China - Liaoning Urban Infrastructure Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-5213-CHA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT OF SDR 54.2 MILLION (US$77.8 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF CHINA FOR A LIAONING URBAN INFRASTRUCTURE PROJECT FEBRUARY 27, 1991 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 Bank authorization.  Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-5213-CHA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT OF SDR 54.2 MILLION (US$77.8 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF CHINA FOR A LIAONING URBAN INFRASTRUCTURE PROJECT FEBRUARY 27, 1991 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFCIAL USE ONLY CHINA LIAONING URBAN INFRASTRUCTURE PROJECT CREDIT AND PROJECT SUMMARY Borrower: The People's Republic of China Beneficiaries: Liaoning Province and Municipalities of Shenyang, Fuxin and Yingkou Amount: SDR 54.2 million (USq77.8 million equivalent) Terms: Standard, with 35 years maturity. Onlending From the Government of China to Liaoning Province for Terms: 15 years, including 5 years of grace, at a fixed interest rate of 5.5 percent per annum; from Liaoning Province to the Municipalities on the same terms. Foreign exchange risks will be borne by the Municipalities. From the Municipalities to the Water Supply Companies 15 years including 5 years of grace at the variable interest rate payable on medium/long-term Renminbi loans by the People's Construction Bank of China. Financing Plan: Local Foreign Total ---US$ million------- Liaoning Provincial Govt. 48.4 2.4 50.8 and Municipal Govts. IDA 2.6 75.2 77.8 Total 51.0 77.6 128.6 Economic Rate Water Supply - 4 percent for Shenyang, 8 percent for of Return: Fuxin and 5 percent for Yingkou. Urban Transport - 43 percent for corridor improvement. Staff Appraisal Report: Report No. 8250-CHA Map: IBRD No. 21960 |This doLument has a restricted Jitribution and may be used by recipients only in the perforrr,. nce Of their ofhcial duties Its contents may not otherwise he disclosed without World Ban authot,zation.  MEMORANDUM AND RECOMMENDATION OF THIE PRESIDENT OF TIIE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE PEOPLE'S REPUBLIC OF CHINA FOR A LIAONINC URBAN INFRASTRUCTURE PROJECT 1. The following inemoranldumii and recommendation on a proposed development credit to the IPeople's Republic China for SDR 54.2 million (US$77.8 million equivalent) is submitted for approval. The proposed ciedit would be on standard IDA terms with 35 years maturity and 10 years grace. The credit would help finance an urban inftastructure project in Liaoning Province. Proceeds of the credit would be onlent to water supply companies in three municipalities thr:ough Liaoning province and the municipalities at variable market interest rate for 15 years including fivt. years grace. 2. Background. The urban sector in China experienced unprecedented dynamism since 1979, with the introduction of economic reform. In the cities, where gross industrial output comprises over 70 percent of the national industrial output, administrative restrictions on the expansion of light industries and service activities were lifted, with increased emphasis on foreign trade, greater involvement by foreign investors, directives for state-owned economic enterprises to concentrate on profit-maximizing behavior, renewal of private economic activity, and liberalization of labor markets. Urban population growth rates are approaching levels not experi- enced since the 1950s, as the demand for labor encouraged a relaxation of migration controls. Cities that had stagnated in population for two decades have found themselves expanding at a rate of 4 to 5 percent per year in the past ten years. The city governments, however, expect the future population growth rate in built-up areas of large cities to decline and to stabilize at around 1 percent per year by the year 2000. Growth in household incomes has also fueled an unprecedented surge in demand for urban goods and services. This has created a severe strain on urban services, and is adversely affecting urban living conditions and urban economic activities. In particular serious deficiencies are noted in urban water supply, water pollution control and urban transport. 