Technical Assistance Consultant’s Report Project Number: 42011 November 2009 People’s Republic of China: Wuhan Urban Environmental Improvement Project Prepared by Easen International Co., Ltd in association with Kocks Consult GmbH For Wuhan Municipal Government This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design. ADB TA No. 7177- PRC Project Preparatory Technical Assistance WUHAN URBAN ENVIRONMENTAL IMPROVEMENT PROJECT Final Report November 2009 Volume I Project Analysis Consultant Executing Agency Easen International Co., Ltd. Wuhan Municipal Government in association with Kocks Consult GmbH ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Table of Contents WUHAN URBAN ENVIRONMENTAL IMPROVEMENT PROJECT ADB TA 7177-PRC FINAL REPORT VOLUME I PROJECT ANALYSIS TABLE OF CONTENTS Abbreviations Executive Summary Section 1 Introduction 1.1 Introduction 1-1 1.2 Objectives of the PPTA 1-1 1.3 Summary of Activities to Date 1-1 1.4 Implementation Arrangements 1-2 Section 2 Project Description 2.1 Project Rationale 2-1 2.2 Project Impact, Outcome and Benefits 2-2 2.3 Brief Description of the Project Components 2-3 2.4 Estimated Costs and Financial Plan 2-6 2.5 Synchronized ADB and Domestic Processes 2-6 Section 3 Technical Analysis 3.1 Introduction 3-1 3.2 Sludge Treatment and Disposal Component 3-1 3.3 Technical Analysis for Wuhan New Zone Lakes/Channels Rehabilitation, Sixin Pumping Station and Yangchun Lake Secondary Urban Center Lake Rehabilitation 3-51 3.4 Summary, Conclusions and Recommendations 3-108 Section 4 Environmental Impact Assessment 4.1 Status of EIAs and SEIA Approval 4-1 4.2 Overview of Chinese EIA Reports 4-1 Easen International Co. Ltd. i Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Table of Contents 4.3 Overview of SEIA 4-3 4.4 Environmental Characteristics of Wuhan City 4-4 4.5 Water Quality and Pollution 4-5 4.6 Social and Economical Conditions 4-7 4.7 Alternatives 4-7 4.8 Environmental Benefits of the Project 4-8 4.9 Environmental Impacts and Mitigation Measures of the Project 4-9 4.10 Economic Assessment 4-13 4.11 Public Consultation and Information Disclosure 4-13 4.12 Environmental Management Plan 4-15 4.13 Potential Risks of the Project 4-16 4.14 Findings and Recommendations 4-17 Section 5 Financial and Least- Cost Analysis 5.1 Introduction and Objectives 5-1 5.2 Cost Estimates 5-1 5.3 Financing Plan 5-3 5.4 Financial Cost Benefit Analysis – Calculation of FIRR 5-4 5.5 IA’s Past Financial Performance and Financial Projections 5-6 5.6 Fiscal Capacity Review of Wuhan Finance Bureau (WFB) 5-6 5.7 The System of Wastewater Tariff Collection 5-10 5.8 WWTP – Tariffs, Cost Recovery and Affordability 5-14 5.9 Financial Management Assessment (FMA) 5-20 5.10 Conclusion and Recommendations 5-22 Section 6 Economic Analysis 6.1 Sludge Management Component 6-1 6.2 Lake and Channel Rehabilitation Components 6-13 6.3 Sixin Pumping Station Component 6-22 6.4 Summary of Overall Project Viability 6-29 Section 7 Poverty and Social Assessment 7.1 Introduction 7-1 7.2 Methodology 7-1 7.3 Description of Project Area 7-2 7.4 Social Profile 7-3 7.5 Poverty Analysis 7-6 7.6 Enterprises in Project Area 7-7 7.7 Housing and Health Analysis 7-7 7.8 Employment Generation 7-7 7.9 Community Participation and Public Awareness Action Plan 7-8 7.10 Willingness to Pay and Affordability 7-8 Easen International Co. Ltd. ii Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Table of Contents 7.11 Gender development 7-9 7.12 Social Safeguard issues and Other Social Risks 7-9 7.13 Social Development Action Plan 7-10 7.14 Conclusions 7-10 7.15 Recommendation 7-11 Section 8 Land Acquisition and Resettlement 8.1 Project Components 8-1 8.2 Project Impact 8-2 8.3 Policies and Regulations 8-3 8.4 Compensation Standard 8-3 8.5 Property Demolition and Livelihood Restoration Plan 8-6 8.6 Organization 8-8 8.7 Consultation, Complaint, Appeal and Information Disclosure 8-9 8.8 Monitoring and Evaluation 8-9 8.9 Budget 8-9 8.10 Results of the Acquired Land’s Due Diligence Report 8-9 Section 9 Institutional Analysis and Capacity Building 9.1 Introduction 9-1 9.2 PRC Sector Level Analysis 9-1 9.3 Sector analysis and institutional arrangements in Wuhan 9-6 9.4 Project Management and Implementing Arrangements 9-12 9.5 Analysis of Proposed Implementation Arrangements 9-21 9.6 Assessment of Capacity Building Needs 9-23 9.7 Assessment of Procurement Capacity 9-32 9.8 Proposed WUEIP Capacity Building 9-33 9.9 Opportunities for Private Sector Participation and Potential Constraints 9-43 9.10 Summary of Conclusions and Recommendations 9-45 Section 10 Policy Dialogue 10.1 Overall Policy Framework 10-1 10.2 Integrated Urban Development and Environmental Management 10-1 10.3 Sustainable