.7€9 272,800 3 154.2 5.44 Nantaizi 4.43 225,000 1 137.3 6.4 Lake Total 10.12 747,800 7 349.4 15.04 * Longyang Lake rehabilitation also includes Tang Mountain Rehabilitation.

Comprehensive Channel Rehabilitation. The channel rehabilitation component includes sediment dredging, slope protection, greening, water remediation, gate and landscaping. The detailed data of the channels is listed in Table ES-2. For this component, the main design methodology option is ecological concrete embankment. This include channel cross section design, channel ecological rehabilitation, channel landscaping and control gate.

Table ES-2: Wuhan New Zone Channel Rehabilitation Component Content Design capacity Channel Channel bottom width Channel (m3/s) length （m） （m） Longkou Channel 10 1337 8 Longxin Channel 10 664 6 Zhujiaxin Channel 10-15 3583 4 Liantong Channel 13-100 5072 23 Zong Channel 26-50 4200 21 Huoyan Channel 105 1600 37 Total 15365

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Sixin Pumping Station. The PS is to be located at the end of the Huoyan Channel for the purpose of transferring storm water runoff into the Yangtze River and protecting this low lying area from flood. Sixin Pumping Station will be designed for an eventual capacity of 105 m3/s to be installed in three phases. The HUEIP phase I investment will provide all the civil engineering structures and an installed pumping capacity of 35 m3/s. 7.6 Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation The Yangchun Lake Secondary Urban Center (YLSUC), located at the north-east side of the Hongshan District in Wuhan City, is identified in the new Wuhan urban master plan as the integrated transportation and service centre of the Beijing-Guangzhou Passenger Dedicated Line - Wuhan Train Station. As a modern transportation hub, YLSUC will become a hot spot of urban development and construction in Wuhan. The Yangchun Lake is one of the key surface water bodies in the YLSUC and is also within the area of the recently approved “Wuhan City Wuchang Area Connection Project”.

The East Lake used to be an important source of potable water for the City of Wuhan. The water treatment plants in the Tuanshan Mountain and East Lake area which all used East Lake as their water source had a daily capacity of 230,000 m3/d. Over time, pollution in the Lake increased and the ability for the East Lake to supply potable water diminished. WMG was forced to implement the “Lake to River” project in 1987 to switch the potable water source from East Lake to Yangtze River. This project cost the government CNY 850 million over the implementation period of 18 years.

Wastewater interception and treatment projects in the last 12 years have reduced the pollution flows into the Lake but have not yet had a major effect in improving the lake’s water quality. WMG now plans follow up investment to restore the lakes water quality to target levels. Yangchun Lake is at the upstream end of the Wuchang Area East Lake system and therefore a priority for rehabilitation and flow improvement. 7.7 Selection of Technical Options and Design on Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Yangchun Lake Rehabilitation. The Wuhan Environmental Monitoring Report for the year 2006, 2007 and 2008 analyzed the water quality of the Yangchun Lake. This component includes sediment dredging, wetland and artificial plant. The detailed data is listed in Table ES- 3.

The Ecological Rehabilitation Solution. The solutions adopted for the ecological rehabilitation includes sediment dredging, artificial wetland construction and aquatic vegetation planting in the Yangchun Lake. This is to rehabilitate the ecological structure of the water ecosystem and to enhance the biological diversity to restore the lake’s ecosystem.

Table ES-3: Yangchun Lake Rehabilitation Component Content Control area Dredging amount Artificial Artificial Lake (mu3) (m3) wetland plant(mu) Yangchun Lake 171 140,000 One 30

Heping Channel Rehabilitation. The Heping Channel is currently classified as a drainage channel. It is a waterway that can play an important role in the overall restoration of the lake system

The planned channel rehabilitation component includes sediment dredging, slope protection, greening, water remediation, storm runoff treatment facilities, bridge and landscaping. The detailed data of the channels is listed in Table ES-4.

3 15mu = 1ha.

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Table 4: Heping Channel Rehabilitation Component Content Channel length Channel bottom width Channel （m） （m） Heping Channel 1400 3-4 7.8 Work Approach Adopted by the PPTA Team

For both lakes and channels components, the PPTA Consultants worked with DI to improve the FSR together. The suggestions include: reduce the sediment dredging amount and the width of channel for rehabilitation. And the dredging capacity should be adjusted based on the actual conditions during the implementation. Education on public awareness for environmental protection is also deemed an effective safe guard measurement to ensure the rehabilitated lakes, channels and their connection with the rivers can be maintained with the designed functions of restoring the surface water’s assimilation ability and improving the water circulation and water quality.

8 Environmental Impact Assessment/Environmental Analysis

The Summary Environmental Impact Assessment (SEIA) is based on the four Chinese EIA Reports prepared by the local EIA Institute. The SEIA and the EIAs meet both ADB and domestic environmental laws, regulations and standards. By end of October 2009, all the EIAs have been approved by HPEPB. The SEIA has been passed the ADB peer review, of which the comments of the peer members have been incorporated into the final SEIA. The SEIA will be published on the ADB Website in early December 2009.

According to the EIAs, the current water quality in the lakes and channels involved in the Project indicates they are seriously polluted, most with quality Grade V or even worse, and there is serious eutrophication of the water bodies.

The major benefits of the Project are to i) provide proper treatment and disposal technologies and facilities for sludge from the existing WWTPs and effectively prevent secondary pollution from the sludge; ii) unblock the silted lakes and channels, enhance water circulation and self- purification, restore ecosystems and the biological diversity of the water bodies; iii) increase real estate values; iv) bring potential benefits from a reduction of greenhouse gases by sludge anaerobic digestion and biogas generation; and v) bring significant benefits of socio-economic development, employment, and public health to more than three million urban residents in the City.

The potential environmental risks of the Project include i) soil contamination and groundwater pollution due to the improper disposal of the dredged silt and the sludge from the WWTPs; ii) water pollution in the Yangtze River due to unsuccessful implementation of the pollution control or poor enforcement of pollution interception measures; and iii) lack of long-term management and maintenance of the improved lakes and channels and relevant ecological remediation measures after the Project is completed.

Since domestic and industrial waste continue to be randomly dumped around the lakes and channels, and domestic and industrial wastewaters are discharged directly into the water bodies, a sound pollution control action plan for both point and non-point sources should be prepared and implemented, and effective and immediate measures should be taken by WMG to stop the illegal activities before the project implementation.

Potential environmental impacts during both construction and operation of each Component have been identified, and corresponding mitigation measures have been developed. Based on

Easen International Co. Ltd. ES - 9 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Executive Summary the findings of the EIAs and the SEIA, the adverse impacts of the Project will be minimized to acceptable levels by implementing an adequately funded environmental mitigation program.

9 Financial/ Least-Cost Analysis

9.1 Cost Estimates The total cost of the Project is estimated at $ 442.7 million, including a foreign exchange cost of $ 100 million (22.6%) and a local currency cost of $ 342.7 million equivalent (77.4%). A summary of cost estimates is in Table ES-5. Detailed cost estimates can be found in the main report and the appendices.

Table ES-5 Project Investment Plan ($ million) Item Total Costa A. Base Costb 1. Sludge Treatment and Disposal 31.1 2. Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station 220.7 3. Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation 94.6 4. Technical Supportc 3.0 Subtotal (A) 349.4 B. Contingencies d 1. Physical Contingencies 34.9 2. Price Contingencies 9.4 Subtotal (B) 44.3 C. Financial Charges During Implementatione 48.9 Total (A+B+C) 442.7 a Includes taxes and duties of $23.8 million before contingencies. b In mid-2009 prices, with an exchange rate of CNY 6.8242 to $1.0. c The training and consulting services budget is estimated at $3 million. Other technical support for project management, construction supervision etc is included within the cost estimates for each component. d Physical contingencies were computed at 10% for civil works, field research and development, training, surveys and studies. Price contingencies were computed based on the domestic and international inflation rates provided by ADB; and then assessed by year and expenditure type based on the cumulative domestic and foreign price inflation. Exchange rate fluctuations are estimated using a purchasing power parity model of adjustment. e Includes interest during construction and commitment charges for the ADB and domestic loans. Interest during construction for ADB loan has been computed at the 5-year forward London interbank offered rate (LIBOR) plus a spread of 0.2%. Interest and commitment charges are assumed to be 3.31% and 0.15% respectively. Note: Totals may not be exact because of rounding. Source: Consultant estimates 9.2 Financing Plan The Government has requested ADB a loan of $ 100 million, about 22.6% of the total Project cost. The proceeds of the ADB loan will be used to partly finance the foreign exchange cost of the Project. It is proposed the loan disbursement percentage will be 67% for civil works, 100% for equipment and technical support during implementation. Counterpart funding will provide about 77.4% of the total Project costs and be used to finance 100% of the local currency costs, and the balance of the foreign exchange base costs and contingency costs. It will be provided by the Wuhan Municipal Government as owner’s equity infusion through the Wuhan Urban Development Capital (WUDC) of $ 110.7 million and WFMO will take a commercial bank loan of $ 232.0 million. The financing plan for the Project is summarized in Table ES-6.

Table ES-6 Financing Plan ($ million) Source Total Costs % A. Asian Development Bank 100.0 22.5%

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B. Wuhan Municipal Government 110.7 25.0% C. Local Bank (Agricultural Bank of China) 232.0 52.4% Total 442.7 100.00% Note: The interest rate and commitment fee of the ADB loan are assumed to be 3.31% and 0.15%, respectively, with a loan period of 25 years and a grace period of 6 years. The interest rate of the commercial loan is assumed to be 5.94% with a repayment period of 10 years and a grace period of 3 years. 9.3 Financial Analysis and Projection Since sludge is a by-product of the wastewater treatment plant, the Sludge Treatment and Disposal Component will generate revenue upon completion, and therefore the financial viability should be demonstrated to ensure sustainable development. The financial cost benefit analysis is undertaken on an incremental basis. The analysis concluded that the FIRR (calculated at 7.4%) exceeds the WACC (3.3%) by an adequate margin to establish the financial viability of the Component. The sensitivity and risk analysis reveals that the FIRR is most sensitive to a variation in revenue. Therefore, timely tariff adjustments or government subsidy will be crucial to ensure the financial sustainability of this Component. Additionally, the financial analysis also calculated the average financial cost (AFC) produced for the least cost option using both sludge volumes and wastewater treatment volumes. The results can be used to help justify the proposed tariff adjustment or subsidy program.

As the WUDDC will be in charge of the operation for the Sludge Treatment and Disposal Component after the construction, financial projections have been prepared for the WUDDC during the project period. A tariff review has also been conducted to evaluate the existing tariff levels, charge structures and policies, to ensure that the proposed tariffs are compatible with achieving the full cost recovery targets for WUDDC’s sustainable development. The detailed pro forma financial statements and financial performance indicators are presented in the Appendices 9.4 Fiscal Capacity Review of Wuhan Finance Bureau (WFB) The Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station Component and Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Component are classified as public infrastructure service components. They will not generate direct financial revenues for the project company. The WMG will contribute equity funding through the Special Fund, which was established at the end of 2008. The WMG will also be responsible for O&M costs after the facilities are put into service and servicing the debts for ADB and Domestic loans when these components enter into the repayment period. Wuhan has a solid foundation of economic development over the last 20 years. It is expected the rapid economic development in Wuhan will continue. Relative to recent years unprecedented growth, a conservative assumption of an annual GDP increase of 12% and an annual increase in Gross Fiscal Receipts of 14.9% was used in the Fiscal Receipts projection. However, Wuhan’s Fiscal Expenditures and debts have also increased significantly during the past five years, consistent with the City’s dramatic economic and social development. A close analysis shows that the fiscal expenditure in the percentage of gross fiscal receipts has gradually reduced, which means that the Wuhan Municipal Fiscal Expenditure is in well controlled. The assessment of the Special Fund reveals that the government infrastructure projects including the Project are budgeted for in detail and well planned. Overall, the annual total contribution of the WMG through its WUDC will amount to less than 5.4% (ranging from 1.4%-5.4%) of WUDC even during the peak period. Therefore, Wuhan has sufficient fiscal capacity for the project implementation.

9.5 Financial management Effective financial management is a critical factor for the projects successful implementation. The FMA has been conducted to assess the financial management capacity of the WPMO and the IA (WFMO), including funds flow arrangements, staffing, accounting policies and

Easen International Co. Ltd. ES - 11 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Executive Summary procedures, internal and external auditing arrangements, reporting and monitoring aspects, and financial information systems. Both the WPMO and WFMO have rich experience in managing WB and ADB projects, and are well prepared for the tasks required to implement the ADB funded Wuhan Urban Environmental Improvement Project. However, the following points are raised for further discussion and improvement: (i) financial management arrangement between WPMO and WFMO; (ii) additional training, including the construction management companies; and (iii) improvement in the disbursement procedure. 9.6 Conclusion and recommendations The Wuhan Sludge Treatment and Disposal subproject is financially viable. The proposed tariff will ensure WUDDC’s sustainable development. The financial viability of the Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station Component and Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Component has been confirmed by the economic analysis. WMG has adequate fiscal capacity to support the construction and operation of the proposed components. The WPMO and WFMO have adequate financial management capacity to implement the Project.

The tariff review reveals the wastewater tariff is not sufficient to reach full cost recovery for the whole Wuhan city. With the proposed wastewater tariff, there is still a funding gap. Therefore, the Wuhan Municipal Government needs to start to implement the tariff increase at CNY 1.20/m³ in mid 2010. Meantime, it needs to commit that full amount of wastewater tariff to be transferred to the WUDDC for its solely utilization. Additionally, a government subsidy program should be developed to ensure adequate funding support for the O&M of the Project.

10 Economic Analysis The main purpose of the economic analysis is to justify the Project from an economic perspective. Benefits from the project are identified and efforts to quantify the economic value of these benefits have been made. Quantifiable economic benefits are then used in an EIRR calculation to confirm the economic justification of the Project.

The main quantifiable economic benefits for Sludge Treatment and Disposal Component include: z the land savings computed from prolonged life of landfills due to reduced amount of sewage sludge disposal; z landfill operation cost savings (incremental); z fertilizer savings from applying sludge as urban forest soil amendment; z traditional fuel savings from using biogas generated from treatment process for heating; z and climate change alleviation due to methane-rich biogas collection and incineration.

The main quantifiable economic benefits of the Wuhan New Zone Lake/Channels Rehabilitation Component and Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Component include: z Land and real estate value appreciation as a proxy of residents’ willingness-to-pay for the project; z Health benefits from reduction of morbidity and mortality of waterborne carcinogenic and non- carcinogenic diseases for nearby residents; z Recreation and pedagogical value of wetland parks for residents.

The Lake/Channel Rehabilitation Component also boosts the local economy by contributing to more employment from service and tourism industry boom, as well as incremental GDP and FDI inflow to the region. However existing literature does not offer mature quantification methods for such benefits.

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Benefits for the Sixin Pumping Station Component include avoided property damages and reduced risk of loss of life. Alternatively, avoided losses can be categorized into direct and indirect losses where there are tangible and intangible losses in both categories. Detailed methods are provided in the report.

The least cost analyses (LCA) of the economic analysis reviews and evaluates the technical options proposed by the prefeasibility studies and confirms that the project components are the least-cost options in support of Wuhan’s long term development plans;

The NPV for the whole Project is estimated as CNY1,107 million and the base case EIRR for the whole project is 20.48%, which exceeds the EOCC. Sensitivity analysis shows that the EIRR will fall to (i) 14.27% if benefits fall by 20%; (ii) 17.42% if operating costs increase by 20%; (iii) 17.25%% if the investment is delayed by one year; (v) 12.01% if (i), (ii), and (iii) all occur together. Residents gain most from the benefits since the Project does not levy any financial burden on them. Distribution analysis indicates that the Project is pro-poor in nature as the poverty impact ratio is 10.09%.

11 Poverty and Social Assessment (PSA) The Project will be implemented in Hanyang and Hongshan districts. is also potentially impacted because it located downstream of the component of the Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station. In addition, small parts of Jiang’an, Qingshan districts are involved in the Project.

The Project area of Hanyang, Hongshan and Wuchang districts has 698.5 square kilometers, 701,300 households and population of 2,618,000 in 2007, including 27,800 ethnic minority people, 27,483 poor households, accounting for 3.92%, 65,417 poor persons, accounting for 2.5% of the total population, and 1,234,000 female residents, accounting for 47.31% of the total population.

In Wuhan City, the average number of persons per household was 2.88 persons in 2007. The average number of employed per household was 1.50 persons. The persons supported by each employed person were 1.92 persons. The average number of retired persons per household was 0.69 persons. The average number of persons supported by each person who has income was 1.29. The average income per capita per month was CNY1,196.5, while the average consumption expenditure per capita per month was CNY883.3. The urban registered unemployment rate was 4.2%. There are no street communities or villages with concentrations of ethnic minority people in the project area. The minority people who live in the area are dispersed and have no differences in living standards from the majority Han people, according to the Wuhan Nationality and Religious Affairs Committee.

Environmental improvement will reduce the incidence of diseases of family members which will reduce the time spent by women caring for sick family members. 60.3% of participants of the PPTA household survey thought that the proposed Project will benefit them in saving homework time, health improvement, and job creation, while 36.2% are not sure what the impacts of the Project will be on them. 86.2% of participants are well aware of the special policies made by local governments for women in promoting employment and improving health. 94.8% expressed their willingness to participate in the Project consultations if they had such opportunities. 100% of participants believed that the local women’s federation and community committees can assist them in job hunting.

Improvement of the employment situation through increasing employment positions and promoting re-employment of laid-off employees is the best way to solve urban poverty. In 2007

Easen International Co. Ltd. ES - 13 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Executive Summary in Wuhan, the number of workers available for work increased by 28,000 to reach a total of 1.485 million. The new employment of the urban residents was 0.138 million, while the re- employment of the laid-off workers was 64,000. In addition, 64,600 of ex-floating rural laborers were transferred to work in the City.

Employment will be generated during the project construction and in the operation of project facilities. According to the FSRs, about 3,245 full time positions with a total gross income of CNY143 million during the project construction (3 years) will be generated by the Project with 38,935 person-months input in total, while during the operation phase, 144 full time positions with CNY7.722 million annual gross income will be generated directly by the Project. In addition, about 1,841 positions with CNY77.335 million gross income will be generated indirectly by the Project per year.

A community participation and public awareness action plan and a social development action plan have been prepared in order to maximize the positive impacts and minimize the negative impacts of the Project on people in the project area. It is proposed that comprehensive monitoring be conducted during the project construction to ensure that the Project fulfils its aims and objectives. 12 Land Acquisition and Resettlement 12.1 Current Status The EA for Project is WMG as represented by WPMO. The Resettlement Department of the WPMO and the Involuntary Resettlement Research Center (IRRC) of the confirmed the affected areas and conducted quantitative analysis and a socio-economic survey. Two full resettlement plans for Component II and III and a due diligence report for land acquisition and resettlement of Component I have been prepared. The PPTA Consultants have noticed that the daily production and living activities of affected people whose land were acquired have already recovered.

12.2 Project impact 2 districts, Hongshan District and Hanyang District, are directly affected by the Project, involving 3 street committees and 16 villages. The total area of demolition is 158,493 square meters with the total of 376 affected households (AH) and 1,365 affected people (AP). The private housing demolition area is 126,536 square meters. There are 22 affected enterprises and institutions with a demolition area of 31,957 square meters with 14 affected shops involving 33 employees. The total area of land acquisition is 3, 423.55 mu, consisting of 673.59 mu of collectively owned lands and 1,233.2 mu of state-owned lands, and including 127.4 mu of agricultural land and 51.65 mu of fish pond which affect a total of 53 rural households and 180 APs. An additional 18 mu land for Component I has already been acquired by the IA during earlier projects. The land comprises three pieces of land that is located within the boundary of three WWTPs. There is 555.60 mu of land that will be used for the temporary land acquisition. There are 5 households (13 people) from vulnerable groups affected by the Project. The affected facilities include 380voltage of 1,124 lighting poles, and 13 high voltage (220kv) transmission line towers. To avoid or reduce the negative impact of land acquisition, the optimal option was selected through comparing different options in the feasibility study report, taking into account factors such as the economy, immigration and resettlement etc.

12.3 Policies and regulations The preparation of the land acquisition and resettlement plan is in compliance with the Land Administration Law of the People's Republic of China (2004); Law of the People's Republic of China on Administration of the Urban Real Estate (put into effect on 1st January 1995);

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Regulations regarding the administration of urban housing removal (put into effect on 1st November 2001); Guidelines regarding urban housing removal estimation, and other applicable guidelines. It is also based on local policy on land acquisition and resettlement in Hubei Province and Wuhan City, and is in line with the ADB policy regarding involuntary resettlement and the related social security policy requirements. Principles of land acquisition and resettlement in the Project have been set and presented in the land acquisition and resettlement analysis section of this report. The resettlement entitlement matrix has been prepared based on those principles to ensure the distribution of compensation and proper implementation of the resettlement plan.

12.4 Compensation Standard The Project has established the compensation standards for collective land acquisition, state- owned land acquisition, temporary land acquisition, house demolition on the collective land, property demolition on state-owned land, shops property demolition, unauthorized housing and the Special support policy to vulnerable groups.

12.5 Organization The Wuhan PMO will take full responsibility for the resettlement and relocation implementation as per the approved “Resettlement and Relocation Plan”. The WFMO will be the project owner and will be in charge of declaring the Project and resettlement related planning and land acquisition procedure, including obtaining the necessary approvals. The WFMO will also be responsible for fund raising and the distribution of the resettlement and relocation capital. The WPMO will be in overall charge of the actual resettlement implementation work, including the social-economic studies, negotiating with the affected villages and farmers, signing the compensation assistance agreement, handling the related procedures, establishing the compensation standards, compensation funding distribution and resettlement livelihood restoration. 12.6 Consultation, Complaints, Appeals and Information Disclosure It is necessary to seek public involvement, consultation and to share public information during the project preparation and the implementation stages in accordance with the national, provincial, municipal and ADB regulations and policies for resettlement and relocation. Details of consultations undertaken are provided in the RPs. By December 2009, the WPMO will prepare and release a resettlement information guide to every affected household which will contain information such as project affected area, proposed land acquisition and relocation implementation progress and procedure, compensation standards for land acquisition, relocation assistance, livelihood restoration strategy and the complaints handling system.

12.7 Monitoring and Evaluation A detailed plan for both the internal and external monitoring and evaluation is included in the “Resettlement Plan”. The WPMO will submit an internal monitoring report semi-annually to ADB. Furthermore, the WPMO will employ an external resettlement monitoring institute or firm to establish an independent external monitoring and reporting system. .

12.8 Budget The current budget for the project resettlement is estimated at CNY 1.186 billion. The WMG will guarantee the availability of the necessary funds for the resettlement and undertake to cover any shortage of funding that might occur during the resettlement process. 13 Institutional Analysis and Capacity Building

13.1 Sector Arrangements

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The institutional analysis for the proposed project included a PRC sector level analysis as well as arrangements that apply for water sector management in Wuhan and specifically for WUEIP implementation. Based on the findings of the institutional analysis and the findings of a review of previous capacity building initiatives, an outline program of capacity building has been designed for the Project. WMG has adopted a modern and integrated approach to water sector management by the creation of a Water Bureau, which is a departure from the traditional institutional model, and represents best Chinese practise in city level water management. Current institutional arrangements at the national and Wuhan city level have been fully documented. 13.2 Project Implementation Arrangements The arrangements for project management during both the construction and operations phases of the Project have been reviewed in detail. The arrangements proposed for the construction phase broadly follow the approach used for most PRC ADB funded projects and give continuity from the earlier WWMP and WWSMP. However, there is no potentially significant difference as it is proposed a single IA (the WFMO) will be the sole implementing agency and that Wuhan Urban Drainage Development Company (WUDDC) as the main wastewater service provider will not be the IA for the sludge component. After careful consideration the PPTA believes the implementing arrangements proposed by WMG should be accepted, but that suitable assurances need to be provided over future sector cost recovery and also to ensure WUDDC expertise and experience is fully utilised.

The arrangements proposed for the operations phase are that WUDDC would assume responsibility for the management and operations of the sludge component facilities, whilst the O&M responsibilities for the lakes and channels sub-components would be assumed by local Water Bureau at District level. These arrangements are consistent with existing institutional arrangements and are acceptable provided appropriate capacity building is provided. 13.3 WPMO Capacity and Staffing WPMO is a relatively small organization, but has extensive experience in ADB project implementation. Discussions have concluded that staffing levels are adequate assuming there is suitable consulting support and training provided to new staff. 13.4 Procurement Capacity Assessment An assessment of procurement capacity has been undertaken and the results have been documented. Based on the arrangements identified, and the previous procurement record of WPMO, it is concluded that procurement capacity is adequate to ensure full compliance with ADB guidelines. 13.5 Review of Previous Capacity Building The feedback from the results and experience gained during earlier capacity building has included the following lessons of potential relevance to WUEIP: • Project consulting services have not always been efficiently utilized. • PMO supervision needs to be reinforced • Effectiveness of consulting services has been compromised by poor terms of reference. • Capacity building must be relevant to recipients and they must be fully consulted in its design. • Capacity building needs to respond to policy developments rather than anticipate them. • Implementation of institutional reforms is a lengthy process and difficult to achieve except where the reforms in question are part of a government sponsored reform program. • Full compliance with some loan conditions has proved impractical; • Construction plans have not always been implemented in a timely way; • Poor cooperation among the various government agencies has created difficulties and delays; and

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• Management experiences from ADB projects cannot necessarily be applied in other similar projects. 13.6 Proposed WUEIP Capacity Building Component Resulting from the analysis of capacity building needs and consultation with WPMO the scope of the capacity building component is defined as including: • Support of project implementation; • Training in O&M for existing WWTPs to improve the performance of WWTP processing units, including their sludge handling facilities; • Control and mitigation of point source and non-point source pollution in the Project’s service area; • Education the young generation of Wuhan residents on environmentally friendly and energy efficiency practices; • Preventive actions and policy development for community health awareness; and • Urban surface water management in Hanyang district 13.7 Private Sector Participation WMG actively supports the use of PSP in appropriate circumstances and subject to national policies and guidance. Three BOT contracts for WWTP construction and operations have been let, although one contract was subsequently foreclosed and the WWTP concerned (Tangxunhu WWTP) is now managed by WUDDC.

The WUEIP has been designed from the outset as a public sector project and timescales have not permitted a strategic change in approach to the implementation, however PSP opportunities in the form of service and/or management contracts may be appropriate to enhance efficiency. This will be further explored during the implementation phase as part of the capacity building. 14 Policy Dialogue Improving the urban environment in Wuhan is crucial to achieving and sustaining the municipality’s medium- to long-term development objectives. Discussions with the Wuhan Municipal Government (WMG), Wuhan Urban Construction Utilization of Foreign Fund Project Management Office (WPMO) and relevant municipal agencies, together with reference to specific national People’s Republic of China (PRC) policy documents, reveals a favorable set of Government policies in support of the Project and the establishment of institutional arrangements that can provide for project sustainability. The Project will build on and continue policy dialogue with the Government on: z Integrated urban development and environmental management; z Wastewater management; z Sludge treatment and disposal; z Point source and non-point source control, their monitoring and enforcement; z Integrated water resources management, wetlands operation and monitoring; z Cost recovery and tariff reform; z Governance and anti-corruption; z Private sector participation (PSP); z Community environmental and health awareness; z Climate change adaptation; and z Circular Economy approach and 3Rs policies (resource Reduction, Reuse and Recycling).

The policy dialogue with WMG, implementing agencies (IAs) and other stakeholders has helped improve the design and the anticipated benefits of the Project and created a solid foundation for the ADB loan implementation. 15 Project Design and Monitoring Framework A project design and monitoring framework (DMF) defines how the success of the project should be assessed and measured. As the WUEIP is a follow-on project to the WWMP and

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WWSMP, it’s logical that some of the performance targets for the three projects should be similar and that there should be a degree of continuity and consistency in the project performance monitoring arrangements. A unified DMF has been prepared in draft in accordance with ADB guidelines. The current version of the DMF reflects consultations with WPMO and is updated based on the Draft Final Report version.

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SECTION 1 INTRODUCTION

1.1 Introduction

This is the Final Report (FR) for the ADB TA 7177 Wuhan Urban Environmental Improvement Project (WUEIP or “the Project”). The report is presented in accordance with the requirements of the contract, dated 29 April 2009 between the Asian Development Bank (ADB) and Easen International Co., Ltd. (Easen), the appointed PPTA consultant (the Consultant).

The ADB notice to proceed was issued on 04 May 2009 and Easen undertook initial mobilization in Wuhan on 11 May 2009. An Inception Report was submitted on 18 June 2009 and an Interim Report was submitted on 22 August 2009. The ADB Inception Review Mission was held during 23 June to 3 July 2009, the Interim Review Mission was held during 18 to 28 August 2009, and the Fact Finding Mission was held during 21 October to 6 November 2009.

This FR describes the overall progress in the design of the Project with particular emphasis on activities undertaken since the Interim Review Mission. Relevant findings are highlighted and recommendations are made.

1.2 Objectives of the PPTA The PPTA is to assist the Wuhan Municipal Government (WMG) to (i) identify the most environmentally sustainable infrastructure to improve the quality and the efficiency of the urban development; (ii) support and enhance the development of a new ecological urban area; (iii) prepare a feasibility study for each project component; and (iv) prepare an integrated municipal infrastructure project, including environmental impact assessments, social analyses, and Resettlement Plans (RPs) in accordance with ADB policy and guidelines. The PPTA will also identify institutional capacity building measures in urban environmental management and policy reforms to ensure the sustainability of the Project and the related facilities.

The outcome of the PPTA will be a project design and feasibility study improved to a level suitable for ADB financing and agreed by the Government and ADB. The Project will also provide institutional development and capacity building measures in municipal infrastructure and environmental management, as well policy reforms to ensure the sustainability of the Project and related facilities.

1.3 Summary of Activities to Date

Activities have been undertaken by the PPTA team to date: y Completion of the inception, interim and final phase activities, including the set-up of the PPTA field office, including all logistics. y Detailed review and advice for improvement of key domestic documents including (i) the pre-feasibility studies; (ii) the feasibility studies (FSRs); (iii) the environmental impact assessment reports (EIAs); and (iv) the resettlement plans (RPs). y Preparation of drafts of specialist outputs including (i) the SEIA(with integrated environmental management plan(EMP); (ii) draft summary Resettlement Plan;; (iii) the Social and Poverty assessment and Social Development Action Plan; and (iv) a Procurement Plan and procurement capacity assessment;

Easen International Co. Ltd. 1-1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 1 Introduction y Detailed technical, economic, financial and institutional analyses of the proposed project have been performed using relevant ABD guidelines. y Meetings and informal workshops with the local PMO staff to discuss general condition of the project, introduce the PPTA procedure and requirements and the approach of the PPTA for the project y Assessing the status of government approvals, the, anticipated loan effectiveness date, and preparation of detailed implementation plans based on these. y Various formal and informal discussions at the working level between the PPTA team, WPMO, the IA, WUDDC, and the DI as well as the local counterparts to develop the sludge treatment options, verify the technical aspects of the project and improve each project component regarding technical, environmental, financial, economical, social, resettlement and institutional aspects. y Finalized the sludge treatment and disposal option for the Wuhan Municipality in a day- to-day working approach with the DI. y A workshop on modern sludge treatment methods and their potential application in Wuhan. y Performing a financial management assessment on WPMO and WFMO. y Phased development of the project Design and Monitoring Framework in consultation with stakeholders and ongoing policy dialogue. y Meeting with local university water modeling expert to review the existing water modeling results and explore future water modeling needs for the Project. y Regular site visits have been made to the project areas, and meetings held to collect and verify information.

1.4 Implementation Arrangements

The executing agency (EA) is the Wuhan Municipal Government (WMG), represented by Wuhan Urban Construction Utilization of Foreign Investment Project Management Office (WPMO). A Project Leading Group (PLG) has been formally established for previous ADB projects and the same PLG has been assigned with the role of overseeing the preparation and implementation of this new ADB project.

The PLG group is led by a Vice Mayor of WMG. The PLG members include high level officials from the Wuhan Municipal Finance Bureau (WFB), Development and Reform Commission, Construction Commission, Environmental Protection Bureau, Planning Bureau, Water Bureau, Price Bureau, Audit Bureau, Land Resources and Housing Management Bureau, involved District Governments, and key officials of the IA and WPMO. The PLG has delegated responsibility for project planning and management to the WPMO, which has the status of an administrative office under the direct leadership of the PLG. WPMO is authorized to deal with all project related matters, including finance, administration, technical and procurement matters, as well as monitoring, evaluation and safeguards compliance.

The Project Implementing Agency (IA) is the Wuhan Urban Construction Fund Management Office (WFMO). WFMO has implemented parts of the ADB financed Wuhan Wastewater and Stormwater Management Project (WWSMP) and is also the implementing agency for the World Bank funded Wuhan Urban Transport Project.

Easen International Co. Ltd. 1-2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 1 Introduction

WFMO is a government agency responsible for financing and implementing public projects that cannot be implemented on a commercial basis. Most non-revenue generating urban construction projects are therefore implemented via WFMO.

The implementation arrangements are shown in Figure 1-1 WMG Project Implementation Arrangement Chart

Asian Development Loan PRC State Bank Agreement Government

Hubei Provincial Government Project Agreement Wuhan Municipal Government (Executing Agency)

Project Leading Group Implementation Support Advice and Monitoring Local Design Institutes, Project Consulting Services WPMO Management Companies, Construction RP Monitoring Institute Supervision Companies, Resettlement Auditing Bureaux Agencies and others as required

Wuhan Urban Construction Fund Management Office (WFMO) (Implementing Agency)

Wuhan Urban Hanyang District WuchangDistrict Drainage Water Bureau Water Bureau Development Co (Operation Unit) (Operation Unit) (Operation Unit)

Easen International Co. Ltd. 1-3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 2 Project Description

SECTION 2 PROJECT DESCRIPTION

2.1. Project Rationale

Wuhan, the capital of the Hubei Province, ranks fifth among PRC cities for its size and its economic production. It is one of the biggest cities in the central and western regions of the PRC. In 2008, the municipality had a population of approximately 8.7 million, including more than 6 million inhabitants living in the urban core area. It is located on the Jianghan plain at the confluence of two main rivers, the Yangtze River and the Han River. Some 3.5 million people reside in its dense inner urban core (360 km2; 9,700 inhabitants per km2). Wuhan’s urban area is divided into three parts (Hankou, Hanyang, and Wuchang) by the Yangtze and Han rivers. Rivers and lakes are abundant (rivers and lakes surface take up about one quarter of the urban area) in Wuhan, which have largely determined the urban landscape and development of the city.

To address Wuhan’s lack of adequate wastewater management and water resources protection, WMG is working on implementing the municipality’s strategic wastewater master plan for long term compliance with national environmental targets and to treat 85% of wastewater by 2010. The ongoing ADB-funded Loan 1996-PRC: Wuhan Wastewater Management Project (WWMP) approved in 2003 and Loan 2240-PRC: Wuhan Wastewater and Stormwater Management Project (WWSMP) approved in 2006, along with the previous World Bank and bilateral-assisted wastewater treatment projects, are all key elements of the City master plan. As a result of these combined efforts, 80% of the wastewater is currently treated, which is a great improvement compared to the 27% treatment rate in 2004.

While Wuhan has made significant improvements in its wastewater collection and treatment, it is now faced with another associated environmental challenge—treating and disposing of the sludge from the WWTPs. The amount of sludge generated by WWTPs1 has increased significantly, posing a large environmental challenge to Wuhan, as well as other PRC cities. Since Wuhan is fairly advanced in the establishment of wastewater collection and treatment facilities, and is one of the five biggest PRC cities, it feels the pressure from the sludge challenge most acutely. There is an urgent need for a comprehensive and efficient solution to sludge treatment and disposal to release the pressure on urban land and the already overloaded and sprawling landfills.

Unchecked urbanization in the last 20 years has also significantly restricted the natural flow of urban lakes and streams, which prior to that served the purpose of flood alleviation. The combined action of pollution and silting due to urban activity and construction has blocked the hydraulic circulation of many urban channels and lakes and degraded water quality within the city lake systems. The lakes' water quality is currently measured at class IV, V or worse based on PRC standards for surface water bodies. It is a key ecological and social issue to restore water quality and the circulation of lake systems to ensure environmental sustainability in both the new and old urban areas of Wuhan. Climate change will also further exacerbate flood hazards. There is a need for comprehensive and integrated urban water resource management to restore and improve urban water flows and their environmental carrying capacities.

The proposed Wuhan Urban Environment Improvement Project (WUEIP) therefore has a strong rationale both in terms of urban development and environmental context. It follows and complements the two previous ADB projects. The proposed project complies with the two main development agenda of "environmentally sustainable growth" and "inclusive economic growth" promoted in ADB's Strategy 2020. It is in line with and supports PRC's Country Partnership Strategy (2008-2010): promoting efficient infrastructure, strengthening

1 657 tons per day according 2008 statistics.

Easen International Co. Ltd. 2-1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 2 Project Description environmental management, supporting inclusive growth, and balanced development. It also directly supports the achievement of Millennium Development Goal 7 by ensuring the environmental sustainability of urban development in the City. The proposed Project is part of the key Wuhan master plan priorities in terms of sanitation, environment improvements, and urban development. The Project will also contribute to establishing Wuhan City as a model PRC city for sustainable development.

According to the city's original master plan, the disposal method of sewage sludge is to transport the dewatered sludge to a landfill site. However, this is no longer sustainable due to the high water content and volume of the sludge which causes operational problems at the landfills and takes up scarce landfill capacity. . The proposed Project is tasked with treating sludge from six of the eleven Wuhan WWTPs. Initially, the project sludge treatment facilities will accept sludge from four WWTPs and another two more during project implementation. Three of these WWTPs were built under the ADB-funded WWMP 2 and WWSMP3. The challenge is to treat and dispose of the massive quantities of sludge in an economically and environmentally sustainable manner. One of the options considered was to develop a centralized facility using incineration or co-incineration as a volume reduction method. However, ADB is promoting sustainable urban environmental development which is responsive to climate change pressures as well as the 3Rs approach of reduce, reuse and recycle. The Project will accordingly address sludge volume reduction and reuse. While sludge incineration or carbonization might be another option under consideration by PRC urban planners, they do not reflect the environmental policy of ADB and its climate change agenda. Sludge drying, and in particular, sludge digestion are fully in line with ADB policies and is also recognized by the PRC as a sustainable option.

During project preparation, available alternatives for sustainable and reliable sludge treatment and reuse were studied to avoid negative impacts on the environment and global warming. The key elements of the Project's sustainable sludge management component are: (i) a strategy or plan to manage the sludge in an environmentally responsible and socially acceptable manner; (ii) promotes recovery, reuse, and recycling of resources; (iii) ensures that harmful materials are not transferred to the environment without proper safeguards; and (iv) cost effectiveness.

The creation of healthy water systems in Wuhan will allow urban expansion in flood safe and environmentally clean areas to support the city's sustainable development. In the Hanyang District, the Project will allow a new urban development area around the lakes and channels to be constructed. The new urban district will accommodate more than 400,000 new residents by 2020. The Project will alleviate urban pressures in the densely populated downtown areas and develop a model of sustainable urban development.

For these reasons, WMG has requested for a third ADB loan to support the WUEIP. The expected ADB loan will be USD 100 million while the total estimated cost of the WUEIP is USD 442.7 million.

2.2 Project Impact, Outcome and Benefits

The Project aims to: (i) improve and ultimately solve the current problem of sludge treatment, and (ii) improve the environment and infrastructure of two lakeside urban areas. This Project is expected to benefit more than 3 million urban residents through the improvement of living conditions, public health standards, and the urban environment of Wuhan municipality. In addition, the Project aims to (i) properly treat and dispose of the sludge from wastewater treatment plants; (ii) reduce pollution, improve the management of surface water sources

2 Sanjintan WWTP. 3 Nantaizi WWTP and Huangpulu WWTP.

Easen International Co. Ltd. 2-2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 2 Project Description and rehabilitate lakes and channels in two newly developed areas; and (iii) eliminate flooding and other hazards associated with poor drainage.

2.3 Brief Description of the Project Components

The Project consists of four components (i) Wuhan Sludge Treatment and Disposal, (ii) Wuhan New Zone Lake/ Channels Rehabilitation and Pumping Station, (iii) Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation, and (iv) Institutional Strengthening and Capacity Building.

Table 2-1 Contents of Wuhan Urban Environmental Improvement Project Subproject Cost Description $ million A. Sludge Treatment and Disposal 30.53 1. Wuchangnan STP 40 tons DS/day of domestic sewage sludge from Tangxunhu and 11.38 (at Tangxunhu Longwanzui WWTPs WWTP) Belt Drying process using Gaoxin Heat and Power plant steam. Sludge disposal: Soil conditioners, filling material. 2. Hankou STP 20 tons DS/day of domestic sewage sludge from Sanjintan and 7.43 (at Sanjintan WWTP) Huangpulu WWTPs Biogas collection system from two anaerobic digesters at Sanjintan WWTP Belt drying system using the collected biogas, Sludge disposal: Composting, soil conditioner, earth fill. 3. Nantaizihu STP 10 tons DS/day of domestic sewage sludge from Nantaiihu WWTP 1.35 (at Nantaizihu Lime Stabilization Plant WWTP) Sludge disposal: Tang Mountain rehabilitation as soil conditioner, earth fill. 4. Equipment Improvement for Sludge Dewatering, Storage and Transportation Sludge handling units, transport vehicles and other items 4.1 Sludge transport vehicles 2.58 20 Vehicles with tankers 4.2 Routine Sludge Analysis instruments at WWTPs and HQ of WUDDC, 0.32 4.3 Sludge silo For dewatered sludge storage at Longwangzui WWTP, 3.54 Sanjintan WWTP, Nantaizihu WWTP 4.4 Upgrade of existing Sludge Dewatering facilities at Longwangzui 3.94 WWTP Plate and frame filter press at Longwangzui WWTP. B. Wuhan New Zone Lakes and Channels Rehabilitation 117.39 1. Longyang Lake Dredging 250,000 m3 , including three artificial wetlands area: 413 mu, Rehabilitation aquatic plant area: 868.5 mu, artificial plant area 48 mu. Tang 19.18 Mountain rehabilitation by afforestation 110,000 m2. 2. Moshui Lake Dredging 272,800 m3. including three artificial wetlands 331.5 mu; Rehabilitation aquatic plant area 2313 mu and artificial plant area is 81.6 mu . 14.57

3. Nantaizi Lakes Dredging: 225,000 m3. including (1) artificial wetland 13.5 mu; aquatic 9.57 Rehabilitation plant area 2059.5 mu and artificial plant area 96 mu. 4. Longkou Channel Length: 1337 m. including greening, walk-way path, landscaping. Rehabilitation 1.51

5. Longxin Channel Length: 664 m. including greening, additional vegetation and walk-way Rehabilitation path. 0.71

6. Zhujiaxin Channel Length: 3583 m. including greening, additional vegetation and walk- Rehabilitation way path. 4.01

7. Liantong Channel Length: 5072 m. including greening, landscaping , 2 control structures. Rehabilitation 17.43

8. Zong Channel Length : 4200 m. including greening, walk-way path and landscaping.. Rehabilitation 6.93

9. Huoyang Channel length: 1600 m. including greening and landscaping . 8.19 Rehabilitation

Easen International Co. Ltd. 2-3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 2 Project Description

Subproject Cost Description $ million

10. Sixing Pumping 35 m3/s capacity at beginning, further expended to 105 m3/s. 35.29 Station C. Yangchun Lake Secondary Urban Center Lake/ Channel Rehabilitation 29.33 1. Yangchun Lake Dredging : 140,000 m3. including (1) artificial wetlands 380 mu; aquatic Rehabilitation plant 80 mu and artificial plant area 30 mu. a storm runoff treatment 27.34 facility and transportation vehicles for operation and maintenance. 2. Heping Channel length: 1400 m, includes aquatic plant, greening, walkway, 3 bridges. 1.99 Rehabilitation D. Institutional Strengthening and Capacity Building 3.00 1. Loan Implementation Design review, bidding document review, institutional and financial Management strengthening and construction management etc 1.10 Consulting Services 2. Wastewater Performance improvement for existing WWTPs, sludge technological Operation and support, training for sludge operation and maintenance, sludge quality maintenance monitoring, and strengthening WUDDC's capacity for corporate 0.85 Improvement and development Sludge Management Supports 3. Urban Surface Water Application of WQM for analytic study for point pollution and non-point Management and pollution sources control, quantified and qualified approaches for 1.05 Public Awareness sustainable urban surface water management and public awareness Program program, trainings and knowledge products dissemination Cost in Total 180.26 (A+B+C+D) STP = Sludge Treatment Plant, DS= Dried Sludge or Dry Solids, 1 mu = 667 m2 , km = kilometer, m3 = cubic meter, WWTP = wastewater treatment plant.

2.3.1 Sludge Treatment and Disposal

There are currently 11 WWTPs in Wuhan urban area. These WWTPs have a total designed wastewater treatment capacity of 1.7 million tons per day, providing wastewater treatment for more than 4.2 million people living in the urban areas, representing 48.3% of the total population of Wuhan municipality (based on 2008 yearbook). Current sludge quantity in Wuhan urban areas is estimated to reach 657 tons per day that contains 20% dry solid. The ratio of industrial wastewater to domestic wastewater received by these WWTPs varies, and therefore, the WWTP sludge characteristics will also vary, potentially requiring different approaches for sustainable sludge treatment and disposal.

While the construction WWTPs in Wuhan has reduced pollution in some of the local rivers and lakes and contributed to the overall pollution reduction in the Yangtze River Basin, the amount of sludge generated has also increased significantly in proportion. The reality is that the construction of WWTPs had the primary purpose of achieving required effluent discharge standards to surface water bodies, and inadequate attention was given to sludge management. For example, our investigation shows that in Wuhan, the current capital investment related to sludge management (mainly thickening and dewatering) is in the range of 10~20% of the WWTP’s total investment. For Sanjintan WWTP as an exception, it reaches as high as 35% due to the additional anaerobic digestion system installed. In general, the sludge management related investment is much less than that found in developed countries. Without stabilization treatment of sludge to reduce the organic content, the sludge is highly septic and can easily develop a foul smell, especially in the initial treatment process, such as in the sedimentation tank and the sludge dewatering facilities. In addition to competing for landfill space for disposal, sludge contains large numbers of bacteria, parasite eggs and viruses that could also easily lead to the spread of infectious diseases when it is randomly discarded and exposed to the public. This environmental challenge to Wuhan has created an urgent need for a comprehensive and efficient approach to sludge treatment and disposal in Wuhan.

Easen International Co. Ltd. 2-4 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 2 Project Description

2.3.2 Lakes and Channels Rehabilitation

Before the start of urbanization, the Wuhan lakes system was part of a complex system of waterways connected to the Han and the Yangtze Rivers, within a vast flood plain zone which covered Wuhan and the surrounding area (Jianghan Plain). Agricultural activity and the human settlement have reshaped the area but many of the original water bodies still exist. However, with the recent urbanization process in Wuhan Metropolitan area, these lakes keep disappearing. Of approximately 100 lakes which existed in the middle of the 20th century, only 38 currently still exist in Wuhan City. These lakes were a natural part of the ecological system that allowed necessary water circulation in the area and that also sustained the healthy condition of the lakes themselves4. The intensification of peripheral market garden agriculture, the increase in urban construction and the lack of consideration for the environment during the last thirty years have led to an alarming alteration of the natural circulation system, with some sections becoming blocked altogether. This is harmful to both the existing urban districts of Wuhan and also to the sustainability of new urban development. The current urban environmental conditions in some areas of the city are very poor.

At present, the Hanyang and Wuchang Districts face severe pollution of their lakes and channels (most fail to meet class V). This has severe consequences for the urban environment and public health. This pollution has occurred despite recent attempts to intercept and to treat wastewater, and improve storm water drainage in the area. The initiatives to address point and non-point sources pollution need to be augmented with a comprehensive scheme for urban water resources management. This shall include the rehabilitation of natural water circulation in the lakes and restoring their hydraulic, flood retention and pollution assimilation capacities.

To address this situation, the Project will unblock the channels connecting the lakes, dredge the silted lakes and channels, support the re-creation of wetlands and provide the systems for water regeneration and circulation. Two lakes and channels components are proposed within the Project being Wuhan New Zone Lake/ Channels Rehabilitation and Pumping Station, and Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation. Each is briefly described below.

Wuhan New Zone Lake/ Channels Rehabilitation and Pumping Station

The proposed project components in the Hanyang area involve three lakes that are part of the “Six Lakes Connection” project. This project has been well studied and approved by the local as well as central government. The Hangyang area is being planned as the Wuhan new urban center. The three lakes chosen for ADB financing are Longyang, Moshui and Nantaizi lakes. The current water quality of these lakes is classed as worse than Class V.

The Sixin Area in Hangyang has a lowest elevation of 17 m above sea level. This is much lower than the yearly average flood level of 26.03 m. The rain catchment area of Sixin Area is quite significant at 37.9km2. Storm water drainage is the key issue in the Sixin area. This issue presents a danger to public safety and also negatively impacts on the area’s economic development.

The planned site of Sixin Pump Station will cover an area of 25,600 m2. According to “Wuhan New Zone Six Lake Water Network Plan”, the Sixin Pump Station is to be located at

4 In the West the natural water circulation of the river were flowing from the Han River through the Hanyang Lakes and Channels system into the Yangzi. And in the East the main lakes are linked into the Yangtze even if the former water circulation almost disappear because of the over urbanization of Wuchang district.

Easen International Co. Ltd. 2-5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 2 Project Description the end of the Huoyan Channel. The storm water runoff will be transferred into the Yangtze River through this drainage pump station. Sixin Pump Station will be built in three phases: with a pumping capacity of 35 m3/s in phase I, expanding to a total of 70 m3/s in phase II and to a total of 105m3/s in phase III.

Full details of the proposed project works for all of this component and their technical justification are provided in Chapter 3.

Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation

The Yangchun Lake Secondary Urban Center (YLSUC), located at the north-east side of the Hongshan district in Wuhan City, is identified in the new Wuhan urban master plan. The new urban master plan categorized YLSUC as the integrated transportation and service centre of the Beijing-Guangzhou Passenger Dedicated Line - Wuhan Train Station. As a modern transportation hub, YLSUC will become a hot spot of urban development and construction in Wuhan. The Yangchun Lake is one of the key surface water bodies in the YLSUC and is also is also within the area of the recently approved “Wuhan City Wuchang Area East Lake Connection Project”. The water quality of Yangchun Lake is currently classed as Class V.

2.4 Estimated Costs and Financial Plan

The PRC has requested an ADB Loan of USD 100 million, with the balance of the project costs to be financed by Wuhan Municipality and domestic banks. It is estimated at this stage that the total project investment cost will be $ 442.7 million (CNY 3020.9 million). The counterpart funding will be provided by the Wuhan Municipal Government as owner’s equity infusion through Wuhan Urban Development Capital and commercial bank loans. The interest rate and commitment fee of the ADB loan are assumed as 3.31% and 0.15%, respectively. The loan period of the ADB loan is 25 years with a grace period of 5 years.

Counterpart funding needs to be put into effect during the construction period. Therefore, the provision of related counterpart funds has been confirmed by securing commitment letters from commercial lenders and assessing WFB capacity. The Agricultural Bank of China has agreed to provide a commercial loan of $ 232.0 million (CNY 1583.2 million). WMG financial capacity is assessed in Section 5 of this FR.

2.5 Synchronized ADB and Domestic Processes

Obtaining all the required approvals and financing is essential to the success of the implementation of the Project. The Project must be processed in accordance with both domestic and ADB procedures, and consequently there is a need for these two sets of procedures to be followed in a synchronized manner. The tentative timetable for PPTA and loan processing is shown in the Table 2-2 Synchronized Processing Schedule. The timetable has been agreed by the EA, IA, DI, PPTA Consultant and the ADB. The table provides an overview only and does not identify all the actions and supporting documentation required for the ADB at the Loan Fact-Finding and Loan Appraisal Missions. Table 2-2 Synchronized Processing Schedule Milestone Target Date (2009) PPTA Commencement of the PPTA 11 May Submission of Inception Report 18 June 1st Public Consultation on EIA 18 June SIA/RP Questionnaire submitted for ADB Approval 22 June

Easen International Co. Ltd. 2-6 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 2 Project Description

2nd Public Consultation on EIA 09 July SIA/RP Survey Training & Implementation 01- 21 July Design Monitoring & Framework Workshop 25 July Submission of Interim Report 03 August Submission of SIA 31 July Submission of Final RP 04 August Submission of 1st Draft of SEIA/RP 10 August Submission of 2nd of SEIA/RP 23 September Submission of 3rd Draft of SEIA/RP 13 October Submission of Draft Final Report 25 September Submission of Final Report 10 November

ADB Loan Processing Inception Review Mission 23 June Interim Review Mission 19 August TA Tripartite Review Mission/Loan Fact-Finding Mission 19 October SEIA Peer Review 13 November Management Review Meeting 10 December Loan Appraisal 16 December Staff Review Committee Meeting 25 January 2010 February/ March Loan Negotiations 2010 Board Consideration March/April 2010

Domestic Processing Confirm the Scope of 4 Project Components, the budget of 08 July Project Management and Capacity Building component Completion of All FSRs and Approval of Project Proposals 20 July Completion of EIAs and RPs 27 July Approval of EIAs and Preliminary Land Use Certificates October Approval of FSRs November Foreign Capital Application Report Submitted to NDRC November Foreign Capital Application Report Approved by to NDRC December State Council Authorization of Loan Negotiations

The above timetable was constructed based on WMG’s intention for the Project to receive Board approval in the first quarter of 2010. The tight schedule will demand all attention from WPMO to expedite the needed information to complete the PPTA efficiently. Some slippage has occurred in the preparation of RPs and in the sludge EIA submission (as a result of changes made to the details of this component), but this slippage is considered recoverable.

Easen International Co. Ltd. 2-7 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis SECTION 3 TECHNICAL ANALYSIS

3.1 Introduction

The ADB TA Wuhan Urban Environmental Improvement Project (WUEIP) is comprised of four components: (a) Sludge Treatment and Disposal; (b) Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station; (c) Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation; and (d) Institutional Strengthening and Capacity Building.

This section provides technical analysis of above components, based upon the initial review of the draft Feasibility Study Reports (FSR) which was prepared by the Wuhan Municipal Design and Engineering Institute (DI). In order to clarify and resolve identified issues in each component, the PPTA team has conducted many field visits, discussions with local project teams and meetings with relevant design institutes.

In the preparation of the Final Report (FR) of the PPTA, the main purpose of the PPTA team’s activities is to finalize the technical analysis of each individual component based on the Draft Final Report (DFR). The technical analysis has been improved based on the comments and feedbacks obtained from meetings and discussions with the DI, PMO and other relevant parties during the DFR and FR preparation period.

3.2 Sludge Treatment and Disposal Component

3.2.1 Background 3.2.1.1 Overview of Sludge Treatment and Disposal in the Developed Countries Sewage and sludge treatment are two equally important components in resolving urban environmental pollution problems. The sludge treatment and disposal acts as a final safeguard in the sewage treatment process. Typically, the investment on sludge treatment and disposal accounts between 20% to 50% of a WWTP’s total capital cost in developed countries, but this percentage can reach to 50~70%, depending on the additional sludge handling, treatment and disposal processes adopted. The common used sludge disposal techniques in the developed countries include landfill, incineration and land application. The local economic, regulatory and natural conditions are the main factors that determine which technique get selected. For USA, land application has played a major role. Landfill accounted for 42% of the sludge disposed in the 80’s. By 1998, sludge disposal by land application had increased to 59%, and this ratio increased to 66% by 2005. Japan, being an island nation with very limited land availability, has to use incineration as the main technique for sludge disposal. The incineration for sludge disposal in Japan accounts for roughly 63% while 22% of the sludge is disposed with land application, 5% by landfill and 10% by other techniques. In the European Union, each country has different preferred sludge treatment techniques. Currently, Luxemburg, Denmark and France prefer using land application. Ireland, Finland and Portugal have started increasing the rate of land application. However, France, Germany and Holland all prefer using incineration as their main method for the final sludge treatment. Even within the same country, the technique for sludge disposal could vary between the different areas. In industrialized northern England cities, incineration plays a big role due to heavy metals content in the sludge. While in the southern part, land application plays a major role. Recently, some new techniques have been used in the sludge treatment and disposal. Two techniques that are recently developed, for example, are very efficient and environmental friendly. One is the thermal hydrolysis process, which utilizes anaerobic digester’s biogas to generate steam that is injected into a reactor to hydrolyze the sludge. The process of hydrolysis can help breaking down more organic matters and generate more biogas. Therefore, the whole process can produce less sludge with lower water content without using external energy. The other technique, wet oxidation process, introduces oxygen into a reactor that is

Easen International Co. Ltd. 3-1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis heated to a temperature of 250℃ and pressurized to a pressure of 54 Bar in the presence of a homogeneous cupric ion as the catalyst. The final product of the process is clean gas; more biodegradable liquid that can be sent back to the headwork of the wastewater treatment system; and an inert sand/grits that can be used either in the ceramic or the construction industry. Both techniques produce no pollution in the form of emission, liquid or solid. These techniques meet circular economy principle as well as the requirements of climate change protocol, and are considered as sustainable solution in biosolids management. From above information, we can know that the application of the different techniques is mainly based on country’s regulations, available technologies and its local characteristics such as industrial structure, land resources, urbanization level, economic conditions, etc.

3.2.1.2 Overview of Sludge Treatment and Disposal in China

Statistic data shows that the total capacity of the urban sewage treatment in China will increase from 100 million tons/day in 2005 to 600 million tons/day in 2010 and the volume of sewage sludge will also increase from 30,000 tons/day to 50,000 tons/day. Sewage sludge production is increasing at a fast pace and the expected annual growth rate will be higher than 10% in the near future. It is only recently that China started to pay more attentions to sludge treatment and disposal. Currently, less than half of the existing Wastewater Treatment Plants (WWTPs) are equipped with sludge stabilization facilities and less than one tenth of them have sludge improvement facilities. The rapid urbanization with the increased demand to the sewage treatment has made sludge treatment and disposal becoming an urgent environmental protection issue in China. The most widely used sludge treatment methods in China include sludge thickening, sludge stabilization and sludge dewatering. The current way for sludge dewatering is mainly the mechanical method. Anaerobic digestion is the main approach for sludge stabilization, while some Sludge Treatment Plants (STPs) have adopted aerobic digestion and sludge composting to stabilize the sludge. Thermal decomposition and chemical stabilization options are not widely applied due to the high cost and high energy consumption. The main techniques used for sludge disposal include but not limited to land (agricultural and landscaping) application, landfill, and using as construction material. Our findings showed that the sludge disposal was still a challenge issue for environment improvement in China. It required paying more attentions on this problem. In 2005, about 12 million tons of wet sludge was produced with approximately 98% water content. The major cities in China applied different sludge treatments and disposal methods. China’s main disposal methods are fertilizer production (44.3%) and followed by landfill (31%). Other disposal methods account for a total of 10.5%. The rest 13.7% of the sludge was disposed without any treatment1. In the case of no treatment, the sludge was either randomly discarded, or stockpiled which may lead to potential secondary pollution. On average, the capital investment related to sludge treatment and disposal represents about 10 to 40% of the total investment of WWTP in China, lower than that found in the developed countries. The municipal sewage sludge in China contains about 40~60% organic matter which is lower than those in developed countries. Other pollutant concentrations such as heavy metals are varying in different WWTPs’ sludge. High concentrations of heavy metals and organic pollutants are usually the main reason that prohibits the beneficial reuse of the sludge on agriculture or other types of land applications. The heat value of sewage sludge in China is also low with the low organic content and high concentration of inorganic solids. This is partly due to a large portion of water come from combined sewer systems that carry a high concentration of grit,

1 The data source is Experts’ Comments on the Techniques for Sludge Treatment and Disposal, China Environment News (note: it is only national environmental protection newspaper in China), June 21,2005

Easen International Co. Ltd. 3-2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis sands and other inorganic solids into the sewers. The other reasons may due to groundwater infiltration, which can reduce the organic concentration. Since 2003, studies on sludge treatment and disposal planning have been conducted in many major cities in China. A number of projects have been completed and put into operation, such as the Daxing Sludge Composting Plant, Qinghe Sludge Drying Plant and Fangzhuang Sludge Lime Stabilization Plant in Beijing. The Shanghai Shidongkou STP is the first sludge drying incineration plant in China. Bailonggang WWTP in Shanghai, under the World Bank loan, was also building an anaerobic digestion and drying plant. A series of decentralized sludge treatment with centralized sludge disposal projects have also been planned in Shanghai. Guangzhou has implemented some sludge to brick projects. The Nanshan Sludge Drying Plant in Shenzhen is near completed. The operational experiences from these facilities can be studied and referenced for future sludge treatment and disposal planning in China. In the past, sludge treatment has not been well developed in China due to the following reasons: (i) Lack of technical regulations and standards for sludge treatment and disposal. The unavailability of technical standards and detailed technical guidelines hinders the sustainable development of solutions;

(ii) Lack of technical know-how regarding technical options for sludge treatment and disposal; (iii) Inadequate attention. Sewage treatment has been the primary task of the government while the treatment of sludge has been overlooked in the past. Most of the urban development master plans do not address the sludge issues separately. Sludge treatment is also not included in the Municipal Solid Waste (MSW) management and planning; (iv) Concerns about the future development of requirements and demands for sludge treatment and disposal and accordingly reservations concerning investment and implementation of respective project, which gives rise to objections to investing in solutions with unknown planning reliability and approvability. Meanwhile, there is a lack of initiative to discuss the sludge treatment and disposal issues with other related parties, such as coal power plants and landfill operating agencies; (v) Lack of regulations and management. Existing laws and regulations do not have the relevant provisions on sludge treatment and disposal. The construction bureaus, environmental protection bureaus and other related government agencies have all established certain functions for overseeing the sludge treatment and disposal, but such practices still lack effective coordination and implementation;2 (vi) Inadequate investment. Tariff for sewage treatment in various regions is still relatively low making it financially difficult to treat the sludge according to the standards. The insufficient investment in the sludge treatment facilities affects the construction of the centralized STP and the related projects. It is also difficult to scale up or commercialize the facilities for sludge treatment and disposal in the market. Statistic data shows, as of February 2009, the 1572 operating WWTPs in China produced about 100,000 tons of wet sludge with approximately 98% water content per day and the annual wet sludge production is as high as 36.5 million tons 3. After dewatering, a significant proportion was used in agriculture application while the rest was sent to landfill or disposed by some other means. In the past, the disposal of the sludge did not raise noticeable environmental problems as the quantity produced was relatively small. The disposal practices were not appropriately regulated and most of public attentions were still on wastewater treatment. Lots of sludge was dumped on the non-engineered waste disposal sites. Right now, sludge treatment and disposal are now becoming an important and critical issue on environmental improvement. Recent released new regulations and requirements for environmental protection and waste management have hiked dumping cost, which prompt the

2 Co-disposal with municipal solid waste, incineration, spreading for municipal greening. 3 The data source is Sludge Treatment and Disposal Market Report in China,Chian Water,2009

Easen International Co. Ltd. 3-3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis motivation for investment on sludge treatment and disposal. Therefore, there is currently a lot of research being conducted in China to find the most economic technology for sludge treatment.

3.2.1.3 Overview of Gaps in the Sludge Treatment and Disposal between Developed Countries and China

In accordance with the analysis on the information of sludge treatment and disposal worldwide, provided in sections 3.2.1.1 and 3.2.1.2 (above), it is shown that there are still significant gaps between developed countries and China in sludge management, sludge disposal regulations, technical norms and standards, as well as tariff structure.

Based on different countries’ applied technologies and local characteristics such as industrial structure, land resources, urbanization level, economic conditions among others, different techniques are adopted in the sludge treatment and disposal process, and relevant sludge disposal regulations are also established. A summary of sludge management practices and regulations between developed countries and China is presented in the Table 3-1.

Easen International Co. Ltd. 3-4 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Table 3-1 Summary of sludge management practices and regulations between developed countries and China

Sludge Disposal Standards No. Country Sludge Disposal Practices and Regulations 1 United In the past the primary mean of Part 503 of the 40CFR (Edition of States sludge disposal was landfill and 2007) regulations, establish limits and ocean disposal. Ocean disposal is guidelines for heavy metals, now banned and has been replaced pathogens and vector reduction, by land application which determine the acceptable routes for land application. 2 European Primary sludge disposal routes are Sewage Sludge Directive 86/278/EEC Union land application and landfill. assimilates to US normative aiming to Currently about 60% of sludge is regulate pathogens and heavy metals land applied as a result of changes content for land application of sludge. in legislation. Small quantities of sludge are incinerated. 3 Japan Sludge is incinerated, composted Land application of sludge is and landfilled. Composted sludge is regulated by Japan's Fertilizer Control used on farmland and as a soil Law and composting operations were amendment for volcanic soils to established in Japan's Sewage Works reclaim them for farming. Japan has Agency's "Design Manual for Sewage also produced construction Sludge Composting Facilities". materials from sludge such as light Japan's Ministry of Construction also weight aggregate for concrete, clay formulated a "Guide for Applying pipes and water permeable concrete Wastewater Sludge in Urban blocks. Landscape Planting" 4 China A significant proportion of sludge Over the years, China has also was used in agriculture applications developed many laws and while the rest was sent to landfill or regulations, and even certain disposed by some other means. standards related to sludge management such as “Disposal and Pollution Prevention Policy of Sludge from Municipal Wastewater Treatment Plant (trial)” and “Best Available Techniques Directive for Sludge Treatment and Disposal from Wastewater Treatment Plant (draft)”.

Sludge treatment and disposal has not been well developed in China due to the indeterminacy to the future development of requirements and targets for practices, which have caused a significantly negative impact on the establishment of the management, the technical route selection and the deployment of technical guidelines and standards.

It was shown that these developed countries had established respectively improved disposal technical standards according to their actual situation. Recently, the Chinese government has been updating the related technical guidelines and standards for the sludge treatment and disposal, which are summarized in section 3.2.2 (below).

The strong support of government policies and large investment input are extremely necessary for the development of sludge treatment and disposal in China. Due to the costly sludge disposal facilities, immature market and lack of relative tariff regulations, there is still a long way to go for attracting investment interest from private enterprises and public institutions. Therefore, China’s government should provide strong polices to support the establishment of tariff structures and collection systems, and provide more options for tariff collection and capital

Easen International Co. Ltd. 3-5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis investments. Furthermore, government should try to attract all potential investors from public and private in order to develop a competitive mechanism in the market, which can reduce the cost of sludge treatment. Meanwhile, the investment bodies should gradually transit from public institutions into private enterprises.

3.2.1.4 Overview of Sludge Treatment and Disposal in Wuhan City

The rapid industrialization in China has substantially increased urban pollution, and among other cities in China, Wuhan is no exception to this ongoing environmental degradation process. WMG has realized that sustainable development cannot be achieved without proper environmental protection measures. Indeed, Wuhan’s wastewater treatment ratio is now exceeding 80%, much higher than the national average. Like other large cities in China, one of the major environmental problems in Wuhan is the disposal of the sludge generated by the city’s WWTPs. At present, there are not enough sludge treatment facilities to handle the sludge generated. With more wastewater getting treated, this problem become more seriously. The current method of disposal is by trucking the dewatered sludge (still with high water content) from the WWTPs to a landfill for final disposal. With high water content, the sludge can cause operational problems to the landfill’s normal operation as well as potentially lead to the potential release of nutrients, toxins and other pollutants to the surrounding environment. Since WWTP sludge can be a sustainable resource from which the nutrients and energy can be recovered, there are other sludge disposal options that can be considered to favor Wuhan financially and environmentally. There are currently 11 WWTPs in Wuhan urban area. These WWTPs have a total designed wastewater treatment capacity of 1.7 million tons per day, providing wastewater treatment services for more than 4.2 million people, representing 48.3% of the population in Wuhan (based on 2008 data). Current generated sludge quantity in Wuhan urban areas is estimated to reach 657 tons per day that contains 20% dry solid. Because the ratio of industrial wastewater versus domestic wastewater varies among the WWTPs in Wuhan, the sludge characteristics will also vary among these WWTPs. It will require applying different approaches for sludge treatment and disposal respectively. While the construction of several WWTPs in Wuhan has reduced pollution in some of the local rivers and lakes and contributed to the overall pollution reduction in the Yangtze River Basin, the amount of sludge generated has also increased significantly. The reality is that the construction of WWTPs has focused on achieving effluent discharge standards without paying adequate attention to sludge management. For example, our investigation showed that in Wuhan, the current capital investment related to sludge management was in the range of 10~20% (mainly thickening and dewatering) of the WWTP’s total investment. Sanjintan WWTP is an exception, at 35% due to the anaerobic digestion system installed. In general, the sludge management related investment is much less than the developed countries as discussed previously. Without a stabilization treatment to reduce the organic content, the sludge is highly septic and can easily develop a foul smell, especially in the initial treatment process, such as in the sedimentation tank and the sludge dewatering facilities. And also this kind of sludge may contain large numbers of bacteria, parasite and viruses that can lead to the spread of infectious diseases and threaten public health. This environmental challenge to Wuhan has created an urgent need for a comprehensive and efficient approach to sludge treatment and disposal for Wuhan.

3.2.2 Consideration of Relevant Regulations, Circular Economy and Climate Change Protocol

Over the years, China has also developed many laws and regulations and even certain standards related to sludge management. During the selection of sludge treatment and disposal

Easen International Co. Ltd. 3-6 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis technologies, these relevant laws and regulations as well as internationally adopted best management practice and policies should be considered. The following is a summary of current Chinese guidance documents and regulations relevant to sludge management.

Relevant Guidance Documents

y “Disposal and Pollution Prevention Policy of Sludge from Municipal Wastewater Treatment Plant (trial)”, ( By Ministry of Housing and Urban- Rural Development of the People’s Republic of China, Ministry of Environmental Protection of the People’s Republic of China and Ministry of Science and Technology of the People’s Republic of China, February 18, 2009) y “Best Available Techniques Directive for Sludge Treatment and Disposal from Wastewater Treatment Plant(draft)”,( By Science and Technology Division of Ministry of Environmental Protection of the People’s Republic of China, November 20,2008) y “Best Available Techniques Directive for Treatment and Disposal of Sludge from Wastewater Treatment Plant Research Report”, ( By Science and Technology Division of Ministry of Environmental Protection of the People’s Republic of China, November 20,2008)

Relevant Regulations

y “Control Standards for Pollutants in Sludge for Agricultural Use” (GB4284-84) y “Discharge Standard of Pollutants for Municipal Wastewater Treatment Plant” (GB18918-2002) y “Quality of Sludge from Municipal Wastewater Treatment Plant” (CJ247-2007) y “The Disposal of Sludge from Municipal Wastewater Treatment Plant-The classification” (CJ/T 239-2007) y “The Disposal of Sludge from Municipal Wastewater Treatment Plant—Sludge Quality for Co-landfilling” (CJ/T 249-2007) y “The Disposal of Sludge from Municipal Wastewater Treatment Plant-The Quality of Sludge Used for Afforestation in Gardens or Forests” (CJ/T 248-2007) y “The Disposal of Sludge from Municipal Wastewater Treatment Plant—Sludge Quality for Land Reclamation” (CJ/T 291-2008)

The Chinese Government has adopted the internationally promoted circular economy (CE) approach as a core component of its sustainable development strategy and has passed legislation in support of this initiative. CE is a general term covering activities that reduce, reuse, and recycle materials in the production, distribution, and consumption processes. Basically, this CE that is supporting what Chinese government has promoted “Reduce, Recycle and Removal (3Rs) principle that strives to reduce the harmful impacts of economic activities on the environment by minimizing impacts throughout the production life cycle. Sludge treatment and disposal, as one part of the overall socio-economic cycle, is focusing on atmosphere and ecological environment protection and pollution control, rather than the economic benefit, which must meet the requirement of harmless, reduction, stabilization and reuse that characteristics the application of the 3R principle in the sludge treatment At present, lacking of proper sludge treatment and disposal, low resource utilization and associated environmental pollutions are still commonplace in Chinese WWTPs. This is mainly caused by poor management practice and lack of enforcement of regulations and policies

Easen International Co. Ltd. 3-7 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis associated with the sludge treatment and disposal, including a lack of knowledge on the pollution prevention practice, low wastewater tariffs and poor collection rates. Therefore, these areas now become the focal points for the Chinese government to begin its implementation of best management practice (BMP) and reforms to address the urgent environmental issues. The CE approach should be combined with the environmental protection considerations for sludge treatment and disposal in order to effectively and completely address the associated environmental pollution. In this integrated approach, the characteristic of sludge, geographical and environmental situation, local economics and social development should all be considered. Sludge treatment and disposal options should be developed and implemented friendly, safely, practically and economically to the local environment. There are many sludge treatment and disposal options that are currently practiced in China. Sludge can be applied directly to land to increase the fertility of soil in gardens or forests if the sludge quality can meet the relevant provisions and requirements. The non-organic components of sludge can be used as construction materials in the production of brick, light aggregate and road bed materials or earth fill. Sludge that does not meet the requirements for land application or as a construction material can be disposed off at landfills. All of the above methods, except landfill disposal, have implemented waste resource utilization and achieved significant and long-term environmental, social and economic benefits. In summary, the ultimate objective of sludge treatment and disposal in China is to achieve economic growth while avoiding the negative impact on the environment and atmosphere protection. This objective is expected to be implemented successfully by Chinese government through the support of strong government interventions, effective institutional arrangements, and the development and enforcement of rational and policy-oriented laws and regulations.

3.2.3 Sustainable Sludge Treatment and Disposal Options

In China, the 3Rs principle is highly promoted by the government in dealing with all sort of solid wastes management. Therefore, the 3Rs principle will also be applied to this project when assessing the sustainability of the sludge disposal options:

Reduce: To avoid and to minimize the production of waste.

Recycle: If the production of waste cannot be avoided, then, if it is technically feasible and economically viable, the waste should be recycled or reused as much as possible. An appropriate market for the reuse of sludge and/or the recycling of sludge as fuel supplement should be created or enforced.

Removal: If reduction and recycling are not possible, the final back up option should be the proper removal and disposal of sludge by landfill.

The disposal of sewage sludge by landfill is not a sustainable option because the site selection and acquisition of suitable land are getting more and more difficult and costly. Meanwhile, landfill is always needed even if incineration is adopted because the debris and fly ash are still need to be disposed in a landfill. Therefore, landfill is still a necessary option for most of the sludge treatment and disposal techniques. Before being recycled or disposed, sludge generally needs to be treated to alter or improve its characteristics so that it will not cause any adverse environmental impacts and facilitates subsequent treatment and disposal. The following sludge treatment techniques are proposed as the basic steps to change and improve the sludge characteristics and composition: (i) Sludge Stabilization. Sludge stabilization techniques such as sludge digestion are the first step in decreasing the sludge volume. For example, the sludge volume can be reduced by 30% to 50% through anaerobic digestion, depending on the sludge organic content. The produced

Easen International Co. Ltd. 3-8 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis biogas that is rich in methane can be collected and treated separately. The decreased weight and volume of the stabilized sludge makes the transportation of the sludge for its final disposal more cost effective. Sludge stabilization also helps to decrease the odour associated with the sludge and makes the sludge more suitable for reuse, recycling or other means of final disposal.

(ii) Sludge Dewatering and Drying. The reduction of the sludge volume by dewatering is a standard sludge treatment technique carried out at WWTPs. Sludge can be mechanically dewatered in a centrifuge, belt filter or plate-frame press which can help reduce the sludge water content less than 80%. The reduction in sludge volume reduces the effort and cost of sludge transportation and disposal regardless of the method adopted.

Sludge drying can also be seen as a necessary pre-treatment process regardless of subsequent processes. If the sludge is to be incinerated dried sludge will require less energy for sludge combustion. If sludge is disposed to landfill, drying will help reduce the operational difficulties at the landfill. And if sludge is applied to land, drying will save on transportation costs and simply land application. (iii) Sludge Sterilization. The purpose of the sludge sterilization is to prevent the potential infection by removing the bacteria and parasites. Heat treatment, chemical treatment (including pH adjustment using lime) and long-term storage (due to heat generated during composting) of sludge are some basic techniques of sludge sterilizations. Most sterilization techniques can be used independently or combined with other treatment processes.

The selection of the appropriate sludge treatment technology should take into account the actual sludge disposal technique being implemented and meeting the relevant national laws and regulations for sludge treatment and disposal. A combination of the above mentioned sludge treatment techniques can be incorporated into the overall sludge treatment process depending on the actual sludge disposal approach being implemented. The treatment requirements for different sludge disposal approaches are analyzed below: y Agricultural Application: sludge has to be stabilized and sterilized. The reuse of the raw sludge for agricultural application without sterilization is forbidden by law. Mechanical dewatering alone are not enough to alter the sludge for meeting agricultural applications requirement. y Energy Application: energy balance optimization is a pre-requisite for any energy related application. This can be achieved through sludge dewatering and sludge drying. However, the improvement in the energy balance is generally quite limited because sludge drying can still be costly. y Landfill Disposal: sludge must first be stabilized along with thickening or dewatering to reduce the sludge volume. If very low water content is required, sludge drying may also be necessary.

Based on the above discussions, a sustainable sludge management approach is to maximize the beneficial reuse of sludge with improved characteristics that are realized through a series of treatment processes, such as stabilization, sterilization and drying. Landfill will only serve as the last back up option when there is no other alternative for sludge beneficial reuse. By this integrated approach, a landfill service life can be extended while achieving the objectives of the “3Rs” principal.

3.2.4 Road Map of Sludge Treatment and Disposal in Wuhan City

3.2.4.1 Current Wastewater Treatment, Sludge Treatment and Disposal, and Sludge Master Plan in Wuhan

Easen International Co. Ltd. 3-9 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Current Wastewater Treatment, Sludge Treatment and Disposal Sludge quantity in a city is directly related to the amount of wastewater being treated. In Wuhan, there are presently 10 wastewater treatment plants (WWTPs) in operation and 1 WWTP under construction as shown in Figure 3-1 and in Table 3-2. These plants have a combined daily design treatment capacity of 1.7 million m³ and an actual daily treatment flow of 1.5 million m³.

Easen International Co. Ltd. 3-10 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-1 Location Map of the WWTPs in Wuhan City

Easen International Co. Ltd. 3-11 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Table 3-2 Detailed Data of the WWTPs within the Project Area in 2008* Service Design Actual Level of Population No. WWTP area Remarks capacity[t/d] capacity treatment [PE] [km2]

1 Shahu 150,000 170,000 Secondary 17.5 177,000 Updating 2 Erlangmiao 180,000 180,000 Primary 32.2 476,000 &expansion 3 Longwangzui 150,000 170,000 Primary 51.0 450,000 4 Huangpulu 100,000 80,000 Primary 7.5 267,000 Updating 5 Nantaizihu 100,000 90,000 Secondary 69 760,000 Expansion 6 Tangxunhu 50,000 50,000 Secondary 43 350,000 7 Zhuankou 60,000 50,000 Secondary 73 280,000 8 Hanxi 400,000 400,000 Secondary 154 1,030,000 9 Sanjintan 300,000 250,000 Secondary 76 880,000 10 Huangjiahu 100,000 60,000 Secondary 130 99,000 Under 11 Luobuzui 120,000 Secondary 48 470,000 construction Under 12 Beihu 50,000 Secondary 33 76,000 construction Under 13 Huangjinkou 15,000 Secondary 16 71,000 construction

Total 1,775,000 1,500,000 750.2 5,386,000

*Note: Baoxie WWTP is located in East Lake Development Zone of Wuhan City’s suburban area with the capacity of 70,000 m3/d in phase I and 220,000 m3/d in the future, which will serve 350,000 people in 60 km2 area , The discharge standard is class I/A of “Discharge standard of pollutants for municipal wastewater treatment plant”.

Based on the 2008 data, a total of 657 tons of sludge with a dry solid (DS) content of 20% were generated every day as shown in Table 3-3. Except for the ADB financed sludge digestion facilities in the Sanjintan WWTP, the main process and facilities for existing sludge management in Wuhan for all WWTPs were sludge thickening and dewatering as summarized in Figure 3-2 and Figure 3-3.

Easen International Co. Ltd. 3-12 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Table 3-3 Wuhan’s WWTPs Sludge Quantity and Water Content in 2008 Name of Quantity of Wet Water Content Sludge Production Rate No. WWTP Sludge(ton/d) (%) (ton/10,000m3) 1 Hanxi 125 80-85 3.1 2 Sanjintan 120 80-85 4.8 3 Shahu 75 80-85 4.4 4 Erlangmiao 60 75-80 3.0 5 Huangjiahu 26 75-80 4.3 6 Longwangzui 167 80-86 9.8 7 Tangxunhu 20 78-83 4.0 8 Nantaizihu 46 75-81 5.1 9 Zhuankou 18 76-80 4.5 Total 657 Note: i. Data in the table is the average value for multiple-samples; ii. The volume of sludge generated in Longwangzui WWTP is larger than other WWTP due to a large quantity of PAC dosing (Polyaluminium chloride) used for phosphorus removal; iii. Sludge Production Rate refers to the quantity of sludge with the water content of 80% generated from 10,000 m3 of wastewater treated.

Figure 3-2 Typical Sludge Treatment and Disposal Process for the Existing WWTPs in Wuhan City

Belt press

DS content of the sludge is 15%-25% landfilling Sludge

Centrifuge

Figure 3-3 Typical Sludge Dewatering Facilities at Existing WWTPs in Wuhan City

(a) Belt press (b) Centrifuge

As shown in above Figure 3-2 and 3-3, the current sludge disposal in Wuhan is primarily to transport the dewatered sludge (i.e., containing 80% water) from the WWTP to a landfill.

However, this method is limited by a number of adverse factors:

Easen International Co. Ltd. 3-13 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

(i) Impact of the high water content of the sewage sludge on the normal operation of the landfill. After the sludge pass through a belt filter press or a centrifuge for dewatering, the DS content can only reach to approximately 20%. The pictures of the treated sludge are shown in Figure 3-4. This sludge with relatively high water content does not meet the normal landfill operation criteria - “no free liquids”. This creates problems not only for the operating vehicles on the landfill site but can also cause instability within the landfill waste mass. In addition, the odor emitted by the sludge that has not been properly dewatered and stabilized is very strong and causes a negative impact on the sanitary conditions of the landfill sites and surrounding areas.

Figure 3-4 Dewatered Sludge Produced by WWTPs in Wuhan City

(a)Nantaizihu WWTP (b) Longwangzui WWTP

(c)Tangxunhu WWTP (d) Erlangmiao WWTP

(ii) Impact of high volumes of sewage sludge on the useful capacity of existing and planned landfills. As discussed in the next section, at present there is only one landfill site available in Wuhan City, the Yangluo Chenjiachong Landfill. Four other landfills have recently closed. A new landfill site at Changshankou is currently under construction and not yet put in use. The increasing amount of sludge from the WWTPs in Wuhan is squeezing the limited landfill space, competing with the city’s MSW disposal demands, and reducing the service life of the city’s landfills. The use of landfill for disposal of WWTP sludge has raised concerns in many countries due to potential release of greenhouse gasses, especially in the European Union.

Easen International Co. Ltd. 3-14 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis For these two reasons, the current landfill site refused to accept extra wet sludge anymore. Therefore the WWTPs have to find other options to dispose the current and future generated sludge.

(iii) Wuhan Sludge Master Plan. The current Wuhan sludge master plan had proposed centralized sludge treatment. In addition, the current master plan promotes incineration as one of the main disposal options. Since the mobilization of this PPTA, through extensive discussions and exchange with the DI, the WUDDC, the PMO and the relevant agencies of the WMG, it was agreed that both decentralized and centralized sludge treatment and disposal, plus maximizing the resource utilization of sludge should be adopted for Wuhan. As a result of this development, the current sludge master plan was revised to reflect this centralized and decentralized sludge management approach with a sludge resource utilization strategy.

For example, the DS will be disposed of as construction filling material and as a soil conditioner to amend the soil quality in Wuchangnan STP. Depending on the results of the sludge quality analysis, in Hankou STP the DS will be used as raw material to local fertilizer compost plants, and as soil conditioner for the green belt along the outer ring road in Jiangxia District and the airport expressway in Wuhan. In Nantaizi STP, the stabilized sludge with a high pH as a result of the lime composition will be utilized for the Tang Mountain rehabilitation and help to neutralize the Tang Mountain’s acidic soil as a typical case of waste reuse.

For each of the above STPs, the quality of the dried or stabilized sludge will be continuously monitored for heavy metals content and certain organic compounds. If the analysis shows that the sludge do not meet the application standards or requirements, the treated sludge will be sent to landfills for final disposal. The related Letter of Intents (LOI) has been obtained from the concerned parties, for example: for steam supply, acceptance as raw material for fertilizer production, land application and landfills.

3.2.4.2 Review of Wuhan MSW Master Plan

In response to the lack of landfill capacity in Wuhan, the disposal method of the MSW will be gradually changed from landfill to incineration, as per the Wuhan’s MSW master plan. All the excess MSW which cannot be incinerated, along with the final solids from the incineration plants (bottom and fly ash) will be sent to landfill for disposal.

According to the MSW master plan, a total of 5 waste-to-energy (WTE) plants would be constructed in Wuhan. These include the 1500 tons/d Guodingshan WTE plant in the Hanyang District of Hanyang, the 1000tons/d Qunlicun WTE plant in the Qingshan District of Wuchang, the 1000 tons/d Changshankou WTE plant in the Jiangxia District of Wuchang, the 2000 tons/d Hankoubei WTE plant in Hankou and the 1000 tons/d Xingou WTE plant in the Dongxihu District of Hankou. Based on the MSW master plan, there would have two landfill sites in Wuhan. The Yangluo Chengjiachong landfill that is currently in operation and the Jiangxia Changshankou landfill that is under construction. The Yangluo Chenjiachong landfill is responsible for handling all the sewage sludge produced in the region. This landfill has a design service life of 20 years and a designed daily capacity of 2,000 tons/day of MSW. The site is equipped with complete leachate collection and treatment facilities as well as landfill gas collection and power generation facilities. The increased amount of MSW and sludge in need of disposal due to the rapid urbanization of Wuhan has caused the landfill to accept approximately 3,000 tons of MSW per day, including sludge. The other landfill at Changshankou will have a design service life of 50 years with a designed daily disposal capacity of 1,000 tons of MSW. Once these WTE plants are in operation, the amount of MSW being sent to landfill will inevitably decrease. The amount of the landfill capacity available for the disposal of sewage

Easen International Co. Ltd. 3-15 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis sludge will increase. In this respect, the MSW management plan is favorable to the Wuhan sludge master plan. Following the site investigation carried out by the PPTA team and based on the information received by the team from all parties, when a portion of the sludge has to be disposed at a landfill, the following are recommended to ensure the safe and reliable disposal of the sewage sludge at landfill sites: y Sludge has to be treated to meet the requirements of “The Disposal of Sludge from Municipal Wastewater Treatment Plant—Sludge Quality for Co-landfilling” (CJ/T 249). y An agreement between the landfill owner and the relevant government department(s) in charge of the landfill sites and the WWTPs to accept the treated sewage sludge must be signed to ensure there is always a landfill option available for sludge final disposal. y A feasibility study on the combined landfilling of MSW and sewage sludge must be conducted. The objective of this study is to deliver a technical solution that allows the landfilling of sewage sludge without causing any adverse effect on the normal management of the landfill site.

3.2.4.3 Road Map of Sludge Treatment and Disposal in Wuhan City

A. Influencing Factors on Sludge Treatment and Disposal

(i) Legal and regulatory considerations. Key regulations and standards from the national level to local level will all have great impact on sludge treatment and disposal, for example: y More restrictions and standards will affect sludge beneficial reuse in agriculture or forestry as fertilizer or soil conditioner. Therefore, sludge should be tested to ensure compliance with these relevant regulations and standards. y Even if incineration is adopted, increasingly more strict emission standards may be applied to sludge incinerators. In addition, under the climate change protocol, incineration approach may not be favored. y For landfill disposal, the water content and certain properties of the sludge will also be more strictly regulated to prevent secondary pollution and to protect landfill normal operation.

(ii) Cost. There are many technologies developed for treating and disposing of sludge. Apart from the regulation considerations on which technology to select, the level of cost influences the kind of technology chosen. Therefore, cost is an important element in deciding the optimal sludge treatment option. Costs can vary greatly depending on the local conditions and on the size of the treatment facility. In order to achieve the appropriate comparison of the different sludge treatment and disposal options, it is important to take into account the overall annual costs which are influenced by three main components:

a. Annual capital costs, which depend on the sum to be invested, the method of financing, the depreciation period, and the interest rates on borrowed capital.

b. Operation costs due to energy consumption, salaries of the personnel, taxes, insurance etc.

c. The costs of disposal or any recovered value from the beneficial reuse of the final sludge product or residue.

Easen International Co. Ltd. 3-16 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis (iii) Local Conditions. Local conditions are also important factors that influence the selection of sludge disposal options. The local conditions would include land availability, market demands for sludge beneficial reuse such as fertilizer or soil conditioner, available heat sources for sludge drying, tariff level, and local funding availability, etc.

B. Wuhan’s Conditions for Sludge Treatment and Disposal

During the feasibility study, it has been found that there are potential market demands and beneficial disposal opportunities in Wuhan. For example:

(i) Garden and forest greening. The data provided by the Wuhan Forestry Bureau (FB) shows Wuhan has a total forested area of approximately 79,500 ha. If the quality of the sludge complies with the relevant requirements for forest utilization (CJ248) along with the support from the Wuhan Forestry Bureau and other relevant parties, the sludge can be disposed by land application in these forested areas.

(ii) Tang Mountain soil rehabilitation. The Tang Mountain is located in Tangshan village by the Longyang Lake which is proposed as a subcomponent for the WUEIP lake rehabilitation component. During the inception period site visits, it was found that the damage on the Tang Mountain was mainly due to strip mining. The pH of the Tang Mountain soil is very acidic because of the iron ore composition (5~10% of FeS2) in the weathered rocks and the formation of sulfate that makes its way to the adjacent Longyang Lake through surface runoff. In certain spots, the pH level reaches 1.0~2.0. Thus, the rehabilitation of Tang Mountain will not only require a large amount of soil cover to help to restore the vegetation but also a huge amount of alkali chemical to bring the soil pH back to the neutral level to provide a suitable environment for vegetation to grow. Since the Tang Mountain has an area of 11 acre, the rehabilitation work would mean a huge demand for soil cover and alkali chemicals, which can be very costly if both the soil and alkali have to be purchased externally. Provided the quality of the sludge complies with the relevant requirements for soil rehabilitation (CJ/T291-2008) and with the support of the project owner, as well as other stakeholders, the lime stabilized sludge can be applied as soil conditioner for the rehabilitation of the Tang Mountain. Since the ownership of the Tang Mountain belongs to the Tangshan Village collectively, it is recommended that an arrangement will be discussed to allow the proposed rehabilitation. It is also recommended that a monitoring system will be set up to check the heavy metal content in the sludge, as well as in the Tang Mountain and in the lake around the Tang Mountain to ensure an environmentally safe rehabilitation.

(iii) Organic composting fertilizer plant. There are a number of composting plants in Wuhan City. One is the Dongxihu Organic Composting Plant, which uses animal excrement to produce organic compost. After dewatering, stabilization and disinfection, the sludge quality can meet the relevant requirements for agricultural application (GB4284) and the sludge can be used as an auxiliary raw material for the composting. An advantage of this is that it can utilize the existing production facilities and marketing channels of composting plant to generate some economical benefits by saling the composted sludge. It is recommended to obtain a letter of intent from the organic composting plants to accept the sludge for composting.

(iv) Solid waste incineration power plant. A number of coal fired thermal power plants and MSW incineration plants are operated in the Wuhan area including the Gaoxin Heat and Power Plant, Xin’gou Heat and Power Plant, Qingshan Heat and Power Plant, the Changshankou MSW Incineration Power Plant and the Guodingshan MSW Incineration Power Plant, and

Easen International Co. Ltd. 3-17 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis providing power and/or heat (steam) to the urban users. Heat from these power plants could potentially be used for sludge drying. The dried sludge that has heat value can then be combusted as an energy source. This option is also in conformity with the national energy strategy. As an alternative, instead of co-incineration, steam utilization is to use available steam generated by these heat and power plants for drying the sludge. The dried sludge can then be disposed of by land application or landfill.

C. Sludge Disposal Strategies in Wuhan City

In order to solve the increasingly serious and urgent sludge disposal problems in Wuhan City, it is necessary to develop a sustainable sludge disposal program as soon as possible. Based on the above mentioned influencing factors and the Wuhan’s local conditions, a special short term and long term sustainable disposal plan for the Wuhan City was proposed as follow by considering the characteristics of the sludge, the current and future status of the sludge, the geographical location of the City and the WWTPs, and the City’s economical conditions.

(i) Short-term strategy for sludge disposal. The lack of landfill capacity in Wuhan makes this plan becoming an unsustainable option for the increasing amount of sewage sludge. Therefore, the short–term objective is to develop a sustainable sludge disposal program under the 3Rs principle to reduce as much as possible the volume of sludge that has to be disposed of in landfill. New technologies that meet the 3Rs principle and economically viable requirement can also be adopted in Wuhan. The advanced thermal hydrolysis and wet oxidation techniques, as an example, can also be evaluated in the short-term plan since both techniques can help reduce the amount of sludge to the landfill and meet the 3R principle.

(ii) Long-term strategy for sludge disposal. In the long-term, both the disposal of sludge by landfill or by resource utilization is likely to be restricted at various degrees: y The restriction to sludge disposal by landfill is associated with the lack of landfill capacity in Wuhan. A further restriction may come from the government or landfill owners’ who require that the sludge must be treated by incineration before it can be landfilled. As such, landfill can only be regarded as a short term or transitional solution. y More restrictions on the reuse of sludge may due to the increased strictness of the related standards (either due to change in the national conditions or to unexpected events such as mad cow disease, bird flu and swine flu). The sewage sludge can no longer be legally reused in ways acceptable in the past. More strict regulation regarding the land application of sludge may be expected in near future. The market demand and public acceptance are the other reasons that may limit the reuse of sludge on land applications. A long term sustainable sludge disposal program for Wuhan is therefore, the gradual shift from landfill disposal to energy utilization and thermal treatment disposal combined with other economically viable and legally acceptable options. In line with the sludge disposal plan as suggested earlier, the following developments to the sludge treatment processes in Wuhan should be considered: y The provision of sludge stabilization, sludge dewatering and sludge sterilization should be strengthened at all WWTPs. This will not only increase the safety and reliability of the short term sludge beneficial reuse and disposal but also provide the necessary preconditions for the long term sustainable sludge disposal program. y In order to make the most out of the sludge energy utilization process, sludge needs to be treated to optimize its energy balance. This includes strengthening of the sludge dewatering and drying process for the sludge produced at the WWTPs across Wuhan. This process strengthening will allow the sludge to be potentially co-incinerated at any of the presently

Easen International Co. Ltd. 3-18 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis planned five WTE plants or any future WTE plants in Wuhan.

D. Proposed Sludge Treatment and Disposal Component for ADB Financing

Based on the above discussions, the sludge characteristics in terms of quality, geographic locations, environmental conditions and the level of socio-economic development in the area should all be taken into consideration to evaluate and determine the most appropriate sludge disposal options. The following are some of the sludge disposal options which have been extensively analyzed and discussed with the DI:

(i) Land Application. Sludge can be applied directly to land and can have a positive impact on the quality of soil. However, a number of sludge quality standards (both national and local) need to be followed if: y To increase the fertility of soil in gardens and forests, the sludge quality should meet the provisions and requirements in “The Disposal of Sludge from Municipal Wastewater Treatment Plant-The Quality of Sludge Used for Afforestation in Gardens or Forests” (CJ 248). y For the reclamation of saline-alkali land, desertification land and abandoned mine land, sludge quality should meet the requirements of “The Disposal of Sludge from Municipal Wastewater Treatment Plant—Sludge Quality for Land Reclamation” (CJ/T 291). y To increase fertility of soils on agricultural land, it should be stabilized and decontaminated and the sludge quality should meet the national and local standards and requirements for sludge agricultural application as stipulated in “Control Standards for Pollutants in Sludge for Agricultural Use” (GB 4284).

(ii) Utilization of Sludge as a Construction Material. The non-organic components of the sludge can be used as a construction material in the production of brick, light aggregate and road bed materials or earth fill.

(iii) Landfill Disposal. Sludge that does not meet the requirements for land application or as a construction material can be disposed at landfills. Sludge should meet the requirements of “The Disposal of Sludge from Municipal Wastewater Treatment Plant-Sludge Quality for Co- landfilling” (CJ/T 249).

Since the planned ADB loan may not cover all the sludge treatment and disposal needs in Wuhan, the following three WWTPs were selected for sludge treatment and disposal with respective considerations given below: a. The Tangxunhu WWTP: It is located in Hankou and adjacent to a combined heat and power plant. There is extra land available in this WWTP for a proposed sludge treatment facility. The proposed process is to utilize the available steam from the power plant to dry the dewatered sludge from this WWTP plus nearby WWTPs such as the Longwangzui WWTP. Dried sludge is proposed for land application or landfill disposal. The proposed capacity is 200 tons sludge cake per day. The sludge cake is containing 80% water. Thus, in dry solid (DS) basis, the design capacity is 40 tons DS/day. b. The Sanjintan WWTP: It is located in Hankou. There is already an anaerobic digester constructed in this WWTP prior to ADB project. The biogas from the anaerobic digesters can be recovered and beneficially used as an energy source for drying the dewatered sludge from the digesters. In winter time, when the biogas production is not sufficient to dry the amount of sludge, a backup lime stabilization process will be kicked in. Dried sludge is proposed for land application or landfill disposal. The proposed capacity is 100 tons sludge cake per day, equivalent to a design capacity of 20 tons DS/day. As an alternative, the thermal hydrolysis technology seems quite applicable to the Sanjintan WWTP since there is already an existing

Easen International Co. Ltd. 3-19 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis anaerobic digestion facility that is available for retrofit the new technique. It is recommended that the thermal hydrolysis technology is evaluated during the implementation phase when there is sufficient operational data for assessing the feasibility. c. The Nantaizihu WWTP: It is located in Hanyang. It is adjacent to the Tang Mountain that was environmentally damaged due to many years of strip mining, and its soil was very acidic, which has already caused pollution to the nearby Longyang Lake. Therefore, it is proposed to use a lime stabilization process for its sludge treatment and the final stabilized sludge with high pH can then be applied to the Tang Mountain for its rehabilitation. The proposed capacity is 50 tons sludge cake per day, equivalent to a design capacity of 10 tons DS/day.

