World Bank Document...E. Bank Staff Positions At ICR At Approval Vice President: James W. Adams...

Document of The World Bank

Report No: ICR0000984

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-45690 TF-26661)

ON A

LOAN

IN THE AMOUNT OF US$150 MILLION

TO THE

PEOPLE’S REPUBLIC OF CHINA

FOR A

HEBEI URBAN ENVIRONMENT PROJECT

December 23, 2008

Urban Development Sector Unit China Country Management Unit East Asia and Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective June 30, 2008)

Currency Unit = Yuan (Y) Y 1.00= US$ 0.1459 US$ 1.00 = Y 6.8543

FISCAL YEAR

ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy MIS Management Information System PDO Project Development Objectives MTR Mid-Term Review MTAPC Mid-Term Adjustment Project Components RVP Regional Vice-Presidency IPCAP Industrial Pollution Control Action Plan KPI Key Performance Indicators TTL Task Team Leader CPS Country Partnership Strategy IT Information Technology GIS Geographic Information System HP Hebei Province HPG Hebei Provincial Government HUEP Hebei Urban Environment Project IA Implementation Agency TWSC Tangshan Water Supply Company HWSC Handan Water Supply Company SWWC Shijiazhuang Wastewater Company TWWC Tangshan Wastewater Company HWWC Handan Wastewater Company WTP Water Treatment Plant WWTP Wastewater Treatment Plan ICB International Competitive Bidding RAP Resettlement Action Plan EMP Environmental Management Plan

Vice President:James W. Adams

Country Director:David R. Dollar

Sector Manager:Ede Jorge Ijjasz-Vasquez

Project Team Leader:Takuya Kamata

ICR Team Leader:Takuya Kamata

CHINA Hebei Urban Environment Project

CONTENTS

Data Sheet A. Basic Information

B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ...............................................12. Key Factors Affecting Implementation and Outcomes...............................................93. Assessment of Outcomes ..........................................................................................134. Assessment of Risk to Development Outcome.........................................................195. Assessment of Bank and Borrower Performance......................................................196. Lessons Learned........................................................................................................217. Comments on Issues Raised by Borrower/Implementing Agencies/Partners...........23Annex 1. Project Costs and Financing ..........................................................................24Annex 2. Outputs by Component..................................................................................25Annex 3. Economic and Financial Analysis .................................................................28Annex 4. Bank Lending and Implementation Support/Supervision Processes.............36Annex 5. Beneficiary Survey Results ...........................................................................38Annex 6. Stakeholder Workshop Report and Results...................................................39Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR .....................40Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders .......................50Annex 9. List of Supporting Documents.......................................................................51MAP

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A. Basic Information Country: China Project Name:

HEBEI URBAN ENVIRONMENT PROJECT

Project ID: P045910 L/C/TF Number(s): IBRD-45690,TF-26661ICR Date: 12/30/2008 ICR Type: Core ICR

Lending Instrument: SIL Borrower: PEOPLES' REPUBLIC OF CHINA

Original Total Commitment:

USD 150.0M Disbursed Amount: USD 149.0M

Environmental Category: B Implementing Agencies: Hebei Project Management Office Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 03/24/1999 Effectiveness: 01/31/2001 01/31/2001 Appraisal: 03/04/2000 Restructuring(s): 08/17/2007 Approval: 06/27/2000 Mid-term Review: 11/15/2004 Closing: 06/30/2007 06/30/2008 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Satisfactory Borrower Performance: Highly Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Highly Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Highly Satisfactory

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Highly Satisfactory

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C.3 Quality at Entry and Implementation Performance Indicators Implementation

Performance Indicators QAG Assessments (if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Sewerage 66 66 Sub-national government administration 1 1 Water supply 33 33

Theme Code (Primary/Secondary) Access to urban services and housing Primary Primary Environmental policies and institutions Primary Primary Pollution management and environmental health Primary Primary Water resource management Primary Primary E. Bank Staff

Positions At ICR At Approval Vice President: James W. Adams Jemal-ud-din Kassum Country Director: David R. Dollar Yukon Huang Sector Manager: Ede Jorge Ijjasz-Vasquez Keshav Varma Project Team Leader: Takuya Kamata Wiebe Moes ICR Team Leader: Takuya Kamata ICR Primary Author: Claudio Purificato F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) To develop a safe environment and to sustain the long-term economic growth of urban areas in Hebei Province. The project supports Hebei Province in: 1)implementing a long-term urban environmental services improvement program to recover from environmental degradation of its water and land resources,

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2) providing an adequate supply of safe water to its growing urban population and economy, and 3) ensuring sustainability of delivery through institutional and financial reforms of the service utilities. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Reduction of pollution load from urban sources.

Value quantitative or Qualitative)

e.g. waste water treatment rates (other indicators exist--see attachment) - Handan 29%; Tangshan 65%; Shijiazhuang 16%

e,g, waste water treatment rates (other indicators exist - see attchment) Handan60%; Tangshan 75%; Shijianzhuang 50%.

Date achieved 01/01/2001 06/30/2008 Comments (incl. % achievement)

Indicator 2 : Expansion of suppy of safe water to meet demand from domestic and industrial sectors.

Value quantitative or Qualitative)

e.g. Handan service are and population coverage (other indicators exist--see attachment) -service area 75.99 km2 -population 818.2 ('000)

e.g. Handan service are population coverage - service area 79.31 km2 - population 980,000


Indicator 3 : Improvement of financial viability of municipal service providers. Value quantitative or Qualitative)

e.g. increase in wastewater (domestic) tariffs (other indicators

e.g. increase in wastewater (domestic) tariffs

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exist--see attchment) - Handan 0.22 - Tangshan 0.43 - Shijiazhuang 0.3

(other indicators exist - see attachment) - Handan 0.45 - Tangshan0.9 - Shijiazhuang 0.8


(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : e.g. improvement in accounting and MIS/ KPI system.

Value (quantitative or Qualitative)

e.g.Total operating revenue - Total operating income - Net income before income tax - Tariff collection rate No baseline values were available. For complete list of suggested indicators - See Annex 1

Targets are not available.


G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (USD millions)

1 10/31/2000 Satisfactory Satisfactory 0.00 2 11/03/2000 Satisfactory Satisfactory 0.00 3 06/26/2001 Satisfactory Satisfactory 7.48 4 12/27/2001 Satisfactory Satisfactory 7.94 5 02/07/2002 Satisfactory Satisfactory 7.94 6 02/22/2002 Satisfactory Satisfactory 7.94 7 11/25/2002 Satisfactory Satisfactory 9.97 8 03/17/2003 Satisfactory Satisfactory 14.19 9 04/11/2003 Satisfactory Satisfactory 14.19

10 10/23/2003 Satisfactory Satisfactory 18.71

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11 04/02/2004 Satisfactory Satisfactory 30.64 12 12/23/2004 Satisfactory Satisfactory 44.51 13 06/15/2005 Satisfactory Satisfactory 65.79 14 02/16/2006 Satisfactory Satisfactory 91.51 15 06/28/2007 Satisfactory Satisfactory 116.22 16 06/05/2008 Satisfactory Satisfactory 127.99

H. Restructuring (if any)

ISR Ratings at RestructuringRestructuring

Date(s)

Board Approved

PDO Change DO IP

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

08/17/2007 N S S 116.22

Components were added within the same project sites and within the same PDO as a result of mid-term project review

I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal Sector Background. China had made remarkable progress in expanding its urban water supply and wastewater services since the nineties. Some progress had been achieved in increasing service coverage, optimize the use of resources and reduce the municipal pollution discharges into the environment. A large percentage of China’s river stretches had been classified as severely polluted. Coastal waters suffered from wide spread eutrophication, including large-scale, toxic red tide of algae. In spite of extensive efforts to improve water quality and ensure reliable water supplies, seasonal shortages and polluted water resources continued to pose problems. Financing investments, and ensuring investment efficiency, was a major challenge for the sector. Some water supply utilities, and most wastewater utilities, relied heavily on municipal government funding.

In a context of serious water pollution and water scarcity, limited coverage (particularly for wastewater treatment) and increasing costs, the achievement of full cost recovery and introduction of cost control measures had become a growing requirement for the sector. While several pricing reforms, to inspire tariff increases and introduce more scientific methods of charging for the service received, were enacted by central government agencies, these could have been successful in the long term only if institutional and organizational reforms for the sector providers were also implemented. Hebei had faced three major issues with regard to the urban environment: (i) environmental degradation; (ii) infrastructure constraints; and (iii) financial weakness of municipal services providers. The quantity and quality of water supplied to households and industries as well as its impact on economic development, and the continuing environmental deterioration of the aquatic environment and subsequent impact of water pollution on public health had been major concerns for the Hebei Provincial Government (HPG). Pressure to enhance capacity for wastewater management and water supply had been increasing with sustained economic growth and migration to the cities. At the time of project preparation, the capacity for wastewater treatment was limited. Except for some industries which undertook their own treatment, facilities for domestic wastewater treatment were limited in Hebei. In Shijiazhuang, the capital city, only 16% of the wastewater was treated in a centralized facility. The predominant means of treatment was through the use of septic tanks, which were often not operated efficiently and correctly. The existing capacity of targeted areas of investments at the time of project appraisal is summarized in the table below.

Location Wastewater Treatment Capacity (m3/day)

Drainage Systems

(Km)

Water Supply Production Capacity (m3/day)

Pipelines (Km)

SHIJIAZHUANG 160,000 69 - - TANGSHAN 336,000 228.2 400,000 516 HANDAN 100,000 200 144,500 359.8

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As a response to the increased demand for water and environment cleanup the Hebei Provincial Government (HPG) has launched the plan for the expansion and improvement of municipal wastewater management and water supply systems as well as embarked on a series of reforms both aimed at improving cost recovery and improve efficiency of service delivery by the companies. Rationale for Bank Assistance. The project was in line with the Country Assistance Strategy (CAS) at the time of project approval and supported two of the five CAS priorities: (i) safeguarding the environment; and (ii) reducing infrastructure bottlenecks. Specifically, it has expanded the capacity of urban environmental services and improved the strengthening of water quality monitoring capability. The project also supported the strategy to increasingly use tariffs to finance environment related public services.

1.2 Original Project Development Objectives (PDO) and Key Indicators The Project Development Objectives (PDO) of the Hebei Urban Environment Project (HUEP) were to provide a safe environment and to sustain the long-term economic growth of urban areas in Hebei Province (HP). The project supported Hebei Province in implementing a long-term urban environmental services improvement program to recover from environmental degradation of its water and land resources, provide an adequate supply of safe water to its growing urban population and economy, and ensure sustainability of delivery through institutional and financial reforms of the service utilities. The changes and benefits that the operation was expected to achieve were monitored through key associated performance indicators aimed to measure: (i) reduction of pollution load from urban sources through selective high-impact wastewater collection and disposal improvements; (ii) expansion of supply capacity for safe water in urban areas to meet demand from domestic and industrial sectors; and (iii) strengthened financial viability and institutional autonomy of municipal service providers. The key indicators identified at the time of project preparation for monitoring project outcomes and impacts are: (a) reduction of pollution load from urban sources; (b) expansion of supply of safe water to meet demand from domestic and industrial sectors; and (c) improvement of financial viability of municipal service providers.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification Project Development Objectives (PDO) and key associated outcome targets have not been revised during implementation.

1.4 Main Beneficiaries, The project was targeting the population of the core urban areas of the three project cities of Shijiazhuang, Tangshan and Handan. The potable water infrastructures were aimed to strengthen the reliability of water supplies to the three largest urban centers in Hebei and to mitigate the effects of over-abstraction from ground water sources. Wastewater

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removal from the city centers and treatment components were aimed to improve the quality of available surface water resources as well as the environmental conditions in the cities. The total population in the above mentioned areas at the time of project approval was estimated at 2.9 million projected to some 5.0 million by the year 2010. The primary beneficiaries of the physical investments were identified in 950,000 people for the water supply component and 1.6 million for the wastewater collection and disposal component. Approximately 400,000 people were targeted to directly benefit from the completion of the Handan wastewater and water supply components; approximately 640,000 people to benefit from the completion of the Shijiazhuang wastewater component; and approximately 570,000 people to benefit from the completion of the Tangshan wastewater and water supply components. In addition to the above it was expected that industrial and commercial activities would have benefited directly from project activities.

1.5 Original Components The project included the four major components summarized below: Water Supply. This component supported the upgrading and expansion of water supply in Tangshan and Handan, as well as demand side management. Tangshan

• Raw water intake pumping station, with capacity of 160,000 m3/day, at Douhe reservoir located 15 km north of the city;

• Raw water transmission main of pre-stressed concrete with diameter DN 1400 mm and total length of 19 km;

• Water treatment plant, with capacity of 150,000 m3/day; and • Distribution network strengthening with a total length of 9.5 km of pipes varying

in diameter from DN 600-1200 mm. Handan

• Raw water intake works, with a capacity of 120,000 m3/day, at Yuecheng reservoir located 60 km south of Handan city;

• Gravity raw water transmission main of pre-stressed concrete pipe, with a diameter varying from DN 1200-1400 mm and total length of 56.6 km;

• Phase II of Tiexi water treatment plant, with a capacity of 100,000 m3/day; and • Strengthening of distribution network, with a total length of 50.8 km with pipe

diameters varying from DN 300-1000 mm. Wastewater Management. The component supported Hebei Provincial Government in implementing its water quality strategy in the three project cities, through expansion of wastewater collection and treatment facilities. The specific investments for each of the targeted cities are detailed below:

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Shijiazhuang

• Sewer interceptors for a total length of 27.9 km connecting the proposed wastewater treatment plant to the southwestern periphery of the city;

• Conventional activated sludge sewage treatment plant with a capacity of 500,000 m3/day, including sludge digesters and energy recovery; and

• Secondary sewer program, including link sewers, for a total length of 12.3 km. Tangshan

• Sewer interceptors with diameters varying from DN 1000-1800 mm for a total length of 6.1 km connecting the proposed wastewater treatment plant to the southeastern periphery of the city;

• Conventional activated sludge sewage treatment plant with a capacity of 120,000 m3/day, including sludge treatment and composting facilities; and

• Secondary sewer program, including link sewers, with diameters varying from DN 300-800 mm for a total length of 13.5 km.

