China - Liuzhou Environment Management Project

Document of The World Bank FOR OFFICIAL USEONLY ReportNo: 30699-CHA PROJECTAPPRAISAL DOCUMENT ON A PROPOSEDLOAN NTHEAMOUNT OF USS100MILLION TO THE PEOPLE'SREPUBLIC OF CHINA FORA LIUZHOUENVIRONMENT MANAGEMENT PROJECT April 27, 2005 UrbanDevelopmentSectorUnit East Asia andPacific Region l 'This document has a restricted distribution and may be used by recipients only in t h z performanceo f their official duties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization.  CURRENCY EQVIVALENTS (Exchange Rate Effective December 16,2004) CurrencyUnit = RMB 8.28680 = US$1 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS A210 Anaerobic, Anoxic, and LFB LiuzhouFinanceBureau Oxidation Process BOD Biochemical Oxygen LMG LiuzhouMunicipalGovernment Demand CAS Country Assistance Strategy LMWTC LiuzhouMunicipalWastewaterTreatment Company (Limited) CNAO ChinaNational Audit Office LZPP LiuzhouZinc ProductPlant COD ChemicalOxygen Demand MDB Model Bidding 1)ocuinents DPS DischargePermit Syslem MOF Ministry Of Finance EA Environmental Assessment MSW Municipal Solid Waste EIRR Economic InternalRate of NCB National Competitive Bidding Return EMP Environmental Management NDRC National Development and Reform Plan Commission EPB Environmental Protection NH3N Ammonia Nitrogen Bureau(Liuzhou) ESD Environmental Sanitation NPV Net PresentValue Division (Liuzhou) ESRI Environmental Science O&M OperationandMaintenance ResearchInstitute FIRR Financial Internal Rate o f PDO Project DevelopmentObjective Return FS Feasibility Study PIU Project Implementation Unit GFB Guangxi FinanceBureau PMO Project ManagementOffice GOC Government o f China QCBS Quality- and Cost-based Selection GUEP GuangxiUrbanEnvironment RAP ResettlementAction Plan Project FLO Foreign Loan Office SA Social Assessment HDPE HighDensity Polyethylene SBD Standard Bidding Documents IBRD International Bank for SEPA State Environmental Protection Reconstructionand Administrat ion Development ICB International Coinpetitive SOE State-OwnedEnterprises Bidding ICDC Inyestiiient Construction and TA Technical Assistance DevelopmentCompany (Limited) IDCDP Institutional Development TPD Tons Per Day and CapacityDevelopment Plan IWPCAP Industrial Wastewater WWTP WastewaterTreatment Plant PollutionControl Action Plan JBIC Japan Bank for International Cooperation _ _ ~ -~ Vice President: Mr.Jemal-ud-din Kassum, EAPVP 1 Country Director: Mr.DavidDollar, EACCF Sector Director: Mr.Keshav Varma, EASUR I Task Team Leader: Mr.Hiroaki Suzuki, EASUR I  FOROFFICIAL USEONLY CHINA LIUZHOUENVIRONMENTMANAGEMENT PROJECT CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 1. Country and sector issues.................................................................................................... 1 2. Rationale for Bank involvement ......................................................................................... 2 3 . Higherlevel objectives to which the project contributes.................................................... 3 B. PROJECT DESCRIPTION ................................................................................................. 3 1. Lending instrument ............................................................................................................. 3 2. Project development objective and key indicators.............................................................. 3 3. Project components ............................................................................................................. 3 4. Lessons learned and reflected inthe project design............................................................ 5 5 . Altematives considered and reasons for rejection .............................................................. 5 C. IMPLEMENTATION .......................................................................................................... 6 1. Partnership arrangements (ifapplicable) ............................................................................ 6 2 . Institutional and implementation arrangements.................................................................. 6 3 . Monitoring and evaluation o f outcomesiresults.................................................................. 7 4. Sustainability....................................................................................................................... 7 5. Critical risks and possible controversial aspects................................................................. 7 6. Loadcredit conditions and covenants................................................................................. 8 D APPRAISAL SUMMARY . ................................................................................................... 9 1. Economic and financial analyses ........................................................................................ 9 2. Technical........................................................................................................................... 10 3. FiduCiary........................................................................................................................... 11 4. Social................................................................................................................................. 11 5. Environment...................................................................................................................... 12 6. Safeguard policies ............................................................................................................. 14 7. Policy Exceptions and Readiness...................................................................................... 14 Annex 1: Country and Sector Background .............................................................................. 15 Annex 2: Major RelatedProjects Financedby the Bank and/or other Agencies .................22 Annex 3: ResultsFramework and Monitoring ........................................................................ 23 Annex 4: DetailedProjectDescription ...................................................................................... 29 This documenthas a restricteddistribution andmay be usedby recipientsonly in the performanceof their official duties ts contentsmay not be otherwise disclosed .I without World Bank authorization .  Annex 5: Project Costs............................................................................................................... 35 Annex 6: Implementation Arrangements ................................................................................. 37 Annex 7: FinancialManagementandDisbursementArrangements ..................................... 39 Annex 8: Procurement ................................................................................................................ 45 Annex 9: Economicand FinancialAnalysis ............................................................................. 52 Annex 10: Safeguard Policy Issues ............................................................................................ 59 Annex 11: Project Preparation and Supervision ..................................................................... 69 Annex 12: Documentsin the Project File ................................................................................. 71 Annex 13: Statement of Loans and Credits .............................................................................. 72 Annex 14: Country at a Glance ................................................................................................. 76 MAPS: IBRD 33733 IBRD 33734  PEOPLE'SREPUBLIC OF CHINA LIUZHOU ENVIRONMENT MANAGEMENT PROJECT (LZEMP) PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC EASUR government administration (2%) I I Themes: Pollutionmanagement and environmental health (P); Access to urban I services for the poor (S); Municipal governance ' and institution building (S) I I Source I Local F o r e i g n 7 1 BORROWEWRECLPIENT 92.02 13.58 105.60 I INTERNATIONAL BANK FOR 34.99 65.01 100.00 RECONSTRUCTIONAND I DEVELOPMENT I Total: 127.01 78.59 205.60 Borrower: The People'sRepublic of China ~ Responsible Agency: I Project ManageinentOffice, Liuzliou Municipal Government I Office Courtyard of LiuzhouUrbanInvestinent and Construction Development Co., Ltd. TanzhongMiddle Road Liuzhou City, Guangxi Autonomous Region I China I Tel: 86-0772-2827625 Fax: 86-0772-2827625 ~ ~ lzpnioO,vip.lzl63.net , _ _  Estimateddisbursements (Bank FY/US$m) FY 2006 2007 2008 2009 2010 1 2011 Annual 5.1 18.0 28.2 26.8 5.2 Cumulative 5.1 23.1 51.3 78.14%j 100.0' Ref: PAD Section D.7 ~ IHave these been approved by Bank management? I s approval for any policy exception sought from the Board? ~  Condition for disbursement for works and goods under the wastewater component: I ~ 0 Appointment o f the vice general managers o f LMWTC; iCovenants applicable to project implementation: I '0 LMG will maintainthe Project Management Office (PMO) and project implementationunits ~ (PIUS)in each implementing agency (Environmental ProtectionBureau (EPB), Environmental i 1 ' Sanitation Division (ESD), LMWTC) throughout the project period, with functions, I responsibilities, competent staff and budgets satisfactory to the Bank; I 0 LMGwill carry out a study on improving the operational efficiency o f solid waste management ~ 1 operations and institutional reform before December 3I,2007, share its conclusions with the I I Bank, and follow up on the agreed results and implementation timetable; I '0 LMGwill implement a study on managing and fundingpublic toilets that aims to iniprove the quality o f service and to reduce operational subsidies from LMGby employing public-private I partnerships; and ' ' 0 LMGwill take the necessarymeasures to ensure that the 11top polluting enterprises carry out their respective Industrial Wastewater Pollution Control Action Plans (IWPCAP) in accordance ~ I with a schedule agreed with the Bank. __- I   A. STRATEGIC CONTEXTAND RATIONALE 1. Country and sector issues Strong city performance i s critical to China's sustainable growth and economic development. China's cities andtowns fuel over 60% o fthe country's GDP, and this percentage may rise as the urban share o f China's population climbs from approximately 40% to over 50% over the next 15 years. Because China's cities play such major developmental roles, supporting effective city management and services i s an important part o fthe country's poverty reduction strategy and its efforts to realize its TenthPlan vision o f a "well-off society". Cities inChina's western region, in particular, are targeted for developmental assistance because o f their comparatively low income levels and highpoverty rates. Major urban environmental problems, such as air and water pollution, that are associated with fast growth, are also priority areas for development assistance. Both China's TenthPlan (2001-2005) and the World Bank Country Assistance Strategy (CAS) (2002-2007) give priority to urban environmental protection, wastewater treatment, and sanitation. Adequate sanitation and safe, sustainable water suppliespromote a highurbanquality o f life and form a foundation for economic growth. Many o f China's rivers and water sources, however, are polluted with raw or poorly treated industrial and domestic sewage. Insufficient wastewater treatment, weak enforcement o f wastewater regulations, and inadequate overall managerial capacity impair efforts to curb this pollution. Further, solid waste and sanitation services and infrastructure are also deficient inmany cities, threatening basic urban sanitation and public health. China has taken steps to address these problems through various programs and policies, including the central government's recent issuance o f guidelines on reforming China's wastewater and solid waste sectors. These guidelines encourage utilities to set adequate user fees to achieve sufficient cost recovery, including capital costs, and promote private sector investment inutility operations. These guidelines andother factors, particularly deterioratingenvironmental conditions, have spurred many cities to undertake investmentsand institutional development programs inthe wastewater and sanitation sectors. Liuzhou This project targets wastewater, sanitation, and solid waste deficiencies inLiuzhou, a city inthe Guangxi Autonomous Region insouthwestern China. Greater Liuzhou has over 1,000 industrial enterprises and i s Guangxi's largest industrial center. The city's current population o f 1.2 million i s expected to reach 1.8 million by 2020, straining its already burdenedwater supply, sewer, and sanitation infrastructure. Sector issues this project will address are described below. Protecting water quality. Liuzhou's principal water source for industrial, commercial, and residential use i s the Liujiang River, which winds through the city center and suburbs. The Liujiangis polluted becauseindustries and the municipal drainage system directly discharge into it significant raw sewage, which has causedits water quality to decline to unacceptable levels. The Liuzhou Municipal Government (LMG)has targeted that by 2010 at least 70%, and by 2020 at least 90%, o f all urbanwastewater will undergo adequate treatment. It also recently commissioned a first municipal wastewater treatment plant that will treat 15% o f total municipal wastewater. However, Liuzhouneeds more treatment capacity to improve and protect not only 1  its local economy and quality o f life, but also environmental and economic conditions intowns and agricultural sites downstream. The city recently established an autonomous wastewater utility company. Italso adopted comprehensive industrial wastewater pollution control policies (see Attachment 1 o f Annex 1) to strengthen environmental regulations and monitoring, relocate culpable industries, and improve water demand management. LMG i s currently preparing a Discharge Permit System (DPS) that will limit industrial dischargesto pre-specified volumes. Public Toilets.Insufficient numbersof clean, well-run, and well-distributed public toilets has become a pressing sanitation issue inLiuzhou. Substandardtoilet operations, unsanitary toilet conditions, and lack o f access to toilets, particularly incertain districts, worsen the city's quality of life, pose health risksto Liuzhou's citizens, and impede modern city development. Although Liuzhounow has 249 public toilets, a 1995 city planestimates that 417 public toilets will be needed by 2010. To make matters worse, this projected shortage will only increase as certain public toilets are dismantled to accommodate roadwidening and urban constructionprojects. Moreover, Liuzhouneeds to address its sizable public toilet shortage, including constructingnew ones and rebuilding and upgradingexistingfacilities (note that estimates o f the future demand for public toilets should be carefully analyzed since China's urban situation is rapidly changing). Solid WasteManagement. Solid waste management i s also a major challenge. Liuzhou now produces about 1,000 tons o f municipal solid waste per day, andthis is projectedto reach about 1,400 tons per day (tpd) by 2010, and 1,900 tpd by 2020. Because the city's existing landfill reached its capacity, LMGrecently commissioned a second landfill 22 kilometers from the city center to receive municipal solid waste from greater Liuzhou. The city must now confront the challenge o ftransporting waste over the increased distance between urbanwaste sources and this newlandfill. This will require developing several waste transfer stations andmultiple waste collection stations located innewly developed residential areas. Additional and more functional vehicles are also neededto properly collect and convey refuse to the new landfill. Moreover, the city needs to improve the efficiency o f its solid waste operations. 2. Rationale for Bank involvement This projectwill support two ofthree mainthemes o fthe CAS: (a) facilitate an environmentally sustainable development process (via tangible investments in, andtechnical assistanceto, the wastewater, sanitation and solid waste sectors); and (b) help improve the business environment and facilitate the transition to a market economy (by providing basic infrastructureand improving overall environmental conditions). The project will also contribute to public sector reform by supporting a newly established autonomous and financially sustainable wastewater company (Liuzhou Municipal Wastewater Treatment Company Limited(LMWTC)) and by helpingLMGimprove solid waste management and sanitationoperations. The Bank has aproventrack recordinurbanenvironmental management and infrastructure investmentinChina, including the ongoing GuangxiUrbanEnvironment Project (GUEP,Ln. 4348, Cr. 3097), which targets two other municipalities manning, Guilin) inthe province. The Bankcanprovidethe LMGwith expertise and experience acquired from these China-based projects and other wastewater and sanitation programs elsewhere. The Bank also enjoys a strong comparative advantage inadvising on public utility sector policies and reforms, including public- private sector partnerships. 2  3. Higherlevel objectivesto which the projectcontributes This project will help support economic growth and poverty reduction ina major city inwestern China by: (a) supporting key investments inwastewater, sanitation, and solid waste infrastructure; and (b) developing key environmental institutions and pollution control programs. These infrastructure investmentsand institutional development programs will improve urban sanitation and waste management and help reduce water pollution inthe city's main river. The resulting environmental improvements should makethe city more livable and attractive to investment,enhance the city's competitiveness, promote sustainable growth, and indirectly reduce poverty. B. PROJECTDESCRIPTION 1. Lendinginstrument This project is proposed as a Sector Investment Loan. 2. Projectdevelopmentobjectiveand key indicators The development objective o fthe project is to improve the environmental conditions inLiuzhou through improved wastewater treatment, sanitation control, solid waste management, and industrial wastewater pollution control. This objective will be achieved by implementingpolicy reforms and institutional development o fpublic utilities, introducing regulatory reforms o f industrial wastewater pollution control, and undertakingpriority investments insewerage networks, wastewater treatment plants, public toilets, a solid waste transfer station, and waste collection stations. Key indicators usedto gauge progress on meeting the development objective are listed in Annex 3. 3. Projectcomponents This project consists o f five components, as explainedbelow. The first amount shown for each component represents its total cost; the second amount i s the portion that i s Bank financed (see Annex 4 for further details on project components). ComponentA: Wastewatercomponent;US$166.50 million(IBRD LoanUS$85.31million). Sub-componentA.1: Wastewater conveyance/collectionandtreatment; US$127.86 million (IBRD LoanUS$70.22million).This sub-component will helpdevelop a comprehensive wastewater collection and treatment system inLiuzhou. The project will: (a) invest inabout 73km o f sewers, 76 kmof interceptors, seven pumpingstations, and four wastewater treatment plants (WWTP); (b) rehabilitateabout 42 kmof drains; and (c) support operations inthe recently established autonomous wastewater management company. The subcomponents are: (a) Inthe Baisha area o f LiubeiDistrict, construction o f a WWTP for secondary treatment with an average capacity of 100,000 cubic meters per day (m3/day), and associated 3  wastewater treatment facilities, including interceptors, culverts, pumpinginstallations, and a trainingcenter; (b) Inthe Longquanshan area ofYufengDistrict, construction of a WWTP for secondary treatment o fwastewater with an average capacity o f 150,000 m3/day; (c) Inthe Yanghe New Industrial Development District, constructiono f a WWTP for secondary treatment o f wastewater with an average capacity o f 125,000 m3/day, and associated wastewater treatment facilities, including low lifting stations, a sewer network, and an administrative andtraining center; (d) Inthe Labao area of Liujiang District, construction of a WWTP for secondary treatment o f wastewater with an average capacity o f 25,000 m3/day, and associated wastewater treatment facilities, including a network o fprimary and secondary sewers and a pumpingstation; and (e) Construction of interceptors to collect wastewater draining into Zhuexi Creek and convey it to the Longquanshan WWTP. Sub-componentA.2: ZhuexiCreekrehabilitation;US$38.64 million(IBRD LoanUS$15.08 million).This component will rehabilitate about 5.6 kmofthe southern tributary ofZhuexi Creek and construct a culvert along a four kmsection o f its northern tributary. The rehabilitation o fthe northern tributary includes dredging and disposal o fthe Creek's benthal sediments and restoration or expansion of the northerntributary cross-section. ComponentB: Municipalsanitationcomponent; US$8.82million(IBRD LoanUS$3.63 million).This component will construct approximately 62 public toilets andprocure 30 portable toilets, two mobile toilets, and six sanitation trucks. Toilets will be placed incommercial and poor districts. Public-private partnershipswill be usedwhenever possible to reduce municipal subsidies and improve operational efficiency. ComponentC: Solidwaste managementcomponent;US$8.89 million(IBRD LoanUS$6.67 million).This component will construct one municipal solid waste transfer station and 42 waste collection stations, and procure neededwaste hauling trucks and associated vehicles to transport waste to the second city landfill. ComponentD:Industrialwastewaterpollutioncontrolcomponent;US$1.85 million(IBRD LoanUS$1.39 million).This component will help LMGimplement comprehensive industrial wastewater pollution control policies andprograms. Major activities include: (a) implementing specific industrial wastewater pollution control actionplans for major polluting enterprises; (b) introducing a DPS; and (c) buildingthe capacity o f Liuzhou's Environmental ProtectionBureau (EPB) by providing training and equipment. ComponentE:Institutionaldevelopmentand capacitybuildingcomponent;US$2.73 million(IBRD LoanUS$2.51million).This component includestechnical assistance (TA) to: 0 help implementthe project's wastewater, solid waste management, and municipal sanitation components (US$l .16 million, 70 persons months); 4  0 help develop the institutional capacity ofthe LMWTC (US$1.31 million, 52.5 persons months); 0 improve the efficiency o f solid waste management operations and promote related institutional reforms (US$O.l9 million, 12persons months); and 0 helppromote public-private partnerships inpublic toilet operation (US$0.07 million, 4.8 persons months). 4. Lessons learned and reflected inthe project design A World Bank report entitledReview of the Bank'sAssistance to the Urban Water Supply and Wastewater Sector (no. 24979) gives an overview o f Bank assistanceto China and compiles lessons from various water and wastewater projects. Key lessons from this report, and lessons from other wastewater projects, are summarized below along with explanations on how they are incorporatedinto LZEMP. Demand management is much less expensive than and should alwaysprecede supply increases and investments in wastewater treatment. Demandmanagement was a central topic o f discussion throughout project preparation, and water recycling and other strategies related to demand management were incorporated into the project's T A for the EPB and the LMWTC; Financially, legally, and institutionally autonomous utilities can best maximizeperformance and eficiency. The LMG established a legally and financially autonomous company (LMWTC). Plans are inmotion to maximize its efficiency, including offering TA under the project. The project will also help LMG improve operational efficiency of municipal solid waste management through institutionalreform and capacity development programs. Like sewerageservices, solid waste management requires adequate operations and revenues to build an effective refuse collection system, and commitmentfrom city managers to set up adequate operatingpolicies, inparticular when landfill operations arefar from the city center, thus requiring transfer stations. The LMG intends to improve the efficiency o f its solid waste management operations by introducing both institutional reforms and cost recovery policies. Underthe project, TA will be provided to help ESD analyze various institutional options to achieve this objective. As learned in the Guangxi Urban Environmental Project, targeting multiple cities with complex componentscan result in implementation delays,particularly when PMOSand implementing agencies lack staff experiencedin Bank operations. This project involves only one city and funds a limitednumber o f highpriority investmentsand programs. TA will also be provided to the PMO and the project implementingagencies to strengthen their capacity to implement the project. 