China - Guangdong Pearl River Delta Urban Environment Project

Documentof The WorldBank FOR OFFICIAL USEONLY ReportNo: 27165-CHA PROJECTAPPRAISALDOCUMENT ONA PROPOSEDLOAN INTHEAMOUNT OFUS$128MILLION ANDA PROPOSEDGRANT FROMTHE GLOBAL ENVIRONMENTFACILITY TRUST FUND INTHEAMOUNTOFUS$lOMILLION TO THE PEOPLE'SREPUBLIC OF CHINA FORA GUANGDONGPEARL RIVERDELTA URBANENVIRONMENTPROJECT May 18,2004 UrbanDevelopmentSector Unit ChinaCountryUnit EastAsia andPacific Region This documenthas arestricteddistributionandmaybeusedby recipients only inthe performanceof their official duties. Its contents may not otherwisebe disclosedwithout World Bank authorization.  CURRENCY EQUIVALENTS (Exchange RateEffective January 1, 2004) CurrencyUnit = Yuan(Y) Y 1.00 = US$0.13 US$l.OO = Y 8.0 FISCAL YEAR January 1 -- December 31 ABBREVIATIONS AND ACRONYMS BOT Build,OperateTransfer ICB Intemational Competitive Bidding EA Environmental Assessment IPCAP Industrial PollutionControl Action Plan EMP Environmental ManagementPlan IST InstitutionalStrengthening& Training FMS Financial Management System MIS ManagementInformationSystems GEF Global Environment Facility MOF MinistryofFinance GEMC GuangdongEnvironmentalMonitoring NCB National Competitive Bidding Center GDEPB GuangdongEnvironmental Protection PRD PearlRiver Delta Bureau GDFB GuangdongFinancial Bureau PSP Private Sector Participation GDPMO GuangdongProject ManagementOffice RAP Resettlement Action Plan GM GuangzhouMunicipality SAR SpecialAdministrative Region GP GuangdongProvince SBD StandardBidding Document GPG GuangdongProvincialGovernment NDRC NationalDevelopment and Reform Commission GSTC GuangzhouSewage Treatment Company SEPA State Environmental Protection Agency GTDC GuangzhouTunnel DevelopmentCompany SOE Statement of Expenditure GHWMC'GuangzhouHazardousWaste Management WWTP WastewaterTreatmentPlant Center GZPMO GuangzhouProject ManagementOffice Vice President: Jemal-ud-dinKassum, EAPVP Country ManagedDirector: Yukon Huang, EACCF Sector ManagedDirector: KeshavVarma, EASUR Task Team Leader/Task Manager: Thomas Zearley, EASUR  FORO F F I W USEONLY CHINA GUANGDONGPEARL RIVERDELTAURBANENVIRONMENTPROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 3 2. Global objective 3 3. Keyperformance indicators 3 B. Strategic Context 1. Sector-related CountryAssistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 4 3. Sector issues to be addressedby the project and strategic choices 7 C. Project Description Summary 1. Project components 7 2. Key policy and institutional reforms supported by the project 8 3. Benefits and target population 9 4. Institutional and implementationarrangements 9 D.Project Rationale 1. Project alternatives considered andreasonsfor rejection 11 2. Major related projects financed by the Bank andlor other development agencies 12 3. Lessons learned and reflected inthe project design 13 4. Indications of borrower andrecipient commitment andownership 13 5. Value addedof Bank and Global support inthis project 14 E. SummaryProject Analysis 1. Economic 14 2. Financial 15 3. Technical 16 4. Institutional 17 5. Environmental 18 6. Social 20 7. SafeguardPolicies 21 F. Sustainability and Risks This document hasa restricteddistributionand may be usedby recipients only in the performanceof their official duties. I t s contents may not be otherwise disclosed lwithoutWorld Bank authorization. I  1. Sustainability 21 2. Critical risks 22 3. Possible controversial aspects 23 G. Main Conditions 1. Effectiveness Condition 23 2. Other 23 H. Readinessfor Implementation 25 I.CompliancewithBankPolicies 26 Annexes Annex 1: Project Design Summary 27 Annex 2: DetailedProject Description 33 Annex 3: EstimatedProject Costs 36 Annex 4: Cost-Effectiveness Analysis Summary 42 Annex 5: Financial Summary 53 Annex 6: (A) Procurement Arrangements 57 (B) Financial Management andDisbursementArrangements 70 Annex 7: Project Processing Schedule 72 Annex 8: Documents inthe Project File 73 Annex 9: Statement o f Loans and Credits 75 Annex 10: Country at a Glance 79 Annex 11: GEF - IncrementalCost Analysis 81 Annex 12: STAP Review 88 Annex 13: Project ImplementationSchedule 92 Annex 14: Environmental Assessment and MitigationMeasures Summary 93 Annex 15: Resettlement 103 Annex 16: Project Financial Management System 107 MAP@) IBRDNo 32949  CHINA GuangdongPearlRiver Delta UrbanEnvironmentProject Project Appraisal Document EastAsia and Pacific Region EASUR Date: May 18,2004 Team Leader: Thomas L.Zearley Sector ManagerDirector: Keshav Varma Sector@): Sewerage (70%), Solidwaste management Country Manager/Director: Yukon Huang (20%), Sub-nationalgovernment administration(10%) Project ID: PO75728 Theme(s): Water resource management (P), LendingInstrument: Specific InvestmentLoan (SIL) Environmentalpolicies andinstitutions (P), Pollution management and environmentalhealth(P), Infrastructure -Global services for private sector development (S) Supplemental ID: PO84003 P Team Leader: Thomas L.Zearley Sector Managerhlirector: KeshavVarma Sector@): Sewerage (70%), Solid waste management LendingInstrument: Specific InvestmentLoan (SIL) (20%), Sub-nationalgovernment administration(10%) FocalArea: I- International waters Theme@): Pollutionmanagementand environmentalhealth Supplement Fully Blended? Yes (P) , Water resource management(P), Infrastructure services for private sector development (S) For LoanslCreditslOthers: Amount (US$m): 128.00 + Global EnvironmentFacility (GEF) Grant: 10.00 Loan Currency: UnitedStates Dollar Borrower Rationale for Choice of Loan Terms Available on File: Yes ProposedTerms (IBRD): Variable-Spread Loan (VSL) Grace period (years): 5 Years to maturity: 20 Commitmentfee: 0.75% Front end fee (FEF) on Bank loan: 1.OO% GLOBAL ENVIRONMENT FACILITY 7.52 2.48 10.00 Total: 326.12 - - 116.26 442.38 I BorrowerlRecipient: PEOPLE'SREPUBLIC OF CHINA Responsibleagency: GUANGDONG PROVINCE, through the Guangdong Provincial FinanceBureau'sWorld Bank ProjectManagement Office Address: 26 CangBian Road, GuLgzhou, China Contact Person: Mr.YuchangZeng, ExecutiveDirector General Tel: (86 20) 8333 6405 Fax: (86 20) 833 30007 Email:  Expected effectiveness date: 12/01/2004 Expected closing date: 1213112009 - 2 -  A. Project Development Objective 1. Project development objective: (see Annex 1) 1.The development objective ofthe project is to assist inaddressingthe environmental problems ofthe Pearl River Delta inGuangdong Province and the South China Sea, through the improvementand rationalizationo f environmental service delivery basedon a regionalplanningapproach. 2. Global objective: (see Annex 1) The project's global environmental objective is to improve the environmental condition ofthe South China Sea's large marine ecosystem (LME), by addressingthe major threat o f land-based pollution. The Global Environment Facility (GEF) has agreedto help the littoral states manage and sustainthe South China Sea's LMEto achieve global environmental benefits. With the cooperation o f the GEF/UNDP/IMO Partnerships inEnvironmental Management for the Seas o f East Asia andthe GEFAJNEP Project on ReversingEnvironmental Degradation Trends inthe South China Sea andGulfo fThailand, GEF-supported analyses have identified land-basedpollutionas one o fthe most serious trans-boundary threats to the South China Sea, and China's Pearl RiverDeltaas one of its land-based pollution "hot-spots" and the largest source o f land-based pollutionemanating from China. Byreducing land-based pollution from the Pearl River Delta, the project will helpreverse the degradation o f the South China Sea, and generate trans-boundary environmental benefits for the millions o fpeople whose livelihoodandhealth dependon it. 3. Key performance indicators: (see Annex 1) Keyperformance indicators relating to the development objective are: (a) Increasedpercentage of domestic wastewater collection and treatment (b) Increasedpretreatment o f industrial wastewater before discharge, andrelocation o f highlypolluting industries (c) Increased collection and treatment o f hazardouswastes (d) Improvedwater quality monitoring information, anddata sharingfor environmental management (e) Increasedcollaborationbetween Guangdong andHongKong Special Administrative Region (SAR) for environmental management o f the PRD and the South China Sea region. B. Strategic Context 1.Sector-related Country Assistance Strategy (CAS) goal supported bythe project: (see Annex 1) Document number: R2002-0218 (IFCR2002-0224) Date of latest CAS discussion: 1/22/03 CAS Memorandum o f January 22,2003 andCountry ProgramMatrix (FY03-05) The project is consistent with the themes andspecific goals ofthe CAS. Itwill facilitate the urban transition that is underway inChina, by helpingto enhancethe productivity o f cities, create employment opportunities, and improve environmental infrastructure andurbanlivingconditions. Project investments will support the environmentally sustainable development process, by improvingthe managementof water resourcesandhazardous waste. la. Global Operational strategymrogram objective addressed by the project: The GEF initiative under this project will be one o f the first major elements o f a plannedlarge-scale, - 3 -  long-term program of GEF co-financed assistance to the littoralstates of the Seas o f East Asia. It will help them address the worsening land-basedpollution which is threatening these seas. The strategic frameworks for this program are the GEF/UNDP/IMO-catalyzed "Sustainable Development Strategy for the Seas of East Asia," endorsed on December 12,2003 by a Ministerial Forumon the SustainableDevelopment of the Seas o f East Asia inPutrajaya, Malaysia, and the emerging GEF/LTNEP Strategic Action Plan for ReversingEnvironmental Degradation Trends inthe South China Sea andGulfof Thailand. The project is consistent with GEF's Operational Programinthat it will help Chinareduce land-based pollution o f the South China Sea and the Seas of East Asia. The "Sustainable Development Strategy for the Seas o f East Asia" has identifiedland-basedpollutionas one o fthe region's most urgenttrans-boundary marine environmentalactionpriorities. The Strategy regards the Pearl River as China's largest source o f land-based pollution o f the South China Sea and Guangdong Province as the most concentrated source of that pollution. Inaddition, the project is consistentwith GEF's Operational Program 10. The projectprovides an opportunity for creative solutions to reduce the contamination o f an international water body. The goals of the project are innovative inthemselves -to identifyjoint municipal environmental investments and private-public and private-private investments. So is the proposeduse o f GEF resources as an incentive for municipalities to undertakejoint investments to demonstrate the cost-effectiveness o f this approach. The project is also consistent with GEF's Strategic Priorities 1and 3 for the InternationalWaters Focal Area inFY2004-06. With respect to Priority 1, the project will support China's efforts to makemore effective use o fresourcesfor implementingpolicy and to promote legal and institutional reforms China had previously agreedto with assistance from GEF and/or its equivalent. As called for underthis strategic priority, the project (a) is fully mainstreamed into the World Bank's country assistanceandlending program for China, (b) promotes engagemento f the private sector, and (c) is consistent with the GEF principle o f incremental cost financing. Furthermore, by 2004-06, GEF plans to double the number o f trans-boundary water bodies that it has had a positive impact on; this project will contribute to the achievement o f that goal. With respect to Priority 3, GEF assistancefocuses on ways to demonstrate, test and replicate innovations to (a) reduce barriers to policy reform, (b) achieve more efficient use o f public resources by promoting inter-municipal collaborationonlarge-scale waste management investments, (c) increaseprivate sector investmentin, and operation o f waste management facilities, and(d) promote internationalcollaborationon reducingland-based pollution o f a shared water body. The project will pilot test and demonstrate two particularly innovative GEF financial incentive measures, viz: (i) the development of incentives for inter-municipal sharedinfrastructure and for private investment and/or management contracting and public/private partnerships inthe reduction o f land-based pollution; and (ii)the potential to use "revolving funds," such as reimbursable no-interest loans and guarantees, to accelerateprivate sector participation. This project represents one o f the three to four pilot programs that the GEF has committed to support inFY2004-06. 2. Main sector issues andGovernment strategy: Background. The Pearl River Delta (PRD) regionhas witnessed phenomenal economic growth, withthe GDP rising by an average 14.7 percent annually over the period 1990-2000. The Deltaregion has become a major outlet for manufactured goods to the rest o f the world. In2002, Guangzhou made the highest contribution to the GDP o f the Province, with Yuan 644 billiordyear (US$80.5 billion). The population o f Guangdong Province was 86.4 million (2000 Census), o f which 39.7 million was inthe PRD. Guangzhou City had a migrant populationo f over 4 million in2000 (about 47 percent o f total population). - 4 -  The PRD's rapideconomic growth has come at a heavy environmental cost. Water quality inmany stretches o f the Pearl River, especially around Guangzhou, Foshanand Dongguan, is worse than Class V standard, which makes the river systemunsuitable for irrigation, aquaculture, and potentialrecreational uses. It also contributes to serious pollution o f the South China Sea. Relatedsector issues are discussedin the following paragraphs. RegionalPlanning. Planningfor environmental infrastructure inthe PRD, andGuangzhou is basedon narrow administrative boundaries rather than drainage catchmentsor rational planning. The recently announced PRD Clean-up Campaign (PRDCC) calls for the construction o f 162 wastewater treatment plants, estimated to cost over Yuan 40 billion (US$5 billion). The result would be a proliferation o f uneconomic small capacity plantsthat will require highcapital andrecurrent costs. Current planning does not lay adequateemphasis on regional planning considerations, economies of scale and least-cost strategies. Opportunities for regional environmental planningandmanagementfor the PRD and the South China Sea, involving a range o f stakeholdersinGuangdong, HongKong andMacao, have not beenadequately explored. Wastewater ManagementandRiver Water Quality. Many sections o fthe Pearl River, especially in the vicinity of Guangzhou, Foshan, DongguanandShenzhen, have pollutionlevels that result inthe water quality being lower than Class V. Mainpollutionsources enteringthe river system are from untreated domestic and industrial wastewater and non-point sources. An acceleratedinvestment program to collect and treat domestic wastewater has begun. In2000, total wastewater generation (domestic andindustrial) was estimated to be about 11.5 million m3lday. By 2010, it is projected to rise to about 12.3 million m3/day, o f which 2.1 million m3lday is industrial wastewater. Interms o f total wastewater generation, Guangzhou contributes about 25% o fthe total load; other PRD cities o f Dongguan, Shenzhenand Foshan follow at 15%; 14%and 13%, respectively. The current total treatment capacity inthe PRD is about 2.6 million m3/day, treating approximately 28% o f domestic wastewater. By 2010, the PRD expects to add about 8.81 million m3lday o f treatment capacity. HazardousWaste and SludgeManagement. The growing volumes ofhazardouswastes, andthe reported illegal dumping, pose considerable risks to health, and surface and ground water sources. There is one hazardouswaste treatment plant is in Shenzhen, and construction of incinerators is being considered by PRD towns. Furthermore, disposal o f large volumes o f sludge, o f over 1,500 tonsld, will be a problem as the PRD increases its wastewater treatment capacity. The first sludge treatment facility, o f 800 tonsld capacity, is currently under construction inGuangzhou. The heavy metal content insludge is a concern; however, recent data indicate a reducingtrend, due largely to the Province's industrial pollution control action program. Guangdong has startedto address this problem through increasedmonitoring and enforcement. Water Quality Monitoring and Data Management. Uncoordinated and inadequatemonitoring of environmental conditions, andlack o freal time data inthe PRD, hamper planning, regulation and enforcement o f standards by agencies responsible for regulation, particularly with regardto drinkingwater standards, river water quality, pollutant contribution from industry, andmunicipal andnon-point sources. Guangdong has beguna pollutionmonitoring and enforcement drive, andpublishingsome environmental data. - 5 -  Vulnerable Population. Some PRD cities are facing growing social pressures from vulnerable populations. Informal migrants are particularly vulnerable; often they lack access to basic environmental infrastructure services, or are provided access at higher prices through intermediaries (e.g., landlords). Ensuringaffordable accessto servicesfor all segments of PRD's'vulnerable populationhasbecome a major challenge for these cities. Pricing of UrbanServices. Charges for water supply and wastewater services recover only a portion o f the true cost o f providing the services. There is no cost recovery for transfer anddisposal o f municipal solid wastes - except for a new garbage fee inGuangzhou, and a small charge for collection o f wastes from housesto the collection points. Availability o f adequate funding to pay for these services becomes especially important inlight o f a trend to engage private service providers inenvironmental infrastructure. Guangdong Provincial Government's Strategy. Guangdong's UrbanEnvironmental Planfor Pearl River Basinwithin Guangdong (112,000 km2) is summarized below: Targets 2005 2010 River reaches satisfy water quality objectives 75% 80% Industrial wastewater treated to standards 85% 90% Larger cities: domestic wastewater treatedto standards 60% 70% PRDcities: domestic wastewater treatedto standards 50% 60% Investment for environmental protection, as a percentage of GDP 2.5% 3.0% Guangdong has adopted a planto accelerate wastewater management inthe Pearl River Delta through the PRD Cleanup Campaign (PRDCC), which sets out phasedtargets to meet water quality standards. Objectives o f the PRDCC would be achievedthrough: (i) industrial pollutioncontrol: monitoring and control o f discharges from 179key polluting industries, including relocation o f the worst polluting industries; (ii)domestic wastewater treatment: construction o f 162 wastewater treatment plants (WWTPs) to treat about 12.23 million m3/day; (iii) agriculture and livestock pollution control: banning andrelocation o f poultry industriesfrom water supply catchmentso fthe PRD, and enforcement o f provincial andnational SEPA guidelines; and (iv) river rehabilitation, comprising integrated rehabilitation o f key rivers; water pollutioncontrol and management inGuangzhou, Dongguan and Foshan; integrated rehabilitation o furban creeks; domestic solid waste treatment; and ecosystemdevelopment and protection. Inaddition, GPGplans to pursuearegionalapproachto wastewater management planning, including environmental infrastructure development incooperation with Hong Kong SAR. The Guangdongregionalhazardouswaste managementprogramplannedfor completion by 2005, includes: (a) Guangzhou Hazardous Waste SecuredDisposal Center, (b) Guangdong Hazardous Waste Comprehensive Treatment DemonstrationCenter (Phase I); (c) ShenzhenHazardous Waste Treatment Station and SecuredLandfill (Phase 11); (d) Yuexi Hazardous Waste Treatment Center (Phase I), and (e) Guangdong Toxic Chemical Waste Treatment Center. Underthe TenthFive-year Plan, the Guangdong EPB is requiredto install automatic water quality monitoring, andreport water quality o f surfacewaters daily andmonthly. Implementationo f this program began inearly 2003. - 6 -  Guangzhou has an approved industrial pollutioncontrol program (2002-20 15) under implementation, which includes monitoring and enforcement o f industrialwastewater discharges, anda phasedprogramto relocate the worst polluting industries to special industrial sites. 3. Sector issuesto be addressed by the project and strategic choices: The project will assist Guangdong Province inaddressingenvironmental service deliveryandassociated investment inan integrated manner, through support for: (i) regional planning o f environmental infrastructure; (ii) inter-municipaljointly-managed environmental infrastructure development; (iii) cost-effective wastewater management; (iv) environmentally safe treatment and disposal o f hazardous wastes; (v) environmental managementon a wider regional basis; (vi) public-private partnerships and private sector service provision; and(vii) industrial pollutioncontrol. C. Project DescriptionSummary 1. Project components (see Annex 2 for a detaileddescription andAnnex 3 for a detailed cost breakdown): Inaddition to financing environmental infrastructure investments, the project would support regional planningreform, preparation of aregulatoryframework, public-private partnerships, inter-municipal cooperation for infrastructure development, as well as institutional strengtheningand training (IST) at both provincial and city levels, as follows: (1) Wastewater Management: Enhancement ofwastewater facilities inGuangzhou, through construction o f two wastewater treatment plants o f 200,000 m3ld capacity each, and about 500 km.o f sewerage networks, includingpreparation o f a sludge management plan; (2) Regional Hazardous WasteManagement: Constructiono f the first phase o f the hazardouswaste treatment facility comprising a pre-treatment center and landfillo f 150,000 m3/d capacity, to treat wastes from Guangzhou andneighboringmunicipalities, including preparation o f a regulatory framework for hazardouswaste management, andselection o f a private sector service provider to operate the facility; (3) Inter-MuniciDal Environmental Infrastructure: Promotion, as a pilot activity, o f sharedenvironmental infrastructure development for three groups o f two or more municipalities, districts or towns willing to plan, construct and manage shared facilities. Two subprojects have already been identified, and memoranda o f understanding have been signed by the cooperating parties. A portiono f the GEF funds will be usedto provide grants to support this initiative. Implementationwill follow preparation o f a framework for cooperation among contiguous municipalities, districts or towns for environmentalinfrastructure development, and appraisal o f eligible subprojects. The reviewandupdate o f the PRD wastewater management plan (a.k.a the PRD Cleanup Campaign) is a key initiative under this component, which will result ineconomic use o fresources, least cost wastewater facility planning, and enhanced inter-municipal collaboration; (4) Water Oualitv Monitoring and Information Systems: Support for physical investments and information systems to enhancethe capacity o f the Provincial Environmental ProtectionBureau (GDEPB) for water quality monitoring, consistent with the national program o f the State Environmental Protection Agency (SEPA). This would include installation o f a network o f automatic monitoring stations, real- time data assembly andprocessing at a control center, development o f databases, a website, management information system, and data sharing arrangementswith HongKong. Implementationwill follow the formulation, and appraisal o f the water quality monitoringprogram. A portion o f the GEF grant will be used to support the capacity-buildingtechnical assistanceactivities, which will be implementedas complete - 7 -  package; and (5) Institutional Strennthenina & Training: Provision o f technical assistancefor (i)financial, institutional and project management support; (ii) public hygienepromotion; (iii) studies for regional planning strategic and urban development; and (vi) training and study tours. (1) Wastewater Management 325.00 73.5 (2) Hazardous Waste Management 24.00 5.4 (3) Inter-Municipal Environmental Infrastructure' 64.90 14.7 4) Water Quality Monitoring and Information 11.60 2.6 Systems (5) Institutional Strengthening and Training 6.40 1.4 5.90 3.0 0.00 0.0 Total Project Costs 431.90 97.6 126.72 63.4 10.00 100.0 Interest during construction 9.20 2.1 0.00 0.0 0.00 0.0 Front-endfee 1.28 0.3 1.28 0.6 0.00 0.0 Total Financing Required 442.38 100.0 200.00 100.0 10.00 100.0 GlobalEnvironmentFacility (GEF) Co-financing Theproject-specific GEF grant ofUS$10million will support three broadareas, as indicatedbelow: EnvironmentalMonitoringand InformationSharing (i) software,andapplications MIS, 1,200,000 (ii)Website development and informationdissemination 200,000 (ii) andwaterqualitydatabaseonPRD-SouthChinaSeapollution Air 200,000 (iii)Conference on PRD-South China Sea environmental management framework 50,000 (iv) Pollutionmonitoringandinformationsharing, inPearl River stretches near 200,000 Guangzhou Public- PrivatePartnerships (i)Preparation o fregulatory framework, and biddocument to select a private service provider for pretreatment facility and landfill 400,000 (ii)Preparation o f a waste survey and corporate market assessment 50,000 (iii) documenttoselectPSPorBOTforwastewatermanagement Bid 400,000 Inter-municipalEnvironmentalinfrastructure (i) ofconstraintstointer-municipalinfrastructuredevelopment Study 100,000 (ii)Subprojects to support inter- or intra-municipal infrastructure development 6,800,000 (iii) andupdatingofPRDCC(Le.,wastewatermasterplan) Review 400,000 Total 10,000,000 2. Key policy andinstitutionalreformssupportedby the project: Policy and institutional reforms supported by the project include: (a) regulatory framework for hazardous waste management; (b) framework for private sector participation; (c) cost-effective models for inter-municipalcooperation inplanningand management; (d) improvedregional planning; and(e) utility institutional andfmancial reform. - 8 -  3. Benefitsand target population: Benefits o f the project include: a cleaner environment due to improved water quality o f the PRDriver systems; (b) reduced healthrisks due to reductioninwater sourcepollutionfrom wastewater andhazardous wastes; (c) expansion of environmental infrastructure, which will contribute to animprovedquality o f life for the PRD residents, including the vulnerable migrantpopulation; (d) reducedneed for government subsidies due to enhancedcost recovery for services; (e) institutionalreforms, which will facilitate public-private participation inthe provision o futilityservices; (0improvements inthe quality, quantity and sustainability o fpublic utilityservices; and (g) continued economic growth inthe PRD, which should generate increased employment opportunities. The target population is about 30 millionwithin the PRD, including the 14million residents o f Guangzhou metropolitan area, who would benefit through improved quality o f the environment and river systems. Approximately 6.9 million residents o f HongKong would also benefit throughprotectiono f the vital drinkingwater supply from the PRD, andfromreducedwater pollutioninthe South China Sea. 4. Institutionalandimplementationarrangements: The Guangdong Provincial Government Office for World Bank Projects (GDPMO), establishedwithin the Guangdong Provincial Finance Bureau (GDGB) will be responsible for the overall coordinationo fthe project. Its responsibilities include: (a) annual budgetpreparation; (b) project-wide quality assurance; (c) progressreporting to GPG and the Bank; (d) inter-agency coordination andprocurement support; (e) administrationo f the GEF Grant; and(9 the implementationo f the institutional strengthening and training component. Guangzhou city has also set up its own Project Management Office (GZPMO) to oversee preparation and implementation o f its components. Inaccordancewith national practice, other cities that intendto participate inthe project (viz. underthe Inter-municipal Environmental Infrastructure component) would establish their own project managementoffices. The sector agencies will implementtheir respective components. The Wastewater Management component will be implementedbythe recently-established Guangzhou SewageTreatment Company (GSTC). Ithas contracted the Guangzhou Tunnel Development Company (GTDC) to manage the implementation o f the investments. The Hazardous Waste Management component will be implementedby the Guangzhou Hazardous Waste Management Center (GHWMC). When completed, the facility will be operatedby a private service provider selectedundera biddingprocess to be financed under the project. The Guangdong Environmental Monitoring Center (GEMC), within the Guangdong Provincial EnvironmentalProtection Bureau (GDEPB) will be responsible for implementationo f the water quality monitoring component. Proposed Inter-municipal Environmental Infiastructure. Implementationo f this component will commence after satisfactory appraisal by the Bank of the framework, andinvestment proposals consistent with the approved framework. The framework would establishthe overall principles and guidelines for sharing the costs, ownership, operation and maintenance o f environmental facilities, and provide institutional models for construction andmanagement o f shared facilities. The framework would be completed for review by the Bank byno later than July 31,2005, and investment proposals submittedby no later than December 31,2005. The sub-projects will be fmanced solely from local sources o f funds. Notwithstanding the source o f financing, the subprojects will be prepared to standards applicable to loan-financed components, andbe procured inaccordancewith Bankprocurement guidelines. It is expectedthat eligible subproject will be implementedby the respective entities o f the municipal governments, districts or towns. To promote this initiative, GEF grant incentives for capital cost and O&M cost support will be provided, for upto three eligible subprojects. - 9 -  Proposed Water Quality Monitoring and Information Systems.Implementation o fthis component will commence after formulation o f a water quality monitoringprogram, satisfactory to the Bank. The GDEPB will have overallresponsibilityfor the proposed Water Quality Monitoring component, and also be responsible for implementing the GEF-fmanced review andupdate o f the PRD Cleanup Campaign - PRDCC (Le., PRD wastewater master plan). The GDEPB will implement the GEF-supported technical assistanceas a complete package, without unbundling. The physicalinvestments (Le. goods and works) will be fmanced solely from localsourcesof funds. Notwithstandingthe source offinancing, the component will be preparedto standards applicable to loan-financed components, andbe procuredin accordancewith Bankprocurement guidelines. Under a separate GEF project - Livestock Waste Management inEast Asia, GDEPB has agreedto prepare a Terms o f Reference for preparation o f an Action Plan for Livestock Waste Management. Procurement. The CMC InternationalTendering Corporation, No.1 Department, inajoint venture with the GMGInternationalTendering Company Limited,has beenretainedas the procurement agency for all aspects o f civil and electrical andmechanical works requiring International Competitive Bidding(ICB). OnlendingArrangements: Theproposedloanof $128 millionwill bemade to the People's Republic of China at the Bank's standardinterest rate for LIBOR-based US dollar single currency loans. The loanwill be for 20 years, including a five-year grace period. China will onlend to Guangdong Province (GP), onthe same terms and conditions. GP will onlend part o f the loanproceedsto Guangzhou Municipality (GM) on the same terms and conditions. GMwill onlend part o f the loanproceeds to the Guangzhou Sewage Treatment Company (GSTC) for 15years, including a five year grace period, at the same interestrate and commitment charge as applicable to the Bank loan to China. The loanwould be disbursed as follows: (a) civil works 50 percent; (b) goods- 100percent offoreign - exchange, 100percent local (ex factory) and75% local expenditures, (c) consultant services- 91percent; and (d) training- 100percent. A Special Account inthe amount o fUS$10millionwill be set up. Retroactive financing inthe amount of US$5 million has beenprovidedfor expenditures incurred for advance works andconsultant services procuredafter October 1,2003, as agreed with the Bank. Utilizationof the GEF Grant. A portionofthe GEF-supported grant(US$6.8 million) will be usedto provide incentives for up to three subprojects underthe Inter-municipal Environmental Infrastructure Component. Eachsharedfacility will receive a capital cost grant of about US$ 1.6 millionequivalent, paidintwo installments o f 30 percent and70 percent o f the grant, upon incurring expenditure o f 30 percent, and 100percent o f the appraised estimated cost o f the subproject, and(3) an O&M support grant of about US$0.67 million equivalent, disbursed intwo equal amounts, paid at 6 months and 18 months after commissioning o f the facility. About US$O.1million will be usedto develop the frameworkhtudy of the component. The GDEPB will utilize US$2.25 million o fthe grant to implement the GEF-supported technical assistance, andthe review andupdate o f the PRD wastewater management plan. The balance o f the finds (US$0.85 million) will finance the preparation o fa regulatory framework, selection of an operator for the facility, and a waste survey for hazardous waste management, and for preparationo f a bid document for BOT or other public-private partnerships. A Special Account o f US$175,000 will be set up to finance the technical assistanceactivities only. Payment o f the capital andO&M grants will be made upon certification by the Task Team Leader that the conditions for their disbursement have been met. MonitoringandEvaluationArrangements:The project will be supervised during semi-annual Bank - 10-  missions. Headquarters and staff members of the World Bank Office inBeijing would cooperateinh s activity. Duringimplementation, GDPMO will preparesemiannual progress reports on the physical and financial progress of all components, andproject performance compared to the objectives. Bankmissions will also monitor progress inimplementation o f the non-Bank financed investments under (a) the Industrial Pollution Control Action Plan(IPCAF'), (b) the Inter-municipalEnvironmental Infrastructure component, and (c) the Water Quality Monitoringand Information Systemscomponent. The first monitoring report would be preparedby January 31,2005; the last on January 31,20 10. Inaddition, GDPMO will prepare animplementationcompletionreport withinsix months ofthe closingdate of the project. Itwill refer to the objectives and the achievementso fthe project, costs and benefits derived, and the performance and contribution o f all parties associatedwith it. D. Project Rationale 1. Project alternatives considered and reasons for rejection: (i) Acoherentregionaldevelopmentapproachhasbeenselectedinpreferencetoplanningbasedonthe smaller jurisdictional boundaries. (ii) Duringprojectidentification, theuseofanAdaptableProgramLending(APL)instrumentwas considered, following on the model o f the recent Shanghaiproject. However, there was not sufficient support for this approach from the central government, as it hadnot yet gained sufficient confidence inthe process. Moreover, inGuangdong, there was only one city- Guangzhou - seekingBankfinancing, andto pursuethe approach would have resultedindelays, andGuangzhoucould have lost interest. The APL option was therefore rejected. (iii) Originally, the task team believedthat, to have animpact, it was necessary for more than one city to participate inthe project. That could still happen during the implementation. Nevertheless, Guangzhou'sfrm commitment to proceedwith the Bankwhether or not other cities participated, andthe inclusion o f the incentive-based investments for municipalities/districts/towns, which agree to develop sharedinfrastructure, was a significant step forward. (iv) GPG's strategic planto construct many small wastewater treatment plantswas considered and rejected. The planwas expensive, and it didnot meet the Bank's criteria as a least cost option. The review and updatingof the PRD wastewater managementplan is a key activity financedunder the project. (v) Project intervention to treat only municipal wastewater was considered andrejected. Without complementary interventions to control pollution from industries, project benefits would have been limited. Therefore, GPG has prepared an IndustrialPollution Control Action Plan (IPCAP) to be implementedin parallel with the project usingown funds, to address the worst polluting industries. (vi) Use of incinerators to treat hazardous waste was considered during the early stages o f preparation. Indeed, incinerationof some types ofhazardouswastes may be appropriate incement kilns, which have hightemperaturesandalongretentionperiod. Shenzhenhas ahazardouswaste incinerator for specific waste generatedinGuangdong Province. Therefore, there was no apparent needfor a new waste incinerator. The solution adopted for inorganic hazardouswastes, however, is the more economical process o f treatment andstabilization, followedby a landfill. The proposedhazardous waste landfill, equipped withpre-processing facilities, is necessaryto minimize transportation andmaximize regional waste disposal. - 11 -  2. Major relatedprojectsfinanced by the Bankand/or other development agencies (completed, ongoingand planned). Sector Issue I ~ Project (Bank inance -f: Implementation Development Bank-financed Progress (IP) Objective (DO) Urbanenvironment including YunnanEnvironmentProject S S wastewater and solid waste Urbanenvironment including waste GuangxiUrbanEnvironment S S water andsolid waste Project Urbanenvironment: wastewater and SecondShanghai Sewerage S S tariffreformpolicy Project Urban environment including ShandongEnvironment Project U S wastewater and district heating Urbanenvironment including ShanghaiEnvironment Project S HS wastewater and solid waste Urban environment including Sichuan UrbanEnvironment S S wastewater and solidwaste Project Urban Environment including Chongqing UrbanEnvironment S S wastewater and solid waste Project Urbanenvironment including Hebei UrbanEnvironment S S wastewater Project Urban environment including Liaoning Environment Project S S wastewater andsolidwaste River BasinPollution Controlincluding HuaiRiverPollution Control S S wastewater and industrial pollution Project River BasinPollution Control including Liao River Basin Project S S wastewater and industrial pollution Urban Transportation Guangzhou City Center S S Transport Project UrbanDevelopment, including Shanghai UrbanEnvironment S S pollutionmanagement and Project (APL1) environmental policies Wastewater, sewerage andurban roads SecondTianjinUrban S S Development andEnvironment Project Urban development, includingpollution Zhejiang UrbanEnvironment S S managementandenvironmental policies Project Xher development agencies f i e Asian Development Bank and ADB has hadgenerally various bi-lateral donors (Austria, successful investment Australia, Denmark, Finland, Germany, operations, andis currently Japanese, UK) are active inurban expanding its support to the :nvironment projects andsector policy urbansector inChina. Other iialogues/capacity buildinginitiatives. donor agencies have reported - 12-  satisfactory results with their programs, althoughthey are pressingparticipatingutilities to give more attention to institutional and financial matters. IP/DO Ratings: HS (HighlySatisfactory),S (Satisfactory),U (Unsatisfactory),HU (Highly Unsatisfactory) 3. Lessonslearnedandreflectedin the project design: Since its f r s t loan in 1985, the Bank has committed US$2.2 billionunder 22 projects for water supply and wastewater operations inChina. A 2002 Operations EvaluationDepartment (OED) Report (China: Review o f the Bank's Assistance to the UrbanWater Supply and Wastewater Sector, Report No. 24979) rates the outcome o f the Bank's assistancemoderately satisfactory, its sustainability as likely, and its institutional impact as modest. OED also rates bothBank performance and borrower performance satisfactory. The key lessonsleamedandrecommendations are: (i) least-cost analysis o f future Bank-financed projects should always include improved incentives and support for water demandmanagement; (i) infutureBank-financedprojectsshouldbesetbythelevelofaverageincrementalcosts, tariffs which signals future costs; (iii) policyofconditioningfutureBankfinancingontheestablishmentofautonomous recent wastewater companies be continued; (iv) future Bank financing shouldgive priority to cities andprovinces that are willing to contribute a larger share ofplanned investments from intemal cash generation; and (v) next generation ofBank sectorprojects should includeprivate sector participation where there i s political support infavor o f such participation. The above lessonsand recommendations have beentaken into account indesigning andpreparing project. 