Report and Recommendation of the President to the Board of Directors Sri Lanka Project Number: 40050 October 2007 Proposed Loan People’s Republic of China: Jilin Urban Environmental Improvement Project CURRENCY EQUIVALENTS (as of 3 October 2007) Currency Unit – yuan (CNY) CNY1.00 = $0.13 $1.00 = CNY7.51 ABBREVIATIONS ADB – Asian Development Bank AP – affected person CMG – Changchun municipal government COD – chemical oxygen demand EIA – environmental impact assessment EMP – environmental management plan FIRR – financial internal rate of return FYP – Five Year Program IA – implementing agency JPG – Jilin provincial government JWSSD – Jilin Water Supply and Sewerage Development LIBOR – London interbank offered rate O&M – operation and maintenance PIA – project implementing agency PLG – project leading group PMO – project management office PPMS – project performance management system PRC – People’s Republic of China PSP – private sector participation RP – resettlement plan SEIA – summary environmental impact assessment SOE – statement of expenditures SRB – Songhua River Basin SRBPCP – Songhua River Basin Water Pollution Protection and Control Plan SWM – solid-waste management TA – technical assistance WWTP – wastewater treatment plant YMG – Yanji municipal government WEIGHTS AND MEASURES km – kilometer km2 – square kilometer m2 – square meter m3 – cubic meter m3/day – cubic meter per day mg/m3 – milligrams per cubic meter NOTES (i) The fiscal year (FY) of the Government ends on 31 December. (ii) In this report, “$” refers to US dollars. Vice President C. Lawrence Greenwood, Jr., Operations 2 Director General H. S. Rao, East Asia Department (EARD) Director R. Wihtol, Social Sectors Division, EARD Team leader S. Penjor, Principal Financial Analysis Specialist, EARD Team members M. Gupta, Social Development Specialist, EARD X. Peng, Principal Counsel, Office of the General Counsel S. Popov, Senior Environmental Specialist, EARD Y. Li, Urban Economist, 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 7 A. Impact and Outcome 7 B. Outputs 7 C. Special Features 8 D. Project Investment Plan 9 E. Financing Plan 10 F. Implementation Arrangements 11 IV. PROJECT BENEFITS, IMPACTS, AND RISKS 14 A. Project Impacts and Benefits 14 B. Social Dimensions 15 C. Financial Aspects 17 D. Economic Aspects 18 E. Environmental Aspects 18 F. Project Risks and Mitigation Measures 19 V. ASSURANCES 19 A. Specific Assurances 19 B. Condition for Disbursement 20 VI. RECOMMENDATION 20 APPENDIXES 1. Design and Monitoring Framework 21 2. Urban Sector Analysis 26 3. External Assistance 29 4. Cost Estimates and Financing Plan 31 5. Flow of Funds and Onlending Arrangements 34 6. Implementation Schedule 35 7. Procurement Plan 37 8. Summary Resettlement Plan 43 9. Summary Poverty Reduction and Social Strategy 50 10. Financial Analysis 53 11. Economic Analysis 56 SUPPLEMENTARY APPENDIXES (available on request) A. Policy Dialogue B. Detailed Description of Project Components and Subcomponents C. Design Optimization Analysis D. Detailed Cost Estimates E. Financial Management Assessment F. Outline Terms of Reference for Consultants G. Health Impact Analysis H. Project Sustainability Assessment I. Detailed Financial Analysis J. Detailed Economic Analysis K. Full List of Assurances LOAN AND PROJECT SUMMARY Borrower People’s Republic of China (PRC) Classification Targeting Classification: Targeted intervention Sector: Multisector (water supply, sanitation, and waste management; energy) Subsector: Integrated Themes: Inclusive social development, environmental sustainability, sustainable economic growth Subthemes: Human development, urban environmental improvement, fostering physical infrastructure development Environment Category A. A summary of the environmental impact assessment was Assessment circulated to the Board of Directors of the Asian Development Bank (ADB) along with the environmental management plan on 17 May 2007, and uploaded to the ADB website on 18 May 2007. Project The Project is a key urban infrastructure initiative of the Jilin provincial Description government (JPG). It is classified as a targeted intervention because it contributes to achieving Millennium Development Goal 7, Target 10, which calls for the halving of the proportion of people without access to safe drinking water and improved sanitation by 2015. The Project will help to (i) reduce water pollution, (ii) protect water resources, (iii) address water shortage (through recycling effluent) and meet the demand for high quality treated water through 2012, (iv) control nonpoint source of pollution through effective solid-waste management (SWM), (v) reduce air pollution through reduction