China - Beijing Environmental Project

Docun The Wo: FOR OFFICIA Report No. 9791-CHA STAFF APPRAISAL REPORT CHINA BEIJING ENVIRONMENTAL PROJECT OCTOBER 16, 1991 Environment, Human Resources and Urban Development Operations Division Country Department III Absa 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 EQUIVAITS (as of July 1991) Currency Name - Renminbi (RMB) Currency Unit = Yuan (Y) = 100 Fen Y1.00 = $0.19 $1.00 = Y5.28 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 millimeter (mm) = 0.039 inches 1 meter (m) = 3.28 feet 1 square meter (mi2) = 10.76 square feet 1 cubic meter (mi3) = 35.3 cubic feet 1 kilometer (km) = 0.62 miles 1 hectare (ha) = 10,000 square meters = 15 mu 1 kilogram (Kg) = 2.204 pounds I megawatt (MW) = 1,000,000 watts 1 gigajoule (GJ) = 1 billion (109) joules ABBREVIATIONS AND ACREONYMS BDHC Beijing District Heating Company CTBC China National Technical Import BEPC Beijing Environmental Protection and Export Corporation Beijing Committee Company BEPO Beijing Environmental Project DH District heating Office EPB Environmental Protection Bureau BESB Beijing Environmental Sanitation GOC Government of China Bureau HOB Heat-only Boiler BIHWMC Beijing Industrial Hazardous Waste ICB International Competitive Bidding Management Center IRR Internal Rate of Return BM Beijing Municipality ITC International Tendering Company BMEAB Beijing Municipal Engineering kwh Kilowatt Hour Administration Bureau LCB Local Competitive Bidding BMEAD Beijing Municipal Engineering MOF Ministry of Finance Administration Division NEPA National Environmental Protection BMECC Beijing Municipal Engineering Agency Consulting Corporation SAA State Audit Administration BMEPB Beijing Municipal Environmental SO2 Sulfur Dioxide Protection Bureau SOE Statement of Expenditure BMPC Beijing Municipal Planning TSP Total Suspended Particulates Commission BMPG Beijing Municipal People's Government BSC Beijing Sewerage Company CHP Cogeneration heat and power CIB China Investment Bank CN'TIC China National Technical Import and Export Corporation  FOR OFFICIAL USE ONLY CHINA BEIJING ENVIRONMENTAL PROJECT LOAN/CREDIT AND PROJECT SUMMARY Borrowe-r: People's Republic of China. BnefIiciSay: Beijing Municipality Amount: IBRD Loan US$45 million IDA Credit SDR60.1 million (US$80 million equivalent). Terms: IBRD Loan 20 years, including five years of grace, at standard variable interest rate. IDA Credit Standard, with 35 years maturity. Onlgndinz From the Government of China to Beijing Municipality (BM): Terms: 15 years, including five years of grace, at a fixed interest rate of 4.2 percent per annum; BM will bear all foreign excchange risk, except those that are borne by the entities to whom it onlends. From BM to the Beijing District Heating Company (BDHC): for 15 years, including five years of grace, at a variable rate equal to the Bank rate, plus a spread of 1.5 percent p.a., with BDHC bearing the US dollar/ RMB yuan foreign exchange risk. From BM to the industrial enterprises: for ten years, including three years of grace, at a variable rate equal to the Bank rate, plus a spread of 1.5 percent p.a., with the entities bearing all foreign exchange risk, or a spread of 2.0 percent p.a. with the entities bearing the US dollar/ RMB Yuan foreign exchange risk. Proiect The project objective is to assist Beijing Municipality to DescriRtion: plan cost-effective strategies for a comprehensive environmental protection program, strengthen the policy and institutional framework required, and support priority investments needed to start the process. The project would address pollution problems associated with air and water quality, and the disposal of domestic and industrial solid wastes. The physical works would include: (a) the construction of sewer networks to prevent pollution of groundwater and the city's waterways; (b) the construction of a pressurized hot water piping system for district heating to alleviate air pollution from the burning of coal at domestic residences; (c) renovation of a number of highly polluting industries, and, in some cases, relocation of these industries from the inner city area; and (d) construction of a sanitary landfill and procurement of equipment for municipal solid waste disposal. Technical assistance will be included for studies to develop cost effective plans which consider collectively the 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 - environmental goals and resource needs between the various economic and service sectors in order to arrive at an optimal solution that can be sustained by the municipality. Technical assistance will also be provided to develop the policy and institutional framework for hazardous waste management, to survey hazardous waste generation, and to design appropriate measures for hazardous waste disposal. A new institution will be set up for better management of the rapidly expanding wastewater system of the city. A training component will be included to help improve the environmental management capability of key staff of the Environmental Protection Bureau and institutions providing urban environmental services. Benefits: The project would support development and implementation of cost effective long term environmental protection strategies and plans, which by optimizing the use of the funds available would increase the size and effectiveness of the environmental program. The project would bring about health benefits from reduction of water-borne diseases, respiratory ailments and cancer, and reduce corrosive damage to buildings and municipal water facilities caused by pollution. Constrained supplies of natural resources and raw materials will be used more efficiently thereby improving economic conditions. The project would also significantly strengthen the capability of key institutions of the city, as well as improve crucial coordination among them, in carrying out environmental planning and pollution control work. With the help from this project Beijing will be better able to assist other municipalities on environmental protection work, an area in which the city is already a leader. Risks: There are risks of delay in implementation with a project that has multiple components involving several different municipal entities (none of whom were previously familiar with Bank procedures and requirements). However, the establishment of a strong project management unit and its effective management during project preparation, indicate that these risks are manageable. Much work, beyond that of the present proposed project, would still be required before the long term goals of environmental improvement can be reached. A firm commitment by BM to work towards the steady achievement of these goals will be needed. With the help of a comprehensive environmental plan, concrete strategies and action plans to be developed in the project, and proposed measures to strengthen the environmental management capabilities of BM, efforts to continue environmental protection work at a high pace, can, however, be expectei to be sustained.  - iii - Estimated CJsts : Local Forei&n Total ----- - (US$ million) -------- Wastewater 12.1 13.2 25.3 Solid Waste 4.7 1.9 6.6 District Heating 21.8 43.3 65.1 Industrial Pollution 43.5 36.4 79.9 Hazardous Waste 1.5 0.1 1.6 Environm2ntal Studies 0.2 1.8 2,0 (Instruments) Project Management 0.8 0.7 1.5 (Equipment) Tech. Assistance 8.8 5.0 13.8 and Training Land Acquisition 48.6 0.0 48.6 Base Cost (1990) 142.0 102.4 244.4 Physical Contingencv 14.2 10.2 24.4 Price_ContinaqD&X 16.5 13.4 29.9 Total Project Cost A/ 172.7 126.0 298.7 In-tres, duri Ig Construction 0.0 5.8 5.8 Total Finarncing Reguired 122.7 131,8 30455 Financing Plan Local Foreign Total ----- (US$ million) - IBRD/IDA 0.6 124.4 125.0 Japan Grant Facility 0.0 1.6 1.6 Beijing Mun. Govt. 118.4 5.8 124.2 Enterprises 53.7 0.0 53.7 Total 172.7 131.8 2G4.5 a/ Project-financed goods are exempt from import duties and taxes.  - iv - Estimated Disbursements: Bank/IDA FY 1992 1993 1994 1995 1996 1997 -(US$ million) ------------------ Annual 13.0 31.0 34.1 32.2 11.0 3.7 Cumulative 13.0 i4.0 78.1 110.3 121.3 125.0 Economic Rate Wastewater - 16 percent for South Urban Sewer of Return: Interceptor; 39 percent for Sewer Interceptors in No. 3 Water Plant area. District Heating - 11 percent. Composite IRR - 13 percent.  v - CHINA BEIJING ENVIRONMENTAL PROJECT Table of Contents LOAN/CREDIT AND PROJECT SUMMARY ....... .. .. . .. .. .. i I. THE ENVIRONMENTAL SECTOR . . . . . . . . . . . . . . . . . . . .1 Environmental Conditions in China . . . . . . . . . . . . . . .1 Sector Organizations . . . . . . . . . . . . . . . . . . . . .1 Sectoral Issues and Problems . . . . . . . . . . . . . . . . . 2 Past Experience under Previous Operations . . . . . . . . . . . 3 Bank Role and Sector Lending Strategy . . . . . . . . . . . . . 4 II. PROJECT BACKGROUND 4 Project Location . . . . . . . . . . . . . . . . . . . . . . . 4 Environmental Situation in Beijing . . . . . . . . . . . . . . 5 Air Pollution ..S Water Pollution.. 7 Industrial Pollution. . 9 Municipal Solid Waste.. 9 III. ENVIRONMENTAL APPROACHES AND STRATEGIES . . . . . . . . . . . 11 China's Approach to Environmental Protection . . . . . I . 11 Pervasive Pollution ..11 Pollution by Large Industrial and Commercial Operations . . . . 12 Environmental Planning and Management . . . . . . . . . . . . . 13 Industrial Hazardous Waste Management . . . . . . . . . . . . . 14 This report is based on the findings of an appraisal mission which visited China in February 1991. Project team members included Mr. John W. Huang (Task Manager, Senior Sanitary Engineer), Mr. Yves Albouy (Principal Energy Economist), Mr. Roger Batstone (Industrial Specialist), Mr. Roger Heath (Principal Chemical Engineer), Mrs. Adrienne Nassau (Senior Financial Analyst), Mrs. Elaine Sun (Financial Analyst), Mr. Walter Spofford (Environmental Economist, Consultant), Mr. Anders Dyrelund (District Heating Engineer, Consultant), Mr. Zhang Zhun (Sanitary Engineer, Consultant) and Mr. Wang Yanxiang (Industrial Specialist, Consultant). Assistance was also provided from Mr. Mohammad Ashraf (Senior Procurement Specialist) and Mr. Liang Ziqian (Operations Officer) of the China Resident Mission. The peer reviewers were Mr. Alfonso Zavala (Water and Sanitation Adviser, INUWS), Mr. Carlo Rietveld (Principal Urban/Water Supply Engineer, ASTIN), Mr. Andrew Hamer (Principal Sector Economist, AS3EH) and Mr. Nick Anderson (Senior Project Officer, AS3EH). The Division Chief is Mr. Zafer Ecevit (AS3EH). The Department Director is Mr. Shahid Javed Burki (AS3DR).  - vi - IV. THE PROPOSED PROJECT . . . . . . . . . . . . . . . . . . . . . 14 Project Objectives . . . . . . . . . . . . . . . . . . . . . . 14 Rationale for Bank/IDA Involvement . . . . . . . . . . . . . . 15 Project Description . . . . . . . . . . . . . . . . . . . . . . 15 Project-related Studies .... . . . . . . . . . . . . . . . . 17 Arrangements for Implementing the Industrial Pollution Control Component . . . . . . . . . . . . 18 Project Cost Estimates . . . . . . . . . . . . . . . . . . . . 19 Project Financing .... . . . . . . . . . . . . . . . . . . . 20 Project Preparation .... . . . . . . . . . . . . . . . . . . 21 Prcject Management . . . . . . . . . . . . . . . . . . . . . . 22 Procurement ..... . . . . .. . . . . . . . . . .. . . . . 22 Disbursement ................................................ 24 Land Acquisition and Resettlement . . . . . . . . . . . . . . . 25 Staff Training and Development .... . . . . . . . . . . . . 26 Monitoring Criteria . . . . . . . . . . . . . . . . . . . . . . 26 V. THE BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . . . 26 Beijing Municipality ...... . . .. . . .. . . .. . . . 26 Organization for Environmental Management . . . . . . . . . . . 27 Beijing Municipalty's Commissions .... . . . . . . . . . . . 27 The Beijing Municipal Finance Bureau .... . . . . . . . . . 28 Beijing District Heating Company . . . . . . . . . . . . . . . 28 Wastewater Management Organization .............. 28 Environmental Sanitation Organization .29 VI. FINANCIAL CONSIDERATIONS 29 Financial Management . . . . . . . . . . . . . . . . . . . . . 29 Taxation .30 Accounting .30 Audit .32 Municipal Finance .33 Finances of Sewerage Services .33 Future Financial Performance of BSC . . . . . . . . . . . . . . 34 Finances of the Beijing District Heating Company . . . . . . . 34 Future Finances of BDHC .36 Financial Analysis of Industrial Pollution Control Subprojects 37 VII. ECONOMIC. SOCIAL AND ENVIRONMENTAL CONSIDERATIONS .38 Project Justification .38 Project Benefits 38 Wastewater Component 39 District Heating (DH) Component .39 Industrial Pollution Component 41 Composite IRR .41 Project Risks . . . . . . . . . . . . . . . . . . . . . . . . . 41 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS . . . . . . . . . . . . 42  - vii - TABLES 4.] Estimated Project Cost . . . . . . . . . . . . . . . . . . . . 20 4.2 Financing Plan . . . . . . . . . . . . . . . . . . . . . . . 20 4.3 Procurement Arrangements . . . . . . . . . . . . . . . . . . . 23 6.1 Revenue and Operating Expense of BDHC (1988-90) . . . . . . . . 35 6.2 Key Financial and Operating Indicators for BDHC . . . . . . . . 37 1 Organization for Environmental Protectiona in China . . . . . . 45 2 Selected Environmental Laws, Regulations and Standards in Force 46 3 Detailed Project Description . . . . . . . . . . . . . . . . . 50 4 Environmental Master Plan Studies Draft Terms of Reference . . . . . . . . . . . . . . . . . . . 54 5 Industrial Hazardous Waste Management Studies Draft Terms of Reference . I . . . . . . . . . . . . . . . . . 