5. Alternatives considered and reasons for rejection Wastewater component.Duringproject preparation, various investmentoptions with different treatment plant locations and capacities were evaluated to find the best option giventhe city's wastewater demand profile, and all geographical, operational, environmental, financial andtime factors. After a thorough review, the altemative calling for investmentsinfour WWTPs was 5  selected. Other options were rejected because o f higher investmentand operating costs and/or technical problems such as operational difficulties and environmental issues. National guidelines call for Liuzhou's sewerage network to be separate (i.e., include separate storm and sanitary sewers). However, incertain developed areas, Liuzhou's sewer networks have already beeninstalledas combined systems. Since it i s difficult to redevelop separate sewers in developed zones, it was agreed that any new sewers indeveloped areas will be designed under a combined system, but with characteristics that allow for a switch to separate systems over the coming years. Inaddition, since the development o f networks over the past decade did not sufficiently focus on small street mains and house connections, this project will include provisions to ensure increased activity and services inthese areas. Municipal Sanitation component. Liuzhou's initial request to strengthen its solid waste collection system focused on developing waste collection stations andpublic toilets together at the same locations. Because constructing both facilities together involves significant highbuilding costs and only some land cost savings, the city decided to construct separate facilities. The designand site selection process for public toilets considered that apartment dwellers generally own their own toilets, so it i s not necessaryto abide by criteria established some time ago by the Central authorities. Inseveral Chinese cities, operating public toilets without user charges has generated insufficient revenues, precipitating rapid degradation o ftoilet facilities. Discussions with Liuzhou officials have,emphasized that the only way to reduce the public toilet financial burdenon the municipal budget i s to charge fees commensurate with people's ability and willingness to pay for toilet services, and to entrust toilet operation to private operators, supported by temporary and partial subsidies. Solid WasteManagement component. The designo fthe waste collection station integrates practical concerns such as the needs o f local refuse pickers and district trucks. Inaddition, emphasis has been placed on the need to start developing transfer stations as the city shifts operations to a farther, newly commissioned landfill, whose greater distance from the city center will increase the time it takes tippers and refuse trucks to deposit their waste. Relatedfeasibility studies show that constructing three transfer stations i s the least cost alternative for Liuzhou's long term refuse collection system. This was not pursued becausethere i s presently only one available site; however, municipal planners are now conscious o fthe need to promptly identify additional sites that will optimize fleet size and operating costs. C. IMPLEMENTATION 1. Partnershiparrangements(ifapplicable) N.A 2. Institutionaland implementationarrangements A leading group ledby the ExecutiveVice Mayor has been established to supervise project preparation and implementation, provide policy guidance, and ensure cross-departmental coordination. This group includes representatives from the Liuzhou Investment Construction and Development Company (ICDC), the LMWTC, the Liujiang District, and various departments o f the LMG (the Planning Bureau, Finance Bureau, Environment ProtectionBureau, Appearance 6  Bureau's Environmental Sanitation Division, and Price Bureau). The Leading Group's technical secretariat, the Project Management Office (PMO), located inthe Development and Reform Commission, has been established to execute, supervise, and coordinate daily project activities. The PMO is ledby the DeputyDirector o fthe Development and Reform Commission, and staffed with a financial management expert, a procurement expert, a social and resettlement expert, a project coordinator, and assistants. Thisproject's lead implementingagency is the LMWTC, a financially and legally autonomous wastewater treatment company fully owned by the LMG. Project constructionwill be managed by LMWTC, and sufficient staffinthe ICDC, an experienced infrastructure investmentcompany fully owned by LMG, will be transferred to LMWTC to providetechnical support. The LMWTC will be supported by experienced design institutes, tenderingcompanies, and a construction supervision company. Liuzhou's Environmental Sanitation Division (ESD) will be responsible for implementingthe project's municipal sanitation and solid waste management components. The EPB will be the implementingagency for the industrial wastewater pollutioncontrol component, receiving assistance from the PMO for bidpreparation and evaluation, contract preparation and submission o f payment requests. Refer to Annex 6 for full details. 3. Monitoringand evaluationof outcomes/results The expected results andmonitoring indicators for the project are detailed inAnnex 3. Documents inthe project file, such as the Environmental Management Plan, also contain information on indicators and specific monitoring mechanisms. The PMO and the implementing agencies (ESD, EPB, and LMWTC) will monitor the project's activities, and will provide regular reports on progress toward meeting indicators as well as financial and implementation covenants. The Bank will review PMO and agency reports and recommendcorrective actions as needed. 4. Sustainability The project is intendedto achieve sustainability by strengthening the institutional capacity of each project implementingagency: the LMWTC, ESDand EPB. The project will helpthe LMWTC and ESD achieve financial sustainability through cost-recovery and improved operational efficiency. LMG's adoption o f a comprehensive policy on industrial wastewater pollution control, including urbandevelopment planning, regulatory control and demand management via price incentives for polluters, will complement the project's physical investments and its institutional development program (see Attachment 1o f Annex 1for the policy letter on industrial wastewater pollution control). 5. Critical risks and possible controversial aspects The table below provides an overview o f the risks relatedto the implementationo f LZEMP and plannedmitigation measures. 7  Table 1: Projectrisks and mitigationmeasures Risks RiskRating RiskMitigationMeasure Liuzhou does not have prior experience Basedon procurementand financial implementingBank projects, andhas limited managementcapacity assessments, atechnical technical, managerial, and staff capacityto assistance programhas beenincluded to build meet Bank requirementsinprocurementand M the institutionalstrengthofthe PMO and other financial management. project agencies. Inadequatewastewater tariff increases and LMWTC's tariff and revenuecollection revenuecollection will impactLMWTC's proposalshave been appraised, keeping inmind financial viability. the experience under GUEP.TA will be providedto strengthenLMWTC's institutional S capacity, including the developmentof financial managementand accountingsystems. The Bank will closely monitor LMWTC`s financial performance. LMWTC's inadequatetechnical and LMWTC's Institutional Developmentand managerialcapacity to implementthe Capacity DevelopmentPlans (IDCDPs) have project will delay implementation and affect been carefilly appraised. The project includes sustainability. S TA to implementthe IDCDP before the constructionofthe wastewater plants. Top polluters may not adequately reduce The LMG and the enterprises responsible for discharges to meet their legal obligations the mostpollutionhavejointly prepared under the Industrial Wastewater Pollution IWPCAPs. LMG has confirmed its willingness Control Action Plans (IWPCAPs). M to apply sanctions, ifrequired, to ensure compliance. Overall RiskRating S RiskRatings: H=High; S=Substantial; M=Mc :st; N=Negligible or Low Risk 6. Loadcreditconditionsand covenants Applicable loan effectiveness conditions are listed below along with project implementation and financial covenants. EffectivenessConditions: (a) Execution o f subsidiary loan agreement that i s satisfactory to the Bank betweenthe LMGand the LMWTC; Conditionfor Disbursementfor Works and Goods underthe WastewaterComponent: (b) Appointment ofvice general managers ofthe LMWTC. ImplementationCovenants: (a) LMGwill maintain the PMO and PIUs o f each implementingagency (EPB, ESD, LMWTC) throughout the project period with functions, responsibilities, competent staff and budgets satisfactory to the Bank; (b) LMGwill carry out a study on improvement o f operational efficiency of solid waste management operations and institutional reform before December 31,2007, share its 8  conclusions with the Bank, and follow up on the agreed results and implementation timetable; (c) LMG will implementa study on managing and fundingpublic toilets to improve the quality o f services and to reduce operational subsidiesfrom LMGby employing public-private partnerships; and (d) LMGwill take the necessarymeasuresto ensure that the 11top polluting enterprises carry out their respective Industrial Wastewater Pollution Control Action Plans (IWPCAPs) inaccordance with a schedule agreed with the Bank. Financial Covenants: (a) Except as the Bank shall otherwise agree, the LMWTC shall produce, during each o f its fiscal years after the fiscal year endingDecember 3 1,2005, total revenues equivalent to not less thanthe sum o f its: (i)total operating expenses; and (ii)the amount by which debt service requirementsexceed the provision for depreciations; (b) The LMWTC shall undertake, before October 31o f each of its fiscal years, commencing in2005 on the basis o f forecasts prepared by the LMWTC and satisfactory to the Bank, a review with Guangxi and Liuzhou on whether the L M W T C will meet the requirementsset forth inparagraph (a) inrespect o f such year and the next following fiscal year, and shall furnishto the Bank the results o f such review upon its completion; (c) Ifany such review shows that the LMWTC will not meetthe requirementsset forth in paragraph (a) for the LMWTC's fiscal years covered by such review, the LMWTC shall promptly take all necessary measuresto meet such requirements (including, without limitation, adjustment to the structure or levels o f its wastewater charges to cover the LMWTC's operating expenses and depreciation relatedto the LMWTC's assets); and (d) Except as the Bank may otherwise agree, LMWTC shall not incur any debt unless a reasonable forecast o fthe revenues and expenditureso f L M W T C shows that the estimated net revenues o f LMWTC for each fiscal year duringthe term o fthe debt to be incurred shall be at least 1.1 times the estimated debt service requirements o f LMWTC insuch years on all debt o f LMWTC, including the debt to be incurred and at least 1.3 times beginning fiscal year 2014. D. APPRAISAL SUMMARY 1. Economicand financial analyses Economic Analysis. Benefits from wastewater related investments are difficult to quantify, particularly those relatingto environmental and public health. As a result, calculation o f an economic internal rate o f return(EIRR) was not attempted, and cost-effectiveness analysis was conducted instead. For the project's wastewater component, alternatives on the timing o f construction, location, and capacity o f newwastewater plants were identified and evaluated on the basis o ftechnical, economic, and environmental criteria to identify the least cost solution for project investment.A cost effectiveness ratio (Le. unit cost per incremental capacity) was compared among different alternatives. For the public toilet and solid waste components, alternatives were examined, including different technical specifications and locations o fpublic toilets andtransfer stations, to ensure that the best alternatives were chosen to achieve component objectives. 9  Financial Analysis. The financial internalrate of return(FIRR) for the project's wastewater component i s 9.5% over 20 years, compared with a 7.1% weightedaverage cost o f capital. The financial benefit for this calculation included incremental sewage tariff revenue, andthe financial costs comprised taxes and incremental capital, and operating and maintenance costs. Sensitivity analysis was conducted over several scenarios, including increased capital and operating costs, or decreased wastewater demand. The results showed a reduction o fthe FIRR, but the rate o f return was still higher than the weighted average cost o f capital. The financial viability ofthe LMWTC is critical to the success ofthe project's wastewater component. By implementingrequiredtariff increases and improving tariff collection, the L M W T C can generate cash surpluses, after covering all capital and operating costs, and will be able to operate and maintain its assets. Various sensitivity analyses conducted over major parameters, including water demand, sewage tariff levels, and ability to enforce sewage tariff collection, confirmed the robustness o fthe financial projection (see Annex 9). Throughout, it became clear that the LMG's full and focused commitment to this project i s neededto accomplish the required tariff and tariff collection plans. LMG's planned sewage tariff increase in2006 is estimated to be affordable andreasonable comparedto the trendinother cities inthe Province. L M W T C has entered into service agreements with LMG inorder to improve sewage tariffcollectionperformance. A service agreement withLMGwill define LMG's obligations to compensate for any loss LMWTC incurred due to LMG's decision to defer and/or reduce sewage payments for any enterprises. TA under this project will provide additional support to LMG and the LMWTC indeveloping and implementing appropriate strategies. Fiscal Impact. LMG's finances were reviewed to assess LMG's capacity to provide counterpart fundingfrom state grants, commercial debt, and municipal contributions, including sewage tariff revenues duringproject implementation. The plannedproject counterpart funds are estimated to represent about two percent o ftotal LMG revenues, and 11percent o f its capital expenditure budget, on average. This review indicatedthat LMG can afford to support all components o fthe project. The increase inLMG's recurrent costs, including for O&M support for the Zhuexi Creek rehabilitation, and for the public toilet and solid waste components are limitedand estimated to represent about 3% o f city maintenance budget. The net present value (NPV) o f incrementaltax revenue i s estimated at about RMB240 million, or US$30 million during 20 years o f operations. 2. Technical The technical feasibility studiesprepared by LMGand its consultants focused due attention on the size o fproject investments. Studiesofthe wastewater component focused onthe treatment processesrequiredto ensure adequatewater quality downstream o f the city, and how the impoundment o f water at the Hong Hua site would impact the river. Initial proposals focused on developing major trunk sewers, and considered the significant investments already carried out over the past years by the municipality. However, it soon became clear that system benefits could only be achieved by promoting and developing house connections, particularly in developed areas where developers are not willing to independently finance connections because of financial and technical reasons. Moreover, additional investmentsinhouse connections and sewer rehabilitation were added to the initial feasibility proposals. For the solid waste management component, developing transfer stations inthe city constituted the optimal alternative to maximize refuse collection andconveyance efficiency. Such stations 10  will help minimize the idle time for which refuse trucks spend onthe road, thereby optimizing the operations o f the vehicle fleet. However, due to overwhelming public opposition during site selection, only one transfer station inthe northeastern part o f city i s included inthis project. Efforts will continue to identify site locations for additional transfer facilities to serve residents inthe droppedarea andother zones. Although only onetransfer station is includedunder LZEMP, the municipality may invest its own resources inadditional stations after carrying out the necessary investigations and surveys. Duringthe public toilet design andplacement process, the comparative needs ofcity neighborhoods andurbantransit populations were primary considerations, rather than generic norms often out o f step with realities on the ground. 3. Fiduciary Financial management. The adequacy o fthe project's financial management system was assessedusing the guidelines issuedby the Financial Management Sector Board on October 15, 2003. The assessment concluded that the project meets the Bank's financial management requirementsas stipulated inBP/OP 10.02. Itfound that the project will have inplace a financial management system that can provide, with reasonable assurance, accurate and timely information on the status o f the project informats agreed with the Bank (see Annex 7). Procurement. The PMO will oversee procurement activities o fthe implementingagencies, including those o f LMWTC (for the wastewater component), ESD (for the municipal sanitation component), and EPB (for the industrial wastewater pollution control component). An assessment o f implementingagency procurement capacity confirmedthat organizational arrangements are adequate for procurement management and that project-related procurement will be conducted without any interactionwiththe provincial government. Key procurement issues and risks have been identified, especially the lack o f experience with World Bank project procurement procedures. Corrective measures will include: (a) providing technical support for assistance on bidpreparation; and (b) recruiting experienced tendering companies to help implementprocurement. 4. Social Land acquisition and resettlement. The project will positively impact Liuzhou's citizens by improving urban environmental conditions through investments inwastewater treatment, municipal sanitation, and solid waste management, as well as enhanced industrial wastewater pollution control. However, some groups will be adversely affected by land acquisition and relocation. Intotal, 888 muo f land will be acquired and 649 households will be relocated. Adverse social impacts and risks will be minimized by carefully implementing the Resettlement Action Plan (RAP). Additional public consultations will be held before the start o f land acquisition and relocation to ensure that any concerns regardingcompensation entitlementsand payments are adequately considered. Further, a mechanism to monitor public reactions duringthe course o f project implementation has been set up to consider complaints and/or suggestions ina timely manner. Social assessment. Two social assessment (SA) reports were prepared - one addressing the wastewater component, and a second addressing the municipal sanitation and solid waste management components. The first SA focused on various stakeholders, including minority nationalities, poor people, and women. Positive andnegative social impacts were analyzed, and 11  resettlement was identifiedas the project's major negative impact. The willingness and ability o f citizens to pay for wastewater tariffs were also studied. Duringa related field survey, more than 50% o fthe poor indicated they would have difficulty paying for the projected increased wastewater tariffs. An affordability analysis was also undertakenas part o f the economic analysis to determine whether residential customers, particularly lower income groups, could afford the newwastewater tariffs. This analysis indicated that the average low income household's combined water and wastewater bill was projected to average three percent o f household income. This result is well withina generally accepted guideline that household water supply and sanitation costs should not exceed five percent o f household income. Inaddition, the planned tariff increases will likely decrease consumption, further lowering householdwater costs. The project's tariff increases can therefore be considered tolerable, especially because the lowest income groups will receive preferentialtreatment. For example, LMGhas agreed to accept 50% reductions inthe water and wastewater bills for poor households. The second social assessment surveyedpublic opinions on where to buildthe public toilets and solid waste transfer stations. Because nearbyhouseholds did not support one o fthe two proposed solid waste transfer station sites, LMG decided to postpone constructiono f a second station until itfound a more appropriate site. Because ofoppositionto relocation, lack of demand, or better alternative solutions, 18 proposed public toilets were also dropped. Based on public input, access for the disabled was incorporated into toilet design, mainly by removing access barriers, creating wider access spaces, and placinghandicappedtoilets nearest to mainentrances. Minority nationalities. Greater Liuzhouhas a total populationo f 1.8 million and 48 minority nationalities. Sixty-six percent o f this population i s Zhuang. InJanuary 2004, a study was undertakento assess how four Bank-supported projects inthe Guangxi ZhuangAutonomous Region impactedminority nationalities. The social assessmentincluded an in-depth analysis o f minority nationalities. Minorities live incommunities withthe Han, although they are also concentrated inparticular areas; for example, 75% o f the population is Molao inYanghe; and 40% o f the population i s ZhuanginLongquanshan. The analysis showed that the livelihood modes and the productionpattern o f the Molao and the Zhuang are similar to those o fthe Han. The major difference i s the lower income o f the minorities compared with the average income o f the Han. Itis concluded that minority nationalitiesdo not exhibitthe features of indigenous peoples as defined inthe Bank's OD 4.20, andthat the Bank's OD 4.20 does not apply for this project. 5. Environment The environmental assessments(EA)and environmentalmanagement plans(EMP) for the wastewater component, municipal sanitation component (public toilets), and solid waste management component were prepared, inaccordance with national policies, by the Environmental Impact Assessment Instituteo fthe Sino-Japan Environmental Protection Center. EA documents, such as the EMP, EAs, and EA Summary, were found to be satisfactory. The EA includes the project description, baseline environmental conditions, projectjustification, environmentalbenefits, analysis o f alternatives, potential environmental impacts and mitigation measures (both at the construction and operation stage), environmental management plans, public consultation details, and information disclosure information. The final EA documentation, including a Supplementary EA Report, was sent to the Bank's InfoShop inWashington and Beijing inJanuary 2005. The project was assigned to safeguards category A, becausethe project 12  involves substantial involuntary resettlement and construction and operation-related impacts are significant. Major findings of the project EAs and EMPs are delineated inAnnex 10. Analysis of Alternatives. During project development and design, four alternatives were considered and compared, each with different numbers o ftreatment plants and/or different site locations and treatment capacities. The proposed investmentswere selected due to favorable site conditions, lower environmentalimpacts, harmony with local development, andmanageable costs. Environmental impacts. The environmental impacts o f the project are, on balance, substantially positive and benefits greatly outweigh environmental costs. The project will reduce pollution loads inthe LiujiangRiver and improve public health by providing municipal sanitation facilities. Major potential impacts duringthe project's construction phase include disturbances due to excavation, dust, noise, and soil disposal, andurbanservice disruptions. Impacts during the plants' operational phase include sludge disposal, noise, and odor. Mitigation measures. The EAs include detailed informationon environmentalmitigation measures, environmental monitoring plans, institutional arrangements and training, and cost estimates o f mitigation measures. Major mitigation measuresinclude constructioncontrol activities, strategic site location, selection o f facilities with appropriate buffer zones, control on noise and odors, and appropriate sludge disposal. The EMPs have since beenmainstreamed into the Project ImplementationPlan(PIP). Public consultation. Duringthe preparation o fthe EA, local groups were consulted at least twice, either through meetings with local government representatives or public interviews and surveys using questionnaires as noted inthe social section above. Information disclosure. Information on EA preparation was disclosed inthe October 27, 2004 edition o f the local newspaper "Liuzhou Daily". The EA reports were made available at the Liuzhou PMO for interested people and groups, as well as at the World Bank Infoshop in Washington, The final draft EAs and EMPs were made available at the Liuzhou City Public Library for public review and informationinNovember 2004. 