The above selected WWTP for the proposed STP is representative of the three major urban areas of Wuhan, which are, Wuchang, Hankou and Hangyang. The proposed sludge treatment and disposal methods are also in line with the Wuhan’s short-term strategies for sludge management as discussed above, while meeting both “3R” principles and the climate change protocol. In addition to these proposed sludge treatment and disposal facilities, it has been found during the feasibility study that many of the WWTP do not have adequate sludge handling and storage equipment or transport vehicles. Therefore, it is also important to upgrade these equipments related to sludge handling, storage and transport in Wuhan’s WWTPs, particularly the ones built many years ago. Table 3-4 summarizes the above proposed sludge sub-components for ADB financing. In summary, 350 tons/day of sludge cake (i.e. 80% water content) or 70 tons DS/day of Wuhan’s sludge will be treated and disposed of through this proposed ADB project, representing a treatment and disposal of almost 50% of the Wuhan city’s sludge production. More detailed discussion and analysis of these proposed sludge sub- components are given below in section 3.2.5.

Easen International Co. Ltd. 3-20 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Table 3-4 The Proposed Sludge Treatment and Disposal Component

Treatment Sludge disposal STP Location Design capacity technology scheme

Soil conditioners, Drying by steam filling material, Wuchangnan Tangxunhu supplied from an and/or 40 tons DS/day STP WWTP adjacent power Changshankou plant sanitary landfill

Drying by Composting, soil 20 tons DS/day digester’s biogas conditioners, earth Sanjintan of drying, and 10 Hankou STP and lime fill, and/or WWTP tons DS/day of stabilization as Chengjiachong lime stabilization back-up sanitary landfill

Tang Mountain Rehabilitation as soil conditioner, Nantaizihu Lime Nantaizihu STP 10 tons DS/day earth fill, and/or WWTP stabilization Changshankou sanitary landfill

Modification or Modification and upgraded new equipment Meeting each improvement of equipments will for sludge WWTP’s design existing sludge All WWTPs enhance the handling, capacity treatment and efficiency of sludge storage, and requirements transportation management transport etc

Easen International Co. Ltd. 3-21 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis 3.2.5 The Proposal

3.2.5.1 Proposal Rationale, Justification and Benefit A. Project rationale Wuhan is the capital city of the Hubei Province and ranks fifth largest among other Chinese cities for its size and its economic production. It is also the largest city in the central and western regions of China. In 2008, the Wuhan municipality had a total population of approximately 8.7 million, including more than 6 million residents living in the urban area. Some 3.5 million people reside in its dense inner urban core (360 km2; 9,700 inhabitants per km2). It is located at the confluence of two main rivers, the Yangtze River and the Han River. The river and lake water surface takes up about one quarter of the urban area in Wuhan. The rapid urbanization over the last 20 years has placed an increased demand pressure on the wastewater treatment and surface water quality management. Both point source and non-point source pollution have deteriorated the regional water quality. There are 56% of the rivers and 89% of the lakes being polluted at this moment. The deteriorated water environment that is surrounding many residential areas has also raised some serious public health concerns. To address Wuhan’s lack of adequate wastewater management and water resources protection, WMG is working on implementing the municipal strategic wastewater master plan for the long term that complies with the national environmental targets to treat 70% of wastewater by 2010 as per the 11th Five Year Plan. The ADB-funded Wuhan Wastewater Management (WWM) Project of 2003 (ADB Loan No.1996-PRC) and the Wuhan Wastewater and Storm water Management (WWSM) Project of 2006 (ADB Loan No.2240-PRC), along with the World Bank and other bilateral funds assisted wastewater treatment projects are all key elements of the City’s master plan. As a result of these efforts, 80% of the wastewater is currently being treated, which is a great improvement compared to the 27% wastewater treatment rate in 2004, and has already met the target of the 11th Five Year Plan. While Wuhan has made some significant improvements to its wastewater collection and treatment, it is now faced with another associated environmental challenge, the treatment and disposal of the sludge generated by the WWTPs. The amount of sludge generated by WWTPs in Wuhan has increased significantly and created a big environmental challenge for the City of Wuhan. The improved and relative completed wastewater collection and treatment systems have created a lot of sludge required treatment. There is an urgent need for a comprehensive and efficient solution to sludge treatment and disposal to alleviate the adverse impact on urban land and the already overloaded landfills. For these reasons, WMG has requested for a third ADB loan to support the WUEIP. The expected ADB loan will be USD 100 million while the total estimated investment of the WUEIP is USD 439.49 million. The WUEIP has a strong rationale both in term of urban development and environmental context supported by the proper execution of the two previous ADB financed projects, the WWM and the WWSM Projects. The proposed project complies with two main development agenda promoted in the ADB's strategy 2020 (2008-2020), the "environmentally sustainable growth" and the "inclusive economic growth". It is in line with and supports PRC's Country Partnership Strategy (2008-2010): promoting efficient infrastructure, strengthening environmental management, supporting inclusive growth and balanced development. It also directly complies with the Millennium Development Goal 7 by ensuring the environmental sustainability of the urban development. The WUEIP will also contribute to establishing Wuhan City as a model city for sustainable development. Sludge treatment and disposal component proposed in the WUEIP aims to: (i) properly treat and dispose of the sludge generated from WWTPs; (ii) reduce pollution, improve the solid waste management of Wuhan City; and (iii) this subcomponent is expected to benefit over 3 million urban residents through the improvement of living conditions, the public health standards, and the urban environment of Wuhan.

Easen International Co. Ltd. 3-22 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis B. Project justification

The characteristic of the dewatered sludge in the existing WWTPs of Wuhan City, including the water content, organic matter, total nitrogen (TN), total phosphorus (TP), potassium (K), sludge calorific value for dry basis, relevant heavy metals such as lead, cadmium, zinc and copper, are presented in the Table 3-5

Table 3-5 The Characteristic Indicators of Dewatering Sludge in the Existing WWTPs of Wuhan City in 2008

Name of Water Organic Sludge calorific value Heavy metal(mg/kg) No. content matter TN(g/kg) TP(g/kg) WWTP (%) (%) (kcal/kg dry basis) Cd Pb Zn Cu K 1 Longwangzui 84 50.21 2564 5.07 121.83 725 393.33 8132 35.89 17.98 2 Huangjiahu 76 37.36 2000 3.17 115.50 912 181.00 15003 29.40 16.57 3 Tangxunhu 79 38.92 2240 4.07 118.12 5020 139.83 11270 33.37 13.01 4 Nantaizihu 79 36.04 2488 4.92 161.83 8865 257.00 9157 28.63 21.56 5 Zhuankou 81 45.74 2550 4.42 403.33 1618 256.00 9005 37.34 20.88 6 Sanjintan 80 60.82 1987 1.38 43.20 647 93.00 7338 44.92 17.97 7 Hanxi 82 44.27 1925 6.00 69.80 684 155.80 7350 39.49 12.40 8 Erlangmiao 75 45.35 2049 3.90 118.90 735 97.00 9285 29.57 9.28

9 Shahu 80 40.10 1963 2.52 78.40 894 100.40 6720 45.67 11.78

Note: i. Data is the average value for multiple-samples; ii. The content of Zinc in Nantaizihu, Zhuankou and Tangxunhu WWTP is higher than other WWTPs’ due to the high concentration of Zinc wastewater discharged by the enterprises in the service area of the above WWTPs.

Easen International Co. Ltd. 3-23 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Table 3-6 the Maximum Limit of Heavy Metals in Dewatered Sludge in China, EU and USA Unit: mg/kg No. Name of standard Cd Pb Zn Cu 1 Sludge standard for agricultural utilization in EU 20- 750- 2500- 1000- (86/278/EEC) 40 1200 4000 1750 2 Maximum limit of U.SEPA (40CFR,Part503,edition of 85 840 7500 4300 2007) 3 Chinese Control Standards for Pollutants in pH<6.5 5 300 500 250 Sludge for Agricultural Use (GB4284-84) pH≥6.5 20 1000 1000 500 4 Chinese Sludge quality for co-landfilling (CJ/T249- 20 1000 4000 1500 2007)

Heavy metal is a major toxic and harmful substance in the sludge that can produce a significant impact on the sludge treatment and disposal. In accordance with the comparison of the Table 3-5 and Table 3-6, the content of heavy metals in the sludge is much lower than the standard for the agricultural application of the sludge (GB 4284-84) and the relevant EU and USA limits (Figure 3-5). Only the measured value of Zinc content exceeded the maximum value since the factories have high Zn concentration in its effluent that flows into the service area. Therefore, it is suggested that the high Zn effluent should be further treated to reduce the Zn level or segregated for further Zn reduction before discharging.

Figure 3-5 The Concentration of Zn in the Dewatered Sludge of the Existing WWTPs in Wuhan City

10000 Maximum limit of U.SEPA (40CFR, Part 503, edition of 2007) 9000

8000

7000

6000 Sludge standard for agricultural utilization in EU (86/278/EEC) 5000

4000

3000 Control Standards for Pollutants in Sludge for Agricultural Use (GB4284-84) 2000 Theconcentration of Zn(mg/kg) 1000

0 Longwangzui Huangjiahu Tangxunhu Nantaizihu Zhuankou Sanjintan Hanxi Erlangmiao Shahu

The above analysis indicates that sludge can be used for land application. But the periodical test for the sludge quality need be carefully set up to reduce the risk on public health.

Easen International Co. Ltd. 3-24 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-6 The Fertilizer Content of the Dewatered Sludge in the Existing WWTPs of Wuhan

The least fertilizer content required for garden and greening (more than3%) 8

7

6

5

4

Fertilizer(%) 3

2

1

0 Longwangzui Huangjiahu Tangxunhu Nantaizihu Zhuankou Sanjintan Hanxi Erlangmiao Shahu

It is shown in Figure 3-6 that in the terms of fertilizer efficiency, the dewatered sludge in all of the existing WWTPs can meet the basic requirement of 3% fertilizer content in “The Disposal of Sludge from Municipal Wastewater Treatment Plant-The Quality of Sludge Used for Afforestation in Gardens or Forests” (CJ/T248-2007). Therefore, land application can be a feasible option for sludge disposal in Wuhan.

Figure 3-7 The Organic Matter and Calorific Value for Dry Basis of Dewatered Sludge in the Existing WWTPs in Wuhan City

70 3000

Organic matter 60 Sludge calorific value 2500

50 2000

40 1500 30

1000 Organic matter(%) 20

10 500 Sludge calorific value(kcal/kg dry basis) dry Sludge value(kcal/kg calorific

0 0 Longwangzui Huangjiahu Tangxunhu Nantaizihu Zhuankou Sanjintan Hanxi Erlangmiao Shahu

It is shown in Figure 3-7 that the average organic matter content is approximately 45.4% for the dewatered sludge in the existing WWTPs with a calorific value between 14 and 32 MJ/kg. This value of dewatered sludge in other cities is about 23 MJ/kg. In general, the organic matter is similar to the national average. The calorific value for dry basis of the dewatered sludge in Wuhan City is 1,925~2564 kcal/kg with the average of 2196 kcal/kg, which is lower compared with the value of other countries such as 6,315kcal/kg in USA, 5,600 kcal/kg in Japan and 6,000kcal/kg in UK. Even within China, it is lower than the 2,700 kcal/kg of Shanghai and 3,000 kcal/kg of Beijing.

As per the recommendation of the PPTA consultants, sludge from several WWTPs were sampled and analyzed for recalcitrant organic matters. The organic and dioxin indicators of the dewatered sludge in the existing WWTPs (Nantaizihu, Sanjintan, Longwangzui and Tangxunhu)

Easen International Co. Ltd. 3-25 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis of Wuhan City, including AOX（as Cl-）, Benzo(a)pyrene, PCBs(mg/kg) and PCDDs & PCDFs, are presented in the Table 3-7.

Table 3-7 The Concentrations of Recalcitrant Organic Compounds in Dewatered Sludge

Benzo(a) PCDDs & AOX（as Cl- PCBs No. Item pyrene PCDFs ）(mg/kg) (mg/kg) (mg/kg) （ng/kg） Limit of CJ248-2007 1 ﹤500 ﹤3 ﹤0.2 ﹤100 for Land Reclamation Limit of CJT 249- 2 2007 for Co- - - - - landfilling Limit of T291-2008 3 for Agricultural 500 3 0.2 100 Application 4 Nantaizihu WWTP ﹤10 0.12 ﹤0.1 4.3-8.3 5 Sanjintan WWTP 20 ﹤0.1 ﹤0.1 2.4-6.0 6 Longwangzui WWTP ﹤10 0.44 ﹤0.1 28-32 7 Tangxunhu WWTP ﹤10 ﹤0.01 ﹤0.1 7.6-11

It is observed that the relevant organic and dioxin indicators in the sludge can meet the requirement for sludge reuse, such as CJ248-2007, CJT 249-200 and T291-2008, which indicate that the dewatered sludge can be reused for landscaping as a soil conditioner, co- landfilling, and other similar land applications.

C. Project benefit

The sludge treatment and disposal subcomponent will provide the proper capability to improve the sludge treatment and disposal of the existing WWTPs. The best urban management practice for collecting, sustainably treating, and reusing the sewage sludge will account up to 50% of the total amount of sludge generated in Wuhan City. This project will help avoiding the improper sludge treatment and disposal and effectively prevent the secondary pollution from the sludge.

It is expected to benefit more than 3 million urban residents involved in the project areas by improving the living conditions, public health standards and the urban environment of Wuhan City, as well as providing significant environmental and socio-economic benefits.

The sludge component will reduce the Wuhan daily required sludge disposal volume from 325 m3 to 102 m3. The residual sludge will be beneficially reused for landscaping as a soil conditioner and a fertilizer to reduce the landfill requirement. The beneficial reuse of the sludge can achieve a significant green house gas (GHG) reduction that complies with national and international adopted guidelines under the climate change protocol.

The major benefits for the sludge treatment and disposal subcomponent are listed as follows: (i) reducing the pressure on sludge management in Wuhan and avoiding potential secondary pollution during the storage, transportation and disposal of the sludge; (ii) reducing landfill space by 94,562 m3 each year (based on treating 325 tons of dewatered sludge with a dry solid content of 20% per day after the completion of the subcomponent) and prolonging the service life of the existing landfill; (iii) reused as fertilizer when as applied for soil remediation; (iv)capturing of biogas generated at the Sanjintan WWTP for sludge drying results in primary

Easen International Co. Ltd. 3-26 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis energy saving while potentially meeting carbon reduction credit under the climate change protocol; (v) enhancing the development and growth of the local economy; (vi) increasing the job opportunities; (vii) reducing the risk on public health; and (viii) providing some valuable experience for future sludge management in Wuhan.

3.2.5.2 Project Proposal

The sludge sub-components, which have been selected to address sludge treatment priorities in Wuhan City (Figure3-8) are: (i) Wuchangnan STP with sludge drying using locally available heat source, (ii) Hankou STP with sludge drying by capturing biogas from anaerobic digesters, (iii) Nantaizihu STP with sludge lime stabilization, and (iv) Modification and improvement of existing sludge treatment and transportation. A brief summary of these subcomponents is presented below.

Easen International Co. Ltd. 3-27 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-8 Location Map of the Sludge Treatment Plants in Wuhan City

Easen International Co. Ltd. 3-28 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

A. Wuchangnan STP with Sludge Drying

Wuchangnan STP subcomponent includes 2 WWTPs, the Tangxunhu WWTP and the Longwangzui WWTP.

(i) Overview.

The service area of Tangxunhu WWTP includes Guanshan, Miaoshan, Liufang and Canglongdao districts reaching 32 km² with a total service population of 200,000. The sewage collection system is a separated sewer system.

The service area of Longwangzui WWTP is in the west of the Guandong Industrial Park, east of the South Luoshi Road, north of the Changjiang Cable Plant and Zhongnan University for Nationalities and south of the Yujia Mountain and Mafang Mountain. The service area of the WWTP is 34 km², and the current population in the area is 360,000. The sewage collection system is also a separated sewer system.

(ii) Current Situation of Sewage Treatment a. Tangxunhu WWTP. Tangxunhu WWTP lies on the border of Guanggu Avenue, southeast of the New Technology Development Zone, and Tangxunhu Road North. It was put into operation in 2005 with the daily design capacity of 50,000 tons in Phase I. The plant covers an area of 83 Mu.

DE Oxidation Ditch Process is used for sewage treatment and the process is presented in Figure 3-9 below:

Figure 3-9 The process flow diagram of Tangxunhu WWTP

Influent Coarse screen Influent pumping station Fine screen

Vortex grit removal chamber DE oxidation ditch Secondary sedimentation tank

Discharge into Yangtze River Chlorination contact tank Effluent pumping station

b. Longwangzui WWTP. Longwangzui WWTP lies in Guanshan village on the bank of , on the west side of Xiongcu Avenue in Wuchang district. The plant was put into operation in 2003 only with physical primary treatment. In the Phase II, this plant started operating with secondary biological treatment process from 2006. The Plant covers an area of 199.5mu (or 13.3 ha) and has a daily treatment capacity of 150,000 tons.

A modified A2/O Active Sludge Process was also used for advance treatment and the process is presented in Figure 3-10 below:

Easen International Co. Ltd. 3-29 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-10 The Process Flow Diagram of Longwangzui WWTP

Influent Coarse screen Influent pumping station Fine screen

Vortex grit removal chamber A/A/O Oxidation Ditch

Chemical Phosphorus Removal Secondary sedimentation tank

Discharge into South Chlorination contact tank Effluent pumping station Lake

(iii) Current Situation of Sludge Treatment and Disposal a. Tangxunhu WWTP. The main sludge treatment process of the Tangxunhu WWTP is gravity thickening and mechanical dewatering. The system is presented in Table 3-8 below:

Table 3-8 The Components of Sludge Treatment System in Tangxunhu WWTP

No. Item Parameter Remarks 1 Sludge pumping station 1 2 Sludge Thickening and 1 equipped with 3 belt sludge thickening Dewatering Plant dewatering machine, 2 use and 1 standby Note: At present, the dewatered sludge is transported to the Erfeishan landfill. b. Longwangzui WWTP. The main sludge treatment process in Longwangzui WWTP is gravity thickening and mechanical dewatering. The system is presented in Table 3-9 below:

Table 3-9 The Components of Sludge Treatment System in Longwangzui WWTP

No. Item Parameter Remarks 1 Sludge Thickening Tank 1 2 Sludge pumping station 1 3 Sludge conditioning pool 1 4 Sludge Thickening and 1 equipped with 2 centrifugal sludge dewatering Dewatering Plant machine, 1use and 1 standby Note: At present, the dewatered sludge is transported to the Erfeishan landfill.

Easen International Co. Ltd. 3-30 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

(iv) Proposed Options for Sludge Treatment and Disposal

The proposed treatment capacity of Wuchangnan STP is 40 tons DS/day. It is proposed to take advantage of the excess steam produced at the nearby Gaoxin Heat and Power Plant to provide heat for this Sludge Drying Plant. This proposed action will give an improved DS content after drying of between 70%~90%. Sludge from Longwangzui WWTP, Tangxunhu WWTP, Baoxie WWTP (proposed) will be treated at this plant. The proposed sludge treatment process is presented in the Figure 3-11 as below. The “agreement of intent for steam supply” has been signed between WUDDC and Wuhan Gaoxin Heat and Power Co., Ltd. (refer to Appendix 3-1)

Easen International Co. Ltd. 3-31 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

Figure 3-11 The sludge treatment process of Wuchangnan STP

Easen International Co. Ltd. 3-32 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

(a) Alternatives for Sludge Treatment Options. For the Wuchannan STP, the Fluidized Bed Drying Process was compared with the Belt Drying Process based on the capital cost and O&M cost. These cost comparison is presented in Table 3-10 below:

Table 3-10 Capital Costs Comparison Between Two options for Wuchangnan STP

No. Project Fluidized Bed Dryer($) Belt Dryer($)

1 Purchase of equipment and utensils 9,117,647 7,911,765

2 Installation engineering 735,294 411,765

3 Construction engineering 617,647 355,882

4 Total 10,470,588 8,679,412

Annual operation and maintenance (O&M) costs of the two processes are presented in Table 3-11 below:

Table 3-11 O&M Costs of Two Options for Wuchangnan STP Fluidized Bed Belt No. Project Dryer($) Dryer($)

1 Steam 901,765 1,027,941

2 Electricity consumption cost(0.09$/kwh) 438,971 386,471

3 Cost of labor (7352.94$/PE) 110,294 58,824

4 Maintenance 73,529 58,824

5 Deodorization, dust removal 44,118 29,412

6 Annual operation cost for sludge treatment 1,568,676 1,561,471 Operation cost for treatment of 1 ton wet 7 30.00 29.85 sludge

The above costs have not included costs for the sludge transportation, sludge treatment and the condensate treatment that are the same for both options. The steam price will be confirmed after the signing of contract.

Based on the Table 3-11, the O&M costs of the two options are similar but the capital cost of the fluidized bed drying process is higher. From the O&M perspective, the Belt Drying Process is simple in operation and maintenance and its sludge water content can be adjusted in a wide range. The disadvantage of the Belt Drying Process is its high energy consumption. Presently it is still not commonly adopted in China. The advantage of the Fluidized Bed Process is its high efficiency of energy utilization. The energy cost will represent the major expense for using this process to dry the sludge. There are more reference projects in China using the Fluidized Bed Process with certain operational experience. The disadvantages include its relatively complicated maintenance requirement and the water content in the output sludge requiring post mixing. Based on the above comparison and analysis, the Belt drying Process is recommended for this project.

Easen International Co. Ltd. 3-33 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

(b) Alternatives for Sludge Disposal Options. After the drying process, the following sludge disposal options are proposed:

Soil amendment Dried sludge could be used as soil amendment for the 100 meters wide green belt along the sides of the outer ring road in Jiangxia district in Wuhan. The green belt has an area of approximately 7,000 Mu and it is owned by a forestry development corporation under the Forestry Bureau of Wuhan City. An Agreement has be signed with the Forestry Development Corporation (refer to Appendix 3-1).

Sanitary landfill. If the quality of the dried sludge does not meet the requirements for forest utilization (CJ248-2007), the dried sludge will be disposed of at a sanitary landfill. The Changshankou MSW Landfill, with a design service life of 50 years and an expected daily landfill capacity of 1,000 ton, is located approximately 35 km from the Tangxunhu WWTP and is currently under construction.

Other disposal options such as soil conditioner for mountains and earth fill for construction projects can also be considered.

B. Hankou STP with Sludge Drying by Biogas Utilization

(i) Overview

The service area of the Sanjintan WWTP is the eastern Hankou district. The main industries are food processing, machinery, paper making and chemicals. Major industrial enterprises in the area are Wuhan Shuailun Paper Co., Ltd., Jiang’an Vehicle Factory, Wuhan United Processing Factory of Meat, 3501 Factory. The service area of WWTP is 61.4 km², and current population is 840,000.

(ii) Current Situation of Water Supply, Sewage and Sludge Treatment

There are two WWTPs in the eastern Hankou district with a daily treatment capacity of 1 million m³ and 160,000 m³. In the area the total daily water consumption amount in 2000 was 346,000 m³, including municipal and industrial water. The daily municipal water demand is 242,000 m³ and industrial water demand is 104,000 m³.

(iii) Current Situation of Sewage Treatment

The Phase I Sanjintan WWTP project is funded by ADB loan with a design daily capacity of 300,000 m³. The plant covers an area of about 358 Mu. The plant is located in the Sanjintan area, which is on the border of Zhanggong dike, Dongxi lake zone and Fu river dike, Jiang’an zone. By the end of 2008, the Sewage Interception Gateway Project of Huangxiao River upstream was completed. There is a daily flow of 10,000 tons of sewage to the Sanjintan WWTP through the pipeline network. By April 2009, the average daily sewage treated at Sanjintan was 278,000 m³ and this number increased to 281,000 m³ in May. The basic drainage pipeline network system of Sanjintan WWTP Phase I is a combined sewer system.

A/O biological pond Process is used for sewage treatment and the process is presented in Figure 3-12 below:

Easen International Co. Ltd. 3-34 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-12 The Process Flow Diagram of Sanjintan WWTP Influent Coarse screen Influent pumping station Fine screen

Aerated grit removal chamber Primary sedimentation tank

A/O biological pond Secondary sedimentation tank Chlorination contact tank

Discharge through Fu River into Yangtze River Effluent pumping station

(iv) Current Situation of Sludge Treatment and Disposal

The main process of sludge treatment includes gravity thickening and mechanical dewatering. The system is presented in Table 3-12 below:

Table 3-12 The Sludge Treatment System Components of Sanjintan WWTP No. Item Parameter Remarks I Sludge pumping station 1 1.1 Water content: 99.2% 1.2 Volume of excess sludge: 2,240 m³/d Q=112 m³/h, 1.3 2 excess sludge pumps 1 use and 1 standby H=6.5 m, N=4kW II Sludge storage tank equipped with 3 rotary drum thickening Sludge thickening and III machine and 2 centrifuge dewatering dewatering plant machine (1 use and 1 prepared). 3.1 Sludge thickening mass 20,625 kg/d To be dewatered sludge 2,578 m³/d, water 3.2 volume content of 99.2% 136m³/d, water 3.3 Dewatered sludge volume content ≤ 75% Flocculants dosage 1-5 kg/t Ds IV Sludge dosage plant 3 sludge dosage pumps Q=45 m³/h 2 use and 1 standby 2 egg-shaped digesters, maximum internal diameter of single digester is V Sludge anaerobic digester 15-20 d of 26 m, total height of 48.20 m and useful capacity of 13,800 m³. 5.1 Digestion time 5.2 Digestion temperature 34-35 ℃ Decomposition rate of 5.3 about 50 % organic matter Volume of generated 5.4 biogas by 1 kg organic about 0.7-1.1 m³ matter decomposition 442 m³/h VI Desulfurizer maximum gas for each desulfurizer VII Gas tank 5,000 m³. VIII Gas flaring

Easen International Co. Ltd. 3-35 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Note: Currently, the dewatered sludge is transported to the ore pit of Xin-Nong quarry in Hanyang district.

(v) Proposed Options for Sludge Treatment and Disposal

The sludge drying treatment at the Hankou STP will be strengthened by the installation of a biogas utilization system for the sludge drying. Biogas collected from the anaerobic digestion tanks at the Sanjintan WWTP will then be combusted to provide the necessary heat energy for the sludge drying. The treatment capacity of the system will be 20 tons DS/day. Sludge from the Sanjintan and Huangpulu (subject to upgrade) WWTPs will be treated by this system. During winter, the production of biogas may not be sufficient to adequately treat all 20 tons DS/day. It is proposed to install a Lime Stabilization System with a treatment capacity of 10 tons DS/day as a back-up option for the winter seasons. The proposed sludge treatment process of Hankou STP is presented in Figure 3-13.

Easen International Co. Ltd. 3-36 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-13 The sludge treatment process of Hankou STP

Easen International Co. Ltd. 3-37 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis a. Alternatives for Sludge Treatment Option. For the Hankou STP, the Belt Drying Process and the Turbo Thinlayer Drying Process were compared based on capital cost and O&M cost. The cost comparison is presented in Table 3-13 below:

Table 3-13 Capital Cost Comparison Between Two Options for Hankou STP

No. Project Bed Dryer($) Turbo Thinlayer Dryer($)

Purchase of equipment 1 4,382,353 5,882,353 and utensils 2 Installation engineering 294,118 588,235

3 Construction engineering 355,882 185,294

4 Total 5,032,882 185,294

Annual operation costs two processes are presented in Table 3-14 below:

Table 3-14 O&M Costs of Two Options for Hankou STP

Turbo Thinlayer No. Project Belt Dryer($) Dryer($)

1 Natural gas(0.34$/m3) 685,147 623,382

Electricity consumption 2 223,529 270,588 cost(0.09$/kwh) 3 Cost of labor (7352.94$/PE) 58,824 58,824

4 Maintenance 29,412 73,529

5 Deodorization, dust removal 29,412 29,412 Annual operation cost for sludge 6 1,026,324 1,055,735 treatment Operation cost for treatment of 1 ton 7 28.09 28.97 wet sludge

The above costs have not included costs for the sludge transportation, sludge treatment and the condensate treatment, which are considered the same for each option.

Based on the above table, the O&M costs of the two options are similar but the capital cost of the belt drying is lower. From the O&M point, the Belt Drying Process is simple in operation and maintenance. The disadvantage of the Belt Drying Process is its high energy consumption. The advantage of the Turbo Thinlayer Drying Process is its high efficiency of energy utilization. The disadvantages include its relatively high material requirements and maintenance problems due to the relatively high grit content in the sludge. Based on the above comparison and analysis, the Belt drying Process is recommended for this project.

Easen International Co. Ltd. 3-38 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis b. Alternatives for Sludge Disposal Option. The dried sludge from Hankou STP will be disposed by the following options:

Soil amendment for forest area. Dried sludge could be used as soil amendment for the 100 meters wide green belt along the sides of the outer ring road in Jiangxia district in Wuhan. The green belt has an area of approximately 7,000 mu and it is owned by a forestry development corporation under the Forestry Bureau of Wuhan City. An Agreement should be signed with the Forestry Development Corporation.

Sanitary landfill. If the quality of the dried sludge does not meet the requirements for forest utilization (CJ248-2007), the dried sludge can be disposed in a sanitary landfill. The Yangluo Chengjiachong MSW Landfill, with a design life of 20 years and a landfill capacity of 2,000 tons/d, is located approximately 25 km from Hankou STP and is available to accept the dried sludge.

Other disposal options such as soil conditioner for mountains and earth fill for construction projects can also be considered.

C. Nantaizihu STP with Sludge Lime Stabilization

(i) Overview

The service area of the Nantaizihu WWTP is Hanyang district. The main industries in the area are iron and steel smelting, paper-making, textiles, machinery, pharmacy and food processing. Major industrial enterprises in the area are Hanyang Iron and Steel Plant, Wuhan Chenming Paper Co. Ltd., Wuhan Wei-Chuan Video Co. Ltd., Wuhan Cigarette Factory, Wuhan Jianmin Pharmaceutical Factory, Chang-Yin Industrial Park, and Wuhan Hong-Xing Hot-dipping Factory. The service area of the WWTP is 21.3 km² with a residential population of 377,200 in 2003.

(ii) Current Situation of Water Supply, Sewage and Sludge Treatment

There are two WWTPs in Hanyang district with a future planned daily treatment capacity of 300,000 m³ and 40,000 m³. In August 2008 daily total water consumption was 126,400 m³, including 93,400 m³ municipal water and 33,000 m³ industrial water.

(iii) Current Situation of Sewage Treatment

The Phase I project of Nantaizihu WWTP is a project financed with a loan from the Polish Government. The daily design capacity is 100.000 m³ and the WWTP was put into operation in 2005 servicing the 21.3 km² Hanyang district with a population of 250,000. The WWTP is located about 200 m southwest of the Yangtze Road in Hanyang, and about 1,000 m north of the 3rd Yangtze River Bridge. The plant of Phase I services an area of about 11.8 ha. The drainage network is a combined system.

An Oxidation Ditch Process is used for sewage treatment and the process is presented in Figure 3-14 below:

Easen International Co. Ltd. 3-39 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-14 The Process Flow Diagram of Nantaizihu WWTP

Influent Coarse screen Influent pumping station Fine screen

Vortex grit removal chamber Oxidation Ditch Secondary sedimentation tank

Discharge through South Lake Chlorination contact tank Effluent pumping station

into Yangtze River

Note: The actual daily influent amount during June through August 2007 was more than 100,000 m³ in Nantaizihu WWTP.

(iv) Current Situation of Sludge Treatment and Disposal

Main process of sludge treatment is gravity thickening and mechanical dewatering. The system is presented in Table3-15 below:

Table 3-15 The Sludge Treatment System of Sanjintan WWTP

No. Item Parameter Remarks I Sludge pumping station 1 1.1 Water content: 99.2% 1.2 Volume of excess sludge: 2,240 m³/d Q=140 m³/h, H=10 1.3 2 excess sludge pumps 1 use and 1 standby m, N=5.7 kW. equipped with 2 II Sludge conditioning pool 7mx7 m x 4.2 m submersible agitators and 1 decanter 2.1 Water content: 99.2% 2.2 Volume of excess sludge 2,240 m³/d 2.3 Retention time 1.5 h Sludge Thickening and III Dewatering Plant 3.1 Water content 99.2% To be dewatered sludge 3.2 2,240 m3/d volume Dry weight of excess 3.3 177,000 kg/d sludge 80 m3/d, water 3.4 Dewatered sludge volume content ≤78% 3.6 Flocculants dosage 3-4.5 kg/t dry sludge 3.7 Belt press 2 m bandwidth 2 use and 1 standby Note: At present, the dewatered sludge is transported for landfill at Zhashan waste disposal site in .

(v) Proposed Options for Sludge Treatment and Disposal

A lime stabilization STP will be added, with a treatment capacity of 10 tons DS/day at the Nantaizihu WWTP. The lime will be added to 7-10% of sludge to reduce the water content of sludge before final disposal. The addition of lime will also be added to disinfect and stabilize the sludge. A natural drying site of approximately 500 m2 will also required.

Easen International Co. Ltd. 3-40 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Stabilized sludge from Nantaizihu sludge lime stabilization plant will be disposed in following options:

The high Zn concentration found in the Nantaizihu WWTP seems to come from a galvanizing factory in its service area. It is recommended that Zn concentration be monitored and further reduced if necessary at that galvanizing factory’s discharge. The stabilized sludge with acceptable Zn concentration should be utilized for the Tang Mountain rehabilitation project or as construction fill material where the need arises. If the stabilized sludge still has high Zn concentration that cannot meet the relevant requirements for garden and forest greening and soil amendment, then the stabilized sludge will need to be sent to the Changshankou MSW Landfill. The proposed sludge treatment process of Nantaizihu STP is presented in Figure 3-15:

Easen International Co. Ltd. 3-41 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

Figure 3-15 The sludge treatment process of Nantaizihu STP

Easen International Co. Ltd. 3-42 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

D. Modification and Improvement of Existing Sludge Treatment and Transportation

Based on a thorough analysis for improving sludge handling, it is proposed that (i) any existing sludge transportation vehicle at each WWTP that does not meet the urban sanitary and environmental requirements for sludge transportation should be replaced; (ii) any existing dewatering equipments which were more than 7 years old and/or does not result in a dry solid content of at least 20% in the produced sludge cake should be considered for replacement by more efficient equipments; and (iii) if a particular WWTP is at the centre of a residential area, the addition of a dewatered sludge storage site should be considered for the WWTP.

In line with these proposals, the following improvements are suggested: y The purchase of a number of transport vehicles with tanker, according to the requirements of the WUDDC. y Existing sludge dewatering facilities at Longwangzui WWTP will be upgraded due to the existing equipments reaching the end of their service life. The existing belt filter press should be replaced by the diaphragm frame filter press in accordance with the flexibility in adjusting the water content of dried sludge, saving more energy and creating more treatment capacity y Sludge silo and metering devices will be added to WWTPs according to the requirements of the Project and the WUDDC

Once the above sub-components are implemented, about half of the sewage sludge in Wuhan can be properly treated as shown in Table 3-7. The daily required sludge disposal volume will be reduced by two thirds as in Table 3-8. The above mentioned solutions will not only guarantee that the sludge will meet the disposal requirement for landfill but also enable alternative sustainable sludge disposal options to be pursued.

Easen International Co. Ltd. 3-43 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

Table 3-16 Sludge Volume and Production Comparison No. Treatment Process Unit Sanjintan Longwangzui Tangxunhu Nantaizihu Total

I. Current Sludge Treatment Situation after Dewatering without ADB Measures Actual waste water design m3/d 300,000 150,000 50,000 100,000 600,000 1.1 capacity

Current waste water inflow m3/d 250,000 170,000 50,000 90,000 560,000 1.2

Sludge volume m3 WS/d 120.0 167.0 20.0 46.0 353.0 1.3

Sludge content % 20.0 17.5 20.0 22.0 19.1 1.4

Sludge production kg DS/d 24,000 29,225 4,000 10,120 67,345 1.5 II. Input of ADB Measures for Sludge Treatment 2.1 Anaerobic Digestion yes Dewatering with high efficient 2.2 equipment 2.3 Lime Stabilization Back up yes 2.4 Drying yes yes yes III. Output of ADB Measures for Sludge Treatment 3.1 Sludge volume m3 WS/d 46.5 36.5 5.0 29.6 117.7 Sludge content % 40.0 80.0 80.0 45.0 55.4 Sludge production kg DS/d 18,600 29,225 4,000 13,340 65,165 3.2 Sludge Volume Reduction m3 WS/d -74 -130 -15 -16 -235 Sludge content % 20 63 60 23 36 Sludge Production Reduction kg DS/d -5,400 0 0 3,220 -2,180

Easen International Co. Ltd. 3-44 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis 3.2.5.3 Cost Analysis of the Sludge Treatment and Disposal Component Table 3-17 Operation Estimate List Cost estimate (Ten thousand,CNY ) No. Item Wuchangnan STP Hankou STP Nantaizihu STP Remarks (40tons/d·DS) (20tons/d·DS) (10tons/d·DS) Annual depreciation rate 4.8%，Residual Annual depreciation expense value 4%（the same for the above 3 1 627.57 332.61 82.67 STPs） Original value of fixed assets 1.7%（the Repair cost 2 222.26 117.80 29.28 same for the above3 STPs） Intangible and other assets 10%（the same Amortization 3 1.08 0.57 0.14 for the above 3 STPs） 4 Maintenance fee 70.00 25.00 5.00 Steam, natural gas and lime is used Fees for steam, natural gas and respectively for the sludge dewatering in the lime STP of Wuchangnan, Hankou and 5 993.40 109.10 32.85 Nantaizihu 6 Electric power changes 274.00 152.00 15.77 Fees for deodorization and dust 7 removal 20.00 20.00 5.00 8 Fee for disposal measures 80.30 52.93 29.66 8 staffs、10 staffs and 4staffs are allocated 9 Welfare respectively for the STP of Wuchangnan, 40.00 50.00 20.00 Hankou and Nantaizihu 10 Sludge transportation cost 275.58 79.39 59.31 11 Management and other cost 52.08 18.79 5.59 12 Interest Domestic loan interest

Easen International Co. Ltd. 3-45 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

Cost estimate (Ten thousand,CNY ) No. Item Wuchangnan STP Hankou STP Nantaizihu STP Remarks (40tons/d·DS) (20tons/d·DS) (10tons/d·DS) Loan interest of working capital 13 Total costs 2656.28 958.19 285.28 Fixed costs 1013.00 544.78 142.69 Variable costs 1643.28 413.41 142.59 14 Operating cost 2027.62 625.00 202.46 The annual total volume of sludge 15 treated(ton) 73000.00 36500.00 18250.00 Total cost of unit treated 16 sludge(CNY/ton) 363.87 262.52 156.32 Operating cost of unit treated 17 sludge(CNY/ton） 277.76 171.23 110.94

The cost estimate analysis includes the analysis of the investment cost and operating cost for the above 3 STPs. In Wuchangnan STP, the design treatment capacity is 40tons DS/d and the DS content of the sludge after drying will be between 70% and 90%. The total investment cost is approximately CNY 26.56 million and the operating cost of unit treated wet sludge is about CNY 277.76/ton. In Hankou STP, the design treatment capacity is 20tons DS/d and the DS content of the sludge after drying will be between 50% and 70%.During winter, the biogas production may not be sufficient to adequately dry the sludge. Therefore, as a backup solution, an additional lime stabilization system with a treatment capacity of 10 tons DS/day for the winter season is also proposed The total investment cost is approximately CNY 9.58 million and the operating cost of unit treated wet sludge is about CNY 171.23/ton. In Nantaizihu STP, the design treatment capacity of a sludge lime stabilization facility is 50tons DS/d of wet sludge with a DS content of 20%and the DS content of the sludge after lime stabilization will be improved to 50%. The total investment cost is approximately CNY 2.85 million and the operating cost of unit treated wet sludge is about CNY 110.94/ton.

Easen International Co. Ltd. 3-46 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis 3.2.5.4 Detailed Description of the Sludge Component

A. Major Construction and Cost Estimate

Table 3-18 Major Construction and Estimated Cost (1 USD=6.8242 RMB) Contract Package Cost Estimate Cost Estimate No. Type and Description (RMB, million) (USD, million) Civil Works of Wuchangnan STP, WST-C1.1 Nantaizihu STP and Longwangzui Sludge 10.83 1.59 Dewatering Plant

WST-C1.2 5.36 0.79 Civil Works of Hankou STP

WST-G1.1 Goods of Sludge Drying for Wuchangnan 73.04 10.70 STP Goods and Related Services of Sludge WST-G1.2 37.95 5.56 Drying for Hankou STP Goods and Related of Sludge Lime WST-G1.3 Stabilization of Hankou STP and Nantaizihu 14.74 2.16 STP Goods and Related of Sludge Silos for WST-G1.4 Sanjintan, Longwangzui and Nantaizihu 22.66 3.32 WWTPs Goods and Related of Frame Filters for WST-G1.5 23.98 3.51 Longwangzui WWTP WST-G1.6 Sludge Transport Vehicles 17.60 2.58 WST-G1.7 Sludge Analysis Instrument 2.20 0.32 Total 208.37 30.53

Easen International Co. Ltd. 3-47 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis B. Procurement Plan Table 3-19 Procurement Plan Expected Prior Contract Package Procureme No. Date for Review Type and Description nt Method Advertisement (Yes/No) Civil Works Civil Works of Wuchangnan STP, Nantaizihu STP and WST-C1.1 NCB April 2010 Yesa Longwangzui Sludge Dewatering Plant

WST-C1.2 NCB February 2011 No Civil Works of Hankou STP Goods and Related

Service

WST-G1.1 Goods of Sludge Drying for ICB June 2010 Yes Wuchangnan STP Goods and Related Services WST-G1.2 of Sludge Drying for Hankou ICB April 2011 Yes STP Goods and Related of Sludge Lime Stabilization of WST-G1.3 ICB August 2010 Yes Hankou STP and Nantaizihu STP Goods and Related of Sludge Silos for Sanjintan, WST-G1.4 ICB March 2011 Yes Longwangzui and Nantaizihu WWTPs Goods and Related of Frame WST-G1.5 Filters for Longwangzui ICB May 2011 Yes WWTP WST-G1.6 Sludge Transport Vehicles ICB June 2011 Yes

WST-G1.7 Sludge Analysis Instruments NCB June 2011 No a this package is scheduled to be the first one procured. For NCB, the first draft English language version of the NCB procurement documents should be submitted for ADB review and approval regardless of the estimated contract amount.

Easen International Co. Ltd. 3-48 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

C. Construction Plan and Implementation Schedule Table 3-20 Implementation Schedule 2010 2011 2012 2013 2014 No. Activity 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 A. Sludge Treatment

and Disposal Ⅰ Wuchangnan STP Design and Tender 1.1 Documentation Land acquisition and 1.2 resettlement (Not Applicable) Bid Invitation, Evaluation, 1.3 Contract Award 1.4 Civil Works Construction 1.5 Equipment Installation Testing and 1.6 Commissioning Ⅱ Hankou STP Design and Tender 2.1 Documentation Land acquisition and 2.2 resettlement (Not Applicable) Bid Invitation, Evaluation, 2.3 Contract Award 2.4 Civil Works Construction 2.5 Equipment Installation Testing and 2.6 Commissioning Ⅲ Nantaizihu STP Design and Tender 3.1 Documentation Land acquisition and 3.2 resettlement (Not Applicable) Bid Invitation, Evaluation, 3.3 Contract Award 3.4 Civil Works Construction 3.5 Equipment Installation Testing and 3.6 Commissioning WWTP Sludge Facilities IV Improvement Design and Tender 4.1 Documentation Land acquisition and 4.2 resettlement (Not Applicable) Bid Invitation, Evaluation, 4.3 Contract Award 4.4 Civil Works Construction 4.5 Equipment Installation Testing and 4.6 Commissioning

Easen International Co. Ltd. 3-49 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis D. Operations and Maintenance Cost

Table 3-21 The Operating Cost Summary for Wuhan Sludge Treatment and Disposal Component Cost No. Item Remarks (Ten thousand, CNY) 1 Annual depreciation expense 1152.36 2 Repair cost 408.13 3 Amortization 2.52 4 maintenance fee 100.00 5 Fees for steam, natural gas and lime 1135.35 6 Electric power changes 441.77 Fees for deodorization and dust 7 45.00 removal 8 Fee for disposal measures 162.88 9 Welfare 165.00 33 persons 10 Sludge transportation cost 414.28 11 Management and other cost 80.55 12 Interest Domestic loan interest Loan interest of working capital 13 Total costs 4107.83 Fixed costs 1908.56 Variable costs 2199.27 14 Operating cost 2952.95 The annual total volume of sludge 15 127750.00 treated(ton) Total cost of unit treated 16 321.55 sludge(CNY/ton) Operating cost of unit treated 17 231.15 sludge(CNY/ton） The annual total volume of sewage 18 21900 treated(ten thousand tons) Total cost of sludge treatment form 19 0.19 unit sewage (CNY/ton) Operating cost of sludge treatment 20 0.13 form unit sewage (CNY/ton)

Easen International Co. Ltd. 3-50 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

3.3 TECHNICAL ANALYSIS FOR WUHAN NEW ZONE LAKES/CHANNELS REHABILITATION, SIXIN PUMPING STATION AND YANGCHUN LAKE SECONDARY URBAN CENTER LAKE REHABILITATION

3.3.1 Background

3.3.1.1 Current Status of Surface Water Resources in Wuhan City

The main rivers in Wuhan city are Yangtze River and Han River. The main water bodies between Yangtze River and Han River are the Houguan Lake, Longyang Lake, Moshui Lake, Sanjiao Lake, Nantaizi Lake and Beitaizi Lake. In the history, all six lakes were connected. Evidence of this can be traced back to the time of Three Kingdoms (about 1,800 years ago). The comparisons of this watershed area between Year 1914 and 2000 are shown in Figure 3- 16 and Figure 3-17.

Figure 3-16： Map of Wuhan Lakes and Rivers in Year 1914

Figure 3-17 Map of the Wuhan Lakes and River in Year 2000

The construction of Qinduankou Gate, Dongfeng Gate, Donghu Pumping Station and various

Easen International Co. Ltd. 3-51 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis other gates and pumping stations has cut many connections between the lakes and the rivers, although the lake systems and the rivers are still closely connected through many of the pumping stations in the city. The discharge of lakes and storm water runoff -to the river are controlled by pumps and gates, which can be opened during the flood season. The lakes and channels have functioned as storage and treatment facilities for storm water and the discharged water, resulting in accumulation of silt and sediments on the bottom.

Some basic information about Han and Yangtze River are shown in Tables 3-22 and 3-23.

Table 3-22 Basic Data of Yangtze River River Length River basin area Total water volume (km) (million km2) (billion m3) Yangtze River 6300 1.8 961.6 Mid reach 955 0.68

Table3-23 Basic Data of Han River River Length River basin area Total water volume (km) (million km2) (billion m3)

Han River 1532 0.174 60.6

The Han River flows into the Yangtze River at Wuhan. The Wuhan Environmental Monitoring Center has conducted an annual water quality analysis for the Han River and the Yangtze River for the year 2008. The details of the study are summarized in Table 3-24. The water quality analysis is evaluated by reference to Class III of the “Surface Water Environmental Quality Standard (GB3838-2002)”. From comparison, it is determined that the water quality of the Han River and the Yangtze River meet the Class III standards as per GB3838-2002.

Table 3-24 Water Quality of Yangtze River and Han River (2008) Item pH DO CODMn BOD5 NH3- Petrol TP COD N ClassⅢ 6~9 5 6.00 4.00 1.00 0.05 0.20 20 Shamao 7.95 8.42 2.84 1.32 0.23 0.02 0.11 9.14 Yangtze Yangsigang 7.95 8.50 2.94 1.25 0.23 0.02 0.11 8.36 river - Baixushan 8.07 8.70 2.81 1.46 0.24 0.02 0.11 8.36 Sections: Average 7.99 8.54 2.86 1.35 0.23 0.02 0.11 8.62 Guojiatai 8.09 8.44 3.18 1.55 0.26 0.02 0.12 11.64 Longwangmiao 8.10 8.56 3.18 1.75 0.27 0.02 0.11 11.44 Han Xingang 8.12 8.55 3.25 1.61 0.26 0.02 0.11 11.94 River- Zongguan 8.11 8.71 3.14 1.74 0.26 0.02 0.10 11.5 Sections: Hanyang 8.00 8.13 4.58 3.23 0.40 0.03 0.08 16.33 Prison Average 8.11 8.61 3.19 1.70 0.26 0.02 0.11 11.63 Note: The unit of the parameters is mg/l except pH and temperature.

Based on the data of “Wuhan City Surface Water Quality Monitoring Brief Report in 2008”, the Fecal Coliforms in Longwangmiao Monitoring Section was met with Class V in January and November. But all of other indicators of water quality were met with Class III. In addition, Han River had algal bloom in February 1992, February 1998, February 2000, February 2003, March 2005 and February 2008. These problems were mainly caused by high concentration of nitrogen and phosphorus in the water. But almost all of the algal blooms were happened in February. PPTA team suggested that the water intaking time from Han River should avoid the

Easen International Co. Ltd. 3-52 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis months mentioned above. The time for water intake should also be determined based on monitoring data of water quality of the Han River.

The annual monitoring data from 2006 to 2008 for the lake water quality in Wuhan are summarized in Table 3-25.

Table 3-25 Wuhan City Lake Water Quality (2006-2008) Worse than Year Class Ⅱ Class Ⅲ Class Ⅳ Class Ⅴ Class Ⅴ 2006* 35.4% 10.0% 36.5% 18.1% 2007* 2.4% 41.9% 24.6% 31.1% 2008* 7.0% 53.6% 16.3% 23.1% *The numbers of evaluated lakes are 62 in 2006, 45 in 2007 and 55 in 2008

From these data, before 2007, the water qualities in most of the city’s lakes were deteriorating. However, after implementing the “Clean Water into Lake” project in the 2006, the water quality got improved from 2008. It will be helpful after the 2009 data is available for further analysis of the trend on water quality improvement. This is the first step of achieving an overall water quality improvement for all the water systems in the area. However, Wuhan still has a long way ahead to improve the water quality of these polluted lakes and water bodies. The current plan is to bring water from the Han River into the six lakes in Hangyang, which will help to restore the ecological system in these lakes.

3.3.1.2 Wuhan City Lake and Channel Rehabilitation Strategy

Before the rapid urbanization, the Wuhan lake systems were naturally connected to the Han River and the Yangtze Rivers and formed a vast watershed area covering the surrounding Wuhan area (i.e. “Jianghan Plain”). The agricultural activities and the earlier human settlement gradually reshaped this area but had not altered the water bodies extensively. However, some of the lakes began to disappear with the recent urbanization process to expand the Wuhan urban area. These lakes were part of the natural ecological system that allowed the necessary water circulation and sustained the healthy condition of the lakes themselves. 4 The intensification of the peripheral agricultural activities, urban construction acceleration, industrialization and the lack of environmental protection during the past 20 years had led to an alarming alteration of the natural circulation system including complete blockage of the water system in certain locations. Unless the water management issue is resolved, this is damaging to the existing districts of Wuhan where environmental conditions have deteriorated as well as blocking new initiatives to promote sustainable urban development.

In September 2002, the National Ministry of Science and Technology awarded a grant to Wuhan to conduct a special “Water Pollution Control Technology and Treatment Project” which was the first Special Water Project. In this project a team formed by the Wuhan University, Wuhan Water Bureau and the Aquatic Biological Research Institute of the Chinese Academy of Sciences conducted research on water transferring optimization technology to improve the water quality of city lakes. They studied the potential options for water quality improvement of Moshui Lake, Nantaizi Lake, Longyang Lake and Sanjiao Lake in Hangyang, and developed an interconnected four-lake water quality model. The model simulated the effects of an ecological water transfer project and quantitatively described the improvement of lake water quality after water transfer project. This study has provided a scientific basis for optimizing the implementation plans for the integrated water quantity and quality diversion in the four-lake system. After the four-lake water diversion project was completed, this team then applied the

4 In the West area, the natural water circulation was flowing from the Han River through the Hanyang lakes and channels system to the Yangtze. In the East area, the main lakes were linked with the Yangtze River.

Easen International Co. Ltd. 3-53 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis water quality model for the six-lake water diversion project which aimed at connecting East Lake with Sha Lake, Yanxi Lake, Yandong Lake, Bei Lake and Yangchun Lake in Wuchang (East Lake system), diverting water from the Yangtze River to the East Lake system, and restoring the natural connection between the river and the lakes. This model quantitatively simulated and analyzed the changes of water quality in the six lakes with different water diversion routes and volumes. Figure 3-18 showed the layout of Wuchang 6 Lake Connection Project.

Figure 3-18 Wuchang 6 Lake Connection Project

The previous ADB project also financed a water quality modeling component that aimed to tackle the surface water quality in Wuhan. The main objectives and significances of the water modeling were:

• To develop water quality models for simulating water bodies’ quality, such as the Yangtze River, Han River, East Lake and South Lake • To provide a scientific supporting system in order to (i) optimize the outfall-layout plans for rivers and lakes, (ii) carry out analysis to understand the contribution of wastewater treatment works on water quality improvement, and (iii) develop a drinking water safety pre- warning program. • To provide assistance to the improvement/restoration of the water quality and enhance environmental best management practice for surface water in Wuhan.

Within the Hubei Urban Environment Project (HUEP) and the ADB financed Phase I and II projects in Wuhan, sewage interception and treatment were the key components. As a follow up, the “Clean Water into Lake” project has been implemented by the WMG since 2006. The purpose of this project was to continue the interception of all the untreated wastewater being discharged into the lakes located in and around Wuhan’s urban area. The implementation of this project is expected to be completed by the end of 2009 with a total investment of CNY 830 million for intercepting 176 identified point sources in 38 lakes located in Wuhan urban areas.

Lessons learnt from international and national lake rehabilitation experience showed that the improvement of lake water quality would depend largely on the successful interception of the point and non-point source pollutant to the lakes. The dredging of the river and lake sediment

Easen International Co. Ltd. 3-54 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis and the diversion of river’s water into the lakes would help speed up the water quality improvement through restoring the natural assimilation capability of the surface water systems when all the point source and most of the non-point source pollutants are intercepted over a certain time frame. Based on international experience, water modeling was an effective tool for the implementation of a successful lake/river rehabilitation program. The current water model available for Wuhan should be further developed and then could be used to guide the detailed design of the proposed project components and subsequently to optimize water flows and circulation in the lake systems.

The following strategies are suggested as guidelines for lake rehabilitation in Wuhan. These solutions are formulated to focus on the protection of the biological environment in Yangtze River. The lake rehabilitation will promote the continuous development and solve the lake pollution problem.

(i) Pollution source control. Clean production of enterprises to be rigorously promoted in Yangtze River Area. All wastewater should be treated before discharge to any surface waters.

(ii) Pollutant load control. Agricultural non-point source pollution control and domestic sewage interception should be promoted, and the development of ecological agriculture and water- saving agriculture should be encouraged. The chemical fertilizer and pesticide application amount should be reduced. New tourism, vacation village and restaurant projects around the lakes should be strictly controlled to reduce domestic sewage pollution to lakes. Storm water runoff can carry large amount of pollutants to the surface waters, so these water should be properly managed and especially the first flush water should be treated to remove most of pollutants.

(iii) Interception of wastewater flowing into lakes and rivers. The combined sewer overflow control gate should be installed at the main river way in Yangtze River Area to prevent wastewater flowing into lakes and cause more pollution.

(iv) River and lake sediment dredging. The lake sediment at river crossing and settling area can be dredged depending on the status of the sediment. The connection between lakes will be promoted to increase the flow and exchange of water. This will increase the water body’s assimilation capacity.

(v) Clean water flows into Lakes. This solution is most effective to restore and maintain a clean surface water environment. It is suggested to introduce the water from the Yangtze River into lakes. The pumping station will be installed to pump water from the Yangtze River into the lakes and help to discharge the stormwater into the Yangtze River during the storm event.

(vi) Lake biological rehabilitation. This solution will propose to build green ecological belt along the lakeshore. It will also propose to build some ecological river ways to help clean the water flowing into the lakes. The green belt acts as filtration and traps for preventing garbage and pollutants reaching the surface waters.

(vii) Long term effective management. All the water related agencies and organizations should cooperate and work close on the water system management and planning. Specific management agencies should be set up for all of these main lakes. These specific agencies will be responsible for the management of the clean water channel, lake ecosystem, lakeshore plantation/green belt. Lake management regulations should be set up and executed enforcedly.

Pollution source control is the basis for lake rehabilitation. Interceptions of wastewater flowing to lake and rivers, river and lake sediment dredging at targeted locations and fresh water flows into lakes are the main strategies for improving surface water quality. Lake biological rehabilitation and long term effective management will guarantee the water quality improvement

Easen International Co. Ltd. 3-55 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis result. The PPTA team suggested that these solutions should be combined and applied in the lake and channel rehabilitation projects in the Wuhan City. Improving the lake water quality and circulation would also help to restore the assimilation capability of these surface water bodies and allow the lakes to continuously maintain and improve water quality in the long run.

Through extensive study and investigation, guidance and strategies for lake rehabilitation have been discussed and summarized below:

(i) Lake and channel dredging. The purpose of lake and channel dredging is to remove the buildup of sediment on the lake bottom and within the channels. In order to carry out this dredging process, one or more dredging ships equipped with the necessary equipment will be required.

According to the national agricultural environment protection standards, untreated sediment cannot be used as a soil replacement on agricultural land. Proper treatment techniques must be adopted for the treatment of the sediment so that it can meet the standards for being utilized as a soil conditioner without causing secondary environmental pollution. However, these dredged sediments are often too polluted to be efficiently treated for soil conditioner. The best option for the dredged sediment disposal is usually to store the dredged sediment and gradually treat the sediment by composting. The design requirements are as follows: y The site selection for sediment disposal must satisfy the requirement of the Hanyang new urban area construction general plan. It should be designed and positioned with water resource protection (storm water runoff and drainage from the sediments must be controlled), air pollution prevention and control (the process of composting will create H2S, CH4 and other emissions) and the general environmental protection objectives can be achieved. y The site must be equipped with facilities to prevent any secondary pollution to the surrounding environment. y The site must have sufficient space for the different sediments of varying quality. It is more efficient to separate the different sediments contaminated by different pollutants in order to treat or dewater the sediments only as necessary for the reuse or disposal of the sediments.

Sediment treatment processes includes dewatering, stabilization and wastewater treatment. The main treatment units are filtration, stabilization and sedimentation. Figure 3-19 illustrates the sediment treatment and disposal site layout.

Figure 3-19 Sediment Treatment and Disposal Site Layout

Easen International Co. Ltd. 3-56 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

The water and solids will be separated in the sedimentation tank 1 and 2 with a retention time of over three days. Based on previous experience, the solid volume ratio is 20%. The solid volume of supernant is equal or less than 1%. The stockpiling site should be divided into units which will add the retention time of the water and improve the natural sedimentation effect. A layer of clay will cover the sediment to prevent secondary pollution. As an added benefit for environmental sustainability, this clay is from the excavated earthworks of Yangchun Lake area put into reuse.

The best time for carrying out dredging works is from the beginning of winter to the end of next spring, when the water levels in the lakes will be at their lowest level. At that time, it will have fewer storms and the flow rate of water will be much slower than any other time of the year. The sediment will also be less. The low intensity of sunshine and cooler temperature will reduce algae and facilitate the removal of the algae from the lake. All above can help improve the efficiency of the dredging works.

Quality control on the dewatering process and supernant quality of the dredged sediment will be enforced. The potential secondary pollution of the leachate should also be considered. The area and depth of the sediment dredging project should be consistent with the actual sediment condition during the implementation of dredging, that is, only the surface layer with high pollutant concentration should be dredged. Wherever possible, the sediment should not be disturbed to minimize the amount of dredged material to be disposed of and the resuspension of pollutants in the water body.

A. The Dredged Sediment Plan

Before the 1970s, treated sediment removed from channels and lakes in Wuhan was used as earth fill for the construction of airport and harbor. The treated sediment was filled into the Lake Bay and rivers, which may continue to contaminate the water environment. In today’s practice, the disposal of the treated sediment should take into account of all the potential environmental impacts. The following solutions are potential options for consideration during the sediment disposal:

(i) Agriculture, garden and forest utilization. The sediments may contain organic matter and nutrients that can often be used as organic compost which are beneficial for vegetation. In China, “Environmental Quality Standard for Soils” (GB15618-1995) and “Standard of Sewage Sludge Applied to Agricultural Soils” (GB4284-84) are the standards for sediments that must be met to determine the feasibility of land application. The sediment that cannot pass the more stringent standards for land application will be unacceptable for the application on agricultural land. The nutrients in the sediment can promote the growth of trees, flowers and grass in forest, garden and greenings. If the sediment is used for these non-agricultural purposes, then the secondary pollution of the sediment will be not a concern through the food chain. Thus, land, garden and forest application are the options that are feasible to dispose of the treated sediment in this project.

(ii) Landfill site cover. Normally, the landfill close cover is composed largely of inorganic material with little nutrients in it, which is not good for vegetation. The treated sediment can add nutrients to the top soils and promote the growth of plants, which will help to reduce soil erosion on the landfill cover. In this application, the secondary pollution of sediment will not affect the food chain. For this intended application, the treated sediment must be dry enough to meet the requirements on anti-seepage from the landfill and stabilization as cover material. In this application, there should be no secondary pollution to the environment.

(iii) Earth fill. Under proper conditions, the sediment can be stabilized to change its characteristics from high water content and low strength to low water content and higher

Easen International Co. Ltd. 3-57 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis strength. The treated sediment can then be used as earth fill for engineering projects in the city. The proposed applicable projects would be:

Embankment or riverbank reinforcement project: the solidified sediment can be a cost-effective replacement for other conventional construction materials. It can meet the requirements of stabilization of side slope, anti-seepage and erosion control.

Road project foundation and earth fill projects: the solidified sediment can be stabilized to replace the conventional sub-grade construction or earth fill materials for a cost-effective solution to meet the project requirements.

(iv) Construction material. The sediment can be used as construction material in industrial settings. The construction material industry has many requirements that can benefit through the reuse of this treated sediment as raw material. In many instances, the use of stabilized sediment can be a cost-effective replacement or supplemental raw material for construction.

Based on the above analysis, garden, forest application and construction materials are the best disposal solutions of the treated sediment. For the garden and forest utilization of the dried sediment, the PPTA team suggests that the impact on ground water and surface water by heavy metals such as cadmium and mercury and organic matter such as PCBs should be studied.

The treated sediment disposal can also be combined with the WWTP’s sludge treatment and disposal project for mutually beneficial reuse consideration.

B. Ecological Recovery

The purpose of the ecological recovery is to restore the natural ecological conditions of the lake. This restoration will ensure that the lake can maintain its sustainable conditions of self- purification and cultivating a healthy aquatic biodiversity. The design of the engineering solution for an ecological recovery must consider the complex interaction including the different species and the principle, structure and purpose of the resource recycling process within the ecological system. This consideration of ecological issues must be taken into account in the design optimization.

As previously stated, the main objective of the ecological recovery is to restore the lake environment to its natural ecological cycle. It is expected that this will also have additional positive environmental effects, helping to prevent environmental pollution and increase the economic benefits that can be derived from the lake.

The ecological recovery program includes the development, design, construction and maintenance of the new ecological system. A further component of the project is to connect the lakes, allowing the water to flow through. This will improve the hydraulic conditions of the ecosystem and result in a better ecological environment, as well as unifying the socio-economic and environmental issues.

The PPTA team recommended that the areas with less polluted sediment where dredging was not necessary, could potentially use more aquatic vegetation to improve the sediment condition in a natural and ecological manner.

C. Long Term Effective Management

WMG has enacted the three control lines policy for the lake area protection in 2007. The three “control lines” policy was determined by Water Bureau, Forest Bureau and Planning Bureau.

Easen International Co. Ltd. 3-58 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis The lakes area includes 38 lakes in central urban area and Jin Lake & Yin Lake in Dongxi Lake Area. The three “control lines” include blue line, green line and grey line. The blue line shows the water surface control area. The green line shows the lake shore green belt area. The control width is 30-50 meter (100 meter is recommended). The green line area is for greening &landscaping. The grey line shows the municipal control area that is intended for public use as resting, cycling and walking areas. WMG had enacted “Wuhan City Lake Protection Rule” and “Wuhan City Lake Protection Rule Implementing Regulations” in 2002 and 2005. These two regulations are not good enough to protect the rehabilitated lakes and channels. The more detailed regulations or rules need be set up for the protection.

The water network project system includes water network connection project, lake and channel rehabilitation project and landscaping project. Proper long term effective management policies should be enacted to properly operate and maintain these projects. These polices will ensure the treated or improved surface water meets the design targets.

D. Hydraulic System Management

The hydraulic system will be controlled by a designated operation and maintenance (O&M) entity or organization (O&M organization). The term, capacity and plan of water transfer will be determined with Wuhan City Flood Protection Department, Environmental Protection Bureau and Blood Disease Control Department. The lake maintenance and management will also be carried out through management contract. The scope of service may include lake rehabilitation, facility operation and protection. The long term effective management and protection fund policy will be set up by transfer the lake concession right. The relationship between both parties for lake rehabilitation and operation will be determined too. Please refer to “Wuhan City Lake Franchise Management Methods” for more detail. The channel management belongs to the lake management.

The gate and pumping station operation manual will guide the normal operation. Open and close of the gate without any permission will be forbidden. The operation should be permitted by the flood protection department. The gate and pumping station operation manual should be approved by flood protection department. The management and protection scope of gate will be identified. No structure is allowed to be built above gate or culvert. No facility is allowed to be built along the culvert. Gate and pumping station management will be controlled and coordinated.

E. Wetland Management

The wetland management includes maintenance of water supply pipe, facilities and land ridge, routine checking of each process unit, pump, valve, pipe and channel, and sediment dredging when it is necessary.

The plant management is very important for the successful operation of the wetland system. The continuous supply of nutrient and water are critical for the normal growth of the plants. The plants can be damaged by high concentration of toxic matter, therefore, it is important to check periodically and maintain a balanced influent to the wetland.

In autumn, the upper part of the plants will dry out and die. The harvesting of the plants will be required to protect the water from release of organic matter and nutrient into the water again during the decomposition of the dead plant. There is no need to remove any natural grass in the wetland. If the natural grass grows too much, some can be removed to protect the wetland eco-system. Additionally, the insect and pest will also impact on the wetland system function. They should also be checked regularly.

Easen International Co. Ltd. 3-59 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis F. Aquatic Plants Management

In this type of management, the emerged plant grows very fast in the end. The grown plant must be cleaned and removed to protect the lake from the pollution of the dead plant decomposition. The floating plant and emergent plant must be cleaned and removed according to the form and quantity of the aquatic plants. This solution will help maintain a good water quality and better environment of the lake. When the aquatic planting system is recovered, artificial adjustment solutions will be added based on monitoring and evaluation. More and more aquatic plants and fish should be added into the wetland for space configuration, diversity configuration and ecological structure.

G. Fish Farming Management

This type of management implies no fish farming or fish feeding is allowed in the lake. The natural stocks should be controlled by types and quantity. The fish should be fed by floating algae.

H. Non-Point Source Pollution Control and Management

Storm water runoff into lakes must be strictly controlled. The operation during extraordinary rainstorm should meet the requirements for storm water storage. Restricted water release rate and sediment dredging should be carried out after a storm water event. Meanwhile, certain chemical can be added into the lake to recover the water quality if there is an urgent need, such as for algae control.

3.3.1.3 Relevant PRC National Law, Rules and Policy

To determine the lake and channel rehabilitation solution for sustainable development of Wuhan city, the methods proposed must meet the relevant laws, rules and policy requirements: y “Approval by Wuhan DRC of Wuhan New Zone 6 Lakes Water System Network Project FSR”, (By WDRC, July 2008) y “Wuhan New Zone 6 Lake Water System Network Plan”, (By Wuhan Municipal Plan and Design Institute, August 2007) y “Wuhan New Zone Sixin Area Water System Project FSR”, July 2007 y “Wuhan New Zone Sixin Area Water System Network Construction Plan”, June 2007 y “Wuhan City Lake Protection Rule Implementing Regulations”, (By WWB, 10 August 2005) y “Hubei Province Hang River Basin Water Pollution Protection Rule”, 1 May 2005 y “Wuhan City Urban Water Saving Rule”, (By WWB, 19 January 2005) y “Wuhan City Central Urban Lake Protection Plan (2004-2020)”, (By WWB, 17 January 2005) y “Wuhan City Water Environment Treatment and protection Plan”, (By WWB, 2005) y “Wuhan City Water Environmental Function Zoning”, 2005 y “Wuhan City Urban Drainage Rule”, 1 December 2002 y “Wuhan City Lake Protection Rule”, (By WWB, 18 January 2002) y “Wuhan City Urban General Planning (1996-2020)”, (By Wuhan Municipal Plan and Design Institute, 1995)

The State Department had explicitly indicated in the “Comments to the Wuhan City’s Master Plan (1999)” that Wuhan should be improved to become a metropolis with its own characteristics of abundant surface water resources”. The Wuhan’s Master Plan was amended in the year 2004, and renamed to “Wuhan City’s Master Plan (2005~2020)” with a goal to make Wuhan becoming a highly suitable city for living. In this newly amended master plan, it was proposed to improve and manage the city’s overall environment based on the principle of improving the living conditions of Wuhan residents. The master plan also focused on enhancing the cultural characteristic and social harmony through practicing best management practice for environmental resources. The implementation of this Project will be a critical part of the “six

Easen International Co. Ltd. 3-60 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis lake water system network project of Hanyang District” that will focus on the reconstruction of a healthy water ecosystem, improving the water condition, and improve the view of the waterfront. These improvements will meet the demand for environmental improvement, city overall planning, economical benefit, and tourism in accordance with the Wuhan City Master Plan. The total investment for the projects financed by local government is CNY585 million or USD85.7 million. The total investment for Wuhan New Zone lake/channels Rehabilitation funded by ADB is CNY1448 million or USD212 million. Table 3-26 showed the part of Wuhan New Zone 6 Lake Connection Project financed by ADB. Figure 3-20 showed the layout of Wuhan New Zone 6 Lake Connection Project.

Table 3-26 Wuhan New Zone 6 Lake Connection Project Financed by ADB Channel Dredging Aquatic Artificial Wetland Length amount planting Grass area (Mu) (m) (m3) (Mu) (Mu) Wuhan New Zone 6 Lake 28,437 772,700 177.20 8,096 259.80 Water Network Project ADB Financed 15,365 747,800 159.65 5,241 225.60

Local Government Financed 13,072 24,900 17.55 2,855 34.20

% (ADB Financed) 54.03% 96.78% 90.10% 64.74% 86.84%

Figure 3-20 Wuhan New Zone 6 Lake Connection Project Layout

WMG has released numerous documents to support the smooth execution of the Wuhan City’s Master Plan. These documents include “Wuhan New Zone Master Plan”, “Wuhan New Zone six

Easen International Co. Ltd. 3-61 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis lake dynamic water ecosystem plan” and “The Wuchang Area East Lake Ecosystem Plan” to tackle the different needs of a comprehensive environmental improvement project and the sustainable development of Wuhan City.

3.3.2 Wuhan City New Zone Lake & Channel Rehabilitation and Pumping Station Project

3.3.2.1 Project Rationale

Currently, the Hanyang and Wuchang Districts are faced with severe pollution of their lakes and water channels (all class V water quality). These have resulted in adverse impact on the urban environment and public health. The control of point and non-point sources pollution should be included in the practical scheme for urban water resources management. This shall include the rehabilitation of the lakes' natural water circulation and restoring their hydraulic and flood retention capacities. To address this issue, the proposed Project will unclog the channels to connect the lakes, dredge the silted lakes and channels, restore of wetlands, and provide the platform for water regeneration and circulation.

The total planning area of the Wuhan New Zone is 368 km2 according to the “Wuhan New Zone Master Plan”. There will be two development zones, three specialty grouping, an interconnected four lake water system and the respective road structures. The interconnection of the Moshui Lake, Nantaizi Lake, Longyang Lake and Sanjiao Lake will result in a continuous ecosystem.

The idea of the four interconnected lake ecosystem was clearly defined in the Wuhan New Zone’s Master Plan. The four lakes in the New Zone would be interconnected through the use of the water channels already present in the area. The purpose of the interconnection is to improve the water quality of the lakes and build some dynamic internal river networks within the lakes area. These internal river networks will be further connected to the Han River and Yangtze River to increase the flood alleviation capability and the surface water assimilation capability. The result of such improvements will create a green centre in the city core and provide a clean leisure space for the local residents.

The proposed component was based on the original environmental characteristics of the Six Lake Area and was a part of the original ‘Six Lakes Connection” Project that had been approved by the government. Its main focus was to protect, restore and improve the ecosystem of the Six Lake Area in accordance with the natural environment. This component will help to improve the equal development of the three counties in the New Zone. In conclusion, the implementation of this Project will be in synchronization with the Wuhan New Zone Master Plan.

In addition, the “Wuhan New Zone Six Lake Dynamic Water Ecosystem Plan” allocates the natural environmental and water network resources in the following six water bodies: Moshui Lake, Nantaizi Lake, Beitaizi Lake, Sanjiao Lake, Longyang Lake and Houguan Lake. The Six Lake Area is the foundation and background for the hybrid ecosystem that incorporates the lake, water channels, green belts and urban districts. This hybrid ecosystem will create a harmonious lake city that interconnects the natural environment with its residents. The characteristics of the Six Lake Area will consist of the following: y The water system of the Six Lake Area will serve the purpose to separate the Han River, Sixin and Zhuankou water bodies from direct connection, but also interconnect them as one general ecosystem. y The water bodies will serve as water related disaster prevention system for drainage, flood prevention and water storage. y It is an important carrier for creating an appealing water ecosystem environment. y To promote a New Zone cultural tourism attraction and enhance the overall tourism attractiveness in the Wuhan City.

Easen International Co. Ltd. 3-62 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

The creation of healthy water ecosystems in Wuhan will allow a storm managed and environmentally friendly urban expansion that will support the city's sustainable development. In the Hanyang district, the Project will create a new urban development area around the lakes and channels. The new urban district will accommodate more than 400,000 new residents by the year 2020. The Project will alleviate urban pressures in the densely populated downtown areas and develop a model for sustainable urban development. The proposed Project is supporting an integrated urban development as part of the city-wide development scheme.

Wuhan has a long history of flood events, which present risk to local residents’ lives and economy. Since the year 1949, China has experienced several catastrophic floods in which Wuhan had incurred tremendous losses. In the flood of 1954, the affected population reached 85,000, and the direct loss for dealing with emergency relief and compensation due to the flood accounted for CNY 200 million. In the 1998 flooding event, 70 locations on the dikes around the city were broken in which the affected population reached 1,777,000 with approximately 10,000 collapsed houses and a besieged population of 166,000. In addition, the area of inundated farmland of 148,700hm2 and 2100 affected enterprises all added up to an economic loss of CNY 4.13 billion.

The Sixin area’s lowest elevation point is only 17m above sea level (ASL) which is far below the average flood peak level of 26.03m ASL in the river. The existing available drainage pumping capacity in the area is only 11m3/s. Compared to the required capacity of 103.63m3/s as per the design calculation, the gap is huge. The storm water runoff in the peak season naturally flows to the Sixin area, threatening the life and properties in this area. It has forced the government to push the Sixin pumping station sub-component to be implemented as a priority investment within the Project.

3.3.2.2 Project Benefit

The Project will introduce best practices concept in urban surface water resources management. The Project will also apply an integrated approach for watershed management, improve urban development practices by pioneering a number of features addressing both climate change and pollution challenges through conserving urban lakes and channels, improving management of surface water sources and establishes wetlands. The Project will improve the water quality of the lakes in the project area to reach class IV or better. The spatial development of the city will be balanced and integrated with the future urban population. The overall sustainability and attractiveness of Wuhan for executing business activities and everyday living conditions will be improved accordingly.

Recent flood events that have caused substantial economic damage and loss of life along the Yangtze River have manifest the importance of the flood-control infrastructure.

3.3.2.3 Selection of Technical Options and Design

The proposed project components in the Hanyang area involve three lakes that are part of the “Six Lakes Connection” project. This project has been well studied and approved by the local and central government with the Hanyang area being planned as the Wuhan new urban center. The three lakes chosen for ADB financed project are Longyang, Moshui and Nantaizi lakes.

The Sixin Area in Hanyang has a lowest elevation of 17 m above sea level (ASL). This is much lower than the yearly average flood level of 26.03 m ASL. The catchment area of Sixin Area is 37.9km2. Storm water management is the key issue in the Sixin area. This issue imports a significant impact on the public safety and the area’s economic development.

According to “Wuhan City Protecting Urban Natural Mountain and Lake Method” and “Wuhan Economic Technical Development Zone Lake Protection Plan”, the adjusted volume and control

Easen International Co. Ltd. 3-63 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis levels for each lake are determined in consideration of the current situation in each lake. The control index for each lake is listed in Table 3-27.

Table 3-27 Lake Planning Control Index Max. Rain Average Average planned planned Area Lake catchment Water Level control water control （km2） area（km2） (m) level（m） water level(m） Longyang 1.90 10.93 19.23-20.09 19.15 20.15 Lake Moshui Lake 3.79 16.00 19.65-20.15 19.15 19.65 Nantaizi 4.43 16.32 18.65-19.40 18.65 19.15 Lake

The water quality of the three lakes in the Wuhan New Zone Lake/Channel Rehabilitation project in 2008 is listed in Table 3-28. Figure 3-21 shows the site of three lakes.

Table 3-28 Water Quality of Three Lakes in 2008 Lake pH COD BOD5 NH3-N TP TN DO Longyang Average 7.0 52.9 5.87 9.96 1.85 13.57 6.87 Lake Maximum 7.9 83.5 10.36 14.9 2.75 17.9 5.28 Moshui Average 6.9 45.45 5.03 1.02 0.52 2.56 7.65 Lake Maximum 8.0 64.3 7.73 2.99 1.21 4.14 6.13 Nantaizi Average 8.0 34.33 3.42 1.65 0.19 4.30 8.23 Lake Maximum 8.5 50 4.3 3 0.32 11 6.5 Class V Standard 6-9 40.00 10.00 2.00 0.40 2.00 2.00

Note: a) Unit is mg/l except pH, b). The yearly average temperature of Longyang Lake, Moshui Lake and Nantaizi Lake is 19.6 C, 18.9 C and 19.3 C, respectively.

Figure 3-21. Site visit on 3 Lakes on 25 May 2009

Easen International Co. Ltd. 3-64 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis The analytical data shows that all the lakes are heavy polluted, and Long Yang lake is the most polluted one. The level of nutrients, N and P, are much higher than even the Class V water quality standard.

Wuhan Environment Monitoring Centre sampled and analyzed water quality in Liantong Channel, Zong Channel, Zhujiaxin Channel, Longxin Channel and Longkou Channel on June 11 2009. The result of the analysis is presented in Table 3-29.

Table 3-29 Main Channel Water Quality Analysis Result List DO COD NH -N BOD TP TN Sampling location pH 4 5 mg/l mg/l mg/l mg/l mg/l mg/l Liantong channel 7.47 2.45 38 2.85 3.4 0.67 3.55 Zong channel 7.51 3.27 25 1.32 1.8 0.123 1.47 Zhujiaxin channel 7.29 0.58 27 7.38 4.1 1.04 7.85 Longxin channel 7.86 3.32 57 12.7 3.1 1.47 13.2 Longkou channel 7.21 0.57 36 1.67 3.4 0.652 2.58 Class IV 3 30 1.5 6 0.3 1.5 6-9 Class V 2 40 2.0 10 0.4 2.0

Based on the above data, only the water quality of Zong Channel is class IV. The water quality of the other proposed lakes and channels is worse than class V. The main pollutants in the sediment of the lakes and channels are nitrogen and phosphorus.

Normally, the dissolved oxygen (DO) in natural surface water that is not polluted would be in a much higher range, normally above 5 mg/l at least. Table 3-26 shows that most of the channels are quite polluted with very low DO such as the Zhujiaxin and the Longkou channels with DO less than 0.6 mg/l. Most of the channels are high in nitrogen and phosphors. The data indicates these channels are quite seriously polluted with organics and nutrients, which can easily cause eutrophication.

During the 10th Five Year Plan period, the Wuhan Academy of Environment Science had sampled and analyzed the nutrient levels in the sediment of the three lakes in the year 2003 for “Water Pollution Control Technology and Treatment Project” as part of the Wuhan Water Special Study Project. The result of the analysis is presented in Table 3-30. The other test of TN, TP, heavy metal in sediment and leachate of sediment of lakes and channels was taken in June 2009. The test results are presented in Tables 3-30, 3-31 and 3-32.

Table 3-30 Nitrogen and Phosphorus in Sediment of Longyang Lake, Moshui Lake and Nantaizi Lake in 2003 (g/kg) Item Longyang Lake Moshui Lake Nantaizi Lake KN 4.200 4.371 3.493 TP 3.247 2.675 1.300

Table 3-31 Nitrogen and Phosphorus in Sediment of Longyang Lake, Moshui Lake and Nantaizi Lake in 2009 (g/kg) Item Moshui Lake Longyang Lake Nantaizi Lake TN 2.20 2.91 2.75 TP 1.26 1.24 1.79

Easen International Co. Ltd. 3-65 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Based on Table 3-29 and Table 3-30, the nitrogen in the sediment decreased during the last six years. Only the phosphorus in the sediment of Nantaizi Lake has increased. The phosphorus in the sediment of the other two lakes decreased. The main contributor to this improvement is the continued and significant investment by the WMG to intercept and treat the wastewater that previously discharged into the lakes.

Table 3-32 Test Result of Heavy Metal in Sediment Sampling location Zn Cu Pb Hg As Cr Cd Longyang lake 0.560 0.240 0.120 0.00015 0.020 0.084 0.0035 Moshui Lake 0.132 0.027 0.052 0.00017 0.022 0.084 0.0027 Nantaizi Lake 0.470 0.055 0.100 0.00023 0.093 0.140 0.0034 Longkou Channel 0.170 0.031 0.067 0.00020 0.040 0.078 0.0028 Longxin Channel 0.180 0.038 0.069 0.00020 0.023 0.085 0.0027 Zhujiaxin Channel 0.290 0.055 0.060 0.00018 0.032 0.099 0.0028 Liantong Channel 0.840 0.083 0.110 0.00018 0.047 0.110 0.0037 Zong Channel 0.230 0.056 0.093 0.00020 0.052 0.077 0.0025 Soil: 0.5 0.25 0.3 0.005 0.075 0.6 0.005 pH<6.5 GB4284-84* Soil: 1 0.5 1 0.015 0.075 1 0.02 pH≥6.5 Note: a.) Unit is g/l except pH; b.) GB4284-84 is “Control Standards for Pollutants in Sludge for Agricultural Use (GB4284-84)”

Based on table 3-32, the conclusion of current status of heavy metal in sediment is described as the following:

a. The sludge quality of Moshui Lake, Longkou Channel, Zhujiaxin Channel and Zong Channel met with the requirement of acidic soil of “Control Standards for Pollutants in Sludge for Agricultural Use (GB4284-84)”. PPTA team suggests the dewatered sediment can be used as soil conditioner for basically all type of land applications except for agriculture purpose. b. The concentration of Zn in sediment of Longyang Lake and Liantong Channel did not meet with the requirement of acidic soil of “Control Standards for Pollutants in Sludge for Agricultural Use (GB4284-84)”. But it met with the requirement of neutral and alkaline soil. PPTA team suggests the dewatered sediment can be applied in neutral soil and alkaline soil.

c. The concentration of as in sediment of Nantaizi Lake did not meet with requirement of all kinds of soil of “Control Standards for Pollutants in Sludge for Agricultural Use (GB4284-84)”. PPTA team suggests the specific disposal method of the dewatered sediment should be identified, such as disposal by landfill.

Table 3-33 Test Result of Leachate from Sediment Sampling location pH Zn Cu Pb Hg As Cr Cd Longyang lake 7.17 0.055 0.039 0.005 0.0020 0.0033 0.001 0.003

Moshui Lake 7.24 0.034 0.061 0.013 0.0034 0.0035 0.002 0.002

Nantaizi Lake 7.42 0.006 0.063 0.13 0.0025 0.0042 0.003 0.002

Longkou Channel 7.27 0.025 0.081 0.016 0.0030 0.0025 0.001 0.003

Easen International Co. Ltd. 3-66 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

Sampling location pH Zn Cu Pb Hg As Cr Cd

Longxin Channel 7.07 0.015 0.1 0.032 0.0030 0.0043 0.001 0.003

Zhujiaxin Channel 7.34 0.019 0.047 0.008 0.0020 0.0072 0.001 0.003

Liantong Channel 7.22 0.069 0.04 0.028 0.0030 0.0075 0.003 0.001

Zong Channel 6.52 0.13 0.041 0.003 0.0020 0.0061 0.002 0.003

GB5085.3-2007* 100 100 5 0.1 5 15 1 Note: a.) Unit is mg/l except pH; b.)GB5085.3-2007 is “Identification standard for hazardous wastes--Identification for extraction procedure toxicity”.

Based on Table 3-33, all concentration of pollutants in sediment leachate of Yangchun Lake and Heping Channel complied with the requirement of “Identification standard for hazardous wastes--Identification for extraction procedure toxicity”. The leachate is not hazardous waste. PPTA team suggested the leachate could be treated as non-hazardous waste.

Additionally, the PPTA team suggested that the lake sediments should be sampled for PCBs, AOX, benzopyrene, and doxin etc that are also indicators of past industrial pollution, and if sediments were contaminated by these compounds, the sediment needed to be treated properly before any potential beneficial reuse such as land application.

Easen International Co. Ltd. 3-67 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-22 Sampling Points in Longyang Lake, Moshui Lake and Nantaizi Lake

Easen International Co. Ltd. 3-68 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figures 3-22 shows where the sediment samples were taken by the engaged internationally accredited laboratory (SGS5) for the analysis of these compounds. The PCBs test report was submitted to PMO and PPTA team on September 23, 2009. The testing result is summarized in Table 3-34.

Table 3-34 PCBs and Other Pollutant Testing Result in Longyang Lake, Moshui Lake and Nantaizi Lake AOX (as Cl-) Benzo(a)pyrene PCBs DIOXIN No. Item (mg/kg) (mg/kg) (mg/kg) （ng/kg） CJ248-2007 The quality of sludge used 1 for afforestation in ﹤500 ﹤3 ﹤0.2 ﹤100 gardens or forests

CJT 249-2007 Sludge quality for co- 2 — — — — landfilling

T291-2008 Sludge quality for land 3 500 3 0.2 100 reclamation 4 ﹤10 0.19 ﹤0.1 0.78-4.6

Longyang Lake 5 Moshui Lake ﹤10 0.19 ﹤0.1 3.5-6.4 6 Nantaizi Lake ﹤10 0.03 ﹤0.1 0.20-4.5

Based on above table, the PCBs and other pollutants are all below the limit of the land or forest application standards. There is no limitation on these organic compounds if the sediment is to be disposed of in a landfill. Therefore, the sediment could be used in gardens, green belt of the city or forests, or co-landfill and land reclamation.

Based on above data, the water quality of proposed lakes and channels is class V or worse than class V. The main pollutants in sediment of lakes and channels are nitrogen and phosphorus.

The objective for the lakes rehabilitation is to connect the rivers with the lakes through the existing channels in the area to prevent the lake water quality from further deterioration. The water quality and its surrounding environment will be gradually improved after the implementation of this component. The project content is as follows:

A. Longyang Lake Ecological Rehabilitation

The planned pollution control area of Longyang Lake is 2,663 mu. Figure 3-23 shows the layout of Longyang Lake Rehabilitation.

5 SGS-CSTC Standards Technical Services Co., Ltd. 10 F, 3rd Building, No. 889, Yishan Road, Shanghai, China 200233. Tel: +86 21 6140 2666

Easen International Co. Ltd. 3-69 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-23 Longyang Lake Rehabilitation Layout

(i) Sediment dredging. Based on previous research results, the polluted area is about 375 mu in Longyang Lake. The dredging depth of the sediment has been planned to be 1 meter, thus, the dredged sediment is estimated to be 250,000 m3. PPTA team suggested the actual depth and area to be dredged and adjusted based on the site conditions during the implementation phase.

A sludge transfer pipe will connect the dredging area to the sediment treatment and disposal site. The greening land will be the Longyang Lake sediment treatment and disposal site with an area of 185 mu between blue line and green line, located on the west of Longyang Lake as shown in Figure 3-10. The sediment disposed will amount to 250,000 m3. The treatment site is part of a wetland park and will not require any further temporary land.

(ii) Wetland Park. The area of the Wetland Park is 413 mu. It includes: y Key protection zone. The area of key protection zone is about 120 mu, separately located in the east and west of the park. y Ecological protection area. The wetland park should be kept separated from the surrounding environment as a single unit. The ecological protection area is located in the south of the park which is mainly populated by thick trees. A tree belt zone of 30 meters in width is designated as the protection area. The types of tree in the zone are thick with leaves such as metasequoia, cinnamomum camphora, viburnum and cedar and small arbor and bush as side greening. This will help the separation of the protection area and surroundings. y Wetland showing area. It has the same design concept as the key protection area while more water ornamental vegetation will be added. The wetland area should be minimized while still maintaining a diversified population. y Tour and activity area. The low sensitivity area of the wetland can be selected for guided tour to avoid damaging the wetland environment. Leisure and tour activities will be the main

Easen International Co. Ltd. 3-70 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis theme in the designated tour area. Suitable leisure and entertainment facilities will be constructed with a safety focus to minimize the risk of accidents. y Management and service area. Total area is 15 mu which is in the northwest corner of the wetland park core.

Figure 3-24 Longyang Lake Wetland Park Layout

(iii) Artificial wetland ecological project. There are three artificial wetland ecological projects, S1, S2 and S3. The S1 subproject site location is on the west of Longyang Lake which is next to the Longyang Lake Wetland Park with an area of 42 mu and a treatment capacity of 8,400 m3/d. The service area of the lake is 210 mu. The S2 subproject site location is to the southeast of Longyang Lake with an area of 17 mu and a treatment capacity of 3,600 m3/d. The service area of the lake is 90 mu. The S3 subproject site location is in the north of Longyang Open Channel Drainage and northeast of Longyang Lake in consideration of area source pollution. The total area is 54 mu with a treatment capacity of 19,800 m3/d. The treatment process of Longyang Lake artificial wetland is shown in Figure 3-25.

Figure 3-25 Process diagram of artificial wetland treatment project of Longyang Lake

Pump

River Grit Push flow wetland Downstream wetland Upstream wetland Lake

(iv) Aquatic plants. The lake branch, bay and other water area are usually the aquatic vegetation area. The main vegetation is the submerged plants with the secondary vegetation being the emergent plants. Some floating aquatic plants will also be planted. The rehabilitation area is about 868.5 mu, including 651 mu of submerged plant, 160.5 mu of emergent plant and 57 mu of floating plant. A total of 48 mu of artificial grass will be planted to slow down the flow of lake branch and bay water in consideration of the water vegetation upgrading project.

(v) Tang Mountain rehabilitation. Much of the Tang Mountain has been destroyed by the mining activities in the past. At the present time, there is an artificial lake with an area of 100

Easen International Co. Ltd. 3-71 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis mu. The monitored water quality is tabulated in Table 3-35 while the Figure 3-26 shows the current view of the Tang Mountain.

Table 3-35：Water Sample Analysis of Tang Mountain Mining Pit Cl SO Cr 4 Fe (mg/l) Mg (mg/l) pH (mg/l) (mg/l) (mg/l)

5.15 594.9 0.338 0.478 0.08 3.68

Figure 3-26 Site photo of Tang Mountain (June 25, 2009)

Tang Mountain will be built into an outdoor training center in consideration of location, geographic conditions and tourism attractiveness. Figure 3-27 shows the Tang Mountain rehabilitation project layout.

Figure 3-27 Tang Mountain Rehabilitation Layout

Easen International Co. Ltd. 3-72 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis B. Moshui Lake Rehabilitation

The planned pollution control area of the Moshui Lake is 5,637mu. The rehabilitation project comprises three main parts: sediment dredging, artificial wetland ecological project and water planting. Figure 3-28 shows the layout of Moshui Lake Rehabilitation.

Figure 3-28 Moshui Lake Project Rehabilitation Lay-out

(i) Sediment dredging. The depth of sediment is about 0.4 meter in the heavily polluted area which is roughly about 285 mu. The depth of sediment is about 0.3 meter near the Number V station of the heavily polluted area accounting for about 84 mu. The depth of sediment is about 0.6 meter in the Macang Lake accounting for about 150 mu. The total dredging amount is suggested to be reduced from 422,800 m3 to 272,800 m3 by PPTA team. PPTA team also suggests the dredging capacity should be adjusted based on the actual conditions during the implementation.

Five sediment disposal sites (W2, W3, W4, W5 and W6) will be located between the blue line and green line of the Moshui Lake. The W2 sediment treatment and disposal site will be located at the west shore of Moshui Lake with an area of 80 mu with a sediment disposal amount of 115,600 m3. The W3 and W4 sediment treatment and disposal sites are located at the north shore of the Moshui Lake with an area of 54 mu and 41 mu respectively. The sediment disposal amounts are 77,400 m3 and 58,600 m3 each respectively. The W5 and W6 sediment treatment and disposal sites are located at the south shore of Moshui Lake. The areas of the two sites are 59 mu and 60 mu and a sediment disposal amount of 85,200 m3 and 86,000 m3 respectively. Sediment transfer pipes on the surface of lake will be used to connect the dredged areas to the treatment and disposal sites.

(ii) Artificial wetland ecological project. There are three artificial wetland ecological projects, S6, S7 and S8. The S6 subproject site location is on the northern lake branch of the Moshui Lake with an area of 8.25 mu and a treatment capacity of 12,000 m3/d. The service area of the lake is 300 mu. The S7 subproject site location is on the lake branch from the northeast side of the Moshui Lake with an area of 18.6 mu and a treatment capacity of 18,500 m3/d. The service area of the lake is 465 mu. The S8 subproject site location is in the northwest side of the

Easen International Co. Ltd. 3-73 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Moshui Lake. The total site area is 6.3 mu and a treatment capacity of 12,500 m3/d. The service area of the lake is 315 mu.

The artificial wetland area of the S6 subproject is 4,200 m2. The treatment tank will be divided into 7 parallel sections with an area of 600 m2 each.

The artificial wetland area of the S7 subproject is 5500 m2. The treatment tank will be divided into 8 parallel rectangles with an area of 500 m2 each.

The artificial wetland area of the S8 subproject is 12,400 m2. The treatment tank will be divided into 10 parallel rectangles. 9 of the 10 rectangles have an area of 600 m2 each. The last one has an area of 620 m2. Figure 3-29 shows the treatment process of Moshui Lake artificial wetland.

Figure 3-29 Process Diagram of Artificial Wetland Treatment Process of Moshui Lake

Pump

River Grit Gravel wetland Lake

(iii) Aquatic plants. The main service area comprises three lake branches at the north of the Moshui Lake. It also includes some other water areas. The main aquatic vegetations are the submerged plant while the secondary vegetations are the emergent plant followed by some floating plants. The rehabilitation area is about 2313 mu, including 1701 mu of submerged plant, 436.5 mu of emergent plant and 175.5 mu of floating plant.

Artificial grass with an area of 81.6 mu will be planted in a water bay along the west side of the Moshui Lake.

C. Nantaizi Lake Rehabilitation

The planned pollution control area of the Nantaizi Lake is 6663.6 mu. The rehabilitation project comprises of three main parts: sediment dredging, artificial wetland ecological project and planting of aquatic plants. Figure 3-30 shows the layout of the Nantaizi Lake Rehabilitation.

Easen International Co. Ltd. 3-74 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-30 Nantaize Lake Rehabilitation Layout

(i) Sediment dredging. The polluted area is assumed to account for 10% of the total area in Nantaizi Lake. The polluted area is about 750 mu with a sediment dredging depth of 0.45 meter. The total dredging amount is suggested to be reduced from 250,000 m3 to 225,000 m3 by PPTA team. PPTA team also suggested the dredging capacity should be adjusted based on the actual conditions during the implementation. PPTA team also suggested the dredging capacity should be adjusted based on the actual conditions during the implementation.

There is a sediment disposal site between the blue line and green line along the northern shore of Nantaizi Lake with a code name of W8. The area of the disposal site is 261.45 mu and has a sediment disposal capacity of 225,000 m3. The dredged sediment will be transferred by a pumping pipeline from the dredging site to the disposal site.

(ii) Artificial wetland ecological project. There is an artificial wetland ecological project, S9 which is located at the lake branch in northeast side of the Nantaizi Lake with a total area of 13.5 mu. The treatment capacity is 3000 m3/d and treating about 75 mu of the lake.

The artificial wetland area of the S9 subproject is 9,000 m2. The treatment tank is divided into 5 parallel rectangles with area of 1,000 m2 each. Each of them is combined with three wetlands of push flow bed, downstream wetland and upstream wetland. Figure 3-31 shows the treatment process of the Nantaizi Lake artificial wetland.

Figure 3-31 Process Diagram of Artificial Wetland in Nantaizi Lake

Pump

River Grit Push flow wetland Downstream wetland Upstream wetland Lake

Easen International Co. Ltd. 3-75 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis (iii) Aquatic plant. The main service area is along the shore of the Nantaizi Lake which also includes some water bodies. The main aquatic vegetation is the submerged plant and secondary vegetation being the emergent plant. Some floating plant will also be planted. The rehabilitation area is about 2059.5 mu, including 1323 mu of submerged plant, 577.5 mu of emergent plant and 159 mu of floating plant.

Artificial grass with an area of 96 mu will be planted along the shore of the Nantaizi Lake.

(iv) Biological buffer area. Artificial grass with an area of 150 mu will be planted around the entrance of the influent channel through the Dongfeng Gate. The artificial grass is made of porous high polymer material which can flow freely in the water to form a configuration layer.

D. Channel Rehabilitation

The main design methodology employed for the comprehensive channel rehabilitation is ecological concrete embankment.

(i) Channel cross section design. The comprehensive channel rehabilitation includes Longkou Channel, Longxin Channel, Zhujiaxin Channel, Liantong Channel, Zong Channel and Huoyan Channel. The typical cross section drawings are listed as follows: Figure 3-32 Typical Cross Section Design Drawing of Longkou Channel

Figure 3-33 Typical Cross Section Design Drawing of Longxin Channel

Easen International Co. Ltd. 3-76 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-34 Typical Cross Section Design Drawing of Zhujiaxin Channel

Figure 3-35 Typical Cross Section Design Drawing of Liantong Channel

Figure 3-36 Typical Cross Section Design Drawing of Zong Channel

Easen International Co. Ltd. 3-77 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-37 Typical Cross Section Design Drawing of Huoyan Channel

(ii) Channel ecological rehabilitation. The construction control points are classified as Class I for the side slope, channel bottom and water surface. The hydrophilic plant is planted above the separation line which is the normal water level. The emergent plant and floating plant are planted between the shallow water and shoreline between the water and land. The submerged plant is planted on the bottom of the channel.

In the vertical planting direction, the length of each unit is about 40-60 metres, planted as a single piece or as a group. It is not ideal to plant all along the channel as it will affect the flow of the water. Table 3-36 summarized the design data of the rehabilitated channels.