4. Indications of borrower and recipientcommitmentand ownership: Guangdong Province andGuangzhou Municipalityhave demonstratedtheir commitment to the project by their fast track preparation, the retention o f dedicated project management offices from previousprojects, and their identification of candidate investment projects within an evolving strategic planningframework. GDPMO has made exceptional efforts to promote the concept o f inter-municipal environmental infrastructures. Ithas taken the lead in guidingpreparation o f the overall strategic framework and the design o f the project components, while Guangzhouhas spent considerable time andresourcespreparing individual investments for funding under the proposedproject. With financial support from Canada, France, Denmark and Singapore, GDPMO has shown leadership inmobilizing teams of international consultants to assistwithproject preparation. Inaddition, GDPMO held a hgh-level conference, chaired by a Vice Govemor o f Guangdong, inJanuary 2003, to present the overall strategic framework and highlightsof the proposedproject to key provincial andmunicipal authorities. The conference's goal was to gain the support o f the Vice Govemor and other participants for the project's strategy. GDPMO also publisheda series ofarticles inthe Guangdong Finance periodicalto promote the new project among cities inthe PRD. The Guangdong Provincial Government (GPG) has begunto collaborate with Hong Kong ondeveloping a framework for control o f air and water pollution. Seven committees are addressing various relatedtopics and annual meetings are takingplace. For example, a comprehensive database to identify pollution sources - 13-  inthe PRD and South ChinaSeais inthe planningstage. Before project appraisal. Guangzhou createda financially autonomous wastewater company to own and operate existing and future wastewater assets. Guangzhou is also exploring options for private sector participation (PSP) inenvironmental service provision. Italready has a Build, Operate andTransfer (BOT) operation ina wastewater treatment facility anda sludge treatment plant, anda private service provider is operating a modem solid waste landfill. A private service provider will be selectedto operate the hazardouswaste treatment center andlandfilluponits completion. 5. Value added of BankandGlobalsupportinthis project: The Bankbrings considerable intemationalexperience, inparticular ineconomic and financial analysis and systematic consideration o f altematives. Bank assistance to Guangdong Province is drawing upon growing experience inaddressingregional environmental issues, gained from urban environment projects throughout China (including Hebei, Hubei, Jiangsu, Jilin, Liaoning, Shandong, Sichuan, Yunnan andZhejiang Provinces, and inthe mega-cities o f Beijing, Chongqing, Shanghaiand Tianjin). Inaddition, the Bankhas addressedissues relating to water bodies andwater resourcesmanagement, including the clean-up of Dianchi Lake (part o f the Yunnan EnvironmentProject), the Huai River Basin inAnhui Province, andthe Liao RiverBasin inLiaoning Province. Bank involvement has helped include initiatives on inter-municipal cooperation, improvements to wastewater management planning, regional cooperation with HongKong, andtransparency ininformation sharing. Itwill also enhancethe designand construction quality control ofthe physical investments, and accelerate institutional and financial strengtheningandtraining. The project will buildon the past experience o f Guangdong Province and Guangzhou city, which have been sub-borrowers of the Bank for major infrastructureprojects. E. Summary ProjectAnalysis (Detailed assessmentsare inthe projectfile, see Annex 8) 1. Economic(see Annex 4): 0 Costbenefit NPV=US$ million; ERR= % (see Annex 4) 0 Costeffectiveness 0 IncrementalCost 0 Other(specify) Economic Benefits. After many years o fneglecting pollutioncontrol, the PRD region is sufferingfrom serious pollutionproblems, especially from water pollutioninkey urban sections o f the Pearl River. It is now recognized that economic prosperityhas come at a highenvironmental costs. Respondingto these concems, the Guangdong Provincial Government set up its long term environmental objectives for the PRD to include achieving Category I11Standardfor river water quality, which would make the river system suitable as a source o f drinkingwater supply. The investments proposed under the project would provide environmental improvements andassociatedeconomic benefitsto the PRD andGuangzhou by improving river water quality, andreducing pollutioninthe South China Sea. The benefits of the project have been identified, and cover a wide range, from public health, amenities, landvalues, to agriculture and fishery. However, it is difficult to place a value on incremental improvements inenvironmental quality, andeven more challenging to attribute such improvements to specific interventions usingcost-benefit analysis. Therefore, the cost-effectiveness approach has been adopted inthe analysis to enable the project to select least-cost options towards achievingwell-definedenvironmental goals inthe Guangzhou city area of the PRD. - 14-  Project investment selection has beenbasedon several alternative designs, and selection of least cost designs. A cost effectiveness analysis of the overall project and eachindividual investment component were preparedprior to appraisal. The economic viability o f each component is basedon least cost towards achieving specific water quality or other environmental objectives. Estimates were made for each component o f the net presentvalues o f project costs (NPV), average incremental cost (AIC), financial intemal rate o f retum (FIRR) and affordability. The component designs with lowest NPVandAIC have been selectedto minimize any economic subsidy and ensure that tariffs are affordable, especially to the lowest income groups. 2. Financial(see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) The base cost estimates o fthe project reflectpreliminary engineering designs andprice levels prevailing in December 2003. The unitprices were derived from the following sources: (a) quotations obtained from manufacturers and suppliers; (b) prices o f goods andworks from recent contracts; and (c) construction costs according to prices publishedby the Central andGuangdong Governments, all adjusted for inflation. Experience gained from recent sector operations reveal that bidprices have been consistently around 60 percent o f estimated costs, resulting inloan savings and excessive commitment charges. The primary reason for this,disconnectis attributed to the use o f proforma unitprice guidelines provided inthe provincial cost schedules. Therefore, adjustments were made to the proformaunitrates to derive project costs. Physical contingencies have beenapplied to base costs, as follows: civil works, equipment andmaterials, technical assistanceand training - 10percent. Project management andengineering overhead costs o f 10 percent are also included. Price contingencies have beenapplied to expenditures at projected global foreign andlocal inflationrates, as follows: local: 2.5 percent in2004; 1.8 percent in2005; 2.0 percent in2006; 1.9 percent in2007 and 1.8 percent in2008 and thereafter; foreign; - 0.37 percent in2004; 1.53 percent in 2005; 0.89 percent in2006 and thereafter. Base costs have been converted at Yuan 8.00 to US$1 and the DollarKuan exchange rate has been assumedto vary inorder to maintainpurchasing power parity. The financial objectives set by GMfor its water supply andwastewater services are to achieve full cost recovery on their operations. Wastewater tariffs were increased by 133percent inJanuary 2003, to Yuan 0.70/m3,towards meetingthe financial objectives for 2003. Financialprojections have been completed for GSTC indicating the levels of tariffs requiredannually to meet the definedobjectives. However, in practice, wastewater (andwater) companies' tariffs are adjusted only every two or three years, taking into account the tariff requirementso f other utilities, e.g., power, gas andtelephone. It is possible, therefore, that inthe intervening years betweentariff adjustments, the utilities may not be able to meet their annual targets. Insuch eventualities, the agencies' operating revenues would needto be supplemented from the general revenues o f the parentmunicipality inorder to remainfinancially viable. Hazardous waste management services have traditionally been fundedfrom the general revenues o f local governments. However, where individual users o fthe services have beenidentified, local governments have, as a matter o f policy, charged such users for the services provided. Local governments expect to rely increasingly onuser fees and charges to finance these services inthe future. Under the project however, charges would be introduced gradually for treating anddisposing o f hazardouswastes. This phased approach is necessaryto encourage enterprisesproducinghazardous wastes to bringthe wastes to the facility rather than dispose them inan environmentally unsafe manner. - 15-  Under the Inter-municipal Environmental Infrastructure component, participating cities, districts andtowns would commence charging tariffs or fees one year after commissioning o f the shared investments. The objective would be to achieve full cost recovery over time for the services provided. The Guangdong EnvironmentalProtection Bureau(GDEPB) will be responsible for the Water Quality Monitoringandthe Information Systems component, and wouldrely on government budgetto fundtheir capital and operating expenditures. Fiscal Impact: Provincial fiscal on-budget receipts andexpenditures in2003 totaled about Yuan 1,322 billion equivalent and Yuan 1,673 billion equivalent, respectively. The central govemment, inkeeping with the current fiscal arrangements betweenthe center and provinces, provides annual transfers to Guangdong. Takentogether, Guangdong enjoys a modest surplus. Receipts andexpenditures are bothprojected to grow at about 10 percent per year in current terms. GPG expects to pass on about 85 percent o f the Bank loanto Guangzhou Municipality (GM) andits sub-borrowers. ShouldGMandits sub-borrowers beunable to fulfill their obligations, GPGwouldhave no difficulty incoveringdebt service through its ownresourcesas the debt service representedbythe projectis small comparedto total provincial receipts. GPGwould provide all fundingnot met by (a) the proceedso f the Bank loan, (b) municipal contributions, and (c) other hnds, ifany, generatedinternally bythe implementing agencies. Guangdong Finance Bureau(GFB) has independently assessedGuangzhou's ability to generatethe required counterpart funds from assured sources. 3. Technical: The following issueshave beencritically examined duringproject preparation to develop least-cost sustainable investments to be financed under the proposed project: (a) Usingcomputer modeling, studies were conducted onthe far-fieldimpacts ofwastewater discharges to the PRD River system, and the near-fieldconditions on larger cities o f Guangzhou, Foshan and Dongguan. Water quality modeling was also usedto help determine the appropriate treatment process and levels, inorder to optimize the environmental benefits o fthe proposedwastewater treatment plants. These modeling studies were done by an international consulting firm (using Danish trust funds), and a local Design Institute. (b) An importantplanning andtechnical issue is to develop least-cost solutions for environmental investments inthe PRD. Regional planning approacheswere usedto rationalize the current planning of environmental infrastructure, and to avoid the proliferation o f environmental infrastructure, specifically, wastewater treatment plants. The provision o f larger capacity regional, shared and managedinfrastructure facilities was thoroughly examined. This also included a study o f institutional models for construction and managemento f sharedfacilities acrossjurisdictions. The review and rationalization o f PRD wastewater masterplan is therefore a key initiative, which is financed under the project. The findings from this activity would be usedto influence andrevise GPG's plan to construct some 162 wastewater treatment plants under its US$5 billion accelerated cleanup campaign (PRDCC). (c) Use o f tunneling as an option for large conveyors to transport wastewater flows designed on the basis of sharedmanagement, or for conveying interceptedwastewater to points downstream o f cities, with lower levels o f treatment, was considered. -16-  (d) Incineration was considered for handlinghazardouswaste, but was deferred for consideration in the future.' Issuesaddressedinthe designof the hazardouswaste component included the processfor treatment o f hazardouswastes; physio-chemical treatment and landfill; planning for sufficient disposal capacity for Guangzhou andneighboring municipalities; andthe sitingo f the treatment plant andthe secure landfillsite, from an environmental perspective. 4. Institutional: 4.1 Executing agencies: Utilityreform consistentwith national policy is akey goal o fthe project. The formation ofthe Guangzhou SewageTreatment Company (GSTC) as a self-funding, self-accounting state-owned enterprise, prior to appraisal, represents a major step forward, which will also serve as a model for the rest o f Guangdong Province. Staff from Guangzhou's existing municipal engineering administrationdepartment will be transferred to GSTC, and it would start with some operational experience. GSTC also recognizes that it lacks the "~orporate'~culture initially, and that additional specialist staff would needto be recruitedto manage its operations. The Guangzhou Hazardous Waste Management Center (GHWMC), under the GZEPB, would implement the hazardouswaste managementcomponent. Uponcompletionof construction, a new company - Hazardous Wastes Treatment Center will be formed, anda PSP operator will be selectedto operate the facility. With GEF support, the GHWMC will prepare the regulatory framework for hazardouswaste management, and procure a PSP operator for the facility. Since the primaryobjective o f the initiative is to promote inter-municipal cooperation, it is considered not necessaryto require districts or towns participating inthe Inter-municipal Environmental Infrastructure component to establish separate utility companies such as the Guangzhou Sewage Treatment Company, if one does not already exist. Insuch cases, the general practice is for the Bank to accept operations being retainedinthe existingdrainage departmentsresponsible for the service. The framework to be developed for implementing andmanagingthe investments underthe Inter-municipal Environmental Infrastructure component will determine the appropriate institutional arrangements. The effectiveness ofGDEPB's environmental managementwill dependonits capacity andwillingness to corporate with neighboringjurisdictions, including Hong Kong, to develop a regional pollutioncontrol and environmental management frameworks and databases, and to share data. Collaboration with Hong Kong S A R is an important part o f this strategy, which is supported by the GEF grant. 4.2 Project management: The GDPMO would be strengthenedandthe personnel mix adjusted to reflect the needs o f the implementationand constructionphases o f the project. Guangzhou has formed, budgeted andstaffed its ownproject management office (GZPMO), which has been involvedthroughout project formulation and preparation. It is expected that these resources would significantly enhanceproject launchandsubsequent implementation. 4.3 Procurement issues: No major procurement issues were identifiedinthe Procurement Capacity Assessment. The Assessment concluded that the risks were `average`. See Annex 6 for further details. The newly formed GSTC has appointed the Guangzhou Tunnel DevelopmentCompany, an experienced - 1 7 -  project management firm, as its agent to carry out all procurement and project management activities. A procurement agent has also been appointed to manage all international tendering as requiredby national regulations. 4.4 Financial managementissues: N o major issueswere identifiedduringpreparation o fthe FinancialManagement assessment. (See Annex 14) 5. Environmental: EnvironmentalCategory: A (FullAssessment) 5.1 Summarize the steps undertakenfor environmental assessmentandEMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. An extensive environmental assessmentwas carried out for the project. Duringits preparation and evaluation, Chinese national procedures andthose requiredby the Bank Group were diligently followed. Environmental assessment (EA) documents comprising Environmental Assessment Reports, Environmental Management Plan (EMP), EnvironmentalManagement Frameworkto deal with impacts o f subprojects that will be identifiedlater, and anExecutive Summary were prepared, incorporating Bankcomments. These were reviewedandfound satisfactory. A detailed note covering environmental assessment andimpact, together with mitigationmeasures, is presentedinAnnex 14. The EA documentation fully reflects the findings o fthe ChineseEAsonthe various components as well as inputsfrom the Bankpreparation and appraisal missions. PotentialImpacts: The environmental impact ofthe project is, onbalance, substantially positive, andthe benefitsgreatly outweigh the negative impacts. Positive impacts include: increasedwastewater collection and treatment rates, improvedwater quality inthe river sections near Guangzhou, increase inthe regional availability o f facilities for disposal o fhazardous waste, and an enhancedcapacity for regional environmental management. The potential adverse impacts include: construction spoil and noise, and operational phaseimpacts o f the hazardous waste facility, e.g., transport o f hazardous materials and possible generation o f leachateat the landfill. More details are provided inAnnex 14. MitigationMeasures: The EAshave specified the appropriate mitigation measures, environmental monitoring plans, institutional arrangementsand training and equipment requirementstogether with cost estimates to implementthese measures. Mitigationmeasuresfor construction-related impacts, and the hazardous waste management are described inAnnex 14. PublicConsultationand Feedback Localpeople were consultedtwice duringthe EAprocess, once at the EA Terms ofReference (TOR) stage andthe other time, duringthe draft EAreportpreparation, in accordancewith the requirements o f OP 4.01. The approachesused for public consultation were: consultation meetings with local government representatives andquestionnaire analysis o f public opinions. These were supplementedby interviews focused onthe public to be directly impacted by the various project components. Details o f these activities with dates, participants, public notifications and locations are provided inAnnex 14. Feedback from the public consultation process, andconcerns and issuesraised by the public, were considered andincorporated inthe final EAreport andEMP. InformationDisclosure:The EAReportandExecutive Summary were submittedto the Bank in November 2003, as were the draft Resettlement Action plans (RAPS). Bothreports were reviewed by the Bank, and were found to be satisfactory. Copies were submittedto the Bank Group information center on December 5,2003 and copies are also available inthe Project File (Annex 8). Notice o f availability o f these reports was publicized inlocalnewspapers o f Guangzhou inearly January, 2004, prior to the - 18-  appraisal completion date. Details of documents, disclosure dates andlocations are provided intabular form inAnnex 14. 5.2 What are the main features o f the EMP and are they adequate? The EMP includes plans for mitigation ofthe impacts ofthe project components, the implementation of which will be the responsibility o f the implementingagencies, principally GSTC, GTDC and GZHWMC. The EMP includes detailed andcomprehensiveplanfor environmental monitoring ofthe impacts ofthe project, andthe effectiveness o f mitigation measures duringboth the construction and early operation phases. GDPMO andthe GZPMO will be responsible for monitoring. The EMP also contains training programs for environmental managementstaff andkey component facility operators. GDPMO and GHWMC will be responsible for conducting training programs. An organizational chart is includedinthe EMP to identify the agencies/organizationsto be involved inenvironmental management inthe project and their specific responsibilities. Duringthe construction phase, contractors will berequiredto prepare a detailed Management Planfor Spoil Transportation andDisposal for PMO-ESD review and approval, prior to the start o f construction. Duringthe operational phase, the EMPrecommendsthe city to prepare an EnvironmentalManagement System Plan for the sludge managementcenter to ensure the operation o f center and the eventual reuse or disposal o f treated sludge be performedinaccordancewith the objective o fthe project andlocal regulations. The operator ofthe hazardous waste facility will be requiredto prepare a satisfactory planfor the environmentally safe operation ofthe hazardouswaste facility. The EMP wasjudgedsatisfactory. Details inAnnex 14. Specific actionplanprepared for Guangzhou Sludge Management. 5.3 For Category A and B projects, timeline andstatus o f EA: Date o freceipt o f final draft: January 2004. See Annex 13 The Guangzhou ResearchInstitute o f EnvironmentalProtection(GRIEP), which holds a Class A credential for EA preparation, was engagedby GMto preparethe EAs, EMP andEnvironmental Policy Framework for the proposed components, as well as the EMP and EA Summary. Its work was supportedby intemationalconsultants for design review and advisory services, who have substantial experience in preparingEAs for similar Bank-fundedprojects inChina. GDPMO has already submitteda draft EA summary and an Environmental Management Plan, which were distributedto the Banks' Executive Directors. 5.4 How have stakeholders been consulted at the stage o f (a) environmental screening and(b) draft EA report on the environmental impacts andproposed environment management plan? Describe mechanisms of consultation that were used andwhich groups were consulted? Consultations were undertaken inthree ways: newsreleasesto the local press, public opinion questionnairessurveys andstakeholder meetings. The surveys coveredresidents, community committees, meetingswith the public, and officials ofrelevant agencieswhichhave a stake inthis project. The consultation results show that the project is well received and supported by the public. Details inAnnex 14. 5.5 What mechanisms have been establishedto monitor andevaluate the impact o f the project onthe environment? Do the indicators reflect the objectives andresults o f the EMP? Implementingagencieswill engageextemal consultantsto monitor project impacts andprogresstowards meetingthe monitoring indicators (Annex 1). The project also includes strengthening o fa number of -19-  institutions inthe environmental services sectors inGuangdong Province. See also Annex 14. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The key adverse social impacts of the project are largely relatedto landacquisition anddemolition o f structures. Inaccordancewith local laws, regulations and the World Bank OP 4.12 on Involuntary Resettlement, GPG arranged for the preparation o f Resettlement Action Plans (RAP) for the wastewater and hazardouswaste components. The RAPs are basedon detailed census o f the affected people, inventory o f affected assets, socioeconomic surveys andextensive consultations with the project-affected people. Land acquisition andor house demolition will affect 44,641 people in 11,262 households. Bothcash compensation and replacement housing would be offered to those who lose their residenceas well as affected enterprises. They could choose either one o fthem. For the employees whose employment would be affected temporarily, cashcompensationwould bepaid for their income losses. Annex 15 provides detailed descriptions o f the census, inventory, project resettlement policy, compensation rates andbudget, compensation andrehabilitationprograms, institutional andmonitoring arrangements. Complementary parallel resettlement will takeplace inconnection with road andembankment construction. The Government has provided hnds for this resettlement under separate budgets, which was confirmed duringappraisal. A retroactive review was done for the relatedresettlement activities whichhave already beencompleted (e.g., Liede Wastewater Treatment Plant). That reviewprovideddetailed information of the numberof affected people andthe livelihood rehabilitationstatus. The Resettlement Policy Framework, which is a key part o f the RAP, has beenprepared inaccordance with local laws, regulations and World Bank OP 4.12 on Involuntary Resettlement for all project components, including the inter-municipal environmental infrastructure component, which is yet to be appraised. Another key social issue of the project is the affordability o f improvedwastewater services, especially among lower income households. A willingness-to-pay andaffordability survey was conductedby Zhongshan University. The findings o f the survey will be integrated into the new tariffs for wastewater services for Guangzhou to ensure they are affordable. 6.2 ParticipatoryApproach: How are key stakeholders participating inthe project? The project was prepared ina participatory manner. The GDPMO, with its team o f international and national consultants, have organized various consultative meetings with representatives o f the provincial and municipal governments to apprise them o fthe environmental anddevelopment issues. These have facilitated participatory consultations, garnering stakeholder support for the project concept, and educating these stakeholdersbeforehand on their roles andresponsibilities inproject execution. 6.3 How does the project involve consultations or collaborationwith NGOs or other civil society organizations? Local government officials, non-government community organizations andbusiness associations inthe areas affected have been consulted andparticipated inthe resettlement program preparation. The RAPs containprovisions for continuing consultation. 6.4 What institutional arrangementshave beenprovided to ensure the project achieves its social - 20 -  development outcomes? Internal andindependent monitoringwill be carried out duringthe implementation period. Detailed institutional arrangements have been includedinRAP. 6.5 How will the project monitor performance interms of social development outcomes? Standardmonitoring requirements for project social development performance set out inthe Bank's procedureswill be implemented. 7. Safeguard Policies: 7.2 Describe provisionsmade by the project to ensure compliance with applicable safeguardpolicies. The EA,includmg anEnvironmental Management Plan (EMP), andRAPSwere preparedby GDPMO in conjunctionwith Guangzhou Municipality, andthese were appraisedfor their compliance withBank policies and guidelines, andwere foundto be satisfactory. F. Sustainability and Risks 1. Sustainability: The project is expected to be sustainable inthree respects: (a) financially; (b) institutionally; and(c) through achieving the development objectives. Tariff reforms will enhancethe financial viability o f municipal service providers, ando f the new facilities that the project will finance. Institutionally, the creation o f a financially autonomous wastewater company, the use o fprivate sector service providers, and continued technical assistancefor the participating institutions, will strengthen utilitymanagement and water quality monitoring capacity. The hazardouswaste facility is not expected to be financially viable at the beginningwithout support from Guangzhou Municipality, because a culture has to be first developed for hazardouswaste producers to bringtheir wastes to the facility. Therefore charges will bekept low initially, and will be increasedintime whenthe practice is well established. Finally, the project addresses an issue o fhighpriority to both the local and the national governments: vital self-interest inachieving environmental conditions necessary for sustainedeconomic growth, which would be a strong motivationto continue implementingthe long-term environmental improvement program, andwater resources management. la. Replicability: The project has considerable local, national, regional andperhaps even global replicationpotential. Locally, the fact that it is the first phase o f a long-term environmental programmeans that there is already -21 -  a plan anda commitment to replicate its successesinthe PRD through its participating provincial and municipal institutions, and this plan already has financial resourcesallocated. Nationally, there is enormous scope inChina's manyother large metropolitanareas for replicating these policy and institutional reforms, especially, its pioneering concept of shareddevelopment o f environmental infrastructure by local governments, andthe expansion of the role o fprivate-public andprivate-private partnerships inwaste managementinvestmentsand service provision. National replication will be facilitated by the Chinese Government andby the Bank. The Bankwill also apply the lessonslearned to its regionalportfolio o f environmental managementprojects anddisseminate them globally through the World Bank's Infrastructure Operations Network. The World Bank is fully committedto helpingdesign and deliver a comprehensive andlong term assistance strategy for environmentalmanagementof the Pearl River Delta andthis is the first project inan expected series o f investments inwater quality improvement. Assistancewould be both broadenedto neighboring regions and deepenedto provide follow-on investments such as tertiary waste water treatment andindustrial waste water minimization. Project funds, supplementedby GEF funds will assist inthe development o f a long term rigorous water quality improvement program which could be a model for other countries that share the South China Sea. Inorder to help ensure the likelihoodo f this replicability, project preparation was coordinated with the UNDP/GEF/IMO PEMSEA andthe UNEP/GEF South China Seas regional program. Although GEF funds are limited vis-a-vis the enormous environmental infrastructure requirements, they will provide a catalytic andillustrative role. The replication strategy includes regional andintemational workshops to discuss plans andprogress. The Bank will also play an active role by sharingproject experience with senior government officials, andthrough publication o f project experience inreadily available `public information documents'. 