13  6. Safeguard policies Key safeguard policies triggered by the project are as follows: Table 3: Safeguard Policies Triggered by the Project Yes No EnvironmentalAssessment (OP/BP/GP 4.01) [XI [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Cultural Property (OPN 11.03, being revisedas OP 4.11) [I [XI Involuntary Resettlement (OP/BP 4.12) [XI [I Indigenous Peoples(OD 4.20, being revised as OP 4.10)' [I [XI Forests (OP/BP 4.36) [I [XI Safety of Dams (OP/BP 4.37) [I [XI Projects inDisputedAreas (OP/BP/GP 7.60)'' 11 [XI Projects on International Waterways (OP/BP/GP 7.50) [I [XI 7. Policy Exceptions and Readiness No policy exceptions apply to this project. Project readiness. LMG and its implementing agencies have completed major project preparationactivities. LMWTC was established inDecember 2004, and its General Manager, Finance Director and Technical Director have been appointed. A service agreement between LMGandthe LMWTC hasbeen signed. ' ** In the context of China,IndigenousPeoples refer to minority nationalities. By supportingtheproposedproject, the Bank does not intendtoprejudice theJinal determinationof theparties' claims on the disputedareas. 14  Annex 1: Countryand Sector Background CHINA: LIUZHOUENVIRONMENT MANAGEMENT PROJECT China's Challenge:RapidGrowthand UrbanImDacts China i s undergoing growing pains as it struggles to deal with rapid economic growth and urbanization, environmental pollution and degradation, developmental gaps between its western andmore prosperous coastal provinces, andpersistent poverty, especially inrural areas andparts o f fast-growing cities. China i s also managing a complex tangle o f political, social, and economic issues as it transitions from a centrally planned state to a global, market-based one committedto equitable and environmentally sustainable development. China's cities and towns now account over 60% o f the country's GDP and approximately 40% o f its population. However, the urbanshare o f China's populationis expected to surpass 50% within 15 years. This rapidurbangrowthtrendhas complex roots. Over the past decade, former state-owned enterprises inthe industry, power, and telecom sectors, and small and medium-sized businesses located inor around urban centers, helpedpropel China's economic growth. During the sameperiod, rural livingbecame more difficult due to stagnant farm prices and foreign agricultural competition, helping to instigate a sizable migration to urban areas as rural citizens sought better livelihoods and opportunities incity centers. However, since muchurban economic activity came from companies streamlining operations to maximize efficiency, companies did not always addjobs, and in some cases eliminatedjobs. Thus, many new city dwellers were unable to find employment, andthis contributed to urban poverty. As urbanpopulationscontinueto rise, many cities are finding itdifficult to sati,sfythe service and infrastructure needs o ftheir citizens and businesses due to lack o f sufficient technical and managerial capacity. Cities are also falling short intheir efforts to protect environmental resources, including water, air, and sanitary conditions, also because o f limitedresources and capacity. Inaddition, China's development hasbeengeographically skewedtoward its easternandcoastal regions, which have historically received greater governmental support compared with China's western provinces. City revenues are generally higher and more consistent ineastern provinces. Inthe west, lower overallper capita incomes, lower populationdensities, andinadequate administrative structures generally translate into less tax collection and therefore less service provision. China's western provinces also lag behind coastal and eastern regions inmost developmental measurements. The government i s thus focusing on economic and social development, poverty reduction, and infrastructure investments inthe western region. Respondingto Water and SanitationProblems China, reflecting its TenthPlan (2001-05) vision to realize a "well-off society", i s now giving priority to improving local government capacity and investingincity services and infrastructure, especially inwestern provinces. Both China's Tenth Plan andthe most recent CAS support urban sanitation and environmentalprotection, including wastewater treatment, because it has been 15  amply demonstrated that clean cities and safe, sustainable water supplies help ensure economic growth and a high quality o f life. Currently, however, many Chinese rivers and water sources are polluted because o f inadequate wastewater treatment and weak and poorly enforced water regulations. The central government has responded to these problems by recently issuing guidelineson reforming the wastewater and solid waste management sectors. These guidelines recommend that utilities establish sufficient fee levels to cover operations and debt services, and encourage contracting utility services to the private sector to improve efficiency. Several coastal provinces and cities have already taken steps inaccordance with these guidelines, butmany others have not due to capacity constraints. Although improved household wastewater treatment i s clearly needed, industrial wastewater treatment remains a particular problem because industries still lack adequatewastewater treatment facilities and/or are unable to operate these facilities because o f highoperating costs. Enforcement o f industrial wastewater pollution regulations also varies according to each city's technical capability, monitoring capacity and authority to oversee state-owned enterprises. Public sanitation and solid waste services and related infrastructure are also deficient inmany cities. Moving from Nationalto Local: Protectingthe Environmentand EconomyinLiuzhou Liuzhou, this project's focus, i s located inthe Guangxi Zhuang Autonomous Region, one o f China's 12 western provinces. Liuzhouhas 1.2 million habitants and i s the largest industrial center inthe province with more than 1,300 small enterprises and 144 large and medium-sized industrial enterprises. Liuzhou's population i s expected to rapidly increase to 1.8 million people by 2020, straining its already burdenedwater and sanitation infrastructure. Liuzhou's air, water, and sanitation conditions have beennegatively impactedby the city's rapid growth and industrialization. As a first step toward a solution, LMG successfully implemented a Japan Bank for International Cooperation (JB1C)-funded environmentalproject to reduce industrial air pollution and to improve solid waste management from 1998 to 2003. It also executed an extensive urban environmental protectionprogram under the auspices o f China's Tenth Plan. Water pollution i s particularly pressinginLiuzhou. The LiujiangRiver, which winds through the city center and suburbs, i s the city's primary water source. However, its water quality, at class 111,is threatened by industrial and municipal discharges ofuntreated sewage, and may worsen without additional treatment. Liuzhou has established several goals related to its water pollution problem. First, the LMG declared that at all times and at all intakes downstream, water from the Liujiang should never fall below Class 111. Second, the LMG, inaccordance with China's Tenth Plan, established that by 2010 at least 70% and by 2020 at least 90% o f all urbangenerated wastewater will undergo adequatetreatment by wastewater treatment facilities to comply with necessary effluent discharge standards. To help meet these goals, the LMG established an autonomous wastewater treatment company inDecember 2004. Inaddition, the LMG recently commissioneda new wastewater treatment plant. Though this i s a good first step, this plant can only treat 15% o f Liuzhou's total wastewater discharges, not nearly enough to reach its stated goals. 16  LMGis aware that the city cannot meet its objective ofmaintaining water quality inthe Liujiang River at class I11by simply constructing newwastewater treatment plants because about 70% o f all industrial wastewater i s discharged directly into the river. Accordingly, the LMG adopted a comprehensive policy framework for industrial wastewater pollution control (see Attachment 1 for the Englishtranslation o fthe policy letter signedby the Mayor). Following this policy, EPB will implement a planto strengthenpollution control at the enterprise level (see details inAnnex 4) with the following four major elements: 0 Industrial Wastewater Pollution Control Action Plan (IWPCAP): Elevenenterprises discharge over 90% o fthe city's total industrial wastewater and pollution loads and seven account for over 90% o f its heavy metal discharges. O f these, only the Liuzhou Zinc Product Plant and Liujiang Paper Millare not compliant with discharge standards (heavy metals and Chemical Oxygen Demand(COD) are their respective problems). The Liuzhou Zinc Product Plant i s due to be relocated by the end 2005 and receive upgraded treatment facilities, while the Liujiang Paper Milli s currently commissioning a 60,000 tpd wastewater treatment plant (with capacity for planned expansions) that will bringit into compliance. Action plans have beenagreed between the EPB and the 14 major polluters to Wher decrease pollutant levels. 0 On LineMonitoring o f Industrial Wastewater Discharges: Since mid-2003,automatic and continuous on-line monitoring systems have beendirectly connected to the EPB On-Line Monitoring Control Center for five enterprises with major wastewater discharges. Over the nexttwo years, the EPB plans to extend on-line monitoringto an additional seven enterprises. On-line monitoring i s limitedto only a few parameters because o fthe present lack o freliable analytical equipment. Nevertheless, EPB considers this a valuable pollution control tool. EPB will also install continuous automatic on-line monitoring equipment at the boundaries o f the municipality where the river enters andexits. 0 Discharge Permit System: EPB expects to implementthe first stage o f the DPS by end 2005; implementation is subject to the State Council and SEPA issuingthe relevant law and regulations, respectively. EPB i s committed to vigorously implementingthe DPS, beginningwith COD inthe first phase, andthenN-HH3and heavy metals insubsequent phases, because implementation o f the DPS i s critical to managing wastewater discharges at an environmentally sustainable level over the long-term. 0 EPB Strengthening: EPB will enhance its capabilities by: (a) upgrading monitoring station analytical equipment; (b) establishing a monitoring center to record and process data from the industrial and river on-line monitoring stations; (c) extending and developingthe EPB management information center; and (d) providing training inmonitoringandenvironmentalmanagement. Liuzhou's needfor new wastewater treatment facilities i s developmentally sound. Protectingthe Liujiang by maintaining its water quality will bolster the quality o f life inLiuzhouand indirectly, butprofoundly, make Liuzhoumore livable, competitive, and friendly to investment. Since the Liujiang i s a major river inthe regional ecosystem, keeping its water clean will also help ensure it can beusedsafely bytowns and farms downstream. Municipal sanitation i s also a major issue inLiuzhou, especially with its growing demand for services. Inparticular, the city needs more public toilets. There are 249 public toilets now in 17  Liuzhou, but 417 public toilets are neededby 2010 according to the city's master plan. Liuzhou conducted a demand analysis for new public toilets taking into account important demographic patterns and criteria, and used this analysis to ultimately select sites. Solid waste management i s another environmental concern inLiuzhou. Liuzhou now produces about 1,000 metric tons of municipal solid waste per day, andthis i s projectedto increase to about 1,400 tpd by 2010 and 1,900 tpd by the year 2020. Because the existing landfill nine kilometers from the city center has reached its capacity, the LMGrecently completed the constructiono f a new landfill 22 kilometers from the city center. Transporting additional waste to this new facility will be difficult under the current system-comprised mainly o fpushcarts and tricycles hauling waste to 40 waste collection stations, and a fleet o f 69 small trucks. As the city expands and the newmore distant landfill i s used, Liuzhou will need centralized transfer stations, more waste collection stations, and additional waste hauling vehicles. Liuzhou intends to both implement a user fee based on the Central government's guidelinespromoting the establishment o f refuse collection fees from all users, and move solid waste management to a more enterprise-type operation. 18  Attachment 1of Annex 1 EnglishTranslationof the PolicyLetteronIndustrial WastewaterPollutionControlinLiuzhou (signedby the Mayor ofthe Liuzhou Municipal Government) The city o f Liuzhou, with apresentpopulation o f 1.2 million, is the largest industrialcenter in Guangxi comprising 144 large to mediumand more than 1,300 small-sized industrial enterprises. The City's populationis expected to reach 1.8 million by 2020. As a result o frapid industrialization and urbanization, the environment inLiuzhouhas beendeteriorating. I.Background Fullyrecognizingthe importance ofenvironment improvement, Liuzhou Municipal Government (LMG)places great importance on control of industrial pollution. Effective measureshave been taken to control sulfur dioxide inorder to reduce the very severe acid rain problems arising from the use o f high sulfur coal. The policy to bring sulfur dioxide emissions under control was implementedin 1997, with a goal ofreaching Class I1air quality by 2005, and consisted ofthe following elements; Overall Atmospheric Sulfur Dioxide Discharge Limit: determination o f the maximum allowable emissionof sulfur dioxide (emission cap) under which acid rain will be decreased based on atmospheric environmental assimilative capacity. Apportionment o f Emission Cap: the major emitters o f sulfur dioxide are controlled on mass based permits and those unable to meet the permit requirementsare instructedto improve within a limitedtime. Low Sulfur Coal: staged reduction o f the sulfur content o f coal allowed to be consumed inLiuzhouwithestablishment ofthe necessary inspectionandenforcement agency; Clean FuelEncouraged: the enterprises incentral urban area are required to use clean fuel (LPG, natural gas, petroleum). LMGprovides some financial grants towards the cost o f clean fuel conversion. Pollution Levv Charges: charges for sulfur dioxide emissions are imposedto encourage polluters to reduce the pollutants based on the national laws and regulations. Emissions Trading: enactment o f the legal framework to allow sulfur dioxide emission trading between the enterprises inLiuzhou sulfur dioxide zone and acid rain control area. Relocation: enterprises causing severe pollution that i s difficult to control are relocated based on the Liuzhou Urban Master Plan and IndustryRestructuringPolicy. The application o fthe above policy elements has resulted insuccess inimprovingthe urbanair quality. LMGbelieves that the implementation of the policy to control sulfur dioxide emissions has provided valuable experience that can be applied inindustrial wastewater pollution control. 11. FutureControlson IndustrialWastewater One o fthe most important remaining environmental problems inLiuzhou i s water pollution. Its drainage system i s still a combined system under which untreated sewage and rainwater flows 19  together into the Liujiang River which flows through the city center and i s the main source o f drinking and industrial water use. The first wastewater treatment plant treats only 15% o f wastewater discharges. According to Liujiang River water environment zone planning,the goal i s to maintain the upstreamsection o f Liujiang River at Class I1standard to safeguard drinking water supplies, andto maintain, at minimum, Class I11inthe downstream section to fulfill LMG's obligation to downstream users and maintainthe river ina satisfactory ecological state. Policyfor IndustrialWastewater Control 1. Relocation: Polluting industriesinthe main urbanareawill be relocated to more suitable sites either outside the urban area or to the newly developed industrial zone on the downstream section o f Liujiang River. Duringrelocation, the relocated enterprises must carry out an environmental impact assessmentand meet the "three simultaneous measures" strictly and adopt clean production technology. 2. New Facilities, ExpansionTechnical RenovationProiects: The environmental impact assessment system and "three simultaneous measures"system must be strictly conducted. 3. Pollution Levv Charges: According to the new Regulation for Collecting and Usingthe Pollution Charges (2003), the environmental protection departmentsare responsible for imposing the charges on polluters, checkingthese pollutant discharges regularly, and adjustingthe charges as necessary. 4. Demand Management: LMG will develop and implementpolicies to provide incentives for reducing water consumptionthrough sewage tariffs, which are based on both the quantity andquality (concentration) ofwastewater discharged to sewers. Suchpolicies will not only ensurethat the wastewater treatment companies are financially viable but also ensure that all users pay their fair share o f service costs. The policies will also provide appropriate incentives for users to save money by investinginprocess improvements, which conserve water and reduce wastewater discharges. Demand management includes the higher collection o f wastewater tariffs from those enterprises usingself-supplied water. 5. Regulation Enforcement: Liuzhou EPB will strengthenthe supervision o f operation o f environmentalfacilities, require major polluters and those failing to meet the discharge standards to install automatic on-line monitoring equipment for specific pollutants, with direct connection o f the monitoring equipment to the Liuzhou EPB Information Center. 6. Enforcement Aaencv Streneheninq: LMG i s committed to maintain EPB as a strong effective agency inpollution control with the necessary facilities and funding to fulfill its responsibilities, including improved automatic monitoring o fthe water environment. 7. Pollution Control Action Plan: Agreement has beenreached with relevant enterprises on short-term pollution control action plan. Its completion i s a prerequisite o f any expansion plans. 8. Use o f Pollution Charges: That portion submittedto the Municipal Finance Bureauwill be fully usedfor pollution prevention and control at major polluters, regionalpollution prevention and control, development, demonstration and application o f new technology to advance the process o f pollution prevention and control. 9. Total Amount Control: As required by the national and regional agencies, EPB has startedcalculating mass-based water environment assimilative capacity and will begin to 20  allocate water pollutiondischarge permits (DPS) basedonthe national and regional arrangements.As soon as the laws andregulations on the mass basedpollutant discharge permitsystem are issued, EPB will implementthe systemdiligently. EPB will keepthe Bankinformedofthe progressofthe DPS implementation over the life ofthe project. Mayor LiuzhouMunicipal Government 21  Latest Supervision (PSR) Rating (Bank-financed projects only) Sector Issue Project Implementation Development Progress(IP) Objective Sewerage, drainage, solidwaste Guangxi Urban management EnvironnementalProject (Ln. S S 30970), (06/16/1998) Wastewatertreatment, lake Tai BasinUrban rehabilitation, canal network Environment Management S S rehabilitation (Ln.47480), (08/03/2004) Urban environment, including S S wastewater, solid waste, and industrial HebeiUrban Environment pollutioncontrol (Ln.4569), (05/10/2000) Access to urban services for the poor, environmental health, water resource Tianjin UrbanDevelopment management, municipalgovernance andEnvironment (Cr. 2387) S H S and institution building, wastewater, (05/22/1992) and (ICR No. solidwaste, industrial pollution 22217) (06/20/2001) Wastewatermanagement inariver basin: upgrade water quality inthe Huai River Pollution Control HuaiRiver, improved collection and (Ln.4597) S S treatment of wastewater in selected (03/22/2001) municipalities oftwo provinces Sewerage, water supply, sub-national government administration, solid Sichuan Urban Environment waste management, other social Project (Ln. 44960) S S services (06/17/1999) Sewerage, solid waste management, Chongqing Urban water supply, sub-nationalgovernment Environment Project S S administration (Ln.4496) (6/15/2000) ~ Wastewatermanagementinariver basin: upgrade water quality inthe HuaiRiver PollutionControl Huai River, improved collection and (Ln.4597) S S treatment of wastewater inselected (03/22/2001) municipalities oftwo provinces Water supply, municipal and industrial Implementation performancereported wastewater treatment, air pollution JBIC satisfactory. Assistance focusedmainly management (several projects) on investment. Urban services, environment, water resources(several projects) Asian Development Bank Performancereportedsatisfactory. IPDO Ratings:H S (Highly Satisfactory); S (Satisfactory); U(Unsatisfactory); HU(Highly Unsatisfactory) 22  Annex 3: ResultsFrameworkandMonitoring CHINA: LIUZHOUENVIRONMENT MANAGEMENT PROJECT Results Framework PDO OutcomeIndicators Use of OutcomeInformation Improvement ofthe environmental Maintenance of water quality inthe Recommendedadjustmentin conditions of Liuzhou, relatedto downstreamportion ofthe Liujiang planning/or operationsfor the wastewater treatment, sanitation River at aminimum of Class 111. LMWTC andESD and control and solid waste management. Citizens' level of satisfaction disseminationof the outcomefor regardingmunicipal sanitary public awareness ofthe conditions inthe project area. environmentalconditions. IntermediateResults ResultsIndicatorsfor Each Comnonent Use of ResultsMonitoring Wastewater Component: Wastewater Component: Increaseof municipal wastewater Capacity ofthe wastewater Monitoring the progressofphysical collected andtreated. treatment plantsinoperationand works andthe LMWTC operational volume of wastewater treated. performance. Municipal Sanitation Component Municipal SanitationComponent Municipal SanitationComponent (Public Toilet): (Public Toilets): (Public Toilets): Provision of improved public toilet Number ofnewly constructedand Monitoring the progressofphysical facilities and services. rehabilitatedpublic toilets; works of public toilets and their operational and service quality. Numbersofportabletoilets installed; Number ofpeoplewho use the public toilets constructedand rehabilitatedunderthe project; Number ofpublic toilets contracted to private operators. Solid Waste Management Solid Waste Management Solid Waste Management Component: Component: Component: Provision of improved solid waste Number of solid waste collection Monitoringthe construction of solid managementfacilities and services. stations constructed; waste management facilities, the purchase ofrelatedvehicles, and the Construction of one solid waste efficiency and service quality of transfer station: solidwaste management operations to ensure continuous improvement. Weight of solidwaste collected andor transferredinthe project area Reduction ofunit operationalcosts. 