Document o f The World Bank FOR OFFICIAL USE ONLY Report No: 48663-CN PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN N I THE AMOUNT OF US$SO MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A NINGBO NEW COUNTRYSIDE DEVELOPMENT PROJECT January 26,2010 China and Mongolia Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective January 25,2010) Currency U n i t = Renminbi/ Yuan (RMB) RMB 1.0 = US$0.146 US$ 1.0 = RMB 6.827 F I S C A L YEAR January 1 - December 31 ABBREVIATIONS AND A C R O N Y M S BOD Biological Oxygen Demand (Indicator o f Water Pollution) CEA Consolidated Environmental Assessment COD Chemical Oxygen Demand (Indicator o f W ater Pollution) CNAO China National Auditing Office CPS Country Partnership Strategy DA Designated Account DI Design Institute DRC Development and Reform Committee EA Environmental Assessment EL4 Environment Impact Assessment EIRR Economic Internal Rate o f Return EMF Environmental Management Framework EMP Environmental Management Plan EPB Environmental Protection Bureau ESMAP Energy Sector and Management Assistance Program FCG Fenghua C i t y Government FCIC Fenghua City Investment Company Ltd. FM Financial Management FMM Financial Management Manual FS Feasibility Study GDP Gross Domestic Product GEF Global Environment Facility IBRD International Bank o f Reconstruction and Development IDA International Development Association KPI K e y Performance Indicator MEP Monitoring and Evaluation Program MoEP Ministry o f Environmental Protection MOF Ministry o f Finance Mu Chinese unit o f land area (1 mu = 666 m2or 0.0666 hectare) NCB National Competitive Bidding NCD N e w Countryside Development NMAO Ningbo Municip a1 Audit 0ffic e NMG Ningbo Municipal Government NMFB Ningbo Municipal Finance Bureau FOR OFFICIAL USE ONLY NMPMO Ningbo Municipal Project Management Office NRWTPMO Ningbo Rural Wastewater Treatment Project Management Office O&M Operations and Maintenance PIU Project Implementation Unit PLG Project Leading Group PMO Project Management Office RAO Rural Affairs Office RAP Resettlement Action Plan RMB Renminbi = Yuan (Chinese Currency) RPF Resettlement Policy Framework TA Technical Assistance WWT Wastewater Treatment WWTP Wastewater Treatment Plant Vice President: Mr. James W. Adams Acting Country Director: Ms. Hsiao-Yun Elaine Sun Sector Managers: Mr. Ede Jorge Ijjasz-Vasquez Mr. N. Vijay Jagannathan Task Team Leaders: Ms. Shenhua Wang Mr. Jian Xie This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not be otherwise disclosed without W o r l d Bank authorization. CHINA Ningbo New Countryside Development Project CONTENTS Page 1. STRATEGIC CONTEXT AND RATIONALE ............................................................. 1 A . Country and sector issues ..................................................................................................... 1 B. Rationale for Bank involvement ......................................................................................... 3 C. Higher level objectives to which the project contributes .................................................... 3 I1 . PROJECT DESCRIPTION ............................................................................................. 3 A . Lending instrument ............................................................................................................. 3 B. Program objective and phases ............................................................................................. 3 C. Project development objective and k e y indicators .............................................................. 4 D. Project components ............................................................................................................. 4 E. Lessons learned and reflected in the project design ............................................................ 4 F. Alternatives considered and reasons for rejection .............................................................. 5 . I11 IMPLEMENTATION ...................................................................................................... 6 A. Partnership Arrangements ................................................................................................... 6 B. Institutional and implementation arrangements .................................................................. 6 C . Monitoring and Evaluation o f OutcomesResults ............................................................... 9 . . . D. Sustainability ....................................................................................................................... 9 E. Critical Risks and Possible Controversial Aspects ........................................................... 10 F. Loadcredit conditions and covenants ............................................................................... 12 . I V APPRAISAL SUMMARY ............................................................................................. 13 A . Economic and financial analyses ...................................................................................... 13 B. Technical ........................................................................................................................... 15 C . Fiduciary ........................................................................................................................... 16 D. Social ................................................................................................................................. 16 E. Environment ...................................................................................................................... 17 F. Safeguard policies ............................................................................................................. 18 G. Policy Exceptions and Readiness ...................................................................................... 18 Annex 1: Country and Sector o r Program Background ..................................................... 20 Annex 2: M a j o r Related Projects Financed by the B a n k and/or other Agencies .............26 Annex 3: Results Framework and M o n i t o r i n g .................................................................... 29 Annex 4: Detailed Project Description .................................................................................. 35 Annex 5: Project Costs ........................................................................................................... 42 Annex 6: Implementation Arrangements ............................................................................. 43 Annex 7: Financial Management a n d Disbursement Arrangements ................................. 55 Annex 8: Procurement Arrangements .................................................................................. 66 Annex 9: Economic and Financial Analysis ......................................................................... 75 Annex 10: Safeguard Policy Issues ........................................................................................ 94 Annex 11: Project Preparation and Supervision ............................................................... 104 Annex 12: Documents in the Project F i l e ........................................................................... 106 Annex 13: Statement o f Loans and Credits ........................................................................ 109 Annex 14: Country at a Glance ........................................................................................... 113 Annex 15: M a p ...................................................................................................................... 115 IBRD CHN 37011 CHINA PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC EASCS Date: January 26,2010 Team Leaders: Ms. Shenhua Wang/Mr. Jian Xie Acting Country Director: Ms. Hsiao-Yun Sectors: Water and Sanitation (56%); Roads Elaine Sun and Highways (40%); Sub-national Sector Manager: Mr. Ede Jorge Ijjasz-Vasquez Government Administration (4%) Mr.N. Vijay Jagannathan Themes: Rural Service and Infrastructure (P); Other Urban Development (S) Project ID: P106956 Environmental screening category: B Lending Instrument: Specific Investment Loan Project Financing Data [XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Source Local Foreign Total Borrower 90.89 16.20 107.09 International Bank for Reconstruction and 42.50 7.50 50.00 Development Total: 133.39 23.70 157.09 People's Republic o f China: c/o Ministry o f Finance, Sanlihe; Beijing, 100820; P.R. China Tel: 86-10-68551123 Fax: 86-10-68551125 Email: wangzhongjing@mof.gov.cn Responsible Agency: World Bank Project Management Office 1509/R, 1SA?, Tianning Tower, 138 West Zhongshan Road Ningbo City, Zhejiang Province, P.R. China Tel: 86-574-8728-0409 Fax: 86-574-8728-0430 Email: xx@nbdpc.gov.cn FY 11 12 13 14 15 16 Annual 5 .O 10.0 12.0 13.0 9.0 1.o Cumulative 5.0 15.0 27.0 40.0 49.0 50.0 Does the project depart from the C A S (CPS) in content o r other significant [ ]Yes [XINO respects? Re$ P A D I.C. Does the project require any exceptions from Bank policies? [x]Yes [ ] N o Re$ P A D I K G . Have these been approved by Bank management? [x]Yes [ ] N o I s approval for any policy exception sought from the Board? [ ] Y e s [XINO Does the project include any critical risks rated "substantial" o r "high"? []Yes [ x] N o Re$ P A D IILE. Does the project meet the Regional criteria for readiness for implementation? [x]Yes [ ] N o Ref: PAD I K G . Project development objective Re$ P A D II.C., Technical Annex 3 The project development objective i s to improve rural wastewater management in selected villages and enhance infrastructure and township management in a small town, in support o f the New Countryside Development (NCD) Program in Ningbo Municipality. Project description Re$ P A D II.D., Technical Annex 4 Component 1: Rural Wastewater Management: Implementation o f rural wastewater management in about 150 selected villages in six Counties/Cities/Districts in Ningbo Municipality using appropriate and sustainable technology and a program-based approach in participation with village communities. Component 2: Chunhu Town Infrastructure Development: (i) Chunhu access road; (ii) Fenghua coastal water supply including Chunhu T o w n distribution network renovation and expansion; and (iii)Chunhu T o w n wastewater management. Component 3: Capacity Building and Implementation Support: (i) project management and capacity building for rural wastewater management; (ii) Chunhu T o w n capacity building and energy efficiency demonstration; (iii)support for preparation o f the 12th Five Year-Plan o n NCD in Fenghua City; and (iv) project management and capacity building for Fenghua C i t y Investment Company Ltd. (FCIC). Which safeguard policies are triggered, if any? Re$ P A D I K F . , Technical Annex 10 Environmental Assessment ( O P B P 4.01); Involuntary Resettlement ( O P B P 4.12); Safety o f Dams (OP/BP 4.37) Significant, non-standard conditions, if any, for: Re$ PAD III.F. (i) Board presentation: None (ii) Loan Effectiveness: Signature o f a subsidiary loan agreement between the Fenghua C i t y Government (FCG) and F C I C for on-lending loan proceeds for the Chunhu T o w n infrastructure construction, satisfactory to the Bank and a legal opinion o n the agreement. (iii) Covenants Applicable to Project Implementation: (a) Fenghua City to carry out the dam safety remedial works and schedule set out in the Hengshan Reservoir Report, in a manner satisfactory to the Bank. (b) Fenghua City shall provide, by June 30,2010, a revised Operation and Maintenance Plan for the Hengshan Reservoir Dam, based o n the comments offered by the Bank, and thereafter implement said plan accepted by the Bank. (c) Fenghua City to provide, by June 30,201 0, a revised Emergency Preparedness Plan for the Hengshan Reservoir Dam, based o n the comments offered by the Bank, and thereafter implement said plan that has been accepted by the Bank. (d) Fenghua City to prepare and submit to the Bank a proposed annual budget and financing plan for operation and maintenance (O&M) o f Chunhu T o w n Infrastructure that has been completed and commissioned, by August 15 each year, commencing on August 15,2012. (e) Fenghua City to require operators o f Fenghua Water Supply and Chunhu Wastewater assets to have their financial statements (balance sheets, statements o f income and expenses, and related statements) for each fiscal year audited, within six (6) months after the end o f each year. (f) Fenghua C i t y to provide an annual report to the Bank, by September 30 each year commencing in 2013, o n the operations o f Fenghua Water Supply and Chunhu Wastewater, to illustrate the amount by which total revenues from water and wastewater operations are equivalent to not less than the sum o f total operating expenses, and the amount by w h i c h debt service exceeds the provision for depreciation, based on audited financial statements o f the operators o f the assets. (g) Ningbo Municipality to cause Fenghua City to pay a fee to F C I C sufficient to cover FCIC's administrative cost and debt service obligation related to the Chunhu T o w n Infrastructure Development component and to vest ownership o f assets, which are created under the component, in F C I C for 30 years. (iv) Financial Performance Covenants: Fenghua City to prepare and submit to the Bank by February 15,2014, a plan to implement the following water supply tariffs and wastewater user charges by the dates specified: (a) introduce a wastewater user charge in Chunhu Town to generate revenues to meet at least O&M expenses by no later than December 3 1, 2016. (b) levy a water tariff in the Fenghua coastal water supply area adequate to generate revenues to meet O&M expenses by December 3 1, 2016 and to achieve full cost recovery (including the cost of debt service) by December 3 1, 2022. (v) Financial Management Covenants: Ningbo Municipality to provide to the Bank audited project account statements (including the FCIC) within six months o f the end of its fiscal year during project implementation. I. STRATEGIC CONTEXT AND RATIONALE A. Country and sector issues China's New Countryside Development (NCD) Strategy 1. Approximately 55% o f China's total population lives in rura, areas. These 727 m i l l i o n people are scattered across 20,000 townships and 18,000 `xiang' (or township-level village clusters) - which in turn consist o f 720,000 administrative villages and 3.2 m i l l i o n natural villages, respectively. 2. Despite the massive economic development within the country since the beginning o f economic reforms in 1978, the Chinese countryside lags far behind the cities. M o s t noticeably, the countryside i s at the bottom end o f an ever-widening urban-rural income gap. In 1978, for every one RMB the average rural person had as disposable income, the average urban dweller had 2.57 RMB. In 2007, thirty years later, the average urbanite n o w has 3.33 RMB to every one RMB o f disposable income that a rural person has. The gap has increased by nearly 30%. 3. Also, i t has become apparent that there i s an inadequate regulatory and institutional framework for the countryside. As a result, basic infrastructure i s either undeveloped or neglected, leading to substandard water supplies, roads, spatial planning, and living conditions. All o f these cause an overall strain o n rural environments, because lack o f wastewater treatment facilities affects the area's drinking water and the population's health. 4. These problems and challenges have become a major concern to the Chinese government. Five-Year Plan, the government began a program o f N e w In 2003, as part o f the nation's 1lth Countryside Development (NCD). The N C D program aims to reduce the increasing disparity between the countryside and the cities by encouraging the cities to subsidize the economic growth o f the countryside. This objective was further refined in 2005, when the government outlined goals described in the paragraphs below. 5. The N C D program i s based o n the principle that i t i s the responsibility o f developed urban areas to commit resources and subsidize the development o f corresponding rural areas. The N C D program tries to balance social and economic development; promote modernized agriculture; sustainably increase rural incomes; improve basic infrastructure; reform o l d institutions or establish new ones; keep village administration democratic; and raise standards o f living. Another goal o f the N C D program i s to increase awareness o f its core concepts. In doing so, the hope i s that local government officials and society in general will participate more actively in the implementation o f N C D . 6. The Ningbo N e w Countryside Development Project i s designed to fit into this overall NCD plan. I t targets t w o specific issues in Ningbo Municipality: one i s the lack o f rural wastewater treatment facilities, and the other i s an overall lack of basic rural infrastructure. In this regard, the project's short-term goals are to provide infrastructure and facilities to the rural areas, while its long-term goals are to train the rural population in sustaining i t s o w n growth. Key Issues Faced by Ningbo Municipality in the NCD Program 7. Ningbo Municipality i s a major city o n the southeastern coast o f China, about 300 km south o f Shanghai. I t comprises six urban districts (including Beilun Port, the second largest port in China), three county-level cities, and two counties. Ningbo has a registered population o f 5.65 million. Although only 1.88 m i l l i o n people are registered as urban dwellers, the urbanization rate i s reported as 57%. For the last five years, Ningbo's GDP has grown at an annual rate o f 14%. In 2006, the municipality's GDP was RMB 286 billion, at RMB 5 1,300 per capita. 8. Despite rapid economic growth since the late 1970's, Ningbo's rural economy has been lagging, and agricultural output accounts for only 5.7% o f GDP. In 2006, rural residents had only 45% o f the average annual disposable income o f urban dwellers. This income gap i s less than the national average but significant nonetheless. The Ningbo Municipal Government (NMG) i s dedicated to applying the NCD program to i t s rural areas and has already outlined the issues described below. 9. Rural Wastewater Affecting Drinking Water and Local Population's Health. Ningbo's rural areas are still characterized by a lack o f wastewater collection and treatment, as w e l l as poor sanitation. These deficiencies not only affect the rural population but could potentially harm the drinking water and public health o f the entire local population. Therefore, one o f the primary project goals will be to create an effective and sustainable system for rural wastewater management. However, villages in the project area vary widely in terms o f topography, average income, distance from cities, and proximity t o drinking water sources. In fact, those villages that are the most hazardous to drinking water sources (i.e., those in l o w income, remote, mountainous areas) w o u l d be the costliest in which to implement higher discharge standards and appropriate technologies. M a n y o f these villages do not have adequate financial resources to improve their wastewater management by themselves. 10. Inadequate Basic Infrastructure in Small Towns. Local governments in Ningbo's small towns have very limited financial resources and lack the ability to borrow money to improve basic rural infrastructure. T o alleviate this, Fenghua City government has consolidated several smaller investment companies into the Fenghua City Investment Company Ltd. (FCIC). This company will be responsible for constructing, owning and managing in infrastructure assets. During the project, the F C I C will focus o n Chunhu Town. After project completion, the FCIC will use the business experience and funding capacity acquired to provide services to other towns. The system will allow small t o w n inhabitants to gradually repay the costs o f the services, and eventually to achieve long-term cost recovery. 11. Limited Institutional Capacity for NCD Implementation. The NCD program i s s t i l l relatively new, and i s sometimes misunderstood by lower level governments as mainly consisting o f the construction o f basic m o d e m housing in rural areas. There i s as yet insufficient capacity at the lower levels to tackle the more institutional issues, such as development planning, institutional reforms, and sustainable utilization o f local natural and geographical resources. TQ that end, i t will be necessary to provide technical assistance (TA) to local governments in order to improve their capacity to deal with these issues. 2 B. Rationale for Bank involvement 12. The Bank has worked successfully with Ningbo Municipality o n a number o f projects, including the Zhejiang Urban Environment Project (Loan N o . 4724-CHA), the Ningbo Water and Environment Project (Loan No. 4770-CHA), and the Global Environment Facility (GEF) - Ningbo Water and Environment Project (Trust Fund No. 56692-CHA). The proposed project would build o n the strong relationship established w i t h the municipality to provide support for i t s agenda o n N C D . The proposed project provides the Bank with a unique opportunity to partner with Ningbo Municipality to work on new initiatives in urban-rural integration that reduce disparities in growth and living standards. Even though the project investment i s a small part o f the larger ongoing NCD program, through this project the Bank would be able to draw o n i t s extensive global experience and demonstrate ways to improve the efficiency, cost-effectiveness and sustainability o f rural sanitation, basic urban infrastructure and small t o w n management; these results could be replicated in the N C D program not just in Ningbo Municipality but also in other developed areas in China with similar economic characteristics. 13. The Bank will apply both international and local best practice to the proposed project, specifically in: (i) Rural Sanitation Improvement - implement appropriate and sustainable technology and institutional options for rural wastewater management in Ningbo, using participatory approaches, to expand coverage o f rural sanitation, to encourage cost-sharing by beneficiaries, and to transfer assets and operation and maintenance (O&M) responsibility to communities; and (ii) Basic Infrastructure Development and Management for Small Towns- support small town development through sound planning, institutional reforms and basic infrastructure improvement with phased service cost-recovery consistent with affordability and economic growth. C. Higher level objectives to which the project contributes 14. The project i s consistent with China's 1l t h Five Year Plan, especially the high priority placed by the central government o n reducing the urban-rural disparities in growth and development. The government's strategy in this regard i s articulated in the State Council's major policy document guiding N e w Socialist Countryside Development, issued in 2005. In addition, the project i s consistent with a strategic pillar in the Country Partnership Strategy (CPS) o f 2006- 2010 - the goal o f "Reducing Poverty, Inequality and Social Exclusion" - and will target rural communities to balance development and improve infrastructure, thereby minimizing urban-rural disparity, facilitating economic development and reducing poverty. 11. PROJECT DESCRIPTION A. Lending instrument 15. The lending instrument i s a Specific Investment Loan. The loan will be a single currency, variable spread loan o f US$50 million, with a maturity o f 30 years including a five-year grace period and a front-end fee o f 0.25%. B. Program objective and phases 16. N o t applicable. 3 C. Project development objective and key indicators 17. Project Development Objective. The project development objective i s to improve rural wastewater management in selected villages and enhance infrastructure and township management in a small town, in support o f the N C D Program in Ningbo Municipality. 18. Performance Indicators. K e y project outcome indicators are: (i) number o f the households with appropriate rural wastewater management services in operation; (ii) Fenghua- Chunhu traffic using new access road; (iii) Chunhu population served f r o m a reliable and the higher-quality water supply; (iv) the wastewater treatment rate in Chunhu Town; (v) NMG adoption o f energy efficiency guidelines for rural housing construction; and (vi) proposal for N C D plan for upcoming 12th Five Year Plan (201 1-2015) and Chunhu T o w n planning completed D. Project components 19. The project has three components. Detailed descriptions are provided in Annex 4. Component 1: Rural Wastewater Management Implementation o f rural wastewater management in about 150 selected villages in six Counties/Cities/Districts in Ningbo Municipality using appropriate and sustainable technology and a program-based approach in participation with village communities. Component 2: Chunhu Town Infrastructure Development Chunhu-Fenghua Access Road: Construction o f a four-lane Class 1 road connecting Fenghua C i t y with Chunhu Town. Fenghua Coastal Water Supply: Construction o f transmission mains from Fenghua C i t y to Chunhu Town, including renovation and expansion o f the Chunhu T o w n water distribution network. Chunhu Town Wastewater Management: Construction o f trunk and collection sewers and a wastewater treatment plant to service Chunhu Town. Component 3: Capacity Building and Implementation Support Capacity Building and Implementation Support for Rural Wastewater Management. Chunhu T o w n Capacity Building and Energy-Efficiency Demonstration. 0 Support for preparation o f the 12th Five-Year-Plan o n NCD in Fenghua City. Capacity Building and Implementation Support to FCIC. E. Lessons learned and reflected in the project design 20. Community Participation and Ownership. Previous experience with rural infrastructure projects in China and around the world indicates that beneficiary participation during planning and implementation i s essential to ensuring the sustainability o f community-level infrastructure. During the planning process, i t will be imperative to provide consultations that can assess the needs and priorities o f communities. If the communities themselves can manage certain community infrastructure, then the ownership of said infrastructure will be transferred to communities, along w i t h any technical assistance needed to help them organize the management 4 and maintenance o f the assets. The design and technology options adopted in small communities need to be simple to operate and maintain, and need to come w i t h trained local operators. I f communities lack the capacity to manage certain assets, then locally based professional service providers will provide those services o n an `as needed' basis. Successful examples o f participatory development in South and East Asia and Africa have been incorporated into the project design. Implementation guidelines, including community participation guidelines, have been developed for the rural wastewater management component. In addition, lessons learned from implementing the first batch o f villages - with respect to community commitment, participation and ownership - w i l l be evaluated and used to make necessary adjustments to the implementation methodology. 2 1. Appropriate Technologiesfor Rural Wastewater Management. The Bank has previously developed rural wastewater management systems in East Asia, South Asia, Africa and South America. F r o m these projects, the Bank learned that it i s vital to develop wastewater management systems that are appropriate to rural areas. These systems must function successfully, at lower cost, and be suitable both to individual homes and communities as a whole. Eventually, the Ningbo Project followed these lower cost options but had to develop them to meet two additional requirements: the systems had to provide wastewater management to larger groups o f households (between 200 and 300 homes) and the systems had to protect nearby sources o f drinking water. 22. Over-designing Basic Infrastructure. In the past, the Bank has had experience where project designs were based o n unrealistic expectations o f population growth, traffic density, water demand and wastewater generation. As a result, the Ningbo Project designers have been careful to avoid making any unrealistic projections so as not to over-design the project-created facilities. For instance, the coastal water supply scheme has been phased in only where medium- term demand i s confirmed (Chunhu T o w n and Hongsheng Haitang development zone). The project has also ensured that the wastewater transmission mains are shorter but can be extended at a later date. Similarly, the overall capacity for the wastewater treatment facilities was limited to'medium-term requirements, while the basic structures were designed as flexible for any long- t e r m needs. The roads are expected to meet the expected traffic growth and density. By following these guidelines, the Bank hopes to avoid any waste o f resources and higher-than- necessary user charges and tariffs. F. Alternatives considered and reasons for rejection 23. f Appraisal o All Village Proposals Under Rural Wastewater Component Before Loan Negotiations. T w o alternatives were considered for preparation o f the rural wastewater component covering about 150 villages: (i) appraise each village before loan negotiations, to which would have required a long preparation time; and (ii) appraise a sample o f to representative villages as the first batch, and set out clear criteria for appraisal o f the remaining villages during project implementation. Appraisal o f all village proposals before loan negotiations was rejected as it was not a practical proposition in view o f the time and effort required for preparation. A program-based approach was adopted instead. Detailed feasibility studies (FSs) were conducted for 16 villages as a pilot for early implementation in order to gain experience and refine the approach. This sample was used for extrapolation and appraisal o f the component conforming to a Frameworkfor Implementation o Rural Wastewater Management, f which has been developed into comprehensive policy and guidelines for rural wastewater 5 management. Under the program-based approach, the number o f villages where wastewater interventions will take place would depend o n the broad selection criteria, unless the budget allocated to the component i s exhausted within the project period. The Ningbo Rural Wastewater Treatment Project Management Office (NRWTPMO) will review village FSs submitted by County/City Project Implementation Units (PIUs) to ensure their conformity w i t h the criteria, Framework and other requirements, and approve the proposals for implementation. Prior to commencement o f the remaining villages, the NRWTPMO will submit to the Bank the approved proposals with k e y relevant information, for n o objection, o n a rolling basis twice a year. 24. Phasing o Water Supply Investment. The earlier proposal to construct a 50.1 km long f regional water supply transmission pipeline to transmit from Fenghua to the coastal towns o f Chunhu, Qiucun and Song'ao (near the Zhejiang Shipyard) was rejected o n the grounds o f the following: high capital costs with l o w returns; l o w demand in the coastal towns, except the largest t o w n o f Chunhu; the uncertain future o f the planned Zhejiang Shipyard expansion due to global conditions; the relatively high cost o f water against a current tariff o f about RMB 0.80/m3; limited affordability o f the rural population; and the large subsidies that would be necessary for many years. Eventually, the chosen option was to construct part o f the regional scheme, a transmission main about 15.8 km long (to supplement the 7.6 km transmission pipes under construction) to supply water to Chunhu T o w n (the largest o f the three towns) and the Hongsheng B a y (Haitang) development zone in the first phase, with pipelines sized for future extension to the other t w o towns. Chunhu, with a population o f 88,000, i s adjacent to the development zone. The tariff needed for this alternative i s marginally higher than the current Fenghua City average water tariff, and three times higher than the current tariff in Chunhu. I t i s recognized that a tariff subsidy for Chunhu would be necessary, through a system-wide tariff adjustment or other internal cross subsidy mechanism that would be phased in over a predefined period o f time, depending o n the economic growth o f Chunhu. Introductory tariffs will be set to generate revenues not less than the full cost o f O&M, and thereafter adjusted periodically, with the ultimate goal o f achieving full cost recovery. 111. IMPLEMENTATION A. Partnership Arrangements 25. The proposed project i s a free-standing project. The Chunhu T o w n Capacity Building and Energy Efficiency Demonstration has been designed and supported by Energy Sector and Management Assistance Program (ESMAP). B. Institutiona1,andimplementation arrangements Institutional Arrangements 26. Project Leading Groups (PLGs). A PLG, chaired by the vice mayor o f the municipality, has been established at Ningbo Municipality to provide policy direction and guidance for project implementation. A PLG has also been formed in Fenghua C i t y to lead relevant subcomponents in the city. 27. Project Management OfJices (PMOS).The Ningbo Municipal Project Management Office (NMPMO) has been designated by the municipal-level P L G as the primary office for the 6 preparation and implementation o f the proposed project. NMPMO has previous experience in coordinating the implementation o f Bank-financed projects, including the Ningbo Water and Environment Project and the Global Environment Facility (GEF) - financed Ningbo Water and Environment Project. 28. Sub-PMOS. A sub-PMO, the NRWTPMO, was established to guide the implementation o f the Rural Wastewater Management component. NRWTPMO coordinated preparation o f the first batch o f villages. N R W T P M O will coordinate preparation o f proposals for the remaining villages, ensure that Counties/Cities/Districts conform to the Framework for Implementation o f Rural Wastewater Management, and take responsibility for fund allocations to County/City/District governments. Another sub-PMO has also been formally established in Fenghua City for the Chunhu T o w n Infrastructure Development component. 29. Project Implementing Units (PIUs). County-level rural wastewater treatment PKJs will be responsible for the implementation o f the Rural Wastewater Management component, under the agreed Frameworkfor Implementation o Rural Wastewater Management. A comprehensive TA f package (including facilitators) will be provided to train the village communities and the village operators. The assets created will be transferred to the Village Committee, which will be responsible for O&M. 30. The FCIC will be the PIU for the Chunhu T o w n Infrastructure Development component (Le., Chunhu access road, Fenghua coastal water supply and Chunhu wastewater subcomponents). F C I C will be responsible for the design and construction o f the infrastructure, and will service the debt using asset management fees that will be paid by Fenghua City. F C I C was formed in 2007 to facilitate the financing o f infrastructure development in Fenghua City. I t has set up three departments dedicated to the planning and construction o f the three infrastructure subcomponents, which draw specialist staff from other entities. O f the investment companies the FCIC has consolidated so far, some have considerable experience in project management and operations, especially in the road sector. The proposed project includes providing project management support to F C I C for the implementation o f the subcomponents, for risk management and for business development. 