Handan

• Sewer interceptors with a diameter varying from DN 1000-1800 mm for a total length of 8.1 km connecting the proposed wastewater treatment plant to the northwestern periphery of the city;

• Rehabilitation and expansion of the North Sewage Pumping Station with a capacity of 60,000 m /day;

• Oxidation ditch sewage treatment plant with a capacity of 100,000 m3/day including sludge treatment facilities;

• Secondary sewer program, including link sewers, with a diameter varying from DN 300-800 mm for a total length of 30.2 km; and

• Expansion of sludge treatment for a capacity of 33,000 m3/day and optimization of plant operational capacity at existing East Wastewater Treatment Plant.

Environmental Pollution Control. The component was aimed to address the issue of substantial pollution from industry, particularly in the Hai and Fuyang river basins, through the implementation of a policy focused on Industrial Pollution Control Action Plan (IPCAP). The objective of implementing the IPCAP was to reduce the scale of pollution loads from industrial sectors and in turn maximize expected environmental benefits from municipal investments. The proposed Industrial Pollution Control Action Plan (IPCAP) consisted of an overall time-bound action plan for each city outlining preliminary actions for: (a) quantitative analysis of pollution loads from industry based on compliance with national standards at present rates of wastewater discharge; (b) highlighting remaining non-complying discharges for immediate term control/closure; (c) set up of a pollution load database for each receiving watercourse; (d) developing future water quality objectives for all watercourses; (e) determining pollution load reductions required for all watercourses to meet 2005 and 2010 water quality objectives; (f) stating priority receiving watercourses requiring load reductions to meet desired water quality

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objectives; and (g) stating priority industry sectors and enterprises for control and load reduction requirements

Institutional Development, Strengthening and Training. This component provided a Technical Assistance (TA) to support and advice on appropriate institutional, managerial, financial and operational arrangements to be put in place to enhance operational effectiveness, efficiency of management and financial sustainability of the water supply and wastewater companies in the project. Specific investments for this component are detailed below: Institutional/ Managerial Sub-component

This included: (a) development of a company strategy, business plans and management information systems (MIS); (b) establishing service standards and monitoring performance targets under a more autonomous arrangement; and (c) company reorganization and development of human resources planning and training programs. Financial Strengthening

This includes: (a) operationalize computerized accounting and financial reporting systems; (b) developing a financial MIS system; (c) reviewing and revising current billing practices to optimize collection efficiency; and (d) developing training programs. Operation Enhancement

This includes: (a) identification and implementation of cost savings initiatives; (b) preparation and implementation of sludge disposal plans; and (c) introduction of modem, cost effective, operations and maintenance equipment, including training. Management and Geographic Information

This includes: (a) assess current methods and systems for collection and maintenance of spatial and non-spatial data; (b) develop action plans for implementation of improved information technologies such as MIS and GIS; (c) identify and implement linkages required at local, provincial and national level for data sourcing; and (d) implement training programs to support the introduction and maintenance of the above information systems.

1.6 Revised Components No major revision of project components took place during implementation. However significant reallocation of funds occurred during the execution of the project (see next paragraph).

1.7 Other significant changes

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During the Mid-Term Review (MTR) which was carried out in November 2004, the Bank task team identified that a significant amount of loan proceeds was remaining unallocated. Based on that assessment, it was recommended that the remaining loan proceeds, which had originally been “unallocated” in Schedule 1 of the Loan Agreement, as well as generated by loan savings, were utilized to carry out: i) critical additional rehabilitation and upgrading work on the same water supply and wastewater systems implemented under the original Components 1 and 2 of the Project, in Tangshan and Handan municipalities; and ii) additional studies and training to ensure sustainability of the organizational reforms, which was included under the original Component 3 of the Project. These components were referred to as “Mid-Term Adjustment Project Components (MTAPC)”. A full set of preparatory activities including feasibility studies, final designs and complete review of safeguards and fiduciary aspects was required to incorporate the new components into the project. Also, the project restructuring required amendments to the Loan and Project Agreements. All the restructuring process was time consuming and was completed in year 2007. The investments implemented under the MTAPC are showed in the table below which link original components to related additional works and upgrades. The proposed amendments constituted a “second-order restructuring”, requiring RVP approval, as set forth in BP13.05 since the proposals did not involve any changes to project development objectives while the reallocation exceeded the five-percent threshold defined in BP 13.25. COMPONENTS Original Design MTAPC Water Supply Tangshan • Raw water intake pumping station,

with capacity of 160,000 m3/day, at Douhe reservoir located 15 km north of the city;

• Raw water transmission main of pre-stressed concrete with diameter DN 1400 mm and total length of 19 km;

• Water treatment plant, with capacity of 150,000 m3/day; and

• Distribution network strengthening with a total length of 9.5 km of pipes varying in diameter from DN 600-1200 mm.

• Upgrading water distribution network by replacing 31 km of water pipes;

• Upgrading intake pumping station at old Beijiao Water Treatment Plant and Groundwater Treatment Plant, as well as upgrading of equipment in the Beijiao Water Treatment Plant;

Handan • Raw water intake works, with a capacity of 120,000 m3/day, at Yuecheng reservoir located 60 km south of Handan city;

• Gravity raw water transmission main of pre-stressed concrete pipe, with a diameter varying from DN 1200-1400 mm and total length of

• Upgrading of water supply distribution network to larger ductile pipes;

• Upgrading of the equipment for aging early-phase parts of the water treatment plant;

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56.6 km; • Phase II of Tiexi water treatment

plant, with a capacity of 100,000 m3/day; and

• Strengthening of distribution network, with a total length of 50.8 km with pipe diameters varying from DN 300-1000 mm.

Wastewater Management Shijiazhuang • Sewer interceptors for a total length

of 27.9 km connecting the proposed wastewater treatment plant to the southwestern periphery of the city;

• Conventional activated sludge sewage treatment plant with a capacity of 500,000 m3/day, including sludge digesters and energy recovery; and

• Secondary sewer program, including link sewers, for a total length of 12.3 km.

Tangshan • Sewer interceptors with diameters varying from DN 1000-1800 mm for a total length of 6.1 km connecting the proposed wastewater treatment plant to the southeastern periphery of the city;

• Conventional activated sludge sewage treatment plant with a capacity of 120,000 m3/day, including sludge treatment and composting facilities; and

• Secondary sewer program, including link sewers, with diameters varying from DN 300-800 mm for a total length of 13.5 km.

• Tangshan Wastewater: Construction of an effluent reuse plant for the use of treated wastewater as cooling water for the nearby power plant and associated pipelines. The same implementation agency of the original Component 2 – (ii), Tangshan Wastewater Company Co., Ltd, will be in charge of implementation of this additional component.

Handan • Sewer interceptors with a diameter varying from DN 1000-1800 mm for a total length of 8.1 km connecting the proposed wastewater treatment plant to the northwestern periphery of the city;

• Rehabilitation and expansion of the North Sewage Pumping Station with a capacity of 60,000 m /day;

• Oxidation ditch sewage treatment plant with a capacity of 100,000 m3/day including sludge treatment facilities;

• Secondary sewer program, including link sewers, with a diameter varying from DN 300-800 mm for a total length of 30.2 km; and

• Handan Wastewater: Upgrading and extension of sewage pipes serving the old Eastern Wastewater Treatment Plant and upgrading of equipment at the same plant. The same implementation agency of the original Component 2 – (iii), Handan Sewerage Treatment Co., Ltd, will be in charge of implementation of this additional component.

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• Expansion of sludge treatment for a capacity of 33,000 m3/day and optimization of plant operational capacity at existing East Wastewater Treatment Plant.

Environmental Pollution Control Industrial Pollution Control Action Plan (IPCAP)

• quantitative analysis of pollution loads from industry based on compliance with national standards at present rates of wastewater discharge;

• highlighting remaining non-complying discharges for immediate term control/closure;

• set up of a pollution load database for each receiving watercourse;

• developing future water quality objectives for all watercourses;

• determining pollution load reductions required for all watercourses to meet 2005 and 2010 water quality objectives;

• stating priority receiving watercourses requiring load reductions to meet desired water quality objectives; and

• stating priority industry sectors and enterprises for control and load reduction requirements

Institutional Development, Strengthening and Training Institutional/ Managerial Sub-component

• development of company strategy, business plans and management information systems (MIS);

• establishment of service standards and monitoring performance targets under more autonomous arrangement; and

• company reorganization and development of human resources planning and training programs;

Financial Strengthening

• operationalize computerized accounting and financial reporting systems;

• developing financial MIS system; • reviewing and revising current

billing practices to optimize collection efficiency; and

• developing training programs;

Operation Enhancement

• identification and implementation of cost savings initiatives;

• preparation and implementation of sludge disposal plans; and

• introduction of modem, cost effective, operations and

• carrying out a study of sludge disposal at the Qiaodong Wastewater Treatment Plant in Shijiazhuang;

• carrying out a water supply and wastewater management

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maintenance equipment, including training;

study/training;

Management and Geographic Information

• assess current methods and systems for collection and maintenance of spatial and non-spatial data;

• develop action plans for implementation of improved information technologies such as MIS and GIS;

• identify and implement linkages required at local, provincial and national level for data sourcing; and

• implement training programs to support the introduction and maintenance of the above information systems;

• establishment of a geographical information system (“GIS”) system in Handan;

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry Bank sector work at the time of preparation highlighted that water and sanitation projects in China had been facing a number of challenges which included among others: (i) constraints in fulfilling financial viability of municipal services; (ii) difficulties in implementing agreed tariff increases in a timely manner due to the politically difficult decisions for local governments; (iii) poor performances in tracking and controlling industrial pollution. The lesson learned from earlier operations were incorporated into the design of the project and included: (i) policy dialogue with the Hebei Government on tariff reforms and improvement of operational efficiency at early stage of project preparation. This was intended to encourage incentives for resource conservation and to create a more reliable income stream; (ii) as an integral part of the project design substantial tariff adjustments were implemented during the preparation stage and prior to negotiation. In addition to that Bank and municipal governments agreed upfront on a schedule for tariff adjustments during the implementation of the project; (iii) Industrial Pollution Control Action Plan (IPCAP) for each city outlining preliminary actions to reduce the scale of pollution loads from industrial sectors and in turn maximize expected environmental benefits from municipal investments. The Government has demonstrated adequate commitment to the proposed project as evidenced by: (i) regular involvement by the high level Leading Group, headed by the Vice Governor, to support institutional reform and tariff increases; (ii) excellent performance by the provincial and municipal project management offices during the preparation of the proposed project; (iii) major upfront actions on institutional reform in the wastewater subsector and substantial tariff increases for both water supply and wastewater; (iv) investment of considerable provincial and municipal resources in the

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preparation of comprehensive feasibility studies for an extended period; and (v) hiring of top class local design institutes for technical studies as well as safeguard policies. The Bank brought considerable international experience in assisting the client in policy formulation and investment program design and especially in addressing institutional and financial reform within water supply and wastewater utilities. The Bank involvement has allowed the introduction of more cost-effective solutions and enhanced the construction quality control of the physical investments, accelerated institutional strengthening and training, and contributed to accelerate promotion of utility reforms. A critical aspect of the project preparation is related to the design of the monitoring and evaluation system. A number of indicators were identified and selected. However they were not fully adequate to monitor progress towards Project Development Objectives (PDO) since no specific indicators were agreed to monitor the financial performance of the municipal service companies. Moreover, no baseline information was clearly set forward at the time of project appraisal and prior to starting implementation. Also, another aspect in which the project preparation failed is that no targets were discussed and provided in the approval documents.

2.2 Implementation The project was implemented mostly as designed and largely achieved the development objectives, particularly with respect to institutional strengthening and provision of safe water supply. Water and wastewater companies substantially met performance indicators on operational aspects, thanks to the positive effects of corporate and organizational improvement works that were carried out since the early stage of implementation. With regard to financial performance, most of the companies met the cost recovery and debt service coverage covenants with the exception of Shijiazhuang Drainage Company which is the only one that lagged behind on this aspect despite the tariff increase approved by the Province. Some adjustments took place following the mid-term review and accordingly the project was completed on June 30, 2008, one year behind the originally scheduled closing date of June 30, 2007. This was required mainly to implement the new activities incorporated under the Mid-Term Adjustment Project Components (MTAPC) plan. Carried out in November 2004, the mid-term review found the project substantially on track. However, as a result of the mid-term review, it was agreed to reallocate funds within the Loan to incorporate critical additional rehabilitation and training. Preparatory works for the MTAPC including feasibility studies, engineering designs, procurement processes, and safeguard and fiduciary reviews were carried out by the project implementation agencies in Hebei Province and the Bank task team. In addition to the above additional Bank financial reviews highlighted an erroneous presentation in the financial covenant in Schedule 3 of the Project Agreement. This required an amendment to the Project Agreement to incorporate MTAPC into the legal documents and to correct the financial covenant issue. The whole preparation and approval process to incorporate the new components into the project was time consuming and was completed in August 2007 with the clearance and approval provided by EAPVP.