60 6 Appraisal Procedure and Criteria for Industrial Subprojects . .66 7 Project Cost Estimates . . . . . . . . . . . . . . . . . . . . 67 8 Project Office Organization . . . . . . . . . . . . . . . . . . 73 9 Contract Packaging . . . . . . . . . . . . . . . . . . . . . . 75 10 Disbursement Schedule . . . . . . . . . . . . . . . . . . . . . 77 11 Land Acicuisition and Resettlement Program . . . . . . . . . . . 78 12 Training Program . . . . . . . . . . . . . . . . . . . . . . . 79 13 Project Implementation Schedule . . . . . . . . . . . . . . . . 81 14 Environmental Improvement Monitors . . . . . . . . . . . . . . 82 15 Organization of Beijing Municipality . . . . . . . . . . . . . 83 16 Beijing Environumental Protection Organization . . . . . . . . . 84 17 Beijing Sewerage Company . . . . . . . . . . . . . . . . . . . 85 18 Beijing Sewerage Company - Financial Projec.ions . . . . . . . 87 19 Beijing District Heating Company - Financial Projections . . . 92 20 Economic Analysis of Wastewater Component . . . . . . . . . . 98 21 Economic Analysis of District Heating Component . . . . . . . 100 22 Selected Documents and Data available in Project File . . . . 108 MAPS IBRD 23048 Land Use IBRD 23049 Wastewater Project Component IBRD 23050 District Heating Component  CHINA BEIJING ENVIRONMENTAL PROJECT I. THE ENVIRONMENTAL SECTOR 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 environmental problems have become the highest priority issues in Chinese cities. Due to a past industrial location policy, many large industries are placed close to urban residential areas which are also rapidly expanding. Gaseous effluents, 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 affecting the health of urban residents. 1.2 Water pollution from urban and industrial wastewater discharges poses the most severe problem and the one that directly affects human health. Many important water resources, which are already scarce in most regions, are already seriously threatened. Few countries are so dependent on coal as China, with annual consumption now approaching one billion tons. The burning of bituminous coal is causing serious atmospheric pollution from airborne particulate and sulfur dioxide emissions in the inner city and industrial areas. 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. During the past ten years, however, China has initiated a wide array of environmental protection policies and programs, and has established compre- hensive pollution control guidelines. Sector Organizations 1.3 Annex 1 gives a chert showing the organization for environmental protection in China. In general, environmental protection in an administrative region (province, municipality, urban district, county) is the responsibility of the government of that region, carried out by the environmental protection bureau or office (EPB) of that government. There is, however, a professional guidance link from the EPB at the next higher administrative level. At the national level, the National Environmental Protection Agency (NEPA), established in 1979, is under the State Council, and is responsible for: (a) determining national environmental policies for air, water, soil, wastes, noise, etc.; (b) designing national environmental regulations and standards; and (c) providing guidance to the provinces on environmental matters. EPBs at the provincial level (including the three province-level municipalities of Beijing, -'-nghai and Tianjin) are responsible for enforcing state environmental laws, regulations and standards; drafting and enforcing local laws, regulations and standards which, for local reasons, are more specific than the national standards; and drafting annual, medium term and long term environmental plans. They also oversee the work of the municipal (in the case of provincial EPBs), urban district and the county EPBs which are organized under the local governments at the various respective levels. The municipal, urban  district and county EPBs are the basic units respcnsible for ensuring compliance with environmental regulations and standards within their respective jurisdictions. They also collect pollution charges, except for enterprises owned by the provincial or central governments, in which case the pollution charges are administered and used by the provincial EPB. 1.4 Several Central Government ministries are concerned with water quality and water pollution control, and they support NEPA in carrying out its environmental protection work. The Ministry of Water Conservancy is the central organization responsible for determining policies on the allocation and management of surface water resources in the country. Its policies are implemented through river basin commissions, provincial water conservancy departments and water conservancy bureaus at vari'us local government levels. The Ministry of Geology and Minerals and the corresponding local government departments and bureaus are responsible for allocation and management of groundwater. The Ministry of Construction is responsible for urban and regional planning and infrastructure development planning at the national level. It provides guidance to the provinces and the three centrally controlled municipalities on preparation of plans for land use and infrastructure development, including urban water supply and sewerage. It also makes recommendations on technical standards and criteria. The Ministry of Public Health is responsible for providing guidance to local public health bureaus on drinking water quality requirements and the testing of community drinking water supplies. Sectoral Issues and Problems 1.5 China has enacted a comprehensive set of environmental laws and regulations, and has established numerous environmental standards. The most important are an environmental protection law passed in 1979 and updated in 1989; a water pollution control law passed in 1984; an air pollution control law passed in 1987; and national standards for air quality, water quality, wastewater discharges and environmental noise in urban areas (see Annex 2). 1.6 With a strong emphasis on economic development in the past two decades, many cities and enterprises in China were allowed to grow without giving due regard to pollution control. Environmental conditions have therefore deteriorated in most cities. Ln recent years the Central Government and local authorities have taken greater initiatives to improve the environment, and to enforce important regulations. These include a strict requirement for an environmental impact assessment on new projects with potential environmental problems, and for a review of the adequacy of environmental protection measures at project planning, design and construction stages. While China has taken a major step in the right direction for the control of new pollution, much improvement is still needed in enforcing these requirements. 