China - Tai Basin Urban Environment Project

Documentof The WorldBank FOROFFICIAL USEONLY ReportNo: 27172-CHA PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDLOAN INTHEAMOUNT OFUS61.3 MILLION TO THE PEOPLE'S REPUBLICOF CHINA FOR TAIBASINURBAN ENVIRONMENTPROJECT June 29,2004 UrbanDevelopment Sector Unit China Country Unit East Asia and Pacifc Region IIThisdocumenthascontentsmay arestricted distributionandmaybe usedbyrecipients only inthe performance oftheir official duties. Its not otherwise be disclosed withoutWorld Bankauthorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective April 1,2004) CunencyUnit = Yuan0 Y 1.00 = US$O.12 US$l.OO = Y 8.28 FISCAL YEAR January 1 -- December 31 ABBREVIATIONS AND ACRONYMS AIEC Average Incremental EconomicCost CP Clean Production DFMD Drainage Facilities ManagementDivision(Suzhou) EA Environmental Assessment EMP Environmental ManagementPlan GPN GeneralProcurementNotice HWTC HuishanWaterTreatmentCompanyLimited ICB International Competitive Bidding JPFB JiangsuProvincial FinanceBureau MOF Ministry of Finance NCB NationalCompetitive Bidding PIP Project ImplementationPlan PLG Project Leading Group RAP ResettlementAction Plan RPF ResettlementPolicy Framework SBR Single Batch Reactor SQCC SuzhouQingyuanConstructionCompany Limited SWAB SuzhouWater Affairs Bureau SWIDC SuzhouWater andInvestmentDevelopment Company Limited TBA Tai BasinAuthority TBUEPO TaiBasinUrbanEnvironment Project Office TP Total Phosphorus UNDB UnitedNations DevelopmentBusiness WAMC Wuzhong Asset ManagementandAdministration Company Limited WDC Wuxi DrainageCompany WETDZ Wuzhong Economic andTechnical Development Zone Company WWTP Wastewater Treatment Plant XWTC Xishan Wastewater Treatment Company Limited Vice President: Jemal-ud-din Kassum CountryManagerDirector: Yukon Huang Sector ManagerDirector: Keshav Varma Task TeamLeadermask Manager: Stuart Whitehead  FOROFFICIAL USEONLY CHINA TAI BASINURBANENVIRONMENTPROJECT CONTENTS A. ProjectDevelopment Objective Page 1. Project developmentobjective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy(CAS) goal supportedby the project 2 2. Mainsector issues and Government strategy 2 3. Sector issues to be addressedby the project and strategic choices 5 C. Project Description Summary 1, Project components 7 2. Keypolicy andinstitutional reforms supportedbythe project 8 3. Benefits andtarget population 9 4. Institutionalandimplementation arrangements 10 D.ProjectRationale 1. Project alternatives consideredandreasons for rejection 11 2. Majorrelatedprojects financed by the Bank andor other development agencies 12 3. Lessonslearned andreflected inthe project design 12 4. Indications ofborrower commitment andownership 13 5. Value addedo f Bank support inthis project 13 E. Summary Project Analysis 1. Economic 14 2. Financial 15 3. Technical 17 4. Institutional 18 5. Environmental 20 6. Social 22 7. Safeguard Policies 24 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed /withoutWorld Bank authorization.  F. Sustainability andRisks 1. Sustainability 24 2. Criticalrisks 25 3. Possible controversial aspects 25 G. Main Conditions 1, Effectiveness Condition 26 2. Other 26 H. Readinessfor Implementation 28 I.CompliancewithBankPolicies 28 Annexes h e x 1: Project Design Summary 29 Annex 2: DetailedProject Description 32 Annex 3: EstimatedProject Costs 41 h e x 4: Economic Analysis 42 Annex 5: Financial Summary for Revenue-EarningProject Entities, or Financial Summary 50 Annex 6: (A) Procurement Arrangements 65 (B) FinancialManagementandDisbursementArrangements 79 Annex 7: ProjectProcessingSchedule 89 Annex 8: Documentsinthe Project File 90 h e x 9: Statementof Loans and Credits 91 h e x 10: Country at a Glance 95 Annex 11: Social andEnvironmental Analysis 97 MAW4 CHN 32768 CHN 32769  CHWA TAI BASINURBAN ENVIRONMENTPROJECT ProjectAppraisalDocument EastAsia andPacific Region EASUR ._.- - Date: June 29,2004 Team Leader: Stuart Whitehead SectorManagerlDirector: KeshavVarma Sector(s): Sewerage(85%), Floodprotection(15%) CountryManagerlDkector: YukonHuang Theme(s): Water resourcemanagement(P), Pollution Project ID: PO57933 management andenvironmentalhealth (P), Environmental Lending Instrument: Specific InvestmentLoan(SIL) - policiesandinstitutions(P), Otherurbandevelopment(S) [XI Loan [ ] Credit [ 1Grant [ ]Guarantee ]Other: For LoanslCreditslothers: LoanCurrency: UnitedStatesDollar Amount (US6m): $61.3 BorrowerRationalefor Choiceof LoanTerms Available on File:IxIYes ProposedTerms (IBRD): Variable-Spread Loan (VSL) Commitmentfee: 0.75% Front endfee (FEF) on Bank loan: 1.OO% Paymentfor FEF: CaDitalizefromLoanProceeds tBRD - 0.37 60.93 61.30 Total: 96.85 81.86 178.71 Project hplementatlon period: 5 years Expectedeffectivenessdate: 11/15/2004 Expected closing date: 12/31/2009  A. Project DevelopmentObjective 1. Projectdevelopmentobjective: (see Annex 1) The Government's objective for the proposedTai Basin UrbanEnvironment Project (TBUEP) is to improve the quality of life of the rapidly increasingurbanpopulation and enhance economic competitiveness inWuxi and Suzhou, keymunicipalities inthe Tai Basinandthe Yangtze RiverDelta economic region, by alleviating degradationo fwater resources andimprovingthe quality of the urban environment. To meetthis objective, the project is designedto increase the captureandtreatmentof wastewaterincore cities andthe rapidly hdustrializing suburbandistricts through physical investments andinstitutionaland financial reforms that will enhance the viability andsustainability of wastewater systems, particularly in these rapidly developing districts. The project will support rehabilitation andwater quality improvement in severalurbananddistrict canal andriver systems through physical investmentsandimproved water management. Inaddition, the project will supportlakeshorerehabilitation aroundWuli Lake as a new development andamenity area for Wuxi City. Finally, the project will seek to strengthenwater resource protection inthe Tai Basinthrough improvedandintegratedplanning, water quality monitoringand environmental management. The project designthereforereflects the core elements ofthe Bank'sUrban Strategy-livability, good governance, competitivenessandbankability. 2. Key performance indicators: (see Annex 1) For the wastewatercomponents, keyperformance indicators (summarizedinAnnex 1) will include specific targets for: reducingthe proportionofuntreated wastewaterdischargesinWuxi and Suzhou' Municipalities; cost-effective and autonomousoperation of wastewater treatment systemsandcapacity utilization for wastewater treatment plants under the project; andcost recovery bywastewater enterprises to ensure sustainability. Monitoring datawill also berecordedinperiodic progressreports on measures underJiangsu's CleanerProduction (CP) Programto reducepollutingdischargesbyindustries discharging into project financed wastewater systems. For the lakeshore, riverrehabilitation andwater quality improvement components, key performance indicators will includetargets relatingto improvedwater quality at key locations inthe rivernetwork, improvedlakeshoreconditions at Wuli Lake andfor enhanced water circulationinthe canal network. B. Strategic Context 1.Sector-relatedCountryAssistanceStrategy (CAS) goalsupportedbythe project: (see Annex 1) Document number: Report No. 25141 Dateof latestCAS discussion: December 19,2002 The project will support severalkey CAS themes, including: improving water resourcesmanagement; ensuringenvironmentally sustainableurbandevelopment; andexpandinglivelihood opportunities duringthe rural-urban transition, including for surplus rural labor. The project will support the Bank's UrbanSector Strategywhich emphasizes improvedlivabilityandeconomic competitiveness, as well as the Bank's Water Sector Strategywhich promotes sustainable wastewater and water resourcesmanagement. 2. Main sector issues and Government strategy: TheLake Tai Bashforms an integralpart o f the YangtzeRiver Deltaeconomic region, which is China's most important industrial base andone of the most heavily populated areas o f China. In2000, over half of the Basin's residentslivedincities andperi-urban towns, andurbanization continues to increase. Driven byhighlevels of foreign direct investment, total gross domestic product (GDP) inthe Basinhas been  growingat over 10percentperyear on averageandpresently stands at Renminbi (RMB) 1trillion- approximately 11percent of the national total. In 1999, Suzhou(RMB 136billion) andWuxi (RMB 114 billion) together accounted for almostthree quartersof the GDP. The Tai Basin is also one of China's most important water resources. Lake Tai and its dense network of rivers and canals provide water supply for the majority ofthe Basin's 36.3 millionresidentsincludingthose who live in the large andgrowingurbaneconomies of Wuxi and SuzhouinJiangsuProvince. Lake Tai is also the source o fwell over halfofthe domestic water supply for ShanghaiMunicipality, , Despite the region's dependence on the water resourceso fthe Basinfor water supply, the provisiono f environmental infrastructure and services, including the collection andtreatment o fwastewater, has failed to keep pacewith the rapidly growingeconomy of the region. Increasingflows o funtreateddomestic, industrial and agriculturalwastewater intothe Basin's rivers andlakes have put the region's water resources under severeenvironmental pressure. The consequences o fcontinued rapidgrowth and urbanization have become increasingly apparent. Government reports indicate that the water quality inover 85 percento fthe mainwater bodies inthe Basin is Class N or worse (unsuitable for domestic supply) and deteriorating. The canals withinSuzhou and Wuxicities are reportedly worse thanClassV, the lowest classification accordingto Chinesewater quality standards. Water quality inthe upper HuangpuRiver, which is fedby Lake Tai and is the main source of drinkingwater for the Shanghaimetropolis, hasbecomeincreasingly pollutedover the lastfive years andis now only marginally acceptableas a drinkingwater source. Urbanenvironmental conditions as poor as these have significant negative impact on citizens'health andthe livability andeconomic prospectsofurban areas. Recognition o fthe needfor urgentaction to protect the health andeconomic well-being o fcommunities relyingonthis increasingly pollutedlake andrivernetwork ledthe State Council to establishthe Lake Tai BasinWater ResourceProtection LeadingGroup in 1996 anda pollutioncontrol programwith the goal of resolving the region's water pollutionproblems by2010. The first stage of the programwas conductedunder the NinthFive-Year Plan (1996 -2000). The National NinthFive-Year PlanandLong-TermProgramonWater PollutionPrevention andControlto theYear 2010 for the Taihu Lake Basinwas issuedby the State Council onJanuary 6,1998 andfocused almost entirely on industrial and domestic pollutionpoint source control. Itlisted 54 domestic wastewater treatmentplantsplanned to be builtinthe Tai Basinprior to the year 2000. Industrial PollutionControl Action Planswere also developedand some progresswas made to bringkey polluting enterprises (particularly incore city areas) into compliance with environmental regulations. However, the success of the NinthFive-Yearplanwas limitedfor several reasons. First, vast numbersof enterprises, particularly inthe heavily industrializingdistricts andcounties surrounding the core cities within the Basin, were generally not brought intocompliance with the targets duringthe planperiod. In addition, progresswas slow onthe collectionandtreatment o f domestic sewage; only 29 o fthe proposed54 domestic treatment plantswere completed or partially finished bythe end o f 2000. The Government attributedthe lack of implementation success to the scarcity o flocal government fimds for investment inthe wastewatersector, andto poor enforcement of environmental regulations at enterprises. Followingthe NinthFive-YearPlan, which concluded in2000, the Government has continued to identify improvement o fwater quality inthe lake andriver system o fthe Tai Basinas a nationalpriority and municipalities are aimingto collect andtreat 50 percent o f wastewater in smaller cities and 70 percentin - 3 -  larger cities by 2010. However, the Government's strategywas modifiedsomewhatinthe TenthFive-Year Action Plan for Lake Tai PollutionControl (2001-2005). Whilst this plancontinues to emphasize collection andtreatment ofpoint source pollution, it also seeks to enhance the results o f pollutioncontrol activities by increasing circulation inthe Basin's rivers andlakes throughwater transfersfrom the Yangtze River. Insummary,this planunderwhichthe current project is proposed, placespriority on: (a) improving wastewater management, particularlycollection andtreatmento f domestic sewage; (b) improving water quality byreducing Total Phosphorus(TP) dischargesinto heavily pollutedwater bodies suchas MeiliangandWuli Lakes inWuxiMunicipality andbytransferring higherquality water from the Yangtze Riverto increasecirculation andimprove water quality inthe lake andcanal system; and(c) strengthening local capacity for water environment monitoring andmanagement. The Tai BasinAuthority (TBA)is planningandconstructing infrastructure to facilitate these transfers, including gatesandpumping systems. Pilot transfer activities havebeenundertakenbyTBA duringthe last few years to determine the viability o fthe key transfer schemes, such as that through the WangYu River. Inresponseto the NinthandTenthFive-Year Plans, inZhejiangProvince, wastewater captureand treatment capacity has beensubstantially increasedandadditional facilities andnetworks are under construction and planned (e.g. inJiaxin City, which lies on a major tributary of Shanghai's Huangpu River). JiangsuandZhejiang Provinceshavealso introducedbanson the productionandsale of phosphorous-baseddetergentsinthe Basin, which were estimatedto contribute upto 15 percent of TP in the lakesandrivers andJiangsuis enhancingits water qualitymonitoring capability. Shanghai Municipality andits districts continue to make substantialinvestmentsinwastewaternetworks and facilities, manywithBanksupport, and Shanghaihas shown leadershipinradically restructuring the institutional framework to improve planning, financing anddelivery ofwater andwastewater services. Whilst considerable strategy work for environmental improvement inthe Basinlyingwithin Jiangsu Province has already beencompletedby TBA andprovincial agencies, less progress has beenachievedin translating these strategies intowell coordinated, operational plans for the mainimplementers within the Basin's municipal anddistrict governments. InWuxiandSuzhoufor example, selectedkeypollutingindustrialenterprises arebeingmoreclosely monitored usingautomatic equipment, thoughthis remains a relatively small proportiono ftotal existing industries. For some industrial sectors (e.g. dyeing), discharge standards are being tightened to reduce the overall pollution contribution of large enterprisesinthat sector. However, many importantpollution Sources such as non-point sourcepollution from agriculture, animal husbandry facilities and the vast numbersofsmall-scaleindustries,haveyetto beeffectively addressedbythe national or local environmental regulatory authorities. Inthe domestic wastewatersectorinChina, responsibilityfor urbanwater andwastewaterservicesis generally divided betweenmunicipal governmentswithjurisdiction over core city areas, anddistrict governments,responsiblefor towns. Manydistrict govemments inthe Tai Basin area have recently been upgradedfrom county level governmentsto expandtheir role inproviding urbanpublic infrastructure and utilityservicesinurbanizingtowns andindustrial development zones. Respondingto nationalpriority plans andprovincial strategies, locally-funded programs are underway at the municipal level, albeit slowly, andwith limited coordination, to rehabilitate andexpand wastewatersystems inthe core city areas o f Changzhou, Wuxi and Suzhou. The rapidlydeveloping districts surrounding these cities are also now scrambling to collect andtreat increasing wastewater flows, particularly inareas where industries continue to concentrate. m ekey limitation o fthe municipalities' anddistricts' responseto the nationalplanninginitiativesinthe - 4 -  Tai Basinh@beenthe fragmented approachto localplanning andmanagementof environmental intiastructure inthe Basin. A lack ofeffective inter-jurisdictional coordination inservice planningand delivery, as well as relatively weak regulatory oversight andenvironmentalmonitoring/enforcement capacity, has limitedthe effectiveness of implementation. For example, inthe wastewatersector, district governmentsinthe Basinare actively developing independentwastewaterfacilities under new wastewater agencies, rather thanconsolidating new service areasunderexisting, more experiencedmunicipal wastewater companies. Sewernetworks, where they exist, are ofteninadequateto fully capture wastewater flows even for the relatively smalldistrict treatmentplants inplace. Inthe areao fwater transfers, planninghas beenhamperedby a lack o flocal consensus on the location o f gates and other infrastructure. n e Government recognizesthe needto buildthe capacity o f agenciesresponsible.for wastewater management by strengtheningthe planning,management and financing capabilities of these agencies to improve the efficiency andsustainability of the substantialinvestment required. Inparticular, gov-ent policies aimto strengthenthe market orientationo fwastewater service by promotingestablishmentof autonomousandfinancially viable wastewater enterprisesandlimitedprivate sector participation, including through partnerships withprivate sector operators. Consistentwiththese objectives for overall environmental sector reform, some municipalities inthe Basin are reforming organizational structuresto consolidatethe water resources(including transfers and other hydraulic controlmeasures), water supply andwastewater sectors undera single Water Affairs Bureau, These reforms generally transfer ownership of wastewater networks andfacilities to an assetmanagement company andpromote outsourcing o foperations andmaintenancefor these systems to experienced operators. While these arepositive developments, whichbringthe promise of better coordination ofthe water andwastewater sectors inthe future, they generally do not yet extend to district governments. Moreover, without reformo f funding arrangements, wastewatercompanies, particularly at the district level, will be unable to operateinthe market oriented andfinancially sustainablemanner sought bygovernment policies. Indeed, achieving financial viability andsustainability has been a considerablechallenge for the small district wastewater systems inthe Tai Basinbecause, first the lack o f economies ofscale andthe relatively highproportionofindustrial wastewater, result inrelativelyhighunitinvestment andoperating costs, Second, district governments do not have sufficient authority to establishtariff levels or levy separate wastewater fees reflecting their higher cost base. Third, district wastewater companies lack any legal claim over wastewater fees leviedbymunicipal governments on consumers inthe districts andthere is presently no agreedmechanism inplace to returnmunicipal wastewater fee revenues to district wastewater companiesto meetdebt serviceobligations andoperating expenses. 3. Sector issuesto be addressed bythe project and strategic choices: The project will meet a strategic needfor expandedandmore sustainablecoverageo f environmental planningandprotection systems inone of China's mostrapidly industrializingandurbanizingareas where bothphysical andinstitutional infrastructure for wastewater managementi s inadequate. A start will be made underthe project on four key sector issues: (a) the lack o f environmental infrastructure existingin key areas inthe Tai Basin, (b) the poor water quality inthe urbananddistrict canals andriver system; (c) the lack of financial andinstitutionalsustainability of existing wastewater service delivery arrangementsin the Basin; and (d) the weak anduncoordinated planningand environmental management inmajor urban centers. The project's contributionto these sector issues is as follows. - 5 -  First, the project will supportphysical investmentsto reducethe presenthighlevel ofuntreateddischarges of domestic andindustrialwastewater flows. Second, the project willhelp protectwater quality inWuli Lake (one o f Lake Tai's most heavily pollutedperimeter lakes locatedinWuxi Municipality) from heavy inflows of pollutedwastewater andflooding, andwill supportrehabilitation of canals inthe centralcity o f Suzhou. Third, the project will supportinstitutional andfinancial reforms that will provide amore viable, market-oriented basis for managing andoperatingwastewater systems particularly at the district level. Fourth, bothWuxi and Suzhouare undertakingwastewater masterplanning exercisesinvolvingthe rapidly growing districts as well as core cities, Three strategic choices have beenmadeduringthe design of this project. First, emphasishas beenplaced onworking not only withmunicipal governments, but also with governmentsinthe districts, where a significant portion o fthe total urbanpopulation ofthe Basinlives, andwhere most new industrial development andurbanization istakingplace. Existingexperience indistrict andtown sewerage systems is mixed. Typically, the staff o f agencies that becomeresponsiblefor these systemsrequire extensive and lengthycapacity building. Moreover, as notedabove, unitoperating costscanberelatively highfor small wastewater systems especially as inmany cases, investmentsare often almost entirely debt financed. The needfor efficient models for the management ofdistrict level wastewatersystems inrapidly urbanizing districts is widespread inChina andis recognizedas a priority inthe Government's strategy for sanitation sector development. Second, a strategic choice hasbeenmadeto supportthe Government's strategy ofcomplementingpollution control with water transfersinorder to improve water quality inthe Basin's river andcanal network as articulated inthe Tenth Five-Year Plan. In200112002, the Tai Basin Authority conducted severalpilot water transfers from the Yangtze River through the WangYuRiver to Lake Tai. These pilots showedthat water transfers canhave a major impact on improving the water quality inLake Tai andcan speedup circulationinthe lake andriver network Analysis o fthis pilotprogram indicates that all neighboring areas including Suzhou, Wuxi and Shanghaibenefit from these transfers. However, to realize the benefits o f these transfers, severalstructural andnon-structural measuresare requiredto reducepollutionentering the system, This project will support the Government's pollutionControYtransfer strategy throughphysical investmentsinpollution control andhydraulic works inWuxi and Suzhou. Inaddition, the locally-financed wastewater masterplanning inWuxi and Suzhou Municipalities shouldenhance stakeholderinvolvement andclarify sectorobjectives andinterventions for improvedwater quality management. Third, inrecognition of the rapidandcontinuing development inthe Tai Basin, astrategic choicehasbeen madeto support investmentsthat tackle existing industrial wastewater, as well as domestic discharges, and provide for future growth. The marketfor private sector fitlancing is not considered to be sufficiently mature at this time to fully provide these services, andtherefore local govemment andBank intervention is warranted. The JiangsuProvincial Government andthe municipal anddistrict government counterpartsin this project are currently working towards developing prudent ways to encourageprivate participation in this sector. The project will support these efforts to reformthe wastewater sector inthis heavily industrializedarea of JiangsuProvince by providing assistance inthe development o f strategiesfor private sector involvement, andinproviding opportunities to pilot certain strategiessuch as combination of areas under single wastewatersystems andoutsourcing for operation andmaintenance. - 6 -  C. ProjectDescriptionSummary 1. Projectcomponents (see Annex 2 for adetaileddescriptionandAnnex 3 for adetailedcostbreakdown): A. Wuxi Municivalitv WuliLake Sub-project ($35.0 million): These non-Bank financedactivities dealwiththe most-heavily pollutedperimeter lake -Wuli Lake, and include: (a) pollutioncontrol facilities (10 sluice gates, 1 shiplock); (b) lake-bank restoration(19.4 km); and (c) pilot researchinecological restoration. Wastewater TreatmentPlants (WWT.P) and Networks ($68.5 million): The componentwill include: (a) the first phaseofthe Chengbei-HuishanWWTP inHuishanDistrict with acapacity of 50,000 m3lday of primaryand25,000 m3ldayofsecondarytreatment, as well as 58 lanof sewers serving Changanand youqiao industrialarea; (b) expansionof DongtingWWTP inXishanDistrict (from 20,000 to 50,000 m3lday capacity) and40 kmof sewers; (c) anewWWTP (25,000 m3lday capacity) and 130kmof sewers including three lifting stationsto develop the full skeletono fthe sewer network anduser connections servingM e n , HouqiaoandYangjiantqwnships andthe proposedWuxiEastIndustrialPark, all within XishanDistrict. UrbanArea CanalNetworkRehabilitation($19.7 million): The componentwould include: control gates on Xujiang andShangtangRivers to enhance flood protection andprevent the intrusiono fpollutedwater from the GrandCanal into Suzhou's urbancanal system; andto prevent the loss o f clean water diverted throughXitangh River from the WangYuRiver. This scheme is alsopartofthe overall floodprotection planfor SuzhouCity area. The componentincludes one sluice gatelshiplock onthe XujiangRiverandone sluice gatelshiplock onthe ShangtangRiver withbankheighteningworks. The component would also finance sediment dredging for 65 kmto restoretransit and absorptive floodcapacities o f canals inthe urban areao f Suzhou. Wastewater TreatmentPlants and Networks ($49.4million): The componentwill include: (a) a second phaseof the FuxinWWTP (100,000 m3lday capacity) serving the south andwest areas of Suzhou City; (b) a secondphaseof theLoujiangWWTP (80,000 m3lday capacity) servingthe northandeast areas of Suzhou City; and(c) the first phase of a WWTP (25,000 m3lday capacity) and72 kmof associatedsewers sewingWuzhong Economic DevelopmentZone inWuzhongDistrict. C. ImvlementationManapement andSectorDevelovment Assistance ($1.9 million): This component will include: (a) technical assistancefor capacity buildingfor wastewaterutilitiesmanagementand financing; (b) training inproject management; (c) technical assistance for engineering design and construction supervision; and (d) locally-financed preparatiodupdatingo fwastewater masterplansfor Wuxi and Suzhou Municipalities. - 7 -  0.0 Wuxi Wastewater TreatmentPlantslnetworks - 68.49 38.3 28.44 46.4 Suzhou Wastewater TreatmentPlantslnetworks 49.42 27.7 22.50 36.7 Suzhou Central UrbanArea Canal NetworkRehabilitation -- 7.29 4.1 3.88 6.3 Suzhou- PollutedWater Control Schemes(on Xujiang and 12.38 6.9 4.12 6.7 ShangtangRivers) Technical Assistance (TA) andCapacity Building 1.75 2.9 Other Other I Other Total Project Costs 174.46 97.6 60.69 99.0 Interest duringconstruction 3.64 2.0 0.00 0.0 Front-end fee 0.61 0.3 0.61 1.o TotalFinancingRequired I 178.71 I 100.0 I 61.30 I 100.0 2. Keypolicyandinstitutionalreformssupportedbythe project. As partofoverall institutional reforms Within municipalgovernmentsinthe Lake TaiBasin, anew institutional model for public utilities is emerging. The objectives ofthis model are to: (a) consolidate strategicplanningandoversight of water-related functions; and(b) separate asset ownership fromthe operation o f assets as ameans to openupnew iinancing opportunities for utilityservices andto improve the efficiency o futilitymanagement. Basedonthis model, SuzhouMunicipality has consolidated its water andwastewater functions under a Water Affairs Bureau. Inaddition, in2002 it establishedthe SuzhouWater Investment and Development Company Limited(SWIDC) for the purposeso fholding all sector assetsthrough subsidiary companies. fie Suzhou QingyuanConstruction Company (SQCC) is one such subsidiary and is responsible for wastewater sector assets incentral SuzhouCity area including those developed under the project. By2006, the Drainage Facilities Management Division(DFMI))will be corporatized also as a subsidiaryunder SWIDC to manageandoversee operation andmaintenanceofall wastewater systems inSuzhou's central districts. Similarly, Wuxi Municipality has recently establisheda Public UtilitiesManagement Group and anasset managementcompanyto overseeandsupervise operating companiesfor water supply, wastewater andtown gas inits central urban districts. However, as indicated above, these institutional reform initiatives at the municipal level havenot yet been extendedto the rapidly urbanizingdistricts outside the central city areas. Inthese districts, plans for new wastewatersystems have typically involved establishmento fseparate wastewater systems andinstitutions for eachtownship, therebyincreasing institutionalfragmentation andmakingcoordinated planningmore difficult, as well as increasingthe cost of deliveringwastewater service. The projecttherefore seeksto beginconsolidationof managementarrangementsfor wastewatersystems at the district level. Byalso outsourcingoperationsandmaintenance, the project will overcome the lack ofin-house experiencefor managingwastewater systems inthese districts. - 8 -  Moreover, these institutional reforms will not be fully effective without supportingreforms to the funding arrangementsfor wastewater operations. Althoughexisting wastewater fees appliedinSuzhouandWuxi are amongst the highest inChina, they are applied underthe legalauthority of the municipal governments, not the wastewater companies. As such, the fees are remisedto the finance bureauo f eachmunicipal government, or to the district governmentinthe case of Wuzhong, with sector fundingthen beingprovided throughbudgetary allocations. A substantialshare of the proceedsis generallyretainedby municipalities for other purposes and the allocationto the wastewateragencies is often insufficient for adequate maintenance of the assets inoperation. Of even greater concern, inHuishanandXishan Districts inWuxi, no systematic arrangementsare inplace for the returno fwastewaterrevenuesto enable the districts to finance operation of existingsystems andto undertakemuchneededexpansions. These existingfunding arrangementsare basedontraditional institutional structures, inwhich governmentbureaus directly providedall wastewater services. However, with asset ownership andmanagementfunctions now being separatedthroughthe corporathation model, these new companiesneedtheir own sources of operating revenue. The project would therefore seek to assist SuzhouandWuxi to make the municipal anddistrict institutional reforms fully operational. As a first step, the project will assist inimplementing, at boththe municipal and district levels, the recently approvedstate guidelinesby corporatizing wastewaterutilities to enhance prospectso f tapping private sources of capital for future investments, possibly throughpublic/private partnerships, To further improve the cost effectivenesso fwastewater operations, proposedinvestmentsin severaltownships inXishanDistrict inWuxiMunicipalityhave been combined into substantially more economical engineering confrgurations. For example, Xishan District is mergingall wastewater systems withinthe district startingwiththe existing wastewatersystemat Dongtingwiththe proposednew system to Serve townships at M e n , Houqiao andYangjian, as well as the WuxiEastIndustrialEstate. In addition, the SQCC that presentlymanageswastewateroperations inSuzhouCity is to be contractedto manageimplementation of the wastewater systeminadjacentWuzhong District. Fundingarrangementsfor wastewaterserviceproviders are alsoto bereformedunder the project. The legalbasis for wastewater revenuesis to be changedfrom a municipal wastewater fee to awastewater utilitytariffthat is legally due to theresponsiblewastewatercompanies. This will allow revenuesto be transferred directly to wastewater companiesbythe water supply companies that presently act as collection agent for wastewaterfees. To implement this reform, Wuxi andSuzhouMunicipalities will formulate an actionplanearly duringproject implementation for transferring all wastewaterrevenuesback to the districts to finance wastewater operationsandfor counterpart funding o f investments underthe project, Ap-reement was reached at nepotiations on the timetable for these initiatives. 3. Benefitsand target population: Consistentwith the Bank's UrbanStrategy, the project is designed to enhancethe livability, govemanceo f core public services, competitiveness andbankability o ftwo majorurbancenters that are facing continued rapid growth. The project would directly benefit aboutfive millionpeople presently living and working inWuxi and SuzhouMunicipalities, as well as substantialdownstream communities, including Shan-. These benefitswould includereducedhealthrisks andimprovedproductivityandlivelihood prospects, including for rural-urban migrants. Expansion of wastewater service inrapidly industrializingdistricts under the project willhelpestablish a - 9 -  viable model for managing smallwastewatersystems andwill reducepollution o fthe region's critical water resourcesandsupply, andthereby helpensure the environmentalsustainability of continued economic growth andthe Government's policy for urbantransition. The canal rehabilitationprogram inSuzhouwillhelp reduceflooding andfurther enhance the quality of life for residents andthe tourism potential of this historic city. Similarly, the locally-financed Wuli Lake rehabilitationprogramwill help reducethe frequencyandseverity of flooding inWuxi City and, at the same time, open up anew area for developmentinWuxi City with substantialamenity value for commercial, residential andrecreationaluses. Finally, wastewater masterplanninginWuxiandSuzhouMunicipalities would contribute to the goals soughtbythe ongoingmunicipal reforms inthe water/wastewater sector, including consolidation o f strategic planningandoversight of water-relatedfunctions to achievemore cost effective options for the very substantial future investmentthat will be required inthe wastewater sector inthe Basin, 4. Institutionaland implementation arrangements: The Tai BasinUrban Environment Project Office (TBUEPO), whichhas beenestablishedwithinthe JiangsuProvincial FinanceBureau, hastakenthe leadincoordinating the work ofthe intemational consultant team for review of project proposalsandwill beresponsible for overall coordination o f project implementation. TBUEPO willexercisethis coordination functionproactively to avoidthe difficulties experiencedbyJiangsuProvincial Environment Bureau duringimplementation of the recently completed Southem JiangsuEnvironment Protection Project. A timetable for recruiting experienced staffin procurement andproject financial management, environmental, andresettlementaspectshas beenagreed. TBUEPO will report to the provincial Project LeadingGroup (PLG) which consists o f heads ofrelevant provincialcommissions andbureaus. SuzhouandWuxi Municipalities have eachestablisheda PLG anda PMO alsounder the respective Municipal Finance Bureau, andProject Implementation Units(PIUs) for individual components, InWuxiMunicipality, thelocally-financed WuliLakeRehabilitationcomponentwillbeimplementedby the Wuxi Water ConservancyBureau, which gained satisfactory experienceimplementinga component of the Tai BasinFloodControl Project, andhas already implemented dredging works, relocationof fishponds and water transfer works inthe lake. The HuishanWater Treatment Company Limited (HWTC) establishedinMarch2003, will beresponsible for implementing the Huishanwastewater component and, followingconstruction, will outsource operations andmaintenancefunctions to anexperiencedoperator. Similar arrangementsare proposedfor the DongtingandM e nwastewater systems, which are being mergedunder the new Xishan Wastewater Treatment Company Limited (XWTC). ~n Suzhou, the SQCC will be directly responsible for implementation o fthe canalrehabilitationcomponent includingthe control gates onthe ShangtangandXujiangRivers, andthe dredging programas well as for the implementation of the expansionto the FuxinandLoujiangwastewatertreatment plants. The (corporatized) DFMDwill be responsible for operations and maintenance ofthe wastewater treatment plantsfollowing construction. The Wuzhong Asset Management andAdministration Company Limited (WAMC), set upunderthe Wuzhong Economic andTechnical Development Zone Company (WETDZ), willberesponsiblefor implementingandmanagingtheproposedwastewatersystemintheWuzhong industrial zone area. However, WETDZ is arrangingto contract SQCC to manage implementationand -10-  will outsourcenetworks andfacilities to an experiencedoperator, following construction. Confirmation was obtainedat nepotiations on these arrangements and that the DFMD will be comoratized bv December 31.2006. as a subsidiary under SWDC to manage and oversee operation and maintenance of all wastewatersvstems in Suzhou'scentral urban districts. Confirmation was also obtained at negotiations on satisfactory arranaementsfor imtdementation suaDort for wastewater treatmentcomoanies. D. ProjectRationale 1. Project alternatives consideredandreasonsfor rejection: The originalproject designfocused on improvingwater quality inLake Tai. However, this narrow focus onthe lake didnot adequatelyrecognizethe impact ofthe highly pollutedcanal andrivernetwork throughout the Basin on the quality of life andeconomicprospectso fthe residentso f the area. Ifeconomic growth inthe regioni s to be sustained, andquality of life improved for all residents, improvedwastewater planningandmanagementincludingadditional investmentandincreasedinstitutionalcapacity inthe wastewater sector is urgentlyneededinthe rapidly urbanizingandindustrializingdistricts surrounding the major cities, including inareas that do not drain directly intoLake Tai. Therefore, the project design has beenadjustedto focus on improvingthe localenvironment inthe core urbancenters andthe rapidly urbanizingdistricts inthe large conurbations ofWuxi andSuzhou. This project focus reflects much o fthe work alreadybeingledbythe Government, andthe local authorities intheTaiBasin. As indicatedabove, programstoimproveurbanenvironmentalconditions, including wastewater management inparticular, are underway inmanyparts o f the Basin, including inShanghai Municipality, ZhejiangProvince andinChangzhou,WwCi andSuzhouMunicipalities withinJiangsu Province. The Bankproject will complement andbuildon these existing efforts. Moreover, the original project design hinged onimplementation o fcontrol structures onthe westernbankof the WangYu Riverto protect water transfers from pollution inthe river catchment. Inthe absence o f expandedinfrastructure and environmental monitoring to addresspollutioninthe river catchmentat source, local governmentshave become concernedover possiblenegative environmental impacts ofthe control structureson nearbycommunities. The investmentsunder the project, particularlyinXishan District, seek to address this issue by reducing untreatedwastewaterdischargesthat presently flow into the WangYu River andwill thereby also have a positive impact onLake Tai water quality. - 11 -  2. Majorrelated projectsfinancedby the Bankandlorotherdevelopment agencies(completed, ongoingandplanned). Latest Si stvision Sector Issue Project ( P W 1tings (Bank-flnancec irojectsonly) Implementatlon Development Bank-financed Progress(IP) ObJectlve(DO) UrbanEnvironment including YunnanEnvironment Project , S S wastewatermanagementandLake basinpollutioncontrol including industrial pollutionandnon-point sourcepollution control UrbanEnvironmentincluding GuangxiUrbanEnvironment S S wastewater andwater resources Project management UrbanEnvironmentincluding SecondShanghaiSewerage S S wastewater Project UrbanEnvironmentincluding ShanghaiEnvironment Project S HS wastewater UrbanEnvironmentincluding SichuanUrbanEnvironment S S wastewater Project UrbanEnvironmentincluding Chongqing UrbanEnvironment S S wastewater Project UrbanEnvironmentincluding HebeiUrbanEnvironment S S wastewater Project UrbanEnvironment including LiaoningEnvironment Project S S wastewater Toxichazardous waste Industrial SouthernJiangsu pollutionanddomestic wastewater Environmental Protection Project Toxichazardous wastes U U IndustrialPollutionControl U U Domestic wastewater HS HS Other developmentagencies PlDO Ratings: HS (Highly Satisfactory), S (Satisfactory),U (Unsatisfactory), t (Highly Unsati ICtOry) 3. Lessonslearnedandreflectedinthe projectdesign: Chinahas the largestportfolio inthe Bankandits quality is amongst the best performing. A recent OED assessment, China: Review of theBank's assistanceto the Urban Water Supply and WastewaterSector, Report No, 24979 ratedthe outcome of Bank's assistance as having beenmoderately satisfactory, its sustainability as likely, butits institutional impact as modest. meICRfor theSouthernJiangsuEnvironmentProtectionProjectnotedconsiderabledifficultieswiththe sustainabilityofindustrial pollution controlandtoxic andhazardouswaste components, which represented over 80 percentofinvestments under the project andwere ratedunsatisfactory. By contrast, the report - 1 2 -  ratedthe wastewater componentas highly satisfactoryhaving beenwell designedandimplementedbelow appraisedcost andfully meeting the water quality objectivesas set out ineach city's long-term water qualitymaster plan. However, theproject failedintwo ways, a) to achievefullcostrecovery for wastewater investments; andb) to convert the wastewatercompaniesintofully autonomous entities in accordancewiththe 1994 company law, thus perpetuatingtheir dependence on the municipalpublic utility bureaus andfinance bureaus. Key lessons learned frompastprojects,which will have beenreflected in project designinclude the needfor: (a) strong client ownership; (b) improved coordination at the provincial level; (b) greater focus onutilityreform to implement the Government's policies towarddevelopmentof autonomous, commercially oriented utilities, with tariffs adequate to ensure financial sustainability and emure satisfactory operationandmaintenanceo f assets created; and (d) encouragingprivate sector participation, where there is political support for it. The project design hasalso beenshapedbyrecent experiencethat hashighlighted a tendency for local investment plans that make inadequateprovisionfor collection networks resulting inunderutilization o fthe treatment plantsthat are often over-designed. Investmentsinnetworks have beenincreasedto fully capture wastewater flows to support existing, as well as proposednewwastewatertreatment plants, whichhave beenreviewedandscaleddown, where appropriate, to reflect morerealistic wastewater flows. The turnkey coneacts for wastewatertreatmentplants inSuzhoushould ensure that plants operate at peak efficiency andlowest operating costwhenhandedover following commissioning andinitialoperation. The institutionaldesign ofthe project for asset managementlooks to outsourcing operation and maintenanceactivities to experiencedoperatorsratherthanrelying solely on strengtheningin-house capacity, whichhas had mixedresults elsewhere. Reforms infunding arrangementsaddress major impediments to sustainability andexpansiono fwastewater service indistricts. 