China - North China Earthquake Reconstruction Project

Docunent of The World Bank FOR OFFICLAL USiE ONLY ReportNo. 13510 PROJECT COMPLETION REPORT CHINA NORTH CHINA EARTHQUAKE RECONSTRUCTION PROJECT (CREDIT 2091-CHA) SEPTEMBER 7, 1994 Country Operation Division China and Mongolia Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used bv recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency = Renminbi (RMB) Currency Unit = Yuan (Y) $1.00 = Y 8.70 Y 1.00 = $0.1149 (At appraisal 12/89 $1.00 = Y 3.71 and at completion 06/93 $1.00 = Y 5.7) FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 cubic meter (cum) 35.31 cubic feet (cu.ft.) i hectare (h) = 2.47 acres i hectare (h) = 15 mu 1 kilogram (kg) = 2.20 pounds (lb) ABBREVIATIONS AND ACRONYMS MOF Ministry of Finance SSB State Seismological Bureau  FOR OFFICIAL USE ONLY THE WORLD BANK WasNington, D.C. 20433. U.S.A Office of Director-General September 7, 1994 Operations Evaluation MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on North China Earthauake Reconstruction Project (Credit 2091-CHA) Attached is the 'Project Completion Report on North China Earthquake Reconstruction Project" (Credit 209 1-CHA)' prepared by the Country Operations Division and the China Resident Mission of the East Asia and Pacific Regional Office's China and Mongolia Country Department. The borrower prepared Part H of the Report. The main objective of the project (which had a total IDA share of US$ 30 million) was to accelerate normalization of economic activity in two Provinces-Shanxi and Hebei-affected by an earthquake. It was to be achieved through the reconstruction of damaged facilities and the restoration of normal living conditions for the affected population. The project emphasized the use of earthquake resilient construction and the strengthening of the domestic capacity to deal with seismic risk. Local economic activity was restored to pre-earthquake levels and has been growing since project completion. The recovery of household living conditions and key social services, primary education and health was successful. Physical achievements exceeded appraisal targets: the project included an additional 131 villages not included in the original design. Although as an emergency recovery operation the project did not emphasize institutional development, a large number of local staff were trained in project planning, preparation, implementation, quality control and loan administration. Another achievement was its impact in raising earthquake-resistant technology, not only in project components but also in construction implemented outside the project. According to the PCR, the main factors that contributed to the success of the project were (i) appropriate arrangements for local management, (ii) flexibility to define and modify project details during implementation, (iii) local ownership, (iv) strategy for in-situ reconstruction avoiding resettlement, (v) adequate resilient technologies and (vi) emphasis on construction quality control. Disbursement arrangements that proved to be problematic early on in the implementation phase were subsequently rectified. The project closed six months earlier than planned. The only significant shortcoming of the project is that a comprehensive disaster preparedness plan developed by the involved prefectures, was not implemented. Project design was realistic. IDA's response to the emergency was efficient and rapid. Although the local institutions involved in project implementation had no prior experience with IDA projects, their performance was exemplary. On balance, the project outcome is rated as highly satisfactory, its institutional development as modest, and the sustainability of project benefits as likely. The quality of the PCR is highly satisfactory. An audit is planned. Robert Picciotto by H. Eberhard Kopp Attachment This document has a restricted distribution end may be used by recipients only in the perforwmnce of their official duties. Its contents may not otherwise be discLosed without World Bank authorization.l   FOR OFFICIAL USE ONLY PROJECT COM1PLETION REPORT CHINA NORTH CHINA EARTHQUAKE RECONSTRUCTION PROJECT (CREDIT 2091-CHA) CONTEN Preface ................................................ i Evaluation Summary ....................................... ii PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE .... ....... 1 Project Identity . ..................................... 1 Background . ...................................... 1 Project Objectives and Description ......................... 2 Project Design and Organization ........................... 2 Project Implementation ................................ 4 Project Results . ..................................... 6 Project Sustainability and Replicability ....................... 7 IDA Performance . ................................... 9 Borrower Performance ................................. 10 Project Documentation and Data ........................... 10 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ...... 12 Preamble .......................................... 12 Village Reconstruction Program (VRP) Component ............... 12 VRP Component Preparation and Implementation ................ 13 VRP Component Project Management ....................... 17 National Technical Assistance Component ..................... 19 IDA Performance .................................... 21 Borrower Performance ................................. 22 Project Assessment .......... ......................... 22 This document has a restricted distribution and may be used by recipients only in the performance of their | official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PART HI: PROJECT STATISTICAL INFORMATION ................ 24 Table 1: Related Bank Loans and IDA Credits to China for Emergency Recovery Purposes ...... .. .......... 24 Table 2: Project Timetable .............. ................ 24 Table 3: Cumulative Estimated and Actual Disbursements .... ...... 25 Table 4: Physical Results; Part A - Yanbei Prefecture, Shanxi ... ..... 26 Table 5: Physical Results; Part B - Yangyuan County, Hebei ... ..... 27 Table 6: Project Costs and Financing Plan ....... .. ........... 28 A. Project Costs .............................. 28 B. Financining Plan ........................... 28 Table 7: Status of Major Covenants ......... .. ............. 29 Table 8: Use of Bank Resources ............ ............... 30 A. Staff Inputs ................................ 30 B. Missions ................................. 30  PROJECT COMPLETION REPORT CHINA NORTH CHINA EARTHQUAKE RECONSTRUCTION PROJECT (CREDIT 2091-CHA) PREFACE This is the Project Completion Report (PCR) for the North China Earthquake Reconstruction Project in China, for which Credit 2091-CHA in the amount of SDR 23.4 million was approved on February 8, 1990. The Borrower was the Ministry of Finance (MOF) which onlent the majority of the proceeds to the governments of Shanxi and Hebei Provinces and granted the remainder to the State Seismological Bureau (SSB). The credit was fully disbursed on March 19, 1992 and was closed on December 31, 1992. This PCR was jointly prepared by the Country Operations Division and the Resident Mission in China of the China and Mongolia Department, East Asia and Pacific Regional Office (Preface, Evaluation Summary, Parts I and III), and the Borrower (Part II). This PCR is based, inter alia, on the Negotiations minutes; the President's Report dated January 18, 1990, the Credit and the Project Agreements and amendments; supervision reports; correspondence between the Bank and the Borrower; internal Bank memoranda; and reports prepared by the Borrower in Winter 1991.   - - PROJECT COMPLETION REPORT CHINA NORTH CHINA EARTHQUAKE RECONSTRUCTION PROJECT (CREDrr 2091-CHA) EVALUATION SUMMARY Project Objectives i. The North China Earthquake Reconstruction Project covered by this PCR was the first earthquake disaster recovery credit operation in China supported by the Bank Group. The project evolved from the government's intent, supported by Shanxi and Hebei Provinces, to accelerate reconstruction operations in the earthquake-affected areas. The main objective of the project was to accelerate normalization of economic activity in the affected area through the reconstruction and repair of rural housing and public buildings, and rehabilitation of damaged economic and social facilities in a two year reconstruction program covering about 150 worst affected villages. The project also supported a modest program of technical assistance to strengthen the national earthquake monitoring and interpretation system, and disaster preparedness planning in Yanbei Prefecture of Shanxi Province. Implementation Experience ii. Despite relative inexperience with large projects, implementation capacity in the affected areas proved extraordinarily effective. Through systematic participatory planning techniques and diligent project management by the local governments, as well as the (approved) use of windfall savings from foreign exchange realignments, local resources were effectively mobilized so that physical accomplishments exceeded appraisal expectations. The project scope was extended to include 131 more villages than originally anticipated at appraisal. Additional reconstruction was partly necessitated by new damage caused by a second earthquake which occurred in March 1991 during implementation. Although progress was initially slowed by inadequate cash flow, all reconstruction and repair works, and procurement of materials were carried out satisfactorily. None of the affected families were obliged to spend a second winter without permanent shelter. Progress of the small technical assistance program was hindered because of difficulties in obtaining responsive quotations for the highly specialized equipment required by the program. No overall delay occurred and the project closed six months earlier than planned.  Project Results iii. The project has made a significant contribution to the project area's economic recovery and to rehabilitation of the affected villages' living conditions. The appraisal targets in terms of physical scale were far exceeded (Part III, Tables 4 and 5). National earthquake monitoring and analytical capacity, as well as emergency response capability, has been strengthened by the technical assistance provided to the State Seismological Bureau (SSB) (para. 6.1). Although not an explicit objective, hundreds of local staff involved in this project were trained in project planning, preparation, implementation, quality control and loan administration through project activities and various locally funded training programs (para. 6.6). Sustainability iv. Local economic activity was not only restored to pre-earthquake levels but has been growing since project completion. Income generation schemes were introduced to help families repay loans received for reconstruction. Reflows from the householder credits are occurring early and are being reinvested by local government to reportedly good effect in local township and village enterprises (para. 6.8). Enterprise production rehabilitation assisted by the project was largely successful but may not be sustainable without new market growth for building materials. The enhanced SSB monitoring system is functioning satisfactorily but its sustainability will depend on adequate budgetary support for operation and maintenance. A useful 'Yanbei Prefecture Natural Disaster Emergency Preparedness Plan' was completed by the Prefecture's task force with help from the Provincial Seismological Bureau and IDA but remains to be internalized by the responsible agencies. Fmdings and Lessons Learned v. The project's main findings and lessons for the government as well as IDA in preparation of similar projects are as follows: (a) Although the unavoidable programmatic approach adopted posed risks, these were successfully avoided because, together with timely IDA supervision efforts, local project management arrangements were well developed and implementation teams were well staffed to devise en route the details and mechanisms of the project [paras. 9.1 (Parts I and II respectively)]. (b) The IDA credit and the funds from local government were directly channelled as subloans to the beneficiaries of the village reconstruction program. Local ownership was further reinforced through participatory planning which stimulated considerable self-help efforts in a low-cost, largely in-situ reconstruction solution [paras. 4.2 (Parts I and II respectively)].  - iv - (c) Appropriate technologies were applied for reconstruction and repair of dwellings and public buildings, and construction quality control was given close attention. Reconstructed buildings as well as new buildings proved resilient to a second earthquake (para. 5.3) (d) Emergency projects of this type require a strong positive cash flow and special attention is required to the design of disbursement arrangements and training of disbursement staff (para. 5.7).   PROJECT COMPLETION REPORT CHINA NORTH CHINA EARTHQUAKE RECONSTRUCTION PROJECT (CREDIT 2091-CHA) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity Project Name North China Earthquake Reconstruction Project Credit No. 2091-CHA RVP Unit East Asia and Pacific Country China Sector Social Development Subsector Disaster Emergency 2. Background 2.1 China has experienced some of the most severe recorded earthquakes in the world. Since 1900, there have been 662 earthquakes with magnitude over 6 on the Richter Scale, of which 106 registered over 7 or around thirty percent of the world earthquakes over that intensity. Sixty percent of China's land is in seismic zones over vulnerability 6, and seventy percent of metropolitan areas of over 1 million population are in seismic zones over 7. The death toll from earthquakes in China in the twentieth century exceeds 600,000, accounting for over 50 percent of the world total. Chinese earthquake specialists predict that, after a decade of relative calm, China is entering a period of high seismic activity which is likely to last for 12 to 15 years. 2.2 Earthquakes rocked part of Northern China at the junction of Shanxi and Hebei provinces and Nei Mongol Autonomous Region west of Beijing on the night of October 18, 1989 and early the next morning. Five of the quakes registered more than 5.0 on the Richter Scale, the peak shock just after midnight registering 6.1. There were many after-shocks in the following weeks. This earthquake was one of the worst to hit Northern China since 1976. The affected region is an impoverished rural area (1989 per capita income of Y 375 ($66) average in Yanbei) located on the Loess Plateau, a windswept, eroded plain about 1,300 m above sea level. Local employment is mainly in coal mining and agriculture (largely com and wheat-growing). Housing was mainly mud-brick (adobe) construction and vulnerable to earthquake shock. The casualty toll in Yanbei and in neighboring Yangyuan County of Hebei Province (20 dead and less than 200 seriously injured) was mercifully slight due to the mild warning quakes but property damage was severe in the more than 800 villages affected. Some 25,000 housing units-mainly privately owned-and over 3,000 rooms in schools, clinics and community facilities were  - 2 - destroyed, and 46 local industries as well as various infrastructure facilities (bridges, power and telecommunications lines) were badly damaged. Many thousands more were partly damaged. Government estimates indicated that direct losses in Yanbei alone exceeded $100 million. Very few of the assets were insured. Indirect production losses, mainly by industry and commerce, were estimated at about $15 million in the first year and about 1,500 workers had been idled. 2.3 During project implementation on March 26, 1991, the affected area suffered a second earthquake with magnitude 5.8 on the Richter Scale. Some 500 villages in Yanbei Prefecture were impacted by the second quake, and over 500 people were hurt and one died during the panic of escape. None of the buildings reconstructed to date were damaged but an additional 11,000 houses in Yanbei's four project counties were badly affected and required reconstruction. 