China - Second Shanghai Sewerage Project

 ICRR 12045 Report Number : ICRR12045 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 03/15/2005 PROJ ID : P003648 Appraisal Actual Project Name : Second Shanghai Project Costs 667.9 594.8 Sewerage Project US$M ) (US$M) Country : China Loan /Credit (US$M) Loan/ US$M ) 250.0 240.9 Sector (s): Board: WS - Sewerage Cofinancing (90%), Sanitation (10%) US$M ) (US$M) L/C Number : L3987 Board Approval 96 FY ) (FY) Partners involved : Closing Date 06/30/2002 06/30/2004 Prepared by : Reviewed by : Group Manager : Group : Kavita Mathur John R. Heath Alain A. Barbu OEDSG 2. Project Objectives and Components a. Objectives The principal objective of the project was to provide a safe environmental setting for the long-term growth of Shanghai, enabling sustained economic and industrial growth. Specific objectives were to: (i) enhance wastewater and storm water management through expanding wastewater collection, pre-treatment and disposal capacity, and storm water drainage facilities; (ii) reduce urban pollution impact, while facilitating pollution control; (iii) improve wastewater utility financial and operational management; and (iv) strengthen sector institutions through training, feasibility studies, and future investment project preparation in the environment area. b. Components The project included the following components: Sewerage and Sanitation Improvements (planned US$459.3 million, actual US$384.2 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 (planned US$69.1 million, actual US$146.5 million). Construction of 3 pre-treatment, effluent pumping facilities, and a marine outfall for a flow capacity of about 1.7 Mm /d at Bailonggang, and rehabilitation of existing sewerage systems; Institutional Development and Training (planned US$15.8 million, actual US$5.3 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. The following additional investments were implemented using project cost savings identified in 1998 (see section c below). Puxi Mid Line Sewer ($32.4 million). This covered the Puxi Middle Block area, and Beicai area of Pudong, with a total 2 catchment area of 10.8 km . Pudong Link Sewers ($54.2 million). This is located in the service area of the project 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 2 covering about 24 km . Bailonggang Wastewater Treatment Plant ($53.1 million). This component comprised the construction of chemically 3 enhanced primary treatment and sludge disposal works of 1.2 Mm /d capacity, located on reclaimed land at Bailonggang next to the outfall pump station and preliminary treatment facility. c. Comments on Project Cost, Financing and Dates The loan disbursements were US$240.9 million compared to the appraisal estimate of US$250 million and US$9.1 million was cancelled in October 2004. Substantial project savings were identified in 1998 due to: (a) domestic competitiveness and lack of international interest in bidding for civil works; (b) over-estimation of inflation projections at appraisal; and (c) government cost estimates over -estimating market prices. New sub-components were added and the closing date was extended by two years to allow completion of additional sub -components. A second extension was granted due to the Severe Acute Respiratory Syndrome (SARS) as it caused delays in the commissioning of the main contracts for the Bailggang primary treatment facility . 3. Achievement of Relevant Objectives: The objective to enhance wastewater and storm water management through expanding wastewater collection, pretreatment and disposal capacity, and storm water drainage facilities was achieved . All physical components were successfully completed and are fully operational. A chemically enhanced primary treatment facility was provided at Bailonggang to control the phosphorus load discharged to the Changjiang estuary. Additional link sewers and storm water pump station rehabilitation were provided under the project to enhance collection capacity. The Puxi Mid Line system and link sewers were added to enhance flow collection in parts of Pudong. The objective to reduce urban pollution impact, while facilitating pollution control was partially achieved. In Minhang/Wujing 3 3 area, the average wastewater flow collection rate increased from 0.75Mm /d in 2000 to 1.04 Mm /d by 2003 (a 39% growth). However, comparison of planned and actual intercepted wastewater flow in year 2003 shows that flow collected in Pudong is only 35% of the projected short term figure. Regarding water quality in the Huangpu River and other waterways in the project areas, overall water quality is reported to be somewhat improved from Class IV in 1996 to III in 1999. Ammonia however remains in the range of Class IV and V. To eliminate duplication of works, the monitoring responsibilities of Shanghai Municipal Sewerage Company (SMSC) and Shanghai Environmental Monitoring Center (SEMC) were redefined so that SMSC deals with monitoring of discharges and SEMC is responsible for monitoring the effluent-receiving water bodies. The objective to improve wastewater utility financial and operational management was partially achieved . SWA introduced appropriate tariff levels and wastewater tariffs were increased four times since 1996. In 2002, the domestic wastewater tariff was 3 3 Y0.70 m compared to Y0.02 m at appraisal in 1996. However, SMSC did not fully meet its covenanted target in 2003 regarding 3 return to assets and the debt service ratio (see section 5 below). Tariffs were subsequently raised in 2004 to Y0.90 m and SMSC is expected to meet the appraisal targets. Operational efficiency improved from 8.7 staff per 100,000 consumers to 1.0 staff per 100,000 consumers. The objective to strengthen sector institutions was achieved . The Shanghai Water Authority was established in 2004 and the Shanghai Municipal Sewerage Company (SMSC) was reorganized into three regional operating companies. Technical Assistance was provided for the preparation of future Bank funded projects including the Shanghai Urban Environment Program (SHUEP) and the First Adaptable Lending Program (which is currently under implementation). Training in utility and infrastructure management as well as financial and operational management was provided to strengthen staff capacity. 4. Significant Outcomes/Impacts: Creation of the Shanghai Water Authority (SWA) for planning and coordination of all water sector management policies and interventions for the Shanghai Municipality. With the creation of the SWA, Shanghai became the first city in China to establish a Municipal Water Authority to coordinate within one authority all water related activities . Increased private sector participation in the Shanghai wastewater sector . Domestic and international private sector enterprises are now involved in Shanghai's wastewater sector through concessions or ownership . Introduction of common digitized base map and related databases for planning, operations and maintenance . 5. Significant Shortcomings (including non-compliance with safeguard policies): SMSC did not fully meet its covenanted target in 2003 regarding return to assets (-5.2% were reported compared to SAR target of 10%). Also, the debt service ratio of 0.71 for 2003 was below the targeted minimum of 1.3. Base-line data for proper monitoring was not agreed with the Borrower at appraisal. 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev .: Substantial Substantial Sustainability : Highly Likely Highly Likely Bank Performance : Satisfactory Satisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness. 7. Lessons of Broad Applicability: Monitoring indicators along with baseline data are an important means of assessing project achievements and outcome. Therefore, base line parameters need to be established at appraisal rather than left to be determined during project implementation. Public/private partnerships in wastewater operations can facilitate system improvements and increased operational efficiency.  The civil works contracts in infrastructure projects in Shanghai were unable to attract international interest, even when contracts were packaged in amounts exceeding US$ 10.0 million. This was not a significant constraint because there are competent local firms able to undertake the works at competitive prices . 8. Assessment Recommended? Yes No 9. Comments on Quality of ICR: The quality of the ICR is satisfactory. It is well written and the performance indicators developed in Annex 1 are noteworthy. They provide an excellent tool for the evaluation of the project.