4. Indicationsof borrower commitment and ownership: Project componentsare basedon the priorities outlined inthe cities' urbanandenvironmental masterplans andthe extensiveongoingprograms oflocally funded wastewaterinvestments, includingfor rehabilitation of city sewer networks inbothWuxi and Suzhou. The NationalDevelopment andReformCommission (NDRC) identifiedthe project as a key priority for Bank support. Assurances were obtained at negotiationsthat an action Dlan would be FAmished to theBank bv June 30, 2005 for imnlementation of the locally-financed Wuxi Sewer Network Rehabilitation Promam. Project implementationarrangementsare beingfinalized provincialandmunicipal project management ofices are inplace, andchartersfor allexecuting wastewater companies have beenrevised to meet the requirementsfor project implementation. Municipalities have retainedprocurement agents andhave set an implementationschedule that calls for advance contracting andretroactive financing for some components. Aspects o fthe HuishanandDongtingwastewater components inWuxi andthe Canal Rehabilitation program inSuzhou, for which retroactive financinghas been requested,are already underway. Most importantly, municipal governments have committed to reformfunding arrangementsto ensurefinancial autonomy andviability o fwastewater investments, particularly inrapidly developing districts. 5. Value addedof Banksupport inthis project: The value of Bankassistance interms o f effective investment outcomesis already known to the client, who successfullyimplementedthe wastewater investmentsunder the Southem JiangsuEnvironmentalProtection Project. To buildonthis satisfactory experience, Bankinvolvement during project preparation has highlightedpractical opportunities to modernize managementarrangements for district wastewater utilities and improve the cost effectiveness andfinancial sustainability o f wastewater systems andto help strengthen -13-  institutionalarrangementsfor sector coordination. The project, therefore, seeks to address apriority inthe Government's strategy for wastewater sector managementby helping to shape viable approaches for smallerdistrictltownshipwastewater systemsthat generallyhaverelatively higherunitcostsandmore difficulty inmobilizingexperiencedoperatingstaffto ensure efficient andeconomical operationand maintenance o f networks andtreatmentfacilities. Inparticular, morecosteffective andviableconfigurationsrequiringfewer separatewastewatertreatment plants andinstitutionshavebeendevelopedfor district wastewatersystems. Inaddition, the proposed expansiono f sewer networks, both for existing, as well as for proposednew treatment facilities under the project, will minimize the risko funderutilization ofthese assets inthe project area, which is a growing problem for many existing wastewater systems inChina. Use o ftumkey contractsincludingdetailed design, construction, equipment supply/installation, commissioning andinitialoperation for wastewater treatmentplantsin Suzhou, should ensure these plants operate at peakperformance andat lowest operating cost when handed over to the responsiblewastewater company, thereby reducingwastewater feeltariff increasesneeded. Outsourcing of implementation management andoperation andmaintenancefunctions to experiencedoperators should enable the new wastewater companiesbeing establishedto avoidlengthy and costly implementation delays due to inexperience, andto set clear performance accountabilities for the efficient andreliable operation andmaintenanceof wastewater systems. Dialoguethrough project preparationhas also encouragedmunicipalities to initiate reform o f funding arrangementsnoted above to make the ongoing municipal institutional reforms fully effective. Water quality modelingduringproject preparationhas helpedtarget project investments inwastewater systems inthe areaof some o fthe most heavily polluted rivers. Expandedtesting o fwastewatertreatment plantsludgefor hazardousmaterial, is asignificant enhancementofenvironmental safeguardsinlightof the proportiono f industrialwastewater being treated. Inaddition, the locally-financedwastewater masterplansinWuxi and Suzhouwill provide abasisto strengthencoordination betweenjurisdictions in strategyandactionplanningfor improvedwater quality managementinthese rapidly developing areas. E. Summary ProjectAnalysis (Detailed assessments are inthe project file, see Annex 8) 1. Economic(see Annex 4): 0Costbenefit NPV=US$million; ERR= % (see Annex 4) 0Costeffectiveness 0Other(specify) The project will improve the quality o fthe urbanenvironment through improvedwastewater andwater quality managementinthe key municipalities o f Wuxi and Suzhou andmore widely inthe Tai Basinwhich will facilitate sustainableurbaneconomic growth andsocial development. The locally-financed Wuli Lake rehabilitation programwill help reducethe frequency andseverity o f floodinginWuxi City andwill open upa substantialnewareafor development with significant amenity value for commercial, residentialand recreationaluse. Similarly, the canalrehabilitation programin SuzhouCity will reduce the fiequency and severity o fflooding andwill further enhance the quality o f life for residents andthe tourismpotential ofthis historic city. Expansion o fwastewater treatment capacity inSuzhou City will benefit most o fthe city's population. Expansion of wastewater service inrapidly industrializing districts inWuxi andSuzhouwill helpto reducepollutionof the region's critical water resources. Byexpanding sewer networks, the project willhelputilizewastewatertreatment capacity, includingatexistingplantsthereby increasingthe productivity ofwastewater investments. Itwill also helpreduce healthrisks andenhancelivelihood prospects andproductivity inthese rapidly growing areas andfor downstream communities. The project support8 Critical institutional andfrnancial reforms that will provide a more viable and - 14-  sustainablebasis for wastewaterinvestments,particularly inthose small systems servingthe rapidly developing outlying districts. The locally-financed wastewater masterplanningto be undertakenby Wuxi andSuzhouMunicipalitieswould, for the fmt time, incorporaterapidly-growingperi-urbandistricts in actionplans that addressthe growing pollution of water resourcesina strategic area inthe basin. Economic Analyses. Manyo fthe project benefits, particularly those relating to environmental andpublic healthimprovements, couldnot bereliably quantified. For this reason, the choice o fpriority wastewater investments under the projecthas beenguidedby cost effectivenessanalysis. Basedon this approach, alternative project designs were identifiedandevaluated inorder to determinethe least cost solutions. InHuishan,the optionofchannellingwastewaterto anexisting wastewatertreatmentplantinthe Wuxi City systemwas consideredwas rejecteddue to limitedexpansioncapacity. InXishan, separate wastewatersystems were initially proposedfor eachof the seven townships and anindustrial development area. However, a comparison of investmentandlong-runoperating costs indicatedthat one or two wastewatertreatment plantscouldserve these areas more efficiently andeconomically, resultinginlower operating andoverhead costs. Combining the Xishan systemsandthe Dongting systemwouldfurther reducecosts. For the Wuzhong system, the optiono f conveying wastewater for treatment innearby Suzhou City was considered, butrejectedinlightof the characteristicso f the mainly industrial areabeing served andthe desire to integrate future wastewatersystems inthe district undera single wastewatercompany. The sequential SBR was selectedas the most economical treatment processfor the relatively small m p sproposedinthe three districts. The overall, locally-financed WuliLake rehabilitation program includes dredgingandwater diversion, as well as control gates, embankmentwork andpilot ecological restoration. Two options were consideredto divertwaterto Wuli LakeandWuxiCity's canals from either Gong Lake,where the WangYuRiverenters Lake Tai, or from Meiliang Lake, which is more polluted, but significantly less so than Wuli Lake. Water quality modeling simulations indicated that divertingwater from GongLake could improvethe water quality inWuli Laketo ahigher degreethanfromMeiliangLake. However, the other optionwas favored byJiangsuProvince andthe TBA as away to also draw water infrom Lake Tai, thereby also improving water guality inMeiliangLake. Moreover, Wuli Lake is intendedto serve only as a tourism water body anddivertingwater from MeiliangLakecanmeetthis requirement. 2. Financial(see Annex 4 andAnnex 5): NPV=US$ million; FRR= % (see Annex 4) Financial projections over the 2004-2015 periodhave beenprepared for the four project wastewater companies, SQCC, WAMC, HWTC, andXWTC for the merged Dongting andM e nwastewater system. These projections are basedonthe requirement o f eachcompany to comply with the agreedupon furancial covenantsregarding costrecovery, debt service coverage, as well as the needfor intemally generatedcontributions towardproject counterpart funding. The kev financial covenant reauires that each project comvanv generates annual overatino revenues that are sufficient to cover all oDeratinP emenses, including - - devreciation. anv loss on non-onerating activities. vlus the amount. if anv. bv which debt service exceeds devreciation. This ratio o f operating revenues to costs is expressedas the costrecovery ratio, which, therefore, mustbe at least 1.O ineach year. In addition. a debt service coverageratio covenant will also be avvlied under which the comvanies'abilitv to incur additional debt will be conditional on them maintaining this ratio at not less than 1.3, Tosafeauard good Drosnects for financial viabilitv. agreement was reached that the Bank will be advised and Piven an ovnortunitv to comment on any additional borrowing bv wastewater companies. -15-  The mainsource of revenue for project wastewatercompaniesis the existing municipal wastewater fees, which at RMB 1.15/m3 inSuzhouand RMEl 1.10/m3 inWuxi, are amongstthe highest inChina. With conversion o fthis fee to awastewaterutilitytariff, all revenues generatedfiom the tariffswill be directly transferred to the project companies. This will give the companies their own source o f operating revenue andprovides the basisonwhich they canestablishthemselves as financially viable andsustainable enterprises consistent withtheir independentlegal status under g o v m e n t policy. However, the companieswill alsoneedto carefully managetheir operations, as well as their capital investment programs, so as to achievethe greatestpossible efficiency inthe use of these revenues. This is particularlyimportant for the three small district wastewater companiesbecause opportunities to achieve low cost operations through economies of scale are limited. This challengehas beenaddressedthrough a number ofmeasures incorporated into the project designs. Project investments are basedon the leastcost solutions over the opqating life o f eachwastewater component. Additionally, the operating scope of eachcompany has been maximizedto the extentpresentlyachievableinorderto minimizemanagementandother overheadcosts. Operating efficiencies will be further enhanced through the outsourcingo f operations andmaintenanceto experiencedwastewater operators. IfmoderatetariffincreasesareimplementedeverythreetofouryearsinSuzhou, tariffrevenuesshouldbe sufficient to enable SQCC to filly recover the cost o f its operations, as well as to make contributions toward capital investments, includinga portiono fproject counterpartfundingrequirements. The tariff would needto be increasedby a modest 15 percent in2006, to RMB 1.32/m3, andthenby a further 18 percent to RMB 1.561m3 by 2009, whenthe project facilities are fully operational andprincipalrepayment requiredto cover generalinflationary increasesinoperating costs. Overthe 2004-2007 period, the on the Bank loanbegins. After 2009, the needfor further increases is anticipated to be limitedto that company will generate an operating surplusthat shouldbe sufficient to fund almost 40 percent o fproject counterpartfunding. The cost recovery ratio is projectedto exceedthe covenantminimumo f 1.O inall years andaverage 1.3 over the 2005 -2015 period. The debt service coverageratio is also projectedto be satisfactory, remainingwell above the 1.3 minimuminall years. prior to the commencemento foperationsofthe project-funded facilities in2008, the wastewater company inHuishanwouldnothaveanyoperatingassetswhilethe companiesinXishanandWuzhongwouldhave only limitedassets inoperation. Therefore, a large share o f the revenue generatedfrom the wastewater tariffs over this periodcan be allocated to counterpart fimding. InHuishan, tariffrevenues should be sufficient to cover 45 percentofcounterpart fundingrequirements. InXishan, the company will be operatingthe existing Dongting WWTP, but this will require only about 50 percent o frevenue over the 2004 -2008 period, with the remaining50percent allocatedto cover almost 20 percent o f counterpart fundingrequirements. Wuzhong isprojectedto be able to generatejustunder40 percent ofrequired counterpartfunds from the tariff. Revenuegeneration inWuzhong is basedon projectedincreasesin Suzhou's municipaltariff, referred to above. For HuishanandXishan, the projections are basedon anticipated increasesinthe municipaltariffapplied throughout Wuxi. Tariff increaseso f 15 percent in 2006 and20 percentin2009 are envisaged. Withthe newwastewatersystems beginning operation in2008 2009,revenueswould thenbeused - primarily to coverthe operatingcostsanddebt service obligations o fthe four project companies. Given that wastewater tariffsinbothSuzhou andWuxi are set ona municipality-wide basis, andtherefore largely reflect lower unit cost structures inthe central urbanareas, the projections indicate that these tariffs will be insufficient to fullyrecover the costs o fthe district companies beginningin2008. Inorder to cover this anticipated shortfall, eachdistrict company will apply a surcharge on industrialwaste generators. The existingmunicipal fee is set at the same levelfor all customers, but since the cost o ftreating industrial -16-  wastewater is generally higherthanthat for other groups, the surchargewill reallocate charges so that they better reflectthe actual cost of providing wastewater services to the different customer groups. In2008, the projected requirement for the surchargeis RMB 0.501m3 inHuishan,RMB0.80/m3 inXishan, and RMB0.65/m3 inWuzhong. Onthis basis, allthree companiesshouldcomplywiththe costrecoveryratio ineachyear over theforecast period. InHuishan, thecostrecoveryratioisprojectedto average 1.3 over the first eight years of system operations, 2008 - 2015. InXishan, where the project facilities are expected to enter operation in2009, the costrecovery ratio over the 2009-2015 averages 1.2. For Wuzhong, the average cost recoveryratio is 1.2 over the 2008 -2015 period. The debt service coverageratio is projected to alsomeet the covenant requirement inmostyears, butinthe case ofHuishanandXishan, may fall slightly below 1.3 inone or two yearsjust after the project facilities enter operation. However, the companiesshould have sufficient cashreservesfrom previous years that will ensure that they canmeettheir debtservice obligations. FiscalImpact: An analysis ofthe availabilityof counterpartfunds was undertakenbyreviewingrevenuesandexpenditures intheproject cities anddistricts. Althoughrevenuesfromthe wastewatertariffwillbeusedtomeeta portiono f counterpart funding for the projectwastewater components, contributions are also requiredfrom the capital budgets of the municipal anddistrict governments. Forthe non-wastewater components, all counterpart funding is providedfrom the capital budgetso fthe municipal governments inSuzhouand Wuxi. Basedonconservativeassumptionsregardingfuture revenuegrowth, the analysis indicatesthat the project components are consideredto be affordable to the municipal anddistrict governments. Requirementsfor project counterparth d s from the two municipal governments andthree districts as a proportionof total revenuesvary between0.2 percenton average inSuzhou (0.5 percent inthe peakyear), 0.2 percent inWwi (0.5 percentinthe peakyear), 0.4 percent inWuzhong (0.8 percent inthe peakyear), 0.5 percentinHuishan(1.1 percent inthe peak year), and 1.9 percent inXishan (3.7 percent inthe peak year), Whenconsidering only revenuesthat canbe allocatedto the infrastructure investment, which is an approximation o f financial capacity to contribute to the project, counterpart contributions as a proportion of the capital budget varies between 0.6 percenton average in Suzhou (1.5 percent inthe peakyear), 0.4 percentinWuxi (1.2 percent inthe peak year), 1S percent inWuzhong (2.9 percent inthe peakyear), and 1.9 percentinHuishan(3.8 percent inthe peak year), and5.5 percent inXishan (11.3 percent inthe peak Year). 3. Technical: The choice o fthe treatment process for the proposedwastewatertreatment plants hastaken into account the highproportionof incoming industrialwastewater (50 to 70 percent o f total flow) andthe potential fluctuations inthis influent quality. For district wastewatertreatment plants, the borrowers' selectionof SBR is the most appropriate andcost-effective choice. Inthe case o fthe largerSuzhouWWTPs, additional samplingdatawill determine the most appropriate system, andthe borrower has agreed to proceedthrough a tumkey bid. Underthis type o f contract, bidders would be askedto make technical proposals through a two-stage approach, Le. by includingthe design as part o f their services. - 17-  While treatment facilities havebeendesignedto accommodatesome fluctuations inthe quality andquantity o finfluent, this uncertainty is to beminimizedthrough capacity buildingandinstitutional strengthening. National law requires industrial enterprises treat their effluent to a preliminarylevel suchthat the effluent quality meets prescribed standards (equivalentto domestic strength wastewater) for releaseintothe public sewers. Under the project, wastewaterutilities will take responsibility for protecting their own assets by directly monitoringthe incoming effluent at its entryto the sewer network, andbypolicing the acceptability o fusers' discharges. The charters of the wastewatercompanies inthis project include provisions that allow them to seek interventionandultimately to refuseindustrial sewage from non-conforming industries. Agreement was reachedat negotiationson measuresto be taken to ensure effectivemonitoringand enforcement arrangementsand to record activitiesin ueriodicproiect promess reuorts. 4. Institutional: 4.1 Executingagencies: InWuxiMunicipality, the locally-financed WuliLakeRehabilitationcomponentwillbeimplementedby the Wwi Water ConservancyBureau, which has considerableexperience implementingthe type of works involved. Wastewater components inHuishanwill be implementedby the HWTC, which was establishedinMarch 2003 and will require technical assistance for institutionalstrengthening. The Dongtingwastewatersystem andthe Anzhen wastewatersystemwill beimplementedbythe XWTC, establishedinJanuary2004, which will require technical assistancefor institutional strengtheningfor project implementation andto effectively merge wastewater operations andmaintenancethroughout Xishan District. InSuzhou, the SQCC, anautonomousagencyunderthe Water AfTairsBureauwill beresponsiblefor the implementation of all componentsinSuzhouCity canal rehabilitation componentincluding the control - gates on the ShangtangandXujiangRivers, canaldredging andthe expansiono fthe FuxinandLoujiang WWTPs, following completion o fthe firstphase construction o fthese plantsthat is also under its implementation. SQCC has good experienceincarrying out similar programs despiteits limited number o f staff andusually delegatestechnical responsibilities to qualified autonomousunits through adequate biddinghelectionprocess. The Wuzhong wastewatersystemwill be the responsibility o f the WAMC establishedinOctober 2003, anew wastewater company establishedunderthe WETDZ. Arrangements are beingmadeto contract implementation managemento fthe Wuzhong wastewater systemto SQCC and, following construction, operationandmaintenanceo fnetworks andfacilities will be outsourcedto an experiencedoperator. 4.2 Project management: The overallproject will be coordinatedbythe ProvincialFinance Bureau, through the TBUEPO. Additional staffingneedshavebeenidentifiedto ensure effective project managementby TBUEPO, and assuranceswere obtained at negotiationson a satisfactow timetable for recruitmentof additional staff for the TBUEPO with exaeriencesatisfactow to the Bank NewPMOshavebeenestablishedto coordinateimplementation ofcomponentsinWuxiandSuzhou Municipalities, respectively. These PMOs are under the respective MunicipalFinance Bureaus to ensure close coordination withTBUEPO at the provincial level. Close coordinationwas also establishedbythese municipal PMOs and their respectiveimplementingagencies duringproject preparation. However, additional staffkgneeds inmunicipal PMOs for procurement managementandproject financial management, inparticular, havebeen identified. Assuranceswere received dun" negotiationson a - 18-  satisfactom timetable-forthe recruitment of experiencedstaft TBUEPO will retaininternational andlocalconsultantsto assistwithdesignreview andengineering supervision, as well as outsourcing o f operationandmaintenanceof wastewater facilities andnetworks, institutionalstrengthening for utilities managementandoverall quality assurance. TBUEP will also organize foreign study tours for PMO staff inproject management. Implementingagencies will retak (a) localdesigninstitutesto assist with remaining design work; @) local supervision companiesto assist inconstruction supervision; and (c) local tender companies for assistance withinternationalcompetitive bidding(ICB) procurement. Independentagencieswill alsoberetainedfor independentmonitoring of resettlementaction plans andenvironmentalmanagementplans andmitigation activities. 4.3 Procurement issues: The responsibilities of procurementmanagementare definedinthe final ProcurementManual,which has beenpreparedby TBUEPO. A procurementassessmentwas undertakenbythe Bank to determinethe capabilities of all the implementationunits andPMOSfor this project. Further details are givenin&mex 6. The riskofproblems was assessedas average. Most implementation unitshave designatedspecific departmentswith adequate staff to be responsiblefor procurement. Also, additional training programs will beprovidedbyTBUEPO to ensure that allresponsible staff are fully conversantwith the Bank'sguidelines andprocedures. Except for thetwo turnkey contractsfor wastewatertreatmentplants inSuzhou, all contractswill be procuredundernational competitive bidding (NCB) proceduresbecauseof the nature and relatively small size of these contracts; very few are likelyto be over $7 million. Retroactive financing estimatedat $5 millionwill beprovidedto finance some civil works inthe sewer networks at Huishanand Dongting as well as advisory services for designo fturnkey contractsfor FWrinandLoujiangWWTPs in Suzhou. . 4.4 Financial managementissues: The assessment, basedon guidelines issuedbythe Financial Management Sector Boardon June 30,2001, hasconcludedthat theproject will meetthe Bankfinancial managementrequirements,as stipulated inBP/OP 10.02, subject to addressingthe action planinAnnex 6@). Fundingsources for the project include Bankloanandcounterpartfunds. The Bankloanproceedswill flow from the Bank into the project SpecialAccount to bemanagedbythe JiangsuProvincial Finance Bureau, to project implementingagencies(or project companies), andfinally to contractors or suppliers. The Bank loanwill be signed betweenthe Bank andthe People's Republic o f China through its Ministry of Finance (MOF), and Subsidiary LoanAgreements will be signedbetween MOF andJPFB andthen betweenJPFB and SuzhouandWuxi govemments through Suzhou andWuxiFinance Bureaus, respectively, andfinallybetween SuzhouandWuxi Finance Bureausandimplementing agencies. In accordance withthe agreementbetweenthe BankandMOF, disbursementswill be basedonthe traditional reimbursementarrangementsandwill notuseprojeet managementreport (PMR)-based disbursements. Counterpartfunds will beprovidedby appropriation from provincialandmunicipal govemments, including from wastewaterfees andtariff revenues, andsome localcommercial debt. No outstandingauditsor audit issues exist with any of the implementingagenciesinvolvedinthe proposed project, The companycharters for all wastewater enterprises have beenrevised to alignthe company's mandate withfunctions andresponsibilities undertheprojectandinline withChineseutilityenterpriseaccounting - 1 9 -  regulations, staffingschedules andjob descriptionsandexperience/qualificationsrequirementsfor Project Accountants andtraining requirements. Trainingneedshave beenidentified for staff inimplementingagencies inthe use o fthe Financial Management Manual,that has beenpreparedbyJiangsuProvincialFinanceBureaufor the project. Moreover, implementationmanagementarrangementsinXWTC andWAMC, which are newly established, are being f m e d up and staffing will not be requireduntillate 2004. Agreement was reached at negotiations that imvlementinpapencies will comvletestaffingappointmentsand training, as well as anv remaining actions for organizational arrangements,accountina and financial manaaement and reporting svstems. as a condition ofBank disbursementon respective components. 5. Environmental: Environmental Category: A (FullAssessment) 5.1 Summarize the steps undertakenfor environmentalassessment and EMP preparation (including consultation anddisclosure) andthe significant issues andtheir treatment emerging from this analysis. HohaiUniversity carried out the consolidatedEnvironmentalAssessment (EA) of the proposedTBUEP in accordancewith China'snational policies andBankprocedures, withsupport from an independent international consulting environmental specialist. The terms ofreferencesandvarious draftversionswere reviewed anddiscussedindetail duringproject preparation. The draft Englishversion o fEA documents were submitted to the Bankinlate September 2003 andreviewed bythe Bankduringthe appraisalmission andrevisedaccordingly. The finalEAreport, EA Summary andEnvironmentalManagementPlan(Em) were submittedto the Bank inDecember2003 andfollowing additional clarification andanalysis in February2004, were found to be satisfactory. The FinalEAdocumentation, as supplemented, was sentto the Bank'sInfoshop inWashington andinBeijinginMarch2004. Duringthe EA preparation, localpeople were consultedat leasttwice, andtheir opinions havebeenreflected inthe project design andenvironmental mitigationmeasures, as appropriate. Project investmentswill have positive environmental impacts intenns of improving water quality inthe Tai Basin. Domestic andindustrial wastewaterswill be collected andtreated at six WWTPs to remove pollutants. For year 2010, the expectedreduction o fpollutant discharges to surface waters from the six WWTPs are 122tonnes/day (tpd) ofchemical oxygen demand(COD)Cr, 62 tpdo f biological oxygen demand(BOD)S/day, 6 tpdof NH3-N,80tpdofsuspendedsolids (SS), and0.6 tpdofTP. These reductions will improve the quality o f the receiving surfacewaters inSuzhouandWuxi anddownstream areas. The canal network rehabilitation investmentsinSuzhouunder this project -including dredging and construction o fsluice gates andshiplocks will improve the water quality andreduce the riskof flooding in - this city. The locally-financed Wuli Lakerestoration activities, also under this project, will improve the water quality andaquatic life inthe Lake, andcreate a public greenbelt for tourism andrecreation. Minor adverse impacts duringconstruction andoperation o fparticular investments are expected, butwill bemitigated. The adverseimpacts will bemostly inthe form o fnoise, odor (stink gas), particulate matter (PM)emissions, sedimentandsludgedischarges, andtraffic congestion. Noise emissionsfromWWTP havebeenassessedat the boundary line ofWWTPs, and found to be inexcess o f standardsonly inthe case of the FuxinWWTP (both day andnighttimes), HuishanWWTP (only at nighttime), and Loujiang W P s (only at nighttime). However, adverse impacts onreceptors -which are 200 mto 500maway from these WWTPs -are not expected. Regardingtransportation o f sedimentsdredged fiom the Suzhou Canalsto the disposal site, alternatives were evaluatedconsidering such factors as noise andtraffic impacts. Mitigatory measures for noise emissionswill include no construction at night, use o fequipment withlownoise, useofvehicles with noise control, andsettingupofconstruction barriers. Inaddition, cargo shipswill not be allowed at any time andpleasureboatswill not be allowed at nightsinthe - 20 -  ShangtangandXujiangnetworks inSuzhou; shipnoisewill be limitedto 55 &A, silencers will be installed on ships for noise suppression, siren duration andfrequencieswill beminimized; anduse o f sirens will not bepermittedinresidential areas. Odor emissions fiom the sedimentationand SBR tanks o fWWTPs will beminimizedbyproper operation through adjustment of the air flow rateo fthe blower to bringwastewater to aerobic state, andthrough timelysludge dewatering, handlingofsludge cakes indewateringrooms, use ofsealedtrucks for transporting the sludge to the disposalsite, sprinklingtemporary sludge storage areas withbleach, and plantingtrees aroundthe aerationtanksandWWTP. To mitigate PMemissions, vehicles will be covered, their speedwill be limitedto 40 km/h, andtheir wheels will be cleanedofmud. Sediments from Suzhou Canalshavebeentestedfor hazardousmaterials and, inalmost all cases, found to be withinstandardsprescribedbyapplicable Chineseregulations, withmost indicators low or undetectable. Inaccordancewith theregulations, these willbedisposedat asite at Sanjiaozuithat iszonedas greenarea inSuzhou'smasterplan.Furthertestingforhazardousmaterials istobeundertakenofsedimentsinthe Xiaomiduqiao River sectionprior to dredging to determine ifother disposalarrangementsare needed, for example at purpose builtcells at the municipal landfill. Sludge from WWTPs will be testedfor hazardous characteristics under applicable Chineser e g u l a t i o n s / s t . Any sludgefound to behazardouswillbe disposedat a hazardouswastelandiill. Ifthe sludge is foundto benon-hazardous,itwill be disposedat a separate cell that is designedandoperatedincompliance with ChineseGovernment regulations, ina sanitary landfdl. Prior to receiving the sludge, the hazardous andor sanitarylandfillswill be certified as designedandoperatedincompliancewith applicable govemment regulationsrelatingto disposal of wastewater treatment plant sludge. Transportation o fthe WWTP sludgewill be conducted by leak proof trucks. Confirmation of theseawanaementswas received at neaotiations. Public consultations haverevealedconsiderablesupport for this project. However, concernswere also expressedabout the potential unpleasantodors from WWTPs, andgreaternoise and dust levels, as well as traffic. Some suggestedshorterconstruction periods to reduce adverseimpacts duringthe construction period. The shiplock at the ShangtangRiver was re-sited further away from the historic Hangshang Temple. Agriculturaluse o fthe WWTP sludgewas viewed not feasible by affected people for the Wuzhong andDongthgWWTPs. These concernshave beenincorporated intothe project design andinthe EMP. TWOsuggestionsare madeat the conclusion ofthe EAReport. The first oneregarding implementation of the locally-financed Wuli Lake ecological restoration sub-component as a pilot activity (instead of an activity for full-scale implementation) is reflected inthe project design. The secondrelatesto the implementation of industrial pollutionprevention measures(inparticular, waterrecycle and reuse at industrialfacilities) as a means to reducecosts associatedwithwastewater treatment and sludge management. Aweement was reached at negotiations that industries discharoing into vroiect-financed ~ Pwill be included in theJianasu CPvropram and that ueriodic vroiect vropress reuorts will s reuort on uollutionprevention audits and implementation of recommended measures bv firms discharpinginto vroiect-financed wastewatersvstems. Confirmation was also received at negotiations that periodic vroiect vrogress rel;lortswill reuort on imvlementation of all activities reauired under the X P . 5.2 What are the mainfeatures of the EMP andare they adequate? For each sub-component, the Environmental Management andMonitoringPlan identifies the mediato be monitored, the location of the monitoring site, the parameters to be'monitored, andthe frequency o f -21 -  monitoring. A training programfor managementandtechnical personnelofWWTPs, as well as for the Wuli Lakerestoration andSuzhousewer network rehabilitationhasbeenidentified. Bank's commentson the EMP were providedon October 12,2003, to strengthendeficiencieswith respectto the Bank requirements (OP 4.01). The EMPwas amendedaccordingly andfinalizedinFebruary2004. 5.3 For Category A and Bprojects, timeline and status o fEA: Date o freceipt o f finaldraft: Bankreceived the fvst drafiofEAinEnglishinlate September2003 duringthepreappraisalmission. Bank's comments wereprovidedonOctober 12,2003. The EAwas finalized with all clarifications and analysisinFebruary2004. 5.4 How have stakeholdersbeenconsultedat the stage o f (a) environmental screeningand(b) draflEA report on the environmental impacts andproposedenvironment managementplan? Describe mechanisms of consultation that were usedandwhich groups were consulted? Consultationswiththe potentially affectedpeople were conductedbythe EA team intwo stages. First stagepublic consultationswere heldprior andduringpreparation of the EA Report (period between October 2002 and August 2003). At this stage, the EA team heldmeetingswiththe potentially affected people to discussthe EA TOR, including informationaboutthe project componentsandactivities involved, potential environmental impacts, mitigatorymeasures, andthe implementation schedule. Informal discussionsandon-site visits were held, andquestionnaireswere distributed to understandthe public attitudesandneeds aboutthe project's environmental aspects. The interviewees were from differentsexes, age groups, culture levels, andfamily structures. Second stagepublic consultationswere conductedinJuly 2003 bythe EAteam after completion of the draft EAReport to disseminatethe conclusions ofthe EAReport anddisclose the mitigatory measuresto the potentially affected people. This provided anopportunity to address the concernsthat hadbeenraised bythe affectedpeopleregardingthe project. Consultative meetingswere heldregarding the Anzhen WWTP (inNianyuVillage), DongtingWWTP (inWangsongbang), Wuzhong WWTP (YinxiVillage), and WuliLakerestoration (inD a hTown, DongjiangTown, JingchengandXuelangTowns). Inaddition, on-the-spot interviewswere heldandquestionnaireswere usedto receive feedback. InAugust 2003, the Project was publicized bythe EA team inHohaiUniversity's website (httu://www.hhu.edu.cn), anda 24-hour telephonehotline was opened. 