3 1. Operation and Maintenance o Chunhu Infrastructure. Under the provisions o f the asset f management agreement, Fenghua City will eventually take over responsibility for O&M o f the assets o n behalf o f FCIC. After the asset construction i s completed and the quality verified, Fenghua C i t y will outsource O&M o f the Fenghua Water Supply and Chunhu T o w n Wastewater assets to competent companies. Fenghua City will provide annual budget appropriations to meet the O&M requirements and payments to the management contractor. Fenghua will prepare annual budget and financing plans for O&M o f the infrastructure by August 15 each year, commencing o n August 15,2012. Implementation Arrangements 32. Detailed Design Preparation and Design Reviews. NMPMO has organized design review and advisory services to provide advice and guidance; to review FS preparation; and to prepare various standard documents that will be used during implementation. PIUs will employ experienced design institutes (DIs) to prepare detailed plans and bidding documents (which will include technical specifications and bill o f quantities). 7 33. Rural Wastewater Implementation Manual. Implementation o f the Rural Wastewater Management component will be camed out in accordance with the Implementation Manual, which includes: (i) Framework for Implementation o f Rural Wastewater Management (Le., the policy, strategy, and village selection criteria); (ii) Operations Manual (i.e. technical the requirements for design and construction, best practice guidelines, and recommendations); and (iii)Community Participation Guidelines (Le., measures that mobilize communities to participate in decision making, to assume ownership o f completed assets, and to take responsibility for O&M). 34. Construction Supervision and Safeguard Monitoring. PIUs will employ experienced domestic supervision companies to supervise the construction o f project components. NMPMO will organize PIUs to engage a consultant to carry out independent external monitoring o f safeguard implementation and to provide semi-annual reports. 35. Project Management, Implementation, and Capacity Building Support. International and national consultants and facilitators will be retained to provide capacity building, project management and implementation support to NMPMO, FCIC, the NRWTPMO, Village Committees, and Chunhu Town, as well as to conduct training and to guide study tours for project staff. 36. Procurement. The PIUSwill be responsible for carrying out the procurement o f works and goods under their respective components with the assistance o f a procurement agent. Procurement o f relevant services will be undertaken by the NMPMO, NRWTPMO and FCIC. NMPMO i s an existing PMO and has experience with Bank-financed projects. N M P M O will be responsible for monitoring the PIUS' procurement activities and providing support and assistance to them to ensure both the overall quality o f procurement under the project and overall compliance w i t h the Bank's Procurement Guidelines. 37. Retroactive Financing. N o retroactive financing i s required for the project. 38. Fund Flow. The US$50 m i l l i o n Bank loan to the People's Republic o f China will be on- lent to NMG. NMG will on-lend about US$30 m i l l i o n o f the loan proceeds to FCIC, o n the same terms as the Bank loan to China, for the implementation o f the Chunhu T o w n Infrastructure Development component, which includes the access road, the water supply, and the wastewater management sub-components. The remaining about US$20 m i l l i o n will be directly utilized by NMG for the Rural Wastewater Management component. The designated account (DA) will be managed by the Ningbo Municipal Finance Bureau (NMFB) (See Annex 7 for details). 39. Resettlement Compensation Funds. The municipal and county Finance Bureaus will allocate funds to the resettlement implementing agencies according to progress in implementation. The resettlement implementing agency will disburse the funds to affected persons in accordance w i t h the Resettlement A c t i o n Plan (RAP). All resettlement expenditures will be financed from counterpart funds. 8 C. Monitoring and Evaluation of Outcomes/Results 40. Monitoring and Evaluation o the Approach to Rural Wastewater Management. The f implementation experience o f the first batch o f 16 villages will be evaluated to improve the methodology for interventions in subsequent batches o f villages. The evaluation will a i m to test: (i) feasibility o f increasing the cost sharing by communities; (ii) the reconfiguration o f options offered in order to reduce per household cost; (iii) communities' willingness to participate in the the program; (iv) the feasibility o f achieving the desired percentage o f connections where sewers are available; (v) commitment o f villages to organize O&M; (vi) community perception o f environmental and health benefits; and (vii) satisfaction with the technological options offered. Based o n this evaluation and lessons learned, refinements will be made to the program as appropriate. 41. The principal tool for monitoring and evaluation will be the data inputs to the Results Framework (Annex 3). N M P M O will make arrangements with the NRWTPMO, Environmental Protection Bureau (EPB), the Water Resources Bureaus, and F C I C to collect data to illustrate project impacts (outcomes), relying specifically o n existing reporting systems. In addition, NMPMO will collect data o n outputs from each PIU to update the Results Framework. All the above data and information will be incorporated in the semi-annual progress reports, where applicable, and will also be assembled at the end o f the project period. Other sources for monitoring and evaluation are the semi-annual supervision missions by the Bank team and the Implementation Completion and Results Report prepared at the end o f project implementation. D. Sustainability 42. For the Rural Wastewater Management component, since most o f the villages selected for the project are in the reservoir protection zones, a large subsidy has been allocated to villages for initial capital costs in order to assure a safe drinking water supply to cities and towns. The subsidy has been channeled from urban water tariffs to villages. Ningbo Municipality has levied RMB 0.10 /m3 in water tariffs for rural wastewater schemes. The rural wastewater schemes will help the sustainability o f the ecological systems in the reservoir zones. I t i s foreseen that more developed villages outside o f the reservoir protection zones will be required to make cash contributions to capital costs, depending on the outcomes o f the monitoring and evaluation program. 43. The project has adopted an approach to rural wastewater management through lower cost, simple technologies that can be constructed and maintained by communities. The efficiency o f the technology, the benefits to health and hygiene, and the participation o f the community (which will share the costs o f selection, ownership, operation and maintenance o f the assets) will assure sustainability in the long term. In time, the model can be replicated with lower government subsidies, along with a gradual increase in the level o f cost sharing by communities. 44. The sustainability o f Chunhu Town Infrastructure i s viewed as a long-term goal, in conformity with the development strategy prescribed to reduce rural-urban disparities in economic growth, incomes and living standards. The provision o f basic infrastructure i s part o f the N C D strategy to support growing small towns and to give opportunities to accelerate development and attract new investments. Fenghua City has assured the sustainability o f Chunhu 9 T o w n infrastructure by assuming responsibility for O&M, tariff setting and collection, and the provision o f budgetary funds as necessary. E. Critical Risks and Possible Controversial Aspects . RiskRating Risk Risk Mitigation Measures with Mitigation* To project developmc Failure to improve Adopt proven, affordable and manageable on-site Modest wastewater management in rural area ~~ Failure to improve Low Chunhu Town access road, water supply and wastewater infrastructure To component outpui Insufficient sewer Reduce connection costs by laying sewer lines up to houses. Modest connections in rural Provide financial incentives to encourage connections, such wastewater sub- as a grant to cover part of the cost. projects in villages Provide technical options to house owners with (inaccessible) septic tanks under the plinths to make connections. Retain and promote the non-sewered individual option for individual waste management solutions. Introduce a project hygiene education program to inform benefits of safe human waste disposal. Failure to adequately Set tariffs for water supply and sanitation at a reasonable Low finance O&M of level based on the affordability o f villagers. Chunhu Town Fenghua City to ensure FCIC has revenue stream to meet infrastructure debt service. improvement Fenghua City to assume O&M responsibility and implement cost recovery starting with recovery of O&M costs, at a minimum. 10 Risk Rating Risk Risk Mitigation Measures with Mitigation* PIUs do not have Engage the NMFB and the NMPMO which have extensive Modest experience with experience with Bank-financed projects in F M for the financial proposed project. management (FM) Provide training to fmancial staff from the sub- PMOs. and disbursement for Work with all concerned parties to ensure and facilitate their Bank-financed understandingo f the Bank's disbursement policies. projects. Streamline disbursement arrangements for proper, efficient, and effective use o f project funds. Prepare and furnish a well-designed project F M Manual to regularize the project F M requirements within and between various PIUs. ~ ~~~~~ Retain and engage staff who worked on previous Bank Low Delays in projects and have knowledge about procurement issues. procurement due to Finalize the first 18 month Procurement Plan before slow development of negotiations. PMOs' capacity and Conduct close and regular monitoring during supervision. slow procurement preparation and approval processes Difficulties in Technical assistance program, including consultants' inputs Modest supervision to help with detailed design, construction supervision, (including fiduciary contract management and training. and safeguard matters) due to large number of villages Overall Risk Modest RatingI 25% 11 F. Loadcredit conditions and covenants 45. Loan Effectiveness Condition: Signature o f a subsidiary loan agreement between the FCG and FCIC for on-lending loan proceeds for the Chunhu T o w n infrastructure construction, satisfactory to the Bank and a legal opinion o n the agreement. 46. Covenants Applicable to Project Implementation: (a) Fenghua City to carry out the dam safety remedial works and schedule set out in the Hengshan Reservoir Report, satisfactory to the Bank. (b) Fenghua City shall provide, by June 30,2010, a revised Operation and Maintenance Plan for the Hengshan Reservoir Dam, based o n the comments offered by the Bank, and thereafter implement said plan accepted by the Bank. (c) Fenghua City to provide, by June 30,2010, a revised Emergency Preparedness Plan for the Hengshan Reservoir Dam, based o n the comments offered by the Bank, and thereafter implement said plan accepted by the Bank. (d) Fenghua City to prepare and submit to the Bank, a proposed annual budget and financing plan for operation and maintenance o f Chunhu T o w n Infrastructure that has been completed and commissioned, by August 15 each year, commencing o n August 15,2012. (e) Fenghua City to require operators o f Fenghua Water Supply and Chunhu Wastewater assets to have their financial statements (balance sheets, statements o f income and expenses, and related statements) for each fiscal year audited, within six (6) months after the end o f each year. (f) Fenghua City to provide an annual report to the Bank, by September 3 0 each year commencing in 2013, o n the operations o f Fenghua Water Supply and Chunhu Wastewater, to illustrate the amount by which total revenues from water and wastewater operations are equivalent to not less than the sum o f total operating expenses, and the amount by which debt service exceeds the provision for depreciation, based on audited financial statements o f the operators o f the assets. (g) Ningbo Municipality to cause Fenghua C i t y to pay a fee to FCIC sufficient to cover FCIC's administrative cost and debt service obligation related to the Chunhu T o w n Infrastructure Development component and to vest the ownership o f the assets, that are created under the component in F C I C for 30 years. 47. Financial Performance Covenants: Fenghua City to prepare and submit to the Bank by February 15,2014, a plan to implement the following water supply tariffs and wastewater user charges by the dates specified: (a) introduce a wastewater user charge in Chunhu T o w n to generate revenues to meet at least O&M expenses by n o later than December 3 1, 2016. 12 (b) levy a water tariff in the Fenghua coastal water supply service area adequate to generate revenues to meet O&M expenses by December 3 1,201 6 and to achieve full-cost recovery (including the cost o f debt service) by December 3 1,2022. 48. Financial Management Covenants: Ningbo Municipality to provide to the Bank audited project account statements (including the FCIC) within six months o f the end o f i t s fiscal year during project implementation. IV. APPRAISAL SUMMARY A. Economic and financial analyses Economic Analysis 49. The main economic benefits o f this project consist o f the following: improved public health and quality o f l i f e through reliable water supply and wastewater treatment in Chunhu Town, and through rural wastewater management in about 150 villages throughout Ningbo; reduced travel time and cost; increased productivity; improved access to better public services; reduced traffic accidents because o f better road connection between Fenghua C i t y and Chunhu Town; increased amenities and land values associated with improvement in transportation conditions and water environment; decreased water treatment costs in lower reach communities. The demonstration effect o f the project would bring about long-term benefits to small town development and rural wastewater management in Ningbo and similar regions in China. The main economic costs for each project component are identified as capital investments including associated resettlement and environmental mitigation costs o f the investments and O&M. 50. Cost-benefit analysis was employed to examine the economic viability o f the access road component. The analysis shows that the economic internal rate o f return (EIRR) o f the road investment i s 16.96% and the net present value i s RMB 450.89 million. Sensitivity analysis (20% increase in capital costs and 20% decrease in economic benefits) shows that the investment would still provide an EIRR o f 12.25%. 5 1. Salient features o f the Rural Wastewater Management component design include the following: employment o f the cost effective approach to improve rural wastewater management; environmental improvement; enhanced public health and hygiene practices; protection o f drinking water sources; and improved living conditions in rural communities. Due to the difficulty o f quantifying environmental and health benefits of water supply and wastewater treatment investments, the cost-effective approach has been used to ensure that the least cost options are adopted in related investment components. A number o f wastewater treatment technologies and alternative design options were evaluated to ensure the selection o f cost effective solutions. For the Rural Wastewater Management component, a design framework and guidelines for low-cost design were adopted in the first batch o f project villages and proposals for the remaining project villages will be prepared using a program-based approach. 52. A contingent valuation survey has been done in project areas to test public support and their willingness to pay for the proposed water supply and wastewater treatment investments. 13 Results o f the analysis show that local residents are very supportive and are willing to p a y for better water service. The average amount rural households are willing to pay i s FWB 3.98/month for wastewater treatment, and RMB 8.73/month for water supply. The water tariff required to achieve financial viability i s relatively high compared to the income level o f local people. A tariff subsidy would be needed initially, and phased out gradually based o n the economic growth o f Chunhu Town. As local governments will shoulder most o f the project investments in water supply and wastewater treatment in rural areas, and are committed to providing support to l o w - income households, no negative impacts o n the poor are anticipated. Financial Analysis 53. The financial analysis was conducted at the project, entity and municipal levels. The long-term goal will be to attain financial viability o f these services through an increasing reliance o n user charges to defray operating costs. Thus, the principle o f cost recovery i s the goal, and financial viability i s to be achieved in a phased manner, with Fenghua C i t y providing subsidies to meet shortfalls in operating expenses. 54. Project Level Analysis. A financial analysis was carried out for each subproject to assess i t s financial viability. In the beginning, all subprojects will rely o n government support f r o m general budgets for capital and operations costs. Where tariffs can be levied, the objective i s to achieve full cost recovery over the lifespan o f the project. M o r e details are available in Annex 9. 55. Entity Level Analysis. F o r the Chunhu T o w n Infrastructure Development component, FCIC will function as the construction agent and asset manager for FCG. F C I C i s authorized to mobilize funds from a variety o f sources to construct the infrastructure, and manage them for FCG. Assets will remain in FCIC's ownership for a period o f 30 years. Residual assets m a y be transferred to the sector agencies at the end o f this period. O&M o f assets created will be assumed by Fenghua City. The FCG will make annual payments to F C I C adequate to meet i t s debt service obligations and asset management fees, and to make up i t s profit, i f specified in the asset management agreement. B o t h the asset management agreement and the subsidiary loan agreement for on-lending Bank loan proceeds to F C I C must be deemed satisfactory by the Bank. 56. One long-term objective will be to strengthen the FCIC so i t m a y expand i t s business scope and increase its capacity to access long-term funds. Towards this end, the project will provide TA to strengthen the capacity o f F C I C in fields o f business plan, asset management and operation, risk management and mitigation, and development o f financial instruments, in addition to project management support for construction activities. 57. Municipal Level Analysis. The estimated percentage o f loan repayment burden to the total Ningbo municipal financial revenue would be 0.06% in 2013, and lower during the rest o f the loan repayment period. The estimated percentage o f loan repayment burden to the total financial revenue o f Fenghua City w o u l d be 4.7% in 2013 and then lower in the.rest o f the project loan repayment period. Therefore, the project i s financially affordable to Ningbo Municipality and Fenghua City. 14 B. Technical 58. N M P M O has retained the services o f a Class A China DI to design project components. An independent international consultancy firm has also reviewed the FS reports and provided design advice. The technical viability o f the project components has been confirmed by the Bank Task Team. 59. Rural Wastewater Management. A number o f options were considered for rural wastewater management in the scattered villages with an average o f 300 houses per village. Least-cost options were selected, according to the analysis o f the following alternatives: (i) large sewer networks serving a collection o f villages versus decentralized smaller systems; (ii) conventional treatment with piped sewage versus improved septic tank systems; (iii) discharging treated effluent to water bodies versus subsoil dispersal in terms o f cost and environmental impact; (iv) a large number o f small systems operated and maintained by the government versus those same systems owned and operated by village communities in terms o f cost; and (v) connection o f all houses in a village to the collection system versus a menu o f options comprising individual, duplex and community systems to suit actual conditions. The appraisal was based on detailed FSs o f 16 typical villages using the program-based approach. Based o n topography, house distribution, and the land form o f each village, the least cost option was to have a m i x o f individual systems and an improved septic tank system with a b i o reactor and subsoil dispersal at least 50 meters from a water body to reduce any risk o f contaminating drinking water sources (Le,, reservoirs). Policies and criteria for intervention, guidelines for communities to participate in decision-making and technical requirements for design and construction have been agreed upon and are described in the Implementation Manual. The Manual i s available in the project file, which also includes the Framework for Implementation o f Rural Wastewater Management, the Community Participation Guidelines, and the Operations Manual. 60. Chunhu Access Road. Analysis was conducted for alternative road alignments o f the remaining section, economies in cut and fill, and tunnel length. Road specifications o f a four- lane carriageway were decided-based o n projected traffic until the year 2020. The selected solution was analyzed for a second time to evaluate risks associated w i t h constructing a section o f the tunnel under an earth dam. This analysis included an evaluation o f mitigation measures and selection o f another alignment. An alignment that avoided the earth dam was finally selected as the least-cost option. 61. Fenghua Coastal Water Supply. The least-cost option for the scheme was derived f r o m the analysis o f the following factors: (i) water demand projections for different growth scenarios; (ii) capita water consumption based o n potential l o w growth, so as not to create excess per capacity; (iii)alternative water sources -- e.g., Baisha reservoir, surface water and surplus capacity at the Qiujiashan treatment works; (iv) alternative pipeline alignments; (v) relative water demands from Chunhu (including Hongsheng Haitang area), Qiucun and Song'ao, and the development plan for the Zhejiang Shipyard extension; (vi) incomes and willingness to pay; and (vii) water pricing and demand management. The selected least-cost option for the coastal water supply scheme was to phase in the transmission pipeline to provide water to Chunhu and Hongsheng Haitang area in the first phase as needed, with the pipes sized to meet capacity requirements o f the ultimate extension to Qiucun and Song'ao, and utilize the spare capacity available at the Qiujiashan water treatment plant. 15 62. Chunhu Town Wastewater. Least-cost options for the wastewater system was determined based o n the following analyses: (i) optimum wastewater generation projections based o n realistic population growth and the same per capita water demand as discussed in the water supply scheme; and (ii) construction o f a treatment plant adequate to meet the first phase requirements o f the current built-up area o f Chunhu Town. The selected option comprises a 10,000 m3/dwastewater treatment plant and about 19 km o f sewer network. C. Fiduciary 63. Financial Management. The Bank camed out an assessment o n the adequacy of the financial management (FM) systems of the project. The assessment, based o n guidelines issued by the Bank's FM Sector Board o n November 3, 2005, concluded that the project meets the minimum Bank FM requirements as stipulated in OP/BP 10.02. Taking into account the risk mitigation measures proposed under the project, the FM risk rating i s assessed as "moderate". M o r e details are provided in Annex 7 . 64. Procurement. A procurement capacity assessment has been completed, and i s available in the project file. The overall procurement risk i s assessed as moderate. Based o n this assessment, recommendations were made at the appropriate time for prior review and for measures to strengthen the PIUS' procurement management capabilities. Procurement for this project will be carried out in accordance with the W o r l d Bank's Guidelines: Procurement under IBRD and I D A Credits, M a y 2004, as revised October 2006 (Procurement Guidelines) and Guidelines: the Selection and Employment o Consultants by the World Bank Borrowers, M a y 2004 as revised f October 2006 (the Consultant Guidelines), and the provisions stipulated in the Loan Agreement. M o r e details are provided in Annex 8. D. Social 65. Social Benejts. The proposed project will have significant social benefits. The Rural Wastewater Management component will decrease discharge o f contaminants to water bodies, protect the water quality o f drinking water sources in Ningbo Municipality, and improve the environmental conditions o f project-related rural areas and the health o f rural habitants. The Chunhu T o w n Infrastructure Development component will improve basic infrastructure and thereby enhance the quality o f l i f e within rural'towns. 66. Social Assessment. As part o f project preparation, a Social Assessment was camed out. Through the process o f social assessment, potential stakeholders were w e l l informed, useful socioeconomic information was collected for project design, potential positive and negative impacts were identified, people's willingness to pay for the services was assessed, and a community participation mechanism was designed for the Rural Wastewater Management component. 67. Community Participation. Community participation i s critical for the Rural Wastewater Management component. Past experience shows that the lack o f community participation was one o f the factors which resulted in failure o f previous wastewater,treatment systems in rural areas in Ningbo Municipality. T o ensure informed community participation in the entire cycle o f 16 project planning, construction, and operation, Community Participation Guidelines have been prepared. 68. Land Acquisition and Resettlement. The R A P s have been prepared for all components in compliance with OP 4.12: Involuntary Resettlement and w i t h the relevant domestic policies; those documents describe in detail the impacts, affected populations, consultation process, renovation measures, budget, and implementation and monitoring arrangements. With respect to the first batch o f 16 villages under the Rural Wastewater Management component, the RAP describes resettlement impacts across six villages o f two townships. The project will affect 287 people (95 households) due to 262 mu o f permanent land acquisition and 3,479 m2o f house demolition. In addition, 14 households (39 people) will be affected by both house demolition and land acquisition. 69. Information Disclosure. English versions o f the Social Assessment and the R A P s were submitted to the Bank and were disclosed in the Infoshop o n July 21,2009. R A P s were also disclosed locally o n July 21, 2009, in Chinese language, in local newspapers, public libraries and through the internet, and in the Bank's Beijing Office Information Center. E. Environment 70. OP 4.01 : Environmental Assessment (EA) i s triggered and the project has been classified as Category B. An Environmental Impact Assessment (EIA) was carried out for each project component, and an associated Environmental Management Plan (EMP) was also developed as part o f the EIA document. Based o n each EA report, a Consolidated Environmental Assessment (CEA) Report was compiled to present the key issues o f the sub-project EIA reports. All documents were prepared on the basis o f Chinese legal and policy frameworks for environmental protection, master plans and environmental plans, as well as applicable Bank safeguard policies. M a j o r findings o f the EAs and key points o n the EMPs are presented in Annex 10. 71. Environmental BeneJit. The proposed project will provide water o f high quality to Chunhu Town, reduce pollution discharge to Xiangshan B a y and other bodies o f water in rural areas o f Ningbo Municipality, and improve management o f water resources and economic development o f Chunhu T o w n through good road infrastructure, etc. Specifically, the project will have the following positive benefits: (i) improvement o f current water supply and satisfaction o f future water demand; (ii) improvement o f water quality in rural areas and the health o f rural people; and (iii) improvement o f river water quality (especially in areas upstream o f drinking water sources) through wastewater treatment in Chunhu T o w n and about 150 villages. 72. Key Impacts and Mitigation Measures D u r i n g Construction and Operations. The adverse impacts during the construction o f the water distribution network, wastewater collection system, pumping stations, water works, and roads include: airborne dust, noise, traffic disruption, and disposal o f spoiled materials. Contractors will manage the construction site properly, for example, by watering construction sites during dry and windy seasons, developing plans to mitigate noisy construction activities, banning nighttime construction, maintaining equipment in good operating conditions, and developing temporary traffic plans to detour traffic around construction sites. Details o f mitigation measures are provided in Annex 10. 17 73. Public Consultations and Information Disclosure. Public consultations were carried out during the EA process. The technique used for the public consultations included surveys using public opinion questionnaires, focus group discussions, and public meetings with key stakeholders and interviews with persons affected by the project. Issues raised during these consultations have been incorporated in the EIAs/EMPs. Furthermore, feedback to the concerns collected in public consultation have been provided to the concerned groups and documented in the EAs. The EIA/EMP documents and other project-related documents have been disclosed in Chinese language in Ningbo through various means (e.g., websites, newspapers), and the consolodated EIA report in English has been disclosed in the Bank's InfoShop, as required by national and Bank policies. The EIA report has also been published in the Bank's Beijing Office Information Center. Details are included in the Annex 10. 74. Safety o Dams. OP 4.37: Safety o f Dams i s triggered by the project because the proposed f water supply component to Chunhu T o w n i s from Fenghua City's water works, while the water source for Qiujiashan Water Works i s from HengshanReservoir. An independent dam safety expert has reviewed the safety o f the dam and found that: (i) strengthening and renovation o f the Hengshan Reservoir D a m i s necessary in view o f the potential safety hazards identified in a dam safety review done in 2005; (ii) strengthening the reservoir structures i s under implementation and i s scheduled for completion by December 2010; (iii) under these conditions, the l o w flood control level operation plan i s appropriate until the strengthening i s completed; (iv) reservoir operation i s generally satisfactory, but dam safety monitoring equipment needs upgrading. The detailed report i s available in the project file. F. Safeguard policies Safeguard Policies Triggered by the Project Yes * No Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.1 1) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OP/BP 4.10) Forests (OP/BP 4.36) Safety o f Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP 7.60)* Projects o n International Waterways (OP/BP 7.50) G. Policy Exceptions and Readiness 75. Policy Exception: The Safeguard Policy o n Environmental Assessment, OP 4.01, requires the Borrower to prepare EA reports in a form, manner, and language that are understandable to the displaced persons and local NGOs, which in this case w o u l d be Chinese. The Chinese language EA reports (814 pages in total) for the subprojects have been reviewed by the Bank, meet the requirements o f OP 4.01 o n environmental assessment, and have been * By supporting theproposedproject, the Bank does not intend to prejudice thefinal determination o theparties' claims on the f disputed areas 18 publicly disclosed. An English language comprehensive summary o f the EA reports (294 pages) has also been prepared, reviewed and disclosed through the Bank's InfoShop. 76. Bank experience has established the general practice o f requesting the Borrower to provide the Bank also with the entire EA reports in English. In April 2007, Bank senior management endorsed "Guidelines for the Use o f English Translation o f Summaries o f Environmental Assessment Reports and Resettlement Action Plans in China Projects" which allowed the creation o f English language comprehensive summaries o f EA reports for projects that meet certain criteria. The Regional Safeguards Secretariat has confirmed that the proposed project meets the criteria. Accordingly, English language comprehensive summaries o f the EA reports covering all relevant parts o f the Chinese language EA reports were created. Chinese- speaking Bank safeguard specialists have reviewed both the English language comprehensive summaries o f the EA reports and the Chinese language full-length safeguard documentation approved and adopted by the Project Implementing Agencies. These staff has confirmed the consistency between the English and Chinese documentation, and compliance o f the full set o f safeguards documents with Bank policy. 19 Annex 1: Country and Sector or Program Background CHINA: Ningbo New Countryside Development Project Rural Development Challenges in China 1. China has a rural population o f about 727 m i l l i o n (according to 2007 data) which comprises 55% o f i t s total population. Despite the economic development that China has achieved in its rural areas since its economic reform, the Chinese countryside i s lagging far behind i t s urban counterpart, which i s reflected in the following ways: (i) Income disparity. Average rural incomes are low, and the income disparity between the urban and rural populations i s large and widening. The Chinese rural population earns less than 1/3 o f their urban counterparts. The ratio o f per capita annual disposable income o f urban households compared to rural households has been constantly increasing, from 2.57: 1 in 1978 to 3.33:l in 2007 (2008 China Statistical Yearbook). (ii)Fewer economic opportunities and rural-urban migration. Per capita farmland area in rural China i s only 0.167 hectares per person (rural population only). Land i s scarce, resulting in fewer economic opportunities for the rural population and a huge labor surplus in rural areas. I t i s estimated that there are about 140 m i l l i o n migrant laborers, mainly from rural areas, who move to cities and towns. (iii)Underdeveloped basic infrastructure, poor standards o f living. M a n y Chinese rural areas are still characterized by sub-standard water supplies (no tap water in 50% o f administrative villages), poor road accessibility (no road access to 6% o f administrative villages), l o w quality school services (78% o f school buildings are unsafe), a lack o f waste management, and poor sanitary conditions (unsanitary toilets for 60% o f rural population). 