Document of The World Bank Public Disclosure Authorized FOR OFFICIAL USE ONLY Report No: 27172-CHA Public Disclosure Authorized PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US61.3 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA Public Disclosure Authorized FOR TAI BASIN URBAN ENVIRONMENT PROJECT June 29,2004 Urban Development Sector Unit China Country Unit East Asia and Pacifc Region Public Disclosure Authorized I This document has a restricted distribution and may be used by recipients only in the performance of their Iofficial duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective April 1,2004) CunencyUnit = Yuan0 Y 1.00 = US$O.12 US$l.OO = Y 8.28 FISCAL YEAR January 1 -- December 31 ABBREVIATIONS AND ACRONYMS AIEC Average Incremental Economic Cost CP Clean Production DFMD Drainage Facilities Management Division (Suzhou) EA Environmental Assessment EMP Environmental Management Plan GPN General Procurement Notice HWTC Huishan Water Treatment Company Limited ICB International Competitive Bidding JPFB Jiangsu Provincial Finance Bureau MOF Ministry of Finance NCB National Competitive Bidding PIP Project Implementation Plan PLG Project Leading Group RAP Resettlement Action Plan RPF Resettlement Policy Framework SBR Single Batch Reactor SQCC Suzhou Qingyuan Construction Company Limited SWAB Suzhou Water Affairs Bureau SWIDC Suzhou Water and Investment Development Company Limited TBA Tai Basin Authority TBUEPO Tai Basin Urban Environment Project Office TP Total Phosphorus UNDB United Nations Development Business WAMC Wuzhong Asset Management and Administration Company Limited WDC Wuxi Drainage Company WETDZ Wuzhong Economic and Technical Development Zone Company WWTP Wastewater Treatment Plant XWTC Xishan Wastewater Treatment Company Limited Vice President: Jemal-ud-din Kassum Country ManagerDirector: Yukon Huang Sector ManagerDirector: Keshav Varma Task Team Leadermask Manager: Stuart Whitehead FOR OFFICIAL USE ONLY CHINA TAI BASIN URBAN ENVIRONMENT PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 2 3. Sector issues to be addressed by the project and strategic choices 5 C. Project Description Summary 1, Project components 7 2. Key policy and institutional reforms supported by the project 8 3. Benefits and target population 9 4. Institutional and implementation arrangements 10 D. Project Rationale 1. Project alternatives considered and reasons for rejection 11 2. Major related projects financed by the Bank andor other development agencies 12 3. Lessons learned and reflected in the project design 12 4. Indications of borrower commitment and ownership 13 5. Value added ofBank support in this project 13 E. Summary Project Analysis 1. Economic 14 2. Financial 15 3. Technical 17 4. Institutional 18 5. Environmental 20 6. Social 22 7. Safeguard Policies 24 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed /without World Bank authorization. F. Sustainability and Risks 1. Sustainability 24 2. Critical risks 25 3. Possible controversial aspects 25 G. Main Conditions 1, Effectiveness Condition 26 2. Other 26 H. Readiness for Implementation 28 I.Compliance with Bank Policies 28 Annexes hex1: Project Design Summary 29 Annex 2: Detailed Project Description 32 Annex 3: Estimated Project Costs 41 hex4: Economic Analysis 42 Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 50 Annex 6: (A) Procurement Arrangements 65 (B) Financial Management and Disbursement Arrangements 79 Annex 7: Project Processing Schedule 89 Annex 8: Documents in the Project File 90 hex9: Statement of Loans and Credits 91 hex10: Country at a Glance 95 Annex 11 : Social and Environmental Analysis 97 MAW4 CHN 32768 CHN 32769 CHWA TAI BASIN URBAN ENVIRONMENT PROJECT Project Appraisal Document East Asia and Pacific Region EASUR ._. - - Date: June 29,2004 Team Leader: Stuart Whitehead Sector ManagerlDirector: Keshav Varma Sector(s): Sewerage (85%), Flood protection (1 5%) Country ManagerlDkector: Yukon Huang Theme(s): Water resource management (P), Pollution Project ID: PO57933 management and environmental health (P), Environmental Lending- Instrument: Specific Investment Loan (SIL) policies and institutions (P), Other urban development (S) [XI Loan [ ] Credit [ 1 Grant [ ] Guarantee ] Other: For LoanslCreditslothers: Loan Currency: United States Dollar Amount (US6m): $61.3 Borrower Rationale for Choice of Loan Terms Available on File: IxI Yes Proposed Terms (IBRD): Variable-Spread Loan (VSL) Commitment fee: 0.75% Front end fee (FEF) on Bank loan: 1 .OO% Payment for FEF: CaDitalize