5.5 What mechanismshave beenestablishedto monitor andevaluate the impact o f the project on the environment? Do the indicators reflect the objectives and results o fthe EMP? As partofthe EMP,monitoringprograms havebeendraftedfor eachprojectcomponenthub-component. Monitoringarrangements andreportingprocedureshave been strengthenedinthe Final EAreport, as supplemented, inFebruary 2004. The indicators regarding "improved urbanwater quality environment" specified in h e x 1 of the project appraisal document (PAD)reflect objectives o fthe EMP. 6. Social: 6.1 Summarizekey social issues relevant to the project objectives, and specify the project's social developmentoutcomes. The key adverse social impacts o fthe project are largelyrelatedto landacquisition anddemolition o f structuresfor different components o f the project. In accordancewith local laws, regulations andthe World BankOP 4.12 on Involuntary Resettlement, two ResettlementAction Plans (RAPS)have been - 22 -  preparedfor the various components, includingwastewatertreatment plants, seweragenetworks, canal dredging, flood control facilities, sluice gates andembankmento fWuli lake inSuzhouandWuxi . Municipalities, respectively. The two RAPs are eachbasedon a detailed census of the affected people, inventory ofaffected assets, socioeconomic surveys andextensiveconsultationswith the project affected people. The various components of the project will require a total o f904.7 muof land, demolitionof 53,967 m2 of houses, andrelocation of 16 enterprises. These would affect 536 people due to landacquisition and774 people in 176householdsdue to housedemolition. Cashcompensationor replacementhousing will be offered to those who will lose their residence. Enterpriseswill be offered analternative site and compensatedfor property loss. Forpersonswhose employment will be affected temporarily, cash compensationwill bepaid for their income losses. The RAPs detail the census, inventory, project resettlementpolicy, compensationrates andbudget, compensationandrehabilitation programs, institutional andmonitoringarrangements. A retroactive reviewwas undertakenfor relatedresettlementactivities whichhave alreadybeencompleted. The retroactive review provideddetailed information ofthe numberof affected people andthe status of livelihoodrehabilitation. A ResettlementPolicy Framework hasbeenpreparedinaccordancewith local laws, regulations andWorld BankOP4.12 onInvoluntaryResettlementfor the linkedsewer networks rehabilitation inSuzhou. Details are available inAnnex 1l-B. Noindigenousethnic minority communitieshavebeenidentifiedlivinginthe project areas, 6.2 Participatory Approach: How are key stakeholdersparticipatinginthe project? The project componentswere preparedinaparticipatory manner. The project entity, with its team of international andnational consultants, have organizedvarious consultative meetings withrepresentativesof the provincialandmunicipal governments to apprisethem o f the environmental anddevelopmentissues. These have facilitated participatory consultations, garneringstakeholder support for the project concept, andeducatingthese stakeholdersontheir roles andresponsibilities inprojectexecution. Local consultants carried out social surveys ofpotential beneficiaries andusers o fproject services. The participatory approachfor the resettlementaspects o fthe project has beendealt withinthe RAP, following ChineseandBankprocedures andguidelines closely. Consultationswill continue withcommunities inthe areas directly affectedbyproject works. All affected householdsandcommunities inthe project areas have beenidentified through socio-economic andinventory surveys. Project information, includingresettlementpolicies, hasbeenprovidedto the affectedpopulations throughvarious channels. They have beenextensively consultedandhave participated inthe preparation of the resettlementandrehabilitationprogram. 6.3 How does the project involve consultationsor collaboration withNGOs or other civil society organizations? Local government officials andcommunity organizations inthe areas affected have beenconsultedand haveparticipatedinthe resettlementprogram preparation. Households directly impactedby works have been surveyed Neighborhood meetings havebeenorganized to solicit their views andconcerns, as well as -23-  kalizingthe resettlementprogram. 6.4 What institutional arrangementshavebeenprovided to ensure the project achieves its social development outcomes? Internal andexternal monitoring will be undertakenthroughout project implementation. Detailed institutional arrangementsare includedinRAPS.The institutions that assistedthe project agencies with the social assessment surveyswill continueto be involvedinfurther projectpreparationand implementationto develop more detailedprocessesfor community consultation and participation, as well as monitoring indicators to evaluatethe socialdevelopmentoutcomes. 6.5 How will the project monitor performance interms of social development outcomes? Internal andexternal monitoring of resettlementimplementationwill be carried out periodically as set forth inthe RAPs. 7. Safeguard Policies: 7.1 Are-any ofthe following safeguardpolicies triggered by the project? Policy Triggered I I Proiectsin DisputedAreas (OP 7.60, BP 7.60, GP 7.60)* 0Yes 0No I 7.2 Describe provisions madeby the project to ensure compliance with applicable safeguardpolicies. An EA,EMP andRAPs havebeenpreparedby the TBUEPOinconjunction with Wuxi and Suzhou Municipalities. FinalEA, EMPandRAPShave beenreviewedto ensure that they fully reflect the Bank's comments andcomply with Bankpolicies andguidelines. F. Sustainabilityand Risks 1. Sustainability: The project would contribute to the sustainability of continued strongeconomic growthby improving wastewatermanagementand environmental conditions inareas o fWuxi and Suzhouthat are experiencing rapidurban and industrial growth; and by assistingongoing efforts to stem continued deterioration of critical water resources inthe Tai Basin. The project wouId strengthenthe sustainability o fwastewater services through improvementsinthe managementand financing ofresponsiblewastewater utility enterprises. - 24 -  2. Critical Risks (reflecting the failure of critical assumptions found inthe fourth column of Annex 1): Some projectrisks relating to institutional arrangements for strengtheningwastewatermanagementare generic, but are morepronouncedat the district level, where sector managementexperienceis less mature andkeyreforms are being implementedinassociationwiththe project. Sectordevelopmentthrough (locally-financed) wastewater masterplansis important to achieving the project's longer-term objectives. However, achieving the level o finter-jurisdictional coordination andc o n s e m requiredfor this will be challenging. Even so, overall project risk is assessedas modestbecauseof the strong commitment by the leadershipinSuzhou andWuxiMunicipalities andparticipating districts and because overall project coordination hasbeenplacedunder the FinanceBureauto avoid the unsatisfactory experiencedunder the SouthernJiangsu Environmental ProtectionProject. Risk Rlsk Rating Risk MitigationMeasure 'FromOutputsto Objective Failure to construction collector sewers N Projectwill finance fullwastewater systems Low commitment to Inter-jurisdictional S Inclusion of locally-financed wastewatermaster coordination inwastewaterplanningand plans that would include rapidly-growing management districts as well as core city areas. Viability andsustainability of wastewater M Assessment duringpreparation of most cost enterprises effective engineering configurations and institutional approaches, reform of funding arrangementsduringimplementation and Limits on debt financing, outsourcing O&M functions andcapacity buildingunderproject. Little improvement in circulation and M Locally financed activities including water quality inWuli Lake andWuxiCity rehabilitation o f sewers inWuxi City as well as canals non-Bank financed construction of gates and embankmentwork, etc., to reducepollutionrive] water discharges to Lake, andongoing implementation o flocally-financed water transfer scheme from MeiliangLake. From Componentsto Outputs Satisfactoryengineeringdesigns M Designreview TA during implementation. Linkedresettlementon local1y-funded M RPF for locally fundedworks consistent with Suzhousewer network upgrading program Bank guidelines OverallRlsk Rating M Risk Rating H (High Risk), S (SubstantialRis , M (Modest Risk), I :Negligibleor Low Risk) - 3. Possible Controversial Aspects: NIA - 25 -  G. Main Loan Conditions 1. EffectivenessCondition Subsidiary LoanAgreements that are satisfactoryto the Bankto be signed betweenthe SQCC, HWTC and WAMC with the respectivemunicipaYdistrict govemments. 2. Other [classifyaccordingto covenanttypes usedin the LegalAgreements.] Disbursement Conditions: Staffing appointments andtraining for WAMC under the WETDZ and inXWTC, the new company mergingthe XishanEconomic andTechnicalZone Companyandthe XishanWastewatertreatment Company Limited, that are satisfactoryto the Bank, unless completed priorto Loansigning. Action Plan Technical Jiangsuto appoint qualified consultants for construction managementby December 31,2004. WuxiMunicipalityto submitto the BankbyJune 30,2005 atime-bound action planfor implementationof the Wuli Lake Restoration Component. Wuxi Municipalityto submit to the BankbyJune 30,2005 atime-bound action planfor rehabilitation of the sewer network inWuxi City. Jiangsuto fumish to the BankbyMarch31,2005 a time-bound actionplanfor updating/preparation o f wastewater masterplansinWuxi and Suzhou. Financial Wuxi Finance Bureauto submit anactionplanto the Bankby June 30,2005 for transferring municipal wastewater revenuesfrom the municipalwastewater fee to HWTC andXWTC. ByDecember31,2006, WuxiMunicipality andSuzhouMunicipality, respectively, to authorizeproject wastewater companiesto levy andcollect utilitycompany wastewater tariffs to replace existing municipal wastewater fees within their respective serviceareas. Starting withfiscal year 2005, eachproject wastewater company to generate operatingrevenues sufficient to cover O&M costs, the excess of debt service over depreciation andany excess ofnon-operating costs over non-operating revenues. Starting inFiscal Year 2005, project wastewatercompanies will be requiredto: 0 generate annualoperating revenuesthat are sufficient to cover all operating expenses, including depreciation, any loss onnon-operating activities, plus the amount, ifany, bywhich debt service exceedsdepreciation; and 0 maintain a debt service coverage ratiounderwhichthe excess o f operating revenuesover costs is not less than 1.3 times the cost of debt service; andthe Bankwill be advised andgivenanopportunity to comment on any additional borrowingby wastewatercompanies. -26-  Starting September 2004, all participating wastewater enterprises will preparefinancialprojections annuallyfor submission to the Bankprior to September 30eachyear, to confirmoperating revenues projected for the following fiscal year are sufficient to coverprojected O&M, depreciation andthe excess of debt serviceover depreciationandimplementsuchchangesto achievethis outcome. Jiangsuto furnish Audit Reports to the Bankonproject accounts andonproject wastewater enterprises within six months following the close ofthe fiscal year to which theyrelate. Institutional Suzhou Municipality to corporathe the DFMDbyJanuary2006, as a subsidiaryunder SWIDC, to manage andoversee O&M of all wastewater systems inSuzhou's centralurbandistricts. Jiangsuto furnish to the Bankby December 31,2005 a time-bound action planfor merger inownership, managementandoperation of wastewater operationsthroughout XishanDistrict, WuxiMunicipality by December 31,2006. ProjectManagement Jiangsuto maintain a PLG, chaired by the Vice Governor or SecretaryGeneral of Jiangsu Provincial Government andconsis!hg of line departmentssuchas Provincial Development andReform Commission, ProvincialConstruction Bureau, Provincial Environment Protection Bureau, Provincial Finance Bureau, provincial Water ResourcesBureau, and Provincial Price Bureau. Jiangsu to maintain a PMO under the ProvincialFinance Bureau with sufficient authority, staffing, facilities, and budget to cany out, coordinate, or supervise all project activities, including the procurement, financial management, resettlement, environmental impact mitigation, andprogressreporting. Jiangsuto recruit experiencedstaff inprocurement, project financial management, environmental andresettlement aspectsunder a timetable agreed withthe Bank. WuxiMunicipality andSuzhouMunicipality to eachmaintaina Sub-ProjectManagement Office underthe respectiveMunicipal FinanceBureau, anda Project Implementing Unitfor eachproject component with sufficient staffing, facilities, andbudget to carry out, coordinate, or superviseall activities for the component implementation,includingthe procurement, financial management, resettlement,environmental impact mitigation, andprogressreporting. TBUEPO willprovide the Bankwith implementation quarterly progressreports the Bank within three weeks after the period underreview, startingfrom June 30,2004 untilproject - - ina format satisfactory to completion. TBUEPO will submit to the Bank a Project ICRno later than six months after the closing ofthe loan account. ResettlementandEnvironmentProtection Jiangsushall cause the Project Municipalities andtheir RespectiveProject Companies to: (a) maintain policies andprocedures adequateto enablethemto monitor and evaluate, inaccordancewith guidelines acceptable to the Bank, the implementationo fthe EMP,the RAPSandResettlement Policy Frameworks, - 27 -  andthe achievement of theobjectivesof saidPlans, including the engagementofexperiencedandqualified independentmonitoringagencies acceptable to the Bank;(b) include theresults ofsuchmonitoringand evaluation activities inannualreportsby independentmonitoring agencies, together with any revisions proposedto beintroduced into suchPlans inorder to achievetheir respectiveobjectives; and(c) introduce suchrevisions intosuchPlansas shallhavebeenagreedwith. Inparticular, activities under the EMPto be recordedinperiodic projectprogressreportssubmittedto the Bank, includingtesting o fWWTP sludge for hazardousmaterials, disposalarrangements, auditsunderJiangsuProvincialCleanProduction Programfor industries discharging intoproject wastewatersystems andthe resultso frecommendedmeasures. Jiangsuto furnish the BankbyJanuary 1eachyear commencingin2005 with aninventory o f enterprises dischargingtoproject-financed wastewatersystems, indicating theirparticipation inJiangsu's CP Program, a summaryo fthe results of the technical audit on inventoried enterprises, andthe impact o fimplementation of the pollutionprevention planfor them. Wastewatercompaniesto directly monitor incoming effluent from industries, andto prohibit industries from discharging effluent intoprojectwastewatersystemsthat is overstrengthandnot incompliancewith govemment dischargestandards, as necessary. Jiangsuto furnish to the Bankacertification ofcompliancewithnational regulations for the construction andoperation o f disposalsites for sludgefiom project-financed wastewatersystems. H. Readinessfor Implementation IxI1.a) The engineeringdesigndocumentsfor thefirstyear's activities arecompleteandreadyfor thestart of project implementation. 1. b) Not applicable. IxI2. Theprocurementdocumentsfor thefirstyear's activities are completeandready for the startof project implementation. 3. The Project Implementation Planhas beenappraisedandfound to berealistic andof satisfactory 04. Thefollowingitemsarelackingandarediscussedunderloanconditions (SectionG): quality. 1. Compliancewith Bank Policies 1. This project complies withall applicable Bankpolicies. 2. The following exceptionsto Bankpolicies are recommendedfor approval. The project complies with all other applicable Bankpolicies. YukonHuang Team Leader CountryManagedDirector - 28 -  Annex 1: ProjectDesignSummary CHINA TAI BASINURBANENVIRONMENTPROJECT Sector-relatedCAS Goal: Sector Indicators: Sector/ countryreports: from Goalto Bank Mission) 3nvironmentally sustainableGrowthof urbaneconomies Statisticalreports and htinuednational lrbandevelopment. andlivelihoodopportunities occasionalsectorreviews. conomic growthand egionalcompetitiveness inproved wastewater Water quality indicators National and local statistics ncreasedcoverageof nanagementinTai Basin of water pollution. vastewater service and eform of wastewater utility interprises. JrojectDevelopment OutcomeI impact ProJectreports: from Objectiveto Goal) 3bjective: Indicators: Facilitate sustainableurban :conomic growththrough: [ncreasedcollection and Reduction inproportion o f Monitoringreports o f Sewer connections made reatment of domestic and untreatedwastewater in wastewater companies, indindustrialdischarge industrialwastewater; urbanandrapidly growing environmental protection ctandardsenforced suburbanproject areas. bureaus (EPBs), etc. Restoredurbanwater Cleanerurbanwater Annualenvironmental Zleanup andrestoration of :nvironmenC environmentand improved reportsandtourism irbancanals and lakes, (an( livability inthe two major statisticsby municipalities water diversion through urban andtourism centers. andprovince. mgineering gates). [mproved sustainabilityo f Soundenterprise capital Operating andfinancial Political will to reform wastewater service. structurewithmanageable reports ofwastewater wastewaterutility debt, experienced& cost companies. Reports by management andfinancing effective operations, external auditors and arrangementsandto financial autonomy and municipal regulators. coordinate wastewater adequate cost recovery as planning. well as satisfactory level o f capacity utilizationat Sound financing Plans that project financed WWTPs. limitdebtto prudentlevels. Enhancedcapacity for Updatingpreparationof The delivery of wastewater Updated wastewater masta wastewater wastewatermasterplans masterplans. plans cover rapidly covering city andrapidly urbanizinghndustrializing growing areas inWuxi and areas inWuxi and Suzhou, Suzhou. - 29 -  Key Performance Indicators CriticalAssumptions butputfrom each Output indicators: lroject reports: rom Outputs to Objective) :omponent: :eduction inproportionof i)Areacovered,households Iperationalreportsby r w T p s are built or ntreatedwastewater in connectedandwastewater vastewater companies and rpandedinmunicipal and rban andrapidly growing flows collected andtreated nonitoringreports by istrict areas. Sewer uburban district areas. meetingthe government !PBs. :tworks are built and objectives; and :sidenceslbusinesses ii)qualityofdischargefrom " w e d . WWTPs meeting standards I mprovedurbanwater Improved ambient water hbient water quality [rbancanals and lakes are nvironment. quality inmainmonitoring nonitoring datareportedby leanedup andrestored indicators; andii)flood !PB andwater authority, roughenvironmentaland frequency fromonce every tatistic o f city tourism ngineeringmeasuresand 50 years to once every 100 ncomepublished by dequatemaintenance years incity canals. ourismbureau, andcivil iereafler. ~ffairsauthority, data o f loodingproperty loss. hhancedinstitutional i)Time-bound <eportsprovidedby iutonomous public apacity of public utility establishmentof ilanningandpublic utility watedwastewater)utility ector especially wastewaterautonomouspublic iuthorities, project agencies *ompaniesare set up and ,ompanies. (waterjwastewater) utility mdWWTPs. stablishment of efficient companiesinparticipating wocess for outsourcing cities/districts; and I&Mservicesfor vastewatersystems. ii)implementationof outsourced contracts for WWTP operation and maintenance. hhanced financial viabilityi)Directtransferof Submissiono f actionplans ?oliticalwill at municipal brthe WWTPsunder the wastewaterrevenuesto mdissuanceofprovkcia [eve1andprovincialsupport roject. wastewater enterprises; ?olicyandregulations. rorthis reforminline with ii)Reformofmunicipal Statepolicies. wastewaterfee to wastewater enterprise tariff; andiii)compliance with revenueanddebt service covenants. mprovedcapacityfor i)Updatedseweragemaster PeriodicPMOreviewsand Dialogueanddeliverable iectorplanning, water planning. Bank supervision missions. outputs on wastewater luality monitoring and masterplans. nter-jurisdictional :oordination inwastewater ,lanning. - 30 -  {educed incidence andcost Reducedseventyandcost Semi-annualproject Zompletionof gates on Ifflooding. 3f flooding damage inareasxogress reports andbank NuliLakeandat Shangtang affected. 3upervisionmissions. indXujiangRivers. 'roject ComponentsI Inputs: (budgetfor each sroject reports: from Componentsto Sub-components: component) )utputs) ,&e Wuli Rehabilitation 835.0 million Semi-annual project rimelycompletionof xogress reports, Bank mgineeringdesigns, Iupervision missions iatisfactory andtimely tide-memoks, Project rocurement, quality mplementation completion :onstruction and .eport(ICR). nanagement, mplementation o f ocally-financed pumping ;tation, gates, etc. byWuxi Municipality. Vuxi Wastewater treatmenl 168.5 million 4s above rimely completion of 'lants andNetworks ngineeringdesigns, satisfactoryandtimely pcurement, quality :onstruction/management . ~uzhouWastewater $49.4million 4s above As aboveand rreatmentPlantshetworks implementationof Suzhou City sewer network rehabilitationprogram. huhouPolluted Water ;19.7million 4s above Timely completion of Zontrol Schemes (on engineeringdesigns, CujiangandShangtang satisfactoryandtimely tivers) and procurement, quality juzhou Central UrbanArea construction and :anal Networks management. tehabilitation Implementationof locally- financedcanal wideninganc other works by Suzhou Municipality. TA andCapacity Building. ;1.9million 4s above plus consultants' Effectiveexperienced :valuation reports. consultants and timely completion o f masterplans. -31-  Annex 2: DetailedProject Description CHINA: TAI BASIN URBANENVIRONMENTPROJECT By Component: Project Component 1 Wuxl Sewerage and SewageTreatmentIn Hulshan Dlstrlctof Wuxi Municipality - - US$19.70 milllon HuishanDistrictwas separatedsome two years agofromthe original, largerXishandistrictandoccupiesa total area o f km2. Italreadyhas two smallWWTPs which mostly serve industrial areas. Underthis project, Huishanwill construct: (a) a 25,000 m31dwastewater treatmentplant; and(b) the associated network to convey sewageflows to the newplant. The network developmentwould consist of about 58 lan of tnuik andsecondarypipes and3 liftingstations. The WWTP would treat sewage up to secondarylevel for a capacity of 25,000 m31d; all industries are expectedto providepreliminary treatmentof their own effluent so as to meet applicable regulations for handlingsewage at the municipal level. Inthe eventthat faster economic developmentinthese industrial zones generates greater industrial wastewater flows thananticipated, secondarytreatment can be expanded on site. The ultimatetreatmentcapacity for the whole serviced area would be 50,000 m3/d. After review o fthe various possible treatmentprocesses, the proposedtreatment technology agreeduponwouldbe SBR as it fits the expectedflow andload composition o fmixedindustrial anddomestic users, as well as the operational capabilities of district staff. Particulars of the quantitiesofpipe supplies andpumping characteristicsare indicated inthe Project files. All facilities to be constructedwouldbe under the supervision of a PMOunderthe District Construction Commission andhandedover to a District Wastewater Company. Component Description Capacityhize Function Secondary Construction ofnewreinforced concrete HDPEsewers, DN400 andtrunk (RC) sewersunder 19roads from DN to DN600, 10,668 m; wastewater sewers 400 to DN1600to strengthenexisting RC sewers, DN400 to produced inthe sewerage network, intercept sewerage DN 1600,46949m. Huishan catchment flow currently dischargedto river and Totallength of all o f Huishandistrict connect system to the proposedHuishan pipelines, 57.62 km to the Huishan WWTP WWTP Sewerage lift constructiono f 3 new lift sewage PS Yanxin PS 11,000m31d To liftsewage inthe Pumping (average), trunk sewersystem stations (PS) Kuchang PS 15,000 m3/d mdconvey to the (average), proposedWWTP Xicheng PS 4,000 m31d (average) Huishan Construction ofanactivated sludge Average daily flow wastewater treatmentplantwithbiological and 50,000 m31dinthe future wastewater from treatment chemically assistedP removal. Includes md25,000 m3/dinthe Huishandistrict plant inlet pumping, fine screens, grit F i t stage. removal, SBR tanks andsludge dewatering - 32 -  Project Component 2 Dongtlng andAnzhen Sewerageand Sewage TreatmentinXishan Districtof Wuxi Municipality USt48.79 million - - Partsof the remaining Xishan District are expectedto be administratively integrated with the four urban districts o f Wuxi Municipalitywithina few years. Currently, XishanDistrict has three wastewater treatmentsplants, either recently commissionedor undercompletion. These are located inDongting (20,000 m3/d), Meicun, andShoufang(both of 15,00Om3/d). Thepresentproject component wouldfocus on: (a) extension of the Dongtingplant to 50,000 m3/d and constructionof associatedsewer networks; and (b) construction of a secondary WWTPof 20,000 m3/d capacity at Anzhen and constructionof associated sewerage networks and associated lifting stations. The Dongting plant will serve urbanareas now under intense industrial development as it is closely located to the oldWuxiurbandistricts. The Anzhenscheme will serve the three urbandistricts o fM e n , Yangjie, Houqiao andindustrial zone ofXishanDistrict. This combined scheme is the least-cost altemative for sewerhgeach area andtreating the resultingeffluent. As inthe case o f Huishanabove, these two plants would use the SBR treatmentprocess, since they face identicaloperating characteristics with significant andnot yet fully definedindustrial effluents. The plant locationinM e nis inan agricultural area, close to the WangYuRiver, where the plant effluent will be discharged. These plants would be servicedby anetworkof about40 kmo flarge trunk andsecondary sewer lines in the Dongting area, and 146kmof trunk andsecondary sewer lines inthe Anzhen area. This program has alreadystartedWith district financing, as the presentDongting first phase is still under-utilized. The presentproject would dso include fundingof sewer connectionsfor the domestic users. Mostindustries are builtwithpreliminarywastewatertreatment facilities, buttheir operations are not always upto the standard required. In order to protect wastewater assets (plantandnetwork) constructed under the project against over strengthindustrialinfluent resultingfrom insufficient preliminary treatment bythe industries connectedto the network, the wastewater company charterwouldinclude provisions givingrightsto the companyto sample incomingdischargesfrom the servicedindustries andto close their connectionsincase of inadequatepreliminary treatment. The Dongtingnetwork would also include one lifting station; the M e nnetwork wouldhavethreeliftingstations. XishanDistrict Govemment intends to mergethese plants under a single wastewater enterprise. While networks andplantsare not interconnected, a single wastewatercompany would present substantial advantagesinterms of reducedmanagementoverheads and staff training requirements. - 33 -  Dondinn Sewerage and Savage Treatmentin Xishan District of Wuxi Municipalitv Component Description I Capacityhize Function Secondary and Constructionof new RC I RC sewers, DN300, To conveywastewater trunksewers sewers under 19roadsfrom 4043; DN400,20817; producedinthe Dongting DN300to DN1000to DN500,4195; DN catchmentof Xishandistrict strengthen existingsewerage 600,4350; DN800, to the DongtingWWTP network, interceptsewerage 3793; DN 1000,2824; flow currentlydischargedto Siphon 325 m. river andconnectsystemto Total lengthofall the proposedDongting pipelines, 40.35 km WWTP Sewerage lift Constructionofone new lift Zhuhui PS 510 YS To lift sewage inthe trunk PS Sewage pumpingstation (average) sewer systemandconvey to the proposedWWTP Dongting Constructionof anactivated Average daily flow To treat the wastewater from WWTP sludgetreatmentplantwith 30,000 m31d Dongting IndustrialPark, biological andchemically secondary treatmentin Zhaqiao andGangxitownof assistedPremoval. Includes the first stage. Dongtingdistrict inlet pumping, fine screens, gritremoval, SBRtanksand sludgedewatering Anzhen Sewera 1and Sewage Treatmentin Xishan District of WuxiMunicivalitv Component Description Capacityhize Function Secondary Constructionofnew RC sewers DN400,83254m; DN500, To convey wastewater andtrunk under 19roads fromDN400 to Db 43160m; DN600,11465m; producedinthe sewers 1600to strengthenexisting DN800,4795m; DN1000, &en, Yangiian, sewerage network, intercept 1605m; DN 1200,415m; DN Houqiaoandindustrial sewerage flow currently discharged 1400,500m; Siphon, DN200 zone catchment of to river andconnect systemto the to DN400,255m Xishandistrict tothe proposedXishanWWTP Total pipelines, 145.5 km AnzhenWWTP Sewerage lift Constructionofthree new lifl AnzhenPS99.99 Ys To lift sewage inthe PS Sewage PS (average), trunksewer systemand Yangjian PS 99.99 l/s convey to the proposed (average), WWTP HouqiaoPS 134.9 l/s (average) Anzhen Constructionofanactivatedsludge Average daily flow 20,000 To treat the wastewatei WWTP treatmentplantwithbiologicaland m31dsecondary treatment in from &en, chemicallyassistedphosphorus the first stage Yangjian, Houqiaoand removal. Includesinlet pumping, industrialzone of frne screens, grit removal, SBR Xishandistrict tanks andsludgedewatering ProJectComponent 3 Wull LakeRehabllltationof Wuxi Municipality US$ 35.00 mlliion - - -34-  This non-Bank financed componentcomprises: (a) the constructionofI O new sluice gates andone shiplock oncanals andstreams connectedthe Wuli Lake to the hinterland; @) the rehabilitation o f about some 20 kmof embankmentsaroundWuliLake; and(c) pilot ecological restorationinselectedareas of Wuli Lake. The aboveinvestmentsarepartofanoverall schemeofinvestments,including some already implemented under local financing, consistingof a largepumpingstation, to increase the flow circulation in the Wuli Lake at low flow periods; and a sewer interceptor on the northemside o fthe lake. The overall justification for this scheme is the interception o f all incoming sewageflows into the lake andthe increased circulation of flow inthe lake area inparticular at low flow periods, inorder to avoid the growth of algae. The gates andshiplock .areintendedto protect the lake fiom incoming polluted flows coming from the canal network during the low flow season, as well as excessflood flows duringthe rainy season. Inadditionto these works, a sewerage network andinterceptorswill be constructed under an ongoing program of sewer development inthe WWri city. Component Description Capacity/size Function Sluice Gate and C~gguangxi, Huanhuhegate, 2*8m; To regulate the water levelin Shiplock Xiaoxuanbang, Changfenghegate, 1*6m; Wuli Lake andblock Dongxinhe, Xianjingbanggate, 1*6m; wastewater from entering into Xiejingbang, Xiaoxuangang gate, 1*6m; the Wuli Lake andprovide Xianjingbang, Dongxlnhe gate, 1*6m; transportation for barges. Banqiaogang, Miaodongbang, 1*6m; Huanhuhe, Maliganggate, 1 *12m; Miaodongbang, Changguangxi gate, MaligangSluice gates 1 1Om;Banqiaoganggate, * andCaowangjing 10 1*12m; Caowangiing gate, Sluice Gates and 1 1*6m; Caowangjing, Shiplock 16*120m+12m Rehabilitation Rehabilitationo f Rehabilitation o f 19.4 km To increasethe standards of embankment Embankmentin o f embankmentaround embankmentandto matchwith recoveredfishery pond Wuli Lake. Three types the surroundings areas, rehabilitation o f are: soil slope, landscape embankment in slope andecological residentialand landscape. commercial areas Ecological Pilot works inone small rehabilitation area to assess viable ootions ProjectComponent4 FuxinSewageTreatment In CentralDistrictof Suzhou Munlcipality USS20.13 - - million Fuxinisthe site ofafirst phasewastewatertreatment plantWitha capacity of 80,000 m31dfor secondary treatment. The commissioning o fthese works, fundedby JapanBank for InternationalCooperation (JBIC), i s underway anda locally-funded programo f trunk sewer development and sewer connections is also taking place inparallel inthe southem and westem parts o f the city which drain intothe plant. Theproject componentwould consist of the construction of the secondphase of the Fuxin works (100,000 m3/d expansion)for secondary treatment. The feasibility work pointsto selection of SBR treatment process, butmunicipal officials wishto consider various treatment options andproposeto invite bidsontumkey contracts that would include design, construction andinstallation. The proposed capacity o fthe - 35 -  wastewater treatment plant has beendeterminedinorder to compensate for the lack o ftreatment of phosphorusremoval inthe existing, first phase installations. The proposeddesign capacity wouldbe sufficient for wastewater flows untilyear 2010. As present, sewage volumes reaching the plant are relatively low, pending completion o fthe locally-fmanced sewer networkrehabilitation programinSuzhou. Specialattention would be given inthe final designto the numberandmodules o ftreatment lines to be constructedso that duringperiodso f low demand, only neededlines wouldbe in operation, Plant effluent would be discharged to the GrandCanal. Component Description Capacitylsize Function FwrinWWTP Construction of an activated The existing capacity To treat the wastewater from sludge treatment plant with i s 80,000 m3/dinthe southem andwestem parts of biological andchemically first stage. Expand central districts. assistedphosphorusremoval. average daily flow by Includes inletpumping,fine 100,000 m3ldinthe screens, grit removal, SBR project andsludge dewatering ProjectComponent5 LoujlangSewageTreatment in CentralDistrictof Suzhou Municipality USL14.41 - - milllon The 60,000 m3ldfust phase of the Loujiang WWTP was also funded by JBIC. Theproject component funded bythe Bankconsists of the secondphaseof a secondary treatmentplant to expand capacity by 80,OOOm3/d, The component would also accommodate the treatment andremovalof phosphorusbased substances. The Loujiangsite drains mosto fthe northernandeasternparts o f Suzhou City. The approach for implementing this plant is similar to the one presentedabove for Fwrin. The discharge ofthe plant effluent will flow into a channeldraining into the Grand Canal. 1 Canacitv/size I Function ~~Descrintion Construction o f anactivated 1 The existing capacity To beatthe wastewater from sludgetreatment plant with is 60,000 m3ldin the northem andeasternparts of biological andchemically frrst stage. Expand central districts. assistedphosphorusremoval. Average daily flow by Includes inlet pumping,fine 80,000 m3/d inthe screens, gritremoval, SBR project andsludge dewatering - 36 -  Project Component 6 Sewerage and Sewage Treatmentin Wuzhong Districtof Suzhou Municipality US$ - - 14.89million Wuzhong is an economic developmentzone locatedsouthof Suzhou's city center andhasbeendesignated to provide sites and servicesto industries andinstitutional partners. Theproject component would include: (a) a secondary WWTP of a 25,000 m3/d capacity; (b) the relevant sewerage networkamounting to about 43 km overall, including a under canal siphon of 150 m,for the above treatmentplant andforpart of the service area of anotherplant under constructionby private operators, including three lifiing stations. All industries are expectedto treat their effluent to preliminary treatmentlevelbefore being discharged inthe public sewer network. Bothwastewater plants are to be locatednext to one another, and will dischargeinto the GrandCanal. Zomponent Description Secondary and ConstructionofnewPVC and hunk sewers RC sewers from DN300 to DN1200to strengthen existing seweragenetwork, intercept sewerage flow currently dischargedto river andconnectsystemto the proposed Wuzhong WWTP Sewerage lift Construction 3 new lift Dongwu PS 259 Us To lift sewage inthe trunk sewer PS SewagePS (average), systemandconvey to the Constructed zone PS proposedWWTP 153 l/s (average), Grandcanal PS 347Vs (average) Wuzhong Construction of anactivated Average daily flow To treat the wastewater from WWTP sludge treatmentplantwith 25,000 m31dinthe Wuzhong district biologicalandchemically first stage, assistedphosphorusremoval. Includes inletpumping, fine I screens, grit removal, SBR tanks andsludge dewatering I Project Component 7 -Water Regulationworks on the Xujiang and Shangtang Riversof Suzhou Municipality USS12.38 million - SuzhouMunicipality is inthe processof cleaning up its htemal nework of canals inside the historic city, andto protect it frompollution initiatedalong the GrandCanal byTownandVillage Industries(TVEs) and - 37 -  byother cities. This componentwill improve thewater environmentinthese canals andthroughout this popular tourist area. A numberof industrieshave beenrelocatedoutside of the historic city anduse of cargobargesinthe area is also being reduced. There are two key points of entry for outsidepollutionat Xujiang and Shangtang. Theproject will construct two new gates and 1 shiplock on theXujiang River next to the Grand Canal and one shiplock in ShangtangRiver. The gates are designedto block entry o f pollutedwater to the inner systemo f canals, includingfrompollutionspills on the GrandCanal, as well as protect againstflooding duringhighflow periods. The locks are designedto accommodatetraffic flows of tourist barges. Suzhoumunicipalityhas also embarkedon a locally-financed program ofhouseconnections that would permitseparationof rainwater from sewage inthe networks andalso intercept all sewage still entering canals. Component Description Capacitylsize Function Gate andshiplock on Construction ofone Sluice Gate insouth To control the polluted XujiangRiver gate insoutli branch of branch, 3*1Om. grandcanal water Xujiang, andone Sluice gate innorth flowing into Suzhou sluice gate plus one branch, 1*15m city inner canal. Ship lock innorthof Shiplock innortho f branchofXujiang branch, 12m*8Om Shiplock on Construction of one shiplock inShangtang To control the polluted ShangtangRiver Shiplock inShangtang river, 16m*60m grandcanal water river flowing into Suzhou citv inner canal. ProjectComponent8 Sediment Dredgingin the inner canal of centraldistrictof Suzhou Municlpallty - - USS7.29 million The project will finance a dredgingprogramto remove flow bottlenecksinSuzhou's inner canals to restore their initial transit and absorptiveflood capacity andprovide cleanflowing water through the historic city. Most inner canals - 65.7" - wouldbe subjectto dredging andthe collectedsludge evacuated bybargesto a site outsidethe historic center. Preliminary estimates ofvolumes for the sludgeamount to 1.29 millionm3 andindicate a sludge contentthat is mostly free from toxic materials andheavy metals. Component Description Cauacitvlsize Function Sediment Sedimentdredgingof 129 Name*Area (km2) *Length (km) Toreduce intemal dredgingin millionm3 sludge inNorth, *Dredging volume (m3) polluting source and central district East, South city, Xujiang Northcity:12.3 * 14.65 *0.33; increasethe water Panxi, HedongNew Area East city: 9.63*7.43*0.12; capacityof . andShangtang,the total South city:7.32*6.68*0.11; self-purification, andto area is about 60 km2, the Xujiang Panxi: 10,88*20.31*0.36; reduce urbanflood lengthofriverandcanals is Hedong: 10.6*5.84*0.11; 65.7 km, the total dredging Shangtang: 9.13* 10.80*0.25; volume is 1.29 millionm3. Total:60*65.7* 1.29  Project Component 9 TechnicalAssistance for implementation Support and Sector Development US$ - - 1.90 million WastewaterMasterplansForWuxiAnd SuzhouMunicipalities 60. Background: NeitherWuxinor SuzhouMunicipalities currently have anup-to-date approved wastewatermasterplans uponwhich investmentscanbebased. Suzhourelies on a masterplanpreparedin 1995 for the core city area only. Wuxi recently updatedits original wastewater masterplan, but this is not yet approvedbythe municipalgovernment. Itis understood, however, that the updatedmasterplanis again restrictedto a separateplanfor eachadministrative district. Other plans inplace includeJiangsu Province's Tenth Five-YearPlan, andthose of the municipalities. For the urbanizingdistricts, these plans call for individualwastewatersystems operatedby separatecompaniesineachtown. Inboth Suzhouand Wuxi, several districts located close to the core cities havebeen absorbedintothe city area, butthe wastewaterplans do not reflectthese fundamentaladministrative changes. 