China - Liaoning Urban Infrastructure Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 17550-CHA IMPLEMENTATION COMPLETION REPORT PEOPLE'S REPUBLIC OF CHINA LIAONING URBAN INFRASTRUCTURE PROJECT (Cr. 2219-CHA) March 31, 1998 Urban Development Sector Unit China Country Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Appraisal: US$1.00 = Yuan 5.22 1994: US$1.00 = Yuan 8.7 Completion: US$1.00 = Yuan 8.3 WEIGHTS AND MEASURIES Metric System ABBREVIATIONS AND ACRONYMS FYRR First Year Rate of Return ICB International Competitive Biddiing IRR Internal Rate of Return LUCRPO Liaoning Provincial Project Office MOF Ministry of Finance NCB National Competitive Bidding SAR Staff Appraisal Report TA Technical Assistance UTNDP United Nations Development Programme FISCAL YEAR OF BORROWER January 1 - December 31 Regional Vice President Jean-Michel Severino Country Director Yukon Huang Sector Manager Keshav Varma T ask Manager Edouard Motte  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPOR'T CHINA LIAONING URBAN INFRASTRUCTURE PROJECT (Cr. 2219-CHA) Table of Contents Preface Evaluation Summary Part 1: Project Implementation Assessment ..................................1 A. Statement/Evaluation of Objectives ............................................2 B. Achievement of Objectives .............................................2 C. Major Factors Affecting the Project ............................................4 D. Project Sustainability ............................................5 E. IDA's Performance ............................................6 F. Borrower Performanice ............................................6 G. Assessment of Outcome .............................................8 H. Future Operations ......8.....................................8 1. Key Lessons Learned ............................................9 Part II: Statistical Annexes 'T'able 1: Summary of Assessment .10 I'able 2: Related Loans/Credits . 11 'able 3: Project Timetable .11 'l'able 4: Credit Disbursements: Cumulative Estimated vs. Actual .12 Table 5: Key Indicators for Project Implementation .12 'I'able 6: Key Indicators for Project Operation .12 'Table 7: Studies Included in the Project .3 'I'able 8A: Project Costs ........................................... 13 Table 8B: Project Financing ........................................... 14 Table 9: Economic Costs and Benefits ........................................... . 14 Table 10: Status of Legal Covenants ........................................... 15 Table I 1: Compliance with Operational Manual Statements ................. ................ 16 Table 12: IDA Resources: Staff Inputs ............................................ , 16 Talble 13: IDA Resources: Missions .......................... 17 Appendix: ICR Mission's Confirmation Letter and Aide-Memoire Map IBRD 21960 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ii IMPLEMENTATION COMPLETION REPORT CHINA LIAONING URBAN INFRASTRUCTURE PROJECT (CREDIT 2219-CHA) Preface This is the Implementation Completion Report (ICR) for the Liaoning Urban Infrastructure Project in China, for which Cr. 2219-CHA in the amount of SDR 54.2 million (US$77.8 million equivalent) was approved on March 21, 1 991 and made effective on July 24, 1991. The Credit was closed on March 31, 1997, compared with the original closing date of June 30, 1996. The final disbursement took place on July 25. 1997, at which time a balance of SDR 0.26 million was canceled. The ICR was prepared by Messrs. Edouard H. Motte, Urban Development Sector Unit, East Asia and Pacific Region (EASUR) and Leon H. Miller (consultant) and was reviewed by Messrs. Keshav Varma, Sector Manager, EASUR, and Yukon Huang, Country Director, China. Preparation of this ICR was begun during IDA's last supervision mission in April 1 997 and is based on those findings and materials in the project file. The Borrower did not submit an ICR, nor comment on IDA's ICR.  iii LIAONING URBAN INFRASTRUCTURE PROJECT (Cr. 2219-CHA) CHINA Evaluation Summary I ntroduction i. This project was for Liaoning Province, an important industrial base in northern C hinla. The project was the initial phase of an investment program aimed at addressing water shortages and poor water quality in the cities of Shenyang, Ylngkou and Fuxin, and shortcomings in urban transport in Shenyang. Project Objectives i i. The objectives of the project were: (a) to improve water supplv conditions in the thr ee project cities through physical works and strengthening of institutions, regulations, mlaniacement, financial and pricing policies; (b) to improve traffic and public transport coonditions in Shenyang through a pilot program of selected low-cost physical works and institutional strengthening; and (c) to improve measures for water pollution abatement through technical assistance in wastewater treatment, and strengthening of institutions and enforcement measures for water pollution control. iii. Key Covenants. In view of the importance of the institutional capacity building objectives cited above, the Development Credit Agreement provided covenants for: (a) studies on water resource and water pricing; (b) water companies to carry out an action plan to improve water metering, system leakage and staffing levels; and (c) water companies to furnish IDA with annual financial forecasts for rolling eight-year periods. Although there were no covenants pertaining to training per se, the project plan provided for training and advisors for each of the water companies and for the transport bureaus. ix. Project Objectives Evaluation. The physical objectives were realistic, but the institutional objectives were somewhat ambitious. Over the life of the project, all the objectives proved suitable in the context of the subsequent economic development and reforms undertaken by the country. The physical objectives carried little or no risk to implementation; however the institutional objectives were noted in the Staff Appraisal Report (SAR) as a risk to project implementation. The objectives on the whole were well conceived for both the physical works in both the water and transport sectors in the selected cities, and for the required institutional developments needed to have progressive organizations in a rapidly developing province.  