Document of The World Bank Report No.: 16622-CHA STAFF APPRAISAL REPORT CHINA GUANGXI URBAN ENVIRONMENT PROJECT May 15, 1998 Urban Development Sector Unit East Asia and Pacific Regional Office Staff Appraisal Report China Guangxi Urban Environment Project dated May 15, 1998 CORRIGENDUM Page Para. Text in Error Correct 10 3.1 (d) in poor neighborhoods in existing urban neighborhoods 25 5.6 authorized allocation of $4.5 million. authorized allocation of $5 million. 25 5.6 (b) consultant contracts less than (b) individual consultant contracts $50,000 less than $50,000 and consulting firm contracts less than $100,000 CURRENCY EQUIVALENTS (as of May 1998) Currency = Renminbi Currency Unit = Yuan (Y) Y 1.00 = 100 fen $1.00 = Y 8.3 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 hectare (ha) = 2.4711 acres (ac) 1 cubic meter (m3) = I ton of water = 284 US gallons 1 mega liter (ML) = 1000 m3 PRINCIPAL ABBREVIATIONS AND ACRONYMS USED BOD Biological Oxygen Demand (A measure of water pollution) CAS Country Assistance Strategy CIF Cost, Insurance, Freight COD Chemical Oxygen Demand (A measure of water pollution) EA Environmental Assessment EPB Environmental Protection Bureau ICB International Competitive Bidding GAR Guangxi Zhuang Autonomous Region (equivalent to Province) GM Guilin Municipality GOC Government of the People's Republic of China GP Guilin Prefecture GUEPO Guangxi Urban Environment Project Office LIBOR London Interbank Offered Rate MOC Ministry of Construction MOF Ministry of Finance NCB National Competitive Bidding NEPA National Environmental Protection Agency NM Nanning Municipality O&M Operation and Maintenance PMO Project Management Office PV Present Value (Discounted at 12% a year unless otherwise stated) RAP Resettlement Action Plan STP Sewage Treatment Plant = WWTP TOR Terms of Reference TSP Total Suspended Particulates TVE Town and village enterprise WWTP Wastewater Treatment Plant = STP Vice President Jean-Michel Severino, EAP Country Director Yukon Huang, EACCF Sector Manager Keshav Varma, EASUR Task Manager Songsu Choi, Senior Urban Economist, EASUR TABLE OF CONTENTS LOAN, CREDIT AND PROJECT SUMMARY Wii 1. SECTOR BACKGROUND: URBAN ENVIRONMENTAL MANAGEMENT ... 1 A. Environmental Issues in China ................................ 1 B. Environmental Management System in China ....................... 2 C. Bank Group Strategies and Experiences .......................... 4 2. DEVELOPMENT AND ENVIRONMENT OF GUANGXI: STATUS AND ISSUES . . 6 A. Economic and Urban Development ............................. 6 B. Environmental Issues ..................................... 7 C. Nanning and Guilin ....................................... 7 D. Bank Group Involvement in Guangxi ........................... 9 3. PROJECT DESCREPTION ..................................... 10 A. Project Objectives ....................................... 10 B. Project Components ..................................... 10 C. Major Targets and Monitoring Indicators ....................... 11 D. Project Cost and Financing . ................................ 12 E. Project Preparation Status ................................ . 14 4. BENEFICIARIES AND FNANCES ................ ............. . 15 A. Local Governments ..................................... 15 B. Sewerage Finances and Organizations ......... .................. 16 C. Small Area Improvement ................................... 19 D. Managing the Lijiang .................................... 20 E. Industrial Pollution Control . ................................ 21 F. Sugar Refineries Pollution Abatement ......... .................. 22 5. PROJECT IMPLEMENTATION ARRANGEMENTS ....... .. ........... 24 A. Organizations and Plans ........... ........................ 24 B. On-Lending and Disbursement ......... ...................... 25 C. Procurement Arrangements ........... ...................... 26 D. Resettlement and Land Acquisition ....... ..................... 28 E. Accounting and Auditing . .................................. 29 F. Monitoring and Supervision ................................. 30 This Staff Appraisal Report is based on the findings and agreements of the appraisal mission that visited Guangxi in June 1997 and during follow-up discussions in Guangxi. The Bank's project team included: Songsu Choi (Senior Urban Economist, Task Manager), Edouard Motte (Senior Municipal Engineer, Co-Task Manager), Alain Bertaud (Principal Urban Planner), Roger Heath (Principal Chemical Engineer), Kyung Wook Hur (Financial Analyst), Mary Judd (Anthropologist), Wei-jen Leow (Project Analyst), Douglas Olson (Irrigation Engineer), Margaret Png (Counsel), Chongwu Sun (Project Officer), Dawn Vermilya (Financial Analyst), Yanxiang Wang (Environmental Consultant), and Youlan Zou (Resettlment Specialist). Peer reviewers were Carl Bartone and Jack Fritz (Environmental Engineers) and Julie Viloria (Community Development Specialist). Country Director is Yukon Huang and Sector Manager is Keshav Varma. 6. BENEFITS, RISKS, AND ALTERNATIVES ......................... 31 A. Environmental Impacts .................................... 31 B. Analysis of Benefits and Alternatives ........................... 32 C. Poverty and Social Considerations ............................. 35 D. Risks and Sustainability ................................... 36 7. AGREEMENTS AND RECOMMENDATION . ........................ 38 Tables in Text Table 2.1 Guangxi's Economic Growth ............................... 6 Table 3.1 Project Financing Plan ................................... 12 Table 3.2 Estimated Costs ...................................... 13 Table 4.1 Summary of Local Finances ............................... 15 Table 5.1 Implementation Agencies ................................. 23 Table 5.2 Disbursement Arrangements ............................... 25 Table 5.3 Procurement Arrangements ............................... 26 ANNEXES Annex 1: Sewerage and Drainage Management in Nanning ................. 40 Annex 2: Sewerage and Solid Waste Management in Guilin ................. 53 Annex 3: Institution Development and Financial Plans for Sewerage ............ 67 Annex 4 Industrial Pollution Control Action Plans ....................... 86 Annex 5: Sugar Refinery Pollution Control ............................ 91 Annex 6: Regulation of Lijiang .................................. 97 Annex 7: Small Area Improvement ................................ 108 Annex 8: Resettlement Action Plan Summary ......................... 119 Annex 9: Environmental Assessment Summary ........................ 125 Annex 10: Monitoring Indicators ................................. 143 Annex 11: Estimated Project Cost Details ............................ 150 Annex 12: Projected Disbursement Schedule .......................... 156 Annex 13: Procurement Packages and Schedules ........................ 157 Annex 14: Supervision Plan ..................................... 160 Annex 15: Documents and Data in the Project File ....................... 163 - iii - China Guangxi Urban Environment Project Loan, Credit and Project Summary Borrower: The People's Republic of China Beneficiary: Guangxi Zhuang Autonomous Region, Nanning Municipality, Guilin Municipality and Guilin Prefecture Project Cost: $175 million Loan: $72 million LIBOR-based US dollar single currency loan, with standard rates and fees, with a maturity of 20 years including 5 years' grace Credit: SDR 14.9 million ($20 million equivalent) On standard terms with 35 years' maturity Onlending Terms: Loan: From China through Guangxi Region to the Nanning and Guilin Municipalities and Guilin Prefecture: in US dollars at the Bank's standard interest rate for LIBOR-based US dollar single currency loans, for a maturity of 20 years including 5 years' grace Guangxi Region to Sugar Refineries for pollution abatement subprojects: in US dollars, for a maturity of 7 years including 2 years' grace, at the Bank's standard rate for LIBOR-based US dollar single currency loans plus 1.5% per annum. Credit: From China through Guangxi Region to Nanning and Guilin Municipalities and Guilin Prefecture: in SDR currencies for a maturity of 17 years including 5 years' grace, at standard IDA charges. Economic Rates of About 21 % in direct benefits Return Project Code CN-PE-36414 Maps IBRD Nos. 29651, 28799, 28800 1 1. SECTOR BACKGROUND: URBAN ENVIRONMENTAL MANAGEMENT A. Environmental Issues in China 1.1 China's environmental protection system has developed along with the economic reform and opening. Active environmental protection measures started to be instituted in the late 1970s to reverse the environmental degradation resulting from earlier industrial promotions, and over the past 20 years, a broad set of laws and control instruments and an extensive administrative network have been developed. China has also become an active partner in international efforts to control pollution, becoming one of the first countries to develop their Agenda 21 program after the Rio conference. In the meanwhile, China's industrial production has grown explosively, more than quadrupling in the last decade and accounting for about three quarters of total GDP growth during the period. It has brought along an accelerated growth of urban incomes and population. China's urban population is estimated to be over 400 million now and is projected to double within the next two decades. 1.2 Environmental pressures have increased greatly, along with, but not as fast as the industrial growth thanks to the active environmental protection and the cleaner technologies financed by the massive industrial investments. For example, total suspended particulate (TSP) concentrations have been markedly reduced in many cities, discharges of toxic metals in wastewater have fallen substantially, and pollution discharges per unit value of industrial output have declined significantly due to reuse and other water-saving techniques. Overall, however, these improvements could not outrun the fast growth in industrial production and municipal wastes. Ambient concentrations of various pollutants remain at unhealthy levels in many cities. Sulfur dioxide (SO2) emissions have remain high due to heavy dependence on low-quality coal burning and the increasing automobiles. Water pollution continues to grow and is among the most serious enviromnental issues especially in the cities. At least some sections of rivers in 54 of 58 cities recently surveyed failed to meet even the lowest acceptable standard (quality Class V), leaving few economic uses except as sewers; and the percentage of urban aquifers deemed polluted has risen from 20 percent in 1983 to over 45 percent today. Solid waste has also grown rapidly, and only some 25 percent of the municipal solid waste and nightsoil are disposed of to national standards. The remainder is dumped without proper control. 1.3 The cost of this pollution is high. Epidemiological studies estimate that TSP in urban China is responsible for over 150,000 premature deaths a year in Chinese cities, and have shown a close relationship between outdoor sulfur dioxide concentrations and mortality. Health costs of water pollution are more difficult to measure, but the direct economic costs alone are substantial. Cities have been forced to move their water intakes to increasingly distant and more expensive raw water sources, farmers have had to switch from irrigation with surface water to pumping groundwater, many surface water bodies can no longer be used for recreation and fisheries. The nature and consequences of the pollution have been documented in three Bank sector studies: China: Efficiency and Environmental Impact of Coal Use (Report No. 8915-CHA, March 1991), China: Environmental Strategy Paper (Report No. 9669-CHA, April 1992) and China: Urban Environmental Service Management (Report No. 13073-CHA, December 1994). 2 B. Environmental Management System in China 1.4 China's Environmental policies, standards, monitoring and regulations are in the purview of the National Environmental Protection Agency (NEPA), as the secretariat of Environmental Protection Committees of the National People's Congress and the State Council. The Ministry of Construction (MOC) has similar responsibilities for public facilities for water supply and wastewater and solid waste management, and Ministry of Water Resources for natural water bodies. Industry ministries also maintain environmental units which, in cooperation with the NEPA system, establish sector-specific pollution control strategies and technologies. But these ministries do not have implementation authority, which is held by their corresponding administrative units of local governments. 1.5 Though constitutionally a unitary state, China has a strongly decentralized system of governance. The Government of China (GOC) sets broad policies and standards but lets local governments to implement the policies and set detailed regulations unless preempted by national ones. Often GOC encourages local governments to experiment with various standards and ways to achieve basic objectives with a view to establish national best practices and norms based on local experiences. This decentralized governance is reinforced by the decentralized public finance system, where local governments collect most of the public revenues, remit a major part of the value added tax, but allocate the major part of revenues on their own. Local governments also tend to be well-staffed, as their broad authority over the local economy makes them attractive employers. The main level of autonomous governance is the municipality which often oversees affairs of surrounding rural counties. Some municipalities report directly to GOC. In rural areas, Prefectures manage a group of county governments under substantially stronger supervision of the provincial government. 1.6 NEPA oversees the work of its local counterpart, Environmental Protection Bureaus (EPB) at different levels of government. Provincial EPBs have the authority to set local environmental standards in the absence of preemptive national standards, or to impose more stringent standards than those required by the national government, approve plans of lower-level EPBs, and may play a direct role in implementation. However, the municipal, urban district and county EPBs bear the main burden of enforcement for both national and provincial regulations. The budgets, personnel appointments, and work plans of each level EPB derive from the government of that level. To aid quality control, environmental performance must be reported to the next higher level EPB, which also sets testing protocols and other performance criteria. 1.7 Chinese environmental regulation focuses on three instruments: environmental assessment before approval of new investment projects; the "Three Simultaneous" licensing strategy that requires integration of pollution control in project design, inclusion of the abatement measures in the investment, and proper operation of the abatement equipment; and a pollution levies charged against waste discharges that have concentrations of pollutants above permitted levels. More recently, governments have been authorized to levy a small fee on wastewater discharges within standards. The pollution levies finance operation of the environmental protection system. Local EPBs retain a part of the revenue to cover their own operating costs, and provide the remaining funds to finance eligible pollution abatement investments by enterprises, now mainly in the form of concessional loans. NEPA recognizes problems with the pollution levy system, including: the level of charges considerably below the marginal cost of effluent treatment, which encourages enterprises to pay the fee rather than operate or invest in 3 treatment facilities or cleaner production technologies; and charging fees on the basis of concentration of individual discharges rather than an area-wide basis. 1.8 More serious are the constraints to regulatory enforcement and levy collection due to conflicts inherent in China's economic transition and the governance structure. Local governments have strong vested interest in preserving employment and competitiveness of enterprises in their localities, but also the responsibility for environmental regulation and assess pollution levies, which often hurt the short-term economic interests. Balancing of these interests result in great variances in regulatory enforcement and levy revenues across localities. In general the larger and wealthier of Chinese cities tend to have better records in these regards, reflecting their constituents' reaction to heavy environmental costs of earlier industrial development and higher demand for cleaner environment. On the other hand, pollution by enterprises operating on the periphery of cities, mainly the township and village enterprises (TVEs), tend to be subject to much less control than the neighboring municipalities. As a group their growth has been extremely fast, presenting a major task for industrial pollution control for the nation as a whole. NEPA has an active program of research and experimentation underway to identify new approaches to overcome these and other regulatory problems, moving toward instruments based on catchments and market mechanisms. 1.9 Urban environmental services, which include collection and treatment of waste water and solid waste, fall under the purview of the Construction Commissions of localities, under the regulatory guidance and standards established by the Ministry of Construction. As discussed above, local governments have the resources and autonomy to set their own priorities and implement them. The Construction Commissions are typically among the most powerful and best funded of the municipal administrative bodies, having under them bureaus or companies directly providing key urban services. Until recently, they have focused their resources mainly to water supply, roads, and economic investment over environmental services. Satisfactory attainment in these areas as well as rapidly growing problems with waste water and solid waste have led to re-evaluation of the priorities, and many cities have started investing considerable resources to deal with the latter. However, wastewater treatment levels are very low, with only 4.5 percent of municipal flows treated in 1992. The Ministry of Construction estimates, further, that two thirds of the municipal sewage treatment plants either do not operate, or operate far below capacity, due mainly to lack of funds. 1.10 Developing a secure funding system is a critical step for provision of environmental services. The established practice of charging for water supply and fiscal charges earmarked for roads have been important ingredients in the achievements in those areas. A sector study, China: Urban Environmental Service Management, identified the failure to charge adequately for environmental services as a major policy issue. Users have traditionally paid for solid waste and nightsoil, although the revenues often fall short of the increasing cost of collection and treatment. For sewerage, user charges have been introduced only recently, and their levels and scope are usually far below operating needs, not to mention capital costs which often have been financed with the general revenues. However, as the general public finance revenues are likely to remain constrained, it would be essential that users pay a much larger share of the cost if not full. User fees would also provide incentives for savings of water use and discharges, but the institutional separation of water supply and sewerage in Chinese cities presents difficulties in financial and economic management of these essentially linked services. 4 1.11 Another major related issue is the appropriateness of standards of infrastructure and environmental services and facilities. Most municipalities of China apply a narrow set of design norms prescribed by MOC in building public infrastructure facilities and in allowing developers to build new properties or "modernize" existing areas through redevelopment. As these standards tend to be high relative to long-term affordability and investments often have the first call on available resources, the results are limited scope of services, suboptimal performance due to the lack of complementary facilities and operation and maintenance (O&M). These problems are most pronounced in newer types of services such as sewerage. In general, however, facilities planning needs to focus mainly on performance rather than physical norms. C. Bank Group Strategies and Experiences 1.12 The Country Assistance Strategy (CAS) for China discussed at the Bank Group Board in February 1997 identifies four areas for the Bank Group to focus on: macroeconomic and structural reforms, removal of infrastructure bottlenecks, human development including poverty alleviation and health, and environmental protection. Urban environmental issues are recognized as important challenges relevant to the latter three focus areas. The Bank Group has supported urban environmental improvement in over twenty Chinese cities through ten projects. These projects and the sector work have focused mainly on waste water management, identified as a main issue by the Environmental Strategy Paper, but also provided considerable support for solid waste management and industrial pollution control. These operations have demonstrated the value of the Bank's project analysis in planning complex environmental programs, particularly at the time systems of urban environmental management are being newly defined in China. Combined with strong implementation capacity of the borrowers, they yielded fast and substantial benefits on the ground. 1.13 Most of the earlier projects have directed the Bank Group assistance in large cities of the northeastern and eastern coastal provinces, in view of the environmental and developmental needs of the established industrial centers, and also their demonstration effects. Environmental pressures remain high in those areas and cooperation will continue. However, the Bank has started shifting its attention toward inland and poorer areas with two recent environmental projects in Hubei (1995) and Yunnan (1996). Further, these project and a few other projects recently appraised or under preparation have also started involving small urban areas, in another shift from the focus on large cities. This shift of geographical focus is likely to call for stronger attention to appropriate standards and equity implications of the urban environmental services. 1.14 The review of Bank Group experience worldwide in urban services improvement emphasize the need for strong institutions and finances in order to sustain the benefits of intervention by enabling adequate operation, maintenance and continued investments. The urban environmental projects and sector work in China have also focused on adequate pricing of sewerage services and establishment of autonomous sewerage companies, and have attained considerable successes, which are having considerable demonstration effects to the rest of China. The Bank Group's worldwide experience in this and related sectors also has shown the importance of appropriate standards and strategic framework in choice and design of investments, and the value of broad river basin-wide approaches in managing water resources and waste water. Urban environmental projects in China have drawn upon urban comprehensive environmental plans or provided support for their preparation, often incorporating issues of the river basins. However, integrated river basin management has not featured in these projects partly due to the 5 projects' focus on few municipalities and due to institutional complexities. Integrated management is being introduced under a few recent water resource projects in China. 1.15 Most of the urban environmental projects in China have also supported revolving funds for industrial pollution. A recent review of Bank experience (Industry and Environment: Patterns in World Bank Lending) emphasizes the need for political commitment, clear standards and regulations, incentives to comply, and institutional capability to monitor and enforce standards. When industrial pollution abatement subloans are involved, the following conditions increase likelihood of success: a profitable and growing industrial sector, flexibility in choice of technology, availability of funds at close-to-market terms, and targeting on sources that can yield significant improvement in the ambient environment. In China, the Bank Group is supporting an Environmental Technical Assistance Project (1992) to assist NEPA in its efforts to find more efficient regulatory methods, improve staff capabilities, and bolster environmental monitoring. 6 2. DEVELOPMENT AND ENVIRONMENT OF GUANGXI: STATUS AND ISSUES A. Economic and Urban Development 2.1 Guangxi Zhuang Autonomous Region is one of the poorest areas in China. Of its total population of about 45 million, close to half consists of Zhuang and other ethnic minorities, and some 8 million residents are officially classified as the poor (earning less than Yuan 500 a year per capita). Its poverty has long been attributed to the picturesque but infertile karst (limestone formation) hills that predominate the northern part of the Region, low levels of education and infrastructure. Another important factor appears to have been the restrictions imposed on it as the frontier in the conflict with Viet Nam, which prevented the Region from taking part in China's economic opening. The Region is otherwise strategically located on the coast between Guangdong and Viet Nam. Beside the strategic location, the Region's other economic assets include abundant water resources, semi-tropical climate favorable for farming, a fair amount of farmland and mineral resources. 2.2 Since the "opening" of the Region in 1990, its economy has grown at rates consistently and significantly above the national average (see Table 1). As a result, its per capita income, the lowest among thirty province-level subdivisions of China as late as 1989, surpassed ten others' by 1994. The Region's economic growth has been led by the industrial sector, particularly in food processing, building materials, and transportation equipment manufacturing. On-going heavy investments in power and transportation infrastructure lay the basis for economic development taking Table 2.1 advantage of the Region's endowments, while adding a Guangxi's Economic Growth significant component of the recent growth. 1990 1995 Growth 2.3 Along with the growth of industries and the %/yr income gap between urban and rural areas, urban population GDP per capita growth has accelerated to well above 5 % a year, and rural (Yuan, 1995 prices) population has started declining in absolute number. While All China 2910 4835 10% the speed of industrialization and urbanization is high, it is Guangxi 1662 3535 16% important to note, their levels are still relatively low. More Guangxi GDP by Sector than half of the Region's population lives within boundaries of cities and towns, but the majority of them are still Primary 45% 26% 6% classified as agricultural. Only three cities have urban Secondary 30% 44% 25% populations over half a million: Nanning, the capital, with about a million urban residents in 1995; Liuzhou, the industrial center, with 900,000; and Guilin, the tourism center, with 500,000. Their average annual per capita income was slightly above Y 5000, compared with about Y 1,100 for rural residents. 7 B. Environmental Issues 2.4 Similarly, compared with older industrial areas of China, Guangxi's environmental problems are smaller in magnitude or intensity overall, but are growing much faster. Serious problems that do exist tend to be localized and unique. At the same time, the levels of environmental services and protection are also lower, due to weak financial and technical capacity. Unless upgraded quickly, the environmental management capacity is likely to be overwhelmed by growing environmental pressures in the near future. 2.5 Industrial pollution provides a case in point. In most parts of China, industrial pollution discharge per output declined in the recent past thanks to newer and cleaner plants, more waste treatment, and stronger regulation. In Guangxi, however, industrial pollution per output value has changed little and is now the highest in the country. This may be explained by the level and structure of the industrial development. Structurally, the most important industrial sector in Guangxi in terms of composition and growth is food processing that generate heavy pollution load per output. Of particular economic and environmental importance are sugar refineries which produce a tenth of the Region's industrial output, a quarter of total industrial wastewater and 75 % of industrial wastewater pollution load. On the other hand, at the current level of production, the aggregate pollution load is still relatively low and has not been given as much policy attention as the expansion of production. For example, the Region's Environmental Protection Bureau (EPB) was given status equivalent to EPBs of most other provinces only in 1995, and the capacity for environmental monitoring, regulatory enforcement, technical support appears to be weak. 2.6 Though the aggregate pollution load is still moderate, fast growing cities and towns are beginning to experience problems similar to or worse than those in China's older industrial centers. The worst example is Liuzhou, the Region's industrial center with a GIOV of around RMB 17 billion, some four times higher than that of Nanning. The city's heavy industrial output, which more than doubled in three years between 1990 and 1993, exacerbated the already severe industrial pollution, especially air quality. For example, the frequency of acid rain is about 95 % and acidity often approaches pH value of 3. The air quality standard for S02 is exceeded for almost 60 % of the time compared to only around 2 % for Nanning and Guilin. A major program to reduce air and water pollution in Liuzhou started in 1996, with a bilateral financing of $100 million. Extending the environmental improvement program of the Region, the Government requested a Bank Group support for environmental improvement mainly in the two other major cities of the Region, Nanning and Guilin. C. Nanning and Guilin 2.7 Nanning, the Regional capital and the largest city, is growing fast on the strength of upgraded regional rail and highway networks and external investments. The city's major economic base consists of small and medium-size industries, but the service sector is growing the mostly rapidly, by over 20% a year. The city's air pollution has stabilized and is modest compared with other Chinese cities, and an adequate solid waste management system has been built recently. On the other hand, the city lacks modern sewerage system, relying on a small and poorly maintained network of combined sewers and septic tanks. Improved control and pretreatment of industrial wastewater have slowed its growth, but its volume and pollution load remain significant and domestic sewage is increasing rapidly. As a result, main urban streams 8 act as virtual sewers and their quality continues to deteriorate. Pollution of Yongjiang (Yong River), into which the urban streams discharge, increases markedly as the river flows through the city, turning from moderate to significant degrees (Chinese water quality Class III to Class IV). 2.8 The water pollution has become a serious issue not only for the environment itself but also for social and economic development. A city water intake located on the River in the middle reach of Yongjiang cannot operate to capacity due to pollution from time to time, and would have to be shut down completely if the pollution continues to increase. The pollution of urban streams, particularly the visible pollution of the Chaoyang Stream and Nanhu Lake in the commercial and residential center of the city, presents serious problems for public health and for development of the area as commercial centers. The Nanning Municipality (NM) therefore has decided to implement a major program to improve the wastewater management system. It has secured a bilateral funding for a sewage treatment plant (STP) of 160 ML/day capacity, but a much larger investment is required for building the sewer networks and at least one more STP. 2.9 While newly built urban areas have secondary and tertiary sewers, there are many neighborhoods in both Nanning and Guilin that do not. Many that lack sewerage also tend to lack adequate drainage, footpaths, garbage collection points, public toilets, housing, etc. - in short poor physical environment. Generally in cities of China poor quality of housing and neighborhood environment is the major element and the best indicator of poverty. While many poor areas are being redeveloped, wholesale new developments are unlikely to meet the fast increasing need for improved services in the near future, particularly as the cities grow mainly by incorporating semi-rural fringes and low-income inunigrants from rural areas. In Nanning and Guilin, immigrant population without permanent urban registration has surged in the last five years and is estimated to account for over 25% of the urban population. Reflecting the Region's strong emphasis on poverty alleviation, municipal governments in Guangxi, unlike their counterpart elsewhere, have been accommodating or at least tolerant of the temporary residents, and have provided some basic urban services including garbage collection and schooling to large informal settlements. In Nanning there is a large squatter settlement, but in general, most of the poor live scattered throughout the city's residential areas with inadequate facilities. 2.10 In Guilin, the main concern has always been the quality of the Lijiang (Li River), a top scenic treasure of China and the city's economic lifeline. Some 20% of the city's GDP is estimated to originate from tourism. Due to the importance of the River to the country and the city, Guilin Municipality (GM) has one of the earliest and best urban environmental management system in China, though there still exists considerable gaps to fill. GM has successfully carried out industrial pollution controls, forcing and helping heavy industrial polluters to reduce their discharges, relocate, or close. It has been operating an effective solid waste management including a landfill, an extensive separate sewer network covering over 70% of the developed urban core, and three secondary STPs. As a result, the Lijiang water is maintained at a good quality (Class II) most of the time. The major remaining tasks include: developing a new landfill to replace the one that is filling up; extending the sewer network to cover the unserved areas; and expanding one of the existing STPs; and cleaning up some urban waterways. These would substantially improve Lijiang tributaries flowing through the city. It is also necessary to provide sewerage systems in outlying suburbs, partly to deal with discharges of industries relocating from the city. 9 2.11 Quantity of water in the Lijiang is another significant issue. The flow of water during the dry season, between October and April, the water flow in the River is so low to seriously constrain normal plying of scenic cruises, assimilation of wastewater discharges, and water supply to the city. During the rainy season, the city and rural areas along the River are subjected to substantial flood damages. To better regulate the Lijiang flow, GM and the Guangxi Region have been preparing a comprehensive set of water works programs. A part of the proposed programs completed so far, a large reservoir and considerable embankments, falls far short of effective regulation of the flows. Along with physical reasons, the fluctuation of the Lijiang flow appears to be due partly to the increase water use by the increased population and economic activities in the valley. Although considerable water conservation activities have been undertaken, the existence of three different jurisdictions impedes effective water resource management, indicating a need for a more integrated institutional framework. D. Bank Group Involvement in Guangxi 2.12 Guangxi has been one of the beneficiaries in a number of projected supported by the Bank Group: the Yangtan Hydroelectric Project (1986), National Health Project (1991*), Rural Water Supply and Sanitation Project (1993), National Environmental Technical Assistance Project (1992), Inland Waterways Project (1995), and Southwest Poverty Reduction Project (1995). The proposed Guangxi Urban Environment Project would be the first Bank project in which Guangxi would be the sole beneficiary. GOC also proposed for the Bank financing a Baise Multipurpose Dam project, which would be located in Guangxi and would regulate the flow variation of Yongjiang (also known as Youjiang) which flows through Nanning. 2.13 The proposed project would address two of the four CAS focuses: environmental protection and human development that includes poverty alleviation and health. Guangxi's urban environmental issues are broadly similar to the pattern seen throughout China, and the project would help address them with an array of instruments similar to those adopted in the Bank Group's other urban environmental projects. The Bank Group's assistance in evaluating and planning complex investments, that has added significant value to other similar projects, has proven even more significant in preparation of the proposed project. Nanning and Guilin, medium-sized and medium-income with a substantial tertiary sector, represent a class of cities different from hosts of earlier urban projects supported by the Bank Group, that were either very large or predominantly industrial. 2.14 The project would contribute to poverty alleviation by helping a poor western region, being the second environmental project in such a region after the Yunnan Environment Project (FY96), and targeting the urban poor for the first time. Nanning and Guilin have a large presence of temporary population and neighborhoods with poor environmental quality, whose conditions are unlikely to be improved soon through traditional development schemes, and accommodating government policy toward them. The Southwest Poverty Reduction Project is supporting housing development in Nanning mainly to help accommodate the migrant population. The Bank Group has supported many housing and area upgrading operations in most parts of the world, but not in China. Simple investments focusing on basic needs and strong beneficiary participation have proven highly cost-effective in other countries. The proposed project would pilot such an approach for application in urban China. 10 3. PROJECT DESCRIPTION A. Project Objectives 3.1 The project would help improve the environment of Nanning and Guilin, in support of sustainable economic growth and poverty alleviation in the Region. Specific objectives of the project are: (a) To improve the quality of major water bodies -- in particular Chaoyang stream and Yongjiang in Nanning and Lijiang and its tributaries in Guilin; (b) To regulate the flow of the Lijiang; (c) To improve institutional and financial capacity for environmental protection, environmental services and water resource management; (d) To pilot a participatory approach to environmental improvement in poor neighborhoods; and (e) To implement pilot schemes for contol of sugar refinery pollution. B. Project Components 3.2 The project would consist of: physical investments to correct high priority environmental deficiencies, mainly to improve quality of surface and ground water; regulatory actions to reduce industrial pollution; and measures to strengthen technical and financial capacity of environmental protection, waste water management, and water resource management institutions. The components are outlined below, described in more detail in Annexes 1 through 6, and their implementation and financial arrangements are discussed in Chapter 4 and 5: (a) Sewerage and Drainage in Nanning: cleaning up the Chaoyang stream and building interceptors; building and improving main and secondary sewers and drains of about 70 km total length; building associated pumping stations; building a primary sewage treatment plant (STP) to treat sewage collected by the new sewers, with an estimated capacity of about 180 ML/day; improving equipment and information systems for nightsoil management; carrying out an action plan of regulatory enforcement for industries to comply with surface water discharge standards (total cost $80 million). (b) Sewerage and Solid Waste Management in Guiin: building about 30 km of primary and secondary sewers in built up areas of the city and Xicheng, an industrial suburb; building pumping stations to convey the sewage to existing STPs; expanding an existing secondary STP by 25 ML/day; building a primary STP of up to 40 ML/day capacity in Xicheng, and oxidation ponds in suburban towns of Yangshuo, Xingping and Baisha; cleaning up and intercepting sewage from three lakes in the city; building a sanitary solid waste landfill of 500 ton/day 11 capacity and a transfer station; and augmenting the fleet of solid waste trucks; carrying out an action plan to reduce industrial pollution in the city (total cost $46 million). (c) Small Area Improvement: building or improving tertiary sewers, drains, solid waste dumps, public toilets, and footpaths in up to 30 selected small areas with poor environmental quality in Nanning and Guilin. Residents will play the major role in selecting, implementing, and financing the improvements (total cost about $ 9.2 million). (d) Lijiang Flow Regulation: lining and extending a 26 km canal conveying water from an existing Wulixia Reservoir to the Lijiang, installing a hydro-power generator of 0.8 MW capacity; plantation on about 2000 ha in the reservoir catchment and along the Lijiang; and building or repairing about 28 km sections of embankment along the Lijiang (total cost $22 million). (e) Sugar Refinery Pollution Abatement: a subloan facility ($2 million) to finance installations by financially sound refineries to minimize and treat highly polluting stillage from sugar-based alcohol production processes. (f) Institutional Development: technical assistance, training, and equipment to improve environmental monitoring and enforcement by EPBs of the Region, NM, GM, and GP; develop technical, financial, and management capabilities of sewerage and drainage management institutions in Nanning and Guilin; help develop an institution and techniques for managing the use and protection of the Lijiang; and help the implementing agencies carry out the project efficiently (total cost about $ 6.9 million). C. Major Targets and Monitoring Indicators 3.3 Project components described in para 3.2 above aim at specific project objectives listed in para 3.1: components 3.2 (a), (b) and (e) to achieve the primary project objective, 3.1 (a); components 3.2 (c) for objective (c); and components (f) for objective (b). Major targets and monitoring indicators for the components are described below. The progress and success of the project and individual components will be evaluated against these and secondary monitoring indicators, listed in Annex 10. (a) Sewerage and Drainage in Nanning: Quality of water in Chaoyang stream, currently polluted over 10 times the Class V limit, to be improved to Class V by year 2002; water quality of Yongjiang mid-point between the city boundaries, now between Classes III and IV, improved to Class III from 2002. (b) Sewerage and Solid Waste Management in Guilin: The percentage of pollution in Lijiang measured at various locations and times exceeding Class II standards to be reduced to near zero by year 2003; water quality of Taohuajiang, a Lijiang tributary flowing through Guilin city, improved from Class IV-V to Class III-IV. 12 (c) Small Area Improvement: the number of beneficiaries, especially those with incomes below urban average (about 100,000 and 70,000, respectively, over the project period). (d) Lijiang Flow Regulation: Average dry season water flow of Lijiang at the northern border of GM, now about 30 m3 per second, to be increased to at least 35 m3/sec by 2003. (e) Sugar Refinery Pollution Abatement: Total amount of annual COD reduction, about 10,000 tons over the project period. (f) Institutional Development: Increased frequency and coverage of compliance monitoring by EPBs; increased scope of autonomous operations by the sewerage companies and the Lijiang commission, measured by percentage of operating and capital expenditures independently financed and managed; and total and unit (per sewage volume) expenditures for operating and maintaining the sewerage systems. D. Project Cost and Financing 3.4 Estimated costs are summarized by group of components and by jurisdiction in Table 3.2; Annex 11 shows detailed cost estimates by component and type of input. The project will cost about $175 million in total in current prices, including $6.5 million in interest during construction. The Bank Group loan and credit will finance about 52.5% of the cost, in total as well as in each of the jurisdictions. Local governments will be responsible for most of the counterpart financing and repayment of the loan and credit. For small area upgrading, the area residents will contribute on average about 40% of the cost, and for the sugar refinery pollution abatement subprojects the beneficiary refineries would finance an average of 60% of cost and pay back the subloans. The financing arrangements, summarized in Table 3. 1, are discussed in more detail in Chapter 4. Table 3.1: Project Financing Plan ($ million) Source Local Foreign Total Guangxi Regional Government 10.6 0.0 10.6 Nanning Municipal Government 29.6 1.4 31.0 Guilin Municipal Government 28.8 1.0 29.8 Guilin Prefecture Government 4.9 0.0 4.9 Sugar Refineries 2.1 0.9 3.0 Residents, Small Areas 3.7 0.0 3.7 IBRD 0.0 72.0 72.0 IDA 0.0 20.0 20.0 Total 79.7 95.3 175.0 13 Table 3.2 Summary of Estimated Costs ------ Y Million ------ ------ $ Million----- Local Foreign Total Local Foreign Total A. Nanning Wastewater & Nightsoil Management Sewerage 185 180 365 22.2 21.7 43.9 Sewage Treatment Plant 43 114 157 5.2 13.7 18.9 Nightsoil Management 5 6 11 0.6 0.7 1.3 Subtotal 233 300 533 28.0 36.1 64.1 B. Guilin Wastewater and Solid Waste Management Sewerage 73 103 176 8.8 12.4 21.2 Sewage Treatment Plants 28 42 70 3.4 5.0 8.4 Solid Waste Management 42 24 66 5.1 2.9 8.0 Subtotal 143 169 312 17.3 20.3 37.6 C. Small Area Improvement Nanning 19 19 38 2.3 2.2 4.5 Guilin 12 11 23 1.4 1.4 2.8 Subtotal 31 30 61 3.7 3.6 7.3 D. Lijiang Water Regulation Water Supplement 11 24 35 1.4 2.9 4.3 Embankment 41 9 50 5.0 1.1 6.1 Plantation 25 38 63 3.0 4.6 7.6 Subtotal 77 71 148 9.4 8.6 18.0 E. Sugar Refinery Pollution Control 8 25 33 1.0 3.1 4.1 F. Technical Assistance & Training Nanning Sewerage Company & EPB 6 12 18 0.7 1.4 2.1 Guilin Sewerage Company & EPB 2 13 15 0.3 1.5 1.8 Lijiang Committee & Water Management 2 5 7 0.2 0.5 0.7 Regional EPB strengthening 1 4 5 0.2 0.5 0.7 Subtotal 11 36 47 1.4 4.0 5.4 Total Base Cost, 1997 Prices 503 629 1132 60.8 76.7 136.5 (includes design, supervision & management) Physical Contingency 97 68 165 11.7 8.1 19.8 Price Contingency 134 93 227 7.2 5.0 12.2 Total Cost in current price 734 790 1524 79.7 88.8 168.5 Interest during Construction 0 58 58 0.0 6.5 6.5 Total financinz reauired 734 848 1582 79.7 95.3 175.0 14 E. Project Preparation Status 3.5 The project, initially proposed for Bank Group financing in 1994 and identified in October 1995, underwent a major strategic and technical reformulation during preparation based on economic and technical evaluation discussed in Chapter 6. Most of the feasibility studies and design work for urban sanitation components have been carried out by design institutes recruited from outside the Region. They have been assisted by an Australian consultant team financed by a grant from the Australian Agency for International Development. Feasibility studies and design of Lijiang flow regulation components have been carried out by the Regional Design Institute with the help of a Canadian consultant mobilized by the Canada International Development Agency, Inc. (CIDA, Inc.) This team has also carried out studies for environmental master plans of Nanning and Guilin cities. 3.6 Detailed or preliminary design is complete or near completion for most of the physical construction components, and bidding documents have been drafted for four major components. Major exceptions include the following: (a) Small area improvement program: draft designs have been prepared through community consultations for two of the small areas selected to be improved first. Four to six areas will be selected for detailed preparation and implementation of improvements each year. Annual programs, criteria and procedures for selection and implementation of the subprojects have been agreed upon. They would be subject to further modification on the basis of implementation experience and in consultation between the municipalities and the Bank Group. (b) Optimal capacities of the Jiangnan STP in Nanning, established by the feasibility review in the range of 150 ML - 250 ML a day, would be finalized during the design phase during 1999-2000 on the basis of updated projection of sewage flows. Similarly, the capacity of the proposed Xicheng STP, now estimated to be about 25 ML/day, would be finalized during the design that would be carried out in 1999-2000. 15 4. Beneficiaries and Finances A. Local Governments 4.1 The project involves four local jurisdictions: Guangxi Autonomous Region (GAR), Nanning Municipality (NM), Guilin Municipality (GM), and Guilin Prefecture (GP). The latter three are formally subordinate to GAR, but have a large degree of autonomy in financing and managing most governmental functions within their jurisdictions. Guilin Municipality and Prefecture are two independent neighboring jurisdictions of the same level, with both government headquarters seated in Guilin city. GM includes two semi-autonomous suburban counties of Yanshuo and Lingui which will be primarily responsible for several small sewerage works and small area improvement schemes. Administrative units under these jurisdictions are responsible for implementing all of the project components, as listed in Table 5.1 in the next Chapter. 4.2 Local government finances in China are subject to considerable ambiguities and uncertainties, due to unclear boundaries of public finance and due to significant on-going transition in the revenue system. Revenues and expenditures over which local governments have varying degrees of control are accounted for under three different categories: "normal" budget, "extra-budgetary" accounts, and "off-budget" accounts. The first two categories include revenues from statutory taxes and levies, and their allocations are subject to approval by higher levels of government. Expenditures are usually a better gauge of resources available as some of the revenues are shared among levels of government. Net transfers are positive for GAR and GP, negative for NM and GM. The third, off-budgetary resources consist of non-tax revenues such as net income remitted from municipally controlled enterprises, including public utilities, and user charges collected by administrative departments. Their allocation is subject to little control by higher levels of government. Table 4.1 Summary of Local Finances Local Government GAR NM GM GP -------------- Yuan million ------------ Budgetary Expenditures 1991 N/A 291 264 411 Off-Budget " N/A 130 196 N/A Budgetary Expenditures 1995 3205* 645 565 803 Off-Budget " " N/A 695 315 279 Infrastructure Investments, 1995 N/A 307 162* 67 30% of Project Counterpart Financing Requirement in 1995 Prices 43 75 49 12 * Note: 1994 figures 4.3 Most categories of revenues and expenditures in the three local jurisdictions under GAR have shown increases in real terms between 1991 and 1995. In general, however, 16 revenues net of transfers suffered a decline in real terms since the 1994 tax reform although it is reported that they started to increase above inflation recently. Further, off-budget revenues of GM declined in absolute terms in 1993, when major tourism enterprises, which belonged to GM and contributed the largest part of off-budget resources of GM until then, were taken over by the central government and hence their incomes excluded from the GM's direct control. These enterprises, however, still make some contribution to investment in tourism-related infrastructure. Even without this, GM enjoys a high fiscal resources per capita, compared with Nanning with twice the population. Table 4.1 shows the expenditures of the local governments in 1991 and 1995, as well as an estimate of investments in urban and environmental infrastructure in 1995. 