China - Ship Waste Disposal Project

k- /C, e -~ ) v / 1-- I I / I ' Document of The World Bank FOR OFFICIAL USE ONLY MICROFICHE COPY Report No. 9852-CHA Report No 9852-CHA Type: (SAR) MOBAREK, I/ X82947 / F-8025/ ASTIN STAFF APPRAISAL REPORT CHINA SHIP WASTE DISPOSAL PROJECT MAY 15, 1992 Transport Operations Division Country Department II East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (as of September 1, 1991) Currency Name = Renmlnbi currency Unit = Yuan (Y) Y 1 = $0.0186 $1.00 Y 5.37 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 cubic meter = 35.31 cubic feet 1 ton 1.1023 tons (short) tkm = ton-kilometer ppm = parts per million TEU = twenty-foot equivalent unit ABBREVIATIONS BOMTA - Bureau of Maritime Transport Administration CIF - Cost, insurance, and freight COSCO - China Ocean Shipping Company DPA - Dalian Port Authority EPB - Environmental Protection Bureau FYP - Five Year Plan GEF - Global Environmental Facilities GOC - Government of China GPA - Guangzhou Port Authority HSA - Harbor Superintendency Administration ICB - International competitive biiding LCB - Local competitive bidding LME - Large marine ecosystem MARPOL - International Convention for the Prevention of Marine Pollution MOC - Ministry of Communications MOF - Ministry of Finance MOR - Ministry of Railways NEPA - National Environment Protection Agency NPA - Ningbo Port Authority PRC - People's Republic of China SOA - State Oceanic Administration SPA - Shanghai Port Authority SPC - State Planning Commission TOR - Terms of Reference TPA - Tianjin Port Authority XPA - Xiamen Port Authority This report was prepared by Ismail Mobarek, M.S. Parthasarathi, Hank Yen and P.O. Cheryan (consultant) and is based on the information collected by Hank Yen (EA2TP), Scott McKnight (consultant) and Pang Sing Eng (consultant) during project appraisal in April 1991. Peer reviewers are: Messrs. K. Newcombe (CODGE), A. Bruestle (ASTEN) and R. Anderson (EA2EH). The Country Director is Mr. Shahid Javed Burki and the Division Chief is Mr. Daud Ahmad.  'FOR OFFICIAL USE ONLY CHINA SHIP WASTE DISPOSAL PROJECT Credit and j'roject Summary Borrower: People's Republic of China Beneficiaries: The Port Authorities of Dalian, Tianjin, Shanghai, Ningbo, Guangzhou and Xiamen Amount: SDR 11.0 million ($15.0 million equivalent) Terms: Standard, with 35 years maturity and 10 years' grace Onlending Terms: Between the Ministry of Finance and each Port Authority: 15 years, including five years' grace, at 1.5 percent per annum. The Port Authorities will bear the foreign exchange risk. The Global Environment Facility (GEF) Fund contribution of SDR 22.0 million ($30.0 million equivalent) would be passed on to the respective ports as a grant. Project Objective: The objectives of the project are to reduce pollution of international and Chinese territorial waters caused by ship's wastes through (a) improved monitoring and analysis of the nature and magnitude of the problem; (b) improved policy, regulatory, and incentive frame- works; and (c) the provision of infrastructure to receive and safely dispose of ship wastes. Project Description: 1. National Component: (a) establish baseline data on international ship traffic, related waste types and quantities by designing and implementation of a pilot interport ship waste monitoring system (SEATRACK) to facilitate enforcement; (b) prepare a comprehensive accident (oil pollu- tion) contingency plan (including selected equipment) for each port; (c) initiate a Large Marine Ecosystem (LME) moni- toring program for the Yellow Sea; (d) undertake a study of the treatment of chemi- cally contaminated water; This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - (e) provide facilities and promote coordination among the various authorities to upgrade en- vironmental monitoring capabilities at the ports, coastal waters as well as internation- al waters; and (f) provide consultants' services and training in connection with or related to activities un- der the project. 2. Ports, Component: (a) define, design and provide appropriate land- based collection and disposal facilities at the ports of Dalian, Tianjin, Shanghai, Ningbo, Xiamen and Guangzhou; and (b) establish or upgrade environmental monitoring and enforcement capabilities of each of the port authorities. Risks: The main risks relate to potential delays in pro- ject implementation, and to cost recovery. As this is a substantially new activity for most of the ports, technical assistance through close pro- ject supervision will be provided to ensure satis- factory implementation. As to cost recovery in ports, PRC's record in the matter of introducing adequate cost recovery mechanisms has so far been good. Technical assistance will be provided to the GOC to develop an economically and environmen- tally sound tariff and cost recovery system. GOC has indicated that there would be no difficulty in the ports introducing a tariff schedule based on cost recovery specific to the new services.  - iii - Estimated Project Cost: Local Foreign Total ------- million ------- Monitoring and tracking 0.65 1.35 2.00 Waste Disposal Facilities and equipment 38.13 19.06 57.19 Technical assistance - 0.73 0.73 Base Cost 38.78 21.14 59.92 Physical contingencies 1.48 0.86 2.34 Price contingencies 1.54 1.00 2.54 Total Cost /a 41.80 23.00 64.80 Financing Plan: GOC and the Port Authorities 19.80 - 19.80 GEF 13.00 17.00 30.00 IDA 6.00 9.00 15.00 Total 38.80 26.00 64.80 Estimated Disbursement: IDA 1993 1994 1995 1996 Annual 2.0 7.0 5.5 0.5 cumulative 2.0 9.0 14.5 15.0 Economic Rate of Return: n.a. Map: IBRD 23131R2 /a In January 1992 prices. The project is exempt from import taxes and duties.  - iv - CHINA SHIP WASTE DISPOSAL PROJECT Table of Contents Page No. I. THE ENVIRONMENT SECTOR . . . . . . . . . . 1 A. Environmental Conditions in China . . . . . . . . . . . 1 B. Environmental Conditions of Coastal Waters . . . . . . . 1 C. Sector Organization ... . . . . . . ... . . . . . . . 2 D. Sectoral Issues and Problems . . . . . . . . . . . . . . 3 E. The Bank's Role and Sector Strategy . . . . . . . . . . 4 II. THE TRANSPORT SECTOR . . . . . . . . . . . . . . . . . . . . 6 A. Overview ... . . . . . . . . . . .. . .. . . . . . . 6 B. Transport Issues and Government Strategy . . . . . . . . 7 C. Bank Group Participation in the Sector . . . . . . . . . a --T. THE PORTS SUBSECTOR . . . . . . . . . . . . . . . . . . . . 10 A. Port Traffic . . . . . . . . . . . . . . . . . . . . . . 10 B. Organization and Management . . . . . . . . . . . . . . 10 C. Operations and Maintenance . . . . . . . . . . . . . . . 11 D. Tariffs . . . ...... . . . ..... . 12 E. Environmental Conditions in Chinese Ports . . . . . . . 13 F. Regulatory Framework for Environment Control . . . . . . 14 G. Role of the Bank Group ... .15 IV. THE PROJECT . . . o o .. o . . 17 A. Objectives . . . .. .17 B. Description . . . . . .. . . . . . . . .. . 17 C. Project Cost ... . . . . . . . . . ...... . . . . 23 D. Financing . .. . . . . . . . . . . . . . . . . . . . 24 E. Organization and Management . . . . . . . . . . . . . . 24 V. FINANCIAL EVALUATION ....27 VI. AGREEMENTS REACHED AND RECOMMENDATIONS . . . . . . 29  SCHEDULES A. Documents in the Project File B. Project Implementation Schedule C. Estimated Schedule of Disbursements ATTACHMENTS 1. International Convention for the Prevention of Marine Pollution 2. Summary of Present Situation and Recommended Action 3. Oil Spill Contingency Planning and Response Study 4. Large Marine Echo System Study 5. Chemically Contaminated Water Treatment Study 6. Technical Assistance to Xiamen Port Authority 7. Assumptions Used in the Financial Evaluation 8. Draft Terms of Reference for Establishing a Costing and Tariff System for Waste Reception and Disposal Services TABLES 1. Chinese Environmental Quality Standard for Surface Water 2. Chinese Standards Compared to Foreign Standards 3. Estimated Project Cost 4. Estimated Ship Waste Quantities for 1990 5. Dalian Port--Income and Funds Flow Statements 6. Tianjin Port--Income and Funds Flow Statements 7. Shanghai Port--Income and Funds Flow Statements S. Ningbo Port--Income and Funds Flow Statements 9. Huangpu Port--Income and Funds Flow Statements 10. Xiamen Port--Income and Funds Flow Statements 11. Growth Rates Assumed in the Financial Forecasts MP IBRD No. 23131R2  CHINA SHIP WASTE DISPOSAL PROJECT I. THE ENVIRONMENT SECTOR A. Environmental Conditions in China 1.1 Growing urban populations and industrialization are causing wide- spread air, water, and soil pollution in China, as elsewhere, and environmen- tal problems have become issues of the highest priority. Due to past industrial location policies, many large industries are located close to or within urban residential areas which are also rapidly expanding. Gaseous emissions, untreated or improperly treated liquid effluents, and unwanted refuse from industries and domestic premises, industrial hazardous and toxic wastes, and high noise levels from congested traffic, factories, and commercial complexes, are significantly polluting the environment and affect- ing the health of the residents of heavily populated urban areas. 1.2 Water pollution from urban and industrial waste water discharges poses possibly the most severe problem. Many important water resources, which are already scarce in most regions, are already seriously threatened. The burning of bituminous coal is causing serious atmospheric pollution from air- borne particulate and sulfur dioxide emissions in inner cities and industrial areas, and directly affecting human health. Few countries are as dependent on coal as China, with annual consumption now approaching 1 billion tons. Domestic garbage and industrial solid waste often pile up uncovered in random heaps around large cities, as a result of poor past, and in many cases even present, solid waste disposal practice. In the countryside, excessive use of water and inappropriate use of fertilizers and pesticides, as well as irrigation in some areas, have begun to create environmental problems. B. Environmental Conditions of Coastal Waters 1.3 Many of China's largest urban centers are clustered along the coast and thus their industrial and sanitary wastes are discharged into the coastal marine waters. Treatment of such effluents is highly variable, ranging from virtually no treatment in Guangzhou in the south to secondary treatment of part of the wastes in Shanghai. Treatment at source of industrial effluents is generally not undertaken leading to potential pollution by trace metal and organic contaminants of the combined sewage waters. With some notable excep- tions (e.g., Huangpu River in Shanghai), good circulation of local receiving waters maintains coastal and estuarine waters in reasonably good condition (PRC National Water Standard Class 2 or 3, Table 1). However, as the urban centers expand, combined with development of new economic/industrial zones, maintenance of coastal water quality will require more widespread use of ade- quate sewage treatment and disposal systems.  - 2 - 1.4 There are three major river systems discharging into the China coas- tal sea lane: Huang He (Yellow River) into the Yellow Sea, Chang Jiang (Yangtze River) into the East China Sea and the Xi Jiang (Pearl River into the South China Sea); there are numerous smaller rivers. These river systems are well known to transport extremely large quantities of suspended solids, the result of erosion of inland areas, and potentially, contaminants associated with the solids (e.g., pesticides, fertilizers, industrial discharges). Extensive monitoring of water and sediment quality has been undertaken of, at least, the three malor systems since 1984. Water quality is typically of National Water Quality Class 2 or 3; however, accumulations of contaminants in the sediments with a resultant impact on the sediment biological community have been noted, for example loadings of contaminants near Shanghai on the lower Chang Jiang. Comparisons of the adjacent coastal to international waters have not been undertaken. 1.5 The State Oceanographic Administration (SOA) has been conducting marine monitoring and assessment studies of the coastal and international waters since 1974, for such parameters as petroleum hydrocarbons, trace metals and other general water quality parameters, as well as sediment quality and status of the marine biological community. Through three major centers (Dalian, Shanghai, and Guangzhou), SOA monitors water quality twice a year at over 100 stations in deeper waters, some 400 stations in collaboration with the Harbor Superintendency Administration (HSA) for oil pollution and induts- trial wastes, and 240 stations in major estuaries (typically in the outer reaches; other agencies are responsible for the remaining sections of the rivers'. Sediments at many of these sites are monitored once a year, and the status of the marine biological community once every two years. SOA has just completed a comprehensive "Mussel-watch" type program to assess contaminant distribution and biodiversity in conjunction with HSA. A more detailed description of SOA activities 's available in the project file. 1.6 Specific pollution attributable tc ships wastes and marine traffic through the coastal sea lane is difficult to quantify. Estimates can be derived from comments by HSA that many ports are able to handle only 20-30 percent of estimated quantities of garbage/solid wastes, none of the ports have facilities or barges to permit pumping out of sanitary sewage for subsequent treatment, and, with the exception of Dalian and Shanghai, facili- ties for the reception and treatment of oily waters are limited in capacity and treatment capability. Assuming optimistically that 2U percent of the waste is being properly handled and 'reated, then 800,000 to 900,000 tons are being discharged annually into coastal aad international waters. C. Sector Organization 1.7 The government of each administrative region is responsible for enforcing environment protection laws, primarily through its Environment Pro- tect:on Bureau (EPB). At the national level, the National Environmental Pro- tectior. Agency (NEPA) is responsible for (a) determining national environ- mental policies for air, water, soil, wastes, noise, etc.; (b) designing national environmental regulations and standards; (c) environmental monitor- ing; (d) providing guidance to the provinces on environmental matters; and (e) research. Many port authorities have set up EPBs reporting through a deputy director. These bureaus handle monitoring and operation of pollution control  equipment, and are responsible for preparing appropriate documentation, such as environment impact statements, state-of-the-environment reporting, and environment aspects of engineering feasibility and operational studies. Each municipality also has a Municipal Environment Protection Bureau (MEPB) respon- sible for monitoring all aspects of pollution and enforcement of national environmental protection laws and regulations. 1.8 Under the Marine Environmental Protection Law, the Harbor Superintendency Administration (HSA) is responsible for monitoring pollution or accidental spillage from ships, which includes e3camining waste treatment facilities on bulk carriers, Although operating mostly inside harbors, HSA is also responsible for responding to spills and pollution from ships in coastal waters; however, it lacks the facilities and equipment to do so. Along with NEPA, SOA is also responsible for environmental quality at the national level. SOA functions include marine environmental research and monitoring, but mostly of waters outside harbors. Data from their studies are helpful for revising or developing regulations and regulatory limits. D. Sectoral Issues and Problems 1.9 The emphasis on economic development in the 1970s encouraged growth without special regard for pollution control. Hence, environmental conditions have seriously deteriorated. Beginning with the 7th FYP (1986-90), GOC and the local authorities have taken greater initiatives to improve the environ- ment and to enforce important regulations. These include a strict requirement for environmental impact assessments on new projects that may pose environmen- tal problems. A key initiative is the required simultaneous assessment and interaction of economic, engineering and environmental aspects of all proj- ects, from the earliest feasibility study stage to the final operations stage. During the feasibility study stage, the environment impact assessment (EIA) for port and water projects employs state-of-the-art EA techniques and addresses environmental protection and mitigation issues and overall environ- ment management. 