1.7 For existing polluters, problems arise when the cost of cleanup is high. Since the local authorities are often the owners of the polluting enterprises, they may be reluctant to jeopardize the enterprises' financial viability through expensive cleanup measures. Thus, financing constraints are a major problem in forcing the pace of pollution abatement.  - 3 - 1.8 Current industrial cleanup measures include mostly end-of-pipe treatment, a term that covers treatment rather than reduction of the pollutant (gas, liquid, or solid). Insufficient consideration is given to more efficiert and economical methods for reducing pollution through recycling, process modification, and the use of less polluting inputs. Often whea it is realized that technological change is the preferred solution, lack of financial resources, especially the forei,,n exchange, is generally a barrier. In many cases when highly polluting factories are relocated (a process which is tantamount to closing an existing factory and constructing a new one) the same industrial process is used in order to take advantage of old, existing equipment, with a note that technological changes would be made when funds become available. Additional end-of-pipe treatment facilities are then constructed to meet effluent standards in the new location that are barely adequate. 1.9 A system that charges for pollution and that imposes penalties for exceeding set pollution limits has been introduced to deter pollution. About 80 percent of the funds derived from these charges are used for pollution abatement measures or facilities. The Central Government has prescribed a range of unit charges (based on concentration) for each type of pollution; within this range the local governments who execute the environmental regulations are given discretion to set charges. However, often the charges are too low even at the top of the charging range. They therefore do not deter pollution, because polluters often find it cheaper to pay to pollute rather than take more costly abatement measures. In addition, although the amount collected through the pollution charge is significant, it is much smaller than the amount needed to assist polluters to clean up. Thus, unless further measures can be found to finance pollution abatement efforts, environmental improvement is likely to be slow. Past Experience unde- Previous Operations 1.10 The Bank Group is involved in a number of projects in China's urban and water supply sectors which deal to a certain extent with environmrental pollution control. Three of these projects are now being implemented. These are: (a) The Shanghai Sewerage Project (Credit 1779-CHA, SDR78.9 million, 1987; Loan 2794-CHA, $45 million, 1987) to finance a link and intercepting sewer system to collect, transport and treat wastewater for disposal in the estuary of the Changjiang; studies on management and organization, sewerage tariff, river basin management, and sewer system rehabilitation; and staff training. Project completion is expected by December 1993. (b) The Medium-sized Cities Development Project (Credit 2201-CHA; Loan 3286-CHA) to provide assistance to various urban subsectors in three medium-sized cities -- Changzhou, Shashi and Luoyang. The project is under implementation. (c) The Liaoning Urban Infrastructure Project (Credit 2219-0-CHA) to provide assistance to improve the water supply in three cities and urban transport in one city, and to strengthen environmental  - 4 - pollution control in the province. The project is under implementation, 1.11 Sectoi work carried out by the Bank includes: (a) the Shanghai Sector Memoran6Lz. (Urban), Report No. 4227-CHA, December 1982; (b) a Bank economic report, China -- Long-term Development Issues and Options, Report No. 5206- CHA, May 22, 1985, which includes a chapter on spatial and urban issues; (c) an urban sector survey in Liaoning Province in 1985 in cooperation with the United Nations Development Program (UNDP) and the Australian International Development Assistance Bureau (AIDAB); (d) an urban sector study in Zhejiang Province, China --Zhejiang: Challenges of Rapid Urbanization, Report No. 6612-CHA, August 3, 1987; and (d) an urban transport sector study for China based on a desk study of available data (in draft). All these studies have touched on environmental issues in China. In addition, an environmental strategy study for China is currently being finalized for publication in grey cover this Fall. The study identifies major environmental issues and their underlying causes, assesses China's policies and institutional capabilities for addressing them, recommends areas for improvement, and proposes a multi-year program of environmental assistance. Bank Role and Sector Lending Strategy 1.12 The Bank's role in the environmental sector in China would be to assist the Government to: (a) develop appropriate strategies for improving and maintaining the quality of the environment; these would seek to optimize total benefits, including those from opportunities to improve the efficiency of industrial production and the use of natural resources; (b) plan and prioritize needs for environmental improvement, and identify and prepare plans for the most cost-effective projects; (c) provide project funding and attract other sources of external financing; (d) help strengthen institutions responsible for enforcing environmental protection regulations, as well as those that operate community systems for environmental pollution abatement; and (e) promote sound financial and cost recovery policies to sustain healthy 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 support to high- priority areas. II. PROJECT BACKGROUND Project Location 2.1 The project area is that of the Beijing Municipality (BM). (See Map IBRD 23048). The municipality has a total land area of 16,807 sq. km., with a total resident population of about 10.3 million and a mobile population (visitors, travelling merchants, temporary labor force, etc.) of nearly one million people. About six million live in the urban districts. The municipality has a temperate continental climate with an average air temperature of 11.7 degrees Centigrade and an average annual precipitation of 626 mm. Main rivers include the Yongding, the Chaobai, and the Wenyu  - 5 - rivers, all of which have been impounded upstream for Beijing's water supply. Development planning for Beijing is intended to maintain the special characteristics unique to its status as the nation's capital. These include wide avenues and low building heights to enhance the grandeur of its numerous monuments, and architectural styles that complement the richness of its traditional culture. Environmental Situation in Beijing 2.2 Environmental protection work in Beijing was instituted as early as 1970, and a municipal environmental protection office was set up in 1974, which was reorganized as the Beijing Municipal Environmental Protection Bureau (BMEPB) in 1979. BMEPB has a mandate to establish a comprehensive set of local environmental regulations, enforce regulatory control, coordinate efforts on integrated waste treatment, increase public environmental awareness, and operate an environmental management system and an environmental monitoring network (see organization details in para. 5.3). As a result of these efforts, environmental conditions have not deteriorated as seriously in Beijing as other parts of China during a period of rapid economic expansion and urban construction. For example, while annual coal consumption in 1990 increased by over seven million tons above 1981 levels, dust and suspended particles in the atmosphere, as well as the number of smog days, have on an average declined modestly since 1981 due to measures taken. 