3. Given the substantial needs and the severe resource constraints, the Bank has adopted a strategy to assist China's central and local governments to: (a) introduce tools that define investment priorities; (b) utilize existing facilities more effectively; (c) improve sector planning and management to be more demand responsive; (d) encourage greater cost recovery from users of public utilities services; and (e) introduce environmenta' resource management in urban areas. With these objectives in mind, studies were carried out from 1987 to 1989, with assistance from the Australian International Development Assistance Bureau, to develop strategies for the resolution of water supply, water pollution, and urban transport problems in cities in the province of Liaoning. The studies identified a program of investments for water resource development, urban water supply improvement and wastewater management in eight major cities, and for urban transport improvement in three cities, as well as important institutional strengthen- ing work in line with the Bank Group's adopted strategy.  -2- 4. Rationale for IDA Involvement. Liaoning, a province with one of the highest urban growth rtes in China, is facing pressing need to improve efficiency of urban services and quality of the environment, and has turned to the Association for assistance, particularly in the areas of institution- al development and management of urban and environmental services where the Bank Group has significant expertise and experience. Liaoning Province has recently embarked on a major investment program for urban and enviroLtnental services. IDA assistance is particularly useful at this stage in helping to create the institutional framework needed for long-term development of the sectors, to provide advice oni major investment decisions, and to support the continuation of the development program in the planning of the next slice of the investment program. 5. Ptoject Objectives. The project is the first slice of a development program which has broad objectives of improving the utilization and manage- ment of water resources and the management of urban transport. Specific objectives of the project are: (a) to improve water supply in the cities of Shenyang (population 3.2 million), Fuxin (550,000) and Yingkou (360,000) through physical works, and strengthening of institutions, regulations, management, financial and pricing policies; (b) to improve traffic and public transport conditions in Shenyang through a pilot program of selected low-cost physical works as well as strengthening of institutions responsible for planning, managing and operating transport systems, and of traffic regulations and their enforcement; and (c) to improve measures for water pollution abatement through technical assistance to find effective treatment processes, to strengthen institutions and enforcement measures for water pollution control, and to develop the human resources required. 6. Project Description. The project consists of physical works and technical assistance for institutional development in water supply for the important cities of Shenyang, Fuxin and Yingkou, and in urban transport for Shenyang. The water supply component would include the construction of transmission pipelines from existing storage reservoirs, pumping stations, treatment works, supply and distribution pipes, and improvements to the existing water supply networks of the three cities. The institutional arrangements would assist the water companies, as well as the Liaoning Water Resource Commission in: (a) developing and enforcing water regulations; (b) establishing appropriate water resource and water supply pricing policies; (c) improving water supply operation practices; (d) promoting measures for water conservation; and (e) training of staff. On water pollution control, the project would provide technical assistance to the Environmental Protec- tion Bureaus of Liaoning Province and of the three municipalities to: (a) study methods for pollution source treatment; (b) study available types of equipment for treatment and reduction of pollution; (c) develop and improve water pollution control laws and regulations; (d) purchase equipment and instruments for water pollution monitoring, and a mobile laboratory and equipment for water quality monitoring work; and (e) train staff engaged in water pollution control work. The project would also provide technical assistance to the Liaoning Construction Commission to plan a second phase environmental project which would focus largely on sewerage and wastewater treatment works required for water pollution control. The urban transport component would assist the Shenyang Urban Construction Bureau to carry out traffic