China - Tianjin Urban Development and Environment Project

Document of The World Bank FOR OFFICIAL USE ONLY FILE Copy Report No. 10284-CHA RePort No. 10284-CHA Type: (:AR) CUloJ S. X82145 / Y8 074/ A'TIN STAFF APPRAISAL REPORT CHINA TIANJIN URBAN DEVELOPMENT AND ENVIRONMENT PROJECT MAY 22, 1992 Environment, Human Resources and Urban Development Operations Division Country Department II East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (as of February 1992) Currency Name - Renminbi (RMB) Currency Unit - Yuan (Y) - 100 Fen Y 1.00 = US$0.18 US$1.00 Y 5.45 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CIB China Investment Bank CPD Comprehensive Planning Division, URCC CTMD Construction and Transportation Management Division, URCC EPB Tianjin Environmental Protection Bureau ERR Economic Rate of Return ESB Tianjin Environmental Sanitation Bureau ESEDRI Tianjin Environmental Sanitation Engineering Design Research Institute FIPCON (or the Fund) Tianjin Fund for Industrial Pollution Control GIS Geographical Irformation System GOC Government of China ICB International Competitive Bidding IRR Inner Ring Road km Kilometer(s), 1 mile = 1.609 km LCB Local Competitive Bidding MEB Municipal Engineering Bureau, Tianjin MESDI Municipal Engineering Survey and Design Institute, Tianjin MIS Management Information System MOC Ministry of Construction MOF Ministry of Finance NEPA National Environmental Protection Agency PAMILG Planning and Management Improvement Leading Group PCBC People's Construction Bank of China PMO Project Management Office PTC Public Transport Company, Tianjin PUB Public Utilities Bureau, Tianjin SAA State Audit Administration SOE Statement of Expenditure TA Technical Assistance TFB Tianjin Finance Bureau TMG Tianjin Municipal Government TOR Terms of Reference TPC Tianjin Planning Commission TUCI Tianjin Urban Construction Institute UPB Tianjin Urban Planning Bureau URCC Tianjin Urban and Rural Construction Commission  CHINA FOR OFFICIAL USE ONLY TIANJIN URBAN DEVELOPMENT AND ENVIRONMENT PROJECT Credit and Proiect Summarv Borrower: People's Republic of China Beneficiary: Tianjin Municipal Government Credit Amount: SDR 73.3 million (US$100 million equivalent) Terms: Standard, with 35 years maturity Onlending From the Government of China to Tianjin Municipal Government Terms: (TMG): 15 years, including five years of grace, at a fixed interest rate of 4.5% per annum. TIG will bear all foreign exchange risks except those borne by the Fund for Industrial Pollution Control (Fund). From TMG to the Fund: for 15 years, including five years of grace, at a fixed interest rate of 5.0% per annum for the foreign exchange loans. The Fund will bear all foreign exchange risks on the amount onlent, except those borne by the final borrowers. From the Fund to industrial enterprises: for 3 to 7 years, including 1 to 2 years of grace. For foreign currency loans, the interest will be a variable rate equal to the IBRD rate plus a 1.2% p.a. spread. The borrowers will bear all foreign exchange risks on the loan. For local currency loans, the rates will be the same as those for fixed rate loans of the same maturities made by the People's Construction Bank of China. Proiect The project will support long-term improvement of the urban Description: infrastructure and environment of Tianjin, the third largest c_ty in China, mainly by helping TMG to increase efficiency and responsiveness of its infrastructure and environmental management systems and to finance high priority investments. In order to improve TMG's overall infrastructure planning and management, the project will support technical assistance and training to improve techniques and procedures for project planning and evaluation, budgeting and management, and monitoring of urban development and infrastructure operations. The project will also support technical assistance and training for improvement in sub-sectoral management, including solid waste disposal and public transport management. The project will support phvsical works to improve drainage, sewerage, solid waste management, roads, traffic management, and public bus operations. These works not only command high priorities on their own merits but also complement and hence increase the efficiency of existing assets. The project will also support the resettlement of households as required for the physical works, which will result in improving the housing and This document has a restricted distribution and may be used by recipients only in the performance of their officia' duties. Its contents may not otherwise be disclosed without World Bank authorization.  environmental health conditions those resettled. As a sustainable, market-oriented mechar.ism for industrial pollution control, a line of credit for pollution control investments will be provided under the project to help industrial enterprises undertake waste minimization or other cost- effective pollution reduction measures. Benefits: Benefits of only the project's urban transport and drainage components and a small number of pollution control subprojects can be reliably quantified. These components, which account for about 40% of the total project costs, would have an average economic rate of return of about 25X. Most of the physical benefits of the project will be health and environmental im77ovements - resulting from environmental sanitation, relocation, and pcIlution control subprojects - which are difficult to quantify. The managerial innovations and improvements introduced under the project will have far reaching effects over the long term by increasing efficiency and accountability of public expenditure programs, making them better suited to diverse needs tnd conatraints, and mobilizing resources and initiatives for pollution control in a sustainable way. These improvements will enhance TMG's effectiveness in the increasingly diverse and decentralized urban economy. Furtbi;r, improvements in Tianjin could establish a model with wide demonstration effects for municipalities across China, facilitating a needed transition of the country's urban and environmental management system. Risks: Social and environmental risks associated with the project have been identified and adequate mitigating measures have been incorporated in the project design, from the provision of special systems to control oil and chemical spills in the new bus maintenance garages, to explicit financing and detailed agreements to minimize possible disruptions in resettlement. The principal implementation relate to the major institutional innovations to be introduced for the financing of industrial pollution control and for the overall planning and management of the urban infrastructure. To minimize these risks, particular attention was giver. during project preparation, with the ,lose involvement of TMG managers, to defining feasible scope and details of the components and the necessary organizationnal arrangements. Continued assistance to the institutional aspects would be provided during project implementation through the inclusion of substantial levels of technical assistance by consult.nts and the Association staff.  - iii - Estimated Costs*s Local Foreign Total ------- US$ Million -------- Planning, Management and Technical Improvbent 2.7 5.9 8.6 Drainage and Sewerage 15.2 10.6 25.7 Solid Waste Management 2.3 10.1 12.4 Urban Transport 18.4 14.9 33.3 Industrial Pollution Control 3.8 35.2 39.0 Resettlement 24.6 10.1 34.7 Total Base Cost 67.0 86.7 153.7 Physical Contingencies 8.4 10.8 19.2 Price Continger-cies 7.5 14.6 22.1 TOTAL 82.9 112.1 195.0 Financing Plan: Local Foreizn Total ------- US$ Million -------- Tianjin Municipal Government 65.8 12.1 77.9 Industrial Enterprises 17.1 - 17.1 IDA - 100.0 100.0 TOTAL 82.9 112.1 195.0 Estimated Disbursements: IDA Fiscal Year 1993 1994 1995 1996 1997 1998 ------------- -US$ Million ------------ Annual 4.5 13.0 29.0 27.0 16.5 10.0 Cumulative 4.5 17.5 46.5 73.5 90.0 100.0 Economic Rate of Return: A weighted average of about 25% for investment components accounting for 40% of the total project costs. The main project benefits, institutional and environmental, could not be quantified. * Net of taxes and duties.  CHINA TIANJIN URBAN DEVELOPMENT AND ENVIRONMENT PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. CREDIT AND PROJECT SUMMARY ................................ i I. URBAN AND ENVIRONMENT SECTORS IN CHINA A. Urban Development Trends and Issues ...... .1 B. Government Strategy .......... ......... . .... 2 C. Bank Group Strategy .... .... . ... ................... .. 3 D. On-going Projects and Lessons Leazned .... ........... 4 II. URBAN AND ENVIRONMENTAL MANAGEMENT IN TIANJIN A. Project Area... ... 5 B Status of Infrastructure and Environment. 5 C. Urban Planning and Management. 8 III. PROJECT DESCRIPTION A. Background and Rationale for IDA Involvement . . 9 B. Project Objectives .. ..... . . .... 10 C. Planning and Management .... 10 D. Environmental Sanitation . ...11 E. Industrial Pollution Control . . ..12 F. Urban Transport ... . . . . . . 14 G. Resettlement .....14 IV. PROJECT COST AND FINANCING A. Project Costs ....15 B. Financing Arrangements. ....... .. . .17 C. Financing of Municipal Services . .17 D. Accounting ....20 This report is based on the findings of an appraisal mission which visited China in May 1991. The project team included: Songsu Choi (Task Manager, Urban Economist), Alain Bertaud (Urban Planner), Arthur Bruestle (Environmental Engineer), William Krause (Consultant Financial Analyst), Paul Stott (Operations Officer), William Thornhill (Consultant Transportation Engineer), Peter Ware (Consultant Sanitary Engineer), Randall Vick (Procurement Specialist), Mary Young (Public Health Specialist), and Chonghua Zhang (Environmental Specialist). The peer reviewers were: Lawrence Hannah (Economist), George Plant (Sanitary Engineer), and Richard Podolske (Urban Planner). The managing Division (EA2EH) Chief is Zafer Ecevit, and the Department Director is Shahid Javed Burki (EA2DR).  -v- Page No. V. PROJECT IMPLEMENTATION ARRANGEMENTS A. Project Preparation .. ... . . ........... ... .... ............ 21 B. Implementation Responsibilities . . .22 C. Disbursement ... ........ ..... ........ .......... 23 D. Procurement ...........................24 E. Monitoring and Supervision . . ... ................................. 26 VI. BENEFITS AND RISKS A* Benefits o....... ...... ....... ......27 B. Risks and Mitigating Measures ... . .......... 28 VII. AGREEMENTS REACHED AND RECOMMENDATION .......... 31 TEXT TABLES 4.1 Summary of Project Costs ..16 4.2 Financing Plan..... 16 5.1 Procurement Arrangements . .25 ANNEXES 1. Infrastructure Planning and Management IT.'provement: Action Plan 2. Training Programs 3. Sewerage and Drainage Development Program 4. Terms of Reference for Planning and Design of Solid Waste Treatment and Disposal 5. Industrial Pollution Control 6. Urban Transport: Project Details 7. Terms of Reference for Public Transport Study 8. Resettlement 9. Estimated Project Conts 10. Financial Projections for Infrastructure and Services 11. Estimated Schedule of Disbursement 12. Schedule of Procurement and Implementation 13. List of Major Works and Goods Contracts 14. Monitoring Indicators 15. Supervision Plan 16. Selected Documents and Data Available in the Project File MAP IBRD 23342 Proposed Project Sites  CHINA TIANJIN URBAN DEVELOPMENT AND ENVIRONMENT PROJECT I. URBAN AND ENVIRONMENT SECTORS IN CHINA A. Urban Development Trends and Issues 1.1 Chinese cities have been undergoing remarkable growth and transformation since the early 1980s, reflecting trends in the economy at large. After two decades of stagnation, urban population and incomes have been increasing rapidly along with industrial production. The urban population has grown by about 5Z percent a year during the 1980s and now represents about 30X of the total population of China. There are now more than 150 cities with at least 200,000 residents and thousands of smaller towns, which together are responsible for 702 of the country's industrial production. The rapid urban growth is likely to continue, increasing the urban population to about 500 million by the year 2000. 1.2 The rapid urban development of the past decade has been a direct result of the macroeconomic and institutional reforms introduced, most notably new incentive systems and decentralized decision making. Most local governments and enterprises have come to see housing, health care and other services as necessary infrastructure and incentives for production. They also have recognized that transportation, water and other urban facilities as essential infrastructure for economic expansion. The central government has sanctioned these local priorities and large urban infrastructure investments as an integral part of capital formation. The Government has also directed increasing resources to arresting and reversing environmental deterioration. The investment for urban infrastructure development and environmental protection is likely to continue at high levels as substantial deficiencies remain and growth in industrial production and population continues. 1.3 Decentralization and the high level of infrastructure expenditures have drastically increased the authority and responsibilities of municipal governments, calling for enlarged municipal capacity to plan and manage their infrastructure and environment. However, the growth of the urban economy and use of market mechanisms have changed patterns of demand for infrastructure and supply constraints, reducing the effectiveness of the traditional centralized planning system that emphasizes long-term supply targets. It is therefore essential that the Chinese municipal governments reform and strengthen their urban planning and management systems in order to respond effectively to new and increasing challenges, including the following. 1.4 Efficiency in Resource Use. As infrastructure and environmental expenditures represent a large part of the nation's or a city's economy, their marginal efficiency presents a significant public policy issue. This issue is becoming more difficult to resolve as China's economy grows more diverse and as development progress moves the urban agenda from obvious deficiencies and priorities to a larger number of less obvious, conflicting ones. The static plans and norms used by Chinese municipalities in planr.ing public expenditure progr&ans provide little guidance for choices and trade-offs. The municipalities need to allow market mechanisms to play a more active role indetermining the provision and allocation of many urban facilities, including  -2^ housing. At the same time, the municipalities need improved tools to ensure efficient provision of public and semi-public goods. In particular, they need to coordinate and pha3e investments in a complementary fashion; maximize the use of existing assets; maximize resource mobilization; and adopt appropriate standards of investment and *peration rather than unrealistic norms. 1.5 Eauitv. In Chinese cities, residents' cash incomes differ very little and their basic needs are effectively met. Nevertheless, the issue of equity is emerging gradually, mainly in the form of unequal access to services such as health care, housing and related facilities. This principally reflects the increasing use of incentives, offered through work units with differing productivity and endowments. Public expenditure programs have yet to take explicit account of this unfamiliar issue. Traditionally, municipal governments have cused cn aggregate levels of infrastructure and service delivery for the city as a whole, paying little attention to differences between small groups and areas. However, an overall doubling of housing space per capita in a city could hide the fact that housing space has tripled for half the population but remained unchanged for half the population but remained unchanged for the other half. Continuation of aggregate planning often leads to inadvertent exa-erbstion of the inequality rather than mitigation. 1.6 Environmental Management. Industrial production, particularly by outdated plants and fuel systems, has generated serious pollution problems in Chinese cities. Rapid industrial expansion and rising urban living standards are adding to such pollution and excessive resource demand. These have resulted in noticeably poor environme *al quality in the cities and threaten the resource endowment, especially in the country's industrial northeast. While the recent controls and active improvement programs of the Government have at least stemmed the pace of environmental deterioration, the regulations and investments need to be enhanced and better integrated with general economic development and management, in particular allowing industrial enterprises to participate more actively in pollution control programs. To do so, munlcipalities, which are responsible for actual implementation of regulations and programs, would need to set clear strategic focuses for their environmental improvement plans and develop effective institutional and financial frameworks to carry out increased and more diverse regulations and investment programs for environmental improvement. B. Government Strategy 1.7 As mentioned above, recent urban growth as well as the changes in urban management are a direct reflection of the economic and institutional reforms pursued by the Government of China. Recognizing infrastructure and environmental improvement as an essential part of economic development, the Government has established decentralized institutional and financial frameworks and sanctioned large investments in the sector. While public revenues in China consist predominantly of general tax revenues shared between the central and local governments, the Government recently introduced several new taxes and charges that local governments can fully use for urban and environmental investment and operations, and has also been encouraging increases in user charges and other means of financing urban services. For an integrated framework for urban planning, the Government, in the mid-1980s,  -3- formalized the use of municipal master plans for long-term urban and environmental development. 1.8 Since the early 19809, the Government has been pursuing an acti,'e policy for environmental protection. The framework established through the Environmental rrotection Act of 1979 and subsequent regulations provides for: environmental quality standards for different types of areas; environmental improvement plans as part of the basic planning system; pollution discharge standards and a levy for effluent exceeding the standards; and environmental impact assessments and permits for most investment projects. To carry out these policies, the Government established Environmental Protection Bureaus at all levels of local governmerts, and at the center, the National Environmental Protection Agency (NEPA) as a ministerial-level agency to provide policy and technical guidance for the sector. In addition, the Government has established environmental offices in the economic sector ministries and in corresponding bureaus at local governments to plan and implement sector- specific pollution control measures. 1.9 Ufnder the current decentralized system, the central government limits its role largely to guidance and inter-regional coordination, giving local governments great latitude to manage local affairs. Sibject to tax sharing arrangements and annual consultation, the local governments are largely free to allocate resources according to their priorities. The Ministry of Construction (MOC) and NEPA (both formerly under the Ministry of Urban and Rural Construction and Environmental Protection) provide policy and technical guidance for local governments on infrastructure and environmental issues and sanction major investment projects. Even on technical and regulatory matters, the central agencies no longer set rigid norms but allow local agencies to adapt guidelines and standards to local circumstances. The central government in fact encourages them to take initiatives and experiment with new technical and management solutions, not only to allow local adaptation of national guidelines but also to find "best practices" through diverse experimentation and disseminate them in other parts of the country. The reforms and experiments promoted include introduction of land lease, rent increase and sale of housing, increases in public service tariffs, and loan financing for pollution reduction investments. Various innovations and large- scale investments for urban development and environmental improvement have been pursued most actively in coastal areas, consistent with the central government's development strategy that identifies these areas as the forefront of economic growth and interaction with the rest of the world. C. Bank Group Strategy 1.10 As Chinese municipalities rebuild their infrastructure and improve their environment to recover from the deterioration sustained during the 1960s and 1470s and to meet the demands of the growing economy, the Bank Group's financial and technical assistance to the sector would make a significant contribution to economic development and reform of the country. In view of the country's transition from a planned economy to a market economy, the Bank Group sees its principal role in the sector as facilitating the transition of the municipal planning and management system toward one that is more efficient, responsive to demands of the decentralized economy, and sensitive to equity considerations and resource and environmental constraints. This  - 4 - role would in'tolve supporting the Government policy to help municipalities to improve investmeaxt planning and management, utilize existing facilities more effectively, increase financial accountability and resource mobilization, and establish an effective institutional and financial framework for infrastructure and environmental management. 1.11 Toward these objeztives, the Bank Group is actively pursuing a balanced program of sector work and lending operations. To provide guidance for both poiicy dialogue and lending operations, the Bank Group has been investing substantial resources to understanding issues and options. Completed sector reports include: "Zhejiang: Challenges of Rapid r' .zation" (Report No. 6612-CHAs 1987), "Urban Housing Reform: Issues and Imp.-wentation Options" (Report No. 9222-CHA, 1991), and "Environmental Strategy Paper" (Report No. 9669-CHA, 1992), and sector work on urban land management is in progress. Lending support is targeted to projects that serve medium term needs but more importantly that support institutional development objectives. Given the large size of the urban sector and the high degree of decentralization, a Bank Group lending operation typically involves one or a few local governments, following the sele,tive spatial strategy of the Government, giving priorities to large urban centers and rapidly industrializing provinces, particularly those with a strong commitment to reform and with visibility for the rest of the country. D. On-goinx Projects and Lessons Learned 1.12 Following the strategy outlined above, the Bank Group has been assisting environmental and urban development mainly in the country's largest cities and industrial provinces through: Shanghai Sewerage Project (Loan/Credit US$145 million approved in April 1987), Liaoning Urban Infrastructure Project (Credit US$77.8 million approved in March 1991), and Beijing Environmental Project (Loan/Credit US$125 million approved in November 1991). In order to help establish new models of municipal management for smaller municipalities, the Bank Group is also assisting three cities designated by the Government as "model cities" under the Medium-Sized Cities Development Project (Loan/Credit US$160 million approved in January 1991). 1.13 Lessons Learned. Although the Bank Group operations in the sector started relatively recently in China, experience in preparing and implementing the ,?rojects listed above points to several important similarities and differences compared with urban sect..