China - Second Tianjin Urban Development and Environment Project

Document of The World Bank ReportNo: 25 184 PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN NTHE AMOUNT OF US$150 MILLION I TO THE PEOPLE'S REPUBLIC OF CHINA FOR SECOND TIANJIN URBAN DEVELOPMENT AND ENVIRONMENT PROJECT April 2 1,2003 Urban Development Sector Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective October 3 1,2002) Currency Unit = Renminbi Yuan (RMB Y) Y 1 = US$0.12 US$1 = Y8.28 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ADB Asia Development Bank ATC Area Traffic Control BOD Biological Oxygen Demand COD Chemical Oxygen Demand CYE ChuangYe Environmental Protection Company EA Environmental Assessment EMP Environmental Management Plan EPB Environmental Protection Bureau GEF Global Environment Facility GOC Government o f People’s Republic o f China ICB International Competitive Bidding IRR Inner Ring Road JBIC Japan Bank for International Cooperation MEB Municipal Engineering Bureau MEC Municipal Engineering Corporation MFB Tianjin Municipal Finance Bureau MOF Ministry o f Finance, China MRR Middle Ring Road Mv Motor vehicle NCB National Competitive Bidding NFA Net Fixed Assets NMV Non-Motor Vehicle PIP Project Implementation Plan PTD Public Transportation Department, TCMC PTD Public Transportation Corporation QCBS Quality and Cost Based Selection RAP Resettlement Action Plan RFP Resettlement Policy Framework SCATES Sydney Coordinated Adjustable Traffic Evaluation System SPO Subproject Office TA Technical Assistance and Training TCMC Tianjin Construction and Management Commission TDC Tianjin Drainage Company TEDA Tianjin Economic Development Area, near the Tanggu port TJPMO Tianjin Project Management Office, TCMC TMD Traffic Management Department, Public Security Bureau TMEDI Tianjin Municipal Engineering Design Institute TMEIC Tianjin Municipal Engineering Investment Company TMG Tianjin Municipal Government TUDEPl Tianjin Urban Development and Environment Project TWRC Tianjin Water Reuse Company UPB Urban Planning Bureau voc Vehicle operating cost WRB Tianjin Water Resource Bureau WWTP Wastewater Treatment Plant I Vice President: Jemal-ud-din Kassum Country ManagerDirector: Yukon Huang Sector ManagerDirector: Keshav Varma Task Team Leadernask Manager: Songsu Choi  CHINA SECOND TIANJIN URBAN DEVELOPMENT AND 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 6 2. Key policy and institutional reforms supported by the project 8 3. Benefits and target population 9 4. Institutional and implementation arrangements 10 D. Project Rationale 1. Project alternatives considered and reasons for rejection 11 2. Major related projects financed by the Bank and/or other development agencies 12 3. Lessons leamed and reflected in the project design 13 4. Indications o f borrower commitment and ownership 14 5. Value added o f Bank support in this project 14 E. Summary Project Analysis 1. Economic 14 2. Financial 15 3. Technical 17 4. Institutional 17 5. Environmental 18 6. Social 20 7. Safeguard Policies 21 F. Sustainability and Risks 1, Sustainability 21 2. Critical risks 22  3. Possible controversial aspects 23 G. M a i n Loan Conditions 1. Effectiveness Condition 23 2. Other 23 H. Readiness for Implementation 25 I.Compliance with Bank Policies 26 Annexes Annex 1: Project Design Summary 27 Annex 2: Detailed Project Description 30 Annex 3: Estimated Project Costs 37 Annex 4: Environmental, Social, and Economic Impacts 38 Annex 5: Financial Analysis o f the Tianjin Sewerage Sector 51 Annex 6: (A) Procurement Arrangements 59 (B) Financial Management and Disbursement Arrangements 65 Annex 7: Project Processing Schedule 70 Annex 8: Documents in the Project File 71 Annex 9: Statement o f Loans and Credits 72 Annex 10: Country at a Glance 76 MAP(S) IBRD 3 1859 IBRD 32321  CHINA Second Tianjin Urban Development and Environment Project Project Appraisal Document East Asia and Pacific Region EASUR Date: April 18,2003 T e a m Leader: Songsu Choi Sector ManagerlDirector: Keshav Varma Sector(s): Sewerage (45%), Sub-national government Country ManagerlDirector: Yukon Huang administration (25%), General transportation sector Project ID: PO40599 (20%), Flood protection (10%) Lending Instrument: Specific Investment Loan (SIL) Theme(s): Access to urban services for the Poor (PI, Pollution management and environmental health (P), Water resource management (S), Municipal governance and institution building (S), Infrastructure services for private sector development (S) P [XI Loan [ ]Credit [ ]Grant [ ]Guarantee [ ]Other: For LoanslCreditslOthers: Amount (US$m): 150 Borrower Rationale for Choice of Loan Terms Available on File: 1Yes Proposed Terms (IBRD): Variable-Spread Loan (VSL) Grace period (years): 5 Years to maturity: 20 Commitment fee: .75% Front end fee (FEF) on Bank loan: 1.00% Payment for FEF: Capitalize from Loan Proceeds Borrower: PEOPLE'S REPUBLIC OF CHINA Responsible agency: TIANJIN MUNICIPAL GOVERNMENT Project Management Office, Construction Commission Address: 56 Changsha Rd., Heping District, Tianjin 30005 1, China Contact Person: Mr. QiWenjie or Mr. Wang Yifang Tel: 86-22-2330-3630 Fax: 86-22-2330-6419 Email: tjpmo@public.tpt.tj .cn Project implementation period: C Y 2003-2009 Expected effectiveness date: 08/15/2003 Expected closing date: 06/30/2010 A. Project Development Objective 1. Project development objective: (see h e x 1) 1. The project will help develop and carry out physical and institutional measures that would enhance the efficiency and equity o f urban wastewater management and transportation systems, and thus facilitate the sustainable development o f Tianjin and serve as models for other cities in China. 2. Growth o f cities and towns i s key to China’s continued economic growth and restructuring as well as improved equity in the future. Thanks to large investments in the past two decades, the availability o f basic infrastructure and resources has become less o f a concern at least in large cities o f China. More important, at present and for the future, are their efficiency and sustainability, and their distribution among different income groups and different areas. Examples illustrating these issues include: the pollution o f waterways that not only damages the ecology but also deprives cities and farms o f the necessary water resources; growing deficits in infrastructure and environmental protection in fast developing new urban areas compared with great improvement in mature cities; institutional and financial frameworks for infrastructure lagging behind the growth o f the assets and expenditures; and the low utilization o f the limited urban road capacity due to low levels o f bus services and traffic management. The proposed project will support measures to address these issues for wastewater management and transportation, for which largest shares public investment are planned for the next decade in Tianjin, typical o f most cities o f China. 3. Many o f these programs - wastewater utility commercialization, suburban wastewater management, sewage canal rehabilitation, water reuse, and bus priority measures - represent significant innovations that are financed for the f i r s t time in China by the Bank and will serve as important experiments and demonstration for advances in urban management in China. 2. K e y performance indicators: (see Annex 1) 0 Urban wastewater management coverage: Collection and treatment o f wastewater from 80% o f the central city and first 150,000 m3iday o f wastewater in suburban towns; average income in districts served 15% lower than areas already served at the project start; e Water Reuse: Use o f about 20,000 m3lday o f reclaimed wastewater for urban uses, and 600,000 m3iday for agricultural purposes 0 Road Transportation: Travel time to cross selected points; 0 Public Transportation: Increase in the modal share o f buses. 6. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 25141 Date of latest CAS discussion: December 19, 2002 The project addresses the overarching CAS theme of “Facilitating rural-urban transition and sustainable development” by aiming at four specific goals under it: Improving public sector management and public service provision, Assisting the less advantaged population and areas, Strengthening environmental protection, and Improving natural resource management. 2. M a i n sector issues and Government strategy: 1. Cities o f China have undergone breathtaking growth and transformation over the last two decades, economically and physically. Radical decentralization o f fiscal and administrative authority in the early 1980s unleashed sustained heavy investments in infrastructure and housing, which had -2- deteriorated badly during the preceding two decades but now can be considered at least adequate for most cities o f China. As rapid urban economic growth i s expected to continue well into the future, the pressure for further expansion o f infrastructure would continue. On the other hand, the singular focus on expansion i s yielding to broader and more qualitative issues o f sustainabil~ty,eflciency, and equity. 2. The rapid industrial and urban growths have also increased the concem for environmental sustainabili~. The government has pursued an active policy for environmental protection since the late 1980s, more forceful than most other matters largely delegated to local governments. The policy attention and industrial renovation have slowed the environmental deterioration and, in many large cities, reversed it. Nevertheless, water pollution remains serious and growing, due mainly to increasing wastewater from domestic and semi-urban sources. The pollution i s especially grave in three river (Huai, Hai, and Huang) basins and the Bohai Bay in Northern China, where water scarcity constrains economic growth yet water quality in most water courses i s rated unfit for any productive use. The government has made the clean-up o f the Three Rivers, Three Lakes (Tai, Dianchi, and Chao), and Bohai Bay as a high priority national program; embarked on a program to increase water conservation and reuse in Northern China; and mandated all municipalities in the country to treat 50% o f wastewater, and the larger ones to treat 70%, by 20 10. 3. While much remains to be done, especially for environmental protection, the extensive urban reconstruction over the last two decades has alleviated most glaring infrastructure deficiencies while increasing the resource requirements to operate and maintain the enlarged stock o f infrastructure. At the same time, the on-going downsizing o f the government and the state-owned enterprise sectors i s constraining the fiscal and quasi-fiscal resources. These increase the importance o f eflciency and sustainabili~ in infrastructure investment and utilization. Examples o f common inefficiencies found in China include idling o f wastewater treatment plants due to overdesign or lack o f operating h d s , and l o w utilization o f road capacity due to weak traffic management and public transportation. T o increase the efficiency and sustainability o f infrastructure, the government has been promoting full-cost recovery and commercialization o f infrastructure services. For healthy development and operation o f market-based provision o f infrastructure, i t would be essential to develop adequate regulatory andplanning capacities which do not exist or are being weakened in the midst o f the transition to market and the government streamlining. 4. For new or small urban areas o f China, however, expansion o f infrastructure and services remains a dominant issue. As a group, smaller cities, towns, and semi-urban areas have been experiencing much faster economic and demographic growth than larger cities but their infrastructure and services have not kept pace, partly as the current fiscal system o f China allows little borrowing or redistribution o f fiscal and technical resources. As a result, small urban areas face a serious and growing deficit in infrastructure, services, and the environment. This imbalance between growth needs and supporting services and between small and large urban areas represents an inefficient allocation o f resources and a growing threat to the environment. I t also presents a major equity issue as most o f the jobs to absorb rural surplus labor have been created in the small urban areas. Urban Development and Environment in Tianiin 5. Tianjin Municipality i s a provincial-level jurisdiction located between Beijing to the west and Bohai Bay to the east. It consists o f six urban districts that make up the Tianjin "city proper" as well as nine suburban districts and counties, with a total population o f about 10 million. First developed as a gateway to Beijing, the city has grown into a premier industrial and transportation center o f North China. I t now anchors a diversified metropolitan area, with fast industrial developments in suburban Districts. -3- The city i t s e l f remains compact, and most o f i t s 5.5 million residents live within about 200 km2 6. The Municipality provides vivid exhibits o f many key urban development and environmental issues facing cities o f China today. Traversed by the Hai River, bounded by the Bohai Bay, and heavily industrial, it i s a focal point o f the national campaign to improve water quality and maximize the use o f water resources. Physical compactness o f the central city and i t s limited fiscal resources, s t i l l largely based on struggling old industries, heighten the need for efficiency in infrastructure investments and utilization. Continued rapid development o f suburban areas holds the key to the Municipality's economic f i t u r e as well as equity and environment. 7. Tianjin has been a prominent national model o f quality and innovations in urban development and environmental protection. Following i t s impressive recovery from the devastating 1976 earthquake, in the 1980s it became the f i r s t city in the nation to successfully build and operate a large scale (200,000 m3lday) wastewater treatment plant, intercept most o f the industrial wastewater from the natural river, develop low-cost housing and housing exchanges, and complete a three-ring road system. I t was also one o f the first to develop competitive construction and development industries, and experiment with automated area traffic control systems and subways. The Bank assisted Tianjin's continuing innovations through the Tianjin Urban Development and Environment Project (TUDEP1, 1993-2000), which helped introduce a market-based resettlement system, high (at the time) sewerage tariffs, competitive public bus services, an industrial pollution control find, a large-scale sanitary landfill, all o f which became national models. More recently, Tianjin became the first among large Chinese cities to raise water tariff to over Y 31m3, to commercialize wastewater treatment plants, to commercialize heating services and tariffs, and to pilot a large-scale urban use o f reclaimed water. 3. Sector issues to be addressed by the project and strategic choices: Wastewater Management 1. A major current undertaking o f Tianjin i s the program to meet the national mandate for wastewater treatment. The program, not including the works proposed for the Bank financing, would collect and treat about 70% o f the city's wastewater by 2005, well ahead o f the target date for large cities o f China. The program calls for adding three WWTPs with about 1.2 million m3lday capacity and associated sewer networks at a total estimated cost o f about Y 3.5 billion. About half o f the required financing will be from the China Development Bank, Japan Bank for International Cooperation (JBIC), and Asia Development Bank (ADB). 2. The proposed project will supplement and extend this program by addressing i t s three critical weaknesses. The first issue i s the high risk o f underutilization o f the new capacity due to the insufficient collection network, which the proposed project would augment. The second issue i s the financing and institutional challenges for construction and operation o f the facilities. The Tianjin Municipal Government (TMG) has established a commercial company for wastewater treatment, but i t s contractual terms, set with an excessive focus on investment financing in the absence o f proper regulatory framework, appear to risk the long-term financial sustainability. The project will support an Action Plan to establish sound regulatory and contractual frameworks. The third issue i s the omission o f the poorest o f the six drainage districts (Nanjiaowai or South suburb) due to financial constraints. The proposed project will finance the construction o f the wastewater collection and treatment systems o f the district, completing the full coverage o f the city's wastewater. 3. Most o f the population and industrial growths o f Tianjin Municipality over the last decade have occurred in areas outside the central city. As a result about 60% o f total wastewater o f the municipality -4- i s now generated from the new urban areas, consisting o f over 20 towns and industrial districts. Yet there i s n o W W T P outside the city except one in the Tianjin Economic Development Area (TEDA). The increasing pollution threatens the sustainability o f the key growth areas. The municipal master plan recognizes the problem and calls for full treatment o f suburban wastewater, and the proposed project w i l l help establish a model o f wastewater management systems in these areas. 4. Tianjin's traditional strong environmental agenda and programs have been mainly motivated by i t s water scarcity. It i s now building the national pilot system for reclamation and reuse o f wastewater for a full range o f urban purposes. The proposed project will support the construction o f two wastewater reclamation and reuse systems, designed mainly with reference to environmental, economic and financial viability o f water reuse, in contrast to the main focus o f the national pilot on technical feasibility. 5. A much larger and cheaper potential use o f treated wastewater i s for agriculture. Even the currently untreated sewage i s often used for irrigation o f downstream farms to the detriment o f farmers and foodstuff consumers. Nearly 2 million &/day o f treated wastewater, expected after the completion o f the city's WWTPs, will provide a much improved water source. Nevertheless, t h i s as well as the environmental benefit o f the WWTP investments would be limited as most o f the effluent would be conveyed through a canal heavily contaminated by untreated sewage in the past. The sediment also limits the stormwater drainage capacity o f the canals during the rainy season. The proposed project will support dredging and safe treatment o f the sediment o f the Dagu canal system, which i s the larger o f two sewage canals o f Tianjin and consists o f Dagu, Xianfeng, and Jizhuang canals. Transportation 6. The number o f motor vehicles (MV) in Tianjin has more than tripled to nearly a million over the last ten years, with the small passenger cars increasing the most rapidly, from about 22,000 in 1990 to 250,000 in 2000. Yet the city remains very compact, with i t s five million residents living and working within about 200 km*,and the land area developed for urban uses increasing by less than 30% over the decade. As a result, traffic congestion i s very serious and increasing, but expansion o f roads within the city i s difficult due to the space limitations and costs. While the spatial expansion o f the city itself would help reduce the congestion, it would take a long time. TMG i s taking various measures to increase the use o f the road capacity by reorganization and better management o f roads and especially the junctions. These include traffic interchanges, inexpensive modifications o f lane structures, junction channelization, and area traffic control. TUDEPl supported such measures with the construction o f two interchanges and A T C at some 80 junctions in the city core (on and within the Inner Ring Road - IRR), accident management systems, and traffic police training. The proposed project will extend this support focusing on the Middle Ring Road (MRR) which i s the city's main artery, with the construction o f interchanges in two most heavily congested intersections, a series o f small works to modify selected sections o f the M RR and IRR, and the addition o f A T C on the MRR and areas inside it. 7. To contain the volume o f road traffic itself, it i s critical to increase the use o f public transportation. TUDEPl supported the development o f the public bus system with financing o f a bus depot but mainly with assistance to break up the bus monopoly in favor o f an improved and competitive bus industry, which now consists o f several competing bus companies, some with private partners. As a result, the modal share o f the bus which had been decreasing to about 5% o f the passenger traffic until 1995 has increased rapidly to 8.4% in 2000. TMGs goal i s to increase the modal share o f public transportation to 24% by 2010. This w i l l require a full range o f subway system, which now consists o f one line o f 8 km and i s being expanded slowly. What i s more immediately feasible and cost-effective would be the promotion o f the bus services. The proposed project will support a few pilot bus corridors -5- in selected roads, as well as various measures to support bus services such as bus priority lanes and bus stops incorporated in road modification works. I t will also support studies to design various bus priority measures and improve the bus route network structure. 8. Management o f urban transportation involves diverse functions and expertise - urban planning, road design and maintenance, public transportation management, and traffic management. As in most cities in the world, these functions are fragmented in several different agencies, making it difficult to optimize the transportation system. TMG had a successful experience o f bringing together transportation expertise in various agencies for coordinated planningo f the urban transportation in the late 1980s and early 1990s, but found the coordination difficult to sustain due to the lack o f a fonnal structure. It has therefore decided to establish a formal coordinating mechanism or institution and asked the Bank's support to examine the options and develop such institutional measures. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The project consists o f the following environmental, transportation, and institutional development components. Environmental Components: (a) City Drainage and Sewerage: Construction o f storm water drains, sanitary sewers, and pumping stations in Nanbeicang and Fukangnanlu areas, complementing the wastewater treatment plant (WWTP) being financed by JBIC and ADB; drains and sewers in the South Suburb (Nanjiaowai) district o f Tianjin. These facilities will complete the drainage system envisioned in the Tianjin drainage master plan. The Nanbeicang and Nanjiaowai districts are recently annexed areas with many small industries and lower-income residents. (b) Shuanglin Wastewater Treatment Plant. Construction o f a WWTP o f a 200,000 m3lday capacity, in Shuanglin, serving the Nanjiaowai area. (e) Urban Wastewater Reuse: Construction o f water reclamation (tertiary treatment) plants o f 12,500 - 15,000 m3lday capacity each, attached to the Dongjiao and Shuanglin WWTPs; and reclaimed water distribution systems mainly for industrial and landscape uses. (d) Dagu Canal ~ehabilitation: Dredging o f sediment and rehabilitation o f cross-sections, bridges and culverts, and three pump stations o f Dagu Canal (68 km) and i t s associated tributaries o f Xianfeng (12 km) and Jizhuangzi canals (4 km). These are main wastewater canals for the southern part o f Tianjin City, draining directly into the Bohai Sea since 1960. The project will remove, treat, and dispose o f about 2 million cubic meters o f sediment, up to half o f which i s estimated to be contaminated with heavy metals, in an environmentally sound manner with dedicated landfills. This will prevent recontamination of treated wastewater (three wastewater treatment plants w i l l discharge into the Dagu canal), and also restore i t s storm water conveyance capacity. (e) Suburban Sewerage: Creation o f municipal wastewater collection and treatment systems in about two suburban towns o f Tianjin municipality on a programmatic basis, to initiate and set models for the wastewater management in the suburban areas, which are growing rapidly but without proper urban environmental management systems. -6- Transportation Components: (f) Urban Roads: Construction o f interchanges at two major intersections o f the Middle Ring Road (MRR), and l o w cost traffic engineering improvements on selected locations along the Inner Ring Road (IRR) and the Eastern and Southwestern parts of the M R R. (g) Trafic Management: Extension o f the existing Area Traffic Control System to 300 new intersections - 89 on or within IRR and the rest within the MRR, with channelization and often in connection with bus priority measures. (h) Public Transportation: Preparation and implementation o f bus priority measures on selected corridors, including bus ways and traffic engineering measures, to increase the efficiency o f bus operations and to contribute to increasing the modal share o f the bus system. Technical Assistance: ), Technical Assistance and Training for: (2 (1) Development o f infrastructure information systems; (2) Reform and development o f sewerage institutions and finance; (3) Establishment o f a mechanism or organization to coordinate urban transportation planning and management; (4) Improvement in the traffic forecast model; and (5) Bus routes restructuring and design o f bus priority measures. (a) City Drainage and Sewerage 77.60 23.1 (b) Shuanglin Wastewater Treatment Plan 55.36 16.5 (c) Water Reuse 16.65 5.0 (d) Dagu Canal Rehabilitation 55.15 16.4 (e) Suburban Sewerage 43.10 12.8 (f) Urban Roads 62.26 18.6 (g) Bus Priority Measures 15.16 4.5 (h) Traffic Management 4.09 1.2 (i) Institutional Development 4.63 Total Project Costs 334.00 Front-end fee 1S O Total Financing R e w i r e d 335.50 100.0 I 150.00 I 100.0 -7- 2. Key policy and institutional reforms supported by the project: 1. TMG recently initiated one o f the most far-reaching steps toward market-based sewerage services in China, with the divestiture o f WWTPs to a Chuang Ye Environmental Protection company (CYE) listed in Hong Kong and Shanghai stock exchanges. It also plans to make the Tianjin Drainage Company (TDC), responsible for stormwater and wastewater collection, a fully autonomous company. These steps can enhance the efficiency and sustainability o f the sewerage services, as the government role in service provision i s being reduced. Such benefits, however, would not be possible without proper policy and regulatory frameworks to ensure accountability and encourage efficiency through proper pricing, monitoring, and contract management. In fact, the CYE arrangements, established in the absence regulatory framework with a main focus on market capital mobilization, appear to have generated considerable issues o f sustainability and efficiency (see Section E.2 and Annex 5). 