China - Wanjiazhai Water Transfer Project

Report No. PIC1470 Project Name China-Wanjiazhai Water Transfer Project(@#) Region East Asia and Pacific Sector Water Supply and Sanitation Project ID CNPA36405 Implementing Agencies Yellow River Diversion Project Corporation Shanxi Provincial Government Contact: Director Foreign Affairs Dept. Yellow River Diversion Project Office 2nd Floor Changhe Mansion 49 Jinci Road, Taiyuan, Shanxi, 030002, P.R. China Tel: (0351) 6041241 Ext.2313 Fax: (0351) 6040741 Attn. Mr. Yang Jinsheng Environmental Category A Date Prepared September 30, 1996 Projected Appraisal October 20, 1996 Projected Board Date June 3, 1997 1. Country/Sector Background. Shanxi Province is located in the northeast of China, with a population of about 30 million people. The coal resources of this province are the largest in China, over 203 billion tons, and the annual production in 1995 was about 340 million tons which forms about W of the coal production of the nation. In addition, the province contains a high concentration of heavy industry producing aluminum (over 50t of the nation), pig iron (13%), steel and steel products (7%), cement (3%), sulfuric acid (4%) and chemical fertilizer. The province also produces about 7% of the nation's electrical energy and exports about % of the energy produced into the North China Grid. Despite this level of industrialization, the province falls within a group of northwestern provinces which are classed as poor. State Statistical Bureau Surveys (1995) indicate rural incomes are among the lowest ($1/capita/year) in China. 2. A major factor in rural poverty and the overriding constraint on continued industrial development is the shortage of water. In 1993 water demands, calculated on the basis of national quotas, were 9.07 bcm and increasing at the rate of about 3% per year. However, supplies in that year were only 5.44 bcm, of which about one bcm was from over- extraction of groundwater. Thus water demand and supply are out of balance by a factor of two. According to the Shanxi Water Resources Report 1993, per capita water consumption in Shanxi was 41% of China's average, and 29% of the world average. Shortages have adversely affected most parts and all sectors in the province. 3. Of the 3.1 million ha of sown area 1.2 million ha are continually drought affected. As a result yields for grain crops are the sixth  lowest in China. Irrigation covers about 1.1 million ha or 30% of the cultivated area. However only 50% of the irrigated areas have adequate water supply. The average water application per mu of 230 cum/year is the lowest in China and only about 50% of the requirements. Rural residents consume only 36 l/d, including supplies for public use and livestock. 4. Urban residents suffer from water shortages as well. Compared to other Chinese cities which average 174 1/day, the three cities to be supplied by the Wanjiazhai Water Transfer Project (WWTP) (Taiyuan, Datong, and Shouzhou) consume 95, 80, and 39 respectively. Household water use averages about 70 1/c/d with many cities falling in the 26 to 40 1/c/d. The levels of consumption are well below the WHO recommended levels of 100 1/c/d. In these cities, tap water is typically supplied only three times per day for about one hour each. Pressure is so low that people living above the third flow never have tap supply. It is highly probable that such supply conditions invoke a variety of health problems. Coal miners in the Datong region must bathe in the same water for a week or more. Even their drinking water is often mixed with pit drainage water. At present over 10 mcm of mine pit water is recycled for human consumption. This has caused some health problems to miners. 5. The province's industrial and mining activity is largely contained in the three project cities or their vicinities. These sectors have also been strongly affected by water shortages. Industrial supplies in 1993 were only 58% of estimated requirements. Although industrial output has continued to grow at modest rates, the time is nearing when it will be halted without additional water. Recycling is probably reaching its technical limit: 91% in power generation, 76% in the chemical industry, 72% in primary metals, 83% for all industries combined. The comparison of recycling in industry showed that 83% was recycled in Taiyuan compared with 70% in Beijing, 64% in Shanghai, 40% in Shenyang, 34% in Guangzhou and 26% in Guiyang. The official target for Shanxi is for 85.5% by 2000. Even if achieved, the water savings will be insignificant with respect to total shortages. Numerous enterprises must close down several days per month for lack of water. One large new mine near Shouzhou has failed to open for lack of assured water supply. Efforts to conserve water can be seen in the pattern of investments in the industrial sector over the past decade. New investment has contributed very little to capacity expansion, but has had a dramatic impact on water productivity. 