2. CriticalRisks (reflecting the failure of critical assumptions found inthe fourth column of Annex 1): Risk From Outputs to Objective Laxenforcement ofpollutioncontrol Preparation, andimplementationof a policies andregulations will diminish satisfactory IndustrialPollutionControl Action impact o f project investments on river Plan to addressthe worst polluterswill be a water quality. legal requirement o fthe project (even though not fundedunder the project). Individualproject designs are Bank'spreparation team reviewedproject inappropriate or over/under dimensioned. designs and estimated costs proposed by participating cities and the intemational consultants to ensure that over design o f facilities will be avoided. Also, future service demands o funregistered populationwere taken Provincial andcity-level governments will Bank preparationteam and intemational not support proposed shared consultants informedthe GDPMO and infrastructure management, least cost municipalities o f the advantageso f shared solutions or location o fwastewater jointly-managed infrastructure. Project may not facilities. include components for other smaller cities, if the criteria are not met. Duringproject preparation, least cost andenvironmentally safe - 22 -  solutions were developed. Provincial andcity-level authorities do not N Creation of financially autonomous companies, continue to support sector reforms related andimplementation oftariffs to meet the to creation o f autonomous utilities andfull projects' financial objectives were conditions of cost recovery. project appraisal. From Components to Outputs Autonomy o f wastewater and hazardous M Financialandmanagementperformance o fthe waste companies is not realized. new companieswill bemonitoredduringproject implementation, to ensure compliance with loan conditions. Changes will take place gradually, and Bank's continued association with GPG in this sector could assure this outcome. Riskofdamage to liner inhazardous M Extra precautions will be taken inthe designanc waste landfill during operation. construction o fthe liner, safe operation through an experienced operator procuredthrough a management contract, and setting up a monitoring systemwith a system o f boreholes. Jointly managedutilityservices will not be M At leastthree examples ofjointly-managed realizedina cost effective fashion because infrastructure will be demonstrated underthe o f politicalor other resistance. project, along with adequatetechnical assistance. Insufficient interest byprovincial and M Realistic reforms were agreedwith GPG, and local governments to carry out capacity covenanted. Evenwith some initial resistance, buildingand strategic studies, andthento changes will come, as GPG and China are implementappropriate reforms. takinga number o fmeasuresto address institutional problems that are remnants o f the past central planning system, inorder to remain competitive. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial RisI,M (Modest Risk), N(Negligib1eor Low Risk) 3. Possible ControversialAspects: Public reactionto (a) wastewater tariff increasesrequired to maintain the financial viability o f the wastewater company, and (b) introduction of fees andcharges for hazardouswaste disposal. G. Main Conditions 1. EffectivenessCondition e Execution o f subsidiary loan agreementbetween Guangzhou Municipality andGuangzhou Sewage Treatment Company, satisfactory to the Bank 2. Other [classify according to covenant types used in the Legal Agreements.] DisbursementConditions 0 The signing of contracts by the Guangzhou Sewage Treatment Company with consultancy firms for: (i)institutional and financial technical assistance; (ii) constructionsupervision andquality control; and - 23 -  (iii) reviewandcertification,asaconditionofdisbursementofthecivilworkscategory design a The signingo f contracts on behalf of the Guangzhou Hazardous Waste Management Center with consultancy firms for: (i) review and certification, and construction supervision services; and(ii) design preparation o f a regulatoryand institutional framework, and a biddocument for selection o f an operator for the facility, as a condition o f disbursemento f the civil works category ImplementationCovenants At negotiations, assuranceswere obtained from GP that itwould: a implement or cause to be implemented the Institutional Strengthening and Training (IST) component inaccordance with a schedule acceptableto the Bank anddiscuss andagree any revisions with the Bank a carry out or cause to be carried out the resettlement o f persons affected by the project ina manner and according to the Resettlement Action Plan satisfactory to the Bank a cause the project agencies to carry out, ina manner satisfactory to the Bank, the findings of the EnvironmentalAssessment andrelated implementation program a maintainthe Guangdong Project Management Office (GDPMO) andthe Guangzhou Project Management Office (GZPMO) throughout implementation, with functions and responsibilities satisfactory to the Bank, and with competent staff inadequatenumbers for the duration of the project a make available US$6.8 million o f the GEF grant, comprising about US$1.6 million equivalent as capital cost grant intwo installments, and about US$0.67 million equivalent, as O&M support grant over two years as specified, for each subproject for implementation o f the inter-municipal environmental infrastructure component, as agreedwith the Bank a carry out or cause to be carried out the time-bound IndustrialPollutionControl Action Plan (IPCAP) inaccordancewith a schedule acceptable to the Bank, and discuss and agree any revisions withthe Bank a Prepareby July 31,2005, a framework, criteria, and investment proposals submittedby no later thanDecember 31,2005, satisfactory to the Bank, for the proposedInter-municipalEnvironmental Infrastructure component a Prepare by December 31,2005, a water quality monitoring program and investment proposals, satisfactory to the Bank, for the proposedWater Quality Monitoring andInformationSystems Component FinancialCovenants At negotiations, assurances were obtained from GuangdongProvince(GP) that itwould a commencing with fiscal year 2005, cause (GSTC) to (a) produce revenues sufficient to cover operations andmaintenance costs (including depreciation), andthe amount by which debt service requirements exceedthe provision for depreciation; and(b) incur no additional debt without the Bank's agreement, unless a reasonableforecast shows that the entity would have a debt service coverage o f at least 1.3 times a cause GSTC to prepare, before September 30,2005, and ineach o f the following fiscal years, forecasts satisfactory to the Bank, (a) to review whether it would meet the covenanted requirements set forth above insuch year andthe following fiscal year, and (b) to fumishthe results o f such - 24 -  review to the Bank; ifany suchreviewwould show that the entity would not meet the requirements set out above, the entity would take all necessarymeasures, including adjustments to the structure o f its tariffs and charges, inorder to meet the requirements e cause Guangzhou Hazardous Waste Treatment Center (GHWTC) to complete, not later than July 1,2006, a study of the fees andchargesneededfor full cost recovery ofhazardouswaste disposal services to industrial andcommercial users, the report o f that study shall include a detailed time-bound actionplanacceptableto the Bank, enabling suchrecovery commencing January 1, 2007, andthereafter implementsuch action plantaking into account the Bank's comments e cause cities, districts or towns participatinginthe Inter-municipal Environmental Infrastructure component to commence collecting tariffs, fees or charges one year after commissioning o f the sharedinvestments with the objective o f achieving full cost recovery over time for the services provided Reportingand Monitoring At negotiations, assuranceswere obtained from GP that it would: e cause each implementing agency to prepare semiannual project progress reports; the GDPMO would then send a consolidated report to the Bank bythe thirtieth o f the following month, commencing January 2005 e carry out with the Bank a mid-termreview o f the project by December 31,2007, and implement, or cause to be implemented, agreedrecommendations H. Readinessfor Implementation 1. a) The engineering design documentsfor the first year's activities are complete andready for the start o f project implementation. 0 1.b)Notapplicable. 2. The procurement documents for the first year's activities are complete andready for the start o f project implementation. H3. TheProjectImplementationPlanhasbeenappraisedandfoundtoberealisticandofsatisfactory quality. 04. Thefollowingitemsarelackingandarediscussedunderloanconditions (SectionG): 0 Consultants for detailed design andbid document preparation have been appointed 0 Recruitment of international consultants for Design Review, and Construction Supervision i s underway e Recruitment o f intemational consultants for preparationo fregulatory framework for the hazardous waste component andbiddocument to procure a PSP contractor is underway e Overall procurement plans, and detailed procurement planby contract, for the wastewater and hazardouswaste components have beenprepared e Two international consultants were engagedfor preparatory work, on the basis of retroactive financing e Advance site work o f piling has commenced for one wastewater treatment plant - 25 -  1.Compliancewith Bank Policies 1. This project complies with all applicable Bank policies. c]2. The followingexceptionstoBankpolicies arerecommendedfor approval. Theprojectcomplies with all other applicable Bank policies. Y L 1 " Thomas L.Zearley Keshav V m a Team Leader Sector ManagerlDireittbr - 26 -  Annex I: Project Design Summary CHINA Guangdong Pearl River Delta Urban Environment Project Key Performance Data Collection Strategy Indicators Sector-related CAS Goal: Sector Indicators: iectorlcountry reports: (from Goal to Bank Mission) Facilitate rural-urban Growth in employment and Iccasional Bank urban and Future urban development, transition underway inChina incomes in urban areas. invironmentalreports. service delivery and by helpingto enhance the environmental conditions productivity o f cities, where Quality andservice coverage 3ankurban sector supervision encourage investment andjob the overwhelming majority o f levels o f environmental nissions. creation inChinese cities. jobs will be created, and the infrastructure inurban areas. quality o f urban environment Expanded investments in andliving conditions. environmental infrastructure and ongoing policy and institutional reforms will lead to sustainableimprovements inenvironmentalquality. GEF Operational Program: Outcome IImpact Indicators: Reduce pollution loading to Increasedvolume o f Iperationalreports Local governments have the Pearl River Delta and wastewater treated political will to share common South China Sea through (190,000,000 m3)and solid facilities. increasedinter and waste disposed (10,000,000 intra-municipal tons). environmental services delivery. Improve water quality data for Regional agencies collecting 3PB management reports, Commitment and sufficient PRD and South China Sea. and sharing relevant water nternational conference. financial allocations by quality data. Guangdong EPB and neighboring jurisdictions. Reduce pollution loading to Increasedvolume o f Local govemments have the Pearl River Delta and wastewater treated Iperational reports political will to involve the South China Sea through (60,000,000 m3)and solid private sector in increasedprivate sector waste disposed (5,000,000 environmental infrastructure. participation inenvironmental tons). services delivery. Project Development Outcome IImpact 'roject reports: (from Objective to Goal) Objective: Indicators: Improve the quality o fthe Percentage o f samples from hnual project reports with Provincial and local environment inkey cities in key PRD rivers meeting ierformance indicators. authorities have political will the PRD, by following an Chinese surface water quality andregulatory tools to ensure integrated regional planning standard (of Class 111) that all major sources o f approach, inorder to facilitate increasedgradually. pollution are effectively continued economic and controlled, and that lax social development. h u a l Review. enforcement does not diminishimpact ofproposed investments on river water - 27 -  Enforcement o f m u a l Review. pality. environmentally safe manifesting, transporting and 3ffective management and treatment o fhazardous waste. inancing continue beyond r o ject implementationinto Increasedvolume o f 4id-term Review. iperational phase. hazardous waste handledand disposed of inan mplementation Completion environmentally safe manner. !eport. Strengthened management )EDSector Assessment capacity o f provincial and [eports municipal agencies responsible for water pollution control andhazardous waste management. Iutput from each Output Indicators: 'roject reports: from Outputs to Objective) :omponent: mproved and expanded Increasedpercentage o f PMOSto monitor project Zxecuting agency will have vastewater treatment municipal and industrial progress and submit inancial and technical nfrastructure inGuangzhou wastewater intercepted and periodic reports. :apacity to successfully 3ty. treated to relevant Chinese mplement project treated effluent discharge Bank to conduct regula]nvestments. standard. supervision missions. A 90% increase intreatment Joint reviewof project o f collected wastewater. progress to take place 2ity authorities will support east-cost technical solution o Collection sewer networks annually and at the ocation o f treatment plants expandedto collect most o f project mid-tem. mddischarge infrastructure. the wastewater generated. [ndividual project designs are ippropriate and not over Increasedpercentage o f total lesigned. generatedwastewater load is captured by the sewer system. Increasedpercentage o f load captured receives appropriate treatment. Increasedeffectiveness of treatment system inremoving pollutants. 'iloting o f improved and Establishment o f shared Provincial and city-level ixpanded environmental infrastructure facilities that governments will support - 28 -  nfrastructure facilities are planned, constructed, and xoposed shared infrastructure onstructed and operated on a operated inan integrated and nanagement, least cost haredbasis by more than one cost effective manner. echnical solutions or location nunicipality inPRD region. Iftreatment plants and Increasedpercentage o f iischarge infrastructure. environmental infrastructure services provided ina cost effective and sustainable fashion. mprovedand expanded Increasedproportion o f Local govemment support iazardous waste treatment hazardous waste generated in ustained for proposed acility for Guangzhou the PRD collected, treated .ethnical solution or location netropolitan area. and safely disposed. Ifhazardouswaste treatment 'acility, and for shared use o f A minimum50% increases in Facilities. hazardous waste safely collected and treated inthe Local authorities are able to Guangzhou Region. :reate sufficient incentives, mdenforce regulations to :nsure that special waste is safely transported to proposed ?reject facilities for disposal. hhancedwater quality Timely availability o freliable Provincial authorities (EPB) nonitoring systems and water quality information for will have adequate resources :apabilities inPRD. decision-making purposes on for staffing and operating the investment priorities and ahanced water quality regulatory actions. monitoring system. Water quality information anc new systems usedby decision-makers 3trengthened institutional Guangzhou wastewater utility Provincial and city-level irrangements for planning, corporatized, number o f authorities continue to suppor 'inancing and managing o f regionaliinter-municipal sector reforms related to Nastewater treatment inPRD wastewater companies formed creation o f autonomous .egion. and financial situation o f utilities, full cost recovery for municipal wastewater utilities services, and piloting o f new participating inproject initiatives for inter-municipal improved. cooperation inprovision o f municipal services. Staffknowledge gained is incorporatedinto professional practice at Provincial and municipal levels. _______ ProjectComponents I Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) Wastewater management Construction o f 1 wastewater Provincial and Guangzhou Wastewater company in in Guangzhou City treatment plant and extension PMOSto prepare regular Guangzhou City established, - 29 -  )fan existing one in lrogress reports. indfacilities operated ina 3uangzhou City to increase iustainable manner. :hetotal capacity by 400,000 'MO provides Bank with n3lday --- US$325.00 leriodic progress reports nillion. vhich compare planned and ctual progress for each iroject component interms o f ost andphysical works. Xonthly (or quarterly) lisbursement reports which ompare plannedwith actual lisbursementsfor each omponent. Iazardous Waste Zonstruction o f landfill for 9 company to manage special Xanagement inGuangzhou reatment o f about 10,000 vaste treatment established in netropolitan area. onslyear o fhazardous waste Suangzhou City, and nGuangzhouCity and )perated ina sustainable mvirons --- US$24.00 nanner. Possibility for the nillion. ilant to accept such wastes ?om nearby towns. lointly managed water supply, lnvironmental infrastructure Yncentive-based lending for 3 ir wastewater treatment nother PRD towns. poups o f two or more dants, or landfills or listrictsltowns willing to ncinerators constructed, and :onstruct shared iperated ina sustainable nfrastructure. MoUs signed nanner, under joint 'or 2 subprojects, to be nanagement by two or more ippraisedinfirst year. Project :owns. illocation --- US$64.9 nillion. ProvincialEnvironmental Yater Quality lonitoring and 'nstallationo f water quality Protection Bureauhas nformation System. nonitoring equipment, data :omprehensive database o f :ollection and decision gater quality inPRD rivers, iupport systems for the indcapabilityto effectively 3uangdong Province --- :nforce pollution control. JS$l 1.6 million. nstitution Strengthening and Zonsultant services for Sufficient interest by 'raining. iroject implementation Provincialand local ;upport, institutional Zovemments to carry out ;trengthening, strategic :apacity buildingand itudies and training --- strategic studies, and to JS$6.40 million. ,mplement appropriate .eforms. 30 -  -31-  ProjectPerformanceMonitoringIndicators The baselineandtargets wouldbe reviewedandupdatedduringthe Project LaunchWorkshop. Indicators(Physical) 2004 2007 2009 Base 1.WastewaterVolume Treated (YO) 50 70 90 2. Compliance with discharge standard(YO) 90 95 95 3. Compliancewith water quality objectives (%) in 89 100 100 GuangzhouPRDArea (%) 4. Quantity of hazardouswaste treatedanddisposedof (tonsiyear) 42,100 48,900 53,900 1 I Indicators (Financial) fat 12007 (2009 Wastewater tariffs implementedto meet financial projections (Yuan perm3) 0.70 1.2 1.5 Hazardouswaste fees and charges implementedto cover costs of collection and disposal (Yuadton) 1,800 2,200 2,500 - 32 -  Annex 2: DetailedProject Description CHINA: Guangdong Pearl River Delta Urban EnvironmentProject The project will promote a regionalplanningapproachto environmental management, to helpreversethe serious deterioration of water quality inthe Pearl River Delta and the South China Sea. This goal will be achieved through support to reductionof the largest source o f landbasedpollutionemanating from China, thereby generating trans-boundary environmental benefitsfor the millions ofpeople whose livelihood and health depend on it. Specific interventions inthe project would address: (a) regional planning o f environmental infrastructure, (b) inter-municipaljointly-managed environmental infrastructure development, (c) environmentally safe treatment and disposal o fhazardous wastes, (d) public private partnerships for infrastructure service provision, and(0 industrialpollutioncontrol. Project components are described below: By Component: Project Component 1 US$325.00 million - Wastewater Management (Total Cost Yuan 2641.8 million) InGuangzhou, theprojectwill finance: (a) construction of anew treatment plantat Dashadiwith capacity o f 200,00Om3/d, (b) expansion o f the Liede facility, comprising expansion o f the existing plant by 200,00Om3/d (Liede 111),and(c) about 500 km o f trunk sewers to convey wastewater from the drainage catchments o f Dashadi and Liede 111, and four other drainage catchments (i.e., Xilang, Lijiao, Datansha andLiede 11). Project Component 2 US$24.00 million - Regional Hazardous Waste Management (Total Cost Yuan 194.0 million) The project will finance construction of the first phaseo fa pre-processing center, comprising a collection and transferring area, a physical/chemical treatment workshop, stabilization andsolidification workshop, and a secure landfill o f 150,000 m3 capacity, to treat hazardous wastes and incinerator ash. The facility will serve Guangzhou andneighboringmunicipalities. Inadditionto design review andconstruction supervision services, theproject will finance consulting services for preparation o f a regulatory framework for hazardous waste management, preparation o f a bid document to engage a PSP operator for the facility, and a waste market survey and corporate market assessment. Project Component 3 US$65.00 million - Inter-municipal EnvironmentalInfrastructure (Total Cost Yuan 524.9 million) The component is a pilot activity to promote environmental infrastructure development by groups o ftwo or more municipalities, districts or towns willing to plan, construct and manage sharedfacilities. GEF grant incentives will be provided to participatingmunicipalities/districts or towns, to support capital and recurrent costs. To be eligible for support under the project, subprojects would have to be: (a) owned and managedby two or more cities, districts or towns, (b) revenueearning investments, (c) environmentalinfrastructure, and (d) - 33 -  preparedto standards satisfactory to the Bank, andmeet safeguardsrequirements Inorder to promotethis initiative, incentives totalingUS$6.8 millionequivalent, willbeprovidedfromthe GEF grant for a maximumof three subprojects. Eacheligiblesubproject will receive: (a) capital cost grant o f about US$1.6 million equivalent, paidintwo installments uponincurringexpenditure 30 percent and 100percent o f the appraised estimate cost o f the subproject; and (b) an O&M support grant o f about US$0.67 million equivalent, paidat 6 months and 18 months after commissioning of the facility. Implementationo f this component will commence after satisfactory appraisal by the Bank o f the fiamework and individual investment proposals consistent with the approved framework. A GEF grant o fUS$O.1 million has beenprovidedto support the preparation o f a framework establishingthe overall principles and guidelines for sharingcosts, ownership, operation and maintenanceof environmental facilities, and provide institutional models for construction andmanagement of sharedfacilities. Investmentcosts for all three subprojects will be financed with own funds. Approved subprojects will receive the capital grant and O&M grant support only. Notwithstanding the source o f funds, the subprojects will be prepared to the same standardsas those fundedunder the loanproceeds, andprocured inaccordancewithBankprocurementprocedures. Memoranda of Understanding(Mow have been signed by two groups o f towns willing to develop jointly-managed environmental infrastructure. Feasibility studies for these two subprojects are inan advanced state o f preparation. The thirdsubproject will be selectedlater. Two subprojects are described briefly below. ShenzhenPingshang River Wetland Treatment Works. The subproject is intendedto improve water quality o f the Pingshang River in Shenzhen. Itis proposed to treat about 230,000 m3lday average river flow (and 60000 m3/d indry river flow period), with preliminary treatment andtraverse through wetlands. The preliminary base cost estimate is Yuan 115.2 million. Luoxi Island Wastewater Wastewater TreatmentSystem. Wastewater from Luoxi Island currently being discharged untreated to Pearl River, will be intercepted and conveyed to the Lijiao Wastewater treatment plant inGuangzhou througha conveyor will be designedfor aplannedwastewater flow of 60,000 m3/d. The preliminary base cost estimate is at Yuan 113.1 million. A parallel relatedkey activity supported under the project is the reviewandupdating ofthe PRD wastewater master plan (also referred to as the PRD Cleanup Campaign-PRDCC). A GEF grant o f US$0.4 million has beenprovided for the review andupdate of the PRD wastewater master plan (PRDCC), inorder to review anambitious and costly planto construct 162treatment plants. Project Component4 US$11.60 million - Water Quality MonitoringandInformationSystems(Total CostYuan 94.0 million) The component, yet to be appraised, i s likely to include: (a) renovationand updating o f 5 existing monitoring stations; (b) construction o f 18 new automatic monitoring stations (7 regional, 7 municipal level, and 4 inthe estuary); (c) a provincialcontrol center, including hardware and software and applications; (d) a website with information anddata; (e) a decision support system including management information system, databases, pollutioncontrol monitoringapplications, andGIs, and (0support for data sharing, comprehensivepollutant database development, andcollaboration withHongKongfor regional environmental management. - 34 -  The component will be implementedfollowing satisfactory appraisal by the Bank. Physical investments @e., works and goods) underthe component will be financed with own funds. A portion o f the GEF grant amounting to US$1.85 millionwill be provided to implementthe technical assistance package. Notwithstanding of the source of funds, the component will be prepared to the same standards as those fundedunder the loanproceeds, andprocuredinaccordancewith Bankprocurement procedures. Project Component 5 US$6.40 million - InstitutionalStrengtheningandTraining (Total Cost Yuan 51.8 million) The project would finance consultant services for: (a) financialhnstitutional support, training and equipment for the Guangzhou Sewage Treatment Co; (b) metropolitanand regional planningto develop management strategies for the Gangzhou-Foshan(Guang-Fo) region, (d) public hygiene promotion program; and (e) study tours andtraining. - 35 -  Annex 3: Estimated Project Costs CHINA: Guangdong Pearl River Delta Urban Environment Project CHINA Guangdong Pearl River DeltalUrban EnvironmentF % % Total ExpenditureAccounts Project Cost Summary (RMB Mllllon) (US$ Mllllon) Foreign Base Local Foreign --- Local Foreign Total Exchange Costs 1. Investment Casts A. Civil Works 1,007.1 443.0 1,450.0 125.9 55.4 181.3 31 48 B. Equipment & Materials 280.1 132.8 412.9 35.0 16.6 51.6 32 14 C. Construction Management Services 5.5 22.1 27.6 0.7 2.8 3.5 80 1 E.TechnicalAssistance 63.0 19.3 142.3 7.9 9.9 17.8 56 5 F. Training 6.5 26.0 32.5 0.8 3.3 4.1 80 1 G. Global Environment Facility 58.3 21.3 79.6 7.3 2.7 10.0 27 3 H.LandAcquisition & Resettlement 652.2 652.2 81.5 81.5 21 I.Engineering&Management 251.5 - 251.5 31.4 - 31.4 8 Total BASELINECOSTS * 2,324.2 724.5 3,048.6 290.5 90.6 381.1 24 100 Physical Contingencies 214.3 68.4 282.7 26.8 8.5 35.3 24 9 Price Contingencies Total PROJECTCOSTS 2,665.9 840.6 3,506.5 328.5 103.3 431.9 24 113 - 36 -  Tsbis 1. W~dewsterManagement Detailed Costs (RMB Million) 0a.e cos1 Totel. IncludingConllngenci~~ 2004 2005 2006 2007 2008 2009 Total 2004 ZOO5 2008 2007 2008 2009 Total I. In"..lment corts A. Waslawater Msnrgement-Ll.da 111 1. Civii Works LDPlCl Site PreparationWorks 8.3 6.3 - - - - 12.6 7.0 7.1 . . - . 14.1 LDPICZWa~tewalerTioatmsnl PiantMar S l l ~ t l ~ i e 6 8 - 6 5 130 26.0 130 6.5 85.1 . 7.4 151 30.8 15.7 8 0 77.1 LOPIC3 Network 18"J i m Da Dao Area . 3.9 7.8 15.6 7.8 3.9 39.1 - 4.4 9.1 18.5 9.5 4.8 46.3 LOPIC4 Nstwaik Zhang Shan Da Daa Area 3 1 5.2 12.4 5 2 3.1 31.1 - 3.5 7.2 14.7 7.5 3.8 368 LOPIC5 Network: Gaung Shan Gang l u Area 2.2 4.5 9.0 4.5 2.2 22.4 2.5 5.2 10.6 5.4 2.8 26.5 LDPIC6 Network: Gusng Yuan Lu NortheastArea 3.8 7.6 15.2 7 6 3.6 38.1 4 3 8.8 18.0 9.2 4.7 45.1 LDPiCl Network Ka Lun Yu Area .... 3.7 7.4 14.7 7.4 3.7 36.8 ... 4.2 8.5 17.4 8.9 4.5 43.5 LOPIC8 Network: Tan Xia Cun Area - 3.5 6 9 13.8 5.9 3 5 34.5 . 3 9 6.0 16.3 6.3 4.3 40.6 LDPiC9 Network Che Be! Chang Area - 2.7 5.4 10.8 5.4 2.7 26.9 . 3.0 6.2 12.7 6.5 3.3 31.8 LDPlClO Network: Yuan Cun DiaCict . 4.0 8.0 16.1 8.0 4.0 40.2 - 4.5 9.3 19.0 9.7 5.0 47.6 Sublotsi Civii Works 6.3 39.7 66.8 133.7 66.8 33.4 346.6 7.0 44.9 77.4 158.3 60.8 41.3 409.6 2. ~ ~ Matariais~ a i ~ ~ ~ ~ t LDPlEl Piant8 Equipmentlnrtnllatian . . 44.5 35.6 8.9 89.0 . . 51.8 42.2 10.8 . 104.5 LDPIEZ Vehicier8 Office Equipment . . . 2.2 0.2 -. 2.4 2.3 0.3 . 2.5 LDPlE3 Power 8 Water Suppiy - . . . 2.0 2.0 4 0 .. .. -. . 2.4 2.5 4.9 Subtotal Equipment 6 Materish - . 44.5 37.8 11.1 2.0 95.4 . . 51.6 44.5 13.4 2.5 112.0 Subtotal Waitewater Mansg.mant-Liade 111 6.3 39.7 1113 171.4 76.0 35.4 442.2 7.0 44.9 1290 202.8 94.3 43.7 521.7 0.Wa.tawater MansgemenbDaehrdi 1.Civii Work;. DsOPlCl Sits PreparationWorks 7.2 . . . . . 7.2 8.0 . - . . . 8.0 DSDPICZWastewater Treatment Plant SWuL~ree - 8.7 17.3 34.7 17.3 8.7 86.7 . 9.8 20.1 41.1 21.0 10.7 102.6 DSDPiC3 Network. Wu Chong OuthArea 4.4 8.9 17.7 8.9 4.4 44.3 5.0 10.3 21.0 10.7 5.5 52.4 DSDPIC4 Network HuangpuEast Lu Ares .. 4.4 8.7 17.5 8.7 4.4 43.7 .. 4.9 10.1 20.7 10.6 5.4 51.7 DSDPIC5 Network. Zhang Sgan Da Dao Area . 3 8 7.6 15.2 7.8 3.8 36.0 . 4.3 8.8 18.0 9.2 4.7 45.0 DSDPIC6 Network Shsn Chong Ares - 4.2 6.5 17.0 8.5 4.2 42.4 . 4.8 9.8 20.1 10.3 5.2 50.2 DSDPIC? Network. Hi Lin Lu Arse 3.0 6.0 12.0 8.0 3.0 29.9 3.4 6.9 14.2 7.2 3.7 35.4 DSDPiC8 Network Hai Yuan Lu Area 3.8 7.5 15.1 7.6 3.8 37.8 4.3 8.8 17.9 9.1 4.7 44.7 DSDPIC9 Network: Misc4ansoui ... 4 7 9 3 16.8 9.3 4.7 48.6 --. 5.3 108 22.1 11.3 5.8 55.2 DSDPIC10 Network Zhu Jiang Chong Ares . 1.8 3.3 6.8 3.3 1.8 16.4 - 1.9 3.8 7.6 4.0 2.0 19.4 Subtotal Civil Works 7.2 38.6 77.2 154.3 77.2 38.5 393.0 8.0 43.7 89.4 182.7 93.3 47.6 4 w . i 2. Equipment 6 Materials DSDP/El Piant8 Equipmentln~lsllat'on 47.3 37.8 9 5 . 84.6 . . 54.8 44.8 11.4 . 111.1 DSDPIE2 Vehicles and Office Equipment .. .. - 2.2 0.2 - 2.4 - . 2.3 0.3 . 2.6 DSDPlE3 Power 8 Wstsr Suppiy . 2.0 2 0 4.0 2 4 2.5 4.9 Subtotel Equipment 6 Matdais .. .. . 47.3 40.0 11.1 2.0 101.0 .. -.. . . 54.8 47.1 14.1 2.5 118.5 Subtotal Wastewater Msnag.m.nl-Dashadi 7.2 38.6 124.5 194.3 88.9 40.6 494.0 8.0 43.7 144.2 229.9 107.4 50.1 583.2 c .Wa.tew.br Banrg.m~nt.Oth~~ Nelworks 1.Civii Works DTSSNlCl Network GuaogQln LU Ares 4.1 8.1 15.3 8.1 4.1 40.7 . 4.6 9.4 19.3 9.8 5.0 48.2 DTSSNIC?Network:EarLNorthArea .. 4.7 9.4 18.9 9,4 4.7 47.2 - 5.3 109 22.4 11.4 5.8 55.9 DTSSNiC3 Network: East-Middle Aiaa - 4.8 9.5 190 9.5 4.8 47.6 - 5.4 11.0 22.5 11.5 5.9 56.4 DTSSNlC4 Network West Area - 4.8 9.5 19.0 9.5 4.8 47.6 . 5.4 11.0 22.5 11.5 5.9 56.4 OTSSNlC5 Pump Stations (Nos. 8 8 91 - 0.9 1.7 3.5 1.7 0.9 8.7 . 1.0 2.0 4.1 2.1 1.1 10.3 KLSNIC6 Network LongXI Lu East Area 5.2 10.3 20.6 10.3 5.2 51.6 5.8 12.0 24.4 12.5 5.4 61.1 LDSNlCl Network Hua Nan LuArea .. 0.9 1.9 3.8 1.9 0.9 9.4 -. 1.1 2.2 4.5 2.3 1.2 11.1 LJSNlC6 Network Jian Xlao Lu Area . 4.2 8.4 16.8 8.4 4.2 42.0 . 4.8 9.7 19.9 10.2 5.2 49.7 LJSNIC9 Network: DongXiao Nan Lu Area 4.3 6.7 173 8.7 4.3 43.3 4.9 10.0 20.5 10.5 5.3 51.3 LJSNICIO Network Gong Yo Ds Os0 Area -. 3.7 7.3 14.5 7.3 3.7 36.6 -. 4 1 6.5 11.3 8.9 4.5 43.3 LJSNICll Network: Xin iiao Nan Lu EastArea - 4.0 6.0 16.0 8.0 4.0 40.1 - 4.5 9.3 19.0 9.7 5.0 47.5 Subtotal Clvii Works - 41.5 83.0 185.9 83.0 41.5 414.8 . 46.9 96.1 198.5 100.3 51.2 491.1 D. Technical Assistance 6 Tnininp WWTiTl Con~vltantrrSevises far Inuestigaticns8 Detailed Dawn 8.0 8.0 - . - . 16.0 8.9 9.1 - - - - 17.9 WWTIT2 conrvitantr S8NiC.S for Investigations and DetaiiadDesign 190 19.0 . . . . 36.0 21 1 21.5 . . . . 42 6 w i T 3 consuitants servicss for Design Review 8 Certificalion - 5.2 5.2 . . . 10.4 . 5.9 6.0 . . . 11.9 wwTiT4 Cms1Iust1onSupervision8 Oualily Control - 3.6 6.0 6.0 6.0 2.4 24.0 . 4.1 7.0 7.1 7.3 3.0 26.3 WWTiT5 ProtectOrganization, Implementation8 Mngt 2.4 6.0 6.0 6.0 3.6 . 24.0 2.7 6.8 7.0 7.1 4.4 27.9 WWTn6 inrtitutwnalSupport8 Training - 5.0 5.0 5.0 5.0 - 20.0 . 5.7 5.8 5.9 6.0 .. 23.4 SubtotalTechnical As.i.tanse 1Training 29.4 46.8 22.2 11.0 14.6 2.4 132.4 32.6 53.0 25.7 20.1 17.7 3.0 152.0 E. Land Acq~isition& Re.enlemen1 1. LandAcquisition 8 Reiettiement 300.3 150.1 150.1 . - . 6W.5 332.9169.9 174.0 . - . 576.7 F. Enginmeringa Management Civil Works 0.6 4.0 6.7 13.4 6.7 3.3 34.7 0.7 4.3 7.4 15.1 7.7 3.9 39.1 Civii Works 0.7 3.9 7.7 15.4 7.7 3.9 39.3 0.8 4.2 8.5 17.4 6.9 4.5 44.4 Civii Works 4 1 8.3 16.8 6 3 4.1 41.5 4.5 9 2 18.8 9.8 4.9 48.9 EquipmenlB Materisls 4.5 3.8 1.1 0 2 9.5 4.9 4.3 1.3 0.2 107 Equipment8 Materiais ... .. 4.7 4 0 1.2 0.2 101 --. .. 5.2 4.5 1.4 0.2 11.3 LandAcquisition 8 Resettlement 30.0 15.0 15.0 . . . 60.1 31.6 16.2 15.6 - . - 646 Subtotal Engin-ring 6 Management 31.4 27.0 46.9 53.2 25.0 11.7 195.2 33.2 29.2 51.9 60.1 26.8 13.6 217.0 374.5 343.7 538.0 601.6 269.4 1315 2,279.1 413.7 387.5 620.9 709.4 348.5 161.8 2,641.8  Table 2. HazardousWaste Management Detailed Casts (RMB Million) Easa Cost Totals lncivdlngContlngenclas 2004 2w5 2008 2007 2008 2wo TOM 2004 zws zoo6 zoo7 zow zws TOW A. Civil Wohs HWM1.l Site Works, Access Roads 0.4 3.6 - - . - 4.0 0.4 4.1 - - 4.5 HWM1.2Buildings 8 Leachate Treatment Facility . 17.9 17.9 - - 357 . 202 20.7 . - 40.9 HWMI 3 Landfill Earthworks 8 HOPELiner . 19.9 6.6 - . 26.5 - 225 7.7 - . 30.2 HWWl.4 Office8 Other Buildings . 10.1 3.4 . - 13.5 - 11.5 3.9 - - 15.4 SubtotalCivilWorks 0.4 51.5 27.9 . . . 79.7 0.4 58.2 32.3 . - 90.9 B. Equipment 8 Materials HWM2.1LandflllEquipment 8 Vehicles . 14.9 14.9 - - 29.8 - 15.3 15.7 - - 31.0 C. Technical Asslstanse8 Training HWM3.1FeasibilityStudy Preparation(lncl. SOGREAH Contract) 1.4 . . . . . 1.4 1.6 - - 1.6 HWM3.2Detailed Design of Facility 4.2 . . . - 4.2 4.7 - - 4.7 HWM3.3 GeotechnlcalSurvey 0.5 . . - 0.5 0.6 . . 0.6 HWW3.4 Design Review8 Certification ConolructionSupewision 8 QualityContmi 1.8 0.9 0.9 . . 3.6 2.0 1.0 1.0 - . 4.1 HWM35 GEF-supportedReguialow 8 InstitutionalFramework 8 Bid Documentfor Selectionof Operator - 1.8 1.8 - . 3.6 - 1.8 1.8 - - 3.6 HTM3.6GEF-supportedPreparationof Waste MalXet Suwey 8 CorporateMarketAspesmsnt - 0.2 0.2 - - 0.4 - 0.2 0.2 - . 0.4 HWW3.7Training 8 Study Tours - 0.8 0.8 . - 1.5 . . 0.9 0.9 - - 1 8 SubtotalTechnical Assistance &Training 7.9 2.9 3.7 0.8 . - 15.2 8.8 3.0 3.9 0.9 . . 16.6 0. LandAcquisition &Resettlement 35.3 . . . - 35.3 39.1 - - 39.1 E. Engineering 8 Management Civil Works 0.0 5.1 2.8 - - 8.0 0.0 5.8 3.2 - . 9.1 Equpment 8 Materials . 1.5 1.5 - . 3.0 . 1.7 1.7 . - 3.4 LandAcquisition8 Resettiemen1 3.5 . . - 3.5 3.9 - - 3.9 subtotal ~ n g i n e e h g Management 8 3.6 6.6 4.3 - - 14 5 4.0 7.5 5.0 - . 16.4 Total 47.2 75 9 50.7 0.8 - . 174.5 62.3 84.1 56.8 0.9 - - 194.1 - 38 -  Table 3 inter-municipalEnuronmenlal InfrastNCtum Detailed Costs (RMB Million) Base co*t Totals Including Contlngenclss 2004 2005 2006 2007 2004 2009 Total 2004 2005 2006 2001 2008 2009 Total i.Investment Costa A. Civil Works iMil.l CivilWorksfor Luoxi IslandWastewater System 6.8 40.7 20.4 - 67.9 7.5 46 1 23.6 - 77.2 iMil 2 CivilWorksfor Shenrhen-Pingahan RiverWelland Treatment Works 6.9 41.5 20.7 69.1 7.7 46.9 24.0 78.6 iMll 3 CivilWorks: (To be determined) 7.2 432 21.6 72.0 8.0 48.9 25.0 81.9 Subtotal Clvil Works 20.9 125.4 627 .. .-. 209.0 23.2 141.9 72.7 -- 237.7 6.Equipment 6Materials iM12.1 Equipmentfor LuoxiIslandWastewater System - 36.2 9.0 - - 45.2 . 40.9 10.5 . 51 4 iMi2 2 Equipmentfw Shnzhen-Plngshan RiverWetlandTreatment Works 36.9 9.2 . 46.1 41.7 10.7 52.4 lM12.3 Equipment& Msten'ab: (To be determined) 38.4 9.6 -- 48.0 435 11.1 54.6 Subtotal Equipment 8 Materials --. 111.4 27.9 -- . 139.3 --- 126.1 323 ..- 158.4 C. Technical Assirtanen 8Training IM13.1Coni~llantsServicesfor DesignReview& Certification 2.5 2.5 5.0 2.8 2.9 . 5.7 IM13.2 Design Renew S e ~ c e slnvestigationa . .. 5.0 5.0 .- -- 10.0 .- 5.7 5.8 . 115 IM13.3 GEF-supportedPreparallonof Bid Document to Select Operator (BOT)for WastewaterOperation . 1.6 1.6 . . 3.2 - 1.6 1.6 - 3.2 iM13.4GEF-suppartedStudy & Workshopson inter-orInIramunicipal Cooperation - 0.4 0.4 . - 0.8 . 