iv limplementation Experience and Results v. Overall the project's outcome is deemed satisfactory. Achievement of the project's physical objectives was substantial. The project exceeded its objectives for the amount of water supply transmission and distribution watermains constructed, and was tlhus able to increase service beyond the original targets (para 7). I'or the transport component. major improvements in Shenyang's traffic flows were achieved (para 8). flowever, achievement of the project's institutional and financial ob.jectives was neriligible, as the Borrower did not realize the full benefits of the techinical assistance (TA) and training (paras 9-12). vi. Implementation proceeded smoothly. The physical aspects of the project as appraised were completed in 1994. However the closing date was extended by nine mlonitlhs to allow for the completion and pilot implementation of two major studies, and to complete additional works financed from Credit savings. The total project cost was lVS$ 108 million, versus the appraisal estimate of US$128.6 million. vii. One factor that was subject to Governmnent control and that affected the project wNas thie high inflation rate from 1990-94. At that time, the prices of certain construction materials increased by as much as 100-150%. Contractors were unable to continue to peform, so contracts had to be amended to provide cost escalation clauses (para 16). viii. Two factors that were subject to implementing agency control included (a) the lack of acceptance of technical assistance (TA) and training and (b) procurement-related difficulties. For the TA and training, LUCRPO, the Liaoning Provincial Project Office, did not provide the necessary guidance to the consultants nor support the project's institutional objectives. The water companies did not show the necessary commitment to the institutional objectives. The TA and training component for transport was curtailed by the Shenyang project office. Therefore the respective agencies did not benefit from the TA and training that would have put them on solid financial ground (para 17). ix. For procurement, some difficulties were experienced with IDA's English- lariguage procurement documents. These difficulties were overcome with close IDA supervision and with the assistance of foreign consultants (para 18). Also the ICB (international competitive bidding) threshold seems to have been set too low because no ioreigrn firms ever bid on ICB contracts. National competitive bidding (NCB), instead of being truly national, seems to have been carried out at the local level only. In the future, NCB should be carried out in a less restricted manner (para 19). x. The performance of IDA in preparation is rated highly satisfactory and satisfactory in supervision. The project's scope was rightly limited to three cities in the Province and to two components, one for construction for two sectors (water and transport) and one for institutional strenghthening. During supervision, IDA worked closely with the Borrower to resolve procurement issues. Each supervision mission  v empphasized the importance of engaging the consultants particularly oior the water sector. 'I'ask mzanager continuity was high throughout the project cycle (paras. 23-24). xi. The performance of the Borrower in project preparation is r ated highly satisfactory as reflected in the high state of readiness of the procurellmenit documentation during the lag between appraisal and Board presentation. For pro ject implementation the Borrower's performance is rated satisfactory. Construction activities were carried out efficiently for the most part. Resettlement was well executed. However, the Borrower's performance in carrying studies and technical assistance is rated deficienlt as noted in para viii above. Summary of Findings, Future Operations, and Key Lessons Learned xii. There is a follow-on project under implementation, the Liaonillg Environment Project (Ln. 3781-CHA) approved in 1994. A second Liaoning Envirolnment Project is toreseen for FY2000, and a Liaoning Urban Transport Project is planned for FY99 to carry on the work done in the transport component for Shenyang. Sustainability is rated likely (paras 20-22). xiii. Key lessons learned include: (a) As benefits of institutional development are difficult for borrowers to appreciate, project designs must link institutional developments to appropriate incentives and action plans to ensure the ftull implementation of the institutional development program early in the project (paras 9 and 14); (b) Contracts of greater than one year must contain price escalation clauses. Where such clauses have been deleted in the original standard bidding documents, they may be applied expost de facto (para 16); (c) The ICB contract ceiling of US$3.0 million for civil works contracts in China is too low to attract foreign bidders. Also, NCB contracts must be advertised at the national level and not just the local level to attract the best quality at lowest cost (para 19); and (d) Provincial governments require filly experienced staff in both technical and managerial areas and supervision to provide tlle leadership necessary to carry out large scale investment projects and to effectively assist city project staff (para 28).  IMPLEMENTATION COMPLETION REPORT CHINA LIAONING URBAN INFRASTRUCTURF PROJECT (CREDIT 2219-CHA) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. STATEMENT/EVALUATION OF OBJECTIVES 1. Introduction. This project was the fourth in a series of water supply and urban sector projects with the broad objective of improving the utilization and management of \vater resources and urban transport services in China. This project was important to ID A's overall strategy of assisting China in the transition from centralized development planning to a market-responsive and efficient system of development tlhrough enterprise reforms. The project resulted from a bilateral and UNDP-assisted Hun River Basin Management Study, supervised by IDA staff. This study, carried out rrom 1987-89, defined the environmental situation of water resources in the central river basin of Liaoning Province and identified schemes to improve water resource management in the area. The study assessed the feasibility of different schemes to improve water resource manaoTement and water utilization, and the highest priority schemes were incorporated into this project. 