China - Hubei Urban Environment Project

Document of The World Bank Report No: 33528-CHA IMPLEMENTATION COMPLETION REPORT (CPL-39660 IDA-27990) ON A LOAN IN THE AMOUNT OF US$125 MILLION AND A CREDIT IN THE AMOUNT OF SDR 16.8 MILLION (US$25 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF CHINA FOR A HUBEI URBAN ENVIRONMENT PROJECT May 5, 2006 Urban Development Sector Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective At Appraisal, November 1995) Currency Unit = Yuan Y1.0 = US$ 0.12 US$ 1.0 = Y8.4 At Closing, April 20, 2005 Y1.0 =US0.12 US1.0=Y8.3 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy DRA Design Review and Advisory Services EIA Environmental Impact Assessment EPB Environmental Protection Bureau ESC Echeng Steel Company GOC Government of China HEMC Hubei Environmental Monitoring Center HEPB Hubei Environmental Protection Bureau HEPCF Hubei Environmental Pollution Control Fund HMDC Huangshi Municipal Drainage Company HP Hubei Province HPG Hubei Provincial Government HUEP(O) Hubei Urban Environmental Project (Office) ICB International Competitive Bidding IPC Industrial Pollution Control NCB National Competitive Bidding PIU Project Implementation Unit PPMO Provincial Project Management Office PSR Progress Status Report RAP Resettlement Action Plan SAR Staff Appraisal Report SARS Severe Acute Respiratory Syndrome SDR Special Drawing Right SO2 Sulfur Dioxide TSP Total Suspended Particulate WEMC Wuhan Environmental Monitoring Center WUDDC Wuhan Urban Drainage Development Company XWTC Xiangfan Wastewater Treatment Company Vice President: Mr. Jeffrey Gutman, Acting, EAP Country Director: Mr. David Dollar, EACCF Sector Director: Mr. Keshav Varma, EASUR Task Team Leader: Mr. Mats Andersson, EASUR  CHINA HUBEI URBAN ENVIRONMENT PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 5 5. Major Factors Affecting Implementation and Outcome 9 6. Sustainability 12 7. Bank and Borrower Performance 13 8. Lessons Learned 17 9. Partner Comments 18 10. Additional Information 18 Annex 1. Key Performance Indicators/Log Frame Matrix 19 Annex 2. Project Costs and Financing 23 Annex 3. Economic Costs and Benefits 27 Annex 4. Bank Inputs 28 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 30 Annex 6. Ratings of Bank and Borrower Performance 31 Annex 7. List of Supporting Documents 32 Maps - IBRD27175, IBRD27250  Project ID: P003602 Project Name: HUBEI URBAN ENVIRONMENT PROJECT Team Leader: Mats Andersson TL Unit: EASUR ICR Type: Core ICR Report Date: May 5, 2006 1. Project Data Name: HUBEI URBAN ENVIRONMENT PROJECT L/C/TF Number: CPL-39660; IDA-27990 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: General industry and trade sector (50%); Sewerage (45%); Solid waste management (4%); Sub-national government administration (1%) Theme: Environmental policies and institutions (P); Pollution management and environmental health (P); Access to urban services and housing (P); Climate change (S); Municipal governance and institution building (S) KEY DATES Original Revised/Actual PCD: 08/31/1993 Effective: 10/11/1996 Appraisal: 05/23/1995 MTR: 02/04/1999 Approval: 12/19/1995 Closing: 04/30/2005 Borrower/Implementing Agency: PEOPLE'S REPUBLIC OF CHINA/HUBEI URBAN ENV. PROJ. OFFICE (OR HUBEI PROV. GOVERNMENT) Other Partners: STAFF Current At Appraisal Vice President: Jeffrey S. Gutman Russell Cheetham Country Director: David R. Dollar Nicholas Hope Sector Director: Keshav Varma Katherine Sierra Team Leader at ICR: Mats Andersson George Plant and Lee Travers ICR Primary Author: Terry Hall 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: Yes  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: Background: At project appraisal in 1995, the population of Hubei Province (HP) was around 55 million with some 15 million living in 31 cities, concentrated along the Han and Yangtze rivers. At the end of 2003, the provincial population had grown to 60 million with about 18 million living in urban areas. Wuhan, the provincial capital, is located at the confluence of the Han and Yangtze, and was China's fifth largest city in 1995 with an urban population of 3.9 million. At present Wuhan's population is close to 5 million, or 25% larger than in 1995. Municipal environmental services in HP were seriously lacking in the mid-1990's. Sewerage systems captured only half of the urban wastewater throughout the province and treatment was provided for only seven percent. Sanitary landfill technology was in its infancy. Many of the industrial plants predated China's concern with environmental impact. At appraisal, urban lakes and rivers in HP were highly polluted, and air pollution in a number of provincial cities ranked as the worst in China. As a result, pollution abatement faced a large investment backlog. Hubei Provincial Government (HPG) requested World Bank assistance to address these problems. The cities of Huangshi, Wuhan, Xiangfan and Yichang were identified in urgent need of urban environmental investments. Ezhou and Jingmen were identified as serious air pollution centers. These six cities represented 60 percent of Hubei's urban population and accounted for 73 percent of wastewater, 72 percent of total suspended particulate (TSP), and 82 percent of the solid waste loads in the urban areas of the province. The Hubei Urban Environmental Project (HUEP) was part of HP's long-term abatement plans with its regulatory, institutional and investment strategies. Objectives: The principal objective was to