2. These problems and challenges, especially the widening urban-rural income gap and the associated risk o f social instability, have become a major concern for the government. 3. The Chinese rural population i s scattered over 20,000 townships and 18,000 Xiang (township level village cluster) which, in turn, consist o f 720,000 administrative villages o r 3.2 m i l l i o n natural villages. Township government i s the lowest level o f government administration in China, administrating rural affairs and providing public services. In many places, towns, connecting larger cities and vast rural areas, p l a y a vital role in local economic growth, employment, social service improvement, and social stability. Successful t o w n development has economic and social effects, influencing nearby villages o n their path to development and modernization. Chinese small t o w n development i s being held back by an inadequate regulatory and institutional framework (e.g., for population mobility), lack o f or poor spatial planning, l o w infrastructure investment, and an overall weak capacity for administration. Many towns have poor road conditions, substandard services for water supply and solid waste management, and n o wastewater treatment. F o r example, out o f 187 towns along Qiantang River in Zhejiang Province (a wealthy province by Chinese standards) 123 have n o wastewater treatment facilities as o f 2009. Despite lagging infrastructure in towns compared to larger cities, the economic growth rate o f towns in China was 12.7% per annum f r o m 1999 to 2003 (higher than the national average o f 9.3% in the same period). 20 China's New Countryside Development Strategy 4. The national government, deeply concerned with the increasing disparity between urban and rural areas, resolved to make the `three farming' issues (Le., agriculture, villages, and farmers) top national priorities in 2003, thereby raising the level o f attention directed at development o f the Chinese countryside. Eventually, a goal k n o w n as the `equality o f city and countryside' was defined, aiming to gradually phase out the t w o class (rural & urban) socio- economic structure. New slogans were adopted to explain this change in direction, including phrases such as: `take less, give more, and allow more freedom' (to the countryside) and `industry repays agriculture, cities lift up the countryside.' In 2005, a major official document guiding the strategic direction o f new countryside development (NCD) was issued by the central government. The 11th Five Year Plan prioritizes N C D as one o f the key tasks o f the nation. Central and local governments have since placed a great deal o f emphasis o n the N C D program. 5. The N C D program rests o n the principle that it i s the responsibility o f industrialized, developed, urban areas, to actively commit resources to the development o f the countryside. The N C D program targets the following areas: (i) balancing social and economic development o f cities and countryside; (ii)promoting modem agriculture; (iii) promoting sustainable increases in rural incomes; (iv) strengthening the basic infrastructure in villages and raising the standards o f living; (v) promoting institutional development; (vi) upholding democratization o f village administration; and (vii) increasing the level o f participation and commitment towards NCD o n the part o f government officials and society at large. The central government allocates over RMB 300 billion (US $44 billion) each year from its annual budget to support NCD activities. The governments at provincial and local levels also actively commit their resources to promote N C D . 6. Given the situation o f rural China (scarce land resources and a huge labor surplus), t o w n development i s one o f the key aspects o f NCD. M a n y townships could be local engines o f growth and rural development. A w e l l planned and developed town can demonstrate a model of resource saving (especially land), ecologically friendly, environmentally sound, and human- centered rural growth, and can also play an important role in improving the economic efficiency o f rural areas. The N C D document issued by the central government has highlighted the development o f county seats and key towns with favorable fiscal, financial, taxation, and public service policies and inputs. The 1lth Five Year Plan requires coordinated and balanced development o f both cities and towns. 7. However, the NCD program i s relatively young and the program's implementation methodologies are still taking shape or being refined. The program i s sometimes misunderstood by local governments as mainly consisting o f construction o f basic modem housing. The Chinese government recognizes that in the implementation o f NCD, there i s s t i l l insufficient commitment to the more abstract issues such as: institutional reforms; improvement o f existing villages; the provision o f water, sanitation and solid waste management; environmental protection; building o f local traditions and skill sets; sustainable utilization o f local natural and geographical resources; raising standards of living; and the provision o f sufficient support from cities to nearby rural areas. This project will address some o f these issues in Ningbo, and in doing so provide experience and replicable models for other areas w i t h similar characteristics in developed parts o f China. 21 Key Issues faced by Ningbo Municipality 8. Ningbo Municipality i s a major city in the southeastern coastal zone o f China. I t comprises six urban districts (including Beilun Port), three county level cities (Cixi, Yuyao and Fenghua) and t w o counties (Xiangshan and Ninghai). Beilun Port i s the second largest port in China (after Shanghai Port). Ningbo has a population o f 5.65 m i l l i o n (according to household registration). The reported urbanization rate i s 57%, although officially only 1.88 m i l l i o n are registered as non-agricultural (urban) population. 9. As one o f the k e y commercial centers handling international trade in southeastern China, Ningbo has experienced rapid development. I t s GDP grew at an annual rate o f 14% per year in the last 5 years and reached RMB 286 billion (US$42 billion), w i t h a GDP per capita o f RMB 5 1,300 (US$7,540) in 2006. Government revenue grew at 20% per year over the last five years, and reached RMB 56 b i l l i o n (USS8.2 billion) in 2006. 10. Despite rapid economic growth since the late 1970s, Ningbo's rural economy has been lagging. Its agricultural output accounts for only 5.7% o f the total GDP and that share continues to fall. The per capita annual net income o f rural residents was RMB 8,847 (US$1,301), about 45% o f the per capita annual disposable income o f urban residents in 2006. The income disparity i s less than the national average, but i s s t i l l very significant. 11. Ningbo has 91 towns and 3,187 administrative villages. Compared to many other areas in China, rural development and town development in Ningbo are relatively advanced, with 85% o f administrative villages having paved road access and 3.41 m i l l i o n rural residents (about 90%) participating in rural co-op medical services. Nevertheless, rural Ningbo i s s t i l l facing development challenges like elsewhere in China. In addition to the l o w income level o f rural residents compared with their urban counterparts, Ningbo's rural population, especially those living in remote areas, are s t i l l suffering from lagging development, fewer economic opportunities, poor basic infrastructure, l o w quantity and l o w quality o f drinking water supplies, and poor public services (sanitation and basic health). These problems undermine the sustainability o f the city and cause frustrations among the young rural population who normally seek opportunities in urban areas. In addition, poor sanitation in rural areas i s a threat to drinking water sources o f the local population, both rural and urban. 12. To improve the quality o f development and to harmonize rural and urban development in Ningbo, the Ningbo Municipal Government (NMG) i s committed to implementing the NCD Program. I t has issued a series o f official documents, guidelines, and plans to guide the development. F o r example, in 2005, the city issued the Outline o f Overall Planning o f Urban and Rural Development, which laid out the objectives o f urban and rural development, prioritized activities, and completed k e y projects. The city's 1lth Five Year Plan Outline contains a full chapter o n NCD, highlighting modernization o f the agricultural sector, increase o f farmer incomes, improvement o f infrastructure and the environment, provision o f public services, and administrative and management reforms. The government i s carrying out a program titled "a hundred pilot villages and the improvement o f a thousand villages." 22 R u r a l Wastewater Management 13. China's vast rural areas, including most o f i t s villages in relatively wealthy coastal areas, are still characterized by a lack o f wastewater collection and treatment, and poor sanitation. The Chinese government would like to see more initiatives under the N C D program aimed at effectively addressing rural wastewater management. A comprehensive and w e l l planned NCD initiative should address `underground' infrastructure before i t addresses `on-the-ground' infrastructure. In areas with high population density such as Ningbo, the current lack o f wastewater collection and treatment not only affects the environment, public health, and personal hygiene o f the rural population, but also threatens drinking water sources for the entire local population. Some villages are located directly adjacent or very near to protected surface drinking water sources. Improving rural sanitation i s one o f the main tasks o f the national NCD program. Taking advantage o f i t s financial strength, the NMG i s determined to improve the situation. The NMG understands that providing effective solutions for rural wastewater management m a y require high levels o f subsidies (about RMB 6,000 - RMB 8,500 per household), but i s determined to proceed nonetheless. In doing so, it has considered the following factors: (i) the importance o f protecting surface water resources; (ii) improvements to the environment, public health and personal hygiene for the rural population; and (iii) speed o f program implementation. Wealthy cities such as Ningbo are committing financial resources to improving sanitation in nearby rural areas, and thereby protecting surface water resources; this i s a model that m a y be more widely applicable in China. 14. Villages in the project area vary widely in terms o f topography, average income level, distance from population centers, level o f development, and distance to surface water resources. For the component's purposes, three types o f villages can be identified: (i) those within surface water protection areas, often in remote, undeveloped, and mountainous areas, w i t h higher discharge standards being applicable; (ii) relatively wealthy villages outside o f water protection areas, often o n plains, in the northern part o f Ningbo Municipality, close to population centers, with better ability and willingness to pay for wastewater services; and (iii) relatively poor villages outside o f water protection areas, in the southern part o f Ningbo Municipality. Although first priority will be given to villages within the surface water protection areas, all o f these groups are targeted by the project, but will be treated differently. For Ningbo Municipality, villages within water protection areas require wastewater management services most urgently, but due to the higher applicable discharge standards and mountainous topography, the per household capital cost i s highest in these villages. These villages will receive a higher level o f capital cost subsidies. For villages outside o f the water protection areas, a more demand driven approach will be taken, and these villages will be required to make larger contributions to capital costs. 15. In the village context, `wastewater' includes human waste, water discharged from houses (kitchens, clothes washing, etc.,) to cesspits or open drains, and rain water that flows into streams and rivers, which are the main sources o f drinking water. Inappropriate `wastewater' discharges have serious public health consequences in terms o f environmental conditions, waterborne diseases, infant mortality and morbidity and the living environment. A range o f appropriate, affordable and easily maintainable wastewater discharge options are available. Village residents need to be informed and educated about the technology options, benefits, and the costs that need to be incurred to sustain services. Village residents would then be empowered to make informed choices o n the appropriate options. Behavioral changes would be required to realize the full 23 benefits o f improved sanitation. Outreach programs for hygiene education in schools and villages have proved to b e o f great value to educate people o f the health benefits, including washing hands and properly using facilities. These complementary activities will be organized by the Rural Affairs Office, and implemented by each County Government. Small Town Infrastructure Development 16. In the implementation o f the NCD Program, there i s s t i l l a lack o f prior experience o f small town development, without strategies o r examples to draw from. An emerging realization i s the need to provide sound institutional and planning reforms, as w e l l as essential basic infrastructure. The proposed project would assist Ningbo Municipality in implementing its NCD program through planning, institutional and governance strengthening, project management, and investments in selected k e y infrastructure and services, which are important to the sustainable development o f selected towns and villages. 17. In particular, the success o f the NCD Program can be facilitated through demonstration o f development prototypes for small towns. A rural t o w n (Chunhu Town) has been selected as a m a i n project site for demonstrating NCD. Located in the southeastern coastal area o f Fenghua C i t y (a county level city in Ningbo Municipality), Chunhu T o w n (with a population o f about 88,000) i s one o f two sub-centers o f Fenghua C i t y and has been one o f a few pilot towns selected by Ningbo Municipality for the NCD program. The t o w n has developed a detailed NCD development plan and the t o w n government i s committed to implementing the plan. Sustainable development featuring resource saving, energy efficiency, and eco-friendly growth would be the k e y to the successful development o f Chunhu t o w n as a model t o w n o f the nation's NCD program. A m o n g other infrastructure investments proposed in the plan, an adequate access road, a reliable water supply, and sustainable rural wastewater treatment are critical complementary requirements to support the development o f Chunhu and the surrounding area. In addition to the set o f infrastructure investments already proposed for review and selection, the NCD o f Chunhu T o w n would highlight strategic and spatial planning, institutional and governmental strengthening, and energy-efficient t o w n and village demonstration projects. M o r e details about the planning, governance and energy efficiency are provided in Annex 4 and Attachment 1 to Annex 4. Basic Statistics of Project Areas 18. The table below summarizes the basic economic statistics o f Ningbo Municipality, Fenghua C i t y and Chunhu Township in 2006. 24 (RMB billion) Agricultural output 22.2 -- 0.97 (RMB billion) Ratio of industries (a) Primary: 4.9% (a) Primary: 9.9% (b) Second: 55.0% (b) Second: 5 1.3% -- (c) Tertiary: 44.1 % (c) Tertiary: 38.8% Fiscal Revenue 56.1 1.76 0.133 (RMB billion) Per capita net income 1 (a) Urban: 19,674 (b) Rural: 8,847 1 (a) Urban: 19,191 (b) Rural: 8,371 7,35 1 25 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies CHINA: Ningbo New Countryside Development Project Latest ISR Ratings Project Development Implementation Objective Progress China - Chongqing Small Cities Infrastructure service delivery 21-Juri-05 S MS Infrastructure Improvement (Cr and rapid urban growth 47940) China - GEF GuangdongFRD MS MS Urban Environment (TF 53359) China - GEF Guangxi Integrated S S Forestry Development and policies and institutions Conservation Project (TF 57753) China - GEF Ningbo Water and Quality of water and wastewater 29-Jun-06 S S Environment Management (TF services, public health 56692) protection China - GuangdongFRD Urban Rationalization o f 8-Jun-04 MS MS Environment (Cr 47420) environmental service delivery in the regional plan China - Guangxi Highway (Cr Infrastructure services for 28-Mar-00 S S 45410) private sector development; municipal governance and institution building; rural services and infrastructure China - Guangxi Integrated Biodiversity, environmental 14-Dec-06 S S Forestry Development and policies and institutions ConservationProject (Cr 48440) ~ China - Guangxi Urban Water resource management, 6K 1-L-8 J9I S S Environment Project (Cr 43480) waterway management, pollution management and environmental health I 26 China - H a i Basin Integrated Water resource management and 15-Apr-04 3 S Water and Environment 3ollution control management (GEF) China - Hebei Urban Environmental degradationof l7-Jw-00 S Environment (Cr 45690) water and land resources, safe water supply China - Hunan Urban Flood protection, wastewater 16-Sep-04 J U Development(Cr 475 10) and air pollution China - Inland Waterways (Cr Waterway management 20-Jun-95 j: S 39106) and rural non-farm income generation China - Inland Waterways Rural services and 25-Mar-04 s MS Project I V (Cr 47280) infrastructure and water resource management China - Liuzhou Environment Wastewater treatment, solid 24-May-05 S S Management (Cr 47810) waste management China - Ningbo Water and Quality of water and wastewater 17-Mar-05 S S Environment Management (Cr services, public health 47700) protection China - Poor Rural Communities Livelihood security and rural 2 1-Jw-05 MU Mu Development (Cr 73 100) poor participation China - Rural Water I V (Cr Safe water supply, sanitation 3-Jun-99 S S 44850) and health behaviors in poor rural areas China - Sustainable Coastal Water resource management 19-May-98 S S Resources Development Project (Cr 43220) China - Tai Basin Urban Water resources degradation and 3-Aug-04 S S Environment (Cr 47480) urban environment improvement China - Tarim Basin I1 (Cr Irrigation, water resource and 9-Jun-98 HS HS 30930) land management China - Water Conservation(Cr Irrigation, water resource 19-Dec-00 HS HS 45890) management and farmer incomes 27 I I I Guangxi Naming Urban Infrastructuredevelopment NIA NIA EnvironmentalUpgrading NI A (ADB) Nanning - Langdong WWTP, Phase I(French Government) Henan Wastewater Management Infrastructuredevelopment Wastewater management and NIA N/A NIA N/A I NI A NIA and Water Supply Project (ADB) water supply for public health and urban environment Private Sector Water Supply Safe water supply to urban N/A N/A NIA Project in China (ADB) residents Guangxi Water Supply Project (JBIC) Water and Agricultural Water supply and infrastructure development Water resources management in NIA NIA NIA I N'A Management in Hebei (WAMH) agriculture Project (AUSAID) 28 Annex 3: Results Framework and Monitoring CHINA: Ningbo New Countryside Development Project Results Framework PDO Project Outcome Indicators Use of Project Outcome Information The project development KPI 0.1: Number o f households with Track progress in objective (PDO) i s to improve appropriate rural wastewater management achieving PDO and rural wastewater management in services in operation. recommend adjustments selected villages and enhance in small town infrastructure and township KPI 0.2: Fenghua - Chunhu traffic using new development and m a l management in a small town, in access road wastewater management support o f the New Countryside Development (NCD) Program in KPI 0.3: Chunhu population served from a Ningbo Municipality. reliable and higher-quality water supply KPI 0.4: Wastewater treatment rate in Chunhu Town KPI 0.5: Adoption of energy efficiency guidelines by Ningbo Municipal Government (WG) KPI 0.6: Proposal for NCD plan for upcoming 12" Five Year Plan (2011-2015) and Chunhu Town planning completed Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring 0 1: Improved rural wastewater KPI 1.1: Number o f villages with completed Track progress treatment management in project- project-financedwastewater treatment financed villages in Ningbo infrastructure 0 2: Improved road accessibility KPI 2.1: Implementationprogress of the Track progress o f Chunhu Town Fenghua-Chunhu access road (%) 0 3: Improved reliability and KPI 3.1 : Length o f water main built in Chunhu Track progress quality o f drinking water supply Town in Chunhu Town KPI 3.2: Length o f newly built and renovated water distribution network in Chunhu Town (km) 0 4: Improved wastewater KPI 4.1 : Length o f sewage main built in Track progress treatment in Chunhu Town Chunhu Town (km) KPI 4.2: Completion of the wastewater treatment plant (WWTP) in Chunhu Town 29 - E 4 3 & z o 8 M E .I 3 d : 3 L 0 3 0 Y .I 3 0 E 3" 0- hl $? i d 3 m Y I 3 3 1 2 3, 3 3 2 0 L 8 I 3 3 c? m Y 2 8 N E & 3 3 s 3 3 z 3" 3: F. L N 0 2 3 3 5 F. 0 3 0 r6 0 0 0 3 0 0 0 I 3 % zo IB LA 3 3 0 10 N 3 9 m 3 I .. 3 9 0 N 2 N 3 0 10 m N c 3 3 0 N 3 0 0 0 rcl 0 M E Definition and Computation of Key Performance Indicators I KpI I Definition 1 Computation Method and/or Formula I Project Outcome Indicators The number of households connected to rural wastewater management system in project area. The rural facility i s different from a full-scale urban sewer facility and needs to: (i) have low Number of households with appropriate capital and operating costs; (ii) technology use rural wastewater management services KPI 0.1 that i s not complex, and easily constructedby in project area rural communities; (iii) able to be managed be by local communities; (iv) involve a large number of non-sewered solutions without sophisticated treatment standards, i.e., septic tanks and their variations. Daily Fenghua - Chunhu traffic using Total annual traffic volume (in car equivalent) I KPI 0.2 new access road (in car equivalent per 365 days day) Total population in Chunhu served from a reliable and higher quality water supply, including those who do not pay water tariffs. Reliability means having a dedicated and secure Chunhu population served from a supply that i s not intermittent, and does not fail KPI 0.3 reliable and higher quality water supply during times of drought. Higher quality means that water meets the national drinking water standard after undergoing a treatment process. The annual WWT amount in Chunhu I total Wastewater treatment rate in Chunhu KPI 0.4 annual discharged wastewater amount in projeci Town (%) area Adoption of energy efficiency KF'I 0.5 Completed, under preparation, or incomplete guidelines by NMG Implementation status (i.e., completed, undei Proposal for NCD plan for upcoming preparation, or incomplete) o f the NCD plans oj KPI 0.6 12* Five Year Plan (201 1-2015) and Chunhu Town and Fenghua City Chunhu Town planning completed 33 KPI Definition Computation Method and/or Formula Intermediate Outcome Indicators Number o f villages with completed Number o f villages with completed project- K P I 1.1 project-financed wastewater treatment financed wastewater treatment infrastructure infrastructure funded by the project Implementation progress o f the access Based on implementation progress report o f the K P I 2.1 road (%) road construction (%) Length o f water main built in Chunhu Length o f water mains built according to project KPI 3.1 Town (km) progress report ~ ~~~ ~ ~ Length o f newly built and renovated Length o f newly built and renovated water KPI 3.2 water distribution network in Chunhu distribution network in Chunhu Town (km) Town (km) according to progress report Length o f sewage main built in Chunhu Kilometers o f sewage main that have been built K P I 4.1 Town (km) in Chunhu Town according to progress report Completion o f the WWTP in Chunhu K P I 4.2 Completed, under preparation, or incomplete. Town 34 Annex 4: Detailed Project Description CHINA: Ningbo New Countryside Development Project Component 1: Rural Wastewater Management (US$47.96 million) Problems to be Addressed 1. Current Sanitation Practices. Most village residents have some means to dispose o f human waste from their houses using dry latrines, cesspits (which overflow to open drains) and poorly designed `septic' tanks that do not serve their intended purpose; kitchen water (sullage) i s disposed in open drains. Septic tanks in use have many deficiencies: no bottom slab, hence pollution seeps to the ground; tanks are not emptied, hence n o waste i s retained and waste passes through to open drains; tanks have no soak pit, drain field or other means to reduce the pollution entering water bodies. Some newer well-built houses with modem facilities (e.g., kitchen sinks, showers, washing machines) have septic tanks under the floor plinth with n o means o f access at all. Additionally, current pipe laying and internal plumbing practices in villages are not up to standard, and need to be improved. The result i s that any toxic wastewater from village industries, Le., township and village enterprise (TVE) wastewater, and human wastewater i s discharged to open drains, leaks to the ground, and finally enters into rivers and streams flowing into drinking water sources like reservoirs. Another source o f pollution i s that solid waste i s not collected and disposed o f in a satisfactory manner, and so i s consequently carried to water bodies along with the rainwater runoff. Animal waste i s generally used as manure in villages for agricultural activities, and i s not addressed in this component. 2. Drinking Water Resources. Protection o f drinking water sources i s a high priority for the Municipality. The predominant sources o f drinking water in Ningbo are the large number o f reservoirs scattered throughout the municipality. The government has made considerable efforts to protect these sources, and to i t s credit, has successfully maintained the water quality in many o f the large reservoirs at Class 1 standard. With the improving living standards in villages and the use o f modem conveniences, the wastewater generated continues to increase. 3. Appropriate and Technically Effective Technologies Adopted. D u e to the size of settlements (on average 300 houses) and the spatial distribution, appropriate and low-cost technologies will be adopted in the project. The requirements are: the technology must be technically effective; trained village-level artisans must be able to maintain the systems; capital and operating costs must be l o w and affordable to villages with relatively l o w incomes. Appropriate technologies have been developed and are in operation in many small communities in other countries, which meet acceptable standards o f pollution reduction for safe disposal o f the treated wastewater. The time-tested and properly designed septic tank system -- comprising an anaerobic tank, a second reactor tank with filter media, and subsoil disposal to provide further filtration before reaching a water body -- i s a proven technology that does not pollute water sources. The project will adopt this system and other appropriate technologies for individual and community systems. 4. Level o Treatment. Treated wastewater will not be discharged to a water body; rather, i t f would be disposed in a subsoil dispersal area at least 50 m from a water body. Therefore, a `discharge standard' will not be specified. Instead, treatment levels after the second b i o reactor 35 tank will meet specified `control parameters' for BOD, COD, SS, TN, TP, NH3N and e-coli. In addition, two boreholes will be installed in selected schemes downstream o f the subsoil dispersal area to monitor leachate flows and quality. See Attachment 1 to this Annex for details. 5, Limits o Tertiary Collection Sewers. Except for individual sanitation options, wastewater f from houses would be collected into a piped network that conveys i t to the treatment facility. The sewer lines will be extended to an interception chamber near each house, to w h i c h the house owner will make the connection. When i t i s not feasible to connect to apiped sewer system or a house owner i s not willing to connect to the sewer system, individual solutions m a y b e provided. Choices o f technology options will be made by village residents to reach a consensus, based o n information o n the options, capital and operating costs, and economies o f scale. 6. Minimum Maintenance Requirements. F o r the treatment system to function effectively, minimum periodic maintenance i s necessary: the septic tank needs to be emptied once every three years for individual options and at shorter intervals for community systems; and the filter media (of the community systems) needs to be cleaned or changed at specified intervals. The responsibility to maintain and manage the community treatment systems will b e handed over to the Village Committees, and individual septic tank systems to the individual house owners. 7. Framework, Community Participation, Technical and Operations Guidelines. Three k e y documents have been prepared t o guide rural wastewater intervention, community participation, and technical requirements and best practice recommendations, including: (i) Framework for Implementation o f Rural Wastewater Management, which sets out the policy, strategy and village selection criteria and obligations; (ii) Community Participation Guidelines, w h i c h describes mechanisms for communities to participate in decision-making, asset ownership and O&M responsibility; and (iii) Operations Manual, which specifies technical requirements and best practices. Village operators will be provided training during construction o f the facilities, and for a period o f time thereafter. During project preparation, manuals were prepared for future use by Village Committees and the general public. Topics covered include: (i) standard details for septic tank systems and installation, and maintenance requirements; (ii) standard details for sewer design, pipe material and pipe laying, as well as design and spacing o f manholes; (iii) standard details for internal plumbing and toilet construction; (iv) remediation and/or abandonment options for bottomless septic tanks; and (v) procedures for organizing maintenance schedules and budgeting. 8. Project Investments and Methodology. According to a Government policy document o n rural sanitation improvement under the project, Ningbo Municipal Government will provide a capital cost grant o f U S $ 4 0 m i l l i o n (which includes US$20 m i l l i o n o f loan proceeds), and the County and District Governments will provide the necessary additional funds. The funds f r o m Counties, Districts and Village Committees are expected to be in the range o f US$15- US$20 million, which m a y include cash contributions provided by Village Committees, and a community `in kind' contribution o f land (equivalent to about 5%) provided through Village Committees. The component includes a sewer connection grant o f R M B 6 0 0 to eligible households to encourage sufficient early connections to facilitate self cleansing velocities in the pipes. The grant represents about 40% o f the average connection cost o f RMB 1,500; thus requiring an additional contribution o f about 60% o f the cost o f connections, where sewers are available. The connection grant will be financed by counterpart funds. Under agreements between each village and the County Government, the completed assets will be transferred to 36 Village Committees, w h o will be responsible for the full cost o f O&M, currently estimated to be about FWB20,OOO to RMB30,000/village/year. The Village Committees will mobilize revenues from communities to undertake O&M activities. Since the technologies adopted are simple, the maintenance requirements are also minimal, and trained operators can easily maintain the assets. The estimated O&M costs can be met by the villages without difficulty. 9. Depending o n choices made by villages, each village could have a range o f options: individual or two families sharing an improved septic tank system; and a community system with houses connected to sewer pipes conveying wastewater to the community septic tank system. 10. Detailed preparation o f proposals for each village will be done o n a rolling basis, and implementation will be done in about 30 villages per year, to cover about 150 villages in the five-year project period. Lessons learned from the implementation o f wastewater improvements in the first batch o f villages will be used to fine-tune the methodology. Each village community septic tank system will be provided with t w o monitoring boreholes, downstream o f the subsoil dispersal area, to monitor leachate flows. 11. Lessons learned from implementation o f the first batch o f villages will be evaluated to test the hypotheses, the commitment o f villages to participate, the commitment to make connections where sewers are available, the commitment to organize O&M, and the community's acceptance o f the technology options offered. 