2. From the study, the most severe water shortages were found in the cities of Shenyang, Yingkou and Fuxin. Water demand in each of the three cities exceeded production capacity, and supply restrictions had been imposed on both industrial and domestic consumption. Within the cities' built-up areas, which were serviced by the City Water Companies, all residential and commercial users were served. To meet their total demand for water, some industrial users were extracting untreated water either from groundwater sources or from nearby water courses to supplement the available commercial water supply. At the time this project was prepared, it had been estimated that the water company would produce only about one-half of the demand in 1995, and by the year 2000, supply would meet only about one-third of demand. 3 In addition to water capacity problems, the city of Shenyang also was csxperiencing transport constraints. The number of motor vehicles and non-motorized vehicles, mostly bicycles, was expanding at a very high rate while bus ridership had leveled off and in some cases even declined. This decline in bus ridership was due to increased travel time for buses due to the congestion caused mainly by bicycle traffic and deteriorating bus service. Poor traffic management further exacerbated the situation with varying speeds among the different vehicle types, resulting in serious congestion, travel delays and accidents. Traffic separation by motorized and non-motorized vehicles was  2 badly needed along with improvements in the bus companies' equipmilenlt and operations to better service. 4. Prqoect Objectives. The specific objectives of the project were: (a) to improve water supply conditions in the three project cities through physical works and strengthening of institutions, regulations, management, financial and pricing policies; (b) to improve traffic and public transport conditions in Shenyang throLu_gh a pilot program of selected low-cost physical works and institutional strengthening; and (c) to improve measures for water pollution abatement through technical assistance in wastewater treatment, and strengthening of institutions and enforcement measures for water pollution control. z . Key Covenants. In view of the importance of the institutional capacity building objectives cited above, the Development Credit Agreement provided covenants for: (a) studies on water resource and water pricing; (b) water companies to carry out an action plan to improve water metering, system leakage and staffing levels; and (c) water companies to furnish IDA with annual financial forecasts for rolling eight-year periods. Altlhough there were no covenants pertaining to training per se, the project plan provided for training and advisors for each of the water companies and for the transport bureaus. 6. Project Objectives Evaluation. The physical objectives were realistic, but the instituLtional objectives were somewhat ambitious. Over the life of the project, all the objectives proved suitable in the context of the subsequent economic development and reformiis undertaken by the country. The physical objectives carried little or no risk to implementation; however the institutional objectives were noted in tlle Staff Appraisal Report (SAR) as a risk to project implementation. The objectives on the whole were well coonceived for both the physical works in both the water and transport sectors in the selected cities, and for the required institutional developments needed to have progressive water and transport organizations in a rapidly developing province. B. ACHIEVEMENT OF OBJECTIVES 7. Achievement of Physical Objectivesfor Water Supply. Overall. achievement of the project's physical objectives in water supply was substantial. Thle project met its lplysical objectives of constructing about 277 kms of water transmission and distribution lines., intake works, pumping stations and water treatment plants in the three cities. Equipment was procured for water supply and pollution control monitoring. Through cost savings realized during implementation, an additional 108 kms of water transmission and distribution lines were constructed in the three cities. Testing of the treatment plants, pumping stations and the transmission and distribution lines have been satisfactorily completed. The lines exceed the design quantities for all three city schemes. 8. Achzievement of Physical Objectives for Transport. Achievement of the project's physical objectives in the transport sector was also substantial. Major im-provements in Slienyang's traffic flows were achieved through the road upgrading component which included seven corridor separation schemes, amounting to 44 kms. Thle schemes included  3 various improvements such as widening rights-of-way, installing new road signs, but mostly separating bicycles from motorized traffic with barriers. Originally the project provided for 10 such schemes, but later in implementation it was aTreed that three of them would be included in a future program that would include liglht rail transport (proposed Liaoning Urban Transport Project, FY99). The funds originally earmarked for these three corridors were used to construct five flyovers. "Before-and-after" studies conducted on the improved corridors found that traffic speeds had improved by up to 13 km/hr. yielding a very significant FYRR of about 40%. The improvements on the whole have reduced the number accidents by approximately 65%. Road maintenance, traffic signalling and bus depot equipment were provided under the project. 9. Achievement of Objectives for Institutional Strengthening. Achievement of the project's institutional building objectives was negligible. Technical assistance for the water supply component included two major studies: Water Resource Pricing and Urban Water Supply Tariffs. Considerable delays were encountered in the completion of both. When finally completed, the drafts of these studies were found unsatisfactory and reviews by foreign consultants were delayed until the reports could be revised by the local consultants who in fact changed little. The Province studied the proposed reforms and measures. IDA agreed to a nine-month extension of the closing date to allow more time to implement the reforms, but they were carried out only in a pilot stage. The Province and the water conmpanies, therefore, were not able to benefit from the studies' results which provided guidelines for setting appropriate tariffs and determininig provincial policies and guidelines that would have placed them on the sound financial ground necessary for a viable enterprise. 