China - Hubei Urban Environment Project

 ICRR 12425 Report Number : ICRR12425 IEG ICR Review Independent Evaluation Group 1. Project Data: Date Posted : 07/21/2006 PROJ ID :P003602 Appraisal Actual Project Name :Hubei Urban Environment Project Costs 385.20 302.06 Project US$M ) (US$M) Country :China Loan/ US$M ) Loan /Credit (US$M) 150.00 101.16 Sector (s):Board: ): WS - General US$M ) Cofinancing (US$M) industry and trade sector (50%), Sewerage (45%), Solid waste management (4%), Sub-national government administration (1%) L/C Number :C2799; L3966 FY ) Board Approval (FY) 96 Partners involved : Closing Date 06/30/2002 04/30/2005 Evaluator : Panel Reviewer : Division Manager : Division : Roy Gilbert Kris Hallberg Alain A. Barbu IEGSG 2. Project Objectives and Components a. Objectives The overarching objective was to improve environmental conditions and management in Hubei Province . Specific objectives were as follows: a) To put in place institutions and policies able to sustain progress on the provincial plan for environmental improvement. b) To improve wastewater collection and treatment in three cities, thus maintaining or raising surface water quality to levels suitable for municipal supply, agricultural or other purposes . c) To improve solid waste management in four cities, thus protecting water and land quality . d) To identify the highest impact industrial air and water polluters and significantly reduce their pollution . b. Components (or Key Conditions in the case of Adjustment Loans ): (i) Huangshi wastewater/solid waste management, incl. (a) wastewater collection and treatment facility at Chenjaiwan to reduce pollution of Chiu Lake, and secondary sewers and pumping stations; and (b) transfer stations for municipal solid waste, collection vehicles (also for sludge and night soil ), sanitary landfill with gas and leachate treatment. (appraisal cost US$13.9 m.; actual cost US$21.9 m.) (ii) Wuhan wastewater/solid waste management, incl: (a) wastewater collection and treatment facilities at Wuchang, Hankou and Hanyang to reduce pollution in Wuhan's lakes and rivers, with sewers; (b) compactor collection vehicles for solid waste, upgrading and expanding a sanitary landfill, and solid waste technical assistance; (c) water quality monitoring, by upgrading Wuhan's water quality monitoring center through providing equipment and training . (appraisal cost US$122.1 m.; actual cost US$167.2 m.) (iii) Xiangfan wastewater/solid waste management, incl: (a) wastewater collection and treatment facilities at Fancheng to reduce pollution of Qiliuhe, Xiaoqing and Han rivers, including sewers; (b) sanitary landfill with gas and leachate treatment, transfer stations, collection vehicles for solid waste, sludge and night soil . (appraisal cost US$45.4 m.; actual cost US$45.0 m.) (iv) Yichang solid waste management, incl : sanitary landfill with gas and leachate treatment, vehicles and equipment, and technical assistance for solid waste management . (appraisal cost US$7.8 m.; actual cost US$12.3 m.) (v) Industrial pollution control, incl: sub-loans to upgrade facilities to reduce pollution by industrial enterprises . (appraisal cost US$135.5 m.; actual cost US$29.0 m.) (vi) Hubei water quality monitoring, incl: upgrading provincial-level environmental monitoring through laboratory renovation, provision of equipment and training . (appraisal cost US$2.5 m.; actual cost US$2.1 m.) (vii) Provincial institutional development, incl : (a) introducing cost accounting and management information systems related to wastewater and solid waste management in Hubei : (b) training in management and supervision of project implementation; (c) implementation of environmental action plan; (d) feasibility studies for future environmental projects. (appraisal cost US$8.3 m.; actual cost US$8.7 m.) c. Comments on Project Cost, Financing, Borrower Contribution, and Dates As consolidated and reported in the ICR, there is not data on the costs at the city level of what were two very different sub-components--wastewater management and solid waste management --at the level of each city (more details in comments on quality of ICR below ). Costs at completion should have been presented for each sub-component in each city, as they were at appraisal . IEG's review here follows the city breakdown, chosen for the availability of data and the large variance of costs reported across the cities . Major flooding in the Yangste River basin in 1998 contributed to implementation delays and a need to extend the closing date . Through insufficient budget allocation, there was a significant shortfall of counterpart funding by municipalities from an estimated US$85.5 million at appraisal to only US$17.27 million by completion. Overall final costs were lower than appraisal estimates through cost savings made during competitive procurement . Actual inflation during implementation was also lower than projected at appraisal . 3. Relevance of Objectives & Design : The project's institutional objectives {a ) and c)} were highly relevant to Government of China (GOC) priority reforms for the sector, such as cost recovery through tariffs, and adoption of enterprise accounting . All objectives were highly relevant to China's priority task of environmental protection in the countries' environmentally challenged cities, a task that is being carried forward in the 11th Five Year Plan (2006-2010). Project objectives continue to be highly relevant to the CAS priorities of facilitating environmentally sustainable development in China . Project design was relevant in harnessing appropriate components whose successful operation would directly lead to the achievement of the project objectives. 