improve environmental conditions and management in HP. Specific objectives were to: (a) put in place institutions and policies able to sustain progress on the provincial plan for environmental improvement; (b) improve wastewater collection and treatment in three cities, thus maintaining or raising surface water quality to levels suitable for municipal supply, agriculture, or other purposes; (c) improve solid waste management in four cities, thus protecting water and land quality; and (d) identify the highest-impact industrial air and water polluters and significantly reduce their pollution. Assessment of Objectives: The project supported the Bank Group's Country Assistance Strategy (CAS) of 1995 which supported urban environmental management through: (a) an improved regulatory environment; (b) reduction of pollution loads by enhancing environmental protection; and (c) assisting with infrastructure development at municipal and provincial level. The Government of China (GOC) attached high importance to environmental protection, targeting industrial cities and regions. The project strategy benefited from the Bank's "China: Urban Environmental Service Management" report of 1995 which recommended greater focus on user charges to finance municipal services. The objectives were challenging taking into account the conditions at the time, and in view of many project components and cities, and that most implementing agencies were newly established. 3.2 Revised Objective: Not applicable. - 2 -  3.3 Original Components: The project included the following components: Wastewater Management ($184.5 million). In Huangshi, Wuhan and Xiangfan, comprising sewer systems, pump stations, and wastewater treatment facilities. Municipal Waste Management ($37.1 million). In Huangshi, Wuhan, Xiangfan and Yichang, comprising sanitary landfill development, waste transfer facilities, vehicles and equipment. Industrial Pollution Control ($130.5 million). A line of credit to assist selected large-scale industrial enterprises to carry out works for pollution abatement in order to comply with environmental regulations. Hubei Environmental Pollution Control Fund ($5.0 million). A revolving fund, to finance high environmental impact investments in small-scale industry, supporting the core program in air and wastewater management. Water Quality Monitoring and Management ($2.9 million). In Hubei and Wuhan Environmental Monitoring Centers, comprising water quality monitoring technology, data management equipment, and institutional development. Institutional Strengthening through Technical Assistance and Training ($10.2 million). To support and strengthen project management, the Hubei Environmental Protection Bureau (HEPB) and city Environmental Protection Bureaus (EPBs), financial and municipal utility operations and management, wastewater and solid waste management, water quality monitoring, feasibility studies, training and future project preparation. Assessment of Design: All components were interlinked and clearly addressed the objectives of the project. While ambitious, their designs were adapted to the expected capacities of the implementing agencies. Since this was the first Bank supported environmental intervention in HP, lessons from earlier sector projects in China were factored into the project design, including linking of physical investments with early actions for institutional reforms, such as the establishment of solid waste and wastewater utility companies, and tariff reform. A wastewater tariff of Y0.18/m3 for residential and nonresidential consumers was a condition of loan effectiveness to begin addressing the financial soundness of the wastewater companies. 3.4 Revised Components: During project implementation, cost savings of about $70 million of the loan arose, due to an increased competitive environment in China for civil works, and decisions by HP to cancel the Hubei Environmental Pollution Control Fund (HEPCF) and to reduce the scope of the Industrial Pollution Control (IPC) component for reasons explained below. The following additional investments were implemented using these savings. At the same time $47.3 million of the loan were cancelled by GOC. Wastewater Management ($61.3 million total investment cost). In Huangshi, the additional works comprised collector sewers around the northern shore of Cihu Lake, and augmentation of Qingshan Lake system to provide an upgraded facility for secondary treatment capacity of 40,000 m3/d. At Wuhan, the works included collector sewers, equipment, pump stations, and upgrading to secondary treatment of 650,000 m3/d of wastewater in a number of catchments. Municipal Waste Management ($4.4 million). In Wuhan and Yichang, additional waste collection and disposal vehicles, and landfill equipment were acquired in line with the operational plans of the respective - 3 -  solid waste company. Water Quality Monitoring and Management ($0.1 million). For Hubei Environmental Monitoring Center, limited additional water quality monitoring and data management equipment was acquired to further strengthen the Center's capabilities. Assessment of Design: The added investments were consistent with HP's environmental improvement strategies and sector master plans. Their designs contributed to better achieve the project objectives and enhanced project benefits. Satisfactory Environment Impact Assessment (EIA) and Resettlement Action Plans (RAPs) were provided for all additional investments. These additional investments were consistent with the project objectives and did not constitute a restructuring. They deepened the achievement of the project objectives. 