2. Recognizing deficiencies o f the current institutional and financial arrangements for the sector and the need for hrther development, TMG wishes to review various options to improve the arrangements and move further toward well-functioning market-based sector operations. In order to do so, i t agreed to: Carry out a Sewerage Sector Study by June 30,2004 to review and recommend options for organization, financing, and regulation o f sewerage services and their commercialization, and their linkages with urban water supply and water reuse. In order to do so, i t will establish a task force and finalize the terms o f reference by negotiations, and engage consultants by effectiveness. Based on the findings and recommendations o f the Sewerage Sector Study, establish an Action Plan for Sewerage Sector Reform by December 3 1,2004 in consultation with relevant parties including the World Bank. Key considerations will be the regulatory structure and the wastewater pricing regime to ensure fair and equitable prices, sustainable operations, and achievement o f environmental objectives. Carry out the Action Plan thereafter. Unless recommended otherwise by the Study and agreed with the Bank, the Actions would include the following: (a) Establish by June 30,2005 an office with sufficient authority, staffing, budget, and consultant assistance to cany out regulation and other necessary functions to manage the sector. (b) By June 30,2006 enter into a revised contract with TDC, clearly defining i t s responsibility, authority, and payment to cover operating and capital renewal expenses for autonomous operation. (c) Review and revise the service contract with wastewater treatment plant operators so as to ensure the efficiency and sustainability o f such services; (d) By December 3 1,2006, transfer the management responsibility or assets o f wastewater treatment plants owned by TMG to entities selected through a competitive process. (e) Have the Office and the operating entities to carry out studies and training to strengthen their managerial, planning, and technical capabilities. 3. The Action Plan i s expected to result in the first formal regulatory institution for sewerage in China, consisting o f a Public Utilities Office and a Drainage Department, or a new Drainage Management Office, with the policy setting, regulation, and contract management functions. Some of the analytical, planning, and monitoring functions may be contracted out to nongovernmental entities. It i s also expected that the contractual arrangements with C Y E will be modified to comply with the new regulatory framework. -8- 4. Another important innovation to be supported under the project i s a regional sewerage service entity for small jurisdictions in the suburban areas. While the suburban towns are growing fast and require adequate infrastructure and environmental protection to sustain their growth, the efficiency o f utility operations in small towns could be limited by the scarce technical and institutional resources outside large cities. In view o f this, the Coastal Commission, a regional entity under TMG overseeing three fast developing Districts, and the Tianjin Economic Development Area Authority (TEDA) has nominated a new TEDA Water Company to plan and provide water supply and sewerage services to these jurisdictions. The project w i l l support the development o f the regional service provision by supplementing financial and managerial resources whose lack i s impeding the progress. 5. Urban transportation involves diverse authorities and expertise, for the transportation network planning, road design and construction, traffic management, and public transportation. Institutional nview o f this, TMG wishes to establish an effective fragmentation i s a serious inefficiency factor. I coordination mechanism or authority. Under the project, TMG will conduct a study, training, and consultations to review options for such a mechanism (by June 30,2005) and put in effect formal procedures and organizational arrangements from 2006. 6. The project’s physical components support the above institutional development, but also foster a critical redirection o f infrastructure planning and management toward a focus on better utilization and complementarity o f assets. A key to improved efficiency i s creating and using facilities in conjunction with other assets, rather than in isolation. Urban sewers and drains to be built under the project, for example, will increase the utilization o f the existing and planned WWTP capacities, and the Dagu rehabilitation and wastewater reuse components will put their effluents to productive uses. The series o f urban road works under the project combine the road works with traffic management and bus priority measures to increase the traffic flow on the existing roads. Technical assistance for infrastructure information systems, traffic modeling, and bus route restructuring will further help increase efficiency. 7. The project also aims to increase policy attention and public resources to improved equity o f the infrastructure services. These are discussed in the Section 3 below. 3. Benefits and target population: 1. At present most untreated wastewater in Tianjin city and the surrounding areas flow through the countryside and discharges into the Bohai Bay. Duringpart o f the growing season it i s used for irrigation o f grain and vegetable farms, contaminating the soil and crops with pathogens and heavy metals, and posing public health hazards from consumption o f crops as well as human contact in the fields. Pollution o f the Bohai Sea contributes to “red algae blooms”, contaminates mariculture farms and open water fisheries resulting in public health concerns, and upsets the general ecological balance. Wastewater treatment in the city and suburbs and the removal o f contaminated sediment from Dagu Canal w i l l improve soil fertility, reduce public health threats from contaminated agricultural and fishery products, directly benefitting suburban town residents, farmers, and mariculturists as well as consumers o f food. They will also help restore the ecological balance in the Bohai Sea. 2. Tianjin municipality i s extremely short o f surface water resources and i s already over-exploiting i t s groundwater. Reclaiming wastewater for agricultural, municipal, and industrial use i s nearly equivalent to developing new sources o f water, and i s generally less expensive than importing expensive water from long distances such as the proposed South-North water transfer from the Yangtze River. This will benefit the public at large, but especially the poorer households for whom the cost o f water represents a significant financial burden. -9- 3. The project will finance separated storm water and sewage collection systems in accordance with the Tianjin Drainage Master Plan. Investments in storm water drains will reduce flood damages in urban areas, especially the most flood-prone Fukangnanlu area. The separate sanitary sewers will help ensure proper wastewater treatment even during storm events because combined storm overflows will be minimized. While these improvements will benefit the overall city, the directly affected districts of Beicang and South Suburb have a higher proportion o f lower income residents. Rehabilitation o f Dagu Canal will also reduce flooding along the canal in rural areas. 4. The project's transportation components will increase mobility and reduce travel time, especially for bus passengers. A large proportion of the current bicyclists are projected to shift to bus or subway as the city expands and road congestion increases. Improved bus operations are expected to increase the modal share o f buses and moderate the growth in motor vehicle usage and the consequent traffic congestion and emissions, for the city's overall economic efficiency and for the benefit to the public at large. 5. The policy and institutional reforms supported under the project will help to sustain the above benefits o f the project investments as well as other assets and investments. Further, by supporting innovations to address main current issues facing most cities o f China, the project will help establish significant models for urban development and environmental management in China. 4. Institutional and implementation arrangements: 1. The overall project will be coordinated by the Tianjin Construction and Management Commission (TCMC), supported by i t s Project Management Office (PMO). They will report to and be guided by the Project Leading Group consisting o f a TMG vice mayor, vice Secretary General, and directors or deputy directors o f related commissions and bureaus: TCMC, Development and Reform Commission, Finance, Water Resources, Traffic Management, Municipal Engineering, Urban Planning, Housing, Environmental Protection Bureaus. TCMC will also manage technical assistance components in cooperation with line agencies directly in charge, such as MEB, Urban Planning and Real Estate Bureau, and Traffic Management Department. 2. Preparation and implementation of other components are the responsibility o f the following line agencies traditionally in charge o f the respective subsectors: 0 Municipal Engineering Bureau (MEB): urban sewerage and drainage, wastewater reuse, Dagu canal rehabilitation, urban roads, bus priority measures; 0 Traffic Management Department (TMD) o f the Public Security Bureau: traffic signal control system; 0 Suburban Districts and the TEDA Water: suburban sewerage. 3. MEB i s responsible for preparation and implementation o f the major part o f physical investments under the project. However, it will work with other agencies in construction and management o f the assets, as follows: 0 The Tianjin Drainage Company will manage the stormwater and sewage collection systems on completion. 0 Various options are being considered for the Shuanglin wastewater treatment plant, including TDC management, management contract, and privatization. An institutional analysis will be undertaken under the Sewerage Sector Study to help the TMG decide on the most appropriate arrangements (refer to the preceding Section.) - 10- 0 For Dagu Canal rehabilitation, MEB will work under the direction o f a Steering Committee consisting o f representatives from TCMC, the municipal environmental protection bureau (EPB), the municipal water resources bureau m), and the three suburban districts which the Dagu Canal runs through. WRB will be closely involved in the rehabilitation o f the three Dagu pump stations and dredging works, and in the operations including the distribution o f reclaimed wastewater. EPB will play a key role in the monitoring, treatment and disposal o f contaminated sediment. e The two wastewater reuse facilities will be managed by a subsidiary o f CYE, or another institutional alternative to be considered during the project. e For bus priority measures, MEB will work under the technical guidance o f the Public Transportation Management Department o f TCMC and the TMD. D. Project Rationale 1. Project alternatives considered and reasons for rejection: 1. A key strategic choice for the project was i t s scope, in terms o f sectors, geographical area, and innovations. The scope was determined after extensive discussions, on the basis o f the project objectives, Tianjin's track record, and resource constraints. The Bank's main potential contribution to China now lies more in institutional and technical improvements than in the financing, as emphasized by a recent explicit policy statement o f GOC. Innovations are therefore an essential part o f the project objectives, with a focus on those that will increase the efficiency, equity and sustainability o f infrastructure and environment. These are objectives not specific to particular sectors, but overall urban management. The focus on the sewerage and transportation sectors reflects that o f TMG's project proposal which was based on i t s much larger medium-term program and focused on the two sectors that represent the largest current investment programs. The proposal also included others such as heating, gas, and solid waste management investments. These were dropped in view o f little potential for technical or institutional contributions as well as limitation o f management and technical resources that can be devoted to a project. Instead, components have been added within the two main sectors that would introduce important innovations such as the suburban sewerage and bus priority corridors, which TMG was initially reluctant to undertake but agreed to experiment with. 2. The Tianjin Construction and Management Commission (TCMC) has a broad jurisdiction over most o f the above sectors and subsectors, and has a track record o f strong management and innovations, including those under TUDEPl which had a broader scope than the proposed second project. Indeed, most o f the components fall within the jurisdiction o f one bureau, Municipal Engineering Bureau (MEB) which also was the main implementing agency of TUDEPI. The project includes only two components that fall outside the jurisdiction o f MEB and only weakly coordinated by TCMC: the suburban sewerage and the A T C system. These are expected to require high coordination efforts but s t i l l included as they were considered essential in the efficiency and innovation in the sectors, and in view o f the fact that TUDEPl components that were outside TCMC's jurisdiction turned out to be greatly beneficial. TUDEPl components outside the control o f ME3 included an A T C system, a new resettlement system that required working with District governments, solid waste management, and an industrial pollution control component implemented by EPB. 3. For each component, various altematives have been identified and evaluated. In many cases the alternatives proposed by TMG have been adopted with relatively minor modifications, but in some instances alternatives were adopted after analyses. An especially broad range o f options were studied for the Dagu canal rehabilitation, in view o f the risk and cost involved in dealing with the hazardous material content o f i t s sediment. Mechanical dredging and disposal o f sediment along the canal was judged to pose unacceptable risk and was replaced by a combination o f more sophisticated and costly dredging and - 11 - disposal methods. In view o f the cost, alternatives to the Dagu canal itself were considered for conveyance o f the effluent. A thorough analysis showed, however, that the hazardous materials, though substantial, can be safely dredged and treated within costs justified for the benefits. For water reuse, the proposed scope was reduced not to include residential reuse o f reclaimed wastewater in view o f the health risks and costs. To increase road capacity, a main alternative considered was a series o f extensive widening and other improvements to the M R R that will allow it to function as the in-city expressway. However, it was decided that the objective would be too expensive to achieve and more modest improvements would be more efficient. 2. M a j o r related projects financed by the Bank a n d o r other development agencies (completed, ongoing and planned). This i s the second urban development and environment project in Tianjin. The first project financed a similar set o f subsector improvements, but with very different developmental focuses, plus industrial pollution control and solid waste management. I t was rated highly satisfactory in achieving the development objectives. The proposed project will extend the advances during the frrst project. I t also complements the construction and expansion o f WWTPs being financed by JBIC and ADB. A proposed H a i Basin Integrated Water and Environment Management project under preparation for GEF financing from FY 2005 also focuses on improving the Bohai Bay water quality, and will include a direct support for wastewater management in the Tianjin suburbs and the Dagu rehabilitation as well as complementary measures o f groundwater management and water conservation. A large number o f Bank-financed projects in China support urban wastewater management. More recent ones approved in FY 2001 and 2002 include the Second Beijing Environment Project; Hebei Urban Environment Project; Liao River Basin Environment Project; and Huai River Pollution Control Project. Major differences o f the proposed project from these include the sewage canal rehabilitation, more far-reaching commercialization o f sewerage services envisaged, a support for suburban wastewater management, and water reuse. Compared with other urban transportation projects financed by the Bank in China, the project's transportation components have a much narrower scope but focus on new experiments for bus priorities and smaller scale road improvements for efficient utilization o f existing roads. Latest Supewision Sector Issue Project (PSR) Ratings (Bank-financedprojects only) Implementation Development Progress (IP) Objective (DO) Bank-financed Wastewater and solid waste Tianjin Urban Development S HS management, transportation, industrial and Environment (1) pollution control Air and water pollution Second Beijing Urban S S Environment Water supply and sewerage Hebei Urban Environment S S Wastewater management in a river Huai River Pollution Control S S basin Road and bus system improvements Urumqi Urban Transport S S Road and traffic management Liaoning Urban Transport S S improvements Other development agencies Asian Development Bank Tianjin Wastewater Treatment and Water Resource Protection - 12- Japanese Bank for International Tianjin Wastewater Treatment Cooperation (JBIC) Global Environment Facility H a i Basin Integrated Water and Environment Management project (under preparation) 2. The Bank‘s latest comprehensive review o f experiences in water and sanitation sector operations i s old (1992) and focuses on water supply. Therefore the project design relied mainly on lessons from the recent similar Bank operations in China and a few recent Bank studies, mainly on water quality and WWTP performance in China. They found a widespread tendency to over-design W T P s beyond the sewage flow that can be delivered through the collection system or beyond the financial capacity for operation. This problem existed to a small extent with the existing WWTPs in Tianjin, but would have increased drastically with new plants being built with ADB and JBIC financing, without the additional collection system proposed under the current project. Another key finding was that water pollution i s serious and growing faster in suburban areas surrounding large cities than in the central cities themselves. Thus starting to managing the suburban wastewater i s a necessary complement to sewerage investments in the city o f Tianjin. 3. The latest (1997) comprehensive review o f the Bank-financed urban transportation projects around the world identified five key inadequacies which the Bank should help to address: road infrastructure; traffic management; public transportation; institutions; and policy and regulatory framework. The design o f this project addresses all these issues to varying degrees necessary in Tianjin and feasible under the project, with the focus on promoting public transportation. I nthe case o f public bus system, the Review noted that giving buses exclusive rights to curbs and other road infrastructure i s effective where the rules are enforced strongly and the demand i s thin. Difficulties o f bus priority measures in Chinese cities may be attributed to the weakness o f these conditions. It would therefore be a challenge, and interdepartmental coordination would be essential, to design and implement bus priority measures that would be effective. 4. The Bank’s review o f institutional development assistance (1995) found high rates o f unsuccessful or unclear outcomes, and attributed i t mainly to the weak ownership by the implementing agencies, which in turn i s often due to weak match between the institutional development needs and technical assistance (TA) design, and the lack or frequent change o f champions. Experiences in China also indicate similarly weak outcomes o f TA programs in general. I naddition to the lack o f ownership, other major factors appear to be the difficulties that international consultants face in understanding local situations and communicating with counterparts, as well as the weak skills in managing consultant contracts. TA components proposed under the project are limitedto issues for which there i s a strong and well-defined TMG desire for resolution, and are structured to utilize local expertise to the maximum extent available, and with independent experts to help manage the TA components. - 13- 4. Indications of borrower commitment and ownership: As elaborated in Section D.l (paragraphs 1 and 2) above, the project i s largely based on TMG's own programs, included in i t s near-term investment plan. Tianjin was the first city in China to install and operate WWTPs, l e v y significant sewerage tariffs, install a significant wastewater reuse system, and complete the ring road structure; and the first major city to divest WWTP and introduce a competitive public bus system. These actions s i g n i f y TMG's strong comi!ment to the innovations and investments proposed for the project. Whereas the proposed components for suburban sewerage and bus priority corridors have been added to TMG's proposal, they are outside TMG's official plan only at the level o f specific details, not a matter o f policy commitment. The official master plan o f Tianjin set ambitious goals to treat 50% of suburban wastewater and increase the modal share o f public transportation to 25% by 2010. 5. Value added of Bank support in this project: 1. The proposed project would put the Bank's financial, technical, and institutional resources all to good use. Although TMG has large overall fiscal resources (about $3.2 billion a year), it has a very broad mandate and cannot easily finance lumpy capital investments in an efficient sequence. For example, Dagu canal has been periodically dredged and repaired in small sections, but these piecemeal efforts are not efficient as the sections become contaminated again with materials from other parts o f the system. With such piecemeal works, it has also been difficult to afford the necessary analysis and safe remediation measures including the landfill. The Bank's mobilization o f international experts and the financing bring the necessary resources together to achieve fundamental and efficient remediation. Similarly for transportation, due to interdependence o f road sections, piecemeal improvements o f sections are wasted until connected sections are fully improved. 2. The Bank's role as a knowledgeable third party i s put in good use for the refinement o f the commercialization framework that TMG established but wishes to improve, and for promotion o f necessary but institutionally difficult interventions such as the establishment o f the proposed transportation coordination mechanism and the small town sewerage systems. The latter i s another good example o f the strategic use o f the Bank's financial and technical resources on areas where these resources are critically lacking due to the current institutional and economic framework. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) - 1. Economic (see Annex 4): Cost benefit NPV=US$ million; ERR = % (see Annex 4) - dl - Cost effectiveness @ Other (specify) 1. Values o f improvements in transportation, and especially the environment and institutions, are notoriously difficult to quantify, as there are no markets or comparable transactions for much o f the benefits, even if they can be specified at all. One result i s frequent undervaluation, In the case o f the proposed project which mostly consists o f investments complementing existing assets, this particular result i s not a concem. Rather, the usual analysis produces implausibly high benefit estimates due to the so-called endogeneity or network effects. Economic evaluation o f urban road components o f the project, for example, yields benefit-cost ratios o f 6 to 50. These provide clear evidence in favor o f the project's strategy to maximize the utilization o f existing assets. However, these cannot be interpreted in the usual way, since these compare marginal benefits generated from larger networks against the cost only for supplementary, corrective investments. - 14- 2. The nature of the benefit-cost analysis in this situation renders the normal decision rule, which interprets positive net present value as the decisive indicator, o f limited usefulness. The essential analytical task i s evaluation of alternatives, and various analytical methods have been employed for this purpose. For traffic interchanges, the most efficient configurations were selected by comparing estimated marginal benefits o f different designs. For the wastewater reuse scheme, conventional benefit-cost analysis and the associated decision rule was applied to select the efficient scale and technology options. In evaluating different technology and phasing options for the Shuanglin WWTP, a comparative cost analysis was used, which showed that cost savings from adopting a level o f treatment, that i s adequate at present but lower than the official standard, i s minor and easily cancelled out by higher cost o f adding facilities to bring up the treatment to the standard later. 3. An analytical difficulty that results in a serious substantive consequence i s the indeterminacy o f optimal pricing for sewerage services. For sewerage, not only i s the valuation difficult and ambiguous, but users (generator o f wastewater) and beneficiaries are largely separate. While the "polluter pays" principle adopted in the environmental law o f China provides a sound qualitative guidance, the simple prescription o f full-cost levy from users i s unlikely to induce optimal behavioral responses on the part o f wastewater generators and service providers. This i s particularly true as there does not exist even a rudimentary Coaseian bargaining framework such as pollution trading or effective regulatory institution. At the level o f large jurisdictions the issues are at least conceptually clear, making i t possible in principle to set quality standards and consider bargaining, but i t i s not feasible at the level o f individuals. There i s an additional problem that water consumption which i s a normal basis o f sewerage tariffs i s a poor proxy for pollution. Therefore pricing of sewerage services has to be guided not only by economic efficiency considerations but more by considerations o f affordability and cost sharing among involved parties. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) 1. The above discussion highlights user charges, affordability and sustainability as main issues o f practical importance for the planning o f transportation and environmental infrastructure. For urban roads, economic analysis i s relatively simple, certainly compared with that for the environment, but the cost of toll collection usually indicates in favor o f financing by the government partly out o f the various vehicle charge revenues. Detailed analysis o f transportation facility finance was not attempted during project preparation as the project represents a minor part o f Tianj in's overall transportation expenditures and the revenue system i s not open to modifications in the short term. 2. A detailed analysis was necessary in the case o f sewerage, as TMG i s undertakingan unusually large capital investment program to meet the central government mandate for wastewater treatment and water resource protection. The program would complete the construction o f the sewerage system o f the city over the next five or six years, requiring about $500 million, half with financing from the Bank, JBIC, and ADB, and another half from local sources. After the project completion, the cost o f operating the facilities and repay the loans will go up dramatically to over $100 million a year at the peak. In comparison, the operating cost o f the current sewerage system i s around $25 million a year, and the sewerage tariff revenues, though relatively high among Chinese cities, barely cover cash expenses which are about two thirds of the total cost. TMG has committed to raising the sewerage tariff to recover full resource cost - consisting o f operations, maintenance, rehabilitation, and depreciation from 2006 or earlier. The projected average water-sewerage tariff, including the necessary sewerage tariff of about Y 1.51m3, would be high but would be below 3% o f incomes o f 90% o f the Tianjin households in 2006, a commonly used affordability threshold (Refer to Annex 4, Section C.) Expansion o f the service areas could bring this unit cost down as there would remain some slack capacity for wastewater treatment. - 15- 3. T o secure adequate financing as well as efficient operation o f sewerage services, TMG has been carrying out various reform measures toward a market-based system. As briefly discussed in Section C.2, TMG established the Tianjin Drainage Company (TDC), a fully government-owned company, to carry out the operation o f sewerage facilities in 1996. In 2000 it took a further step to commercialize the wastewater treatment systems, by turning over two existing WWTPs to a Chuang Ye Environmental Protection Company (CYE), taking 63% o f the company's shares, which i s listed in the Shanghai and Hong Kong stock exchanges. The company operates the WWTPs under a standard rate-of-return contract with 15% return per year on net fixed assets and pass-through o f operating costs. It i s also planned that C Y E will take over financing, construction, and operating responsibilities for new WWTPs and associated trunk sewers under construction with financing from JBIC and ADB. An apparently important motivation i s to raise investment funds through the stock exchanges on which it i s listed. 