China - North China Earthquake Reconstruction Project

Document of The World Balik FOR OFFICIAL USE ONLY cr. rzoqi- cys Report No. P-5219-CHA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT OF SDR 23.4 MILLION (EQUIVALENT TO US$30.0 MILLION) TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE NORTH CHINA EARTHQUAKE RECONSTRUCTION PROJECT JANUARY 18, 1990 Tlis donusent bas a restrited distribution and may be used by recipients only In the performance of dteir oficial dutes. Its contents may not otherwise be disclosed witout World Bank authorization.  CURRENCY EQUIVALENTS CURRENCY UNIT = Renminbi (RKB) US$1.00 = RMB 3.71 RMB 1.00 = US$ 0.27 (On December 16, 1989 the Renminbi was devalued to a new rate of US$1-RMB4.71) WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 cubic meter (cmb) 35.31 cu feet 1 hectare (ha) = 2.47 acres 1 kilogram (kg) = 2.20 pounds ABBREVIATIONS AND ACRONYMS HPG Hebei Provincial Government IDNDR International Decade for Natural Disaster Reduction MCA Ministry of Civil Affairs 'OC Ministry of Construction MOF Ministry of Finance PRC People's Republic of China RMC (World Bank) Resident Mission in China SPC State Planning Commission SPG Shanxi ProviTlcial Government SSB State Seismological Bureau YCG Yangyuan County Government (Hebei Provinze) YPG Yanbei Prefecture Government (Shanxi Province) FISCAL YEAR January 1 to December 31  FOR OMCIAL USE ONL' CHIN; NORTH CHINA EARTHQUAKE RECONSTRUCTION PROJECT CREDIT AND PROJECT SUMMARY Borrowers People's Republic of China (PRC) Amount: SDR 23.4 million (US$30.0 million equivalent) Termst Standard, with 35 years maturity Relending terms: MOF will relend part of the proceeds of the credit in Renminbi to Shanxi Province (SDR 16.76 million) and Hebei Province (SDR 4.68 million) interest-free with a 1 percent annual service charge, for 25 years, including 10 years of grace. MCF will bear the foreign exchange risk. Flow of Funds: On-lending for housing reconstruction and repair, at 1.3 percent per year, for up to 15 years depending on the income of the beneficiaries, including a one-year grace period in Hebei and a two-year grace period in Shanxi; and for enterprises, at prevailing interest rate and maturity period for similar loans from relevant financial intermediaries sucb as the Agricultural Bank of China. Budgetary allocation for schools, clinics and other public facilities; for irrigation and water supply works; and to the State Seismological Bureau. Financing Plan: PRC US$ 0.5 million Shanxi Province/ Yanbei Prefecture 5.5 Hebei Province/ Yangyuan County 1.2 Beneficiazies 8.1 IDA 30.0 TOTAL US$45.3 million Economic Rate of Return: Not calculated: least-cost solutimns have been adopted for reconstruction and repair using local materials and designs with simple, earthquake-resistant features Maps IBRD 22045, 22086 This document has a restrkted distribution and may be used by recipients only in the performance of their offcial duties. Its contents nmay not otherwise be diclosed without World Bankr atitha!utlon.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A CREDIT OF SDR23.4 MILLION (US$30.0 MILLION EQUIVALENT; TO THE PEOPLE'S REPU3LIC OF CHINA FOR THE NORTH CHINA EARTHQUAKE RECONSTRUCTION PROJECT 1. The following memorandum and recommendation on a proposed emergency credit to the People's Republic of China for SDR23.4 mill:. (US$30.0 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms with 35 years maturity. It would help finance accelerated earthquake reconstruction operations in affected areas in Shanxi and Hebei provinces, and a small national program of technical assistance for earthquake prediction, mitieation and preparedness. Earthquake Disaster 2. China has experienced some of the most severe recorded earthquakes in the world. Since 1900, there have been 662 earthquakes with magnitude over 6 on the Richter Scale, of which 106 registered over 7 or around thirty percent of world earthquakes over that intensity. Sixty percent of China's land area is in seismic zones over vulnerability 6, and seventy percent of metropolitan areas of over 1 million population are in seismic zones over 7. The death toll from earthquakes in China in the twentieth century exceeds 600,000, accounttrg for over 5OX of the world total. Chinese earthquake specialists have predicted that, after a decade of relative calm, China is entering a period of high seis- mic activity which is likely to last for 12 to 15 years. 