10. A few cases of relatively successful technical assistance may be cited. First, computerized billing systems and leak detection programs were implemented, although only on1 a pilot basis in the three cities. It is expected that the programs will be implemented throughout the three cities in the future. Second, the institutional measures for traffic planning and management systems developed under the project have been integrated into Shenyang's traffic management system. Finally, the US$1.15 million used for water pollution monitoring provided infonnation for the preparation of the follow-on Liaoning Environmental Project (Ln. 3781-CHA). 11. Training included overseas field visits and in-house training for both the water supply and transport components. For the water supply componenl, training in project management and construction supervision was carried out by the foreign consultants advising on that component. Three technical experts were to be assiglned to the water companies for one year to support their personnel in the areas of planninig and preparation of projects, water supply operations, leakage detection, personnel resource development, and financial advice; however they were never employed due to difficulties in locating suitable candidates. After it was determined that suitable candidates were not available for a one-year assignment, it was agreed that short-term specialists would be recruited to provide advice to the water companies in special technical areas. Of the group of  4 specialists planned, there was only one short-term advisor employed by the three water companies amounting to two weeks each to advise them on the water leakage program. 12. In the transport sector, training was carried out by foreign consultants in the areas of traffic engineering, planning, enforcement (safety), bus operations and workshop management, and bus maintenance and manufacture. Unfortunately, the full technical assistance and training program for the transport component was cUrtai led before completion by the Shenyang project office. The unwillingness of the ploject offices to implement the technical assistance components as planned during appraisal severely diluted the effectiveness of this component. 13. Resettlement. Regarding IDA's social objectives concerning involuntary resettlement, achievement was substantial. Resettlement was not a major difficulty in this project since the LUCRPO and the three city project offices had prepared suitable plans for both the acquisition of land and the resettlement of inhabitants as part of their project preparation activities. A resettlement action plan satisfactory to IDA was agreed upon at negotiations and included in the SAR. Acquisition of land and businesses was completed prior to project implementation. A small number of homes and businesses were resettled with minimal disruption to those concerned. The land to be leased was for laying transmission watermains through farmland and was arranged with regard to the crop-growing seasons to minimize the time out of cultivation. After construction of the transmission watermains, this land was returned to the farmers. 14. Overall, the project's design was appropriate for meeting thle project's objectives. Limited criteria for evaluating the performance of the project were included in the SAR, annex 18, but they pertained only to the civil works components. C. MAJOR FACTORS AFFECTING THE PROJECT 15. Factors not generally subject to Government control. The major factors affecting the project were generally subject to Government or implementing agency control. Factors generally subject to Government control 16. Project Cost Overruns. During the period 1990-1994 the country experienced a general inflation rate of 15-18% per year; however the prices of certain construction materials such as cement, steel and timber increased by as much as 100-150%. Such cost increases had not been anticipated when the original construction contr-acts were signed. and the contractors could not continue to perform. Therefore, the contracts were amended to provide price escalation clauses based upon the Provincial Bureau of Statistics price information. Cost overruns were previously shared evenly between the water company, the main contractor, and the sub-contractors. Later in project implementation, all contracts of more than 8 to 12 months included such price escalation clauses as standard practice despite city project office's reluctance to accept this r easonable and standard practice of handling cost increases. (These cost increases were subsequently able to be covered by IDA through a devaluation of the yuan in 1994).  5 Factors generally subject to implementing agency control 17. Use of TA. As discussed in paras 9, 11-12, the management of the three cities and their water companies did not utilize the technical assistance and traininag provided for under the project. LUCRPO did not provide the necessary guidance to the consultants nor support the project's institutional objectives. Neither did the water companies show the necessary commitment to these activities so that the Province might benefit from the inistitutional development programs. The technical assistance and training program for the transport component was curtailed before completion by the Shelnyang project office. Procurement 1I8. Procurement Docunmentation. Although not a major factor. some difficulties arose in the borrowers' understanding of the contracting procedures required for both national and international competitive bidding under IDA guidelines. There was also a language problem in that the project personnel had difficulty in understanding IDA's English-language documents. The differences between IDA's procedures and the traditional Chinese contracting procedures were eventually resolved with the assistance of foreign technical assistance and IDA supervision missions. Many of the bidding and procurement difficulties experienced in this project have subsequentIv been overcome with the use of standardized bidding documents, which were introduced later in project implementatiorn. 