4. Financial projections indicate, however, that payments for all WWTPs under the current contractual arrangements, together with the cost o f collection network operations and maintenance, would be as much as Y 61m3 in 2006, well above the levels affordable by consumers and TMG. The large discrepancy between this and the "full resource cost", discussed in paragraph 2 above, consists o f the company profits and business and income taxes. While some "commercialization premium" would be inevitable, i t would be necessary to review whether the projected level would be justified in view o f the benefits o f the commercialization or the international practices. Under common practices in the market economies, the return on assets would be set around the average cost o f funds (which in the case o f the current Tianjin situation would be 6.5% or less per year), and the taxes would either be exempted or redirected to the sewerage services. A projection incorporating similar arrangements shows that the required payments to the WWTP and sewer operations, net o f taxes and dividends paid to TMG, would be up to Y 2.51m3. This will require contribution by TMG beyond the tariff revenues discussed above, n but the amount w i l l represent a similar proportion o f TMG infrastructure expenditures as at present. I addition, operating efficiency can be enhanced through a combination o f incentives and regulations. The Action Plan described in Section (2.2 will be carried out to review the options, and establish and implement appropriate institutional, financial and contractual arrangements under a clear regulatory framework. 5. Most suburban towns have far lower per capita GDP and fiscal resources than the Tianjin City. A general municipal wastewater management system therefore could be a burden that the residents would find difficult to afford at present. On the other hand, their growing industrial bases are contributing a large and increasing share o f pollution and the District governments and industrial enterprises are strongly motivated to manage the wastewater in order to ensure sustained industrial growth. The initial focus o f the wastewater management in small towns therefore should be on the more affluent industrial towns, and their industrial users. Fiscal Impact: 6. O f TMG's current general revenue budget of about Y 30 billion, about Y 1.7 billion or 5.5% i s spent on infrastructure, not including user charges and other special revenues. Subsidies for drainage and sewerage, mostly for capital expenditures, in 2002 was about Y 110 million and i s projected to go up to about Y 400-500 million a year in the next few years. After the completion o f the current expansion program, assuming the modifications in contractual arrangements and sewerage tariffs described in paragraphs 2 and 4 above, TMG would need to provide about Y 300 million per year to fill the gap between the expenditures and the tariff revenues. This i s expected to be 12%- 15% o f budgetary expenditures on infrastructure, compared with the 7% in 2002 and some 28% in 2003 and 2004. If the current and proposed contracts with CYE remain in force, the gap i s projected to be about three times the tariff revenues. These subsidies, while considerably higher than the current level, can be considered -16- reasonable and sustainable in view o f the greatly increased services. They may be controlled and reduced further with stronger regulatory regime that encourages competition and operating efficiency. 3. Technical: A few components o f the project raise the following technical issues as they are novel in China, and relatively new even in other countries. These components therefore have been prepared with the assistance of state-of-art international expertise. For some components, such preparation work will continue after the project start. 0 Wastewater reuse: microfiltration process has been chosen, and will be supplied and installed in one package. Firm user commitment has yet to be obtained. 0 Rehabilitation o f Dagu Canal: Detailed characterization o f sediment and design o f its removal, treatment, and disposal w i l l be carried out section by section, and these will be subject to the Bank's prior review before bidding. 0 Bus priority measures: Design and protection o f bus ways, priority lanes, access points, or their combinations in the narrow streets o f Tianjin w i l l be further studied and designed with consultant assistance. 0 Central city (Dagunan) traffic interchange: Due to i t s location in a busy commercial area, details and experiences o f area traffic management schemes o f similar situations will be reviewed and lessons incorporated in the design. 4. Institutional: 4.1 Executing agencies: Preparation and implementation o f project components are the responsibility of the following T M G agencies in accordance with their n o m 1jurisdictions: 0 Construction and Management Commission (TCMC): overall project coordination, and management o f institutional development components in cooperation with line agencies directly in charge, such as MEB, Urban Planning and Real Estate Bureau, and Traffic Management Department. 0 Municipal Engineering Bureau: urban sewerage and drainage, wastewater reuse, Dagu canal rehabilitation, urban roads, bus priority measures; 0 Traffic Management Department (TMD) o f the Public Security Bureau: traffic signal control system; 0 Suburban Districts and TEDA Water Co. under the direction o f the Coastal Area Administration: suburban sewerage. MEB i s responsible for major part o f the project preparation and implementation. However, it w i l l work with other agencies in construction and management o f the facilities, as follows: 0 The Tianjin Drainage Company will manage the city's drainage and sewerage systems on completion, unless an alternative i s recommended under the Sewerage Sector Study described in Section C.2. 0 For Dagu Canal rehabilitation, MEB will work under the direction o f the Steering Committee consisting o f representatives from TCMC, the municipal environmental protection bureau (EPB), the municipal water resources bureau (WRB), and the three suburban districts which Dagu Canal runs through. The WRB will be closely involved in the rehabilitation o f the three Dagu pump stations and dredging works, and in the operations including the distribution o f reclaimed wastewater. EPB w i l l -17-  play a key role in the analysis o f sediment and treatment and disposal o f contaminated sediment. e The two water reuse facilities w i l l be managed by the Tianjin Water Reuse Company, recently established to manage and promote water reuse. e For bus priority measures, MEB will work with the technical guidance o f the Public Transportation Management Department o f TCMC and TMD. 4.2 Project management: Each o f the above agencies has established a project management office to deal with i t s components. The overall project w i l l be coordinated by the Project Management Office (PMO) under TCMC. They will report to and be guided by the Project Leading Group consisting o f a TMG vice mayor and directors or deputy directors o f related commissions and bureaus. TMG has made the commitment that appropriate functions, staffing, and financing o f the municipal leading group and project management office will be maintained. 4.3 Procurement issues: Procurement arrangements and issues are discussed in h e x 6(A). A specialist staff o f the Bank carried out a procurement capacity assessment and found that, in general, adequate procedures and staff experienced under TUDEPl are in place in the PMOSat the municipal and implementing agency levels to provide a solid basis for management of procurement under the project. These offices and staff will be assisted by two specialist procurement agencies. Several discrepancies between the Procurement L a w o f China and the Bank's guidelines for national competitive biddinghave been identified, and assurance has been obtained for compliance with the latter in procurement under the project. 4.4 Financial management issues: Financial management systems and issues are discussed in Annex 6(B). N o special issue has been identified. 5. Environmental: Environmental Category: A (Full Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. 1. About 80% o f the project investment i s directed to improving and protecting water quality in the Tianjin municipality and the Bohai Bay. The intended benefits, beneficiaries and responsible institutions are identified and discussed in Chapter C. Even the transportation components are shown to have positive environmental impacts as they are designed to reduce idling times and overall traffic demand. However, they may also increase air pollution in some localized areas. These effects were analyzed with the use of an airshed model, various modifications have been incorporated to minimize the adverse impacts. Similarly local effects are projected from increased noise o f traffic interchanges. Noise barriers and l o w noise paving materials will be used to minimize the effects. Construction noise and dust would be another, temporary environmental impacts. Measures to control these will be incorporated in construction contracts. 2. Rehabilitation o f Dagu Canal poses significant environmental challenges in the characterization, removal, treatment, and disposal o f the contaminated sediment. Substantial physical, chemical, and toxicological sampling o f the sediment has been done under the direction o f a top international limnologist, and it has been conservatively estimated that not more than half the sediment contains hazardous substances that require special treatment. A pilot dredging was also conducted to determine the physical characteristics o f the sediment and to experiment with various dredging, transportation and treatment methods. But i t s heterogeneous nature leaves considerable uncertainties. A detailed Environmental Management Plan (EMP) will be established as a condition o f disbursement and followed -18- during the implementation, to ensure intensive and systematic sampling and analysis o f sediment section-by-section, and the use o f proper dredging, treatment and disposal techniques. During dredging, sections o f the canal will be closed o f f and the flow routed around the section. This will ensure that toxic compounds released from the sediment during dredging will not escape downstream. Water caps will also be used during dredging, as required, to reduce odor. Various methods will be adopted for sediment disposal depending on the degree o f contamination including: disposal in two hazardous waste landfills, use as earth construction material, and disposal on agricultural land. Sites for the landfills have been secured, and they have sufficient space to dispose o f all o f the sediment, contaminated or not, in the event other disposal options are not possible. The landfills and their operating procedures would be designed with the assistance o f consultants experienced in hazardous waste disposal. 3. Use o f reclaimed water for municipal and industrial purposes i s a new activity with potential public health risks. In view of this risk, the project would support the reuse facilities only for nonresidential uses. T o minimize the remaining risks, microfiltration system will be used and the reclaimed water distribution systems will be markedwith distinct colors to avoid accidental cross-contamination. The E M P also includes intensive monitoring o f the reclaimed water quality, use, and disposal. 4. The second most important safeguard issue i s resettlement. The project design has been adjusted to minimize resettlement. The project components within the city proper i s currently estimated to require resettlement o f 66 households (156 persons), 60 shops and offices with 270 workers. No j o b loss i s expected. The project also would require acquisition o f some 3 1 ha o f farmland affecting 433 farmers, and 17 ha o f other land. Full compensation has been committed to. Dagunan interchange, suburban sewerage, and bus corridor component designs will be finalized during the project implementation, When they are finalized, individual RAPSwill be prepared under the Resettlement Policy Framework (WF) that has been agreed upon. 5. Since the urban sewer component supports WWTP investments financed with JBIC and ADB loans, resettlement for these has been examined in detail involving the review o f the resettlement plans as well as interview o f affected people. For the construction o f two WWTPs financed by JBIC and ADB, some 27 ha o f orchard and 22 ha o f fish farm have been acquired in semi-urban locations, affecting the villages that own them and in particular 11 households who worked on these properties as employees or contractors. The compensation and rehabilitation measures have been found to be satisfactory under the standards that would have applied under the Bank-financed project. 5.2 What are the main features o f the EMP and are they adequate? The project EMP consists o f six plans to manage environmental monitoring and mitigating actions for different components adequately, as well as the framework for EA and E M P for components whose designs have yet to be finalized. In view o f the high risks involved in the Dagu canal rehabilitation, a special detailed Environmental Management Plan for it i s being developed, as a condition o f disbursement, primarily to ensure proper monitoring and control o f the Dagu sediment remediation program. In addition, the current EMP includes an industrial pollution monitoring program in the Dagu Canal watershed to ensure that the Canal does not become contaminated again, particularly with heavy metals. The overall E M P implementation will be supervised by P M O and EPB. The component EMPs will be carried out by the project implementation units under the direction o f EPB (MEB). The special EMP for the Dagu canal will be carried out by MEB and i t s steering committee which includes EPB, WRB, and three concerned districts. 5.3 For Category A and B projects, timeline and status o f EA: Date o f receipt o f final draft: October 15,2002 - 19-  with further clarifications and amendments dated December 2002, January and March 2003 5.4 How have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted? Public consultations through questionnaire, interviews, and public meetings were conducted (a) first in early December 2001 and (b) then with draft EA in early March 2002. They were open to general public and invited persons and organizations included neighborhood groups, NGOs, universities, sector experts, and media. K e y stakeholders for Dagu rehabilitation are people living along the canal, whose number i s small because i t r u n s through mainly rural areas; people living near the proposed landfill sites; and farmers who may choose to apply the uncontaminated, nutrient rich, sediment on their fields. The public consultation on EA involved these people. Coordination o f Dagu Canal work has been, and will continue to be, carried out by a Steering Committee consisting o f representatives from TMG, MEB, EPB, WRB, and the three districts crossed by the Canal. 5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? D o the indicators reflect the objectives and results o f the EMP? Systematic monitoring programs and institutional arrangements have been established for each component, including construction activities, as part o f the E W . The information collected will be reported to EPB, according to the existing regulations as well as the EMP, and the PMO. Summary information will be reported as part o f the semi-annual project progress reports. As the project i s largely for environmental improvement, a subset o f these monitoring programs constitute the major part o f the project's overall outcome and impact indicators. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. An objective o f the project i s to improve the equity o f transportation and environmental services by expanding their availability to lower income groups. This will be achieved mainly through the extension o f sewerage to areas (suburban areas as well as outer urban districts recently incorporated into the city) with high proportions o f l o w income residents, and through the facilitation o f bus services. On the other hand, the projected substantial increase in the sewerage tariff, partly due to the project, can impose a substantial burden on l o w income residents. An analysis shows, however, even for households in the lowest income decile, the water and sewerage bill combined would be around 3% o f the household income, substantially below the conventional criterion o f affordability, 5% o f household income. 6.2 Participatory Approach: H o w are key stakeholders participating in the project? Written undertaking o f large users and local jurisdictions needs to be obtained before starting the construction o f suburban sewerage systems. Dagu canal rehabilitation will be overseen by a steering committee including WRB and the representatives o f Districts along the canal. Water off-take wells will be built along the rehabilitated canal to allow easy access by farmers. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? Trade unions, local social development organizations, universities, etc. have been consulted during project design and EA preparation. - 20 - 6.4 What institutional arrangements have been provided to ensure the project achieves i t s social development outcomes? Participatory approach described in 6.2 above. 6.5 H o w will the project monitor performance in terms o f social development outcomes? Occasional surveys will be conducted. 7. Safeguard Policies: 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. Assurance has been obtained from TMG that i t would comply with the Environmental Assessment, Environmental Management Programs, Resettlement Action Plan, and Resettlement Policy Framework. Satisfactory EA and RAP will be required as conditions o f disbursement for components for which detailed designs have not be finalized the Dagu canal rehabilitation, suburban sewerage, Dagunanlu traffic interchange, and bus priority corridors. All contracts for Dagu canal rehabilitation {dredging, disposal, and reconstruction) will be subject to prior review by the Bank. W h i l e no cultural properties to be affected by the project have been identified, civil works contracts under the project w i l l include provisions for contractors to follow the municipality's regulations regarding the discovery, reporting, and management o f culturally valuable items. F. Sustainability and Risks 1. Sustainability: The proposed project w i l l contribute to the sustainability o f Tianjin's overall development by helping to protect water resources in the metropolitan area and by helping to relieve the congested urban streets. This will depend, however, upon the sustainability o f the services and facilities, which in turn depends critically upon adequate financing, as discussed in Section E2. In short, the large and rapid build up o f urban wastewater management, especially the treatment facilities financed in parallel to the project, will greatly increase the financing needs far above the current levels o f hnding available to the sector, and therefore poses a large risk to the sustainability o f the system. TMG has committed to raising the sewerage tariffs to recover full resource cost o f the facilities and operation. TMG also took a major -21 - step to put the wastewater treatment operations on a commercial footing in an attempt to ease the financing constraints, but it i s not clear whether it would achieve the short-term financing objectives or i t s long-term additional costs would be sustainable. Therefore the project will include major institutional and financial improvement actions to ensure efficient and sustainable pricing, financing, and regulation o f the wastewater services. In the case o f the urban transportation system, the sustainability will depend mainly on continued development o f measures similar to those included in this project under an integrated, updated plan. The project will help ensure such development with the initiation o f bus priority measures, coordinated planning of the components, and a support for the development o f an institution for comprehensive management and planning o f urban transportation. 2. Critical R i s k s (reflecting the failure o f critical assumptions found in the fourth column o f Annex 1): Risk Risk Ratina I Risk Mitiaation Measure From Outputs to Objective Suburban towns may not be able to S Requirement o f adequate tariff and develop financial and technical capacity management structure as condition o f financing to maintain and expand the sewerage management system Tianjin WWTPs financed by other aid M Adjustment o f project implementation schedule agencies may not be built or operated as depending upon progress o f the WTTP planned construction Sewers and Shuanglin WWTP may not M Support institutional and financial be operated properly for lack o f financial strengthening or technical capacity Reclaimed water may not reach sufficien. M Ensure quality o f market survey, obtain quality or may not find sufficient demanc commitment from potential users, and ensure quality o f design and operation Rehabilitated Dagu canal may be M Establish inflow monitoring and control regime re-contaminated Road capacity may be overwhelmed by S Action Plan for improved sector management growing traffic, negating the traffic improvement measures There may be insufficient regulatory and S Action Plan to strengthen sector institutions planning capacity to ensure efficient and finances, and covenant key actions market-based sewerage operations I t may be difficult to modify the existing S Action Plan could include a longer-term WWTP commercialization arrangements program for gradual improvement o f service to eliminate all deficiencies immediately arrangements From Components to Outputs Sewers and drains may not be built M Ensure quality o f design, procurement, and soundly or within time and budget supervision Sector reform may be difficult to design S Careful design o f the study, and close or be agreed upon. consultation to maintain commitment WWTP effluent may not be reclaimed M Select robust process alternative properly for acceptable reuse Dagu canal sediment may not be properly M Thorough analysis, detailed design and - 22 - treated or disposed o f implementation o f EMP and remediation measures Suburban Districts may not be able to M Identify a number o f potential participants and develop the wastewater management plar help develop necessary plans and financial and and necessary financial and institutional operational arrangements; Mobilize technical arrangements to participate in and and financial supports to develop the plans and implement the project implement them Weak traffic management or congestion M Closely involve traffic management department in connected roads may reduce the effect in design o f the measures, and obtain i t s o f road modification and bus priority commitment for implementation o f necessary measures measures Overall Risk Rating S 3. Possible Controversial Aspects: G. Main Loan Conditions 1. EffectivenessCondition TMG to engage qualified consultants to conduct a Sewerage Sector Study according to terms o f reference satisfactory to the Bank. 2. Other [classify according to covenant types used in the Legal Agreements.] Conditions o f Disbursement A. Conditions o f Disbursement for D a m Canal Rehabilitation Component. TMG to establish a detailed Environmental Management Plan for Dagu Canal sediment remediation, satisfactory to the Bank, specifylng procedures for detailed sediment characterization, choice and design o f remediation works, and design framework for hazardous landfills. B. Conditions of Disbursement for Suburban Sewerage Component: b A satisfactory feasibility study including: 0 a sound financial analysis and projection, 0 a realistic plan to recover the costs o institutional arrangements including staff training and other organizational development plans b Satisfactory EA and RAP e Written undertaking by service users (District govenunents andor industries) to pay required fees, in the case the District government i s not the project implementing agency. b Subproject management office with adequate staffing, and the standard financial management and reporting systems. C. Conditions o f Disbursement for Dagunanlu Interchange: Engineering design o f the interchange based on a feasibility study agreed with the Bank, which will, among others, allow efficient flow of all modes o f traffic and minimize the disturbance in -23-  the area around the junction. e Satisfactory EA and RAP. D. Conditions o f Disbursement for Bus Priority Corridors: e Engineering design and traffic management measures o f selected corridors, based on a feasibility study agreed with the Bank, and that will allow buses predominant access. e Satisfactory EA and RAP. Action Plans A. Financial TMG will raise sewerage tariffs gradually to a level sufficient to cover operating, maintenance, depreciation costs o f all sewerage sector assets starting from January 1,2006 or earlier. TMG will provide the Bank with audit report by Tianjin Municipal Audit Bureau o f the Project Accounts, and the Financial Statements o f Tianjin Drainage Company and ChuangYe Environmental Protection Company, any other sewerage operating company, by June 30 o f each year, starting from June 30,2004. B. Sewerage Sector Institutional Development Action Plan TMG shall carry out the following: 1. By June 30,2004 complete a “Sewerage Sector Study” to review and recommend options for organization, financing, and regulation o f sewerage services and their commercialization, and their linkages with urban water supply and water reuse. 2. Based on the findings and recommendations o f the “Sewerage Sector Study,” the Tianjin Municipal Government will establish an Action Plan for Sewerage Sector Reform by December 3 1,2004 in consultation with relevant parties including the World Bank. 3. Carry out the Action Plan thereafter. Unless recommended otherwise by the Study and agreed with the Bank, the Actions would include the following: a. Establish by June 30,2005 an Office with sufficient authority, staffing, budget, and consultant assistance to carry out regulation and other necessary functions to manage the sector. b. By June 30,2006 enter into a revised contract with TDC, clearly defining i t s responsibility, authority, and payment to cover operating and capital renewal expenses, for autonomous operation. c. Review and revise the service contract with wastewater treatment plant operators so as to ensure the efficiency and sustainability o f such services; d. By December 3 1,2006, transfer the management responsibility or assets o f wastewater treatment plants owned by TMG to entities selected through a competitive process, satisfactory to the Bank. e. Cause the said Office and operating entities to carry out studies and training to develop institutional capacity with assistance o f qualified consultants and o n terms o f reference satisfactory to the Bank. C. Transportation Sector Institutional Development Action Plan TMG w i l l carry out the following: - 24 - 1. By June 30,2005 complete an Urban Transportation Management Study with the assistance o f qualified consultants and according to the terms o f reference satisfactory to the Bank, under the guidance o f a task force consisting o f representatives o f authorities responsible for urban planning, road construction, traffic management, and public transportation. 