Document of The World Bank Public Disclosure Authorized Report No: 20284-CHA Public Disclosure Authorized PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$349 MILLION AND A GEF GRANT Public Disclosure Authorized IN TIE AMOUNT OF SDR 18.9 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A SECOND BEIJING ENVIRONMENT PROJECT May 26, 2000 Public Disclosure Authorized Urban Development Sector Unit East Asia and Pacific Region CURRENCY EQUIVALENTS (Exchange Rate Effective March 1, 2000) Currency Unit = Yuan (Y) Y 1 = US$ 0.12 US$ 1 = Y 8.28 FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS BCIC Beijing ComprehensiveInvestment Corporation BDC Beijing Drainage Company BEPI The (first) Beijing Environmental Project BEMPS Beijing Environmental Master Plan Studies, carried out under the first Beijing Environmental Project BEPB Beijing Environmental Protection Bureau BEPO Beijing Environmental Projects Office BGGC Beijing Gas Group Corporation BMG Beijing Municipal Government BPC Beijing Planning Commission CFB Coal-fired Boiler or Burner DG District Government EA EnvironmentalAssessment EDSS Environmental Decision Support System FMS Financial Management System GEF Global Environment Facility GHG Greenhouse Gas HECC Heating Energy Conservation Center (reporting to RHAO) ICB International Competitive Bidding M Million 2 m Square Meter m Cubic Meter NCB National Competitive Bidding NGB Natural Gas Boiler RAP Resettlement Action Plan RHAO Residential Heating Administration Office SJET Shihuan Jietian Energy Technology Development Company, Ltd. tph Tons per Hour, of water boiled, an imprecise but common boiler capacity designation approximately equivalent to 625 kilowatts WWTP Wastewater Treatment Plant Vice President: Jemal-ud-din Kassum Country Manager/Director: Yukon Huang Sector Manager/Director: Keshav Varma Task Team Leader/Task Manager: Songsu Choi CHINA SECOND BEIJING ENVIRONMENT PROJECT CONTENTS A. Project DevelopmentObjective Page 1. Project developmentobjective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-relatedCountry Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategicchoices 5 C. Project Description Summary 1. Project components 9 2. Key policy and institutional reforms supportedby the project 12 3. Benefits and target population 13 4. Institutionaland implementationarrangements 14 D. Project Rationale 1. Project altematives considered and reasons for rejection 17 2. Major related projects financed by the Bank and other development agencies 18 3. Lessons learned and reflected in proposed project design 19 4. Indicationsof borrower commitment and ownership 20 5. Value added of Bank support in this project 21 E. Summary Project Analysis 1. Economic 22 2. Financial 23 3. Technical 24 4. Institutional 25 5. Social 26 6. Environment 27 7. Participatory Approach 27 F. Sustainability and Risks 1. Sustainability 29 2. Critical risks 30 3. Possible controversial aspects 31 G. Main Loan and Grant Conditions 1. EffectivenessCondition 30 2. Other 31 H. Readiness for Implementation 32 I. Compliancewith Bank Policies 32 Annexes Annex 1: Project Design Summary 33 Annex 2: Project Description 35 Annex 3: Estimated Project Costs 50 Annex 4: Cost Benefit Analysis Summary 62 Annex 5: Financial Summary 68 Annex 6: Procurementand DisbursementArrangements 79 Annex 7: Project Processing Schedule 91 Annex 8: Documentsin the Project File 92 Annex 9: Statement of Loans and Credits 94 Annex 10: Country at a Glance 99 Annex 11: Incremental Cost Analysis of Carbon Abatement 101 Annex 12: Enviromental Assessment Summary 106 Annex 13: Financial Management System Assessment Summary 112 MAP(S) IBRD 30782 Second Beijing EnvironmentProject CHNA Second Beijing EnvironmentProject Project Appraisal Document East Asia and Pacific Region Urban DevelopmentSector Unit Date: May 26, 2000 Team Leader: Songsu Choi Country Manager/Director: Yukon Huang Sector Manager/Director: Keshav Varma Project ID: P042109 Sector(s): US - Urban Environment,VP - Pollution Control / Waste Management Lending Instrument: Specific Investment Loan (SIL) Theme(s): Environment; Urban Poverty Targeted Intervention: N Project Financing Data 1 Loan C Credit 1 Grant D Guarantee E Other (Specify) For Loans/CreditslOthers: Amount(US$m): 349 loan + 25 GEF grant ProposedTerms: Variable Spread & Rate Single Currency Loan (VSCL) Grace period (years): 5 Years to maturity: 20 Commitment fee: 0.75% Front end fee on Bank loan: 1.00% Financing:Plan: Source LOCAl ofe[gn GOVERNMENT 157.00 0.00 157.00 IBRD 0.00 349.00 349.00 GOVERNMENT OF CHINA 154.00 32.00 186.00 GLOBAL ENVIRONMENT FACILITY 0.00 25.00 25.00 BENEFICIARIES 355.50 0.00 355.50 OTHER PRIVATE COMMERCIAL SOURCES 182.50 0.00 182.50 Total: 