corridor improvements, and procure equipment for maintenance of roads. Workshop equipment for maintenance and repair will also be procured  -3 for the Shenvarng Bus ziidl Trol lvv-bus Companies Technical assistance would be provided to the Shenyang Construction Commission and the Traffic Brigades of the Shenyang Public Security Bureau for: (a) formulating better urban transport management policies; (h) planning projects; (c) introducing ad- vanced traffic system management techniques and safety enforcement; (d) strengthening operation and maintenance of the bus and trolley-bus compa- nies; and (e) staff training. Project implementation will be managed by a project office for water supply in each municipality, and a project office for urban transport in Shenyang. The municipality level project offices will be coordinated and supervised by a provincial project office. All five project offices have been established and staffed. The project-will be carried out over a period of fi-ve years. The total cost of the project is estimated at US$126.2 million, with a foreign exchange component of US$75.2 millioni (60 percent). A breakdown of project costs and the financing plan are shown in Schedule A. Retroactive financing of up to US$7.8 million for expenditures incurred after December 1, 1989 will be provided. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in China are given in Schedules C and D, respectively. A location map (IBRD 21960) is also attached. The Staff Appraisal Report, Report No. 8250-CHA, dated February 27, 1991, is being distributed separately. 7. Agreed Actions. Liaoning Province has agreed to: (a) carry out water resource pricing, water tariff and water conservation studies; urban transport studies; water pollution control studies; and implement the recommendations of the studies upon their completion; (b) engage experienced consultants, under terms of reference satisfactory to the Association, to advise on detailed design, procurement and construction supervision, carry out various studies, and provide managerial, technical and financial advice to the water supply and public transport companies; (c) carry out a staff training program; (d) cause the water supply companies of Shenyang, Fuxin and Yingkou to carry out a plan for improving metering coverage, system leakage and staffing; (e) have the water supply companies annually prepare financial forecasts for the next five years; (f) have the water supply companies take measures, including but not limited to tariff adjustments, to ensure that their operating revenues are sufficient to meet the aggregate of their total operating expenses and the amount by which their financial obligations exceed depreciation and non-cash operating expenses; (g) cause the water supply companies to maintain a self-financing ratio of 25 percent for capital works; (h) provide or cause the municipalities of Shenyang, Fuxin and Yingkou to provide the necessary local currency funds re4uired for the execution of the project; and (i) have the proceeds of the IDA credit onlent to the water supply companies on terms and conditions satisfactory to the Association. 8. Benefits. The water supply component would eliminate drinking water shortages and improve availability of water to industry for sustained growth. Increasing water tariffs to approximately the average incremental costs of water supply will reduce subsidies and encourage conservation. Health benefits would also accrue to domestic users, particularly those residing in lower income areas, from increased water availability and reduced ingress of contaminated groundwater into the water mains, and the introduction of adequate measures to control system leakage. The urban  tr.insport cornpotiont would rk-lit-ve traffic congestion and improve road safety in centrral city areas of Sh(eriyang. Benefits would accrue from personal savings associated with shorter travel time, savings in vehicle operating costs, reduction in accidoiit costs and reduction of air pollution. Addi- tional project tenetits wouldl also arise from the introduction of better financial discipline, and improvemenits in management and planning of the urban transport services. 