4. Achievement of Objectives (Efficacy) : Objective (a) Modest : thanks to a mixed performance across cities, with more progress in meeting financial and reform targets in Huangshi and Wuhan than in Xiangfan, for instance . Solid waste companies are only able to sustain progress through budgetary allocations by municipal governments . Progress with tariff reform was good at the outset when all three wastewater companies complied with loan effectiveness conditions for tariffs, but later implemented adjustments with delays. Objective (b) Modest : as the project expanded and improved wastewater collection and treatment in all cities --least so in Xianfan. Treating an extra 1.2 million m3 per day, although it did not result in improved water quality in local lakes and rivers, appears to have prevented further deterioration that would have occurred without the project . Nevertheless, some indicators, particularly those reporting nitrogen and phosphorus levels remained at the worst levels recorded throughout project implementation . Objective (c) Substantial : after all four cities improved collection and had sanitary landfills in operation thanks to the project. Xiangfan city's performance was outstanding in disposing 100 percent of its solid was in the landfill, double the project target of 50 percent. Other cities' performances were close to target . In Wuhan, however, the useful life of the project landfill was shortened when it was prematurely closed in 2005, as new residential development began to encroach upon it. The city plans to commission a new sanitary landfill, (using the parameters of the project ) on a site 40 km from Wuhan. Better water quality monitoring thanks to the project contributed to this achievement . Objective (d) Modest : as industrial pollution was identified, but only reduced on a much smaller scale than intended . Demand for financing offered through the project was undermined by the weakened financial performance of a large steel company, that had to withdraw from the project . Nevertheless, air pollution controls were installed in cement plants leading to significant falls in SO 2 and dust emissions. A planned project revolving fund to finance these kinds of improvements was cancelled, as companies were able to find more attractive financing for such investments . 5. Efficiency : The ICR reports that ERRs were not estimated for project investments because of "the difficulty and time-consuming efforts required to obtain reliable quantified estimates of benefits ". IEG considers that such estimates could be made, at least of a sample of wastewater and sanitary landfill investments that lend themselves to this kind of cost benefit analysis. The ICR informs that least cost options were used for each component, but does not provide evidence of the (presumably higher) costs of alternatives, as evidence that the least cost solution was indeed chosen . Nevertheless, bid prices came in, on average, 35 percent below appraisal estimates, due to an increasingly competitive market, according to the ICR, as well as lower inflation .. 6. M&E Design, Implementation, & Utilization: Project monitoring indicators were weak . For instance, indicators for surface water quality improvements were too broadly defined to allow effective monitoring of related project achievements . 7. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): According to the ICR, the involuntary resettlement of people affected by land acquisition needed for project investment was carried out in accordance with Chinese laws and regulations and was in compliance with the Bank's own safeguards. Only 154 people were actually displaced, less than half the 377 anticipated at appraisal. 8. Ratings : ICR ICR Review Reason for Disagreement /Comments  Outcome : Satisfactory Moderately Satisfactory Moderately satisfactory [a rating not available under the ICR's current 4-point scale] was the outcome rating reported in the body of the ICR and supported by the ICR text. The project achieved its major objectives overall, but with significant shortcomings across different sectors in some cities. Institutional Dev .: Modest Modest Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness . 9. Lessons: Institutional reform targets need to be set modestly and as realistically as possible when they have to be achieved by newly established project agencies and implementing units . In order for implementing entities to be in a position to evaluate project impacts more effectively throughout implementation, monitoring indicators should be defined in a way that facilitates a cost -effective monitoring program. Utility and environmental management skills are needed in addition to construction management expertise, to successfully implement and operate these kinds of projects over the medium and long term . Civil works contracts in infrastructure projects in China do not attract any interest internationally, even when contracts are packaged in amounts exceeding $ 10.0 million and appraisal cost estimates should properly reflect this reality. In addition, the option of ICB turn -key contracts could be considered to encourage local /foreign joint venture firms to participate, with potential for even stronger construction management and introduction of new technology. More extensive efforts are needed to assess the effective demand for industrial pollution control devices by companies. For TA support to be most effective, it should be closely coordinated with the project implementation schedule--later in this case--when clients (the TA beneficiaries) are best able to make effective use of the TA . During the preparation and implementation of the resettlement under this project, detailed field surveys helped minimize negative impacts due to land acquisition and structure demolition, but also helped reduce the cost of the related project civil works. An similar approach is recommended for future similar projects . 10. Assessment Recommended? Yes No Why? To learn more about the urban environmental impact of the project in poorer and more environmentally challenged cities in China . 11. Comments on Quality of ICR: On balance, the ICR is satisfactory, but its quality is uneven . In particular, it appears to contain several errors (project costs are wrong, incomplete project dates, inconsistent ratings between text and summary rating table ). Also, the ICR does not present project components consistently; in the text they are summarized by component for all cities; in the cost tables they summarized by city across all components . This means that we do not know the detailed (and probably very varied) costs for all project investments at completion --as we did at appraisal. Without them, the self-evaluation of the contributions of very different sub -components and very different cities to the project outcome is severely constrained. And there is no Borrower ICR or summary thereof (despite its being announced as Annex 7, which instead contains a list of project documents ). On the other hand, the report does provide good information on performance indicators that is well organized to relate to each of the project's four objectives . Another good feature of this ICR is that it is candid about shortcomings of the project achievements .