Report and Recommendation of the President to the Board of Directors Sri Lanka Project Number: 40642 November 2008 Proposed Loan People’s Republic of China: Guangxi Wuzhou Urban Development Project CURRENCY EQUIVALENTS (as of 18 November 2008) Currency Unit – yuan (CNY) CNY1.00 = $0.1465 $1.00 = CNY6.83 ABBREVIATIONS ADB – Asian Development Bank CCB – China Construction Bank EIA – environmental impact assessment EIRR economic internal rate of return EMP – environmental management plan FYP – five-year plan FYP-PCG – five-year program for prevention and control of geohazard GDP – gross domestic product GIS – geographic information system GZARG – Guangxi Zhuang Autonomous Region government IA – implementing agency ICB – international competitive bidding LIBOR – London interbank offered rate MLG – minimum living guarantee NCB – national competitive bidding NPV – net present value NSDW – National Strategy for Development of the West PMO – project management office PPMS – project performance monitoring system PRC – People’s Republic of China RP – resettlement plan SEIA – summary environmental impact assessment WLRB – Wuzhou Land Resources Bureau WMG – Wuzhou municipal government WEIGHTS AND MEASURES km2 – square kilometer m2 – square meter NOTES (i) The fiscal year (FY) of the Government ends on 31 December. (ii) In this report, “$” refers to US dollars. Vice-President C. Lawrence Greenwood, Jr., Operations 2 Director General K. Gerhaeusser, East Asia Department (EARD) Director A. Leung, Social Sectors Division, EARD Team leader Y. Fei, Principal Urban Development Specialist, EARD Team members C. Chu, Project Management Officer, EARD M. Gupta, Social Development Specialist, EARD S. Noda, Transport Specialist, EARD X. Peng, Principal Counsel, Office of the General Counsel S. Popov, Senior Environmental Specialist, EARD W. Walker, Social Development Specialist, EARD CONTENTS Page LOAN AND PROJECT SUMMARY i MAPS I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3 III. THE PROPOSED PROJECT 6 A. Impact and Outcome 6 B. Outputs 6 C. Special Features 7 D. Project Investment Plan 8 E. Financing Plan 8 F. Implementation Arrangements 9 IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 13 A. Benefits and Impacts 13 B. Social Dimensions 13 C. Environmental Aspects 16 D. Financial Aspects 17 E. Economic Aspects 17 F. Project Risks and Mitigation Measures 18 V. ASSURANCES 19 VI. RECOMMENDATION 20 APPENDIXES 1. Design and Monitoring Framework 21 2. Wuzhou Urban Development Analysis 24 3. Geohazard Management in Wuzhou 28 4. External Assistance 33 5. Cost Estimates and Financing Plan 35 6. Flow of Funds and Relending Arrangements 37 7. Project Implementation Arrangements 38 8. Implementation Schedule 39 9. Procurement Plan 40 10. Outline Terms of Reference for Consulting Services 43 11. Summary Resettlement Plan 47 12. Summary Poverty Reduction and Social Strategy 52 13. Financial Analysis 56 14. Economic Analysis 61 SUPPLEMENTARY APPENDIXES A. Land Market for Urban Development in Wuzhou B. Resettlement Plans C. Poverty and Social Assessment D. Summary Environmental Impact Assessment E. Environmental Management Plan F. Detailed Financial Management Assessment G. Detailed Economic Analysis LOAN AND PROJECT SUMMARY Borrower People’s Republic of China (PRC) Classification Targeting classification: General intervention Sector: Multisector (water supply, sanitation and waste management, transport and communications, agriculture and natural resources) Subsectors: Water supply and sanitation, roads and highways, irrigation and drainage Themes: Sustainable economic growth, inclusive social development, capacity development Subthemes: Developing urban areas, human development, institutional development Environment Category A. An environmental impact assessment (EIA) was Assessment undertaken for each of the investment components under the Project. The summary EIA was circulated to the Board of Directors and uploaded on the website of the Asian Development Bank (ADB) on 14 August 2008. Project Description Wuzhou city is a medium-sized city in the Guangxi Zhuang Autonomous Region. Over centuries, Wuzhou has served as a gateway city and regional transportation center to connect Guangxi with national and international markets, particularly through river transportation. In line with the Government’s development program, Wuzhou will be developed into a multimode regional transportation hub through domestically funded ongoing transportation projects. However, geological and geographic conditions constrain urban development in Wuzhou. The city is in a mountainous region divided into three parts by two big rivers. Because flat urban land is lacking, the residents tended