3. Earthquakes rocked part of Northern China at the junction of Shanxi and Hebei provinces and Nei Mongol Autonomous Region west of Beijing on the night of October 18, 1989 and early the next morning. Five of the quakes registered more than 5.0 on the Richter Scale, the peak shock just after midnight registering 6.1. There were many aftershocks in the following weeks, including one on Octo- ber 23 which registered 5.2. This Datong-Yanggao earthquake was one of the worst to hit Northern China since 1976 when a major quake (registering 7.8 on the Richter Scale) killed over 400,000 people and substantially destroyed the city of Tangshan in Hebei Province (about 5 hours journey by rail east of Beijing). The epicenter of the Datong-Yanggao earthquake lay near Bu Cun vil- lage, in Yanbei Prefecture of Shanxi Province. This is an impoverished rural area (1988 per capita income of RMB331 (US$89) in Yanbei and RHB446 ($120) in Hebei's adjacent Yangyuan County) located on the Loess Plateau, a windswept, eroded plain about 1,300 m above sea level. Local employment is mainly in coal mining and agriculture (largely corn and wheat-growing in the dusty, infertile soil). Housing in this rural area is mainly mud-brick and stone construction that is vulnerable to earthquake shocks. The casualty toll in Yanbei and in neighboring Yangyuan County of Hebei Province (20 dead and less than 200 seriously injured) was mercifully slight due to earlier, less severe warning quakes but property damage was severe. Some 25,000 mainly privately-owned hou- sing units and over 3,000 rooms in schools, clinics and community facilities *ere destroyed and 46 local industries as well as various infrastructure (bridges, power and telecommunications lines) were badly damaged. Many more were partly destroyed. Estimates by the Shanxi Province Seismological Bureau indicate that direct losses in Yanbei exceeded US$100 million. Total damage in Yangyuan, further from the epicenter, was less, but has not been quantified.  -2- Very few of the assets were insured. Indirect production losses, mainly by industry and commerce, are estimated at about US$15 million in the first year and about 1.500 workers have been idled. Relief expenditures totalled 84B26.4 million (US$7.1 million), of which about three-quarters yere for tempo- rary housing. As of early December, 1989, about 15 percent of the households in the affected area of Shanxi (about 32,000 families or 125,000 people) and a smaller proportion, about 9,000 families, in Yangyuan County, further from the quake's epicenter and thus less seriously affected, were in temporary shelter for the winter, and 325 schools were operating in tents or other interim facilities. ProJect Obiectives and Rationale for IDA Involvement 4. While not a major disaster by Chinese or world standards in terms of value of physical assets destroyed, the Datong-Yanggao earthquake has signifi- cantly affected the regional eronomy, with the estimated cost of reconstruction of villages, economic assets and infrastructure at around US$150 million. About 150,000 people were rendered homeless, their barns and stables destroyed and their stored winter food and animal feed lost or exposed to the elements. In response to a message from IDA's senior management, the Government of China expressed interest in assistance for a possible emergency earthquake rehabilita- tion credit. China once before received assistance from the Association after a major natural disaster: recovery and salvaging operations after a major forest fire in northeastern China are being supported under the Da Xing An Ling Forest Fire Rehab3iitation Project (FY88, US$56.9 million equivalent), which is being implemented satisfactorily. The proposed project would assist in normalizing economic activity in the earthquake-affected area by undertaking reconstruction operati3ns in Yanbei Prefecture of Shanxi province and Yangyuan County in Hebei province through a village reconstruction prosgram, replacement and reequipping of essential social and economic infrastructure, and rehabilitation of facili- ties of productive rural enterprises. The mbain rationale for IDA involvement in the proposed operation would be: to encourage and facilitate the use of cost- effective