China - Second Shanghai Sewerage Project

Document of The World Bank Report No: 30467-CHA IMPLEMENTATION COMPLETION REPORT (SCL-39870) ON A LOAN IN THE AMOUNT OF US$250 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A SECOND SHANGHAI SEWERAGE PROJECT December 29, 2004 Urban Development Sector Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective June 30, 2004) Currency Unit = Yuan Y1.0 = US$ 0.12 US$ 1 = Y8.3 METRIC SYSTEM FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS APL Adaptable Lending Program BOD Biological Oxygen Demand BOT Build-Operate-Transfer CAS Country Assistance Strategy COD Chemical Oxygen Demand DRA Design, Review and Advisory (consultants) EIA Environmental Impact Assessment GDP Gross Domestic Product GOC Government of China ICB International Competitive Bidding NCB National Competitive Bidding PCCP Pre-stressed Cement Concrete Pipe PMO Project Management Office RAP Resettlement Action Plan SAR Staff Appraisal Report SARS Severe Acute Respiratory Syndrome SEP Shanghai Environment Project SEMC Shanghai Environmental Monitoring Center SEPB Shanghai Environmental Pollution Board SFB Shanghai Finance Bureau SHUEP Shanghai Urban Environment Program SM Shanghai Municipality SMG Shanghai Municipal Government SMSC Shanghai Municipal Sewerage Company SSC Shanghai Sewerage Company SSP1 Shanghai Sewerage Project SSP2 Second Shanghai Sewerage Project SSPCC Shanghai Sewerage Project Construction Company SUDIC Shanghai Urban Construction & Development General Corporation SWA Shanghai Water Authority  SWAOD Shanghai Water Asset Operations Company SWEC Shanghai Water Environment Construction Company YDER Yangtze Delta Economic Region Vice President: Mr. Jemal-ud-din Kassum, EAPVP Country Director: Mr. David Dollar, EACCF Sector Director: Mr. Keshav Varma, EASUR Task Team Leader: Mr. Mats Andersson, EASUR  CHINA SECOND SHANGHAI SEWERAGE PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 5 5. Major Factors Affecting Implementation and Outcome 10 6. Sustainability 11 7. Bank and Borrower Performance 13 8. Lessons Learned 17 9. Partner Comments 17 10. Additional Information 18 Annex 1. Key Performance Indicators/Log Frame Matrix 19 Annex 2. Project Costs and Financing 23 Annex 3. Economic Costs and Benefits 25 Annex 4. Bank Inputs 26 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 29 Annex 6. Ratings of Bank and Borrower Performance 30 Annex 7. List of Supporting Documents 31  Project ID: P003648 Project Name: Second Shanghai Sewerage Project Team Leader: Mats Andersson TL Unit: EASUR ICR Type: Core ICR Report Date: December 29, 2004 1. Project Data Name: Second Shanghai Sewerage Project L/C/TF Number: SCL-39870 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Sewerage (90%); Sanitation (10%) Theme: Pollution management and environmental health (P); Access to urban services and housing (P); Municipal governance and institution building (S) KEY DATES Original Revised/Actual PCD: 09/29/1994 Effective: 08/09/1996 Appraisal: 06/21/1995 MTR: Approval: 03/21/1996 Closing: 06/30/2002 06/30/2004 Borrower/Implementing Agency: People's Republic of China/Shanghai Municipal Sewerage Company Other Partners: STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Russell Cheetham Country Director: David R. Dollar Nicholas Hope Sector Manager: Keshav Varma Katherina Sierra Team Leader at ICR: Mats Andersson Geoffrey Read ICR Primary Author: Terry Hall 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: HL Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: HS S Project at Risk at Any Time: No  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: Background: Shanghai Municipality (SM) is China's most important industrial area and is a major center of commerce, trade, finance and science. At appraisal, the Yangtze Delta Economic Region (YDER) comprising SM and three adjoining provinces, with a population of about 200 million people, accounted for about 22 percent of the national domestic product (GDP). Rapid urban growth was causing increased domestic and industrial wastewater discharges. Recognizing the significant environmental damage caused by uncontrolled wastewater, the Government of China (GOC) targeted Shanghai for environmental management improvement. Shanghai Municipal Government (SMG) recognized that sustained protection of the environment was a pre-requisite for long-term economic growth and investing in environment protection was a high priority. Shanghai embarked on a program of infrastructure reforms, and a wastewater management strategy was formulated, comprising a phased investment program, to be managed by a financially sustainable utility company. GOC requested support for Shanghai's long-term environmental protection program. This project was part of that long-term program which started with Shanghai Sewerage Project (Loan 2794/Credit 1779-CHA), and the Shanghai Environment Project (Loan 3711-CHA). Objectives. The principal objective was to provide a safe environmental setting for the long-term growth of Shanghai, enabling sustained economic and industrial growth. Specific objectives were to: (a) enhance wastewater and storm water management through expanding wastewater collection, treatment and disposal capacity, and storm