2. Based on the findings and recommendations o f the “Urban Transportation Management Study,” the Tianjin Municipal Government will establish formal organizational arrangements and procedures to improve and sustain coordination o f all activities o f planning and managing urban transportation in Tianjin, in consultation with relevant parties including the World Bank by December 3 1,2005 and put them into effect starting from January 1,2006. D. Project Management 1. Maintain a Project Leading Group, chaired by a Vice Mayor o f TMG and consisting o f senior managers o f related municipal commissions and bureaus to provide supervision, decisions and guidance on behalf o f TMG for the project implementation. 2. Maintain a Project Management Office with sufficient authority, staffing, facilities, and budget to carry out, coordinate, or supervise all project activities, including the procurement, financial management, resettlement, environmental impact mitigation, and progress reporting. 3. Maintain a Subproject Office under each implementing agency with sufficient staffing, facilities, and budget to carry out, coordinate, or supervise all activities for the component implementation, including the procurement, financial management, resettlement, environmental impact mitigation, and progress reporting. 4. The Project Management Office w i l l provide the Bank with implementation progress reports, in a format satisfactory to the Bank, on February 15 and August 15 o f each year, starting from February 15, 2004 until the project completion. 5. TMG will submit to the Bank a project implementation completion report no later than three months after the closing o f the loan account. H. Readiness for Implementation 7 I1. a) The engineering design documents for the first year‘s activities are complete and ready for the - start o f project implementation. 11. b) Not applicable. E 2. The procurement documents for the first year’s activities are complete and ready for the start o f - project implementation. - 3. The Project Implementation Plan has been appraised and found to be realistic and o f satisfactory quality. 5 4. The following items are lacking and are discussed under loan conditions (Section G): A detailed plan and protocol for Dagu canal sediment remediation, satisfactory to the Bank, would be required as a condition o f disbursement, as the implementation o f the component would not start until 2005; - 25 - Firm identification and design of the suburban wastewater management systems, along with satisfactory financing and institutional development plans, EA, and RAP will be required as conditions of disbursement; Designs of bus priority comdors and the Dagunanlu interchange will be improved with consultant assistance and revised EA and RAP prepared as conditions of disbursement. I. Compliance with Bank Policies 1. This project complies with a l l applicable Bank policies. i? 2, The following exceptions to Bank policies are recommended for approval. The project complies with a l l other applicable Bank policies. Team Leader Country ManagerIDirector - 26 -  Annex 1: Project Design Summary CHINA: Second Tianjin Urban Development and Environment Project Coll Critical Assumptions sector-related CAS Goal: Sector Indicators: Sector1country reports: (from Goal to Bank Mission) hengthen environmental Urban water and air quality National and local statistics of Continued economic growth jrotection and natural indicators air and water pollution and urbanization 'esource management mprove urban management Growth o f urban economies Statistical reports and Continued economic growth i d public service provision and coverage and efficiency of occasional sector reviews and urbanization infrastructure and services 'roject Development Outcome I Impact Project reports: (from Objective to Goal) 3bjective: Indicators: mprove sustainability, :fficiency and equity of rianjin sewerage and urban ransportation: Improve coverage and Area and population served, oi operational and monitoring Industrial pollution discharge efficacy o f sewerage sewerage; reports o f sewerage and is controlled and sewer Water quality at streams and treatment companies; connections are made Bohai Bay; environmental monitoring Duration and extent o f reports flooding Improve efficiency and Volume and unit cost o f operating and financial reports Maintenance and improvement sustainability o f drainage wastewater collection and o f sewerage entities; o f sector regulations and and sewerage treatment; tariff revenues; govemment monitoring performance incentives autonomy and finance o f reports operating companies; asset quality Pilot urban and rural Volume o f effluents used for operational and monitoring Demand continues for the reuse o f treated urban and farming purposes reports effluent reuse, with sufficient wastewater water pricing a Improve capacity of Speed o f buses and other monitoring reports o f road Adaptation o f transportation existing roads vehicles at sample points traffic and bus operations system to urban development; traffic demand control; proper road maintenance Facilitate bus services and Share o f passenger trips o n bus operations reports and bus services continue to increased the modal share buses (12% o f passenger trips traffic surveys improve and expand in Tianjin city 3y2010) Develop sewerage and regulation and autonomy o f Sector operations reports and Political commitment to urban transport sewerage operations; plans implement action plans institutions iuality o f transportation plans md operations - 27 -  Output Indicators: Storm water drained and waste Area drained; Flood protection and Treatment plants (financed by water delivered to treatment Wastewater volume delivered to treatment plants; number o f beneficiaries Wastewater in the South 200,000 m3lday o f wastewater Suburb area treated (Shuanglir treated report sufficient inflow, funds, and technical manpower Wastewater reclaimed and About 25,000 m3lday reused operations report The reclaimed water i s o f distributed for urban uses sufficient quality and in sufficient demand Water flow in Dagu canal at water quality indicators at monitoring reports Proper operation o f WWTPs adequate volume and quality several points discharging into Dagu, and interception o f contaminated wastewater from it. Water pollution reduced in about 150,000 m3lday o f operation and monitoring Improved financial and selected suburban areas wastewater treated in suburbs reports institutional capacity to sustain and expand sewerage Increased traffic volume and [ncreases in traffic volume traffic reports Adequate capacity in speed at 18 key road sections :+lo%) and speed (+) connected road segments; traffic demand control Area traffic control, and .educed times to cross sample traffic reports Adequate road capacity and reduced congestion and unctions (-l5%), and traffic demand control accidents at road junctions iccidents Reduced travel time for buses ncreased travel speed on bus traffic and bus operation Continued improvement and :orridors and selected bus reports expansion o f bus services .outes Improved information for isage o f the information usage counts Improvements in related infrastructure management ;ystem procedures, including disclosure rules; updating o f information Improved sewerage finances 'mances, performance, and annual reports, Strengthening o f sector and management structure :fficiency o f operating sector regulations and plans regulation and operational :ompanies capacities o f new entities Improved structure for :oordination and integration of sector regulations, network Maintaining incentives and planning and managing urban rarious sector concerns in plans, and project plans mandates for coordination ilans, projects and regulations I - 28 - - Key Performance Data Collection Strategy Indicators Droject Components I iub-components: Jrban sewers and drains nputs: (budget for each :omponent) 578 million. I Project reports: progress reports (from Components to Outputs) Sound construction o f sewers an pumps ihuanglin Wastewater 650 M progress reports Suffkient wastewater -reatment Plant generation in the area, and sufficient operating funds Yastewater Reuse 617 M progress reports Adequate qualities o f WWTP effluent and the reclaimed water )agu Canal Rehabilitation 655 M progress reports Contaminated sediment properly treated luburban Sewerage ;43 M irogress reports Sewers and plants suit the wastewater generated and the financial and operating capacities Jrban Roads: modification o f ;62 M irogress reports Implementation o f traffic :ey junctions and sections management; adequate capacity in connected road segments -raffic Signal Control System ;4 M progress and system Proper adaptation and nd Channelization development reports operation o f the traffic signals; complementary traffic management measures ius Priority Corridors i15 M progress and monitoring Enforcement o f exclusive reports rights o f way for buses nstitutional Development ;5 M progress and consultant reports; Action Plans 0 Sewerage sector Participation in and use o f institutions and finance studies by key managers 0 Urban Transportation Participation in and use o f Management and studies by key managers Planning 0 Bus route restructuring Physical investments to and priority measures implement the measures Related rules o f disclosure and e Infrastructure information usage established; Adquate systems data input -29-  Annex 2: Detailed Project Description CHINA Second Tianjin Urban Development and Environment Project The Second Tianjin Urban Development and Environment Project (TUDEP), to be partially financed by the World Bank, consists of environmental (wastewater management) and urban transport components. All project components are located within the Tianjin Municipality. Tianjin, one o f the four provincial-level municipalities in the People's Republic o f China (PRC), i s the most important industrial and transportation hub in north China and the gateway to nation's capital Beijing. I t consists o f 18 Districts and Counties, with the total area o f the municipality i s 11,920 km2. The city o f Tianjin (city 'proper') consists of 6 Districts occupying about 250 km2. The total permanent population i s about 10.5 million at present, o f which approximately 4 million live in Tianjin City. By Component: - Project Component 1 US$77.60 million Stormwater and Wastewater Collection Networks in Tianjin City. The city o f Tianjin i s served by a mixture o f storm-water, wastewater, and combined sewers. Most o f the properties are serviced by septic tanks within development blocks, most of which are connected to the municipal sewerage network. The septic tanks and tertiary sewers are built and maintained by the developer or neighborhood committee of the block. The District governments operate and maintain the secondary storm-water and wastewater network and the Tianjin Drainage Company (TDC) operates and maintains the primary (trunk) storm-water and wastewater networks within the urban area. There are currently two wastewater treatment plants (WWTPs), of which one i s being expanded, and three more are planned. Tianjin i s currently in the process of completing i t s drainage network, and separating stormwater and wastewater networks. The project w i l l finance stormwater and wastewater networks, including pump stations, in three areas across the city: Fukangnanlu, Beicang, and Nanjiaowai. In total, the project will finance 89 km o f stormwater mains, 50 km of wastewater mains, and 7 pump stations. The main objective i s to reduce the damage from storm water and from environmental pollution in an efficient manner by: e Expanding the coverage and increasing the capacity of the sewers especially in areas currently not served, as well as areas with increasing development and population; e By separating the combined sewers into storm and wastewater sewers that will reduce the polluted run-offs during storms, and reduce the volume o f sewage to be treated; and e Installing the trunk mains to bring sewage to the WWTPs. Fukangnanlu i s the new center for culture, education, sports and recreation in Tianjin. Residential development i s very extensive and growing quickly. Wastewater collected in the area will be treated at the JBIC-financed 450,000 m3/day Xianyanglu WWTP. The project will finance storm water drains (about 13.4 km), wastewater sewers (about 14.5 km), and three pump stations to add approximately 275 ha to the current service area o f about 1,200 ha. The Beicang area i s undergoing rapid development, and consists o f low-income residential areas, industrial development, farmland, and wasteland. The project will finance about 25 km o f storm drains, 22 km of sanitary sewers, and four pump stations to service an service area o f about 750 ha to increase the service area to about 2,200 ha. Wastewater collected in the area will be brought to the ADB-financed 100,000 m3iday Beicang WWTP. - 30 - The Nanjiaowai area consists mainly industrial areas with scattered low-income residential areas. The project will finance about 15 km o f sanitary sewers and 16 km o f storm sewers to serve about 235 ha, to bring wastewater to the 200,000 m3lday Shuanglin WWTP which will also be financed under the project. - Project Component 2 US$55.35 million Shuanglin Wastewater Treatment Plant. There are two wastewater treatment plants ( W T P ) in operation in Tianjin with a total capacity o f 660,000 &/day: Jizhuangzi WWTP, built in 1984, has a capacity o f 260,000 m3lday and serves the area to the south o f the Hai River; Dongjiao has a capacity o f 400,000 m3lday and serves the area to the north and east o f the Hai River. Three WWTPs are under construction: an extension to the Jizhuangzi to provide an additional 280,000 m3lday, financed by JBIC and expected to be in operation by early 2005; a new WWTP at Xianyanglu to serve the western area with a treatment capacity o f 450,000 m3lday, also financed with JBIC to start operation by 2005; and WWTP at Beicang being funded by the Asian Development Bank, to serve the norther part o f the city and will have a capacity o f 100,000 m3lday from about 2006. The World Bank will finance the construction o f the Shuanglin WWTP, which will be the fifth and final plant for the city o f Tianjin. By 2008, the total treatment capacity in Tianjin will have more than doubled from the current 660,000 m3lday to 1,490,000 m3/day, to treat 85% o f the total wastewater discharged. The initial design capacity o f the Shuanglin WWTP i s 200,000 m31d, rising to 300,000 m3/d in 2020. The design influent and effluent values are given as: I Parameter j Influent I BNR Consent I Conventional Concentration Consent BOD 160 mgil < 30 mgll < 30 mgll COD 430 mgil < 120 mgil < 120 mgil ss 280 mgil < 30 mgll < 30 mgil NH3-N - < 25 mgll N/A TP 3.5 mdl < 1 mdl NIA Since Tianjin discharges wastewater to the Bohai Sea, the Chinese discharge standards require nutrient removal, hence the “BNR” level consent. To achieve the BNR consent, the plant will require primary sedimentation, a secondary tank with an anaerobic zone and an aeration zone (the so-called AI0 process), followed by final clarifiers. All new WWTPs in Tianjin will utilize the N O process, which i s also highly recommended by the Chinese Ministry o f Construction as the preferred option for nutrient removal. Sludge from the plant will be treated by thickening with chemical conditioning, mesophilic anerobic digestion with biogas for power generation, followed by belt-filter press. The sludge cake will be disposed of in a nearby landfill. - Project Component 3 US$16.65 million Urban Wastewater Reuse (Reclaimed Water). Tianjin i s located in an arid region and i s constantly under water stress, experiencing frequent and severe droughts. The major water source for the Municipality i s the Luan River Diversion to the north in Hebei province, but this source i s susceptible to frequent droughts, forcing costly water diversion from the Yellow River. The situation in Tianjin i s one of the primary motivation for the “South-North Water Transfer Scheme” to divert water from Yangtze River to the northern China. The Chinese government, and particularly Tianjin government, have given a high priority to water conservation and water reuse. Water consumers in Tianjin already pay among the highest tariffs in China and are limited to a certain quota o f water (8 m3 per month per household), with extremely high tariffs for amounts over the quota. There i s thus a strong demand for high-quality reclaimed water in Tianjin. -31 - Tianjin has taken the lead among Chinese cities in developing water reuse facilities and plans to reclaim approximately 10% o f the total wastewater effluent for urban reuse. I t i s planned that each WWTP will have a water reuse plant. The TMG has establish a Water Recycling Company to take the lead on water reuse in the city, The Company i s currently overseeing the construction o f the Jizhuangzi Water Reuse Scheme (50,000 m3/d), a national pilot with central and local government subsidies, which i s programmed to begin operations in 2003. A part of the reclaimed water w i l l be used for residential (toilet flushing) purposes in a new residential complex with the dedicated special distribution network. The Company i s also constructing a scheme associated with Xianyanglu (25,000 d i d ) , which will finish in 2003 or 2004. Under the project the Bank w i l l to finance two attached with the Dongjiao and Shuanglin scheme WWTPs. Since the technological pilot i s established in the Jizhuangzi and Xianyanglu schemes, the two Bank-financed schemes are subject to criteria o f sound economic and financial feasibility. These criteria indicate weak feasibility o f residential water use, given the current differential water tariff system that favors residential use, the cost for extra distribution system, and the high public health risks. The Dongjiao scheme (Phase JJ will reclaim about 12,500 d l d a y o f the effluent from the Dongjiao WWTP using a process consisting o f sedimentation, micro-filtration, and chlorination, and then distribute the water to a nearby industrial estate and nurseries through a dedicated reclaimed pressurized water distribution system. The reclaimed water will also be used for landscape irrigation and road washing. The treatment process selected, if properly operated, should provide high quality effluent and not be a public health concern. Also, with capital investment subsidy from the government, the scheme would be able to be financially feasible. The process and distribution details o f the Shuanglin scheme have not yet been finalized yet, as the Shuanglin plant i s located in a rapidly growing industrial and residential area and comprehensive market survey had not yet been undertaken. In the future, if the residential use under the Jizhuangzi pilot i s successfid, the Water Recycling Company plans to consider residential reuse for the Shuanglin and Dongjiao schemes also. Comprehensive guidelines for public heath safety and tariffs for reclaimed water are being drafted by the TMG. - Project Component 4 LIS$55.15 million Dagu Sewage Canal Rehabilitation. The Dagu Canal was constructed in 1958 as part o f the drainage plan for the City o f Tianjin, and i s the main sewage canal serving the southern part o f Tianjin City. The canal i s approximately 75 km long and currently receives industrial and municipal wastewater discharges, raw sewage, agricultural runoff, pulp mill effluent and general municipal waste. The canal i s used to drain rainwater from the surrounding areas and farmers use it for irrigation purposes. The canal has a very low hydraulic head (approximately 0.75 m fall from the headwaters to the discharge at the sea). Consequently the natural discharge in the canal i s extremely l o w and three pumping stations have been constructed along the length of the canal to assist in discharging the water, The Canal i s currently silted up with partially contaminated sediment, which causes frequent flooding. The last major maintenance was performed in 1965 when parts o f i t were dredged. After Tianjin’s sewerage capital investment program i s completed in 2008, most o f the treated effluents will discharge directly into Dagu Canal, from Jizhuangzi (650,000 d i d ) , Xianyanglu (450,000 m3id) and Shuanglin (200,000 m3). Once these WWTPs have been constructed the water quality o f the canal i s expected to improve significantly. However, there will s t i l l be an impact on water quality from the existing contaminated sediment in the canal, and the contamination o f land and crops from the irrigation and flooding will continue. The Dagu Canal Rehabilitation thus has two objectives: - 32 -  Remove contaminated sediment to improve water quality, reduce contamination o f the surrounding land and crops and the Bohai Bay. Increase the hydraulic capacity of the canal to cany increased discharges o f treated effluent and stormwater. The Dagu Canal Rehabilitation component w i l l dredge and dispose o f the sediments and restore or expand the canal cross-section. The subproject includes the Dagu Canal section itself (67.5 km), and two tributaries draining the Jizhuangzi Canal section (3.7 km) and Xianfeng Canal section (12.5 km), for a total length o f 83.7 km. Pump stations along the canal w i l l be rehabilitated, and the canal will be lined in sections within the Tianjin urban area. A number o f options were considered for Dagu Canal Rehabilitation, including: i) Leaving sediments in place but widening the canal; ii) Construction o f a new canal and filling in the existing canal; iii) Creating a new canal from pump station number 2 and diverting all o f the flow in the Dagu canal into the new canal and discharging to the Hai River; iv) Restoring the original canal cross-section through dredging and off-site disposal o f the sediment. The final option was selected. The sediments are classified as either contaminated or uncontaminated based on the national environmental and agricultural standards for concentrations o f various contaminants such as heavy metals and petroleum hydrocarbons. Sediments that are contaminated beyond the standards will be disposed o f in dedicated landfills. Less contaminated sediments will be used in a beneficial manner (construction materials, agricultural and forestry applications, etc.). Preliminary characterization o f the sediments has been carried out, on the basis o f sampling and analysis o f the sediment and a pilot dredging. The current estimate indicates that up to half o f the total sediments (about 2 million m3) needs to be disposed o f in hazardous landfills. Three landfill sites have been secured, which can accommodate entire sediment in case higher extent o f contamination i s found in further investigation. A plan for more detailed characterization o f sediments, landfill design, and remediation (dredging, transportation, etc.) methods i s being prepared, and the completion and implementation o f the plan satisfactory to the Bank will be required as a condition o f disbursement for this component. - Project Component 5 US$43.10 million Suburban Sewerage. I ncontrast to the large sewerage investment program in Tianjin city, there i s very little attention or investment in wastewater management in the suburban areas o f the Municipality. The suburban areas account for over 60% o f the population o f Tianjin, contain most o f the polluting industries, and often discharge directly into land or natural water courses and eventually to the Bohai Sea. The investment needs are enormous, but the financial and technical capabilities o f the small cities in the suburban areas are often inadequate, making this the most challenging and important pollution control issue in Tianjin. The project will provide about $20 million o f loan financing for sewerage facility investment in selected suburban areas on a programmatic basis. The GEF-financed Hai Basin project, under preparation, i s expected to provide grant support to supplement this and local financing. Two small suburban wastewater management schemes have been submitted to the World Bank for project inclusion: 100,000 m31d Yingcheng WWTP in Hangu District, which will also serve a new industrial area to be developed by TEDA, and the 150,000 m31d Nanpei Hu WWTP in Tangu District. The Districts, adjoining the rapidly developing TEDA, are overseen by the Coastal City Administration Commission, a special oversight authority under TMG. The Commission has asked the TEDA Water Company, a subsidiary of the TEDA Authority, to take the responsibility for planning and providing for the sewerage services in the coastal districts. I t employed a consultant and completed the feasibility reports for the schemes in Hangu and Tangu, adopting the lowest cost approach, using oxidation ditch treatment technology and combined stormwaterlwastewater collection networks. - 33 -  The main challenge would be clear and feasible institutional and financial arrangements, given the institutional complexity and generally l o w incomes o f the houieholds and governments. The designation o f the TEDA Water appears to be an appropriate decision that w i l l make best use o f technical and managerial resources, and can become a very useful model o f the regional service provider for small jurisdictions. Especially under this type o f institutional arrangements, a key would be adequate service and payment agreements with the local governments andor with major service user groups. For industrial users o f sewerage services, requirements o f pretreatment and fully priced sewerage services would be justified at least in principle. For households, this may be difficult for a large number of population with l o w incomes at least in the near future. Some public subsidies could be justified as seen often in other countries, but the current fiscal situation would not allow any significant subsidies. The GEF grant could be used, for example, for output-based aid to bridge some o f the affordability gap during initial period. The Bank will work with TMG and the directly involved parties during early project implementation to help resolve the financial and institutional issues. A revised feasibility study with clear financing and institutional arrangements, written preliminary agreement with District government and main industrial users for the service and payments, establishment o f a competent sub-project office, as well as adequate EA and RAP, would be required before the start o f investment for this component. - Project Component 6 US$81.50 million Urban Road Infrastructure: A collection of various works mostly on the Middle Ring Road to improve the function o f MR R along the western, southern and north-eastern sections; and to alleviate congestion o f the northern and the southern legs of the IRR with due priority to the public transport. UR1- Jinzhonghe Interchange: Located on the north-eastern part o f the M RR , this intersection connects MRR with . Jinzhonghe Dajie, which i s the main northern entrance to Tianjin from the Jing-Jin-Tang Expressway. It presently support a heavy traffic expected to increase rapidly with the economic development of the area. The project will create a 3 level flyover for through traffic on both roads, made o f a 4-lane flyover along the Jinzhonghe Dajie, and o f a 6-lane flyover along the MRR over the previous one. I t will be about 500m long along the Jinzhonghe and 900m long along