4.4 Table 3.2 lists the estimated counterpart financing requirements on the part of local governments, net of financing by beneficiaries of sugar pollution control and small area improvement components. The estimated GAR counterpart fiancing includes a contribution of Y 90 million to subsidize the Nanning sewerage investments. The last line in Table 4.1 lists estimated peak annual counterpart financing burden on local governments (defined as 30% of local financing needs that are not met by users and beneficiaries) converted to 1995 prices for easier comparison with the 1995 total expenditures and infrastructure investments by local government. The comparisons indicate that these are significant but easily affordable share of normal infrastructure investments in each locality, even without any real term increases in their general revenues and expenditures. B. Sewerage Finances and Organizations 4.5 In Nanning and Guilin, environmental services of drainage, sewerage, solid waste and nightsoil are managed by municipal government bureaus while water supply is managed by municipally owned companies. Most of these traditional environmental services are financially self-sufficient or incur negligible deficits at present. A major emerging issue is the financing and management of sewerage services, which are relatively new and expensive. (Refer to Annex 3 for current and future water and sewerage charges in the two cities.) Current status and plans to develop financial and institutional capacities to ensure adequate and sustainable sewerage services are discussed below. Although existing conditions differ significantly between Nanning and Guilin, plans for wastewater management in both cities call for institutional autonomy and accountability, and the recurrent financial base relying mainly on charges according to the "polluter pays" principle of China's environmental protection system. Nanning 4.6 Currently Nanning has little sewerage system, mixed in with the storm water drainage managed by the Municipal Drainage Division. The system is expanding rapidly, however, as a part of an on-going new development in the Landong area and the planned upgrading of existing urban areas particularly around Chaoyangxi. These major undertakings are planned and managed by special-purpose agencies, Landong Area Development Office and Chaoyangxi Improvement Office, reporting directly to the mayor. Most of the sewerage and drainage construction financed under the project would be managed by the latter. Effective operation of the sewerage facilities would require a permanent institution with a far greater technical capacity than currently exists in the city and an adequate and sustainable financial base. 17 4.7 NM has started implementing an institutional development program (refer to Annex 3), which has been reviewed by the Bank Group. During the pre-operational phase in 1998 and 1999, basic systems and procedures for technical and financial management would be designed, and staff would be recruited and trained. Also, a framework of a permanent institution would be designed, specifying its mandates, reveneue base, and organizational structure. The current plan envisages incorporating an autonomous sewerage company in 1999. The company will take over all drainage and sewerage facilities, as they are completed, for operation on the basis of agreements or contracts clearly defining performance targets and other responsibilities on the one hand and associated financial bases and other resources and authorities on the other. The institutional development program would continue to evolve, defining details for later stages of systems development and training activities that would continue after the establishment of the company. An action plan defining the charter and structure of a sewerage company and plans for its continued development is expected to be completed by the middle of 1999. Assurances were obtained during negotiations that NM would implement an institutional development program, satisfactory to the Bank Group and revised from time to time, to develop an effective sewerage management institution, including a program of technical assistance and training with assistance of competent consultants which shall start by the end of 1998. 4.8 Current expenditures for sewerage and drainage operations in Nanning, less than Y 5 million a year, are financed with budgetary allocations from the urban maintenance and construction tax (UMCT) revenues. A major part of the new investments are financed through the lease of improved land, the UMCT, GAR subsidy, and loans including $5 million bilaterial loan for the Landong STP and the Bank Group loan for the project. However, broader and more sustainable financing of investments and particularly the future operations would require recurrent charges. NM introduced a sewerage charge for non-residential users in 1996 and recently increased it to Y 0.18 per in3 of water use. At the same time, NM also introduced the charge on residential users, among the first in China, at Y 0.13/m3. These steps fulfill the commitment made during appraisal as a condition of disbursement. 4.9 Most of the revenues from these charges, expected to be over Y 30 million a year, would be allocated by NM to on-going investments for now. Once the sewerage company starts to take over facilities for operation, commensurate portions of the revenue base would be assigned to the company to allow adequate operation and associated debt service. The revenues would include, in addition to the sewerage charge collections, payment by NM for operation of drainage facilities. It is projected that sewerage charges about twice the current level would be required to finance full operation and debt service, starting from about 2003. (Refer to Annex 3 for financial projections). Assurances were obtained during negotiations that GAR will cause the sewerage charges and drainage payments in Nanning to be adjusted from time to time to generate sufficient revenues to meet expenditures necessary for adequate operation, maintenance and debt service for sewerage and drainage facilities. Guilin 4.10 GM has built up a relatively extensive sewerage system over the last two decades and plans a continued expansion, in view of the importance of tourism to the city. Sewerage operations and maintenance are currently managed by the Drainage Division of GM, which has developed a substantial staff and technical capacity. GM has decided to transfer its functions and staff to a Guilin Sewerage Company (GSC) to be established in 1998 in order to enable 18 clearer accounting of performance and long-run costs, and more flexible deployment of staff and financial resources. The Company would be wholly owned by GM and governed by a board of directors appointed by GM. Still, it would be essential that clear performance contract is established as mentioned in paragraph 4.7 above. Planning and construction of major facilities, including those under the project, will remain for the time being the responsibility of the Municipal Construction Bureau. Upon completion, the facilities will be turned over to the Company for operation. The Company would also be responsible for operation of the sewerage facilities in Xicheng District in Lingui County, which is under GM, to be built under the project by the Xicheng District Management Office. 4.11 Assurances were obtained during negotiations that GM will carry out an institutional development program satisfactory to the Bank Group, including starting a program of technical assistance and training with assistance of competent consultants, and incorporation of an autonomous Sewerage Company with charter and revenue base satisfactory to the Bank Group by the end of 1998. The institutional development program, reviewed by the Bank Group, emphasizes the development of an accounting and financial management system required for autonomous operation rather than the current dependence on municipal allocations. The technical assistance and training programs, particularly the consultant services, will be coordinated with those of Nanning. 4.12 An adequate financial base is the key to the sustainable sewerage operations and to the autonomy and accountability of GSC. In the past the construction and operation of sewerage facilities were financed by budgetary allocations of municipal revenues and tourim development funds and considerable subsidies by the national and regional governments. Subsidies, however, have become scarce and GM has started to borrow for sewerage investments to supplement its own resources, adding recurrent expenditure requirements for debt service. Operating expenditures, already substantial Y 10 million in 1996, are expected to more than double in five years not only due to the new facilities to be built but also increased utilization of existing facilities. 4.13 Recognizing these needs, GM in 1996 increased the sewerage tariff to non- residential users by about 100% to Y 0.1 per m3 of water use. In December 1997, the residential tariff was increased similarly to Y 0.1/m3 and non-residential tariff was increased further to Y 0.15/m3. Revenues from these higher tariffs are projected to fall short of operating expenses starting from the middle of 1999. By the time investment works under the project are completed, adequate operations and maintenance of the entire sewerage system plus servicing of loans taken under the project are likely to require sewerage tariffs about three times the current levels. In Xicheng, a newly developing industrial suburb of Guilin, the sewerage system to be built under the project is expected to require considerably higher charges, about Y 0.37/r3 in today's prices, as it would have a high unit cost due to the relatively small size of the system and it lacks a base of paid-up assets. 4.14 Assurances were obtained during negotiations that GAR will cause the sewerage charges in Guilin to be adjusted from time to time to generate sufficient revenues, combined with payments for drainage services, to cover adequate operation and maintenance of the sewerage and drainage facilities as well as debt service obligations 19 incurred from July 1, 1998. As a first step, agreement was reached during negotiations that, as a condition of disbursement of the Bank Group loan and credit for Guilin's sewerage works, the sewerage charges would be raised to not less than Y 0.18 per cubic meter of water use averaged over all water use; and that construction of a sewage treatment plant in Xicheng would not proceed before January 1, 2000 or before steps are taken to collect charges sufficient to cover operation, maintenance, and debt service for it after it is completed C. Small Area Improvement 4.15 The project will pilot a participatory and low-cost approach to urban neighborhood upgrading, which is necessary but little practised in Chinese cities. Extensive new developments and wholesale redevelopment of existing built-up areas have transformed most Chinese cities over the last two decades and would remain the main means for urban development in the foresseable future. However, relying solely on these expensive methods would leave a large part of the rapidly growing needs for urban infrastructure improvement unmet, especially for the poor. Under many circumstances upgrading the existing physical assets is an efficient means to improve the living environment, for the rich as well as poor, but often the only means for the poor. 4.16 Quality of housing and physical environment is the major element and the best indicator of real income for most urban population in China. Salaries vary little among urban residents, but are supplemented with widely varying levels of in-kind benefits whose main component is housing provided at nominal rents. For example, senior staff of a prosperous work unit would live in modern apartments with implicit rental value almost equal to cash salary, while others would have to find housing with poor facilities, either rented on their own at high market rents or given by employers or owner-occupied. Migrants from rural areas comprise the poorest group in urban China. They represent about 20% of Nanning and Guilin populations and their number is growing fast. Such areas are found in former rural villages in the newly incorporated urban peripheries, old neighborhoods in partly redeveloped urban centers, and a few shanty towns in Nanning, although those are rare in cities of China. 4.17 The project would support low-cost improvement of neighborhood facilities such as drainage, sewerage, latrines, access roads, and garbage collection in selected Nanning and Guilin neighborhoods. The main selection criteria would be visible defects in these facilities, little prospect of redevelopment in the near future, and the residents' commitment. Fourteen such areas in Nanning and Guilin have been identified during project preparation (two are described in Annex 7); additional areas would be identified during project implementation. 4.18 Beneficiary participation is the key to small area improvement, both in preparation and financing. Area residents, organized by neighborhood committees, will identify the type and scope of improvements according to their priority and affordability, prepare, partly finance and implement them. While many Chinese neighborhoods have long practiced self-help maintenance and minor repairs, the scope of upgrading under the project 20 would require substantially higher levels of organizational and engineering efforts. Consultants will be retained for facilitating participatory process, evaluating technical options, designing and managing the detailed engineering works. District governments, traditionally responsible for neighborhood-level infrastructure, will play the main coordinating role, providing managerial and financial assistance on behalf of the municipal government on the basis of agreements with neighborhood committees. 4.19 Beneficiaries' contribution of substantial part of the costs is another essential requirement for feasible and sustainable upgrading. It imposes the necessary budget constraint on the beneficiary-driven investment, and makes it affordable to municipalities which focus on large scale trunk infrastructure works and hence have been able to devote little resources on small scale improvements. One should note that most new and re- development projects are commercially financed and, though more expensive than upgrading, place little financial and management burden on municipalities and often contribute to municipal revenues. While small scale upgrading would also benefit from loan financing, experience of upgrading projects in other countries has shown that it is frequently impractical to recover the cost through small installments from beneficiaries after implementation. It would be better, therefore, to secure the beneficiary contribution to the extent possible at the time of implementation. 4.20 Beneficiaries of small area improvement would contribute the required labor either in kind or in money, and IDA would finance materials, equipment, and technical services in engineering, management and social works. IDA financing will be subject to a maximum of 70% of total cost or $100 per resident, whichever is less. In most cases these limits are not likely to apply, and IDA credit is estimated to finance 50-70% of the total cost. The beneficiaries will finance 30-50%. Municipal and District governments will finance the remainder, and will take responsibility for repayment of the credit. Assurances were obtained during negotiations that small area improvement subprojects would be selected and implemented according to criteria, procedures, and schedules satisfactory to the Bank Group, as described above. D. Managing the Lijiang 4.21 An important objective of the project is to augment the water flow in the Lijiang during the dry season. Beyond the physical measures to better store and release water, financed under the project, sustaining the benefit would require broad improvements in the way water resources are managed in the Lijiang basin. Increased population and economic activities in the basin generated higher demand for water, and the lack of effective control of the water use is a major factor contributing to the critical fluctuation of the water level of the Lijiang. The necessary coordination of distribution and monitoring of water flow is made difficult due to the existence of two local jurisdictions at the same level, Guilin Prefecture and Municipality, as well as the Regional Water and Power Bureau which controls the largest water works in the area, Qingshitan reservoir, with different sets of interests. 21 4.22 In order to improve the coordination among these authorities, the Regional Government decided to establish a high-level Commission representing the interested parties and headed by a Vice Governor. The Commission is expected to help facilitate consultation and joint planning and implementation of certain activities such as preparation of water registry and monitoring. Progress in integrating the separate operations would depend most critically on resolution of inherent jurisdictional conflict. The project will support technical assistance and training to improve efficiency of water releases and distribution which would be useful regardless of organizational framework, while supporting activities toward developing an integrated management of the Lijiang. Assurances were obtained during negotiations that GAR would establish a Commission to coordinate water resources management in the Lijiang basin by June 30, 1999 with composition and terms of reference satisfactory to the Bank Group to improve and progressively integrate the management of the water use and discharge in the basin. 4.23 A related issue is the lack of effective pricing of water as a scarce resource. This makes it difficult to control demand for water, and also makes many projects that are economically beneficial to be financially not feasible. Control of water use and discharges has improved significantly in recent years especially in urban areas, partly with large increases in water and wastewater charges. However, pricing and control of agricultural water use appear to be difficult as elsewhere, and the institutional action plan discussed above will include actions to rationalize raw water pricing. In order to induce upstream water authorities to better control their water distribution and to ensure financial viability of the hydraulic investments under the project, GM has agreed to pay GP for augmentation of Lijiang flow as it enters the city during the dry season, as measured by an agreed method. This will take place after Wulixia works are completed, in about 2002. Agreeemtns were reached during negotiations on the principles for setting the payment by benefiaries including GM (Refer to Annex 6). The payment, combined with revenues from additional power generation, should allow the Wulixia management office to recover at least the operating costs, debt service, and a reasonable return on their investments. E. Industrial Pollution Control 4.24 In most cities of China, point sources, mostly industrial plants, account for a major share of water pollution discharges. In Nanning, for example, about 50 industries located in the Chaoyang stream catchment were responsible for about two thirds of COD load in the stream; and of this over 80% was generated by 10 largest polluters. In Guilin, thanks to the stringent pollution control and industrial relocation programs implemented over several years, industries are less of a concern but still contribute a significant part of water pollution. At least as important as the sewerage investments, therefore, are actions to reduce the industrial pollution discharges. NM and GM have committed to addressing the issue with enforcement and support for significant industrial polluters to reduce or pretreat their discharges either to meet the surface water discharge standards, or to the quality suitable for adequate treatment by the waste water treatment plants, including the two to be built in Nanning. In the latter case, special sewerage user charges would be paid. Assurances will be obtained during negotiations that NM and GM would carry out action plans satisfactory to the Bank Group to reduce industrial pollution discharges to major 22 urban waterways. Time bound action plans would be provided by negotiations, listing target quality standards for discharges and deadlines by each significant industrial polluter. 4.25 Strong enforcement of environmental regulations requires effective compliance monitoring, a major responsibility of EPBs. Generally in China, EPBs depend excessively on self-reporting and stationary monitoring, with weak results. In Guangxi, the Regional and local EPBs suffer from a serious lack of manpower and equipment required for effective monitoring, particularly mobile monitoring. In order to improve monitoring and enforcement, the project would provide support for all participating jurisdictions to upgrade their environmental monitoring through improved analytical equipment and mobility for inspections, and through training programs for management and skills upgrading. F. Sugar Refineries Pollution Abatement 4.26 Guangxi is the most important sugar producing and refining area in China. Sugar refineries generate about 10% of Guangxi's total industrial output, but 75% of total industrial water pollution. They were found by a recent study to be competitive with those in other major producer countries though the average size is smaller. There are more than 100 sugar refineries in Guangxi, most of them small and medium size enterprises. Such enterprises in China as a group have been competitive and profitable with little support from formal financing system. Though they have received relatively strong support in Guangxi due to their importance, the priority in financial allocation has been given to major technical renovations, leaving little to support pollution control in existing plants. However, GAR has stopped issuing licenses for new refineries, and expansion is allowed only for those meeting discharge standards. Many refineries have adopted various low-cost, locally available technologies to reduce the pollution discharges. While there are a few successful examples, their applicability or effectiveness has been limited. Internationally, several proven technologies are available for efficient treatment, reuse, or minimization of waste water. 4.27 The project will allocate $2 million for a few subloans to finance costs of such technologies and equipment, subject to a maximum of 50% of subproject total cost or $2 million, whichever is lower, for any individual sub-project. Subloans are expected to range between $0.7 - 1.0 million, and finance about 40% of the total cost. Its maturity will be 7 years including 2 years' grace and the interest rate will be 1.5 % above the LIBOR- based standard single currency US dollar loan rate. Technically, the subprojects would be required to, among others, enable cost-effective reduction of pollution discharges and compliance with environmental regulations, and be consistent with the Region's environmental priorities. Financially, borrowing refineries should have been profitable at least two out of past three years, be projected to generate internal cash flow not less than 1.4 times the projected annual debt requirement during the term of the subloan, and pledge collateral at least 1.2 times the subloan value. 4.28 The subloans will be managed by a Unit under GUEPO, with full-time staff seconded from the Sugar Corporation and the Regional EPB. The subloan decisions will be 23 made by these staff as well as representatives of the Regional Finance Bureau, Planning and Economic Commissions. Financial transactions and supervision will be carried out by the Region's Finance Bureau system. The Unit and the other representatives of the Region will appraise subproject proposals, prepared by the borrowers, based on technical appraisal by a technical institute appointed by the Board, and financial appraisal by a commercial bank. The Bank Group will review all subproject proposals recommended by the Unit. Assurances were be obtained during negotiations that GAR will establish the Guangxi Sugar Pollution Control Project Unit with staffing, funding, and terms of reference satisfactory to the Bank Group; and cause it to make and manage sugar refinery pollution abatement subloans with assistance of competent consultants on terms and conditions and according to criteria and procedures satisfactory to the Bank Group. 24 5. Project Implementation Arrangements A. Organizations and Plans 5.1 Local administrative bureaus have been managing the preparation of individual components under their normal line responsibilities, and would continue to oversee their implementation. Local governments and their administrative units responsible for various components are listed in Table 5.1 below. Table 5.1 Implementation Responsibility by Component Borrower/ Jurisdiction Comwonent Implementine Unit Guan,nxi Autonomous Region Sugar Refinery Pollution Abatement Sugar Pollution Control Project Unit Water Resource Management Lijiang Commission Technical Assistance and Training The above units, and Environmental Protection Bureau Nannine Municivalitv Chaoyang Stream Clean Up and Interceptors Chaoyang Stream Improvement Project Office Jiangnan Sewers and STP Municipal Construction Bureau Sewerage expansion and rehabilitation Municipal Construction Bureau Nightsoil management improvement Environmental Sanitation Department Small Area Improvement Neighborhood Committees in association with District Governments Technical Assistance and Training The Sewerage Entity, Environmental Protection Bureau Guilin Municinalitv City sewers and STP GM Construction Bureau Landfill and Transfer Fleet GM Environmental Sanitation Bureau Small area improvement Neighborhood Committes, in association with District and Township Governments Technical Assistance and Training The Sewerage Company and EPB Xicheng Sewers and STP Xicheng District Management Office/GM Construction Bureau Yangshuo, Xingping and Baisha Yangshuo County Construction Bureau Aeration Ponds Lijiang Embankment Works GM Water & Power Bureau Lijiang Reforestation GM Forestry Department Guilin Prefecture Wulixia Water Works Water & Power Bureau Wulixia Erosion Protection and Plantation Forestry Department Technical Assistance and Trainine EPB. Water & Power Bureau 25 5.2 To coordinate implementation by these units, each local government has established a Project Management Office (PMO) which include staff drawn from EPB, Finance Bureau, and Construction Bureau. They report to a vice mayor of NM, vice secretary general of GM, and Administrator of GP, respectively. Guangxi Regional Government has similarly established a Guangxi Urban Environment Project Office (GUEPO) headed by a vice director of Regional EPB, reporting to a Vice Governor. It would be supported by GAR Finance Bureau and Planning Commission. Experiences in other Bank-supported projects suggest that activities within each local government would be well coordinated, provided that the PMO includes senior personnel experienced in financial and construction management of similar major projects. Assurances were be obtained during negotiations that the beneficiary local governments will maintain project leading groups and project management offices with staffing and terms of reference satisfactory to the Bank Group. 5.3 Implementation Plans have been prepared for individual components, and consolidated by jurisdiction and for the entire project and are placed in the project file. The plans specify: detailed costs, financing, preparation, procurement, implementation and supervision arrangements, monitoring indicators, project scheduling, and procurement packaging. B. On-Lending and Disbursement 5.4 Assurances were be obtained during negotiations that: GOC will on-lend the loan proceeds to GAR for a maturity of 20 years including 5 years' grace, and on-lend the credit proceeds to GAR for a maturity of 17 years including 5 years' grace, at the same interest rates and charges as received from the Bank Group; and GAR will on-lend the loan and credit proceeds, other than those required for the components implemented by itself, to NM, GM, and GP for implementation of respective parts of the project on the same terms as received from GOC. 5.5 A proposed schedule of disbursement is shown in Table 5.2. Approximately 52.5% of costs incurred by each jurisdiction would be financed with the loan and credit. For the purpose of bid evaluation and payment, each of the contracts to design, build and equip pumping stations and sewage treatment plants would be divided into two packages, one for design and construction and another for equipment supply and installation. Disbursement for the former will be made under the works category, and the latter under the goods category. 5.6 A Special Account will be established and maintained in US dollars by the Guangxi Regional Finance Bureau on terms and conditions satisfactory to the Bank Group. The Account will have an authorized allocation of $4.5 million, approximately equal to average projected disbursements over four months. Replenishment application would be submitted monthly or when the balance falls below 50% of the authorized allocation, whichever comes first. Disbursements will be made on the basis of Statement of Expenditures (SOE) for (a) training, (b) consultant contracts less than $50,000, (c) contracts for goods valued at less than $200,000 each, and (d) contracts for works valued at less than $2 million. Full documentation will be needed for disbursement for others. GUEPO will retain the documents supporting the SOE and make them available to Bank Group missions for inspection. 26 Table 5.2 Disbursement Arrangements Lateorv DLisbursement rercentage Goods 100% of C.I.F. cost of imported goods; 100% of ex-factory cost of domestically produced goods; 75% of costs of other goods procured for small area improvement; 70% of costs of other goods Subloans 100% of sugar pollution control subloans Technical Services 100% of expenditures net of taxes and Training Civil Works** 53% for Nanning Municipality (component 3.2 (a)) 50% for Guilin Municipality (component 3.2 (b) and Guilin part of 3.2 (d)) 45% for Guilin Prefecture ** Ratios for civil works are set so that the loan and credit finance 52.5% of total cost by jurisdiction. 5.7 Schedules. The project is scheduled to be completed by June 30, 2004 and the loan and credit accounts to close by December 31, 2004. The schedule of projected disbursement, based on the standard disbursement profile of urban sanitation projects in China, is shown in Annex 12. 5.8 Retroactive fmancing up to $7 million equivalent will be provided for eligible expenditures made after December 31, 1997 for consultants services and training, civil works for construction of sewers at Chaoyang in Nanning and Qintan in Guilin, and construction of landfill in Guilin, and procurement of equipment for project management offices. C. Procurement Arrangements 5.9 Goods. The project is estimated to require equipment and materials costing about $43 million in total, including equipment procured as part of four turnkey contracts to design, build and equip three sewage treatment plants and a small power generating station. About $30 million worth of the goods, or about 75 % of the total, will be procured through international competitive bidding (ICB). National competitive bidding (NCB) will be employed to procure goods more than $100,000 but not exceeding $200,000 per package, up to an aggregate amount of $6.9 million. These include standard construction materials, such as small-diameter sewer pipes, used for small area improvement, and plant seedlings used in Wulixia and Lijiang soil conservation components. Small quantities of tools and materials mainly for the small area improvement and office equipment used for project management and studies, less than $100,000 per contract and up to an aggregate amount of $2.5 million, will be procured through comparison of price quotations from at least three qualified suppliers. Specialized equipment and process licenses for sugar pollution control financed under the subloans will be procured by the beneficiary refineries through international competitive bidding except those costing less than $1 million, which may be procured through shopping procedures. Other items, goods and works not financed by the Bank, will be procured by acceptable commercial practices. 27 5.10 Civil Works for the project will be commissioned mostly through about 40 contracts between $50,000 and $8 million, procured through NCB. Potential bidders for major interceptors, pumping stations, STPs and tunnelling work, requiring special skills or equipment, will be prequalified. Some works will be bid under the supply and install contracts through ICB. Contractors for small works of plantation and sewer rehabilitation costing less than $50,000 equivalent per contract and up to $2.0 million in aggregate, may be chosen through comparison of price quotations from at least three qualified contractors. Electrical main connections and installations associated to these works will be made by local power companies through direct contracting, and will not be financed by the Bank Group. Civil works for small area improvement will be carried out by beneficiaries with their own labor and at times supplemented by contract labor hired through direct contracting. Neither will be financed by the Bank Group, other than technical services discussed below. Table 5.3: Procurement Arrangements ($ million, including contingencies) Procurement Method Category ICB NCB Otheea NF0' Total Civil Works 21.0 78.8 2.0 3.5 105.3 (10.9) (39.2) (1.0) (0.0) (51.1) Goods & Materials 28.6 6.9 2.5 38.0 (27.5) (5.7) (2.1) (35.3) Sugar Industry Pollution Control 1.3 1.0 2.7 5.0 (1.3) (0.7) (0.0) (2.0) Consultancy & Training 3.6 3.6 (3.6) (3.6) Land Acquisition & Resettlement 8.5 8.5 (0.0) (0.0) Project Management Services 0.0 8.0 8.0 (0.0) (0.0) (0.0) Total 50.9 85.7 9.1 22.7 168.5 (39.7) (44.9) (7.4) (0.0) (92.0) Note:Figures in parentheses are amounts to be financed by the Bank. a/ Other procurement methods include limited international bidding, shopping, consultant services (recruited in accordance with Bank guidelines) and training. b/ NBF = Not Bank financed 5.11 Consultancy and Training. The project would involve consultancy and training, estimated to cost about $4.0 million. A major part of the studies and training would be carried out under three consultant packages and associated training for institutional development for sewerage, environmental protection, and water resource management. Others include small consultant studies on Guilin solid waste transfer system and Nanning nightsoil management database system development costing between $100,000 and $200,000. The rest would be a 28 large number of small consultant services, each less than $50,000, to help supervise implementation of major works and to help neighborhoods prepare and implement small area improvement component. Most consultants would be selected competitively on the basis of quality and cost. Small contracts for systems design and advisory services for sewerage and environmental protection institutions would be selected on the basis of quality. Services to facilitate participation and help prepare and manage small area improvement programs would be procured as service delivery contracts, for which non-governmental organizations would be eligible to compete. All consultant contracts would be listed in general procurement notices in the Development Business (UNDB) and the expression of interest for the three largest contracts would be invited through advertisement in UNDB and national newspapers. The terms of reference for the establishment of the Lijiang Commission will be finalized before negotiations. 5.12 Procedures and Management. The procurement plan for the project is summarized in Table 5.3 and contract packages are listed in Annex 13. Procurement under the project will follow the "Guidelines: Procurement under IBRD Loans and IDA Credits" dated January 1995 as revised in January and August of 1996, and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated January 1997 and revised in September 1997. Model Bidding Documents agreed between GOC and the Bank Group will be used for all contracts. The Bank Group's prior review procedures will apply to all ICB packages, civil works packages with estimated value over $2 million, consultant firm contracts over $100,000 and individual consultant contracts over $50,000. These are expected to cover about 80% of all procurement value under the project. Bank Group missions will carry out ex post review of a selection of others. Under ICB for goods, domestic suppliers will be given a margin of preference equal to 15% of CIF price or applicable customs duties and taxes, whichever is less. For turnkey contracts mentioned above the same domestic preference will be applied to the equipment which will be priced separately. No preference will be applied to works. Foreign bidders will be allowed to participate in NCB. D. Resettlement and Land Acquisition 5.13 Facilities to be built under the project would occupy some 110 ha (or 102 ha) of land permanently, and require resettlement of 926 people. About 27 ha required mainly for a solid waste landfill and some for sewage treatment plants in Guilin has been owned by the local government for some years. Of the remaining land to be acquired for the project, the major part consists of 70 ha of an abandoned brick yard in Nanning to be used for a new sewage treatment plant. Components to be designed during the project implementation, the small area improvement sugar refinery pollution control subprojects would be carried out within the premises of the neighborhoods and borrowing refineries and therefore involve not land acquisition or resettlement. 5.14 The only resettlement in the project is required for sewering the densely built-up center of Nanning along the Chaoyang stream. The originally proposed design for the component was radically altered during project preparation mainly as it would have required resettling over 5,000 people. The design adopted for the project requires clearing of 5 ha, demolition and replacement of 13,000 m2 of buildings and resettlement of 926 persons. They will be resettled in larger housing units in an apartment complex being built near the area, and given moving compensation. Thirty households identified as vulnerable people on account of their low income, ill health, and old age will be given special additional support to ensure they 29 maintain their income and access to necessary services. Resettlement Action Plan (RAP) has been prepared for the Chaoyang stream area in full consultation with the affected people. The RAP specify responsible organizations at various levels and procedures to inform and assist the affected people in a timely manner during implementation, including grievance procedures, and monitoring and reporting arrangements. The project authority retained an independent institute for monitoring and evaluation, who also participated in preparation of the RAP. Assurances were obtained during negotiations that NM will carry out the resettlement and rehabilitation of affected persons according to a plan (the RAP) satisfactory to the Bank Group and report their progress included in the project progress reports. E. Accounting and Auditing 5.15 Local government departments keep their recurrent accounts according to the state standard accounting system for administrative units, and for investment projects, follow the state construction accounting system. Municipal sewerage companies to be established during the project period will follow the standard enterprise accounting system. These standards, revised in 1994, was found to conform to internationally accepted accounting principles. Ministry of Finance and local finance bureaus have provided extensive training in the use of the standard accounting systems and continue to provide guidance and assistance for their use. Implementing units of the project components will be responsible to keep their respective detailed construction accounts and the project office of each jurisdiction will maintain consolidated project accounts. GUEPO will maintain consolidated accounts for the entire project. 5.16 Local Audit Bureaus, under the guidance of the State Audit Administration (SAA), have carried out auditing of most projects the Bank Group financed. The arrangement has been found satisfactory. The Guangxi Regional Audit Bureau will provide the necessary audit services for the project under the same arrangements. Assurances were obtained during negotiations that GAR will submit to the Bank Group annual audit reports on the following within six months after the end of each fiscal year starting from fiscal year 1999: (a) the Special Account; (b) the statements of expenditures; (c) the project accounts consolidated and maintained by GUEPO and Nanning and Guilin PMOs; and (d) the financial statements of Nanning and Guilin sewerage entities, including the statements of flow of funds and the compliance with the financial covenants. F. Monitoring and Supervision 5.17 Assurances were obtained during negotiations that GUEPO will submit quarterly progress reports according to a format satisfactory to the Bank Group by the end of January, April, July, and October of each year, starting from October 1998. The report submitted in April will serve as annual progress reports, including summary of implementation in the past year and reports on the complete set of monitoring indicators. The report submitted in October will 30 include implementation plans for the coming year. GUEPO will provide an implementation completion report within six months of project closing. 5.18 A supervision plan is shown in Annex 14. The first three years of supervision will require relatively large efforts, about 18 staff weeks, focusing on different areas. In FY 1999, the focus would be on helping to develop implementation and monitoring arrangements, procurement of early investment components and consultancy contracts, and detailed preparation of procuring pumping stations and other components to be implemented initially. A Launch Workshop will be held in about November 1998. Another major assistance focus during FY 1999 and 2000 would be the institutional development of the Sewerage Companies. In FY 2000, large engineering input would be required to review the actual sewage flows and projected future flows to Jiangnan and Xicheng STPs. A mid-term review will be held in late 2001 for strategic assessment of project implementation and prospects. In later years, the supervision would require about 15 staff-weeks per year. 31 6. BENEFITS, RISKS, AND ALTERNATIVES A. Environmental Impacts 6.1 The project is rated environmental category A in view of its large environmental impacts. While the project components would bring major environmental improvements, they would give rise to some environmental risks. In accordance with a GOC regulation governing externally assisted project, which is consistent with the Bank's Operational Directive, comprehensive Environmental Impact Assessment studies (EA) have been carried out by a qualified national institution covering all project components except the programs of small area improvement and sewer repairs, whose details will be determined during the project period. The full documents have been placed in the project files and are summarized in Annex 15. The EA has been approved by NEPA and reviewed by the Bank Group. A resettlement action plan has been prepared separately and summarized in Section 5.D and Annex 8. 6.2 The most important environmental risk is to the quality of Yong River water at the new discharge point of waste water collected from Nanning urban areas. Currently some of the waste water is absorbed to the ground, and the rest is discharged into the River at several dispersed locations and assimilated by the River. Compared with this current situation, better collection of waste water into a single discharge point would significantly raise the level of pollution at the new discharge point. A quantitative model was built to analyze the impact of the new sewerage system on the water quality of Yong River. The results indicate that: the water quality upstream of the new discharge point would improve from the current Class III and IV to Class II and III; discharge of untreated sewage at the new location would push the water quality immediately downstream from the current Class IV to Class V in a near future; and tertiary treatment of most of the urban sewage would be required to upgrade the water quality at the location to Class III. Based on evaluation of alternative levels of treatment, the project includes fmancing for a treatment plant that would prevent the newly collected wastewater from worsening the water quality at the discharge point and would provide a basis for future expansion. 6.3 Another potential environment risk is associated with the sludge that needs to be dredged from the Chaoyang stream bed. The characteristics of the sludge has been analyzed, and a safe disposal site, in addition to the existing landfill, has been secured. Other significant potential adverse environmental impacts of the project as a whole are temporary increases in noise, dust, and traffic disruption during construction. Measures to control these to a minimum have been specified and will be implemented during the project. The project addresses some of the most pressing environmental issues well recognized and given high priority by the local governments. Environmental master plan studies and a study of Lijiang basin water resource issues carried out during project preparation (placed in the Project Files) have confirmed these priorities and also establish strategic frameworks to deal with overall environmental issues in the long term. 32 B. Analysis of Benefits and Alternatives 6.4 The project is entirely devoted to environmental improvements, particularly to the control of water pollution, which in turn would improve health, ecology, aesthetics, water supply, recreation. Different components of the project aim at different combinations of the multi-dimensional benefits. By and large these benefits are difficult to evaluate quantitatively due to the involved data and value judgments. Partly for this reason the basic issue of the whether the intended benefits are worth the cost is addressed only at a general level, using approximate benefit-cost measures to illuminate the local governments' priorities. Economic analysis was focused on clarifying the nature of the benefits expected of each component and its elements, and identifying options to obtain the benefits in terms of the counterfactual and scope as well as technological alternatives. For some benefits such as an increase in raw water availability, quantitative cost-benefit analysis was necessary and feasible. In other cases, benefits could be compared only by orders of magnitude. The analysis was based on the discount rate of 12% and the conversion factor of one for most inputs, according to the Bank's review of market prices of urban factors. In many other cases, other analytical criteria and procedures were decisive in guiding the evaluation of options. These analyses led to significant reformulation of the project during preparation. Major benefits and alternatives considered for large components are discussed below. 6.5 Sewerage works in Nanning, which account for a major portion of project investment, can be classified into three groups in terms of their impacts: (i) improving drainage of sewage and storm water in the city areas housing about 70% of the urban population; (ii) conveying it to a location downstream for discharge into Yongjiang, and (iii) treating the sewage at that location. The main benefit from the first group of sewerage works, as well as nightsoil management and small area improvements, would be a reduction in water-borne diseases. While recognizing the limitations, an attempt was made for a rough valuation in view of the importance of this type of benefits. Various public health reports indicate that the incidence of such diseases in Nanning is around a third higher than national average, whereas the rate in Guilin is almost a third less. Given that other conditions are similar, the difference in morbidity rate can be attributable largely to the levels of sewerage services, better than most in Guilin and worse than most in Nanning. Inferring from a World Development Report (1993) estimate for China as a whole, the burden of diarrhea and hepatitis in Nanning is estimated to be about Y 90 million a year. Assuming that the sewerage improvement could bridge 80% of the gap between the two cities by 2003 and the value increases with income and population by about 12% a year for the first 10 years and 8% afterwards, the present value (PV) of the benefit discounted by 12% over 30 years would be about Y 590 million. Taking into account other illnesses, reported in a small survey taken during project preparation, the PV of benefits can be estimated at about Y 1280 million. On the other hand, PV of relevant investments under the project and complementary investments and O&M is estimated to be about Y 490 million, indicating a benefit-cost ratio in the neighborhood of about 2. (The estimation is discussed in more detail in Annex 1.) 6.6 Improved sewerage would also reduce bad odor and sight which are acute in the commercial center of the city along the Chaoyang Stream, and improve the land value of the area, were there an active property market. Current land value of some 100 ha of directly affected commercial and residential plots in the city center is imputed to be about Y 3 billion. This indicates that the value of the ambient improvement could be more important than health benefits for this particular area. A major issue for the project was evaluating the original 33 proposal that focused on this ambient benefit in the city center. The original proposal to improve the lower 3 km of Chaoyang stream would have cost about Y 400 million, compared with Y 150 million allocated to the same section under the finally agreed option. The additional investment would have allowed realigning and expanding the stream course to add flood retention capacity and recreational space. The additional flood management capacity, however, would be worth less than Y 15 million, PV of additional capital and operating costs of extra pumping capacity. The odor would be reduced under either option, and it was doubtful if the other proposed improvements such as additional recreational space would pay for themselves through land value increments of nearby plots, especially considering that most of the extra cost would have been incurred in the form of about 20 ha more land cleared than now planned. On the other hand, these expenditures would have left little resources for providing sewers in other areas of the city, foregoing the major part of the health benefit discussed above. 6.7 The second group of works, to convey intercepted sewage across the Yongjiang, would protect the quality of water for a city water intake located on the downstream of the discharge point of Chaoyang and Erkeng streams. It is projected that the water quality deterioration, if allowed to continue at the present rate, would make it necessary to relocate the intake in about six years, at an estimated cost of about Y 120 million. This savings, discounted by 12% a year, would be equivalent to a PV of about Y 60 million. This alone would justify the investment and operating costs for this element, whose PV is about Y 48 million. 6.8 A trade-off within the fiscal limitation was the main consideration in determining the level and volume of treatment of the collected sewage. The current water quality of Yongjiang at the point of discharge from the proposed STP is rated Class IV during the dry season. A water quality model indicated that the quality would be upgraded to Class III only if a major part of urban waste water is collected and treated to the tertiary level. A major economic benefit of improving from Class IV to Class III would be to allow intake of drinking water, which is not relevant in this case, and improve fisheries and recreation, whose values are hard to quantify but unlikely to exceed even the operating cost of such a STP, over Y 10 million per year. Given the constraints of fiscal resources and likely affordability limit on sewerage charges, a higher level and larger capacity of treatment would mean less sewage collection for the next decade or more. This would defeat the purpose of sewerage improvement. The treatment level and capacity therefore have been determined so as to maximize sewage collection and treat it at the primary level. This would leave the quality of water at the discharge point equal or better than the current one in most important pollutants. Further, the STP will provide a substantial base for expansion and upgrading in the future when they would be affordable. 