2.3 Effective protection work in the upper watersheds of the major reservoirs has successfully curbed pollution of the city's drinking water supply. The recycling rate of industrial wastewater has reached 70 percent, greatly reducing wastewater flows. About 40 percent of industrial wastewater discharges undergo some form of treatment. Enforcement of environmental regulations has significantly reduced the amount of toxic substances (notably cyanide, mercury, cadmium, arsenic and chromium) in industrial wastewater. Over 300 factories and workshops have been closed or relocated since 1981 in order to reduce environmental pollution (including noise pollution). Nevertheless, the city still suffers from serious air, water, and solid waste pollution, and much work and investment are needed to reverse the present adverse environmental situation. Air Pollution 2.4 The main source of Beijing's air pollution problems is the use of low-grade, unprocessed coal for space heating, hot water (tea) boilers, and cooking. About 20 million tons1 are burnt each year. It is estimated that there are about 20,000 coal-burning boilers, and the number increases by about 1,100 per year. Apart from the problem of poor fuel quality, the burners of these boilers are inefficient and gaseous effluents are emitted at low altitudes. In addition, an estimated 1.4 million households are still using coal-burning stoves to keep warm in winter. Thirty percent by industry, 27 percent for coking, 23 percent for residential use, 14 percent for electrical power generation, and six percent for other purposes.  - 6 - 2.5 The other potential air pollution problem in Beijing is photochemical smog. This is caused primarily by vehicular emissions and could occur throughout the year, being more serious from May to August when vehicular traffic peaks. However, selective measurements of ozone levels in Beijing have not shown any serious sign of photochemical smog up to the present. 2.6 Although Beijing enacted regulations in 1987 for air pollution control, implementation of these regulations has been slow in the absence of cleaner fuels. During the heating period (November 15 to March 15), ambient concentrations of sulfur dioxide (SO2) and total suspended particulates (TSP) in the atmosphere exceed Class II air quality standards (see Annex 2, page 4). Coal burning contributes 93 percent and 76 percent respectively to these contaminant levels. From 1950 to 1988, the number of smog days in Beijing, which are also directly linked to coal burning, has grown from 60 to 180 a year. The problem of smog is aggravated by frequent air inversions, and dust storms during April and May. 2.7 Beijing has drafted plans to address its air pollution problems. These would be refined in the proposed environmental management plan studies to be completed under the Beijing Environmental Project. The tentative plans propose to resolve the air pollution problem through the development and use of cleaner fuels and more efficient energy generation. Under consideration are the use of town gas (natural, coal and coke gas), cogeneration of heat and power, the use of large more efficient boilers for district heating, and briquetting to improve coal quality. 2.8 Regulatory measures, such as requirements for more efficient building insulation to reduce energy use, are also contemplated. In this regard BM has developed standards for energy conservation in building construction (Standard DBJO1-4-88 published in 1988). A proclamation by the municipal government on the implementation of these standards within the municipality was declared on September 18, 1990. During negotiations understandings were reached on the measures to be taken by BM for the enforcement of the energy conservation standards for building construction. 2.9 Beijing's gasification plan includes the development of town gas to increase the present gas production capacity of 1.8 million m3 per day to 3.1 million m3 per day in 1995, with a further increase of 1.2 million m3 per day by 2000, reaching a total gas production of 4.3 million m3 per day in 2000. About 90 percent of Beijing's households are already using town gas or bottled gas for domestic cooking, and, with the planned investments, the major part of the needs for commercial preparation of food and tea would also be met. 2.10 Beijing's district heating plan includes the development of cogeneration heat/power (CHP) sources and large heat supply boilers, and the expansion of the existing network of district heating pipelines to deliver space heat and hot water to residential, industrial and commercial consumers. At present the city has five heat sources, which include three CHP plants (one of which, Shijingshan, is about to be put on line), a steam production plant, a heat supply plant. These together supply about 3.5 million tons of steam per year to industries, and space heating and hot water to residential buildings with a floor area of about 17 million m2  -7- (not including Shijingshan). The Shijingshan source, in combination with heat-only boilers for peak loads, will supply another 18 million m 2 of floor area when used to full capacity. There are also about 200 km of hot water pipes and 450 heat transfer stations in the district heating network. Various district heating development schemes have also been planned2, which, upon realization will allow Beijing to provide district heating to about 65 million m2 of building floor space (of which 40 million m2 is from CHP) in 1995, accounting for about 40 percent of its total building floor area, and 100 million m2 (of which 60 million M2 is from CHP) in 2000, accounting for 51 percent of the projected building floor area in that year. 2.11 Building floor space not served by district heating (about 50 percent by year 2000) would continue to be heated by individual coal- burning building boilers