61, There is a needto develop more integratedinfrastructure plans, including for sewerage, that adequately cover the rapidly urbanizingareas surrounding cities andto reducethe fragmentation and duplication that results from separateplansbasedonold administrative boundaries. Iti s also important to develop more cost-effective wastewatersystems, which would likely favor a smaller numberof larger treatment plants located strategically aroundthe urbanizingdistricts. Thus, there is anurgent,needinboth SuzhouandWuxi to conduct a wastewatermasterplanningexercise considering eachmunicipality as a whole, inorder to determinethe optimal configuration o fwastewater systems interms of number, size and location. 62. TA will beprovidedto helpensure that wastewater strategiesandmasterplansfor bothWuxiand SuzhouMunicipalities reflect presentconditions andmajortrends, the types ofdevelopment existing and proposed(and therefore accurately characterizelikely wastewater conditions), andthat optimize the types, locations and size of wastewatersystems inthe future. These planningexercises should be conductedon a municipality-wide basis, andshould include allurbandistricts andsub-municipalities within Suzhouand W w i Municipalities. Inaddition, where combinedindustrial anddomestic wastewater systemsare proposed, these planningexercisesshouldensure full integration of information andrecommendationsfrom the relevant municipal and district bureaus (Le. water resources,water affairs, environmental protection, etc.). InstitutionalStrengtheningofWastewaterUtilities andTraininginProjectManagement. 63. This TA would strengthenthe capacity of the wastewater utilities responsible for the project's wastewater components. The key overall objectives of the proposedTA are: e to assistthe project companies inestablishingthemselvesas autonomous andfinancially sustainableutilitycompaniesthat caneffectively andefficiently meet the service obligations set out for them; e to assist the project companiesandtheir parentmunicipal anddistrict governments incomplying with allrelevantnationalpolicies for the reformofthe wastewater managementsector; and, to assistthe project companies andtheir parentmunicipal anddistrict governments indeveloping plans andprogramsfor private sectorparticipationinthe wastewater sector that support government policies for optimizhg the efficiency andeffectivenessofwastewater service delivery. - 39 -  64. This assistancewill be implementedwithinthe framework of a definedandagreedupon sector plans for each project municipalityanddistrict (see above). These planswill establishthe basic policies, plansandimplementationprogramsfor achievingtheoverall developmentgoalsfor the sector. The assistance is then intended to supportachievementofthese developmentgoals through assistanceinthe implementation ofthe specific institutional, financial andoperational aspects of the sector plans. 65. The project provides for foreign training inproject managementfor staff of the provincial and municipal PMOs. Scopeof TechnicalAssistancefor ProjectConstructionManagementand Assistancein BidPreparation 66. The projectWill dealwith five PIUS,three o fthem havingnew staff withlittle experienceon biddingrequirements underexternalfundingandcontractmanagement. Forone PIU(Suzhou) therewill be a needto write carellly worded Tumkey BiddingDocuments, and goodcoordination betweenthe Tendering Company, the DesignInstitute andthe Client. This is utmost importance to ensure satisfactory documentation for bids for design, supply, installation andconstruction of two wastewatertreatment plants. Inaddition, the constructiion offive completewastewatertreatmentunitswill requireconstant guidanceto the PMOs for ensuring that contractorsperfom as expected. To ensure success of the construction activities andits timely execution, the TA will be providedto PIUs andthe cities PMOsfor the fmt two years oftheproject for: 0 preparation of technical specifications 0 bidpreparation, andbidreview oftechnical specifications; 0 assistance inbidevaluation; 0 contract management; 0 strengtheningof construction supervision; 0 trouble shooting interventions. International Local Budget($000~base) A. Sector Development A.1 UrbanWastewaterMastelplan Review Panel 115 PreparationAdvisory Services for Wuxi and SuzhouMunicipalities B. ProjectImplementationAssistance B.1 Institutional, Financial & Operational 28 97 920 Strengthening B.2 PMO Training 50 B.3 ConstructionSupervision 54 person months Itotal- local 600 and expatriate I I -40-  Annex 3: EstimatedProJectCosts CHINA:TAI BASIN URBAN ENVIRONMENTPROJECT Ei-Wuli LakeRehabilitation 19.85 11.80 31.65 Wuxi HuishanWastewater System 9.51 8.17 17.68 Wuxi Dongthg & M e nWastewater System -- 25.94 17.53 43.47 Suzhou Water RegulationWorks on Shantang& Xujiang - 6.39 4.91 11.30 Rivers Suzhou 3.55 3.05 6.60 Suzhou FuxhWastewater Treatment Plant -- Canal SedimentDredging 8.57 9.45 18.02 Suzhou 5.64 7.18 12.82 Suzhou WuzhongWastewaterSystem -- Loujiang WastewaterTreatment Plant , 7.04 6.24 13.28 ImplementationSupport& Sector Development 0.51 1.17 1.68 Total Baseline Cost 87.00 69.50 156.50 PhysicalContingencies 4.35 3.48 7.83 Price Contlngencles 5.50 4.63 10.13 Total Project Cost: 96.85 77.61 174.46 Interestduring construction 3.64 3.64 Front-endfee 0.61 0.61 Total Financing Rewired I 96.85 81.86 178.71 1 1Identifiable taxesandduties are 5.54 (USSm) andthe totalproject cost, net oftaxes, is 173.17 (USSm). Therefore, the projectcost shariagratiois 35.4% of totalprojectcost net of taxa. -41 -  Annex4: EconomicSummary CHINA TAI BASINURBAN ENVIRONMENTPROJECT Project Setting 1. TaiBasin. The Tai Basin,whichincorporatessouthemJiangsuProvince andthe project cities of SuzhouandWuxi, is one of the economically active areas inChina. In2000, the totalpopulation inthe Basinwas 36.3 millionwithover halfresidinginurbanareas. Inthis same year, totalGDP inthe Basin was estimated to be RMB 890 billion, about 10.8 percentof the national total, andgrowing at an average annualrate o f over 10percentsince 1998. 2. JiangsuProvince. JiangsuProvince is one of the most important eastemcoastalprovinces in China andis an integralpartof the Yangtze Economic Zone, with over 200 millionpeople, including in neighboring ShanghaiMunicipality, andthe provinces ofZhejiang andAnhui. The regionforms one ofthe largest concentrations of international trade andcommerceinthe Asia-Pacific region. Jiangsu coversan areaof 103,000km2 (1 percentofthe national total) andhasa population of about 74 million (5.7 percent of nationaltotal), of which 30 percentis urban. Jiangsuaccountedfor 9.9 percent o f China's total GDP in 2001. 3. Economic growthis being driven primarily by the secondaryandtertiarysectors, which respectively accountedfor 52 percentand37 percento f GDP in2001. The strongest growth has beenin the tertiary sector, which has doubled its share o fGDP since 1980. Over this same period, the proportion o fGDP accountedfor bythe primary sector declined fromjust under 30 percent to 11percent. Although the tertiary sector is becoming increasingly important, Jiangsu continuesto have a significant heavy industry sector, which accountedfor 57 percent o fthe province's total industrialoutput in2001. Among the heavy indusmes, machinery and equipmentis the largest sector whichaccountedfor 32 percent of the province's total industrial output, followed by chemicals. 4. The very rapid expansionofexport-oriented developmentzones hasbeen a major stimulus to the provincial economy. Totalforeigntrade has increasedsignificantly, registering USS9.2billionin2000 to US$70.3billionin2002, anincreaseof almost 43 percent. Between 1985 and2001, exports grew 17 times while imports grew 55 times. Manufacturedgoods accountedfor 97 percent and88 percentofthe province`s exports andimports respectively. Muchof this growthinforeign trade is being drivenby foreign investment. In2001,Jiangsurankedfirst nationallyinterms o f foreign direct investment withtotal commitments of US$15.1 billionduringthe year. 5. Suzhouis animportant historicalandcultural heritage city, located inthe central part of Yangtze River DeltaArea with Shanghaito the east, Zhejiang to the southandWWri to the west. Itcovers anarea of 8,488 lan2. In2000, the total population o f Suzhoumunicipality was 5.8 million, the largest inthe province, withabout 2.5 millionresiding inurbanareas o fthe municipality, o fwhom about 800,000 live in the inner city. Suzhouaccounts for 18 percent o fprovincial GDP. Suzhou's per capita GDP has increased from RMB 23,618 (US$2,850) in 1999to RMB30,400 (US$3,670) in2001. The city's economy is based onthe secondary sector, which accountsfor 56 percent o f GDP, followed by the tertiary sector, which accountsfor 37 percent. Foreigntradehas been anextremely importantfactor inSuzhou's growthover the pastdecade. In term of the total volume o fforeign trade andexports, Suzhouranks secondonly to ShanghaiintheYangtze Deltaregion. The total value ofexports in2000was US$20.1billion. Foreign investment was US4.7 billion in2000, up from US$2.9 billionin 1999. -42-  6. Wuxi. WWriis the thirdlargest municipality inJiangsuProvince, 128kmeastof Shanghai, bordering the Yangtze Riverto the north, andthe Lake Tai to the south. Wuxi's total populationis 4.4 million, o fwhich about 2.1 millionreside inurban areas. The municipality covers an area of 4,650 km2, including 518km2 as the city center. The municipality comprisessevendistricts andtwo county-level cities. Wuxi accounts for 15 percento fthe total provincial GDP. Per capita GDP increasedfrom Rh4B 18,000 (US$2,155) in 1995to RMB31,200 (US$3,770) in2001. Industrialdevelopment has beenthe mainengine o f growth, especiallyinmachinery, electronics,textiles, metallurgical, chemical and pharmaceuticals. 7. The remarkable economic growth inthe two project cities over the last 15years andthe resulting structural transformation has resultedinrapidurbanization, risingreal incomes, a sustainedconstruction boom andincreasing pressure on basic infrastructure andpublic services. Inthe environmental context, this has resulted insignificant deficienciesinthe managemento f wastewater, which the project i s designed to help address. ProjectBenefitsandBeneficiaries 8. The project will improve the quality of the urban environment through improvedwastewaterand water quality managementinthe key municipalities of Wuxi and Suzhou andmore widely inthe Tai Basin inordertofacilitate sustainableurbaneconomicgrowthandsocialdevelopment. Thephysical infrastructure componentsofthe project include improvements inwastewater collection andtreatment in SuzhouandWuxi, canal dredging inSuzhou, control o fpollutedwater onthe Xujiangand Shangtang Rivers inSuzhou, andpollutioncontrol and lake bankrestoration for Wuli Lake inWuxi. The project is also supporting critical institutionalandfinancial reforms that willprovide a viable and sustainablebasis for the wastewaterinvestmentsbeing implementedunder the project, particularlythose insmall systems servingtherapidly developing areas of SuzhouandWuxi. A summary ofthe major benefitsby project component is given below. 9. ProjectWastewater Components. The investmentsinwastewater inSuzhouandWuxiinclude expansions of existing systems as well as construction of new collection andtreatment facilities to areas presently not served, where waste ispresentlydischargeduntreated to watercourses. Expansion o f existing systems will beundertaken inthe Suzhoucore city area (Fuxin andLoujiang) andinWuxi's Xishan District Oongting). New systems will be constructedinWuzhong District inSuzhou, HuishanDistrict in ' Wuxi, andinXishanDistrict (Anzhen). The project will also supportthe rehabilitationandexpansionof the sewer network inthe Wuxi city center area. Combined, these investments willprovide additional secondarytreatmentcapacity of 280,000 &/day. This additional treatment capacity is projected to reduce COD dischargesinto the environment by about35,500 t/year. Expansion o f the wastewater systems in central urbandistricts of Suzhou andWuxi will benefit most o fthe cities' populations. Expansion of wastewater service inrapidly industrializing outlying districts inWuxi and Suzhouwill reducepollution o f the region's critical water resourcesand supply andthereby enable these areas to achieve the targets for 70 percentwastewaterservice coverageby 2010. By expandingsewer networks, the project will help utilize wastewater treatmentcapacity, including for existingplants, more fully and, thereby, increasethe productivityofinvestmentsinwastewater assets overall. Itwill alsoreduce healthrisks andenhance livelihoodprospects andproductivity inthese rapidly growing areas and for downstream communities, Throughthe protectionof drinkingwater sources, the project will generatesavingsthrough avoided costs of water supplytreatment. The project will provide the basis for sustainable economic growth. Inthe city core of Suzhou,the wastewaterimprovements will protect andenhance tourism, which is amajor economic activity. Inthe districts, the investmentsinwastewater will provide a more sustainablebasis for the very rapidurbanization o f these areas. -43-  10. Suzhou -Fuxin & Loujiang Wastewater. The project componentwill provide additional secondarytreatment capacity of 180,000 m3/day, including BNR, through the expansionof the existing FuxinandLoujiangWWTPs. The project shouldachieveareductioninCODdischargesintothe environment of about 16,700 t/year. With this expansion, virtually 100percento fthe wastewater generatedinthe central district of Suzhouwill receivesecondary treatmentcomparedto less than60 percent at present. The population directly benefiting from these service improvements is estimatedto be about 800,000 in2008 when the project facilities commenceoperations. However, all 2.5 millionurban residentso f Suzhouwill benefitthrough amix of direct andindirect benefits. 11. Tourismis a majoreconomic activity inSuzhouandthemainfocus oftourism is the natural and cultural amenities of the historic city center, which includes the canalnetwork. The city attractedover 17 milliontourists in2001, morethan double the number in 1990. Total income from tourisminSuzhouwas estimatedto be about RMB20 billion in2002., The project will have a direct impact inprotecting and enhancingtourismthrough its role inimprovingenvironmental conditions inthe central city. 12. Suzhou -WuzhongDistrict. Theprojectwillfimdtheconstructionofanewwastewatercollection andtreatment facility withaninitial capacityof25,000 m3/day. The new facility is projectedto reduce COD discharges into the environment by about 3,800 Vyear. The project will serve a rapidly developing industrial area andits adjacentresidential andcommercial developments. The project will protect local surface water resourcesandpublic health, which are coming underpressureas aresult of economic growth inthe district. Throughthis, itwillprovideabasisformoresustainableindustrialandurbangrowthin Wuzhong. 13. Wtuci Huishan District. The project componentwill provide wastewater collection andtreatment - to a rapidly developing areaof HuishanDistrictthat presently has no centralized wastewater management. The project willprovide secondarytreatmentcapacity o f 25,000 m3/day, butwill be designedto accommodatea future expansioninsecondarytreatment to 50,000 m3/day. The new systemis projectedto achieve areduction inCOD dischargesinto the environment o f about 4,300 Uyear. The project component will protect surfacewater resources, safeguardpublic health andfacilitate sustainableeconomic growth in the district. 14. W u i-Xishan District. InWuxi's XishanDistrict, the projectwill fund the expansiono fthe existing Dongtingwastewater treatment andcollection systemas well as the construction o f a new system inAnzhen. This willprovide additional secondarytreatment capacity of50,000 m3/day. The Dongting systemwill serve urbanareas of Xishan District adjacentto the central city ofWuxi, which are undergoing rapid industrial development. The newAnzhensystemwill have an initialsecondarytreatment capacity of 20,000 m3/day. Itwill servethe threeurbanareas o fAnzhen, Yangjie, Houqiao andarapidly expanding industrialzonewithinthe district. The two newsystems are projectedto achievea combinedreductionin COD discharges intothe environment ofabout 10,750 t/year. As inthe case ofthe Huishancomponent, the wastewaterimprovements inDongting andAnzhen will provide a more sustainablebasis for the rapid economic andpopulation growth of the district through the environmental andpublic health protection. 15. Suzhou-Water Regulation Gates onXujiangdk Shangtang Rivers. This project componentis partof the overall flood protection planfor Suzhouandwill also support the municipality's ongoing pro- for cleaningup its internal network of canals within the historic city. The gates will control the flow o fpolluted water from the GrandCanal into the inner canal systemandprevent the loss of cleanwater divertedthrough Xujiang from the WangYuRiver. The improvement inflood control will reduceeconomic losses arisingfromflooding inthe central city. Basedonanalysesundertaken inpreparation o fthe Suzhou -44-  FloodControl Masterplan, the PV of avoideddamages due to reducedflooding that can be directly attributed to this project componentis estimatedto be RMB 188 million, significantly greater thanits economic cost, RMB 110million. The improvement inthe water quality ofthe inner city canalswill also significantly enhance their amenity andrecreationvalue, bothto city residentsas well as to tourists and other visitors, for which the canals representone of the maincity attractions. 16. Suzhou Central City CanalDredging. This project componentis designed to compliment an - ongoing program for the separationo f the existing combined sewer systemthat would intercept all sewage still entering the inner city canals. Dredging o f 65 kmofurbancanals inSuzhouwill improve water qualityandenhancethe capacityofthe canalsto provide for flood control. This will reducethe incidence of localized flooding andassociateddamages. Basedonthe resultsofthe water quality modelling undertakenduringproject preparation, the dredgingcouldreduceCOD concentrationsby 0.1 - 0.8 mg/l andNH3-Nby 0.1 -O S m@. As inthe case ofthe water regulation gates, improvedwater quality will increasethe amenity andrecreationvalue of the inner city areathat is permeatedby canals andwillhave a direct economic impactthrough tourism andother activities. 17. Wuxi WuliLake Rehabilitation. The locally-financedWuli Lake componentofthe project will - contribute toward the restorationofthe lake through pollutioncontrol (10 sluice gates, one shiplock), restoration of 19.4 kmo flake bank, andpilotresearchinecological restoration. The program will also help to reducethe frequency andseverity of flooding inWuxi City and openupa substantial new area for developmentwith significant amenityvalue for commercial, residential andrecreationaluse. As inSuzhou, tourism is animportant economic activity inWuxi. The number of tourists visiting Wuxi in2001 was 12 million andtourist income was RMB 15 billionin2002. SinceWuli Lake is one ofthe city's maintourist attraction, the lakerestoration will have a direct and significant impact on economic activity inWuxi. The restoration will also directly benefit city residentsfor whom Wuli Lake is a major recreational resource. Economic Analysis 18. Methodology. Although attemptsto quantify project benefits were undertaken, many ofthe benefits, particularlythose relating to environmental andpublic health improvements could not be quantified For this reason, the choice for priority interventions for the project hasbeenguidedby cost effectiveness andleastcost analyses. Incrementalcosts andoutput are calculated fiom the difference betweena "with project" scenario and the "without project" scenario. The economic costs for the componentsare determinedbymakingadjustmentsto the component's financial costs. All taxes andduties were excludedind e t e*r " g economic costs. Price contingencies, interest duringconstruction andnet working capitalrequirementsare also excluded. 19. Least-Cost Analysis. Alternative project designswere identified and evaluated inorder to identify the leastcost solution for incorporation into the project. The findings o f these analysesare summarized below. 20. WastewaterSystem ConJigurations. One ofthe mainobjectives of the project wastewater interventions is to minimize service costs through the consolidation o f service areas andtreatment facilities. Insome ofthe districts, andparticularlyinXishan,the originalpreliminary proposals includedplans for separate collection andtreatment facilities for each small town andindustrialdevelopment. Duringproject preparation, these plans were revisedonthe basis o fleast cost analysis, which indicatedthat a more consolidatedapproachwas more cost effective andpreferable on environmental grounds. -45-  21. Wuxi Xishan District. Originally, separatesystemswere proposedfor each ofthe seventowns in - southernXishan. This was found to be significantly moreexpensivethanproviding servicesthrough either one single system or through two systems. Underthis second alternative, one WWTP wouldbe locatedat M e nandserve Anzhen, YangjianandHouqiao, whilethe secondWWTP wouldlocatedat Dangkou and cover Dangkou, Houzhai, Hongshen andGalu towns. The least-cost analysisindicatedthat the unitcost of the two-system optionwas slightly less expensive than the single systemover the economic life ofthe facilities. The average incrementaleconomic cost (AIEC) ofthe two systemoption is estimatedto be RMB 2.18/m3 o fwastewater treated,comparedto RMB2.32/m3 for the single system. Although this cost differential is not significant, the two systemoption possesses the additional advantageo fnot requiringlong distancetransfer of wastewater. There are technical concemsassociatedwith this transfer that couldnot be adequatelyquantified andincorporated into the least-costanalysis. Therefore, the two-system alternative has beenincorporated into the project designas the least-costoption. The M e nsystemhas been included inthe project while the secondsystem, serving Dangkou, Houzhai, Hongshen andGalu, will be undertakenbythe district governmentdirectly withlocalhding. 22. W u i Huishan District. In Huishan, the optimal configuration for serving the three towns - --Yanqiao, Changan, Xizhang -- plusthe Huishan Industrial Park, was assessed on the basis o f three alternatives. Under Option 1, a newWWTP andcollection systemwould be constructedto serve this entire servicearea. Under Option 2, the new WWTP would serve only two ofthe towns, Yanqiao and Changan, plusthe industrialpark. WastewaterfromXizhang would becollected andtreatedat the existing Chengbei WWTP, which wouldthenrequire expansion. UnderOption3, all wastewaterfromthe threetowns and industrial parkwould be collected andtransferredto the Chengbei WWTP. However, this thirdaltemative was soonrejected once it was confirmedthat insufficient landwas available at Chengbei for the necessary expansion. A least-cost analysis was thenundertakenfor the two remainingaltematives, which indicated that Option 1, a single WWTP serving all three towns andthe industrialparkwas the least cost. The AIEC for Option 1 is estimatedto be RMB 1.83/m3, comparedto RMB2.23/m3 for Option 2. Therefore, the selecteddesign o f this project componentis based on Option 1. 23. Suzhou WuzhongDistrict. Two altemative systemconfigurations were assessed, Under Option - 1, the wastewaterwithinthe project service area wouldbe collected andtransferred to the existing Songlin WWTP, which is outside the project serviceareabut withinWuzhong District. This existingWWTP, has an existing capacity of only 5,000 m3/day, is presently beingexpandedto 10,000 m3/day, but wouldneed to be expandedby a further 25,000 m3/day under this option. Under Option 2, a separate WWTP would be constructedwithintheproject service area inthe Wuzhong Economic Development Zone. The AIEC for Option 2 is estimatedto be RMB 1.98/m3, comparedto RMB2.26/m3 for Option 1, Therefore, Option 2 was found to be the least cost andhas beenadoptedas the preferred project configuration. 24. TreatmentProcess Selection. A least-cost analysis was undertaken to support the selection ofthe preferred secondarytreatmentprocess for each wastewater component ("able 1). The processesconsidered were oxidation ditch, conventional activated sludgeprocessunder the anaerobic/anoxic/oxidationmode, andSBR. Inaddition, for the FuxinandLoujiangWWTP expansions, the proprietaryUNITANKprocess was also evaluatedbecausethe existing first phaseo fbothfacilities employs this process. However, the oxidation ditchprocess was not consideredfor FuxinandLoujiangbecause there is insufficientavailable landat these sites. For the district systems, the SBR process is estimated to be the least cost although in HuishanandXishan, the differencebetweenSBR andactivatedsludge isnot significant. For allofthe district systems, the SBRprocesshas beenselectedas the preferredtreatment process. For the Dongting wWTP inXishan District, the SBR processwas selectedwithout undertaking a detailed least-costanalysis becausethe existingfirst phaseo f this WWTP employs the SBR process. For FuxinandLoujiang, all three processesevaluated, activatedsludge, SBR andUNITANK, are essentially the same cost. Although -46-  the selection o f the UNITANKprocesswould be advantageousinthat it provides for full compatibility betweenthe first and secondphaseso fthe WWTPs, the processis proprietary. However, since UNITANK is a technical modification of the SBRprocess, the preferredprocessi s selectedas SBR, without specific patent. Table 1: Summary of Least Cost Analysis for WastewaterTreatmentProcesses Activated Sludge OD-OxidationDitch 25. Cost EffectivenessofWastewater Investments. The marginalcosto fpollutantremoval provides an indication of the relative cost effectiveness o f eachwastewater component. The AIEC per tonne of CODremoved for eachproject alternativeis given inTable 2. AIECs for the FuxinandLoujiang WWTP expansionsare comparableto those for other larger scale expansionsproposed for Bank funding. For example, AIECs calculated for the wastewater componentsinthe SecondLiao RiverBasinProject (2003) were betweenRMB 3,170 andRMB3,305 per tome of COD removed. For the secondarytreatment altemative assessed for inclusioninthe Chongqing UrbanEnvironmentProject (2000), the AIEC per tonne of COD removedwas estimatedto be RMB 3,630. 26. Fortheproject wastewatercomponentsinthe districts, the costofCODremovalis significantly higher, rangingbetweenRMB 7,570 andRMB 9,050 per ton o f COD removed. While the smaller scale of these facilities increases unit capital andoperating costs, the major reasonis these project components include the construction of a sewer network inaddition to the WWTP. Incontrast, the FuxinandLoujiang components incorporate only WWTP expansion. -47-  Table 2: UnitCost o f COD Removal Project Component 1 CODRemoved 1 AIECofCOD I Removed WYear) (RMBlt) SUZ~OU-F ~ i n 8,480 3,875 Suzhou-Loujiang 11 8,190 11 2,510 II Suzhou Wuzhong - 3,840 9,050 Wuxi Huishan - 4,300 7,570 Wuxi Xishan (Dongting& - 10,750 8,030 Anzhen) 27. economic prices (AIEC) andfinancial prices (average incremental financial cost -AIFC) andgiven in Average IncrementalCost (AIC). For eachwastewater component, the AIC is expressedinboth Table 3. The AICs are calculated onthe basis of the economic life o fthe project. This is the 30-year operating life of the projectplusthe construction period, whichis either four or five years, depending onthe specific project component. The economic opportUnity cost of capital (EOCC), assumedto be 12percent, is usedto discount incremental costs andvolumes inorder to calculatethe AIEC. The discount rate usedto calculate AIFC is the weighted average cost of capital (WACC). The WACC is calculated separately for eachproject componentdependingonthe specific financial structure of each component, but varies only slightly, between 5.3 percentand5.9 percent. Table 3: Summary of PV & AIC Analysis Project Component PVEconomic AIC (RMB/m3) cost (RMB AIEC AIFC million) Suzhou-F ~ i n 168 0.97 0.92 Suzhou-Loujiang 105 1.02 0.97 Suzhou Wuzhong - 178 3.81 2.94 Wuxi Huishan - 166 3.56 2.5 1 Wuxi-Xishan(Dongting & 393 4.73 3.30 &hen) -48-  28. The AICs are significantly higher for the district wastewater systems than for FuxinandLoujiang systems inthe central Suzhou. The AIEC for FuinandLoujiangis estimatedto be RMB0.97/m3 and RMB l.O2/m3 of wastewatertreatedrespectively,while those ofthe district systems are between3.7 and 4.9 times higher. Of the district systems, the least-cost system is HuishanwithanAIEC ofRMB 3.56/m3. The highest cost systems are those inXishan withan AIEC of RMB4.73/m3. The AIEC for the Wuzhong system is RMB3.81/m3. There are anumberofreasons for the significant difference inincrementalcosts betweenthe district systems andthose incentral Suzhou. As for the cost effectivenessanalysis, the most important reasonis the inclusiono f sewer networks inthe district project components while those incentral Suzhouconsist only of WWTP expansion. Furthermore, addingtreatment capacity through anexpansion of existingfacilities is less expensivethanthrough the construction ofnew facilities. All of the district WWTPs included inthe project, withthe exception ofthe DongtingWWTP expansioninXishan, will be entirely new. Another reasonfor the higher incrementalcosts for the district systems is that they will receive a higher proportionof more costly to treat industrial wastewaterthanthe central Suzhou systems. In2008, industrialwastewateris projectedto contribute48 percentoftotal wastewaterflowsincentral Suzhou. Incontrast, industry is projectedto account for 82 percentinWuzhong, 68 percent inHuishan, and61percent inXishan. - 49 -  Annex 5: FinancialSummary CHINA TAI BASINURBANENVIRONMENTPROJECT k MunicipalandDistrictFinances 1. An analysis of the availability ofcounterpartfundswas undertakenbyreviewingrevenuesand expendituresinthe project cities anddistricts. Table 1presents a summary o f this analysis. The complete analysis is available inthe project file. The dataanalyzedrelatesto what is referred to inChinese government accounting as on-budgetand off-budget funds. On-budgetandoff-budgetary funds include revenuesfrom statutory taxes andlevies. Their allocations are subjectto approval by higher level governments. Off-budget are non-taxrevenues suchas net income remitted from municipally controlled enterprises, and some types of user charges collectedby administrative departments. There is less control byhigherlevelgovernment onthese revenues sources. Inthe two project municipalities, some ofthe off-budget funds are actually transferred to on-budgetrevenuesand are generally allocated for the purpose of capital investment expansions. 2. For the four project wastewatercomponents, animportant source o f counterpart funds is the municipalwastewaterfee. However, revenuegeneratedfrom this fee is not sufficient to cover all counterpartfundingrequirements. Therefore, contributions are alsorequiredfrom the capital budgetsof the municipal anddistrict governments. For the non-wastewatercomponents, all counterpart funding is provided from the capital budgetsof the municipalgovernments inSuzhouandWuxi. Therefore, the capital investment capacity of eachmunicipality anddistrict, andparticularly the ability of each city/district to provide the necessary counterpartfunding, is assessed on the basis of these capital budgets, Inthe case ofthe HuishanandXishan wastewatercomponentsinWuxi andthe Wuzhong wastewater componentinSuzhou, the districts will providethe local government contributionfrom their capital funds, For the other components, the municipal governmentsare responsible for the provision of counterpart funding. 3. The analysisof historical trendsindicates very large annual increasesinrevenuesand expenditures inrecentyears inthe project cities, atboththe municipal anddistrictlevels. This is areflectionofthe strongeconomic growth inthe cities andthroughout JiangsuProvince over the past decade. For example, between 1998 and2002, municipalrevenueswithinthe core urbandistricts increasedat average annual rates of 42 percentinSuzhou and 31percent inWuxi. For the entire municipal areas, which also include the outlying districts and counties, average annual revenuegrowth inSuzhou was even greater, 48 percent, over this same period. This reflects the tremendous growth innew industrialparks andresidential areas in Suzhououtside the core city. InWuxi, revenuegrowthfor the entire municipality was 28 percentbetween 1998 and2002, only slightlylower thanthat inthe core city area, indicatingstrong economic growth inthe newlydeveloping districts. The capital investmentbudgetso fbothcities also increasedsignificantly over the 1998 2002 periodinbothcities, although the increasewas much greater inWuxi. Over this period, - revenuesallocatedto the city's capital investment budget increasedat an averagerate o f 69 percent, well above the increase intotal municipalrevenues. This reflects the City's focus on infrastructure investments neededto improve living standards andprovide the basisfor continued economic growth. InSuzhou, growth infundsallocatedto the capital budgetwas much lower, 15 percent per year. These very different growthratesreflect large differences inhistoric capital investment levels. Although the cities haveroufly comparablepopulations intheir urbancore areas, capital investment levels inSuzhouwere muchhigher thaninWuxiupto 2002. - 50 -  4. Financial projections havebeenpreparedto assess the capacityof the two project municipalities andthree districts to provide the necessarycounterpartfundingfor TBUEP. Relative to actual growth rates over the recent past, the projections are basedon more conservativeassumptions,bothfor total revenues, as well as that portionallocatedto their capital investmentbudgets. Over the 2003 -2009 period, total municipalrevenuesare projectedto increase at average annualrates of 6 percent inHuishan, 9 percent inSuzhou, Wuxi andXishan, and 12 percentinWuzhong. Over this sameperiod, revenues allocated to the capital budgetare projectedto increase at anaverageannual rate o f 8 percent inthe urban core districts o f SuzhouandWuxi. Revenuesallocatedto capital budget of the three districts are projected to increase at average annualrates of 10percentinHuishan, 18 percentinXishan and20 percent in Wuzhong andover the 2003 2009 period. - 5. The analysis indicatesthat the project componentsare consideredto be generally affordable to all o fthe municipal anddistrict govemments. Requirementsfor project counterpartfunds from the two municipal governments andthree districts as aproportion o ftotal revenuesvary between0.2 percenton average inSuzhou (0.5 percentinthe peak*year),0.2 percent inWuxi (0.5 percent inthe peak year), 0.4 percent in Wuzhong (0.8 percentinthe peak year), 0.5 percent inHuishan(1.1 percent inthe peak year), and 1.9 percent inXishan(3.7 percentinthepeakyear). Whenconsideringonlyrevenuesthat canbe allocated to the infrastructure investment, which is anapproximation of financial capacity to contribute to the project, counterpart contributions as a proportiono fthe capital budgetvary between 0.6 percent on average inSuzhou (1.5 percentinthe peak year), 0.4 percent inWuxi (1.2 percent inthe peak year), 1.5 percent inWuzhong (2.9 percentinthe peakyear), and 1.9 percentinHuishan(3.8 percent inthe peak year), and5.5 percent inXishan (11.3 percentinthe peakyear). -51 -  Table 1:MunicipalandDistrictFinances (RMBmillion currentprices) - 2003 2004 2005 2006 2007 2008 2009 Total" SuzbouMunicipalGovernment! MunicipalRevenue 17,044 18,593 20,289 22,146 24,180 26,408 28,401 CapitalInvestmentCapacity 5,065 5,825 6,699 7,703 8,859 10,188 11,716 ProjectContributions 72 101 35 20 2 229 Projectas%ofRevenues O.P? 0.4% 0.5% 0.2% 0.1% 0.Ph 0.0% 0.2% Projectas%of CapitalBudget OB?? 1.2% 1.5% 0.5% 0.2% 0.0% 0.0% 0.6% WwhongDistrictGovernment DistrictRevenue 2,563 2,852 3,177 3,542 3,951 4,412 4,930 CapitalInvestmentCapacity 642 738 849 977 1,073 1,180 1,264 ProjectContciiutions 28 25 - 53 Projectas%ofRevenues 0.0% 0.0% 0.0% 0.8% 0.6% 0.0% 0.0% 0.4% Projectas%ofCapitalBudget 0.0% 0.0% 0.0% 2.9% 2.3% 0.0% 0.0% 1.5% WuxiMunicipalGovernment' MunicipalReVenue 14,209 15,499 16,911 18,457 20,151 22,006 23,666 CapitalInvestmentCapacity 6,184 6,803 7,483 8,231 9,054 9,960 10,757 ProjectContributions 79 55 15 3 3 154 projectas%ofRevenues 0.0% 0.5% 0.3% 0.1% O.oo/o O.oO! 0.0% 0.2% Projectas%ofCapitalBudget 0.0% 1.2% 0.7% 02% 0.0% O.oO/o 0.0% 0.4% HuishanDMctGovernment DiStliCtRevenUe 1,638 1,779 1,933 2,102 2,286 2,487 2,669 CapitalInvestmentCapacity 499 528 559 582 607 633 659 PmjectContributions 20 20 4 - 44 Projectas%ofRevenues 0.0% 1.1% 1.0?? 0.2% 0.0% 0.Ph 0.0% 0.5% Projectas%ofCapitalBudget 0.0% 3.8% 3.6% 0.7% 0.0% 0.0% 0.0% 1.!?A XishanDistrictGovernment DistrictRevenue 1,583 1,720 1,868 2,031 2,208 2,402 2,578 CapitalInvestmentCapacity 444 521 613 721 793 873 929 ProjectContributions Total - 11 69 76 38 - 19 Projectas%ofRevenues 0.0% 0.6% 3.7% 3.7% 1.7% 0.0% O.P? 1.Y? Projectas%ofCapitalBudget O D ? ? 2.0% 11.3% 10.5% 4.8% 0.0% O.G% 5.5Y - 52 -  B. Sector FundingandCost Recovery 6. Sector Funding. China employs apolluter-pays approachto sector funding under which charges are applied to all wastewater generatorsinurbanareas regardlessof whether they are connectedto the public sewer. InSuzhouandWWri, a municipal wastewater fee is appliedthrough the municipal and district water supply companies(WSC) to those receiving pipedwater supply. Fundingo fthe wastewater sector from the municipal fee is, therefore, dependent onthe servicecoverage ofthe WSCs. Inthe central cities, coverage is near universal, while inthe three project districts, coveragelevels are muchlower. However, with the municipal water supplysystemnow being rapidly extendedinto HuishanandXishan, revenue from the wastewater fee is now beginningto increase significantly. In2002, collections of the municipal wastewater totaled aboutRMB 100millioninSuzhou and 140million inWuxi. By 2004, the amount collected from HuishanandXishanis anticipatedto increasetotal municipalcollections by a further RMB 24 million andthenmore thandouble over the next 3 -4 years. 