to build their houses in the marginal lands, which were gradually expanding up the mountains along slopes of major valleys. The mountains in Wuzhou are mainly formed by loose earth, eroded granite, and clastic rocks. As such, they are vulnerable to rain-triggered geological disasters (known as geohazards) in the form of landslides, slope collapse, and mud and debris flows. Many of these valleys, though densely populated, have been classified as geohazard-prone zones. With support from the central Government, the Wuzhou municipal government (WMG) has made enormous investments to strengthen the control of geological disasters, mainly by building and rehabilitating of the slope protections and retaining walls. However, such traditional control measures have not always been economical and optimal solutions. Under severe weather conditions, these slope protections and retaining walls can be washed away together with houses and other buildings. ii The Guangxi Wuzhou Urban Development Project will adopt a new approach to address the geohazard concern of the city. The basic principle of this new approach to geohazard management is a shift from disaster rehabilitation to prevention. Under the Project, geological disasters are to be prevented through holistic urban planning and integrated public investment. The combination of these efforts will result in (i) carefully designed urban planning for long-term urban expansion, (ii) relocation of the people living in the geohazard-prone valley to the newly developed geohazard- free urban area, (iii) engineering measures for geohazard control to convert the evacuated geohazard-prone valley into geohazard- free land for urban redevelopment, and (iv) stronger geohazard forecasting and early warning capability to improve the effectiveness of the city’s geohazard management system. Rationale Wuzhou is a less developed, medium-sized city in western PRC. The Project will help the city deal with geohazards–a major development constraint–and help free thousands of people from the threat of geological disasters. The Project will introduce an innovative approach to address the geohazards in urban development. The Project is expected to play a demonstration role for many other cities facing similar geological conditions in the PRC. Impact and Outcome The impact of the Project is sustained urban development and better living standards for the people in Wuzhou. The outcome of the Project is a reduction in the geohazard threat to the life and property of the Wuzhou people and in the geohazard constraints to urban development. Project Investment Plan The investment cost of the Project is estimated at $263.3 million, including taxes and duties of $4.9 million. Financing Plan Source Amount % of Total ($ million equivalent) Asian Development Bank 100.0 38.0 Wuzhou Municipal Government 82.5 31.3 China Construction Bank 80.9 30.7 Total 263.3a 100.0 a Numbers may not add up due to rounding. Source: Asian Development Bank estimates. A loan of $100 million from ADB’s ordinary capital resources will be provided under its London interbank offered rate (LIBOR)- based lending facility. The loan will have a 25-year term including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR-based lending facility for US dollar loans, a commitment charge, and such other terms and conditions set forth in the draft Loan and Project Agreements. iii The ADB loan will finance 38% of the project cost. WMG will cofinance 31.3% of the Project cost, while China Construction Bank will cofinance 30.7%. Allocation and Relending The Government will relend loan proceeds to the Guangxi Zhuang Terms Autonomous Region government, which will then onlend the proceeds to WMG. The loan will be relent to WMG on the same terms and conditions as those of the ADB loan, with WMG bearing the foreign exchange and interest rate variation risks of the ADB loan. Period of Utilization Until 31 December 2014 Estimated Project 30 June 2014 Completion Date Executing Agency Wuzhou municipal government Implementation WMG has established a project leading group, chaired by the Arrangements executive vice mayor, to direct the Project and provide policy guidance during project implementation. Under the project leading group, WMG has set up a project management office (PMO) to undertake and coordinate the day-to-day activities in connection with the Project. By entering into an undertaking agreement, WMG will designate Dongtai State Assets Operations Corporation—a company wholly owned by the WMG that specializes in urban construction—to be the implementing agency. It will carry out the day-to-day implementation of the Project, including procuring goods and works under the Project.