or coal stoves in housing units. For these consumers, Beijing plans to improve the quality of coal supply by briquetting to allow more complete combustion and by including additives in the briquettes to suppress emission of pollutants. By 1995 Beijing plans to construct coal briquetting facilities with a total production capacity of 2 million tons per year. Water Pollution 2.12 Beijing faces rapidly increasing water demand, but it has practically no remaining surface and groundwater resources that can be readily explnited. Industrial, agricultural and urban users at present conbume 4 billion m3/ year, which is supportable in years of average rainfall. However, during drought years (about one of every five years), there is an estimated shortfall of at least 600 million m 3. If present water use patterns are allowed to continue, planners estimate a deficit of 1.4 billion m3/year by the year 2000, even under conditions of normal rainfall. Conservation as well as recycling and reuse have therefore become major water management tools. New water pricing policies are also envisioned as a way to promote conservation. 2.13 Water scarcity makes it essential to preserve the quality of Beijing's water resources. During the past decade major surface water resources which lie upstream of the city have been successfully protected from pollution. However, surface and groundwater resources within the boundaries and downstream of the city are threatened by the large volume of wastewater effluents discharged by the city's water users. 2.14 It is estimated that currently about 2.0 million m 3 of wastewater are produced daily in Beijing's urban districts, about half of which comes from industrial sources. The city has 1,900 km of sewers, three wastewater treatment plants and a number of drainage pumping stations. Based on 2 System expansion for three CHP plants (one existing and two new), improvement of the system for three existing CHP plants, modification of an existing power generation plant to heat/power cogeneration, and the construction of large heat-only boilers to operate with the cogeneration CHP plants, or in separate district heating areas.  modest estimates of population growth and a strict program to curb industrial water use, wastewater flows from the city are projected to increase to about 2.4 million m3 per day in 2000, and 3.1 million m3 per day in 2010. Although some industries treat their wastewater discharges, this treatment is usually inadequate. Less than eight percent of the municipal wastewater receives primary treatment and less than two percent receives secondary treatment prior to discharge into the rivers. A survey in 1988 found that 50 percent of the 1,400 km of main waterways in the Beijing area suffer from varying degrees of pollution. The most serious violations of pollutant standards are levels of biochemical oxygen demand3 and amounts of phenol, followed by oil and fluorides. 2.15 Many relatively new parts of the city, particularly the southern areas, have been rapidly built up without an adequate sewerage system. Untreated wastewater from these areas is discharged into combined sewers (carrying rainwater and wastewater) which drain into open waterways (rivers and canals) that run through inhabited areas. Inadequate wastewater removal is also seriously threatening the quality of groundwater in several important aquifers located in urban districts. 2.16 The sewers in the old city (within the second ring road) are mostly combined sewers, the bulk of which is very old; some date to the Qing dynasty (1644-1911). The construction of a separate sewer system would require huge investments to simultaneously reconstruct roads and buildings. For the time being, Beijing proposes to retain the combined sewer system in old city areas and to construct interceptors (with an unavoidable reduction in the efficiency of wastewater collection) to carry wastewater to proposed treatment plant locations. 2.17 The physical plan for Beijing's urban sewerage system, developed around 1987, divided the city into 15 separate drainage areas, each with a separate sewerage system and sewage treatment plant. Based on this plan, various works have been completed or under construction4. With completion of the Gaobedian treatment works in 1995, it is estimated that about 22 percent of the wastewater of the city will receive adequate treatment. The Beijing urban sewerage plan will be refined in the proposed master plan studies. Important areas still to be considered include appropriate wastewater treatment levels; policies and strategies for industrial wastewater pretreatment; the suitability of the layout of sewerage works in 3 This is a widely used parameter of organic pollution in wastewater and surface water, and involves the measurement of the dissolved oxygen used by micro-organisms in the biochemical oxidation of organic matter. 4 A secondary wastewater treatment plant (Bei Xiao He) with a capacity of 40,000 m3 per day has recently been completed and put into service. The first stages of two wastewater treatment plants (Gaobeidian and Fangzhuang) with a combined capacity of 540,000 m3 per day, and 26 trunk sanitary sewers, at a capital cost of about Yl.3 billion, are now under construction. External assistance from the Japanese International Cooperation Agency (JICA) has been made available for the Gaobeidian plant.  - 9 - facilitating reuse of treated sewage; and policies, incentives and health considerations in the reuse of wastewater. Industrial Pollution 2.18 There are some 5,700 industrial enterprise;; (excluding township and village enterprises) in Beijing, employing 1.7 million people and generating a gross output value of Y41.8 billion in 1988. Industrial enterprises produce about 1.0 million m3/day of wastewater, contributing approximately 45 percent of the volume and 60 percent of the total water pollution load. In addition they produce 24 percent of the soot and dust emissions of the city, and 4 million tons of industrial solid wastes each year, of which 267,000 tons are toxic and hazardous matters. 2.19 Approximately 49 percent of the industrial enterprises, which produce 70 percent of the gross output value, are located in the urban districts, which have an area of about 4.5 percent of the total land area of the municipality. This high concentration of industry in the urban areas of Beijing has also resulted in land use conflicts and inefficiencies in industrial production. To resolve this problem, Beijing has found it necessary to close certain highly polluting industries (including those with high noise levels), such as electroplating, heat treatment, and casting and forging; and to move more than 300 polluting factories and workshops to new locations in outer urban areas and counties. An additional 110 factories have been identified for relocation during the Eight and Ninth five-year plan periods (1991 to 2000). 