9. Risks. Significant pricing policy reforms, and various institutional changes are required in the project, and there are possible risks that the Liaoning Government and tlhe three Municipal Governments may not be able to succeed in implementing these reforms fully. The project is part of a longer term development program and is integral to the successful imple- mentaion of subsequent phases of the program. There is a risk that the Liaoning Government may not be able to raise the necessary resources to fully implement the entire program, thus diminishing the potential benefits of the project. To minimize these risks the project has provided technical assistance to study tariffs and tariff structures which can be afforded by the users, and at the same time achieve the required economic objectives. Agreement has also been reached with the Liaoning Government to provide or cause the municipalities to provide in a timely manner the necessary counterpart funds required 'or the project. 10. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommernd that the Executive Directors approve the proposed credit. .,arber B. Conable President Attachments Washington, D.C. February 27, 1991  Schedule A CHINA I,AONING URBAN INFRASTRUCTURE PROJECT ESTIMATED COSTS AND FINANCING PLAN EstimatedCosts Local ForeiGt Total ----(US$ million)--- Water Supply Shenyang 17.2 26.1 43.3 Fuxin 9.2 13.0 22.2 Yingkou 4.9 10.2 15.1 Urban Transport -Shenyang 5.3 8.0 13.3 Tech. Assistance and Training 0.3 4.7 5.0 Land Acquisition 4.8 0.0 4.8 Base Cost (1990) 41.7 62.0 103.7 Physical Contingency 4.2 6.2 10.4 Price Contingency 5.1 7.0 12.1 Total ProJect Cost a/ 51.0 .75.2. 126.2 Interest during Construction 0.0 2.4 2.4 Total Financina- Required 51.0 77.6 128.6 Financing Plan Liaoning Provincial Govt. 48.4 2.4 50.8 and Municipal Govts. IDA 2.6 75.2 77.8 Total 51.0 77.6 128.6 a/ Project-financed goods are exempt from import duties and taxes.  Schedule B Page 1 of 2 CHINA LIAONING URBAN INFRASTRUCTURE PROJECT PROCUREMENT AND DISBURSEMENTS A/ Procurement Method Project Component ICB LCB OTHER TOTAL --- US$ million -- Civil Works Water Supply 37.5 14.5 2.1 54.1 (14.6) (6.4) (1.5) (22.5) Corridor Improvements 8.1 8.1 (3.8) (3.8) EguiRment and Materials Water Supply 42.4 0.6 43.0 (38.1) (0.6) (38.7) Urban Transport 9.0 9.0 (7.0) (7.0) Land Acquisition 5.9 5.9 (0.0) (0.0) Technical Assistance & 6.1 6.1 Training (5.8) (5.8) TOTAL 88.9 22.6 14.7 126.2 (59.7) (10.2) (7.9) (77.8) a/ Figures in parenthesis are the respective amounts to be financed by the Association.  Schedule B Page 2 of 2 Disbursement Category Amount Expenditures To Be Financed (%) (US$ million) Civil Works a/ 26.3 42% of total expenditures Materials and 45.7 100% of foreign expenditures and Equipment A/ 100% of local expenditures (ex-factory) and 75% of local expenditures for other items pro- cured locally Technical 5.8 100% of total expenditures assistance Total 77.8 Estimated Disbursements IDA FY 1992 1993 1994 1995 1996 ----------------- (US$ million) ------------------ Annual 14.8 22.5 17.9 13.3 9.3 Cumulative 14.8 37.3 55.2 68.5 77.8 A/ Retroactive financing of expenditures totalling US$7.8 million equivalent would be permitted for expenditures made after December 1, 1989 that are of urgent nature as reviewed and agreed to by the Association.  Sche'dul 1 CHINA LIAONING URBAN INFRASTRUCTURE PROJECT TIHETABLE OF KEY PROJECT PROCESSING EVENTS (a) Time taken to prepare 18 months the project: (b) Project prepared by: The Liaoning Provincial Government and the Municipal Governments of Shenyang, Fuxin and Yingkou, with the help of consultants. (c) First IDA Mission: February 1988 (d) Appraisal Mission August 1989 Departure: (e) Negotiations: April 1990 (f) Planned Date of August 1991 Effectiveness: (g) List of relevant PCRs None and PPARs:  F- hpdl.e,Ci A.~ . . . Loatn!ur-. a Cred'i Br- - . *!t ,., Number FY r-we 12s . I-A Uadlsb- (a, Eight lans and twelve ccelits hav-. t--X, tully dbur,-d. 71.7 6339 - Of which SECAL.: 296711932 88 PRO RuraL SI "-e r A . 200.0 1001 - 2252 83 PRC P.trol.Um II (Zhongyuan- 4enliu) 100.8 - 5.5 1411 84 PRC Pol yteLhr.iC:TV University - 85.0 1?.8 1417 84 pRr Rubber Deve lopnent - 100.0 0.8 2382 84 PRC Lubuge Hydroelectric 145.4 - 24.3 2394 84 PRC Railway 220.0 _ 1.0 1472 84 PRC Rural Health & Medical Educ. - 85.0 11.1 2426 84 PRC Petroleum III (Karamay) 92.5 5.6 2444{1500 84 PRC Agricultural Education II 45.3 (23.5j(bl 6.1 1516 85 PRC Agricultural Research II - 25.U 5.1 1551 85 PRO University Development II - 145.0 19.1 2493 85 PRC Power II 117.0 _ 15.9 2501 85 PRC Chan cun (Luan) Coal Mining 79.5 8 51. 