3. Project Objectives and Description 3.1 The project aimed to (a) assist in and accelerate normalization of economic activity in the earthquake-affected area by undertaking reconstruction operations in Yanbei Prefecture of Shanxi Province and Yangyuan County in Hebei Province through a village reconstruction program, replacement and reequipping of essential social and economic infrastructure, and rehabilitation of facilities of productive rural enterprises; (b) encourage and facilitate the use of cost effective, earthquake resilient construction standards; and (c) support, through a modest technical assistance component, (i) the State Seismological Bureau (SSB) to improve earthquake monitoring stations in identified areas of high seismic risk and enhance satellite communication and computer equipment at SSB's Beijing headquarters to receive and analyze data from fixed and mobile seismic observation equipment, and (ii) Shanxi Province to develop a model disaster preparedness plan for Yanbei Prefecture. 3.2 The cost of the project as estimated at negotiations, was Y 168 million ($45.3 million equivalent, 1989 prices), of which the IDA share was 66.2 percent, i.e., $30 million or SDR 23.4 million equivalent. Final completion cost was Y 273.6 million ($48.0 equivalent, 1992 prices) of which the IDA contribution was unchanged in SDR terms. 4. Project Design and Organization 4.1 The project was designed to support (a) a crash program of village reconstruction (91.7 percent of total IDA investment) and (b) institutional development to strengthen seismic monitoring and disaster preparedness (8.3 percent of the total investment). The content of the village program was based on planning and selection criteria agreed during appraisal intended to extend the reach of the resources as far as possible in this impoverished rural area using affordable, modest standards and appropriate low cost technologies as well as self-help contributions. In-situ reconstruction was preferred to voluntary relocation in order to make best use of existing infrastructure and community facilities.  -3- 4.2 Two hundred eighty-one villages located in the earthquake-affected project area were selected and covered by the emergency program. The program was carried out on the basis of comprehensive plans prepared by each selected village. Each plan was prepared in close consultation with the affected community based on detailed damage inspection of affected buildings and socioeconomic information for the village concerned, and indicated (a) in detail, the scope (including housing, public buildings, infrastructure works and equipment), cost estimates and financing plan (including individual family subloan arrangements) together with, in the case of'voluntary relocation plans, details of the resettlement costs and arrangements; (b) functional responsibilities and implementation arrangements, including materials supplies, procurement plans and subloan administration; and (c) five types of model reconstruction and repair methods to provide affordable options to affected households (so that repayment would not exceed 25 percent of the family's annual income). Credits were directly targeted to the beneficiaries through loan agreements signed between village and householder. 4.3 SSB was designated to implement the national subcomponent of the technical assistance component and the Shanxi Provincial Seismological Bureau and its Yanbei affiliate were asked to prepare the Yanbei Disaster Preparedness Plan. Responsibilities for implementation and management of the village reconstruction program were assigned to Yanbei Prefecture and Yangyuan County under supervision of the respective province and the Ministry of Finance. In keeping with Chinese practice, project management offices were established at each tier of government (prefecture, county and township) to manage reconstruction activities. Offices were typically organized in four groups: planning, design and technical supervision; funds management; procurement; and construction. 4.4 Considering the emergency nature of the project, special procurement and disbursement arrangements were made to support swift project implementation. Under the special procurement arrangements, the credit was provided to village beneficiaries in two forms: (a) in kind-as basic materials (timber, steel, cement and glass) procured in bulk; and (b) in cash-as reimbursement for expenditures on other materials and labor obtained locally. Procurement of bulk materials for (a) above followed local competitive bidding procedures acceptable to the Association and disbursement (mainly retroactive) was against documentation related to the contracts awarded. In the case of (b) above, because of the large number of individual and public beneficiaries in each village, a consolidated village contract (between the village and the county) based on the agreed village plans was devised to facilitate documentation for disbursement. Disbursements against the village contract were further simplified by a schedule of payments. The procurement arrangements for the equipment required for the SSB component were by means of international prudent shopping. 4.5 The disbursement arrangements included a project Special Account, maintained in US dollars by the Ministry of Finance; and local Special Accounts, maintained in local currency, opened at the provincial level in Shanxi and Hebei and at county level in Yanbei Prefecture and Yangyuan County. Payments were made by the counties from their domestic Special Accounts either as partial payments (65 percent)  - 4 - against invoices submitted by suppliers or as credits to village and household loan accounts for 65 percent of the value of work carried out by contractors or force account. 5. Project Implementation 5.1 Village reconstruction under this project was carried out over two years, 1990 and 1991. The 1990 program consisted of the original scope of the project covering 150 villages (80 villages in Yanbei Prefecture and 70 villages in Yangyuan County). The villages included in the 1990 program were judged to be some of those worst hit by the 1989 earthquake. A second earthquake in 1991 increased damage in the project villages and seriously affected others. Advantage was therefore taken of credit savings (para. 5.3) to implement a 1991 program prepared using the same criteria thereby expanding coverage to 131 more villages (117 in Yanbei Prefecture and 14 in Yangyuan County). During implementation, problems with planning, cash flow and construction quality control were met successively, but quickly resolved by the local management teams with help from IDA. By December 1991, all families in the villages concerned had at least two permanent earthquake-resilient rooms. A household subloan administration system was established and an income generation program introduced to facilitate repayments. 5.2 To assure timely and cost-effective completion of the village programs, implementation was actually managed as follows: (a) reconstruction or repair of private dwellings was carried out by force account, that is, each household was responsible for its own dwelling reconstruction or repair by local tradesmen under quality supervision of a trained village inspector; (b) local competitive bidding was required for reconstruction or repair of public buildings, infrastructure, social facilities and enterprises; (c) prefecture and county material bureaus were responsible for bulk purchasing and distributing staple building materials such as cement and steel to the concerned villages; (d) technical assistance, including training for procurement and construction quality inspection, was provided by prefecture and county design institutes with help from central or provincial level agencies as necessary; (e) township finance bureaus administered the household subloan and repayment arrangements; and (f) the project offices at different levels were responsible for dealing with routine affairs. 