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The amendments included: (a) reallocation of loan proceeds of US$19.79 million (13 percent of the total Loan amount of US$150 million) to implement additional critical rehabilitation and upgrade works on the water supply and sewerage systems in the same Project municipalities; (b) an extension of the Closing Date by nine months to June 30, 2008; and (c) rectification of the double counting of the value of depreciation and debt service requirements in a financial covenant in the Project Agreement.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The project monitoring and evaluation system designed at the time of project preparation selected a number of indicators that were not fully adequate to monitor progress toward Project Development Objectives (PDO). No specific indicators were agreed to monitor the financial performance of the municipal service companies. No baseline information was made available at the time of project appraisal and prior to starting implementation. Also, no established targets were discussed and provided in the approval documents. The development of the above mentioned M&E activities and the compilation of correlated baseline information lagged behind during the execution of the project due, for the most part, to a temporary lack of guidance that occurred at the time a change in the Bank Task Team composition took place. When the current and latest TTL took over the responsibility of the project in 2006, the set of Key Performance Indicators (KPIs) were revised and made operationally more relevant and practical. However, no targets were agreed between the Bank and the implementation agencies at the time KPIs were revised since the project was too close to its final stage.

The selection was based on the following criteria: (i) indicators should have been specific and relevant; (ii) indicators should have been simple and easy to measure; (iii) make the most of the monitoring indicators that the companies already reported to the relevant regulatory bodies. The new set of amended indicators was included in the Bank monitoring and reporting system. The originally defined set of indicators are compared with the revised KPIs and showed in the table below.

KEY PERFORMANCE INDICATORS

Originally Designed Revised

Sector Indicators • Ambient environment conditions in Hebei improved

• Environmental related health problems reduced

• Urban environmental infrastructure supply meets demand

Outcome Indicators • Reduction of pollution load from urban sources

• Expansion of supply of safe water to meet demand from domestic and industrial

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sectors • Improvement of financial

viability of municipal service providers

Output Indicators • Ratio of actual tariff to cost recovery tariff is increased

• Volume increase for: wastewater collected, safe water supplied, number of small and medium industries adopting cleaner technology

• Long-term water resource strategy developed and number of staff trained in water quality monitoring

• Percentage of sewage collected and treated

• Percentage nutrient removal • Supplies increased to meet

demand; water quality improved

• Reduction in pollution load from key industries

• Improvements in accounting and MIS, numbers of management and staff trained

Quarterly Indicators

Operational For Water Supply Company(1) Volume of Water Sold (2) Unaccounted for water ratio (3) Quality of water

(i) turbidity (ii) residual chlorine

(iii) coliforms (iv) total bacteria

For Waste Water Company(4) Volume of Water Treated (5) Quality of Treated Water

(i) COD (ii) BOD

(iii) SS (iv) NH3-N (v) TP

Financial For Water Supply Company and Waste Water Company(6) Total operating revenue (7) Total operating income (8) Net income before income

tax (9) Collection efficiency rate Annual indicators

For Both Water Supply Company and Waste Water Company(10) Unit consumption of

electricity (11) Unit consumption of

chemicals For Water Supply Company(12) Water supply volume per

employee For Waste Water Company(13) Waste water treated volume

per employee (14) Volume of treated water

reused (15) Volume of sludge (16)Volume of sludge disposed

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other than landfill

2.4 Safeguard and Fiduciary Compliance All aspects related to the Environmental Assessments, Fiduciary and Safeguards issues have been found satisfactory. The project received the environmental category B classification which entailed a partial environmental assessment. Environmental Management Plans (EMPs) and Resettlement Action Plans (RAPs) for the original components were implemented satisfactorily. With regard to the works included under the additional MTAPC all EMPs were cleared by the Bank. It was determined that no Resettlement Action Plans (RAPs) were needed for the additional works since there was no resettlement associated with the proposed investments. All the civil works and equipment upgrade were located in existing sites, roads and city boundaries and no land acquisition was involved for the additional works. All major procurement activities were completed satisfactorily and regular post-reviews confirmed compliance with Bank procurement guidelines. All the procurement methods were in accordance with the original procurement arrangements. Only one change was required to include Single Source Selection procurement method for consultants’ selection to allow the same supervising consultant to continue performing the supervision duties on the MTAPC. Periodic supervision mission reviews of financial management (FM) rated financial management as satisfactory.

2.5 Post-completion Operation/Next Phase All the utility companies other than SWWC already carried out basic performance monitoring and reported some of the indicators to the relevant regulatory bodies on a monthly basis. The project contributed to improve the KPIs management system by introducing a more functional set of performance indicators and by establishing monitoring routines which will allow future and more systematic evaluation of utility companies’ progress. The water supply and sanitation companies have been in operation for quite few years during project implementation. The Bank rated their performance satisfactory and therefore no issues related to transition are expected.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation The project, as designed and implemented, tackles some of the China’s development challenges as identified in the current Country Partnership Strategy (CPS) (2006), notably: (i) pricing water to reflect more accurately the scarcity value of water and the

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environmental degradation linked to water use and water pollution; (ii) taking steps to minimize water pollution by processing urban wastewater for reuse. Also, the project is consistent with the current Bank Country Assistance Strategy (CAS) (2003) and corporate goals to address the expansion of urban wastewater collection and treatment facilities while upgrading utilities management and performance, and improving efficiency of water supply.

3.2 Achievement of Project Development Objectives The Project Development Objective (PDO) of providing safe environment and to sustain the long-term economic growth of urban areas in Hebei Province was substantially achieved. The accomplishments were measured by project outcome indicators, which included: (i) reduction of pollution load from urban sources; (ii) expansion of supply of safe water to meet the demand from domestic and industrial sector; and (iii) improvement of financial viability of municipal service providers. Specifically, the project has contributed significantly to protecting the water resources and supplying adequate safe water in Hebei Province. The direct beneficiary population of the project is approximately 2.58 million people, 0.97 million more than the 1.61 million estimated in the PAD. The wastewater components in Handan, Shijiazhuang and Tangshan are fully operating and reduce, every year, the discharge of contaminants in receiving water bodies for a total of about 121,990 tons of COD; 54,100 tons of BOD; 38,700 tons of suspended solid (SS) and 10,610 tons of ammonia nitrogen (NH3-N). Additionally, the project has achieved even greater pollution control than originally planned through the adoption of a Wastewater Reclamation Plant in Tangshan constructed through the utilization of loan savings. Both water supply components in Handan and Tangshan have been put into operation and have been supplying safe drinking water. Also, both Handan and Tangshan Water Supply components constructed additional distribution networks through the utilization of loan savings, increasing beneficiary population above the estimates in the PAD. The outputs of Technical Assistance have been successfully strengthening financial viability and institutional autonomy of municipal service companies towards the goal of full cost recovery. The financial performances of the five implementing agencies are summarized below. All the utility companies other than SWWC had complied with the financial covenants1 in 2007. For this compliance, TWWC and HWWC received government subsidies. HWSC and TWWC had planned to implement the tariff increase in 2008. However, due to the inflationary environment in China, it was delayed and will likely not be implemented until the second half of 2009. As a result, the two companies would not be able to comply with the debt service coverage covenant in 2008. HWWC and SWWC have to further improve the collection rate. SWWC, which could not achieve the collection rate of 60% for a long period, recently improved the collection rate substantially from 60% in 2005 to 85% in 2007. HWWC, which experienced a sudden dip in the collection rate to 67% in

1 A cost recovery ratio of at least 1.0 and a debt service coverage ratio of at least 1.3.

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2007 after the tariff increase, is expected to recover it to 72% in 2008. ICR assessment is that HWWC and SWWC can achieve their targets with the strong support from the relevant municipal government. With these targets achieved, all the companies would be able to comply with the financial covenants in 2010 and onwards as the tariff increases will be implemented as planned.

actual2007 2008 2009 2010 2011 2012

Water Supply CompanyTWSCCost Recovery Ratio 1.1 1.1 1.0 1.1 1.1 1.1

Debt Service Ratio 1.5 1.5 1.5 1.4 2.4 2.4

HWSCCost Recovery Ratio 1.0 1.0 1.0 1.1 1.0 1.2 Debt Service Ratio 1.3 0.8 1.1 1.3 1.3 2.1

Waste Water CompanyTWWCCost Recovery Ratio 1.1 1.0 1.0 1.1 1.0 1.1 Debt Service Ratio 1.4 1.0 1.2 1.4 1.3 1.6

HWWCCost Recovery Ratio 1.5 1.1 1.2 1.2 1.4 1.3 Debt Service Ratio 2.3 1.3 1.4 1.4 1.9 1.9

SWWCCost Recovery Ratio 0.9 1.0 1.0 1.3 1.2 1.2 Debt Service Ratio 0.8 1.0 1.0 1.7 1.7 1.7

projected

Compliance Status of Financial Covenants

The implementing agencies started to collect Key Performance Indicators (KPI) from the first quarter of 2007 in accordance with KPI revision carried out in December 2006 (see paragraph 2.3). Some results of key performance indicators for the fourth quarter of 2007 and fiscal year 20072 are reported below.

2 HWSC reported the 2006 figures by miscommunication. The annual indicators were not provided by SWWC.

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Targets for each indicator, as mentioned in other part of this report, were not available.

3.3 Efficiency All the water and wastewater components are estimated to generate financial rates of return (FIRRs) above the average cost of capital of 4.0%. These rates of return result from the fact that the project costs for all the components have been effectively controlled. In order to realize these rates of return, however, all the water supply and wastewater companies need to increase the tariffs as planned. During implementation of the proposed tariff increases, HWWC and SWWC also need to improve the collection rate of tariff revenues as planned. The implementation of tariff increases depends on the central government’s continuing policy guidelines promoting full cost recovery and local government compliance with the guidelines. ICR assessment is that: (i) all the utility companies can achieve this goal with the strong support from the relevant municipal government; and (ii) HWWC and SWWC would require further support to improve the collection rate from the relevant government agencies such as the construction bureau, the water resource bureau, etc. The economic rates of return (EIRRs) were revaluated only for the water supply components. The EIRRs are estimated at 18.6% for TWSC and 12.3% for HWSC, which ensures the economic viability of the project.

Actual Target Actual Target

Quarterly Indicators (2007 4Q) (2006 4Q)Operational

1 Water Sales Volume (000 m3/d) 250 1322 Unaccounted for Water Ratio % 22.2% 19.3%3 Quality of Water

(i) turbidity (NTU) 0.35 0.45(ii) residual chlorine (mg/L) 0.4 0.54(iii) coliform (0/mL) 0 0(iv) total bacteria (CFU /mL) < 3 0.096

Financial1)4 total operating revenue (RMB million) 34 80.55 total operating income (RMB million) 0.0 -286 net income before income tax (RMB million) 0.2 -337 tariff collection rate (%) 99.8% 92.5%

Annual Indicators (2007) (2006)7 Unit consumption of electricity (kwh/1000m3) 371 2668 unit consumption of chemicals (kg/1000m3) 15 3.59 water supply volume per employee (m3/d/person) 192 125

1) All HWSC’s figures are 2006 figures.

Results of KPI for Water Supply Companies

TWSC HWSC

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ICR PAD ICR PAD

TWSC 12.6% 9.8% 18.6% 14.4%

HWSC 8.4% 8.8% 12.3% 12.9%

TWWC 9.8% - - -

HWWC 7.2% - - -

SWWC 7.6% - - -

FIRR EIRR

3.4 Justification of Overall Outcome Rating Rating: Satisfactory The PDOs remained relevant to current China objectives and fully consistent with the latest Country Partnership Strategy (CPS). In an operating urban environment that is changing rapidly, the project achieved the outcomes envisaged at appraisal. At the project closing the developments achieved through the implementation of the project components were likely sustainable. The project has been carried out efficiently and the implementing agencies are expected to continue to operate in a satisfactory manner as proved by the economic and financial analysis. Overall outcome is therefore considered satisfactory.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development

The project doesn’t make explicit and direct reference to poverty reduction implications. However, the support provided through its implementation contributes substantially to promote economic growth in the three cities, increase development opportunities and decrease poverty. The water supply component improves quantity, reliability and quality of water supplied by mitigating the effects of over-abstraction from ground water sources. The wastewater component improves the sanitary conditions by treating and removing wastewater from the center of the cities. The extensive construction activities and support services carried out during implementation and subsequent operations contributed to create job opportunities. (b) Institutional Change/ Strengthening The project caused significant beneficial institutional changes. It fostered transition of utilities companies from being centrally planned governmental agencies to autonomous, market-driven operating companies. Several innovations were promoted and introduced in specific functional areas like institutional development, business planning, financial

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management, financial projections and tariff development, Management Information Systems (MIS), Geographical Information Systems (GIS), Information Technology (IT), water operations, wastewater operations and sludge management; and human resource development. The evaluation of the impacts in each functional area is summarized below for each of the companies targeted by the project. The table provides an overview of the trend/results in institutional strengthening. The notations used in the table indicate the following levels of achievement:

� : Substantial progress has been achieved; : Certain progress has been achieved; and

� : No visible progress has been identified.