1.10 For existing polluters, problems arise when the cost of cleanup is high. Since local authorities are often the owners of the polluting enter- prises, they may be reluctant to jeopardize the financial viability of the enterprises through expensive cleanup measures. Thus financial constraints slow the progress of pollution abatement. Current industrial cleanup measures include mostly end-of-pipe treatment, a term that denotes treatment rather than reduction or waste avoidance. The Central Government, with the Bank's assistance, is considering more preventive measures, i.e., more efficient and economical methods for reducing pollution through recycling, process modifica- tion, and the use of less polluting inputs. Often when technological change is the preferred sol;ition, lack of financial resources-especially foreign exchange-is generally a barrier. 1.11 To deter pollution, the Central Government introduced a system of charging for pollution and imposing penalties for exceeding set pollution limits. About 80 percent of the funds derived from these charges are used for pollution abatement measures or facilities. A range of unit charges (based on concentration) covers each type of pollution. Within this range, local governments who enforce the regulations can set the charges. Often, however,  - 4 - the charges are too low even at the top oi the range to deter pollution, since polluters often find it cheaper to pay the penalties rather than take more costly abatement measures. Also, even though the amount collected from penalties is not insignificant, it is too small to significantly assist pol- luters in cleanup. If further meabures are not found to finance pollution abatement efforts, environmental improvement will be slow. 1.12 The main focus of the environmental efforts of the Eighth Five-Year Plan (1991-95) is on urban and regional environmental strategies, since they are recognized as major sources of marine pollution. Plans include the construction of upgraded sanitary sewage facilities (e.g., the Bank-financed facilities for Shanghai), active participation in various international conventions, such as the International Convention for the Prevention of Pollution from Ships (MARPOL), and development of environmental strategies for key coastal areas (e.g., a recently approved grant, financed under the Japan Grant Facility administered by the Bank, to finance a large-scale, environmental study of Haxigzhou Wan, China's most productive, but increasingly polluted, bay. Hangzhou Wan lies between the port of Shanghai (to the north) and the port of Ningbo (to the south). E. The Bank's Role and Sector Strategy 1.13 The Bank's role in the environment sector in China is to assist the Government in (a) developing appropriate strategies for improving and maintaining the quality of the environment (to optimize total benefits, including those from improvements in the efficiency of industrial production and the use of natural resources); (b) planning and prioritizing needs for environmental improvement, and identifying and preparing plans for the most cost-effective projects; (c) providing project funding and attracting other sources of external financing; (d) strengthening institutions responsible for enforcing environmental protection regulations, as well as those that operate community systems for environmental pollution abatement; and (e) promoting sound financial and cost recovery policies to sustain viable operation of the urban services required for reducing environmental pollution. Because of the magnitude of the problem, the Bank's work on the environment in China is receiving much attention and support from the international community. In many instances, the Bank is well positioned to direct this attention and sup- port to high-priority areas. 1.14 The linkage between the economy and environment at the urban level offers the Bank an excellent comparative advantage. The Bank is assisting with the economic analysis of underlying causes of environmental degradation and the use of economic techniques to set priorities for improving and protecting the environment. It also provides technical help in designing policies and making investments, particularly in waste avoidance, waste reduction, and pollution control technologies and projects. The design of five comprehensive urban and provincial environmental projects currently under preparation will address strategies for managing and treating water resources, minimizing industrial wastes and controlling pollution of water, air, and land, including managing hazardous and toxic wastes. These five projects will also include components to develop long-term, least-cost environmental strategies, policies, and investment programs, as well as provide institutional development assistance to the respective provincial and  - 5 - municipal environmental protection bureaus, planning commissions, and public utilities. 1.15 Bank technical assistance related to the environment includes acti- vities at the national, provincial, and municipal levels. Assistance (through the Japan Grant Facility administered by the Bank) to the National Environmen- tal Protection Agency (NEPA) was recently approved. This will 91lp NEPA strengthen its research, planning, and implementation of environmental poli- cies in five areas: (a) environmental impact assessment; (b) waste minimiza- tion and pollution control in rural industries; (c) environmental planning and economic incentives; (d) hazardous and toxic waste management; and (e) envi- ronmertal information systems. The Bank is also providing technical assis- tance under various projects to environment departments in several sectors or line ministries.  -6- II. THE TRANSPORT SECTOR A. Overview 2.1 The transport system in China is characterized by a high volume of freight traffic in relation to economic output, seriously suppressed demand, intensive utilization of fixed assets, a strong emphasis on railways, and distortions in tariffs and costs (arising particularly from inadequate provision for depreciation). Freight traffic intensity in China, measured in tkm per US dollar of GNP, is even higher than in the (former) Soviet Union and is much higher than in India, Brazil, or the United States. The major reasons behind this are a relatively large heavy industry sector, a large volume of other low-value-added products, reliance on coal as the major source of energy, and underpricing of energy and raw materials. In addition, energy efficiency in China is relatively low, and there is still little preprocessing of raw materials before shipping. On the other hand, the size of China's transport network, compared with its areas and population, ranks China's net- work among the lowest in the world. 2.2 Chinese policy statements repeatedly identify transportation and energy shortages as the two most critical bottlenecks in the economy. The rapid growth of China's economy in the last decade has stimulated an increasing demand for the shipment of commodities of all sorts, and for passenger travel as well. Coal makes tup about one third of the total traffic. Bottlenecks in coal transport (betweer. -ne northern coal producing areas and loading ports for distribution to industries and to ports on the south and east coasts) are a major constraint to continued rapid economic growth. Other bulk and neo-bulk cargoes also feature prominently in water-borne traffic. These include iron ore, grain, fertilizer, construction materials, timber and cement. General cargo typically makes up 10-20 percent of the traffic at major ports. Cargo unitization has grown rapidly in China. Twenty-one ports now handle container traffic with 13 specialized container berths handling a total throughput capacity of over 1 million TEU (twenty-foot equivalent units). 2.3 Efforts to reduce waste within the transport system (for example, by eliminating cross-hauling of the same commodity, increasing the processing of raw materials before shipment, and increasing the intensity of road and water- way utilization) are certainly desirable, and are being pursued. More funda- mentally, however, the Government's strategy for solving transportation short- ages will have to rely on an expansion of the system's capacity, by increasing the utilization of existing facilities wherever possible, and by building new facilities where necessary. Traffic 2.4 The economic reforms introduced sirce 1979 have provided the impetus for. a large upsurge in both freight and passenger traffic for all modes, which has sev-rely taxed the transport system. For example, during the '80s, rail- way freight traffic grew at about 6 percent per year, and port freight traffic grew at about 9 percent per year. Intercity highway freight traffic grew at about 16 percent per year-consistently higher than the growth of the gross domestic product. Passenger traffic grew at about 12 percent per year in this  period. Overall, passenger travel per capita ir China remains low, in part because of severe capacity constraints. Civil aviation, although growing rapidly (almost 20 percent annually for both freight and passengers), is still limited, and most long-distance journeys are made by rail. From the docu- mented increases in growth rates between 1979 and 1989, traffic will continue to grow at a high rate in China in the foreseeable future. Modal Split 2.5 Although the railways' share of traffic has declined over the last 10-20 years as the share of road traffic has grown, unlike in other countries, rail transport still dominates freight and passenger traffic in China. In 1990, 58 percent of froight and 47 percent of passenger traffic moved by rail, and the rest by road, inland waterway, coastal shipping, pipeline, and civil aviation. The continued pre-eminence of the railway is in part due to the structure of the Chinese economy, wherein heavy industry is prominent and coal is the dominant energy source. Coal and the large quantities of other bulk inputs associated with heavy industry are well suited for railway transport and constitute the majority of railway traffic in China. In the case of passenger transport, the importance of the railway is due to the short length and backward condition of the road network, poor intercity bus services, the virtual absence of private automobiles and the limited use of aviation. Civil aviation's share was only 3.1 percent for passenger traffic and less than 0.5 percent for freight traffic. Investments 2.6 Public investment for transport infrastructure has not kept pace with the growth of the economy. Compared with 2-3 percent of GNP for countries such as South Korea and Brazil, transport investments as a percent- age of GNP have declined to 1.3 percent of GNP from a high of 2.4 percent during the Fourth Five-Year Plan (1971-75), despite an absolute increase in monetary terms. The low levels of transport investment appear to contribute to transport being a bottleneck to China's economic development. In the coming decades, a much larger investment effort will be needed if transport shortages are to be overcome. 2.7 The level of investments for the ports subsector has been reason- able. However, the main issue for ports is not a lack of investments and the resulting problems in cargo handling, rather it is the poor hinterland link- ages and limited operational efficiency of ports. In the ports, lack of proper handling facilities is hampering trade in bulk commodities, such as fertilizers, cement, and grain. B. Transport Issues and Government Strategy 2.8 The transport system has been severely taxed by the pace of recent economic development, and capacity constraints are evident in all modes. Key issues in the transport sector include the following: (a) chronic shortages in the supply of transport infrastructure and services due to underinvestment;  (b) excess demands generated by price distortions of transport services and major commodities (particularly coal); (c) uneven development of modes (i.e., excessive reliance on rail, rela- tive neglect of other modes, and the absence of modern, integrated intermodal services); (d) outdated technology within each mode (obsolete vehicles, infrastruc- ture, and operating systems); (e) shortages of skilled labor in key areas, particularly in multimodal planning and policy analysis, economic analysis, and logistics management with emphasis on customers; and (f) structural weaknesses in highway construction capabilities related to procurement procedures, quality control of works, and project and company management. 2.9 China's Eighth Five-Year Plan (1991-95) recognizes all these sectoral needs. By the end of the plan period, freight traffic is projected to be 45 percent higher than i-n 1990, and passenger traffic 60 percent higher, with a greater share of the increase falling on road transport. To meet these needs, substantial investments are envisioned, especially in new rail lines, double-tracking and electrification of existing lines, new highways, and more berths at deep-water ports. The plan also aims at efficiency gains in trans- portation from operational improvements, such as the development of integrated intermodal transportation networks, in particular for coal transport and for import-export trade, and technological improvements such as container-handling facilities and intermodal transport terminals. To facilitate these develop- ments, the plan envisions significant institutional changes in the sector, including furthering the policy of removing government control of operating enterprises and delegating greater authority to the enterprises, this has recently begun in the ports subsector. Continuing adjustment of prices for transportation services is expected to assist the funding of investments in the sector from internally generated resources. C. Bank Group Participation in the Sector 2.10 The Bank subscribes to the Government's objectives for developing the transport sector, and is supporting its initiatives with both financial and techniral assistance. The Bank financed, or is financing, 19 transport projects to date: six railway projects; seven highway projects and six port projects. Three railway projects (Loans 2394-CHA, 2540-CHA, 2678/Credit 1680-CHA) have assisted the expansion of capacity on key routes and the manufacture of electric locomotives, passenger coaches, and signaling equip- ment; a fourth railway project provides for strategic studies for modernizing technology, as well as for expanding line capacity and manufacturing facil- ities. The seven ongoing/completed highway projects involve the construction or improvement of both national and rural roads. Six port projects (Loans 2207-CHA, 3006-CHA, 2689-CHA, 3007-CHA, 2907/Cr.1875-CHA, and 2877/Cr.1845- CHA) involve increasing the capabilities of Chinese ports. Besides these subsector-specific operations, the Bank has been assisting the Government in conducting strategic studies and implementing projects of a wider nature. For  example, a review of the utilization of water transport was completed in 1987, a comprehensive transportation study for Guangdong province has been completed. A Yangtze Economic Zone Transport Study has also been completed recently. Other transport studies under way cover coal transportation, rail- way costing and investments, port and shipping development and port costing. 