19. National Competitive Bidding. Of the 12 civil works contracts let under international competitive bidding (ICB) procedures, no foreign contractors ever bid. Apparently the ICB threshold of US$3 million for civil works was too low to attract loreign bidders. (In the follow-on Liaoning Environment Project, the ICB ceiling was r-aised to US$6 million.) Furthermore, all of the civil works contracts were awarded to local contractors often of the city calling for bids. This would seem to indicate that calls lor bids were not published at the national level, but only locally. In the future advertising and bidding should be carried out in a less restricted manner in order to obtain the best quality works, goods and services at least cost. D. PROJECT SUSTAINABILITY 20. The project's sustainability is deemed likely. The project fulfilled a substantial need in the three cities by supplying water in greater quantity and quality for both domestic and commercial use. Adequate water supply will be crucial for the Province's industrial development and for the overall health and well-being ol' its citizens, particularly in the low-income areas where water pressure had been ullreliable. The water companies have competent staff in the engineering areas to operate and maintain the water supply systems. 21. For the transport component in Shenyang, the improved corridors and flyovers are being heavily used as demonstrated by the high rates of return. The traffic planning and  6 engineering activities are ongoing and will continue to be strengthened through a follow- up project. 22. Even though the project has been completed, the water companiies will need to continue to make improvements in their financial and operational cost r eduction efforts so that they can generate the necessary funds to adequately maintain and expand the systems to meet the growing domestic and commercial needs of the Province. '['his makes it imperative that the results of the Tariff Study be implemented so that thle water companies do not have to depend on the municipal and provincial governments for financial assistance to expand their systems. Training of the financial and management staff needs to be further developed in each of water companies along witth additional computer training. E. DA'S PERFORMANCE 2 5. IDA's performance during preparation and appraisal may be considered highly satisfactory. The project focused on three cities instead of tackling the whole Province. Its scope was rightly limited to water supply construction and road improvements, and was sclective in the institutional building and policy reforms being souLght. In the one year lag between appraisal and board, IDA reviewed procurement documents so that coonstruction could get underway immediately after effectiveness. The appraisal team correctly identified the risk of borrower commitment to institutional and policy reform. 24. IDA supervision is rated satisfactory. Throughout the project cycle, the project lihLd two task managers, and there was excellent continuity in the mission team members. 'ThfIe supervision missions emphasized the water supply component since it constituted 76% of the share of the total cost of the project. From the start of the project, supervision missionis repeatedly emphasized the need to engage the consultants and advisors for the x\ ater supply component as agreed in the project documents and to conduct the studies planned for the project. IDA recognized the beneficial impact this TA could have and included institutional and financial specialists on the missions regularly (table 13). Since thlere were no Credit covenants on these studies and TA requirements, there was little that task managers could do to enforce implementation of these activities. In the future, pro ject design should link institutional developments with time-bound covenants and action plans to ensure the full implementation of the institutional development program in a timely manner. F. BORROWER'S PERFORMANCE ' 5. Along with the IDA, the Borrower, LUCRPO, and the three cities spent considerable effort in preparing this project and had a very close workilng relationship throughout the entire project cycle. For project preparation, the Borrower's performance may be rated highly satisfactory. The Liaoning Provincial Government established LUCRPO, along with four municipal level project offices: water component offices in each of the three cities and one transport component office in Shenyang. These offices  7 were adequately staffed at an early stage with engineers and other staff who had insufficient construction and contract knowledge and experience. 26. Before appraisal, the three cities prepared their respective components, from feasibility studies through engineering design, with the assistance of local design institutes assisted by foreign consultants funded by other bilateral assistance. Detailed designs and tender documents were prepared by the same local and foreign consultants and were readied for tendering during the additional year of preparation (owing to the internal political difficulties in 1989) between appraisal and board. The Borrower's high state of project preparation allowed construction to proceed with few difficulties upon Credit effectiveness. 27. The Borrower's performance during implementation is rated satisfactory for the water and transport components. Despite the inflationary environment mentioned in para 16 above, the project was well executed. All the major construction activities planned at appraisal were completed by the end of 1994, about one year ahead of schedule (see disbursement schedule in Table 4). Resettlement was carried out efficiently as noted in para 13. For the construction activities, each of the project offices attempted to operate in an efficient and professional manner; however all of the offices would hlave benefited from training in project organization and management including quality control. While a Provincial Project Office was desirable for coordination purposes, the establishment of city project offices outside the water companies does not seem appropriate because they contributed little to project development and actually hindered implementation efficiency. Foreign technical assistance for providing guidance to the project offices on construction activities was too limited. During the later stages of the project, the foreign technical assistance was limited to "trouble-shooting" for field difficulties and report-writing for the city project offices. 