Sludge Treatment and Disposal 10-2 10.4 Wastewater Management 10-3 10.5 Integrated Urban Surface Water Management 10-4 10.6 Point Source and Non-point Source Control Monitoring and Enforcement 10-5 10.7 Cost Recovery and Tariff Reform 10-5 10.8 Governance and Anti-corruption 10-7 10.9 Poverty Reduction 10-8 Easen International Co. Ltd. iii Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project Table of Contents 10.10 Private Sector Participation 10-9 10.11 The Creation of a Circular Economy (Reduce, Recover & Reuse) 10-9 10.12 Climate Change Adaptation and Mitigation 10-10 10.13 Community Environmental and Health Awareness 10-11 Section 11 Project Design and Monitoring Framework 11.1 General 11-1 11.2 Design and Monitoring Framework 11-1 11.3 Project Monitoring and Evaluation 11-1 APPENDICES 3-1 Agreement of Intent for Steam Supply and Sludge Disposal 5-1 Detailed Cost Estimates and Financing Plan 5-2 Financial Project for WUDDC 5-3 Completed Financial Management Assessment Questionnaire 7-1 Poverty and Social Assessment 9-1 Procurement Capacity Assessment Questionnaire VOLUME II SUMMARY ENVIRONMENTAL IMPACT ASSESSMENT VOLUME III SUMMARY RESETTLEMENT PLAN WUHAN NEW ZONE LAKE/CHANNELS REHABILITATION AND PUMPING STATION COMPONENT RESETTLEMENT PLAN YANGCHUN LAKE SECONDARY URBAN CENTER LAKE/REHABILITATION COMPONENT RESETTLEMENT PLAN VOLUME IV REPORT AND RECOMMENDATION OF THE PRESIDENT Easen International Co. Ltd. iv Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project List of Abbreviations CURRENCY EQUIVALENTS (as of 12 May 2009) Currency Unit – yuan (CNY) – USD ($) CNY1.00 = $0.1465 $1.00 = CNY6.8242 LIST OF ABBREVIATIONS Abbrev Full Name / Description ADB Asian Development Bank AFC Average Financial Cost AIFC Average Incremental Financial Cost AIEC Average Incremental Economic Cost AH Affected household AP Affected Person BCR Benefit Cost Ratio BOT Build Operate Transfer CBD Central Business District CDM Clean Development Mechanism CF Commitment Fees CNY Chinese Currency (Yuan) CVM Consumer Valuation Methods DCF Discounted Cash Flow DFR Draft Final Report DMF Design and Monitoring Framework DWB District Water Bureau EA Executing Agency (which is WMG as represented by WPMO) EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EMP Environmental Management Plan ENPV Economic Net Present Value EOCC Economic Opportunity Cost of Capital EPB Environmental Protection Bureau FEF Front-End-Fee FGD Focus Group Discussion FIRR Financial Internal Rate or Return FNPV Financial Net Present Value FSR Feasibility Study Report GHG Greenhouse Gas GDP Gross Domestic Product GIS Geographic Information System HDWB Hanyang District Water Bureau HPG Hubei Provincial Government HPEPB Hubei Provincial Environmental Protection Bureau HUEP Hubei Urban Environment Project (WB funded) IA Implementing Agency IDC Interest During Construction Easen International Co. Ltd. i Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project List of Abbreviations IEE Initial Environmental Examination (a short form of EIA) IFO International Financing Organisation IPP Incineration Power Plant IRRC Involuntary Resettlement Research Center LCA Least Cost Analysis MDG Millennium Development Goal MLG Minimum Living Guarantee Ministry of Environmental Protection (Former State Environmental Protection MOEP Administration) MOF Ministry of Finance MOHURD Ministry of Housing, Urban and Rural Development MOWR Ministry of Water Resources MSW Municipal Solid Waste NBS National Bureau of Statistics NDRC National Development and Reform Commission NPS Non-point Source NPV Net Present Value O & M Operation and Maintenance OCC Opportunity Cost of Capital OCL Opportunity Cost of Land PDMF Project Design and Monitoring Framework PHH Pollution Haven Hypothesis PLG Project Leading Group PME Project Monitoring and Evaluation PMO Project Management Office PPMS Project Performance Monitoring System PPTA Project Preparatory Technical Assistance PPP Public-Private Partnerships PRC People's Republic of China PSA Poverty and Social Assessment PSP Private Sector Participation RAP Resettlement Action Plan RMB Ren Min Bi (Yuan) RP Resettlement Plan SDAP Social Development Action Plan SEIA Summary Environmental Impact Assessment SEPA State Environmental Protection Administration SOE State Owned Enterprise SPA Social and Poverty Assessment SRP Soluble Reactive Phosphorous STP Sludge Treatment Plant TOR Terms Of Reference TP Total Phosphorous TSS Total Suspended Solid USD US Dollar WACC Weighted Average Cost of Capital WB World Bank Easen International Co. Ltd. ii Final Report, November 2009 ADB TA 7177-PRC Wuhan Urban Environmental Improvement Project List of Abbreviations WBSTC Wuhan Bishui Science and Technology Co., Ltd.