7. Reform of Wastewater Fee. Existingwastewater fees applied inSuzhouandWuxi are amongst the highest in China, RMB 1.15/m3 andRMB 1.1O/m3 o fwater consumedrespectively. However, these fees are applied under the legal authority o fthe municipal governmentsinboth cities and as such, are remitted to the municipal finance bureaus ineach city, not to the wastewater companies. Inthe case of Wuzhong District, the fee is collected bythe district water supply company andremittedto the district finance bureau. Fundingo fthe sector is thenprovidedthrough budgetary allocations to the wastewater companies rather thandirectly from the wastewater fee. InHuishanandXishandistricts inWuxi, the situationhasbeenparticularly challenging becausethere has beenno mechanisminplace to retum wastewater fees to the district companies, eventhrough the budgetaryallocations. Therefore, the priority reform requirement, at leastover the immediate term, does notrelate to fee levels butrather to the direct transfer of fee collections to the wastewater companies. Wuxi and SuzhouMunicipal Governmentshave agreedto addressthis requirementby changing the legalstatus o fthe existing municipal fee to that o f a wastewaterutilitytariff bythe end o f2006. Withthis reform, tariffs will be directly remittedto the wastewater companiesinWuxi, including those inHuishanandXishan districts, andnot through the finance bureaus. Over the interimperiod, Wuxi Municipal Government will transfer the fbll amount o fthe fees collected inHuishanandXishanto the district governments. 8. Cost Recovery Mechanisms inthe ProjectDistricts. Existingwastewater fees are set by the municipalgovernmentsinSuzhouandWuxi and applied on a uniformbasisthroughout each municipality. The fees are set primarilyon the basis o f capital andrecurrent fundingrequirements withinthe central urbanareaofeachmunicipalitywhere mostofthe existingwastewater infrastructure is located. Consequently,there is no direct linkage betweenthe setting o f fee levels that are applied inthe three project districts andthe actual costs ofproviding wastewater services inthese areas. Furthermore, future increases inwastewaterfees will also bedictatedprimarilybythe cost structuresinthe central cities. However, the project wastewater systems inthe three districts will have higher unitcosts because o ftheir relatively small scale and greater proportionof more costly to treat industrial wastewater. Therefore, the municipal wastewaterfee may not be sufficient by itselfto filly recover the costs of the district companiesonce the project iimdedfacilities beginoperations. To supplementtariff revenues, the district companiesplanto apply a surcharge on the industrialwaste generators. The municipal fee is applied ona uniformbasis, but the cost of treating industrialwastewater is generally higher. Therefore, the surchargewill reallocate charges so that they better reflect the actual cost o fprovidingservice to the industrialgroup. - 53-  C. ProjectCompanyFinancialProjectionsandInstitutionalArrangements 9. Financial projections have beenpreparedfor eachproject wastewater company on anannualbasis over the 2004 -2018period. These projectionsare basedonthe requirementof each company to comply withthe agreeduponfinancial covenantsregardingcostrecoveryanddebtservicecoverage,aswell asthe needfor intemally generated contributions towardproject counterpartfunding. The key financial covenant requires that eachproject company generatesannualoperatingrevenuesthat are sufficient to cover all operating expenses, includingdepreciation, any loss on non-operating activities, plus the amount, if any, by which debt service exceeds depreciation. This ratio of operatingrevenues to costs is expressedas the cost recovery ratio, which, therefore, mustbe at least 1.O ineachyear. Inaddition, a debt service coverageratio covenant will also be applied underwhich the companies' ability to incur additional debt will be conditional on themmaintaining this ratio,atnot less than 1.3. 10. The projections incorporatethe proposedchange inthe legal status ofthe existingmunicipal wastewater fee to that of autility company tariff. Therefore, these tariffs are consideredto be the operating revenueofthe project companies. Summary financial projections for eachcompany are giveninTables 5 - -8. Detailedfmancialprojectionsareincludedintheprojectfile. SuzhouQingyuanConstructionCompanyLimited 11. InstitutionalStructure. Suzhouhas embarkedona comprehensiveprogramofreforms for its water andwastewater sectors basedon the following principles: (i) integratedmanagementof water and wastewater under a single municipalagency; (ii) increasedcommercialization o fthe sector; and, (iii) separationo fasset ownership from the operation o fthese assets through outsourcing. In2002, responsibility for water andwastewater was consolidated withthe establishmento fthe SuzhouWater Affairs Bureau (SWAB). Also in2002, the municipal government establishedthe SWIDC for the purposes of holding all sector assets together withthose entities responsiblefor the sector operations. SWIDC is wholly owned bythe municipalgovernmentandis under the supervision o f SWAB. SWIDC is intendedto facilitate greater commercialization o fthe water andwastewater sectors andspecifically as a vehicle for attracting financing into these sectors. Within SWIDC, subsidiary assetmanagementcompanieshold sector assets while other subsidiaries are responsible for asset operations. 12. The SQCC is a subsidiary o f SWIDC responsible for assetmanagementandproject implementation inthe city's wastewater sector. Itwas establishedin 1999 andis presently is responsible for the implementationandmanagementofthe first phases o fthe FwrinandLoujiang collectionand treatmentsystems, as well as the expansiono fthese facilities under TBUEP. Operations of existing wastewater assetsinthe central urbandistricts are undertaken bythe DFMD, anagency o fthe municipal governmentunderthe supervision of SWAB. 13. ReformFramework Although the basicreform framework for the Suzhouwastewatersector has beenestablished, the implementation o fthis framework is still inits early stages. While SQCC has been establishedas legally independententity from government, ithas beenfunctioningessentially as a dependent govemmentproject implementationunit. Furthermore, since the initial assetsunder its management, the firstphases o f FuxinandLoujiang systems, are still intheir findstages of construction, it has not yet assumedresponsibility for existing Operatingassets. Withthese systems commencing operationsshortly, SQCC needs to develop an asset managementcapability, animportant part o fwhich will bethe managementof the outsourcing process. The TA for Institutional, Financial& Operational Strengtheningto beprovidedunder TBUEP will support SQCC indevelopingan adequate capacity for - 5 4 -  asset management andoutsourcing. By2005, all existingsector assets will be transferred from the municipal government to SQCC. The operationofthese assets will be initiallyundertakenbyDFMD, which by end 2006 will be corporatizedandbecomea subsidiary of SWIDC. However, the operation of newassets, includingthose hdedunder the project, will be outsourcedthrough competitive bidding. 14. To be fully successful, the institutional reforms beingimplementedinSuzhou's wastewater sector require supporting financial reforms. The existing systemofbudgetaryallocations to fundthe sector in Suzhouis basedon traditional institutional arrangements, inwhich governmentbureausdirectly provided all wastewaterservices. However, with asset ownership andmanagementfunctions now beingseparated from govemment andtransferredto SQCC, the company needsto haveits own sourceof operating revenue. This requires a change inthe legalstatus o f the existing municipalwastewater fee to that of a utilitycompany tariff. This changewill establishSQCCas afinanciallyviable andsustainableentity consistentwithits independentlegalstatus. The municipal governmentplansto reformthe wastewater fee over the project implementation periodandapply the newtariffthroughout the municipality. Therefore, in addition to the Suzhouurbancore area inwhich SQCC operates, these reformed fundingarrangements would also be applied the project h d e dwastewater componentinWuzhong District. Customer Group Actual Projected 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 15. Tariff Requirements. Wastewatertariffs are set on a municipalitywide basis primarilyon the basis of the cost structure of the central city wastewater systemover which SQCC holds responsibility. Therefore, future tariffrequirementsare estimatedspecifically on the basisofthe financial requirementso f SQCC. This means that, unlike the district companies that will needto apply a surcharge, SQCC does not require a supplementalrevenue source. The most recent increaseinthe municipal fee, whichbrought it to RMB 1.15/m3, was implementedinMay2002. Thenextincreaseistentatively plannedfor 2006 and future increasescouldrealistically be implementedevery 3 -4 years. Onthis basis, it is estimatedthat the municipaltariffwill needto be increasedby 15percent in2006, to RMB 1.32/m3 (Table 2). The next increase wouldthenbe about 18percent in2009, bringingthe tariff to RMB 1.56/m3. Beyond2009, the needfor further increases is relatively limited. Basedonthe fmancialprojections for SQCC, increasesof 10percentwould beneededin2013 andthen again around2018. 16. FinancialPerformance. Unlike the district companies, which willhave few if any operating assets over the project implementationperiod, SQCC will needto beginto fundoperating assets as of 2004. The companywill also haveto use its tariff revenuesto funda portion o fthe cost ongoing capital investments, inadditionto TBUEP, over the 2004-2008 period. However, despitetheseother demandsoninternally generatedcashflows, the financialprojections indicate that the company shouldbe able to h dalmost 40 - 55 -  percento f TBUEP counterpartfunding (Table 5). Most of this companycontribution, which is estimated to total RMB45 million, would be provided in2006 with a smaller contribution in2007. The municipal govemment would provide the remaining 60 percentof counterpartfunding, about RMI3 75 million, over the 2005 -2007 period Withthe completion ofthe project, capital expenditures would decline but still average almost RMB50 millionannually, virtuallyall of which would be allocatedto replacementand expansiono f the sewer network. Tariff revenues are projected to be sufficient to enable SQCC to fund these annual expendituresentirely from internal cash flows. The company is projectedto e m positive net forecast period. Over the 2005 -2015 period, the cost recovery ratio is projectedto average 1.3 andabove income andcomply withboththe costrecovery anddebt service covenant inall years over the 2004 -2015 the 1.0 minimuminall years. The debt service coverage ratio should alsoremainwell abovethe 1.3 minimum, largelybecausethe companyshouldnotrequire any additional debt after that providedunder TBUEP. SuzhouWuzhongAssetManagementandAdministrationCompanyLimited 17. InstitutionalStructure. Wuzhong District is located adjacentto the coreurbanarea of Suzhou andhas experiencedvery rapidgrowthover the pastdecade. Muchofthis growthhasbeenconcentratedin the Wuzhong Economic DevelopmentZone (WEDZ). However, the managemento fthe wastewater generatedby this growthhaslagged significantly. All wastewater generatedwithin the WEDZ, most of which is from industries, is presently untreatedexceptfor that partiallytreatedby the induskesthemselves. Outside the WEDZ, there is only one small wastewatertreatment facility that serves part o f the urban area of the district. No single entity has beenresponsiblefor providingwastewater services on a district-wide basis. Inorder to provide for a more comprehensiveapproachto service delivery, the district govemment andWEDZ establishedthe SuzhouWAMC. WAMC is responsiblefor the implementation, ownership and operation for the TBUEP fundedwastewater componentinWuzhong. The company is to be responsible for wastewatermanagementthroughout WEDZ, as well as through those other areas o fWuzhong District not connectedto the Suzhoucity wastewater system, which are servedby SQCC. 18. ReformFramework. WithWAMC onlyjust havingbeenestablished, ithasyet to assumethe responsibilities andfunctions set out for it. Overthe immediate term, WAMC will complete its initial staff recruitmentsanddevelop andimplement the core management, legalandfinancial systems required for the company. Initially, the company's primaryfunctionwillbe to oversee implementation o fthe TBUEP wastewatercomponent inWuzhong. However, the company will needto start preparing itself for the operationo f these facilities, presentlyscheduledfor 2008. WAMC will not directly operatethese facilities, butwill outsourcethis functionthrough competitive bidding. The TA for Institutional, Financial & Operational Strengtheningto be incorporated into the project will support the company inthe designand implementation o fthese outsourcing arrangementsandregulatory oversight o fthe effectivenesso fthe operatingfmcontracted. The reform of sector fundingarrangementsby the municipal govemment will meanthat collections ofthe wastewatertariff bythe district water supply company willberemitted directly to WAMC, rather thanto the district financialbureau. This will then give WAMC the operating revenue neededto initially contribute toward the capital cost o f the TBUEP component inWuzhong andthen later to cover the cost of operating these facilities anddebt repayment. 19. Tariff Requirements. Wastewater tariffs are set on amunicipality wide basisandare determined primarily on the basisofrequirements inthe Suzhoucentral urbanarea. Therefore, the tariffs applied in Wuzhong over the forecast period will be the m e as those for SQCC (Table 23. However, inaddition to the wastewatertariff, WAMC will also apply an industrial surchargebeginningin2008 whenthe project assets enter service. It is projected that the surchargewill needto be initially set at RMB0.65/m3. Increasesof RMB0.1O/m3 would then needto be implemented in2011 and2015, bringingthe surchargeto - 56 -  RMB0.851m3. 20. Financial Performance. Theprojected financial performance of WAMC is assessed onthe basis ofits operating scopebeingthe entire WDZ (Table 6). Those areas outsidethe WEDZ have not been included inthe projections becausethe schedule for the company's takeover o fthese areas has not yet been confiied. Within the WEDZ, aprivatelyinvestedWWTP, witha first phase capacity o f 15,000 m3/day, is presently under construction and is scheduledto beginoperating in2006. The tentative planis to double its treatment capacity by about 2011. This WWTP impacts uponWAMC intwo important ways. First, WAMC will be responsiblefor the operationandmaintenanceofthe sewer network providingwastewater to this facility. Second, paymentsto the owners ofthe WWTP willbe made from the collections of the wastewater tariff. Therefore, WAMC revenues are net ofthese paymentswhile its operating expenses includethoserelatedto the sewernetwork dischargingwaste into the private WWTP. Although the net impact is to reduce WAMC's ability to generateproject counterpartfundingfrom tariffrevenues, it is still anticipated to be able to meet almost40 percentofthis requirement from this source. Oftotalcounterpart funding ofaboutRMB 86 million, RMB33 millionwouldbe generatedfromthe tariff withthe remaining RMB53 millionprovidedbythe district government. Withoperationoftheproject facilities commencing in2008, netincome will declinesignificantly butremainpositive over the forecastperiod. Principal repayment onthe Bank loanwill begin in2009, placinga further demandoninternalcashflows. However, the company's overallcashposition should actually improve somewhatbecause, with the completion o f project construction, reducedcapital expendituresmorethan offset the increaseindebt service. The company is projected to comply withboththe cost recovery anddebt servicecovenant ineachyear over the forecast period. Over the initialeight years of operationso fthe project facilities, 2008 -2015, the cost recovery ratio is projectedto average 1.2 andremains above 1.O ineachyear. The debt service coverage ratio is projected to average about2.3 over this same period, well abovethe 1.3 minimum. HuishanWater Treatment CompanyLimited(FIWTC) 21. InstitutionalStructure. Huishanis a rapidly urbanizingdistrict within WuxiMunicipality that hadbeen a county untilearly 2002. As a new district outside Wuxi's urbancore area, coverageby urban wastewatertreatmentsystems has beenlimitedto four small facilities ownedandoperatedbythe different towns that these systems serve. No entity has existed at either the district or municipal levelthat is responsiblefor wastewater serviceprovisionthroughout the district. The district government beganto assumea direct role inthe sector with its establishmento fthe HWTC inMarch2003. HWTC is responsiblefor the implementation, ownership andoperation o fthe TI3UEP funded wastewatercomponent inthedistrict. AlthoughHWTCispresentlyresponsibleonlyforthiscomponent,thelegaloperatingscope of the company incorporatesthe entire district. Therefore, it is plannedthat HWTC will gradually assume responsibility for the entire district. Suchanexpansionwould enable HWTCto achieve greater economies of scale, which inturnwould reduceits unit cost structure andthereby moderate the company's tariff requirements. 22. ReformFramework Huishanhas beensomewhat aheadof the other two project districts, Xishan andWuzhong, inestablishing its wastewatercompany. The new company hasthen progressedin establishing a basic organizational structure andhas begunto recruit staff. HWTC's initial functions will be limitedto those directlyrelatingto the implementation o fits TBUEP fundedcomponent. However, as constructiono fthese facilities is completed andthey enter service, the company will then assume responsibility for the managemento fthese assets. Direct operation andmaintenance ofthe completed systemwill beoutsourcedto a qualifiedwastewaterfacility operator. Therefore, the company will needto develop an adequate capacity for the design, tendering andmanagemento f outsourcing arrangements. The TA for Institutional, Financial& Operational Strengthening to be incorporated into the project has been - 57 -  designedto provide support indevelopingthis capacity.' One o fthe most important reforms to be implemented is that relating to sector financing arrangements. Presently,the municipalwastewater fee is collected andremitted to the municipal finance bureau. However, as ofthe endof2006, the legalstatus of the wastewater fee will be changedto that of a utilitycompany tariff. Therefore, the tariff will be applied under the legal authority ofHWTC within its servicearea. The WwriWater Supply Company will billand collect the tariffandthen transfer collections to HWTC. 23. Tariff Requirements. Wastewater tariffs are set on a municipality-widebasis inWuxi and are determined primarily onthe basisof requirementsinthe central urban areao fthe municipality. Basedon anticipated increases inthis municipal tariff, the company is also expectedto needto implement a surchargebeginning in2008 whenthe project assets enter service (Table 3). Givenanticipated increasesin the municipal tariff of 15percentin2006 and20 percentin2009, the COD surchargewouldneedto be set at RMB0.50/m3 in2008. It couldthenbe maintained at this leveluntil2012, when it wouldneedto be increasedto about RMB 0.55Im3. Customer Group Actual Projected 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 "Weighted averagetariffincorporatesbothmunicipaltariffandCOD surcharge. 24. Financial Performance. The financial projections for HWTC have beenprepared on the basis that the company's operating scope is limitedto the service area o fthe TBUEP funded project component ( Table 7). Although HWTC plans to assumeresponsibility for the entire district, this will occur gradually andthe timingandphasingof this expansionplanhasyet to be confirmed This provides amore conservativeassessmentof financial performance because itlimitsrevenue generationto the area served under the project. Over the project implementation period, virtually all revenuefrom the wastewatertariff canbe allocatedto project capital costs. Between2004 and2007, about RMB 35 millionwill be generated from the wastewatertariffand allocated to project capital investments, which represents45 percent of total counterpartfundingrequirements. With operationsbeginningin2008, revenueswill then be usedprimarily to cover operatingcosts anddebtservicerequirements. The most critical periodfor HWTC is anticipated to bebetween2009 and2011. The project funded assets are fully operational and, in2009, principal repayment onthe Bank loan begins. Furthermore, anexpansion insecondarytreatment capacity is planned for 2010 2011,which places anadditional demandon internally generatedcashflows. However, given - that the tariff increases are implemented as projected, the company should be able to meet these various funding requirements. Netincome is projectedto remainpositive andthe cashpositionofthe company will be withinacceptable levels. The company is projectedto comply withthe costrecovery covenant ineach year over the forecast period. Over the initial eight years of operationsofthe project facilities, 2008- - 58 -  2015, the cost recovery ratio is projected to average 1.3 andremains above 1.0 ineachyear. The debt service coverage ratio is projectedto average2.3 over this same period, well abovethe 1.3 minimum, but mightfall slightlybelowthis minimumin2011and2012. Althoughthis would limitthe company's ability to take on additional debt, no suchrequirementis anticipateduntilanexpansionprogramis undertaken beginning in2016, bywhichtime the ratio isprojectedto be well above 1.3. Xishan Anzhen WastewaterTreatmentCompanyLimited& DongtingWastewaterTreatment Company Limited 25. InstitutionalStructure. Xishanis similar to Huishaninthat it is a new district o fWuxi Municipality outside the urbancore, which is undergoingrapid economic growthandurbanization, Presently, the only existing treatment facility is the DongtingWWTP, which will be expandedunder the project. Also like Huishan, no entity at the municipal or district levelhas beenresponsible for wastewater serviceprovision on a district-wide basis. The district consideredto establishtwo wastewater companies, to be initially responsible for the wastewater componentsat Dongting andM e n , respectively. This responsibility includes project implementation, asset ownership andmanagement. The WuxiXishan DongtmgWastewater TreatmentCompany Limitedis responsiblefor the existing Dongting treatmentand collection system, as well as the project funded expansion. The responsibilities o f the XishanAnzhen Wastewater Treatment Company Limitedwould have beenlimited to the Anzhenproject component, However, inorder to provide the basisfor the rationalization of the sector inXishan, the two companies will nowmerge. Once operationsbeginunderthe managementofthis mergedcompany, direct operating andmaintenancefunctions will be outsourcedto aqualifiedoperator. 26. ReformFramework. The most important reformobjective over the immediatetermis to merge the two companiesinXishan. This would provide the basis for more effective andefficient service delivery, not only inDongtingandM e n , butbecausethe mergedcompany will operate onadistrict-wide basis, throughout XishanDistrict. Once merged, the new company will immediatelyassume responsibility for the existing Dongtingfacility, as well as preparefor the operation o fthe expandedandnew facilities that will enter service in2009. Withoperationsbeingoutsourced, the company will needto have an adequate capacity for the design, tendering andmanagemento foutsourcing arrangements. Support in developing this capacity will beprovidedunderthe project TA for Institutional, Financial & Operational Strengthening. As inthe case of Huishan, sector financing arrangementswill also be reformedover the next two years. As of the beginning of 2004, collections o fthe wastewaterfee inXishanDistrict will be transferredto the district finance bureau. The district will thenallocate these revenuesto the project companies. By end2006, this fee will be converted into a utilitycompany tariff anddirectly remittedto the project companies. 27. TariffRequirements. As notedfor Huishan, wastewatertariffs are set onamunicipality-wide basisthroughout Wuxi and, therefore, maynotreflect the actual cost structures inofthe systemsinXishan. Basedon anticipatedincreasesinthis municipaltariff, the mergedwastewater company responsible for bothDongtingandM e nis expectedto also require a surcharge to fully recover its costs uable 3). While the structure of the surchargewould be the same as that inHuishan,it is projectedthat the actual chargelevelrequiredinXishan is higher, RMB0.80/m3 in2008 compared to RMB0.501m3 inHuishan. This is primarilydue to mainfactors: (i) unitcostsofthe Xishansystemsarehigher; (ii) revenue the the basefor the surcharge inXishan is somewhat smaller becausethe proportion o f totalwastewater from industry is lower; and(iii) proportion o f customerspaying the tariffthat actually have their wastewater the treated is somewhat more limitedinHuishan, at least over the periodto 2012. However, the need for future increasesinthe surchargeinXishan is more limited. A small increase, to RMB0.85/m3, is estimatedto be requiredin2012, but then the surcharge could likely remainunchangedupto at least 2018. - 59 -  28. FinancialPerformance. The financial projectionshavebeenpreparedfor the mergedcompany, referred to here as the XWTC, which will be establishedfrom the two companiesinDongting andAnzhen( Table 8). The projections havebeenpreparedfor this combined entity as o f2004. Beforethe project-funded assets enter servicein2009, the operating assets under the company's managementwill be limitedto the existing Dongtingfacility. Overthis 2004-2008period, about50 percentofrevenuewould needto be allocated to cover the operationalcostsofDonghng. Theremaining 50 percentwouldthenbe allocated to cover about 18 percento ftotal counterpartfundingrequirementsfor the Dongtingand Anzhen components. With operations of the project facilities beginning in2009, revenueswill thenbe used primarilyto cover operating costs anddebt servicerequirements. This first year ofoperations, inwhichthe principalrepayment onthe Bankloanwill alsobegin, is expectedto be the most challenging year for XWTC intermsof itsfinancial performance. Althoughnet income isprojectedto remainpositive, the cost recovery ratio will bejust above the covenantminimumo f 1.O. The debt servicecoverage fatio may actually be slightlybelow the 1.3 minimumbefore increasingto an acceptable 1.5 in2010. However, there are no plans for the company to take on any additional debt untilaround2015, by which the ratio would be inanacceptablerange. After 2009,financial performanceisprojectedtograduallyimprovesignificantly. m e r the initial seven years of operationso fthe project facilities, 2009 -2015, the cost recovery ratio is projected to average 1.2, while the debt serviceratio averages 1.8 over this same period. D. Affordability Analysis 29. An affordability analysishas beenundertakeninorder to ensurethat domestic customers, particularlythose inthe lower income group, can afford the wastewatertariffs in Suzhou (Suzhouurban core andWuzhong District) andWuxi (Huishan andXishan Districts). Two representativehousehold groups are considered inthe affordability analysis: (i)the average income group; ,and, (ii) low-income the group, which is defined as the householdeaming approximately the 20th percentile of income distribution. InbothSuzhouandWWi, incomesare conservatively projectedto increaseat anannualrealrateoffour percentfor the averageincome householdandtwo percentfor the low-income household over the 2004 - 2010 period, which is significantly below that actually achievedover the past decade. The results o f this entire 2003 -2010 period. analysis, which are summarizedinTable 4, indicate that the tariffs are anticipated to be affordable over the -60-  Table 4: Affordability Analysis for Domestic Consumers Project Component Utility Bill as a % o f Household Income 2003 2004 2006 2008 2010 Suzhou Wastewater L o w Income: Water 0.8% 0.7% 0.8% 0.7% 0.8% Wastewater 1.O% 1.O% 1.1% 1.O% 1.1% Total 1.8% 1.7% 1.9% 1.7% 1.9% Average Income: Water 0.5% 0.5% 0.5% 0.5% 0.5% Wastewater 0.7% 0.7% 0.7% 0.6% 0.6% Total 1.2% 1.2% 1.2% 1.1% 1.1% W uzhong Wastewater L o w Income: Water 0.7% 0.7% 0.8% 0.7% 0.7% W astewater 1.0% 1.O% 1.O% 0.9% 1.O% Total 1.7% 1.7% 1.8% 1.6% 1.7% Average Income: Water 0.5% 0.5% 0.5% 0.4% 0.4% Wastewater 0.7% 0.6% 0.7% 0.6% .0.6% Total 1.2% 1.1% 1.1% 1.O% 1.0% Huishan Wastewater L o w Income: Water 0.6% 0.6% 0.6% 0.6% 0.6% Wastewater 0.7% 0.1% 0.8% 0.7% 0.8% Total 1.3% 1.3% 1.4% 1.3% 1.4% Average Income: Water 0.5% 0.5% 0.5% 0.4% 0.4% Wastewater 0.6% 0.6% 0.6% 0.5% 0.5% Total 1.0% 1.O% 1.1% 1.O% 1.O% Xishan Wastewater L o w Income: Water 0.6% 0.6% 0.7% 0.7% 0.7% Wastewater 0.7% 0.8% 0.9% 0.8% 0.9% Total 1.4% 1.4% 1.6% 1.5% 1.6% Average Income: Water 0.5%' 0.5% 0.5% 0.5% 0.5% Wastewater 0.6% 0.6% 0.7% 0.6% 0.6% Total 1.1% 1.1% 1.2% 1.1% 1.1% -61 -  30. Affordability is assessed by comparing incomes to the total cost o f wastewater and water supply. The water tariff is assumed to increase at the same rate as the wastewater tariff over the 2004 -2010 period. On this basis, the combined cost of water and wastewater for an average-income household is projected to actually decline slightly, from 1.2 percentin2003 to 1.1 percent by 2010 inthe Suzhouurban core and from 1.2 percent to 1.O percent over this same period inWuzhong. For a low-income household, the proportion of income required to pay for water and wastewater is projected to increase only very marginally, from 1.8 percentin2003 to 1.9 percentby 2010 inSuzhou, andremainconstant at 1.7 percent inWuzhong. Thecombinedcostof waterandwastewaterfor anaverage-incomehouseholdinHuishanand Xishan is projected to be 1.0 percent and 1.1 percent respectively in both 2003 and 2010. For the low-income household inHuishan,this cost is projected to increase slightly from 1.3 percent in2003 to 1.4 percent in2010. InXishan, the increase between these same years for the low-income group is from 1.4 percent to 1.6 percent. Inall cases, the combined cost o f water and wastewater services is well within the generally accepted guideline that the cost of water supply and sanitation should not exceed 5 percent of householdincome. - 62 -  ---- - 138.4 135.4 1482 1412 1495 1667 1747 173.6 1732 1852 1924 194.8 33.9 550 592 620 85.4 Sa0 93.9 975 101.4 1M9 110.8 116.0 6.1 203 23.1 31.0 37.4 435 45.6 47.4 49.2 Sa9 525 54.2 98.4 60.1 6aO 61.1 26.7 33.1 353 28.7 226 28.4 '292 245 -- 1.5 1.8 1.9 1.9 4.1 4.1 3.9 3.6 3.4 32 3.0 27 7.7 10.5 105 10.7 7.4 9.6 10.4 83 6.3 83 87 72 89.1 47.8 47.7 48.6 15.1 195 21.0 16.8 129 16.9 17.6 14.6 - 96.7 9.9 78.6 815 56.6- 67.1 70.4 67.9 65.5 71.0 73.0 71.6 1189 48.0 482 452 18.5 161.1 60.0 n 7 24.0 iao -- 2800 204.7 190.7 147.8 llR0 55.6 67.1 70.4 67.9 65.5 71.0 73.0 71.6 28QO -- 203.5 195.7 1 4 9 113.0 9.9 57.0 49.0 492 45.5 429 41.4 49.4 142 (a4) 1.5 0.7 (0.9 20 0.9 (0~1) (aa) 13 0.8 02 1.5 1.8 1.9 1.9 4.1 4.1 3.9 3.6 3.4 32 3.0 27 6.0 164 16.4 16.4 164 144 16.4 28aO - 2192 197.1 1443 115.6 54.5 69.1 702 692 653 63.8 61.6 68.8 (145) (63) 3.5 25 2.2 (21) 02 (13) 0.2 72 11.4 27 262 1111 4,s 64 68 9.0 49 7.1 5.8 6.0 132 24.6 273 262 - 26.8 203 23.9 25.0 27.8 27s 23.1 27.8 28.1 347 49.1 523 3135 7226 725.6 7662 9933 lpo68 10103 1,0120 1,0083 1@33 9892 9 4 4 408.6 792.5 59.7 170.1 2136 - 438.6 636.5 806A 923.4 lpoS.6 lp24.8 Ip38.4 1,M32 1,043.6 1,0402 1,@40.8 1,0421 1,@405 - 0.9 20 22 23 9.5 20.0 202 203 20.4 205 20.7 20.9 180.0 228.0 2762 321.4 339.9 333.9 317.5 301.1 284.6 2682 2~1.8 2353 218.9 ZSU 407.7 528.1 59.8 6664' 6815 70(19 n1.9 738.7 751.6 7685 786.1 800.7 438.6 6365 806.4 923.4 lpo8.6 1,024.8 1,038.4 1,M32 1,043.6 1,0402 lW.8 1,0421 l,W5 -- 3.5 1.8 1.7 1.7 12 12 13 1.2 1.2 12 12 1.1 632 25.8 231) 205 13.7 46 35 3.4 33 3.6 3.8 3.7 - 63 -  Table7: HulshanWaterTreatmentCompanyLtd. SummaryFlnanclalProjections - (RMEImillion, cwentt m ) Estimate Projected 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ncomeStatements OperatingRevenue 9.0 10.5 12.9 15.0 17.9 23.4 26.7 28.9 33.4 37.1 39.3 43.7 OperatiigE x p " 0.4 1.2 1.3 10.3 11.4 12.1 12.7 18.1 19.7 21.1 22.0 Depreciation ---- --- - . -1.8 3.2 6.5 6.6 6.7 7.2 7.9 8.0 8.3 operatingIncome 8.6 9.3 11.5 13.2 4.4 5.4 8.0 9.5 8.1 9,5 10.2 13.3 NetInterestExpense . 1.8 1.8 1.7 1.5 1.9 1.6 1.3 1.0 IncomeTax - - - -- 0.8 1.2 2.1 2.6 2.0 . 2.6 3.0 4.1 NetIncome 8.6 9.3 11.5 13.2 1.7 2.4 4.3 5.4 4.1 5.3 6.0 8.2 lashFlow Statements sources InternalCash - - 8.6 9.3 11.5 13.2 6.8 10.8 12.6 13.6 13.3 14.8 15.3 17.6 Long-TermDebt 29.1 22.5 13.3 - 7.2 8.1 - 1 EquityContributions -8.8 20.0 20.0 4.0 -- - 1.8 2.1 - Total -- 17.3 58.4 54.1 30.4 6.8 10.8 21.5 24.4 13.3 14.8 15.3 17.6 Application CapitalInvestments 17.6 G.8 52.1 29.1 2.3 3.5 13.: 14.8 1.9 3.9 5.3 9.6 WorkingCapitalInfnase -- 0.9 0.2 0.2 0.3 0.7 0.4 0.3 0.4 0.4 0.2 0.5 Interest - - . -0.2 1.8 1.7 121 1.9 1.6 1.3 1.0 I DebtRepayment . . -1.8 4.9 6.4 8.4 8.4 8.4 8.4 4.9 Total 18.5 65.0 52.4 29.3 4.4 10.9 21.5 24.9 12.6 14.3 15.2 16.1 CashChanges --- (1.2) (6.5) 1.7 1.1 2.4 (0.1) (0.0) (0.5) 0.7 0.5 0.1 1.5 EndingCashBalance 10.0 8.2 0.7 1.0 0.4 2.7 2.6 2.4 1.3 2.0 2.5 2.6 4.1 LalanceSheets Assets currentAssets 10.0 9.1 1.8 2.3 4.9 5.5 5.7 4.9 6.2 7.2 7.6 9.6 Net FixedAssets - - -1.9 167.4 164.3 158.9 153.4 174.4 170.4 167.7 169.0 I work inRogresa .- 18.2 84.0 137.5 168.4 - - 12.2 26.3 - Total 10.0 27.4 85.8 139.8 170.3 172.3 169.9 176.8 184.6 180.6 177.6 175.3 178.6 LiabilitiesandEquity CumntLiabilities - 0.0 0.0 0.0 0.0 5.2 6.7 8.8 8.8 9.0 9.1 5.7 5.7 LongTerm Debt - 8.8 37.9 60.4 73.7 68.8 62.5 61.3 61.0 52.6 44.2 39.3 34.4 Esuity 10.0 18.6 47.9 79.4 96.6 98.2 100.7 106.7 114.8 118.9 124.3 130.3 138.5 Total 10.0 27.4 85.8 139.8 170.3 172.3 169.9 176.8 184.6 180.6 177.6 175.3 178.6 'InaneidCovennnb Cost Recovery" N A 8.8 4.8 4.7 4.2 1.3 1.3 1.3 1.2 1.2 1.3 1.3 DebtW i c eRatio N A 13.6 9.7 8.2 7.6 3.7 1.6 1.5 1.3 1.3 1.5 1.6 3.0 I opsratinsrevenuesdividedbythetotalof Opatineand" a n c e expnuea plusthe greatera tdepreciationor debt service. - 64 -  Annex 6(A): Procurement Arrangements CHINA TAI BASINURBAN ENVIRONMENTPROJECT Procurement Summaryof theAssessmentofAgencies'ProcurementCapacity 1. The TBUEPOunderthe JiangsuProvincial FinanceBureauwilloversee Bank-fmancedactivities inthis project. MunicipalPMOsinSuzhouandWuxiMunicipalitieswill managethe procurementunder their own components. The TBUEPOwill take the followingresponsibilitiesduringproject implementation: (i)monitoringthe overallprogress ofthe project; (ii) preparingprogressreportsto Jiangsu ProvincialGovernmentandthe WorldBank;(iii) managingthe technical assistance to controlthe quality of procurementdocuments; and(iv) organizingtrainingonprocurement. The MunicipalPMOswill take the followingresponsibilities: (i) resolutionofall inter-agencyproblemsencounteredby ProjectImplementing Units(PIUs) atmunicipalanddistrictlevels; and(ii) conductmonthlyprogressmeetingswiththe TBUEPO andthe PIUs. 2. The PIUSare identifiedas: ProjectSub-component PIU ProcurementUnit TenderingCompany 1) Wuxi Huishan - HuishanWater Procurement Wuxi JianghuiTendering Wastewater Treatment System TreatmentCompany Unit co. Limited. 2) Wuxi Wastewater - XishanWastewater ProcurementUnit Wuxi JianghuiTendering TreatmentSystems(Dongtmg TreatmentCompany co. andM e n )inXishanDistrict Limited 3) Suzhou-Expansionof Suzhou Qingyuan Procurement ChinaInstrimpex FuxinandLoujiangWWTPs ConstructionCompany Section InternationalTendering LimitedunderSuzhou co. Water Affairs Bureau 4) Suzhou PollutedWater - SuzhouQingyuan Procurement ChinaInstrimpex ControlScheme onXujiangandconstructionCompany Section InternationalTendering ShangtangRiver LimitedunderSuzhou co. WaterAffairs Bureau 5) Suzhou CanalSediment - SuzhouQingyuan Procurement ChinaInstrimpex Dredging ConstructionCompany Section InternationalTendering Limitedunder Suzhou co. Water Affairs Bureaa 6) Suzhou-Wuzhong SuzhouWuzhongAsset Procurement Jiangsu Wastewater TreatmentSystem Managementand ManagementUnit Provincial AdministrationCompany International Limited TenderingCo. 7) TA andCapacityBuilding ProvincialTBUEPO -65-  3, All PIUs havedesignatedspecific departments andpersonnelto beresponsiblefor preparationand implementationo fprocurement. SQCCrecentlygainedexperiencewith similar procurementundera JBIC-financed project. OtherPIUs haveexperiencewithprocurementunder localprocedures. TA for procurementmanagementis necessaryto helpthe PIUsto manageprocurementactivities including preparationandreviewprocurementdocuments. 4. Primarytrainingonprocurementhas beenprovidedduringprojectpreparation. Areas that need further strengtheninghavebeenidentifiedandanactionplanhasbeen agreedupon. The actionplan includes further training,recruitment ofexperiencedstaff for PIUS,preparationanddisseminationofa ProjectProcurementManual, biddingdocument preparation, amongotherthings (see Table D). Inview of the experiencegainedofBank'sprocurementproceduresandthe demonstratedcommitmentof all PIUs to observethe Bank's ProcurementGuidelines, the generalriskis assessedas average. 5. The assessmentidentifedsome deviations inprovincialor municipalregulations which are not acceptableunder WorldBankProcurementGuidelines, inaddition to those identifiedinthe OPR of China, from The deviations will be noted in the loan agreement to confim exemptionsfor Bank-jnancedprocurement theprovincial/municipal regulations and the Bidding and TenderingLaw of China, in case of discrepancies. ProcurementArrangements 6. ProcurementPlan.A draft procurementplanfor the two projectcities hasbeenpreparedusing computerprojectmanagementsoftware andincludedinthe ProjectImplementationPlan(PIP). The packagingplanis inTable C. 7. Procurementprocedures. The following Bank guidelines will govemallBank-financed procurementunderthe project: For goods and works. Procurementunder IBRDLoans andIDA Credits (datedJanuary 1995 andrevisedinJanuaryandAugust 1996,September 1997andJanuary 1999). The bidding documentswill clearly specifyqualificationrequirements,for post-qualificationofbidders. For the selection of consultants. SelectionandEmploymento fConsultantsby World Bank Borrowers (datedJanuary 1997andrevisedSeptember 1997, January 1999 andMay2002). 