23  Reductionsinthe mass ofpollutants I Better enforcementactions, public ~ Industrial Wastewater Pollution Control Component: dischargedby the top 11polluters; disclosure ofthe status of Reducedindustrial wastewater compliance ofmajor polluting pollution loads dischargedinto the Reductionsinthe mass of heavy enterprises and continuous river andthe wastewater treatment metals discharged by the top seven improvementof industrial plants. heavy metal dischargers; wastewater pollution control program of EPB. Installation of online automatic monitoring stations at industrial discharge sites and inportions ofthe Liujiangriver. Institutional Developmentand InstitutionalDevelopment and 1InstitutionalDevelopment and Capacity Building Component: CapacityBuildingComponent: I Capacity BuildingComponent: Improved operational and financial Number of contractsawardedand Monitoringthe progress of TA and efficiency of the project satisfactorily implementedas Institutional Developmentprogram implementing agencies. indicatedinTORS. and designingcontinuous programs. 24  s 0 N 0 QI 0 0 0 mm m m N 0 W g 0 0 0 0 0 9 7 N 2 hl hl - - ~ t- g 0 0 0 I z z 4 . 7 N 0 ~ 0 W 0 0 4 - 1 0 N 2 1 3 ~ - 3 m 0 0 N g 2 nm Q) .-E U  r,8 d 3 m a n P w 8 w e CL W G m 0 0 0 0 2 0 0 0 0 0 1o P a\ 0 I h Yv)  0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 o o o o a a000 0 0 0 0 0 0 0 0 0 0 0 N 0 ~ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0  X X X X X X X X 5 0 EL 5  Annex 4: DetailedProjectDescription CHINA: LIUZHOUENVIRONMENT MANAGEMENT PROJECT Details on the project's scope and financial requirements are provided below. The project file also contains additional informationon component details. A. WASTEWATER COMPONENT (US$166.50 million) Al. Wastewater Conveyance/Collectionand Treatment(US127.86 million) Baisha Sewerage and Wastewater Treatment Plant (US$38.30 million) Sewerageand wastewater treatmentplant: This subcomponent will: (a) construct wastewater interceptors and culverts, and associated pumpinginstallations on the Liuzhou peninsula(10.55 kmo fDN600mmto 1200 mminterceptors, 2.69 kmof2-3m x 1.5-2 mculverts, andtwo 3,000 m3/dand 10,000 m3/dlifting stations); and b) construct a wastewater treatment plant (secondary treatment) with an average capacity o f 100,000 m3/d,and a small training center. Treated effluent will be gravitationally pulledinto the Liujiang River through the nearby Huilongchong drain. This set o f investmentscomplements the LMG's ongoing program o f sewerage development on the peninsula funded by the municipality. Longquanshan Wastewater Treatment Plant (Second Phase) (US$26.56 million) Wastewater treatmentplant: This subcomponent will construct a wastewater treatmentplant (secondary treatment) with an average capacity o f 150,000 m3/d;the treated effluent will be dischargedby gravity into the lower stretch o f the Liujiang River. This investment complements: a) the recently commissioned first phase plant having a treatment capacity o f 100,000 m3/dwith a three stage plant with capacities o f 300,000/350,000 m3/d;and b) the LMG's ongoing program o f combinedconveyors, secondary mains andpumpingstations inthe drainage area served by this wastewater plant. Yanghe Sewerage and Wastewater Treatment Scheme (US$4 1.57million) Sewerageand wastewater treatmentplant: The Yanghe scheme invests insewerageworks serving the two drainage areas of Jinlanand Yanghe. This subcomponent will: (a) construct twin river crossing pressuremainsanitary sewers (2x lkmo fDN1100 pumpingsewers) and atwo- hour capacity flood water retention tank; (b) install primary and secondary sewerage systems concurrently with associated road networks beingdeveloped inthe Yanghe New Industrial Development District (27.40 kmof culvert and 67.91 kmof DN300 mmto DN1800 mm sewers); (c) construct four 12,000 m3/d,50,000 m3/d,70,000 m3/dand 200,000 m3/dlow lifting stations with equipment installationfor the first phase pumpingrequirements; and (d) construct a wastewater treatment plant with a secondary treatment process with an average capacity o f 125,000 m3/d,which discharges its effluent by gravity into the downstream stretch o f Liujiang River. A small training center will also bebuilt. For the above three components, the scope and number o fhouse connections and rehabilitated sewers are not specified. Pipe quantities for house connections will be determined as specific studies are carried out by LMWTC during first two years o fproject implementation. 29  Labao Sewerage and Wastewater Treatment Scheme (US$l 1.76 million) . Sewerageand wastewater treatmentplant: Labao i s the administrative seat o f the Liujiang prefecture and a fast developing industrial area for automotive assembly and truck parts. It has a large sugar cane treatment plant which functions duringthe five dry months of the year, and whose effluent is handledby storageponds with limitedbut sufficient treatment efficiency. This subcomponent will consist of: a) developing primary and secondary sewerage systems inLabao (33.57 km of DN300 mmto DN1200 mm sewers, and 28.62 kmo f DN400 mmto DN1200 mm interceptors), including an 18,000 m3/dcapacity pumping station, and b) constructing a wastewater treatment plant (secondary treatment) with an average capacity o f 25,000 m3/d.The discharge ofthe treated effluent will drain into the Jiuquhe River. Zhuexi Wastewater Conveyance Scheme (US$9.67 million) The component will construct twin wastewater interceptors for the Creek's southern tributary (13.85 kmDN300 mmto DN1500 mminterceptors) and convey intercepted wastewater to the existing Lonquanshan pumping station. A2. ZhuexiCreek UrbanRehabilitation(US$38.64 million) Zhuexi i s an in-city drainage area occupying about 65 km2,covering part o f the traditional central city district. Inplaces, the Creek forms deep gorges with cross sections as narrow as 30 m wide. The LMG intendsto rehabilitate the lower sections o f its two tributaries with an improved system o f sanitary sewers and flood control drains, including river embankments and a rehabilitationprogram for its lower parts. This will be done by: (a) improving hydraulic capacities o f the northem and southern tributaries o f Zhuexi for flood flow release by dredging (about 37,000 m3Zhuexi sediments); (b) restoring, expandingand stabilizing some cross- sections (4.05 kmof 2-4m x 1Sm-3.6m culverts for the northemtributary, 7.15 kmo f open canal with construction o f four low level weirs for the southerntributary); and (c) rehabilitation o fthe southemtributary (7.00 km). B.MUNICIPAL SANITATION COMPONENT (US$8.82million) Municipal public health and sanitation levels need enhancement in several areas, especially in certainhousing, commercial, and recreational areas where there are inadequate public toilets. This component will aimto develop over a five-year period: (a) about 62 public toilets inareas where sewerage systems enable the disposal of septage through sewers rather thanseptic tanks; (b) 30 portablepublic toilets with onsite treatment systems; (c) two mobile public toilets, and (d) six sanitatiodvacuumtrucks with five ton-capacities. C. SOLID WASTE MANAGEMENT COMPONENT (US$8.89million) This component is intendedto optimize current municipal investmentscarried out for solid waste disposal. The recently commissionedcity landfill i s located twice as far from the city center (about 22 kmto the southeast ofthe city core) thanthe previous one, andthis component will finance a transfer station permitting more efficient use of the increased fleet o f refuse collection trucks. Likewise, the number of community waste collection stations for the city's residential refuse needs to be increased. This component will consist of: (a) constructingone transfer station inthe northeastempartofthe city at GuiliuRoad, with anear term design capacity of450 tons per day (tpd) and anultimate capacity of 600 tpd; (b) constructing42 communitycollection 30  stations inthe city's four urban districts; and (c) supplying trucks and repair equipment to fortify the fleet o fwaste collection andtransportation vehicles for the ESD. Equipment and facilities to be financed by this project include: (a) constructiono f 42 additional waste collection stations and one transfer station; and (b) procurement o f 28 refuse collection vehicles (four to five ton capacity), 18 (tenton capacity) waste transport vehicles, eight (large 16-ton capacity) waste transport vehicles, 11 (16-ton capacity) waste containers, ten street sweepers, five street washers, four maintenance vehicles, five highpressure washing vehicles, two monitoring vehicles (cube vans) for inspectionand monitoring functions, and two vehicles for inspection, route management, and emergency response. D.INDUSTRIAL WASTEWATERPOLLUTIONCONTROL COMPONENT (InstitutionalDevelopmentof EPB andnecessary equipment)(US$l.S5million) Liuzhou i s the largest industrial center inGuangxi.Industrialwastewater accounts for two-thirds o f all urban wastewater inLiuzhou and i s a major source o fpollution inthe Liujiang River.The project objective i s to maintainwater quality inthe Liujiang River at class 111.Without significant efforts to control industrial wastewater pollution, environmental benefits o f this project's investments will likely be only marginal. IndustrialPollutionControlPolicies.LMGpolicies for bothair andwastewater industrial pollution control were extensively discussed by the project team, bothinregard to present policies and future development. Since the correct policy framework i s critical for effective industrial pollution control and to achieve the project's objectives, LMGprepared a comprehensive Policy Letter on industrial wastewater pollution control (see Attachment 1o f Annex 1). IndustrialWastewaterPollutionControlActionPlan(IWPCAP). EPB's planto strengthen pollution control at the enterprise level has three major elements: (a) Action Planfor TopPolluters. Eleven enterprises constitute over 85 % o f total industrial wastewater discharges and 89.2% o fthe Chemical Oxygen Demand (COD) pollution load (see Table 1 for details). These enterprises' plannedreductions in2005 amount to: COD - 10,426.3 tons per year (tpy), surface solids - 18,480 tpy, Biochemical Oxygen Demand(BOD) -5,184 tpy, N-NH3-2,700 tpy. Ofthese 11polluters, only the Liuzhou Zinc Product Plant (LZPP) and Liujiang Paper Millare not incompliance with discharge standards (heavy metals and COD are the respective problems). The LZPP i s due to be relocated by the end 2005 and receive upgraded treatment facilities, andthe Liujiang Paper Milli s currently commissioning a 60,000 tpd wastewater treatment plant that will bringit into compliance, with capacity for planned expansions. Action plans have been agreed among EPB and the 11top polluters to further decrease pollutant levels. Implementation o f the IWPCAP will be financed by the enterprises themselves with some support from the Environmental Fund.Completion o f the IWPCAP i s a prerequisite for consideration by LMG agencies o f any expansion plans. Major polluters at the county level comprise six sugar refineries -three upstream and three downstream o f the city. Most refineries discharge wastewater into oxidation ponds and some pond effluent i s used for irrigation. Some o f the remaining cooling and washing 31  wastewater i s reused and some i s discharged into the river after the necessary treatment (details are inthe project file). (b) Action Planfor TopHeavy Metal Discharges. Sevenenterprises are responsible for nearly 100% o f all heavy metals discharged to the Liujiang River (details are inthe project file). The plannedheavy metal reductions for these seven enterprises in2005- 2006 are: Pb (Lead) -2,856kg/y; Cd (cadmium) - 943 kg/y; As (Arsenic) - 1,640 kg/y; and Zn (Zinc) - 164,187 kg/y. It i s noted that industriesmust reach Class 1 standards for first category heavy metals before connection to the sewer i s permitted. With implementation o f IWPCAPs, these seven enterprises (except for LZPP, which i s to be relocated) will reach Class 1 standards by the end o f 2005. O f these seven enterprises, only LZPP i s not incompliance for cadmium.The LZPP i s to be relocated away from the city center and furnishedwith upgraded treatment facilities at the new site. Since this relocationmay take some time to accomplish, the LZPP prepared a pollution mitigation program that will ensure that proper pollution monitoring and controls are inplace at all times duringthe plant's relocation andoperation phases. Key aspects ofthe pollution mitigation and monitoringprogram, includingthe estimated cost for mitigation measures, monitoring frequencies, andresponsible parties, are available inthe project file. The total estimated cost o fthe pollution mitigationmeasures i s RMB 69.17 million (US$8.347 million), representing about 23.72% o fthe total LZPP relocation and new construction investment (details are inthe project file). (c) Online Monitoring of Industrial Wastewater Discharges. To improve detection o f discharge non-compliance, major polluters are being requested to install automatic online monitoring instruments that measure specific pollutants and that are directly connected to the EPB SupervisionTeam. Non-compliance will be disclosed to the public. Since mid- 2003, seven automatic continuous on-line monitoring facilities have been installed by six enterprises with highwastewater discharges. The EPB plansto extendseven online monitoring stations to an additional five enterprises in2005. The installation o f online monitoring systems i s financed by the enterprises themselves with additional support from an Environmental Fund. Online monitoring i s now limitedto a few parameters (flow, COD, pH, N-NH3for wastewater, and sulphur dioxide, carbon monoxide, total suspendedparticles, and smoke for waste gas); nevertheless EPB considers thisi s a valuable tool inwastewater pollution control (details are inthe project file). Since the IWPCAPs are important complements to the WWTPs inreaching and maintaining surface water quality goals, during project supervisionthe Bank will consider progress on the IWPCAPs as an important project performance indicator. (d) Liujiang River Quality Monitoring.Monitoring water quality inthe Liujiang river is of prime importance to achieving LMG's goals o f maintaining the upper section o f the river at a minimum of Class I1(to safeguarddrinking water supplies), and the lower section at Class 111.EPB plans to installtwo continuous automatic monitoring stations at the boundaries o fthe city where the river enters and exits. The parameters to be measuredare flow, water temperature, pH, turbidity, conductance, COD, dissolved oxygen, N-NH3, total organic content, total phosphorus andtotal nitrogen. The component includes three parts: two continuous automatic monitoring stations, a central laboratory, and a network center. The implementation schedule i s as follows: completion o f the bidding process in 32  2005, installation and trial operations in2006, and commencement o f operations and monitoring in2007, before completion o f WWTP construction. The total cost i s estimated at RMB 9.22 million (US$ 1.12million). Discharge Permit System (DPS,. EPB completed a calculation of the environmental assimilative capacity o f the Liuzhou section o f the LiujiangRiver inAugust 2004. The calculation's results, along with those o fthe other municipalities inGuangxi province, were reviewed and accepted by the State Environmental ProtectionAdministration (SEPA). At present, preparation work supporting implementation o fthe DPS for wastewater discharges i s ongoing. Once the relevant laws and regulations are issuedby State Council and SEPA, respectively, in2005, EPB will implement the DPS for wastewater discharges. As implementation o f the DPS i s critical to long term management o f wastewater discharges, EPB will keep the Bank informed, over the life o f the project, o fthe plans for andprogress ofthe DPS. EPB Strengthening.The total cost ofthe TA for EPB strengtheningis RMB 15.31 million (equivalent to US$1.85 million, o f which US$l.37 million will be financed by the Bank). The costs include equipment totaling about US$1.22 million andtraining o f about US$0.46 million. E. INSTITUTIONAL DEVELOPMENTAND CAPACITYBUILDINGCOMPONENT (US$2.73 million) E.l. TA to supportimplementationofthe project'swastewater, solidwaste, andmunicipal managementcomponents (US1.16 million) To realize economies of scale, it i s appropriate to combine technical support programs for all project components, and to locate the selected TA consulting firm at the level o f the PMO. Although the PMO will execute many stages o f this component, including its request for proposals (RFP), evaluation o fproposals, and contract negotiations, LMWTC will undertake contract management. The objective o f this assistance i s to provide advisory services and quality control to support the project's wastewater, solid waste and municipal management components. Assistance will be provided to help review designs, prepare and evaluate bids, negotiate contracts, and resolve contract issues. Technical advice will also be provided on water treatment processes and electro- mechanical systems, and assistance will be suppliedto troubleshoot problems and monitor the project. The scope o f work includes overseas and national training and study tours duringproject implementation. It i s expected that support will be provided for four years, with less assistance supplied duringthe project's third and fourth years. E.2.TA for the institutionaldevelopmentofthe LMWTC (US$1.31million) As a newly established company, LMWTC faces many challenges related to its large constructionprogram already inexecution under the general direction o fthe ICDC. These challenges include managing the start-up o f new wastewater facilities (some o fwhich have already beencompleted); managing the smoothtransfer o f assets from other Liuzhou agencies and enterprises; and establishing effective business processes andpractices to ensure L M W T C i s on sound operational and financial footings. The technical assistance program will help the LMWTC address these challenges. 33  The objectives o f this TA are to: strengthenLMWTC's businessplanandrelatedbusiness agreements; strengthenLMWTC's businessprocesses, systems andpractices; and strengthenthe capacity of staff inLMWTC and inrelevant government agencies. The scope o f work includes an allocation for equipment and data analysis (e.g. mapping etc.), and an allocationfor training and study tours. The work is expectedto take about two years, starting inJanuary 2006. E.3.TA to improvethe operationalefficiencyofsolidwaste managementoperationsandto promoteinstitutionalreforms(US$0.19 million) The objectives o f this TA are: (a) to provide the ESD with guidance indeveloping manuals, transferring knowledge, undertakinganalyses and evaluations, developing actionplans to manage its new infrastructure, improvingoverall operational efficiency, and developing institutional reforms; (b) to develop a detailed action plan for institutional reform and improvement o f institutional capacity inmunicipal solid waste management; and (c) to build capacity o f ESD staff by providing on-the-job and other classroom training and study tours. About US$190,000 will be requiredto adequately fundthis TA. A minimumof four staff-months o f internationally skilled staff will likely be needed against a total staff requirement o f 12 staff- months. The above budgetincludes a US$23,750 allocation for training and study tours. The work is expected to take about two years starting inJanuary 2006. E.4.TA to promotepublic-privatepartnershipsfor publictoilets (US$70,000) Experience shows that poor maintenance o f publictoilets reduces demand for services and increases public dissatisfaction. Thus, ESDintendsto introduce newmanagement models to maintainpublic toilets inLiuzhou. The mainobjective of this TA i s to develop public-private partnership models that will engage private operators with strong legal andfinancial positions to participate intoilet operations, thus improving operational efficiency, reducing costs, and increasing usage o f public toilets. About US$70,000 will likely berequiredto fundthis TA. A minimumof 1.8 staff-months of internationally skilled staff will likely be requiredagainst a total of 4.8 staff-months. The work i s expected to take about one year, starting inJanuary 2006. 34  Annex 5: Project Costs CHINA: LIUZHOUENVIRONMENT MANAGEMENT PROJECT The estimated cost o fthe project is US$205.60 million, including physical and price contingencies, taxes and duties. Cost estimates are basedon feasibility studies with unit prices at mid 2004. Physical contingencies are estimated at 7% for civil works and equipment. Price escalation i s basedon Bank projections o fnational and international inflationrates. Summary cost estimates are infollowing table. (US$million) Project Cost By Component Local Foreign Total A. Wastewater Component 70.35 37.65 108.00 Baisha Wastewater 21.67 10.68 32.35 Longquanshan Wastewater 13.69 8.75 22.44 Yanghe Wastewater 22.83 12.29 35.12 Labao Wastewater 6.46 3.48 9.93 Zhuexi Wastewater Conveyance 5.71 2.45 8.16 Al. Zhuexi Creek UrbanRehabilitation 22.85 9.79 32.64 B. MunicipalSanitation Component 5.10 2.35 7.45 C. Solid Waste Management Component 4.88 2.63 7.51 D.Industrial WastewaterPollutionControl Component 0.39 1.17 1.56 E. Institutional Development andCapacity BuildingComponent 0.00 2.30 2.30 Total Baseline Cost 103.58 55.88 159.46 Physical contingencies 7.25 3.91 11.16 Price contingencies 13.44 4.72 18.16 Total Project Costs' 124.26 64.52 188.78 Interest during construction 2.75 13.58 16.33 Front-end Fee 0.50 0.50 Total Financing Required 127.01 78.59 205.60- ' Identifiable taxes and duties are US$20million, and the total project cost, net of taxes, is U S 1 8 5 million. The share of project costs net of taxes i s 90%. 