Document of The World Bank Report No: ICR00003543 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-48010) ON A LOAN IN THE AMOUNT OF US$180 MILLION TO THE PEOPLE’S REPUBLIC OF CHINA FOR A SHANGHAI URBAN ENVIRONMENT PROJECT IN SUPPORT OF THE SECOND PHASE OF THE SHANGHAI URBAN ENVIRONMENT PROGRAM ` November 30, 2015 Global Practice for Social, Urban, Rural Resilience China & Mongolia Country Management Unit East Asia and Pacific Region CURRENCY EQUIVALENTS Exchange Rates Currency Unit = Renminbi Yuan Yuan 1.00 = US$0.12 (At Appraisal) US1.00 = Yuan 8.27 (At Appraisal) Yuan 1.00 = US$0.16 (At project closing March 31, 2015) US$1.00 = Y 6.2584 (At project closing March 31, 2015) . FISCAL YEAR Januay1 – December 31 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan BNWPP Bank Netherlands Water Partnership Program CAS County Assistance Strategy CEAM Shanghai Chengtou Environmental Asset Management Co. Ltd. CEIDC Shanghai Chengtou Environment Industry Development Co. Ltd CPS Country Partnership Strategy DBO Design Build Operate DFV District Financing Vehicle EA Environmental Assessment EAF Environmental Assessment Framework EIAPF Environmental Impact Assessment Policy Framework EMP Environmental Management Plan FM Financial Management FYP Five Year Plan GoC Government of the People’s Republic of China HH Household ICB International Competitive Bidding ICRR Implementation Completion and Results Report ISR Implementation Status and Results Report IST Institutional Strengthening and Training KPI Key Performance Indicator M&E Monitoring and Evaluation MIS Management Information System MOF Ministry of Finance MOM Management, Operations and Maintenance MR Metropolitan Region MTR Mid-Term Review Mu Chinese unit of land measurement 1ha=15 Mu NCB National Competitive Bidding NDRC National Development and Reform Commission PAD Project Appraisal Document PAP Project Affected Person PDO Project Development Objective PIU Project Implementation Unit PLG Project Leading Group PMO Project Management Office RF Results Framework RAP Resettlement Action Plan RFP Resettlement Framework Plans SCAESAB Shanghai City Appearance and Environmental Sanitation Administration Bureau SDRC Shanghai Development and Reform Commission SEPB Shanghai Environment Protection Bureau SL&CAB Shanghai Landscaping & City Appearance Bureau SMG Shanghai Municipal Government SMSC Shanghai Municipal Sewerage Co. Ltd. SMWSC Shanghai Municipal Waterworks South Co. Ltd. SSP1 First Shanghai Sewerage Project SSP2 Second Shanghai Sewerage Project STP Sludge Treatment Plant SUEP Shanghai Urban Environment Project SWA Shanghai Water Authority UDIC Shanghai Urban Development and Investment Co. Ltd. WTP Water Treatment Plant WTS Western Trunk Sewer WWTP Wastewater Treatment Plant Regional Vice President: Axel van Trotsenburg Country Director: Bert Hofman Global Practice Senior Director: Ede Jorge Ijjasz-Vasquez Global Practice Manager: Abhas K. Jha Task Team Leader: Alessandra Campanaro ICR Team Leader: Alessandra Campanaro PEOPLE’S REPUBLIC OF CHINA SHANGHAI URBAN ENVIRONMENT PROJECT APL PHASE 2 CONTENTS Data Sheet A. Basic Information ............................................................................................................ i B. Key Dates ........................................................................................................................ i C. Ratings Summary ............................................................................................................ i D. Sector and Theme Codes................................................................................................ ii E. Bank Staff ....................................................................................................................... ii F. Results Framework Analysis ......................................................................................... iii G. Ratings of Project Performance in ISRs ........................................................................ v H. Restructuring (if any) ..................................................................................................... v I. Disbursement Profile ..................................................................................................... vi 1. Project Context, Development Objectives and Design ............................................... 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 5 3. Assessment of Outcomes .......................................................................................... 13 4. Assessment of Risk to Development Outcome ......................................................... 21 5. Assessment of Bank and Borrower Performance ..................................................... 22 6. Lessons Learned........................................................................................................ 