2.11 The growth and modernization of the transport system in China in recent years has been spurred by increased and broad-based Government-Bank dialogue on specific projects and on long-term strategies for the sector and specific subsectors. Much more, however, needs to be done to bring about the changes required to significantly alleviate the transport bottlenecks and to rationalize and increase the effectiveness of the transport system. Over the next several years, the Bank in its dialogue with the Government should pay particular attention to encouraging measures oriented to: (a) increasing the level of total transport investments as a proportion of GNP to make up for backlogs caused by past underinvestment and to meet new traffic demands; (b) realigning further the prices of freight transport services and the major commodities to bring them closer to their true costs, so as to (i) provide a better guide for more rational decisions on indus- trial location to reduce the high transport intensity of the economy, (ii) promote a rational economic distribution of traffic among the various transport modes, especially as the Chinese economy diversifies, causing changes in the structure of transport demand, and (iii) enhance cost recovery from the users of transport services which should increase the sector's ability to finance new investments; (c) modernizing technology and implementing managerial reforms to con- tinually increase the productivity of existing assets; and (d) improving investment decisions, both across and within modes, through analysis and planning tools that more optimally determine the economic priorities of transport investments under budget con- straints. Bank strategy should support the Government in stepping up investments in the transport sector and implementing price adjustments and reforms. Through its lending operations and sector work, the Bank is supporting policy directions that introduce more competition within and among transport modes, promote better allocation of resources through pricing, and improve management of the transport sector and transport enterprises.  - 10 - III. THE PORTS SUBSECTOR A. Port Traffic 3.1 Six of China's 15 major deep-water ports (Shanghai, Dalian, Xiamen, Ningbo, Guangzhou, and Tianjin) handle over 80 percent of the total traffic. Shanghai, with over 100 berths, is one of the ten largest ports in the world. In 1987, it handled 128 million tons of cargo and more than 12 million passen- gers. The port of Ningbo, which is close to Shanghai, is one of China's few natural deep-water ports; it is the only deep-water port on China's mid-- eastern seaboard. Many other minor ports connect China's extensive coastline and 110,000 km of navigable waterways. 3.2 Since opening its economy to foreign trade in the late 1970s, traffic through China's 15 major ports has more than doubled to 440 million tons in 1989. Compared with that of many developing countries, however, port traffic in China is low in relation to the size of its economy. Foreign trade is expected to continue growing in step with the economy as a whole: the Eighth Five-Year Plan envisions total port traffic reaching 700 million tons by 1995, which will be more than 45 percent higher than the volume projected for 1990. B. Organization and Management 3.3 One of the most important challenges facing the management of China's ports is how to adapt the ports to the changing circumstances brought about by the economic reforms initiated in 1979. The port subsector was not affected by the economic reforms until 1984, when the Ministry of Communica- tions (MOC) began to decentralize the ports. The decentralization featured (a) self-financing of port operations, (b) investments funded by internal cash generation, and (c) increasing competition among ports for cargo. Before the decentralization, MOC set tariffs, allocated cargo, provided grant financing for major investments, covered any deficits, and received most of the surpluses generated by the ports. Now only a portion of the total cargo is allocated, tariffs for unallocated cargo may be set competitively within a narrow range, and profits (subject to taxes) are retained by the ports. The Government progressively plans to reduce controlled allocation of traffic, reform tariffs and taxation policies, and phase out grant financing of invest- ments. 3.4 The ports of Tianjin, Shanghai, Dalian, and Guangzhou (Huangpu) were the first to be decentralized. A "Pilot System Reform," introduced in Tianjin in 1984, transferred primary leadership of the port from MOC to the local goGernment. The port was exempted from paying any taxes on profits until 1990. Since the reforms, the port has had much more autonomy in management, investment planning, and control over its finances. In 1986, the ports of Shanghai and Dalian were decentralized with modified provisions for taxes and grant financing of investments: they were to pay a fixed lump sum tax, obtain MOC approval for large investments, and receive some grant financing through 1990. Huangpu port was similarly decentralized, though specific provisions were again slightly different. All the ports remaining under MOC control were given greater financial autonomy from the end of 1988.  - 11 - 3.5 While it is still early to evaluate the different models adopted to improve port management, it appears that future policy will likely treat ports more fairly and uniformly. In order to develop efficient policies on tax- ation, tariffs, and the financing of investments, better iniormation on port operations, costs, and finances must be made available. The Bank is helping MOC conduct studies that include research on alternative organizational forms employed in other countries, as well as on development of port costing sys- tems. C. Operations and Maintenance 3.6 Although most major ports in China operate round the clock with a three-shift system, operations are increasingly hampered by congestion inside the port areas, mainly because of the lack of adequate specialized facilities. Technological and institutional .actors contribute to inefficiency and cong- estion. In 1985, average delays for foreign trade vessels were as high as 11 days. Government restrictions on imports improved the situation somewhat in 1986, but major ports experienced increased congestion again with average waiting times of four to five days. 3.7 Port congestion in many southern and eastern ports could be alle- viated by rationalizing cargo movements through the use of modern sea-going barges for direct transfers of cargo between ports. MOC has begun to rationalize traffic flows and, as part of the Ningbo Port Project, cargo and shipping movements in the mid-eastern region are being studied. The ports of Shanghai and Dalian have retained consultants to review operations, identify weaknesses, and recommend improvements. At the ports of Ningbo, Xiamen, and Shanghai, the Bank has mounted similar reviews of operations and maintenance, and has agreed with these ports on specific performance targets within speci- fic time frames. 3.8 Excessive reliance on break-bulk handling has resulted in berth productivity levels for general cargo as low as 50 percent of levels achiev- able with unitized cargo handling. Clearly, more specialized handling facilities are needed to increase the level of cargo unitization for break- bulk cargoes. Some progress has been made in containerization for foreign trade, although little has been achieved in domestic trade. Using pallets to move break-bulk cargo is a feasible and cost-effective means of increasing unitization of domestic break-bulk cargo; savings would result both from improved productivity and reductions in cargo damage and loss. 3.9 The proper interfacing of different transportation modes is an aspect of port development which is now receiving the urgent attention of MOC. However, only road connections are within MOC's jurisdiction, while railways are the responsibility of the Ministry of Railways (MOR). MOR itself is facing a serious shortage of capacity, and must coordinate its own priority projects with those of HOC.  - 12 - D. Tariffs 3.10 China's ports have two levels of tariffs-one for foreign trade and another for domestic trade. Foreign ships pay the published harbor dues and charges, which seem to be set on the basis of what the market will bear, while Chinese vessels pay lower rates, which seem to reflect the relative financial strengths of the China Ocean Shipping Company (COSCO) and the ports and their different investment requirements. Chinese ports have no shipping conference rates, and the ports only rarely pay demurrage charges for ship waiting, which are usually paid by the cargo owner. Recently, however, ports have been signing dispatch agreements with ship operators that guarantee a certain turn- around times the port pays demurrage charges if the time is exceeded or the ship pays premiums if cargo is handled faster. Usually the premiums far exceed the demurrage charges. 3.11 The structure and level o. port tariffs are determined jointly by MOC, MOF, and the State Price Bureau. The present tariff structure was estab- lished in 1978 (and was revised in 1985 for foreign trade vessels) on the basis of a somewhat arbitrary allocation of costs to the different port ser- vices. Tax agreements between the ports and the Ministry of Finance (MOF) expired in 1990; future tax and tariff policies are presently under review. The structure reflects all the distortions inherent in the prices of the dif- ferent factor inputs. As a first step toward rationalizing tariffs, HOC is currently carrying out a comprehensive Costing and Management Information System (PCMIS) study (funded by the Japanese Government), with the assistance of the Bank, which will be responsible for developing an accurate and uniform costing system. After the system has been developed under HOC's auspices, it will be tested at selected ports before adoption at all major ports. Port authorities must become more aware of the cost of providing specific services as well as whether depreciation funds and other funds needed to cover liabili- ties are adequate. Further, since grant financing and the large investments planned for China's ports will be eliminated (to accommodate increased trade flows and recent large increases in domestic transport demand), the future financial liabilities of ports are likely to increase rapidly. Hence, the Government and port managers must pay special attention to costing port opera- tions, managing their finances, and assuring the long-term viability of investments. 3.12 Tariff reform is necessary both to assure the future financial health of the ports and to ensure that port tariffs provide incentives for efficient utilization of port assets. In many instances the present tariff structure is inefficient on both counts. For instance, the relative prices for handling break-bulk cargo, pelletized cars, and container cargo do not reflect costs; they actually discourage shippers from using more efficient unitized cargo-handling technology. Also, relatively low port storage charges encourage shippers to overutilize port storage facilities, thereby causing congestion in the ports. Therefore, tariff reform must focus on the level of tariffs as well as on the structure. E. Environmental Conditions in Chinese Ports 3.13 China's rapid economic growth over the past decade has been reflected in substantial increases in foreign and domestic trade and  - 13 - consequent growth in international and domestic shipping traffic through its ports. This increased ship traffic has resulted in discharges at see of associated wastes, such as oily ballast and bilge waters, sanitary sewage, and garbage or solid wastes. The volume of 1990 ship traffic and the estimated wastes generated by such traffic are presented in Attachment 1. A summary of 1990 data, as well as forecasts for 1995, are given below: Port Ship Traffic (no.) Wastes generated (thousand tons) 1990 1995 1990 1995 Dalian 10,900 13,000 225 300 Tianjin 5,500 8,000 114 150 Shanghai 25,400 30,000 500 600 Ningbo 1,400 3,000 28 60 Guangzhou 8,400 10,500 210 250 Xiamen 10,700 16,000 163 240 Total 62,300 80,500 1,240 1,600 Source: Bank staff, 1991. 3.14 China has an extensive coastline bordering on three regional seas: the Yellow Sea, the East China Sea, and the South China Sea. Many areas within these waters are important sources of harvested marine resources both for China and other nations. The World Oceans are divided into 52 large marine ecosystems (LME) that provide more than 90 percent of the ocean resources. The Yellow Sea is one of these ecosystems that requires preservation. Protection of the environmental quality of these waters is critical for maintaining a major food source, and is reflected in one of the goals of the Eighth Five-Year Plan (1991-96). PRC has recognized the need to improve the protection and conservation of the environment, including that of both coastal and adjacent international marine waters. Policies include con- struction of upgraded sanitary sewage facilities (e.g., City of Shanghai), improved industrial waste management, and active participation in various international agreements, such as the International Convention for the Preven- tion of Pollution from Ships (MARPOL). 3.15 One key mechanism for environmental protection of marine waters is the 1973/78 MARPOL Convention (Attachment 1), to which PRC became a signatory in 1984. Under this convention, ships are permitted to discharge wastes at sea only under controlled conditions (e.g., oil tanker ballast waters may not contain more than 15 mg/L of hydrocarbons), and ports are to provide facili- ties for the reception, treatment, and disposal of ships' wastes. Four types of wastes have been identified: (a) oily ballast and bilge waters (MARPOL Annex 1); (b) chemically contaminated ballast and bilge waters (MARPOL Annex 2);  - 14 - (c) sanitary sewage (MARPOL nnex 4); and (d) garbage or solid wastes (AARPOL Annex 5).1/ Of these, MARPOL Annex 4 has not yet come into force because of limited world- wide port reception facilities for sewage. 3.16 Attachment 2 gives a summary of existing waste reception facilities in the six major foreign trade ports in China covered under this project (Dalian, Tianjin, Shanghai, Ningbo, Guangzhou, and Xiamen). Of the six ports, only Dalian and Shanghai have the facilities and infrastructure potential to handle ships' wastes. However, even these facilities are outdated and barely able to meet present demands. Waste volumes projected for the future will clearly exceed existing capacity. At Xing Zhao near Guangzhou, the Guangzhou Bureau of Maritime Transport Administration (BOMTA) is establishing a facility to handle oily ballast from its ships, eliminating the need for such a separate GPA facility. During negotiations assurances were obtained from the GPA that GPA will enter into arrangements, satisfactory to the Association, with BOMTA to handle the oily ballast and bilge waters for all port users at the proposed BOMTA facility at Xin Zhao. 3.17 The provision of proper waste management facilities, coupled with an appropriate regulatory and monitoring regime and fee schedule, should significantly reduce the quantities of pollutant wastes discharged at sea. Construction of the facilities would also provide a model for other ports in China. F. Regulatory Framework for Environment Control 3.18 As a signatory to MARPOL, China has enacted the Marine Environment Protection Law (March 1, 1983). Chapter 5 of the law specifically addresses prevention of pollution from vessels. PRC subsequently developed a set of detailed regulations on pollution from vessels. In general, these regulations are stricter than present international guidelines (see Table 2). For example, the oil content permitted in discharge water is less than 10 mg/l (ppm), compared with the international guideline of 15 mg/l (ppm). However, these regulations are not at present being strictly enforced and monitored primarily due to lack of waste reception facilities. 3.19 Many port authorities have set up an Environmental Protection Bureau reporting through a deputy director. These bureaus undertake monitoring and operation of pollution control equipment, and are responsible for preparing appropriate documentation, such as environmental impact statements, state of the environn.ent reporting, and environmental aspects of engineering feasi- bility and operational studies. Each municipality also has a Municipal Environment Protection Bureau responsible for monitoring all aspects of pollu- tion and enforcement of national environmental protection laws and regula- tions. Presently none of the ports has a specific fee to permit cost recovery for the capital or operating costs of the proposed facilities. 1/ MARPOL Annex 3 deals with harmful substances carried in packaged form in freight containers and portable tanks.  - 15 - G. Role of the Bank Group 3.20 The Bank has supported the Government'e objective of expanding capacity and improving productivity in the ports since 1982. The first lend- ing operation in the subsector (Three Ports Projects, Loan 2207-CHA) financed additional container handling capacity in Shanghai, Huangpu and Tianjin and a coal terminal at Huangpu. The second (Tianjin Port Project, Loan 2689-CHA) is financing the construction of eleven additional berths at Tianjin for timber, construction materials and general cargo. The third (Huangpu Port Project Loan 2877-CHA/Credit 1845-CHA) is financing the construction of five additional berths in the Xinsha area of Huangpu district of Guangzhou port for coal, iron ore, bulk fertilizer and general cargo. The fourth (Dalian Port Project Loan 2907-CHA/Credit 1875-CHA) is financing construction of a new terminal at Dayao Bay for container and break-bulk cargo. The fifth (Ningbo and Shanghai ports project, Loan 3006-CHA) is financing expansions at both Ningbo and Shanghai ports. The sixth (Xiamen Port Project, Loan 3007-CHA) is financing construction of four additional berths at Xiamen. Physical imple- mentation of projects has been good, with projects generally on schedule and below estimated costs. 3.21 Earlier Bank projects supported management systems improvements with components addressing computer development, technical studies, training, and containerization of cargo. The work of Bank missions has also been instrumental in developing Chinese expertise in the economic evaluation of investment projects and in updating various aspects of port operations. A study is under way to help GOC determine the most economic pattern of develop- ment for the various ports in mid-eastern China, particularly Shanghai and Ningbo ports. 3.22 Several studies in the port and shipping subsectors have been initiated under previous Bank projects. They include a containerization study which was completed by the Comprehensive Transport Research Institute in 1985. Recent investments in container facilities have benefitted from the insights provided by this effort. Studies included under ongoing port projects include an Intermodal Cargo Distribution Study as part of the Huangpu Port Project (for the south), a similar effort to be undertaken in the Dalian Port Project (for North China), Port Costing and Management Information Study, etc. Fiom all these projects it became evident that mitigation measures to improve and/or to protect the marine environment is sorely needed. 3.23 Even though China signed the MARPOL convention in 1984, specific pollution abatement measures have not been included in Bank projects as they depend for their effectiveness on a national policy across all ports, at least the major ones in foreign trade. A policy is now taking shape on this matter, and provides the Bank Group a unique opportunity through the project, support- ed by GEF, to assist and encourage GOC to implement a comprehensive program to monitor ship movements and waste discharges along the coastal sea lane, as well as to provide facilities and strengthen the regulatory framework (incen- tives and penalties) for ships to discharge their wastes in an environmentally safe manner. 3.24 Of the Bank-financed port projects, only one has been completed so far--the Three Ports Project. The primary project aim was to create  - 16 - additional port capacity in Tianjin, Shanghai and Huangpu. Other aims of the project were that during project implementation (i) the government would evolve a long-term nationa. port strategy and (ii) the Bank would establish a dialogue with the borrower on the basis of three studies included in the project. The principal objective to create additional port capacity and prevent port congestion was accomplished fully and on time. The economic rate of return of 34 percent compared with 29 percent at appraisal; operation and maintenance of terminals were efficient. But the Government did not evolve at that time a long-term strategy, and preparation by the borrower of the three studies and the Project Completion Report was not satisfactory. The Bank Group, however, is now assisting GOC in evolving a port development strategy for the southern half of China, and a number of other important studies are underway.  - 17 - IV. THE PROJECT A. Objective 4.1 The objective of the project is to reduce pollution of international and Chinese territorial waters caused by ships' wastes through: (a) improved monitoring and analysis of the nature and magnitude of the problem; (b) improved policy, regulatory, and incentive frameworks; and (c) the provision of infrastructure to receive and safely dispose of ship wastes. B. Description 4.2 The project consists of a national component and a ports' component, as follows: National Component (a) establishing baseline data on international ship traffic, related waste types and quantities by designing a pilot interport ship waste transferring system to facilitate enforcement; (b) preparing a comprehensive oil spill contingency plan for each port (including identification of selected equipment); (c) preparing terms of reference for undertaking a study of a Large Marine Ecosystem (LME) monitoring program for the Yellow Sea; (d) undertaking a study to develop a system for the treatment of chemi- cally contaminated water; (e) promoting coordination among the various authorities to upgrade environmental monitoring capabilities at the ports, coastal waters as well as international waters; (f) preparing and implementing a tariff schedule based on cost recovery; and (g) providing consultants' services and training in connection with or related to activities under the project. Ports' Component (a) provision of appropriate waste reception and disposal facilities at the ports of Dalian, Tianjin, Shanghai, Ningbo, Xiamen and Guangzhou; and (b) establishing or upgrading environmental monitoring and enforcement capabilities of each of the Port Authorities.  ! ~~~~~~~~~~~- 18 - National Component 4.3 Interport Ship Waste Tracking System. The provision of waste recep- tion and treatment facilities in each port will permit ships the effective option of safe discharge of wastes in port. This can be enforced to a certain extent by HSA, but to realistically evaluate compliance with the Marine Envi- ronment Law and to provide an evaluation mechanism for the project, it is proposed to develop and operate a port-to-port waste tracking system. At the port of departure, information as to projected volumes of wastes will be col- lected and entered into a data base through specific software. This infor- mation will be forwarded to the next port of call. At each port, the volumes and characteristics of the wastes discharged will be compared to the informa- tion forwarded from the port of departure. Thus HSA will be able to evaluate whether a ship illegally discharged wastes at sea, in contravention of existing regulation-. Software programs for this purpose are in use at a number of ports in Europe. The project will include: (a) development of a specific software program and of the information delivery and manifest system, as a first phase; (b) purchase and installation of "PC"-type computers in each of the six project ports, linked through computer modem with the other project ports and with HSA in Beijing, and training of port staff in operating the program, as a second phase. For the project to be successful, it will also require the cooperation of the shipping companies and ship personnel; the project will include consultation and training sessions with shipping compa- nies and ship personnel. A third phase of the tracking system is its eventual coverage of all important ports on the coast of China. 4.4 Oil Spill Contingency Planning Study. All the ports reviewed handle considerable quantities of petroleum hydrocarbons, as both crude oil and refined products, with increases projected in both the volume and size of the carriers being handled. In some cases, for example, Xiamen and Ningbo, berth space is inadequate for handling very large carriers; they have to be off- loaded while at anchorage. This activity has led the port authorities to become very concerned over the potential for product spillage or accidental leakage and their inability to clean up spills. The project provides oil booms for the ports to handle such situations. Only DPA and SPA have devel- oped some sort of consistent oil spill contingency plans, but they are not complete. All six port authorities need considerable assistance to prepare modern oil spill contingency and response plans. 4.5 Significant expenditures for spill response equipment and chemicals are inappropriate at this time and should be deferred until completion of a program of planning and training. The project will provide assistance to undertake a three-phase study to (a) develop oil spill contingency plans for the six ports using a generic model that can then be used to develop specific plans for each port; (b) undertake training of staff in the design and implementation of oil spill contingency plans; and (c) identify response equi- pment appropriate to the needs of the six ports. The experts to be hired under the project will work closely with MOC to develop a national scenario for oil spill response. This scenario would ensure nationwide consistency in planning, response capability, response training, and availability of personnel and equipment. Each port will maintain and operate a "standard" set of equipment that could be combined with resources from other ports in the event of a major spill. During negotiations, assurances were obtained from  - 19 - all six ports that they will adopt an oil spill contingency plan by July 31, 1994, developed according to terms of reference agreed with the Associatlon (Draft Scope of Work, see Attachment 3). 4.6 Large Marine Ecosystem (LME) Activity. The Yellow Sea, one of the world's LMEs, is also an important international waterway for shipping. It is important in the long term to protect the quality of the marine ecosystem of the Yellow Sea and, if possible, to work to improve it. While various factors influence the biomass yields of the LMEs, and all of these are not fully known, sufficient knowledge and expertise are available to assist in the main- tenance of their quality. To put a system in place for this purpose, however, requires long-term commitment both to establish a monitoring and remedial system and to operate it subsequently. This commitment will have to come from all the countries sharing in the Yellow Sea LME, namely, China, Japan and Korea. However, this is an activity falling outside the scope of port activi- ties and not directly related to it, and invariably in the jurisdiction of an agency different from the one dealing with ports. (In China, MOC has juris- diction over the ports, but SOA is an independent GOC agency.) However, LME activity would be a logical follow-on to the ship waste disposal project, and the Bank Group has proposed to GOC that this be undertaken as a separate exer- cise. The project will include assistance in developing the terms of refer- ence and detailed work program (Attachment 4) for such activity, which will be undertaken as a separate exercise. Various sources of funding for this re- gional program are being explored, i.e., UNDP, NOAA, technical assistance credit, etc. Assurances were obtained from GOC during negotiations that it will prepare, in consultation with the Association, the TOR and the complete program for a study of the Yellow Sea marine ecosystem by December 31, 1992. 4.7 Chemically Contaminated Water Treatment Study. The discharge of chemically contaminated waters is controlled by Annex 2 of MARPOL. With the exception of the Ningbo Port Authority, none of the ports has facilities to receive and treat ballast or bilge waters from bulk chemical carriers, nor to treat contaminated waters resulting from the washing of containers, due to its small quantities. However, bulk chemical cargo is becoming a major cargo for the six ports reviewed with the exception of Xiamen, and all the Port Authorities need to treat chemically contaminated waters. 4.8 The project will include a study to assess and develop a treatment system for chemically contaminated water (see Draft Scope of Work in Attach- ment 5). The study will be divided into three phases: (a) assessment of the nature and quantities of chemical cargoes now or projected to be handled through the ports; (b) joint development with staff from MOC and NEPA to des- ignate effluent criteria for the chemical substances contaminating the bal- last, bilge and wash waters; and (c) identificaticn and design of a treatment system that will be "generic" and modular in structure so that it can be tai- lored to handle best the different types and quantities of chemicals handled. During negotiations, assurances were obtained from GOC that it will carry out the above-mentioned study according to TOR agreed with the Association, by December 31, 1993, and implement its recommendations in consultation with the Association.  - 20 - Portsa Component 4.9 Oil-Contaminated Waters (MARPOL Annex 1). For each port, the neces- sary facilities were identified: they must be able to receive, treat, and process waters from oil-contaminated ballast, bilge/engine rooms, and tank wash from both crude and refined product carriers (see Attachment 2). In some cases, the port requirements were small enough to be adequately handled through the use of one or more self-propelled processing barges; in other cases, the requirements were larger and would be met through the use of a land-based facility. In either case, the oil-contaminated waters would be processed through a multistage processor consisting of gravity-based settling tanks, air floatation tanks, and adsorption filters to remove hydrocarbons and permit the operating agency to meet China's current receiving water criterion of 10 mg/L (ppm). ALl treatment facilities would include automatic monitoring systems to permit continuous treatment and discharge of waters. 4.10 The project will also provide sampling and testing equipment to permit the monitoring stations of the Port Environment Protection Bureaus and the Harbor Superintendency to monitor the treatment facilities to ensure their proper operation. The Port Environment Protection Bureaus will coordinate with local facilities of the SOA in such matters as sampling protocols, test- ing methodologies, and quality assurance of data programs. 4.11 Sanitary Sewage (MARPOL Annex 4). The provision of sanitary sewage facilities in the ports to receive and treat sewage from the ships will serve as a model for both the adjacent municipality and also for other municipali- ties and ports in China. In most cases, the port facilities would be located in municipal units that do not provide at present central collection and treatment facilities. In the ports of Dalian and Shanghai, the project would provide appropriate piping and valves to connect ship offloading facilities, at all terminals, to etxisting municipal collection and treatment systems. In the other four ports, the project would provide offloading facilities connec- ted to secondary treetment package sewage plants. They would be chosen so as to be readily expandable to accommodate increases in shipping or to provide facilities for wastes from the landside of the port operations. 4.12 The treatment facilities will permit treatment to secondary treat- ment levels, i.e, they will remove most solids and oxygen-demand materials, a portion of the nutrients, and a portion of associated contaminants. Effluents will be chlorinated to kill any associated bacteria and pathogens. 4.13 The project will also provide sampling and laboratory testing equip- ment to permit the monitoring stations of the Port Environmental Protection Bureaus to monitor the treatment facilities to ensure their proper operation. These tests will include biochemical and chemical oxygen demands, dissolved oxygen, suspended solids, turbidity, coliform bacteria, and select pathogens. 