3.5 Quality at Entry: Quality at entry is considered moderately satisfactory. Environment-related sector work carried out by the Bank, including a number of urban sector surveys, guided the project design. As noted in 3.1 above, the project was consistent with the Bank's CAS, which emphasized enhanced environmental protection and related institutional reform, and strengthened solid waste and wastewater management. Based on this sector work, the most effective strategic solutions for Hubei were defined. All components were positioned to support GOC and HPG sector objectives to improve the environment. The project was Category A, and the applicable Bank safeguard policies were fully satisfied. By appraisal, all feasibility studies were complete and detail designs for all components were well advanced. Draft tender documents for some 40 percent of the investment program were ready at negotiations. Risks identified at appraisal were: (a) delays by HPG in implementing a new wastewater tariff structure and institutional reform, and financial risk due to shortage of counterpart funds; (b) delays in transforming municipal departments to wastewater utility companies; (c) failure of industrial enterprises to operate pollution abatement facilities; (d) failure to treat/control pollutants at source by industries; and (e) lack of sustained investments to meet the long-term wastewater management strategy. While ambitious targets were set, the assumptions made in the SAR were reasonable and the risk assessment was largely accurate except for the risks associated with the HEPCF and ICP components which were underestimated. Mitigation measures included: (a) early deployment of technical assistance to assist HPG with institutional reform (this started before loan effectiveness); (b) an environmental action plan; (c) a carefully phased construction plan; (d) implementation of a first wastewater tariff adjustment as condition of loan effectiveness; and (e) provision of funds for future project preparation to encourage continued implementation of the long-term program. HUEPO took the resettlement subject very seriously, to minimize negative impact and protect the livelihood of displaced persons. They arranged that all PIUs in the project municipalities established a resettlement team and assigned a dedicated staff to supervise all resettlement work. This arrangement led to successful resettlement implementation later. While a well prepared project overall, the performance monitoring indicators for the surface water quality improvements were too broadly defined to allow effective monitoring of the related project achievements. The institutional reforms later proved to be difficult and time consuming to accomplish, partly due to an unanticipated sub-national government reform program in China during the project implementation period. Due to these somewhat optimistic (over-ambitious) targets, and weak monitoring indicators, the quality at entry is rated moderately satisfactory. - 4 -  4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The project objectives were largely achieved, and some physical components exceeded expectations (see details in Annex 1). However, due to delayed and incomplete institutional reforms, and limited industrial pollution reduction by the project itself, the overall outcome is rated moderately satisfactory. See Tables A and B in Annex 1 for ratings of the achievements by the respective implementing entity, and their relative importance to the overall project, including details on institutional and financial reforms. Objective (a), put in place institutions and policies able to sustain progress on the provincial plan for environmental development. Rating: moderately satisfactory. This key objective was addressed by establishing financially autonomous wastewater utility companies in three cities and solid waste enterprises in four cities. Financial targets for wastewater and solid waste utilities were given in the Project Agreement, and while delayed, they were largely met except in the city of Xiangfan. The wastewater companies were established during project preparation and the solid waste enterprises in 1999. During implementation, GOC established a series of national-level reforms that significantly extended the scope for financial and managerial autonomy in the wastewater and solid waste sectors. These included: (a) conversion of wastewater charges to utility tariffs; (b) direct remittance of tariff revenues to wastewater companies; (c) incorporation of solid waste companies under company law; (d) adoption of enterprise accounting; (e) cost recovery of solid waste and wastewater services from the residential sector; and (f) systems to support increased management autonomy of utility companies. The project's reform program was consistent with these national initiatives; in fact, it was enhanced in 2002 to incorporate them fully. All project companies made progress towards their financial and institutional reform targets, although the achievements varied significantly between companies and sectors. Huangshi and Wuhan wastewater companies made substantial headway, while reforms in Xiangfan were limited. Most solid waste companies struggled to achieve adequate revenues from user charges to meet operational and