- operations in other countries. Despite the wide ranging components under ea 1. project, quality and speed of phy3ical implementation have generally been impressive, reflecting strong design and implementation capacities. Further, actual expenditures for investment components have often been substantially less than estimated, partly a benefit of the competitive procedures used for procurement under Bank Group operations. Introduction of the procedures, however, took considerable time and effort, causing delays in start-up of some components. To reduce this problem, the Government and the Bank Group have deployed substantial resources for familiarizing local agencies with procurement and other procedures. 1.14 Our experience in introducing procedural innovations indicates the unique challenges and opportunities for helping institutional transitions in China. In sector work and lending operations, an unust-al amount of effort has  been necessary to understand the current systems as they differ across localities and are closely integrated across sectors, and to design reforms appropriate for specific circumstances and easily understood by the local agencies. On the other hand, China's strong and unified local governments have been able to take decisive steps to implement significant reforms, particularly when they have been adapted and integrated into broad urban management contexts. It has also been shown that the involvement of higher level authorities in the municipal government, responsible for inter-sectoral coordination, is essential even in reform efforts that are carried out by sector bureaus. In view of the Jifficulties and benefits of institutional development relative to physica. Investment, the Bank Group has been concentrating its resources on assisting preparation and implementation of broad institutional development components. II. URBAN AND ENVTRONMENTAL MANAGEMENT IN TIANJIN A. Prolect Area 2.1 Tianjin is the third largest city in China, with a population of about five million. It is a major industrial and transportation center of northern China, close to Beijing (about 150 km away) and the sea port of Tanggu (40 km). The Tianjin Municipal Government (TMG), a provincial level authority, manages not only the city itself ("city proper") but also oversees the surrounding counties and districts (including Tanggu), which together form the Tianjin Municipality with a total resident population of nine million. The physical investment components under the project are located within the boundary of Tianjin city proper, consisting of six districts spanning an area 2 of 260 km B. Status of Infrastructure and Environment 2.2 Since its establishment as an international port in the late nineteenth century, Tianjin was first built up in a fragmented way in eight colonial concessions until World War II. Urban development efforts for the next three decades focused on rehabilitation and integration of infrastructure, largely within the boundary of the old city area. The main city area, about 70 km , still exhibits the historical pattern of low density, mixed land use. A major earthquake in 1976 destroyed much of the city's assets and stimulated a strong thrust for integrated development. During the ensuing years of rapid urban development in China overall, TMG not only reconstructed but expanded its urban and industrial infrastructure remarkably fast, following a comprehensive master plan. The current status and issues for major sub-sectors are briefly discussed in the following paragraphs. 2.3 Housing and Land Use. Poor conditions of housing and environment and inefficient land use in the old city area present the most visible infrastructure problems of the city. TMG has been cai.rying out an ambitious program to improve housing conditions and land use efficiency of the main city area. Residential developments, mainly in the new outskirts surrounding the old city, almost doubled Tianjin's total housing floor space over the 1980s. TMG relocated a large number of residents and industries to the newly developed areas and redeveloped the central areas for higher density  -6- residential and commercial uses more in line with environmental considerations and locational values of the land. Despite these achievements, small row- houses built as worker housing over the years (called 'pingfang') still dominate the main city area and represent about 40Z of the city's total housing stock. Their lack of adequate kitchens, toilets, and sewerage and their proximity to industrial plants contribute to a relatively high incidence of pulmonary and gastro-intestinal diseases. The scale and complexity of the tasks for housing and land use improvement require a more effective mechanism for resource mobilization and allocation than is currently employed. While TMG has introduced several innovations such as establishment of a group of autonomous development compan'.es and a mechanism for families to trade their houses, further introduction of market mechanisms will be essential for efficiert development and allocation of land and housing. 2.4 Urban Transport. For the current demand level, Tianjin's transportation system functions well. Average commuting time is less than half an hour, traffic congestion is not yet significant, and the fatal accident rate it, low (20 per year per million people). This success can be attributed to several demand and supply factors. During the 1980s TMG devoted more than half of urban infrastructure investments to increase transportation capacity, completing most of the integrated primary road network, and has maintained the road system adequately. On the other hand, the city's spatial compactness and TMG's active management of travel demand, restricting increases in passenger cars and providing special lanes and other supports for bicycle use, has led to a widespread use of bicycles (which account for 75Z of all person trips). In the face of the inevitable growth of motorized travel, TMG is now focusing on strengthening public transportation and traffic management to contain demand '.or road space and better utilize existing roads. 2.5 Water Supply. Tianjin shares water resources of the Haihe basin with Beijing. Because of the semi-arid nature of the basin and the increasing demand for water by the cities, water resource management is one of the most critical issues facing the region (total population 23 million) and has drawn much research and investment. In the early 1980s, TMG completed a large scale project to bring water 230 km from the Luanhe River. However, demand is projected to outstrip the current source in the near future and alternative sources (Huanghe or langzhe) will be expensive to exploit. Several studies have been completed and more are under way to explore ways to conserve and reuse water in the region. 2.6 Environmental Sanitation. As the city's terrain ie flat and low- lying, local flooding and standing water pose serious health and economic hazards, especially during the monsoon season when 80% of the rainfall occurs. TMG has succeeded in containing the growth of the problems by enforcing a new development regulation requiring adequate drainage and sewerage facilities, and now concentrates its investment on three major areas of drainage and sewerage system development. First, it is now allc sting large investment resources to establish a city-wide system of sewage treatment consisting of six treatment plants, the first of whicn has been in operation since 1984 andthe second is under construction. Untreated sewage is conveyed through two regional sewage channels and discharged to the sea. Second, TMG is upgrading the pumping stations and drainage channels in order to cope with the increases in sewage and surface water run-off resulting from urban growth. Third, TMG  is carrying out a phased program to provide drainage and sewerage facilities for unserved for older areas. At present about 60Z of the total city area lacks sewerage services, and about 402 lacks drainage services. In view of the large resources required for these programs, TMG needs an improved financial planning and management system to balance the different needs and better mobilize and manage the fin&ncial resources. 2.7 TMG has recently integrated and expauLded its solid waste collection system and continues to develop it. While the system covers the whole city area efficiently, resource constraints increasingly limit service levels as the city area grows and waste generation increases. Along with further expansion of the collection system, the city urgently needs to improve the waste disposal system. Use of hygienic landfills is limited at present. Instead, wastes are dumped and manually composted in scattered locations in the city, and insufficiently composted nightsoil is used widely for farming. These practices cannot be sustained both for economic and environmental reasons, and TMG is studying various ways to modernize the disposal system. 2.8 Industrial Pollution. Pollution poses a serious and continuing concern in Tianjin, a major industrial city. However, TMG succeeded in reversing the trend of environmental deterioration by the late 19808. For example, it drastically reduced air pollution from coal burning, a principal source of air pollution in Chinese cities, by establishing a city-wide gas supply network and by modernizing a large number of coal furnaces. It has improved the quality of water in major rivers and streams by strong control, diversion and treatment of waste water. Industrial relocation and modernization continue on a large scale, reducing pollution significantly. The Tianjin Environmental Protection Bureau (EPB) plays strong regulatory and coordinating roles. It monitors and sets targets for the city's environmental quality and enforces pollution control regulations such as mandatory screening of industrial investments. It collects relatively large amounts of pollution levies, assessed an discharges above effluent standards, and uses the revenues for various pollution control programs. 2.9 While these activities of Tianjin EPB are among the most active and sophisticated in China, they need development in new directions to be effective in the more diverse and dynamic economy. At present, its pollution monitoring is largely stationary, and for regulatory enforcement, it relies heavily on self-reporting and unsystematic spot checks. For more rigorous control, it needs to strengthen its capacity to monitor pollution at source through more mobile means and reliable sampling. In a program to assist polluters to comply with the regulations, EPB has been using a part of the pollution levy revenues to provide small-scale pollution control facilities in industrial plants. While it represents a valuable complement to the major anti-pollution investments described above, it tends to provide a narrow range of end-of-pipe treatment facilities or other standard solutions such as furnace modernization. On the other hand, their provision as grant assistance limits their scope and the beneficiaries' motivation to optimize the investments. Recognizing the limitations, EPB has been experimenting with loan financing rather than grant assistance, but an effective operational model for pollution control loans has yet to be establ.shed.  C. Urban Planning and Management 2.10 TMG is organized into a large number of bureaus which implement TMG policies and programs in specific sectors, and 15 commissions which are responsible for broad policy and coordination. Besides EPB, the bureaus involved in the project include: the Municipal Engineering Bureau (MEB) with divisions directly managing roads, drainage, sewerage, and other facilities; Environmental Sanitation Bureau (ESB) which manages the solid waste services; and the Public Utilities Bureau (PUB) which mainly supervises autonomous public service companies, such as the public transport and water supply companies. These bureaus report to and receive policy directions through the Urban and Rural Construction Commission (URCC) which has broad planning and appropriations authority for the infrastructure and environment sectors. While the Planning Commission (TPC) has full authority for resource allocation in most local governments in China, TMG recently devolved the resource allocation function for the infrastructure and environment sectors to URCC and the annual budgeting to the Finance Bureau (TFB). 2.11 The traditional infrastructure planning and management system consists of an orderly hierarchy of plans and a set of detailed targets and prescriptions. For investment planning, the long-term master plan and the Five-Year Plans provide the authoritative but static reference. For operation and maintenance (O&M), national guidelines prescribing detailed norms for the repair and rehabilitation of various infrastructure are fo,llowed by municipalities with minor adaptation to local conditions. The system has its strengths as it provides consistent and relatively simple commands to follow, well suited to a centrally planned economy. TMG has been a particularly competent and faithful practitioner of the system, with a comprehensive set of plans and a strong design and implementation capacity. It has used its resources well for the successful reconstruction during the 1980s and for maintaining high standards of infrastructure and services. 2.12 However, the traditional planning framework increasingly limits TMG's effectiveness in responding to the diverse and changing needs of the city. For investment programs, the master plan presents a set cf blueprints which, though technically competent and internally consistent, have grown inconsistent with Tianjin's rapid growth and changing needs. It presents long-term goals but no priorities nor intermediate targets. In the absence of specific criteria for allocating resources among a large number of investment projects envisaged in the master plan, TMG has tended to emphasize aggregate physical quantities that can be built at a given cost rather than judiciously selecting specific projects according to specific benefits. This has often resulted in an inefficient and inequitable pattern of infrastructure, excessively high standards of infrastructure in some areas and neglect in others. Similarly, TMG faithfully follows guidelines based mainly on abstract engineering norms, taking little account of specific usage and conditions. This practice, together with the first budgetary priority TMG gives to O&M, results in expenditures and standards of services that are high overall but not efficiently matched to the actual needs in different locations. 2.13 The imbalance between the heavy reliance on aggregate supply norms and long-term targets, on one hand, and the scant attention to changing needs and constrairts, on the other, characterizes all aspects of the current  - 9 - infrastructure planning and management system of TNG. As the questions of scale and location of investment or O&M programs are presumed to be determined by central plans and norms, TMG's elaborate procedures for planning and implementation of its programs tend to be used mainly for technical refinement and budgetary negotiations. The information requirement and responsibilities at each step, also, are yet to be defined clearly in line with the recent decentralization. While TMG collects large amounts of various data, most often they are used merely as aggregate statistics to compare with certain overall standards, not for evaluating different benefits of services depending upon location and timing. The implementation and financial reporting systems also emphasize statistical details rather than analysis, making it difficult for senior managers to predict and respond effectively and in a timely manner to common implementation problems such as price changes. 2.14 Though large deficiencies presented obvious priorities in earlier stages of reconstruction, TMG managers find it increasingly difficult to make critical choices on the timing, location and scale of expenditure programs to maximize their efficiency and equity. While they supplement the static plans and central commands with rules of thumb and ad hoc procedures, the basic incompatibility of the system with the decentralizing economy limits their effectiveness. In order to respond effectively to complex and changing demands, TMG would need a set of clear strategies and criteria to evaluate and carry out actions based on specific needs and the constraints of resources and the market. This would require constant and critical monitoring and re- evaluation of development patterns, problems and TMG's own operations. III. PROJECT DESCRIPTION A. Background and Rationale for IDA Involvement 3.1 On-Roing Bank Group Operations in Tianiin. The Bank Group is currently assisting implementation of three infrastructure and industrial development projects involving Tianjin, reflecting the city's strategic role and location. The Tianjin Port Project (Loan US$130 million, approved in 1986) in Tanggu is being implemented satisfactorily and is close to completion; more than half of the Beijing-Tianjin-Tanggu Expressway Project (Loan/Credit of US$150 million approved in 1987 and close to completion) falls within the Tianjin Municipality; and the Tianjin Light Industry Project (Loan US$154 million, approved in 1989) is being implemented jointly by TMG and the China Investment Bank. In 1988, the government requested assistance of the Bank Group in financing a broad urban infrastructure investment program in Tianjin, paralleling the lending operation for the light industry sector which was under preparation. Noting TMG's strong design and implementation capabilities as well as the need for enhanced financing and management of its growing infrastructure and environmental investment programs, a mission in May - June 1989 identified the proposed project substantially in the current form. The project would be the first to improve the infrastructure and environment in the city of Tianjin itself as well as their management by TMG. 3.2 Rationale for IDA Involvement. Moving beyond reconstruction of basic civic assets, TMG faces an increasingly complex task of balancing diverse needs, to correct various remaining deficiencies, to operate growing  - 10 - assets, and to meet growing demands for a better environment, infrastructure and services. At the same time, the dynamic and decentralized economy is rendering the traditional system of urban and environmental management less effective in guiding difficult resource allocation choices. Therefore, TMG is directing its efforts to reform its planning and management systems and pursue efficient and balanced programs for urban and environmental development. The Bank Group's resources and experience in assisting urban and institutional development in market and mixed economies can contribute significantly to these efforts. Such assistance would serve the core objective of the Bank Group's sector strategy, to help a transition of the municipal planning and management system to one that is responsive to needs and constraints. Further, Tianjin's role in the Government's industrial development strategy makes its reform and efficient development important to China's economic development and opening to the rest of the world. TMG's demonstrated technical and organizational competence and its commitment to institutional reforms provide a productive ground for Bank Group assistance, and its prominence in the country would help disseminate the innovations introduced under the project. B. Proiect Obiectives 3.3 The project will pursue two complementary objectives toward the long-term improvement of Tianjin's urban infrastructure and environment. Primarily, the project will help TMG improve its planning and management of infrastructure and environment, so as to enhance its responsiveness to diverse and changing demands and constraints. Specifically, TMG will aim to improve: (a) project identification, planning and evaluation; (b) budgeting and financial management; (c) monitoring and evaluation of urban development, environment, and its own operations; and (d) resource mobilization and allocation for pollution control. 3.4 Secondly, the project will help finance a set of high priority investments to meet medium-term needs in environmental sanitation, urban transport, and industrial pollution control. Consistent with the institutional development objective, these physical investments will supplement and increase the efficiency of the existing assets and help remedy the deficiencies that reflect weaknesses in the current planning and management system. C. Planning and Management 3.5 In order to enhance efficiency and responsiveness of its infrastructure expenditure programs, TMG will carry out an action plan to improve its monitoring, planning, budgeting and management systems as follows: (a) Urban Development Monitoring. A set of geographical information systems (GIS) will be developed to monitor land use, population, quality of living, and infrastructure in different parts of the  city. Indicators and tools will be developed for analysis and projection to be used tor assessing infrastructure needs; (b) Planning and Evaluation. Irnproved criteria and techniques will be developed to evaluate costs and benefits of investment and O&M programs and to help optimize their scope, location, and timing; (c) Programming and Budgeting. Techniques will be improved and procedures streamlined for revenue tracking and forecasting, cperational programming, rolling multi-year budgeting, annual budgeting, and budgetary adjustments; and (d) Implementation Management and Monitoring. Financial analysis and project management tools will be improved and supervision procedures will be streamlined to ensure efficient implementation of expenditure programs and to respond effectively to implementation problems. 3.6 The systems will be developed in a phased manner for use in all three levels of TMG, with the main focus on the Urban and Rural Construction Commission (URCC), the coordinating agency for all infrastructure and environment sector activities. Systems for use at the bureau level will be initially developed for and used by the Municipal Engineering Bureau (MEB) and the Public Utilities Bureau (PUB); and for the implementing agency level, systems development will be based on the specific needs of the Drainage Division, the Roads Division, and the Public Transport Company. The systems development efforts would also involve the Finance Bureau, the Planning Commission, and the Urban Planning Bureau (UPB), to the extent that they are involved in the planning and management of the agencies identified above. The systems developed and tested under the component would be adopted in all Bureaus reporting to URCC beginning from about the fifth year of the project period, and later extended to TMG operations in other sectors. Assurances were obtained during negotiations that TMG will carry out a plan of action, satisfactory to the Association, to improve infrastructure planning and management systems with the assistance of qualified consultants. Annex 1 details the plan of action - specific improvement goals, necessary technical assistance, training and equipment, costs, and the implementation schedule. 