2.20 At present end-of-pipe treatment appears to be one of the main strategies for water pollution control in Beijing industrial enterprises. By 1988 a total of 692 wastewater treatment plants (mainly pretreatment facilities, with some primary and secondary treatment facilities) had been installed in factories in Beijing (accounting for about 40 percent of the enterprises). A few factories which have modified their processes instead, have reduced pollution and improved production efficiency. Even when factories are relocated, old, less efficient processes are used until additional funds for process modification become available. 2.21 Previous audits identified large quantities (267,000 tons/year) of toxic and harmful residues (referred to as "hazardous wastes") produced by a wide range of industrial enterprises in Beijing; the quantities are growing at about three percent per year. To date, about 138,000 tons/year are reused. The remainder is haphazardly discharged and disposed of, directly or indirectly, to the environment. Such practices have contributed to serious land, water and air pollution problems. In addition, some 8,000 capacitors containing polychlorinated biphenyl (PCB), a very toxic substance, were removed from service in 1981-1989 and are stored in caves in the Beijing county of Yan Qing. There is a potential for the PCB in capacitors to eventually leak out of the caves and thereby contaminating the nearby environment. Municipal Solid Waste 2.22 The eight urban districts (the city districts) of Beijing, with a population of about 5.4 million people, generate about 3.4 million tons  - 10 - of urban refuse per year (1989). Another 3.7 million people generate 1.6 million tons per year from the remaining ten rural counties, making a total of about 5 million tons of refuse per year from the entire municipality. Beijing Municipality estimates that the amount of urban refuse from the city districts will increase to 4.3 million tons per year in 2000, and reach 4.5 million tons per year in 2010. 2.23 The present composition of urban refuse is 10 percent combustible material (plastics, paper, textile), 35 percent compostible material (food, vegetation), and 55 percent nonbiodegradable material (ashes, bricks, tiles, metals). As living standards improve, the percentage of combustible material will increase (planners expect combustible material to double to 20 percent by 2010). About 600,000 tons per year of selected waste material (400,000 tons from industries, and 200,000 tons from domestic refuse) are purchased for recycling by the Beijing Materials Waste Corporation. The types of recyclable waste collected per year include: steel (60 percent), paper (20 percent), other metals (2 percent), plastic (1 percent), rubber (2 percent) and glass (5 percent). 2.24 Major efforts to improve solid waste management in Beijing started in 1986. A plan for solid waste management has been adopted and implementation is under way. This plan, as well as the regulatory measures required to enforce proper disposal of the city's solid waste, will be expanded and refined in the proposed environmental master plan studies. The plan emphasizes controlled land disposal in order to minimize encroachment on agricultural land and environmental pollution. Beijing also intends to experiment with pilot test plants for composting and incineration, probably using refuse from a limited number of residential and commercial areas where the content of nondecomposable refuse is low (from 6 percent to 28 percent). In mixed districts (which include industrial complexes), where nondecomposable refuse could reach 60 percent, landfill would be a better solution. 2.25 The recommendations contained in the refuse plan have already produced improvements. In general, the current refuse collection system is effective and efficient. Local private collectors obtain recyclable material from some 162 small transfer stations, which bulk the wastes before transport for disposal. About 310 ha of rural land, with suitable hydrogeological conditions for landfill use and are sufficiently distant from centers of habitation, were acquired for large landfill sites5. In addition, three new large transfer stations will be built for these urban districts. For the remaining eight counties, which at present generate about 370,000 tons of refuse per year, smaller landfill sites are proposed, with a total land requirement of about 60 ha. 2.26 The city plans to clean up the numerous small dumps around the periphery of the city which were used to dispose of urban refuse in the past. These include about 5,190 piles (reported in an aerial survey) of 5 Asuwei (72 ha) in the north of the city, Beishenshu (35 ha) in the southeast, Dahuichang (27 ha) west-southwest of the city, and Anding (35 ha) and Lixian (82 ha) both south of the city.  - 11 - domestic refuse, mixed waste, unused farm fertilizer, and industrial waste. The clean-up process for domestic refuse includes screening out any remaining undecomposed foreign matter for landfill disposal and transporting the remaining compost to nearby farms for agricultural use. The freed land would be put to productive use. III. ENVIRONMENTAL APPROACHES AND STRATEGIES China's Approach to Environmental Protection 3.1 China has the "polluter pays" policy, and environmental laws, regulations and standards (see para. 1.5) have been formulated with this policy in mind. When strictly followed, this approach can be effective in: (a) preventing potential polluters from polluting, and (b) helping the cleanup of many small pollution cases where the actions needed are relatively minor and corrective actions are not too costly. However, in the case of large existing polluting facilities, involving high costs for correction, inflexible enforcement of environmental regulations can lead to serious financial difficulties and possible closure of many operations which may be socially and commercially valuable. Under such conditions the Government (Central or local), which is often the owner of the polluting enterprise, has stepped in to provide needed technical and, often, financial assistance. 