China - Shanghai Sewerage Project

 Shanghai sewerage project Report No: ; Type: Report/Evaluation Memorandum ; Country: China; Region: East Asia And Pacific; Sector: Urban Environment; Major Sector: Urban Development; ProjectID: P003449 The Implementation Completion Report (ICR) on the China Shanghai Sewerage Project (Credit 1779/Loan 2794-CHA, approved in FY87), prepared by the East Asia and Pacific Regional Office, was reviewed by the Operations Evaluation Department (OED). The Borrower submitted its own implementation assessment report, which is included as Annex 1 of the ICR. The Credit of US$100 million equivalent and Loan of US$45 million equivalent were fully disbursed and closed on December 31, 1995, two and a half years after the original closing date. The project was the first Bank investment in the China sanitation sector. The objectives of the project were: (i) to improve Shanghai's marine environment and in particular the water quality in the Huangpu River (the main source of water supply for Shanghai) and its tributaries through proper treatment and disposal of city sewage; and (ii) to create and develop an institutional framework encompassing organizational, financial, technical and legislative matters for the management of the disposal of liquid wastes in an environmentally sound manner. Physical objectives were to be met by constructing sewerage systems to serve a population of about 2.6 million by the year 2000, including 35 km of intercepting sewers, ten pumping stations, and a treatment plant. Institutional objectives were to be met through four studies to develop industrial waste management policies, tariff policies, sewer operating regulations, and to set up Shanghai Sewerage Company (later called Shanghai Municipal Sewerage Company, SMSC) as a self-financing entity, through the implementation of the studies recommendations, and through training of SMSC staff. Physical objectives were fully met. All components were built, although with some delays due to more difficult than anticipated ground conditions and Central Government clearance procedures. The completed investments provide wastewater services to Shanghai's main commercial and residential areas as intended. As a result of this investment program, significant improvement is already being observed in the water quality of the Huangpu River; e.g. biological oxygen demand has been deduced by almost 30 percent since the commissioning of the treatment plant in 1993. Institutional objectives were partially met. The planned studies were completed and recommendations accepted in principle, but tariff and sewer rehabilitation related recommendations have, for the most part, not yet been implemented. As a result, the project's financial sustainability objective has not yet been achieved. Further institutional and financial changes have been agreed upon, however, and are being monitored under the recently approved Second Shanghai Sewerage Project. The economic rate of return estimated at appraisal was 13 percent based on assumed increases in rental values of affected properties. The actual return was not recalculated because rental increases associated with this project could not be isolated from the benefits of a concomitant urban renewal program. OED rates the project outcome as satisfactory and the sustainability of benefits as likely, as does the ICR, and the institutional development impact as moderate, higher than the ICR rating, because the borrower has exhibited good progress through its institutional restructuring, the first step towards establishing financial viability. Bank performance is rated as satisfactory. The key lesson from this project is that the achievement of fundamental institutional reforms is a long-term process that requires a clear commitment and often more time than the implementation period of a single Bank project. In this case, the Bank's firm but cooperative approach helped maintain the borrower's focus on the compliance of institutional development objectives and related covenants and established the framework for further financial improvement in the follow-on project. In addition, this project is an example of the important role that high quality design and sound project management play in achieving good results on the ground.  The ICR is of good quality. It presents a comprehensive analysis of the problems, both technical and institutional, faced in project implementation. The section on future operations refers to institutional monitoring under the ongoing follow-on project, but does not include a detailed plan for operations beyond loan closing. This project may be audited at a later date.