5.3 Problems with reconstruction and repair quality were met initially, caused by lack of rural building codes, modern construction techniques and proper quality inspection. Yanbei Prefecture and Yangyuan County moved quickly to resolve this problem with help from IDA and the local design institutes by organizing various training programs for all the villages concemed. Through the training, the national earthquake resistance code was understood and construction techniques were mastered by the villagers. In addition, procedures for construction acceptance and a recording system were also developed. All repaired buildings successfully withstood the second quake. 5.4 In light of the project's low cost technology objectives the IDA appraisal mission advocated a low cost repair and reinforcement system for damaged traditional adobe dwellings. A pilot test of the proposed thin shell reinforced concrete technology was conducted by Taiyuan Industry University but was inconclusive in seismic resistance and  - 5 - relative cost terms. The proposed technology was not therefore used but various kinds of simple low-cost repair techniques which conform to the national earthquake resistance code were developed locally and used successfully. 5.5 Enterprise Rehabilitation. Implementation of the township enterprises' reconstruction component, as a relatively independent subcomponent of the village program, was slower than expected due to a late start and cash flow difficulties. During the process of implementation planning, this component changed significantly. Ten enterprises were dropped from the 13 appraised due to their adequate self-financing capacity, and four new enterprises were added and appraised by IDA's supervision mission. By mid-1991, production capacities of the enterprises had been rehabilitated. 5.6 Procurement. Although the SSB component was well designed and organized-as might be expected of a scientific organization at the forefront of World seismic research-its implementation was also a little slower than expected due to difficulties in obtaining responses or reasonable quotations for the highly specialized equipment required by the component. A total of 25 contracts were finally signed under this component and most of the equipment had been put into operation by June 1992. No problems were encountered in procurement for the village reconstruction program. 5.7 Disbursement. The project experience illustrates that emergency projects of this type require a strong positive cash flow and special attention to the design of disbursement arrangements and training of disbursement operators. Although arrangements were established at the outset to facilitate cash flow such as retroactive financing provisions for key materials and advance payments against signed village plan contracts, as well as the Special Account itself, in practice some work was held up due to a lack of working capital. This was due initially to two reasons: deficiencies in documentation, and tardy withdrawal application transmittal and processing. When these problems were rectified however the limited funds deposited in the Special Account proved a bottleneck and IDA agreed to increase the amount from the standard equivalent of three months average expenses, i.e., $4 million, to a more than adequate $8 million. 5.8 As an unexpected consequence of devaluations of the US dollar against the SDR and local currency against $, implementation of the village reconstruction program far exceeded the appraisal estimate in terms of the physical scale. Since December 1989, China has devalued its local currency several times. During the same period the US dollar also devalued significantly with respect to the SDR. Because of these realignments, the value of the credit increased by over 40 percent in local currency terms. An extended village reconstruction program approved by the Bank's Executive Board (on a no-objection basis) and implemented in 1991 absorbed most of the credit savings. Implementation of the additional work was greatly simplified due to the experience gained by the project organization in the first year.  -6 - 6. Project Results 6.1 National Technical Assistance Component. Through this SSB-managed component, computers, satellite communication equipment and graphic information processing equipment were purchased following the Bank's procurement guidelines. Funds allocated originally to this component were $2 million, and an additional allocation of SDR 270,000 was agreed in June 1991 to support purchase of additional equipment to further enhance the system capabilities to monitor earthquake precursor and strong motion phenomena. Results achieved include (a) a strengthened and expanded national system of fixed and mobile monitoring stations; (b) improved earthquake information collection, telemetry and processing, including data exchange systems in high seismic risk junction areas; and (c) expanded scope of seismic precursor observations at selected stations in high risk areas. 6.2 Village Reconstruction Program. The project clearly made a significant contribution to a sustainable economic recovery and rehabilitation of household living conditions and key social services such as primary education and health protection in the affected area through the village reconstruction program. 6.3 Yanbei Prefecture's village reconstruction program in 197 villages (including 8 villages fully relocated) covered, as shown in Part III, Table 4, reconstruction of 30,737 collapsed dwelling rooms and rehabilitation, repair or reinforcement of 26,117 others (typically three rooms form one dwelling unit); reconstruction of 2,739 public facility rooms (village classrooms, health centers, village storehouses and other public buildings) and repair or reinforcement of about 2,460 others; reestablishment and repair of critical village infrastructure (roads, power lines, wells, irrigation channels and minor structures, water supply, etc.); and rehabilitation and reconstruction of 7 rural enterprises. In addition, an emergency preparedness plan was drawn up to guide response for possible future major disasters in the Prefecture. 6.4 Yangyuan County's village reconstruction program covered 84 villages. The program assisted, as shown in Part III, Table 5, reconstruction of 2400 dwelling rooms and rehabilitation, repair or reinforcement of 25,500 others; reconstruction of 200 public facility rooms (village classrooms, health centers, community buildings) and repair or reinforcement of 600 others; reconstruction and repair of critical village infrastructure (irrigation channels and water supply); building repair for one seriously damaged agro- industrial enterprise and one commercial enterprise; and reconstruction for one county level hospital and one township level hospital. 6.5 Under the enterprises reconstruction component of the village reconstruction program, production in nine enterprises was restored (7 in Yanbei Prefecture and 2 in Yangyuan County) by mid- 1991. Among the rehabilitated enterprises in Yanbei Prefecture, five had good financial returns, but the other two were loss-making in 1991. The five profitable enterprises, however, produce building materials and benefitted from the demand caused by the reconstruction program. But with completion of the project,  - 7 - demand for building materials in the project area would likely return to a more normal level, therefore sustainability is doubtful without some market growth. 6.6 Considerable institutional development has occurred as a result of the project. A task force of over 900 persons at various levels in Shanxi and Hebei has been trained in new, efficient systems for project planning, design, procurement, construction management, financial administration and overall management. During the period of project implementation, training in planning, financing, and construction quality control was organized. Through these activities, 530 persons in Yanbei Prefecture and 396 people in Yangyuan County were trained and have become important human resource for Yanbei Prefecture and Yangyuan County. Beyond this, thousands of local farmers have learnt simple building construction skills. In addition, under the SSB component, 37 of the Bureau's engineers were sent abroad for training related to the purchased equipment, 14 domestic training courses were organized and 230 persons participated. 