water drainage facilities; (b) reduce urban pollution impact, while facilitating pollution control; (c) improve wastewater utility financial and operational management; and (d) strengthen sector institutions through training, feasibility studies, and future investment project preparation in the environment area. Assessment of Objectives. This project supported the Bank Group's Country Assistance Strategy (CAS) in 1995 which supported urban environmental management by enhancing environmental protection, and assisting with infrastructure development at municipal and regional levels. GOC continued to attach high priority to environmental protection, targeting industrialized cities and regions like Shanghai. Strengthening the financial and operational management of the sector institution was particularly important in this project, since the SMSC had only recently established when SSP2 was under preparation. Capacity building and institutional strengthening were therefore important initiatives in SSP2. These initiatives also helped Shanghai prepare for its further long-term environmental development programs, including the Shanghai Urban Environment Project (SHUEP), currently in progress under the three-phase Adaptable Program Loan (APL) (Ln. 4705-CHA). While the objectives were realistic and clear, and responsive to Shanghai's needs, they were at the same time very challenging taking into consideration the size and complexity of facilities to be constructed, and the limited experience in China at the time of this kind of comprehensive sector improvement projects. - 2 -  3.2 Revised Objective: N/A. 3.3 Original Components: The project included the following components: Sewerage and Sanitation Improvements ($531.2 million). Construction of trunk conveyor, secondary sewers, and pumping facilities with a supporting program of wastewater flow management, connections and collection for domestic, industrial and enterprise systems; Wastewater Treatment and Disposal Systems ($83.2 million). Construction of pretreatment, effluent pumping facilities, and a marine outfall for a flow capacity of about 1.7 Mm3/d at Bailonggang, and rehabilitation of existing sewerage systems; Institutional Development and Training ($18.9 million). Supporting and strengthening project management, wastewater operations and management systems; wastewater system rehabilitation, monitoring technology and data management; pollution control; and training, feasibility studies and future project preparation. Assessment of Design. All components were interlinked and clearly addressed the objective of the project. The components comprised priority investments identified within the Shanghai Sewerage Master Plan and were consistent with earlier works carried out in SSP1 and SEP. Lessons learned from SSP1 and SEP were factored into SSP2. These included: (a) the linking of physical works with early actions to address institutional development and financial soundness of SMSC (a wastewater tariff of Y0.14/m3 for domestic consumers was introduced prior to "effectiveness"; (b) extensive use of thrust boring technology for sewer construction to minimize disruption in congested built-up areas; (c) improved design of joints in trunk conveyors to control leakage; and (d) careful attention to corrosion control on steelwork items; and (e) the importance of thorough project preparation. All components were to be implemented initially by SMSC. Although recently established at that time through the amalgamation of the former Shanghai Sewage Company (SSC) and Shanghai Sewerage Project Construction Company (SSPCC), SMSC had experience in implementing and operating similar investments, and thereby capable of implementing SSP2. SSP1 was successfully completed by SSPCC and operating as of 1995. The wastewater component of SEP, which began implementation in 1994, was also executed very successfully by SMSC staff. 3.4 Revised Components: The following additional investments were implemented using project cost savings identified in 1998. These additional investments were consistent with the project objectives and did not result in a restructuring. They deepened the achievement of the project objectives. Puxi Mid Line Sewer ($32.4 million). This covered the Puxi Middle Block area (see p. 58 of the SAR), and Beicai area of Pudong, with a total catchment area of 10.8 km 2. The additional - 3 -  system provided service to some 615,000 people (about 5% of Shanghai population) and wastewater collection was enhanced by some 300,000 m3/d. Pudong Link Sewers ($54.2 million). This is located in the service area of SSP2 in Pudong and extended the collection area of the main conveyor sewer. The works comprised link sewers and pump stations in 10 locations; rehabilitation of storm water pump stations; interception of wastewater from about 32 industrial enterprises; and from Yangsi and Chuansha townships covering about 24 km2. Bailonggang Wastewater Treatment Plant ($53.1 million). This component comprised the construction of chemically enhanced primary treatment and sludge disposal works of 1.2 Mm3/d capacity, located on reclaimed land at Bailonggang next to the outfall pump station and preliminary treatment facility (which had been completed in the original scope of SSP2). Assessment of Design. The designs were prepared by local/foreign municipal design institutes and consultants to provide least-cost solutions, enhancing the project benefits. Satisfactory Environmental Impact Assessment (EIA) and Resettlement Action Plans (RAPs) were provided for all additional components. 