4.14 Garbage and Solid Wastes (MARPOL Annex 5). of the six ports reviewed, only DPA had an adequate program for the receipt and disposal of garbage and solid wastes. The other port authorities acknowledged that their facilities were adequate to receive and treat, at best, 20 percent of the projected garbage and solid wastes. The project will provide for the purchase of suitable collection barges and/or trucks for the port authorities and for  - 21 - the construction of incinerators for the destruction of materials that cannot be recycled or made into acceptable compost. The solid waste receiving and disposal facilities will form pare of an overall solid waste management plan for the port. 4.15 Disposal of garbage and solid wastes has often proved to be a very contentious issue for municipal units everywhere. As part of the project, the Association will work closely with the port authorities to ensure that the proposed port solid waste management plant can be integrated with the municipal solid waste management plans. In each case, the port authority will develop a solid waste management plan for ships, wastes and for other solid wastes generated in the port. Where possible, municipally owned and operated incineration, compost, and/or landfill facilities will be used to dispose of solid wastes (e.g., in Dalian and Ningbo). In cases where the port operations are separate from the main municipal units (e.g., in Tianjin or Guangzhou), the port authorities will construct and operate their own disposal facilities. Materials that can be recycled will be first separated out; the remainder are proposed to be incinerated, since landfill space is highly restricted. In the case of Shanghai, where port operations are very large, the port authority will also construct and operate its own facilities. Assurances were obtained from the six Port Authorities that they will develop their respective waste management plans by December 31, 1992, send them for the Association's review and comments, and adopt and implement them by December 31, 1994, taking into account the Association's comments. 4.16 Incinerators will be designed to meet the criteria for preservation of air quality. Resultant fly and bottom ash will be disposed of in appropriate landfill facilities after testing to ensure that contaminants are suitably immobilized. The project includes sampling and laboratory testing equipment to permit the monitoring stations of the Port Environment Protection Bureaus to monitor the treatment facilities to ensure their proper operation. These tests will include air quality monitoring (both ambient and stack sampling) and leachate testing of the fly and bottom ash. 4.17 Environment Monitoring Capability. Under the GEF provisions, the cost-effectiveness of the proposed facilities are to be determined initially on the basis of physical rather than monetary measures of global benefits (as the latter are almost impossible to quantify and measure). In addition, the GEF-funded projects should operate in an institutional framework which is favorable to the achievement of broad GEF objectives of global environment improvement. 4.18 To provide an adequate means of assessing the physical benefits of the proposed facilities, the project would provide for the purchase of suit- able sampling and laboratory testing equipment to upgrade or complement exist- ing capabilities within the Environmental Monitoring Stations of the Port Environmental Protection Bureaus. A detailed list of proposed laboratory equipment is available in the project file. With the exception of XPA, all the ports have the appropriate staff and institutional arrangements in place to acquire and operate the equipment appropriate to the monitoring require- ments associated with the proposed reception and treatment facilities. As detailed later (para. 4.21-4.23), XPA will be provided technical assistance to develop, set up and staff an Environment Protection Bureau.  - 22 - 4.19 Monitoring activities and responsibilities can be summarized as follows: (a) LME study (para. 4.5 above) would eventually monitor international waters in the Yellow Sea and would be the responsibility of SOA. (b) Monitoring of coastal waters outside the ports' jurisdiction would be the responsibility of SOA. (c) SEATRACK basic information would be the responsibility of the port's EPBs with feed-in to a central office for control by HSA at MOC headquarters in Beijing. (d) Monitoring the water quality inside the ports' jurisdiction would be the responsibility of HSA in collaboration with the ports' EPBs. (e) Monitoring the quality of the water discharge and air on-land would be the responsibility of the ports' EPBs. The water monitoring activities would assess the quality of effluents from the facilities, of the receiving waters into which the effluents are discharged (port waters) and of waters which are no longer impacted as a result of the project (adjacent coastal waters and sea lanes). The air monitoring activi- ties would include assessment of relevant stack emissions and air quality within the adjacent surrounding areas. Monitoring parameters would be selected to reflect the process being assessed (e.g., petroleum hydrocarbons in discharges from oil-contaminated water treatment facilities). 4.20 One objective of this project is to promote working relationships between basic monitoring agencies, such as the National Environmental Protection Agency (NEPA), the State Oceanographic Administration (SOA), and the Port Environmental Monitoring Stations. This cooperation would include development of common sampling and sample handling protocols, laboratory test methodologies, and quality assurance protocols. The development of common techniques would facilitate a merger of environmental data bases that would further the capability of NEPA and SOA improve the marine environment quality reporting. During negotiations, assurances were obtained from GOC and the Port Authorities that a coordinating team of representatives of the concerned Port Authority, EPB, NEPA, and SOA will be established at each port, as agreed with the Association, by December 31, 1992. 4.21 Technical Assistance to Xiamen Port Authority. All the Port Autho- rities, with the exception of XPA, have institutional arrangements, typically organized as an Environmental Protection Bureau reporting to a deputy direc- tor. These bureaus are responsible for all activities related to the full range of environmental issues, including air and water quality and the opera- tion of pollution control facilities and associated monitoring. 4.22 XPA has developed an organizational outline for an Environmental Protection bureau, but at present has neither the resources nor the in-house capability to implement the plan. Tasks which might be carried out by such a bureau are undertaken by port staff as necessary on a temporary assignment basis.  - 23 - 4.23 As part of the project, technical assistance will be provided to XPA to establish the proposed Bureau (see Draft Scope of Work in Attachment 6). This assistance will include recommendations on staffing requirements, staff recruitment and training, facility and equipment needs, and the setting up of an Environmental Monitoring and Laboratory facility for the port. During negotiations assurances were obtained from XPA that it will establish, b June 30, 1993, an adeluately staffed Environmental Protection Bureau, to supervise and operate the proposed ships' waste disposal facilities. C. Project Cost 4.24 Cost Estimates. The estimated cost of the project, in January 1992 prices, is $64.8 million (Table 3). This includes price escalation contin- gencies of $2.54 million and a physical contingency allowance of $2.34 mil- lion. The cost estimates are based on the cost of similar equipment and facilities as well as designs prepared by the ports. The technical assistance will involve approximately 38 staff-months. The project is exempt from import duties and taxes. The costs are summarized below: Local Foreign Total Local Foreign Total ----- $ million ------ ---- RMB million ----- National Component Monitoring and tracking 0.65 1.35 2.00 3.49 7.25 10.74 Technical assistance - 0.70 0.70 - 3.76 3.76 Subtotal 0.65 2.05 2.70 3.49 11.01 14.50 Ports' Component Disposal facilities 38.13 19.06 57.19 204.76 102.35 307.11 Technical assistance - 0.03 0.03 - 0.16 0.16 Subtotal 38.13 19.09 57.22 204.76 102.51 307.27 Base cost 38.78 21.14 59.92 208.25 113.52 321.77 Contingencies: Physical 1.48 0.86 2.34 7.95 4.62 12.57 Price 1.54 1.00 2.54 8.27 5.37 13.64 Total cost 41.80 23.00 64.80 224.47 123.51 347.98  - 24 - D. Financing 4.25 The project financing plan is summarized below. It includes con- cessional funding from the Global Environment Trust Fund (GEF) of $30 million and an IDA Credit equivalent to $15 million, with the remainder covered by GOC and the respective Port Authorities. GOC would be the borrower and would on-lend the proceeds to the respective Port Authorities, except for money to be retained by MOC for the national component. During negotiations, assuranc- es were obtained from GOC that the credit proceeds (except for a small amount to be retained for MOC) will be on-lent to the Port Authorities on terms and conditions satisfactory to the Association, namely 1.5 percent interest per annum, repayable in 15 years, with 5 years, grace period. The Port Authori- ties will bear the commitment fee and the foreign exchange risk. Local Foreign Total --------- $ million --------- PRC 19.8 - 19.8 GEF 14.6 15.4 30.0 IDA 7.4 7.6 15.0 Total 41.8 23.0 64.8 E. Organization and Management 4.26 Project Implementation. The project would be implemented and oper- ated by the Environmental Protection Bureaus of the respective Port Authori- ties. The project implementation schedule is shown in Schedule 2. The stud- ies to develop oil spill contingency planning and chemically contaminated water treatment processes would be implemented by the Environment Protection Department of MOC working in conjunction with the Environment Protection Bureaus of the six ports. The technical assistance to the Xiamen Port Author- ity would be implemented by the Office of the Director of XPA. The monitoring of the waters will be the responsibility of the EPBs, NEPB, HSA, and SOA, each in its jurisdiction as previously outlined. Specifications for the equipment needed are being prepared by the respective Port Authorities under MOC guid- ance. The project will be closely supervised to ensure satisfactory implemen- tation (see para. 4.34); the first-year will, in particular, require extra supervision effort to ensure timely preparation of specifications and issuance of tenders. 4.27 Procurement. Civil works contracts will be awarded through local competitive bidding (LCB), according to procedures acceptable to the Associa- tion, since they constitute small contracts which would not attract interna- tional contractors. Very small contracts for civil works, to be agreed with the Association, each costing $200,000 equivalent or less, and amounting to less than $2.0 million equivalent in total, would be procured under contracts after evaluation and comparison of quotations solicited from at least three  - 25 - Procurement Method Item ICB LCB Other NIF Total ------------------ $ million ------------------ Civil works - 10.85 2.00 6.92 19.77 (IDA) _ (1.40) - - (1.40) (GEF) - (1.53) (0.54) - (2.07) Equipment 38.80 - 2.00 3.50 44.30 (IDA) (12.60) - (1.00) - (13.60) (GEF) (26.20) - (1.00) _ (27.20) Technical assistance - - 0.73 - 0.73 (IDA) - - (GEF) - (0.73) - (0.73) Total 38.80 10.85 4.73 10.42 64.80 (IDA) (12.60) (1.40) (1.00) (15.00) (GEF) (26.20) (1.53) (2.27) (30.00) Note: Items in parentheses represent the portions financed by the IDA credit and GEF grant, respectively. NIF: Non-IDA/GEF Financed. suppliers under procedures acceptable to the Association. Contracts for equi- pment valued at more than $200,000 equivalent will be procured through inter- national competitive bidding (ICB) in accordance with Bank Group guidelines. Qualifying domestic manufacturers of goods will receive a preference in bid evaluation of 15 percent of the CIF price or the amount of the import duty, whichever is lower. Some small items, to be agreed with the Association, each costing less than $200,000 equivalent, and amounting to less than $2 million equivalent in total, would be procured under contracts after evaluation and comparison of quotations solicited from at least three suppliers under proce- dures acceptable to the Association. Contracts to be awarded under ICB, which would not be less than 60 percent of the credit value, will be subject to the Association's prior review of procurement documentation, as will proposed contract awards. Consultants for the technical assistance will be recruited in accordance with Bank Group guidelines. The project is expected to be com- pleted by June 30, 1995, and the closing date would be June 30, 1996. 4.28 Disbursements. All technical assistance and training costs would be funded from GEF. Other expenditures would be covered from the IDA credit and from the GEF grant and will cover (a) 27 percent of expenditures on civil works; (b) 100 percent of foreign expenditures on imported goods, 100 percent of expenditures for locally manufactured goods at ex-factory prices, and 75 percent of local expenditures for other items procured locally; and (c) 100 percent for consultants, services and training. Disbursements will be retained by the six Port Authorities and made available on the basis of full documentation except for reimbursement of expenditures for (technical assis- tance and training and) contracts for civil works and goods valued at less than $200,000 each, for which disbursements will be made against statements of  - 26 - expenditure; supporting documents will be retained by the six Port Authorities and made available for inspection by IDA staff. The estimated disbursements are shown in Schedule C. To facilitate disbursement, a joint special account to be maintained in US dollars would be established in a bank on terms and conditions satisfactory to the Association. The authorized allocation to the Special Account is $3.0 million, representing four months' average project ex- penditures to be channelled through the account. Replenishment would be made quarterly or whenever the account is drawn down by about 50 percent of the initial deposit. 4.29 Accounts and Audit. The accounting and record-keeping activities at each of the six ports and the annual audits of their accounts by the State Audit Administration are regularly being reviewed by Bank Group staff as part of the supervision of ongoing projects. During negotiations, assurances will be sought from each port that (a) it will continue to submit its audited annual financial statements to the Association not later than six months after the end of each financial year, and (b) it will keep the accounts of the pro- ject and will also submit to IDA the audited accounts of the annual project expenditures not later than six months after the end of each financial year. 4.30 Ecology and Environment. Implementation of the project will provide a net benefit to the local and global environment through the decrease in discharges of ships' wastes in international waters adjacent to the coast of China. To avoid simple transfer of the problem from the open sea to the port, the project design has taken into consideration the need to ensure that all wastes received are properly handled and treated: (a) residues from the treatment of oily wastes will be recycled as many as possible or used as fuel in heating plants or brick kilns; (b) sanitary sewage will be processed through secondary treatment plants, as is now typically undertaken at the more modern terminal facilities in the ports; (c) garbage and solid wastes will be sorted with maximum possible recovery of recyclable materials or materials used for compost. 4.31 Under current Chinese law, such facilities will have to comply with environmental assessment procedures, including provision of an Environmental Protection and Compliance Plan within an Environmental Management Structure. The designs and bid documents for the waste collection and/or disposal facili- ties will be prepared by the Design Institutes and will follow GOC environment criteria and guidelines and will be reviewed by the Bank. These reviews will be undertaken by the appropriate Port Environmental Protection Bureaus. Liaison will be made with the appropriate Municipal Protection Bureau to ensure that the designs meet current emission and effluent criteria. Standard operating practice manuals issued by the port EPB will include elements of occupational health and safety for port workers operating the treatment facil- ities. 4.32 Reporting and Evaluation. The project implementation schedule shows key project activities and key project monitoring indicators. Quarterly prog- ress reports will be submitted by the respective Port Authorities according to a format acceptable to MOC and the Association; this was agreed during nego- tiations. A final project completion report will be prepared by MOC and sub- mitted to the Association within six months of completion of the project. V. FINANCIAL EVALUATION AND JTSTIFICATION  - 27 - Financial Analysis 5.1 As already mentioned, the ports included in the project are already being assisted undar ongoing Bank Group loans and credits. Under the relevant loan/credit agreements, the individual Port Authorities are required to gener- ate sufficient funds internally from their operating revenues to cover their debt service obligations, remittances to the Government, and allocations to special funds. The ports are in compliance with this requirement, and their financial performance continues to be good, despite some variations in traffic performance for reasons beyond their control. 