M R R , which will span over the next road on the North, Zhongshanbei road. Turning movements o f MVs as well as NlMv w i l l be made at grade. U R 2 - Dagunan Interchange: Located at the intersection o f the southern leg o f the MRR with Dagunan road and Jianshan road, it serves a major axis for the southeastern peri-urban traffic entering the city center. In addition the MRR at this location i s already a busy commercial area and a future subway station i s planned in the vicinity. The present conceptual design calls for a 3 level Y-shape interchange spanning over a length of about 800m on Weidi road (MRR) and over a shorter length on Dagunan road. The Feasibility Study to be carried out as part o f the project will reexamine the design to optimize it, in particular to allow full development of and access to the various urban functions in the area, to support full pedestrian and M V traffic, as well as to minimize the environmental and social disruption in this busy commercial area. T h i s study will include a study tour focused on good international examples of interchanges in busy urban areas. The construction o f the interchange w i l l require a satisfactory completion o f the study as well as road improvements on the Weidi dao, and satisfactory environmental assessment and resettlement action plan. UR3 - Beima Road: Widening 1.6 km o f the northern leg o f the Inner Ring Road and reallocation o f existing road space to provide six MV lanes, including kerb-side bus lanes, by slightly reducing the width o f the NMV lanes to about 5.5m. A pedestrian footbridge will be built over the intersection of Beima road with Zhongshan road as part o f subcomponent UR5. - 34 - UR4 - Nanjing Road: Widening the 0.8 km bottleneck section between Yingkou Road and Anshan Road plus two nearby junctions at Xinhua Road and Hubei Road, With-flow bus lanes will be introduced in both directions. The construction o f these improvements w i l l be carried out in coordination with the renovation of the metro line, i.e in the year 2005 after the completion o f the metro works under this section o f the road. UR5 - Low cost improvements on M RR (Fukang Road): Improvements along the south-western leg o f the MRR, 2 km long, between Wangdingi interchange and Balitai interchange. The project w i l l involve reallocation o f the existing road space to provide 6 MV lanes (instead o f 4 now) by reducing the width o f NMV lanes to about 6 m andor replacing the separator island by railing. Kerb-side bus lanes are also fitted as part o f the MV lanes. This concept has been tested in the south-western leg o f the MRR on Hongqi road. These improvements, in complement o f the ones being made on Weidi Road, will smoothen the traffic on the MMR west o f the proposed Dagunan interchange, and improve bus operation UR6 - Complementary low cost improvements on M RR and IRR: (i) Completing the central divider over a 2.8km long section o f the M RR between the proposed Jinzhonghe interchange and the existing Weiguo interchange and on Hongxing road, to prevent left turns on minor junctions and smoothen the operation o f the interchange with limited acceptable rerouting o f traffic on local roads and special crossing arrangements for NMVs. (ii) A pedestrian footbridge over the intersection o f Beima road with Zhongshan road to complement the improvements to be made on Beima road; ( iii ) two footbridges along Hongxing road to allow pedestrian movements at closed intersections; (iv) low cost traffic management improvements o f the Anshanxi Circular Island on the western M RR (Hongqi road) which i s heavily congested. - Project Component 7 US$4.09 million Area Traffic Control and Traffic Management. The existing ATC system was installed as part o f the first Tianjin Urban Development and Environment Project and covers 62 junctions inside or on the IRR. This project w i l l add about 300 controlled junctions to extend this system to cover most o f the area inside or on the MRR, and on several corridors approaching this area. The new system will be implemented along with channelization and other traffic management measures and will provide for bus priority at selected locations. The contract w i l l include the installation, debugging and training. 89 junctions will be implemented in the southern sector during the first year, and the others will be implemented over the next two years. In parallel the existing equipment o f 16 junctions will be relocated in order to reduce the interaction between the area controlled by the existing equipment and the area controlled by the new one. The system will control all junctions covered under the urban road improvements under the project. - Project Component 8 US$15.16 million Bus Priority Corridors :T o complement the ring and radial road capacity as well as the future metro line, the project w i l l finance bus priority measures improvements on selected corridors. These improvements w i l l be implemented in parallel with the restructuring o f the bus routes network. Three corridors have been pre-selected for a total length o f 4km for an East-West corridor along Huanghe Road and Nanma Road, 6km for a North-South corridor along Jintang Road up to the Railway station, and four junctions along Weijin road. The final selection o f the corridors as well and their feasibility studies will be done as part o f the TA component o f the project. The bus priority corridor improvements will be implemented after the successful completion o f these studies. - 35 -  - Project Component 9 US$4.63 million Institutional Development A. Infrastructure Information System: Establishment o f a framework including a common platform and data security and access protocols for an integrated GIS o f infrastructure facilities and services at the level o f 146 service areas within Tianjin city, or smaller. Consultant assistance and training for the system design, pilot application in selected areas, and assistance in development o f a full infrastructure GIs will be financed by the Bank. The rest will be financed by user departments and agencies (such as Telecommunication and Power Companies), who have established an Infrastructure Information Systems Development Committee to coordinate the development. B. Sewerage Sector Reform: Studies and training to review options for institutional arrangements and financing o f sewerage services. The focus will be on turning the services to market-based operations including mobilization o f capital market resources, resolving the difficulties associated with the recent divestiture o f WWTPs, and on establishing organizational set-up to set the policy and regulate the sector. A full range o f commercialization options will be reviewed, ranging from management contracts to divestiture, and procedures for recommended competitive process will be designed. The study will be the basis o f an Action Plan for sector reform. C. Sewerage Institutional Development: Studies and training to strengthen the capacity o f the new regulatory office, in establishing performance standards, rate formula, and others; and to strengthen the managerial and technical capacity o f the operating entities. Only the former will be financed with the Bank loan, the latter by the entities. D. Transportation (i)Transport Sector Institution and Regulation Study: Studies and training to evaluate and implement strategic institutional options for the overall urban transportation management. The focus will be on developing an institutional mechanism to coordinate the urban transportation planning, management, and regulation responsibilities, presently spread among different agencies. Options for such as a mechanism would range from the creation o f a formal organization such as a Transportation Authority or a set o f formal rules mandating various forms o f coordination among the agencies. This TA will be managed by a TMG Task Force, led by TCMC and involving Urban Planning, Public Transportation Administration Department, Traffic Police, MEB and general Public Transportation Group. (ii)Transportation Model Development Study: Upgrading the existing strategic traffic forecast model, and training the staff o f Urban Planning and Design Institute to utilize and calibrate i t and more generally make recommendations on transportation planning consistent with urban planning. The study will provide inputs for the Dagunan interchange study and for the Bus route restructuring study. (iii)Bus Routes Restructuring and Bus Priority Corridors Study: As a result o f the bus industry reform carried out in recent years, the quantity and quality o f the supply increased significantly, but the liberalized process led to a confusing and sub-optimal route network. This study will propose and evaluate a improved route network structure, and train the P T M D s t a f f on the use o f a route network planning tool. The study w i l l take into account the metro project. This study w i l l also reexamine the potential bus priority corridors to select the appropriate ones and develop their feasibility and design. Upon satisfactory result o f this study the bus corridors will be implemented under the project. - 36 *  Annex 3: Estimated Project Costs CHINA: Second Tianjin Urban Development and Environment Project I lion 33.99 70.15 28.92 50.05 Water Reuse 10.06 15.05 Dagu Canal Rehabilitation 22.27 49.86 Suburban Sewerage 20.22 38.97 Urban Roads 24.81 56.28 Traffic Control System 2.82 3.70 Bus Priority Corridors 6.3 1 13.70 Institutional Development 2.66 4.18 Total Baseline Cost 152.06 301.94 Physical Contingencies 7.60 15.10 Price Contingencies 8.54 16.96 Total Project Cost; 165.80 168.20 334.00 Front-end fee 1S O 1.50 Total Financing Required 165.80 169.70 335.50 Goods 4.56 41.05 45.61 Works 126.78 103.73 230.51 Services and Training 10.05 23.42 33.47 Land and Resettlement* 24.41 0.00 24.4 1 Total Project Costs 1 165.80 168.20 334.00 Front-end fee 1S O 1.50 Total Financing Required 165.80 169.70 335.50 - 37 -  Annex 4 Environmental, Social, and Economic Impacts CHINA Second Tianjin Urban Development and Environment Project A. Summary of Environmental Assessment and EnvironmentalManagement Plans Environmental Assessment 1. Environmental Assessment (EA) was conducted for the project based on relevant regulations and guidelines o f China and the World Bank. The objective i s to identify at an early stage the potential environmental consequences of the project, propose measures to avoid, mitigate or otherwise compensate negative environmental impacts during construction and operation, and allow incorporation o f appropriate measures in the design to reduce negative impacts to a minimum and acceptable level. 2. The assessment focused on the baseline data, alternatives, environmental benefits, negative impacts and mitigation, environmental management plan, and public participation and information disclosure. The scope o f assessment i s designated based on project TOR in the areas o f Water: Dagu, Jizhuangzi and Xianfeng canals, receiving water; Air: 500 m from the project roads, canals, WWTPs, sludge disposal sites and pumping stations; Noise: 200 m on both sides of the project roads, the boundaries o f WWTP and pumping stations, boundaries o f construction sites; Sea: Bohai Bay near Tianjin shoreline; Groundwater: area surrounding and downstream from sludge disposal sites; Soil and vegetation: project area, land acquired andor occupied, and land application o f sludge; and Community: 100 to 500 m from all project sites. Baseline Data 3. General. Tianjin Municipality i s located in northern China, bordering Beijing to the west, Hebei province to the north, south, and west and the Bohai sea to the east. The municipality has a total area o f 11,920 km2 with 153.3 km o f coastal line. The general topography o f the project area slopes from northwest to southeast towards the Bohai Sea. Except a small mountainous area in the northwest, most area of Tianjin i s an alluvial plain with the average elevation o f about 3.5-5 m above the sea level. 4. The climate i s characterized by distinct seasons with sharp temperature changes. The annual average temperature i s 12.5 'C, with the highest monthly temperature o f above 29 'C in July and the lowest monthly temperature of -7 "C in January. Average annual precipitation i s 559 mm, with 7545% o f the annual precipitation occurring within the four month period between June and September. The wind directions are relatively dispersed with no dominant direction. The prevailing atmospheric stability i s D at 56.7%, followed by C at 16.9%. A large area o f the city, primarily those close to the shoreline, i s saline and sterile and unsuitable for agricultural uses. 5. Water. The total surface water inflow into Tianjin i s 2.61 billion m3 in an average year with significant yearly variety which could be as low as 527 million m3. The area precipitation contributes an average surface runoff to the rivers o f 895 million m3lyear. Qiaobei and Beidagang reservoirs have 412 and 277 million m3 capacity, respectively. The total groundwater resources in Tianjin i s about 817 million m3, o f which 702 million m3 i s abstractable. The total annual average flows out o f Tianjin - 38 - i s 5.3 billion m3: to the Bohai sea, 2.33 billion m3; abstraction for urban water supply, about 1.2 billion m3; agricultural irrigation, 1.5 billion m3; with the remainder lost to miscellaneous uses, evaluation and recharge to the groundwater and area reservoirs. 6. I n 1998, the total water consumption in Tianjin was 3.17 billion m3, including 691 million m3 o f wastewater used in farm land irrigation. O f the total amount consumed, industrial consumption was 754 million m3, urban domestic use 440 million m3, urban lakeslsurface water recharges 50 million m3, irrigation o f farm land 1.49 billion m3, rural domestic uses 127 million m3, and forest, fishing and animal husbandry 3 12 million m3. The total urban consumption was 1.244 billion m3. In the eight years from 1991 to 1998, Tianjin’s water consumption had increased by an annual average o f 0.9%, led by urban domestic uses (5%), industrial uses (1%) and irrigation (0.2%). 7. According to Tianjin Environmental Quality Report 1999-2000, water quality in all major surface water streams in Tianjin was below Category V, unfit for any productive use. In 2000, total pollutant (organic) load in Tianjin was 186,200 tons o f COD including 72,600 tons or 40% from industrial sources and 113,600 tons or 60% from domestic sources. Surface runoff from agricultural fields i s unknown both in terms o f volume and quantity in COD. The loads o f other pollutants from industrial effluent such as chromium, phenol and cyanide had been reduced by 82%, 5% and 53% respectively by 2000. 8. Air. Ambient air quality in Tianjin has been improving since 1980. TSP has decreased over 50% to around 0.3 mglm3, SO2 over 65% to 0.07 mglm3, and NOx, about 40% to 0.05 mglm3. These concentrations are at or slightly higher than the ambient air quality standards applicable to urban areas. Monitoring was conducted during the EA in 12 monitoring sites on selected sensitive receptors along roads proposed for the project for TSP, NO2 and CO and the six selected sites along the Dagu Canal for nuisance odor. The observed TSP daily average concentrations o f 0.056-0.568 mgJm3 and CO daily average concentrations of 0.91-6.9 mglm3 partly exceeded the applicable standards o f 0.30 mgJm3 and 4.0 mglm3, respectively. At each monitoring site, the exceedance rate for TSP was 4040% while that for CO was 40-100%. The monitoring results for N02, on the other hand, have all met with the applicable standard o f 0.12 mgJm3, indicating that the primary sources for air pollution in Tianjin are coal-burning boilers and air borne dust from roads. The nuisance odor monitoring results showed that up to 50 m from the Dagu Canal, selected odor parameters such as nuisance odor and NH3’s exceeded the standards. 9. Bohai Sea. The Bohai Sea i s surrounded by Liaoning province to the north, Hebei province and Tianjin to the west, and Shandong province to the south and southeast. In total, 91 rivers discharge to the Bohai Sea, including 19 from Tianjin, 47 from Hebei, and 10 from Shandong. The total discharge volume from the 91 rivers i s on average 69.0 to 139.1 billion m3, o f which about 15.4 billion m3 i s from the Hai River Basin (HRB). The Bohai sea receives a total COD influx o f 309,906 tlyear, nitrogen, 24,877 tlyear and phosphorus 1,255 tiyear through rivers and municipal discharges from Tianjin. According to an earlier study, however, over 70% o f the pollutants discharged into the Bohai Sea are those from agricultural non-point sources. 10. Dagu sediments. The existing characteristics o f sediment sludge in Dagu canal i s critically important to the Dagu canal remediation plan and sludge disposal. The EA designed and carried out a sediment monitoring program. In total, 16 monitoring sites were selected covering all major natural and industrial discharge points to the canal. Intotal, 34 parameters were analyzed for organic, inorganic, mineral oil, pesticides, herbicides, as well as soil texture. The results show that eight samples from top sludge and two from bottom have been contaminated by heavy metals and/or - 39 - mineral oil. One to several contaminant concentrations at this locations have exceeded the Contaminant Control Standards for Agricultural Application o f Sludge. Sludge from these sections, particularly the top sludge, will be classified as hazardous waste and require special methods for disposal, such as secured landfills. 11. Others. Ecological surveys were carried out during the EA for aquatic life in Dagu Canal and vegetation in project areas. The results showed that in Dagu Canal there existed only bacteria and l o w level plankton with rare high level aquatic life including fish which may only be observed during the rainy season when they are overflow from reservoirs and fishponds. There i s no forest or endangered species o f plants in the project area. Top soil (to 25 cm) and in-ground soil (below 25 cm) were collected and analyzed from seven locations of farm land along Dagu canal. Except three in-ground soil samples whose mineral concentrations were above the Class I Icriteria in the Soil Environment Quality Standards and Contaminant Control Standards for Agricultural Application o f Sludge, all others were below the standards. The EA measured existing noise levels in 27 selected representative sensitive receptors (hospitals, schools and residential buildings) located within the project impacted areas. The results showed that for both hospital and residential areas, the levels o f noise exceeded the Class I standards (55 dB(A) for day time and 45 dB (A) for night) by as much as 16.9 dB(A) and 7.4 to 17.4 dB (A) respective in day time and 21.7 &(A) and 7.3 to 30.1 &(A) at night. Analysis of Alternatives 12. During the project development, various alternatives were evaluated on the basis o f technical, economic and environmental criteria. Minimizing the adverse environmental impacts was a main criteria. The comparison o f alternatives were made for the following components: * Alternative storm water sewer and sewage interceptor routes and pumping station layout; . Alternative sites for WWTPs and pumping stations; . Sequencing Batch Reactor (SBR) versus oxidation ditch for primary wastewater treatment process for the project WWTPs; . Mechanical versus hydraulic dredging for Dagu Canal cleanup, roadtruck versus pipeihydraulic sludge transport, and on-site versus landfill site dewatering, and landfill versus woodlandfarmland sludge disposal; . Alternative landfill sites and other disposal options; . With and without liners following Dagu Canal dredging; . With and without Dagu Canal dredging and remediation; . Intersection improvement versus interchange construction; . Alternative interchange designs and configurations; * Alternative designs on intersection improvement; and . With and without the urban transport project components or sub-components 13. The recommendations made by the EA team were accepted, including the Shuanglin WWTP site selection which was originally preferred by the design engineers close to a rural residential community. After a detailed analysis and discussions, the project proponent and designers accepted the EA team recommended alternative site some 2.1 km away from the original one for the Shuanglin WWTP, lengthening the distance o f sewage conveyance. Environmental Benefits 14. Water quality improvement. The project will bring significant benefits to the water - 40 - environment of the HRB, urban section o f Hai River in Tianjin and other aspects o f environment and life which depend on water quality. In terms o f pollutant loads to the HRB, the project will reduce a total load o f COD by 44,873 tonlyear, BOD, 20,750 tonlyear, ammonia nitrogen, 1,543 tonlyear and total phosphorus, 53 1 t'year by the two WWTPs (Shuanglin and Yingcheng). The drainage network component will intercept all the wastewater in project areas with 426,000 people, which will improve the water quality in urban sections o f the Hai River to the level equivalent to that o f upstream from the city. The Dagu Canal cleanup and the increase of wastewater treatment rate following the project implementation will contribute to the water quality improvement in Dagu and other rivers, which will alleviate the adverse effect caused from the current wastewater irrigation practice in the region, 15. Air quality improvement. An U S EPA ISCLT model was used during the EA to predict the impact o f the urban transport component to the regional or city wide air quality. The model results indicate that the maximum CO concentration in the city i s expected to decrease to 3.43 mg/" from the current level o f 4.27 mglm, while the maximum NOx concentration to 0.1 12 mg/m from the current level o f 0.141 mg/m. The reduced air pollution levels and improvement o f ambient air quality from a city wide perspective reflects the improved motor vehicle operation efficiency through increased average motor vehicle speeds, as well as other air pollution programs planned in Tianjin. 16. Bohai Sea. The mathematical model used for the EA suggested that the project will reduce pollutant discharge to the marine water in the Bohai sea near Tianjin shoreline: COD discharge through Dagu canal and Beitang canal will reduce to 36,600 tonlyear from the current level o f 234,200 tonlyear, nitrogen to 926 todyear from 12,554 tonlyear and phosphorus to 378 tonlyear from 787 tonlyear. The model further indicated that COD concentration 4000 meters from the shoreline into the sea will be 0.7 mgL, close to the background concentration for organic in such environment. 17. Others improvement and benefits are also predicted in environmental, economic and social aspects, such as odor elimination in the areas along the Dagu Canal through i t s cleanup, land and property value increase along the HRB rivers, increased recreation space for communities in the urban section o f the Hai River, revenue increase from tourism, improved bio-diversity and ecosystem improvement in the fresh water system, etc. Negative Environmental Impacts and Mitigation 18. General impacts and mitigation: Various impacts during project construction and operation stages were identified, and counterpart mitigation measures were recommended in the EA. Temporary adverse impacts include air borne dust from structureibuilding demolition and vehicle moment, noise from construction and vehicle, traffic congestion, wastewater discharge from construction camps, earth material for disposal and construction, interruption o f municipal services, land impacts, etc. In order to mitigate these impacts, counterpart measures were developed and recommended. They include water spray and fence construction to prevent the dust, careful scheduled construction activities, prohibition o f uses o f certain noisy machines at night and temporary noise barriers to reduce the noise impacts, traffic plans to reduce construction in congested urban centers, covered earth and bulk materials during transportation to reduce the dust, well planned temporary land occupation in consultation with farmers and others affected, and recovery o f the land at the end o f temporary uses to minimize the loss o f crops, prompt removal o f construction waste and debris from the sites and their daily disposal in dedicated o f f site locations, etc. 19. Dagu Canal Rehabilitation will involve dredging, dewatering, conveyance and disposal o f sediment. The major impacts include odor, sediment dewatering effluent, noise, dust and land impact. -41 - n order to minimize the odor impacts, where possible, hydraulic approach will be applied where the I dredging will primarily take place under the water with no interruption o f canal flows. When mechanical dredging i s applied the odor will exceed the standardup to 100 m away but will fade significantly and quickly. Sediment dewatering, sand washing, machine washing and domestic activities in construction camps will generate 1685 m3iday o f effluent. They w i l l be treated before discharging downstream. 20. Dagu sediment disposal will impact various sites, including soil, groundwater, and sludge hauling impacts. According to the sediment analysis, up to half o f the sediment i s contaminated to exceed the Agricultural Irrigation Water Quality Standards and Class I1o f the Integrated Wastewater Discharge Standards. Three 1anXills will be used to dispose permanently o f the sediment contaminated with heavy metals, o i l and other hazardous materials. These landfills will be designed with toxic landfill standards including impermeable membrane liners, leachate collection and treatment, and reclamation and re-vegetation following the closure. Uncontaminated sediment will be disposed o f in woodland or vast saline land along the coastal region as soil conditioners. 2 1. Other impacts. Other impacts include sunshine, vegetation, and social impacts. The social impacts relate mainly to land acquisition and resettlement which are discussed in detail in the following section of Land Acquisition and Resettlement. EnvironmentalManagement and Monitoring Plan 22. Both government authorities and corporations are identified to be responsible for environmental management during project construction and operation. Tianj in Urban Construction Commission will take the ultimate responsibility for environmental protection and management. The Project Management Office (PMO) will be responsible for the day to day environmental management during the construction phase. Tianjin Municipal Environmental Bureau and i t s district counterparts will be responsible for enforcement o f environmental regulations and standards and review o f environmental monitoring reports. Environmental monitoring stations will be responsible for monitoring air quality, noise, water quality, and other impacts during both the construction and operation phases. Contractors and construction supervision companies will be responsible for implementation o f various impact mitigation measures designed for the construction phase and at the construction sites. Wastewater companies w i l l be responsible for the day to day environmental management during the operational phase. 23. A special E M P will be prepared for Dagu canal remediation as a condition o f disbursement. I t would detail the methods and procedures to sample and analyze the sediment in detail, section by section, and to determine the remediation and disposal methods. It will also detail the plan to prevent further contamination o f the Canal. 24. A training program and a monitoring program were developed for the purpose o f environmental management. Table A4. 