3.5 Quality at Entry: The Quality at Entry is considered highly satisfactory for the following reasons: Environment-related sector work carried out by the Bank included a number of urban sector surveys which identified major environmental issues, their causes, and remedies for addressing them. The resulting program of operations assessed institutional capacity and service delivery. These strategies were supported in nine urban environment, water supply and sanitation projects, of which SSP2 was one. SSP2 was consistent with the CAS, which emphasized institutional development, including organizational strengthening of the Shanghai Municipal Sewerage Company (SMSC), financial capacity building and investments in the southern part of Shanghai's wastewater management system. Referring to the specific objectives, the project was designed to enhance the capacity of the city's wastewater collection, treatment and disposal system by 1.7 Mm3/day covering an area of some 240 km2, with significant reductions in urban pollution (this would represent a challenging undertaking in any country of the world). SSP2 was the third environmental intervention in Shanghai supported by the Bank and fully responded to GOC and SMG sector priorities (see Section 3.1). GOC recognized that industry was a major source of pollution in China and with its heavy industrial base, Shanghai was targeted for environmental improvements. SMG also recognized that sustained protection of the environment was a pre-requisite for long-term economic growth. SSP2 was an interim investment within Shanghai's long-term program to alleviate environmental degradation, focusing on wastewater collection, treatment and disposal, and institutional strengthening of SMSC. At the outset, SMG set up a high level Leading Group and a Project Office, headed up by a senior manager from the former SSPCC. Experienced technical and management staff was assigned from SMSC. SMG benefited from the deployment of substantial international and local - 4 -  consultant support during preparation. The Bank staff were already working with SMG on SSP1 and the team of senior professionals deployed on project identification were well versed with Shanghai's sector institutions and issues. Thorough strategic discussions were held to ensure the most effective long-term solutions for Shanghai. All components were interlinked to support the GOC and SMG sector objectives of significant environmental improvement. The Bank's safeguard policies were fully satisfied. By appraisal, all feasibility studies and modeling of the Yangtze (Changjiang) estuary were complete, and detailed designs for all components were well advanced. Drafts of tender documents covering some 40 percent of the investment program were ready at negotiations. Risks identified at project appraisal were: delays by SMG in implementing wastewater tariffs and in addressing institutional reform in SMSC; construction difficulties at Bailonggang outfall site; delays by SMG in implementing institutional development and training; and, the need for sustained investment to meet the long-term wastewater management strategy. The assumptions made in the SAR were reasonable, and the risk assessment was largely accurate. Mitigation included: a wastewater tariff increase in 1996 for domestic consumers (a condition of effectiveness); an Engineering Review Panel; technical assistance to provide management and financial strengthening for SMSC (support began before loan effectiveness); and provision of funds for future project preparation to encourage continued implementation of the long-term program. These measures proved adequate. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The project objectives were addressed in a very comprehensive way and its outcome is rated satisfactory. All objectives were achieved and the physical components exceeded expectations. See Annex 1 for details. Regarding Objective (a), enhance wastewater and storm water management, chemically enhanced primary treatment (not included in the original project scope) was provided at Bailonggang, to control the phosphorus load discharged to the Changjiang estuary. Additional link sewers and storm water pump station rehabilitations were provided, thus enhancing collection capacity. The additional works were originally planned as a subsequent project, but construction was brought forward to utilize cost saving in SSP2. Although studies done during project preparation showed that pretreatment alone would meet China's Standards for Discharge to Fresh Waters in the short term, it was agreed to move towards controlling of pollutants on a "total load" basis. The chemically enhanced primary treatment facility at Bialonggang was designed to contain the phosphorus load to the Changjiang from Shanghai at less than projected year 2000 levels (18 tonnes/day). This is important in connection with the control of the