China - Chongqing Urban Environment Project

Document of The World Bank Report No: 20153-CHA PROJECT APPRAISAL DOCUMENT ON A PROPOSED IN THE AMOUNT OF US$200 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FORA CHONGQING URBAN ENVIRONMENT PROJECT May 22, 2000 Urban Development Sector Unit China Country Management Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective May 1, 2000) Currency Unit = Yuan (Y) Y 1.00 = US$ 0.12 US$ 1.00 = Y 8.3 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CCC Chongqing Construction Commission CEPB Chongqing Environmental Protection Bureau CFB Chongqing Finance Bureau CM Chongqmg Municipality CMCB Chongqmg Municipal Cultural Bureau CMDC Chongqmg Municipal Drainage Corporation CMG Chongqing Municipal GovernTment CMMB Chongqing Municipal Management Bureau CNAO China National Audit Office CPMO Chongqing Project Management Office CSWMC Chongqing Solid Waste Management Company CUEP Chongqing Urban Environment Project DRA Design Review & Advisory (Consultancy) EA Environmental Assessment EMP Environmental Management Plan FMS Financial Management System FDC Fuling Drainage Company GDP Gross Domestic Product GPN General Procurement Notice ICB International Competitive Bidding IPCAP Industrial Pollution Control Action Plan IST Institutional Strengthening & Training MBD Model Bidding Documents MOC Ministry of Construction MOF Ministry of Finance NCB National Competitive Bidding OED Operations Evaluation Department PAP Project-Affected Persons PMO Project Management Office RAP Resettlement Action Plan REMAP Resettlement and Ethnic Minorities Action Plan SEPA State Environmental Protection Agency SMEDI Shanghai Municipal Engineering Design Institute SOE Statement of Expenditure SWSDC Shizhu City Construction Group Water Supply and Drainage Company TGP Three Gorges Project UMIS Urban Management Information System WTP Willingness to Pay WWSC Wanzhou Water Supply Company Vice President: Jemal-ud-din Kassum, EAPVP Country Director: Yukon Huang, EACCF Sector Director: Keshav Varma, EASUR Task Team Leader: Geoffrey Read, EASUR  CHINA CHONGQING URBAN ENVIRONMENT PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 2 3. Sector issues to be addressed by the project and strategic choices 4 C. Project Description Summary 1. Project components 5 2. Key policy and institutional reforms supported by the project 6 3. Benefits and target population 6 4. Institutional and implementation arrangements 7 D. Project Rationale 1. Project alternatives considered and reasons for rejection 8 2. Major related projects financed by the Bank and other development agencies 9 3. Lessons learned and reflected in proposed project design 11 4. Indications of borrower commitment and ownership 12 5. Value added of Bank support in this project 12 E. Summary Project Analysis 1. Economic 12 2. Financial 14 3. Technical 15 4. Institutional 15 5. Environment 16 6. Social 17 7. Safeguard Policies 19 F. Sustainability and Risks 1. Sustainability 20 2. Critical risks 20 3. Possible controversial aspects 20  G. Main Conditions 1. Effectiveness Condition 21 2. Other 21 H. Readiness for Implementation 22 I. Compliance with Bank Policies 23 Annexes Annex 1: Project Design Summary 24 Annex 2: Project Description 26 Annex 3: Estimated Project Costs 32 Annex 4: Cost-Effectiveness Analysis Summary 41 Annex 5: Financial Summary 50 Annex 6: Procurement and Disbursement Arrangements 55 Annex 7: Project Processing Schedule 68 Annex 8: Documents in the Project File 69 Annex 9: Statement of Loans and Credits 72 Annex 10: Country at a Glance 74 Annex 11: Project Implementation Schedule 79 Annex 12: Environmental Assessment and Mitigation Measures Summary 80 Annex 13: Resettlement 95 Annex 14: Project Financial Management System 97 MAP(S) 30736  CHINA CHONGQING URBAN ENVIRONMENT PROJECT Project Appraisal Document East Asia and Pacific Region EASUR Date: May 22, 2000 Team Leader: Geoffrey Read Country Manager/Director: Yukon Huang Sector Manager/Director: Keshav Varma Project ID: P049436 Sector(s): US - Urban Environment Lending Instrument: Specific Investment Loan (SIL) Theme(s): Urban Poverty Targeted Intervention: N Project Financing Data Li Loan Li Credit Ol Grant El Guarantee Li Other (Specify) For LoanslCredits/Others: Amount (US$m): 200.0 Proposed Terms: Variable Spread & Rate Single Currency Loan (VSCL) Grace period (years): 5 Years to maturity: 20 Commitment fee: 0.75% Front end fee on Bank loan: 1.00% Finanching;Plan.- Source Local Foregn Toal- GOVERNMENT 306.80 29.10 335.90 IBRD 34.70 165.30 200.00 Total: 341.50 194.40 535.90 Borrower: PEOPLE'S REPUBLIC OF CHINA Responsible agency: CHONGQING M7UNICIPAL GOVERNMENT through the Chongqing Planning Commission Address: 248 Renmin Road, Chongqing, 400015, People's Republic of China Contact Person: Mr. Gan Yuping, Deputy Mayor, Chongqing Municipal Government Tel: 011 86 23 6387 7677 Fax: 011 86 23 6387 7822 Email: cmgpmo@public.cta.cq.cn Estimated disbursements (Bank FY/US$M): 1Y A 2001 ~~~002 200~3 2004 20520 007 y.,.,. ., ''" -0 Annual 11.0 18.9 37.0 55.8 48.3 18.4 10.6 Cumulative 11.0 29.9 66.9 122.7 171.0 189.4 200.0 Project implementation period: April 2000 - December 2005 Expected effectiveness date: 10/01/2000 Expected closing date: 12/31/2006 OCS PAD Fovv Rev. Mad>, 200)  A. Project Development Objective 1. Project development objective: (see Annex 1) The development objective of the proposed Chongqing Urban Environment Project (CUEP) is to provide a safe environmental setting for the sustainable long-term economic growth of urban areas in Chongqing Municipality (CM). The project would support the Municipality in implementing the first phase of a long-term urban environmental improvement program to recover from past environmental degradation of its water and land resources, provide an adequate supply of safe water to its growing urban population and economy, and maintain water quality at levels that are compatible with the needs of the wider Yangtze River Basin. Progress toward this objective would be measured in terms of: (a) reduction of pollution from the urban sector through selective high-impact wastewater and solid waste management improvements; (b) expansion of capacity for supplying safe water in urban areas; (c) enhanced capacity for region-wide water quality monitoring; (d) improved administration, planning and management of the existing built environment; and (e) strengthened financial viability and institutional autonomy of municipal service providers. 