Document of The World Bank

Report No:67527 v1 Public Disclosure Authorized

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING OF THE SECOND LIAONING MEDIUM CITIES INFRASTRUCTURE PROJECT

Public Disclosure Authorized GEF GRANT (TF057757)

BOARD DATE: JUNE 26, 2007

TO THE

PEOPLE’S REPUBLIC OF CHINA

FEBRUARY 23, 2012 Public Disclosure Authorized

Public Disclosure Authorized

ABBREVIATIONS AND ACRONYMS

CQS Consultant Qualification Selection EDZ Economic Development Zone GEF Global Environment Facility GIS Geographic Information System IBRD International Bank for Reconstruction and Development LMC-2 Second Liaoning Medium Cities Infrastructure Project MOF Ministry of Finance MTR Mid-Term Review PAD Project Appraisal Document QCBS Quality- and Cost-Based Selection RP Restructuring Paper SOE Statement of Expenditure TA Technical Assistance TOR Terms of Reference

Regional Vice President: Pamela Cox Country Director: Klaus Rohland Sector Manager / Director: John Roome Task Team Leader: Suhail J. S. Jme'an 2

CHINA CHINA-GEF-LIAONING P090375 CONTENTS

Page A. SUMMARY ...... 4 B. PROJECT STATUS ...... 4 C. PROPOSED CHANGES ...... 6 ANNEX 1: REALLOCATION OF PROCEEDS ...... 9

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CHINA-GEF-LIAONING

RESTRUCTURING PAPER

A. SUMMARY

1. The World Bank approved an IBRD Loan (LN 4864-CHA) for US$173 million and an associated US$5 million Global Environment Facility (GEF) Grant (TF057757) in support of the Second Liaoning Medium Cities Infrastructure (LMC-2) project on June 26, 2007. However, no technical assistance (TA) activities under the GEF grant have been initiated to-date. This is largely because participating cities and utility companies did not have a common understanding of the original scopes for the GEF Grant funded activities. Moreover, the Terms of Reference (TOR) did not adequately reflect the needs of the project implementing units, which prompted the cities to reexamine the scope of their components under the GEF.

2. Consequently, in a letter dated November, 25 2011, the MOF requested an amendment to the GEF grant agreement to make it more responsive to the cities’ needs and priorities. The proposed changes involve: (i) amending the scope of the TA packages under the GEF grant, and (ii) adding a new item to the description of category of expenditure to include dissemination of the results of the GEF grant funded activities. These changes are further discussed in Section C of this Restructuring Paper (RP).

B. PROJECT STATUS

3. The project is now in its fifth year of implementation. Implementation of physical investments is satisfactory. Overall physical progress is at about 70% and several components have been completed and are operational. However, the technical assistance component, funded by the GEF Grant, has stalled.

4. During the mid-term review of the project (October 2010), the client proposed minor changes to the scope of the GEF component. The revised scopes, detailed terms of reference, and methods of procurement for all the TA packages were developed and subsequently cleared by the Bank. All the packages are anticipated to be completed before the current closing date of December 31, 2013.

5. The proposed changes reflect a better fit in priorities for the cities receiving the GEF Grant. The original proposal for D (2) public utility management suggested providing TA for elements such as forming public-private-partnership arrangements, utility business planning and management, and public utility regulation, which are not a priority at this time. Instead, these activities have been replaced with a TA program that better aligns to the cities’ needs.

6. The original proposal for D (3) solid waste master planning did not include the city of Gaizhou, which has now been added to the amendment. Additionally, the description for D (3) was changed to include strategic planning. Any specifics of the

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activities have been moved to the activity terms of reference; thus allowing cities greater flexibility.

7. The original proposal for D (4) water pollution control management included the cities of Huludao and Fushun, which have now chosen to opt-out of receiving GEF grant funds while the city of Panjin has been added for this activity. Likewise, the description for D (4) was changed to include strategic planning. Any specifics of the activities have been moved to the activity terms of reference; thus allowing cities greater flexibility.

8. The addition of a dissemination strategy for the GEF funded components simply clarifies that there will be expenditures relevant to training and dissemination activities. Training, workshop, and study tour activities were originally mentioned in the PAD and within the GEF Grant Agreement under Section IV Paragraph 2, but it was not a standalone activity in the original grant agreement.

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C. PROPOSED CHANGES

Components

9. The following table describes the proposed changes from the original grant agreement.

Section Original Agreement Proposed Changes

GEF Grant Agreement Public Utility Management – Providing technical assistance to Public Utility Management: Providing technical assistance with Schedule 1; Part D (2) the project implementing entity, the project cities, and the respect to: project companies, with respect to: (i) Capacity building program for public utility (i) A provincial-wide public utility performance functions in water for Yingkou, Anshan, Panjin, benchmarking program; Haicheng and Fushun cities and wastewater for (ii) Public-private partnerships; Panjin and Gaizhou cities;

Change 1 (iii) Utility business planning and management; and (ii) Data collection and development of information (iv) Public utility regulation. management system for Anshan and Haicheng urban water distribution networks; and (iii) Study for ecology service function and basin ecology compensation mechanism study of Dahuofang reservoir.