0.4 0.4 - 0.8 iM13.5 GEF-supportedUpdating PRD Wastewater MWlt Plan 8 DetailedStudyof Fonhan WastewaierMaster Pian 0.8 1.6 0.8 3.2 0.8 1.6 0.8 3.2 Subtotal Technical Assirtan- 8Training .. 10.3 11.1 0.8 .- -- 22.2 -- 11.3 12.3 0.8 .- .. 24.4 D. Global Environment Facility Support CapitalGrant - 11.7 27.3 - . 39.0 - 11.7 27.3 - - 390 OaM Granl - - 7.0 7.0 14.0 . 7.0 7.0 14.0 Subtotal Giobal Environment Facility Support - 11.7 27.3 7.0 7.0 53.0 - 11.7 27.3 7.0 7.0 53.0 E. Land Acquisition 8 Resnttiement . 5.0 5.0 - . 10.0 - 5.3 5.4 - - 10.6 F. Engineering 8 Management CivilWorks 2.1 12.5 6.3 20.9 2.3 142 7.3 - 23.8 Equipment8 Materials . 11.1 2.8 13.9 . 12.6 3.2 . 15.8 LandAcquisition8 Resettlement Subtotal Engineerlng 6 Management 2.1 237 9.6 0.5 - - 35.8 2.3 26.8 11.1 0.6 . . 40.8 23.0 270.8 127.9 33.6 7.0 7.0 469.3 25.5 306.1 145.3 34.1 7.0 7 0 524.9 - 39 -  Table4. Water Quality Monitoring8 InformationSystems Detailed Costs (RMB Million) Base Cost Totals IncludingContingencies 2004 2005 2006 2007 2008 2009 Total 2004 2005 2006 2007 2008 2009 Total I.InvestmentCosts A. Civil Works WQM1.1 lnstaliation8 Testing Equipment (Renovation8 Upgradingof 7 existingAMs) - 0.1 0.5 0.3 - . 0.9 - 0.1 0.6 0.3 - - 1.0 WQM1.2 Installationand Testing Equipment(New AMs) - 0.5 3.2 1.6 - - 5.4 - 0.6 3.8 1.9 - 6.3 ~ WQMl.3 LaboratoryConstruction - 0.2 0.2 - 0.4 0.2 - 0.5 ~ ~ - 0.2 ~ ~ Subtotal Civil Works - 0.8 4.0 1.9 - - 6.7 - 0.9 4.6 2.2 - - 7.8 6.Equipment 8 Materials WQM2.1 Equipmentfor renovation 8 Upgradingof existin! - - - 3.8 1.0 0.3 5.1 -~ - 4.5 1.2 0.3 6.1 WQM2.2 QualityAssuranceEquipment(11 new AMS) - - . 1.4 0.4 0.1 1.8 - . - 1.6 0.4 0.1 2.1 WQM2.3 AMS Equipmentand Devises(11 newAMs) - - - 21.6 5.8 1.4 28.8 25.6 7.0 1.8 34.3 ~ ~ ~ WQM2.4 LaboratoryQuality Controi Equipmenrt, Spare parts8 Accessories - . 0.5 0.1 0.0 0.7 - - - 0.6 0.2 0.0 0.8 WQM2.5 Spare Parts,Accessories - - 0.5 0.1 0.6 ~. - O S 0.1 0.0 0.7 ~ 0.0 WQM2.6 ComputerHardwarefor ProvincialControlCentf - - 3.0 0.8 0.2 4.0 - - - 3.6 1.0 0.2 4.8 ~ WQM2.7 Software - - 1.0 - - 1.0 . 1.2 - - 1.2 ~ - - WQM3.1 Aeration,TemperatureControl System (newAM - - 0.7 0.7 - 1.4 - - 0.8 0.8 - - 1.6 ~ WQM3.2 LightningProtection (New AMS) - - 1.4 - - 1.4 - - - 1.7 - - 1.7 WQM3.3 Water, ElectricalSupplies and Security - - 1.4 0.7 0.2 2.4 - - - 1.7 0.9 0.3 2.9 WQM3.4 Power8 WaterServices to Laboratory - . 0.1 0.1 0.0 0.2 - . - 0.1 0.1 0.0 0.2 ~ Subtotal Equipment 8 Materials 0.7 35.4 9.0 2.3 47.4 - 0.8 41.9 10.9 2.9 56.5 ~ ~ ~ C. Technical Assistance 8 Training WQM4.1 GEF-supportedDatabaseDeveiopment8 Mana, - 0.2 0.4 0.3 0.1 - 1.0 - 0.2 0.4 0.3 0.1 - 1.0 WQM4.2 GEF-supportedAMS Data Collection - 0.3 0.6 0.5 0.2 1.6 - 0.3 0.2 - 1.6 ~ 0.6 0.5 WQM4.3 GEF-supportedPollution Source lnvestigitation Research8 Data Mining - 0.6 1.2 0.9 0.3 - 2.9 - 0.6 1.2 0.9 0.3 - 2.9 WQM4.4 GEF-supportedGIS Development - 2.7 - - - 2.7 - - 2.7 - - - 2.7 WQM4.5 GEF-supportedDatabaseSoftware - 1.4 - - - 1.4 - - 1.4 - - - 1.4 ~ WQM4.6 GEF-supportedQNQC RegulationsCompiling - 0.3 0.3' 0.3 0.3 - 1.0 - 0.3 0.3 0.3 0.3 - 1.0 WQM4.7 GEF-supportedStaff Training &Documentation . 0.3 0.3 0.3 0.3 1.0 - 0.3 0.3 0.3 0.3 . 1.0 ~ WQM4.8 GEF-supportedSharedAir 8 Water Quality Databaseon PRD-SouthChina Sea Pollution 0.4 0.4 0.4 0.4 . 1.7 0.4 0.4 0.4 0.4 - 1.7 ~ ~ WQM4.9 GEF-supportedConferenceon PRD-SouthChina Sea EnvironmentalmanagementFramework - 0.4 . - - 0.4 - - 0.4 - - 0.4 ~ WQM4.10 GEF-supportedPollutionMonitoringlnformatio - 0.4 0.4 0.4 0.4 - 1.7 0.4 0.4 0.4 0.4 - 1.7 ~ Subtotal Technical Assistance 8 Training - . 2.5 8.1 3.0 1.9 - 15.4 - 2.5 8.1 3.0 1.9 - 15.4 D. LandAcquisition8 Resettlement 3.2 3.2 - - - . 6.4 3.5 3.6 - - - 7.2 E. Engineering 8 Management Civil Works - 0.1 0.4 0.2 - - 0.7 - 0.1 0.5 0.2 - ~ 0.8 Equipment8 Materials - 0.1 3.5 0.9 0.2 4.7 - - 0.1 4.2 1.1 0.3 5.6 LandAcquisition8 Resetlement 0.3 0.3 - - - 0.6 0.4 0.4 - - - 0.7 ~ Subtotal Engineering 8 Management 0.3 0.4 0.5 3.7 0.9 0.2 6.1 0.4 0.5 0.5 4.4 1.1 0.3 7.1 3.5 6.9 13.2 44.0 11.8 2.5 82.0 3.9 7.5 14.0 51.6 13.8 3.1 94.0 -40-  Table5. InstitutionalStrengthening8 Training Detailed Costs (RMB Million) Base Cost Totals Including Contingencies 2004 2005 2006 2007 2008 ZOOS Total 2004 2005 2006 2007 2008 2009 Total I.InvestmentCosts A. Technical Assistance PackageA.l Guangzhou Wastewater TreatmentCo: Financial/lnstitutionalSupport Training& Equipment/a - 2.5 2.5 2.5 2.5 - 10.0 - 2.8 2.9 3.0 3.0 - 11.7 Package8.1 MetropolitanGuanfo Development &Management Strategies 8 RegionalPlanning - 5.0 - ~ 5.0 5.0 5.0 20.0 5.8 5.9 6.0 6.2 23.9 Package 8.2 PublicHygieneProgram Public Education & Master Plan Preparation . 0.7 0.7 0.7 0.7 - 2.8 - 0.8 0.8 0.8 0.8 ~ 3.3 Package 8.3 StudyTours 8 Training - 2.8 2.8 2.8 2.0 - 11.0 - 3.1 3.2 3.3 3.3 - 12.9 - 6.7 ~ 6 . 0 1 1 . 0 11.0 11.0 5.0 43.8 12.7 13.0 13.2 6.2 51.8 -41 -  Annex 4: Cost EffectivenessAnalysis Summary CHINA: Guangdong Pearl River Delta Urban Environment Project PRDRegion and Guangzhou-Foshan MetropolitanArea The Pearl River is China's thirdlongest river and is secondonly to the Yangtze interms of annual average flow. The Pearl River Delta (PRD) is home to over 40 millionpeople who live in25 administratively-defined cities and three counties (further dividedinto 534 towns, townships and sub-municipal districts) inGuangdong Province, andintwo Special Administrative Regions-SAR-(Hong Kong and Macau). The Delta is also complex geographically. The Pearl River has three major branches -- Xi Jiang, BeiJiang and DongJiang-and discharges into the South China Sea through eight principal tributaries. The PRDregion of Guangdong Province is one ofthe most heavily populated, industrializedandurbanized regions inChina, andwas an early experimental site o f China's open-door policy inlate 1970s. Since then, most o f PRD inGuangdong Province has benefited significantly from the nation's economic reform and export-oriented development andwitnessed phenomenal economic growth, mostly due to large inflows of direct foreign investment, initially inlow value-added manufacturing, andmore recently inhigher value-added manufacturing and services, and poweredby large inflows o f low-cost migrantworkers from peripheral areas inGuangdong and from poor provinces. The GDP of the PRDregion (including HongKong andMacau) was US$273 billion in2001. The GDP of the region (excluding HongKongand Macau) grew at an average annual rate of 14.7% over the period 1990-2000. The region captures 85% of all foreign direct investment into China andrepresents33% o f China's exports. Some 280 o f the world's 500 largest companies have a presence inthe PRD. The delta has become,oneof the engines drivingChina's economic growth and is looming as `the new workshop of the world'. Itis predicted that the economic growth ofthe PRD region will continue inthe years ahead. The PRD region can be further divided into sevenurbanclusters (Chreod, 2003). A major one is known as is "Guang-Fo" metropolitanregion, comprising Guangzhou City, Foshan City, Nanhai, and Shunde. As the provincial capital, GuangzhouCity is the political, economic andculturalhubofthe PRD. Itis the primary areaof the proposedproject; Foshan City andother neighboringcities may participate inthe project through the Inter-municipal Environmental Infrastructure component. (million) Density (personsh') (billion Yuan) (Yuan) Guangzhou 7.1 1,551 268 38,007 Foshan 3.4 6,4 16 119 32,99 1 Shenzhen 1.3 678 195 152,099 Dongguan 1.5 624 58 37,777 The PRD's rapid economic growthhas come at aheavy environmental cost. In2000 the PRDregion (excluding Hong Kong andMacau) generated 11.5 million tons o fwastewater per day, representing about 80% o f that generatedinGuangdong province as a whole. Investment inenvironmentalprotection has not -42-  kept pace with the region's rapideconomic advancement, as is evident inthe serious deterioration inriver water quality and significant impacts on public healthandthe quality o f life. Wastewater treatment capacity inthe PRD region is only 2.6 milliontons per day, equivalent to only 28% o f total wastewater generated. Environmentally safe dsposal o f sludge from wastewatertreatment plants is onlyjust beginninginthe PRD, with a first plant, currently under construction under ajoint venture BOT contract, to serve Guangzhou city. Treatment o f sludge from the expandedwastewater treatment plant capacity now being installedis a major challenge to the PRD cities. Except for wastewater collection and simple landfills for solid wastes, most cities inthe PRD have limitedfacilities for waste management, andlittle experiencewith least cost planning, designing, financing, managing, and operating wastewater, solidwaste, andhazardous waste treatment. According to China's 2002 Environment Statement, the water quality at 9 o f the 49 monitoring stations scatteredalong the entire Pearl River was at Class IV or V and 4 others were even worse than Class V. Many urban sections o f the Pearl River, especially inthe vicinity o f Guangzhou, are at Class V or worse. This deteriorating environmental situation poses a seriousthreat to drinkingwater sources, includingthe drinkingwater supply to HongKong. Italso rendersthe river system unsuitable for irrigation, aquaculture, and potential recreational uses, andcontributes to serious pollutiono f the South China Sea. GPGEnvironmentalPrograms-The PRDClean-upPlan Public awareness o f these environmental threats has risen inrecent years inthe PRD. The Guangdong Provincial Government (GPG) is committedto achieving sustainable development inthe PRD through controllingpollutionandenvironmental degradation inPRD. Inresponse to the urgent demandfor PRD clean-up, GPG recently set up its long term environmental objectives for the PRD region, including achieving Class I11Standard for water quality, which would allow the river system to be usedas a source o f drinkingwater supply. To achieve its goals, GPG is also introducing a number o f policy actions, including the PRD Clean-up Plan ,theintroductionofincreasedcost-recovery throughrealistic pricing, moreefficientallocationof investment resources, andthe promotion of innovative forms o fprivate sector involvement. The PRD Clean-up Plan, announced by the Guangdong EnvironmentalProtectionBureau (GDEPB) in2002, envisagesan investment o f US$5 billion investment over a span o f eight years for the construction o f 162 wastewater treatment plants. For the Guang-Fo metropolitan region the wastewater treatment strategy is to treat 50-60% o f domestic wastewater and 85% o f industrialwastewater by 2005. By 2010, the percentage o f domestic wastewater treated will reach 70% with treatment capacity o f4.9 m3/d inabout 34 wastewater treatment plants (WWTP) o f varying capacities distributedthroughout the PRD. Ithas beenproposed that all urban administrations with a population over 10,000 would have a waste water treatment facility. These PRD pollutioncontrol plans are ambitious andnot without questions on their cost-effectiveness and the feasibility ofimplementation. For instance, manyofthe WWTPs plannedinthe PRD Clean-up Plan are on the basis o f narrow administrativejurisdictions rather than drainage catchments and they take little into account of the economies of scale. Inaddition, the Plan does not effectively address the non-point source pollutionchallenge (e.g. agriculture andindustrial livestock). Considerable opportunities exist to improve the planningapproach through making the planmore realistic inimplementation, least cost and financially feasible, operationally efficient, and providing a larger role for the private sector. The proposed - 43 -  project is specially designedto demonstratecost-effective approaches. The Baselineandthe "Without-project"Scenario The quantities of industrialwaste water discharges inGuangdonghave declined over the period 1992- 2001 from 1.419 billionm3/year to 1.13 billionm3/year. However, the domestic water consumption and wastewater flows have increasedat a greaterrate, having almost doubled form 2.688 billion m3lyear to 5.110billion m3lyear during the same period. Table 2 projects the average daily wastewater flows (ADWF)inGuangzhou City duringthe period 2000 2025. Althoughper capita wastewater flows - decrease over the period, the overall flows andpollutionloads continue to increaseas a consequenceo f economic development andpopulation growth. Table 2: Summary of ADWF Projections for Guangzhou City 2000 2005 2010 2015 2020 2025 EightOldDistricts ADWF 1.524 1.570 1.549 1.526 1.564 1.597 (Mm3/day) Total Guangzhou City (Mm3/day) 2.468 2.567 2.561 2.550 2.644 2.732 Average DWF/capita/day 248 239 221 203 195 186 InGuangzhouthere are only two majorWWTPs (Liede Iand11,DatanshaIand11)andafew small-scale WWTPs (Conghua IandEconomic Zone WWTP). Their total operational capacity is only about 670,000 m3/day, approximately equivalent to only 32% o f total municipal wastewater discharges. As a result, water quality inmany urban sections o f the Pearl River, especially inthe vicinity o f Guangzhou, is at Class V or worse. Water pollutionimpacts andwater quality management ofthe PRDregion are hrther complicatedby tidal effects, which mean that discharges from a downstream city can be largely responsible for the water quality o f an upstream city. Water quality management o f the PRD region thus has to be addressedthrough collaboration of all cities inthe region, inparticular the neighboring cities o f Guangzhou and Foshan. Without the project the water quality o f Pearl Riverwill decline further. The consequenceso f the increasing deterioration ofthe water quality would be an increase inthe costs o f water supplyand treatment, public healthproblems, and constraints on the development o f tourism, fishing andother uses of the river. Moreover, without the proposedproject, which will demonstratesinnovative, cost-effective, and collaborative pollutionabatement strategies for the region, the cost o f pollutionclean-up o f the PRD would higher later, and could also threatenthe economic development and sustainability ofthe region. Summaryofbenefitsand costs: The ultimate objective the GuangdongPearl River DeltaUrbanEnvironment Project (GPRDUEP) is to provide a safe environmental setting for the sustainable long-term economic growth o f the mainurbanareas o f the PRD region o f Guangdong Province. Inparticular, the project aims primarilyat developing cost-effective pollutionmanagement strategies, investment plans, andinstitutional models which can serve as a "blue-print project" for the whole PRD Region. The project will support several important themes and specific goals ofthe CAS: the safeguarding o f the environment and the reduction o f infrastructure bottlenecks. The project would also help China meet one o f - 44 -  the MillenniumDevelopment Goals (Goal 7), which is to "improve the environment by implementing national strategies for sustainable development by 2005". Specifically, the project will support the following investments: 0 UrbanWastewaterManagement: construction of a wastewater treatment plant (WWTP), extension of an existing WWTP, and construction of a large network o f trunk sewers inGuangzhou 0 HazardousWaste Management: construction of apre-processingtreatment center and development o f a lanNillinGuangzhou 0 Inter-municipalEnvironmentalInfrastructure: construction ofjointly-owned developed and managed environmental infrastructure for groups o f at least two contiguous cities/districts/tows 0 Water QualityMonitoringandInformationSystems:rehabilitationandexpansion o fautomatic monitoring stations, purchaseo f equipment and software, and development o f information systems and data sharing 0 InstitutionalStrengtheningandTraining: capacity-building for planningandmanaging the urbanenvironment, specifically, river basiddeltamanagementofwater, wastewater andsolid and hazardous waste, and project and financial management andutilityoperations The wastewater andhazardouswaste components are the two major investments covered by the US$l28 million World Bank loan. The other three components for the project are strong complements to these two, and are also crucial to the implementationandthe success o f the entire project. Evenwith 100% collection and treatment inGuangzhou, certain reaches o f the Guangzhou Section o f the PRD will remainpolluted and water quality objectives will not be attained, unless a broader river basinmanagement approach is adopted as indicated inthe EA and preparatory studies. This would require and improvement o f existing water quality monitoring and management information systems andenhancemento f inter-municipal cooperation andprivate participation inprovision of environmental infrastructure andservices inthe PRD region. The potentialbenefits o fthe project include: reductioninwater supply/treatment andpublic healthcosts, and result inpositive impacts on amenities, tourism, land values (especially those on water fronts), agriculture, and fishery. The low water quality o f Pearl Riverinmanyurban areas requires costly treatment for water supply andmore investments innew water sources. It is also a constraint to appreciation o f landandproperty values, especially inthose water front residential areas. The polluted environment has causedillnesses, incurredhigherpreventive andcurative medical costs, loss o f productivity, and damaged local tourism, agriculture andfisheries. However, it is difficult to value those benefitsinmonetary terms due to limiteddata available, the complexity o f the causes o fpollution, anduncertainties related to the linkage betweenpollutionreduction andthe benefits. While the size o fthe proposedprojectis small relative to the requirements ofthe much large clean-up program o f the PRD, the project is expected to have a significant demonstrative effect, and could serve as a blue print for the larger effort required. MainAssumptions: Cost-effectiveness indicators: Since it is difficult to put a value on incremental benefits inenvironmental quality, andbecauseit is even more challenging to attribute such benefits to specific interventions o f the proposed project inthe manner of -45-  the cost-benefit analysis, the cost-effectivenessapproachhas beenadopted inthe analysis. Giventhe fact that there have beenwell-established pollution clean-up objectives inthe region, the cost-effectivenessis appropriate to this analysis. The cost-effectiveness analysis has beenusedto select the interventions that are the least-cost options to achieve the well-stated pollutionreductiontargets. First,a set o f altematives was proposed and examined withrespectto their effectivenessto achievea pollution control target, the net presentvalue (NPV) oftotal investment costs, andaverage incremental cost (AIC). Then, the option with the least AIC, a reasonable size o f saving inNPV, andan acceptable FIRRwas selectedas the project component. Third, an institutional andtariffreform scheme was developedto minimize any economic subsidy, make waste discharge fees or tariffs affordable, and ensure a successfidproject implementation. Finally, the affordability and impacts o f the component on different social groups, especially on the poor and vulnerable groups, were reviewed to ensure that it was affordable, andthat it didnot hrther deteriorate the livingstandardof the low-income groups. Details o f the cost-effectiveness analyses for the wastewater andhazardous waste treatment components are presentedbelow. TheWastewaterTreatment (WWT) Component Duringprojectpreparation, anumberofWWT interventions (the number, locationandcapacity of WWTPs, wastewater collection networks and treatment processes) andtheir altematives were proposed and analyzed. The interventions includednot only the shortlist o fproject items proposedfor this project, butalso examination ofthe impacts of cleaning up other wastewater sources and use of other approaches. Project alternatives. Starting with the initial Guangzhou Wastewater Master Plan (the base scheme), in which a large numbero f treatment plant sites were initially defined, the altematives considered amalgamating small WWTPs proposed inthe master plan into the Dashadi WWTP ineastem Guangzhou and modifying wastewater collection networks. Inthe feasibility study ofthe WWT component, the base scheme derivedfromthemasterplanandtwo alternatives were detailed andanalyzed to calculate their contribution to wastewater treatment andtheir net presentvalues (NPV) o fproject costs. e The base scheme (option 2 as recommended inGuangzhou Wastewater Master plan) e Altemative 1- amalgamating the Science Park WWTP with the Dashadi WWTP 0 Altemative 2 amalgamating boththe Science Park andYuanpu WWTPs withthe Dashadi - WWTP For these options, capital andoperating costs over 50 years were estimated and discounted to calculate the net presentvalues. The costs common to all schemes covering such items as secondary networks, house connections, sewerage, design, supervision andcontingencies, however, have been excluded from the estimates. The NPV for these schemes are presentedinFigure 1, which shows that the least cost option is centralized treatment at Dashadi WWTP. Itwas therefore decided to concentrate wastewater treatment at one major new site (the Dashadi site) to the east o f the city, together withextending the existing Liede facility. -46-  FIGURE1. COMPARISONOFTHREEOPTIONS FOR EASTERN GUANGZHOU SEWERAGE The final option proposed for fundingunder GPRDUEP comprises following facilities: a new wastewater treatment plant (WWTP) o f capacity 200,000 m3/d each at Dashadi; (b) expansion o f the capacity of Liede wastewater treatment plant (Liede 111)by 200,000 m3/d; and (c) about 500 kmof trunk sewers insix drainage catchments o fLiede (East), Datansha, Lijiao, Dashadi, Liede (West), and Xilang. Hightreatment levels wouldberequiredto conformto wastewater discharge standards, andmore critically to enable water quality objectives to be met inthe associatedriverreaches. Further technical study and cost-effectiveness analysis were also undertaken comparing differenttreatment processesinrelationto the Guangdong Wastewater Discharge Standards onthe basis o f current and future wastewater concentrations. The processescomparedinclude: primarytreatment, enhancedprimary treatment, traditional activated sludgeprocess, A20 Processor similar with goodphosphorus andnitrogenremoval (such as SBR), primary + A20, andenhancedprimary +AOO. The process o f A20 combined with chemicaltreatment was found suitable andwas adopted. The process shouldbe able to achieve the discharge requirements, even for the stricter Guangdong Standards. The detailedconclusion o f the treatment process study can be found inthe technical annex o f the PAD. Water quality improvement and economic benejh. The WWT component will help improve water quality inthe Guangzhou sections ofthe PearlRiverto meetthe government's environmental targets. Mathematicalmodeling has shown that the project as proposed will improve the overall water quality o fthe Guangzhou Section o fthe PRD substantially. Dissolvedoxygen concentrations will increase, on average, by 3.5 mg/l over the section receiving dischargesfrom the Liede andDashadi WWTPs. This will enable aquatic life to retumto these watercourses for the first time inmany years. The benefits o f water quality improvement include savings inwater supply andtreatment investments, reduction inpublic healthcosts, improvements inamenities andliving environment, andincreases in - 47 -  tourism, land values (especially those o f waterfronts), agriculture, and fisheries. These economic benefits have not been quantified as this would require considerable amounts o f data that are not easily available. However, the amount of money Guangzhou residents spent onbottledwater - oneo f avoidable costs - illustrates the'magnitude o f the potentialbenefits. Results o f a household survey indicate that serious waterborne and water-related diseases are not prevalent, presumably reflectingthe fact that the vast majority (96%) o f the population obtains water supplies from the public network andthat water is traditionally boiled prior to drinking. Moreover, sizeable proportions o f the population use water filters (16%) andor bottled water (3 1%). The expenditure on average per family usingbottledwater for drinkingwas Y31per month, almost equivalent to the average monthly water bill ofY32.3. Onthis itemalone, residents of Guangzhouurbandistricts are currently spendingY305 million (US$38 million) per year. Basedon the averagehousehold size o f 3.25 persons, it couldbe concluded that about 31%o fhouseholds consumebottled water. This expense, however, is only part of the overall environmental health-related avoidable spending, which also includes the incremental costs o f water treatment, and the expenses on water filters and boilingwater at home. Tariff increase. Average water supply and wastewater tariffs inGuangzhou are Y0.9/m3 and Y0.7/m3, respectively. The wastewater tariffwere raised from Y0.30/m3 inMarch2003. These tariffs are, however, insufficient to provide the revenuerequired to maintain and operate the systems. Itwill be necessaryto further increasewastewater tariffs to assure sustainability o f the existing andproposed WWTPs and seweragesystems. Financial analyses suggest that, inorder to recover the costs operation and adequate maintenance together with debt service or depreciation, whichever is the higher, the average wastewater tariff in2004 prices needsto be Y1.96/m3 inyear 2005 for all user groups, risingto Y2.34/m3 in2007 and Y2.43/m3 in2009. The assumptions usedinthe financial projections are set out inthe financial analysis Annex. GUANGDONG PEARL RIVERDELTAURBAN ENVIRONMENT PROJECT AVERAGE FEE PERBILLED M3 RhlB PER M3 3.000 2.500 2.000 D 1.500 I (L 1.000 0.500 0.000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YEAR - 48 -  Affordability. Surveys were undertakeninGuangzhou to determine the attitude o f residentsto the project andto prospective tariff increases. The surveys, although preliminary,highlightedinparticular the poor sanitary conditions o f the poorer migrant populations o f Guangzhou. Census information indicates that these migrant populations are found inthe citys' periphery, east o f Guangzhou and on Haizhu Island, areas that are particularly targeted for network extensions. The surveys indicatedunanimous support by those interviewed andthere was a concomitant understandinganddemand for improvedservices. The PRDregionis one ofthe wealthiest regions inChina; the per capita GDP inGuangzhou (including the rural areawithin the jurisdiction o fthe city) was Y38,OOO in2001, evenhigher than those o f Shanghaiand Beijing. The current level of wastewatertariffinGuangzhou, although raisedrecently, is still only similar to those inother major Chinese cities (e.g., ShanghaiY0.62/m3, BeijingY0.60/m3 andWuhanY0.80/m3). The social surveys revealedthat total current expenditure onwater and wastewater tariffs represents 1% or less o f the household budgets for those interviewed; the current monthly seweragetariff is equivalent to the price o f a packet o f Chinese-madecigarettes (Y9). Itwas concluded that increases inwastewater tariffs would largely go unnoticed. Poverty and distributional aspects. Although the suggestedincreases inwastewater tariff are broadly affordable, the impacts on low-income families, especially those below the poverty level, were also to be considered. While for China as a whole the proportion o f the populationwith income below the US$1 a day (i.e., poverty level, with Y750 permonthincome for a household o f three persons) was 16.1% in2000, for the urbanareas the figure is only 0.5 %. As the wealthiest region inChina, Guangzhou and the rest o f the PRD cities have aneven lower percentageofthe populationbelowthe poverty level. Neverthelessthe impact on this small portiono fpopulation still needsto be evaluated andpossibly mitigated. Options could beto provide compensation through their monthly social protectionpayments or to introduce tieredtariffs with lower tariff rates for the lowest levels ofwater consumption and wastewater dischargetypical of the poorest consumers. HazardousWaste Management Component Bydefinition, hazardouswastes are dangerous to public healthbecause o ftheir hazardousproperties which could cause not only physical hamto humans but also environmental damage. The risks from hazardous wastes occur at the point o f generation and throughout the chain o f storage, handling, transport, treatment and disposal. Wastegeneration. Total waste generation inGuangdong Province in2000 was estimated at approximately 46 million tons, o f which 44 million tons was domestic or non-hazardous industrial waste. Total hazardous industrial waste generation was estimated at 930 000 tons and non-radioactive medical waste accounted for a further 42 000 tons. Itwas estimatedina survey conducted for Guangzhou in2001, that total industrial waste generation was about 4.2 million tons, o f which 263,571 tons were classified as hazardous waste. Of the hazardous wastes, 121,351 tons were reused, 138,221 tons were treated, 1,156 were disposed, and 3,085 tons were stored for future handling. For the PRD as a whole, industrial waste production in2000 was estimated at 16.4 million tons, o f which 930,000 tons (5.67%) were regardedas hazardous, and o f this 165,000 tons were considered not to be adequately treated. Based on existing statistical data, the hazardous waste generationper capita inGuangzhou was calculated at 35 kg/year, much lower than that inEuropean counties such as France and Germany, where hazardous waste generation ratesper capita are all over 100 kglyear. Although such a difference may be inpartdue - 49 -  to different systems o f classification o f hazardouswaste ineach country, it would still appear that the amount o f hazardous waste was probably significantly under-estimated. Current situation of waste treatment. Throughout Guangdong province, waste treatment capacity is inadequate andmost o fthe existing facilities are ina poor condition, andhave not been generally constructed to modemor intemational standards. A large amount o f hazardouswaste inGuangdong is either incinerated or co-disposedwith domestic waste to landfills,many o fwhich do not have protective liner systems. Inthe entire PRDregionthere is currently only one secure lanXillfor hazardoussolid waste, located in Shenzhenwith anannual capacity o f 20,000 tons. Guangdong Domestic Waste Treatment Center is one o f the three treatment units that treat medicalwaste, but the treatment rate is only 16%. Approximately 500 tons per day o f hazardouswaste are taken from Guangzhou to Shenzhenbecause o f the lack o f local treatment andenvironmentally secure disposal facilities. There are not only a large known quantity o f hazardouswaste that is improperly or inadequately treated or disposed of, but also probably significant quantities o f hazardous waste that are currently unrecorded. This latterportion of the waste stream may pose the greatest environmental and healthrisk. Provincial solid wastepollution controlprogram. The regionhas begunto address hazardous waste management seriously. Guangdong ProvincialEPB has recently established a Provincial SolidWaste Pollution Control Program. The Programincludes hazardouswaste treatment with targets of utilization o f hazardous waste o f 50% and 60% by 2005 and2010 respectively, andtreatments rates o f 20% and 30% respectively, for 2005 and 2010. As part o f the Program, an implementationplan for hazardous waste managementhas beendeveloped for the period. The plan involves the construction by 2010of 11 inter-region hazardouswaste treatment centers (six treatment facilities andfive secure landfillsites) at an estimated cost of Y3 billion (US$375 million). One o fthe centers is planned for Guangzhou. Potential benefits of hazardous waste component. A major benefit o f the component i s to protect human health andthe environment. Although a direct linkbetweenhumanhealthandpoor hazardous waste managementhas beendifficult to prove conclusively, there have been a number o f well-publicized cases worldwide where the cost o f clean-up or compensation would more thanjustify investment inhazardous waste management. Inaddition to extemal healthandenvironmental benefits, the proposed facility will also provide industries with a cost-effective treatment and disposal solution. At present, the treatment facilities for hazardouswaste inGuangzhouare generally small-scale and thereby expensive andthere is not currently an environmentally acceptablefinal disposal site nearby. By centralizing treatment and disposal at one site, economies o f scale can be achieved, thereby enabling tariffs to be reduced andencouraging industriesto use such facilities. Fromthe transportation point o f view, there is clearly a need for a treatment center serving Guangzhou and Foshan (the Guang-Fo area) as the distanceto the nearest treatment center in Shenzhenexceeds 100km. Project alternatives Duringthe projectpreparation anumber ofdifferent project alternatives were consideredtogether with different site locations. The following three configurations oftreatment facilities have beenconsidered for the hazardouswaste treatment center for Guangzhou: e Alternative 1, consisting o f an office, an analytical laboratory, a chemical reception center, storage for chemicals, physicalkhemical treatment area, a 10,000 tondyear incinerator and a series o f landfills with an initial storage capacity o f 150,000 m3 - 50 -  e Altemative 2, including the above offices, pre-treatment facilities andlandfill, a smaller incinerator (4,000 tons/year) andan external thermal treatmentunit(arrangedthough cement kiln) 0 Altemative 3, including only the offices, pre-treatment facilities and landfill, while incineration and thermal treatment would be done by external units I t was reported that there are plans to develop new cement works (which may utilize some forms o f hazardous waste as fuel) andincinerators for the treatment o f hazardouswaste. Onthis basis, clearly the thirdoption is the least-cost altemative. Sevenaltemative sites for the Guangzhou hazardouswaste treatment facility were considered. After the initial analysis, the following three options for the site were selectedfor further examination. 