in coal consumption and more efficient central heating, (vi) promote sustainable economic development, and (vii) improve the environment and living conditions in Changchun and Yanji cities in Jilin province. The Project has three components, seven subcomponents, and 35 activities. The components are (i) an improved and expanded water supply, wastewater services, and SWM in Changchun; (ii) an improved and expanded water supply and wastewater facilities in Yanji; and (iii) improved air quality in Yanji through a more efficient central heating system. The Project will also involve capacity development and training on project management, institutional and wastewater management, and tariff analysis for all the project implementing agencies (IAs). The Project supports the Government’s 11th Five Year Program which includes goals of improving living conditions and health in cities and promoting sustainable economic development. Rationale The project cities of Changchun (with an urban population of 3.2 million) and Yanji (420,400) are located along the Songhua River Basin (SRB). The SRB is the third largest river basin in the PRC, and it covers sections of Jilin and Heilongjiang provinces and the autonomous region of Inner Mongolia. The Songhua River is severely polluted with organic chemicals, heavy metals, and conventional pollutants, and this constrains sustainable economic development in the region. The Yitong and Yongchun rivers in Changchun flow into the SRB and are highly polluted due to inadequate wastewater treatment in Changchun. The Yanji section of the Buerhatong River is also heavily polluted as it goes from east to west and empties into the Tumen River. Given that the present landfill site in Changchun will be ii fully utilized within 2 years, there is urgent need for construction of a new domestic solid-waste treatment facility to effectively control nonpoint source of pollution in the SRB. Jilin province, therefore, has a critical role to play in integrated water and wastewater management and SWM in the SRB. The Project will contribute significantly towards control of water pollution in the Yitong and Yongchun rivers, the upstream section of the SRB, and the Buerhatong River. The Project will also help to solve the current water shortage problems in the project cities and meet the future demand for high quality treated water. In 2002, during the processing of the Harbin Water Supply Project ($100 million), extensive dialogue was conducted with the Government on addressing pollution control in the SRB. Consequently, ADB provided a technical assistance (TA) project for the Songhua River Basin Water Quality and Pollution Control Management. The TA project, which was considered highly successful, provided strategic policy inputs to the SRB Water Pollution Prevention and Control Plan (SRBPCP). The SRBPCP is a Government-approved action program to set pollution control targets from 2006 to 2010, requiring that urban environmental pollution and ecological damage be controlled by 2010. The ongoing Jilin Water Supply and Sewerage Development (JWSSD) project, with an ADB loan of $100 million, is the first major ADB investment directly addressing pollution control in the SRB. It will help Changchun achieve a 70% wastewater treatment rate by 2010. The proposed Project, which is the second project and follows the priority list of the SRBPCP, will help Changchun achieve an 80% wastewater treatment rate by 2012. The Project will also help Yanji city achieve a wastewater treatment rate of 95% by 2012. ADB will implement a TA for an ensuing project in 2008, the Songhua River Basin Water Pollution Control and Management Project, which has an indicative ADB loan of $200 million. This would be the third major investment in the context of the SRBPCP, and the ADB’s fourth in the SRB. This comprehensive strategic approach to addressing pollution control in the SRB is a good model for replication elsewhere in the PRC. Yanji will shortly start constructing a new cogeneration (heat and power) plant which is expected to be completed by 2010, allowing complete coverage of the city with a central heating service. The closure and replacement of the 318 polluting coal-based boilers by the proposed Project would result in a major improvement in the air quality of Yanji, which would contribute significantly to public health in Yanji city. However, to fully realize the benefits of this facility, the heating distribution system needs to be upgraded and treated wastewater effluent is required for plant cooling. Impact and The impact of the Project is to enhance the urban environment and improve Outcome public health and quality of life for urban