Summary of Progress of Institutional Strengthening TWSC TWWC HWSC HWWC SWWC Institutional reform � � � �Business planning � � � � �Financial management Financial projections & tariff development. � � � � �MIS � �GIS � � �Information technology � �Operations � � � � �Human resources development � � � � �

There are several reasons why visible results were not identified at the present in some of the areas. The project was not particularly effective on those areas where the companies have no decision making role. In fact, most of recommended steps in institutional reform are still responsibilities of municipal governments. Moreover some of the companies still do not achieve the level of organizational development required to move ahead with the recommended steps. This was particularly evident in business planning, MIS, etc for SWWC. In other cases companies were not willing to take in recommendations and incorporate changes since they were not perceived as required. The areas of IT and MIS for HWSC were one of these cases. So, the stage of impact varies from one company to another, depending on the stage of development of each company. In general, positive impacts were achieved in areas that are under the direct control of the companies and where they can identify operations weaknesses. Several examples of notable achievements were: (i) all companies established their own business plans; (ii) measures for promoting sustainable water resources management put in place from municipal governments; (iii) all companies enhanced financial management capacity; (iv) substantial results achieved in the area of re-use the treated waste water in industry; (v) companies introduced mechanisms for evaluating staff performance and training planning; (vi) companies have started staff restructuring program aimed to improve company efficiency through the upgrade of expertise and reduction of workforce redundancies.

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(c) Other Unintended Outcomes and Impacts (positive or negative)

Remarkable were the excellent management and dissemination of project results as well as outcomes coming from utilities restructuring. As an indication of the good performance provided by the implementing agencies, they received a number of invitations to present their experience in international conferences and sector events all over China.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops N/A

4. Assessment of Risk to Development Outcome Rating: Negligible to Low There are possible financial risks to the sustainability of project outcomes. Although scenarios for the financial viability of project investments are sound, there is a risk that financial sustainability of water and wastewater companies is not maintained. However, municipal governments are committed to the financial performance targets of the utilities and to adjust tariffs annually as well as to promote more pronounced policies on cost recovery for basic utility services. The environmental benefits of reduced pollution load and improved urban environment are implicit in the project and are likely to be sustained and expanded on a much larger scale. However, there is an environmental risk that pollution reduction efforts in industry are not fully implemented. The project has developed the instruments needed to manage this risk through the implementation of the Industrial Pollution Control Action plan which ensures that major sources of pollution are identified and dealt with and that outlined water quality objectives are achieved.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory In general preparation and appraisal work ensured a sound project design and created the conditions to facilitate the achievement of the development objectives. The Bank ensured adequacy of fiduciary arrangements and made sure that provisions for safeguards were put in place. The project had strategic relevance and was responsive to the issues that policy makers considered of the highest priority. Technical due diligence was well conducted and the Task Team provided extra effort to improve engineering design by engaging international expertise, government, and top-notch local designer in a dialogue to promote cutting-edge technologies and to develop innovative solutions.

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Although the project preparation failed in discussing and providing clear and defined targets for the key performance indicators, still the project has been prepared and started its implementation on solid basis given the high quality of the engineering design and the outstanding institutional support. Overall the performance is considered satisfactory. (b) Quality of Supervision Rating: Satisfactory The Bank mission ensured a solid mechanism of monitoring and evaluation during project implementation. Supervision of fiduciary and safeguard aspects was carried out in a timely and appropriate manner; specialists in financial management, procurement and social science participated extensively in supervision. The focus on development objectives was strongly maintained and targeted outcomes continuously emphasized along project implementation. All the issues faced during the implementation of the project were proactively flagged and resolved. Supervision missions were conducted appropriately and aide memoires addressed concisely and clearly implementation status and issues to be resolved. The mid-term review identified strengths and weaknesses of project implementation and provided direction for improvements. It is worth to mention that this project has had three TTLs during its implementation. The quality of supervision faced noticeable gaps especially during the interim periods of the replacements when the implementation suffered some delays and lack of coordination and direction. However, although the transition arrangements have not resulted to be really effective, still the last two TTLs made a considerable amount of work during the implementation to move the project ahead. The second focusing on the resolution of procurement issue and construction activities, the third one finalizing the revision of the KPIs. With regard to the latter, as explained in other parts of this report, the earlier supervision efforts were focused on moving procurement and construction ahead and did not pay optimal attention on M&E target values: thus, the revision occurred too close to the closing date of the project, so the Bank and counterpart was unable to agree on targets. While the M&E targets were not officially agreed to, remarkable improvement in the quality in water discharges was obvious through the supervision teams’ every visits. For all the above mentioned reasons the rating is considered as S. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The Bank team played a decisive role in ensuring quality at entry, resolving problems and identifying opportunities during supervision. The Bank had a decisive input into the success of the project. As indicated previously, both dimensions of Bank performance were rated satisfactory. Although some gaps in the quality of supervision occurred for a limited period of time for the reasons explained above, the overall outcome of Bank performance, given the resourcefulness in problem solving and a pro-active results orientated approach, can be considered satisfactory.

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5.2 Borrower Performance (a) Government Performance Rating: Highly Satisfactory Central and local governments demonstrated proactive collaboration at the time of project preparation as well as strong ownership and commitment to achieve development objectives during project implementation. However, as pointed out in other part of this report, municipal governments did not result to be reactive in enabling environment especially with regard to institutional reforms aimed to separate regulatory authority from operative functions. It was recognizable that, given the nature of the areas to be reformed, this process will require longer time than expected to be completed. Central and local governments provided practical level of readiness for implementation by establishing Project Management Offices (PMOs) and by ensuring that PMOs at all levels were financed, fully staffed and effective. The Project Management Office (PMO) at the Hebei Finance Bureau did an excellent job in disseminating knowledge and lessons learned from the project among urban utility companies all over Hebei Province. Also, intermediate project outcome were presented by the PMO at the Congress of the World Water Association held in Beijing in September 2006. In conclusion, the PMO provided an outstanding performance in project management which was rated by the Bank task team as one of the best practices management among all urban projects in China. (b) Implementing Agency or Agencies Performance Rating: Highly Satisfactory The implementing agency i.e. water and wastewater municipal companies, performed well, focusing on implementation and problem solving and committing to the achievement of development objectives. All key reporting and monitoring requirements –quarterly progress reports, financial projections, study tour reports, etc. – were carried out in a highly professional and timely manner during the implementation of the project. At the project closure, all implementing agencies were regularly measuring performance indicators on operational aspects, thanks to the positive effects of corporate and organizational improvement works carried out since the early stage of implementation. (c) Justification of Rating for Overall Borrower Performance Rating: Highly Satisfactory Performances of the central, provincial and local governments as well as of implementing agencies are rated highly satisfactory. Given the tremendous effort made by the implementing agencies to meet performance indicators, although with some weaknesses, and by the Government and PMO to create the conditions for a smooth project implementation, overall Borrower performance is considered highly satisfactory.

6. Lessons Learned

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The management capacity of project management offices at Provincial Governments can make substantial difference in policy changes and project implementation. The Hebei Provincial Project Management Office (HPMO) has generations of highly capable directors and staff members throughout the project implementation period, who were able to guide the implementing agencies – water and wastewater companies – and municipal governments through institutional improvements, financial performance improvement, tariff adjustment legislative processes, procurement processing, reporting and reallocation of loan proceeds. It was one of the most important contributing factors to the successful implementation of this program. The Chinese government’s practice of knowledge sharing around this Project should be promoted as one of the best examples. The high-quality of project management practices of HPMO has been shared with local governments within China and abroad through many domestic and international conferences. In addition, HPMO hosted many knowledge sharing activities in the Province, in which the implementing agencies (water utility companies) of this Project provided assistance on institutional and technical management improvement to other smaller water utility companies in the Province. Solid technical due diligence during project preparation is of paramount importance to ensure sustainable water investments and improve technology transfer. Because the feasibility studies at project appraisal defined appropriate design parameters, subsequent detailed engineering design work went smoothly and the common problems of excess capacity of treatment facilities have been avoided. While the client had to revise feasibility studies so many times at the Bank appraisal team’s requests, it should be acknowledged that this quality control exercise has paid off. Thorough analysis of pollutants in influent based on actual sampling is crucial. It is a common practice of Chinese design institutes that theoretical assumptions or examples of other cases are used for defining influent characteristics for treatment process design. The lack of analysis of actual influents led to design change in the treatment facilities, substantial variation orders and project cost over-run for the Shijiazhuang waste water treatment plant. The Bank financial covenants should be developed based on realistic projections of financial needs of utility companies. The requirements for debt coverage ratio should have been dropped (1.3 was required under the legal agreement) since it is not a relevant issue during the project implementation that falls into the grace period of debt repayments. Furthermore, it actually inflated tariff revenue requirements beyond the level of full cost-recovery that was defined in another financial covenant. Another example was the set of full cost-recovery covenants. They were overly stringent since income statement items were mixed up with cash statement items without due consideration on inter- relation of these different accounting items (such as relation between depreciation charges, and debt services or working capital): thus, it is very difficult for any utility company to fully comply with these ill-designed covenants. Some of them were rectified

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by the last Bank supervision team and official amendments were made in legal documents. Annual financial performance review exercise, which was set-forth in the legal document, was an effective tool in improving utility companies’ capacity in financial planning and tariff calculations. While consultants developed financial projection models under the TA component, serious annual follow-on dialogues and hands-on training by a Bank financial analyst was required over three years afterwards to enable utility companies’ finance staff to fully utilize these models. These modeling helped utility companies and municipal governments to expeditiously prepare accurate tariff adjustment proposals for legislative approval. Upfront equity investment by local governments can be an effective form of subsidies for public water utilities provided that utility companies are managed efficiently. It is a well-targeted and clearly-defined fiscal transfer mechanism. Under the Project, a significant portion of the cost was provided in the form of equity by the municipal governments (for the portion of local costs). The highest ratio of debt to equity was 51:48 for TWWC. The debt financing portion of the project cost was limited only to 25% for TWSC and HWWC. Since municipal governments do not require dividend payments, the cost of capital to water utility companies is quite low; thus it has become de facto subsidy. It has also enabled most of the water utility companies to meet stringent financial covenants set forth in the legal documents. In parallel, management efficiency of water utilities was improved under the institutional improvement TA component.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies

No substantive issues were raised with regards to the content of this ICR. (b) Cofinanciers

N/A (c) Other partners and stakeholders

N/A

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate (USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

Water Supply - Tangshan 35.80 37.85 105.73% Water Supply - Handan 33.50 48.44 144.60% Wastewater Management - Shijiazhuang

88.30 123.20 139.52%

Wastewater Management - Tangshan

23.80 31.34 131.68%

Wastewater Management - Handan

31.50 30.73 97.56%

Environmental Pollution Control 0.70 0.00 0.00% Institutional Development, Strengthening and Training

7.70 7.19 93.38%

Total Baseline Cost 221.30 278.74 125.96%

Physical Contingencies 22.10

0.00 0.00%

Price Contingencies 27.40

0.00 0.00%

Total Project Costs 270.80 278.74 102.93% Interest During Construction 21.00 10.16 � 48.38% Front-end fee 1.5 1.50 100.00%

Total Financing Required 293.30 290.40 99.01%

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower 143.00 119.69 83% International Bank for Reconstruction and Development

150.00 150.00 100%

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Annex 2. Outputs by Component Water Supply

Tangshan Water Supply Sub-Component

Satisfactorily completed in accordance to appraisal with a final total cost of RMB 233.84 million compared with the RMB 253.9 million estimated at the time of project preparation. A new 150,000 m3/d potable water treatment plant has been established with associated distribution networks. The plant has been put into operation successfully since the end of 2005. Approximately 570,000 people have directly benefited from the completion of the plant. Another remarkable achievement for the component is the closure of self supply water wells. Tangshan Municipal Government had issued an action plan for the closure of self supply water wells in three phases. First phase closing 81 wells by the end of June 2007, second phase 23 wells by the end of 2008 and third phase 117 wells by the end of 2010. The first phase of 81 wells has been already completed allowing a reduction of 8.05 million m3/year of ground water extraction. It is expected that an additional reduction of 3.14 million m3/year of ground water extraction will be achieved after completion of the second and third phases by the end of 2010. Additionally, the new established water treatment plant (WTP) adopted a sludge dewatering process that reduces pollution loads to water courses. Handan Water Supply Sub-Component Satisfactorily completed in accordance to appraisal with a final total cost of RMB 326.1 million compared with the RMB 256.7 million estimated at the time of project preparation.A 120,000 m3/d potable water treatment plant has been established with associated distribution networks. The plant has been put in operation since April of 2005. Approximately 132,700 people have directly benefited from the completion of the plant. With an enhanced water supply, Handan Municipal Government was able to close 108 self supply water wells that allowed a reduction of 1.7 million m3/year of groundwater extraction. The component has also renovated the distribution networks (older than 30 year), reducing leak rate of water distribution. Additionally, the treatment process adopted a sludge dewatering process that reduces pollution loads to water courses.