12. Further details are provided in the agreed Framework for Implementation o f Rural Wastewater Management Component in Annex 6: Implementation Arrangements, as Attachment 1. Component 2: Chunhu Town Infrastructure Development (US$78.49 million) (a) Chunhu Access Road (US$55.45 million) 13. Current Transport DeJiciencies. The connection between Chunhu and Fenghua i s separated by a mountainous area that runs north to south. D u e to a lack o f a transport corridor between the city and the township, traffic could use only t w o existing bypasses; one i s Chunhu- Abide road (X3 10) going north, and the other i s Chunhu-Lichen road (X3 15) going south. D u e to poor standards and long travel distances, both o f the existing roads end up as transportation bottlenecks, which cannot meet the increasing demand for fast transportation. The traffic volumes o f the existing roads have grown significantly in recent years. According to the traffic data o f X310, the average annual daily traffic (AADT) increased f r o m 2,844 pcu in 2001 to 7,944 pcu in 2007 with an average growth rate o f 18.67%. W i t h the projected new development in Chunhu, the average daily traffic i s predicted to reach 10,062 p c u by 2012 and 27,854 pcu by 203 1. The proposed express transport comdor will meet the demand for fast transportation to Chunhu, and also meet the connectivity requirements for Chunhu under the new countryside development program. The proposed road will provide a connection between the Fenghua railway station and Chunhu Town. 14. Project Investments.The proposed express transport comdor between Chunhu Town and Fenghua City will pass through mountainous areas. The proposed road section under the project i s one section o f the road with a length o f 6.2 km, including a tunnel o f 3.26 km. The 37 technical standard for this road i s Class I it i s designed for an average vehicle speed o f 80 km/h, : and has a total width o f 24.5 m with four lanes. The road section will connect the northwestern part o f the corridor with the roads that will eventually lead to the Ningbo, Taizhou, and Wenzhou railway stations (currently under construction). The proposed road section will also provide further access to downtown Fenghua City. 15, The road will improve access from Fenghua City to Chunhu Township and will shorten the total travel distance by 10 km. The access road i s expected to hasten the development o f Chunhu Township. (b) Fenghua Coastal Water SuppZy (US$15.73 million) 16. Water Demand Projections. The towns o f Chunhu and Song'ao l i e close to the existing Zhejiang Shipyard and a new development area called Hongsheng Haitang, which i s located in the southeastern coastal area o f Fenghua City; the towns are projected to grow quickly once the aforementioned industrial and business areas are complete. Qiucun Town i s projected to benefit significantly from the planned development zones along the bay. The current drinking water supplies o f the three towns come from local reservoirs. These reservoirs do not have much capacity and are used for irrigation; they fail during the dry seasons and water quality i s thus affected by pollution discharges. The current water requirement o f the Zhejiang Shipyard, located near Song'ao, i s met with water supplied from the adjoining Yingzhou District o f Ningbo, but i s considered inadequate for the planned expansion o f the shipyard'. However, due to jurisdictional problems, Song'ao wishes to terminate this supply by 2010, and provide water from the proposed Fenghua Coastal Water Supply Scheme. The projected total water demand o f the three towns i s 40,200 m3/dby the year 2015 and 59,730 m3/dby 2025, to be supplied through a 50.1 km long transmission pipeline. The planned Fenghua Coastal Water Supply Scheme aims to ensure the quantity, quality and reliability o f water supply to the three towns. 17. Water Resources. The water source for the scheme i s the Qiujiashan water treatment plant (capacity o f 100,000 m3/d),which w i l l be connected to an existing reservoir source; however, only 60% o f that capacity i s currently being utilized. The Fenghua Water S ply u Company i s constructing a second water treatment plant with a capacity o f 150,000 m /d to serve P the expanded areas o f Fenghua City. The company i s also reorganizing i t s transmission main arrangements: by 2025, about 60,000 m3/d shall be allocated to serve the eastern coastal towns and surrounding villages o f Chunhu including Hongsheng Haitang, Quicun, Song'ao and the Zhejiang Shipyard Extension area. 18. Phasing o Construction. A phased construction o f the Fenghua Coastal Water Supply f scheme was adopted because o f the current insufficient water demand in Qiucun and Song'ao, and because o f uncertainties about the commencement o f the Zhejiang Shipyard expansion due to the current lack o f global demand for container ships. The project will finance Phase I f the o scheme which comprises the transmission main to Chunhu Town and Hongsheng Haitang development zone. Water demand projected for Chunhu Town and Hongsheng Haitang area i s 13,300 m3/day in the year 2015 and 21,330 m3/day in the year 2025. The pipelines will be sized, however, to enable service extensions to Qiucun and Song'ao in the future, which could be as early as 2013 depending primarily on the expansion o f the Zhejiang Shipyard. ' The timing o f the expansion o f the Zhejiang Shipyard i s in doubt because o f the current economic downturn, 38 Town or Development Population Water Demand (m3/d) Zone 200617 2015 2025 2006 2015 2025 Chunhu Town* 28,000 74,400 90,200 7,000 13,300 21,330 Hongsheng Haitang n/a 20,000 - 4,000 8,000 Development Zone Quicun Town* 10,000 34,040 42,600 1,500 6,300 9,200 Song'ao Town* 15,000 24,080 30,300 3,000 4,600 9,200 Zhejiang Shipyard (incl. - 5,000 12,000 12,000 extension) Total 53,000 132,520 183,100 16,500 40,200 59,730 19. Chunhu Town Distribution Network. The Chunhu Town distribution network will be renovated, replacing all the old and sub-standard pipes (e.g. flexible plastic pipes), which currently comprise almost 40% to 60% of the system. Replacement o f the sub-standardpipes i s expected to reduce system losses to about 15%. 20. Project Investments. Phase I investments to be financed under the project include: (i) a 15.8 km long transmissionpipeline (to supplement the 7.6 km o f transmission pipeline under construction) to supply water from the Qiujiashan Water Supply Works to Chunhu town and Hongsheng Haitang, with ductile iron pipes o f 300 mm to 1,200 mm in diameter, a steel pipe o f 0.3 km, a booster pump station and a pipe laid in a tunnel o f about 5 km; and (ii) renovation and expansion of the Chunhu Town water distribution network, which i s comprised o f 12.9 km o f distribution pipelines including 1.58 km o f 200 mm dia high density polyethylene pipes and 11.3 km o f ductile iron pipes o f 250 mm, 300 mm, 350 mm, and 400 mm in diameter. (c) Chunhu Wastewater Management (US$7.3 1 million) 21. Waste Facilities in Chunhu Town. Chunhu Town has no wastewater collection or treatment facilities at present. The population o f Chunhu Town i s projected to grow in conjunction with the development o f i t s proposednew development area (Hongsheng Haitang). The projected wastewater generation in Chunhu Town i s 10,000 m3/d by 2015 and 25,000 m3/d by 2025. 22. Project Investments. The project will finance: (i)wastewater collection network, 19 a km in length; and (ii) wastewater treatment plant with a capacity o f 10,000 m3/d. a Component 3: Capacity Building and Implementation Support (US$ 1.96 million) 23. Capacity Building and Implementation Support for Rural Wastewater Management (US$0.71 million): (i) Consulting services for project management and implementation support (US$0.406 million) will be provided to PMOSin the Ningbo Municipality RAO and each project CountyLIistrict, comprising design review (US$O. 12 million), bid document review (US$0.03 million) and project supervision and reporting 39 (US$0.256 million). PIUs will also be provided with consulting services for the implementation o f the rural wastewater management program; (ii) Village-level education and awareness raising (US$O. 10 million) to help empower villages w i t h decision-making abilities, consider options including participation in the program, technology choice, benefits and responsibilities o f asset ownership, routine operation and maintenance functions, i.e. revenue mobilization, hygiene education, and care in the use o f the facilities installed; (iii) Training and study tours (domestic and foreign, US$O. 125 million); and (iv) Miscellaneous equipment (US$O.OS million) comprising hardware, office equipment, vehicle, digital camera, etc. See Attachment 1 to this Annex, for more details. 24. Chunhu Township Management Enhancement, Capacity Building, and Energy- Efflciency Demonstration (US$0.60 million): (i) Business Promotion Activities (US$O. 15 million) including business promotion strategy, web page and brochure development, skills training, and marketing activities; (ii) Town Governance Enhancement (US$0.20 million) including e-government system installed and updated, improvement o f government reporting and information disclosure procedure, support for activities promoting public awareness and participation in planning and decision making, and enhancement o f official performance evaluation; and (iii)Promotion ofEnergy-eficiknt Township (US$0.25 million), supported by ESMAP. I t will consist o f the development o f energy efficient building designs and renovation guidelines, a demonstration rural collective housing project, as w e l l as development o f sustainable energy action guidance and pilots (see Attachment 1 to this Annex for more details). 25. Support forpreparation o the 12thFive-Year-Plan on NCD in Fenghua City (US$ 0.35 f million): (i) 12th Five Year Plan on NCD in Fenghua City - specialist support to Fenghua the DRC to study and draft the 12th Five Year Plan (201 1-2015) for N C D o f Fenghua City, to prioritize various institutional strengthening and investment activities, and to guide Fenghua City's N C D in 201 1-15; (ii)Chunhu Town NCD Strategy and Township Master Plan - update o f Chunhu township NCD strategy and completion o f the township master plan; (iii) village-level NCDplanning - spatial and sectoral development plans and detailed design o f t w o selected k e y villages in Chunhu Town. 26. Capacity Building and Implementation Support to FCIC and Dissemination o f Fenghua TA Outputs (US$0.30 million): (i) project management support; (ii)development o f business plan, risk and liability management, and financing models; and (iii) dissemination o f the outputs o f TA activities in Fenghua and Chunhu, including dissemination materials and workshops. 40 Attachment 1 to Annex 4 Promotion of Energy efficient Township The design and implementation o f this subcomponent are supported by ESMAP. The "Energy- efficient Township" subcomponent will include a package o f demonstration and technical assistance (TA) activities designed to enhance Chunhu's ability to actively pursue energy efficiency improvements in i t s built environment, as w e l l as other sustainable energy actions in public, commercial and residential sectors, as described below. Demonstration .for enerm-efficient environment (estimated incremental cost for e n e r m efficiencv measure: US$80,000). Dongxie Village collective housing project includes implementation o f energy-efficient building designs and construction in line w i t h the current requirements for n e w residential buildings in Ningbo Municipality, as w e l l as integration o f individual household solar water heating systems into building design and construction (Le., pre-installed internal piping system). The demonstration will be applied to the second phase o f the construction expected in 2010 or 201 1. The total demonstration floor area will be about 10,000 m2for four apartment buildings, according to the current construction plan for the second phase. The total floor area o f the buildings where energy efficiency improvements will be carried out i s 6,000 m2.The disbursement will be based o n a rate per m2covered. The disbursement will be RMB 90/m2 with a total allocation o f US$80,000 based o n agreed approval procedures. The work will be implemented by the developer o f the housing project, which i s owned by farmers o f the village collective. The incremental costs for additional energy-efficient equipment and works will be financed with the village's counterpart hnds. Technical Assistance Activities fUS$170,000). Technical assistance (TA) for energy efficiency demonstration to be financed w i t h loan proceeds includes: (i)development o f energy efficient building designhenovation guidelines, and model construction drawings for small town and rural housing construction projects (including design and construction elements for solar water heating), to be carried out under the guidance and support o f the Ningbo Construction Commission (Department o f Science and Technology); (ii) assistance to the Dongxie Village demonstration project, including advice o n energy efficient building and site designs, guidance on construction supervision related to implementation o f energy efficient designs, and evaluation o f compliance; (iii)preparation o f Chunhu T o w n "Sustainable Energy Action Guidance", including concrete recommendations for short-to-mid-term energy efficiency investment opportunities and actions in public buildings/facilities, commercial entities, and households (based o n simple energy audits), energy efficiency awareness and education programs, as w e l l as long-term pursuits related to township development planning; and (iv) support to the "green school" pursuit o f Chunhu Middle School w i t h the objective o f establishing a replicable model for other schools in the region, including helping the school define goals and targets, establish management and response procedures, and identify action items (based o n simple audits o f energy and water consumptions and other green elements). 41 Annex 5: Project Costs CHINA: Ningbo New Countryside Development Project (US$ million) Project Cost By Component :IBRD !Counterpart ' I /Loan IFunds Total Component 1: Rural Wastewater Management 119.24 i28.72 147.96 1 Rural Wastewater Treatment in about 150 villages 119.24 128.72 147.96 I I ~ 1 Component 2: Chunhu Town Infrastructure 128.67 '49.82 Development :78.49 ~ I -(a) Chunhu Access Road '20.23 j35.22 155.45 (b) Fenghua Coastal Water Supply: (i) Pipeline (US$ 12.60 m); (ii) Transmission Chunhu Town Distribution p I i ! ~ Network Renovation and Expansion (US$3.13 m) (c) Chunhu Wastewater Management 12.70 j4.61 17.3 I --. - --- ---. --.I - I ! ir-------- ~ Component 3: Capacity Building and Implementation il.96 11.96 joooo 1 Support I 1 roo '-.------------_--_I_ _-__ !__- (a) Rural wastewater management component capacity j 0.71 10.71- 1 building and implementation support (US$ 0.71 million) ~ (b) Chunhu Town capacity building and energy efficiency i0.60 I/O.OO 10.60 ! demonstration (US$ 0.60 million) I I I (c) 12th 5-Year Plan preparation support to Fenghua 10.35 iO.00 10.35 Development Reform Commission (US$ 0.35 million) i I 1 (d) Project Management and Business Development '0.30 /O.OO 10.30 Support for FCIC _ ~ ~ - . (US$0.30 million). ___ i , , L I- i - - - ~ _ _ _ _ I--__ r------------ ~ Total Baseline Cost !49.87 :78.54 1128.4 Physical Contingencies ~ 0.00 111.74 111.74 Price Contingencies --_- ________ _-_________- IO.00 j 2.04 12.04 Total Project Costs I--- ---- i49.87 192.32 1 21 14. Interest During Construction I 0.00 /14.77 114.77 Front-end Fee __-.______-_ ,0.13 10.00 10.13 1 Total Financing Required i50.00 1107.09 1157.0' 42 Annex 6: Implementation Arrangements CHINA: Ningbo New Countryside Development Project 1. The Ningbo Municipal Development and Reform Commission has been designated as the project execution agency. Key institutional and implementation arrangements for the project are summarized in the following paragraphs. 2. Project Leading Groups. Project Leading Groups (PLGs) have been established at the municipal and city/county levels to provide policy guidance and direction for project components under their jurisdiction. The Municipal PLG, headed by the Vice Mayor o f Ningbo Municipality, has provided overall guidance and direction for the preparation and implementation o f the project to various agencies o f the Ningbo Municipal Government (NMG). Specifically, i t s m a i n mobilization o f financial, technical and institutional resources; (ii) responsibilities inc1,ude: (i) coordination and resolution o f k e y project issues across government agencies; and (iii) review n and approval o f project planning, implementation, and management schemes. I Fenghua City, a PLG has also been formally established with similar structural arrangements and responsibilities as the Municipal PLG, to provide necessary guidance o n the Chunhu T o w n Infrastructure Development component. For the Rural Wastewater Management component, the existing PLGs for the ongoing N e w Socialist Countryside Development Program will provide direction and guidance to the participating counties/cities for preparation and implementation o f the component. 3. Project Management Offices. Project Management Offices (PMOS) have been established at the municipal and city/county levels to manage and coordinate the implementation o f their respective project components. The existing Ningbo Municipality Water Environment Project Management Office (NMPMO), which has been responsible for the preparation and implementation o f the ongoing Bank supported Ningbo Water Environment Project and Ningbo GEF Water Environment Project, has been formally designated to coordinate the preparation and implementation o f the proposed project. The NMPMO will be in charge o f developing annual w o r k plans, preparing consolidated project progress and financial reports for Bank review, and monitoring overall implementation progress and project impacts. 4. For the implementation o f the rural wastewater treatment component, the Ningbo Rural Wastewater Treatment Project Management Office (NRWTPMO) will be established in the Municipality Rural Affairs Office (RAO). Other Project Implementing Units (Plus) will be established in each participating CountyDistrict. The PIUs will be in charge o f guiding and managing the preparation and implementation o f proj ect subcomponents under their jurisdiction, through the Village Committees, and coordinating day-to-day activities with the NRWTPMO. The NRWTPMO will review and approve the villages selected for intervention by the PIUS,and ensure that PIUs conform to the agreed Framework for Implementation o f Rural Wastewater Management, Community Participation Guidelines and the Operations Manual. 5. The Framework for Implementation o f the Rural Wastewater Management component i s provided as Attachment 1 to this Annex. 43 The Chunhu Town Infrastructure Development Implementation 6. Fenghua City Investment Company, Ltd. (FCIC) will be the P I U for all the infrastructure components except for the rural wastewater component, i.e., Chunhu-Fenghua access road, Fenghua Coastal Water Supply and Chunhu T o w n Wastewater. 7. FCIC was established in March 2007 under the Company L a w o f China, w i t h a charter and business license, and a registered capital o f RMB 500 million. I t s business plan includes project investment, real estate development and equipment leasing. FCIC incorporates thirteen, independent investment companies o f Fenghua City, including the road investment company, education investment company, and tourism investment and management company, etc. 8. F o r the Chunhu T o w n Infrastructure Development Component FCIC will function as the construction agent and asset manager for Fenghua City Government (FCG). F C I C i s authorized to mobilize funds f r o m a variety o f sources to construct the infrastructure, and i s also authorized to manage the assets for FCG. Assets will remain in FCIC's ownership for a period o f 3 0 years. Residual assets may be transferred to the sector agencies at the end o f this period. 9. Rationalefor involving FCIC. F C I C was formed in 2007, to facilitate the financing o f infrastructure development. According to the Budget Law, local governments cannot issue government bonds. Therefore, establishing investment companies to borrow money f r o m commercial banks has become a popular practice for local governments to mobilize money to support local development. Before the establishment o f FCIC, there were 13 investment companies in Fenghua City. T o improve the management o f these investment companies, F C I C was formed by F C G and has been gradually consolidating the 13 investment companies. 10. Sources o f funds for F C I C for the project are: U S $ 30 m i l l i o n as Fenghua City's equity; US$30 m i l l i o n from W o r l d Bank loan proceeds, under a subsidiary loan agreement; and US$40 m i l l i o n loans from development bank a n d o r commercial banks. FCIC will receive regular payments from Fenghua City for the asset management services, constituting the revenue stream that will enable FCIC to meet its debt service obligations. 11, FCIC has set up three departments dedicated to the planning and construction o f the three infrastructure components by drawing specialists f r o m other entities. Some o f the investment companies have considerable experience in project management and operations, especially in the road sector. F C I C will utilize services o f design institutes and local o r international consultants to prepare detailed designs, cost estimates, bills o f quantities and technical specifications. Another objective i s to expand the business scope o f F C I C and build i t s capacity to access long term funds. Towards this end, the project will provide technical assistance (TA) o n business model development, asset and liability risk management, financial instruments, in addition to project management support for construction activities. 12. The asset management agreement, and the subsidiary loan agreement for on-lending W o r l d Bank loan proceeds to FCIC, must be deemed satisfactory by the Bank. 13. Implementation Support and Training. Project implementation support will be provided to the Sub-PMO through the Capacity Building, Project Management and Implementation Support component to ensure smooth management and coordination o f the Rural Wastewater 44 Management component. Similar support will be provided to PMOSand PIUs for project monitoring, evaluation, and reporting through the same component during the implementation phase. In addition, training will be provided to PMO and PIU staff. The N M P M O will be responsible for managing all training activities, including planning, development, and budgeting, which will be described in detail in annual work programs. 14. Bank Implementation and Supervision Strategy for Rural Wastewater Management. The component will be implementedo n a program-based approach. I t i s envisaged that about 30 villages would implement rural wastewater treatment schemes during each year o f the five-year implementation period. For each village, this could involve (i) construction o f one centralized treatment facility per village, w i t h a network connecting households that have opted for this option; and (ii)number o f individual improved septic tanks or other options for those who have a opted for individual facilities. The latter i s simple to construct using standard design drawings, and could be undertaken by village masons with a little training. The centralized system, generally serving about 200 to 300 houses, will require closer attention to design and construct, especially the house connection arrangements, the sewer network to appropriate gradients and the treatment plant. During project preparation , the treatment plant has been more or less standardized with different modules for villages o f different sizes, and this will be adapted with some modifications to suit site conditions. 15. Bank supervision plan comprises reviewing and providing no objection to the annual program submitted by NRWTPMO, as w e l l as performing periodic supervision, which will be camed out by the Beijing Office task team members, with support from a domestic expert. The Bank will review and provide n o objection for about 30 to 40 rural wastewater investment proposals about twice a year o n a rolling basis. In addition to the two regular supervision missions per year, about two to three additional missions would be planned to review construction in the field. In order to provide adequate supervision o f the component, a local expert would be mobilized to assist the task team. Annual inputs for appraisal and supervision are estimated to be one person-month o f Bank staff, and t w o months o f a domestic expert. 45 Attachment 1 to Annex 6 Framework for Implementation of the Rural Wastewater Management Component 1. Objective o f the Component The objective o f the component i s to support the local government as i t improves rural sanitation and protects surface drinking water resources of Ningbo Municipality. These goals are to b e accomplished by providing wastewater collection and treatment facilities in rural communities, and by using technologies that are appropriate, low-cost, and easily maintainable by rural artisans, The following sections outline the strategy and framework for the implementation o f a practical and technically feasible approach to meet the aforementioned objective. The methodology, approach, treatment levels, and control parameters, have been agreed to by the Ningbo Environmental Protection Bureau (EPB), and have been confirmed by the Ningbo Municipality 2. General Principles i) Cultural Property Protection. The selection o f villages and locations for infrastructure will be planned in such a manner that sites with cultural properties will be avoided, and every effort shall b e made to protect cultural properties. ii) Financing Arrangement. Financing o f the program will be shared between the Municipal Government, County Governments and villages. The NMG will provide a capital cost subsidy o f 50% (from Bank loan proceeds); County Governments will provide 50% o f the capital cost as counterpart funds from their revenues; villages will also make contributions. Based o n recommendations after implementing the first batch o f 16 villages, a village level contribution o f 10-20% o f capital costs i s anticipated, in the form o f cash and/or collective land, o r a combination o f these. Specific arrangements will depend in large part o n whether the village i s w i t h i n a surface water protection area, and whether the village i s in a relatively developed rural county or a relatively poor rural county. Village communities, who will assume ownership o f the assets created, will finance all the costs o f operations and maintenance (O&M) o f the facilities. iii)Consultations and Participation. The Village Township Governments and beneficiaries are stakeholders in the development and implementation o f the rural wastewater program. The project will include provisions to inform and educate the communities o n the benefits and responsibilities o f ownership, requirements o f minimum maintenance, ways to organize O&M functions, and methods to raise necessary revenues for essential routine maintenance requirements, as described in the Community Participation Guidelines. This awareness raising will b e carried out by facilitators provided under the project. M o r e details are provided in Annex 10, under `Social Assessment'. iv) Program-Based Approach. A program-based approach will b e used for the component because: (a) the exact number and the details o f villages that will take part in the rural wastewater program are unknown at this stage; (b) the selection o f villages will b e carried out using the selection criteria set out in the framework; (c) proposals have to be prepared to 46 suit each village due to i t s unique features, topography, land form, existing sanitation arrangements, etc. The Government will initially implement rural wastewater in a small number o f villages to gain experience. v) Learning-by-Doing Pilot. The first 16 villages will be prepared, appraised and implemented as soon as possible, and will serve as a demonstration and learning experience. Based o n the lessons learned, the implementation methodology will be refined for the remaining villages. vi) Village Selection Criteria. Participating villages will be selected based o n their ability to meet the selection criteria established for the project. Generally, each household will be eligible to connect to the communal septic tank system, or an efficient individual septic tank system. vii) Choice o Options. Following a consultation process, villages will select the option among f the feasible technical options proposed by the technical specialists, following the guidelines and other criteria. A representative village organization comprising the Village Committee and representatives o f farmers, entrepreneurs, women, men, village elders, etc., will be formed for this process. Participatory decisions will be subject to limitations o f maximum cost criteria, costs per capita, technical feasibility, treatment method, soil conditions, topography, land form and land availability, etc. viii) Incentive for Connections to the Sewer Network. In order to assure connections to the piped sewer system, the project has a provisional grant o f RMB 600 per household to make up for the cost o f connecting to the sewer system, payable after the completion o f the connection. The cost o f connections could vary widely depending o n the restoration work required within the houses, for finishes and new pipe-laying. The average cost o f a connection i s about RMB 1500, and households are expected to contribute about 70% o f this cost. In principle, households' connection m a y be done by individual households, households' contracted contractors, or an outside contractor selected collectively by villagers. The connection grant will be financed w i t h counterpart funds. ix) Education, Information Dissemination and Assistance. Program implementation will be facilitated through the provision of: an education program to alter behavioral patterns w i t h respect to locations o f septic tanks @e., not placing them under houses), disposal o f solid wastes and grease, maintenance o f facilities and frequency o f septic tank emptying; the preparation team to i n f o r m and explain the options including their requirements for O&M; and technical specialists to assist house owners w i t h unsafe or unworkable septic tanks, in developing technical solutions for remediation. 3. Village Selection Criteria Villages must meet the following criteria to be eligible for selection to participate in the program: 47 Generally, the NMG will give first priority to villages that are in the drinking water resource protection areas. A t least 80% o f all households must agree to participate in the rural wastewater program to be eligible for project intervention. In order for the project to plan and construct a piped sewage network and treatment system in a village, at least 80% o f the consenting households within the coverage area must opt for such a system. Households must undertake any cost o f collateral repair, construction or modifications inside houses. The Village Committee must resolve to take over ownership o f the communal assets created. The Village Committee must agree to undertake the responsibility o f planning and managing the O&M o f the communal assets created after handover. This includes mobilizing human resources for maintenance, and managing revenues to meet O&M expenses. Where an individual treatment system i s to be installed, the asset ownership and maintenance responsibility will rest with the homeowner. The Village Committee must agree to arrange t o empty the sludge from the communal septic tank at least once or twice a year depending o n the size o f the septic tank. The above agreements must be submitted in a f o r m satisfactory to the NRWTPMO (e.g., as a Village Committee resolution) prior to commencement o f any construction. 4. Approach a n d Methodology i) Each village i s unique and different with respect to the suitable arrangements for wastewater collection and treatment. Thus, scheme preparation requires detailed study o f each village (Le., village land form, topography, land availability for individual facilities, soil conditions, house layout patterns) to develop effective, equitable and workable wastewater treatment arrangements. ii) It i s not possible to prepare feasibility studies (FSs) for a l l villages before project appraisal. A rolling program o preparation and implementation program will be f adopted. The first batch o f about 16 villages will be prepared for implementation following the specified procedures. For purposes o f project appraisal and development o f cost estimates, FSs and preliminary designs will be prepared for these 16 selected villages, along with the program and safeguard frameworks and procurement plan. By the time o f appraisal, the types o f solutions, technical specifications, cost estimates, financing plans, implementation methodologies, and resources required for O&M will be developed for the first batch. These results will be extrapolated to all villages, to complete project appraisal. Under this rolling program, implementation in the selected villages will continue until the component allocation ( o f U S $ 4 0 million) i s exhausted o r until project closure. iii) Following the implementation o f the first batch villages, the lessons learned and experience gained from the implementation will be used to refine the process for subsequent batches. 48 iv) In view o f the complexity and time-consuming nature o f the process, implementation o f the program will be phased over a five year period. VI During implementation, for each village, the following preparatory activities will be carried out: 0 a social survey, which records existing wastewater disposal facilities, water use and disposal habits o f each household, methods for disposal o f human waste, kitchen and sanitary wastewater, willingness to participate in the wastewater treatment program, and residents' ability to contribute the additional funds required for in-house construction or remedial work; 0 technical investigations, concerning topography, soil conditions, and possible sites for facilities; e feasible technical solutions, comprised o f capital and O&M cost estimates for wastewater treatment, including preliminary capital and recurrent cost estimates, and details o f operating procedures 0 detailed designs, to be prepared after consensus i s reached w i t h each village; and 0 bidding documents, including technical specifications and bill o f quantities prepared. 5. Design Criteria for Rural Wastewater Treatment Wastewater Design Flow.-The rural per capita water demands to be adopted are 60 lpcd for 2015 and 80 lpcd for 2025. N o exceptions will be made unless i t can be demonstrated with actual surveys that more than 50% o f the houses have modern facilities such as showers, washing machines and kitchen sinks. The wastewater generation rate i s taken as 80% o f water used. An additional 20% increase o f total water consumption and 10% infiltration rate will be adopted as safety margins to accommodate seasonal visitors/tourists and infiltration. Influent Characteristics. Designed influent characteristics o n average are: COD: 250 - 300 mg/l; BOD: 120 - 150 mg/l; TSS: 150 mg/l; TN: 30 - 40 mg/l; N H 3 N : 25 - 30 mg/l; TP: 5 mg/l. Control Parametersfor Wastewater Treatment. The `control parameters' before sub-soil dispersal - adopted in the village-centralized rural wastewater treatment facilities located in water resource protection zones and confirmed by the Ningbo E P B - are: COD: 100 mg/l; BOD: 30 mg/l; TSS: 30mg/l; TN: 25 mg/l. The final ground water quality at a point S m from the drain O field boundary i s controlled by either the base value o f groundwater or Groundwater Quality 1, Standard (GB14848-93) Class 1 1 whichever i s higher. For villages not located in the water resource protection zones, the discharge standard o f village- centralized sewage systems will follow the requirements o f "General Wastewater Discharge Standard" (GB8978 - 1996) Clause 4.1.1 and Clause 4.1.2 in line w i t h the receiving surface water body if the treated effluent i s discharged to the surface water body. I f the land disposal i s adopted, the control parameters confirmed by Ningbo EPB are: BOD - 30 mg/l; TSS - 30mg/l; TN - 25 mg/l. Treated Water Quality Monitoring Program. Monitoring the quality o f wastewater treated under the proposed technologies i s an essential part o f the program. In order to satisfy the concerns 49 about their efficiency, and to assess potential contamination o f surface water sources, at least two monitoring wells will be installed in each scheme to sample and test effluent leachate flows after subsoil dispersal. The construction o f the two bore wells will be included in the c i v i l works contracts. 