6.9 Environment and Tourism. Broad environmental qualities beyond health concerns are given more attention in considering sewerage in Guilin, due mainly to the importance of tourism. About 8 million domestic tourists and 350,000 foreign tourists visit Guilin annually, attracted mainly by the cruise on the Lijiang downstream of Guilin city. It is estimated that close to 20% of GDP in Guilin area is generated directly from tourism industry, and including activities directly supporting the industry and its employees, about 30% GDP, or Y 2.5 billion a year. A recent survey on tourists' satisfaction with eight environmental aspects found high levels of dissatisfaction with the level of water in Lijiang (though the survey was in April, after the driest season) and cleanliness of city streets and Taohuajiang, a Lijiang tributary and main city stream. The importance of Lijiang water level is corroborated by the fact that the number of foreign tourists drops to half during the three driest months, January to March. The 34 emphases on the latter two urban elements are consistent with the fact that tourists spend considerable time in the city itself, and indicates the importance of urban environment to tourism as much as Lijiang itself. In the survey the tourists also stated that they would stay about 50% longer on average, if the environmental problems they perceive are solved. While this would imply a contingent valuation of over a billion yuan a year in terms of additional GDP, various constraints on both demand and supply sides would limit the extent this will be realized. Further, unless one can define "satisfactory environmental improvements", it is not possible to allocate the potential benefit to different types of improvements, and then to specific investments which contribute partly to these improvements. Therefore, economic analysis of proposed components with primary objective of improving various aspects of the Lijiang has relied on alternative evaluations, using the benefits related to tourism only as a reference. 6.10 Sewerage and Solid Waste Management in Guilin. Improved environmental health would be the major concrete benefit of the investments for solid waste landfill and city sewers in Guilin, at a cost per beneficiary (about Y 650 per capita) similar to that in Nanning. Due to the higher level of environmental health in Guilin, the marginal benefits would be lower, but would be supplemented by tourism-related benefits. During project preparation, the main focus of the sewerage components in Guilin has shifted from the latter to the former, not due to revaluation of relative importance of the two objectives, but mainly based on assessment of least cost options and the time horizon. Whereas the original proposal focused on expansion of sewage treatment (secondary level), it was determined that the existing capacity of two STPs in the southern part of the city would not be fully utilized for the next several years. Higher priority for the immediate future would be to increase their utilization, expand sewerage collection, and expand a north-western STP which is operating over capacity. These measures would have a significant impact in reducing pollution in Taohuajiang, whose water quality is currently rated between Class IV and V. 6.11 For a proposed STP in Xicheng, a newly developing industrial suburb of Guilin, the proposed timing was delayed and scope was reduced based on the economic analysis that showed that its population and wastewater generation is likely to grow more slowly than earlier projected, and that capital and operating cost of a secondary sewage treatment would exceed the affordability of the area residents and the area governrnent. Both factors imply a high risk of idling the facilities if built as originally proposed. The original proposal also called for building trunk and secondary sewers for new developments. However, this was replaced by support for sewers in the old existing area within Xicheng, given that the new developments are essentially commercial and speculative and call for short-term commercial financing. Another group of proposed sewerage investments in another newly development area north of Guilin city was rejected for almost the same reasons as above. 6.12 Water Works. The Wulixia water works would add about 7 m3/second of water to Lijiang during the dry season. The highest economic use of the water would be the supply for urban uses, probably higher than the more emphasized benefit of helping the Lijiang cruise. In fact, water supply of the city and towns along the river is seriously constrained during the dry season, requiring occasional rationing. A major portion of the additional water would be used for urban water supply. Its value during the dry season may be assessed at least Y 0.5/m3, in view of the valuation of about Y 1-2/m3 in dry northern provinces. The process of diverting, storing, and releasing the water also provides flows for electricity generation. In Guilin area, marginal price of electricity, bought from thermal power plants, is Y 0.4/kwh. Including 35 environmental costs of thermal generation, the economic value of the hydropower would be around Y 0.5/kwh. The PV of these economic benefits (minus operating costs and discounted at 12% a year) is estimated to be about Y 205 million, 7 times the investment cost. This extraordinary high rate of return can be attributed largely to the utilization of the existing Wulixia reservoir and associated facilities. Although the reservoir was built for irrigation purpose, a large part of the water finds little economic use during the dry season due to the conversion of much of the farmland to more profitable alternative crops and orchards. 6.13 The original proposal for the project included other, much larger water works to supplement the Lijiang flow. The largest part of the original proposal was a group of water works in a river basin west of Lijiang (Huangsha and Xunjiang), partly to transfer water to Taohuajiang and Lijiang. These would have been largely new water structures, and their costs could be justified only if and when the value of water in terms of tourism or water supply is increased over twice the level indicated above, which could be the case in a medium-term future. Another part of the original proposal was to transfer water from Xiaorongjiang, a Lijiang tributary, to a large existing reservoir that is underutilized. These water works were evaluated to be economically justified strongly, with a benefit-cost ratio of about two. However, they could not be included in the project as the Regional authority that manages the reservoir could not reach agreement with Guilin Municipality, on the latter's payment for the additional water. 6.14 Benefits of repairing and building embankments along the Lijiang were evaluated on the basis of the record of loss of crop land, roads, and plants to the floods of 1992 and 1993, which are considered typical, recurrent floods. The losses were estimated to have cost about Y 18 million. Over 20 years, these losses would amount to a PV of about Y 66 million, compared with Y 48 million, the PV of the cost of embankments and their maintenance. While an important motivation was aesthetic value for tourism, it is difficult to make a direct link. Therefore, the above analysis was used as criteria for the selection of embankment sections to be financed under the project. Details of this and the water works components discussed above, including economic evaluation, are available in the feasibility report (see Annex 15: Documents and Data in Project Files). C. Poverty and Social Considerations 6.15 The project as a whole is expected to have strong poverty alleviation effects due to four features: its location in Guangxi, its focus on environmental sanitation, its boost to tourism; and more directly, small area improvement component. As in other areas, Guangxi's major cities have been, and will continue to be, the engines of the Region's rapid economic growth, as discussed in Chapter 2. Visible improvements to the physical environment are expected to provide a significant help in attracting business investment and tourism to Nanning and Guilin. Urban economic growth lead to poverty alleviation not only by propagation of economic growth through linkages across sectors and areas, but more directly by rural-to-urban migration providing outlets for the pressure of population and poverty in the countryside. This effect has been stronger in major cities of Guangxi compared with other regions of the country, as their growth has been particularly fast and they have been much more open and accommodating to rural migrants. Migration added nearly 4% a year to the population of Nanning and Guilin since 1990, an unusually high rate in China. 36 6.16 It has been shown worldwide that the poor, while obtaining more income and job opportunities in fast growing cities, suffer disproportionately from poor environmental health. Focusing on improvements in environmental sanitation, the large part of project benefits are expected to accrue to the poor. Another significant part of the intended project benefit, aid to tourism, would also favor the poor as tourism industry employs a large number of unskilled workers. It is noteworthy that this pattern of benefit incidence for the poor coincides with that for women and for minorities. A gender impact study conducted for the project has found that women are more exposed to environmental sanitation and heavily represented in the tourism industry. Ethnic minorities, who constitute a near majority in Guangxi, are represented more among the new and poor residents of the cities than among long-term residents of the cities. 6.17 The project targets poverty more directly through the small area improvement component, although the criteria for selecting beneficiary areas do not explicitly emphasize residents' income levels. Rather, the selection criteria and financing parameters consist of conditions of physical environment and the participation of the residents. Main reasons for doing so are discussed in Chapter 4: limited validity of cash earnings as a measure of real income, and the desire to support low-cost, in-situ improvement as an efficient alternative to wholesale new development, regardless of the residents' income levels. Nevertheless, sample household surveys in the areas identified so far show that most of the area residents (over 70%) work in informal or small business sectors, and their average income per capita, about Y 230 per month, is only about half of the city averages including imputed value of in-kind benefits. D. Risks and Sustainability 6.18 Compared with similar projects in China, the project is expected to have above- average risk of implementation and sustainability. While similar Bank-financed projects have a satisfactory implementation record as a whole, they have commonly incurred costs and delays mainly during the start-up stage, due to initial difficulties in using Bank Group's procedures especially for procurement and difficulties of coordination among agencies and jurisdictions. These difficulties could be more serious for this project, partly due to the project complexity and partly due to the relative lack of institutional and technical capacity and experience. Various steps have been taken during project preparation to reduce the risks: exchange visits between project officials in Guangxi and those in other cities of China implementing similar projects; training in procedures by the Ministry of Finance and the Bank Resident Mission; retaining of an experienced procurement agency; and turn-key packaging of more complex works and equipment. An Australian grant has been committed to provide limited assistance in implementation of physical investments and institutional development components during the start-up phase. Nevertheless, the difficulties are expected to remain, and it would be important to maintain competent project management offices at various levels, competent supervision engineers and other consultants are retained, and the project progress is monitored systematically. 6.19 Financial and Institutional Risks. Counterpart financing has grown increasingly problematic for projects in China in recent years due to the fiscal transition and stabilization. In view of this, careful analysis has been carried out and appropriate financing sources arranged secured to ensure adequate financing the project. (Refer to Sections 4.A and 4.B). A more important issue is securing an adequate financial resources for continuing operation of the newly added sewerage assets. Tariff increases implemented already by NM and GM as well as further increases being proposed provide a better-than-average assurance on this count. However, the 37 covenant on financial self-sufficiency of sewerage operations would have to be monitored carefully especially during the later part of project period. Also, particularly in Nanning, it would be essential that an adequate institution is developed to manage the vastly increased sewerage facilities. A major focus of the supervision and technical assistance would therefore be on the formulation of an institutional development plan and its implementation. 6.20 Regulatory Risks. The main project benefit of water quality improvement would be limited in extent and in duration without regulation of point source pollution discharges. Therefore commitments of NM and GM will be obtained to the pollution control action plans as an integral part of the project, and the Regional sugar pollution control plan would be an essential element of subproject appraisal. Risks with implementation of these plans appear much less than those with environmental protection programs associated with other similar projects for two reasons: the pollution control plans are much more specific, and the record of at least one city, GM, is much better than most other localities in China. 6.21 Economic Risks. Sewerage services, and also to a large extent, industrial pollution control are expensive and therefore the demand for them have to be supported by considerable levels of income. To a large measure, the investment in the sewerage and other sanitation services and the industrial pollution action plans are predicated on the strong prospect of continued and fast economic growths in both cities, and tourism in the case of Guilin. If for any reason the city economies slow down or deteriorate, it would be difficult to keep up the services and pollution regulation. However, relatively little risk of economic downturn is foreseen for the medium term. 6.22 Small Area Improvements would differ considerably from existing practices in Chinese municipalities, requiring higher levels of beneficiary participation and less reliance on formal engineering standards. Risks are an unavoidable, and almost integral, element of the required innovations and experimentation. Hence monitoring and managing the risks and benefits would be an essential aspect of the component implementation. Subcomponents will be prepared and implemented as an experiment, starting with several schemes to be carried out in the first year or two, monitoring and evaluating the implementation and results, and modifying and expanding them based on experience. 6.23 Water Works for Lijiang, though a small and least risky part of the originally proposed scheme, still present some remaining risks that need to be recognized and managed. Given that water works in general have taken long to complete, these relatively small works (costing Y 30 million) have been given high levels of efforts for studies and design, and will be given more time and management resources for implementation. Even after the works are completed as planned, there is a high probability (about 30%) that they would fall short of the target of adding 7 m3/sec to Lijiang during the dry season, for natural and managerial reasons. Fortunately, however, the components would remain viable even with serious shortfall, as seen above in para 6.13. Improvement in overall management of water resources in the Lijiang basin would be an essential element to ensure sustainability, but the project will pursue a limited objective in this area, as discussed in Section 4.D. 38 7. Agreements and Recommendation 7.1 Assurances were obtained during negotiations that GOC will on-lend the loan proceeds to GAR for a maturity of 20 years including 5 years' grace and the credit proceeds for a maturity of 17 years including 5 years' grace, both at the same interest rate and financial charges as received from the Bank Group (para 5.3). 7.2 The following assurances were be obtained from GAR during negotiations: (a) the sewerage charges in Nanning and Guilin to be adjusted from time to time to allow generation of operating revenues sufficient to cover at least adequate operation, maintenance, and debt service (para 4.9 and para 4.14); (b) NM will carry out an institutional development program for effective management of sewerage services, revised from time to time and satisfactory to the Bank Group, with assistance of competent consultants (4.7); (c) GM will establish an autonomous Sewerage Company with charter and revenue base satisfactory to the Bank Group by December 31, 1998 and will cause the Company to carry out an institutional development program satisfactory to the Bank Group with assistance of competent consultants (4.11); (d) NM and GM will carry out small area improvements selected and implemented according to criteria, procedures, and schedules satisfactory to the Bank Group (4.20); (e) GAR will establish a Commission by June 30, 1999 with composition and terms of reference satisfactory to the Bank Group and cause it to carry out actions to improve and progressively integrate the management of the water use and discharge in the Lijiang basin (4.22); (f) NM and GM will carry out plans of action, satisfactory to the Bank Group, to reduce industrial pollution discharges to major urban waterways (4.24); (g) GAR will maintain a Guangxi Sugar Pollution Control Project Unit with staffing, funding, and terms of reference satisfactory to the Bank Group; and cause it to make and manage sugar refinery pollution abatement subloans with assistance of competent consultants on terms and conditions satisfactory to the Bank Group, and according to criteria and procedures satisfactory to the Bank Group (4.28); (h) GAR will maintain GUEPO, and cause NM, GM, and GP to maintain respective PMOs with staffing and terms of reference satisfactory to the Bank Group (5.2); 39 (i) GAR will on-lend the loan and credit proceeds, other than those required for the components implemented by itself, to NM, GM, and GP for implementation of respective parts of the project on the same terms as received from GOC (5.3); (j) NM will carry out the resettlement and rehabilitation of project affected persons according to a resettlement action plan satisfactory to the Bank Group and report their progress included in the quarterly project progress reports (5.14); (k) GAR will submit to the Bank Group, within six months after the end of each fiscal year starting from fiscal year 1998, annual audit reports by an independent auditor of: the Special Account; the statements of expenditures; the project accounts consolidated and maintained by GUEPO and Nanning and Guilin PMOs; the financial statements of Nanning and Guilin sewerage companies, including in particular the statements of flow of funds and the compliance with the financial covenants (5.16); and (1) GUEPO will submit quarterly progress reports according to a format satisfactory to the Bank Group by the end of January, April, July, and October each year, starting from January 31, 1998 (5.17). 7.3 Agreements will be reached during negotiations that, as a condition of disbursement for civil works for Guilin sewerage and drainage components (3.2(b)), GAR will cause GM to increase the sewerage tariffs to not less than 0.18/m3 on average. 7.4 With the above assurances, the proposed project would be suitable for an IBRD loan of $72 million equivalent for a period of 20 years, including five years grace, at the Bank's LIBOR-based single currency loans, and an IDA credit of SDR 14.9 million ($20 million equivalent) at standard terms with 35 years' maturity, to the People's Republic of China. Annex 1 40 Page 1 of 13 Sewerage and Drainage in Nanning Status of Water Resources, Drainage and Sewerage Systems 1. Nanning city, with an urban population of about a million, is situated on the northern and southern banks of the Yongjiang (Yongjiang River), which originates from Yunnan province, about 500 km to the west, and joins the Pearl River. The River, as it traverses the city in a southeasterly course, is about 300 meters wide and has an annual average flow of 1,300 m3/sec. The flow rate varies widely, with annual average dry season flow of about 250 m3/sec and the 20-year flood flow of about 15,000 m3/sec. As most of the city area elevation is below the 20 year flood level (78 m above sea), protection levees have been built over the years to protect against this level. A major upstream dam (Baise Dam) now being planned would provide an additional measure of flood protection. The Yongjiang is the primary source of the municipal water supply, drawn from six points along the River. Close to 20% of the total water used in the city is also supplied from more than 132 industrial and private wells. 2. The urbanized areas of the city are drained by six tributaries of the Yongjiang. Chaoyang stream serves the largest catchment area that includes the main city area north of the River, housing about 30% of population and the central business district. Before meeting the Yongjiang, it joins the Erkeng stream which drains the neighboring industrial and residential areas north. Areas south of the river (Jiangnan area) are relatively more recent and industrial, and drained mainly by a small Tingzi stream and Shuitang. Major new developments are currently on-going in the area east of the current city center (Langdong), served by the Nanhu Lake and Zhupai stream. These are all relatively small streams with catchment areas between 3 and 15 square km. A considerable portion of the water of the catchments is diverted to agricultural use, reducing the flow in the urban streams. Their water levels are often lower than the Yongjiang and the flood protection levees at the Yongjiang also impedes their flow. 3. Nanning's sewerage and drainage system has been constructed area by area. The system consists mostly of large diameter pipes or large size culverts and drains, with a total length of some 380 km covering 58 km2 of the total urban area of 81 km2. In many districts even the most basic form of a sewer network has not been put in and the secondary sewers, primarily the responsibility of developers, has not met minimum requirements either. 4. There is almost no separation between storm and sewage flows and the municipal policy has been to construct drains that can contain as much floodwater as possible. As a result, the sewers are generally too large to handle sewage flows during dry weather. Sections of the network have a low self-cleaning capacity, causing sheet flooding and water back-ups to occur regularly during the monsoons. Further, most of these combined drains suffer from inadequate maintenance and repair, and are clogged by silt and debris. A recent study of the city's sewer network conducted by the BMEDRI (Beijing Municipal Annex 1 41 Page 2 of 13 Engineering Design Institute) revealed that at least half of the network is badly kept up and leaks are frequent. Sewers and drains on roads that are over 20 m wide are maintained by the Municipal Engineering Management Administration, and smaller ones by the five administrative Districts. 5. All drains courses are designed to send effluent to the nearest water body. Nanning has 16 flood pumping stations, 12 of which are located at river mouths for lifting flows into the main river. There are no wastewater treatment facilities anywhere in the city for its domestic sewage except septic tanks, although some industries have on-site pretreatment facilities for their effluent. 6. Treatment of domestic sewage depends entirely on the septic tank system. Consultants have estimated that there are some 36,000 septic tanks in the city, virtually one for every building in the city. The responsible government agency for nightsoil management is the Environmental Sanitation Management Department (ESMD). Its small fleet of ten tanker trucks serves the approximately 170 public toilets in the inner city, each with a three compartment septic tank. When called upon, they will also service septic tanks belonging to other buildings. During periodic cleaning, waste sludge is emptied from the tank and sent to a composting facility where it is mixed with municipal solid waste. The plant produces compost (which is used by farmers) and non-compostable residue (which is landfilled). Major Issues and Actions 7. Due to a virtual lack of sanitary sewerage system, the urban tributaries of the Yongjiang receive most of the waste water discharges. As a result, water quality in three of the streams -- the Erkeng, Chaoyang and Tingzi -- that drain the most densely populated areas of the city into the Yongjiang is little different from raw sewage, as shown in Table 1 below. As a result, the water quality of the Yongjiang deteriorates seriously as it flows through the city. Water samples from the Yongjiang show that along the river's upper reaches, it satisfies water quality Class II (National Environmental Standard for Surface Water, GB3838-88), suitable for drinking water source. As it passes through the city, however, the quality worsens to Class III, quality marginally acceptable for drinking water source, and even to Class IV at certain areas during the dry season. Table 1. Typical Qualities of Yongjiang and tributaries Yongjiang Yongjiang Xinxu Erk-eng Chaovang Tingzi (upstream) (downstream) tributary tributary tributary tributarv BOD (mg/i) 0.53 1.87 12.5 74 116.6 292 flow (m3/s) - - 1.22 4.77 1.63 1.81 Class II III >V >V >V > V 8. The case for immediate action to address these problems is the need to preserve the urban water sources. Although the considerable flowrate of the Yongjiang is sufficient to keep the water quality from deteriorating beyond Class III level overall, the quality deteriorates below this level at some localized areas during the dry season. This affects the Annex 1 42 Page 3 of 13 largest water intake of the city which is located downstream of the point where the Chaoyang and Erkeng are discharged into the River. At present this causes occasional stopping of water intake and high treatment costs at other times. However, it is projected that continuation of the current trend of deterioration would force the relocation of the intake at a high cost. Also the groundwater sources, shown to be generally good quality so far, are threatened by sewage seeping from the deficient sewer lines, under-maintained septic tanks, and solid waste. 9. Another set of major problems are flooding and stagnant water. Some of the problems are localized ones due to the incomplete and ineffective drainage system in a large part of the urban areas. To a significant extent, however, the urban streams themselves are rendered stagnant, due to the low flowrate which is further impeded by the flood protection levees along the Yongjiang and the stream water level which is lower than that of the Yongjiang. 10. These problems are particularly significant with the Chaoyang stream and its catchment area. The area is home to some third of the total urban population of Nanning and the daytime population is larger as the area hosts a large part of the city's civil and industrial activities, which are growing fast. The heavily polluted water of Chaoyang, often stagnant, along with the built-up sludge, gives off persistent stench in the city center, contributes the biggest organic load to the Yongjiang, and its overflow during heavy floods results in serious epidemic outbreak. These factors make the Chaoyang stream an environmental problem of the highest priority. Another major source of pollution is the Tingzi tributary. Although small, the Tingzi stream has the highest concentration of pollutants. 11. Industry is the largest contributor to water pollution. About 50 industrial plants located along the Chaoyang stream are responsible for about two thirds of the stream's COD load in the tributary. The high pollution load of the Tingzi stream is mostly due to industries. Due to rapid industrial development, the water quality of Tingzi, Chaoyang, and Erkeng tributaries is expected to deteriorate even further. In the past, enforcement and governmental commitment to keep the industries in check have been weak. But under this project, the authorities have now committed to implementing an action plan (see Annex 4) that imposes strict effluent guidelines for the polluting industries. 12. Going beyond arresting further deterioration of the situation, the municipal government has started to take major initiatives for improvement. It has recently established an effective solid waste management system including a sanitary landfill. The Guangxi Urban Environment Project would constitute the major part of the program to improve sewerage: extension and repair of the sewerage and drainage network, especially along the Chaoyang stream, clean-up of the lower reaches of the stream, establishment of a primary sewage treatment plant, improvement of the nightsoil management system whose service will be required for some time until fully separate sewerage system is in place. The small area improvement program will extend the program to the tertiary level for focused areas where the environmental deficiencies are particularly serious. Annex 1 43 Page 4 of 13 13. The northeastern part of Nanning drains into the Zhupai creek and the Nanhu lake. Being a more recent urban development, it has been provided with relatively good drains which channel both storm water and waste water. But to protect both the lake and the creek from further domestic and industrial sewage, Nanning Municipality (NM) plans to build an interceptor that cuts across all the main drains and diverts dry weather flows to a sewage treatment at Langdong (a secondary treatment plant with an initial capacity of 160,000 m3/day, funded under a bilateral loan). These works, separate from the Guangxi Urban Environment Project, form an additional element of the municipality's ambitious program to improve the environmental quality of the city. 14. The municipal government has commissioned Beijing Municipal Engineering Design and Research Institute (BMEDRI) to establish a Sewerage and Drainage Master Plan (1995) and conduct feasibility studies of the above programs, focused on Chaoyang stream. In addition, it obtained assistance from Canada and Australia for further refinement of the feasibility studies and additional studies toward environmental master plan. The Project 15. The Nanning sewerage and drainage components of the project aims at improving the quality and drainage of water in Nanning city, by resolving the urgent and high priority deficiencies as well as establishing the basis for long-term improvement. The individual components are described below: (a) Clean-Up and Sewering of Lower 3.1 km of the Chaoyang stream (Total cost $14.9 million): Interceptor sewers will be built along each bank of the last 3.1 km section of the Chaoyang stream to collect wastewater that will otherwise be discharged directly into the stream. Twin interceptors would be slightly more costly to build than a single larger one, but would be easier to maintain. These interceptors merge into a concrete culvert which is joined by another interceptor (400 meters long) from Erkeng. To serve the entire Chaoyang catchment area, the interceptors will have a diameter of 1500 mm and be made of pre-cast concrete and rubber joints. Allowances were given for the fact that the interceptors will be ready for use before the city makes a full transition to separate storm and sewerage networks. An estimated 180,000 m3 of sludge on the stream bed, which is analyzed to be heavily laden with the nitrogen and phosphorus, will be dredged and will be disposed at a safe location. Retaining walls of the stream banks will be built, repaired or modified for better flood and erosion management. (b) Sewage and Storm Water Pumping Stations at Dakengkou (Total cost $5.5 million). A sewage pumping station to pump the sewage from the Chaoyang and Erkeng stream interceptors into the conveyor system crossing the Yongjiang. The initial pumping capacity is 240,000 m3/d with for future expansion to 480,000 m3/day to cater for the Erkeng stream and Xixiangtang. A separate pumping station of 12 m3/s capacity to pump out the Chaoyang or reverse to pump the Yongjiang Annex 1 44 Page 5 of 13 water to replenish the Chaoyang. The sewage and storm water pumping stations may be combined on one site if possible. (c) A Conveyor Sewer (Total cost $ 8.5 million) carrying the sewage from the Chaoyang interceptor to the new Jiangnan treatment plant. River crossing will be by a twin pipe siphon designed for expansion into a three pipe system handling 480,000 m3/day of flow if required in the future. The wastewater is then carried by a 3.9 km trunk sewer of a culvert design (dimensions 2.4 x 2.0 m) to reach Jiangnan. This sewer will pick up wastewater for the Tingzi and Shuitang stream catchment areas including that from the Nahong channel and the industries. (d) A primarv wastewater treatment plant at Jiangnan (Total cost $24.1 million) to treat sewage from the Chaoyang, Erkeng, Tingzi and Nahong basins. The initial capacity is expected to be 180,000 m3/day of wastewater, that may be adjusted during final design in 1998-99 according to detailed flow measurements and estimation. The site and structural design will make provisions for future expansion to as much as 960,000 m3/day capacity after year 2015, sufficient to cater to most of the city's wastewater except that to be sent to the Langdong STP being built now. The location of the plant is selected such that local industries can be conveniently served and so that the treated effluent will have minimum impact on the city's water supply. Some of the industrial wastewater pretreated to a certain standard but below the standard for direct discharge into surface water would be allowed to be connected to the city sewerage system. (e) Sewer Rehabilitation. Extension and Maintenance (Total cost $ 21 million). Construction and rehabilitation of sanitary sewers and storm drains in various areas of the city, including construction of about 37 km of new sewers, separation of existing combined sewers into sanitary or storm sewers taking into account flood volume and self-cleaning ability. These works will be packaged in phases that can be evaluated, designed, and implemented as annual programs focusing on specific geographical areas. Works complementing the components listed above and in areas of insufficient coverage will be given priority. The sewer maintenance tools will cost about $2 million. (f) Improved Nightsoil Management (Total cost $ 1.6 million). Under this subcomponent, 16 tanker trucks, and other vehicles and equipment will be acquired to increase the improve the septic tank service quality; including increased cleaning frequency of septic tanks and extended service coverage. Computers, office equipment and work space will also be acquired and information management systems established to improve the Environmental Sanitation Department's management capability. (g) Institutional Strengthening (Total cost $ 2.5 million). Technical assistance, training and equipment procurement to (i) increase the capacity of the Municipal EPB as well as city project management ($ 0.8 million), and (ii) establish the Annex 1 45 Page 6 of 13 technical capacity and institutions for sewerage management ($1.7 million). A particularly important activity for the EPB is the water quality monitoring of the Yongjiang during the phased construction of the Jiangnan treatment plant. Implementation Arrangements 16. A detailed cost breakdown is shown in Tables 2 and 3. The financing of investments and operations are discussed in Annex 3. 17. The Chaoyang stream interceptors and the sewage pumping station at Dakengkou will be the first items to be implemented. Institutional support will also begin in mid 1998 to help set up the sewerage company. A schedule for the preparation of bidding documents, bid review and construction is detailed in the implementation plans presented in Tables 4 and 5. 18. Implementing Agencies. The main parties involved in the overall implementation are: Chaovang Stream Improvement Office, directly under the mayor, has been responsible for planning of drainage and sewerage components described above and will also manage their implementation in coordination with the Municipal construction bureau. The facilities, after they are built, will be turned over to a new independent sewerage organization, expected to be established by 1999. Environmental Sanitation Department will manage the nightsoil component; Environmental Protection Bureau will manage its own institutional development component and assist in planning of industrial sewer connections to the new sewerage system and monitoring of water quality; Nanning Guangxi Urban Environment Project Management Office (PMO) will oversee the overall project implementation. It will take part in the bidding and contracting procedures, works supervision, consultancy and training management; allocate investment budgets and coordinate disbursement ; monitor progress and compile progress reports to the municipal government and the Bank through the Regional PMO. The Consultants CMlPS & F from Australia are providing implementation assistance. Tianjin Construction Engineering Tendering Company (TCTC) has been retained as procurement agent for works. Annex 1 46 Page 7 of 13 Table 1. Detailed Cost for Nanning Sewerage Management and Nightsoil Management (Y million) does not include interest during construction Item Civil Goods Land A T.A. B Base DSM c Physical Total Cost Price Total Cost Works Cost Cont. 97 prices Cont. current prices Nanning Sewerage Management Chaoyang stream Interceptors 30.24 0.00 26.68 0.00 56.92 3.70 6.06 66.68 4.07 70.75 Chaoyang embankment & hamessing 43.00 0.00 0.00 0.00 43.00 2.80 6.87 52.66 5.53 58.19 Cross river siphon 28.67 0.00 0.00 0.00 28.67 1.86 4.58 35.11 7.90 43.01 Dakengkou sewage pumping station 7.1 13.70 0.00 0.00 20.80 1.35 3.32 25.47 2.01 27.49 Flood pumping station 5.00 10.00 0.00 0.00 15.00 0.98 2.40 18.37 1.93 20.30 Southern trunk sewers 24.04 0.00 0. 0.00 24.04 1.56 3.84 29.44 5.65 35.10 Jiangnan Wastewater Treatment Plant 63.00 72.00 12.00 0.00 147.00 9.56 2348 180.04 46.63 226.67 Sewer Extension and Rehabilitation 128.50 0.00 0.00 0.00 128.50 8.35 20.53 157.38 40.76 198.14 Reconnections to Sanitary Sewers 8.30 0.00 0.00 0.00 8.30 0.54 1.33 10.17 2.63 12.80 Sewerage Maintenance Tools 0.00 12.14 0.00 0.00 12.14 0.79 1.94 14.87 3.85 18.72 Power Connection to Grid 3.00 2.20 0.00 0.00 5.20 0.34 0.83 6.37 1.65 8.02 Sub-total 489.57 31.82 75.18 596.57 122.62 719.19 Nightsoil trucks & management 2.65 5.30 2.25 0.00 10.20 0.96 1.67 12.83 1.35 14.18 system Institutional Strengthening Sewerage Company 0.00 4.00 0.00 7.54 11.54 0.10 1.75 13.39 1.41 14.79 City Project Management 0.00 0.00 0.00 1.68 1.68 0.05 0.26 1.99 0.21 2.20 Nanning Municipal EPB 0.00 3.20 0.00 0.63 3.83 0.10 0.59 4.52 0.47 4.99 Sub-total 17.05 0.25 2.60 19.90 2.09 21.98 Total 516.82 33.03 79.45 629.30 126.05 755.35 Notes: A includes resettlement cost B Technical Assistance and Consultancy c Design, Supervision and Management Annex 1 47 Page 8 of 13 Table 3. Detailed Cost for Nanning Sewerage Management and Nightsoil Management ($ million) does not include interest during construction Item Civil Goods Land A T.A. B Base DSM C Physical Total Cost Price Total Cost Works Cost Cont. 97 prices Cont. current prices Nanning Sewerage Management Chaoyang stream Interceptors 3.64 0.00 3.21 0.00 6.86 0.45 0.73 8.03 0.25 8.28 Chaoyang embankment & harnessing 5.18 0.00 0.00 0.00 5.18 0.34 0.83 6.35 0.33 6.68 Cross river siphon 3.45 0.00 0.00 0.00 3.45 0.22 0.55 4.23 0.41 4.64 Dakengkou sewage pumping station 0.86 1.65 0.00 0.00 2.51 0.16 0.40 3.07 0.13 3.20 Flood pumping station 0.60 1.20 0.00 0.00 1.81 0.12 0.29 2.21 0.12 2.33 Southern trunk sewers 2.90 0.00 0.00 0.00 2.90 0.19 0.46 3.55 0.30 3.85 Jiangnan Wastewater Treatment Plant 7.59 8.67 1.45 0.00 17.71 1.15 2.83 21.69 2.36 24.06 Sewer Extension and Rehabilitation 15.48 0.00 0.00 0.00 15.48 1.01 2.47 18.96 2.07 21.03 Reconnections to Sanitary Sewers 1.00 0.00 0.00 0.00 1.00 0.07 0.16 1.22 0.13 1.36 Sewerage Maintenance Tools 0.00 1.46 0.00 0.00 1.46 0.10 0.23 1.79 0.20 1.99 Power Connection to Grid 0.36 0.27 0.00 0.00 0.63 0.04 0.10 0.77 0.08 0.85 Sub-total 58.98 3.83 9.06 71.88 6.38 78.25 Nightsoil trucks & management 0.32 0.64 0.27 0.00 1.23 0.12 0.20 1.55 0.08 1.63 system Institutional Strengthening Sewerage Company 0.00 0.48 0.00 0.91 1.39 0.01 0.21 1.61 0.08 1.70 City Project Management 0.00 0.00 0.00 0.20 0.20 0.01 0.03 0.24 0.01 0.25 Nanning Municipal EPB 0.00 0.39 0.00 0.08 0.46 0.01 0.07 0.54 0.03 0.57 Sub-total 2.05 0.03 0.31 2.40 0.12 2.52 Total 62.27 3.98 9.57 75.82 6.58 82.40 Notes: A includes resettlement cost B Technical Assistance and Consultancy c Design, Supervision and Management Annex 1 48 Page 9 of 13 Table 4. Schedule of Project Preparation 0sto~1es ............ ..........m. . kg Pni* tTm. t S t $ m $~~~~~~~~~L n. -L20eiilj$ -D; ve Complete preparation of bid documents Aug-97 Oct-97 Dec-97 Mar-98 Nov-98 Call for bids Sep-97 Nov-97 Jan-97 May-98 Mar-99 Make bid recommendation to WB Nov-97 Jan-98 Mar-98 Aug-98 Jun-99 Begin construction / implementation Dec-97 Apr-98 Jul-98 May-99 Aug-99 Commission plant / equipment Jan-99 Dec-98 Nov-99 Feb-00 May-02 Complete preparation of bid documents Dec-98 Dec-99 Aug-98 Aug-98 Call for bids Apr-99 Apr-00 Dec-98 Sep-98 Make bid recommendation to WB Jul-99 Jul-00 Feb-99 Oct-98 Begin construction / implementation Sep-99 Sep-00 Mar-99 Nov-98 Commission plant / equipment Jan-02 Oct-01 Aug-03 Jun-99 Table 5. Schedule of Construction Construction 1997 1998 1999 2000 2001 2002 2003 1 2 3 4 1 2 3 4 1 21 31 4 1 2 3 4 1 21 31 4 1 21 31 4 1 |21 31 4 Chaoyang Stream Interceptors Sewage Pumps Crossriver Siphon South Main Trunk Jiangnan Sewage Treatment Plant River Bed Hamessing ... ..... Flood Pumps Resettlement Sewer & Drain Extension / Rehabilitation Institutional Support - Sewerage Company Improvements to Nightsoil Management Annex 1 49 Page 10 of 13 Economic Justification 19. The project elements can be classified into three main groups in terms of their impacts: (1) improving drainage of sewage and storm water from the built-up area of the city; (2) conveying it to a location downstream of the city for discharge into Yongjiang; and (3) treating the sewage at that location. The first group of components, improving drainage of contaminated standing water, would help control the incidence of water born diseases that could be assessed by inference from related studies. Other small components in Nanning, improving nightsoil management and small area facilities, also serve the same purposes. The improvements would give better sewerage and drainage for about 70% of the city's residents. 20. Estimated investment cost of these components are about Y 560 million in 1997 prices. Additional investment of about Y 100 million would be required to complement and complete the improvements, by expanding and repairing tertiary sewers and household connections. Cost of operating these facilities is projected to increase along with facilities, to about Y 8 million a year in 2003, after which it would increase more slowly by about 3% a year in real terms. The pumps would have to be replaced in about 7 years. Discounted by 12% a year over 30 years, these costs have a present value of Y 490 million. 21. While it is generally reported that incidence of water-borne diseases is very high in Nanning, specific estimates vary widely. Various public health reports estimate the incidence to be higher than national average by up to 70%, most estimating around 35% above. This compares with estimates for Guilin, which puts the incidence about 30% below average. Since there is little apparent difference in hygienic practices of the population and the water supply, the difference could be attributed mostly to the state of sewerage, better than average in Guilin and worse that average in Nanning. It was not possible to obtain a systematic epidemiological study providing further necessary information such as duration of illnesses, specific channels of infection, comprehensive costs, etc. One can, however, infer from the above incidence estimates some orders of magnitude of benefits as follows. 22. The World Development Report 1993 shows that diarrheal diseases and hepatitis were responsible for about 4.1 % of health burden in China, or about 6.5 disability-adjusted life years (DALYs) per 1000 person-years. Assume that the above-mentioned broad incidence estimates apply these particular disease groups: incidence of these diseases is 35% higher in Nanning than the national average and 25% lower in Guilin. Assume that on completion of the project, 80% of the gap would be bridged. In Nanning, in view of the average personal income of about Y 6200 (including in-kind benefits), the production loss and medical cost associated with a DALY would be at least Y 10,000. The growth of total incomes in the area, taking into account population increase, has been over 20% a year recently. For the purpose of benefit estimation, it was assumed to increase by 12% a year for the first 10 years and 8% a year afterwards. Under these assumptions, present value of reduced burden from diarrhea and hepatitis alone over the next 30 years would be about Y 550 million. Studies also attribute other illnesses that occur frequently in Nanning, such as Annex 1 50 Page ll of 13 cholera and respiratory membrane infections, to poor drainage. Including these, the PV of total health benefit could be in the order of Y 1000 million. 23. A survey of 144 households in areas near Chaoyang stream conducted during project preparation found about 8% of residents complaining of various gastro-intestinal and respiratory afflictions attributed to contaminated standing water and the stream. This information may be used draw a crude inference on broader health impact besides diarrhea and hepatitis reviewed above. Assume that: half of the complaints are indeed due to wastewater; half again of this would be reduced by the improved sewerage; and each incidence cost an average of Y 15 a day in lost production and medical cost. These lead to an estimated present value of Y 1275 million. 24. Orders of magnitude indicated by the above inference appear comparable to a recent estimate that puts the net annual economic loss due to the lack of sewerage in India between 2% to 5% of urban GDP ("India's Environment: Taking Stock of Plans, Programs, and Priorities," 1996). This would be equivalent to about Y 150 and Y 375 million a year in Nanning. As sanitary condition in Nanning is superior to an average Indian city, improved sanitation would have a smaller marginal impact. Only a fifth of this, however, would still yield a present value estimate of between Y 600 and Y 1000 million. 25. In summary, the benefit-cost ratio of the sewer and septic tank improvements would be between 1.2 and 2.6. This estimate captures major apparent benefits, but does not take into account other benefits that are even harder to estimate. For one, removing the strong smell of the Chaoyang water from the center of the city would obviously have beneficial effects. In theory, these and other benefits would be captured by increases in land value. There are about 100 ha of commercial and residential plots in the immediate vicinity of Chaoyang stream and affected by the smell. Total estimated value of these plots, about Y 3 billion, indicates that land value increments due mainly to aesthetic reasons could be considerable. 26. A concrete benefit of evacuating the collected sewage downstream is saving a water intake, 100,000 m3 capacity, located on Yongjiang downstream of the current discharge point of Chaoyang and Erkeng streams. It is projected that the intake would have to be closed by about 2002 if pollution continues to increase as at present. A replacement intake is estimated to cost about Y 110 million, which would be equivalent to the present value of Y 56 million. On the other hand, the present value of investment and operating costs attributable to this sewage conveyance is estimated be about Y 48 million, justified by the avoidance of the water intake closure alone. 27. The capacity and level of treatment of the collected sewage have been determined mainly as a constrained optimization problem - to maximize the water quality in the Yongjiang within the resources available. The main trade-off is between having a small amount of wastewater collected and treated to a high degree, or to maximize the volume to collect and treat moderately, as discussed in this Annex and in Chapter 6, Sections A and B. Annex 1 51 Page 12 of 13 Performance Indicators 28. Primary Indicators. The Chaoyang stream and Yongjiang will be regularly inspected for improvements in water quality and is the main target of performance monitoring. The prevailing water quality standards, i.e. the National Standards for Surface Water GB 3838-88, provides the most direct measure of the project's impact. Since water pollution is more acute in the dry season, water quality surveys should be conducted during the months of November to April. Supplementary measurements (namely BOD, nitrogen, suspended solids and total phosphorus levels) should also be monitored to track intermediate progressions in water quality not observable under the classification system. 29. Secondary indicators. These indicators provide more specific indications of environmental quality such as BOD or phosphorus levels. Other secondary indicators attempt to show the utilization of sanitation facilities. An example of this is the operating rate for treatment plants, interceptors or solid waste and nightsoil management facilities. Sewer discharge qualities are also instructive since they would reflect the effectiveness of these facilities. 30. Monitoring Locations. Various criteria are used in the selection of monitoring locations so as to fully reveal the Project's impact. Firstly, sections of the Yongjiang river systems that suffer from more severe pollution should be closely monitored. On this basis, the following locations should give representative results: (a) the urban stretches of the Chaoyang stream, (b) the confluence of the Chaoyang stream and Yongjiang at Dakengkou, The quality of the Chaoyang stream should eventually improve from its current sewage state to a Class V rating. The Yongjiang should consistently be maintained at Class III rating after year 2002. 31. Secondly, locations are also selected based on physical changes to the environment as a result of the Project. Two critical sites are: (a) downstream of the discharge from the new Jiangnan Wastewater Treatment Plant (this plant discharges into the Yongjiang), (b) the intake area of the Lingtie Water Filtration Plant, located at the downstream of the Yongjiang's urban stretch. This plant is one of the main suppliers of treated water to Nanning. 32. Nightsoil. This component aims to increase the frequency of septic tank maintenance and expand the service network to cover new units. The volume of nightsoil and the number of new customers served would be appropriate impact indicators. Annex 1 52 Page 13 of 13 Table 7. Monitoring Indicators for Sewerage Components Calendar Year Indicator Type Units '96 '97 '98 '99 '00 '01 '02 '03 '04 P/S Base Yongjiang A . water classification P - III - IV III-IV III-IV III-IV III-IV III-IV III III III . maxtotalnitrogen S mg/l 1.5 1.5 1.5 1.3 1.2 1.1 1 1 1 Chaoyang streama . water classification P - sewage sewage > V > V > V V V V V . maxBOD5 S mg/I >20 >20 >10 >10 >10 10 10 10 10 Sewer Connections c . numberofconnectionsto P no. 0 0 0 2000 3000 5000 7000 8500 10,000 sanitary sewers Leingthofsewerscleaned S km/year NA NA NA 130 140 140 150 150 160 and repaired every year Effectiveness of Chaoyang Stream Collection S '000 m3/ 0 0 0 70 75 100 120 140 165 . dry weather flow pumped day to south side Jiangnan STP S '000 m3/ 0 0 0 0 0 0 80 160 210 volume sewage treated day Notes: P / S: primary / secondary A average of readings during the dry season (representative of each month from November to April) from the following three locations along the Yongjiang: (a) at Dakengkou, (b) upstream of Lingtie Filtration Plant, (c) downstream of Jiangnan STP. B average of readings during the dry season (representative of each month from November to April) from the following two locations along the Chaoyang stream: (a) at Middle School #7 (near Dakengkou), (b) at Middle School #13 C including sanitary sewers upstream of Middle School #13 Table 8. Main Indicators for Nightsoil Management Calendar Year Indicator Type Units '96 '97 '98 '99 '00 '01 '02 '03 '04 P/S Base . collection rate P tons/day 70 70 70 75 85 90 95 100 100 average service frequency of septic P years / tank tanks (including remote areas) emptied 2.5 2.5 2.0 1.5 1.5 1.0 1.0 0.8 0.8 . additional septic tanks serviced compared to 1996 (atminimum P number of 0 50 50 100 200 300 300 320 350 once a year) septic tanks Table 9. Representative Indicators for monitoring Sewage Treatment Plants (mg/l) Indicator Targets for year 2002 max BOD5 max COD max SS Jiangnan STP effluent 30 100 70 Annex 2 53 Page 1 of 15 Sewerage and Solid Waste Management in Guilin Background I . Guilin is one of south-central China's most important tourist destinations because of the Lijiang, a scenic river which meanders its way through the city and onward to a unique limestone landscape. The economy is growing rapidly because of tourist revenue and the successful agricultural sector. The river is important to the city's thriving tourist trade as well as for irrigation and municipal water supply. The scarcity of water is gradually becoming evident and is especially acute during the dry season (80 percent of the annual rainfall occurs in the 6 months between March and August). Therefore, while its economic prospects are bright, Guilin also faces some very serious environmental challenges in the near future. Description of Problem 2. The principal receiving water body is the Lijiang which currently meets Class II standards. But persistent discharge of sewage is threatening to degrade existing water quality. Furthermore the Lijiang's water level has been decreasing steadily over the years, which also lessens its dilution capacity. Naturally, this condition is even more severe during the dry season when dilution capacity falls even lower. Tributaries and major lakes in Guilin city are already in the Class III category during the dry periods. Two of the most seriously polluted tributaries are the Xiaodongjiang and the Taohuajiang, flowing through the eastern and western parts of the city respectively. 