1578 85 PRC Rural Water Supply - 80.0 2.8 253911594 85 PRC Hjehway I 31.6 (30.0)(b) 2.0 2540 85 PRC Rali ay II 235.0 _ 119.8 2541 85 PRC Fertilizer Rehab. & 97.0 - 0.7 Energy Saving 16 5 85 PRC Forestry Development - 47.3 11.7 2579 1606 85 PRC PiShiHang -Chaohu Area Dev. 17.0 75.0 9.2 25 0 85 PRC Weiyuansas Field Technical 25.0 - 8.0 Assis tance 1642 86 PRC Rural Credit II - 90.0 1.1 265911663 86 PRC Industrial Credit III (CI8 IIII 75.0 25.0 9.7 1664 86 PRC Technical Cooperation Credit II - 20.0 19.3 1671 86 PRC Provincial Universities - 120.0 14.9 2678(1680 86 PRC Third Railway 160.0 70.0 129.6 2689 86 PRC Tianiin Port 130.0 - 77.2 1689 86 PRC Freshwater Fisheries - 60.0 2.0 2706 86 PRC Beilungang Thermal Power 225.0 - 49.5 2707 86 PRC Yantan Hy roelectric 52.0 - 17.2 2723(1713 86 PRC Rural Health & Preventive Med. 15.0 65.0 54.3 17 3 87 PRC Red Soils - 40.0 0.8 2775 87 PRC Shuikou Hydroelectric 140.0 - 56.8 2; 3/1763 87 PRC Industrial Credit IV (CIB IV) 250.0 50.0 86.3 2784 87 PRC Shanghai Machine Tools 100.0 - 55.5 1764 87 PRO Xinj'iang A~ ricultural Dev. - 70.0 30.8 2794/1779 87 PRC Shanghai '-fwerage 45.0 100.0 111.2 2811/1792 87 PRC Beijling-Tian'in-Tanggu Expressway 25.0 125.0 74.1 2812/1793 '7 PRC Gansu Pro -in ial Dev. 20.0 150.5 108.9 18 5 7 PRC Planning Support & Special Studies - 23.7 17.1 2838 87 PRC Fertilizer Rationalization 97.4 - 50.5 2852 87 PRC Wujing Thermal Power 190.0 - 107.8 1871 88 PRC Rural Credit III - 170.0 27.8 2877/1845 88 PF-_ Huangpu Port 63.0 25.0 69.7 2907/1875 88 Pk, Dalian Port 71.0 25.0 72.8 1885 88 PRC Northern Irrigation - 103.0 61.3 292411887 88 PRC Coastal Lands Dev. 40.0 60.0 39.1 1908 88 PRC Teacher Training - 5010 277.0 2943 88 PRC Pharmaceuticals 127.0 - 51.1 2951 1917 88 PRC Sichuan Highway 750.0 109.8 29 2 88 PRC Shaanxi Highway 50.0 - 33.0 1918 88 PRC Daxing An ing Forestry - 56.9 37.6 2955 88 PRC Beilungang TI 165.0 - 97.2 2958 88 PRC PhosphAte Dev. 62.7 - 61.1 2968 88 PIRC Railway IV 200.0 - 129.8  rage ot3 Loan,' Amount (USS million) Credit Bur- (net of cancellations Nuwber FY rower Purpose Bank IDA Undslsb. (a) 1984 89 PRC Jiangxi Provincial Highway - 61.0 49.5 1997 89 PRC Shaanxi A ricultural 0ev. 106.0 100.0 2006 89 PRC Textbook Development - 57.0 23.0 2009 89 PRC Integrated Reg. Health - 52.0 48.9 3006 89 PRC Ning0o & Shanghai Ports ?6.4 - 47.1 3007 89 PRC Xiamen Port 36.0 - 33.0 30Z2 89 PRC Tianjin Light Industry 154.0 - 147.1 3060 2014 89 PRC Inner Mona lia gailway 70.0 80.0 146.9 ZOl7 89 PRC Shandong Agriculture Dev. - 109.0 74.2 3066 89 PRC Hubei P Qs hate 137.0 - 136.0 3073g2025 89 PRC Shandong P ov. Highway 60.0 50.0 101.2 30 5 89 PRC Fifth Industrial Credit 300.0 - 221.9 2091 90 PRC N.China Earthquake Reconstr. - 30.0 9.4 2097 90 PRC Jianmi Agric. Dev. _ 60.0 57.4 ?114 90 PRC Voca ional & Tech. Educ. - 50.0 54.1 2145 90 PRC National Affgrestation - 300.0 305.4 2159 90 PRC Hebei Agricultural Dev. - 150.0 154.6 Z172 91 PRC Mid-Yangtze Agricultural Dev. - 64.0 68.2 3265/2182 91 PRC Rural Credit IV (C) 75.0 200.0 276.8 327412186 f PRC Rural Industrial Tech (c) 50.0 64.3 113.3 Total 5257.3 4255.6 4405.5 of which has been repaid 296.5 0.0 Total now held by Bank and IDA 4960.8 4255.6 Amount sold: Of which repaid - - - Total Undisbursed 2451.3 1954.2 4405.5 (al As credits are denominated in SDRs (since IDA Replenishment VI). undisbursed SDR credit balances are converted to dollars at the cur ent exchan e rate between the dollar and the SDR. In,sQme cases, therefore, the undisbursed ba,ance indicites a dollar amount greater than the orig nal principal credit amount expressed in dollars. (b) Credit fully disbursed. (c) Not yet effective.  Page 3 ot 3 B. STATEMENT OF IFC lNVESTMENTS (As of December 31, 1990) Invest- Tyne o Loan Equity Total ment No. FY Obligor BuTyness -o- (US$ illion ------- 813 85 Guangzhou and Peugeot Automobile 15.0 3.2 18.2 974 87 China Investment Co. Investment 3.0 0.0 3.0 1020 87 Shenzhen China Bicyc e 5.0 - 5.0 Bicycles Co. Ltd. Kanrutacture 1066 88 Crown Electronics Electronics 15.0 15.0 1119 89 Shenzhen Chronar Solar Solar 2.0 1.0 3.0 Energy Energy Total Gross Commitments 40.0 4.3 44.3 Less cancellations, terminations 3.1 _ 3.1 repayment and sales Total Commitments now Held by IFC 36.9 4.3 41.2 Total Undisbursed 2.0 2.0 116191  LIAONING UiRBAN INFRASTRUCTURE PROJECT Rolsrs7c2ds i00 f -'J \O& .t JILIN -----Posfocturo So,ndalrie, t\,,_ e9^f- . Eden9h 'ls#1 P,ownc# o0undotoes PXd_.J t Kqp- . 1 l CfN G -w - iternot.onji Soonda3nes {{ -q T.4N ' ,/ , ) %k-T~eio YivnP 45 hj ,'8-:d./.3thang) '..I,n (,Jn -zh ,r--f;; -F k XI N S <1 / - ., X 9 I. I ( t t j ., / ( pnX >t g- ~~~~~~~~~FU S H U N-- eg Bi-- S4NYA ' S -I, HEBEI , i ( , X v i /~~~~~ * - ) y -.,> / 11 ft<