27 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners........... 28 Annex 1. Project Costs and Financing........................................................................ 30 Annex 2. Outputs by Component ............................................................................... 31 Annex 3. Economic and Financial Analysis ............................................................... 47 Annex 4. Bank Lending and Implementation Support/Supervision Processes .......... 52 Annex 5. Beneficiary Survey Results ......................................................................... 55 Annex 6. Stakeholder Workshop Report and Results ................................................ 56 Annex 7. Summary of Borrower's ICRR .................................................................... 57 Annex 8. Comments of Co-Financiers and Other Partners/Stakeholders .................. 62 Annex 9. List of Supporting Documents .................................................................... 63 Annex 10. Project Resettlement and Land Acquisition ................................................ 64 Annex 11. Socio Economic Impact and Improved Incomes. ....................................... 66 MAP IBRD 41739 ............................................................................................................ 68 DATA SHEET A. Basic Information Shanghai Urban Country: China Project Name: Environment APL Phase 2 Project ID: P075732 L/C/TF Number(s): IBRD-48010 ICR Date: 09/02/2015 ICR Type: Core ICR PEOPLE'S REPUBLIC Lending Instrument: APL Borrower: OF CHINA Original Total US$180.00m Disbursed Amount: US$171.84m Commitment: Revised Amount: US$180.00m Environmental Category: A Implementing Agencies: Shanghai DRC Co-Financiers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 04/28/2004 Effectiveness: 03/28/2006 03/28/2006 03/29/2011 Appraisal: 02/22/2005 Restructuring(s): 12/22/2011 03/25/2014 Approval: 07/05/2005 Mid-term Review: 03/16/2009 10/20/2010 Closing: 03/31/2011 03/31/2015 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: i C.3 Quality at Entry and Implementation Performance Indicators Implementation Performance Indicators QAG Assessments (if any) Rating Potential Problem Project at any Yes Quality at Entry (QEA): None time (Yes/No): Problem Project at any time Yes Quality of Supervision (QSA): None (Yes/No): DO rating before Moderately Closing/Inactive status: Satisfactory D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Solid waste management 10 0 Sub-national government administration 20 15 Wastewater Collection and Transportation 29 35 Wastewater Treatment and Disposal 21 30 Water supply 20 20 Theme Code (as % of total Bank financing) City-wide Infrastructure and Service Delivery 25 Environmental policies and institutions 13 1 Municipal finance 13 Other human development 24 Other urban development 23 Pollution management and environmental health 25 76 E. Bank Staff Positions At ICR At Approval Vice President: Axel van Trotsenburg Jemal-ud-din Kassum Country Director: Bert Hofman David R. Dollar Practice Abhas Kumar Jha Keshav Varma Manager/Manager: Project Team Leader: Alessandra Campanaro Mats Andersson ICR Team Leader: Alessandra Campanaro ICR Primary Author: Geoffrey Spencer ii F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The Project was the second phase of the Shanghai Urban Environment Program (SUEP). The objective of the Project was to assist the Borrower's Shanghai Municipality to further improve the municipality's management of the metropolitan area environment through select investments in high priority infrastructure, enhancement of financing architecture for urban environmental infrastructure investments and policy and institutional reform initiatives. Revised Project Development Objectives (PDO) as approved by original approving authority. No change during project implementation. (a) PDO Indicator(s) Original Target Actual Value Values (from Formally Revised Achieved at Indicator Baseline Value approval Target Values Completion or documents) Target Years Evidence of improved effectiveness of service delivery regarding water supply, Indicator 1 : wastewater management and solid waste management. Value significant Water Supply: <6 Water Supply: <6 Not identified Trend improvement Wastewater: <8 Wastewater: <8 Date achieved 03/28/2006 03/25/2014 03/31/2015 03/31/2011 Comments Achieved. The PAD did not specify how this was to be measured. In attempt to (incl. % improve this, indicators were inserted to measure the number of staff per 1000 achievement) connections for SMWSC/SMSC. Level of participation of the surrounding districts in the Metropolitan wide Indicator 2 : measures being under taken by Shanghai to improve water quality, wastewater management and solid waste collection and disposal.. Value 0 8 Not revised. 