6.7 As required, a comprehensive disaster preparedness plan was developed by Yanbei Prefecture with help from Shanxi Province and IDA. The plan could be useful for dealing more effectively with possible future disasters in the project area but institutionalization of the recommendations in the multiplicity of agencies concerned or its replication in other prefectures was not implemented immediately. 6.8 Although not part of the project an important result was a system of management of the household credit reflows. According to onlending terms and conditions (which varied at each subloan stage between central government and end users), reflows would be generated and held for periods of 10-12 years at county and prefecture levels in Shanxi Province and at county level in Hebei Province. The reflow funds are being used to finance investments in village and township enterprises. Options for management of the reflows considered by the local governments included (a) opening a special bank account managed by an investment company, (b) appointing a bank to manage the funds, and (c) creating a self-managed trust fund. 7. Project SustainabiUty and Repticabilty 7.1 Overall Economic Impact. Average total annual expenditure in Yanbei Prefecture during the 1980s, including capital investment, was slightly over Y 300 million. During the period of project implementation, investment through the village reconstruction program alone was some Y 170 million. In Yangyuan County, fixed assets investment in 1989 was Y 18.1 million only, but in 1990 sharply increased to Y 50.3 million caused partly by the reconstruction program. These expenditures occurred at a time of government austerity when the local economy was facing difficulties because of shortage of investment funds. The reconstruction program investments certainly stimulated economic recovery in Yanbei Prefecture and Yangyuan County. Economic growth in the two areas in 1990 was 27.31 percent and 68.7 percent, respectively. However, because of good weather in 1990, a record grain harvest also made a significant contribution to the economic growth.  - 8 - 7.2 Impact on Agriculture Production. Although the project area was seriously affected by the 1989 earthquake, inputs to agricultural production in 1990 were at a normal level. This guaranteed the rehabilitation of agriculture production in 1990 and, in fact, a record grain production occurred that year due to good weather. The village reconstruction program provided funds needed by farmers to reconstruct or repair their collapsed or damaged rooms thus permitting normal expenditures on seeds and fertilizer purchases, etc. By 1991, the repaired infrastructure (power, roads, water supplies) also contributed to production which, despite a drought that year, was maintained at about 80 percent of the record 1990 harvest. Below is a table showing agricultural production inputs in three villages in 1989-91. Inputs (Y) Village 1989 1990 1991 Dongxingfang 240,000 220,000 230,000 Dongxinzhuang 60,000 68,000 72,000 Songjiayu 57,000 63,000 54,000 Source: Village accounts. 7.3 Development of Local Construction Material Industry. The local building material industry developed rapidly during the period of project implementation and production of cement, brick, stone and lime increased. Because of relatively huge demands for construction materials, not only existing state-owned plants were in full operation, but also many new small township plants were established during the project implementation period. According to information provided by Yanbei Prefecture, during the years of 1990 and 1991, in Yangzhuang township alone, 34 brick-kilns, 20 limekilns, 5 quarries and 1 sawmill were established. However, about half of these small plants were closed after completion of this project. 7.4 Social Impact. The project caused various social impacts in the project area, perhaps most importantly that earthquake resistance awareness and technology were accepted by the rural population and disseminated widely in the project area. This could be seen from housing under construction not included in this project but using the same technology. A second important impact was on the women's traditional role. To help repay the subloans, more livestock production is now occurring in the project area. Rearing pigs, sheep or poultry is typically the young women's business in local society, but once married this activity would customarily stop. Now under the pressure of repayment obligations, many housewives have resumed livestock rearing and are contributing directly to the household income.  - 9 - 7.5 Although not an objective, through the project, a rural credit organization has been created in the project area and income generation schemes introduced. These schemes, although temporary, together with strengthening of the local primary education facilities under the project, promise to have a useful impact on both social and economic conditions. This is a remarkable achievement, at little direct cost to government, which demonstrates the potential that could be unlocked in China's impoverished rural areas with well designed technical and financial assistance. This potential continues to be developed through judicious recycling of the credit funds (para. 6.8), further utilization of the skills and capacity developed under the project, and by dissemination of the experience throughout the respective provinces. 7.6 The long-term sustainability of SSB's earthquake monitoring system will depend upon adequate budgetary funding, especially foreign funds, for operation and maintenance. Planning for such costs in the near term was included in the project appraisal. The incidence, frequency and magnitude of earthquake disasters in China gives special prominence to the services rendered by SSB in preparedness and mitigation efforts. 8. IDA Performance 8.1 The project area was stricken by the earthquake on October 18, 1989. In response to a message from IDA's senior management, the Government of China expressed interest in assistance for a possible emergency earthquake recovery credit. IDA's response was efficient and rapid. The first project preparation mission visited the project area November 9-11 and the project appraisal and negotiations were held in the field just one month later. 8.2 As their first large project financed by international funding, it was a learning experience for the local governments in Yanbei Prefecture and Yangyuan County. Tme project required intensive, albeit brief, efforts in terms of IDA assistance in project preparation and implementation through guidance in management, monitoring and supervision, as well as responsiveness to project exigencies such as the use of savings and the Special Account increase. 8.3 A total of five supervision missions were carried out by IDA during 1990 and 1991 using staff from the China Resident Mission and a local consultant. The last field mission was in October 1991 and also collected information for this PCR. A good working relationship was established between IDA staff and the project organization. The local governments concerned were essentially satisfied with the supervision provided by IDA, but felt that more supervision by IDA in terms of frequency and staff inputs would have been even more beneficial. At the early stage of implementation, supervision focused on detailed design of village reconstruction planning and disbursement and procurement arrangements as well as familiarizing local governments with IDA's operations. Later supervision focussed on reconstruction quality control, subloan administration and program reformulation, as well as preparation of the earthquake emergency preparedness plan and completion of the SSB program.  - 10 - 8.4 Information for Part I of this PCR was collected during the final field supervision mission in October 1991. Final costs and other Part m information were available following closure of the loan account in June 1992. Completion of the report was delayed pending receipt of expected government contributions to Part II following the scheduled loan closing date of December 31, 1992. The PCR was included in the China and Mongolia Department's work program for FY94. 