earthquake resilient construction standards for housing and infra- structure; to help implement reconstruction of housing, essential infrastructure and economic assets in a much shorter time than could otherwise be the case with the limited local financial and material resources available to the provinces; and, by a modest technical assistance component, to help China's managers of earthquake forecasting and preparedness to make their already-impressive work more effective. The project is viewed as a pilot exercise which could serve as a model for responding to similar situations in the future. Project Description 5. The project would support a program to be carried out in 1990 and 1991 consisting of: a) a village reconstruction program for about 80 villages in the four counties of Shanxi Province's Yanbei Prefecture (including about four vil- lages to be relocated) and about 70 villages in Hebei-Province's Yangyuan Coun- ty, including reconstruction of about 24,000 collapsed dwelling rooms, and reha- bilitation, repair and reinforcement of about 49,500 others, reconstruction of about 1200 public facility rooms (village classrooms, health centers, village storehouses and other community buildings) and repair and reinforcement of about 1200 others, reestablishment and repair of critical village infrastructure of power lines and water supply and repair of damaged buildings of about a dozen rural enterprises in the five counties; and b) a national component of assis- tance for earthquake prediction and disaster preparedness, including upgrading and reinforcement of the State Seismological Bureau's (SSS) national seismic  -3- monitoring network for monitoring and prediction and the drawing up of a model emergency preparedness plan for Yanbei prefecture. Improvements in planning and design to be introduced through the project includes planning and design crite- ria to minmize village reloration and emphasize building rehabilitation instead of reconstruction; phasing of construction (provision, initially, to each family of two improvedlstrengthened rooms instead of the pre-earthquake four traditio- nal and earthquake-vulnerable rooms); introduction of a new rural housing tech- nology to China--the reinforced vaulted adobe house--which would be subject to prior engineering field tests to demonstrate its resistance to earthquake conditions. 6. Implementation. The village reconstruction components in the affected areas of Shanxi and Hebei provinces would be implemented by the Yanbei Prefec- ture and Yangyuan County governments, respectively, while the national component would be Implemented by SSB. Suitable organizational arrangements to implement the project have been established. Shanxi Province would draw up the disaster preparedness plan for Yanbei Prefecture. 7. The project would finance reconstruction and rehabilitation of housing, buildings, classrooms, rural health facilities, village water supplies, and purchase of modest school and health center equipment. Given the emergency nature of the project and the small and scattered works in many villages, conventional ICB or LCB procedures are not suitable; hence, modified local procurement procedures are proposed, to ensure competition and efficiency. These procedures were examined and found satisfactory to the Association. Con- struction materials to be procured in bulk (timber, steel) would be purchased from established existing suppliers after at least five quotations. Housing reconstruction would be undertaken by respective villages through force account with assistance of rural construction units selected through competition. Con- struction of public facilities and infrastructure would be undertaken through competition among local construction units. Goods for the village reconstruc- tion program would be procured through local procedures involving at least three quotations, while computers, communications and scientific equipment for the national component would be procured through limited international shopping. All contracts above US$500,000 for materials or civil works and US$50,000 for goods and equipment would be subject to prior review by the Association. Retro- active financing of up to SDR 3.1 million (US$4 million equivalent) is proposed to expedite purchase of materials and immediate rehabilitation of production