35  Q m  Annex 6: ImplementationArrangements CHINA: LIUZHOUENVIRONMENT MANAGEMENT PROJECT ProjectManagementandImplementingAgencies A leading group ledby the ExecutiveVice Mayor and consisting ofrepresentatives from Liujiang District, LMWTC, and various departments o fLMG (Planning Bureau, Finance Bureau, EPB,ESB,Price Bureau, etc.), will superviseproject implementation, provide policy guidance, and ensure cross-departmental coordination for project implementation and operations. Its technical secretariat, the PMO, located inthe Development and Reform Commission, will be responsible for daily supervision and coordination activities. The PMO, ledby the Deputy Director o f the Development and Reform Commission, will comprise a financial management officer, a procurement expert, a social and resettlement expert, a project management expert, and assistants. The lead implementing agency will be LMWTC, a financially and legally autonomous wastewater treatment company established inDecember 2004, and fully owned by LMG. Construction management will be managedby LMWTC, and sufficient staff from the Liuzhou Construction Investment and Development Company Limited(ICDC), an experienced infrastructure investment company fully owned by LMG, will be transferred to LMWTC. L M W T C will receive support from an internationaltender company, and a construction supervisioncompany. The ESD will be responsible for the implementation o f the municipal sanitation component (public toilet) andthe solid waste management component (transfer station, waste collection stations, and waste transport fleet). The EPB will be the implementing agency for the industrial wastewater pollution control component. LZEMP will include an institutional capacity buildingprogram to develop managerial and technical skills o f institutional staff, and to strengthenbusiness, financial and other systems in LMWTC, EPB and ESD. LiuzhouMunicipalWastewater Treatment CompanyLimited(LMWTC) LMWTC will own, operate, and finance city wastewater infrastructure and have direct financial and reporting relationships with LMG. LMWTC i s a state-owned limited liability company, whose equity i s heldby the Liuzhou State Owned Assets Management Commission. LMWTC entered into a commercially based agreement with LMGto provide wastewater services throughout Liuzhou; the agreement will specify service levels and other performance requirementsfor the system and for LMWTC. At the same time, LMGwill provide LMWTC with authority to collect sewagetariffs from customers o fthe Liuzhou Municipal Water Supply Company, and from users of self-supplied water. LMGwill also help L M W T C improve the current low tariff collection rate from users o f self-suppliedwater. The Water Supply Company and Water Conservation Bureaumay continue their current roles as collection agencies for the foreseeable future, but will directly transfer the collected sewage tariff revenues to LMWTC. However, LMWTC has no authority to determine wastewater tariffs and LMG agreed that it will progressively increase the sewage tariff to achieve cost recovery, Le. cover capital and O&M 37  costs (see Annex 9). Details on the legal and institutional framework ofthe LMWTC and its institutional development program are inthe project file. EnvironmentalSanitationDivision(ESD) The ESD is responsible for the overall management, supervision, andmonitoring ofthe 140 existing public toilets, while district divisions are responsible for daily public toilet management. ESD i s incharge of planning, construction, finance, and operations related to public toilet management. Inthe solidwaste sector, LZEMPwill, inthe short term, facilitate the establishment ofaseparate operational entity withinESDthat can manage the transfer station, waste transportation system, and operations at the new landfill. The establishment ofthis entity will move LMGeventually towards the establishment of a separate autonomous company for solid waste management, consistent with policy directives from the central government. EnvironmentalProtectionBureau(EPB) The'EPB, which has a good project track record owing to its successful implementation o f an industrial air pollution control program fundedby JBIC,will be responsible for implementingthe project's industrial wastewater pollution control component. The majority o f subprojects at the enterprise level under this component (including online monitoring) will be partially financed by the EnvironmentalFund, which is managed by a committeewith representatives from concerned agencies, andwhich i s chaired by a representative of the Finance Bureau. To receive financing (of up to 40% o f the total subproject cost), an enterprise signs a contract that specifies, inter alia, an activity schedule and impacts o fthe IWPCAP. Implementation o f subprojects i s the responsibility ofthe relevantenterprise, and overall supervision i s thejoint responsibility o f EPB andthe Finance Bureau. The IWPCAP will be monitoredby the EPB's supervisionteam responsible for enforcement of discharge regulations. Implementation o fthe DPS will require departmental input and will be under the direct supervision o fthe DeputyDirector o f EPB. ImplementationPlan The project began inApril 2005 andwouldterminate inDecember 2010. The implementation schedule and the LMWTC's implementation planand legal and institutional framework are available inthe project file. 38  Annex 7: FinancialManagementandDisbursementArrangements CHINA: LIUZHOUENVIRONMENTMANAGEMENT PROJECT ExecutiveSummaryandConclusion The Bankteam assessedthe adequacy ofthe project financial management system. Based on guidelines issuedby the Financial Management Sector Board on October 15,2003, the assessment concluded that the project meets minimumBank financial management requirements, as stipulated inBP/OP 10.02. The project will have inplace a project financial management system that can provide, with reasonable assurance, accurate and timely information on its status inan agreedreporting format. Fundingsources for the project include the Bankloanand counterpart funds. The Bank loan will be signedbetweenthe Bank and the People's Republic o f China through its Ministryof Finance (MOF), and an on-lending agreement for the Bank loanwill be signedbetweenMOF and the Guangxi Government through the GuangxiFinance Bureau (GFB), andthenbetween the GFB and Liuzhou Finance Bureau(LFB), and finally between LFB and LMWTC. The Bank loan proceeds will flow from the Bank into the project special account (to be set up and managed by the GFB), then to the LFB, then to the project implementing agencies (or project companies), and finally to contractors or suppliers. Inaccordance with the agreement between the BankandMOF, the project will adopt traditional disbursementtechniques and will not use report-based disbursements. Counterpart funds will comprise State bonds, appropriations from the municipal government, and from commercial debt.No outstanding audits or audit issues exist with any o f the implementingagencies. The Bank will closely supervise financial management matters and audit covenants. CountryIssues The World Bank has not performed a country financial accountability assessmentfor China and, therefore, has relied on a similar exercise carried out by the Asian Development Bank in2000 for reference. Developments inpublic expenditure, accounting, and auditing, and Bank experience with projects inChina inrecent years show that substantial progress has been made inpublic financial management and further improvement i s expected incoming years. The government has come to realize the importance o f establishing and maintaining market mechanisms to ensure transparency and accountability, and to minimize potential corruption. Fundingo fBankprojects is controlled and monitoredbyMOF and its extension offices (finance bureaus at provincial, municipal/prefecture, and county levels). However, project activities are carried out by implementing agencies within specific industriesor sectors becausethey have the required expertise. This arrangement usually requires extensive coordination, because o f the multiple levels o fmanagement o f funding and project implementation. 39  RiskAnalysis The following risks and corresponding mitigating measureshave been identified: 1 Risk RiskRating Mitigating Measures I I. projectrisk Inherent Moderate This is the first World Bank-financed project that Liuzhouand several implementing agencies will execute. ConsideringLiuzhou's lack o f experience and multi-level execution structures, the task team will monitor the project closely, give guidance on technical issues, and help to coordinate among all concerned parties for smooth implementation. I 11.Control Risk a. Implementing entity Moderate Close monitoringby the task team is needed to ensure that all implementing entities are familiar with Bank procedures andrequirements. 1 b. Funds flow Low The task team will ensure that mechanisms are inplace to ascertainthat Bank and 1 counterpart funds will be released to the ultimate beneficiaries on a timely basis. c. Staffing Moderate Since none o f the financial staff have prior Bank experience, a well designed training program will be conducted at the initial stage, and close monitoring and supervisionwill take place throughout implementation. d. Accounting policies and Low Accounting policies and procedures are already inplace I procedures e. Internal audit Moderate For efficiency and effectiveness, the task team will rely on external audit and Bank supervisionreviews. I f.Externalaudit Low The China NationalAudit Office (CNAO) will select the project's auditors acceptable to the Bankthat issue annual audit reports. I g. Reporting and Low Format o f financial statements and frequency o f submission have been clearly monitoring defined by the Bank and MOF. h.Informationsystems Moderate The computerized financial management system "User Friend (Yong You)" will be used. The task team will monitor the processing o f its accounting work closely. ImplementingEntities The PMO has beenestablished under the Liuzhou Municipal Government. The PMO will be responsible for overall project management and coordination, while LMWTC, ESD, and EPB will be incharge o f the five project components. LMWTC will be responsible for the implementation of the wastewater component. Liuzhou's ESDwill be responsible for the project's municipal sanitation and solid waste management components. Liuzhou's EPB will be the implementing agency for the project's industrial wastewater pollution control component. LMWTC and ESD will be responsible for technical assistance under the institutional development and capacity buildingcomponent. The organization chart i s as follows: Q Leading Group PIU Liuzhou Environmental - PIU - Liuzhou Environment Municipal Wastewater Protection Bureau (EPB) Sanitation Division (ESD) Treatment Co., Ltd. 40  FundsFlow Funds flow for the Bank loan will follow Bank and MOF requirements.One special account will be established and managedby GFB. The funds flow i s depicted below: The World Managed by Liuzhou Implementing Suppliers and Bank + GFB +FinanceBureau + Agencies contractors Counterpart funds will be loans from local commercialbanks, tate bonds, and municipal government appropriations. The commercial loans will flow directly to implementing agencies, while the State Bonds and municipal government appropriations will be providedto the implementing agencies through the LFB. Staffing The task team has confirmed that an adequate number o f qualified project accounting staff i s available at the entity level. A project financial management manualwill beprepared to strengthen financial management capacity and ensure consistent, high quality accounting work. The manual will provide detailed guidelines on financial management, internal controls, accounting procedures, fund and asset management, and withdrawal application procedures. The manual will be finalized and distributedto all the relevant financial staff before loan effectiveness. As most financial staff are inexperienced with Bank projects, the PMO will provide, prior to project effectiveness, a well-designedand focused training program for all financial and accounting staff inproject financial management. Topics covered will include: 0 World Bank financial management policies and disbursement procedures; 0 Fund/asset/contract management; 0 Format and content o fproject financial statements; and 0 Audit requirements. AccountingPolicies and Procedures The administrative, accounting, and reporting procedures for the project will be set up in accordance with the M O F Circular o f January 13,2000: Accounting Regulations for World Bank Financed Proiects. The standard set o f project financial statements will include the following: 0 Balance sheet; 0 Statement of source and use o f funds for each component; 0 Statement o f implementationo f credit/loan agreement; and 0 Statement o f special account. 41  Each o f the implementing agencies will manage, monitor, and maintain its ownproject accounting records. Original supporting documents for project activities will be retained bythe responsibleimplementing entity. Inaddition, each implementingagency will prepare financial statements, which will thenbe submitted to the PMO. The PMO will thenreview andapprove these financial statementsand, subsequently,prepare consolidated project financial statementsfor submission to the Bank for review and comment on a regular basis. Reportingand Monitoringof FinancialStatements Inline with newly issuedFinancialMonitoring Report (FMR)guidelines, un-audited consolidated financial statements will be submittedto the Bank as part o f the FMR on a semi-annual basis (prior to August 15 and February 15 o fthe following year). InformationSystems The PMO will use on this project the computerized financial management system"User Friend(Yong You)," a well-established accounting software package approved by MOF. The task team will closely monitor accounting work, especially duringthe project's initial stage, to ensure that complete and accurate financial information i s provided ina timely manner. AuditingArrangements Internal audits. There is no formal independentinternal audit department for the project. However, this will not impact the project's financial management, as PMO supervision and project monitoring, and annual external audits, will ensure that financial management controls are functioning appropriately. External audits.Project financial statements mustbe audited inaccordance with standards acceptable to the Bank. Like other Bank-financed projects inChina, this project will be audited inaccordance with Intemational Auditing Standards and the Government Auditing Standards o fthe People's Republic of China. The auditors for the project, which will be selected by the ChinaNational Audit Office (CNAO) and acceptable to the Bank, will issue annual audit reports. These audit reports will be subject to review by the CNAO. The Bank currently accepts audit reports issued by CNAO or any audit bureaudoffices for which CNAO is ultimately responsible. The annual audit reports o f consolidated project financial statements will be submittedto the Bank by the PMO within six months o fthe end of eachcalendar year (by June 30). Inaddition, annual audit reports onthe financial position andoperational results of LMWTC will be due at the Bank within six months o f the end o f each calendar year. Submittingfinancial statements for this entity is not a fiduciary requirement, butwill help monitor its sustainability. The requirements for this audit will not be includedinthe Loan Agreement, but will be included inSchedule 2 o f the Project Agreement. Impact of ProcurementArrangements The thresholds set for procurement post-review will be consistent with those for statements o f expenditures for disbursement. The financial management specialist and 42  procurement staff members will participate insupervision missions to ensure that contracts are awarded inline with Bankprocurement guidelines, and that contract payments are well-supported and inaccordance with the terms o f the contract. DisbursementArrangements Inaccordance withanagreementbetweenthe Bank andMOF, projectmonieswill disbursevia traditional disbursementtechniques and not through report-based disbursements. Bank loanproceeds will be disbursedagainst eligible expendituresas follows: (a) civil works - 75% o f expenditures; (b) equipment- 100% o f foreign expenditures, 100%o f local expenditures (ex-factory), and 75% o f other locally procured items; and (c) consulting services and training - 100% o f expenditures.The allocation breakdown o f loanproceeds i s presented inthe following table. Allocation of LoanProceeds by Category Expenditure Category(Implementing Agency) Amount in US$thousand FinancingPercentage Works 75% Component A1 (LMWTC) 40,430 Other 18,220 100%of foreign expenditures, 100%of Goods local expenditures (ex-factory cost) and Component A1 (LMWTC) 29,760 75% of local expenditures for other Other 8,360 itemsprocured locally Consultants'Services and Training 100% Component E (LMWTC) 1,950 Other 780 Front-end Fee 500 Total 100.000 Disbursementmethods, such as replenishment, direct payment and special commitments, are available for the project. Expenditure limitswill be set up inline with procurement post-review threshold, as follows: (a) all contracts for goods estimated to cost the equivalent o f US$500,000 or less; (b) all contracts for civil works estimated to cost the equivalent o f US$5 million or less; and (c) consultant contracts estimated to cost US$lOO,OOO (firm)/US$50,000 (individual) or less. One Special Account will be established inGFB. The authorized allocation from the Special Account will not exceed US$7 million, equivalent to about four months o f eligible expenses reimbursable via the Special Account. The initial authorized allocation from the Bank will be US$4 million untilthe aggregate withdrawals and outstanding Special Commitments are equal to or exceed US$30 million equivalent. From the Special Account inGFB, Bank funds will be disbursed to the Special Account set up at LFB, then to project implementingentities and finally to suppliers and contractors. 43  GFBwill be directly responsible for the management, monitoring, maintenance, and reconciliation o f the Special Account activities o fthe project. Supporting documents requiredfor Bank disbursementswill be preparedand submittedby respective project implementing entities through LFBto GFB for final verification and consolidationbefore sending to the Bank for further disbursementprocessing. The flow o f the withdrawal applicationi s as follows: Implementing Approval by LFB Organization Action ResDonsible Comnletion Date 1. Financialmanagementmanualfinalized and issued to related financial staff PMO Before effectiveness 2. Financialmanagement and disbursement training to all relevant project financial staff PMO and LMG Before effectiveness Supervision A detailed supervision planfor the project's financial management aspects is includedin the ChinaAudit Strategy document. This document will take into account the size ofthe project and the risksidentified. Financial Covenants Inadditionto the standard financial covenants, (e.g., maintainingproject accounts in accordance with sound accounting practices, audit requirements, and SOE), as described inthe legaldocument, further specific financial covenants applicable to project are detailed insection C of the PAD. 44  Annex 8: Procurement CHINA: LIUZHOUENVIRONMENT MANAGEMENT PROJECT A. General Procurement for the proposed project will be carried out inaccordance with the World Bank's "Guidelines: Procurement under IBRDLoans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" datedMay 2004, and the provisions stipulated inthe Loan Agreement. The various items under differentexpenditure categories are described ingeneral below. For eachcontract to be financed by the Loan, the differentprocurement methods or consultant selection methods, the needfor pre-qualification, estimated costs, prior reviewrequirements, and time frame are agreedbetweenLMGandthe Bank inthe Procurement Plan. The Procurement Planwill be updatedat least annually, or as requiredto reflect the actual project implementationneeds and improvements ininstitutional capacity. Procurementof Works.Works procured underthis project will include sewers, wastewater treatment plants, a solid waste transfer station, public toilets, solid waste collection stations, etc. Works estimated to cost US$15,000,000 equivalent or more per contract will be procured under Intemational Competitive Bidding(ICB) procedures, work contracts estimated to cost less thanUS$15,000,000 equivalent will be procured underNational Competitive Bidding(NCB) procedures, andwork contracts estimated to cost less than US$lOO,OOO equivalent will be procured under Small Works procedures. Procurement will be carried out usingChinese Model BiddingDocuments (MDBs); the Bank's Standard BiddingDocuments (SBDs)will be usedwhen an appropriate MBDis not available. Pre-qualification procedures may be used for contracts for the construction o f wastewater treatment plants. Procurementof Goods. Goods procured underthis projectwill includepump station equipment,wastewater treatment equipment, solid waste transfer equipment, and environmental monitoring equipment. Goods estimated to cost US$500,000 or more per contract will beprocured under ICB procedures; goods estimated to cost less than US$500,000 equivalent will be procured under N C B procedures, and goods estimated to cost less thanUS$lOO,OOO equivalent will be procured under Shopping procedures. Procurement will be carried out usingChinese MBDs; the Bank's SBDs will be used when an appropriate MBDi s not available. Selectionof Consultants.Consulting services under this project include construction supervision assistance, support for the development o f L M W T C andtraining o f its staff, development of operational and financial policies for solid waste management, preparation o fprivate-public management contracts for public toilets, and technical assistancefor industrialwastewater pollution control and staff training. Consulting services for firms will normally be procured under Quality and Cost-based Selection (QCBS) procedures; however, services estimated to cost less thanUS$100,000 equivalent per contract will be procuredunder Consultant Qualificationprocedures. Services for tasks that meet the requirement set forth inparagraph 5.1 o f the Consultant Guidelines 45  may be procured under Individual selection procedures inaccordance with the provisions o f paragraphs 5.1 through 5.4 o fthe Consultant Guidelines. Short lists o f consultants for services estimated to cost less than $300,000 equivalent per contract may be composed entirely o fnational consultants inaccordance with the provisions of paragraph 2.7 o f the Consultant Guidelines. The Bank's Standard Request for Proposals for Selection o f Consultants (May 2004) will be used. Retroactive Financing. Advance contracting may be applied for employment o f consulting firms under the TA component. Also, part o fthe respective expenditures incurredwithinone year before the signing date o f the Loan Agreement could be eligible for retroactive financing, provided procurement i s carried out inaccordance with the Bank's Guidelines. Retroactive financing under this project will fund a portion o f an estimated US$l,168 million for construction supervision assistance. The contract signing date for this retroactive financing i s expected to be April 30,2005. The estimated amount o f retroactive financing i s about US$230,000, disbursedunder the category o f Consultants' Services. The selection procedures will be QCBS. B. Assessment of the agency's capacity to implement procurement Procurement for the wastewater component will be carried out by LMWTC, for the solid waste management component and municipal sanitation component by ESD, and for the industrial wastewater pollution control component by EPB. Agency staff includes: (a) for LMWTC, procurement engineers from ICDC with the same assignment; (b) for ESD, procurement officers and engineers inthree relevant divisions; and (c) for EPB, only one procurement officer at the moment, with more to be recruitedwhen procurement starts. Most staff membershave substantial experience indomestic biddingprocedures and some have participatedinprojects financed by foreign funds, but all are participating ina Bank project for the first time. Measures are proposed inan action planto strengthen their capabilities inhandlingprocurement underthe Bank's Procurement Guidelines. An assessmentofthe capacity o fthe implementing agencies to implementprocurement actions for the project was carried out by the Bank project team inNovember and December 2004. The assessment reviewedthe organizational structure set up to implement the project, and noted that procurement will be carried out by the identified implementation units, with assistance o f designinstitutes, experienced procurement agents, and local construction supervisioncompanies. The organizational arrangement i s considered adequate for procurement management. The key issue that was identified that affects project procurement i s the staffs lack o f experience with World Bank projects. Measures agreed to address this procurement issue are: (a) technical assistancefor project management; (b) recruitment o f experienced tenderingcompanies for procurement implementation; (c) periodic training on Bank procurement policies and procedures for relevant staff within the PMO, PIUs and design institutes; and (d) study tours to similar Bank-financedproject sites inChina before the start o fproject implementation. The overall project risk for procurement i s average. 46  C. ProcurementPlan At appraisal, the Borrower fumishedaprocurement planfor project implementationthat provides the basis for the procurement methods. This planwas agreed between the Borrower and the Bank Project Team on March 24,2005. The procurement plan is available inPIUs and the PMO, inthe project databaseand project file, and on the Bank's external website. The procurement planwill be updated annually inagreement with the project team (or as required)to reflect project implementationneeds and improvements in institutional capacity. D. Frequencyof ProcurementSupervision Inadditionto the prior reviewsupervision to becarried out from Bank offices, the capacity assessment recommended that supervision missions visit the field every six months to carry out post review o fprocurement actions. The table below shows estimated project costs broken down by procurement method and expenditure category. Table A: ProjectCosts by ProcurementArrangements(US$millionequivalent) ProcurementMethod' Expenditure , Category ICB NCB Other' N.B.F. Total Cost 1. Works 19.39 57.36 3.27 0.00 80.02 (14.21) (42.04) (2.40) (0.00) (5 8.65) 2. Goods 36.86 1.65 0.80 0.00 39.31 (35.75) (1.60) (0.78) (0.00) (38.13) 3. Services 0.00 0.00 2.72 10.57 13.29 (0.00) (0.00) (2.72) (0.00) (2.72) 4. Miscellaneous 0.00 0.00 0.00 72.48 72.48 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Front-endfee 0.00 0.00 0.5 0.00 0.5 (0.00) (0.00) (0.5) (0.00) (0.5) Total 56.25 59.01 7.29 83.05 205.60 (49.96) (43.64) (6.40) (0.00) (100.00) 'Figures `Includesinparentheses are the amountsto be financed by the {Loan}, All costs include contingencies. civil works and goods to be procuredthrough national shopping, consulting services, training, and technical assistance services. 