0 The Liangtiansite inLiangtian Town, BaiyunDistrict 0 The Shatian site inLiangtianTown, BaiyunDistrict 0 The XinFengSite inTaihe Town, BaiyunDistrict Studies o f accessibility to waste producers andpotential operational impacts, notably geo-hydrological impacts were addressed, and the studies concluded that the Liangtiansite was the preferred option. The EA and RAP for this component demonstratethat there would be no major adverse impact (either environmental or social) associatedwith this site. The site is particularly well located from the transportation point o f view, because ofthe immediate proximity o f a major highway. The treatment facility proposed at the Liangtian landfillsite will include total landfill capacity o f 860,000 m3, adequatefor 25 years operation, ofwhich 150,000 m3 would be providedinGPRDUEP. The facility will also have physico-chemical treatment plant o f capacity 5,000 tons per year anda stabilizatiodsolidification plant o f capacity 50,000 tons per year. The facility will be located on a 22 hectare site and will serve as a regional facility. It is expected to receive hazardouswastes from Guangzhou, Foshan, andsurrounding municipalities. The total project cost i s Y194 million (US$24.0 million). Market analysis. Industries producinghazardouswastes are legally obliged to take measuresto treat the wastes inan environmentally safe manner. The Guangzhou EPB will set up a monitoring and inspection systemto enforce the mandatedrequirement, and adopt a structure o f fines to be levied on offenders. Based on the 2001 survey, the proportion o f total hazardouswastes generatedinGuangzhou that requires to be treated at the proposed hazardous waste treatment facility has been estimated at 17% (about 46,000 tons per year). This is expected to increase to 64,000 tons per year by 2010 and 71,000 tons per year by 2020. Hazardous wastes will be transported to the treatment facility either by the waste producers or by a newlycreatedor licensedcollection company. Hazardous waste treatment tar@ An appropriate level o fhazardous waste treatment tariff will be levied per ton ofhazardouswastes deliveredto the treatment center. The charge shouldbe adequateto meet the projected operating costs o f the center (including depreciated capital investments). Its introduction couldbe phasedto enable businessesto adapt to the risingprices. Inaddition, the tariff mustbe equitable, realistic and affordable to the hazardous waste generators. The tariff could encourage waste reduction and reuse activities, while not discouraging the industries to use the facility. Onthe basis o f the market analysis, the average tariff levels requiredto order to recover operation and maintenance costs (including depreciation) would be Y1,020 per ton o f waste in2004 prices) for the design throughput, allowing the operator to operate without Government subsidies. - 51 -  For throughput levels greater thanthe designfigure the requiredtariffwould fall, although not in proportion because o f the relatively high fixed costs o f the facility. For a throughput o f 75,000 tons per year (about 150% o f the design throughput), the requiredtariff(at 2004 prices) would fall to about Y950 per ton. If,however, the throughput ofthe plantis only 25,000 tons per year, the requiredtariffwould have to increase to an average o f about Y1,480 per ton, again at 2004 prices. Ability and willingness of companies topay. An initial marketsurvey hasbeenundertakencovering46 industries o f different sectors and sizes, inboth Guangzhou and Foshan. The results suggestthat small enterprises would be willing to pay approximately Y1,000 per ton and larger @articularly intemational) companies would be willing to pay more. Onthe basis o f the above study it has beenpossible to develop a matrix o f company tumover (inthe range Y10milliodyear - 1000 milliodyear) inrelationto hazardous waste generation (inthe range 5 tondyear - 50,000 tondyear). This matrix has beenusedto assess the affordability o f the proposed tariff to industries. Inrelativeterms, acompany with aturnover ofY10milliodyear andproducing 50 tons ofhazardouswaste per year would generally be able to afford to use the facility (relative cost less than 1% o f tumover); and the impact would be similar for a company producing 5,000 tons with a tumover of Y1,000 milliodyear. Companies producing highamounts o f waste per unito f turnover could not afford to use the facility; for example, a company with a turnover o fY10milliodyear and producing 500tons ofhazardouswaste per year would face a hazardous waste treatment charge equivalent to about 5% o f tumover. Such companies would dump the waste illegally (as they are probably already doing), close down, or change processing systems, or undertake recycling. Itis recognized that industries are extremely price sensitive inrelationto fulfillingtheir environmental obligations; nevertheless, the proposed prices would appear affordable, while encouraging those industries currently producing large amounts o f waste to review their operations. - 52 -  Annex 5: FinancialSummary CHINA: Guangdong Pearl River Delta Urban Environment Project Provincialand Municipal Finances 1. An analysis ofthe availability ofcounterpart funds was undertaken byreviewing revenuesand expenditures of Guangdong Province andGuangzhou Municipality. Tables 1and 2 below present a summary ofthis analysis. The receipts datarepresentnetreceipts (i.e. after transfers made to higher authority) of the province and municipality, respectively. The data analyzed refer to on-budget and off-budget receipts and expenditures. On-budgetreceipts include receipts from statutory taxes andlevies. Off-budgetreceipts are non-tax receipts such as net income remittedfrom provincial or municipally-controlled enterprises, and some types o fuser chargescollected by administrative departments. On-budget expenditures include infrastructure investment,government administration, public health, education andsafety. Off-budget expenditures are typically earmarkedby revenue source and include enterprise investment, urbaninfrastructure maintenance and administrative expenses. 2. The principal sources of counterpart funds will be (i) constructionand maintenance funds; urban (ii) commercialbank loans; and (iii) proceedso fthe wastewater tariff (inthe initial years). Guangzhou Municipalityhas an annual budget of about Y2.6 billion o f its urban construction and maintenance funds allocated to water supply, wastewater andsolid andhazardouswastes and other municipal services. Commercial bank loan terms are statedto be for a term o f 10years including a grace periodo f two years and at an interest rate o f 5 percent per year. 3. The analysis reveals that the project and its components are easily affordable by Guangdong Province should Guangzhou Municipality and other participatingagenciesnot repay their loans. The annual projections o f project costs to Guangdong Province do not exceed0.05 percent o f annual receipts. For Guangzhou Municipality, the highest annual cost relative to annual receipts is 1.8 percent. 4. Assumptions for Financial Projections. The assumptionsmade when calculatingthe projections o f on and off-budget revenues andexpenditures of Guangdong Province; andGuangzhou Municipalityfor the period 2003-2010 are set out below. 5. Revenue Forecast. The actual (2000-2002) revenue figures have been derived from dataprovided bythe provincialand municipal governments. Between2003-2010, the average annual increaseinrevenue i s projected to be about 10 percent and 11percent incurrent terms for Guangdong Province and Guangzhou Municipality, respectively. 6. Expenditure Forecast. Historically, expenditures have registeredbetweenabout 14to 33 percent over revenues. The central government transfers amounts to make up the shortfalls inkeepingwith the current fiscal arrangementsbetween central and local governments. To estimate future expenditures, an overall average annual increase o f about 10percent for Guangdong, andabout 8.8 percent for Guangzhou, incurrent terms, have beenassumed, using2002 as the baseyear. 7. The following tables summarize projected revenue andexpenditure data from 2003 to 2010 for Guangdong Province and Guangzhou Municipality. Projected project expenditures are also included. - 53 -  Table 1:GuangdongProvincialFinances (Y billion, current terms) Actual Projected 2002 2003 2004 2005 2006 2007 2008 2009 2010 Receipts 1,201.6 1321.8 1453.9 1599.3 1754.2 1935.2 2128.7 2341.5 2575.7 Expenditures 1,521.1 1673.2 1840.5 2024.5 2226.9 2449.6 2694.6 2964.1 3260.5 Project Expenditures 0.5 0.5 0.8 0.9 0.5 0.2 - Project as % o f Receipts 0.03 0.03 0.05 0.05 0.02 0.01 - Table 2: GuangzhouMunicipalFinances (Y billion, current terms) Actual Projected 2002 2003 2004 2005 2006 2007 2008 2009 2010 Receipts 24.6 26.1 28.2 32.1 35.6 39.6 43.9 48.7 54.1 Expenditures 32.7 33.5 36.2 39.5 43.0 46.8 50.9 55.4 60.3 Project Expenditures 0.5 0.5 0.7 0.7 0.3 0.2 Project as % o f Receipts 1.8 1.6 2.0 1.8 0.7 0.4 -- Wastewater FinancialAnalysis 8. Prior to the establishment of the Guangzhou SewageTreatment Company (GSTC) inNovember 2003, wastewater collection, treatment anddisposal were the responsibility o f the Guangzhou Municipal GardensBureau (GMGB). Budgetary allocations were made to fund the service. As is the practice in bureau and departmental operations, no provision was made for depreciation. 9. GSTC will have responsibility for the ownership, construction andmanagement o furban wastewater assets, including wastewater treatment plants, pumpingstations andnetwork. By 2006 it will have taken over wastewater treatment plants currently inoperation or under construction. These comprise Datansha Iand11, Liede Iand11,Lijiao and Xilang. Although GSTC has engagedthe Guangzhou Tunnel Development Company (GTDC) as its implementation agent, it will sign all procurement contracts andbe responsible for borrowingandrepaying World Bank loan proceeds onlent to it by the Guangzhou Municipal Government (GMG). 10. The financial objectives o f Guangzhou Municipality (GM) for GSTC are that it should be permittedto set andmaintainits tariffs at levels that, at the least, wouldpermitthem to break even (Le., wastewater revenues to cover operating costs and the greater o f depreciation anddebt service). GSTC will incur no additional debt without the Bank's agreementunless reasonable forecasts show it would have a debt service coverage o f at least 1.3 times. 11. InJanuary 2003, GMGadjustedwastewater tariffs from Y0.30/m3to Y0.70/m3,basedon90 percent o f water consumption for bothdomestic andnon-domestic consumers. Wastewater tariffs will be collected by the water supply company andthe proceedspassedto GSTC, less handling charges. Industrieswithself-supplybutwhich dischargeto the sewer system, will be billedbythe water saving - 54 -  department. The proceedsofthese collections will bepassedto GSTC. GSTC. 12. The actual andprojected average tariffs over the implementation period o f the project are given in Table 3. The assumptions usedinthe financial projections are set out below. 13. The projectedfinancial statements (Income Statement, Sources and Applications o f Funds and Balance Sheet) andoperational and financial indicators statements are available inthe Project File. Table 3: Actual andProjectedTariffs (Ylm3,current prices) Actual Projected 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 GWTC 0.70 0.70 0.77 0.85 1.02 1.42 1.71 2.22 2.22 2.67 3.60 3.60 Table 4 below includes key operational and financial indicators. Table4: KeyOperationalandFinancialIndicators (Y million,unless noted; currentprices) 2004 2005 2006 2007 2008 2009 2010 Water Sales (million m') 403 481 486 492 497 502 508 SewageQuantity (million m3) 322 385 389 393 398 402 408 S5wageTr. Capacity (million 200 200 200 470 470 533 544 m ) SewageTreated (%) 35 35 81 81 81 90 90 Net Income 18.6 67.7 92.0 26.3 9.6 61.5 -40.2 Avera e Tariff (Yuan per m3) 0.70 0.77 0.85 1.02 1.42 1.71 2.22 Capita!! Ex enditures 373 332 508 549 264 120 Financial(!ovenants Revenue 297 330 400 566 687 772 783 217 220 223 399 565 612 762 or Debt Service Op. Exp+>o fDepreciation DebtService Coverage NIA NIA 16.2 10.0 6.4 5.4 5.2 (times) ASSUMPTIONSTO UTILITY FINANCIAL PROJECTIONS 14. Assumptions to the projections o fthe main financial statementso f Guangzhou Sewage Treatment Company (GSTC) for the period 2004-2019 are set out inparas 15 through 23, below. 15. Inflation andExchangeRates. Yearly general domestic idationratesusedinthe projections are 2.5 percent in2004, 1.8 percent in2005,2.0 percent in2006, 1.9 percent in2007, in2008 and thereafter. Foreignprice increases are estimated at -0.37 percent in2004, 1.53 percent in2005,0.89 percent in2006 and thereafter. The exchangerate usedto convert foreign costs to local currency, where applicable, was Y 8.0 per $1.0. It is assumedthat exchangerate adjustments would, on average, maintainpurchasing power - 55 -  parity over the projection period. IncomeStatement 16. Sales. Projections o f sewage quantities are basedon "minimum demand" andmaximumcapacity figures, and at the equivalent o f 90 percent o f water bills. 17. Tariffs. Tariffs quoted are averagetariffs andprices are expressedinY u d m 3 incurrent terms. 18. OperatingCosts. Salaries, wages and staffbenefits are assumedto increaseat the rates givenin above. Energy, materials and other costs are assumedto increase inline with general inflationalso. Sludge from Wastewater Treatment Plants will be transported, treated and disposed o f by a separate company (a BOT operator). GSTC is contracted to pay Y195.00 per ton o f wet sludge to this Company, with a minimumpayment ofthe equivalent of 695 tonsper day. The following depreciation rateshave been applied (a) assets over 15 years - 3.7 percent; and (b) assets under 15 years 6.6 percent. GSTC is - assumedto pay 5.5 percent insales taxes and 33 percent inincome tax. 19. InterestandAmortization Expenses. The proceedsofthe IBRDloanare assumedto be onlent to GSTC at 3.0 percent a year for 15 years including a grace period o f five years anda commitment charge of 0.75% p.a. Amortization of the loan would be on the basis o f equal payments o fprincipal and interest. GSTC would bear the foreign exchangerisk. Guangzhou Municipality(GM) would provide part o f the local capital counterpart funds as capital grants, the balance will come from commercial bank loans at about five percent per annum payable over 10 years, including a grace periodo f two years. BalanceSheet 20. Inventories have beenprojected to take into account general inflationas well as any expanded levels of operations and construction. 21. Accounts Receivable. Accounts receivable is assumedto be at 65 days. Source andApplication ofFunds 22. Working CapitalNeeds. Working capital needs representthe excess, or otherwise, ofthe current year's current assets (net o f cash), less the excess o f the previousyear's current assets (net o f cash) over current liabilities. 23. Change inCash. Change incash(which includes short-term investments) calculates the balance sheet cashbalance for the current year. - 56 -  Annex 6(A): Procurement Arrangements CHINA: Guangdong Pearl River Delta Urban Environment Project Procurement ProcurementCapacity Assessment 1. The Assessmentwas conductedunder the framework o f the Operational Procurement Review (OPR) o f China, which was approved inMarch2003. The procurement capacity assessment concluded that the general riskwas `average'. 2. The Assessment found that the Guangdong Province has a successfulrecordo f implementing Bank-financedprojects since the mid-80s, andthat the Guangdong Project Management Office (GDPMO) had considerable experience incoordinating procurement. The Assessment also found that GDPMO and main implementingagencies (GSTC andHWMC) have designated specific departmentsandpersonnelto be responsible for preparation andimplementation o fprocurement. An international tendering company has beenselectedas the procurement agent for international competitive bidding(ICB), andnational competitive bidding(NCB), and the Guangzhou SewageTreatment Company (GSTC) has appointed the Guangzhou TunnelDevelopment Company as its implementation agent. 3. The GDPMO will oversee all procurement and implementationactivities inthe project, andwill ensurethat all PMOs will (a) observe Bank's procurement guidelines, (b) use model biddingdocuments agreedbetween the Ministryo f Finance andthe World Bank, andor the World Bank StandardBidding Documents, and (c) appoint international project management consultants to assist inproject management and procurement activities. The GDPMO will (a) prepare consolidated procurement implementationplans basedon the individual procurement plans preparedby the PMOs, (b) create a comprehensive database on procurement activities; (c) prepare annual reports on procurement performance underthe project, and (d) prepare a procurement manual for use bythe PMOs, and organize periodic procurement training seminars and workshops for procurement staff inthe PMOs. 4. The assessmentidentified some deviations inthe provincial and municipal procurement regulations which are at variance with Bank procurement procedures. Itwas codirmed that Bank-financed procurement will be exempt from the provincial andmunicipal regulations, andthe BiddingandTendering Law o f China, inthe case o f discrepancies. The procedures to be followed for National Competitive Biddingshall be those set forth inthe Law onTendering andBiddingo fthe People'sRepublic ofChina promulgatedby OrderNo. 21 o f the President o f the People'sRepublic o f China on August 30, 1999, with the following clarificationsrequiredfor compliance with the Guidelines: (a) All invitations to prequalify or to bidshall be advertised inanewspaper ofnational circulation inChina andsuch advertisement shall be made insufficient time for prospective bidders to obtainprequalification or biddingdocuments and prepare and submit their responses. Inany event, a minimumofthuty (30) days shallbegivento bidders betweenthe date ofadvertisement insuchnewspaper andthe deadline for submission ofbids, andthe advertisement andbiddingdocuments shall specify the deadline for such submission. (b) Qualification requirements o f bidders and the methodo f evaluating the qualification o f eachbidder shall be specified indetailinthe bidding documents. - 57 -  (c) All biddersshall berequiredto provide security inan amount sufficient to protect the Borrower, incase o f breacho f contract by the contractor, and the biddingdocuments shall specify the required form and amount of such security. (d) The time for opening o fall bids shall bethe same as the deadline for receipt of suchbids. (e) All bids shall be openedinpublic; all biddersshall be affordedanopportunity to be present (either inperson or through their representatives)at the time o f bidopening, but bidders shall not be requiredto be present at the bidopening. contract(f) N o bidmay be rejected solely on the basis that the bidprice falls outside any standard estimate, or marginor bracket o f average bids establishedby the Borrower. (g) Eachcontract shall be awarded to the lowest evaluated responsive bidder, that is, the bidderwho meetsthe appropriate standardsof capability andresources andwhose bidhasbeendetermined (a) to be substantially responsive to the biddingdocuments and (b) to offer the lowest evaluated cost. The winningbidder shall not be required, as a condition o f award, to undertake responsibilities for work not stipulated inthe biddingdocuments or otherwise to modify the bidas originally submitted. (h) Eachcontract financed with the proceeds o f the Loan shall provide that the suppliers and contractors shall permitthe Bank, at its request, to inspect their accounts andrecords relating to the performance o f the contract andto have said accounts andrecords audited by auditors appointed by the Bank. 5. Allprocurement wouldbeundertakeninaccordancewiththe Bank's Procurement Guidelines-"Procurement under IBRDLoans andIDA Credits" datedJanuary 1995 andrevisedinJanuary and August 1996, September 1997 andJanuary 1999, and "Selection andEmployment o f Consultants by World Bank Borrowers" dated January 1997 and revised in September 1997, January 1999 and May 2002. Procurement methods (Table A) 6. CMC InternationalTendering Corporation, No. 1Department, ina Joint Venture with GMG Intemational TenderingCompany Limited, has been selectedas the procurement agent for intemational competitive bidding(ICB) andnational competitive bidding(NCB). The General Procurement Notice (GPN) was publishedinthe WDevelopment Business, No.592756, dated December 22,2003. 7. All contractshave beengrouped. wherepractical, into bidpackagesestimated to cost the equivalent o f US$7.0 million or more each for works, andthe equivalent o f US$500,000 or more each for goods. All civil works contracts estimated to cost the equivalent of US$7.0 million or more, andgoods contracts estimated to cost the equivalent o f US$500,000 or more, would be procuredusingICB procedures, andwould be advertised as Special Procurement Notices publishedinDevelopment Business andor well-known technical magazines, newspapersandtrade publications o f wide intemational circulation. 8. CivilWorks. The total value ofcivil works (including contingencies) is estimatedat about US$ 208.9 million, o f which about US$22.0 million (11%) would be procuredusingICB procedures. Civil works that are small, scattered or scheduled too far apart to be packaged into larger contracts to be o f interest to foreign firms, would be awarded through NCB procedures, acceptable to the Bank. The NCB - 58 -  proceduresrecently adoptedby the Government have beenreviewedandapproved by the World Bank Group. Interested foreign bidderswould be allowed to bidfor NCB contracts. Procurement o f landand resettlement andpower supplies, would be carried out usingprocedures applicable to locally-financed procurement, and would not be eligible for reimbursement under the loan. 9. EquipmentandMaterials. The total value of equipment andmaterials (including contingencies) i s estimated at about US$58.6 million, o f which about US$29.5 million (50%) would be procured using ICB procedures. Equipment and materials contracts estimated to cost less than US$500,000 equivalent would be procuredusingNCB procedures acceptable to the Bank. Contracts for computer hardware and software, andmiscellaneous equipment, costing US$50,000 equivalent or less would be procured through national or intemational shopping procedures acceptable to the Bank, i.e., on the basis o f comparison o f price quotations solicited from at least three suppliers, or inthe case o f intemational shopping, price quotations solicited from three suppliers intwo different countries. Reserveprocurement would be undertakenfor providingpower supplies. 10. TechnicalAssistance and Training. Drafts of Letters of InvitationandTerms of Referencefor institutional and financial technical assistance, construction supervision services and water and wastewater utilitypricing, andsector institutional strengthening for (a) PackageA.1-financial/institutional support for the Guangzhou Sewage Treatment Company (GSTC); (b) Constructionsupervision services andquality control for GSTC; (c) services for designreview andcertification for GSTC; and (d) the PRD wastewater master plan review andupdate, were reviewedat negotiations. Details o f the institutional strengthening and training component are summarized inAnnex 2. A disbursement conditionfor civil w o r k of the respective components is: (a) the signature of contracts by GSTCfor (i) institutional development and Jinancial management, (ii) construction supervision and contract management, and design review and certiJcation; and (3) GHWMCfor (i) design review and certiJcation and construction supervision and contract management, (ii) development of a regulatory and institutionalfvameworkfor waste management, and (iii) preparation of bid documentsfor the selection of an operator of thefacility. The Terms o f Reference for the main consultancy assignments are inthe Project File (Annex 8). 11. Engineeringandmanagementoverheadofimplementingagencies, not financed underthe project, is estimated at US$34.6 million equivalent, inclusive o f contingencies. - 59 -  Annex 6A: Table Al: ProjectCosts byProcurementArrangements BankandGEF-financed components (US$ millionequivalent) I ExpenditureCategory I ProcurementMethod' (including ICB NCB Other* NBF3 Contingencies) 1. Works 22.00 154.70 0.00 32.20 208.90 (10.80) (76.03) (0.00) (0.00) (86.83) 2. Goods 29.50 0.40 1.00 27.70 58.60 (24.94) (0.30) (0.80) (0.00) (26.04) 3. Services 0.00 0.00 18.30 13.50 31.80 (0.00) (0.00) (16.95) (0.00) (16.95) 4. Miscellaneous 0.00 0.00 6.90 125.70 132.60 (0.00) (0.00) (6.90) (0.00) (6.90) 5. Interest during construction 0.00 0.00 0.00 9.20 9.20 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Front-end Fee 0.00 0.00 1.28 0.00 1.28 (0.00) (1.28) (0.00) (1.28) Total 51.50 155.10 27.48 208.30 442.38 (35.74) (76.33) (25.93) (0.00) (138.00) Notes: Figures inparenthesesinclude the amounts to be financed by the Bank Loan and GEF Grant. 2 Other = procurement through national shopping, consultant services and training, GEF capital and O&M Grant disbursementsand front-end fee. 3 NBF =Not Bank-Financed includes land acquisition andresettlement, reservedprocurement, some works, goods and services contracts, design andadministration, andinterest during construction - 60 -  Annex 6A: Table A2: Project Costs by ProcurementArrangements Bank-financed components ($ millionequivalent) Total Cost Expenditure Category Procurement Method' (including ICB NCB Other' NBF3 Contingencies) 1.Works 22.00 54.70 0.00 32.20 208.90 (10.80) 76.03) (0.00) (0.00) (86.83) 2. Goods 29.50 0.40 1.00 27.70 58.60 (24.94) (0.30) (0.80) (0.00) (26.04) 3. Services 0.00 0.00 15.20 13.50 28.70 (0.00) (0.00) (13.85) (0.00) (13.85) 4. Miscellaneous 0.00 0.00 0.00 125.70 125.70 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Interest during construction 0.00 0.00 0.00 9.20 9.20 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Front-end Fee 0.00 0.00 1.28 0.00 1.28 I (0.00) (0.00) (1.28) (0.00) (1.28) Total 51.50 155.10 17.48 208.30 432.38 (35.74) (76.33) (15.93) (0.00) (128.00) 1 Figuresinparenthesesinclude the amounts to be financedby the Bank Loan. 2 Other = procurement through national shopping, consultant services and training, and front-end fee. Annex 6A: Table A3: Project Costs by ProcurementArrangements GEF-financed components ($ million equivalent) Expenditure Category Procurement Method' Total Cost ICB NCB Other' NBF 1. Works 0.00 I 0.00 I 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 3. Services 0.00 0.00 3.10 0.00 3.10 (0.00) (0.00) (3.10) (0.00) (3.10) 4. Miscellaneous 0.00 0.00 6.90 0.00 6.90 (0.00) (0.00) (6.90) (0.00) (6.90) Total 0.00 0.00 10.00 0.00 10.00 (0.00) (0.00) -ced (10.00) (0.00) (10.00) bythe ,FGrant. 2 Other = GEF capital grants and operations andmaintenance-grants, andconsultant services and training. -61 -  Annex 6A: TableA3: ConsultantSelectionArrangements (US$ millionequivalent) Consultant Services SelectionMethod TotalCost (Including Expenditure QCBS QBS SFB LCS CQ Other NBF Contingencies) Category A. Firms 13.10 5.00 0.00 0.00 0.20 0.00 13.50 31.80 (11.75) (5.00) 0.00 0.00 (0.20) (0.00) (0.00) (16.95) B.Individuals 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 Total 13.10 5.00 0.00 0.00 0.20 0.00 13.50 31.80 (11.75) (5.00) (0.00) (0.00) (0.20) 0.00 (0.00) (16.95) Notes: QCBS = Quality- andCost-Based Selection QBS = Quality-basedSelection SFB = Selection under aFixedBudget LCS = Least-Cost Selection CQ = Selection BasedonConsultants' Qualifications Other = Selection o f individualconsultants (per Section V o f Consultants Guidelines), Commercial Practices, etc. NBGF = NotBank-financed. Figures inparenthesis are the amounts to be financed by the Bank loan and GEF Grant 12. Prior-review procedures would be usedfor (a) all civil works contracts estimated to cost US$6.0 million or more each; (b) all equipment and materials contracts estimated to cost US$500,000 or more each; and (c) consultant services contracts with an estimated contract cost o f more thanUS$200,000 for firms and US$50,000 for individuals. Inthe case o f consultant service contracts, all terms of reference and single-source selections, regardless o f the value o fthe contract, would be subject to prior review. For contracts below the above-mentioned limits, post-review procedures would be followed. An estimated 30 percent o f the value o f all contracts proposed to be financed by the Bankwould be subject to priorreview. ProcurementContractPackagingandProcurementPlan 13, The contract packagingfor the project is providedinTables C andD, showing the goods, works, and service contracts, respectively, proposed for each component. A procurement plan, indicating detailed procurement activities for the first year, and indicative planfor the subsequent years is provided inthe Project File (Annex 8). Disbursement 14. ProcurementPlanfor CivilWorks, EquipmentandMaterials.This planis inthe Project File (Annex 8). 15. RetroactiveFinancing.Retroactive financing ofupto US$5 million wouldbe applied to expenditures made after October 1,2003 for (a) civil works for sites preparationand access roads; and(b) consultant services for preparation o f the hazardouswaste component. - 62 -  Table B: Thresholdsfor Procurement Methods and Prior Review' Annex 6A: Expenditure Contract Value Procurement Contracts subject to Category (Threshold) Method Prior Review' $ thousands $ millions (base costs) 1.Works More than$6.0 ICB 2 contracts $18.90m Million subject to prior review NCB 32 contracts $133.90 m not subject to prior review 2. Goods More than $0.5 ICB 3 contracts $25.80m million subject to prior review Between $0.5 million NCB 2 contracts $0.40m not And$0.05 million subject to prior review Upto $0.05 million National Shopping $1.0m not subject to prior review 3. Services More than $0.10 for QCBS or QBS $16.60m subject to firms, more than prior review $0.05 for individuals Total value of contractssubject to prior review: US$61.30 million(27%) Overall Procurement Risk Assessment: Average Frequency of procurement supervision missions proposed: One every six months (includes specialprocurement supervision for post-review/audits) - 63 -  ContractPackages Yuan Procure-I Million mentType Urban WastewaterManagement Liede I11WWTP Civil Works Contracts LDPiCl Advance site preparationworks (services, piling, etc.) NBF LDP/C2 WWTP structures,jetty andother facilities ICB Liede: Trunk Sewer Network Civil Works Contracts LDP/C3 Network inLinJian DaDao area (5.6 km) NCB LDPIC4 Network inZhong ShanDaDao area(15.8 km) NCB LDP/C5 Network inGuangShanGongLu(15.3 km) NCB LDPIC6 Network inGuangYuan DongLunortheast area (46.1 Km) NCB LDPIC7 Nettwork inKe LunYu area (15.6 Km) NCB LDP/C8 Network inTanXia CunareaHuaNanLu(6.1 km) NCB LDPIC9 Network inChe BeiChong(16.0 km) NCB LDP/C10 Network inYuan CunDistrict (26.3 km) NCB Materialsand EquipmentContracts LDPIE1 WWTP: Supply and installationof plant and equipment ICB LDP/E2 Vehicles andoffice equipment NCBINE Electrical"Supply and Erect" Contracts LDPE3 Power andwater supply NBF DashadiWWTP Civil Works Contracts DSDPICl Advance site preparationworks (services, piling, etc.) NCE DSDPIC2 WWTP structures, jetty andother facilities ICE DSDPIC3 Network Wu CHongOuth (21.5 km) NCE DSDPIC4 Network HuangpuEastLu(12.2 km) NCE DSDPIC5 NetworkZhong Shan DaDao (10.5 km) NCE DSDPIC6 Network Shen Chong (18.2 km( NCE DSDP/C7 Network HiLinLu(18.4 km) NCE DSDPIC8 Network Hai Yuan Lu(3.8 km) NCE DSDPIC9 Network inMiscellaneoussewers NCE DSDP/C10 Network inZhu Jiang Chongarea (9.1 km) NCE Materialsand Equipment Contracts DSDPE1 WWTP: Supplyand installationof plant and equipment ICE DSDPE2 Vehiclesand office equipment N C B N Electrical"Supply and Erect" Contracts DSDP/C3 Power and water supply NBI - 64 -  rrunk Sewers for Four Other Catchments Xvil Works Contracts Datanshasewer network >TSSN/Cl Network inGuangQin Lu NCB >TSSN/C2 Network inEast-North(74-120) NCB >TSSN/C3 Network inEast-Middle NCE >TSSN/C4 Network inWest NCB >TSSN/C5 Pump station(No. 8 and 9) NCB Xilang sewer network ZSNIC6 Network inLongXi LuEast NCE Liedesewer network .DSN/C7 Network inHuaNanLu NCE Lijiao sewer network .JSN/C8 Network inJian Xiao Lu NCE .JSN/C9 Network inDongXiao NanLu NCE .JSN/C 10 Network inGongYe DaDao NCE .JSN/C 11 Network inXin Jiao NanLuEast NCE rechnicalAssistance & Training Contracts NWTiTl Consultantservices for investigationsand detaileddesign [awarded] NBI NWT/T2 Consultantservices for investigationsand detaileddesign] NBI NWT/T3 Consultant services for designreview andcertification QCB2 KWTIT4 Consultantservices for constructionsupervision& quality control (FDIC QCB2 terms) NWT/T5 Projectorganization, implementationandmanagement(GTDC) NBI NWTIT6 Institutional support andtraining QB2 .and and Resettlement NBI rota1BaseCost-Wastewater Management 2083.9 'A detailedcontractprocurement implementation Schedule was prepared, andis inthe Project File(see Annex 10) - 65 -  HazardousWaste Management - CivilWorks Contracts HWMl.1 Site works: Accessroads NCB HWM1.2 Treatment Facilities: Receptionbuilding,collection& distributionbuilding, physical & chemical treatment, solidification & stabilization, storage, and leachatetreatment NCB HWMl.3 Landfill:earthworks, waste dam, cell separationdykes, storm drainage, leachatecollection, supply and lay clay / bentonite layer, double HDPE liner, gas collection NCB HWMl.4 Buildings including equipment: office building,worker's residence, cafeteria, workshop, laboratory, power facilities building; ventilation and distribution; compressorandstorage, and ancillary facilities:(workshop, well water supply incl. treatment; sewer and sewage treatment), site roads, parkinglot, landscapingandgreening NCB Materialsand EquipmentContracts HWM2.1 Laboratory and Office, Landfill EquipmentandVehicles ICB/NCB/ Package 1:Environmental monitoringequipment N S Package 2: Landfill equipment-excavator, wheel loader Package 3: Waste transport vehicles (liquidand solids) Package4: Office vehicles Package 5: Landfill automation equipment (Weighbridge with radiation equipment) TechnicalAssistance & TrainingContracts HWM3.1 Feasibility study preparation [incl. Contract for $73,000 to Sogreah] CQ HWM3.2 DetailedDesigno fFacilityincl. international input NBF IHWM3. Geotechnical survey, etc. QBS 3 HWM3.4 Design review and certification, andconstruction supervision QCBS MWM3. GEF-supportedregulatoryandinstitutionalframework, andbiddocument QCBS 5 for selection o foperator HWM3.6 GEF-supported preparation o fwaste market survey andcorporate market QCBS assessment HWM3.7 Training and study tours QBS LandandResettlement NBF TotalBaseCost-HazardousWaste Management 160.0 - 66 -  Inter-municipalEnvironmentalInfrastructure CivilWorks Contracts IMIl.1 Luoxi IslandWastewater System NBF IMI1.2 Shenzhen-Pingshan RiverWetland Treatment Works NBF IMIl.3 To be determined NBF MaterialsandEquipmentContracts IM12.1 Equipment for Luoxi IslandWastewater System NBF IMI2.1 Equipmentfor Shenzhen-PingshanRiverWetlandTreatment Works NBF IM12.3 Equipment & Materials (To be determined) NBF TechnicalAssistance and TrainingContracts IM13.1 Consultants Services for Design Review& Certification NBF IM13.2 Construction Supervision Services and Project Management NBF IM13.3 GEF-supportedPreparation o f BidDocument to Select Operator (BOT) QCBS for Wastewater Operation IM13.4 GEF-supportedStudy andWorkshop for InterAntra-Municipal QCBS Cooperation IM13.5 GEF-supported Updating PRD Wastewater Management Planand QCBS Detailed Study o f Foshan Wastewater Master Plan GEF Supportto ParticipatingMunicipalitieslDistricts Capital Grant NBF O&M Grant NBF LandandResettlement NBF TotalBaseCost-Inter-municipalEnvironmentalInfrastructure 443.5 - 67 -  Water QualityMonitoringandInformationSharing CivilWorks Contracts WQMl 1 Installationandtestingequipment(Renovation& upgrading7 existing . NBF AMs) WQMl.2 Installationandtestingequipment(New AMs) NBF WQM1.3 Laboratory construction NBF Materials andEquipmentContracts WQM2.1 Equipment for Renovation& upgradingexisting AMs NBF WQM2.2 Quality assurance equipment (11new AMs) NBF WQM2.3 AMS equipment and devices (11New AMs) NBF WQM2.4 Laboratory quality control equipment, sparepartsand accessories NBF WQM2.5 Spare parts, accessories NBF WQM2.6 Computerhardware, GPS for provincialcontrol center, andwebsite NBF development WQM2.7 Software NBF "Supply andErect Contracts WQM3.1 Aeration, temperaturecontrol system (New AMS) NBF WQM3.2 Lightningprotection (New AMs) NBF WQM3.3 Water, electrical supplies and security NBF WQM3.4 Power andwater servicesto laboratory NBF TechnicalAssistance & Training [GEFSupportedPackage] WQM4.1 Databasedevelopmentandmanagement QCBS WQM4.2 AMs Datacollection QCBS WQM4.3 Pollution source investigation,research, data mining QCBS WQM4.4 GIS development QCBS WQM4.5 Databasesoftware QCBS WQM4.6 QNQC regulationscompiling QCBS WQM4.7 Staff training anddocumentation QBS WQM4.8 Sharedair & water quality database on PRD-South China Seapollution QCBS (Guangdong-HongKong), including data sharing costs WQM4.9 ConferenceonPRD-South China Sea environmental management framework (Guangdong-Guangzhou-HongKong) WQM4.1 Pollutionmonitoringinformation sharing, inPearlRiver stretches near QCBS 3 Guangzhou(by GuangzhouEPB) Landand Resettlement NBF TotalBase Cost Water QualityMonitoringand InformationSharing 75.9 - 68 -  Annex 6A: Table D Procurement-Institutional StrengtheningandTraining - Person-months Training/ BaseCost Equipment ief. Title National Int'Ya Y million Y million A PACKAGEA: FINANCIAL/INSTITUTIONAL SUPPORT/ EQUIPMENT A.1 Guangzhou Wastewater Treatment Company Sub-totalPackageA Procurement: QCBS B PACKAGEB:OTHER B.1 MetropolitanGuang-fo Development, Management Strategies & Regional Planning B.2 Public Hygiene Program B.3 Study Tours & Training Sub-totalPackageB Procurement Type: QCBS and QBS TotalPackages A andB 43.8 Person-months budgets include personnel and systems development and equipment. 