enterprises. Disbursement would be made against statements of expenditure using procedures satisfactory to the Association. Funds would be made available to beneficiaries in accordance with usual government procedures for the construc- tion of housing and for the reconstruction of enterprises, namely through loans for up to 15 years, at 1.3 percent annual interest for housing, and at market rates for enterprises. Funds for construction of schools, clinics and other community facilities would be made available by the respective counties as a grant. Financing for irrigation and water supply works would also be through budgetary allocation, and water charges would be adjusted to recover investment costs plus operation and maintenance expenses. Funds for the national component would be made available to SSB as a budgetary allocation. The project is expec- ted to be completed by December 31, 1991. Agreed Actions 8. The Government of the People's Republic of China and the Governments of Shanxi and Hebei provinces have agreed: (a) to follow appropriate planning and design standards for village reconstruction and repair, and for village reloca-  4- tion; (b) to make available to beneficiaries materials and loons for the recon- struction of housing and small businesses and grar.ts for the reconstruction and reequipping of village classrooms, clinics and other public buildings damaged in the earthquake, on terms and in accordance with procedures agreed with IDA; and (c) to exchange views regularly vith 1;A on the information obtained from the seismic data collection network for earthquake monitoring and prediction, an1 their experience in its use. Benefits 9. Although the impact of the emergency is small relative to the Chinese economy, destruction and damage of over $150 million in five poor rural counties is substantial. The economic and social benefits of rapid recovery in an impo- verished agricultural area (e.g. Yanbei Pr-dfecture has total annual revenues of only about RMB100 million ($27 million) and depends on annual provincial and central government subsidies of RMB125 million ($34 million)) would be conside- rable. The total population to benefit from this project is estimated at 175,000, most of whom are poor. IDA involvement through this operation has also helped refine the design and planning standards, organization and financing of the reconstruction program and thereby reduce the implementation period from four years to under two. It has already resulted in agreement on testing and use of new, cost-effective ea &hquake resistant building techniques which have not been used in China before The enhancement of SSB's national seismic moni- toring netvork and its data analysis capacity should improve SSB's ability to predict earthquakes in the coming expected period of high seismic activity in China. Risks 10. The only significant risk is the possib' use of inappropriately high standards for housing reconstruction that oould ay the program and make it more expensive and less affordable for the benetf uries. Accordingly, the Association has obtained an assurance from the local, provincial and central authorities on village reconstruction planning aid design standards which empha- size rehabilitation and repair of affected buildings rather than the wholescale reconstruction that was initially proposed. In addition, IDA has agreed to simplified procurement and disbursement procedures to expedite project implemen- tation, while competition among local corstruction units should result in lower unit costs. Frequent supervision by IDA missions in the first year of implemen- tation is planned so that any adjustments to the agreed reconstruction program can be made as needed. Recommendction 11. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. January 18, 1990  -5- Schedule A CHINA North China Earthquake Reconstruction Project Estimated Costs and Financing Plan Estimated Costs Local Foreign Total IDA ^----------- (USS million) ------------- Shanxi Component 21.1 9.0 30.1 19.5 Hebei Component 5.9 2.5 8.4 5.3 National Component 0.5 2.0 3.0 1/ 2.5 Base Cost 27.5 14.0 41.5 27.3 Physical Contingencies 2/ 2.6 1.2 3.8 2.7 Total Project Cost 30.1 15.2 45.3 30.0 Financing Plan Shanxi Hebei National Component Component Component Total Central Government - 0.5 0.5 Shanxi Province 5.5 - - 5.5 Hebei Province - 1.2 - 1.2 Beneficiaries 6.1 2.0 - 8.1 IDA 21.5 6.0 2.5 30.0 Total 33.1 9.2 3.0 45.3 11 Includes US$500,000 unallocated. 