Table 3-36 Channel Design Data

Design capacity Channel length Channel bottom width Channel (m3/s) （m） （m） Longkou Channel 10 1337 8 Longxin Channel 10 664 6 Zhujiaxin Channel 10-15 3583 4 Liantong Channel 13-100 5072 23 Zong Channel 26-50 4200 21 Huoyan Ditch 105 1600 37 Total 15365

(iii) Channel landscaping a. Longkou channel landscaping design. The landscape design will contain the green space landscaping, walk-way path, recreational resting places and auxiliary facilities. b. Zhujiaxin Channel landscaping design. The green field is very well maintained around the channel. Additional vegetation can be added to enhance the environment. A walk-way path along the channel should be considered to meet the requirements of the residents along the channel.

c. Longxin Channel landscaping design. The cross section of the Longxin Channel is similar to the Longkou Channel. The layout should be consistent with the Longkou Channel. Vegetation

Easen International Co. Ltd. 3-78 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis type and style can be modified to create a different physical appearance which will result in a more attractive view. d. Liantong Channel landscaping design. The main focus of the Liantong Channel landscaping project is for relaxation and sightseeing. e. Zong Channel landscaping design. Based on the design plan, the land around the Zong Channel will be developed for public greening, residence, education, social service and sports. f. Huoyan Channel landscaping design. The main design target of the Huoyan Channel landscaping is for greening.

(iv) Control gate. According to the plan, the control gates are proposed to be located in the south and north ends of the Liantong Channel. The design flow rate of the South Liangtong Channel Gate is 100 m3/s while the North Liangtong Channel Gate is 13 m3/s. The functions of the Zong Channel Gate includes transportation and flow control. This gate can control the drainage flow, shipping, and landscaping. The design flow rate of the Zong Channel is 26 m3/s. a. North Liantong Channel Gate. Table 3-37 contains the design data of North Liantong Channel Gate.

Table 3-37 Design Data of North Liantong Channel Gate Moshui Lake upstream Moshui Lake downstream

Drainage flow The highest The planned The highest The planned planned normal control planned normal control control level level control level level

13 m3/s 19.650m 19.150m 19.650m 19.150m

The central shipping gate is a miter gate with a dimension of 8mx2.4m. The other two gates are flap gates with a dimension of 3mx2.4m. The gates are controlled by an integrated liquid pressure activator. Figure 3-38 shows the cross section of North Liantong Channel Gate.

Figure 3-38 Cross Section Design Drawing of North Liantong Channel Gate

b. South Liantong Channel Gate.

Table 3-38 contains the design data of South Liantong Channel Gate.

Easen International Co. Ltd. 3-79 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Table 3-38 Design Data of South Liantong Channel Gate Nantaizi Lake upstream Liantong Channel downstream The highest The planned The highest The planned Drainage flow planned normal control planned normal control control level level control level level 100m3/s 19.150m 18.650m 18.920m 19.150m

The gate is a horizontal steel plate gate with a height of 3.2 m. The gate is controlled by an integrated liquid pressure activator. Figure 3-39 shows the cross section of Sorth Liantong Channel Gate.

Figure 3-39 Cross Section Design Drawing of South Liantong Channel Gate

c. Zong Channel Gate. Table 3-39 contains the design data of Zong Channel Gate.

Table 3-39 Design Data of Zong Channel Gate Moshui Lake upstream Liantong Channel downstream

Drainage flow The highest The planned The highest The planned planned normal control planned normal control control level level control level level

26 m3/s 19.650m 19.150m 19.640m 18.650m

The existing pump station drainage capacity in Sixin Area is only 11m3/s, which is not enough to meet the demand. According to “Wuhan New Zone Sixin Area Water System Project Preliminary Design” and “Approval by DRC on Wuhan New Zone Sixin Area Water System Project Preliminary Design”, the normal level of each channel is 18.65 m with a design condition of p=1 year. When the water level of the channel and Yangtze River are above 18.65 m and 18.00 m separately, the storm water should be pumped into Yangtze River with a required flow rate of 105 m3/s.

D. Sixin Pumping Station

The site is located to the north of the Goubei Village and the Baishazhou Bridge, east of the Yingwu Overpass and west of the Yangtze River Bank. The planned site of Sixin Pump Station will cover an area of 25,600 m2. According to “Wuhan New Zone Six Lake Water Network Plan”, the Sixin Pump Station is located at the end of the Huoyan Channel. The storm water runoff will be transferred into the Yangtze River through this drainage pump station. Figure 3-40 shows the layout of Sixin Pump Station.

Easen International Co. Ltd. 3-80 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-40 Layout of Sixin Pumping Station

Sixin pump station will be built in three phases: with a pumping capacity of 35 m3/s in phase I, expanding to a total of 70 m3/s in phase II and to a total of 105m3/s in phase III. There are 12 mix flow pumps to be installed in the station. Each pump will have specification of Q=8.75m3/s; H=7.6m; N=1120kW; η>85%. Table 3-40 will summarize the list of equipment being installed in the pump station.

Table 3-40 Equipment List of Sixin Pumping Station No. Equipment Main Technical Parameters Unit Qt’y Vertical mix flow pump Q=9.28～5.8m3/s，H=7.5～15m， 1 (closed end)(including N=1300kW，η>85% (under high set 4 motor) efficient working condition) B=6m, Bar thickness is 10mm. Bars 2 Screen bar space between is 80 mm. H=10.18m, set 4 angle=70° Bucket width is 2.5 m. Safety working Mobile grab 3 load is 100 kg. Lift speed is 10m/min. set 2 bucket Mobile N=8.5kW screener 4 High rail L=38m set 1 Consistent with grab bucket and 5 Waste car set 6 transportation car Transportation 6 Consistent with waste car set 1 car 7 Square steel gate BH=5400mm×4800mm, for storm water set 2 8 Manual/auto gate activator 40T N=15kW (outdoor) set 2 Lift weight: 32 t (main hook) and 5 t (sub Motor hook double beam 9 hook). Lift height is 16 m (18 m); Span set 1 hoist is 13.5 m. N=82.3kW DN2000, L=590, P=1.0MPa. For storm 10 Double flange connection set 4 water DN2000 L=1200mm N=7.5kW Motor flange plate gate 11 P=1.0MPa, Weight=25 t. For storm Set 4 valve water DN2200, up door open angle>50° 12 Double free flapper Down door open angel >65° Set 4 Angle difference<20°P=1.0 MPa 13 Pressure balance vacuum DN400 H=1250mm N=3kW , air Set 4

Easen International Co. Ltd. 3-81 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis No. Equipment Main Technical Parameters Unit Qt’y release valve drainage function 14 Axial fan Q=4420m3/h P=240Pa N=0.6kW Set 8 15 Axial fan Q=12000m3/h P=195Pa N=1.1kW Set 8 16 Axial fan Q=1780m3/h P=165Pa N=0.25kW Set 6 Maintenance pump 17 Q=600m3/h H=20m N=55kW Set 2 (submersible pump) Maintenance pump 18 Q=50m3/h H=22m N=7.5kW Set 2 (submersible pump) Recycle pump (submerged 19 Q=20m3/h H=50m N=11kW Set 2 pump) 20 Electrical equipment Set 1 21 Auto control equipment set 1

There are two options for providing a reliable source of power to run the Sixin Pump Station. One option is connect to the planned 220kV Taishanshi Transformer Substation while the alternative is to connect to the 220kV Sixin Transformer Substation. The total power loading of 6kV and 0.38 kV are 12,100 kW and 320 kW, respectively.

There are two main transformers in the General Transformer Substation. The installation power is 8,000kVA in consideration of a 1,120 kW direct start motor and indoor installation. The 6kV system is single mother line connections in two phases. During the normal operation, it will be two sections of mother lines in separate operation. The 0.38kV system is equipped with one 500kVA6/0.4kV transformer to provide power to the equipment with voltage of 0.38 kV and the related lighting system in the station.

The design principle is “centralized management and separate control”. Each unit of the system is independent and can be expanded vertically and horizontally. Unit maintenance will not affect the normal operation of the remaining units of the system.

3.3.2.4 Major Construction Item and Cost Estimate

Table 3-41 Major Construction Item and Cost Estimate Cost SN Description Estimate (USD, M) WNZ-C2.1 Longyang Lake: Dredging 3.17

WNZ-C2.2 Longyang Lake: Wetland Park 5.22

WNZ-C2.3 Longyang Lake: Artificial Wetland, Aquatic Planting and Artificial Water Grass 5.49

WNZ-C2.4 Longyang Lake: Tang Mountain Greening 3.48

WNZ-C2.5 Moshui Lake: Dredging 3.45 WNZ-C2.6 Moshui Lake: Artificial Wetland 3.40

WNZ-C2.7 Moshui Lake: Aquatic Planting and Artificial Water Grass 7.71 WNZ-C2.8 Nantaizi Lake: Dredging 2.85 WNZ-C2.9 Longyang Lake: Artificial Wetland, Aquatic Planting, and Artificial Water Grass 6.72

WNZ-C2.10 Ecological Fishery and Benthos Recovery Engineering in the Lakes 1.50 Longkou Channel, Longxin Channel and Zhujiaxin Channel Rehabilitation: WNZ-C2.11 3.32 Earthwork and Aquatic Planting

Easen International Co. Ltd. 3-82 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Cost SN Description Estimate (USD, M) Longkou Channel, Longxin Channel and Zhujiaxin Channel Rehabilitation: WNZ-C2.12 2.90 Greening WNZ-C2.13 Liantong Channel Rehabilitation: Earthing and Gate Connecting in the North 5.78 WNZ-C2.14 Liantong Channel Rehabilitation: Earthing and Gate Connecting in the South 2.35 Liantong Channel Rehabilitation: Aquatic Planting and Bypass Ecological WNZ-C2.15 4.94 Treatment WNZ-C2.16 Liantong Channel Rehabilitation: Greening 4.36 WNZ-C2.17 Zong Channel Rehabilitation: Earthwork, Aquatic Planting and Ship Lock 4.49 WNZ-C2.18 Zong Channel Rehabilitation: Greening 2.44 WNZ-C2.19 Huoyan Channel Rehabilitation: Earthwork, Aquatic Planting and Ship Lock 6.71 WNZ-C2.20 Huoyan Channel Rehabilitation: Greening 1.48 Sixin Pumping Station: Pump House, Front Chamber, Influent Chamber, WNZ-C2.21 8.01 Screening Chamber and Check Gate Sixin Pumping Station: General Layout, Office Building, Power Distribution WNZ-C2.22 4.11 House and associated others WNZ-C2.23 Sixin Pumping Station: Dyke-through Pipeline Engineering 7.44 WNZ-C2.24 Sixin Pumping Station: Installation 4.75 WNZ-G2.1 Transport Vehicles for Lake/Channels Rehabilitation 0.32 WNZ-G2.2 Sixin Pumping Station: Mechanical Equipment and Spare Parts 4.99 WNZ-G2.3 Sixin Pumping Station: Electrical and Automation Equipment 1.88

WNZ-G2.4 Sixin Pumping Station: Power Supply Equipment (high voltage) 3.97

WNZ-G2.5 Sixin Pumping Station: Transport Veicles 0.08

WNZ-G2.6 Sixin Pumping Station: Tools and Furniture 0.08

Total 117.39

3.3.2.5 Proposed Contract Packages and Procurement Plan

Table 3-42 Proposed Contract Packages and Procurement Plan

Contract Package Type and Procurement Expected Date for Prior SN Description Method Advertisement Review(Yes/No)

Civil Works

WNZ-C2.1 Longyang Lake: Dredging NCB Oct-2010 N

WNZ-C2.2 Longyang Lake: Wetland Park NCB Mar-2012 N Longyang Lake: Artificial Wetland, WNZ-C2.3 Aquatic Planting and Artificial Water NCB May-2012 N Grass

Longyang Lake: Tang Mountain WNZ-C2.4 NCB May-2012 N Greening

WNZ-C2.5 Moshui Lake: Dredging NCB Feb-2011 N WNZ-C2.6 Moshui Lake: Artificial Wetland NCB Mar-2012 N Moshui Lake: Aquatic Planting and WNZ-C2.7 NCB May-2012 N Artificial Water Grass

WNZ-C2.8 Nantaizi Lake: Dredging NCB Feb-2012 N

Easen International Co. Ltd. 3-83 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

Contract Package Type and Procurement Expected Date for Prior SN Description Method Advertisement Review(Yes/No)

Longyang Lake: Artificial Wetland, WNZ-C2.9 Aquatic Planting, and Artificial NCB Apr-2012 N Water Grass

Ecological Fishery and Benthos WNZ-C2.10 NCB Jun-2012 N Recovery Engineering in the Lakes Longkou Channel, Longxin Channel and Zhujiaxin Channel WNZ-C2.11 NCB Aug-2011 N Rehabilitation: Earthwork and Aquatic Planting Longkou Channel, Longxin Channel WNZ-C2.12 and Zhujiaxin Channel NCB Aug-2011 NA Rehabilitation: Greening Liantong Channel Rehabilitation: WNZ-C2.13 Earthing and Gate Connecting in NCB Jul-2011 N the North Liantong Channel Rehabilitation: WNZ-C2.14 Earthing and Gate Connecting in NCB Jul-2011 N the South Liantong Channel Rehabilitation: WNZ-C2.15 Aquatic Planting and Bypass NCB Sep-2011 N Ecological Treatment Liantong Channel Rehabilitation: WNZ-C2.16 NCB Sep-2011 NA Greening Zong Channel Rehabilitation: WNZ-C2.17 Earthwork, Aquatic Planting and NCB Nov-2010 N Ship Lock Zong Channel Rehabilitation: WNZ-C2.18 NCB Nov-2010 NA Greening Huoyan Channel Rehabilitation: WNZ-C2.19 NCB Jun-2010 Y Earthwork and Aquatic Planting WNZ-C2.20 Huoyan Channel Rehabilitation: NCB Aug-2010 NA Greening WNZ-C2.21 Sixin Pumping Station: Pump House, Front Chamber, Influent NCB Jun-2010 Y Chamber, Screening Chamber and Check Gate WNZ-C2.22 Sixin Pumping Station: General Layout, Office Building, Power NCB Jun-2010 N Distribution House and associated others WNZ-C2.23 Sixin Pumping Station: Dyke- NCB Jun-2010 NA through Pipeline Engineering WNZ-C2.24 Sixin Pumping Station: Installation NCB Jun-2010 N

Goods

Transport Vehicles for WNZ-G2.1 NCB Feb-2012 N Lake/Channels Rehabilitation Sixin Pumping Station: Mechanical WNZ-G2.2 ICB Jun-2010 Y Equipment and Spare Parts Sixin Pumping Station: Electrical WNZ-G2.3 ICB Jun-2010 Y and Automation Equipment Sixin Pumping Station: Power WNZ-G2.4 NCB Sep-2010 NA Supply Equipment (high voltage) Sixin Pumping Station: Transport WNZ-G2.5 Shopping Sep-2010 N Veicles Sixin Pumping Station: Tools and WNZ-G2.6 Shopping Sep-2010 N Furniture

Easen International Co. Ltd. 3-84 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis 3.3.2.6 Construction Plan and Implementation Schedule

Table 3-43 Construction Plan and Implementation Schedule 2010 2011 2012 2013 2014 Activity 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1. Longyang Lake

Rehabilitation Design and Tender

Documentation Land acquisition and resettlement Bid Invitation, Evaluation,

Contract Award Civil Works Construction 2. Moshui Lake

Rehabilitation Design and Tender

Documentation Land acquisition and resettlement Bid Invitation, Evaluation,

Contract Award Civil Works Construction 3. Nantaizi Lake

Rehabilitation Design and Tender

Documentation Land acquisition and resettlement Bid Invitation, Evaluation,

Contract Award Civil Works Construction 4. Longkou Channel

Rehabilitation Design and Tender

Documentation Land acquisition and resettlement Bid Invitation, Evaluation,

Contract Award Civil Works Construction 5. Longxin Channel

Rehabilitation Design and Tender

Documentation Land acquisition and resettlement Bid Invitation, Evaluation,

Contract Award Civil Works Construction 6. Zhujiaxin Channel

Rehabilitation Design and Tender

Documentation Land acquisition and resettlement Bid Invitation, Evaluation,

Contract Award Civil Works Construction

Easen International Co. Ltd. 3-85 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis 2010 2011 2012 2013 2014 Activity 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 7. Liantong Channel

Rehabilitation Design and Tender

Documentation Land acquisition and resettlement Bid Invitation, Evaluation,

Contract Award Civil Works Construction 8. Zong Channel

Rehabilitation Design and Tender

Documentation Land acquisition and resettlement Bid Invitation, Evaluation,

Contract Award Civil Works Construction 9. Huoyan Channel

Rehabilitation Design and Tender

Documentation Land acquisition and resettlement Bid Invitation, Evaluation,

Contract Award Civil Works Construction 10. Sixin Pumping Station Design and Tender

Documentation Land acquisition and resettlement Bid Invitation, Evaluation,

Contract Award Civil Works Construction Equipment Installation Testing and Commissioning

Easen International Co. Ltd. 3-86 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

3.3.2.7 Operation and Maintenance Cost

Once the lakes and channels are rehabilitated, and the Sixin Pump Station is constructed, even if a designated organization takes ownership to provide daily O&M duties to maintain pump station, the lakes and channels. If there are not sufficient funds to support and sustain the long term needs of the O&M activities, it will be difficult to guard what this investment is intended to achieve, i.e., maintaining and improving the lakes and channels water quality, and effective flood mitigation. Therefore, various aspects and detailed activities required for the O&M have been considered, and based on these considerations, the O&M costs have been estimated for the Wuhan City New Zone Lake & Channel Rehabilitation and the Sixin Pump Station sub- components as presented in Tables 3-44 and 3-45, respectively. WPMO has confirmed the funding for this O&M expenditure will be provided by the government to benefit public.

A. Wuhan New Zone Lake/Channels Rehabilitation

Table 3-44 Operation and Maintenance Cost No. Item Cost (USD) Remark 1 Labor plus welfare (E1) 259,371 59 person 2 Electricity (E2) 260,177 3 Water Supply(E3) 8,792 4 Daily consumption (E4) 29,307 5 Facilities maintenance fee(E5) 124,557 6 Aquatic plant cleaning (E6) 293,075 7 Sediment dredging (E7) 351,690 8 Greening maintenance fee (E8) 117,772 9 Management fee (E9) 72,243 10 Total (E1+…+E9) 1,516,984

B. Sixin Pumping Station

Table 3-45 Operation and Maintenance Cost No. Item Cost (USD) Remark

1 Annual depreciation expense 2157396 2 Repair cost 764075 3 Amortization 3165 4 Electricity cost 1264119 5 Labor plus welfare 109903 25 person 6 Maintenance fee 449459 7 Management & other fee 237405 8 Interest Including: domestic loan interest

Easen International Co. Ltd. 3-87 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

No. Item Cost (USD) Remark

Loan interest of working capital 9 Total cost 4985522 Including: fixed cost 3721403 Variable cost 1264119 10 Operating cost 2824961 11 Annual drainage capacity(10000m3) 53175464 12 Operation cost of per cubic meter drainage(CNY/m3) 0.09 13 Total cost of per cubic meter drainage (CNY /m3) 0.05

3.3.2.8 Alternatives

Based on the previous water connection networking analogy of the six lakes, the alternative options of “drawing water from rivers to lakes” include a set of four potential water transfer variables: transfer source, transfer route, transfer flow and transfer modes.

3.3.2.9 The Water Source Alternatives

Based on earlier analysis of the six lake area and water quality, the alternatives for the water source are Yangtze River and Han River for “introducing water from rivers into lakes”.

Table 3-46 Water Source Comparison and Selection Table

Item Yangtze River Han River

Water quantity Much full Full, enough for water transfer Water quality Well, but higher content Fine of sand Flow condition by Negative, not satisfied Positive, satisfied with the natural gravity with the natural terrain terrain Facilities completion Perfect, with artesian Basically completed, only with level gate and pumping artesian gate station Impact to water No bad effect Possible impact during the dry environment season Possibility of snails Quite possible Less possible living Other factors Nantaizi Lake is the None most seriously polluted lake.

Table 3-46 contrasts the differences between the two options. It is observed that the Han River is better solution for being a water source when compared with the Yangtze River in terms of technology, cost and benefits.

Easen International Co. Ltd. 3-88 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis 3.3.2.10 Alternative Divert Routes

According to the Six Lake connection plan’s distribution layout, the following four alternative water routes are identified.

Route 1: Han River→Qingduanhexiao River→Longkou Canal→Longyang Lake→Mingzhu River→Moshui Lake→Liantong Channel→Nantaizi Lake→Yangtze River

Route 2: Han River →Qingduanhexiao River →Longkou Channel →Longyang Lake →Tnagshan Channel →Sanjiao Lake →Xinming River →Nantaizi Lake →Yangtze River

Route 3: Han River →Qingduanhexiao River →Zhunjialao Channel →Zhujiaxin Channel→Longxin Channel →Longyang Lake →Mingzhu River →Moshui Lake →Liantong Channel →Nantaizi Lake →Yangtze River

Route 4: Han River →Qingduanhexiao River →Zhunjialao Channel →Zhujiaxin Channel →Longxin Channel →Longyang Lake →Tangshan Channel →Sanjiao Lake → Xinming River →Nantaizi Lake →Yangtze River

Both routes 1 and 3 will result in an improved water quality for the Longyang Lake, Moshui Lake and parts of the Nantaizi Lake. Routes 3 and 4 will improve the water quality in the Sanjiao Lake, part of the Nantaizi Lake and Longyang Lake. Depending on the importance of improving the water quality of the different lakes, different routes can be utilized. If an improvement in water quality in Moshui Lake is more critical than Sanjiao Lake, routes 1 or 3 should be used. If an improvement in water quality in Sanjiao Lake is required then routes 2 or 4 should be used.

The least cost solution is to implement a combination of all four routes so that water will flow from Longyang Lake to both Moshui and Sanjiao Lake. Based on the size and volume of the two lakes, the flow rate to Moshui Lake will be double more than to the Sanjiao Lake.

3.3.2.11 Alternative Flow Rates

The alternative flow rate options are 5m3/s, 8m3/s, 10m3/s, 20m3/s and 30m3/s. A 30 day was used as the basis for the water quality simulation model, the improved effect under the different water divert plan and flow conditions was analyzed. The optimum flow rate is identified according to the principle of economic viability.

The least cost solution for the design water flow rate is 20m3/s. The following factors were considered to study the effect of this flow rate. y The promoting rule analysis result of the water quality in the six lake area after water transfer shows that the general trend is that the higher the water flow rate, the greater the improvement in water quality. A flow rate of 20m3/s satisfies the water quality requirements of the six lakes. y When the flow rate is 20 m3/s, the influx water will create a dynamic water flow network and re-aerate the lake. Water flow status is the most important factor governing the occurrence of eutrophication. The last 3 eutrophication events occurred in the Han River due to very poor flux of the water. The 20 m3/s flow rate and the ecological diversion facilities will reduce the algae growth rate. y The existing facilities provide the necessary conditions to allow a flow rate of 20m3/s. y A flow rate of 20m3/s has no negative impacts in terms of flooding and urban storm water drainage plans. y The flow rate of 20m3/s will assist the ecological recovery of the lakes.

Easen International Co. Ltd. 3-89 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis 3.3.2.12 Alternative Methods for Water Diversion

Depending on the water level in the Han River, the Yangtze River & other inner lakes, and the status of storm water drainage and flood control, there are four basic water divert modes as i. Gate in and out, ii. Gate in and pump out, iii. Pump in and out, and iv, Pump in and gate out. Table 3-47 shows the detailed comparison. The Gate in or out refers to water flows by gravity without any power consumption.

Table 3-47 Alternative Transfer Mode List

Item Facility O&M Effective period Result Modes Investment May-July or Least cost Gate in &out Simple None September-November solution Gate in-pump out Quite simple None June-August Mostly New Qingduankou Pump in& out Complicated Pumping No time limit Negative Station is required New Qingduankou Recently Pump in-gate out Quite simple Pumping Quite short not Station is preferred required

Gate in and out is the least cost solution. Therefore, with proper planning ahead of time, this conduct mode can be adopted to take the advantage of seasonal water level in the river (Han River level is above 18.65 m. And Yangtze River level is below 20.15 m) so that power consumption can be minimized through this scheme. Gate in-pump out is the second option.

3.3.2.13 Alternative Conduct Modes for Different Seasons

Wet Season Water Conduct Mode:

The advantages of wet season water conduct mode are:

(i) During the wet season, the water temperature is hot which will result in a low DO level in the lakes. This low DO is causing the blackening of the lake water and creating a stinky smell. Water influx during this period will help to remedy this;

(ii) Aquatic vegetation planted in the lakes as part of the ecological recovery scheme would find it difficult to survive during the summer. Water influx during this period will help to improve the water quality of the lake and enhance the living conditions of the aquatic environment;

(iii) The water level in the Han River is generally high during the wet season and can easily reach 20m3/s. The East Lake Pumping Station can regulate the drainage delivery lift of the Yangtze River depending on the water level. The operation cost incurred by this system would be relatively low;

(iv) The high flow rate during the wet season is consistent with the historical transfer mode. The transfer of water during the wet season will bring more food for fish, thus increasing the amount of fish in the system.

Easen International Co. Ltd. 3-90 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Dry Season Water Conduct Mode:

The advantages of dry season water conduct mode are:

(i) During the dry season, the water temperature in the lakes is low compared to the wet seasons. This low temperature has increased the DO level of the water in the lake and at the same time, decreased the biological activities and lowered the water disturbances. The water quality during this period is generally at its best during any given year. The dry season transfer mode has the potential to gradually improve the long term stability of water quality in the lakes;

(ii) Wuhan city has four distinct seasons. During winter, the water treatment measures are less effective than during the other seasons. The adoption of this water transfer mode will assist the ecological recovery during the period when the WWTP effluent of poor quality is discharged into the river;

(iii) This mode, combined with the use of diversion facilities, will help to prevent the growth of algae in the lakes.

The wet season transfer mode is preferred in the current phase. The dry season transfer mode is preferred in the future phase for the expected longer dry season of the Han River.

3.3.2.14 Water Level Transfer and Artesian Area Analysis

In order to induce the flow of water by gravitational force while maintaining a water level of 19.15m in the Longyang Lake, the water level at the Qingduankou gate needs to be maintained at 19.91 m as a minimum. The Qingduankou gate should be closed when the water level reaches 25.21m to prevent flooding in the Longyang Lake due to excessively high volumes of water being transferred.

On average, for roughly 102.7 days per year, between April and November, the water level in the Han River will be sufficient to allow water to be transferred by gravity. The majority of these days are concentrated between June and August. According to statistical records, 18 is the minimum days that the water level is high enough while the maximum number of days recorded is 195. There are 24 years that the high water level lasted for 102 days (accounting for 51% of all the recorded years), 35 years above 81 days (73% of the recorded years) and 43 years above 60 days (90% of the recorded years). The water transfer from the Han River to Nantaizi Lake will take 7 days. In one year, all the water in the lake will have been replaced twice.

3.3.2.15 Least -cost Solution of Sixin Pumping Station

(i) Process A. Civil works of the pump station will be completed in consideration of phase I, II and III. The equipment will be procured in consideration of phase I.

(ii) Process B: The land will be compensated in consideration of phase I, II and III. The civil works will be built in phase I and II. The equipment will be procured in consideration of phase I.

The Process A has the low total cost after phase III with the simpler operation management which is indeed an advantage and there is a possibility to increase the capacity of direct drainage area. The disadvantages are the high capital used portion. We therefore conclude that Process A is still the least cost solution.

Easen International Co. Ltd. 3-91 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Table 3-48 Alternative Pump Selection List Horizontal Mix Flow Pump Vertical Mix Flow Pump Evacuation will be required during the start if Evacuation will not be required during the impeller of the pump is not submerged. start if impeller of the pump is not submerged. This is easy for start. Main body is above water, which is Main body is under water, which is difficult for convenient for maintenance and protected maintenance and easily corrupted. from corrosion. The impeller rotates vertically, which is not The impeller rotates horizontally, which is reasonable for working. reasonable for working. Water suction height is big, which can cause Water suction height is small, which has no cavitations problem. cavitations problem. Water suction pipe is long, which has big Water suction pipe is short, which has small water head loss. water head loss. The layout area of pump station is big. The layout area of pump station is small. The flood protection requirement is high for The flood protection requirement is low for the pump station with huge water level the pump motor is above the flood level. change. The deflection of main shaft is huge. The The deflection of main shaft is small. The friction of shaft is uneven. friction of shaft is even.

According to the above comparison in Table 3-48, the advantage of a vertical mix flow pump is that it requires much less space than the horizontal pump. The vertical mix flow pump is also easier to start. The motor can be installed above flood level along with the adequate airing and light fixtures, allowing it to operate even with huge water level fluctuations during flood. It is suggested that a vertical mix flow pump is best suited for the pumping station.

The technical and economical selection of the different pump quantity (9 sets, 12 sets and 15 sets) is presented in Table 3-49.

Table 3-49 Alternative Pump Quantity List Scenario I Scenario II Scenario III Pump Quantity 9 sets 12 sets 15 sets Capacity 11.67m3/s 8.75m3/s 7 m3/s Motor power 1500kw 1120kw 900kw Low efficiency with High efficiency with High efficiency with Pump capacity low head normal Yangtze River normal Yangtze River water level water level RC, pressure Steel pipe, Steel pipe, culvert, D2220×22mm, Head D2020×20mm, Head Effluent pipe BH=2.8×2.2m, loss low loss low head loss high Phase I L=51.58m Phase I L=57.58m Phase I L=63.58m Pump room length Phase III Phase III L= 35.58m Phase III L=38.58m L=32.58m Minus submerge H=5.5m H=5.0m H=4.5m depth of pump

The pump station in Phase III has a huge capacity of 105 m3/s,. In consideration of the pumping station construction cost and the normal operation cost, Scenario II should be elected with a design capacity of 8.75m3/s per pump. Four pumps will be installed in Phase I and another four pumps will be installed in Phase II. The final four pumps will be installed in Phase III.

Easen International Co. Ltd. 3-92 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis 3.3.3 Yangchun Lake Secondary Urban Centre Lake/Channel Rehabilitation

3.3.3.1 Project Rationale

The Yangchun Lake Secondary Urban Center (YLSUC), located at the north-east side of the Hongshan District in Wuhan City, is identified in the new Wuhan urban master plan. The new urban master plan categorized YLSUC as the integrated transportation and service centre of the Beijing-Guangzhou Passenger Dedicated Line - Wuhan Train Station. As a modern transportation hub, YLSUC will become a hot spot of urban development and construction in Wuhan. The Yangchun Lake is one of the key surface water bodies in the YLSUC and is also within the area of the recently approved “Wuhan City Wuchang Area East Lake Connection Project”.

The Wuchang Area East Lake aquatic ecosystem comprises the Dongsha Lake system and the NorthLake system in accordance with the “Construction Planning for Wuchang Area East Lake Ecological Water Network”. Within these two lake systems, there are the East Lake, Sha Lake, Yangchun Lake, Yanxi Lake, Yandong Lake and the Bei Lake. The Greater East aquatic ecosystem includes the Wuchang District, Qingshan District, Hongshan District, East Lake New Technological Development Zone, and the East Lake ecological recreational zone. The total area covered by the aquatic ecosystem is 436 km2 with a lake area of 376 km2 with a volume of 120 million m3.

According to the Wuhan Environmental Monitoring Report for 2003~2007, about half of the water in the East Lake is ranked to be between Grade V and Grade V (poor) for water quality. The drainage channels that are connected to the Lake have a water quality grade of V due to the heavily polluted lake water. In the year 1950, the lake was surrounded by forests and the water in the East Lake was clear and visible to its bottom which ranges from 3~6 m. Over the years, the water quality of East Lake has deteriorated a great deal. In the year 1980, the water was only visible to a maximum depth of 1 m. The water near the shorelines was dark and stinky while the lake was filled with algae (refer to Figure 3-36). During that time, floating dead fish could be observed frequently.

East Lake used to be a nutrient poor lake before 1950 when the phenol, cyanide, Hg, Cr and Cd in the lake were below the detection level. The degradation of the aquatic ecosystem started during 1980s. Plankton bloom occurrence was very frequent in East Lake for most of the time during the year. The eutrophication of East Lake became a serious issue for the aquatic ecosystem, especially around the shoreline where the water was heavily eutrophicated. The result of this eutrophication was the decrease in the aquatic life form in the East Lake. The aquatic vegetation coverage has decreased from 23.782 km2 account for 83% of the total lake surface area to less than 0.8 km2 accounting only 3% of the total lake surface area at the turn of the century.

The East Lake used to be an important source of potable water for the City of Wuhan. The water treatment plants in the Tuanshan and East Lake area which all use East Lake as their source for water had a daily capacity of 230,000 m3/d. Over time, the ability for the East Lake as a water resource for potable water has diminished. The algae population in the lake water has reached to 110 million per liter due to contamination. It has created an unpleasant smell to the local residents in the vicinity. WMG was forced to implement the “Lake to River” project on 1987 to switch the potable water source from East Lake to Yangtze River. This project cost the government CNY 850 million over the implementation period of 18 years. Although most of the point pollution sources have been intercepted around the main East Lakes through the World Bank and later the ADB financed projects, the water quality in the East Lake is yet to be improved. For example, on August 17th, 2009, algal bloom occurred again in the East Lake (Figure 3-41).

Easen International Co. Ltd. 3-93 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-41: Algae Bloom of the East Lake

The cause for the deterioration of the Wuchang Area East Lake Water System is due to the compounding effect in the past decades from human and industrial activities and lack of awareness for protecting the environment. The main contributors of the pollutants are both the point and non-point source pollution, and thrown garbage or contaminated storm water runoff from the surrounding areas. This deterioration of the lake water and the disconnection of the lake system from the rivers all contributed to the decrease in the diversity of the lakes aquatic ecosystem. The ripple effect of this decrease is a reduction in the assimilation capacity of the lakes. Therefore, it is important that all point sources and non-point sources of pollutions to the surface water should be further intercepted to help restore the lake water quality.

The Yangchun Lake Secondary Urban Centre Lake/Channel Rehabilitation project is a key module of the construction for the Wuchang Area East Lake Water Network. The component includes the reduction of pollutant, dredging of the sediments, connection of the water network between the rivers and lakes, ecosystem restoration, and a comprehensive management and coordinated development plan. It is a core project for achieving the environmental restoration for the Wuchang Area East Lake Water Network because the Yangchun Lake is the first lake (i.e. upstream) of the Wuchang Area East Lake Water Network. The proposed component consists of three sub-components, pollution control, water network connection and ecosystem restoration. A separate monitoring system will also be implemented to assess the effect of the project work after it is implemented.

3.3.3.2 Selection of Technical Options and Design

A. Current status

The Wuhan Environmental Monitoring Report for the year 2006, 2007 and 2008 analyzed the water quality of the Yangchun Lake. The data from the report is summarized in Table 3-50 below. Figure 3-42 shows Yangchun Lake site. Table 3-50 Yangchun Lake Water Quality Monitoring Result for 2006-2008 (mg/L)

Year Item Temperature pHmax DO COD BOD5 TP TN NH4-N

2006 Average 20.7 7.6 7 24 3.22 1.46 0.281 Average 2007 19 7.7 4.5434 2.02 0.055 1.227 0.242 Average 2008 20.6 8.15 3.4537 3.03 0.148 1.76 0.48

Class IV - 6-9 3 30 6 0.1 1.5 1.5

Easen International Co. Ltd. 3-94 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-42 Site Photo of Yangchun Lake (May 25, 2009)

The Yangchun Lake water quality is not met with the Class IV standards.

The Wuhan Environmental Monitoring Station (WEMS) has also analyzed the effect of the Yangchun Lake sediment on the environment by sampling and studying the sediment composition. The result of the sample collected for the analysis is summarized in Table 3-51.

Table 3-51 Analytical data of Yangchun Lake and Heping Channel Monitoring Sampling TN TP Cu Zn Pb Hg location g/kg g/kg Mg/kg mg/kg Mg/kg mg/kg Yangchun 1.29 0.38 36.7 418.3 50.5 0.003 Lake Heping 3.092 1.601 120 390 60 0.3 Channel Background value in 1.0-2.0 0.4-2.5 27.2 81.3 25.0 0.095 Wuhan Agriculture application — — 250 500 300 5 standard

According to the comparison of the monitoring data, the TN and TP within the Yangchun Lake sediments are compatible with Wuhan’s background range while the Cu, Zn and Pb concentration are quite high, exceeded the background concentration of the soil in Wuhan, particularly the Heping Channel. The concentration of Zn is extremely high compared to the background data. It indicates that there are a lot of accumulations of industrial pollutants over the years in the Yangchun Lake and in the Heping Channel. The heavy metals concentration almost approaches the maximum allowable concentration for agricultural soil according to the “Agricultural sediment standards”. The only heavy metal that has a concentration below the background data is the Hg.

The dredged sediments will be dried in the disposal plant near the lake. The dried sediments will be applied as soil conditioner for landscaping or green areas of the city. Since the heavy metals concentrations are generally high, although still below the agricultural application standards, it is not recommended for agricultural application.

The leachate from the drying process should be collected since it contains high concentration of Zn. The liquid separated from the sediment should not be discharged until the related standards and discharge regulations are met. If direct discharge would occur the receiving water body will be seriously affected.

Easen International Co. Ltd. 3-95 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Table 3-52 Test Result of Leachate from Sediment Sampling location pH Zn Cu Pb Hg As Yangchun lake 7.04 0.014 0.041 0.013 0.0040 0.0025 Heping Channel 7.05 0.017 0.053 0.0214 0.0038 0.0033 GB5085.3-2007* 100 100 5 0.1 5

Note: a) Unit is mg/l except pH, b) GB5085.3-2007 is “Identification standard for hazardous wastes--Identification for extraction procedure toxicity”.

Based on Table 3-52, all concentration of pollutants in sediment leachate of Yangchun Lake and Heping Channel met the requirement of “Identification standard for hazardous wastes-- Identification for extraction procedure toxicity”. The leachate is not hazardous waste. PPTA team suggests the leachate can be disposed as non-hazardous waste.

In addition, the PPTA Consultants suggested adding a request to sample the sediments for PCB. If the sediment is polluted with PCBs, proper treatment and disposal of the sediment will need to be further explored. Currently, the PCBs test report was submitted to PMO and the PPTA Consultants on 23 September 2009. The testing result is listed in Table 3-53.

Table 3-53 PCBs and Other Pollutant Testing Result in Longyang Lake, Moshui Lake and Nantaizi Lake AOX (as Cl-) Benzo(a)pyrene PCBs DIOXIN No. Item (mg/kg) (mg/kg) (mg/kg) （ng/kg） CJ248-2007 The quality of sludge used 1 for afforestation in ﹤500 ﹤3 ﹤0.2 ﹤100 gardens or forests

CJT 249-2007 Sludge quality for co- 2 — — — — landfilling

T291-2008 Sludge quality for land 3 500 3 0.2 100 reclamation

4 Yangchun Lake ﹤10 0.07 ﹤0.01 0.05-1.8 Based on above table, the PCBs and other pollutants met the requirement of the disposal standards. The sediment could be used for afforestation in gardens or forests, co-landfilling and land reclamation.

The treatment target of the lakes and channels is to connect the rivers and lakes by naturally present channels in the area to prevent the water quality from any further deterioration. The water environment will be improved after the implementation of this component.

Another impact of the sediment drying process is the smell produced during drying. The high nutrient content of the sediment will induce the release of unpleasant smells which will affect the surrounding residents and the works. This impact will stop when the drying process is stopped.

The Heping Channel is currently classified as a drainage channel while its future function is yet to be designated. The WEMS have conducted an assessment of the water quality in Heping Channel on May 23rd of 2009. The result of the study is tabulated in Table 3-54.

Easen International Co. Ltd. 3-96 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Table 3-54 The Water Quality of Heping Channel (mg/L)

6+ Item pH DO COD NH3-N BOD5 TP TN Pb Cr Cd

Upstream 8.27 3.88 55 13.2 4 0.04 18.6 0.001 0.004 0.0001

Midstream 7.72 0.15 82 13.8 7 0.04 19.3 0.001 0.011 0.0001

Downstream 7.47 0.08 173 13.5 8 0.06 20.2 0.001 0.016 0.0001

The DO concentration of the lake water in Heping Channel is classified as Class IV to Class V (poor), COD, ammonia and TN is classified as Class V, while the BOD5 is classified as Class III~V. The concentrations of lead, chromium and cadmium are very low. This data suggests that the contamination of Heping Channel is presently not due to heavy metals but to DO, COD, ammonia and TN. The high concentration of heavy metals found in the Heping Channel sediments as shown in Table 3-48 could be due to historical industrial pollution, and were being accumulated in the sediment. Recent pollution seems to be primarily due to organic pollutants that consume the DO because of naturally occurring biodegradation. This high organic content has deteriorated the ecosystem, making it necessary to implement a remediation and restoration plan. Figure 3-43 shows the current view of one part of Heping Channel.

Figure 3-43: Site Photo of Heping Channel (May 25, 2009)

B. Project Content (i) Yangchun Lake Rehabilitation

Figure 3-44 shows the layout of Yangchun Lake Rehabilitation.

Easen International Co. Ltd. 3-97 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Figure 3-44: Yangchun Lake Rehabilitation Project Layout

(ii) The Ecological Rehabilitation Solution. The solutions adopted for the ecological rehabilitation includes sediment dredging, artificial wetland and aquatic vegetation planting in the Yangchun Lake. This is to rehabilitate the ecological structure of the water ecosystem and to enhance the biological diversity to reconstruct the lake ecosystem through sediment dredging and purification by wetland construction and aquatic plants. a. Sediment dredging. Sediment dredging will be conducted across the whole area of the lake. The dredging depth is between 50 and 70 cm with a total dredging volume of approximately 250,000 m3. The civil works done for the lake area have recovered 1,200,000 m3 of sediment. A 375 mu sludge storage field would be constructed near the lake with a total capacity of 250,000 m3. Pipelines will be laid along the surface of lake to facilitate the sediment transportation between the dredging area and sludge storage field. b. Artificial Ecological Wetland. Two artificial wetlands with total area of 380 mu will be constructed on the east and west corner of the Yangchun Lake. y Aquatic Plants. A 50 mu artificial floating island and 30 mu of artificial aquatic plants will be constructed. The floating island will be constructed on the northeast and southeast side of the Yangchun Lake to avoid the Wuchang Area East Lake diversion route from directly passing through the Yangchun Lake.

The rehabilitation process will focus on the submerged macrophytes while supplemented by some emergent and floating plants to improve the purification ability and enhance the water landscaping function in line with the urban planning. The aquatic vegetation plantation should emphasize the emergent plant to speed up the water quality improvement of the lake. Priority should be placed on internal pollution control to avoid secondary pollution in the downstream lakes along the diversion route.

Aquatic vegetation will be planted in the Yangchun Lake which will account for 5% (43.2 mu) of the whole lake area. In the shallow water areas, emergent vegetations such as cattail, lotus and calamus will be planted.

Easen International Co. Ltd. 3-98 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

In the centre of the Yangchun Lake, floating plants such as Nymphoides peltata, water lily and water caltrop will be introduced accounting for about 1% (8.7mu) of the whole lake. In addition, submerged plants such as water milfoil, hornwort and potamogeton crispus will also be introduced to account for another 15% (129.6 mu) of the whole lake.

When the planting of the aquatic vegetation is completed, the Yangchun Lake will have a beautiful and attractive wetland park for tourism while also controlling the release of the Lake’s nutrients more effectively.

C. Yangchun Lake Landscaping

The Lake Landscaping Project will take advantage of the water resource in the Yangchun Lake and Wuhan City.

Considering that the surrounding areas are mainly residential zones, the park and the Lake will be designed on an environmental friendly model. Large bodies of water will be at the centre of the park connected by roads and paths to the surrounding areas. The whole park will consist of 9 functional zones: entrance zone; recreational zone; waterscape zone; sports zone; management zone; lake front landscape zone; culture area; special vegetation zone and children’s playing zone. The culture plaza is the centre of the park. The landscaping of the culture plaza is also the main theme of the entire wetland park. There are 8 types of landscapes in the park including the special vegetation area; tree forest area; tree-shrub area; open forest and grass area; lake front landscaping area; aquatic vegetation area; square green area and flower area.

(i) Feed water source from Luobuzui WWTP to Yangchun Lake

The surface area of the Yangchun Lake is 864.15 mu with a total water volume of 8.6×105 m3. A water turnover rate of 25 days is needed to improve and guarantee the water quality in the Yangchun Lake. The huge water demand of 3.4×104 m3/d makes it hard to achieve the required turnover rate. The natural source for feed water is not enough to meet the required turnover rate, making it necessary to utilize the effluent from the Luobuzui WWTP. The design capacity of the Luobuzui WWTP is 12×104 m3/d. The effluent will be treated by the ecological treatment zone located at west side of the Wuguang Railway near the Yangchun Lake before being discharged into the Yangchun Lake. This treatment process will prevent the release of the pollutant from the Luobuzui WWTP. It is also a key component for the water purification and recycling process for the Yangchun Lake.

The effluent from Luobuzui WWTP will be treated ecologically to meet the water quality requirements of landscaping application to promote the wastewater regeneration. The discharge standard for the Luobuzui WWTP and the landscaping water quality standard are presented in Table 3-55.

Easen International Co. Ltd. 3-99 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Table 3-55 Discharge Standard of Luobuzui WWTP and Landscaping Water Quality Standard Discharge standard of Landscaping water quality Luobuzui WWTP standard

BOD5（mg/L） 20 8

NH3-N（mg/L） 8 0.5 TP（mg/L） 1 0.05 pH 6~9 6.5~8.5 Fecal coliforms (No./L) 104 2000 Class I/B of Discharge Class C of Water quality standard of pollutants for standard for scenery and municipal wastewater recreation area treatment plant

Figure 3-45 Process Diagram of Luobuzui WWTP Effluent Treatment

Artificial Wetland

Effluent of Lake Shore Yangchun Lake Luobuzui WWTP

Water ecological pond

The flow distribution plan in Figure 3-45 and Table 3-56 is made according to the different treatment technology, retention time and the required treatment result of the artificial wetland, lake shore and water ecological pond.

Table 3-56 Effluent of Luobuzui WWTP Flow Distribution Plan Hydraulic loading Retention time Layout area Capacity Artificial wetland 0.6m3/m2·d 1d 4×104 m2 240000m3/d Lake shore 0.4 m3/m2·d 1.5 d 3×104 m2 8000m3/d Water ecological 0.15 m3/m2·d 2d 2×104 m2 1500m3/d pond

The average capacity of each process is listed in the Table 3-56 indicating a treatment capacity of 3.35×104 m3/d for the Luobuzui WWTP. The hydraulic loading differs with season and can be adjusted with by the treatment efficiency, vegetation, microorganism and aquatic life growth. In the summer, when the vegetation is in full bloom, the microorganism activity is very high, resulting in an increased hydraulic loading and vice versa during the winter season resulting in an increased retention time.

Easen International Co. Ltd. 3-100 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis (ii) Storm runoff treatment facilities of Yangchun Lake

During the PPTA, the pollution contribution to the Wuhan’s surface water by storm water runoff has been fully discussed with the DI and the PMO. PPTA team leader walked on one street corner in Wuhan during the fact finding mission and took photos as Figure 3-46 that show: (1) A sewerage manhole that seemingly either under-designed or being blocked so the sewerage water (100% wastewater untreated) was overflowing and finding its way to a nearby storm water catch (of course, water flow to low elevation point naturally by gravity); (2) The dirty streets when it rains and one can easily imagine the dirty/polluted runoff will be happily flow into the storm water catch on the low spot of the street; (3) City Sanitation workers or residents are also sweeping or pour dirty (garbage) into the storm water catch;

Then, all these will be surely flushed into the lakes or channels that the storm water runoff pipeline usually connected to. Therefore, it is very cost effective to have a good storm water pollution prevention program, including building into the public awareness education program.

Figure 3-46 Wuhan City Drainage Problems (October 31, 2009)

Wuhan has an annual average precipitation of 1269 mm much larger than the national average of 648mm. Garbage and construction debris etc are still not very well managed in most of the cities in China, and Wuhan is no exception. For the rural areas the situation can be much worse. Site visits have proven that garbage and debris were being discarded randomly around the lakes that are generally away from the city’s urban center. According to international experience, most developed countries have realized that the significant non-point source pollution to surface waters is mainly caused by storm water runoff, particularly during the first 30 min to 2 hours of a storm event depending on the intensity of the storm, and the impact can be more serious by combined sewer systems. There are many successful combined sewer overflow (CSO) management system designs that are available for Wuhan to try and to gather locally applicable data and experience. Therefore, it is agreed that a demonstration sub- component be carried out in Wuhan through this Project to start gathering experience on the storm water runoff pollution mitigation and control. This experience will be used later to start implementing a city wide storm water pollution control scheme.

A storage pond located in the southern green land of the park will be used for the collection, sedimentation and purification of the storm water runoff from the No.4 Main Street, Wuqing and the areas around the Wuhan Railway Station. The total volume of the pond will be 15,650 m3 with a depth of 1.2 m. The pond will be separated into a sedimentation section supported by a sand and stone bed and an aquatic vegetation part. The collected combined sewer overflow (CSO) will be directed to this pretreatment system. Generally, the first flush of storm water runoff is most contaminated and should be treated before discharge to the lake. As the rain continues the storm water runoff is becoming gradually less polluted. The pretreatment system

Easen International Co. Ltd. 3-101 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis would then allow the less polluted storm water runoff to overflow or bypass the treatment system, to the lake. Frequent monitoring of this storm water runoff pretreatment system will be conducted to gather relevant data and information that can be used to assess the performance in storm water pollution reduction.

D. Heping Channel Rehabilitation

The Figure 3-47 shows the layout of Heping Channel Rehabilitation.

Figure 3-47 Heping Channel Rehabilitation Layout

(i) Cross-section form of the channel

The Heping Channel rehabilitation proposes to use an ecological slope protection method through comparison and demonstration. Consideration was given to the ecological function while still meeting the drainage functional demand. The sediment to be dredged is located at the bottom of channel to facilitate access to the bottom soil and to promote the aquatic organisms’ growth in the water. The side slope between the edge of the channel and the waterfront footpath should be dressed appropriately to promote the natural growth of the vegetation and to facilitate the maintenance and management of the channel. Colored brick can be installed and trees can be planted on the waterfront footpath, which can enhance the environmental appearance and allow easier recreational access for the local residents.

(ii) Orientation, function and flow of the channel

The Heping Channel (from Gongye Road to Shahu Channel) is an important drainage channel with a total length of 1,383 m. The channel is designed as an ecological drainage corridor with natural greening. The main function of Heping Channel is to drain and connect the water system with a 40 m wide channel and designed flow rate of 8.94 m3/s. The bottom width of the Heping Channel is designed to range between 6~12 m with a water depth of 1.8 m and controlling the channel side slope at a ratio of 2:1.

(iii) Channel ecological rehabilitation

In accordance with the geological conditions of the sub-component, natural slope methods will be adopted in the places with better geological status to create an environment for the cultivation of aquatic vegetation. The main control points are in the Class I slope, the bottom of the channel and the water surface, which takes the normal water line as a separation line. Hydrophilic plants will be planted above the separation line while the emergent and floating plants will be planted in the shallow water zone as well as those intersecting areas between the land and water. Submerged plant will be planted in the bottom of the channel.

Easen International Co. Ltd. 3-102 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis (iv) Channel landscaping

Planting local and foreign tree species based on the current greening condition, making it as a supplement to the Shahu greening protection.zone. A walkway and pier will be set up for the convenience of the residents living in the area.

Bridge a. Overview The rehabilitation of the Heping Channel starts from Gongyedadao Road in the west and ends at Shahu Harbor in the east. The total length of the channel is 1,383 m and a water depth of 1.8 m. The water surface width in the channel is about 11 m. The Heping Channel rehabilitation project will improve the urban environment while also affecting some parts of the local road network. Three bridges named No. 1, 2 and 3 Heping Channel Bridge will be added east of Gongyeyi Road for upgrading residential traffic access. The width of bridges will be 5.5 m. b. Bridge design standards are as follows: a design period of 100 years, Class 2 of design safety, lane load is urban 1.B with 5.0 KN/m2 pedestrian load. Its seismic fortification criterion is 0.05g seismic peak ground acceleration with seismic intensity of 6 while the design seismic intensity is 7 for protection.

The bridge pier is designed to be close to the water level to maintain a low project investment, convenient construction and meet with the function and landscaping requirements. The span differs with an angle between Heping Harbor land and bridge. The span layout of the three bridges is described in Table 3-57:

Table 3-57 Span Lay-out distance from Angle of bridge water surface one side of the Bridge Span layout and Harbor axes width river to the other side No.1 bridge 34.7° 19.3 m 53 m 16+21+16 m No.2 bridge 37.3° 18.2 m 50 m 15+20+15 m No.3 birdge 86.4° 11.5 m 30 m 30 m c. Structure design y Heping Channel Bridge No.1 and 2. These two bridges have a 3-span layout. The structure is precast concrete hollow box section and continuous box beam. y Heping Channel Bridge No.3. The structure of Heping Channel Bridge No.3 is T type precast beam or simple box beam.

Easen International Co. Ltd. 3-103 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis 3.3.3.3 Major Construction Item and Cost Estimate Table 3-58 Major Construction Item and Cost Estimate Cost SN Description Estimate (USD, M) WYC-C3.1 Yangchun Lake Rehabilitation: Earthing of Lake Recovery 3.48 WYC-C3.2 Yangchun Lake Rehabilitation: Greening (I) 6.16 WYC-C3.3 Yangchun Lake Rehabilitation: Greening (II) 6.16 Yangchun Lake Rehabilitation: Storm water Pretreatment and WYC-C3.4 4.25 Artificial Wetland Yangchun Lake Rehabilitation: Other Works (building, raod, WYC-C3.5 6.74 looring, lightening and etc) WYC-C3.6 Heping Channel Rehabilitation 1.99 WYC-G3.1 Transport Vehicles for Lake/Channel Rehabilitation 0.55 Total 29.33

3.3.3.4 Proposed Contract Packages and Procurement Plan

Table 3-59 Proposed Contract Packages and Procurement Plan

Contract Package Type and Procurement Expected Date for Prior SN Description Method Advertisement Review(Yes/No)

Civil Works

Yangchun Lake Rehabilitation: WYC-C3.1 NCB May-2011 N Earthing of Lake Recovery Yangchun Lake Rehabilitation: WYC-C3.2 NCB May-2011 NA Greening (I)

Yangchun Lake Rehabilitation: WYC-C3.3 NCB May-2011 NA Greening (II)

Yangchun Lake Rehabilitation: Storm WYC-C3.4 water Pretreatment and Artificial NCB Jun-2011 N Wetland Yangchun Lake Rehabilitation: Other WYC-C3.5 Works (building, raod, looring, NCB Jun-2011 N lightening and etc)

WYC-C3.6 Heping Channel Rehabilitation NCB Mar-2011 Y

Goods

Transport Vehicles for Lake/Channel WYC-G3.1 NCB Jun-2011 N Rehabilitation

Easen International Co. Ltd. 3-104 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis 3.3.3.5 Construction Plan and Implementation Schedule

Table 3-60 Construction Plan and Implementation Schedule 2010 2011 2012 2013 2014 Activity 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1. Yangchun Lake

Rehabilitation Design and Tender

Documentation Land acquisition and resettlement Bid Invitation, Evaluation,

Contract Award Civil Works Construction Equipment Installation 2. Heping Channel

Rehabilitation Design and Tender

Documentation Land acquisition and resettlement Bid Invitation, Evaluation,

Contract Award Civil Works Construction

Easen International Co. Ltd. 3-105 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis 3.3.3.6 Operation and Maintenance Cost

Once the lakes and channels are rehabilitated, a designated organization will need to take ownership to provide daily O&M duties for the upkeep of the lakes and channels, and there will need to be sufficient funds to support and sustain the long term needs of the O&M activities. This is necessary to make this investment sustainable i.e., maintaining and improving the lakes and channels water quality. Therefore, various aspects and detailed activities required for the O&M have been considered, and based on these considerations, the O&M costs have been estimated for the Yangchun Lake Secondary Urban Centre Lake/Channel Rehabilitation sub- component as listed in Table 3-61. As confirmed by the PMO, the funding for these the O&M expenditures will be provided by the government since most of these are for the public goods.

Table 3-61 Operation and Maintenance Cost

No. Item Cost (USD) Remark 16 1 Labor plus welfare (E1) 70,338 Persons 2 Electricity (E2) 112,321

3 Water (E3) 5,861

4 Daily consumption (E4) 117,230

5 Facilities maintenance fee (E5) 29,307

6 Aquatic plant cleaning (E6) 58,615

7 Greening maintenance fee (E7) 74,881

8 Management fee (E8) 23,431

Total (E1+…+E8) 491,984

3.3.3.7 Alternatives

The two kinds of alternative slope protection considered are analyzed in Table 3-62 below.

Table 3-62 Open Channel Cross Section Options Comparison List

Proposal I ( concrete slope Proposal II(Ecological slope Item protection) protection) Design cross The roughness coefficient (n) is The roughness coefficient (n) is section and 0.0017. The water can flow faster 0.0023. The water can flow slowly drainage in this kind of open channel with in this kind of open channel with capacity the same cross section. the same cross section. The cross section of open channel The types of cross section of open Design channel is all the same. This kind of open channel differ. The route of the route channel will not fit with channel can fit with surrounding surrounding environment. environment. The bottom of open channel is The submerged part of the slope Landscaping concrete. The soil cannot is original soil layer or ecological and ecology exchange with water and livings in slope protection, which has great affect the channel. The ecological affect biological purification affect. and result are very bad.

Easen International Co. Ltd. 3-106 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis The bottom of open channel will The bottom of open channel is Structure be current soil layer after concrete, which can protect from stabilization sediment dredging, which can current scour. protect from current scour. The planting needs maintenance. Maintenance The management is very Maintenance and Management is and complicated before the planting is very easy. Management viable. But it will grow naturally after it is viable. The construction material is hexagon concrete block. The Since the bottom and slop of the Project cost project cost is really high. The channel is original soil layer. The vertical dock retaining wall also project cost is very low. cost a lot. Ecological slope protection is selected in this design, which is the least cost solution.

Easen International Co. Ltd. 3-107 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis

3.4 Summary, Conclusions and Recommendations

The underlying purpose of the Project is the same as the previous ADB funded Phase I and II projects to improve the Wuhan City Urban Environment.

The total investment of Wuhan Wastewater Management Project (Phase I) is CNY 1.534 billion, out of which a loan valued USD $83 million was funded by the ADB. As a result, the wastewater treatment capacity has increased by 520,000 m3/d and a total collection pipeline length of 105 km was constructed.

The total investment of Wuhan Wastewater and Storm Water Management Project (Project II) is CNY 2.19 billion with an ADB loan of CNY 1,000 million. The wastewater treatment capacity has increased by 210,000 m3/d and the pumping capacity has increased by 210 m3/s. The total length of the newly added collection pipeline is 29.12 km. The total length of the new drainage channel is 6.88 km while the total length of the upgraded drainage channel is 13.79 km.

The ADB funded Wuhan Wastewater Management Project approved in 2003 and the Wuhan Wastewater and Storm water Management Project approved in 2006, along with the ongoing World Bank and other bilateral assisted wastewater treatment projects are all key elements of the City master plan. As a result of these combined efforts, 80% of the wastewater produced in Wuhan is currently being treated. The release of point source pollutant has been brought under control which forms a good foundation for the proposed lake and channel rehabilitation project. It is necessary to maintain a tight control over the release of the point and non point source pollutant. The results of the lake and channel rehabilitation project can be maintained in the long term with the help of this tight control mechanism.

Sludge treatment is becoming more and more important because the wastewater treatment capacity is increasing. The current water content of the treated sludge is 80% by weight using the sludge dewatering equipment. This kind of treated sludge does not meet the disposal requirement of landfill. It is urgent to find a sustainable solution for the sludge disposal.

With the increased sewerage interception rate and wastewater treatment rate, the water quality of most lakes in Wuhan is still classified as Class IV or worse. The lake water assimilation capacity had been restricted long ago by the accumulation of loaded pollutants in the water and sediments in the Lake. It is therefore imperative to adopt technically viable measures to restore the natural water’s assimilation ability to facilitate the sustainable urban development of Wuhan. The urbanization pace is very fast in Wuhan municipality, making it hard for the water environment to catch up. The water quality will be gradually improved instead of deteriorating when the surface water assimilation capacity is restored. The proposed approaches include the removal of some accumulated pollutant sources within the lakes by dredging at certain hot spots and reconnecting the lakes with the rivers through rehabilitated channels.

The ADB TA WUEIP (ADB Loan Phase III) is a logical extension of the above described ADB Phase I and II projects, to tackle the increasing amount of sludge generated and to continuously improve the lakes water quality. The proposed Project includes four components: (a) Sludge Treatment and Disposal; (b) Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station (c) Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation and (d) Institutional Strengthening and Capacity Building. Please refer to Table 3-63.

Easen International Co. Ltd. 3-108 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis Table 3-63 Contents of Wuhan Urban Environmental Improvement Project Subproject Description A. Sludge Treatment and Disposal 1. Wuchangnan STP 40 tons DS/day of domestic sewage sludge from Tangxunhu and Longwanzui WWTPs. (at Tangxunhu WWTP) Belt Drying process using Gaoxin Heat and Power plant steam. Sludge disposal: Soil conditioners, filling material. 2. Hankou STP 20 tons DS/day of domestic sewage sludge from Sanjintan and Huangpulu WWTPs. (at Sanjintan WWTP) Biogas collection system from two anaerobic digesters at Sanjintan WWTP. Belt drying system using the collected biogas. Sludge disposal: Composting, soil conditioner, earth fill. 3. Nantaizihu STP 10 tons DS/day of domestic sewage sludge from Nantaiihu WWTP (at Nantaizihu WWTP) Lime Stabilization Plant. Sludge disposal: Tang Mountain rehabilitation as soil conditioner, earth fill. 4. Equipment Improvement for Sludge Dewatering, Storage and Transportation Sludge handling units, transport vehicles and other items 4.1 Sludge transport vehicles. 20 Vehicles with tankers. 4.2 Sludge Analysis instruments at WWTPs and HQ of WUDDC, 4.3 Sludge silo for dewatered sludge storage at Longwangzui WWTP, Sanjintan WWTP, Nantaizihu WWTP. 4.4 Upgrade of existing Sludge Dewatering facilities at Longwangzui WWTP Plate and frame filter press at Longwangzui WWTP. B. Wuhan New Zone Lakes and Channels Rehabilitation and Pumping Station 1. Longyang Lake Rehabilitation Dredging 250,000 m3, including three artificial wetlands area: 413 mu, aquatic plant area: 868.5 mu, artificial plant area 48 mu. Tang Mountain rehabilitation by afforestation 110,000 m2. 2. Moshui Lake Rehabilitation Dredging 272,800 m3, including three artificial wetlands 331.5 mu; aquatic plant area 2313 mu and artificial plant area is 81.6 mu. 3. Nantaizi Lake Rehabilitation Dredging: 225,000 m3, including (1) artificial wetland 13.5 mu; aquatic plant area 2,059.5 mu and artificial plant area 96 mu. 4. Longkou Channel Rehabilitation Length: 1,337 m, including greening, walk-way path, landscaping. 5. Longxin Channel Rehabilitation Length: 664 m, including greening, additional vegetation and walk-way path. 6. Zhujiaxin Channel Rehabilitation Length: 3,583 m, including greening, additional vegetation and walk-way path. 7. Liantong Channel Rehabilitation Length: 5,072 m, including greening, landscaping, 2 control structures. 8. Zong Channel Rehabilitation Length: 4,200 m, including greening, walk-way path and landscaping. 9. Huoyang Channel Rehabilitation Length: 1,600 m, including greening and landscaping. 10. Sixing Pumping Station 35 m3/s capacity at beginning, further expended to 105 m3/s. C. Yangchun Lake Secondary Urban Center/Channel Rehabilitation 1. Yangchun Lake Rehabilitation Dredging: 140,000 m3, including (1) artificial wetlands 380 mu; aquatic plant 80 mu and artificial plant area 30 mu a storm runoff treatment facility and transportation vehicles for operation and maintenance. 2. Heping Channel Rehabilitation Length: 1,400 m, includes aquatic plant, greening, walkway, 3 bridges. D. Institutional Strengthening and Capacity Building 1. Loan Implementation Management Design review, bidding document review, institutional and financial strengthening and Consulting Services construction management etc. 2. Wastewater Operation and Performance improvement for existing WWTPs, sludge technological support, training for maintenance Improvement and sludge operation and maintenance, sludge quality monitoring, and strengthening WUDDC's Sludge Management Supports capacity for corporate development. 3. Urban Surface Water Management Application of WQM for analytic study for point pollution and non-point pollution sources and Public Awareness Program control, quantified and qualified approaches for sustainable urban surface water management and public awareness program, trainings and knowledge products dissemination.

The capacity of sludge treatment and disposal is 350 ton/d (20% DS). The sludge quality will meet the requirement of the disposal solution to be applied.

The treatment target of the lake and channels is to connect the rivers and lakes by natural channels. Deterioration of the water quality will be prevented and the water environment will begin to improve after the implementation of this component.

Some of the points raised or agreed for adoption during the PPTA are as follows:

y The PPTA Consultants discussed and identified Wuhan city sludge treatment and disposal options based on the city’s local conditions with the DI. Sludge treatment and disposal

Easen International Co. Ltd. 3-109 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 3 Technical Analysis components are proposed which are in line with the PRC’s strategy, policy and the ADB’s guidelines, particularly with respect to the climate change policy. y Based on site visit, the PPTA Consultants found the issues of the Tang Mountain rehabilitation project and recommended the use the lime stabilized sludge as soil conditioner to neutralize the acidic Tang Mountain earth. This is in line with the sustainable economy approach. y The PPTA Consultants have considered the relevant national policy on Yangtze River Area lake rehabilitation and provided comments on improvement on the FSR with seven principles, including “pollution source control”, “pollutant load control”, “interception of the wastewater flowing into lakes and rivers”, “river and lake sediment dredging”, “clean water into lake”, “lake biological rehabilitation” and “long term effective management to safeguard the project performance”. y The PPTA Consultants have suggested studying the potential secondary pollution from nitrate and heavy metals on the dredged sediment. The PPTA team also suggested sampling the sediments for PCB. If the sediment is polluted with PCBs, proper treatment and disposal of the sediment will need to be further explored. The PCBs test report has been provided to PMO and PPTA team on September 23, 2009. y The local residents and industries have gradually realized the importance of water conservation through the increased water tariff. The wastewater and sludge tariff amount should be projected to reflect more accurately the water reuse and conservation considerations during the design of the sludge treatment plants. y Land application of the sludge and potentially sediment disposal is proposed. However, for such disposal plan to be effective, frequent monitoring of the application sites for potential secondary pollution such as heavy metals should be a continuously executed. This monitoring plan should be considered during the design and implementation stage of the components. y Strengthening the management and operation of WWTP and optimizing the unit treatment process such as improving the WWTP’s grit removal system performance will help to generate sludge that is more suitable for the anaerobic digestion or for future energy generating applications. The optimized operation of the WWTPs can also help to reduce the sludge generated while enhancing the effluent quality which is an added bonus to the lake and channel rehabilitation component. y Education on public awareness for environmental protection is also deemed an effective safe guard measurement to ensure the effectiveness of the rehabilitated lakes, channels and their connection with the rivers can be sustained and the project objectives of restoring the surface water’s assimilation ability and improving the water circulation and water quality can be achieved.

Easen International Co. Ltd. 3-110 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment SECTION 4 ENVIRONMENTAL IMPACT ASSESSMENT

4.1 Status of EIAs and SEIA Approval

According to the TOR, the main role of the PPTA Environmental Consultants (the Consultants) is to prepare a Summary Environmental Impact Assessment (SEIA) based on the original Chinese Environmental Impact Assessment (EIA) report for each component and in accordance with ADB’s Environment Policy (2002) and Environmental Assessment Guidelines (2003). The SEIA has been passed the ADB peer review, of which the comments of the peer members have been incorporated into the final SEIA. The SEIA will be published on the ADB Website in early December 2009.

The Project was classified as Category A under the ADB’s environmental classification due to the sensitive nature of Project’s potential environmental impacts and issues, which requires the preparation of a full SEIA. The SEIA preparation is based on the four Chinese EIA reports, prepared by Hubei Gimbol Environmental Technology Co. (the EIA Institute), which possesses a national A grade certificate for EIA preparation in compliance with the relevant domestic environmental laws, regulations and guidelines. The review and approval authority for the EIAs (including the Environmental Management Plan (EMP) is Hubei Provincial Environmental Protection Bureau (HPEPB). During the EIAs preparation, the Consultants have provided their comments to the EIA institute to improve the format and contents of the reports in accordance with ADB’s policies, regulations and EIA Guidelines The EIA Institute has updated the EIA reports based on the Consultants’ comments. By the end of October 2009, all the EIAs have been approved by HPEPB.

4.2 Overview of Chinese EIA Reports

The PPTA Consultants have reviewed the updated EIAs and feasibility FSRs. The purposes of the review were (i) to ensure that the contents of the EIAs are in compliance with all domestic environmental laws and regulations, as well as ADB’s EIA Guidelines; (ii) to identify gaps and deficiencies between the revisions and the ADB’s requirements so that further improvement can be made; (iii) to identify and quantify positive and negative environmental impacts from the project activities; (iv) to identify environmental risks relevant to each component of the Project during construction and operation; and (v) to recommend mitigation measures and an environmental management program for each component based on the Consultants’ professional experience.

In addition to the applicable ADB’s Environment Policy (2002) and Environmental Assessment Guidelines (2003), the applicable domestic EIA laws, regulations and standards are as follows:

(1) Domestic Environmental Laws and Regulations

z Environmental Protection Law (December 26, 1989)

z Environmental Impact Assessment Act (September 1, 2003)

z Air Pollution Prevention Act (September 1, 2000)

z Water Pollution Prevention Act (June 1, 2008)

Easen International Co. Ltd. 4-1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment z Solid Waste Pollution Prevention Act (April 1, 2005)

z Environmental Noise Pollution Control Act (March 1, 1997)

z Environmental Protection Management Provision for Construction Projects (November 29, 1998)

z Environmental Impact Assessment Categories for Construction Projects (October 1, 2008)

z Technical Policy for Urban Waste Water Treatment and Pollution Prevention (May 29, 2000)

(2) Domestic Environmental Standards and Guidelines

z Technical Guidelines for Environmental Impact Assessment (HJ/T 2-93)

z Environmental Quality Standards for Surface Water of PRC (GH35638-2002)

z Quality Standards for Groundwater of PRC (GB-T14848-93)

z Integrated Wastewater Discharge Standard (GB8978-1996)

z Water Quality Standards for Agricultural Irrigation (GB5084-2005)

z Discharge Standard of Pollutants for Municipal Wastewater Treatment (GB18918- 2002)

z Water Quality Standards for Fisheries (GB11607-89)

z Ambient Air Quality Standard of PRC (GB3095-1996)

z Emission Standard for Odor Pollutants of PRC (GB14554-93)

z The Control Standards of Pollutants in Sludge for Agricultural Use of PRC (GB4284- 84)

z Standard of Noise at Boundary of Construction Sites (GB12523-1990)

z Standard of Noise at Boundary of Industrial Enterprises (GB12348-2008)

The steps and methodologies conducted by the Consultants for reviewing the EIAs are shown below:

(1) Step 1: Review of the FSRs and relevant information, understand key points and identify environmentally sensitive issues relevant to the Project

(2) Step 2: Site visits and discussion with the EIA Institute, WPMO, the IA and the design institute responsible for the FSRs

(3) Step 3: Provide training for the EIA Institute regarding ADB’s environmental policies and EIA guidelines;

(4) Step 4: Review of the individual EIA reports in detail including:

z Validation/confirmation of the standards and regulations applied to the individual

Easen International Co. Ltd. 4-2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment components;

z Review of the analysis on the comparison of alternatives with regard to environmental considerations;

z Review of the environmental impacts during both construction and operation phases, and proposed mitigation measures;

z Review of the EMP and the proposed environmental monitoring framework;

z Review of public consultation and disclosure arrangements (the Consultants participated the second round of public consultation in late June 2009);

z Review of the social and economic impacts assessment;

z Review of the institutional arrangement for environmental management during the project implementation; and

z The provision of comments and recommendations for updating the EIAs.

(5) Step 5: Identify the environmental risks of the Project

(6) Step 6: Assist and guide the EIA institute to collect the additional data, undertake the further analysis, and update the EIA reports, to fully meet the ADB and domestic regulatory requirements.

(7) Step 7: Prepare the SEIA based on the Chinese EIA reports in accordance with the ADB guidelines and in the required format.

(8) Step 8: Strengthening and updating of the SEIA based on HPEPB and ADB comments

The Consultants conclude that the Chinese EIAs are comprehensive and well prepared. These reports generally comply with both the domestic and ADB EIA guidelines and standards. The methods adopted for each EIA’s preparation were in line with the requirements of the Ministry of Environmental Protection (MOEP), the master plan of Wuhan Municipality, and applicable national and provincial laws and regulations. However, there were still some weaknesses, mainly in EMP, public consultations and economic analysis. In general, these sections contained more descriptive discussions rather than quantitative assessments required by ADB EIA Guidelines. The EIA Institute has improved and updated the EIAs until reached the ADB’s standard.

An important objective of the EIAs is to develop procedures and plans to ensure that appropriate mitigation measures and monitoring requirements will actually be conducted during the project implementation. As a result, ADB places strong emphasis on the preparation of an EMP as the main attachment of the SEIA. Because of differences between ADB and domestic EIA requirements for the EMP, the PPTA team have drafted the EMP, and have incorporated the contents and supplementary data provided by WPMO and the EIA Institute into the updated SEIA. This work was finalized on 18 September 2009.

4.3 Overview of SEIA

The SEIA will be prepared into two parts; the main report and the EMP. The main report contains nine chapters including i) introduction; ii) description of the Project; iii) description of the environment; iv) alternatives considered; v) anticipated environmental impacts and

Easen International Co. Ltd. 4-3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment mitigation measures; vi) economic assessment; vii) environmental management plan; viii) public consultation and information disclosure; ix) project risks and assurances; and ⅹ) conclusions. The EMP contains i) the detailed discussions on the potential impacts and proposed mitigation measures; ii) proposed environmental monitoring and inspection arrangements; iii) public consultations and information disclosure; iv) details of relevant organizations and their responsibilities; v) reporting and supervision; vi) institutional strengthening and training; vii) the budget for implementation of mitigation measures; and viii) mechanisms for feedback and adjustment.

During the inception and the interim missions, the Consultants and the ADB Mission delegates informed the WPMO that the SEIA is a document prepared for the WMG and submitted to ADB, and should not treated as the findings of the Consultants. Therefore, the WMG will be required to endorse the contents of the SEIA and be responsible for implementing the EMP, the public consultation program and the environmental monitoring program during the implementation of the Project.

4.4 Environmental Characteristics of Wuhan City

Wuhan, the capital city of Hubei Province in China, is located at the confluence of the Yangtze River and Han River. The total area of the municipality is 8,494 km2 (urban area 888 km2) with the population of 8.7 million in 2008, including more than 6 million inhabitants living in the urban area. The city lies in the subtropical monsoon climate zone, which is characterized by distinct seasonal variations and abundant rainfall and water resources. The average annual precipitation is 1,267mm, with the majority occurring from May to October. The annual average temperature is 18.6 C, ranging from 37.2 C (in August) to -1.5 C (in January).

The City is crisscrossed by rivers, channels, lakes and drainage ditches. Surface waters, including the Yangtze River and Han River with Class III water quality, are the primary water sources of the City. Besides the Yangtze River, Han River and six other major tributaries, there are 160 rivers (＞5km), 166 lakes (40 within the urban area), 116 channels and 273 reservoirs in the city, and the surface water area accounts for about a quarter of the total urban area.

Biological resources are relatively abundant and diverse in Wuhan, due to the fact that it is located in the transitional zone between the middle and north subtropical zones, with the Yangtze River traversing the city. Table 4-2 describes the primary flora and fauna in the project area.

Table 4-2 Major Flora and Fauna in the Project Area

Category Type Major Species Flora Trees Camphor tree, bambusa sinospinosa, (more than 1,000 Species) metasequoia, Chinese parasol tree, fir

Aquatic plants Lotus, reed, wormwood, fern

Fauna Fish Wuchang fish, grass carp, silver carp (more than 130 species) Birds White crane, wild goose Aquatic life White-flag dolphin, Chinese paddlefish, turtle

Agricultural resources Livestock & Pig, cow, chicken

Easen International Co. Ltd. 4-4 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment poultry Major corps Rice, corn Cash corps Tea, rapeseed, vegetables, herb medicines Fruits Orange, grape, peach

The Yangtze River owns a rich ecological system, and the river within Wuhan provides the migration channels for the endangered white-flag dolphin and Chinese paddlefish, which are both Class I nationally protected species in the PRC. Other national protected species include white stork, classified as rare water fowl with national Class I protection and Cowfish with class II protection.

4.5 Water Quality and Pollution

The project area is now heavily urbanized, and the water quality of many water bodies within the city has deteriorated due to the ongoing discharge of untreated domestic and industrial wastewater. The Yangtze River and Han River have strong self-purification capacity owing to their large flows, which water qualities meet the requirements of Class Ⅲ of PRC Surface Water Quality Standard (GB3838-2002). However, all of the lakes and channels involved in the Project have been seriously polluted except the Zong Channel. Table 4-3 and 4-4 show the current water qualities of these lakes and channels.

Table 4-3 Water Quality of Relevant Lakes Involved in the Project

Target Existing TSI (∑) - Major Pollutants Lake Water Water Eutrophication Concerned Quality Quality Level CODMn, BOD5, 76.12 – high Longyang Lake Class Ⅲ ＞Class Ⅴ NH3-N, TP, TN, Oil, level of Fecal E. Coli, COD eutrophication 69.51 – mid to Moshui Lake Class Ⅳ ＞Class Ⅴ TP, TN, Oil, COD high level of eutrophication 69.89 - mid to COD , NH -N, TP, Nantaizi Lake Class Ⅳ ＞Class Ⅴ Mn 3 high level of TN, Oil, COD eutrophication Yangchun Class Ⅳ Class Ⅴ COD , TP, TN - Lake Notes: CODMn =permanganate index, BOD5=5-day biochemical oxygen demand, NH3-N =ammonia nitrogen, TP= total phosphorus, TN=total nitrogen, COD=chemical oxygen demand Source: EIA reports for Component of Wuhan New Zone Lakes / Channels Rehabilitation and Component of Yangchun Lake Secondary Urban Centre Lake / Channel Rehabilitation, 2009 i) Monitoring year is 2008; ii) TSI (∑) means trophic state index, consisting of various physical, chemical and biological indicators; TSI (∑)＞70 indicating a high level of eutrophication; 60＜ TSI (∑)≤70 indicating a middle level of eutrophication.

Table 4-4 Water Quality of Relevant Channels Involved in the Project

Major Parameters Nemerow Channel Water Quality Exceeding Class Ⅴ Index (PN)

Liantong Channel ＞Class Ⅴ NH3-N, TP, TN 1.42 Zong Channel Class Ⅳ N/A 0.66

Easen International Co. Ltd. 4-5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment

Zhujiaxin Channel ＞Class Ⅴ DO, NH3-N, TP, TN 5.48

Longxin Channel ＞Class Ⅴ COD, NH3-N, TP, TN 4.98 Longkou Channel ＞Class Ⅴ DO, TP, TN 5.38

Heping Channel ＞Class Ⅴ DO, COD, NH3-N, TN - Notes: DO=dissolved oxygen Source: EIA reports for Subcomponent of Wuhan New Zone Lakes/ Channels Rehabilitation and Component of Yangchun Lake Secondary Urban Centre Lake / Channel Rehabilitation, 2009 Note: i) Monitoring time is June, 2009; ii)Nemerow Index (PN) is adopted to evaluate the overall pollution level; PN＜1 indicating a clean status; 1＜PN≤2 indicating a lightly polluted status; 2＜ PN≤3 indicating a polluted status; 3＜PN≤5 indication a heavily polluted status; PN＞5 indicating a very heavily polluted status.

Owing to the specific concern on the persistent organic pollutants (POPs), the additional organic component monitoring was undertaken for the sludge from four WWTPs (i.e. Sanjintan WWTP, Longwangzui WWTP, Nantaizihu WWTP and Tangxunhu WWTP) and the sediment from four lakes related to the Project (i.e. Longyang Lake, Moshui Lake, Nantaizi Lake and Yangchun Lake). The monitoring parameters include benzo[a]pyrene, polychlorinated dibenzo- p-dioxins (PCDDs) & polychlorinated dibenzofurans (PCDFs), absorbable organic halogens (AOX) and polychlorinated biphenyls (PCBs). Based on the monitoring data provided by the qualified independent laboratory, it can be observed that regarding to the sludge from four WWTPs, the concentrations of four monitoring parameters meet the relevant requirements of Quality Standard of Urban Wastewater Treatment Plant Sludge for its Disposal as Afforestation Use (CJ/T248-2007) and Quality Standard of Urban Wastewater Treatment Plant Sludge for its Disposal as Soil Conditioner (CJ/T291-2008), which means the land use of the sludge will not be constrained due to these organic pollution parameters. In terms of the sediment of the four lakes, since there is no relevant national standard established currently, the requirements of the above two standards regarding to the sludge from WWTPs are adopted to evaluate the lake sediments. It is found that the levels of POPs in the lake sediments are acceptable, and their potential impact on the surrounding environment is limited if the dredging is undertaken. The monitoring results are shown in detail in Table 4-5.

Table 4-5 Monitoring Data of the Sludge and Sediment

AOX PCBs PCDDs&PCDFs benzo[a]pyrene (mg/kg ds) (mg/kg ds) (ng -TEQ/kg ds) (mg/kg ds) Sanjintan 20 ＜0.1 2.4～6.0 ＜0.1 WWTP Longwangzui ＜10 ＜0.1 28～32 0.44 WWTP Tangxunhu ＜10 ＜0.1 7.6～11 ＜0.01 WWTP Nantaizihu ＜10 ＜0.1 4.3～8.3 0.12 WWTP Longyang ＜10 ＜0.1 0.78～4.6 0.19 Lake Moshui Lake ＜10 ＜0.1 3.5～6.4 0.19 Nantaizi Lake ＜10 ＜0.1 0.20～4.5 0.03 Yangchun ＜10 ＜0.1 0.05～1.8 0.07 Lake CJ/248-2007& 500 0.2 100 3 CJ291-2008 mg/kg ds=milligram per kilogram dry solid, ng -TEQ/kg ds=nanogram TEQ per kilogram dry solid, TEQ=toxic equivalency factor

Easen International Co. Ltd. 4-6 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment Source: Test Report Provided by SGS, September 2009 Note: The concentrations of PCDDs & PCDFs have been converted into TEQ values. Meanwhile, TEQ adopts the standard of International Union of Pure and Applied Chemistry (IUPAC).

4.6 Social and Economical Conditions

Wuhan City is the capital of Hubei province, which is the political, economic, trading, information and cultural centre of the province. It is also the industrial, trading, transportation, scientific research, and education centre of Central China.

Wuhan has a long history of more than 3,500 years with abundant historical and cultural resources. Due to its geographical position, the city is the trading centre and strategic military location historically. It was one of the most famous towns during the Ming and Qing Dynasties.

The city has experienced a period of rapid economic growth in recent years, with an average gross domestic product (GDP) growth of more than 13%. The social and economic conditions of the city are summarized in Table 4-6.

Table 4-6 Key Social and Economic Conditions

Item Statistics Population Total population: 8.28 million Male vs female ratio: 51.6:48.4 Land Total Area: 8494 km2 Farmland: 2,104 km2 (paddy land-1,259 km2; dry land-802 km2) Administrative 7 urban districts: Hanyang, Hongshan, Jian’an, Jianghan, Qiaokou, Area Qingshan and Wuchang 6 suburban districts: Caidian, Dongxihu, Hannan, Huangpi, Jiangxia and Xinzhou Economics GDP (2008): CNY 396 billion Disposable income per urban resident (2008): CNY 16,712 per year Income per rural resident (2008): CNY 6349 per year Transportation 8,842 km highways, 1 international airport Education 52 universities / colleges (1 million students) Health Care 227 hospitals (40,700 beds) Ecology Greenbelt coverage in built urban area:37.4%; 6 wetland reserves with total area of 3370 km2 Historical and 17 public libraries, 17 museums, 31 scenic spots, 35 parks and 339 Tourism cultural sites (e.g. , Qingchuan Pavilion) km2=square kilometer, CNY=Chinese Yuan, km=kilometer, Sources: 2008 Wuhan Yearbook, 2007 Annual Report of Wuhan Transportation, http://www.chinalakes.org/html/Cn/NewsCenter/094210523K0.html

4.7 Alternatives

During the PPTA, various alternatives have been proposed, screened and compared based on the pre-defined technical, economic and environmental criteria. In terms of environmental criteria, the primary objective was to identify and adopt the options on a least cost basis, giving full consideration to environmental impacts and benefits, especially to the effects of global warming. The analysis of alternatives analysis for each of the components is summarized in the SEIA.

Easen International Co. Ltd. 4-7 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment 4.8 Environmental Benefits of the Project

The positive impacts and environmental benefits of the Project are as follows:

1. The Project will bring significant benefits to more than three million residents by improving living conditions, urban environment, sanitation and public health, as well as employment and residents’ income in the municipality.

2. The Project has a good demonstration potential for other PRC cities on sustainable treatment and disposal of WWTPs’ sludge and ecological rehabilitation of polluted/blocked urban lakes and rivers.

3. The Sludge Treatment and Disposal Component addresses the severe challenges of rapidly increasing amount of sludge from existing WWTPs. The Project will sustainably treat and dispose 350 t/d sludge applying the approach of 3Rs (Reduce, Reuse and Recycle), covering more than 50% of the total sludge in Wuhan city. The Component will contribute to the city’s sludge treatment and disposal master plan from centralizing to decentralizing and from incinerating to being environmental friendly by applying pragmatic, efficient, sustainable and integrated approaches. The sludge project solution has been accordingly changed in line with the PPTA recommendations. The Project PPTA supported the development of a national development policy dialogue on sludge treatment and disposal under ADB TA 7083 "Urban Wastewater Reuse and Sludge Utilization Policy Study."

4. The biogas generation and utilization of the sludge anaerobic digestion process at Sanjintan WWTP will bring annual greenhouse gas reduction of about 8,000 ton carbon dioxide (CO2) per year (t/yr) and (standard) coal saving of 3,240 t/yr, which will generate not only economic efficiency but will also beneficially contribute to Global Climate Change.

5. After digestion, lime stabilization and drying, the proposed 350 m3/d sludge will be reduced to 138m3/d, that is, about 212 m3/d (i.e. 77,380 m3/yr) sludge will be reduced for disposal, which is more than one third of the total amount of sludge generated from the existing WWTPs in the City. Therefore, the service life of the existing landfill facilities will be prolonged (i.e. 16 years for Changshankou Landfill site and 3 years for Chenjiachong Landfill site, respectively), and an estimated 4.5 million CNY/yr cost for sludge transportation and loading/unloading will be saved.

6. The Project will provide sludge and wastewater monitoring equipments to WUDDC, which will significantly strengthen the City’s environmental monitoring capacity, especially for sludge monitoring.

7. The Project will utilize the WQM to contribute to the future long-term master planning and achieve emergency response to pollution incidents and forecast blue-green algae outbreak.

8. The Lakes/Channels Rehabilitation Components will restore the natural water circulation of lakes and channels, and enhance the biological diversity of the ecosystem in the lakes and channels damaged by rapid urbanization.

9. Water replenishment from the Han River, by improving the flushing capacity of the watercourses, will improve the water quality and flood storage capacities for water bodies involved in the project.

10. Tang Mountain Rehabilitation, which is under the component of New Zone Lakes/Channels Rehabilitation and Pumping Station, will stabilize pH of the local soil, and the incoming project sludge will be used as the soil conditioner, allowing to restore the mountain for public recreation.

Easen International Co. Ltd. 4-8 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment

11. The artificial wetland will serve the function of water quality polishing, flood storage, wildlife habitat, outdoor recreation and water conservation education, which, together with landscaping and reforestation along the lakes and channels will also contribute to the project’s climate change responsiveness.

12. After sludge drying, digestion and stabilization, its volume will be reduced significantly. The vehicle trips for transporting sludge will be therefore reduced, cutting the GHG vehicle emissions.

13. The Project will increase the real estate values alongside lakes and channels, and will promote tourism.

14. The Sixin PS subcomponent will improve the sewer and stormwater networks in the Sixin Area and provide adequate flood control safety.

4.9 Environmental Impacts and Mitigation Measures of the Project

4.9.1 Mitigation Measures during the Design Phase

The following necessary mitigation measures have been identified and will be undertaken during the project design phase:

(1) All sub-component sites will be carefully selected to avoid or minimize the potential negative impacts on the environmental and surrounding communities;

(2) The facilities and works will be located and designed to minimize resettlement and land acquisition;

(3) Adequate technical design and scheduling of construction activities for each sub- component will be arranged to meet the relevant government regulations on safety, sanitation and environmental protection. For instance, the design for the proper equipment and process for sludge heat drying will be selected to avoid risk of fire and explosion during operation of the sludge treatment;

(4) The environmental mitigation measures included in the EMP will be a part of the design document for each sub- component, and be included in the contracts for the procurement of goods and services. All contractors will be required to comply with the relevant mitigation measures.

(5) The environmental monitoring program will be incorporated into the overall project design to ensure that the environmental impacts are closely monitored, and project construction and operation activities of the subcomponents are strictly supervised based on the approved EMP.

4.9.2 Environmental Impacts and Mitigation Measures during the Construction Phase

Easen International Co. Ltd. 4-9 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment (1) Land and Habitat Loss

In total, about 3,423.55 mu of land will be permanently acquired for the Project. There is no land loss for the sludge component, and around 76% of land loss is contributed by Wuhan New Zone lakes / channels rehabilitation component. The land is of mixed uses, including agricultural, fishery and housing use and a large amount of mudflat and moorland.

In addition, the Project will lead to the temporary land loss of 555.60mu and associated habitats. Stock dumps for excavated soil, dredged sediment and surface soil and construction areas and contractors’ offices and workers’ camp will temporarily occupy the land. When the project construction is completed, the land will be restored and reinstated.

Wuhan is a historical city with a rich cultural heritage. There is no record of important heritage and archaeological sites on the land that will be temporarily or permanently lost within the project area. In the event of archaeological artifacts being discovered during the project construction, the relevant cultural authority and WPMO will be notified promptly, and the relevant government regulations will be followed to preserve these artifacts. In addition, there is no record of national threatened or endangered species within the project area.

(2) Water Quality

Muddy runoff and wastewater might be discharged from the construction site and workers’ camps which will pollute the surface water. This includes the domestic wastewater generated by the workers and the wastewater or waste oil produced by the construction activities, such as handling and application of construction materials and maintenance of vehicles and machines.

The domestic wastewater will be collected and pre-treated in septic tanks, and discharged to the near public sewers if possible. The settling ponds and oil-water separators will be set to treat the muddy runoff and construction wastewater.

(3) Air Quality

The construction activities, such as excavation, demolition, and material handling, will generate airborne dust which will cause high concentration of Total Suspended Particle (TSP) of the area. Furthermore, the construction will consume a large quantity of diesel and release exhaust fumes with significant amount of gaseous carbon monoxide (CO2), nitrogen oxides (NO2) and sulphur oxides (SO2).

Dust mitigation measures include: paving of frequently used haulage routes; hoarding with a height of no less than 2.5m for house demolition; minimizing on-site storage time of construction and demolition wastes; covering stockpiles; using tarpaulins to cover the trucks carrying dusty materials; controlling the vehicle speed on construction sites; and timely restoration of disturbed land to minimize the adverse impacts on humans and crops. Moreover, the construction sites, transportation routes and materials-handling sites will be water-sprayed up to three times a day on dry and windy days, especially if these sites are near schools, hospitals or residential areas etc.

Exhaust fumes from vehicles will be minimized by using the tail gas purifiers, and construction machines and dredging equipment will undertake proper maintenance and regular checks to ensure that the exhaust gases comply with the relevant PRC emission standards.

(4) Solid Waste

The refuse generated by the workers, together with construction and demolition wastes, will potentially have negative impacts on the surrounding environment. The refuse will be stored in

Easen International Co. Ltd. 4-10 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment closed containers and regularly transported off-site for safe disposal. The construction and demolition wastes will be removed from the sites promptly. Burning of construction waste will be prohibited.

(5) Noise

Noise mitigation measures include the use of quiet equipment and machineries, proper O&M of machinery and installation of temporary hoarding or noise barriers to shield noise sources. The use of certain noisy machines, such as pile drivers, concrete mixers, will be prohibited at nighttime. In addition, construction activities will be scheduled to minimize the impact of noise from construction machinery.

(6) Construction Traffic

Construction traffic and activity could lead to the traffic congestion and inconvenience to the public. In conjunction with the relevant authorities, traffic flow regulation plans will be prepared before the project construction begins in congested and built-up urban areas. In addition, proper transportation routes and times will be selected to avoid the rush hour and reduce traffic congestion.

(7) Vegetation

Although there are no endangered flora species in the project area, vegetation within the construction area might be cut and cleared during the revetment restoration works of the lakes and channels rehabilitation. The proposed mitigation measure is to plant trees and grass after the completion of the construction work, which will also be a requirement in the bidding documents and the construction contracts.

(8) Specific Issues Relevant to Dredging

River dredging will generate odor and affect the surrounding local population. The lake/channel sediment contains high organic contents with an anoxic/anaerobic condition due to the microorganism metabolism, which enhances the formation of hydrogen sulfide (H2S), ammonia (NH3), and other odorous gasses. When the bottom sediment is disturbed during the dredging, the odorous gasses will be released to the air, which will affect the population within 50-100 m of the dredging works.

Dredging is a linear activity, whose potential odor impact on the local residents is short term and temporary. The dredging will be undertaken during the cold season when the odor is less subject to release and residents are not inclined to open windows .In addition, the stock dumps of dredged sediment will be located more than 50 m away from residential areas.

Since the lakes and channels to be dredged are relatively shallow, dredging would increase the suspended solid (SS) level and releasing rate of nitrogen (N) and phosphorus (P) in the water by stirring up the bottom sediment. However, such negative impact will be localized and short term, and there are no drinking water intake points in affected the lakes and channels.

The dredged sediment will be temporarily stored on flat land near the lakeshore and the channel banks. The slurry of dredged sediment will be settled no less than three days with addition of chemicals, and a layer of clay will be used to cover the sediment after it is dried and stabilized to avoid its adverse impact on the surroundings. The supernatant/leachate will be treated by chemicals and discharged properly. The treated channel sediment will be transported in closed containers to a landscaping sites and Gaoantun Sanitary Landfill; and the treated lake sediment will be used for lake landscaping. Anti seepage measures will be undertaken for the stock dump to prevent pollution of nearby surface water and groundwater from the dredged sediment.

Easen International Co. Ltd. 4-11 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment

4.9.3 Environmental Impacts and Mitigation Measures during the Operation Phase

(1) Sludge Treatment and Disposal

Odor control is the key environmental issue during sludge transportation and drying. When the sludge is transported to the sludge treatment plant, it will be properly contained in the vehicles to prevent producing odor nuisance to other road users. In addition, the transportation route will be carefully selected to avoid major residential areas. In terms of sludge drying process, a combined odor treatment process, i.e. acid + alkaline wash and bio-filter, will be adopted for Wuchangnan Sludge Treatment Plant (STP) and Hankou STP. Bio-filters will be used for Nantaizihu STP.

Due to the high pressure and temperature conditions that may occur during the sludge heat drying process, equipment safety is another main concern during the operation of STPs. However, owing to the fact that the belt dryer doesn’t involve the mechanical stirring without a high pressure or temperature, and the dust production is low, no anti-explosive equipment will be needed.

(2) Water Circulation among Lakes and Channels

Water intake from the Han River will lead to silt deposition. A grit chamber with a length of 400 m will be built near Qinduankou Channel, and the channel itself will be used to settle the silt.

Water intake and discharge may have adverse impacts on the water and ecological environment downstream in the Han River and Yangtze River. There is a drinking intake point of Qinduankou WTP 1.5 km downstream of Qinduankou Water Gate, where the water is diverted to the lakes / channels. Since the water diversion volume only accounts for 0.43% of the average annual flow of the Han River, there is no negative impact on the normal water intake of the Water Supply Plant (WSP). Furthermore, no significant impact on the ecological environment downstream of the water intake of the WSP will be found due to the limited water intake volume of the Project and the WSP (i.e. 062% of average annual flow of Han River). In terms of Yangtze River, there are two drinking water intake points near Dongfeng Water Gate and Donghu Pumping Station, where the diverted water will be discharged into the river. Based on the water modeling analysis, the pollution zone caused by the water discharge will not have adverse impact on two water intake points even in the dry season. In addition, the water quality of the Han River, Yangtze River, and the relevant lakes will be closely monitored.

Due to the fact that the lakes involved in the Project are shallow with thick silt, the changing of flow regime after the water diversion may i) disturb the bottom sediment; ii) change the balance of N and P between the water and sediment; and iii) enhance the eutrophicaton level of the lakes. If such conditions occur, the relevant mitigation measures will be undertaken, such as reducing the water diversion volume or even temporary suspension of the water circulation.

The water diversion creates the potential risk of the spread of oncomelania and schistosomiasis for the optimum living environment in lakes for oncomelania during the water diversion. However, based on relevant investigations in Hubei Province, there is no oncomelania distributed in the Wuhan section of Han River. In addition, the grit chamber near Qinduankou will be designed in consideration of oncomelania sedimentation.

(3) Lakes and Channels Rehabilitation

Various measures will be undertaken to ensure the fruits of lakes/channels rehabilitation. Wastewater discharge around the three lakes and artificial wetlands will be intercepted to the WWTPs for treatment before the Project is implemented. Capacity building of relevant

Easen International Co. Ltd. 4-12 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment departments will be provided to provide effective management and maintenance of the improved lakes/channels.

In terms of aquatic system restoration, landscaping works and wetland construction, only aboriginal species will be adopted since alien species may risk destroying the local biological balance.

The proper and adequate management and maintenance of artificial wetland systems and restored aquatic eco-systems in lakes and channels is an important measure to ensure that the Project is effective and sustainable. In terms of artificial wetlands, the plants will be harvested and the substrate will be replaced regularly to avoid the substrate clogging. In case of dead plant, the wrack will be cleaned up regularly to prevent it entering the lakes and settling at the bottom, and causing secondary pollution due to the high organic content of the wrack.