8. Formatof the Documentation.The followingformats will apply: Evaluation reports. The Bank's StandardBidEvaluationForm, Procurementof Goodsor Works (datedApril 1996, translatedinto ChinesebyMOF inMay 1997), and SampleFormof EvaluationReportfor Selection ofConsultants (datedOctober 1999). Model Bidding Documents. The Bank-approvedChineseModelBiddingDocuments(MBD) datedMay 1997, preparedbyMOFbasedonthe Bank's StandardBiddingDocuments(SBDs) will beadoptedfor all ICBandNCB activities for goods andworks. All newrevisionsto the BankSBDs since 1997willbeincorporatedinto the existingMBDs. The WorldBankSBDs will beusedwhenanapplicableMBDisnot available. Also, as indicatedin the OPR of China,the harmonizedSBDwill be usedinthis projectwhenavailable. The bidding documents for the two ICBperformance-basedcontracts inSuzhouwill bepreparedbasedon the WorldBank SBD-SupplyandInstallationofPlant andEquipment (two-stagebidding). - 66 -  9. Advertisement.The GeneralProcurementNotice (GPN) hasbeenpublishedinthe UnitedNations Development Business(UNDB) anddg-marketinOctober2003. Specific ProcurementNotices (SPNs) for all ICB andNCB procurementactivities will bepublishedinat leastone newspaperwith national circulation. Inaddition, the SPNs for ICB contractswill be publishedinthe UNDBonline as requiredby the World Bank ProcurementGuidelines. Similarly, invitations for expressions o f interest for consulting contracts expected to costmore than $200,000 equivalentwillbe advertisedinthe UNDB and at least 14 days will be allowedfor responsesbefore the preparationofthe shortlist. All other contracts for selection of consulting firms will be advertisedinanational newspaper. ProcurementMethods(Table A) 10. A total ofUS$l13.48 millionof works andgoods, excluding projectmanagement,is expectedto be financed under the project, usingthe following procedures: ICB About US $31.09 milliono f civil works and goods will be procuredundertwo performance-based contracts for construction of two wastewatertreatmentplantsinSuzhou. Prequalificationo f bidders will be appliedto these two contracts. NCB Works: About $80.96 millionofworks for construction ofinterceptor andsewage collection pipelines, pumpingstations, wastewater treatmentplants, gates, shiplocks, andsediment dredging will beprocuredusingNCB procedures. Eachcontract is estimatedto cost between $1millionand $6 million. Those contractswould not be o f interestto foreign contractors. Goods: Equipment for XujiangandShangtmg gates estimatedto cost $1.44millionwill be procured under two contractsusingNCB procedures. Eachcontract i s estimated to be around US$600,000 andUS$700,000. Those contracts wouldnotbe o finterest to foreign suppliers. 11, NCB. Inorderto ensure economy, efficiency, transparencyandbroadconsistency withthe provisionof SectionIof the Guidelines, the proceduresnormally usedfor public procurement inthe People's Republic of Chinashall be modifiedinaccordancewith the following provisions: ParticiuationinBidding;andPreferences (i) For clarificationpurposes,it is understood that "Approvals of draft biddingdocuments, bid evaluation reports and proposalsfor award shall be obtained inaccordancewith the relevant rules and proceduresof the World Bank Procurement Guidelines." (ii)Government-ownedenterprisesin the People's Republic o f China shallbe eligible to participate inbiddingonly ifthey can establish that they are legally andfinancially autonomous, operate undercommercial law, andare notadependentagencyofthe Borroweror the procuring entity. Military or security units, or enterpriseswhich belong to the Ministry o fDefenseor the Ministryo fPublic Security shall not bepermittedto bid. (iii)Foreignbiddersshallbeeligibletoparticipateinbiddingunderthesameconditionsaslocal bidders, and localbiddersshall begivennopreference (either inthe biddingprocess or inbidevaluation) over foreign bidders, nor shall bidders locatedinthe same provinceor city as the procuring entity be given any such preferenceover bidders locatedoutside that city or province. (iv) Bidders shall be allowed to participate inbiddingwithout beinglistedinthe Government - 67 -  DatabaseonBidder Information. (v) Foreignbiddersshallnotberequired, inorder to participateinbidding,to enterintoajoint venturewitha localbidder, or to subcontractpartoftheir contractto a localbidder. (vi) Ifthere is prequalification,all prequalifiedbiddersshallbeinvitedto bid. (vii) Ifthere is limitedbiddingbecausethere are only a limitednumberofbidderswho canmeet the requirements of thebiddingdocuments, all of thesebidders shallbeinvitedto bid. (viii) Biddersshallnotberequired,asaconditionofparticipationinthe bidding, toprovide suppliers'credits. Advertising: Time for BidPreparation - (ix) Invitationsto bidshall beadvertisedinat least one widely-circulatednationalnewspaper. Inaddition,the Borrowerisencouragedto advertiseintheGovernmentPublicProcurementBulletinwhen establishedandona fiee andopenaccess website. StandardBiddingDocuments provide(x) The Borrower'sSBDs shall be acceptable to the Bank. The biddingdocuments shall clear instructionsonhowbids shouldbesubmitted,how pricesshouldbe offered, andthe place andtime for submissionof bids. A mini" of 30days for the preparationandsubmissionof bids shall beprovided. Bidders shallbeallowedto submitbidsbyhandor bymail. halification Criteria andEvaluationCriteria (xi) Qualificationcriteria shallbeclearlyspecifiedinthe biddingdocuments,and all criteria so specified,andon& criteriaso specified, shall beusedto determinewhether abidderis qualified. Qualificationsof abidderfoundto meetthe specifiedqualificationcriteriashall notbetakeninto account inthe evaluationofsuchbidder'sbid. criteria(xii) Evaluationcriteria shallbeclearly specifiedinthe biddingdocuments, andevaluation other thanpriceshall bequantified inmonetaryterms. All evaluationcriteria so specified,and onh evaluationcriteria so specified, shall be taken into account inbidevaluation. Meritpoints shallnot beusedinbidevaluation. BidEvaluationandAwardofContract (xiii) Bidreceivedafterthe deadlinefor bidsubmissionshallbereturnedto the bidders unopened. (xiv) A bidcontainingmaterialdeviationsfrom, or reservationsto, the terms, conditionsor specifications ofthe biddingdocumentsshall be rejectedas not substantiallyresponsive. A bidder shall notbepermittedto withdraw materialdeviations or reservationsonce bidshavebeenopened. (xv) Evaluationofbids shallbemadeinstrict adherenceto the criteria specifiedinthe bidding documents, andcontractsshall be awardedto the qualifiedbidder offeringthe lowest, evaluatedand responsivebid. - 6 8 -  (mi) A bidder shallnot berequired,as acondition for award, to undertakeobligations not specified inthe biddingdocuments, or otherwiseto modify the bidas originally submitted. (xvii) There shallbe nopost-bidding negotiationswiththe lowest or any other bidder. 12. Consulting Services and Training. The value of all consulting services to beprocured is estimatedto be about $1.75 million, including $0.05 milIionfor trainingto be financed bythe Bankexcept for taxes andduties, estimatedat 3 percentof the total cost. All contracts (except for foreign training) will be procured under Qualityand Cost-BasedSelection(QCBS) procedures. Inaddition, two contracts for about $0.13 million equivalentwill be procuredby Wuxi andSuzhouMunicipalitiesunder local procedures for the updatinglpreparation of wastewater masterplansthat are not Bank-financed. 13. Retroactive financing. Retroactivefinancing ofupto $5.0millionmay be applied to expenditures made after November 2003 for the procuremento f works, consistent with the ProcurementGuidelines. - 69 -  Procurementmethods (Table A) Table A: ProjectCosts by ProcurementArrangements (US$ million equivalent) (16.17) (41.41) (0.00) (0.00) (57.58) , 2. Goods 0.00 1.44 0.00 0.00 1.44 I (0.00) (1.36) (0.00) (0.00) (1.36) 3. Services 0.00 0.00 0.00 17.41 17.41 (0.00) (0.00) (0.00) (0.00) (0.00) 4. ConsultantsServices 8 0.00 0.00 1.75 0.13 1.88 Training (0.00) (0.00) (1.75) (0.00) (1.75) 5. Interest during 0.00 0.00 0.00 3.64 3.64 construction (0.00) (0.00) (0.00) (0.00) (0.00) 6. Front-endfee 0.00 0.00 0.61 0.00 0.61 (0.00) (0.00) (0.61) (0.00) (0.61) Land 0.00 0.00 0.00 11.84 11.84 1 (0.00) (0.00) (0.00) (0.00) (0.00) ' Total 31.09 82.40 2.36 62.86 178.71 (16.17) (42.77) (2.36) (0.00) (61.30) Figures inparenthesesare the amounts to be financed bythe Bank Loan. All costs include contingencies. Includes civil works andgoods to be procuredthroughnational shopping, consulting services, services o f contracted staff of the project management office, training, technical assistanceservices, andincremental operating costs related to (i) managing the project; and(ii)re-lending project funds to local government units. - 70 -  Table AI: ConsultantSelection Arrangements(optional) (US$ millionequivalent) ConsultantServices A. Firms (1.70) (0.00) (0.00) (0.00) (0.00) (0.05) (0.00) (1.75) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) 1.70 0.00 0.00 0.00 0.00 0.05 0.13 1.88 (1.70) (0.00) (0.00) (0.00) (0.00) (0.05) (0.00) (1.75) Includingcontingencies Note:QCBS = Quality- and Cost-Based Selection QBS = Quality-basedSelection SFB = Selectionunder a Fixed Budget LCS = Least-CostSelection CQ = SelectionBasedon Consultants' Qualifications Other = Selectionof individualconsultants (per SectionV of ConsultantsGuidelines), CommercialPractices,etc. N.B.F. = Not Bank-financed Figures in parenthesesare the amounts to be financed by the Bank Loan. -71 -  Prior reviewthresholds(Table B) Table B: Thresholdsfor ProcurementMethodsand Prior Review' two turnkey contracts.) All contractsabove $4 Less than 15,000 NCB million ($69.1) 2. Goods Equalto orAbove 500 ICB Allcontracts(0) 1 Lessthan500 I NCB I ~ contractsequaltoor l l above $300,000 ($1.4) 3. Services Qual to or above 100 QCBS All contracts ($1.6) (firms) Individual Other All contracts equalto or above $50,000 ($50,000) 4. Miscellaneous 5. Miscellaneous 6. Miscellaneous Total value of contractssubject to prior review: $102.2 million (base costs) Overall ProcurementRisk Assessment: Average Frequencyof procurementsupervisionmissionsproposed: One every 6 months (includes specialprocurement supervisionfor post-reviewlaudits) - 72 -  Table C. ContractPackaging (Base costs) Table1: Packagesof HuishanWastewater Component Contract Procure- ContractDescription BaseCost Dateof Bank Prequalifi- Number ment (RMB 000s) Start Review cation Type m 1 c1 NCB Yangshi Road, Huchang 20,204.6 May 04 Prior No (Retroactive) Road, East-West and South-NorthAvenues and HuishanAvenue, 20.5km m 1 c 2 NCB Yanxin, Dongzhong 42,558.1 July 04 Prior No (Retroactive) Roads, EastNo 1,2,3,4 and5, Eastextensionof HuchangRoad, Luqu, WushuchangAvenue, HWWIC3 NCB 11 NorthandWest Yanxin and Huchang PumpingStations, 3S.8km Ring 10,772.0 Oct. 04 Post N O ROA, SoutheastNO- 1 Road, Yuqi andQianzhou m / c 4 NCB IIIWWTP civilworks, RoadsandXicheng PumpingStation, i3.7km 47,672.1 July 04 Prior Yes equipmentsupply and installation. HWWE1 500.0 oct.04 No No ~ TOTAL 121,706.8 -73-  Table 2: Packages of DongtingandM e nWastewater Contract Procure- Base Cost Dateof I Bank (Prequali- Number ment Type Review ication DWW/Cl NBF July 04 No DWWICZ NCB No (Retroactive) PumpingStation DWWlC3 NCB CollectionSystemand 27,022.1 Oct. 05 Post No PumpingStation DWWIC4 NCB WWTP CivilWorks, 32,676.6 May05 Prior Yes EquipmentSupply and NFJ3 Sept, 05 No No TOTAL AWW/C1 - NCB July 04 Prior No c 4 ParkCollectionSystem, PumpingStationand Trunk; Anzhen CollectionSystem, PumpingStation and Trunk Anzhen Collection System, PumpingStation andTrunk; Yangjian CollectionSystem, PumpingStationand T e Houqiao CollectionSystem, PumpingStationand Trunk; AWWIC5 NCB WWTP Civil Works, 30,654.7 Feb. 05 Yes Equipment Supply and A W E 1 NBF Oct. 06 No TOTAL 196,055.6 - 74 -  Table 3: PackagesofWuli Lake RehabilitationComponent t Contract Procure ContractDescription BaseCost Dateof I Bank ' 'requalifi- (RMB000s) cation Changguangxi, 7,690.0 Dec. 03 Prior No (Retroactive) Xiaoxuanbang, Dongxinhe, Xiejingbangand Xianjingbang & Caowangjing Sluice Gate and 8,000.0 Dec. 03 Prior No (Retroactive) Shiplock Banqiaogang,Huanhuhe, 50,803.0 Jan.03 Post N O Miaodongbang,Maligang Rehabilitationof 19.4 lun 118,343.2 July04 Prior No for the first one, Post for the Test West Wuli Lake, EastWuli 4,000.0 Oct.04 Prior N O Lakepackage for the first one, Post for therest TOTAL 188.836.2 ~ Table4: Packages ofFuinandLoujiangWastewater Component Contract I Procure ContractDescription BaseCost Dateof Bank Prequalifi- Number mentType (RMB000s) Start Review cation FWW/Tl II ICB III WWTP Design,Civil 125,961.0 Oct. 05 Prior Yes Works, Equipment Supply and Installation andCommissioning Sub-TOTAL 125,961.0 LWw/Tl ICB WWTP Design, Civil 95,721.0 Oct. 05 Prior Yes Works, WWTP Design, excluding EquipmentSupply and commissioning Installationand Commissioning Sub-TOTAL 95,721.O I l l I Total 221,682.0 - 75-  Table 5: PackagesofWuzhong Wastewab 1 Contract Procure- BaseCost /";k /'":li- Number ment Type Contract Description (RMB 000s) Revie fication WWWIC1 NCB HedongCollection 8,160.0 Aug.04 Prior WWWfC2 I I ISewers, 7km NCB ICollectionSystemand II 27.409.5 RoadRecoveryand 1 PumpingStationin DongwuArea, 16.1h, pumpingstation and siphon for crossingthe GrandCanal WWWfC3 NCB CollectionSystemand 28,790.7 Oct. 05 Post No RoadRecoveryand 1 PumpingStationinthe ConstructedArea, 20.2h DWWlC4 NCB WWTP CivilWorks, 29,630.6 July04 Prior Yes Equipment Supply and Installation D W E 1 NBF Power Supply 3,364.0 Oct. 04 N O No TOTAL 97,354.8 Table 6: Packages of SuzhouSedimentDredging Component Contract Procure- ContractDescription BaseCost Date of Bank Prequalifl- Number mentType (RMB000s) Start Review cation SSDIC1 NCB Section 1:Dredgingfor 22,866.6 Sept. 04 Prior No 16.634km(359,7001113) of 65.7 kmriversand canals andcorresponding landfill (9,206,700); Section 2: Dredgingfor 22.083 km(452,000) of 65.7 kmriversandcanals andcorresponding landfill(13,720,100) SSDfC2 NCB Dredgingfor 26.992 km 17,840.9 Sept. 05 Post No (474,900m3) of 65.7 km rivers andcanalsand 1 1 1 corresponding landfill TOTAL 40,705.5 - 76 -  Table 7: Packages ofXujiang& Shangtanghe Gates Component IContract I Procure- Contract Description I BaseCost 1 Date of 1 Bank 1 Prequall- (RMBOOO~) Start Review fication Civil work andGate I1 32,335.7 1IJuly04 II Prior II N O Manufacturing and installation for Xujiang gate andshiplock Civil work andGate 16,644.2 Sept. 04 Post No I I Manufacturing and installation for Shangtang shiplock XSGMl NCB Hoisting equipmentfor 3,529.8 Oct. 04 Prior No Xujiang and Shangtang works Electrical control 6,868.4 Oct. 04 Prior No equipment andinstruments for Xujiang and Shangtang works ITOTAL I 59,378.1 Table 8: TA Packages Budget Date of Start Method of Procurement A. Sector Development A.1 UrbanWastewaterMaster PlanPreparation $0.13 million 'Feb, 05 Non-Bank financed Advisory Servicesfor Wuxi andSuzhou Municipalities B. Project ImplementationAssistance B.1Institutional, Financial & Operational $0.92million Dec, 04 Quality and Cost Based - 77 -  Table D. Action Plan Inorder to assurethat Plusundertakeprocurementinanefficient andtransparentmanner,the following actions will be undertakento strengthen their capacityfor implementation o fthe proposedTaiBasinUrban Environment Project: ProposedActionPlan DueDate 1. The TBUEPO should establishaprocurementmanagementsystemfor theproject Completed andprepareaProcurementManualto ensurethe quality andsmoothpreparationand 2. The TBUEPO should organize procurementtraining on preparationof bidding Before procurement documentsandbiddingprocedures. underretroactive financing andrepeated periodically 3. The TBUEPO should preparethe GPNfor publication as required. Completed 4. Wuxi-Xishanshould establishtheir legal entity for procurementas soon as possible. Completed 5. The TBUEPO andthe new PIUs should take other actions to strengthentheir Before procurement procurement capacity which, includes recruitingcompetentpersonnel, usingthe underretroactive experience from the procurement agents, employing consultantsfor project management, financing andcontinuing etc. 6. The TBUEPO should coordinatewithall the PMOsFIUs to finalize the detailed Continuing procurementplan. The planshould beupdatedannually. 7. All PIUs should select experienceddesign institutes to beresponsible for the design of Completed the project andpreparation of technical bidding document. 8. Wuzhong andXishan should finalize the selectionoftheir NCB procurement agents. Completed ~~ I\Thresholdsgenerally differ by countryandproject. Consult "Assessment o fAgency's Capacity to Implement Procurement"andcontact the RegionalProcurementAdviser for guidance. - 78 -  Annex 6(B): Financial Managementand DisbursementArrangements CHINA: TAI BASIN URBAN ENVIRONMENTPROJECT FinancialManapement 1. SummaryoftheFinancialManagementAssessment 1. The FMSpecialist has conductedan assessmento fthe adequacy o fthe project financial management system of the Tai BasinUrbanEnvironment Project. The assessment, basedon guidelines issuedbythe FinancialManagement SectorBoardonJune 30,2001, has concluded that the project will meet the minimumBankfinancial managementrequirements, as stipulated inBP/OP 10.02, subject to addressingthe actionplan stipulatedinparas. 49 and 50 below. Inthe financial management specialist' (FMS) opinion, the project will have inplace an adequate project financial managementsystemthat can provide, with reasonableassurance, accurateandtimely informationon the status o fthe project inthe agreedreporting format andas requiredbythe Bank. 2. Fundingsources for the project include Bankloan andcounterpartfunds. The Bankloanproceeds will flow from the Bankinto the project specialaccount to be setup at andmanagedbythe JJPFB, to project implementingagencies (or project companies), andfinally to contractors or suppliers. The Bank loanwill be signed betweenthe Bankandthe People's Republic ofChinathrough its MOF, andon-lending arrangementfor the Bankloanswill be signedbetweenMOF andJPFB andthen betweenJPFB and SuzhouandWuxi governments through SuzhouandWuxi FinanceBureaus, respectively; and finally between SuzhouandWuxi FinanceBureausandimplementing agencies. Interms of disbursement technique, the project will be disbursingbasedonthe traditional disbursementtechniques andwill notbe usingproject managementreport (")-based disbursements,inaccordancewith the agreementbetween the Bank and MOF. The constitution o f counterpart funds will be provincial, municipal anddistrict govemment budgetary appropriations including itomwastewaterservice andsome local commercial debt. 3. No outstandingaudits or audit issues exist with any ofthe implementingagencies involvedinthe proposedproject. The task team, however, will continue to be attentiveto financial managementmatters andaudit covenantsduringproject supervision. SummaryProjectDescription 4. The objectives of the proposedTai BasinUrbanEnvironment Project are to: (i) the improve qualityoftheurbanenvironment through improvedwastewaterandwater quality managementinthekey municipalities o fWuxi and Suzhouandmore widely inthe Tai Basin, and(ii) facilitate sustainableurban economic growth andsocial developmentin'the region. The project will therefore support Jiangsu Province inimplementingpriority long-term urbanenvironmental servicesto alleviate environmental degradationof its water resources, including through physical investments andinstitutionalandfinancial reforms, that would provide aviable andsustainablebasis for small wastewater systems inrapidlydeveloping areas, - 79 -  5. The maincomponentsofthe project include: A. Wuxi Municipality a Wuli Lake Sub-project a WWTPs andnetworks B.SuzhouMunicipality a Central urban area canalnetwork rehabilitation a Pollutedwater control scheme onXujiang and Shangtangrivers a WWTPs andnetworks 6. The estimated cost of the proposedproject is $174.46 millionexcluding interest during construction, commitment fees andfront-end fees andthe proposedBankLoanamount is $60.69 million (excluding fiont endfee). CountryIssues 7. To date, no country financial accountability assessment(CFAA) has beenundertaken for China. The Bankhasrelied on a similar exercisecarried out bythe Asian Development Bank in2000 for reference anda direct dialogue withthe governmentofChinainrespectofthe CFkA exercisehasbeeninitiated and is currently underway. 8. Bankexperienceandsubstantialachievementinthe areas ofpublic expenditures, accountingand auditing withChinaprojects for the pastfew years is notable. However, further improvement is expected inthe nextfewyears. As the economicreformprogramfurtherunfolds, the governmento fChinahascome torealizethe importance ofestablishingandmaintaining anefficient andeffective marketmechanismto emure transparency andaccountability, andminimize potentialfraud or conuption. 9. Due to rather unique arrangementsby the government o fChina, fimding (inparticular Bank loan) of Bankprojects is controlled and monitoredby MOF andits extension, i.e. finance bureaus at provincial, municipaVprefecture anddistrictkounty levels. However, project activities are usually carried out by implementingagenciesofa specific industryor sector dueto the levelandcomplexity ofexpertiseinvolved. The abovearrangementusually requires more and closer coordination of the project, as the multi-level managementofthe fundingandimplementationmechanismsometimesworks to the detriment of smooth project implementation. - 80 -  RiskAnalysis 10. The followhg riskswithcorrespondingmitigating measureshave beenidentifiedduring assessment: RiskRatin The wastewater companiesinXishan and I Wuzhong Districts have yet to be established andhavenoprior experiencewith Bank-financed projects. I The Task Team will ensurethat mechanism will be inplace inorder that Bankand counterpart b d s will be releasedto the ultimate beneficiaries on a timelv basis. c. Staffing =gh The financial staff o fthe wastewater companies inXishan, Huishan andWuzhong Districts shouldbe recruited before disbursementson componentsinvolved. d. AccountingPolicies andProcedures Low Accountingpolicies andproceduresare already inplace. e, Intemal Audit Moderate Nointemal audit arrangementfor the project. However, some implementing entitieswill be supervisedby their supervisingagencies. f.ExternalAudit LOW The extemal auditors, the JiangsuProvincial Audit Office, has extensiveaudit experience withBankprojects. :. Reporting andMonitoring LOW Format o ffinancial statements andfrequency o fsubmissionhavebeenclearly defined bythe BankandMOF. Checking bythe Bank'sTask Team at the initial implementation stage to ensure correct setup, which shouldbefollowed upbyregular sumvision missions. StrengthsandWeaknesses 11. Strengths. Inlightof the strong revenuebase of project municipalities, provision of counterpart funds byimplementing agencies is not expectedto be a problem. Inaddition, the JPFB hasprevious experienceon severalBankprojects, includingthe completed Southem Jiangsu Environment Protection Project. -81 -  Significant weaknesses Resolution 1. Some frnancial staffare newto Bank Strong assistance andtrainingprogramshouldbe projects andare short of relevant experience. providedbyprovincial TBUEPO andthe Bank. 2. Financialstaff of some implementing Formulation of anagreedactionplanand agencies have not yet beenrecruited. timetable for recruiting staffwith satisfactory qualifications andexperience. ImplementingEntity 13. The TBUEPO hasbeenestablishedcomprising staff from the ProvincialFinance Bureau and ProvincialEnvironmental Protection Bureau. A leadinggroup has also been establishedat the provincial level andineach of the project municipalities. Under the Municipal Leading Groups, MunicipalPMOS have been set up to monitor the preparation andimplementation ofthe proposedproject. Sub-PMOs or PWshavealsobeenset upfor individualproject components. The project organization is as follows: suzhou 0 PIUfor PIUfor PIUfor Wuli Huishan - a2 -  FundsFlow 14. Fundingfor the project includes Bank loanandcounterpartfunds. One specialaccountwill be set upandmanagedbythe JPFEj. The h d s flow is as follows: The World SA Suzhouand Implementing Suppliers and Bank 4managedby Wuxi finance + agencies + contractors JPFB bureau 4 15. Counterpart funds will be providedfrom provincial, municipal anddistrict governmentbudgetary appropriations including from wastewater service fees andsome local commercial debt. Staffing 16. Adequate project accounting staff with satisfactoryeducationalbackground andwork experience commensuratewith the work they are expectedto perf- is critical to successfhl implementation of project financial management. Basedon discussions,observations andreview o f educational background andwork experienceof the staff identified for financial andaccountingpositionsinimplementingentities (both "project" and"entity") has beenundertaken. 17. To strengthenfinancial managementcapacity andachieve consistent quality o faccountingwork, a Project FinancialManagementManual (Manual)hasbeenpreparedby JPFB. The Manual, which has beenreviewedbythe Bankas satisfactory, provides detailedguidelines onfinancialmanagement, internal controls, accountingprocedures,fund andasset managementandwithdrawal application proceduresfor use by allproject implementing agencies. 18. Mostof the implementingentities are newto Bank-financed projects. A well-designed and focused training program in project financialmanagement is to be preparedbythe Provincial PMO for all financial andaccountingstaff to ensure a goodunderstandingandknowledge ofthe following: a Bank's financial managementpolicy anddisbursementprocedures e Fundasset`contract management e Format andcontent o fproject financial statements 0 Auditrequirements 19. World Bankofice inBeijing(WBOB) will provide trainingassistance as andwhenneeded. - 83 -  AccountingPoliciesandProcedures 20. The administration, accountingandreporting of the project will be set upinaccordance withthe following regulations/circulars issuedby MOF: Circular #13: "Accounting Regulationsfor World Bank Financed Projects" issuedinJanuary 2000 by MOF. The circular provides in-depthinstructions ofaccountingtreatmentofproject activities and coversthe following: 0 Chart of accounts 0 Detailedaccounting instructions for eachproject account 0 Standardset o fproject financial statements 0 Znstructionson the preparationofproject financial statements The standardset of project financial statementsmentioned abovehas beenagreedto betweenthe Bank andMOFand appliesto all Bankprojectsappraisedafter July 1, 1998andincludes the following: 4 Balance Sheet 0 Statementof SourcesandUsesof h d s 0 Statemento fImplementation ofthe LoanAgreement 0 Statemento f SpecialAccount 21. Eacho fthe implementing entities will bemanaging, monitoringandmaintaining respectiveproject accountingrecords. Original supporting documentsfor project activities will be retainedbythese agencies. Inaddition, eachimplementingentitywillprepareonatimelybasis, financial statements, whichwillthen bereviewed, approvedandconsolidatedbythe TBUEPO before forwarding to the Bankfor review and comment. 2. Audit Arrangements InternalAudit 22. There is no formal independentInternal Audit departmentfor the project. However, disbursements will bereviewed by JPFb andBank supervisionmissions. ExternalAudit 23, Project financial statementsare requiredto be audited inaccordancewith standards acceptableto the Bank. In line with other Bank-financed projects in China, the project will be audited in accordance with ISA andthe Govemment AuditingStandards o fthe People's Republic o f China (1997 edition). The JiangsuProvincialAudit Bureau hasbeenidentified as auditor for the project. Annual audit reportswill be issuedinthe nameo fJiangsuProvincialAudit Bureau. 24. The annual audit reports o fproject consolidated financial statementswill be due to the Bankwithin six months ofthe end o f eachfiscal year. Inaddition, annual audit reports on the financialpositionand operatingresults ofthe following implementingentities will be due to the Bank within six months ofthe end of eachcalendar year:  0 Huishan Water TreatmentCompany Limited 0 Xishan WastewaterTreatmentCompany Limited 0 SuzhouQingyuan (Water Environment) Construction CompanyLimited 0 Wuzhong Asset ManagementandAdministration Company Limited. Reportingand MonitoringandFormat ofFinancialStatements 25. Eachimplementing entity will prepareits ownproject financial statements, which willthen be consolidated by TBUEPO. The project consolidatedfinancial statements andaudit reports on financial statementsofeachimplementingentity will be forwarded byTBUEPO to the Bankfor review andcomment on a timely basis. Auditedproject accounts are requiredto meet the Bank'sfiduciary requirements. Audited accounts o f wastewaterenterprisesare requiredto assessperformanceon achieving financial viability andsustainability objectives. 26. The format andcontentof the project financial statements represents the standardproject financial reporting package agreedto betweenthe BankandMOF, andhavebeendiscussedandagreedwithall parties concerned. Inlinewith the newly issuedFinancial MonitoringReport (FMR)guidelines, the project consolidated financial statements will be submitted as part of the FMR to the Bankon a semi-annualbasis (prior to August 15 andFebruary 15 ofthe following year), andconsisting of the followingfour statements: 0 Balance Sheet; 0 Summary of Sources andUses ofFundsbyProject Component; 0 Statementof Implementation of LoanAgreement; and 0 Statemento f SpecialAccount InformationSystems 27. Accounting software developedby the Bankwill be recommendedto all implementing agencies underthe project during constructionphase. The Banktask team willclosely monitor the FMinformation system, especially at the initialsetup andpreparation offinancial statements, andprovide assistance, if required. Impactof ProcurementArrangements 28. Thresholds set for procurement post-review will be consistentwiththat set for statemento f expenses (SOE) for disbursementpurposes. To have maximumeffectiveness and efficiency, FMS and procurement stafffromthe Bankwill participate insupervision missions to ensure the following: 0 Contractsawardedare inline withthe Bank's procurement guidelines; 0 Contractpaymentsmade are inaccordancewiththe terms o fthe contract andwell supported. 3. DisbursementArrangements 29. Inaccordancewiththe agreementbetweenthe BankandMOF, project disbursementswillbebased onthe traditional disbursementtechniques andwill not be using PMR-baseddisbursements. Bank loan proceeds would be disbursed against eligible expenditures as follows: (i) percent o fexpenditures;(ii) equipment - 100%of foreign expenditures, 100percent o f local expenditures civil works -averaging 51.4 (ex-factory) and75 percent of other items procuredlocally; (iii) Consulting service -91 percent o f - 85 -  expenditures; and (iv) TA or training- 100percento fexpenditures. 30. Disbursement methods, suchas replenishment, h e c t paymentandspecialcommitment, are available for the project. 31, JPFB will be directIy responsiblefor the management, monitoring, maintenanceandreconciliation of the special account (SA) activities of the project. Supportingdocumentsrequired for Bank disbursementswill be preparedandsubmitted by respective project implementingentities through Suzhou andWuxi finance Bureauto JPFB for final verification andconsolidationbefore sending to the Bankfor further disbursementprocessing. Allocation of loan proceeds(TableC) 32. The proposedloanof US$61.3 millionwouldbe disbursed over aperiod o f about five years, upto the closing date of December 31,2009. The allocation ofloanproceedsaccording to expenditurecategory is listedinTable C. Table C: Allocationof Loan Proceeds ExpenditureCategory f Amount in US$million I FinancingPercentage r (1) Civil Works (including supplyand installcontracts) for: (a) PartsA.2(a) o f the Project 8.63 57% jimplemented by HWTC) (b)PartsA.2(b) and(c) ofthe Project 16.78 49% (imdementedbvXWTC) (c) PartB.2(a) and(b) o f the Project 14.41 52% (implementedby SQCC) (d)PartB.2(c) ofthe Project 5.64 48% (implementedby WAMC) (e) PartB.1(a) o f the Project 2.52 41% (implemented by SQCC) (f) Part B.l(b) of the Project 3.51 69% (implementedby SQCC) (2) Goods for Part B.l(a) of the Project 1.30 100% of foreign expenditures, 100%of (implementedby SQCC) local expenditures (ex-factory cost) and 75% of localexpendituresfor other item! procured locallv (3) Consultants'Services 1.52 91% (4) Training 0.05 100% (5) Unallocated 6.33 Total Project Costs with Bank 60.69 Financing Interestduring construction 0.00 J Front-endfee 0.61 Amount due under Section 2.04 ofthis Agreement Total 61.30 - 86 -  Useof statements of expenditures(SOEs): 33. Withdrawals for the loanaccount will be made onthe basiso f SOEs for the following expenditures: e Works contracts of less than $4,000,000 Goods contracts of less than$300,000 e Consulting fmcontractof less than $100,000 e Individualconsultantcontractsofless than $50,000 e All training activities Special account: 34. One Special Account will be establishedinJPFB. The authorized allocation of SA is proposednot to exceedUS$4.2 million. Bankfunds would be disbursedto the SA set up at JPFB, andthen to project implementing entities andlor suppliersandcontractors. However, the authorized allocationwill be limited to US$3.0million equivalent untilthe aggregatewithdrawals andoutstandingSpecial Commitments willbe equal to or exceedUS$17 million equivalent. 35. JPFB will beresponsibledirectly for the management, monitoring, maintenanceandreconciliation of the SA activities ofthe project. Supportingdocumentsrequired for Bank disbursementswill be prepared andsubmittedbyrespectiveproject implementingentities throughtherelatedMunicipalFinanceBureau, thento TBUEPO andfinallyto JPFB for finalverification andconsolidation before sendingto theBankfor further disbursementprocessing. Action plan 36. The followingproposedtime-bound actionsshould be adequately addressedbythe project: Action I Responsibleperson 1 CompletionDate 1.Financialstaff ofwastewater TBUEPO Priorto disbursementson companiesinXishan, and respective componentsifnot Wuzhong District completed by Loansigning 2. Financial Management TBUEPO Prior to disbursementson Manual finalized andissued respective componentsifnot to related financial staff. completed byLoansigning - 87-  37. Some o f our assessmentswere carried out basedon documents providedby the implementing agencies, such as the company charters of XishanandWuzhong wastewatertreatment companies, job description for financialstaff of Xishan, HuishanandWuzhong wastewatertreatment companies. These issues will be followedup before the signingof the loan agreement. FinancialCovenants 38. Further specific financial covenants (ifany) applicable to project "entities" will be providedby the Bank'sTask Team in addition to the standardfinancial covenants, e.g. maintaining project accounts in accordancewith soundaccountingpractices, audit requirement and SOE, as describedinthe legal documents. For the financial covenantson the "entity" portion, please refer to section G of PAD. SupervisionPlan 39. A detailed supervisionplanfor this project willbe includedas partofthe ChinaAudit Strategy documentwhich is currently inprocess. This documentwill take into considerationofthe size ofproject andtherisks identified. - aa -   Annex 8: Documentsin the ProjectFile* CHINA: TAI BASINURBANENVIRONMENTPROJECT A. ProjectImplementationPlan Project Feasibility Study by Montgomery Watson Harza, September2003 Project ImplementationPlan, September2003 Project-wide Environmental Assessment Report, October 2003 ResettlementAction Plan for Wuxi andfor Suzhou andResettlementPolicy Framework for Suzhou, September2003 Feasibilityreports anddesignand tender documentationfor individual components, September 2003 Terms ofReferences for: Wastewater Master Plans For Wuxi And SuzhouMunicipalities; Environmental Monitoring; Catchment ManagementPlanFor Wang Yu River; Institutional, Financial andOperational Strengthening o f WastewaterUtilities; DesignReview, Construction ManagementandProcurement Management. Supplementary Imfonnationfor EA, February 2004 B. BankStaffAssessments FMSAssessment, August-September 2003 Procurement Capacity Assessment, August-September 2003 Financial Analysis of Project UtilityCompanies, Economic Analysis o fthe Project Components, MissionAide-Memoires, Implementation Completion Report, SouthernJiangsuEnvironment Protection Project C. Other 'Including electronicfiles - 90 -  Annex 9: Statementof Loansand Credits CHINA: TAI BASIN URBAN ENVIRONMENTPROJECT 29-Apr-2004 Difference between expeded and actual Original Amount in US$ Millions disbursements' ProjectID FY Purpose IBRD IDA GEF Cancel. Undisb. Orlg F n Rev'd PO66955 2004 CN-ZHWIANGURBANENVMT 133.00 0.00 0.00 0.00 133.00 0.00 0.00 PO65463 2004 CN JlangdIntegratedAgric. Modem. - 100.00 0.00 0.00 0.00 100.00 2.25 0.00 PO65035 2004 CN-Ganau6Xinjiang PastoralDevelopment 66.27 0.00 0.00 0.00 65.61 5.18 0.00 PO73002 2004 CN-Bash EducationinWeotmAreas 100.00 0.00 0 . 0 0.00 100.00 0.00 0.00 PO77615 2004 CN-GEF-Gansu6 XinjiangPastoral Develop 0.00 0,00 10.50 0.00 10.50 0.90 0.00 PO77137 2004 CN4th InlandWalwwaya 91.00 0.00 0.00 0.00 91.oo 0.00 0.00 PO69852 2004 CN-WuhanUrbanTram@ 200.00 0.00 0.00 0.00 200.00 26.65 0.00 PO67337 2003 CK2nd GEF EnergyConservation 0.00 0.00 26.00 0.00 14.60 17.15 0.00 Po40599 2003 CN-TIANJINURE DEVii 150.00 0.00 0.00 0.00 148.50 -1.50 0.00 PO58847 2003 CN-3rdXinjiang W Project 150.00 0.00 0.00 0.00 106.13 12.38 0.00 PO68058 2003 CN-YlxingPumpdStoragaProject 145.00 0.00 0.00 0.04 133.25 4.w 0.00 PO76714 2003 CN-AnhuiHwy 2 250.00 0.00 0.00 0.00 247.50 14.75 0.00 W70441 2003 CN-HubdXiaogan Wangfan Hwy 250.00 0.00 0.00 0.00 156.78 -16.22 0.00 PO70191 2003 CN-SHANGHAI URB ENVMTAPLI 200.00 0.00 0.00 0.00 190.00 -10.00 0.00 PO71147 2002 CN-Tubenulesia ControlProject 104.00 0.00 0.00 0.00 90.28 -13.72 0.00 PO60029 2002 CN-Swtain.Foreaby Dev(NaiuralForest) 0.00 0.00 16.00 0.00 14.11 3.40 0.00 Po64729 2002 CN-SUSTAINABLEFORESTRYO N . PROJECT 93.90 0.00 0.00 0.00 76.07 3.91 0.00 PO58846 2002 CN-NatlRpihvayProject 160.00 0.00 0.00 0.00 34.62 0.87 0.w W70459 2002 CN-Inner MongoliaHwyProject 1w.00 0.00 0.00 0.00 85.84 4.84 0.00 PO68049 2002 CN-HUM HydropowarDev in Pwr Areas 106.00 0.00 0.00 0.0 87.68 15.18 0.00 PO56199 2001 CN-3rd InlandWatemayn 100.00 0.00 0.00 0.00 79.80 7.10 0.00 PO51859 2001 CN-LIAORIVERBASIN 100.00 0.00 0.00 0.00 70.70 30.30 0.00 PO58845 Mol JiillgdllHwy 200.00 0.00 0.00 0.00 127.20 6.20 0.00 PO45915 2001 CN-U"qI UrbanTransport 100.00 0.00 0.00 0.00 52.54 48.64 0.00 Pa47345 2001 CNHUAl RIVER POLLUTIONCONTROL 105.50 0.00 0.00 0.00 87.18 -18.32 0.00 Po56596 2001 CKShijiazhuangUrbanTransport 100.00 0.00 0.00 0.00 85.41 54.31 0.00 PO56516 2001 CN WATER CONSERVATION - 74.00 0.00 0.00 0.00 37.49 7.59 0.00 PO64924 2000 CKOEF-EEIJINGENVMTII 0.00 0.00 25.00 0.00 23.32 19.26 3.52 PO45264 2000 CNSMAWLDRC A m EDEV 93.50 0.00 0.00 0.00 11.60 5.95 0.00 W64730 2000 CN - YangtzeDlkaStrengtheningProject 210.00 0.00 0.00 0.00 109.29 97.29 0.00 PO45910 ZOO0 CN-HEBEl URBANENVIRONMENT 150.00 0.00 0.00 0.00 119.36 48.86 0.00 PO49436 2000 CN-CHONGQINQURBANENVMT 200.00 0.00 0.00 3.70 152.28 64.58 0.00 PO58843 2000 GuangdHighway 200.00 0.00 0.00 0.00 100.22 47.22 0.00 PO42109 2000 CN-BEWINGENVIRONMENTII 348.00 0.00 25.00 0.00 286.54 185.32 0.00 PO58844 2000 3rd HenanProvHwy 150.00 0.00 0.00 0.00 55.58 24.58 0.00 PO56424 2000 CN-TONGBAIPUMPEDSTOW 320.00 0.00 0.00 100.00 148.71 1.21 0.00 W50036 1999 Anhui ProvlndaiHwy 200.00 0.W 0.00 9.60 32.94 34.79 0.00 PO57352 1999 CN-RURALWATER N 16.00 30.00 0.00 0.00 21.42 16.26 9.69 PO56216 1999 CN LOESSPLATEAUII - 100.00 50.00 0.00 0.00 22.35 24.48 0.00 PO51888 1999 CN GUANZHONGIRRIGATION - 80.00 20.00 0.00 0.00 28.59 22.88 0.00 PO51656 I999 ACCOUNTINGREFORM6 DNELOPMEM 27.40 5.60 0.00 0.00 17.89 17.86 0.00 PO56308 19% CN-PENSIONREFORMPJT 0.00 5.00 0.00 0.00 1.77 1.75 0.00 W51705 1969 Fujian I1Highway 2w.00 0.00 0.00 0.00 65.73 63.73 0.00 PO49665 1999 CN-ANNiNG VALLNAG.DEV 90.00 30.00 0.00 0.00 19.19 11.38 0.00 w36953 1999 CN-HEALTHO( 10.00 50.00 0.00 0.00 34.47 21.83 0.00 POSO270 1999 CN-ENTERPRISEREFORMLN 0.00 5.00 0.00 0.00 2.71 4.29 4.07 W38121 1999 CN-GEF-RENEWABLEENERGYDEVELOPMENT 0.00 0.00 35.00 0.00 23.09 27.86 8.34 PO41268 1999 CN-Nat Hwy4RluWlHunsn 350.00 0.00 0.00 0.00 59.72 40.72 0.00 PO03653 1999 CN-Container Transput 71.00 0.00 0.00 18.61 3.16 21.74 0.46 ~ 0 4 1 ~ ~ 01449 CN.Laoning UrbpnTransport 150.00 0.00 0.00 0.00 33.14 33.14 0.00 W46829 1999 RENEWABLEENERGY DEVELOPMENT 100.00 0.00 0.00 0.00 12.87 99.87 10.40 PO46564 1999 CN Gansu a Inner MongdiaPovertyRed. - 60.00 100.00 0.00 13.30 37.89 28.93 -10.99 PO46051 1999 CN-HIGHEREDUC.REFORM 20.00 50.00 0.00 0.00 5.70 7.31 0.00 ' -91 -  Differencebetweenexpected andactual OriginalAmount In US$ Millions disbursements' ProjectID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig F nRev'd Po43933 1999 CN-SICHUANURBANENVMT 150.00 2.00 0.00 0.00 88.89 78.42 22.92 PO42299 1999 TEC COOP CREDF IV 10.00 35.00 0.00 0.00 36.03 -11.40 0.00 PO37859 15% CN-GEFEnergyConsewaeon 0.00 0.00 22.00 0.00 0.71 22.06 0.00 Po40185 15% CNSHANOONGENVIRONMENT 95.00 0.00 0.00 1.40 20.07 21.47 3.95 PO38414 1998 CNGUANGXI URBAN ENVMT 72.00 20.00 0.00 0.00 71.56 66.78 27.87 PO03606 1998 ENERGYCONSERVATION 63.00 0.00 22.00 0.00 33.80 17.68 0.00 PO35698 1998 HUNANPOWER DEVELOP. 