5.2 Key indicators summarizing the forecast funds flow for 1992 through 1995 are shown below. Details of the forecast, given in Tables 1 through 6, show that the financial situation of the ports will be satisfactory and they will continue to earn healthy surpluses. The ports are expected to continue to generate sufficient funds internally to finance their ongoing and reason- able future capital investment needs, including the provision of funds for the timely implementation and subsequent operation of facilities included in the project. During 1992-95, each of the Port Authority's contribution towards its share of the project costs is expected to be met from the surpluses of its regular port operations. The facilities financed under the project are expected to start operations in 1995. The cash generation financial covenants under the respective loan/credit agreements relating to ongoing projects at each of the ports will continue to hold good. Assumptions used in the finan- cial forecasts are given in Attachment 7. 5.3 Since the proposed facilities and their operation and maintenance are separate from the usual port activities, they would be treated as separate cost and revenue centers. Therefore, in order to maintain the financial viability of this specific activity of handling ship wastes, new tariffs based on cost recovery need to be developed for each port under a uniform tariff structure. The revenue projections relating to the proposed facilities for the year 1995 used in the accomparying tables are notional and are based on the concept of full cost recovery. During negotiations, assurance were ob- tained from GOC and the six Port Authorities that an appropriate tariff sched- ule based on cost recovery for each type of waste handling and disposal ser- vices would be developed on the basis of terms of reference agreed with the Association, submitted to the Association by June 30, 1994, for its comments, and, taking into account the Association's comments, introduced in each of the ports by June 30, 1995. A draft of the TOR is given in Attachment 8. Benefits 5.4 The six ports selected for the project handle some 90 percent of the international shipping serving the sea-borne foreign trade of the People's Republic of China. In addition, these ports serve a significant portion of the country's domestic maritime traffic. In several of the ports, the lack or poor capability of waste reception facilities obliges the Port Authorities to  - 28 - PROJECTED FUNDS FLOW STATEMENT FOR THE PROJECT--SUMMARY (RMB million) Tianjin Huangpu Dalian Shanghai Ningbo Xiamen Proposed Project Capital investment 50.9 53.6 20.0 131.6 44.4 34.0 (proposed project) External financing 35.7 37.6 14.0 92.4 31.2 23.9 Ports contribution 15.2 16.0 6.0 39.2 13.2 10.1 Net funds flow from proposed project in 1995 4.5 4.8 1.8 10.3 3.9 4.3 Surplus (deficit) (10.7) (11.2) (4.2) (28.9) (9.3) (5.8) Regular port operations Net funds flow: Surplus (deficit) 109.1 81.5 79.7 302.6 100.9 80.5 Consolidated: Net surplus/ (deficit) 98.4 70.3 75.5 273.7 91.6 74.7 allow ships to discharge their wastes at sea or has created considerable delays in serving the ships. This contributes to port inefficiency and to pollution of both international and Chinese coastal waters. An economic return analysis has not been attempted, as the benefits to China (and the international community) are not directly measurable. However, provision of the proposed facilities should contribute to a major improvement to the marine environment quality and serve as a model for establishing similar facilities in other Chinese ports. Risks 5.5 The main risks relate to project implementation and cost recovery. As this is a substantially new activity for most of the ports, technical assistance through close project supervision will be provided to ensure satis- factory implementation. As to cost recovery, PRC's record in the matter of introducing adequate cost recovery mechanisms has so far been good and GOC has agreed that there would be no difficulty in the ports introducing a tariff scheduled based on cost recovery for the new services.  - 29 - VI. AGREEMENrS REACHED AND RECOMMENDATION 6.1 During negotiations, assurances were obtained from the Government of the People's Republic of China and the Port Authorities on the following: (a) GOCt (i) GOC will prepare by December 31, 1992, in consultation with the Association, the TOR and the complete program for a study of the Yellow Sea marine ecosystem (para. 4.6); (ii) the chemically contaminated water treatment study will be com- pleted by December 31, 1993, and the results implemented in consultation with the Association (para. 4.8); (iii) GOC will on-lend the proceeds of the credit to the respective Port Authorities on terms and conditions satisfactory to the Association (para. 4.25); (b) Port Authorities: (i) the Guangzhou Port Authority will enter into arrangements sat- isfactory to the Association with the Guangzhou Bureau of Mari- time Transport Administration to handle the oily ballast and bilge waters for all port users at the proposed BOMTA facility at Xin Zhao (this will eliminate the need for a separate GPA facility) (para. 3.16); (ii) all six ports will have prepared and adopted an oil spill con- tingency plan by July 31, 1994 (para. 4.5); (iii) all six Port Authorities will develop their respective waste management plans by December 31, 1992, send them for the Association's review and comments, and implement them, taking into account the Associatiou.'s comments, by December 31, 1994 (para. 4.15); (iv) the Xiamen Port Authority will establish, by June 30, 1993, an adequately staffed Environmental Protection Bureau to supervise and operate the proposed ships, waste disposal facilities (para. 4.23); and (v) the six Port Authorities will submit quarterly progress reports on the project according to a format acceptable to the Associa- tion (para. 4.32).  - 30 - (c) GOC a d the Port Authorities jointlys (i) uoC and each of the Port Authorities will set up a coordinating team of representatives of the concerned Port Authority, EPA, NEPA, and SOA, as agreed with the Association, by December 31, 1992 (para. 4.20); and (ii) GOC and the Port Authorities will submit to the Association, by June 30, 1994, a proposal for an appropriate tariff schedule, based on cost recovery, for the services of the waste disposal facilities; and this will be introduced by all six ports by June 30, 1995, taking into account the Association's comments (para. 5.3). 6.2 Approval of the credit agreement by China's State Council, fulfill- ment of conditions precedent to the GET Grant Agreement, and execution of subsidiary loan agreements between the Government and DPA, TPA, SPA, NPA, GPA and XPA, satisfactory to the Association, are conditions of effectiveness of the credit. 6.3 With the above agreements and conditions, the project constitutes a suitable basis for an IDA credit of SDR 11.0 million (equivalent to $15.0 million) to the People's Republic of China. The credit will be on standard terms, with 35 years' maturity and 10 years' grace.  - 31 - SCHEDULE A CHINA SHIP WASTE DISPOSAL PROJECT Documents in the Project File 1. Dalian Port Project, SAR No. 6588-CHA, January 5, 1988 2. Tianjin Port Project, SAR No. 5856-CHIA, March 17, 1986 3. (i) Ningbo and Shanghai Ports Project, Shanghai Port, SAR No. 7257-CHA, November 16, 1988 (ii) Ningbo Port, SAR No. 7297-CHA, November 16, 1988 4. Huangpu Port Project, SAR No. 6230-CHA, August 28, 1987 5. Xiamen Port Project, SAR No. 7296-CHA, November 16, 1988 6. Detailed List of Laboratory Equipment to be Funded under the Project. 7. Laws and regulations in China regarding the protection of the environment.  - 32 - SCHEDULE B Page 1 of 2 CHINA SHIP WASTE DISPOSAL PROJECT Project Im2lementation Schedule Action Responsibility Starting Completion Date Date 1. Oil boom materials material identification Port Authorities 05/01/92 08/01/92 material sourcing Port Authorities 07/01/92 09/01/92 approve purchase MOC/Port Authorities 09/01/92 10/01/92 call ICB tenders Port Authorities 10/01/92 03/01/93 purchase equipment Port Authorities 03/01/93 09/01/93 2. oil water treatment facilities prepare plans Port Authorities 05/01/92 09/01/92 prepare construction specifications Port Authorities 09/01/92 12/01/92 approve plans MOC/Port Authorities 12/01/92 01/01/93 call LCB tenders Port Authorities 02/01/93 04/01/93 call ICB tenders Port Authorities 02/01/93 06/01/93 initiate construction Port Authorities 08/01/93 12/01/94 purchase equipment Port Authorities 08/01/94 10/01/94 install equipment Port Authorities 10/01/94 02/01/95 3. Sewage systems prepare plans Port Authorities 05/01/92 09/01/92 prepare construction specifications Port Authorities 09/01/92 11/01/92 approve plans MOC/Port Authorities 12/01/92 02/01/93 call LCB tenders Port Authorities 03/01/93 06/01/93 call ICB tenders Port Authorities 03/01/93 08/01/93 initiate construction Port Authorities 07/01/93 07/01/94 purchase equipment Port Authorities 03/01/93 01/01/94 install equipment Port Authorities 01/01/94 04/01/94 4. Garbage systems prepare plans Port Authorities 05/01/92 08/01/92 prepare construction specifications Port Authorities 07/01/92 09/01/92 approve plans MOC/Port Authorities 09/01/92 11/01/92  - 33 - SCHEDULE B Page 2 of 2 Action Responsibility Starting Completion Date Date call LCB tenders Port Authorities 11/01/92 03/01/93 call ICB tenders Port Authorities 11/01/92 04/01/93 initiate construction Port Authorities 04/01/93 04/01/94 purchase equipment Port Authorities 05/01/93 12/01/93 install equipment Port Authorities 01/01/94 04/01/94 5. Environmental monitoring stations prepare plans Port Authorities 05/01/92 08/01/92 prepare construction specifications Port Authorities 07/01/92 09/01/92 approve plans MOC/Port Authorities 09/01/92 10/01/92 call LCB tenders Port Authorities 10/01/92 01/01/93 call ICB tenders Port Authorities 10/01/92 02/01/93 initiate construction Port Authorities 12/01/92 12/01/93 purchase equipment Port Authorities 02/01/93 12/01/93 install equipment Port Authorities 12/01/93 02/01/94 staff training Port Authorities 06/01/93 02/01/94 6. Oil Spill Contingency Planning Study select consultant HOC/IDA 07/01/92 10/01/92 developing plan MOC/consultant 01/01/93 05/01/93 staff training MOC/consultant 06/01/93 12/01/93 equipment selection MOC/consultant 01/01/94 05/01/94 7. Chemically Contaminated Waters Study select consultant MOC/IDA 07/01/92 10/01/92 assess problem MOC/consultant 11/01/92 01/01/93 develop effluent criteria MOC/consultant 01/01/93 04/01/93 design system MOC/consultant 04/01/93 08/01/94 8. Technical Assistance to XPA select consultant XPA/MOC/IDA 05/01/92 08/01/92 prepare plan XPA/consultant 08/01/92 09/01/92 staff training XPA/consultant 12/01/92 03/01/93 program implementation XPA 03/01/93 06/01/93  - 34 - SCHEDULE C CHINA SHIP WASTE DISPOSAL PROJECT Estimated Schedule of Disbursements /a /b IDA Fiscal IDA GEF Percent Cumulative Year & Quarter Quarter Cumulative Quarter Cumulative IDA/GEF Disbursement Profile for Transport Pro- jects in China 1993 12/31/92 - - 3.0 3.0 6.6 0.0 03/31/92 - - - 3.0 6.6 06/30/92 - - 3.0 6.0 13.2 6.0 1994 09/30/93 - - 6.0 12.0 26.7 12/31/93 - - 6.0 18.0 40.0 11.0 03/31/94 - - 6.0 24.0 53.3 06/30/94 - - 2.0 26.0 57.8 16.0 1995 09/30/94 3.0 3.0 2.0 28.0 68.9 12/31/94 3.0 6.0 2.0 30.0 80.0 24.0 03/31/95 3.0 9.0 - 30.0 86.7 06/30/95 1.0 10.0 - 30.0 88.9 31.0 1996 09/30/95 3.0 13.0 - 30.0 95.6 12/31/95 2.0 15.0 - 30.0 100.0 57.0 /a Because of limited scope of works which are supplementary to ongoing Bank Group projects, this credit is expected to be disbursed much faster than country or regional disbursement profiles. Project completion is expected by June 30, 1995, and the closing date is June 30, 1996. /b Disbursements from the IDA credit will begin following completion of disbursements from the GEF grant.  - 35 - ATTACHMENT 1 CHINA SHIP WASTE DISPOSAL PROJECT International Conventinsu for the Prevention of Marine Pollution 1. The International Convention for the Prevention of Marine Pollution, known simply as MARPOL 73/78, has currently five annexes covering discharges from ships. These are: - Annex I: oily wastes - such as ballast water and slops from oil tankers; oily bilge water from engine room and other spaces; fuel residues; and waste oil. - Annex II: noxious liquid substances in bulk - tank resir es after discharge of cargo. - Annex III: harmful substances carried in packaged form, in freight containers, portable tanks. - Annex IV: Sewage - This annex is not yet in force because of limited sewage reception facilities at ports worldwide at present. - Annex V: Garbage - including food wastes, plastics; oily ragse packing materials; and dunnage. 2. Certain sea areas have been designated by IMO through the Marine Environment Protection Committee (MEPC) as "Special Areas" in view of their particular sensitivity to pollution and the need to protect very valuable marine areas, species and shorelines. Currently the Mediterranean, the North Sea, the Gulf of Mexico and the Wider Caribbean are amongst areas designated as special. Within these areas only certain wastes can be discharged from ships depending on which MARPOL 73/78 Annex is concerned.  CHINA SHIP WASTE DISPOSAL PROJECT Summary of Present Situation and Recommended Actions It"m Dalian Tianjin Shanghai Ningbo Quangzhou Xiamen Current situstion Ballast water treatment Treatment vemeel only BOVTA has converted Refinery terminal bOTA treats its own Port has no reception *t Crude Oil Terminal; usable 60 of year. tanker treating 2000 tratx ltS own ballast waters using or treatment facili- bIle a ter and tank tons/day. SPA has ballast waters a converted tanker ties. wash treatment at Re- Treatment capacity limited number of (10,000 tons/yr). (400 tons/hr). fined Oil Terminal. below rquirements. treatment barges. Large tankers at Port handles bilge Facilities IS-yr- old anchoroge die- water- using ml and need refurbishing; charge at sea* am collection vessls additional requirements port facilities and trests at various projected. are inadequate, private facilities. Recommended Refurbish existing Refurbish existing Port to build new Port to build new Since ITA is Port to purchase now action facilities to restore barge to rostore land-based treatment land-based treat- building new land- oil collection and processing rate at Crude treatment copacity to facility for 300.000 oent facility for based facility. port treatent barge (200- Terminal to 1000 tons- 30 tons/hr. tons/yr. with room ballast waters (at does not need its own tonne capacity). /hr.. Rfined Terminal to expand to 600,000 beilun). facility. to 400 tons/hr. Port to have access to tons (at Purchase spill contain- proposed Oil Terminal Vaigaoqiao). Port to refurbish Port to purchase new mnt boo_& for routine Purchas new opill con- balleat water treat- existing 60-tonne oil collection barge ussge during on/off- tainmnt booms for rou- sent facility. Convert another tan- treatment barge, and treat at OTA loading. tine u-sge during ker for ballast- facility. on/off-loading. Purchase spill con- water processing Port to purchase teinoent booms for (300,000 tons/yr. at 300-500-tonne Purchase spill con- New autoetic monitoring routine uspe during Liuhukou). barge. t;inment booms for equipment for both on/off-loading, routine usage during Terminals. Purchase spill con- Purchase spill on/off-loading. teinoent booms for containment boos rorutine usago during for routine usage on/off-loading, during on/off- loading. Chomicalnv Contam noted Waters Current situstion No treatoent facilities No treatment facili- No treatment facil- Treatment facili- No treatsent No treatmnt facilities ties ities for ballnat ties for ballast facilities waters; small-scale waters at Bulk treatment for con- Chemical Plant taener wash. (Zhenhai). No treatment for container wash at Bi Ilun or Zh*nhai. Recommended Design facilitios for Design facilities for Design facilities