Wastewater Management

Shijiazhuang Wastewater Sub-Component

Satisfactorily implemented as per appraisal with a completion cost of RMB 695.28 million compared with the RMB 656.7 million estimated at the time of the project preparation. A 500,000 m3/d wastewater treatment plant (Anoxic/Aerobic activated sludge treatment process) has been established with associated wastewater collection networks. These facilities have been put into operation since the end of 2005. Approximately 1.03 million people have directly benefited from the completion of the plant. The design capacity of the plant for COD removal was 73,000 tons/year. The WWTP has removed 95,300 tons COD in 2006 and 73,600 in 2007, reaching or

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exceeding design capacity both in 2006 and 2007. This contributed substantially to reduce pollution loads and improve water quality in downstream receiving water bodies. Also, the plant introduced an energy recovery technology within the sludge digestion line which allowed recuperating a total of 9,827,625 MJ that are re-used for plant operation with additional savings on operational expenses. Tangshan Wastewater Sub-Component

Satisfactorily implemented in accordance to the appraisal with a completion cost of RMB 158.0 million compared to the 158.9 million estimated at the time of project preparation. A 120,000 m3/d wastewater treatment plant (Anoxic/Aerobic activated sludge treatment process) and a 60,000 m3/d wastewater reclamation plant (WWRP) have been established with associated wastewater collecting and distribution networks. The WWTP has been put in operation since the end of 2005 while the WWRP started its operations by the end of 2007. Approximately 395,600 people have directly benefited from the completion of this component. The designed contaminants removal capacity of the WWTP is: (i) 8,541 tons/year of BOD; (ii) 13,359 tons/year of COD; and (iii) 11,826 tons/year of SS. In 2007, the WWTP has actually removed 11,535 tons of BOD, 24,074 tons of COD and 17,881 tons of SS, higher than the design capacity. The operation of the WWTP has substantially improved the water quality of the receiving water course, Qinglong River which was severely polluted, contributing to change its categorization from a sewage open canal to a Class V water body lined with green trees along the banks and with recreational & leisure areas enjoyed from town people. WWRP has been supplying reclaimed wastewater to the close power plant as cooling water, contributing to reduce the amount of treated wastewater discharged into water courses and allowing saving 21.9 million m3/year of precious fresh water. Additionally, Tangshan WWTP adopted a sustainable sludge management that through an indoor sludge composting process produces complex fertilizer which, well-accepted by farmers, is sold in the local market for agriculture purposes.

Handan Wastewater Sub-Component

Satisfactorily implemented in accordance to the appraisal with a completion cost of RMB 222.7 million compared to the RMB 222.0 million estimated at the time of project preparation. A 100,000 m3/d wastewater treatment plant has been established with associated wastewater collecting networks. The plant has been put in operation since July of 2004. Approximately 450,000 people have directly benefited from the completion of the plant. The operation of WWTP has substantially contributed to reduce pollution loads and improve water quality of the receiving water course, Qing River, with an estimated annual removal average of 5,520 tons of BOD, 8,460 tons of COD and 5,240 tons of SS. Handan WWTP has been also pumping 10.95 million m3/year of treated wastewater to upstream of Qing River for landscaping purposes.

Industrial Pollution Control

A detailed Industrial Pollution Control Action Plan (IPCAP) study was completed by a consultant through the use of a Japanese Grant (US$ 0.36 million). The plan covered:

1. Development of a discharge licensing and permitting system for discharges of industrial wastewater to sewerage systems in the project cities of Shijiazhuang, Handan and Tangshan;

2. Development of effective industrial wastewater monitoring in the project cities;

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3. Development of time bound action plans for control of industrial wastewater discharges within the catchments of critical surface water systems affecting the urban water quality and water resources of the project cities;

4. Initiation of a programme of water conservation and cleaner production within industry in the project cities.

The IPCAP has been transferred to three project cities and related authorities. Project cities have established, respectively, time-bound IPCAPs based on targets to reduce significantly industrial pollution from paper making, chemical, ferrous metallurgy and pharmaceutical industries by 2010. Currently, these IPCAPs are in progress under the management of Hebei Environmental Protection Bureau and other government authorities. Municipal government of Shijiazhuang has issued a three year program for resettlement of pivot industrial enterprises under monitoring and controlling ([2008]63, SG), planning resettlement of 12 industrial enterprises in 2008, 5 in 2009 and 31 in 2010, and appointed Shijiazhuang Municipal Environmental Protection Bureau to monitor and control the pollution load from industrial enterprises. It has been progressing well, and as a result, in August 2008, the quality of influent to new built WWTP has been greatly improved. Institutional Strengthening and Training

Institutional capacity building and training were implemented in two TA packages:

• Institutional Strengthening ("Package A"); and

• Design Review Advisory and Construction Management ("Package B").

Both TA packages have been implemented by HPMO, three Municipal PMOs and five Implementing Agencies and achieved original objectives.

(a) TA-Package A With the technical assistance provided through the advisory services of the Package A, the 5 public utility entities, three wastewater enterprises in Shijiazhuang, Handan and Tangshan, and two water supply enterprises in Handan and Tangshan, have been successfully reformed from essentially governmental agencies to autonomous, market-driven and well operating companies, and are expected to achieve full cost recovery in near future.

(b) TA-Package B TA-Package B has been designed as a broadly based technical support package for capacity building and training on project management for HPMO, Municipal PMOs, Implementing Agencies and local construction supervision firms. This package covered design review, WB project implementation rules and procedures on procurement, contracts management and construction supervision. The advisory services provided through Package B resulted to be very effective in ensuring compliance with Bank rules and procedures during the implementation and contributed noticeably to the satisfactory execution of physical components.

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Annex 3. Economic and Financial Analysis A. Project Level Analysis Financial Rates of Return Project level financial rates of return (FIRRs) were reevaluated for the water supply components of TWSC and HWSC and the wastewater components of TWWC, HWWC and SWWC under the following major assumptions: (1) The project life of the water supply and wastewater components is 30 years from

2001 to 2030; (2) Incremental operating revenues and operating costs are prorated based upon the ratio

of the capacity of each plant related to the project to the overall capacity of each entity (please see the entity level analysis below for the entity specific assumptions of water supply volume, average tariff, wastewater volume treated, etc.);

(3) Water and Wastewater tariffs for residential customers will be increased as follows;

and

Table 1: Tariffs for Residential Customers/1

(Y/m3)

2007 2008 2009 2010 2011 2012

TWSC 1.69 1.69 1.69 2.03 2.03 2.03

HWSC 1.85 1.85 2.28 2.28 2.28 2.96

TWWC 0.90 0.90 1.11 1.11 1.11 1.33

HWWC 0.70 0.70 0.70 0.88 0.88 0.88

SWWC 0.60 0.80 0.80 1.20 1.20 1.20

/1 tariff at the end of year

(4) The collection rate for HWWC and SWWC will improve as follows. Table 2: Collection Rate of HWWC and SWWC

2007 2008 2009 2010 2011 2012

HWWC 67% 72% 75% 80% 85% 86%

SWWC 85% 85% 85% 90% 90% 90%

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(5) Government subsidies are not included in this calculation. The results are summarized in Table 3, showing that the FIRRs for all the components are above the weighted average cost of capital which is estimated in the range of 4.0%3. Key to these calculations is that the wastewater tariffs will be increased as planned, and the collection rate of HWWC and SWWC will be improved, as shown in Tables 1&2. The FIRRs evaluated for the water supply components at appraisal are also shown in Table 3. The FIRRs for the wastewater components were not evaluated at appraisal.

ICR PAD ICR PAD

TWSC 12.6% 9.8% 18.6% 14.4%

HWSC 8.4% 8.8% 12.3% 12.9%

TWWC 9.8% - - -

HWWC 7.2% - - -

SWWC 7.6% - - -

Table 3: Financial and Economic Rate of Returns (FIRRs and EIRR)

FIRR EIRR

Average Incremental Financial Cost The average incremental financial cost (AIFC) was reevaluated for the two water supply components and the three wastewater components under the following assumptions: (1) The WACC is 4% for all the project components; (2) The same assumptions used in the FIRR calculation are applied for water production

volume, wastewater treated volume, and project and operation costs. All the AIFCs revaluated at ICR are lower than the ones estimated at appraisal except the AIFC for SWWC, which is slightly higher than the AIFC at appraisal, but well within the current average tariff level of Y0.94 per m3 for SWWC.

3 The 4% WACC was estimated by the utility companies. The WACCs at appraisal ranged from 6.7% for SWWC to 7.0% for HWWC.

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ICR PAD

TWSC 1.24 1.66

HWSC 1.11 1.34

TWWC 1.05 1.25

HWWC 0.51 0.73

SWWC 0.81 0.76

AIFC

Table 4: Average Incremental Financial Cost

(Y/m3)

Economic Rates of Return The economic rates of return (EIRRs) were reevaluated for the water supply components of TWSC and HWSC under the following assumptions: (1) The project life is 30 years from 2001 to 2030; (2) The same relationship between actual water tariffs and the willingness to pay which

was found at appraisal will hold over the project life; (3) Financial operating costs are economic costs; and (4) Taxes are excluded from total project cost. The EIRRs are calculated at 18.6% for TWSC and 12.3% for HWSC, both of which are above the benchmark rate of 10% for economic analysis. B. Entity Level Analysis The financial performance of the five utility companies was reviewed and the financial projections were conducted to find whether or not each entity complied with and will be able to comply with the financial covenants: the cost recovery ratio of at least 1.0 and the debt service coverage ratio of at least 1.3. The major assumptions for each company such as population served, water supply volume, tariff, wastewater volume treated, etc. are shown in the summary table for each company below. Government subsidies are counted as revenue in the financial ratios calculation Tangshan Water Supply Company (TWSC) TWSC was established in 1951, serving the population of 801,000 in Tangshan with 1,300 staff. It generated operating revenue of Y 150 million and made net income of Y1 million in 2007. It has a strong capital structure with a debt to equity ratio of 23:77 at the end of 2007. TWSC implemented many institutional reforms during the implementation of the Bank project, and became a model water supply company which is well run by an

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experienced management team with the strong support from the Tangshan municipal government. Table 5 summarizes the results of TWSC’s financial performance and projections. TWSC has complied with both the cost recovery ratio covenant and the debt service coverage ratio covenant since it first reported its results to the Bank in 2005. Its water sales volume which had decreased until 2005 again increased to 70 million m3 in 2007 from 67 million m3 in 2006 after the Tangshan municipal government implemented a program to close self supplied wells. Considering that TWSC can keep the water sales volume at the 2007 level, TWSC will be able to meet the financial covenants in the future with the tariff increases to keep pace with the inflation rate.

2005 2006 2007 2008 2009 2010 2011 2012

Key Operating Indicators

Population Served (’000) 800 801 801 801 802 802 803 803

Water Sales Volume (million m3) 67 67 70 70 70 70 70 70

Unaccounted for water 29% 28% 24% 21% 21% 21% 21% 21%

Collection Efficiency Rate 97% 97% 100% 100% 100% 100% 100% 100%

Key Financial Indicators

Average Wastewater Tariff (Y/m3) 1.89 2.15 2.15 2.15 2.15 2.58 2.58 2.58

Total Operating Revenue (Y million) 124 140 150 150 150 180 180 180

Operating Income 0 5 8 7 3 29 25 20

Subsidy - - - - - - - -

Net Income 1 1 1 0 (2) 16 14 12

Internal Cash Generation 18 27 30 29 25 43 40 37

Capital Expenditures 67 43 5 15 15 15 15 15

Debt Service Payment - 17 20 19 19 18 17 16

Total Assets 408 431 449 442 428 431 432 431

Long-Term Debt 83 99 97 83 70 56 43 29

Equity 306 309 327 327 325 341 355 367

Cost Recovery Ratio 1.0 1.0 1.1 1.1 1.0 1.1 1.1 1.1

Debt Service Coverage Ratio 0.0 1.5 1.5 1.5 1.4 2.4 2.4 2.3

L-T Debt/(L-T Debt + Equity) 21% 24% 23% 20% 18% 14% 11% 7%

Table 5: Summary of TWSC’s Financial Performance and Projections

Handan Water Supply Company (HWSC) HWSC was established in 1958, serving the population of 1,196,000 in Handan with 1,100 staff. It generated operating revenue of Y 115 million and reported a net loss of Y12 million in 2007. In addition to the Bank loan, HWSC borrowed around half of its long-term debt from commercial banks. The debt from commercial banks at one time underwent the debt restructuring to defer and level principal repayments. The amount of debt is considered within a manageable level as shown in a debt to equity ratio of 48:52 at the end of 2007. HWSC’s water sales volume substantially reduced from 54 million m3 in 2005 to 48 million m3 in 2006 due to a tariff increase and increased use of self supplied water. However, after the Handan municipal government implemented a program to close self supplied wells, HWSC recovered its water sales volume to the previous level.

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Table 6 summarizes the results of HWSC’s financial performance and projections. HWSC did not comply with both the cost recovery ratio covenant and the debt service coverage ratio covenant in 2006 due to the substantial decrease in water sales volume and delayed implementation of tariff increase4. However, it complied with both covenants in 2007 as a result of the full effect of the tariff increase and the government action of closing self supplied wells. HWSC planned to implement the tariff increase of 23% at the beginning of 2008. However, due to the inflationary environment in China, it was delayed and will likely not be implemented until the second half of 2009. Consequently, it is projected that HWSC will not be able to comply with the debt service coverage ratio covenant in 2008 and 2009. After implementation of the proposed tariff increase, HWSC will be back in compliance with the covenants in 2010 and onwards.