1 summarizes the proposed monitoring activities: -42-  I Locations I 10 Sensitive receptor at I 1o Sensitive receptors near interchanges and roads interchanges and project roads Frequency Twice a month Twice a year during winter and summer respectively Noise (drainage) Parameter dB(4 dB(A) Locations Construction sites Boundary o f the plants and pumping 10 Sensitive receptors stations; Nearest village Frequency Once a week Twice a year Noise Parameter WA) dWA) (transport) Locations Construction site borders 10 Sensitive receptors near - - project Sensitive receptors nearby roads and interchanges Frequency Once a month Twice a year Public Consultation and Information Disclosure 25. Project stakeholders including the general public were consulted during the project EA, particularly those who will be directly affected by the project, such as the residents near proposed pipelines, interchanges, roads, wastewater treatment plants, Dagu canal and sludge disposal sites. The methods for the public consultation included public meetings, interviews, questionnaires, and public media. The EA team organized and chaired the public meetings which were also participated by project planners, design engineers and government officials. 26. Advertisements were placed in the most dominant and popular newspapers in Tianjin to describe the project and i t s potential impacts and to invite the public to express their concerns about the project. In addition, the draft EA reports and other project related information including project environmental information has been placed in both project management offices and environmental institutes involved in the EA for public reviews and comments. The telephone hotline at the EA teams and manned by environmental specialists i s another source o f information to the public about the project and potential project impacts. 27. The public consultation resulted in several changes in the project design, including the change of the Shuanglin WWTP location cited earlier (para 13 above), and road design and schedules to minimize resettlement and noise (para B.2 below.) -43-  B. Land Acquisition and Resettlement ResettIement Impacts 1. Involuntary resettlement required for the project will be as follows: . The project will require 748 mu (498,477 m2) o f land, o f which 155 mu or 21% are State-owned and 593 mu or 79% are collective-owned. 3 10 mu o f the collective-owned land i s cultivated. . The total number of people to be affected by land acquisition or relocation i s 859, including 433 farmers with direct or indirect interest in the cultivated land being taken; relocation o f 66 residential units o f 156 persons; relocation o f 60 non-residential units (enterprises, shops and non-profit institutions) with 270 staff and managers. . The impacts on the non-residential units are temporary and relatively minor; no one i s expected to lose employment because o f the project. . A total o f Y 77.91 million, or about 3% o f the total project cost, will be required for compensation and rehabilitation. 2. The project authorities undertook a socioeconomic survey and consultation with affected people during project preparation, These showed a widespread support for the project and the suggestions have been incorporated to reduce adverse impacts. Most o f the transportation components are designed to improve the traffic capacity by adjusting the road section and adding special lane for buses without changing the current right o f way. The revised design o f Jinzhonghe Interchange reduced the demolition o f houses from the original 30,000 m2 to 3,000 m2. For pumping stations, the sites were selected either on land which have been reserved or already occupied by public facilities, For instance, the rainstorm pumping station at Nanbeicang w i l l use an existing agricultural pumping station, meeting both the needs o f agricultural irrigation and storm drainage. The wastewater pumping station was designed to fit in the Beicang Nursery Farm without any relocation and land acquisition. The dredging o f the Dagu Canal will make use o f both banks along the canal for access and sludge storage without occupying any farmland. 3. The Nanbeicang WWTP and the Xianyanglu WWTP, financed partly by ADB and JBIC respectively, w i l l receive sewage conveyed through the sewers built under the project. The former required acquisition o f 410 mu o f nurseries and a orchard, and j o b transfer o f seven households. The latter required acquisition o f 775 mu o f farm land and 325 mu o f fish ponds, which were farmed 22 persons on salaried or contract basis. A field survey showed that the compensation and rehabilitation, carried out according to the local regulations, were consistent with standards o f the Bank's policies (OP 4.12) and with those for the Bank-financed components. These are summarized at the end o f this Section. Legal and Policy Framework 4. The legal basis for land acquisition and resettlement planning includes national and municipal laws and regulations. Relevant national laws or regulations include the Land Administration Law (1999), and the Administrative Regulation on Urban Building Demolition and Relocation (2001j. The most relevant municipal regulation i s the Tianjin Municipality Regulation for the Management Details o f Urban Building Demolition (1995). 5. In China, all urban land i s owned by the State, and all rural land i s owned by village collectives. As a result, there are two types o f land acquisition for this project. The first type i s the - 44 - acquisition o f collectively owned rural land. Compensation and other forms o f assistance must be provided to the collectives losing the land. The second type o f land acquisition i s the acquisition o f land use rights within the built-up urban area. In this case, the acquiring agency or unit must also provide adequate compensation or resettlement housing for the displaced families and affected enterprises. 6. When collectively owned farmland i s acquired, the future land user pays compensation for land, loss o f crops and attached properties, and a resettlement subsidy. Following the revised Land Administration Law, compensation i s calculated, based on the following principles: . Land compensation will be assessed as 6-10 times the average annual output value, per mu, for the three years prior to acquisition o f the land. . The resettlement subsidy varies depending on the size o f the agricultural population resettled. I t adds about 4-6 times (but cannot exceed 15 times) the average annual output. . If land compensation and resettlement subsidies are s t i l l insufficient to help the resettlers to maintain their original living standards, the resettlement subsidies may be increased, but cannot exceed a multiplier o f 30 times the average output value o f the requisitioned land. 7. Those affected by urban demolition are to be compensated through an exchange o f property rights, direct asset replacement, cash compensation, or a combination o f such compensatory measures. Under the project, while no one i s expected to lose employment permanently, some persons will lose wages or profits for a transitional period. They will be entitled to transitional support. Compensation Standards 8. Based on analysis o f replacement value for various categories o f affected assets, a set o f compensation standards have been adopted for the project. Given that the land value in the suburbs o f Tianjin i s relatively high, the multiplier o f 30 has been used when calculating the compensation for land acquisition and resettlement which w i l l be paid to the Village Committees, the land owner. The villages affected by land acquisition alone are compensated with 16 times o f the annual average production value, which are: Y16,OOOlmu for cultivated land, Y19,2001mu for paddy field, Y 176,OOOImu for land covered by green houses, Y80,OOOlmu for vegetable plots, Y 17,6001mu for orchards, and Y67,2001mu for fish ponds. For affected structures and facilities, compensation standards are: Y 1,000-1,5001square meter for residential houses; Y 1,OOOlsquare meter for non-residential buildings, plus Y36lsquare meter for loss o f production or business. Rehabilitation and Relocation Planning 9. Because the project i s situated primarily in an urban area, major project-related impacts are associated with structural demolition, requiring relocation as the major mitigation. The affected households will receive cash compensation and purchase housing according to their own preferences in the housing market which i s active. 10. No one i s expected to lose employment permanently because o f the project. However, rehabilitation measures are required for households affected by the loss o f cultivated land as follows: . Redistribution o f newly available land by the village; . Job creation by the village committees which hold the land compensation funds; . Employment by project entities which use the land; -45- . Job huntingby the affected persons themselves, who will also receive resettlement compensation; * Payment o f social secury by the village. 11. For the affected shops, two markets are available for them to relocate. For an enterprise which loses part o f the property, it can either choose to rebuild the structures on reduced land in the same location, along with partial compensation, or receive cash compensation for relocation, In any full relocation, the new site will be selected though consultation between the project authorities and the affected enterprises, within the restrictions o f the Urban Master Plan. 12. The project will also involve relocation or replacement o f public infrastructure facilities such as utility lines, street lights, and sign boards. Compensation based on replacement value will be paid to the relevant government agencies to restore the affected infrastructure and services. InstitutionalArrangements 13. Implementation responsibilities are shared by Tianjin Municipal Engineering Bureau and Tianjin Municipal Construction Corporation which i s the project manager. PMO will oversee the implementation, with the help of the Tianjin Academy o f Social Sciences, an external monitor. Routine tasks will be undertaken by officials and specialists in the District or County governments. Training will be provided to improve the implementation capacity o f the responsible agencies. Community Participationand Public Disclosure 14. Municipal and District officials, as well as project design staff, have consulted the potentially affected communities when identifying resettlement impacts, formulating resettlement policies, and preparing resettlement plans, This has allowed minimization o f impacts and identification o f remedial plans acceptable to the affected persons. Participation will continue during resettlement implementation. For example, consultation meetings will be organized six months before physical relocation. 15. Information regarding the project and the resettlement program have been published in local newspapers and TV programs, and will be published again during implementation. T o ensure that affected persons are informed about compensation standards, rehabilitation measures, and grievance procedures, resettlement announcements will be posted in the affected neighborhoods. The full RAP has been made available at the TJPMO. Resettlement Cost and Implementation Schedule 16. Based on preliminary data, the project resettlement budget i s estimated at Yuan 77.91 million, including monitoring costs and contingency allowances. Estimated resettlement costs are included in the project budget, shown in Table A4-B below, which can be exceeded if the necessary. 17. Most o f the resettlement for the fully identified project components will be carried out in 2003 and 2004. To ensure effective resettlement implementation, all resettlement-related activities are planned to be completed at least one month prior to commencement o f construction in any given area. -46- Monitoring and Evaluation 18. Resettlement implementation will be subject to both internal and external monitoring. The TJPMO w i l l be responsible for internal monitoring and report the resettlement status and issues in the semi-annual project progress reports. External monitoring will be conducted by the Tianjin Academy o f Social Sciences, which w i l l function independently o f the project owner. External monitoring reports will be submitted to the P M O and the Bank every year. These will review the compliance with RAP terms, and will evaluate the adequacy o f resettlement measures for improving or restoring incomes and living standards. Policy Framework 19. For project components which are yet to be finalized - the suburban sewerage, bus priority corridors, and Dagunan interchange - a Resettlement Policy Framework (RPF) has been prepared. The standards are consistent with those for the already established Resettlement Action Plan (RAP). The RPF elaborates the process for preparing the resettlement plans before implementation o f the components, as required under the Loan Agreement. The main steps involved in the resettlement process are as follows: (1) Subproject sponsor furnishes preliminary report on the proposed component to the Project Management Office (TJPMO) and the local authorities at the earliest possible stage. The preliminary report would contain basic information on: (i) the proposed location o f the project; ( ii) total area o f land required, the type o f land, current land use and possible impacts o f land use changes, and the proposed strategy for land acquisition; and ( iii) the people to be affected by the project including those losing homes, land or livelihood; and those who will benefit from the project; (2) TJPMO will, after i t s review and consultation with the local authorities, inform the subproject sponsor to prepare a resettlement document according to the requirements set forth in the RPF; (3) When the number o f persons affected by the subproject exceeds 200, a full resettlement action plan shall be prepared. Where impacts on the entire affected population are minor, or fewer than 200 people are affected, the Bank and P M O may agree to accept an abbreviated resettlement plan. Impacts are considered “minor” if the affected people are not physically displaced and less than 10% of their productive assets are lost. -47-  (4) The subproject sponsor prepares the resettlement plan and submits it to the local authorities, TJPMO and the World Bank for review or concurrence. (5) The reviewers shall verify the adequacy o f the report in light o f policies, principles and procedures set out in this RPF, and convey the decision to the subproject sponsor. (6) After obtaining concurrence o f the World Bank, the subproject sponsor executes the agreement which would contain terms and conditions related to resettlement provided in the RPF. L i n k e d Resettlement 20. A large part of the sewers built under the project would convey the wastewater to the Nanbeicang WWTP, currently being built with partial financing from ADB, and the Xianyanglu WWTP, being built partly with JBIC financing. Both are located urban edges o f Tianjin, that are nominally rural but rapidly industrializing. The area residents are nominally farmers but on average derive less than 10% o f the incomes from farming. The Nanbeicang Plant required acquisition, late in 2002, o f 410 mu o f nurseries and a orchard, owned by five villages. The Xianyanglu Plant required 775 mu of farm land owned by a village and 325 mu o f fish ponds owned by another. There was no structure to remove or relocate. 21. The compensation for the land and resettlement was set at 16 or 17 times the average annual production over the past 3 years, or about Y 30,000 per mu. Total compensation funds amounted to Y 13 million for the Nanbeicang Plant and Y 33 million for the Xianyanglu Plant. Most of these funds, already being paid, have been allocated by the villages for community facilities such as roads, village-owned enterprises, and social welfare payments. 22. A part o f the compensation, about 15%, has been distributed as additional compensation to directly affected persons. The nurseries and the orchard taken for the Nanbeicang Plant were leased to six households. They were paid an average of Y 300,000 per household, depending upon the size o f the land they were cultivating. Alternative jobs have been offered, including another piece o f land, jobs in the enterprises and the community government. As o f January 2003, one household has taken up the alternative land, but others are considering various options including establishment o f their own business using the compensation. 23. The farmland taken for Xianyanglu Plant was cultivated by 15 farmers o f the village who were paid salaries by the village committee. They have been reassigned to new jobs - 6 on another farming assignment, 4 in village-owned enterprises, and 5 on community utility and security assignments. The fish ponds had been leased to five households on yearly contracts. The village assisted them to sell the fish before the ponds were closed, paid an additional compensation o f Y 65,000 per household, and to have offered alternative jobs in the community. Two have accepted the offer but others are considering other options, mainly j o b openings in nearby joint-venture f i r m s or own businesses. 24. Public consultation on the compensation for the Xianyanglu Plant was held four times between June 2001 and March 2002. For the land for the Nanbeicang plans, public consultation was held six times between November 200 1 and November 2002. Grievance and coordination arrangements have been established based on the village committee-District government structure, and the Tianjin Statistical Information Services Center has been appointed as an external monitor. -48-  C. Affordability o f Sewerage Services 1. The water supply and drainage tariffs applicable from 2001 are shown in Table 7 below. The domestic consumer may expect to pay around Y 2.51m3 for water and sewerage services, and other users around Y 3-7 lm3. Due to the extensive sewerage system build-up the average tariff necessary to cover operation and depreciation costs o f the facilities i s projected to be around Y 1.51m3 by about 2005. The residential tariff i s expected to be lower than t h i s in line with the past practice. On the other hand, the water tariff i s also expected to increase further due to the continuing water shortage and the need for large investment for water resources, However, it i s not clear how much the tariff increase can be pursued, in view o f the fact that the recent past tariff increases have resulted in significant drop in water consumption and in large idle capacity in water treatment. The residential users may therefore face the combined water and sewerage tariff o f Y 3 - 4 per cubic meter o f water used in 2006. 2. Affordability o f drainage and water supply services for domestic consumers in 2006 i s presented in Table 2 below. Incomes are projected to grow at an annual rate o f 6%, in line with the 7% annual average increase in the past. The analysis shows that water and drainage service tariffs w i l l represent less than 3% o f income for over 90% o f the Tianjin residents, but about 3.7% o f average income for those in the lowest income decile. The latter i s s t i l l within the widely adopted rule-of-thumb affordability limit o f 5% o f income, and i s likely to become less actually with savings on water consumption. This can therefore be considered tolerable especially in view o f the water scarcity o f the city and the subsidies to the lowest income groups under the MinimumLiving Standard Scheme and other measures. Nevertheless, it would be an issue to monitor, and to consider in determining the welfare subsidies. Table 2: Water and Sewerage Affordability Iincome PercentileIAver. Personal IProiected 2006 lWlS Tariff as % of I income Source ( Z O O 0 income) : T i a n j i n S t a t i s t i c a l Yearbook 2 0 0 1 Assumptions: P r o j e c t e d g r o w t h o f income 6.0% p e r year D a i l y water consumption 150 l i t r e per capita Water and sewerage t a r i f f 3.5 Y/m3 -49-  D. Economic Evaluation of Transportation Improvements 1. A cost benefit analysis was carried out for a twenty year period up to the year 2023. 2. Costs include those for investment and maintenance. The investment cost includes resettlement but not taxes. The latter was estimated to be about 1% o f the construction cost per year, and about 12% every five years for rehabilitation. Economic costs were assumed to equal the financial costs without adjustment in line with the practice for urban inputs in China. 3. The road user benefits were estimated in terms o f savings in vehicle operating costs (VOC) and travel time, using delays and stops projected with the SCATES (Sydney Coordinated Adjustable Traffic Evaluation System) program, calibrated to reflect the Tianjin traffic conditions such as the heavy NMV traffic. Motor vehicle traffic volumes were forecast for the year 2010 and 2020 using the macro model used in Tianjin, which i s based on the MINUTAB model. Future volumes o f N M V s were assessed with reference to the official targets for these years. The forecasts were reviewed and considered reasonable: for instance traffic volume at the Jinzhonghe interchange i s projected to grow at a rate o f about 5% per year. VOC o f MVs was assessed for the number o f stops forecast with the SCATES, the cost per stop being valued at RMB Y 0.1 based o n a survey carried out in Tianjin. V O C for buses were developed based o n manual estimates o f h t u r e speed and volume per segment. The passenger time value was estimated on the basis o f the average hourly wage o f Y 7.17 and time savings ratio o f 60% in 2002, the former increasing to Y 21.8 in 20 years and the latter decreasing to 40% over the same period. These parameters produce benefits consisting mainly o f travel time savings, representing 80%-95% o f the estimated benefits. 4. Three alternative designs o f the Jinzhonghe interchange were evaluated with this methodology. The selected alternative shows a baseline benefit o f about 11 times the cost, at the discount rate o f 12% per annum, or an internal rate o f return o f almost 50%. Other transportation components show similarly high returns, as shown in Table 1. In view o f the predominance o f the travel time savings, the main sensitivity analysis was performed with the 20% increase in costs and 50% reduction in travel time savings. Still high benefit-cost ratios under this scenario demonstrate the robust feasibility o f the proposed components. The proposed Dagunanlu interchange i s expected to have some aesthetic and other negative impacts on the surrounding busy commercial area, but these costs could not be quantitatively evaluated. This w i l l be the subject o f the detailed study and design under the project. 1 Jinzhonghe I DaguNan IHongxinglu { Weididaol 1 Nanjinglu 1 Beimalu 1 I Interchange 1 Interchange I Works I Fukanglu I Works I Works Baseline: BIC Ratio 10.6 I 11.5 I 6.7 1 9.8 I 7.5 (NPV, Y million) Alternative 1: BIC 4.6 5.4 3.2 4.1 33.1 3.1 Altemative 2: BIC 0.4 0.3 1.1 0.1 1.o 0.1 Base Case: Includes motor vehicle operating cost and time saving, but no NMV benefits Alternative 1: Increase total cost by 20% and decrease MV time benefits by 50% Alternative 2: benefits include only MV operating costs 5. It i s noteworthy that a collection o f small, inexpensive improvements along the Hongxinlu and Nanjinglu are shown to be justified by VOC reduction alone, as they are shown feasible even without the travel time savings (the second alternative analysis). Bus corridors are expected to have similarly l o w costs and high benefits, especially the travel time savings, but i t was not possible to develop an appropriate methodology for the evaluation o f their as they require detail planning. The evaluation will be carried out as part o f the Technical Assistance component o f the loan. - 50 -  Annex 5: Financial Summary CHINA Second Tianjin Urban Development and Environment Project Financial Analysis of Tianjin Sewerage Sector 1. Sector Context 1. Tianjin Municipality i s embarking on a massive capital investment plan to expand the sewerage system over the next five years. The program includes expanding and separating stormwater and wastewater collection systems, construction o f three new wastewater treatment plants, and upgrading o f one existing plant. The capital investment program and financing sources are summarized below: Table 1: Five Year Capital Investment Summary I Investment (Million RMB) I2002 I2003 I2004 I2005 I2006 1 Total I Financing Source Amount (Million Yuan) % o f Total China Development Bank 740 18% World Bank (Shuanglin + Network) 68 1 17% JBIC (Xianyanglu + Jizhuangzi + Network) 446 11% ADB (Beicang + Network) 209 5% TMG and Additional Loans 2029 49% Total 4105 100% 3. With the acceleration o f the facility construction, the institutional framework for sewerage in n 1996 operational functions o f the Drainage Tianjin i s also in a process o f radical transformation. I Division of the Municipal Engineering Bureau was separated into a newly formed, fully state-owned Tianjin Drainage Company (TDC). TDC was responsible for stomwater and drainage collection, and also managed two existing wastewater treatment plants (Jizhuangzi and Dongjiao) which operated as semi-independent entities. In 2000, the Tianjin Municipal Government (TMG) made the decision to "commercialize" the wastewater treatment function. While the collection system was left with TDC, the two existing treatment plants were transferred to a new company, ChuangYe Environmental Protection Co. (CYE), with the initial capital o f about Y 1.1 billion reflecting the value o f the two WWTPs and additional minor assets. Of 1.33 million outstanding shares o f CYE, 63% i s owned by TMG, through the Tianjin Municipal Investment Company Limited (TMICL). O f the rest, a large part was owned by the owners of another, defunct company whose listings in Hong Kong and Shanghai stock exchanges was -51 - taken over by CYE. Approximately 25.5% are publicly traded on the Hong Stock Exchange, and 8.5% on the Shanghai stock exchange. TMG’s intended to have CYE finance, own, and operate the new WWTPs coming on stream, for which half of the financing had been arranged. 4. On taking over the WWTPs in 2000, CYE and TMG (through TDC) entered into a “Sewage Processing Agreement” for Jizhuangzi and Dongjiao plants. The Agreement i s essentially a cost-pass through contract, including depreciation, with a 15% rate o f return on net fixed assets (NFA). The Bank team’s projections indicate that these terms if adopted for all WWTPs as well as some collection system as currently considered, will result in a high cost o f sewerage services unaffordable to the users and the government. The projections show that, after the completion o f the system expansion in about 2006, the cost o f collection and treatment will be about Y 6lm3, in comparison with the pre-CYE cost o f about Y lfm3. On the other hand, if the return on NFA were adjusted to equal the cost o f funds to C Y E (or other commercial WWTP operator), about 6.5%, and no collection system would be included in CYE’s asset base, the cost would be about Y 2.51m3. TMG agrees with the need to review i t s initial intention and agrees to conduct a thorough review options to finance and operate the expanded sewerage system. 5. Under the current circumstances, also in view o f the currently l o w level o f tariffs, i t was agreed that sewerage tariffs to be charged to consumers should be determined so as to recover full operating, maintenance, and depreciation costs, consistent with the 1999 Circular o f the central government. Projected tariff requirements on this basis are shown below: Table 3: Projection o f Sewerage Costs and Average Unit Tariffs - 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 O&M Costs Sewers 92 98 104 111 118 126 135 143 153 163 Treatment _ 60 _ 61 96X159162164166169172 SubtotalO&M 153 159 200 256 278 288 299 310 322 335 Depreciation Costs Sewers 43 61 77 91 97 97 96 96 96 95 Treatment _ 32 _ 45 77 _ - 8 7 1 0 8 1 1 0 1 1 1 1 1 2 1 1 4 1 1 5 SubtotalDepreciation 75 106 153 177 206 207 208 208 209 210 Total Cost of Sewerage 228 265 354 433 483 495 506 518 531 545 ( ~ C 305 ~ a ~ e r ~ u p p ~ 300 ~ ~ r 309 ~ 314 318 323 328 333 338 343 Unit Cost, Yim3 0.8 - 0.9 _ 1.1 _ . _ _ - 1.4 l.s 1, 6 1. 