2. Key performance indicators: (see Annex 1) Key performance indicators would include quantified targets for reduced water pollution from the urban areas into rivers, reduced water pollution from the industrial sector, expanded supply of safe water to meet urban demand, increase in volume and service area of solid waste collected and disposed of, reduced level of subsidies for investments in urban environmnental infrastructure, and improved awareness, management and control in urban planning and environmental protection. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 16321-CHA Date of latest CAS discussion: 03/18/97 The project would support directly two of the five priorities expressed in the most recent CAS: the safeguarding of the envirorunent and the reduction of infrastructure bottlenecks. Specifically, it would strengthen water quality management capability and expand the capacity of urban environmental services. The project would also support the use of tariffs to finance environment-related public services, and the Bank and China's growing focus on river basin pollution control. Discussions with the central and municipal governments have laid the foundation for long-term Bank involvement in strengthening these services, with the proposed project acting as the first step in this process. 2. Main sector issues and Government strategy: Sector Issues: There are three major issues facing Chongqing with regard to the urban enviromnent: (a) enviromnental degradation, (b) financial weakness of the municipal service providers; and (c) inadequate framework for water resource management. Chongqing's economic growth, in terms of population, industry, and agricultural production, has come at the cost of increased pollution of air, water, and land resources. Within China, Chongqing ranks worst among 23 large cities in air quality in terms of concentrations of sulfur dioxide and eighth for levels of suspended particulates (TSP); Chongqing City is the largest source of organic water pollution in the Yangtze River Basin upstream of the Three Gorges Project (TGP). The impact on water quality in local rivers, however, has been uneven. Preliminary river modeling indicates that so far the Yangtze River has -2 -  been able to absorb urban, agricultural, and industrial pollution loads while maintaining acceptable water quality, due to its high flow and large assimilative capacity. However, pollution has severely deteriorated the water quality in its major tributaries, the Jialing and Wu. Health impacts due to the poor water quality in the Jialing and Wu have been substantial: intestinal infectious diseases such as hepatitis A and dysentery have incidence rates some 50 percent higher than national average, and numbers of E.coli bacteria are very high in some water sources, particularly the Jialing in urban Chongqing. The completion of the TGP, some 600 kilometers (km) downstream of Chongqing City, will reduce the velocity of the Yangtze River, increase its water depth, and alter the flow regime. From a river basin perspective, Chongqing needs to be concerned with maintaining a level of water quality that will avoid eutrophication of the future reservoir. From a local perspective, Chongqing plans to ensure that its supply of safe water is not endangered by deteriorating surface water quality, in particular near water intakes, and the municipality proposes to adjust its urban environmental infrastructure to the heightened water level; two of Wanzhou's water supply plants would be submerged, parts of the sewer system and wastewater treatment plants would be flooded, and open solid waste dumpsites located near the river washed out. The proposed project is not involved in the TGP in any way. Urban water supply has for the most part been adequate, but occasional localized shortages are likely to become increasingly severe, largely due to the limited capacity of the distribution system. Wastewater collection is, however, limited. Expansion of water and wastewater management capacity is hampered by the weak financial situation of the service providers, which are typically water supply companies and government departments for drainage and solid waste management. These entities find themselves in a transition phase where the traditional government subsidies have been reduced but the tariffs for municipal services do not yet cover the full cost of operation and investment. The municipality now encourages the creation of financially autonomous municipal companies, but such companies tend to lose money due to weak financial and operational management and relatively high per capita water demand, which in part is the result of low tariffs that do not induce efficient water use. Government Strategy: To address the growing need for municipal services, the Chongqing Municipal Government (CMG) plans to curb pollution from urban and industrial sources and to expand and improve municipal water supply systems. Ambitious pollution control targets have been set for the year 2000, including a cap on the total amount of heavy metals in industrial wastewater at 1995 levels, and the improvement of surface water quality to meet national standards. Some 25 percent of domestic and about 50 percent of industrial wastewater discharges would be collected and treated in the first phase, far more than the present levels of