3. This combination of conditions is also adverse to the tourist industry, and results in losses of revenue. The low water level during the dry season impedes cruise boats from navigating the Lijiang freely and the tourist business suffers a corresponding decline during the dry season. Some negative comments on the general environmental situation around Guilin is already circulating within tourism circles. 4. The second problem associated with the period of low flow is water supply. This is perhaps more serious a problem than poor sewage and waste management. Guilin depends solely on the Lijiang for its water supply. Fortunately, unlike Nanning most of it is taken from upstream of most sewer and treatment plant outfalls. In terms of access to safe drinking water, it is vulnerable mostly to pollution from tributaries coming from further upstream (such as the Taohuajiang). The Lijiang Replenishment Component is developed to deal with this problem and is discussed at length in Annex 6. This is a long term plan to deal with water scarcity and sustain the city's growth and development. 5. With a population of approximately 500,000, Guilin is currently producing about 0.8 kg per day of solid waste per capita and the rate is increasing every year by 7.5 - 10 %. Annex 2 54 Page 2 of 15 This will result in a solid waste stream of 1200 tons per day by the year 2010. Current disposal practices are insufficient in protecting Guilin's environment. Uncontrolled disposal of solid waste leads to contaminated groundwater, contributing to the Lijiang's deterioration. Solid waste management in Guilin is under the jurisdiction of the Environmental Sanitation Management Bureau (ESM1B) whose responsibilities include street cleaning, solid waste collection, nightsoil management, the provision and maintenance of public toilets as well as transport and disposal of wastes in an environmentally acceptable manner. 6. Solid waste management is therefore another emerging crisis. Currently, the only disposal point is the city's Pingshan Composting Plant. This plant receives all of Guilin's solid wastes, currently some 500 tons/day, and produces approximately 200 tons/day of "compost" used by local farmers. The balance of the waste remains on site with the facility rapidly filling up. Estimates of its remaining life differ but it is thought to be less than one year if the site is not better managed. As it is, there is already an excessive stockpile of waste (roughly 10,000 m3) at the plant and the absence of refuse manipulation or aeration has turned the facility into a virtual dumpsite. Conditions are potentially damaging to the environment, not to mention the effect on ground and surface water. Main Causes of Pollution 7. The pollution of Guilin's watercourses are attributed to low flow conditions, inefficient use of sewage treatment capacity, industrial pollution and uncontrolled solid waste disposal. The rainfall pattern for Guilin is characterized by short periods of high rainfall followed by many months of relatively dry periods during which the water quality suffers significantly. Water levels in the Lijiang has also deteriorated steadily over the years due to overuse and inadequate water management. In addition, only one fourth of the city's wastewater treatment capacity is in use because of inadequate sewering. 8. Inadequate sewering has also caused pollution to the Three Lakes of Guilin: the Gui, Sha and Rong lakes located near central Guilin. The shores of these lakes are lined with many hotels and recreational locations and is part of the reason for Guilin's popularity as a tourist destination. Due to the uncontrolled discharge of sewage and other wastewater into the lakes, however, the water quality has begun to deteriorate to Class V. 9. The four catchment areas of Guilin - namely, the Northern; Eastern; Qintan; and Zhongnan, are served by four sewage treatment plants (STPs). In terms of capacity utilization, the smallest plant is being overloaded (the Northwestern plant, which operates at 5000 m3/d compared to its design rate of 3500 m3/d), while the Eastern plant because of limited sewer connections is operating at only half its 40,000 m3/d design capacity. The Southern (35,000 m3/d) and No. 4 (100,000 m3/d) plants serve both the Qintan and Zhongnan districts and are located at the same site. The No. 4 plant has recently been commissioned while the Southern plant is temporarily shutdown for maintenance. Flows to these plants are only about one fourth of design capacity. 55 Annex 2 Page 3 of 15 10. Therefore, even though there seems to be sufficient treatment capacity for the city as a whole, water quality continues to suffer because of insufficient sewers and conveyance systems to efficiently utilize this capacity. Much of the wastewater in these catchments end up in the natural watercourse. There are combined sewers in the center of the city but mostly, the city does have separate storm and sanitary sewers. It is clear that the greatest current need is to provide additional sewers and larger mains so that flows to the treatment plants can be increased. After in-depth study, the Guilin City Environmental Master Plan (1997) has recommended that it is more efficient to increase the treatment capacity in the north instead of transferring sewage to the eastern and southern sewage treatment plants (see Project Design and Least Cost Alternative). The Guangxi Environment Project is a key instrument of the Master Plan's management strategy. Table 1. Wastewater Treatment Plants in Guilin Name of Catchment Area Sewers Treatment Plant Capacity Area (sq km) (kin) Eastern 12 11 40,000 m3/day, activated sludge Northcentral 3 6 5,000 m3/day activated sludge Qintan 16 9 none Zhongnan 14 11 35,000 m3/day, activated sludge (Southern Plant) 100,000 m3/day, oxidation ditch (No. 4 Plant) Note: Field inspection of the four treatment plants have found them to be in good shape but operating well below capacity except the Northcentral plant. Total capability is approximately 179,000 m3/day but are operated at approximately 70,000 m3/day. Although influent organic strength to the plants is somewhat low, in the range of 40 to 150 mg/l of BOD, the effluent is only 10 mg/l or less. l1. Lingui county is located just outside Guilin city, comprising of urban and industrial developments and equipped with only primary sewers. Lingui is another cause of pollution problems in Guilin and its impact comes from the Xicheng district. This rapidly developing district is drained primarily by the Luoqing River (a separate river basin from the Lijiang). The eastern part of Xicheng however still drains into the Qintan area. There is only a main trunk sewer in place but no sewer connections or treatment plants nearby. The inadequate sewerage facilities therefore ultimately impacts the Lijiang. 12. The Northeastern and the Qintan catchment areas are also a focus of this project because they presently lack the means to treat locally generated wastewater. Although these are not the most heavily populated parts of the city, there are already plans for future development and wastewater loads are anticipated to be high. At the present moment, there is not even a trunk sewer system in the Northeast while Qintan has a dependent sewerage system linked to Zhongnan. The nearest sewage treatment plants that they can be linked to are the Northcentral plant (for the Northeastern catchment) and the Southern and No. 4 plants (for the Qintan catchment). Annex 2 Page 4 of 15 Component Objectives 13. Given the underutilization of treatment facilities, one of the most cost effective means of improving Guilin's water quality is to increase the number of connections to trunk sewers, where they exist, and to expand the network with secondary sewers to cope with major polluting sources such as the industries and the densely populated city center. The objective will be to raise the water quality of the Lijiang to meet Class II throughout the year and for the Taohuajiang tributary to meet Class IV. 14. Given their location in the city center and their potential contribution towards tourism, the three lakes of Rong, Sha and Gui are also to be cleaned up. Interceptors and sewers will be built to maintain the lakes at least Class III quality. 15. To provide the necessary institutional capacity for continuous improvement, there will also be technical assistance to strengthen policies, regulations and enforcement capability. This includes pollution monitoring and wastewater management. 16. The Project's objective for solid waste management is to provide a feasible long term solution for Guilin. The ESMB has plans to improve the Pingshan Composting Plant to process an additional 100 tons/day over the present 500 tons/day. Of this, 300 tons/day will become compost and remaining waste will be transshipped to a new landfill at Chongkou. To cope with a future generation rate exceeding 600 tons/day, ESMB plans to have new transfer stations and more transfer vehicles. Under this Project, support will be given to build the new landfill, one transfer station and the acquisition of some new trucks. Description of Component Elements 17. The project will introduce new wastewater collection and treatment facilities, solid waste management facilities as well as a technical assistance package. The total cost including contingencies is Y 421.7 million (or $ 47.4 million). The entire project area includes the main districts of Guilin city - such as Qintan, Northern and Northeastern, as well as the outlying Xicheng district of Lingui county. Three aeration ponds will also be constructed at Yangshuo, Xingping and Baisha. 18. The various subcomponents are: (a) for the Qintan catchment area, a main sewer interceptor (about 6 km). secondary sewers (about 6 km) and a pumping station (160,000 m3/day) will be built. The intercepted wastewater will be sent to the existing Southern and/or No. 4 sewage treatment plants. The pumping station will be located at Mantoushan. (Total cost $9.0 million) Annex 2 56 Page 5 of 15 (b) for the Northeastern catchment area. primary and secondary sewers (about I 1 km in total) as well as a pumping station (30.000 m3/day) will be built. The wastewater will be intercepted mainly from urban developments along a new 3.5 km access road in the Northeast and then sent to the existing Northcentral sewage treatment plant via a new pumping station at Qingfeng. The Northcentral treatment plant will be expanded to handle this additional load (see c). The cost includes construction of the access road. (Total cost $ 8.9 million) (c) for the Northcentral catchment area, the existing sewage treatment plant will be expanded to handle 30.000 m3/day of wastewater. The present operating capacity is 5000 m3/day and the additional capacity will cater for the future demands of its own catchment as well as the Northeastern catchment area. (Total cost $ 5.2 million) (d) cleaning and sewering of the Rong. Gui and Sha Lakes in the city centre. An interceptor and 2 km of sewers will be built to collect the wastewater that is currently being discharged directly into the lakes. The wastewater will be lifted via pressure mains to join the existing Zhongnan sewer lines and eventually to the Southern and/or No. 4 plants. An estimated 180,000 m3 of sludge will be dredged up from the lakes as part of the cleanup. (Total cost $ 4.3 million) (e) in Xicheng town, a new primary sewage treatment plant and 3 km of sewers will be built. The treatment capacity required is expected to be about 20,000 m3/day but may be as high as 40,000 m3/day depending on future demand. Scheduled to begin implementation only in the year 2000, this sewage treatment plant is intended for the eastern part of Xicheng. Sewers funded under the project will serve only the urban districts. Industries will be expected to pretreat their effluent and to pay for any sewer extension and connection expenses required to discharge into the main sewer. This is in accordance with NEPA regulations for industrial discharge. On this basis, a primary treatment plant has been found adequate for the near future (see para 22). (Total cost $ 5.3 million) (f) sewer maintenance equipment. Special equipment and materials will be procured for cleaning and maintenance of the city's sewers. (Total cost $ 2.0 million) Annex 2 57 Page 6 of 15 (g) three aeration ponds in a neighbouring county. These facilities will meet the growing wastewater handling needs for the three towns of Yangshuo, Xingping and Baisha in Yangshuo county. (Total cost $ 0.84 million) (h) Institutional Strengthening. Support will be given to establish an autonomous Sewerage Company and to improve the monitoring capabilities of the Municipal EPB, including analytical equipment for Lingui and Yangshuo county EPBs. Details of the development program for the Sewerage Company is found in Annex 3 and a list of equipment and training programs for EPB strengthening is found in Annex 4. (Total cost $ 1.8 million) (h) the solid waste management components total about Y 85 million (or $ 9.7 million) including contingencies. The major element is a sanitary landfill at Chongkou, 20 km west of the city centre. The 43 hectare site will ultimately accommodate 3 million mr of solid waste. The project will support the first stage of development which creates 2 million m3 of capacity; (Total cost $ 6.3 million) (i) additionally, there will be a solid waste transfer station. 17 sets of 20 rn3 compactors, 9 garbage disposal trucks of 5 ton capacity each and 4 nightsoil trucks. The transfer station will be located five miles west of the city center. (Total cost $3.4 million) 19. Detailed cost information is shown in Tables 2 and 3. Annex 2 Page 7 of 15 58 Table 2. Detailed Cost for Guilin Sewerage and Solid Waste Management (Y million) does not include interest during construction Item Civil Goods Land A T.A. B Base DSM c Physical Total Cost Price Total Cost Works Cost Cont. 97 prices Cont. current prices Qintan trunk sewers 45.00 3.00 0.00 0.00 48.00 2.88 5.09 55.97 4.42 60.39 Qintan secondary sewers 1.50 0.00 0.00 0.00 1.50 0.09 0.24 1.83 0.35 2.18 Mantoushan pump station 3.72 7.70 0.00 0.00 11.42 0.69 1.82 13.92 1.10 15.02 Northcentral STP expansion 23.40 7.00 2.60 0.00 33.00 1.98 5.25 40.23 5.31 45.54 Northern area secondary sewers 10.00 0.00 0.05 0.00 10.05 0.60 1.60 12.25 1.29 13.54 Northeastern Interceptors & Road 40.00 0.00 0.00 0.00 40.00 2.40 6.36 48.76 9.36 58.12 Qingfeng Pump Station 4.00 1.80 0.45 0.00 6.25 0.38 0.99 7.62 1.01 8.62 Lake Cleanup, Sewering and 26.50 0.60 0.00 0.00 27.10 1.63 4.31 33.03 6.34 39.38 Replenishment Xicheng STP 17.00 12.00 4.00 0.00 33.00 1.98 5.25 40.23 7.72 47.95 Yangshuo Aeration Pond 1.95 0.20 0.04 0.00 2.19 0.13 0.35 2.67 0.21 2.88 Xingping Aeration Pond 0.30 0.05 0.18 0.00 0.53 0.03 0.08 0.65 0.05 0.70 Baisha Aeration Pond 1.88 0.05 0.83 0.00 2.76 0.17 0.44 3.36 0.35 3.72 Sewer Upgrading and Repair 7.00 0.00 0.00 0.00 7.00 0.42 1.11 8.53 1.13 9.66 Power connection to electrical grid 3.00 2.00 0.00 0.00 5.00 0.30 0.80 6.10 0.80 6.90 Sewerage maintenance tools 0.00 4.00 0.00 0.00 4.00 0.24 0.64 4.88 0.39 5.26 Institutional Strengthening Guilin Municipality EPB, including 0.00 2.72 0.00 0.55 3.27 0.10 0.51 3.88 0.63 4.50 Yangshuo and Lingui Sewerage Operation and Institution 0.00 3.74 0.00 4.63 8.37 0.10 1.27 9.74 1.29 11.03 Sub-total 243.44 14.11 36.09 293.64 41.75 335.38 Chongkou landfill 20.00 19.00 2.40 0.00 41.40 2.48 6.58 50.47 5.30 55.77 Solid waste transfer system 4.00 15.00 2.00 0.00 21.00 1.26 3.34 25.60 4.92 30.51 Sub-total 62.40 3.74 9.92 76.07 10.21 86.28 Total 305.84 17.85 46.01 369.70 51.96 421.66 Notes: A includes resettlement cost B Technical Assistance and Consultancy c Design, Supervision and Management Annex 2 59 Page 8 of 15 Table 3. Detailed Cost for Guilin Sewerage and Solid Waste Management ($ million) does not include interest during construction Item Civil Goods Land A T.A.B Base DSM c Physical Total Cost Price Total Cost Works Cost Cont. 97 prices Cont. current prices Qintan trunk sewers 5.42 0.36 0.00 0.00 5.78 0.35 0.61 6.74 0.28 7.02 Qintan secondary sewers 0.18 0.00 0.00 0.00 0.18 0.01 0.03 0.22 0.02 0.24 Mantoushan pump station 0.45 0.93 0.00 0.00 1.38 0.08 0.22 1.68 0.07 1.75 Northcentral STP expansion 2.82 0.84 0.31 0.00 3.98 0.24 0.63 4.85 0.31 5.15 Northern area secondary sewers 1.20 0.00 0.01 0.00 1.21 0.07 0.19 1.48 0.08 1.55 Northeastem Interceptors & Road 4.82 0.00 0.00 0.00 4.82 0.29 0.77 5.87 0.50 6.37 Qingfeng Pump Station 0.48 0.22 0.05 0.00 0.75 0.05 0.12 0.92 0.06 0.98 Lake Cleanup, Sewering and 3.19 0.07 0.00 0.00 3.27 0.20 0.52 3.98 0.34 4.32 Replenishment Xicheng STP 2.05 1.45 0.48 0.00 3.98 0.24 0.63 4.85 0.41 5.26 Yangshuo Aeration Pond 0.23 0.02 0.00 0.00 0.26 0.02 0.04 0.32 0.01 0.33 Xingping Aeration Pond 0.04 0.01 0.02 0.00 0.06 0.00 0.01 0.08 0.00 0.08 Baisha Aeration Pond 0.23 0.01 0.10 0.00 0.33 0.02 0.05 0.41 0.02 0.43 Sewer Upgrading and Repair 0.84 0.00 0.00 0.00 0.84 0.05 0.13 1.03 0.06 1.09 Power connection to electrical grid 0.36 0.24 0.00 0.00 0.60 0.04 0.10 0.73 0.05 0.78 Sewerage maintenance tools 0.00 0.48 0.00 0.00 0.48 0.03 0.08 0.59 0.02 0.61 Institutional Strengthening Guilin Municipality EPB, including 0.00 0.33 0.00 0.07 0.39 0.01 0.06 0.47 0.03 0.50 Yangshuo and Lingui Sewerage Operation and Institution 0.00 0.45 0.00 0.56 1.01 0.01 0.15 1.17 0.07 1.25 Sub-total 29.33 1.70 4.35 35.38 2.33 37.71 Chongkou landfill 2.41 2.29 0.29 0.00 4.99 0.30 0.79 6.08 0.32 6.40 Solid waste transfer system 0.48 1.81 0.24 0.00 2.53 0.15 0.40 3.08 0.26 3.35 Sub-total 7.52 0.45 1.20 9.16 0.58 9.74 Total 36.85 2.15 5.54 44.54 2.91 47.46 Notes: A includes resettlement cost B Technical Assistance and Consultancy c Design, Supervision and Management Annex 2 60 Page 9 of 15 Project Design and Least Cost Alternative 20. North and Northeastern Catchment Areas. To meet the future wastewater treatment needs of these areas two options are available. The first is to convey the wastewaters to the Southern and/or Eastern treatment plants, where surplus treatment capacity exists, or secondly, to expand the existing Northcentral treatment plant. Due to the great distance of conveyance required by the first option, the expansion of the existing sewage treatment plant has been found more efficient. A careful study showed that, given the available land, the existing plant (currently operating at 5000 m3/day) can be expanded up to a maximum of 30,000 m3/day. Based on projected wastewater loads, this capacity will be sufficient to cater for both the Northcentral as well as the Northeastern catchment areas up to the year 2010. 21. During the study, there were also attempts to consider the adjacent Balijie catchment area (under Guilin Prefecture). To serve this other catchment area however would require more land for the plant expansion than is currently available. The project cost would be prohibitively high, involving either a new plant in the Northeast or a long conveying line to divert sewage to the existing Eastern plant. It was decided instead to support Balijie's development by commissioning a Sewerage Master Plan Study for the area. 22. Xicheng. Consultants for Lingui county had initially suggested constructing a secondary treatment plant at Xicheng town but the investment and operating cost would have been far above the users' affordability. Based on the understanding that pre-treatment will be done by industries as per NEPA requirements, primary treatment capability has been found sufficient. This project, including treatment plant and secondary sewers in urban Lingui county, will only be executed at or around FY 2000. It was agreed during pre- appraisal that Lingui county and Guilin city would decide on whether to consider additional industrial and urban waste loads by the time of the Project's mid-point review. 23. Chongkou Landfill. A careful assessment of the Pingshan Composting Plant revealed that, even with proper engineering, the life of the site can only be extended by a maximum of two years. Given that this is the city's only sanitary disposal site and that its holding capacity is already depleting rapidly, there are few long-term options except to build a new sanitary landfill. 24. The proposed 43 ha Chongkou landfill site is located about 20 km from Guilin's city center. This area is characterized by low hills and is basically low productive land marginally used by local farmers. The Shanghai Municipal Design Institute (SMEDI) has carried out a full feasibility study and a separate geological and hydrogeological study was carried out by the Guangxi Geological Institute. Based on this work, as well as a thorough review of other potential locations, the site near Chongkou village was found to be the most suitable. Annex 2 61 PagelOofl5 25. In addition, public participation and notification work has already been done with compensation provided to farmers who had been using the land. The site will be developed in two phases, with World Bank financing provided only for stage one, constituting 375 mu and will accommodate approximately two million m3 of solid waste. The second phase will accommodate approximately three million m3. Taken together, the site will provide for Guilin's solid waste disposal needs for approximately 20 years. 26. The basic design being proposed by SMEDI is similar to that used in other landfill projects in China. This design utilizes a clay liner 0.7 to 1.0 m thick, leachate collection using plastic pipes with holes, gas venting, a series of dams placed around the periphery to contain both leachate and structurally support the fill, leachate collection pond and leachate recirculation. Recirculation is accomplished via the use of five tanker trucks that will spread the leachate throughout the landfill. Recirculation of leachate has proven to provide enhanced and more rapid waste stabilization and considered state-of-the-art technology. The same basic scheme has been proposed for the Yunnan Environment Project. 27. Solid Waste Transfer Station and Trucks. The current neighborhood collection service, though highly labor intensive, is still fairly efficient . Handcarts and tricycle carts are used in the actual pick up and the waste is then consolidated in 15 local transfer stations around the city. Five ton trucks then transport the waste directly from the transfer stations to the Pingshan Composting Plant. 28. However, the increasing volume of solid waste being handled each day demands that the existing collection system be improved. More transfer trucks are required since the considerable distance between transfer stations and the final disposal site (20 km from city center) cannot be efficiently managed by handcarts and tricycles. Studies have determined that the most cost effective expansion plan would be a medium size transfer station (300 tons/day capacity) and a larger fleet of transport vehicles. Implementation Schedule 29. The Qintan sewers, Mantoushan pumping station and the Chongkou landfill will be the first to be implemented. The institutional support program will also begin by mid 1998 to assist in the setting up of a Guilin Sewerage Company. A detailed implementation plan, including a schedule for the preparation of bidding documents and bid review is presented in Tables 4 and 5. 30. Implementation Agencies. The overall coordination of the Project would be assumed by the Guangxi Urban Environment Project Management Office (GUEPO). Municipal and district level project offices are also established to delegate responsibility for individual components. The Regional office will monitor the progress of components being implemented and submit regular progress reports to the Bank and Regional government. 31. The main parties involved in the overall implementation are: Annex 2 62 Page 11 of 15 (a) the Sewerage and Drainage Engineering Office under the Public Utilities and Management Bureau of the Municipal goverment will be the main implementing agency of the sewerage components. This office is currently responsible for the operation and management of the existing four sewerage treatment plants and other sewerage facilities. A newly created Guilin Municipality Sewerage Company (GSC), expected to be established by the end of 1998, will take over the sewerage investments when they are completed. (b) Guilin Guangxi Urban Environment Project Management Office (PMO) will oversee the overall project implementation. It will take part in the bidding and contracting procedures, works supervision, consulItancy and training management; allocate investment budgets and coordinate disbursement; monitor progress and compile progress reports to the municipal government and the Bank through the Regional PMO. (c) The Environmental Protection Bureau will manage its own institutional development component. (d) The Guilin Environmental Sanitation Bureau will be implement the solid waste components. (e) Tianjin Construction Engineering Tendering Company (TCTC) has been retained as procurement agent for works. (f) the technical designer for the sewerage and wastewater treatment facilities is the Central and Southern China Municipal Engineering Design & Research Institute (CSCMEDRI). The design of the Chongkou landfill and the transfer facilities are undertaken by the Shanghai Municipal Engineering Design Institute (SMEDI). Technical designers will be required to provide technical specifications and bill of quantity to the bidding agent. Annex 2 63 Page 12 of 15 Table 4. Schedule of Project Preparation -Qtntane04-X TrtAR;A#;-Mntesd y Y l-Qrntan -Matoushya No n Northern ThreLakeg Sewer seent Complete preparation of bid documents Oct-97 Feb-99 Oct-97 Jun-98 May-98 Aug-98 Call for bids Dec-97 Apr-99 Dec-97 Aug-98 Jul-98 Oct-98 Make bid recommendation to WB Mar-98 Jun-99 Apr-98 Nov-98 Sep-98 Dec-98 Begin construction Jul-98 Jun-00 Jul-98 Jan-99 Jan-99 Feb-99 Commission plant / equipment Sep-99 Mar-01 Oct-99 Oct-00 Aug-99 Apr-00 Complete preparation of bid documents Mar-99 Oct-98 May-99 Mar-98 Dec-98 Mar-98 Call for bids May-99 Dec-98 Aug-99 May-98 Feb-99 May-98 Make bid recommendation to WB Aug-99 Feb-99 Nov-99 Jun-98 Apr-99 Jun-98 Begin construction Jan-00 Sep-99 Mar-00 Sep-98 Jun-99 Aug-98 Commission plant / equipment Aug-01 Aug-00 Jan-02 Jui-99 Nov-02 Dec-99 Table S. Schedule of Construction Construction 1997 1998 1 999 2000 2001 2002 2003 1| 21 31 4 11 21 31 4 1| 21 31 4 11 21 31 4 1| 21 31 4 1| 21 3 4 1 2 31 4 Qintan trunk sewers .. ..... . Mantoushan pump stations Qintan secondary sewers ........ ... Northern treatment plant . .... .... ..... Northern secondary sewers Northeastern secondary sewers Qingfeng Pump Station Xicheng treatment plant Three Lakes cleanup Aeration Ponds Institutional Support - Sewerage Company ... . .. . . Chongkou landfill Transfer trucks Annex 2 64 Page 13 of 15 Monitoring Indicators 32. Primary Indicators. The primary project objective is to improve the water quality of the Lijiang and its tributaries in Guilin. The prevailing standards for water quality, ie the National Standards for Surface Water GB 3838-88, provides the most direct measure of the project's impact. Since water pollution is more acute in the dry season, water quality surveys should be conducted during the months of November to April. Supplementary measurements (namely BOD, nitrogen, suspended solids and total phosphorus levels) should also be monitored to track intermediate progressions in water quality not observable under the classification system. 33. Secondary indicators. These indicators provide more specific indications of environmental quality such as BOD or phosphorus levels. Other secondary indicators attempt to show the utilization of sanitation facilities. An example of this is the operating rate for treatment plants, interceptors and solid waste management facilities. Sewer discharge qualities are also instructive since they would reflect the effectiveness of these facilities. 34. Monitoring Locations. Various criteria are used in the selection of monitoring locations so as to fully reveal the Project's impact. Firstly, sections of the Lijiang river systems that suffer from more severe pollution should be closely monitored. On this basis, the following locations should give representative results (a) the urban stretches of the Lijiang, (b) the Taohuajiang tributary and the Rong, Sha and Gui lakes. The Lijiang will maintain a Class II rating throughout the year, including the dry season. The Taohuangjiang tributary will also eventually be upgraded to Class IV. Annex 2 65 Page 14 of 15 Table 6. Main Indicators for Guilin Sewerage Calendar Year Indicator Type Units '96 '97 '98 '99 '00 '01 '02 '03 '04 P/S Base Lijiang . compliance with Class IIA P % 50 50 50 60 70 80 90 90 95 . maxtotal nitrogen S mg/l 0.75 0.75 0.75 0.7 0.65 0.6 0.55 0.55 0.5 . maxBOD5 S mg/I 3.5 3.5 3.5 3.4 3.3 3.2 3.1 3.1 3 Taohluajiang B . water classification P - V V V V V IV-V IV IV IV Rong, Sha and Gui Lakes . water classification P - III-IV III-IV III-IV III-IV III III III III III Northeentral STP S '000 mi3/ 5 5 5 5 5. 20 25 28 30 volume treated day Totalwastewatertreated P '000rM3/ 80 80 80 100 130 145 150 165 180 in Guilin (dry weather flow) day Xicheng STP S '000 3/ 0 0 0 0 0 0 20 30 40 volume treated day Notes: P / S: primary / secondary A defined as the percentage of observations whereby the river does not meet Class II standards. Observations are to be made along the entire urban stretch ofthe Lijiang and at regular intervals throughout the year, including the dry season (November to April). Locations are: Dou Ji Shan, Longmen and Mo Pan Shan (refer Guiln Environmental Master Plan, SM International, March 1997). average of readings during the dry season (representative of the months of November to April). 35. The indicators in Table 7 help to rate the performance of the new and expanded sewage treatment plants under the Project. These may be used for internal monitoring to ensure efficient operation and are not required for reporting. Table 7. Representative Indicators for Monitoring of Sewage Treatment Plants (mg/l) Indicator Targets for year 2002 max BOD5 max COD max SS Northcentral STP effluent 60 110 100 Xicheng STP effluent 30 120 30 Note: SS is suspended solids 36. The running and design of the new Chongkou landfill is critical given that consolidation of solid waste, unless properly managed, can itself become a source of ground and surface water contamination. One important area to monitor is the site's treatment and discharge of recycled leachate. The ultimate leachate discharge must be checked for its percentage of solids and BOD level. Monitoring sites for underground and surface water locations will be determined during project appraisal. Annex 2 66 Page 15 of 15 Table 8. Main Indicators for Solid Waste Management Calendar Year Indicator Type Units '96 '02 '03 '04 P/S Base Choiigkou Landfil (tlownstream of site) . Ground Water - pH P pH - 6.5-8.5 6.5-8.5 6.5-8.5 . Ground Water - max P mg/I - 25 25 25 total suspended solids . SurfaceWater- pH P pH - 6.8-7.5 6.R-7.5 6.8-7.5 . Surface Water - max P mg/l - 20 20 20 total suspended solids 37. The indicators in Table 9 help to rate the performance of the Chongkou landfill. These may be used for internal monitoring to ensure efficient operation and are not required for reporting. Table 9. Representative Indicators for Monitoring of Chongkou Landfill Indicator Targets Circulated Leachate Quality -pH 6.2 - 7.5 - BOD5 (mg/I) < 10, 000 Bioearth -Pb (mg/kg) < 35.2 -Hg (mg/kg) < 0.11 -As (mg/kg) <25 - Cd (mg/kg) < 0.3 Air - H2 S (mg/r3) <0.02 - NH2 (mg/m3) <0.02 Annex 3 67 Page 1 of 19 Sewerage in Nanning and Guilin: Institutional Development and Financial Plans Part A. Institutional Development Plan 1. Introduction. Large planned increases in sewerage facilities in Nanning requires development of a competent organization to operate and maintain the facilities from a weak current capacity. In Guilin, the municipal government decided that a new institutional structure and stronger financial and management systems are required to manage the already extensive and growing sewerage service. Activities to develop these new institutions will be an essential part of the project and supported under it. 2. The municipal governments have prepared initial plans for the institutional development, discussed them with the Bank, and have started implementing them. These plans are evolving documents. The current versions (available in the Project Files) lay out certain specific steps for 1997 and 1998, outline tentative plans for the future activities, and direct.ons for preparation of more detailed plans through internal deliberations and consultant assistance. Consultants have been assisting the municipal government in elaboration of the plans, and terms of reference for future efforts. The Annex summarizes the initial plans, focusing on the essential elements of the institutional development goals, priorities by city and period, and overall directions for institutional development as well as for later refinement of the plans. 3. The institutional development plans consist of the following common elements, though emphases differ between the two cities as discussed next: a) Legal requirements for incorporation including drafting of the statutes, company registration, appointment of the board, and valuation of assets; b) Design of an organizational structure; c) Appointment of management team and staffing plan; d) Establishment of financial accounting and management systems and management information systems; e) Development of operational policies and procedures; f) Preparation and approval of financial projections, plans, and budgets; g) Definition of technical assistance and training programs. 4. Priorities for Guilin. Before more detailed discussion of some of the above elements, it is important to note major differences in background and in institutional Annex 3 68 Page 2 of 19 development requirements in the two cities. In the case of Guilin, sewerage operations have received serious attention and investment since the late 1 970s due to the importance of water quality to tourism. As a result, the Drainage Division has accumulated considerable experience and capacity in sewerage management over two decades of sewerage operation. Given these capacities as well as the large scale of operations and finance, Guilin Municipality has decided to incorporate an autonomous Sewerage Company as an independent legal entity and transfer assets, functions, and staff of the current Drainage Division along with the full claim on sewerage tariff revenues. 5. Development of a new accounting system and corporate financial planning and management skills, which were irrelevant to a government division, would be the major focus of institutional development activities in Guilin. Clear definition of corporate structure and accountability would be another requirement that would benefit from high level external advice and the senior managers' observation of other systems. Initial steps for these areas of institutional development would take place alongside incorporation steps and continue on after incorporation. Development of technical skills and operational procedures would be in the nature of making the current practices more systematic and incremental improvements especially in operational diagnoses and routine maintenance. The technical systems development efforts would be scheduled after the basic structures are put in place. 6. Priorities for Nanning. Currently Nanning has little separate sewerage system, rnixed in with the substantial storm water drainage system managed, mainly on emergency basis, by the Municipal Drainage Division. The system is expanding rapidly, however, as a part of an on-going new development in the Langdong area and the planned upgrading of existing urban areas particularly around Chaoyang Stream., planned and managed by special-purpose agencies, Langdong Area Development Office and Chaoyang Stream Improvement Office, reporting directly to the mayor. Most of the sewerage and drainage construction financed under the project would be managed by the latter. These special offices, however, are not suitable for sustained operation and maintenance of the sewerage facilities. Therefore Nanning Municipality decided to establish a permanent institution, probably in the form of an independent Drainage and Sewerage Company similar to Guilin's. The institutional form is, however, subject to further review. 7. As the existing technical and managerial capacity is far inadequate for the assets that the institution would take over, development of basic operating procedures and systems presents the most pressing task. Although all areas of institutional development have to be attended to, the most urgent tasks would be recruitment and training of the core staff, and development of basic technical skills and operational procedures. These would be the focus of technical assistance and training during the pre-operational phase of 1998 and 1999. Also during this phase, Nanning would have time to design an appropriate institutional framework, develop a detailed program of staffing, systems development and training, which will replace the current draft plan for the subsequent periods. The Company would be formally incorporated after basic systems are developed, core staff is in place, and a more detailed institutional development plan for subsequent periods is prepared. The current target is for the Company to start operations by the end of 1999. Current target dates for 69 Annex 3 Page 3 of 19 selected institutional development steps are shown in Table A3. 1. Table A3.1 Schedule of Selected Institutional Development Activities Activity Guilin Nanning Appointment of Core Management Team For institutional development Jul 97 Jul 97 planning and incorporation Operational Policies and Standards Draft Operational Policy Statement Oct 98 Sep 99 Incorporation Legal Incorporation and Dec 98 Dec 99 Registrations Main Technical Assistance Program Determine Scope Jun 98 Jun 98 Finalize Tenns of Reference, Letter Sep 98 Sep 97 of Invitation Mobilize Consultants Jan 99 Jan 99 Submit Draft Phase I Reports Jul 99 Jul 99 Training, Pre-Operating Phase Aug 98 - Jun 99 Aug 98 - Dec 99 Training, Subsequent Phases after Jul 99 after Jan 00 8. Institutional Framework. A status as a legally independent company rather than a government division would confer the following advantages: • clear accounting of long-term costs by use of the enterprise accounting system instead of the government budgetary system; * Flexibility in staffing, remuneration, and financial planning; * Accountability for own profits and losses, providing incentives for better performance; * Authority to raise financing in the form of borrowing and equity infusion. 9. In order to realize these advantages fully, it is important to have a clear definition of: the Company's responsibility in terms of scope and quality of services; the role of the Company and the basis for adjustment of tariffs; the role of the municipal government in supervising the Company's performance and setting of the tariffs. The current draft statutes for the Companies provide for some of these, but many details are not specified. It is not essential that these aspects are fully defined in detail at this time as the municipality will be the sole owner of the Company for the time being and hence will exercise full control over 70 Annex 3 Page 4 of 19 the Company through its board that it will appoint. Nevertheless, it is necessary that these roles, responsibilities, and rights are defined in the form of operating regulations or a contract between the municipality and the Company as soon as possible. 10. Operational Mandates and Programs. As one of the first steps of institutional development planning, technical operation and management procedures need to be drafted, including an establishment of basic service targets and an estimation of volume of physical and managerial work. These will be used as input to organizational and staffing plans as well as preliminary budgeting. Also, with the help of consultants, these preliminary drafts would be developed into written corporate policies and various organizational and operational instructions. 11. Initially operational planning and standards would have to focus on ensuring careful inspection and satisfactory operation of new facilities to be completed and handed over during the project. At a later stage, the target would be to improve the efficiency of the entire operation. It will be necessary to prepare a comprehensive asset registers, including separate valuation of drainage and sewerage facilities, for use in developing detailed operation and maintenance plans. Finally, the municipality and the Company would need to agree on and plan the schedule and scope of transfer of investment planning and implementation responsibilities. 12. Organizational Structure and Staffing. The current draft organizational structure for Nanning and Guilin provide for: the Company board consisting of five to seven members; a Managing Director (in Nanning) or a General Manager (in Guilin); and three deputy directors responsible for operations and maintenance; for finance, accounting and administration; and for planning, design and construction of major works, depending upon the decision on the scope and timing of transfer of this responsibility from the municipal government. As a first step in institutional development, each municipal government has appointed a core management team to carry out the following activities: * Preparing and implementing the institutional development plan including recruitment of consultants for the initial phase of technical assistance; * Management of the incorporation process; * Drafting the financial forecasts and budgets; * Setting up a preliminary accounting system; * Selecting and recruiting of additional staff for the new company. 13. In the case of Nanning, a preliminary staffing plan for the entire sewerage operation and financial management, including staff profiles and remuneration scales, are being prepared so that initial recruitment and training may begin well before the transfer of new Annex 3 71 Page5 ofl9 sewerage facilities. These will be based on preliminary operational requirement analysis described above. In the case of Guilin, the additional staffing need is expected to be relatively small in the immediate period around the time of incorporation other than financial management areas. Complete staffing profiles will be developed after incorporation. 14. Financial Policies and Systems. Even in Guilin, considerable efforts would be required for developing adequate financial management systems. The system would include the following elements each of which requires substantial expertise to design and substantial staff to operate: * enterprise accounting system with special attention to detailed cost accounting and analysis; * financial projection, planning and reporting procedures and systems to process the information from the basic accounts to provide managers with information to support management control and planning; * procedures for financial transactions and their control; - billing and collection system linked with customer register (or user database); 15. Management Information Systems need to be designed that specifies the types and forms of information to be provided to and from different levels and departments; the procedures; and include the equipment and means of producing and conveying the information. These will combine financial information along with operational information. At a detailed level, for example, the user data base would include both the service characteristics and billing information by customer or area. At the management level, summary and exception reports on various aspects of finance and operation will be needed to monitor and plan the sewerage operation. 16. Technical Assistance. The project will support technical assistance, training, and procurement of computer and office equipment required for institutional development. The technical assistance will be provided by international and national experts in engineering, financial, and management aspects of sewerage operation to assist in review of existing systems, design of improved systems, planning of training programs and initial training of trainers. Major part of the consultant assistance would be provided in early stages, and the later stage consultant assistance would be provided by selected members of the consultant team to review the efficacy of the systems and plans established earlier, make adjustments, and provide follow-up training. The company's long term institutional development and training needs should be periodically assessed and suitable programs developed. Requirement of further systems development and staff and managerial training will be identified in detail at a later part of each phase. Terms of reference will be prepared by elaborating the foregoing discussions, incorporating specific tasks and schedules determined through the on-going deliberation by the municipal provisional management teams. The TOR will specify the activities during the initial two years in detail and outline later phase Annex 3 72 Page 6 of 19 work. 17. Although the levels and emphases for technical assistance would be different between the two cities, the institutional development in both cities involve a large overlapping set of common elements, requiring essentially the same range of expertise. Therefore, the consultant assistance for the two cities would be combined into common packages, with clear allocation of efforts and costs to the two cities. On the other hand, experience on other projects shows that it is difficult to obtain an efficient combination of a large number of national and international consultants; and sometimes it has been difficult to identify national consulting institutions experienced in both technical and managerial fields. Given these considerations, the consultants may be recruited in two packages, one for international consultants another for national consultants. The bidders would be allowed to bid either for technical tasks or for financial and institutional tasks or both. The indicative level of consultant input and estimated costs are shown by broad group of expertise, by city, and by national and international level are shown in Table A3.2. 18. Training Programs. Linked with the systems development activities helped by the consultants, a systematic training would be an essential means of strengthening the staff capacity of the sewerage institutions. The training program will serve either: to enable the staff to understand and apply improved systems or new equipment; or to help managers guide the design, implementation, operation, and evaluation of the improved systems; or to establish or strengthen in-house training capabilities required to sustain and enhance improvements introduced. During the initial phase, most urgent training requirements would be covered: essential operational skills and procedures in the case of Nanning, and financial accounting and management reporting procedures in the case of Guilin. During the follow-up phase, in-depth training will be provided in improved procedures and systems designed with the consultant assistance. 19. Types of Training and Trainees. All managers and staff of the sewerage companies would be required to receive appropriate training. It is important that levels, methods, and goals of training activities suit different needs of trainees and subjects. Training can be classified as follows according to the levels of training required for different users: * Introductory Training: to enable general users and managers to gain basic understanding of essential elements of sewerage operations or related procedures. * Intermediate or Specialized Training: to enable operators or specialists responsible for specific tasks, to use new systems and up-to-date skills to the full extent. * Advanced Training: to enable a limited number of high-level specialists to manage complex technical functions, solve technical problems, train others through in-house workshops or on the job, and to update and modify systems with limited help. * Observation and Seminars. To enable high-level specialists, managers, and policy Annex 3 73 Page 7 of 19 makers to learn of different practices and techniques used elsewhere and to help them set directions for systems improvement. 20. Venues and Methods. Training venues and methods, listed below, will be chosen on the basis of cost-effectiveness: * In-House Training: Seminars, workshops, classes, and on-the-job training held within the sewerage institutions should be the main mode of training especially for introductory and intermediate training. The training will be provided by own staff and consultants. International experts participating in technical assistance for systems improvement or those brought in specially for training should be required to train national consultants and senior in-house staff on the technical rationale and application of new or improved techniques and systems. The latter would in turn train other staff and managers. * Formal Training: For well-established and commonly used skills and knowledge, it would be cost-effective to enroll the staff in courses offered by formal training institutions or send them for on-the-job training in sector agencies. Staff will be sent to training institutions for introductory training in some general skills including basic computer use and quantitative methods; for more advanced courses in sanitary engineering, accounting, financial analysis, work programming, general management, etc. Sewerage companies or divisions in major cities in China with extensive and successful experience would provide good training opportunities. Three major municipalities of China, due to both their educational institutions and sewerage operations, present themselves as suitable venues. Sewage treatment plants in Guilin could offer effective on-the-job training opportunities for staff to work in Nanning's new STPs. * Study Tours and Seminars: Some of these should be organized to familiarize selected specialist staff and managers with the application of new systems and procedures in other technical institutions and sewerage organizations. Selected managers, specialists, and policy makers may also conduct observation tours before starting a new phase of systems development so that they would be able to plan and manage the development activities. 