300.00 0.00 0.00 145.00 31.45 174.20 -14.46 PO03614 1998 CN-GuangzhwcityTranspod 200.00 0.00 0.00 20.00 100.31 120.31 100.31 PO03619 1998 CKZnd InlandWatemap 123.00 0.00 0.00 37.00 16.35 52.12 5.79 Po03586 15% CN-BASICH W T H (HLTH8) 0.00 85.00 0.00 0.00 36.95 23.71 0.00 PO03539 1998 CN -SUSTAINABLECOASTAL RESOURCESDE 100.00 0.00 0.00 2.06 45.61 45.18 37.80 PO51736 15% E. CHINNJIANGSUPWR 250.00 0.00 0.00 88.00 44.95 130.95 10.36 PO49700 1988 CN- IAIL-2 300.00 0.00 0.00 0.00 3.97 3.97 1.26 PO46952 1998 CN -FOREST. DEV. POOR AR 100.00 100.00 0.00 0.00 29.62 -71.11 11.24 PO46563 1998 CN-TARIM BASINII 90.00 60.00 0.00 2.67 7.14 9.54 0.00 PO45788 1998 Trl-PmvlnciafH w 230.00 0.00 0.00 0.00 16.51 14.21 0.00 PO36949 1998 CN-NotW3-HubsI 250.00 0.00 0.00 0.00 21.15 21.I5 0.00 PO03637 1997 CKNAT'L RURALWATER 3 0.00 70.00 0.00 0.00 0.56 3.77 3.25 PO03590 1997 CN - QINW MOUNTAINSPOVERTYREDUCTIO 30.00 150.00 0.00 0.00 13.16 16.34 1.39 PO03850 1997 TUOKETUOPOWERANNER 400.00 0.00 0.W 102.50 30.47 132.97 23.19 PO44485 1997 SHANGHN WAIGAOalAO 4GQ.00 0.00 0.00 0.00 73.65 46.51 38.21 PO36405 1987 CN- WANJIPZHAIWATERTRA 400.00 0.00 0.00 75.00 22.58 97.58 15.00 PO38988 1997 CN HElLONGJlANOADP - 120.00 0.00 0.00 0.00 7.80 7.80 5.26 PO35893 1997 FUELEFFICIENTIND. 0.00 0.00 32.80 0.M) 6.74 32.81 0.00 Po03654 1997 NetHyZMunanGuengdong m.00 0.00 0.00 0.00 48.52 48.52 24.66 PO03602 1986 CN-HUBEIURBANENVIRONMENT 125.00 25.00 0.00 28.32 39.72 70.08 35.08 PO03599 1996 CN-YUNNANENVMT 125.00 25.00 0.00 19.48 35.68 58.92 11.13 PO03648 19% CNSHANGHAJSEWERAGEII 250.00 0.00 0.00 0.00 32.67 32.67 2.54 Po03594 19% CN GANSU H W CORRIDOR - 60.00 80.00 0.00 0.00 73.92 61.33 0.00 PO03589 1964 CN-DISEASEPREVENTION(HLTH7) 0.00 100,00 0.00 0.00 1.87 10.93 0.00 PO34618 19% CN-LABORMARKETDEV. 10.00 20.00 0.00 0.00 5.56 7.67 0.00 PO40513 1998 2nd Hanan PmvHwy 210.00 0.00 0.00 19.00 12.88 31.88 20.88 Po03571 1% CN-7th Rsihwaya 400.00 0.00 0.00 119.00 10.28 12928 20.28 Po03639 1895 CKSOUTHWESTPOVERTYREDUCTIONPROJE 47.50 200.00 0.00 0.01 121 25.36 25.36 PO03647 1995 China Economic Law Reform-LEGEA 0.00 10.00 0.00 0.00 0.50 0.83 0.00 PO03603 1995 CN-EM HOUSINQ& SSR 275.00 75.00 0.00 57.46 37.16 92.53 2.19 PO03596 1995 CN-YangtzeBasinWaterResourcesProject 100.00 1to.w 0.00 1.92 0.21 4.50 4.60 PO03540 1994 CKLOESS PLATEAU 0.00 150.00 0.00 0.00 0.93 0.27 0.00 PO03632 1993 CN-ENVIRONMENTTECHASS 0.00 50.00 0.00 0.00 1.02 1.sa 1.26 ~~ ~ ~ Total: 12010.07 172260 214.30 862.02 5117.15 2896.09 466.91 - 92 -  CHINA STATEMENT OFlFCs HeldandDisbursedPorffolio Ma 2004, - InMillions USDollars Committed Dlsbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2004 ChinaII 28.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 China ReLife 0.00 15.41 0.00 0.00 0.00 15.29 0.00 0.00 1994 China WaldenMgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 1995 DupontSuzhou 7.79 0.00 0.00 0.00 7.79 0.00 0.00 0.00 1994 Dynamic Fund 0.00 8.05 0.00 0.00 0.00 6.40 0.00 0.00 2003 Great Infotech 0.00 3.50 0.00 0.00 0.00 2.80 0.00 0.00 1999 Hansom 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 2002 HuarongAMC 9.00 3.00 0.00 0.00 9.00 0.49 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 0.19 0.00 0.00 2002 IEC 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 LeshanScana 5.21 1.35 0.00 0.00 3.61 1.35 0.00 0.00 2001 MaanshanCarbon 9.00 2.00 0.00 0.00 9.00 2.00 0.00 0.00 2001 MinshengBank 0.00 23.50 0.00 0.00 0.00 23.50 0.00 0.00 2001 NCCB 0.00 26.58 0.00 0.00 0.00 26.46 0.00 0.00 1996 NanjingKumho 0.00 3.81 0.00 0.00 0.00 3.81 0.00 0.00 2001 New ChinaLife 0.00 30.70 0.00 0.00 0.00 23.32 0.00 0.00 1995 NewbridgeInv. 0.00 1.95 0.00 0.00 0.00 1.95 0.00 0.00 1997 Orient Finance 6.67 0.00 0.00 8.33 6.61 0.00 0.00 8.33 2003 PSAM 0.00 1.93 0.00 0.00 0.00 0.00 0.00 0.00 1997100 PTPHoldings 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 2001 PeakPacific 0.00 0.00 25.00 0.00 0.00 0.00 0.00 0.00 2003 SAIC 12.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 SBTS 0.00 0.08 0.00 0.00 0.00 0.00 0.00 0.00 2000 SSIF 0.00 4.50 0.00 0.00 0.00 1.02 0.00 0.00 1998 Shanghai Krupp 27.50 0.00 0.00 61.43 27.50 0.00 0.00 61.43 1999 Shanghai Midway 0.00 16.02 0.00 0.00 0.00 16.02 0.00 0.00 1993 Shanxi 15.36 0.00 0.00 0.00 12.81 0.00 0.00 0.00 2002 ShenzhenPCCP 3.76 0.00 0.00 0.00 3.76 0.00 0.00 0.00 2001 Sin0 Gold 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.00 I995 Sino-Forest 23.33 0.00 0.00 0.00 18.33 0.00 0.00 0.00 2000 SuzhouPVC 0.00 2.48 0.00 0.00 0.00 2.48 0.00 0.00 19% Wanjie Hospital 13.64 0.00 0.00 0.00 13.64 0.00 0.00 0.00 2004 WeihaiWeidongri 0.73 0.00 0.00 0.00 0.73 0.00 0.00 0.00 2003 Wumart 0.00 6.48 0.00 0.00 0.00 6.48 0.00 0.00 1993 XACB 0.00 19.93 0.00 0.00 0.00 0.00 0.00 0.00 2003 Yantai Cement 4.73 0.00 0.00 0.00 4.73 0.00 0.00 0.00 2002 Zhengye-ADC 15.00 0.00 0.00 7.00 6.14 0.00 0.00 2.86 2002 Bong Chen 0.00 5.00 0.00 0.00 0.00 0.00 0.00 0.00 2003 ASlMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2003 Anjia 0.00 2.00 0.00 0.00 0.00 0.00 0.00 0.00 1999/00/02 BCIB 0.00 0.00 11.60 0.00 0.00 0,00 0.00 0.00 2002 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 2003 CDHChina Fund 0.00 15.17 0.00 0.00 0.00 2.09 0.00 0.00 CSMC 0.00 12.00 0.00 0.00 0.00 9.60 0.00 0.00 TotalPortfolio: 212.50 311.86 36.60 83.80 134.49 188.96 0.00 79.66 - 93 -  Approvals PendingCommitment FYApproval Company Loan Equity Quasi 'Partic 0.00 5.00 0.00 0.00 2004 2002 CCB-MS NPL ASIMCO 0.00 0.00 3.00 0.00 2003 Cellon 0.00 0.00 5.70 0.00 2004 ColonyChina 0.00 0.00 50.00 0.00 2002 Darong 10.00 0.00 1.50 8.00 2002 HuarongAMC 15.00 0.00 0.00 0.00 2002 IEC 0.00 5.00 0.00 0.00 2002 KHIT 0.00 0.00 3.00 0.00 2004 NCFL 0.00 0.00 17.88 0.00 2004 NanjingKumhoEx 34.00 0.00 6.00 0.00 2003 Peak Pacific 2 0.00 0.00 10.00 0.00 2004 SIBFI 0.26 0.00 0.00 0.00 2002 S M L 1.oo 0.00 0.00 0.00 2002 Sino Mining 5.00 0.00 0.00 5.00 2002 Zhong Chen 0.00 0.00 0.00 32.00 Total PendingCommitment: 65.26 10.00 97.08 45.00 - 94 -  Annex IO: Countryat a Glance CHINA TAI BASIN URBAN ENVIRONMENT PROJECT I Easl Lower- Asia & mlddls- ChlM Pacfflc Income Developmentdiamond* 2002 PopulaUon,mld-year (ml//ion.sJ 1,281.O 1,838 2,41I GNIpercapita (Atiasmethod, US$) 950 950 Lifeexpectancy 1,390 ON1(Atlas method, US$bllllons) 1,218,l 1,740 3,352 T Aversgs annual growth, 199&02 Population (%) 0.8 I.o 1 .o Laborform (%) 0.9 I.2 I.2 GNI Gross primary Mostrecent estlmnte(latent year avallable,l Q W 2 ) F =Pita nrollment Poverty(% ofpcpulatlonbelownetionelpovaWline) 5 Urbanpopulatlon(% oftofalpopulatlan) 38 38 49 life expectancyat birth &ears) 71 69 69 I rtalii (per 1,OOOJiveMthsJ 3!l 33 30 nutrition(% ofchlldrsnunder5) 10 15 11 Accessto Improvedwater source Accessto an ImprovedWater8oum (% ofpopuleffon) 75 76 81 14 13 13 Gmssprimafyenrollment I%ofschoolsgepopulation) Illiteracy(% ofpopu/auOnw e Id+) 108 106 I t 1 - Chma Male 105 105 Ill -Lower-mlddlehcome group Female 108 106 110 KEY ECONOMIC RATIOSand LONG-TERM TRENDS 1982 1002 2001 2002 Economlcratios' GDP (US$ bllllons) 221.5 454.6 1,167.1 1,232.7 Gmssdome& InvestmenffGDP 33.2 36.2 38.5 41.0 Exportsof &s andservices/GDP 8.9 19.5 25.5 29.5 Trade GrossdomesticaavlngdGDP 34.8 37.7 40.9 44.0 Grossnational sevinWGDP 35.1 38.0 40.0 43.8 TT Current accountbalancelGDP 2.4 I.9 I.5 2.9 Domestic lnteredpapntdGDP 0.2 0.6 0.5 0.5 savings Investment Total debUGDP 3.8 15.9 14.6 126 Total debtservlcelexwrts 8.0 8.8 7.7 6.1 Presentvalue of debtlGDP 14.1 Presentvalue d debtfaxports 51.8 Indebtedness ' 1882-02 100242 2001 2002 2002.08 (avemga ennualgrowfhj GDP -Chha 9.7 9.0 7.5 8.0 7.5 GDP per Capita 8.1. 8.0 6.7 -Lower-middle-incomegroup STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growthof lnvastmentand GDP (%) (% ofGDP) Agrlwlture 33.3 21.8 15.8 14.5 M Industry 45.0 43.9 50.1 51.7 *5 Manufacturing 37.3 33.1 34.2 44.5 10 SENhS 21.7 34.3 34.1 33.7 5 0 Privateconsumption 50.7 49.2 45.7 42.5 87 48 9s w 01 02 Generalgovemmentconsumption 14.5 13.1 13.4 13.5 Importsof goods andserVi~eS 7.3 18.0 23.1 26.5 -GDI *GDP 1082.92 1902-02 2001 2002 I (everageannualgrowth) Growthof exports and Imports(%) i Agricutlure 4.6 3.7 2.8 2.9 ' 0 T industry 11.6 11.3 8.4 9.9 30 Manufacturing 11.2 10.4 9.0 8.1 20 Services 11.7 8.4 8.4 7.3 10 Pllvata consumption 11.4 8.1 2.8 I.9 0 Generalgovemmentconsumption 9.9 8.4 10.5 7.0 Grossdomestic investment 9.5 9.7 13.9 14.9 Importsof gads and sawices 9.7 12.8 10.8 27.5 - 95 -  PRICESand GOVERNMENTFINANCE 1982 1992 2001 2002 Domestic plices f% change) Consumerprices 6.0 6.4 0.7 4.8 lmpllci GDP deflator 4.2 7.9 1.2 -2.6 Govemnmntffnn.nc8 (% of GDP#includescumnt grants) Current revenue 22.9 14.7 17.1 17.9 Currant budget balance .I 2.0 1.I 0.0 Overallsurpluddeflcit -0.3 -1,0 4 7 -3.0 -0DP ddator +CPI 1 TRADE 1982 1992 2001 2002 (US$millions) Exportand Importleveln(US$mlll.) Totalexports (fob) 22,321 84,940 266,155 325,565 Food 2,908 8,309 12,760 14,623 II Fuel 5,314 4,693 8,420 6,372 Manufactures 12,271 67.936 239,802 297,085 Total imports(clfl 19,285 80,585 243,810 295,203 Food 4,201 3,146 4,980 5,237 Fueland energy 163 3,570 17,495 19,285 I I Capitalgoods 3,204 31,312 107,040 137,030 Exporl priceIndex (f9954W.J) 41 85 83 78 Ea 97 98 8% 00 01 Import prlceIndex (1995=lMJ 71 95 91 86 .Exparts mrmpotla Termsoftrade (f9QS=fW.Jl 58 89 91 90 O2 BALANCEof PAYMENTS 1982 1992 2001 2002 (US$ millions) 15;mnt ascountbalanceto GDP (Y.) ~xportsof poods andservices 24,906 94,198 299,409 365,395 Importsof QO% andservlces 20.555 66,752 271,325 326,013 Resourcebalance 4,350 7.446 28,084 37,383 Netincome 376 249 -19,174 -14,945 Netcurrenttransfers 486 1,155 8,492 12,964 Currentaccountbalance 5,212 6,650 17,401 35,422 Financingitems(net) -995 -10,952 30,046 40,085 Changesin net resa1yBs 4,217 2,102 -47,447 -75,507 Memo: ReservesIncludinggold (US$ millions) .. 24,642 220,051 297,721 Conversionrate (DEC, locaYUS$j 2.4 5.9 8.3 8.3 EXTERNALDEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Comporttionof 2002 deM(US$mill.) Totaldebt outstandinganddicrbursed 8,358 72,428 170,110 155,678 IERD 0 3,752 11,550 12,051 IDA 1 4,287 8,654 8,729 A: 12,051 Totaldebt oewlce 2,125 6,618 24,297 23,668 0:43, IBRD 460 1,550 1,631 IDA 00 30 151 175 Composttiin of net resou~c~ flows Oftlcialgrants 47 327 240. offrcil credltors 657 2,343 2,156 -639 Ptivatecreditors -122 8,949 -4,017 -13,593 Foreigndirectinvestment 430 11,156 44,241 49,308 u Portfolioequlty 0 1,243 3,015 2,266 F 62,103 World Bank program Commitments 330 1,865 782 563 A - IBRO E Bilsfsral - Dibursementa 1,331 1.791 1,733 B IDA D Other multilateral F Privals - Prlncipelrepayments 01 197 904 1,157 C IMF -- 0 Shor(.tm -- NetRows 1,134 667 576 Interest payments 01 293 797 649 Nettransfers 1 841 90 -73  AdditionalAnnex 11:SafeguardIssues CHINA: TAI BASINURBAN ENVIRONMENTPROJECT A. Summaryof EnvironmentalImpactsandEnvironmentManagementPlan Background 1, Hohai Universitycarried out the consolidatedEA of the proposedTBUEP inaccordancewith China's national and Bankpolicies andprocedures, with support from an independentinternational consulting environmental specialist. The TORSandvarious draft versions were reviewed anddiscussedin detailduringprojectpreparation. The draft Englishversion EAdocumentswere submittedto the Bankin late September 2003 andreviewed by the Bankduringpre-appraisal mission and commentsrequiring clarifications and some additional analysis were made at that time. The draft EA documentation was sent to the Bank's InfoShopinWashington andinBeijing inOctober 2003. The draftfinalEA report,EA Summary and EnvironmentalManagementPlan(Em)were submittedto the BankinOctober2003 and, followingclarificationandadditionalanalysison a numberof pointsraisedduringreviewbythe Bank,the revisedEA was finalizedinFebruary2004 andEMPwas foundsatisfactory. Theserevised documentswere lodgedinthe InfoShop inMarch2004. Duringthe EApreparation, localpeople were consultedat leasttwice, andtheir opinions havebeenreflectedin the project design and environmental mitigationmeasuresas appropriate. 2. The policy andadministrative requirementsfor environmental assessmentof developmentprojects inChinawere followed duringpreparationandevaluationofthe EA, as well asthe Bank'spolicy, OP4.01 inparticular. BriefProjectDescription 3. The Project includes the following componentsfor which the EAshave beenprepared SuzhouMuniciualitv: 0 Wastewatertreatment plants(WWTPs) andnetworks: -- - Wuzhong WWTP (25,000 m3Iday) and associatedsewer network Secondphase (80,000 m3lday) o f LoujiangWWTP andassociatedsewer network Secondphase (100,000 m3/day) of FuxinWWTP and associatedseweraetwork 0 Urbanareacanalnetworkrehabilitation: -- Rivercoursedredging andrehabilitation Polluted water control inSuzhou(two sluice gates andone shiplock onXujiang River, andone shiplock on ShangtangRiver). WuxiMunicinality: 0 Wastewatertreatment plants(WWTPs) andnetworks: ---HuishanWWTP (25,000 m3/day secondarytreatment) andassociatedsewer network Secondphase(30,000 m3/day) o fDongting WWTP andassociatedsewer network AnzhenWWTP (25,000 m3lday) aridassociatedtrunk line andsewer network - 97 -  a Local1y-financed Wuli`Lake restoration: - Pollutedwater controlandwater levelregulation(construction of 11sluicegatesonindividual waterwaysthat linkWuli Lake andthe urbanriver networkof Wuxi City) -- Embankmentrehabilitation(19.4 kmaroundWuli Lake) Ecologicalrestoration BaselineEnvironmentalDescription 4. NaturalEnvironment. The Tai Basin(total area 36,500 km2)is locatedinthe middlepartof China's coastalarea. The basinisboundedbythe Yangtze(Changjiang) Riverto the north, EastChina Seato the east, QiantangjiangRiverto the south, andTianmuMountain, Jielin, Mao Mountain, Qinghuai River and Shuiyangjiangwater systemto the west. Wuxi Municipality stands on the northeastbankof Lake Tai andstretches to the Yangtze River, with aurbanpopulation2.1 million. SuzhouMunicipality is locatedinthe east bankof the Lake Tai andstretches to the Yangtze River, with urbanpopulation2.5 millionand is akey historical, culturalandscenic centers ofChinawith ahistory stretchingbackmorethan 2000 years. Both municipalitieshave alarge andrapidly increasingindustrialbase. 5. TODOEraDhY. The topography ofBashcanberoughly dividedinto hilly areas coverhg 1/6ofthe westem part ofthe basinarea andthe TaihuPlain, which tilts graduallyby about 4-5 mfrom west to east. About 115 ofTaihu Plainis lakes andriver network. The densityof streams/river networkinthis area is 34m. 6. -TheBasin Climate. hasasemi-tropicalmonsoonclimate. The annual averagetemperature is 15-18degrees Centigrade, while the hottestmonthly temperature of 27.5-3 1.2 degreesCentigradeis inJuly, andthe coldest temperature of -5.5 to -8.5 degrees Centigrade is inJanuary. The averageannual precipitationis 1,200 mm, ofwhich 70-80 percentoccurs betweenMay to October, increasingwater flows intheriversandlakes. 7. SocioeconomicSituation. The Basinincludes Metropolitan Shanghai; the four municipalitiesof Suzhou, Wuxi, ChangzhouandZhenjianginJiangsuProvince; andthe three municipalitiesof Hangzhou, JiaxingandHuzhouinZhejiangProvince. The Basincovers only 0.4percentoftotalnationallandarea, andthe populationamountingto 36.8 million at the endof 2000 including18.6 million(51 percent) urban, represented2.9 percent ofthe nationalpopulation. The populationdensityofthe area, at 978 personskm2, is seven times higher thanthe nationalaverage and amongst the highestinChinaas is the urbanizationrate. 8. GDP inthe Bashwas estimated at RMB 890 billion, accountingfor 10.8 percent of nationalGDP in2000. Suzhou(RMB 135.864billion) andWuxi (RMB 113.802 billion) together accountedfor almost three quarters ofthe GDP the area ofthe BasinwithinJiangsuProvince. Among the sectors, agricultural output was RMB21.104 billion(6.1 percent), industry was RMB 195.012 billion(56.5 percent) and service sector was RMB 129.052 billion (37.4 percent). 9. CultivatedlandinLake Tai Basinis 21.45 millionmu(1`43 millionha), accountingfor 43 percent of landarea inthe Basinand 1.8 percentofnationalcultivated land. The maincrops includepaddyrice, wheat, silk, tea, bamboo, fruits, etc. 10. CurrentWater Oualitv. PollutionsourcesofsouthernJiangsuProvincewithinthe Basininclude i n d h a l , municipal/domestic, agriculturalandtraffic sources, ofwhich industrial pollution is the most serious. Accordingto municipal EPBstatistics for 2000, COD discharge from industrial wastewater in - 98 -  Suzhou city andWuxi city totaled 151,200 tla. Dischargesofuntreateddomestic wastewater is increasing rapidly due to increasing urbanizationandbecause ofthe low presentcapacity for collection andtreatment of municipal wastewater inthe majorcities. Accordingto 2000 statistics, wastewater dischargedfrom domestic sources inSuzhouandWuxi was 304.03 milliontons per year (tpy), total CODwas 136,700 tpy. Eutrophicationis widespreadinLake Tai, as well as inthe perimeterlakes. (a) Water quality of main watercourses in Wuxi City: Accordingto monitoring data source for 2001-2003, NH3-Nconcentrationinfour major rivers inWuxi city exceededthe specifiedstandard, resultingina classificationofworse thanClassV (the lowestwater quality classificationinChina). Other items, e.g., COD, DO andTP exceededClass IVstandards. (b) Water quality of main watercoursesin Suzhou City: Accordingto monitoring data of 2002, NH3-NconcentrationineightmainriversinSuzhouseverelyexceededClassV standard. Remaining items, such as COD, DO, TP, exceededthe prescribedstandard, apart from oil content. The riverkanal systeminthe city center andthe ShangtangRiver is mostseverelypolluted,mainly byNH3-N, TP, DO, COD, andbiological oxygendemand(BOD). (c) Water quality of the Grand Canal (Beijing-Hangzhou Canal): basedon 2001-2002 monitoring data, the water quality inthe Suzhousectionofthe GrandCanalcanmeet its designatedClass IVwater quality standards(suitable for navigation,irrigation, and landscaping)exceptfor NH3-NandTP. However, monitoringresults for the Wuxi sectionof the GrandCanal have shownthat many pollutant parameters (e.g. NH3-N,TP, DO, COD) exceedClass IVstandard, indicating thatpollutionfrom the Wuxi andChangzhouurbanareas contributesubstantiallyto the badwater quality of the GrandCanal. 11. FutureWater OualitvObiectives. Since 1996,the State Councilhas incorporatedLakeTaiinto the major nationalpriority water pollution control program. Governments at all levels inJiangsuProvince have worked out animplementationplan (Tenth Five-YearPlan2001-2005). The planaims at protecting the water quality of the Lake Meiliang andWuli Lake, both of which are part of the Lake Tai system, constructinga series of city/townshipwbtewater treatment systemsthat includeonly limitedsewer networks, dredgingriver coursesandlakes, andimplementingwater conservation programs. Key objectivesare to improvewater quality inthe area ofmaindrinking water sources inthe Lake andmain connectingrivers/canalsto Class111(COD content) andto reduceTP concentrationbelow the level of 2000. Furthermore, the water quality of the rivernetwork inSuzhoucity center shouldmeetthe requirementfor ascenic area. PotentialEnvironmentalImpactsandtheir MitigationMeasures 12. WastewaterTreatment. The project includesconstructionofsix WWTPs: the Wuzhong, Loujiang, andFuxinWWTP inthe Suzhou area; andthe Huishan, Dongting, andM e nWWTP inthe Wuxi area. For year 2010, the expectedreduction ofpollutant dischargesto surface waters from the six WWTPs are 122tons per day (tpd) of CODCr, 62 tpd of BODS/day, 6 tpd O fNH3-N, 80 tpdof SS, and 0.6 tpdof TP. These reductionsWill improve the quality of the receivingsurface waters inthe Suzhouand Wuxiareas. Thepredictedwater qualityimprovements-intermsofchemicaloxygendemandmanganese scenarios: ScenarioI- went condition with the constructionof six WWTPs to be financed under this (CODMn) concentrations(mg) inambientwaterways havebeenprojectedfor the followingthree project; ScenarioI1 the condition inyear 2010 withthe constructionof these six WWTPs; andScenario IIItheconditioninyear2010withtheconstructionof108WWTPsintheWuxi,Suzhou,andChangzhou - - areas underthe overall 10th. five year plan. Under Scenario I, inferior to Class V waters will decrease from 16.0 percentofthe totallengthofthe rivers to 11.5 percent, while Class IVwaters will increasefrom - 99 -  30.9 percentto 33.6 percent, andClass IIIwaters will increase from 1.9 percentto 3.7 percent (with no change for Class I1andV waters). With full implementationofthe lothFiveYear plan, the impactwould bemuchgreater, resulting inbetterwater quality inLake Taihu: Inferior to Class V waters will decrease to 3.1 percent, Class V water will decreaseto 20.4 percent,ClassIVwaters will increaseto 64.9percent, and ClassIIIwaters will increase to 11.2 percent(withno change inClass I1waters). Importantelements of the programare underwayor plannedwith local financing for rehabilitationof the sewer networksin Changzhou, SuzhouandWuxi. Other elements require inter-institutionalcooperationandamore cost-effective investmentplanandsector managementarrangements. 13. WuzhonpWWTP. The WuzhongWWTPwill be locatedinanindustrialzone, surroundedby factories onthree sides andthe GrandCanalon one side. This WWTP will serve anarea of 15.26 lan2 in Suzttouthrough a 43 kmsewer networkto treat wastewaters from domestic andindustrialsources (there are 10industries). The Bank will finance both the WWTP andthe sewer network. 14. The currentandprojectedwastewater flows (m3/day) that will be collectedfor treatment at the WuzhongWWTP are as follows: Domestic Industrial TOTAL Present 6,000 5,326 11,326 2010 10,000 18,000 28,000 2020 15,000 28,000 43,000 15. The WWTP will be designedfor a capacity of 25,000 m3/dayusingthe SBR process. The SBR processwas selectedthroughcomparisonwith alternative processes(the anaerobiclanoxidoxidicprocess -i.e, the A2/0process- andthe oxidationditchprocess). The WWTP is scheduledto commissionby the endof2005. The treatedwater will bedischargedto the GrandCanal (a Class IVwater body). 16. The expectedpollution loads inthe Wuzhong WWTP inflow andeffluent are shownbelow, By 2010, pollution loadswill reduceCOD loadingby about 85 percent; BODloading by about 89 percent; NH3-Nloadingbyabout 56percent; suspendedsolids (SS) loadingby92percent; andTP loadingby 57 percent. CODCr - - - BOD5 NH3-N -43s TP Year 2010 Mluentto WWTP (tpd) 11.4 5.7 0.9 7.2 0.07 EffluentfromWWTP (tpd) - - - 0.6 1,7 0.6 0.4 -0.03 Reduction(tpd) 9.7 5.1 0.5 6.6 0.04 .(%) 85.1 89.5 55.6 91.7 57.10 Year 2020 Influentto WWTP (tpd) 14.8 7.4 1.2 9.4 0.10 EffluentfromWWTP (tud) - - - - - 2.6 0.9 0.7 0.9 0.00 Reduction(tpd) 12.2 6.5 0.5 8.5 no data 82.4 87.8 41.7 85.9 no data - 100-  Area Waterways Scenario I Scenario II Scenario Wuxi -Grand Luoshe 0.30 0.32 6.36 Urbanarea 0.40 0.44 5.51 Xinhongqiao 0.80 0.98 2.67 0.39 0.55 2.51 I YangchengLake* * Waterway thatreceivesthe WWTP effluent. 17. The wastewater discharge from the WuzhongWWTP will meetCategory ByGrade 1of the PollutantDischarge Standardfor TownWWTPs (GB18918-2002),except for COD andtotalphosphorus, whichwill meetthe morestringent CategoryA, Grade 1of the same standard. Grade 1is for surface waters usedfor potable water supply, habitatsofrare aquatic species, spawning site for fishandshrimp. The applicablestandardsare as follows: Parameter Standard PH 6-9 Chemicaloxygendemand(COD) 50mgfl Biologicaloxygendemand(BODS) 20 mgA Suspendedsolids (SS) 20 mg/l Animal andvegetableoil 3mgfl -101 -  Oils 3 mgil Surface active ions 1 mg/l Total nitrogen 20 mgil Ammonia nitrogen -- water temp. less than 12 degrees Centigrade 8 mg/l water temp. greater thanlequal 12 degrees Centigrade 15 mgA Total phosphorus 1ms/l Color (dilution factor) 30 , Fecal coliform 104individuavl 18. About 47 m3/day of sludgewill be generatedfrom the Wuzhong WWTP. The sludge from the WWTP will be testedfor hazardouscharacteristicsaccording to applicable Chineseregulatiodstandards. If tobehazardous,itwillbedisposedatahazardouswastelandfillthata1bereadybyend2005. found If sludgeisfoundtobenon-hazardous,itwillbetransportedbyleak-proof,10-tontrucksfor15kmto the the Qizishan sanitary landfill. The transportationtime to this landfillwill be between4am-6am and 7pm-lOpm to minimize adverse impacts on localtraffic. This landfX,put inservice in 1993 for a 15-year service, was designedto receive solidwastes from the Suzhouarea. The Quizishansanitary landfillhas a capacity of4.7 milliontons andis surroundedwithhills andthere are no residencesinthe area. The leachatefrom the landfill is piped to the WWTP at the HighandNew Technology Zone. Prior to receivingthe sludge, this landfillwillbecertifiedas designedand operatedincompliancewith applicablegovernmentregulations. 19. Basedonmodelingresults, the noise emissions fkom the Wuzhong WWTP -which is locatedinan industrialzone - arenot expectedto exceedthe daytime standardof 65 dBA andnighttime standardof 55 dJ3A. The nearestreceptorto the Wuzhong WWTP is a factory 100maway. Therefore, the noise emissions fromthe Wuzhong WWTP are not expectedto adversely affect the recepton inthe area. 20. Odor emissionsfrom the sedimentationandSBR tankswill be " i z e d through proper adjustment o fthe air flow rate o fthe blower to bringthe wastewater to aerobic state, andthroughtimely sludge dewatering, handlingof sludge cakes indewatering rooms, use o f sealedtrucks for transporting the sludgeto the disposal site, sprinklingtemporary sludge storageareas with bleach, andplantingtrees around the aeration tanks andWWTP. 21. LouiianPWWTP. This WWTP will be a 80,000 m3/day expansion (secondphase) o fa 60,000 m3/&y WWTP. The second-phase WWTP will serve an area of40.10 lun2inSuzhou to treat wastewatersfrom domestic and industrialsources. The industrialwastewaters are from 22 industries (mostly textile, chemical, metallurgical, andmetal finishingindustries). Bank financing will include only the second-phase WWTP. 22. The current andprojected wastewaterflows (&/day) that willbe collected for treatment at the LoujiangWWTP are as follows: Domestic Industrial TOTAL Present 88,000 39,561 127,561 2010 74,000 55,000 129,000 2020 82,000 57,000 139,000 23. The second-phase WWTP will be designedfor a capacity o f 80,OOO &/day usingthe SBR process. The SBR process was selectedthrough comparison with altemative processes(the - 102-  anaerobiclanoxicloxidicprocess, i.e. the A210 process andthe oxidationditchprocess). The treatedwater will be dischargedto the LouijangRiver(classifiedas aClassIVwater body, but currently is worse than ClassV water body), which flows to Yangtze River. 24. The expectedpollutionloads inthe LoujiangWWTP inflow and effluent are shownbelow. By 2010, the treatmentwill reducethe COD loadingby 84 percent, BODloadingby 89 percent, NH3-N loadingby about 55 percent, SS loadingby 91percent, andTP loadingby about 67 percent. CODCr - - - BOD5 NH3-N - 4 s TP Year 2010 Influentto WWTP (tpd) 47.0 23.5 4.2 29.4 0.30 EffluentfromWWTP(tad) - 2.6 7.6 - 2.6 1.9 0.10 Reduction(tpd) 39.4 20.9 2.3 26.8 0.20 ("/.I 83.8 89.0 54.8 91.2 66.70 Year 2020 Influentto WWTP (tpd) 48.0 24.0 4.2 30.0 0.40 Effluentfrom WWTP(tad) - - 2.2 8.3 2.8 - 0.10 2.8 Reduction(tpd) 39.7 21.2 2.0 27.2 0.30 (%I 82.7 88.3 47.6 90.7 75.00 25. The wastewater discharge from the Loujiang WWTP will meetCategoryB, Grade 1of the PollutantDischargeStandardfor TownWWTPs (GB18918-2002), except for COD andtotal phosphorus, which will meetthe morestringent Category A, Grade 1of the same standard, These standards are the same as those given for the WuzhongWWTP. 26. About 72 m31dayofsludgewill be generatedfrom the LoujiangWWTP. The sludge fromthe WWTP will be tested for hazardouscharacteristics accordingto applicableChineseregulationslstandard. If tobehazardous,thesludgewillbedisposedatahazardouswastelandfillthatwillbereadybyend found 2005. Ifthe sludge is foundto be non-hazardous,it will betransportedby leak-proof, 10-tontrucks for 20 kmto the QizishansanitarylancWl. The transportationtime is selectedto bebetween4am-6amand 7pm-lOpmto minimize adverseimpacts onlocal traffic. Characteristics of this landfll were provided aboveunder the discussionfor the LoujiangWWTP. Prior to receivingthe sludge, the landfiUwill be certifiedas designedandoperatedincompliancewith applicablegovernment regulations. 27. The noiseemissions from the Loujiang WWTP are expectedto exceedthe nighttime noisecriteria of 55 &A at the WWTP boundary, althoughincompliance withthe daytimecriteria of 65 dBA. However, these noiseemissionsfrom the WWTP are not expectedto be a concembecause the nearestsensitive receptoris aguest house, which is to bechangedto analternativeuse, 200 monthe north side of the WWTP. 28. Odoremissionsfrom the sedimentationandSBRtanks will beminimizedthroughproper adjustment ofthe air flow rateof the blower to bringthe wastewaterto aerobic state, andthroughtimely sludge dewatering, handlingof sludgecakesindewateringrooms, use of sealed trucks for transportingthe sludge to the disposalsite, sprinklingtemporarysludge storageareas with bleach, andplanting trees around the aerationtanks andWWTP. -103-  29. FuxinWWTP. This WWTPwill be a 100,000 m3/dayexpansion(secondphase) of a80,000 m3/day WWTP. The second-phase WWTP will serve an area of46.60 km2inSuzhouto treat wastewaters from domestic andindustrialsources. The industrialwastewaters are from 20 industries (mostly pharmaceutical,textile, andchemicalindustries). The Bankfinancingwill include only the second-phaseWWTP. 30. The current andprojectedwastewater flows (m3/day) that will be collectedfor treatment at the FuxinWWTP are as follows: Domestic Industrial TOTAL Present 66,000 57,937 123,937 2010 60,000 51,000 111,000 2020 71,000 56,000 127,000 31. The second-phaseWWTP willbe designedfor a capacityo f 100,000 m3/&y usingthe SBR process. The SBR processwas selected throughcomparisonwith alternative processes(the anaerobic/anoxic/oxidicprocess, i.e. the A210 processandthe oxidation ditchprocess). Thetreatedwater willbedischargedtothe GrandCanal. 32. The expectedpollutionloadsinthe FuxinWWTP inflow and effluent are shownbelow. By 2010, the treatment will reducethe COD loadingby 82 percent, BOD loadingby 88 percent, NH3-Nloadingby about48 percent, SS loadingby 91 percent, andTP loadingbyabout 67 percent. CODCr BOD5 NH3-N - TP Year 2010 Influentto WWTP(tpd) 36.9 18.5 3.3 23.0 0.30 Effluentfrom WWTP (tad) - - - - - 6.7 2.2 1.7 2.2 0.10 Reduction(tpd) 30.2 16.3 1.6 20.8 0.20 (%I 81.8 88.1 48.5 91.3 66.70 Year 2020 Influentto WWTP (tpd) 40.1 20.0 3.6 25.0 0.30 EffluentfromWWTP (tad) - 7.6 2.5 - - - 1.9 2.5 0.10 Reduction(tpd) 32.5 17.5 1.17 22.5 0.20 (%I 81.0 87.5 47.2 90.0 66.70 33. The wastewater discharge from the FuxinWWTP will meetCategoryByGrade 1ofthe Pollutant Discharge Standardfor Town WWTPs (GB18918-2002), exceptfor COD andtotal phosphorus, which willmeetthe morestringentCategoryA, Grade 1of the same standard. These standardsarethe same as those givenfor the WuzhongWWTP. 34. About 107m3Jdayofsludge will be generatedfrom the FuxinWWTP. The sludge fromthe WWTP will be tested for hazardouscharacteristics applicableChinese regulations/standards. Iffoundto behazardous, the sludge will be disposedat ahazardouswaste landfillthat will be readyby end2005. If the sludge is foundto be non-hazardous, itwill betransportedby leak-proof, 10-tontrucksfor 10kmto the - 104 -  Qizishan sanitary landfill. The transportationtime is selected to be between4am-6amand7pm-l0pmto mihimize adverse impactson localtraffic. Characteristicsof this landfillwere providedabove underthe discussionfor the FuxinWWTP. Pnor to receivingthe sludge, the landfdwill becertifiedas designed andoperatedincompliancewith applicablegovernmentregulations. 35. During&ytime andat nights, the noise emissions fromthe FuxinWWTP are expectedto exceed the noise criteria (60 &A and 55 dBA, respectively) at the WWTP boundary. However, these impacts noise (as well as odorous)emissionsfrom the WWTP are not a concem becausethe nearestreceptor is a residencelocated 500 mfromthe WWTP. 36. Odor emissionsfrom the sedimentationand SBRtanks will beminimizedthroughproper adjustmentof the air flow rate of the blowerto bringthe wastewater to aerobicstate, andthroughtimely sludgedewatering, handlingof sludgecakes indewateringrooms,use of sealedtrucks for transportingthe sludge to the disposalsite, sprinklingtemporary sludge storage areas withbleach, andplantingtrees around the aerationtanks andWWTP. 37. HuishanWWTP. This WWTP will serveanareaof39.55 km2inWuxi througha 58 kmsewer networkto treat wastewatersfromdomesticandindustrialsources (there are 65 industries textiles, chemical, metallurgicalindustries-- -- dyeing, locatedmostlywithinandsome outsidethe industrial developmentzone). The Bankwill finance boththe WWTP andthe sewernetwork. 38. The current andprojectedwastewater flows be collectedfor treatment at the HuishanWWTP are as follows: Domestic Industrial TOTAL Present 6,000 7,025 13,025 2010 13,000 30,000 43,000 2020 19,000 50,000 69,000 39. The WWTP will bedesignedfor a capacity of 25,000 m3lday for secondarytreatmentusingthe SBRprocess, The SBRprocess was selectedthrough comparisonwithaltemativeprocesses(the anaerobiclanoxicloxidicprocess, i.e. the A210 processandthe oxidationditchprocess), 40. The treatedwater will be dischargedto the Xibei Canal(whichis classified as a Class Tv water body, butcurrentlyis aClass V water body). This decisionwas basedona comparisonwith the discharge altemativeto the XichengCanalthroughstudy ofthe extensionofthe pollutionplume andincrease in maximumCODconcentrationsinthe receivingwater bodies. The Xibei Canal flows to WangYu River (a ClassIII-IVwater body), which dischargesto LakeTai. 41. The expectedpollutionloads inthe HuishanWWTP inflow and effluent are shownbelow. By 2010, the treatmentwillreducethe COD loadingby 90 percent, BOD loadingby 92 percent, NH3-N loadingby about47 percent, SS loadingby 94percent, andTP loadingby about 71percent. - 105-  CODCr - - - BOD5 NH3-N ---ss TP Year 2010 Influentto WWTP (tpd) 25.4 9.7 1.5 13.4 0.07 EffluentfromWWTP hd) - - - - - 2.5 0.8 0.8 0.8 0.02 Reduction(tpd) 22.9 8.9 0.7 12.6 0.05 (%I 90.2 91.7 46.7 94.0 71.40 Year 2020 Influentto WWTP (Qd) 39.4 14.7 2.1 20.6 0.20 EffluentfromWWTP(todl - - - - 0.10 4.2 1.4 1.o 1.4 Reduction(tpd) 35.2 13.3 1.1 19.2 0.10 (%I 83.3 90.5 52.4 93.2 50.00 42. The wastewater discharge from the HuishanWWTP will meet Category B, Grade 1of the PollutantDischargeStandardfor Town Wastewater Treatment Plants (GB18918-2002), except for COD andtotal phosphorus, which will meetthe more stringent Category A, Grade 1of the same standard. These standardsare the same as those givenfor the WuzhongWWTP. The HuishanWWTP is expectedto contributeto the quality improvementofLake Tai. 43. About 47 m3ldayof sludge will be generatedfrom the HuishanWWTP. The sludgefromthe WWTP will be testedfor hazardous characteristicsaccordingto applicableChineseregulationslstandards. If tobehazardous,thesludgewillbedisposedatahazardouswastelandfilltobeidentified.Prior found to receivingthe sludge, the landfillwill becertifiedas designedandoperatedincompliancewith applicablegovernment regulations. Ifthe sludgeisfoundto benon-hazardous,itwillbetransportedby leak-proof, 10-tontrucks for 10kmto the Taohuashansanitary landfill. The transportationtime is selected to bebetween5am-7amand 7pm-9pmto minimize adverseimpacts on localtraffic. This landfill, was put inservice in1994for PhaseIandin1995for PhaseII.Thelandfill, whichhasa 12-yeardesignservice life, receivessolid wastes from the Wuxi area. The landfillcovers anarea of 20.5 haandhas acapacityof 4.6 m3. The leachatefrom the landfillis pipedfor 6.3 kmto the LucunWWTP. 44. Basedonmodelingresults, the noiseemissionsfromthe HuishanWWTP are expectedto exceed the nighttimestandardof 55 dBA, but incompliance with the daytime standardof 70 dBA. However, these noise emissionsfrom the WWTP are not expectedto be amncem becausethe nearest sensitivereceptors (Yanqiao Township's Government offices anda fire fighting station) are located500 mupwindinthe eastemdirectionfiom the WWTP. 45. Odor emissionsfromthe sedimentationandSBRtankswill beminimizedthroughproper adjustment ofthe air flow rateof the blower to bring the wastewater to aerobic state, andthroughtimely sludge dewatering, handlingof sludgecakes indewateringrooms, use ofsealedtrucks for transportingthe sludge to the disposal,site, sprinkling temporary sludge storageareas withbleach, andplanting trees around the aerationtanks and WWTP. 46. DonPtinPWWTP. This WWTP will be a 30,000 m3/day expansion(secondphase) ofa 20,000 m3Iday WWTP inWuxi. The second-phaseWWTP will serve an area of 64.60 km2througha40 km Sewer networkinWuxito treatwastewaters from domestic andindustrial sources. The industrial wastewaters are from 70 industries (mostly dyeing, chemical, andmetallurgicalindustries). The Bankwill finance boththe WWTP andthe sewer network. -106 -  47. The current andprojectedwastewater flows (m3/day) that will be collected for treatment at the Dongting WWTP are as follows: Domestic Industrial TOTAL Present 14,000 14,570 28,570 2010 18,000 39,000 57,000 2020 25,000 74,000 99,000 48. The second-phase WWTP will be designedfor a capacity of 30,000 m3/&y usingthe SBR process. The SBRprocesswas selectedthroughcomparisonwith alternativeprocesses (the anaerobic/anoxic/oxidic process, Le. the A210 processandthe oxidation ditchprocess). The treatedwater will bedischargedto the XinxingtangRiver(a Class IVwater body). 