nutrient status in Hangzhou Bay. At appraisal, it was estimated that the first tranche of primary treatment of 0.86Mm3/d capacity would be needed first by year 2005. SMG has now provided a facility of 50 percent greater capacity, and one year ahead of schedule, responding to increased needs due to higher economic and population growth than expected at that time. Regarding Objective (b), urban pollution reduction and control, monitoring was defined in the SAR although base-line parameter values were not agreed with the Borrower (despite many - 5 -  mission discussions). However, based on information provided in the Borrower's "Review Statement on Environmental Impact" (Annex 7), SSP2 has contributed substantially to reducing urban pollution. The service area of 289 km2 (including Minhang/Wujing area) serves a population of 4.1 million (about 25 percent of the population). The average wastewater flow collection rate has increased from 0.75 Mm3/d in 2000 to 1.04 Mm3/d by 2003 (39 percent growth). However, comparison of planned and actual intercepted wastewater flow in year 2003 shows that the flow collected in Pudong is only about 35 percent of the projected short-term figure due to unforeseen changes in land use development plans; the actual wastewater flow rate is lower than the original design assumptions; the construction of local sewer networks is lagging behind the main interceptor sewers built in SSP2; and, some enterprises still prefer to discharge wastewater into surface waterways. This indicates a need for SMG to ensure closer coordination with local authorities for timely utilization of trunk sewers, possibly including mandatory regulation. Nevertheless, the number of SMSC customers increased by 37 percent from 1.57 million in 1999 to 2.16 million in 2003. Monitoring of the water quality at Bailonggang Pre-treatment Works shows that the inlet and outlet effluent quality is similar. This is expected since preliminary treatment only removes gross solids and grit. However, pollution loads were reduced substantially on commissioning of the primary treatment plant in mid-2004. Operating data for August, 2004 showed significant reduction in Biological & Chemical Oxygen Demand (BOD and COD), suspended solids and phosphorus; the plant was performing within its design parameters (see Annex 1a). The impact of SSP2 on surface water quality in the Huangpu River and other waterways in the project area is difficult to assess when compared with the time bound parameters given in the SAR (see SAR Annex 11 on page 100). The overall water quality in the Huangpu was projected to improve from Class IV in 1996 to III by year 1999. General waterway improvements were projected from Class V to IV over the same period. General comparison with the actual situation is however not feasible. In order to assess the impact of SSP2, the SMG has compared the value of critical pollution indicators at a number of stations along the Huangpu river from 1996 to 2002. (Details are given in Annex 1a.) While some parameters have improved through 2002, others have varied. Overall the water quality in the Huangpu is reported to be "somewhat improved". Ammonia remains in the range of Class IV and V (sometimes worse than Class V). However, the total nitrogen remains worse than Class V at all stations. This situation is influenced by upstream discharges beyond the control of SMG. The rivers in Pudong were also monitored from 1996 to 2002 in 16 stations. The Pudong Canal and Chuangyang River are reported with improved water quality and the pollution in Zhangjia Bang is reduced. Little change is observed in other rivers, possibly caused by the low wastewater collection rate in Pudong area (see details in Annex 1a). The project helped significantly to contain the threat of deterioration of the water quality in this area of rapid growth in population as well as economic activity. Water quality at the Bailonggang outfall was monitored from 1996 to 2002. Water quality in the inter-tidal zone in this area is much improved as a result of the submarine outfall discharge provided by SSP2. Little overall change in water quality is reported however. Following commissioning of the primary wastewater treatment plant in mid-2004, further improvement in - 6 -  overall water quality is likely. Water quality in the Changjiang is monitored at cross sections adjacent to the location of the submerged outfall. No deterioration in water quality is reported. Objective (c). SMSC's financial performance substantially exceeded the targets covenanted in the Project Agreements through 2002, supported by timely and substantial wastewater tariff adjustments. (In 2002, the domestic wastewater tariff was Y0.70/m3 compared with Y0.02/m3 at appraisal in 1996!) However, SMSC did not fully meet its covenanted target in 2003 regarding return on assets ( -5.2 percent was reported compared with a target of +10 percent). The debt service ratio of 0.71 for 2003 was also below the targeted minimum of 1.3. This was due to a lack of tariff adjustment since 2002; and disbursements under SSP2. The wastewater tariffs were sufficiently raised in August 2004 following extensive public discussions. Recent projection by SMSC shows satisfactory compliance