21. Table A3 3 below shows a sample mix of various training programs that can be carried out both in Nanning and Guilin. Annex 3 74 Page 8 of 19 Table A3.2 Institutional Development Plan Technical Assistance Program Nanning Guilmi International Consultants (staffmonths) Engineering and Operations 19 7 - Technical Operations, Maintenance and Planning - Supervision of Works and final Acceptance - Procurement and Inventory System Accounting and Financial 9 9 - Accounting System - Financial Management System - Budgeting and Control System Management and Institution 4 2 - Management Information System - Human Resource Development System Total staffmonths 32 18 National Consultants (staffinonths) Engineering and Operations 30 22 Accounting and Financial 35 35 Management and Institution 5 4 Total local staffmonths 70 61 TA and Training Base Costs (in thousand $) International Consultants (see Note 1) 640 350 National Consultants (see Note 2) 190 60 Domestic and overseas training 90 50 Total Base Cost (in thousand $) 910 560 Equipment Cost (in thousand $) Computers (40 sets @ $2,000)) 80 80 Printers and peripherals (20 @ $1200) 24 24 Fax Machines (10 @ US$500) 5 5 Photocopying Machines (5 @ US$10,000) 50 50 Miscellaneous Office Equipment and furniture 224 194 Software 100 100 Total equipment cost (in thousand $) 483 453 Notes: (1) based on $ 20,000 per stafmrnonth (2) based on Yuan 22,000 per staffmonth and exchange rate of 8.3 Annex 3 75 Page 9 of 19 Table A3.3 Sample Initial Training Programs for a Sewerage Company Participants Participant Trainin Subet Matter Duration Remarks Numbers A. HIGH-LEVEL MANAGEMENT Managing 3 Advanced management procedures, 2 x 2-week Training by foreign consultants: 2 Director, Deputy monitoring of operating organizations, workshops weeks in China and 2 weeks abroad Directors use of management information systems + 3 months of 3 months MIS practice assistance Managing 3 Modem wastewater and drainage 2 x 2-week Training provided by foreign and Director, Deputy management and operational methods, workshops local consultants; 2 weeks in China, 2 Directors project management and contract weeks abroad supervision B. MIDDLE-LEVEL MANAGEMENT Managers in 5 + Financial management (financial analy- 3 x 1-week Training provided by foreign and Financial Dept 10 Accounting sis, financial projections, annual budget- workshops; 6 local consultants in China Dept. staff for ing, control of income and expenditure), months of computer skills international accounting system; asset assistance management (preparing asset register, asset management system), training for introduction of new computer system Manager and staff 4 Human resources management, including 2 weeks Foreign or national consultants in of Personnel design and implementation of training China Dept. programs C. MIDDLE I LOWER LEVEL TECHNICAL STAFF Sewage treatment 15 Operation and maintenance of 3 weeks In house by consultant; on-the-job plant staff wastewater treatment facilities training in other sewerage co. Maintenance 30 Operation and maintenance of 2 weeks Local consultants Dept. managers wastewater collection system including and some workers pumping stations S,taff from various 100 Basic training on Microsoft Windows, I week in Local consultant/ training institution departments DOS, EXCEL, WORD total dealing with computers Annex 3 76 Page 10 of 19 Part B. Financial Projections and Plans 1. Operation and maintenance of drainage and sewerage facilities as well as investment in Nanning and Guilin have in the past relied primarily on municipal government's annual budgetary allocations, drawn mostly from Urban Maintenance and Construction Tax revenues and, in the case of Guilin, tourism revenues and upper level government subsidies. With the growing constraints on general revenues on the one hand and increasing scales of sewerage operations on the other, the old financing system is no longer feasible nor sustainable. 2. Also clearly defined revenue basis and financial responsibility would be essential to ensuring accountability of the independent sewerage institutions to be established in both cities. It has been agreed that in both cities, the sewerage institutions should be required to, and given sufficient revenue base to, cover without subsidy: all cash operating and maintenance expenses as well as expenditures for renewal and replacement beyond those financed under the proposed project; and debt service. Details of these financial targets vary slightly between the two cities and described later in this Annex. It has also been agreed that these expenditures would be met with revenues of sewerage tariffs collected from all water users (based on China's "polluter pays" principle rather than on the basis of benefits received) and drainage service payments received from the municipal government. The sewerage and water charges of the recent past as well as projected sewerage charges required to meet the above financial targets are shown in Table B. 1 below. Table B.1. Water and Sewerage Tariffs (Yuan/M3 water sold) 1995 1996 1997 1998 1999 2001 2003 2005 SEWERAGE TARIFFS Nanning Residential & Institutional 0 0 0.03 0.13 0.13 0.18 0.22 0.22 Commercial & Industrial 0 0.06 0.06 0.18 0.18 0.25 0.30 0.30 Self-Extracted Groundwater 0 0 0 0 0.18 0.25 0.30 0.30 Guilin Residential & Institutional 0.048 0.048 0.048 0.12 0.15 0.22 0.30 0.42 Commercial, Industrial and Self- 0 0.06 0.1 0.175 0.20 0.28 0.38 0.52 Extracted Groundwater WATER TARIFF Nanning Residential 0.31 0.31 0.40 0.40 Commercial 0.50 0.50 0.46 0.46 Industrial 0.37 0.57 0.41 0.41 Guilin Residential 0.32 0.32 0.42 0.42 Commercial 0.38 0.38 0.68 0.68 Industrial 0.33 0.33 0.55 0.55 Annex 3 77 Page 11 of 19 Nanning Sewerage 3. The cost of sewerage investments under the project adds up to about Y 704.8 million (current prices). Financing would be provided in equal amounts from Nanning (Y 352.4 million) and the IBRD Loan/ IDA Credit (estimated at $42.5 million in constant prices). In addition, a French bilateral loan has been obtained for construction of the Landing STP. The repayment obligation for the bilateral loan from France for the Langdong treatment plant would be about Y 6 million a year for 5 years starting in 1999. The World Bank loan and credit borrowed by the municipality The cost for supporting facilities are financed fully by the municipality. 4. A review of the financial resources available to the municipality concluded that there will be sufficient resources to support the sewerage project. The amounts of government funds invested from 1998 to 2003 are shown in the Financing Plan in Table B.2. The financial projections are shown in Tables 7a and b. Table B.2 Financing Plan for Nanning Sewerage Project (1998-2003) in current cost (Y million) GUEP Project Cost 704.8 Other investments 114.1 Total 818.9 World Bank Loan 352.4 Sewerage Revenue less Expenses, Cash Increases, Debt Service 130.4 Government Contribution 336.1 Land Lease 146.1 City Maintenance Fund 100.0 GAR contribution 90.0 Total 818.9 5. Nanning municipal government has recently raised the sewerage charges significantly to finance not only the operating and maintenance expenses, which are low due to the small stock of facilities, but also raise a part of investment funds. The financial projections (Tables 7a and b) show that with relatively moderate increases, the sewerage charges would generate revenue sufficient to cover O&M as well as all debt service. The tariff revenues, collected by the water company, will be retained and used by the municipal government for the time being. When the Nanning Sewerage Company starts operation in year 2000, only a part of the sewerage tariff base will be transferred to the Company along with the debt service obligations and facilities turned over for its operation and maintenance. The entire sewerage charge revenue base will be transferred to the Company only when full debt service payments start, from 2003. Annex 3 78 Page 12 of 19 Guilin 6. The cost of sewerage investments under consideration here totals to about Y 242.6 million. Financing would be provided in equal amounts from Guilin (Y 121.3 million) and the IBRD Loan/ IDA Credit (estimated at $14.5 in constant prices). A review of municipal financial resources have concluded that there will be sufficient financing available for counterpart funding from 1998 to 2003. The following are some available sources and the maximum annual amounts available over the five year period. Sources of local counterpart financing are shown below in Table B.3 and the overall financing plan in Table B.4. Table B.3 Available Government Sources for Guilin Sewerage Project (1998-2003) in current cost (Y million) Tourism Fund Y 25 million Gardens Fund Y 8 million Residence Tax Y 8 million Construction Permits Y 3 million Misc. Construction Fees Y 4 million Total Y 48 million Table B.4 Financing Plan for Guilin Sewerage Project (million Y) Year 1998 1999 2000 2001 2002 2003 1998-2003 Sewerage Company Finances Net Intemal Cash 4.12 6.78 5.04 13.03 11.72 23.82 64.51 Less: Debt Service, Working Capital Changes, 15.09 20.41 20.45 22.72 16.82 27.90 123.37 Cash Increases Available for Investment -10.97 -13.63 -15.40 -9.69 -5.10 -4.08 -58.86 Investments Guangxi Environment Project 48.53 60.67 60.67 36.40 24.27 12.13 242.67 96% Other Investments 0.79 0.84 1.39 1.97 2.58 2.98 10.56 4% Total Investments 49.33 61.51 62.06 38.37 26.85 15.12 253.23 Financed by: World Bank Loan 24.27 30.33 30.33 18.20 12.13 6.07 121.34 39% Government Equity Contribution towards Project 24.27 30.33 30.33 18.20 12.13 6.07 121.34 39% Municipal Contribution 11.76 14.47 16.79 11.66 7.68 7.06 69.42 22% Total Financing 60.29 75.14 77.46 48.06 31.95 19.19 312.09 Net Internal Funding -10.97 -13.63 -15.40 -9.69 -5.10 -4.08 -58.86 19% Total 49.33 61.51 62.06 38.37 26.85 15.12 253.23 81% 7. The financial situation is more constrained that in Nanning because of substantial existing debts and the higher operating cost due to the scale of operation including some secondary sewage treatment. Guilin municipal government currently has loans with a total value of Y 73 million for its previous sewerage investments, some of them for short Annex 3 79 Page 13 of 19 maturities. The debt service payments average about Y 10 million a year. The World Bank loan and credit would create a debt service burden that will increase during the project and reach about Y 25 million a year by year 2004. 8. Guilin municipal government has raised sewerage charges significantly during project preparation. The revenues from the tariffs are expected to be barely enough to cover the operating and maintenance expenses that are increasing fast due to increased utilization of existing secondary STPs as well as the new facilities built under the project. Therefore, the municipality has committed to raise the tariffs again by about 40% within 1998, as a condition of disbursement of the World Bank loan and credit. Guilin Sewerage Company would be established as an autonomous company by the end of 1998, and take over the entire revenues from the sewerage tariffs as well as drainage service payments from the municipal government. Financial projections for the years 1996 to 2005 (Tables 8 a and b) shows that even with significant further raises in the future, the revenues of the Company are unlikely to cover all operating expenses, renewal expenditures, and all debt service. In the interest of setting a feasible target to which to hold the Company accountable, it was decided that the municipal government would continue to service the old debt and the Company should take responsibility for all future obligations. Financial and Institutional Indicators for Sewerage Companies 9. The new Sewerage Companies in Nanning and Guilin should demonstrate attributes of financial viability and have a continuous availability of funds for reinvestment. The importance of these elements are most clearly demonstrated in the case of Nanning. Large capital expenditures are expected and tariff revenues are destined for debt service and operating expenses. Given the relative inexperience in operating a large sewerage network, there is a risk of actual operating costs exceeding projections. Also, given the growing demand for sanitation services, continuous investment (e.g. replacement capital) needs to be anticipated beyond the project lifespan. A self sustaining Sewerage Company must be able to sustain such routine expenditure. The following financial indicators will be used: Table B.5 Financial and Institutional Indicators for Sewerage Companies Indicators Type Units Targets PIS . Debt Service Coverage P % 100 . Ratio ofrevenue collection to billed amount S % 85 (including users of self-extracted water) Institutional Development . Implementation of agreed programs and training P % 100 Annex 3 80 Page 14 of 19 Assumptions Used for Financial Projections 1. Revenue Forecast. As is the case at the moment, the financial projections assume that the water companies will continue to collect these sewerage tariffs on behalf of the sewerage companies and will charge a collection fee of 2.5% of amount collected in Guilin and 1.5% in Nanning. A second source of revenue for the sewerage companies is the payment from government for drainage operations. The annual transfer of drainage fees from the government is estimated to be on average Y 4.5 million in Nanning and Y 2 million in Guilin. 2. Sewerage revenue is based on the usage of water sold by the water companies. In Guilin, users of self-extracted groundwater is subject to sewerage charges just as regular non-residential users are. In Nanning, this practice has not yet begun but is expected to start in 1999, whereby users of self-extracted groundwater will pay the same sewerage charges as non-residential users. However, the financial projections for Nanning allows for collection efficiency from groundwater users to be initially poor. The percentage of sewerage charges collected from groundwater users has been assumed to start at about 50 % in 1999, and gradually improve to 95% by year 2005. 3 . The projected revenues is based on the above tariff schedule as well as the predicted increase in water sales. The latter is expected to grow at a rate of 3 percent a year in Nanning and 2 percent a year in Guilin. The Guilin Sewerage Company would also collect a management fee for operating the Xicheng wastewater treatment plant from year 2003 onwards; the fee being equal to the cost of operating the plant. This entry is not shown in the financial projections since the revenue will directly offset expenses. 4. Operating Cost. All cost of operation and maintenance are assumed to be subject to the following inflation rates: Assumed Inflation Rates Year '97 (base) 1998 1999 2000 2001 2002 to 2005 Domestic Inflation Rate (%) 2.0 4.8 5.0 5.5 5.5 5.5 US Inflation Rate (%) 2.0 2.0 2.1 2.2 2.2 2.3 In estimating the cost of operation, historical data of the municipal wastewater and drainage operations provided the basis for an initial estimate. The assumed cost of operation and maintenance reflect improvements in operation and maintenance procedures, and higher operation and maintenance cost as operating rates and treatment capacity increases. Personnel expenditures were estimated in accordance with staffing requirements for the sewerage companies and their increased levels of operation. They are based on base salary, fringe benefits and include payments to retirees in accordance with local regulation. Materials include provisions for chemicals, parts and the cost for operating vehicles. They Annex 3 81 Page 15 of 19 reflect the demand forecast for chemicals for the treatment facilities and the projected cost of operating vehicles and specialized mobile operating and maintenance equipment. Maintenance and Electricity costs were projected to increase with the size of operations. Cost of administration covers general and administrative expenditures including provisions for maintaining and operating office equipment, telecommunications equipment and insurance coverage. Depreciation was calculated at 2.9 per cent of gross fixed assets in operations, which represents the average life of assets which were mostly sewers and drains. The initial asset base, valued in 1997, are Y 506 million in Nanning (including the Langdong treatment plant, valued at Y 179 million) and Y 102 million in Guilin. Upon commissioning new facilities constructed under the proposed project were added to the asset base. 5. Changes in working capital requirements cover the provision of adequate inventories, the level of accounts receivable and accounts payable. Inventories were estimated at one and a half months of supplies of chemicals and appropriate levels of spare parts and replacement materials. Accounts receivable were forecast initially at about 2 months of sewerage revenue decreasing to about one and a half month by 1999. This provision is adequate on the basis of past experience with payment of water bills. Doubtful accounts were provisioned at 1/2% of accounts receivable. Accounts payable were assumed to amount to about one month of utilities bills and a half a month of chemical cost. They are assumed to increase slightly with the startup of the treatment plant and the expanded pumping facilities. A minimum cash balance equivalent to one month of cash operating expenses was maintained. Annex 3 82 Page 16 of 19 Table 7 a. Income Statement Nanning Sewerage Operations in current cost (million Y) Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Sewerage Tariff (yuan/m3) Residential & Institulional - 0.03 0.13 0.13 0.13 0.18 0.18 0.25 0.25 0.25 Commercial & Others - 0.04 0.18 0.18 0.18 0.25 0.25 0.35 0.35 0.35 Industrial - 0.08 0.18 0.18 0.18 0.25 0.25 0.35 0.35 0.35 GroundwaterSelf-Extracted - - - 0.18 0.18 0.25 0.25 0.35 0.35 0.35 Water Sales (In million m3) Residential & Institutional 120.4 124.3 128.4 132.7 137.1 141.6 146.3 151.1 156.1 161.2 Commercial & Others 17.5 18.1 18.7 19.3 19.9 20.6 21.3 22.0 22.7 23.4 Industrial 81.0 83.6 86.4 89.3 92.2 95.2 98.4 101.6 105.0 108.5 Groundwater Self-Extracted - 47.5 47.7 47.9 48.2 48.4 48.6 48.9 49.1 49.4 Revenues and Expenditures Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Revenues 0.00 11.15 35.61 41.10 44.07 62.92 67.19 96.44 99.19 102.89 - Residential & Institutional 0.00 3.73 16.70 17.25 17.82 25.48 26.33 37.77 39.02 40.30 - Commercial & Others 0.00 0.72 3.36 3.47 3.59 5.15 5.32 7.69 7.95 8.21 - Industrial 0.00 6.69 15.55 16.07 16.60 23.81 24.60 35.57 36.75 37.96 - Groundwater Self-Extracted 0.00 0.00 0.00 4.31 6.07 8.47 10.95 15.40 15.48 16.42 Less: Water Co. Collection Charge 0.00 0.17 0.53 0.62 0.66 0.94 1.01 1.45 1.49 1.54 Less: Sales Tax and Other Tax 0.00 0.00 0.00 2.71 2.91 4.15 4.43 6.36 6.55 6.79 Operating Revenue 0.00 10.98 35.08 37.77 40.50 57.82 61.75 88.62 91.15 94.56 Drainage and Industrial Discharge Fee 0.00 0.00 4.50 4.73 4.98 5.26 5.55 5.85 6.18 6.52 Revenues incl. Drainage Fee 0.00 10.98 39.58 42.50 45.49 63.08 67.29 94.48 97.33 101.07 Personnel 0.27 0.74 1.05 2.12 2.96 3.18 3.40 4.28 4.53 4.78 Electricity 0.05 0.05 0.23 3.23 4.94 5.99 6.32 7.43 7.85 8.28 Materials 0.00 0.04 0.04 1.47 1.55 1.63 1.72 2.43 2.57 2.71 Maintenance 0.94 1.10 1.13 1.19 1.25 1.32 1.39 1.55 1.96 2.06 Administration 0.04 0.04 0.72 1.65 1.78 1.89 2.00 2.86 3.02 3.19 Operating Expenses Total 1.30 1.96 3.18 9.67 12.47 14.00 14.83 18.55 19.93 21.01 Income before Depreciation -1.30 9.01 36.40 32.83 33.01 49.08 52.46 75.93 77.40 80.06 Less: Depreciation 0.00 0.00 0.00 23.37 26.27 30.62 34.97 39.32 52.78 52.85 Operating Income, excl. Interest -1.30 9.01 36.40 9.46 6.74 18.46 17.49 36.61 24.62 27.20 Less: Interest 0.00 0.00 4.08 7.52 11.53 16.63 21.90 26.51 26.49 24.24 Add: Non-Operating Income 1.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Net Profit 0.00 9.01 32.32 1.94 -4.79 1.82 -4.41 10.10 -1.88 2.97 Annex 3 83 Page 17 of 19 Table 7 b. Funds Flow Statement Nanning Sewerage Operations in current cost (million Y) Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source Net Income 0.00 9.01 32.32 1.94 -4.79 1.82 -4.41 10.10 -1.88 2.97 Depreciation 0.00 0.00 0.00 23.37 26.27 30.62 34.97 39.32 52.78 52.85 Add Interest 0.00 0.00 4.08 7.52 11.53 16.63 21.90 26.51 26.49 24.24 Internal Cash 0.00 9.01 36.40 32.83 33.01 49.08 52.46 75.93 77.40 80.06 Government Capital Contribution 0.00 65.00 77.64 88.01 56.23 59.64 39.28 15.32 0.00 0.00 Long-term Loans 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 - Langdong Treatment Plant Loan (France) 0.00 42.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 - Guangxi Env. Project Loan (World Bank) 0.00 0.00 55.33 55.55 68.85 81.05 60.15 31.48 0.00 0.00 Total Sources 0.00 116.11 169.37 176.39 158.09 189.77 151.89 122.73 77.40 80.06 Applications 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Fixed Assets Investment (GUEP) 0.00 0.00 110.66 111.10 137.70 162.10 120.30 62.95 0.00 0.00 Fixed Assets Investment (Other Projects) 0.00 114.01 51.04 50.31 1.50 1.95 2.05 2.29 2.42 2.55 Debt Service Existing Loans 0.00 0.00 0.00 6.01 6.01 6.01 6.01 6.01 6.01 6.01 Debt Service World Bank Loan 0.00 0.00 4.08 7.52 11.53 16.63 21.90 48.43 71.78 70.85 Working Capital Incr. (Decr.) -0.36 1.93 2.59 0.45 0.35 2.08 0.63 2.05 0.85 0.80 Total Applications -0.36 115.94 168.37 175.39 157.09 188.77 150.89 121.73 81.06 80.21 Government Contribution towards Debt Service 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Cash at Beginning 0.10 0.46 0.64 1.64 2.64 3.64 4.64 5.64 6.64 2.98 Cash Increase 0.36 0.18 1.00 1.00 1.00 1.00 1.00 1.00 -3.66 -0.15 Cash at Year end 0.46 0.64 1.64 2.64 3.64 4.64 5.64 6.64 2.98 2.83 Annex 3 84 Page 18 of 19 Table 8 a. Income Statement Guilin Sewerage Operations in current prices (million Y) Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Sewerage Tariff (yuan/m3) Residential & Institutional 0.00 0.05 0.10 0.15 0.15 0.20 0.20 0.32 0.32 0.40 Commercial & Others 0.00 0.10 0.15 0.20 0.20 0.32 0.32 0.46 0.46 0.55 Industrial 0.00 0.10 0.15 0.20 0.20 0.32 0.32 0.46 0.46 0.55 Groundwater Self-Extracted 0.00 0.10 0.15 0.20 0.20 0.32 0.32 0.46 0.46 0.55 Water Sales (in million m3) Residential & Institutional 37.5 38.2 38.9 39.7 40.5 41.3 42.2 43.0 43.9 44.1 Commercial & Others 18.2 18.3 18.6 19.0 19.4 19.8 20.2 20.6 21.1 21.0 Industrial 26.8 26.6 27.1 27.6 28.2 28.7 29.3 29.9 30.5 30.7 Groundwater Self-Extracted 24.6 24.9 25.4 26.0 26.5 27.0 27.5 28.1 28.7 28.8 Revenues and Expenditures Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Revenues 6.06 8.89 14.57 20.48 20.88 32.43 33.08 49.90 50.90 61.93 - Residential & Institutional 1.88 1.91 3.89 5.96 6.08 8.27 8.43 13.76 14.03 17.63 - Commercial & Others 1.09 1.83 2.79 3.80 3.88 6.32 6.45 9.46 9.65 11.59 - Industrial 1.61 2.66 4.06 5.53 5.64 9.20 9.38 13.76 14.03 16.86 -Groundwater Self-Extracted 1.48 2.49 3.82 5.19 5.29 8.64 8.81 12.92 13.18 115.84 Drainage Fee 5.85 10.50 3.00 3.17 3.36 3.55 3.76 3.98 4.21 4.45 Less: Water Co. Collection Charge 0.00 0.19 0.32 0.46 0.47 0.71 0.73 1.11 1.13 1.38 Less: Sales Taxand OtherTax 0.00 0.00 0.94 1.32 1.35 2.09 2.14 3.22 3.28 4.00 Operating Revenue 11.91 19.19 16.31 21.87 22.43 33.18 33.97 49.55 50.69 61.00 Personnel 4.00 4.75 5.02 5.79 5.83 6.38 6.73 7.77 8.20 8.65 Electricity 2.87 2.90 3.86 4.73 5.77 6.74 7.68 8.80 9.56 10.26 Materials and Parts 0.00 0.95 1.36 1.88 2.32 2.73 3.13 3.59 3.91 4.20 Maintenance 0.31 0.35 0.50 1.06 1.59 2.09 2.21 2.46 2.60 2.74 Administration 2.31 1.39 1.44 1.63 1.89 2.22 2.51 3.11 3.47 3.85 Operating Expenses Total 9.49 10.33 12.19 15.09 17.38 20.15 22.25 25.73 27.73 29.70 Income before Depreciation 2.42 8.86 4.12 6.78 5.04 13.03 11.72 23.82 22.96 31.30 Less: Depreciation 0.00 0.00 11.34 13.79 16.39 16.83 16.92 16.92 16.92 16.92 Operating Income, excl. Interest 2.42 8.86 -7.22 -7.01 -11.34 -3.80 -5.19 6.90 6.04 14.38 Less: Interest 3.45 5.21 6.33 7.24 8.04 8.67 9.43 10.48 10.18 9.32 Less: Income Tax 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Net Profit -1.03 3.66 -13.55 -14.25 -19.38 -12.48 -14.62 -3.57 -4.13 5.07 Annex 3 85 Page 19 of 19 Table 8 b. Funds Flow Statement Guilin Sewerage Operations in current prices (million Y) Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source Net Income -1.03 3.66 -13.55 -14.25 -19.38 -12.48 -14.62 -3.57 -4.13 5.07 Depreciation 0.00 0.00 11.34 13.79 16.39 16.83 16.92 16.92 16.92 16.92 Add Interest 3.45 5.21 6.33 7.24 8.04 8.67 9.43 10.48 10.18 9.32 Internal Cash 2.42 8.86 4.12 6.78 5.04 13.03 11.72 23.82 22.96 31.30 Government Capital for GUEP 5.00 10.00 24.27 30.33 30.33 18.20 12.13 6.07 0.00 0.00 Govemment Contribution for Existing 0.00 0.00 11.76 14.47 16.79 11.66 7.68 7.06 2.98 2.89 Debt Long-term Loans 0.00 0.00 24.27 30.33 30.33 18.20 - 12.13 6.07 0.00 0.00 Total Sources 7.42 18.86 64.41 81.92 82.50 61.09 43.67 43.01 25.94 34.19 Applications Fixed Assets Investment (GUEP) 0.00 0.00 48.53 60.67 60.67 36.40 24.27 12.13 0.00 0.00 Fixed Assets Investment (Other 0.60 10.75 0.79 0.84 1.39 1.97 2.58 2.98 3.41 2.50 Projects) Debt Service World Bank Loan 0.00 0.00 1.54 3.19 5.16 6.93 8.17 16.89 24.71 24.39 Debt Service Existing Loans 3.45 9.21 11.76 14.47 16.79 11.66 7.68 7.06 2.98 2.89 Working Capital Incr. (Decr.) 1.19 0.43 1.26 1.16 0.70 1.33 0.17 2.35 -0.26 5.17 Total Applications 5.24 20.38 63.88 80.32 84.71 58.29 42.87 41.41 30.83 34.95 Cash at Beginning 0.10 2.28 0.75 1.28 2.88 0.67 3.46 4.26 5.86 0.97 Cash Increase 2.18 -1.52 0.53 1.59 -2.21 2.79 0.80 1.60 -4.89 -0.77 Cash at Year end 2.28 0.75 1.28 2.88 0.67 3.46 4.26 5.86 0.97 0.20 86 Annex 4 Page I of 5 Industrial Pollution Control: Institutions and Municipal Action Plans Nanning 1. The most serious industrial pollution problems center around waste water discharges that are not in compliance with the discharge standards. Urban air pollution is not yet a pressing problem as air quality meets Class II standards, however, due to the poor quality of Guangxi coal (ash content from 30-40%, and sulfur from 4-5%), and as industrial activity increases, urban air pollution will become more important'. Hazardous industrial waste generation is low, due to the type of industries in Nanning. 2. There are around 1000 industrial enterprises registered in Nanning City with a total annual output value of around Rmb 3.2 billion (US$385 million); town and village enterprises' represent around 10% of this total. Most of these enterprises are small scale and have only a minor effect on pollution loads. There are some 68 medium and large scale industrial enterprises which, based on a 1993 survey, represent a total waste water discharge of around 95 million tons/yr containing COD of around 40,000 tons. Twenty nine of these enterprises have average annual COD discharge concentrations above the general discharge standard of 150 mg/l. The top 10 polluters discharge a major proportion of the waste water and COD load, 79% and 82%, respectively. Of the top 10 polluters, five are in the food industry (MSG, sugar, bean curd, canned food, and citric acid), three in light industry (paper, and leather), and two in the chemical/pharmaceutical sector. The MSG factory discharges into the heavily polluted Chaoyang Stream. Average annual COD concentrations for these 10 polluters range from 200 (Nanning Chemical Company) to 4,250 mg/l (MSG Factory), with an overall average of 625 mg/l. 3. The Nanning EPB Industrial Pollution Control Plan is available in the Project Files. Nanning EPB is using a number of measures to control industrial waste water pollution and to, ultimately, bring all industrial enterprises into compliance with the discharge standards. It is recognized by the Municipality that many of the existing problems are due to failings in the application of the Environmental Impact Assessment procedures for both new and expansion projects, and subsequent environmental management of these projects (Three Synchronizations). Administrative processes for approval of new and expansion projects have been strengthened to better ensure that all municipal government entities involved cooperate to try to ensure that environmental protection measures are implemented effectively. ' Due to the high sulfur content of coal used, acid rain is already significant in Guangxi. In Liuzhou, 50 km west of Guilin, the frequency of acid rain is close to 90% and minimum recorded pH values measured at 6 cities in the Region are in the range 3. 1 to 3.5. Annex 4 87 Page 2 of 5 4. To deal with existing polluters, the EPB will impose special fines or even closure if agreed time bound action programs are not complied with. Such programs are already in effect; in the case of the MSG Factory (the worst polluter in the Chaoyang Stream area) the first phase of the mandatory action plan for waste water treatment commenced operation in 1996, and the final phase is to be completed by 2000. Measures are also being taken, that will be supported under the project, to improve enforcement of the discharge standards by more frequent and effective monitoring. To this end, Nanning EPB has increased its staff by some 30% over the last few years to a total of 130; pollution levy fee collection at Rmb 14.5 million in 1995 showed a 30% increase over that in 1994, due in part to increased enforcement efforts. Nanning has also begun to move to a discharge permit system (DPS) where allowed discharge is based on pollutant mass flows rather than concentration. In the longer term, as non-compliance problems with the major polluters are rectified, the DPS will permit more effective control. Guilin 5. Due to the importance of tourism to the municipal economy, Guilin has, since the 1970's, pursued a very strict and active policy to control both industrial air and water pollution. From 1979 to 1980 some 27 major polluting enterprises were forced to close or change production. Closures included steel blast furnaces, paper pulp production, a lead/zinc mine, and a coal burning power station. As part of this policy, new industrial enterprises and expansion projects are very strictly controlled. In consequence, industrial output value was essentially stagnant during the 1980's, although this has increased strongly during the past five years to Rmb 4.0 billion in 1994 (US$ 480 million); an annual growth rate during this period of 30%. 7. Waste water discharge volumes have been relatively stable over the past ten years whilst the pollutant load, measured by the COD content, has decreased by around 15% per year over the period 1989 to 1994. Based on a detailed industry survey in 1994, Guilin EPB estimates that 95% of total industrial waste water discharges and pollutant loads are accounted for by sixty six enterprises - these also account for around 96% of industrial output value. These discharge 29 million tons/yr of waste water with a COD of 4,700 tons. The profile of the top ten polluters is very similar to Nanning: they comprise 3 5% of total waste water discharged and 80% of the COD load, five of the top polluters are in the food sector (bean curd, MSG, brewery, canned food, rice noodles), three in the chemical/pharmaceutical sector (tires, pharmaceuticals), and two in light industry (pulp and paper). The range of average annual COD concentrations for the top ten polluters is from 40 mg/l (in compliance) to 3600 mg/I, whilst the average for the top ten is 370 mg/l; 60% of the comparable figure for Nanning. 8. Control of coal use has been actively pursued since 1990. All domestic coal must have a sulfur content of less than 1.0% and the domestic use of LPG (liquefied propane gas) has been promoted such that this clean fuel is now estimated to supply 80% of cooking fuel requirements within the city. For industry a levy charge was introduced in 1994 for SO2 emissions, there is also a program to enforce sulfur dioxide and particulate emissions that Annex 4 88 Page 3 of 5 require the use of high quality coal (1-2% sulfur), or closure. Ambient S02 levels are now close to Class 1, and are about 10% of levels experienced during the 1980's. 9. The Municipality (includes the city and two counties of Yangshuo, and Lingui) and the Prefecture have actively enforced the EIA and Pollution Management Regulations. The discharge permitting system was introduced in 1991 initially for water - one of the first cities in China to use this system - and has since been extended to air, solid waste, and noise. Some 380 industries in the municipality (100% of the heavy industries) and 273 in the prefecture have received permits. In addition, many of the industries now discharge to municipal waste water treatment plants. The major water polluters are under time bound action programs to bring discharges into compliance by 2000, or face closure. Levy fee collection increased by 70% from 1994 to 1995 to Rmb 6.2 million, however, much of this increase was due to the extension of the levy system to include S02 (sulfur dioxide) emissions. Although GM has been successful in curbing and then decreasing industrial pollutant discharges, there is still scope for improving industrial environmental performance. A major part of such improvement would rely on more timely and effective monitoring of industrial emissions so that the advantages of the permitting system can be realized. Industrial Pollution Control Programs 10. The Nanning EPB program for control of industrial waste water discharges (see Project Files reference No. 18) in the Chaoyang Stream (18 enterprises) and Jiangnan (15 enterprises) areas would bring industries up to the applicable standards for discharge into Class III water bodies. The program for control of industrial waste water discharges in the Li River, tributaries and waste water treatment plants for Guilin (12 enterprises), and Guilin Prefecture (13 enterprises) would bring all industries in the two areas up to the applicable standards (different for direct discharge into river systems and discharge into sewers linked to secondary treatment facilities). 11. The Guilin program is a continuation of the well grounded strategy described above. During the project period the following time bound action programs are due for completion: a. MSG and Soya Sauce Factories resulting in upgrading of water quality in the Xiaodong River from Class V to III; b. Guilin Pharmaceutical Factory resulting in upgrading of water quality in the Ningyuan River from Class V to III; and, c. Brewery and paper mill resulting in the upgrading of water quality in the Nanxi River from Class V to irrigation quality. Annex 4 89 Page 4 of 5 Technical Assistance 12. Objective. In conjunction with all the above efforts to curb industrial pollution, Guilin, Nanning and Guangxi Provincial EPBs will all implement measures to strengthen their capabilities to monitor industries' compliance with regards to discharges of liquid, gaseous, and solid wastes. In addition, the Provincial EPB will improve it public awareness campaigns for pollution prevention. 13. Scope of Work. Assistance is to be provided as follows: (a) Nanning EPB. Upgrading of laboratory and portable analytical equipment and the provision of improvements to monitoring stations, laboratory, and portable analytical equipment to improve the efficiency and range of analysis, and to increase the frequency of individual enterprise monitoring. Provision of foreign management training in permitting and allied subjects. (b) Guilin City and Prefecture EPB.'s Upgrading of laboratory equipment and analytical facilities, and the provision of monitoring vehicles to improve the efficiency and range of analyses and to increase the frequency of enterprise monitoring, and the monitoring of the Li River and its tributaries. Provision of foreign and local training in permitting, compliance enforcement and allied subject. Implementation of a study to develop a dynamic modern for the absorption capacity of the Prefecture section of the Li River to enable the appropriate permitting criteria to be established for industrial and other discharges waste water discharges. (c) Guangxi Provincial EPB Upgrading of laboratory equipment and analytical facilities, and the provision of monitoring vehicles to improve the efficiency and range of analyses and to increase the frequency of enterprise monitoring, and decrease the reaction time to investigate accidents and complaints. Improved education and publicity equipment for public awareness promotion. Training courses, both local and foreign, for permitting, enforcement, emergency response, and allied subjects. Annex 4 90 Page5 of 5 Table 1. Institutional Strengthening of EPBs (base cost in Y million) Equipment Consultancy Nanning EPB Analytical Equipment 3.20 Overseas Training (about 4.5 staffmonths) 0.63 Guilin City and Prefecture EPB Overseas Training (about 3.5 staffmionths) 0.50 Local Training (about 3 staffmonths) 0.05 Analytical Equipment for Yangshuo County (Aeration Ponds) 0.80 Analytical Equipment for Lingui Country (Chongkou Landfill) 1.92 Analytical Equipment and Vehicle for Prefecture 1.50 Laboratory Upgrade for Prefecture 0.42 Lijiang modeling and research 0.82 Total 4.64 1.37 Guangxi Regional EPB Analytical Equipment 2.20 Training and Publicity Equipment 1.10 Training Program (local and overseas) 1.80 Total 3.30 1.80 Monitoring Indicators 14. Indicators for the strengthening of the EPB's are shown in the table below: Table 2. Monitoring Indicators for EPB strengthening component Monitoring Indicator Nanning Guflin Prefecture Provincial Present Target Present Target Present Target Present Target Number of Enterprises Monitored: 65 104 10 13 Annual monitoring Frequency: Large and medium size 1 2 I to 2 2 to 4* 1 2 Small size 0 1 Oto I > 1 1 2 River Sections monitored and annual frequency NA NA 2x2 4x3 lxl 3x3 Water body monitoring items 26 30 7 13 Monitoring of emergencies, % coverage 30% 100% 30 80 Average response time for accidents, complaints 7 2 7 1 7 1 7 <1 (days) *Frequncy of monitoring for top polluters. Annex 5 9 1 Page 1 of 6 Sugar Refinery Pollution Control Background 1. Sugar cane production and processing is widespread in Guangxi, except in the Northern part where weather and soil are unsuitable for cane cultivation. The production has expanded rapidly over the past ten years, so that in 1992 it exceeded Guangdong's which until then was the largest producer in China, to 2.3 million tons in 1995, and is projected to reach 3.5 million tons per year by 2000. The sugar refining industry, with 108 refineries, is the most important economically in the Region. They generate around 10% of Guangxi's entire industrial output value, a significant share of income and employement in the rural areas, indirectly through cane production and as a direct employer, and a major share of local government revenues, in some counties accounting for as much as 60% of tax revenues. 2. Bank sector work' concerning sugar cane production and processing found that the average cane mill size in China of 1200 tons/day, is small compared with other countries, ranging from 3,200 tons/day (Cuba) to 7,100 tons/day (Thailand). It concluded nevertheless that the Chinese processors compare favorably on competitiveness indices and costs with other major sugar producing regions. In addition, it found that liberalization of the internal sugar market in the period 1990-93 has led to essentially a free market, eliminating virtually all of the divergence between prices inside China and the world market prices. Sugar Industry Pollution 4. The sugar industry is by far the biggest source of industrial waste water pollution in the Region. It is estimated that in 1994 the annual waste water discharge was 230 million tons and with a COD content of 0.4 million tons (an average COD concentration of 1760 mg/l), comprising 25% and 76% of total Regional industrial discharges of waste water and COD, respectively. The latter is nearly five times the estimated total COD discharge from all of Nanning city. The pollution effect on surface waters is exacerbated as the cane harvesting and crushing season (November to April) coincide with the dry season. Some 9 of the 28 major rivers in the Region are subject to serious pollution from the sugar industry. Due to the pollution problems, construction of new sugar refineries has not been permitted since 1993, although expansions have been allowed. Under a recent State Council directive that mandates compliance with pollution discharge standards within a few years, many sugar refineries in Guangxi face the choice between significant investment to reduce the stillage and shutdown of operation. 5. The Regional EPB carried out an extensive survey of the sugar industry in 1994 and determined that few of the refineries have effective waste water treatment systems. The most serious pollution problems are due to the processing of molasses, a by-product of sugar refining, by fermentation into alcohol which generates high COD concentration waste water (molasses l See 'China - Sugar Marketing and Processing Issues, 30 December, 1993 (Draft)' 92 Annex 5 Page 2 of 6 stillage). Of the 108 sugar mills, 96 have alcohol production, of which around 50 are considered to be medium- to large scale, producing at least 30,000 litters per day of alcohol. Due to the refractory nature of the dissolved organic compounds, and the high nutrient content (nitrogen, potassium, phosphorous), the stillage is difficult to treat by conventional waste water treatment methods, and although the use of lagoons is quite widespread, their effectiveness is very low. Characteristics of the stillage are given below: Table 1. Pollutant Values for Molasses Stillage Pollutant Units Typical Range Upper Lower COD mg/l 290000 84000 BOD mg/l 87000 33000 Potassium mg/l K20 13900 5700 Phosphorous mg/l P205 400 34 Total Nitrogen mg/l 4930 2370 pH 3.7 4 Stillage Production per ton of Sugar ton /ton 1.0 6. Studies by the Regional EPB and the Sugar Industry Corporation, with the assistance of local and international consultants, of treatment systems in use both within China and in other sugar producing countries have demonstrated that environmentally effective and financially viable stillage treatment systems are available. The systems include measures for waste minimization and stillage treatment. They improve the efficiency of the molasses fermentation and distillation process, and thereby reduce the amount of stillage produced and raise the conversion of molasses to alcohol. The improved alcohol production processes can produce concentrated stillage that can be economically further concentrated through evaporation and sold as a fertilizer. Officials of the Guangxi Environmental Protection Bureau, Finance Bureau, Sugar Industry Corporation, and one of the sugar plants carried out an investigation of such processes in India, visiting three sugar mills, and determined that the waste minimization technology is mature and suitable for use under Chinese conditions. 7. Market and Policy Context. The preceeding discussions show that the sugar industry in China, a large part of which is Guangxi, is internationally competitive but require serious actions to control pollution. For both the economic and environmental reasons, GAR considers that smaller alcohol work shops should probably close and sell their molasses to the medium and large scale plants that can afford the investment in pollution abatement measures. It is estimated that total investment required for pollution treatment systems for sugar industry in Guangxi is around US$150 million. However, the investment is constrained by financial resources as well as risks. The industry has only recently recovered from the severe floods of 1994 and the depressed internal markets in 1995 arising from "solidarity" imports of sugar from Cuba. With competitive market pressure, the priority in allocation of the limited domestic funds usually goes to modernization and expansion projects. Pollution control investments are less able to compete for Annex 5 93 Page 3 of 6 the available financing not only for these financial reasons but also because the record of earlier attempts have in general unfavorable and the loans for them often went unpaid. There is therefore a need to support demonstration of the technologies that have proven successful elsewhere but not yet adopted in China. Project Description 8. The project would finance the implementation of two or three subprojects to adopt commercially proven waste minimization technology and stillage processing facilities for molasses based alcohol workshops to bring these into compliance with waste water discharge standards. The proposed Bank financed subloan would be limited to 100% of the foreign exchange costs for goods and services, or 50% of total subproject costs, whichever is higher. It is expected that these subloans will finance about 40% of total subproject costs. The remaining 60% of the cost will be financed by the borrowing sugar enterprises, either from their internal cash or through commercial borrowing. The subloan in foreign currency will be repayable in seven years including two years' grace at the Bank's standard LIBOR-based variable rate plus 1.5% per annum. Table 2. Financing Plan Source US$ (millions) % of Total World Bank 2.0 40 Enterprise Self Financing 3.0 60 Total 5.0 100 9. Appraisal Criteria: Technical. Five medium to large scale sugar mills that have alcohol work-shops have made initial applications for pollution control subprojects with a total investment of around US$18 million. Feasibility studies for these subprojects are under preparation. The selection criteria and administrative arrangements are described below. The environmental/technical appraisal would include (a) assessment of the subprojects consistency with the Regional environmental strategy and its priority; (b) the impact on pollution prevention and reduction; (c ) compliance with national/local environmental regulations including submission and approval of environmental assessment report; and (d) efficiency of the implementation program including a procurement plan (refer to paragraph 12 below). The appraisal would have to demonstrate that all feasible options for pollution reduction using proven technologies have been examined and that the solution proposed is the most cost effective. 10. The financial appraisal would assess the financial viability of the enterprises and the proposed investment, including the following eligibility criteria: A minimum alcohol production capacity of 30,000 liters/day; No losses incurred in more than one year over the three years prior to application, or not more than two years over the last five; 94 Annex 5 Page 4 of 6 * Financial projections to demonstrate sustained profitability over the project and maintenance of a minimum debt service ratio (ratio of the sum of profit, depreciation, and interest payment to all principal and interest payments) of 1.5 over the subloan repayment period for all debt incurred, including those incurred under the project; and * The borrowing enterprise pledge assets valued at least 1.5 times the subloan amount. 11. Subloan Arrangements. The subloans and the supplemental local currency financing will be administered by a Sugar Pollution Control Project Unit under the Regional PMO. The Unit will consist of representatives of the Regional EPB, Regional Finance Bureau, Regional Planning and Economic Commissions, and the Guangxi Sugar Corporation. A commercial bank will be retained to perform financial appraisals of potential sub-borrowers such as assessment of credit risk, and the financial acceptability of subprojects. The Unit will also retain technical advisor(s) satisfactory to the Bank to carry out the technical appraisal of the subprojects. The Unit will review the appraisal reports and make a final decision regarding the selection of the subproject and loan amounts and terms. All subproject appraisal reports will be subject to the World Bank's prior review and no objection to assure that feasibility reports are of acceptable quality, appraisal criteria are fully applied, and subloan arrangements are consistent with agreed conditions. Loan account administration would be the responsibility of the Regional Finance Bureau. The Unit will evaluate the results of the subprojects carefully in order to incorporate the lessons learnt into the Region's future sugar refinery pollution control plan. 12. Procurement. Bank financing under the facility would be for goods and services only. The procedures for procurement would be the same as those for other Bank industrial environmental credit lines in China which the Bank has reviewed and found satisfactory. Procurement of the waste minimization technology and any associated proprietary equipment would be through ICB procedures, to ensure that all appropriate technology and technology licensees are evaluated. Other contracts below US$1.0 million would be awarded through National Shopping, after evaluation and comparison of quotations solicited from at least three qualified suppliers. All contracts with an estimated value of US$0.5 million and above would be subject to the Bank's prior review. Contracts with a value below US$ 0.5 million would be subject to post-review by the Bank, and the Regional Finance Bureau would ensure that all relevant documents are maintained in suitable records for this purpose. For all procurement, a procurement plan will be a required part of the subproject proposal and appraisal report to be submitted for the Bank's prior review. It is expected that the draft bidding documents that requires the Bank's prior review would be submitted together with the subproject appraisal report. Monitoring 13. Monitoring indicators for the subloan appraisal process (feasibility study commencement to construction approval) and subsequent subproject implementation phases are shown in the attached table. Completion monitoring, as detailed in the attached table, will compare project results concerning waste water discharge with those projected at appraisal. In addition, at Project Annex 5 95 Page 5 of 6 Completion an update of the 1994 Regional EPB sugar industry pollution discharge survey will be carried out to monitor overall progress, bring mills into compliance with discharge standards, and to assess the contribution of the sublaons. 14. Tables 3, 4 and 5 provides guidelines on performance monitoring as well as the turnaround rate for the subprojects. Table 3. Typical Implementation Schedule for Sugar Industry Pollution Control Subprojects Subproiect Feasibility Study EIA Prelim Design Appraisal Name Report to Construction Implement Start Finish Approved Complete Approved Start Finish Start Finish Bank Approval Months Factory No. 1 Mar-98 Jul-98 Sep-98 Aug-98 Sep-98 Sep-98 Nov-98 Dec-98 Jan-99 Feb-99 Mar-99 12 Factory No. 2 Mar-99 Jul-99 Sep-99 Aug-99 Sep-99 Sep-99 Nov-99 Dec-99 Jan-00 Feb-00 Mar-00 12 Factory No. 3 ... Table 4. Sample of Subproject Implementation Monitoring Summary Subproject Investment Physical Status Disbursement Completion Cost Name (million) (million) (million) Total Counter- IBRD Project Completion Counterpart Bank Loan Total % Cost part loan Approved Appraisal Last Reot This Reot Delay Mos RMB % US$ % RMB Change RMB RMB US$ Factory No. 1. 18.0 10.8 0.8 Sep 98 Apr 00 Apr 00 May 00 1 ... ... Factory No. 2 13.5 8.1 0.6 Sep 99 Apr 01 Apr 01 Apr 01 0 ... ... .. ... Factory No. 3 .... Annex 5 96 Page 6 of 6 Table. 5 Sample Completion Monitoring Schedule SubDroiect Base Line Wastewater Dischage Cane Capacity Alcohol Capacity thousand tons/year tons/Vear COD COD Conc. tons/day liters/dav (alcohol WS) mg/litre Factory No. 1 4000 60000 86 9460 11 000 Factory No. 2 2300 30000 43 5160 120000 Factory No. 3 - - - - - Total 6300 90000 129 14620 Subproiect Projected at Subproject Appraisal Waste Water Dischage Cane Capacity Alcohol Capacity thousand tons/vear tons/year COD COD Conc. tons/dav liters/day (total) (alcohol WS) mg/litre Factory No. 1 4000 60000 0 0 0 Factory No. 2 2300 30000 0 0 0 Factory No.3 - - Total 6300 90000 Subpraoect Actual at Subproject Project Completion Waste Water Dischage Cane Capacity Alcohol Capacity thousand tonsiyear tons/year COD COD Conc. tons/day liters/dao (total) (alcohol WS) mr/litre Factory No. 1 4000 60000 0 0 0 Factory No. 2 2300 30000 0 0 0 Factory No.3 - - Total 6300 90000 Annex 6 97 Page 1 of 11 Annex 6 Regulation of the Lijiang Background 1. One of the main issues of national as well as local significance is the quantity and quality of the water in the Lij iang, a major tourist attraction and source of revenues located in the northeaster part of Guangxi. The scenic limestone formations along the river's banks downstream of the Guilin is considered a top national treasure and attracts about a million tourists a year. The existing tourist boats require a minimum flow of about 30 m3/s to navigate this reach of the river. Larger flows make navigation easier and provide for a more aesthetically pleasing trip. 2. With a total length of 214 km and a drainage area of 6050 km2, the Lijiang is a branch of the Zhu (Pearl) River system. The Lijiang Basin is in the rainy subtropical monsoon climate zone, with average annual precipitation of about 2000 mm. At the Guilin Gauging Station (2200 km2 catchment area, 1946-1985 period of record) the average streamflow is about 128 m3/s, with extreme maximum and minimum recorded flow rates of 4250 m3/s and 3.8 m3/s, respectively. During the six month period from March through August, flows average about 200 m3/s; from September through February average flows are about 38 m3/s. The driest two months are December and January when flows average about 24 m3/s. 3. As the population and economic activities in the Lijiang valley have increased during recent years, the water level of the river has decreased markedly, especially during the dry season. At times, plying of the river by the tourist boats is severely hampered by low water levels. The low waste assimilation capacity of the river causes further deterioration of the river quality. When the rains do come, the negative impact on the river is also severe because low flow conditions have been the norm for much of the year. 4. All levels of the government have been considering water augmentation projects to increase the level and improve the water quality of the river. The scheme proposed for the project employs a canal from the existing Wulixia reservoir, improved management of the catchment area and repairing some 46 km of embankment so that the river is able to accommodate the increased flow. In addition, a mini-hydro project of 1.0 MW capacity will be built. Areas along the Lijiang river and the upstream Wulixia reservoir will also be reforested to reduce soil erosion, thereby checking silt buildup in the river and reservoir. These sub-components, together with institutional development, will cost approximately $24 million in investment, including contingencies. If not implemented, the loss in revenue from decreased tourism will far exceed that cost. Annex 6 98 Page 2 of 11 Wulixia Water Supplement Sub-component 5. Background. The Wulixia water supplement sub-project will provide supplemental water to the Lijiang River from the existing Wulixia reservoir, in the upper Xiangjiang basin. This reservoir was completed in 1994 and has an upstream catchment of about 340 square hectares. Its current functions are to provide irrigation, generate electricity and supplement the Lijiang with 7 to 8 m3/s of flow during the dry season via a canal, thereby guaranteeing a minimum flow of 30 m3/s flow during the dry season. 