3.2 For assistance to be justified, the government has to ensure that: (a) there is a minimum loss of economic efficiency in the use of resources, and (b) a genuine need for such assistance is clearly established. To set the necessary conditions for determining this need, the government has stepped up enforcement of its environmental regulations. The punitive actions taken for non-compliance of environmental regulations have provided the initial incentive for many polluting operatior-s to clean up. Operations requiring government assistance would therefore be limited to: (a) Pervasive pollution (where individual polluters cannot be clearly identified, are too numerous, or it is not economic to deal with them effectively on an individual basis); and (b) Point pollution by large industrial and commercial oRerations Pervasive Pollution 3.3 This category includes the pollution caused by entire classes of polluters in a community, whose individual polluting act may have little damaging effect, but whose combined pollution has serious environmental consequences for the community or for communities in the vicinity. Typical examples of such polluters include individuals or small groups of individuals that: (a) discharge wastewater from households; (b) cause the emission of smoke and other air pollutants from burning coal in homes; and (c) dispose of household refuse. Since it is not practical or economic to correct the acts of each individual polluter, solutions must have a community basis. These solutions have high costs both in terms of the  - 12 - initial investments required, and the management and operation of the systems created. 3.4 Beijing Municipality is aware that the success of communal solutions will require the cooperative efforts of community members, not only to share in the costs, but also to abide by the rules which would enable the community systems to run efficiently and achieve the desired environmental objectives. To help achieve this, it plans to conduct studies to devise measures needed to ensure that: (a) there is adequate consideration of how actions directed toward a particular class of polluters will affect other classes; (b) investment decisions are sound; (c) the appropriate laws, regulations, standards, codes and other legal instruments tailored to achieving environmental goals are present to guide public behavior and practice; and (d) suitable policing, planning and operating institutions are in place to execute the laws, regulations, standards, codes, etc., and to manage, maintain, operate and make required expansions to the created systems. A full discussion of the planning studies required for Beijing Municipality is in paras. 3.8 to 3.10. Pollution by Large Industrial-and Commercial Operations 3.5 This category consists of large identifiable polluters for whom pollution abatement at source would be more economic than participation in a communal solution.6 As stricter regulations on discharge standards are put into force, many established enterprises using outdated technology would find it difficult to comply without major investments to restructure their production processes or to build pollution abatement facilities. Some solutions have pointed to closing down the polluting enterprises, and many closures have in fact already taken place. However, forced closures of key enterprises are not without economic and social costs. For this reason, in the case of Beijing, the municipality is working closely with many polluting enterprises to identify alternatives to closure, where such alternatives exist. 3.6 The approach used to arrive at a decision on the right pollution abatement measures for an enterprise would be based on the comparing of alternatives to achieve established measurable environmental targets which are known to be generally acceptable. These targets would include the standards for industrial effluents and gaseous emissions adopted by the country and the municipality. Alternatives would include: (a) installation of devices to treat or remove pollutants; (b) technical transformation, which could involve modification of processes, use of less polluting inputs, improvement of factory management, etc.; (c) full or partial closure; (d) relocation to an area where less stringent standards are applied; and (e) a combination of two or more of the above options. 3.7 The analysis of alternatives would use economic inputs and economic prices to ensure that decisions are not influenced by market distortions. A further analysis would be done to ascertain whether the 6 Pollution abatement for some of these polluters may not be complete for economic reasons, and some residual pollution may be more effectively treated in the community systems.  ^ 13 - enterprise would remain financially viable after making the necessary investments and on resuming full production. For some ecanomically feasible operations which are marginal financially, the municipality may have to provide some assistance to enable the enterprise to generate adequate financial benefits to ensure sustainability. Measures to do this could include: (a) decontrolling of product prices, (b) abolishing or reducing the quotas for products to be sold at government-administered prices, or (c) providing an appropriate financial grant to the enterprise. Annex 3 contains the recommeaded procedures for conducting the above analysis to appraise the proposals. EnvironMental Planning and Management 3.8 Beijing Municipality is aware that good environmental planning and a sound institution for environmental management are key to effective protection of the environment in the municipality. While the Beijing Municipal Environmental Protection Bureau (BMEPB) has developed a plan for environmental work and has set environmental targets to be reached by the year 2000, this plan has the following inadequacies: (a) the planning horizon is too short; a minimum horizon of 20 years is considered necessary to ensure that effective long-term measures to protect critical environmental resources for basic human needs are included; (b) the plan has not fully capitalized on the potential synergy of the activities among the various economic sectors to combine waste generation with beneficial reuse; (c) it has also not fully examined the cross-sectoral environmental impact of activities among the various economic sectors; (d) alternative strategies have not been sufficiently analyzed to ensure that environmental targets will be achieved at least cost; and (e) the financial requirements of the investments have not been adequately studied to ensure that they are affordable. 3.9 On the institutional side BM faces various constraints. The more serious are seen to be: (a) the weakness of cooperation among different economic sectors, resulting in the compartmentalization of some sector plans without sufficient regard given to environmental considerations in other sectors; (b) insufficient authority for BMEPB to fully coordinate environmental activities among the economic sectors; and (c) the lack of good guidelines and working codes to implement environmental regulations.  - 14 - 3.10 Beijing Municipality plans to carry out appropriate studies to further develop the environmental plans and strategies which would also address the issues mentioned above. Funds for international consultants (about US$1.6 million) to assist in the conducting of these studies have been secured from t'