6. A solution to the water shortage problem is to divert water from the Yellow River to those areas of greatest demand and highest population density in northern Shanxi. Such diversions have been part of official plans for more than four decades. However diversion of water from the Yellow River requires high pumping requirements of up to 600 m, and large investments which can only be justified for water which is used for industry and municipalities. The proposed Wanjiazhai Water Transfer Project (WWTP) would aim to alleviate the most severe water supply problems for northern Shanxi. Given the enormous gap between sustainable local water supplies and projected demand, the WWTP can fill but a small percentage of the need. But the project has been conceived to alleviate those shortages which have both the highest economic return in terms of industrial, mining and energy output, and -2 -  those shortages which affect the most basic needs of large and rapidly growing urban populations. 7. Project Phasing. The economic and social effect of the water shortage situation is sufficiently severe in each of the described project areas to warrant the immediate attention to remedies such as the project. However, a project of the scope and cost of the full project is not feasible given the limited financial means of the Province, and the capacities of local contractors. Thus, the Project needs to be phased, beginning with the General Main Tunnel (GMT) and either the North Main Tunnel (NMT) (to Datong and Pingshuo) or the South (SMT)(to Taiyuan and its environs). The second alternative has been selected for two reasons. First, Taiyuan has a much larger urban population that would benefit from the increased household water supplies, and a slightly greater industrial capacity suffering from shortages than do the northern areas. Second, there is a much larger irrigation area around and downstream from Taiyuan that could make immediate use of treated wastewater to increase farm output and agricultural incomes. Thus Phase I of the project will first serve Taiyuan beginning about 2002, followed by the northern areas in Phase II. 8. Project Objectives. These include: (a) reducing the severe water supply infrastructure bottlenecks that impede economic growth; (b) increasing employment and thereby reducing poverty, by eliminating constraints to development; (c) reducing the distress of the urban population caused by insufficient and intermittent water supplies, which are barely enough to meet their basic needs; (d) improving the environment by ending the overextraction of groundwater and the subsequent drying of surface streams and land subsidence, and by treating all waste, so as to reduce water pollution downstream;(e) creating a system to rationalize water use, by sector, and reducing water shortages by managing demand. 9. Project Concept and Design. The project concept is based on the Yellow River Basin Master Plan. The master plan recommends that the most economical option to meet the water needs for north Shanxi would be a 1.2 bcm/year Wanjiazhai Water Transfer Project. The Wanjiazhai Hydropower Dam on the Yellow River is presently being constructed by the Central Government and is expected to be completed by 1998. The Bank's "Yellow River Investment Planning Study" (Report No. 11146-CHA) also endorses this transfer project as part of the package of projects which give the optimum economic investment for the basin during 1995-2020. The detailed project designs and bid document preparation are being done jointly by the Tianjin Investigation and Design Institute and international consultants were appointed in the beginning of May 1996 year to review the designs and undertake specialist design services for the pumping stations, emergency and regular operation studies, and automatic controls design for the pumping stations and for canal regulation. 10. Project Scope. The project would provide the physical works needed to transfer water from the Yellow River through a system of tunnels, aqueduct pipelines and reservoirs. It would also support policy and institutional reform for economic water pricing and water marketing. The following components are envisioned: -3-  (a) Yellow River Diversion (YRDPC) (i) Work on the GMT would be completed. This would involve completion of civil works for tunnels all connecting structures such as aqueducts and siphons, power transmission lines (220 kV, 110 kV, 35 kV), and transformer stations as well as preparatory work for access roads, adits and water supply for the SMT; (ii) Civil works for five pumping stations (two underground and three above ground) and for pressure tunnels no. 4 and 5 for the GMT; (iii) Construction of all seven tunnels (totaling 98 km), four aqueducts and the bifurcation structure for the SMT; (iv) Supply and installation of equipment for all pumping stations on the GMT and SMT. The supply would include all pumps (6.0- 6.45 m3/second units), motors (10 MW to 12 MW units), controls for the motors, communications, valves, gates and steel works; (v) Construction of connecting works from the end of the SMT to Taiyuan that will include a headworks at Fen I, a 41 km twin pipeline (2.4 m diameter each) and a 17.1 km tunnel to the Huyang treatment plant outside of Taiyuan; (vi) Resettlement/compensation