(4) Pumping Station

Sixin Pumping Station will be designed with efficient acoustic mitigation measures, such as soundproof doors, double–glazed windows and adequate wall thickness to baffle the pump noise. In addition, no less than 20 m2 of green area surrounding the pumping station will be set to further control the noise. The external appearance of the Pumping Station will be designed to harmonize well with the surrounding landscape.

The pumping station is estimated to generate about 3,300 tons of screenings every year, which will be collected daily and transported to the sanitary landfill in closed containers.

4.10 ECONOMIC ASSESSMENT

The total estimated project cost is $442.7 million equivalent, including the ADB loan of $100 million (22.6% of the total investment) and the counterpart funding of $342.7 million (77.4%).

The economic internal rate of return (EIRR) is calculated for each component and the whole Project, which takes into account the main quantifiable economic benefits of different components and includes all related project costs. The EMP costs have been included as part of the project costs.

The weighted average EIRR for the whole project is estimated at 20.48%, exceeding the economic opportunity cost of capital which is assumed to be no less than 12%. Table 4-7 shows the weighted average EIRR for each project component.

Table 4-7 Economic Internal Rate of Return of Each Project Component

No. Component EIRR (%) 1 Sludge Treatment and Disposal 18.21 2 New Zone Lake/Channel Rehabilitation and Pumping Station 2a New Zone Lake/Channel Rehabilitation 21.54 2b Sixin Pumping Station 19.32 3 Yangchun Lake Secondary Urban Center Lake/Channel 20.54 Rehabilitation Source: PPTA Final Report, 2009

4.11 Public Consultation and Information Disclosure

Two rounds of public consultation were undertaken during the preparation of the EIAs and the SEIA. The first round of consultation was implemented by the EIA Institute via two forms of

Easen International Co. Ltd. 4-13 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment public disclosure. The first form of public disclosure was to post the project information on the website of the EIA Institute; and the second form was to publish the simplified EIA report on the website of HPEPB. Moreover, additional public disclosure was undertaken for the component of Wuhan New Zone Lake/Channels Rehabilitation by sending letters to the relevant local government departments and enterprises to collect opinions and suggestions regarding the Project.

The detailed schedule of the public disclosure for each component is shown in Table 4-8 below.

Table 4-8 Schedule of the Public Disclosure

First Round of Second Round of Additional Public Component Public Disclosure Public Disclosure Disclosure WSTD July 3, 2009 August 6, 2009 - WNZLCR April 17, 2009 June 29, 2009 July 3, 2009 YLSUCLCR April 17, 2009 June 28, 2009 - WSTD = Wuhan Sludge Treatment and Disposal, WNZLCR = Wuhan New Zone Lake/Channels Rehabilitation, YLSUCLCR = Yangchun Lake Secondary Urban Centre Lake/Channel Rehabilitation Source: EIA report of each component, 2009

The second round of public participation was undertaken by the EIA Institute and the Consultants during late June and mid August 2009, which comprised a questionnaire survey of the project-affected people and beneficiaries, including different age groups, genders, educational backgrounds and occupations. The investigation result was analyzed and is presented in Table 4-9.

Table 4-9 Analysis of Questionnaire Survey

Component Result WSTD WNZLCR YLSUCLCR Questionnaires Distributed (copies) 100 70 53 Questionnaires Received (copies) 82 70 53 Ratio of Male vs Female 1.56:1 1.59:1 1.65:1 People Support the Project (%) 52 80 74 People Accept the Project (%) 38 20 26 People Oppose the Project (%) 10 - - WSTD = Wuhan Sludge Treatment and Disposal, WNZLCR = Wuhan New Zone Lake/Channel Rehabilitation, YLSUCLCR = Yangchun Lake Secondary Urban Centre Lake/Channel Rehabilitation Source: EIA report of each component, 2009

Based on the two rounds of public consultation, the major concerns of the public include the air pollution, dust, noise, environment, health and safety of construction, control and sanitation of sludge stock dump, which have been considered in the final EIA report and EMP.

During the public consultation, some participants also showed their concerns on the negative impact during the project construction, such as noise and dust. It is very important to maintain a dialogue with the stakeholders throughout the construction phase by continued public consultations. Such dialogue will ensure the public concerns are understood and dealt with in a timely manner. The EMP has developed future plans for public involvement.

The following environmental information disclosure will be made: i) The SEIA will be available for review at the ADB website (www.adb.org) for 120 days before approval of the Project by the

Easen International Co. Ltd. 4-14 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment ADB Board; ii) Copies of the SEIA will be available on request; iii) All environmental monitoring reports will be available at the ADB website (www.adb.org); and copies of the domestic EIAs will be available from local EPB upon request.

4.12 ENVIRONMENTAL MANAGEMENT PLAN

4.12.1 Environmental Management

The EMP covers all phases of the Project, including project preparation, design, construction, commissioning and operation, which aims to ensure the Project will be implemented in an environmentally acceptable manner. The EMP includes the plans, institutional arrangements and procedures to undertake the mitigation measures and monitoring requirements during each phase of the Project. The EMP involves two plans, one for implementation of mitigation measures and the other for carrying out the environmental monitoring. The EMP describes what it is all about, who will be responsible, when it will take place, and how will it be done. Moreover, the responsible parties are identified to clear up any confusion or discrepancy in implementation or accountability.

The implementation of environmental mitigation measures and environmental monitoring has been estimated to cost CNY10.94 million and CNY1.311 million, respectively. An additional CNY 0.35 million will be provided for training in the field of environmental management and technology for the relevant staff, including the environmental officer of WPMO, environmental management staff of the IA, and contractors etc.

Estimated costs of all mitigation measures during construction will be stated in the bidding documents and civil works contracts and will be borne by the contractors. Costs related to mitigation measures during operation will be borne by the assigned operators of the facilities. The cost of loan implementation environmental management consulting and training will be borne by the Project as a whole.

4.12.2 Environmental Monitoring

The program for environmental monitoring has been developed and organized by components, which is compatible to the mitigation measure plan. The monitoring requirements have been clearly defined, including the parameters to be monitored, the number and location of sampling, and the monitoring frequency and duration. The monitoring will be undertaken by Wuhan Environmental Monitoring Centre (WEMC), under the supervision of local environmental authorities. The laboratory of WEMC is appropriately certified, ensuring the accuracy of the results and their legal standing. Moreover, the monitoring costs will be borne by contractors during construction and by assigned operators during operation.

The environmental officer of WPMO will collect the environmental monitoring data and reports from IA, WEMC and the construction supervision companies (CSCs) that are responsible for supervising the contractors’ implementation of mitigation measures. The data will be incorporated into project progress reports, submitted to the EA and ADB semiannually.

4.12.3 Institutional Enhancement

WPMO, contractors, CSCs and the IA/IUs will each nominate full-time environmental specialists, who are properly trained and qualified, to undertake environmental management activities and ensure the effective implementation of the EMP. Due to their limited environmental management capacities, a series of training sessions has been designed for these agencies to

Easen International Co. Ltd. 4-15 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment strengthen their required capacity, as described in detail in the EMP.

4.13 Project Risks and Assurance

The potential risks of the Project include (i) sludge beneficial use is constrained by its poor quality; (ii) soil contamination and groundwater pollution due to improper temporary storage and disposal of the dredged sediment; and (iii) inadequate pollution interception measures for the improved lakes and channels, and poor enforcement causes secondary water quality deterioration in targeted water bodies. The following are the list of project assurances to mitigate the above risks.

Inadequate sludge quality for its intended beneficial use is mitigated through the extensive studies done during project preparation that ensures the sustainability of the proposed sludge utilization options. The sludge quality will be monitored regularly and appropriate decisions will be made on its alternate disposal at landfills as of the EMP provisions. As of the agreed upon monitoring and mitigation plans during both construction and operation, WMG will conduct project sludge monitoring in accordance with the sampling locations, frequencies and parameters specified in the EMP (including sufficient monitoring of heavy metals and poisonous organic pollutants of AOX, PCBs, benzo[a]pyrene and PCDDs/PCDFs).

Soil contamination and groundwater pollution due to improper temporary storage and disposal of about one million m3 of the dredged sediment will be prevented through the adequate selection and management of the storage and treatment sites. The appropriate treatment and storage sites are carefully selected, and the treatment process is identified. The project will have an assurance that the detailed planning and construction procedures for storage, dewatering and disposal of the dredged sediment will be developed by the design institutes and approved by the Municipal EPB before dredging works start; and that the relevant technical requirements will be included into the bidding documents and construction contracts for the dredging works.

To guarantee the water quality in the project channels and lake and the Yangtze River, the project will have an assurance that the WMG will enact and implement a sound pollution control action plan for both point and non-point sources, to stop the direct wastewater discharge and refuse dumping in the Project area before the start-up of construction.

The Yangtze River is believed to be a very sensitive environmental and ecological issue. In order to fully mitigate potential impacts on the project's channels and lakes and the Yangtze River, the detailed studies on the ecological and environmental impacts were conducted within the EIA and FS work. This includes application of mathematic modeling to ensure sufficient water circulation to achieve the desired water quality for all project lakes and channels. The project will have an assurance that by project completion WMG will appoint/reappoint an entity responsible for management, maintenance, bioremediation and ecological restoration of the improved lakes and channels after the Project implementation.

The other project environmental assurances are: WMG shall ensure, and shall cause the Implementing Agencies to ensure that (i) the Project Facilities be constructed, operated, maintained and monitored in strict conformity with all relevant laws and regulations of the Borrower, including all applicable national and local environmental protection laws, regulations and standards for wastewater treatment, sediment and sludge disposal, and the environmental mitigation measures recommended in the EMP and the EIAs for the Project are implemented; (ii) the mitigation measures be incorporated into the design and bidding documents and construction contracts; (iii) justification be provided to ADB for any proposed changes to the mitigation measures required during design, construction, operations and maintenance and provided to ADB within 60 days if any changes to EIA have to be implemented for safety or emergency reasons; and (iv) environmental monitoring programs will be monitored and

Easen International Co. Ltd. 4-16 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment recorded under the guidance and supervision of the Wuhan Municipal Environmental Protection Bureau and the monitoring information will be submitted to ADB in Project progress reports.

4.14 Conclusion

The sustainable sludge treatment and disposal component is a pioneering feature addressing comprehensive sludge management for the first time in ADB assistance to the PRC. The Project preparation has significantly influenced the design of the sludge treatment component towards environmentally friendly and sustainable solution, developing high potential replication PRC-wide and contributing to the development to the nation-wide policy.

The project will reestablish urban water patterns, correcting the negative impact of unchecked urbanization, and provide solutions for integrated surface water management. The important feature of project water management will be an adequate EMP monitoring and mitigation system, adequate to maintain the desired surface water quality. In addition the project will support a water quality model that will assist in long term planning, water quality assurance and emergency response.

The other important feature of the Project is the optimization of all of the Wuhan's WWTPs. It will also improve the performance of the infrastructure financed by the previous two ADB projects. Optimized WWTPs will respond to a number of important energy, environmental and climate change concerns.

Wuhan City is significantly vulnerable to climate change. Project initiatives in both climate mitigation and adaptation will introduce valuable approaches and activities for developing climate resilience and low carbon economies.

The Project will bring significant benefits to more than 3 million residents of Wuhan municipality by improving living conditions, public health, and the urban environment. Sustainable treatment and disposal of WWTP’s sludge and ecological rehabilitation of polluted urban lakes and channels will have a solid demonstration potential for replication in other PRC cities. The major environmental benefits of the Project include: (i) solving the challenge of huge amounts of sludge from existing WWTPs by sustainable treatment and disposal of 350 t/d sludge, more than 50% of the total sludge generation in Wuhan City; (ii) influencing the city’s master plan for sludge treatment and disposal from centralizing to decentralizing, and from incinerating to using an environmentally friendly, pragmatic, sustainable and integrated approach; (iii) generating the biomass and applying sludge to the anaerobic digestion process to reduce annual greenhouse gas emission of 8,000 t CO2/yr; (iv) rehabilitating project lakes and channels by restoring natural water circulation, by improving surface water body quality, restoring the ecosystems, and enhancing the biological diversity in lakes and channels; (v) strengthening the functions of artificial wetlands for water quality polishing, flood storage, wildlife habitats, and water conservation education; and (vi) promoting landscaping and reforestation along lakes and channels, contributing to overall climate change responsiveness.

Potential adverse environmental impacts during both project construction and operation stages include odor from the dredged sediments and WWTPs’ sludge, as well as secondary pollution in water bodies due to polluted dredged sediments, airborne dust, odor, noise, traffic congestion, wastewater discharge from construction sites, soil erosion, land occupation, etc. Based on the conclusions of the EIAs, potential project impacts Project will be minimized to an acceptable level by implementing and adequately funding the agreed upon environmental monitoring and mitigation measures.

The results of public consultation indicated that most of the affected people have a positive attitude toward the Project and believe that the Project will benefit the local environment, living standards, public health, and economic development. Negative opinions on the Project focused on localized odor, soil contamination, and air pollution issues associated with the construction

Easen International Co. Ltd. 4-17 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 4 Environmental Impact Assessment and operation of facilities/works in some individual subcomponent. Environmental mitigation measures included in the EMP have been developed to fully address and mitigate these concerns.

Easen International Co. Ltd. 4-18 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis

SECTION 5 FINANCIAL AND LEAST-COST ANALYSIS

5.1 INTRODUCTION AND OBJECTIVES

The main purpose of this section of the Report is to establish the financial justification of the Project. Secondary objectives are (i) to ensure that the investment cost estimates have been properly assessed; (ii) the funding sources proposed in the financing plan are viable; and (iii) the IA has adequate financial management capacity to discharges its financial responsibilities during project implementation.

Among the three proposed components, only the Sludge Treatment and Disposal component will generate operating revenues. For this component, a Discounted Cash Flow (DCF) analysis has therefore been conducted to assess financial feasibility of the component by calculating the Financial Internal Rate of Return (FIRR) and comparing this with the weighted average cost of capital (WACC). A tariff review has been undertaken to evaluate the existing tariff levels, charge structures and policies. It is to ensure that the proposed tariffs are compatible with achieving the full cost recovery targets for WUDDC’s sustainable development.

The other two components, the Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station and the Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation (YLSUC), are non-revenue-generating and are classified as government public service expenditure. The previous year’s financial performance of the IA was reviewed, as well as the financial capacity of the Wuhan Financial Bureau (WFB).

As project IA, the Wuhan Urban Construction Fund Management Office (WFMO) is responsible for raising funds for the Project and for project implementation during the construction phase. It is confirmed that funds for debt servicing and repayment will be from the Wuhan Urban Development Capital (WUDC), as set up by WMG. The assessment of the financial management system has been to identify any areas of weakness, required capacity building and institutional strengthening, and associated training.

5.2 Cost Estimates

The latest investment cost estimates and financing plans were provided by the DI and updated on October 30th 2009. The cost estimates have been analysed and presented in Excel worksheets in the ADB required format at mid 2009 prices, with summary tables to meet the requirements of the Detailed Cost Tables to be presented in the RRP (Core Appendix). Project cost estimates and contract packages were reviewed following the guideline “Preparation and Presentation of Cost Estimates for Projects Financed by the ADB”, dated April 2008. The cost estimates have also been reviewed to ensure the adequacy of cost structures and the soundness of targeted unit outputs and unit cost assumptions.

Base Cost: Base costs were prepared on the basis of a detailed estimate of project inputs for each component and subcomponent by expenditure category. For each component and expenditure category (e.g. civil works, equipment, land acquisition, consulting services, design and project management, etc.), the base costs were allocated to each year over the project implementation period. The Project will be implemented over a period of 3 - 4 years. It was assumed that the payments would be completed in 5 years, which reflected the payments have to follow contracts and go through approval and procession cycles. The assumed project implementation schedule is shown in Table 5-1.The schedule takes account of possible retroactive ADB funding and local preparation works.

Easen International Co. Ltd. 5-1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis Table 5-1 The Project Implementation Schedule

Items 1st 2nd 3rd 4th 5th Civil Works 10% 25% 25% 25% 15% Equipment 0% 30% 35% 35% 0% Land Acquisition and Resettlement 30% 40% 30% 0% 0% Other Costs 10% 30% 20% 20% 20%

The base costs were split into foreign exchange and local currency components as per ADB requirements. Taxes and duties were then estimated as a separate item from the base cost. Please note that ADB now finances taxes and duties, where appropriate.

Contingencies: The physical contingency is calculated as 10% of the base cost for each component, subcomponent, and expenditure category. As for base costs, physical contingencies were estimated separately for foreign exchange and local currency costs, where applicable.

The price contingency is a provision for potential inflationary increases in costs over the implementation period of the Project. The price contingency comprises a foreign and domestic component. Domestic and international inflation rates were provided by the ADB and used to calculate the price contingency provisions. Adjustments have been made for potential exchange rate fluctuations, which was incorporated into price contingencies.

Financial Charges during Implementation: Financial charges such as interest during construction (IDC) and commitment fees (CF) are calculated based on the rates of the proposed ADB loan and domestic loans. It is assumed that the ADB loan will be passed through on the same terms and conditions as those to the Government of China, whereas the Wuhan Municipal Government (WMG) will bear any foreign exchange risks. In computing the IDC and CF, the interest rate at the 5-year forward London interbank offered rate (LIBOR) plus a spread of 0.2% will be adopted following the construction schedule. Presently, ADB waives any front end fee (FEF).

The project cost is estimated at $442.7 million (equivalent to CNY 3,020.9 million), including taxes and duties of $23.8 million (equivalent to CNY 162.5 million). Table 5-2 provides a summary of the project investment plan. More detailed project investment plans are presented in Appendix 5-1.

Table 5-2 Project Investment Plan Total Costa Total Costa Item % (CNY Million) ($ million) A. Base Costb 1 Sludge Treatment Subproject 212.1 31.1 7.0 2 Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station 1,506.4 220.7 49.9 3 Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation 645.5 94.6 21.4 4 Technical Support 20.5 3.0 0.7 Subtotal (A) 2,384.5 349.4 78.9 B. Contingenciesc 1. Physical Contingencies 238.4 34.9 7.9 2. Price Contingencies 64.2 9.4 2.1 Subtotal (B) 302.6 44.3 10.0 C. Financing Charges During Implementation (C)d 333.8 48.9 11.0 Total (A+B+C) 3,020.9 442.7 100.0 a Includes taxes and duties of $23.8 million before contingencies. b In mid-2009 prices, with an exchange rate of CNY 6.8242 to $1.0. c Includes construction management, research and design, environmental monitoring, project management, and capacity development. The training and consulting services budget is estimated at $3 million.

Easen International Co. Ltd. 5-2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis d Physical contingencies were computed at 10% for civil works, field research and development, training, surveys and studies. Price contingencies were computed based on the domestic and international inflation rates provided by ADB; and then assessed by year and expenditure type based on the cumulative domestic and foreign price inflation. Exchange rate fluctuations are estimated using a purchasing power parity model of adjustment. e The ADB loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility and a commitment charge of 0.15% per annum. Note: Totals may not be exact because of rounding. Source: Consultant estimates

The project component’s annual cost estimates and financial cash flows are converted to real terms by removing the impacts of inflation and potential currency fluctuations, and further adjusted by removing IDC. They are then used as the inputs for both the financial viability analysis (calculation of FIRR) and economic analysis (Least Cost Analysis and calculation of EIRR).

5.3 Financing Plan

The financing plan is presented in detail and based on the project cost estimates for both a project component and expenditure category basis. It is presented in both a local currency basis as well as its US$ equivalents. It is estimated at this stage that the total project investment cost will be $ 442.7 million (CNY 3,020.9 million). The total ADB loan will be at $ 100 million. The counterpart funding will be provided by the Wuhan Municipal Government as owner’s equity infusion through the WUDC and local commercial bank loans. The interest rate and commitment fee of the ADB loan are at 3.31% and 0.15%, respectively. The loan period of the ADB loan is 25 years with a grace period of 5 years. The financing plan summary is presented in Table 5-3. More detailed financing plans are presented in Appendix 5-1.

Table 5-3 Financing Plan

Source Total Costs Total Costs % (CNY Million) ($ Million) Million A. Asian Development Bank 682.4 100.00 22.6% B. Wuhan Municipal Government 755.2755.4 110.7 25.0% C. Local Bank (Agricultural Bank of China) 1583.2 232.0 52.4% Total 3020.91583.2 442.7 100.00% Source: WPMO information. 3021.1

In order to effectively utilize ADB loan, the financing plan is further adjusted based on the PMO’s previous project experience. The project contract packages are detailed assessed. It is decided that the urban landscaping packages in the Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station Component and Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Component will use local fund. Thus, the civil works 1 includes all civil works packages that will use ADB loan. Civil works 2 refers to the civil works packages that will use local fund. The transformer station and high voltage transmission, formally listed in the equipment category, are now separated to use local fund since only the local electricity company is eligible to conduct the work. Thus, the equipment 1 includes all equipment packages that will use ADB loan. Equipment 2 refers to the equipment packages that will use local fund.

Counterpart funding needs to be put into effect during the construction period. Therefore, the provision of related counterpart funds should be confirmed by securing commitment letters from commercial lenders and assessing WFB capacity. The Agricultural Bank of China (ABC) has agreed to provide a commercial loan of CNY 1.5832 billion. A copy of the commitment letter from the ABC was provided to the PPTA team by the WFMO. It confirms that a comprehensive credit granting at a total of CNY 7 billion is provided to the WFMO in the next few years. Of the total credit granting, CNY 2.4 billion is for the World Bank financed urban transport project

Easen International Co. Ltd. 5-3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis phase II, CNY 1.6 billion is for the proposed ADB WUEIP and the remaining CNY 3 billion is available for other projects implemented by the WFMO or possible additional investment costs of proposed projects. The commitment letter strongly supports this part of the project financing plan. However, it is noticed there are three conditions for the WFMO obtaining and using the ABC’s proceeds of the credit granting. 1) The proposed projects must obtain approval document on land acquirement and environmental impact assessment; 2) Besides the proposed projects, other fixed asset investment projects must also obtain approval document on land acquirement and environmental impact assessment; and 3) If the WFMO cannot repay the ABC’s principal and interest, the WFB must repay the principal and interest to ABC. The counterpart fund provided by the WUDC is used in the fiscal capacity analysis in section 5.6.

5.4 Financial Cost Benefit Analysis – Calculation of FIRR

Since sludge is a by-product of the wastewater treatment plant, the Sludge Treatment and Disposal Component will generate revenue upon completion, and therefore the financial viability is demonstrated to ensure sustainable development. The financial cost benefit analysis is undertaken on an incremental basis. The weighted average cost of capital (WACC) represents the cost of funds for the component with ADB fund of 69.6% and government equity contribution of 3.7% and ABC’s loan of 26.7%. It was calculated that the WACC is 3.3%. The detailed calculation is presented in the following table 5-4: Calculation of the WACC.

Table 5-4 Calculation of the WACC

Share of Nominal After-tax Real Term Contribution Million Source CNY Capital Cost Cost of After to Nominal Structure of Funds Fund Inflation WACC ADB Loan 178.71 75.4% 3.31% 2.5% 1.77% 2.3% Domestic Bank Loan 46.16 19.5% 5.94% 4.5% 2.91% 0.6% Internal Cash Equity Infusion 12.29 5.2% 10.0% 10.0% 8.37% 0.4% Total Financing 237.15 100.0% WACC 3.3%

The discounted cash flow (DCF) analysis is conducted to assess financial feasibility over a project period of 25 years. The annual sludge treatment volumes and wastewater treatment volumes are based on the feasibility study report. The O&M cost takes consideration of the three sludge treatment plants. According to the current arrangement, it is confirmed the component will be implemented by the WFMO, and the funding will be from ADB loan, Domestic loan and WUDC with loan repayment made by WFMO through the WUDC. After the construction, the WUDDC will be in charge of the operation, with O&M funding from wastewater tariff and government subsidy when the tariff is not sufficient to cover the O&M cost. Taking consideration of the above situation, the DCF analysis combined the financial activities during the construction period and operation period. It is to determine the incremental positive cash flow requirement for the component sustainable development.

The analysis concluded that the FIRR (calculated at 7.4%) exceeds the WACC (3.3%) by an adequate margin to establish the financial viability of the Component.

Sensitivity and risk analyses were conducted to support the financial viability. The resulting margins give reasonable protection should adverse circumstances be encountered. The result of sensitivity analyses is presented in Table 5-5. Sensitivity analysis shows that the FIRR will fall to (i) 6.3% if capital cost increase by 10%; (ii) 5.8% if operating costs increase by 10%; (iii) 4.4% if the revenues is decreased by 10%; (v) 1.6% if (i), (ii), and (iii) all occur together. The analysis reveals that the FIRR is most sensitive to a variation in revenue. A 10% revenue deduction will cause the FIRR to decrease from 7.4% to 4.4%. Therefore, timely tariff adjustments or government subsidy allocation will be crucial to ensure the financial sustainability of this Component.

Easen International Co. Ltd. 5-4 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis

Table 5-5 Sensitivity Analysis

Scenario FIRR NPV SI SW Case 1: Base case 7.4% 97.7 Case 2: 10% increase in capital costs 6.3% 76.2 1.5 45.4 Case 3: 10% increase in operating costs 5.8% 56.6 2.2 23.8 Case 4: 10% decrease in revenues 4.4% 25.3 4.0 13.5 Case 5: Combination of (2), (3) and (4) 1.6% -37.2 7.8 7.2 NPV = Net Present Value; SI = Sensitivity Indicator; and SW = Switch Value

Additionally, the financial analysis also calculated the average financial cost (AFC) produced for the least cost option both under sludge volume basis and wastewater treatment volume basis. The average incremental financial cost (AIFC) consists of the average incremental investment cost and average incremental O&M cost. The average incremental financial benefit (AIFB) is from the required incremental cash flow. The results are presented in the following table 5-6.

Table 5-6 Cost Benefit Analysis Unit: CNY/m3

Investment Counterpart fund O&M Items AIFC AIFB Cost for Construction Cost Sludge 113.4 14.9 231.2 344.5 407.0 Wastewater 0.07 0.01 0.13 0.20 0.24 Tariff 0.03 0.004 0.07 0.10 0.11

The cost benefit analysis demonstrates three implementation options as reference for the Municipal Government to provide subsidy or increase wastewater tariff:

1) According to the feasibility analysis, the total wastewater treatment volumes that will obtain further sludge treatment is 0.6 million m3/d., The annual wastewater volumes will be 219 million cubic meters, and thus the net present value(NPV) of wastewater volumes will be 3250 million m3 throughout the project period. It is assumed that the production capacity will be gradually improved as 40% in 2012, 60% in 2013, 80% in 2014 and 100% in 2015 and thereafter. The investment cost and operating cost are all from feasibility study report. The calculated AIFC is at CNY 0.07/m3 for the construction, and CNY 0.13/m³ for the operation based on the 0.6 million m3/d wastewater volume. As counterpart fund is only partial of the investment cost, the subsidy is at CNY 0.01/m3 for counterpart fund throughout the project period. To ensure sustainable development with minimum financial return of 7.4%, the total subsidy can be provided as CNY 0.24/m3, which is calculated as AIFB in table 5-6. The AIFC and AIFB are both in constant price, which reflect average cost and benefit levels throughout the project period. The annual cost need to apply actual situation and reflect inflation before execution.

2) The second methodology is identical to the first, but it is based on the last treatment production - the sludge volume. According to the feasibility study report, the wastewater treatment of 0.6 million cubic meters per day will generate sludge volume at 354.86 ton per day (with a water content of approximately 80%). The annual sludge volumes will be 0.128 million ton, and thus the NPV of sludge generation volumes will be 1.896 million ton. It is assumed that the production capacity will be gradually reached as 40% in 2012, 60% in 2013, 80% in 2014 and 100% in 2015 and thereafter. The investment cost and operating cost are all from feasibility study report. The calculated AIFC is at CNY 113.4/m3 for the construction, and CNY 231.2/m³ for the operation. As counterpart fund is only partial of the investment cost, subsidy is CNY 14.9/m3 for the counterpart fund throughout the project period. To ensure sustainable development with minimum financial return of 7.4%, the total subsidy can be provided as CNY 407/m3, which is calculated as AIFB in table 5-6. The AIFC and AIFB are both in constant price, which reflect average cost and benefit levels throughout the project period. The annual cost need apply actual situation and reflect inflation before execution.

Easen International Co. Ltd. 5-5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis

3) As previously mentioned, construction and O&M cost can also be generated from wastewater tariff. Current wastewater tariff is charged based on water consumption. As far as we know, the water production for the Wuhan municipality is at 2.125 million m3/d. The water volume for wastewater tariff collection is around 1.109 million m3/d. Starting from 2008, the total wastewater treatment volume becomes larger than the wastewater tariff collection volume. The detailed analysis will be presented in the tariff analysis section. The annual water volume for wastewater tariff collection is 399.2 million m3, and thus the NPV of water volume will be 6739.8 million m3 throughout the projection period. The investment cost and operating cost are all from feasibility study report. The tariff will be implemented to all water customers disregard if the wastewater generated sludge is treated. The calculated AIFC is for the reference to the Price Bureau to adjust wastewater tariff. The average tariff is at CNY 0.03/m3 for construction (including CNY 0.004/m3 for counterpart fund) and CNY 0.07/m3 for operation. To ensure sustainable development with minimum financial return of 7.4%, the total tariff adjustment can be set as CNY 0.11/m3, which reflects average cost and benefit levels throughout the project period. The annual cost need to apply actual situation and reflect inflation before execution.

5.5 IA’s Past Financial Performance and Financial Projections

According to the institutional arrangement, the WFMO is the IA and on-lending body of the Project. The WFMO will be responsible for financing the capital funds and borrowing the domestic bank loans for the Project, borrowing and repayment of the ADB loan, and coordinating major issues during the implementation of the Project. After the construction, the facilities from the Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station and Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation will be transferred to the respective district Water Bureaus for operation. Due to inadequate wastewater tariff generation, Government equity infusion will be provided through WUDC for the construction and loan repayment of the Sludge Treatment and Disposal Component. The WUDDC will be in charge of the operation of the Sludge component after the implementation period.

The WFMO is a government agency as well as the IA for the ongoing World Bank financed Wuhan Urban Transport Project and storm water components of the ADB financed Wuhan Wastewater and Storm Water Management Project. The WFMO is in charge of municipal infrastructure projects on behalf of the WMG, with financing, project management and supervision responsibilities. Thus, the financial statements prepared by the WFMO are comprised a series of project accounts for the different projects under its jurisdiction. The WFMO’s accounting/recording system, financial reporting system, internal control and financial management system, as well as the source of funds and applications, have been reviewed and assessed by the PPTA team as it is expected that the WFMO will adopt similar project management and accounting/financial management arrangements for the WUEIP implementation. The objective of conducting these assessments was therefore to ensure the WFMO has a sound financial management capacity for project implementation.

After the implementation, WFMO will still be the owner of the assets of the component and WUDDC will be the Operator of this component. The O&M cost will be paid by Wuhan Finance Bureau through WUDC. Financial projections have been prepared by the PPTA team for the WUDDC during the project period with operating costs based on the feasibility study report using current prices. It was assumed that the production capacity will reach 40% in 2012, 60% in 2013, 80% in 2014 and 100% in 2015 and throughout the projection period and that the incremental revenue will be in line with the operating costs. As stated in section 5.4, the required incremental revenue can be sourced from either tariff increase or government subsidy and government agrees to subsidize the component if the wastewater tariff increase can not be implemented. The detailed WUDDC pro forma financial statements and financial performance indicators are presented in Appendix 5-2.

5.6 Fiscal Capacity Review of Wuhan Finance Bureau (WFB)

Easen International Co. Ltd. 5-6 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis

5.6.1 General

The Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station Component and Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Component are classified as public infrastructure service components. They will not generate direct financial revenues. Funds from the WUDC will contribute as equity infusion for construction and will also be responsible for O&M costs after the facilities are put into service and servicing the debts for ADB and Domestic loans when these components enter into the repayment period.

As part of the wastewater service, the costs of the Sludge Treatment and Disposal Component should logically be recovered through wastewater tariff. WUDDC started the application for a wastewater tariff adjustment process in early 2009. The Municipal Price Bureau reviewed the application and it is projected that the tariff increase to CNY 1.20/m3 will start in mid 2010, which will be in a relatively high tariff level in China. However, even with this adjustment, the tariff is still insufficient to maintain WUDDC’s existing operation, debt service and construction obligations, let alone the counterpart funding for the proposed Sludge Treatment and Disposal Component. Thus, it is confirmed that the funds from the WUDC will contribute as counterpart fund for the Sludge Treatment and Disposal Component.

It is confirmed that the government equity infusion, which accounts for 25% of total project investment cost, the O&M cost and the repayment capital of the ADB loan and Domestic bank loan of this Project will come from WUDC. The WUDC was established at the end of 2008. It is sourced from Wuhan Municipal budget and managed by the Wuhan Finance Bureau. Hence, the PPTA team reviewed the fiscal capacity of Wuhan Finance Bureau.

5.6.2 WMG Fiscal Receipts

Wuhan has a solid economic development foundation. The Gross Municipal Fiscal Receipts includes transfer receipts to and from the Central Government, transfer receipts to and from the Hubei Provincial Government and Actual Municipal Fiscal Receipts, which comprise Municipal Level Fiscal Receipts and District Level Fiscal Receipts. Wuhan’s economic growth during the early years of the 21st Century has been unprecedented. Price levels have remained stable until 2008, while the real growth rates of GDP and Fiscal Receipts ranged around the high- teens and mid-twenties respectively. The PRC Government has designated Wuhan (1) and eight surrounding cities (8) in Hubei as the “8+1” “Urban Economical Circle”, and it is also coined as the “Liangxing trial district” to organize and promote continuous economic reform and development in central China. As a result of this, it is expected that rapid economic development in Wuhan will continue, Relative to recent years, a conservative assumption of an annual GDP increase of 12% and an annual increase in Gross Fiscal Receipts of 14.9% was made. Table 5-7 displays the details.

Table 5-7 Wuhan Gross Municipal Fiscal Receipts and Projection (Unit: CNY billion) GDP Gross Fiscal Receipts Fiscal Receipts as Year Gross Fiscal GDP Annual increase Annual Increase percent of GDP Receipts 2004 188.224 16.03% 28.860 25.00% 15.33% 2005 223.823 18.91% 38.936 30.40% 17.40% 2006 259.075 15.75% 50.236 29.00% 19.39% 2007 314.190 21.27% 63.406 26.20% 20.18% 2008 396.000 26.04% 79.130 24.80% 19.98% 2009 443.520 12.00% 97.139 14.90% 21.90% 2010 496.742 12.00% 111.613 14.90% 22.47% 2011 556.351 12.00% 128.243 14.90% 23.05% 2012 623.114 12.00% 147.351 14.90% 23.65% 2013 697.888 12.00% 169.307 14.90% 24.26%

Easen International Co. Ltd. 5-7 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis Source: Actual information from 2004 to 2008 is from Wuhan Annual Statistics Book. Projected information from 2009 to 2013 is from Wuhan Municipal Peoples Congress.

It is also worthwhile to compare Municipal Level Fiscal Receipts and Municipal Disposable Receipts. Based on the Wuhan National Economic Development Strategy and taking into account the fact that Wuhan’s Fiscal Receipts are already very large, it is assumed that the growth rate in the future will gradually reduce and become stable. In this manner, the Municipal Level Fiscal Receipts will reach CNY 61.243 billion in 2013, whilst Municipal Disposable Receipts will reach CNY 66.148 billion. Table 5-8 presents the forecast.

Table 5-8 Municipal Level Fiscal Receipts and Projection (Unit: CNY Billion) Municipal Municipal Gross Percentage of Annual level Annual Content level Fiscal Fiscal Gross Fiscal Increase Disposable Increase Receipts Receipts Receipts Receipts 2004 7.80 30.10% 28.86 27.03% 8.78 20.60% 2005 10.45 33.95% 38.94 26.84% 11.22 27.89% 2006 14.73 40.90% 50.24 29.31% 17.89 58.30% 2007 18.97 28.80% 63.41 29.91% 22.07 23.40% 2008 24.03 26.70% 79.13 30.37% 27.18 23.10% 2009 35.14 46.22% 97.14 36.17% 37.95 39.63% 2010 40.37 14.90% 111.61 36.17% 43.61 14.90% 2011 46.39 14.90% 128.24 36.17% 50.10 14.90% 2012 53.30 14.90% 147.35 36.17% 57.57 14.90% 2013 61.24 14.90% 169.31 36.17% 66.15 14.90% Source: The data of 2004-2008 is from the annual budget execution report approved by the Wuhan People’s Congress. The annual increase of Municipal Level Fiscal Receipts and Municipal Level Disposable Receipts during 2009-2013 is in line with that of Gross Fiscal Receipts.

5.6.3 Fiscal Expenditures and Debts

Wuhan’s Fiscal Expenditures and debts have also increased significantly during the past five years, consistent with the City’s dramatic economic and social development. Over the years, the annual Fiscal Expenditures have balanced with the Fiscal Receipts. Table 5-9 provides details. However, a close analysis shows that the Debt increase is slower than the Fiscal Receipts and Expenditures increase. The total debt and international debt in the Table 5-9 during the projection period will reach CNY 33.97 billion, considering the major infrastructure and service projects.

Table 5-9 Fiscal Expenditures and Debts of which Item Fiscal Expenditure Annual Increase Debt International Debt 2004 8.78 20.60% 4.23 0.07 2005 11.22 27.89% 4.12 0.22 2006 17.89 58.30% 4.73 0.24 2007 22.07 23.40% 5.00 0.51 2008 27.18 23.10% 5.85 0.55 2009 37.95 39.63% 5.96 0.56 2010 43.61 14.90% 6.08 0.57 2011 50.10 14.90% 6.21 0.58 2012 57.57 14.90% 6.33 0.60 2013 66.15 14.90% 6.46 0.61 Source: The information was provided by the WPMO for the period of 2004-2008. The Consultant projected the Fiscal Expenditures and Debts based on the historical data and by reference of the 11th five-year-plan.

5.6.4 Wuhan Urban Development Capital ( WUDC)

Easen International Co. Ltd. 5-8 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis Similar to several other major PRC cities, Wuhan established the WUDC at the end of 2008. The WUDC is mainly from government fiscal budget and the land-sale revenues. It has an account in the People’s Bank of China and it is managed by the Wuhan Finance Bureau. The WUDC is used exclusively for municipal public service and public infrastructure projects, including non-revenue generating, partial-revenue generating and revenue generating projects invested in by the Municipal Government. The objective of the WUDC is to expedite urban construction and development. It is sourced from the Fiscal Budget and assigned to projects using a procedure of special applications from project owners. In this Project, WUDC will be disbursed as government equity infusion in Project implementation period. After implementation, WUDC will provide funds to WUDDC and district Water Bureaus for the O&M cost of the Project.

The amount of WUDC is based on the size of the Urban Construction Fund in 2007. It will grow at a similar or higher rate than the level of relevant Fiscal Receipts. Its operation will follow the principal of standardized management and the Fund will be withdrawn and disbursed to a special account with special applications and risk mitigation measures. The normal sources of the WUDC include: i) Municipal Level Fiscal Budget that is for urban construction; ii) capital gains from land sales within the project area assigned for urban construction; iii) WUDC subsidies from Central and Provincial Governments assigned for urban construction; iv) Income from urban construction and investment activity arising from the transfer and disposal of State assets that can be used in the urban construction; and v) Other fiscal funds that may be used for urban construction. At the end of 2008, the WUDC reached a value of CNY 3.368 billion. It is projected that the total accumulated funding for WUDC will reach CNY 41.986 billion over the next 5 years.

Table 5-10 Projection of the Wuhan WUDC in the Next Five Years Unit: CNY million Items 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 WUDC 7,169 8,238 9,465 10,875 12,496 14,357 16,497 18,955 21,779 25,024 Annual Increase 14.90% 14.90% 14.90% 14.90% 14.90% 14.90% 14.90% 14.90% 14.90% 14.90% Note: Based on the current situation and the 11th Five-Year-Plan.

The WUDC is allocated by project. Generally, it is based on funding source, project requirements and fund arrangement demands. The WUDC may be injected into the project by any of direct equity contribution, direct investment, investment subsidy, loan interest deduction, debt service and back purchase, etc.

5.6.5 Fiscal Capital Analysis for the Project and Conclusion

The Project’s counterpart fund, O&M cost and debt servicing will be arranged by the WUDC. The following Table 5-11 displayed all the costs in details for each project component in associated with the Project. The analysis reveals

(i) The counterpart fund requirement over the project implementation period between 2010 and 2014 is projected to be CNY 755.2 million, compared to the accumulated WUDC of CNY 48.2 billion over the same period. Thus, the average government equity contribution is 1.57% of the accumulated WUDC. The annual equity contribution and its impacts to the WUDC are calculated in the following Table 5-11.

(ii) After Project implementation, the WMG will need to allocate O&M budget to the Operating Agencies. The O&M cost requirement over the project implementation period of 2013 and 2019 is projected to be CNY 344.5 million, compared to the accumulated WUDC of CNY 119.98 billion over the same period. Thus, the average government O&M budget will account for less than 0.29% of the accumulated WUDC. The annual detailed budget and its impacts to the WUDC are calculated in the following Table 5-11.

Easen International Co. Ltd. 5-9 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis (iii) The financial analysis has also demonstrated that the project debt service will account for less than 1.65% of WUDC during the peak period of 2013 to 2019. The annual detailed interest payments, principal repayments and impacts to the WUDC are calculated in the following Table 5-11.

Table 5-11 Fiscal Capacity Analysis Unit: CNY million

Items 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Investment Counterpart Fund Sludge 1.2 5.4 7.7 10.5 9.8 New Zone 64.7 120.6 125.8 92.3 80.3 Yangchunhu 37.8 63.7 63.6 38.4 33.4 Subtotal 103.6 189.6 197.2 141.2 123.6 % of WUDC 1.4 2.3 2.1 1.3 1.0 O&M Cost Sludge 11.8 17.7 23.6 29.5 29.5 29.5 29.5 New Zone 14.8 22.2 29.6 29.6 29.6 29.6 Yangchunhu 1.7 2.5 3.4 3.4 3.4 3.4 Subtotal 11.8 34.2 48.4 62.5 62.5 62.5 62.5 % of WUDC 0.1 0.3 0.3 0.4 0.3 0.3 0.2 Debt Service Sludge 6.0 6.9 23.9 20.8 20.3 19.9 19.5 New Zone 137.4 147.8 208.1 206.9 198.1 189.3 180.5 Yangchunhu 70.3 73.6 100.0 94.5 90.1 85.7 81.4 Subtotal 213.6 228.3 332.0 322.1 308.6 295.0 281.4 % of WUDC 2.0 1.8 2.3 2.0 1.6 1.4 1.1 Total Fund Requirement 103.6 189.6 197.2 366.7 386.1 380.4 384.6 371.1 357.5 343.9 % of WUDC 1.4 2.6 2.8 5.1 5.4 5.3 5.4 5.2 5.0 4.8

(iv) Overall, the annual total contribution of the WMG through its WUDC will amount to less than 5.4% of its WUDC even during the peak period. Therefore, Wuhan has sufficient fiscal capacity to implement the Project.

The WFMO has developed good credit in the past few years during the other urban construction projects it has managed and because its debts are supported by a WMG financial guarantee. To finance WUEIP, the Agricultural Bank of China has agreed to provide a commercial loan of CNY 1.6 billion. A copy of the Bank’s loan commitment letter was provided to the PPTA team by WFMO, which supports this part of the project financing plan.

It was also reported that a Dead Loan Reserve Fund was established in the WFB in 2003. The total fund will reach CNY 2 billion in 2009, which is a positive safeguard factor for the project debt service.

5.7 The System of Wastewater Tariff Collection

In accordance with the policy of Wuzheng (1996) No 103, the wastewater tariff is payable by those enterprises and individuals who directly or indirectly discharges wastewater into the urban sewage collection/treatment facilities, lakes and channels in Jiang’an, Jianhan, Qiaokou, Hanyang, Wuchang, Hongshan, Qingshan, Dongxihu and , and into the Yangtze river and Han river in Wuhan, excluding those agricultural people in the Dongxihu, and Hannan district. Subsequently, in accordance with the “Polluters pay” principle, the Hubei Provincial Price Bureau (HPB) has announced that all the people of Hubei Province should pay a wastewater tariff.

According to the Article 3 of Management Measures on Collection and Utilization of Wastewater Treatment Tariff in Wuhan Municipality, “the urban wastewater treatment tariff is collected by

Easen International Co. Ltd. 5-10 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis the WUDDC as the main tariff collection body. For organizations and individuals that utilize the urban public water supply, the Wuhan Water Supply Company has been entrusted to appropriate a full amount of collected urban wastewater tariff to the WUDDC each month. The WUDDC directly collects urban wastewater tariff from organizations that utilize self-supplied water instead of public water supply each month”.

As a result, the urban wastewater treatment tariff is collected by the WUDDC as the sole collection body. The WUDDC conducts tariff collection by itself and entrust Wuhan Water Supply Company (WSC) and WISCO Rear Estate Co., Ltd (WISCO) to collect tariffs. For organizations and individuals that utilize the urban public water supply, the WUDDC entrusts WSC to collect urban wastewater tariff along with water tariff. Entrusted WSC transfers the collected wastewater tariff to the WUDDC each month. This wastewater tariff should then be transferred to the charging office in accordance with the contract. Currently, the WSC and WISCO have 6 charging offices, which are Jianghan Office, Jiang’an Office and Qiaokou Office in Hankou, and Hanyang Office, Wuchang Office and Hongshan Office. The WUDDC will give WSC and WISCO an agency fee of 3.5% and 4% respectively on the tariff collected. Each charging office has 3 professional staff. For organizations and individuals that utilize self- supplied water or well water, the wastewater tariff will be calculated by the WUDDC charging office and collected each month.

The revenue from WSC is CNY 366 million in 2004, CNY 330 million in 2006 and CNY 307 million in 2008 respectively. The revenue from self-supplied water is CNY 20 million in 2006, CNY19.1 million in 2007 and CNY 18.8 million in 2008 respectively, both showing a gradual decrease as time progresses.

5.7.1 The Pricing of Wastewater Tariffs

Based on the full cost recovery principle, the wastewater tariff should be calculated based on the cost of compensating for the depreciation of assets, construction of new assets, operation and maintenance of the sewerage network and wastewater treatment facilities, and an allowance for a reasonable profit (return on capital employed). The construction expense includes counterpart funds, financial expenses and repayment funds in the period for sewerage networks and wastewater treatment facilities. The operation and maintenance expense consists of the cost of power, material, transportation, repair and depreciation, staff salary, welfare benefits and tax, etc in the period of wastewater discharge and treatment (over the life of the asset).

Wastewater tariffs have been collected in Wuhan since 1988. The charge at that time was CNY 0.08 /m3. According to the policy of Wuzheng (1996) No. 126, the amount of urban wastewater tariff will be calculated by that of 80% of water utilization. Since October 1, 1996, the wastewater tariff was CNY 0.18/m3, increasing by CNY 0.02 /m3 annually and reaching CNY 0.28/m3 after five years. In order to meet the need for counterpart funding for the then WB funded Hubei Urban Environment Project (HUEP), the tariff amount was calculated based on real utilization of water, and the charge was increased to CNY 0.4/m3 in 2001. With the policy of Wujiazhangzi [2003] No. 79, the charge was again revised to CNY 0.80/m3. Since July 2003, the wastewater tariff has remained unchanged charge but the water tariff was increased in 2006. Table 5.14 shows the history of water and wastewater tariffs in Wuhan city.

Table 5-12 The Price of Water Tariff and Wastewater Tariff in Wuhan (CNY/m3)

1997 1998 1999 2000 2001 2002 2003 -2005 2006-2008 Wastewater Tariff Residents 0.16 0.18 0.19 0.21 0.40 0.40 0.80 0.80 Public Institution 0.16 0.18 0.19 0.21 0.40 0.40 0.80 0.80 Industrial Enterprise 0.16 0.18 0.19 0.21 0.40 0.40 0.80 0.80 Business and Service Industry 0.16 0.18 0.19 0.21 0.40 0.40 0.80 0.80

Easen International Co. Ltd. 5-11 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis 1997 1998 1999 2000 2001 2002 2003 -2005 2006-2008 Special Industries 0.16 0.18 0.19 0.21 0.40 0.40 0.80 0.80 Charge for Water Resource Residents 0.01 0.01 0.01 0.01 Public Institution 0.01 0.01 0.01 0.01 Industrial Enterprise 0.02 0.02 0.02 0.02 Business and Service Industry 0.02 0.02 0.02 0.02 Special Industries 0.02 0.02 0.02 0.02 Water Tariff Residents 0.45 0.45 0.62 0.62 0.70 0.70 0.70 1.10 Public Institution 0.69 0.69 0.80 0.80 0.80 1.50 Industrial Enterprise 0.60 0.60 0.88 0.88 1.00 1.00 1.00 1.65 Business and Service Industry 1.00 1.00 1.46 1.46 1.70 1.70 1.70 2.35 Special Industries 1.66 1.66 1.90 1.90 1.90 4.80 Integrated Charge for End-user( include wastewater tariff and charge for water resource) Residents 0.61 0.63 0.81 0.83 1.11 1.11 1.51 1.91 Public Institution 0.16 0.18 0.88 0.90 1.21 1.21 1.61 2.31 Industrial Enterprise 0.76 0.78 1.07 1.09 1.42 1.42 1.82 2.47 Business and Service Industry 1.16 1.18 1.65 1.67 2.12 2.12 2.52 3.17 Special Industries 0.16 0.18 1.85 3.94 2.32 2.32 2.72 5.62

Regardless of whether organizations or individuals utilize water supply, self-supplied water or well water, the wastewater tariff is the same.

According to the relevant data, the wastewater tariff in Wuhan was increased in line with the water tariff. In 2003, the revenue of wastewater tariff was CNY 160 million and reached CNY 366 million in 2004. In 2005, the revenue decreased to CNY 362 million. In 2006, 2007 and 2008, the revenues were CNY 330 million, CNY 319 million and CNY 307 million respectively. The reason for this decrease is believed to be mainly related to water conservation in industrial consumption of water.

5.7.2 The Management of Wastewater Tariff Utilization

According to the Management measures on collection and utilization of wastewater treatment tariff in Wuhan Municipality of Article 6 “Collected urban wastewater tariff shall be used as ear- marked funds. It shall be utilized in strict compliance with national regulations for the construction, operation and debt services of urban sewerage networks and wastewater centralized treatment facilities.” The utilization and management of Wuhan wastewater tariff should therefore be conducted in this way.

Wastewater tariffs act as the charges of a non-profit-making service. They are collected by the WSC on behalf of the WUDDC and submitted to the WFB. The WUDDC applies for funds from the WFB under the tariff revenue plan, which is then used as construction and operation funds.

The Wuhan Urban Construction Investment & Development (Group) Co., Ltd (WUCID) is a wholly state-owned company which undertakes urban infrastructure project investments. It was set up in May 1997 by the WMG. In order to improve the system of urban construction investment and infrastructure of Wuhan city, the Municipal Committee and the WMG introduced reorganization measures for WUCID in July 2002. Currently the WUCID has a registered capital of CNY 3.5 billion and a total capital of CNY 16 billion. The company employs 16000 staff and is the biggest state-owned company in Wuhan. It plays an important role in urban construction. As a subsidiary company of WUCID, the Wuhan Water Group Company (WWGC) is responsible for construction and operation of water supply and drainage and wastewater treatment and in turn WUDDC is a subsidiary of WWGC.

Easen International Co. Ltd. 5-12 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis According to the policy of Wubanwen [2003] No. 56, the responsibility of WUCID is as follows: financing and loan repayment of urban infrastructure projects; construction, planning and implementation of urban infrastructure projects issued by WMG; operation and development of urban infrastructure capital; operation and management of the state-owned capital by authorization of State Capital Office, and to keep and increase the value of state-owned capital; management and operation of the company.

Currently, as a subsidiary of WWGC, 90% of the revenue of WUDDC is from wastewater tariff. The distribution of the wastewater tariff proceeds is managed by the WFB on the basis of the scope of usage, including (1) operations; (2) loans repayment; (3) allocation (for example allocating to combined pipeline network, pump station and Hanxi WWTPs, Shahu WWTPs); (4) construction; (5) upgrading of existing facilities (for example upgrading Longwangzui WWTP from a primary treatment plant to a secondary treatment plant) etc. WUDDC prepares annual budget expenditure plans for the different uses of wastewater tariff proceeds and, submit them to WWGC, WUCID and WFB for review and approval.

Concerning the actual use of wastewater tariffs, they will firstly be used to finance the operation and management of existing systems, secondly to repay bank loans and finally to meet the needs of counterpart funding for construction projects. The wastewater tariffs allocated for operations costs are assessed by the Finance Dept of WUCID in line with the budget, and then remitted monthly to WUDDC through the WWGC. As for the tariffs used for loans repayment, it is arranged by the WUCID funds office according to the repayment plan of WUDDC, and transferred through the WWGC twice a year to the WUDDC. As for the construction funds, it is handled by the WUCID funds co-ordination office, who transfers them to the WUDDC through the WWGC as they are needed. The allocated tariff to combined pipeline network, pump station, Hanxi WWTP and Shahu WWTP is fixed, simultaneously, the WUDDC need to carry out maintenance and repairs of existing assets and technology updates in order to keep the asset value and to create added value. In accordance with regulations issued by MOF, WFB oversee the collection and use of wastewater tariffs. The WFB participate in budget planning and execution, and play a supervisory role. The Municipal Audit Bureau and the Municipal Price Bureau conduct audits of WUDDC’s finances to ensure the accuracy of WUDDC annual financial statements and the justification of any proposed tariff increases respectively.

5.7.3 Wastewater tariff subsidy program

WMG has made efforts to support low-income households. When the wastewater tariff was raised in 2003, Wuhan Municipal Price Bureau required that a subsidy to compensate for the tariff adjustment should be continuously provided to the low-income households within the urban water supply area. Low-income households were defined in the Notice issued by the WMG “Concerning to set up and Implement the Basic Living Allowance System for Urban Residents” (Wuzheng No.102 [1995]). The arrangements provide a subsidy of CNY 2 per capita per household per month for wastewater charges in addition to existing water supply subsidy of CNY 5 per household per month. There are nearly 170, 000 people in Wuhan who are qualified for getting this CNY 2 subsidy. The list of qualified people is prepared by the Wuhan Civil Affairs Bureau and for the WUDDC to implement. The WUDDC has paid the subsidy according to the list. This program effectively helped the low income people in terms of water/wastewater tariff collection. Since 2004, the government has supported the lowest income households at a cost of CNY 6 million per year. While the economy grows, the per capital income also grows. Since 2007, the subsidy to the lowest income households dropped to CNY 4 million per year. The subsidy maintains at CNY 4.6 million in 2008. However, the subsidy requirement may increase after the new tariff adjustment.

The Project will have significant environmental and health benefits. The utility customers should consider the benefits that the monthly charges bring. The benefits will be visible to utility customers and residents. In addition, according to the affordability analysis, the suggested tariffs in section 5.8.3 do not pose a financial burden to the poorest segment of the population.

Easen International Co. Ltd. 5-13 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis In other words, residents can afford to pay tariffs required by the projects, and which are necessary to ensure WUDDC’s financial sustainability.

5.8 WWTP – Tariffs, Cost Recovery and Affordability

5.8.1 General

Wuhan is a city with abundant water resources. The main objective of the ADB financed Wastewater Management Project is to increase wastewater treatment capacity from the previously 21.2% to approximately 45% of the wastewater generated, a further 35% with the WB loan project, another 6% with the Polish and Finnish government loans, and finally 4% from the WMG, and the ADB loan phase II adds another 10%. The aim of the project is to achieve sustainable wastewater management and protection of water resources in Wuhani.

Up to the mid of 2009, in whole Wuhan area, a total of 10 WWTPs are running with 4 WWTPs under construction. WUDDC owns 8 WWTPs of the 10 WWTPs. The wastewater treatment capacity has reached 1,650,000 M3/d. The current wastewater treatment rate is 80%.

Table 5-13 Wuhan Wastewater Treatment Plant Overview

Existing Future Items Owner Capacity Capacity Asia Water Technology PTE. Ltd. Wuhan Kaidi Electric Power Stock Company, Wuhan Green 1 Hanxi WWTP 400,000 600,000 World Environmental Industry Group, and the WUDDC. 2 Shahu WWTP I Wuhan Sanzhen Industry Holding Co., Ltd. 50,000 50,000 Shahu WWTP II Wuhan Sanzhen Industry Holding Co., Ltd. 50,000 50,000 Shahu WWTP III Wuhan Sanzhen Industry Holding Co., Ltd. 50,000 50,000 3 Huangpulu WWTP WUDDC 100,000 100,000 4 Longwangzui WWTP WUDDC 150,000 150,000 5 Tangxunhu WWTP WUDDC 50,000 50,000 6 Nantaizihu WWTP WUDDC 100,000 200,000 7 Erlangmiao WWTP WUDDC 180,000 240,000 8 Sanjintan WWTP WUDDC 300,000 300,000 9 Huangjiahu WWTP WUDDC 100,000 100,000 10 Luobuzui WWTP WUDDC 120,000 120,000 Total 1,650,000 2,010,000 Total for WUDDC 1,100,000 1,260,000

It needs to be noted that the current water production for the Wuhan municipality is at 2.125million m3/d. However, due to separate billing and after water sales, water and wastewater billing, the water volumes in the wastewater tariff collection has been significantly reduced. As wastewater billing and collection information is not transparent at this stage, it is calculated based on the current reported wastewater tariff revenues. Thus, the water volume for wastewater tariff collection is around 1.109 million m3/d. Starting from 2007, the total wastewater treatment volume becomes over wastewater tariff collection volume. The following Graph 5-1 displays the comparison between the volume of wastewater treatment and volume of wastewater tariff collection. The graph demonstrates that the gap will become more remarkable when the ADB financed WWTPs and Hanxi 2nd phase gradually reach the design capacity.

Easen International Co. Ltd. 5-14 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis

Graph 5-1. Wuhan WWT in Comparison with WW Collection

2,500

2,000

1,500

1,000 Million m3/d

500

- 2007 2008 2009 2010 2011 2012 2013 2014 year

WW Treatment WW Collection WUDDC WWT

During the past thirteen years, the WUDDC has constructed WWTPs by using a range of domestic and overseas financing as well as from wastewater treatment tariff proceeds. It has become a big player in the management of the wastewater sector in Wuhan. The Shahu WWTP and Huangpulu WWTP were originally constructed by loans from the Government of Finland; A WB loan was used to build Erlangmiao WWTP, Longwangzui WWTP and Shahu WWTP expansions; Sanjintan WWTP, Huangjiahu WWTP and Luobuzui WWTPs were supported by ADB loan Phase I; Meanwhile, the WUDDC purchased Tangxunhu WWTP and jointly invested in Hanxi WWTP.

The WUDDC has also made efforts to improve the operations of completed WWTPs while at the same time paying close attention to the implementation of new construction projects.

WMG introduced a uniform wastewater tariff of CNY 0.08/m3 for all water consumer categories based on wastewater discharge volume (assumed as 80% of water consumption) in 1988. The wastewater tariff has been progressively increased, most recently in July 2003, when a wastewater tariff of CNY 0.80/m3 was implemented based on actual water consumption.

5.8.2 Tariff Review

Table 5-13 shows that the total WWTP capacity has reached 1,650,000 M3/d. The current wastewater treatment rate is 80%. Of the total WWTP capacity, the WUDDC’s WWTP capacity has reached 1.1 million m3/d, which is about 67% of the total treatment capacity. It will be very helpful to conduct a comprehensive sector analysis for the Wuhan wastewater industry and propose a suitable wastewater tariff. However, financial information for Hanxi WWTP and Shahu WWTP are not available during the PPTA. Following the Article 3 of Management Measures on Collection and Utilization of Wastewater Treatment Tariff in Wuhan Municipality, “the urban wastewater treatment tariff is collected by the WUDDC as the main tariff collection body”. It is also getting more obvious that current wastewater tariff is high in China and tariff revenue is not sufficient even for the WUDDC’s sustainable development. Therefore, our tariff review is based on the previous financial situation of the WUDDC since 2005. The tariff review will cover WUDDC’s current operation, construction, debt service and future development.

Easen International Co. Ltd. 5-15 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis The preliminary tariff review showed that (i) Collection performance of wastewater tariffs is reinforced while the revenues show a downward trend in recent years; (ii) The wastewater treatment capacity of WUDDC has been highly improved and the WMG supports the WUDDC by allowing the Company an increased wastewater tariff allocation in recent years; however, (iii) the wastewater tariff collected is insufficient to meet the financial demands of operations, maintenance, debt service and construction of the installed facilities, and (iv) the tariff review also demonstrated the existing fact that wastewater tariff is classified as administrative charges, and WUDDC is still managed as an institutional organization, undertaking many tasks that were originally the functions of WMG. Therefore if the WUDDC encounters serious financial difficulties, the WMG will implement integrated transitional and phased policies to promote WUDDC’s longer term financial sustainability. This is the principal when we conduct tariff review and projection.

The tariff projection has been conducted covering WUDDC’s all business and using the following assumptions.

Actual Operating Revenue: Although the business income of WUDDC is confined to the planned funds allocated by the Financial Bureau since 2005, the Actual Operating Revenue during the financial projection period is made up of the sales revenue from residential, industrial, institutional, service, special customers, and self-supplied customers. It was assumed that the volume of water consumption/wastewater discharge would remain the same throughout the projection period to reflect the actual situation in local water demand trends. It should be noted that the current water production for the Wuhan municipality is at 2.125 million m3/d. The water volume for wastewater tariff collection is around 1.109 million m3/d. However, by WUDDC only, the Graph 1 reveals the wastewater treatment volume will be over wastewater tariff collection volume in 2013.

Actual revenue in the previous years of 2006 to 2008 for the WUDDC excludes the amount of commission and the tariff allocation to the Shahu WWTP phase I (the ownership was transferred to the Wuhan Sanzhen Industry Holding Co., Ltd.) and Hanxi WWTP (the joint venture from the Asia Water Technology PTE. Ltd. (Singapore), Wuhan Kaidi Electric Power Stock Company, Wuhan Green World Environmental Industry Group, and the WUDDC). As wastewater service providers, Shahu and Hanxi WWTPs receive some of the wastewater tariff collected. The amount of commission paid to the WSC is based on 3.5% of actual tariff revenue received. The actual revenue also includes the subsidy from the Wuhan Municipal Government for the project construction and debt services.

Operating Expenses：Under the current business structure, the WUDDC is responsible for the O&M of the existing 8 WWTPs, the Sewer Maintenance Sector, and the Head Office (i.e. the administration office). The business scope of the WUDDC has been shifted to focus on the operation of the wastewater treatment plants. The respective wastewater treatment volumes follow the current operation in line with the construction progress and design capacity. For the Sludge Treatment and Disposal Component, the O&M cost is based on the DI’s feasibility study report. The production capacity will reach 40% in 2012, 60% in 2013, 80% in 2014, 100% in 2015 and throughout the remainder of the projection period.

Table 5-14 Assumptions for WUDDC Wastewater Treatment Production Unit: 1000 m3/d

WWTPs 2008 2009 2010 2011 2012 2013 2014 Huangpulu 64 66 66 66 80 90 100 Longwangzui 164 157 157 157 157 157 157 Tangxunhu 46 51 50 50 50 50 50 Nantaizihu 89 93 100 140 160 180 200 Erlangmiao 185 191 216 230 240 240 240 Sanjintan 211 236 250 280 300 300 300

Easen International Co. Ltd. 5-16 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis Huangjiahu 59 47 60 80 100 100 100 Luobuzui - - 50 70 90 120 120 Total 819 841 949 1,073 1,177 1,237 1,267

Four years (from 2005 to 2008) and first nine month of 2009 of the operational financial information was obtained from the WUDDC. The information is the combination of detailed O&M cost and of the treatment capacity of each WWTP. The projection is based on the following assumptions:

Personnel: In 2005, there were 391 staff altogether working at six WWTPs, Sewer Maintenance Division, and Head Office. By 2009, this had increased to 9 WWTPs (some leftover from Shahu WWTP) with 557 staff. It is estimated that in the next five years, the number of employees will reach 696. The average total wages and welfare for one employee is expected to be CNY 65,000 per annum, taking into account the cost of providing the so called “four funds” benefits (i.e. Housing fund, Medical insurance, Pension and social welfare fund). It is assumed that a yearly increase of 5% of the salary will occur, which is well within the local GDP growth rate.

Raw materials: Under the variable cost, the future wastewater flow and relevant pollutant concentrations are assumed to agree with the design flow and design influent concentrations which will be in line with the power and chemical cost in the previous years.

Power expenses: The operational status, routine power demand of major electrical equipment, and energy consumption calculation corresponds with the existing WWTPs.

The standard of Repair and Maintenance for the WUDDC is measured according to the base year information. The cost of repair and maintenance to the fixed assets ratio was only 0.8% in 2005 reflecting the fact that most of the wastewater treatment plants and associated pipeline were newly constructed. This increased to 1.1% in 2007 and 1.2% in 2008. Routine maintenance and timely repair will extend the service period of plants and equipment. In the meantime, the cost of repair and maintenance will increase in line with the service period. Since the remaining components of the WB loan financed projects were completed in 2006 and the fixed assets have been transferred to the fixed assets account in the same year, then most of the components of the ADB financed projects phase I will be completed in 2009 and 2010, and fixed assets will be transferred to the fixed assets account in 2009 and 2010 accordingly. Therefore, the cost of repair and maintenance to the fixed assets ratio is projected to gradually increase to 1.2% in 2016 and 1.5% in 2020.

The management and administration cost, and other costs accounted for around 13% of the other O&M costs in 2005. Based on their business plan targets, WUDDC has successfully reduced their administration and other costs to 10% as of 2008. However, the administration and other costs will be 35% of the sum of the other items of the O&M costs over the projection period for the Head Office considering the heavy responsibility of its administration work.

Depreciation is calculated based on the revised capital investment plan. The financial projections adopt a flat rate depreciation method for each different type of asset. The increase in annual depreciation mainly reflects the addition of fixed assets charged depreciation as new infrastructure is completed. It is assumed the Sanjintan WWTP and Huangjiahu WWTP will be transferred to the operating fixed assets in 2010 and Luobuzui WWTP in 2011. The ongoing Erlangmiao WWTP and Nantaizihu WWTP will be transferred by 2011 and Huangpulu WWTP by 2012 of ADB loan phase II. As for the Sludge Treatment and Disposal Component, the WUDDC will only be in charge of the operation. Thus, no additional depreciation will be occurred.

Long-term Debt Service: The long term debt service will include repayment of the annual loan, the principals, interest and commitment fees of the ADB Phase I and Phase II loans, the WB

Easen International Co. Ltd. 5-17 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis loan, the Polish government's loan, together with the principal and interest of loan from national development bank, domestic commercial banks, and national bonds.

Conclusion: Based on the above assumptions and by including the WUEIP Sludge Treatment and Disposal Component, the required major cost recovery factors are displayed in the following Table 5-15.

Table 5-15 WUDDC’s Major Cost Recovery Funding Requirement Unit: CNY Million Items 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 WUDDC Existing 328 383 508 472 547 550 563 568 560 570 590 612 O&M Cost 142 132 157 193 221 247 266 283 301 320 341 363 Depreciation 69 75 119 158 167 169 180 180 180 180 180 180 Debt Serivce (interest) 77 107 116 116 107 92 84 75 67 59 52 45 Debt Serivce (Principal) 76 108 110 143 148 141 143 140 123 100 97 93 Construction (ADB I & II and others) 33 36 125 20 70 70 70 70 70 70 70 70 Sludge Component 1 4 7 23 39 40 65 64 66 67 69 Counterpart fund 1 4 7 10 10 0 0 0 0 0 0 O&M 14 22 30 40 42 44 46 48 Debt service 8 9 26 23 22 22 21 Total Cost recovery requirement 328 384 512 479 570 589 603 633 625 635 658 681

The Table 5-15 reveals that the operating budget from WFB of CNY 370 million in 2008 can sufficiently meet the funding requirements to recover all costs, debt service and counterpart fund requirements. However, the actual fund transfer was only CNY 190 million, which is far from the cost recovery requirements. According to the financial statement in the first nine months of 2009, the total fund transfer is CNY 118 million, which can only meet the operating requirement. Fund shortage is a critical factor that prevents WUDDC from sustainable development. The financial analysis also indicates that previous years fund shortage will cause more fund requirements in the following years.

Further tariff review converts the above Table 5-15 to a more direct and persuasive way to demonstrate the cost recovery requirement by wastewater tariff. As it was discussed earlier, the water volume for wastewater tariff collection is reduced to 1.109 million m3/d. It is possible that this amount will be further reduced after more tariff increase. This only gives an opinion to the Wuhan Price Bureau for tariff increase and government subsidy calculation.

Table 5-16 Wastewater Tariff Components Unit CNY/m3

Items 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 WUDDC Existing 0.82 0.96 1.27 1.18 1.37 1.38 1.41 1.42 1.40 1.43 1.48 1.53 O&M Cost 0.35 0.33 0.39 0.48 0.55 0.62 0.67 0.71 0.75 0.80 0.85 0.91 Depreciation 0.17 0.19 0.30 0.40 0.42 0.42 0.45 0.45 0.45 0.45 0.45 0.45 Debt Serivce (interest) 0.19 0.27 0.29 0.29 0.27 0.23 0.21 0.19 0.17 0.15 0.13 0.11 Debt Serivce (Principal) 0.19 0.27 0.28 0.36 0.37 0.35 0.36 0.35 0.31 0.25 0.24 0.23 Construction(ADBI&II and others) 0.08 0.09 0.31 0.05 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 Sludge Component - 0.00 0.01 0.02 0.06 0.10 0.10 0.16 0.16 0.16 0.17 0.17 Construction - 0.00 0.01 0.02 0.02 0.02 ------O&M - - - - 0.03 0.05 0.08 0.10 0.10 0.11 0.11 0.12 Debt service - - - - - 0.02 0.02 0.06 0.06 0.06 0.05 0.05 Tariff With Sludge 0.82 0.96 1.28 1.20 1.43 1.48 1.51 1.59 1.56 1.59 1.65 1.71

Due to sales of the Shahu WWTP, the tariff requirement for WUDDC’s O&M cost in 2009 is reduced. Overall, due to delay in tariff increase, WUDDC’s sustainable development is

Easen International Co. Ltd. 5-18 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis threatened. However, it was projected during the ADB’s fact finding mission that the Wuhan Price Bureau will approve the tariff increase and start to implement in mid 2010 at CNY1.20/m3. By implementing the new tariff, the WUDDC’s financial situation will be greatly improved. Table 5-16 calculated tariff requirement in many situation. It can be combined to different scenarios. However, it is very important to ensure that WUDDC will receive the whole tariff revenue. As a result, the proposed tariff is still not sufficient for WUDDC’s sustainable development. Thus, a government subsidy program is fully encouraged.

Table 5-17 Proposed Wastewater Tariff and Government Subsidy Program

Item 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Tariff 0.80 0.80 1.20 1.20 1.40 1.40 1.40 1.50 1.50 1.50 1.75 1.75 Tariff Increase 50% 17% 7% 17% Wastewater tariff 190 180 399 479 519 559 559 579 599 599 699 699 Government Subsidy with Sludge 138 204 113 7 51 39 44 65 64 66 - - Government Subsidy without Sludge 138 203 109 - 28 - 4 - - - - - Cost Recovery Ratio 0.93 1.34 1.08 1.25 1.20 1.16 1.24 1.25 1.25 1.26 1.21 Debt Service Ratio 0.84 1.51 1.04 1.35 1.29 1.23 1.47 1.56 1.75 1.95 1.94 Debt Equity Ratio 64% 65% 68% 65% 63% 57% 54% 52% 50% 48% 46%

By implement the Table 5-17 proposed wastewater tariff in associated with the Government Subsidy Program with two scenarios, the tariff level will be more reasonable for implementation. Meantime, it further explained per unit tariff (e.g. CNY 0.10/m3) can only generate CNY 41 million revenues for the WUDDC. As the government delayed in tariff transfer in 2008, the impact was that it withheld CNY 180 million budgets, which was around 4.4 unit tariff (at CNY0.44/m3). If the same situation occurs, the WUDDC will have CNY 204 million fund shortage, which is around 5 unit tariff (at CNY0.50/m3). In order to improve the situation, the Government subsidy Program is required to fill the fund gap in 2008 and support another CNY 200 million in 2009. According to Table 5-17, when the tariff is increased to CNY 1.40/m3 in 2012, the government subsidy can be extensively reduced. When the tariff is further increased to CNY 1.50/m3 in 2015, the government subsidy can be totally removed under the without sludge component scenario. After the tariff is finally increased to CNY 1.75/m3 in 2017, the government subsidy can be totally removed. By then, the wastewater tariff can achieve full cost recovery for the WUDDC. As a result, by including government subsidy program, the WUDDC can achieve sustainable development. The financial indicators in table 5-17 also demonstrate the results.

5.8.3 Affordability Analysis

The PPTA household survey conducted in August 2009 (see Section 7 for further details) included questions to assess household satisfaction with water and wastewater services provided and the ability and willingness of households to pay for these services. The results of the survey have been used to verify the assumptions made in the affordability analysis presented here, which is based on gross water tariff per household. The gross water tariff includes water tariff and wastewater tariff. The affordability analysis was conducted using the following procedures:

• Data on monthly disposable income per capita by population category was obtained from the Wuhan Annual Statistic Book. The monthly household disposable income was based on the annual data metical average number of family members.

• The average per capita water consumption/wastewater discharge and sewage flows were scaled by a set of consumption factors reflecting different income classes and levels of consumption. Obtaining a consumption factor for each household group reflecting the relative water consumption (such as 0.550 for the lowest households,

Easen International Co. Ltd. 5-19 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis 0.700 for lower households, 0.850 for lower middle households, 1.000 for middle households, 1.150 for upper middle households, 1.300 for higher households, 1.450 for the highest households), and hence wastewater service usage, according to various income classes of urban residents.

• No explicit assumptions were made concerning the responsiveness of per capita water/wastewater consumption to tariff increases. The price elasticity of demand is assumed to be relatively inelastic. Both average per capita sewage flows and average per capita water consumption were calculated in reference with data provided in the Wuhan Annual Statistic Book in 2007 and 2008 respectively. It is assumed to have an annual increase of 1.5%.

• To calculate the projected gross annual water/wastewater utility costs, the current water and wastewater tariff in 2008 of CNY 1.10/m3 and CNY 0.80/m3 were used to estimate water bill.

Both household gross annual water costs and wastewater costs were combined in the affordability analysis. The results are presented in Table 5-18.

Table 5-18 Affordability Analysis (2008 Tariff Levels) Income Group Lowest 10.2% Lower (10%) Average Household Size (number) 3.2 3.28 2.88 Monthly Disposable Income CNY CNY CNY Per Capita 478.32 698.61 1,196.47 Per Household 617.03 1,061.89 1,794.71 Water Use (cubic meter/month) 9.24 12.06 15.35 Water and Wastewater Tariff (CNY/cubic meter) 1.90 1.90 1.90 Water and Wastewater Bill (CNY/month) 17.56 22.91 29.17 % Household Income 2.8% 2.2% 1.6%

Table 5-18 shows that the total tariff implied by the proposed wastewater tariffs in 2008 does not represent a significant portion of expense for the households in Wuhan City. It also implies that the affordability water and wastewater services in Wuhan are and will remain well within acceptable limits, even for the lowest income class of consumer.

The PPTA team also reviewed relevant government policy on water/wastewater tariff for low income households. It is regulated that each low income household is eligible to get a subsidy of CNY 7 /month for water and wastewater service.

5.9 Financial Management Assessment (FMA)

5.9.1 Introduction

Effective financial management is a critical factor for the projects successful implementation. The purpose is to ensure that the IA has adequate financial management capability to implement the Project. The EA/IA’ financial management arrangements should be capable of recording all transactions and balances, timely providing regular and reliable financial statements, safeguarding the entity’s assets, and compliance with ADB requirements.

The assessment follows ADB’s Guidelines for Financial Management and Analysis of Projects (2005). The FMA has been conducted to assess the financial management capacity of the WPMO and the IA (WFMO), funds flow arrangements, staffing, accounting policies and procedures, internal and external auditing arrangements, reporting and monitoring aspects, and financial information systems. Issues or risks associated with the WFMO’s financial management systems were identified, and appropriate risk mitigation measures were suggested to facilitate more effective project design and implementation.

Easen International Co. Ltd. 5-20 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis

A full set of financial assessment questionnaires were completed, attached in Appendix 5-3. Issues or constraints relating to financial management during the project preparation and/or project implementation were identified and addressed in order to strengthen financial management systems and implement the ADB project smoothly and successfully.

5.9.2 Assessment of the WPMO

The WPMO is a state-owned agency. WPMO conducts accounting work according to the Enterprise Accounting Rules and the Infrastructure Construction Financial Regulations Regarding State-owned Construction Units. It adopts UFIDA U8 financial software system.

There are one managerial staff, one deputy managerial staff, two accountants and one cashier working in the Finance Department. They are capable professionals with high qualifications and rich experiences in financial management related to ADB funded projects. The Finance Department currently undertakes planning and statistical calculation, disbursement review, withdrawal and disbursement and financial management of the World Bank financed Wuhan Urban Transport Project, ADB Phase II Project, and other domestic infrastructure construction projects and non-infrastructure construction business of WPMO.

The Finance Department has established a series of financial management regulations, including working rules and management regulations such as the Financial Management and accounting Manual, the Accounting Implementation Detailed Regulations for Sub-PMOs, the Accounting Implementation Detailed Regulations for Project Implementation Agencies, the Internal Accounting Constraint Regulations, the Internal Accounting Verification Regulations, the Internal Audit Regulations (Provisional), the Monetary Currency Management Rules, the Internal Advance Payment and Expenditure Management Rules, the Business Contract Payment Disbursement Management Rules, and the Withdrawal and Reimbursement Methods.

For the proposed ADB Project, the Finance Department of WPMO will: (1) organize the project management work in cooperation with other WPMO departments, coordinate relationships with ADB and relevant government authorities; (2) review the project implementation plans submitted by project companies, supervise the implementation of the project plan, and address issues related to project implementation; (3) responsible for reviewing the ADB loan reimbursement documents submitted to financial authorities by implementation agency, and coordinating the ADB fund disbursement and replenishment; (4) oversight of the accounting work of the three project components; (5) review the consolidated financial statements prepared by WFMO (see below) and submit to ADB.

5.9.3 Assessment of the WFMO

The WFMO is the IA and main onlending body of the three project components. The WFMO is an independent legal entity as well as the IA of the ongoing World Bank financed Wuhan Urban Transport Project (WUTP). It is also responsible for financing of the capital funds and domestic bank loans for the storm water component, borrowing and repayment of the ADB loan, and coordinating major issues during the implementation of the storm water component of the ADB funded WWSMP.

The WFMO will be responsible for organizing and coordinating the accounting work for the three project components, consolidating and submitting financial statements to the WPMO; WFMO is entrusted to be responsible for organizing and coordinating the accounting work, combining the consolidated financial statements of the three project components before the submission to the WPMO.

Easen International Co. Ltd. 5-21 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis The WFMO will be responsible for financing the capital funds and for borrowing domestic bank loans for the Project, borrowing and repayment of the ADB loan through the WUDC, and coordinating major issues during the implementation of the Project.

The auditing of the WFMO’s project financial statements has been conducted by the Hubei Provincial Auditing Bureau. The PPTA team reviewed WFMO’s audited reports of the ADB and WB related projects. WFMO’s prepared and audited project financial statements are in accordance with Chinese accounting standards and system, and the requirements of the project loan agreements. The project financial statements, financial position of the WFMO and the results of its operations, the balances of the funds received and disbursed, as well as balance of the Special Account conform with China’s accounting standards.

Accounting of the different projects is carried out pursuant to Accounting System for State- owned Construction Units, Method of Accounting Calculation for Projects Financed by World Bank and ADB Loans and other rules and regulations, including the Manual of Financial Management and Accounting Calculation for WUTP Financed by the World Bank Loan were approved by the Wuhan Financial Bureau.

5.9.4 FMA Conclusion

The Consultant concludes that both the WPMO and WFMO, with rich experience in managing WB and ADB projects, are well prepared for the tasks required to implement the ADB funded Wuhan Urban Environmental Improvement Project. However, the Consultant raised the following points for further discussion and improvement:

(1) WPMO should be responsible for overall project management and coordination. It should review the IA’s financial activities and financial reports for submission to the ADB. However, up to now WPMO staff has helped WFMO (the IA) with the detailed accounting and financial work, which compromises their responsibility to review the IA’s work. Therefore in future the detailed accounting should be done by WFMO in accordance with the normal responsibilities of a project IA.

(2) The WFMO is the IA for the project. However, it is planned that detailed construction management work be conducted by the WUDDC and the Hanyang New Development Zone (in association with the Wuhan Clean Water Technology Company). These companies will be involved in the project implementation. However, it is not necessary to review their financial management capacity according to the ADB PPTA procedure, as they will not directly handle ADB funds.

(3) It was found that the withdrawal and disbursement procedure is very slow. It takes four to six weeks to go through the current procedure. The WPMO has some ideas for speeding up the process. The Consultant will work with the WPMO for the possible improvement in the disbursement procedures.

5.10 Conclusion and Recommendations

Based on the above detailed financial analysis, it can be concluded that the Sludge Treatment and Disposal component is financially viable. By implementing the proposed financial options, the component can withstand possible adverse situations and achieve 7.5% financial return. The tariff review reveals the wastewater tariff is not sufficient to reach full cost recovery for the whole Wuhan City. With the proposed wastewater tariff, there is still funding gaps. Therefore, the Wuhan Municipal Government needs to start to implement the tariff increase at CNY 1.20/m3 in mid 2010. Meantime, it needs to commit that full amount of wastewater tariff to be transferred to the WUDDC for its solely utilization. Additionally, a government subsidy program should be developed to ensure adequate funding support which is in line with the Project implementation schedule, O&M requirement and debt service.

Easen International Co. Ltd. 5-22 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 5 Financial and Lease-cost Analysis

As the Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station Component and Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Component are non- revenue-generating and are classified as government public service, the financial viability is ensured by the government Fiscal Capacity Analysis. It is confirmed that Wuhan has sufficient fiscal capacity to provide WUDC for project implementation, O&M cost and debt servicing throughout the project period. The Wuhan Municipal Government has sufficient financial resources for project implementation. The project viability has been further strengthened by the economic analysis in Section 6.

The financial management assessment concluded that the WFMO and the WPMO have extensive financial management experience and financial management capacity to carry out the project smoothly.

i It is from the ADB mission memo in October, 2008. The objective of Wuhan wastewater treatment strategic plan is to achieve a treatment capacity of 80% by 2010. It is possible to achieve 25% through the ADB loan phase I, a further 35% with the WB loan project, another 6% with the Polish and Finnish government loans, and finally 4% from the WMG, and the ADB loan phase II adds another 10%.

Easen International Co. Ltd. 5-23 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 6 Economic Analysis

SECTION 6 ECONOMIC ANALYSIS

Summary. The main purpose of the economic analysis is to justify the Project from economic perspective. Benefits from the project are identified and efforts to quantify the economic value of these benefits have been made. Quantifiable economic benefits are then used in an EIRR calculation to confirm the economic justification of the Project.

The main quantifiable economic benefits for sludge treatment and disposal components include: • the land savings computed from prolonged life of landfills due to reduced amount of sewage sludge disposal; • landfill operation cost savings (incremental); • fertilizer savings from applying sludge as urban forest soil amendment; • traditional fuel savings from using biogas generated from treatment process for heating; • and climate change alleviation due to methane-rich biogas collection and incineration.

• the main quantifiable economic benefits of the Wuhan New Zone Lake/Channels Rehabilitation component, and Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation include: • land and real estate value appreciation as a proxy of residents’ willingness-to-pay for the project; • health benefits from reduction of morbidity and mortality of waterborne carcinogenic and non- carcinogenic diseases for nearby residents; • recreation and pedagogical value of wetland parks for residents.

The lake/channel rehabilitation components also boost the local economy by contributing to more employment from service and tourism industry growth, as well as incremental GDP and FDI inflow to the region. However existing literature does not offer mature quantification methods for such benefits.

Benefits for the Sixin Pumping Station sub-component include avoided property damages and reduced risk of loss of life. Alternatively, avoided losses can be categorized into direct and indirect losses where there are tangible and intangible losses in both categories. Detailed methods are provided in the report.

The least cost analyses (LCA) of the economic analysis reviews and evaluates the technical options proposed by the prefeasibility studies and confirms that the project components are the least-cost options in support of Wuhan’s long term development plans;

The NPV for the whole Project is estimated as CNY1,107 million and the base case EIRR for the whole project is 20.48%, which exceeds the EOCC. Sensitivity analysis shows that the EIRR will fall to (i) 14.27% if benefits fall by 20%; (ii) 17.42% if operating costs increase by 20%; (iii) 17.25% if the investment is delayed by one year; (v) 12.01% if (i), (ii), and (iii) all occur together. Residents gain most from the benefits since the Project does not levy any financial burden on them. Distribution analysis indicates that the Project is pro-poor in nature as the poverty impact ratio is 10.09%.

6.1 Sludge Management Component

6.1.1 Introduction

The rapid industrialization in China has substantially increased urban pollution, and common with other cities in China, the City of Wuhan is no exception to this ongoing environmental

Easen International Co. Ltd. 6-1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 6 Economic Analysis degradation process. Wuhan is the capital of the Hubei province, located at the confluence of the Yangtze and Han Rivers in central China. It is divided into nine districts which are inhabited by 8.7 millions of people according to recent government statistics. Wuhan is considered as the financial, scientific and commercial centre of the central China region, as well as an important transportation hub for railways and water routes in China.

The WMG has realized that sustainable development cannot be achieved without proper environmental protection measures. Indeed, the Wuhan’s wastewater treatment rate now reaches 80%, much higher than the national average. However, one of the major environmental problems in Wuhan is the disposal of the sludge from the Waste Water Treatment Plants (WWTP). At present, there is no sustainable method available for disposing of the sludge in Wuhan City and the magnitude of this problem keeps on increasing as the level of the City’s wastewater treatment rate increases. The current method of disposal is by transporting the dewatered sludge (still with high water content) from the WWTPs to the existing landfill sites for landfill disposal. This method can lead to the potential release of nutrients, toxins and other pollutants to the surrounding environment. Since the sludge can be a sustainable resource from which the nutrients and energy can be recovered, there are alternative sludge disposal options that would favor Wuhan both financially and environmentally.

While the construction WWTPs in Wuhan has reduced pollution in some of the local rivers and lakes and contributed to the overall pollution reduction in the Yangtze River Basin, the amount of sludge generated has also increased significantly in proportion. This environmental challenge to Wuhan has created an urgent need for a comprehensive and efficient approach to sludge management for Wuhan.

6.1.2 FSR Review

During the inception and interim review missions, different parties expressed their viewpoints on the choice of sludge treatment and disposal options. The main objective is to minimize the negative environmental impacts created by the operation of these WWTP and the associated difficulties in the management of the sludge produced. All options have pros and cons and hence a rigorous economic analysis, including least cost analysis, is necessary to justify the final technological choices. Since incineration is associated with greenhouse gas emission and the potential release of dioxins, this alternative is not environmentally viable. Other available disposal options include land application, construction materials (stabilized as earth fill for example), and composting as fertilizer, etc. Treatment methods include anaerobic digestion, stabilization, and heat drying. Reduced volumes of sludge disposed in landfills will help to extend the service life of the landfill site and thus generate space saving, constituting one of the main economic benefits. In the 4th edition of the FSR on sludge treatment, the data of existing WWTPs in Wuhan on water content, heavy metal content, heat value, total P, total N and total K of the sewage sludge are reported. Typical treatment and application options are discussed. International as well as domestic experience on sludge treatment and application are thoroughly discussed. In general, in the developed countries, landfill has decreased rapidly since the 1990s while more reclamation options have been adopted, particularly land application techniques. It is recognized that land application or application as fertilizer is not generally accepted in China and landfill disposal is still a predominant practice in China. Therefore, the main concern for earlier versions of the FSRs is that it is uncertain whether the stabilized and/or dried sludge on land disposal application can be accepted commercially by local downstream users. For example, there is no arrangement yet between WWTPs and the construction material companies, or fertilizer composting firms on the use of sludge. In consultation with the PPTA team, local users, and relevant government bodies, the DI has updated the FSRs and in the latest ones, only landfill (of treated sludge), biogas collection (in Hankou sludge treatment), and application for urban forestry are considered. This conservative

Easen International Co. Ltd. 6-2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 6 Economic Analysis manner for short term solutions is both practical and in line with the ADB project appraisal principles. There are difficulties in estimating the health effect of sludge treatment. This is discussed separately below. Table 6-1. Main Environmental Impact of Municipal Solid Waste Management

Water Air Soil Landscape Climate Landfilling Leachate CO2, CH4, odor, Heavy Visual Worst option (heavy metals, noise, VOCs metals, effect for synthetic synthetic greenhouse organic organic gases compounds) compounds emission Incineration Fall-out of SO2, NOx, N2O, Fly ash, Vermin Greenhouse atmospheric HCl, HF, CO, slag gases CO2,dioxins, furans, Pollutants PAHs, VOCs, odour, noise

Composting Leachate CO2, CH4, VOCs, Minor Visual Small dust, odour, impact effect emissions of Bioaerosols greenhouse gases Land Bacteria, Bioaerosols, dust, Bacteria, Some Small spreading viruses, odour viruses, visual emissions of heavy effect greenhouse heavy metals metals, gases. PAHs, PCBs Recycling Wastewater Dust, noise Landfilling Vermin, Minor of residues insects emissions

Sludge Spills CO2, SO2, NOx, Spills Significant transport dust, odour, noise, contribution spills of CO2

CO2 = carbon dioxide; CH4 = methane; VOCs = volatile organic compounds; SO2 = sulphur dioxide; NOx = nitrogen oxides; N2O = nitrous oxide; HCl = hydrochloric acid; HF = hydrofluoric acid, CO = carbon monoxide; and PAHs = polycyclic aromatic hydrocarbons.

During the inception field visits to Sanjintan WWTP, different members of the staff were asked about sludge quality, sludge treatment, sludge disposal, wastewater treatment and other general information about the plant. The capacity of this WWTP is 300,000 m3/day. The wastewater treatment contains mechanical treatment and biological (anoxic/aerobic) phosphorous removal. The major operational cost in the wastewater treatment for this WWTP is the energy cost for the aerobic tanks and the pump stations. The sludge was treated in three steps before it was sent to landfill. The sludge disposal cost is between CNY 40-80 per ton, which includes transportation and tipping fees.

There are fewindustries in this specific WWTP’s service area as the WWTP treats mainly domestic wastewater. Heavy metal concentration in the sludge is therefore not a major concern.

Results from the field study in Wuhan showed that at present, sludge is being disposed in landfills because it is simple, cheap and convenient. Wuhan has recognized the problems of disposing sludge on landfills, since many landfills will be closed in a 3-5 year time frame because of capacity constraints. Land application, composting, use as construction material etc. have also been suggested as options for future sludge disposal.

There are two oval-shaped anaerobic digesters for anaerobic digestion of sludge in Sanjintan WWTP. Presently, the system is being constructed and not yet operational. Methane rich

Easen International Co. Ltd. 6-3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 6 Economic Analysis biogas will be produced by the anaerobic sludge digesters and can be recovered as an energy source for heating the anaerobic bioreactor or drying the downstream sludge.

CH4 and CO2 are both greenhouse gases (GHG). Under the standard condition, the density of 3 CO2 is 1.97 kg/m . Methane can trap about 21 to 27 times the heat of CO2, according to various studies. If methane rich biogas is not recovered properly, it will contribute to a GHG effect 20 times worse than if methane is simply combusted.

Efforts to value a ton of carbon in terms of GHG effect reduction have resulted in an array of estimates ranging from as little as USD 3.931 to USD 250.002. Methods of arriving at these estimates include carbon tax equivalence studies3, as well as imputing a shadow price by estimating how much it would cost to sequester the same amount of carbon using human technology4.

6.1.3 Least Cost Analysis (LCA)

According to the FSR, there are four sub-components that have been proposed for the sludge treatment and disposal component in Wuhan City, namely Wuchangnan Sludge Treatment Plant (STP)’s Sludge Drying Subcomponent, Hankou STP’s Biogas Utilization for Sludge Drying Subcomponent, Nantaizihu STP’s Sludge Lime Stabilization Subcomponent, Subcomponent of the Existing Equipment Improvement for Sludge Dewatering, Storage and Transportation. Considering that only Wuchangnan STP and Hankou STP will install Sludge Drying Plant, by utilizing the excess steam produced by the nearby Gaoxin Heat and Power Plant and biogas respectively, the LCA will mainly focus on two of them based on the proposed technical options.

- Wuchangnan STP’s Sludge Drying Subcomponent

There are two options for the Wuchannan STP, the Fluidized Bed Drying Process and the Belt Drying Process. The first option is to install a Fluidized Bed Dryer for the sludge drying process after gravity thickening and mechanical dewatering. The second option is to install a Belt dryer for the sludge drying process, which can also make use of the excess steam produced at the nearby Gaoxin Heat and Power Plant at this sludge drying plant.

Table 6-2 . Cost Comparison for Wuchangnan STP’s Drying Process Options

Option 1 Option 2 Fluidized Bed Belt Dryer PROJECT Dryer (USD) (USD) Part I: Capital Costs Purchase of equipment and utensils 9,117,647 7,911,765 Installation engineering 735,294 411,765 Construction engineering 642,353 370,118

1 Sedjo, R.A., Wisniewski, J., Sample, A.V., Kinsman, J.D., (1995). The economics of managing carbon via forestry: assessment of existing studies. Environmental and Resource Economics, vol 6, 139–165. 2 Byron, N., Coleman, A., (1999). Kyoto forests: prospective providers of carbon-sequestration services, Sydney, Second Australasian Emissions Trading Industry Forum. 3 Solberg, B., (1998). Economic aspects of forestry and climate change. Commonwealth Forestry Review, vol7, 229–233. 4 Pearce, D.W., Brown, K., (1994), Saving the world’s tropical forests. In: Brown, K. (Ed.), The Causes of Tropical Deforestation. CSERGE, London.

Easen International Co. Ltd. 6-4 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 6 Economic Analysis Part II: O&M Costs Steam (26.47$/t) 2,133,824 2,319,118 Electricity Consumption (0.09$/kwh) 548,529 502,941 Labor Cost (8823.53$/PE) 132,353 70,588 Maintenance 110,294 58,824 Deodorization, Dust Removal 110,294 14,706 Annual Operation Cost for Sludge Treatment 3,035,294 2,966,176 Per ton Operation Cost for Sludge Treatment 42 41

The two options proposed above meet the basic requirement, that DS content should be improved by 70% to 90% after the sludge drying progress in the Sludge Drying Plant. The differences are due to the type of dryer, other related equipment and the investment.

The proposed treatment capacity of Wuchangnan Sludge Drying Plant is 200 tons DS/day. Main processes of sludge treatment of both Tangxunhu and Longwangzui WWTPs are gravity thickening and mechanical dewatering. The dewatered sludge is then transported to the landfill. At present, the dewatered sludge is transported to the Erfeishan landfill. Tangxunhu WWTP was put into operation in 2005 with the daily design capacity of 50,000 tons in Phase I. DE Oxidation Ditch Process is used for sewage treatment. For Longwangzui WWTP, the plant of Phase I was put into test operation in 2003 with physical primary treatment; Phase II was put into test operation in 2006 with secondary biological treatment and daily treatment capacity of 150,000 tons. The Modified A2/O activated sludge process is used for sewage treatment.

In option 1, the advantage of the Fluidized Bed Process is its high efficiency of energy utilization. Since energy cost is expected to increase rapidly in the future, the proportion of energy cost in the total cost of the sludge drying process will increase accordingly. There are more reference projects in China using the Fluidized Bed Process with certain operational experience. The disadvantages include its relatively complicated maintenance requirement and the water content in the output sludge is lightly higher.

In the second option, from the Operation and Maintenance (O&M) perspective, the Belt Drying Process is simple in O&M, and its sludge water content can be adjusted in a wider range. The disadvantage of the Belt Drying Process is its high energy consumption. Presently it is not commonly adopted in China.

Table 6-3. Wuchangnan STP’S Sludge Drying Subcomponent (USD)

Option 1 (Fluidized Bed Dryer) Option 2 (Belt Dryer) Year WS tons Capital O & M Capital O & M Total Total cost Cost cost Cost cost cost 2009 68,255 561,529 0 561,529 455,271 0 455,271 2010 68,255 2,172,588 0 2,172,588 1,779,906 0 1,779,906 2011 68,255 2,513,529 0 2,513,529 2,111,647 0 2,111,647 2012 68,255 1,537,529 0 1,537,529 1,283,459 0 1,283,459 2013 68,255 1,611,059 0 1,611,059 1,324,635 0 1,324,635 2014 68,255 2,099,059 0 2,099,059 1,738,729 0 1,738,729

Easen International Co. Ltd. 6-5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 6 Economic Analysis 2015 68,255 0 2,777,963 2,777,963 0 2,777,963 2,777,963 2020 91,250 0 3,690,074 3,690,074 0 3,690,074 3,690,074 2025 91,250 0 3,690,074 3,690,074 0 3,690,074 3,690,074 2030 91,250 0 3,690,074 3,690,074 0 3,690,074 3,690,074 2033 91,250 0 3,690,074 3,690,074 0 3,690,074 3,690,074 NPV (12%) 2,028,305 6,977,154 12,104,585 19,081,740 5,776,640 12,104,585 17,881,225 AIEC USD/Ton 3.44 5.97 9.41 2.85 5.97 8.82 Sources: Feasibility Study Report, technical analysis, and consultant’s calculation.

LCA shows that, NPV and AIEC of the belt drying process are USD 17,881,225 and USD 8.82 per ton, respectively, which are slightly lower than the corresponding AIEC and PVEC of the fluidized bed process, i.e., USD 19,081,740 and USD 9.41 per ton, respectively. Based on the above analysis, the belt drying process is recommended.

After the drying process, there are two sludge disposal options, soil amendment and sanitary landfill. As the feasibility of the soil amendment disposal measure should be strictly determined by the requirements for forest application (CJ248-2007), the dried sludge will be partly disposed of as soil amendment for landscaping in Jiangxia district in Wuhan and partly disposed of at a sanitary landfill. Therefore, the main considerations are:

- Choice of the dryer equipments and utensils for sludge drying process;

- Selection of the related construction layout to minimize the cost of using existing STP utilities.

The FSR recommended a belt drying Process, while the consultants identified a fluidized bed dryer as an alternative sludge dryer option.

Hankou Sludge Treatment Plant (STP)’s Biogas Utilization for Sludge Drying Subcomponent There are two options of bio-gas utilization for sludge drying of the Hankou STP, the belt drying process and the turbo thin layer drying process. The first option is to install a belt dryer for the sludge drying progress after gravity thickening and mechanical dewatering. The second option is to install a turbo thin layer dryer for the sludge drying progress, which can also take advantage of using Biogas collected from the anaerobic digestion tanks at the Sanjintan WWTP as the necessary heat energy for sludge drying.