2005 2006 2007 2008 2009 2010 2011 2012


Population Served (’000) 1,152 1,174 1,196 1,219 1,242 1,266 1,290 1,314

Water Sales Volume (million m3) 54 48 57 58 59 60 61 62

Unaccounted for Water 16% 16% 15% 15% 15% 15% 15% 15%





Operating Income 56 61 63 72 77 82 89 95

Subsidy - - - - - - - -

Net Income (9) (34) (12) (36) (24) (11) (13) 20


Capital Expenditures 61 53 28 65 2 2 2 2

Debt Service Payment 21 30 41 57 52 51 49 46

Total Assets 688 672 651 642 588 530 473 462

Long-Term Debt 278 273 248 263 224 185 146 109

Equity 292 273 268 236 213 201 188 208



L-T Debt(L-T Debt + Equity) 49% 50% 48% 53% 51% 48% 44% 34%

Table 6: Summary of HWSC’s Financial Performance and Projections

Tangshan Wastewater Company (TWWC) TWWC was established in 1997 to take over the responsibility for sewerage and drainage operations which had been undertaken by the Tangshan Construction Bureau. Subsequently, TWWC implemented the Bank project and the ADB project. It now owns and operates the sewer network and treatment plants with capacity of 185,000 m3 per day with 1,200 staff. It serves two adjacent counties outside the service area of TWSC, which accounts for around 5% of its total operating revenue. Achieving the collection rate of 96%, TWWC is considered as a model wastewater company which is well run by an

4 It was implemented on October 1, 2006.

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experienced management team with the strong support from the Tangshan municipal government. TWWC generated operating revenue of Y97 million and made net income of Y1 million in 2007. All the debt service payments in connection with the ADB loan have been made using subsidies from the Tangshan municipal government. This arrangement will continue until the ADB loan is retired. The debt to equity ratio including the ADB loan was 51:49 at the end of 2007. Table 7 summarizes the results of TWWC’s financial performance and projections. TWWC complied with the financial covenants in 2007. It planned to implement the tariff increase of 23% in April 2008. However, due to the inflationary environment in China, it was delayed and will likely not be implemented until the second half of 2009. With this tariff increase implemented as proposed, TWWC will be able to comply with the financial covenants in 2010 and onwards.

2005 2006 2007 2008 2009 2010 2011 2012



Water Supplied from WSC (million m3) 73 72 75 75 75 76 76 76

Wastewater Volume Treated (million m3) 90 89 93 93 93 93 93 93





Operating Income 2 (1) (2) (13) (8) (0) (3) 18

Net Income 4 1 1 (16) (10) (2) (4) 12


Debt Service Payment 17 33 32 40 40 40 40 40

Subsidy 1/ 16 17 17 17 18 18 18 19

Total Assets 534 570 609 759 739 772 757 757

Long-Term Debt 286 294 306 310 289 267 243 219

Equity 240 264 290 434 432 485 492 515



L-T Debt / (L-T Debt + Equity) 54% 53% 51% 42% 40% 35% 33% 30%

1/ The amount equivalent to the debt service payment for the ADB loan has been and will be provided as subsidy.

Table 7: Summary of TWWC’s Financial Performance and Projections

Handan Wastewater Company (HWWC) HWWC was established in 1999 to implement the Bank project. Subsequently, it took over the responsibility of sewerage and drainage operations which had been undertaken by the Handan Construction Bureau. HWWC now owns and operates the sewer network and a treatment plant with capacity of 100,000 m3 per day with 420 staff. HWWC generated operating revenue of Y53 million and made net income of Y11 million in 2007, including subsidies of Y18 million in its revenue. It has a strong capital structure as shown in a debt to equity ratio of 27:73 at the end of 2007.

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Table 8 summarizes the results of HWWC’s financial performance and projections. HWWC implemented a tariff increase of 74% on October 1, 2006. Following the tariff increase, HWWC experienced a huge decline in the collection rate from 80% in 2005 to 67% in 2007. Although HWWC have taken several measures, it has not yet succeeded in recovering the rate to the level prior to the tariff increase. It continues to need government subsidy to comply with the financial covenants although its reliance on subsidy will decrease over time as the collection rate improves and additional tariff increases are implemented as planned.

2005 2006 2007 2008 2009 2010 2011 2012









Operating Income (6) (4) 5 4 5 6 18 16

Net Income (6) 6 11 1 3 3 12 12


Capital Expenditures 60 6 9 42 - - - -

Debt Service Payment (0) 13 14 22 21 20 19 18

Subsidy - 17 18 5 5 5 5 5

Total Assets 312 306 387 416 406 397 398 399

Long-Term Debt 107 100 95 117 102 88 73 59

Equity 178 180 255 267 269 273 285 297


Debt Service Coverage Ratio - 2.1 2.3 1.3 1.4 1.4 1.9 1.9


Table 8: Summary of HWWC’s Financial Performance and Projections

Shijiazhuang Wastewater Company (SWWC) SWWC was established in 1997 to be responsible for wastewater operations in Shijiazhuang. All the sewerage and drainage operations that had been undertaken by the Municipal Management Division under the Public Utility Administration Bureau were transferred to SWWC in 1999 before the Bank project. SWWC owns and operates the sewer network and a treatment plant with capacity of 500,000 m3 per day with 900 staff. SWWC reports to Shijiazhuang Construction Bureau. Wastewater tariffs were introduced in 1996 and collected by Shijiazhuang Water Supply Company (SWSC). The tariff collection rate remained low below 60% for a long time largely because a single billing system for water and wastewater charges was not introduced until recently. It was not until 2005 that a single bill for domestic customers was implemented, while a separate bill is still maintained for other customers. This results mainly from the unique regulatory arrangement in Shijiazhuang where SWSC reports to a different regulatory body, the Shijiazhuang Urban Management Bureau from SWWC’s. As a result, the tariff collection has been the major issue for SWWC. Although it improved substantially from 60% in

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2005 to 85% in 2007, SWWC has to further improve the collection efficiency to put it into a financially sustainable position. It has a strong capital structure as shown in a debt to equity ratio of 27:73 at the end of 2007. Table 9 summarizes the results of SWWC’s financial performance and projections. SWWC complied with the financial covenants in 2005 and 2006. However, as it started treatment operations fully in 2007, its financial situation deteriorated substantially. SWWC fell into a net loss of Y36 million in 2007 from net profit of Y18 million in 2006. It received subsidy of Y43 million in 2007 to meet the debt service payment. To improve this difficult financial situation, SWWC has taken several measures to improve the collection rate, and has implemented a tariff increase from Y0.66 per m3 to Y0.94 per m3 on January 1, 2008. Although those measures helped improve SWWC’s financial situation, SWWC will need government subsidy until it implements the next tariff increase planned in 2010. It is a challenging task to maintain the collection rate while achieving the tariff increase.

2005 2006 2007 2008 2009 2010 2011 2012









Operating Income 7 17 (17) (30) (34) 34 29 23

Net Income 8 18 (36) (48) (49) 21 18 15


Capital Expenditures 309 166 213 100 100 - - -

Debt Service Payment - 20 64 62 60 58 55 53

Subsidy - 20 43 27 28 - - -

Total Assets 1,264 1,510 1,397 1,360 1,397 1,333 1,269 1,206

Long-Term Debt 272 347 365 321 276 231 187 142

Equity 809 953 966 919 869 891 909 924




Table 9: Summary of SWWC’s Financial Performance and Projections

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending

Supervision/ICR Mingyuan Fan Sanitary Engineer EASCSYiren Feng Environmental Spec. EASCSVellet E. Fernandes Program Assistant EASURDavid I Sr Financial Management Specia EAPCOZhentu Liu Senior Procurement Specialist EAPCORowena J. Martinez Consultant EASURMargaret Png Sr Counsel LEGESClaudio Purificato Consultant EASURHaiyan Wang Finance Officer LOADMKenneth Chee Hoong Wong Consultant EASURSongling Yao Social Development Spec. EASCSJi You Urban Specialist EASCSYoulan Zou Consultant EASCSMasato Sawaki Consultant EASURHubert Jenny Sr. Municipal Engineer EASUR

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks USD Thousands (including

travel and consultant costs)Lending

FY97 69.06 FY98 61.66 FY99 173.29 FY00 39 183.83 FY01 0.00 FY02 0.00 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00 FY08 0.00

Total: 39 487.84 Supervision/ICR

37

FY97 0.00 FY98 0.00 FY99 0.97 FY00 0.00 FY01 15 73.10 FY02 14 77.96 FY03 12 74.14 FY04 10 54.32 FY05 11 57.97 FY06 14 65.60 FY07 10 66.27 FY08 10 51.86 FY09 1 0.00

Total: 97 522.19

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Annex 5. Beneficiary Survey Results None

39

Annex 6. Stakeholder Workshop Report and Results None

40

Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR Government Support

Hebei Provincial Government (HPG) established high level Leading Group headed by executing vice-governor of HPG, to oversee and coordinate the project implementation, and to take decisions for important issues related to the project. HPG also set up the Hebei Project Management Office (HPMO) for overall project management. Municipal level Leading Groups (MLGs) headed by mayors and Municipal Project Management Offices (MPMOs) were also set up in three project cities, Shijiazhuang, Tangshan and Handan. MLGs and MPMOs were in charge of coordinating and overseeing subcomponents of the three municipalities. During the project implementation, all of the domestic approvals, such as detail design review, construction permit and related custom clearance formalities went smoothly with the support of various levels of authorities and did not result in any delay to project implementation. Project Management Organizations

A three level project management system, Hebei Provincial project management office (HPMO), Municipal project office (for three cities, Handan, Shijiazhuang and Tangshan) and Implementation Agencies (IA) with the assistance of Technical Assistance (TA) Package B consultants, has been set up, which was proved during the entire project implementation and by actual project output, to be very effective for the success of the project. TA-Package B consultant has also assigned three corresponding levels of consultants resident to HPMO, Municipal PMOs and IAs in helping capability building on project management and assured the successful project implementation. Starting from the commencement of the Project, HPMO had set up various project management system and report forms, covering project administration for quality assurance, measurement & payment, variation order approval and implementation schedule; and pinpoint the responsibilities for different levels of management organization, such as (a) all the Bidding Documents and Bid Evaluation Reports subject to review by TA-Package B consultants and approved by HPMO prior to submitting to WB, (b) all the payment and disbursement subject to review by TA-Package B consultants and approved by Municipal PMOs and HPMO, and (c) all the variations subject to review by TA-Package B consultants prior to approval by Municipal PMOs (for variation cost less than RMB 20,000.00) and HPMO (for variation cost exceeding RMB 20,000.00).

HPMO, with the assistance of TA-Package B consultants, had held quite a few trainings for personnel of Municipal PMOs and IAs regarding to the rules and procedures of the WB for procurement planning, procurement procedures, contract management and construction supervision.

During the project implementation, HPMO, with the assistance of TA-Package B consultants, had kept tracking and monitoring construction progress, cost and quality. After discerning loan savings of quite an amount, HPMO had timely organized Municipal PMOs and IAs to prepare Mid-term Adjustment Project Component (MTAPC) and submit to the WB for approval and apply for extension of Loan Closing Date, facilitating the implementation of MTAPC.

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Costs and Financing

Total completion cost for the project is estimated at US$ 290.4 million (based on interchange rate of 1:7.81, US$ to RMB, dated January 1, 2007), representing 99.1% of the projected cost of US$ 293.3 million at the Appraisal, US$ 2.91 million less than the projected cost. Among them, US$ 150 million comes from WB loan and US$ 140.4 million from counter-part financing. WB Loan financing rate for the project is 51.65% and counter-part financing of 48.35% versus WB Loan financing rate of. 51.1% and counter-part financing of 48.9% at the Appraisal (Refer Annex-3 for details). The counter-part financing comprised two parts, fiscal allocation from Municipal Governments and enterprise self-financing. All the counter-part financing had been come to hand timely with the government supports. No other fund had been involved during the project implementation, except for a Grant from Japan of US$ 0.36 million financed for Industrial Pollution control component.

Engineering Design

Engineering design and technical bidding documents (BD) had been all prepared by top design institutions in China. Most of the engineering design and technical BDs had been satisfactory. However, some of technical BDs were prepared based on primary designs and not detailed enough, resulting in unnecessary and preventable variations during construction.

Project Procurement

The procurement for the project had been implemented strictly in accordance with the procurement procedures of WB. As proposed during the project preparation stage, China International Tendering Company (CITC) and CNCCC International Tendering Co., Ltd. (CNCCCITC) had been retained as the procurement agencies (PA) for all ICB contract packages and China Machinery Co., Ltd. (CMC) for all NCB contract packages. All of the three PAs have been charged with procurement for many projects financed by WB and quite familiar with procurement procedures of WB. Commercial bid documents were prepared by PAs with the technical bidding documents prepared by design institutes (DI) & IAs. After review by TA Package B consultant team for both commercial and technical bidding documents, the final version of combined bidding documents (subject to prior review) would be approved by HPMO and submitted to obtain approval from WB prior to tendering. All the bid evaluation reports (subject to prior review) prepared by PAs had also been routinely reviewed by TA Package B consultant team, approved by HPMO and set up public inquiry on internet by PAs prior to submitting for WB approval. All the contracts (subject to prior review) had only been awarded after obtaining approval from WB. There was no mis-procurement occurred for the project. The procurement of the project was considered successful, fair and equitable.

Construction Management

Construction of the five infrastructural component had been implemented in accordance with WB project implementation rules and procedures on contract management and construction supervision by five IAs under the supports of local supervision firms and TA-Package B consultants. The construction workmanship of all the five infrastructural components was generally satisfactory.

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Technical Assistance

Four Technical Assistance (TA) packages had been implemented with three financed by WB loan and one, TA-Package C, by the Grant from Japan.