1iThresholdsgenerally differ by country andproject. Consult "Assessmentof Agency's Capacityto Implement Procurement" andcontact the RegionalProcurement Adviser for guidance. - 69 -  Annex 6(B): Financial Managementand DisbursementArrangements CHINA: Guangdong Pearl River Delta Urban EnvironmentProject FinancialManagement 1. Summaryofthe FinancialManagementAssessment Guangdong Provincehasthe requisite systems and staff to carry out the financial management o fthe project. GP already has ongoing Bank-financed projects inother sectors andthe Guangdong Finance Bureau (GDFB) is familiar with the Bank's disbursement procedures. Guangdong prepared a Financial Management Systems (FMS) Manual, satisfactory to the Bank, which would be the basis for financial management duringproject implementation. 2. Audit Arrangements As withother Bank-financedprojects inChina, the ForeignInvestment Audit Bureau ofthe ChinaNational Audit Office (CNAO), establishedin 1983under the name of StateAudit Administration, would have overall responsibility for auditingthe accounts o f the project. The actual auditing work would be conducted by the Guangdong Provincial Audit Department under CNAO's supervision. The Bank currently accepts audits performedunder the responsibility o f CNAO. Audits o f the financial statements of implementing agenciesand audit o f the Special Account would be submittedto the Bank withinsix months after the endo f the financial year. The audit reports o f the implementing agencieswould include opinions on whether the agencies were incompliance with their respective financial covenants, andwhether these agencies had taken out adequate insurance on goods andworks financed from loan and credit proceeds. 3. DisbursementArrangements The project will be disbursingon the traditional disbursement techniques andwill not beusingPMR-based xv. disbursements, inaccordancewith the agreement between the Bank andMOF. See also Annex 15, Section Allocation of loan proceeds(Table C) -Includes$3.lmfromGEFgrant I\ -Includes$10.0mGEFGrant 2\ - 70 -  Use of statements of expenditures (SOEs): 4. The Statementof Expenditure (SOE) limits will be set upinline withprocurement prior-review thresholds, as follows: (i)all contract for goods estimated to cost the equivalent o f US$ 500,000 or less; (ii) all contract for civil works estimated to cost the equivalent o fUS$ 6,000,000 millionor less (iii)consultant contract estimated to cost US$ 100,000 (firm)/vS$ 50,000 (individual) or less. Special account: 5. To facilitate disbursementstwo Special Accounts would be opened. For the loan, a Special Account would be openedwith an authorized allocation o f US$lO.O million, equivalent to the estimated average expendituresto be financed bythe Bankover about a four-month period. The account wouldbe openedin US dollars ina bank acceptable to the Bank and be managedby the Guangdong Finance Bureau. For the GEF grant, a SpecialAccount with anauthorized allocationofUS$175,000 wouldbe opened inabank acceptableto the Bank andbe managed by the Guangdong Finance Bureau. - 71 -  Annex 7: Project ProcessingSchedule CHINA: GuangdongPearl River Delta Urban Environment Project ITime taken to prepare the project (months) I 12 I 14 I First Bank mission (identification) 01/07/2002 01l07l2002 Appraisal mission departure 1211012003 12/09/2003 IIPlanned Negotiations 03/29/2004 0313012004 Date of Effectiveness II 1213112004 II 1213112004 II Prepared by: Guangdong Municipal Government and its Agencies. Preparation assistance: Formulation o f the project Development Strategy andthe development framework assistedby national consultants, financed mainly by Guangdong, andgrant finds from France, Denmark, Canada and Singapore. Bank staff who worked on the project included: . - Name Speciality Thomas Zearley Lead Operations Officer and Task Manager Chandra Godavitame MunicipalEngineering Specialist Vellet Femandes Program Assistant & Document Production DanHoomweg Sr. EnvironmentalEngineeringSpecialist Dahong Li Resettlement Specialist Xiaofeng Li ProgramAssistant Patrick McCarthy Financial Analyst Hoi-Chan NguyenlMargaret Png Legal Counsel Robert O'Leary Disbursement Officer BekirOnursal Sr. Environmental Specialist Chongwu Sun Environmental Specialist George Taylor Water Quality & Wastewater Treatment Specialist Chaogang Wang Resettlement Specialist YanXiangWang Industrial PollutionControl Specialist Hardy Wong Environmental Specialist Jian Xie Project Economist DongYi Financial Management Specialist Chaohua Zhang Resettlement Specialist Hao Zhang MunicipalEngineering Specialist ZhunZhang Institutional Specialist LiuZhentu Procurement Specialist - 72 -  Annex 8: Documents in the Project File* CHINA: Guangdong Pearl River Delta Urban Environment Project A. Project ImplementationPlan (i) DetailedProcurement Plans for Wastewater Management andHazardous Waste Management components. B. Bank Staff Assessments (i) Procurement Capacity Assessment C. Other DocumentListProducedbyConsultantsfor the ProposedPRDIProject. Sogreah Consultants Limited: 1. R1: InceptionReport (produced inOctober, 2002) 2. R2: EvaluationofEnvironmental Strategic Options, English& Chinese Versions 3. R3: EnvironmentalAssessmentReport, EnglishVersion 4. R4: ResettlementAction Plan, EnglishVersion, publishedinDecember 2003 5. R5: Feasibility Study for the Guangzhou Wastewater Component, EnglishVersion 6. R6: Technical Assistance andTraining Report, EnglishVersion (PublishedinAugust 2003) 7. R7: Assignment Completion Report, English& Chinese Versions 8. R8: Feasibility Study for Hazardous Waste Component ChreodCo.: 1. Inception Report: Technical Assistance on ProjectFramework Development - Pearl River DeltaUrbanEnvironment Project - 31December, 2001 2. Situational Analysis Report: Technical Assistance on Project Framework Development Pearl River DeltaUrbanEnvironment Project 31May, 2002 - - 3. Strategic Options Report: Technical Assistance on Project Framework Development - PearlRiver DeltaUrban Environment Project 19 September, 2002 - 4. The PearlRiver DeltaMegalopolis: DevelopmentTrends andKey Priorities, January, 2003 CPGLimited: 1. Guangzhou -Pear River DeltaUrban Environment Project SolidWaste Management Sector Assessment Report DHILimited: 1. Water Quality Model Study for Pear River (East River Section) Other Documents* - 73 -  (i)Financial Projections o f Guangzhou Sewage Treatment Company 2004 -2019, dated 5,2004 (ii) ofReferenceforGuangdong'sWastewaterManagementPlanforthePearlRiverDelta Terms (iii) ofReferenceforSludgeManagementPlan Terms (iv) Conformation from DRA consultant that the layoutplanfor the Dashadi WWTP site is satisfactory (v) Revisedprocurement plans for the wastewater andhazardouswaste components (vi) Project Performance MonitoringIndicators *Including electronic files - 74 -  Annex 9: Statementof Loans and Credits CHINA: Guangdong Pearl River Delta Urban Environment Project 30-Mar-2004 Differencebetweenexpected and actual ..~~~~ OriginalAmount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO69852 2004 CN-WuhanUrbanTransport 200.00 0.00 0.00 0.00 200.00 0.00 0.00 PO66955 2004 CN-ZHEJIANGURBANENVMT 133.00 0.00 0.00 0.00 133.00 0.00 0.00 PO65463 2004 CN - JiangxiIntegratedAgric. Modern. 100.00 0.00 0.00 0.00 100.00 1.50 0.00 PO73002 2004 CN-Basic Educationin Western Areas 100.00 0.00 0.00 0.00 100.00 0.00 0.00 PO65035 2004 CN-Gansu XinjiangPastoral Development 66.27 0.00 0.00 0.00 65.61 4.53 0.00 PO77615 2004 CN-GEF-Gansu8 XinjiangPastoralDevelop 0.00 0.00 10.50 0.00 10.50 0.80 0.00 P068058 2003 CN-YixingPumpedStorage Project 145.00 0.00 0.00 0.00 133.25 -5.57 0.00 PO40599 2003 CN-TIANJiNURBDEV II 150.00 0.00 0.00 0.00 148.50 -1.50 0.00 P067337 2003 CN-2ndGEFEnergyConservation 0.00 0.00 26.00 0.00 14.60 16.57 0.00 PO76714 2003 CN-Anhui Hwy2 250.00 0.00 0.00 0.00 250.00 15.33 0.00 PO58847 2003 CN-3rd Xinjiang Hwy Project 150.00 0.00 0.00 0.00 106.13 9.47 0.00 PO70191 2003 CN-SHANGHAIURB ENVMTAPLI 200.00 0.00 0.00 0.00 198.00 -2.00 0.00 PO70441 2003 CN-HubeiXiaogan Xiangfan Hwy 250.00 0.00 0.00 0.00 156.78 -20.56 0.00 P064729 2002 CN-SUSTAINABLEFORESTRY DEV. PROJECT 93.90 0.00 0.00 0.00 76.07 1.58 0.00 PO58846 2002 CN-Natl RailwayProject 160.00 0.00 0.00 0.00 34.62 -2.04 0.00 P060029 2002 CN-Sustain.ForestryDev(Natura1Forest) 0.00 0.00 16.00 0.00 14.11 3.00 0.00 P070459 2002 CN-Inner MongoliaHwyProject 100.00 0.00 0.00 0.00 88.82 6.49 0.00 PO71147 2002 CN-TuberculosisControl Project 104.00 0.00 0.00 0.00 91.20 -12.80 0.00 P068049 2002 CN-HubeiHydropowerDev in PoorAreas 105.00 0.00 0.00 0.00 87.68 12.84 0.00 PO58845 2001 Jiangxi II Hwy 200,oo 0.00 0.00 0.00 132.10 7.44 0.00 PO56516 2001 CN .WATER CONSERVATION 74.00 0.00 ' 0.00 0.00 39.83 8.40 0.00 P056596 2001 CN-ShijiazhuangUrbanTransport 100.00 0.00 0.00 0.00 85.41 52.47 0.00 P047345 2001 CN-HUAI RIVERPOLLUTIONCONTROL 105.50 0.00 0.00 0.00 87.18 -18.32 0.00 PO51859 2001 CN-LIAO RIVER BASIN 100.00 0.00 0.00 0.00 70.70 28.00 0.00 PO56199 2001 CN-3rd InlandWaterways 100.00 0.00 0.00 0.00 80.46 5.96 0.00 PO45915 2001 CN-UrumqiUrbanTransport 100.00 0.00 0.00 0.00 52.54 47.34 0.00 PO49436 2000 CN-CHONGQINGURBAN ENVMT 200.00 0.00 0.00 3.70 154.56 62.23 0.00 PO56424 2000 TONGBAIPUMPEDSTORA 320.00 0.00 0.00 100.00 151.53 91.87 0.00 PO45264 2000 CN-SMALLHLDR CATTLE DEV 93.50 0.00 0.00 0.00 12.20 6.24 0.00 PO45910 2000 CN-HEBEIURBANENVIRONMENT 150.00 0.00 0.00 0.00 119.36 46.36 0.00 PO58844 2000 3rd HenanProv Hwy 150.00 0.00 0.00 0.00 57.58 23.24 0.00 PO64924 2000 CH-GEF-BEIJINGENVMT I1 0.00 0.00 25.00 0.00 26.09 18.84 2.86 PO58843 2000 GuangxiHighway 200.00 0.00 0.00 0.00 102.57 46.57 0.00 PO42109 2000 CN-BEIJING ENVIRONMENTI1 349.00 0.00 25.00 0.00 286.54 180.67 0.00 PO64730 2000 CN - Yangtze Dike StrengtheningProject 210.00 0.00 0.00 0.00 111.52 95.52 0.00 PO41268 1999 CN-Nat HwyyHubei-Hunan 350.00 0.00 0.00 0.00 59.72 37.72 0.00 PO51856 1999 ACCOUNTING REFORMa DEVELOPMENT 27.40 5.60 0.00 0.00 17.89 17.84 0.00 PO51705 1999 Fujian II Highway 200.00 0.00 0.00 0.00 65.73 63.07 0.00 PO50036 1999 Anhui Provincial Hwy 200.00 0.00 0.00 9.60 32.99 32.19 0.00 PO57352 1999 CN-RURAL WATER IV 16.00 30.00 0.00 0.00 21.81 15.87 8.72 PO58308 1999 CN-PENSIONREFORMPJT 0.00 5.00 0.00 0.00 1.77 1.75 0.00 PO56216 1999 CN -LOESS PLATEAUII 100.00 50.00 0.00 0.00 24.54 26.67 0.00 P060270 1999 CN-ENTERPRISE REFORMLN 0.00 5.00 0.00 0.00 2.71 4.29 4.07 PO38121 1999 CN-GEF-RENEWABLEENERGYDEVELOPMENT 0.00 0.00 35.00 0.00 24.14 27.18 7.95 PO51888 1999 CN - GUANZHONGIRRIGATION 80.00 20.00 0.00 0.00 32.27 25.50 0.00 PO46051 1999 CN-HIGHEREDUC. REFORM 20.00 50.00 0.00 0.00 5.70 7.31 0.00 PO43933 1999 CN-SICHUAN URBANENVMT 150.00 2.00 0.00 0.00 91.74 78.60 24.15 PO42299 1999 TEC COOP CREDIT IV 10.00 35.00 0.00 0.00 36.03 -11.40 0.00 PO41890 1999 CN-LiaoningUrbanTransport 150.00 0.00 0.00 0.00 33.14 33.14 0.00 PO36953 1999 CN-HEALTHIX 10.00 50.00 0.00 0.00 36.85 22.30 0.00 PO03653 1999 CN-ContainerTransport 71.OO 0.00 0.00 18.61 3.16 21.74 0.32 PO49665 1999 CN-ANNINGVALLEYAG.DEV 90.00 30.00 0.00 0.00 19.19 10.38 0.00 PO46829 1999 RENEWABLEENERGY DEVELOPMENT 100.00 0.00 0.00 0.00 12.87 99.87 8.23 - 75 -  Difference betweenexpected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO46564 1999 CN - Gansu 8 InnerMongoliaPovertyRed 60.00 100.00 0.00 13.30 40.00 29.66 -11.15 PO35698 1998 HUNANPOWER DEVELOP 300.00 0.00 0.00 145.00 31.45 173.45 -18.46 PO03619 1998 CN-2nd InlandWaterways 123.00 0.00 0.00 37.00 16.35 51.71 3.63 PO03566 1998 CN-BASIC HEALTH(HLTHB) 0.00 85.00 0.00 0.00 38.58 23.63 0.00 PO03539 1998 CN SUSTAINABLECOASTAL RESOURCESDE - 100.00 0.00 0.00 2.06 46.65 45.38 35.83 PO37859 1998 CN-GEF EnergyConsetvation 0.00 0.00 22.00 0.00 0.71 22.06 0.00 P049700 1998 CN- IAIL-2 300.00 0.00 0.00 0.00 3.97 3.97 0.66 PO40185 1998 CN-SHANDONGENVIRONMENT 95.00 0.00 0.00 1.40 20.07 21.47 1.58 PO03614 1998 CN-Guangzhw City Transport 200.00 0.00 0.00 20.00 100.31 120.31 100.31 PO46563 1998 CN - TARIM BASINI1 90.00 60.00 0.00 2.67 7.14 9.24 0.00 PO45788 1998 Tn-ProvincialHwy 230.00 0.00 0.00 0.00 19.18 16.12 0.00 PO03606 1998 ENERGYCONSERVATION 63.00 0.00 22.00 0.00 33.80 16.74 0.00 PO51736 1998 E CHINNJIANGSU PWR 250.00 0.00 0.00 86.00 47.81 133.81 10.72 PO36414 1998 CN-GUANGXIURBANENVMT 72.00 20.00 0.00 0.00 71.56 66.02 25.79 PO46952 1998 CN - FOREST DEV POORAR 100.00 100.00 0.00 0.00 29.62 -71.61 9.25 PO36949 1998 CN-NatHwybHubei 250.00 0.00 0.00 0.00 21.15 21.15 0.00 PO03590 1997 CN - QINBA MOUNTAINSPOVERTYREDUCTIO 30.00 150.00 0.00 0.00 13.16 16.34 -0.95 PO03637 1997 CN-NAT'L RURALWATER 3 0.00 70.00 0.00 0.00 0.56 3.77 3.35 PO03650 1997 TUOKETUOPOWERilNNER 400.00 0.00 0.00 102.50 37.31 139.81 27.57 P035693 1997 FUEL EFFICIENTIND 0.00 0.00 32.80 0.00 6.83 32.81 0.00 PO36405 1997 CN - WANJIAZHAIWATER TRA 400.00 0.00 0.00 75.00 22.58 97.58 10.00 PO03654 1997 Nat HwyZHunan-Guangdong 400.00 0.00 0.00 0.00 48.52 48.52 20.68 PO44485 1997 SHANGHAI WAIGAOQIAO 400.00 0.00 0.00 0.00 75.02 46.56 34.56 PO38988 1997 CN - HEILONGJIANGADP 120.00 0.00 0.00 0.00 7.72 7.72 4.54 PO03602 1996 CN-HUBEI URBANENVIRONMENT 125.00 25.00 0.00 28.32 39.72 70.08 32.41 P003599 1996 CN-YUNNAN ENVMT 125.00 25.00 0.00 19.48 35.68 56.92 7.10 PO03594 1996 CN GANSUHEX1CORRIDOR 60.00 90.00 0.00 0.00 73.92 58.83 0.00 ~ PO03589 1996 CN-DISEASEPREVENTION(HLTH7) 0.00 100.00 0.00 0.00 1.88 10.93 0.00 PO34618 1996 CN-LABOR MARKETDEV 10.00 20.00 0.00 0.00 5.66 7.15 0.00 PO40513 1996 2nd HenanProv Hwy 210.00 0.00 0.00 19.00 16.69 35.69 23.69 PO03648 1996 CN-SHANGHAISEWERAGEII 250.00 0.00 0.00 0.00 33.80 33.80 -1.34 PO03571 1995 CN-7thRailways 400.00 0.00 0.00 119.00 10.28 129.28 20.28 PO03647 1995 China EconomicLaw Reform-LEGEA 0.00 10.00 0.00 0.00 0.50 0.83 0.00 PO03639 1995 CN-SOUTHWESTPOVERTYREDUCTIONPROJE 47.50 200.00 0.00 0.01 1.21 25.36 25.36 PO03596 1995 CN-YangtzeBasinWater ResourcesProject 100.00 110.00 0.00 1.92 0.34 4.75 4.75 PO03603 1995 CN-ENT HOUSING8 SSR 275.00 75.00 0.00 57.46 37.71 93.09 1.41 PO03540 1994 CN-LOESSPLATEAU 0.00 150.00 0.00 0.00 1.12 0.50 0.00 PO03632 1993 CN-ENVIRONMENTTECH ASS 0.00 50.00 0.00 0.00 1.11 1.73 1.41 Total: 11919.07 1722.60 214.30 862.02 5100.95 2850.24 429.31 - 76 -  CHINA STATEMENTOF FC's Heldand DisbursedPortfolio Feb 29 2004 - InMillions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2001 Peak Pacific 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 ShanghaiKmpp 21.50 0.00 0.00 61.43 27.50 0.00 0.00 61.43 1999 ShanghaiMidway 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 1995 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 1996 Wanjie Hospital 13.64 0.00 0.00 0.00 13.64 0.00 0.00 0.00 2004 Weihai Weidongri 1.06 0.00 0.00 0.00 1.06 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 4.13 0.00 0.00 0.00 2002 Zhengye-ADC 15.00 0.00 0.00 7.00 2.00 0.00 0.00 0.00 2003 ASIMCO 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 2003 Anjia 0.00 2.00 0.00 0.00 0.00 0.00 0.00 0.00 1999100/02 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 CDH China Fund 0.00 15.17 0.00 0.00 0.00 2.09 0.00 0.00 2004 CSMC 0.00 12.00 0.00 0.00 0.00 7.20 0.00 0.00 1998 CUNA Mutual 0.00 12.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 ChengduHuarong 6.28 3.20 0.00 7.04 6.28 3.20 0.00 7.04 1992 Chengxin-IBCA 0.00 0.36 0.00 0.00 0.00 0.36 0.00 0.00 2004 ChinaBicycles 4.50 0.00 0.00 0.00 4.50 0.00 0.00 0.00 1994 ChinaRe Life 0.00 15.41 0.00 0.00 0.00 15.29 0.00 0.00 1995 ChinaWalden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 1994 Dupont Suzhou 7.79 0.00 0.00 0.00 7.19 0.00 0.00 0.00 2003 Dynamic Fund 0.00 8.05 0.00 0.00 0.00 6.40 0.00 0.00 1999 Great Infotech 0.00 3.50 0.00 0.00 0.00 2.10 0.00 0.00 2002 Hansom 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 2004 HuarongAMC 9.00 3.OO 0.00 0.00 9.00 0.49 0.00 0.00 2002 E3 0.00 52.18 0.00 0.00 0.00 0.19 0.00 0.00 1998 IEC 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Leshan Scana 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 1996 NCCB 0.00 26.58 0.00 0.00 0.00 26.46 0.00 0.00 2001 NanjingKumho 0.00 3.81 0.00 0.00 0.00 3.81 0.00 0.00 1995 New China Life 0.00 30.70 0.00 0.00 0.00 23.32 0.00 0.00 1997 Newbridge Inv. 0.00 1.95 0.00 0.00 0.00 1.95 0.00 0.00 Orient Finance 6.61 0.00 0.00 8.33 6.67 0.00 0.00 8.33 Total Portfolio: 184.83 306.97 36.60 83.80 130.68 174.50 0.00 76.80 - 77 -  Approvals PendingCommitment FYApproval Company Loan Equity Quasi Partic 2002 ASIMCO 0.00 0.01 0.00 0.00 2004 CCB-MS NPL 0.00 0.00 0.00 0.00 2003 Cellon 0.00 0.00 0.01 0.00 2002 Darong 0.01 0.00 0.00 ' 0.01 2002 HuarongAMC 0.02 0.00 0.00 0.00 2002 IEC 0.00 0.01 0.00 0.00 2002 KHIT 0.00 0.00 0.00 0.00 2004 NCFL 0.00 0.00 0.02 0.00 2004 NanjingKumhoEx 0.03 0.00 0.01 0.00 2003 Peak Pacific 2 0.00 0.00 0.01 0.00 2004 SIBFI 0.00 0.00 0.00 0.00 2002 SML 0.00 0.00 0.00 0.00 2002 Sino Mining 0.01 0.00 0.00 0.01 2004 Vetroarredo 0.01 0.00 0.00 0.00 2002 Zhong Chen 0.03 0.00 0.00 0.03 ~~ Total PendingCommitment: 0.10 0.01 0.05 0.05 -7% -  Annex I O : Country at a Glance CHINA Guangdong Pearl River Delta Urban Environment Project East Lower- POVERTYand SOCIAL Asia & le- China Pacific income Developmentdiamond* 2002 Population,mid-year(mrllrons) 1,281.O 1,838 2,411 Life expectancy GNi percapita (Atlas method, US$J 950 950 1,390 GNI (Atlas method, US$billions) 1,219.1 1,740 3,352 Average annual growth, 1996-02 T Population (%) 0.8 1.o 1.o Laborforce (%) 0.9 1.2 1.2 ON1 Gross per primary Most recent estimate (latest year available, 1996-02) Zapita nrollment Poverty(% ofpopulationbe nalpoveriyline) 5 Urbanpopulation(% oftotal on) 38 38 49 Life expectancyat birth (years) 71 69 69 I infant mortality(per 1,000 lrve births) 30 33 30 Childmalnutrition(% ofchildren under5) 10 15 11 Accessto improvedwater source Access to an improvedwater source I%ofpopulation) 75 76 81 Illiteracy(% ofpopulationage 15+) 14 13 13 Gross primaryenrollment (% ofschool-agepopulation) 106 106 111 _*% China Male 105 105 111 -Lower-middleincomegroup Female 108 106 110 KEY ECONOMICRATIOSand LONG-TERMTRENDS 1982 1992 2001 2002 Economicratios' GDP (US$ billions) 221.5 1,232.7 GrossdomesticinvestmenffGDP 33.2 4 Exportsof goods and services/GDP 8.9 2 Trade Grossdomesticsavings/GDP 34.8 4 GrossnationalsavingslGDP 35.1 4 T1 Currentaccount balancelGDP 2.4 1.9 1.5 2.9 Domestic Interestpayments/GDP 0.2 0.5 0.5 savings 4 Investment TotaldebffGDP 3.8 1 14.6 12.6 Totaldebt service/exports 8.0 8.6 7.7 6.1 I Presentvalue of debffGDP 14.1 Presentvalue of debtlexports 51.8 Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annualgrowth) GDP 9.7 9.0 7.5 8.0 7.5 GDP oer caoita 8.1 8.0 6.7 7.2 6.6 ." -Lower-mrddle-incomegroup STRUCTUREof the ECONOMY 1982 1992 2001 2002 Growth of investmentand GDP (%) (% of GDP) Agriculture 33.3 21.8 15.8 14.5 20 industry 45.0 43.9 50.1 51.7 15 Manufacturing 37.3 33.1 34.2 44.5 10 Services 21.7 34.3 34.1 33.7 5 0 Privateconsumption 50.7 49.2 45.7 42.5 97 98 99 MI 01 02 Generalgovernment consumption 14.5 13.1 13.4 13.5 Importsof goods and services 7.3 18.0 23.1 26.5 --GDI +GDP 1982-92 1992-02 2001 2002 II (average annualgrowth) Growth of exportsand imports (Oh) Agriculture 4.6 3.7 2.8 2.9 40 T I 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 1.3 10 Privateconsumption 11.4 8.1 2.8 1.9 0 Generalgovernment consumption 9.9 8.4 10.5 7.0~ol 97 98 99 00 01 Gross domestic investment 9.5 9.7 13.9 14.9 -Exports +Imports imports of goods and services 9.7 12.8 10.8 27.5 O2  China PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Domestic prices Inflation (Oh) c (% change) Consumer prices 6.0 6.4 0.7 -0.8 Implicit GDP deflator -0.2 7.9 1.2 -2.6 Government finance (% of GDP, includes current grants) Current revenue 22.9 14.7 17.1 17.9 Current budget balance .. 2.0 1.1 0.0 I Overall surplusldeflcit -0.3 -1.0 -4.7 -3.0 ` V G D P d e f l a t o r +CPI 1 I TRADE 1982 1992 2001 2002 (US$ millions) Export and import levels (US$ mill.) Total exports (fob) 22,321 84,940 266,155 325,565 400,000 Food 2,908 8,309 12,780 14,623 Fuel 5,314 4,693 8,420 8,372 Manufactures 12,271 67,936 239,802 297,085 Total imports (cifl 19,285 80,585 243,610 295,203 Food 4,201 3,146 4,980 5,237 Fueland energy 183 3,570 17,495 19,285 Capital goods 3,204 31,312 107,040 137,030 Export price index (1995=100) 41 85 83 78 Import price index (1995-100) 71 95 91 86 Terms of trade (1995=100) 58 89 91 90 BALANCE of PAYMENTS I5 1982 1992 2001 2002 (US$ millions) Current account balance to GDP (Oh) Exportsof goods and services 24,906 94,198 299,409 365,395 Imports of goods and services 20,555 86,752 271,325 328,013 Resource balance 4,350 7,446 28,084 37,383 Net income 376 249 -19,174 -14,945 Netcurrent transfers 486 1,155 8,492 12,984 Current account balance 5,212 8,850 17,401 35,422 Financing items (net) -995 -10,952 30,046 40,085 Changes in net reserves 4,217 2,102 -47,447 -75,507 1 96 91 98 99 00 01 02 Memo: Reserves including gold (US$ millions) .. 24,842 220,051 297,721 Conversion rate (DEC, iocaMUS$) 2.4 5.9 8.3 8.3 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Compositionof 2002 debt (US$ mill.) Total debt outstanding and disbursed 8,358 72,428 170,110 155,678 IBRD 0 3,752 11,550 12,051 IDA 1 4,287 8,654 8,729 A 12,051 Total debt service 2,125 8,618 24,297 23,688 IBRD 0 460 1,550 1,631 IDA 0 30 151 175 Composition of net resource flows Official grants 47 327 240 Official creditors 657 2,343 2,156 -839 Private creditors -122 8,949 -4.017 -13,593 Foreign direct investment 430 11,156 44,241 49,308 Portfolioequity 0 1.243 3,015 2,286 F: 62.103 World Bank program Commitments 330 1,865 782 563 A IBRD - ~ E Bilateral Disbursements 1 1,331 1,791 1,733 B IDA D Other multilateral F Private -- Principal repayments 0 197 904 1,157 C IMF -- G Short-term ~ Net flows 1 1,134 887 576 Interestpayments 0 293 797 649 Nettransfers 1 841 90 -73 'Ueveiopment tconomlcs - 80 -  AdditionalAnnex 11:GEF Incremental Cost Analysis CHINA: Guangdong Pearl River Delta Urban EnvironmentProject The ProgramandProiectArea China's Pearl River Delta (PRD) is one of the largest andmost complex urbansystems inAsia. It is home to over 40 million people who live in25 administratively-defined cities inGuangdong Province andintwo Special Administrative Regions (Hong Kongand Macau). The PRD has rankedat or near the top nationwide ineconomic growth over the past decade (averaging 14.7% per annum during 1990-2000), mostly due to large M o w s of direct foreign investment, initially inlow value-added manufacturing and more recently inhigher value-added manufacturing and services. The program encompasses all o f this area and is mainly overseenby Guangdong Province with cooperative agreementsbetween other jurisdictions such as HongKong andMacau. The Delta is also complex geographically. Three major brancheso fthe Pearl River (ZhuJiang)join at the city of Guangzhou, the river's political, economic andcultural hub. The Pearl is China's thirdlongest river, and secondonly to the Yangtze inannual average flow. It discharges into the South Chma Sea through eight principaltributaries across flat terrain, which is criss-crossedbynumerous canals and streams. The project areafor the Guangdong Pearl RiverDelta UrbanEnvironmentProject whichis the first phase o f a larger scale andlonger term program, is mainly within Guangzhou and consists o f civil works (wastewater treatment andhazardous waste) for the city andcapacity buildingandinstitutional strengtheningactivities for the program area such as environmental data collection (provincial scale), industrial pollution abatement programs (provincial andcity level). The program area is all o f the Pearl RiverDelta, including the city ofGuangzhou. The GEF Guangdong Pearl River DeltaUrbanEnvironment Project would support activities inthe entire program areawith a key focus o freducing, as fast as possible, total pollutionloading to the South China Sea. Efforts would focus mostly within Guangdong province but they would be structured ina manner to encouragereplicability inthe rest o f China and similar activities inother countries discharging wastes into the South China Sea. The PearlRiver Delta's EnvironmentalConditionand Causes Environmentalprotectionpolicies and investments have not kept pace with economic growth, andthe PRD's rapideconomic growth has come at a heavy environmental cost. Many o fthe lower reaches o f the Pearl River, especially around Guangzhou, the water quality standards are Class V or worse, andtherefore unfit for drinkingwater sourceandunsuitable for irrigation, aquaculture or recreational use. Domestic andindustrialwastewater discharges, urbanstorm-water runoff and agricultural and livestock farmrun-off are the mainpollutionsources. Most municipal wastewater is collected, butdischarged into the river systems without treatment. Environmentally safe sludge disposal isjust beginning, with the first plant under construction inGuangzhou. Growing volumes o fhazardouswastes also present considerable risks to health, surface and groundwater sources. Regional treatment facilities are needed, plus complementary activities such as waste minimizationandsafe transportation o f dangerous goods. Charges for water supply and wastewater are a less than the true cost o f providing these services, which is - 81 -  draining municipal resourcesandreducingoperational performance. Charges for hazardous waste disposal are low or non-existent inGuangzhou. Only a small fraction of the waste is properly disposed. At present, every town builds andmanagesits ownurbanutilitysystemandpotentialeconomies of scale and operation are notrealized. The recently announcedProvincial waste water management programo f constructing more than 162wastewater treatment plantsto clean up the PRD river system perpetuatest h s fragmented approach to planning, investment and operation. While the Guangdong Provincial Government (GPG) andmunicipalities recognize that regionalplanningapproachespresent opportunities for inter-municipal cooperation, jointly managedfacilities, reduced costs, andeconomies o f scale for provision of environmental infrastructure, they have not addressed the institutional challenges inherent inthis approach. The problem is compounded by the lack of a strategic framework at the provincial, metropolitan and city levels for planning and implementingleast-costpriority investments andpolicy/institutional reforms. Little private sector participation inenvironmental investments and service provision has been mobilized. Inall ofGuangdongProvince there isjust oneprivatewater supply concession(inTanzhou), oneprivate wastewater treatment plant (inGuangzhou), one privately-operated municipal solidwaste landfill(for Guangzhou), anda proposedBuild-Operate-Transfer sludge treatment plant, also for Guangzhou. No initiatives have been takento facilitate entry o fprivate service providers for the distributiono f drinking and wastewater collection, where the greatest gains inefficiency and service levels are possible. GuanvdonPProvincialGovernmentStratem. Guangdong Province (GP), through its provincial EnvironmentalProtectionBureau (GDEPB), has recently announceda plan to clean-up the PRD, the mainfeature o f which is a proposed eight-year, US$5 billion program of investment inwastewater treatment facilities. However the program perpetuatesthe fragmented approachto infrastructure planning, contains too many treatment plants, is too ambitious and costly, and fails to realize potential economies o f scale. Preliminary reviews o f the plansuggest that better rationalizationrealistic costing of treatment plants could yielda 35% decreaseinoverall costs. Guangdong Provinceis also preparingmaster plans for municipal andindustrial solidwaste management. These plans are also likely to suggest a fragmented andnot the least-cost approach. Nevertheless, the GPG is committedto achieving increased sustainable development of the PRD andexpanding provision of urban environmental services, including the use o f innovative forms o f private involvement. Itrealizes that environmental infrastructure investment shouldbe guided by a regional development strategy that better reflects the goals o f sound environmental management andfiscal sustainability across PRD as a whole. However this is difficult andcapacity-building assistance and incentives are neededto help achieve those outcomes. The Project's GlobalEnvironmentObiective The South China Sea, into whichthe Pearl River flows, is one of World's LargeMarineEcosystems (LMEs). The GEF, especially concerned with such acritical internationalwater bodyis helping the littoral states to better manage this sharedresource. Analyses of the major threats to the Sea, facilitated by the GEF/UNDP/IMO Partnerships inEnvironmental Management for the Seas o f East Asia andthe GEF/UNEP Project onReversingEnvironmental Degradation Trends inthe South China Sea andGulfo f Thailand, have identified land-based pollution as one o f the most serious threats andthe PearlRiver Delta as a critical land-basedpollution "hot-spot". This project's global environment objective is to improve the - 82 -  environmental condition o f the South China Sea LMEby helpingGuangdong provincereduce land-based pollution o f the Sea from the Pearl River Delta area. Baseline Scenario This scenario comprises o fpreviously agreedplans andinitiatives o f the Chinese Government to address water relatedproblems at national andlocal levels. Itreflects the likely situationconcerning the Pearl RiverDeltaand its key cities inthe absence of GEF support. Underthe baseline scenario, the GPGandits manycities andtowns will make substantialinvestments in wastewater treatment and inimproving solid andhazardouswaste management inthe next fifteen years that will reduce the volume ofpollution enteringthe South China Sea. Some ofthese facilities will however be delayed byjurisdictional squabbles; neighboring municipalities will eachbuildtheir own, inadequately sized facilities that will waste investment resources, raise operating costs andthreaten their sustainability. Also, little effort has beenmade to involve the private sector inservice provision, even thoughthis is often the least-cost andmost efficient option. The project, inthe absence o f the GEF project would co-finance Phase one o f the Program andwould consist o f the following components: The Dashadi andLiede I11wastewater treatment and network expansion The regional hazardouswaste facility An industrial pollutioncontrol program Relatedcapacity buildingactivities The longer term program described inthe baseline would suffer from the following strategic shortcomings: ---- an minimal action to accelerateprivate sector involvement absence o f collaborative sharing of environmental data with other municipalities and other countries ad-hoc system o f water-quality monitoring inefficiencies resultingfrom municipalities desire to buildtheir own facilities - insufficient management and technical operator capacity GEFAlternative The proposed GEF Programfor the GuangdongPearlRiver DeltaUrbanEnvironment Projectwill encourage a more comprehensive integrated approach than outlined underthe baseline scenarioby addressing its strategic shortcomings. This will help give direction andensure that various plans o fthe agencies involvedinthe Pearl River Delta are coordinated andproperly integrated. Underthe GEFAlternative Scenario, the proposedproject would constitute the first-phase of a cost-effective, long-term andvery large-scale environmental managementprogram that will address the key weaknesses o f the Baseline Scenario and thereby achieve significantly larger andmore cost-effective environmental improvements inthe PRD and inthe South China Sea, into which it flows. The GEF Altemative project would support a larger volume o f collaborative, least-cost municipal waste management investments; be funded from a wider variety o f sources, including the private sector; and would promote greater financial sustainability o f these investments than the Baseline Scenario. To achieve these outcomes, the project would support the implementationofphysical investments, policy andinstitutionalreforms, and financial management improvements. Its over-arching goal would be to achieve the maximum sustainable environment benefits for the PRD area and the South China Sea by identifying andfunding the most environmentally efficient, least-cost investment program that can be afforded and sustainedwith sound financial management. The project andprogram will commence with the highestpriority investments inthe - 83 -  city o f Guangzhou, which is the largest contibutor to pollutioninthe PRD, with smaller cities also implementingjointly-managed environmental infrastructure investments on a pilot basis. Itwould also demonstrate innovative service delivery and financing approaches, including private sector provisiono f environmental infrastructure andservices. The Guangdong component of the parallel World BarWGEF Livestock Waste Management Project would address this specific issue as an integral part o f the provincial environmental managementprogram. GEF support wouldcatalyze three key, innovative aspects ofthe GEF Alternative strategy. Firstthe GEF would promote the planningand construction o f sharedmunicipal wastewater treatment and waste management facilities. This collaborative approachto wastewater and waste management would achieve significant capital and operational cost savings, which inturn would accelerate investment inwastewater treatment andlandfilldevelopment, and expandthe volume o f investmentandenhanceits financial sustainability. These actions would achieve faster andlarger reductions inpollution loads. Second, the GEF would stimulate greaterprivate sector involvement inwaste managementandwastewater treatment investmentandoperation by (i) encouraging the municipalitiesto actively seek private sector partners, and (ii)assisting potentialprivate sector investor/operators to prepare facility management investment and operational service proposals for consideration bythe municipalities andensuringthat such proposals are evaluated solely on their technical and financial merits andimplemented when they are both least-cost and financially sustainable options. Third, the GEF would provide additional funding for water quality testing that would improve the collection anddissemination o f water quality data that would enable a collaborative sharing o f data with other municipalities and other counties. The GEF's support for PhaseOne of the PRD Environment Program through this project would also promote greater inter-municipal cooperation andprivate sector involvement inthe subsequentphases o f the Program bypilotinganddemonstrating innovativeways to achieve these two objectives and bypromoting their replication insubsequentphases of the Program. The global environment objective o fthe GEF Altemative would be faster improvement o f water quality in the Pearl River Delta andreducedpollutiono fthe South China Sea. This objective will be achieved by (a) allocatingpublic pollutionreduction investment resourcesmore efficiently and by operating public waste management facilities more efficiently, andina sustainablemanner; and (b) accelerating private sector investment inwaste managementand participationinwaste managementoperations. Incombination, these advances will allow Guangzhou City to treat anadditional250 million m3 o f waste water over the next 15 years thanunderthe Baseline Scenario. This outcome will be monitoredthrough a comprehensive and replicable water quality testing regime. Key outputs o f the GEF assistedproject components would be the numberof facilitated agreementsto share waste treatment facilities amongthe municipalities andthe expanded service levels achieved through private sector involvement. IncrementalCosts Inorder to achievethese additional global environment benefits, GEFsupport was requestedfor the following project components: (1) encouragemento f inter-municipal environmental infrastructure (urban wastewater andwaste management) inGuangdong; (2) Water Quality Monitoring andInformation Systems, and; (3) facilitation o f private sector involvement inenvironmental infrastructure and operations (see Table 2 below). Inthe caseofcomponent (1) GEFresourcestotalling $6.8 millionwasrequestedto finance the incremental costs o f promotinginnovative, collaborative, more cost-effective andmore sustainablejoint municipal environmental infrastructure investments by helpingto identifythe first o f these options andby providing - 84 -  modest incentives to the concemed municipalities