Table 6-4. : Capital Cost Comparison Between Two Options for Hankou STP

Option 1 Option 2 Belt Dryer Turbo Thin Layer PROJECT (USD) Dryer (USD) PartⅠ: Capital Cost Purchase of equipment and utensils 4,382,353 5,882,353 Installation engineering 294,118 588,235 Construction engineering 370,118 192,706 Part Ⅱ O&M Cost

Easen International Co. Ltd. 6-6 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 6 Economic Analysis Natural Gas (0.34$/m³) 555,882 432,353 Electricity Consumption (0.09$/kwh) 223,529 270,588 Cost of Labor Cost (8823.53$/PE) 70,588 70,588 Maintenance 29,412 73,529 Deodorization, Dust Removal 14,706 14,706 Annual Operation Cost for Sludge Treatment 894,118 861,765 Operation Cost per ton of dewatered Sludge 24 24

The above costs have not included the sludge transportation costs, sludge treatment and the condensate treatment.

The above proposed options meet the basic requirement, that DS content should be improved by 40% to 70% after the sludge drying progress in the Sludge Drying Plant. The differences are the types of dryer, related equipment and investment.

Hankou STP is proposed to take advantage of the Biogas collected from the anaerobic digestion tanks at the Sanjintan WWTP. The heat energy demanded by the biogas utilization system will be provided by the burnt biogas. Hankou STP will be responsible for the sludge treatment, which discharged from the Sanjintan and Huangpulu (subject to upgrade) WWTPs. with a treatment capacity of 20 tons DS/day. Admittedly, during winter, the production of biogas may not be sufficient to meet the requirement of design treatment capacity and it is possible that a portion of the sludge could be treated by Lime Stabilization System. However, due to the capacity of the back-up option is slightly smaller compared to the general capacity of the full operation cycle. It is therefore proposed that the theoretical design capacity should be the benchmark for the LCA calculation without considering the effects of alternative treatment measure.

In option 1, from the O&M perspective, the Belt Drying Process is simple in operation and maintenance. The disadvantage of the Belt Drying Process is its high energy consumption.

In the second option, the advantage of the Turbo Thin layer Drying Process is its high efficiency of energy utilization. The disadvantages include its relatively high material requirements and complicated maintenance requirements, especially given the relatively high grit content of sludge in Wuhan City.

Table 6-5. Hankou Biogas Utilization for Sludge Drying Subcomponent (USD)

Option 1 (Belt Dryer) Option 2 (Turbo Thin layer Dryer) Year Ton WS Capital Total Capital Total O & M cost O & M cost Cost cost Cost cost 2009 29,200 267,035 0 267,035 362,576 0 362,576 2010 43,800 1,038,729 0 1,038,729 1,391,482 0 1,391,482 2011 43,800 1,217,529 0 1,217,529 1,577,588 0 1,577,588 2012 43,800 742,282 0 742,282 970,082 0 970,082 2013 43,800 771,694 0 771,694 1,028,906 0 1,028,906 2014 43,800 1,009,318 0 1,009,318 1,332,659 0 1,332,659 2015 43,800 0 1,058,824 1,058,824 0 1,020,000 1,020,000 2020 85,775 0 2,005,882 2,005,882 0 1,929,853 1,929,853

Easen International Co. Ltd. 6-7 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 6 Economic Analysis 2025 85,775 0 2,005,882 2,005,882 0 1,929,853 1,929,853 2030 85,775 0 2,005,882 2,005,882 0 1,929,853 1,929,853 2033 85,775 0 2,005,882 2,005,882 0 1,929,853 1,929,853 NPV 1,668,050 3,354,072 5,755,809 9,109,881 4,431,406 5,540,037 9,971,443 (12%) AIEC USD/Ton 2.01 3.45 5.46 2.66 3.32 5.98 Sources: Feasibility Study Report

LCA shows that, NPV and AIEC of Belt Drying Process are USD 9,109,881 and USD 5.46 per ton, which are slightly lower than the corresponding AIEC and PVEC of the Turbo Thin layer Drying Process, i.e., USD 9,971,443 and USD 5.98 per ton respectively. Thus, the Belt Drying Process is recommended.

After the drying process, there are two sludge disposal options, Soil amendment and Sanitary landfill. Due to the feasibility of soil amendment disposal measure being strictly determined by requirements for forest utilization (CJ248-2007), the dried sludge will be partly disposed of as soil amendment for landscaping and partly disposed of at a sanitary landfill.

Therefore, the main considerations are:

- Choice of dryer equipments and utensils for sludge drying process;

- Selection of related construction layout to minimize cost using existing STP utilities.

The FSR recommended a belt drying Process, whilst the consultants identified the Turbo Thin Layer dryer as an alternative sludge dryer option.

Nantaizihu STP’s Sludge Lime Stabilization Subcomponent

The Nantaizihu STP will mainly serve to treat sludge produced in two WWTP located in Hanyang District, Nantaizihu WWTP and Zhuankou WWTP. Because Hanyang district is the centralized industrial area of Wuhan, including heavy industry, such as steel smelting, machine and light industry, such as paper-making, textile and pharmacy manufacture, the stabilized sludge has high Zinc concentration and the sludge characteristics cannot meet the relevant requirements for horticultural and forest greening as soil amendment. Therefore the lime stabilization sludge treatment system should be adopted to reduce the water content of sludge before final disposal. It is not necessary to conduct LCA while the exclusive treatment measurement for lime stabilization will be taken. The most practical sludge disposal system is for the stabilized sludge to be landfilled at the Changshankou MSW Landfill, however the lime stabilized sludge can also be potentially used as soil conditioner to neutralize the acidic Tang Mountain and enhance sludge stabilization and disinfections. Landfill disposal is considered in the Economic Internal Rate of Return (EIRR) calculation.

6.1.4 Willingness-to-Pay

Economic analysis is concerned with the true value a project holds for the society as a whole. It subsumes all members of society, and measures the project’s positive and negative impacts in terms of willingness to pay (WTP) for units of increased consumption, and to accept

Easen International Co. Ltd. 6-8 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 6 Economic Analysis compensation for foregone units of consumption. In addition, economic analysis would also cover costs and benefits of goods and services that are not sold in the market and therefore have no market price. The non-market valuation methods are derived from two basic concepts namely the WTP for improved ecosystem and the willingness to accept compensation (WTA) for decreased services. Economic analysis deals with the estimation of these measures of value in monetary terms on the fairly realistic assumption that an individual has a set of preferences over goods and services that can be ordered in a logical and consistent manner. The preference ordering determines the manner in which an individual chooses between different consumption baskets. The concept of consumer surplus is used to capture the value of changes in environmental services. Indeed, economic growth and increasing urban disposable income in Wuhan over the last 20 years indicate that general living standards have risen significantly. Therefore it is reasonable to assume that residents expect improved public services and a cleaner environment. The social-economic survey accompanied with the proposed project indicates that some households are willing to pay additional fees for sludge treatment. However since in the survey the main respondents are vulnerable groups with low income, and the survey method was WTP instead of WTA, the percentage of households in support of raising service charge is low.

6.1.5 Economic Internal Rate of Return

Economic justification for the sludge treatment project is mainly derived from two different aspects. The first one is the economic benefit gained from the reduced demand for landfill space and the associated extension of the service life of the existing landfill sites as sludge drying means less landfill space is needed. The second benefit is being a substitute for fertilizer or as a soil amendment for urban landscaping or forests. Each unit of fertilizer substituted with sludge represents an economic benefit since costs are saved by not having to purchase fertilizer. The fertilizer cost saving is calculated for each sludge component. The cost saving benefit can be accurately calculated with a proper opportunity cost estimation.

In addition, for Hankou WWTP, another beneficial aspect is the production of biogas as a substitute for the traditional fuel (i.e. primary fuel/energy sources such as coal, gas, oil etc). Health benefit is not added in total economic benefits because in both without and with project scenarios, it is assumed that there is no quantifiable health hazard. In the “without project” case, sludge is disposed of in landfills while in the “with project” case, hazardous contents are controlled to meet disposal standard and the sludge does not enter the human food chain. The EIRR for the sludge management of Hankou STP is calculated and presented below. Hankou WWTP can produce 57.5 tons of sewage sludge per day. This annual production of sewage sludge can fertilize 7,000 mu of urban forest. The fertilizer demands (without project) per mu totals to 32 kg of N, 18.3 kg of P and 13.2 kg of K5. Prices for N, P and K are CNY 2,400/T, 400/T and 3,250/T respectively6.

With the availability of the above data, the fertilizer cost reduction can be calculated as follows:

Σi price of fertilizer i * per mu demand * total urban forest area =

2400*0.032*7000+400*0.0183*7000+3250*0.0132*7000 = CNY 0.89 million

5 Dehua Zheng, Research of the effects of fertilizer, 1998, Journal of Fujian Forestry Sci & Tech, vol6,11-18 and Xinzhang Gao, Analysis of the component of various fertilizer, 1987, China State Farms, vol. 10,230-235 6 (2009),Weekly Stat of Fertilizer Price, http://www.fert.cn/news/2009/7/4/20097416285571564.shtml

Easen International Co. Ltd. 6-9 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 6 Economic Analysis For the purpose of reducing the volume of the sewage sludge, the Project proposes the techniques of lime stabilization, heat drying and drying using biogas from anaerobic digestion as treatment methods for the sludge. The reduction of land occupied can be measured as the benefits.

The annual production volume of sewage sludge is 20,805 tons which would occupy 4,240 m2 of land if landfilled with depth of 4m. Although land saving benefit is small in the earlier years of operation, once the available land becomes scarce over the time, a conservative approach using the past 10 years’ land price growth trend indicates that the land saving benefit is significant. As mentioned above, 57.5 tons of sewage sludge can be produced per day which is equivalent to 21,000 tons of annual production rate. Most of the landfill sites are located in the suburb areas that are far away from the city core, the opportunity cost of land is lower than that of in the city. The rapid ongoing urbanization process that will convert many suburb areas into associate urban centers for residential and/or commercial purposes, creating a plausible environmental contamination due to landfill on surrounding areas should be also considered in estimating the economic value of land used for landfills today. Based on the aforementioned assessment of Wuchang South WWTP, the economic value of land in suburb area of Wuhan is CNY 0.5 million per mu at present. The direct land cost savings then can be calculated as: 4240/10000*15*0.5= CNY3.18 million/mu

According to the literature on the impact of environmental contamination of land7, Land Cost Reduction (LCR) can be calculated as follows:

LCR= the drainage area* the price of land + the effects on the value of the land nearby

Based on a recent literature survey8, the calculation of the effects on the value of land nearby contains the following elements: • The contamination affected land by a typical landfill is 5.398 km2 for agriculture and 1.0 km2 for residential and commercial land development; • The influence of the existence of a landfill on the value of nearby land can be categorized into the followings: a 14.7% reduction of agricultural production, a 17.5% reduction of commercial space, and a 20.3% reduction of residential real estate.

In quantifying the avoided losses, the commercial space renting revenue loss reduction, avoided agricultural losses, and residential real estate value reduction are considered. The main crop cultivated in Wuhan is rice with a yield of 656.9 kg/mu (according to the Statistical Bureau of Wuhan) and the price of rice is CNY3.16 / kg. Assuming that incremental sewage sludge (difference between dewatered sludge and treated dry sludge) contributes to 20% of the total landfill disposal. To maintain the conservative manner of the calculation, low end values of the figures are used. For instance, in calculating commercial spaces, only 1 million m2 constructed space is counted per km2, and annual rent per m2 of commercial space is assumed at CNY 27.5.

Hence, total economic cost of land (as gain from reduced sewage sludge disposal) can be computed as:

Percentage of sludge in MSW * contamination area * (yield of grain * price of grain + office space price reduction) + direct land cost savings =20%*5.398*(1,500*656.9*3.16*14.7% + 106m2*27.5*20.3%) + 3.18 million =9.97 million per annum

7 Bruce R Weber (1997), The Valuation of Contaminated Land, Journal of Real Estate Research, 379— 395 8 Thomas O. Jackson (2002), The Effects of Environmental Contamination on Real Estate, Journal of Real Estate Literature, 9(2): 93—116

Easen International Co. Ltd. 6-10 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 6 Economic Analysis and opportunity cost of land = 20%*5.398*1,500*1,500,000*17.5% = CNY 425.4 million where we assume that the land value reaches market value of a typical suburb residential area 10 years later. The operating cost per ton of sludge in a landfill is CNY 60 for a landfill9. The landfill operating cost reduction can be computed as follows:

Operating cost per day*quantity of sewage sludge*365 = 60*57.5*365=1.26 million According to the technical analysis, 2,646,000 m3 of biogas can be produced per year referring to FSR. The generated biogas can replace 776 T coal10 whose price is CNY 980/T11. The energy saving benefits, measured by the substitution of coal is calculated as follows: Price of coal * coal equivalent = 980*776=0.76 million.

Methane can trap about 21 to 27 times the heat of CO2, according to various studies. If methane rich biogas is not recovered properly, it will contribute to a GHG effect 20 times worse than if methane is simply combusted. Recent carbon trading price settled at CNY40 per ton and this figure is towards the lower limit of carbon price. Therefore, to be conservative, this price is used in the present analysis. The equivalent benefits of methane emission reduction measured in CO2 reduction can be then calculated as:

Vol. of biogas * GHG effect conversion factor * price of CO2 =2.646*106*21*1.96/1000*68.2=7.56 million

Hence, the annual total benefit from biogas collection and combustion is 7.56+0.76=8.32 million.

The individual sludge treatment and disposal components and overall aggregate figures of EIRRs and sensitivity are calculated and summarized as below. The NPV for the sludge treatment and disposal project is 91.5 million and the base case EIRR for the sludge treatment and disposal investment is 18.21%, which exceeds the EOCC. Sensitivity analysis shows that the EIRR will fall to (i) 15.65% if benefit falls by 20%; (ii) 16.48% if investment costs increase by 20%; (iii) 17.30% if investment delays one year; (v) 13.32% if (i), (ii), and (iii) all occur together.

Table 6-6. Sensitivity for Overall Sludge Treatment and Disposal Component

Change in Variables Change in Values NPV (mill. Y) EIRR (%)

Base Case 0 91.5 18.21% (i) Capital Cost Overrun 20% 67.4 16.48% (ii) Benefit Reduction -20% 58.9 15.65% (iii) Implementation Delay one year 72.4 17.30% (iv) Combination of i,ii and iii 23.6 13.32%

9 Ke Chou (2003), An Analysis on the Operating Cost of Huaihua MSW Landfill, China Environmental Science, vol. 13,17-20 10 Zheng Xu, (1999),Economic Analysis of Biogas Project in Yang County, Journal of Chinese Environmental Science, 67-72 11 Richard Johnson, (2001), Market Share Analysis of International Coal Trade of 2000,China Coal Journal, vol. 5, 44-48

Easen International Co. Ltd. 6-11 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 6 Economic Analysis

Table 6-7. EIRR for Sludge Treatment and Disposal Components

2010 2011 2012 2013 2014 2015 2023 2035

I. Benefits (CNY 10k) fertilizer cost reduction 0.70 1.59 1.78 1.78 1.78 1.78 1.78 land cost reduction 3.74 19.65 22.07 23.17 24.33 51.82 57.13 landfill operating cost reduction 1.10 2.48 2.75 2.75 2.75 2.75 2.75 Biogas reuse benefit 8.32 8.40 8.45 8.49 8.53 15.96 16.96 Total Benefits 14 32 35 36 37 72 79 II. Costs (CNY Million) Investment Costs 10.78 138.2 30.65 Operating Costs 14.5 29.00 29.00 29.00 29.00 29.00 29.00 Total Costs 10.78 152.7 59.65 29.00 29.00 29.00 29.00 29.00 III. Economic Internal Rate of Return Net Benefits (CNY million) -10.78 -138.8 3.70 3.56 5.14 6.82 43.31 49.62 EIRR (%) 18.21 %

Easen International Co. Ltd. 6-12 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis

6.2 Lake and Channel Rehabilitation Components

6.2.1 Introduction and Review of FSR

The lakes in Wuhan’s Hanyang District, namely Moshuihu, Longyanghu, and Nantaizihu are polluted from receiving municipal wastes, both from point and non-point sources. The pollution levels are further increased due to blockages and poor water circulation among inland rivers and lakes. The lakes of Moshuihu, Longyanghu, and Nantaizihu surround the Sixin part of Wuhan New Area which comprises the modern industrial base and a new residential township. There is a need to improve the surface water quality and one of the approaches to achieve this objective is to enhance proper connection among these lakes and inland rivers to improve the water quality through flushing (water circulation) and to ensure ecological restoration in the Wuhan New Area. As a result of many years of silting and the construction of the Wuhan railway station, the area of the water body of the Yangchun Lake in Wuhan’s Wuchang District has declined significantly from 60 to 10 hectares. Consequently, the flood storage capacity of the Yangchun Lake has been significantly reduced while water pollution levels in the lake have increased. This also constrains the sustainable development of Yangchun Lake’s associate urban center. The lake connection project is therefore an important part of the new district development plan. It will serve as a key component in the ecosystem restoration for a city rich in water resources and related cultural heritage. The economic benefits from ecological rehabilitation projects are usually difficult to measure especially in lake connection projects. The quantifiable value of health and ecosystem restoration (using commercial value of wild fish as a measurement) of this project may not justify the Project. Thus, like previous ADB projects of a similar nature, land value appreciation and recreation demands may constitute major portions of the economic benefits. Consumer Valuation Methods (CVMs) that solicit a residents’ willingness-to-pay (WTP) may not be a good proxy for three reasons: (1) most residents are unaware of the city’s master plan hence connection itself alone may not bring much positive externality to them; (2) city’s master plan reveals that the new district will attract significant number of immigrants, doubling the current population, hence surveys based on current residents may cause downward bias; (3) respondents may make strategic responses and hence data collected may be biased. Nevertheless, the PPTA team economists prepared a questionnaire to elicit WTP through CVM. In preparing this draft final report analysis, the PPTA economists conducted the following calculations to quantify the economic benefits: 1. Land value appreciation as a consequence and main proxy of the economic benefits of lake aquatic ecosystem restoration; 2. Health benefits for residents near project areas; 3. Recreation value of the proposed wetland parks of the project; 4. EIRR calculation, sensitivity and distribution analyses.

The City of Wuhan has suffered from serious water quality deterioration of its lake system, along with population growth and rapid urbanization. Existing research has illustrated the aspects of urbanization impacts on water quality in urban watersheds. Urban NPS (non-point source) pollution caused by land-use change is an important factor of degradation of surface water quality and has been the greatest obstacle to the successful clean-up of contaminated water. The proportion of pollution built up in urban area is positively associated with the volume of average annual runoff and water quality indicators such as total suspended solids (TSS) and heavy metals.

Easen International Co. Ltd. 6-13 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis

There was an increase in the annual average runoff volume with most increases taking place recently, with increases also seen for NPS pollutant loads. However, NPS pollutant loads did not change uniformly. N and P loads increased significantly. Heavy metal loads increased to a similar extent in the same period. Increased urbanization was correlated with the increased runoff, NPS pollution and heavy metals.

Urban landmass contributed more to estimated runoff volume and heavy metals than non- urban landmass, with the exception of chromium. Nutrient pollution increased rapidly in Hanyang while non-urban land uses shrank. This is contrary to the findings of other studies where non-urban land uses, especially agriculture, were found to be major sources of nutrient pollution. The discharge of wastewater resulted in the pollution of water, fish, and other aquatic food organisms, destruction of spawning ground, depletion of breeding stock, decreasing fish production and increased fish mortality.

6.2.2 Health benefit from pollution reduction

Following China’s economic reforms of the late 1970’s, rapid industrialization has led to a deterioration of water quality in the country’s lakes and rivers. China’s cancer rate has also increased in recent years, and digestive cancers (i.e. stomach, liver) now account for 8.1% of the fatalities (WHO 2001).

Table 6-8. Age-adjusted Death Rates (per 100,000) by Cause in China, 1991-2000 Male Female Rural Urban Rural Urban (1) (2) (3) (4) Panel1:Death Rates by General Cause All causes 726 599 601 460 Cancer 133 150 78 84 Digestive cancers 82 69 42 33 Lung cancers 23 43 10 18 Other cancers 29 38 26 33 Heart 133 100 134 91 Stroke 125 125 107 100 Respiration illnesses 126 72 122 58 Accidents/violence 91 49 59 31 Other 118 102 101 96 Panel 2:Death Rates for Types of Digestive cancer Esophageal cancer 18 9 10 4 Stomach cancer 27 19 15 9 Liver cancer 29 27 12 10 Other digestive cancers 8 13 6 10 Source: Chinese Disease Surveillance Points Mortality Registration System (DSP). Note: Age adjustment is performed by calculating age-specific death rates and creating weighted averages using the population structure in China's 2000 census. Other digestive cancers include colon cancer, intestinal cancer, and pancreatic cancer. The reported death rates are the average rates for the 145 sites, weighted by the total population at each site.

Several media outlets have reported incidents of contaminated river water from industrial activity leading to outbreaks of cancer in rural villages of China, but systematic analysis of these trends is still lacking. A recent analysis of mortality patterns in China was based on China’s Disease Surveillance Point (DSP) system. The DSP is a set of 145 selected sites of

Easen International Co. Ltd. 6-14 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis different wealth and urbanization level chosen to form a nationally representative sample of China’s population.

One economic benefit of lake connection and rehabilitation project is the improvement in human health. The improvement in human health resulting from better environmental quality is a key component of benefits that provides the justification for water pollution control. The health benefits may include, for example, reductions in the incidence of getting cancer, respiratory ailments, or pesticide poisoning.

For a precise quantification, it is important to assess risk, which includes hazard identification, dose-response assessment, exposure assessment, and risk characterization. Hazard identification is the process of determining whether exposure to an agent can cause an increase in the chance of getting cancer. Dose-response assessment defines the relationship between the dose of an agent and the incidence of a carcinogenic effect. The exposure assessment is the method of estimating the intensity, frequency, and duration of human exposure to an agent. The risk characterization combines the results of the dose-response assessment with the exposure assessment in order to arrive at an estimate for the carcinogenic risk. This risk characterization also includes a description of the uncertainties involved within each component.

To estimate the environmental costs from water pollution is to transform the physical loss into monetary loss. There are several related methods in quantifying the medical and indirect costs. On top of these costs, a significant health benefit is the reduction of cancer mortality, calculated by statistical value of life (SVL) method.

Human Capital Method: Direct medical costs = population suffered from diseases or death × increased percent caused by pollution × medical costs.

Indirect costs include:

ƒ Work day loss for staying in hospital = population suffering from diseases or death (e.g. 50% of patients expected to get well) × days in hospital × production (productivity × domestic income coefficient 0.5); ƒ Costs of relatives accompanying ill people are estimated as 50% of the costs of above patients or people who died; ƒ Early death costs = working day losses due to early death × net GDP output value per capita.

Modified Human Capital Method:

S = [P∑Ti (Li-Loi) + ∑Yi (Li-Loi) + P∑ (Li-Loi)Hi] M Where, S = Health losses due to environmental pollution; P = Human capital (net GDP output per capita); M = Population in polluted area; Ti = Average working day time losses of people suffering from disease i; Hi = Working day time losses of accompanying people due to disease i; Yi = Average medical costs due to disease i; Li = Incidence of disease i polluted areas; Loi = Incidence of disease in clean areas;

Easen International Co. Ltd. 6-15 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis 6.2.3 Land and House Value Appreciation

Commodity housing (i.e., new properties supplied through the market mode) has emerged as the leading residential type since the late 1980s and households are encouraged to satisfy their housing demands from this commodity housing market. Because residential dwellings and commercial spaces traded through housing markets in China represent a significant proportion of overall house transactions, the market values of houses are a good proxy of the real values.

Among the most important factors in determining the housing prices, such as location, neighborhood quality, accessibility, and environmental quality, the last one has been gaining a highly importance. The price paid for a property directly reflects the benefits the purchaser perceives in the property. Environmental characteristics such as clean air, proximity to a clean natural water body, and peaceful living environment are traded by the underlying assets (houses) in the property market.

Access to water views is a very important factor in house price determination. When the land slot is near a water body, the real estate developers are attracted to develop residential houses. Residents prefer to live near water hence an ideal measure for land value should take account of this attribute.

In eliciting the market value of non-tradable goods and services such as environmental quality, it has been widely recognized that the analysis of house prices using hedonic modeling makes it possible to estimate the incremental monetary contribution of property attributes including neighborhood externalities. After Rosen (1974) extended hedonic modeling to the housing market, this method has been widely used as an important tool for property assessment and urban analysis. The most common approach to the hedonic price method is to model house price directly as a function of various property specifics (e.g. floor area, building age, number of stories) and location descriptors (e.g. neighborhood characteristics or accessibility) and to assume that the coefficients of the hedonic equation (also called the implicit price or the hedonic price) reflect buyers’ willingness to pay for those attributes.

In a recent study on Wuhan’s residential land value modeling, Ai (2005) shows that water view is an important determinant for housing price in Hankou. Indeed, a survey on land and housing value in Wuhan by experts indicate that 42.5% of the experts rate natural environmental an important factor in purchasing decisions, and 37.0% consider nearby amenities very important.

In Ai’s research, some sample observations are near water, while others are not (water views from the property are not available). A binary dummy variable is used in the regression. The study shows that buyers strongly favor water view slots. In zone 3 of Hankou area, 8 slots were taken for the study and slot No. 81 shows a price premium of CNY 500/m2 simply due to the water view. Similar differences are found in other slots. In the regression with control for other variables, the estimated coefficient for water dummy variable is 0.057 (with t-value of 1.459) in a log-on-log regression. This value is more than half of the coefficient value on the distance to central business district (CBD) or sub-centers. Literally, this implies that 5.7% of the incremental house value can be attributed to the availability of water view. In models with different combination of explanatory variables, it was found that water view could have an even higher influence on housing prices. For example, in models 6 and 9 of the research, the coefficient is 0.063 and 0.082 respectively.

The real economic benefits from river and lake rehabilitation projects can be even higher than values estimated from Ai’s study, since most of the water views considered were

Easen International Co. Ltd. 6-16 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis human made small water ponds or lakes inside the community. A study (Tai et al (2004) reports that Zhangjiabang river rehabilitation in Shanghai resulted in a 15% or higher price differential between residential buildings within 500m of the riverbanks of Zhangjiabang river and those between 500m to 1km to the riverbanks. This is much higher than the price differentials between buildings with views of the artificial water bodies and those without, which normally range from 5% to 10% of average price. This suggests that the resident’s value of natural water bodies is worth much more than the artificial ones. This pattern, as well as the figures of the differentials, is consistent with our consultation with various parties in Wuhan during the PPTA inception and interim periods.

The current analysis relies on these empirically identified relationship to quantify the housing/land value increases from river and lake rehabilitation projects as major economic benefits.

6.2.4 Recreation Value The proposed Project includes construction of two artificial wetland parks. There are many functions of the wetland parks including ecological protection, recreation value and pedagogical purposes. In the economic analysis, only the recreation value of the wetland parks is estimated in computing the quantifiable economic benefits. The PPTA team has reviewed the relevant information provided in the FSRs and the recreation demand literature in determining the methodology.

There are three main approaches in recreation demand modeling. The first approach is travel cost models in which consumption of an outdoor recreation site’s services requires the users to incur the costs of a trip to that site. The second is to use aggregate zonal data to measure recreation demand when visit rates reflect both the participation and the use decisions. The third approach, random utility maximization (RUM), introduced by McFadden (1974) and first applied by Hanemann (1978), has become the dominant approach in describing consumer preferences for recreation.

The first approach, or travel cost models, is not appropriate in the current analysis since the parks are located inside the core areas of the city. It is also not possible to use the RUM method due to data constraints. Instead, admission fee revenues for the wetland parks in a hypothetical situation are estimated to represent the benefits. It should be noted that this is a very conservative measure of the benefits not only because recreation value is only part of the total benefits but also entrance fees are just part of consumers’ out of pocket total expenditure.

6.2.5 Economic Internal Rate of Return The EIRR is calculated based on the approach discussed above. The quantifiable benefits to be calculated are as follows: the market value of increased fish due to lake water improvement, increment in real estate, and estimated ticket sales of wetland parks (in hypothesized market if park admission is free).

Fish proliferation in the lakes can be used as a proxy of the ecological benefit of a rehabilitation project. Although fish that grow in the lakes are not caught and sold in the market, such non-commercial market value of fish constitutes a conservative measure of such benefits. The calculation of Zhujia Xingang channel and Yangchun lake are presented below for illustration.

The length of the Zhujia Xingang channel is 3580m. A cleaner natural surface water body through better circulation, benefits the local economy in various ways. Per capita measure is

Easen International Co. Ltd. 6-17 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis used in the quantification of the health benefits. The total number of receptors is estimated to obtain the aggregate figure. The economic analysis assumes that the impacted population is 100 persons per km. This is determined by field visits to the project sites as well as consideration review of existing literature12. The study therefore indicates there are 358 nearby residents affected. Health benefits include, but are not limited to, the reduction in the incidence of cancer and the reduction in morbidity from the intestine and stomach diseases.

Two categories of waterborne diseases are considered in the quantification of the health benefits, the digestive cancers and waterborne non-carcinogenic gastrointestinal diseases. The morbidity reductions of the two diseases are 0.55‰ and 0.077-0.037‰ respectively. According to the literature13, the average direct medical costs of cancer, the intestine and the stomach diseases are CNY 58,078, and CNY 93, respectively. Therefore the total direct medical costs can be calculated straightforwardly as:

(the cost of cancer per capita + the cost of intestine and stomach diseases per capita)*the impacted population =(58078* 0.55‰+93*2.21*(0.077-0.037))*358=14,400 The indirect health costs consist of two parts, the working-day loss and the accompanying person cost. A representative patient’s work-day losses for digestive cancer and waterborne non-carcinogenic gastrointestinal diseases are 12 years and 15 days, respectively. An accompanying person’s work-day losses for the two categories of diseases are 36 days and 10 days respectively. According to recent statistics14, the GDP per capita in urban Wuhan is CNY44,148. The indirect costs can be then calculated as,

Working day losses

=aggregate working day losses*the population impacted*GDP per capita

= (12*0.55‰+15*(0.077-0.037)/365)*358*44148=CNY130403

Accompanying costs

= accompanying persons’ working day losses*the population impacted*GDP per capita

= (36*0.55‰+10*(0.077-0.037))*358*44148/365=CNY18193

In estimating human life hazard reduction the Statistical Value of Life approach is used. According to World Bank (1997)15, the statistical life value in China was $60,000, using the exchange rate of USD against CNY of year 1997, and the accumulated increase of CPI from

12 Shipin Chen and Anle Guo (2001), A study on the satisfaction level and its causes of urban residents, PSYCHOLOGICAL SCIENCE, VOL 6, 664-666 13 Economic assessment of environment impact: the case of Wangxinzhuang sewage treatment plant of Zhengzhou city 14 Urban operation of Wuhan 2008: http://www.stats.gov.cn/tjfx/dfxx/t20090313_402544846.htm 15 World Bank (1997), China’s Environment in the New Century: Clear Water, Blue Skies. Washington, DC: The World Bank. 22 The official exchange rate, 8.324, is used here for the calculation. The historical CPI is taken from China Statistical Yearbook (various years), and the accumulated CPI from 1997 to 2008 is 2.1 after conversion.

Easen International Co. Ltd. 6-18 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis 1997 to 2008 according to China Statistical Yearbook (various years)16, the statistical value of life in China in 2008 can be calculated as

SVL per capita in USD*the exchange rate*the CPI ratio= USD 60000*8.324*2.1=CNY 1,049,000.

Access to clean surface water reduces carcinogenic exposure and consequent cancer mortality for nearby residents. In many surface water environment improvement projects, reduced cancer mortality constitutes a major economic benefit. The literature reports empirically identified exposure-response relationship in China. Hence the carcinogenic hazard reduction can be calculated as:

mortality reduction of cancer*Chinese SVL *impacted population

= 0.55‰*358*1049000=CNY206721

Next, the incremental value of real estate is estimated. Along the channel, with a length of 3580m, five communities are constructed. Conservatively assuming that only two commercial buildings for each of the community. Each building has 10 stories with 9 apartments per story. The average space in each apartment is 110m2.

Hence, it can be calculated that the aggregate impacted scope is the number of apartment in each community*the number of storey in each apartment*the number of house in each story *the space of the house =5*2*9*10*110=99000m2

The incremental value of residential housing because channel rehabilitation can be calculated based on 15% land appreciation. According to the official statistics17, the average housing price in Hanyang is 5,000/m2. With these statistics, the increment of real estate can be calculated as follows:

The impacted area*the appreciation of housing price*the average housing price in Hanyang = 15%*5,000*99,000=CNY 74.3million. The main fish species in Yangchun Lake is Xenocypris Davidi Bleeker. The impacted area of the project is 127 mu, and the lake covers 56.61 mu. According to the literature18, to achieve a high survival rate, fish density should be controlled at 75 kg/mu. The aggregate weight of fish in the lake is then 56.61 ha*75 kg/mu. Under normal conditions when the growth cycle is complete, each fish will gain 13.5 times its original weight on average. With a survival rate of 0.756, the final production will be 75*57.61*13.5*0.756 kg. Market price of fish is CNY10/kg (Statistical Yearbook of Hubei Province). Therefore, the total market value of the fish can be calculated as follows:

Total weight of fish*market price = 0.756*13.5*75*57.61*10/1000000=0.44 million.

To guarantee a high quality of the scenic spot, the quantity of visitor needs to be controlled under a certain level. According to the Analysis of Environmental Capacity of Donghu Lake

17 See http://www.hanyang.gov.cn/publish/hygzxxw/2009-04/13/1200904131653070830.html

18 Cai Guangwei and Hu Dasheng(1992), Economic Profit Analysis of Fishery in rivers , Guangxi Agriculture Science Journal,vol. 8,22-25

Easen International Co. Ltd. 6-19 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis Park19, the environmental capacity (the largest proper quantity of visitors) of a scenic spot can be calculated by using the equation, Dai=Si T/ Ski/ t. Dai : the environmental capacity of scenic spot i Si : the area of scenic spot i( m2) T : the opening hours of scenic spot i per day Ski: the suitable area for visiting of scenic spot i (m2) t: the average visiting hours per person

For Donghu Lake Park, the opening hours per day are 15 hours, the suitable area for visiting is 500 m2 and the average visiting hours per person are 4 hours. These statistics are taken as a reference, because it has similar dimensions as the park built alongside Yangchun Lake. Therefore, the environmental capacity of the park built alongside Yangchun Lake can be 126.73*10000*15 calculated as: = 9507. 500* 4

The assumed ticket price of the park alongside Yangchun Lake is set according to the assessment of ticket price adjusting of Tianhe Park20, the price ticket of Tianhe Park is CNY 5, the area of Tianhe Park is approximately one third of that of Yangchun Lake Park, Hence, CNY15 is taken as a reasonable price. The annual ticket sales can be calculated as:

number of visitors*ticket price*356= 34.7million

The NPV for the lake and channel rehabilitation component is 553.09 million and the base case EIRR is 21.54%. Sensitivity analysis shows that the EIRR will fall to (i) 16.90% if benefit falls by 20%; (ii) 17.82% if investment costs increase by 20%; (iii) 17.94% if investment delays one year; (v) 11.80% if (i), (ii), and (iii) all occur together.

Table 6-9. Sensitivity for Lake and Channel Rehabilitation Component Change in Variables Change in Values NPV (mill. Y) EIRR (%) Base Case 0 553.1 21.54% (i) Capital Cost Overrun 20% 394.8 17.82% (ii) Benefit Reduction -20% 275.0 16.90% (iii) Implementation Delay one year 389.3 17.94% (iv) Combination of i,ii and iii -14.4 11.80%

19 Liu Huiping and Tang Xiaochun, 5,2001, Resources and Environment in the Yangtze Basin 20 Li Li and Peng Zhilong, Market and Price Journal,vol,5,66-67

Easen International Co. Ltd. 6-20 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 6 Economic Analysis

Table 6-10. Lake and Channel Rehabilitation Components

2010 2011 2012 2013 2014 2015 2023 2035

II. Benefits (CNY 10k) Medical cost reduction 0.05 0.16 0.16 1.78 Indirect cost reduction 0.63 1.91 1.91 190.3 Statistical life value savings 0.74 2.22 2.22 2.75 Real estate appreciation 402.8 527.1 235.0 311.0 Total Benefits 404 531 239 315 II. Costs (CNY Million) Investment Costs 145.7 143.1 174.9 558.2 120.4 Operating Costs 2.5 2.5 7.1 9.0 9.0 9.0 III. Economic Internal Rate of Return Net Benefits (CNY million) (145.67) (143.1) (177.33) (560.59) 276.79 522.4 230.3 306.3 EIRR (%) 21.54 %

Easen International Co. Ltd. 6-21 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis

6.3 Sixin Pumping Station Component

6.3.1 Introduction Wuhan City, with its important geographical position, is the political, economic and cultural center in Hubei Province and central China, a big metropolis and a hub of communications in central China. Hankou and Hanyang, situated at the confluence of two rivers, are low in terrain, with most parts lower than the mean annual flood level of 25.5m, and protected by levees completely. However, the existing levee can only withstand the flood of 20—30 years frequency, for the severe flood (29.73m) as in 1954, flood diversion measures were taken, with the flood diversion and storage of 68,108m3, which means much more flood diversion and storage areas were established near Wuhan City. The mean annual precipitation of Wuhan City is 1,205mm, and is concentrated in the period April to September. The peak rainfall occurs in July and August.

Wuhan has constantly faced the threat of serious flooding. In 1931, 32,600 died of floods, hunger and pestilence in Hubei Province. In the flood of 1935, land of 427,000mu was inundated, 3.7 million people were hit by flood, and 80,000 people died, including 60,000 people in Province.

Since 1949, China has experienced several catastrophic floods, Wuhan incurred tremendous cost, for example, in the flood of 1954, the affected population reached to 85,000, the direct cost for dealing with emergency and relieving and compensation due to flood diversion totaled CNY 200 million. In the flood of 1998, in Wuhan, 70 flood barriers around the city were broken, which resulted in an affected population of 1.78 million, approximately 10,000 collapsed houses, a besieged population of 166,000, an area of inundated farmland of 148,700hm2, 2100 affected enterprises, and an estimated economic loss of CNY 4.13 billion.

The Project is helpful to the dispatching, peak reduction and flood retention of the flood in the upstream of Yangtze River. However, Sixin area’s lowest level is only 17m, much below the average flood peak level of 26.03m, and the current drainage capacity is only 11m3/s compared to required capacity of 103.63m3/s. Therefore the rainfall in peak season can easily accumulate storm water runoff in Sixin area threatening the life and properties in the area. Hence the construction of Sixin pumping station is urgent.

The FSR compared technical options in several dimensions. In terms of phased plans for drainage capacity, the option of constructing 105m3/s at one time is preferred based on total land acquisition cost and management cost saving considerations. Comparisons between horizontal mixed-flow pump and vertical mixed-flow pump, number of pumps (9, 12 and 15), and bearing materials (ceramic versus rubber) are also provided in the FSR. However the current version of FSR does not provide financial data to justify the selected options.

6.3.2 Economic Benefits In order to meet the flood protection requirement, Sixin pump station will be included in the WUEIP. The alternative plan for Sixin Pumping station can be implemented in three phases: a initial 35 m3/s in phase I, extension to 70 m3/s in phase II and a final addition to reach a total capacity of 105 m3/s in phase III. The site is located to the north of Goubei Village and the Baishazhou Bridge, east of Yingwu Overpass and west of the Yangtze River Bank. The Sixin Pump Station is located at the end of Huoyan Channel in which storm water will be transferred into the Yangtze River, and has a planned project area of 25,600 m2.

Easen International Co. Ltd. 6-22 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis The Sixin Area is surrounded by “4 lakes and 2 rivers”, the four lakes being the Moshui Lake, the Longyang Lake, the Sanjiao Lake and the Nantaizi Lake, and the two rivers being the Yangtze River and the Han River. Most of the area is low elevation swale. The Sixin rain catchment area totals to 37.9 km2, which includes the 18.0 km2 of Moshui Lake rain catchment area and 19.9 km2 of direct storm water drainage area.

The existing drainage capacity of the old pump station in the Sixin Area is only 11 m3/s, which plays only a limited role in diverting storm water. The normal level of each channel is 18.65 m with design condition of p=1 year. When the water level of channel and Yangtze River are above 18.65 m and 18.00 m separately, the storm water should be pumped into Yangtze River with a flow rate of up to 105 m3/s.

The estimated potential flood-protection benefits are limited to property damage only and are based upon an analysis of four economic reaches. Due to the time and data constraints (e.g., the dated land-use maps of Hanyang District, and the limited hydrologic and precipitation data), the analysis is based on the information available at the time of the Technical Assistance.

Considering the economic structure in Hanyang District and the long-term Urban Development Plan in Wuhan municipality, the economic analysis for flood control benefits of the Sixin pumping station are based on several economic factors, including residential, commercial, industrial and agriculture aspects. Out of these four factors, the residential and commercial benefits are quantitatively calculated, since Hanyang District will serve as an expanded urban core for residential and commercial purposes.

The economic benefits of the Sixin PS sub-component are the avoided losses that would have been caused by flood under the “no project” scenario. There are different types of losses involving human and animal life, vegetation and a large variety of economic losses of tangible and intangible nature. Together, all these losses make up the total potential loss or “Probable Maximum Loss” (PML) which can be broken down and defined as below:

– Direct costs; refers to physical damage to capital assets and inventories, valued at same-standard replacement costs. Direct damages due to loss of means, recovery damage to recourses in possession or rented and recovery damage to production means

– Indirect costs; refers to follow-on effects such as output losses and expected earnings. Other indirect losses are business interruption, environmental damage, cleaning and evacuation costs.

– Relief costs; refers to the provision of life supporting services (e.g. food aid, healthcare, safe water and sanitation) to the population whose access to these services has been lost as a result of the disaster and assistance to this population to enable them to resume sustainable livelihoods.

Another distinction between financial losses and indirect economic loss is that financial losses affect persons or enterprises, while indirect economic loss affects the economy itself. Indirect flood losses are less likely to be greater than direct costs. However, in some extreme events, indirect losses may exceed direct damage, depending on the duration of the flood. In the commercial and industrial sectors in particular, it is liable to exceed direct

Easen International Co. Ltd. 6-23 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis damage. Indirect economic damage comprises disruption to business and infrastructure, expenditure for temporary arrangements and market losses suffered.

Flood damages are also categorized into tangible and intangible ones. Tangible damages are usually taken to be those which can be measured in monetary terms, such as the damage to a factory, although such estimation is hardly precise and relies heavily on damage measurement procedures. On the contrary, intangible losses are those which either defy monetary measurement and/or those for which monetary estimates are considered to be undesirable or unacceptable (loss of life, physical injury, loss of heritage or archeological site). Human life losses calculated by the statistical value of life method with values derived from preventative expenditures or hedonic equations can represent such losses.

Different severity of urban flood cause different levels of damages, and sometimes the relationship is highly nonlinear. In order to assess the economic benefit it is crucial to determine the impact factor of the flood. The most important parameters influencing flood impact are:

– Water depth – Duration of flooding – Flow velocity – Sediment concentration – Sediment size – Wave or wind action – Pollution load of flood water – Rate of water rise during flood onset.

Damage is usually represented in stage-damage curves, where the water depth is the major damage variable. The stage-damage curve determines the probable losses for the given event. Consequently, land use, which represents the number of vulnerable assets present, makes a clear difference to the damage done. Even if the flood intensity parameters mentioned above include many different flood effects, water depth is the most important and also the easiest to observe and quantify, and therefore plays the major role in flood loss estimation.

Another very important parameter is the run-up time to the flood event and the time between the first warning and the actual flood. A short run-up time is a key reason why flash floods are a considerable threat to lives and properties. However, run-up time is not necessarily equal to the warning time for the population, which significantly influences the impact. Public and private risk alertness and social factors play the major role for the warning time. Generally, flood depth and extent are most important for direct losses, duration for indirect losses and warning time for intangible losses.

Mature economic flood damage assessment models developed by NRCS of USDA is very useful in evaluating the costs with tools formulated specifically to look at urban and rural flood damages. The approach explicitly incorporates descriptions of uncertainty of key parameters and functions into project benefit and performance analyses. However these approaches have high data requirements.

To facilitate the calculation, we break down the losses into the following categories:

Direct losses Tangible losses – Primary: Physical damage to property – Secondary: Restoration or rehabilitation cost Intangible losses

Easen International Co. Ltd. 6-24 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis – Primary: Loss of human life – Secondary: Illness of flood victims

Indirect losses Tangible losses – Primary: Disruption of traffic and trade – Secondary: Reduced purchase power Intangible losses – Primary: Increased hazard vulnerability – Secondary: Emigration and loss of confidence

The concept of damage function is used when calculating flood damage. In order to assess flood damage correctly, the impact parameters need to be incorporated into the method. However, due to the lack of information and the difficulty in integrating such variables, damage is generally estimated based only on water depth.

This basic methodology is referred to as a stage damage curve representing the relationship between inundation depth and damage cost for a land use class. In the case of built-up areas, the land use class is either expressed per number of buildings or per unit area. The economic value of the land has to be known in order to calculate the damage. This value is based on the principle of replacement value: how much money it would cost to obtain the ‘identical’ object.

In flood loss estimation to industry and commercial areas, 75% of the damage to industry was related to property and 25% was related to productivity loss. There are three different ways to calculate the damage: per firm, per hectare and per employee. In this kind of assessment, the most suitable method is to evaluate flood damage in industrial area. The maximum damage cost of industry has to be assessed per hectare. The following empirical damage function is used for the calculation.

Inundation depth Damage factor

0 m 0 1 m 0.4 2 m 0.8 3 m 0.9 4 m 1

Previous studies do not allow making a per-house assessment. An empirically linear interpolation is used to obtain the complete function of damage factor for housing to calculate the losses from residential houses and properties. The empirical data is listed in the following table.

Depth (meters) Damage factor

0 0 0.5 0.06 1 0.08 1.5 0.10 2 0.44 3 0.62

Easen International Co. Ltd. 6-25 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis 4 0.78 5 0.80 6 1

The generic damage cost can be then calculated using the following formula:

DAMAGE = p * A * H * V Where: p= % of urban fabric covered surface in a X land use A= area (m2) of the X land use H= water depth damage factor V= average price for m2 for an apartment/a house

6.3.3 EIRR Calculation The total benefits comprise direct benefits and indirect benefits. Direct benefits are calculated by noting the avoided property damages and costs, including: (i) the avoided injuries and fatalities; (ii) the availability of transportation with other areas; (iii) the increment in land value; (iv) the alleviation of financial expenses by the local government. Compared with other damages and costs, the damages of land is better audited and accounts for the largest portion, hence the damages of land is used to calculate the direct benefits.

Indirect benefits include: (i) the avoided costs of transferring and arranging victims; (ii) the reduction in the cost for the temporary infrastructure; (iii) the averted stagnancy of the economy in the flooded area. Indirect benefits can be significant in the computation of total benefits.

The Reduction of Damage Caused By Flood

According to a recent study on Wuhan’s flood pattern21, the frequency of flood in this area is 0.2. With the completion of this Project, the area of avoided property losses is 18 km2 of land (FSR), including agricultural land construction land. 130,000 mu agricultural land and 200 mu construction land will be protected. The price of the construction land, the production of the agricultural land and the price of grain in this area are CNY 2.6 million/mu, 656.9 kg/mu and CNY 3.16/kg22, respectively.

According to literature, DAMAGE = p * A * H * V The avoided damages can be measured as the value of the land in the base year and the damages can be calculated as follows:

Total avoided damage of the construction land + total avoided harvest reduction of grain that the agricultural land can produce =200mu*2.6 +130000mu*656.9kg/mu*3.16yuan/kg /1000000 =CNY789million.

The Opportunity Cost of Land

The price of this square-fixed land changes from time to time, because many factors, such as the increasing rate of land price and the inflation rate, differ every year. The appropriate

21 Liu, Weixing and Meng, Ling (2003), Report of strategies to avoid floods in Wuhan 22 Statistical Yearbook of Hubei Province, 2003

Easen International Co. Ltd. 6-26 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis way to calculate the direct benefits based on the value of land is by using the opportunity cost of land (OCL). Luan Taining (2000)23 measures the OCL as, NB*(1+g) n/ (1+i) n. “NB” is the value of land in the base year, “g” is the increasing rate of land value, “i” is inflation rate, “n” is the years that surpasses the base year. Estimating Indirect benefits The generally accepted practice to calculate indirect benefits is, indirect benefits equal S multiplied by K. The magnitude of K accepted by the US is: living area 15%, commercial district 37%, industry district 45%, public project 10%, social industry 34%, agriculture 10%, highway 25% and railway 23%. Nevertheless, the estimated volume is used in China instead of a precise one due to the lack of related statistical data. Generally, the estimated volume of agriculture and industry is 15%-30% and 15%-35% respectively. 20% is taken as a benchmark in the calculation of indirect benefits.

The NPV is 164.66 million and the base case EIRR for Sixin PS is 19.32%, which exceeds the EOCC. Sensitivity analysis shows that the EIRR will fall to (i) 14.71% if benefits fall by 20%; (ii) 16.51% if operating costs increase by 20%; (iii) 16.03% if investment delays one year; (v) 10.00% if (i), (ii), and (iii) all occur together.

23 Luan Taining (2000), The approach to calculate the shadow cost of land, Economic Profit Analysis of Ala’er Flood Control Program of The Upper Reaches of Talimu River

Easen International Co. Ltd. 6-27 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis

Table 6-11. EIRR of Sixin Pumping Station

Item 2010 2011 2012 2013 2014 2015 2023 2035 NPV

Economic Internal Rate of Return Calculation Benefits (CNY 10k) direct benefits 547.1 162.7 1228.2 indirect benefits 109.4 32.53 245.62 Total Benefits - 0.00 0.00 0.00 0.00 0.00 656.5 195.2 534.90 II. Costs (CNY Million) Investment Costs 78.56 227.9 251.83 Operating Costs 20.5 20.5 20.5 20.5 20.5 20.53 142.96 Total Costs 78.56 227.9 20.5 20.5 20.5 20.5 20.5 20.53 379.24 III. Economic Internal Rate of Return

Net Benefits (CNY million) -78.56 -227.9 -20.5 -20.5 -20.5 -20.5 635.9 174.7 164.66 EIRR (%) 19.32 %

Table 6-12. Sensitivity Analysis of Sixin Pumping Station

Sensitivity Analysis Chang in value NPV(mill. CNY) EIRR(%) Base Case 164.7 19.32% (i)Capital Cost Overrun 20% 114.3 16.51% (ii) Benefit Reduction -20% 55.9 14.71% (iii)Implementation Delay 1 year 97.2 16.03% (iv) Combination of (i), (ii) and (iii) -48.0 10.00%

Easen International Co. Ltd. 6-28 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis

6.4 Summary of Overall Project Viability

6.4.1 Project EIRR The NPV for the whole project is 1,107 billion, and the base case EIRR for the whole project is 20.48%, which exceeds the EOCC. Sensitivity analysis shows that the EIRR will fall to (i) 14.27% if benefits fall by 20%; (ii) 17.42% if operating costs increase by 20%; (iii) 17.25% if investment delays one year; and (v) 12.01% if (i), (ii), and (iii) all occur together.

Table 6-13. The EIRR for the Whole project

Item 2010 2011 2012 2013 2014 2016 2022 2035

Economic Internal Rate of Return Calculation Benefits (CNY 10k) Total Benefit 0 16 33 37 714 1,134 437 997 II. Costs (CNY Million) Investment Costs 241.3 582.3 393.5 875.1 120.3

Operating Costs 14.50 51.98 51.98 60.22 62.14 62.14 62.14 Total Costs 241.3 596.8 445.4 927.1 180.6 62.14 62.14 62.14 III. Economic Internal Rate of Return

Net Benefits (CNY million) -241.3 -580.5 -412.5 -889.7 533.2 1071.0 375.1 935.1 EIRR (%) 20.48%

Table 6-14. Sensitivity for the Whole Project Change in Variables Change in Values NPV (mill. CNY) EIRR (%) Base Case 0 1,106.7 20.48% (i) Capital Cost Overrun 20% 804.7 17.42% (ii) Benefit Reduction -20% 195.1 14.27% (iii) Implementation Delay one year 734.2 17.25% (iv) Combination of i,ii and iii 4.6 12.01%

6.4.2 Distribution for the Whole Project

The differences between net economic benefits (NEB) and net financial benefits (NFB) give rise to the losses and gains among project participants. NFB is estimated at CNY 0 million, and NEB CNY 14.17 billion. NEB exceeds the NFB by CNY 14.17 billion. At a discount rate of 12%, the government/economy will gain CNY 702.5 million. The difference between financial and economic investment costs is CNY (686.1) million. Operating costs will gain CNY16.4 million because project benefits exceed the economic opportunity cost of project operations. Consumers will gain by CNY 14.17 billion because they gain access to the improved environment.

The differences between the financial and economic values, and the consequent gains and losses for different project participants, provided the basis for considering the impact of the

Easen International Co. Ltd. 6-29 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Proj ect Section 6 Economic Analysis Project on the poor. The socio-economic survey conducted for the PPTA shows that the incidence of poverty in the project area is 10%. Using “with Project” and “without project” comparison, it is evident that a significant portion of the benefits accrue to the local households.

With respect to the whole economy, the gains of CNY 702.5 million are mainly the operating costs and environmental benefits associated with the Project. There are some government losses from investment costs. Based on household survey results, the current analysis assumes that the share of the government net benefits (environmental benefits) going to the poor below poverty line is proportional to their share in the population, which is 10%.

Table 6-15. Distribution for the Whole Project Accounts Beneficiaries Financial Economic Government Accounts Accounts Difference Consumers Economy Labor Total A. Project Benefits Benefits 0 14,167.4 14,167.4 14,167.4 Costs Investment costs 2,898.5 2,212.4 (686.1) 686.1 Operating costs 1,499.9 1,483.5 (16.4) 16.4 Labor 190.2 228.2 38 (38) Total Costs 4,588.7 3,924.2 (664.4) Net Benefits (4,588.7) 10,243.1 14,831.8 14,167.4 702.5 (38) 14,831.8

B. Poverty Impact 14,167.4 702.5 (38) 14,831.8 Net Financial Benefits (4,588.7) (4,588.7) Total 14,167.4 (3,886.2) (38) 10,243.1 Proportion of poor 12% 17% 15% 10% Benefits to poor 1700.1 (660.7) (5.7) 1033.7 Poverty Impact Ratio 10.09% Source: PPTA consultants' estimates.

Easen International Co. Ltd. 6-30 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 7 Poverty and Social Assessment

SECTION 7 POVERTY AND SOCIAL ASSESSMENT

7.1. INTRODUCTION

The Poverty and Social Assessment (PSA) is one of the outputs of the PPTA, which collectively recommend approaches necessary in achieving a least-cost, sustainable solution for urban environmental improvement in Wuhan that will advance WMG’s development master plans and assist in improving living conditions, particularly those of the poor.

This chapter focuses on social and poverty issues relating to the Project and, in particular, those within the PPTA scope of works. The objectives of the PSA are to (i) assess the impact of the Project on the social development and poverty reduction in the project area; (ii) optimize the project design through social considerations in order to maximize social benefits, particularly benefits to vulnerable people, including the poor, women, ethnic minorities and other social groups; and (iii) ensure the social dimensions are fully incorporated into the final design of the Project.

The Project will contribute to poverty reduction through improvement of the local economy, protection of the environment by reduction of pollution and risks to health, and support of PRC Government’s national and regional infrastructure development strategies. The Project supports MDG 7 and the PRC Central Region Development Strategy and the Wuhan 11th Five Plan for Economic and Social Development (2006-2010) in (i) improving infrastructural conditions and investment environment, (ii) strengthening regional cooperation and integrated competition, and (iii) promoting cycle economic and eco-economic development in the Project area. It also supports the PRC country partnership strategy priority areas of (i) strengthening inclusiveness through increasing investment to support rural development, (ii) promoting regional cooperation and integration, and (iii) managing the environment. It will also provide employment opportunities during both the construction and operations phases of the Project, with additional multiplier effects to levels of economic activity.

In this chapter, the approaches and methodology used to conduct the PSA are introduced in Section 7.2; The Project area related to location, land area, population and natural environmental conditions is described in Section 7.3; A social profile of the Project area including population composition, income and expenditure, and ethnic minority and gender analysis is presented in Section 7.4; A special analysis on local poverty is conducted in Section 7.5, while a health analysis on local residents is introduced in Section 7.6. In Section 7.7, employment opportunities generated by the Project in both the construction and operation period is estimated. A community participation and public awareness action plan is prepared in Section 7.8, and a special analysis on the willingness to pay and affordability for wastewater treatment, sludge treatment and disposal, and water resource management is presented in Section 7.9. A brief gender development plan is prepared in Section 7.10. Some social safeguard issues and other social risks are considered in Section 7.11. A social development action plan is prepared in Section 7.12, and finally a brief conclusion and recommendations on the PSA summarized in the Section 7.13 and Section 7.14, respectively. The full PSA is provided as Appendix 7-1.

7.2. METHODOLOGY

This PSA includes the results of a socio-economic survey, a range of stakeholder consultation sessions, and a series of key informant interviews, particularly with local government bureaus with mandates related to employment, vulnerable people, women and ethnic minorities. It also includes the results of discussions with other team members (especially domestic staff), the EA, as represented by WPMO, and IA) staff, and integrates the results of field observations at the various project component sites over the period May – July 2009.

Easen International Co. Ltd. 7-1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 7 Poverty and Social Assessment The approaches and methodology used to prepare the PSA include (i) Secondary data collection from local statistic yearbooks, research reports, and development plans, etc; (ii) Informant interviews with relevant institutions of local governments and agencies; (iii) a household survey on the social, poverty and health status, and willingness to pay of local residents; (iv) a business survey on wastewater and solid waste treatment and disposal, environmental awareness, and willingness to pay; (v) Community meetings to discuss the project design, environmental improvement, and employment opportunity; and (vi) Focus group meetings of women and men, separately, to discuss the project design, environmental awareness, safety issues, and employment opportunities.

Secondary Data Collection: various data collection methods were used to gather both qualitative and quantitative data from different sources. In the PSA, every attempt is made to quantify the potential poverty and social impacts whenever appropriate and feasible. Data resources for the PSA include (i) Wuhan Statistics Yearbooks, (ii) Wuhan Almanacs, (iii) The Project FSRs, (iv) District government reports, and (v) reports from relevant governmental departments, etc.

Informant Interviews: The people met and interviewed include staff from the WPMO,, the design institute (DI), municipal civil affairs bureau, municipal ethnic minority committee and local women’s federation.

Household Survey: A random sampling socioeconomic survey was carried out, and an independent agency called the Zhongnan Social Survey & Research Institute was recruited to conduct the survey with the guidance of the PPTA social and poverty specialists and the support of WPMO. The sampling survey was conducted in the area directly affected by the Project – the Hanyang, Hongshan and Wuchang districts, and the indirectly affected areas – Jiang’an and Dongxihu districts of Wuhan city. A total of 504 households, including 102 poor households, were surveyed using a well designed questionnaire.

Business Survey: 100 companies and small businesses were surveyed for the Project in order to collect their opinions on the project design and issues relevant to businesses in Hanyang, Hongshan, Jiang’an and Dongxihu districts.

Community Meeting: 10 community meetings were held to collect considerations of the local residents on the project design and conduct public awareness and participation in Hanyang, Hongshan, Jiang’an, Wuchang and Qingshan districts, and included both urban and rural communities.

Focus Group Meeting: 10 focus group discussions (FGD) were held in Hanyang, Hongshan, Wuchang and Qingshan districts. The FGD includes women with low and high income, men with low income, ethnic minorities, business owners and community committees, etc.

Based on these approaches, beneficiaries for each component and for the Project as a whole, and key benefits and risks of the Project are identified. A health impact study to determine health issues that would be caused by lake and canal renovation and sludge treatment with appropriate identification of monitoring indicators is performed. Job opportunities generated directly and indirectly by the project to be filled by local recruitment are estimated; including employment opportunities from construction, maintenance, operation, water resource and wetland preservation, and attention to opportunities for targeting vulnerable populations is investigated. In addition, gender impacts and risks are identified.

7.3. DESCRIPTION OF PROJECT AREA

Wuhan, capital of the Hubei Province, ranks fifth among Chinese cities for its size and its economic production. It is the biggest city in the central and western regions of the PRC. In 2008, the municipality had a population of approximately 8.5 million, including more than 6

Easen International Co. Ltd. 7-2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 7 Poverty and Social Assessment million inhabitants living in the urban core area. Some 3.5 million people reside in its dense inner urban core (360 km2; 9.700 inhabitants per km2). The Project will be implemented in Hanyang and Hongshan districts. Wuchang District has potential impacts because it located in the downstream of the component of the Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station. In addition, a small part of Jiang’an, Qingshan districts are involved in the Project potentially.

Wuhan Municipality consists of 13 administrative districts including 7 “urban built up” districts with high urbanization, Jiangan, Jianghan, Qiaokou, Hanyang, Wuchang, Qingshan and Hongshan, and 6 “far urban” districts with low urbanization, Dongxihu, Hannan, Caidian, Jiangxia, Huangpe and Xinzhou. All 3 districts, Hanyang, Honghsna and Wuchang, defined as the direct project area belong to the urban built up area.

Hanyang District. Hanyang District is located in the east of the Wuhan urban area, on the southern bank of the Han River and the western bank of the Yangtze River. It borders Caidian District to the west and south. Longyang Lake, Moshui Lake, Sanjiao Lake, Nantaizi Lake, etc. are located in the District. Hanyang District has 15 villages, 11 street offices and 121 communities.

Hongshan District. Hongshan District is located in the southeast of the Wuhan urban area. It borders Wuchang District to the north and east and connects with Jiangxia District to the south and west. There are many lakes such as South Lake, and Huangjia Lake, etc. in the District. Hongshan District has 4 towns, 2 townships, 117 villages, 8 street offices and 124 communities.

Wuchang District. Wuchang District is located in the central area of Wuhan. It is on the southern bank of the Yangtze River, borders with Hongshan District to the south and west, and connects with Qingshan District to the north. East Lake and Sha Lake are located in the District. Wuchang District has 14 street offices and 191 communities.

7.4. SOCIAL PROFILE

The social profile of the project area and Wuhan City is described in this section, including local population and its composition, ethnic minorities, income and expenditure, employment, and gender. The socio-economic status of the ethnic minorities and gender are analyzed based on available data and information, and the results of the household survey.

7.4.1 Basic Social and Economic Characterization

Population and Its Composition of Project Area. The project area, of Hanyang, Hongshan and Wuchang districts, accounts for only 8.22% of the total area of Wuhan City, while its population accounts for 31.61% of the total population of the City. The population density is therefore almost 4 times the average of the City. The rural population of the project area accounts for 9.88% of the total rural population of Wuhan City, while its non-rural population accounts for almost half of the total population of the city, reaching 43.93%. The project area is a highly urbanized area of Wuhan City, especially in the Hanyang and Wuchang districts. The non-rural population in the total population of the two districts is 88.43 and 98.72%, respectively. In Hongshan District, the proportion is 77.78%.

GDP and Its Structure. The GDP of both the project area and Wuhan City increased steadily over the past decade. In 2007, the GDP of both Hanyang District and Wuhan City increased by 21.3%, while the GDP of Hongshan and Wuchang districts increased by 15%. Hanyang District has the highest GDP per capita in the project area, while the GDP per capita of both Hongshan and Wuchang districts is lower than the average for Wuhan City.

Easen International Co. Ltd. 7-3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 7 Poverty and Social Assessment

Income and Expenditure. In 2007 the average salary of urban staff in Wuhan City increased by 16.4% over 2006 levels, which was similar to the increase of the average urban disposable income per capita of 16.2%. However, the increase was different in each of the three districts in the project area. Hanyang increased 22.9%, higher than the average of Wuhan City, while Hongshan and Wuchang increased 15.2% and 13.6%, respectively, lower than the average. Although the rural net income per capita of Hongshan District was higher than the average of Wuhan City, its increase rate was lower than the average of Wuhan City in 2007.

The increase rate of urban consumption expenditure per capita, as well as the urban disposable income per capita, of all districts in the project area was higher than that of the Wuhan City average.

Urban Household Status. According to the household survey conducted by the Wuhan Municipal Statistics Bureau in 2007, the average number of persons per household was 2.88 persons. The average number of employed per household was 1.50 persons. The persons supported by each laborer were 1.92 persons. The average number of retired persons per household was 0.69 persons. The average persons supported by each person who has income was 1.29. The average income per capita per month was CNY1,196.5, while the average consumption expenditure per capita per month was CNY883.3.

Among the consumption expenditure, the biggest expenditure is used for food, accounting for 41.2% of the total living expenditure. The next is expenditure for recreational and educational services, accounting for 11.9%. Between these two expenditures, the educational expenditure accounts for 52.7%, equivalent to 6.26% of the total living expenditure. The expenditure used for clothing and housing is almost the same, at 10.8% and 10.6%, respectively, of the total living expenditure. In the housing expenditure, the expenditure used for water, electricity and fuel gas accounts for 66.5%, equivalent to 7.0% of the total living expenditure.

Employment. In 2007, the total number of employed people was 4.422 million, including 0.829 million employees in primary industry, 1.466 million employees in secondary industry and 2.126 million employees in tertiary industry. The urban registered unemployment rate was 4.2%.

Safeguard. By the end of 2007, the number of urban residents who participated in the basic pension insurance, the unemployment insurance, and the basic health insurance was 1.928, 0.972 and 2.352 million, having increased 5.35, 6.58 and 19.79%, respectively. The number of people who participated in the workers’ compensation and the pregnancy leave insurance was 0.928 and 1.094 million, respectively.

In 2007, about CNY 0.331 billion of the living safeguards subsidies for poor urban residents was distributed, while about CNY 39.619 million of the living safeguards subsidies for poor rural residents was distributed. The urban guaranteed living safeguard standard was CNY248 per month for the residents living in the central urban districts from January 2007, which was adjusted to CNY300 per month from January 2009. The rural guaranteed living safeguard standard was adjusted from CNY800 to 1000 per year in 2007. All residents who lived under these standards received the subsidies. In addition, the sale of welfare lottery tickets reached CNY1.2 billion and collected social welfare funds were CNY0.136 billion.

Education. In 2007, there were 877 preliminary schools with 438,900 pupils, 462 middle schools with 488,200 students, 139 technical schools with 196,000 students, and 55 colleges/universities with 778,400 students and 187,200 adult high education students, as well as 75,500 graduate students. Percentage of enrolment of children with 6-11 years old and 12- 14 years old was 100% and 99.75%, respectively. In addition, Percentage of enrolment of children with 6-14 years old who are blindly or deaf and dumb or feebleminded was 99.6%.

Easen International Co. Ltd. 7-4 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 7 Poverty and Social Assessment In Hanyang District, percentage of enrolment of both children with 6-11 and 12-14 years old was 100%. CNY 2.199 millions of relevant education fee were reduced or released, which benefited for students from 5,250 poor families in 2007. In Hongshan District, there were 67 preliminary schools with 34,275 pupils, 41 middle schools with 30,420 students, and 6 technical schools with 3,533 students. Percentage of enrolment of children with 6-11, 12-14 and 15-17 years old was 100%, 100% and 96%, respectively, in 2007. In addition, Percentage of enrolment of children with 6-14 years old who are blindly or deaf and dumb or feebleminded was 99.6%. Wuchang District established CNY 11.80 millions of a special fund for students of poor households and children of farmer-workers.

Education related to environmental protection has been carried out in local preliminary schools and middle schools. Relevant activities are performed every year on special environmental days such as World Water Day, World Earth Day and Earth Environmental Protection Day, etc. The environmental education usually is combined with special courses in school such as Nature, and Science and Technology. Students learn general natural knowledge and environmental protection knowledge. Some students have applied their environmental protection knowledge in resident communities to strengthen public environmental awareness such as establishing recycle bags to collect waste battery in apartment buildings, and promoting usage of cloth bags in procurement to reduce plastic bags. However, according to the community meeting and discussion with a teacher from a local preliminary school, the education related to the proposed project such as point and non point pollution control has not been conducted.

7.4.2 Ethnic Minority Analysis The total population of ethnic minorities in Wuhan City is about 54.2 thousands, accounting for 0.7% of the total population according to the 5th national population census in 2000. In 2007, the total population of the ethnic minorities was 54,245, accounting for 0.64% of the total population of Wuhan City. The Hui nationality is the biggest ethnic minority in Wuhan, with a population of about 20,000. The other minorities with more than 1,000 people are Tujia, Zhuang, Man and Miao nationalities.

Although the percentage of the main ethnic minorities in the Project area is higher than the average for Wuhan City, there are no street communities or villages with concentrations of ethnic minority people in the project area. The minority people who live in the area are dispersed and have no difference from the majority Han people in living conditions according to the Wuhan Nationality and Religious Affairs Committee.

According to the household survey, there are 10 persons of ethnic minorities in the total family population of 1,483 in the surveyed households, accounting for 0.67%. The families with ethnic minority members are scattered in the Han people community. They have almost the same living conditions and environment, and have the same rights to Han people in using all public facilities in the community. In addition, their unique living style and traditional culture are respected in the community.

The families with ethnic minority members are scattered in the Han people community. They have almost the same living conditions and environment, and have the same rights to Han people in using all public facilities in the community. In addition, their unique living style and traditional culture are respected in the community. The monthly income and expenditure of ethnic minority families is presented in Table 14 in the full PSA. The lowest household income of respondents is in the range of CNY 1,200 to 1,600 per month. 100% of respondents have household income more than CNY 1,200 per month. However, among total 504 respondents, 81.3% of respondents have such family incomes, lower than that of ethnic minority families.

Easen International Co. Ltd. 7-5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 7 Poverty and Social Assessment 7.4.3 Gender Analysis

During the focus group discussions for 58 women in 8 groups, 84.5% of participants agreed that the environmental improvement in the Project area can save their homework time in cleaning houses. Environmental improvement will reduce the incidence of diseases of family members which will reduce the time spent by women caring for sick family members. 60.3% of participants thought that the proposed project will benefit them in saving homework time, health improvement, and job creation, while 36.2% are not sure what the impacts of the Project will be on them. 86.2% of participants are well aware of the special policies made by local governments for women on promoting employment and improving health. 94.8% expressed their willingness to participate in the Project consultations if they had such opportunities. 100% of participants believed that local women federation and community committees can assist them in job hunting.

The adverse impacts of a dirty environment and service deficiencies will affect men and women differently. Comments from the focus group meetings show that women are more likely to be responsible for general cleaning and the care of sick family members. Time spent on these activities means less time is available for other priorities. This may explain why women were somewhat more likely than men to identify wastewater overflows onto roads as a major problem, to react positively to the reduction of flies and mosquitoes on the nearby water environment, and to dislike illegal dumping of solid waste.

The Project will improve the living environment by rehabilitation of the water system in Hanyang and Hongshan districts. It will benefit local women in health improvement, time saving in cleaning houses and care of sick family members, thus improving their quality of life.

Women, especially those with low incomes, pay more attention to water prices than men because women manage daily life expenditure in most families. They like the government’s policy of a so called “cascade” water tariff; however, they expect the government to keep the base water price unchanged and increase the water price for excess use.

7.5. POVERTY ANALYSIS

Population. WMG officially established the urban living guarantee system in 1996. The number of residents who received living subsidies increased from 5,000 people in 1996 to 320,000 in June 2004. Laid-off workers accounted for a major portion of the poor population. By the end of 2006, the poor population had decreased to 259,200 thousand, accounting for 5% of total non- rural population. In 2007, Hanyang District Government distributed about CNY38.49 million to about 9000 poor households to ensure their basic living conditions. In 2008, the total poor households in the Project area was about 27,483 households, accounting for 3.92% and the population was about 65,417 persons, accounting for 2.5% of the total population. Assessment. The analysis of poverty is based on estimates of income thresholds representing absolute and relative poverty for households. An absolute poverty line reflects requirements for basic food and non-food expenditures, while measures of relative poverty include the additional income needed to pay for social obligations such as funerals and weddings. Promotion of Employment. Improvement of employment situation through increasing employment positions and promoting re-employment of laid-off employees is the best way to solve urban poverty. In 2007 in Wuhan, the number of workers available for work increased by 28,000 to reach a total of 1.485 million. The new employment of the urban residents was 0.138 million, while the re-employment of the laid-off workers was 64,000. In addition, 64,600 of ex- floating rural laborers were transferred to work in the City.

Easen International Co. Ltd. 7-6 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 7 Poverty and Social Assessment 7.6. ENTERPRISES IN PROJECT AREA

100 enterprises or institutes in the project areas were surveyed through questionnaires. Most of the enterprises or institutes are small business according to number of employee of the enterprises. 94% of surveyed enterprises have less than 11 employees.

Major wastewater of the enterprises include domestic sewage from kitchen and toilet (89 respondents), and contaminated water from manufacturing with no treatment (11 respondents). 78.7% of domestic sewage is discharged into municipal sewage pipeline; 10.1% of the sewage is discharged into rivers or lakes; 6.7% of the sewage is discharged into public septic tank. For the wastewater from manufacture, 81.8% of the wastewater is discharged into municipal sewage pipeline, while 18.2% is discharged into channels.

46% of the surveyed enterprises support to increase wastewater treatment fee in order to improve wastewater services through new project construction, while 54% of the enterprises like to maintain existing tariff without new project construction. However, when they have chance to participate in public consultation meeting for the tariff reform, 61.3% of the enterprises like to vote for existing tariff; 12.9% agree to increase to CNY1.00 from 0.80, and 3.2% agree to CNY1.20 tariff. Other 22.6% are not clear.

7.7. HOUSING AND HEALTH ANALYSIS

Housing conditions of Wuhan urban residents reported in the Wuhan Statistical Yearbook, 2008 indicate a relatively advanced condition from the perspective of public health. No residents rely on untreated well or river water for their drinking water or their general water supply. Only 0.6% of households report having no sanitary facilities and only 0.8% report using a public washroom and lavatory. None of the residents are using coal for cooking and 45.5% of households report having air conditioners.

According to the field survey it is found that 88.7% of the affected households have their owned houses. 50% of the households have 41-100 square meters living space. 88.9% have refrigerators, 86% have washing machines, 88.5% have colored TV, 73.9% have air-conditions, 56.5% have independent bathing facilities, 16.7% have their own toilet. All households have their own kitchen, and 89.9% of the families are using electric cooker. The survey results show that 80% of the households have basic living facilities and relevant good living conditions, and remaining 20% of the families are poor families. Their living conditions are relatively poor. This Project will improve environment of the project area and promote local social and economic development, which will improve living conditions of affected families and income opportunities.

Current Health Status. The main disease caused by water pollution is infectious disease. According to the information reported in the Wuhan Statistical Yearbook 2008, infectious disease was ranked last in a list of the ten main categories of death-causing diseases in the City; the death rate was 6.51 per 10,000 persons. The incidence in men was almost three times high as that in women.

7.8. EMPLOYMENT GENERATION

Employment will be generated during the project construction and in the operation of project facilities. According to the FSRs, about 3,245 full time positions with a total gross income of CNY143 million during the project construction (3 years) will be generated by the Project with 38,935 person-months input in total, while during the operation phase, 144 full time positions with CNY7.722 million annual gross income will be generated directly by the Project. In addition, about 1,841 positions with CNY77.335 million gross incomes will be generated indirectly by the Project per year.

Easen International Co. Ltd. 7-7 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 7 Poverty and Social Assessment 7.9. COMMUNITY PARTICIPATION AND PUBLIC AWARENESS ACTION PLAN

Some public consultations related to the project scope and possible impacts, such resettlement and environment, were held during the PPTA. More community participation and public awareness activities were conducted to understand local residents’ and the community’s opinions and concerns on the Project design and implementation. The activities included 10 community meetings, 10 focus group discussions, and surveys of 100 companies and small businesses and more than 500 households. In addition, discussions with village committees, relevant local government departments, wastewater treatment plants (WWTPs), Wuhan New Zone Construction Committees, Yangchun Lake New Center Construction Committees, and other stakeholders were held during the PPTA.

7.10. WILLINGNESS TO PAY AND AFFORDABILITY

Willingness to Pay

Wuhan has no special taxes paid by local residents or businesses for sludge treatment and disposal, stormwater treatment and lake and channel rehabilitation at the present. The government pays for projects or construction related to these activities from municipal construction budgets. Therefore, most of residents consider that the government should be responsible for such activities. The residents don’t need to pay taxes for the activities. However, when was asked if they like to pay for the activities, more than one third respondents expressed their willingness for it.

The existing wastewater treatment price of residents is CNY0.8/m3 in the main urban area of Wuhan City. The fee is collected together with the fee for water use. Therefore, some residents don’t know they have paid for wastewater treatment. When they were asked if they would be prepared to pay more for wastewater treatment considering that the cost for the treatment had increased; 30.8% of respondents agreed to pay for the increase, while 69.2% felt the existing price should be retained.

Affordability In Wuhan urban area, the existing water price is CNY1.1 per cubic meter, and wastewater treatment price is CNY0.8 per cubic meter, which means that water users have to pay CNY1.9 per cubic meter for water consumption. This price is for households with 4 family members whose water consumption is limited within 25 m3 per month (Amount of base water). If the households use water more than 25 m3 per month but less than 33 m3 per month, they shall pay water consumption in CNY2.45 per cubic meter. For a poor household with 4 family members who is receiving the living guarantee subsidy, their household income will be CNY1,200 per month in total. Currently, Wuhan Government is providing an extra CNY21 per month as water subsidy to such poor households. It is CNY17 per month for poor households with 3 family members, and CNY13 per month for households with 2 family members. A poor household with 4 members need to pay CNY47.5 per month for water consumption if they use 25 cubic meters, which accounts for 2.21% of their monthly income. For a poor household with 3 members, water cost accounts for 2.33%. If the government would not provide the water subsidy, the water cost would increase to 3.96 and 4.22% for households with 4 members and 3 members, respectively. For households with low income, they are not qualified to receive the subsidies because their incomes are higher than the poverty line. Their water cost in family income accounts for 2.97 and 3.17% for households with 4 members and 3 members, respectively. According to an analysis report conducted by World Bank, a household shall be affordable when the water cost in total income is in 3 to 4%. Based on above analysis, the poor households would be difficult to pay water cost if the government would not provide water

Easen International Co. Ltd. 7-8 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 7 Poverty and Social Assessment subsidies. If current water price is increased CNY0.2, the households with low incomes will be difficult to pay water cost. Considered relatively high expenditure of local residents in food and education, any increase of water price will cause larger impact on poor or low income households. A reasonable water price mechanism and related subsidy mechanism should be established.

7.11. GENDER DEVELOPMENT

In the project affected area, females account for 47.3 % of total population according to Wuhan Statistic Yearbook 2008. Based on the survey of 504 households in the Project area, female population accounts for 50.5 % in total 1,483 family members. Amongst the female family members, 31.5% of them are staff women or business women. They have steady work. 13.1% have temporary work. 15.2% stay at home as house women. 29.4% are students or retired workers. They stay at home with pensions. 2.8% are unemployed women.

As indicated in the section of gender analysis, the major benefits of the Project include (i) general benefits from economic development, (ii) an improved environment around the rehabilitated lakes and channels, and (iii) job creation.

During the Project implementation, both WPMO and IAs should pay attention to the positive impacts on local women and take following actions: (i) coordinating contractors to hire woman laborers for project construction, and the IA for the operations phase; (ii) liaising with the local women federation to recommend women to the Project; (iii) monitoring (a) the number of woman laborers hired during the project construction and for operations; (b) the number of women in selected villages or farms doing off-farm work before and after the project completion; (c) the number of women who participate in technical training; and (d) household income contributed by women; and (iv) organizing consultations with women on their participation in the project implementation and the employment opportunities arising from the Project. These actions are listed in Gender Action Plan (GAP) included into the social development action plan (SDAP) designed for this project in the full PSA.

7.12. SOCIAL SAFEGUARDS ISSUES AND OTHER SOCIAL RISKS

7.12.1 Involuntary Resettlement Land acquisition and house demolition for the Project will involve 2 districts, 3 street committees, 16 administrative villages. In total, about 3,423.55 mu of land will be permanently acquired for the Project, including 127.4 mu of farmland, 51.65 mu of fish pond, 178.44 mu housing site and 1549.3 mu mudflat or uncultivated land. In addition, 555.60 mu will be occupied temporarily. Some structures will have to be demolished, including 126,536 square meters of residential houses and 31,957 square meters of non-residential houses. In total, 376 households with 1,365 persons will be affected directly by land acquisition and house demolition. Existing infrastructure affected by the Project includes 1,124 (380 Voltage) light poles, and 13 high-voltage transmission tower of 220KV.

Two full resettlement plans (RPs) in line with ADB’s involuntary resettlement policy and PRC resettlement policy for components of the Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station, and the Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation were prepared to address resettlement and land acquisition issues.

7.12.2 ETHNIC MINORITIES As described in the section of ethnic minority analysis, both the central government and Standing Committees of Wuhan People’s Congress have issued laws and regulations to

Easen International Co. Ltd. 7-9 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 7 Poverty and Social Assessment guarantee rights and benefits of ethnic minorities in social life, cultural development, education, religious and employment, etc. According to the ethnic minority analysis, the Project will not produce any negative impact on ethnic minority residents in the Project area. Therefore, it is not required to prepare an EMDP for the Project. Some measures to be taken during the Project implementation are designed in the SDAP to minimize any negative impacts and those measures are equally suitable for ethnic minority residents. Additional actions intended to be beneficial for ethnic minorities such as enlarging employment opportunities in the Project are also included in the SDAP.

7.12.3 LABOR In 2009, the minimum wage in Wuhan City was adjusted to CNY 700 per month or CNY 7 per hour for the central urban area, while set at CNY 600 per month or CNY 6.5 per hour for the suburban area.

There is a risk that subcontractors who can disappear without paying all wages will be involved indirectly with Project construction; however the PMO is confident that the construction contracts let for the Project will not permit such subcontracting. The Construction Management Department will have supervisory staff who will monitor the contractors’ observance of labor regulations and timely payment of workers.

7.12.4 OTHER RISKS AND/OR VULNERABILITIES Wuhan City is classified as a low AIDS epidemic region. By August 2008, there are 1,075 cases of AIDS and HIV infection in the City. Most initial AIDS cases were due to unregulated blood transfusion, while in recent years, patients infected through sexual activities have increased, accounting for more than half of the total cases. Most cases are not locally registered residents, accounting for 68.7%. Also, young and middle-aged unmarried men with low education accounted for a high proportion. In addition, in common with international experience, there are many HIV affected people in the social groups of drug addicts, prostitutes, whore masters, and recipients of blood transfusions, together with their spouses.

7.13. SOCIAL DEVELOPMENT ACTION PLAN

This Social Development Action Plan (SDAP) was prepared jointly by the WPMO and the involved local governments, with the assistance of the PPTA social experts. The SDAP was reviewed by key stakeholders including Wuhan Urban Construction Fund Management Office (WFMO), Wuhan Urban Construction Investment and Development (Group) Co., Ltd (WUCID), Wuhan Water Bureau (WWB), Wuhan Water Group Co., Ltd (WWGC), Wuhan Urban Drainage Development Co., Ltd (WUDDC), Yangchun Lake Secondary Urban Center (YLSUC), The Wuhan bureaus of labor and social security, education, health, poverty, ethnic minority and women’s federation. Their input has been valuable in the preparation of the Plan.

7.14. CONCLUSIONS

Both the Wuhan New Zone in Hanyang District, and the Yangchun Lake area as the Secondary Urban Center in Hongshan District, will become new economic development areas. Both components of the Project will promote local social and economic development, including local poverty alleviation. All main stakeholders supported the project objectives of improving the environment and storm water discharge system, preventing sludge from secondary pollution, and preserving the limited land resources in Wuhan.

The Project will provide employment opportunities for local labors during the project construction and operations. The local government will promote the employment of local labor. Training programs and job opportunities should be facilitated by the local governments.

Easen International Co. Ltd. 7-10 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 7 Poverty and Social Assessment Women in the project area are likely to benefit from the Project. In addition, the Women’s Federation has ongoing projects to provide technology training to women to strengthen women’s participation in household income generation. The local governments should prepare employment plans to promote the employment of women in service industries.

Ethnic minorities in the project area are limited and scattered in the area. There are no concentrated ethnic minority groups in either rural areas or street communities in the urban area. They have similar life styles and living conditions to Han people in the same community. The Project has no significant adverse or direct positive impacts on economic and cultural lifestyles of ethnic minorities in the Project area. Therefore, it is concluded that a separate EMDP is not required for the Project but some strengthening measures for protection of ethnic minorities have been incorporated into the SDAP.

The adverse impact of the Project mainly will include land acquisition and house demolition. Full RPs have been prepared for the Wuhan New Zone Lakes and Channels Rehabilitation and Pumping Station Component and the Yangchun Lake Secondary Urban Center Lake and Channel Rehabilitation Component, respectively, to mitigate any negative impacts on affected households and people.

7.15. RECOMMENDATION

The WPMO, IA and relevant government agencies should read the Poverty and Social Assessment carefully, and confirm actions suggested in Gender Action Plan, Social Development Action Plan and Community Participation and Public Awareness Action Plan. ADB will discuss these plans with the WPMO and relevant government agencies during the later stages of project preparation.

Easen International Co. Ltd. 7-11 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 8 Land Acquisition and Resettlement SECTION 8 LAND ACQUISITION AND RESETTLEMENT

8.1 Project Components The Project has four components (i) Sludge Treatment and Disposal, (ii) Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station, (iii) Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation and (iv) Technical Assistance. The implementation of the Project is scheduled to commence in 2010 and to be completed by the end of 2014 with a construction period of five years. The detailed contents of the Project are shown in Table 8-1: Table 8-1 Contents of Wuhan Urban Environmental Improvement Project

No. Component/Sub-component Main Contents Tangxunhu Sludge Disposal Plant, I Sludge Treatment and Disposal Sanjintan Sludge Disposal Plant, Sludge lime stabilization plant in Nantaizihu WWTP II New Zone Lake/Channels Rehabilitation and Pumping Station 1 Longkou Channel Rehabilitation rebuild the existing 1,337m channel 2 Longxin Channel Rehabilitation rebuild the existing 664m channel 3 Zhujiaxin Channel Rehabilitation rebuild the existing 3,583m channel 4 Liantong Channel Rehabilitation rebuild the existing 5,072m channel 5 Zong Channel Rehabilitation rebuild the existing 4,200m channel 6 Huoyan Channel Rehabilitation construct a 1,600m ditch Sixin pumping Station build a pumping station with capacity of 35 7 m3/s. Longyang Lake Rehabilitation dredging, wetland park, artificial wetland, 8 aquatic planting , etc Moshui Lake Rehabilitation dredging, artificial wetland, aquatic planting, 9 etc Nantaizi Lake Rehabilitation dredging, artificial wetland, aquatic planting, 10 etc III Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation water rehabilitation, substrate sludge 1 Yangchun Lake Rehabilitation dredging, building artificial swamp of 1.5ha and planting aquatic vegetation rebuilding and ecosystem rehabilitation for 2 Heping Channel Rehabilitation Heping Channel with width of 40m and length of 1,400m IV Technical Assistance Subproject Source: Feasibility Study Report of ADB Loan Wuhan Urban Environmental Improvement Project, Wuhan Institute of Municipal Design, July 2009

The EA for Project is WMG as represented by WPMO. The Resettlement Department of the WPMO, the Involuntary Resettlement Research Center (IRRC) of the Wuhan University and the Wuhan Municipal Design Institute confirmed the affected areas together and conducted quantitative analysis and socio-economic survey. A Draft Resettlement Plans has been prepared by the WPMO with the assistance of the PPTA Consultants and the IRRC of Wuhan University. A Due Diligence Report on the land acquisition has been submitted. The PPTA Consultants were noticed that the daily production and living activities of the affected people whose land were acquired have fully restored.

Easen International Co. Ltd. 8-1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 8 Land Acquisition and Resettlement 8.2 Project Impact Affected administrative units: The Hongshan District and Hanyang District that involves 3 street committees and 16 villages are directly affected by the Project. The total demolition area is 158,493 square meters including 376 Affected Households (AH) and 1,365 Affected People (AP). The private housing demolition area is 126,536 square meters. There are 22 affected enterprises and institutions in the 31,957 square meters demolition area with 14 affected shops involving 33 employees. In total, about 3,423.55 mu of land will be permanently acquired for the Project. In addition, there is 555.60 mu of land that will be used for the temporary land acquisition. The project impact is shown in Table 8-2: Table 8-2. Affected by Land Acquisition Affected Affected Demolished Housing Land Component/Sub- Temporary Enterprises Shops Households Areas No. Acquisition component Land (mu) and (Household/ (m2) (mu) Institutions People) New Zone Lake/Channels I Rehabilitation and 1,962.79 555.60 17 8 257/996 106463 Pumping Station 1.1 Longkou Channel 83.96 0 2 0 3/15 2300 1.2 Longxin Channel 44.98 0 0 0 3/13 1952 1.3 Zhujiaxin Channel 298.96 0 7 6 40/147 26033 1.4 Liantong Channel 429.16 0 3 0 21/76 11851 1.5 Zong Channel 249.01 0 1 0 31/117 4422 1.6 Huoyan Channel 239.88 0 2 2 131/519 48955 1.7 Sixin Pump Station 43 0 1 0 28/109 8350 1.8 Longyang Lake 527.19 0 1 0 0 2600 1.9 Moshui Lake 33.15 294.15 0 0 0 0 1.10 Nantaizi Lake 13.5 261.45 0 0 0 0 Yangchun Lake Secondary II Urban Center Lake/ 1460.76 0 5 6 119/369 52030 Channel Rehabilitation

1 Yangchun Lake 1377.82 0 1 0 90/267 37596

2 Heping Channel 82.94 0 4 6 29/102 14434 Total 3,423.55 555.6 22 14 376/1365 158493

There are 5 households (13 people) of vulnerable groups affected by the Project, of which one household with 2 AP is in Laoguan Village, 1 household with 1 AP in Gouzui Village and 3 households with 10 AP are in Changqian Village. These vulnerable households mainly consist of family members with illness or physical disability and families with little or no source of income. The affected facilities include 1,124 lighting poles (380 volt) and 13 high voltage (220kv) transmission line towers. To avoid or reduce the negative impact from the land acquisition, the optimal option was selected through comparing the different proposed options in the feasibility study report, taking into account factors such as the economy, immigration and resettlement.

Easen International Co. Ltd. 8-2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 8 Land Acquisition and Resettlement 8.3 Policies and Regulations The preparation of the land acquisition and resettlement plan is in compliance with the Land Administration Law of the People's Republic of China (2004); Law of the People's Republic of China on Administration of the Urban Real Estate (effective since 1st January 1995); Regulations regarding the administration of urban housing removal (effective since 1st November 2001); Guidelines regarding urban housing removal estimation, and other applicable guidelines. It is also based on local policy on land acquisition and resettlement in Hubei Province and Wuhan City, and is in line with the ADB policy regarding involuntary resettlement and the related social security policy requirements. The principles of land acquisition and resettlement in the Project are: (1) minimize or avoid involuntary resettlement if possible; (2) the APs should be compensated to at least maintain their “without project” status under the previous standard of living; (3) APs in the project area should receive compensation for the resettlement and relocation; (4) all the affected land attachments should be compensated according to repurchase or replacement cost; (5) the APs should be fully informed about their rights and be fully consulted in the planning of resettlement; (6) corporate restructuring, the production scale, production capacity and employment of workers should not be permanently affected and no workers should lose their jobs because of the land acquisition and resettlement; (7) the workforce affected by the land acquisition should be protected by improving production conditions to facilitate improved income levels; (8) the IAs and an independent qualified agency appointed by WPMO shall monitor the land acquisition relocation and implementation of the resettlement plans; (9) vulnerable groups will have special assistance from the WPMO to ensure that all APs have an opportunity to benefit from the Project; (10) the resettlement funding should be fully and comprehensively utilized in all impacted aspects; and (11) the AP should be involved in the entire resettlement implementation process. Based on the principles and qualifications of resettlement compensation, the compensation rights in resettlement entitlement matrix has been prepared to ensure the proper compensation distribution and resettlement plan implementation. The entitlement matrix covers all anticipated types of losses.

8.4 Compensation Standard Compensation standards for collective land acquisition Collective land acquisition compensation standards will be adopted for the Longkou Channel, Longxin Channel and Zhujiaxin Channel subcomponents. Detailed standards are as follows: Land Type APV of previous Multiple Compensation three years (CNY) Agricultural land 26 169,000/mu Fish pound CNY 6,500/mu 15 97,500/mu Other lands 6 39,000/mu

The compensation standards for Yangchun Lake and Heping Channel Rehabilitation Subcomponents are shown as follows: Land Type APV of previous Multiple Compensation three years (CNY) Agricultural land 26 260,000/mu Fish pound CNY 10,000/mu 15 150,000/mu

Easen International Co. Ltd. 8-3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 8 Land Acquisition and Resettlement Other lands 6 60,000/mu

Compensation standards for state-owned land acquisition The Project will have land acquisition on state-owned land in the Hanyang District Land Reserve Center. After consultations, the Project will be responsible for the related land acquisition and resettlement expense for the land reserve center with a compensation rate of CNY 250,000 per mu. The state-owned agricultural land of Hanyang Fishery occupied by Longyang Lake, Moshui Lake and Nantaizi Lake will be compensated in the light of collective land acquisition standard. Compensation standards for temporary land acquisition The Project will acquire some temporarily land during the construction phase. Following the negotiations, it was agreed that the compensation for the required sludge disposal land for Moshui Lake and Naitaizi Lake is CNY 32,500 per mu for the 5 years temporary use of the land. Compensation standard for house demolition on the collective land In this compensation standard, the AP can have 2 options for compensation: either cash or in the form of real estate. The cash compensation consists of 2 parts: property replacement cost and land acquisition cost. The standard for property compensation is: CNY 830/m2 for house with frame structure, CNY 570/m2 for house with concrete and brick construction, CNY 420/m2 for house with masonry- timber structure, and CNY 340/m2 for simple structure house. Compensation rate for homestead location will be the product of the determined housing areas and the relevant compensation standards. Its class varies depending on the different land type, the areas within the 2nd Ring Road (include the 2nd Ring Road) are defined as Class I region, the areas between the 2nd Ring Road and the 3rd Ring Road (Central Ring Lane) are defined as Class II region, the areas outside the 3rd Ring Road (Central Ring Road) are defined as Class III region. The compensation standard for Class I region is CNY 2,280/ m2, CNY 1,920/m2 for Class II region and CNY 1500/m2 for Class III region and areas beyond. For the property compensation, the AP will be relocated to a replacement property for their removed ones. The Project will reconstruct collectively for those collective properties that were removed in the Centre Ring Lane of Wuhan. Table 8-3 shows the compensation and location of each component. Table 8-3 Compensation for House Removal in Collective Land Project Class of Location Section Price Replacement Cost Longkou Channel 2-3 1,500-1,920 House with frame Longxin Channel 2-3 1,500-1,920 structure is CNY Zhuhuxin Channel 2-3 1,500-1,920 830/m2, house with Liantong Channel 1-3 1,500-2,280 concrete and brick Zong Channel 1-2 1,920-2,280 construction is CNY 2 Huoyan Channel 2 1,920 570/m , house with Xixin Pump Station 2 1,920 masonry-timber Yangchun Lake 2 1,920 structure is CNY 420/m2, and simple Heping Channel 2 1,920 structure is CNY 340/m2

Compensation standards for the property demolition on the State-owned land: There are some private properties on the State-owned land within the Hanyang District. In line with the land acquisition and resettlement policy, these AP will be resettled in Jiangxinyuan Community.

Easen International Co. Ltd. 8-4 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 8 Land Acquisition and Resettlement For the AHs who are willing to accept cash compensation, the compensation will be given in accordance with the compensation standards for property demolition on collective land. Compensation standards for shops property demolition The relocation compensation for small businesses includes three aspects: (1) compensate the shops according to house compensation rate; (2) provide a compensation of CNY 600 per square meter to the owners of small businesses according to the business area; (3) provide relocation and transition compensation for the owners. Policy for Relocation and Transition Fees Relocation and Transition Fees will be given to demolished households, companies and shops with the following detailed standards:

Compensatio Compensation Type Rate Type Rate n 6 CNY/ m2/month 300 (double for houses ≤40 m2 House CNY/HH beyond the 2-years’ transition) Moving 400 Transition ≤60 m2 Shop 20 CNY/ m2/month allowance CNY/HH allowance 500 ≤80 m2 Houses of CNY/HH enterprises or 15 CNY/ m2/month 600 >80 m2 institutions CNY/HH

Compensation standards for house without license The Villagers’ Committee will identify whether the buildings within the affected areas belong to the unauthorized housing or not in accordance with the relevant policies of Wuhan City. The compensation standards for houses without licences are: 1. The replacement cost and location based value for the houses built before 31st December 1986 will be compensated at 95% of the licensed houses value; 2. The replacement cost and location based value for the houses that were built between 1st January 1987 and 31st December 1998, without any approval procedure and have not receive the punishment from land administrative department will be compensated at 85% of the licensed houses value; 3. The replacement cost and location based value for the houses that were built from 1st January 1987 to 31st December 1998, without any approval procedure but have already received the punishment from land administrative department will be compensated at 90% of the licensed houses value; 4. Unauthorized housing built from 1st January 1999 to 30th April 2009 will be compensated according to replacement cost, without the location based compensation for the land acquisition; 5. No compensation for houses built after 30th April 2009.

Special support policy to the vulnerable groups: The Resettlement Department of WPMO and local Villagers Committee will give special assistance to the affected vulnerable groups. The Villagers Committee will help them in house relocation. If there are transitional periods of resettlement, the Committee will arrange makeshift houses for the vulnerable groups. They will be given priority for selecting the type, area and address of their new housing and the makeshift houses can be utilized as small shops. The vulnerable groups also can rent them in priorities.

Easen International Co. Ltd. 8-5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 8 Land Acquisition and Resettlement An assistance fund of CNY 0.5 million will be set up for the vulnerable groups. For those relocated families who belong to the system for ensuring a minimum standard of living for urban residents will have additional subsidy of CNY 20,000 per AH; those relocated family with disabled family members will have additional subsidy of CNY 20,000; for each relocated family who belong to both the system for ensuring a minimum standard of living for urban residents and family with disabled members will have the subsidy of CNY 40,000.