28. For the studies and the technical assistance the Borrower's performance was deficient. LUCRPO did not provide the necessary guidance to the consultants nor support the project's institutional objectives. None of the three water companies showed the necessary commitment to the completion of these activities so that the Province might benefit from the institutional development programs. This includes the full implementation of the computerized billing systems, the leak detection program, both of which were at a pilot phase at project completion, and the financial forecasting for management which was not understood by the water companies. Also the implementation of the transport technical assistance component was curtailed before completion by the Borrower. LUCRPO did not show adequate leadership in these technical assistance areas, nor did the cities and their water companies give these areas their due regard. Provincial governments require fully experienced staff in both technical and managerial areas and supervision to provide the leadership necessary to carry out large scale investment projects and to effectively assist city project staff. 29. Compliance with covenants was partial. The water companies only partially complied with the covenant to carry out action plans for improved water metering,  8 leakage and staffing. The studies of tariffs and water pricing were poorly done; the financial forecasts were submitted late and were of poor quality (see Table 10). Although not specifically covenanted in the DCA, the training programs for both water supply and transport came late in the project and fell short of project plans. Resettlement was carried out in accordance with the agreed resettlement action plan. G. ASSESSMENT OF OUTCOME 30. Project outcome is rated satisfactory. Construction activities took place in an efficient and timely manner, with sufficient cost savings to allow substantial increases in the laying of additional transmission and distribution lines. The Yingkou scheme was completed in April 1994, and the Shenyang and Fuxin pipelines were completed in late 1994. The water supply construction components for the three cities have been tested, and they meet their design requirements for both the quantity and quality of the water provided. Due to LUCRPO's inability to provide the necessary data, no economic analysis could be conducted on the water supply components. 31l . The transport component improved the flow of transportation in the city of Slhenyang as anticipated during the project preparation. "Before-and-after" studies were conducted on the traffic flows on the improved road corridors. It was found that the traffic speeds improved by up to 13 km/hr giving a very significant FYRR of about 40%. Other improvements, such as flyovers have greatly enhanced traffic flows giving a FYRR of about 29%. At the time of appraisal the IRR was estimated to be 43%. Therefore it can be concluded that the corridor improvements significantly contributed to meeting the development objectives of the project. The institutional strengthening of the transport planning and traffic engineering components was successful and contributed to the preparation of a second project. The computerized road maintenance system was never startecd due to a lack of commitment of the department. H. FUTURE OPERATIONS 32. During the operation of this project standard performance targets were established for the three water companies. However, due to the variations in conditions of the three different water companies, each company was encouraged to adopt their own set of measures pertaining to their operational performance. In addition to actual water production per time period, the main performance indicators suggested to the water companies under this project were: Domestic water supply metering (percent of total units being metered); Unaccounted-for water (water produced/water billed x1 00); and Annual staffing levels (staff per 1,000 connections).  9 I. KEY LESSONS LEARNED 33. The key lessons learned from this project are: (a) As benefits of institutional development are difficult for borrowers to realize, project designs must link institutional developments to appropriate incentives and action plans to ensure the full implementation of the institutional development program early in the project (See paras 9 and 14); (b) Contracts of greater than one year must contain price escalation clauses. Where such clauses have been deleted in the original standard bidding documents, they may be applied expost de facto (See para 16); (c) The ICB contract ceiling of US$3.0 million for civil works contracts in China is too low to attract foreign bidders. Also, NCB contracts must be advertised at the national level and not just the local level to attract the best quality at lowest cost (See para 19); and (d) Provincial governments require fully experienced staff in both technical and managerial areas and supervision to provide the leadership necessary to carry out large scale investment projects and to effectively assist city project staff (See para 28).  