3.7 A major focus of the action plan will be improvement in financial monitoring and planning in all participating agencies. In conjunction with the broad financial management improvement, other specific measures will be taken to increase efficiency and accountability of the revenue earning services, bus and sewerage, as discussed in Chapter IV below. For technical and institutional issues specific to important subsectors, TMG will carry out related but separate technical assistance and training for improvements in environmental sanitation, urban transport, and pollution control, which are described in Annex 2 and the sections below. D. Environmental Sanitation 3.8 Sewerage and DrainaRe. Approximately half of Tianjin's built-up areas lack sewerage and/or drainage facilities. In order to contain the growth of the service-deficiency, TMG has established a new regulation  - 12 - mandating adequate drainage and sewerage facilities for all new land development projects. At the same time, THG is carrying out a phased program to extend and improve sewage collection and drainage facilities in already developed areas which are deficient in these services (Annex 3). The project will support implementation of the first phase of the program, including the following that are the most cost-effective: (a) Provision of drainage and sewage collection systems in four residential, industrial, and institutional areas. Three of these areas now have incomplete and hence ineffective systems of drainage and sewerage and another lacks them altogether. (b) Improvement of three controlled natural drainage channels which convey storm flows from drainage basins of about 7,600 ha of the city area. The improvements include: realigning selected channel sections to ease flow restrictions; augmenting pumping stations required to lift storm flows to the level of the Haihe, the main natural drainage course; and extending the sewerage system to serve riparian properties to prevent contamination of the Haihe. 3.9 Solid Waste Manazement. TNG has developed a well-organized and effective system of waste collection over the past decade, and has been operating the system efficiently. However, the system capacity needs continued renewal and expansion to keep pace with the growth of the city. Therefore, the project will support renewal and limited expansion of the fleet of waste collection and street cleaning vehicles and maintenance equipment. In contrast to the well-functioning system to collect wastes, TMG is yet to develop a satisfactory system to treat and dispose of the collected wastes. The project will support technical assistance to formulate a plan for a sound system of solid waste treatment and disposal and to train tecnnical and managerial staff. The project will then support implementation of the first phase of the plan, which is anticipated to consist of landfill, composting and incineration of special wastes. Assurances were obtained during negotiations that TMG will develop a plan to improve the solid waste treatment and disposal system with the assistance of qualified consultants and according to the terms of reference (Annex 4) satisfactory to the Association by the end of 1994; and implement the first phase of the plan in a manner and according to a timetable acceptable to the Association. E. Industrial Pollution Control 3.10 The Fund for Industrial Pollution Control (the Fund), to be established under the project, will finance small-scale (up to US$3 million) investments for waste minimization by industrial enterprises, that yield both pollution reduction and financial benefits. Subprojects would in general involve modification of existing plants and addition of special equipment to reduce or re-use wastes generated during the manufacturing process. One example, already submitted for funding, is simple equipment that would capture lubricant fumes escaping during the process of plasticising glass fiber sheets, thereby reducing air pollution and allowing reuse of the lubricant. The Fund will evaluate subproject proposals primarily on the basis of cost- effectiveness of pollution reduction. As economic and financial values frequently diverge, some subprojects which are highly effective in pollution  - 13 - reduction may not generate sufficient financial returns to cover debt service fully within the maximum maturity. For such subprojects, the Fund financing, most of which will be loans (see below), would include up to 30Z (average 10%) of the cost as grants. Subprojects that would not be financially viable even with the grants would not be financed. Annex 5 describes the details of appraisal criteria and other operating principles of the Fund. Proposed subprojects costing above the free limit of US$1 million will be subject to prior review by the Association. The Fund will operate as an autonomous entity managed by a seven-member board representing EPB, the Environmental Commission, the Economic Commission (representing industries), and the Finance Bureau. The board will be supported by about 25 full-time staff including engineers and financial analysts. The Fund will retain the People's Construction Bank of China (PCBC), Tianjin as agent to assist in economic and financial appraisal, provide banking services for the Fund, and provide on- the-job training of the Fund staff in these funczions. PCBC is the primary capital financing institution in China, and its Tianjin branch has been assisting TMG in its experimental loan program for industrial pollution control (which will be replaced by the Fund). 3.11 The Fund will finance up to 902 (on average 65%) of the total cost of the subprojects, and the borrowing enterprises the remainder. Most of the financing by the Fund will be loans, repayable in 3 to 7 years (average 5 years) including up to 2 years' grace. The interest rates for local currency (Renminbi) loans will be equal to those then prevailing for investment loans of the same maturities made by PCBC, now ranging between 7.8% to 10.2% per annum depending on maturity. In the case of foreign currency loans, the rate will be 1.2% over the IBRD variable rate, and the borrower will bear all foreign exchange risks associated with the loan. TMG will continue to allocate 40% of the pollution levy revenues to the Fund as capital. During the project period, it will also make the IDA credit proceeds available to the Fund as subloans in the amount equal to 60% of the total amount financed by the Fund, or about 40% of the subproject costs. The subloans are projected to total US$19 million equivalent. Assuming moderate increases in pollution levies and appropriate management of reserves, the Fund will be able to sustain a growth of about 15% a year during and after the project period, supporting pollution control investments worth more than US$100 million during the period from 1992 to 2000 (refer to Annex 5). Assurances were obtained during negotiations that TMG will establish and maintain the Fund as an autonomous entity with its charter, organization, staffing, operating and financing procedures satisfactory to the Association. 3.12 Institutional Strengthening. The project will also support technical assistance, training and equipment procurement to (refer to Annex 5 for details): (a) enhance EPB's capacity to monitor pollution at source to strengthen its regulatory enforcement; and (b) upgrade the applied research capacity of the Environmental Protection Technology Development Center and the Environmental Protection Science Institute under EPB and the capacity for financial and economic analysis by the Fund and related agencies.  - 14- F. Urban Transport 3.13 Most of Tianjin's strategic transportation assets built up during the past decade require complementary facilities and actions to function to their potential. For example, the bus fleet has been expanded ten-fold over the last decade and a modern railway station built, but the bus maintenance capacity remains amall and the terminals scattered. Further, with the growth of motorized transport, THM needs more sophisticated traffic management and travel demand management. The project would therefore support the following improvement measures (refer to Annex 6 for details): (a) Roads: Completion of the last 3.4 km of the Inner Ring Road, the centerpiece of the primary road network, by adding bicycle lanes and straightening the alignment at major intersections; and construction of an overpass at the intersection of the Middle Ring Road and the Beijing-Tianjin Highway; (b) Bus System: Construct:'on and equipment of two maintenance depots for about 690 buses, and a bus/rail interface terminal near the railway station consolidating several scattered bus terminals. Assurances were obtained during negotiations that THG will pass on a part of the credit proceeds to PTC to carry out the above; (c) Public Transport Policy and Management Study: to help TMG evaluate travel demand and supply factors - such as user preference, pricing, financing, and management options - and define an effective plan to develop public transport systems. Assurances were obtained during negotiations that TMG will carry out the study with the assistance of qualified consultants and according to terms of reference (Annex 7) satisfactory to the Association by December 31, 1995 and implement the recommendations in a manner and according to a timetable acceptable to the Association; (d) Traffic Management: Introduction of an area traffic control system in the central district of the city; improvement of traffic junctions; and other equipment and training for improved traffic flow and safety. G. Resettlement 3.14 Many of the transport and drainage improvement components of the project serve dual purposes, not only to improve the particular subsector assets but also to improve land use and housing in the central city. In particular, provision of better housing for the 4,046 households involved is one of the most important aspects of these investment components. This effort will be consistent with TMG's on-going program of land use and housing improvement which has been the essential element of its overall urban development programs. Under the resettlement program, the residents will move from dilapidated "pingfang" houses, which are extremely crowded, and lack kitchens and sanitary facilities, to larger, adequately equipped ones in six new residential developments, on average about 4 km from current locations. Recognizing the importance of the housing improvement objectives, the project will support residential resettlement as an explicit component, introducing  - 15 - improvements in resett'ement procedures, in order to help minimize the risk of disruption a.,d maximize the housing improvement benefits. 3.15 TMG has extensive experience in demolition and resettlement operations and has established effective regulatory and organizational arrangements for these purposes. The displaced households are compensated by new permanent housing units, the sizes of which are determined on the basis of the size of the housing vacated and the household size and characteristics, according to well-established guidelines. Residents relocating under the project will get new housing which will be, on average, about 2.5 times the size of the old units as well as small cash compensation for moving and other expenses. While these arrangements have proven effective and well accepted by the affected households, the existing practice of district governments' allocating apartments for households does not allow residents freedom of choice of new housing nor foster competition among housing developers. 3.16 Under the project, TMG agreed to introduce new procedures to allow essentially market transactions for the new housing units, by allowing the resettling households to choose their new housing from a much larger number of apartments in six different locations offered by different housing companies. The transaction would be conducted through the use of resettlement vouchers bearing the value equivalent to the average cost of replacement housing of the size to which the relocating households would be entitled as determined under the standard practice. The households will be allowed to choose units that are more expensive than their voucher values, due to size or location, by making additional payments. Or. the other hand, they would also be allowed to choose smaller or otherwise less expensive apartments than their entitlement and take cash compensation. However, these variations would be limited to within 20% of the voucher values (Annex 8). The verification procedures by the housing companies and the resident registration system would check against outright transfer of the vouchers. TMG would redeem the vouchers tendered by the housing development companies, and the IDA credit will be applied toward part of the construction cost of the new housing chosen by the relocating households. During negotiations, assurances were obtained that TMG will carry out resettlement of residents under the project according to standards, procedures, and voucher regulations schedules satisfactory to the Association. IV. PROJECT COST AND FINANCING A. Prolect Costs 4.1 The total estimated cost of the project is about US$195 million, including foreign exchange elements of US$112 million. Costs are summarized by component in Table 4.1, and further details are shown in Annex 9. The base costs are derived from engineering designs or feasibility studies, adjusted to incorporate price changes up to March 1992. Total costs include physical contingencies equal to 12.5% of the base costs. The price contingencies are estimated on the basis of the disbursement schedule shown in Annex 11, except for the land acquisition and resettlement which are expected to be completed by the end of 1994. Price contingencies expressed in US dollars reflect projected increases in prices of manufactured exports, 3.9% a year over the project period.  - 16 - Table 4.1 Summary of Project Costs * Component Local Foreign Total Z of Total ------- US$ Million ------- Base Cost Planning, Management and Technical Improvement 2.7 5.9 8.6 5.6% Drainage and Sewerage 15.2 10.5 25.7 16.7% Solid Waste Management 2.3 10.1 12.4 8.1% Urban Transport 18.4 14.9 33.3 21.7% Industrial Pollution Control 3.8 35.2 39.0 25.3% Resettlement 24.6 10.1 34.7 22.6% Total Base Cost 67.0 86.7 153.7 100.0% Physical Contingencies 8.4 10.8 19.2 12.5% Price Contingencies 7.5 14.6 22.1 14.3% TOTAL PROJECT COST 82.9 112.1 195.0 126.8% * Net of duties and taxes. Table 4.2 Financing Plan Local Foreign Total -------- US$ Million -------- Tianjin Municipal Government 65.8 12.1 77.9 Industrial Enterprises 17.1 - 17.1 IDA - 100.0 100.0 Total 82.9 112.1 195.0  - 17 - B. Financing Arrangements 4.2 The proposed financing plan is summarized in Table 4.2. The Association will provide a credit of SDR 73.3 million, or US$100 million equivalent, to the People's Republic of China on standard terms and conditions, with the maturity of 35 years. The Government will onlend the credit proceeds to TMG to be repaid over 15 years including 5 years of grace at an interest rate of 4.5% per annum, with TMG bearing all foreign exchange risks except those borne by the Fund. The industrial enterprises will finance about US$17 million equivalent, about 35Z of the cost of industrial pollution control subprojects. TMG will finance the rest of the project cost, about US$78 million. Assurances were obtained during negotiations that TMG will make available a part of the IDA credit proceeds (subloans) to the Fund for Industrial Pollution Control on tcrms and conditions satisfactory to the Association. The terms will include a maturity of 15 years including 5 years grace and an interest rate of 5.0% per annum. The Fund will bear all foreign exchange risks on its part of the credit, except those borne by enterprises borrowlng from it. It is estimated that the total credit proceeds made available as subloans will be about US$19 million. The Fund will provide loans for eligible pollution control subprojects on commercial terms using the subloans and other local funds, supplementing them with grants where warranted under specified conditions (paras 3.10 and 3.11). C. Financing of Municipal Services 4.3 Financial Resources for Infrastructure and Environment. TMG's budget for infrastructure and environmertal programs in 1990 amounted to about Yuan 770 million (about US$165 million), or about US$110 per urban household, high for the income level. Most of the funds consisted of tax revenues, mainly those earmarked for infrastructure sectors (the Urban Maintenance and Construction Tax and the Public Utilities Surtax), but also an additional allocation from general tax revenues (Yuan 245 million out of Yuan 3,100 million in total). These funds form a part of the regular municipal budget and are allocated by the Finance Bureau and URCC. The rest consist of revenues from various quasi-taxes called "extra-budgetary" levies such as the charges for pollution discharge, sewerage, groundwater use, and vehicle registration, collected by sector bureaus and generally earmarked for specific purposes approved by URCC. Not included above are the revenues of the autonomous companies, such as water and bus tariffs, which are independently managed subject to supervision of the Finance Bureau and URCC. 4.4 The general and earmarked tax revenues which finance the major share of the infrastructure and environmental expenditures are elastic revenues based on sales and income of the enterprises under TMG jurisdiction. Therefore, they stagnated during the recent austerity period but are likely to increase steadily along with the on-going economic recovery, given the current tax rates and revenue sharing arrangements with the central government. The extra-budgetary revenues derive mostly from unit charges. Hence, they would increase with usage, which would generally parallel the real rate of economic growth and the change in unit rates determined by TMG subject to national guidelines. Revenue growth would translate directly into increased investment expenditures, which accounted for the major part of the infrastructure budget in the past. Given the growth prospects of resources, especially for capital  - 18 - accounts, additional expenditures attributable to the project represent a small portion of TMG's infrastructure budget: debt service for the project proceeds would be about US$8.4 million equivalent a year, or less than 5% of the total expenditures for infrastructure and environment, and additional O&M expenses would be less than 0.3%. Table A10.1 in Annex 10 shows a proiection of TMG's financial resources for the infrastructure and environment sectors. 4.5 Financing of Urban Services. Since the 1980s TMG has introduced or increased charges for urban public services, most of which used to be provided free or at nominal charges. T7MG, however, continues to use tax revenues to fund a large part of capital expenditures for many services and even part of their current expenses. The subsidies for the urban services, such as bus, water supply and sewerage, now claim about 10% of TMG's infrastructure budget. While this level of subsidies appears sustainable at least for the medium term, TMG continues to move toward full cost recovery as part of the general economic systems reform. The progress, however, has been constrained by conflicts between policy and financial goals for the services under the current macro-economic system. As important as continued increases in resource mobilization would be improving financial management to increase efficiency and accountability in urban infrastructure and service provision. Especially for revenue-earning services, it would be essential to define financial goals and responsibilities clearly. In addition to the improvements in financial reporting and planning to be introduced under the planning and management component, TMG agreed to take additional measures described below to improve finances of the Drainage Division and PTC. 4.6 Financial Management of Drainage and Sewerage Services. Drainage and sewerage services in Tianjin are managed by the Drainage Division under MEB. The sewage treatment plant keeps a separate account, but accounts for all other operations are combined mainly due to the prevalence of facilities used jointly for drainage and sewerage operations. The Division remits all revenues to TMG and draws budgetary allocations for all expenses. This system makes it difficult to distinguish financial responsibilities for the sewerage services, for which beneficiary charges apply (see below), from those for drainage operations which are usually financed from general tax revenues. To define the financial goals clearly, therefore, assurances were obtained during negotiations that TMG will establish, by the end of 1993, an accounting system which will, among others, distinguish sewerage operations from drainage (see para 4.13 below); and further, by the end of 1995, TMG will establish an institutional development plan, satisfactory to the Association, to transfer all or part of the sewerage operations to an autonomous entity, and thereafter implement the plan according to a timetable acceptable to the Association. 4.7 Since the early 1980s, TMG have been implementing accelerated programs to improve drainage and sewerage services, including the establishment of sewage treatment plants (pare 2.6). To secure resources for these programs, it introduced in 1988 a new sewerage charge, 12 fen per cubic meter (m3) of sewage, levied on all properties connected to the sewerage system. In addition, it has levied a sewage treatment charge of 9 fen/mi3 on those within the sewage treatment district (about 20% of the sewerage users), and earmarked a part of the revenues from the pollution levy for sewage treatment expenses. However, the sewage treatment charge is not accompanied by any specific benefits to the users, imposing a potential disincentive for  - 19 - location within the sewage treatment districts. In view of this, TMG is reviewing whether to gStnt specific benefits in return for the charge, such as higher limits for 3ffluent discharge, or to set a single sewerage charge applicable to all users. More seriously, the charge system has been undermined by the exemptions granted by TMG to a large number of entities for various reasons, which have grown to account for about a half of billable charges. In order to remedy the problem, TMG has constituted a panel, chaired by a Vice Mayor, to review and revise policy criteria for exemption from the sewerage charges with a view toward revoking most of the current non- residential exemptions. The panel has the sole authority to grant any exemptions if justified, for which the Drainage Division will be compensated. Assurances were obtained during negotiations that, starting from January 1993, TMG will cause the Finance Bureau to provide the Drainage Division with specific compensation equal to sewerage charges that would have been due from non-residential users but for the exemption. 4.8 With this measure and an increase of the sewerage charges by about 25X, the revenues are expected to be sufficient to cover full costs of the sewerage services. However, since these costs cannot be monitored confidently under the current accounting system (para 4.6 above), it was agreed that revenue targets will be set in reference to the costs of drainage and sewage collection instead, which are easily determined. It is projected that these costs would be larger than the estimated costs of all sewerage operations during the project period (Annex 10, Table A10.2 and Table A10.3). Accordingly, assurances were obtained during negotiations that TMG will adjust the sewerage charge (or charges) from time to time so that, starting from 1993, total revenues are sufficient to cover full operating costs for the Drainage Division, including bonus and welfare payments, depreciation, and interest payments, except thoee of sewage treatment. 4.9 Financing Public Bus Services. The Public Transport Company (PTC), which will carry out and benefit from project components estimated to cost US$11 million, presents an example of acute conflicts between the policy goal for the municipality as a whole and the financial goal at the company level. Over the 1980s the share of passenger trips within the city carried by public buses declined from about 11% to 82 as a result of an earlier TMG policy to promote bicycle use and the increase of private and enterprise-owned passenger vehicles. TMG has concluded that it is fiscally unsustainable to provide road capacity to support a travel pattern dominated by private transport modes. Since 1986, therefore, it has shifted its focus onto traffic management and public transport improvements. In pursuing expansion of bus capacity, however, TMC-'s subsidies increased to as much as 55Z of the total operating costs of PTC. The high and increasing level of subsidies, although affordable and cost-effective under the current circumstances, could threaten not only the fiscal sustainability but also the financial accountability of PTC, especially if continued on an as-needed basis. 