for all people displaced by the aqueducts; (vii) Environmental management techniques to offset the negative effects at the construction sites or from any part of the project; (viii) Consultant services to supervise construction, create a board to review disputes, establish a panel of experts for the design and construction of underground works and training programs, and organize an environment/resettlement panel. (b) Water Resources Institutional Reform (Implemented by Shanxi Water Conservancy Department (SWCD)) (i) Two-stage reform of all six water resource institutions within the Yellow River water delivery area: YRDPC, Fen I, Fen II, Fenhe Irrigation Bureau, Taiyuan Water Company and Taiyuan Sewerage Bureau. In Phase I, each would become corporatized, autonomous and financially independent companies. To ensure financial autonomy, water prices would be liberalized to obtain the best arrangements within the various sectors, and trading between sectors of water would be allowed to obtain the most rational use. In Phase II, the six companies would be placed within a holding company and reforms would be deepened in each, whereby assets would be transferred to or purchased by the private sector. For example, irrigation districts would sell their assets to farmers at nominal prices. (c) Water Pollution Control and Industrial Waste Management (Implemented by Taiyuan Environmental Protection Bureau (TEPB)) (i) An environmental master plan for Taiyuan, which would involve studies on a wastewater permit system, pollution enforcement, and a phased pollution prevention program; (ii) An in-plant wastewater monitoring system and effective pollution permit system, with charges high enough to deter industries from discharging waste above the standards; - 4-  (iii) Training and upgrading Environmental Protection Bureau (EPB) staff skills to prevent pollution, establish and operate pollution permit systems and a data base for monitoring water and wastewater quality; (iv) A revolving fund to introduce cleaner technology in the seven main polluting industries (steel, coal, coke, pharmaceuticals, paper, fertilizer and chemicals). 11. Project Cost and Financing. Total project cost is estimated to be about $1268 million equivalent, including taxes, loan commitment charges and interest during construction. The estimated foreign exchange estimates is $486 million. Project financing would be provided as follows: $838 million from YRDPC derived from Provincial Government surcharges on coal, electricity and water; $30 million from Italian Cofinancing and $400 million from the Bank. External financing provides about 88 percent of the foreign exchange. 12. Implementation. The YRDPC and the SWCD will be responsible for the overall project implementation. The YRDPC will undertake the planning, design, procurement activities, mobilization of funds for the project and SWCD will undertake the establishment of the river basin commissions. The TEPB will be responsible for the Water Pollution Control and Industrial Waste Management Component. Shanxi Government has a high level Leading Group to coordinate the project. 13. The YRDPC has undertaken a considerable amount of preparatory work consisting of 114 km of access roads, 62 km of 220 kV and 113 km of 110 kV powerlines, 140 km of telephone lines and has launched contracts for preparatory works to 16 local contractors and one international contractor for excavating 21 km of tunnels and tunnel adits. 14. Project Sustainability. The project is being designed according to internationally-established procedures. The use of tunnel-boring machines and segment lining will ensure that the quality of construction is maintained. n Pumping plants have percent additional capacity to guarantee continuous operations. A supervisory control and data acquisition system will be used to manage the whole operation and optimize energy needs. Further, the use of these state-of-the-art technology to design the long-distance water transfers will ensure high reliability for the system. Also, capital and maintenance costs can easily be covered by the water charges: Prices have already been increased to sufficient levels, making financial sustainability reasonably certain. Moreover, the corporatization of all water resource institutions within the zone of influence of the transferred water will coordinate water use in the region. Sustainability of the project is therefore always assured. Lastly the water in the Yellow River will always be available. The water in the Yellow River is assured 95% to 97% probability of reliability as is the case for all water supply projects. The water has been allocated in the Yellow River and all planning of new projects take the allocation into account. 15. Environmental Aspects. This project is classified as a category A project requiring a full environmental impact assessment (EIA). The EIA was carried out by the Shanxi University Environmental Department (SUED) and the China Radiation Protection Institute (CRPI) with assistance - 5 -  from international consultants. An English summary of this report will be circulated on October 12, 1996 and copies of the complete EIA will be placed in the files and in the Project Information Center (PIC). 