debt service costs. These companies still rely to some extent on budgetary allocations from the municipal governments. The project provided technical assistance (Package A) and assisted HPG with its institutional reform program through international and domestic consulting support. Such support was provided for internal organization and staffing of newly established utility companies, related operational policies and procedures, project management practices, and construction supervision models. The sector institutions also benefited from extensive training on infrastructure and utility management, financial management, construction management; procurement; environmental management; and operation of facilities. All the companies were however significantly affected by reforms in the municipal administrative structure in the project cities. While these reform programs established a more supportive basis for the company-level reforms, the programs caused significant delays and short-term adverse impacts on the company's reform programs, resulting in unsatisfactory project status during 2000 to 2003. During this time, the supervisory bureaus overseeing the project companies were reorganized. As of 2004, the company reform programs were reinitiated and substantial progress was made. For example, Wuhan increased its wastewater tariffs and established direct remittance of the tariff revenues from the collecting agency (the Wuhan water company) to the wastewater company, rather than remitting these to the municipal finance bureau for subsequent budget allocation to the company. - 5 -  Achievement of Financial Objectives. These objectives pertain to the levels of wastewater tariffs and solid waste fees and charges to achieve the project's cost recovery objectives defined in the financial covenants. All three wastewater companies in the project complied with the tariff levels agreed as conditions of effectiveness. During implementation, the companies prepared (with extensive consultant support) annual financial projections, which were reviewed with the Bank. While wastewater tariffs were adjusted several times in all three cities, these tariff increases were frequently implemented too late to comply with covenants. This contributed to the project being rated unsatisfactory at various times. Huangshi and Wuhan wastewater companies complied with the covenants as of 2004. The Xiangfan wastewater company, the smallest project entity, remained out of compliance at project closing. Industrial discharge permits totaled 2,028 in 2004 compared with the target of 1,500, and collection of industrial pollution levy fees by HEPB reached 60 percent (SAR target was 65 percent). Overall achievements are somewhat less than the ambitious objectives set in the SAR, and were slow to materialize. See detailed ratings in Table A and B in Annex 1 of the reform achievements. Objective (b), improve wastewater collection and treatment in three cities, thus maintaining or raising surface water quality to levels suitable for municipal supply, agriculture, or other purposes. Rating: moderately satisfactory. All physical works in the original project scope, i.e., collector systems and preliminary/primary treatment in Huangshi, Wuhan and Xiangfan, were completed satisfactorily, on time, with good quality, below budget, and set in operation at adequate capacity, with the exception of the Xiangfan works which to date has only operated intermittently due to local budget constraints. The additional works in Huangshi and Wuhan approved in 2002, deepened the positive impact of the project. While the wastewater component clearly had a positive impact on the water quality of the affected water bodies compared to a situation without the project, the degree of impact proved difficult to determine due to many influencing factors in a rapidly changing urban environment. The SAR provided quality targets for Cihu Lake in Huangshi, East Lake in Wuhan, and Qilile and Xiaoqinghe rivers at Xiangfan, based on the national classification index of I (best) to V (worst). These targets at project completion were all set at III, with the water quality at the start of the project being assessed as worse than V for Huangshi and Xiangfan, and IV for Wuhan. During ICR preparation, the project team reviewed changes over time of a number of pollutants in the respective city, to reflect a more comprehensive understanding of the water quality changes than the index. This data is in the project file and available upon request. While the target of III was met on some indicators in Huangshi and Wuhan at project completion, the nitrogen and phosphorus levels remained V or worse throughout. While the project investments had a direct positive environmental impact by intercepting and treating more than 1.2 million m3/day of wastewater, preventing further deterioration of the water quality, the expansion of the cities' economy made these two pollution levels in the lakes remain the same. Consequently, overall the surface water quality was maintained, not improved. Sludge accumulation on the lakebeds is also a cause of the slow improvement. A dredging program is currently planned by the municipal government, which may improve the situation. Essentially all pollution levels remained the same in the main Xiangfan rivers due to the limited operations of the wastewater treatment plant, and to other developments in the area. Xiangfan was the smallest project wastewater