6. Objective. The Wulixia subcomponent under this project will provide an additional 7.5 m3/s of replenishment water to the Lijiang, raising the Lijiang' s minimum flow to about 37.5 m3/s. The flow through Guilin city, after offtake by irrigation and other users, would be between 3 5 to 3 7 m3/s, essentially guaranteeing at least 30 m3/s of flow for the tourist route -- the minimum for boat navigation. This would increase the time period where there is sufficient flow for tour boats to travel. 7. Under the project, reservoir water would be conveyed to the Lijiang River through the rehabilitation and extension of the existing irrigation canal. The proposed works would line this canal (24.5 km) to reduce leaks, extend it (400m) and install a mini powerplant (2 x 0.5 MW power units) along the canal before the water is released into the Lijiang. The existing dam has been determined to be safe against Probable Maximum Flood. The total cost of this component, including contingencies is estimated to be Y 46 million ($5.3 million), including preparation works (cleaning, drainage and canal slope protection). 8. While providing an additional 7.5 m3/s of replenishment during the dry season, the scheme also ensures that present and future irrigation requirements are met. With good water management at the reservoir and a minimum release of 8 m3/s, power generation at the existing powerplant can be increased substantially from 12.5 million Kwh/year to 17.5 million Kwh/year. Canal lining would reduce water leaks and increase power generation by 2.4 million Kwh/year at the existing powerplant. The new mini-powerplant will add another 2.6 million Kwh/year, bringing the total amount of new energy due to this scheme to 5 million Kwh/year. River Embankment Protection Sub-component 9. Background. Sections of the embankment along the Lijiang has been badly damaged due to flow erosion and abrasion, especially during the wet season. This is due both to river traffic as well as heavy rains in the wet season, a six month period during which 75% of the annual rainfall occurs (March to August). Most of the bank is made up of primary sand, silt and clay terraces, which are susceptible to the effects of flow variation. According to studies, up to 200,000 tons of earth is being washed away each year due to poor embankment, causing the loss of farmland, trees and roads. In addition to loss of land, Annex 6 99 Page 3 of 11 it is believed that the transported sediments change the profile of the water course and result in the formation of 'shallows', causing navigation problems in the dry season. 10. A large rural population lives along the river, particularly between the city and the river's middle reach. Consequently, land loss and erosion problems are important issues for local groups. About 50 km of masonry currently exist along the east and west banks. Apart from repairs on the existing walls, local authorities estimate that another 50 km will be needed considering the increased flow due to the Wulixia subcomponent. 11. Objective. Under the project, the effects of the wet season would be mitigated by improving and extending the embankment walls and by implementing erosion control measures. A total of 46 km of masonry walls will be repaired or built in two phases. World Bank financing would be provided for the first phase and part of the second phase, building a total of 14 to 16 km of embankment. Apart from the masonry walls, minor plantation will be done along the bank to reduce soil erosion. The total cost of this sub-component is limited to Y 63 million including contingencies. 12. Technical Assistance. The consultancy will be used for river bank erosion and silt deposition studies, and to improve the management of the embankment. This is included under the Lijiang Co-ordination Commission technical assistance package shown in Table 3. Soil and Water Conservation Sub-component 13. To reinforce the benefits of water replenishment and embankment works, a plantation program will be implemented in two associated areas of the Lijiang. The new vegetation will increase forest cover and improve the ground's water retention, helping to maintain the river's water level. The two areas are (a) areas around the Wulixia reservoir; (b) areas along the Lijiang stretching from Guilin City to Yangshuo. As some of these areas will be planted with bamboo and gingkoes, additional economic benefits will accrue to the local community. There is a strong local demand for these forest products and a mature bamboo plant currently commands a market price of Y 10-13 each. 14. Being a source of replenishment for the Lijiang, the Wulixia reservoir needs to maintain a healthy inventory of water during the dry season. Erosion and the accumulation of silt, however, has become quite severe and has reduced the actual capacity of the reservoir. Depending on the kind of vegetation on the ground, water retention can also be increased by 15 to 25%. 15. Under the soil and water conservation sub-component, two areas will undergo plantation programs: (a) at the Wulixia reservoir, and (b) stretches along the Lijiang river. The first area covers 8534 hectares of land around the reservoir, with 700 hectares to be planted with bamboo and gingko plants. The remaining will be earmarked for reforestation by controlling human access and the introduction of protection measures to enhance natural Annex 6 100 Page 4 of 11 revegetation. The total cost of this plantation effort amounts to Y 36 million (base cost Y 25 million). 16. The second area stretches from Guilin city (at Elephant Mountain) to Yangshuo town and covers a total area of 2630 hectares. Of this, 230 hectares will be planted with a combination of gingkoes and bamboo, about 1300 hectares along the Lijiang embankment will be dedicated to general plantation, and an area of 1 100 hectares of hillside land will be closed off for natural reforestation. The total cost is Y 50 million (base cost Y 36 million). Table 1. Plantation Areas for Soil and Water Conservation Subcomponent Hectares of Land Area 1 Area 2 (around Wulixia) (around Lijiang) Gingko 250 130 Bamboo 450 100 Other plantation - 1300 Total 700 1530 Natural Reforestation 7834 1100 Environmental and Social Benefits 17. Irrigation efficiency and reliability would be improved in Wulixia following the implementation of the project. More water will be available for Guilin City during the dry season with the Lijiang River increasing its flow from 30 to 37.5 m3/s. The increased flows would provide dilution water and thus avoid further deterioration of Lijiang River water quality in the vicinity of Guilin in the near future (years 2000 to 2005). To improve water quality and sustain the improvements into the future, wastewater treatment works should proceed in parallel. 18. Increased hydropower generation that would result from the implementation of the Wulixia subproject is estimated to be 5 million Kwh/year. Although modest, this would contribute significantly to electrification in the project area. Hydropower is a renewable source of energy. Its environmental benefit with respect to preventing air pollution from coal-fired thermal plants has been quantified in terms of environmental externality values, but has not been included in the economic analysis. 19. The improvement of existing roads and the construction of new roads in conjunction with the projects would be a significant benefit to rural communities in the project area. A significant amount of money would be injected in the local economy over the construction period through the hiring the manpower. The plantation and embankment programs would Annex 6 101 Page 5 of 11 also reduce the economic loss of the rural community due loss of farmland and also generate some income from the sale of bamboo and gingko. Economic Evaluation 20. The additional 5 million Kwh of hydropower generation associated with the Wulixia schemes would cost $5.3 million. Assuming a 20-year life and O&M costs at 5% of the construction costs, about 25% of the projects can be justified by the hydropower benefits alone (significantly more than the incremental costs of hydropower). This assumes a conservative estimate of the economic value of power to be 0.06 $/Kwh, and an opportunity cost of capital of 12%, 21. Tourists spend approximately $100 million per year in Guilin. Although the tourist experience is virtually eliminated when the boats cannot navigate the river, some tourists still visit Guilin during these times. It is therefore difficult to estimate the increased revenues that could be generated from having higher guaranteed flows. Although flows vary considerably from year to year, the project would increase the opportunities for navigating the river by an average of about 6% per year (guarantee increases from 94% to 100% for 30 m3/s). If we assume a one-to-one relationship (which is not the case) between opportunity time for navigating the river and total tourist revenues, the increased revenues would amount to about $6 million (not taking into account the benefits related to supplemental flows in excess of 30 m3/s). Using the same assumptions as in the previous paragraph, the remaining 75% of the Wulixia costs after considering the hydropower benefits could be justified with only $860,000 in increased tourist revenues or 14% of the $6 million. 22. The annual amount of water being supplemented to the river during the 4 driest months is about 78 million m3. The opportunity cost of water in the Lijiang Basin has been variously estimated from between $.06 and $ 0.33/ m3 (hydropower and radish production, respectively). The lower value would translate to an annual benefit of about $4.7 million. Therefore if the supplemental water ends up being used for other purposes in the Lijiang River, the economic benefits could be much greater than the tourism benefits. This, however, brings up the concern of the sustainability of the minimum flows in the river provided by the project which is discussed in the Institutional Arrangements section below. Financial Arrangement for Wulixia 23. Representatives of Guilin City, Guilin Prefecture and the Regional government reaffirmed their commitment to the principal of 'beneficiary pays'. While the scheme is technically under the jurisdiction of the Prefecture, the Municipality stands to gain much from the increased water supply as well as from the higher tourist traffic. During negotiations, the following guiding principles of cost recovery was agreed upon between the Municipality and Prefecture: 102 Annex 6 Page 6 of 11 a. The annual debt service requirement will be calculated based on: i. Total Loan (including World Bank and domestic loans): up to 80 % of the total cost. ii. Total Cost: actual expenses as verified by the Regional Audit Bureau, subject to a maximum of Y 50 million including interest during construction. iii. Interest Rate: the average of actual interest rate paid. iv. Loan payback period: the average of the actual loan payback period. b. The funds for this debt service will be raised firstly from the net income from additional power generation. This net income will be the actual revenues from additional power generated due to the project, minus actual operating expenses for the additional power generation, as verified by audit. C. The remaining debt service obligation will be funded by the Guilin Municipality and other beneficiaries, in consideration of value of benefits derived from increased water supply during the dry season. 24. It has been estimated that GM will benefit from an additional 78 million m3 of water each year, for which it should submit payment to GP. Another source of revenue for Wulixia is the additional 1 MW of power generated. As an illustrative example, following the principles of agreement and assuming current day interest rates, GM would have to pay roughly Y 0.05 per m3 for the additional water they receive to support the project's remaining debt service. This compares to the economic price of replenishment water of roughly Y 0.04 per m3. This was computed by discounting the value of the investment over an assumed 20 year life of the project. If GM chooses to raise funds for this payment by increasing the ticket price for boat tours, an increase of either Y 5 a person for domestic visitors or Y 15 a person for overseas visitors would be sufficient. Annex 6 103 Page 7 of 11 Institutional Development 25. Lijiang Commission. Under the project, a new institution - Lijiang Coordination Commission (henceforth referred to as the Commission), will be created to achieve three main objectives -- (a) to co-ordinate the implementation of the Lijiang project as a whole, (b) to co-ordinate pricing and ensure tariff collection for water replenishment, and (c) to implement water use planning and conservation efforts. The Commission will be chaired by a vice governor and have representatives from the Regional Planning Commission, Finance Bureau, Environmental Protection Bureau, Water Resources Bureau, as well as Guilin City and Guilin Prefecture. 26. Implementation and Responsibilities. Under its function as project implementation co-ordinator, the Commission will be set up in Guilin city to oversee the individual project offices for the subcomponents of Wulixia water works, embankment works and plantation works. The existing Wulixia Reservoir Operation Office under the Xingan county of Guilin Prefecture will be responsible for the implementation of the Wulixia water supplement sub-project. This Office will also own and operate the facilities implemented under the project and be primarily responsible for generating the revenues to repay the Bank loan. A second important task of the Commission therefore, would be to monitor compliance to the financing and cost sharing principles among the beneficiaries. 27. Future Development. The Commission will grow out of its consultative role and, through the Wulixia Operation Office, have authority for water replenishment and other reservoir operations. Wulixia and other water bureaus in the Lijiang basin would be kept as independent entities, but reservoir and gate operations would be co-ordinated and directed by the Commission. With authority delegated by the owners of various water works in the basin, it would gradually take over some of their management and operation functions. During this period, the internal management of the water works operations would be strengthened. This includes the introduction of a computerized management information system (MIS) for day-to-day management and cost control, runoff and flows forecasting, financial optimization and training on project and operations management, and monitoring. The Commission would work with local water and power bureaus on the establishment of water rights system and water use, allocation and fees systems. 28. Eventually, the Commission should transform into a Lijiang Water Resources Management Authority (hereafter referred to as Authority). A possible developmental path towards the Authority is outlined in the project files and a summary is shown in the Table 2. The Authority would become financially independent, and could initiate and start other water projects in the Lijiang Basin. Annex 6 104 Page 8 of 11 Table 2. Route to Lijiang Water Resources Management Authority Schedule Actions & Results Short-term - Serve as a consultative body for water management (up to year 3) - Sets and co-ordinates water user fees - Produce detailed structure, function, authority and responsibility of the Commission and Wulixia Operations Office - Produce financial projections of the Commission and Wulixia Operations Office - Develop organizational structure - Implement water saving measures for the long-term sustainability of the Wulixia subcomponent Agreements and Actions before construction completion: - Perform studies conceming the optimization of reservoir operations. water demand and use - Set up reservoir operation and operation control systems, taking into account water use and demand with the involvement of farmers/users - Strengthen the operation and management of the Wulixia Operations Office such as financial management and planning, cost control, etc. Medium-terns Objectives to be reached: (year 3-5) - Transfer of management and operations responsibility from the Wulixia Operations Office to the Commission; co-ordinate reservoir operations - Carry out monitoring, evaluation, planning studies, and review of reservoir operations optimization - Create and maintain a registry of water users, make water use allocation plans and permits with local water & power bureaus - Establish a registry of entities (municipalities, plants) which discharge wastewater in the Lijiang - Organize the water users association, to implement water saving measures - Charge and collect water user fees - Prepare the transition from the Commission to the Management Authority Long-tern Conversion of the Commission to the Management Authority: (year 5-10) - Agreements between the Management Authority and related parties to become shareholders - Share determination by taking into account factors such as salvage value of the reservoirs, power plants as well as other facilities, the profitability of the operations, and their investment contributions - Agreements on profit-sharing and future water project developments - Integration of the database (GIS), reservoir operation model control system, and a water quality monitoring system. 29. Technical Assistance. A technical assistance program will help the Commission and the Wulixia Operation Office to develop its water management capabilities and would be done through Chinese and international consultants working directly with Chinese counterparts in the project area. The TA would also include study tours to USA, Mexico, Australia, and other countries if needed. The TA would support the following activities: a) Water Rights Registry. Design of data base, development of manual for maintaining registry, and on-the-job training personnel in registry management. b) Hydrological Monitoring System. Design of system, support for setting up the system and for a logistics program and operational group for operation and maintenance of the system, and training in hydrological monitoring system management. 105 Annex 6 Page 9 of 11 c) Hydraulic Infrastructure Operation. Development of studies and computer models for operation of hydraulic infrastructure including hydrological forecasting and decision support models, development of operational manuals, and training in model development and use. d) River Basin Planning. Development of Master Plan for the Lijiang River Basin, setting up procedures and institutional entities for plan development and implementation, and training in plan development and implementation. e) Water Resources Management at the River Basin Level. Evaluating institutional mechanisms and providing recommendations for institutional structure to carry out water resources management in the Lijiang River Basin, implementing and strengthening institutional changes, and training in water resources management. f) Embankment Management. Consultancy, study tours, research on river ecosystem protection, silt and sediments analysis and for setting up an embankment management group. Table 3. Base Cost of TA packages (million Y) TA Program Equipment Consultancy Cost Cost Technical and operational review studies - 0.28 Developing water rights database, river basin, system operation models 1.40 0.49 Study Tours: Technical level, High Level, Water User level - 1.26 Future training needs (determined at mid-term review) - 1.26 Embankrnent wall and river shore management 0.49 1.26 Total 1.89 4.55 Cost Estimate and Implementation Schedule 30. Detailed costs for all subcomponents are presented in Tables 5 and 6 of Annex 11. Implementation of this component will be a lengthy process and early preparation for the embankment sub-component is particularly important, with construction works planned for the dry season. Implementation schedules are shown here in Tables 4 to 6. 106 Annex 6 Page 10 of 11 Table 4. Implementation Schedule for Wulixia Package 1 Package 2 Canal gate works, extension, Powerstation equipment & Preparation Stages cleaning & lining foundation Design&Bid 05/01/98 06/01 /98 Document Completed Bank approval of 06 /15 / 98 07/ 01/ 98 Bid Documents Bid Opening date 07 /01 / 98 09 / 01 / 98 Bid Evaluation / Recommendation to Bank 09 / 01 /98 12 /01 / 98 Bank approval and 09 /15 /98 01/01/ 99 contract awarding Construction / Installation: 10/98 - 04/99 04 / 99 - 04 / 2000 11/99 - 04/2000 Table 5. Implementation Schedule for Embankment Protection Preparation Stages Beginning on Design & Bid 05/01 /98 Document Completed Bank approval of 06/ 15 /98 Bid Documents Bid Opening date 07/0 1 /98 Bid Evaluation / Recommendation to Bank 09 / 01 / 98 Bank approval and 09 / 15 / 98 contract awarding Construction / Installation: 10 / 98 - 04 / 99 10 / 99 - 04/2000 10 / 2000 - 04 /2001 Table 6. Implementation Schedule for Plantation Sub-component Preparation Stages Wulixia Plantation Lijiang Plantation Submission of Bid Documents 06 / 15 / 98 07 / 15 / 98 Bank approval of 07/ 15/98 08 /01/98 Bid Documents Bid Opening date 08 / 01 / 98 09 /01 /98 Bid Evaluation / Recommendation to Bank 10 / 01 / 98 11 /01 /98 Bank approval and 10 / 15 / 98 11 /15/ 98 contract awarding Implementation 11 /98 - 08 /2000 12 /98 - 12/ 2000 Annex 6 107 Page 11 of 11 Monitoring Indicators 3 1. Water replenishment facilities, reforestation programs and continuous management and conservation efforts all help to maintain the Lijiang at an acceptable flow. The following indicators would be useful in assessing project impact. Table 7. Indicators for Lijiang Flow Regulation Calendar Year Indicator Units Base '96 '97 '98 '99 '90 '01 '02 '03 '04 Flowrate m1's 30 30 30 30 30 30 32 35 35 Miniimum frequenicy of achieving % 93.8 93.8 93.8 93.8 93.8 93.8 94 95 96 this flow ' Extension ofEmbankmientwall km 0 0 5 10 15 20 30 40 50 Reforested Areas ' hectares 0 0 100 100 200 700 1000 1500 2200 Expenditure oni Water Managemenit Progranls . Guilin City mil Yuan 0 0 0.5 0.5 0.5 1 1 1 0.5 . Guilin Prefecture mil Yuan 0 0 0.5 0.5 0.5 1 1 1 0.5 Notes: I Flow measurements should be taken at Guilin over the whole year (including months between November to April). 2 Total land area in Lijiang and Wulixia that have undergone reforestation, but excluding areas closed off for natural regrowth. Annex 7 108 Page 1 of 11 Small Area Improvement A. Background 1. The fast growth of China's urban population since the early 1 980s has been more than matched by high rates of investments in housing and infrastructure which have transformed the urban landscape significantly. Most of the investments have taken the form of high-value new development replacing former farmland in urban peripheries or old urban neighborhoods, whose development has been suppressed by regulatory and financial constraints before the economic liberalization. By unlocking the value of the under-utilized land, the new development or redevelopment allows large increases in land use density and large economic and financial returns. The revenues are usually sufficient to pay for all costs including generous compensation for the existing land use, a full range of on-site infrastructure and even substantial municipal charges. This allows municipal governments to focus their limited fiscal and managerial resources on trunk infrastructure. 2. While large-scale development and infrastructure projects are likely to remain the major mode of urban development in China, limited upgrading of existing urban areas (in situ) should be an increasingly important complement. As more urban areas are developed to high value use, opportunities for profitable new development become more scarce while the need to upgrade them grows as they age. Financing is another critical constraint. In typical Chinese cities, new residential developments cost at least three times the average annual per capita income. Given the limited resources, excessive reliance on expensive new developments would leave a large part of demand for urban services unmet for a long time, especially for the poor. Even after nearly two decades of extraordinarily high levels of investment, a large part of urban areas remain with poor housing and infrastructure in sharp contrast to the new developments. The gap is likely to persist in the future as investment growths are projected to be more constrained while urban population growth is expected to accelerate. The need for small-scale upgrading would increase as the population, income, and the demand for urban facilities increase, as new developments age, and the investment resources remain constrained. 3. Limited and gradual upgrading is an efficient option for a large part of any city, as complete redevelopment is often too costly in terms of the value of the existing assets or in comparison to the residents' affordability. In many cities of China, there has been a strong tradition of cooperative maintenance and upgrading of neighborhood facilities. The urban growth and transition to market, however, have weakened the tradition by focusing the municipal government's financial and management capacities on large scale developments and weakening neighborhood organizations. Not being a clear individual responsibility such as housing, neighborhood upgrading requires a cooperative framework to pool the resources. Experiences in other countries show that when neighborhood facilities are improved, the housing investment increases. In order to meet the increasing demand for the urban services especially at the tertiary level under the scarcity of public resources, it is therefore important that a framework is re- established for efficient cooperative upgrading of neighborhoods. Annex 7 109 Page 2 of 11 4. The case for gradual, low-cost upgrading is particularly strong in the cities of Guangxi. Compared with other regions of China, cities of Guangxi started the recent urban development later, have lower income levels, and faster growth of urban population especially from the countryside. While there have been substantial major new developments in Nanning and Guilin, there remain a large number of urban neighborhoods suffering from poor quality of such basic facilities as access road, drainage and sewerage, public toilets, and garbage collection. Many old industrial-residential areas near the city center have developed over the years by gradually increasing density of housing, now featuring two to five storeys, and population, over- stretching the existing infrastructure. Another type is former rural villages in the urban peripheries that have turned into urban areas, which are only beginning to develop basic urban infrastructure. 5. While upgrading is an efficient option for a wide range of urban areas and population, it is almost the only option for poorer segments of the population. The majority of the urban poor in China are migrants from rural areas, often without permanent city residency permits. In Nanning and Guilin, population without permanent registration has surged in the last decade and is estimated to account for around 20% of the urban population. They are scattered around the city, mostly renting spaces in areas with poorer facilities described above. There are also some substantial informal settlements of these people, rarely seen in other Chinese cities. Nanning and Guilin governments have been accommodating or at least tolerant of temporary residents, and have provided basic urban services including water supply, garbage collection and schooling to large informal settlements. However, housing and neighborhood level facilities of drainage, sewerage, access roads, that are residents' responsibility, are of very low quality. 6. Preliminary surveys show that communities overwhelmingly support upgrading: regardless of the age and/or quality of existing housing. Preservation of communities as they exist and preventing their dislocation is an important household concern. The status of urban facilities in Nanning and Guilin and the prospect of their fast growth heighten the need for low-cost upgrading, and the municipal governments' policies are hospitable toward progressive and equitable urban development. These factors make the two cities of Guangxi suitable areas in which to establish a model of participatory upgrading, which would be needed in most cities of China. B. The Objective and Scope of Improvements 7. The project will support a pilot program of small area improvement subprojects in order to help establish a system of efficient cooperative upgrading of neighborhood infrastructure. The subprojects would aim at cost-effective upgrading of existing small areas, especially those with low levels of facilities and incomes, through low-cost solution to high priority infrastructure deficiencies; and full participation of beneficiaries in identification, design, and implementation of the improvements. 8. The project would support improvement of any common facilities within the participating small areas that the area residents choose and contribute to. Types of common neighborhood facilities that are deficient in many areas and general standards of improvement are suggested as below: Annex 7 110 Page3of 11 * Drainage: tertiary, and at limited instances, secondary drains designed to deal with annual average peak storm flow; provided mostly in the form of road-side covered box drains, and in the form of small-diameter PVC or concrete pipes in the case of combined sewerage and drainage. * Sewerage: small-bore sewers or small-diameter conventional sewers could be considered in the case of areas with population density higher than 200 persons per hectare, and where appropriate connection to secondary or primary sewer can be made readily. * Septic Tanks: provision or repair of shared septic tanks when connection to trunk sewer is not available or more expensive than septic tanks to build and operate. * Public Toilets: provision or repair of public toilets at a rate of one seat per not less than 20 users (those residents without individual toilets), * Access Roads and Footpaths: stone or concrete pavement up to 4 meters wide. * Solid Waste Collection: provision of road-side concrete garbage bins, and provision or repair of neighborhood solid waste depots. * Water Supply: build or repair water storage tanks or water pumps for areas on high grounds with unreliable water supply. • Landscaping and amenities: plantation and other improvements to neighborhood roads and common grounds. 9. Any area that is not slated to redevelopment within five years or so would be eligible for support under the project for varying extents and types of upgrading. The maximum size of the area to be covered should be limited in principle to subdistricts or a few neighborhood committee areas, because larger areas would involve trunk infrastructure and beneficiary consultation would become difficult to manage. The design standards discussed above and the requirement of beneficiary contribution (described under "Financial Arrangements") would naturally limit the extent of upgrading supported under the project and tend to favor poorer communities. Areas that already have relatively high-quality facilities would require minor improvements. Extents of improvements in areas with extensive deficiencies would be primarily determined by the affordability of beneficiaries. 10. However, priorities may have to be established among different small areas to determine the order of implementation and the extent of municipal subsidy. The priority can be determined by a weighted assessment of a few factors that predict feasibility and efficiency of participatory upgrading. A tentative list of the factors, to be scored one to three points, and their weights is as follows: Annex 7 111 Page4of II * Participation (weight 3): the degree of resident involvement, existence of strong and active community organization, and the extent of prior consultation conducted * Extent and Degree of Environmental Deficiency (weight 5): stagnant storm water and sewage, availability and status of sewers and toilets, difficulty in solid waste collection and transfer, access roads, water supply, etc. * Health Status: (weight 2): incidence of environment-related illness; * Population density (weight 2): score 3 for more that 400 persons per hectare, score 1 for less than 200. * Residents' Income and Occupation (weight 2): score 1 for high average income (more than 50% higher than the city average), score 3 for incomes less than 50% of city average or more than 50% of residents holding informal jobs. Responsibilities 11. The key to successful in situ upgrading of small areas is full "ownership" by local residents through their active participation in all aspects -- identification, design, financing, implementation, and maintenance of improvements. For many upgrading projects, beneficiaries are asked to contribute to implementation and financing, but not in planning. This misses the most important input, the user's judgment of the value of improvements, and deprives the residents of motivation to contribute to implementation and maintenance. On the other hand, decision making by the beneficiaries without significant financing and maintenance responsibilities also abandons the incentive to find the most cost-effective improvements. Further, compared with most new developments which often generate net revenues to the municipal governments, lack of cost recovery would make it impossible for municipalities to support upgrading on a sustained basis. 12. All affected local residents therefore have to be fully informed and make all key decisions -- choice of facilities to improve, technical options and materials to use, amounts of investment, allocation of costs, and implementation management and acceptance. Traditionally in Chinese cities, various neighborhood activities have been coordinated and monitored by the neighborhood or Subdistrict (small area) committees. For small area improvement subprojects, the committee will organize the residents, and on their behalf, "own" and carry out day-to-day planning and management activities. Certain subprojects would involve more than one committee. They are, however, limited in managerial, technical, and financial capabilities and will require assistance from governmental and professional organizations. 13. The municipal government will be the main partner with the communities and provide supplemental contributions, including a significant share of the cost by assuming the loan from the World Bank and managerial and technical support. The municipal contributions will be provided and coordinated through the District Governments (DG), subdivision directly below the municipality normally responsible for tertiary and some secondary infrastructure and services and for oversight of neighborhood committees. The district government will identify and select Annex 7 112 Page5of I1 interested neighborhood committees and appoint a staff as co-manager of the project, to work along with the community representative on a small area improvement team (SAIT). In the case of suburban county areas, township governments will play the role equivalent to the district governments in the cities. In subprojects involving a relatively large number of residents, it could be necessary to selected a small number of residents to serve as "focus groups" to provide reactions to activities that SAIT carries out, instead of involving all local residents. 14. The project teams would report to, and guided by the city-level project management office (PMO) directing the overall Guangxi Urban Environment Project. The city PMO would be responsible for providing high-level policy direction and support such as setting the total financial assistance (mainly in the form of credit repayment) by the municipal government, disbursement of the credit, and technical and managerial assistance not available at the district level. Another important role of the PMO would be to ensure that systems developed for small area improvement for individual areas are evaluated, replicated, and modified across the city in order to achieve the aim of the component, to establish a model of small area upgrading applicable for the city as a whole. 15. Physical works for the small area improvement are in general expected to involve simple technology and readily available material, requiring relatively little engineering design work. However, they will require advice and assistance for design choice and implementation management from engineers with long experience in a broad range of practical design and supervision tasks. More time consuming would be social workers' assistance to neighborhood groups to facilitate the beneficiary participation and to advocate their interests. The city PMO would retain a small number of social workers and engineers for advice and initial organization work to assist its own work as well as assist the small area teams. It will also provide the SAITs with a list of additional qualified consultants, supplier and contractors and provide assistance in managing the contracts. Non-governmental organizations and academic institutions will be eligible to compete for the social works contracts. Financial Arrangements 16. The cost of small area improvements will be borne by the beneficiaries and the municipal government. In general, the municipal government would make its contribution by assuming the obligation to repay the World Bank loan (IDA credit). The latter would be disbursed for 75% of cost of goods (including equipment rental) and 1 00% of cost of technical services in social works, engineering and project management services. This is expected to finance between 45% and 70% of the total cost, but usually between 50% and 60% of total cost. The credit would be subject to a maximum of 70% of the cost or $100 per beneficiary, whichever is lower. The disbursement will be made as the bills are due, out of the Special Account held at the Regional Finance Bureau. 17. Beneficiaries will be responsible for the rest, namely, 25% of cost of goods and 100% of labor. The labor may be provided in kind, in which case the labor contribution will be valued according to prevailing market wages for simple construction labor on the basis of time or piecework. The beneficiary community would decide how its contribution would be allocated among its members. The common method being accepted through consultations that have taken Annex 7 113 Page6of l1 place appears to be uniform contribution per head of per household with some consideration given to more indigent members. However, the case of a relatively large area where consultations have been futile appears to indicate the need for differentiate the charges according to distribution of benefits. The beneficiaries' contributions to investment costs would be completed during the implementation. Normally they would not be financed or paid over years after the completion. 18. If the financing responsibility is assigned as above -- credit repayment by the municipality and remainder financed by the beneficiaries, the beneficiaries' share of cost would generally be about 40% to 50% of total cost, an appropriate level of cost sharing individually as well as for the component as a whole. It is important to note, however, the municipal government may set cost sharing for individual small areas independently of the credit disbursement, in view of the residents' income and the degree to which the improvement project includes facilities used by residents in other areas of the city, provided that the beneficiaries' share should be not less than 25% of the cost in any case. For example, the municipality may decide to assume 70% of the cost when a low-income community undertaking improvements that include secondary-level drainage channel that serves other areas as well as its own. However, the composition of costs between labor, goods, and services in this particular case may result in the IDA financing 50% of the cost. In this case, the municipality will provide additional 20% of the cost in addition to assuming the debt service obligation. On the other hand, the municipality may require a high income community to pay 60% of the cost of high-standard improvements, even though the IDA credit disbursement amounts to more than 50% of the cost. Documentation and Procedures 19. Formal planning and implementation procedures traditionally used in China for larger-scale projects would have to be modified to reflect characteristics of the small area improvement. Technical simplicity and low cost of physical works suggest simplification of technical documentation and review procedures. On the other hand, the large number of participants in the planning and implementation process requires broad information sharing and unambiguous documentation of various responsibilities. These considerations recommend the following procedures and documentation requirements: * Project Information Bulletin: a brief note from city PMO to district governments and neighborhood committees informing the availability of support for small-scale improvement of neighborhood facilities, requirements on the part of the beneficiaries, and how to express their interest. * Small Area Status Brief. compilation of basic information on socio-economic and physical status of the area (see paragrapL 10 above), prepared by the interested neighborhood committee from mostly existing information, plus a brief indication of the residents' priorities for improvements and their willingness to participate. * Notice of Small Area Improvement Subproject: notice of the election and formation of small area improvement team (SAIT) to prepare and manage the subproject, roles of different members, and the municipal government's agreement in principle to support the subproject -- 114 Annex 7 Page 7of 11 issued by the district government in consultation with the city PMO and neighborhood committees. * Review of Improvement Options: a clear characterization of problems and a brief description of a few options to deal with each problem, their expected effects and preliminary cost estimation including contingencies, implied financial burden on residents -- to be prepared by SAIT and consulting engineer in lieu of the feasibility study for review and discussion by all residents. * Small Area Improvement Plan: a description of improvement works to be undertaken, implementation methods and schedule, operation and maintenance requirements and responsibilities, estimated costs indicating a breakdown between materials, works, and services and including at least 10% contingencies, the estimated IDA credit disbursement, beneficiary payment schedules, attaching detailed engineering drawings and technical specifications, and a detailed list of charges by household -- to be prepared by SAIT assisted by engineers and social workers, to be reviewed and approved by all residents. * Small Area Improvement Subproject Agreement: a contract between the SAIT and city PMO specifying the responsibilities of each party, attaching the Small Area Improvement Plan. 20. Procurement and Disbursement. If a subproject requires more than $100,000 of materials, the World Bank procedures for international or national competitive bidding and the model documents will be used. If required materials are estimated to cost less than $100,000, purchases for different subprojects will be combined whenever possible, and procured through competitive bidding. Otherwise, materials will be procured by comparison of at least three quotations for same specification of materials. Service providers (engineering consultants, social workers, supervision or works contractors) will be selected from a list of qualified providers prepared by the city PMO. Invoice for the materials and services will be submitted to the city PMO, which will in turn apply for disbursement of credit out of Special Account and keep the payment records for inspection by the Audit Bureau and the World Bank. Civil works contracts, when required, will be awarded through national competitive bidding or through comparison of three or more quotations. In either case, the model contract for small works will be used. Process of Participatory Planning and Implementation 21. The success of in situ upgrading of small areas requires full participation of beneficiaries, as an essential means to ensure: identification of the most appropriate and cost- effective types and extents of improvement; mobilization of necessary investment resources, and adequate operation; and full use and maintenance of the improved facilities. This Section describes the planning and implementation process of small area improvement subprojects with full participation of beneficiaries. Operationally, such a process can be characterized as the process through which stakeholders influence and share control over the development initiatives and the decisions and resources which affect them through information sharing, consultation, joint decision making, and action and empowerment. Annex 7 115 Page8of 11 22. In many cases, well-organized neighborhoods would be able to plan and carry out small-scale improvements of common facilities without external assistance or lengthy processes. However, in many other cases requiring significant improvements, external assistance would be required to facilitate the beneficiary participation or to supplement the technical and financial resources. The process described below is based on a format which has been field-tested in other countries and adapted to the administrative and social contexts at hand in Nanning and Guilin through testing and consultation in the two cities. Activities may not necessarily proceed in distinct steps listed below. They may overlap in time, and decisions often would have to be reviewed in light of better information obtained later. For simple subprojects, many of the steps may be bypassed. Activities Mainlv by Assisted by Small Area Identification and Organization identify potential small areas to be improved, concerned government City PMO and social workers agencies, districts, and non-govermmental groups; and disseminate District staff information about the project to all groups through information Bulletin, community meetings, etc. identify interested neighborhood committees; plan and conduct a series district staff, city PMO and of meetings and interviews with residents. social workers engineers Compile Small Area Status Brief, listing basic information on the neighborhood social workers neighborhood residents and facilities, etc. committee and and engineers social workers screen out areas where improvements appear not feasible for technical city and district SW and engineer or social reasons; establish priorities staff - identify all stakeholders to the particular small area improvement, district and social worker including residents, government agencies, non-governmental agencies, neighborhood neighboring communities, etc. committee establish small area improvement project team (SAIT) consisting of residents and neighborhood and district representatives, and select focus groups, if district govt. the work is expected to be complex issue a Notice of Small Area Improvement Subproject city PMO district train SAIT and other neighborhood leaders to undertake beneficiary city and district consultation staff and SW select and contract social worker(s) and engineering consultant (EN) to SAIT city and district work with SAIT staff Planning and Design Mainly By Assisted by identify and prioritize environmental deficiencies and desired solutions SAIT, residents SW, EN explore various technical options, implementation methods, and SAIT, EN SW preliminary cost estimates and effects, through engineering reviews and focus group meetings; prepare a Review of Improvement Options Annex 7 116 Page9of l1 discuss and evaluate the above, determine the best altemative, cost and all residents, SW, EN financing, implementation methods, and distribution of costs among SAIT residents, and draft an overall Small Area Improvement Plan (SAI Plan), specifying the above design of the improvements and cost estimation EN SAIT review and comments; repeat as necessary SAIT, focus SW group refinement of design and cost estimation, implementation plan; draft SAIT, EN SW detailed SAI Plan, including detailed budget, and schedules, and draft a contract between the community and district specifying financing and O&M arrangements Comment and finalize the SAI Plan and draft SAI contract; make first all residents SAIT, SW payment of contribution discuss and sign the SAI Contract SAIT and city district PMO government Implementation Mainly By Assisted by train SAIT in project maniagement (concurrent with the following) city PMO, EN SW invite bids from suppliers and contractors; evaluate bids; award SAIT and district city PMO, EN contract govt. technical training for residents assigned to construction tasks EN, contractor SW delivery of materials and implementation of work contractor residents, SW supervision of materials and work SAIT, EN SW, focus group collection of residents' contribution according to plan and payment SAIT, focus SW schedule group testing and acceptance SAIT, EN focus groups review or develop O&M plan and rules; assign financial and SAIT, all SW, EN operational responsibilities residents train SAIT and residents assigned to O&M tasks EN, SW district government Evaluation (about a year after completion) SAIT, district focus group, SW, government EN Systems Development during Implementation 23. By the time of appraisal, eight areas in Nanning and five areas in Guilin have been identified for potential support under the small area improvement component of the project, and preliminary survey of the areas and improvement proposals have been prepared. It was decided to focus serious consultation and engineering efforts on one area in each city to prepare them to start the improvement works in the middle of 1998. Guangxi Social Science Academy has been retained to facilitate the participatory planning process, working closely with national technical consultants on reviews and visits to the small areas. After the planning process draws near completion for these two, preparation would start on one or two additional neighborhoods in each city. 24. The component is essentially an experiment, and needs to be managed as such. Due to the lack of established procedures or even the common understanding of basic elements, Annex 7 117 Page 10 of 11 the process of selecting and preparing the subprojects has been characterized more by trial and error rather than efficiency. Although the understanding has clearly increased and the process has become more efficient, it is likely that the learning process will continue throughout the project period. Therefore, it would be important that the experiences with individual areas are evaluated and the processes and arrangements modified as the project proceeds. Contributing to the initial difficulties has been the fact that most of the areas identified so far have been selected in view of their serious environmental deficiencies, especially in Nanning. Therefore the required improvements are estimated to require relatively heavy financial contribution from the residents, and the engineering and consultation tasks are substantial and complicated. Some of the small area subprojects currently proposed appear not feasible without seriously reducing the scope or radically different technical options to reduce cost. The next phase of the implementation include small areas requiring simple and limited improvement works and therefore allow relatively easy agreements on technical and financial arrangements. 