4.10 In order to improve finances and management of PTC, therefore, TMG has taken c number of steps including: Raising daily bus ticket prices by 67% in April 1990, and doubling the monthly pass prices (except student passes) in January 1991;  - 20 - Introducing a new charge on passenger vehicle registration earmarked as additional equity for PTC; in 1990, the first year, the revenues were approximately Yuan 12 million, or about 82 of PTC's expenditures; and Introducing express bus services in selected routes, with fares covering full operating and capital costs. 4.11 Given the adverse impact of fare increases on ridership (over 20% immediately following the fare increase in each category and more than 10% over a period of a year after the increase), further drastic fare increases in the immediate future would appear counter-productive under the current low- wage system. TMG, h7wever, plans to continue enhancing bus services and increasing fares to achieve efficiency pricing and financial self-sufficiency of bus services, thereby eliminating subsidies, within the current 10-year Plan period (1991-2000). TMG has agreed to formulate, through the planning and management component as well as a separate study on public transport (para 3.13), and carry out a medium-term action plan to achieve this policy goal. In the meantime, for near-term improvement, several immediate steps can be taken to reduce cost, increase revenue, and make subsidies transparent. Assurances were obtained during negotiations that TMG will take the following measures: (a) TMG will cause PTC to maintain the total number of its staff at or below 23,575 persons (level as of May 1991) until June 30, 1996 (a reduction of staff per bus by about 15% over the five years, mainly by redeploying administrative and support staff to operations); (b) Starting from 1993, TMG will determine the budgetary payment to PTC solely on the basis of bus operating mileage, which is mandated by TMG, and a unit cost index increasing at the officially published inflation rate but decreasing by 5% annually in real terms. It will revise the formula on the basis cf the public transport study and the planning and management component to better reflect efficiency pricing and the revenue limitations imposed by TMG such as student discounts; and (c) Also starting from January 1, 1993, TMG will allow PTC to adjust fares and operating routes so that its total revenues will be sufficient to cover all operating expenses plus interest, retirement payments and major rehabilitation expenses. It is projected that this will require a fare increase of about 25% during 1995, in addition to measures to increase ridership and reduce costs (Annex 10, Table A10.4). D. Accounting 4.12 TMG derartments and autonomous companies have adopted the improved accounting and auditing systems introduced by the Ministry of Finance during the 1980s, which generally conform to internationally accepted practices. PTC keeps its accounts competently according to the standard enterprise accounting system of China. The system is adequate overall, except that allocations in and out of various special fund categories obscure clear understanding of  - 21 - current and capital accounts especially as the system lacks fund flow statements. Therefore, PTC would prepare a cash flow statement showing sources and application of funds, a summary of regular accounts, and a financial projection for three years in formats satisfactory to the Association. PTC will submit them, along with audited regular accounts, to TFB and URCC which will review them and forwa d the same with their comments to the Association within six months after the fiscal year end, starting from June 30, 1994. 4.13 Bureaus and divisiowis of TMG maintain their accounts on the basis of budgetary allocations and cash expenditures, following the standard administrative unit accounting system of China which has been used in projects financed by the Association. However, the system does not allow ready evaluation of financial performance of the Drainage Division as a revenue- earning unit, as would be necessary to reorganize part of its function as an autonomous company as planned. Therefore, the Division would start preparing separate accounts for sewerage and sewage treatment operations according to the standard enterprise system supplemented with cash flow statements starting from fiscal year 1994. It will also prepare and submit the cash flow statements, accounts summaries, and financial projections to the Association through TMG, as described in para 4.12. 4.14 The new Fund for Industrial Pollution Control will establish and maintain its accounts according to the standard financial institution accounting system of China. The borrowing enterprises will submit their financial accounts and projections to the Fund as part of the funding application. The Fund will also require its borrowers to submit their project accounts (see para 4.15 below) from time to time, but no later than one year after subproject completion. It will be the main duty of PCBC to help the Fund establish and maintain the accounts of the Fund, assist in evaluation of financial statements of the applicants, and train the Fund staff in these functions. The Fund will prepare and submit its cash flow statement, account summary, and the financial projection as described in para 4.12. 4.15 All the implementing units will maintain project accounts, separate from the regular operating accounts discussed above, according to the State Construction Unit Accounting System which is adequate for the proposed project. The Project Management Office, assisted by the Finance Bureau, will maintain a consolidated account for the entire project. The six housing development companies, offering apartment units for the relocating households to choose, will also maintain project accounts under the same system. These project accounts will be the basis for determining the unit cost of housing for purposes of disbursement of the credit for -ivil works for resettlement. V. PROJECT IMPLEMENTATION ARRANGEMENTS A. Prolect Preparation 5.1 In line with TMG's normal organizational responsibilities, the sector bureaus (MEB, PUB, EPB, ESB, and Traffic Division) and their affiliated design institutes have prepared individual components, including environmental impact statements which have been reviewed and accepted by EPB. In addition,  - 22 - TMG employed a team of foreign consultants to help finalize designs and bidding documents for sewerage, drainage, and traffic management components. URCC has coordinated the preparation efforts and served as the principal counterpart to the Bank Group missions. By the end of 1991, all the final engineering designs for environmental sanitation and transport components had been completed, and the bidding documents were prepared for components scheduled for implementation during the first two years of the project. All the terms of reference for major technical assistance components (Annexes 1, 4, and 6) have been agreed upon. In addition, 28 industrial enterprises submitted proposals for industrial pollution control subprojects. Of these, 17 proposals with an estimated total base cost of about US$3 million, close to the investment planned for the Fund's first year of operation, have been preliminarily appraised and found acceptable; one was found unac-eptable; and the remaining ten provided insufficient information to be appraised and are being revised. Compensation for resettlement has been determined and agreed with the affected residents, and construction of housing for the first group of residents to be relocated started in October 1991. B. Implementation Responsibilities 5.2 The agencies which were responsible for project preparation will carry out the components, assisted by the local design institutes which helped design the components. In addition, two new bodies, the Leading Group for Planning and Management Improvement (see para 5.3 below) and the Fund for Industrial Pollution Control, are starting their operations under the respective components of the project. For project coordination at the policy level, TMG has established the Project Leading Group (steering committee) chaired by the Director, URCC and including senior managers of URCC, the Finance Bureau, the Planning Commission, and the implementing bureaus. For day-to-day management of the overall project and liaison with the Association, TMG has established the Project Management Office (PMO) reporting to the Leading Group, with 13 full-time staff. Assurances were obtained during negotiations that TMG will maintain the Project Leading Group and PMO with functions and composition satisfactory to the Assc!iation. 5.3 To manage implementation of the planning and management component, TMG has established the Leading Group for Planning and Management Improvement (PAMILG). The Group consists of: Chief Engineer, URCC (chair); Deputy Director, URCC; Chief Economist, Finance Bureau; and heads of the participating Divisions of URCC, Planning Commission, MEB, PUb, and UPB. The Group will have authority over scheduling all technical assistance and training under the project, selecting and supervising consultants for the component, and recommending proposed improvement measures to TMG. For implementation of specific technical assistance and training involving more than one agency, the Group will establish task forces led by members of the Group and drawing on involved staff and consultants. The Group will be supported by the Chief Technical Advisor to be recruited for the component and a full-time Office with at least six staff members (Annex 1). Assurances were obtained during negotiations that TMG will maintain the PAMILG and its office with functions and composition satisfactory to the Association. 5.4 A transfer and operation agreement between TMG and PTC, satisfactory to the Association, has been signed for implementation of the  - 23 - public bus component (para 3.13) and the financial action plan for PTC (paras 4.11 and 4.12). Agreement was reached during negotiations that, as conditions of effectiveness: (a) the Fund for Industrial Pollution Control will be constituted with a charter, operating and lending procedures, and staffing satisfactory to the Association; (b) the subsidiary loan agreement, satisfactory to the Association, will be signed between TMG and the Fund for implementation of the industrial pollution control component; and (c) a contract, satisfactory to the Association, will be signed between the Fund and PCBC for necessary technical services (paras 3.10 and 3.11). C. Disbursement 5.5 For expenditures other than those for industrial pollution control subprojects, the credit will be disbursed for: (a) 100l of foreign expenditures for imported equipment and materials, 100% of the ex-factory cost of equipment and materials manufactured locally, and 70% of local expenditures for other equipment and material procured locally; (b) 65% of civil works expenditures including those for resettlement; and (c) 100% of the costs of consultant services and training. For industrial pollution control subprojects financed by the Fund, the credit will be disbursed for 100% of pollution control subloans. Under the procedures Lgreed for resettlement under the project, the relocating households will choose new apartments built by different development companies for them as well as other buyers. The civil works expenditures for the apartments chosen for resettlement will be determined by multiplying the unit cost of civil works per floor space (mi2) by the total floor space of apartments taken up by the relocating households according to agreed procedures (Annex 8). The unit cost will be determined, before the start of each phase of resettlement and after construction of the required housing, by averaging total civil works cost of the housing development projects over total floor area built, excluding floor space of public facilities provided free of charge, on the basis of a construction account maintained by the housing development companies. 5.6 A Special Account will be established and maintained in US dollars with an authorized allocation of US$6.7 million, on terms and conditions acceptable to the Association. Replenishment applications would be submitted monthly or when the balance falls under 50% of the initial deposit, whichever comes first. Disbursements for training and goods supply and civil works contracts valued at less than US$200,000 each will be made on the basis of Statements of Expenditures (SOEs). Disbursement for others will be supported with full documentation. TMG will ensure that implementing agencies will retain the documents supporting the SOEs and make them available to the Association missions for inspection. 5.7 Schedules. The estimated disbursement schedule is shown in Annex li. In view of the absence of a standard disbursement profile for the sector in China, the estimated schedule is based on disbursement profiles for the industry and transportation projects in China. The estimated project completion date is June 30, 1998, and the credit closing date will be December 31, 1998.  - 24 - 5.8 Retroactive financing up to US$10 million equivalent will be allowed for eligible expenditures made after April 30, 1991 (date of appraisal) for: (a) consultant services to prepare final engineering designs and bidding documents for sewerage, drainage, industrial pollution reduction, and traffic signal systems; (b) consultant services, training, equipment, and office accommodation necessary for implementation of the planning and management component and for operation of the PMO; and (c) civil works for construction of housing to resettle about 2,020 houselholds. D. Procurement 5.9 Goods. All c-ontracts for goods costing more than US$200,000 will be procured through international competitive bidding (ICB). The project requires equipment and materials estimated to cost about US$29 million in total, of which about 80Z or about US$23 million will be procured through ICB. Limited international bidding (LIB) will be used in procuring certain laboratory equipment and road monitoring equipment with estimated total cost of about US$1.0 million, which are produced by a small number of firms. The remaining goods, small quantities of minor tools and materials of assorted types, each contract costing less than US$200,000, up to a total of US$5.0 million, will be procured through local competitive bidding (LCB). Direct procurement will be used for some replacement parts for existing buses and trucks up to a total of US$500,000 and local shopping will be used for other small quantities not exceeding US$10,000 per order up to a total of US$500,000. 5.10 Works. The project will involve about 28 different civil works contracts, costing about US$47 million in total (not including the civil works costs for resettlement housing discussed in para 5.11 below), carried out in more than 50 locations scattered around the city. None of the contracts has an estimated contract value of more than US$5.0 million, except a road upgrading work (US$6.7 million) and a sewerage-drainage improvement work (US$5.1 million). Even these two largest contracts involve mainly labor- intensive earthworks and require contractors to deal extensively with existing utility facilities and residents, and hence are not likely to attract international contractors. All civil works contracts, therefore, will be awarded through LCB except those noted below which will be awarded through direct contracting. The largest of the works to be let through direct contracting will be about 7 contracts to install electricity mains, estimated to cost US$1.5 million in total, to be carried out by the electricity authority according to local regulations. Installation of communication lines for a traffic signal system, costing about US$250,000 will be carried out by the telephone authority. The remaining contracts to be let through direct contracting are to install traffic signals and channelize intersections in many scattered locations, costing less than US$500,000 in total, involving specialized skills and risk of interruption.  - 25 - Table 5.1 Procurement Arrangements Procurement Procurement Method Category ICB LCB OTHER NFI TOTAL ---------- (US$ million) -------------- Goods 23.2 3.8 1.6 28.5 (22.5) (2.9) (1.3) (26.7) Training and 5.6 5.6 Technical Assistance (5.6) (5.6) Works 45.1 2.2 47.3 (27.2) (1.2) (28.4) Industrial Pollution 48.7 48.7 Control (19.0) (19.0) Works for Residential 33.6 33.6 Resettlement (20.3) (20.3) Land Acquisition 21.6 21.6 (0.0) (0.0) Design, Supervision 9.7 9.7 and Management (0.0) (0.0) TOTAL 23.2 48.9 91.6 31.3 195.0 (22.5) (30.1) (47.4) ( (100.0) Note: Figures in parentheses are the amounts financed by IDA. Figures include physical and price contingencies. NFI - Not financed by IDA. 5.11 Others. The project involves resettling 4,046 households into new apartments with a total estimated civil works cost of about US$34 million. Under the procedures agreed for the project, the households will select their apartments from among 7,200 apartments that are being built or will be built in six locations by different development companies. The development companies have been selected by TMG after evaluation of plans and cost estimates submitted by 32 eligible companies, more than five for each of the companies chosen. Under the industrial pollution control component, industrial enterprises will procure specialized equipment and associated services to modify their production plants to reduce pollution and conserve production materials, each subproject not exceeding US$3 million. Following the guidelines adopted for the Fifth China Investment Bank Project and the Tianjin Light Industry Project, the borrowing enterprises will procure these services and goods after solicitation and evaluation of written quotations from at least three qualified suppliers. Consultant services required for the project will be engaged in accordance with the "Guidelines for the Use of  - 26 - Consultants by World Bank Borrowers and by the Wlorld Bank as Executing Agency." 5.12 Administration. Foreign suppliers will be allowed to compete for contracts let under LCB if they desire. Under ICB, domestic suppliers will be allowed a margin of preference equal to 15Z of the c.i.f. price of imported goods or actual customs duties and taxes, whichever is less. All goods costing more than US$200,000 and works costing more than US$1 million will be subject to the Bank Group's prior review. This is expected to cover 11 works contracts accounting for almost 90% of the total value of civil works contracts (other than resettlement housing), and 11 packages of goods accounting for about 80% of the total value of goods. Table 5.1 summarizes the procurement arrangements for the project and Annex 13 lists major procurement packages. TMG has retained the China National Technical Import and Export Corporation and the Tianjin Machinery and Electric Tendering Corporation as the procurement agents for the goods required under the project. The Tianjin Construction Engineering Tendering Office will be the procurement agent for civil works. Model bidding documents agreed between the Government of China and the Bank Group will be used for all applicable procurement. E. Monitorinz and Supervision 5.13 Audit. Assurances were obtained during negotiations that TMG will submit to the Association annual audit reports on the following by independent auditors acceptable to the Association within six months after the end of each fiscal year: (a) the Special Account; (b) the consolidated project account maintained by PM0; (c) statements of expenditures; and (d) the financial statements of the Public Transport Company, the Drainage Division, and the Fund for Industrial Pollution Control. It is expected that, in accordance with the auditing framework of China, the State Audit Administration (SAA) will have overall responsibility and direct the auditing work performed by the Tianjin Audit Bureau (TAB). 5.14 Monitoring and Reporting. Assurances were obtained during negotiations that PM0 will provide quarterly progress reports in a format satisfactory to the Association within six weeks after the end of each quarter. Progress and impacts of physical investment components as well as institutional development actions will be monitored against indicators listed in Annex 14. The Fund for Industrial Pollution Control will monitor the progress of the subprojects and submit the summaries to PM0 for inclusion in the quarterly reports. It will also monitor financial and technical impacts of the subprojects for at least three years after subproject completion, and submit annual summaries to PMO for inclusion in the first quarterly report of each year. 5.15 Supervision. In view of the advanced status of preparation and the demonstrated implementation capacity of TMG, the conventional physical investment components of the project are likely to require about 30Z less supervision input by the Association, compared with the annual norm. Proper supervision of the institutional development and pollution control components, on the other hand, will require significantly larger supervision input by the Association than usual, in view of their importance to the project and  - 27 - uniqueness in design (Annex 15). Representatives of central agencies including MOF, MOC and NEPA will be invited to participate in certain supervision missions to help disseminate innovation and experience under the planning and management improvement, the Fund for Industrial Pollution Control, and other technical assistance activities. VI. BENEFITS AND RISKS A. Benefits 6.1 Economic Benefits. An economic rate of return for the entire project could not be estimated because benefits from many components cannot be fully quantified and because most of the subprojects for pollution control are yet to be appraised. One of the most important economic benefits would be efficiency gains from more intensive land use of the main city areas made possible by improvements in roads, drainage, and sewerage in those areas as well as integration of public transport terminals; these, however, will materialize only some time after project completion. The roads improvement itself will generate an economic rate of return (ERR) of about 20% due to savings in travel time and vehicle operating costs. Benefits of the same type will yield an ERR of about 25% for the traffic control signal system. The new workshops and terminals will enable more efficient use of the buses and will yield ERR of about 24%. The drainage improvement schemes would have ERRs ranging from 18% to 52%, or an average of about 30%, counting only the reduction in property damage from flooding. Seventeen industrial pollution control subprojects that were already submitted and preliminarily appraised would have an average ERR of about 19%, counting such benefits as savings in production inputs but not counting pollution reduction benefits. These components for which at least partial estimates of benefits are available, account for about 40% of the total project cost, with a weighted average ERR of about 25%. (Details of ERR estimation for the road components are explained in Annex 6, and those for the other 16 subcomponents can be found in the feasibility reports available Ln the project files listed in Annex 16.) 