47  Table Al: Consultant SelectionArrangements (optional) (US%millionequivalent) ~~ ~ SelectionMethod Consultant Services Expenditure Category QCBS QBS SFB LCS CQ Other N.B.F. TotalCost' A. Firms 2.67 0.00 0.00 0.00 0.05 0.05 0.00 2.77 (2.48) (0.00) (0.00) (0.00) (0.04) (0.04) (0.00) (2.56) B.Individuals 0.00 0.00 0.00 0.00 0.00 0.17 0.00 0.17 (0.00) (0.00) (0.00) (0.00) (0.00) (0.16) (0.00) (0.16) Total 2.67 0.00 0.00 0.00 0.05 0.22 0.00 2.94 (2.48) (0.00) (0.00) (0.00) (0.04) (0.20) (0.00) (2.72) 'Including contingencies Note: QCBS = Quality- and Cost-BasedSelection QBS = Quality-based Selection SFB = Selectionunder a FixedBudget LCS = Least-Cost Selection CQ = SelectionBasedon Consultants' Qualifications Other = Selection of individual consultants(per Section V of Consultants Guidelines), CommercialPractices,etc. N.B.F.=Not Bank-financed Figures inparentheses are the amounts to be financed by the BankLoan. Table B: Thresholds for ProcurementMethods and Prior Review1 Expenditure Contract Value Threshold Procurement Contracts Subject to Prior Review Category (US$thousand) Method (US$thousand) 1. Works Equal to or above 15,000 ICB All contracts (19.39 million) Less than 15,000 NCB All contracts equalto or above 5,000 (24.98 million) Less than 100 Shopping Firstcontract ofeachPIU(0.40 million) 2. Goods Equal to or above 500 ICB All contracts (36.86 million) Less than 500 NCB Firstcontract ofeachPIU (1.67million) Less than 100 Shopping Firstcontract of eachPIU (0.20 million) 3. Services Equal to or above 100(firms) QCBS All contracts (2.67 million) Less than 100 (firms) CQ Firstcontract (0.03 million) Individual Other All contracts equal to or above $50,000 (0.02million) Total value of contracts subject to prior review: $86.22 million Overall Procurement RiskAssessment: Average Frequencyof procurement supervisionmissions proposed: One every 6 months (includes special procurementsupervision for post- review/audits) 48  h a I, 0 5, e .-me m 4bo I c c x 3a 8 W v Y 0a Y Y * E? -.- E8 z e, e, sFi M -E8x9 .-3 M m --$.A - - . . .. . .. m m 0 eW e 2 eW e .. Ei 2 rg s m e e e 2 2 2 e e 2 0 2 2 m 0 e m Ifi 2 0 .. e . m IC e + \o \o IC \o IC . 2 2 e e B e e 2 e c m c m m 00 e + 2 !e e e e B e m a N e 00 0 \o 00 N \o 0 0  r-- 0 W 0 N a vl 9 0 0 N VI .-K 2 G s ,A 0a - bg . .. m e . 0 e W eW e10 2 2 2 W 3 N W 0 m m e vl eW . 2 e IA e W e b m b 00 00 W s s e e 0 I c N 0 m m -- ss ~ - - I: r U P 0 m 2 E ae p .. s j3 4 z E .. s m u m m ei gm z 2 2 .-.- C c ; C c c E E @* * E E C  T % B - - s 0 ~ e rD e ... b -e e W W W e + m - 0 e e m 2 2 2 e e m m m m - e .. - - . W -e W sem m m m m 00 se e e m e c e 00 00 s e m 0 3 z m m m - -80 . s 3 . s E E VI m u Y 2 m 0 Y 8 8  Annex 9: EconomicandFinancialAnalysis CHINA: LIUZHOUENVIRONMENT MANAGEMENT PROJECT A. Wastewater Component ProjectBenefits.Benefitsfrom wastewater related investmentsare difficult to quantify, particularly those relating to environmental and public health improvements. As a result, calculation o f an Economic Intemal Rate o f Return(EIRR) was not attempted for this project, but cost effectiveness analysis was conducted. Without the project, growth inthe project area will increase the amount o funtreated wastewater discharged to the Liujiang River and its tributary channels, causing further deterioration o f surface water quality, increased threats to drinkingwater quality, and increasedpublic healthrisks through expanded exposure to untreated sewage. The project's physical investments include construction ofthree wastewater treatment plants (WWTPs), expansion o f an existing WWTP, and expansion o fthe sewerage network. These new investmentswill enable Liuzhouto comply with central government directives by increasing the proportion o f wastewater treated from the current 14% to at least 70% (from 100,000 m3/dto 500,000m3/d) by 2010. This will improve the environmentalquality o f many local streams and channels, and COD discharges to the river will be reduced by about 63% (from 82,000 tons/y to 34,00Otons/y). The project will thus improve the living conditions o f Liuzhou residents, reduce public health risks, reduce threats to drinkingwater inthe Liujiang River, and improve economic development adjacent to Zhuexi Creek. Institutionalreforms will improve the viability and sustainability o f the sector by strengthening sector institutions, establishing demand management approaches, improving the management o f industrial waste discharges, improving processes and practices for project delivery and utility planning and management, and restructuringthe approach to setting sewerage tariffs. The Zhuexi Creek rehabilitation work will generate a wide rangeo f environmental andpublic healthbenefits. Transportation and treatment o f sludge, and upgrading work around Zhuexi Creek, will restore the landscape and ecology near creek banks, eliminate or reduce odors, and improve living conditions for residents. LMGplans to develop residential areas along Zhuexi Creek, and these immediate benefits will lead to landand property value increases inthe areas around the Creek. Cost-EffectivenessAssessment. A cost effectiveness ratio, i.e. unitcost per incremental capacity, was computed to assess the investments' capital, and 0 & Mcosts. Shadow pricing and conversion factors were not applied, since market prices o furbanproject inputs inChina are close to their economic values. Assumptions on water demand andpopulation growth were based on the LMGmaster plandated May 2004. Costs, over four scenarios, o fthe 20 year operation o f meetingthe programtargets are summarized below. 52  Note: 1. The number at left shows capacity in 2010 and the number at right shows capacity in 2020. 2. Includingexisting capacityof 100,000m3/day. 3. Discountrate is 10%. Tax and duties are excluded. Costs for Zhuexi Creek rehabilitationare included. 4. Average Incremental Costs are calculatedby NPV divided by total throughput. Alternatives.Costs under options 1,2 and 3 are inthe range o f +/- 5%. Option 3, which hadthe lowest Net Present Value (NPV) cost, was excluded because of: (a) uncertainty related to the amount o f flow that will be available at Yanghe (a new developing area); (b) flows may emerge more slowly than expected; and (c) issuesrelated to acquiring necessary land for this option from the StateArmy. Option 2 was adopted for the project because: (a) there is lower risk relatedto flows originating from Yanghe by combining Jinglan capacity into Yanghe's; and (b) the option makes full use o f newly laid sewers. Project FinancialAnalysis. The calculationo fthe wastewater component FIRRunder a cost recovery scenario included incremental sewage tariff revenueas the financial benefit.Financial costs included incremental capital, operating and maintenance costs, and taxes. The project FIRR i s 9.5% for 20 years o f full operation, compared with a 7.1% weighted average cost o f capital, Key assumptions are available inthe project file. Sensitivityanalysis for the ProjectFIRRwas conducted over several scenarios, including increasing capital and operating costs by 1O%, and decreasing demand by 10%. The results indicate that the FIRRremains higher than the weighted average cost o f capital. (a) Capital and operating costs increase by 10% FIRR 7.5% (b) Revenue decreaseby 10% FIRR 7.3% LMWTC Finances.LMWTC will carry out about 80% o fthe wastewater component, so the financial viability o f LMWTC i s critical to the sustainability o fthe component. The revenue o f LMWTC i s mainly affectedby the sewage tariff level, enforceability o f sewage tariff collection, and water demand. Each aspect was reviewedand the financial performance o f LMWTC was tested and summarized below. Nonetheless, it i s evident that the solid commitment o f and a focused effort from LMGare requiredto accomplishthe required tariff and tariffcollection plans. The TA under this project will provide additional support to LMG indeveloping and implementing appropriate strategies. Wastewater DischargeProjection.Liuzhou, a growing industrial city, has highindustrial water consumption rates; about 65-70% o ftotal water consumption was attributable to industries over the past few years. 80- 85% o findustrialwater consumption is self-supplied, and halfofthis 53  water i s discharged directly into Liuzhou's rivers.Although self-suppliedwater users are generally not cost-sensitive and use resources inefficiently, the water reuse rate i s expected to increase from 37% to about 60% by 2010. As a result, future industrial wastewater discharges are conservatively estimated to decline, as industrial water consumption decreasesfrom 2003 to 2010 by about 50%. Industrial wastewater discharges will decline, but will remain significant and account for about 40-45% of LMWTC's wastewater revenues, while commercial wastewater discharges are expected to increase. The Liuzhou Master Plan (dated May 2004) assumes the unit domestic water consumption rate will decreasein2005 inlinewiththe modest declining trendover the last few years, butremain constant during2005-2020, due to demand management through increased water charges that mitigate higher water consumptionnormally expected as living standards improve. Unit domestic water consumptionfor the company's financial projection is conservatively assumed to decline by about 10% and 20% by 2010 and 2020, respectively. RequiredTariff Increase.Inorder to establish a financially sustainable wastewater sector, LMGplans to restructure sewa e tariff levels inline withrecent sewagetariff increases inother cities inthe GuangxiProvince.F LMG introduced a sewage tariff o f RMBO.15/m3 for all customers in2000, and raised the tariff to RMB0.5/m3in2002. LMGwill: (a) increase average sewa e tariffs to achieve cost recovery; (b) implementfeasible tariffs for users o f self-supplied water ;and (c) introduce a newtariff structure, charging industrial customers higher tariffs than 5 households. LMGexpects tariff revenues to cover over 20% o f the project's capital expenditure. Projections show that additional tariff increases will be required,bringing the average tariff to about RMB1.2 per m3by 2010. The domestic and industrial/commercial sewage tariffs are plannedto increase to RMB0.75 /m3and RMB1.O /m3,respectively, in2006, andto RMB1.2/m3 and RMB1.5 /m3,respectively, in2010. InstitutionalArrangement.Liuzhouwill transfer to LMWTC all existing sewerage and drainage assets heldby the Liuzhou Municipal Engineeringand Facility Maintenance Administration, which plans, operates and maintains Liuzhou's existing sewers, roads, and bridges. The functions of the ICDC, which constructs and plans to own and operate new wastewater management facilities, will be transferred to LMWTC. Inaddition, L M W T C will be given the right to collect sewage tariffs directly instead o f having thempass through the LFB. L M W T C has entered into a commercially based Service Agreementwith LMGto provide wastewater service throughout Liuzhou; the agreement will specify service levels and other performance requirementsfor the systemand for LMWTC. Sewage Tariff CollectionMechanism.Liuzhou has leviedsewage tariffs since 2000, and LMG affects sewage tariffs through two channels. The Liuzhou Water Supply Company collects sewage tariffs from its customers, andthe Water ConservationBureau collects sewage tariffs Namingraisedwastewater tariff to RMB0.5/m3in2004 and Guilin has recentlyapproveda wastewater tariff *increaseto RMB0.65/m3. The decree was issuedin2003 to allow the government to charge sewage tariff to not only customers of water supply companies but also users of self-suppliedwaters who discharge water to sewer. However, Liuzhouhas been unsuccessfd inenforcement of sewage tariff collection from these customers. Since about 80% of the discharge from self-suppliedwater users connectedto sewer is treatedto ahigh level suitable for discharge to the river, users object to payingthe sewage fee for water that has already beentreatedto a relatively high quality. 54  from users o f self-supplied waters3The Liuzhou Water Supply Company deposits sewage tariff revenues directly (and on the same day as customer payment) into a separate account, currently under the name o f the Construction Commission. Water and sewage tariffs are recorded separately but charged inone bill. Clients pay both tariffs together, and the water supply company rejects partial payment, unless the municipal government approves exemptions. Collection via one bill helpsensure a relatively highcollection rate o f sewage tariffs. The sewage tariff deposit account will be transferred to LMWTC inearly 2005. The Liuzhou Water Supply Company and L M W T C will enter with into an agreement on tariff collection that will define each agency's obligations and rights, including incentives for the water supply company. The draft service agreement betweenLMG and LMWTC will address the issues o f government approvals on deferring or reducing wastewater tariff payments due, and LMG's compensation to L M W T C for exemptions. Wastewater from industriesthat use self-suppliedwater accounts for about 25% o f all wastewater discharged to sewers. Three clients, Liuzhou's chemical, electricity, and steel companies, account for about 50% o f the discharges. LMG and LMWTC are assessing the most effective ways to collect tariffs from self-suppliedusers; the agreed version will be a part o fthe L M W T C business plan. The company's weighted average tariff collection rate for sewage i s estimated to reach about 70% in2005 and improve gradually to 76% in2010. FinancialPerformanceof the New Company.By implementingthe requiredtariff increases, together with improvements intariff collection, LMWTC will generate cash surpluses after covering all capital and operating costs. Detailed assumptions and illustrative 15 year financial projections are inthe project file. Sewage tariff revenue collection, the tariff level, and projectedwater demand are major factors that will affect financial performance o fthe LMWTC. Consideringthe current low collection rate o f sewage tariffs from industrial users (mostly SOEs) of self-supplied water and from users o f water from the water supply company, and the ambitious LMGtariff increase plan, the projection adopts conservative tariff collection estimate and water demand increase scenarios. Unitoperating costs are estimated at about 40-50 fen/m3after fulloperationin2004 prices, which i s inthe range o f unit operating costs o f other wastewater companies inChina.4 LMWTC i s projectedto maintain a debt to equity ratio under 60%, and a debt service coverage ratio greater than 1.2, inaddition to cost recovery. Sensitivity analysis was carried out under different scenarios: (a) operating costs increase by 20%; (b) tariff revenues decrease by 10%; and (c) capital costs increase by 10%: L M W T C will maintain cost recovery underthese scenarios. The viability o fthe new company will be monitoredby financial covenants, which require LMWTC to achieve: (a) full cost recovery after 2005; and (b) debt service ratios o f 1.1 and 1.3 after 2005, and 2014, respectively. The Liuzhou EPB, which regulatesthe quality o f dischargesto the environment, collects a wastewater discharge fee from industries, which discharge wastewater directly into the river. InGuangxiProvince, cities ofNanningand Guilin, the currentunitoperatingcost without depreciationis about 40 fen/m3. 55  Affordability Analysis. An affordability analysis was undertakento ensurethat residential customers, particularly those inlower income groups, can afford the new wastewater tariffs. Two representative urbanhousehold groups are considered inthe affordability analysis: (a) the average income group; and (b) the low income group, Le., those inthe lowest 20% bracket o fthe city's income distribution. As indicated inthe table below, the combined cost o f water and wastewater for an average income household and low income household i s projected to be, a maximum o f 1.2 % and 3.3 %, respectively. These percentages are well withinthe generally accepted guideline that the total cost o f any household's water supply and sanitation services should not exceed 5 % o f household income. The tariff increase scenario can thus be considered tolerable, especially because LMG adopts preferentialpolicies for the lowest income groups, including 50% reductions intheir water bills. Table 2. Affordability Analysis 1 2004 2005 P r o j e2007 t e2008c d 2006 2009 2010 Water 8, Wastewater Tariffs for Domestic Customers Wastewater Tariff (Y/m3) 0.50 0.50 0.75 0.75 0.75 0.75 1.20 Water Tariff (Y/m3) 1.00 1.00 1.50 1.50 1.50 1.50 1.50 'Total 1.50 1.50 2.25 2.25 2.25 2.25 2.70 Utility Bill as a % of Domestic Household Income Low Income: Water 1.8% 1.6% 2.2% 2.0% 1.9% 1.7% 1.6% Wastewater 0.9% 0.8% 1.1% 1.0% 0.9% 0.9% 1.3% Total 2.6% 2.4% 3.3% 3.1% 2.8% 2.6% 2.8% Average Income: Water 0.6% 0.6% 0.8% 0.7% 0.7% 0.6% 0.6% Wastewater 0.3% 0.3% 0.4% 0.4% 0.3% 0.3% 0.5% Total 0.9% 0.9% 1.2% 1.1% 1.0% 0.9% 1.0% Source: Liuzhou PMO Assumptions: Projected real growth of income 4% p.a. Dailywater consumptionfor average income- about250 litre per capita; low income -about 170 litre per capita and assumed gradual decrease by about 10% B. MunicipalSanitation Component(Public Toilets) Project Benefits.The project includes constructiono f 62 public toilets and provisiono f 30 portable public toilets, two mobile toilets, and six sanitation trucks. Project benefits include improved living standards for people who depend on public toilets for daily needs, and increased convenience for people in"high traffic" public areas. The project will also facilitate critical institutional strengthening and reforms. These include promotion o f improved service quality and efficiency through expanded private sector participation, and improved hygiene and odor management through provision o f adequate O&M funding. Many benefits, particularly those relatingto environmental andpublic health improvements, could not be quantified. The project scope was evaluated and determined based on: (a) demand assessmentbased on characteristics o f the service area, including population density and the number o f people without sanitation systems at home; (b) distance from the nearest public toilet; (c) distance from the 56  sewage system; (d) cost and availability o f land; (e) acceptancefrom people who live around the location; and (f) environmental impacts. FinancialFeasibility.The Bank loanwill fund about 40% ofthis component's estimated cost of RMB73 million; the balance will be fundedby LMGthrough budgetallocations. Operating costs and debt services will be fundedfrom LMG budget and user fees. User fees at the current estimate o f RMB0.20 per toilet visit, will fund about halfo f O&M costs. The remainder will be funded by budgetary allocations from LMG. The required annual allocation for O&M costs and debt services i s estimated at about RMB4 million. LMGwill implement a study on management and funding o fpublic toilets to identify ways o fminimizing municipal budget support for O&M costs. C. SolidWaste ManagementComponent ProjectBenefits and CostsAssessment. LMGfaces significant additional solid waste management costs becausethe average hauling distance to the new landfill i s 10 kmlonger than the distance to the one that reachedcapacity. Liuzhouplansto progressively increase system efficiency by investing innew transfer stations and intelligently planning waste transportation. This Bank supported project i s the first step inthat plan. The project includes construction o f one transfer station, 42 local solid waste collection stations, andprocurement ofrelated vehicles and equipment at an estimated cost of RMB75 million. The Bankloanwill fund about 84% ofthis amount; LMGwill finance the rest via state grants and its own funds. Project benefits include: lower operating costs; better use o f human resources; significant reduced vehicle hauling distances with commensurate reductions infie1consumption and related emissions; improved traffic conditions; institutional strengthening; and improved service quality and efficiency. Since many project benefits could not be quantified, cost effectiveness analysis was conducted to evaluate feasible alternatives. An alternative with three transfer stations was initially planned as the least cost alternative for Liuzhou's long term refuse collection system. However, only one available site is presentlyavailable. The net presentvalues o ftotal costs with and without a transfer station for 25 years o f operations were compared and a slight cost reduction was identified.The Bank team notedthat the netproject benefits with a transfer stationare conservatively estimated without considering environmental benefits. Inaddition, the LMG aims to improve overall service delivery by further assessingoptimal operations and engaging private sector operators. Collecting user fees directly from individual households has not been successful inLiuzhou, as enforcement and punitiveconsequences for those who do not pay fees are lacking. A TA component will help ESDanalyze various options for developing a sustainable fee collection structure and helpEDS implement the best option duringproject implementation. D. Fiscal Impactand Sustainability The municipal budgetis divided into three categories: on-budget revenues; off-budget revenues; and funds. On-budget revenues include revenue from statutory taxes and levies, while off-budget revenues originate from non-tax revenues, such as net income from municipal government 57  controlled enterprises, and some types o f user charges collected by administrative departments. Sewage tariffs are also included inthis category. Historicaltrends show large annual increases inrevenues and expendituresinrecent years in Liuzhou, reflecting the strong economic growth inthe city. The average annual increase in municipal revenues during 1999-2002 was 14%. The city's capital expenditures gradually increased duringthis period to support its growing needs for infrastructure. The sources o f counterpart funding are mainly state grants, the city maintenance tax (on-budget), sewage tariff (off-budget) and future tariff revenueso f the LMWTC. The LMGplans to allocate to the project state grants o f about RMB300million, city maintenance tax revenues of RMB55 million, and sewage fee revenuesurpluses o f RMB100 millionaccumulated duringthe years 2001 to 2004. A financial projectionwas prepared (based on conservative assumptions of revenue growth) to assess the capacity o f LMGto provide the necessary counterpart fundingfor project capital costs, O&M support for the rehabilitation o f Zhuexi Creek, and the public toilet and solid waste components. The analysis indicatedthat Liuzhou i s able to afford all components o f the project. The plannedproject counterpart funds (about RMB70to 280 million per year) are estimated to represent about one to four percent o ftotal LMG revenues, and three to 20% o f its capital expenditure budget. The rehabilitatedZhuexi Creek, public toilets, and solid waste transfer station will require government support to fund operating and maintenance costs; however, the public toilet and solid waste components aim to adopt commercial operations inthe long-term. The increase in recurrent costs is estimated to reach about three percent o f LMG's city maintenance budget, and theNPV ofincrementaltax revenueis estimated at about US$30 million duringthe project's 20 year operation. Table3. MunicipalFinances (RMB: million) Actual /Estimates1 Projected 2001 2002 20031 20041 2005 2006 2007 2008 2009 2010 LMGRevenues 3,656 3,925 5,5351 5,8581 6,241 6,592 7,006 7,394 7,799 8,300 Capital ExpenditureBudget 427 422 645 857 975 1,119 1,386 1,626 1,950 2,220 Project Counterpart Fund 184 279 206 140 66 Project as % of Revenues 3% 4% 3% 2% 1% Project as % of Capex Budget 16% 20% 13% 7% 3% 58  Annex 10: SafeguardPolicyIssues CHINA: LIUZHOUENVIRONMENT MANAGEMENT PROJECT A. Summaryof EnvironmentalImpactsandEnvironmentManagementPlans Background The Environmental Impact Assessment Instituteof the Sino-JapanEnvironmental Protection Center and the LiuzhouEnvironmental ProtectionInstitutepreparedthis project's Environmental Assessment (EA) inaccordance with Bank and national policies andprocedures. Terms o f reference (TORS) and various draft EAswere developed, reviewedand discussedduring project preparation. It was agreedthat the project EA would be separatedinto two volumes; one EA for the wastewater component, and a secondEA for boththe municipalsanitation and solid waste managementcomponents. China's State Environmental Protection Administration (SEPA) clearedthe final EAs on December 22,2004. On January 12,2005, the Bank clearedall final environmental safeguardrelated documentation, includingthe two EAs,two related EMPs, the EA Summary, and a SupplementaryEA Report. The EAdocumentation, originally sent to the Bank's Infoshop inWashington and inBeijinginNovember 2004, was resubmittedto the Infoshop inJanuary 2005. Duringthe preparation of EA documentation, project-affected communities were consulted at least twice, and their opinions were reflected inboththe project's design and its environmental mitigationmeasures. All relevantpolicies andproceduresapplicable to executing environmental assessments inChina were followed during preparation and evaluation of the EA, includingthe Bank's Operations Policy 4.01, Major PRC laws andregulations that in some way impactedthe development of the EA include: (a) the Environmental ProtectionLaw; (b)the Atmospheric PollutionControl Law; (c) the Environmental Noise PollutionControl Law; (d) the Water PollutionPreventionand Control Law; (e) the Cultural Heritage Protection Law; (f) Technical Guidelinesfor Environmental Impact Assessment; and (g) the Circular on Strengthening Environmental Impact Assessment Management for Construction Projects Financed by International Financial Organizations. BriefProjectDescription LZEMP involves five components: (1) wastewater component; (2) municipalsanitation component (publictoilets); (3) solid waste management component; (4) industrial wastewater pollutioncontrol component; and (5) institutional development and capacity building component. BaselineEnvironmentalConditions NaturalEnvironment. Liuzhouis located inthe northeastpart of Guangxi Zhuang Autonomous Region. The city is surrounded on three sides by low hills and aplainopensto the south. Liuzhouhas a subtropical climate with abundant precipitation, and mildto hot temperatures year-round. The city's average annualtemperature, precipitation, andrelative humidity are 20.5 Cy1461mmand 76%, respectively. Average annual wind speed is 1.6 d s , mainly from the northinthe winter and from the southinthe summer. 