from 2004 onwards. Note: The current domestic tariff is Y0.9/m3 for water usage up to 15 m3/month and Y1.0/m3 above that figure. The non-domestic tariff has been split into three categories in the range Y1.1, 1.2 and 1.4/m3 for public institutions, industrial/commercial users, and heavy polluters respectively. Objective (d). The sector institutions have benefited from extensive training on utility and infrastructure management, and geographic information system support. In total some 270 personnel benefited under this component. SMG's sector reforms introduced in 1999 have effected major strengthening of the wastewater sector institutions. Some 120 senior and mid-level managers attended overseas training in financial and operational management in SSP2 (60 person-months). Improvement of staff skills resulting from in-country training was also an important output from SSP2. Operational staff was trained at the SMSC Training Center. The construction management consultant and equipment suppliers also provided important skills training for SMSC's operatives. Social Objectives (Safeguards). Resettlement involved both households and enterprises, and was carried out satisfactorily, in compliance with Chinese and World Bank guidelines. Land acquisition totaled 3.5 hectares affecting 1400 families and 211 enterprises. Some 634 persons needed re-employment. These figures were much lower than projections given in the SAR and resulted in lower implementation costs. Reasons were improved project design, minimizing land acquisition (e.g. re-alignment of some trunk sewers); SSP2 was planned together with other engineering works (road re-alignment), and some land costs were included in these other works built before SSP2; and use of tunneling technology which reduced the impact on farmland. For details, see Review Statement on Environmental Impact for Shanghai Sewerage Project Phase II (Annex 7). 4.2 Outputs by components: This section describes the physical outputs of the investment components. The overall project rating is satisfactory. Sewerage and Sanitation Improvements: Satisfactory. Major investments were successfully completed and operations began in 1998. The trunk sewer system had an initial capacity of 1.7 Mm3/d, collecting wastewater flows from some 240 km2 of Pudong and Puxi areas of the city. Wastewater flows from the Wujing/Minhang conveyor system, funded in SEP, are also intercepted into this system, and conveyed to Bailonggang for treatment and disposal to the - 7 -  Changjiang through a submarine outfall. The present discharge from the Wujing/Minhang system is about 0.4 Mm3/d. Full capacity (0.7 Mm3/d) is likely to be reached in 2008 upon completion of tertiary sewers. Ultimately the Bailonggang system would cater for the long-term flow of about 3.0 Mm3/d projected for year 2020. Utilization of the system has been increasing annually since 1999. In 2003 the flow was 0.97 to 1.20 Mm3/d, reflecting improved strong water management. Pre-stressed concrete pipes (PCCP) were used very successfully over about 10% of the total 41 km length of the conveyor system, being the first such application on a sewerage project in China. High quality construction was maintained throughout and SMG received a national level Golden Award for the quality of construction. The Puxi Mid Line system and link sewers were added to enhance flow collection in parts of Pudong. These sub-components were successfully completed and began operation in early 2004. The outcome further deepens the achievement of the project in addressing the wastewater and storm water objective defined in the SAR (see indicators in Annex 1). Wastewater Treatment and Disposal Systems: Satisfactory. The original works were completed satisfactorily and operations began in 1999 along with the conveyor system outlined above. Bearing in mind the difficulties encountered in the outfall construction in SSP1, SMG appointed an Engineering Advisory Panel (funded through Australian grant assistance), to ensure rigorous quality control of the submarine outfall design and construction. The length of the submarine outfall was reduced substantially by land reclamation along the shore of the Yangtze (Changjiang) estuary. Spiral grit removal was adopted in the pre-treatment works, the first such application of this size in China. This technology was proposed by the contractor and accepted by SWEC, saving space, reducing energy costs and improving civil works economy. The original scope of work included rehabilitation of existing wastewater treatment facilities totaling about 255,000 m3/d capacity at plants in Quyang, Tianshan and Longhua as work was done in SEP utilizing project cost savings. Plant rehabilitation was completed in Longhua, Quyang, Sitang and Tianshan catchments, with a total capacity of about 200,000 m3/d. (See ICR Report #25717-CHA). As mentioned earlier, a chemically enhanced primary treatment facility of 1.2 Mm3/d capacity was added to the project in 2000 and commissioned in 2004. Institutional Development and Training: Satisfactory. SMG remained fully committed throughout the project to the program of institutional development. The institutional organization of the sector was reformed in 2004 by establishing the Shanghai