sub-component. Objective (c), improve solid waste management in four cities, thus protecting water and land quality. Rating: moderately satisfactory. All four cities improved the collection and disposal of refuse to sanitary landfill sites, although the achievements by city varied. In all cities, sanitary landfill disposal sites have been operating since 2002, providing leachate treatment and gas disposal facilities. Xiangfan's operation substantially outperformed the "percent disposal to sanitary landfill" target (achievement of 100% vs. a target of 50%). Huangshi and Yichang did not meet the targets set for project completion (27% vs. a target of 50% for Huangshi, and 83% vs. a target of 95% for Yichang). In Wuhan, the disposal target of 44% in - 6 -  2001 was achieved on time. However, in mid 2005 the project landfill was closed by the municipal government, on environmental grounds due to close proximity to newly built residential and commercial areas. This site existed as an informal solid waste site since 1989, and at project start-up in 1996 the surrounding area was still totally undeveloped. While the site served Wuhan well for five years (70% of the originally planned landfill capacity had been used at the time of the closure), further waste storage would have involved compacting waste above ground, which was considered unacceptable to Wuhan Municipality. The city instead started development of a new sanitary landfill some 40 km from Wuhan. This sanitary landfill is due to be commissioned in late 2006. In summary, this project objective was only partially achieved based on the set targets. Objective (d), identify the highest-impact industrial air and water polluters and significantly reduce their pollution. Rating: moderately satisfactory. The ICP component was significantly reduced from $135.5 to $29 million due to the highest polluting enterprise, Echeng Steel Company (ESC), withdrawing from the project due to economic downturn in the steel market in China. However, aside from the project, ESC did carry out an extensive program of technology modernization, which contributed to substantial air quality improvements in Ezhou city. Sulfur dioxide (SO2) improved from Class III in 1996 to Class II by 2004, and TSP levels improved from Class III in 1996 to Class II in 2004. Cement plants at Jinmen and Yichang were relocated and air pollution abatement facilities included at the new plants under the HUEP project's ICP component, providing significant air quality improvements. These factories were identified as the highest-impact polluters next to ESC. At the Yichang factory, the SO2 output decreased from 76.6 to 45 tons/year and dust emissions dropped from 2,600 to 115 tons/year. The air quality in Yichang city showed improvement as a result of this relocation. The municipalities of Jinmen and Yichang have now redeveloped their old in-city factory sites for residential housing and recreation amenities for the residents. The $5 million Hubei Environmental Pollution Control Fund (HEPCF), originally intended as a revolving fund, was cancelled during project implementation due to the emergence of more attractive alternative financing for companies. While the direct project impact was reduced from the ambitions at appraisal, most of the air quality improvement objectives were still achieved through a combination of project interventions and initiatives outside the project by companies using other means. Social Objectives (Safeguards). Rating: satisfactory. Resettlement involved both households and enterprises, and was carried out satisfactorily, in compliance with Chinese regulations and Bank guidelines. Land acquisition totaled 152 hectares affecting 62 families and enterprises. Some 634 persons needed re-employment. With the additional works program, the figures for land acquisition and re-housing were somewhat higher than the SAR estimates, while the number of persons needing re-employment declined from an estimated 996 to 634. The additional works in Huangshi and Wuhan, and with compensation costs increasing more rapidly than originally expected due to housing price increases in Hubei, as in the most of urban China, caused the actual resettlement costs to become $56 million vs. the SAR estimate of $20 million. Based on collected data and final resettlement completion surveys, negative impacts on land acquisition and structure demolition were minimized, as illustrated in the table below. As a result, the number of displaced persons was reduced significantly. The affected persons were compensated as per the RAP and follow-up sample interviews confirmed their satisfaction. - 7 -  Evolution of resettlement volumes (Note: data based on the original project scope only): Land Structures Affected persons As per original RAP 577.5 49,595 377 After Initial Adjustments during 348.5 35,950 223 Implementation At Completion after Final Adjustments 229 13,645 154 Affected persons were consulted during both RAP preparation and implementation, and the information related to resettlement policies was offered in transparent ways. Timely cash delivery at replacement cost allowed displaced persons to construct their housing before demolition. Full land compensation to villages allowed development of adequate village plans. In many cases, the subproject offices and local government agencies provided supplemental support in conjunction with broad consultation, including cash and other assistance to recover livelihoods. A local institute, contracted as independent monitoring agency, interviewed displaced persons and submitted annual reports to HUEPO as of the start of civil works in the respective subproject. The monitoring institute supervised the compensation cash flow, and provided recommendations to each local resettlement office. 