6. Technology Options Generally, the following technology solutions appropriate for prevailing conditions in the villages will be used in the project. Other suitable technology might be used upon clearance from the Bank. In each village, either one or both o f the technology options may be applied. More details are provided in the Operations Manual. Technology Option One: Piped Sewer System. The first technology solution i s applicable for situations o f relatively higher water use (i.e., water closets with flush toilets, showers, washing machines, kitchens with running water), where wastewater i s collected for central treatment or for individual or clusters o f houses. The technology generally comprises a three stage treatment process: A first stage anaerobic tank; A second stage aerobic tank for biological reaction (using medidfiltration) or constructed wetlands; and Final dispersal to sub-soils at a point at least 50 meters away from a water body or drinking water wells. The above technology has been widely applied in developed countries. Technology Option Two: Septic Tank System. The second technology i s applicable to situations difficult topography not amenable or expensive to lay sewers; and (ii) o f (i) limited space that prevents construction o f septic tanks. Families w i l l have the right to select the individual septic tank option, and choose not to connect to a piped collection network 7. Technical Specifications Technical specifications and standard drawings w i l l be finalized before invitation o f bids. Technical specifications will include, at least, the following: Pipe material type, diameter and grade, i.e., wall thickness, for (i) internal plumbing; (ii) waste pipe from house to inspection chamber; (iii) inspection chamber to manhole; and (iv) manhole to treatment plant (dependent on flow); Indoor and outdoor plumbing details for wastewater discharge; Pipe laying details, e.g., bed and surround, earth cover, cleanout provision, minimum and maximum slopes, effect o f sunlight, etc. (as far as possible, pipes must be buried outside the house, pipe material must be rigid, and have a l i f e o f at least 20 years); Design o f inspection chamber, e.g., location, benching details, construction materials, load rating for cover, etc.; 50 Manhole design, e.g., minimum and maximum spacing, access provision, space requirements for man-entry, benching, load rating o f cover, etc. (provision for settling solids not required); Design criteria for anaerobic settling tank, e.g., capacity, retention time, construction materials, access for de-sludging, load rating o f covers, etc.; Design criteria and features for the biological reactor tank, retention time, access for maintenance and cleaning o f media, etc.; Design o f constructed wetlands, e.g., thickness o f filtering media, loading rate, etc.; Design features o f soil dispersal, e.g., loading rate, ground permeability, etc.; and Design details for the twin pit pour flush toilet, including variations for situations o f high water table 8. Procurement Plan (i) Procurement Methods: The following procurement methods will be adopted for the rural wastewater component: National Competitive Bidding (NCB) Shopping (ii) Packaging of Bids. In order to attract competent contractors, bids f r o m each county will be packaged to f o r m larger contracts as much as possible. 9. Financing Plan Financing o f the program will be shared between the Municipal Government and County Governments and Village Committees. The NMG will provide a capital costs subsidy o f 50% (from Bank loan proceeds), and county governments will provide 50% o f the capital cost as counterpart funds from their revenues, which includes the contribution f r o m villages. Village communities, who will assume ownership o f the assets created, will finance all the costs o f operation and maintenance o f the facilities. 10. Implementation Arrangement The implementing agency will be the County Governments, who will prepare schemes, invite bids, award contracts and supervise the works. County Governments will form PIUs w i t h adequate technical, financial and procurement personnel. Active engagement and participation o f townships, villages, and even villagers would be ensured, to foster a clear sense o f ownership. 11. Operation and Maintenance of Rural Wastewater Systems The Village Committee will o w n the assets created, except for individual treatment systems, organize Operations and Maintenance (O&M), and provide necessary budgets from village revenues. Village Committees will also be responsible to mobilize any additional funds to meet the O&M expenditures. The requirements will be described in an agreement to be signed between each village and the County Government or RAO. 51 12. Monitoring and Evaluation Program The monitoring and evaluation program (MEP) will be done early in project implementation to evaluate, among other things, the following key issues: (i) regularity o f government fund the allocations for rural wastewater investments; (ii) options for capital cost reductions through reconfiguration o f the menu o f options offered; (iii) feasibility o f including cost sharing by the beneficiaries as a village selection criteria for some options; (iv) the rate o f connections to sewers; (v) feasibility o f limiting or eliminating the sewer connection grant; (vi) Village Committee performance in implementing commitments to undertake O&M; (vii) the quality o f O & M performance; (viii) beneficiary priority for sanitation improvements; and (ix) beneficiary perceptions o f environmental and health benefits. Objective of the MEP The objective o f the MEP o f the rural wastewater component i s to evaluate the implementation o f the first batch o f 16 villages to: (i) learn and test the hypotheses and assumptions, as well as implementation experience; (ii) assess the prospects for sustainability and replicability o f the current design; and (iii) refine the component design prior to further implementation. The MEP objective w i l l be achieved through: (i) evaluation o f appropriateness o f the technology options offered, best practice, prospects for replicability o f the program, appropriate level o f capital cost subsidies consistent with government policy and affordability o f villagers, villages' performance in O&M and community participation, and perceived benefits o f sanitation; and (ii) development o f recommendations for refining the design o f the component for subsequent villages, based on lessons learned. Scope o f Monitoring and Evaluation Program The scope o f the MEP would include: (1) Review and assess onsite wastewater treatment options applied in the 16 villages with respect to their suitability, efficiency, cost effectiveness, satisfaction and acceptance o f technology options by villagers, community willingness, as well as capacity and affordability o f villages to undertake and organize O&M. (2) Evaluate capital cost o f each option offered, the average per village and average per capita cost, the capital cost variation related to the configuration o f options offered, and the procurement method(s) adopted. (3), Assess the feasibility o f requiring a capital cost contribution for the piped sewer option in the remaining villages, through meetings and discussions with a representative sample o f Village Committees and beneficiaries. (4) Evaluate the rate o f connections to sewers, and the reasons for slow connections, e.g., whether the rate o f connections i s related to cost, physical constraints such as soil conditions or difficulty o f modifying bottomless septic tanks, lack o f adequate plumbing skills, or lack o f appreciation o f potential health benefits. 52 (5) Evaluate the Village Committee's commitment, skills and methods adopted for organizing O&M, and cost breakdowns o f alternative O&M arrangements. (6) Review the effluent discharge standards adopted and environmental capacity, and their appropriateness. (7) Evaluate improvement in environmental conditions in villages, as a result o f the wastewater investments, whether villagers attach priority to sanitation improvements; and assess the degree to which health and environmental benefits o f improved sanitation justify the continuation o f a high level o f capital cost subsidies for the component adopted in the first batch o f 16 villages. (8) Assess (i) villagers' awareness and priority o f health and hygiene benefits o f sanitation; the (ii)willingness, commitment and effectiveness o f villagers' participation in the program; (iii) villagers perceptions about asset ownership, initial consultations, importance given to the agreement between Village and Government; (iv) Village Committee's commitment to mobilize funds and undertake O&M responsibilities. Deliverables and Timeframe The MEP deliverables will include recommendations and guidelines o n the following topics, provided in a timely manner to guide project implementation in other villages: (1) Cost analysis o f m a i n technologies applied, namely, septic tank system for individual houses, and piped system for village central residence area (including treatment process, wetlands, and land dispersal); guidelines to reduce unit costs; and recommendations for unit cost limits for each option offered. (2) Appropriate level o f capital cost subsidies that can be justified o n the basis o f sustainability, replicability, health benefits, cost effectiveness, incentives, and recommendations for a range o f cost-sharing options. (3) Guidelines for alternative configurations o f options that would lower capital costs, and feasibility o f requiring capital cost contributions for the piped sewer option or all options, consistent w i t h affordability o f the village and beneficiaries. (4) Recommendations o n measures to promote the public awareness raising campaign to publicize benefits o f sanitation and hygiene, inputs to enhance TA to help residents undertake internal modifications and improve plumbing practices, and conditions or locations under which the connection grant could be deleted to reduce the capital cost subsidy. (5) Appropriate O&M arrangements for sustainable O&M, Le., additional TA including ' providing additional community facilitators and/or contacts w i t h private professional O&M companies. (6) Technical application criteria for different site conditions, i.e., (i) selection o f the best applicable treatment process and discharge method based o n cost, footprint, effluent standards, topographic conditions, availability o f skilled workers, and O&M costs; (ii) appropriate changes to village selection criteria; (iii) justification to adopt different discharge standards based o n 53 village locations relative to protection zones and receiving water bodies, and the potential to reduce capital costs. (7) Recommendations for modification o f the component design to a demand-driven approach, through educating villagers about the health and hygiene benefits o f improved sanitation, developing a sense o f ownership, and sharing capital costs for the most popular option. (8) Recommendations o f key factors that would assure a replicable and sustainable rural wastewater management program, based on the overall evaluation and lessons learnt. Duration o f MEP The evaluation and outputs should be completed within 12 months after commencing implementation o f the first batch o f 16 villages. Implementation Arrangements The MEP will be undertaken by experienced consultants under the close supervision o f Bank staff. 54 Annex 7: Financial Management and Disbursement Arrangements CHINA: Ningbo New Countryside Development Project Executive Summary 1. The Financial Management (FM) team has conducted an assessment o f the adequacy o f the project FM system o f the Ningbo N e w Countryside Development Project. The assessment, based o n guidelines issued by the FM Sector Board o n November 3,2005, has concluded that the project meets minimum Bank FM requirements, as stipulated in OP/BP 10.02. In the FM team's opinion, the project will maintain adequate FM arrangements acceptable to the Bank and, as part o f the overall arrangements that the Borrower has in place for implementing the operation, will provide reasonable assurance that the proceeds o f the loan shall be used for the purposes for which the loan i s granted. FM risk i s defined as the risk that project funds will not be used for the purposes intended and i s a combination o f country, sector and project specific risk factors. Taking into account the risk mitigation measures proposed under the project, a "Moderate" FM risk rating was assigned to the project at the appraisal stage. 2. Funding sources for the project include Bank loan and counterpart funds. The Bank loan proceeds will flow from the Bank to a project designated account (DA) to be set up and maintained by Ningbo Municipal Finance Bureau (NMFB). F o r the Rural Wastewater Management component, the funds will flow from NMFB to Ningbo Rural Wastewater Treatment Project Management Office (NRWTPMO), then to i t s affiliated PIUs at city/county level. For the Chunhu T o w n Infrastructure Development component, funds will f l o w from NMFB to Fenghua C i t y Investment Company Ltd. (FCIC), through the Fenghua City Finance Bureau. The Bank loan agreement will be signed between the Bank and the People's Republic o f China through i t s Ministry o f Finance (MOF), and the on-lending agreement will be signed between MOF and the Ningbo Municipal Government (NMG) through i t s NMFB. NMFB will subsequently lend to F C I C through the Fenghua City Finance Bureau. Counterpart funds are comprised o f local government appropriations and domestic loans. 3. N o outstanding audits or audit issues exist with any o f the above implementing agencies involved in the proposed project. However, due to lack o f experience o f sub-project Management Offices (PMOS),the task team will continue to be attentive to FM matters during project supervision. Country Issues 4. T o date, n o Country Financial Accountability Assessment has been carried out by the Bank for China. The Bank's knowledge o f the system i s however fairly comprehensive, based o n several studies carried out by the Government and othersa2Based o n the studies and materials produced by others, the Bank's observation o f developments in the areas o f public expenditures, Financial Management and Governance Issues in China (ADB 2000) Public Sector Management Issues in China (Christine Wong 2005) Government Budgeting and Accounting Reforms in China (Lou Jiwei 2001) OECD (Organization for Economic Cooperation and Development) Challenges for China's Public Spending Chapter 1 World Bank China Provincial Public Expenditure Review (Christine Wong 2000) World Bank 2000 (Country Economic Memorandum) managing Public Expenditures for Better Results 55 accounting and auditing, and Bank experience with China projects for the past several years, substantial achievements have been made in the aforementioned areas and further improvement i s expected in the next few years. This i s a work in progress, and as the economic reform program further unfolds, the Government o f China has come t o realize the importance o f establishing and maintaining an efficient and effective market mechanism to ensure transparency and accountability, and minimize potential for fraud or corruption. 5. Due to the rather unique arrangement by the government o f China, funding o f Bank financed projects i s controlled and monitored by MOF and i t s extension at sub-national level, (Le., finance bureaus at provincial, municipaVprefecture and county level). However, project activities are usually carried out by implementing entities o f a specific industry or sector due to the level and complexity o f expertise involved. While this segregation o f duties provides added fiduciary assurance, the above arrangement usually requires more coordination, as the multi- level management o f the funding and implementation mechanism sometimes works to the detriment o f smooth project implementation. 6. As a rapidly developing part o f China, the urban sector i s a focus o f various levels o f government investment, w i t h the purpose o f improving people's living standards. In order to improve the efficiency and effectiveness o f the services provided, institutional reforms were initiated by government in the 1980s. A s part o f this reform activity, water supply and sewage treatment companies were established and treated as normal operating companies. Previously, these services were provided by public service units. Since most o f these companies were established in the last decade, their capacity in managing operations as a company i s relatively weak, especially for those cities below the provincial level. In order to mitigate the potential fiduciary risk, each project i s required to prepare a FM manual and the Bank works with these projects to increase their FM capacity. FM training before and during project implementation i s utilized to strengthen project FM capacity. 7. With the development in cities, the government expects to extend i t s urban development strategy to the township level and even villages to ensure that everyone has an equal opportunity to benefit from these reforms. This i s the first new countryside project in China. Given Ningbo's current wealth levels, the local government has sufficient financial resources and i s willing to help develop its countryside. China's central government wishes to p i l o t this new countryside development (NCD) program in Ningbo since they have previous experience with several urban projects financed by the Bank. However, the counties and townships involved with this proposed project are new to Bank-financed projects, and thus more training, guidance and supervision f r o m municipal PMO are needed to ensure that FM i s adequate and well-maintained. Summary Project Description 8. The estimated project cost i s US$ 157.09 million, and the proposed Bank loan i s U S $ 50.00 million. Annex 4 provides a detailed project description. Audit Arrangements 9. The Bank requires that project financial statements b e audited in accordance with standards acceptable to the Bank. In line with other Bank financed projects in China, the project will be audited in accordance with International Auditing Standards and the Government 56 Auditing Standards o f the People's Republic o f China. The Ningbo Municipal Audit Office (NMAO) has been identified as auditor for the project. Annual audit reports will be issued by NMAO. The Bank currently accepts audit reports issued by China National Auditing Office (CNAO) or provincialhegional audit bureaus/offices for which CNAO i s ultimately responsible. 10. The annual audit report o f project financial statements will be due within six months after the end o f each calendar year. This requirement i s stipulated in the loan agreement. The responsible agency and timing are summarized as follows: Audit Report Submitted by D u e date Consolidated project financial Ningbo Municipal Project June 30 o f each calendar statements Management Office (NMPMO) year 11. In addition, the annual audit report o n financial position and operations o f F C I C will be due to the Bank within six months after the end o f each calendar year. Such audit reports and financial statements are not for fiduciary requirements, but rather for sustainability purposes. Risk Assessment and Mitigation 12. The following risks w i t h corresponding mitigating measures have been identified during the assessment: Risk Risk Incorporated Risk Risk Conditions Rating Mitigating Measures Rating of before after Negotiations, Mitigating Mitigating Board or Measures Measures Effectiveness Inherent Risk Country level Moderate Continuous dialogue with related Moderate L embedded into the project FM system. Entity Level Significant The NRWTPMO, the Project Moderate Implementation Units (PIUS) at city/county level and FCIC are all inexperienced with Bank financed projects. However, close monitoring and guidance from N M P M O and NMFB as well as the Bank's regular supervision can mitigate this risk to some extent. In addition, well-designed FM manual (FMM) and training sessions will be 57 provided to all project financial staff before and during the project implementation. Project Level Significant The rural wastewater management Moderate component will cover about 150 villages in 6 Ningbo Municipality counties. I n addition, innovative non-transaction based payments will be adopted to subsidize the activities o f Energy Conservation and Household Connection. Subsidies for Energy Conservation equipment will be financed out o f own funds, while the technical assistance for energy efficiency improvements will be financed from loan proceeds. As such, an FMM i s required to unify and standardize the project FM and disbursement arrangements at each P M O and PIU. Furthermore, the village selection criteria, the pre-determined subsidy standards, output verification procedures, and control procedures for payments and funds flow should be explicitly stated in FMM to formalize the related FM work. Control Risk Budgeting Significant See the details in Para..#25 Moderate The procedures regarding budget preparation and execution have been agreed by the Bank and government. The FM team will review their execution status during project implementation and help to improve any identified weak areas. Accounting Moderate Accounting policies and procedures are Low already in place. Circular #13 has been issued by M O F and adopted for all World Bank financed projects. The circular will be documented in project FMM for all parties to follow. Training workshops will be provided to all financial staff before project start date. Internal Moderate Detailed internal control procedures Moderate Control including segregation o f duties, review and approval procedures, and safeguard o f assets are in place within each PIU. The Bank's task team will review actual practice during project implementation. Funds F l o w Moderate The Bank loan proceeds will be managed Low and monitored through the finance bureau channels and all disbursement requests will be subject to their substantive reviews. The funds flow arrangement i s straightforward 58 and the approval processes have been streamlined. To avoid delayed disbursement, related requirements and procedures will be documented in the FMM, and all agencies will be required t o f o l l o w these procedures. Financial Moderate The format and content o f financial Low Reporting Auditing Moderate The external auditor, Ningbo Municipal Low Audit Office, has extensive experience with previous B a n k projects. Overall Moderate Moderate 13. Therefore, the overall FM risk rating assigned to this project at the appraisal stage i s moderate, provided the proposed mitigating measures are carried out. The FM team will monitor the effectiveness o f the measures and project FM risk during project implementation. Funds Flow and Disbursement Arrangements 14. Three disbursement methods are available for the project: advance, reimbursement, and direct payment. Supporting documents required for Bank disbursements under different disbursement methods will be documented in the Disbursement Letter issued by the Bank. Reporting o n eligible expenditures paid from the DA and requesting reimbursement should include: (a) List o f payments against contracts in the form attached (Attachment 4), together with records evidencing eligible expenditures (e.g., copies o f receipts, supplier invoices) for the contracts subject to the Bank's prior review as required in the Loan Agreement. (b) Statement o f Expenditure in the form attached (Attachment 3) for a l l other expenditures / contracts not subject to Bank prior review. Requesting Direct Payment needs to provide records evidencing eligible expenditures, e.g., copies o f receipts, supplier invoices. 59 15. Bank loan proceeds would be disbursed against eligible expenditures (taxes inclusive) as noted in the following table: Allocation o f Loan Proceeds Category Description Amount Allocated Percentage (a) Civil Works: 1.Rural Wastewater Management 19,165,000 50% 2. Chunhu T o w n Infrastructure Development 28,670,000 50% (b) Goods: Rural Wastewater Management 80,000 100% (c) Consultancy Services and Training: 0 Rural wastewater management implementation support 1,960,000 100% 0 Chunhu T o w n Capacity building 0 lZth 5-year NCD plan preparation 0 FCIC project management and business development 0 Chunhu Energy Efficiency Demonstration Program Consultancy Services (d) Front-end Fee 125,000 Total 50,000,000 16. One DA in U S dollars will b e opened at a commercial bank acceptable to the Bank and will be managed by NMFB. The ceiling o f the DA will b e determined and documented in the Disbursement Letter. 60 17. Funds flow for the Bank loan will follow the requirements of the Bank and MOF. The funds flow i s as follows: - World Bank I I I I Fenghua FB - City/County - _ _ - - - _ _ _ --b- WA Flow FundsFlow + Contractor/ Supplier Copies o f withdrawal applications submitted by NRWTPMO to NMFB will be copied to NMPMO for record keeping purposes. Financial Management and Reporting Arrangements Strengths 18. Both NMFB and NMPMO have accumulated extensive experience in project FM and disbursement, which will benefit implementation o f this project. 61 Weaknesses and Action Plan 19. The following risks with corresponding mitigating measures have been identified during the assessment, and appropriate measures have been taken: Findings Actions Responsible Entity Completion Date NRWTPMO and i t s affiliated F M and disbursement NMPMO and NMFB Sep 2009 PIUs at county level as well related training has been as FCIC are new to working provided to all project on Bank-financedprojects. financial staff. Implementing Entity 20. Project Leading Group - A Project Lending Group (PLD) chaired by the Vice Mayor o f Ningbo Municipality has been formally established. The group will provide policy direction and guidance to the various agencies o f the NMG for the preparation and implementation o f the project, PLD: Chaired by Vice Mayor of Ningbo Municipality 1 PMO: Ningbo Municipal World Bank Project Management Office (NMPMO) 1 Sub-PMO for Rural Wastewater Sub-PMO for Chunhu Town Infrastructure Management Component: Ningbo Rural Development Component: Fenghua City Wastewater Treatment Project Management World Bank Project Management Office Office (NRWTPMO) (FCPMO) PIU: Fenghua City Investment Wastewater Management PIUs Company Ltd. 2 1. Project Management Office. At the municipal level, the existing Ningbo Municipality Water Environment Project Management Office (NMPMO), created under the Ningbo Municipal Development and Reform Commission (NMDRC) and which has been responsible for the preparation and implementation of the ongoing Ningbo Water Environment Project and Ningbo GEF Water Environment Project, has been formally designated as responsible for coordinating and overseeing preparation and subsequent implementation o f the proposed project. 62 22. Sub-PMOS. A sub-project Management Office (PMO), the Ningbo Rural Wastewater Treatment Project Management Office (NRWTPMO), was established under the Rural Affairs Office to guide the implementation o f the Rural Wastewater Management component. N R W T P M O coordinated preparation o f the first batch o f villages, and will coordinate preparation o f proposals for the remaining villages; they also have responsibility for fund allocations to county governments. Another sub-PMO has also been formally established in Fenghua City for the Chunhu T o w n Infrastructure Development component. 23. Rural Wastewater Management PIUs. County-level rural wastewater treatment PIUs will be established for implementation o f the rural wastewater management component, under the agreed Frameworkfor Implementation o Rural Wastewater Management. A comprehensive f technical assistance package will be provided to help the village communities; the package will include facilitators who can provide training in village operations. The assets created will be transferred to the Village Committee, which will be responsible for O&M. 24. Chunhu Town Infrastructure Development PIU. F C I C will be responsible for the design and construction o f the infrastructure, and service the debt using asset management fees that will be paid by Fenghua City. Operation and maintenance o f these assets will be the responsibility o f Fenghua City. Budgeting 25. For the Rural Wastewater Management Component, sub-project proposals including funding budget, will be prepared by each city/county PIU and then submitted to NRWTPMO for approval and consolidation. For Fenghua Small T o w n Component, the project annual plan will be prepared by FCIC and then approved by N M P M O . Finally, an overall project annual plan will be consolidated by NMPMO. The budget for counterpart funds committed by local governments will be reviewed and approved by local People's Congress at each level and be included in their sectoral budget. Based o n the approved budget and implementation progress, the related finance bureaus will provide government appropriations to the project. Budget variance analysis will be conducted regularly by all PMOs and necessary actions will be taken to make sure that the project can be implemented as planned. The Bank will work with the related PMOs and PIUs to enhance their budget preparation and execution during project implementation. Accounting 26. The administration, accounting and reporting o f the project will be set up in accordance w i t h Circular #13: "Accounting Regulations for W o r l d 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 0 Detailed accounting instructions for each project account Standard set o f project financial statements 0 Instructions o n the preparation o f project financial statements 63 27. The aforementioned standard set o f project financial statements has been agreed upon by the Bank and MOF and applies to all Bank projects appraised after July 1, 1998. The financial statements shall include the following: Balance sheet o f the project 0 Statement o f sources and uses o f funds by project components 0 Statement o f implementation o f loan agreement Statement o f designated account Notes to the financial statements 28. Each PIU will manage, monitor and maintain i t s respective project accounting records for the component i t executes. The project's consolidated financial statements will be prepared by NMPMO with assistance from NMFB, and will be submitted to the Bank for review and comment o n a regular basis. 29. Provision o f adequate project accounting staff w i t h educational background and w o r k experience commensurate with the w o r k they are expected to perform i s one o f the factors critical to successful implementation o f project FM. Based o n discussions, observation and review o f educational background and w o r k experience o f the staff identified for financial and accounting positions in NMPMO and each PIU, the task team concluded that they are qualified for the work they are expected to assume. W e l l designed training sessions will be provided to all project financial staff before project implementation to furnish them with Bank's FM requirement and disbursement procedures. In addition, during implementation, their capacities will be further strengthened through Bank review and supervision o f their financial work. 30. T o strengthen FM capacity and achieve consistent quality o f accounting work, a project FMM has been prepared to provide detailed guidelines o n FM including internal controls, accounting procedures, fund and asset management, withdrawal application procedures, financial reporting, auditing arrangement, etc. The FMM has been finalized and agreed upon by NMPMO and NMFB. 3 1. A w e l l k n o w n and established local software program will be used by NMPMO, FCIC, NRWTPMO and its affiliated PrUs at city/county level to account for project activities and to prepare the financial reports. The task team will monitor the processing o f accounting w o r k closely, especially in the initial stages to ensure complete and accurate financial information will be provided in a timely manner. Internal Control and Internal Auditing 32. The related accounting policy, procedures and regulations have been issued by MOF. The FMM includes a l l these regulations, and will align the FM and disbursement requirements among NMPMO, NMFB and PIUS. 33. There i s n o formal independent internal audit department for the project. However, this will not impact the project's FM as the management and monitoring from various levels o f finance bureaus (which will review withdrawal applications) and the annual external audit will serve as the mechanism to ensure that FM controls are functioning appropriately. 64 Financial Reporting 34. The format and content o f project financial reports are drawn f r o m the standard project financial reporting package that have been agreed upon by the Bank and MOF, and discussed and agreed upon by all concerned parties. 35. The format and content o f project financial reports have been agreed upon by the Bank, NMPMO and NMFB. NMPMO, N R W T P M O and i t s affiliated PIUs at city/county level and F C I C will prepare the project financial statements o n their implemented components, which will then be used by the NMPMO to prepare the consolidated project financial statements and submit to the Bank o n a semi-annual basis, for review and comment. The unaudited interim consolidated project financial statements, satisfactory to the Bank, should be prepared and furnished to the Bank by NMPMO within 45 days after the end o f June and December o f each year. Financial Covenants 36. Financial covenants are specified in the loan and the project agreements. Supervision Plan 37. The supervision strategy for this project i s based o n i t s FM risk rating, which will be evaluated o n a regular basis by the F M S in compliance w i t h FMPM and in consultation with the Task Team Leader. 65 Annex 8: Procurement Arrangements CHINA: Ningbo New Countryside Development Project A. General 1. Procurement for the proposedproject will be carried out in accordance with the World Bank's "Guidelines: Procurementunder IBRD Loans and IDA Credits" dated May 2004 and revised on October 2006; and in accordance with "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised on October 2006, and the provisions stipulated in the Legal Agreements. 2. The general description o f various items under different expenditure categories i s described below. For each contract to be financed by the Loan, procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and the time frame have all been agreed upon by the Borrower and the Bank, and are part o f the Procurement Plan. The Procurement Plan was prepared by the Ningbo Municipal Project Management Office (NMPMO) and will be updated at least annually or as required, to reflect actual project implementation needs and improvements in institutional capacity. 3. Procurement of Works. Works procured under this project will include highway construction, wastewater treatment plants, sewage pipelines, booster pump station, water transmission pipeline, village wastewater collection and treatment facilities, etc. Procurement will be done using the Bank's Standard Bidding Documents (SBDs) for all international competitive bidding (ICB), and the Chinese Model Bidding Documents (MBDs) agreed upon or satisfactory to the Bank for a l l national competitive bidding (NCB). Contracts for works estimated to cost U S $ 100,000 equivalent or more will be procured under NCB procedures. Contract for works estimated to cost less than US$ 100,000 may be procured under shopping procedures. 