No need to upgrade No facilities to be No facilities to be action organic contaminante. organic contaminants for organic contai- Zhenhai facilities built at this time, built at this time. from ballast waters at inants from ballast as traffic too proposed Chemical waters, low. Future plans for Terminal, chemical plants and Dangerous Cargo Tar- minal identify need for staff training. l.A I O r b  Item Dalian Tianjin Shanghai Ningbo Quangzhou Xiamen Sanitary Saewm Current. aituation City has treatment Municipality has no Municipality has Municipality has Municipality has no Municipality has no planti Port has no treateent plant; Port extensive collection no facilitios; facilities. Port facilities. Port *acilities for ships. has no facilities for and tre*tment Port unable to unable to trst unable to treat ships' ships. syte; Port has no treat ships &hips' wastes. wastes. faci ities for wastes. ships. Recommended Connect to City system. Enlarge East Pier Connect terminals to Alteration of Iron Purchase 2 collection Build secondary troat- action facility to accommo- City system to ac- Ore treatment fa- barges (200-tonne ca- sont plant at Donggu date ships' needs. commodate ships' cility for sewage pacity). Terminals. neods, at Seilun. Build nev facility for Build secondary South Side Terminals. Connect to pro- treatmnt plant at posd Zhenhai Hong Shang Sha Ir- district and port land. syst. Current situation Adequate: Port trans- Oarbeio now barged to Garbage now barged Garbage now bargod Carbage now barged to Carbage not collected. for* wastes to City Municipal incinersto... to Port incinerator, to Zhenh i incin- smallI port incinera- systes. where they are orator. tor. incinerated. Capacity inadequate. Cpaecity inadequate. Capacity inade- Capacity inadequate. qusto. Recommended None. Purchaose new barge Build two new in- Purchase new 50- Bu'ild new incinerator Purchase 100-ton caps- action (100-ton capacity). cinrators. ton capacity at Hon Sheng Shi. city collection barge. bargo. Capacity 20 tonnes/day. Build now incinerator. Build new 2000 capacity I ton/day. oq.m. handling fa- cility at Zhenhzi. Purchase 2 garbage trucks. Build new 10- tonnos/day incin- erator. Oil-Spill Contin- Current situation Plan developed; use old No plan; do not use Plan developed, but No plan developed; No plan developed; do No plan developed; do containment booms on oil containment boom not rev ismod; do not do not use oil not use oil contain- not use oil containment routine ba si; no other during off-loading; no use oil containment containment booms sent boom during booms during off-load- equipment for response. equi pment for boom during off- during off-load- off-loading; no ing; no equipment for respone. Ioading; 2 old ing; no equipment equipmnt for spill spill response. skimmers for spill for spill responu. respon-. response. "D 0 0 z  item Dalian Tianjin Shanghai Nlngbo Quanghou Xia_n R _coMded Review entingncy plan. Revie contingency Review contingncy Develop contin- Develop contingency Devolop contingency wction plan. plan. gency plan. plan. pln. Purchas oi l boom- *lick lickers; abeorbenti Purchas oil boom; Purchas oil boom; Purcham oil boom; Purchaee oil bos; Purchase oil boom; communications quip- slick lickers; *b- slick lickers; ab- slick lickers; *b- slick lickers; aboor- slick lickers; abeor- sent; work boats. sorbent; co-mnica- sorbent; commnica- sorb nt; co_ni- bent; co_nicationn bent; counication tions equipment; work tions equipment; cati eqipment; equipmt; work quipment; work boats. boats, work boast. work boats, boats. Evi ronant Lab- Current Situation Need additional oil Limited to analytical Old analytical and Limited laboratory No laboratory or No laboratory or testing quipment, and sampling equip- "apling quipment. and apl sampling quipment. sspling equp_ment. ment. eentor Zh nn so Raco_mended Purchase oil testing Purchase needed equip- Purchase needed Purchas needed Purchas needed Purchse needd ewuip- action cquipm_nt. wnt. quipment. quipment. uipment. Complete mnt. build.ing. (b tD z  - 39 - ATTACHMENT 3 Page 1 of 2 CHINA SHIP WASTE DISPOSAL PROJECT Oil Spill Contingency Planning and Response Study Draft Scope of Work 1. The proposed technical assistance and institutional development component for oil spill contingency planning and response supports China's program under MARPOL. While China and its ports have recognized the potential problems of oil spills, they lack the expertise to develop complete contin- gency plans, adequately train staff and select appropriate equipment. All of the ports reviewed handle considerable quantities of petroleum hydrocarbons, as both crude oil and refined products, with projected increases in both the volume and size of the carriers being handled. Table 1 provides data for the six ports for the past three years. Of the six ports surveyed, only DPA deploys oil booms around the tankers during loading and off-loading. 2. Contingency plans developed for the Ports of Dalian and Shanghai are elementary in concept and place emphasis on response organizatior. and equip- ment needs. Identification of ecologically-sensitive areas, potential prob- lems for water users (e.g., cooling water intakes, fishing areas), available staff and disposal of collected materials) has not been considered. Further, such plans have been developed in each port and therefore lack a consistency which a "generic" model would provide; i.e., each port has had to develop its own plan. Accordingly, this project would provide technical assistance to MOC to develop a national center under the Harbor Superintendency Branch which presently has the institutional authority to assume command of spill response. It is proposed that this agency would also assume responsibility for providing general guidance on contingency planning, staff training in both contingency planning and spill response, and provide a central "clearing house" for news and information. As necessary, this agency could also coordinate equipment and manpower from several ports in the event of a major spill. 3. The second task within this project will be the provision of techni- cal assistance to develop a "generic" contingency plan and to tailor this plan to the specific needs of the six ports. This will provide two benefits: (a) provision of a "generic" plan which the Harbor Superintendency can then adapt to specific needs in conjunction with concerned port; and (b) training of the central agency and port staff during the development of these plans. 4. The third element is the provision of staff training in spill response. Although China is anxious to have the capability to respond to spills and leakage, it was recognized that many of the ports lacked staff trained in spill response and the use of spill response equipment and chemi- cals. Training manuals and videos will be used and information packages will  - 40 - ATTACHMENT 4 Page 1 of 2 CHINA SHIP WASTE DISPOSAL PROJECT Large Marine Ecosystem Study Draft Scope of Work 1. LMEs, or Large Marine Ecosystems, are relatively large areas of the global exclusive economic zones, generally more than 200,000 km , character- ized by unique bathymetry, hydrography, and productivity, within which marine populations have adapted to suitable reproductive, feeding and growth strate- gies. LMEs are thus naturally existing ecological units of ocean space. 2. On a global basis, nearly 95 percent of the biomass yields from the oceans are from the currently identified LMEs, currently some 50 in rruiber. This demarcation provides a convenient and manageable mechanism for improved international cooperation in marine monitoring, modelling and management. Wile important work remains to be done in identifying the various forces which control biomass yields and fluctuations in individual LMEs, the expertise and technology needed to answer these questions is at hand. These are among areas that are becoming increasingly stressed from pollution, natural environment perturbation, and overexploitation of living resources. 3. The LME approach is being increasingly used by international agen- cies as a more manageable way of tackling ocean pollution problems, although this too has its drawbacks as some LMEs need the cooperative efforts of a very large number of countries; for example, the Caribbean Sea is shared by 38 countries. It is planned to initiate the application of this approach to the Yellow and China Seas under the proposed ship waste project. Study Objectives 4. The objectives of the study would be to: (a) assess the state of marine pollution; (b) assess the impacts that coastal development activities, including the current ship waste disposal project, may have on the marine environment or on the protection and use of renewable marine resources on a sustainable basis; and (c) develop a sound basis for continuous monitoring of the marine envi- ronment. Scope of Work 5. Run the production-pollution-biodiversity monitoring module, which involves the use of continuous plankton recorders (CPR). CPR are towed behind ships-of-opportunity (commercial vessels) making quantitative collections of  - 41 - ATTACHMENT 4 Page 2 of 2 phytoplankton and zooplankton while also measuring up to 18 oceanographic variables including: temperature; turbidity; chlorophyll a; bioluminescence; petrogenic hydrocarbons; salinity; upwelling and downwelling irradiance; dis- solved oxygen; and nitrates and nitrites. This suite of measurements, along with the plankton collections, allows oceanographers to determine the general health and productivity of the ecosystem as well as providing indications of changes in biodiversity. 6. The monitoring program should include collection of comprehensive information on fish populations in the LME. This can be accomplished through the use of small, inexpensive chartered trawling vessels, hired locally, which collect samples of pelagic and demersal fishes. These fish are examined for gross pathology including tumors and lesions which have been shown in many other LMEs to be indicative of excessive marine pollution levels. In addi- tion, fish age, growth and reproductive characteristics are determined. This provides information on general stock health and indicates whether fish resources in the LME are in a state of increase or decline. This type of information is particularly important in an LME such as the Yellow Sea where the human population depends very heavily upon local fish stocks as a source of healthful, inexpensive protein. Schedules 7. Schedules of implementation should be prepared and adequate staffing provided for. Cost Estimate 8. The cost estimate of the study should be detailed and explained to facilitate seeking assistance from international institutions.  - 42 - ATTACHMENT 5 Page 1 of 2 CHINA SHIP WASTE DISPOSAL PROJECT Chemically Contaminated Water Treatment Study Draft Scope of Work 1. Import and export of chemical cargoes, as both bulk and as contain- erized cargo, is becoming an increasingly important cargo type for the six ports reviewed. Many of the actual or proposed cargoes are of a petrochemical base, such as benzene, xylene, toluene or chemical feedstocks for plastics or industrial goods manufacturing (e.g., alkane alcohols, ethylene glycol). This cargo increase introduces the problem of treatment and discharge of ballast, bilge and tank wash waters and wash waters from containers that are contami- nated due to the chemical cargoes. Under MARPOL Annex 2, ports are obliged to provide adequate reception and treatment facilities. While the Port Authorities readily recognized the need for facilities, they lack the exper- tise to identify, install and operate appropriate facilities. There was also the problem of the variable nature of the cargoes handled; e.g., the Port of Dalian imports 17-20 different major chemicals. 2. Of the six project ports, only the Port of Ningbo has developed extensive reception and treatment facilities for chemically-contaminated waters. The facilities, located in the Zhenhai Terminals, are capable of neutralizing acids and treating volatile chemicals, such as benzene and more complex chemicals, such as ethylene glycol. However, the facility is presently used mostly for importing of cargoes, thus generating little need for the facility. This has resulted in deterioration of the equipment and a need for refurbishing. 3. Only the Port of Shanghai has developed simple exchange systems to treat water used to clean containers used for shipment of chemical cargoes. These systems have a small treatment capacity and are used primarily to remove traces of chemicals. 4. The proposed project will include a study to assess and develop a treatment system for chemically-contaminated waters. The study will be divided into three phases: (a) to assess the nature and quantities of chemical cargoes now or pro- jected to be handled through the ports; (b) to designate, jointly with staff from HOC and NEPA, effluent crite- ria for the chemical substances contaminating the ballast, bilge and wash waters;  - 43 - ATTACHMENT 5 Page 2 of 2 (c) to design a treatment system that will be "generic" and modular in structure, so that it can be tailored to best handle the different types and quantities of chemicals handled in each port. 5. The project will require consultant expertise to undertake the three tasks for approximately 16 staff-months. An allocation of $250,000 is included for this purpose.  - 44 - ATTACHMENT 6 CHINA SHIP WASTE DISPOSAL PROJECT Technical Assistance to Xiamen Port Authoritv Draft Scope of Work 1. The Xiamen Port Authority does not have at present an Environmental Protection Bureau to undertake its portion of the project. However, XPA has developed the organizational outline for an Environmental Protection Bureau, but lacks the expertise and resources to recruit staff and implement an Environmental Monitoring Facility. 2. As part of the understandings on this project, XPA has agreed to establish and staff the proposed Environmental Protection Bureau. As part of this project, technical assistance will be given to XPA to assist in the com- pletion of three tasks: (a) identification of staffing requirements; (b) staff training; and (c) identification of facilities and equipment for the Environmental Monitoring and Laboratory facility. 3. The technical assistance will be provided by an expert/consultant hired for not more than two months to undertake the three tasks. A sum of $30,000 is included under the project for the purpose. Implementation of the recommended facilities is also provided for under the project.  - 45 - ATTACHMENT 7 Page 1 of 2 CHINA SHIP WASTE DISPOSAL PROJECT Assumptions Used in the Financial Evaluation 1. The updated financial information for years 1989 and 1990 has been obtained from audit reports and/or latest estimates. 2. The annual projections for years 1991 through 1995 are based on the above-updated financial information and are calculated as followw: Operating revenues : SAR 1/ growth rates Operating expenses : SAR rates of increases Interest expense : SAR updated Non-operating items: SAR updated Taxes and payments Based on 1990 rate applied to future net to state operating incomes Depreciation : SAR updated State contribution : SAR updated Borrowings SAR updated Applications : SAR Updated 3. The completed project facilities are expected to start operations in 1995 and the assumptions relating to operating expenses and interest and revenues are as follows: Expenses operating and maintenance expenses: 10% of capital investment costs Depreciation : 10% of capital investment costs Interest : IDA credit relent at 1.5% p.a. for 15 years with 5 years' grace 1/ Staff Appraisal Reports (SAR) referred to above are the following: Tianjin Port (Ln 2689-CHA); SAR No. 5856 CHA) Huangpu Port (Ln 2877-CHA; Cr 1845-CHA; SAR No. 6230-CHA) Dalian Port (Ln 2907-CHA, Cr 1875-CHA; SAR No. 6588-CHA) Shanghai Port (Ln 3006-CHA; SAR No. 7257-CHA) Ningbo Port (Ln 3006-CHA; SAR No. 7297-CHA) Xiamen Port (Ln 3007-CHA; SAR No. 7296-CHA)  - 46 - ATTACHMENT 8 Page 1 of 5 C_INA SHIP WASTE DISPOSAL PROJECT Draft Terms of Reference for Establishing a Costing and Tariff System for Waste Reception and Disposal Services I. INTRODUCTION 1. The Government of China (GOC) has decided to introduce a program of environmental meisures in six ports, viz.: Tianjin, Huangpu, Dalian, Shanghai, Ningbo and Xiamen. 