6.2 Environmental Benefits. Most of the expected benefits of the physical investment components will be health and environmental improvements. The industrial pollution control subprojects would reduce pollution in cost- effective ways, as this will be the primary criterion for selecting the subprojects, although their economic and financial returns would also be substantial as shown above. One sewerage improvement component would intercept industrial sewage, currently discharged into an irrigation canal, and convey it to the city's sewage canal, preventing further contamination of farmland and crops. A drainage component would intercept sewage flows of the combined system and prevent contamination of a main natural drainage channel of the city. Other smaller sewerage and drainage improvement works would have similar pollution control effects. The solid waste management improvements financed under the project will support more effective solid waste collection to reduce dumping of various wastes. Development of an environmentally sustainable solid waste treatment and disposal system, with adequate measures including leachate and gas control, will reduce contamination of the environment and agricultural crops resulting from current disposal practices (Annex 4). The bus maintenance garages will help buses run cleanly and reduce  - 28 - the oil and other chemical spills of bus maintenance operations now performed in several ill-equipped workshops by consolidating them in more efficient workshops equipped with a facility to collect and dispose of the spills in a controlled way. 6.3 Social Benefits. The immediate and visible benefits of solid waste management, drainage, and sewerage would be improvements in environmental health conditions for the residents within or near the project areas. A significant aspect of the drainage and sewerage improvements is that a large part of some 400,000 people directly benefitting from those improvements live in areas without most urban services but with relatively poor environmental health conditions - important measures of poverty in Chinese cities. Under the relocation component, more than 4,000 households will move from crowded, unsanitary and dilapidated houses in old city areas to larger, fully serviced apartments in residential areas. 6.4 Institutional Develoipment. The primary intended benefit of the project as a whole is long-term gains in efficiency and equity of TMG's infrastructure and environmental programs. Under the planning and management component, TMG will improve its methods and procedures for identifying, planning, evaluating, budgeting and managing its investment and O&M p-.ograms across a wide range of infrastructure sectors. As a result, THG will enhance its ability to identify critical needs and respond to them in a more cost- effective and balanced way than is possible under the traditional command system emphasizing static plans and norms. Improved tools for diagnosis and management specifically developed for roads, drainage, and sewerage operations will allow the responsible agencies to find areas where they can safely reduce unnecessarily high costs of O&M or investment and direct the savings to more productive uses. Under the related, but more sector-specific studies, TMG will evaluate various options to find more effective management methods for public transport and solid waste disposal, based on resource constraints and consumer choice, rather than fixed solutions. 6.5 The industrial pollution control component of the project will directly support cost-effective pollution reduction investments. Of long-term significance, it will also help increase TMG's capacity for regulatory control and technical assistance for pollution reduction and establish a sustainable mechanism for financing industrial pollution reduction, the Fund for Industrial Pollution Control. The Fund will support investment projects that will be financially beneficial for the industrial enterprises while benefitting the public at large through pollution reduction, and thus mobilize private initiatives and resources for larger and more efficient programs of pollution reduction, without increasing public spending. The improvements in infrastructure and environmental management are also expected to lead to wider institutional reforms in THG. Further, due to the visibility of Tianjin as a major coastal city in China, the improvements would have considerable demonstration effect for the large urban sector of the country as a whole. B. Risks and Mitiaatina Measures 6.6 Implementation Risks. The Bank Group's experience elsewhere indicates that project complexity in terms of the number of components and agencies involved could lead to implementation difficulties. In China, and  - 29 - particularly in Tianjin, the concerns and risks are reduced by the unified local government organization and its demonstrated implementation capacity (para 1.14). To keep the focus clear, however, the project scope has been limited to those components that are strongly related to the main project objective and the organizational scope limited to one central agency, URCC, and subsector bureaus reporting to it. Since an attempt to improve overall sector management needs to involve a reasonable range of subsectors, a still narrower scope would have gained marginal reduction in coordination requirements at the expense of an inter-agency perspective and cooperation essential to achieving the project's main objective. 6.7 The only significant implementation risk remaining related to the innovations to be introduced under the project. Success of the proposed Industrial Pollution Control Fund will depend on the available technologies for waste minimization, the willingness of enterprises to participate, and the abilities and commitment of the Fund managers. Nevertheless, the substantial number, variety, and quality of the proposals already received (see para 6.1) reduce the first and second of the uncertainties considerably. In order to alleviate the third risk, regarding the ability of the managers to deal with the unfamiliar (mainly financial) aspects of the operations, the project incorporates measures including: detailed definition of appraisal criteria and methods the utilization as much as possible of concepts and procedures that are already well established in Tianjin; staffing of the fund with full-time personnel, including those with financial and economic expertise; entrusting PCBC, the primary local bank specializing in investment projects, to assist the Fund; technical assistance and training of the Fund's staff in project evaluation and financial management by PCBC, consultants and institutions. 6.8 For the planning and management component, the risks would not arise so much from technical problems related to the individual improvement elements, but mainly from the difficulty of integrating such elements into the overall management systems and sustaining the commitment of the managers to do so. Experience of the Bank Group has shown that institutional development can succeed only when feasible goals are clearly defined and only to the extent that borrowers are committed to and involved in defining and implementing such components. In view of this lesson, during project preparation TMG managers and Bank Group staff directed a major effort to identify priority needs for management system improvement and to define realistic goals and steps. TMG's commitment to reform its planning and management systems has already been demonstrated through such actions as the organizational decentralization, devolving various elements of appropriations' authority formerly centralized in the Planning Commission to URCC and the Finance Bureau, the establishment of housing development corporations, and the use of contract systems for municipal service providers. These factors significantly reduce, if not eliminate, the risks involved. 6.9 Environmental and Social Risks. The environmental impact analysis by planners of the public bus system components identified two risks of pollution. The first was the risk of oil and chemical spills in the two new maintenance workshops. To control possible contamination, the floors and drainage systems of the workshops have been designed so as to be able to collect the possible spills and dispose of them in a controlled way. The second risk was that the consolidated bus terminal would generate such a level  - 30 - of traffic that under certain weather conditions the concentrations of harmful emissions could increase beyond tolerable levels. In order to reduce this risk, the plaza and approach ways to the terminal would have baffles of trees. Also, partly for this reason, some 200 households in the neighborhood bordering the terminal would be relocated along with those living on the site of the terminal itself, though only the latter would normally be relocated. 6.10 The reduction of traffic congestion expected from the project's roads improvement component could lead to higher accident rates as a result of of faster vehicle speeds. However, this risk would be mitigated under the project by the traffic management component, which includes installation of traffic control signals and traffic message boards, and improvement of intersection channels in the central city area encompassing the improved roads. Often, monuments or other structures in the intersections block vision or traffic flow. TMG has established a new regulation prohibiting erection of such structures that might impair traffic, and an understanding was reached with TMG during negotiations on measures to ensure enforcement of the regulation. 6.11 Currently, only about a fifth of sewage collected in the city is treated by the city's only existing treatment plant; and the rest is conveyed through the regional sewerage canals originating from Beijing and discharging into the ocean, after minimal sedimentation at the beach head. Under these circumstances, any increase in sewage collection poses a risk of shifting some of the pollutants from inland to the marine environment. However, about 601 of the additional sewage collection due to the project (27.7 million m3, about 5.51 of total current volume in the city) and the sewage intercepted from the combined system will be treated by the existing plant and a new treatment plant which will start operation in 1992. There will thus be a net reduction in untreated sewage conveyed to the sea through natural drainage channels, more than offsetting the amount of sewage collected from two of the sewerage components that will be discharged to the sea without treatment. Further, TMG is implementing an accelerated program to provide sewage treatment for the whole city by 2010 (Annex 3). 6.12 Experience elsewhere suggests that resettlement of a large number of families, as required for the project, could cause serious disruptions in their housing, jobs, and social ties. TMG has been carrying out large-scale relocations as much for improvement of the residents' housing conditions as for associated public works, and accordingly, has established organizational and regulatory arrangements for rapid, equitable resettlement. To ensure adequate resettlement of the 4,046 households affected by project works, explicit support has been included in the project for resettlement. The residents will move from several of the project sites, mainly in overcrowded and unsanitary central city areas of mixed land use, to new, much larger and fully equipped apartments in environmentally sound residential areas. They therefore clearly welcome the move. The risk of economic disruption in urban resettlement relates primarily to commuting. The replacement housing under the project is on average 4 km away from the current housing, a distance most residents find acceptable, and closer to the city's industrial belt where the largest part of the city's labor force are employed. Further, unlike the standard resettlement procedure in China, the relocating households will have freedom to choose their new apartments from a large selection in six different  - 31 - locations, to optimize their housing and locational choice. This freedom of choice may break up neighborhoods more than the current system of administrative assignment, moving an entire neighborhood to a new apartment block. However, such dispersal would be according to the residents' ovwn wishes and of immaterial consequence within the urban area. VII. AGREEMENTS REACHED AND RECOMMENDATION 7.1 During negotiations assurances were obtained from TMG that it will: (a) carry out the planning and management improvement action plan with the assistance of qualified consultants and according to plans and schedules satisfactory to the Association (para 3.6); (b) develop a plan for solid waste treatment and disposal system improvement with the assistance of qualified consultants and according to terms of reference satisfactory to the Association by December 31, 1994, and implement the first phase of the plan in a manner and a schedule acceptable to the Association (para 3.9); (c) establish and maintain the Fund for Industrial Pollution Control as an autonomous entity with a charter, organization, staffing, operating and financing procedures satisfactory to the Association (para 3.11); (d) carry out a study of public transport policy and management with the assistance of qualified consultants and according to the terms of reference satisfactory to the Association by December 31, 1995, and implement the recommendations in a manner and according to a timetabile acceptable to the Association (para 3.13); (e) pass on a part of the credit proceeds to PTC for the purposes of carrying out the project (para 3.13); (f) carry out the resettlement of the households under the project according to standards, procedures, schedules, and voucher regulations satisfactory to the Association (para 3.16); (g) make available a part of the credit proceeds to the Fund for Industrial Pollution Control on terms and conditions satisfactory to the Association (para 4.2); (h) carry out steps to improve the finances and management of the sewerage operations as agreed with the Association (paras 4.6, 4.7 and 4.8); (i) cause PTC to carry out necessary steps to improve s finances as agreed with the Association (para 4.11);  - 32 - (j) review the financial statements and projections of PTC, the Drainage Division, and the Fund and submit the same to the Association along with its comments within six months after the end of each fiscal year (paras 4.12, 4.13, and 4.14); (k) maintain the Project Leading Group and the Planning and Management Improvement Leading Group with functions and composition satisfactory to the Association, and the Project Management Office and the Planning and Management Improvement Office with functions, staffing, and facilities satisfactory to the Association (paras 5.2 and 5.3); (1) provide the Association, within six months of each fiscal year, audit reports on the project account, the Special Account, expenditures, statements of expenditures, and the financial statements of PTC, the Drainage Division, and the Fund for Industrial Pollution Control, prepared by auditors acceptable to the Association (para 5.13); and (m) will furnish the Association with quarterly project progress report containing project information required by the Association within six weeks after the end of each quarter (para 5.14). 7.2 An understanding was reached with TMG on measures to prevent any structures or signs from being erected or placed in the road intersections that may in any way impair the effectiveness of the traffic improvement measures carried out under the project (para 6.10). 7.3 The conditions of credit effectiveness will be: that the Fund for Industrial Pollution Control be established, with a charter, operating and lending regulations, and staffing satisfactory to the Association; that a subsidiary loan agreement, satisfactory to the Association, between TMG and the Fund for implementation of the industrial pollution control component be executed; and that a contract, satisfactory to the Association, be signed between the Fund and PCBC for necessary technical services (para 5.4). 7.4 With the above agreements and conditions, the project would provide a suitable basis for an IDA credit of SDR 73.3 million, equivalent to US$100 million, to the People's Republic of China. The credit would be on standard terms, with a 35-year maturity.  Annex 1 - 33 - page 1 CHINA TIANJIN URBAN DEVELOPMENT AND ENVIRONMENT PROJECT Infrastructure Planning and Management Improvement Action Plan I. Background: Current Status and Issues 1. Organizational Structure. Tianjin Municipal Government (TMG) carries out its functions through two types of organizational units: sectoral Bureaus of which there is a large number, and 15 Commissions charged with policy level oversight and coordination across several sectors. The Bureaus plan and carry out municipal programs in particular sectors through constituent Divisions or through public enterprises. For example, Divisions under the Municipal Engineering Bureau (MEB) build and operate roads and drainage operations, and those under the Public Utilities Bureau (PUB) supervise the Water Supply and Public Transport Companies. The Urban and Rural Construction Commission (URCC) coordinates policies, programs and budgets of these and 12 other Bureaus responsible for infrastructure and environment sectors. URCC itself is organized into functional Divisions, including the Comprehensive Planning Division (CPD) which coordinates investment programs and the Construction and Transportation Management Division (CTMD) which authorizes O&M expenditures. 2. Many semi-autonomous technical institutions are affiliated with TMG units. For example, the Tianjin Municipal Engineering Survey and Design Institute (MESDI) acts as the in-house consultant for MEB, and the Urban Planning Institute (UPI) for the Planning Bureau. A college-level teaching institution, the Tianjin Urban Construction Institute (TUCI), is affiliated with URCC. 3. The Finance Bureau (TFB) and the Planning Commission (TPC) are responsible for consolidation of TMG's overall annual budgets and the longer- term (5 and 10-year) investment plans, respectively, subject to approval by the Tianjin People's Congress. TFB also supervises financial management of revenue earning public services. However, the main authority for project approval and resource allocation among infrastructure sectors has recently devolved to URCC. The Bureaus and URCC supervise budget implementation. The People's Construction Bank of China and the Industry and Commerce Bank of China monitor financial progress and disburses funds, for investment and O&M respectively, under the supervision of TFB. The County and District governments of the Tianjin Municipality have similar organizations as TMG, reporting to corresponding departments of TMG. They exercise limited autonomy mainly over recurrent expenditures. 4. Planning and Budgeting Framework. In all manners of planning, TMG relies more on aggregate supply norms than consideration of actual needs and constraints. In allocating annual budgets, TMG gives priority to operation and maintenance, then on-going investment projects and those in the Five-Year Plan, and the rest. The O&M programs are determined mainly on the basis of asset (historical) values, national guidelines for maintenance intervals and for input combination, with little regard to actual conditions and usage.  - 34 - Annex 1 page 2 Active monitoring and evaluation could allow differentiation of types and schedules of maintenance and thereby increase efficiency of O&M operations. 5. For investment planning, the master plan and the Five-Year Plan serve as the statutory references. The unique historical background of Tianjin's infrastructure, disjointed development during the colonial era and its destruction by the 1976 earthquake, gave strong motivation for planned reconstruction. The master plan, completed in early 1980s, has helped ensure consistency among infrastructure investments. However, it presents static blueprints that are not affordable nor relevant to the city's actual land use and needs. They therefore provide TMG with .it best ambiguous and often irrelevant guidance for selection and design of infrastructure investment. The Five-Year Plans present coordinated sectoral development programs and thereby add more specific guidance for resource allocation for the medium- term. However, derived from the static master plans and fixed through the plan periods, they suffer from similar limitations as the master plan. 6. Investment projects follow elaborate procedures: proposal, identification, pre-feasibility study, feasibility study, preliminary design, final design, bidding, implementation and supervision, and acceptance. Each step is carried out by sector Bureaus, subject to review and approval by URCC, TFB, TPC, and the People's Construction Bank of China (PCBC). The procedures, however, suffer from ambiguous definition of information requirement and responsibilities of various reviewers. Accounts and design reports follow a small number of formats that are often uniform across many different types of activities and therefore provide unfocused or irrelevant details. Summary and exception reports are not systematically used. The procedural opaqueness reinforces the tendency to rely on static yet clear plans and norms. 7. The reliance on the static plans and engineering standards amounts effectively to an unbalanced least-cost strategy where results are measured in terms of aggregate volume of assets than specific benefits. It would not be productive, however, to attempt to produce a new, detailed master plan and use them for more than a general reference framework. Instead TMG needs to develop flexible strategies and criteria to determine timing, location, and scale of expenditure programs in the light of actual needs and constraints. This requires monitoring and analysis of urban development and implementation and using them for planning and evaluation of specific actions. This will also require clear definition of what information needs to be reviewed, how, and by whom, in line with the recent decentralization and incorporating many sound rules of thumb and informal procedures now employed by TMG managers to better respond to current needs. II. Objectives and Scopes of Improvement 8. As the central component of the project, TMG will improve its infrastructure planning and management systems consisting of procedures and techniques for: planning and evaluation of projects; programming and budgeting for infrastructure sectors; management and monitoring of budgetary implementation; and monitoring of urban development. Section III below describe the plans to improve these closely inter-related systems. Improving each system will entail enrichment of relevant information and analysis, but  Annex 1 page 3 at the same time streamlining reporting and decision making. This will require the following: (a) a management information system (MIS) including databases, accounts, and indicators of performance and status; policies for data input, storage, and access; information requirement and formats at different levels emphasizing the use of summary and exception reports; (b) analytical and forecasting tools including quantitative and qualitative methods, decision criteria, common parameters, computer software, and graphics to analyze trends and check assumptions; (c) written procedures and manu.ls specifying: clear assignment of responsibility, flow charts illustrating key processes, their deadlines, and forms that provide the information needed for consistent decisions; (d) staffing plan including definition of skill requirement and training programs and manuals; (e) implementation plan including detailed schedules, budget, training requirements; (f) plans to further refine and enrich the system improvement, including criteria and methods for system performance review; and (g) recommendations for appropriate organizational and statutory changes, although most of the improved systems should be applicable within the existing broad frameworks. 