4. Procurement of Goods. Goods procured under this project will include equipment for pump stations, wastewater treatment plants, I T equipment, etc. Procurement will be done using the Banks' SBDs for all ICB and the MBD agreed upon by (or satisfactory to) the Bank for all NCBs. Shopping procedures will be applied for this project, and the document seeking quotations will be prepared by NMPMO and will then be confirmed by the task team, prior to implementingthe relevant procurement. 5. Procurement of Combined Works and Goods Contracts. These contracts will include civil works, equipment supply, installationand commissioning. To enhance implementation efficiency, some contracts have been packaged to include civil works, equipment supply, installationand commissioning for pump stations and wastewater treatment plants. Either Standard Bidding Documents or modified bidding documents (for civil works or for supply and installationo f plant and equipment), will be used for preparing the bidding documents for these contracts, subject to the agreement of the Bank, on a case-by-case basis. 6. Selection of Consultants. Consulting services will include: (i) ImplementationSupport for Rural Wastewater Component; (ii) Project Management and ImplementationSupport; (iii) D e s i g n Review, etc. A l l consulting services will be provided by consulting f i r m s or individual 66 consultants. Shortlists o f consultants for services estimated to cost less than U S $ 300,000 equivalent per contract m a y be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. The Qualification and Cost Based Selection (QCBS) will apply to contracts with an estimated cost o f US$200,000 or above each. Selection based on the Consultant's Qualification (CQS) may apply to contracts below US$200,000. Quality Based Selection (QBS) may apply in case o f universities and government research institutes that are selected for some consulting services. 7. Training and Study Tours. For training and study tours, detailed programs will be developed by NMPMO during project implementation, and included in the project's annual w o r k plan, for Bank's review. Actual expenditures incurred in accordance with the approved detailed programs would be used as the basis for reimbursement. 8. Advertisement and Publication o f Contract Award. The General Procurement Notice (GPN) will be published o n dgMarket, and will be updated as necessary. In addition to an advertisement in a national newspaper, all Special Procurement Notices (SPN) for ICB, and Requests for Expression o f Interest (EOI) for consulting services exceeding US$200,000, will be advertised in the UNDB online and dgMarket. The advertisement for the Request for EO1for consulting services will be made in a national newspaper, regardless o f estimated contract value. Bid/proposal evaluations and contract awards will be published in accordance with paragraph 2.60 o f the Guidelines for works and goods, and paragraph 2.28 o f the Guidelines for consulting services. B. Assessment of the Agency's Capacity to Implement Procurement 9. Procurement activities will be carried out by NMPMO and Project Implementation Units (PIUs). The NMPMO will serve as the m a i n counterpart to the Bank, and will have overall responsibility for coordinating project implementation. 10. An assessment o f the capacity o f the Implementing Agency to implement procurement actions for the project was carried out by the task team in M a y 2009. The assessment reviewed the organizational structure for implementing the project and the interaction between the staff responsible for procurement in NMPMO and PIUs. The Procurement Capacity Assessment Review (PCAR) i s available in the Project File. 11, The proposed project i s the third Bank-financed urban infrastructure project to be implemented by NMPMO. NMPMO has abundant experience with implementing Bank- financed projects. NMPMO i s currently implementing the Ningbo Water Environment Project (Ln 4770-CHA) and the GEF Ningbo Water Environment Project (TF56692-CHA). NMPMO has been established under the Ningbo Development and Reform Committee. 12. The Fenghua City Investment Company, Ltd. (FCIC) was established in 2007 by consolidating assets of 13 state-owned infrastructure enterprises. F C I C i s a state-owned enterprise with the legal authority to sign contracts. FCIC has established three project management divisions for transport, wastewater, and water supply sectors to implement sub- projects. These units have been strengthened w i t h specialist staff drawn from the Fenghua Water Supply Company, the Fenghua City Transport Bureau and the Fenghua City Construction 67 Committee. These staff deployments have been formalized through a document issued by the Fenghua City Government (FCG). 13. The Ningbo Rural Wastewater Treatment Project Management Office (NRWTPMO) was established in February 2009 w i t h the approval o f the Ningbo Municipal Government (NMG). I t i s an independent institution under the management o f the Ningbo Municipal Rural Affairs Office. I t will establish PIUs in each project county. These PIUs will implement the subprojects in villages under the leadership o f NRWTPMO. NRWTPMO, the sub-project Management Offices (PMOS)and PIUs at the County level have the legal authority to s i g n contracts. Since the PIUs will be established within different government authorities at the county level, i t i s important for NRWTPMO to ensure that proper internal controls for project management are put in place. I t was agreed that NRWTPMO will request NMG to issue a formal document to regulate the working procedure as w e l l as the obligations o f the PIUs. 14. All PIUs are familiar with local construction procedures, but have n o experience with the Bank's procurement policies and procedures. NMPMO has prepared a procurement manual, which was reviewed by the Bank, and deemed satisfactory. 15. The k e y risk concerning procurement is, therefore, the insufficient experience o f procurement staff o f PIUs and their lack o f procurement knowledge and procedures used in Bank-financed projects. The corrective measures which have been agreed upon by the Bank and Ningbo are: (i) Ningbo Municipal and FCGs shall issue formal documents to regulate the working procedures and describe the obligations o f the PIUs at the county level; (ii) P I U S all including the project divisions or sub-PMOs shall recruit experienced staff, as agreed; (iii) NMPMO shall carry out i t s proposed action plan for enhancing the PIUS' capabilities and ensure that the objective can be achieved according to the plan; (iv) NMPMO shall prepare a procurement manual and submit it to the Bank for review; and (v) the PIUs shall engage an experienced tendering company as the procurement agent. 16. During implementation, NMPMO will be responsible for monitoring overall progress o f project procurement and a l l procurement documents will be submitted to the Bank through NMPMO. 17. The overall project risk for procurement i s Moderate. C. Procurement Plan 18. The Borrower has developed a Procurement Plan for project implementation which provides the basis for the procurement methods. This plan was agreed upon by the Borrower and the task team on June 4,2009, and i s available at NMPMO office in Ningbo, China. I t i s also available in the Project's database and o n the Bank's external website. The Procurement Plan will be updated annually, in agreement w i t h the task team, to reflect the actual project implementation needs and improvements in institutional capacity. The Procurement Plan i s provided in Table B below. D. Advance Contracting and Retroactive Financing 19. Retroactive financing will not be required for the project. 68 E. Frequency o f Procurement Supervision 20. In addition to the prior reviews to be carried out by the task team o n an ongoing basis, the PCAR has recommended one supervision mission every 12 months. 69 Annex 8: Attachment 1 Details of the Procurement Arrangements ~i Table A. Thresholds for Procurement Methods and Prior Review Procurement Method T ,esholds Proposed (US$) I Proposed I I (USD) Goods 20.5 2 1.o e 1.O million YI . Y C w ._ 0 e, 0 8 Y 8 41 E > s s a m .3 Y s a 4 v 9 e v 2 2 F 2 F 8 z u 5: u 3 tY E Annex 9: Economic and Financial Analysis CHINA: Ningbo New Countryside Development Project Project Objectives and Brief Description of Project Components 1. The Project aims to implement rural wastewater management systems in about 150 selected villages o f Ningbo Municipality, and also aims to improve basic infrastructure and energy efficiency in a developing small town near Fenghua City. 2. The project has two investment component: (a) Rural Wastewater Management, and (b) Chunhu T o w n Infrastructure Development, and a technical assistance program. The rural wastewater management component comprises rural wastewater collection and treatment using appropriate technologies in about 150 administrative villages in 6 counties/districts o f Ningbo Municipality. The Chunhu T o w n infrastructure development component will support the following investments: (a) building o f an access road between Chunhu T o w n and Fenghua City; (b) wastewater collection and treatment in Chunhu Town; and (c) a water supply transmission pipeline connecting to an existing network, to convey water to Chunhu T o w n (and Hongsheng Haitang development zone), and the Chunhu T o w n distribution network renovation and expansion. Identification o f Economic Benefits and Costs 3. Economic Benefits. The project will generate a variety o f economic benefits to Ningbo Municipality, and especially to the rural population in project areas. These economic benefits and costs o f the project were identified and quantified to the best extent possible. As listed in the table below (see Table l), main benefits o f this project include: improved public health and the quality o f l i f e through reliable water supply and wastewater treatment in Chunhu T o w n and rural wastewater management in about 150 villages throughout Ningbo Municipality; improved quality o f water bodies and soil in project areas and surrounding areas due to wastewater treatment and management; saved travel time and cost, increased productivity, and reduced traffic accidents due to an improved road connection between Fenghua C i t y and Chunhu Town; increased amenity and land value associated with improvements in transportation conditions and water environment; decreased cost o f water treatment in lower-reach communities; and enhanced access for residents in Chunhu T o w n and areas east to Chunhu T o w n to better public services such as medical care and education, associated with an improved road connection between Fenghua City and Chunhu Town. The project will bring about long term benefits in small t o w n development and rural wastewater management in Ningbo and similar regions through i t s small town development demonstration pilots, as w e l l as energy efficiency improvements. 75 4. Economic Costs. The main economic costs for each component are identified as capital investments including associated resettlement and environmental mitigation costs o f the investments as identified in the safeguard analysis, and O&M. General Assumptions, Basic Data and Valuation Methods Used 5. The economic analysis assumes that market prices for most elements o f costs and benefits do not vary m u c h from their economic value (i.e., shadow price), therefore market prices were applied directly without conversion in most cases. The exceptions are timber and asphalt for which conversion factors (1.06 for timber and 1.09 for asphalt, respectively) were applied in estimating cost o f the Chunhu access road construction. The economic benefits and costs were valued at the price levels o f the base year 2008. All values are net o f inflation, duties, and taxes. 6. In the economic analysis, the project duration i s 20 years and the construction periods vary depending o n components. However, in the financial analysis o f the whole project, a period o f 30 years i s used, which i s the duration o f the W o r l d Bank loan. 7. In China, the discount rate accepted by the Chinese government for most o f i t s projects i s normally 8%.3 The rate can be as l o w as 6% for investments w i t h social and environmental benefits, which are long term but difficult to quantify. 8. Cost benefit analysis was used to examine the economic feasibility o f the Chunhu access road component. Economic costs and benefits were identified and quantified as m u c h as China National Development and Reform Commission (NDRC) and China Ministry o f Construction (MOC), 2006. Economic Analysis o Construction Projects: Methods and Parameters. Beijing: China Planning Press. f 76 possible. Sensitivity analysis was also conducted to test the robustness o f the results o f the cost benefit analysis. 9. There i s no doubt that the improvement o f water supply services and wastewater treatment services has significant long-term environmental and health benefits in project beneficiary areas. A Contingent Valuation survey was done in project areas to test public support and their willingness to pay for proposed water supply and wastewater treatment investments. Results o f the analysis show that local people are very supportive and are willing to pay for better water services. But, i t i s difficult to quantify the causal link between the provision o f better water supply and wastewater treatment and the improvement o f public health and eco- systems due to water quality improvements. Also, environmental and health benefits are attributable to various efforts and i t i s difficult to single out and measure the contribution o f this project. Therefore, cost effectiveness analysis was adopted for the water supply and wastewater treatment components. A number o f water treatment technologies and alternative design options were evaluated to ensure the selection o f cost-effective solutions for achieving the development targets o f water supply and wastewater treatment. For the rural wastewater management component, a design framework and guidelines for l o w cost design were adopted in selected project villages and will be used in a programmatic w a y to implement the project in the rest o f project villages. Chunhu Access Road 10. The objective o f the component i s to improve the road accessibility between Fenghua 1 City Center and Chunhu Town. The proposed road (alternative 1 ) will provide fast access between the two places by shortening an existing road connection from 24 km to 14.2 km (including a tunnel o f 3.26 km). This access road will meet the demand for fast transportation in the `new countryside development' o f Chunhu T o w n by providing a faster alternative to existing bypasses. 11. The economic benefits due to the improvement o f transport conditions as a result o f this component are reduced time and transport costs, increased productivity, lower rates o f traffic accidents, increased value o f the land close to the road, enhanced level o f public service, promotion o f energy saving technology and decreased air emissions. Several social and economic benefits, which are assumed to be present but are difficult to quantify, were not included in the analysis, e.g., improved access for local residents to better public services such as medical care, education, and information provided in Fenghua City. 12. Alternatives. T w o route alternatives for connecting Chunhu T o w n to Fenghua City, as well as the `no project' scenario, were considered. Cost benefit analyses were carried out for both route alternatives. Alternative I s to widen and upgrade one o f the existing l o w grade roads i between Chunhu T o w n and Fenghua City, which i s 16.46 km long. While the distance between the two places would not be shortened, this alternative would produce economic benefits due to improved transport conditions compared to the "no project" scenario. 13. In terms o f economic costs, besides the direct costs for road widening and upgrading, considerable costs for house replacement and resettlement would occur in Alternative I as many 77 local residential houses are located along the existing road. The total investment cost would amount to RMB 325.79 million (USD47.91 million). Economic analysis (for a duration o f 20 years plus 3 years o f construction period) shows that the net present value (NPV) o f Alternative I would be RMB 186.07 million, i t s EIRR would be 12.58% and the Benefit Cost Ratio would be 1.73. Comparing Alternative I Alternative I1(the recommended option for this project to component), although the total costs o f Alternative I would be lower than in Alternative 1 , i t s 1 benefits would be much lower, rendering Alternative I1the preferred option. 14. Economic costs and benefits. In the cost benefit analysis o f the Chunhu access road component, benefits such as saved time and transport costs, reduced traffic jams, less frequent traffic accidents, and increased value o f the land close to the road, are included and calculated. Other benefits such as increased productivity, better accessibility to public services in Fenghua, and reduced air pollution emission, are not included as they are difficult to quantify. 15. For the land value increase, i t i s believed that completion o f the access road would lead to an increase in the value o f the undeveloped land along the new road. The total area o f land that would be available for development within ten years after the road i s completed i s 2,250 mu (Le., 150 hectares). Historic data show that the value o f land in the Shangqiao Development Zone, close to the project affected area o f the access road, increased from RMB 50,0OO/mu to RMB 1O , O / u in 2006 to RMB 300,OOO/mu after the development was completed in 2008. In the OO Om economic analysis, a conservative estimate i s made by using a l o w end increase in land value along the new road, which i s valued at RMB 100,00O/mu. Another important source for estimating the land value increase i s the price o f land along the existing road in Chunhu Town, which i s RMB l30,000/mu. 16. I t i s estimated that the net present value o f the total economic benefit o f the investment in this component amounts to RMB 780.92 million. The total benefits excluding the land value increase would be RMB 661.09 million. The costs o f the component consist o f capital cost and cost for O&M. I t i s estimated that the total capital cost o f this component amounts to RMB 406.99 million, 50% o f which i s taken as residual and deducted from the cost o f the last year (2031). The O&M cost includes the cost o f major repairs made every eight years (Le., 2019 and 2027). I t i s 13 times the cost o f annual routine maintenance, excluding O&M o f tunnels. Thus, the total economic cost o f this component i s a present value o f RMB 330.04 million. 17. Results o the Cost Benefit Analysis. The aggregated results o f the analysis are f presented in Table 2 below. I t shows that the economic internal rate o f return (EIRR) o f the road investment i s 16.96%, that i t s net present value (NPV) i s RMB 450.89 million (USD66.3 1 million) and that the benefit cost ratio (BCR) i s 2.37. Excluding the land value increase, its EIRR i s 14.18%, NPV i s RMB 331.04 million (USD48.68 million) and the B C R i s 2.00. 78 flows I I BIC ratio 2.37 18. Sensitivity analysis (assuming 20% increase in capital costs and 20% decrease in economic benefits) further shows that the investment will s t i l l provide an EIRR o f 12.25% or 10.36%, including and excluding the increase in the value o f the land close to the road, respectively. Table 3: Sensitivitv Analvsis of the Chunhu Access Road ComDonent 20% 20% Base Increase in Decrease in Combined Case Capital Main Case Investment Benefits Increase o f land value included 16.96% 14.72 14.15% Increase o f land value excluded 14.18% 12.38% 12.00% Fenghua Coastal Water Supply 19. The purpose o f this component i s to help overcome the seasonal water shortage, which i s a constraint to local economic development in Chunhu town and nearby coastal areas in southeastern Fenghua. Based on the projected water demands o f the roject areas, the proposed P component i s projected to have a water supply capacity o f 26,000 m /day by 2015 and 60,000 m3/day by 2025. The recommended alternative i s to build pipelines and an associated pumping station to convey water through an off-take from the Fenghua City water network (supplied from the Qiujiashan Water Plant o f Fenghua City) to Chunhu Town. The conveyed water will be used 79 for domestic, industrial, and commercial purposes to meet the water demands o f the local population, o f economic development and o f environmental protection. A World Bank loan amount o f US$5.74 million i s proposed for the total estimated investment o f US$15.73 million. 20. Alternatives. There are two alternatives for water supply to meet the demands o f the project areas. In addition to Alternative I(building pipelines and a pumping station to convey water from Qiujiashan Water Plant to Chunhu Town), Alternative I1is to divert water from the Jin'e section o f the Baixi Water Diversion Canal, and build a water treatment plant with a capacity o f 25,000 m3/day. 2 1. Economic costs and benefits. The main economic benefits due to the improvement o f water supply are: improved health and quality o f l i f e o f local population; better productivity; better amenities and increased land value; and less pressure on the local water system (including underground water in project affected areas). According to projections, the total population benefiting from this investment will amount to 101,500 by 2015 and 121,900 by 2025. Therefore the component will have considerable benefits in t e r n s o f improvements to the population's health and quality o f life, although these benefits may be difficult to quantify. Another benefit from the improved water supply i s an increase in productivity. Analysis indicates that 14,100 m3/day o f water w i l l be used by industry and service sectors by 2015 and 22,000 m3/dayby 2025. Even at the current average level o f water productivity (US$3.6/m3) in China, the annual output value produced with water supplied from this investment would amount to US$18.53 million by 2015 and US$28.91 million by 2025. This estimated number i s at the low end as water productivity in coastal areas o f Zhejiang Province i s much higher than the average level in China as a whole. Improved water supply will also contribute to the protection o f the local water system (including underground water in the project areas). 22. The costs o f the component consist o f capital costs, costs for O&M and costs for actions mitigating environmental impacts o f c i v i l works during construction. As most o f the benefits and costs are difficult to quantify or monetize, cost effectiveness analysis was conducted to select the least cost option from the two alternatives. 23. Results o the Cost Effectiveness Analysis. The economic analysis shows that total direct f investment in Alternative I would be RMB 212 million, and the annual O&M cost would be RMB 11.79 million. The unit cost o f water supply would be RMB 1.84/m3, including RMB 0.90/m3 o f O&M costs. I Alternative 1 , the total direct investment would be RMB 230 million, n 1 and annual O&M cost would be RMB 12.25 million, with a unit cost o f RMB 2.1 9/m3, including RMB 0.95/m3 of O&M costs (See Table 4). I t i s clear that Alternative I s more cost-effective, i and i t i s therefore the option that i s proposed for the water supply component. 80 1 ble 4: Cost effectiveness Analyses f the two Alternatives Alternative I Alternative I1 Description Convey water from Fenghua City Divert water from B a i x i Water network to three coastal towns and Diversion Canal through building neighboring areas through building Jin'e Water Plant and pipelines and pipelines and a pumping station distribute water to three coastal towns and neighboring areas Capacity 26,000 m'/day in near future and 25,000 m3/day in near future and 60.000 m3/dav at comdetion 60,000 m3/day at completion Land 6.8 mu (about 0.45 ha.) 30 mu (2 ha.) acquisition O&M cost RMB 11.79 milliodyear RMB 12.25 milliodyear Direct RMB 212 m i l l i o n RMB 230 m i l l i o n (including RMB investment 17.50 m i l l i o n o f shared investment in B a i x i Water Diversion Canal under the condition that a cap o f 20 thousand m3/day o f water i s diverted) Unit cost Unit total cost o f RMB 1.84/m'; Unit total cost o f RMB 2.19/m3; Unit O&M cost o f RMB 0.90/m3 Unit O&M cost o f RMB 0.95/m3 24. Willingness to Pay and Affordability. A survey has been carried out to assess the willingness and ability o f local residents to pay for water supply. 405 respondents randomly selected as a sample o f the local population have a wide range o f income levels. Results show that most local people rank water supply as the first priority for infrastructure construction. The average cost that local people are willing to pay for water supply i s RMB 8.73/household per month. T o achieve financial viability with an acceptable financial internal rate o f return o f above 6%, a tariff o f RMB 1.6/m3 for domestic water use i s recommended. That level i s close to the existing water tariff (RMB 1.5/m3) in Fenghua City. Given the current average annual income level o f local residents, which i s over RMB 10,000, the level o f proposed tariff increase from current RMB 0.80/m3 (for a locally supplied, l o w quality and unreliable service) to RMB 1.6/m3 i s affordable to the majority o f local residents. Under the assumption that the average level o f water use by a rural resident i s 100 Vday, the total expense o f a rural household o n water use would only account for less than 1% o f its income. The percentage would be much lower for residents living in local towns, whose incomes are about twice as high as rural residents. Chunhu Wastewater Treatment 25. The purpose o f this component i s to provide wastewater collection and treatment service in Chunhu T o w n by building a wastewater treatment plant and sewage networks for both domestic and industrial sources in Chunhu Town. Based o n the projected water demands and wastewater discharge in the project areas, the proposed wastewater collection and treatment component i s designed to have a treatment capacity o f 10,000 m3/day by 20 15,20,000 m3/dayby 2025, and 40,000 m3/dayby 2030. Water quality after treatment should meet the national standard o f Class 1B. 81 26. Alternatives. Two alternative wastewater treatment processes were identified and compared. The treatment process o f Alternative I s cyclic activated sludge technology (CAST), i and Alternative I1i s N N o x i d a t i o n ditch ( N N O D ) . 27. Economic costs and benefits. The main economic benefits from wastewater collection and treatment are: improvements to the local population's health and quality o f life; improvements to the water system and quality o f soil; better amenities and an increase in the value o f land and property. According to projections, the total population benefiting from this investment will amount to 101,500 by 2015, 122,000 by 2025, and 138,900 by 2030. The costs o f the component consist o f capital costs, costs for O&M, and costs for actions mitigating environmental impacts o f civil works during construction. As the economic benefits are difficult to be quantified or monetized, cost effectiveness analyses o f the alternatives were conducted to select the least-cost option. 28. Results o the Cost-Effectiveness Analysis. The analysis shows that the investment cost f for the wastewater treatment plant would amount to RMB 40.91 million (US$6.02 million) for CAST (Alternative I). These would be RMB 38.73 million (US$5.70 million) for N N O D (Alternative 11). As the costs for pipeline building in the two alternatives would be the same, Le., RMB 16.82 million (US$2.47 million), the total investment for this component would be RMB 57.74 million (US$8.49 million) in Alternative I and RMB 55.55 million (US$8.17 million) in Alternative I1(See Table 5). I t i s clear that Alternative I1i s more cost effective and i s therefore proposed as the wastewater treatment process to be applied by the wastewater plant. Table 5: Cost Estimation and Comparison o f the Two Alternatives of Chunhu Wastewater Treatment Compon ut (RMB million) Alternative I Alternative I1 Difference Process o f wastewater CAST NNOD treatment Investment cost o f RMB 16.82 RMB 16.82 0.00 pipelines Investment cost o f wastewater treatment plant 1) Cost for civil works RMB 27.14 RMB 25.41 RMB 1.73 2) Associated cost for RMB 10.73 RMB 10.48 RMB 0.25 civil works 3) Contingency RMB 1.89 RMB 1.79 RMB 0.10 4) Interest during RMB 0.71 RMB 0.66 RMB 0.05 construction 5) Working capital RMB 0.45 RMB 0.38 RMB 0.07 Subtotal RMB 40.91 RMB 38.73 RMB 2.19 T o t a l investment Cost I RMB 57.74 RMB 55.55 RMB 2.19 29. Wastewater Treatment Affordability. The analysis i s based on the affordability o f the population to pay only O&M costs, Le., excluding the capital costs for construction o f the wastewater treatment plant and pipelines. Analysis shows that O&M costs for wastewater treatment will be RMB 0.69/m3. Considering the cost distribution between industrial and domestic uses and local government commitment to rural development, the charge on domestic 82 wastewater will be low. If the tariff i s set based o n the O&M cost o f RMB 0.69/m3, the total expense o f a local household on wastewater treatment would only account for about 0.02% o f i t s income, which i s affordable to local residents. Rural Wastewater Management 30. The objective o f this component i s to improve sanitation and environment by building wastewater collection and treatment systems in about 150 villages in six counties/districts o f Ningbo Municipality. The total estimated investment for this component i s about US$47.96 million, o f which about US$19.24 m i l l i o n will be supported by the Bank loan. 3 1. Alternatives. Five wastewater treatment schemes were identified and compared (see Figure 9-1 below). Figure 9-1 Treatment Schemes Base Scheme: Septic Tank MPrefabricated A 0 Treatment Unit %%4kAOlii?IkkPl!i% I I Septic Tank Trickling Filter H R e c i r c u l a t i o n Open Water W e t l a n d H Land Disposal Scheme 1: ~ It3W A}j!& fi?j + ($Jk ?fidb!i!! if4 1 &jkB Scheme 2: 1 Sel;;;cT&nk Two Stage Recirculation Trickling Filter 1. 4 ?& 32. Economic costs and benefits. The main economic benefits f r o m rural wastewater collection and treatment include: improvement o f the local population's health and quality o f life; fewer environmental impacts o n the local water system; reduction o f water treatment costs in lower-reach communities; assurance o f long-term security o f drinking water sources in Ningbo; better amenities and increases in land values. M o r e than 300,000 rural residents in the 150-200 villages covered by this component are expected to benefit from the project. As most o f these villages are located close to drinking water sources, a significant percentage o f the population will directly benefit from water sources protection due to wastewater treatment. The m a i n costs o f this component consist o f capital costs, and the costs o f O&M, which would b e borne by local residents during the operation period. As the benefits and costs are difficult to b e quantified or monetized, cost effectiveness analyses o f the alternatives was conducted to select the least cost option. 33. Cost-Effectiveness Analysis. Table 6 below presents the estimated NPV, incremental average cost (IAC), and average O&M cost o f the 5 schemes at four different daily water demand scenarios. Scheme I was the lowest cost, and was chosen. 83 Table 6: Cost effectiveness analysis o f the five schemes I I Daily IAC Av. O & M Costs Wastewater NPV Discounted Flow (RMBIM3IDay) (RMB/m3/day) Treatment Process (&/dl 25 I 765 169 I 248 864 I 3.07 2.3 1 50 1 118 136 497 727 2.25 1.76 Base Scheme - IATU 100 1 877 060 995 455 1.89 1.54 150 2 828 234 I 493 182 1.89 1.60 25 428 544 248 864 1.72 1.16 - Scheme 1 Septic Tank+ TF + FWS 50 653 481 497 727 1.31 0.83 Recirculating 100 1 080 959 995 455 1.09 0.70 Wetland System 150 1 475 710 1 493 182 0.99 0.58 I 25 I 582065 I 248 864 I 2.34 I 1.71 I - Scheme 2 Two Stage 50 942 078 497 721 1.89 1.36 Trickling Filter System 100 1 647 825 995 455 1.66 1.25 150 2 245 501 1 493 182 1S O 1.06 25 548 793 248 864 2.21 I.26 Scheme 3 -Anaerobic 50 907 865 497 727 1.82 0.93 Tan ks+TF+SSF Wetland 100 1 636 245 995 455 1.64 0.80 150 2 309 272 1 493 182 1.55 0.68 25 621 883 248 864 2.50 1.71 - Scheme 4 Two Stage 50 1 014 987 497 727 2.04 1.36 Trickling Filter with Treatment Building 100 I 763 279 995 455 I.77 1.25 for Peak District 150 2 419 483 1 493 182 1.62 1.06 34. Willingness to Pay and Affordability. A survey was camed out to gauge the willingness and ability o f local residents to pay for wastewater treatment. The 401 valid respondents were selected from 19 villages of 5 counties/cities by random sampling, and represent a broad sample o f different income groups. Results show that 327 o f the 401 respondents ranked wastewater treatment as the number one infrastructure to which they paid attention. O f the 401 respondents, 94% (378) were willing to participate in daily operation and maintenance o f this project component and 70% were willing to pay for this component. The average amount the rural households were willing to pay for wastewater treatment was RMB 3.98/month. According to analysis o f projects in 16 pilot villages, the annual O & M cost varies from RMB 6.97/person to RMB 38.5/person. Even the highest,levelo f RMB 38.5/person only accounts for about 0.34% o f average net income o f rural residents o f Ningbo Municipality. Besides, Ningbo municipal government i s committed to continue to provide adequate income support (Le., a basic living 84 stipend) to l o w income households who are under the government social protection program, in order to prevent the project from negatively impacting their income levels. Summary and Impact on the Poor 35. Results from the economic analysis show that project investments will bring significant economic returns to local populations both inside and outside the project areas in Ningbo Municipality. Cost benefit analyses o f the Chunhu access road component indicate that the investment has an EIRR o f 16.96% with an NPV o f RMB 45 1 million. Given the importance o f wastewater treatment and new countryside development to the sustainable development in Ningbo, cost effectiveness analyses o f other components would also ensure efficiency o f investment by identifying and selecting the least cost solutions. Thus the project i s economically just i fied. 36. The project also has pro-poor economic impacts. The project will improve the quality o f the environment, as w e l l as provide benefits to the economy and health o f the entire population (including the poor) within the project areas. For the rural wastewater management component, most o f the project investment in rural areas will be shouldered by local governments and should cause n o fee or tax increase o n local residents, although farmers who will voluntarily participate in the wastewater management program are expected to provide in-kind contributions (labor o r time). T o ensure that the project benefits local residents as equitable as possible, the community participation approach will be used in project implementation. Accordingly, the component anticipates no negative impacts o n the poor. For the Chunhu town infrastructure development component, investments in improved water supply, wastewater treatment, and transport will also benefit the poor as they can have better access to essential public services at affordable prices (with support from the local government). Financial Analysis 37. The objective o f the financial analysis was to ascertain the financial viability o f the proposed project during the implementation and operation period. The financial analysis was conducted at three levels: project level, entity level, and municipaVcity level. Project Level Analysis Chunhu Access Road 38. The Table below illustrates the preliminary financial analysis for the Chunhu Access Road project. This i s not a t o l l road and the project will fully rely o n city government support. 