2/ As the bulk of materials to be procured, and civil works, completed, in the first year of project implementation, no provision has been made for price contingencies.  - 6 - - Schedule B CHINA North China Earthquake Reconstruction Project Procurement Method Project Element International Local Force Other Total Shopping Procedures Account ----------------------(USs$ million)---------------------- Land 0.6 0.6 (0.0) (0.0) Civil Works 30.3 10.5 40.8 (20.0) (6.9) (26.9) Goods and equipment 2.0 0.5 0.9 3.4 (2.0) (0.0) (O06) (2.6) Consultants, Training 0.5 0.5 and Technical Assistance (0.5) (0.5) Total 2.0 30.8 11.4 1.1 45.3 (2.0) (20.0) (7.5) (0.5) (30.0) Note: Figures in parentheses indicate the respective amounts financed by the Association. Force account would include competitive bidding among local construction units. Estimated IDA Disbursements IDA Fiscal Year 1990 1991 1992 -US---- $- US$ million ----------- Annual 5.0 20.0 5.0 Cumulative 5.0 25.0 30.0 Disbursements Amount Category Million SDR Percent Civil Works: Shanxi 11.52 ) Hebei 3.11 ) Construction Materials: Shanxi 5.00 ) 652 of local expenditures Hebei 1.33 ) Goods: Shanxi 0.24 ) Hebei 0.24 Communications, computer and satellite equipment for SSB 1.48 10OZ of foreign expenditures Consultants, Training and Technical Assistance 0.80 100% Unallocated 0.40 Total 30.00  -7- Schedule C CHINA North China Earthquake Emergency Reconstruction Pro3ect Timetable of Key Project Processing Eventss (a) Time taken to prepares Two months (b) Prepared by: Government, with IDA help Cc) First IDA missions November 9-11, 1989 (d) Appraisal Mission Start: November 30, 1989 te) 8eginning of Negotiations: December 15, 1989 (f) Planned Date of Effectiveness: March 31, 1990 8g) List of relevant PCRs and PPARs: None  -8- Schedule D Page 1 of 3 STATUS OF LARK GROUP OPERATIONS IN THE PEOPLE'S REPUBLIC OF CHIA A. STATEMENT OF BANK LOANS AND IDA CREDITS a/ (as of September 30, 1989) Loan/ Aount (US$ million) Credit Fiscal (net of cancellations) Number Year Borrower Purpose Bank IDA Undisbursed bi Four loans and nine crvditq ha"e been fully disbursed 408.57 471.02 - 2231 83 PRC Petroleum I (Daqing) 162.40 - 12.16 2252 83 PRC Petroleum II (Zhongyuan-Wenliu) 100.80 - 16.S2 226111S47 63 PRC State Farms I (Heilongjiang) 25.30 45.00 0.19 1411 84 PRC Polytechnic/TV University - 85.00 18.11 1417 84 PRC Rubber Development ^ 100.00 12.94 2382 84 PRC Lubuge Hydroelectric 145.40 - 34.05 2394 84 PRC Railway 220.00 - 14.56 1472 84 PRC Rural Health & Medical Educ. - 85.00 17.70 2426 84 PRC Petroleum III (Karamay) 92.50 - 13.31 2434/1491 84 PRC Industrial Credit II (CIS II) 105.00 70.00 19.06 2444/1500 84 PRC Agricultural Education II 45.30 (23.50)1/ 9.78 1516 85 PRC Agricultural Research II - 25.00 9.01 1551 85 PRC University Development II - 145.00 49.22 2493 85 PRC Power I1 117.00 - 26.52 2501 85 PRC Changcun (Luan) Coal Mining 120.50 - 99.74 1577 85 PRC Seeds - 40.00 9.53 1578 8S PRC Rural Water Supply - 80.00 27.98 2539/1594 85 PRC Highway I 42.60 (30.00)1/ 19.09 2540 85 PRC Railway II 23S.00 - 172.51 2541 85 PRC Fertilizer Rehabilitation & 97.00 - 9.10 Energy Saving 1605 85 PRC Forestry Development - 47.30 26.29 2579/1606 85 PRC PiShiHang-Chadhu Area Development 17.00 75.00 33.66 2580 85 PRC Weiyuan Gas Field Technical 25.00 - 9.80 Assistance 1642 86 PRC Rural Credit I1 - 90.00 3.73 2659/1663 86 PRC Industrial Credit III (CIB III) 75.00 25.00 15.43 1664 86 PRC Technical Cooperation Credit II - 20.00 19.79 1671 86 PRC Provincial Universities - 120.00 36.13 2678/1680 86 PRC Third Railway 160.00 70.00 185.06 2689 86 PRC Tianjin Port 130.00 - 104.66 1689 86 PRC Freshwater Fisheries - 60.00 8.26 2706 86 PRC Beilungang Thermal Power 225.00 - 76.26 2707 86 PRC Yantan Hydroelectric 52.00 25.23 2708 86 PRC Liaodong Bay Petroleum Appraisal 15.00 - 1.00 2723/1713 86 PRC Rural Health & Preventive Med. 15.00 65.00 65.59 1733 87 PRC Red Soils - 40.00 12.39 2775 87 PRC Shuikou Hydroelectric 140.00 - 80.74 2783/1763 87 PRC Industrial Credit IV (CIB IV) 250.00 50.00 124.40 2784 87 PRC Shangpai Machine Tools 100.00 - 97.19  - 9 -schedule D Page 2 of 3 Loan! Amount (US$ million) Credit Fiscal (net of cancellations) Number Year Borrower Purpose Bank IVA Undisbursed