25. In addition to learning through implementation, it would be necessary to carry out a training and technical assistance program to develop and disseminate effective procedures and skills for participatory upgrading. One level of training would be aimed at senior municipal managers, city and district staff, and national consultants. These persons and external consultants will train other district staff and neighborhood committees in skills necessary to carry out specific small area subprojects, normally lasting less than a week at the beginning of a planning process for selected small areas. Training of the former type would consist of the following: Seminars and hands-on advice by national and international experts in participation and in low-cost technology: about six visits of a month each; estimated cost YI,000,000 Study tours in country by municipal managers, PMO and district staff: 5 persons x 7 days x 4 times; estimated cost Y 250,000 Study tours overseas by municipal managers, PMO and district staff: 6 persons x 15 days x 2; estimated cost Y 650,000 Expected Impact, Outcome and Monitoring Indicators 26. The small area improvement component as a whole is targeted to provide improved environmental benefits to about 1 10,000 people who are current residents, estimated one the basis of average cost of about Y 1,300 per person. It is expected that some 70% of the beneficiaries would have incomes below the city average. It is also expected that the improvements would induce increase in housing assets and in population, adding up to 30% to the number of direct beneficiaries. 27. Beyond the above planning targets, it is not possible at this point to set specific targets for various aspects of the expected benefits of the component as a whole. One basic indicator of progress could be the number of beneficiaries Annex 7 118 Page 11 of 11 Table 1. Monitoring Indicator Calendar Year Indicator Units '96 '00 '04 Base Number of residents benefitting persons 0 15,000 100,000 However, it would also be necessary to measure the following indicators before and after small area subproject implementation, and use them for planning purposes: Input Indicators average service cost per hectare, per household beneficiary contribution, in amount and as % of annual income Output Indicators number of households and persons benefiting hectares of land served with paved roads, drainage, sewer; number of sewerage connections or septic tanks connections D number of toilet seats, garbage bins length of sewers and drains waiting line at public toilets hours and amounts of water supply Impact Indicators participating households as a percent of households without sanitation for each city; amount of housing investment after upgrading; increase in rents and transactions prices of housing units; increase in real estate transaction number of additional persons absorbed by upgraded neighborhoods; decrease in water-borne diseases among beneficiary population. Annex 8 119 Page 1 of6 Land Acquisition and Resettlement Action Plan Introduction 1. The Chaoyang Stream sewerage control scheme in Nanning City will require some human resettlement. Therefore a Resettlement Action Plan (RAP) has been prepared in order to facilitate the mitigation of the adverse impacts of the project. 2. This annex describes the likely land acquisition and resettlement impact of the GUJEP and discusses the framework developed by the Regional and Municipal Governments for implementing and financing land acquisition and resettlement activities. Essentially, due to sewerage related works at the Chaoyang strearn, 89 mu of land will be requisitioned and 926 people will be relocated from along both sides of the stream. 3. The Chaoyang is one of the tributaries of the Yongjiang River in Guangxi Zhuang Autonomous Region. It is 14.26 km long, flows north to south and through the center of the city and drains into the Yongjiang River at Dakengkou, the most economically active part of Nanning. As economic development of Nanning progresses, the water quality in the Chaoyang Stream has also deteriorated. The Nanning Municipal Government (NM) decided to control the sewage and clean up the river water in 1992. Major works under the Bank supported project include: (1) the river training works; and (2) the sewage control works. Land acquisition and resettlement are involved in two sectors. They are (a) the twin interceptor sewers along the Chaoyang Stream from the Middle School No. 13 to the river mouth; (b) two pumping stations at the river mouth, a siphon from the Chaoyang river mouth to the other side of the Yongjiang River, a waste water treatment plant and the trunk sewers at the south of the Yongjiang River. Census & Socioeconomic Survey 4. In June 1996, the Chaoyang Stream Management Office (under the Construction Bureau) performed a census in a river range of 60 meters wide and 8.9 km long from the river mouth to the Heavy Machinery Plant. The census included the name, age, sex, job of each project affected person (PAP), family address and size, house structure and space, and house ownership status of those living in this range. The income was surveyed in samples. Information on the number of people affected in the enterprises and public institutes was collected. 5. In the spring of 1996, the Municipal Women's Association made a socioeconomic survey in the Chaoyang Basin under the guidance of the Australian specialists. One of the objectives of the survey was to study the relationship between poverty and resettlement. The survey was done for regions upstream of the Youai Bridge. The finding of the survey showed that people living in what were clearly very bad quality urban areas, in terms of pollution and dwelling quality, were not poor, particularly those who operated restaurants Annex 8 120 Page 2 of 6 along the stream. Such business operations were also party to polluting the stream. Only 72% of those polled were in favor of improving the condition of the Chaoyang Stream. 6. The preliminary design and the 1:500 relocation map of the Chaoyang scheme was worked out in November 1996. With the support of the monitoring unit, the Chaoyang Stream Management Office made another door to door field survey and finalized the quantity of the affected persons and assets in December 1996. Project Impacts 7. The total land, house and people affected are summarized below: Table 1. Project Impacts due to Chaoyang Stream works Land Acquisition Demolition Numbers Relocated (mu) (in') (Household / People) (a) Downstream interceptor sewers 10 12,987 222 / 926 (b) Other structures 79 - TOTAL 89 12,987 222/ 926 8. 89 mu of land would be acquired from the collective, out of which 10 mu of vegetable plots are for the new buildings of the relocatees and 79 mu of wasteland for the water treatment plant and pumping stations. 926 people in 222 households would move from along the Chaoyang to the Yonghe Chaoyang Residential Area, 2.6 km away. The relocation would not affect any jobs since all the houses demolished are residential houses. 186 vulnerable people in 30 families are included in the PAP. Minimization of Land Acquisition and Resettlement 9. The minimization of the PAP was one of the key factors to change the project designs of the sewage control system. Housing area to be demolished was greatly reduced from 60 meters of river width to 31 meters at the downstream section below the Middle School No. 13. The retaining walls at the downstream section would remain even though the space between the two walls is less than 31 meters. Instead of an open ditch, a jacking method would be used for construction. These measures also helped to reduce the resettlement area. 10. The construction of the wastewater treatment plant and the pumping station on the south bank of the Yongjiang River would be on waste land and no persons would be affected. Annex 8 121 Page 3 of 6 Objectives and Principles of Resettlement 11. The main objective of resettlement is to relocate project affected persons such that their livelihoods will be improved or at least maintained. The main principles for implementing the RAP are as follows: (a) Minimize land acquisition and relocation as much as possible through changes in project designs; (b) Pay compensation for all relocated residential houses at the replacement cost; (c) Improve the living conditions of the relocated residents and ensure that their income is not affected by the relocation; (d) Pay compensation for acquisition of the cultivated land to the collective. This compensation would be used to increase the productive capacity of the collective and would not be used for any other purposes; (e) Special care would be taken for the vulnerable groups; (i) The RAP is worked out with the participation of the PAPs and these people have avenues for redress of their grievances; (g) The implementation of the RAP would be monitored and evaluated by an independent unit. Legal Framework and Resettlement Policies 12. The RAP has been prepared based on the following laws, regulations and guidelines for land acquisition and resettlement issued by various authorities in China: (a) The People's Republic of China Land Management Law.(1988); (b) The Management Regulation of Urban House Demolishing (1991); (c) The Land Management Implementation Act of Guangxi Zhuang Autonomous Region (1992); (d) The Management Regulation of Urban House Demolishing of Nanning Municipality (1996); (e) The Regulation on Compensation Rate of Land Acquisition from the Rural Collectives of Nanning Municipality (1994). Annex 8 122 Page 4 of 6 Positive Effect of Relocation 13. Since the relocation is from the downtown to the marginal area of the city, an average increment of 20 sq. m. of living space would be compensated to each household. The affected person would benefit from an increase in living space from 14 sq. m. to 19 sq. m, not to mention the improvement of living conditions in the new residential area. 14. The 222 households who live along the Chaoyang Stream are also the premises' owners. The relocation is a matter of changing the ownership of same living space from the old houses into the new apartments. However, 41 households do not possess the House Ownership Certificate as they are returnees from the political movements or natural disasters in the past 40 years. The Nanning Municipal Government recognizes their entitlement and would either support the issue of the House Ownership Certificates or provide houses to those households. Costs and Budget 15. The costs of RAP implementation would be a part of the overall budget of the Chaoyang Scheme. The total cost of land acquisition and resettlement is estimated to be approximately Y 38.7 million. The local Land Management Bureau estimated the cost of land acquisition of the 10 mu cultivated land for the new residential area in a unit lump-sum as Y 317,600 / mu including land acquisition and resettlement compensation, various taxes and fees and a Reserve for Production Development. The detailed cost estimates and annual investment are shown below: Table 2. Resettlement Cost Estimate and Annual Investment ('000 yuan) Items 1997 1998 1999 Sub-total (Y 1,000) 1. Land acquisition - New residential area (10 mu) 3,176 3,176 - Other structures (79 mu) 1,119 16,125 17,244 2. Compensation of demolishing - Houses below Middle School No. 13 351 351 - Structures & trees below Middle School No. 13 1,654 1,654 3. Rehabilitation - Buildings in the new residential area 10,204 10,204 - Roads and trees in the new residential area 292 292 - Infrastructures in the southern trunk sewers 969 969 Base Cost 33,890 4. Administration fee - Immigration fees 284 284 - Management fee 715 715 - Monitoring and evaluation 200 100 300 - Contingencies 3,489 3,489 TOTAL 17,279 16,125 5,272 38,678 Annex 8 123 Page 5 of 6 Implementation of Land Acquisition and Resettlement 16. The resettlement implementation of the Chaoyang Scheme will take 3 years. It includes: (a) Preparation Stage including preparation of RAP, land acquisition, rehabilitation of the rural PAP, participation of the urban PAP, building of the new residential area from the end of 1995 to July 5, 1997; (b) Land preparation Stage I - including the physical moving of the PAP, demolishing of structures and clearing of the field for the construction of the twin interceptor sewers below Middle School No. 13, from July 7 to October 1, 1997; (c) Land preparation Stage II - including land acquisition and preparation for the sewage treatment plant, the southern trunk sewers and two pumping stations between October 1, 1998 and October 1, 1999. Resettlement Institutions and Agencies 17. The planning and implementation of the Chaoyang Scheme are undertaken by the Chaoyang Stream Management Office. A Leading Group was set up for cooperation and coordination of the resettlement issues. Members of the Leading Group are those from the Municipal Finance Bureau, Audit Bureau, Management of House Property Bureau, Urban Construction Bureau, Urban Planning Bureau, Land Management Bureau, Nanning Land Acquisition Office and Nanning Housing Demolition Office. 18. The Demolishing and Resettlement Sector in the Chaoyang Stream Management Office is in charge of the daily routine work of resettlement implementation. A training program is arranged for its staff. 19. The Municipal Housing Demolition Office is responsible for the internal monitoring, while the Shanghai Academy of Social Sciences takes responsibility for independent monitoring and evaluation of the resettlement implementation. Participation and Consultation 20. The participation process involves the following: (a) Representatives of the project affected persons (PAP) participated in the census and social economic survey. Their comments on rehabilitation plans and compensation rate have been included in the RAP; 124 Annex 8 Page 6 of 6 (b) PAPs participate in the mobilization meetings and gives feedback on resettlement policies and compensation rates; (c) PAPs visit the new residential area and consult with resettlement officers on apartment selection; (d) The resettlement officers visit the affected households to resolve any difficulties or doubts the PAPs have before signing their moving contracts; (e) A sample survey of PAPs rehabilitation will be undertaken after the complete relocation; (f) The independent monitoring unit will visit the affected persons and enterprises/agencies during the resettlement process. Redressal of Grievances and Appeals Process 21. Since the entire Resettlement and Rehabilitation program is being carried out with the participation of the PAPs, it is expected that no major grievance issue will arise. However, to ensure that the PAPs have avenues for redressing their grievances related to any aspect of land acquisition and resettlement, detailed procedures of redressal of grievances have been established for the project. Monitoring Indicators 22. The following monitoring indicators are proposed: (a) Compensation Payment - ideally three months before the activity starts; (b) Timely Demolition - houses to be demolished one month before the civil construction starts; (c) Timely Relocation - all PAPs to be moved into the new apartments before the end of 1998. Resettlement Reporting 23. The internal monitoring report on progress of resettlement implementation, or the Resettlement Progress Report would be submitted by the Chaoyang Stream Management Office to the World Bank every 6 months from January 1997 to December 1999. 24. The Monitoring & Evaluation report will be submitted by the independent M&E unit of Shanghai Academy of Social Sciences to the Chaoyang Stream Management Office and the World Bank at the same time every 6 months from January 1997 to December 1999. Annex 9 125 Page 1 ofl8 Environmental Assessment Summary Introduction 1. Environmental Assessments have been carried out for project components in both Guilin and Nanning. The EAs were prepared by Chinese Research Academy for Environmental Sciences (CRAES). Located in Beijing, it is the premier environmental research institution in China and has prepared many EAs. It is generally called upon when there are highly technical issues to resolve. It's capability in water and air quality modeling is particularly sought after. The EAs prepared for this project were well done and have been formally approved by the National Environmental Protection Agency (NEPA). Guilin 2. The city of Guilin has a population of 550,000 and is located in the northeast of Guangxi Zhuang Autonomous Region, 336 km from the capital city of Nanning. The urban area of the city covers 54 km2, and the suburban area covers 511 km2. Yangshuo (1,428 km2) and Lingui (2,202 km2) counties are under the jurisdiction of the city of Guilin. In January 1979, the State Council designated Guilin City as a national key scenic tourist city, and in February 1982, the city was declared a national historic cultural city. The Guilin Lijiang Environmental Project includes the following components: water replenishment of the Lijiang River; wastewater treatment system in Guilin City; and, domestic refuse disposal in Guilin City. Project Description 3. Water Replenishment of the Liiiang River: An investment of Y 123 million, the overall purpose of this component is to improve the water quality of the Lijiang River where it flows through the city of Guilin by diverting water from the Wulixia Reservoir into the Lijiang. This component includes: (i) water replenishment works for the Lijiang River from the Wulixia Reservoir to provide 7.5 m3/s of additional flow; including a new 0.392 km section of Nan canal; 23.1 km Bei canal; and, one power station of 800 kW; (ii) 44.5 km of flood protection dikes along the Lijiang River. 4. Domestic Refuse Disposal: This component represents an investment of Y 54 million in the first stage. It includes stage 1 of the Chongkou sanitary landfill designed for 500 tons/day. The landfill will include leachate liner, earth dams, leachate collection and disposal system, gas collection and disposal system. 5. City Wastewater Treatment System: This component represents an investment of Y 345 million, the purpose of which is to improve the water quality of the Lijiang River, and includes: Annex 9 126 Page 2 of 18 (i) interceptor sewers, pump stations, removal of lake sediments and expansion of a wastewater treatment plant in the North-central district of Guilin, serving a 2 population of 640,000 in an area of 56.34 km; (ii) interceptor sewers, pump stations, and a wastewater treatment plant in the Xicheng District of Guilin East and West District, serving a population of 150,000 2 in an area of 21 km Baseline Conditions 6. Climate: Guilin and the Lijiang watershed is located in a rainy subtropical monsoon zone, where winters are short. The average annual air temperature is 190 C. The rainy season is spring and summer. Annual rainfall ranges from 2,600 mm in the mountains to the northwest, to 1,600 mm in the southeast. 7. Land use: Annually cultivated land in 1994 was 635,200 ha, of which three fourths was paddy and the balance dry farmland. Forest covers 214,000 ha, of which 35 % is for the conservation of water supply, 43 % for timber, and the balances for special forest, firewood, economic forest and bamboo. 8. Soils: Soils in Guilin range from loams in the uplands, to alluvium in the bottom lands. Soils in the area of the proposed Chongkou landfill site were assessed for heavy metals, with slight contamination of copper, cadmium, and chromium found in several areas. 9. Vegetation: Vegetation communities are pony-tail pine and conifers. There are 1,415 species of plants in the Guilin area, a key region for broad leafed evergreens. Over a dozen "precious trees" have been found in the area, including the ginkgo and silver fir. The Guilin area has 23.1 % forest cover. There are 11 natural reserve zones with a total of 436 ha in the area, including the Longsheng Flower Reserve, which has been designated as a key natural protection zone of the state. 10. Wildlife: Valued animal species include the tiger, white-head leaf monkey, rhesus monkey, sike, Chinese pangolin, giant salamander, yellow-bellied tragopan, crimson-bellied tragopan, and Chinese copper pheasant. There are over 140 species of fish in the Lijiang river, the major species include common carp, crucian carp, and big-eyed Chinese triangular bream. Lijiang river benthos includes 79 identified species of insects, crustacea, leaches and arachnids. Aquatic vegetation biomass is on the order of 2.54 kg/M2 and includes vallisneria spiralis, Hydrilla verticillata and Potanogeton malaianus. 11. Geology and Geography: The city of Guilin is located in the southwest Nanling mountains, in a karst basin. The low mountains and hills that form the watershed of the Lijiang river are located in the southwest of the Nanling Mountains. The Lijiang river is the upper reach of the Guijiang river of the Xijiang water system of the Zhujiang river watershed. The Lijiang has Annex 9 127 Page 3 of 18 a total length of 214 km and a drainage area of 6,050 km2. About 24 km of the Lijiang river flows through the urban part of Guilin city. The Lijiang valley is a series of open basins and valleys lying between the mountains, with additional valleys running into the basins. 12. The valleys to the north of the Darongjiang river, up to the source of the Lijiang river, are characterized by high and steep mountain peaks, deep and narrow valleys, and straight rapid rivers. To the south of the Darongjiang river, the valley basins are open and flat, and the rivers are wide and shallow. Carbonate rocks dominate in the middle and lower reaches of the of the watershed, a typical karst area of China, with many caves. South of Guilin to the Dayu river are flat valleys, with river forks, islands, developed terraces and many bends and shoals. South the Dayu the rivers the river valleys are again steep and deep, and the rivers are narrow and deep. 13. Hydrology and groundwater: The major river of the Guilin area is the Lijiang, with an average flow of 120 m3/sec in the dry season, a maximum flow of 4,640 m3/sec, and a minimum flow of 3.8 m3/sec. The silt content of the Lijiang is the lowest of the rivers in Guangxi. The Guilin segment of the Lijiang river is shallow with many shoals. Groundwater sources in Guilin include the surficial alluvial strata, 4 - 7 m deep, with a 5 - 8 m annual variation. Groundwater is also found in karst tunnels and caves, and sandstones. 14. Water quality: The Lijiang River is designated as a Grade II River in the area of the project. Water quality in the Lijiang River has been monitored in 1991, 1994 and 1996, and shows that most parameters are within the standards for Grade II surface water. Grade II water quality is meant to support concentrated drinking water sources and protection of rare fish species. Ammonia exceeded the Grade II standard by a wide margin, dissolved oxygen, coliform bacteria and petroleum also exceeded the Grade II standards in 1991 - 1994. The water quality deteriorates from the Dahe section, to Jingpinshan, due to discharges of sanitary wastewater and non-point sources. 15. In the area of the proposed wastewater treatment plant in the urban area of Guilin city the river water exceeded standards for dissolved oxygen, ammonia, petroleum and coliform bacteria. 16. Tributaries of the Lijiang include: the Xiaodong river is black and gives off noxious odors due to pollution from irrigation runoff, wastewater from the food processing industry, and domestic sewage; the Nanxi river, black with noxious odors, seriously polluted by industrial wastewater; the Ningyuan river, black with noxious odors due to pollution by pharmaceutical, food processing, dyeing and printing industries and domestic sewage; the Taohua river, showing biological and petroleum pollution from irrigation runoff, industrial and domestic sewage; and the Xiangsi river, where the water quality has been fairly good, recently receiving pollution from town and village enterprises. 17. The water sources for the project components are the Xiaorongjiang River and Wulixia Reservoir. All parameters meet standards for Grade II water with the exception of coliform bacteria, mercury, and petroleum in the Xiaorongjiang River. The concentration of nitrogen in the Wulixia Reservoir is above standards, all other parameters meet Grade II standards. 128 Annex 9 Page 4 of 18 18. In the area of the water replenishing project, the water quality of the Maotou section of the Lijiang river, and the Qingshitan reservoir is good. The Gantang river and the Lingqu river has good water quality as well, the major factor being the concentration of ammonia above standards. 19. Groundwater quality: Groundwater in Guilin city comes mainly from the karst formation, and the major pollutants that exceeded standards between 1991 and 1994 are: nitrate, nitrite, ammonia, manganese, iron, phenol, COD, mercury, cadmium, and zinc. Total hardness and pH also exceed standards. The most contaminated groundwater accounts for 2.4 % of the total, in area of the Wucheng-Ximen rice flour mill and brewery; No. 3 Pharmaceutical factory, and the Yaotou area. 20. The groundwater quality in the area of the proposed Chongkou landfill site was monitored at ten locations. The groundwater meets Chinese standards for drinking water, with the exception of total nitrogen in five of the wells, attributed to fertilizer and pesticide usage, acidic pH at one well attributed to mother rock, high hardness at one well attributed to calcium and magnesium in the strata, and high manganese in one well attributed to formation chemistry. 21. Air quality: Air quality in Guilin meets Chinese grade II standards, with a deteriorating trend. The major polluters are coal smoke, construction projects, and automobiles. 22. Air quality in the area of the wastewater treatment project in Guilin city exceeded standards for TSP at all monitoring points at some time, attributed to local production activities; SO2 in the monitored area did not exceed grade II standards. 23. Air quality in the area of the proposed Chongkou landfill meets grade II standards, and there are no local industrial pollution sources. 24. Noise: Noise pollution is serious in Guilin City. It is often over the standard of (noise standard) along 78 % of the roads surveyed in 1994. Traffic and local noise monitored in 1996 did not exceed standards in the areas of the Water Replenishment of the Lijiang River project components. Noise in the area of the proposed Chongkou landfill exceeds standards, due to automotive traffic. 25. In the area of the proposed wastewater treatment plant in the urban area of Guilin city noise exceeded standards at 8 of the 12 stations monitored, and at two, by a large margin, due to vehicular traffic. 26. In the area of the proposed wastewater treatment plant in Xicheng district noise exceeded standards due to traffic. 27. Economics: The GNP of the city was 5.19 billion yuan in 1994. Enterprises in the city are medium to small scale including machine manufacturing, electronics, rubber, light industry, textiles, food processing and pharmaceuticals. The average annual household income in Guilin is Annex 9 129 Page 5 of 18 4,142 yuan, an 11 % increase over the previous year. Average annual income for farmers was 1,137 yuan. 28. Infrastructure: Guilin has two airports and a railway station which is under construction. The four water supply treatment plants in Guilin rely on surface water supplies, supplemented by groundwater. Industrial facilities also have captive water supply facilities; but since the quality from these is poor, city water is used for potable supply. Wastewater treatment plants treat 89 % of the wastewater generated in the city. Industrial wastewater treatment that meets standards for discharge is 45 % of the total discharge. Solid waste in the city is collected at the 15 transfer stations, and then dumped or piled in the suburbs. About half of the solid waste is processed at a composting facility. Industrial solid waste is recycled to a large degree; domestic solid waste disposal is identified as the principal problem. Since landfill capacity is short, domestic solid waste pollutes soils, surface and groundwater, and air. There is an increasingly serious deficit of transport and transfer stations for domestic and industrial solid waste. 29. Historic and cultural landmarks: The natural scenery of the mountains and rivers are considered a chief asset. Cultural landmarks include the palace and tomb of the former king, ancient city of Jingjingjiang Prefecture, ruins of the Piye Cave, and the Eighth Route Army's off in Guilin. Impacts and Mitigation: 30. Potential impacts and planned mitigation for construction of the project components is shown in Table 1. Impacts and Mitigation During Operations Phase 31. Impact on water quality of the Lijiang River: The project will increase the flow of the Lijiang River during dry periods, as well as intercept a portion of the city's point and non-point source pollution. Calculations indicate that without the project the Lijiang River at Longmen would have a BOD of 13.63 mg/l and a COD of 13.26 mg/l by the year 2015. It is estimated that the project can reduce pollutant loadings to the level of BOD of 7.35 mg/l and COD of 7.10 mg/i which would meet Grade IV water standards. The project will fall short of enabling the Lijiang River to meet Grade II standards, since the wastewater treatment plants planned can only treat 60 % of the expected wastewater generated in 2015. 32. The solid refuse collection system will greatly reduce non-point source pollution of the Lijiang River, and will also reduce groundwater contamination in the city and suburbs. 33. Impact on Guilin City: The project can help alleviate the solid waste collection and water pollution problems, especially in the most heavily polluted central city areas. Annex 9 130 Page 6 of 18 Table 1. Impacts and Mitigation During Construction Project Component Project Phase Potential Impact Mitigation Sewer interceptor construction release of hydrogen projects: pipeline sulfide gas construction activities insect pests and foul odors Pipeline construction construction fugitive dust Shorten construction period through activities; improved management; transport vehicles to be covered; Encircle construction site with dust barriers Lijiang River water of plastic; replenishing project water sprinkling when spoil is stored, loaded and transported; water spray for cement mixers. Pipeline construction construction noise Avoid construction at night; activities; Lijiang River project: vibration reduction Lijiang River water measures for drilling, screening, mixers, replenishing project air compressors. Pipeline construction construction traffic jams Scheduling of work to minimize activities; disturbance of heavy traffic routes; In addition, for Lijiang River project, Lijiang River water widen trunk transportation routes; replenishing project plant tree buffer along transportation routes. Pipeline construction construction contamination from Proper management of spoils. activities spoil piles, release of sediment Lijiang River water construction impact on landscape Care in construction not to disturb existing replenishing project vegetation on banks of the Lijiang river. Lijiang River water construction impact on ecological Due mainly to the destruction of replenishing project environment vegetation, timely reclamation of forests; Strict rules and regulations on tree felling. Lijiang River water construction socio-economic, Construction should avoid irrigation replenishing project impact on irrigation season. Construction of flood construction noise No nearby noise sensitive areas; control dikes along Avoid construction at night. Lijiang River Construction of flood construction impact on ecosystem Protection plans for old trees and rare control dikes along flowers and trees; Lijiang River stone should not be quarried from nearby mountains; quarries should be arranged beyond the protected area of the ecosystem. Annex 9 131 Page 7 of 18 Table 1 (cont'd) Project Component Project Phase Potential Inpact Mitigation Domestic refuse construction noise The landfill at Chongkou is far away from disposal system highly populated areas, and I km away from the nearest inhabitants, separated by a mountain. Domestic refuse construction impact on vegetation The site is covered by pine forest (27 ha) disposal system waste land and farmland (67 ha); these will be impacted. Domestic refuse construction fugitive dust Site is located in a valley, fugitive dust is disposal system not expected to impact outside of the valley; at the valley entrance, trees should be planted. Domestic refuse construction construction solid At landfill site, no disposal allowed in disposal system waste water bodies or farmland; At transit stations, disposal according to city regulations of city government; Prompt disposal to prevent runoff and fugitive dust contamination. City wastewater construction of noise Drilling machines will affect sensitive treatment system pipelines receptors for one month. City wastewater construction of fugitive dust Climate, soil type and season unfavorable treatment system pipelines for fugitive dust generation, dry and windy weather limited. City wastewater construction of traffic jams Avoid transportation in rush hours. treatment system pipelines 34. Sanitary landfill, air impacts: The sanitary landfill will emit methane, hydrogen sulfide, ammonia, and sulfur dioxide, which will be collected in a system and flared. The operation of the sanitary landfill will not have negative impacts on the urban areas of Linggui county. Assessment of inversions and ambient wind conditions indicates that the area of influence of the landfill will be within 1 km. High humidity and temperature will increase the rate of methane release, therefore a monitoring program within the range of 10 km from the landfill is recommended. 35. Sanitary landfill, groundwater impacts: The main concerns are prevention of leachate contamination, and stability of the landfill slopes. Sediments from the lake cleanup has been found to be lightly contaminated according to the Hakanson risk index. Part of this will be disposed of at the landfill. The landfill will incorporate a leachate liner, to prevent groundwater contamination, as well as an interior leachate collection and treatment system. 36. Wastewater treatment plant. air impacts: Wastewater treatment plant sludge drying can produce noxious odors; the impact can be reduced if the sludge is transported to another location. The planned wastewater treatment plants are located to leeward of the city; reducing the potential for noxious odors nuisance. Sludge thickening, drying and handling facilities are incorporated 132 Annex 9 Page 8 of 18 into all of the treatment plant plans. Stabilized sludge would then be disposed off site in the municipal landfill. 37. Solid waste transportation, impacts of noise: The refuse disposal project will add an increment of noise pollution along highways, including Renming Avenue in Linggui. There will be 126 refuse trucks added, an average of 16 hours/day. The refuse trucks add only 0.3 - 0.4 dB(A), and therefore their contribution to background traffic noise is minimal. 38. Pumping stations and wastewater treatment plants, impacts of noise: Buffer zones will be built around these projects, and the pump stations are half underground, therefore, the noise impact would be limited to the borders and greenbelts. 39. Impacts on the winter irrigation in the lower reaches of the Wulixia reservoir: After the water works at the Wulixia reservoir are in operation, the water discharged in the low water period will increase, benefiting the water quality of the Lijiang River. The amount of water available for consumption will decrease. According to the project plans, when the Lijiang River needs water the water would first be drawn from the Wulixia reservoir. The requirements of winter irrigation of the Wulixia reservoir irrigated area are not taken into consideration, and even if tunnels are constructed and groundwater resources exploited, there still will not be sufficient water for winter irrigation. This would be a long term impact. 40. Lijiang River water replenishment, impact on water replenishment areas: The impact on the Lijiang River would be positive, since the additional flow would dilute pollution, and help carry it downstream out of the city. With regards to erosion, the flow augmentation in the Lijiang would take place only during the dry season; the flow varies by as much as three orders of magnitude between wet and dry seasons. Since the base flow in the dry season would only be increased to 40 m3/sec, and this is a small fraction of the normal wet season flow, increased erosion due to dry season flow augmentation is not expected. The overall water quality impacts have been modeled and are positive; this would also have positive impacts on the river's biological communities Analysis of Alternatives 40. A comprehensive analysis of the scale, service range, cost and credit repayment ability of the project components was conducted by the China Municipal Works Design Institute and Shanghai Municipal Works Design Institute. Two alternative plans were considered for water replenishment of the Lijiang river, six alternative plans for the wastewater treatment plants in Guilin, two alternatives for the protection dikes on the Lijiang river, and three alternatives for the domestic solid waste disposal. Solid waste disposal alternatives considered included sanitary landfill, incineration, and high temperature compost. The final choice of project component was the result of least cost analysis. Annex 9 133 Page 9 of 18 Strategic Context 42. The strategy behind the project components is detailed in the Nanning Environmental Master Plan and Guilin Environmental Master Plan (The S. M. Group International, Inc.), undertaken as part of project preparation and funded by the Bank. 43. For Guilin, the priority sectors identified, among others, were water supply, wastewater treatment. The two issues are related since greater flow through the Lijiang has the effect of increasing the quantity of water as well as reducing the level of pollution in the water supply. Clean and abundant water in the Lijiang is also an asset for the tourist trade, general navigation as well as irrigation (though relatively small). 44. In its analysis, it was found that in order to protect the multiple functions of the Lijiang, the river's minimum flow must reach 40 m3/sec by the year 2000, in which case the water quality could reach Class II of the National Standard. Local planners in Guilin have forecast another replenishment scheme to reach a minimum flow of 45 m3/sec by the year 2010. As such, the Lijiang Replenishment Project represents the first step towards a comprehensive and long term solution to the City's water supply and pollution problems. 45. Also, the Master Plan has called for the treatment of all sewerage wastewater by the year 2001. The project takes an important first step towards meeting the city's future needs by treating up to 90 % of the sewerage wastewater. A case in point is provided by the planned expansion of the Northern Sewage Treatment Plant as well as the new Xicheng treatment plant. Allowances are given in the design of both facilities to allow for future expansion. 46. Similarly, the proposed Lijiang Water Resources Committee also serves as part of a long term solution to future problems of water supply and quality. One of the Committee's first tasks would be to develop and implement an integrated resource management strategy and water conservation programs for the region. Finally, under the Project, between 17,000 to 18,000 hectares along the Lijiang and around the Wuilixia water catchment will be reforested to improve water retention. 47. In Nanning, the city's Environmental Master Plan has also emphasized the need for wastewater management facilities as part of an overall long term strategy. Although water quality simulations are still being finalized, the design and initial capacity of the proposed Jiangnan Treatment Plant has already been set to accommodate future needs. This plant, together with the soon to be completed Langdong Treatment Plant serve as the foundation of the City's water quality management strategy. The proposed rehabilitation and upgrade of the City's existing combined sewers is also part of long term improvements to its network. Environmental Management 48. An environmental protection management system will be established under the project, with the purpose of implementing laws and regulations concerning environmental protection, to Annex 9 134 Page 10 of 18 deal with the relationship between the developing economy and protecting the environment, and to ensure consistency in environmental, social and economic benefits. The organization will see to the mitigation measures of the proposed project, and monitor the impacts on the surrounding areas. The department of environmental protection of the Guilin Lijiang River Comprehensive Treating Project will have two sections, one responsible for environmental administration and the other responsible for environmental monitoring. Personnel from the administration and construction unit will be assigned to the environmental management unit, and Environmental Monitoring Stations from the Guilin municipal area of the Guilin region would be in charge of environmental monitoring. Environmental Monitoring Plan 49. The environmental monitoring plan covers both construction and operations phases of the project. Monitoring during construction will include noise and fugitive dust, during the entire period of construction. Monitoring points for the refuse transfer station construction will be chosen in densely populated areas. 50. Environmental monitoring during the project will be carried out in order to assess actual impacts and changes in environmental quality, to prevent pollution accidents, and to provide a scientific basis for environmental management. The major items to be monitored include the regimen used to establish the baseline data for the environmental impact assessment (EIA). In addition, down stream reaches of the project rivers would have monitoring points for suspended solids, BOD, COD, nitrogen, phosphorus, and coliform bacteria. The groundwater downstream of the landfill site will be monitored on the same schedule as used in the EIA, once each season. Downstream of the refuse transfer points the major items to be monitored include: mercury, lead, arsenic, cadmium, and others, once each season. 51. The major sampling and analysis equipment will be procured for the monitoring effort, to include: computer, air sampler, infrared spectrophotometer, water sampler, analysis balance, BOD and COD analyzer, high pressure liquid chromatography, toxic gas analyzer, meteorological survey instrument, NOx, SOx, CO, and TSP analyzer, and a noise survey meter. Consultation with Affected Groups: 52. The scope of the public consultation included the areas of construction projects. Institutions involved included the People's Congress, the members of the political Consultative Conference, especially farmers. The results of the consultations showed that 90 % of the people questioned supported the project. Of the persons to be resettled 95 % said they could understand the short term impacts of the construction of the project, and would support the project if removal of the houses and resettlement were carried out properly with proper policies. 53. In developing the Small Area Environmental Improvement components, public consultation was carried out and discussions included, among others, willingness of the local residents to contribute to the improvement schemes. Efforts have also been put in to collect public opinion on the impact of pollution on tourism, and garbage disposal issues. Annex 9 135 Page 11 of 18 Nanning Introduction 54. The city of Nanning began to open to the outside world in 1992, with the sanction of the State Council. Nanning, the capital of Guangxi Zhuang Autonomous Region, is the political, economic, financial and cultural center. The purpose of the project is to alleviate intolerable pollution of the Chaoyang Stream, located in the urban center, as well as to reduce flooding in the city of Nanning. The Chaoyang Stream is located in the north of Nanning City, and flows through the urban area into the Yongjiang River. the Yongjiang River divides the city into north and south sections. The project will include dredging of sediment from the Chaoyang Stream, installation of sewer interceptors and storm water drains, and building of the Jiangnan waste water treatment plant. The project is expected to transform the Chaoyang Stream from a noxious open sewage ditch into an asset to the city landscape. Wastewater discharges will be moved downstream of the city, protecting the city water supply intakes. Water quality of the city rivers will be improved. However, there will be a resultant decrease in water quality in the mixing zone near the Jiangnan wastewater treatment plant, the size of which will depend on the capacity of the wastewater treatment plant. Project Description 55. The Yongjiang River is the main source of potable and industrial water for the city. There are six major tributaries of the Yongjiang River in Nanning, and three lakes, including Nanhu Lake. The Chaoyang Stream, a tributary of the Yongjiang, has been receiving untreated sewage from a quarter of a million people and 70 industrial facilities since the 1970's, serving as the main wastewater discharge ditch in the central part of the city. The Chaoyang is now heavily polluted and emitting noxious odors. The city does not currently have an integrated sewage or stormwater discharge system. 56. The proposed project has two main objectives: renovation of the Chaoyang Stream; and, improvement of the drainage system of Nanning City. The main components of the project are: sewage interceptors for industrial and sanitary wastewater in the area along Chaoyang Stream; construction of the Jiangnan wastewater treatment plant; renovation and separation of the stormwater system from the sewage system; desilting existing sewage lines; and, dredging bottom sediments of Chaoyang Stream. 57. Chaoyang Stream Treatment Project: The Chaoyang Stream flows from north to south into the Yongjiang River. The stream is 14.2 kilometers long, and the project will involve 8.9 kilometers of it's length. The total amount of sediment to be dredged from Chaoyang Stream is 200,000 m3. The sediments are heavily contaminated with human and industrial waste, Annex 9 136 Page 12 of 18 including heavy metals and will be disposed of in a landfill. This component also includes sewage interceptors. 58. Drainage system project in the urban areas of Nanning: This component will involves laying pipe networks and pump stations for stormwater and sewage in the Xincheng, Xingning, Chengbei, Yongjiang and Jiangnan districts. Interceptors in the Jiangnan district, a major industrial area of Nanning, will collect industrial wastewater currently discharged to the Tingzichong Stream, for treatment in the proposed Jiangnan wastewater treatment plant. 59. Jiangnan wastewater treatment plant: The plant will be a primary system of 180,000 m3/day capacity with sludge drying provisions. With the addition of the industrial wastewater collected in the Tingzicheng Stream in the Tingzichong industrial area, it will treat 336,000 m3/day by the year 2005 (see discussion of alternatives). Baseline Conditions 60. Geography and Demography: Nanning covers an area of 1,938 km2, with an urban area of 80 km2; the population of the urban area is 0.76 million, with a total of 1.07 million in the greater city limits (1994). The topography of Nanning is flat. Nanning is a transportation hub, with links to the sea, rail lines and an airport. The city is located on the banks of the Yongjiang River, and is becoming the thoroughfare to the sea for the four provinces of southwest China: Yunnan, Guizhou, Sichuan, and Guangxi. 61. Economy: Total agricultural output reached 2.65 billion yuan in 1994 (1990 fixed price), an increase of 7.2 % over the previous year. Industrial production was 10.9 billion yuan (1990 price) in 1994, and increase of 18.3% over the previous year. Average income of town inhabitants is 4,099 yuan/year, an increase of 16.7 %; per capita income of farmers was 1,306 yuan/year, an increase of 10 %. 62. Climate: Nanning is south of the Tropic of Cancer and enjoys plentiful rainfall (average 1,240 mm/year), 72 % of which occurs from May to September. The average annual temperature is 21.6 OC, with the highest in July (average 28.30C) and the lowest in January (average 12.80C). 63. Flora and Fauna: The total area of forest in the city is 275,300 ha, including pine, fir, gum and oak. There are no rare species of plants or wildlife in the assessment area. 64. Cultural landmarks. Mvinority Enclaves: There are no cultural relics under protection or concentrated national minorities or religious communities in the assessment area. 65. Infrastructure: Potable water is supplied from four treatment facilities drawing a total of 594,000 t/d, from the Yongjiang River. Some industrial facilities have their own water supply treatment works. Average per capita consumption of the 852,000 Nanning residents supplied with water is 412.6 L/day. Most of the sanitary and industrial wastewater is discharged directly Annex 9 137 Page 13 of 18 into the Yongjiang River, without treatment. The tributaries of the Yongjiang are heavily polluted, with black noxious smelling water. The Yongjiang itself is also polluted, severely affecting the quality of the potable water supply. 66. Nanning has been suffering from serious and frequent floods, both from the river and stormwater backups. Since the existing sewers and tributaries have insufficient discharge capacity, backwaters occur during storms. The embankment of the Yongjiang in Nanning is 34 km long, and there are sluice gates and pump stations at the tributary mouths to control flooding. 67. Water quality: The six tributaries of the Yongjiang River receive the untreated industrial and sanitary wastewater of the urban areas of Nanning. The Chaoyang, Erkeng and Zhupaichong Streams are polluted with organic matter and getting worse. Dissolved oxygen (DO), chemical oxygen demand (COD), biological oxygen demand (BODs), ammonia and oil in these tributaries are above Grade V standards for surface waters set by the state. The Chaoyang Stream is the most seriously polluted, followed by the Erkeng and Zhupaichong Streams. 68. Water quality in the Yongjiang River is fairly good before it flows into the urban area of Nanning; most parameters are within standards for Grade III surface water. The water quality deteriorates below Grade III as it passes through the city. Below the city at Pumiao, the river water quality deteriorated to Grade V. 69. Nanhu Lake: Nanhu lake is the largest lake in Nanning City, with a surface area of one square kilometer. The lake currently receives untreated sewage and stormwater runoff from the city. The lake functions as an oxidation pond for wastewater. The water level is adjusted by sluice. The lake is currently used for aquatic recreation, fishing, agriculture, flood storage an irrigation, and wastewater discharge. Along the shore in the upper lake is a fingerling pond. The water quality is below Grade V. The lake is eutrophic with high surface levels of oxygen during the day, and low dissolved oxygen in the lower strata at night. Farmed fish often die and fish caught in the lake are perceived to have an odor. Fish stocks have been declining. The water and bottom sediments have little heavy metal contamination thus far, as the waste input (47,000 m3 dry season) is mainly sanitary. 70. Sediments in the Chaovang Stream: The Chaoyang Stream has been receiving effluent from over 100 factories and untreated sewage from a large part of the city. The sediments of the Chaoyang Stream are heavily polluted with heavy metals (Hg 2.33 mg/kg; Cr 212.4 mg/kg; Cu 346 mg/kg; Zn 805 mg/kg), arsenic and mineral oil (1196 mg/kg), undecomposed night soil, domestic and industrial organic waste, rubbish and products of organic decomposition. These sediments will be disposed of in a landfill. 71. Air quality: The average values of SO2 over four years is a little over the value for Grade II ambient air quality set by the state. Since the amount of S02 will increase along with development of the city and it's industry, including an increase in the consumption of coal, it is estimated that the concentration of ambient SO2 will continue to exceed the standard. The average value of suspended particulates (TSP) of the urban areas is within the Chinese standard Annex 9 138 Page 14 of 18 for Grade II ambient air quality; but exceeds the standard for cities of south China set by the state. Values of NOx were within the Grade I ambient air quality standard. Noise exceeds standards in all areas studied, especially at night. Foul smells from the Chaoyang Stream are noted, although there are no standard comparisons. 72. Solid waste: Solid waste generated in Nanning includes industrial, sanitary and construction refuse. The improper disposal of solid waste from Nanning causes much land and groundwater pollution although a new landfill has recently been completed. Alternatives Considered 73. An exhaustive collection of alternative designs of the project was considered. These included alternative configurations of the sewer networks and different project phasing. The alternative of routing the sewers to the treatment facility at Langdong was considered; but the new facility location at Jiangnan was chosen on environmental and cost grounds. There are two outstanding alternatives that were not resolved in the EIA: (i) the design flow rate of wastewater lines in Hongting Road and Baisha Avenue: design flow should be raised to meet need of industrial region along Tingzichong Stream, and increase the capacity of the Jiangnan wastewater treatment plant to take the full flow of the additional 78,200 m3/day wastewater from Hongting Road and Baisha Avenue; (ii) pollution mitigation of Nanhu Lake: control of the amount of rainwater entering the Nanhu lake from the first storm after the dry season if possible, route stormwater to Yongjiang River; replenish lake with water drawn from Yongjiang River. 