4.2 Outputs by components: Wastewater Management: Satisfactory. The original works, comprising collector sewers, pump stations and preliminary/primary treatment at Huangshi, Wuhan and Xiangfan, were completed satisfactorily and commissioned by 2002. All works remain in continuous operation in Huangshi and Wuhan at appropriate capacity. The smallest sub-component, the Xiangfan plant, operates only intermittently (see above). The additional works program at Huangshi and Wuhan was also largely complete at project closing. Using own funds, the Wuhan works were completed by the end of 2005 and the Huangshi works will be completed by May 2006, providing secondary treatment to an increased wastewater flow. These works deepened project outcome and responded to new national legislation requiring cities to provide for secondary wastewater treatment. Municipal Waste Management: Moderately Satisfactory. Sanitary landfill sites, transfer stations and vehicle fleets were provided in all four cities. All landfills have been operating since 2002. In mid 2005 the sites at Xiangfan and Yichang received 100 and 83 percent respectively of the cities' solid waste. At Huangshi, the site receives only about 30 percent of the city's solid waste; the remaining refuse volume being disposed to uncontrolled dump sites near the city. This situation is expected to change shortly, however, as these dumps become full in 2006-2007. The Jinkou waste site in Wuhan opened in 1989. Following the completion of project financed leachate treatment and gas disposal facilities in 2000, this site operated satisfactorily at its rated capacity of 2500 t/day until mid-2005 (dealing with about 50 percent of the city's daily refuse and having reached 70% of its landfill capacity), at which time the site was closed (see Section 4.1). Industrial Pollution Control (IPC): Moderately Satisfactory. While this component was reduced substantially due to the withdrawal of ESC (see Section 4.1), pollution abatement measures were successfully implemented under the project at the other highest polluters in the province, the Jinmen and Yichang cement companies, and the Exi Chemical Company. All these facilities have operated successfully since 2000 and the air quality improvements are substantial as noted in Section 4.1. Hubei Environmental Pollution Control Fund (HEPCF): Unsatisfactory. This provincial fund was cancelled by the HPG due to lack of effective demand on the terms offered by the fund, reflecting a rapidly - 8 -  changing local financial market. No alternative funding program was developed as replacement. Consequently no environmental benefit ensued from the component. Water Quality Monitoring and Management: Satisfactory. Both Hubei Environmental Monitoring Center (HEMC) and Wuhan Environmental Monitoring Center (WEMC) are better able to respond to air/water quality management needs. HEMC has a new pollution monitoring system in operation responding to national and provincial demands. WEMC benefited through improved equipment and monitoring capability, and a data management information system. Training was an important aspect of this component; both centers benefited from local and overseas training programs on environmental management. Air and water quality monitoring is now performed regularly and reliably through these centers. Institutional Strengthening through Technical Assistance (TA) and Training: Moderately Satisfactory. While the TA and training program was fully completed as planned, the rating reflects the incomplete institutional reforms accomplished during project implementation. The project included extensive and varied training programs in China and overseas. Subjects included: institutional and financial management; wastewater and solid waste management; construction; procurement; environmental management; and operation of facilities. Staff training was extended to 114 person months in China, and 48 person months overseas. Staff remained in their jobs and used the learning achieved. Postponing the mobilization of the institutional development and construction management TA to better coincide with the reform and physical implementation schedules respectively, would likely have provided more efficient utilization of the corresponding foreign technical experts. 4.3 Net Present Value/Economic rate of return: The SAR strategy focused on establishing economic least-cost options for each component, and providing rigorous analyses of such options. An economic rate of return was not calculated for the project because of the difficulty and time-consuming efforts required to obtain reliable quantified estimates of benefits. These included improved quality of river and lake water bodies, and air quality in the project cities, and, as a consequence, enhanced value for drinking, industrial, agriculture and recreational use, and improved well-being of the city residents. Project outcome became more of preventing further water quality degradation than a significant improvement of the water quality in the respective surface waters, due to parallel rapid urban economic expansion. The implemented solutions remained the least