12 No of Districts Date achieved 03/28/2006 3/31/2011 3/31/2015 03/31/2015 Comments Achieved. At project closure, 12 districts participated (7 urban and 5 peri-urban) (incl. % in metropolitan wide initiatives. Achievement was 150%. (See Para 1.4 Main achievement) beneficiaries and Table 2.2 Annex 2) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Component A: Water Supply Management. Indicator 1 : Improved drinking water service coverage and quality for the Xujing area of Qingpu District. Value 0 200,000 Not revised 205,000 iii No. of people serviced Date achieved 03/28/2006 10/31/2011 10/31/2010 03/31/2011 Comments Achieved. The actual achievement was 102.5%. WS works were completed and (incl. % put into service in Oct. 2010, supplying high quality treated water to the target achievement) consumers. Component B: Wastewater Management. Indicator 2 : Sewage collected and treated to discharge standards in the WTS catchment. . Value % of North 60% 80% Not revised 94% West system flow Date achieved 07/01/2005 3211 03/31/2015 Comments Achieved. By closure, the WTS transferred an average of 377,000 m3/day or (incl. % 94% of the design capacity. This exceeded the target of 80% of the design flow achievement) of 400,000 m3/day. Actual achievement was 117.5% of target. Wastewater sludge treated to agreed disposal standards at two Wastewater Indicator 3 : Treatment Plants (WWTPs) at Bailonggang and Zhuyuan. Value %of stage 80% (of 204 t/d Bailonggang 92% 10 Not revised capacity Bai +150 t/d Zhu) Zhuyuan 0% treated Date achieved 03/28/2006 03/31/2015 3/31/2011 3/31/2015 Partially achieved. Bailonggang Sludge Treatment Plant (STP) fully operational Comments on 12/2011. In 2014, avg. sludge treated reached 178 t/d, or 92% of design (incl. % capacity (target 163 t/d). Construction of Zhuyuan STP completed in 11/2013, achievement) but no testing incomplete. Component C: Solid Waste Management Indicator 4 : Number of solid waste sites safely closed under the project. This component Value was dropped as part (quantitative 0 2 0 of the restructuring or Qualitative) in March 2014. Date achieved 03/28/2006 03/25/2014 03/31/2015 3/31/2011 Comments Dropped. Closure of the two sites was not achieved. For most of the project, (incl. % progress was slow with many complications. Borrower agreed to complete the achievement) closure by June 2016 using own funds. Component D: District Financing Vehicle Indicator 5 : Number of sub-project agreements signed with DFV (cumulative). Value No. of 0 5 Not revised. 6 agreements Date achieved 03/28/2006 03/31/2015 iv Comments Achieved. The PAD anticipated that 8 agreements would be signed with some (incl. % going beyond APL2. The specific target for APL2 was set at 5 at MTR and this achievement) was exceeded. Achievement was 120% of target.. Indicator 6 : Number of DFV supported sub-projects completed (cumulative). Value 0 4 Not revised. 4 No. Date achieved 07/01/2005 033111 03/31/2015 Achieved. The PAD anticipated that the number of DFV projects completed Comments would be 6, spread beyond APL2. The APL2 target was 4 at MTR. Of the 5 (incl. % sub-project agreements signed, 4 were completed and put into operation under achievement) APL2. Component E: Institutional Strengthening and Training. Indicator 7 : Completed Institutional Strengthening and Training (IST) activities. Value 0 100% (of 15) 11 10 No. Date achieved 03/28/2006 033111 03/25/2014 03/31/2015 Comments Substantially achieved. At appraisal 15 IST activities identified. March 2014 (incl. % restructuring; target revised to 11 and indicator simplified to measure number of achievement) activities completed. Achievement was 10 studies completed. G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (US$ millions) 1 02/17/2006 Satisfactory Satisfactory 0.00 2 11/30/2006 Satisfactory Satisfactory 26.89 3 12/20/2007 Satisfactory Satisfactory 35.10 4 03/19/2009 Satisfactory Satisfactory 45.83 5 01/26/2010 Satisfactory Satisfactory 105.06 6 04/28/2011 Moderately Satisfactory Moderately Satisfactory 118.45 7 04/06/2012 Moderately Satisfactory Moderately Satisfactory 126.38 Moderately Moderately 8 05/15/2013 128.74 Unsatisfactory Unsatisfactory 9 12/25/2013 Moderately Satisfactory Moderately Satisfactory 128.74 10 06/24/2014 Moderately Satisfactory Moderately Satisfactory 128.74 11 12/29/2014 Moderately Satisfactory Moderately Satisfactory 133.69 H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in US$ millions Extension by one year (March 03/29/2011 S S 118.45 31, 2012). Necessary to allow v ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in US$ millions progress in the remaining civil works and goods and completion of IST activities. Extension by two years (March 31, 2014) to: (i) complete 12/22/2011 MS MS 119.30 ongoing civil works; and (ii) complete IST studies. Extension by one year (March 31, 2015): (i) revise scope of some components, including dropping of dump site closures; (ii) increased disbursement percentages for 