- TA-Package A, Institutional Strengthening, was implemented by Montgomery Watson in accordance with TOR. The package started in February 2001 and completed July 2004. Major tasks of TA-Package A consulting team were to help five IAs to reform from essentially governmental agencies to autonomous, market-driven and well operating companies with associated training (refer to Section 3.8 of this reports for the details of work conducted by TA-Package A consulting team)..

- TA-Package B, Design Review Advisory and Construction Management, was implemented by Montgomery Watson in accordance with TOR. The package started in January 2001 and scheduled for completion by the end of 2008. Major tasks of TA-Package B consultant were to provide consulting services for project management, procurement and construction supervision, including review of engineering design of all five infrastructural components. All the bidding documents, bid evaluation reports and cost overrun reports had been reviewed by TA-Package B consultant team before HPMO submitting to WB for approval. All the variation and price adjustment applications (over RMB 20,000) and disbursement applications from IAs were subject to review by TA-Package B consultant and then approval by HPMO. To match with three level project management organization system, TA-Package B consultant team had assigned three consultants resident to HPMO, three consultants resident to each of three Municipal PMOs and five consultants to each of the five IAs, provided full supports for project management and implementation with associate trainings, achieving significant capacity building for the staff of HPMO, Municipal PMOs and IAs on WB project implementation rules and procedures on procurement, contracts management and construction supervision and ensuring successful implementation of the project.

- TA-Package C, Industrial Pollution Control Action Plan (IPCAP) Study was implemented by Mott MacDonald using Japanese Grant (US$ 0.36 million). Refer to Section 2.2.7 of this report for details of implementation of the package.

- SWW/TA1, Sewage Sludge Disposal Study, Shijiazhuang Wastewater Component, was implemented by Poyry Environment GmbH. It was put in as a Mid-term Adjustment Project Component (MTAPC) upon approval by WB dated March 10, 2006. The Study was completed by the end of June 2008 and proposed a most feasible sludge management concept allowing the City of Shijiazhuang to ensure a sustainable ultimate disposal of sludge from the two existing municipal WWTPs.

Institutional Reform: Institutional Development and Managerial Sustainability

In order to promote smooth progress of the project, Hebei Provincial Government (HPG) established a high level Leading Group, which is led by a vice-governor of HPG, to oversee, coordinate and solve major issues related to the whole project. HPG also set up the Hebei Project Management Office (HPMO) to coordinate and oversee the preparation and execution of the whole Project. Municipal level Leading Groups (MLGs), which are led by mayors, and Municipal Project Management Offices (MPMOs) were also established in the involved municipalities- Shijiazhuang, Tangshan and Handan. MLGs and MPMOs are in charge of

43

coordinating and overseeing the subcomponents falling under their jurisdiction, located in those cities.

For the three wastewater subcomponents, Shijiazhuang, Tangshan and Handan Wastewater Companies (WWC) were set up during the preparation of the Project in compliance with water and wastewater sector commercialization required by the central government and WB. The Wastewater Company in each of the cities acted as implementing agencies of the respective wastewater subcomponents, and took charge of construction, operating and maintenance, and management of all wastewater facilities in the respective city.

For the two water supply subcomponents (in Handan and Tangshan), the already existing Water Supply Companies (WSC) in each of the cities acted as implementing agencies of and were responsible for construction management, as well as production, operation and maintenance, consumer service and administration of the city water supply systems.

(a) Shijiazhuang Wastewater Company (SWWC)

SWWC was formed in 1997 to act as the implementing agency for the Project. Although it is a limited liability company which was set up based on Company Law, like many wastewater companies in other cities in China, it did not operate as a genuine enterprise in its early years, but instead followed the government institutional model with only limited management and financial autonomy. Since the commencement of the Project, and especially since 2002, it has made significant progress towards commercialization. Currently, SWWC is a financially and managerially autonomous wastewater company with its financing coming from wastewater charges. The institutional development process has involved:

- SWWC has taken over the operation of the existing wastewater treatment plants and the sewerage system of the city.

- Wastewater charges are collected on the water bill and agencies who are in charge of collecting wastewater charges have remitted these funds directly to SWWC since January 2002.

- Wastewater tariffs were increased from 0.20 yuan/m3 in 1998 to 0.80 yuan/m3 and 1.0 yuan/m3 in 2008 for residential and industrial respectively. The current income collection rate is reached to 85%.

- The enterprise accounting system was adopted instead of the institutional accounting system from 2003 onwards.

- Computerised enterprise accounting, budgetary and financial management systems have been introduced.

- A comprehensive commercialized management system has been built and is further being strengthened. The internal management systems have been strengthened, work efficiency, service quality and employee’s performance has been enhanced.

- Currently, Qiaodong and Qiaoxi WWTPs are operating well and have made gradual operating management improvements during the course of the Project. Both WWTPs regularly meet required effluent standards for the treated wastewater

44

(b) Handan Wastewater Company (HWWC)

HWWC was formed in 1999 to act as the implementing agency for the Project. Although it is a limited liability company which was set up based on Company Law, like many wastewater companies in other cities in China, it did not operate as a genuine enterprise in its early years, but instead followed the government institutional model with only limited management and financial autonomy. Handan municipality has demonstrated commitment to waster sector commercialization throughout the project and since 2004 HWWC has been a financially and managerially autonomous wastewater company with its financing coming from wastewater charges. The institutional development process has involved:

- Transfer of assets. When HWWC was built, the old sewerage assets which were operated by Handan Municipal Engineering Management Department were injected into the Company as registered capital. After this, assets of Dongjiao WWTP were also transferred into HWWC after assessment. Since then, HWWC has been in charge of construction, operating, maintenance and management of all wastewater facilities in the whole city.

- Wastewater charges have been collected on the water bill since 2001. Thus, collection performance of wastewater charges collected by Water Supply Company is greatly increased to a current level of 80%.

- Agencies who are in charge of collecting wastewater charges have remitted these funds directly to HWWC since June 2004.

- There was no wastewater charges collected before the Project in Handan city. Wastewater tariffs were increased from 0.20 yuan/m3 in 1997 to 0.70 yuan/m3 in 2006 for residential and from 0.3 yuan/m3 in 1997 to 0.9 yuan/m3 in 2006 for industry.

- The enterprise accounting system has been used since the Company was built. Since then, computerised enterprise accounting, budgetary and financial management systems have also been introduced.

- A comprehensive commercialized management system has been built and is further being strengthened. The internal management system has been strengthened, work efficiency, service quality and employee’s performance has been enhanced.

- Currently, Dongjiao and Xijiao WWTPs are operating well and have made gradual operating management improvements during the course of the Project. Both WWTP regularly meet required effluent standards for the treated wastewater.

(c) Tangshan Wastewater Company (TWWC)

TWWC was formed in January 1, 1998 to act as the implementing agency for the Project. Its name was changed to Tangshan Drainage Company in September, 2005. In fact, TWWC is a financially and managerially autonomous wastewater company with its financing coming from wastewater charges since the company’s formation. The institutional development process has involved:

- Transfer of assets. When TWWC was established, the existing three operating WWTPs’ assets , namely Dongjiao WWTP, Xijiao WWTP and Fengrun WWTP, were injected into

45

the Company as registered capital, and at the same time, assets on-going construction of Beijiao WWTP were also transferred into the Company. Then, assets of storm sewers and drainage sewers which were operated by districts were transferred into the Company in January 1, 2000. Since then, TWWC has been in charge of construction, operating, maintenance and management of all wastewater facilities in the whole city.

- Wastewater charges of the residential are collected on the water bill. It has been collected by Tangshan Water Supply Co. (TWSC) ever since TTWC was established. TWSC remits wastewater charges directly to TWWC each month. The income collection system of TWSC is connected with the computer system of TWWC. TWWC can understand the situation of customers’ paying. There is a collection department in TWWC which is responsible for collecting wastewater charges from industry and self-supply users. Currently collection performance reaches 90%.

- Wastewater tariffs were increased from 0.20 yuan/m3 in 1997 to 0.90 yuan/m3 in 2005 for residential and from 0.32yuan/m3 in 1997 to 1.05 yuan/m3 in 2005 for industry.

- The enterprise accounting system has been adopted since the Company was established. Since then, computerised enterprise accounting, budgetary and financial management systems have been introduced.

- Comprehensive commercialized management system has been built and is further being strengthened. The internal management system is being further strengthened, work efficiency, service quality and employee’s performance is being further enhanced.

- Currently, the five WWTPs, namely Dongjiao WWTP, Xijiao WWTP, Fengrun WWTP, Beijiao WWTP and Xijiao Second Phase WWTP are operating well, have made gradual operating management improvements and meet required effluent discharge standards. The Company gained the title of advanced enterprise in Tangshan Municipality in 2005, 2006 and 2007 and the title of advanced enterprise of financial management awarded by Hebei Provincial Construction Bureau. Meanwhile, the Company gained the first class qualification of environmental protection facilities operation awarded by the State Environmental Protection Bureau.

(d) Handan Water Supply Company (HWSC)

HWSC was formed in 1958. In fact, HWSC has been a financially and managerially autonomous water supply company since the Company was formed; however, institutional development of the Company has made further significant progress since the commencement of the Project:

- The Company has made improvements on financial management, operating management, technical training, environmental mitigation measures, and so on.

- Reform of the personnel system, streamlining of staff numbers and the setting of a quota of posts have been implemented. At the same time, the Company introduced competitive appointment of cadres and workers. The organizational structure of the Company has undergone major changes and the overall quality of the Company has improved significantly.

- Managerial and technical staff of the company are trained regularly in a training centre owned by the Company. A long-term rolling budget preparation system for operating

46

management has been established based on future water demand projections. Comprehensive computerized management systems have been implemented on financial management, human resource management, equipment management, information management, customer management system and so on. A geographical information system (GIS) has also been introduced and is proving useful in the management of the water distribution network. Scheduling of water production and operation of WTPs has been automatized.

(e) Tangshan Water Supply Company (TWSC)

TWSC was formed in 1951. In fact, TWSC has been a financially and managerially autonomous water supply company since the Company was formed; however, institutional development of the Company has made further significant progress since the commencement of the Project:

- In order to adapt to a changing external environment, since January 2001, the internal organizational structure of the Company has been gradually optimized and functions of the departments have been gradually improved and strengthened based on the principal of improving service quality and enhancing operating efficiency. For example: setting up an enterprise management department to replace the former planning department, and setting up a user service center, information management center, laws and regulation department, central filing and records department and so on.

- The Company has introduced a variety of rules and regulations for about 20 activities which are related to materials procurement, human resources, financial management, safety production and technological progress, and so on. These rules and associated procedures strongly promote improved performance and enhance the level of management.

During the period of project implementation, a technical assistance package on institutional development, strengthening and Training has been carried out. It included the following contents:

- Institutional/managerial component. This includes: (a) development of a company strategy, business plans and management information systems (MIS); (b) establishing service standards and monitoring performance targets under a more autonomous arrangement; and (c)company reorganization and development of human resources planning and training programs.

- Financial strengthening. This included: (a) operationalizing computerized accounting and financial reporting systems; (b) developing a financial MIS system; (c) reviewing and revising current billing practices to optimize collection efficiency; and (d) developing financial training programs.

- Operation enhancement. This included: (a) identification and implementation of cost savings initiatives; (b) preparation and implementation of sludge disposal plans; and (c) introduction of modern, cost effective, operations and maintenance equipment, including training

A consultant firm (MWH) was hired to assist the implementing agencies to finish the above work tasks together with the support of HPMO and municipal PMOs and counterpart staff from the Implementing Agencies. The above major objectives had been achieved when the consulting contract was closed in 2004. Since then, institutional development of the IAs has continued using

47

their own resources and management. It is considered the institutional development objectives set up during the period of project preparation have been achieved in full.

Mid-term Review and Adjustment

During Mid-term Review, HPMO discussed with the Bank Mission, on the issues regarding to the Mid-term Adjustment Project Component (MTAPC) to utilize total of US$ 21.56 million loan savings, which was principally approved by Mid-term Review Mission. MTAPC was formally approved later by WB dated March 10, 2006 after the WB review of formal MTAPC application with associated documents, such as EMPs, EIAs and Procurement Plan, submitted by HPMO and five IAs. In later time, WB approved the extension of the loan closing date until June 30, 2008 for implementation of MTAPC dated April 4, 2007.

Safeguards and Fiduciary Compliance

Land Acquisition & Resettlement

Land acquisition and resettlement of HUEP were implemented as proposed in PAD (refer to Annex 12, Project Appraisal Document, dated May 10, 2000) and Resettlement Action Plan. Under the management of HPMO, all of the five IAs have set up the management offices for land acquisition & resettlement to strengthen the management for land acquisition & resettlement prior to and during project construction. The land acquisition & resettlement reports were subject to submit to HPMO quarterly. The land acquisition & resettlement had been implemented in full accordance with the action plan with exception for some pipeline sections under the roads which were scheduled to be built according to municipal master plan, no construction delay occurred due to land acquisition & resettlement to achieve the project objectives. There were some pipeline to be built under the roads of municipal master plan of Shijiazhuang and Tangshan, of which the land acquisition & resettlement were not the responsibility of the IAs. However, these roads were not put into construction in time, and the IAs were not able to finance the land acquisition & resettlement for these sections of pipeline, original pipeline alignment could not be implemented. The IAs had changed pipeline alignment without affecting the wastewater collecting and portable water distribution, and achieved original project objectives. Compensation for all affected structures and person had been paid in time, and no complaint from affected person occurred, ensuring the successful implementation of the project. Here is the summary.