8.5 Property Demolition and Livelihood Restoration Plan

8.5.1 House Removal Plan Cash compensation. It was found during the investigation and consultation stages that most of the private housing being demolished is located at: (1) Changqian Village, Beiyangqiao Village in Yangchun Lake area; and (2) Gouzui Village and Laoguan Village in Sixin Pump Station and Huoyan Channel area. Some of the residents have more than one property and the demolition will not affect their regular living standards and lifestyle. For other areas such as in Liantong Channel, Zhujiaxin Channel and Zong Channel, there are self-built buildings (not for residential use) along the channel. These APs would like to have a direct access to the cash compensation for their buildings. Collective resettlement. A house relocation construction plan for Wuhan New Zone and Yangchun Lake Secondary Urban Center has already been prepared. Jiangxinyuan community resettlement project is currently under implementation in Hanyang District. The Jiangxinyuan community Phase I and II has been completed while the Phase III is currently under construction with a Phase IV being planned for future construction. Jiangxinyuan community can provide more than 3,400 houses which are 10 times more than the number of houses scheduled to be demolished. It is an integrated community which includes shops, hospitals, schools and public transportations. The community will ensure that there is enough resettlement housing for all APs from the sub-components implementation such as Huoyan Channel, Sixin Pump Station, Liantong Channel and Zong Channel. In the area around the Centre Ring Lane of the Hanyang District, there are 40 households in Zhujiaxin Channel that need to be relocated. These households belong to the Chenjiazui, Taojialing and Tangshan Villages. Currently there is a house relocation construction plan in Longyang community for the three villages. For the Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Component, the “Yangchunhu Community” is currently being built for resettlement purpose and is expected to be complete by 2010. It will provide resettlement residence for 1,000 households. The planning department decided to build relocation houses in Tianwan Village to relocate the APs in Beiyangqiao and Dongfanghong Villages. Those households can select a new house as replacement of their original residence of the same size and have a transitional compensation of CNY 6 per cubic meter per month for the transition period. If the transition period is longer than 2 years, the compensation will be doubled. The Table 8-4 shows the plan of relocation housing. Table 8-4 Relocation Plan for Wuhan Urban Environmental Improvement Project Resettled Project Impacted Area Replacement Location Families Sixin Pump Laoguan Village 28 Jiangxinyuan Community Station Huoyan Channel Laoguan Village, Gouzui Village 131 Jiangxinyuan Community Zong Channel Hongling Village 31 Jiangxinyuan Community Zhujiaxin Tangshan Village, Taojialing 40 Longyang Community Channel Village, Chenjiazui Village Liantong Village, Hongwei Village,21 Jiangxinyuan Community

Easen International Co. Ltd. 8-6 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 8 Land Acquisition and Resettlement Channel Jiepai Village, Shuguang Village Changqian Village, Beiyangqiao Yangchunhu Community, Yangchun Lake 90 Village Tianwan Community Heping Channel Dongfanghong Village 29 Tianwan Community

Economical residence resettlement. According to the No. 88 [2009] document issued by the WMG on 6th June 2009, the AHs in key construction projects will be relocated to an economical residence. The No. 22 [2009] document issued by General Office of the CPC Wuhan Committee and WMG on 8th June 2009, there should be more methods to relocate the AHs in key construction projects. The client can relocate the AHs by purchasing the economical residential housing. These policies ensure a proper resettlement process for the AHs. Based on the data from the resettlement office of WPMO, there are over 1.1 million cubic meters of economical residential space under construction and allowing the resettlement of more than 9,700 households. The households will be provided with a transitional compensation of CNY 6 per cubic meter per month for the transition period. If the transition period is longer than 2 years, the compensation will be doubled to CNY 12 per cubic meter per month. The villagers will be responsible for their own reconstruction and resettlement. There are three households that need to be relocated in the Longkou Channel and Longxin Channel area. These households are spread out outside of the Central Ring Lane. As the village land of these families is readily available and only a portion of their properties are being demolished, they can easily select a reconstruction site on the same land. Cash compensation will be made to these three households and after reporting to the village’s committee. The reconstruction for these households will begin once the village committee approves the plan.

8.5.2 Restoration of the Affected Farmers There are three farmer categories for the Land Acquisition and Resettlement portion of the Project. The first category is for those farmers in the Hanyang New Zone with their land having already been possessed by the New District Land Reserve Centre. The second category is for those farmers located outside of the Central Hanyang District with collective farm land still in their possession. The third category is those farmers that belong to the collective land to be possessed during Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Component in the Hongshan District. For the farmers in the first category, the New Zone Land Reserve Centre has already completed the land acquisition process and compensation already paid to the farmers. These farmers receive a monthly allowance of CNY 250~400. The farmers in the New Zone derive less than 10% of their income from farming. These villages have an annual income of CNY 7,000~9,000 and less than CNY 800 is from farming. After land acquisition, they can continuously perform those non-farming related business and receive a CNY 3,000~4,800 for land acquisition compensation. This compensation is much higher than their loss due to the land acquisition. Farmland that belongs to the second category are mainly port side beach and other deserted land that do not produce anything. These lands do not have any impact on the lives of the villagers and hence the compensation fund will be used to improve the village’s general public welfare. The application of this funding will be decided through villager meetings. The agricultural lands and fish ponds that are being acquired in the Hongshan District collective land belong to the local village and are leased to the individual farmers with an annual leasing fee. The final decision for these properties is to compensate CNY 1,000 per mu of farm land. The village will also arrange employment opportunities at village owned businesses for those villagers between 18 and 60 years of age. For those without employment, a monthly allowance of CNY 600~800 will be distributed. The village will also provide social securities to every single person in the village using the compensation fund. Villagers who are at their retirement age will receive a one time retirement fund and will join the municipal elders’ security system. Other applications of the land acquisition compensation fund will be decided through villager meetings.

Easen International Co. Ltd. 8-7 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 8 Land Acquisition and Resettlement Those families that need to be relocated will be resettled in Tianjia Bay and Yangchunjing Court neighbourhoods. In accordance with the “Levy ten, return one” policy, the affected families will also be compensated with land for development and will be collectively developed for business using the village’s land acquisition fund. These populations have an annual income of CNY 9,000~15,000, of which only CNY 900~1,500 was derived from farming. After land acquisition, they will receive a compensation income of CNY 600~800 per month (a total of CNY 7,200~9,600 of extra income annually), which is greater than the loss due to land acquisition.

8.5.3 The Placement and Restoration of the Affected Enterprises There are a total of 22 affected enterprises, spread out through the different sub-components. The only concentrated area is near the Zhuhu New Port. As the project affected zones only overlap with these enterprises to a relatively minor extent, these enterprises will be compensated accordingly and will be permitted to continue their operation in their original location.

8.5.4 The Placement and Restoration of the Affected Businesses 14 businesses will be affected by the Project’s resettlement and relocation plan. There are 3 types of placement and restoration procedures for the different businesses. There are two restaurants that fall under the first type. The demolished properties will be compensated according to standards in cash and the owner will be responsible for the reconstruction of a new restaurant outside of the resettlement zone, the resettlement office will also pay 2 months of income to the owner to cover the business closure loss. For the second type of business, there are six entities that will be compensated with business closure loss, transitional loss and will be awarded a future lease in newly constructed business location. For the third type, there are six businesses which will be re-established with the re-construction of their own residence. These households will be compensated with property relocation and an extra CNY 600 per cubic meter of the residence-shop area. They will also be given priorities for selecting a relocation housing that can be used for mixed business and residential purposes.

8.5.5 Reconstruction of the Specialized Projects The power and telecommunication facilities that are affected by the Project are defined as specialized facilities. For these facilities, the resettlement and relocation department will communicate with the power and telecommunication company to derive a reconstruction fee as compensation. The restoration and reconstruction of these facilities will be completed before the acquisition and use of these facilities. This is to ensure the regular livelihoods of the nearby population are maintained.

8.5.6 The Placement and Restoration of the Affected Vulnerable Populations Special assistance and care will be given by the different resettlement offices and local governments to those vulnerable families.

8.6 Organization The Wuhan PMO will take full responsibility for the resettlement and relocation implementation as per the approved “Resettlement and Relocation Plan”. The WFMO will be the project owner and will be in charge of declaring the Project and resettlement related planning and land acquisition procedure, including obtaining the necessary approvals. The WFMO will also be responsible for fund raising and the distribution of the resettlement and relocation capital. The WFMO employs IRRC of the Wuhan University to study the affected area and prepares the resettlement and relocation plan. The responsibilities for EAs (Wuhan New Zone Construction Development and Investment Co., Ltd., Wuhan Clean Water Science & Technology Co., Ltd. and Resettlement Office for Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Component) include the social-economic studies, negotiating with the affected

Easen International Co. Ltd. 8-8 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 8 Land Acquisition and Resettlement villages and farmers, signing the compensation assistance agreement, handling the related procedures, establishing the compensation standards, compensation funding distribution and resettlement livelihood restoration.

8.7 Consultation, Complaint, Appeal and Information Disclosure It is necessary to seek public involvement, consultation and to share public information during the project preparation and the implementation stages in accordance with the national, provincial, municipal and ADB regulations and policies for resettlement and relocation. All of the affected households, villages and/or residential committee leaders and local governments have been involved in the project impact and social-economic survey. The APs must be well informed of the resettlement and relocation plan during the consultation period. Before implementation, WPMO, local governments and village leaders will have further discussions and consultation with the APs’ representatives. The impacts on every village and the detailed compensation plan will be discussed in detail to ensure the APs’ interests are protected and to provide employment opportunities for those whose livelihoods are affected as a result of project implementation. By December 2009, the WPMO will prepare and release a resettlement information guide to every affected household. This guide shall contain information such as project affected area, proposed land acquisition and relocation implementation progress and procedure, compensation standards for land acquisition, relocation assistance, livelihood restoration strategy and complaint handling system.

8.8 Monitoring and Evaluation A detailed plan for both the internal and external monitoring and evaluation is included in the “Resettlement Plan”. The WPMO will submit an internal monitoring report semi-annually to ADB. Furthermore, the WPMO will employ an external resettlement monitoring institute or firm to establish an independent external monitoring organization in order to deliver a truly independent and unbiased external monitoring report. This external monitoring organization will monitor the resettlement implementation, payment distribution, relocation target meeting, complaint handling system and other related matters. They will also ensure that the benefits of the relocated populations are received in a timely manner, including assistance to allow the relocated populations to re-establish their living standards and employment. A thorough study will be completed before the land-acquisition and relocation begins and the first monitoring report will be submitted in January of 2010. After that and until project completion, semi-annual monitoring reports will be prepared and submitted for ADB review.

8.9 Budget The current budget for the Project resettlement is estimated at CNY 1.186 billion. Among this amount there is CNY 744.52 million for the Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station and CNY 441.36 million for the Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation. Inclusive of the land-acquisition and relocation compensation, the specialty compensation, the planning and design fee, the management fee, the institutional strengthening, the monitoring and appraisal fee and the resettlement and infrastructure improvement capital fund. The WMG will guarantee the necessary and appropriate budget for the resettlement and relocation in order to cover any shortage of funding that might occur during the resettlement process.

8.10 Results of the Acquired Land’s Due Diligence Report Sludge Disposal Subcomponent (1) The land requirement for the three sludge disposal project is small. It does not require additional land acquisition as it is allocated within the empty lots on the WWTP.

(2) The land acquisition for the TangXun Lake WWTP was completed in 2000. The production

Easen International Co. Ltd. 8-9 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 8 Land Acquisition and Resettlement and the living standard of the affected people have been restored and have further improved. WUDDC has acquired the certificate for the land usage right.

(3) The Sanjintan WWTP is a sub-component of the Asian Development Bank Phase I loan project. The land acquisition and resettlement for this sub-component during the design and implementation stages were properly done in accordance with the ADB requirement and policy. The compensation for the land acquisition was paid in full. The production and living standards of affected persons have been restored and further improved.

(4) The Nantaizi Lake WWTP is the Asian Development Bank Phase II loan project. The land acquisition and resettlement for this sub-component during the design and implementation stages were properly done in accordance with the ADB requirement and policy. The land usage right transfer procedures were properly completed and the associated land acquisition compensation was paid in full in accordance with the agreement. The production and living standards of affected persons have been restored and further improved.

(5) The land acquisition of the three WWTP in the sludge disposal sub-component did not leave any legacy problems.

The land acquired by the Wuhan New Zone Land Reserve Sub-Center (WLRC)

(1) The WLRC begin land acquisition operation in 2004. The four sub-components of this project (Liantong Channel, Zong Channel, Huoyangou Channel and Sixin pump station) are included by this operation.

(2) All the affected villages have formed the related industrial and trade company and successfully converted the village properties into company capital.

(3) The affected people became the shareholders in these companies and received the corresponding shares which entitle them to share the company profit.

(4) The company will be responsible for securing a job for the affected people.

(5) The company will be responsible for the implementation of the social welfare (e.g. retirement and health care) for the affected people.

(6) The affected people are converted to be urban resident, their employment, social welfare (e.g. retirement and health care) are managed according to the municipal resident policies.

(7) The houses to be demolished are properly compensated according to the Wuhan New Zone Collective land and house demolition compensation and relocation procedure.

(8) All of the residents of the demolished households are relocated in the Jiangxinyuan district. The affected people were satisfied with the compensation and resettlement results.

(9) All of the affected villages have signed land acquisition agreement with the WLRC and were properly compensated according to the agreement.

(10) The issues with the land acquisition, compensation, housing relocation, insurance, employment, household registration conversion, community building and among various other topics were broadly discussed with all the villagers and only executed once approved by the villagers in accordance with the standard procedures.

(11) The land acquisition and resettlement procedures were standardized.

(12) The land acquisition process by the WLRC is still under operation. The results from the

Easen International Co. Ltd. 8-10 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 8 Land Acquisition and Resettlement execution were astonishing. The affected people’s production and living standards did not degrade.

Easen International Co. Ltd. 8-11 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

9. INSTITUTIONAL ANALYSIS AND CAPACITY BUILDING

9.1 Introduction

This section of the Report describes and analyses the institutional set up for the Wuhan Urban Environmental Improvement Project (WUEIP or “the Project”) to be implemented, under the direction of Wuhan Municipal Government (WMG). The objectives of the analysis are to ensure that: • The Project is successfully prepared and implemented, and • The institutional arrangements facilitate effective and sustainable operations and maintenance of the project facilities.

In order for the Project to be implemented in a successful manner, institutional and project management arrangements need to be agreed upon by ADB and Wuhan Municipal Government (WMG). These arrangements need to provide for: • Ease of project preparation and approval by both ADB and relevant domestic authorities. • Strong project management during the implementation by WPMO, as the representative of WMG, the Executing Agency (EA). • Ensuring the Implementing Agency(s) (IA) has the capability to effectively discharge its responsibilities for the implementation of the sub-projects for which they are responsible. • There is a clear definition of the IA's responsibilities and its relationships with WPMO and other agencies involved in project implementation. • The efficient future operation and management of the project facilities, so that the Project is fully sustainable in terms of finance and service provision.

With these objectives in mind, this chapter contains the following analysis:

• Sector level analysis in respect of urban water and environmental management in the PRC. • Sector analysis and institutional arrangements in Wuhan • Description and analysis of the proposed project management arrangements for both the construction and operations phases of the Project • Capacity building needs and proposals for WUEIP capacity building • The potential involvement of the private sector At the end of the Chapter there is also a short concluding section that draws conclusions from the analysis performed, makes some specific recommendations and identifies outstanding actions and agreements required before the design of the Project can be considered complete.

9.2 PRC Sector Level Analysis

9.2.1 National Arrangements for Urban Environmental Management A consolidated urban water environmental management system operates according to the scope of duties of the ministries as determined by the State Council. The Ministry of Environmental Protection (MOEP) supervises water quality of industrial discharge and municipal sewage discharge. The Ministry of Housing, Rural and Urban Development (MOHURD), formerly the Ministry of Construction, has regulatory responsibilities for sewage, water conservation and wastewater treatment but most of these responsibilities are delegated to local governments at various levels and MOHURD is only directly responsible for developing urban development strategies and mid-term and long-term development planning, and providing guidance for water supply, sewage management, water conservation and wastewater treatment.

Easen International Co. Ltd. 9-1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building The Ministry of Water Resources (MWR) has overall responsibilities for flood control, river pollution control, and water conservation. The Ministry of Health (MOH) is responsible for supervising public health, drinking water safety, and prevention of epidemics. The National Development and Reform Commission (NDRC), as a multi-functional administration department of the State Council, is responsible for overall coordination of energy saving and discharge reduction, organization of development of energy and resources saving and comprehensive utilization planning and policies, and implementation coordination. It can be seen from this regulatory framework that several agencies at national level get involved in urban development and environmental improvements, municipal wastewater discharge and treatment, and sludge utilization by performing supervision and professional management from different perspectives. Moreover, land application of sludge is also subject to the governance of relevant regulations issued by the Ministry of Agriculture.

Historically the MOHURD is the core Ministry with responsibility for urban water and wastewater management. In 2008, the State Council specified that specific responsibilities for urban management would be transferred to municipal level governments and that municipal governments should establish regulatory systems for public utilities, greening, water supply, water conservation, drainage, wastewater treatment, local transport, municipal infrastructure, gardens, city amenities, sanitation, and development documentation. MOHURD retains direct responsibility for preparation of urban and public utility development strategies, mid-term and long-term planning, measures of reform, and regulations, providing guidance in urban water supply, water conservation, municipal infrastructure, greening, environmental improvement, and urban development, providing guidance in construction of municipal wastewater treatment facilities and sewers, providing guidance for greening of planned urban areas.

NDRC has two very important roles besides economic policy coordination. Firstly all major capital investment projects must be approved by NDRC, which examines project feasibility, technical viability, and financing before giving project approval. Subsequently upon project commissioning NDRC audits the project and confirms implementation has taken place in accordance with the earlier approvals. The second very important role of NDRC is to serve as the main administration for price management. Basically NDRC acts as the senior national pricing regulator, although in practice most local decisions are currently delegated to the Provincial or Municipal level and NDRC restricts itself to major pricing decisions of national significance and providing regulatory guidelines for local Governments to follow with respect to their pricing decisions, which covers wastewater tariff and preferential taxation policies to promote resource utilization.

The Ministry of Finance, along with NDRC and MOHURD, play a key role in the establishment of financing and cost recovery strategies of the sector. Figure 9.1 indicates the relationships between the State level agencies with key responsibilities relating to the water sector.

9.2.2 Interface between National and Local Governments

As determined by the PRC Constitution, the government is divided into central and local levels, with the various departments and functions performed at local level supervised by the relevant Ministry at the national level. These supervisory arrangements have traditionally led to the establishment of lower level agencies in local governments that report to respective higher level central government agencies. For urban management the relevant levels of Government are: Provinces (including Autonomous Regions, and the 4 Directly-managed Municipalities of Beijing, Shanghai, Tianjin and Chongqing); Municipalities (or Prefectures); Urban Districts, county and county level cities, and the lowest level is township.

At the provincial level, government structures closely replicate the national level structure, and the duties of relevant departments concerned with the urban environment are also similar to those of their national-level counterparts. At city level the allocation of responsibilities between the different levels of government depends on the size of the city, but in all cases the

Easen International Co. Ltd. 9-2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building municipal-level government is responsible for coordinating service delivery for both water supply and wastewater. In smaller or medium-sized cities almost all wastewater management functions will be performed at the Municipal level. In larger cities, like Wuhan, the Urban Districts have a more prominent role and are responsible for local sewerage networks.

Figure 9.2 below illustrates the relationships between the different levels of government, distinguishing between the line of direct accountability and the exercising of functional supervision. .

Easen International Co. Ltd. 9-3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

Easen International Co. Ltd. 9-4 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

Easen International Co. Ltd. 9-5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

9.3 Sector analysis and institutional arrangements in Wuhan

Wuhan Municipal Government is a city level government directly accountable to the Hubei Provincial Government. All government departments are directly accountable to WMG and the local people’s Congress, while retaining strong functional links and responsibility to their equivalent departments at the provincial and national level. Below WMG there are lower levels of government at urban district (or county in rural areas) and neighbourhood/street levels. Wuhan Municipality comprises thirteen districts (seven urban and six suburban). There are also enterprise development zones.

9.3.1 Alternative Approaches to Water Sector Management at City Level

Traditionally, all city governments were required to establish institutional arrangements that closely replicated those at the national level and indeed many cities still adopt this approach. However, over the last 8 to 10 years the central government has progressively relaxed the traditional stringent requirements for the institutional organization of cities, and some municipalities, have adjusted their institutional organization based on their particular needs.

In relation to water sector institutional arrangements Shanghai and Shenzhen were the first Chinese cities to adjust their arrangements to provide for greater integration of water management. This was done by forming a Municipal Water Bureau from departments and units belonging formerly to the water resources bureau, construction bureau, public utilities bureau and/or the urban administration bureau. Several other cities subsequently followed suit and established Water Bureau, including Beijing, Wuhan and Harbin. In contrast, Tianjin, Chongqing Nanjing, and some other large cities continue to follow a more traditional structure of local government with less integration of urban water management.

A Municipal Water Bureau was initially set up in 2002 at the municipal level with responsibilities for flood control, water resources management and water conservation, river and surface water management, water supply, urban drainage, and wastewater management (collection, treatment, and residuals management). Similar water bureau have subsequently been established within each of Wuhan’s urban districts and these local water bureau are responsible for the operation and maintenance of local infrastructure - especially that related to flood control and surface water drainage which has been traditionally performed at the district level of government. Thus most lakes, water channels, and local sewers are managed by the local district level Water Bureaus, with Wuhan Municipal Water Bureau providing required coordination (especially for flood control) and regulatory oversight to ensure adherence to required standards and regulations.

WMG has also created a Water Group Company to take advantage of synergies and economies of scale in the provision of municipal water and wastewater services. This Water Group is a subsidiary of the Wuhan Urban Investment and Development Company which is under the supervision of the Wuhan State Assets Management and Administration Commission. However, functional supervision and regulation of the Water Group is exercised by Wuhan Municipal Water Bureau (see below).

9.3.2 WMG Agencies with Specific Project Related Responsibilities

The WMG institutional arrangements relevant to water sector management and the implementation of WUEIP are summarised in Figure 9.3. The project related responsibilities of some of the more important agencies are briefly described below.

Wuhan Municipal Development and Reform Commission (WDRC): Functionally accountable to NDRC, WDRC is responsible for the planning of major investment projects and obtaining project approvals from higher authorities where these are required for all government

Easen International Co. Ltd. 9-6 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building investment in Wuhan. WDRC is thus most active during the project preparation phase and in particular in processing the Project through the domestic procedures. This includes seeking the necessary approvals required of Hubei Provincial Development and Reform Commission (HDRC) and by the National Development and Reform Commission (NDRC) at the national level. – as NDRC will give approval to the foreign capital utilisation application to utilize the ADB for the WUEIP. WDRC will also be involved in the final commissioning and acceptance of completed project works to ensure these have been constructed in accordance with approvals given and are of satisfactory quality.

Wuhan Municipal Construction Commission: The Wuhan Municipal Construction Commission (WCC) is functionally accountable to MOHURD and is responsible to WMG for overseeing all urban construction. However, its role is essentially a policy and regulatory one and WCC is not directly involved in construction activity. Compliance with design and construction standards, accreditation of design institutes and construction supervision companies all come within the remit of the WCC. It is also closely involved in urban master planning.

Wuhan Municipal Finance Bureau (WFB): Functionally accountable to the Ministry of Finance (MOF), the Wuhan Municipal Finance Bureau (WFB) prepares and administers the overall WMG budget which in turn dictates the funding of directly managed public services such as storm water operations, and the level of subsidy provided to the utilities and the extent of their operations, maintenance and renewals budgets. At the lower district-level of government there are district-level Finance Bureaus that set budgets for public services provided at the local district level, which include storm water management, lake and water channel maintenance, and localised urban flood relief activities. The wastewater tariff in Wuhan (and in most Chinese cities) remains a government administered fee rather than a commercial charge and therefore, in accordance with MOF regulations, WFB is required to oversee both collection and distribution of wastewater tariff proceeds, although these tasks are delegated to Wuhan Water Supply Company and WFMO for collection and distribution respectively.

Wuhan Municipal Environmental Protection Bureau (WEPB): Functionally accountable to MOEP, the WEPB is responsible for environmental protection within Wuhan Municipality and is the principal environmental regulator. It has responsibilities that cover air, noise, solid waste and water pollution and has affiliated environmental monitoring stations that operate at both the Municipal and District/County level. This network of monitoring stations provides data for environmental management, planning, and the enforcement of environmental regulations. Monitoring includes individual point sources of pollution, especially industrial wastewater sources, and the quality of watercourses (rivers, lakes, etc). WEPB also administers the procedures environmental impact assessments (EIA) required under Chinese environmental law, and is the local enforcement agency for EIA compliance. In addition, WEPB has an information center that undertakes environmental education, training and public awareness activity.

The Wuhan Municipal Price Bureau (WPB): Functionally accountable to NDRC, the Wuhan Municipal Price Bureau (WPB) is the Government’s local price regulator for those prices, which are still under the control of the State. This includes the administration of water supply and wastewater tariff levels and the review and processing of any increases proposed by the utility companies responsible for these services. WPB conducts its pricing reviews in accordance with PRC pricing law and regulations and policies issued from time to time by the national and Hubei Provincial Government. WPB then makes its pricing recommendations to WMG where most local pricing decisions rest, although some need the endorsement of the Hubei Provincial Price Bureau before they can be confirmed and implemented.

Wuhan Municipal Water Bureau (WWB): WWB was created under the last major structural reorganization of WMG, and is the Government agency with overall responsibility for water and wastewater management within Wuhan Municipality. It inherited responsibilities from the former Wuhan Water Resources, Engineering Administration, and Public Utilities Bureaus. As such it

Easen International Co. Ltd. 9-7 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building has dual functional accountabilities to both the Ministry of Water Resources and MOHURD. As part of its responsibilities, WWB exercises functional supervision over WUDDC and undertakes other wastewater and storm water management activities either directly itself or through subsidiary units as follows: • administration and enforcement of municipal regulations for management of the sewerage system, including control over sewerage connections; • coordination with District Governments on the operation of the sewerage system; and • management of major storm water pumping facilities and coordination of storm water operations and urban flood alleviation.

Wuhan Urban Construction Foreign Funds Utilisation Office (WUCFFUO) is an agency set up by WMG to seek and manage foreign investment in urban construction. It is directly accountable to WMG and has a coordinating role across government departments in this specialised area.

Wuhan Project Management Office (WPMO) was originally established in December 2001. The main functions are responsibility for management and coordination of urban construction utilizing foreign funds in Wuhan. WPMO is assigned its responsibilities on a project by project basis and conducts its activities under the overall direction of the Project Leading Group. There are 6 departments under WPMO including Administration, Preparation, Engineering, Financial, Procurement and Resettlement. The work of WPMO is closely related to that of WUCFFUO and the two agencies share some staffing resources.

Wuhan Urban Construction Fund Management Office (WFMO) is another government agency established by WMG with a specialised coordination role. The Office is responsible for financing and implementing public sector construction projects that cannot be implemented on a commercial basis. Most large scale non-revenue generating urban construction is therefore implemented under the auspices of WFMO. WFMO is currently the implementing agency for the storm water components of the ongoing ADB funded Wuhan Wastewater and Storm water Management Project and is also the lead implementing agency for the ongoing World Bank financed urban transport project.

Wuhan Urban Drainage Development Company (WUDDC) is a subsidiary of the Wuhan Water Group Company, WUDDC’s business licence defines its scope of business as including the construction, operation and maintenance of urban facilities for wastewater collection, treatment and disposal. WUDDC was the main IA for the Wuhan Wastewater Management Project (recently completed) and is the IA for the wastewater components of the ongoing WWSMP. WUDDC has been actively involved in the preparations for the sludge components of the WUEIP, will continue to play an active role during the construction phase and then assume responsibility for the operations and maintenance of this component’s facilities.

Wuhan New Zone Construction Development Company (WNZCD) is a subsidiary of Wuhan Urban Construction Investment and Development Company(WUCID) WNZCD’s business licence defines its scope of business as including the construction of water environmental facilities, urban road, light and garden. WNZCD was set up in February 2004 and has 7 departments with 59 staffs including administration department (12 ataffs), development department (4 staffs), finance department (5 staffs), engineering construction department (9 staffs), land utilization department (13 staffs), chief engineer office ( 2 staffs), investment department(6 staffs). WNZCD has 1 Chairman of the Board, 1 General Manager, 3 Vice General Managers, 1 Chief Engineer and 1 Chief Accountant.

Wuhan Bishui Science and Technology Company (WBSTC) is a subsidiary of Wuhan Urban Investment and Development Company. WBSTC’s business licence defines its scope of business as including the construction of water environmental facilities. WBSTC was set up in September 2002 and has 5 departments with 30 staffs including administration department (4 staffs), project department (6 staffs), finance department (5 staffs), engineering department (6

Easen International Co. Ltd. 9-8 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building staffs), chief engineer office (4 staffs). WBSTC has 1 Chairman of the Board, 1 General Manager, 2 Vice General Managers, and 1 Chief Engineer.

Easen International Co. Ltd. 9-9 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

Easen International Co. Ltd. 9-10 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building 9.3.3 Arrangements for Wastewater Management in Wuhan

WMG has developed the municipality’s strategic wastewater master plan for long term compliance with national environmental targets and with the objective of treating 85% of wastewater by 2010.

Wuhan Municipal Water Bureau (WWB) is the agency with overall responsibility for urban wastewater management in Wuhan, however in accordance with government policy, WWB’s role is restricted to sector planning, regulation and legal enforcement, monitoring and supervision of performance. The provision of the core wastewater services of collection, treatment and disposal is largely undertaken by the Wuhan Urban Drainage Development Co., Ltd (WUDDC), which was originally established by WMG in 1995 as part of the reforms initiated under the World Bank supported Hubei Urban Environment Project (HUEP). Local District level Water Bureaus are responsible for the maintenance of local sewers and also issue wastewater discharge permits.

In addition to the initial HUEP investments, the ADB-funded Wuhan Wastewater Management Project approved in 2003 and the Wuhan Wastewater and Storm water Management Project (WWSMP) approved in 2006, and bilaterally assisted wastewater treatment projects, are all key elements of the City master plan. As a result of these combined efforts, 80% of the wastewater is currently treated in Wuhan, which is a high wastewater treatment ratio for a Chinese city, even among the larger cities, and projects under construction .will ensure the 85% target for 2010 is achieved.

In total there are currently 11 WWTPs in Wuhan urban area. 9 WWTPs, being Shahu WWTP, Erlangmiao WWTP, Longwangzui WWTP, Huang Pulu WWTP, Nantaizihu WWTP, Sanjintan WWTP, Huangjiahu WWTP, Luobuzui WWTP and Tangxunhu WWTP are or will be operated and maintained by WUDDC. The wastewater networks related these WWTPs are also under the management of WUDDC. 2 WWTPs, being, Zhuankou WWTP and Hanxi WWTP are managed under BOT contracts. In these cases the BOT contract covers just wastewater treatment and the related wastewater networks are managed by WUDDC. In 2001, WUDDC was also assigned management responsibility for the collection of wastewater tariffs under the overall oversight of WFB. WFB involvement is required under MOF regulations because the wastewater tariff in Wuhan still .has the legal status of a government levy rather than a public utility charge (like water, gas electricity etc) and therefore all tariff proceeds fall under Finance Bureau jurisdiction.

Current arrangements and responsibilities for wastewater management in the urban area of Wuhan can be summarized as set out in Table 9.1 below.

Table 9.1 Summary of Wastewater and Storm Water Management Responsibilities Function or Activity Responsibility Others Involved Wastewater master planning WWB WCC, WEPB Development and review of policy, laws and WWB WMG, WCC regulations Feasibility studies and project preparations WFMO WPMO, WWB, WDRC, WUDDC, Financing of major wastewater projects WFMO WDRC, WFB Construction of new wastewater infrastructure WFMO,WUDDC WPMO Setting operational standards WWB Monitoring of operational performance WWB WEPB Asset management WUDDC WSAMAC Coordination of flood control (urban area) WWB, DWBs, WUDDC Management of trunk sewer network (urban WUDDC WWB* area)

Easen International Co. Ltd. 9-11 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building Management of local sewers (urban area) DWBs Management of wastewater pumping stations WUDDC WWB* Management of WWTP WUDDC WWB* Income collection (management responsibility) WUDDC Water Group Co Determining tariff levels WMG WPB, WWB Approval of new sewer connections DWBs WWB, WUDDC Making new sewer connections DWBs Approval of new discharges to sewer DWBs, WWB WEPB Monitoring of wastewater discharges to sewer WWB WEPB Monitoring of WWTP effluent discharges WEPB WWB* Monitoring of sludge disposal activity WEPB WWB* Enforcement of wastewater laws and WWB DWBs, regulations * Functional supervision over WUDDC activity

9.4 Project Management and Implementing Arrangements

The designated executing agency (EA) for WUEIP is the Wuhan Municipal Government (WMG) which is also the Executing Agency for the ADB supported Wuhan wastewater Management Project (on which the implementation has recently been completed) and the Wuhan Wastewater and Storm water Management project (the implementation of which is ongoing). WMG therefore propose that WUEIP be implemented under arrangements that provide both for continuity and learning lessons from these earlier implementations.

9.4.1 Proposed Implementation Arrangements (Construction Phase)

(a) Leadership and Direction

As with the previous Projects, a Project Leading Group (PLG) has been formally established by WMG and has been assigned the role of overseeing the preparation and implementation of this new ADB project. The PLG group is led by a Vice Mayor of WMG. The PLG members include high level officials from the Wuhan Finance Bureau, Development and Reform Commission, Construction Commission, Environmental Protection Bureau, Planning Bureau, Water Bureau, Price Bureau, Audit Bureau, Urban Management Bureau, and involved District Governments (see Table 9.2). . Table 9.2 Membership of the Leading Group Position Name Position/Home Organization with Project Wuhan Municipal PLG Yin Weizhen Vice Mayor of Municipal Government Chair Liu Xinnian Deputy Secretary General of Municipal Government Member Zheng Minglu Deputy Director of Municipal Development and Reform Member Chen Zuxin Deputy Director of Municipal Finance Bureau Member Zhang Deputy Director of Municipal Construction Committee Member Junyong Deng Member Deputy Director of Traffic Committee Wangxiang Chen Hualin Senior Auditor of Municipal Audit Bureau Member Sheng Member Deputy Director of Municipal Planning Bureau Hongtao Zeng Member Deputy Director of Municipal Urban Management Bureau huansheng Gao Zhizhun Deputy Director of Municipal Price Bureau Member Wang Deputy Director of Municipal Water Bureau Member

Easen International Co. Ltd. 9-12 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building Hongsheng Zhao Jiangou Chief of Municipal Environmental Protection Bureau Member Jin Zhihong Head of Dongxihu District Member Chen Xinhe Head of Caidian District Member Liu Hongming Head of Member Zhang Jun Head of Hanyang District Member Wang Jiliang Head of Wuchang District Member Chen Xiexiang Head of Qingshan District Member Chen Xiexiang Head of Hongshan District Member Jin Goufa Head of Huanpi District Member

(b) Responsibility for Project Planning and Management The PLG has delegated responsibility for project planning and management to the Wuhan PMO, which has the status of an administrative office under the direct leadership of the PLG. WPMO is authorized to deal with all project related matters including finance and administration, technical and procurement matters, and monitoring, evaluation and safeguards compliance. The organization of WPMO is shown in Figure 9-4.WPMO has implemented several past ADB financed projects and the World Bank funded Hubei Urban Environment Project (HUEP). However, as identified in Chapter 5, the Financial Management Assessment (FMA) has revealed a blurring of responsibilities between WPMO and WFMO, as WPMO currently undertakes detailed accounting for WFMO.

Easen International Co. Ltd. 9-13 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

Easen International Co. Ltd. 9-14 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

(c) Responsibility for Project Implementation

The proposed project Implementing Agency (IA) for the implementation of all the Project’s components is the Wuhan Urban Construction Fund Management Office (WFMO). WFMO is a government agency responsible for financing and implementing public projects that cannot be implemented on a commercial basis. Although referred to as an office of WMG, the WFMO is a separate legal entity and was the “end of the line” borrower under the WWSMP for the storm water components. Its legal status as confirmed in the WWSMP project agreement is that of a “non-corporate institutional entity” registered with the Wuhan Municipal Institutional Entities Administration).

Implementation of most large non-revenue generating urban construction projects in Wuhan are therefore managed by WFMO. The organization and staffing of WFMO is shown in Figure 9-5. However, WFMO does not undertake the detailed project management duties of the projects it implements – instead this work is delegated to an assigned project management unit (see para 9.4.1 (e) below). .

(d) Project Financing

One of WFMO’s responsibilities as the IA will be to arrange the necessary financing to facilitate the timely implementation of the project. This financing will be a mix of ADB loan, WMG equity contribution and borrowing from domestic commercial banks. Details of proposed project financing arrangements are contained in Chapter 5 of this Report

It is proposed the ADB loan be onlent to WFMO which will undertake the debt servicing and loan repayment. WFMO will also be the borrower for the commercial bank loans required to partly finance the Project. All loans raised by WFMO (both the ADB loan and the commercial loans) will be supported by a full WMG financial guarantee.

The WFMO is financed from government budget, including urban construction tax proceeds, and it has also been delegated the responsibility for distributing the proceeds from the collection of wastewater charges, acting on behalf of Wuhan Municipal Finance Bureau.

(e) Implementation Support

WFMO will engage a number of specialist Institutes to support it in its implementation task and which include local Design Institutes, construction management companies and construction supervision companies,

In addition it is envisaged that loan implementation consultants, environmental institutes (for EIA preparation and for monitoring the environmental management plan), resettlement agencies (for implementing the Resettlement Plans and for independent monitoring of LAR activity) and tendering companies to support the procurement process will be appointed and provide necessary support to both WPMO and WFMO.

The construction management companies in particular will play a very important role in supporting the implementation of the Project. We understand from discussions that WFMO is planning to assign this role to WUDDC for the Sludge component and to the WNZCD and WBSTC for the lakes and channels components. WUDDC was an implementing agency for WB funded HUEP and for both former ADB financed projects that supported the development of Wuhan’s wastewater sector. WNZCD and WBSTC are wholly government-owned company being subsidiaries of the Wuhan Urban Construction Investment and Development Company (WUCID).

In the construction phase, the sludge construction responsibilities of WFMO (IA) will be

Easen International Co. Ltd. 9-15 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building delegated to WUDDC through a management contract; the lakes and channels components construction responsibilities of WFMO (IA) will be delegated to WNZCD and WBSTC, also through management contracts.

Easen International Co. Ltd. 9-16 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

Easen International Co. Ltd. 9-17 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building 9.4.2 Proposed Operations and Maintenance Arrangements

Sludge Treatment Component

For the sludge treatment and disposal sub-components it is currently proposed that the responsibility for operation and maintenance of the facilities will be assigned to Wuhan Drainage Company upon completion of the components’ construction. The sludge operations and maintenance responsibilities will be delegated to the WUDDC by WMFO through a management contract until the wastewater tariff level (including sludge tariff component) reaches the level necessary for full cost recovery. During this period a WMG subsidy to ensure the WUDDC operations and maintenance are fully funded will be provided via WFMO through using municipal government budget. When, through the tariff increasing step by step, the wastewater tariff level (including sludge component) reaches the level of full cost recovery, the assets of the sludge components will be transferred to WUDDC, and WUDDC will become fully responsible for funding and all aspects of operations and maintenance, incluiding eventual asset replacement..

Lake and Channels rehabilitation Components

Stormwater management in the PRC is currently considered a non-revenue generating public service. As such the responsibility for service provision is vested in local governments, although some governments assign/contract day to day operations to the local wastewater utilities.

In Wuhan, the storm water network is under the overall management of the Wuhan Municipal Water Bureau, with most operations performed at a local level by units at the district level under the jurisdiction of the relevant District Water Bureau(DWB). These operations and maintenance and associated expenditure are subject to District Government financial control and audit arrangements.

The Lake and Channel rehabilitation components include many sub-projects located at different sites across the city. It is currently proposed that the responsibility for maintenance and operation of lake and channel rehabilitation components will be assigned to the different local district level water bureaus upon completion of the construction.

9.4.3 Summary of Proposed Arrangements

The proposed implementation arrangements are summarised in Table 9.3 below and the relationships of the different agencies involved in project management are shown in the project organisation (Figure 9.6)

Table 9.3 Summary of Implementation Arrangements Impleme Loan Constructio Cost of O On-Lendi Project nting Repaym n O & M & M ng Components Agency ent Agency 1. Sludge Treatment and WFMO WFMO WUDDC WUDDC WFMO WFB Disposal 2. Longyang Lake WFMO WFMO WBSTC DWB DGF WFB Rehabilitation 3. Moshui Lake WFMO WFMO WBSTC DWB DGF WFB Rehabilitation 4. Nantaizi Lake WFMO WFMO DWB WFB Rehabilitation WBSTC DGF

Easen International Co. Ltd. 9-18 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building 5. Longkou Channel WFMO WFMO WBSTC DWB DGF WFB Rehabilitation 6. Longxin Channel WFMO WFMO WBSTC DWB DGF WFB Rehabilitation 7.Zhujiaxin Channel WFMO WFMO WBSTC DWB DGF WFB Rehabilitation 8. Liantong Channel WFMO WFMO WNZCD DWB DGF WFB Rehabilitation 9. Zong Channel WFMO WFMO DWB WFB Rehabilitation WNZCD DGF 10. Huoyan Channel WFMO WFMO WNZCD DWB DGF WFB Rehabilitation 11. Sixin WFMO WFMO DWB WFB Pumping Station WNZCD DGF 12. Yangchun Lake WFMO WFMO WNZCD DWB DGF WFB Rehabilitation 13. Heping Channel WFMO WFMO WNZCD DWB DGF WFB Rehabilitation 14. Loan Implementation WFMO & WFMO WFB Consulting PMO Services 15. Community PMO & Environmental WFMO WFB DWB Awareness 16. WWTP O&M WFMO, Improvement PMO and WFMO WFB Study WUDDC 17. Point Source and Non-point Source Pollution Control Study WWB and WFMO WFB including 6 lakes WEPB connection integrated management Notes: (1) WWB: Wuhan Municipal Water Bureau; (2) WEPB: Wuhan Municipal Environmental Protection Bureau

Easen International Co. Ltd. 9-19 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

WMG

PLG

WPMO

WFMO(IA)

Using Management Contract in Construction Phase

WUDDC WNZCD WBSTC

Using Management Contract in O & M Phase For Sludge Component

WUDDC

Assets Be transferred for O & M of Lake and Channels rehabilitation Components

District Water Bureaus

Easen International Co. Ltd. 9-20 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

9.5 Analysis of Proposed Implementation Arrangements

9.5.1 Design and Construction Phase Implementation

The proposed implementation arrangements for WUEIP are broadly similar to those established for the earlier ADB funded projects (WWMP and WWSMP). WPMO, WFMO and WUDDC will all be involved in project implementation, all have previous experience in ADB procedures and requirements, and there is considerable continuity in terms of both the organisations and individual personnel involved. This clearly gives considerable assurance for a successful implementation although as identified in the FMA, there appears to be a need to more clearly delineate the respective roles of WPMO and WFMO to ensure there is no conflict when WPMO comes to exercise is overall supervisory role.

However, there is one potentially significant change in the proposed implementation arrangements for WUEIP compare to those for the ongoing WWSMP. This relates to the proposal that WFMO, and not WUDDC, be the formal implementing agency for the sludge management component.

Sludge management is an integral part of wastewater management and should be managed and financed as such. Wastewater is a natural utility service with clearly defined beneficiaries who have significant control over the level of service usage by moderating their water supply consumption, (and in the case of industries and some trades they can moderate the content of wastewater discharge by installing forms of pre-treatment). As such, wastewater is potentially a revenue generating service that can ultimately be made self financing, and demand moderated by levying full economic charges. In the short to medium term, however, full cost recovery tariffs are not considered viable by WMG on social and political grounds – this is partly a consequence of WMG’s success in greatly enhancing urban environmental management through construction of extensive wastewater infrastructure over the last 15 years, but on which debt servicing now falls on the wastewater service user.

Our understanding, based on consultations with WPMO is that WFMO has been selected as IA because: • It is a more senior level organisation able to better coordinate and resolve implementation issues within WMG • It offers a means whereby WMG can shelter WUDDC (at least temporarily) from some of the debt burden associated with the rapid construction of wastewater facilities (because WFMO and not WUDDC will be responsible for debt servicing).

However, if this approach is accepted it is essential that cost recovery levels are monitored and a strategy developed and implemented to achieve this objective in order to guarantee the long term sustainability and economic efficiency of the wastewater service. This approach would also be a departure from ADB’s normal insistence that the IA for a revenue generating component be an enterprise and that the revenue generated should flow to the IA accordingly.

Currently in Wuhan there is a somewhat unusual situation in that all wastewater tariffs are remitted to and then distributed by WFMO, albeit in accordance with WFB instructions. This arrangement is contrary to reforms agreed with the WB under HUEP that all wastewater tariff proceeds be remitted to and retained by WUDDC, and seems to both reduce the financial autonomy of WUDDC and the level of transparency in how wastewater tariffs are applied. Further policy dialogue with WMG seems to be necessary to improve both WUDDC financial autonomy and the transparency in the use of wastewater tariff proceeds.

Given that it appears there is a currently shortfall in cost recovery in the financing of wastewater service in Wuhan a rational strategy for temporary subsidies is required and for this to be agreed by WMG. Based on ADB’s “criteria for subsidies”, it is suggested the preferred

Easen International Co. Ltd. 9-21 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building approach would be for the required subsidy to be a capital one achieved by reducing WUDDC debt burden, with all wastewater tariff proceeds flowing directly to WUDDC.

Whilst there are some clear merits in the proposed IA arrangement (not least in view of the strong degree of WMG ownership that exists for this arrangement) the somewhat unusual IA arrangement should not be allowed to detract from long term sustainability of the WUEIP sludge component and earlier ADB investments in the wastewater sector. In order to achieve this, the following assurances appear to be needed: • WUDDC needs to play a full and formal role in project preparations and implementation. It is suggested this be as a formally appointed project management company to support WFMO. • WUDDC be the designated future owner and operator of the sludge component facilities. • WMG needs to commit to achieving full wastewater sector cost recovery in the medium term (say) 2015. • All proceeds from wastewater charges to pass directly to WUDDC from (say) the commencement of 2011. • Subsidies needed by WUDDC to be transparent and temporary in nature.

9.5.2 Operations Phase

The proposed arrangements for the operation of the project facilities are compatible with existing water sector institutional arrangements that currently apply in Wuhan and are also typical for those in other large cities.

On some ADB projects a requirement has been included in loan documentation that the IA must own and operate all project assets. This is logical where the IA is an asset operator (such as WUDDC), but makes little sense where the IA is a construction unit, not experienced in the related operations. For WUEIP as with WWSMP - the IA (WFMO) has no operations experience and is not an appropriate organisation to undertake operations. Furthermore for most of the lakes and channels sub-components the operational activity will be an upgrading of existing operations and not entirely new operations (Sixin PS is an obvious exception). It is therefore logical that ADB agree that the operational responsibility for the lakes and channels be vested with the local District Water Bureau, under the overall oversight of WWB. The focus then should not be to change institutional arrangements themselves but to consider: • What assurances are needed to ensure operational budgets are adequate • How operations can be made more efficient • The role to be played by the community

We believe these issues need to be considered as part of the legal assurances and as part of the WUEIP capacity building program (see section 9.8 below).

For the sludge component the proposed arrangement is that WUDDC would become the asset owner and operator of the facilities. This is logical and fully in accordance with ADB policies and expectations. There is no institutional issue, rather the operating phase issues in respect of this component are: • How can cost recovery be assured • Ensuring WUDDC has the technical capacity to operate and maintain the facilities • Ensuring WWTP operations are improved so as to not adversely impact on sludge management performance.

These issues also need to be addressed through policy dialogue, loan assurances and capacity building.

Easen International Co. Ltd. 9-22 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building 9.6 Assessment of Capacity Building Needs

WPMO, WUDDC and WFMO have all benefited from capacity building programs conducted under the HUEP, WWMP and WWSMP projects. In addition, there was a water quality modelling capacity building initiative undertaken as part of the WWMP that was targeted at WWB.

It is therefore important to ensure that the capacity building content of WUEIP avoids replication, builds on, and complements the earlier capacity building initiatives. It is also important to learn lessons from those past programs so that the design and ultimately the effectiveness of the WUEIP capacity building can be an improvement on past programs.

In addition it is important that capacity building also considers the “grass roots” needs at the local level where most operations, maintenance and related activities to give assurance over the lakes and channels components will take place. Thus the capacity building needs of local District agencies responsible for these activities need to be fully considered.

9.6.1 Lessons Learned from Previous Capacity Building

Discussions have been held with WPMO, WUDDC and current capacity building consultants, regarding the earlier capacity building programs. The feedback from the results and experience gained during earlier capacity building has included the following lessons of potential relevance to WUEIP: • Project consulting services have not always been efficiently utilized. • PMO supervision needs to be reinforced • Effectiveness of consulting services has been compromised by poor terms of reference. • Capacity building must be relevant to recipients and they must be fully consulted in its design. • Capacity building needs to respond to policy developments rather than anticipate them. • Implementation of institutional reforms is a lengthy process and difficult to achieve except where the reforms in question are part of a government sponsored reform program. • Full compliance with some loan conditions has proved impractical; • Construction plans have not always been implemented in a timely way; • Poor cooperation among the various government agencies has created difficulties and delays; and • Management experiences from ADB projects cannot necessarily be applied in other similar projects.

Not all these lessons apply to the ADB projects, some relate to the WB funded projects. In particular it was felt the WB funded HUEP capacity building was pushing reforms that were in advance of relevant changes in government policies and to an unrealistic timescale. Although most of the required policy changes have subsequently taken place, some of the specific reforms never took place.

Examples given for impractical loan conditions included unrealistic reporting deadlines (in the WB funded urban transport project in particular), and requirements for annual tariff reviews – which do not accord normal PRC practise. In addition, as WUDDC is financed wholly from Government funds (albeit a large part of those funds are sourced from the wastewater tariff), the Company is unable to assume real debt servicing obligations and risks (such as from interest and currency exchange rate fluctuations), and in practise these are assumed by government.

9.6.2 Previous WUDDC Capacity Building

Easen International Co. Ltd. 9-23 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building WUDDC has received by far the largest proportion of earlier capacity building efforts and this has helped the Company make a transition in role, and grow from a construction management entity formed in 1995 to implement the Wuhan wastewater components of HUEP to become a large wastewater utility with its major focus on operations. The current organisational structure of WUDDC is shown in figure 9.7 below and the Company now has a total of 600 staff, of which 57 staff are employed in headquarters departments and 543 staff are employed in the operating units (8 WWTPs and the wastewater collection network).

The capacity building provided to WUDDC has included the following: • Project and construction management support (HUEP, WWMP & WWSMP) • Financial management strengthening (HUEP, WWMP & WWSMP) • Corporate development, governance and business planning (HUEP, WWMP & WWSMP) • Operational management (WWMP and WWSMP) • Investigation of water infiltration to the sewerage system (WWSMP) • Tariff advice on tariff structures, setting levels for cost recovery and income collection improvements (HUEP, WWMP & WWSMP) • Development of a sludge disposal strategy (WWSMP)

The previous WUDDC capacity building has included both domestic and overseas training including project management, financial management, enterprise and project accounting, business planning, internal audit and corporate governance, MIS and information technology and operational management. The most recent WUDDC training programs conducted in 2007 and 2008 are summarised in table 9.4 and table 9.5 respectively

Table 9.4 WUDDC Training Implemented in 2007 Number of Staff Received Area of Training Training Wastewater Treatment Technology 100 Personal Ability Improvement 200 Planning and Engineering Management 50 New Accounting Law 20 Operational criteria and regulations 40 Sludge digestion process and operation 10 Safe Production Regulations 10 Website Security Management 5 Dredging operations and related channel maintenance 6 Chemical Sampling and Analysis procedures 30 Electrical technology 8 Pumping Station operation and maintenance 202

Table 9.5 WUDDC Training Implemented in 2008 Number of Staff Received Area of Training Training Wastewater Treatment Technology 36 New Contract Law 120 Safe production law and regulations 20 Sludge digestion process and operation 35 Drinking water safety and health 35 Lab Quality control 22 Human resources management software 13 New Accounting Law 17 Wastewater disinfection study tour 12

Easen International Co. Ltd. 9-24 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building The result of this capacity building, the WWSMP part of which is still ongoing, is that WUDDC has financial and management systems that are comparable with those in other large Chinese cities, and which are appropriate for its current circumstances.

9.6.3 Previous WPMO Capacity Building

WPMO has benefited from earlier capacity building programs under the WWMP and WWSMP where the main focus has been on implementation support including • Design review • Project management • Procurement and construction management advice • Project accounting and financial control • Environmental monitoring • Resettlement implementation and internal monitoring systems • Establishment of PPMS • Support in project reporting.

WPMO has found this support useful in facilitating the implementation of the earlier two ADB project implementations and has requested that similar support be provided for in the WUEIP capacity building component.

Easen International Co. Ltd. 9-25 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

Easen International Co. Ltd. 9-26 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building 9.6.4 Previous and Ongoing WFMO Capacity Building

Under the ongoing WWSMP, the WFMO has also taken advantage of the capacity building, implementation support and training provided WPMO and WUDDC that has included project management, ADB procedures, procurement advice and support, construction management, financial management, social assessment, environmental monitoring, resettlement, PPMS etc. WFMO staff have also participated in study tours to investigate relevant best practice.

Whilst both WPMO and the WFMO are small organisations with heavy workloads, they believe existing staffing numbers are adequate to discharge their responsibilities, provided the staff concerned are adequately trained and empowered, as well as their being supported by consulting services as appropriate. They believe relevant staff training and provision of selective consulting services support is more likely to lead to an effective project implementation than increasing WPMO/WFMO headcount.

9.6.5 Previous and Ongoing Storm Water Management Capacity Building

The WWSMP provides for the following capacity building work to be undertaken by the laon Consultant that is specifically targeted at improvements in storm water management • to review organizational arrangements for storm water operations • to review the operational procedures and maintenance programs for the storm water sewer system and the cost effectiveness of these arrangements. • To review arrangements for reporting and recording localised flooding incidents • To consider how outsourcing contracts might improve the efficiency and standards of operations, and identify potential constraints in their application.

This capacity building work is currently ongoing.

9.6.6 Capacity Building Needs of Local District level Water Bureau.

The district level Water Bureau in Wuhan play an important role in several aspects of water sector management. They are heavily involved in local flood control and drainage operations, administer the permitting of discharges to sewers (both wastewater and surface water sewers), promote water conservation at the local level and undertake grass roots level planning.

These activities primarily impact on the lakes and channels components of the proposed Project, but the permitting function and local sewerage operations also have an impact on sludge management as it affects WWTP influent quality and dilution rates.

The Hanyang District Water Bureau (HDWB) will be the district level organisation that will be most impacted by the WUEIP investments and therefore discussions have been held with the Bureau to better understand their current responsibilities and operations, and to assess future needs as a consequence of the Project.

HDWB is an agency of Hanyang District government and is directly accountable to the District Government. However it is also functionally accountable to the Wuhan Municipal Water Bureau which exercises functional supervision over HDWB and coordinates water management for the city as whole - especially water planning, and flood control. HDWB has no direct involvement in wastewater treatment or in urban water supply which are activities managed entirely at the municipal level. In total, HDWB has just over 300 staff. The Bureau is organised in two tiers:

• Tier One; comprises a series of small HQ Divisions that are responsible for the administrative and management work: - Water Resources Division (also responsible for water saving )

Easen International Co. Ltd. 9-27 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building - Water Drainage Division (also responsible for water planning) - Water Discharge Permit Division - Dyke and Flood Control Management Division - Administration Division (includes responsibilities for IT and external relations) - Finance - General Office In addition there are three Directors (one Director and two Deputies) and ancilliary units (Party affairs, Labor Union, and Women’s Federation etc) as well as staff engaged on catering, cleaning, driving and security duties making the HQ total approximately 45 persons.

• Tier two comprises three subsidiary “institutes” (operational units/ teams) responsible for day to day operations and maintenance. Over 80% of the staff are engaged by these second tier units: - Changjiang Dyke maintenance (flood control operations and maintenance in the Yangtze river catchment area of the District) - Han jiang Dyke maintenance (flood control operations and maintenance in the smaller Han river catchment area of the District) - Water Drainage (day to day operations and maintenance of lakes, water channels, local sewers and pumping stations).

The organisation and staffing of HDWB is shown in figure 9-8 below:

Water Discharge Permitting. HDWB issue discharge permits for all new connections to both wastewater and surface water sewers. These permits are a pre-condition for EIA approval and obtaining the necessary approvals to commence construction. A manual record system is kept of all discharge permits issued. HDWB has no GIS system and advised us that to their knowledge, no such system existed within WWB.

Thus HDWB control discharges from point sources to the drainage system (both wastewater and surface water systems where separated). Hanyang EPB controls point source discharges direct to the rivers and lakes and is also responsible for measures to mitigate non-point source pollution to water bodies.

Drainage Management In Hanyang Direct, the discharge of domestic wastewater to local lakes, rivers and channels remains a problem at the current time, but is being addressed by the construction of WWTP and sewage interceptors, including ongoing components of earlier ADB projects.

HDWB is responsible for the small local pipes laid in roads managed by the District. Trunk sewers and those laid in roads maintained by the Municipal Government are the responsibility of WUDDC. Local sewers are maintained by the HDWB Water Drainage institute as are 6 local (automated) pumping stations. Where specialist or large scale works are required then this is outsourced to contractors.

Major Pollution Concerns

According to HDWB, the main causes of water pollution in the lakes and channels results from: - Direct discharge of domestic wastewater (the most serious problem, but one which will be reduced once interceptors currently under construction are commissioned). - Surface water discharges from the urban area after storm events (especially after a significant period of dry weather) - Non point source pollution from agriculture ; and . - Dumping of solid waste into the water bodies by local citizens

Easen International Co. Ltd. 9-28 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building The HDWB were quick to point out these problems are made worse by the blockages and poor circulation of water in the lakes and channels, caused by inadequate past maintenance over many years.

Easen International Co. Ltd. 9-29 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

Easen International Co. Ltd. 9-30 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building HDWB Capacity Building Requirements

The main burden of additional work resulting from the WUEIP will fall on the Water Drainage Institute as there will be significantly higher active maintenance required once the project facilities are completed. HDWB have estimated that they will need approximately 50 additional staff to fully meet these responsibilities together with additional equipment and budget. The PPTA team has also asked the WDI preparing the domestic feasibility study to evaluate the incremental O&M needs of the lakes and channels components and include this in their study report.

It is our understanding from WPMO that HDWB will also be responsible for the operation and maintenance of the Sixin Pumping Station sub-component, and the HDWB staffing estimate does not currently include for this.

HDWB currently has very little IT capacity and does relatively little external public relations work. Both IT and public relations are currently amongst the various responsibilities of the Administration office. There is an obvious need for record keeping to be modernised and a “prima-facie” case for the implementation of a GIS to support the management of local water infrastructure- however these initiatives are probably best dealt with through municipal level initiatives under the auspices of WWB.

From discussions, it is apparent that current drainage operations are low technology and manpower intensive and there should be more in-depth investigation of how operations can be modernised and improved - as stated above, such investigations are part of the WWSMP capacity building and therefore have not been assessed in depth by the PPTA team.

9.6.7 Policy and Government Reform Motivated Capacity Building Needs

The policy dialogue and related discussions on reforms and implementation issues for the WUEIP has identified further potential capacity building needs as follows:

• ADB “Clean Development Mechanism” (CDM) - whilst it has not been possible due to timing constraints to build any definite CDM initiatives into the main design of the WUEIP, the Project nevertheless has the potential to utilise this facility during the course of implementation and in subsequent phases of implementing the Wuhan sludge management strategy. It would therefore be appropriate to include provision in the loan consulting services for supporting WMG in developing and gaining approval for CDM and other relevant climate change related initiatives.

• As identified in section 9.5 above, WMG needs to make progress to fully cost recovery of the wastewater service, and in a manner that is socially inclusive. Consulting services should support WMG in monitoring levels of cost recovery and developing practical strategies to achieve financial sustainability for the service. This in turn would further facilitate the corporate development of WUDDC to become a genuinely autonomous utility company.

• Section 9.9 below discusses opportunities for private sector involvement, and especially so during the operations phase of the Project. The consulting services should therefore include an element to ensure such opportunities are rigorously appraised and where appropriate support their implementation.

• Discussions with local stakeholders suggest that there is low community awareness of water pollution related health issues and of the benefits gained from environmentally living and behaviours. Capacity building sub-components to address these issues are therefore appropriate.

Easen International Co. Ltd. 9-31 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building • Urban water quality in the project area is adversely affected by both point and non-point source pollution. Strategies and action plans need to be developed to control and eventually abate water pollution by better pollution source management. Capacity building to work towards this goal would be complementary to project investment objectives and enhance the prospects for environmental sustainability of the concerned water bodies.

• Re-establishment of historic water flows between the urban lakes, channels and local rivers will undoubtedly enhance the ability to manage and improve water quality in the urban lakes, but as identified in Chapter 4 (environmental analysis) there is a risk that these flows will result in a lowering of water quality in the main rivers downstream of the discharge points. Assessing the seriousness of this risk and the identification of effective mitigation measures has not been possible during the PPTA because of inadequate data availability and water quality modelling facilities. Whilst water quality models were developed as a capacity building initiative during WWMP this work has yet to lead to the development of a practical water quality management system.

9.7 Assessment of Procurement Capacity

9.7.1. Introduction

This section reviews the proposed arrangements for procurement under the Project and the capacity of the agencies involved. A detailed procurement assessment questionnaire has been completed by WPMO as part of this review and is included as Appendix 9.1 to this Report.

9.7.2. General Arrangements

Public procurement in the PRC has to be carried out in accordance with the PRC bidding law, which stipulates the use of competitive procedures. PRC Government has also issued regulations on anti-corruption and fraud prevention measures in public procurement. WPMO, WFMO and other relevant project agencies are well familiar with these requirements and their practical application.

All procurement under the Project will be carried out in accordance with ADB procurement guidelines and the ADB guidelines will be applied where these impose stricter or slightly different standards than the PRC bidding law. However there is no fundamental conflict between the PRC law and ADB procurement guidelines.

It is normal practise in the PRC for suitably qualified design institutes (DIs) to prepare technical specifications for all engineering related contracts, including for goods and equipment. This arrangement will also apply for the WUEIP. Many of these DI’s, including those currently advising WPMO, are already experienced in preparing the technical specifications for contract documents to be used in procurement of foreign funded work (such as ADB and WB projects).

For larger contracts it is normal practise to engage a professional tendering company to manage the procurement process on the project owner’s behalf. The services normally include pre-qualification (where needed), preparation of the commercial sections of bidding documents, advise/supervision on contract evaluation, advice/supervision of contract negotiations and in final contract preparation. During the procurement process for both of WWMP and WWSMP professional tendering companies with previous ADB experience were engaged by WPMO and the IAs to support them in the procurement process and the same is proposed for WUEIP.

Specific requirements of the loan/project agreements will be included in bidding and contract documents where appropriate to impose relevant conditions on contractors or to inform them of certain matters. Examples will include the requirement on contractors to warn and educate

Easen International Co. Ltd. 9-32 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building their staff on the dangers of HIV/Aids, ADB’s audit and inspection rights, insurance requirements, and compliance with ADB’s gender policies, and the consequences of corrupt practises.

9.7.3. Previous Experience and WPMO Procedures

WPMO has previous ADB procurement experience from both WWMP and WWSMP, WFMO has ADB procurement experience from WWSMP. Both of the proposed construction management organisations also have previous ADB and WB procurement experience, and in the case of WUDDC this is quite extensive over a 15 year period.

WPMO has no record of any incidents of mis-procurement under either of the earlier ADB financed projects where it has overseen the procurement process.

WPMO has a comprehensive set of written procurement procedures which include: • Instructions and clarifications to bidders • Arrangements for receipt of bids and their storage prior to opening • Bid opening and recording • Arrangements for bid evaluation • Seeking clarifications/confirmation from bidders (where necessary) • Post evaluation notifications Under WPMO procedures it is normal for an independent person from the WMG anti-corruption office to attend major bid openings and evaluations.

9.7.4. Capacity Building and Support

Training in ADB procurement procedures has been provided to select WPMO and WFMO staff during the earlier projects. However, it is proposed that training be repeated both as a refresher for staff already trained and to give training to new staff. Appointed DIs and Tendering companies will also be asked to send their relevant staff for this training. Governance and anti-corruption measures will be fully integrated into the training.

As part of the WUEIP capacity building component there will be an international consulting company appointed to provide implementation support. This support will include design and bidding document review, advice and attendance at bid opening and evaluations.

9.7.5. Proposed ADB Safeguards on WUEIP Procurement

ADB will undertake a prior review of the model form of bidding/contract documents ahead of the first ADB funded contract being procured. ADB will also receive bid evaluation reports for all ADB funded contracts and for selected contracts (such as appointment of the loan consultants) will require prior review of the draft contract before this becomes effective.

Regular six monthly ADB supervisory missions will include a review of procurement activity and the loan/project agreements will provide the normal right of ADB inspection and audit access.

9.7.6. Overall Assessment

Based on the above arrangements and the previous procurement record of WPMO it is concluded that procurement capacity is adequate to ensure full compliance with ADB guidelines.

9.8 Proposed WUEIP Capacity Building.

9.8.1 Structure and Outline of proposed Capacity Building

Based on the above analysis of capacity building needs and following discussions with the PMO

Easen International Co. Ltd. 9-33 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building have identified the overall composition of the institutional strengthening and capacity building component: • Support of project implementation; • Training in O&M for existing WWTPs to improve the performance of WWTP processing units, including their sludge handling facilities, (including study tours to identify and learn from best international and domestic practices). • Control and mitigation of point source and non-point source pollution in the Project’s service area; • Education the young generation of Wuhan residents on environmentally friendly and energy efficiency practices; • Preventive actions and policy development for community health awareness; and • Urban surface water management in Hanyang district, including the integrated management of the 6 lakes connection.

WPMO would like to see these capacity building needs dealt with by a number of different providers, each specialist in their particular fields. They also believe that some of the capacity building would be best dealt with by domestic institutes fully familiar with local circumstances. The procurement plan prepared by the PPTA team therefore includes the following packages:

• Project Implementation Consulting Services - estimated value US$1.10 million • Wastewater Operation & Maintenance Improvement and Sludge Treatment Supports - estimated value US$ 0.85 million • Surface Water Management Study and Public Awareness Program - estimated value US$ 1.05 million

9.8.2 Initial Assessment of Training Needs

Training will be an important cross-cutting theme in the capacity building efforts and whilst many training needs can be readily foreseen, others will only be identified in detail as the capacity building work is undertaken.

Discussions with WPMO, WFMO and WUDDC have identified an initial assessment of training needs as set out in Table 9.6 below. In addition, training to relevant government agencies in enhancing public education and public awareness and in implementing community health awareness programs have also been identified in these discussions.

Table 9.6: Preliminary Assessment of Training Needs WUDDC Water Area of Training WPMO WFMO Bureaus Project Implementation Related Training Project management Yes Yes Project planning and control Yes Yes Financial control of projects Yes Yes ADB procurement procedures Yes Yes ADB reporting procedures Yes Yes Use of Standard contract documents Yes Yes Design Review Yes Construction supervision (general) Yes Yes Site records and control Yes Site safety Yes Quality control in construction Yes Yes Evaluation of contract claims Yes Monitoring and evaluation Yes Yes Resettlement monitoring Yes ? Environmental monitoring Yes Yes

Easen International Co. Ltd. 9-34 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building Management Training Utility management (general) Yes Yes Yes Business/corporate planning Yes Yes Yes Capital investment planning & appraisal Yes Yes Yes Training needs assessment Yes Yes Yes Yes Lake Protection information Management Yes Yes Performance measurement for lake Yes Yes Yes environmental improvement Personal management skills development Yes Yes Yes Yes Computer and IT skills training Yes Yes Yes Yes Financial Training Financial accounting Yes Yes Cost & project management accounting Yes Yes Capital project accounting and cost control Yes Yes Financial planning Yes Yes Yes Project internal auditing Yes Yes Computerized financial management systems Yes Yes Yes (including the use of accounting software) Operations Training Integrated pumping operation for flood Yes Yes management Pollution control and mitigation Yes Yes Wastewater Source Management Yes Yes Wastewater Treatment Process Control Yes Strategic Sludge planning Yes Sludge Treatment Operations Yes Wastewater re-cycling and re-use Yes Yes Wastewater collection management Yes Wastewater tariff management Yes Sludge utilization and marketing Yes Asset recording procedures Yes Yes Asset maintenance & maintenance planning Yes Yes Materials management Yes

9.8.3. Objectives of the Proposed Capacity Building

Overall Scope and objectives of the capacity The objectives of the capacity building program are to give support, training and consulting advice so that: • The WPMO and WFMO are able to function as effective project management units with adequate engineering and technical advice and support available to them; • The Project is implemented in full compliance with all relevant ADB and domestic policies, regulations and guidance. • Control and mitigation of point source and non-point source pollution in the whole of the project's service area. • There is improvement in the performance of WWTP processing units, including their sludge handling and treatment facilities. • Public awareness on environmentally friendly and energy efficient living is improved. • Preventive action is taken and appropriate policies are developed for community health awareness.

Easen International Co. Ltd. 9-35 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building • Urban surface water management in Hanyang district is improved.

These objectives have been identified in discussion with WPMO, and are expanded upon in the following paragraphs of this section.

Project Management and Implementation Support Objectives The objectives of this part of the capacity building are to assist WPMO and WFMO, to improve their ability to successfully implement the components of the Project. Specifically these include: • The development of realistic and well considered project plans and project management systems • The improvement of efficiency of procurement in accordance with ADB procedures • The development of effective engineering design and construction supervision systems to facilitate adherence to quality standards and completion targets • The assessment of project effectiveness including monitoring and compliance with relevant ADB safeguard policies (social, and environmental). • Establishing and maintaining proper records, accounts, financial controls and governance systems for the Project. • Project progress and performance reporting. • Advice on compliance with covenants in the project agreement and on the incorporation of applicable policy initiatives such as the clean development mechanism, full cost of wastewater services, and private sector involvement etc.

Pollution Control and Mitigation The objectives of this part of the capacity building are to assist WWB and other relevant agencies such as WEPB to more effectively control and mitigate the pollution effects in surface water from both point and non-point sources of pollution, and the control of levels of toxins in wastewater sludge. Specifically these include: • Examining regulatory procedures and controls for point sources of pollution and making suggestions for improvement. • Establishing monitoring arrangements for the sampling and analysis of WWTP sludge production and to ensure that disposal is in compliance with relevant national and local guidelines. • Review of earlier studies to establish the extent and impact of non-point source pollution of urban water courses, and the development of a strategy to mitigate such pollution based on relevant successful international experience.

Objectives for Improvement in WWTP Operational Performance The objectives of this part of the capacity building are to strengthen the operational management of WUDDC by: • Enhancing WWTP operational efficiency • Improved process control to give greater assurance over the quality of residuals (wastewater effluent and sludge). • Identifying opportunities for upgrading technology and equipment to give better performance • Promoting cost effective energy and residuals recovery. • Reducing the carbon footprint of WWTP and sludge treatment/disposal operations.

Easen International Co. Ltd. 9-36 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building Public Awareness Objectives The objectives of this part of the capacity building are to develop public education programs (and assist in their implementation) to promote environmentally friendly and energy efficient living on the part of Wuhan residents. Such programs should consider and incorporate

• The contribution of urban planning to environmental protection and lifestyle improvement. • The role of the environmental industry • The role of individual residents • Emerging best practices from both overseas and within China.

Community Health Objectives

The objectives of this part of the capacity building are to develop a community health program and assist in its implementation. The program should focus on health risks associated with a degradation of the urban environment and pay particular attention to the needs of vulnerable groups such as migrant workers and the poor.

Urban Surface Water Management Objectives The objectives of this part of the capacity building are to improve surface water management in the urban area of Wuhan with particular emphasis on the situation currently found in Hanyang District. This objective is also closely related to the pollution control/mitigation objective referred to above. Sub-objectives include: • Identifying the reasons for surface water quality degradation and how these might be eliminated. • Establishing a management regime for improved water circulation/flows • Establishing a water quality monitoring and control system • Developing an emergency response system to deal with storm and flood risk situations and to manage pollution incidents.

9.8.4 Detailed Scope of Work The capacity building provider(s) will work primarily with WPMO and WUCF, but also with other agencies as required, providing assistance and advice on the following:

Project Management and Implementation Support • The development of comprehensive project implementation plans and procedures for monitoring and control. • The introduction of document control, design supervision, and contract management systems for the Project, utilizing and adapting as necessary the arrangements set up for the WWSMP. • The review of designs, drawings and the bidding documents, including the identification of potential technical problems and suggesting means of resolving these, including the incorporation of environmental mitigation measures where appropriate. • International Competitive Bidding (ICB), Local Competitive Bidding (LCB) and International Shopping (IS) contract procedures in accordance with the ADB's Guidelines on Procurement. • The development of reporting procedures to the ADB, including those covering construction progress, withdrawal and payment. • Exercising construction supervision and management including: − Approval of construction methods

Easen International Co. Ltd. 9-37 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building − ensuring work is undertaken according to the intent of contract specifications − control over construction quality − adherence to contract work programs and recovery of slippage − site health and safety procedures − record keeping systems to protect client interests in event of claims etc − claims assessment and determination • Provide advice and training on the establishment and operation of project accounting and disbursement procedures. • Provide advice and training on project financial controls, reporting and audit. • Establish a Project Performance Monitoring System (PPMS) including its detailed design, data collection and analysis procedures, and the provision of training in its use. In order to avoid duplication of resources this work should make maximum use of the existing WWMP and WWSMP monitoring systems and also be compatible with the PRC Ministry of Finance project reporting system. • Undertake a review of the independent resettlement monitoring and reporting arrangements and the reports so produced. Recommend actions necessary to ensure compliance with approved resettlement plans. • Develop and implement an environmental monitoring program and reporting procedures to ensure appropriate mitigation measures are undertaken during the project construction and operational phases of the project facilities. • Assisting in periodic reviews of wastewater service cost recovery and monitoring progress made towards the strategic objective of full cost recovery. • Identifying potential opportunities to take advantage of ADB’s clean development mechanism and any other related climate change initiatives that may be relevant to the Project. • Identifying potential opportunities for private sector involvement in the WUEIP operations and maintenance phase and, where necessary, advising the relevant project owners on how these could be implemented in practice. • Support and advice to WPMO as may be required on the procurement and implementation of the other capacity building sub-components.

Pollution Control and Mitigation Specific tasks will include:

• Identifying the responsibilities, regulations and procedures relevant to discharge of wastewater to surface water bodies. (including monitoring arrangements and enforcement procedures) • Identifying the responsibilities, regulations and procedures relevant to the discharge of wastewater to municipal sewers. (including monitoring arrangements and enforcement procedures) • Recommend improvements to these arrangements based on proven international and emerging best Chinese practises and regulations. • Assist in the implementation of agreed improvements • Assist WUDDC and Water Bureaus to establish a database of wastewater dischargers suitable for their needs.

Easen International Co. Ltd. 9-38 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building • Review local studies undertaken to assess the impact of non-point source pollution on local lakes and rivers in Wuhan. • Develop an outline strategy, based on proven international experience, to reduce the impact of non-point source pollution, where this poses a significant threat to surface water quality. • Recommend a program of further detailed studies and investigations where appropriate.

WWTP and Sludge Treatment Operational Improvements

Specific tasks will include: • Examine energy consumption at each WWTP/sludge treatment facility and recommend ways in which energy use can be reduced.

• Work with WUDDC to develop a strategy for energy recovery from wastewater sludge and assist in the implementation of this strategy.

• Make recommendations to improve operational performance and assist in the preparation of operational guidance manuals relating to: ƒ WWTP process control ƒ Operation and maintenance of sludge digestion facilities ƒ Operation of sludge treatment facilities

Enhancing Public Awareness in Environmentally friendly living Specific tasks include: • Designing a knowledge attitudes and practices survey to assess current knowledge and behaviour in respect of environmentally friendly and energy efficient living. The design should consider how the results of the survey might be benchmarked against the results of other similar surveys both overseas and in China. • Assist in the conduct of the survey and in the analysis of the results (including any benchmarking, if considered viable and appropriate). • Hold stakeholder discussions and other public participation events to gain a more in depth understanding of stakeholder views. • Use the results of the survey and consultations to design a detailed public education program to improve awareness in environmentally friendly and energy efficient living • Assist in the implementation of the program, including the preparation of relevant public education material. • Suggest a mechanism for monitoring the effectiveness of the program.

Development of Community Health Program Specific tasks include: • Hold discussions with local heath officials to understand specific local health issues resulting from poor surface water quality. • Identify the social groups most at risk from these health concerns • Design a targeted community health awareness program based on these investigations • Assist in the implementation of the program, including the preparation of relevant materials for promoting awareness. • Suggest a mechanism for monitoring the effectiveness of the program.

Improving Surface Water Management

Easen International Co. Ltd. 9-39 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

Using Hanyang District as a point of focus and working with the District Water Bureau, specific tasks required include: • Identification of the causes of the degradation of surface water quality and make suggestions on how these causes can be mitigated against. (to be done in close consultation with the work on pollution control and mitigation - see above) • Mitigation measures are to include an examination of opportunities for improving the circulation of water flows in local lakes, rivers and channels. • Consider the use of hydraulic and water quality modeling to predict and optimize improvements in water quality, and also to avoid the transfer of pollution downstream and make appropriate recommendations. • Assist in the development and calibration of such hydraulic water quality models as appropriate. • Provide advice and support to establishing a management regime for improved water circulation/flows • Provide advice and support to establishing a water quality monitoring and control system • Advise and assist in developing an emergency response system to deal with storm and flood risk situations and to manage pollution incidents. Training • In consultation with WPMO and the consultants supporting WWSMP review the training being provided under WWSMP and identify any specific supplementary needs, including those referred to earlier in this document. Based on this analysis prepare a detailed training program for WWSMP for WPMO and ADB approval. • Support WPMO and the other relevant agencies in the implementation of the training program (once approved). • At the project completion of the WWSMP and the mid term point of WUEIP (which should closely coincide), undertake a further review of training provided under both projects and recommend adjustments as necessary. • Use this review to also assess the effectiveness of capacity building measures generally and make recommendations accordingly to deal with any supplementary capacity building needs that are identified during the course of project implementation.

9.8.5 Reporting and Timetable

The capacity building should be programmed for five years duration to last for the whole implementation period. However, it is anticipated that the most intensive period for capacity building would be during the first two years of project implementation.

The provider of the project implementation consulting services should be required to provide the following reports: • An inception report (within one month of commencement) • Detailed training plan within 3 months of commencement • Half-yearly progress reports compatible with WPMO’s reporting obligations to ADB. • Safeguards monitoring reports compatible with WPMO’s reporting obligations to ADB. • A completion report that is compatible with WPMO’s reporting obligation to ADB at the conclusion of project implementation.

Easen International Co. Ltd. 9-40 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building All these reports will be submitted in English and Chinese to WPMO. Recommendations arising from the capacity that require any form of formal client action or approval (ie by WPMO, WFMO, WUDDC or others) are to be presented in report format with an appropriate level of justification to support the recommendations made. These reports can be provided in Chinese only unless WPMO specifically request an English version.

The providers of the other capacity building sub-components will be expected to prepare an inception report to confirm or suggest amendments to their technical proposals, quarterly progress reports on their work, specific reports as provided for in their TOR and final reports. All such reports to be prepared in both Chinese and English (to allow for easy incorporation into WPMO progress reports to ADB).

9.8.6 Indicative Consulting Resource Requirements

An indicative resourcing schedule has been prepared based on the needs of the various project agencies as assessed during the project preparation phase. This is shown in Table 9.7 below. The resourcing has assumed the consulting services required are procured through three separate consulting packages as follows: Package 1 - Capacity Building and Project Management Institutional Strengthening to be implemented over a five year period;

Package 2 - Wastewater Operation & Maintenance Improvement and Sludge Treatment Supports to be implemented over a 4 year period; and

Package 3 - Urban Surface Water Management, non-point sources and point sources study and public awareness program to be implemented over a 4 year period.

Table 9.7: Indicative Consulting Resources required for Capacity Building International National Area of Expertise Months Months Package 1 Team Leader – Project & Contract Management Specialist. 10 Deputy TL – Procurement and water engineering specialist 20 Financial and Economic Analyst 10 Cost Engineer and Quantity Surveyor 25 Ecological Rehabilitation & Water Environment Specialist 10 Institutional Coordinator 8 Resettlement and Social Specialists 12 Sub-total for Package 1 10 85 Package 2 Team Leader – Sludge Specialist 9 Waste Water Treatment Plant Engineer 5 Deputy Team Leader – wastewater engineering 14 Financial/Economic Analyst 10 Cost Engineer and Quantity Surveyor 8 Sub-total for Package 2 14 32 Package 3 Water Quality Modeling Specialists (also TL & DTL) 10 10 Watershed Modeling Specialists 3 4 Hydrodynamic Modeling Specialists 3 5 GIS Specialists 2 4 Environmental Awareness Specialist 10 Public Awareness and Tariff reform Specialist 12 Economic Analyst 2 Sub-total for Package 3 18 47 Overall Total (all packages) 42 164

Easen International Co. Ltd. 9-41 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building

9.8.7. Facilities to be provided as part of the capacity building.

The contracts for providing the capacity building should include the following general items: • All staff and personnel costs, including international and local travel, housing accommodation and subsistence. • Office equipment (but not basic office furniture), computer equipment and related hardware (printers etc) and software necessary for the effective conduct of the consultancy, including an allowance for consumables. The make and specification of all equipment shall be approved by the Client, who shall give assurances that the equipment can be maintained locally. The equipment and software will become the property of the Client at the end of the consultancy contract. • Arrangements and financial provision for in country training programs to be reimbursed at cost. • Arrangements and financial provision for overseas study visits to modern utility companies to be reimbursed at cost. • The provision of a fully qualified interpreter to work with the Consultant on a full-time basis. • The costs of all report and document preparation and printing.

9.8.8 Requirements for Capacity Building Providers

The capacity building providers should be experienced in implementing similar capacity building programs in China. Prospective providers, in tendering for the capacity building work should be encouraged to make any comments on and suggestions for improvement to the proposed program in submitting their Technical Proposal. The financial implications, if any, of these suggestions should be clearly indicated in the Financial Proposal. These suggestions will then be dealt with at negotiation stage.

In their technical proposals, the prospective providers should be asked to demonstrate a clear understanding of the Client's requirements and indicate inter-relationships between the different tasks within the assignment. An indicative program of work and for the deployment of the various specialists should be provided.

The technical proposals should include a methodology and proposed assessment criteria under which the Client can measure the performance of the successful in the conduct of the capacity building work. This should include an assessment of work quality as well as timeliness of output. In submitting such assessment criteria the providers should be required to confirm they accept its use in measuring their own performance.

9.8.9 Indicative Budget

Table 9.8 shows an indicative overall budget for the Capacity Building which will need to be disaggregated over the different sub-components once design of the capacity building is finalised and the training responsibilities/budgets of each provider decided.

Table 9.8 Indicative Budget for WUEIP Capacity Building(all figures are $000) Item Budget Budget Budget Total Package 1 Package 2 Package 3 Budget International Consultancy ( @ $20,000/month) 200 280 360 840 National Consultancy ( @ $5,000/month) 425 160 235 820

Easen International Co. Ltd. 9-42 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building Social Safeguards monitoring and reporting 200 - 200 Overseas training 150 100 100 350 Local training 25 10 10 25 Office Equipment, consumables, translation 100 50 45 205 Environmental Monitoring 50 50 Sludge Testing Equipment for central laboratory 200 200 Additional monitoring and data collection 100 100 Model platform expansion, equipment 100 100 procurement Public Survey, Consultation, Publications, 100 100 Workshops, Total 1100 850 1050 3000

Note: The consulting budget figures include for consulting fees, per diem and travel to and from.Wuhan.

9.9 Opportunities for Private Sector Participation and Potential Constraints

9.9.1 Policy Trends

Private sector participation (PSP) is a trend throughout the world which commenced in earnest in the 1980s. Reasons for encouraging PSP include: • Expected improvement in efficiencies by private operators with attendant lower costs of providing services; • Shift of responsibility for obtaining investment funds from the public to the private sector, and • Improved capacity to modernize and introduce new technology.

ADB policy is to encourage governments to consider the potential for private sector participation (PSP) in public utility operations and service delivery. There can of course be varying degrees of private involvement in the functions of a public utility ranging from service contracts (simple outsourcing) to more comprehensive forms of PSP such as long terms leases, concessions and asset divestiture where the private sector will take on a combination of management, investment financing and ownership responsibilities.

On February 19th, 2005, the PRC State Government issued document No. (2005)-3 which encouraged private sector participation on infrastructure investment, construction and operation, and in appropriate circumstances it is also allowed for assets ownership or operation rights to be transferred to private sector

9.9.2 Access to capital markets to finance public infrastructure

One of the advantages of establishing enterprise companies to manage public infrastructure service is to facilitate access to capital markets (such as corporate bond issues) to finance new infrastructures. In this connection it is important for giving comfort to both regulators and potential investors that bond issuers are able to demonstrate professional management, transparent financial reporting, a high credit rating, and a proven utility revenue bond structure. ADB has worked successfully with the Nanjing Public Utility Group Co and its parent the Nanjing Construction Investment Company on the issue of corporate bonds to finance wastewater infrastructure and similar bond issues have subsequently been made by a number of other Chinese public utilities.

9.9.3 Wuhan Municipal Government and PSP

Wuhan Municipal Government has embraced the emerging national policy and in recent years has utilized Build-Operate-Transfer (BOT) Contracts to complement its public investment

Easen International Co. Ltd. 9-43 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building program and further accelerate WWTP construction in the city. To date WMG has let 3 BOT contracts for WWTP construction and operations, being Tangxunhu WWTP, Zhuan Kou WWTP and Hanxi WWTP. However, Tangxunhu the WWTP contract was terminated and the WWTP transferred back to WMG ownership, with the plant now being operated by WUDDC.

BOT has proved a popular mode of PSP in China as this option is often considered to overcome the problem of investment capital shortage because the BOT contractor finances the construction and operation of the water/wastewater facility, and will be paid for the services rendered over the operation period (which is typically between 20 and 30 years). Thus government avoids the need to make initial capital investment but then has to ensure there is adequate revenue (from wastewater charges or taxes) to pay the fees charged by the BOT contractor for operations.

For the BOT option to be successful, it is vitally important that the following conditions are met: • full cost recovery is achieved from service user charges to ensure the financial sustainability of the BOT contract; • government takes professional advice on the procurement procedures and the customization of model BOT contract forms to ensure an arrangement that is appropriate to local circumstances and meets their particular investment objectives.; • contract provisions are sufficiently robust to guard against financial risks in contracts of such long duration; • contract provisions are sufficiently comprehensive to safeguard performance standards; • a strong regulatory structure is created to monitor service standards and consider adjustments in tariff levels; • there is sufficient market interest and procurement capacity to ensure a competitive and transparent bidding process; because value for money could be a concern if contracts entered into are awarded on a negotiated basis; • contract documentation should be based on high quality information to reduce the risk of future claims and disputes;

The PPTA has not conducted a detailed assessment on the success of the WWTP BOT contracts in Wuhan as this is not in the work scope – discussions held with various project stakeholders have revealed differences of opinion on the success of these initiatives and a professional assessment should therefore be considered so that lessons can be documented and learnt.

Currently the wastewater tariff in Wuhan is set at a level that is significantly below the estimated full cost recovery level (see Chapter 5) and this means further BOTs are not financially sustainable at the present time. In addition there would be inherent difficulties in letting concession contracts (such as TOT (transfer-operate-transfer) as most WWTPs have been constructed using ADB, WB or bilateral funding and borrowers would need to give consent to any proposed asset transfers. In any event TOT contacts (and indeed BOT) often prove an expensive form for raising investment capital.

9.9.4 PSP Opportunities in WUEIP

The WUEIP has been designed as a project to be financed from public funds and there is no PSP component in the financing of the WUEIP infrastructure. The sludge drying sub-component would have been potentially suitable for BOT procurement (as Wuhan does not have experience in the installation or operation of such facilities), but such an approach would have been complicated by the close interface between WWTP operations and the new drying facility. Certainly the timescale given for the PPTA did not permit a detailed assessment of the viability of the BOT approach, and also there is no apparent enthusiasm on the part of local government.

In this situation PSP opportunities are somewhat restricted in nature and are mainly available in the form of possible management or service contracts during the operations phase. As has

Easen International Co. Ltd. 9-44 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building been suggested in section 9.8 above, it is suggested these be further explored as a part of the WUEIP capacity building component. Specific opportunities might include:

• increased use of service contracts in local District drainage and related operations. This could improve efficiency and lead to technological upgrading of how operations are conducted. However, it would be important that local District Water Bureau staff were trained in the procurement and management of such contracts. • A management contract for the operation of sludge drying and possibly other sludge treatment facilities in order to access proven expertise in the management of such facilities that does not exist currently in Wuhan

Whilst not normally viewed as pure PSP consideration should also perhaps be given to implementing parts of the sludge component through use of a design-build-operate contract with a period of operation of 3 to 5 years prior to transfer to WUDDC of both the facilities and the fully trained operators.

9.10 Summary of Conclusions and Recommendations

The PRC institutional arrangements for the water sector have remained relatively stable and quite standardized for many years, with only minor adjustments made in ministerial responsibilities at national level. Increased delegations and freedom to local governments to vary institutional arrangements have resulted in some cities (including Wuhan) establishing Water Bureau to facilitate more integration in water sector management.

The arrangements proposed by WMG for the implementation of the WUEIP are broadly similar to the arrangements for the ongoing WWSMP with the same PLG, and project management arrangements (by WPMO). The WFMO involvement, as the proposed IA for the lakes and channels components, also mirrors the WWSMP arrangement.

One important difference in the proposed implementation arrangements for WUEIP is the involvement of WFMO as the IA .for the revenue-generating sludge component, rather than WUDDC as the eventual operator/owner assuming this role. The reasons for this have been discussed and analysed in section 9.5 above. Despite, some reservations over the proposed approach it is recommended this be accepted by ADB given the strong local preference for this implementation arrangement and subject to assurances from WMG over achieving full cost recovery in the wastewater sector and ensuring the financial autonomy and sustainability of WUDDC.

If a full PSP approach (such as use of BOT) is to be designed into public sector project in the PRC, without causing significant implementation delays, then this approach probably needs to be agreed upon at project concept stage and certainly well ahead of the mobilisation of PPTA consultants. With current PPTA timescales, PSP opportunities that can be implemented are restricted to those that can be developed for the operations phase of the Project.

Sizable capacity building needs (circa US$3 million) have been identified and support to these has been obtained from WPMO and other local agencies – especially WUDDC in respect of initiatives to improve WWTP operations and in the operation of the new sludge management facilities. Other capacity building initiatives are complementary to either existing programs (under WWSMP) or ADB’s policy dialogue with WMG. Important lessons from previous capacity building have been identified and must be followed through in implementing the WUEIP capacity building.

WPMO staffing strength and capacity has been reviewed and discussed in detail. Whilst WPMO is relatively small with a heavy workload, its staffing level is not disproportionate with several other equivalent PMOs in the PRC that have been shown to operate effectively (Hebei and

Easen International Co. Ltd. 9-45 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 9 Institutional Analysis and Capacity Building Shandong PMOs are two specific examples). It is considered the focus should be on training and capacity building to improve PMO effectiveness rather than increasing headcount.

Procurement capacity of WPMO and other involved agencies has been assessed and found to be adequate.

Arrangements for the operations and maintenance phase of the WUEIP are compatible with established institutional arrangements and those for earlier ADB funded projects in Wuhan.

Easen International Co. Ltd. 9-46 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 10 Policy Dialogue

SECTION 10 POLICY DIALOGUE

10.1 Overall Policy Framework The improvement of the urban environment in Wuhan is crucial for the achievement of the municipality’s sustainable medium- to long-term development objectives. The Project has been designed as a logical extension to the previous ADB Wuhan Wastewater Management Project WWMP (Loan No. 1996-PRC) and Wuhan Wastewater and Stormwater Management Project WWSMP (Loan No. 2240-PRC) and provides an opportunity to continue policy dialogue conducted with WMG under those projects. Specifically, the PPTA TOR requested the Consultant to conduct policy dialogue and prepare policy notes in the following areas: (i) Integrated urban development and environmental management; (ii) Sustainable Sludge treatment and disposal; (iii) Wastewater management; (iv) Integrated urban surface water management; (v) Point source and non-point source control monitoring and enforcement; (vi) Cost recovery and tariff reform; (vii) Governance and anti-corruption; (viii) Poverty Reduction; and (iv) Private sector participation (PSP). Some modification to these headings were discussed and agreed at the inception mission, although these discussions did not at that stage change the overall scope of the policy dialogue.

Subsequently, during the course of the PPTA additional important areas of policy dialogue of relevance to the Project were identified and policy discussions conducted. These additional areas were: (i) Community environmental and health awareness; (ii) Climate change adaptation; and (iii) Circular Economy approach and 3Rs policies (resource Reduction, Reuse and Recycling);

Discussions with WPMO and relevant municipal agencies, together with reference to specific national People’s Republic of China (PRC) policy documents, reveals a favorable set of Government policies in support of the Project and the establishment of institutional arrangements that can provide for project sustainability. These policies include:

• Public services should be corporatized and not provided directly by Government; • The Government’s main role should be that of an enabler and regulator of services; • There should be separation of Government and the management of enterprises; • Utility services should be financed from user charges, with tariffs set in accordance with full cost recovery principles; • Water and wastewater charges should be jointly billed under the “one bill – two items” system; • Where appropriate, competition and PSP should be encouraged for both investment in infrastructure construction and also for operations and maintenance; • Adoption of the “polluter pays” principle; and • Promotion of social stability through poverty alleviation and equal opportunities. • The circular economy (CE) approach and 3Rs policies (resource Reduction, Reuse and Recycling); • Climate change adaptation and mitigation

The policy dialogue with WMG, implementing agencies (IAs) and other stakeholders has helped improve the design and benefits for the Project and create a solid foundation for the Asian Development Bank (ADB) loan implementation, and significantly enhanced the prospects for project sustainability. The remaining sections of this Chapter discuss the relevance of each individual policy area to the potential success of the Project and contain notes of the results and findings of the dialogue conducted.

10.2 Integrated Urban Development and Environmental Management

Easen International Co. Ltd. 10-1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 10 Policy Dialogue

Relevance to the Project

Integration of urban development and environmental management is at the very core of the Project design. The lakes and channels rehabilitation will create an improved urban environment that will facilitate urban development and economic growth. The sludge management component will reduce secondary pollution, and promote the sustainability of development. The Project’s structural components will be complemented by a non-structural capacity building component that will improve public awareness and introduce management systems that will demonstrate the benefits of an integrated approach to urban development and environmental management.

Policy Dialogue Notes

Supporting an integrated approach to urban development and environmental management has been a key element of ADB’s policy dialogue and operational activities in the PRC. This supports has been both at national level with the Ministry of Environmental Protection (MEP) and the Ministry of Housing, Urban and Rural Development (MOHURD), and with local governments participating in ADB supported project.

To build the capacity for sound environmental management and to strengthen the legal framework, the ADB has helped train the staff of the Environment Protection Commission, and has assisted with the drafting and revision of some of the PRC’s environmental laws. The ADB is helping promote a more effective legal and regulatory framework for environmental protection in light of the PRC’s transition to a market economy and its adherence to international environmental protection agreements. The ADB has helped upgrade the knowledge and skills of those drafting provincial legislation in reviewing, amending, and formulating laws to protect and conserve the environment and natural resources. The ADB also provided assistance in environmental management by improving the institutional capacity of the Ministry of Environmental Protection (MEP) of the PRC, and the local and provincial environmental protection bureaus (EPBs), to strengthen environmental standards and to enforce environmental laws and policies.

WMG has endorsed medium- to long-term urban development master plans and environmental management programs, including measures on the prevention and control of air, water, and solid waste pollution that have significant impact on urban development. These plans and programs are formulated to ensure sustainable economic development without jeopardizing the environment and living conditions in Wuhan.

The proposed Project responds to the need for an integrated and coordinated city-wide approach to investment planning and environmental management for best overall results.

10.3 Sustainable Sludge Treatment and Disposal

Relevance to the Project

The large scale program of WWTP construction in Wuhan over the last twelve years has significantly increased sludge production by WWTPs in the Wuhan urban area. Sludge treatment and disposal/reuse needs to be carried out in a manner that avoids secondary pollution being created from the sludge disposal activities and, where possible maximizes the beneficial use of sludge produced from the wastewater treatment process.

Policy Dialogue Notes

Easen International Co. Ltd. 10-2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 10 Policy Dialogue

The Government of the PRC is actively promoting a recycling economy and sustainable development. In almost all Chinese cities the current sludge disposal arrangements are not sustainable, and the Government, is therefore actively researching potential solutions to deal with the country’s rapidly increasing volume of WWTP sludge in a sustainable and economic manner. ADB is supporting MOHURD (the responsible Ministry) in this work through an ongoing advisory technical assistance study1, The PPTA has been in communication with the Consultants working on this national study to ensure that solutions being developed for sludge management in Wuhan are compatible with the latest thinking of PRC Government. These policies are supported under the Project through improvements in sludge treatment, disposal and utilization in order to minimize the adverse impact of sludge produced in WWTPs and extend the operational life of landfills.

Wuhan City has an official plan on sludge treatment/disposal, as shown in 11th Five-Year Environmental Protection Plan. Currently the sludge master plans are being revised to select the most cost effective and sustainable solution for Wuhan City in line with PRC policies2 and the Wuhan Sludge Management Strategic Plan studied under the WWSMP as well as recommendations made for the proposed Project.

Policy discussion with WPMO and relevant WMG agencies at the inception stage of the PPTA led to a re-design of the sludge component in order that this fully addressed ADB’s concerns over secondary pollution and climate change impact. The solution incorporated in the Project now seeks to maximize land application of sludge as a sustainable solution.

10.4 Wastewater Management

Relevance to the Project

The success of wastewater management policy will impact on the sector objective of pollution reduction and also on the cost effectiveness of wastewater management and operations. Best international practice is for integrated management of wastewater sources, the collection network, the treatment processes, and the disposal of residuals. Allowing industries to discharge their waste to urban sewer systems, provided this waste has been properly pretreated to required standards, can greatly improve the cost effectiveness of wastewater treatment for industry and construction of large centralized municipal wastewater treatment plants (WWTPs) will normally result in overall economies of scale.

For an integrated approach to wastewater management to be effective it is necessary to ensure that there is effective control over wastewater sources, that adequate operational management capacity exists to ensure WWTPs perform well and opportunities are taken to practice energy and residuals recovery where this is economically viable.

Policy Dialogue Notes

WMG recognizes that adequate facilities must be provided for wastewater treatment to safeguard public health. The centralised approach has been adopted in Wuhan and the ADB has supported the WMG by financing WWMP (Loan No. 1996-PRC) and WWSMP (Loan No. 2240-PRC) to improve water environment in Wuhan. The focus of the earlier

1 TA 7083-PRC, Urban Wastewater Reuse and Sludge Utilization Policy Study, which commenced in April 2009 and is due to be completed in October 2010.