to collaborate onjointly designing, constructing and operating severaljoint facilities. This GEF component will have measurable efficiency outcomesby increasing the total amount o f wastewater treatedover fifteen years from 1billionm3 to 1.15 billionm3, i.e. supporting an incrementalglobal benefit o f 150million m3 extra o f waste water treated. This represents about a 15% decrease inthe total amount o fwaste entering the South China Sea from the Program areaby 2019. This GEF component will also support increasesindaily municipal solid waste disposal capacity by a similar 10% improvement. The GEF investment incentive funds would only be committedifand when viable joint municipal projects were identifiedby the GEF-supported identification efforts. This GEF support would catalyze botha greater volume o f environmental investment and a greater numberof financially sustainableinvestments thanthe municipalities wouldmake or could sustainunder the Baseline (business-as-usual) Scenario. GEF co-financingfor component (2) ofUS$2.25 million would enhancewater quality monitoringfacilities and staff capacity and strengthen both the project's impact assessment andthe PRD's contribution to the UNEPIGEF South China Sea Project's M& Eprogram. This would result ingreater intemational environment quality data and allow for better targetedpollutionreduction interventions. Regionaland intemationalpollutionreduction conferenceswouldbe organizedto bringtogether the parties impactingthe South China Sea. These workshops would provide a forum to discuss pollutionreductionplans andreport onachievements, andhelp to speed-up the reduction o fpollutionloading to the South China Sea. The first of these ongoing meetings is proposedto be inGuangzhou inearly 2005. Inthe case ofcomponent (3), GEFresourceswere requestedto finance the incremental costs ofidentifying and preparingviable proposals for private sector involvement to finance and operate additional environmental infrastructure facilities, which total US$0.95 million. Without GEF support for this component (business as usual), the PRD's constituent municipalities will be reluctant to explore and develop such innovative options and will not fully tap the potential for joint municipal andor private sector environmental investment andservice provision. GEF support would thus supplement scarce public sector environmental investmentresourceswith private sector investments and thereby acceleratepollution reductioninthe PRD and from the PRD area into the South China Sea. This component is estimatedto result inan extra 60 million m3 o f waste-water treated over the next 15 years, a 5% decrease intotal pollutionloading to the South China Sea by 2019. Through this combination o f incremental activities, GEF support would catalyze an innovative regional (PRD-wide) and more comprehensive approach to water quality improvement. No single municipal investment program i s capable o fprovidingall of the treatment facilities and behavioralmodifications neededto have amarkedimprovementto the South China Sea water quality. For example, complementary action on industrial livestock waste and other directed interventions to increase water treatment capabilities and reduce industrial waste dischargesi s also needed. The GEF Altemative will thus be the first o f what is plannedto be a series of such integratedyet independently delivered water quality improvement interventions. The following incremental cost matrix summarizes the positive impacts that GEF support have on the pace and scale o f pollutionabatementprograms withinthe Pearl River Delta. The Baseline Scenario is basedon the Guangdong PRD Environmental Strategy Plan. This plan outlines an investment program of about 162 wastewater treatment plants estimated to cost about US$5 billion. For wastewater andlandfill development, total expenditures under the GEF scenario are estimated to be the same as the baseline scenario. However, through more efficient use of capital andfaster development, the GEF Altemative Scenarioresults ina 20% decrease inthe total pollutionloading from the region to the South China Sea by the 2019. This is a staggering amount of avoided pollution. These improvements are brought about - 85 -  through component 1, inter-municipal cooperation, and component 3, increasedprivate sector involvement. The second component, water quality monitoring, has a baseline scenario cost o f US$9.25 million and a US$11.5 million cost for the GEF Altemative Scenario, o f which US$2.25 million would be co-financed by the GEF. Provincial andmunicipal governments have committedto this increasedinvestment level and to support the intemational aspects of data collection and dissemination ifthe GEF support is forthcoming. Table 2 presentsboth 'program' (Le. some 162wastewater treatment plants over 15 years withinthe PRD) and 'project' (Phase 1o f the program - this specific investment activity involving at least one wastewater treatment plant). The GEF assistance is not expectedto change the overall costs of the program, but rather enhance the efficiency andtreat an additional 250,000,000 m' o f wastewater, Table 2: Incremental Cost Matrix Cost Category US$ Million Domestic Global Environment Environment Benefit Benefit 1. Urban Baseline WWT 5,000 1.25 billion m3 of 1.25 billionm3 of Wastewater and (program cost) wastewater treated WW treatedand SolidWaste resultingpollution Managementin reduced GuangzhouCity and MSW 300 100milliontons o f Reducedwater Inter-Municipal (programcost) MSW disposed pollution from Environment waste properly Infrastructure I managed WithGEF WWT 5,000 1.44billion m3 of 1.44 billion m3 of Alternative - a (Program cost) wastewater treated Waste Water 15%increase in treated WW treated and a MSW 30( 110million tons of Reducedwater 10%increase in (program cost MSW disposed; pollution from solid waste treated reducedpollution waste properly managed 6.1 90,000,000 m3 ~ [educed water Increment (project cost xtra WW treated ontaminationfrom nextra 190,000,001 n3 WW treatedand 0,000,000 tons o f vastelandfilled 9.25 Modestexpansion Greater Monitoring and (projectcost) of existing data international Information collectionsystem environment quality data Better targeted interventions 11.50 Altemative (projectcost) I Increment 2.25 - 86 -  3. Private Sector Baseline WWT 5,000 1.25 billion m3 of 1.25 billion m3 of Involvement in (program cost) wastewater treated WW Treated and Environment and resulting pollution Infrastructure MSW 100milliontons of Reducedwater 300 M S W disposed pollution from (program waste properly cost) managed With GEF W W T 5,000 1.31billionm3 1.31billion m3 o f Alternative - a 5% (program cost) wastewater treated WW Treated increase inWW treated and a 5% increase insolid M S W 300 105 million tons o f Reduced water waste treated (program cost) M S W disposed; pollution from reduced pollution waste properly managed Increment 0.95 60,000,000 m3 Reducedwater (project cost) extra WW treated contamination from an extra 60,000,000 m3 WW treated and 5,000,000 tons of waste landfilled Total Baseline 5.305.000.000 VithGEF Jternative 5,3 15,000,001 ncrement 10,000,00~ - 87 -  Additional Annex 12:STAP Review CHINA Guangdong Pearl River Delta Urban Environment Project STAP Review Comments on the brief of the GEF project by: SU Jilan Second Instituteof Oceanography State OceanicAdministration 36 Bao-Chu-Bei-Lu Hangzhou,Zhejiang, 310012 China (Tel: 86-571-8884 0332 Email: suiil@zab.com.cn) The Pearl River Delta (PRD) is one of the most populated and industrialized areas inChina. The water quality inmany parts o f the PRD has rated Class V or worse, particularly near large cities like Guangzhou, although inthe upper reaches of the Pearl Riverinthe mainbranches the water quality is generally good. In recent years there has been a major emphasis on building wastewater treatment plants in the PRD. However, there is still a long way to go before water pollution inthe PRD will be abated. One important reason for this slow progress is because of China's general lack o f experience to address environmental problems with modern management skills andto involve private sectors inpublic works. Inthis sense, the integrated regional planning approach as evidenced by Project Components 2-4 is most noteworthy. The willingness o f the Guangzhou municipality to support/participate in this undertaking is also most encouraging. Thus, Ifully recommend approval o f this proposed GEF project. Inthe following, Ihave four technical commentsfor the authorsto consider whenfinalizing the proposal: 1.As it presently statedthe Project development objective is "toimprove the quality of the urban environment in key cities in the Pearl River Delta (PRD), byfollowing an integrated regional planning approach, in order tofacilitate continued economic and social development". However, it is not clear that the 8 points stated inthe next paragraph of the proposal are all direct progress-measuresto the obiective shown inbold face above. Iwould suggest rewording the objective to bringup the importance o f demonstrating to the public and local officials the effectiveness o f the 'integrated regional planning approach'. 2. If the global objective o f the Project is to be related to the South China Sea, the important land-based pollutants are principally POPS and nutrients. However, river-borne dissolvedparticulate pollutants have significant impacts on the marine environment and ecosystems only in shallow coastal water with depths less than, say, 50 m. For the South China Sea Proper, it is the atmosphere-borne pollutants, i.e., in the form o f aerosols, which exert influences. Thus, rationales given here, as well as related arguments stated elsewhere in the brief, needto be re-worded to reflect this fact. 3. The brief sounded apologetic, in my view unnecessary, when it stated under Section B.3 that 'I,...the project would be processed even with this one city.. ..'I.The city referred to here is Guangzhou. As an administrative unit, the word "city" in China encompasses a large region with many district level and small-city level administrations. Although they are all under the jurisdiction o f Guangzhou City, implementation o f integrated regional planning approach advocated by the proposed GEF Project does not come by any easier. Iwould suggest the proposal simply sets its minimumgoal to implement the approach inGuangzhou City. - 88 -  4. Lastly, usageo f Englishneeds to be checked. For example, it is better to say "low-wage", not "low-cost", migrant workers. The word "distributaries", rather than "tributaries", shouldbe used when referringto riverbranchesthroughwhichthe PearlRiverdischargesits water to the sea. Responseto Reviewcommentsby SUJilan, SecondInstituteof Oceanography State Oceanic Administration,Hangzhou,Zhejiang, China.STAPReview. Dr. SUJilan 's support of theproject is very welcome. His agreement with theproject's integrated approach, andpracticalities of starting with Guangzhou are encouraging. Also, the need tofocus on modern management skills and involvement of theprivate sector is supported. With regards to thefour specijic technical comments, they will be reflected in theproject 'sfinal design and documentation. I. Theproject's broadobjective "to improvethequality of theurbanenvironment in key cities in the Pearl River Delta' will be broadened to also include `hnd highlight the needfor an integrated approach to environmental management". 2. Thepoint that a keenfocus is needed on POPSand nutrient loadingfor attainment of measurable water quality improvement in the South China Sea is very valid. Programs are underway to address these issues through other means, e.g. the regional livestock waste managementproject being supported by GEF. Thisproject is intended to start with improved wastewater treatment and hazardous waste management aspart of an overall comprehensive, multi-level effort. As suggested the rationale will be revised to reflect thesefacts. 3. Thesuggestion to be morepositive on the exemplary role of the city of Guangzhou is appreciated. As related topoint two, efforts will be made duringproject implementation to maximize the municipal governments andpublic learning that derivesfrom theproject. Guangzhou is certainly the bestplace to start within thePearl River Delta region. 4. As recommended theproject team will change "low-cost to `?ow-wage''and "tributaries" to " "distributaries" where warranted. Again, theproject team expresses its appreciation of Dr. SUJilan 's comments and his depth of understanding in the water quality of the South China Sea and its current impacts. a) Responseto comments from Secretariatand other Agencies The project design shouldinclude areplication strategy, stakeholder participation plan, M&E indicators. Theproject has a detailed replication strategy. First, the collected and collated water quality data will be made available broadly and consistently. Thedata will bepresented in a user-friendly manner both on a readily accessible web-site and in annual environmental status reports. Data collection and distribution will endeavor to use common, and readily available, equipment and sofiare to help other neighboringjurisdictions and countries set up similar and compatible systems. The project is starting with the city o f Guangzhou. Guangzhou (the capital o f Guangdong) i s an important city for piloting any activities within the region since results are quickly and easily seenby neighboring cities. Water quality data will be presentedby cities which will enable quick comparisons. Guangzhou is also able to discuss - 89 -  regional approacheswith Hong Kong SAR. On specific project aspects such asprivate sector involvement infacility operations andjoint municipal development of environmental infiastructure thisproject has clear terms of reference for any contract development to be carried out in a manner that includes a common structure which can be easily replicated by other cities. There are also specificfunds identifiedfor ongoing trainingprograms where the lessonsfrom Guangzhou 's efforts will be discussed among other neighboring municipalities. Stakeholder participationprograms have been developed in at leastfour broad areas; siting and operation of wastewater treatmentfacilities, siting and operation of the hazardous wastefacility, design andprogress of the industrialpollution controlprogram (IPCP), and collection and dissemination of Pearl River water quality. In the wastewater and hazardous wastefacilities stakeholder participation has been built into the ongoing environmental management system EMS. ThisEMSforms part of the reviewed and legally binding environmental impact assessment.Although thepublic will bepresented with theprogress of industrial activities to reducepollution on the web-site and annual environmental reports, the key stakeholder will be neighboring industries who theproject intends to work with to reduce their overallpollution loadings. This will be done through technical workshops, in-house waste audits, and other technical andpolicyfora. Public stakeholder participation will occur mainly through existing and strengthened municipal (and higher levels of government) programs. This includes easy access to the web-site (with a question and answer section), schools educationalprogram, annual municipal `state of the environment 'reporting. Theproject has a comprehensive monitoring and evaluation program. Specific items to be monitored include; quantity of wastewater treated; eflciency of wastewater treatment, amount and eficiency of hazardous waste treated, number of operating contractsfor environmental infiastructure that include private sector involvement, and number of intra and inter-municipally developed environmental infiastructure programs. Theseitems will be monitored through various means such as regular project supervision, monthly/annual reports, real-time water quality data. The Bank agreedto develop a strategic framework for other GEF supported interventions inthe Region. The Bank alsoagreedto explore closer links betweenlivestockwaste reductionprograms. Duringproject preparation discussions were heldwith MinistryofAgriculture representatives to design a complimentary agricultural waste program (livestock andrun-off). A plan is now inplace to monitor agricultural waste reductionprograms (integrating them with the water quality objectives outlined inthis project) and report the results to the general public and the agricultural community. The GEF i s supporting a regional livestock waste management project which can also be monitored through the water quality monitoring program beingsupportedthrough this project. Guangdong Province also agreed to hold at least one (and likely an annual event) regional (i.e. international) workshop or conference for alljurisdictions bordering the Pearl River Delta (including municipalities and countries). Thisforum will be used to develop regionalpollution reduction strategies and disseminate bestpractices. The implementation of a revolvingfund to support environmental infrastructure was also discussed. Thefirst pilot activities in theproject are designed to be initialproject suitablefor supportfrom a revolving capital fund. Discussions are still underway with GEF to broaden thefund (outside of the Pearl River Delta) and increase its size. TheProvince of Guangdong (EPB) agreed toprepare a livestock management actionplan. Thisplan, where appropriate, would be integrated into activities supported by thisproject. Capacity building activitiesfor - 90 -  relevant agencies would be supported by thisproject where staffcapacities overlap in EPB - this would help maximize any synergies between the two GEFsupported activities. The GuangdongEPB also agreed to carryout pilot activities in the livestock waste area, e.g.emissions trading. The Bank would investigate institutionalcoordination and support. TheBank has an extensive investmentprogram in the Pearl River Delta area. Already a second PRD is under preparation and discussion has started on a third. The lessons learnedfrom the GEFsupported activities are already being incorporated infollow-on project designs. There is keen interest within the PRD and within all urban areas of China, especially those along the eastern sea-board, to see how inter-municipal cooperation can be made to work and how best to involve theprivate sector in the development and operation of environmental infrastructure. The Bank will actively participate inthe international conferencesbeing proposedby Guangdong Province. The Bank has also facilitated discussions with Hong Kong SAR, PEMSEA andUNDP. Information on the program (the overall objective o f improvingthe water quality inthe PRD ingeneral -andspecifically the mechanics and objectives o f this project) is beingwidely distributed. - 91 -  AdditionalAnnex 13: Project ImplementationSchedule CHINA: Guangdong Pearl River Delta Urban Environment Project - 92 -  AdditionalAnnex 14: EnvironmentalAssessment and Mitigation Measures Summary CHINA: Guangdong Pearl River Delta Urban Environment Project A. Background The Guangzhou Research Institute for Environmental Protection (GRIEP) carried out the Environmental Assessment (EA) o f the proposed Guangdong Pearl River Delta Urban Environment Project (GPRDUEP) in accordance with Chinese national and Bank procedures, with support from independent international consulting specialists. Various drafts were reviewed and discussed in detail during project preparation. The draft EA documents were submittedto the BankinNovember2003 andreviewedbythe Bankduringa mission in December 2003. The final EA Report, Environmental Action Plan (EAP) and Executive Summary (ES) were submitted to the Bank in December 2003 and found to be satisfactory. The EA Report was sent to the Bank's Information Center in December 2003. Duringthe EA work, local people were consulted, and their opinions have been reflected in the project design and environmental mitigation measures as appropriate. The policy and administrative requirements for environmental assessment o f development projects inChina were followed during preparation and evaluation of the EA, as well as the Bank's policy. Major laws and regulations appliedto the EA are as follows: (a) Environmentalprotection Law o f the People's Republic of China; (b) Atmospheric Pollution Control Law; (c) Environmental Noise Control Law; (d) Water Pollution Control Law; (e) Cultural Heritage Protection Law; (f)Notice o f Strengthening the EA Management Work o f Construction Projects financed by International Financial Organizations; and (g) Technical Guidelines for EnvironmentalImpact Assessment. B. Brief Project Description The Guangdong Pearl River DeltaUrbanEnvironmentProject includes the following components for which EAshave beencompleted Guangzhou Wastewater Management Dashadi W T P and associated trunk sewer network Liede 111W T Pand associated trunk sewer network Trunk sewer networksfor 4 other WWTPcatchments Hazardous Wastes Management Hazardous waste treatmentfacility and secure landfill Central to the project are capacity, andinstitution-building measures andtraining. C. Baseline Environmental Description Natural Environment The project area is locatedwithin the Guangzhoumetropolitan area, located within the Pearl RiverDelta (PRD), which intum forms part o f Guangdong Province, o f which Guangzhou is the capital. - 93 -  Topographically Guangdong Province is dominated mainly by hills andsome small mountains that are cut bynumerous rivers andstreams with narrow alluvial valleys. The PRD may be described ingeographic terms as a triangle with its eastem side extending about 120kmfrom Guangzhou to HongKong, a westem side o f a similar lengthbetween Guangzhou andMacao. The southem side is effectively about 60 kmo f open water between HongKong andMacao. The PRD has a subtropical climate characterizedby a summer wet season from April to October and a dry cold season from November to April. The annual daily average temperature is 21.9 Degree C, which July beingthe hottest month(average 28.5 Degree C) andJanuary the coldest (average 13.3 Degree C). Annual rainfall averages 1683 mm, the wettest anddriest months being May (average 283 mm) andDecember, respectively. The wind directionfollows the pattem of the monsoon movement, blowingfrom Nto NE duringthe winter and from S to SE duringthe summer. Socioeconomic Situation The PRD is one ofthe most populated areas of China with a 2000 population of 39.7 million, some 46% of the total population of Guangdong. Populationgrowth has beenrapidinrecent years largely as a consequence o f migration from other areas o f China. Guangzhou i s the largest city inGuangdong, with a population o f approximately 7.1 million. The PRD is extremely important to the economy o f Guangdong, ' accounting for 70% o f gross provincial output. Ithas experienced among the fastest economic growthrates inChina; inrecent years annualGDP growthhas averaged over 14% andreachedapproximately Yuan 644 billion in 1999. Guangzhou is the most importantmunicipality inthe PRD interms of contribution to GDP, which was Y 144 billion in 1999, equivalent to aper capita GDP o f approximately Y 20,000. The rapideconomic growth inGuangzhou inparticular is reflectedinrising living standards particularly inrespect o f housing conditions, per capita floor space having increasedby more than a factor o f 3 since 1980 inspite o f the substantial populationgrowth. Up to 40 minorities, principally Hui,Man, Yao, Liand Se, account for about 1.35% o f the total population o f the Guangzhou Municipality area, living principally inthe urban areas. Water Resources The Pearl Riveris the largest river insouthem China andthe thirdlongest inChina after the Yangtze (Chang Jiang) andthe Yellow River (HuangHe). The overall Pearl Riverbasinhas an area o f 453 700 km2drained bythe threemajorbranches,the Xi Jiang BeiJiang andDongJiang. The averageflow inthe Pearl River as a whole is 336 billion m3 (equivalent to 10,650 m3/s), secondinChina only to that o f the Chang Jiang. O f this flow 238,000 billionm3 is accounted for by the Xi Jiang, 39 billionm3 by the Beijiang, 24 billionm3 bythe Dongjianganda total of 35 billionm3 from the other smaller branches ofthe river. Some 80% o f the annual flow occurs during the wet season from April to September, and 50% occurs duringthe periodJune to August. By contrast the average dry season (October to March) flow is only 80 billionm3 (equivalent to 5,090 m3/s), accounting for only 24% o f the total annual flow. The Pearl River provides abundant water resources for the population inits watershed. Average per capita water resources inthe watershed as a whole are 4,700 m3/a, some 1.7 times the nationalaverage. The branches o f the Pearl River converge and thereafter diverge at the PRD. The PRD is divided into four - 94 -  distinct hydro-morphologicalsections known as the Xi Jiang, BeiJiang, DongJiang andthe Guangzhou Section o f the Pearl River. Water Quality The Guangzhou Section o f the Pearl River (shown inFig 1) accounts for a relatively small proportion of the overall flow inthe PearlRiver as awhole (typically less than 10%inthe dry season). Withinthe urban area o f Guangzhou the river divides to form two major branchesknown as the `Front' and `Back' sections. Itdrains muchofthe largeurbanareas ofGuangzhouandFoshanandtherefore receives substantial discharges o f urbanwastewater ando f industrial wastewater. Current wastewater treatment rates within the Guangzhou Section o fthe PearlRiverare low, approximately 16%inGuangzhou and 10%inFoshan. As a consequence ofthese dischargesthe urbanreaches ofthe river are highlypolluted andthe situation is exacerbatedby the fact that the river is tidal. Water quality inmost of the river inthe urban areas is typically Category 4 or 5, particularly duringthe dry season. As a consequence the upstreampotable water intakes are progressively threatened by pollution. Monitoringdata indicate that the most important pollutants are organic (BODKOD and ammonia), derived from both urbanand industrial wastewater. These impact on concentrations o f dissolved oxygen, which fall to close to zero at the Huangsha and Liede monitoringstations. FutureWater Quality Objectives The Guangzhou Municipal EPB has specified water quality objectives (WQO) for the various reachesof the PRD inthe Project area. The WQO for the Guangzhou Section o f the Pearl River are as follows: Upstream o f Hujinghai Category 2 Hujinghai to Liede Category 3 Downstream of Liede Category 4 D. EnvironmentalBenefits The wastewater treatment component o f the project contributes substantially to increasing wastewater treatment rates for Guangzhou through the provision of: 0 Newwastewater treatment plants at Liede andDashadi; and 0 Sewerage facilities within the catchments o f other treatment plants, thereby ensuring that the capacity o f these plants will be effectively utilized. The impact of the project interventions onwater quality inthe Guangzhou Section o fthe Pearl River has been evaluated by mathematical modeling. By 2010, the `Front' Sectiono fthe river is expected to have significant benefits from increased dissolved oxygen andreduced BOD concentrations. The results indicate that dissolved oxygen levels are increasedbybetween2 and4 mgil, improvingthe water quality classification by at least one category, andthat the WQO will largely be met even underthe critical low flow conditions modeled. A similar substantial improvement is achieved inrespect o f BOD concentrations. Similar or evenmore marked improvements inwater quality inurbanwatercourses will be achieved as a consequenceo f improved wastewater collection. Water quality declines inthe immediate vicinity o f the confluence with the Dongjiang as a consequenceof - 95 -  poor water quality inthe Dongjiang resultingfrom discharges o f urbanand industrial wastewater in Dongguan. Pollution o f the Dongjiangis to be addressedby substantial wastewater treatment investments byDongguanMunicipalityby 2010 as part ofthe PRD clean up campaign of Guangdong EPB. The 'Back' section receives discharges ofmunicipal andindustrialwastewater from bothGuangzhou and Foshan. The project will improve water quality inthe 'Back' section but water quality improvements are limitedbyresidual discharges ofuntreatedwastewater from areas ofGuangzhouunserved bywastewater treatment plants andfrom Foshan. This highlights the future needto enhancewastewater collection and treatment for these areas. The most cost-effective development o fthe requiredfacilities would be by an inter-municipality cooperative approach. The water quality modelinghas beenbasedon the assumption that industrial wastewater discharge direct to the river will comply with local wastewater treatment discharge standards. To safeguardwater quality in the river an Industrial PollutionControlActionPlan(IPCAP) will be implementedinparallelwiththe Project. There is a proposal for the stage relocation o fpollutingindustry from the Guangzhouurban area to designated industrial parks with dedicated environmental infrastructure. This will be carried out inthree stages with fmal completion by 2015. The basis o f the IPCAP will be the relocation plantogether with controls onmajor pollutionindustries for the periodup to their relocation. E. PotentialEnvironmentalImpactsand Their MitigationMeasures The project as a whole is substantially positive inenvironmental terms, with the benefits greatly outweighing the negative impacts. The wastewater component will greatly increasewastewater collection and treatment rates within the municipality area andwill improve considerably water quality bothinthe main Pearl Riverreaches inthe Guangzhouurbanarea and inthe urban tributaries. The hazardous waste component will substantially increasethe regional availability o f facilities for hazardouswaste management and provide a new environmentally secure disposal route for the categories o f waste treated. Nevertheless some negative impacts have been identified inthe EA process for all components, andthese require mitigation measures. The principal impacts and their appropriate mitigationmeasuresare described below. Sludge Production. The principal impact o f wastewater treatment is the needto dispose o f increasing quantities o f wastewater treatment plant residuals, principally sludge. The total quantity o f sludge producedby all proposed wastewater treatment plants inGuangzhou is estimated at 900 tons/d by 2010, o f which 230 tons/d are accounted for by the specific project wastewater treatment investments at Dashadi andLiede. Disposalo f sludge from the present limiteddegree o f wastewater treatment inGuangzhou has beenby sea dumping andmore recentlybylandreclamation., but it is recognized that these disposal routes are not sustainable. The long term proposalby Guangzhou Municipal Government for disposal o f all wastewater treatment plant sludge from Guangzhou is byriver transport to a treatment center, where further chemical and thermal treatment will be provided to produce treated sludge suitable for beneficial use in agriculturehorticulture andinbrick manufacture. Untilsuch time as sufficient marketsare developedto support these uses o f treated sludge, the principal disposal route will be by landfill. Guangzhou is served by a major landfill site operatedthrough a PSP arrangementwith aninternationalwastes management contractor; this site has adequate capacity to accept the wastewater treatment plant sludge. Although domestic wastewater treatment plant sludge is understood to be non-hazardous due to the low - 96 -  heavy metalcontents as a result o f the industryrelocationaway from the serviced areas, there are uncertainties on related to the sustained marketaccess andor technologies for brick makingand other sludge re-use products. Untilsuch time as the markets to support these uses are sufficiently developed, disposal will be primarilyby environmentally secure landfill. Water quality impacts o f treated wastewater discharges are minimized by the location o f treatment plants inrelation to critical river water uses. Dispersion of Wastewater Discharges. The potential impact o fthe treated wastewater discharges on water quality inthe immediatevicinity of the dischargeshas been evaluatedby mathematical water quality modeling. This modeling indicatedthat the impact would be very limited, concentrations o fthe principal pollutant BODKOD at the closest industrial water supply intakes (750m downstream o f Liede WWTP and 250 mupstream o f Dashadi WWTP respectively) increasing by only a few percent even under low river flow conditions; water quality at these intakes would still be well within the local WQO for the river reach. Moreover, it is understoodthat the intake downstream o f Liede WWTP is not currently inuse and that upstreamo f Dashadi i s only partially used. Hazardous Waste Management. The principal adverse impacts o fthe operational phaseofthe hazardouswaste component are the road transport o f hazardous materials andpossible generation o f leachate at the landfill. Major mitigation measuresfor the hazardouswaste management component include provisions o f a drainage control system to prevent the rain water from entering into the landfill, a rainproof shedduringoperation andcanvas on waste duringrain time to preventrainwater from contacting the waste, animpermeable site liner to prevent leachatefrom infiltrate into the ground andthe facility to treat any leachategeneratedand collected from the landfill. Inaddition, extensive training will be provide to operators o fthe hazardouswaste disposal facilities to ensure the operators are fully skilled with modemleachatecontrol and treatment technologies andfacilities adoptedbythe landfill. A comprehensive monitoringprogramwill be implemented duringthe operational phase for groundwater, as well as surface, ambient air quality andnoise to detect timely any adverse impacts from landfilloperation to allow remedial andcorrective actions. Construction Spoil. Duringconstruction, substantial quantities of spoilwill be generatedfrom excavation works and demolition o f existing buildingsand concrete structures, mainly at the Dashadi WWTP site and along the routes o f the sewer networks. The estimated total quantity o f earth spoil is about 500,000 m3. It is expectedthat spoil from WWTP construction can be removed from the sites by barge butthat from sewer constructionwill needto be removedby road. A detailed construction spoil managementplanwill be prepared andthe impact o f spoil transport minimizedby controls on operational procedures. Impact on NaturalEnvironment. The project will not involve the use o f any landwith a valuable natural environment. The Liede WWTP component involves an extension to an existing plant on a site already allocated for that purpose, and the Dashadi site is landalready totally developed. Sewer network construction will generally be inurbanareas and may involve the cutting o f streettrees. Any trees cut will be registered and replaced at a rate o f not less than one tree planted for one cut, to be monitored during construction supervision. - 97 -  Long term impacts o f the project on aquatic ecology will be substantially positive inview o f the polluted nature o f the water environment inthe vicinity of the project sites. Impacts duringconstruction will be minimized by controls on the working practices o fthe contractors. Other ConstructionImpacts. Other impacts ofconstruction includenoise from construction machinery, generation of dust anddisruption o f local traffic. These will be minimizedby appropriate restrictions on working hours andoperational procedureso fthe contractors concerned. Other OperationalImpacts. The other significant potentialimpacts ofthe operation ofwastewater treatment plants andpumpingstations are noise and, inthe case of wastewater treatment plants, odor. These have been minimized by the sitting o fthe plants andby the provision o fbufferzones and landscaping. Where there are sensitive noise receptors close to the facilities, the noise emissions will be minimized by appropriate acoustic insulationo f machinery. F. PublicConsultation andInformationDisclosure The following approacheswere adopted for public consultation: (a) meetings with city ProjectManagement Offices (PMOS), utilitycompanies, municipal EPBs, andother affected city departments; and(B) surveys to gauge the public perception o f the positive andnegative impacts o f each o f the proposed schemes. All schemes proposed were well received by the public. The public participationexercise was undertakeninthree forms: bulletins inthe press, public opinion questionnairesand surveys o f the public. The phasing of the public participation exercise is shown inthe following table. PublicParticipationPhasingand Goals Round Roundseparation Major participationgoals 1st round Environmental Identifystakeholder groups; secureproponent (screening ) screening commitment to public participation program; agree on extent and mode o f participation 2nd round Shortly after Identify stakeholders; disclose relevant project environmental information; determine stakeholder concems and screening, before the include them inthe TOR EATOR finalized 3rdround After EAreport (draft) Disclose informationon study methods and findings; is prepared agree on proposed mitigationmeasures with stakeholders; let stakeholders determine whether their concerns are adequately addressed 0 Bulletinsinthe Press. Bulletinswere published inthe localpressinthe project city for eachof the project components containingthe general pollution situation inthe basinriver, the objectives of the project investments, availability o f project EA documents for public access andcontact information for the public to voice their concerns and opinions about project andenvironmental impact andmitigation measures. 