10 PART II: STATISTICAL ANNEXES Table 1: Summary of Assessments A. Achievement of objectives Substantial Partial Negligible Not applicable Macro policies Sector policies Financial objectives / Institutional development I/ Physical objectives V Poverty reduction Gender issues Other social objectivesU' , Environmental objectives v Public sector management V Private sector development / Other (specify) 1/ Resettlement 13. Project sustainability Likely Unlikely Uncertain / C. Bank performance Highly satisfactory Satisfactory Deficient Identification Preparation assistance Appraisal / Supervision / D. Borrower performance Highly satisfactory Satisfactory Deficient Preparation Implementation V Covenant compliance / Operation (if applicable) V Highly Highly E. Assessment of outcome Satisfactory Satisfactory Unsatisfactory Unsatisfactory I/  11 Table 2: Related Bank Loans and IDA Credits Loan/credit title Purpose Year of Status Appr-oval Liaoninu Environmental Project 1) Protect main water resources FY95 Under implementation (Ln. 3781-CHA) in Liaoning Province; 2) Strengthen pricing policy and institutional management for environmental protection, water pollution control, wastewater, and solid waste; and 3) Institute measures for air pollution control and cultural heritage asset management. Liaoning UIrban Trransport Project Improve the capability of the FY99 Under preparation 3 project cities of Shenyang, Anshan and Fushun and Liaoning Province to assess urban transport issues adequately and to devise and implement sustainable urban transport policies. Table 3 - Project Timetable Steps in project cycle Date planned Date actual/latest estimate Tdentification (EPS) February 1988 July 18, 1988 lPreparation 1988-1989 1988-1989 Appraisal February 25, 1989 September 1989 [lost-Appraisal J.anuary 1991 Netotiations October 1989 April 6, 1990 Board presentation August 24, 1989 March 21, 1991 Signing December 1989 April 25, 1991 Effectiveness March 1990 July 24, 1991 Project completion December 31, 1995 Credit closing June 30, 1996 March 31, 1997  12 Table 4: Credit Disbursements: Cumulative Estimated and Actual (US$ million) Finanicial Year Appraisal Estimate Actual Actual as % of Estimate US$ US$ 1992 /a 14.8 26.6 180 1993 37.3 49.6 133 1994 55.2 65.8 119 1 '95 68.5 67.5 99 1996 77.8 71.6 92 '1997 73.4 94 1998 75.9 98 /a Includes initial disbursement of $5.2 for Special Account. The date of the final disbursement was July 25, 1997. Table 5: Key Indicators for Project Implementation Borrower unable to supply data. Table 6: Key Indicators for Project Operation Not applicable  13 Table 7: Studies Included in Project Study Purpose as defined at appraisal Status Impact of study Preparation of Second Prepare project proposals concerning, wate Completed Liaoning Environment Stage Project pollution problems in Hun-Toizi River Project (Ln. 378 1-CHA) Basin Water Resource Produce a strategy to encourage the Partiallk None Pricina efficient use of water resources in the Completed Hun-Taizi River Basin. Water Tariff Review existing bases of water charges Partially None Study and to design basis for charges in each Completed municipal water company. Engineering/Economic To determine the impact of low-cost Completecd Used in evaluation for Evaluation of Improved traffic corridor improvments future investments. T raffic Corridors Table 8A: Project Costs Appraisal estimate (US$ million) Actuals Item Local Foreign Total Local Foreign Total ( otlponent \k ;ItCr Sulpply Shem anig 17.2 26.1 42.3 12.7 31.7 44.4 Ilxin 9.2 13.0 22.2 8.3 14.3 22.6 Yingkou 4.9 10.2 15.1 5.0 1().X 15.8 I irhan I ransport Shenvang 5.3 8.0 13.3 4.8 1().5 15.3 I ecih. Assistance anid Training 0.3 4.7 5.0 5.1 5.1 l.and Acquisition 4.8 0.0 4.8 4.8 0.11 4.8 Base Cost (1990) 41.7 62.0 103.7 35.6 72.4 108.0 Phy sical Contingency 4.2 6.2 10.4 ,-riccConitingency 5.1 7.0 12.1 Inmercst During Construction 2.4 0.0 2.4 I otal Cost 51.0 75.2 128.6  14 Table 8B: Project Financing Source Appraisal Estimate Actual (US million) IDA 77.8 75.9 Liaoning Govt. 1.1 31.0 Slhenyang Govt. 30.3 (.9 Fuxin Govt. 12.8 0.2 Yingkou Govt. 6.6 Total 128.6 108.0 Table 9: Economic Costs and Benefits Borrower unable to provide data (see para 3(0) A. Direct Benefits B. Economic Impact  15 Table 10: Status of Legal Covenants Loan Original Revised Agreement CoN la it Fulfillmnliii F` lullfinent lDescri ption Agrceemelt Section l wpe Status D)ate l)atc oi Covennt Comin men ts acCoulntillL/ Project 4.01(b) auditing C 06/30/1993 NA LUCRPO to fLirisih IDA not laterthani 6 monithis after Provincial Audit Bureau provided timely audits of Agreement the end of each year. anniual financial statemenlts and project and special account but was unable to auditor's report of tle operations. resources and provide appropiate audit of water companies. expenditures in respect of the project and special account. Sch. 1, Sec II implementa- CP NA 1991 Liaoning to employ consultants whose qualifications and Project implementation consultants were tion terms and conditionis satisfactory to IDA. employed: Water company advisors wvere never employed. Transport consultant assignient curtailed. Sch 2. Part A, implemenita- C NA 1991 Maintain project offices, staffed by competent staff with Clause I tion finctions and responisibilities satisfactory to the IDA. Sch. 2, Part A, institution CP NA NA LUCRPO to implement training program in accordance Water companies training plans submitted. Clause 2 buildinig with the schedule agreed witi IDA. Project Unit training needs too often minmized or ignored by LUCRPO. Sch. 2, Part A, involuntary C NA NA To carry out resettlement plan satisfactory to IDA. Carried out satisfactority in early part of project. Clause 3 resettlement Sel. 2, Part A, implementa- C NA 1997 Tro undertake a stidy on water resouce and water pricing. Studies started late and proceeded slowly. Cluase 4 tion discuss findings with IDA, and implenient reconimendatiolns. Sch. 2, Part B, implementa- C NA NA Water companies to carry out action plan to improve Consult assisted the companies in analyzing Clause 3 tion water metering system leakage. aind staffing levels. issues. but no follow-up carried out. LUCRPO and lEP unable to press matter with companies. Schl. 2. Part B. accounlinLi C( 0(/30/1993 Water comrllanica it Itiiisli to lID\ auditedltlfnanci al C(lause 4 (c) auditiln Iepops not later hli.11 6 iita1thIs after tIh endl odl achc liscal year. Sch. 2, Part B, implementa- C NA 1993 Water companiies to make adequate arrangellleilts to Clause 5 tion insure their assets. satisfactoiy to IDA. General Section ImionitoriIng/ NC NA 3/31/97 Borrower will provide IDA witll Project Comipletion Conditionis 9.07(c) evaluationi Report 6 montlhs after close of Project C=Cormplied CP=Complied partially NC=Not complied with  16 Table 11: Compliance with Operational Manual Statements There was no significant lack of compliance witlh 13aiik OMSs. Table 12: Bank Resources: Staff Inputs Actual Stage of Project Cycle