2 (1) Disposal and Pollution Prevention Policy of Sludge from Municipal Wastewater Treatment Plant (trial), February 18, 2009; (2) Best Available Techniques Directive for Sludge Treatment and Disposal from Wastewater Treatment Plant (draft) (3) Best Available Techniques Directive for Treatment and Disposal of Sludge from Wastewater Treatment Plant Research Report.

Easen International Co. Ltd. 10-3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 10 Policy Dialogue policy dialogue on wastewater management has been on the integrated management of industrial and domestic wastewater, including on-site treatment and public sewer connections. The WMG has prepared wastewater master plans, including sewers, interceptors, and centralized WWTPs for both domestic and industrial wastewater. These plans reviewed and reflected on the development needs of the Wuhan City and the proposed components in WWMP and WWSMP were consistent with those plans.

The proposed Project should continue the policy dialogue on wastewater management, but the focus should be transferred to the means to improve the operational management of the WWTPs constructed under both WWMP and WWSTP to improve operational efficiency and facilitate effective sludge treatment and disposal. WMG has recognized these issues and has supported the inclusion of the WWTP operational improvement sub-component in the proposed Project. . Ongoing dialogue needs to complement the Project’s capacity building component and explore wastewater management initiatives to fully support the PRC goal of a circular economy through energy recovery and increased beneficial reuse of wastewater treatment residuals. Discussions held during the PPTA indicates that WMG fully supports these objectives

10.5 Integrated Urban Surface Water Management

Relevance to the Project

Elements of natural water resources systems include the atmosphere, watersheds (drainage basins), rivers, lakes, stream channels, wetlands, and etc. In a densely populated area such as Wuhan the pollution generated or surges in flows at one point in the urban surface water system can have a significant and detrimental downstream effect in terms of pollution or flooding. An integrated approach to surface water management will mitigate potential adverse downstream effects and allow the flood carrying and pollution assimilation capacities of the whole system to be optimized.

Policy Dialogue Notes

Integrated water planning is a requirement of the PRC 2002 Water Law and an underlying principle of ADB’s “water policy”. WMG water and flood control plans are prepared following guidelines issued by the Ministry of Water Resources and in consultation with the Changjiang Water Resources Commission, which is responsible for ensuring an integrated approach at the catchment level.

The ecological rehabilitation and protection of lakes is the main content of building Wuhan into a “resource-saving and environment-friendly society” (namely “Two-type society”), which is an objective of the City’s urban master plan and environmental management planning. The lakes and channels components in the proposed Project constitute a major step forward in the implementation of this strategy.

The overall responsibility for integrated water planning and management in Wuhan is vested with the Municipal Water Bureau (WWB), although the Wuhan WEPB also has an important role to play in alleviating levels of water pollution. In addition to its integrated planning responsibilities, WWB exercises functional supervision over the local operational and regulatory activities of local District level Water Bureau and coordinates these activities where necessary - especially with respect to flood control response, WWB also exercises

Easen International Co. Ltd. 10-4 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 10 Policy Dialogue functional supervision over the Wuhan Water Group Company which is responsible for providing water supply and wastewater services.

The risk of secondary downstream pollution in the Chanjiang resulting from the lakes and channels rehabilitation has been identified. This suggests careful consideration should be given to the use of monitoring and real time modeling of the lake flows covering the Project area in Wuhan New Zone.

Policy dialogue with WPMO on this and related issues has resulted in a capacity building sub-component being included in the Project to improve the water management systems in the Hanyang District.

10.6 Point Source and Non-point Source Control Monitoring and Enforcement

Relevance to the Project

Pollution source control is critical to the quality of water in local water courses and hence the success of the Project. Pollution sources control needs to include the control of discharges to the municipal sewerage systems and surface watercourses, as well as reductions in the level of non-point source pollution. Success in environmental management will impact not only on surface water quality, but also on the structural integrity of the wastewater system and its operational performance (with impacts on effluent quality, sludge content, and the costs and safety of operations).

Policy Dialogue Notes

The ongoing ADB WWMP and WWSMP are playing vital role to control the point source pollution to improve the water environment in Wuhan through the construction and operation of new wastewater collection and treatment facilities. Parallel actions by WMG on environmental enforcement have been largely successful in ensuring that all medium and large sized industries comply with their wastewater discharge standards (whether discharging to urban sewers or directly to watercourses).

The development of point source and non-point source monitoring and enforcement is a government responsibility. With the effective control of point source pollution, the non-point source pollution (NPSP) of water environment is now receiving more attention from Wuhan Municipal Environmental Bureau and subordinate EPBs at District level. This work also requires close cooperation with the Agricultural Bureaus and other involved agencies.

Non-point source pollution is controlled primarily through the adoption of practical and cost- effective land management practices, known as best management practices (BMPs). BMPs allow for everyday activities while reducing or preventing non-point source pollution. The use of BMPs will protect water quality while maintaining the economic value of Wuhan’s land resources.

Like many cities, however, Wuhan does not have sufficient resources to implement BMPs for all existing or potential NPSP pollution problems. In order to maximize the effects of the Project, it is proposed that NPSP pollution control monitoring and enforcement in Hanyang District (Wuhan New Zone) will be targeted through a capacity building sub-component of the Project.

10.7 Cost Recovery and Tariff Reform

Easen International Co. Ltd. 10-5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 10 Policy Dialogue

Relevance to the Project

The sludge component of the proposed Project is considered revenue generating as sludge treatment and disposal should be an integral part of wastewater treatment and financed from wastewater charges. If tariff levels are based on the principles of full cost recovery and the wastewater utility is able to implement and collect these tariffs effectively, then the utility will be able to operate as a financially autonomous and sustainable entity. The need for Government subsidies will be eliminated over time, and the availability of adequate funds for loan repayment, operations, maintenance, and ultimate replacement of project facilities will be assured. Moreover, appropriate tariff policies attract investment, eliminate the need for government subsidies and provide incentives to conserve water. In addition, tariffs can be structured to help safeguard service access for the urban poor.

Policy Dialogue Notes

Policy dialogue on cost recovery and tariff reforms is a significant aspect of ADB’s operations in the PRC. Significant progress has been made in (i) introducing tariff and enterprise reforms, (ii) strengthening governance and management of utilities, and (iii) promoting private sector participation (PSP). The ADB has supported the tariff reform process through three TA projects which have contributed significantly to water and 3 wastewater tariff reforms and resources conservation. The tariff guidelines produced during these TAs included tariff calculation methodologies that will allow full cost recovery, taking into consideration affordability and social constraints. The initial water tariff study led to the issues of National Water Tariff guidelines and the second study focused on the practical application of these guidelines at city level using the city of Zhangjiakou (Hebei Province) as a case study. Impacts of these tariff reforms are best illustrated by benefits achieved in Zhangjiakou, which include the following: • A transparent mechanism for tariff approvals with the Price Bureau's in a lead role; • A full cost recovery financial plan for the Zhangjiakou Water Supply Company that has generated funds for future development; • Affordable tariffs for domestic customers and a new subsidy program to help poor households pay their water bills; and • Improved public understanding of and support for tariff increases. • Multi-year tariff adjustment proposals can serve as a tool to control costs and provide a financial framework with which to attract private investors.

These benefits and lessons, although achieved in respect of water supply tariff reform, are equally relevant to the reform and setting of wastewater charges.

The PRC policy guidance on wastewater tariffs was provided in Circular No, 1192, issued jointly in September 1999 by the State Development Planning Commission (Now NDRC), Ministry of Construction (now MOHURD) and State Environmental Protection Administration (now A. The Circular supported wastewater tariffs set on the basis of full cost recovery principles but allowed local governments flexibility in deciding the time scale for implementation. The principles contained in this circular have been repeated in several subsequent national level circulars where local governments

3 ADB. 1997. Technical Assistance to the People’s Republic of China for Water Tariff Study. Manila; and ADB. 1999. Technical Assistance to the People’s Republic of China for Water Tariff Study II. Manila. ADB. 2001. Technical Assistance to the People’s Republic of China for National Guidelines on Urban Wastewater Tariff and Management Study. Manila.

Easen International Co. Ltd. 10-6 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 10 Policy Dialogue

The WMG has been increasing water and wastewater tariffs in keeping with the state policy. A tandem approach is used: there was a 100% increase in wastewater tariffs in 2004; there was a 50% increase in water tariffs in 2006; and a near 50% increase in wastewater tariffs is planned for later in 2009. It is expected the wastewater tariffs will be increased further after considering the financial implications of comprehensive sludge treatment and disposal necessary to prevent secondary pollution. With increasing public acceptance of tariff reforms, the WMG should also consider introducing more sophisticated charging systems to encourage greater economic efficiency, such as charging large industries based on pollution load rather than water volume discharged.

In Wuhan, the local water supply company collects wastewater fees through the “one bill, two items” approach, which has been shown internationally and in China to be the most effective way of collecting wastewater charges. Improved awareness of the benefits of effective wastewater drainage and treatment can make the public more willing to pay wastewater charges and the socioeconomic survey confirms this. This is a very positive indicator of public support for the proposed project investments and public acceptance of user charges to pay for urban environmental improvements.

Urban surface water drainage is currently viewed as a non-revenue generating activity in the PRC and there is no legal basis for levying user charges as apply in some countries. However, this situation may change in future and policy dialogue should not ignore consideration of alternative ways of financing surface water drainage.

10.8 Governance and Anti-corruption

Relevance to the Project

Public service providers, whether public utility companies or government agencies, must adhere to high standards of governance and financial stewardship and responsibility if public confidence, and the confidence of other stakeholders, are to be maintained. This confidence is crucial for ultimate project success.

Policy Dialogue Notes

ADB’s Governance Policy recognizes that accountability, transparency, and predictability are critical principles in the fight against corruption. The policy emphasizes strengthening the essential preconditions for effective public administration to ensure that the building blocks for transparent, predictable, and accountable administration are in place, namely: (i) the appropriate legal framework and effective enforcement mechanism; (ii) a professional, competent, motivated, and meritocratic civil service; (iii) transparent procurement practices; (iv) effective internal control systems; and (v) a well functioning independent audit office.

In the global setting, the United Nations Convention against Corruption in 2003 highlighted the need for international cooperation to prevent and criminalize corruption. The ADB has played a significant role in developing the anticorruption movement in the Asia Pacific region. Starting with the Anticorruption Policy in 1998, it launched, in partnership with the Organization for Economic Development and Cooperation, the Anticorruption Action Plan for Asia and the Pacific in 2000. This has further strengthened the ADB’s resolve to push for transparency, predictability, and accountability in its developing member countries.

At an ADB co-sponsored anticorruption conference held in 2005 in Beijing, it was agreed to continue the reform process and fight against corruption, to reduce inequality and nurture and sustain economic growth and prosperity. In discussing such future reform initiatives it was agreed that all stakeholders, including donor organizations, should work in close co-

Easen International Co. Ltd. 10-7 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 10 Policy Dialogue ordination. Public opinion surveys and corruption risk zones were advocated as useful tools for advancing reform and framing key policy issues, raising awareness and fostering public support.

The ADB’s Anticorruption Policy (1998) has been explained and discussed with WMG and the IAs. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the loan covenants and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of WMG, IAs, and all contractors, suppliers, consultants and other service providers as they relate to the Project.

WMG has implemented strict procedures for public procurement based on the PRC bidding law and which aim to eliminate corruption in the awarding of contracts. This procedures include competitive bidding,, recording the receipt and security of unopened tenders, and evaluation panels that include independent observers. These procedures and full compliance with all ADB procurement guidelines will apply for WUEIP procurement.

10.9 Poverty Reduction

Relevance to the Project

Poverty alleviation is a key objective of the ADB and all projects supported by ADB are expected to result in a positive impact on poverty alleviation, either directly or indirectly. In PRC, a side effect of the transition from a planned to a market economy is that jobs and employment are no longer guaranteed for the urban workforce and non-viable enterprises close down as they no longer continue to be supported by government. This, together with the large scale rural to urban migration in recent years has led to an increase in the number of urban poor, and a need to devise appropriate social protection measures to ensure the poor have access to essential services, and development initiatives are targeted in their favour.

The possible downside to the Project from the perspective of the urban poor is that new and / or increased user charges for wastewater services might increase their financial hardship. This is especially so if users are required to pay a connection charge to access the service,

Policy Dialogue Notes

The Project has a direct impact on poverty through their capacity to generate employment both directly during construction and operations and also indirectly through follow-on impacts on material and equipment suppliers. The Project is also related to poverty alleviation in a more systemic fashion as a result of its beneficial impact on land and environment and most importantly as a facilitator of economic growth. Furthermore, after clean-up of polluted urban waterways by improved wastewater collection and treatment, several PRC cities, including Wuhan, have developed urban amenity plantings and ribbon parklands along the waterways. Such developments create job opportunities for the poor directly in construction and parks maintenance and indirectly through the commercial development that often follows on riparian restoration projects.

Like all cities in China, Wuhan provides subsidies to households below the official poverty line through the Guaranteed Living Level Security program (GLLSP). These subsidies cover basic living expenses and the programs are progressive and well designed. In accordance with PRC Government policies, WMG is committed to maintain and periodically evaluate the Wuhan GLLSP so that it effectively identifies and protects all poor households.

Easen International Co. Ltd. 10-8 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 10 Policy Dialogue

Following WWMP and WWSMP policy dialogue, and as a loan covenant, WMG has already committed to carefully evaluate the impact of any proposed tariff increase on poor households to ensure that the user charges remain affordable to poor households.

10.10 Private Sector Participation

Relevance to the Project

Private Sector Participation can provide a valuable source of financing and thus potentially reduce the degree of reliance on government and traditional forms of multilateral / bilateral finance. Private sector involvement in operations and maintenance (O&M) has been shown to increase service efficiency. However, the success of private sector participation relies on open transparent procurement, and on effective regulation and supervision.

Policy Dialogue Notes

While the use of the private sector as a source of both finance and expertise is now largely recognized and accepted by local governments in the PRC, work remains to be done to ensure effective procurement and adequate market regulation of PSP contracts, so the interests of investors, the Government, and customers are safeguarded. These aspects of PSP will require continuing policy dialogue and capacity-building initiatives. The Project will create an enabling environment for eventual PSP by pursuing tariff reforms, cost recovery, enterprise reform, and good governance—all prerequisites for successful PSP.

ADB has played a leading role on promoting private sector involvement in the PRC’s water supply sector. In 1997, ADB approved a TA project to help the government prepare the first pilot build-operate-transfer (BOT) Chengdu Water Supply Project to be awarded on the basis of a transparent international competitive bidding. The objectives of the TA were to build the capacity of government agencies involved in BOT projects in water supply by providing assistance in the bidding and negotiation process. The TA also helped to prepare model project documents to be used for future BOT water supply projects in the PRC. While the intention is for the proposed Project to be financed by traditional means, WMG is nevertheless committed to encouraging PSP in urban management and has already implemented three BOT contracts for WWTP construction and operations.

Within the Project itself an opportunity for the involvement of the private sector exists as one of the viable options for the operations phase. WWTP O&M can be contracted out or outsourced in whole or in part as a measure to make operations more efficient. Outsourcing of Sludge treatment O&M would be a potential way of overcoming the current lack of experience that WUDDC possesses in this aspect of wastewater treatment, possibly through a design, build operate form of procurement, so that operations capacity is eventually transferred to WUDDC. Increased outsourcing of local drainage and river operations would be an alternative O&M option for the lakes and channels components, and might successfully promote both improvements in efficiency and technological upgrading. These ideas need to be further developed and discussed during the implementation period.

A reliable income base for a private sector project is recognized by WMG as a prerequisite for attracting private sector interest and hence the government tariff policies and private sector initiatives are closely inter-related.

10.11 The Creation of a Circular Economy (Reduce, Recover & Reuse)

Relevance to the Project

Easen International Co. Ltd. 10-9 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 10 Policy Dialogue

Put simply, the “old” development approach focusing primarily on economic growth has been shown to be unsustainable. Therefore a more sustainable approach to economic and urban development is required. Sustainability can only be achieved through a balanced approach to development that gives equal emphasis to economic growth and the environment. Environmental protection must include both the avoidance of pollution together with reduction, recovery and reuse of waste (commonly referred to as the 3Rs approach), and leading ultimately to a circular economy with zero waste.

One of the key objectives of the Project is to find and implement an alternative approach for the treatment and disposal of sludge produced by the city’s 11 WWTP, with the volume of such sludge increasing in line with the wastewater treatment rate, which is set to reach 85% by the end of 2010, and the current practice of disposal to landfill being non-viable due to landfill capacity constraints and risks of secondary pollution. The need for an alternative approach therefore offers an opportunity to put circular economy principles into practice. .

Policy Dialogue Notes

At a national level PRC Government has strongly endorsed the creation of a circular economy based on the principles of the 3Rs. Model and demonstration projects (Tianjin Eco-city is a case in point) are planned or under implementation. CE principles and applications will undoubtedly feature very prominently at the Shanghai 2009 World Expo which has the theme of “a better city, a better life”.

During the early part of the PPTA the Consultant reviewed the local DI’s proposals for an alternative approach to sludge treatment and made suggestions on how this might be modified to improve the prospects for safe reuse of the sludge as an economic resource. At the PPTA inception mission the ADB conducted extensive policy dialogue with WMG in order to change the design of the sludge component and incorporate the suggestions of the Consultant. WMG was sympathetic to the views of both the ADB and the Consultant and the design of the sludge component was changed accordingly. The new approach (i) will make maximum use of existing sludge treatment facilities constructed under an earlier ADB project to treat sludge and capture biogas; (ii) utilize this biogas as a fuel for sludge drying; and (iii) subject to assurance on sludge quality allow all treated sludge to be beneficially applied to land. Discussions and consultations have also taken place between the PPTA Consultant and the Consultant for TA 7083 – PRC, the “Urban Wastewater Reuse and Sludge Utilisation Policy Study in the Peoples Republic of China” who is working with MOHURD to establish a comprehensive best practice framework of policies and guidelines for sludge treatment and utilization. This creates an opportunity for the WUEIP sludge component to be recognized as a best practice model for sludge treatment in China, with the potential for wide replication across the country. .

10.12 Climate Change Adaptation and Mitigation

Relevance to the Project Climate change adaptation and climate change mitigation are both crucial issues for Wuhan given its fragile eco-system and its strategic location in the Yangtze river flood plain at the confluence of the Han and Yangtze rivers. Climate change adaption is necessary in order to mitigate the risk of damage from flood, recognizing that climate change and its potential negative effects on the city are a reality. Climate change mitigation is necessary to help prevent these adverse climate change effects becoming ever more severe, and hence difficult or impossible to contain. The Project’s lake and rivers rehabilitation components in

Easen International Co. Ltd. 10-10 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 10 Policy Dialogue particular have a direct climate change adaptation objective - to mitigate increasing flood risk brought about by climate change. Policy Dialogue Notes

PRC Government recognizes the real and potential adverse effects that climate change is likely to have on the Country, exacerbating the incidence of floods, droughts and other climate extremes which already, and all too frequently, cause extensive damage and loss of life. The Government is therefore highly supportive of measures to both adapt to climate change and mitigate its effects. Already the largest producer of hydropower in the World, the PRC is also rapidly developing wind power facilities and encouraging wider use of solar power. However, relatively little effort has been made to date to capture biogas from sewage sludge treatment as a potential clean energy source, and efforts that have been made have generally not been particularly successful. This contrasts with the experiences of many developed countries. ADB’s TA 7083 (as referred to above) will investigate and recommend enabling policies and guidelines to improve the level of energy recovery from the treatment of sewage sludge.

As stated above WMG has agreed to changes in the design of the WUEIP sludge treatment component with a view to making this more “climate friendly” by utilizing captured biogas and by favoring low carbon emission solutions. Policy dialogue has also resulted in the inclusion in the project of a capacity building sub-component to improve operational performance of wastewater and sludge treatment process at all Wuhan’s WWTP and also to explore possible use of ADB’s clean development mechanism or other carbon trading opportunities.

10.13 Community Environmental and Health Awareness

Relevance to the Project One of the principal causes of water pollution in the urban lakes and channels in Wuhan is from the dumping of solid waste by local residents and small businesses. Another is the failure to implement best agricultural practices that would reduce levels of non-point source pollution from agricultural activities. This dumping not only has the direct effect of polluting the local water bodies and reducing water quality, but also encourages mosquitoes and other vectors that spread disease. It is readily apparent that if this behavior continues then the potential benefits of the lake and river rehabilitation components will be significantly reduced and their sustainability threatened.

Policy Dialogue Notes Extensive government publicity and the real evidence of worsening pollution at a local level has had the effect of greatly improving public awareness of environmental issues and the adverse effects of pollution. However, much remains to be done to improve behavior and especially so amongst the poorer sections of society, who themselves are most vulnerable to the adverse health effects of pollution.

Dialogue has therefore been conducted during project preparations to include a community awareness capacity building sub-component in the Project and this has now been agreed to by WMG. The objective is to reinforce the sustainability of the Project’s physical water body rehabilitation interventions and to maximize the potential health benefits that can be derived from the Project.

It has been further agreed in the policy discussions that the Project’s community based environmental and health awareness program should not simply be implemented on a stand- alone basis, but should also take the initiative to coordinate with and complement other

Easen International Co. Ltd. 10-11 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 10 Policy Dialogue environmental and health awareness programs run by various government departments and NGOs etc.

Easen International Co. Ltd. 10-12 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 11 Project Design and Monitoring Framework

SECTION 11 PROJECT DESIGN AND MONITORING FRAMEWORK

11.1 General A project design and monitoring framework (DMF) defines how the success of the Project should be assessed and measured. As the WUEIP is a follow-on project to the WWMP and WWSMP, it’s logical that some of the performance targets for the three projects should be similar and that there should be a degree of continuity and consistency in the project performance monitoring arrangements.

11.2 Design and Monitoring Framework A unified DMF has been prepared in draft, having regard to ADB guidance. The draft DMF is provided in Table 11-1. The current version of the DMF reflects consultations with WPMO and is updated from the Interim Report version. The DMF has been revised with the following objectives in mind: z Maintain the integrity of the DMF as a monitoring tool; z Keep a degree of continuity and consistence with ongoing WWMP and WWSMP; z Select indicators that rely as much as possible on readily available data; z Recommend benefit indicators that are appropriately matched to anticipated benefits both in terms of type of impact and the timing of measurement.

In accordance with ADB guidance the DMF should only contain project risks that are outside of the direct control of project management. However, since the IA has a degree of autonomy from Government, the issues, which require Government action, are technically external risks from the perspective of project management, even though Government is the ultimate project sponsor.

11.3 Project Monitoring and Evaluation A Project Performance Monitoring System (PPMS) will need to be established for the Project. Project monitoring and evaluation is undertaken to measure whether (i) project implementation is progressing smoothly; and (ii) the Project – once complete – achieves what was intended. Monitoring mechanisms and parameters are therefore proposed in the DMF together with the data source for each of the selected parameters.

Easen International Co. Ltd. 11-1 Final Report, September 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 11 Project Design and Monitoring Framework TABLE 11-1 PRELIMINARY DESIGN AND MONITORING FRAMEWORK

Design Performance Data Sources/Reporting Assumptions and Risks Summary Targets/Indicators Mechanisms Impact Water quality of Yangtze Assumptions Improved urban River within the Wuhan • Wuhan Master Plan and environment, public health, section is sustained at Class Environmental monitoring sector master plans for and quality of life in Wuhan III, Fu River is sustained at data of Wuhan EPB infrastructure are effectively City Class V and the Han River is implemented. sustained at Class III beyond 2010. • All applicable local and national environmental laws in PRC are effectively Increased public satisfaction Household survey (sex enforced. with the urban environment, disaggregated) wastewater services, sludge management, storm water Risks management, and the control • River water quality monitoring of drainage and flooding by data does not provide 2020. sufficient information to

detect trends. Risk of exposure to pathogens diminishes as Environmental monitoring • Weak enforcement of determined from the data of Wuhan EPB/Public environmental laws and occurrence of Escherichia coli Health organizations regulations. in surface waters monitored at existing sampling stations by 2020. ADB Review Missions Maintenance and periodic Feedback at public hearings evaluation of wastewater tariff for tariff adjustments/ subsidies to ensure that investigations wastewater services are affordable to poor households Monitoring from public by 2015. awareness program on tariff reform Outcome Assumptions Integrated wastewater 50% of urban WWTP sludge Sludge quality and quantity • Infrastructure assets are sludge treatment and will be treated and disposed monitoring data, and sludge properly maintained. disposal, and urban water of in an economically and reduction and reuse data resource management in environmentally sustainable • Adequate enforcement of Wuhan Municipality. way by 2015, extending non-residential connection landfill life. Environmental monitoring and pretreatment reports and periodic review requirements. The overall wastewater of sludge disposal • Proper control of non-point service, inclusive of sludge source pollution. treatment achieves full cost recovery by 2015. Periodic tariff reviews • Government support for tariff increase.

Secondary pollution from • WWB acquires the resources

improper sludge disposal is and direction to monitor local eliminated. Wuhan EPB monitoring flooding.

• Environmental Protection Water quality of the Moshui, Bureau enforces Longyang, Nantaizi, and Wuhan Water Bureau environmental monitoring Yangchun lakes is improved statistics standards. to at least Class IV by 2020. Reduced frequency of • Customers are willing to pay WWB statistics on flood disruption and damage due to increased tariffs. frequency and damage. local storm water flooding.

Risks • Lack of effective coordination and monitoring mechanisms of relevant agencies on environmental protection and management.

Easen International Co. Ltd. 11-2 Final Report, September 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 11 Project Design and Monitoring Framework Design Performance Data Sources/Reporting Assumptions and Risks Summary Targets/Indicators Mechanisms • Insufficient enforcement and control systems of environmental regulations. • Improved lake water circulation leads to additional pollution entering the Yangtze. • Public education and awareness programs fail to change behaviors.

Outputs Assumptions Component I • Effective stakeholder Sludge treatment and participation and ownership disposal development.

1.1 Wuchangnan Sludge Sludge collected and treated Site inspection and project • Strong support from local Treatment Plant with capacity of 40 tons/day implementation reports governments. dried sludge in Tangxunhu • Upgrading of existing WWTP WWTP by 2012. WWTP operational records sludge treatment and the new centralized facility is properly 1.2 Hankou Sludge Biogas utilization for sludge ADB review mission synchronized. Treatment Plant drying with capacity of 20 tons/day dried sludge in Construction supervision and • Enforcement of Sanjintan WWTP by 2013. monitoring reports environmental standards including point source and Backup sludge lime non-point source pollution stabilization plant (capacity 10 control. tons/day dried sludge) in • Timely approval of land Sanjintan WWTP by 2012. acquisition at the national level and implementation of 1.3 Nantaizihu Sludge A sludge lime stabilization resettlement activities. Treatment Plant plant with capacity of 10 • Suitable arrangements can tons/day dried sludge in be found for the Nantaizihu WWTP by 2012. environmentally safe disposal

of dredged material. 1.4 Modification and An improvement and upgrade Improvement of Existing of sludge handling units, Risks Sludge Treatment and transport vehicles and other Transportation items at existing WWTPs by • Resistance by some 2012. stakeholders on resettlement Component II and tariff increases. Wuhan New Zone • Local geological and Lake/Channels meteorological conditions Rehabilitation affect construction activities.

• Some dredged material is 2.1 Longyang Lake 3 found to be toxic requiring Rehabilitation Dredging of 250,000 m , special disposal 31,800 m3/d of wetland, 2 arrangements. 110,000 m of Tang Mountain greening completed by 2013. • Poor performance of 2.2 Moshui Lake Consultants. Rehabilitation Dredging of 272,800 m3, 43,000 m3/d of wetland, completed by 2013. 2.3 Nantaizi Lake Rehabilitation Dredging of 225,000 m3, wetland of 3,000 m3/d, completed by 2014. 2.4 Longkou Channel Rehabilitation 1,337 m channel of dredging, slope protection, greening and water remediation completed by 2013. 2.5 Longxin Channel

Easen International Co. Ltd. 11-3 Final Report, September 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 11 Project Design and Monitoring Framework Design Performance Data Sources/Reporting Assumptions and Risks Summary Targets/Indicators Mechanisms Rehabilitation 664 m channel of dredging, slope protection, and greening completed by 2013. 2.6 Zhujiaxin Channel Rehabilitation 3,583 m channel of dredging, slope protection, and greening completed by 2014. 2.7 Zong Channel Rehabilitation 3,100 m channel of dredging slope protection, and greening completed by 2014. 2.8 Liantong Channel Rehabilitation 5,072 m channel of dredging, slope protection, and greening completed by 2014. 2.9 Huoyan Channel Rehabilitation 1,600 m channel newly built by 2014. 2.10 Sixin Pumping Station Construction of water pumping station providing for a capacity of 105 m3/s, with phase 1 installation of 35 m3/s completed by 2012. Component III Yangchun Lake Secondary Urban Center Lake/ Channel Rehabilitation

3.1 Yangchun Lake Rehabilitation Recovery of about 60 ha of lake surface, 232,900 m2 of greening, and 105,400 m2 of wetland completed by 2013. 3.2 Heping Channel Rehabilitation 1,400 m channel of dredging, slope protection, and greening completed by 2013. Component IV Institutional Strengthening and Capacity Building

4.1 Strengthening Implementation plan is implementation capacity successfully adhered to with full compliance with ADB loan 4.2 Improving WUDDC covenants and conditions. operational management Onsite sludge thickening achieves 20% dry solids content. Sludge treatment operations produce sludge in accordance with design specifications.

4.3 Enhanced pollution Reduction in pollution source control incidents.

4.4 Improvements in Over 50% of residents can public awareness recall awareness program content and claim to have been positively influenced by it (2012). (sex disaggregated)

Increase in awareness on how tariffs are restructured

Easen International Co. Ltd. 11-4 Final Report, September 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 11 Project Design and Monitoring Framework Design Performance Data Sources/Reporting Assumptions and Risks Summary Targets/Indicators Mechanisms and existence of pro-poor measures

4.5 Implementation of By 2012 a water quality advanced water model is developed, management systems calibrated and integrated into the surface water management system for controlling water flows and quality in the lakes and channels.

Training study on point and non-point source pollution by 2012.

Activities with Milestones Inputs Component I: Sludge Treatment and Disposal • ADB 1.1 Wuchangnan Sludge Treatment Plant - $100 million loan Activity (1) Construct a centralized sludge drying plant (capacity 40 tons/day dried - Undertake review missions sludge) in Tangxunhu WWTP by 2011 - Provide training in ADB 1.2 Hankou Sludge Treatment Plant procedures Activity (2) Construct a biogas utilization sludge drying plant (capacity 20 tons/day • WMG and IAs dried sludge) in Sanjintan WWTP by 2012 - About $342.7 million Activity (3) Construct a backup sludge lime stabilization plant (capacity 10 tons/day equivalent in counterpart dried sludge) in Sanjintan WWTP by 2012 funds 1.3 Nantaizihu Sludge Treatment Plant - Undertake onlending Activity (4) Construct a sludge lime stabilization plant (capacity 10 tons/day dried arrangements and loan sludge) in Nantaizihu WWTP by 2010 management 1.4 Modification and Improvement of Existing Sludge Treatment and Transportation - Hire design institutes, and Activity (5) Improve and upgrade sludge treatment processes at existing WWTPs by secure other consulting 2012 services Activity (6) Complete the procurement of transport vehicles and other sludge - Contract tendering, select treatment equipment by 2012 contractors, contract management Component II: Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station - Initiate and support institutional reforms and 2.1 Longyang Lake Rehabilitation capacity building Activity (7) Complete lake dredging, wetland construction, aquatic planting by 2013 - Provide planning and Activity (8) Complete Tang Mountain rehabilitation by 2013 resources for public 2.2 Moshui Lake Rehabilitation information and consultation Activity (9) Complete lake dredging, wetland construction, aquatic planting by 2013 activities

2.3 Nantaizi Lake Rehabilitation Activity (10) Complete lake dredging, wetland construction, aquatic planting by 2014 2.4 Longkou Channel Rehabilitation Activity (11) Complete 1,337 m of channel dredging, widening, bank reinforcement and landscaping and water remediation by 2013 2.5 Longxin Channel Rehabilitation Activity (12) Complete 664 m of channel dredging, widening, bank reinforcement and landscaping by 2013 2.6 Zhujiaxin Channel Rehabilitation Activity (13) Complete 3,583 m of channel dredging, widening, bank reinforcement and landscaping by 2014 2.7 Zong Channel Rehabilitation Activity (14) Complete 3,100 m of channel dredging, widening, bank reinforcement and landscaping by 2014 2.8 Liantong Channel Rehabilitation

Easen International Co. Ltd. 11-5 Final Report, September 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Section 11 Project Design and Monitoring Framework Activities with Milestones Inputs Activity (15) Complete 5,072 m of channel dredging, widening, bank reinforcement and landscaping by 2014 2.9 Huoyan Channel Rehabilitation Activity (16) Construct a 1,600 m channel, including landscaping by 2014 2.10 Sixin Pumping Station Activity (17) Complete civil works of 105 m3/s water pumping station by 2011 Activity (18) Complete the installation and commissioning of 35 m3/s treatment capacity by 2012

Component III: Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation 3.1 Yangchun Lake Rehabilitation Activity (19) Complete the recovery of surface water, lake dredging, aquatic planting, and wetland construction by 2013 3.2 Heping Channel Rehabilitation Activity (20) Complete 1,400 m of channel dredging, widening, bank reinforcement, and landscaping by 2013 Component IV: Institutional Strengthening and Capacity Building

Activity (21) Complete organizational arrangements for PMO and IA to be able to implement the Project by 2009 Activity (22) Develop plans, budgets, and procedures for loan implementation and project control by 2009 Activity (23) Complete WMG, PMO, and IA staff training by 2010 (training in ADB procedures, procurement, disbursement, safeguards and reporting requirement Activity (24) WWTP operation and management improvement, technical review and assistance for sludge management by 2010;, Activity (25) Develop surface water quality modeling system base on existing WQM in Hanyang district, Develop a study for point sources and non point sources pollution control; water balance study in terms of quantities and quality for more efficient surface management by 2012; Activity (26) Establish sludge test center and develop wastewater and sludge monitoring program by 2013; Activity (27) Pilot willingness to pay survey and promote public awareness on tariff reform by 2013 Activity (28) Promote public awareness education on environmental protection and community health by 2014 Activity (29) Complete PMO and IA staff training, capacity building, tariff reform, sludge operation and management , surface water management study and public awareness program by 2015. ADB = Asian Development Bank, EPB = environmental protection bureau, ha = hectare, IA = implementing agency, m = meter, m2 = square meter, m3 = cubic meter, m3/d = cubic meter per day, m3/s = cubic meter per second, PMO = project management office, PRC = People's Republic of China, WMG = Wuhan Municipal Government, WUDDC = Wuhan Urban Drainage Development Company, WWB = Wuhan Water Bureau, WWTP = wastewater treatment plant.

Easen International Co. Ltd. 11-6 Final Report, September 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 3-1

Appendix 3-1

A1 Steam Supply Intention Agreement

THIS AGREEMENT is made BETWEEN:

Party 1: Wuhan Urban Drainage Development Co., Ltd.; and Party 2: Wuhan Gaoxin Heat Power Co., Ltd.

Hereinafter, collectively referred as “the Parties”. WHEREAS the proposed Tangxunhu Sludge Treatment Plant, under the Wuhan Urban Environment Improvement Project financed by ADB, requires the heat supply, the Parties have negotiated and come to an agreement on the steam supply as listed below:

1. Tangxunhu WWTP sludge drying system for phase I (2011-2015) needs 10 ton/hour steam with the temperature of 180℃ and the pressure of 6kg/cm2. The supply is expected to begin at the end of 2010. For the supply of phase II (after 2015), the demand for steam may increase to about 15-20 ton/hour, which will be supplied by Party 2 with priority.

2. The detailed schedule and price for the steam supply will be confirmed in the formal contract signed between the Parties.

3. In case of unaccomplished matter, the Parties should settle it by negotiation.

4. The agreement is prepared in quadruplicate with two copies for each party, which will come into force after being signed and sealed by the Parties.

Party 1: Wuhan Urban Drainage Party 2: Wuhan Gaoxin Heat Development Co., Ltd. Power Co., Ltd.

Responsible Director: Responsible Director: July 15, 2009

Easen International Co. Ltd. 1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 3-1 附件 A1 供用汽意向协议书

Easen International Co. Ltd. 2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 3-1

Appendix A2 Sludge Acceptance Intention Agreement

THIS AGREEMENT is made BETWEEN:

Party 1: Wuhan Urban Drainage Development Co., Ltd.; and Party 2: Wuhan Jianghuan Business Development Company

Hereinafter, collectively referred as “the Parties”.

The proposed sludge treatment system at Tangxunhu STP, Sanjintan STP and Nantaizihu Sludge Lime Stabilization Plant, under Wuhan Urban Environment Improvement Project with loan by ADB, will treat the sludge from wastewater treatment plants within their service areas by stability, sterilization and volume reduction processing. The physical properties of the sludge will be improved after the treatment, and its water content will meet the acceptance requirement of the landfill site. The Parties have negotiated and come to an agreement on the sludge acceptance as listed below:

1. Tangxunhu STP for phase I will produce 40-60 tons/day dried sludge; Sanjintan STP for phase I will produce 40-60 tons/day dried sludge; and Nantaizihu Sludge Lime Stabilization for phase I will produce 30 tons/day dried sludge with the solid content of 50%. Party 2 agrees to permit the sludge to be disposed into the landfill as much as possible on condition that the dried sludge meets the requirements of relevant standards. The dried sludge will be transported to Chenjiachong landfill for a short-term period, which will be eventually transported to Changshankou landfill when the landfill put into operation.

2. The detailed transport arrangement and operating cost will be confirmed in the formal contract signed between the Parties.

3. In case of unaccomplished matter, the Parties should settle it by negotiation.

4. The agreement is prepared in quadruplicate with two copies for each party, which will come into force after being signed and sealed by the Parties.

Party 1: Wuhan Urban Drainage Party 2: Wuhan Jianghuan Business Co., Ltd. Development Company

Responsible Director: Responsible Director: July 15, 2009

Easen International Co. Ltd. 3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 3-1 附件 A2 污泥接受意向协议书

Easen International Co. Ltd. 4 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 3-1

Appendix A3 Reply Letter of Tangshan Mountain Greening Project

Wuhan Urban Construction Utilization of Foreign Investment Management Office:

We have received the letter named Confirmation Letter of Tangshan Mountain Greening Project ([2009] No.9). After the discussion, we agree to implement Tangshan mountain greening project. The detailed implementation plan will be arranged separately.

People's Government of Hanyang District in Wuhan City

August 18, 2009

Easen International Co. Ltd. 5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 3-1 附件 A3 武汉市汉阳区人民政府关于确认汤山山体绿化工程的复函

Easen International Co. Ltd. 6 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-1 APPENDIX 5-1 DETAILED COST ESTIMATES AND FINANCING PLAN

1 The cost analysis summarizes costs using standard disbursement cost categories described in Table 1.

Table 1: Cost Analysis Categories* Code Component Description 03 Civil Works (i) Earth moving, excavation, cut and fill, grouting, etc. (ii) Concrete work including rebar and formwork (e.g., foundations, building components, tanks, and bridge components, etc.) (iii) Metal fabrication (building framework, tanks, and other metal structures, etc.) (iv) Building construction on roads, embankments, and pipelines, etc. (v) Landscaping, planting, fences, etc. (vi) Plumbing, electrical wiring, and other utility services (vii) Other construction services (viii) The cost of special purpose construction equipment will normally be included in construction contracts and considered a civil cost (e.g., earth movers, cranes, arc welding equipment, and site dewatering pumps etc) 18 Materials (i) Major purchases of project materials that are procured separately from associated construction services (e.g., aggregate, rock, steel, cement, sand, wood, rebar, pipes, asphalt, seedling trees, grass seeds and paving blocks, etc.) 15 Equipment, (i) Project implementation vehicles in accordance with national regulations. Vehicles, (ii) General purpose tools (e.g. landscape and building maintenance Furniture equipment, etc.) (iii) Office furniture and equipment (desks, cabinets, computers, copiers, and phones etc.) Capital Goods (i) Electrical equipment (e.g., motors, pumps, controllers, electrical panels, telecommunication antennae, etc.) (ii) Mechanical equipment (e.g., overhead cranes, water and wastewater treatment process equipment, meters and other measuring devices, gates, refrigeration, heating and air conditioning, etc.) (iii) Special purpose vehicles for project operations (e.g., bulldozers and compacters used in a landfill operation and warehouse vehicles, etc.) (iv) Other larger machinery and equipment manufactured off site 09 Research and (i) Scientific investigations Development (ii) Technical support services (iii) Demonstration projects 21 Consultancy (i) Any costs relating to consultant service during implementation and Training (Consulting Services) 24 Other Training (i) Technical training for project operations (training in water or wastewater (Training and treatment, SCADA, and hydrological modeling for reservoir operations Fellowships) etc.) (ii) Training in ADB procedures (iii) Training in project and enterprise management (finance and accounting etc.) (iv) Other training Land (i) Land purchase acquisition (ii) Compensation for loss of assets and livelihood and (iii) Cost to resettle displaced persons (new housing, new land, retraining, Resettlement moving costs, and costs to assist the host community, etc.) (iv) LAR monitoring Environmental (i) Any costs of construction and procedure relating to environmental Protection protection during project implementation Bidding (i) Any costs relating to bidding documents and expenses

Easen International Co. Ltd. 1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-1 Code Component Description Documents and Expenses Taxes and (i) VAT and other taxes and duties on goods and services Duties Project (i) Project reporting, project audits Management (ii) Project accounting and financial management and others (iii) Funds to purchase initial inventories of materials and supplies and finance startup activities for project administration and operation (do not double count with other items) (iv) Implementation of management software and methods (e.g., accounting software and project management procedures, etc.) (v) Assistance to develop new institutions (e.g., WUAs, etc.) (vi) Any other costs relating to project management ADB = Asian Development Bank, LAR = land acquisition and resettlement, SCADA = Supervisory Control and Data Acquisition, VAT = value added tax, WUA = water user association. Source: ADB. 2005. Financial Management and Analysis of Projects. Manila.

2 Estimated costs in the feasibility study reports document labor, materials, equipment, taxes, etc. For estimation of total costs, physical and price contingencies and financing charges during implementation are estimated.

3 The following key assumptions have been made:

(i) Exchange Rate:1[1] CNY6.8242 = $1 (ii) All costs are in mid-2009 prices. (iii) Physical contingencies are computed at 10%. (iv) Price contingencies based on expected cumulative inflation over the implementation period are as follows: 2009 2010 2011 2012 2013 Foreign rate of price inflation (%/year) 1.9% 1.0% 0.0% 0.3% 0.5% Domestic rate of price inflation (%/year) 0.8% 1.0% 1.5% 2.0% 2.0% ADB provided the assumed rates (2008 to 2013).

(v) Financing costs include capitalized interest and commitment fee charges. Interest during construction has been assumed at 3.31% which comprises of the London interbank offered rate plus the spread. Front end fees are assumed to be waived. Interest rates and terms are as follows:

Interest Total Period Interest Commitment Fee Interest Commitment Grace Rates and of the Loan Capitalized Capitalized into Rate Charge Period Terms in Years into Loan Loan ADB Loan 3.31% 0.15% 25 5 100% 100% ADB = Asian Development Bank.

1 Source: Agreed between PMO and ADB estimate of appreciating CNY exchange rate.

Easen International Co. Ltd. 2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-1

DETAILED COST ESTIMATES AND FINANCING PLAN Table 2. Summary Cost Estimates

CNY Million USD Million Equivalent % of Total % of Total Base Item Foreign Local Total Foreign Local Total Cost Cost Exchange Currency Cost Exchange Currency Cost A. Investment Costsb 1 Civil Works 423.4 407.2 830.6 62.0 59.7 121.7 34.8 27.5 2 Equipment 163.0 24.5 187.5 23.9 3.6 27.5 7.9 6.2 3 Survey, Design and Others - 122.0 122.0 - 17.9 17.9 5.1 4.0 4 Land Acquisition and Resettlement - 1,062.4 1,062.4 - 155.7 155.7 44.6 35.2 5 Capacity Development and Project Management 19.3 - 19.3 2.8 - 2.8 0.8 0.6 6 Taxes and Duties 76.2 86.3 162.5 11.2 12.6 23.8 6.8 5.4 Subtotal (A) 682.0 1,702.5 2,384.5 99.9 249.5 349.4 100.0 78.9 B Contingencies 0.0 1 Physicalc 68.2 170.2 238.4 10.0 24.9 34.9 10.0 7.9 2 Priced 20.6 43.5 64.2 3.0 6.4 9.4 2.7 2.1 Subtotal (B) 88.8 213.8 302.6 13.0 31.3 44.3 12.7 10.0 C. Financing Charges During Implementatione ------0.0 1 Interest During Implementation 53.9 277.2 331.2 7.9 40.6 48.5 13.9 11.0 2 Commitment Charges 2.6 - 2.6 0.4 - 0.4 0.1 0.1 Subtotal (C) 56.6 277.2 333.8 8.3 40.6 48.9 14.0 11.0 Total Project Cost (A+B+C) 827.4 2,193.4 3,020.9 121.2 321.4 442.7 126.7 100.0 a In July 2009 prices, with an exchange rate of CNY 6.8242 to US$1.0. b Capacity building and institutional strengthening includes project implementation supervision, research and design, environmental monitoring, project management, and capacity development. The costs were estimated at US$ 3.0 million. c Taxes and duties of $23.8 million will be financed by the Government. d Physical contingencies are computed at 10% of base cost. e Price contingencies are computed by expenditure based on annual domestic and foreign price inflation. Exchange rate fluctuations are estimated using a purchasing power parity model of adjustment. f The ADB loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility and a commitment charge of 0.15% per annum. Sources: Based on DI’s FSR and following Preparation and Presentation of Cost Estimates for Projects Financed by the ADB in April 2008.

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Table 3. Summary Financing Plan

Total ADB Other Cofinanciers Government Item % of Cost % of Cost % of Cost % of Cost Cost $a $ $ Category Categoryb Category Category A. Investment Costs 1 Civil Works 1 100.88 22.8 64.3 63.7 36.6 36.3 - - 2 Civil Works 2 25.09 5.7 - - 25.1 100.0 - - 3 Equipment 1 32.73 7.4 32.7 100.0 - - - - 4 Equipment 2 4.91 1.1 - - 4.9 100.0 - - 5 Survey, Design and Others 18.92 4.3 - - 18.9 100.0 - - 6 Land Acquisition and Resettlement 163.88 37.0 - - 118.3 72.2 45.6 27.8 7 Capacity Development and Project Management 3.00 0.7 3.0 100.0 - - - - Subtotal (A) 349.41 78.9 100.0 28.6 203.8 58.3 45.6 13.1 B. Contingencies 1 Physicalc 34.94 7.9 - - 1.3 3.8 33.6 96.2 2 Priced 9.40 2.1 - - - - 9.4 100.0 Subtotal (B) 44.34 10.0 - - 1.3 3.0 43.0 97.0 C. Financing Charges During Implementation 1 Interest During Implementation 48.53 11.0 - - 26.9 55.4 21.7 44.6 2 Commitment Charges 0.39 0.1 - - - - 0.4 100.0 Subtotal (C) 48.91 11.0 - - 26.9 54.9 22.0 45.1 Total Project Cost (A+B+C) 442.67 100.0 100.0 22.6 232.0 52.4 110.7 25.0

% Total Project Costs 100.00 22.6 52.4 25.0 a Amount of ADB loan proceeds allocated to the cost category. b The amounts disbursed by ADB for eligible expenditures under a cost category will be subject to the ceiling set by the allocation of loan proceeds for such cost category. Civil works 1 refers to contract packages that will use ADB loan, while civil works 2 contract packages will not use ADB loan. Equipment 1 refers to contract packages that will use ADB loan, while equipment 2 contract packages will not use ADB loan. The loan disbursement percentage for equipment 1 and capacity building are set as 100%. The ADB fund in civil works 1 is at 64.3%. As a normal practice, the final 5% Quality Warranty Fund will be paid after the whole project passed the final accounting. Therefore, the percentage of civil works 1 is set at 67%. Sources: Based on DI’s FSR and following Preparation and Presentation of Cost Estimates for Projects Financed by the ADB in April 2008.

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Table 4. Cost Estimates- Sludge Treatment and Disposal Component

CNY Million USD Million Equivalent Item Foreign Local Total Foreign Local Total % of Total % of Total Exchange Currency Cost Exchange Currency Cost Base Cost Cost A. Investment Costsb 1 Civil Works 15.6 8.9 24.5 2.3 1.3 3.6 11.3 9.2 2 Equipment 119.8 - 119.8 17.6 - 17.6 55.6 45.1 3 Survey, Design and Others - 21.4 21.4 - 3.1 3.1 9.9 8.1 4 Land Acquisition and Resettlement ------5 Capacity Development and Project Management 3.3 - 3.3 0.5 - 0.5 1.5 1.2 6 Taxes and Duties 45.0 1.6 46.6 6.6 0.2 6.8 21.6 17.5 Subtotal (A) 183.7 31.9 215.6 26.9 4.7 31.6 100.0 81.1 B Contingencies - - 1 Physicalc 18.4 3.2 21.6 2.7 0.5 3.2 10.0 8.1 2 Priced 5.7 1.0 6.6 0.8 0.1 1.0 3.1 2.5 Subtotal (B) 24.0 4.1 28.2 3.5 0.6 4.1 13.1 10.6 C. Financing Charges During Implementatione - 1 Interest During Implementation 14.8 6.4 21.3 2.2 0.9 3.1 9.9 8.0 2 Commitment Charges 0.7 - 0.7 0.1 - 0.1 0.3 0.3 Subtotal (C) 15.5 6.4 22.0 2.3 0.9 3.2 10.2 8.3 Total Project Cost (A+B+C) 223.3 42.5 265.7 32.7 6.2 38.9 123.3 100.0 a In July 2009 prices, with an exchange rate of CNY 6.8242 to US$1.0. b Capacity building and institutional strengthening includes project implementation supervision, research and design, environmental monitoring, project management, and capacity development. The costs were estimated at US$ 0.5 million. c Taxes and duties of $ 6.8million will be financed by the Government. d Physical contingencies are computed at 10% of base cost. e Price contingencies are computed by expenditure based on annual domestic and foreign price inflation. Exchange rate fluctuations are estimated using a purchasing power parity model of adjustment. f The ADB loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility and a commitment charge of 0.15% per annum. Sources: Based on DI’s FSR and following Preparation and Presentation of Cost Estimates for Projects Financed by the ADB in April 2008.

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Table 5. Financing Plan- Sludge Treatment and Disposal Component

Total ADB Other Cofinanciers Government Item % of Cost % of Cost % of Cost % of Cost Cost $a $ $ Category Categoryb Category Category A. Investment Costs 1 Civil Works 1 3.7 9.5 2.4 63.7 1.3 36.3 - - 2 Civil Works 2 - 3 Equipment 1 24.0 61.8 24.0 100.0 - - - - 4 Equipment 2 - 5 Survey, Design and Others 3.3 8.5 - - 3.3 100.0 - - 6 Land Acquisition and Resettlement ------7 Capacity Development and Project Management 0.5 1.3 0.5 100.0 - - - - Subtotal (A) 31.6 81.1 26.9 85.2 4.7 14.8 - - B. Contingencies - 1 Physicalc 3.2 8.1 - - 1.3 42.4 1.8 57.6 2 Priced 1.0 2.5 - - - - 1.0 100.0 Subtotal (B) 4.1 10.6 - - 1.3 32.4 2.8 67.6 C. Financing Charges During Implementation - 1 Interest During Implementation 3.1 8.0 0.9 30.2 2.2 69.8 2 Commitment Charges 0.1 0.3 - - 0.1 100.0 Subtotal (C) 3.2 8.3 - 0.9 29.2 2.3 70.8 Total Project Cost (A+B+C) 38.9 100.0 26.9 69.1 7.0 17.9 5.1 13.0

% Total Project Costs 100.0 69.1 17.9 13.0 a Amount of ADB loan proceeds allocated to the cost category. b The amounts disbursed by ADB for eligible expenditures under a cost category will be subject to the ceiling set by the allocation of loan proceeds for such cost category. Civil works 1 refers to contract packages that will use ADB loan, while civil works 2 contract packages will not use ADB loan. Equipment 1 refers to contract packages that will use ADB loan, while equipment 2 contract packages will not use ADB loan. The loan disbursement percentage for equipment 1 and capacity building are set as 100%. The ADB fund in civil works 1 is at 64.3%. As a normal practice, the final 5% Quality Warranty Fund will be paid after the whole project passed the final accounting. Therefore, the percentage of civil works 1 is set at 67%. Sources: Based on DI’s FSR and following Preparation and Presentation of Cost Estimates for Projects Financed by the ADB in April 2008.

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Table 6. Cost Estimate - Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station Component

CNY Million USD Million Equivalent Item % of Foreign Local Total Foreign Local Total % of Total Total Exchange Currency Cost Exchange Currency Cost Base Cost Cost A. Investment Costsb 1 Civil Works 341.5 295.6 637.1 50.0 43.3 93.4 41.9 33.1 2 Equipment 35.7 24.5 60.1 5.2 3.6 8.8 4.0 3.1 3 Survey, Design and Others - 78.5 78.5 - 11.5 11.5 5.2 4.1 4 Land Acquisition and Resettlement - 647.5 647.5 - 94.9 94.9 42.6 33.7 5 Capacity Development and Project Management 12.9 - 12.9 1.9 - 1.9 0.8 0.7 6 Taxes and Duties 25.9 58.0 83.9 3.8 8.5 12.3 5.5 4.4 Subtotal (A) 415.9 1,104.0 1,520.0 60.9 161.8 222.7 100.0 79.0 B Contingencies - - 1 Physicalc 41.6 110.4 152.0 6.1 16.2 22.3 10.0 7.9 2 Priced 12.5 28.5 41.0 1.8 4.2 6.0 2.7 2.1 Subtotal (B) 54.1 138.9 193.0 7.9 20.4 28.3 12.7 10.0 C. Financing Charges During Implementatione - - 1 Interest During Implementation 32.5 176.9 209.5 4.8 25.9 30.7 13.8 10.9 2 Commitment Charges 1.6 - 1.6 0.2 - 0.2 0.1 0.1 Subtotal (C) 34.2 176.9 211.1 5.0 25.9 30.9 13.9 11.0 Total Project Cost (A+B+C) 88.2 1,419.9 1,924.1 73.9 208.1 281.9 126.6 100.0 a In July 2009 prices, with an exchange rate of CNY 6.8242 to US$1.0. b Capacity building and institutional strengthening includes project implementation supervision, research and design, environmental monitoring, project management, and capacity development. The costs were estimated at US$ 2.0 million. c Taxes and duties of $ 12.3 million will be financed by the Government. d Physical contingencies are computed at 10% of base cost. e Price contingencies are computed by expenditure based on annual domestic and foreign price inflation. Exchange rate fluctuations are estimated using a purchasing power parity model of adjustment. f The ADB loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility and a commitment charge of 0.15% per annum. Sources: Based on DI’s FSR and following Preparation and Presentation of Cost Estimates for Projects Financed by the ADB in April 2008.

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Table 7. Financing Plan-Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station Component

Item Total ADB Other Cofinanciers Government % of Cost % of Cost % of Cost % of Cost Cost Category $a Categoryb $ Category $ Category A. Investment Costs 1 Civil Works 1 81.4 28.9 51.8 63.7 29.5 36.3 - - 2 Civil Works 2 15.2 5.4 15.2 100.0 3 Equipment 1 7.2 2.5 7.2 100.0 - - - - 4 Equipment 2 4.9 1.7 4.9 100.0 5 Survey, Design and Others 12.2 4.3 - - 12.2 100.0 - - 6 Land Acquisition and Resettlement 99.9 35.4 - - 62.3 62.4 37.6 37.6 7 Capacity Development and Project Management 2.0 0.7 2.0 100.0 - - - - Subtotal (A) 222.7 79.0 61.0 27.4 124.1 55.7 37.6 16.9 B. Contingencies - 1 Physicalc 22.3 7.9 - - - - 22.3 100.0 2 Priced 6.0 2.1 - - - - 6.0 100.0 Subtotal (B) 28.3 10.0 - - - - 28.3 100.0 C. Financing Charges During Implementation - 1 Interest During Implementation 30.7 10.9 25.9 84.5 4.8 15.5 2 Commitment Charges 0.2 0.1 - - 0.2 100.0 Subtotal (C) 30.9 11.0 - 25.9 83.8 5.0 16.2 Total Project Cost (A+B+C) 281.9 100.0 61.0 21.6 150.1 53.2 70.9 25.1

% Total Project Costs 100.0 21.6 53.2 25.1 a Amount of ADB loan proceeds allocated to the cost category. b The amounts disbursed by ADB for eligible expenditures under a cost category will be subject to the ceiling set by the allocation of loan proceeds for such cost category. Civil works 1 refers to contract packages that will use ADB loan, while civil works 2 contract packages will not use ADB loan. Equipment 1 refers to contract packages that will use ADB loan, while equipment 2 contract packages will not use ADB loan. The loan disbursement percentage for equipment 1 and capacity building are set as 100%. The ADB fund in civil works 1 is at 64.3%. As a normal practice, the final 5% Quality Warranty Fund will be paid after the whole project passed the final accounting. Therefore, the percentage of civil works 1 is set at 67%. Sources: Based on DI’s FSR and following Preparation and Presentation of Cost Estimates for Projects Financed by the ADB in April 2008.

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Table 8. Cost Estimate - Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Component

CNY Million USD Million Equivalent Item % of Foreign Local Total Foreign Local Total % of Total Total Exchange Currency Cost Exchange Currency Cost Base Cost Cost A. Investment Costsb 1 Civil Works 66.3 102.8 169.1 9.7 15.1 24.8 26.1 20.3 2 Equipment 7.6 - 7.6 1.1 - 1.1 1.2 0.9 3 Survey, Design and Others - 22.1 22.1 - 3.2 3.2 3.4 2.7 4 Land Acquisition and Resettlement - 415.0 415.0 - 60.8 60.8 63.9 49.9 5 Capacity Development and Project Management 3.2 - 3.2 0.5 - 0.5 0.5 0.4 6 Taxes and Duties 5.3 26.7 32.0 0.8 3.9 4.7 4.9 3.9 Subtotal (A) 82.4 566.5 648.9 12.1 83.0 95.1 100.0 78.1 B Contingencies - - 1 Physicalc 8.2 56.7 64.9 1.2 8.3 9.5 10.0 7.8 2 Priced 2.5 14.0 16.5 0.4 2.1 2.4 2.5 2.0 Subtotal (B) 10.7 70.7 81.4 1.6 10.4 11.9 12.5 9.8 C. Financing Charges During Implementatione - - 1 Interest During Implementation 6.6 93.9 100.4 1.0 13.8 14.7 15.5 12.1 2 Commitment Charges 0.3 - 0.3 0.0 - 0.0 0.0 0.0 Subtotal (C) 6.9 93.9 100.8 1.0 13.8 14.8 15.5 12.1 Total Project Cost (A+B+C) 100.0 731.1 831.0 14.7 107.1 121.8 128.1 100.0 a In July 2009 prices, with an exchange rate of CNY 6.8242 to US$1.0. b Capacity building and institutional strengthening includes project implementation supervision, research and design, environmental monitoring, project management, and capacity development. The costs were estimated at US$ 0.5 million. c Taxes and duties of $ 4.7million will be financed by the Government. d Physical contingencies are computed at 10% of base cost. e Price contingencies are computed by expenditure based on annual domestic and foreign price inflation. Exchange rate fluctuations are estimated using a purchasing power parity model of adjustment. f The ADB loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility and a commitment charge of 0.15% per annum. Sources: Based on DI’s FSR and following Preparation and Presentation of Cost Estimates for Projects Financed by the ADB in April 2008.

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Table 8 Financing Plan - Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Component

Item Total ADB Other Cofinanciers Government % of Cost % of Cost % of Cost % of Cost Cost Category $a Categoryb $ Category $ Category A. Investment Costs 1 Civil Works 1 15.8 13.0 10.1 63.7 5.7 36.3 - - 2 Civil Works 2 9.8 8.1 9.8 100.0 3 Equipment 1 1.5 1.2 1.5 100.0 - - - - 4 Equipment 2 - 5 Survey, Design and Others 3.4 2.8 - - 3.4 100.0 - - 6 Land Acquisition and Resettlement 64.0 52.6 - - 56.0 87.5 8.0 12.5 7 Capacity Development and Project Management 0.5 0.4 0.5 100.0 - - - - Subtotal (A) 95.1 78.1 12.1 12.7 75.0 78.9 8.0 8.4 B. Contingencies - 1 Physicalc 9.5 7.8 - - - - 9.5 100.0 2 Priced 2.4 2.0 - - - - 2.4 100.0 Subtotal (B) 11.9 9.8 - - - - 11.9 100.0 C. Financing Charges During Implementation - 1 Interest During Implementation 14.7 12.1 - - 14.7 100.0 2 Commitment Charges 0.0 0.0 - - 0.0 100.0 Subtotal (C) 14.8 12.1 - - - 14.8 100.0 Total Project Cost (A+B+C) 121.8 100.0 12.1 9.9 75.0 61.6 34.7 28.5

% Total Project Costs 100.0 9.9 61.6 28.5 a Amount of ADB loan proceeds allocated to the cost category. b The amounts disbursed by ADB for eligible expenditures under a cost category will be subject to the ceiling set by the allocation of loan proceeds for such cost category. Civil works 1 refers to contract packages that will use ADB loan, while civil works 2 contract packages will not use ADB loan. Equipment 1 refers to contract packages that will use ADB loan, while equipment 2 contract packages will not use ADB loan. The loan disbursement percentage for equipment 1 and capacity building are set as 100%. The ADB fund in civil works 1 is at 64.3%. As a normal practice, the final 5% Quality Warranty Fund will be paid after the whole project passed the final accounting. Therefore, the percentage of civil works 1 is set at 67%. Sources: Based on DI’s FSR and following Preparation and Presentation of Cost Estimates for Projects Financed by the ADB in April 2008.

Easen International Co. Ltd. 10 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-2 APPENDIX 5-2 FINANCIAL PROJECTION FOR WUDDC Income Statement Unit: CNY million Items 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sales Revenues 370.1 321.6 514.5 488.4 612.7 600.9 605.4 667.1 666.2 667.8 702.0 702.2 Revenues from Wastewater Tariff 370.1 319.3 399.2 479.0 558.8 558.8 558.8 598.7 598.7 598.7 698.5 698.5 Revenues from Self Supplied - 2.2 2.3 2.5 2.6 2.7 2.8 3.0 3.1 3.3 3.5 3.6 Government Subsidy - - 113.0 7.0 51.3 39.4 43.7 65.4 64.3 65.8 - - Net Sales Revenues from Primary Business 370.1 321.6 514.5 488.4 612.7 600.9 605.4 667.1 666.2 667.8 702.0 702.2 Less: Cost of Good Sold 201.9 196.8 263.7 323.8 373.8 408.2 435.1 460.0 478.5 498.3 519.4 541.9 Sales Expenses 1.1 1.1 1.1 1.2 1.2 1.3 1.4 1.4 1.5 1.6 1.7 1.8 Others - 1.8 1.9 2.0 2.1 2.2 2.3 2.4 2.5 2.7 2.8 2.9 Income from Primary Business 167.1 121.8 247.7 161.5 235.6 189.2 166.6 203.2 183.6 165.3 178.1 155.5 Add: Other Business Income 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.7 0.7 0.7 0.8 0.8 Less: Operating Expenses ------Administration 8.6 10.7 13.0 27.2 28.1 29.2 30.3 31.6 33.0 34.5 36.2 38.0 Financial Expenses 17.5 48.0 78.0 103.8 105.2 91.6 84.2 76.9 69.9 63.5 57.4 51.7 Including: Interest Expenses - 48.0 78.0 103.8 105.2 91.6 84.2 76.9 69.9 63.5 57.4 51.7 Operating Income 141.5 63.6 157.2 31.1 102.8 69.1 52.7 95.4 81.4 68.0 85.4 66.7 Add: Income from Investment ------Non-operating Income 19.8 ------Less:Non-operating Expenses 4.3 3.7 4.7 5.6 6.5 6.5 6.5 7.0 7.0 7.0 8.1 8.1 Profit Before Income Tax 156.9 59.9 152.5 25.5 96.3 62.5 46.2 88.4 74.4 61.0 77.2 58.6 Less: Income Tax ------Net Profit 156.9 59.9 152.5 25.5 96.3 62.5 46.2 88.4 74.4 61.0 77.2 58.6 Add: Retained Earnings in the Beginning of Year 24.1 176.5 ------Profit Eligible for Allocation 181.1 236.4 152.5 25.5 96.3 62.5 46.2 88.4 74.4 61.0 77.2 58.6 Profit Eligible for Allocation Between the 181.1 236.4 152.5 25.5 96.3 62.5 46.2 88.4 74.4 61.0 77.2 58.6

Easen International Co. Ltd. 1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-2 Shareholders Less: Others 4.5 ------Retained Earnings 176.5 ------Items 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sales Revenues from Primary Business 370.1 321.6 514.5 488.4 612.7 600.9 605.4 667.1 666.2 667.8 702.0 702.2 Revenues from Wastewater Tariff 370.1 319.3 399.2 479.0 558.8 558.8 558.8 598.7 598.7 598.7 698.5 698.5 Revenues from Self Supplied - 2.2 2.3 2.5 2.6 2.7 2.8 3.0 3.1 3.3 3.5 3.6 Government Subsidy - - 113.0 7.0 51.3 39.4 43.7 65.4 64.3 65.8 - - Net Sales Revenues from Primary Business 370.1 321.6 514.5 488.4 612.7 600.9 605.4 667.1 666.2 667.8 702.0 702.2 Variable Cost 67.6 60.8 81.5 106.3 133.3 153.5 170.2 184.5 193.7 203.4 213.5 224.2 Utility 48.3 45.1 57.0 72.9 92.0 106.8 118.8 128.9 135.4 142.1 149.3 156.7 Chemical 8.6 6.8 9.9 12.9 16.2 18.4 20.1 21.5 22.6 23.7 24.9 26.1 Water 2.7 2.5 3.4 4.5 5.2 5.9 6.4 6.7 7.0 7.4 7.8 8.2 Soil Disposal 8.0 6.4 11.2 16.1 19.9 22.5 25.0 27.3 28.7 30.1 31.6 33.2 Fixed Cost 74.1 71.3 75.3 86.5 101.6 114.8 126.2 138.1 148.8 160.4 173.0 186.7 Personnel 40.4 43.5 42.9 50.8 57.4 63.9 70.6 78.0 85.7 94.1 103.4 113.6 Maintenance 6.7 8.9 9.3 10.1 12.0 13.7 14.7 15.8 16.5 17.4 18.2 19.2 Repair 12.5 9.6 11.8 13.2 17.6 21.1 23.4 25.7 27.0 28.3 29.7 31.2 Management 6.2 4.9 5.5 6.0 7.1 8.0 8.7 9.3 9.8 10.3 10.8 11.3 Other Cost 8.3 4.4 5.8 6.4 7.4 8.2 8.8 9.3 9.8 10.3 10.8 11.4 Total Operating Cost 141.7 132.1 156.8 192.9 234.8 268.3 296.4 322.6 342.5 363.7 386.5 410.9 Depreciation 68.7 75.3 119.4 157.8 166.8 169.0 169.0 169.0 169.0 169.0 169.0 169.0 Add: Other Business Income 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.7 0.7 0.7 0.8 0.8 Other Expenses 1.2 2.9 3.5 3.4 3.6 3.5 3.7 3.9 4.1 4.3 4.5 4.7 Financial Cost 17.5 48.0 78.0 103.8 105.2 91.6 84.2 76.9 69.9 63.5 57.4 51.7 Total Cost 228.6 257.9 357.2 457.3 509.8 531.8 552.6 571.6 584.7 599.7 616.5 635.4 Operating Income 141.5 63.7 157.2 31.1 102.8 69.1 52.8 95.5 81.5 68.1 85.5 66.8 Add: Income from Investment ------Non-operating Income 19.8 ------Less:Non-operating Expenses 4.3 3.7 4.7 5.6 6.5 6.5 6.5 7.0 7.0 7.0 8.1 8.1 Profit Before Income Tax 156.9 59.9 152.5 25.5 96.3 62.5 46.2 88.4 74.4 61.0 77.2 58.6 Less: Income Tax ------

Easen International Co. Ltd. 2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-2 Net Profit 156.9 59.9 152.5 25.5 96.3 62.5 46.2 88.4 74.4 61.0 77.2 58.6 Add: Retained Earnings in the Beginning of Year 24.1 176.5 ------Profit Eligible for Allocation 181.1 236.4 152.5 25.5 96.3 62.5 46.2 88.4 74.4 61.0 77.2 58.6 Profit Eligible for Allocation Between the Shareholders 181.1 236.4 152.5 25.5 96.3 62.5 46.2 88.4 74.4 61.0 77.2 58.6 Less: Others 4.5 ------Retained Earnings 176.5 236.4 152.5 25.5 96.3 62.5 46.2 88.4 74.4 61.0 77.2 58.6 Balance Sheet Unit: CNY million Items 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Cash and Bank 221.1 230.5 150.1 115.3 107.2 111.3 95.0 112.2 150.8 201.4 265.8 327.5 Inventory 248.6 80.4 128.6 122.1 153.2 150.2 151.4 166.8 166.5 167.0 175.5 175.5 Other Accounts Receivable 327.5 389.3 247.2 56.0 56.0 56.0 56.0 56.0 56.0 56.0 56.0 56.0 Advance Payment 2.7 48.7 30.9 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 Provision of Net Loss in Current Assets 297.6 297.6 297.6 297.6 297.6 297.6 297.6 297.6 297.6 297.6 297.6 297.6 Total Current Assets 1,097.5 1,046.5 854.4 598.0 621.0 622.1 606.9 639.6 678.0 728.9 801.9 863.6 Longterm Capital Investment 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 Total Longterm Investment 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 32.2 Fixed Assets at Cost 1,552.5 2,421.6 2,772.7 3,283.2 3,647.8 3,681.4 3,945.6 3,945.6 3,945.6 3,945.6 3,945.6 3,945.6 Less: Accumulated Depreciation 242.3 370.2 495.7 645.0 811.3 979.1 1,173.7 1,368.3 1,562.9 1,757.5 1,952.1 2,146.7 Net Fixed Assets 1,310.3 2,051.5 2,277.0 2,638.2 2,836.5 2,702.3 2,771.9 2,577.3 2,382.7 2,188.1 1,993.5 1,798.9 Construction in Progress 1,720.9 1,266.4 1,224.2 783.7 489.1 525.5 595.5 665.5 735.5 805.5 875.5 945.5 Provision of Net Loss in Fixed Assets 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 Total Fixed Assets 3,035.6 3,322.2 3,505.6 3,426.3 3,330.1 3,232.2 3,371.8 3,247.2 3,122.6 2,998.0 2,873.4 2,748.8 Intangible Assets 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Intangible and Deferred Assets 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Total Assets 4,167.7 4,403.4 4,394.7 4,059.0 3,985.7 3,889.0 4,013.4 3,921.5 3,835.3 3,761.6 3,710.0 3,647.1 Short-term Loan 770.0 770.0 770.0 770.0 770.0 770.0 770.0 770.0 770.0 770.0 770.0 770.0 Accounts Payable 10.7 10.1 13.6 17.7 22.2 25.6 28.4 30.7 32.3 33.9 35.6 37.4 Taxes Payable 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Other Accounts Payable 165.0 121.7 77.2 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 Total Current Liability 945.8 901.9 860.9 805.3 809.8 813.2 815.9 818.3 819.9 821.5 823.2 824.9 Long Term Loan 1,453.7 1,802.7 1,876.3 1,782.8 1,634.6 1,494.0 1,351.0 1,210.9 1,088.2 988.4 891.2 798.2

Easen International Co. Ltd. 3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-2 Special Fund Payable 288.7 288.7 288.7 288.7 288.7 288.7 288.7 288.7 288.7 288.7 288.7 288.7 Total Long-term Liability 1,742.4 2,091.4 2,165.0 2,071.6 1,923.3 1,782.8 1,639.7 1,499.6 1,376.9 1,277.1 1,179.9 1,087.0 Total Liability 2,688.2 2,993.3 3,025.9 2,876.9 2,733.1 2,595.9 2,455.6 2,317.9 2,196.8 2,098.6 2,003.1 1,911.9 Paid in Capital 63.4 63.4 63.4 63.4 63.4 63.4 63.4 63.4 63.4 63.4 63.4 63.4 Capital Accumulative Fund 712.4 ------Surplus Accumulative Fund 527.3 ------Retained Earnings 1,416.2 1,346.7 1,305.4 1,118.8 1,189.2 1,229.7 1,494.4 1,540.2 1,575.1 1,599.7 1,643.6 1,671.8 Equity 1,479.6 1,410.1 1,368.8 1,182.2 1,252.6 1,293.1 1,557.8 1,603.6 1,638.5 1,663.1 1,706.9 1,735.2 Total Liability+ Equity 4,167.7 4,403.4 4,394.7 4,059.0 3,985.7 3,889.0 4,013.4 3,921.5 3,835.3 3,761.6 3,710.0 3,647.1 Cash Flow Statement with Financial Indicator Unit: CNY million Items 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sources Net Income 156.9 59.9 152.5 25.5 96.3 62.5 46.2 88.4 74.4 61.0 77.2 58.6 Depreciation 68.7 75.3 119.4 157.8 166.8 169.0 169.0 169.0 169.0 169.0 169.0 169.0 Internal Cash 225.7 135.2 271.9 183.2 263.0 231.5 215.2 257.4 243.4 230.0 246.2 227.5 Operating Interest Expenses 23.1 44.3 70.0 86.2 81.1 69.2 63.6 58.0 52.9 48.4 44.1 40.3 Long-term Loan Proceeds 312.3 451.0 184.0 49.7 ------Including: ADB I 114.4 159.9 ------ADB II 36.3 136.0 62.0 49.7 ------Commercial Bank 161.6 155.1 122.0 ------Equity Infusion-Counterpart Fund 20.0 ------Short term loan 100.0 ------Total Sources 681.1 630.6 525.9 319.2 344.1 300.7 278.7 315.4 296.3 278.4 290.3 267.8 Applications ------Fixed Assets Investment 365.6 486.6 309.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 Working Capital Incr. (Decr.) 68.2 -80.3 71.4 25.2 26.6 -6.3 -1.6 13.0 -1.8 -1.2 6.8 -1.7 Total Interest Expenses 77.1 106.7 115.5 115.6 107.3 92.3 83.7 75.0 66.8 59.2 51.8 45.0 Including: ADB I 13.5 30.3 28.9 28.2 27.5 27.7 27.1 26.5 25.8 25.0 24.1 23.2 ADB II 2.3 7.0 12.7 14.7 13.1 11.6 10.0 8.5 7.0 5.4 3.9 2.3 World Bank 6.9 6.0 5.1 4.1 3.1 2.2 1.2 0.4 - - - - Poland Government 0.3 0.2 0.2 0.1 0.1 0.1 0.0 -0.0 -0.0 -0.1 -0.1 -0.2

Easen International Co. Ltd. 4 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-2 Commercial Bank 43.1 52.1 57.8 57.7 52.8 48.0 43.2 38.4 33.5 28.7 23.9 19.6 Domestic Bond 11.0 11.0 10.9 10.8 10.7 2.8 2.0 1.3 0.6 0.2 0.1 - Long-term Loan Repayment 76.1 108.2 110.4 143.2 148.2 140.5 143.1 140.1 122.7 99.8 97.2 92.9 Including: ADB I 2.7 10.9 12.3 13.5 14.8 9.6 10.6 11.7 12.9 14.2 15.7 17.3 ADB I - - - 2.4 5.1 5.6 6.2 6.8 7.5 8.3 9.1 10.0 World Bank 21.1 23.0 24.0 24.9 25.9 22.9 23.8 19.2 - - - - Poland Government 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 4.7 Commercial Bank 22.4 42.5 42.5 70.7 70.7 70.7 70.7 70.7 70.7 70.7 65.8 60.9 Domestic Bond 25.1 27.0 27.0 27.0 27.0 27.0 27.0 27.0 26.8 1.9 1.9 - Total Applications 587.0 621.2 606.3 354.0 352.2 296.6 295.1 298.2 257.7 227.8 225.9 206.2 Cash Changes 94.1 9.4 -80.4 -34.8 -8.1 4.1 -16.4 17.3 38.6 50.6 64.4 61.7 Accumulated Cash Changes 221.1 230.5 150.1 115.3 107.2 111.3 95.0 112.2 150.8 201.4 265.8 327.5

Easen International Co. Ltd. 5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-3 APPENDIX 5-3 Completed FMA Questionnaire on FMO

FINANCIAL MANAGEMENT ASSESSMENT QUESTIONNAIRE

WUHAN URBAN ENVIROMENTAL IMPROVEMENT PROJECT

SEPTEMBER 2009

QUESTION ANSWER 0 Background Information 0.1 Name of agency Wuhan City People’s Government Urban Construction Fund Management Office (FMO) 0.2 Subproject that the agency is Wuhan Urban Enviromental Improvement Project responsible for 0.3 Name of person responsible for filling Mr. Wang YiJun, Manager of department of Planning and this form Capital, Project Management Office 1 Implementing agency 1.1 What is your agency’s legal status and Public Service Institution registration?

1.2 What is your agency’s governing body? Wuhan City People’s Government

1.3 Has your agency implemented a Yes. foreign-financed project in the past? If ‐ Wuhan Urban Transport Project; yes, please provide detailed project(s) ‐ ADB Financed Wuhan Wastewater and Storm Water name? Management Project.

2 Funds flow arrangements 2.1 Describe how ADB funds will be ADB --Æ Ministry of Finance --Æ Finance Bureau --ÆIA disbursed to your agency.

2.2 Are arrangements to transfer the Yes. proceeds of the loan to your agency satisfactory?

2.3 What have been the major problems in No. the past in receipt of funds by the entity?

2.4 Does the (proposed) project implementing unit (PIU) have Yes. experience in the management of disbursements from ADB?

2.5 Is your agency responsible for providing Yes. counterpart funds?

Easen International Co. Ltd. 1 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-3 QUESTION ANSWER 2.6 How will you provide counterpart funds The government investment and local commercial bank loan for the subproject construction? What is are the main resources for the counterpart funds. their source?

2.7 Are the beneficiaries required to No. contribute to project costs? (for example by a special levy) If beneficiaries have an option to contribute in kind (in the form of labor), are proper guidelines formulated to record and value the labor contribution?

3 Staffing 3.1 What is your agency’s organizational One Manager, one Deputy Manager, two Accountants and structure for accounting and finance? one Cashier (PMO) Please attach an organization chart. M/DM

Accountant Accountant Cashier

3.2 Identify key finance and accounting staffs of Planning and Capital Department. (PMO) Staff Job title Main responsibilities Wang YiJun Manager Coordinating, monitoring and supervising all activities Cheng Fei Deputy Assisting Manager in Manager all activities

Fang Jing Accountant Planning and Disbursement

Luo JiaQun Accountant Accounting

Zhou Gang Cashier Withdrawal Application and Cashing work

3.3 If the ADB loan is approved, what No. staffing changes will you make to assist with project finance and accounting?

3.4 Are accounts and finance staffs trained Yes. in ADB procedures?

Easen International Co. Ltd. 2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-3 QUESTION ANSWER 3.5 Does the sub-project have written Yes. position descriptions that clearly define duties, responsibilities, lines of supervision, and limits of authority for all of the officers, managers, and staff?

3.6 What is the existing training policy for Internal: organize periodical project accounting training the finance and accounting staff? course External: participate national accounting qualification training course 4 Accounting policies and procedures 4.1 General policies 4.1.1 Does the entity have an accounting Yes. system that allows for the proper recording of project financial transactions, including the allocation of expenditures in accordance with the respective components, disbursement categories, and sources of funds? 4.1.2 Are controls in place concerning the Yes. preparation and approval of transactions, ensuring that all transactions are correctly made and adequately explained? 4.1.3 Is the chart of accounts adequate to Yes. properly account for and report on project activities and disbursement categories? 4.1.4 Are the General Ledger and Yes. subsidiary ledgers reconciled and in balance? 4.1.5 Are all accounting and supporting Yes. documents retained on a permanent basis in a defined system that allows authorized users easy access? 4.2 Segregation of duties 4.2.1 Who is responsible for the following:

(i) Authorize transactions; FMO general manager.

(ii) record transactions; Accountant and cashier (iii) maintain custody of assets The department where the assets belong to. involved in transaction 4.2.2 Are responsibilities for ordering, : Yes receiving, accounting for, and paying for goods and services separated? † briefly describe how they are not separated 4.2.3 Are bank reconciliations prepared by Yes. someone other than those who make or approve payments? 4.3 Budgeting system

Easen International Co. Ltd. 3 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-3 QUESTION ANSWER 4.3.1 Are annual budgets based on physical and financial targets? † Yes – with financial targets only

: Yes – with physical and financial targets

† No

4.3.2 Are budgets prepared for all significant Detailed budget is prepared for significant activities. Related activities in sufficient detail to provide auditing department will compare the actual expenditures a meaningful tool with which to with budgets. monitor subsequent performance? 4.3.3 Are actual expenditures compared If yes, provide frequency with the budget with reasonable frequency, and explanations required Yes, according to related required procedures. for significant variations from the budget? 4.3.4 Are approvals for variations from the If the actual expenses are lower than budgets, no additional budget required in advance? approval is required. 4.3.5 How are budgets prepared and According to design budgetary estimate and project approved? implementation schedule. 4.3.6 Who is involved and what is the basis Wuhan Municipal Development and Reform Committee, for setting budgets? Wuhan Municipal Construction Committee, Wuhan Municipal Financial Bureau 4.4 Payments 4.4.1 During invoice-processing procedures are: (i) Copies of purchase orders and : Yes receiving reports obtained directly from issuing departments? † No

(ii) Comparison made of invoice : Yes quantities, prices and terms, with those indicated on the purchase order and with † No records of goods actually received? (iii) Comparison of invoice quantities with : Yes those indicated on the receiving reports? † No (iv) Is the accuracy of calculations : Yes checked? † No 4.4.2 Are all invoices: (i) dated, reviewed and approved, : Yes † No (ii) stamped PAID upon payment, : Yes † No (iii) marked for account code : Yes assignment? † No 4.4.3 What controls exist for the preparation A specific staff is assigned for recording, checking payroll of the payroll? records. General Manager approves payroll records and payments.

Easen International Co. Ltd. 4 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-3 QUESTION ANSWER 4.4.4 How are changes to the payroll A document indicating any payroll changes with reasons is authorized? prepared by General Administration Department, which is subject to approval by General Manager.

4.5 Specific Accounting Policies and procedures 4.5.1 What accounting standards are Accounting System for State-owned Construction followed? What is the basis of Enterprises accounting (e.g., cash, accrual)? Basis of accounting: accrual basis

4.5.2 Does the agency have a policies and : Yes procedures manual for accounting? † No, but will prepare a manual in future † No 4.5.3 Is the accounting policy and procedure Yes. manual updated for the project activities? 4.5.4 Are there written policies and : Yes procedures covering routine financial management and related † No administrative activities? 4.5.5 Do procedures exist to ensure that Yes. only authorized persons can alter or establish a new accounting principle, policy or procedure to be used by the entity? 4.5.6 Do policies and procedures clearly Yes. define conflict of interest and related party transactions (real and apparent) and provide safeguards to protect the organization from them? 4.5.7 Are manuals distributed to appropriate Yes. personnel? 4.6 Cash and bank 4.6.1 Does the organization maintain an up- : Yes to-date cashbook, recording receipts and payments? † No

4.6.2 What are the controls for the following activities: (i) collection of revenues N/A (ii) timely deposit of receipts Cash receipts are deposited into bank account on a daily basis. (iii) recording of receipts Cash is recorded in cash receipt book on a timely basis.

4.6.3 Are bank and cash reconciled on a : Yes monthly basis? † No 4.6.4 Are unusual items on the bank : Yes reconciliation reviewed and approved by a responsible official? † No

Easen International Co. Ltd. 5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-3 QUESTION ANSWER 4.6.5 How quickly are receipts deposited? The same day as receiving date.

4.7 Safeguard over assets 4.7.1 Describe the system to record assets A fixed assets register, general ledger and subsidiary ledger and protect them from fraud, waste are maintained by Finance Department. Any changes in and abuse? fixed asset are recorded in a timely manner. A physical record of all the fixed assets is maintained by General Administration Department. Every half a year a fixed assets checking is carried out. Physical records are reconciled with control accounts. 4.7.2 Are subsidiary records of fixed assets : Yes and stocks kept up to date? † No 4.7.3 Are subsidiary records of fixed assets : Yes and stocks reconciled with control accounts? † No 4.7.4 How frequent are physical inventories of fixed assets and stocks? Every half a year. 4.8 Other offices and implementing entities 4.8.1 Identify agencies under your PMO (Wuhan Urban Construction Utilization of Foreign supervision or control that are Investment Project Management Office) responsible for project implementation or finance?

4.8.2 In relation to these other agencies, has the project established controls and procedures for: (i) flow of funds : Yes † No (ii) financial information : Yes † No (iii) accountability : Yes † No (iv) audits : Yes † No 4.8.3 Are periodic reconciliations performed : Yes among the different offices/implementing agencies? † No 5 Reporting and monitoring 5.1 Are Project financial statements Yes. prepared for your agency?

5.2 How often are financial statements Every half-year. prepared?

Easen International Co. Ltd. 6 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-3 QUESTION ANSWER 5.3 Will the financial reporting system need No. to be adapted to report on the sub- project components?

5.4 Does the reporting system have the : Yes capacity to link financial information with † No information on the physical progress of

engineering project's?

5.5 Can the physical project data be Yes. compared and coordinated with the financial data? 5.6 Are there financial management reporting requirements for existing engineering projects that specify: (i) what reports are to be prepared Balance Sheet of Project, Summary of Sources and Uses of Funds by Project Component, Statement of Implementation of Loan Agreement (ii) what the reports are to contain The project expenditure, project implementation progress, and the use of loan (iii) how the reports are to be used Reports will be submitted to director and financial institutions where loans are borrowed. The auditing agencies will also audit the reports

5.7 What information do the financial : Total project expenditures to date management reports for engineering : Comparison of actual expenditures with budgets projects contain? (check all that apply) : Comparison of actual expenditures with work completed

: Expenditures by project component : Explanations of significant variances of expenditures from budgets † Others– please describe

5.8 Are financial statements and reports † prepared by an automated accounting system prepared directly by an automated accounting system or are they prepared manually? † prepared manually

: both ways used

6 Internal audit 6.1 Is there an internal audit or audit Yes. department in your agency?

6.2 What are the qualifications and They are auditors. They have experiences in auditing the experience of audit department staff? subsidiaries and branches of WWAG.

6.3 To whom does the internal auditor Director report?

6.4 Will the internal audit department audit Yes. the sub-project?

6.5 Are actions taken on the internal audit Yes. findings?

Easen International Co. Ltd. 7 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 5-3 QUESTION ANSWER 7 External audit

7.1 Is your agency project financial : Yes - Who is the auditor? Hubei Provincial Auditing statement audited each year? Bureau. † No

7.2 How soon following the financial year Before March of the following year. end are audit reports issued?

7.3 Is the audit of the entity conducted : Yes according to the International Standards on Auditing? † No.—Please describe the standards your entity is adopting.

7.4 Please provide previous project audit : Provided all reports. † Not provided or not all provided– please give reason

7.5 Will your agency auditor audit the sub- Wuhan Municipal Development and Reform Committee’s project accounts or will another auditor inspection. be appointed to audit the sub-project financial statements?

7.6 As for the findings, what actions Have meetings with Auditors. (procedures) your agency will be doing, how to report to the Auditors?

7.7 Does it happen that suggestions from No. previous auditing work have not been implemented?

8 Information systems

8.1 Is the financial management system : Yes computerized? † No

8.2 Can the system produce the necessary : Yes project financial reports? † No 8.3 What training has the staff received to The training course on the operation and maintenance of operate the system? the system.

8.4 What controls are there to safeguard A system administrator controls the system. For the access the confidentiality, integrity and to the system, people need an authority from the availability of data in the information administrator. system?

9 Documents 9.1 Please provide copies of the following documents:

1. Company Organizational Chart : Provided † Not provided

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Easen International Co. Ltd. 9 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 7-1 APPENDIX 7-1

Poverty and Social Assessment

EXECUTIVE SUMMARY I. Introduction ...... 4 II. Methodology ...... 5 III. Description of Project Area ...... 6 IV. Social Profile ...... 7 A Basic Social and Economic Characterization ...... 7 B Ethnic Minority Analysis ...... 14 C Gender Analysis ...... 16 V. Enterprise ...... 17 VI. Poverty Analysis...... 19 VII. Housing and Health Analysis ...... 22 VIII.Employment Generation ...... 23 IX. Community Participation and Public Awareness Action Plan ...... 25 X. Willingness to Pay and Affordability ...... 29 A Willingness to Pay ...... 29 B Affordability ...... 30 XI. Gender Development ...... 31 XII. Social Safeguards Issues And Other Social Risks...... 34 A. Involuntary Resettlement ...... 34 B. Ethnic Minorities ...... 34 C. Labor ...... 35 D. Other Risks And/Or Vulnerabilities ...... 35 XIII. Social development action plan ...... 36 A. Introduction ...... 36 B. Purpose ...... 36 C. Basis For The Sdap ...... 36 D. Implementation Arrangements ...... 37 E. Funding Sources ...... 37 G. Monitoring & Evaluation Of Sdap ...... 37 XIV. Conclusions ...... 43

Annex I Sample Distribution of Household Survey Annex II Sample Distribution of Companies and Small Businesses Annex III Sample Distribution of Community Meetings Annex IV Sample Distribution of Focus Group Discussion Annex V Composition of Surveyed Enterprises or Institutes

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Executive Summary

1. The Project will be implemented in Hanyang and Hongshan districts. Wuchang District has potential impacts because it located in the downstream of the component of the Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station. In addition, a small part of Jiang’an, Qingshan districts are potentially involved in the Project.

2. The Project area of Hanyang, Hongshan and Wuchang districts has 698.5 square kilometers, 701,300 households and population of 2,618,000 in 2007, including 27,800 ethnic minority people, 27,483 poor households, accounting for 3.92%, 65,417 poor persons, accounting for 2.5% of the total population, and 1,234,000 female residents, accounting for 47.31% of the total population.

3. In Wuhan City, the average number of persons per household was 2.88 persons in 2007. The average number of employed per household was 1.50 persons. The persons supported by each employed person were 1.92 persons. The average number of retired persons per household was 0.69 persons. The average persons supported by each person who has income were 1.29. The average income per capita per month was CNY1,196.5, while the average consumption expenditure per capita per month was CNY883.3. The urban registered unemployment rate was 4.2%.

4. There are no street communities or villages with concentrations of ethnic minority people in the project area. The minority people who live in the area are dispersed and have no differences from the majority Han people in living conditions according to the Wuhan Nationality and Religious Affairs Committee.

5. Environmental improvement will reduce the incidence of diseases of family members which will reduce the time spent by women caring for sick family members. 60.3% of participants of the PPTA household survey thought that the proposed project will benefit them in saving homework time, health improvement, and job creation, while 36.2% are not sure what the impacts of the Project will be on them. 86.2% of participants are well aware of the special policies made by local governments for women on promoting employment and improving health. 94.8% expressed their willingness to participate in the Project consultations if they had such opportunities. 100% of participants believed that the local women federation and community committees can assist them in job hunting.

6. Improvement of the employment situation through increasing employment positions and promoting re-employment of laid-off employees is the best way to solve urban poverty. In 2007 in Wuhan, the number of workers available for work increased by 28,000 to reach a total of 1.485 million. The new employment of the urban residents was 0.138 million, while the re-employment of the laid-off workers was 64,000. In addition, 64,600 of ex-floating rural laborers were transferred to work in the City.

7. Employment will be generated during the project construction and in the operation of project facilities. According to the FSRs, about 3,245 full time positions with a total gross income of CNY143 million during the project construction (3 years) will be generated by the Project with 38,935 person-months input in total, while during the operation phase, 144 full time positions with CNY7.722 million annual gross income will be generated directly by the Project. In addition, about 1,841 positions with CNY77.335 million gross income will be generated indirectly by the Project per year.

8. A community participation and public awareness action plan and a social development action plan have been prepared in order to maximize the positive impacts and minimize the negative impacts of the project on people in the project area. It is proposed that

Easen International Co. Ltd. 2 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 7-1 a specific monitoring be conducted during the project construction to ensure that the Project fulfils its aims and objectives.

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I. INTRODUCTION

1. The Wuhan Urban Environmental Improvement Project (the Project) will (i) improve and solve the urgent problem of Wuhan wastewater sludge treatment and disposal, and (ii) develop integrated urban water resource management and environmental infrastructure in the new urban development areas. The Project will include four components: (i) Wuhan Sludge Treatment and Disposal, (ii) Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station, (iii) Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation, and (iv) Institutional Strengthening and Capacity Development.

2. The Poverty and Social Assessment (PSA) is one of the outputs of the PPTA, which collectively recommend approaches necessary in achieving a least-cost, sustainable solution for urban environmental improvement in Wuhan that will advance WMG’s development master plans and assist in improving living conditions, particularly those of the poor.

3. This report focuses on social and poverty issues relating to the Project and, in particular, those within the PPTA scope of works. The objectives of the PSA are to (i) assess the impact of the Project on the social development and poverty reduction in the project area; (ii) optimize the project design through social considerations in order to maximize social benefits, particularly benefits to the vulnerable people, including the poor, women, ethnic minorities and other social groups and (iii) ensure the social dimensions are fully incorporated into the final design of the Project.

4. The Project will contribute to poverty reduction through improvement of the local economy, protection of the environment by reduction of pollution and risks to health, and support of PRC Government’s national and regional infrastructure development strategies. The Project supports MDG 7 and the PRC Central Region Development Strategy and the Wuhan 11th Five Plan for Economic and Social Development (2006-2010) in (i) improving infrastructural conditions and investment environment, (ii) strengthening regional cooperation and integrated competition, and (iii) promoting cycle economic and eco-economic development in the Project area. It also supports the PRC country partnership strategy priority areas of (i) strengthening inclusiveness through increasing investment to support rural development, (ii) promoting regional cooperation and integration, and (iii) managing the environment. It will also provide employment opportunities during both the construction and operations phases of the Project, with additional multiplier effects to levels of economic activity.

5. In this report, the approaches and methodology used to conduct the PSA are introduced in Section II; The Project area related to location, land area, population and natural environmental conditions is described in Section III; A social profile of the Project area including population composition, income and expenditure, and ethnic minority and gender analysis is presented in Section IV; A special analysis on local poverty is conducted in Section V, while a health analysis on local residents is introduced in Section VI. In Section VII, employment opportunities generated by the Project in both the construction and operation period is estimated. A community participation and public awareness action plan is prepared in Section VIII, and a special analysis on the willingness to pay and affordability for wastewater treatment, sludge treatment and disposal, and water resource management is presented in Section IX. A brief gender development plan is prepared in Section X. Some social safeguard issues and other social risks are considered in Section XI. A social development action plan is prepared in Section XII, and finally a brief conclusion on the PSA is summarized in the last section.

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II. METHODOLOGY

6. This PSA includes the results of a socio-economic survey, a range of stakeholder consultation sessions, and a series of key informant interviews, particularly with local government bureaus with mandates related to employment, vulnerable people, women and ethnic minorities. It also includes the results of discussions with other team members (especially domestic staff), the EA as represented by WPMO, and IA staff, and integrates the results of field observations at the various project component sites over the period May – July 2009.

7. The approaches and methodology used to prepare the PSA include (i) Secondary data collection from local statistic yearbooks, research reports, and development plans, etc; (ii) Informant interview with relevant institutions of local governments and agencies; (iii) a household survey on the social, poverty and health status, and willingness to pay of local residents; (iv) a business survey on wastewater, stormwater and sludge treatment and disposal, environmental awareness, and willingness to pay; (v) Community meetings to discuss the project design, environmental improvement, and employment opportunity; and (vi) Focus group meetings of women and men, separately, to discuss the project design, environmental awareness, safety issues, and employment opportunities.

8. Secondary Data Collection: various data collection methods were used to gather both qualitative and quantitative data from different sources. In the PSA, every attempt is made to quantify the potential poverty and social impacts whenever appropriate and feasible. Data resources for the PSA include (i) Wuhan Statistics Yearbooks, (ii) Wuhan Almanacs, (iii) The Project Feasibility Study Report, (iv) District government reports, and (v) reports from relevant governmental departments, etc.

9. Informant Interviews: The people met and interviewed include staff from the WPMO, the design institute (DI), municipal civil affairs bureau, municipal ethnic minority committee and local women’s federation.

10. Household Survey: A random sampling socioeconomic survey was carried out, and an independent agency called the Zhongnan Social Survey & Research Institute was recruited to conduct the survey with the guidance of the PPTA social and poverty specialists and the support of the WPMO. The sampling survey was conducted in the area directly affected by the Project – Hanyang, Hongshan and Wuchang districts, and the indirectly affected areas – Jiang’an and Dongxihu districts of Wuhan city. A total of 504 households including 102 poor households were surveyed using a well designed questionnaire. The sample distribution is shown in Annex I, and the results are used in the PSA.

11. Business Survey: 100 companies and small businesses were surveyed for the Project in order to collect their opinions on the project design and issues relevant to businesses in Hanyang, Hongshan, Jiang’an and Dongxihu districts. The sample distribution is presented in Annex II, and the results are used in the PSA.

12. Community Meeting: 10 community meetings were held to collect considerations of the local residents on the project design and conduct public awareness and participation in Hanyang, Hongshan, Jiang’an, Wuchang and Qingshan districts, and included both urban and rural communities. The community distribution is shown in Annex III, and the feedback is used in the PSA.

13. Focus Group Discussion: 10 focus group discussions (FGD) were held in Hanyang, Hongshan, Wuchang and Qingshan districts. The FGD includes women with low and high income, men with low income. In addition, a representative from a local primary school and

Easen International Co. Ltd. 5 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 7-1 representatives from a local non-government environmental organization was interviewed for education and activities related to environment protection. The FGD distribution is presented in Annex IV, and the feedback is used in the PSA.

14. Based on these approaches, beneficiaries for each component and for the Project as a whole, and key benefits and risks of the Project are identified. A health impact study to determine health issues that would be caused by lake and canal renovation and sludge treatment with appropriate identification of monitoring indicators is performed. Job opportunities generated directly and indirectly by the Project to be filled by local recruitment are estimated; including employment opportunities from construction, maintenance, operation, water resource and wetland preservation, and opportunities for targeting vulnerable people is investigated. In addition, gender impacts and risks are identified.