GEF Grant Agreement Solid Waste Master Planning – Providing technical assistance Solid Waste Master Planning: Providing technical assistance to Schedule 1; Part D (3) to Fushun, Yingkou, and Panjin for solid waste management Fushun, Yingkou, Panjin, and Gaizhou for strategic planning of planning and its implementation with respect to: solid waste management and disposal.

(i) Development of solid waste master plans; (ii) Institutional development; (iii) Landfill site assessment and engineering Change 2 design; (iv) Procurement assistance; (v) Landfill construction supervision; and (vi) Training of personnel for effective operation of solid waste management systems.

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GEF Grant Agreement Water Pollution Control Management – Providing technical Water Pollution Control Management: Providing technical Schedule 1; Part D (4) assistance to Huludao, Fushun, and Gaizhou for water assistance to Panjin and Gaizhou for strategic planning of urban

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(i) Institutional development and financial

Change sustainability; (ii) Wastewater master planning; (iii) Industrial water pollution control; and (iv) Sludge management.

4 GEF Grant Agreement N/A – D (5) was not a standalone activity in the original grant Project Dissemination: Carrying-out of workshops to Schedule 1; Part D (5) agreement. Although, training, workshop, and study tour disseminate lessons learned under Parts D.2 through D.4 of the adds a new paragraph activities were still mentioned in the PAD and within the GEF Project, and participate in activities sponsored by the GEF. Change Grant Agreement under Section IV Paragraph 2.

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Procurement

10. The following table shows the TA activities and their representative costs.

Grant Agreement Estimated Ref. Selection Schedule. 1 Description of Assignment Cost No. Method Ref. No. (US$ million) B1 Capacity building of public utility functions 0.78 QCBS B2-a1 Data collection of network geographic information 0.19 CQS system (GIS) for Anshan water supply Co. B2-a2 Data collection of network geographic information 0.19 CQS system (GIS) for Haicheng water supply Co. B2-b1 Consulting service of network GIS for Anshan water 0.47 QCBS Part D2 supply B2-b2 Consulting service of network GIS for Haicheng water 0.47 QCBS supply B3-a Consulting service contract of data collection/value study 0.12 CQS for ecology service function of Dahuofang reservoir B3-b Consulting service contract of basin ecology 0.18 CQS compensation mechanism study for Dahuofang reservoir C1 Strategic planning of urban solid waste disposal for 0.50 QCBS Fushun city C2 Strategic planning of urban solid waste disposal for 0.30 QCBS Part D3 Panjin city C3 Strategic planning of urban solid waste disposal for 0.90 QCBS Yingkou EDZ and Gaizhou city D1 Strategic planning of urban wastewater management for 0.40 QCBS Panjin city Part D4 D2 Strategic planning of urban wastewater management for 0.35 QCBS Gaizhou city Experience dissemination, study tours, and Sea 0.15 SOE Part D5 Environment Management of East Asia

Subtotal of GEF 5.00

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ANNEX 1: Reallocation of Proceeds

CHINA — CHINA-GEF-LIAONING P090375 TF057757-CHA

11. Proceeds for China, China-GEF-Liaoning, [TF057757], P090375 will be reallocated as follow:

Category of Expenditure Allocation % of Financing

Current Revised Current Revised Current Revised Consultant services, Consultant services, training, US$5,000,000 US$5,000,000 100% 100% training, workshops, and workshops, and study tours study tours under parts under parts D2, D3, D4, and D2, D3, D4 of the project D5 of the project

Total Amount US$5,000,000 US$5,000,000

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12. The proposed reallocation does not change the overall costs of the project. Instead, the changes reflect a modification of the activities that will be carried-out by the GEF grant funding, but the GEF portion of the project costs will continue to remain at the original US$5 million grant amount. However, three material changes are worth noting in relation to the reallocation of the funds.

i. To clarify an inconsistency between the project description (Annex 4) in the Project Appraisal Document (PAD) and Schedule 1 of the GEF Grant Agreement, a separate component for providing support to organize and deliver workshops and disseminate lessons learned is being added as Part D.5. This additional part will cost US$150,000 from the US$5 million grant that was originally approved.

ii. The method for procuring services related to providing support to organize and deliver workshops and disseminate lessons learned (Part D5) will follow applicable procurement guidelines.

iii. During the project’s mid-term review (MTR) in October 2010, it was decided that the loan allocations for some cities also need to be revised. However, the process for amending the Loan Agreement was delinked from the process of restructuring this GEF Grant Agreement because of the urgency to launch the GEF components. The Loan Agreement restructuring is also under progress, but in order to keep the project on schedule for completion by December 2013, it is becoming urgent to begin the work on the technical analysis studies (GEF Grant components) of the project.

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