39. After the asset construction i s completed and the quality verified, Fenghua City will outsource O&M to appropriate companies. Fenghua C i t y will provide annual budget appropriations to meet the O&M requirements and make payments to the management contractor. Fenghua City will also provide budget support for the necessary process o f road resurfacing at least every 8 to 10 years. The planned maintenance and material contribution (about 0.8-1.8% o f the value o f the c i v i l works) i s adequate. 85 Fenghua Coastal Water Supply 40. As in the case o f the Chunhu Access Road, Fenghua City will outsource O & M fbnctions o f Fenghua Coastal Water Supply to a competent company (Water Company) after project completion and quality verification. The Water Company will be responsible for operating and maintaining the pipes, pump stations, and other assets, as well as collecting water tariffs. Water tariffs collected by the Water Company will be used to buy water from Fenghua Water Supply Company and pay O&M fees to the Water Company; the remaining balance will be remitted to Fenghua Municipal Finance Bureau. The following chart presents the cash flows o f the water tariff: Cash Flows of Water Tariff I Water Tariff I I To Gov't 41. Construction o f Fenghua Coastal Water Supply i s planned to begin in 2010 and be put into operation in 2013. The project will build water supply transmission mains from Fenghua City to Chunhu Town, including renovation and expansion o f the Chunhu Town water distribution network. The transmission mains are sized to enable extension to two other towns (Qiucun Town and Song'ao Town) and the Zhejiang Shipyard. This extension i s assumed to begin in 2016 and be put into operation within two years. Financial analysis o f the Fenghua Coastal Water Supply covers the water supply not only in Chunhu Town but also in Qiucun Town, Song'ao Town, and Zhejiang Shipyard. 42. The current average water tariff in Chunhu Town i s RMB 0.80/m3. To meet the requirements o f cost recovery, Fenghua City was agreed to increase the average water tariff in Chunhu Town to RMB 2.00/m3 in 2013 (when the transmission mains and distribution networks are put into operation), with a further increase to RMB 2.50/m3 in 2018, when the transmission mains and distribution networks in Qiucun Town and Song'ao Town are put into operation. After that, the water tariff will increase 10% every three years. These prices will also be applicable to Qiucun Town, Song'ao Town, and Zhejiang Shipyard. 43. The price o f purchasing water from Fenghua Water Supply Company i s about RMB 0.614/m3. O & M costs are for the water supply transmission pipeline to Chunhu Town after 2013, the extensions to Qiucun Town and Song'ao Town after 2018, as well as any distribution networks. The O&M costs comprise: salaries and welfare o f staff and workers; power for pump stations; chemicals for further treatment; maintenance; and management fees. 86 44. Based o n the assumptions above, financial projections for Fenghua Coastal Water Supply were conducted and the results are summarized below: Figure 1: Fenghua Coastal Water Supply Tariff Revenues, O&M Cost, and Full Cost (unit: RMB 1,000) 120,000 +Water Income 100,000 +O&M Cost 41-Full Cost 80,000 60,000 40,000 20,000 2012 2017 2022 2027 2032 2037 Results of Financial Projection for Fenghua Coastal Water Supply (unit: RMB 1,000) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Water sold (1,000 m') 4,860 5,115 5,382 5,664 5,960 10,298 10,825 1 1,379 1 1,962 13,191 Water tariff (RMB m3) 2.00 2.00 2.00 2.00 2.00 2.50 2.50 2.50 2.88 2.88 Increase in rate o f tariff 25% 15% T a r i f f collection rate 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% Revenue 8,747 9,204 9,686 10,192 10,725 23,216 24,404 25,653 31,012 34,199 Water purchase cost 3,822 4,143 4,490 4,867 5,275 9,569 10,361 11,217 12,760 14,404 O&M 2,754 2,875 3,004 3,140 3,284 5,485 5,749 6,028 6,452 6,899 VAT 525 552 581 612 644 1,393 1,464 1,539 1,861 2,052 Interest 5,904 5,573 5,187 4,746 4,305 3,864 3,423 2,981 2,540 2,099 Principal repayment 5,511 5,511 7,721 7,721 7,721 7,721 7,721 7,721 7,72 1 7,721 Depreciation 4,795 4,795 4,795 4,795 8,026 8,026 8,026 8,026 8,026 8,026 Financial indicators O&M cost coverage 1.23 1.22 1.20 1.18 1.17 1.41 1.39 1.37 1.47 1.46 Debt service coverage ratio 0.14 0.15 0.12 0.13 0.13 0.58 0.61 0.64 0.97 1.10 45. The financial projection also indicates that the cumulative revenue f r o m water tariffs over the project l i f e span can cover the cost o f operating the assets o f Fenghua Coastal Water Supply. 87 The accumulative revenue from 2013 to 2039 will be RMB 1,486 m i l l i o n while the total cost will be RMB 1,173 million. Chunhu Wastewater 46. The management and operation o f the assets created under the Chunhu Wastewater Management will be dealt with in a similar way. After the asset construction i s completed and the quality verified, Fenghua City will outsource O&M functions to a competent company (Wastewater Company). The Wastewater Company will be responsible for operating and maintaining wastewater treatment plant with a capacity o f 10,000 m3/dand a wastewater collection network o f 19 km in length. The cost o f O&M will b e funded by wastewater tariffs and subsidies from Fenghua City since the initial wastewater t a r i f f will be insufficient to cover the cost o f O&M. 47. Currently, there i s n o wastewater tariff collected in Chunhu Town. (Wastewater tariffs have never been collected in rural areas in China). T o operate the wastewater collection and treatment facilities in a sustainable manner, Fenghua City has agreed to begin levying wastewater tariffs in Chunhu Town. As an initial step, Fenghua City plans to collect 50% o f O&M within one year after the operation o f the wastewater treatment facility. Furthermore, within three years o f beginning to collect wastewater tariffs, Fenghua City plans to increase the wastewater tariff to meet the costs o f O&M. Therefore, the wastewater tariff will increase 10% every three years. 48. Wastewater charges will b e collected together with the water charges. The principle o f "One bill, two tariffs" will be employed to ensure efficiency o f wastewater tariff collection. Therefore, the wastewater charges will be collected based o n the water volume consumed. 49. The wastewater tariff will be collected by the Water Company, submitted to Fenghua City, and then appropriated to the Wastewater Company to pay O&M. The following chart presents the cash flows o f the wastewater t a r i f f Cash Flows of Wastewater Tariff WATER COMPANY t 50. The O&M cost o f wastewater collection and treatment includes salaries and welfare o f staff and workers, power, chemicals, maintenance, and management. 88 5 1. The results o f financial projections for wastewater collection and treatment facilities are summarized as follows: Figure 2: Chunhu Wastewater Tariff Revenues, O&M Cost, and Full Cost (unit: RMB 1,000) 16,000 i 14,000 'r- +Wastewater Income I 12,000 - +O&M Cost 8,000 6,000 4,000 2,000 2012 2017 2022 2027 2032 2037 Results of Financial Projection for Chunhu Wastewater Facilities (RMB 1,000) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Water sold (1,000 m3) 4,860 5,115 5,382 5,664 5,960 6,272 6,600 6,945 7,308 7,690 8,093 8,516 Wastewater tariff (RMB, m3) 0.31 0.31 0.69 0.69 0.69 0.76 0.76 0.76 0.83 0.83 0.83 0.92 Increase in rate o f tariff 123% 10% 10% 10% Tariff collection rate 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% Revenue 1,356 1,427 3,342 3,517 3,701 4,284 4,508 4,744 5,491 5,779 6,08 1 7,039 O&M 2,700 3,256 3,353 3,454 3,557 3,664 3,774 3,887 4,004 4,124 4,248 4,375 Interest 2,194 2,064 1,912 1,738 1,565 1,391 1,217 1,044 870 761 718 674 Principal repayment 2,170 2,170 3,040 3,040 3,040 3,040 3,040 3,040 3,040 870 870 870 Depreciation 2,190 2,190 2,190 2,190 2,190 2,190 2,190 2,190 2,190 2,190 2,190 2,190 Financial indicators O&M cost coverage 0.50 0.44 1.00 1.02 1.04 1.17 1.19 1.22 1.37 1.40 1.43 1.61 Debt service coverage ratio -0.31 -0.43 0.00 0.01 0.03 0.14 0.17 0.21 0.38 0.76 0.84 1.22 52. The results o f the financial projection indicate that based o n agreements with Fenghua City, the initial wastewater tariff will be RMB 0.3 l/m3the first year o f operation, and will further increase to RMB 0.69/m3 (123%) to meet O&M within three years o f operation. 89 53. The results o f the financial projection also indicate that the cumulative income o f wastewater tariff over the project lifespan can cover the full cost o f operating the assets o f Chunhu Wastewater. The accumulative income from 2013 to 2039 w i l l be RMB 214 million while the total cost will be RMB 207 million. Rural Wastewater Management 54. The rural wastewater management program w i l l be implementedo n a cost sharing basis. Ningbo Municipality will provide a capital grant o f US$40 million, which will include US$ 20 million o f loan proceeds, while the County and District Governments and Village Committees, representingbeneficiaries, will contribute the remaining capital requirements. Communities will contribute some capital costs and all O&M costs. 55. Completed assets will be transferred to village communities, who will assume ownership and O&M responsibility. They will organize maintenance functions, collect revenues from users and manage the assets. Because appropriate technological solutions will be adopted, maintenance requirements and costs will be affordable to the villages. Additionally, the maintenance tasks are not complex and can be easily carried out by trained village operators. Entity Leve1 A n alysis 56. A financial assessment o f Fenghua City Investment Company, Ltd. (FCIC) was camed out. FCIC i s the Project Implementation Unit (PKJ) for the Chunhu Town Infrastructure Development Component, including the Chunhu Access Road, Fenghua Coastal Water Supply and Chunhu Wastewater Management. 57. FCIC was formed in 2007 to facilitate the financing o f infrastructure development. According to the Budget Law, local governments cannot issue government bonds. Therefore, by 2007, establishing investment companies to borrow money from commercial banks had become a popular practice for local governments who needed to mobilize money to support local development. Before the establishment o f FCIC, there were 13 investment companies in Fenghua City. These investment companies borrowed from local commercial banks and Fenghua Finance Bureau serviced the debt. To strengthenthe management o f these investment companies, FCIC was formed by the Fenghua City Government and i s gradually consolidating the other 13 investment companies. Nevertheless, FCIC faces great challenges. I t needs to set up i t s business strategy so that i t can provide sustainable assistance to the economic development in Fenghua City. I t needs to develop i t s financing strategy to optimize its liability structure which was formed by other investment companies before the establishment o f FCIC. I t needs to form a profit strategy in order to ensure i t s financial viability. Under the project, a TA component i s designed to strengthen the capacity o f FCIC in fields o f business plan, asset management and operation, risk management and mitigation, and development o f financial instruments. 58. To facilitate the preparation, implementation, and operation o f Chunhu Town Infrastructure Development Component, the Government o f Fenghua City signed an asset management agreement with FCIC. According to the agreement, FCIC i s responsible for managing the construction o f Chunhu Town Infrastructure Development Component and taking 90 out loans from local commercial banks as the intermediary o f the local government. After the completion o f the Project, F C I C will transfer the assets to Fenghua City. Fenghua City will outsource O&M o f the assets to professional operators in a competitive manner. FCIC will o w n the assets for 30 years. 59. F C I C will be responsible for servicing the debt o f Chunhu T o w n Infrastructure Development Component. Since all tariffs are submitted to the Government o f Fenghua City, it will provide funds to F C I C for debt service payments. Since the cumulative tariff over the project lifespan can cover the full cost o f Fenghua Coastal Water Supply and Chunhu Wastewater, this provision o f funds does not subsidize FCIC. The role o f the Government o f Fenghua C i t y i s to make up the shortage o f tariffs in the first five years and get back the funds from the surplus o f tariff collections in the later years. 60. The following chart summarizes the cash flows o f tariff collections during the operation o f Chunhu T o w n Infrastructure Development. Water T a r i f f Wastewater Tariff f THE WATER Paying Water 4 COMPANY b O&M Governmentof Fenghua City Paying Fenghua City Investment Company Service f \ THE Paying WASTEWATER . b O&M COMPANY 6 1. Since F C I C i s the PIU for the three project subcomponents, and will eventually be the owner o f the assets, i t i s crucial to ensure that the F C I C has adequate capabilities to supervise construction o f the projects and guarantee their quality. As FCIC has a short track record, adequate risk mitigation measures have to be put in place to ensure project delivery and safeguard the assets. However, FCIC has a number o f subsidiary companies, some o f which have a proven track record in roads and highway construction and operation. Under the project, a TA component has been inlcuded to strengthen the capacity o f FCIC in business planning, asset management and risk analysis. 91 Municipal Level Analysis Ningbo Municipality and Fenghua City Government 62. Most o f the services provided by the project under the theme o f new countryside development are typical public services to improve livelihoods and quality o f l i f e in rural areas, as well as to protect the environment and eco-systems in project areas. According to experience in China, this i s a strong case for government involvement or government-subsidized programs. Municipal financial analysis was conducted for Ningbo Municipality, including the participating Fenghua City, to assess their financial capability. 63. The detailed financing plan i s provided in the table below. Counterpart funds will come mainly from government revenues, especially local tax revenues. Project Financing Plan (Unit: M i l l i o n RMB) Sources o f Funds Total Project Areas Government Investment WB Loan Other Sources Subsidy Ningbo Municipality 417 141 276 Fenghua City 699 202 150 347 Total 1,116 343 426 341 64. The table below further shows the financial capacity and projections o f Ningbo Municipality and Fenghua City for the investment/implementationphase: I Ningbo Municipal Finance and Fenghua City Finance ( U n i i M i l l i o n RMB)Ningbo I Municipal Government 2010 1 201 1 I 2012 I Total I I I I I I I I Municipal Revenue 138,225 152,047 167,252 457,524 I Capital Investment Capacity I 20,734 I 22,807 I 25,088 I 68,629 I 1 Project Contributions I 142 1 142 I 142 I 426 I I Project as % o f Revenues I 0.10% I 0.09% I 0.08% I 0.09% ~~ I Project as % o f Capital Budget 0.68% 0.62% 0.57% 0.62% 2010 201 1 2012 Total Municipal Revenue 5,306 6,102 7,017 18,425 I CapitalInvestment Capacity I 1,592 1 1,831 I 2,105 I 5,528 I I Project Contributions I 50 I 50 I 50 I 150 I 1 Project as % o f Revenues I 0.9% 1 0.8% I ~~ 0.7% ~ I ~~~ 0.8% ~~ I Project as % o f Capital Budget 3.1% 2.7% 2.4% 2.7% 65. Even w i t h slower growth due to the global recession, the financial analysis shows that the counterpart hnding should be affordable to NMG, occupying only 0.1% o f total fiscal revenue and 0.6% o f the capital budget. Moreover, the economy o f Fenghua has been growing rapidly during recent years; even w i t h slower future revenue growth than anticipated due to the global economic slowdown, the analysis indicates that the project i s affordable to Fenghua City Government (FCG). Project counterpart funding from FCG i s less than 1% o f its total revenue and about 3% o f capital budget. Therefore, it can be expected that counterpart financing and loan repayment are manageable to the governments o f Ningbo and Fenghua. 66. During the operation phase, a charge o f similar size has to be taken into account. However, that need will slowly decrease, as tariffs for the water and wastewater operations move towards full cost recovery. Additionally municipal revenues are expected to appreciate, further reducing the project related burden o n NMG & FCG. Given the high priority and acknowledged importance o f water related projects and transportation projects, the needed financial support from NMG & FCG are not considered risky. 93 Annex 10: Safeguard Policy Issues CHINA: Ningbo New Countryside Development Project Environmental Safeguard 1. The task team conducted safeguard screening during project preparation and confirmed at pre-appraisal that the following Bank safeguard policies are triggered: (i) OP4.0 1: Environmental Assessment; (ii) OP4.12: Involuntary Resettlement; and (iii) OP4.37: Safety o f Dams. OP4.01: Environmental Assessment 2. The project development objective i s to improve rural wastewater management in selected villages and enhance infrastructure and township management in a small town, in support o f the New Countryside Development (NCD) Program in Ningbo Municipality. The objective will be accomplished through: (i) rural wastewater treatment and sanitation improvements in about 150 selected villages in Ningbo Municipality; (ii) basic infrastructure investments (a road, water supply and wastewater) to support development o f Chunhu Town and the neighboring areas; (iii) technical assistance in rural development strategy and planning, institutional strengthening, and promotion o f energy efficiency in Chunhu Town. 3. The Bank policy OP 4.01 Environmental Assessment (EA) i s triggered and the project has been classified as Category B. An Environmental Impact Assessment (EIA) was carried out for each project component, and an associated Environmental Management Plan (EMP) has also been developed as part o f the EIA report. Based on each EA report, a Consolidated Environment Assessment (CEA) Report has been compiled to present the key issues o f the sub-project EA reports. The documents have been prepared on the basis o f Chinese legal and policy frameworks for environmental protection, master plans, and environmental plans, as w e l l as any applicable Bank safeguard policies. 4. The project feasibility studies (FSs) were prepared by Chinese design institutes based on the FSs for each project component, and an international consultant was hired to compile the relevant information into a consolidated FS. Ningbo Municipal Institute o f Environmental Sciences -- an EA Certificate A institute working independently o f the consultants for the FS -- tamed out the EIA for each sub-project. Based on the individual EIA reports, the C E A Report was prepared in English. The EL4 reports/EMPs identified potential environmental benefits and consequences o f the project, proposed measures to avoid, mitigate or otherwise compensate adverse environmental impacts during construction and operation, and allowed incorporation of appropriate measures in the design to mitigate negative impacts to a minimum and acceptable level. The documents have been prepared on the basis o f the country's legal and policy framework for pollution control and environmental protection, master plans and environmental plans, as well as applicable World Bank safeguard policies. Technically, the EIA reports applied methodologies set out in various technical guidelines issued by the Ministry o f Environmental Protection (MoEP) and World Bank safeguard policies/technical sourcebooks. The scope o f the project covered by the EIA report i s based on project feasibility study reports for each o f the project components. 94 5. Policy Framework and Institutions. The EIA Law, issued in October 2002 and effective o n 1 September 2003, i s applicable to all construction projects that m a y cause negative impacts o n the environment. According to the Management Regulation o n Environmental Protection for Construction Projects, issued o n November 29, 1998 by the State Council, an EL4 must be prepared during the project feasibility study stage. EIA approval i s a necessary prerequisite for securing a construction and operating permit. 6. At the national level, M o E P i s responsible for drafting and issuing environmental laws and regulation. A t the local level, provincial and municipal Environmental Protection Bureaus (EPBs) are in charge o f drafting and issuing local laws and regulations, organizing environmental monitoring and control, supervising the treatment o f pollution, dealing with major pollution incidents, and carrying out education and training in environmental protection. Accordingly, within its duties, Ningbo EPB reviews and approves the individual EIAs for this project. 7. Project Description. Details are provided in the Annex 4 o f the PAD. 8. Baseline Environmental Conditions. Ningbo, located o n the south-eastem coast o f China, i s an important port city, an economic center in the south o f the Yangtze Delta, and a famous city w i t h a long history. The land area o f the Municipality i s about 9,365 km2with a total population o f 5.7 million. 9. Based o n the information o f 2005-2007, 97% o f monitoring data indicated that the water quality o f drinking water resources for 35 towns can reach required water quality standards. The water contamination i s mainly from organic pollutants, improper use o f chemical fertilizers, and increased discharge o f nitrogen and phosphates. According to the Environmental Quality Statement o f 2007 for the Ningbo Municipality, among the 64 environmental monitoring stations for water quality, 28 satisfied water environmental functioning requirements, which was 43.8% o f total? Air quality was generally acceptable within the range o f given standards. 10. Expected Environmental Benefits. The project will: (i) improve current water supply and help meet future water demand; (ii) reduce pollution discharge from rural villages to Xiangshan B a y and to water bodies; thus improving water quality in rural areas and the health o f local people; (iii) wastewater in Chunhu T o w n and about 150 villages and improve the water treat quality o f rivers, especially upstream o f drinking water resources; (iv) improve the efficiency o f infrastructure service delivery; and (v) improve economic development and connection through road infrastructure. 1 1. Impact Assessment and Mitigation Measures. In the construction phase, the adverse impacts include airborne dust, noise, traffic disruption and disposal o f soil material. In the EMPs, contractors are required to water construction sites during dry and windy seasons, develop careful plans to mitigate noisy construction activities and avoidhan nighttime construction, maintain equipment in good operating conditions, develop temporary traffic plans to detour traffic around construction sites, etc. The table below provides some k e y mitigation measures during construction. 95 Impact Mitigation Measures A t construction sites and during transportation, any unused materials shall be Air covered and any dusty sitedroads shall be watered according to needs. Wastewater from construction camps and construction activities requires proper Water collection and discharge to the assigned facilities. Dredged sediments should be dried and disposed by landfill, or should be used for landscaping and plantation. Solid Construction wastes should be disposed o f at the assigned locations. Solid waste Waste from construction camps should be sent to the sanitary landfill. N o construction activities should be arranged at night. L o w noise equipment Noise should be used on site. Ecologi Timely plantation and landscaping should be arranged for the temporary cal occuDied land 12. The Operation Phase. The proposed components w i l l have many positive effects; most notably, they will: (i) improve current water supply and help meet future water demand, safeguard rural water supply and health o f rural people; (ii) improve water quality o f the related riveddrinking water resources and eventually o f the aquatic ecological environment; and (iii) improve sanitary conditions and public health for the residents in the project areas. 13. Alternative Analysis. In EIA preparation, alternative analysis was carried out for proposed components, such as for road alignment and route, location o f proposed tunnel, location o f proposed wastewater treatment plant in Chunhu Town, and treatment technologies, etc. 14. Public Consultations and Information Disclosure. In accordance w i t h the World Bank policies, public consultation and information disclosure have been conducted during preparation o f the EA. Three forms o f public consultation were conducted, including a public consultation meeting, interviews with project-affected people, and a questionnaire survey. The subproject EIAs provide information on the public consultation activities, including a copy o f the questionnaire and a summary o f the results. The aforementioned activities were conducted from February to March and in M a y 2009 in the project affected areas. 15. Chinese language EL4 documents have been displayed locally at Chunhu Town library and concerned towns/villages. Information regarding the EIA document was disclosed through announcements published in the local newspaper and on the Internet; this information included the major information related to the project, completed EA reports, and display locations, etc. The main means o f disclosure was through following Internet sites: http://www.cnluye.corn/htmVmain/gb23 on M a y 22,2009, http:www.nbhkv.com/first.asp o n 12/ M a y 22,2009, http:www.fhepb.nov.cn/Default.aspx on M a y 26,2009. The English language C E A report was disclosed through the Bank's InfoShop on July 20,2009. 16. Environment Management Plan (EMP). An EMP has been developed as part o f the EIA repok. Based on the information available, a consolidated E M P chapter has been included in the CEA. A section o f the E M P includes policy basis and applicable environmental standards, environmental management systems, mitigation measures, monitoring plans, institutional 96 arrangements, capacity building, and estimated costs for the mitigation measures and monitoring programs for both the construction and operation phases. 17. The EMP includes environmental monitoring programs for both construction and operation phases. The parameters to be monitored include noise, dust, water quality, and solid waste disposal. T o ensure the strict and efficient implementation o f the mitigation measures proposed, including environmental obligations during construction, a program o f monitoring activities has been developed as part o f the EMP. Project progress reports furnished by the N M P M O will include a section o n EMP implementation and related environmental monitoring reports. 18. Environmental Management Framework (EMF). Although the complete project involves wastewater treatment and management components in about 150 villages, only 16 villages have been identified and prepared for the Bank appraisal. Therefore, based o n the discussion and agreement between the Bank and clients, an EMF has been prepared as part o f the CEA to guide I the implementing agencies working o n safeguards-related matters during project implementation. The EMF mainly includes the following: 0 Project scope, composition and implementation schedule; Baseline conditions in the sub-project area and k e y environmental impacts; Environmental assessment arrangements, including legal basis, institutional arrangements, EA consultant, and impact assessment and review/approval arrangements, etc.; and 0 EMP implementation arrangements, including institutional arrangements, k e y mitigation measures in construction and monitoring program, etc. 19. W i t h regard to the potential environmental impact associated with the construction activities o f the energy efficiency pilots in Chunhu Town, since there i s n o specific adverse environmental impact projected for this component, all general mitigation measures in the EMP should be referred to and implemented during construction by the contractor. The PIUs will take responsibility for environmental management. 20. Translation Waiver: In accordance with the revised guidelines o n English translation waiver (March 2008), i t was agreed by the East Asia Pacific Region ( E N ) Safeguards Secretariat in Project Concept Note (PCN) stage Integrated Safeguard Data Sheet (ISDS) review meeting dated February 9,2009 that the EIA.prepared for each project component and the associated E M P developed for each project component will be in the Chinese language. The CEA Report has been translated into English. The Bank team has provided comments o n the draft report and the revised CEA was submitted to the Bank o n August 15,2009. OP4.12: Involuntary Resettlement 2 1. The Project includes three components: (i)Rural Wastewater Management in about 150 villages; (ii) Chunhu T o w n Infrastructure Development comprising Chunhu Access Road, Fenghua Coastal Water Supply, and Chunhu T o w n Wastewater Management; and (iii) Capacity Building and Implementation Support. 97 22. Efforts have been made to minimize resettlement impacts during project planning and design. Resettlement impacts have been significantly reduced through optimizing project design and implementation arrangements, but some resettlement cannot be avoided. To mitigate resettlement impacts effectively, one Resettlement Action Plan (RAP) was prepared for the Chunhu Town Infrastructure Development Component (in both Chinese and English), and one Resettlement Policy Framework (RPF) was prepared mainly for the Rural Wastewater Management Component, with i t s principles also applicable to the Chunhu Town Infrastructure Development Component. These documents cover possible resettlement impacts involved in energy efficiency improvements in Chunhu Town, and additional resettlement impacts that may be caused by project design changes during implementation. 23. During project design, project owners and DIs assessed possible linkages with ongoing or previous activities, and found that a linkage issue exists in Fenghua Coastal Water Supply component. To address the linkage issue, a retroactive resettlement review was prepared as attached as an Annex o f the RAP. 24. These resettlement instruments were prepared in compliance with OP 4.12: Involuntary Resettlement, and relevant domestic laws and regulations. Affected villages and communities, and potentially-displaced persons participated in the process o f resettlement planning. The resettlement impacts, affected populations, consultation processes, renovation measures, budget, and implementation and monitoring arrangements are provided in the RAP. 25. Resettlement Impacts. The resettlement impacts are scattered in six villages o f two townships. The project will affect 287 people (95 households) by 262 mu o f permanent land acquisition and 3,479 m2o f housing demolition. In addition, 14 households (39 people) will be affected by housing demolition in addition to the impacts o f land acquisition. 26. Policy Principles and Legal Framework. The RAP was prepared in line with relevant Chinese laws and regulations (both national and local laws) and World Bank OP 4.12 on Involuntary Resettlement. The following basic principles were adopted for resettlement planning: Acquisition o f land and other assets, and relocation o f people, will be minimized as much as possible. 0 All project affected people residing in, working in, doing business in or cultivating land required for the project as o f the date o f the baseline surveys are entitled to compensation measures that can sufficiently help them improve or at least maintain their pre-project living standards, income-earning capacity, and production levels. Lack o f legal rights to the assets lost will not bar them from entitlement to such compensation measures. 0 Compensation measures for land acquisition are: (i) agricultural land for land o f equal productive capacity; (ii) compensation for land acquisition, and resettlement subsidy for the farmers affected by land acquisition; and (iii) other forms o f assistance. 0 Replacement o f agricultural land will be, as much as i s possible, similar to the land that was lost. 98 0 Plans for acquisition o f land and other assets, and provision o f compensation measures will be carried out in consultation with the affected people. Financial and physical resources for resettlement and compensation will be made available as required. Institutional arrangements will ensure effective and timely design, planning, consultation and implementation o f the RAP. 0 Effective and timely supervision, monitoring and evaluation o f implementation will be carried out. 27. Compensation Standards. Compensation for land acquisition includes land compensation, resettlement subsidy, and young crop compensation. Land acquisition compensation i s determined according to the L a w o f L a n d Administration and the local implementation guidelines o f the Land Law. Compensation rates for structures are determined based o n their replacement cost. Detailed compensation rates are included in the RAP. 28. Institutional Arrangements. A multi-level organization has been established for the implementation o f the RAP. An independent monitor will be selected through a bidding process to monitor resettlement implementation. Details o f staffing and staff responsibilities are provided in the RAP.. 29. Public Consultation and Participation. Affected people and local governments participated in the census, inventory and formulation o f the livelihood compensation strategy, including measures and relocation sites. Their feedback has been incorporated in determining the compensation rates and livelihood compensation measures. The RAP contains a l i s t o f the major consultation sessions. 30. Complaints and Grievances. Issues that arise with respect to the resettlement, such as compensation payment and measures, will be handled by following procedures established: Step I :Displaced persons shall appeal verbally o r in written form to the village committee o r project resettlement implementing institution if they are not satisfied with resettlement plan. For verbal appeal, the village committee and resettlement institution should record complaints in written form, and solve the problems within two weeks; Step 2: If displaced persons are still not satisfied with the decision o f Phase 1, they shall appeal to the local Project Management Offices (PMOs)/project administration institutions after receiving the decision notice, and the latter should resolve the matter within t w o weeks; Step 3: If displaced persons are s t i l l not satisfied w i t h the decision o f local PMOs/project administration institutions, they shall appeal to subproject leading team or local L a n d Bureau after receiving decision notice. The latter should handle the case w i t h i n two weeks; and Step 4: If displaced persons are still not satisfied with the decision o f the subproject leading team or local Land Bureau, they m a y file a lawsuit in a c i v i l l a w court for a decision. 