9. Borrower Performance 9.1 Although Yanbei Prefecture, Yangyuan County and the State Seismological Bureau had no prior experience with IDA projects, performance was exemplary throughout the project preparation and execution; it could be summed up in following aspects: (a) Close attention was given by the local governments and SSB in project planning and financing, materials procurement, preparation of village programs, construction quality control, subloan administration and project management. This diligence underpinned the successful project implementation. (b) A participatory planning approach was successfully applied by the management team in development of the village reconstruction plans so that considerable self-help contributions were mobilized and repayment of household subloans was better assured. (c) The agencies concerned were well organized and adequately staffed. (d) The project management team quickly learnt lessons from the implementation of the 1990 village program and the experience was used effectively in the preparation of the 1991 village program and its implementation. (e) The local governments helped the villages concerned to generate more income through guiding them in income generation schemes and supervising the reinvestment of reflows. (f) SSB successfully coordinated a national program which strengthened China's seismic activity monitoring together with improved capacity for earthquake prediction and emergency response reaction. Preparedness for such natural disasters could be further improved through dissemination and wide adoption of the Yanbei Prefecture Natural Disaster Preparedness Plan recommendations. 10. Project Documentation and Data 10.1 The legal credit and project agreements for this project were adequate. All the covenants in the agreements were complied with by the Borrower and subborrowers,  - 11 - Shanxi and Hebei Provinces respectively. To facilitate cash flow and absorb the credit savings caused by the devaluations, the Development Credit Agreement was amended to permit a larger initial deposit to the special account and an extended village reconstruction program as well as disbursement reallocations. The records of compliance with the covenants (Table 7) and the amendments are available in the project file. 10.2 The Memorandum and Recommendation of the President (MOP) provided a useful guide for the Bank mission's supervision during the period of project implementation. The MOP was also translated into Chinese and closely used by the Borrower and the local governments as guidance. Data required for the PCR preparation was derived from the information provided by the project offices at different levels.  - 12 - PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 1. Preamble 1.1 All principal implementation agencies, Shanxi's Yanbei Prefecture, Hebei's Yangyuan County and the State Seismological Bureau drafted extensive completion reports (available in Project Files). Background and factual information in the reports closely matches Part I of this PCR. Following is an abridged synthesis of the main highlights of the Borrower's reports presented in two parts relating to the Village Reconstruction component and the national technical assistance component. 2. Village Reconstruction Program (VRP) Component 2.1 The Project location is longitude 113.50 East and latitude 39.57 North. The area is a loess and hilly adjoining area of the counties of Yangao, Datong, Hunyuan and Guanglin in Shanxi Province and the county of Yangyuan in Hebei Province. The project area is underdeveloped. Agriculture production lags behind national averages and its industrial foundation is poor. Average annual per capita incomes among the project counties in 1989 ranged from Y 190 to Y 435. A 5.7 Richter Scale degree earthquake occurred at 22:57 pm of October 18, 1989 in Yanbei Prefecture. Following that, a 6.1 degree earthquake occurred at 1:01 am on 19th of October. This was the strongest earthquake in North China since the Tangshan earthquake which occurred in 1976. The earthquake caused widespread damage in 69 townships, affecting 808 villages in varying degrees. Direct loss was Y 380 million. During the period of project implementation, another earthquake at 5.8 Richter Scale degree occurred at 2:02 am on March 26, 1991, which enlarged the earthquake-stricken areas and aggravated the disaster. Many more rooms collapsed or were seriously damaged. The following table shows the relative intensity of the two earthquakes: No. OF VILLAGES IMPACED Earthquake date Intensity zones 8 7 6 5 Oct. 89 1 8 15 321 Mar. 91 - 3 9 109 2.2 Implementation of the project was extremely important for the earthquake- stricken area's rehabilitation. For example, in Yanbei Prefecture total agricultural production value in 1988 was Y 215 million (farmer's per capita income was Y 340);  - 13 - industrial production value was Y 239 million; of which tax and profit was Y 38.05 million. Economic foundation was quite weak and ability of self-rehabilitation poor. Local government financing situation was also difficult. The counties concerned were receivers of subsidies from Shanxi Province. Because of the above reasons plus local disaster relief fund limitations, the earthquake-stricken areas were facing many difficulties. The Project was a strong guarantee of reconstruction and quieted the victims mood. The project constructed new houses for homeless families and repaired and reinforced rooms for other families (at least 2 permanent rooms for each family); constructed or rehabilitated public infrastructure facilities for 281 villages, including schools, clinics and a hospital, and other public buildings as well as irrigation and drinking water supply and power facilities and equipments; helped nine enterprises recovered their production; and help to formulate "Yanbei Prefecture Anti-Disaster Emergency Plan." In the meantime, the Project also provided successful experiences of using foreign funds in earthquake reconstruction. 3. VRP Component Preparation and Implementation 3.1 The appraisal results basically reflected the actual needs for the reconstruction of the earthquake-stricken areas, and provided a basis for the negotiations of the credit and project agreements. Though some revisions and changes occurred later, for example, adjustments of the village reconstruction on the new sites and enterprises' rehabilitation as well as the change of the required new technology, project implementation was not affected. Before the Project entered into effectiveness, work on planning and preparation of materials needed by the project had started, therefore, the time of the effectiveness did not affect the project's implementation. Following are some examples of specific project experiences of Yanbei Prefecture with the principal component of the project. 3.2 Strong leadership and overall coordination were basic pillars of the reconstruction. From the beginning high importance was given this project by the leaders at different levels. Four joint conferences and six county magistrate meetings were held to study and deploy works to be done. Leadership responsibility system was carried out from the Prefecture to County to Township to village. Divisions were clear and therefore it is easy to justify every leader's responsibility by checking whose job was not done well and which link had problem. This responsibility system greatly mobilized the cadres' enthusiasm in the earthquake-stricken areas. Reconstruction was a system project, and its operations involved more than 20 units and departments. Concrete work for each link was arranged for different operational departments with practical task, clear responsibility and cooperation requirement covering land acquisition, village planning, material supply and project engineering as well as financial audit, and strongly guaranteed smooth project implementation. 