less than 5 percent. To reach these targets, the municipality must tighten the enforcement of existing standards, in particular for industrial pollution control; expand the capacity of wastewater collection and treatment systems; and improve solid waste management. Water supply plans include the remodeling of existing systems and construction of new systems to provide water to urban residents. In order to finance the expansion of urban environmental infrastructure, CMG has created financially autonomous wastewater companies. Given shrinking public investment budgets and subsidies, these companies would, from now on, rely increasingly on user charges to finance their operational costs and debt service requirements. The already established financially autonomous water supply companies would, through tariffs, finance their operational and debt service costs. These cost recovery objectives are consistent with central and provincial/municipal government objectives for utility companies and are supported by the Bank. Solid waste management services would be financed increasingly from user fees. The high cost of investment in urban environmental infrastructure calls for integrated water resource management. It is necessary to identify cost-effective solutions that would address water supply and - 3-  wastewater management simultaneously, and take into account the water quality needs of the entire river basin. To reach this goal, CMG must overcome the current institutional fragmentation in water resource management and build management support systems for forward-looking, long-term planning, making effective use of the large amount of data periodically generated by various agencies but not yet used in long-range planning. 3. Sector issues to be addressed by the project and strategic choices: Environment and Wastewater Management: The project would support CMG in implementing its water quality protection and environmental rehabilitation strategy. Given the consistently high water quality of the Yangtze River and its large assimilative capacity, efforts would focus on the Jialing River Basin. During project preparation, it was important to determine the appropriate level of wastewater treatment. The initial government proposals, involving a high degree of treatment to only a minor proportion of wastewater flows, were too costly and did not achieve immediate-term water quality improvements commensurate with the level of expenditure. The project would assist in planning the most cost-effective long-term solution. The construction of link sewers and connections would be an integral part of the project, to ensure wastewater interception from water supply systems, and service level coverage. Treatment and disposal strategies would initially make use of the assimilative capacity of the Yangtze River, together with a least-cost economic analysis to determine longer-term treatment proposals. Industrial Pollution Control: There is also substantial pollution from industry, particularly in the Jialing River Basin. Without a significant effort to control industrial wastewater pollution, expected environmental benefits from municipal investments would be marginal. CMG has agreed to address this issue through the implementation of an Industrial Pollution Control Action Plan (IPCAP). The IPCAP would reduce pollution loads discharged from the key polluting sectors: fertilizer, pulp and paper, food, chemicals, steel and mining, by means of a program of investments in wastewater treatment and clean technology, covering process improvements and materials substitution. In the case of pulp/paper production, the IPCAP would adopt a sector-wide approach based on restructuring and rationalization to ensure affordability of pollution control and sustainability for the sector. The initial phase of the IPCAP would involve local investments at 16 large polluting enterprises in the fertilizer, chemicals, paper and steel sectors. Water Supply: The project would support the expansion of water supply in Nanbin Town in Shizhu County and Wanzhou City. In addition to remodeling and building new capacity, the project would support demand management, in particular through increased tariffs. Current national and provincial/municipal development plans are based on an increase of water consumption from about 150 liters per capita per day (lcd) to about 210 lcd in the year 2000. Taking into consideration the large investment requirements for both water and wastewater infrastructure, this unit water demand appears high compared to other countries. The project investments would enable the towns to meet demand within expanding service areas through about 2010 while at the same time providing demand management through the tariff structure. Municipal Solid Waste Management: The project would support Chongqing city proposals to increase service coverage by about 16 percent, enhance operational efficiency, and provide for the environmentally safe disposal of municipal solid waste. Chongqing would also increase collection and landfill fees, aiming to recover a major portion of the service operating costs. The nightsoil management system would also be improved. -4 -  Region-wide Water Resource Management: CMG lacks analytic tools and management support systems to integrate the various data sources available on water quality and quantity. The project would support the development of urban management information systems (UMIS) for the government and for utilities to project demand for infrastructure and services, assess their impact on the environment, and monitor Wends. CMG would have the opportunity to link with a similar system currently under development with Bank assistance in neighboring Sichuan Province, allowing both governments to undertake more effective river basin-wide planning. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Indicative 0n- %o - Component Sector Cots %- . fna .if - Ba