9. Organizational Scope. URCC will be the focus of the component. Its Comprehensive Planning Division (CPD) and Construction and Transportation Management Division (CTMD) will lead development and be the main users of investment and O&M management systems, respectively. The improvements will involve part of the budgeting and financial management staff of TFB and the Urban and Rural Construction and Transportation Division (UCTD) of TPC. URCC's Planning and Design Division and Science and Tech-nology Division will coordinate technical aspects of GIS and MIS development. URCC's Education Division will coordinate all training activities under the project and lead the effort to develop capacity for continuing training, especially at TUCI. The Urban Planning Bureau will host the main part of the GIS systems. MEB and its Drainage and Roads Divisions and MESDI will be the main users of systems developed for Bureau and implementing agency levels, and they will undertake most of the development efforts. These developments will provide the consistent framework for and supplement the similar efforts for the Public Transport Company (PTC) and its supervising Bureau, PUB, to be conducted under the public transit study and bus maintenance garage component.  - 36 - Annex 1 page 4 III. Component Systems 10. Planning and Evaluation. URCC will develop improved framework for planning and evaluation of investment and O&M expenditure programs. MEB and MESDI will be responsible for necessary technical improvement, in close consultation with Roads and Drainage Divisions and PTC. Evaluation goals at each planning step will be clearly defined, particularly to improve screening of expenditure programs at early stages of planning within the strategic contexts of demand and overall infrastructure development. This will require the following: Expenditure Estimation system, including standard cost formats and estimating guidelines appropriate for different stages of preparation of investment and O&M plans, and consistent across sectors. The costs would be shown by component activity to allow comparison of alternatives and by input requirement such as labor, materials, foreign exchange, etc. to allow sensitivity analysis. Common cost parameters would be derived from market and implementation data, including physical and price contingencies at different stages of design. Consistent methods will be applied for estimating project life and operating costs. Benefit Evaluation system, utilizing simple measures of benefits reflecting urban development trends and demand indicators, and simple techniques to analyze cost-benefit or cost-effectiveness and sensitivity. Marginal analysis by component, rather than by aggregate operation, will be used for comparison of alternatives. Risks will be identified and evaluated especially for new technologies. Quantitative rating system will be developed to rank priorities for similar activities, and more heuristic rules to rank dissimilar activities. Fiscal impact analysis will be introduced for evaluating broad urban development programs. Strategic Planning, to set criteria and context for identification and selection of projects, ensuring that expenditure programs complement each other as much as possible and meet strategic needs. Examples of strategic criteria would include targets for meeting basic needs, equitable distribution of services across areas, and reasonable planning horizons. As part of the multi-year budgeting cycle, URCC would set strategic plan and criteria for the infrastructure sectors as a whole in consultation with TPC and TFB, and the Bureaus will set those for their respective sectors. 11. Budgeting System. For more timely and systematic planning and control of expenditures and revenues, URCC and TFB will develop a budgeting system for infrastructure sectors as a whole. MEB and PUB will develop programming and budgeting systems for roads, drainage, and bus operations as elements of the infrastructure budget. The systems would include entire aspects of infrastructure investment and O&M including the extra-budgetary revenues and expenditures. The budget manual should clearly define: budget policy; budget procedures specifying processing calendar and responsibilities for drafting, review and coordination of budgets; budget formats specifying minimum necessary information required for budgetary planning and monitoring. The system will include the following inputs to annual budgeting.  Annex I - 37 - page 5 Revenue Tracking and Forecasting systems at TMG, URCC, and implementing agency levels, as a basic input for budgeting and control. Thej will cover annual as well as multi-year budgeting cycles, updated quarterly and annually, respectively. Revenue reports should clearly show variance of actual billing and collection from projections. Simple models will be developed to project revenue yield on the basis of key variables such as business activities for which data are available or experienced staff can make informed judgement. Different assumptions could then be used to consider altern.tives. It will be essential to integrate information from TPC and TFB. Operational Programming system to coordinate scales and schedules of works within each sector over a medium- to long-term. The sector Bureaus will develop multi-year operational programs consisting of investment plans and O&M schedule, taking into consideration not only their priorities based on benefit measures but also their inter- relationships. It would require analysis of regular O&M needs and identification or pre-feasibility level studies of a large number of investment projects instead of the linear progression from identification to implementation. Multi-Year Budgets, as a background for project preparation and for annual budgeting. They will balance multi-year revenue forecasts and sector operational programmes. The budgeting horizon, between 3 and 7 years, will be determined after planning and programming systems development. The budget will be rolled each year, dropping a year and adding another. Simple techniques of fiscal impact analysis will be developed for expenditure and revenue forecast, especially for sectors without medium-term sector programs. 12. Implementation Management and Monitoring. MEB and PUB, in consultation with URCC and TFB, will improve systems to monitor and control financial and physical progress of expenditure programs, to anticipate and make necessary adjustments, and to evaluate the results as follows: Proiect Management tools, including techniques to optimize scheduling, deployment of staff, equipment and materials in carrying out expenditure programs. Analytical techniques such as CPM and PERT will be introduced and adapted for wide use. Value management tools will be developed. Clear proccas indicators will be developed. Improved work order and acceptance systems could allow better planning and control. Progress reporting and supervision system, to he') managers understand the extent and nature of variance between actual and planned progress in terms of financial and physical indicators. The system would allow staff of supervising agencies to analyze variances and recommend corrective actions, including budgetary adjustments. The reporting formats should be consistent with that required in planning and budgeting. This will involve developing clear summary accounts that are compatible with but not identical to statutory accounting systems, and that include adequate funds flow statements.  Annex 1 - 38 - page 6 Cost accountina system, supplementing the statutory accounts to improve cost control, analysis of cost trends, and cost estimates in future planning and budgeting. For the latter two purposes, URCC would establish a system to monitor market trends of common cost items as part of its procurement function. The costs can be analyzed for particular facilities as well as types of activities. The system will also identify foreign exchange payments and use of equipment. 13. Urban Monitoring. To identify and forecast demand and supply of infrastructure services in different parts of the city, TMG will develop a set of geographical information systems (GIS) as follows: Infrastructure monitoring systems, developed and maintained primarily by implementing agencies to monitor and analyze usage, operational performance and O&M records of facilities. These should provide adequate bases for evaluating goals and results of O&M and investment programs, and for their improved design and diagnosis. Urban development monitorina system. developed and maintained by URCC and the Urban Planning Bureau to identify and forecast overall socio- economic and physical development patterns and trends. These should in turn allow the managers to identify particular problem areas, to evaluate project benefits within a broad context, and identify projects that need coordination. For these purposes, TMG will establish extensive use of graphics and indicators and develop simple versions of analytical tools such as regression analysis, fiscal impact analysis and trend surface analysis. The data base will include: population characteristics, social facilities and services such as schools and clinics, industrial and commercial facilities, housing by type, land use by category (with more detailed classification of industrial and institutional uses than now standard), and a summary of infrastructure and their service levels and planned investment projects. The data will be collected from concerned Bureaus, but some data may be collected directly through sample surveys. Data Format. The information would be at such levels of detail that are directly useful for operational or planning purposes. The basic areal unit for the urban development monitoring will be subdistrict and, in the case of suburbs, appropriate data polygon. Some, such as housing and population data, would be collected by street committee level. Data such as health statistics will be by District level. The unit of analysis for infrastructure such as roads and bus operations would be in accordance to operational requirements of sectors. Such units, as road segments, would be made common across sectors as much as possible. These areal units will be referenced further by a city-wide grid system (centroids). Base maps and land use maps for strategic planning will be digitized at the scale of 1:10,000 and maps for policy analysis will be prepared at 1:50,000. For infrastructure design and management, maps will be prepared at 1:500.  Annex 1 - 39- page 7 IV. ImDlementation Arrangements 14. Leading Group. TMG has established the Planning and Management Improvement Leading Group to coordinate implementation of the component. The Chief Engineer, URCC chairs the Leading Group, which also includes a Deputy Director of URCC, Chief Economist of the Finance Bureau, and Directors of involved URCC Divisions as well as the Infrastructure Division of TPC. TMG will establish, by the time of effectiveness, a full-time office consisting of specialists in finance, management, municipal engineering, and systems analysis to support the Leading Group. In addition, the Leading group will establish task forces each chaired by a member of the Leading Group and comprising staff members of the agencies involved in various aspects of the component to manage systems development. A panel of local experts will assist the task forces on technical matters. 15. Experts and Consultants. The component would require about 460 person-months of consultant services for systems development, evaluation, and training (see Table Al.1). In addition, after the systems development under the project, TMG will continue to need consultants to assist specialists trained under the component to operate, expand and further develop the systems. It is uelikely that a single consultant firm or a joint team of a few under a single TOR could provide cost-effective assistance, primarily because the nature of the component requires that consultant job definitions should evolve as TMG reviews and defines its needs over the course of the implementation. The large and continuing need of expert assistance suggests that TMG would be best served by experts and consultants based in Tianjin or nearby. TMG has designated the Tianjin Urban Construction Institute (TUCI) as the lead in-house agency for training and MIS; the Urban Planning Institute and the Survey and Mapping Institute for GIS and urban development monitoring; and MESDI for operations monitoring, planning and management. TMG, with the help of the Chief Advisor (see below) and the expert panel, will recruit other local and international consultants to assist and train specialist staff and the above institutes. International consultants will be primarily recruited as a single firm; but a few may be recruited individually. Their main responsibilities will be to introduce a range of techniques and options in specific subject areas and provide hands-on assistance and training for the local counterpart, consisting of local consultants and specialist TMG staff, in systems review and development. 16. Chief Advisor. TMG will recruit an international expert as Chief Advisor for the Leading Group to provide core technical assistance, lead the panel of experts, and help manage other consultants (draft terms of reference is attached to this Annex). He or she would have an advanced degree in fields relevant to core specialties (see Table A.1) and more than 15 years' of broad experience in urban management, and preferably some familiarity with the Chinese language and large-scale computer applications. The Chief Advisor will be recruited within six months after the start of the project and help the Leading Group define detailed work schedules, including further consultant needs. He or she will be resident in Tianjin for an average of six months during each of the four implementation phases.  Annex 1 40 - page 8 Table A.1 Consultant Input by Specialty ----------------------------------------------------------------__-- Specialty* Foreign Local (person-month) Financial Accounting and Management 12 50 Programming/Budgetitg 8 30 Urban/Engineering Economics 8 30 Construction/Operations Management 8 35 MIS/Manual/Computerization 7 50 GIS/CAD 6 45 Urban Planning 3 30 Sanitary Engineering 3 35 Roads Engineering 3 35 Organization/Training 4 30 Management Assistance ** 4 25 66 395 * An expert may combine expertise spanning more than one specialty as classified here; on the other hand, more than one expert may be required under one specialty. ** Most of the foreign input for management assistance is accounted for by the Chief Advisor, who will also provide 20 months of technical assistance in his or her specialties. 17. Trainina. The component will involve about 5,500 staff-weeks of training in various topics and at various levels. The Leading Group has established a Training Task Force, led by the Education Division of URCC, to manage training activities under the component as well as coordinate all other training activities under the project. More than a third of the training under the component will be in the form of in-house workshops, instructions, and on-the-job training conducted by local and international experts participating in systems review and development, including advanced specialists of TMG itself. Most of the staff in the participating units will also receive training in basic skills such as computer use and writing. TUCI will provide technical services and facilities for organization of in-house training. Formal studies and tours will also be provided, particularly to strengthen abilities of TMG specialists for systems development works during and after the project. Managers and specialists will undertake observation tours within China and overseas mainly before the start of each phase to improve their planning and management of systems development works. TMG will recruit an international specialist in organization and training to help design the continuing training programs. Annex 2 outlines the management principles and indicative plans for the training programs of the entire project, including details of training under this component. 18. Computer use will be developed and expanded gradually. Although it will be essential to tasks involving large amounts of data, all systems should in theory be applicable manually. Most computer applications would be based on micro-computers and software available off the shelf. Data files would be on diskettes. Large-scale integration using mini-computers and possibly local area networks would not begin until the third year of  - 41- page 9 implementation. The computing equipment would include about 250 micro computers, 5 work stations or mini-computers, and peripherals. 19. Costs of the component, in end 1991 prices, are summarized in Table A1.2 below. Table A1.2 Planning and Management Improvement Estimated Base Costs (Yuan million) * Lccal Foreign Total Consultants 4.61** 5.40 10.01 Training 1.20 2.55 3.75 Computers, Software 0.65 6.72 7.37 and Peripherals Manuals and Forms 0.60 - 0.60 Office and Equipment 2.73 0.65 3.38 Other Direct Costs 0.15 0.15 0.30 TOTAL 9.94 15.46 25.41 (US$4.66) - at prices of end 1991. US$ - Yuan 5.45 ** includes local consultant fees and local costs of foreign consultants V. Implementation Schedule 20. Implementation Phasing. The systems will be developed in four phases during project implementation, each lasting about a year to a year and half, as below. Each phase will entail: diagnosis of existing systms (lasting about two months); systems development (about three months); and training and application (about six months). The next phase will start with evaluation and modification of the systems developed in the preceding phase as part of the existing system (the schedule chart on page 11 of this Annex). 21. Preliminary works are now under progress. TMG is compiling basic urban development data and detailed descriptions of current budgeting and monitoring systems. Current system diagnosis covers procedures, reports, data requirements, data flow, decision points, and computer capabilities. In addition, TMG is also identifying Chinese experts to serve as advisors during the project implementation. These tasks are expected to be completed by early 1992. Within the first six months after the project becomes effective, TMG will recruit a Chief Advisor to assist implementation of the component. With assistance of the Chief Advisor, TMG will finalize the diagnostic reviews, design a detailed plan for systems development. Most of the data for urban development monitoring will be compiled in the form of computer files. Within  Annex I - 42 - page 10 15 months of the project start, TMG will recruit and mobilize the consultants. In the early months after the project start, senior managers leading the component will conduct an observation tour to identify the most attractive and feasible areas of planning and management improvement. Training in this phase will also include basic computer literacy training for a large number of involved staff, basic training of selected specialist staff in GIS, quantitative analysis, project evaluation, and accounting. 22. Phase I. During the second phase, TMG will concentrate on establishing or improving: progress (physical and financial) reporting system; revenue tracking at implementing agencies; project management tools; cost and benefit estimation; project proposal and review formats; use of indicators, summary, and exception reports; GIS framework and basic indicators for urban development and infrastructure operations. THG will begin to use these tools on capital and O&M programs for drainage, roads, and public bus systems. 23. Phase II. In the third year, TMG will review the application experience of the phase II improvements and further improve or modify them as appropriate. In addition, TMG will improve or establish: cost accounting; implementation monitoring system; operational programming; revenue tracking and forecasting at all levels; strategic planning; budgeting manual, including budget adjustment procedures; annual budgeting at implementing agency and bureau levels; analytical techniques for urban development monitoring, including fiscal impact analysis. 24. Phase IV. During the fourth phase, TMG will review the experience with the phase II and III improvements and further improve or modify them. Also it will establish a multi-year infrastructure budget and incorporate it in TMG's annual budget; finalize and implement organizational changes that are necessary; and modify improvements based on operating experiences to form a consistent overall system. At this time, TMG will also prepare final versions of operating manuals. 25. The World Bank will review and comment on: selection of Chief Advisor; draft structure and development plan for overall systems, including the final TOR, based on this Action Plan, and the plan to recruit other consultants (during the preliminary phase); proposals for the next phase of systems development (at the end of each phase); cost-benefit evaluation and revenue tracking application examples (by the end of phase I); sector strategies and operation programs for drainage, roads, and public transport (by the end of phase II); and multi-year infrastructure budget and organizational development plan (by the end of phase III).  Annex I -43 page 11 Planning and Management Improvement Implementation Schedule Month i_Consultant Action and person-months Pha tiv Chief Advisor Local 1 Preli- Compile Data (Earlier Recruitment 2 minary and Actions) 3 Diagnose Contract 5.0 4 Systems 5.0 5 5.0 6 1.0 7.0 7 Detail Plan for 1.0 7.0 8 Implementation 1.0 7.0 9 1.0 Terms of Reference 10 Further data Invitation for Bid 11 Compilation 5.0 12 and Review 5.0 13 . 0.5 Evaluate 14 1.0 Negotiate 15 . . 1.0 7.0 16 Phase I System Design 1.0 10.0 3.0 17 1.0 14.0 4.0 18 * 1.0 15.0 4.0 19 . 1.0 14.0 3.0 20 Training and 1.0 10.0 21 Implementation 5.0 22 335.0 23 5.0 24 5.0 25 ." .5.0 26 Evaluation 5.0 27 .. 0.5 6.0 28 Phase II System Design 1.0 11.0 3.0 29 and Redesign 1.0 15.0 4.0 30 " 1.0 16.0 4.0 31 . 1.0 15.0 3.0 32 Training and 0.5 10.0 33 Implementation 6.0 34 6.0 35 . 6.0 36 336.0 37 .3 "6.0 38 Evaluation 6.0 39 6.0 40 .. 1.0 8.0 41 Phase III System Design 1.0 12.0 3.0 42 and Redesign 1.0 16.0 4.0 43 3 1.0 17.0 4.0 44 .. 1.0 16.0 3.0 45 Training and 0.5 11.0 46 Implementation 7.0 47 U'7.0 48 7.0 49 ' 7.0 50 . 7.0 51 Evaluation and 7.0 52 Synthesis 1.0 9.0 53 " 1.0 9.0  Annex 1 - 44 - page 12 Draft Terme of Reference for the Chief Advisor 1. Introduction. Tianjin Municipal Government (TMG) will carry out various technical assistance and training activities to improve the planning and management system for infrastructure sectors according to the Improvement Action Plan attached herein, as a central component of the Tianjin Urban Development and Environment Project partly financed by the World Bank Group. The Urban and Rural Construction Co mission (URCC), responsible for the component, has established the Leading Group for Planning and Management Improvement (PAMILG) and a full-time office supporting the Leading Group to lead and manage the effort as described in para 13 of the Action Plan. 2. General Description of Duties. Your duty as the Chief Technical Advisor is to assist TMG carry out the component by: (a) providing about 20 months of technical assistance in your areas of specialization; (b) assisting PAMILG in identifying priority areas of improvement, planning studies and training, reviewing the improvement activities; (c) assisting PAMILG in recruiting and managing local and particularly foreign consultants; (d) taking primary responsibiiity for preparing planning and progress reports on the component and liaising with the World Bank; and (e) provide other assistance reasonably requested by PAMILG from time to time. 3. Specific Duties during the Preliminary Phase. During your first two visits in Tianjin, you should: (a) review the diagnostic data compiled of the procedures and methods used in infrastructure planning, budgeting and management in various departments of TMG and help PAMILG identify priority areas of improvement which may or may not be the same as those identified in the Action Plan; (b) evaluate the level of expertise available within TMG, its affiliated institutes, and the panel of local experts; (c) based on the above reviews, formulate a detailed draft action plan specifying, among others, sequences of actions, local and foreign expertise required, and ways to organize staff and consultants; (d) based on the Action Plan agreed between TMG and the World Bank, draft a set of detailed terms of reference for consultant services clearly setting out specific responsibilities of various groups of staff and consultants; and  Annex 1 - 45 - page 13 (e) assist PAMILC in drawing a short list(s) of consultants, inviting and evaluating their proposals, and negotiating with the selected consultant(s). 