59  The urban area o f Liuzhou is surrounded by agricultural land-mainly fields o f rice and other grains and vegetable plots - and fishponds are common inthe suburbs.Because o fthe area's long history o f human occupation and development, there are few wild animals inthe countryside, and little natural forest, except inthe northern mountainous region. Limestone hills constitute the area's natural scenery and form centerpieces for manyparks and tourist attractions. SocioeconomicSituation. Liuzhou is the second largest city inGuangxi with anurban population o f 1.2 million. According to populationgrowth projections, the urbanpopulationi s expected to reach 1.8 millionby 2020. Liuzhouhas long been a commercial hub insouthwest China, and a major gateway for people and goods inthe region. It i s also an industrial city active inironand steelproduction, paper making, electronics, textile production, general machining, chemicals, construction, pharmaceuticals, power generation, and food processing. The city's GDP was RMB19 millionin2000, and according to the city's long term development plan, the city's GDP will reach RMB55 million by 2015. Liuzhoui s also a transportation hub inGuangxi. The Xiang-Gui(Hunan to Guilin), Xiang-Qian (Hunanto Guizhou), andZhi-Liu(Hubei to Liuzhou) railways intersect inthe city. Waterways connect the city directly with Guangzhou. Highways from Liuzhou extendto other major cities inGuangxi andbeyond, andthe municipalairport hasdirect services to Guangzhou, Chengdu, Beijingand other major Chinese cities. WaterResources and Water Quality. Liujiang River, whose 74 kilometers o f waterway zigzags through the city, i s a landmark river that doubles as the city's primary domestic water supply source. Two tributaries o f the Liujiang also traverse the city. The Zhuexi Creek, originating from the city's northwest, discharges into the LiujiangRiver one kmfrom the Liujiang IronBridge, and covers a total distance withinthe urban area o f about 4.2 km. The Jacque River, originating from the Longhuai reservoir to the city's west, discharges into the Liujiang River at Geology Hospital. Inpractice, the Zhuexi Creek i s primarily a receiver o f the city's municipal and industrial wastewater discharges, while the Jiuquhe River i s tapped for domestic water supply, irrigation, and fish farming (though it too receives wastewater discharges). Water testing has shown that the Liujiang River i s largely maintaining its Category I11surface water classification, except ina few cross sections where suspended solids and ammonia nitrogen exceed applicable standards. The Zhuexi and Jiuquhe rivers, on the other hand, seriously exceed Category V standards for COD, BOD, SS and NH3-N.For example, COD readings inZhuexi Creek have exceeded 100mg/L, representative o f very poor water quality. CulturalHeritage Protection. The results o f anEA-relatedfield investigationshow that there are no culturally or historically significant objects or structures inthe project areas, There i s also no reason to suspect surprise archaeological finds based on the information collected from relevant agencies. The investigation's findings were based on a thorough review o f cultural protectionrelated reports and relic inventories, site investigations, and interviews with government organizations. TheNeedfor the ProjectandEnvironmentalBenefits The direct discharge o f municipal and industrial wastewater into Liuzhou's three rivers causes significant pollution, particularly inthe Zhuexi and Jiuquhe rivers, which possess little natural dilution and assimilative capacities. Fishdeaths from poor water quality andpollution inthe 60  Jiuquhe River have beenreported from time to time. The Zhuexi Creek i s highly polluted and is practically unsuitable for virtually all aquatic life. The Zhuexi Creek's pollution has extended onto its shores, where odor, black residue, and wastes inand around the riverbanks menace the health andquality of life o f many neighboringand densely populated urban communities. These tributaries discharge their polluted water into the LiujiangRiver, dramatically worsening its water quality. A hydropower dam, soon to be built downstream o f Liuzhou, will significantly slow the Liujiang's current withinthe city, thereby reducing its dilution and assimilative capacity, and threatening further degradation inwater quality. The wastewater component will help mitigate these problems by collecting, intercepting, and treating municipal and industrial wastewater that i s currently discharged untreated into these three rivers. Water quality will thus improve, helpingthese rivers maintain their government- regulated surface water quality classifications (though nitrogen levels insome sections will still be high, and results will still be poor inthe narrow discharge plumesemanating from the wastewater treatment plant outlets). The Zhuexi Creek rehabilitationprogram will convert a seriously polluted river into one that meets Category I11water quality standards, and will also remove pollution from riverbanks. Intotal, the project will remove about 122.3 tons/day ofCOD, 65 tons/day ofBOD,6.88 tons/day o f ammonia nitrogen, and 1.11tons/day o f total phosphate currently discharged into these three rivers, significantly helping to attain the masspollutant load control target set by SEPA and noted inLiuzhou's Environmental Master Plan. Implementingthe project's wastewater and river rehabilitationprograms will also improve surface water quality, protect sources o f drinking water, enhance river conditions for fish and aquatic life, and improve the environment inriverbank communities. More generally, such programs will improve Liuzhou's standard o f living and sanitation conditions, and contribute to sustainable economic development. The current numbers ofpublic toilets and solid.wastecollection stations are insufficient. The lack o f public toilets detracts from the city's quality o f life and contributes to poor sanitation, while overloaded solid waste collection stations contaminate the air and water at station sites, often inheavily populatedneighborhoods. The city has constructed a new municipal solid waste landfill about 25 km away from the city to help deal with its growing solid waste problem. However, the existing solid waste transfer system does not have enough vehicles or transfedwaste collection stations to effectively haul waste to the new landfill. The systemneeds transfer stations, many smaller waste collection stations, and additional vehicles. This project will, accordingly, finance the construction o fnewpublic toilets andthe expansion of Liuzhou's solid waste transfer system, improving the standard o f living for residents andthe quality o fthe urbanenvironment. Alternative Analysis Duringthe development and designo fLZEMP, various alternative solutions were developed, discussed, and evaluated based on specific technical, economic, and environmental criteria. The primary objective from an environmental point o f view was to select an option that minimized adverse environmentalimpacts. Evaluations and comparisons o f alternatives considered a numberofissues, as discussed below. 61  With and Without the ProjectScenario.The "do-nothing" scenario was found to leave the Zhuexi andJiuquhe rivers seriously polluted, with significant negative impacts onresidents in river-dependent communities, andparticularly on fish farming. Without any future action, water quality inthe Liujiang, which i s the city's drinkingwater source, will also continue to deteriorate from continued industrial and municipal discharges o f untreated wastewater, and from the inflow o fpolluted water from the Zhuexi and Jiuquhe. The construction o fthe hydrodam downstream o f Liuzhouwill exacerbate the Liujiang's pollution load by reducing its assimilative capacity. With the project, many o fthese pollution issueswill be addressed, andthus the project is preferred over a "do nothing" scenario. Project Site Selection and OverallArrangements. The study o f alternatives attempted to identify the optimal schemeby considering how differentWWTP site locations and layouts will channel effluent discharges and impact the rivers. Alternative layouts and locations o f transfer stations andpublic toilets were also analyzed to identify options that would maximize system benefits. Scaleand Number of Wastewater TreatmentPlants. The study and debate on the optimal number, layout, and capacities of Liuzhou's wastewater treatment plants have long histories. In the early ~ O ' S ,seven WWTPs were proposed for Liuzhou under a phased implementation plan. Two o fthese WWTPs were dropped becausethey were either too close to urbanareas and drinkingwater intakes or becausethey were sited inan insufficiently developed area. The five remaining WWTPs were proposed to be funded by the Bank under LZEMP. A detailed and extensive analysis conducted duringproject preparation on alternative scales and numbers o f treatment plants revealed that the optimal choice was one with four WWTPs. This four WWTP option was deemed the optimal alternative considering site conditions, overall environmental impact, local development concerns, and overall costs. Wastewater TreatmentProcesses. Two possible wastewater treatment processeswere examined for the Baisha, Longquanshan and Yanghe wastewater treatment plants: oxidation ditch and A2/0.Bothtechnologies are capable o fmeetingthe treatment objectives (including nitrogen removal), but A2/0was selected becausethe process has lower capital and operating costs, and requires less land, consumes less energy, and has a lesser environmental impact. For the smaller Labao wastewater treatment plant, the oxidation ditch and UNITANK processeswere evaluated. The oxidation ditchprocess was selected because of itrequires less equipment and consumes less energy, and i s simpler to operate, andhas lower operational costs. PotentialEnvironmentalImpacts and Mitigation Measures Constructionphase. Adverse impacts during the construction o f the wastewater collection system, wastewater treatment plants, public toilets, and solid waste transfer stations include noise, airborne dust, traffic disruptions, and spoiled material disposal. To mitigate these impacts, contractors will spray construction sites with water duringthe dry and windy seasons, develop and follow noise reductionplans, avoid night constructionwhenever possible, maintain equipment inproper working order, develop plans to detour traffic around construction sites, and dispose o f contaminated soil only at pre-approved sites. One o fthe major potential concerns duringthe project's constructionphase i s how to properly dredge the Zhuexi Creek. Sedimenttesting, including leachingtests, has shownthat heavy metal concentrations inthe Zhuexi's sediment exceed the standards for agricultural application, but are 62  lower than those for hazardous waste. Dredging will also create bad odors, and sediment could impact roadways ifliquidleaks during transport. Final disposal o fthe sediments may also impact disposal sites, particularly groundwater, ifnot handled properly. To mitigate these negative impacts, dredging will be carefully timed.Residents adjacent to the river will be consulted, andwill be notified ahead o f dredgingactivities. All sedimenthauling trucks will be watertight, and routes will be carefully selected to avoid heavy traffic and urban centers. The sediment will be disposed o f ina dedicated zone inthe newly constructed Liuzhou solid waste landfill, a well designed facility with an impermeable liner, leachate collection and treatment mechanisms, storm water management controls, and other environmental control measures. Nightconstructionwill significantly impact surrounding areas, particularly inurbanareaswhere public toilets and solid waste transfer stations will be built. However, night constructioncannot be avoided at the WWTP sites, where concrete pouring, aeration, andwork with other large tanks require non-stop and continued operations. Such activities will last a maximum o f about four to five days for each operation. Inprinciple, night construction will be banned inurbanareas. When night constructioncannot be avoidedat the WWTP sites, the following mitigation measureswill be taken: (a) nearbyvillages will be informed o fthe night constructionand consulted ahead o f time; (b) night construction will not occur during school exam periods (lasting about one week in the summer) and harvest periods (about two weeks each summer and fall); (c) stationary equipment will be placed as far away from villages as technically possible; (d) equipment with low noise levels will be usedto pour concrete; (e) temporary noise barriers may be erected; (0if necessary, contractors will arrange to temporarily house extremely vulnerable people (such as the illand elderly) away from the impactedarea; and (g) supervisory personnel from the PMO will be assigned to monitor constructionwork. All contractors will undergo mandatory cultural relics trainingbeforebeginningwork. Ifany cultural relics or archeological finds are discovered during construction, the following steps will betaken: (a) all construction activities will stop, andprotective measureswill betaken to protect the sites and finds; (b) the contractor will immediately informthe cultural authority ofthe chance finds; (c) archaeologists will be called to the site to undertake proper investigations; (d) project designchanges may be considered, ifnecessary and/or recommended by the professional archaeologists, or requestedby the cultural relics authority; and (e) construction activities may be resumed only after the site has been fully investigated, and a permit granted by the cultural relics authority. Operationphase. As effluent from wastewater treatment plants will still have relatively high concentrations o fpollutants (higher than surface water quality standards allow), and high volumes o f effluent flows will be discharged inlimitedlocations, river water will still be adversely impacted. A mathematicalmodel predicts that wastewater discharged to the Liujiang Riverwill form a narrow plume several kmlongdownstream o fthe discharge outlets. Since the plume will be very narrow - about 5-6 meters against a total river widthvarying from 5-60 meters -its impact will be limited. The Jiuquhe River will still exceed the designated surface water quality standards, mainly for ammonia nitrogen and BOD, duringthe dry season from December to February. However, ifthe upstream reservoir releases more water during the dry season, it i s expected that surface water quality standards can be met. 63  Wastewater treatment plant operations will generate noise and bad odor, impacting surrounding residential areas. Neighboring villages near the Baisha and Labao WWTPs will be insidethe "protective" distance from the facilities, indicating that these villages will be impactedby the nuisance odor from these two treatment plants. Baishan WWTP.Impactedcommunities near the Baishan WWTP include Huilongguo village andthe Liuzhou Nurse School. These two sites are located about 55 mand 98 mrespectively from the proposed grit removal o fthe WWTP. As the bufferhmpact zone o f the WWTP is 310 m from the plant, boththe village and school are withinthe impactedzone andwill be affectedby the plant's nuisance odor and noise. After carefully reviewing site conditions and limitations, process requirements, the effectiveness o fthe proposed measures, and other engineering technical, and economic factors, relocating impactedhouses and the dormitory was chosen as a mitigation measure. The relocationwill be completed before the completion and commissioningof the WWTP. Labao WWTP.Air emissiondispersion modeling undertakenduring the EA indicates that the bufferhmpact zone of the Labao WWTP i s 120 m.As part o fXiaducun village was only about 56 m from the original site o f the WWTP, the WWTP treatment has beenmoved farther from the village towards a railway line, considered future expansionland. SZudgemanagement. Sludgewill come from mainlytwo sources: dredgedsludge from the Zhuexi Creek (about 25,000 tons) and sludge from the operating WWTPs (250 tondday). Sedimentsamples, taken upriver and inthe lower reaches of southern andnorthernbranches of the Zhuexi River, and sludge samples from Longquanshan wastewater treatment plant (phase I), were collected and analyzed. The Zhuexi Creek sediment mustbe safely disposed of inthe Lichonggoulandfill as non- hazardous industrialwaste. The Liuzhou Environmental SanitationDivisionholds a permit to deposit WWTP sludge inthis landfill. The Lichonggou solid waste landfill is a well engineered large scale municipal solid waste disposal facility utilizing advanced pollution control technologies. The groundwater layer i s more than 40 mthick, and there i s a 20 mthick layer of XIXIA group hardness andhalf hardness coarse lamellar silica limestone combined withmud silicolites, which have extremely poor hydraulic permeability. A HighDensity Polyethylene (HDPE) membranehas been installed, and leachate will be collected for treatment before beingdischarged. A thorough monitoring program i s inplace to help ensure that any leachate that leaks into the ground or surrounding environment i s detected promptly to allow timely mitigation actions. There is no environmentally sensitive receptor around the landfill. The closest village i s about 1.1kmfrom the landfill. The landfill gas collection and treatment system i s established and collected gas can be combusted and utilized by combustion equipment settled on the top o f the airway to prevent effluvium impact on the ambient air. Sludge transport routes will be established beforehand to avoid residential areas and business zones, andwell-sealed vehicles will be usedto preventleakage. 64  Public Toilets and Transfer Stations. One o f the two originally proposed transfer stations was cancelled, since it was too close to a school and residential areas. Many public toilets and solid waste collection stations are also located insensitive areas. These facilities may generate odor, noise, and/or increased traffic. Some residents' concerns may be attributable to their perceptions o f similar facilities inthe city, eventhough the newpublic toilets and solid waste transfer stations will be designed with stringent environmental protection measures. These facilities will prepare an operation plan to minimize impacts on the surrounding environment. EnvironmentalManagementPlan Duringfacility construction, anenvironmental management systemwill be set up involving the PMO,individual project owners, monitoring institutions, EPB,as well as contractors and construction supervision companies. These organizations will be staffed with qualified and experienced personnel. Duringthe operationphase, LMWTC and ESDwill eachhave its own environmental management staff or division to implementmitigation measures and other requirements o fthe EMP. They will also be responsible for ensuringthat the project complies with all pertinent environmental laws, regulations, policies, and standards, inadditionto providing general supervision and coordination assistance inconjunction with other departments. All project implementing agencies will maintain close contact with the EPB. The Liuzhou EPB will enforce all applicable laws and standards. It will receive andreview environmental monitoring and supervision reports and may also inspect construction sites and operational facilities, as required and/or empowered by laws, to measure environmental performance and compliance status. An environmental monitoringinstitution, contracted bythe project implementingagencies, will be mainly responsible for implementingthe environmental monitoringplan, and for preparing periodic monitoring reports that detail compliance status and recommend mitigation actions. Contractors and construction supervision companies will be responsible for implementing mitigation measures during the project's construction phase. Project operators will be responsible for the operation phase. Before constructionbegins, all contractors will attend a mandatory training program addressing environmental policies, EA results, the EMP,monitoring requirementsand skills, reporting, and site environmental management. All contractors will be requested to have full time staff on site for daily monitoring and implementation o f mitigation measures. PublicConsultationandInformationDisclosure Public Consultation. Two rounds o fpublic consultations were conducted with local citizens and groups affected by the project. The first round o f consultations was conducted duringthe EA TOR stage, and the second round o f consultations was held duringthe period when the draft EA was written. The largest group consulted was those livingby Zhuexi Creek. The project's EA team consulted 760 people inthis area, or about 3.4% o f the total population (22,656 people) potentially affected by project activities. 