Weeks ($'000) iThrough appraisal 83.0 232.5 Appraisal-Board 61.6 186.5 Supervision 65.1 197.9 (Completion 7.0 27.5 Total 216.7 644.4  17 Table 13: Bank Resources: Missions 1'erformance rating Specialized staff skills Imple- Devel Stage of project cycle Month/ No. of Days represented rnentaltion opment Type oi year persons in field /a status objectives problem Through appraisal Appraisal through Sept. 1989 Board approval Mar. 1991 4 21 E. F, l-C, IN Board approval Mar. 1991 througih effectiveness July 1991 0 Supervision July 1991 Mar. 1997 Nov. 1991 4 10 E, E, F. IN I I June 1992 2 12 E. E, I I Nov. 1992 2 8 E, IN I I May 1993 3 11 E, IN. 1- I I Dec 1993 3 7 E. IN. F I I June 1994 4 7 E. F, IN. F HS HS Mar. 1996 3 4 E. F, F HS S TA & Studies (ompletion Mar. 1997 Dec. 1997 May 1997 1 2 EC '!i EC: Economist F: Financial Analyst ME: Municipal Engineer E: Sanitary Engineer IN: Institutional Specialist  18 The World Bank 1818 H Street N.W. (202) 477-1234 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRAD INTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS June 9, 1997 Mr. Zeng Juequn, Director Liaoning Urban Construction and Renewal Project Office (LUCRPO) No 282, Danan Shenhe Shenyang 119915, Liaoning Peoples Republic of China Fax: 85-24-481-2392 Dear Mr. Zeng: Re: CHINVA: Liaoninz Urban Infrastrzcture Project. Cr 2219-CH.l Implementation Completion Report Mlfission-A pril/Mlzfav 1997 This letter is to convey our thanks for the hospitality given to Mr. Miller on his recent mission to Liaoning Province and to confirm the relevant areas discussed with him during the mission. The mission was pleased to find that the contract with Mfr. Nickum had been signed and the work on the Water Tariff Resources Study is proceeding. We would urge you to complete this study in a timely manner. This would enable payments to be completed by the end of July, which is the last date for withdrawals from the credit account. The Bank considers this study an important contribution future management of water resources in the Province. It is also encouraging to see that the Water Leak Detection Programs are proceeding in the three cities and are to be used as a basis for planning a maintenance and rehabilitation program and that the cities are utilizing computer billing systems started under the project. Training and use of financial forecasting are important aspects of good management practice. We encourage all cities to continue and expand both of these programs. We are particularly disappointed by the lack of active development and reporting of commercial systems by these water utilities. As was discussed, the Credit Agreement provides that the Borrower provide the Bank with an Implementation Completion Report (ICR) on the Project. This report is due three months after the close of the project on March 31, 1997; thus making the report due to the Bank on or before June 30, 1997. The report prepared by LUCRPO, may certainly be used in the preparation of the final report; however it will need to be expanded in certain areas. Attached is a report outline, prepared by the mission in lieu of the Aide Memoire, after discussing the format with you. The report should be kept to about 15 pages; however supporting materials may be placed in annexes that are not included in this 15 page limit. This outline along with the Bank's Operational Manual provided to you in both English and Chinese, should be used as the main areas of interest to be included in your ICR. Should you have any questions in preparing this report or if you would want us to review a draft copy of the report before its final submission to the Bank, we would be pleased to do so.  19 Mr. Zeng Juequn -2- June 9, 1997 Because of their interest in these matters, a copy of this letter is being sent to Mr. Zhu Xian of Ministiy of Finance; Mr. Zhang Xiaoqiang of the State Planning Commission; Mr. Zhang Yaoru of the MvIinistry of Construction; the Director of the Liaoning Finance Department; Mr. Chi Ruovan of the Shenyang Urban Commission; and Mr. Pieter Bottelier of Resident Mission in Beijing. Sincerely Yours, ne Loos Chief Environmental and Mu i cal Development Operations Division China and Mongolia Department East Asia and Pacific Region  20 CHItNA Aide Memoire for the Completion Mission of the Liaoning Urban Infrastructuire Proiect -Cr 221 9-CHA Closins Date'3)1 March 1997 The Implementation Completion Report (ICR) is due 30 June, 1997 (namely three months after the closing date of 31 March, 1997). For its content, also see Bank publication BP 13.55- Annex A, Section E. Evaluation Summarv. I. Proiect Successes and Problems A. Achievements of Project Objectives (See Annex 6 ) and page 13 I) Construction Program 2) Institutional 3) Financial -Management, Billing, Tariffs setting 4) Management 5, Pricing to achieve efficient use of water. 6) Water Tariff Study 7) Water Conservation Leakage Detection: Pilot Areas 8) Urban Transport Targets and Works. B. Implementation Experiences I) Engineering Design and/Quality testing 2) Soil Analysis and Transport Surveys. 3) Bill of Quantities vs. Quantity Measurements 4) Weather, floods, etc. effect on Construction Program 5) Performance of Desig,n and Constrlction Consultants 6) Bank missions and responses 7) Performance of LUCRPO and City Project Offices 8) Resettlement of homes and businesses 9) Comments of credit convents and agreements II. Experiences and Lessons Learned in Carrying out the Project. Ill. Operational Plans and Performance Indicators for the project implementation and operations. A. Water Production B. Management and Financial Plans for the Future IV. Sample Figures to Include Annex 2-Water Demands- 1991-2005 actual/projected) Annex 10: Estimates vs. Actual component costs Annex 15, Page 4 of 4, Training Carried out under the project Annex 18 - Operation Performance Monitors for the next 5-10 years Annex 22 Key Financial Indicators 1990-2005 (Projected vs. Actual during 1990-1996 and projected to 2005)  MAP SECTION  IBRD 21960R C H I N A\ LIAONING URBAN INFRASTRUCTURE PROJECT Fj Pro1eod Cities Railroad JILIN River-C Prefecture Boundaries S, f- I _ _ Province Boundaries C.n. i..... . 5,0 00N 10 Rs- _~~~~~~~~ FEEAIOntJerlnarOn tiMonal' Boundariesvg Fal,uf N oaI_yuan < /DMCRTCPOL So hu ( NF AEongol > Jllm / Y 40