4. Specific Duties during Implementation Phases. During the ensuing phases, you should: (a) lead the final stage of review and evaluation of the experience of the preceding phase, identify areas requiring substantial modification with the assistance of international experts, and prepare a detailed program for the upcoming systems design works; (b) lead the team of consultants in designing and redesigning the systems and preparing training and operating manuals; and (c) at the end of the design stage, consolidate and if necessary modify consultant recommendations, assist PAMILG start training in and implementation of the improved systems, and advise PAMILG on the appropriate focus and venues of observation tours by senior managers and professionals in China and overseas in preparation of the ensuing phase. 5. At the end of Phase III, you should help PAMILG in: preparing a summary evaluation of the project experience; start finalizing a set of operating and :aining manuals; and making recommendations to TMG for arrangements for long-term implementation and continued improvement of the systems, including any organizational changes. 6. You should work closely with the chairman of PAMILG and other officials designated by him as your counterpart. You are required to work about 24 months over a period of about four years, subject to review of need and performance after the second year. Your duty station will be in Tianjin unless specifically requested in writing by URCC to perform certain tasks in other locations. TMG will provide you with an office located along with other PAMILG offices, and if you desire, help arrange housing in Tianjin. TMG will also provide five round trips from your normal residence to Tianjin. For conduct of your duties, TMG will provide you with necessary equipment and furnishing; at least one professional assistant; a personal assistant; and transportation within the city.  Annex 2 46 - page 1 CHINA TIANJIN URBAN DEVELOPMENT AND ENVItONMENT PROJECT TRAINING PROGRAMS 1. Introduction. This Annex describes the general principles for design and management of all training activities under the project. The contents and scopes of spe_'fic training activities are described in respective Annexes of this report. 2. Obiectives of Traininz. Each training activity under the project would have one or more of the following objectives: a. To enable TMG staff to understand and apply improved s7stems or new equipment under the project; b. To help TMG managers to guide the design or procurement and evaluation of systems development under the project; and C. To establish or strengthen local research and training capability so as to sustain and enhance the improvements introduced. 3. Scopes and Participants. All staff of the units involved in planning and management component and senior TMG managers overseeing them will receive most of the training under the project. Some of the technical assistance and training under the project are not directly related to this component but more narrowly aimed at technical and management improvements in sectoral bureaus and other agencies involved in the project. These sector training activities are discussed in respective annexes of this report. However, all the training activities would follow the same general objectives and principles described in this section. 4. Types of Training and Trainees. It would be important that levels, methods and goals of training programs suit different needs of trainees. Training activities can be classified as follows according to the levels of training required for different users. Introductory Trainina to enable general users and managers to understand and use basic features of new techniques and procedures; Intermediate or Specialist Training to enable a limited number of operators or specialists who carry out the specific tasks concerned as major part of their daily work to use the new systems to full extent; Advanced Traininx to enable advanced specialists to train others through workshops and on-the-job training, solve complex technical problems, manage technical functions, and modify and update the systems with limited help; and Observation and Seminars to enable specialists, managers and policy makers learn of different practices and techniques used elsewhere, and to help them set directions for systems improvement.  Annex 2 - 47 - page 2 5. Venues and Methods of training activities will be chosen on the basis of cost-effectiveness of alternatives in achieving training goals. Consideration of cost and the goal of strengthening local training capacity leads to strong preference for institutions closer to TMG, i.e., in-house specialist institutes, Tianjin Urban Construction Institute, and other local research and education institutions in Tianjin, and then elsewhere in China. These considerations, however, slould be balanced against the level of expertise available from different sources. Types and venues of training would be matched with types of training as follows. In-house Trainint. Seminars, workshops, and on-the-job training should be the main mode of training, especially for introductory and intermediate level training. It will be conducted by staff, in-house institutes, or consultants of TMG. Introductory training sessions would normally not exceed one full week. The operators and specialists will generally participate in the same introductory training and then proceed to learn more details of the new system through intensive training for two or three weeks and on-the-job training. Most of these training would be provided by specialist staff or local consultants. For areas in which expertise is not available locally, foreign experts will be invited to provide training for, or in conjunction with, local experts. Foreign consultants who participate in studies under the project will be required to train the local counterpart experts in advanced techniques and the newly proposed systems. Equipment vendors will also be required to provide minimum necessary training for operation as part of the supply contracts. In general foreign specialists will train a group of senior specialists and local consultants, who will in turn train a large number of other specialists and operators. Formal Training in academic or training institutes or on-the-job training in sector agencies would be a cost-effective means for training in well-established basic and technical skill areas. These would include introductory training in most of general skills such as computer use, writing, and quantitative methods. Introductory level training would typically be a quarter or semester course, a full-time equivalent of about two to four weeks. Operators and advanced specialists would take courses in established disciplines such as statistics, sanitary engineering and accounting, in order to prepare themselves for work with outside experts or to acquire broad knowledge of the related disciplines to fully understand and develop systems developed by experts. While institutions in Tianjin offer satisfactory courses in many of these skill areas, TMG has identified several institutions elsewhere in China that offer training in specialized areas including, for example, the Chinese Academy of Science and Wuhan University of Survey and Mapping for GIS, and Tongji University in Shanghai for computer aided design and project evaluation. Formal Trainina Overseas would be cost-effective for training of a limited number of advanced specialists in several related areas for which up-to-date expertise is not available locally. On the other hand, inviting foreign consultants would be more cost-effective for narrow, operational training of a substantial number of specialists and operators. For example, foreign consultants who help develop an  Annex 2 -48 - page 3 improved financial management system would train TMG specialists to adequately understand and operate the system. However, it would not be cost-effective for TMG to retain the consultants to train the staff in all underlying principles and alternatives. In order to develop their independent capacity to extend the benefit of the consultants' work for fucure needs, TMG will select a limited number of senior specialists to be trained in training institutions or in sector agencies overseas for three months to two years. For overseas training to be cost-effective, the trainees need to have stubstantial academic background and experience as well as adequate language capability. Study tours and seminars in other cities in China or overseas where different systems and techniques are used would help spe-ialists and managers to familiarize themselves with existing options and observe their usefulness first hand. Some managers and specialists will conduct the study tours before starting related studies or equipment procurement process so that they can better manage them. A typical study tour would consist of five to ten managers and specialists responsible for several different areas of TMG operatiuns and would last two or three weeks. 6. Coordination of Training. As most training will be related to the planning and management component directly or indirectly, all training activities, including sector technical training, will be coordinated and managed by tbe Planning and Management Leading Group, supported by the Education Department of the Construction Commission. An international expert in training will participate in Phase II of the planning and management systems development to design overall structure of training and possibly in later phases for review and redesign, if necessary. A tentative training program for the project is summarized in Table A2.1. Training contents are described in respective sector Annexes. 7. Costs. Total RaPA- Cost- ef varic's trainin&- aciv.Le under the' project is estimated to be about Yuan 6 million including foreign exchange cost of about US$800,000. Training under the planning and management component accounts for more thar half of this total. Costs will vary greatly accross training courses of ditferent topics and types: materials, facilities, and preparation required in the case of in-house training, and according to venue and course fees for formal training. The following Table lists the unit costs used for budgeting estimates.  Annex 2 - 49 - page 4 Table A2.1 Training by Topic and Type Staff-Weeks and Costs Venue Tianjin China, Other Overseas Total and ------- ------------ -------- ----- Type In- Other Formal Tour/ Formal Tour/ Staff Cost Topic House _ Inst. Seminar Inst. Seminar weeks YIOOO ----------------Staff-Weeks ----------------- PLANNING AND MANAGEMENT Planning and Evaluation 361 254 281 31 96 1023 533 Budgeting a Programing 335 205 189 21 90 840 462 Operations Management 397 315 248 27 96 1083 537 Dev./Oper. Monitoring 327 187 294 32 55 895 385 MIS and General Skills 520 385 272 30 60 1267 461 Managerial Overview 135 195 102 432 1367 Subtotal 2075 1346 1283 336 397 102 j539 3745 SUB-SECTORAL TRAINING Environmental Sanitation Drainage and Sewerage Industrial Waste Water 80 60 60 20 40 3 263 223 Drainage Design, O&M 120 80 60 20 3 283 102 Solid Waste Management Collection 200 60 60 15 0 3 338 107 Treatment ard Disposal 150 50 70 15 20 6 311 203 Subtotal 550 250 250 70 60 15 1195 635 Urban TransDort Traffic Management 150 60 80 20 60 12 382 416 rubViiCt iransport 3Dv 3v- ou - - 2 - v o i-2 - Roads: Design, O&M 100 40 60 20 20 3 243 156 Subtotal 500 150 200 60 100 27 1037 863 Pollution Control Monitoring 200 40 70 20 0 5 335 134 Applied Research 120 40 100 20 60 6 346 341 Project Evaluation 100 30 80 20 0 4 234 108 Subtotal 420 110 250 60 60 15 915 583 Total, Subsectors 1470 510 700 190 220 57 3147 2081 TOTAL. PROJECT 3545 1856 1983 526 617 159 8686 5826 (Unit cost, Yuan/week 150 200 350 500 3270 12260) Note: Staff-weeks are in full-time equivalents. The costs are in prices as of February 1992, with Y5.45 = US$1.00; they do not include consultant fees or contingencies.  Annex 3 - 50 - page 1 CHINA TIANJIN URBAN DEVELOPIIENT AND ENVIRONMENT PROJECT SURFACE WATER DRAINAGE AND SEWERAGE Development Program I. Sector Policy and Planninz Framework 1. The Drainage Division of the Municipal Engineering Bureau develops and manages the surface water drainage and sewerage facilities serving the Tianjin urban area, according to the sector plan which forms a part of the urban master plan finalized early last decade. The drainage and sewerage plan is based on an earlier sector framework developed in the 1950s and is periodically revised. According to the plan, the urban area is divided into six drainage basins, sewage from which will be ultimately treated by six secondary treatment plants, one of which is now in operation and one is under construction. In the meanwhile, untreated sewage and industrial wastes are discharged into two sewage canals, to the north and the south of the city, which convey the wastes to the Bohai Sea. Surface water is discharged into the Haihe River which traverses the metropolitan area and is a source of water for agriculture and limited industrial use. 2. The overall framework is sound and cost-effective; reportedly, alternatives were thoroughly researched in the early feasibility stages of the plan. Recent legislation provides for quality standards for industrial liquid waste discharges, and the Environmental Protection Bureau monitors effluent quantity and quality for all major industries (some 4,000) and imposes penalties for excessive pollution. 3. Design Standards. Sanitary sewer capacities are based on the year >vuGraceficonsiizpr1On patterns and-surfacde'water drai'ns ar`e designed on a one year storm frequency determined from the long term records of Tianjin. However, as the design approach used in Tianjin makes no allowance for surcharging of pipes, the true return period is probably two or three years. While this is still a short return period, it appears adequate und'er the semi- arid conditions of Tianjin by providing cost-effective relief as to frequency and duration of local flooding. The performance of the system in those areas which have the surface water drains has proved satisfactory. The topography of the area is flat, requiring the provision of pumping facilities for the removal of surface water to the Haihe river during periods of heavier than average rainfall. A drainage system designed to provide a higher level of protection, for example a one-in-five year storm, would require about a 60% increase in capacity of drains and pumping stations at a considerably increased cost. The design and the selection of design parameters for both the sewerage and drainage systems appear appropriate to the nature and level of the overall planned development. Nevertheless, under the planning and management component, TMG will develop an enhanced system of monitoring and evaluating the drainage and sewerage performance, and use the system to review the current design parameters.  Annex 3 - 51 - page 2 II. Current Status 4. All sewerage facilities constructed since 1959 have separated surface water from domestic and industrial wastes. An older, combined system serves a relatively smuali area at t;e city center. Tha development of sewerage and drainage systems to serve the urban area has been impressive. Some 1,716 km of trunk sewers and drains have been constructed comprising: 510 km of sanitary sewers, 633 km of storm drains, 560 km of combined sewers and 13 km of interceptors. At present, about 110 km2 and 140 km2 of the developed urban area, or about 47% and 60%, are served by surface water drainage and sewerage facilities, respectively. Average total sewage flow in the system is 1.3 million m3 per day, 52% of which is from industries. In addition to the sewage canals mentioned above, large flood diversion canals have also been constructed. The main natural drainage course, the Haihe River, is now controlled by lock gates and provides water storage for storm drainage. Since the completion of the Luanhe River water supply system in 1984, the natural. flow of the Haihe, originally the main source of water for Tianjin, has been systematically reduced so that it now provides water only for agriculture and some industrial use. This water contains elements of sewage when flows from the old combined system exceed the capacity of the interceptors. 5. Sewage treatment started recently, with the completion of the Ji Zhuang Zhi secondary treatment plant in 1984, as the first of a series of six planned to be built by year 2010. The plant serves a population of about one million and produces 260,000 m3/day of treated effluent. The design parameters are in line with normally accepted practices for a plant of this size and the works' operations are generally well managed. Minor economy measures, now under study, could further reduce operating costs and improve the efficiency of the process. Reuse of the effluent and more effective use of the digested sludge would be feasible with closer inspection and monitoring of the systems. III. Issu,' and Strategy for Development 6. TMG, as a general rule, allocates expenditures first to ensure adequate operation and maintenance (O&M) of existing infrastructure and then to investment for system expansion. While TMG has greatly increased overall expenditures for sewerage and drainage since the early 1980s, much of the increase has been absorbed by the new development of sewage treatment facilities and the O&M needs of the growing collection and treatment systems. The increasingly severe water shortage is also raising the need to develop systems to allow reuse of sewage effluent. In view of the increased demands for resources, TMG in mid-1980s started collecting sewerage charges and shifted the burden of sewerage and drainage system development by requiring such systems to be included as part of all new land developments. 7. This has enabled TMG to focus its efforts on providing drainage and sewage collection facilities for older areas lacking or otherwise deficient in services. Among such areas, priorities are based on need. For example, priority for surface water drainage development is given to areas where most frequent and severe flooding occurs or where protection of major roads is necessary. For sewage collection, the highest priority is given to  Annex 3 - 52 - page 3 areas with the most serious environmental sanitation problems or with the largest number of beneficiaries. These criteria for establishing development priorities are generally acceptable. TMG is further improving the criteria for project selection, design and evaluation through more effective intersectoral coordination. For example, existing and planned land use as well as frequency, depth and duration of flooding are closely examined in evaluating costs and benefits of sewerage and drainage investments. 8. Based on such criteria, TMG has formulated a phased program to eliminate all the service-deficient areas and complete five sewage treatment plants by year 2010, as follows: Year 1991-97 1998-2010 Total Surface Water Drainage Number of Areas 8 11 19 Population, 1000 345 457 802 Cost, Yuan million 519 641 1161 Sewerage Number of Areas 6 7 13 Population, 1000 280 407 687 Cost, Yuan million 190 114 416 Sewage Treatment Plants Number of Plants 2 3 5 Cost, Yuan million 510 IV. PROJECT DESCRIPTION 9. The project will support TMG to implement part of its phased program to improve drainage and sewerage, by financing the following improvements: (a) Jiefanglu: Both sewerage and surface water drainage would be provided for this area which has been developed primarily for industrial use. Main sewers would discharge to a treatment plant now under construction. Surface water drains would discharge to the Haihe. The beneficiaries in this area are primarily *indussrial enterprises, in addition to which some 500 residents would benefit. (b) Bin Guan: Surface water drainage would be provided under the project, discharging to main drains previously constructed. A sewerage network for the area has been completed. This area has been developed primarily for tourist facilities and educational institutions. The estimated number of heneficiaries is 50,700. (c) Yuevahe Drainate System: The Yueyahe is a controlled natural drainage channel, east of the Haihe, which conveys storm flows from an area of some 2,900 ha to the Haihe during periods of rainfall. The drainage areas and the Yueyahe channel are below the level of the Haihe during the wet season so that storm flows  Annex 3 - 53 - page 4 must be pumped. Inadequate pumping capacity and flow restrictions along the course of the channel cause extensive flooding of residential areas and an industrial area, directly affecting a population of some 38,000 and indirectly affecting the drainage basin population or about vi,uvu. Aetuedial works under vhe project will increase pumping capacities and improve existing drainage channels to reduce the frequency and duration of flooding. (d) Nanweidihe and Feioiangzhe Drainage Systems: The Nanweidihe and Feiqiangzhe are controlled natural drainage channels, west of the Haihe, which convey storm flows from areas of about 3,900 ha and 760 ha, respectively. The total population of both drainage basins is about 1.2 million. Conditions in these drainage systems are similar to those of the Yueyahe system in terms of the need for pumping during the wet season, the inadequacy of pumping systems, flow restrictions in the channels and the consequent inundation of low-lying areas. In addition, sewage is discharged to the surface water channels at about 60 locations. Remedial measures under the project would relieve flooding, and extension of the sewerage system to intercept sewage discharges would prevent sewage flows from reaching the surface water channels. An estimated 170,000 people would directly benefit from these proposed improvements. (e) Yanzzhuangzhi: This is an industrial area where industrial wastes are now discharged to a surface water channel which is also used for irrigation. Under the project, facilities would be provided to collect industrial wastes and convey them to an existing sewage canal thus preventing continued pollution of surface water channels and streams. Direct beneficiaries of this sewerage component include more than twenty industrial plants i-n thne-aea. Indirectly, a large part of the population would also benefit from reduced pollution of water resources and crops. (f) Zhangxingzhuana: This is an area of mixed development including both industrial and residential land use. Parts of the area are served with both drainage and sewerage facilities and both services would be supplemented under the project. Facllities, primarily drainage, would be provided for those areas with no service. The estimated number of beneficiaries is 45,000. 10. Technical Assistance and Training. The sewerage and drainage operation is a major target area of the planning and management component (Annex 1). The component will, in particular, include improvements in the following: (a) financial accounting and management of the Drainage Division, especially the revenue and billing system (see SAR Chapter IV); (b) monitoring and analysis of the nature and economic costs of flooding in different areas of the city, and the use of the  Annex 3 54 - page 5 information in planning and evaluating operation, maintenance, and investment; (c) planning maintenance and rehabilitation of sewer lines and pumps; and (d) long-term operational programming, revising the plan described in Section III above on the basis of improved economic and financial evaluation. 