849.00 406.00 1255.00 Borrower:PEOPLE'S REPUBLIC OF CHINA Responsible agency: BEIJING MUNICIPAL GOVERNMENT World Bank and Asian DevelopmentBank Loan Beijing EnvironmentProject Office Address: Ding 2, Southern Street, Fuxingmen, Xicheng District Beijing, 100031 P.R. China Contact Person: Guo Junqing Tel: (86-10) 66411754 Fax: (86-10) 66411638 Email: [email protected] Estimated disbursements ( Bank FYIUS$M): FY; ;;0 1 0122002 ,2003 20048 2005 i!)6 Annual 48.7 75.2 90.5 67.8 47.9 32.9 11.0 Cumulative 48.7 123.9 214.4 282.2 330.1 363.0 374.0 Project implementation period: 6 years Expected effectiveness date: 10/15/2000 Expected closing date: 12/31/2006 OCSPAD Fm R-ev.Mh. XX A. Project Development Objective 1. Project developmentobjective: (seeAnnex 1) The proposedproject aims at a visibleand sustainedalleviation of air andwater pollutionin Beijingby helpingto: (a) convertscattered coal-fired boilers to naturalgas boilers; (b) promoteenergy conservation in heatingsystems; (c) constructkey wastewater trunk interceptors and associatedtreatment facilities; and (d) strengthenenvironmental management institutions of Beijing. The GEF-financedcomponents support activities (a) and(b) above,by helpingto establishviable modelsand markets of naturalgas usageand heatingenergy conservation. In additionto the directand significantreduction of greenhousegas (GHG)emissions, these will make an effectivedemonstration of GHG reductionmeasures for Chinaas a wholeand thus helpto decreasethe risk of globalclimate change significantly. 2. Key performanceindicators: (see Annex 1) Unit 1997 2005 Difference (Baseline) (Target) Beijingpopulation exposed to air quality people 5,100,000 20,000 - 99.6% worsethan Class III over60 daysa year* CarbonEmission from Heating in Beijing* ton/year 4,370,000 2,560,000 - 41.5% CODdischarged to LiangshuiRiver tons/year 72,000 32,000 - 55.5% Net internalcash flow of BeijingDrainage % of current 24% 132% +108% Company expenses * Thesetargets assume the achievementof the overalltarget for the city-wideprogram of convertingscattered coal-firedboilers to cleanerfuels, for whichthe projectprovides major inputs for technicaland market developmentas wellas about20% of physicalinvestment. B. Strategic Context 1. Sector-relatedCountry Assistance Strategy (CAS) goal supportedby the project: (seeAnnex 1) Documentnumber: R98-107 Dateof latestCAS discussion: 05/28/98 Environmentalprotection is one of fiveCAS themes for China,along with macroeconomic growth and stability,infrastructure development, human development, and ruraldevelopment. Among operations to assist in environmentalprotection, urban wastewater management has traditionallybeen a mainfocus of Bank operations.This projectis the firstto directmajor attentionto urbanair pollutionissues in China. Chinaratified the UnitedNations Framework Convention for ClimateChange on January5, 1993. Fuel conversionfrom coalto naturalgas is an elementof China'sglobal environmental strategy. The projectis consistentwith the GEF OperationalProgram #5 for promotingthe removalof barriersto energy efficiencyand energyconservation. -2 - 2. Main sector issues and Governmentstrategy: 2.1 EnvironmentalPolicy of China. The recent rapid growth of industries and cities of China has added heavy pressures on its environmentwhich had already sufferedsignificant degradation during the earlier industrializationdrives. To stop and reverse the degradation,the Government of China has pursued active environmentalpolicies, requiring environmentalassessment and licensing for new investment projects, pollution levies, extensive environmentalmonitoring, and major national environmental performancetargets. These policies are implementedin a decentralizedfashion through a network of EnvironmentalProtection Bureaus (EPBs) at all levels of government,overseen by the State Environmental Protection Agency (SEPA). National standards,targets, and regulations usually specify only the broad framework and minimum requirements,and local EPBs can set more stringent local standards and implementvarious programs to achieve their own environmentalplans as long as they are consistent with higher-levelregulations. 2.2 The active policies, combined with rapid industrialrenovations with cleaner technologies,have yielded substantialenvironmental benefits over the last decade. Pollution discharge per industrial output value has declined rapidly in most localities,and many cities have reduced the concentrationsof total suspended particles (TSP) in the ambient air, and toxic metals in wastewater. In general, however, industrial production and urban waste generation are increasing at such a rate that aggregate pollution is still at unhealthylevels and even rising.