III. DESCRIPTION OF PROJECT AREA

15. Wuhan, capital of the Hubei Province, ranks fifth among Chinese cities for its size and its economic production. It is the biggest city in the central and western regions of the PRC. In 2008, the municipality had a population of approximately 8.5 million, including more than 6 million inhabitants living in the urban core area. Some 3.5 million people reside in its dense inner urban core (360 km2; 9,700 inhabitants per km2). It is located at the confluence of two main rivers, the Yangtze River and the Han River. Rivers and lakes are abundant (rivers and lakes surface take up about one quarter of the urban area) in Wuhan, which largely determine the urban landscape and development of the City. The Project will be implemented in Hanyang and Hongshan districts. Wuchang District is potentially impacted because it located in the downstream of the component of the Wuhan New Zone Lake/Channels Rehabilitation and Sixin Pumping Station. In addition, a small part of Jiang’an, Qingshan districts are potentially involved in the Project.

16. Wuhan Municipality consists of 13 administrative districts including 7 “urban built up” districts with high urbanization, Jiangan, Jianghan, Qiaokou, Hanyang, Wuchang, Qingshan and Hongshan, and 6 “far urban” districts with low urbanization, Dongxihu, Hannan, Caidian, Jiangxia, Huangpe and Xinzhou. All 3 districts, Hanyang, Honghsna and Wuchang, defined as the direct project area belong to the urban built up area.

17. Hanyang District. Hanyang District is located in the east of the Wuhan urban area, on the southern bank of the Han River and the western bank of the Yangtze River. It borders Caidian District to the west and south. Longyang Lake, Moshui Lake, Sanjiao Lake, Nantaizi Lake, etc. are located in the district. Hanyang District has 15 villages, 11 street offices and 121 communities.

18. Hanyang has a long history, built in later years of Eastern Han Dynasty. Since Tang Dynasty, Hanyang had been evolved from a military castle to a feudal town. It has rich culture and charming natural landscapes. There are 10 mountains and 6 lakes with plenty of historic sites in Hanyang. In addition, Hanyang is also the cradle region of modern industry of China. Since 1990s, with establishment of Wuhan Economic & Technological Development Zone in the southeast of Hanyang, a motor industry base has been developed rapidly, and Hanyang has become the “leader” in economic development of Wuhan City.

19. The Wuhan New Zone is located in Hanyang District, and the Wuhan Economic & Technological Development Zone to the south. Its planning area is 368 km2, and the land for development and construction is about 160 km2. The planning population is one million. The Wuhan New Zone will be built up as a “Dynamic New Area” of a modern manufacture base in Central China; a “Modern New Area” with modern municipal functions and a service center for efficient municipal supporting system of Wuhan; a “Human Culture New Area” of a

Easen International Co. Ltd. 6 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 7-1 modern cultural tourism center and noble living environment with traditional cultural and tourism recourses; and a “Ecological New Area” with advantages of its natural water and mountain recourses.

20. Hongshan District. Hongshan District is located in the southeast of the Wuhan urban area. It borders Wuchang District to the north and east and connects with Jiangxia District to the south and west. There are many lakes such as South Lake, Tangxun Lake and Huangjia Lake, etc. in the District. Hongshan District has 4 towns, 2 townships, 117 villages, 8 street offices and 124 communities.

21. In Hongshan, there are 16 universities with more than 0.5 million students, 35 academies or research institutes of science and technology, and 13 state key laboratories. “Wuhan – China Optical Valley”, as one of state new technological development zones, is also located in Hongshan District. Yangchun Lake is one part of East Lake water system, which is a core of Wuhan Urban Secondary Center. Wuhan High-speed Railway Station is under construction in the area of Yangchun Lake.

22. Wuchang District. Wuchang District is located in the central area of Wuhan. It is on the southern bank of the Yangtze River, borders with Hongshan District to the south and west, and connects with Qingshan District to the north. East Lake and Sha Lake are located in the District. Wuchang District has 14 street offices and 191 communities.

23. 5 among total 6 tourist attractions with 4A Level in Wuhan are located in Wuchang District, including Yellow Crane Tower, East Lake, Provincial Museum, and Wuchang Plant Garden, etc. There are 13 universities, 48 academies or research institutes of science and technology with provincial and higher levels, and 9 state key state key laboratories such as Software Laboratory of Wuhan University.

IV. SOCIAL PROFILE

24. The social profile of the project area and Wuhan City is described in this section, including local population and its composition, ethnic minorities, income and expenditure, employment, and gender. The socio-economic status of the ethnic minorities and gender are analyzed based on available data and information, and the results of the household survey.

A Basic Social and Economic Characterization

25. Population and Its Composition of Project Area. The project area, of Hanyang, Hongshan and Wuchang districts, accounts for only 8.22% of the total area of Wuhan City, while its population is accounts for 31.61% of the total population of the City. The population density is therefore almost 4 times the average of the City. The rural population of the project area accounts for 9.88% of the total rural population of Wuhan City, while its non-rural population accounts for almost half of the total population of the city, reaching 43.93%. The project area is a highly urbanized area of Wuhan City, especially in the Hanyang and Wuchang districts. The non-rural population in the total population of the two districts is 88.43 and 98.72%, respectively. In Hongshan District, the proportion is 77.78%. The number of males is higher than the number of females in both the project area and Wuhan City. In the project area, the total male population accounts for 52.69%, while in Wuhan City, the percentage is 51.58%. The total population of ethnic minorities in Wuhan City is about 54.2 thousand, accounting for 0.7% of the total population according to the 5th national population census in 2000. The detailed ethnic minority analysis is described in Section IV. B. The population and its composition of the project area and Wuhan City in 2007 are presented in Table 1.

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Table 1 Population and Its Composition of the Project Area and Wuhan City in 2007 Land No. of Population Population (1,000) Area Household Density District (km2) (1,000) Total Non-rural Rural Male Female (person/km2)

Hanyang 108.3 189.9 536.7 474.6 62.1 277 259.7 4,954 Hongshan 509.0 209.8 989.2 769.4 219.8 535.5 453.7 1,943 Wuchang 81.2 301.6 1,092.1 1,078.1 14.0 567 525 13,446 Sub-total 698.5 701.3 2618 2322.1 295.9 1379.5 1238.4 3748 Wuhan 8,494.4 2,604.6 8,282.1 5,286.2 2,995.9 4271.6 4010.5 975 City Source: Wuhan Statistic Yearbook 2008

26. GDP and Its Structure. The GDP of both the project area and Wuhan City increased steadily over the past decade. In 2007, the GDP of both Hanyang District and Wuhan City increased by 21.3%, while the GDP of Hongshan and Wuchang districts increased by 15%. Hanyang District has the highest GDP per capita in the project area, while the GDP per capita of both Hongshan and Wuchang districts is lower than the average for Wuhan City. The GDP of Wuhan City, structured by the primary, secondary and tertiary industry, is 4.11, 45.83 and 50.06%, respectively, which shows that both manufacturing and processing industry, and services industry play an important role in local economic development. The detailed GDP and its structure in the project area and Wuhan City in 2007 is presented in Table 2.

Table 2 GDP and Its Structure of Project Area and Wuhan City in 2007 GDP GDP GDP Structure (%) GDP per Capita* Increase District (CNY bill) (%) Primary Secondary Tertiary (CNY)

Hanyang 23.75 21.3 44,252

Hongshan** 22.49 15 3.35 33.58 63.07 22,736

Wuchang 26.43 15.1 24,201 Sub-total 48.92 Wuhan 314.19 21.3 4.11 45.83 50.06 City 37,936 Source: Wuhan Statistic Yearbook 2008 *: It is from the calculation based on local population. **: It is from the Government Report of Hongshan District.

27. Income and Expenditure. In 2007 the average salary of urban staff in Wuhan City increased by 16.4% over 2006 levels, which was similar to the increase of the average urban disposable income per capita of 16.2%. However, the increase was different in each of the three districts in the project area. Hanyang increased 22.9%, higher than the average of Wuhan City, while Hongshan and Wuchang increased 15.2% and 13.6%, respectively, lower than the average. Although the rural net income per capita of Hongshan District was higher than the average of Wuhan City, its increase rate was lower than the average of Wuhan City in 2007. The detailed data is shown in Table 3.

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Table 3 Average Income Per Capita of Project Area and Wuhan City in 2007 Urban Rural Net Salary of Increase Disbursable Increase Increased to Income Per Staff from 2006* Income Per from 2006* 2006* District Capita Capita

(CNY/year) (%) (CNY/year) (%) (CNY/year) (%) Hanyang 14,379 22.9 - - Hongshan 14,698 15.2 6,901 10.2 Wuchang 14,006 13.6 - - Wuhan 22,999 16.4 14,358 16.2 5,371 13,1 City Source: Wuhan Statistic Yearbook 2008 *: Calculated using 2006 data as the base..

28. Income range distribution of respondents during the questionnaire survey is presented in Table 4. The income is total monthly income of a family including salary, bonus, subsidy, and pension, etc. Table 4 Monthly Income Distributions of Respondents Income Range No. of Respondent % (CNY/month) Less than 400 6 1.2 400 to 800 26 5.2 800 to 1200 62 12.3 1200 to 1600 54 10.7 1600 to 2000 100 19.8 2000 to 2400 81 16.1 2400 to 2800 40 7.9 2800 to 3700 38 7.5 More than 3700 79 15.7 No clear 18 3.6 Total 504 100.0 Source: Field survey by the PPTA consultant team.

29. The increase rate of urban consumption expenditure per capita, as well as the urban disposable income per capita, of all districts in the project area was higher than that of the Wuhan City average. The detailed data is shown in Table 5.

Table 5 Average Expenditure Per Capita of Project Area and Wuhan City in 2007 Urban Consumption Increase Rural Living Expenditure Increase Expenditure Per from 2006* Per Capita from 2006* District Capita (CNY/year) (%) (CNY/year) (%) Hanyang 10,779 26.7 - - Hongshan 11,799 17.3 Wuchang 10,192 16.0 - - Wuhan 10,600 15.4 3,738 18.7 City Source: Wuhan Statistic Yearbook 2008 *: Calculated using 2006 data as the base.

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30. Expenditure range distribution of respondents during the question survey is presented in Table 6.

Table 6 Monthly Expenditure Distributions of Respondents Expenditure Range No. of Respondent % (CNY/month) 0 to 500 29 5.8 501 to 1000 140 27.8 1001 to 1500 155 30.8 1501 to 2000 94 18.7 2001 to 2500 46 9.1 2501 to 3000 25 5.0 3001 to 4000 8 1.6 4001 to 5000 6 1.2 5001 to 6000 1 0.2 Total 504 100.0 Source: Field survey by the PPTA consultant team.

31. Urban Household Status. According to the household survey conducted by the Wuhan Municipal Statistic Bureau in 2007, the average number of persons per household was 2.88 persons. The average number of employed per household was 1.50 persons. The persons supported by each employed person were 1.92 persons. The average number of retired persons per household was 0.69 persons. The average persons supported by each person who has income was 1.29. The average income per capita per month was CNY1,196.5, while the average consumption expenditure per capita per month was CNY883.3. The income composition of households with different income range is presented in Table 7.

Table 7 Average Monthly Income Composition of Households with Different Income Ranges in 2007 (CNY/month) Lowest Lower Low High Higher Highest Item Total Middle Income Income Income Income Income Income Savings at Month 433.27 359.75 333.79 364.29 462.35 523.99 477.9 518.97 Beginning Total 1298.30 519.17 774.95 974.16 1250.40 1535.89 1996.70 2703.76 Disbursable Income 1196.47 478.32 698.61 902.49 1136.07 1431.09 1827.06 2517.11 Salary 879.93 315.79 502.19 656.62 934.41 984.90 1455.65 1737.60

Business 43.12 34.16 39.93 41.89 21.06 24.71 48.72 148.86

Property 5.81 0.00 1.17 3.92 6.30 7.21 15.84 9.77

Transfer 369.44 169.22 231.66 271.73 288.63 519.07 476.49 807.53 Borrow/loan 205.61 55.92 50.75 152.79 112.98 283.94 437.38 544.34 Source: Wuhan Statistic Yearbook 2008

32. Among the consumption expenditure, the biggest expenditure is used for food, accounting for 41.2% of the total living expenditure. The next is expenditure for recreational

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and educational services, accounting for 11.9%. Between these two expenditures, the educational expenditure accounts for 52.7%, equivalent to 6.26% of the total living expenditure. The expenditure used for clothing and housing is almost the same, at 10.8% and 10.6%, respectively, of the total living expenditure. In the housing expenditure, the expenditure used for water, electricity and fuel gas accounts for 66.5%, equivalent to 7.0% of the total living expenditure. The detailed data is presented in Table 8.

Table 8 Average Monthly Living Expenditure of Household in 2007 (CNY/month) Facility, Medicine Recreation Project Article Transportation Miscellaneous Total Food Clothing Housing and its and City and and Telecom Communalities Service Education Service

Wuhan 883.33 363.86 95.13 93.29 57.63 64.24 83.96 104.86 20.36 Source: Wuhan Statistic Yearbook 2008

33. An analysis of households based on different levels of income in Wuhan City, their living status and expenditure composition are presented in Tables 9 and 10.

Table 9 Basic Status of Households with Different Monthly Incomes in 2007 Lowest Lower Low High Higher Highest Item Total Middle Income Income Income Income Income Income Average Number of 2.88 3.2 3.28 3.06 2.87 2.72 2.58 2.48 Family Members Persons Supported 2.23 1.94 2.24 2.37 2.23 2.28 2.18 2.18 by Each Laborer Average Persons Supported by Each 1.5 1.29 1.52 1.64 1.59 1.42 1.5 1.4 Person Who Has Income Average Disposable 1,196.47 478.32 698.61 902.49 1,136.07 1,431.09 1,827.06 2,517.11 Income Per Capita Average Living Expenditure Per 883.33 450.27 538.72 751.39 851.75 1,028.01 1,111.66 1,764.34 Capita Source: Wuhan Statistic Yearbook 2008

Table 10 Average Monthly Living Expenditure of Households with Different Income Ranges in 2007 (CNY/month) Lowest Lower Low High Higher Highest Item Total Middle Income Income Income Income Income Income Total 883.33 450.27538.72 751.39 851.75 1028.01 1111.66 1764.34 Food 363.86 220.03 253.94 334.52 384.53 411.24 418.43 565.32 Clothing 95.13 36.38 52.14 70.98 98.55 117.92 132.12 194.1 Facility, Article and 93.29 51.43 59.12 67.8 71.86 103.97 109.05 268.08 Services Medicine and its 57.63 18.24 22.5 32.28 44.07 74.66 69.87 201.16 Service Transportation and 64.24 28.47 34.7 66.54 53.62 77.91 83.37 119.92 Telecom Recreation and 83.96 27.38 44 80.52 79.74 100.07 111 167.13 Education Housing 104.86 62.7 66.58 86.2 94.39 118.16 152.56 204.11

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Miscellaneous 20.36 5.65 5.74 12.55 25 24.09 35.24 44.54 Communalities Other Services 237.75 116.34 136.59 206.49 213.4 269.37 297.24 537.09 Source: Wuhan Statistic Yearbook 2008

34. Employment. In 2007, the total number of employed people was 4.422 million, including 0.829 million employees in primary industry, 1.466 million employees in secondary industry and 2.126 million employees in tertiary industry in Wuhan City. The number of staff workers is 1.665 million, while the number of employees on duty at the end of 2007 was 1.485 million. The urban registered unemployment rate was 4.2%.

35. Hanyang District Government arranged for and assisted 5,750 people in reemployment of laid-off workers and farmers who lost their farm lands in 2007. In Wuchang District, new employment positions were filled, and arranged for reemployment of laid-off or unemployed people for 7,374 person-times. 402 households without employment realized at least one family member employment.

36. Safeguards. By the end of 2007, the number of urban residents who participated in the basic pension insurance, the unemployment insurance, and the basic health insurance was 1.928, 0.972 and 2.352 million, having increased 5.35, 6.58 and 19.79%, respectively. The number of people who participated in the workers’ compensation and the pregnancy leave insurance was 0.928 and 1.094 million, respectively.

37. In 2007, about CNY 0.331 billion of the living safeguards subsidies for poor urban residents was distributed, while about CNY 39.619 million of the living safeguards subsidies for poor rural residents was distributed. The urban guaranteed living safeguard standard was CNY248 per month for the residents living in the central urban districts from January 2007, which was adjusted to CNY300 per month from January 2009. The rural guaranteed living safeguard standard was adjusted from CNY800 to CNY1000 per year in 2007. All residents who lived under the standards received these subsidies. In addition, the sale of welfare lottery tickets reached CNY1.2 billion and collected social welfare funds were CNY0.136 billion.

38. Hanyang District Government provided CNY38.49 million for about 9,000 households of residents with MLG line in 2007 and guaranteed all poor people’s basic life conditions. Number of newly increased residents who were covered by pension insurance, health insurance and work accident insurance was 18,103, 21,530 and 11,144 persons, respectively. In addition, the government provided a special fund for “standardization” improvement of 4 health service centers and 21 health service stations.

39. Hongshan District Government provided CNY10.775 million for urban poor people and CNY2.69 million for rural people in 2007. The pension insurance, health insurance and unemployment insurance covered 169,500, 155,700 and 75,800 people, increased 14%, 26.6% and 26.5%, respectively. In addition, there were 253 health institutes, including 24 hospitals and 58 community health service centers in Hongshan District.

40. Wuchang District disbursed subsidy for 14,000 households, 34,000 residents with MLG line in 2007, and organized social resources to assist “three Nos” (no income, no living ability and no support relatives) residents and elders for 11,000 person-times. Number of newly increased residents who were covered by pension insurance, health insurance, unemployment insurance, work accident insurance and maternity insurance was 21,300, 40,200, 18,200, 17,300 and 29,600 persons, respectively. In addition, the government provided CNY 33.71 millions of a special fund to complete “standardization” improvement of all health service centers and stations.

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41. Education. In 2007, there were 877 preliminary schools with 438,900 pupils, 462 middle schools with 488,200 students, 139 technical schools with 196,000 students, and 55 colleges/universities with 778,400 students and 187,200 adult high education students, as well as 75,500 graduate students. Percentage of enrolment of children with 6-11 years old and 12-14 years old was 100% and 99.75%, respectively. In addition, Percentage of enrolment of children with 6-14 years old who are blindly or deaf and dumb or feebleminded was 99.6%.

42. In Hanyang District, percentage of enrolment of both children with 6-11 and 12-14 years old was 100%. CNY 2.199 millions of relevant education fee were reduced or released, which benefited for students from 5,250 poor families in 2007.

43. In Hongshan District, there were 67 preliminary schools with 34,275 pupils, 41 middle schools with 30,420 students, and 6 technical schools with 3,533 students. Percentage of enrolment of children with 6-11, 12-14 and 15-17 years old was 100%, 100% and 96%, respectively, in 2007. In addition, Percentage of enrolment of children with 6-14 years old who are blindly or deaf and dumb or feebleminded was 99.6%. Wuchang District established CNY 11.80 millions of a special fund for students of poor households and children of farmer- workers.

44. Education levels of 504 respondents and their 437 spouses are presented in Table 11. 83.2% of respondents and their spouses received education of middle, high middle or technical schools. Compared with male respondents (or spouses), female has almost the same education level in high middle school or higher. The major difference between male and female in education level is that more male respondents (or spouses) received middle school education, while more female has elementary school education.

Table 11 Education Received by 504 Respondents and Their 437 Spouses Preliminary High Respondents and Middle Technical University School or Middle College Total Their Spouses School School or higher Lower School Male (person) 27 174 187 38 30 9 465 % 5.8 37.440.2 8.2 6.5 1.9100 Female (person) 57 157 187 40 26 9 476 % 12.0 33.039.3 8.4 5.5 1.9100 Total 84 331374 78 56 18941 % 8.9 35.239.7 8.3 6.0 1.9100 Source: Field survey by the PPTA consultant team.

45. Education related to environmental protection has been carried out in local preliminary schools and middle schools. Relevant activities are performed every year on special environmental days such as World Water Day, World Earth Day and Earth Environmental Protection Day, etc. The environmental education usually is combined with special courses in school such as Nature, and Science and Technology. Students learn general natural knowledge and environmental protection knowledge. Some students have applied their environmental protection knowledge in resident communities to strengthen public environmental awareness such as establishing recycle bags to collect waste battery in apartment buildings, and promoting usage of cloth bags in procurement to reduce plastic bags. However, according to the community meeting and discussion with a teacher from a local preliminary school, the education related to the proposed project such as point and non point pollution control has not been conducted.

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B Ethnic Minority Analysis

46. The total population of ethnic minorities in Wuhan City is about 54,200, accounting for 0.7% of the total population according to the 5th national population census in 2000. In 2007, the total population of the ethnic minorities was 54,245, accounting for 0.64% of the total population of Wuhan City. The Hui nationality is the biggest ethnic minority in Wuhan, with a population of about 20,000. The other minorities with more than 1,000 people are Tujia, Zhuang, Man and Miao nationalities. The top ten minorities in the Project area and Wuhan City based on the last census are presented in Table 12.

Table 12 Population of Main Ethnic Minorities in Project Area and Wuhan City in 2000 Hanyang Hongshan Wuchang Wuhan Nationality % in % in % in % in person person person person total total total total Hui 1,728 0.3403 3,3490.3813 4,981 0.5102 20,5780.2557 Tujia 820 0.1615 4,2930.4887 2,7110.2777 13,5160.1679 Man 230 0.0453 1,1080.1261 1,1060.1133 4,7400.0589 Mongolia 221 0.0435 626 0.0713 652 0.0668 2,6830.0333 Zhuang 210 0.0414 1,5630.1779 667 0.0683 4,1410.0515 Miao 144 0.0284 9250.1053 4710.0482 2,5690.0319 Yao 30 0.0059 3860.0439 1090.0112 7430.0092 Dong 34 0.0067 3520.0401 1760.0180 9250.0115 Korea 4 0.0008 1710.0195 1610.0165 6880.0085 Bai 11 0.0022 1140.0130 670.0069 2970.0037 Total 3,432 0.6759 12,887 1.4671 11,101 1.1370 50,880 0.6322 Source: Calculated by the PPTA consultant team based on official statistic data.

47. Although the percentage of the main ethnic minorities in the project area is higher than the average for Wuhan City, there are no street communities or villages with concentrations of ethnic minority people in the project area. The minority people who live in the area are dispersed and have no difference in living standards from the majority Han people according to the Wuhan Nationality and Religious Affairs Committee.

48. According to the household survey, there are 11 persons of ethnic minorities in total 1,483 family members in the surveyed households, accounting for 0.67%. Nationality components of surveyed families are showed in Table 13. There are 7 Hui, 2 Miao, 1 Tujia and 1 Mongolia members in the families. All families consist of husband of ethnic minority and Han wife and vice verse.

Table 13 Nationality Components of Surveyed Families Sample Nationality Family Member Father Mother Son Daughter Family 1 Hui Han - Hui Family 2 Han Hui Han - Family 3 Han Tujia - Han Family 4 Mongolia Han - Han (2) Family 5 Miao Han - Miao Family 6 Han Hui - Hui Family 7 Hui Han - - Family 8 Han Hui - Han

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Source: Field survey by the PPTA consultant team.

49. The families with ethnic minority members are scattered in the Han people community. They have almost the same living conditions and environment, and have the same rights to Han people in using all public facilities in the community. In addition, their unique living style and traditional culture are respected in the community. The monthly income and expenditure of ethnic minority families is presented in Table 14. The lowest household income of respondents is in the range of CNY 1,200 to 1,600 per month. 100% of respondents have household income more than CNY 1,200 per month. However, among total 504 respondents, 81.3% of respondents have such family incomes, lower than that of ethnic minority families.

Table 14 Distributions of Monthly Income and Expenditure of Ethnic Minority Family Income Range No. of Expenditure Range No. of % % (CNY/month) Respondent (CNY/month) Respondent Less than 400 0 0 0 to 500 0 0 400 to 800 0 0 501 to 1000 2 25.0 800 to 1200 0 0 1001 to 1500 2 25.0 1200 to 1600 1 12.5 1501 to 2000 3 37.5 1600 to 2000 1 12.5 2001 to 2500 1 12.5 2000 to 2400 2 25.0 2501 to 3000 0 0 2400 to 2800 1 12.5 3001 to 4000 0 0 2800 to 3700 1 12.5 4001 to 5000 0 0 More than 3700 1 12.5 5001 to 6000 0 0 No clear 1 12.5 Total 8 100.0 8 100.0 Source: Field survey by the PPTA consultant team.

50. The laws and regulations of the PRC that apply to ethnic minority rights and benefits, include the Constitution of the PRC, Ethnic Minority Autonomous Religion Law of PRC, Village Committee Composition Law of PRC, Regulation of PRC for the Administration of Ethnic Minority Autonomous Townships, and the Tenth Five-year Scheme for Ethnic Minority Enterprise Development. Relevant contents of the laws and regulations are as follows:

• Except for the common rights that are shared equally by all local governments, the local autonomous governments share these additional rights: autonomy in making laws, local political affairs self-administration, local economy self-administration, local finance administration, local science, education and culture self-administration, local public safeguard force self-composition, and the use and development of ethnic minority language, etc.;

• People of PRC have the right to practice their chosen religion, which is protected by the national government and local autonomous governments;

• Development of administration systems and regulations should promote the development of the economy and culture of ethnic townships, assure ethnic minority legal rights and strengthen the union among all ethnic groups;

• Except those specifically deprived of political rights, all people over 18 years old

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share the right to vote or be voted for, regardless of their ethnic group, nationality, sex, occupation, family, religion, education, property, or residence period;

• The national government will assist in accelerating the development of the economy and culture of ethnic minorities;

• All ethnic groups have the right to use their indigenous language; they are guaranteed the freedom of using and developing their indigenous language, and the rules advocate and encourage all ethnic groups to learn their own language.

51. Based on the relevant laws and regulations issued by the central government, Wuhan Standing Committees of People’s Congress issued Regulations on the Rights and Benefits to Safeguard Wuhan Ethnic Minorities in December 1999. According to the regulations, the local ethnic minorities not only have the same rights and receive the same benefits as Han people in social life, but also enjoy privileges in cultural development, education, religious and employment.

C Gender Analysis

52. During the focus group discussions for 58 women in 8 groups, 84.5% of participants agreed that the environmental improvement in the project area can save their homework time in cleaning houses. Environmental improvement will reduce the incidence of diseases of family members which will reduce the time spent by women caring for sick family members. 60.3% of participants thought that the proposed Project will benefit them in saving homework time, health improvement, and job creation, while 36.2% are not sure what the impacts of the Project will be on them. 86.2% of participants are well aware of the special policies made by local governments for women on promoting employment and improving health. 94.8% expressed their willingness to participate in the project consultations if they had such opportunities. 100% of participants believed that local women federation and community committees can assist them in job hunting.

53. The adverse impacts of a dirty environment and service deficiencies will affect men and women differently. Comments from the focus group meetings show that women are more likely to be responsible for general cleaning and the care of sick family members. The main diseases experienced by surveyed residents in 2008 were schistosomiasis, flu, malaria, enteritis and diarrhea. The number of families in which females care sick members is about 3.5 times as many as that of males. 84.5% of females in focus group discussion consider that environmental improvement will reduce their house and compound cleaning time. Time spent on these activities means less time is available for other priorities. This may explain why women were somewhat more likely than men to identify wastewater overflows onto roads as a major problem, to react positively to the reduction of flies and mosquitoes on the nearby water environment, and to dislike illegal dumping of solid waste.

54. The Project will improve the living environment by rehabilitation of the water system in Hanyang and Hongshan districts. It will benefit local women in health improvement, time saving in cleaning houses and care of sick family members, thus improving their quality of life.

55. Women would like to have an opportunity to work for the Project. They have a close relationship with local community committees and women federations that assist women in employment. Women can work for the Project not only during the implementation, but also in environment management after the Project completion, especially sanitation in communities, which should be integrated into the management system of the Project.

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56. Women, especially those with low incomes, pay more attention to water prices than men because women manage daily life expenditure in most families. They like the government’s policy of a so called “cascade” water tariff; however, they expect the government to keep the base water price unchanged and increase the water price for excess use.

57. Men and women will benefit from the unskilled jobs generated by the infrastructure construction. The WPMO should encourage contractors to employ as many women as possible. WMG should ensure that at least 30% of the new O&M jobs go to women, assuming suitably qualified women can be recruited.

58. Women are fully involved in consultation processes relating to environment protection in the project areas, as well as in resettlement planning. A procedure is in place to ensure women are integrated into any income restoration activities associated with resettlement, while an environmental protection plan will ensure that women in the project areas will be actively involved in training and livelihood restoration activities.

V. ENTERPRISES IN PROJECT AREA

59. 100 enterprises or institutes in the project areas were surveyed through questionnaires. The composition of the enterprises or institutes is shown as Annex V. Most of the enterprises or institutes are small business according to number of employee of the enterprises, as presented in Table 15. 94% of surveyed enterprises have less than 11employees. Table 15 Distribution of Number of Employees of Surveyed Enterprises 6-10 11-15 16-20 More than 20 Employee 1-5 persons persons persons persons persons Full time 81 13 4 1 1 Part time 15 1 1 0 0 Laid-off 0 0 0 0 0 Retired 0 0 0 0 1

60. 33% of the enterprises have operated for less than 2 years; 38% have operated for 2 to 5 years; 16% have done for 5 to 10 years; and 13% have operated for more than 10 years. In the past 5 years, 81% of the enterprises have not changed in business operation. 9% of the enterprises extended their business within 50%, while other 9% withdraw their business within 50%.

61. 77% of enterprises think their business can’t extend more based on existing equipment and workplace; 21% of the enterprises think they can extend their business about 25%. 89% of enterprises have no plan to extend their business in near few years, while 11% of enterprises plan to extend their business in future three years.

62. Cost in Water Consumption and Wastewater Treatment: Cost in water consumption is shown in Table 16. Table 16 Cost in Municipal Water Consumption Per Month Less 1000 More 100 - 500 – 2000 - 4000 - 6000 - than – than Total 500 1000 4000 6000 8000 100 2000 8000 No. of 6 41 14 18 14 5 0 2 100 Enterprises % 6 41 14 18 14 5 0 2

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63. 90% of enterprises don’t pay extra fee for wastewater treatment because the fee is included in water supply fee. 99% of enterprises have no own equipment for wastewater treatment and facility for private night soil treatment.

64. Wastewater Treatment: Major wastewater of the enterprises include domestic sewage from kitchen and toilet (89 respondents), and contaminated water from manufacturing with no treatment (11 respondents). 78.7% of domestic sewage is discharged into municipal sewage pipeline; 10.1% of the sewage is discharged into rivers or lakes; 6.7% of the sewage is discharged into public septic tank. For the wastewater from manufacture, 81.8% of the wastewater is discharged into municipal sewage pipeline, while 18.2% is discharged into channels.

65. Possible Problems Caused by Wastewater: Level of possible problems caused by wastewater was evaluated by the surveyed enterprises as presented in Table 17. Table 17 Level of Possible Problems Caused by Wastewater Problem Major Minor None Total Treatment system break down 58 34 8 100 . Overflow of septic tanks 56 30 14 100 . Excess wastewater bypasses the treatment 48 43 9 100 system . Bad smells from wastewater 43 46 11 100 Wastewater brings flies, mosquitoes and mice 47 40 13 100 . Staff exposed to wastewater get sick 63 25 12 100 . Wastewater contaminates raw materials or 68 21 11 100 products

66. Wastewater Services: 79% of the enterprises don’t spend extra money to solve wastewater problems. They directly discharge their sewage into municipal sewage pipeline or public septic tanks. They pay for the services with water supply tariff. 15% of the enterprises spend CNY 100 to 300 per year to solve sewage problems. Satisfaction with wastewater services of local and whole Wuhan City are shown in Table 18. Table 18 Satisfaction with Wastewater Services Very Very Satisfied Neither Unsatisfied satisfied unsatisfied District 0 42 32 25 1 Whole city 0 48 29 20 2

67. Willingness to Pay: 46% of the surveyed enterprises support to increase wastewater treatment fee in order to improve wastewater services thought new project construction, while 54% of the enterprises like to maintain existing tariff without new project construction.

68. However, when they have chance to participate in public consultation meeting for the tariff reform, 61.3% of the enterprises like to vote for existing tariff; 12.9% agree to increase to CNY1.00 from 0.80, and 3.2% agree to CNY1.20 tariff. Other 22.6% are not clear.

69. Awareness on Wastewater Improvement Planning and Our Project: 4% of the surveyed enterprises know Wuhan municipal government master plan to improve wastewater and storm water drainage very well. 52% of them don’t know it very well, while 44% of them don’t know it at all. 4% of the surveyed enterprises know the proposed project is one of components of the Wuhan municipal government master plan very well. 61% of

Easen International Co. Ltd. 18 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 7-1 them don’t know it very well, while 35% of them don’t know it at all.

VI. POVERTY ANALYSIS

70. The PRC has no official urban poverty line. Various government agencies, including the National Bureau of Statistics (NBS), have had to estimate the number of urban poor for diagnostic reasons. The NBS’s diagnostic limit for the urban poverty line was CNY 1,875 per capita in year 2000 prices, which was three times the official rural poverty line in the same year.

71. The PRC also has a variety of other urban poverty lines set as benchmarks below which a person is entitled to poverty relief benefits, called the “Minimum Living Guarantee” (MLG). Responsibility for financial assistance to the urban poor under the MLG lies primarily with city governments. Under the MLG, each city determines and establishes its own poverty or benefits line. Poorer cities tend to use harsher definitions of poverty and richer cities more lenient definitions. In recent official statements, the Government is abbreviating its references to those receiving MLG as the “urban poor”.

72. In 2008, urban poor population (people with MLSS) in Wuhan City, Hubei Province and PRC is 243,208, 1,438,490 and 23,347,864, accounting for 4.53, 5.83 and 3.85 % of total urban population, respectively.

73. Population. WMG officially established the urban living guarantee system in 1996. The number of residents who received living subsidies increased from 5,000 people in 1996 to 320,000 in June 2004. Laid-off workers accounted for a major portion of the poor population. By the end of 2006, the poor population had decreased to 259,200 thousand, accounting for 5% of total non-rural population. In 2007, Hanyang District Government distributed about CNY38.49 million to about 9000 poor households to ensure their basic living conditions. In 2008, the total poor households in the project area was about 27,483 households, accounting for 3.92% and the population was about 65,417 persons, accounting for 2.5% of the total population. The poverty situation of the project area is presented in Table 19.

Table 19 Poor Household and Population in the Project Area Number of Poor District Year Number of Poor Population Household Urban Rural Urban Rural 2008 9,708 92 23,458 200 Hanyang 2009 9,788 50 23,350 125 2008 3,150 775 7,008 1,975 Hongshan 2009 2,863 550 6,275 650 2008 13,758 0 32,775 0 Wuchang 2009 13,350 0 31,313 0 Sub-total of 2008 26,617 867 63,242 2,175 2008 102,175 16,050 243,208 35,217 Wuhan 2009 100,575 12,238 236,450 26,925 Source: Wuhan Civil Affairs Bureau.

74. Minimum Living Safeguard Standard. With social and economic development, the urban minimum living guarantee (MLG) or lowest guarantee line has changed. The WMG has increased the MLSS from CNY125 per month in March 1996 to CNY248 per month in

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January 2007 and CNY300 per month in January 2009, as presented in Table 20. The rural lowest living safeguard standard was adjusted from CNY800 to 1,000 per year in 2007, and to CNY 1,500 per year in 2009.

Table 20 MLG of Urban Residents in Wuhan City (CNY Per Person Per Month) District 1-Mar-96 1-Jun-98 1-Jul-99 1-Dec-01 1-Nov-03 1-Jan-07 1-Jan-09 7 Central 120 150 195 210 220 248 300 Urban Districts 6 Suburb - 110 143 158 165 168 240 Districts Source: Wuhan Municipal Civil Affairs Bureau.

75. The MLG line of Wuhan was relatively low among 36 central cities in 2008, as presented in Table 21. Among 36 central cities of China, MLG line of 24 cities is higher than Wuhan’s MLG line. Most of the central cities with MLSS lower than that of Wuhan are located in west of China. In 2009, Wuhan’s MLG line was increased to CNY 300 per person per month. Table 21 MLG Line of 36 Central Cities MLG Line (CNY) 248 250 to 415 156 to 245 Beijing, Tianjin, Taiyuan, Hohhot, Shenyan Shijiazhuang, Chan g, Harbin, Shanghai, Nanjing, Hangzhou, gchun, Nanchang, Hefei, Fuzhou, Nanchang, Zhengzhou, Cha Chengdu, Quiyang, City Wuhan ngsha, Guangzhou, Nanning, Haikou, Cho Kunming, Xi’an, Lan ngqing, Lasha, Dalian, Qingdao, Ningbo, S zhou, Xining, Yinch henzhen, and Xiamen uan, and Urumqi

76. Cause of Urban Poor. In the PRC, prior to the 1990s, urban poverty was confined to a small proportion of urban residents who were suffering from one of more of the three “no’s” (no ability to work; no savings or other income source; and no relatives to depend on). However, since the early 1990s, and particularly since the mid-1990s, the urban poverty situation has become a real issue as a result of growing urban unemployment brought about by enterprise reforms and government downsizing. In particular, retrenchment of excess employees of state-owned enterprises (SOEs) and dismantling of urban welfare systems formerly provided by SOEs has had a negative effect on urban poverty. In addition, the influx of the floating population from rural areas that do not only live under sub-standard conditions, but also displace older unskilled permanent urban residents from job opportunities, has also had an impact on the incidence of urban poverty.

77. Most of the urban poor are those who have lost their ability to work, off-the-job workers, unemployed workers, and retirees. The primary cause of urban poverty has been the loss of employment. This unemployment is usually caused by the closure or downsizing of SOEs and as a result, a significant portion of the population of an urban center becomes unemployed and opportunities for alternative income earning activities are limited. A severe version of the typology occurs in single company (SOE) or industry towns where that company or industry has collapsed. In downsizing, SOEs have tended to reduce the number of female employees first. Female single-headed households who experience unemployment make up another category of the poor. The childless elderly and disabled are another two categories of urban poor. A further category of the poor is to be found among the floating population who do not have urban residence status.

78. Urban poverty is often reinforced by environmental pollution at the household level. The poor do not have information about nor access to, or cannot afford, the services of basic infrastructure and facilities, such as clean water, wastewater and solid waste services, have

Easen International Co. Ltd. 20 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 7-1 less capability to cope with pollution and a degraded environment. They often suffer from serious air pollution, toxic emissions, water supply shortages, poor water quality, wastewater pollution, and poor urban environmental sanitation, which in turn increase their risk of exposure to pollution from surface and ground water and air. In particular, this puts women and children at risk.

79. Assessment. The analysis of poverty is based on estimates of income thresholds representing absolute and relative poverty for households. An absolute poverty line reflects requirements for basic food and non-food expenditures, while measures of relative poverty include the additional income needed to pay for social obligations such as funerals and weddings. Published poverty lines that are assumed to correspond to absolute and relative poverty are provided in Table 22. The current Wuhan city urban poverty threshold, at CNY300 per capita per month (It was CNY248 from January 2007 to end of 2008), is close to the average urban poverty line in this table. Table 22 Urban Poverty Lines for China* Per Capita Per Per Capita Per Month Year (2004 CNY) (2004 CNY)

POVERTY LINES ASSUMED TO REPRESENT ABSOLUTE POVERTY National Bureau of Statistics, 2000** 1,948 162 May 2000 Poverty Conference** inland cities 1,351 112 coastal cities 2,026 169 POVERTY LINES ASSUMED TO REPRESENT RELATIVE POVERTY Official Municipal poverty lines, 35 major cities, 1998*** Average 2,445 204 Minimum (Nanchang) 1,778 148 Maximum (Shenzhen) 3,957 330 * Source: ADB, May 2004. Poverty Profile of the People’s Republic of China. Values adjusted for inflation using the urban consumer price index for China. ** These values are used for purposes of evaluating poverty and are not policy tools. *** These values are guidelines for distribution of poverty relief entitlements under the Minimum Living Guarantee system administered by municipal governments.

80. Poverty Reduction Program. The WMG has made great strides in its effort to alleviate poverty through establishing and improving a social safeguard system, which will be suitable for the local economic development level, extending insurance coverage for people who are unable to work due to age, health, injury from work, and pregnancy, establishing and improving the guarantee mechanism for land-lost farmers and resettled people. The municipal government will improve the social relief system, which is based on the urban residents’ minimum living guarantee system, and improve the social relief system for the aged, disabled, and poor households in the Wuhan 11th Five-Year Implementation Plan.

81. Various measures have been implemented for poverty reduction, such as policy assistance, loans, medical assistance, and education assistance. The WMG provides financing every year for the poverty alleviation fund to be used for poverty reduction activities. As already stated above, the urban MLG was CNY248 per month for residents living in the central urban districts from January 2007, which was adjusted to CNY300 per month from January 2009. The rural lowest living safeguard standard was adjusted from CNY800 to 1000 per year in 2007. All residents who lived under the standards received the subsidies. In addition, the sale of welfare lottery reached to CNY1.2 billion and collected social welfare fund of CNY0.136 billion.

82. Promotion of Employment. Improvement of the employment situation through increasing employment positions and promoting re-employment of laid-off employees is the

Easen International Co. Ltd. 21 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 7-1 best way to solve urban poverty. In 2007 in Wuhan, the number of workers available for work increased by 28,000 to reach a total of 1.485 million. The new employment of the urban residents was 0.138 million, while the re-employment of the laid-off workers was 64,000. In addition, 64,600 of ex-floating rural laborers were transferred to work in the City. The detailed data of the employment in Wuhan City in 2008 and in the project area are presented in Table 23.

Table 23 Improvement of Employment (million) Number of Number of Number of Reemployment Workers Rural Extra District Year Increased New of Laid-off on Laborers Employment Workers Position Transferred 2007 0.01353 0.00575 Hanyang 2008 0.0175 2007 0.008553 0.007 0.003364 Hongshan 2008 0.010379 0.002746 0.003316 2007 0.0114 0.007374 Wuchang 2008 Sub-total 0.061362 0.02287 0.00668 Wuhan 2007 1.485 0.028 0.138 0.064 0.0646 2008 1.5741 0.0891 0.14 0.055 0.0063 Sub-total 0.1171 0.2780 0.1190 0.0709 Source: Wuhan Statistic Yearbook 2008

VII. HOUSING AND HEALTH ANALYSIS

83. Housing Conditions. Housing conditions of Wuhan urban residents reported in the Wuhan Statistical Yearbook, 2008 indicate a relatively advanced condition from the perspective of public health. No residents rely on untreated well or river water for their drinking water or their general water supply. Only 0.6% of households report having no sanitary facilities and only 0.8% report using a public washroom and lavatory. None of the residents are using coal for cooking and 45.5% of households report having air conditioners.

84. According to the field survey it is found that 88.7% of the affected households have their owned houses. 50% of the households have 41-100 square meters living space. 88.9% have refrigerators, 86% have washing machines, 88.5% have colored TV, 73.9% have air- conditions, 56.5% have independent bathing facilities, 16.7% have their own toilet. All households have their own kitchen, and 89.9% of the families are using electric cooker. The survey results show that 80% of the households have basic living facilities and relevant good living conditions, and remaining 20% of the families are poor families. Their living conditions are relatively poor. This Project will improve environment of the project area and promote local social and economic development, which will improve living conditions of affected families and income opportunities.

85. Current Health Status. The main disease caused by water pollution is infectious disease. According to the information reported in the Wuhan Statistical Yearbook 2008, infectious disease was ranked the last in a list of the ten main categories of death-causing diseases in the City; the death rate was 6.51 per 10,000 persons. The incidence in men was almost three times high as that in women. Progress since 1980 in the control of infectious disease is evident in the data in Table 24.

Table 24 Water Related Infectious Disease in Wuhan, 1981 to 1998

1981 to 1985 1986 to 1990 1991 to 1995 1996 to 1998

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Average annual incidence (no.per100,000 persons) Cholera 1.07 1.13 0.19 0.05 Dysentry (Shigellosis) 823.60 541.63 215.19 100.60 Typhoid and Paratyphoid 14.44 9.44 6.46 4.85 Viral Hepatitis 150.20 204.78 197.25 169.80 Malaria 114.95 5.96 1.21 1.89 Average annual deaths (no.per100,000 persons) Cholera 0.01 0.00 0.00 0.00 Dysentry (Shigellosis) 0.74 0.39 0.11 0.06 Typhoid and Paratyphoid 0.02 0.05 0.00 0.01 Viral Hepatitis 3.72 2.36 1.19 1.37 Malaria 0.02 0.00 0.00 0.00 Source: ‘Wuhan, the Past 50 Years'

86. According to the field survey, we found that in 504 sample households in the project area, there are 53 cases of schistosomiasis cases, 1 dysenterycase, 5 cases of malaria, 1 case of paratyphoid fever, 2 cases of gastroenteritis. In the community meetings, 5 out of 83 participants indicated that their family members suffered from rheumatism or skin diseases in past years, but almost all of the respondents considered that tap water is safe. The illness might be related to seasonal water logging and direct dirty water contact. The cause of dysentery and malaria is not due to drinking water because the cases are few and independent in the project area. It is probably caused by personal hygiene.

87. Of particular note is that there are 53 cases of schistosomiasis in the surveyed residents. The Wuhan Disease Control Center verified that 40 years ago, Wuhan, Hubei Province, was China's traditional high incidence of schistosomiasis. It is a kind of the most common diseases in area along the Yangtze River. The disease are caused mainly by eating or contacting oncomelania in which schistosoma is hosted. The schistosoma can enter the human body and cause illness. There is no definitive evidence that water pollution led to the proliferation of schistosomiasis oncomelania. Schistosomiasis occurs in areas with poor sanitary conditions, eggs carried in feces of patients may lead to the proliferation of schistosomiasis. While cases of schistosomiasis in the project area is not a direct result of water pollution, but the project is completed to avoid the occurrences of waterlogging, to prevent oncomelania into urban water and avoid the occurrences of schistosomiasis. Therefore, it will significantly improve the urban health and hygiene standards

VIII. EMPLOYMENT GENERATION

88. Employment will be generated during the project construction and in the operation of project facilities. According to the FSRs, about 3,245 full time positions with a total gross income of CNY143 million during the project construction (3 years) will be generated by the Project with 38,935 person-months input in total, while during the operation phase, 144 full time positions with CNY7.722 million annual gross income will be generated directly by the Project. In addition, about 1,841 positions with CNY77.335 million gross income will be generated indirectly by the Project per year. The detailed employment generation and income earning are presented in Tables 25 to 28. Table 25: Employment Generation during the Project Construction Period Employment Generation for 3 years Construction Project (person-month) Component Direct

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Management& Total Indirect & Skilled Unskilled Total Technical Direct Induced Component I Wuhan Sludge Treatment and Disposal Three Plants 441 552 1,213 2,206 3,309 5,515

Component II Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station

Lake/Channel 2,108 3,162 15,810 21,081 31,621 52,702 Rehabilitation Pumping 1,577 1,971 4,336 7,883 11,824 19,707 Station Component III Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation

Lake/Channel 777 1,165 5,824 7,766 11,648 19,414 Rehabilitation Source: *Calculation based on the feasibility Study Report of the Project.

Table 26: Income from New Jobs during the Project Construction Period Employment Generation for 3 years Construction (CNY 1,000) Project Direct Component Indirect Management& Skilled Unskilled Total Direct & Total Technical Induced Component I Wuhan Sludge Treatment and Disposal Three Plants 2,647 2,758 3,640 9,045 11,582 20,627

Component II Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station

Lake/Channel 12,648 14,229 47,431 74,309 110,673 184,982 Rehabilitation

Pumping Station 9,460 9,854 13,007 32,320 41,385 73,705

Component III Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation

Lake/Channel 4,659 5,242 17,473 27,374 40,770 68,143 Rehabilitation Source: *Calculation based on the feasibility Study Report of the Project.

Table 27: Employment Generation during the Project Operation Period Project Employment Generation for Operation per Year Component (person-month) Direct Management Skilled Unskilled Total* Indirect & Total & Technical Direct Induced** Component I Wuhan Sludge Treatment and Disposal Sanjintan 36 96 96 228 348 576 WWTP Nataizihu 24 72 36 132 204 336 WWTP Tangshunhu 24 84 72 180 276 456 WWTP Component II Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station Lake/Channels 108 480 120 708 1,068 1,776

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Rehabilitation Pumping Station 108 96 96 300 456 756 Component III Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Lake/Channel 48 96 36 180 276 456 Rehabilitation Source: *The feasibility Study Report of the Project. ** Calculation based on a ratio of 1:1.5.

Table 28: Income from New Jobs during the Project Operation Period Project Employment Generation for Operation per Year Component (CNY 1,000) Direct Management Skilled Unskilled Total Indirect & Total & Technical Direct Induced Component I Wuhan Sludge Treatment and Disposal Sanjintan 180 432 384 996 1,218 2,214 WWTP Nataizihu 120 324 144 588 714 1,302 WWTP Tangshunhu 120 378 288 786 966 1,752 WWTP Component II Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station Lake/Channel 540 2,160 480 3,180 3,738 6,918 Rehabilitation Pumping Station 540 432 384 1,356 1,596 2,952 Component III Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Lake/Channel 240 432 144 816 966 1,782 Rehabilitation

IX. COMMUNITY PARTICIPATION AND PUBLIC AWARENESS ACTION PLAN

89. Some public consultations related to the project scope and possible impacts such resettlement and environment were held during the PPTA. More community participation and public awareness activities were conducted to understand local residents’ and the community’s opinions and concerns on the design and implementation of the Project. The activities included 10 community meetings, 10 focus group discussions, and surveys of 100 companies and small businesses and more than 500 households. In addition, discussions with village committees, relevant local government departments, wastewater treatment plants (WWTPs), Wuhan New Zone Construction Committees, Yangchun Lake New Center Construction Committees, and other stakeholders were held during the PPTA.

90. Public awareness of the Project is high and generally very positive. Development of the Environmental Management Plan (EMP), Environmental Impact Assessment (EIA)， Resettlement Plans(RPs) and Social Development Action Plan(SDAP) involved two rounds of public consultations from May to August 2009. The purpose was to introduce the Project and the relevant components to a wide range of stakeholders, and to solicit their views, opinions and concerns on the Project and its potential social and environmental implications, so that the EMP, RPs and SDAP could take these into account in deciding measures to mitigate against adverse project impacts. Most stakeholders such as local relevant government departments, WWTPs, and some community committees have good knowledge of the Project, due to the preparation work undertaken by design institutes and the PMO. Both the RPs and EMP set out detailed ongoing public participation plans. Public participation is also provided for in the plans for project monitoring and evaluation.

91. Throughout the Project, it is necessary to establish a sound public participation

Easen International Co. Ltd. 25 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 7-1 mechanism, including channels of information disclosure and complaint. A community/village project management/monitoring team is proposed to help select project construction labours, conduct education on environmental protection awareness, HIV/AIDS and other transmittable disease control, maintain the public security of the construction site, coordinate relations of all parties concerned, reflect opinions and advice of villagers/residents, and monitor the SDAP implementation.

92. The WPMO shall cause the IA to conduct information, education, and consultation communication campaigns via appropriate government bureaus and/or approved service providers concerning health, hygiene and managing solid waste disposal and wastewater in project areas. It is suggested that such activities be integrated with the safety management requirements of contractors and subcontractors.

93. Based on the results of the community participation and public awareness activities, the consulting team assisted WPMO to prepare a community participation and public awareness action plan as presented in Table 29. The plan provides extensive opportunity for stakeholders to participate in the Project during project implementation and operation.

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Table 29 Community Participation and Public Awareness Action Plan Responsible Stage Activity Description Methods Participants Remarks Party • Identifying team members • Selecting and managing construction labors participating in the project • Whole community With • maintaining the public security of the • Community/village • Whole village Community/ assistance construction site committee • Community/villag The whole Implementation village, project of local • Formulating policies • Community/village e committee community/villa stage management / government project monitoring ge monitoring team • Environmental protection awareness • PMO department team education • related local s • Coordinating relations of all parties bureau(s) concerned, reflecting opinions and advice of villagers/residents • Members involved in • Determining the jobs available from the construction, project including women, • Determining the criteria of selection of ethnic minority, project construction staff, including poor • Community/village poor families PMO, With Project families, ethnic minorities and women committee assistance • Resettled families related local construction • Monitor the payment of the land • Community/village of EPB • Residents/villager bureau(s) participation compensation and house demolition project monitoring ACWF and s/ hosts • Technical training and safety system team PADO • project office training, and environmental protection • IAs awareness education • project • Participating in project construction constructor related bureau • Community/village committee • Community or • EMP monitoring PMO and With Project Community/ • Community project village committee assistance • RP monitoring related local monitoring and village project monitoring team, • Community of EPB, • SDAP monitoring bureau(s) feedback monitoring team including reps of poor project ACWF and • monitoring results reporting families, women and monitoring team PADO other special groups

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Responsible Stage Activity Description Methods Participants Remarks Party • Printing “project complaint leaflet” and issuing to each community, so that villagers/residents can With easily give feedback • Community/villag assistance Complaint Establishing the community member • Setting up a complaint e project EA and IAs of EPB, channel feedback system hotline at the project monitoring team ACWF, and office PADO • Community monitoring team collects advice and opinions at any time • Safety information collection and safety awareness building though posters, information signs, TVs Community/village project monitoring team With and Radios. • Community/villag IAs, and local Operation Project assisting the EA in the operation stage of assistance • Community/village e project relevant stage maintenance the community-related safety issues, of EPB, committee monitoring team; governmental management participation transport services, transport facility ACWF, departments maintenance, etc • Meetings by • IA PADO Community/village project monitoring team (including poor families, women and other special groups) Sources: ACWF = All China Women’s Federation, EPB = environmental protection bureau, PADO = Poverty Alleviation and Development Office, EA = executing agency, IAs = implementing agencies, PMO = project management office.

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X. WILLINGNESS TO PAY AND AFFORDABILITY

A Willingness to Pay

94. Wuhan has no special taxes paid by local residents or businesses for sludge treatment and disposal, storm water treatment and lake and channel rehabilitation at the present. The government pays for projects or construction related to these activities from municipal construction budgets. Therefore, most of residents consider that the government should be responsible for such activities. The residents don’t need to pay specific taxes for the activities. However, when was asked if they would be prepared to pay a fee for the activities, more than one third respondents expressed their willingness to pay such a charge, as shown in Table 30.

Table 30 Willingness to Pay for Activities Related to this Project Willingness Total Activity Yes No Frequency 199 305 504 Sludge Treatment & Disposal % 39.5 60.5 100 Frequencies 187 317 504 Stormwater Treatment % 37.1 62.9 100 Frequency 115 389 504 % 22.8 77.2 100 Lake & Channel Rehabilitation Frequency* 184 320 504 % 36.5 63.5 100 * After asked if you like to pay for lake & Channel rehabilitation when you find the environment is improved due to local government’s investment in the lake & Channel rehabilitation, the willingness increased from 22.8 to 36.5%. 95. The existing wastewater treatment price of residents is CNY0.8/m3 in the main urban area of Wuhan City. The fee is collected together with the fee for water use. Therefore, some residents don’t know they have paid for wastewater treatment. When they were asked if they would be prepared to pay more for wastewater treatment considering that the cost for the treatment had increased; 30.8% of respondents agreed to pay for the increase, while 69.2% felt the existing price should be retained.

96. During focus group discussions, however, most participants agreed that water is one of basic resources humans depend on to live. Water can’t be substituted by any other materials. It is very vital to save water and use water effectively. Although Wuhan is not a city with a shortage of water, the residents still need to control amount of water consumption. Increasing water price is one way to control water use. They like the current scalar water pricing system called ladder price. The respondents suggested that the price for base water should not be increased. The amount of base water can meet the need of basic life of residents. If residents want to save water fee, they will control their use water within the base amount, which guarantees that residents with low income are able to use water for daily life. For residents who use more water than the base amount, they have to pay for the extra water at a higher price. The more water used, the higher the price paid for the water. The respondents suggested that the price for base water should be maintained in current level, however, the price for extra consumption over the base amount should be increased significantly.

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97. Reasons why Respondents did not want to Pay. The respondents gave their reasons why they did not want to pay for higher levels wastewater treatment and sludge treatment and disposal service.

98. For increasing wastewater treatment price, among 349 respondents, 62.7% of them selected “unaffordable”; 31.8% explained that they have to use money in other daily life expense; 20.3% hoped they can know how the government uses the money; and 18.1% said it is not necessary to build wastewater treatment plants now.

99. For the sludge treatment and disposal, among 504 respondents, 30.2% of them thought they have paid for wastewater treatment fee that should include the sludge treatment cost; 25.6% explained that their incomes are relatively low; 20.6% considered that it will increase family expenditure; and 18.5% said it is dependent on governmental decision.

B Affordability

100. When they were asked how much they were prepared to pay for sludge treatment and disposal, the respondents’ replies were as presented in Table 31.

Table 31 Affordability to Sludge Treatment and Disposal CNY/ton 0.05 0.1 0.15 0.2 0.25 Not Sure Total water Sludge Treatment Frequency 210 72 5 11 0 206 504 & Disposal % 41.7 14.6 1 2.2 0 41.9 100

101. For storm water treatment, respondents gave replies as presented in Table 32.

Table 32 Affordability to Stormwater Disposal CNY/ton Not 0.5 1 1.5 2 2.5 3 3.5 4 4.5 Total water Sure Stormwater Frequency 189 23 3 13 0 1 0 0 0 88 317 Treatment % 59.6 7.3 0.9 4.1 0 0.3 0 0 0 27.8 100

102. In Wuhan urban area, the existing water price is CNY1.1 per cubic meter, and wastewater treatment price is CNY0.8 per cubic meter, which means that water users have to pay CNY1.9 per cubic meter for water consumption. This price is for households with 4 family members whose water consumption is limited within 25 m3 per month (Amount of base water). If the households use water more than 25 m3 per month but less than 33 m3 per month, they shall pay water consumption in CNY2.45 per cubic meter.

103. For a poor household with 4 family members who is receiving the living guarantee subsidy, their household income will be CNY1,200 per month in total. Currently, Wuhan Government is providing an extra CNY21 per month as water subsidy to such poor households. It is CNY17 per month for poor households with 3 family members, and CNY13 per month for households with 2 family members. A poor household with 4 members need to pay CNY47.5 per month for water consumption if they use 25 cubic meters, which accounts for 2.21% of their monthly income. For a poor household with 3 members, water cost accounts for 2.33%. If the government would not provide the water subsidy, the water cost would increase to 3.96 and 4.22% for households with 4 members and 3 members, respectively. For households with low income, they are not qualified to receive the subsidies because their incomes are higher than the poverty line. Their water cost in family income accounts for 2.97 and 3.17% for households with 4 members and 3 members, respectively.

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The detailed analysis is presented in Table 33.

Table 33 Water Cost in Household Income in Existing Water Price Water HH Amount of Water Water Water Cost HH Income in Population Base Water Price Subsidy Income (person) (m3/month) (CNY/m3) (CNY/month) (CNY/month) (CNY/month) (%) Existing water price with water subsidy - poor household 3 20 1.9 38 900 17 2.33 4 25 1.9 47.5 1,200 21 2.21 Existing water price without water subsidy - poor household 3 20 1.9 38 900 0 4.22 4 25 1.9 47.5 1,200 0 3.96 Existing water price without water subsidy - household with low income 3 20 1.9 38 1,200 0 3.17 4 25 1.9 47.5 1,600 0 2.97

104. When the water price is increased CNY0.2 to CNY2.1 per cubic water, which is used for wastewater treatment or sludge treatment, the water cost in household income will be changed in different extents, as showed in Table 34 in details.

Table 34 Water Cost in Household Income in Increased Water Price Water HH Amount of Water Water Water Cost HH Income in Population Base Water Price Subsidy Income (person) (m3/month) (CNY/m3) (CNY/month) (CNY/month) (CNY/month) (%) Increase water price with water subsidy - poor household 3 20 2.1 42 900 17 2.78 4 25 2.1 52.5 1,200 21 2.63 Increased water price without water subsidy - poor household 3 20 2.1 42 900 0 4.67 4 25 2.1 52.5 1,200 0 4.38 Increased water price without water subsidy - household with low income 3 20 2.1 42 1,200 0 3.50 4 25 2.1 52.5 1,600 0 3.28

105. According to an analysis report conducted by World Bank, a household shall be affordable when the water cost in total income is in 3 to 4%. Based on above analysis, the poor households would be difficult to pay water cost if the government would not provide water subsidies. If current water price is increased CNY0.2, the households with low incomes will be difficult to pay water cost. Considered relatively high expenditure of local residents in food and education, any increase of water price will cause larger impact on poor or low income households. A reasonable water price mechanism and related subsidy mechanism should be established.

XI. GENDER DEVELOPMENT

106. In the project affected area, females account for 47.3 % of total population according to Wuhan Statistic Yearbook 2008. Based on the survey of 504 households in the Project area, female population accounts for 50.5 % in a total of 1,483 family members. Amongst the female family members, 31.5% of them are staff women or business women. They have steady work. 13.1% have temporary work. 15.2% stay at home as house women. 29.4% are students or retired workers who stay at home with pensions, and 2.8% are unemployed women.

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107. As indicated in the section on gender analysis, the major benefits of the Project include (i) general benefits from economic development, (ii) an improved environment around the rehabilitated lakes and channels, and (iii) job creation.

108. Local economic development can promote employment. In current the economic structure, the service sector accounts for more than 50% of employment. Female laborers are suitable for working in service industry. Therefore, the local economic development due to the Project will have a positive impact on female employment. Both the Wuhan New Zone in Hanyang District and the Yangchun Lake area as the Secondary Urban Center in Hongshan District will become new economic improvement areas. The WPMO and IA should cooperate with relevant governments to offer more employment positions to female laborers.

109. Lakes and channels rehabilitation will improve the current storm water discharge system as well as the natural environment in Hanyang and Hongshan districts. According to the community meetings in the project area, participants, especially female participants, agreed that time spent in cleaning their homes and caring for sick family members will decrease with environment improvement. They will have more time to work and increase their incomes. The local government should therefore prepare plans to take advantage of the benefits created by the Project, and a relevant training program should be prepared in advance.

110. Moreover, although it is estimated that approximately 70% of the construction work will require unskilled labors, this work is likely to involve heavy digging and carrying. It has been suggested that it will not be suitable for women and that it would therefore be unrealistic to set a target for women’s employment in unskilled work. Nonetheless, the WPMO believe it would be realistic for 30% of these jobs to go to the poor including women, and women from low income families.

111. Participation of women in general in skilled jobs in the construction and engineering sector is also limited. In order to promote women’s employment in project activities, it is recommended that a percentage target is agreed upon between the contractors and the WPMO for the employment of women to undertake skilled construction jobs if suitably qualified women can be found.

112. In addition to construction work, 219 new full time positions including skilled and unskilled jobs will be created in relation to operations and maintenance of the lakes and channels, the pumping station and sludge treatment equipment. The WPMO recommends a target of 30% from the vulnerable groups, including women, be employed in unskilled jobs. Some special training of women may be needed to fulfill this target.

113. During the Project implementation, both WPMO and the IA should pay attention to the positive impacts on local women and take following actions: (i) liaising with contractors to hire woman laborers for project construction, and the IA for the operations phase; (ii) liaising with the local women federations to recommend women to the Project; (iii) monitoring (a) the number of woman laborers hired during the project construction and for operations; (b) the number of women in selected villages or farms doing off-farm work before and after the project completion; (c) the number of women who participate in technical training; and (d) household income contributed by women; and (iv) organizing consultations with women on their participation in the project implementation and the employment opportunities arising from the Project. These actions are listed in Gender Action Plan (GAP) in Table 35 and some of them are included into the social development action plan (SDAP) designed for the Project.

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Table 35 Gender Action Plan

Activity Indicators and Targets Responsibility Time (year) Component 1. Sludge Treatment and Disposal Ensure there is female representation and At least 30% of participants in WPMO, WFMO, 1-3 participation during consultations with the general public meetings on sludge WUDDC, 1-5 public during public hearings, in decision-making treatment and disposal WWGC, ACWF, processes, and in any local decision-making bodies interventions are women CT, WCAB, CC and structures (Reporting Ensure that, where appropriate, a gender sensitive Affordability analysis includes, indicators should 3-5 approach is taken when analyzing affordability of where appropriate, disaggregation be reflected in household sludge treatment tariffs by sex and incorporation into ADB's project subproject reporting performance Promote the creation of job opportunities for women At least 20% of jobs created are report system.) 1-5 during and after project implementation, and for women – overall gender target provide appropriate training for the project is 30% Gender analysis included in poverty and social Annual household survey 1-5 assessment and households survey 1-3 Ensure that women are included as participating At least 30% of participants in 1-5 members in seminars, workshops, and meetings consultative workshops are conducted to discuss sludge treatment and disposal women plans Component 2. Wuhan New Zone Lake/Channels Rehabilitation and Pumping Station Ensure there is female representation and At least 30% of participants in WPMO, WFMO, 1-3 participation during consultations with the general public meetings on sludge WUDDC, 1-5 public during public hearings, in decision-making treatment and disposal WWGC, ACWF, processes, and in any local decision-making bodies interventions are women CT, WCAB, CC and structures (Reporting Promote the creation of job opportunities for women At least 30% of jobs created are indicators should 1-5 during and after project implementation, and for women be reflected in provide appropriate training ADB's project Gender analysis included in poverty and social Socioeconomic and gender performance 1-5 assessment and annual household survey issues incorporated into surveys report system.) 1-3 and FGD Ensure that women are included as participating At least 30% of participants in 1-5 members in seminars, workshops, and meetings consultative workshops are conducted to discuss environmental protection women plans of project areas Component 3. Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation Ensure there is female representation and At least 30% of participants in WPMO, WFMO, 1-3 participation during consultations with the general public meetings on sludge WUDDC, 1-5 public during public hearings, in decision-making treatment and disposal WWGC, ACWF, processes, and in any local decision-making bodies interventions are women CT, WCAB, CC and structures (Reporting Promote the creation of job opportunities for women At least 30% of jobs created are indicators should 1-5 during and after project implementation, and for women be reflected in provide appropriate training ADB's project Ensure the collection of gender-disaggregated data Gender disaggregated data performance 1-5 where appropriate identified for monitoring report system.) 1-3 purposes and included in monitoring framework Ensure that women leaders are included as At least 30% of participants in 1-5 participating members in seminars, workshops, and consultative workshops are local meetings conducted to discuss environmental female leaders and/or female protection plans of project areas representatives Component 4. Institutional Strengthening and Capacity Building Ensure that EA and IAs have special staff to work At lease 1 staff from EA and IAs, WPMO, WFMO, 1-5 on this GAP. The staff shall be trained on safeguard respectively, assigned to manage WUDDC and gender impacts by Consultants. GAP work (WPMO and Gender analysis and monitoring included in the Identification of issues, training Consultant shall 1-5 environmental awareness and community health methods, outreach, materials and submit program monitoring addresses gender; at least 30% participation of women monitoring in activities report to ADB

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Gender analysis and monitoring incorporated into Identification of issues, outreach, annually.) public awareness program for tariff reform materials and monitoring addresses, where appropriate, gender: at least 30% participation of women in activities WPMO = Wuhan Urban Construction Utilization of Foreign Investment Project Management Office, WFMO = Wuhan Urban Construction Fund Management Office, WUDDC = Wuhan Urban Drainage Development Co., Ltd., WWGC = Wuhan Water Group Co., Ltd, ACWF = All China Women’s Federation, CT = Consultant Team, WCAB = Wuhan Civil Affairs Bureau, CC = Community Committee, GAD = Gender and Development, EA = Executing Agency, IAs = Implementing Agencies,

XII. SOCIAL SAFEGUARDS ISSUES AND OTHER SOCIAL RISKS

A. INVOLUNTARY RESETTLEMENT

114. Land acquisition and house demolition for the Project will involve 2 districts, 3 street committees, and 16 administrative villages. In total, an estimated 3,423.55 mu of land will be permanently acquired for the Project, including 127.4 mu of farmland, 51.65 mu of fish pond, 178.44 mu housing site and 1,549.3 mu mudflat or uncultivated land. In addition, 555.6 mu will be occupied temporarily. Some structures will have to be demolished, including 126,536 m2 of residential houses and 31,957 m2 of non-residential houses. In total, 376 households with 1,365 persons will be affected directly by land acquisition and house demolition. Existing infrastructure affected by the Project includes 1,124 (380 Voltage) light poles, and 13 high-voltage (220kV) transmission towers.

115. Two full resettlement plans (RPs) in line with ADB’s involuntary resettlement policy and PRC resettlement policy for components of the Wuhan New Zone Lake/Channels Rehabilitation and Sixin Pumping Station, and the Yangchun Lake Secondary Urban Center Lake/Channel Rehabilitation, respectively, were prepared to address resettlement and land acquisition issues. The primary objective of the RPs is to ensure that the affected persons (APs) will improve their standards of living, or at least not be made worse off because of the Project. This “better off” or “no worse off” objective is consistent with the laws and regulations of the PRC and the ADB’s Involuntary Resettlement Policy.

B. ETHNIC MINORITIES

116. The major objective of the ADB ethnic minority policy is to guarantee that ethnic minorities benefit from projects. ADB notes that the socioeconomic conditions and living standard of ethnic minorities are generally lower than the dominant ethnic group; therefore measures should be taken to guarantee positive project outcomes for ethnic minorities. ADB projects that have a significant impact (both positive and negative) on ethnic minorities, must have an ethnic minority development plan (EMDP) to (i) ensure that development interventions are compatible in substance and structure with the affected ethnic minorities’ social, cultural and economic institutions, and consistent with the needs and aspirations of those peoples; (ii) design and implement projects which ensure that ethnic minorities are at least as well off as they would have been without development interventions; and (iii) make certain that ethnic minorities benefit from interventions. In addition, the EMDP includes relevant procedures for project implementation, monitoring and evaluation.

117. As described in the section of ethnic minority analysis, both the central government and Standing Committees of Wuhan People’s Congress have issued laws and regulations to guarantee rights and benefits of ethnic minorities in social life, cultural development, education, religious and employment, etc. According to the ethnic minority analysis, the Project will not produce any negative impact on ethnic minority residents in the Project area.

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Therefore, it is not required to prepare an EMDP for the Project. Some measures to be taken during the Project implementation are designed in the SDAP to minimize any negative impacts and those measures are equally suitable for ethnic minority residents. Additional actions intended to be beneficial for ethnic minorities such as enlarging employment opportunities in the Project are also included in the SDAP.

C. LABOR

118. Existing Chinese labor policies in themselves should protect labor employed on the project construction. Labor laws enforce equal pay for equal work. National regulations exist in order to protect the labor rights of women and children. Article 46 of the PRC Labor Act guarantees distribution of wages according to the principle of equal pay for equal work. The Regulation of Female Workers Labor Protection establishes the principle of equal pay for equal work, regardless of sex. There are two levels of legislation regarding payment of minimum wages. The PRC Labor Law (July 1999) specifies that basic minimum wages should be paid in accordance with local regulations.

119. In 2009, the minimum wage in Wuhan City was adjusted to CNY 700 per month or CNY 7 per hour for the central urban area, while set at CNY 600 per month or CNY 6.5 per hour for the suburban area.

120. There is a risk that subcontractors who can disappear without paying all wages will be involved indirectly with Project construction; however the WPMO is confident that the construction contracts let for the Project will not permit such subcontracting. The Construction Management Department will have supervisory staff who will monitor the contractors’ observance of labor regulations and timely payment of workers.

D. OTHER RISKS AND/OR VULNERABILITIES

121. Wuhan City is classified as a low AIDS epidemic region. By August 2008, there had been 1,075 cases of AIDS and HIV infection in the City. Most initial AIDS cases were due to unregulated blood transfusion, while in recent years, patients infected through sexual activities have increased, accounting for more than half of the total cases. Most cases are not locally registered residents, accounting for 68.7%. Also, young and middle-aged unmarried men with low education accounted for a high proportion. In addition, in common with international experience, there are many HIV affected people in the social groups of drug addicts, prostitutes, whoremasters, and recipients of blood transfusions, together with their spouses. Table 36 shows the details. Table 36: AIDS/HIV Cases in Wuhan City Case of AIDS and HIV Affected Year Increased Accumulated from 1988 2006 169 528 2007 192 889 2008 186 1,075 Source: Local reports.

122. Local relevant governmental agencies have strengthened the monitoring and control of potential HIV affected groups such drug addicts, prostitutes and whore masters. Actions as designed into the SDAP will be taken to avoid HIV transmission and AIDS infection.

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XIII. SOCIAL DEVELOPMENT ACTION PLAN

A. INTRODUCTION 123. This Social Development Action Plan (SDAP) was prepared jointly by the WPMO and the involved local governments, with the assistance of the PPTA social experts. The SDAP was reviewed by key stakeholders including Wuhan Urban Construction Fund Management Office (WFMO), Wuhan Urban Construction Investment and Development (Group) Co., Ltd (WUCID), Wuhan Water Bureau (WWB), Wuhan Water Group Co., Ltd (WWGC), Wuhan Urban Drainage Development Co., Ltd (WUDDC), Yangchun Lake Secondary Urban Center (YLSUC), the Wuhan bureaus of labor and social security, education, health, poverty, ethnic minority and women’s federation. Their input has been valuable in the preparation of the Plan.

B. PURPOSE 124. The purpose of the SDAP is to ensure that important social and poverty issues are addressed during the implementation of the Project. Any adverse impacts need to be avoided or mitigated, and project benefits should be inclusive of vulnerable groups (i.e., the poor, women, ethnic minorities and others).

C. BASIS FOR THE SDAP 125. The SDAP has focused on issues related to directly affected people, vulnerable people, gender, ethnic minority and local social and small business development. Measures to address these issues have been formulated based on the PSA report and adopted based on further stakeholder consultation. The main actions can be grouped into three types: (i) project benefits and enhancement measures within the direct control of the IA; (ii) mitigation measures to address social risks caused by the Project, being the responsibility of the WPMO and the IA; and (iii) complementary enhancement measures that can be taken by local governments to increase the mutual benefits derived from the project construction or operations. The details of the SDAP are provided in Table 30, which includes the proposed actions, target groups, implementing agencies, timing, funding source and monitoring indicators.

13.1.1 Gender Aspects

126. The WPMO and the local governments have agreed to take following actions to enhance project benefits for women: (i) coordinate with contractors and the local ACWF to hire woman for the project construction and operation; (ii) hire women for sludge treatment and disposal, lakes and channels, and pumping station operation and maintenance; (iii) target women and children for project safety awareness; (iv) provide HIV/AIDS/STI (sexually transmitted infections) awareness for women at high risk; (v) 50 percent of livelihood training for affected households will be women, (vi) provide technical training on housekeeping for women, and (vii) organize periodic consultations with woman and encourage their participation in the project implementation.

13.1.2 Ethnic Minority Aspects

127. The WPMO and the local governments have agreed to take following actions to enhance project benefits for ethnic minority residents: (i) integrated poverty reduction, environmental improvement, and employment programs, and (ii) cultural protection and

Easen International Co. Ltd. 36 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 7-1 development. Ethnic minority residents will benefit from the Project and there will be no adverse impacts on ethnic minorities.

13.1.3 Poverty Reduction Aspects

128. The WPMO and the local governments have agreed to take following actions to enhance project benefits for the poor: (i) hiring laborers from poverty villages/households, (ii) providing special support for poor households affected by resettlement, (iii) integrating poverty reduction and environmental improvement programs, (iv) technical training programs, and (iv) promoting non-farm employment opportunities.

D. IMPLEMENTATION ARRANGEMENTS

129. The SDAP with be implemented by the WFMO, the WUDDC, and the WWGC and the YLSUC, in coordination with local government agencies as indicated in Table 37. The WPMO will be responsible for overseeing the SDAP and implementing those actions within their direct control, as well as supervision of related activities that involve the construction contractors. For actions outside the direct mandates of the WPMO, the assigned staff will be responsible to liaise with the relevant district government agencies under the coordination of the Vice Mayor; this will ensure appropriate measures are taken in a timely and satisfactory manner. The WPMO will also be responsible to monitor and report progress, issues and results to the EA. A local consultant may be engaged to assist with monitoring and reporting, as deemed necessary. The EA will then provide ADB annual SDAP Monitoring Reports for review and follow-up during loan supervision missions. If necessary, ADB and the EA may agree to revise the SDAP to improve the effectiveness of the proposed measures.

E. FUNDING SOURCES

130. There are two main funding sources for the SDAP: (i) the Project cost (i.e., civil works, EMP or RP costs), and (ii) local government funding for poverty reduction, etc. In this manner, some activities in the SDAP will be part of the Project implementation and others will be integrated with ongoing government programs. The implementation will be monitored to ensure that sufficient funding is made available in a timely manner.

G. MONITORING & EVALUATION OF SDAP

131. It is proposed that comprehensive monitoring be conducted during the project construction to ensure that the Project fulfils its aims and objectives. This monitoring should examine how the actions proposed in the SDAP are implemented and their impacts on target people or beneficiaries are evaluated. The WPMO, WFMO, the WUDDC, the WWGC and the YLSUC will be responsible for the monitoring and evaluation and reporting to ADB once each year during the project implementation. The WPMO also can recruit external consultants to conduct the monitoring and evaluation. The external consultants should have professional experience in SDAP monitoring and evaluation for similar projects. The Resettlement Department of the WPMO is in charged of implementation of the monitoring and evaluation, and recruit external consultants. The department has appointed a staff to manage the monitoring and evaluation.

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Table 37 Summary Social Development Action Plan Lead and Supporting Funding How Proposed Actions Target Group(s) Timing Monitoring Indicators Agencies Requirements Monitored A. Overall Project Social Benefits 1 Improved sludge treatment and disposal • • Construction of 3 sludge treatment plants • 5.28 million L: WPMO 2010–2014• CNY0.212 • Increased public • Annual • Establishment of sludge disposal system residents in billion of satisfaction with the household including transportation Wuhan urban S: WFMO, WUDDC project budget urban environment, survey area wastewater services, • 4% are poor sludge management, and 0.6% are and the control of minorities drainage • Reduction of land use • EMP • Amount of sludge Monitoring transportation per month 2 Improved water environment and flooding control • 1.526 million L: WPMO 2010–2014 CNY 2.159 • Increased public • Annual • Rehabilitation of 3 lakes and 6 channels in residents in 2 billion of satisfaction with the household Hanyang District districts S: WFMO, WWGC project budget urban environment, survey • Rehabilitation 1 lake and 1 channel in • 3.7% are poor wastewater services, Hongshan District and 2.1% are storm water • Construction of a pumping station in minorities management and the Hanyang District control of drainage and flooding • Increased storm water • Supervision drainage capacity consultant reports B. Social Actions to Ensure Positive Benefits

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Lead and Supporting Funding How Proposed Actions Target Group(s) Timing Monitoring Indicators Agencies Requirements Monitored 1 Employment Local employment for construction work • 65% local labor L: WPMO 2010–2013 Included in • No. of local people • Local and other services for unskilled project employed supervision • 3,243 full time positions during project work S: Contractors, local contracts and (disaggregated by sex, consultant construction • 30% women for labor bureaus, local civil works cost ethnicity and poverty monthly • 144 full time positions during operations unskilled labor community and paid by status) reports • Priority to local labor in general. Core labor in landscaping committees, ACWF contractors • Wages paid to local standards included in loan assurances and and civil work people (disaggregated) contractor documents • Special • Value of construction • Use of local construction materials, preference for materials supplied locally e.g., rock, gravel, clay, cement poor group and • Value of seedlings • Seedlings exclusively from local nurseries minority for supplied locally • Training to be provided by contractors unskilled work • Number of trainings and trained local workers (disaggregated)

2 Environmental Awareness and Community Health Program • 10 communities L: WPMO, Consultant 2010-2014 Covered in the • Number and kind of • Supervision • Community-based environmental / villages in Team institutional community awareness consultant awareness and community health program project areas strengthening sessions/activities quarterly • School environmental awareness program • 95 elementary S: Environmental and capacity • Number of participants report on • Establishment of community/village project schools and 55 Protection Bureau building (disaggregated) environment management and monitoring teams middle schools Community Committee component • Number of school al in Hanyang and Education Bureau programs awareness Hongshan NGOs • Number of participants program districts (disaggregated) • 2 NGO of • Number of teams environmental established protection in • Number of participants Wuhan (disaggregated) • Number and kind of outreach materials 3 Capacity Building • EA capacity building in safeguards • Staff of EA in L: WPMO 2010-2011 Consulting • Number of trainings and • Consultant • Capacity building in social and gender charge of services trained staff of EA and training

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Lead and Supporting Funding How Proposed Actions Target Group(s) Timing Monitoring Indicators Agencies Requirements Monitored • Training to be provided by specialists safeguards S: Consultant team IAs report • Staff of IAs in charge of social impacts? 4 Wastewater/sludge Tariff • Maintenance of pro-poor water tariff • 100,570 poor L: WFB, WPB 2010-2014 Consulting • Tariff subsidy • Supervision subsidy households services • Number of consultations consultant • Public participation in tariff consultation affected by S: WUDDC, WPMO • Number of participants reports • Public awareness raising on justification for changing tariff (disaggregated) tariff setting structure for • Number and kind of relevant project public awareness raising infrastructure activities improvements C. Mitigation Measures to Address Social Risks (Responsibility of WPMO) 1 HIV/AIDS and STIs Control of HIV/AIDS and sexually • All project L: WPMO and WFMO 2010–2013 Awareness • No. and kind of IEC, • Contractor transmitted infections (STIs) construction training costs manuals, posters and monitoring • Close contact of all contractors with local workers S: Contractors, WCDC for workers are drawing distributed • Local Centre for Disease Control (CDC) • Service included in • No. of training sessions supervision • Provide manuals, posters and drawings to providers contract costs. and trainees (sex consultant all workers disaggregated) monthly • Hold special meeting or education with WCDC costs in reports assistance of local CDC at worksites included in • Health promoters provide training to all Department of workers and managers and subcontractors Health budget 2 Construction activities disturbances Protect local communities from • Residents close L: WPMO 2010–2013 Included in • No. and resolution of • Local construction disturbances and ensure safe to project sites project cost complaints supervision construction practices S: Contractors, (refer to EMP) • Number of public consultant • Prohibit nighttime construction and adhere WFMO, WWGC and facilities (% recovery) monthly to proposed noise standards local governments • Accidents on temporary reports • Control dust, discharged wastewater, solid construction roads • EMP waste, noise during construction • Accidents on project monitoring • Recover soil and plants on field sites sites • Protect sludge piling up and transporting

Easen International Co. Ltd. 40 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 7-1

Lead and Supporting Funding How Proposed Actions Target Group(s) Timing Monitoring Indicators Agencies Requirements Monitored from communities • Indexes of dust and • Reconstruct public facility systems (if noise disturbed) • Amount of wastewater • Construction safety enhancement, and solid waste including temporary road traffic (e.g., safe • Area of soil and plants road conditions and proper warning recovered signage) 3 Resettlement APs Livelihood training to assist income • 376 affected L: WPMO and local 2010–2014 Project and • No. and kind of training RP external recovery for people affected by land households, at governments and after local sessions, and no. of monitoring acquisition and resettlement least 50% of government participants (sex • Training on non-farming employment skills trainees will be S: Local CAB, PADO, funds disaggregated) • Training of women in employment skills female and ACWF (refer to RPs) • No. of vulnerable • Special support to poor and women • Support for all 7 households and support (technical training, priority in employment, vulnerable received and special funds for vulnerable groups) households D. Enhancement Measures (Responsibility of Local Governments) 1 Integrating environmental improvements with urbanization • 60,00 residents L: WNZCIC 2009–2014 Local • Agreements between RP external • Current residents participation in the within Sixin government WNZCIC and residents monitoring development plan area S: Local governments middle and • No. of employment in the • Training on transforming livelihoods long term plan project • Community reestablishment • No. and kind of training sessions, and no. of participants • No. of transformed residents • Participatory community meetings 2 Tourism promotion • Cultural and ecotourism development • Yangchun Lake L: Local tourism 2012–2014 Local • Tourism development Annual report • Advertising of tourism sites on expressway • Wetlands of the bureaus government plans of Wuhan sign boards Longyang, budget, • Amount of investment Tourism • Related job training for maintenance with Moshui and S: Communities and tourism sector • No. of advertisements Bureau special targeting of women and poor Nantaizi lakes private sector investment,

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Lead and Supporting Funding How Proposed Actions Target Group(s) Timing Monitoring Indicators Agencies Requirements Monitored and community • No. of tourists investments • Tourism revenues • Training and jobs (sex disaggregated) 3 Promote non-farming employment • Promote information and training on non- • All people in L: Local labor bureaus 2010–2014 Ongoing • No. of jobs created RP external farming jobs for local jobs and migrant jobs DPA – targeting S: Local government, government • No. of new migrant monitoring • Provide education to migrant laborers on women and CAB and PADO. project laborers labor law, contract, and right issues young adults • No. of employers and the poor involved • No. of migrant laborers trained Sources: ACWF = All China Women’s Federation, AP = affected person, WCDC = Wuhan Centre for Disease Control, DPA = Direct Project Area (Hanyang, Hongshan and Wuchang districts), EMP = environmental management plan, L = lead, LSSB = Labor and Social Security Bureau, PSB= Public Security Bureau, S = supporting, TA= technical assistance, CAB = Civil Affairs Bureau, PADO = Poverty Alleviation and Development Office, RP = resettlement plan, WPMO = Wuhan Urban Construction Utilization of Foreign Investment Project Management Office, WFMO = Wuhan Urban Construction Fund Management Office, WUDDC = Wuhan Urban Drainage Development Co., Ltd., WWGC = Wuhan Water Group Co., Ltd., WFB = Wuhan Finance Bureau, WPB = Wuhan Price Bureau

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XIV. CONCLUSIONS

132. Both the Wuhan New Zone in Hanyang District, and the Yangchun Lake area as the Secondary Urban Center in Hongshan District, will become new economic development areas. Both components of the Project will promote local social and economic development, including local poverty alleviation. All main stakeholders supported the project objectives of improving the environment and storm water discharge system, preventing sludge from secondary pollution, and preserving the limited land resources in Wuhan.

133. The Project will provide employment opportunities for local laborers during the project construction and operations. The local government will promote the employment of local labor. Training programs and job opportunities should be facilitated by the local governments.

134. Women in the project area are likely to benefit from the Project. In addition, the Women’s Federation has ongoing projects to provide technology training to women to strengthen women’s participation in household income generation. The local governments should prepare employment plans to promote the employment of women in service industries and implement the Gender Action Plan during the project implementation.

135. Ethnic minorities in the project area are limited and scattered in the area. There are no concentrated ethnic minority groups in either rural areas or street communities in the urban area. They have similar life styles and living conditions to Han people in the same community. The Project has no significant adverse or direct positive impacts on economic and cultural lifestyles of ethnic minorities in the Project area. Therefore, it is concluded that a separate EMDP is not required for the Project but some strengthening measures for protection of ethnic minorities have been incorporated into the SDAP.

136. The adverse impact of the Project mainly will include land acquisition and house demolition. Full RPs have been prepared for the Wuhan New Zone Lakes and Channels Rehabilitation and Pumping Station Component and the Yangchun Lake Secondary Urban Center Lake and Channel Rehabilitation Component, respectively, to mitigate any negative impacts on affected households and people.

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Annex I Sample Distribution of Household Survey

District Subproject/District Total Dongxihu Hanyang Hongshan Jiang’an Wuchang Sludge Treatment and Disposal – 27 27 54 Sanjintan WWTP/Jiang’an Sludge Treatment and Disposal – 28 28 Nantaizihu WWTP/Hanyang Sludge Treatment and Disposal – 16 51 67 Tangsunhu WWTP/Hongshan Wuhan New Zone - Lakes 108 8 116 Rehabilitation / Hanyang Wuhan New Zone - Channels 48 8 56 Rehabilitation / Hanyang Wuhan New Zone - Pumping 14 10 24 Station / Hanyang Yangchun Lake Secondary Urban Center – Lake Rehabilitation / 94 94 Hongshan Yangchun Lake Secondary Urban Center – Heping Channel 65 65 Rehabilitation/ Honghsna Total 27 198 175 27 77 504

Annex II Sample Distribution of Enterprise and Small Business Survey

District Subproject/District Total Dongxihu Hanyang Hongshan Jiang’an Sludge Treatment and Disposal – 5 5 10 Sanjintan WWTP/Jiang’an Sludge Treatment and Disposal – 2 2 Nantaizihu WWTP/Hanyang Sludge Treatment and Disposal – 11 11 Tangsunhu WWTP/Hongshan Wuhan New Zone - Lakes Rehabilitation 19 19 / Hanyang Wuhan New Zone - Channels 25 25 Rehabilitation / Hanyang Wuhan New Zone - Pumping Station / 31 4 Hanyang Yangchun Lake Secondary Urban Center – Lake Rehabilitation / 13 13 Hongshan Yangchun Lake Secondary Urban Center – Heping Channel Rehabilitation/ 16 16 Honghsna Total 5 49 41 5 100

Annex III Sample Distribution of Community Meeting

Subproject District Urban Rural Total

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Wuhan Sludge Treatment and Disposal Hongshan/Wuchang 1 1 2 2 1 3 Hanyang Wuhan New Zone Lake/Channels Rehabilitation 2 2 and Pumping Station Wuchang 1 1 Yangchun Lake Secondary Urban Center Hongshan/Qinshan 1 1 2 Lake/Channel Rehabilitation Subtotal 7 3 10

Annex IV Sample Distribution of Focus Group Meeting

Busi Poor Rich ness Poor Subproject District Wo Wo Total Own Men men men er Hongshan/Wuch Wuhan Sludge Treatment and Disposal 1 1 2 ang Wuhan New Zone Lake/Channels Hanyang 2 1 1 1 5 Rehabilitation and Pumping Station

Yangchun Lake Secondary Urban Center Hongshan/Qinsh 1 1 1 3 Lake/Channel Rehabilitation an Subtotal 4 3 2 1 10

Annex V Composition of Surveyed Enterprises or Institutes

Kind of Enterprises No. of Enterprises % Manufacture 13 13 Construction 1 1 Transportation 3 3 IT and Computer Service 1 1 Wholesale Dealer 1 1 Retail Trade 27 27 Health Care 2 2 Other Personal Service 19 19 Culture, Physical Training, Recreation 1 1 Catering Industry 20 20 Other 12 12 Total 100 100

Easen International Co. Ltd. 45 Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Appendix 9-1 APPENDIX 9-1 Executing Agency Procurement Capacity Assessment Questionnaire

Part A. General Agency Resource Assessment Response

A.1. Is there a procurement department? Yes

A.2. What procurement does it undertake? Civil work, Goods and Consultant service of Wuhan urban transport project I funded by WB, Wuhan Waste water management project by ABD and Wuhan waster water and storm water management project by ADB

A.3. Are the staff provided with written job descriptions? Yes

A.4. How many years experience does the head of the procurement unit 1.5 years have in a direct procurement role?

A.5. How many staff in the procurement department are:

i. Full Time? 6

ii. Part Time? 0

iii. Seconded? 0

A.6. At what level does the department report (to the head of agency, Directors of PMO deputy etc.)?

A.7. Do the staff that will be involved with the procurement have English Yes language skills sufficient

A.8. Is the number and qualifications of the staff sufficient to undertake Yes the additional procurement that will be required under the proposed project?

A.9. Does the unit have adequate facilities such as PCs, internet Yes connections, photocopy facilities, printers etc. to undertake the expected procurement?

A.10. Is there a procurement training program? Yes

Part B. Agency Procurement Processes, Goods and Works

B.1. Has the agency undertaken foreign assisted procurement of goods Yes. There are Wuhan Urban Transport or works recently (last 12 months, or last 36 months)? (If yes funded by Project funded by WB, Wuhan Waster whom and name of the Project) Water Management Project funded by ADB and Wuhan Waster Water and Storm Water Management Project II funded by ADB.

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B.2. If the above is yes, what where the major challenges? Differences between the ADB and WB procurement policies and domestic bidding policies; too long processing time on domestic authority government and ABD & WB

B.3. Is there a procurement process manual for goods and works? Yes

B.4. If there is a manual is it up to date and does it cover foreign Yes assisted procurement?

B.5. Is there a systematic process to identify procurement requirements Yes (1 year or more)

B.6. Who drafts the specifications? Technical design institute and professional engineering consultant company

B.7. Who approves the specification? PMO reviews and approves it, and submits it to local and provincial financial bureau to approve.

B.8. Are there standard bidding documents in use and have they been Yes approved for use on ADB funded projects?

B.9. Who drafts the bidding documents? The tendering agency

B.10. Who manages the sale of the document? The tendering agency

B.11. Are all queries from bidders replied to in writing? Yes

B.12. Is there a minimum period for preparation of bids and if yes how Yes. 12 days. long?

B.13. Does the bidding document state the date and time of opening Yes and how close is it to the deadline for submission?

B.14. Is the opening public? Yes

B.15. Can late bids be accepted? Obey the bidding document criteria

B.16. Can bids be rejected at bid opening? Obey the bidding document criteria

B.17. Are minutes taken? Yes

B.18. Who may have a copy of the minutes? PMO, tendering agency, bidders, and monitor agencies(local and provincial financial bureau, DRC and PDRC)

B.19. Are the minutes free of charge? Yes

B.20. Who undertakes the evaluation (individual(s), permanent Ad-hoc committee committee, ad-hoc committee)?

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B.21. What are the qualifications of the evaluators in respect to Specialists from experts database procurement and the goods and works under evaluation? approved by the local government

B.22. Is the decision of the evaluators final or is the evaluation subject Additional approvals to additional approvals?

B.23. Using at least three real examples how long between the issue of Dongxihu Three-gate Connection -Box the invitation for bids and contact effectiveness? Culvert I(NCB, 62 days); Erlangmiao Treatment Plant II Equipment & Installation (I)(ICB, 156 days); Dongxihu Collection System sewer - airport street box culvert (I) (NCB, 80 days)

B.24. Are there processes in place for the collection and clearance of Yes cargo through ports of entry?

B.25. Are there established goods receiving procedures? Yes

B.26. Are all goods received recorded as assets or inventory in a Yes register or similar?

B.27. Is the agency/procurement department familiar with letters of Yes credit?

B.28. Does the procurement department register and track warranty Yes and latent defects liability periods?

Part C. Agency Procurement Processes, Consulting Services

C.1. Has the agency undertaken foreign assisted procurement of Yes consulting services recently (last 12 months, or last 36 months)?

C.2. If the above is yes what where the major challenges? Differences between the ADB and WB procurement policies and domestic bidding policies

C.3. Is there a procurement process manual for consulting services Yes procurement?

C.4. Is the manual up to date and does it cover foreign assisted Yes projects?

C.5. Who identifies the need for consulting services requirements? PMO

C.6. Who drafts the ToR? PMO

C.7. Do the ToR followed a standard format such as background, tasks, Yes inputs, objectives and outputs?

C.8. Who prepares the request for proposals? PMO

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C.9. Are assignments advertised and expressions of interest called for? Yes

C.10. Is a consultants’ selection committee formed with appropriate Yes individuals in terms of

C.11. What criteria is used to evaluate EOIs? Qualification based

C.12. Historically what is the most common method used (QCBS, QBS QCBS etc.)

C.13. Do firms have to pay for the proposal document? Yes

C.14. Does the evaluative criteria follow a pre-determined structure and Yes is it detailed in the RFP?

C.15. Are pre-proposal visits and meetings arranged? Yes

C.16. Are minutes prepared and circulated after pre-proposal meetings? Yes

C.17. To who are minutes distributed? Bidders, monitor agencies and ADB & WB

C.18. Are all queries from consultants answered to in writing? Yes

C.19. Are the financial and technical proposals in separate envelopes? Yes

C.20. Are proposal securities required? No

C.21. Are technical proposals opened in public? Yes

C.22. Do the financial proposals remain sealed until technical Yes evaluation is completed?

C.23. Are minutes of technical opening distributed? No

C.24. Who determines the final technical ranking and how? The evaluation committee determines the final technical ranking according to the evaluative criteria in the RFP.

C.25. Are the technical scores published and sent to all firms? No

C.26. Is the financial proposal opening public? Yes

C.27. Are there minutes taken and distributed of financial proposal Yes opening?

C.28. How is the financial evaluation completed? To follow the evaluative criteria in RFP

C.29. Are face to face contract negotiations held? Yes

C.30. How long after financial evaluation is the selected firm to It is when PMO received NOL for the negotiate? evaluation report from the ADB & WB and sent the notice of award.

C.31. What is the usual basis for negotiation? Bidding documents

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C.32. Are minutes of negotiation taken and signed? Yes

C.33. How long after negotiations until the contract is signed? 18 days

C.34. Are advance payments made? Yes

C.35. Is there an evaluation system for measuring the outputs of Yes consultants?

Part D. Process Oversight and Control

D.1. Is there a standard statement of ethics and are those involved in Yes procurement required to formally commit to it?

D.2. Are those involved with procurement required to declare any Yes potential conflict of interest and remove themselves from the procurement process?

D.3. Is the commencement of procurement dependent on external Yes approvals (formal or de-facto) outside of the budgeting process?

D.4. Who approves procurement transactions and do they have Wuhan Construction Engineering Bidding procurement experience and qualifications? Management Office. Yes, they have.

D.5. Which of the following actions require approval outside of the a, b, c, d, f procurement unit or a permanent evaluation committee and who grants the approval?

a) Bidding document, invitation to pre-qualify or request for proposal

b) Advertisement of an invitation for bids, pre-qualification or call for expressions of interest

c) Evaluation reports

d) Notice of award

e) Invitation to consultants to negotiate

f) Contracts

D.6. Is contractual performance systematically monitored and reported Yes upon?

D.7. Does the agency monitor and track its contractual payment Yes obligations?

D.8. On average how long is it between receiving a firm’s invoice and 40 days making payment?

D.9. What is the standard period for payment included in contracts? 40 days

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D.10. When payment is made late are the beneficiaries paid interest? Yes

D.11. Are payments authorized by the same individuals empowered to Yes approve invitation documents, evaluations and contracts?

D.12. Is there a written auditable trail of procurement decisions Yes attributable to individuals and committees?

D.13. Are procurement decisions and disputes supported by written Yes narratives such as minutes of evaluation, minutes of negotiation, notices of default/withheld payment?

D.14. Is there a formal non-judicial mechanism for dealing with Yes complaints?

D.15. Is a complaints resolution mechanism described in national Yes procurement documents?

Part E. Records Keeping

E.1. Is there a referencing system for procurement files? Yes

E.2. Are original contracts secured in a fire and theft proof location? Yes, and secured in 2 or 3 different locations for record separately.

E.3. Are copies of bids or proposals retained with the evaluation? Yes

E.4. Are copies of the original advertisements retained with the pre- Yes contract papers?

E.5. Is there a single contract file with a copy of the contract and all Yes subsequent contractual correspondence?

E.6. Are copies of invoices included with contract papers? Yes

E.7. For what period are records kept? 15-20 years

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