16. The report not only considered the direct impacts of the project in the construction areas but also examined the impacts outside the project areas of: diverting water from the Yellow River on the lower reaches of the river basin; the diversion dam; and the secondary impacts of waste water generation and treatment for water supplied to Taiyuan City. The EIA included an Environmental Action Plan (EAP). The EIA was reviewed by the Bank and found satisfactory. The project will not impact on any ecologically sensitive areas since most of the works are underground. The impact of diverting the water from the Yellow River on the downstream provinces is minimal since provincial withdrawals of water is governed by agreed water allocations which were determined in 1986. The impact of the diversion structure is very positive except for the reservoir resettlement which is addressed through a resettlement action plan which is already being implemented. The impact of increasing the generation of wastewater due to new improved water supply systems will be offset by new and improved wastewater treatment, 96 percent of all wastewater will be treated by 2000 and 100 percent by 2010. Water quality predictions show dramatic improvements in water quality based on wastewater treatment which is included as complementary works to this project. 17. Land Acquisition and Resettlement Aspects. The project will require land acquisition and resettlement. A Resettlement Action Plan (RAP) for the project was submitted and reviewed by the Bank and found to be acceptable. 18. About 690 ha of farmland will be acquired affecting some 1,122 persons, resettlement of 16 households (54 persons) and relocation of 22 rural industries. All 54 people have been resettled and farmland developed and rural industries and livelihood development programs were completed in 1994. In addition, for the GMT all the land acquisition (150 ha) has been completed and new land has been procured and a full livelihood development program has been developed. The diverting dam, which is not included in this project, requires resettlement of 5,600 people for which a comprehensive resettlement action plan (RAP) has been developed. The first 500 people have been resettled and surveys reveal that their new incomes exceed their past incomes by as much as 30 percent. 19. Program Objective Categories. The main program objectives considered are: (a) Natural Resource Management: The project will assist in stabilizing the greatest regional water deficit in China today, which has resulted in massive lowering of water tables and depletion of rivers, some beyond the possibility of recovery. With the physical deliveries of the project and the tariff and water charge increases, which are a required part of it, this situation can be stabilized in the long-term. (b) Removing Infrastructure Bottlenecks: Regional water shortage - 6 -  is obviously the most severe constraint on both further economic development and quality of life improvements in Shanxi Province. The project would significantly assist in breaking that bottleneck. 20. Project Benefits. This project will generate enormous benefits. First, 2.85 million urban residents will be relieved of extreme water shortages: About 20 percent (0.6 million) of these residents are among the poorest in China, earning less than $0.35/day. The discounted incremental benefits (in 1996 terms) computed from consumer surpluses due to increased willingness-to-pay (the indicator used to measure the economic benefit of increased consumption), amount to 155 million (5.0 percent of the total benefits. Also, about 0.6 million rural residents will benefit. Second, increased value added to industry due to water delivered is calculated at over $2.45 billion (75 percent). Last, agricultural benefits from recycled water amount to $657 million (20 percent). The project will also improve Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Contact Points WASHINGTON, D.C. E-Mail: pic@worldbank.org Telephone: (1-202)458-5454 Fax: (1-202)522-1500 Mail Address: 1818 H Street, N.W. Room GC1-300 Washington, D.C. 20433, U.S.A PARIS - EUROPEAN OFFICE E-Mail: pparis@worldbank.org Telephone: (33-1)40 69 30 26 Fax: (33-1)40 69 30 69 Mail Address: 66 Avenue d'lena 75116 Paris, France LONDON OFFICE E-Mail: plondon@worldbank.org Telephone: (44-171) 930 8511 Fax: (44-171) 930 8515 Mail Address: New Zealand House, 15th Floor Haymarket London SW1Y 4TE, United Kingdom TOKYO OFFICE E-Mail (1): ptokyo@worldbank.org (in English) (2): pictokyo@ppp.bekkoame.or.jp (in Japanese) Telephone: (81-3) 3201 4929 Fax: (81-3) 3214 3657 Mail Address: Kokusai Building, Room 916 1-1, Marunouchi 3-chome Chiyoda-Ku Tokyo 100, Japan - 7-  Note: Annex is available from the Public Information Center upon request. Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington D.C. 20433 Telephone No.: (202)458-5454 Fax No.: (202)522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the Public Information Center week ending October , 1996. - 8 -