11. In addition to a large number of staff that will participate in various levels of in-house training under the component, about fifteen staff members will enroll in courses in construction management, computer aided design, and finiancial management in specialist institutions in Tianjin or elsewhere. Five or six senior managers of MEB, MESDI, and the Drainage Division will partibipate in overseas study tours on planning and management. 12. Besides the training under the planning and management component, the Division and MESDI will carry out two programs to enhance its technical capacity. First, to strengthen management of industrial waste water, the Division and MESDI will provide: about 200 staff-weeks of training in China for various levels of specialists and operators; an overseas study fellowship for a senior specialist; and an opportunity for a manager to join an overseas observation tour with a group of managers at EPB. For planning and management of flood prevention and general sewerage operations, operators and specialists will take various training courses of a total of about 280 staff-weeks. The Division has also retained a firm of foreign consultants to review and advise on design and contracting practices for drainage and sewerage investments. A senior technical specialist will join a group of TMG managers in a tour to obseeve flood prevention systems in similar cities overseas. Total base cost of these technical assistance and training is estimated at Yuan 1.4 million.  Annex 4 - 55 - page 1 CHINA TIANJIN URBAN DEVELOPMENT AND ENVIRONMENT PROJECT Terms of Reference for Consulting Services for Planning and Design of Solid Waste Treatment and Disposal I. BACKGROUND A. Status of Solid Waste Management 1. Overview. The Environmental Sanitation Bureau (ESB) manages a solid waste collection and disposal system which serves a permanent population of some 3.8 million living in six districts of Tianjin city proper and the Tanggu District. The average quantity of waste collected each day from the seven districts is about 5,300 tons including all types of refuse except industrial wastes. ESB responsibility includes street cleaning and the removal of night soil from more than 2,000 public latrines. ESB also oversees solid waste management by other urban districts of the Municipality, including two additional coastal districts and four suburban districts. 2. Organization. The total number of staff employed for the solid waste management activities in all urban areas of the Municipality is about 15,500 (about l for 400 inhabitants) including about 8,000 handcart operators. The ESB itself has a total of some 85 engineering staff of various grades and 26 technicians. An affiliated institute, the Environmental Sanitation Engineering Design and Research Institute (ESEDRI), is mainly responsible for strategy, planning and designs and has 47 engineers and 12 technicians. ESB runs a training school which is headed by an assistant professor and has a - ;tif lf l O-nA e0 04.0tgint l tti*vra Tin AAei4 n. there are two Environmental Sanitation Equipment Factories, employing 52 technical staff and a total labor force of some 460, which fabricate and repair vehicles and equipment used in the transfer stations and elsewhere. 3. Waste Collection. ESB has recently developed and expanded an effective and efficient waste collection system. House-to-house collection is by hand cart; and collection from industry, commerce etc. is by motorized vehicle. In the service area comprising the seven districts, there are some 170 transfer stations which receive wastes largely from hand carts for bulking into 4-5 ton loads before transport to some 8-10 current dump sites around the city. The hand cart collection system is suitable for present conditions and is efficiently operated. The transfer stations are well operated, clean and well designed. However, they limit options for future development as there is little room for expansion either to accept increased waste inputs or to increase the capacity of the collected and compacted waste containers, and the location and size of some of these stations preclude the use of larger transfer vehicles (e.g. to carry 10-15 ton loads) which may prove more efficient for long haul to more remote disposal sites in the future. As a whole, however, the collection system is effective, efficiently operated, and is likely to remain so at least for the near future provided that vehicles and equipment to operate the system are available in sufficient number (now about 500 vehicles) and are effectively maintained to keep pace with rising demand resulting from increases in population, urban areas, and living standards.  Annex 4 - 56 - page 2 4. Disposal. Available data indicate that about 10% of the waste is composted by manual methods at dumping grounds in the districts, and another 202 is reportedly composted by farmers. The remainder is removed to mostly sub-urban and rural locations and dumped in large piles often covering many hectares of land. Some of the wastes are apparently recycled. The recycling, composting, and land filling activities are not, however, coordinated or controlled in a systematic manner. There appears to be considerable health and environmental risks as well as potential for increase in economic and technical efficiency. There is, therefore, an urgent need to develop a sound waste disposal system to complement the collection system. B. Future Waste Disposal Alternatives 5. Considering the shortcomings of the current disposal system, the land constraint, and the agricultural value of composts, ESB has recently focused on composting of wastes as the main method of the future waste disposal. There have been several pilot scale processes for composting, and currently a large mechanical composting plant is being constructed at Hedong District. The plant is designed to treat some 500 ton of urban waste a day, in addition to 70 t/d (ton/day) of night soil sludge, to produce some 180t/d of a 'compost' product with recycled residues, leaving only 33t/d of rejected material to landfill. The plant's capital costs would be about US$7.5 million. This and five additional mechanical composting plants comprised ESB's earlier plan. As part of a proposal for the Tianjin Urban Development and Environment Project partially financed by the World Bank, the feasibility report for such a composting plant has been reviewed by two international experts who found that the report leaves large uncertainties concerning financial and technical aspects of the proposal, such as the revenue potential of the final product and transport costs for input or output. On the other hand, the alternatives are not considered sufficiently or in a balanced manner. These failures make the report an inadequate basis for a long-term investment plan, especially considering that one compost plant, able to handle only about 102 of the waste currently collected, will cost as much as a major landfill site capable of handling nearly 402 of the waste for many years. 6. Land filling of wastes under controlled conditions is a disposal option which must be included, with other more elaborate means, in any waste management strategy. However, as yet no feasibility studies have been done for design and costing of a landfill site. There is a large "landfill" site near the urban center at a proposed water park which at present receives construction wastes. Local authorities had proposed to compile household wastes on this site and create a hill to adorn the proposed, otherwise flat, park. This proposal, however, poses environmental risks as little or no protection to adjacent lakes within the park has been provided around or beneath existing construction wastes to prevent leachate migration. Furthermore the site is close to urban population and would in any case only serve as a controlled landfill for a very limited period of time and/or for a very small proportion of wastes to be disposed of. 7. A simple mechanical process to recover compost from previously dumped wastes by use of rotating drum screens shows considerable promise. The resulting product appears to be acceptable and is already being used in several applications. Given the size, and more critically the depth, of the  Annex 4 57 page 3 waste piles it is questionable whether organic matter has degraded solely in an aerobic environment. The potential for eventual recovery of a compost/soil conditioner from properly managed landfill sites therefore appears to be a strong possibility which could be undertaken on a much larger scale and at a substantially reduced cost than that proposed for development of several costly compost plants. 8. In May 1991, ESEDRI completed a report titled "The Long-term Program for Tianjin Waste Management and Treatment" which presents a more balanced view of future waste disposal alternatives and needs. This report recognizes the need for a combination of disposal alternatives, including landfill, recovery of recyclable materials and incineration of specific types of waste in addition to composting. The report also presents valuable data from analyses of present day wastes in Tianjin and contains projections of changing quantities and waste composition to the year 2010. The data present.'d will be of considerable value in a further study designed to more closely examine technical and economic aspects of Tianjin's waste disposal options and to select an economically viable long range plan. C. Proposed Proiect 9. In view of the current status and future needs of the solid waste management in Tianjin, the proposed Tianjin Urban Development and Environment Project will support several urgent developmental investments. For solid waste collection that is effective yet financially constrained from keeping up with the demand increases, the project will finance partial replacement and limited augmentation of the fleet of street cleaning and waste transport vehicles and related parts and maintenance equipment at a total base cost of about US$ 4 million (to be delivered by the end of 1993). For longer term enhnscement_of ESR nnd RsRnDRTc ~nne.4tv to~ v.1 nv.A--fi^e--^ -------- _- solid waste operations, the project will support technical assistance and training consisting of the study discussed herein as well as overseas training of selected senior managers and specialists (three short-term person-trips and one 6-month study), domestic formal training of about 250 total staff weeks, and in-house training of about 350 operators. The study described in this TOR forms a part of these efforts to improve sectoral planning. The project will provide about US$10 million to carry out an initial phase of the recommended solid waste treatment disposal system development. II. OBJECTIVES AND SCOPE OF THE SERVICES 10. The first objective of the study is to develop a 20-year strategic plan for disposal of solid wastes from the urban districts of Tianjin through cost-effective methods that are financially and environmentally sustainable. Th- second objective of the consultant services is to assist local specialists undertake feasibility studies and preliminary designs for specific investment schemes for an initial phase of the disposal plan. The third objective is to train local specialists in modern techniques to evaluate alternatives for collection, transport and disposal strategies. 11. The strategic plan and feasibility studies should take account of current and future collection processes and their costs, various options for pretreatment and disposal of wastes, as well as recovery and recycling  Annex 4 - 58 - page 4 opportunities for wastes both at source and as products of waste treatment options. The Consultant is required to conduct all necessary engineering work, physical surveys and other tasks herein described, to attain the above stated objective. The Consultant shall review, verify or amend all relevant data made available and thereafter shall be solely responsible for findings and recommendations based on such information. In the conduct of the work, the Consultant shall collaborate closely with the Environmental Sanitation Bureau and provide various training to the local staff in modern analytical and design techniques. B. Specific Tasks 12. The Existing System. The system for solid waste collection and disposal is broadly outlined above. More extensive and detailed data are available from the Bureau. The Consultant should review these data, visit the various facilities to observe operation of the system(s) as a preliminary to formulating a work program for the study. 13. Demand Projections: Waste Quantities and Characteristics. The Consultant will identify the boundaries of the areas to be served by the system(s) recommended under the study, and will review estimates and projections of population by area to be served, to the year 2015. Extensive and detailed population projections, based on the long-term urban development plan for Tianjin, are available. The Consultant should take adequate consideration of the sizable "temporary" residents and the potential for more rapid population increases than planned. 14. The Consultant will prepare projections for waste quantities and characteristics based on projections of population, living standards and habits. The projected shift away from the use of coal for domestic heating and cooking would be a major factor in identifying waste characteristics for the future. A recent report titled "The Long-term Program for Tianjin Waste Management and Treatment" prepared by Tianjin Environmental Sanitation Engineering Design and Research Institute, will provide the consultant with extensive data on present and projected quantities and characteristics of Tianjin's solid wastes. It is expected that these data will assist in the formulation of alternative waste treatment and disposal options. 15. There is a reported high demand by farmers for soil conditioner from composted waste material. The consultant should survey and analyze details of the treatment and application of compost products. Particular note must be made of the 'value' of the high organic fraction of wastes, largely vegetable waste which shows marked seasonal and local variations as a percentage of raw municipal wastes. Continued heavy reliance on landfill disposal is anticipated during winter months and at other times when compost material is not in high demand. The Consultant should also survey: the demand for compost; the seasonal (or other) variations in demand; the preferred compost composition and quality; location of the demand; and the projected market va3lll- of compost. 16. S . The Consultant will identify nnd evaluate criteria and factors that would contribute to the formulation of acceptable disposal plans. The Consultant will identify  - 59 - Annex 4 page 5 alternative technical methods for solid waste and night soil disposal, potential disposal sites, and a reasonable range of scales. Preliminary designs of each process prototype should be prepared to the extent necessary to estimate capital and operating costs, transportation needs, useful life, acceprability of waste types and quantities, capacity, impacts on public health and water resources. The Consultant will then develop medium-term and long-term options combining the alternative methods in various locations and in appropriate stages. 17. In particular the Consultant should identify and evaluate various land-fill options and sites available over the plan period. Though the sites need not be as sophisticated as are currently considered necessary in the West, they should contain adequate measures for leachate and gas control, and be operated to acceptable environmental standards particularly with regard to compaction and covering. In addition, provisions should be made for phased restoration to allow rapid land re-use. Primary consideration should be given to sites capable of accepting 1000-2000 ton/day to minimize duplication which would be necessary for simultaneous operation of several small sites. 18. Cost Estimates and Comparison of Alternatives. The consultant should compare costs and benefits of different technical processes and their combinations over the plan period. The capital costs should include imputed land cost, with adequate differential among locations, and residual values of land and facilities at the end of the facility life. The operating costs shall include collection and transportation costs in cases where such costs vary significantly among options. Alternative processes and their combinations will then be compared on a present value basis, using alternative discount rates with a reference rate of 1OZ p.a. Economic costs and benefits calculation should use shadow prices used by China Investment Bank; giving due weight to foreign exchange costs. Sensitivity analysis should be performed using a reasonable range of values for key cost and benefit variables. 19. Alternative plans to develop solid waste disposal facilities should consider financing arrangements for construction, operation and maintenance (by category), identifying the cost recovery potential from the sale of compost or any recyclable waste items and assessing the budgetary impact of the recommended plan compared with that of the present systems. The schedules of implementation should be feasible within the financial resources of ESB, based on past trends. If loan financing is envisaged, debt-service burdens should be estimated using terms and interest rates available for investment loans available for ordinary industrial and commercial borrowers. 20. The optimal feasible plan, identified by comparison of present values, will then be developed in more detail to include preliminary plan and estimated costs of all components and clearly identified stages of development on a district-by-district basis. The consultant will suggest appropriate scopes, design parameters and techniques in order to assist local personnel in preparing preliminary and detail designs for an initial phase of the plan accepted by TMG and the World Bank, with a total cost of about US$10,000,000. 21. Training. The consultant should work closely with the counterpart staff and provide on-the-job training, particularly in the use of simple micro-computer aided programs. In addition, the Consultant should offer a  Annex 4 - 60 - page 6 minimum of 20 hours of formal workshops for staff of ESB and ESEDRI on topics agreed with the Bureau, including introductory workshops on computer-based techniques. The consultant should also provide advice on the Bureau's sector training program design and conduct (see para 9 above). III. IMPLEMENTATION OF THE STUDY A. Reports 22. The Consultant should prepare ten (10) copies of each of the following reports for circulation by the Bureau: - Progress at monthly intervals - Interim report at the completion of data collection and survey, about 4 months after study start. - Draft Final Report at the completion of critical activities, estimated at about 9 months after start. - Final Report within two months after review of the draft report (the review period is two months) 23. Progress reports will briefly outline progress and issues regarding project staffing, liaison, planning, scheduling, etc. Each report will identify activities and achievements up to the reporting time and the plans for the next three months. The interim report will contain compilation and preliminary analysis of the data and surveys. The draft final report will contain all of the findings, analyses and recommendations resulting from the study and described in this TOR. The Bureau will provide comments within two months of the receipt of the draft. The final report will incorporate appropriate revisions based on comments by the Bureau and others on the draft final report. B. Staffing and Facilities 24. It is estimated that the study will require about 50 person-months of consulting engineers (12 of which foreign) and 8 person-months of financial/economic analysts (3 of which foreign), and a survey team. Total estimated cost is US$300,000. 25. The Bureau will assign counterpart staff to assist the consultant in technical analysis, design, and data collection. The Bureau will also designate a study manager through whom the Bureau will provide all necessary policy directions, assistance, facilities, and payments. 21. Office accommodations, furniture and equipment required by the Consultant to carry out the study will be provided by the Bureau. However, the Consultant should provide computers and software. Transportation for official duties will be provided by the Bureau. The Consultant is required to make provision for living accommodations; no assistance in this respect will be provided by the Bureau.  - 61 - Annex 4 page 7 C. Target Schedule 26. Target Schedule. Acceptable target dates for key activities by calendar months are indicated in the following Table. The Consultant is not bound by the schedule shown, but should formulate his own work program. The study, however, needs to be finished by June 30, 1995 to allow sufficient time for detailed design and execution of the recommended investments. Indicative Schedule of the Study Number of Months Months Activity Each Activity Start - Finish PreRaration Phase (i) Invitation for proposal 1 0 1 (ii) Consultants submit proposals 2 1 3 (iii) Select, negotiate, and sign contract 3 3 6 (iv) Consultant begins work 1 6 7 Study Phase (i) Review reports, study existing system and collate date 1 7 8 (ii) Identify study area, estimate and project population and waste quantity/composition 2 7 9 (iii) Survey and evaluate existing and potential landfill sites 2 7 9 (iv) Survey the compost market and project demand by area 2 8 lO (v) Identify recyclable materials and their market 1 9 10 (vi) Prepare cost curves for each operation in waste collection and disposal systems 1 9 10 (vii) Formulate disposal alternatives by district, evaluate, and select best option(s) 5 10 15 (viii) Develop preliminary designs and implementation plans for the selected alternative(s) 4 15 20 (ix) Submit draft final report 1 15 16 (x) Submit final report 2 18 20 End.  - 62 - pagex1 CHINA TIANJIN URBAN DEVELOPMENT AND ENVIRONMENT PROJECT INDUSTRIAL POLLUTION CONTROL I. BACKGROUND 1. Policy Framework. China has been pursuing an active environmental protection policy. The policy framework defined by the Environmental Protection Act of 1979 (revised in 1989) and subsequent regulations calls for: Environmental quality standards for different types of areas; Environmental improvement plans and targets as part of urban master plana and Five-Year Plans; Pollution discharge standards and levies for those over the standard.; Environmental impact assessment and mitigating measures for major industrial and other investment projects. 2. Organizational Framework. The National Environmental Protection Agency (NEPA) has been established as the nodal agency to provide policy and technical guidance, and in addition, sectoral ministries maintain environmental protection offices to promote sector-specific pollution control strategies and technologies. The provincial and municipal governments, however, assume most responsibilities and authorities to carry out the national environmental policies. The Tianjin Environmental Protection Bureau (EPB) sets local environmental and effluent standards within general guidelines provided by the national regulations, monitors environmental quality, enforces regulations, and coordinates improvement activities within the municipality. it has 110 staff organized into 15 divisions, and direct: Environmental Monitoring Center (214 staff); Environmental Protection Science Institute (207 staff) responsible for providing the basis of environmental quality targets and the city's Environmental Improvement Plan; Environmental Protection Technology Development Center (26 staff) providing technical assistance for industrial pollution control projects; and the county and district EPBs which carry out monitoring, pollution levy collections, and other functions within their localities. As at the central level, var