6 1. 6 6. These projected revenues from this tariff basis would fall short o f the projected payments to operating companies, requiring TMG subsidies which are projected to be about 15% o f i t s infrastructure budget. This level of TMG expenditures, while far higher than the 8% o f the infrastructure budget now allocated for sewerage subsidies, appear sustainable and also inevitable in view o f the drastic expansion o f sewerage. The remainder of this Annex describes details o f financial projections o f the required payments to TDC and CYE (or i t s equivalent) and required TMG subsidies. 2. PrincipalAssumptions Used in Financial Analysis: 1. A sector-wide ten-year financial analysis has been undertaken. The TDC will own and operate the stormwater and wastewater collection assets, and C Y E will own and operate all the wastewater treatment plants. The sector revenue needs will thus be a combination o f CYE and TDC requirements, The revenue sources include a combination o f wastewater tariffs and TMG general fund payments. The principle assumptions are outlined below. - 52 - 2. TDC Revenue Needs: A “cash-needs” approach was assumed for TDC, which would ensure that revenues are sufficient to recover total cash needs for each year. Basic revenue requirement components of the cash-needs approach include O&M, debt-service requirements (if any), contributions to specific reserves, and cost o f capital expenditures that are not debt-financed or contributed. Depreciation expense i s not included. Liabilities for debt financing o f major capital works will be assumed by TMG, and i t i s assumed that TDC accounts for major capital works as contributions from TMG. The “cash-needs” approach i s one o f two revenue requirement methodologies accepted by the American Water Works Association (AWWA), and the most common approach for publicly-owned water utilities. TDC’s capital renewal rates are modeled to be 2% o f net fixed assets, or around 60-70 million Y/yr after 2005. TDC has a large backlog of capital spending to renew existing infrastructure, and capital renewal investments should ideally be greater. However, given the large new capital investment program underway in Tianjin, and the limited financial resources available to the sector, it was deemed prudent to model a relatively low level o f capital renewal spending. 3. CYE Revenue Needs: A “utility approach”, which i s the second revenue needs methodology approach accepted by the AWWA and most common approach to investor-owned regulated utilities, i s applied to CYE. The revenue requirements include O&M, depreciation, taxes, and return on rate base. The return on rate based i s assumed to be equal to CYE’s cost o f capital, which i s estimated at 6.5%. CYE’s capital structure (60% debt, 40% equity), cost o f equity (lo%), and dividend payout ratio (60%) are based on averages for investor owned utilities in the United States from 1965-1996. 4. I t i s assumed that TCMC undertakes the construction program for wastewater treatment plants on behalf o f CYE. CYE makes payments to TCMC during the construction phase, and the treatment plants and associated liabilities are transferred to CYE when construction i s completed, and assuming an appropriate regulatory structure i s in place. Foreign exchange risks are not incorporated into the model. Table 5 summarizes the forecasts. The cost of capital estimate i s based on the following: FinancingSource Amount cost Weighted Y mil. YO %Nr cost, %iyr China Dev. Bank 518 15 6.2% 0.93% World Bank 420 12 3.0% 0.36% JBIC 3 12 9 0.8% 0.07% ADB 180 5 3.0% 0.15% Other Loans 800 23 6.0% 1.38% Equity 1300 37% 10.0% 3.70% Total 3530 6.50% 4. Revenue Source 1: Drainage Tar@: As discussed in 1.5 above. 5. Revenue Source 2: TMG Contrj~ution: Drainage tariffs, which are based on O & M and depreciation costs, may not be sufficient to cover TDC and CYE revenue needs every year. The TMG, through its general fund, will cover any revenue shortfalls. 3. Summary of Revenue Needs and Sources Table 5 summarizes the 10-year revenue forecasts. The drainage tariffs need only cover sector O&M and depreciation costs. TMG needs to make additional contributions to the two utilities, primarily to cover CYE’s cost o f capital and taxes. - 53 -  Table 5: Sewerage Payments Due and Revenue Sources (Y Million RMB) * Assumptions: Dividends = 60% o f net income; 63% o f this to TMG; 50% o f income and business taxes kept by TMG, rest to the central government. 4. TDC Financial Analysis Table 6: Summary of TDC Financial Analvsis in. Million Yuan Summary Operating and Financial Statistics 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total Assets 1,459 2,039 2,580 3,045 3,276 3,259 3,243 3,231 3,222 3,205 Return on Assets (ROA) 0.0% -1.0% -0.9% -0.9% -0.9% -0.6% -0.5% -0.4% -0.3% -0.5% Current Ratio 3.34 3.39 3.37 3.35 3.41 3.34 3.33 3.37 3.39 2.45 Income Statement I 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ‘Net Operating Revenues 136 139 157 173 185 205 215 227 239 241 Operating Expenses 92 98 104 111 118 126 135 143 153 163 Wastewater 65 69 73 78 83 89 95 101 108 115 Stormwater 27 29 31 33 35 37 40 43 45 48 Buisness Taxes EBITDA 44 41 53 62 67 79 80 84 86 78 Depreciation 43 61 77 91 97 97 96 96 96 95 Interest & Finance Fees 0 0 0 0 0 0 0 0 0 0 EBT 0 (20) (24) (29) (31) (18) (16) (12) (10) (17) Income Taxes EARNINGS 0 (20) (24) (29) (31) (18) (16) (12) (10) (17) - 54 -  Cash Flow Statement I 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Net Income Before Interest 0 (20) (24) (29) (31) (18) (16) (12) (10) (17) Add: Depreciation Exp 43 61 77 91 97 97 96 96 96 95 Operating Cash Flow 44 41 53 62 67 79 80 84 86 78 Add: Beginning Cash 26 6 6 7 7 8 9 9 9 10 Working Cap fncrease/(Decr) 36 0 1 1 1 1 1 1 1 (9) Total Debt Service 0 0 0 0 0 0 0 0 0 0 CASHAFTERDEBTSERVICE 34 46 58 68 73 86 88 92 95 97 CAPITALINVESTMENTREQUI 168 639 616 553 326 77 80 82 85 87 NewCapitalWorks 139 599 565 493 261 13 15 18 21 24 CapitalRenewal 29 40 51 60 65 65 64 64 64 64 Capital Investments 168 639 616 553 326 77 80 82 85 87 Add: Cash Ending Balance 6 6 7 7 8 9 9 9 10 10 FINANCINGREQUIREMENTS 139 599 564 493 261 0 0 (0) (0) 0 FUNDS FROM LOANS Funds From Loans & OtherSc 0 0 0 0 0 0 0 0 0 0 TMG Equity 139 599 565 493 261 - TOTAL CASH SURPLUSI(DEF1i (0) 0 0 0 0 (0) (0) 0 0 (0) Balance Sheet I 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ASSETS FIXED ASSETS Plant in Service 1,618 2,257 2,873 3,426 3,752 3,829 3,909 3,991 4,076 4,163 Less: Acc. Depreciation 177 238 315 405 503 600 696 792 888 983 TOTAL FIXED ASSETS 1,440 2,019 2,558 3,021 3,250 3,230 3,213 3,199 3,188 3,180 TOTAL CURRENT ASSETS 19 20 22 24 26 29 30 32 34 25 TOTAL ASSETS 1,459 2,039 2,580 3,045 3,276 3,259 3,243 3,231 3,222 3,205 LIABILITIES 8 NET WORTH EQUITY Capital Account 1,453 2,052 2,617 3,110 3,371 3,371 3,371 3,371 3,371 3,371 Retained Earnings 0 (19) (43) (72) (103) (121) (137) (149) (159) (176) TOTAL NET WORTH 1,454 2,033 2,574 3,038 3,268 3,250 3,234 3,222 3,212 3,195 TOTAL BORROWINGS TOTAL CURRENT LIABILITIES 6 6 7 7 8 9 9 10 10 10 TOTAL LIABS. & NET WORTH 1,459 2,039 2,580 3,045 3,276 3.259 3,243 3.231 3.222 3.205 - 55 - Table 7: CYE Financial Forecasts: Million Yuan 2002 1 2003 1 2004 2005 2006 2007 ' 2008 2009 2010 ' 2011 OPERATING INDICATORS ___- WaterConsumption(MCMNr) 300 305 309 314 3181 323 328 333 3381 343 i I I I Operating Revenues 1 198 261 433 515 624 607 1 604 ' 613 623 633 Operating Expenses 61 63 104 162 184 193 203 213 224 236 I I FINANCIAL RATIOS I Ratios Pro~ta~i/ity Allowed Rate of Return 1 6.5% I j ~ ReturnonShareCapital 6% 9%/ 14% 13% 16% 12% 11%/ 11%' 12% Return on Equity (ROE) 1 5.0% 7.5%/ 11.4% 9.9% 12.2% 8.7%' 7.3%/ 7.3%/ 7.3%/ 7.4% Return on Assets 3.6% 4.2% 5.l%i 4.2% 5.1% 3.8% 3.4% 3.6%, 3.8% 4.1% Profit Margin 32.2% 37.7% 36.5% 27.8% 29.7% 22.5% 19.4% 19.8% 20.2% 20.6% Financial Leverage 1.4 1.81 2.3 2.4 2.4 2.3 2.1 2.0 1.9 1.8 Financing Ratios 1 i I Current Ratio 16.09 8.89 15.52 12.36 1 12.15 10.60 2.95 1.57 0.97 0.61 1 2002 1 2003 i 2004 2005 2006 2007 1 2008 2009 2010 2011 'Operating Revenues 1981 2611 4331 5151 624 607 604 6131 6231 633 Operating Expenses 61 ' 63 ~104 162 1 184 193 203 213 224 236 Buisness Taxes I 10 13 22 26 31 ' 30 30 31 31 32 EBITDA 127 185 308 1 327 409 383 370 369 367 366 Depreciation I 32 45 1 77 1 87 108 110 111 1 112' 114 115i EBIT' 95 139 ' 231 1 I 240 ' 301 273 1 259 ' 256 ' 254 251 Interest & Finance Fees 1 - ! I - ' 32 1 28 75 88 1 78 ! 68 571 Interest Income on Short Term C 0 8 5, 51 4 5 3 31 21 1 EBT 95 1 147 1 236! 213 276 204 1175 181 ' 188 195 Income Taxes 31 ' 48 1 78 70 91 67 ' 58 1 6o I 62 64 EARNINGS, 64 98, 158 143 I 185 1 3 6 , 117 i 121 I 126 I 131 - 56 -  Cash Flow Statement 2002 1 2003 2004 2005 1 2006 2007 2008 1 2009 2010 1 2011 I OPERATIONS ~ Net Income Before Interest I 64 98 158 1 175 1 214 211 205 200 194 1 188 Add: Depreciation Exp 32 1 45 77 87 108 110 1 111 112 114 115 Operating Cash Flow 95 144 235 262 322 321 316 312 308 303 Add: Beginning Cash 1 260 33 1 4 4 481 57 69 67 67 68 69 1 ~ Working Cap Increase/(Decr) 18 (12) 16 9 7 0 5 2 ( )- 107) CASHBEFOREDEBTSERVICE ~ 338 189 263 300 371 390 433 429 428 479 I DEBT SERVICE I - Interest Charges 32 28 75 88 78 68 57 1 I I Principal Repayments 1 - 61 1 65 144 181 , 190 200 211 Total Debt Service l - 93 , 93 219 1 268 268 268 268 1 1 ~ ~ CASH AFTER DEBT SERVICE 338 189 263 207 I 278 171 165 161 ' 159 210 CAPITAL INVESTMENT REQUIREMENTS I I I I I Investment Projects i 535 645 761 1 301 249 38 38 39 39 40 Interest During Construction 19, 42 ' 70 57 67 21 0 0 1 1 Annual Capital Investment 1 554 687 830 358 315 59 38 39 40 40 Add: Cash Ending Balance 33 44 48 57 1 69 67 67 68 69 70 FINANCING REQUIREMENTS 249 1 542 616 I 208 1 107 (45) (59)/ (54)i (51)/ (100) FUNDS FROM LOANS I I Loans I 477 , 536 , 721 260 236 - - I - Equity Dividend Payout I (38)' (5911 (9511 (86) (111) (82) (70) (73); (76)' (78) ToTALCASHSURPLUSI(DEFIC1T~ 189 (64) 11 (34) 19 (37) (11)' (19) (25) 22 Free Gasn FIOW to tqutty I 228 ' (5) 106 52 , 130 45 I 59 54 I 51 100 Balance Sheet - 57 - 6. Municipal Finances 1. Table 5 presents the subsidies needed from TMG to fund the collection and treatment operations, after projected tariff revenues and net o f revenues retained from CYE dividends (TMG owns 63% CYE) and taxes. In addition, TMG will need to provide counterpart funding support for investments in the drainage collection network, as well as the associated debt service (Table 8). C Y E would be responsible for the debt service associated with the treatment plants. 2. The total TMG financial burden for drainage services should be compared with i t s total revenues, and in particular with budgetary expenditures on infrastructure, not including the extrabudgetary expenditures controlled by service entities and TCMC. Table 9 presents this analysis, which uses actual 2001 budget information and assumes that the TMG revenues will grow by 7% per year. Since TCMC i s trying to control the infrastructure expenditures, an increase o f only 2.5% i s assumed for TCMC budget growth. Although drainage services are a small part o f TMG finances, they are a significant percentage o f TCMC’s budgets, averaging around 15% per year, with a significant demand between 2003 and 2006, primarily for TDC-related investments. This will put a financial burden on TCMC and underscores the need to control costs closely through a regulatory regime. Table 9. TMG and TCMC Finances I tDrainaoe as % of Infra I 7%1 28%1 28%1 24%1 22%1 15%1 15%1 15%1 15%1 15%1 7. Summary The financial forecasting exercise shows that the Tianjin sewerage investment program i s affordable and sustainable, provided the following assumptions are respected: The wastewater treatment contracts i s based on a return on rate base commensurate with i t s cost o f capital; Drainage tariffs are raised from the current levels o f 0.4 Yfm3 (domestic) and 0.6 Yfm3 (non-domestic) to an average tariff level o f 1.5 Yfm3 by 2006. This should be sufficient to cover the drainage sector O&M and depreciation costs. In addition to tariff revenues, TMG provides supplemental revenue to the sector sufficient for TDC to cover i t s cash costs and honor i t s utility-based contract with CYE. A public utility regulatory regime i s created which closely monitors price, service, and contractual relations for TDC and CYE. * Note: The financial forecasting models and details are contained the project file. - 58 -  Annex 6(A): Procurement Arrangements CHINA Second Tianjin Urban Development and Environment Project Procurement Summary of the Assessment of Agencies' Procurement Capacity 1, The Municipal Project Management Office (PMO) under the Tianjin Construction and Management Commission (TCMC) will be responsible for coordinating procurement for the Bank-financed activities in this project. PMO has chosen the China Intemational Tendering Company (CITC) as procurement agent for all Intemational Competitive Bidding(ICB) and National Competitive Bidding(NCB) for goods. Tianjin Engineering Tendering Center (TETC) will be the agent for ICB and N C B procurement o f works. CITC and TETC were the procurement agents for the first Tianjin Urban Development and Environment Project and proved to be competent and experienced in Bank-financed procurement. Since TETC has little experience in I C B works procurement, TETC will get assistance from CITC for the first 2 ICB contracts. Shopping and consulting-service procurement will be done by the M P M O and sub-PMOS. 2. The assessment found that the designated implementing agencies (IAs) are capable o f managing all procurement activities satisfactorily. Staff members who were involved in previous Bank-financed urban projects are familiar with the Bank's procurement procedures. Areas that need strengthening, such as biddingdocument preparation, have been identified and an action plan has been agreed upon. The action plan includes training, recruitment of experienced staff for PMOS, preparation and dissemination o f a project procurement manual and sample forms for quotation solicitations used in shopping procedures, among other things. 3. The assessment identified some shortcomings in the general procurement framework in China, including some aspects of the Bidding Law for construction projects that became effective January 1, 2000. The shortcomings include: a requirement for the purchaser to confirm in the bidding documents that he possess or secure sources o f funding for procurement before bidding. a a broader range o f channels to announce the bid invitation including newpapers, information networks, etc. a minimum time for bid preparation and submission o f 20 days. a requirement for re-bidding if fewer than three bids are received. e requirement to reject bids lower than cost, but without stipluating the method to determine the cost. a evaluation by scoring allowed. 4. These are country-wide issues which will be addressed in the ongoing OPR. Provisions will be incorporated into the Procurement Schedule o f the Loan Agreement to confirm exemptions for Bank financed procurement from the Bidding Law o f China in case o f discrepancies between the Bank Guidelines and the Bidding Law. One o f the concerns identified during the assessment i s the length o f GOC's intemal review process for I C 3 goods procurement, both before the draft bidding documents and bid evaluation reports are submitted to the Bank for review. The Mechanical and Electrical Product Import and Export Department (MEPIED) o f the Ministry o f Foreign Trade and Economic Cooperation (MOFTEC) i s authorized to conduct such reviews and resolve any disagreement. The review period can be lengthy when disagreements arise among the government agencies involved in the review process. To mitigate this risk, procurement planning will incorporate additional time for the review processes. - 59 - Procurement Arrangements 5. Procurement Plan. A procurement plan has been prepared using Microsoft Project and i s included in the Project Implementation Plan (PIP). The procurement packaging plan has been prepared taking into consideration the prospective capabilities o f the contractors and suppliers at home and abroad, as well as capabilities o f the employers' project management. 6. Procurement procedures. The following Bank guidelines will govern all Bank-financed procurement under the project: F o r goods and works. Procurement under IBRD Loans and IDA Credits (dated January 1995 and revised in January and August 1996, September 1997 and January 1999). The bidding documents will clearly specify qualification requirements, for post-qualification of bidders. The use of post- instead o f pre-qualification under the first Tianjin Urban Development and Environment Project helped reduce the time taken for the biddingprocesses without risk. F o r the selection of consultunts. Selection and Employment o f Consultants by World Bank Borrowers (dated January 1997 and revised September 1997, January 1999 and M a y 2002). 7. F o r m a t o f the Documentation. The following formats will apply: Evaluation reports. The Bank's Standard Bid Evaluation Form, Procurement of Goods or Works (dated April 1996, translated into Chinese by MOF M a y 1997), and Sample Form of Evaluation Report for Selection o f Consultants (dated October 1999). Model Bidding Documents. The Bank-approved Chinese Model Bidding Documents (MBD) (dated M a y 1997, prepared by M O F based on the Bank's Standard Bidding Documents (SBDs) w i l l be adopted for all ICB and N C B activities for goods and works. Project-Specific Document. A model procurement document for goods using shopping procedures will be prepared and used by the procurement agency. Revisions to Model Bidding Documents. The amendments included in the Bank's updated Standard Bidding Documents (SBD) for Procurement of Goods (dated January 1995 and revised March 2000 and January 2001), which have not yet been included in the MBD, dated May 1997, will be incorporated into the bidding documents used for goods contracts. SBD for Supply and Installation o f Plant and Equipment will be used for procurement o f the wastewater treatment plant, wastewater reclamation plants, and the area traffic control system. 8. Domestic Preference. For goods contracts, qualified domestic bidders will be eligible for a preference equal to 15 percent o f the cost, insurance and freight (CIF) price, or the sum o f the customs duties and import tax payable by a nonexempt importer, whichever i s less. For works, there w i l l be no preference for domestic contractors as China's GDP has exceeded the Bank determined threshold. 9. Advertisement. The General Procurement Notice (GPN) was published in the United ~ a ~ i o n s Development Business (UNDB), Issue No.587 of 3 1 July 2002, and will be updated every year until all major ICB procurement activities and major consultant assignments have been completed. Specific Procurement Notices (SPNs) for all ICB and N C B procurement activities will be published - 60 -  in at least one newspaper with a national circulation. In addition, the SPNs for contracts estimated to cost more than $10 million will be published in the UNDB, allowing at least 45 days for bid preparation. The bid preparation period for those above $15 million will be normally 75 days, and in no case less than 60 days for contracts that are not considered complex and which do not require site investigations. Similarly, invitations for expressions o f interest for consulting contracts expected to cost more than $200,000 equivalent will be advertised in the UNDB at least thirty days before the preparation o f the short list, Procurement Methods (Table A) 10. A total o f $276 million o f works and goods i s expected to be financed under the project, using the following procedures: Works: ICB. About $64 million o f works, in four contracts worth between $15- 45 million, will be procured using ICB procedures. This represents 27 percent o f total works procurement. These larger works contracts will be for construction o f wastewater treatment plants and traffic interchanges. NCB. About $160 million o f works for construction o f interceptor sewers and pumping stations, wastewater treatment plants and canal dredging and rehabilitation, etc. estimated to cost between $100,000 and $15,000,000 per contract will be procured using N C B procedures. Those contracts would not be o f interest to foreign contractors. Small Works. Other miscellaneous civil works for minor road intersections rehabilitation, equipment installations, etc. estimated to cost less than $100,000 per contract, with an aggregate amount not exceeding $7,000,000, will be procured following a comparison o f at least three quotations at competitive prices as stated in Articles 3.5 and 3.6 o f the guidelines. Goods: ICB. About $3 1 million worth o f equipment, including four packages worth between $4.3-7 million, will be procured using ICB procedures, for a wastewater treatment plant, two wastewater reclamation plants, a traffic control system, etc. This represents about 70% o f total procurement o f goods, which will be combined with installation services. NCB. Equipment and materials estimated to cost between $100,000 and $500,000 per contract will be procured using N C B procedures, up to an aggregate o f $1 1 million. Those contracts would not be o f interest to foreign suppliers. Shopping. Other minor items which are readily available off-the-shelf and estimated to cost less than $100,000 per contract, with an aggregate amount not exceeding $3,000,000, will be procured following national shopping procedures as stated in Articles 3.5 and 3.6 o f the guidelines. National shopping w i l l also be on the basis o f a comparison o f at least three quotations and may be used where the desired goods are ordinarily available from more than one source, at competitive prices. 12. Consulting Services and Training. The value o f all consulting services to be procured i s estimated to be about S25 million, including design, supervision, and management expenses, most o f which w i l l not be financed by the Bank. Consultant services estimated to cost about $4.5 million and - 61 - training to cost about $0.4 million will be financed by the Bank except for taxes and duties, estimated at 9% of the total cost. Four contracts for about $2.6 million will be procured under Quality and Cost-Based Selection (QCBS) procedures. Two contracts for review o f institutional options for the sewerage and transportation management, estimated to cost about $900,000 and $400,000, respectively, will be procured through Quality Based Selection (QBS). In addition, about $270,000 in small assignments such as data collection and system upgrade supports, not exceeding $100,000 per contract, w i l l be procured under Consultants Qualifications (CQ] and $280,000 under Individual Consultant Selection. Another $420,000 w i l l be used for seminars and training. 13. Retroactive financing. Retroactive financing of up to $15 million may be applied to expenditures made after August 3 1,2002 for the procurement o f works and goods, consistent with the procurement Guidelines. Procurement methods (Table A) Table A Project Costs by ProcurementArrangements (US$ million equivalent) Total Cost 230.51 (100.74) 45.61 (43.33) 33.47 (4.43) 24.4 1 (0.00) 1.50 (0.00) (0.00) (1.50) (0.00) (1.50) Total 94.56 172.05 15.88 53.01 335.50 (5 7.94) (80.88) (11.18) ~ (0.00) (150.00) Figures in parentheses are the amounts to be financed by the Bank Loan. All costs include contingencies, 2! Includes civil works and goods to be procured through shopping, consulting services, and training - 62 -  Table A I : Consultant Selection Arrangements (optional) (US$ million equivalent) i\ Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank loan. - 63 - Prior review thresholds (Table B) Bank's Prior Review will be required of: all contracts for works estimated to cost $5,000,000 equivalent or more per contract; all contracts for works for Dagu (and Xinfeng) Canal dredging regardless of cost; all contracts for goods estimated to cost $300,000 equivalent or more per contract; all contracts for consultant firm services estimated to cost $300,000 equivalent or more; and individual consultant services to cost $50,000 equivalent or more. All other contracts for works, goods and services will be subject to ex post review. About 15% of such contracts will be sampled for ex post review. Table B: Thresholds for Procurement Methods and Prior Review' I Expenditure Category 1. Works Equal to or Above 15,000 All contracts ($64 M) Not including those for Dagu Canal Rehabilitation Equal or Above 100 and NCB All contracts above $5 Less than 15,000 milllion and all contracts For Dagu canal remediation regardless o f value ($112M) Less than 100 Small Works 2. Goods Equal to or Above 500 ICB All contracts ($3 1 M) Less than 500 but equal to NCB All contracts above or above 100 $300,000 ($12 M) below 100 NS 3. Services Equal to or above 300 QCBS or QBS All contracts ($3.1 M) (firms) - less than 300 (firm) QCBS Less than 100 (firm) CQ Individual Other All contracts equal to or above S50,OOO (S0.2 M) I Total value of contracts subject to prior review: $222 million Overall Procurement Risk Assessment: Average Frequency o f procurement supervision missions proposed: One every 6 months (includes special procurement supervision for post-reviewlaudits) Most of the procurement review w i l l be handled by procurement specialists of the Bank's Beijing office, except for review o f documents for Dagu canal rehabilitation and consultant services, which will be carried - ___ out by - the-project team regardless o f location. "Thresholds generally differ by country and project. Consult "Assessment o f Agency's Capacity to Implement Procurement" and contact the Regional Procurement Adviser for guidance - 64 -  Annex 6(B): Financial Management and Disbursement Arrangements CHINA Second Tianjin Urban Development and Environment Project Financial Management 1. Summary of the Financial Management Assessment 1. The task team has conducted an assessment o f the adequacy o f the project financial management system for the Second Tianjin Urban Development and Environment Project, based on guidelines issued by the Financial Management Sector Board on June 30,2001, and concluded that the project meets the minimum Bank financial management requirements, as stipulated in BPlOP 10.02. In the team’s opinion, the project will have in place an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status o f the project in the reporting format agreed with the project and as required by the Bank. Financial Management Organization. 2. Financial as well as other implementation activities will be managed at two levels, by the municipal P M O attached to Tianj in Construction and Management Commission, and Subproject Offices o f individual implementing agencies. The Foreign Fund Division o f Tianjin Municipal Finance Bureau (TMFB) will play a major role in the project implementation, including overall monitoring, financing arrangement, procurement, financial management, etc. TMFB will also be responsible for maintaining, monitoring and reconciling special account to be established for the project, and reviewing, verifying and approving withdrawal applications prepared by PMO before submitting by TMFB to the Bank for disbursement processing. The Division has had prior experience with Bank projects and i s familiar with Bank disbursement procedures. 3. To strengthen financial management capacity, achieve consistent quality o f accounting work, and provide easy reference, a project financial management manual (Manual) has been prepared. The manual provides detailed guidelines on financial management, internal controls, accounting procedures, fund and asset management and withdrawal application procedures. The final version will be made available to all relevant project staff before project effectiveness. 