3.3 Investigation, analysis and site appraisal were the necessary premise for the achievement of the goal of the project. The main part of the earthquake reconstruction project was to resolve villager's housing problem and public facilities. Before a project could be implemented the following detailed investigation and analysis had to be   - 14 - conducted: damage degree, reconstruction methods, construction structure, economic situation and repayment ability. These were the key to a project which could be smoothly implemented. In order to guarantee a correct investment and bring the benefits into full play, based on the appraisal to the earthquake intensity, we organized engineers and technicians to conduct damage degree identification for each house located in the middle intensity areas so as to decide to whom the credit should be given. Based on this, house reconstruction type and credit quota were decided according to the calculation of the cost of constructing different type of room and each family's repayment ability. During this process, we adopted a participatory approach: explicating policy to the masses, inviting them to participate in the decision-making, and asking them to provide advice on methods of reconstruction. Controversies were resolved by discussions among the masses. The method of democratic discussion and public consultation was not only appreciated by beneficiary families, the masses and cadres concerned but also better adapted to the scientific and sound working process required by the project financed by the World Bank. A good project foundation was set. 3.4 A policy of self-reliance and arduous strife was the guiding principle. Without question, the World Bank credit had an important economic pillar function for the reconstruction for the earthquake-stricken areas. But to apply the function, the spirit of self-reliance and arduous strife had to be established among the masses. Therefore, the guiding slogan from the very beginning was: "having the foreign aid, relying on yourself, overcoming the difficulties, and reconstructing your home." There is no modern construction equipment in rural areas so that project implementation heavily relies on labor force. During the busiest period, people worked day for agriculture production and night for the reconstruction. Particularly in some remote villages, if water needed for the reconstruction was not enough, people would carry water with a shoulder pole and buckets for a distance; if materials could not be transported by vehicle, people would carry the materials by their shoulders or using domestic animal; if labor force was not enough, people would help each other. Within two years, the masses overcame many difficulties and through hard work, successfully completed the great project-home reconstruction-and achieved the expected benefits of the World Bank Project. 3.5 Strengthening management and establishing sound rules and regulations was the key link of project implementation. To strengthen project management, a complete system of scientific management was needed. This was the prerequisite for efficient usage of the foreign aid. Therefore more than 10 internal management control systems and methods were created. This ensured the project was implemented systematically and in an orderly way. In order to deploy reasonably and make full use of the credit and counterpart fund, financial management systems like < <Financial Management Implementation Measures and Accounting System> > were worked out. These systems stipulated and explained in detail many of the financing problems, including the use of the fund, investment, accounting subject and accounting statement, and guaranteed the unification and systematization in project financing management. To guarantee project quality and improve benefits, a series of quality management systems were established as the base of the project construction and acceptance, including < <Quality Management Tentative Measures >, < <Completion Acceptance Measures> > and < <Construction  - 15 - Guide> >; to have a better management and supply of the materials needed by the reconstruction, < <Material Management System> > was worked out to ensure that materials were purchase according to the plans and were delivered reasonably. In addition, we required project progress reports at a period of 10 days, set responsibility contract system, and conducted inspection and comparison as well as some other methods. Establishment of these rules and regulations played an important role for a smoothly project implementation. 3.6 Leading the way by experiment and combining key points with works in all areas were an effective working method. This was the first time we had a project financed by foreign credit. We also did not have experience in earthquake reconstruction. In order to develop the project smoothly, we adopted the effective working method: leading the way by experiment and combining key lessons with works in all areas. By using the method, we first explored in steps, and the experience was then summed up; if it was good, the experience would be popularized. For example, when we were working on the plan, we found that it was difficult because many families were affected by the earthquake and they had various damage situations and different incomes. To resolve this problem, we conducted planning experiment at Xicetian village, Datong County. After we summed up the experiment by technical identification and democratic discussion, the experience was popularized within the Prefecture, and planning was quickly detailed into each family. In addition, during the process of the project implementation, we also summed up the experience of cave (adobe) dwelling repair renovation at Qincheng village in Datong County, the experience of strengthening quality management in Hunyuan County, the experience of bidding in project and construction materials in Guanglin County, the experience of voluntary labor in the earthquake-stricken areas by the County leaders and cadres in Guanglin County, and so on. Through continuing experiment and summing-up, a new way was found out which not only satisfied the requirements of foreign credit financed project, but fitted the actual situation of the Prefecture. 3.7 Organizing all forces to support the earthquake-stricken areas was a powerful measure for the completion of the reconstruction. During the period of the process of the project implementation, we mobilized all sections of society to actively support the construction in the earthquake-stricken areas. When the project cash flow was slow, Zhuoyuan and Huairou counties were not hit by the earthquake, but on their own initiative, the two counties lent Y 3 million to the earthquake-stricken areas. The material department in the Prefecture gave a large amount of credit for material purchase and the construction department also provided an advance. July, August and September were the busiest project implementation period in 1990. During this period, the Prefecture launched a great public service campaign by organizing cadres, workers and vehicles to participate in voluntary labor. 135,652 man/days were donated, 6,626 vehicle were used, and 2.04 million ton/km cargo were transported. This promoted the progress of the reconstruction. 3.8 Producing more and increasing income were the fundamental way out for the recovery of the economy in the earthquake-stricken areas and repayment of the credit. In order to increase farmers' repayrnent ability, on November 22, 1990, the Prefecture government held a special working meeting on production recovery and reconstruction,  - 16 - calling the four earthquake-stricken counties to find more new ways for production, actively organize economic activities, fully use the local advantages so as to increase income and generate more fund for the reconstruction as well as increase the farmers' repayment ability in the earthquake-stricken areas. In the meantime, the meeting called all the departments concerned for providing organized services for production in the earthquake-stricken areas and asked to try to create job for everyone so as to let every family improve its income. The credit repayment was a long term task. In order to guarantee the repayment on time, every project village, with income increase, created a special deposit account and villagers were encouraged to put their money there. In the meantime, income from collective production would be deposited into the account for each family jointly. Also, when the repayment plan was made, a repayment book would be set for each family by township. This intensified the farmers' awareness of the repayment obligation since they knew the exact amount due. This made a good preparation for the credit repayment. 