74. The alternative of not dredging the sediments of the Chaoyang Stream was considered; however, the pollutants contained in the sediments would remain mobile, and continue to pollute the stream. Major Impacts and Mitigation: 75. Chaoyang Stream: After completion of the first stage of the project, the water quality in the Chaoyang Stream will be improved from that of sewage to Grade V, able to meet the demand for landscape application during the dry season and most of the wet season. 76. Chaoyang Stream sediments: An international method (Hakanson) of assessing the ecological risk of the heavy metals in the sediment indicated levels extremely harmful to the ecology. About 13% of the dredged sediments can be used as fertilizer for lawns and trees; but not food crops; the remainder is too contaminated for this use, and will be disposed in a Annex 9 139 Page 15 of 18 sanitary landfill. Dredging will be done in the dry season from October to April, to prevent runoff contamination from the dredged spoil piles. 77. Vehicles moving the dredged spoil would be covered to prevent spillage during transportation. Measures will be taken to prevent run-on and run-off contamination of stormwater at the Santang disposal site. The landfill site is located on permeable soils and there is the potential for groundwater contamination. In order to prevent groundwater contamination, the landfill site will be lined with leachate containment material to reduce seepage to below 10 -7 cm/sec. Earth fill will be used to seal the top of the landfill, and the site will be reclaimed with vegetation to prevent erosion. 78. Yongjiang River: Potable water supplies in the lower reaches of the river in the city and below are taken from groundwater. There are no other special demands for water quality in the lower reaches; therefore the water quality target is Grade III. Investigation has shown that the dry season is the key target period for pollution control in the river. The pollution control target is for Grade III, with a mixing zone at the discharge of the Jiangnan wastewater treatment plant of 3,000 m. 79. The project would collect 35 % of the wastewater from the urban areas of Nanning City, with discharge to the Yongjiang River after primary treatment, with a reduction of 10 % of the BOD5 load. Stream modeling has indicated that the pollution plumes in Dakeng and Erkeng will disappear; those in Tingzichong and Zhupaichong will remain within the standard of desired water quality; and the pollution plume (mixing zone of the Jiangnan wastewater treatment plant) of the Shuitangjiang Stream will become longer but not wider. The mixing zone of the Jiangnan wastewater treatment plant will be 3,000 m in the high water season, and 4,400 m in the low water season and during normal flows. The water quality in the Nanning section of the Yongjiang River will be improved, especially above Shuitangjiang Stream. The pollution plume of the Shuitangjiang Stream will be longer; however, it is located in the reaches below the city, and the functional demands for water quality there are less strict. 80. Nanhu Lake: After completion of the wastewater interception network, all pollution from point sources will be sent to the Langdong wastewater treatment plant, and then discharged to Zhupaichong Stream. The water of Nanhu lake will then be replenished by stormwater, a cut in volume of 68 %; therefore the water quality will still exceed standards. Analysis indicates the water level of the lake in normal conditions will remain stable. During periods of low water, the lake will have replenishment problems. Since the lake will continue to receive non-point source pollution from stormwater runoff, a problem of eutrophication will remain. 81. Potential impacts and planned mitigation of other project components, are shown in the following Table 2. Annex 9 140 Page 16 of 18 Table 2. hnpacts and Mitigation Project component Project Phase Potential Impact Mitigation Chaoyang Stream construction release of hydrogen sulfide gas gas masks to be provided to renovation dredging workers contaminated sediments, insect pests and foul odors pipeline desilting use pesticides and disinfectants Pipeline construction construction fugitive dust transport vehicles to be activities, Chaoyang covered; stream renovation encircle construction site with dust barriers of plastic; water sprinkling when spoil is stored, loaded and transported; water spray for cement mixers Pipeline construction construction noise abide by regulations of Nanning activities, Chaoyang concerning noise and noise stream renovation limits; schedule use of noise producing machines to reduce duration of noise Pipeline construction construction traffic jams scheduling of work to minimize activities, Chaoyang disturbance of heavy traffic stream renovation routes, assign detour routes; assign personnel to direct traffic Water siphon pipeline, construction navigation hazard, release of proper planning for short crossing below sediment construction period; Yongjiang river tunneling during low water season; warning signs and personnel assigned to direct navigation; backfill immediately after laying pipe Jiangnan wastewater operation sludge disposal test sludge for environmental treatment plant and health safety concerns before selecting appropriate disposal methods Pumping station operation noise install vibration absorbers Annex 9 141 Page 17 of 18 Environmental Management 82. An Environmental Management Unit will be established in the Chaoyang Stream Comprehensive Treating Project with the following purposes: ensure compliance with environmental laws and regulations; guarantee the effectiveness of wastewater treatment; monitor environmental quality of the project and surrounding areas; monitor changes in social and economic factors to provide a basis for environmental administration and planning for the city. There will be an environmental administration and an environmental monitoring group. Special personnel from the Chaoyang Stream Administration and the City Construction Development Company will be assigned for environmental administration during project construction. Staff will be two or three persons. A water quality monitoring station will be established in Jiangnan Waste Water Treating Plant, with four or five staff. The functions of the environmental administration group will be: to ensure compliance with environmental regulations; establish administrative rules and checks; develop environmental protection plans; lead and organize environmental monitoring; carry out environmental education and technical training for staff; establish rules and regulations for discharge of pollutants and the operation of environmental protection facilities; coordinate with municipal environmental protection bureau and answer public information requests. The environmental monitoring group's tasks will be to develop monitoring plans and rules and regulations of the station; carry out monitoring of items required for reporting; assist in investigation of environmental accidents; assist in environmental assessment; assist in tracking social and economic factors; test maintain and repair instruments used for monitoring. Enviromnental Monitoring Plan 83. The environmental monitoring plan will be implemented during the entire construction phase of the project. Monitoring will include handling, transportation and disposal of dredged spoils; noise; and ambient air TSP. Monitoring points will be selected in densely populated areas, or as appropriate for the impact to be monitored. The environmental monitoring plan to be implemented during the operations phase of the project will be aimed at documenting the actual impact of the project, as well as the prevention of pollution accidents. Water quality in the Chaoyang Stream will be monitored in the upper, middle and lower reaches for BOD, COD and coliforms once each month. Wastewater discharge from the Jiangnan treatment plant will be monitored for BOD, COD coliforms, nitrogen and phosphorus once each month. The investment in the environmental monitoring plan will be 0.30 million yuan, used for the environmental management and monitoring of the project during operation. Consultation with Affected Groups 84. Public consultation was solicited in several ways: sessions of questions and answers in the project areas; distribution of questionnaires; and expert opinion and advice. Radio reporter's interviews, TV programs and newspapers were also used to gather opinions suggestions and demands concerning the proposed project. Materials collected were sorted and Annex 9 142 Page 18 of 18 classified for analysis. The investigation was carried out in the areas where construction would take place. Institutions solicited for comment include: Municipal People's Congress, Municipal People's Political Consultative Conference; the Municipal Government; district governments and institutions; district people's congress; and dozens of enterprises, schools and neighborhood committees in the construction areas. Random sampling and questionnaires were used to gather comment among the people who will be directly affected by the project. 174 questionnaires were distributed and 100 % recovered. About 71 % of the people surveyed live in the area of the projects, 10 % work in the project areas, and 10 % will be resettled. The consultation process increased public awareness of the project; 98 % of those surveyed had heard of the project through mass media or other people. The project had overwhelming support, with opinions that the project would have positive environmental impact. The persons to be resettled hoped they would be compensated according to policy and that their living conditions would be improved, and all expressed a willingness to move. Annex 10 143 Page 1 of 7 Monitoring Indicators Sewerage Management 1. Primary Indicators. The main objective here is to improve the water quality of major rivers in Nanning and Guilin. The prevailing water standard for the Lijiang, Yongjiang and their tributaries (National Standards for Surface Water GB 3838-88), therefore provides the most direct measure of project impact. Since water pollution is more acute in the dry season, water quality surveys should be conducted during the months of November to April. 2. Secondary indicators. Most secondary indicators (such as BOD, nitrogen levels and suspended solids) are used to reveal finer improvements in water quality, while others are used to monitor the utilization of facilities -- such as the operating rate for treatment plants, interceptors or solid waste and nightsoil facilities. As for the resettlement and compensation of residents around the Chaoyang Stream, the criteria listed in para 22 of Annex 8 should be adhered to. 3. Monitoring Locations. Various criteria are used in the selection of monitoring locations so as to fully reveal the Project's impact. Therefore, sections of the Yongjiang and Lijiang river systems that experience comparatively more pollution will be emphasized. The following monitoring locations would serve this purpose: (a) the urban stretches of the Chaoyang stream and the Lijiang, (b) the confluence of the Chaoyang stream and Yongjiang at Dakengkou, (c) the Taohuajiang tributary and the Rong, Sha and Gui Lakes. The Chaoyang strearn, currently equivalent to an open sewer, will be cleaned up to a Class V rating. The Yongjiang should consistently maintain a Class III rating from year 2002 onwards. The Lijiang should attain greater consistency as a Class II river throughout the year, including the dry season. The Taohuangjiang tributary should also eventually be upgraded to Class IV. 4. Secondly, locations are also selected based on physical changes to the environment as a result of the project. Two critical sites are: (a) downstream of the discharge from the new Jiangnan Sewage Treatment Plant (this plant discharges into the Yongjiang), (b) the intake area of the Lingtie Water Filtration Plant, located at the downstream of Yongjiang's urban stretch. This plant is one of the main suppliers of treated water to Nanning. Annex 10 144 Page 2 of 7 Table 1. Main Indicators for Nanning Sewerage Calendar Year Indicator Type Units '96 '97 '98 '99 '00 '01 '02 '03 '04 PIS Base Yongjiang A . water classification P - III - IV III-IV III-IV III-IV III-IV III-IV III III III . max total nitrogen S mg/I 1.5 1.5 1.5 1.3 1.2 1.1 1 1 I Chaoyang streame . water classification P - sewage sewage > V > V > V V V V V . maxBOD, S mg/l >20 >20 >10 >10 >10 10 10 10 10 Sewer Comnections C . number of connections to P no. 0 0 0 2000 3000 5000 7000 8500 10,000 sanitary sewers Lengthofsewerscleaned S km/year NA NA NA 130 140 140 150 150 160 and repaired every year Effectiveness of Chaoyang Stream Collection S '000 m3! 0 0 0 70 75 100 120 140 165 , dry weather flow pumped day to south side Jiangnan STP S '000 mI/ 0 0 0 0 0 0 80 160 210 volume sewage treated day Notes: P/s: primary I secondary A average of readings during the dry season (representative of each month from November to April) from the following three locations along the Yongjiang: (a) at Dakengkou, (b) upstream of Lingtie Filtration Plant, (c) downstream of Jiangnan STP. B average of readings during the dry season (representative of each month from November to April) from the following two locations along the Chaoyangxi: (a) at Middle School #7 (near Dakengkou), (b) at Middle School #13 c including sanitary sewers upstream of Middle School #13 5. The running and design of the new Chongkou landfill is critical given that consolidation of solid waste, unless properly managed, can itself become a source of ground and surface water contamination. One important area to monitor is the site's treatment and discharge of recycled leachate. The ultimate leachate discharge must be checked for its percentage of solids and BOD level. Monitoring sites for underground and surface water locations will be determined during project appraisal. 6. The nightsoil management component in Nanning aims to increase the frequency of septic tank maintenance and expand the service network to cover new units. The volume of nightsoil and the number of new customers served would be appropriate impact indicators. Annex 10 145 Page 3 of 7 Table 2. Main Indicators for Guilin Sewerage Calendar Year Indicator Type Units '96 '97 '98 '99 '00 '01 '02 '03 '04 P/S Base Lijiang * compliance with ClassIIA P % 50 50 50 60 70 80 90 90 95 . maxtotal nitrogen S mg/l 0.75 0.75 0.75 0.7 0.65 0.6 0.55 0.55 0.5 . max BOD5 S mg/l 3.5 3.5 3.5 3.4 3.3 3.2 3.1 3.1 3 Taohuajiang B . water classification P - V V V V V IV-V IV IV IV Rong, Shia and Gui Lakes . water classification P - III-IV III-IV III-IV III-IV III III III III III Northcentral STP S '000 m3/ 5 5 5 5 5 20 25 28 30 volume treated day Totalwastewatertreated P '000 m3/ 80 80 80 100 130 145 150 165 180 in Guilin (dry weather flow) day Xicheng STP S '000 m3/ 0 0 0 0 0 0 20 30 40 volume treated day Notes: P / S: primary / secondary A defined as the percentage of observations whereby the river does not meet Class II standards. Observations are to be made along the entire urban stretch of the Lijiang and at regular intervals throughout the year, including the dry season (November to April). Locations are: Dou Ji Shan, Longmen and Mo Pan Shan (Guilin Environmental Master Plan, SM International, March 1997). B average of readings during the dry season (representative of the months of November to April). Table 3. Main Indicators for Solid Waste and Nightsoil Components Calendar Year Indicator Type Units '96 '97 '98 '99 '00 '01 '02 '03 '04 P/S Base Nanming Nightsoil Management . collection rate P tons/day 70 70 70 75 85 90 95 100 100 . average servicefrequency ofseptic P years/tank 2.5 2.5 2.0 1.5 1.5 1.0 1.0 0.8 0.8 tanks (including remote areas) emptied . additional septic tanks serviced P number of 0 50 50 100 200 300 300 320 350 compared to 1996 (minimum once septic tanks a year) Chongkou Landfill (downstream of site) . CTround Water - pH P pH - - - - - - 6.5-8.5 6.5-8.5 6.5-8.5 . Ground Water - maxtotal P mg/l - - - - - - 25 25 25 suspended solids . Surface Water - pH P pH - - - - - - 6.8 -7.5 6.8 -7.5 6.8 -7.5 . Surface Water - max total P mg/l - - - 20 20 20 suspended solids 7. The following are indicators in Tables 4 and 5 help to rate the performance of wastewater treatment plants and the Chongkou landfill. These may be used for internal monitoring to ensure efficient operation and are not required for reporting. 146 Annex 10 Page 4 of 7 Table 4. Representative Indicators for Monitoring of Sewage Treatment Plants (mg/1) Indicator Targets for year 2002 max BOD5 max COD max SS Jiangnan STP effluent 30 100 70 Northcentral STP effluent 60 110 100 Xicheng STP effluent 30 120 30 Note: SS is suspended solids Table 5. Representative Indicators for Monitoring of Chongkou Landfill Indicator Targets Circulated Leachate Quality -pH 6.2-7.5 - BOD5 (mg/1) < 10, 000 Bioearth - Pb (mg/kg) < 35.2 -Hg (mg/kg) < 0.11 -As (mg/kg) < 25 -Cd (mg/kg) < 0.3 Air - H2 S (mg/m3) <0.02 - NH2 (mg/hn) <0.02 Financial and Institutional Indicators for Sewerage Companies 8. The new Sewerage Companies in Nanning and Guilin should demonstrate attributes of financial viability and have a continuous availability of funds for reinvestment. The importance of these elements are most clearly demonstrated in the case of Nanning. Large capital expenditures are expected and tariff revenues are destined for debt service and operating expenses. Given the relative inexperience in operating a large sewerage network, there is a downside risk of actual operating costs exceeding projections. Also, given the growing demand for sanitation services, continuous investment (e.g. replacement capital) needs to be anticipated beyond the project lifespan. A self sustaining Sewerage Company must be able to sustain such routine expenditure. The following financial indicators will be used: Table 6. Financial and Institutional Indicators for Sewerage Companies Inidicators Type Units Targets PIS Financial Indicators . Debt Service Coverage P % 100 Ratio of revenue collection to billed amount S % 85 (including users of self-extracted water) Institutional Development . Implementation of agreed programs and training P % 100 Annex 10 147 Page 5 of 7 Lijiang Flow Regulation 9. Water replenishment facilities, reforestation programs and continuous management and conservation efforts all help to maintain the Lijiang at an acceptable flowrate. The following indicators of project impact should be used: Table 7. Indicators for Lijiang Flow Regulation Calendar Year Indicator Uniits Base '96 '97 '98 '99 00 '01 02 '03 '04 Flowrate mr3/s 30 30 30 30 30 30 32 35 35 Minimum frequency of achieving this flow % 93.8 93.8 93.8 93.8 93.8 93.8 94 95 96 Extension of Embaikment wall km 0 0 5 10 15 20 30 40 50 Reforested Areas 2 hectares 0 0 100 100 200 700 1000 1500 2200 Expenditure on water maniagement programs * Guilin City mil Yuan 0 0 0.5 0.5 0.5 1 1 1 0.5 * Guilin Prefecture mil Yuan 0 0 0.5 0.5 0.5 1 1 1 0.5 Notes: Flow measurements should be taken at Guilin over the whole year (including months between November to April). 2 Total land area in Lijiang and Wulixia that have undergone reforestation, but excluding areas closed off for natural regrowth. 10. Sugar Refinery Pollution Control. This component's impact will ultimately translate into better water quality for many of the major rivers in the Region, including the Lijiang and Yongjiang. Individual sub-projects will be assessed against the following: (a) COD reductions in the effluent: target of at least 90% reduction of COD discharge from alcohol workshops. (b) Reductions in wastewater generation: target of at least 60 % reduction in alcohol workshop waste water discharge. Baseline conditions and expected reductions will be individually established for each sub- project and are listed in Tables 3, 4 and 5 of Annex 5. Similarly, a set of monitoring indicators for Industrial Pollution Control is listed in Table 1 of Annex 4. l1. EPB Strengthening. Specific indicators were agreed for each of the EPB institutional strengthening projects. They consist of targets for improved monitoring of industrial enterprises and water bodies, both as regards frequency and variables analyzed; and improved reaction times for response to accidents and complaints; and, the introduction of pollutant mass based waste water discharge permits to replace the present concentration based system. Annex 10 148 Page 6 of 7 Table 8. Monitoring Indicators for EPB strengthening component Monitoring Indicator Nanning Guilin Prefecture Provincial Present Target Present Target Present Target Present Target Number of Enterprises Monitored: 65 104 10 13 Annual monitoring Frecluency: Large and medium size 1 2 1 to 2 2 to 4* 1 2 Smallsize 0 1 Oto I > 1 1 2 River Sections monitored and annual frequency NA NA 2x2 4x3 lxi 3x3 Water body monitoring items 26 30 7 13 Monitoring of emergencies, % coverage 30% 100% 30 80 Average response time for accidents, complaints 7 2 7 1 7 1 7 <1 (days) *Frequncy of monitoring for top polluters. Small Area Improvement 12. The small area improvement component as a whole is targeted to provide improved environmental benefits to about 110,000 people who are current residents, estimated one the basis of average cost of about Y 1,300 per person. It is expected that some 70% of the beneficiaries would have incomes below the city average. It is also expected that the improvements would induce increase in housing assets and in population, adding up to 30% to the number of direct beneficiaries. Beyond the above planning targets, it is not possible at this point to set specific targets for various aspects of the expected benefits of the component as a whole. One basic indicator of progress could be the number of beneficiaries: Calendar Year Indicator Units '96 '00 '04 Base Number of residents benefitting persons 0 15,000 100,000 However, it would also be necessary to measure the following indicators before and after small area subproject implementation, and use them for planning purposes: Input Indicators average service cost per hectare, per household beneficiary contribution, in amount and as % of annual income Output Indicators number of households and persons benefiting Annex 10 149 Page 7 of 7 hectares of land served with paved roads, drainage, sewer; number of sewerage connections or septic tanks connections number of toilet seats, garbage bins length of sewers and drains waiting line at public toilets hours and amounts of water supply Impact Indicators participating households as a percent of households without sanitation for each city; amount of housing investment after upgrading; increase in rents and transactions prices of housing units; increase in real estate transaction number of additional persons absorbed by upgraded neighborhoods; decrease in water-borne diseases among beneficiary population. Annex 11 150 Page 1 of 6 Estimated Project Cost Details Table 1. Nanning Sewerage Management and Small Area Improvements (Y million) does not include interest during construction Item Civil Goods Land A T.A.B Base DSM c Physical Total Cost Price Total Cost Works Cost Cont. 97 prices Cont, current prices Nanning Sewerage Management Chaoyang stream Interceptors 30.24 0.00 26.68 0.00 56.92 3.70 6.06 66.68 4.07 70.75 Chaoyang embankment & hamessing 43.00 0.00 0.00 0.00 43.00 2.80 6.87 52.66 5.53 58.19 Cross river siphon 28.67 0,00 0.00 0.00 28.67 1.86 4.58 35.11 7.90 43.01 Dakengkou sewage pumping station 7.1 13.70 0.00 0.00 20.80 1.35 3.32 25.47 2.01 27.49 Flood pumping station 5.00 10.00 0.00 0.00 15.00 0.98 2.40 18.37 1.93 20.30 Southern trunk sewers 24.04 0.00 0.00 0.00 24.04 1.56 3.84 29.44 5.65 35.10 Jiangnan Wastewater Treatment Plant 63.00 72.00 12.00 0.00 147.00 9.56 23.48 180.04 46.63 226.67 Sewer Extension and Rehabilitation 128.50 0.00 0.00 0.00 128.50 8.35 20.53 157.38 40.76 198.14 Reconnections to Sanitary Sewers 8.30 0.00 0.00 0.00 8.30 0.54 1.33 10.17 2.63 12.80 Sewerage Maintenance Tools 0.00 12.14 0.00 0.00 12.14 0.79 1.94 14.87 3.85 18.72 Power Connection to Grid 3.00 2.20 0.00 0,00 5.20 0.34 0.83 6.37 1.65 8.02 Sub-total 489.57 31.82 75.18 596.57 122.62 719.19 Nightsoil trucks & management 2.65 5.30 2.25 0.00 10.20 0.96 1.67 12.83 1.35 14.18 system Institutional Strengthening Sewerage Company 0.00 4.00 0.00 7.54 11.54 0.10 1.75 13.39 1.41 14.79 City Project Management 0.00 0.00 0.00 1.68 1.68 0.05 0.26 1.99 0.21 2.20 Nanning Municipal EPB 0.00 3.20 0.00 0.63 3.83 0.10 0.59 4.52 0.47 4.99 Sub-total 17.05 0.25 2.60 19.90 2.09 21.98 Small Area Improvement 10.80 21.60 0.00 3.60 36.00 2.00 5.70 43.70 9.83 53.53 Total 552.82 35.03 96.15 673.00 135.89 808.89 Notes: A includes resettlement cost 8 Technical Assistance and Consultancy c Design, Supervision and Management Annex 11 151 Page 2 of 6 Table 2. Nanning Sewerage Management and Small Area Improvements ($ million) does not include interest during construction Item Civil Goods Land A T.A.B Base DSM c Physical Total Cost Price Total Cost Works Cost Cont. 97 prices Cont. current prices Nanning Sewerage Management Chaoyang stream Interceptors 3.64 0.00 3.21 0.00 6.86 0.45 0.73 8.03 0.25 8.28 Chaoyang embankment & harnessing 5.18 0.00 0.00 0.00 5.18 0.34 0.83 6.35 0.33 6.68 Cross river siphon 3.45 0.00 0.00 0.00 3.45 0.22 0.55 4.23 0.41 4.64 Dakengkou sewage pumping station 0.86 1.65 0.00 0.00 2.51 0.16 0.40 3.07 0.13 3.20 Flood pumping station 0.60 1.20 0.00 0.00 1.81 0.12 0.29 2.21 0.12 2.33 Southern trunk sewers 2.90 0.00 0.00 0.00 2.90 0.19 0.46 3.55 0.30 3.85 Jiangnan Wastewater Treatment Plant 7.59 8.67 1.45 0.00 17.71 1.15 2.83 21.69 2.36 24.06 Sewer Extension and Rehabilitation 15.48 0.00 0.00 0.00 15.48 1.01 2.47 18.96 2.07 21.03 Reconnections to Sanitary Sewers 1.00 0.00 0.00 0.00 1.00 0.07 0.16 1.22 0.13 1.36 Sewerage Maintenance Tools 0.00 1.46 0.00 0.00 1.46 0.10 0.23 1.79 0.20 1.99 Power Connection to Grid 0.36 0.27 0.00 0.00 0.63 0.04 0.10 0.77 0.08 0.85 Sub-total 68.98 3.83 9.06 71.88 6.38 78.25 Nightsoil trucks & management 0.32 0.64 0.27 0.00 1.23 0.12 0.20 1.55 0.08 1.63 system Institutional Strengthening Sewerage Company 0.00 0.48 0.00 0.91 1.39 0.01 0.21 1.61 0.08 1.70 City Project Management 0.00 0.00 0.00 0.20 0.20 0.01 0.03 0.24 0.01 0.25 Nanning Municipal EPB 0.00 0.39 0.00 0.08 0.46 0.01 0.07 0.54 0.03 0.57 Sub-total 2.05 0.03 0.31 2.40 0.12 2.52 Small Area Improvement 1.30 2.60 0.00 0.43 4.34 0.24 0.69 5.27 0.51 5.78 Total 66.61 4.22 10.26 81.08 7.09 88.18 Notes: A includes resettlement cost B Technical Assistance and Consultancy c Design, Supervision and Management 152 Annex 11 Page 3 of 6 Table 3. Guilin Sewerage Management and Small Area Improvements (Y million) does not include interest during construction Item Civil Goods Land A T.A. 8 Base DSMc Physical Total Cost Price Total Cost Works Cost Cont. 97 prices Cont. current prices Guilin Sewerage Management Qintan trunk sewers 45.00 3.00 0.00 0.00 48.00 2.88 5.09 55.97 4.42 60.39 Qintan secondary sewers 1.50 0.00 0.00 0.00 1.50 0.09 0.24 1.83 0.35 2.18 Mantoushan pump station 3.72 7.70 0.00 0.00 11.42 0.69 1.82 13.92 1.10 15.02 Northcentral STP expansion 23.40 7.00 2.60 0.00 33.00 1.98 5.25 40.23 5.31 45.54 Northern area secondary sewers 10.00 0.00 0.05 0.00 10.05 0.60 1.60 12.25 1.29 13.54 Northeastern Interceptors & Road 40.00 0.00 0.00 0.00 40.00 2.40 6.36 48.76 9.36 58.12 Qingfeng Pump Station 4.00 1.80 0.45 0.00 6.25 0.38 0.99 7.62 1.01 8.62 Lake Cleanup, Sewering and 26.50 0.60 0.00 0.00 27.10 1.63 4.31 33.03 6.34 39.38 Replenishment Xicheng STP 17.00 12.00 4.00 0.00 33.00 1.98 5.25 40.23 7.72 47.95 Yangshuo Aeration Pond 1.95 0.20 0.04 0.00 2.19 0.13 0.35 2.67 0.21 2.88 Xingping Aeration Pond 0.30 0.05 0.18 0.00 0.53 0.03 0.08 0.65 0.05 0.70 Baisha Aeration Pond 1.88 0.05 0.83 0.00 2.76 0.17 0.44 3.36 0.35 3.72 Sewer Upgrading and Repair 7.00 0.00 0.00 0.00 7.00 0.42 1.11 8.53 1.13 9.66 Power connection to electrical grid 3.00 2.00 0.00 0.00 5.00 0.30 0.80 6.10 0.80 6.90 Sewerage maintenance tools 0.00 4.00 0.00 0.00 4.00 0.24 0.64 4.88 0.39 5.26 Institutional Strengthening Guilin Municipality EPB, including 0.00 2.72 0.00 0.55 3.27 0.10 0.51 3.88 0.63 4.50 Yangshuo and Lingui Sewerage Operation and Institution 0.00 3.74 0.00 4.63 8.37 0.10 1.27 9.74 1.29 11.03 Sub-total 243.4 14.11 36.09 293.64 41.75 335.38 Solid Waste Management Chongkou landfill 20.00 19.00 2.40 0.00 41.40 2.48 6.58 50.47 5.30 55.77 Solid waste transfer system 4.00 15.00 2.00 0.00 21.00 1.26 3.34 25.60 4.92 30.51 Sub-total 62.40 3.74 9.92 76.07 10.21 86.28 Small Area Improvement 6.60 13.20 0.00 2.20 22.00 1.32 3.50 26.82 3.54 30.36 Total 327.84 19.17 49.51 396.52 55.50 452.02 Notes: A includes resettlement cost B Technical Assistance and Consultancy c Design, Supervision and Management Annex 11 153 Page 4 of 6 Table 4. Guilin Sewerage Management and Small Area Improvements ($ million) does not include interest during construction Item Civil Goods Land A T.A.3 Base OSM c Physical Total Cost Price Total Cost Works Cost Cont. 97 prices Cont. current prices Guilin Sewerage Management Qintan trunk sewers 5.42 0.36 0.00 0.00 5.78 0.35 0.61 6.74 0.28 7.02 Qintan secondary sewers 0.18 0.00 0.00 0.00 0.18 0.01 0.03 0.22 0.02 0.24 Mantoushan pump station 0.45 0.93 0.00 0.00 1.38 0.08 0.22 1.68 0.07 1.75 Northcentral STP expansion 2,82 0.84 0.31 0.00 3.98 0.24 0.63 4.85 0.31 5.15 Northern area secondary sewers 1.20 0.00 0.01 0.00 1.21 0.07 0.19 1.48 0.08 1.55 Northeastern Interceptors & Road 4.82 0.00 0.00 0.00 4.82 0.29 0.77 5.87 0.50 6.37 Qingfeng Pump Station 0.48 0.22 0.05 0.00 0.75 0.05 0.12 0.92 0.06 0.98 Lake Cleanup, Sewering and 3.19 0.07 0.00 0.00 3.27 0.20 0.52 3.98 0.34 4.32 Replenishment Xicheng STP 2.05 1.45 0.48 0.00 3.98 0.24 0.63 4.85 0.41 5.26 Yangshuo Aeration Pond 0.23 0.02 0.00 0.00 0.26 0.02 0.04 0.32 0.01 0.33 Xingping Aeration Pond 0.04 0.01 0.02 0.00 0.06 0.00 0.01 0.08 0.00 0.08 Baisha Aeration Pond 0.23 0.01 0.10 0.00 0.33 0.02 0.05 0.41 0.02 0.43 Sewer Upgrading and Repair 0.84 0.00 0.00 0.00 0.84 0.05 0.13 1.03 0.06 1.09 Power connection to electrical grid 0.36 0.24 0.00 0.00 0.60 0.04 0.10 0.73 0.05 0.78 Sewerage maintenance tools 0.00 0.48 0.00 0.00 0.48 0.03 0.08 0.59 0.02 0.61 Institutional Strengthening Guilin Municipality EPB, including 0.00 0.33 0.00 0.07 0.39 0.01 0.06 0.47 0.03 0.50 Yangshuo and Lingui Sewerage Operation and Institution 0.00 0.45 0.00 0.56 1.01 0.01 0.15 1.17 0.07 1.25 Sub-total 29.33 1.70 4.35 35.38 2.33 37.71 Solid Waste Management Chongkou landfill 2.41 2.29 0.29 0.00 4.99 0.30 0.79 6.08 0.32 6.40 Solid waste transfer system 0.48 1.81 0.24 0.00 2.53 0.15 0.40 3.08 0.26 3.35 Sub-total 7.52 0.45 1.20 9.16 0.58 9.74 Small Area Improvement 0.80 1.59 0.00 0.27 2.65 0.16 0.42 3.23 0.20 3.43 Total 39.50 2.31 5.96 47.77 3.12 50.89 Notes: A includes resettlement cost B Technical Assistance and Consultancy c Design, Supervision and Management Annex 11 154 Page 5 of 6 Table 5. Regulation of Lijiang and Regional projects (Y million) does not include interest during construction Item Civil Goods Land A T.A. B Base DSM c Physical Total Cost Price Total Cost Works Cost Cont. 97 prices Cont. current prices Regulation of Lijiang Wulixia canal extension, cleaning & 16.48 0.00 0.00 0.00 16.48 1.15 2.65 20.28 3.89 24.17 lining (GP) Power station and other equipment (GP) 11.23 5.58 0.00 0.00 16.81 1.18 2.70 20.68 3.97 24.66 Embankment repairs & improvements 45.00 0.00 2.00 0.00 47.00 3.29 7.54 57.83 4.57 62.40 (GM) Plantation and soil conservation at 10.00 13.50 1.50 0.00 25.00 1.50 3.98 30.48 5.85 36.33 Wulixia (GP) Plantation and soil conservation at 14.49 18.65 1.56 0.00 34.70 2.08 5.52 42.30 8.12 50.42 Lqijang (GM) Institutional Strengthening Lijiang Commission and Water 0.00 1.89 0.00 4.55 6.44 0.10 0.98 7.52 1.22 8.74 Conservation (GAR) Sub-total 146.43 9.30 23.36 179.09 27.62 206.72 Sugar Refinery Pollution Control 7.70 23.00 0.00 0.00 30.70 2.16 4.93 37.78 7.25 45.03 Institutional Strengthening Guilin Prefecture EPB (GP) 0.00 1.92 0.00 0.82 2.74 0.16 0.44 3.34 0.26 3.60 Guangxi Regional EPB and Project 0.00 3.30 0.00 1.80 5.10 0.31 0.81 6.22 0.49 6.71 Management (GAR) Sub-total 7.84 0.47 1.25 9.56 0.75 10.31 Total 184.97 11.92 29.53 226.43 35.63 262.06 Notes: A includes resettlement cost B Technical Assistance and Consultancy c Design, Supervision and Management Annex 11 155 Page 6 of 6 Table 6. Regulation of Lijiang and Regional projects ($ million) does not include interest during construction Item Civil Goods LandA T.A. B Base DSM c Physical Total Cost Price Total Cost Works Cost Cont. 97 prices Cont. current prices Regulation of Lijiang Wulixia canal extension, cleaning & 1.99 0.00 0.00 0.00 1.99 0.14 0.32 2.44 0.21 2.65 lining (GP) Powerstation and other equipment (GP) 1.35 0.67 0.00 0.00 2.03 0.14 0.33 2.49 0.21 2.70 Embankment repairs & improvements 5.42 0.00 0.24 0.00 5.66 0.40 0.91 6.97 0.29 7.25 (GM) Plantation and soil conservation at 1.20 1.63 0.18 0.00 3.01 0.18 0.48 3.67 0231 3.98 Wulixia (GP) Plantation and soil conservation at 1.75. 2.25 0.19 0.00 4.18 0.25 0.66 5.10 0.43 5.53 Lijiang (GM) Institutional Strengthening Lijiang Commission and Water 0.00 0.23 0.00 0.55 0.78 0.01 0.12 0.91 0.07 0.97 Conservation (GAR) - Sub-total 17.64 1.12 2.81 21.58 1.62 23.09 Sugar Refinery Pollution Control 0.93 2.77 0.00 0.00 3.70 0.26 0.69 4.66 0.44 4.99 Institutional Strengthening Guilin Prefecture EPB (GP) 0.00 0.23 0.00 0.10 0.33 0.02 0.05 0.40 0.02 0.42 Guangxi Regional EPB and Project 0.00 0.40 0.00 0.22 0.61 0.04 0.10 0.75 0.03 0.78 Management (GAR) Sub-total 0.94 0.06 0.15 1.15 0.05 1.20 Total 22.29 1.44 3.56 27.28 2.01 29.29 Notes: A includes resettlement cost B Technical Assistance and Consultancy c Design, Supervision and Management Annex 12 156 Projected Disbursement Schedule Bank / IDA fiscal year Cumulative Project Cumulative Project Bank Profile A and semester (%) (million $) 1999 First 2 1.8 0 Second 3 2.8 3 2000 First 12 11.0 26 Second 24 22.1 26 2001 First 36 33.1 38 Second 47 43.2 42 2002 First 57 52.4 62 Second 66 60.7 82 2003 First 76 69.9 86 Second 85 78.2 98 2004 First 93 85.6 98 Second 98 90.2 100 2005 First 100 92.0 A Disbursement profile for China (water and sanitation sector) issued August 1995 Annex 13 157 Page 1 of 3 Procurement Packages and Schedules Contract Description Pcment Contract Contract Value Remarks No. Method Start Date (mil Y) (mil US$) Nanning Wastewater and Nightsoil Management Civil Works NMW /1.0 Chaoyang Stream interceptors and connection to NCB Nov97 37.56 4.40 PQ required Erkeng 2 packages NMW / 2.0 Crossriver siphon NCB Aug 00 40.73 4.64 NMW / 3.0 Southern trunk sewers NCB Dec 99 33.23 3.85 2 packages NMW / 4.0 Chaoyang stream dredging & embankment NCB Mar 98 55.11 6.68 NMW / 5.0 Sewer and extensions and reconnections NCB Jan 99 190.25 20.03 12-14 packages NMW / 6.0 Sewer and extensions and reconnections NS Jan 99 9.50 1.00 5 - 7 packages NMW / 7.0 Power connections to electrical grid DC Nov 98 7.59 0.85 3 packages - NBF Goods NMG / 1.0 Sewerage system maintenance equipment ICB Feb 99 17.73 1.88 NMG / 2.0 Nightsoil trucks and equipment ICB Aug 98 9.26 1.06 NMG / 3.0 Office equipment for nightsoil management NCB May99 1.44 0.16 NMG / 4.0 Supply and construction of Dakengkou sewage pumps ICB Jun 98 25.8 2.90 NMG / 5.0 Supply and construction of Dakengkou flood pumps ICB May 99 19.22 2.20 PQ required NMT / 1.0 Jiangnan sewage treatment plant (turnkey) ICB Apr00 199.13 21.13 PQ required Guilin Wastewater and Solid Waste Management Civil Works GMW / 1.0 Qintantrunk and secondary sewers NCB Jun98 59.35 6.89 PQrequired GMW/2.0 Northernareasecondary,sewers NCB Jan99 12.82 1.47 GMW / 3.0 Northeastern interceptors and service road NCB Mar 00 55.26 6.06 GMW / 4.0 Lake Cleanup and sewering NCB Jan 99 37.44 4.11 GMW / 5.0 Sewer maintenance and upgrading NCB Nov 98 7.38 0.85 4 -5 annual contracts GMW / 6.0 Sewer maintenance and upgrading NS Nov 98 1.80 0.20 2 -3 annual contracts GMW / 7.0 Power connection to electrical grid DC May99 6.56 0.75 NBF GMW / 8.0 Solid waste landfill NCB Nov98 49.18 5.76 GCW / 1.0 Yangshuo Aeration Pond NCB Nov 98 2.70 0.32 GCW / 2.0 Xingping Aeration Pond NCB Nov 98 0.47 0.05 GCW / 3.0 Baisha Aeration Pond NCB Jul 98 2.62 0.30 Goods GMG / 1.0 Sewerage system maintenance equipment ICB Sep 98 5.00 0.58 GMG/2.0 Solidwastetransfertrucks ICB May99 26.63 2.92 GMG / 3.0 Supply and construction of Mantoushan sewage pumps ICB Jul 98 14.28 1.67 PQ required GMT / 1.0 North-central area sewage treatment plant and ICB Feb 99 48.04 5.44 Qingfeng pump station (turnkey) GMT / 2.0 Xicheng sewage treatment plant (turnkey) ICB Feb 00 40.82 4.48 Legend CG = According to guidelines: Selection and Employment of Consultants by World Bank borrowers DC =Direct Contracting ICB = International Competitive Bidding IS / NS =International Shopping/ National Shopping NCB = National Competitive Bidding NBF =Not Bank financed PQ = Prequalification LIB = Limited International Bidding Annex 13 158 Page 2 of 3 Contract Description Pcinent Contract Contract Value Renmarks No. Metlhod Start Date (mil Y) (nil US$) Lijianig Water Regulation Civil Works GPW / 1.0 Wulixia canal extension, lining and gate works NCB Oct 98 21.65 2.45 GPW / 2.0 Plantation and soil conservation - Wulixia NCB Oct 98 13.28 1.49 20 packages GPW / 3.0 Plantation and soil conservation - Wulixia NS Oct 98 2.70 0.30 GMW / 8.0 Plantation and soil conservation - Lijiang NCB Jun 98 23.10 2.35 20 packages GMW /9.0 Plantation and soil conservation - Lijiang NS Jun 98 4.50 0.50 GMW/10.0 Embankment repairs and improvements NCB Sep 98 56.69 6.59 3 packages Goods GPG/ 1.0 Supply and construction of power station at Wulixia ICB Oct98 22.08 2.50 GPG / 2.0 Goods for Wulixia plantation NCB Nov 98 14.77 1.65 20 packages GMG / 4.0 Goods for Lijiang plantation NCB Jun 98 19.07 2.20 20 packages SmaTI Area Improveniienits Services NMC/ 1.0 Nanning-various contracts forservices CG Aug98 0.1-0.5 0.01-0.06 50 contracts GMC / 1.0 Guilin - various contracts for services CG Aug98 0, 110.S . 0.04-0.06 50 contracts Civil Works --NMW / 80° Nanning - various contracts for works NCB Jun 98 0.2-t.O 0.02-0.12 50 contracts - NBF A GvIW /12.0 Guilin - various contracts for works NCB Jun 98 0.2-1.0 0.02-0.12 50 contracts - NBFA Goods NMG/6.0 Nanning-various contractsfor goods NCB/NS Jun98 0.5 - 1.5 0.03-0.15 50 contracts GMG/5.0 Guilin-various contractsforgoods NCB/NS Jun98 0.5- 1.5 0.03-0.15 50 contracts Sugar Refinery Poluttion Control Goods B GRG / 1.0 Various contracts ranging in value from $300,000 to $1,000,000 (Contracts above $ 500,000 will be procured by ICB and others by acceptable commercial practice, mainly national shopping. First contract expected to start Apr 99). Notes: A community executed ecluipment and process licenses Legend CG = According to guidelines: Selection and Employment of Consultants by World Bank borrowers DC = Direct Contracting ICB =Intemational Competitive Bidding IS / NS = Intemational Shopping / National Shopping NCB = National Competitive Bidding NBF = Not Bank financed PQ = Prequalification LIB Limited Intemational Bidding Annex 13 159 Page 3 of 3 Contract Description Pcment Contract Contract Value Remarks No. Method Start Date (mil Y) (mil US$) Institutional Strengthening Goods NMG /7.0 Monitoring equipment and analysers for Nanning EPB ICB Aug 98 3.50 0.40 see Note A GMG ! 6.0 Monitoring equipment and analysers for Guilin City, ICB Aug 98 5.10 0.57 see Note A Yangshuo, Lingui and Guilin Prefecture GRG / 2.0 Monitoring equipment and analysers for regional EPB ICB Aug98 2.90 0.34 see Note A GRG / 3.0 Equipment for Lijiang Commission & Water ICB Aug 99 0.30 0.03 Management Major Consultancy & Trainine NMC / 2.0 Nanning Sewerage Company CG Jul98 6.40 0.73 see Note B GMC / 2.0 Guilin Sewerage Company CG Aug98 5.97 0.64 see Note B NMC / 3.0 Nanning EPB training & support CG Jul 98 0.60 0.07 see Note c GMC / 3.0 Guilin City and Prefecture EPB training & support CG Jul 98 1.26 0.15 see Note c GRC / 1.0 Lijiang Commission & Water conservation CG Sep98 4.46 0.50 GRC /2.0 RegionalEPBtrainingandsupport CG Aug98 1.54 0.18 seeNoteC Notes: A NMG /7.0, GMG / 6.0, ORG / 2.0 and GRG / 3.0 are procured as I package B NMC 12.0 & GMC / 2.0 are procured as I package c NMC / 3.0, GMC /3.0 & GRC /2.0 are procured as 1 package Legend CG = According to guidelines: Selection and Employmnent of Consultants by World Bank borrowers DC = Direct Contracting ICB = International Competitive Bidding IS / NS = International Shopping / National Shopping NCB = National Competitive Bidding NBF = Not Bank financed PQ = Prequalification LIB = Limited International Bidding Annex 14 160 Page 1 of 3 Schedule Of Supervision World Bank Supervision Input into Key Activities 1. The staff input indicated in the table below is in addition to regular supervision needs at headquarters to review progress reports, procurement actions, correspondence, etc., which is estimated at 10 staff weeks during FY99 through FY01, seven staff weeks thereafter and six staff weeks in FY05. The China Resident Mission input in supervising all components is estimated at 8 weeks annually from FY99-05. Accordingly, the total Bank Group supervision input is estimated at 106 staff weeks, of which 28 staffweeks would be at the headquarters, 28 staff weeks in the field, and 54 staff weeks would be from China Resident Mission (including 50% for field units). Table 1. World Bank Field Supervision Input into Key Activities Approximate Dates Activity Expected Skill Input (month/year) Requirements (staff weeks) Nov 1998 Supervision =mission (work progress, Task manager, Procurement 6 financial performance, project launch Financial analyst, Urban Planner workshops) Jun 1999 Supervision mission (work progress, Task manager, Water Pressure 5 financial performance) Specialist, Utilities Specialist Nov 1999 Supervision (in-depth assessment of Task manager, Utilities Specialist 6 physical progress and institutional Financial Analyst, Sociologist performance, enviromnental aspects) Enviromnental Specialist Feb 2000 Supervision mission (procurement, Task manager, Utilities Specialist, 6 fmancial performance) Financial analyst, Disbursement Specialist. Sep 2000 Mid Term Review (in depth assessment Task manager, Financial Analyst 8 of physical progress and institutional Sociologist performance, Jiangnan STP review Mar 2001/2/3 Supervision mission (work progress, Task manager, Sanitary engineer 3 x 6 Sep 200113/4 financial performance) Financial analyst Nov 2004 Implementation completion mission Task manager, Engineer 5 (review of draft report, review with Financial analyst implementing agencies Borrower's Contribution to Supervision 2. Overall coordination of the project would be the responsibility of Guangxi Project Office. This would include inter alia (i) providing guidance on timing and form of reporting implementation progress; (ii) arranging meetings with the government, sewerage companies during the mission's field visits; (iii) ensuring timely information to Bank Group; and (iv) proposing satisfactory resolution of any unexpected issue occurring during implementation. Annex 14 161 Page 2 of 3 3. The following reports on implementation progress would be submitted to IDA-- quarterly: (a) reports on implementation status, including monitoring of the Environmental Management Plan (EMP); annually: (b) annual updated financial projections of sewerage companies, (c) audited financial statements of sewerage companies and Special Account for the credit including a separate opinion on Statement of Expenditures; and other: (d) evaluation report on project implementation and any report required on various subjects. Outline of semi-annual status reports (March and September) 4. The semi-annual status report should comprise a descriptive part and appendices; the descriptive part should not exceed twenty pages and should cover the following items: (a) General description of the project. A concise summary of project objectives, description cities' components, financing, initial and latest estimated costs, initial and latest schedule, key data of credit and project agreements and of various amendments; (b) Project overview, physical accomplishment. Status of implementation progress for each component of the project, procurement, information on inspection of manufacturing, input of supervising consultant; monitoring of EMP compliance during the reported period; (c) Procurement status. List of awarded contracts with dates of award, start and completion of contract, allowed time extensions, and variations, contract amounts in various currencies and status of disbursement for contracts, projected and actual disbursement S-curve for the total cost; (d) Institutional status. Progress of institutional improvements in each sewerage company, performance of advisers and achievements in staff training; (e) Problems affecting implementation. Description of problems and proposed or taken actions. 5. Appendices will list personnel provided by the provinces and water company, by the consultants and by contractors, key meetings, important visits on site, photographs, location plans of the project showing planned and achieved progress and monitoring indicators. The report will include key monitoring indicators shown in Annex 10. Outline of the completion report on project implementation 6. The evaluation report to be prepared by GUEPO and the cities project offices, should not exceed ten pages and the performance judgments and analyses should cover the following specific aspects: Annex 14 162 Page 3 of 3 (a) Project objectives. A concise statement and evaluation of major objectives as presented in the SAR, including any changes made during implementation. The evaluation will assess the clarity of the objectives, their realism, and whether they are important for the country and sector. (b) Achievement of project objectives. An assessment of the project's success (substantial, partial, negligible) in achieving its major objectives A e.g. sector policy improvements, financial objectives, institutional development, physical objectives, other social objectives, environmental objectives, and public sector management and private sector development. (c) Implementation record and major factors affecting the proj-ect. An analysis of the factors that affect implementation. The factors are divided into those not generally subject to government or provinces control, those subject to government and provinces control, and those subject to water company control. (d) Bank Group performance. An assessment of IBRD Group's performance (highly satisfactory, satisfactory, deficient) in project identification, preparation assistance, appraisal, and supervision. (e) Sewerage compaqny p2erformance. An assessment of the performance of involved water company and municipality (highly satisfactory, satisfactory, deficient) in preparing, implementing, and operating the project. (f) Assessment of outcome. A rating of outcome (highly satisfactory, satisfactory, unsatisfactory, or highly unsatisfactory) based primarily on how well the project achieved its objectives and how sustainable it is likely to be. (g) Future operation. A description and assessment of the plan for the project's fu.ture operation, including understanding the measures to maximnize the project benefits, and the indicators for monitoring and evaluating future operations. (h) Key lessons learned. A discussion of the most significant positive and negative lessons learned from the project's implementation, showing how they are reflected in the arrangements for its future operations. This section also identifies those lessons most relevant to similar ongoing and future projects in this sector in China. 7. After project completion, GUJEPO, Guilin project office, Nanning project office and the sewerage companies will submit the evaluation report to the Bank Group before the stipulated time in the Project Agreement. Annex 15 163 Page 1 of 3 Documents and Data in the Project File Environmental Assessments 1. Statement on Environmental Impact Assessment of the Lijiang Comprehensive Treatment Project in Guilin City, Guangxi Zhuang Autonomous Region; (Chinese Research Academy of Environmental Sciences, April 1997). 2. Statement on Environmental Impact Assessment of the Rong-Sha Lakes Treatment in Guilin City, Guangxi Zhuang Autonomous Region; (Chinese Research Academy of Environmental Sciences, July 1997). 3 . Statement on Environmental Impact Assessment of the Chaoyangxi Comprehensive Treatment in Nanning City, Guangxi Zhuang Autonomous Region; (Chinese Research Academy of Environmental Sciences, April 1995). Feasibility Studies and Consultant Reports 4. Guangxi Urban Environment Project, Final Report; (CMPS & F Pty Ltd Australia, October 1996). 5. Nanning City Environmental Master Plan; (The S.M. Group International Inc., March 1997). 6. Guilin City Environmental Master Plan; (The S.M. Group International Inc., March 1997). 7. Feasibility Study - Lijiang Water Replenishment Project, Final Report, Volumes 1 and 2 ; (The S.M. Group International Inc., February 1997). 8. Feasibility Study Report - Water and Soil Conservation Scheme for Upstream of Li River, Guilin ; (Guilin Prefecture Forestry Design Institute, August 1996). 9. Feasibility Study Report - Comprehensive Control of the Environment for Chaoyangxi Stream in Nanning City, Guangxi Zhuang Autonomous Region, Volumes 1 and 2 - (Beijing Municipal Engineering Design and Research Institute, March 1995). 1 O Feasibility Study Report - Guilin Municipal Urban Wastewater Control Project in Guilin Lijiang River Environment Comprehensive Control Project, Final Report; (Central and Southern China Municipal Engineering Design and Research Institute, June 1996) Annex 15 164 Page 2 of 3 11. Feasibility Study Report - Guilin Municipal Urban Wastewater Control Project in Guilin Lijiang River Environment Comprehensive Control Project, Supplementary Report; (Central and Southern China Municipal Engineering Design and Research Institute, October 1996). 12. Guilin city Northwest Area Sewage Controlling Project - Feasibility Study Report of Xi Cheng Area Sewage System Project; (Shanghai Municipal Engineering Design Institute, June 1996). 13. Feasibility Study Report of Domestic Refuse Treatment System of Guilin Municipality; (Shanghai Municipal Engineering Design Institute, June 6 1995). 14. World Bank - Guangxi Urban Environment Project, Final Report on Consultant Assistance Mission, April 17 - May 6, 1997 by Allen Gale; (CMPS & F Pty Ltd Australia, May 5 1997). 15. Lijiang River Water Supplement Project - Possible Institutional Arrangements for the Future by Peter Millington; (CMIPS & F Pty Ltd Australia, 1997). 16. Consultant Report on Guangxi Urban Environment Project; (Hankuk Engineering Consulting Company, Korea, August 1996). 17. Consultant Report on Guangxi Urban Environment Project; (Hankuk Engineering Consulting Company, Korea, July 1997). 1 8 Nanning Septic/storage Tanks systematic management pilot project - Implementation Program; (Nanning Environment Sanitation Management Department, Jan 25 1997). 19. Lijiang Embankment works and Technical Assistance - Implementation Arrangements and procurement proposal [in Chinese]; (Guilin City Water and Power Bureau, July 1997). 20. Lijiang Riverside Reforestation project proposal [in Chinese]; (Guilin City Forestry Bureau, Jun 2 1997). 21. A Plan of Implementation for the environmental protection projects in the Guilin Prefecture by using the loan from the World Bank; (Leading Group Office of using Foreign Fund, Guilin Prefecture, April 1997). 22. Xingping town Small Area Improvement project proposal [in Chinese]- (Guilin Municipality, Yangshuo County government, May 1996). Annex 15 165 Page 3 of 3 23. Yangshuo County environment management project proposal [in Chinese]; (Guilin Municipality, Yangshuo County government, May 1996). Industrial Pollution Control Action Plan 24. Nanning Chaoyang Stream Environmental Comprehensive Control Project - Industrial Pollution Control Plan (Nanning Environmental Protection Bureau, 1997). Other Documents 25. Nanning and Guilin Sewerage Companies - draft institutional development action plans; 1998. 26. Nanning and Guilin Sewerage Companies - draft Terms of Reference for Technical Assistance; 1998. 27. Resettlement Action Plan for the Chaoyangxi Sewage Control Scheme in Nanning City, Guangxi Zhuang Autonomous Region (July 4, 1997). 28. Immigrant Resettlement Planning Report of Xiaorongjiang Water Diversion Project (Guilin Water Resources Bureau, January 1997). 29. The Ninth 5 year plan and Long Term planning to 2015 for the environmental protection work of Nanning City - Abstract; (Nanning City Environmental Protection Agency, November 1994). 30. Guangxi Urban Environment Project, Project Implementation Plans; 1998. EBRD 29561 MONGOLIA 4/i/N 1/000' -- 0 _.* H' A0 , u.-, RER.CHN ''HEn/s ' ef;X .EREPa C H I N A GUANGXI URBAN ENVIRONMENT PROJECT AASU'Pf+JX/' OF/AN .. /JAN9E4 -- . O . , ..........' 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