2. This will be achieved by providing operating facilities and systems in each port for the reception, treatment and disposal of ships' wastes in an environmentally sound manner in accordance with international conventions. An important requirement is that GOC and the Port Authorities operate the facili- ties in a financially viable manner, including the introduction of a tariff schedule based on full-cost recovery and appropriate commercial practice and the maintenance of sound accounting and costing practices with regard to the ships' wastes disposal program. 1I. OBJECTIVES 3. The purpose of the consultancy services is to: (a) Design a tariff structure based on each function, activity or service such as reception, treatment, and disposal involved in the handling of the ships' wastes based on cost recovery for each type of waste and additionally design tariff levels/unit rates for each function, activity or service mentioned above. The tariff structure would be uniform for all the ports but the tariff levels/unit rates would vary from port to port; (b) Deve'op operating accounts and accounts classifications (cost/ service/revenue centers) at each port to record costs and revenues relating to each type of waste and the function, activity or service involved so that tariff levels/rates can be established with the full knowledge of the total costs for such function, activity or service; (c) Publish a tariff manual and a cost accounting manual setting forth the applicable policies, procedures, classifications, definitions, and tariff categories and rates.  - 47 - ATTACHMENT 8 Page 2 of 5 II. SCOPE OF WORK General 4. The consultants shall carry out according to internationally accep- ted standards their assignment and their investigations, formulations of con- cepts, conclusions, designs and recommendations, implementation of tariff and cost accounting systems, and the training of staff in order to achieve the objectives set forth in Section II above. The consultants shall cooperate fully with the Port Authorities and the Government agencies in the performance of their work, it being understood that the latter two will provide all rele- vant technical, financial, statistical and other data, studies and reports. The consultants shall review in detail the information, in particular any tariff, accounting and cost studies already carriee out in connection with the ongoing projects financed by the World Bank Group at these ports, and make use of such studies. The consultants shall be solely responsible, however, for the analysis and interpretation of all information received, and for the find- ings, conclusions and recommendations made by them. Work Program 5. The work program is to be carried out in three sequential stages: Stage 1 6. The consultants shall: (a) first familiarize themselves with the prevailing practices and poli- cies at each port regarding tariff schedules and accounting systems; (b) design and recommend a new sschedule of tariff structure and levels for the ships' wastes handling operations at each port. The tariff structure should consist of categories for each type of wastes such as oily wastes, chemicals, sewage, garbage, etc., under each func- tion, activity or service, such as reception, treatment and disposal of these wastes and should be uniform for all the ports. The tariff levels/unit rates for each tariff category should take into account the full cost of the function, activity or service (arrived at through cost/service/revenue centers) including cost of capital and the financial objectives of each port. The tariff levels/rates would vary from port to port; (c) design and recommend a double-entry activity and accrual based cost accounting system and accounts classifications to record the cost of the ships' wastes handling operations at each port on a uniform basis. The system should provide for functional accounts based on cost/service/revenue centers covering the full range of operations such as reception treatment and disposal for each type of waste, and character of expense types such as salaries and benefits, materials  - 48 - ATTACHMENT 8 Page 3 of 5 and supplies, purchased services, depreciation, interest, etc. The costing system should also develop and provide statistical informa- tion on operating plans and actuals, capacity utilization, etc. The objectives of the cost breakdown should be the availability of information for the control of costs through improvements in produc- tivity, the provision of costs for each category or type of opera- tion for determining total costs of an operation and for developing analytical details for determining productivity and performance levels. The recommended system should be capable of mechanization and full integration into the existing accounting systems and proce- dures. (d) it would be entirely appropriate for the consultants to consider various alternatives of incentives built into the tariff schedule and recommend one which would encourage ships to use the wastes handling facilities at each of the ports and thus would best serve the achievement of the project's objectives. Such alternatives may include: (i) in the early years of operation, say for a trial period of five years, the tariffs could be designed to cover just the variable costs and a portion of the fixed costs, thus providing a stimulant for the ships to get into the habit of using the new facilities; (ii) designing a system for the determination of quanti- ties of wastes on the basis of what would be the total accumulation of various types of wastes in a ship from the time the ship left the previous port of call where facilities for ships' wastes handling are available to the time of its arrival at the Chinese port con- cerned, etc. However, the enforcement of environmental safeguards (including the deterrents/penalties against the dumping of ships' wastes) under the national laws and/or international conventions to which China sub- scribe would come under the regulatory responE,'bilities of govern- mental and/or parastatal agencies. While such activities reinforce the objectives underlying the tariff policies, they do not play any direct role in the formulation or calculation of the tariff struc- ture and levels. In this respect, the consultants should look into the adequacy of the deterrents and penalties as inducement towards achieving the objectives of the project. They should, for example, ascertain whether the deterrents and penalties are strong enough to prevent dumping of the wastes at sea, or whether the level of the deterrents and penalties are so low that ships may find it conve- nient to dump and to pay the penalties. (e) prepare (i) a tariff manual setting forth the policies and proce- dures of tariff setting, a general tariff structure for all the ports and individual tariff rates for each port, and (ii) a cost accounting manual setting forth a coded chart of accounts and defi- nitions, descriptions of cost classifications, methods and proce- dures.  - 49 - ATTACHMENT 8 Page 4 of 5 Stage 2 7. The consultants shall help implement the above recommendations on tariff schedule and cost accounting system upon approval by GOC and the Port Authorities. The consultants shall also train the port staff in the concepts and operational techniques relevant to each system. Such training shall include on-the-job, classroom and other training. The consultants shall in addition recommend other methods of training including specialized training abroad and familiarization visits to ports where similar operations exist. Stage 3 8. The consultants shall visit the ports on a follow-up basis within 12 months after the implementation of the work program under Stage 2 to ensure that the tariff schedule and cost accounting system are working satisfac- torily; in particular that the staff are fully familiar with and capable of operating all aspects of the tariff and costing systems and that they clearly understand the relationships between the two systems. IV. TIME SCHEDULE FOR CONSULTANTS' SERVICES AND REPORTS 9. The assignment would cover a total of about nine staff months as follows. Commencing on or about March 1, 1992, the consultants would provide inputs of: one month for the familiarization review, two months for designing and recommending the new tariff schedule and cost accounting system, five months for implementing the new systems and training ports staff; and, one month for a follow-up visit after the start of operations of the new facili- ties. The new system is expected to be fully operational by December 31, 1994. 10. The consultants shall commence work within 30 calendar days of the effective date of the services contract. The following reports should be prepared and submitted within the time limit indicated below: (a) an Inception Report within three months (or as otherwise agreed) of the starting date describing the consultants' initial findings, outlining the methodology to be employed and listing preliminary proposals, plans a.-' o:ograms and bar charts showing breakdown of work by individuals r_ 'onsible and by components and their time frame (number of copies of the report and their distribution to be defined); (b) an Interim Report within six months of the starting date (or as otherwise agreed) summarizing all work performed, the consultants' findings and recommendations and bar charts showing progress of work and work completion schedule (number of copies of the report and their distribution to be defined);  - 50 - ATTACHMENT 8 Page 5 of 5 (C) a Final Report within 12 months of the starting date or on comple- tion of assignment (or am otherwise agreed) incorporating all revi- sions to and updating of the interim report and summary of additional work performed, the consultants' findings and recommenda- tions and bar charts showing work performed by individual responsi- bilities and by components together with copies of the tariff and cost accounting manuals referred to in Section III, stage I (d) above (number of copies of the report and the manuals and their distribution to be defined). V. ECONOMIC, FINANCIAL, TARIFFS, ACCOUNTING, PERSONNEL,STATISTICAL (INCLUDING SHIP MOVEMENTS), AND TECHNICAL DATA AVAILABLE 11. The individual Port Authorities are to provide consultants all existing data, studies and reports. VI. COOPERATION OF GOVERUHENTAL AGENCIES AND COUNTERPARTS 12. In connection with work by the consultants that require the coopera- tion of other governmental agencies or authorities, the individual Port Authorities ate to provide liaison and to ensure that the consultants have access to all information required for the completion of the work program. 13. The individual Port Authorities are to assign, on a full-time basis, appropriate counterparts to work with the consultants for the purposes of liaison, training, prompt review of the findings and recommendations of the consultants, and the implementation of approved recommendations. VII. FACILITIES AND SUPPORTING STAFF OR THE CONSULTANTS 14. The individual Port Authorities are to provide the following facili- ties and staff to help the consultants in performing the services: (a) office space and furniture; (b) transportation within China, and (c) utilities, telephone and telex services (to be determined). 15. The individual Port Authorities are to assist the consultants in locating satisfactory and appropriate hotel or other living accommodations in the vicinity of each port.  - 51 - Table 1 CHINA SHIP WASTE DISPOSAL PROJECT Chinese Environmental Quality Standard for Surface Water Basic Requiroemnts: All water bodies must not contain the following matter from non-natural sourcoe: a All precipitable mattoro which can result In obnoxious precipitations. b. Floating matter, such as debris, floating residues, oil or other unaightly mrttero. c. Produce obnoxious color, odor, toste or turbidity d. Harmful, poisonous or has adverse biological reaction to human, animal and vegetation. a Can causo growth of unpleasant aquatic blo-matters. No. Constituent Class I Class II Class III Class IV Claos V Ambient water tempersture changoo from man-made cousoo should b limited to: 1. Water temperature Average maximum temperature riso In summer period C 1 dogrees C Average maximum temperature drop in winter period < 2 2. pH 6.6 - 8.6 6 - 8.5 6. - 8.6 6.6 - 8.5 8 - 9 8. Sulphate (S04) < 260 260 260 260 260 4. Chlorides (CI) < 260 260 260 260 260 5. Soluble iron < 0.8 0.8 0.6 0.6 1.0 6. Total manganeso C 0.1 0.1 0.1 0.6 1.0 7. Total copper < 0.01 1.0 1.0 1.0 1.0 (fish 0.01) (fish 0.01) 8. total zinc < 0.06 1.0 1.0 2.0 2.0 (fish 0.1) (fish 0.1) 9. Nitrate (as N) C 10 10 20 20 26 10. Nitrite (as N) < 0.06 0.1 0.16 1.0 1.0 1t. Free ammonia 0.02 0.02 0.02 0.02 0.02 12. KJeldahl 0.6 0.6 1.0 2.0 2.0 i8. Total phosphorus 0.02 0.1 (lake, 0.1 (lake, 0.2 0.2 (as P) < res. 0.026) ree. 0.06) 14. Pirmanganato Index < 2 4 6 8 10 16. Dissolved oxygen > 90X set 6 6 8 2 16. COo 16 15 15 20 26 17. B006< 8 8 4 6 10 18. Fluoride (as F) < 1.0 1.0 1.0 1.6 1.6 19. Selenium (quad) < 0.01 0.01 0.01 0.02 0.02 20. Total arsenic < 0.05 0.05 0.05 0.1 0.1 21. Total mercury < 0.00006 0.00006 0.0001 0.0001 0.0001 22. Total cadmium < 0.001 0.006 0.006 0.006 0.01 28. Chromium (hex) < 0.01 0.06 0.06 0.05 0.1 24. Total load C 0.01 0.05 0.05 0.05 0.1 26. Total cyanide < 0.005 0.06 0.2 0.2 0.2 (fish 0.006) (fish 0.005) 26. Volatile phonol < 0.002 0.002 0.005 0.01 0.01 27. Petroleum < 0.05 0.06 0.06 0.6 1.0 28. Anionic Surfactant < 0.2 0.2 0.2 0.8 0.8 29. Total coliform (No/L) < 10000 80. Benzene (ug/L) < 0.0025 0.0025 0.0026 Class Doscription I Mainly used for water source, national natural protection areas. II Mainly suitable ao source In first class protection area for community drinking water supply, precious fish protected orea, spowning ground for fish and shrimps. III Malnly suitable as source in second class protection area for community drinking water supply, fishery protection area and public swimming area. IV Mainly sultoble for typical industrial water supply, and recreation where thero Is no human bodily contact with the water. V Mainly suitable for agricultural water supply, and typical water areas for tourism. Note: Whore a water regime Is suitable for a number of potential uses, classification will be according to Its highest usoe. Where thoro Is closs difference between season, seasonal classification can be used.  - 52 - Table 2 CHINA SHIP WASTE DISPOSAL PROJECT Chinese Standards compared to Foreign Standards (A) Industrial wastewater discharge standards (mg/L) Parameter China Shanghai Canada* mercury 0.05 0.02 0.1 cadmium 0.1 0.1 1.0 chromium 0.5 (Cr ) 0.5 (Cr ) 5.0 (total) arsenic 0.5 0.5 1.0 lead 1.0 1.0 2.0 pH 6-9 6-9 5.5-9.5 floatables 500 500 - copper 1.0 1.0 2.0 zinc 5.0 5.0 4.0 BOD5 60 30 30 COD 100 50 - phenol 0.5 1.0 1.0 sulphides 1.0 1.0 1.0 cyanide 0.5 1.0 2.0 total phosphorus 0.5 1.0 - oil 10 10 15 fluoride 10 10 - nitrobenzene 5.0 5.0 - benzene 3.0 3.0 * effluent from oily waters treatment centre (B) Air emission standards (mg/m3) China U.S. Canada (1982) (1982) (1982) Parameter Grade I Grade II Grade III Grade IV total settleable 0.30 0.075 0.080(AGM) particulate (AGZM)* sulphur dioxide 0.15 0.080 0.055(AAM) (AAM)* nitrogen oxides 0.10 0.100(AAM) 0.200(24hr) hydrocarbons 0.160 - oxidants (as 03) 0.160(lhr) 0.165(lhr) fluorides - 0.138(24hr) Notess Chinese standards are based on daily averages (Quality Criterion of Atmospheric Environment, GB3095-82)  - 53 - Table 3 Page 1 of 7 CHINA SHIP WASTE DISPOSAL PROJECT Estimated Project Cost L (S million) Project Cost of which Local Foreign Total IDA GEF National Component Environmental monitoring & tracking 0.65 1.35 2.20 0.54 1.09 oil spill contingency planning study - 0.45 0.45 - 0.42 Chemically contaminated water treat- ment study - 0.25 0.25 - 0.23 Subtotal 0.65 2.05 2.70 0.54 1.74 Ports' Component Disposal facilities: Dalian 1.15 2.05 3.20 0.78 1.60 Tianjin 7.00 2.00 9.00 2.05 3.92 Shanghai 16.30 8.50 24.80 5.20 10.08 Ningbo 4.80 1.70 6.50 1.83 3.55 Guangzhou 5.36 3.20 8.56 2.08 4.17 Xiamen 3.52 1.61 5.13 1.37 2.68 Technical assistance to Xiamen Port Authority - 0.03 0.03 - 0.03 Subtotal 38.13 19.09 57.22 13.31 26.03 Base cost 38.78 21.14 59.92 13.85 27.77 Physical contingencies 1.48 0.86 2.34 0.55 1.07 Price contingencies 1.54 1.00 2.54 0.60 1.16 Total cost 41.80 23.00 64.80 15.00 30.00 /a In January 1992 prices. The project is exempt from taxes and duties.  - 54 - Table 3 Page 2 of 7 CHINA SHIP WASTE DISPOSAL PROJECT Detalled Cost Estimates for the Port of Dalian Total Domestic Domestic Foreign Item civll works equip. equlp. ----------- $ million ----