3.9 The project was originally expected to be completed by the end of December of 1991. Through efforts, the planned completion time was basically achieved. But following objective factor effected the implementation time to certain extent. (a) Due to no experience in project planning, completion of the detailed village reconstruction plan was one month later than planned time. The main problem for the delay was that the planning forms were not completed on time as required by the World Bank, but this delay did not affect project implementation. (b) Cash flow was slow. The major reason was due to the nature of the project: project implementation was scattered in many villages, reimbursement documents, therefore, could not be gathered on time. This delayed the reimbursement progress. In the meantime, the domestic disbursement procedures were complicated and the channels were not smooth. In order not to affect project progress, we put counterpart fund in place ahead of time and asked the construction material companies provide purchase credit for the project. In the meantime, we simplified the reimbursement procedures and smoothed the disbursement channels. A major project progress delay did not occur. (c) Since the credit saving generated by the change of the Chinese Yuan against US dollar increased the project implementation scale in 1991 and the second earthquake occurred on March 26 in the same year caused new damages, the original planning was disturbed. New planning suggestions were made during the project supervision conducted by the World Bank in June of the year. The above changes delayed project implementation time.  - 17 - 4. VRP Component Project Management 4.1 Implementation progress depended on an effective project management system. The principal elements were as follows: (a) Financial Management System. The Provincial Finance Department and Yanbei Finance Bureau worked out reconstruction project finance management concrete implementation measures and reconstruction project accounting system respectively, unified and standardized project's financial activities. Each basic project implementation unit had set up project special account and staffed accountant, guaranteed operations of project finances. (b) Material Management System. Bidding system for construction materials was carried out by all project counties. This system guaranteed quantity and quality as well as reasonable price. Construction materials, steel and cement were supplied according to the national plan; part of timber was supplied according to the national plan and the rest was purchased through market; brick, tile, lime, sand, stone and equipment were purchased through market; each project family also provided some of the construction materials like brick, sand and stone and so on. A method of unified purchase and delivery from county to township, and phased material supply to each family according to project progress was adopted by some of the project counties. Another method adopted by the other counties was that a county material supply company was designated, and according to project progress, each project family could directly get the materials needed, and then unified settling accounts. The above methods guaranteed an appropriate supply of materials and speeded up project progress. (c) Quality Management System. For the NCERP, unified quality management provisional measures, project completion acceptance measures, unified construction drawings for different type of rooms, and construction technical guideline were worked out. All the construction teams worked for the Project had to have proper technical qualification. Technicians and quality supervisors were staffed at township and villages levels. The prefecture organized three quality inspections for the project. The project counties conducted more. (d) Credit Recovery System. According to the World Bank credit onlending terms, the following repayment guarantee measures and policies were stimulated when the plan was made: (i) Family income appraisal for the family supposed to be supported by the credit, repayment of the family would not exceed 25 percent of its annual family income; (ii) Credit contract had to be notarized according to the law concerned;  - 18 - (iii) Credit contract had to be guaranteed by a third party who had necessary economic ability to repay, in the meantime, family property mortgage was required for the contract; (iv) Credit repayment time and its amount was guaranteed by county and township respectively. (v) Income Generation. Before the repayment and during the period of the repayment the following measures were taken by the governments at different levels to create good conditions for the repayment: (vi) Support and help the project villages and families to develop collective and family agriculture, industry and sideline productions to increase income and repayment ability; (vii) Credit repayment for the infrastructure part of water, electricity and road would rely on service charge and collective income; (viii) Creating village special deposit account to help each project family accumulate money for repayment; (ix) The Prefecture and the counties would use the sediment fund during the process of the repayment to develop production so as to increase economic guarantee ability. 4.2 Operational Training. Because reconstruction project was a new task, staff working at different levels were not familiar to the project operations of planning, finance and quality control. Yanbei Prefecture and the counties, for example, organized 11 planning training seminars for 340 participants; 9 financial training seminars for 59 participants; 4 engineering and technical training seminars for 130 participants. In the meantime, the Prefecture Project Office sent a person to attend the World Bank project financing training seminar organized by MOF. The above operational training was important for project implementation. 4.3 Disbursement. Construction of the project was started on April 1, 1990. At the beginning, because project implementation people at different levels were not familiar to the disbursement operations plus domestic disbursement channels were not smooth, the first sum of reimbursed fund was received until the end of June of 1990, not only one month later than planned, but also the amount was not enough for project progress. In order to speed up fund disbursement and revolving to guarantee project implementation, by consulting with the World Bank representative, the following measures were taken: (a) After the project construction started and before fund from the credit was received, to guarantee the needs of the project, counterpart fund from the  - 19 - local government and the people participated in the project would be used for the disbursement By June 1990, all the counterpart fund had been disbursed; (b) Disbursement process would be speeded up from once a month to two a month. Agreed by the Provincial Finance Department, the disbursement could be processed directly between the Prefecture and MOF. The provincial link of the disbursement process was moved; (c) The World Bank agreed that the village agreement could be used as base of the disbursement. Once the agreement was signed, first disbursement could be made; (d) Time requirement for the disbursement was set for the transfers between the Province, the Prefecture and the counties. 4.4 Emergency Response Plan. According to the < < Negotiation Minute > > and several discussions with the project representative of the World Bank, as a component of the project, < < Yanbei Prefecture Anti-Natural Disaster Emergency Plan> > (Plan, draft) had been worked out on August 24, 1991 by Yanbei Prefecture Anti-earthquake Office. The Plan has 5 chapters and 40 sections, including < <General Principles> >, < <Disaster Preparation > >, < <Emergency Preparation > >, < <Emergency Response