(a) Shijiazhuang Wastewater Component

Up to the end of 2007, total cost for land acquisition and resettlement was RMB 61.5 million, RMB 12.0 million more than RMB 49.5 million proposed in PAD, including (1) land acquisition cost of RMB 45.5 million, (2) direct compensation to affected person of RMB 8.5 million (including compensation for young crops, temporary land occupation and attachments); and (3) attachment compensation cost of RMB 7.5 million.

(b) Tangshan Water Supply Component

Total cost for land acquisition and resettlement was RMB 27.7 million, RMB 5.2 million less than RMB 32.9 million proposed in PAD, including (1) permanent land occupation cost of RMB 14.8 million; and (2) temporary land occupation cost of RMB 13.0 million.

48

(c) Tangshan Wastewater Component Total cost for land acquisition and resettlement was RMB 19.53 million, RMB 4.5 million less than RMB 24.0 million proposed in PAD, including (1) permanent land occupation cost of RMB 18.7 million and (2) temporary land occupation cost of RMB 0.83 million.

(d) Handan Water Supply Component The water treatment plant to be built under this project is located within the existing water treatment (Phase 1) and no permanent land acquisition required. Construction for distribution network only needed temporary land occupation. The total compensation cost for affected person was RMB 12.9 million, RMB 3.5 million less than RMB 16.4 million proposed in PAD.

(e) Handan Wastewater Component Total cost for land acquisition and resettlement was RMB 19.1 million, RMB 7.2 million less than RMB 26.3 million proposed in PAD, including (1) permanent land occupation cost of RMB 4.9 million, (2) attachment compensation cost of RMB 0.94 million, and (3) temporary land occupation & affected person compensation cost of RMB 13.3 million.

Environmental Management

Under the management of HPMO, all of the five IAs have set up the Environmental Management Divisions (EMD) and Environmental Mitigation Plans (EMP) for environmental management during the project construction and operation period. The environmental management reports were subject to submit to HPMO quarterly. All of the five project components had been routinely practiced the measures and arrangements specified in EMPs during the construction and operation period, such as setting up temporary sonic barrier and limited construction period of the day if the construction site within 150 meter to the resident area, adopting low noise construction machinery, sprinkling water for dust control, timely cleaning construction trash and waste earth to reduce the impacts primarily related to noise, air pollution from dust, vibration of machinery, disposal of waste, traffic issues, safety and hazards. Local environment protection authorities conducted snap-check for noise and air dust aperiodically. There were no negative impacts to environment recorded. Also no significant disruption to the community and complaint from the residents around the construction site were reported during the construction period. Successful environmental management conduced to continuous construction.

Reporting and auditing

HPMO and five IAs had prepared and submitted the WB all the scheduled reports specified in PAD. With the assistance of TA-Package B consultants, HPMO had submitted 29 Quarterly Progress Reports to the end of June 2008 (loan closing date) with financial statements submitted by IAs on bi-annual basis. Hebei Provincial Auditing Bureau (HPAB) has audited the financial situation of HPMO, municipal PMOs and IAs in each fiscal year according to the requirements of the Project Agreement and Loan Agreement, and has submitted audit reports to the World Bank on time. There has been no substantial error disclosed in the audit reports except for some minor mistakes which were corrected at the time.

49

Post Completion Operation

Transition Arrangements to Regular Operation

All the water supply and wastewater facilities have been successfully commissioned and transferred to IAs with the exception for SWW/C4, a performance based contract for design, construction, supply, installation, commissioning, operation and provision of training for sludge processing and energy recovery facilities at new built wastewater treatment plant loaned by WB. All the scope of work have been completed for the contract except for operation. The contract required the contractor to operate two years prior to transferring the facility to the Shijiazhuang WWC with the cost by counter part financing. The operation period is scheduled for completion by the end of June 2009.

Optimal Use of Facilities

Shijiazhuang wastewater company (WWC) has reached an agreement with adjacent power plant treatment to use the effluent from the new built wastewater treatment plant (WWTP) supported by WB loan of the project as cooling water of the power plant after further purification. Tangshan wastewater component had built a 60,000 m3/day wastewater reclamation plant financed by loan savings from the project with its effluent successfully supplied to nearby power plant as cooling water, increased income and achieved great environmental benefits in respect of water conservation and pollution reduction.

Handan wastewater component is piping the effluent from new built WWTP to upstream of Qing River for landscaping.

Operation

All of the water supply and wastewater facilities have been operating quite well with both the treatment capacity and effluent quality having achieved design requirements. For the operation staff, five WWCs and WSCs have transferred some skilled staff from existing plants to the new built WTPs and WWTPs and trained new recruited staff before and during the commissioning and trial production period, they have been very competent for operating these facilities. The tariff has been increased several times for the five components since the appraisal of WB, and the tariff collected are more than enough to cover the operating and maintenance cost for these facilities.

50

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders None

51

Annex 9. List of Supporting Documents

• Project Appraisal Document dated May 10, 2000 • AIDE MEMOIREs • ISRs • Quarterly and Annual Progress Reports • Borrower Implementation Completion Report (ICR) • Project File containing records of project preparation, appraisal and supervision • Feasibility Studies • China Country Assistance Strategy (2003) • China Country Partnership Strategy (2006) • Consultant Report on Institutional Improvement Plants

Douhe

Reservoir

Douhe

Reservoir

Water TreatmentPlant

Intake Pumping Station

Beijiao WTP

North Suburb WTP

Longwangmlao WTP

Dong Jiao WWTP

Da Hong Glao WTP

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VIETNAM

REP. OFKOREA

D.P.R. OFKOREA

LAOP.D.R.

KYRGYZREP.

National Capital

Province Boundaries

International Boundaries

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

CHINA

HEBEI URBANENVIRONMENT PROJECT

TANGSHAN WATER SUPPLYAND WASTEWATER TREATMENT

COMPONENTS

CHINA

HEBEI URBAN ENVIRONMENT PROJECTTANGSHAN WASTEWATER TREATMENT SYSTEM COMPONENT

IBRD 30926

DECEMBER 2008

0 1 2 3 4

KILOMETERS

WASTEWATER TREATMENT PLANTS

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Cangzhou

Baoding

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IBRD 30928

DECEMBER 2008

0 1 2 3

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WASTEWATER TREATMENTSHIJIAZHUANG WASTEWATER

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TRUNK SEWERS TO BE BUILT UNDER THE PROJECT

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Tiexi WTP Phase 2East WWTP

East SPS

Lao DongRoad SPS

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(temporary)

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Cangzhou

Baoding

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Tiexi Phase 1

Tiexi Phase 2

For Detail,see Main Map

YuechengReservoir

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Zhang River

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CI COUNTY

FENGFENGMINERAL AREA

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Project Water Treatment Plant

Existing Conveyance

Conveyance to be builtunder the Project

County Boundaries

Rivers


CHINA

HEBEI URBAN ENVIRONMENT PROJECTHANDAN WASTEWATER TREATMENT

SYSTEM COMPONENT

IBRD 30929

DECEMBER 2008

0 1 2 3

KILOMETERS

0 1 2 3

KILOMETERS

CHINA

HEBEI URBAN ENVIRONMENT PROJECTHANDAN WATER SUPPLYSYSTEM COMPONENT

WATER SUPPLY PIPES TO BE BUILT UNDER THE PROJECT

PROPOSED WATER TREATMENT PLANT

RAW WATER TRANSMISSION LINE TO BE BUILT UNDER THE PROJECT

EXISTING WATER SUPPLY PIPES

EXISTING WATER TREATMENT PLANTS

EXISTING RAW WATER TRANSMISSION LINE

ROADS

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PROJECT WASTEWATER TREATMENT PLANT

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EXISTING SEWER LINES

ROADS

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from YuechengReservoir

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HEBEI URBAN ENVIRONMENT PROJECTHANDAN WATER SUPPLY SYSTEM

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Heilong Jiang

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DalianDalian

AnshanAnshan

LuoyangLuoyang

QingdaoQingdao

QiqiharQiqihar

ChongqingChongqing

LhasaLhasa WuhanWuhan

HefeiHefei

Xi'anXi'an

JinanJinan

HohhotHohhot

FuzhouFuzhou

XiningXining

UrumqiUrumqi

HarbinHarbin

NanningNanning

KunmingKunming

GuiyangGuiyang

ChengduChengdu

NanjingNanjing

LanzhouLanzhou

TaiyuanTaiyuan

TianjinTianjin

ChangshaChangsha

NanchangNanchang

HangzhouHangzhou

ShanghaiShanghai

YinchuanYinchuan

ShenyangShenyang

GuangzhouGuangzhou

ZhengzhouZhengzhou

ChangchunChangchun

ShijiazhuangShijiazhuang

BEIJINGBEIJING

Chang Jiang

H E B E IH E B E I

BANGLADESHBANGLADESH

KAZAKHSTANKAZAKHSTAN

RUSSIAN FEDERATIONRUSSIAN FEDERATION

VIETNAMVIETNAMMYANMARMYANMARLAOLAO

PEOPLE'SPEOPLE'SDEM.DEM.REP.REP.

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CHINA

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IBRD 36669

DEC

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This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endo r s emen t o r a c c e p t a n c e o f s u c h boundaries.

CHINAHEBEI URBAN ENVIRONMENT PROJECT

PROJECT ROVINCE

MAIN CITIES AND TOWNS

PROVINCE CAPITALS

NATIONAL CAPITAL

PROVINCE BOUNDARIES

INTERNATIONAL BOUNDARIES

ISLAMICREP. OF IRAN

AFGHANISTAN

CHINA

PAKISTAN

AZERB.

R U S S I A N F E D E R A T I O N

To Korlao Korla

Turkmenbashi

Nebitdag

Serdar

MaryTejen

Nukus

Navoi

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Bukhoro

Qarshi

QurghonteppaKulob

Khorugh

Talas

Taraz

Shymkent

Kyzyl-Orda

Toretam

Zhezkazgan

SemipalantinksOskemen

Pavlodar

Shiderty

Georgievka

Saryshaghan

Karagandy

Kostanay

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Ruzaevka

Zhaksy

Petropavlovsk

Andijon

Termez

GulistonJizzakh

Turkmenabat

Dashhowuz

Ural'sk

Aktobe Karabutak

Atyrau

Beyneu

Zhanaozen

Dossor

Aktau

Osh

Batken

Ferghana

Jalal-Abad

Almaty

Balkash

Taldykorgan

Taskesken

Ucharal

Karakol

Naryn

Samarkand

ASHGABAT

TEHRAN

BAKU

KABUL

TASHKENT

DUSHANBE

BISHKEK

ASTANA

Turkmenbashi

Nebitdag

Serdar

MaryTejen

Nukus

Navoi

Urgench

Bukhoro

Qarshi

QurghonteppaKulob

Khorugh

Talas

Taraz

Shymkent

Kyzyl-Orda

Toretam

Zhezkazgan

SemipalantinksOskemen

Pavlodar

Shiderty

Georgievka

Saryshaghan

Karagandy

Kostanay

Kokshetau

Ruzaevka

Zhaksy

Petropavlovsk

Andijon

Termez

GulistonJizzakh

Turkmenabat

Dashhowuz

Ural'sk

Aktobe Karabutak

Atyrau

Beyneu

Zhanaozen

Dossor

Embi

Aktau

Osh

Batken

Ferghana

Jalal-Abad

Almaty

Balkash

Taldykorgan

Taskesken

Ucharal

Karakol

Naryn

Samarkand

ASHGABAT

TEHRAN

BAKU

KABUL

TASHKENT

DUSHANBE

BISHKEK

ASTANA

Zhaiyk(Ural)

Ural

Volga

Syr-Darya

Naryn

Ob'

Irtysh

Kama

Irtysh

LakeBalkash

AralSea

CaspianSea

Lake Issyk-Kul

LakeZaisan

K A Z A K H S T A N

TURKMENISTAN

UZBEKISTAN

TAJIKISTAN

KYRGYZREPUBLIC

ISLAMICREP. OF IRAN AFGHANISTAN

CHINA

PAKISTAN

AZERB.

R U S S I A N F E D E R A T I O N

To Saratov

To Kizlyar

To Samara To Orenburg

To Ula

To ChelyabinskTo Chelyabinsk

To Novosibirsk

To Novosibirsk

To Barnaul

To Urumqi

To Urumqi

To Korla

To Shache

To GardizTo Farah

To SemnanTo Mashhad

60°50°

50° 60° 70°

70° 80°90°

50°

50°

40°

40°

0 100 200 300 400 500

KILOMETERS

IBRD 33670

JAN

UA

RY 2005

TRANSPORT CORRIDORS (ROADS)

TRANSPORT CORRIDORS (RAILROADS)

BORDER CROSSINGS

MARITIME PORTS

MAIN ROADS

RAILROADS

MAJOR CITIES

NATIONAL CAPITALS

MAJOR RIVERS

INTERNATIONAL BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endorsemen t or a c c e p t a n c e o f s u c h boundaries.

CENTRAL ASIAN REPUBLICS

TRADE AND TRANSPORT FACILITATIONKAZAKHSTAN

KYRGYZREPUBLIC

TAJIKISTANTURKMENISTAN

UZBEKISTAN

World Bank Document...E. Bank Staff Positions At ICR At Approval Vice President: James W. Adams...

Documents

Transcript of World Bank Document...E. Bank Staff Positions At ICR At Approval Vice President: James W. Adams...