Water Authority (SWA), with overall responsibility for the planning and coordination of all water sector management policies and interventions throughout Shanghai Municipality. This was one of the first such initiatives in China. The institutional development and training program was largely completed. While the loan allocation was reduced from $18.9 million to about $6.0 million, this program attracted about US$6 million of bilateral grant funding from several countries (including Australia, Canada, France, Norway and Japan), who supported a number of the technical assistance activities - 8 -  identified in the SAR (see details in Annex 2c). For example, the Government of Japan provided grant funds ($0.9 million) for preparation of the Bank funded SHUEP, APL1 (currently under implementation). 4.3 Net Present Value/Economic rate of return: Overall, this was successfully achieved. At appraisal, the SAR strategy focused on establishing economic least-cost options for each component, and provided rigorous analyses of such options. An economic rate of return was not calculated because of the difficulty and time-consuming efforts required to obtain reliable quantified estimates of the benefits from the project. These included improved quality of surface water in Shanghai, and, as a consequence, enhanced value for drinking, industrial and agricultural use, whilst minimizing health risks. 4.4 Financial rate of return: A financial rate of return was not estimated at appraisal. 4.5 Institutional development impact: The project's institutional development impact is rated Substantial. Shanghai was one of the first cities in China to establish a Municipal Water Authority, consolidating within one authority, the responsibilities for all water related affairs. SMSC was reorganized into three regional operating companies. The Shanghai Water and Environment Construction Company (SWEC) also reports to SWA. The Shanghai Water Assets Operation and Development Company (SWAOD) was established under the Shanghai Urban Construction & Development General Corporation (SUDIC), and is responsible for sector asset management and financing. The regional operational companies can respond more readily to customer needs and will support the long-term sustainability of the sector by managing sewerage operations with greater efficiency. SMSC remains under SWA to manage and coordinate the sewerage sector. SWEC evolved into a construction engineering consultancy firm. SWA has introduced competitive mechanisms for sector operations, including foreign and local non-government financing, and appropriate tariff levels in conjunction with reduced operating costs. Domestic and international private sector enterprises are now involved through concessions or ownership in the wastewater sector in Shanghai. Prior to 2002, the master plans for water supply and wastewater were separately prepared by different agencies or companies, based on excessively high water consumption figures. Recent master plan revisions, prepared under the direction of SWA, have adopted lower consumption figures to more closely reflect reality. The city is now using digitized networks and related data-bases. All core city utilities and other agencies now have available a common digitized base map for planning, operations and maintenance - a major achievement for a mega-city. Senior officials from SMSC have also gained international exposure in state-of-the-art city and wastewater management techniques, thus enhancing Shanghai's strategic development planning capacity. Sixty person-months of overseas management training were provided in SSP2. During implementation, wastewater tariffs were increased four times, most recently in 2002, and again in August 2004, securing the financial autonomy of the operating companies. SMSC maintained satisfactory compliance with its financial covenants through 2002. Projections prepared by SMSC in 2004 show satisfactory compliance from 2004 onwards (SHUEP has the - 9 -  same financial covenants as SSP2). Details are given in Annex 1a. Sector institutions have been strengthened through broad training activities on utility company, infrastructure, utility accounting and management information systems, and environmental management. The project included 10 such sub-components, enhancing the capability of the project related government agencies (see also Section 4.1). Until recently, environmental monitoring for SSP2 was carried out by the SMSC (under SWA); and the Shanghai Environmental Monitoring Center (SEMC) under the Shanghai Environmental Protection Bureau (SEPB), resulting in some duplication of effort. This was rectified by SMG in mid-2004 when the monitoring responsibilities of SMSC and SEMC were redefined so that SMSC deals with monitoring of discharges and SEMC is responsible for monitoring the effluent-receiving water bodies. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: 5.1 Factors outside the control of government or implementing agency: Both domestic and foreign inflation rates varied substantially from the values estimated at appraisal. The annual domestic inflation rate was projected to decline gradually from 10.6 to 6.2 percent from 1996-2001. In fact, the index declined from 8.3 to