0 The Willingness to Pay Surveys. These surveyswere carriedout at anearly stage ofthe project preparation to assess the overall acceptability of the project to the people o f the project cities inthe - 98 -  lightof increasedtariffs. e PublicOpinionQuestionnaire. Opinionpolls were carriedout inthe districts affectedbythe project inthe various cities. The questionnaire obtained written individual opinions o f the project including their concems ofthe differentproject components. These concerns havebeenaddressedinthe final EA report and EMP as appropriate. 0 Survey of the Public. Survey ofthe Project-Affected Peopleandthe GeneralPublic: The survey invitedlocal community andneighborhood committees, district governments, residentsalong the sewer lines and at the wastewater treatment plant sites, affected enterprises, relevant government agencies and other stakeholderswhose opinions were considered and inquiries answered. The surveys are primarily through numerous public meetingso f the affectedpublic invarious project component areas including both WWTPs and all sewer network regions. The EA andES were made public locally inthe project areas; this availability was advertised through the local press. Following submission to the Bank the documents were sent to the Bank's Public Information Center. Details pertainingto the public consultations andinformation disclosure are providedinthe following tables. Waste Water Treatment PublicConsultation Substance Bywhom 1 Withwhom I When Where 1 WorldBank requirements Interviewduring China Cross Project November 15tl oshanand O D 4.30 and OP fieldsocial Cultural Beneficiaries to December luangzhou economic survey Consulting (Domestic and 15th2002 Iistricts: andfOllOW-Up Center o f IndustrialUsers) July 30thto iwan, field surveys Sun-Yat Sen August 5th [uangpu, University and 2003 [aizhu, Sogreah 'aiyunand Consultants ianhe) RAPoutline GREO GDEPB, December ~uangzhou consultation GZEPB, 2002 to Augus GZMGB, 2003 GZWSC, GZWRB, SEPA, GDPMO Sogreah, World Bank Draft EA TOR GRIEP GDEPB, GZEPB, October to h.langzhou 3P4.0: consultation GZMGB, IDecember200: :onsultation GZWSC, juringTOR stage GZWRB, :their work done SEPA, 3efore OP - 99 -  lGDPMO requirement) Sogreah, World Bank EA TOR GRIEP GDEPB, January 2003 Guangzhou OP4.01: consultation GZEPB, consultation GZMGB, during TOR stage GZWSC, (their work done GZWRB, before OP SEPA, requirement) GDPMO ~ Distribution o f GRIEP Areas potentially October 2003 Areas affected questionnaires and affected by the by project in key EA andRAP project and Guangzhou messages inbullet beneficiaries point format in first public meetings RAP Surveys Sino-French PAPSwithin the October to Areas Research project area December affected by Institute o f 2003 project in Zhongshan Guangzhou Universitv Distribution of GRIEP Areas potentially November 200: Areas affected OP4.01: project informatior affected by the byproject in Consultation anddraft EA and project and Guangzhou prior to RAPinsecond beneficiaries finalization o f public meetings draft report Final EA 3RIEP in February 2004 issociation with jogreah Final W 3REO February 2004 Information Disclosure r~~ Document I Dateof I Location I WorldBank Disclosure Requirement Copies o f EA TOR and October 2002 to OP 4.01; OD 4.30; RAPoutline January 2003 BP 17.50 Questionnaires and key October & EAandRAPmessages November 2003 Draft EA reuorts SeDtember 2003 Draft RAP reports November 2003 Final EA andRAP reports February 2004 OnWeb-Site (World Bank andGRIEP) Notice for availability o f February 2004 Local Newspapers EAandRAPreports on Web Site - 100-  Resettlement information January 2004 Office of the booklet resettlement implementing organization Hazardous Wastes Treatment Public Consultation Substance Bywhom With whom When Where Bank's requirement Interview during China Cross Project November Foshanand 3D4.30 and field social Cultural Beneficiaries 15thto 3uangzhou 3P 4.01 economic survey Consulting (Industrial December :Districts: and follow-~p Center of Users) 15th2002 Liwan, fieldsurveys Sun-Yat Sen October Huangpu, University and 2003 Haizhu, Sogreah Baiyunand Consultants rianhe) RAP outline GREO GDEPB, December Suangzhou consultation GZEPB, 2002 to GZMGB, August 2003 GZWSC, GZWRB, SEPA, GDPMO Sogreah, WorldBank Draft EA TOR GRIEP GDEPB, October to Guangzhou OP4.0: consultation GZEPB, December consultation GZMGB, 2002 duringTOR GZWSC, stage (their GZWRB, work done SEPA, before OP GDPMO requirement) Sogreah, World Bank EA TOR SRIEP GDEPB, January2003 Guangzhou OP4.01: consultation GZEPB, consultation GZMGB, during TOR GZWSC, stage (their GZWRB, work done SEPA, before OP GDPMO requirement) Distributionof SRIEP Areas September Liangtian questionnaires and potentially 2003 Town key EA andRAP affectedby messages inbullet the project - 101-  point format infirs and public meetings beneficiaries RAP Surveys Sino-French PAPSwithin October to Liangtian Research the project December Town Institute o f area 2003 Zhongshan university Distribution o f GRIEP Areas govember Liangtian OP4.01: project information potentially !003 Town Consultation and draft EA and affected by prior to RAPinsecond the project finalization of public meetings and draft report beneficiaries Final EA GRIEP in February associationwith 2004 Sogreah FinalRAP GREO February 2004 InformationDisclosure Document I Date of Disclosure I Location I Bank's I Requirement Copies o f EA TOR and October 2002 to OP 4.01; OD 4.30; RAP outline January 2003 BP 17.50 Questionnaires andkey October & EA and RAP messages November 2003 Draft EA reports September2003 Draft RAP reports November 2003 Final EA and RAP reportsFebruary 2004 OnWeb-Site (World Bank andGRIEPI Notice for availability o f February2004 Local Newspapers EA andRAPreports on Web Site Resettlement information January 2004 Office o fthe booklet resettlement implementing organization - 102-  Additional Annex 15:Resettlement CHINA: Guangdong Pearl River Delta Urban Environment Project ProjectDescription 1. The proposedGuangdong PearlRiverDeltaUrbanEnvironmentProject (the Project) consistsof four components: a 200,000 m3lday wastewater treatment plant (WWTP) at Dashadi and associated seweragecollection network, a 200,000 m3lday extension o f an existingWWTP at Liede and associated seweragecollection network, seweragenetwork upgrading infour additionalurban districts (totaling 324 km), andaregionalhazardouswaste disposal center, allwithin the municipality ofthe provincial capital of Guangzhou. A resettlement actionplans (RAP) has beenprepared, including a main volume for policy framework which applied to all components andfour additional volumes, one for each o f the components, for component specific survey results andimplementation plans. The RAP has been prepared in accordancewith applicable state, provincial andmunicipalregulations, policies, and compensation standardsfor resettlement, as well as requirementso f OP4.12 o f the World Bank. ResettlementPlanning 2. The Guangzhou RoadExpansion Office has beenresponsible for the resettlement planningofthe Project and organized different teams to carry out the planningassignment. Resettlement planningincluded a detailedcensus o f affected people, inventory of impacts and socioeconomic surveys. These resettlement planning activities provide a detailed recordof adverseproject impacts relatedto involuntary relocationand resettlement, including land, houses, businesses, institutions, andthe number o f people affected. Applicable regulations, policies and standards have beencompiled and, following extensive discussions with key government agencies andProject proponent, incorporated into the RAP as the main policy framework and compensation standards to be applied inthis Project. Socioeconomic surveys were conducted through questionnaires, interviewsandgroup discussionsto allow goodunderstandingo f the project area baseline conditions as part o f the resettlement planningprocess. The findings o f the surveys, together withthe results o fthe census andimpact inventory, form the basis for the four component RAPS and implementation plans. ProjectImpacts 3. The project components would requirelandacquisition, temporary leasing o f land, andrelocation o fhousesand businesses. The details o f these impacts are summarizedinthe following table. - 103-  Summary of Project Impacts Component Land acquisition (mu*) Building Resettlement Permanent/Temporary demolition Households Population (m') Dashadi WWTP 604.22 0 75,763.00 42 820 Dashadi Sewer 297.99 980.96 246.314.88 2986 10.242 Sub-total 902.21 980.96 322i077.88 3028 11I062 Liede3WWTP 0 0 0 0 0 Liede 3 Sewer 238.84 763.50 113,129 1,454 6,296 Sub-total 238.84 763.50 113,129 1,454 6,296 Datansha Sewer 190.73 592.61 175,316.00 2,207 10,700 Liede 1-2 Sewer 9.07 25.48 5,592.00 60 249 XilangSewer 92.24 260.15 18,415.00 311 808 Liiiao Sewer 195.57 630.71 322,906.00 4,200 15,513 Sib-total 487.61 1508.95 522,299.00 6,778 271270 HW Center 300.40 0 1,128.40 2 13 Sub-total 300.40 0 1,128.40 2 13 Total 1929.06 3253.41 958,564.28 11,262 44,641 *I mu=0.0667 ha. LegalFramework 4. The RAP was prepared inline with relevant Chinese laws, regulations and World Bank OP 4.12 on Involuntary Resettlement. The following basic principles were adopted for resettlement planning: 0 Compensation to houseswill be paid at replacement cost, determinedby market surveys of similar or better houses or housingvaluation without considering depreciation, whichever is higher; e Landcompensation will be paidbefore acquisition; 0 House compensation will be paidbefore construction o f the new houses; e Compensation rates mustbe finalized through consultation; e Lack o f legal title to a househuilding will not bar an affected person from his or her resettlement entitlements; e Iftheownerofanillegalbuildingisagovernmentagencyororganization, thebuildingmaynotbe compensated, but the user o f the buildingwill be compensatedfor business disruption andmoving costs; and e The objective o f resettlement is to enable the affected personsto improve or at least restore their livingstandard Rehabilitation Strategy and Measures 5. The Project would require acquisition o fsome farm land. For farmers who lose farm land,the livelihoodrehabilitation strategy follows the traditional Chinese approach, which is land- and agriculture-based, anddepends onvillage collectives for livelihoodrestoration. The impactedvillage would reallocate the remaining landto all farmers inthe village to minimize the direct impact to individual farmers, while the compensation fundwould be paid to the village andused collectively inthe villages for agriculture andsideline development. 6. About 44,641 people in 11,262 households would lose their residentialhouses due to project - 104-  activities. The majority o fthese affected households are urbanbased. After extensive consultations with the affected population, the project has planned to offer three options for their relocation, i.e., cash compensation, replacement housing or partial cash compensation andpartial replacement housing. Urban residents could choose to findand buy their own replacement housing withthe cashcompensation. For those who do not want to find and buy their own replacementhousing, the project would provide ownership o f a replacement housing unit ingovemment-built apartments. The affected persons may also chooseto accept housingunits less thantheir current housing standardsbut with a certain amount o f cash compensation to make up the difference. For relocatingrural residents, the project would provide compensation at replacement cost without considering depreciation. Temporary landacquisitionwould be compensatedat rates equivalent to the productive value o f affected land for the affected production period. Allowances would be paidto the affected people for movingto resettlement sites, and for facilitation transition to new houses andjobs. Farmers who lose land will be transferred to non-agricultural residents. Management Organization 7. The project resettlement work will be primarilyorganized andexecutedby Guangzhou Wastewater Control Project Management Office (PMO) inassociation with GuangzhouTunnelDevelopment Company (implementation agent) and Guangzhou Hazardous Waste Disposal Center @reject owner). The PMO will also be responsible for intemal implementation monitoring and evaluation. Several municipal government agencies andinstitutions will be involved inreview, permitting, administrative arbitration, labor protection andlitigation, including the PlanningBureau, StateLandandRealEstate Bureau, UrbanHouse Resettlement Management Office, Labor Bureau and the People's Court. Inaddition, an independent monitoring institutionwill be appointed to monitor the RAP execution (extemal monitoring) andto evaluate allocationand utilization o f the resettlement funds. Public Consultation and Participation 8. Public consultation andparticipationhave played a key role informulating the RAPs. The entire process o f resettlement planninghas beenparticipatory. The systematic and well structured census and socio-economic surveys were conductedwith the full participationo f PAPs. Public meetingshearings have beenheldinthe affected areas inconsultation withthe affected public. Relevant agencies o f the municipal government were fully involved inthe process o f RAP preparation. The feedback from the consultation has beenincorporated inthe RAPs. The RAP contains a list of major consultation sessions. 9. Public consultation andparticipationwould continue duringthe RAP implementation, which would determine the levels o f satisfaction o f the PAPs andto identifyimplementationissues for prompt corrective actions. Project information would be provided to the affected people through television, radio broadcast, newspapers, bulletinsandposters. The RAP would be summarized into a resettlement information booklet (RIB) anddistributedto every affected household. Regular consultationmeetings would be heldinthe neighborhoods. Grievance Redressal Mechanism 10. A mechanism has beendesignedfor grievance redressalundereachofthe project components. All grievances can be filed ineither written or verbal form. A small group consisting o f five individuals headed bythe independentmonitoring institutionwill be set up, to receive written andverbal grievances from PAPs. Ifthe complaining party is not satisfied by the group's opinions andjudgment, hehhe could raise it to the district govemment, thenmunicipal govemment andfinally to the People's Court through litigation. Theredressalchannel lies within the project management andgovernment systems. Recording -105-  requirements andtimeframe have been establishedfor grievance resolution. This mechanismwould be disclosed as part o f the RIB. ResettlementImplementationMonitoring 11. Intemal and extemal monitoringhas beendesigned as part o f the project resettlement management. The project resettlement offices wouldcarry out intemal monitoring ofthe resettlement implementation. The monitoring procedures, content, staffing, responsibility, timeframe and reporting have beendetailedin the RAPs. An extemalmonitor hasbeen contractedfor independentmonitoring o fthe RAP implementation. Independent monitoringwould cover physical progresso f RAP implementation, including compensation payment, allocation o f residential sites, farmland allocation, andrestorationo f infrastructure. The independent monitor would also review the public consultation process, operation o f the resettlement project offices, grievance redressalmechanisms andrestoration o f livelihoodo f the affected farmers. Independentmonitoring would be conducted twice a year duringthe project implementationperiod. Compensationand ResettlementBudget 12. The RAPs contain compensation rates for various impacts. Landcompensation rates include a landcompensation andresettlement subsidy. Compensation rates for structures are calculated for replacement costs. The affected infrastructure would be compensatedfor reconstructionandthe compensation budget was finalized through negotiation with the owning government agencies. 13. The RAPs contain a detailed resettlement budgetthat covers all basic resettlement costs, managementcosts, contingencies, survey, design andmonitoring costs. The basic resettlement cost includes compensation for land, house, other structures, standing crops and trees, business profit loss, reconstruction o f affected infrastructure and relocation subsidies. A management cost is includedinthe budgetas well. A total contingency of 16percent is providedinthe budget. The total resettlementcost is about Y 3.3 billionbut a cost sharing scheme has beenestablishedthrough discussion o f different agencies involved. Under this cost sharing scheme, resettlement costs innew roador road expansion areas will be covered byroadprojects andthose inriverbanks will be coveredby hydrology projects. When the scheme is applied, the resettlement budget for this project is estimated at Y 646.2 million. Funddisbursement proceduresandmonitoring mechanisms have beendesignedand documented inthe RAP. - 106-  Additional Annex 16: Project Financial ManagementSystem CHINA Guangdong Pearl River Delta Urban EnvironmentProject I. ExecutiveSummaryandConclusion 1. The Financial Management Specialist (FMS) has conducted an assessmento f the adequacy o fthe project financial managementsystemo f the Guangdong Pearl River DeltaUrbanEnvironment project. The assessment, basedon guidelines issuedby the Financial Management Sector Board on June 30,2001, has concluded that the project meetsminimumBank financial managementrequirements, as stipulated in BPIOP 10.02. Inthe FMS's opinion, the project will have inplace anadequateproject financial management system that can provide, with reasonable assurance, accurateand timelyinformation onthe status o f the project inthe reporting format agreedwith the project andas requiredby the Bank. 2. A grant financed by GEFnamed"Livestock Waste ManagementinEastAsia" will be implemented simultaneously. Three countries (China, Thailand andVietnam) will be involved inthis grant. The objective is to reduce the negative local andglobal environmental impacts ofrapidly increasing livestock production inselectedwatersheds inthe coastal areas o f China, Thailand and Vietnam. The Guangdong PMO will also be responsible for the activities inChina o f this GEF grant, and therefore, this Financial Management Assessment report could also be used by GEF to evaluate the financial management capacity of the Guangdong PMO. 3. Fundingsources for this project include Bank loan, GEF Grant and counterpart funds. The Bank loan proceeds will flow from the Bankinto the project special account to be set up at andmanagedby the Guangdong Provincial Finance Bureau (GPFB), to project implementingagencies (or project companies), and finally to contractors or suppliers. The Bank loanwill be signedbetween the Bank and the People's Republic o f China through its Ministryo f Finance (MOF), and on-lending arrangement for the Bank loans will be signed betweenPRC through its MOF andthe ProvincialGovernment o fGuangdongthrough its GPFB andthen between GPFB andGuangzhou municipal government through Guangzhou finance bureau andfinally betweenGuangzhoufinance bureau andimplementingagencies. Interms ofdisbursement technique, the project will be disbursingbasedon the traditional disbursement techniques and will not be usingPMR-based disbursements, inaccordancewith the agreementbetweenthe Bank andMOF. The constitution o f counterpart funds will be appropriation from municipal government and commercial debt. 4. No outstanding audits or audit issues exist with any o fthe implementing agencies involved inthe proposedproject. The task team however will continue to be attentive to financial management matters and audit covenants duringproject supervision. 11. Summary Project Description 5. The objectives o f the proposed Guangdong Pearl River Delta Environment project is to improve the quality o f the urbanenvironment inkeycities inthe Pearl River Delta (PRD) by following anintegrated regionalplanning approach, inorder to facilitate continued economic andsocial development. 6. The main components of the project include: 0 Wastewater Management in Guangzhou City,would include increaseinthe wastewater treatment capacity by about 400,000 m3lday intwo plants, constructionandrehabilitation o f sewage networks to collect wastewater generated, interceptiono f wastewater enteringcreeks andrivers, and storm water - 107-  management 0 Hazardous WasteManagement in Guangzhou City, would include investments ina pretreatment facility and landfill for treatment and disposal of hazardous wastes inGuangzhou and neighboring municipalities 0 Inter-MunicipalEnvironmental Infrastructure will promote environmental infrastructure development for three groups o f two or more municipalities, districts or towns willing to plan, construct andmanage sharedfacilities Water Quality Monitoring and Information Systems would include installationo f a network o f automatic monitoring stations; real- time data assembly andprocessing at control center, development o f databases, a website, anda management information system 0 TechnicalAssistance and Capacity Building 7. The estimated total cost o f the proposedproject is US$431.90 million andthe proposedBank Loan amount is US$l28 million, as well as GEF grant o f US$10 million. 111. CountryIssues 8. To date, no CFAA hasbeenperformedfor China, though dialogue with the Government of China inrespectofthe CFAA exercisehasbeeninitiatedandcurrentlyunderway. The Bankhasreliedona similar exercise carried out by the Asian Development Bank in2000 for reference. 9. However, basedonobservations o f developments inthe areas o f public expenditures, accounting and auditing, and Bank experience with China projects for the past few years, we noted that substantial achievement inthe aforementioned areas has beenmade and further improvement is expected inthe next few years. As economic reformprogram further unfolds, the Government o f China has come to realize the importance o f establishing andmaintaining anefficient and effective market mechanism to ensure transparency and accountability, and minimize potential fraud or corruption. 10. Due to rather unique arrangement by the Government o f China, funding (inparticular Bank loan) o f Bank projects is controlled and monitoredby MOF and its extension, i.e. finance bureaus at provincial, municipayprefecture and county level. However, project activities are usually carried out by implementing agencies of a specific industry or sector due to the level and complexity o f expertise involved. The above arrangementusually requires more coordinationonthe project, as the multi-level management o f the fundingandimplementation mechanism sometimesworks to the detriment of smooth project implementation. IV. RiskAnalysis 11. The following risks with corresponding mitigating measures have been identified during assessment: Risk RiskRating MitigatingMeasures I. ProjectRisk Inherent Moderate Manyimplementingagenciesinvolved intheprojecthave noprior Bank experience; Close monitoring by the task team is extremely important, particularly at the initial stage. 11.Control Risk I I - 108-  a. ImplementingEntity Moderate Close monitoring by task team is neededto ensure all the implementing entities are familiar with Bank's procedures andrequirements. b. FundsFlow Moderate The task team will ensure that mechanismwill be inplace to ascertain Bank and counterpart funds will be releasedto the ultimate beneficiaries on a timelv basis. c. Staffing Moderate Periodic checking on accounting work by project management offices at various levels will be performed. d. Accounting Policies andProcedures Low Accounting policies andprocedures are alreadv indace. e. Intemal Audit Moderate The team has not, and nor does it plan to assess the competency o fthe various intemal audit departments due to the costhenefit o f doing such work. Butthe supervision ofprovincial PMO and annual extemal audit could mitigate the risk. f.ExternalAudit Low The extemal auditors, the Guangdong Provincial Audit Office, have extensive audit experience with previous ~ a nprojects. k g. Reporting andMonitoring Low Format o f financial statementsand frequency of submission have been clearly definedby the Bank andMOF. h. Information Systems , Moderate Checking by the task team at the initial implementationstage to ensure correct setup, which should be followed up byregular supervision missions. V. Strengths and Weaknesses 12. Strengths Guangdong provincial finance bureau has extensive experiences with several Bank projects which will benefit the implementation o f this project. Guangdong province is consideredone of the most developed areas inChina, thus, the risk o f lack o f counterpart funds is considered minimal. 13. Weaknesses The following significant weaknesses withresolutionhave beenidentified Significant weaknesses IResolution 1. Some financial staff are new to Bank's Strong assistance and training program should project and are short o f relevant experiences. beprovidedby provincial PMO. 2. For the waste water management component Provincial finance bureau should be more active inGuangzhou city, boththe Guangzhou inthe coordinationofthe project. -109 -  Municipal andGardensBureau and the Construction Committee will be involvedinthe management o fthis project. The effectiveness of their cooperation and coordination is uncertain at this stage. VI. ImplementingEntity 14. A Provincial PMOhas been establishedunderthe Guangdong ProvincialFinance Bureau, andtwo PMOShave also been establishedinGuangzhou MunicipalFinance Bureau and the provincial environmental protectionbureau. Sub-PMOs have also beenset up ineach implementing agency to be in charge of their own project management. The organization chart is as follows: Provincial Financial Bureau) r f f PMO in Guangdong PMO inGuangzhou (withinGuangzhou EnvironmentalProtection I Municipal Finance Bureau) I Bureau I I I 1 I 1 Guangzhou Sewage Guangzhou Solid Waste Treatment Company Management and Treatment Center VII. FundsFlow 15. Fundingfor the project includes Bankloan, the GEFGrant andcounterpart funds. Two Special Accounts will be set up, andmanaged by the Guangdong Provincial Finance Bureaus (GPFB), one for the Loan andthe other for the GEF Grant. The funds flow is as follows: - 110-  Guangdong Environmental b ProtectionBureau The World SA Guangzhou Implementing Suppliers and Bank + managedby Municipal --+ agencies -b contractors GDFB finance bureau 16. The funds flow o f counterpart funds will follow the domestic procedures depending on the source o f funding. VIII. Staffing 17. Adequate project accounting staff witheducational background andwork experience commensuratewith the work they are expected to perform is one o f the factors critical to successful implementation o f project financial management. Basedon discussions, observation andreview o f educational backgroundandwork experience o f the staff identifiedfor financial andaccounting positions in implementingentities (both "project'' and"entity"), the task team note that the staff are qualified and appropriate for the work they are expected to assume. 18. To strengthen financial management capacity andachieve consistent quality o f accounting work, the task termhas suggestedthat a project financial managementmanual(the Manual) beprepared. The Manual will provide detailed guidelines on financial management, internal controls, accounting procedures, fundandassetmanagement andwithdrawal applicationprocedures. 19. The provincial financial bureau has agreedto preparethe financial management manual whichwill be usedby all the implementingagencies. The first draR ofmanualhas beensubmittedfor Bank's review and the final manual shouldbe distributedto all the financial staff before project effectiveness. 20. As most implementing entities are new to the Bank's projects, a well-designed andfocused training program inproject financial management should be provided prior to project effectiveness byprovincial PMO to all financial andaccounting staff to ensure a good understandingand knowledge o f the following: 0 Bank's financial management policy anddisbursement procedures 0 Fundassetkontract management 0 Format and content o f project financial statements 0 Audit requirement IX. Accounting Policies and Procedures 21. The administration, accounting andreporting ofthe project will be set up inaccordance with the Circular #13: "Accounting Regulations for World Bank FinancedProjects" issued inJanuary 2000 by - 111-  MOF. The circular provides in-depth instructions of accounting treatment ofproject activities and covers the following: e Chart o f account e Detailed accounting instructions for eachproject account e Standard set o f project financial statements e . Instructions on the preparation o f project financial statements The standardset o f project financial statementsmentioned above has been agreedto betweenthe Bankand MOF and applies to all Bankprojects appraisedafter July 1, 1998 andincludes the following: e Balance sheet e Statement of source anduse o f fund e Statement o f implementation o f credidloan agreement 0 Statement o f special account 22. Eachof the implementingentities will be managing, monitoring andmaintainingrespective project accounting records. Original supporting documents for project activities will be retained by originating implementing entities. Inaddition, eachimplementingentities will prepare financial statements, which will then be reviewed, approved andconsolidated byprovincial PMObefore sending to the Bank for review and comment on a regular basis. X. InternalAudit 23. Some o f the implementing entities have their own intemal audit division andthe intemal auditors will also check the financial status andexpenditures ofthe project. The team has not, nor does it planto assess the competency o f the various internal audit departments due to the costibenefit o f doing such work. As such, reliance will notbeplacedonwork performedbythem. XI. ExternalAudit 24. The Bank requires that project financial statementsbe audited inaccordancewith standards acceptable to the Bank. In-line withother Bank financed projects inChina, the project will be audited in accordancewith ISA and the Government AuditingStandards o f the People's Republic o f China (1997 edition). The Guangdong ProvincialAudit Office has been identified as auditors for the project. Annual audit reports willbe issued inthe name o f Guangdong Provincial Audit Office. 25. The annual audit reports o fproject consolidated financial statements will be due to the Bank within 6 months of the end o f each calendar year. Inaddition, annual audit reports on financial position and operation results o f the Guangzhou Waste Water Treatment Company will be due to the Bank within 6 months o f the end o f each calendar year. Therefore a single audit report will be furnished to the Bank, comprising the consolidatedproject financial statements andthe financial statements o f the above-mentioned company. - 112-  Component Submittedby Duedate Consolidatedproject financial statements and the financial Provincial PMO June 30 statements o f Guangzhou Waste Water Treatment Company. This will all be included underone audit report. MI. ReportingandMonitoringandFormatofFinancialStatements 26. Eachimplementingentity will prepare its own project financial statements, which will then be consolidated by provincial PMO. The project consolidated financial statements will be sent byprovincial PMO to the Bank for reviews andcomment on a regular basis. 27. The format andcontent o f the following project financial statementsrepresentsthe standardproject financial reporting package agreedto between the Bank andMOF, andhave been discussedand agreed with all parties concemed. Inline withthe newly issuedFinancialMonitoringReport (FMR)guidelines, the un-audited project consolidated financial statementswill be submittedas part o f FMRto the Bank on a semi-annualbasis @rior to August 15 andFebruary 15 ofthe followingyear), andwill include the following four statements: 0 Balance Sheet 0 Summary of SourcesandUses o f Fundsby Project Component 0 Statement o f Implementation o f LoanAgreement 0 Statemento f Special Account XIII. InformationSystems 28. There is no uniform accounting software beingusedby the implementing agencies although all the implementing agencies involved are usinga accounting software for their current activities. It is uncertain at this stage ifthey can integrate the project activities into their current system. The FMS will review the adequacy o f their financial accounting andreporting systemprior to project effectiveness. XIV. Impact ofProcurementArrangements 29. Threshold set for procurement post-review will be consistent with that set for SOE for disbursement purpose. To have maximum effectiveness andefficiency, financial management specialist and procurement staff shouldjointly participate insupervision missions to ensurethe following: 0 Contracts awarded are inline with the Bank's procurement guidelines 0 Contract payments made are inaccordancewith the terms o f the contract andwell supported XV. DisbursementArrangements 30. The project will be disbursingusingtraditional disbursement techniques andwill not be using PMR-based disbursements, inaccordancewith the agreementbetween the Bank andMOF. 31. Bankloanproceedswouldbe disbursedagainsteligible expenditures as follows (i) works - civil 50% of expenditures, (ii) equipment - 100%o f foreign expenditures, 100%o f local expenditures (ex-factory) and75% o f other itemsprocured locally, (iii) Consulting service -91% o f expenditures, and (iv) TA or training-100% of expenditures. -113-  32. Disbursement methods, such as replenishment, direct payment and special commitment, are available for the project. The Statementof Expenditure(SOE) limits will be set up inline with procurement prior-review thresholds, as follows: (i) contract for goods estimated to cost the equivalent all o f US$ 500,000 or less; (ii) all contract for civil works estimated to cost the equivalent o fUS$6,000,000 million or less (iii) consultant contract estimated to cost US$ 100,000 (firm)/vS$ 50,000 (individual) or less. 33. Two special accounts (SA) will be establishedinGPFB; one for the loan andone for the GEF grant. The authorized allocationo f SA for the loan is US$10million. The authorized allocationo f SA for the GEF gant is US$175,000. Bank andGEF funds would be disbursedto the special accounts set up at GPFB, and then to project implementing entities andor suppliersand contractors. -114-