3 1, Monitoring Arrangements. B o t h internal and external monitoring will b e carried out. Project resettlement offices will carry out internal monitoring o f resettlement implementation. An independent monitor will be selected for external monitoring. The contents and schedule o f both internal and external monitoring are described in the RAP. 99 32. Resettlement Cost and Funding Arrangements. The RAP contains a detailed resettlement cost estimate that covers all the basic costs for resettlement, management, contingencies, surveys, design and monitoring. The basic resettlement cost includes compensation for land, houses, other structures, standing crops and trees, business profit loss, reconstruction o f affected infrastructure and relocation subsidies. The total resettlement budget is estimated at RMB 24.3 million. Resettlement costs w i l l be covered through counterpart funds. Project owners will allocate resettlement funds to resettlement implementation agencies. The resettlement implementation agencies will disburse the fund to affected persons or entities. 33. Information Disclosure: The RAP was disclosed through local media on July 21, 2009 and was made available at the PMO, Project Implementation Units (PIUS), public libraries, and on websites. Telephone hotlines were established for the public to access relevant documents and offer comments. The English language RAP and RPF were submitted to the Bank by June 26, 2009 and disclosed through the Infoshop on July 21,2009. OP4.37: Safety o f Dams 34. The Dam Safety Safeguard Policy i s triggered by the project because the proposed water supply to Chunhu Town comes from Fenghua City's water works, while the source for Qiujiashan Water Works i s the Hengshan Reservoir. A dam safety inspection was carried out in July 2009 as part o f project preparation, and a report has been compiled. A summary o f the report i s provided below. 35. The Hengshan Reservoir was built in 1966, originally as a clay-cored soil-shell dam with a maximum height o f 48.60 m and a reservoir capacity o f 50.08 million m3.Extension and upgrading works were initiated in 1987. The structure is a concrete faced rock fill dam (CFRD). In December, 2005, the Water Resources Bureau o f Fenghua City organized and conducted a dam safety assessment o f the Hengshan Reservoir, which was categorized as a Class 2 dam. 36. Present Status o f Dam Safety. According to the dam safety assessments report and findings o f World Bank experts' site inspection (carried out o n July 30,2009), the existing problems which may affect the dam safety are as follows: (i) settlement evidenced by a number o f transverse cracks on the upstream parapet wall, (ii) rusted protective iron plates between plinth and peripheral joints, (iii)water leakage in the observation tunnel, (iv) reinforcement bars in the flood gate not up to specifications, (v) cavitation and erosion in the adit at the outlet o f the empty tunnel, and exposed reinforcement bars, and (vi) absence o f seepage monitoring equipment. 37. Due to the aforementioned potential safety hazards, the reservoir operator worked out a low-flood-control-level operation plan, and acquired consent from the Flood Control and Drought Relief Headquarters o f Zhejiang Province and the Water Resources Department o f Zhejiang Province. Strengthening and renovation works were approved by the D R C o f Ningbo Municipality by letter [2009] 155 dated April 3, 2009. The proposed strengthening and renovation works include: 100 Reconstruction and renovation o f the dam crest structures o f the barrage; application o f polyurea o n CFRD concrete face and floor plate o f the flood discharge gates for seepage- p r o o f purpose; treating the cracks o f expansion joints o f concrete face and peripheral joint with SR-2 plastic filling material; leakage treatment o f tunnels inside the concrete gravity dam; treatment works o n downstream side o f the dam. Structural reinforcement and seepage-proof treatment against flood discharge gates; demolishing and reconstruction o f hoist rooms, and dismantle and re-erection o f hoists; replacement o f hoists serving the radial gate. Renovating the left bank water supply tunnel. Strengthening the right bank empty tunnel. Upgrading the dam safety monitoring equipment, in addition to seepage monitoring device. 38. Bid preparation for the strengthening and renovation works i s underway, and the w o r k will be commenced by the end o f the current flood season. The m a i n works are scheduled to be completed in December 2010. 39. D a m Operation, Maintenance and Surveillance. The operation, maintenance and surveillance o f the Hengshan Reservoir are satisfactory. 40. Emergency Processing Plan. The coverage o f the plan i s adequate, and the plan i s operational to a certain extent. 41. Conclusions and Recommendations. (i) l o w flood control level operation plan needs the to be implemented, given the existing safety hazards which m a y affect the dam safety; (ii) strengthening and renovation o f the Hengshan Reservoir i s necessary in view o f the potential safety hazards; (iii) safety monitoring equipment needs upgrading; and (iv) the emergency dam plan i s satisfactory. Indigenous People 42. Social screening has been done through interviews with government officials, desk review o f government statistics and field visits. I t was concluded that there are n o ethnic minority communities in the project areas. The social assessment camed out by the consultant further confirms the results o f the screening. Therefore, the Bank's Policy o n Indigenous Peoples (OP 4.10) i s not triggered. Social Assessment 43. The proposed project will have significant social benefits. The Rural Wastewater Management component will: improve environmental and health conditions o f project areas and the health o f rural habitants; decrease discharge o f contaminants to local rivers; and protect water quality o f drinking water sources within areas o f Ningbo Municipality. The Chunhu T o w n Infrastructure Development component will improve the water supply service and infrastructure, and thereby enhance the living conditions in the project areas. 101 44. As part o f project preparation, a social assessment has been carried out. Through the process o f social assessment, potential stakeholders were well informed, useful socioeconomic information was collected for project design, potential positive and negative impacts were identified, and peoples' willingness to pay for the services were assessed. A community participation mechanism was designed for the Rural Wastewater Management component. Community Participation 45. Community participation i s critical for the Rural Wastewater Management component. Experience shows that lack o f community participation was one o f the factors which resulted in the past failure o f wastewater treatment systems in rural areas o f Ningbo Municipality. To ensure participation o f informed community in the entire cycle o f the project (planning, construction, and operation) a community participation manual has been prepared. The key principles and steps o f community participation are highlighted in the Community Participation Guidelines. 46. Key Principles 1. Potential project villages should be fully informed about the project, including project contents, ownership, house connection cost, government subsidy, and maintenance responsibility, etc.; 2. At least 80% o f households in the village should express their willingness to participate in the program before the village i s finally selected as a project village; 3. Local people should be informed and consulted with on the technical options for wastewater treatment within the village; and 4. Before starting construction, maintenance arrangements and a management plan for wastewater facilities within the village should be established, and house connection agreement has to be reached with at least 80% o f households in the village. 47. Key Steps 1. Dissemination o Project information. To disseminate detailed project information to f candidate villages which are determined by county PMOSbased on certain criteria. 2. Consultation with local people to confirm their participation. To consult with villagers to assess their willingness to participate in the program, based on their understanding o f the project. The villages with 80% o f households willing to participate in the project can move to the next step for technical design. The responsibility to assume ownership and undertake operations and maintenance (O&M) with their own resources must be explained clearly as part o f the commitment to participate in the program. Further information dissemination needs to be done in the villages where 80% o f households have not made a commitment. 3. Establishment o Institutional arrangements in the village for project implementation and f operation. In most cases, the existing village committee should take primary responsibility for project implementation. Otherwise, an organization should be established at the village level for project implementation based on broad consultation with villagers. 102 4. Involvement o local people in selection o technical options. Local people should be f f engaged in selection o f technical options for wastewater treatment in the village, to ensure that the technical solution with cost estimation o f households' contribution for construction and maintenance i s acceptable to the villagers. 5. Consultation with local people in determining the construction plan: Project construction plan should be determined in consultation with local people, including timing, alignment o f pipeline, sites o f septic tanks, location o f terminal treatment facilities, and ways o f obtaining land for construction, etc. Through these consultations, i t would be possible to ensure that 80% o f households can be committed to the proposed construction plan. 6. Arrangements for maintenance and operation management: Consultation should inform people o f the plan to transfer ownership o f assets and the responsibility o f villages for O&M. Locals should be informed about the maintenance requirements, the estimated costs, and the organization measures o f O&M, including training o f village operators. 7. Communityparticipation in construction: Options should be open to the community and to individual households for their participation in construction by contributions in cash or in kind. Construction should commence after obtaining agreement o f 80% o f households' to connect to the system, along with the commitment o f the entire village to assume responsibility for O&M functions. 8. Community participation in operation and management: Village communities should be informed of, and helped with, organizing O&M, including: (i) assigning one or more persons to be trained on the maintenance functions; working with the contractor during construction to acquire the necessary skills and knowledge, and using project technical assistance; (ii) having oversight and participating in the project completion review; and (iii) obtaining a full understandingo f the terms o f the agreement that would be signed between the village committee and the Government, describing the responsibilities o f those with ownership o f the assets. 103 Annex 11: Project Preparation and Supervision CHINA: Ningbo New Countryside Development Project Planned Actual ~~ ~~~~ ~~ ~ PCN review December 17,2008 December 17,2008 Initial PID to PIC January 6,2009 January 6,2009 Initial ISDS to PIC January 6,2009 January 26,2009 Appraisal August 20,2009 September 20,2009 Negotiations January 20 10 January 11,2010 Board/RVP approval February 2010 Planned date o f effectiveness July 1,2010 Planned date o f mid-term review July 1,2013 Planned closing date March 31.2016 Key institutions responsible for preparation o f the project: Ningbo Municipal Development and Reform Commission Ningbo Municipal Finance Bureau Ningbo Municipal Agriculture Affairs Office Ningbo Municipal Project Management Office Bank staff and consultants who worked on the project: Name Title Unit Shenhua Wang Task Team Leader EASIN Jian Xie Co-Task Team Leader EASER Chongwu Sun Senior Environmental Specialist EASCS Chaogang Wang Senior Social Development Specialist SDV Ji You Urban Specialist EASCS Feng Liu Senior Energy Specialist ETWES Miki Endo Operations Officer ETWES Yuan Wang Procurement Analyst EAPCO Yi Dong Sr. Financial Management Specialist EAPFM Fang Zhang Financial Management Analyst EAPFM Junxue Chu Senior Finance Officer CTRFC Margaret Png Lead Counsel LEGEM Chandra Godavitarne Municipal Engineer Consultant Qihong Zhao Environmental Engineer Consultant Boping Gao Highway Engineer Consultant Wu Ning Financial Specialist Consultant Xujun Liu Procurement Specialist Consultant Hongjun Wang Financial Specialist Consultant Dimitri de Boer Economist Consultant Jiangyhg Zhu Financial Assistant Consultant Hiromi Yamaguchi Operational Analyst Consultant Vellet Fernandes Program Assistant EASIN Xuemei Guo Program Assistant EACCF 104 Peer Reviewers: Victor Vergara Sector Leader EASIN Catherine Farvacque- Lead Urban Specialist WBIUR Vitkovic Anthony Bigio Senior Urban Specialist MNSUR Eduardo Perez Senior Water and Sanitation Specialist ETWWP 105 Annex 12: Documents in the Project File CHINA: Ningbo New Countryside Development Project A. Government and Consultant Reports 1. Proposal on Fenghua Coastal Water Supply Project Funded by World Bank, prepared by Central and Southern China Municipal Engineering Design & Research Institute, December 2008. 2. Project Feasibility Study Report on Chunhu Town WWTP and Pipe Network, preparedby Beijing BCEG Golden Sources E.P.D. Co., Ltd., January 2009. 3. Project Feasibility Study Report on Access Highway o f Chunhu Town (Report), prepared by Zhejiang Highway & Water TransportationEngineering & Consulting Corp., December 2008. 4. Project Feasibility Study Report on Access Highway o f Chunhu Town (Chart), prepared by Zhejiang Highway & Water TransportationEngineering & Consulting Corp., December 2008. 5. Brief Feasibility Study on Sewage Management o f Six SelectedVillages under Rural Sewage Management Sub-Project, prepared by Ningbo Municipal RAO and Hydrochina Huadong Engineering Corporation, January 2009. 6. Feasibility Study (Chart) on Sewage'Management o f Six Selected Villages under Rural Sewage Management Sub-Project, preparedby Ningbo Municipal RAO and Hydrochina Huadong Engineering Corporation, January 2009. 7. Feasibility Study on Rural Wastewater Treatment Project o f Changzhao Village, Dayan Township, Fenghua City, prepared by Construction EngineeringDesign Institute o f Ningbo University and Construction Engineering and Environment Institute o f Ningbo University, December 2008. 8. Feasibility Study (Chart) on Rural Wastewater Treatment Project o f Changzhao Village, Dayan Township, Fenghua City, prepared by Construction EngineeringDesign Institute o f Ningbo University and Construction Engineering and Environment Institute o f Ningbo University, December 2008. 9. Feasibility Study and Engineering Design on Rural Wastewater Treatment Project o f Xinhua Village, Huangtan Township, Ninghai Country, preparedby Construction Engineering Design Institute o f Ningbo University and Construction Engineeringand Environment Institute o f Ningbo University, December 2008. 10. Feasibility Study and Engineering Design (Chart) on Rural Wastewater Treatment Project of Xinhua Village, Huangtan Township, Ninghai Country, prepared by 106 Construction Engineering Design Institute o f Ningbo University and Construction Engineeringand Environment Institute o f Ningbo University, December 2008. 11, Feasibility Study and EngineeringDesign on Rural Wastewater Pipe Network Project o f Houmao Village, Jiangshan Township, Yinzhou District, preparedby Construction Engineering Design Institute o f Ningbo University and Construction Engineeringand Environment Institute o f Ningbo University. 12. Feasibility Study and EngineeringDesign (Chart) on Rural Wastewater Pipe Network Project o f Houmao Village, Jiangshan Township, Yinzhou District, prepared by Construction EngineeringDesign Institute o f Ningbo University and Construction Engineering and Environment Institute o f Ningbo University. 13. Environmental Impact Assessment Report on Access Highway o f Chunhu Town, Fenghua City (Approval Copy), preparedby Ningbo Municipal Research & Design Institute o f Environmental Protection, January 2009. 14. Environmental Impact Assessment Report on Chunhu Town WWTP and Pipe Network Project (First Draft), preparedby Ningbo Municipal Research & Design Institute o f EnvironmentalProtection, January 2009. 15. Catalogue of Environmental Impact Assessment Report on Rural Wastewater Treatment Project. 16. Social Assessment Report (Appraisal), prepared by HydrochinaHuandong EngineeringCorporation, January 2009. 17. 1 Social Assessment Report Appendix 1 : Community Participation Manual (Appraisal), prepared by Hydrochina Huadong Engineering Corporation, June 2009. 18. ResettlementAction Plan on Sub-project o f Small Town Development of Chunhu, Fenghua (Appraisal), 19. Resettlement Policy Framework (Appraisal), prepared by Hydrochina Huandong Engineering Corporation, June 2009. 20. Consolidated EnvironmentAssessment Report, prepared by Ningbo Municipal Research & Design Institute o f Environmental Protection, January 2009. 21. Dam Safety Assessment Report, July 3 1,2009 22. Ningbo New Countryside Development Project Volume 1: Overall Feasibility Study Report, prepared by Sogreah, June 2009. 23, Ningbo New Countryside Development Project Volume 2: Technical Guidelines for Village Wastewater Management, prepared by Sogreah, July 2009. 107 24. Implementation Manual for Ningbo Rural Wastewater Management Component, prepared by Sogreah, August 2009. 25. Key Project Documents on Rural Wastewater Management: (i) Framework for Implementation o f Rural Wastewater; (ii) Community Participation Guidelines; and (iii) Technical and Operations Manual. B. Bank Staff Assessments/Aide Memoires 1. Identification Mission Aide Memoire, M a y 2008. 2. Identification Follow-up Mission Aide Memoire, September 2008. 3. Preparation Mission Aide Memoire, January 2009. 4. Pre-appraisal Mission Aide Memoire, M a y 2009. 5. Appraisal Mission Aide Memoire, September 2009. 108 Annex 13: Statement o f Loans and Credits CHINA: Ningbo New Countryside Development Project Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO91950 2009 CN-Guizhou Cultural and Natural Heritage 60.00 0.00 0.00 0.00 59.85 0.00 0.00 PO96556 2009 CN-Eco-Farming 120.00 0.00 0.00 0.00 0.00 114.70 5.00 0.00 PO96707 2009 - CN GD Tech&Vocational ED and 20.00 0.00 0.00 0.00 0.00 19.95 0.75 0.00 Training PO968 12 2009 CN-Yunnan Urban Env 90.00 0.00 0.00 0.00 0.00 85.78 -4.00 0.00 PO96923 2009 CN-Shanghai APL 111 200.00 0.00 0.00 0.00 0.00 199.50 0.00 0.00 PO96926 2009 CN-Jiangsu Water and Wastewater Project 130.00 0.00 0.00 0.00 0.00 129.68 0.00 0.00 PI00968 2009 CN-Shanxi Coal Bed Methane 80.00 0.00 0.00 0.00 0.00 79.80 0.20 0.00 Development PI01258 2009 CN-Hubei Yiba Highway 150.00 0.00 0.00 0.00 0.00 149.63 0.00 0.00 P101829 2009 CN Xining Flood and Watershed Mgmt 100.00 0.00 0.00 0.00 0.00 99.75 4.00 0.00 P101988 2009 CN-Jiangxi Shihutang Navi & 100.00 0.00 0.00 0.00 0.00 83.58 32.17 0.00 Hydropower P I 14107 2009 CN-Wenchuan EarthquakeRecovery 710.00 0.00 0.00 0.00 0.00 648.00 -62.00 0.00 Project P I 12359 2009 CN-NanGuangRailway 300.00 0.00 0.00 0.00 0.00 299.25 0.00 0.00 PI07559 2009 CN-Guizhou-GuangzhouRailway 300.00 0.00 0.00 0.00 0.00 299.25 0.00 0.00 PO85376 2008 CN-Migrant Skills Dev. and Employment 50.00 0.00 0.00 0.00 0.00 47.85 0.97 0.00 PO91949 2008 CN-GansuCultural & Natural Heritage 38.40 0.00 0.00 0.00 0.00 33.24 1.65 0.00 PO84874 2008 CN- Energy Efficiency Financing 200.00 0.00 0.00 0.00 0.00 150.07 0.34 0.00 PO84437 2008 CN-Rural Health 50.00 0.00 0.00 0.00 0.00 46.18 -2.20 0.00 PO92631 2008 CN-Xi'an Sustainable Urban Transport 150.00 0.00 0.00 0.00 0.00 139.63 -10.00 0.00 PO93882 2008 CN-ShandongFlue Gas Desulfurization 50.00 0.00 0.00 0.00 0.00 39.92 16.94 0.00 PO93963 2008 CN-Guiyang Transport 100.00 0.00 0.00 0.00 0.00 59.28 19.77 0.00 PO87224 2008 CN-Han River Urban Environment 84.00 0.00 0.00 0.00 0.00 81.55 21.99 0.00 PO99112 2008 CN-Anhui Highway Rehab & 200.00 0.00 0.00 0.00 0.00 121.91 -48.59 0.00 lmprovement PO99062 2008 CN-ShiZheng Railway 300.00 0.00 0.00 0.00 0.00 299.25 20.00 0.00 PO96925 2008 CN- Bengbu Integrated Environment 100.00 0.00 0.00 0.00 0.00 94.54 8.79 0.00 lrnprov PO99224 2008 CN-Liaoning Med. Cities (LMC) 111 191.OO 0.00 0.00 0.00 0.00 180.52 39.98 0.00 PO88964 2007 CN-Guangxi Integrated Forestry Dev 100.00 0.00 0.00 0.00 0.00 23.18 -47.82 0.00 PO91020 2007 CN-Fujian Highway Sector Investment 320.00 0.00 0.00 0.00 0.00 75.10 -68.10 0.00 PO92618 2007 CN-LIAONING MED CITIES INFRAS 2 173.00 0.00 0.00 0.00 0.00 162.57 31.10 0.00 PO95315 2007 CN-W. Region Rural Water & Sanitation 25.00 0.00 0.00 0.00 0.00 18.52 0.08 0.00 PO96285 2007 CN-MSE Finance 100.00 0.00 0.00 0.00 0.00 5.00 5.00 0.00 PO83322 2007 CN-SICHUAN URBAN DEV 180.00 0.00 0.00 0.00 0.00 124.19 85.19 0.00 PO75613 2007 CN-Shaanxi Ankang Road Development 300.00 0.00 0.00 0.00 0.00 124.01 -36.30 0.00 PO81776 2007 CN-GUANGDONGPRDZ 96.00 0.00 0.00 0.00 0.00 84.31 17.31 0.00 PO86515 2007 CN-3rd National Railway 200.00 0.00 0.00 0.00 0.00 56.46 -36.1 1 0.00 PO77752 2007 CN-SHANDONG ENVMT 2 147.00 0.00 0.00 0.00 0.00 8 1.52 -22.98 0.00 PO93906 2006 CN-3rd Jiangxi Hwy 200.00 0.00 0.00 0.00 0.00 10.33 -24.67 0.00 PO81348 2006 CN-HENAN TOWNS WATER 150.00 0.00 0.00 0.00 0.00 117.68 50.18 0.00 109 PO96158 2006 1 CN-Renewable Energy I1 (CRESP 1 ) 86.33 0.00 0.00 0.00 1.65 37.98 3 1.36 0.00 PO81255 2006 CN-ChangjiangIPearl River Watershed 100.00 0.00 0.00 0.00 0.00 88.57 48.57 0.00 Reha PO75732 2006 CN-SHANGHAI URBAN APL2 180.00 0.00 0.00 0.00 0.00 78.09 33.09 0.00 PO99992 2006 CN-Liaoning Medium Cities Infrastructure 218.00 0.00 0.00 0.00 0.00 154.73 46.73 0.00 PO705 19 2006 CN-Fuzhou Nantai Island Pen-Urban Dev 100.00 0.00 0.00 0.00 0.00 72.49 34.99 0.00 PO86629 2006 CN-Heilongjiang Dairy 100.00 0.00 0.00 0.00 0.00 74.43 73.93 0.00 PO85333 2006 CN-5th Inland Waterways 100.00 0.00 0.00 0.00 0.00 11$2 11.82 0.00 PO85124 2006 CN-Ecnomic Reform Implementation 20.00 0.00 0.00 0.00 0.00 14.18 14.18 0.00 PO69862 2005 - CN Agricultural Technology Transfer 100.00 0.00 0.00 0.00 0.00 49.17 42.67 0.00 PO75730 2005 CN-HUNAN URBAN DEV 172.00 0.00 0.00 0.00 0.00 115.44 81.44 0.00 PO57933 2005 CN-TAI BASIN URBAN ENVMT 61.00 0.00 0.00 0.00 0.00 6.96 7.26 0.00 PO7 1094 2005 - CN Poor Rural Communities 100.00 0.00 0.00 0.00 0.00 27.56 25.06 0.00 Development PO81161 2005 CN-CHONGQING SMALL CITIES 180.00 0.00 0.00 0.00 0.00 60.37 36.62 0.00 PO86505 2005 CN-NINGBO WATER & ENVMT 130.00 0.00 0.00 0.00 0.00 9.34 -13.16 0.00 PO81346 2005 CN-LIUZHOU ENVIRONMENT MGMT 100.00 0.00 0.00 0.00 0.00 24.11 10.56 0.00 PO66955 2004 CN-ZHEJIANG URBAN ENVMT 133.00 0.00 0.00 0.00 0.00 51.02 51.02 -4.98 PO65463 2004 CN-Jiangxi Integrated Agric. Modem. - 100.00 0.00 0.00 0.00 0.00 8.60 6.86 0.00 PO65035 2004 CN-Gansu & Xinjiang Pastoral 66.27 0.00 0.00 0.00 0.00 0.92 0.44 0.00 Development PO77137 2004 CN-4th Inland Waterways 91.00 0.00 0.00 0.00 0.46 6.71 6.16 5.71 PO75728 2004 CN-GUANGDONGRRD UR ENVMT 128.00 0.00 0.00 0.00 0.64 63.91 64.55 0.00 PO68058 2003 CN-Yixing Pumped Storage Project 145.oo 0.00 0.00 0.00 0.00 32.11 32.11 0.00 PO70191 2003 CN-SHANGHAI URB ENVMT APLl 200.00 0.00 0.00 0.00 0.00 35.40 35.40 0.00 PO40599 2003 CN-TIANJIN URB DEV I1 150.00 0.00 0.00 0.00 0.00 90.82 87.82 32.06 PO71147 2002 CN-TuberculosisControl Project 104.00 0.00 0.00 0.00 2.17 3.55 5.72 0.00 Total: 8,729.00 0.00 0.00 0.00 4.92 5,563.8 1 773.84 32.79 CHINA STATEMENT OF IFC's Held and Disbursed Portfolio In Millions o f U S Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2006 ASIMCO 0.00 0.00 4.12 0.00 0.00 0.00 3.61 0.00 2005 BCCB 0.00 59.21 0.00 0.00 0.00 59.03 0.00 0.00 2003 BCI3 0.00 0.00 12.04 0.06 0.00 0.00 0.00 0.00 2006 BUFH 8.14 0.00 0.00 0.00 8.14 0.00 0.00 0.00 2005 Babei 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 Babei Necktie 11.00 0.00 0.00 6.00 8.94 0.00 0.00 4.88 1999 Bank of Shanghai 0.00 21.76 0.00 0.00 0.00 21.76 0.00 0.00 2000 Bank o f Shanghai 0.00 3.84 0.00 0.00 0.00 3.84 0.00 0.00 110 2002 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 2005 BioChina 0.00 3.70 0.00 0.00 0.00 3.13 0.00 0.00 2002 CDH China Fund 0.00 2.02 0.00 0.00 0.00 0.00 0.00 0.00 2005 CDH China I1 0.00 17.99 0.00 0.00 0.00 11.38 0.00 0.00 2006 CDH Venture 0.00 20.00 0.00 0.00 0.00 0.51 0.00 0.00 2005 CT Holdings 0.00 0.00 40.00 0.00 0.00 0.00 0.00 0.00 2004 CUNA Mutual 0.00 10.53 0.00 0.00 0.00 0.00 0.00 0.00 2006 Capital Today 0.00 25.00 0.00 0.00 0.00 0.32 0.00 0.00 2005 Changyu Group 0.00 18.07 0.00 0.00 0.00 18.07 0.00 0.00 1998 Chengdu Huarong 3.36 3.20 0.00 3.13 3.36 3.20 0.00 3.13 2004 China Green Ener 20.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 2004 China Re Life 0.00 0.27 0.00 0.00 0.00 0.27 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 2006 Chinasoft 0.00 0.00 15.00 0.00 0.00 0.00 10.00 0.00 2004 Colony China 0.00 15.31 0.00 0.00 0.00 9.29 0.00 0.00 2004 Colony China GP 0.00 0.84 0.00 0.00 0.00 0.49 0.00 0.00 2006 Conch 81.50 40.93 0.00 0.00 81.50 0.00 0.00 0.00 2006 Dagang Newspring 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 Darong 10.00 0.24 0.00 8.00 6.67 0.24 0.00 5.33 2006 Deqingyuan 0.00 2.85 0.00 0.00 0.00 2.85 0.00 0.00 1994 Dynamic Fund 0.00 2.21 0.00 0.00 0.00 2.01 0.00 0.00 2007 Epure 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Fenglin 17.64 0.00 6.00 13.47 13.64 0.00 6.00 12.53 2006 Fenglin HJ MDF 0.23 0.00 0.00 3.27 0.00 0.00 0.00 0.00 2005 Five Star 0.00 0.00 7.00 0.00 0.00 0.00 0.00 0.00 2006 GDIH 50.85 0.00 0.00 0.00 50.85 0.00 0.00 0.00 2003 Great lnfotech 0.00 1.73 0.00 0.00 0.00 1.03 0.00 0.00 2006 Hangzhou RCB 0.00 10.85 0.00 0.00 0.00 0.00 0.00 0.00 2005 HiSoft Tech 0.00 4.00 0.00 0.00 0.00 3.00 0.00 0.00 2006 HiSoft Tech 0.00 4.34 0.00 0.00 0.00 1.74 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 52.18 0.00 0.00 2004 Jiangxi Chenming 40.00 12.90 0.00 18.76 40.00 12.90 0.00 18.76 2006 Launch Tech 0.00 8.35 0.00 0.00 0.00 8.33 0.00 0.00 2001 Maanshan Carbon 5.25 2.00 0.00 0.00 5.25 2.00 0.00 0.00 2005 Maanshan Carbon 11.00 1.oo 0.00 0.00 5.00 1.oo 0.00 0.00 2005 Minsheng 15.75 0.00 0.00 0.00 7.00 0.00 0.00 0.00 2006 Minsheng & IB 25.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Minsheng Bank 0.00 23.50 0.00 0.00 0.00 23.50 0.00 0.00 2005 Minsheng Bank 0.00 2.80 0.00 0.00 0.00 2.79 0.00 0.00 2001 NCCB 0.00 8.94 0.00 0.00 0.00 8.82 0.00 0.00 1996 Nanjing Kumho 0.00 3.81 0.00 0.00 0.00 3.81 0.00 0.00 2004 Nanjing Kumho 3 1.38 2.23 0.00 0.00 3 1.38 2.23 0.00 0.00 2006 Neophotonics 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2001 New China Life 0.00 5.83 0.00 0.00 0.00 5.83 0.00 0.00 2005 New Hope 0.00 0.00 45.00 0.00 0.00 0.00 0.00 0.00 1995 Newbridge Inv. 0.00 0.22 0.00 0.00 0.00 0.22 0.00 0.00 2005 North Andre 8.00 6.74 0.00 0.00 0.00 4.25 0.00 0.00 2003 PSAM 0.00 2.01 0.00 0.00 0.00 0.00 0.00 0.00 RAK China 13.00 0.00 0.00 0.00 13.00 0.00 0.00 0.00 111 2006 Renaissance Sec 0.00 0.00 20.04 0.00 0.00 0.00 0.00 0.00 2006 Rongde 0.00 35.00 0.00 0.00 0.00 31.38 0.00 0.00 SAC HK Holding 0.00 1.60 0.00 0.00 0.00 1.oo 0.00 0.00 2003 SAIC 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00 2006 SBCVC 0.00 20.00 0.00 0.00 0.00 2 .oo 0.00 0.00 2000 SEAF SSlF 0.00 3.74 0.00 0.00 0.00 3.37 0.00 0.00 S Keji IT H 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 SHCT 38.18 0.00 0.00 28.64 29.04 0.00 0.00 21.78 2004 SIBFI 0.14 0.07 0.00 0.00 0.00 0.07 0.00 0.00 1998 Shanghai Kn~pp 19.25 0.00 0.00 36.75 19.25 0.00 0.00 36.75 2006 Shanshui Group 50.00 5.50 2.20 0.00 50.00 5.50 0.00 0.00 1999 Shanxi 12.61 0.00 0.00 0.00 12.61 0.00 0.00 0.00 SinoSpring 0.00 0.00 20.00 0.00 0.00 0.00 0.00 0.00 Stora Enso 20.83 0.00 0.00 4.17 11.00 0.00 0.00 0.00 2005 Stora Enso 29.17 0.00 0.00 20.83 0.00 0.00 0.00 0.00 2006 Stora Enso 50.00 0.00 0.00 175.00 0.00 0.00 0.00 0.00 2006 TBK 4.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00 2006 VeriSilicon 0.00 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 Wanjie High-Tech 9.89 0.00 0.00 0.00 9.89 0.00 0.00 0.00 2004 Wumart 0.00 1.62 0.00 0.00 0.00 1.62 0.00 0.00 2003 XACB 0.00 17.95 0.00 0.00 0.00 0.64 0.00 0.00 2004 Xinao Gas 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00 2006 Zhejiang Glass 50.00 24.96 0.00 . 18.00 0.00 0.00 0.00 0.00 2003 Zhengye-ADC 10.43 0.00 0.00 4.87 10.43 0.00 0.00 4.87 2002 Zhong Chen 0.00 4.78 0.00 0.00 0.00 4.78 0.00 0.00 2006 Zhongda-Y anjin 21.89 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total portfolio: 733.58 577.30 181.40 340.89 470.95 371.06 29.61 108.03 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2002 SML 0.00 0.00 0.00 0.00 2004 NCFL 0.00 0.00 0.02 0.00 2007 Xinao CTC 0.04 0.01 0.00 0.14 2004 China Green 0.00 0.00 0.01 0.00 2006 Launch Tech 0.01 0.00 0.00 0.00 2005 MS Shipping 0.00 0.01 0.00 0.00 2003 Peak Pacific 2 0.00 0.01 0.00 0.00 Total pending commitment: 0.05 0.03 0.03 0.14 112 Annex 14: Country at a Glance CHINA: Ningbo New Countryside Development Project China at a dance 9/24/08 East Lower. P O V E R T Y and SOCIAL Asla & mlddle- Developmntdlanond' C hlna Paclflc Income 2007 Population,m id-year (millions) 1320.0 tgn 3,437 Life expectancy GNI per capita (Allas malhod, US$) 2,380 2,80 1887 T GNI (Alias method, US$ biliions) 3,120.9 4,74 6.485 Average annual growth, 2001-07 Population (%) 0.8 0.8 11 Labor force (%) 0.9 12 15 GNI Gross per primary M o s t recent estlmate (latest year avallable, 2001-07) capita enrollment Poverty (% o f population below netionalpo vertyiine) Urban population (%of tolaipopuialion) 42 43 42 Life expectancyat birth (pars) 72 71 69 infant mortality(per lOOOlivabirths) 20 24 41 Childmalnutrition(%ofchiidrenunder5) 7 B 25 Access to improved watersource Access to an improved balersource (%ofpopulallon) 88 87 88 Literacy(%ofpopuiation age rS+ 91 89 -China - Gross pnmaryenrollment (%of school-age population) 1 11 10 111 Male 1P I11 1P Lower-m'ddle-inmmeg m p Female 1 11 09 ng KEY E C O N O M I C R A T I O S and LONG-TERM T R E N D S 1987 1997 2006 2007 Economlcratbs' GDP (US$ billions) 288.2 952.7 2,657.9 3280.1 Gross capital formation/GDP 37.3 31.9 44.4 Exports of goods and servicesIGDP 8.4 218 39.9 Trade Gross domestic savingsIGDP 37.3 42.4 52.3 Gross national savingslGDP 37.3 418 53.8 Current account balanceIGDP 0.0 3.9 9.4 115 interest payments/GDP 0.4 0.8 0.1 Total debt/GDP 0.2 15.4 P.l Total debt service/exports 8.5 8.5 2.4 Present value of debt/GDP ns Present value of debtleqorts 27.7 Indebtedness 1987-97 1997.07 2006 2007 2007-11 (average annuaigmwlh) -China - GDP 0.3 9.5 118 119 0.4 GDP per capita 8.9 8.7 110 112 9.7 Lower-m'dd/e-inmrrmgmp Exports of goods and services 0.8 22.7 23.3 22.8 15.8 S T R U C T U R E o f the E C O N O M Y ' 1887 1987 2006 ' 2007 I Growth of capltd and GDP (%) 1 (%of GDP) 20 Agriculture 28.8 8.1 117 15 Industry 43.9 47.5 48 1 10 Manufacturing 34.7 33.2 S Services 29.3 34.4 40 2 I I 0 Household final consumption expenditure 48.7 43.4 33 5 02 03 04 OS OB Generalgov't final consumption expenditure n,p n.2 n2 -GZF -COP Imports of goods and services 8.4 . u3 32 1 O7 1987.97 1987.07 2008 ' 2007 Growth of exports and Imports (%) L (average annual gm wth) Agriculture 4.4 3.7 50 4.0 Industry 0.9 0.5 P5 0.4 Manufacturing 0.1 0.3 Services 9.4 0.2 P4 P.2 Household final consumption expenditure 9.8 3.8 -2 5 General gov't final consumption expenditure n.6 9.5 09 Gross capital formation 9.2 115 02 n.3 Imports of goods andservices B.0 8.1 143 8.2 Note 2007 data are preliminaryestimates This tablebas producedfrom theDevelopment Economics LDB database 'Thediamonds showfour keyindicatots in the country(in boid)cornparedwthits income-groupaverage i data aremissing,thediamondwll f __ be incomplete . _ . - - - - __ ._ 113 P R I C E S and ~ ~ T V E NE ~ I~ N AN~ C ~E 1987 1997 2005 2007 Domestic prices (%change) Consumer prces 73 26 15 4.6 Implicit GDF deilatcr 51 15 3.3 52 6 0 y a e ~ ~ f m~ n c ~ e ~ ~ {"/.ofGDP, mcbdes currant grants: Current revenue 00 11.0 a.3 8.4 Current budgel balance Overall suroiusidefrcit -1s 7 -22 1 -0.1 -17 3 .O -0 7 3.0 -09 t GDPdeilalur =-4--CPI 1 TRADE 1987 1997 2006 2007 Exportand import ioveis [ U S mill.) (US$ milirons) Tolalexports (fob) 39,437 82,792 969,073 1.5G0,OOO Food 4.781 W75 25,722 Mineral iue s lubricants and related ma*erial! 4,644 6,987 f?776 M anLfactures 26,206 88,039 9'6,117 1 GOO ow Total imports (cif) 43,2% 142,370 791,614 Food 2,443 4,304 9.997 500 0GO Fueland energy 539 yJ.306 69.002 Capital goods M1,607 52.774 357.a7 G Expoii price iodex(20OO=D#) 68 18 107 01 02 03 04 05 06 07 lmpoii p r i c e i v e x (2000=WG/ 84 a3 ii4 Terms of trade j2000=aOJ 81 1 8 87 BALANCE o l P A Y M E N T S 1987 1997 2006 2007 (US$ miliionsj Exporls o f goods and services 43,868 207,239 1061,581 Imports of goods and services 43,950 m,45 852,769 Resource balarce -82 42.823 208.98 Ne1 income -2 '6 -1'6004 11755 Net cur'ert f'ansfers 224 5,143 29,200 Currert a c c c m t balance -73 38.862 243,867 377 8tz Fmancing items (net) 1,733 -1105 -2,842 -20,000 Changes in net reserves -1.660 -35,857 -247,025 -357 8Q Memo: Resewes inciuding gold (US$ millions) 22.439 M6.439 1046.465 1427,8.t! Conversion rate (DEC, foca//US$) 4.5 8.3 8 .a 7.6 E X T E R N A L D E B T and R E S O U R C E FLOWS 1987 f997 2006 2007 (US$ mliionsj Total debt outatanding and disbursed 35,340 146.637 322.805 IBRD 1,427 8,239 ?I45 1 762 1 IDA 1,330 7.830 9,997 yJ t51 Toial debt service 3,652 s.445 2'1,877 IBRD 208 858 1,443 1561 IDA Q 81 36 349 ComFosilionoinelresourceflows G 173 377 0 :icral grants 21: 266 363 Oificial creditors 626 4,3E 90 1 Frivale creditorr 5 462 8,64 7,500 Foreign direcl iivestment (net inflows) 2 314 44,237 78,ass Fortfo!io equity(net inflows) 0 5,657 42,861 World Bank program Ccmmilments 1305 2.425 1.154 E - Brlatsai Disbursements 702 2.275 1.%Q Pfincipai repa\ynenls 97 377 1144 Net flows 605 1,898 25 lnteresl paymenls t2.I 562 615 727 Net lransfars 482 1,335 490 -703 Note:This table was produced from the Developmeor Economics LDB database. 9123308 f 14 Annex 15: Map CHINA: Ningbo New Countryside Development Project 115 IBRD 37011 To Shanghai Fenghua CHINA J I A X I N G Hangzhou ZHEJIANG PROVINCE Bay NINGBO NEW COUNTRYSIDE DEVELOPMENT PROJECT PROJECT DISTRICT OR COUNTY OR COUNTY-LEVEL CITY FOR RURAL WASTE MANAGEMENT 7.6 km 3.5 km 2.2 km CHUNHU ACCESS ROAD Cixi CIXI Chunhu 12.3 km FENGHUA COASTAL WATER SUPPLY MAINS: PHASE I - IBRD FINANCED PHASE I - UNDER CONSTRUCTION PHASE II - FUTURE EXTENSION To Shangyu Yuyao Z H O U S H A N EXPRESSWAYS NATIONAL ROADS ZHENHAI MAIN CITIES AND TOWNS Zhenhai DISTRICT OR COUNTY OR COUNTY-LEVEL JIANGBEI CITY BOUNDARIES YUYAO Beilun PREFECTURE BOUNDARIES NINGBO HAISHU JIANGDONG This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information BEILUN shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. Dongqianhu YINZHOU Jiangkou RUSSIAN FEDERATION N I N G B O Fenghua Tangxi HEILONGJIANG Qiucun Songao MONGOLIA JILIN FENGHUA Chunhu To L For More Details, CHUNHU WWTP Xinchang GO See Inset in the Corner ON LIAONING D.P.R. OF I M NE BEIJING KOREA Xizhou Xiangshan BEIJING S H A O X I N G HEBEI TIANJIN REP. OF XIANGSHAN KOREA JAPAN SHANXI IA SHANDONG NINGX To Xinchang Meilin QINGHAI NINGHAI GANSU SHAANXI HENAN JIANGSU SHANGHAI Ninghai ANHUI Area of G HUBEI Main Map IN Q SICHUAN NG ZHEJIANG O XI CH NG HUNAN JIA FUJIAN East GUIZHOU TAIWAN China YUNNAN GUANGXI GUANGDONG Sea HONG KONG T A I Z H O U MACAO To Sanmen VIETNAM LAO HAINAN P.D.R. PHILIPPINES JULY 2009