from Loan Proceeds tBRD - 0.37 60.93 61.30 Total: 96.85 8 1.86 178.71 Project hplementatlon period: 5 years Expected effectiveness date: 11/15/2004 Expected closing date: 12/3 1/2009 A. Project Development Objective 1. Project development objective: (see Annex 1) The Government's objective for the proposed Tai Basin Urban Environment Project (TBUEP) is to improve the quality of life of the rapidly increasing urban population and enhance economic competitiveness in Wuxi and Suzhou, key municipalities in the Tai Basin and the Yangtze River Delta economic region, by alleviating degradation ofwater resources and improving the quality of the urban environment. To meet this objective, the project is designed to increase the capture and treatment of wastewater in core cities and the rapidly hdustrializing suburban districts through physical investments and institutional and financial reforms that will enhance the viability and sustainability of wastewater systems, particularly in these rapidly developing districts. The project will support rehabilitation and water quality improvement in several urban and district canal and river systems through physical investments and improved water management. In addition, the project will support lakeshore rehabilitation around Wuli Lake as a new development and amenity area for Wuxi City. Finally, the project will seek to strengthen water resource protection in the Tai Basin through improved and integrated planning, water quality monitoring and environmental management. The project design therefore reflects the core elements of the Bank's Urban Strategy - livability, good governance, competitiveness and bankability. 2. Key performance indicators: (see Annex 1) For the wastewater components, key performance indicators (summarized in Annex 1) will include specific targets for: reducing the proportion ofuntreated wastewater discharges in Wuxi and Suzhou' Municipalities; cost-effective and autonomous operation of wastewater treatment systems and capacity utilization for wastewater treatment plants under the project; and cost recovery by wastewater enterprises to ensure sustainability. Monitoring data will also be recorded in periodic progress reports on measures under Jiangsu's Cleaner Production (CP) Program to reduce polluting discharges by industries discharging into project financed wastewater systems. For the lakeshore, river rehabilitation and water quality improvement components, key performance indicators will include targets relating to improved water quality at key locations in the river network, improved lakeshore conditions at Wuli Lake and for enhanced water circulation in the canal network. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: Report No. 25141 Date of latest CAS discussion: December 19,2002 The project will support several key CAS themes, including: improving water resources management; ensuring environmentally sustainable urban development; and expanding livelihood opportunities during the rural-urban transition, including for surplus rural labor. The project will support the Bank's Urban Sector Strategy which emphasizes improved livability and economic competitiveness, as well as the Bank's Water Sector Strategy which promotes sustainable wastewater and water resources management. 2. Main sector issues and Government strategy: The Lake Tai Bash forms an integral part ofthe Yangtze River Delta economic region, which is China's most important industrial base and one of the most heavily populated areas of China. In 2000, over half of the Basin's residents lived in cities and peri-urban towns, and urbanization continues to increase. Driven by high levels of foreign direct investment, total gross domestic product (GDP) in the Basin has been growing at over 10 percent per year on average and presently stands at Renminbi (RMB) 1 trillion - approximately 11 percent of the national total. In 1999, Suzhou (RMB 136 billion) and Wuxi (RMB 114 billion) together accounted for almost three quarters of the GDP. The Tai Basin is also one of China’s most important water resources. Lake Tai and its dense network of rivers and canals provide water supply for the majority ofthe Basin’s 36.3 million residents including those who live in the large and growing urban economies of Wuxi and Suzhou in Jiangsu Province. Lake Tai is also the source ofwell over half of the domestic water supply for Shanghai Municipality, , Despite the region’s dependence on the water resources ofthe Basin for water supply, the provision of environmental