49. The expectedpollution loads inthe DongtingWWTP inflow andeffluent are shown below. By 2010 the treatment will reducethe COD loadingby 85 percent, BODloadingby 90 percent, NH3-N loading by47 percent, SS loadingby 92 percent, andTP loadingby 40 percent. CODCr BOD5 NH3-N 4 - TP Year 2010 Influent to WWTP (tpd) 22.9 11.5 1.7 14.7 0.10 Effluent from WWTP hd) - - - - 0.06 3.4 1.1 0.9 1.1 Reduction(tpd) 19.5 10.4 0.8 13.6 0.04 (%I 85.2 90.4 47.1 92.5 40.00 Year 2020 Influentto WWTP(tpd) 35.0 17.5 2.5 22.6 0.20 Effluent from W"(tpd] - - - - - 5.9 2.0 1.5 2.0 0.15 Reduction (tpd) 29.1 15.5 1.o 19.2 0.15 (%I 83.1 88.6 40.0 85.0 75.00 50. The wastewaterdischargefiom the Dongting WWTP will meet Category B, Grade 1o f the Pollutant Discharge Standardfor Town WWTPs (GB18918-2002), except for COD andtotal phosphorus, which will meet the more stringent Category A, Grade 1o f the same standard. These standards are the same as those given for the Wuzhong WWTP. 5 1, About24m 3 h yofsludgewillbe generatedfromthe DongtingWWTP. The sludgefromthe WWTP will be testedfor hazardous characteristics according to applicable Chinese regulationslstandards. Iffoundtobehazardous,thesludgewillbedisposedatahazardouswastelandf'illtobeidentified. Ifthe sludge is found to benon-hazardous, itwill be transportedby leak-praof, 10-tontrucks for 25 kmto the Taohuashan sanitary landfill. The transportation time is selectedto be between 5am-7am and 7pm-9pmto minimize adverse impacts on localt r a c . Characteristics of this landfill were provided aboveunder the discussionfor the DongtingWWTP. Prior to receivingthe sludge, the landfiiwill becertified as designedandoperatedincompliancewith applicablegovernmentregulations. -107 -  52. The DongtmgWWTP is locatedinanindustrialparkthat includesindustriesas well as residences. Basedonmodelingresults, the noise emissionsfromthe DongtingWWTPareexpectedto complywiththe nighttimestandardof 55 dBA anddaytimestandardof 65 &A. No adverseimpactsofnoisepollutionon the receptorsare expected. 53, Odoremissionsfromthe sedimentationandSBRtanks will beminimizedthroughproper adjustmentofthe air flow rate ofthe blowerto bringthe wastewater to aerobicstate, andthroughtimely sludgedewatering, handlingofsludge cakes indewateringrooms, useofsealedtrucks for transportingthe sludgeto the disposalsite, sprinklingtemporarysludge storage areaswithbleach, andplantingtrees around the aerationtanks andWWTP. 54. Anzhen WWTP. A 6.9 lunlongtrunk sewer andsewernetworkof 146kmwill transport wastewatersfrom anareaof 40 km2 inWuxito the M e nWWTP. The NianyuVillageandthe Village ofChengengshang, bothinAnzhenTown, were evaluatedas the potentialsites for the AnzhenWWTP. The site at the NianyuVillagewas favoredthroughthis evaluation. 55. The AnzhenWWTP willbedesignedfor a capacityof 25,000 m3/dayusingthe SBRprocess. The SBRprocesswas selectedthroughcomparisonwithalternativeprocesses(the anaerobiclanoxicloxidic process, i.e. the A210 process andthe oxidationditchprocess). The Bankwill finance boththe WWTP andthe trunkandsewer network. 56. The current andprojectedwastewater flows (m3/day) that willbecollectedfor treatmentat the M e nWWTP are as follows: Parameters Inflowto WWTP(mg/l) EffluentfromWWTP (mdl) COD 300-600 60 BOD5 150-200 20 ss 200-300 15 NH3-N 25-30 20 TP 2 - 3 1 57. The wastewaterdischargefrom the AnzhenWWTP will meetCategoryB, Grade 1of the Pollutant DischargeStandardfor TownWastewaterTreatmentPlants(GB18918-2002), exceptfor CODandtotal phosphorus, whichwill meetthe morestringentCategoryA, Grade 1ofthe same standard. These standards are the same as those givenfor the HuishanWWTP. 58. About40 m3ldayof sludgewill begeneratedfromthe M e nWWTP. The sludgefromthe WWTP willbetestedfor hazardouscharacteristics accordingto applicableChineseregulatiodstandards, If tobehazardous,thesludgewillbedisposedatahazardouswastelandfilltobeidentifled.If found the sludge is found to benon-hazardous,itwill betransportedbyleak-proof10-tontrucks for 20lunto the Taohuashansanitary landfill. The transportationtime is selectedto be between5am-7amand 7pm-9pmto " j z e adverseimpactsonlocaltraffic. Characteristicsof this landfillwereprovidedaboveunderthe discussionfor the AnzhenWWTP. Prior to receiving the sludge, the landfillwill becertified as designedand operatedin compliancewith applicable government regulations. - 108-  59. Basedon modeling results, the noise emissions fromthe W e n WWTP are expectedto comply withthe nighttimestandardof 50dbA anddaytime standardof60 &A. No adverseimpacts ofnoise pollutiononthe receptorsare expected(the nearestreceptorsbeingXihetou, which is about 80 mfromthe WWTP, andTanggengxiang, which is about 100mfromthe WWTP). 60. Odor emissions fiomthe sedimentationand SBRtanks will beminimizedthroughproper adjustment o fthe air flow rate ofthe blower to bringthe wastewater to aerobic state, andthroughtimely sludgedewatering, handlingof sludgecakes indewateringrooms, use ofsealedtrucks for transporting the sludge to the disposal site, sprinklingtemporary sludge storageareas withbleach, andplantingtrees around the aeration tanks and WWTP. River CourseDredgingandRehabilitation: 61. This activity involves sediment dredging in65.7 kmofwaterways inthe central urbanarea o f Suzhouas flood protection andwater quality improvement measures. Besidesincreasing the water flow (about doubling) at Jiuqugang(inXujiang PanxiDistrict), this component improves the quality ofthe waterways inSuzhouinterms of reduction o fthe CODMnconcentrationsby 0.16-0.84 mgllor 2.6-12.3 percent (see Table 2). CODMn concentrationsina few waterways not dredgedare expectedto increase. Dredging complementsthe locally-financed activities that include widening of some ofthese canal sections anddiversion ofwater from the XitangRiver to SuzhouCity's waterways. The overall cityplanrequires a minimumriverlcanalwidthof 6 minancienturbanareas, 8 minother existing urbanandsuburbanareas, and 15minnewly builturbanareas. Withthe implementation ofthese additional measures, the reductions in CODMnconcentrationsinSuzhou's waterways are expectedto be as highas 2.9 mgA or upto 25.3 percent (Table 2). 62. The dredgedsectionso f Suzhou's waterways will have a sedimentthickness o f at least 0.6 meter. The volume o fthe dredgedsediments is estimatedto be 1.287 millionm3. Based on site characteristics (narrow canalswith limitedwork space) mechanical dredgingwitha grab dredger o f 0.3-0.5 m3 will be used. 63. Suzhou's waterways to be dredgedare seriously polluted, with nobenthos or plants. During dredging, the turbidityinwater will increaseby2 to 7 times thanthe operation period. However, this increasewill be limitedto some local areas for a short periodandthe adverseimpact will disappearwith the completion o f dredging. 64. Sedimentsfrom SuzhouCanalshave beentestedfor hazardousmaterials andfound to be within standards prescribedby applicable Chineseregulations - mostindicators were low or undetectable and, in - accordancewith applicable Chineseregulations, will be disposedat anunusedsite at Sanjiaozhui (located north of the Shanghai-Nanjing expresswayand east ofthe Shinziyang River). This site, whichis 3.8 km long and 150kmwide, 3 mdepth, and 1.5 melevation, is zoned as greenareainSuzhou's masterplan. Evenso, further testingfor hazardousmaterialsisto beundertakenofsedimentsinthe Xiaomiduqiao River sectionprior to dredgingto determine if other disposalarrangements,for example atpurpose builtcells atthe municipallandfiu,isrequired. *109 -  Table 2 -ImprovementsinSuzhouWaterways throughDredgingandImplementation IntegratedRehabilitationMeasures 65. The transportationmethodsconsideredfor dredgedsedimentsto the sludge application site included bargetransportation andlandtransportation. Based on evaluation o fimpacts, barge transportationwas selected. Barge transportation will be conductedinspecified routes (mostly concentratedinYuanhetangandDalonggang) insuch a manner notto adversely affect the navigation traffic. 66. Accordingly, sediments will be dewateredon site prior to loading inbargesfor transportation for a distanceof about 5- 19kmaccording to predeteminedroutes. 67. There are residential areas at distances rangingfrom 20-120 mfrom the dredging areas. These sensitive receptorswill be protectedfrom noise emissions throughsuchmitigatory measures as prohibition of construction work at nights, setting upnoise barriers, andarrangemento ftransportation routes away from sensitiveareas. Inaddition, cargo ships will not be allowedat any time andpleasureboatswill not be - 110-  allowed at nights inthe ShangtangandXujiang networks inSuzhou; ship noise will be limitedto 55 &A, silencerswill be installedon ships for noise suppression; siren duration and frequencieswill be " k e d ; anduse of sirenswill notbepermittedinresidentialareas. To " i z e PMemissionson land,vehicles will be covered andtheir speedwill be limitedto 40 kmlh,andmudon their wheels will be cleanedoff. PollutedWater Controlin Suzhou: 68. This component involves construction of a shiplock andtwo sluice gates onXujiang River, anda shiplock on the ShangtangRiver to prevent the upstreampoor qualitywater ofthe GrandCanal flowing into the urbanwaterways of Suzhou. Inaddition, these measuresreducethe risk of flooding inSuzhou. The sites o f these barriers are locatedat the intersection o f GrandCanal with XujiangRiver, andthe boundary o f the central urbandistrict of Suzhouandits new district. 69. XujiangRiverisdivided into twobranches(north andsouth) at itsintersection with GrandCanal. Two sitingaltematives (two separate gates, and a combined gate) were evaluatedusing the following criteria: (i)geological conditions o fthe site; (ii) o fpollutioncontrol from GrandCanal; (iii) effect impact onhistoric relics near the project sit; (iv) impact onnavigationsafety; (v) construction conditions; and(vi) costs (land acquisition, excavation, resettlement). Basedonthis evaluation, two separate gates, eachon a branchof the Xujiang River, were selected. 70. Two altemative sites were consideredfor the shiplock onthe ShangtangRiver. The evaluation criteria consistedof: (i) size of the lock system; (ii) pollution andflood control from GrandCanal; (iii) impact onhistoric relics near the project site; (iv) impact onnavigation safety; (v) complexity ofproject management; and(Vi) construction conditions. Basedonthis evaluation, the sitebetweenthe Laifeng Bridge andJiangfeng Bridge was selected. 71. Withthe closingofthe XujiangRiverwith sluice gates andthe ShangtangRiver with a shiplock, the water quality improvements -intenns o freductions o f CODMn concentrations-are estimatedto be 0.95 mgA at the GuangjiBridge over ShangtangRiver, 0.05 mgA at the Tairang Bridge over the Xujiang River, and 0.38 mg.4 and0.33 mg/l at the westemandsouthern lines o fthe Waicheng Riverunderthe influence of improvedwater quality of the ShangtangandXujiang Rivers. 72. The construction work at the Xujiang Riversites will generate about 51,000 m3 o f sediments and 10,000 m3 o fsoils, andthe ShangtangRiver site will generateabout 64,000 m3 o f sediments and 13,000 m3 of soils that require disposal. Ifthe sedimentsare found to benon-hazardous, then these sediments and excavatedsoils will be landdisposed. Fivealternative sites were considered for the disposal of sludge generated from gate construction inSuzhou. These alternatives includedthe site o f (i) the abandonedfish pondat Sanjiaozuiby Shiziyang River; (ii) abandonedbrewery site; (iii) Chemical Co. Ltd.(the an Anli industryis to berelocated); (iv) anabandonedpapermill(Huasheng PaperMill); (v) anabandonedfish pond andfarmlandat Xuelang; and(vi) a vacant landat the intersection o f XihuanRoadandShuangqiao Road. The evaluation factors includedthe current landuse andthe sensitivereceptors inthe area. The evaluation results indicate that sedimentsandsoils from the XujiangRiver sites could be piledat the vacant land(at the intersectionof XihuanRoadandShuangqiaoRoad) for sale, andthe sedimentsandsoils from the ShangtangRiver site couldbe filled into the abandonedfishpondat Sanjiaozui by Shiziyang River and usedfor plantation. 73. There are residential areas at distancesrangingfrom 10-70 mfrom the dredging areas. These sensitivereceptors will be protectedfrom noise emissions through such mitigatory measures as no constructionat night, use o fequipment withlow noise, use o fvehicles withnoise control, andsetting up of - 111-  construction barriers. Vehicles will be coveredandtheir speedwill be limitedto 40 kmlh,andmudon their wheels will be cleanedoff. 74. This component requirespermanentlandacquisition of 23.9 muandtemporary landoccupancy of 49.1 mu, and relocationo fresidentialandfactory housestotaling6,602 m2 andbuildingo f 1,953 m2. Vegetation along the riverbanks include willow, paulownia, andothertrees plantedbyman. Although some tress will be destroyedby construction, the impacts will be minor. Mer completion of construction, vegetation willbe restored. WuliLake Restoration: 75. The locally-financed sub-componentsfor Wuli Lake restorationinclude: (i) pollutedwater control andwater levelregulation; (ii) embankmentrehabilitation; and(iii) ecological restoration. These . subcomponents willcomplementthelocally-fimded activities thatincludedredgingof sedimentsinthe Lake, restoration of fish ponds, andwater diversion. 76. Before control of the Wuli Lake water entrances, wastewatersinthe surrounding areas entering the Lakefreely deterioratedits quality. Withthe implementation of the water levelregulation sub-component, the meanwater level inthe Wuli Lake will increase from 3.06 mto 3.30 myandthe wastewaterquantity entering the Lake is expectedto bereducedby 60 percent, withreductions inpollutant loadings inthe amounts of 445 tpy for CODCr, 51.4tpy for totalnitrogen, and4.9 tpy for total phosphorus. However, water quality insome of the waterways inthe surrounding areas ofWuli Lake will deteriorate. For example, with the construction of gates at Xiaoxuabngang, Ludianqiaobvang, andLixiRiver, the mean value o f CODMnis expectedto increaseby approximately 0.1-0.6 mgA, butis not expectedto change significantly inother waterivays further away fromthe Lake. 77. Withthe implementationof the integratedrehabilitation project, the reductions inpollutant concentrationso fWuli Lake will be 35.3 percent for CODMnto reach 6.6 mgA, 33.8 percent for total phosphorusto reach 0.11mgA, and 18.5 percent for totalnitrogento reach4.57 mg/l. As such, the Lake will reachClass IVfor CODMnandtotal phopphorus, andClassV for totalnitrogen. Rehabilitation ofthe Wuxi City sewernetwork will fiutfier improve onthis as overall wastewatercaptureincreases. 78. Polluted water control and water levelregulation. Under this sub-component, gates will be builtonthe rivers that connectWuli Lake withthe innerrivernetworko fthe urbanareao fWuxi. In addition, a PS is beingbuiltwith local fundingto artificially control the water level o fthe Wuli Lake, the directionof water flow inthe Lake area and the quality o fwater entering the Lake. 79. Embankment rehabilitation. Underthis sub-component, 19.4 kmo f shoreline o f the total of 29.3 kmshorelinearoundthe WuliLakewillberehabilitated as apublic greenbeltfor tourism andrecreation. It will helpreducesoil erosion andimprovethe Lakewater clarity. As no endangeredflora or fauna has been recently identifiedinthe lakeshoreconstruction area, the embankmentrehabilitation sub-componentwill not have a negativeimpact onthe ecological environment around the Lake. Inaddition, along with this activity, vegetationcoverageof the belt along the shore will increase, improving the ecological conditions over the current status. 80. Ecological restoration. Under this sub-component, plantation will be carried out ina small pilot area, followed bythe introduction o f benthosandfishes. Emergingaquatic plants such as cattail andreed will beplantedinzoneswithwater depth lessthanonemeter; andtapeglass, black algae, andwaterweed will be plantedinzones withwater depthgreater thanone meter. The pilot will complement researchunder - 112-  the national "863 Program." EA Suggestions 81. Two suggestionsare made at the conclusionof the EA Report: (i) implementation ofthe Wuli Lake ecological restoration sub-component as apilot activity (insteadof an activity for full-scale implementation); and(2) the implementation of industrial pollutionpreventionmeasures (inparticular, water recycle and reuse at industrial facilities) as a means to reducecosts associatedwithwastewater treatmentandsludge management. The project designresponds to boththese suggestionsby scalingthe ecological restoration component inWuli Lake to apilot activity andby incorporating industries that will discharge into project-financed WWTPs inJiangsuProvince'sCleanedProduction Program. PublicConsultationandInformationDisclosure 82. A social survey of the public inthe project areawas conductedto findout about their demandsand concerns. The following methodologieswere used: 0 First stagepublic consultations. Priorandduringpreparationofthe EAReport(period between October 2002 andAugust 2003), the EA teamheldmeetingswiththe potentially affectedpeople to discuss the EA TOR, including information about the project components and activities involved, potential environmental impacts, mitigatorymeasures, andthe implementation schedule. Informal discussionsandon-site visits were held, andquestionnaireswere distributedto understandthe public attitude andneeds onthe project's environmental aspects. The interviewees were from different sexes, age groups, culture levels, andfamily structures. The majority were supportive o f project activities. Concernswere expressed aboutunpleasantodors from WWTps, greater noise anddust levels andas well as traffic. Some suggestedshorter construction periods to reduce adverseimpacts. Regardingthe shiplock at the Shangbng River, the HangshangTemple was emphasizedand the shiplock was re-sited. Agricultural use of the WWTP sludge was viewed not feasibleby affectedpeople for the Wuzhong and Dongting WWTPs. 83. Public consultationswere heldat the following locations: Project comoonentlsub-comaonent Locationof consultations Wuzhong WWTP YinxiVillage, Hongzhuang Loujiang WWTP, FwinWWTp HengtangTown, Xing110 Village, Youlian Village, MeiwanVillage HuishanWWTP HuishanDistrict Dongting WWTP WangsongbangVillage, Zhuangqiao Village W e nWWTP NianyuVillage, NongxinVillage RiverCourseDredging(Suzhou) PingjiangDistrict,Jinchang District, Canglang District Polluted Water Control (Gates inSuzhou) JinchangDistrict Wuli LakeRestoration DafuTown, DongjiangTown, Jincheng and Xuelang Towns a Secondstage public consultations. After completionofthe draft EAReport, the EAteam disseminatedthe conclusions of the EA Report andthe mitigatow measureswere disclosed to potentially-affected people. This providedan opportunity to address the concerns that hadbeenraised - 113-  bythe affectedpeopleregardingtheproject. Consultative meetingswere heldregarding the Anzhen WWTP (inNianyuVillage), DongtingWWTP (inWangsongbang), Wuzhong WWTP (YinxiVillage), and Wuli Lakerestoration (inDafuTown, Dongjiang Town, Jingcheng andXuelangTowns). Over 80 percent o f the consultedpeople, expressedfavorable views on the project. They viewedthe importance o f the improvement to the localenvironment (60 percentofthe public are not satisfied with the quality ofthe current environment). The concerns raisedwere aboutthe stinkinggases (37 percent), traffic (12 percent), dust (10 percent), potentialharmto culturalrelics (9 percent), andconstruction safety (2 percent). Goodmitigatory measures, especiallynoise controlduringthe construction period, are expected. Inaddition, on-the-spot interviews were heldandquestionnaireswere usedto receive feedback. InAugust 2003, the Project was publicizedbythe EA team inHohaiUniversity'swebsite ( m://www.hhu.edu.c@, and a 24-hour telephone hotlinewas opened. 84. The draft EA documentation was sent to the Bank's InfoShop inWashington and in BeijinginOctober 2003. The EA andEMP were finalized, with all clarifications andanalysis, and forwarded to the Bank'sInfoShop inMarch2004. B. SummaryofRAP ProjectDescription 85. The proposedproject will cover two municipalities, i.e. Wuxi andSuzhou. In Wuxi, the physical works o fthe project consist of: (i) WWTP with capacity o f 50,000 cubic meters/day and 58 km Huish of sewers; (ii) WWTP with capacity of 30,000 cubic meterdday and40 kmo f sewers; (iii) Dongting Anzhen WWTP with capacity of 25,000 cubic meterdday and 146kmo f sewers inXishan District; and (iv) 10sluice gates, 1shiplock, 19.4 kmofembankmentandpilot ecological restorationindesignatedareas for the locally-financed Wuli Lake Rehabilitation. InSuzhou, the physicalworks ofthe project consist o f (i) 11ofFuxin(additional 100,000cubicmetershy)andLoujiangWWTP(additional80,000cubic Phase metershay); (ii) Sluice gates on Xujiang and ShangtangRivers for water qualityprotectioninSuzhou canals andflood control; (iii) kmo f canal dredging; and (iv) Wuzhong WWTPwith a capacity o f 65.7 25,000cubic metershy and43 kmof sewers. ResettlementPlanning 86. JiangsuProvincial PMO together with PMOSo f Wuxi and Suzhou Municipalities are responsible for the resettlementplanningof the proposedproject, andhave organized separate teams to carry out the assignmentinWuxiandSuzhourespectively. Resettlementplanningincludes detailed census of affected people, inventory of impacts and socioeconomic surveys. These resettlementplanningactivities provide a detailed record o fproject adverse impacts, including land, house, business, institutions, the numbero f people affected. Socioeconomic surveys were conducted throughquestionnaires, interviews andfocus group discussionsas part ofthe resettlementplanningprocess. Two resettlement actionplans(RAPS)and one resettlementpolicy framework were developed, andtwo retroactive review reports were prepared. ProjectImpacts 87. Project componentswill require landacquisition, temporary landuse, relocationofhouses and business. The details o f impacts are as follows: -114-  Summary ofProjectImpacts WWTP Sluice gates 15.8 mu 8.44 35.8mu - I - 8 I 117 3367 m2 house 6306 m2 factory * households andpersonsaffected by temporary landuse. LegalFramework 88. The RAP was preparedinline withrelevant Chinese laws, regulations andWorld BankOP 4.12 on Involuntary Resettlement. The followingbasic principles were adoptedfor resetttementplanning: 0 Compensationwill be paidat replacement cost without depreciation 0 Landcompensationwill bepaidbefore acquisition 0 House compensationwill be paidbefore construction o fthe new house 0 Compensationrates must be finalized through consultation e Lack o flegaltitle will not bar anaffectedperson fromhis or her resettlement entitlements 0 The objective ofresettlementis to enable the affectedpersonsimprove or at leastrestore their  livingstandard RehabilitationStrategyandMeasures 89. The proposedproject will require acquisition offarmland. For farmers who will lose farmland, the livelihoodrehabilitationstrategy follows the traditional Chinese approach, which is landandagriculture based, anddepends onvillage collectives for livelihoodrestoration. All affected farmers will be allocated farmlandwithinthe village andthe landcompensationfundwill bepaidto the village andusedcollectively inthevillages for agriculture andsideline development. 90. About 774 peoplein.176 householdswill lose their residences. The affected householdsconsistof bothurban andrural residents. Differentrelocation methods are applied for rural- andurban-affected householdsbasedonextensiveconsultationswith the affectedpopulation. For relocating urbanresidents, the project has plannedto offer three options: (i)cashcompensation; (ii) replacement housing; or (iii) provisionof a cheaphousefor rent. Urbanresidentscouldchooseto findandbuytheir ownreplacement housingwith the cash compensation. Forthose who do not want to fmdandbuytheir ownreplacement housing, the project will provide either ownership of areplacementhousingunit ingovemment-built apartmentsor a cheaphousefor rent. For relocating ruralresidents, the project will provide compensation at replacement cost withno depreciation. 91. About 16enterpriseswill be affected. Compensationfor businessloss hasbeenprovidedfor inthe RAPS.A few governmentagencieswillrequire relocationandnew sites have beenplannedfor them. The project will also impact some public infrastructure. Compensationbasedonreplacement value will be paid to the relevant government agencies or localgovernmentsto restorethe affectedinfrastructureandservices. ManagementOrganization 92. A multi-level organization hasbeenestablishedfor the implementationo fthe RAPs. An independentmonitorhas beenselectedfor resettlementimplementation. Details o f staffingandtheir responsibilities are providedinthe RAPS. PublicConsultationAndParticipation 93. Public consultation andparticipationhasplayeda key role informulating the RAPs. The affected residents, businesspeople anddistrict governmentsparticipatedinthe census, inventory andformulationof the livelihoodrehabilitation strategy, measures andrelocation sites. Their feedback has been incorporated intheRAPs. TheRAPcontainsalistofmajorconsultationsessions. 94. Public consultation andparticipationwill continue inthe RAP implementation. Project informationwill beprovidedto the affectedpeople through TV, radio broadcast, newspapers, bulletins and posters. The RAP willbe summarized into a resettlementinformation booklet (RIB) anddistributed to every affectedhousehold. GrievanceRedressMechanism 95. A mechanismhasbeendesignedfor grievanceredressundereachofthe project components. All grievancescanbe filed inboth written andverbal forms. The redresschannel lies withinthe project management andgovernment systems. Recording requirementsandtimeframe have been establishedfor grievanceresolution. This mechanism will be disclosed as part of the RIB. -116 -  ResettlementImplementationMonitoring 96. Internal andexternalmonitoring havebeendesignedas part ofproject resettlementmanagement. The project resettlement offices will cany out internalmonitoring o fresettlementimplementation. The monitoringprocedures, content, staffing, responsibility, timeframe andreporting have beendetailed inthe RAPS.An external monitorhasbeenselectedfor independentmonitoring ofRAPimplementation. Independentmonitoring will cover physical progressof RAP implementation, compensationpayment, allocation o fresidential sites, farmland allocation, andrestorationof infrastructure. The independent monitor will also review the public consultationprocess, operation o f the resettlementproject offices, grievance redressmechanismsandrestorationof livelihood o f affected farmers. Independentmonitoring willbeconductedonce ayearduringthe projectimplementation period. CompensationAnd ResettlementBudget 97. The RAPs contain compensationratesfor various impacts, Landcompensationrates include land compensation andresettlementsubsidy. Compensationrates for structures are calculated for replacement costs. The affectedinfrastructure will be compensatedfor reconstruction and the compensationbudget will befinalizedthroughnegotiation withthe owning govemmentagencies. 98. The RAPscontain a detailedresettlementbudgetthat covers all basic resettlement costs, managementcosts, contingencies, survey, designandmonitoringcosts. The basic resettlementcost includes compensation for land, house, other structures, standing crops andtrees, business profitloss, reconstruction of affected infrastructure andrelocation subsidies. Management cost is includedinthe budget as well. The total resettlementbudgetis estimatedat RME3202 million, equivalent to 24.7 million US$ at an exchangerate o f RMB 8.27 =US$1. Resettlementcosts will be financed from counterpart funds. Disbursement proceduresandmonitoringmechanismsare designedanddocumentedinthe RAP. Other EnvironmentalManagementAspects A. Cleaner Productionfor Industry 99. Implementation of a CP program for pollutionreductionbegan inJiangsuProvince as apilot program in 1997after the JiangsuProvincialGovernment issued a circular entitled4 * O p i n ion ~ ~ ImplementingCP Audits." InWuxiandSuzhouMunicipalities, the CPprogramimplementation hasso far progressedthrough two stages: a pilot (shi dim) stage from 1997to 2001andimplementation stage from 2002 to 2003. Since the enactment o fthe national CP law in2002, CP has been acceleratedinWuxi and Suzhou. 100. Mostrecently, inSeptember2003, the JiangsuProvincialGovernment issueda circular entitled "Circular Concerning the Issuanceo f the Planfor Implementationo fCleaner Production inJiangsu Province duringthe FinalThree Years o fthe TenthFive-Year Plan. This circular has the followingthree mainrequirements: 0 Bythe endof 2004, all enterprisesinthe following categoriesmustcomplete CP audits: (a) All mainpolluting enterprisesinthe dyeing, metallurgy, chemical, power production, building materials, light industryetc., sectorswithinthe Lake Tai Basinandinall areas of the Province; (b) all enterprisesinthe province that do not comply with discharge standards; and(c) some primq -117-  andtertiary enterprises. 0 Bythe endof 2005, allenterprisesinthe following categoriesmustcomplete CP audits: (a) all polluting enterprises inthe Lake Tai Basinandall other mainpollutingenterprises inthe province; (b) all enterprisesintheprovince that do not complywithdischargestandarb, (c) all enterprises that use or dischargetoxic materials; andd) some primary andtertiary enterprises. 0 All new, expandingor changingenterprisesshall conductCP auditsandcommenceimplementation duringconstruction acceptance. 101. The followingtable summarizes the number o f enterprisesthat have participated inSuzhouand Wuxi's CP program since its inception in 1997: Year 1997 1998 1999 2000 2001 2002 2003 WUXi 4 10 8 6 10 35 60 Suzhou 2 2 3 5 5 42 65 102. As aresult of the issuanceofthe new circular inSeptember2003, the Wuxi andSuzhouMunicipal authorities reportthat the implementation o fthe CP p r o g r e is expectedto acceleratewithinthe nextfew years. For example, SuzhouEconomic andTrade Commission (ETC) reported that it is expectedthat more than90 enterpriseswill participate in2004, anincreaseof40 percentover 2003. According to Wuxi's plan, over 300 enterprisesandinstitutions insectorsof chemical, metallurgical, dyeing andtextile, mechanical, pharmaceutical, etc., will have completed CP activities by2005. 103. The investmentsmade inthe CP programare significant, as are the environmental achievements. For example, inSuzhouMunicipality, duringthe pilot years ofthe program (1997-2001), more than 230 million RMBwas investedbyenterprisesinCP measures. The total estimatedbenefits of the program were areduction inwastewater dischargeof 9.5 milliontons per annum (tla), a reduction inwater use o f 7.24 milliontla andaneconomic benefito fRMB 136million. 104. Since2000, the municipal economic andtrade commissionshavebecome the leadauthorities for implementation o fthe CP program, withEPBs providing technical support. 105. Withrespectto the largestenterprisesdischargingto the municipalWWTPs to be constructed underthe project, the SuzhouandWuxiauthorities reportedthat many ofthese enterpriseshave already participated inthe CP program. For example, all five of the largest industrialwastewater dischargers to the FuxinWWTP (see annex to the project EA), have participated inthe Suzhou CP program between 2001 and2003. Similarly, manyo fthe largest enterprisesthat will dischargeto the HuishanandDongting WWTPs inWwci havealreadyparticipated inthe program. Forexample, the single largest wastewater discharger, the Wuxi XianjiangChemicalIndustryCo. Ltd. (discharging to the DongtingWWTP) participated inthe CP program in2003. 106. The Wuxi and SuzhouEPBs implemented a system o fpublic disclosure to complement their CP programs. These EPBspublished the environmental performance o fall the enterprisesundertheir supervision incategoriesof "black, red, yellow, blue andgreen" twice a year through the media including newspaperandtelevision. - 118-  B. AmbientEnvironmentalMonitoring 107. The JiangsuProvincial Governmenthas made significant investmentsinenvironmental monitoring inrecentyears. A particular focusofthe authoritiesis environmental monitoringintheLakeTaiBasin. 108. Water qualitymonitoringinJiangsuProvince is the responsibility o fthe provincialandlower level EPBs. There are 90 rivermonitoring stationsand20 lake monitoring stations inthe Lake Tai Basin mannedby municipalEPBs butunder the direction ofthe ProvincialEPB. The river monitoring stations are located on key tributaries o fLake Tai, andonreaches o f rivers that cross administrative boundaries (e.g. from municipality to municipality). Eachof these stationsmonitors 12 mainwater pollution parametersonce per month, as required bynational laws, andthe results are reported to the Provincial EPB. 109. The JiangsuProvincialEPB provides environmentaI monitoring data to key organizations with responsibility for Lake Tai, includingthe TBA. 110. Institutionalstrengthening: The JiangsuProvincial EPBhas instigated a significant programof institutional strengtheningfor environmental monitoring during 2003. This includedthe establishment, with ProvincialGovernment approval, o fthe "Jiangsu ProvincialEnvironmental MonitoringCoordination Group" underthe leadership o fthe Provincial EPB. The members o fthis CoordinationGroup comprisethe Provincial EPB, ProvincialMonitoring Station, municipal monitoring stations, district andcounty monitoring stations, andkey enterprises. The objectives o f this group are to provide coordination and training for all certifiedenvironmental monitoring units(including private andpublic). 111. JiangsuProvincialGovernment hasimplementeda program whereby large, well-equipped enterprisescan apply for certification to conduct environmental monitoring. M e r certification, these enterprisescanprovide fee-for-service monitoringservices for other enterprises. The certified enterprises participate inthe Coordination Group's activities. 112. Hardware andsoftware improvements: Duringthe recent few years, the JiangsuProvincial Governmenthas investedRMB 173 million inits environmental monitoringnetwork. This has included the establishment o fnine automatic water quality monitoring stationsinkey locations withinthe Lake Tai Basin(three already commissioned, six under final installation). Inaddition, laboratories have been upgraded, and a new computer system for the collectiono f data hasbeenbrought online. The Jiangsu ProvincialEPB reports that the investmentsmade so far are adequate to meet its needs at this time. 113. Inadditionto these localinvestments, aTA assistanceof$200,000 was providedbyUSTDA (US Trade Development Agency) in2003 (primarilyfor international consultancy services) duringthe initial provisionofthe automatic monitoring system. automatic monitoring stations, increaseshthe numberof parametersthat canbe monitoredat all stations, 114. Longer-term plansfor environmental monitoring improvement includethe establishmento f 21 more andthe introduction of"ecological monitoring" usingremote sensing. 115. Inadditiontomonitoringbythe EPBsinthe province, water resourcemonitoringisconductedby the water resourcesbureaus. The water resourcebureaus maintain a system o fmonitoring stations that primarilycarry out monitoring offlow andflooding, inadditionto water extractions. This systemis separate fromthe EPB water qality monitoring system. -119-  C. EnvironmentalPlanning 116. Recognition o fthe needfor urgentactionto protect the healthandeconomic well-being of communities relying on the Lake Tai Basinledthe State Council to establishthe Lake Tai BasinWater ResourceProtection Leading Group in 1996andamulti-stage program with the goal o fresolving the region's water pollutionproblemsby2010. However, to date, implementationo fthe Government's program inthe provinces, municipalities anddistricts within the Basinis behindschedule andthe program's interim pollutioncontrol targets have not beenmet. 117. The first stage o fthe Government's pollution control program (1996 -2000) for the Lake Tai Basin focused on reducing bothindustrialanddomestic wastewater discharges. IndustrialPollution Control ActionPlans were developedandimplemented by local governments. Progresswas madetowards bringingkeypolluting enterprises, particularly those withincore city areas, into compliance with environmental regulations. However, at the endofthe program's implementation period, the heavily industrializingdistricts andcounties surroundingthe core cities withinthe Basinwere still not in compliance withthe targets. Inaddition, progresswas slow on the collectionandtreatment o fdomestic sewage. 118. The secondstage of the Government's strategywas articulated inthe Tenth Five-Year Action Plan for Lake Tai Pollution Control (2001-2005). This strategyplaces highprioriw on: (a) improving wastewatermanagement, particularly collection andtreatment of domestic sewage; (b) improving water qualitybyreducingTP dischargesinto heavilypollutedwater bodiessuchas MeiliangandWuliLakes in WwriMunicipality andbytransferring higher quality water from the Yangtze Riverto the lake andcanal system to increasecirculation; and(c) strengtheninglocal capacity for water environment monitoring and management. 119. Inrecentyears, theJiangsuProvincialEPBhas continuedto preparesmallerplans for individual priority areas withinthe Lake Tai Basin. Intotalnine plans are to be developed, some o fwhich are already issued, or underpreparation. For example, the "Pollution Control Plan inthe West BankArea o fWangYu River" was issuedin2002 by the JiangsuProvincialGovernment. This plan lists 101industrialenterprises and40 large-scaleagricultural farms locatedonthe WangYuRiver andfour maintributaries (Xibei Canal, Zhangjiagang River, Xin-xinTang, and, BodugangRiver) to be subjectedto point source pollution control measures. 120. Inthe short-term (before the endof2OO5), theJiangsuEPBwill fulfill thenational planning requirementsbyreportingonprogress duringthe lothFive-Year Plananddevelop the 1lthFive-Year Plan for Lake Tai. This planwill ultimately form part o fJiangsuProvince's 1IthFive-Year Plan. 121, The Jiangsu Provincial Water ResourcesBureau notedthat the NationalWater ResourcesMinistry hasrequired allprovincial water resourcesbureaus to develop "water resource comprehensive plans," which include water quality planning. This is not the traditional planningresponsibility for the water resourcesadministration, andfor this reason, the JiangsuProvincialWater ResourcesBureau has met considerableinstitutional difficulties infulfillingthis requiredtask. 122. According to national requirements, a water resource comprehensiveplanshould include three maincomponents-water resourceprotection, ground water utilization and, surface water utilization. 123. To complete this task inJiangsuProvince, a leading group has beenestablished with the Jiangsu ProvincialPlanning Commission at its head. The mainimplementingagency (andthe heado fthe plan's - 120-  PMO) is the Jiangsu Water Resources Bureau. A total ofRMB30 millionwill be required to complete this plan, butat this stage, funds allocatedby the ProvincialPlanningCommissionandFinance Bureau are so far still insufficient. 124. Environmentalplanninginthe Lake Tai Basin suffers from institutional fragmentation. The water resourcesadministration is taking over muchof the environmental planningwork (including water quality planning), butthis is a new task for this administration, andfor this reason, it is not proceeding smoothly. InJiangsuProvince, there islimitedcooperationbetweenthe EPBandwater resourcesbureausatalllevels. The traditional rivalry betweenthe agencies is hamperingthe developmento fcohesive, well-integrated plans. Solvingthis problem, which is vital for JiangsuProvince to achieveits goals of sustainable development, will require strong andcommitted leadershipbythe JiangsuProvincialGovernment, in particularthe Jiangsu PlanningCommission andFinanceBureau. - 121-  - 122-