65  The consultations clearly demonstrated that citizens, particularly those livingnear the targeted rivers, are very displeased with the river pollution and the current state-of-affairs, and were highly supportive o fthe project. The public expressedconcerns about facility-generated odor, noise, and dust, construction-induced traffic congestion, night construction, fly swarms from dredgedsludge, resettlement, and land acquisition. These concerns are addressedappropriately in the relevant EA and RAP reports. Information Disclosure. Information on EA report preparation was publishedinthe October 27, 2004 edition o f the local newspaper "Liuzhou Daily". The EA report was also made available to any interested groups or people at the LiuzhouPMO. Inaddition, information on EA report preparationwas posted on the websites o fthe Liuzhou ConstructionCommission (http//jswyh.gov.cn) and the EA consultant. All EA documentation has been available for public review at the Liuzhou City Public Library since November 2004. B. LandAcquisitionand ResettlementActionPlan Key Factors Wastewater, Solid Waste Municipal Sanitation Total ComDonent ComDonent ComDonent No. o f non-residential unitsI 75 0 27 I 102 affected Resettlement cost (RMB 203-94 5.50 28.96 238.40 Alternatives A numberofmeasureswere adopted to reduce resettlement: (a) deepening, instead o fwidening, Zhuexi Creek; (b) reducingthe house demolition area from a width o f 60m to 50m along Zhuexi Creek ;(c) creating culverts, instead o f open channels, at upstream portions o f Zhuexi Creek; (d) canceling one o f the solid waste transfer stations; and (e) including"limited landacquisition and relocation" as one o fthe five criteria indeterminingthe sites for construction o f newpublic toilets. Consultations Local people and organizations affectedby the project were consulted on the project's significance andpotential impacts. About 20 formal meetingswere heldwith primary and secondary stakeholders. Consultations with andinterviews of local people were undertaken 66  duringRAPpreparation. Inregards to the wastewater component, compensation policies were discussed and the rehabilitation programwas worked out. Regarding the public toilet component, 18 toilet sites were dropped from the proposal because o f citizen objections and other reasons. A mechanismto monitor public reaction duringthe course o f project implementation was also established to ensure that project-related complaints and/or suggestions are addressedcompletely and promptly. This includes assigning monitoring work to a deputy director at the PMO; establishing complaint hot lines and a visitors' room at PMO to receive public opinions; and requiringroutine visits o f liaison officers to the project area, etc. Compensation LMGwill adopt the World Bank's resettlement compensationpolicies inthisproject. People affected by the project had the opportunity to discuss compensation rates and, by and large, citizens accepted the rates. However, some people complainedthat the offered rates were lower than those inpast projects. The Liuzhou PMO will continue to consult with citizens on compensation rates before any resettlement begins. The key rates are listed inthe following table: Items ICompensation Rates (RMB)1 1. Land 1.1 Landacquisition 3,132-56,000/mu 1.2 Resettlement compensation 4,697-1 05,00O/mu 2. Residentialhouses 2.1 Brick-concrete 1.500/mL 2.2 Brick-wood jl;300/mL 2.3 Simple I100-200/mL I 3. Non-residentialhouses I I 3.1 Brick-concrete 900-1,500/mL 3.2 Compensation of productionand business loss 335/person for 3 months Rehabilitation Following land acquisition, 90 farmers will discontinue farming. A rehabilitationprogram was developed based on consultations with these farmers, including the following measuresto restore and improve incomes and livelihoods: 0 Establish a Resettlement Production Support Fund; 0 Practice preferential policies inemployment; 0 Shiftfrom agricultural to non-agricultural employment; 0 Arrange for farmers to be employed inconstructingproject facilities; and 0 Encourage at least one memberinthe family to seek employment inthe city. Residences to be relocated will be able to purchase apartments inbetter environments thantheir expropriated houses. Regardingreplacement, "buildings for wage-earners" will be provided to all those relocated, andpreviously owned houses will be available for those who wishto exchange houses. The vulnerable and poor will be able to rent inexpensive housing. O f 43 enterprises, only two needto move. All 59 shops are affected. Information will be provided to those needing to relocate as house rentals become available nearby. 67  CapacityBuilding The Investment ConstructionandDevelopment Company Limited(ICDC) and LMWTC are responsible for implementation o f resettlement under the wastewater component, while the Liuzhou City Appearance Management Bureautogether with the ESDwill spearhead implementation o f resettlement for the municipal sanitation and solid waste management components. The Liuzhou PMO will coordinate the overall implementation o f resettlement. Resettlement staff will be trained under the project. Resettlement will be monitored regularly by project implementing agencies and independentexternal monitors. Two internal monitoring reports and two external monitoring reports will be submittedto the Bank every year during resettlement implementation. An assessment o f each component's resettlement activities will be carried out upon completion o f resettlement. FundingArrangementsand Schedule of Implementation The LMGhas committed to allocate funds for resettlement ina timely manner. The detailed financial arrangements are includedinthe RAP and the implementation schedule i s summarized below: Year 2005 2006 2007 2008 2009 Total Wastewater 48.85 33.24 74.00 40.00 7.86 203.94 Solid waste 4.79 0.48 0.24 5.50 Public toilet 3.02 6.13 8.01 8.35 3.45 28.95 Total 56.66 39.85 82.25 48.35 11.31 II 238.39 C. Minoritynationalities Liuzhouhas a total populationo f 1.8 million and 48 minority nationalities, 66% o f whom are Zhuang. Eighty-ninepercent o f the minority population lives inrural areas. Inthe LZEMP project area, which covers four urbandistricts and the town o f Labao, there are six minority nationalities, representing 15% o fthe total population. Within this area, minority nationalities live together with the Han, particularly on the downtown side of Zhuexi Creek, where about 90% o f the population i s Han. Minority nationalities are concentrated inparticular areas; for example, 75% o f the population inYanghe i s Molao; and 40% o f the population inLongquanshan i s Zhuang. The livelihood modes and the production patterns o f the Molao and the Zhuang are similar to those o fthe Han, except that minority nationalities have lower average incomes. There are 4,367 Huiliving inLiuzhou, forming 0.46% o f the total population. The Huiare not concentrated inspecific communities, except near Park Road. The Huiand Hanhave a friendly relationship. Traditionally, the Huilive cleanly and sanitationi s an important community value. Thisproject has been greatly supported by the Huipeople. Based on the above, the minority nationalities do not exhibit the features o f indigenous peoples as defined inthe Bank's OD 4.20, and it was concluded that this policy does not apply for this project. 68  Annex 11:ProjectPreparationand Supervision CHINA: LIUZHOUENVIRONMENT MANAGEMENT PROJECT Planned Actual PCN review 10/15/2003 11/25/2003 Initial PID to PIC 02/12/2004 02/12/2004 Initial ISDS to PIC 03/11/2004 03111/2004 Appraisal 12/06/2004 12/06/2004 Negotiations 03/22/2005 03/22/2005 Board/RVP approval 05/24/2005 Planneddate of effectiveness 10/31//2005 Planneddate of mid-termreview 01/31/2008 Plannedclosing date 06/30/2011 Key institutions responsible for preparationofthe project: 0 Project Management Office (PMO), LMG 0 LiuzhouMunicipal Wastewater Treatment Company Ltd (LMWTC) establishedin December 2004 and fully owned by the LiuzhouMunicipal Government (LMG) 0 LiuzhouConstruction Investmentand Development Co. Ltd(ICDC) 0 Liuzhou's Environnemental Sanitation Division (ESD) 0 Liuzhou's Environnemental Protection Bureau(EPB) Bank staff and consultantswho worked onthis project include: Hiroaki Suzuki Lead Operation Specialist & Team Leader EASUR Margaret Png Senior Counsel LEGEA Chongwu Sun Senior Environmental Specialist EASEN Youlan zou Senior Social Development Specialist EASSD ZhentuLiu Senior ProcurementExpert EAPCO MingyuanFan Municipal Engineer EASUR HongkunYang Procurement Specialist EAPCO Yi Geng Financial Management Specialist EAPCO Mariko Ogawa Operations Officer EASEG DeanThompson Acting Program Assistant EASUR Robert O'Leary Senior Finance Officer LOAGl World BankPeerReviewers Alain R.Locussol LeadWater Specialist SASEI Jaehvang So LeadInfrastructure Specialist SASEI 69  LDahong Consultants Li EnvironmentalManagement Specialist Consultant Eddie Hum PlanningExpert Consultant lEdouardMotte Isanitation Engineer I Consultant I Hew MacConnell Financial and Institutional Specialist Consultant Hardy M.Wong Solid Waste Management Specialist Consultant IJohnTuner IUtilityExpert I Consultant Kaori Ikeda Institutional/Financial Expert Consultant LusiLi Management Specialist Consultant Roger Heath Industrial Pollution Control Expert Consultant Yangxiang Wang Industrial Pollution Control Expert Consultant Yahong Wang Financial Specialist Consultant Yukiko Uchiyama Economist Consultant 70  Annex 12: Documents inthe ProjectFile CHINA: LIUZHOU ENVIRONMENT MANAGEMENT PROJECT 1. Detailed Project Description 2. Summary Implementation Plan 3. Liuzhou Industrial Wastewater PollutionControl Action Plan (December 16,2004) 4. Legal and Institutional Framework 5. Key Assumptions of Financial Projection 6. Illustrative 15-yearFinancial Projections 7. Terms of Referencefor Technical Assistance for Implementation ofthe Wastewater Component 8. Terms of Reference for TA to Help Develop the LMWTC as an Institution 9. Terms of Reference for T A to ImproveEfficiency of Solid Waste Management Operations 10. Feasibility Study Summary Report 11. Feasibility Study for Wastewater component 12. Feasibility Study for Municipal Sanitation Component and Solid Waste Management Component 13. Social Assessment for Wastewater Component 14. Social Assessment for Municipal Sanitation Component and Solid Waste Management Component 15. Environment Assessment for Wastewater Component 16. Environment Assessment for Municipal Sanitation Component and Solid Waste Management Component 17. Environmental Assessment Summary 18. Environmental Management Plan for Wastewater Component 19. Environmental Management Plan for Municipal Sanitation Component and Solid Waste ManagementComponent 20. Resettlement Action Plan, December 2004 21. ProcurementCapacity Assessment 22. LiuzhouWastewater Treatment Company LimitedBusiness Plan, January, 2005 23. Service Agreement betweenthe LMG andthe LMWTC, January, 2005 24. Project Implementation Plan 25. Project ConceptNote, November, 2003 26. Aide Memoire, May, 2004 27. Aide Memoire, September, 2004 28. Aide Memoire, December, 2004 71  Annex 13: Statement of Loans and Credits CHINA: LIUZHOUENVIRONMENT MANAGEMENT PROJECT Difference between expectedandactual Original Amount inUS$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO57933 2005 CN- Tai BasinUrbanEnvironmentPrj. 61.00 0.00 0.00 0.00 0.00 61.00 0.00 0.00 PO75730 2005 CN-HunanUrbanDevelopment 172.00 0.00 0.00 0.00 0.00 172.00 0.00 0.00 PO65463 2004 CN - JiangxiIntegratedAgric. Modern. 100.00 0.00 0.00 0.00 0.00 100.00 1.50 0.00 PO65035 2004 CN-Gansu& Xinjiang Pastoral 66.27 0.00 0.00 0.00 0.00 65.61 4.53 0.00 Development PO66955 2004 CN-Zhejiang UrbanEnvmt 133.00 0.00 0.00 0.00 0.00 133.00 0.00 0.00 PO73002 2004 CN-Basic EducationinWesternAreas 100.00 0.00 0.00 0.00 0.00 100.00 0.00 0.00 PO77615 2004 CN-GEF-Gansu& Xinjiang Pastoral 0.00 0.00 0.00 10.50 0.00 10.50 0.80 0.00 Develop PO67337 2003 CN-2ndGEF EnergyConservation 0.00 0.00 0.00 26.00 0.00 14.60 16.57 0.00 PO40599 2003 CN-TIANJM URB DEV I1 150.00 0.00 0.00 0.00 0.00 148.50 -1.50 0.00 PO58847 2003 CN-3rdXinjiang Hwy Project 150.00 0.00 0.00 0.00 0.00 106.13 9.47 0.00 PO68058 2003 CN-YixingPumpedStorageProject 145.00 0.00 0.00 0.00 0.00 140.95 2.13 0.00 PO76714 2003 CN-Anhui Hwy 2 250.00 0.00 0.00 0.00 0.00 250.00 15.33 0.00 PO70441 2003 CN-HubeiXiaogan Xiangfan Hwy 250.00 0.00 0.00 0.00 0.00 156.78 -20.56 0.00 PO70191 2003 CN-SHANGHAIURBENVMT APLl 200.00 0.00 0.00 0.00 0.00 198.00 -2.00 0.00 PO64729 2002 CN-SUSTAMABLE FORESTRY DEV 93.90 0.00 0.00 0.00 0.00 76.07 1.58 0.00 PROJECT PO58846 2002 CN-Natl Railway Project 160.00 0.00 0.00 0.00 0.00 37.04 0.37 0.00 PO71147 2002 CN-TuberculosisControlProject 104.00 0.00 0.00 0.00 0.00 92.67 -11.33 0.00 PO60029 2002 CN-Sustain.ForestryDev(Natura1 0.00 0.00 0.00 16.00 0.00 14.11 3.00 0.00 Forest) PO70459 2002 CN-Inner Mongolia Hwy Project 100.00 0.00 0.00 0.00 0.00 88.82 6.49 0.00 PO68049 2002 CN-Hubei Hydropower Dev inPoor 105.00 0.00 0.00 0.00 0.00 87.68 12.84 0.00 Areas PO58845 2001 Jiangxi I1Hwy 200.00 0.00 0.00 0.00 0.00 133.42 8.75 0.00 PO56199 2001 CNJrd InlandWaterways 100.00 0.00 0.00 0.00 0.00 80.46 5.96 0.00 PO56516 2001 CN - WATER CONSERVATION 74.00 0.00 0.00 0.00 0.00 41.14 9.71 0.00 PO56596 2001 CN-ShijiazhuangUrban Transport 100.00 0.00 0.00 0.00 0.00 85.41 52.47 0.00 PO47345 2001 CN-HUAI RIVER POLLUTION 105.50 0.00 0.00 0.00 0.00 89.85 -15.65 0.00 CONTROL PO51859 2001 CN-LIAO RIVER BASIN 100.00 0.00 0.00 0.00 0.00 74.72 32.02 0.00 PO45915 2001 CN-UrumqiUrbanTransport 100.00 0.00 0.00 0.00 0.00 52.54 47.34 0.00 PO45910 2000 CN-HEBEIURBANENVIRONMENT 150.00 0.00 0.00 0.00 0.00 119.36 46.36 0.00 PO49436 2000 CN-CHONGQMG URBANENVMT 200.00 0.00 0.00 0.00 3.70 157.50 65.17 0.00 PO56424 2000 TONGBAIPUMPED STORA 320.00 0.00 0.00 0.00 100.00 155.85 96.19 0.00 PO45264 2000 CN-SMALLHLDR CATTLE DEV 93.50 0.00 0.00 0.00 0.00 12.84 6.87 0.00 PO42109 2000 CN-BEIJINGENVIRONMENTI1 349.00 0.00 0.00 25.00 0.00 286.54 180.67 0.00 PO58844 2000 3rd HenanProvHwy 1so.00 0.00 0.00 0.00 0.00 61.19 26.86 0.00 PO58843 2000 GuangxiHighway 200.00 0.00 0.00 0.00 0.00 102.57 46.57 0.00 PO64924 2000 CH-GEF-BEIJING ENVMT I1 0.00 0.00 0.00 25.00 0.00 25.93 18.84 2.86 PO64730 2000 CN - YangtzeDike Strengthening 210.00 0.00 0.00 0.00 0.00 111.52 95.52 0.00 Project PO50036 1999 Anhui Provincial Hwy 200.00 0.00 0.00 0.00 9.60 34.96 34.16 0.00 72  PO51705 1999 Fujian I1Highway 200.00 0.00 0.00 0.00 0.00 65.73 63.07 0.00 PO51856 1999 ACCOUNTING REFORM& 27.40 5.60 0.00 0.00 0.00 17.89 17.84 0.00 DEVELOPMENT PO41268 1999 CN-Nat Hwy4FIubei-Hunan 350.00 0.00 0.00 0.00 0.00 59.72 37.72 0.00 PO57352 1999 CN-RURAL WATER IV 16.00 30.00 0.00 0.00 0.00 21.81 15.87 8.72 PO58308 1999 CN-PENSION REFORMPJT 0.00 5.00 0.00 0.00 0.00 1.77 1.75 0.00 PO56216 1999 CN - LOESS PLATEAU I1 100.00 50.00 0.00 0.00 0.00 24.54 26.67 0.00 PO60270 1999 CN-ENTERPRISE REFORMLN 0.00 5.00 0.00 0.00 0.00 2.71 4.29 4.07 PO38121 1999 CN-GEF-RENEWABLE ENERGY 0.00 0.00 0.00 35.00 0.00 28.91 27.18 7.95 DEVELOPMENT PO51888 1999 CN - GUANZHONGIRRIGATION 80.00 20.00 0.00 0.00 0.00 32.26 25.50 0.00 PO49665 1999 CN-ANNINGVALLEY AG.DEV 90.00 30.00 0.00 0.00 0.00 19.19 10.38 0.00 PO46051 1999 CN-HIGHER EDUC. REFORM 20.00 50.00 0.00 0.00 0.00 5.70 7.31 0.00 PO43933 1999 CN-SICHUANURBANENVMT 150.00 2.00 0.00 0.00 0.00 91.74 78.60 24.15 PO42299 1999 TEC COOP CREDIT IV 10.00 35.00 0.00 0.00 0.00 36.03 -11.40 0.00 PO41890 1999 CN-Liaoning Urban Transport 150.00 0.00 0.00 0.00 0.00 36.96 36.96 0.00 PO36953 1999 CN-HEALTHI X 10.00 50.00 0.00 0.00 0.00 36.85 22.30 0.00 PO03653 1999 CN-Container Transport 71.00 0.00 0.00 0.00 18.61 3.62 22.20 0.79 PO46829 1999 RENEWABLEENERGY 100.00 0.00 0.00 0.00 0.00 12.87 99.87 8.23 DEVELOPMENT PO46564 1999 CN - Gansu & InnerMongoliaPoverty 60.00 100.00 0.00 0.00 13.30 44.87 34.07 -6.75 Red. PO03614 1998 CN-GuangzhouCity Transport 200.00 0.00 0.00 0.00 20.00 100.31 120.31 100.31 PO03606 1998 ENERGY CONSERVATION 63.00 0.00 0.00 22.00 0.00 35.87 18.81 0.00 PO35698 1998 HUNANPOWERDEVELOP. 300.00 0.00 0.00 0.00 145.00 31.45 173.45 -18.46 PO49700 1998 CN- IAIL-2 300.00 0.00 0.00 0.00 0.00 3.97 3.97 0.66 PO37859 1998 CN-GEF Energy Conservation 0.00 0.00 0.00 22.00 0.00 0.71 22.06 0.00 PO03619 1998 CN-2nd InlandWaterways 123.00 0.00 0.00 0.00 37.00 19.18 54.54 6.46 PO40185 1998 CN-SHANDONGENVIRONMENT 95.00 0.00 0.00 0.00 1.40 20.07 21.47 1.58 PO03566 1998 CN-BASIC HEALTH (HLTHI) 0.00 85.00 0.00 0.00 0.00 38.40 23.65 0.00 PO46563 1998 CN - TARIM BASINI1 90.00 60.00 0.00 0.00 2.67 14.78 16.88 0.00 PO45788 1998 Tri-Provincial Hwy 230.00 0.00 0.00 0.00 0.00 19.18 16.12 0.00 PO03539 1998 CN - SUSTAINABLE COASTAL 100.00 0.00 0.00 0.00 2.06 47.54 46.27 36.72 RESOURCESDEV. PO51736 1998 E. CHINNJIANGSU PWR 250.00 0.00 0.00 0.00 86.00 50.31 136.31 13.22 PO46952 1998 CN - FOREST.DEV. POOR AR 100.00 100.00 0.00 0.00 0.00 29.62 -71.61 9.25 PO36949 1998 CN-Nat Hwy3-Hubei 250.00 0.00 0.00 0.00 0.00 21.15 21.15 0.00 PO36414 1998 CN-GUANGXI URBANENVMT 72.00 20.00 0.00 0.00 0.00 71.56 66.02 25.79 PO03637 1997 CN-NAT'L RURAL WATER 3 0.00 70.00 0.00 0.00 0.00 0.56 3.77 3.35 PO03590 1997 CN - QINBA MOUNTAINS 30.00 150.00 0.00 0.00 0.00 13.16 16.34 -0.95 POVERTY REDUCTION PO35693 1997 FUEL EFFICIENT IND. 0.00 0.00 0.00 32.80 0.00 6.83 32.81 0.00 PO03654 1997 Nat HwyZ/Hunan-Guangdong 400.00 0.00 0.00 0.00 0.00 48.52 48.52 20.68 PO03650 1997 TUOKETUO POWEWINNER 400.00 0.00 0.00 0.00 102.50 37.37 139.87 27.63 PO38988 1997 CN - HEILONGJIANG ADP 120.00 0.00 0.00 0.00 0.00 7.72 7.72 4.54 PO44485 1997 SHANGHAIWAIGAOQIAO 400.00 0.00 0.00 0.00 0.00 84.49 56.03 44.04 PO36405 1997 CN - WANJIAZHAI WATER TRA 400.00 0.00 0.00 0.00 75.00 22.58 97.58 10.00 PO03602 1996 CN-HUBEI URBANENVIRONMENT 125.00 25.00 0.00 0.00 28.32 39.72 70.08 32.41 PO03599 1996 CN-YUNNAN ENVMT 125.00 25.00 0.00 0.00 19.48 35.68 56.92 7.10 PO40513 1996 2nd HenanProv Hwy 210.00 0.00 0.00 0.00 19.00 16.69 35.69 23.69 PO03594 1996 CN - GANSU HEX1CORRIDOR 60.00 90.00 0.00 0.00 0.00 73.92 58.83 0.00 PO03589 1996 CN-DISEASE PREVENTION(HLTH7) 0.00 100.00 0.00 0.00 0.00 1.97 10.99 0.00 13  PO34618 1996 CN-LABOR MARKETDEV. 10.00 20.00 0.00 0.00 0.00 5.66 7.75 0.00 PO03648 1996 CN-SHANGHAISEWERAGEI1 250.00 0.00 0.00 0.00 0.00 39.94 39.94 4.81 PO03571 1995 CN-7th Railways 400.00 0.00 0.00 0.00 119.00 10.28 129.28 20.28 PO03639 1995 CN-SOUTHWEST POVERTY 47.50 200.00 0.00 0.00 0.01 1.21 25.36 25.36 REDUCTION PROJECT PO03647 1995 China Economic Law Reform -LEGEA 0.00 10.00 0.00 0.00 0.00 0.50 0.83 0.00 PO03603 1995 CN-ENT HOUSING & SSR 275.00 75.00 0.00 0.00 57.46 38.52 93.86 2.17 PO03596 1995 CN-Yangtze BasinWater Resources 100.00 110.00 0.00 0.00 1.92 0.34 4.75 4.75 Project PO03540 1994 CN-LOESS PLATEAU 0.00 150.00 0.00 0.00 0.00 1.12 0.50 0.00 PO03632 1993 CN-ENVIRONMENT TECH ASS 0.00 50.00 0.00 0.00 0.00 1.11 1.73 1.41 Total: 11,719.07 1,722.60 0.00 214.30 862.03 4,981.42 2,925.76 456.82 CHINA STATEMENT OF IFC's Heldand DisbursedPortfolio InMillionsofUSDollars 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 0 Rabobank SHFC 0.45 0.00 0.00 0.45 0.45 0.00 0.00 0.45 2000 SSIF 0.00 6.00 0.00 0.00 0.00 0.89 0.00 0.00 1998 ShanghaiKrupp 28.92 0.00 0.00 65.63 28.92 0.00 0.00 65.63 1999 ShanghaiMidway 0.00 16.02 0.00 0.00 0.00 16.02 0.00 0.00 1999 Shanxi 16.75 0.00 0.00 0.00 14.20 0.00 0.00 0.00 1993 ShenzhenPCCP 3.76 0.00 0.00 0.00 3.76 0.00 0.00 0.00 Sino Gold 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 2001 Sino-Forest 25.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 1995197 SuzhouPVC 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 WIT 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2000 Wanjie Hospital 15.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 1996 Weihai Weidongri 1.03 0.00 0.00 0.00 1.03 0.00 0.00 0.00 2003 XACB 0.00 19.93 0.00 0.00 0.00 0.00 0.00 0.00 1993 Yantai Cement 6.33 1.95 0.00 0.00 6.33 1.95 0.00 0.00 0 ZhenJing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2003 Zhengye-ADC 15.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00 2002103 Advantage 0.00 0.50 0.00 0.00 0.00 0.50 0.00 0.00 2003 BCIB 0.00 0.00 11.60 0.00 0.00 0.00 0.00 0.00 1999100102 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 2002 CDH ChinaFund 0.00 16.36 0.00 0.00 0.00 2.38 0.00 0.00 1998100 CIGHoldings PLC 0.00 3.00 0.00 0.00 0.00 3.00 0.00 0.00 2003 CSMC 0.00 12.00 0.00 0.00 0.00 7.20 0.00 0.00 1998 ChengduHuarong 6.73 3.20 0.00 7.82 6.73 3.20 0.00 7.82 1998 Chengxin-IBCA 0.00 0.36 0.00 0.00 0.00 0.36 0.00 0.00 1987192194 ChinaBicycles 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 74  1994 ChinaWalden Ven 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1994 Dalian Glass 0.00 2.40 0.00 0.00 0.00 2.40 0.00 0.00 1995 Dupont Suzhou 9.35 4.15 0.00 0.00 9.35 4.15 0.00 0.00 1994 Dynamic Fund 0.00 8.76 0.00 0.00 0.00 7.10 0.00 0.00 2003 Great Infotech 0.00 3.50 0.00 0.00 0.00 2.10 0.00 0.00 1999 Hansom 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 2002 HuarongAMC 23.74 3.00 0.00 0.00 14.74 0.01 0.00 0.00 2002 IEC 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 LeshanScana 5.36 1.35 0.00 0.00 3.76 1.35 0.00 0.00 2001 MaanshanCarbon 9.00 2.00 0.00 0.00 9.00 2.00 0.00 0.00 2001 MinshengBank 0.00 23.50 0.00 0.00 0.00 23.50 0.00 0.00 2001 NCCB 0.00 26.58 0.00 0.00 0.00 26.46 0.00 0.00 1996 NanjingKumho 3.89 3.81 0.00 11.07 3.89 3.81 0.00 11.07 2001 New ChinaLife 0.00 30.70 0.00 0.00 0.00 23.32 0.00 0.00 1995 NewbridgeInv. 0.00 1.95 0.00 0.00 0.00 1.95 0.00 0.00 1997198 Orient Finance 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2003 PSAM 0.00 1.93 0.00 0.00 0.00 0.00 0.00 0.00 1997100 PTPHoldinas 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 I Total portfilio: 195.31 217.74 36.60 84.97 139.16 158.44 0.00 84.97 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic. 2002 ASIMCO 0.00 0.00 0.01 0.00 2003 Anjia 0.00 0.01 0.00 0.00 2004 CCB-MSNPL 0.03 0.00 0.00 0.00 2004 CUNA RCCI 0.00 0.01 0.00 0.00 2003 Cellon 0.00 0.01 0.00 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 0.00 0.01 0.00 2002 KHIT 0.00 0.00 0.00 0.00 2003 Peak Pacific2 0.00 0.01 0.00 0.00 2003 SAIC 0.01 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 2002 ZhongChen 0.03 0.00 0.00 0.03 Total pendingcommittment: 0.11 0.04 0.02 0.05 75  Annex 14: Countryat a Glance CHINA: LIUZHOUENVIRONMENT MANAGEMENT PROJECT East Lower- POVERTY and SOCIAL Asia 8 mlddle- China Pacific income Development diamond' 2002 Population,mid-year(miliions) 1,281.0 1,838 2,411 Lifeexpectancy GNIpercapita (Atlas method, US$) 950 950 1,390 GNI (Atlas method, US$billions) 1,29.1 1,740 3,352 T Average annual growth, 1996-02 Population (%) 0.8 1.0 10 Laborforce (%) 0.9 1.2 1.2 GNI Gross per primary M o s t recent estimate (latest year available, 1996-02) capita nrollment Poverty(%ofpopulation belownationalpovertyline) 5 Urbanpopulation (%of totalpopulation) 38 38 49 Life expectancyat birth (pan) 71 69 69 I Infantmortality (per10001ivebirths) 30 33 30 Child malnutrition (%ofchildrenunder5) 0 15 11 Access to improved water source Access to an improvedwatersource (%ofpopulation) 75 76 81 Illiteracy(%ofpopulation age rS+l 14 t3 t3 Gross primaryenrollment (%of school-age population) 0 6 0 6 111 -China Male 0 5 0 5 111 Louer-middle-income group Female 0 8 0 6 10 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios. GDP (US$ billions) 2215 454.6 1,87.1 1232.7 Gross domestic investment/GDP 33.2 36.2 38.5 410 Exports of goods and servicesiGDP 8.9 19.5 25.5 29.5 Trade Gross domestic savings/GDP 34.8 37.7 40.9 44.0 Gross national savingslGDP 35.1 38.0 40.0 43.8 T Current account baiance/GDP 2.4 1.9 1.5 2.9 Domestic Interestpayments/GDP 0.2 0.6 0.5 0.5 savings Investment Total debt/GDP 3.8 15.9 14.6 Q.6 Total debt serviceiexports 8.0 8.6 7.7 6.1 1 Present valueof debt/GDP 14.1 Present vaiueof debtiexports 51.8 Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annualgmMh) GDP 9.7 9.0 7.5 8.0 7.5 -China GDP percapita 8.1 8.0 6.7 7.2 6.6 - Louer-middle-income am UD STRUCTURE o f the ECONOMY 1982 1992 2001 2002 Growth o f investment and GDP ( X ) (%of GDP) Agriculture 33.3 21.8 15.8 14.5 2o T Industry 45.0 43.9 50.1 51.7 Manufacturing 37.3 33.1 34.2 44.5 I Services 21.7 34.3 34.1 33.7 Privateconsumption 50.7 49.2 45.7 42.5 97 98 99 00 01 02 Generalgovemment consumption 14.5 t3.1 t3.4 0.5 Imports of goods andsewices 7.3 18.0 23.1 26.5 -GDI -GDP 1982-92 1992-02 2001 2002 Growth of exports and imports (Oh) (average annualgruMh) Agriculture 4.6 3.7 2.8 2.9 40 industry 11.6 11.3 8.4 9.9 30 Manufacturing 11.2 0.4 9.0 8.1 20 Services 117 8.4 8.4 7.3 10 I Privateconsumption 11.4 8.1 2.8 1.9 0 Generalgovemment consumption 9.9 8.4 0.5 7.0l-,I 97 88 89 00 01 Gross domestic investment 9,5 9.7 Q.9 14.9 Imports of goods and sewices 9.7 Q.8 0.8 27.5 -Exports -Imports O2 76  China PRICES and GOVERNMENT FiNANCE 1982 1992 2001 2002 Inflation (%) Domestic prices I (%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 currentgrants) Current revenue 22.9 14.7 17.1 17.9 Current budgetbalance 2.o 1.1 0.0 Overall surplusldeficit -0.3 -1.0 -4.7 -3.0 -GDP deflator -CPI , TRADE I982 1992 2001 2002 (US$ millions) Export and import levels (US$ mill.) Totalexports (fob) 22,321 84,940 266,155 325,565 p o Food 2,908 8,309 12,780 14,623 Fuel 5,314 4,693 8,420 8,372 300,000 Manufactures 12,271 67,936 239,802 297,085 Total imports (cif) 19,285 80,585 243,610 295,203 200,000 Food 4,201 3,146 4,980 5,237 Fuelandenergy 183 3,570 17,495 19,285 100,000 Capital goods 3,204 31,312 107,040 137,030 0 Export price index(995.100) 41 85 83 78 98 97 98 99 00 01 02 Import price index(995=W0) 71 95 91 86 Exports mlmports Terms of trade (995=WO) 58 89 91 90 BALANCE o f PAYMENTS 1982 1992 2001 2002 (US$ mfilfons) Current account balance to GDP ( O h ) Exports of goods and services 24,906 94,198 299,409 365,395 Importsof goods and services 20,555 86,752 271,325 328,013 5 T Resource balance 4,350 7,446 28,084 37,383 Net income 376 249 -19,174 -14,945 Net current transfers 486 1,155 8,492 12,984 Current account balance 5,2Q 8,850 17,401 35,422 Financingitems (net) -995 -10,952 30,046 40.085 Changes in net reserves -4,217 2,102 -47,447 -75,507 1 96 97 98 99 00 01 02 Memo: Reserves includinggold (US$ millions) 24,842 220,051 297,721 Conversion rate (DEC,loca!fUS$) 2.4 5.9 8.3 8.3 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 /US$ millions) :omposition of 2002 debt (US$ mill. Total debt outstanding and disbursed 8,358 72,428 170,1x3 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 43 IBRD 0 460 1,550 1,631 IDA 0 30 151 175 Compositionof net resourceflows Officialgrants 47 327 240 Officialcreditors 657 2,343 2,156 -839 Privatecreditors -122 8,949 -4,017 -13,593 Foreigndirect investment 430 11,156 44,241 49,308 Portfolio equity 0 1,243 3,015 2,286 F:62,103 World Bank program Commitments 330 1,865 782 563 5 IBRD E - Bilateral Disbursements 1 1,331 1,791 1,733 I IDA -- D Other multilateral - F - Private Principal repayments 0 197 904 1,157 >-IMF G - Short-tern 77