4. The P M O participated in training program provided by TMFB during phase TUDEP 1, but expressed interest in participating in similar training provided by the Bank in the fuiure. The task team advises that further training will be provided as and when needed by PMO, TMFB or Bank task team for the second project. Accounting Policies and Procedures 5. The administration, accounting and reporting o f the project will be set up in accordance with the following regulationslcirculars issued by the Ministry o f Finance (MOF): a. In line with other Bank financed projects in China, the project will use the “Temporary Regulations on Financial and Accounting Management for Projects Financed by the World Bank” (Circular #127 issued in 1993) by M O F as a basis for bookkeeping and preparation o f project financial statements and management reports. Accrual accounting and double entry bookkeeping will be adopted by the project. b. Circular #12: “Regulation for the Submission o f Withdrawal Applications” issued in December 1996 by M O F - includes detailed procedures for preparing and submitting withdrawal applications and - 65 -  retention o f supporting documentation. c. Circular #13: “Accounting Regulations for World Bank Financed Projects” issued in January 2000 by MOF. The circular provides in-depth instructions o f accounting treatment o f project activities and covers the following: Chart o f account Detailed accounting instructions for each project account Standard set o f project financial statements Instructions on the preparation o f project financial statements 6. The standard set o f project financial statements mentioned above has been agreed to between the Bank and MOF and applies to all Bank projects appraised after July 1, 1998 and includes the following: Balance sheet Statement o f source and use o f fund Statement o f implementation o f creditlloan agreement Statement o f special account 7. Both circular #127 and #13 are simplified versions o f the Accounting Standards for State-owned, Infrastructure Oriented Projects (the “Standards”), taking into consideration o f unique characteristics o f Bank projects. The Standards are modeled after the principles o f the International Accounting Standards and provides detailed guidelines to accounting for activities o f Bank financed projects. 8. Each o f the implementing entities w i l l be managing, monitoring and maintaining respective project accounting records. Original supporting documents for project activities will be retained by originating implementing entities. In addition, each implementing entities will prepare financial statements, which will then be reviewed, approved and consolidated by P M O and TMFB. Renorting,. Monitoring, and Format o f Financial Statements 9. Each implementing entity w i l l prepare i t s own project financial statements, which will then be consolidated by PMO and TMFB. The format and content o f the following project financial statements represent the standard project reporting package agreed to between the Bank and MOF, and have been discussed and agreed with all parties concemed. The project consolidated financial statements will be submitted as part o f the Financial Monitoring Report to the Bank on a semi-annual basis within 45 days o f each reporting period, and include the following four statements: Balance Sheet; Summary o f Sources and Uses o f Funds by Project Component; Statement o f Implementation o f Loan Agreement; and Statement o f Special Account 10. A computerized Information system named Jin D i e Financial Management Software was used by the PMO and Tianjin Municipal Engineering Bureau during TUDEP 1. As the software package has been considered by business community as a mature financial product and widely used, and proved to be adequate for the financiallaccounting work o f Phase I, the P M O and TMEB as well as other implementing agencies. The task team will work closely with the project at the initial stage to ensure proper accounting setup and consistency within all implementing entities involved. - 66 - 11. Strengths. PMO and most project implementing entities involved in the project have had prior experience with Bank's projects. Project personnel identified to assume financial or accounting positions have relevant adequate work experience and educational background. Bank records o f PMO and TMFB indicate that both PMO and TMFB have been found satisfactory in respect o f project financial management and withdrawal applications. 12. Weaknesses Significant weaknesses have been identified and the resolutions have been agreed upon as follows: Significant weaknesses Resolution 1. P M O o f small town sewerage Establishment o f P M O with adequate FMS systems will be a component has not been set up yet. condition o f disbursement. 2. The financial management Draft financial management manual has been submitted to manual i s yet to be finalized. the Bank for review. The final version will be completed and distributed to all financial staff before effectiveness. 2. Audit Arrangements 1. The Tianjin Municipal Engineering Bureau which i s responsible for most o f the project implementation has an Internal Audit Division. However, no such internal audit department exists for the other smaller implementing entities. Therefore, regular supervision by PMO, TMFB and Bank task team will have to be relied upon to fill in the gap. 2. nline with other Bank financed projects in China, the project will be audited in accordance with I the Government Auditing Standards o f the People's Republic o f China (1997 edition). The Tianjin Municipal Audit Office has been identified as the auditor for the Project, and will issue annual audit reports. 3. Audit reports on annual project consolidated financial statements will be due to the Bank within 6 months o f the end o f each calendar year, with a separate opinion on Statement o f Expenditures and Special Account. In addition, once operations commence, audited annual reports on financial position and operating results o f the Tianjin Drainage Company will be due to the Bank within 6 months o f the end o f each calendar year, as will be the audited annual financial reports for other sewerage entities, audited by the Municipal Audit Office or other qualified auditors. 3. Disbursement Arrangements The project loan will be disbursed on the traditional disbursement techniques, rather than PMR-based disbursement, in accordance with the agreement between the Bank and MOF. Disbursement methods, such as replenishment, direct payment and special commitment, are available for the project, but most o f the loan i s expected to be disbursed through the Special Account. Implementing agencies will originate the disbursement application, P M O will review and approve it, and TMFB and examine the documents and make disbursement to the implementing agencies. Allocation of loan proceeds (Table C) The proposed loan o f USSlSO million would be disbursed over a period o f about seven years, up to the closing date o f June 30,2010. The allocation of loan proceeds according to expenditure category i s listed in Table C. - 67 -  Table C: Allocation of Loan Proceeds Expenditure Category ] Amount in US$million I Financing Percentage Goods for Suburban Sewerage 9.50 100% o f foreign expenditures, 100% o f local expenditures (ex-factory cost) and 75% o f local expenditures for other items procured locally Goods for others 32.50 Same as above Works for Dagu Canal Rehabilitation 17.00 50% Works for Suruban Sewerage 10.40 50% Works for Dagunanlu Interchange 7.40 50% Works for Bus Priority Corridors 6.30 50% Works for Others 5 1.OO 50% 1 Consultant Services and Training 4.40 91% I Unallocated 10.00 I Total Project Costs with Bank Financing 148.50 Front-end fee I 1.50 100% ITotal 150.00 - 68 - Use of statements of expenditures (SOEs): Withdrawals for the loan account w i l l be made on the basis o f SOEs for the following expenditures: Works contracts o f less than $500,000 Goods contracts o f less than $300,000 Consulting firm contract o f less than $300,000 Individual consultant contracts o f less than $50,000 All training activities Special account: Authorization, allocation and operation of the special account. To facilitate disbursements, a special account w i l l be opened with an initial authorized allocation o f $4.0 million, which may be increased t o $8.5 million, estimated average expenditures for a four-month period, once the cumulative disbursement reaches $40,000,000. - 69 -  Annex 7: Project Processing Schedule CHINA: Second Tianjin Urban Development and Environment Project Time taken to prepare the project (months) 14 18 First Bank mission (identification) 0310112000 0510812001 Appraisal mission departure 0710512001 1012812002 Negotiations 1010512001 0310312003 Planned Date of Effectiveness 0610112002 0812512003 Prepared by: Tianjin Municipal Engineering Bureau and Traffic Management Department, coordinated by Tianj in Urban Construction Commision (now renamed Tianjin Construction and Management Commission), and assisted by other Bureaus o f the Tianjin Municipal Government Preparation assistance: TMEDI, TMI, Tianjin Academy o f Environmental Science, Golder Associates, Tianjin Center for Environmental Assessement, Joint venture o f Wilbur Smith ASSOC., BBV, and Tiajin International Engineering Consulting Company Bank staff who worked on the projecl ncluded: Name Snecialitv Songsu Choi Team Leader, Urban Economist Greg Browder Environmental Engineer Edouard Motte Municipal Engineer Shunong Hu Environmental Engineer Chongwu Sun Environment Mariana M. Montiel Legal Counsel Xiaoping Li Procurement Zhuo Yu Financial Management Bekir Onursal Environment Youlan Zou Resettlement Hubert Nove-Josserand Urban Transportation Rodney Stickland Urban Transportation Hoi-Chan Nguyen Legal Counsel Anne Harrison Team Assistance Richard Scurfield Peer Review: Transportation David Hanrahan Peer Review: Environment Alex McPhail Peer Review: Sewerage and Finance - 70 -  Annex 8: Documents in the Project File* CHINA: Second Tianjin Urban Development and Environment Project A. Project Implementation Plan Project Feasibility Study, August 2002 Project Implementation Plan, January 2003 Environmental Assessment, October 2002, revisions and clarifications dated December 2002, January 2003, March 2003 Dagu Canal Remediation Implementation Plan, November 2002 Resettlement Action Plan and Resettlement Policy Framework, November 2002; revised January 2003 Feasibility reports and design documents for individual components, dated May 2002 - January 2003 Draft Terms o f Reference for: Sewerage Sector Study (last revision March 2003), Transportation Institution Development, Traffic Model Development, Bus Route Restructuring and Bus priority Corridor Design, Dagunanlu Interchange Concept review (last revision February 2003) 6. Bank Staff Assessments FMS Assessment, Second Draft, Nov 2002 Procurement Capacity Assessment, November 2002 Financial Analysis of Institutional Options for Sewerage (Electronic), November 2002 Economic Analysis o f the Project Components, August 2002 Evaluation o f Water Reuse Options, July 2002 Mission Aide Memoire, May 2001, Novemer 200 1,January 2002, April 2002, November 2003 Implementation Completion Report, Tianjin Urban Development and Environment Project, June 200 1 C. Other Dagu Canal Sediment Analysis Report, January 2002 ADB Report on Tianjin Wastewater Treatment and Water Resource Protection Project, Novemer 2000 Resettlement Action Plan for the above project, November 2002 'Including electronic files - 71 -  Annex 9: Statement of Loans and Credits CHINA: Second Tianjin Urban Development and Environment Project 02-Dec-2002 Difference between expected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig FrmRev'd PO70441 2003 Hubei Xiaogan Xiangfan Highway 250.00 0.00 0.00 0.00 250.00 8.44 0.00 PO58847 2003 Third Xinjiang Highway Project 150.00 0.00 0.00 0.00 150.00 0.00 0.00 PO60029 2002 Sustainable Forestry Dev(Natura1Forest) 0.00 0.00 16.00 0.00 16.96 0.00 0.00 PO64729 2002 SUSTAINABLE FORESTRY DEVELOPMENT PRO 93.90 0.00 0.00 0.00 93.90 0.78 0.00 PO71147 2002 CN-TubercuiosisControl Project 104.00 0.00 0.00 0.00 95.33 -8.67 0.00 PO58846 2002 National Railway Project 160.00 0.00 0.00 0.00 82.29 -6.88 0.00 PO70459 2002 Inner Mongolia Highway Project 100.00 0.00 0.00 0.00 99.00 -1.00 0.00 PO68049 2002 Hubei Hydropower Development in Poor Are 105.00 0.00 0.00 0.00 105.00 5.17 0.00 PO56596 2001 Shijiazhuang Urban Transport 100.00 0.00 0.00 0.00 96.00 37.23 0.00 PO56516 2001 WATER CONSERVATION 74.00 0.00 0.00 0.00 57.67 5.22 0.00 PO56199 2001 Third Inland Wateways 100.00 0.00 0.00 0.00 96.00 1.83 0.00 PO51859 2001 CN-LIAO RIVER BASIN 100.00 0.00 0.00 0.00 86.24 6.88 0.00 PO47345 2001 CN-HUAI RIVER POLLUTIONCONTROL 105.50 0.00 0.00 0.00 100.34 -5.18 0.00 PO45915 2001 Unimqi Urban Transport 100.00 0.00 0.00 0.00 70.04 32.19 0.00 PO58845 2001 Jiangxi II H w 200.00 0.00 0.00 0.00 177.14 3.48 0.00 Po45264 2000 SMALLHLDR CATTLE D N 93.50 0.00 0.00 0.00 39.74 19.49 0.00 Po45910 2000 CN-HEBEI URBAN ENVIRONMENT 150.00 0.00 0.00 0.00 140.03 32.45 0.00 PO64730 2000 Yangtze Dike Strengthening Project 210.00 0.00 0.00 0.00 157.47 79.13 0.00 PO49436 2000 CN-CHONGQING URBAN ENVMT 200.00 0.00 0.00 0.00 188.33 33.23 0.00 PO56424 2000 TONGBAI PUMPED STOW 320.00 0.00 0.00 0.00 304.55 62.95 0.00 PO42109 2000 CN-BEIJING ENVIRONMENT II 349.00 0.00 25.00 0.00 343.61 122.48 0.00 PO58843 2000 Guangxi Highway 200.00 0.00 0.00 0.00 149.94 40.77 0.00 Po58844 2000 3rd Henan Prov H w 150.00 0.00 0.00 0.00 118.33 30.66 0.00 PO46829 1999 RENEWABLE ENERGY DEVELOPMENT 100.00 0.00 0.00 0.00 12.87 95.71 0.00 PO46564 1999 Gansu a Inner Mongolia Poverty Reduction 60.00 100.00 0.00 0.00 89.03 38.07 -3.30 PO46051 1999 CN-HIGHER EDUC, REFORM 20.00 50.00 0.00 0.00 31.11 30.08 0.00 PO36953 1999 CN-HEALTH IX 10.00 50.00 0.00 0.00 42.18 13.99 0.00 Po41890 1999 Uaoning Uhan Transport 150.00 0.00 0.00 0.00 69.02 52.16 0.00 PO42299 1999 TEC COOP CREDIT 1V 10.00 35.00 0.00 0.00 39.17 -4.46 0.00 PO43933 1999 CN-SICHUAN URBAN ENVMT 150.00 2.00 0.00 0.00 97.50 44.57 8.51 PO56216 1999 LOESS PLATEAU II 100.00 50.00 0.00 0.00 71.95 51.32 0.00 PO3812 1 1999 RENEWABLE ENERGY DEVELOPMENT 0.00 0.00 35.00 0.00 26.87 17.03 0.00 PO60270 I999 CN-ENTERPRISEREFORM LN 0.00 5.00 0.00 0.00 3.29 5.05 1.83 PO57352 1999 CN-RURAL WATER IV 18.00 30.00 0.00 0.00 31.05 15.62 -0.65 PO58308 1999 CN-PENSION REFORM PJT 0.00 5.00 0.00 0.00 1.98 2.14 0.00 PO41268 1999 Nat Hwy4iHubei-Hunan 350.00 0.00 0.00 0.00 155.78 59.03 0.00 PO49665 1999 ANNING VALLEY AG.DEV 90.00 30.00 0.00 0.00 46.02 1I.65 0.00 PO50036 1999 Anhui Provincial Hwy 200.00 0.00 0.00 0.00 84.77 29.52 0.00 PO51705 1999 Fujian II Highway 200.00 0.00 0.00 0.00 115.15 84.99 0.00 PO51858 1999 ACCOUNTING REFORM a DEVELOPMENT 27.40 5.60 0.00 0.00 21.16 20.76 0.00 PO51888 1999 GUANZHONGIRRIGATION 80.00 20.00 0.00 0.00 57.03 29.26 0.00 PO03653 1999 Container Transport 71.OO 0.00 0.00 18.61 4.86 23.26 0.00 PO03619 1998 2nd Inland Waterways 123.00 0.00 0.00 0.00 72.82 60.82 0.00 PO51736 1998 E. CHlNAlJlANGSU PWR 250.00 0.00 0.00 86.00 72.39 158.39 4.80 PO49700 1998 IAIL-2 300.00 0.00 0.00 0.00 16.76 -6.79 0.00 PO45788 1998 Tri-Provincial Hwy 230.00 0.00 0.00 0.00 66.35 38.55 0.00 PO46952 1998 FOREST. DEV. POOR AR 100.00 100.00 0.00 0.00 74.23 -36.36 49.64 Po46563 1998 TARlM BASIN II 90.00 60.00 0.00 2.67 51.21 40.33 0.00 PO03566 1998 CN-BASIC HEALTH (HLTH8) 0.00 85.00 0.00 0.00 37.70 21.06 0.00 PO40185 1998 CN-SHANDONG ENVIRONMENT 95.00 0.00 0.00 0.00 29.69 24.51 0.00 PO03591 1998 STATE FARMS COMMERCI 150,oo 0.00 0.00 80.91 8.45 85.71 4.13 PO37859 1998 Energy Conservation 0.00 0.00 22.00 0.00 3.99 21.85 0.00 PO03539 1998 SUSTAINABLE COASTAL RESOURCES DEV. 100.00 0.00 0.00 2.31 49.09 35.57 0.00 - 72 -  Difference between expected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb, Orig FnReVd PO03606 1998 ENERGY CONSERVATION 63.00 0.00 22.00 0.00 44.98 13.98 0.00 PO03614 1998 Guangzhou City Transport 200.00 0.00 0.00 0.00 129.54 126.99 0.00 PO36414 1998 CN-GUANGXI URBAN ENVMT 72.00 20.00 0.00 0.00 76.91 53.46 2.65 PO36949 1998 Nat Hwy3-Hubei 250.00 0.00 0.00 0.00 39.61 0.45 0.00 PO35698 1998 HUNAN POWER DEVELOP. 300.00 0.00 0.00 145.00 115.75 230.75 21.00 PO03637 1997 CN-NAT'L RURAL WATER 3 0.00 70.00 0.00 0.00 9.65 11.19 10.26 PO03654 1997 Nat HwyZHunan-Guangdong 400.00 0.00 0.00 0.00 89.69 89.69 0.00 PO34061 1997 XlAOLANGOl MULTI. II 430.00 0.00 0.00 78.53 2.64 121.26 119.52 PO03635 1997 CN-VOC. ED. REFORM PROJ 10.00 20.00 0.00 0.00 0.07 1.20 0.00 PO36952 1997 CN-BASIC ED. IV 0.00 85.00 0.00 0.00 1.21 3.96 0.00 PO03590 1997 QINBA MOUNTAINS POVERTY REDUCTION 30.00 150.00 0.00 0.00 53.29 57.32 0.00 ~035693 1997 FUEL EFFICIENT IND, 0.00 0.00 32.80 0.00 9.22 32.81 0.00 PO44485 1997 SHANGHAI WAIGAOQIAO 400.00 0.00 0.00 0.00 167.24 112.19 31.78 PO03643 1997 Xinjiang H w II 300.00 0.00 0.00 60.00 11.71 71.71 8.71 PO38988 1997 HEILONGJIANGADP 120.00 0.00 0.00 0.00 17.65 17.20 0.00 PO03650 1997 TUOKETUO POWEWINNER 400.00 0.00 0.00 102.50 59.91 142.30 -5.66 PO36405 1997 WANJIAZHAI WATER TRA 400.00 0.00 0.00 75.00 50.61 125.11 5.61 PO03589 1996 CN-DISEASE PREVENTION(HLTH7) 0.00 100.00 0.00 0.00 15.31 25.40 0.00 PO03648 1996 CN-SHANGHAI SEWERAGE II 250.00 0.00 0.00 0.00 82.06 82.06 7.83 PO03649 1996 SHANXI POVERTY ALLEV 0.00 100.00 0.00 0.00 3.48 12.80 0.00 PO03602 1996 CN-HUBEI URBAN ENVIRONMENT 125.00 25.00 0.00 26.32 48.31 78.75 1.26 PO03599 1996 CN-YUNNAN ENVMT 125.00 25.00 0.00 0.00 77.85 74.93 52.29 PO40513 1996 2nd Henan Prov Hwy 210.00 0.00 0.00 0.00 60.63 60.63 15.84 PO03638 1996 SEEDS SECTOR COMMER. 60.00 20.00 0.00 9.40 15.03 25.48 -0.75 Po03594 1996 GANSU HEXI CORRIDOR 60.00 90.00 0.00 0.00 67.26 60.48 0.00 PO03646 1996 CN-CHONGQING IND POL CT 170.00 0.00 0.00 164.62 2.72 167.54 2.72 PO34618 1996 CN-LABOR MARKET DEV. 10,oo 20.00 0.00 0.00 5.54 7.77 0.00 PO03596 1995 YANGTZE BASIN WATER 100.00 110.00 0.00 0.00 2.70 5.23 5.23 PO36947 1995 SICHUAN TRANSMISSION 270.00 0.00 0.00 95.00 12.13 107.13 3.85 PO03596 1995 CN-LIAONING ENVIRONMENT 110.00 0.00 0.00 0.00 12.25 12.25 10.18 PO03647 1995 China Economic Law Reform -LEGEA 0.00 10,oo 0.00 0.00 4.20 4.86 0.00 PO03642 1995 ZHEJIANG POWER DEVT 400.00 0.00 0.00 0.00 58.47 64.54 0.00 PO03639 1995 SOUTHWEST POVERTY REDUCTIONPROJEC'I 47.50 200.00 0.00 0.00 9.22 33.86 33.86 PO03571 1995 RAILWAYS VI1 400.00 0.00 0.00 109.00 64.08 172.75 29.10 PO03585 1995 SHENYANG IND. REFORM 175.00 0.00 0.00 0.00 41.52 41.52 0.00 PO03603 1995 CN-ENT HOUSING 8 SSR 275.00 75.00 0.00 20.00 100.28 118.75 76.74 PO03600 1995 CN-TECHNOLOGYDEVELOPMENT 200.00 0.00 0.00 3.02 6.53 9.55 0.00 PO03586 I994 CN-SHANGHAI ENVIRONMENT 160.00 0.00 0.00 0.00 24.94 24.94 20.94 PO03540 1994 LOESS PLATEAU 0.00 150.00 0.00 0.00 1.58 0.61 0.00 PO03641 1994 YANGZHOU THERMAL POWER 350.00 0.00 0.00 11.50 3.15 14.65 2.77 PO03404 1994 SICHUAN GAS DEV. CON 0.00 0.00 10.00 0.00 0.02 0.78 0.00 PO03644 1994 XlAOIANGDl RESETTLEMENT 0.00 110.00 0.00 0.00 0.13 -1.75 -2.28 PO03626 1994 Fujian Prov Highway 140.00 0.00 0.00 18.11 12.29 30.40 30.38 PO03609 1994 SICHUAN GAS DEV a CONSERVATION 255.00 0.00 10.00 0.00 51.14 51.14 0.00 PO03595 1994 RED SOILS IIAREA DWELOPMENT PROJECT 0.00 150.00 0.00 0.00 5.79 1.19 1.16 PO03473 1993 CN-ZHEJIANG MULTlClTlESDEVELOPMENT 0.00 110,oo 0.00 0.00 1.06 1.25 -2.36 PO03592 1993 REF, INST'L.8 PREINV 0.00 50.00 0.00 0.00 2.65 3.14 3.00 PO03627 1993 GRAIN DISTRIBUTIONP 325.00 165.00 0.00 0.00 24.65 25.49 18.62 PO03632 1993 CN-ENVIRONMENT TECH ASS 0.00 50.00 0.00 0.00 2.01 2.68 2.36 Total: 14099.80 2532.60 172.80 1110.69 6220.21 4096.45 571.55 - 73 -  CHINA STATEMENT OF IFC's Held and DisbursedPortfolio Ju~ 30 - 2002 In Millions U S Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1997 Orient Finance 9.52 0.00 0.00 11.90 9.52 0.00 0.00 11.90 1997100 PTP Holdings 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 1997 PTP Hubei 11.72 0.00 0.00 23.29 11.72 0.00 0.00 23.29 1996 Pacific Ports 0.00 2.54 0.00 0.00 0.00 2.54 0.00 0.00 2001 Peak Pacific 0.00 0.00 25.00 0.00 0.00 0.00 0.00 0.00 1998 Rabobank SHFC 0.90 0.00 0.00 0.90 0.90 0.00 0.00 0.90 2000 SSIF 0.00 6.00 0.00 0.00 0.00 0.45 0.00 0.00 1998 Shanghai Krupp 30.00 0.00 0.00 68.80 19.74 0.00 0.00 45.26 1999 Shanxi 17.87 0.00 0.00 0.00 15.32 0.00 0.00 0.00 1993 Shenzhen PCCP 3.76 0.99 0.00 0.00 3.76 0.99 0.00 0.00 2001 Sino-Forest 25.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 1995 Suzhou PVC 0.00 2.48 0.00 0.00 0.00 2.48 0.00 0.00 1998 WIT 5.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 2000 Wanjie Hospital 15.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 1996 Weihai Weidongri 1.92 0.00 0.00 0.00 1.92 0.00 0.00 0.00 1993 Yantai Cement 11.13 1.95 0.00 0.00 11.13 1.95 0.00 0.00 1998 Zhen Jing 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 2002 Advantage 0.00 0.25 0.00 0.00 0.00 0.00 0.00 0.00 1999100102 Bank o f Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 1996 Beijing Home1 2.50 0.50 0.00 1.65 2.50 0.50 0.00 1.65 1998100 CIG Holdings PLC 0.00 3.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 CPEF 0.00 20.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 Caltex Ocean 18.53 0.00 0.00 28.64 18.53 0.00 0.00 28.64 1998 Chengdu Huarong 7.40 3.20 0.00 8.60 3.70 3.20 0.00 4.30 1998 Chengxin-IBC A 0.00 0.36 0.00 0.00 0.00 0.36 0.00 0.00 1987192194 China Bicycles 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 1994 China Walden Ven 0.00 0.21 0.00 0.00 0.00 0.2 1 0.00 0.00 1994 Dalian Glass 0.00 2.40 0.00 0.00 0.00 2.40 0.00 0.00 1999 Dujiangyan 25.59 0.00 0.00 30.00 16.11 0.00 0.00 18.89 1995 Dupont Suzhou 12.46 4.15 0.00 10.40 12.46 4.15 0.00 10.40 1994 Dynamic Fund 0.00 9.75 0.00 0.00 0.00 8.09 0.00 0.00 1999 Hansom 0.00 16.10 0.00 0.00 0.00 16.10 0.00 0.00 2002 Huarong A M C 31.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 IEC 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 Jingyang 32.50 0.00 0.00 69.23 32.50 0.00 0.00 69.23 1998 Leshan Scana 6.10 1.35 0.00 0.00 4.50 1.35 0.00 0.00 200 1 Maanshan Carbon 9.00 2.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 NCCB 0.00 26.58 0.00 0.00 0.00 26.46 0.00 0.00 1996 Nanjing Kumho 6.82 3.81 0.00 19.38 6.82 3.81 0.00 19.38 2001 New China Life 0.00 30.70 0.00 0.00 0.00 23.32 0.00 0.00 1995 Newbridge Inv. 0.00 1.95 0.00 0.00 0.00 1.95 0.00 0.00 Total Portfolio: 304.22 166.98 25.00 277.79 206.13 127.02 0.00 233.84 Approvals Pending Commitment F Y Approval Company Loan Equity Quasi Partic - 74 - 2002 Darong 10.00 0.00 1.50 8.00 2002 Narada Battery 6.60 0.00 0.00 0.00 2002 Zhong Chen 25.00 0.00 0.00 32.00 2002 ASIMCO 0.00 13.50 1S O 0.00 2002 Sino Mining 5.00 0.00 0.00 5.00 2002 Shuang Deng 12.50 0.00 2.80 0.00 2002 KHIT 0.00 0.00 3.00 0.00 2002 SML 0.00 0.00 6.00 0.00 1996 Jingyang 4.00 0.00 0.00 0.00 1998 PTP Hubei BLINC 0.00 0.00 0.00 1S O 2000 CIG Zhapu 6.00 5.00 0.00 0.00 2000 Meijing 9.00 0.00 0.00 7.30 2000 CIMIC Tile 15.00 5.00 0.00 15.00 2001 Daning Coal 0.00 0.00 2.00 15.00 2001 AACI 0.00 0.00 2.00 0.00 2001 Minsheng 0.00 23.50 0.00 0.00 2002 Huarong AMC 15.00 0.00 3.00 0.00 2002 IEC 0.00 5.00 0.00 0.00 Total Pending Commitment: 108.10 52.00 21.80 83.80 - 75 -  Annex 10: Country at a Glance CHINA: Second Tianjin Urban Development and Environment Project East Lower- POVERTY and SOCIAL Asia B middle- __ China Pacific income Development diamond" 2001 Population, mid-year (mil/ions) 1,271.9 1,826 2,164 Ltfe expectancy GNI per capita (Atlas method, US$) 890 900 1,240 GNI (Atlas method, US$ bi//ions) 1,I29.3 1,649 2,677 - Average annual growth, 1995-01 Population (%) 0.9 1.1 1.o Labor force (%) 1.o 1.3 1.2 GNI per - Most recent estimate (latest year available, 199CO1) capita Poverty (% of population below national povertyline) 5 Urban population (% of total population) 38 37 48 Life expectancy at birth (years) 71 69 69 Infant mortality (per 1,000 live births) 32 36 33 Child malnutrition (?? of children under 5) 10 12 11 Access to improved water source A m s s to an improved water source (% ofpopulation) Illiteracy (% ofpopulation age 15+) Gross primary enrollment (% of school-agepopulation) 75 15 107 74 14 107 80 15 107 - China Male 106 106 107 group Lower-midd/e-in~me Female 109 108 107 KEY ECONOMIC RATIOS and LONG-TERM TRENDS I 1981 1991 2000 2001 Economic ratios, I GDP (US$ billions) 228.3 402.6 1,077.5 1,150.1 Gross domestic investmenUGDP 32.5 34.8 36.1 37.9 Trade Exports of goods and serviceslGDP 8.6 19.4 25.9 25.8 Gross domestic savingslGDP 32.9 38.1 38.8 40.3 - Gross national savingslGDP 32.8 38.5 38.0 39.4 Current account balancelGDP 0.4 3.8 1.9 1.5 interest paymentdGDP 0.2 0.7 0.6 0.6 Total debtlGDP 2.5 15.0 13.9 14.8 Total debt servicelexports 6.9 10.1 7.4 6.8 Present value of debtlGDP 12.5 11.7 Present value of debtlexports 46.0 43.5 Indebtedness 198181 1991-01 2000 2001 2001-05 (average annual growth) GDP 10.0 9.7 8.0 7.3 6.9 -China GDP per capita 8.4 8.6 7.1 6.6 6.1 -.- Lower-middle-incomeorouo Exports of goods and services 12 1 83 306 __ !in 77 STRUCTURE of the ECONOMY ____ I 1981 I991 2000 2001 Growth of investment and GDP (%) (% of GDP) Agriculture 31.8 24.5 15.9 15.2 2o T Industry 46.4 42.1 50.9 51.1 Manufacturing 38.5 32.7 34.5 35.4 I Services 21.8 33.4 33.2 33.6 0- ! : - Private consumption 96 97 98 99 00 I O1 General government consumption 14.5 13.1 13.1 13.7 -GDI -GDP imports of goods and services 8.2 16.1 23.2 23.4 I 1981-91 1991-01 2000 2001 Growth of exports and imports (%) (average annual growth) Agriculture 5.2 4.0 2.4 2.8 40 - Industry 11.4 12.6 9.6 8.7 Manufacturing 11.1 11.6 9.1 9.0 Seivices 12.6 8.7 7.8 7.4 Private consumption 8.3 8.6 8.7 6.2 General government consumption 9.9 8.5 12.2 11.5 40 - Gross domestic investment 10.4 10.3 4.2 12.8 Imports of goods and services 9.6 6.4 24.5 10.8 Note: 2001 data are preliminary estimates. * T h e diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete - 76 -  China PRICES and GOVERNMENT FiNANCE 1981 1991 2000 2001 Domestic prices 1%change) Consumer prices 25.7 3.4 0.4 0.7 Implicit GDP deflator 2.3 6.7 0.9 0.0 Government finance (% of GDP, includes current grants) Current revenue 24.2 16.9 15.3 17.2 Current budget balance Overall surplus/de~ci~ .. 0.8 2.3 -7.1 0.6 -3.6 1.o 3.2 1 -GDPdeflator C * P1 I TRADE I 1981 1991 2000 2001 Export and import levels (US$ mill.) (US$ mi//ions) Total exports (fob) 22,007 71,843 249,210 266,155 Food 2,924 7,226 12,282 12,780 Fuel 5,228 4,754 7,851 8,420 Manufactures 11,759 55,698 223,752 239,800 Total imports (ci9 22,015 63,791 225,097 243,610 Food 3,622 2,799 4,758 4,980 Fuel and energy 83 2,113 20,637 17,490 Capital goods 5,866 19,601 91,934 107,040 I 95 96 97 98 99 00 01 Export price index (1995=100) 16 51 67 65 Import price index (1995=100) 13 49 75 73 I Exports .Imports Terms of trade (1995=100) 118 103 90 90 BALANCE of PAYMENTS /i 1981 1991 2000 2001 Current account balance to GDP (X) (US$ millions) Exports of goods and sewices 24,410 78,909 279,561 299,410 imports of goods and sewices 23,426 65,339 250,688 271,324 - Resource balance 984 13,570 28,873 28,086 Net income -124 840 -14,666 -19,173 Net current transfers .. 830 6,311 8,492 Current account balance 660 15,240 20,519 17,405 Financing items (net) .. -4,149 -9,971 29,920 Changes in net reserves .I -11,091 -10,548 -47,325 95 96 97 98 99 00 01 Memo: ReSeNeS including gold (US$ mi//ions) .. 48,154 171,753 219,970 Conversionrate (DEC, /ma//US$) 2.1 5.4 8.3 8.3 EXTERNAL DEBT and RESOURCE FLOWS 1981 1991 2000 2001 (US$ mil/ions) Composition of 2001 debt (US$ mill.) Total debt outstanding and disbursed 5,798 60,259 149,800 170,000 IBRD 0 3,494 11,118 11,479 G: 17,682 A: 11,479 IDA 0 3,672 8,771 8,550 E. a ,m Total debt sewice 1,744 8,305 21,728 20,900 IBRD 0 357 1,291 1,716 IDA 0 23 D 23,217 131 164 Composition of net resource flows Official grants 19 406 147 Official creditors 506 2,044 1,927 Private creditors 89 2,493 -2,302 : 27,510 Foreign direct investment 0 4,366 42,096 47,052 Portfolio equity 0 565 7,814 2,404 World Bank program Commitments 196 2,622 1,536 1,230 /A-lBRD E . Bilateral Disbursements 0 1,280 1,907 1,947 - B IDA D Other multilateral ~ - F Private Principal repayments 0 131 644 999 C - IMF G -Short-term Net flows 0 1,149 1,263 948 Interest payments 0 250 778 881 Net transfers 0 899 485 67 Developmenttconomics Y1141UZ - 77-