Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 36 17 1-CN PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN Public Disclosure Authorized IN THE AMOUNT OF US$96.0 MILLION TO THE PEOPLE’S REPUBLIC OF CHINA FOR A SECOND GUANGDONG PEARL RIVER DELTA URBAN ENVIRONMENT PROJECT Public Disclosure Authorized January 29,2007 Urban Development Sector Unit China Country Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Public Disclosure Authorized Bank authorization. CURRENCY EQUIVALENTS Exchange Rate Effective: December 2006 Currency Unit = Renminbi Yuan (RMB Y) Y1.00 = US$0.12 US$l.OO = Y8.00 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan BOT Build Operate and Transfer DI Design Institute EA Environmental Assessment EMP Environmental Management Plan EPB Environmental Protection Bureau FFB Foshan Finance Bureau FPMO Foshan Project Management Office FWGC Foshan Water Group Company GDP Gross Domestic Product GDFB Guangdong Provincial Finance Bureau GDPMO Guangdong Project Management Office GEF Global Environment Facility GOC Government ofChina GP Guangdong Province GPG Guangdong Provincial Government IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding JFB Jiangmen Finance Bureau JPMO Jiangmen Project Management Office JBWC Jiangmen Biyuan Wastewater Treatment Company LIBOR London Interbank Borrowing Rate MFB Municipal Finance Bureau MOF Ministry of Finance NCB National Competitive Bidding OED Operations Evaluation Department PRC People’s Republic ofChina PIU Project Implementing Units PMO Project Management Office PPP Public Private Partnership PRD Pearl River Delta PRD 1 First Guangdong Pearl River Delta Urban Environment Project (Guangzhou) PRD 2 Second Guangdong Pearl River Delta Urban Environment Project (Foshan and Jiangmen) QAG Quality Assurance Group RP Resettlement Plan SEPA State Environmental Protection Agency WTC Wastewater Treatment Company WWTP Wastewater Treatment Plant XWTC Xinzhiyuan Wastewater Treatment Company Vice President: James W. Adams, EAPVP Country ManagedDirector: David Dollar, EACCF Sector Manager: Keshav Varma, EASUR Task Team Leader: Tom Zearley, EASUR FOR OFFICIAL USE ONLY CHINA SECOND GUANGDONG PEARL RIVER DELTA URBAN ENVIRONMENT PROJECT CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 1. Country and sector issues .................................................................................................... 1 2 . Rationale for Bank involvement ......................................................................................... 3 3 . Higher level objectives to which the project contributes .................................................... 4 B. PROJECT DESCRIPTION ................................................................................................. 4 1. Lending instrument ............................................................................................................. 4 2 . Project development objective and key indicators .............................................................. 4 3 . Project components ............................................................................................................. 5 4 . Lessons learned and reflected in the project design............................................................ 6 5 . Alternatives considered and reasons for rejection .............................................................. 6 C. IMPLEMENTATION .......................................................................................................... 7 1. Partnership arrangements (if applicable) ............................................................................ 7 2 . Institutional and implementation arrangements. ................................................................. 8 3 . Monitoring and evaluation of outcomeshesults .................................................................. 9 ... 4 . Sustainability ....................................................................................................................... 9 5 . Critical risks and possible controversial aspects ............................................................... 10 6 . Loadcredit conditions and covenants ............................................................................... 11 D. APPRAISAL SUMMARY ................................................................................................. 11 1. Financial and economic analyses ...................................................................................... 11 2 . Technical ........................................................................................................................... 13 3 . Fiduciary ........................................................................................................................... 14 4 . Social ................................................................................................................................. 14 5 . Environment ...................................................................................................................... 15 6 . Safeguard policies ............................................................................................................. 16 7 . Policy Exceptions and Readiness...................................................................................... 16 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 . ANNEX 1: COUNTRY AND SECTOR OR PROGRAM BACKGROUND ........................ 17 ANNEX 2: MAJOR RELATED PROJECTS FINANCED BY THE BANK AND/OR OTHER AGENCIES .................................................................................................................. 22 ANNEX 3: RESULTS FRAMEWORK AND MONITORING.............................................. 23 ANNEX 4: DETAILED PROJECT DESCRIPTION.............................................................. 26 ANNEX 5: PROJECT COSTS .................................................................................................. 29 ANNEX 6: IMPLEMENTATION ARRANGEMENTS ......................................................... 31 ANNEX 7: FINANCIAL MANAGEMENT AND DISBURSEMENT ARRANGEMENTS34 ANNEX 9: ECONOMIC AND FINANCIAL ANALYSIS ..................................................... 47 ANNEX 11: PROJECT PREPARATION AND SUPERVISION.......................................... 76 ANNEX 12: DOCUMENTS IN THE PROJECT FILE .......................................................... 77 ANNEX 13: STATEMENT OF LOANS AND CREDITS ...................................................... 78 ANNEX 14: COUNTRY AT A GLANCE ................................................................................ 83 Map Section: IBRD 34922 and IBRD 34923 CHINA CN-SECOND GUANGDONG PEARL RIVER DELTA URBAN ENVIRONMENT PROJECT PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC EASUR Date: January 29,2007 Team Leader: Thomas L. Zearley Country Director: David R. Dollar Sectors: Sewerage (66%);Flood protection Sector ManagedDirector: Keshav Varma (34%) Themes: Other urban development (P);Pollution management and environmental health (P) Project ID: PO81776 Environmental screening category: Full Assessment Lending Instrument: Specific Investment Loan [XI Loan [ ]Credit [ ]Grant [ ]Guarantee [ ]Other: For Loans/Credits/Others: Total Bank financing (US$m.): 96.00 Proposed terms: The Loan will be a single currency, variable spread loan (VSL), with a maturity of 20 years inclusive of five years grace, front-end fee of 1% subject to 75 basis point waiver, and commitment fee of 0.75%. The loan amount is US$96.0 million. Source Locql Foreign I . 'Total L :' L. BORROWER 89.06 2.84 91.90 INTERNATIONAL BANK FOR 75.21 20.79 96.00 RECONSTRUCTION AND DEVELOPMENT Total: 164.27 23.63 187.90 Borrower: People's Republic Of China Responsible Agency: Guangdong World Bank Financed Projects Management Office, Department of Finance Level 1 1,26 Cangbian Road Guangzhou Guangdong China 5 10030 Tel: 86-20-83 17-0063 Fax: 86-20-8333-0007 hehuanzp@gdwb 0, gov .cn Does the project depart from the CAS in content or other significant respects? [ No Ref: PAD A.3 Does the project require any exceptions from Bank policies? Re$ PAD D. 7 [ ]Yes [XINO Have these been approved__ by Bank management?- [ ]Yes IN0 Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [XIYes [ ]No Re$ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No -Ref: -- - -PAD - -- -D. - .7 Project development objective Re$ PAD B.2, Technical Annex 3 The development objective is to reduce water pollution in the Pearl River system originating from Foshan and Jiangmen municipalities through a package ofkey initiatives, including wastewater treatment and sludge disposal, water quality monitoring, sediment removal from waterways, and flood protection and river embankment improvements. Project description Re$ PAD B.3.a, Technical Annex 4 Foshan Components: (a) Wastewater Management. Expansion ofZhen’an wastewater treatment plant (Phase 111) by 50,00Om3/d; construction ofinterceptors,