03/25/2014 N MS MS 128.74 some categories; (iii) reallocated loan proceeds amongst categories and components; (iv) amended a financial covenant; and (v) amended the RF I. Disbursement Profile vi 1. Project Context, Development Objectives and Design Context at Appraisal. In 2005 Shanghai was developing very rapidly, both economically and demographically and expanding from the core city to the surrounding suburbs. The 2003 census calculated a metropolitan population of 18 million people and all planning was based on an estimated population of 22 million by 2020. However, growth was so rapid, the population had already reached 23 million by 2010. The Shanghai Municipal Government (SMG) was faced with the challenge of trying to keep pace with the ever accelerating growth with virtually all the growth occurring in its suburban districts. This exacerbated environmental pressures and heightened the need for pollution mitigation measures, in order to ensure the security and sustainable management of the water supply, wastewater, and solid waste sectors. In addition the Government of China (GoC), concerned about the heavy pollution levels of the lower Yangtze River, was pressuring SMG to reduce the pollution emanating from greater Shanghai. Therefore, SMG committed to developing a coordinated metropolitan-wide approach for environmental improvements and infrastructure particularly in the suburbs. It believed that this would: (i) improve the balance of urban service levels and environmental protection across the municipality; (ii) provide the districts surrounding Shanghai with an opportunity to benefit from and make use of municipal level technical and financial expertise and experience, including access to cheaper capital for infrastructure investment; and (iii) reap the benefits from economies of scale that would be realized if core city infrastructure were expanded to suburban areas. Because large infrastructure investments were needed in the rapidly growing suburban districts, SMG recognized that the District Financing Vehicle (DFV) as a way to add value to district level governments by mobilizing effective financing, providing project management support and being a conduit between districts/utility companies and the Bank. Rationale for Bank Involvement. The concept of a programmatic approach was approved in October 2001 and the Adaptable Program Loan (APL) program was approved in June 2003. It included a three phased APL operation with the overarching objective of improving the environmental conditions in Shanghai by progressive development and implementation of integrated, metropolitan-wide environmental management measures. The total program was estimated to be US$580 million and For APL2, the Bank’s primary role was three-fold: (i) provide Shanghai the benefit of its extensive global and China experience to support sector reforms, including the development of regulatory frameworks and institutional approaches to expand the strategic focus of environmental management; (ii) continue to support the evolution of enhanced instruments for municipal infrastructure financing through the implementation of a new and innovative DFV to support district governments’ infrastructure investments and development initiatives; and (iii) provide continued financial support for Shanghai’s environmental investment program. Project Contribution to Higher Level Objectives. From the national perspective, the project was aligned with the GoC’s strategic objectives as set out in the 11th Five Year Plan (FYP) of: (i) sustainable development and improvements in the livability of cities during China’s transition from a rural to an urban based economy, with particularly emphasis on investment in environmental infrastructure to ensure the sustainability of the rapid industrialization and urbanization processes; and (ii) achievement of balanced, equitable and sustainable growth. From the Bank’s perspective, the project directly supported two of the three themes of the Bank’s 2003-2006 Country Assistance Strategy (CAS) dated January 23, 1 2003: (i) to facilitate an environmentally sustainable development process; and (ii) to help improve the business environment and facilitate the transition to a market economy. The project was also consistent with the Bank’s Urban and Local Government Strategy 1 and with the China Country Water Assistance Sector strategy 2 of sustainable and affordable provision of water supply and wastewater services. 1.2 Original Project Development Objectives and Key Indicators PDO. As stated in the PAD, the PDO was “to expand Shanghai’s environmental management agenda in the metropolitan area through support for a selected set of priority investments, enhancement of financial architecture for urban environmental infrastructure, and policy and institutional reform”. The Loan Agreement (LA) stated the PDO differently – “to assist the Borrower’s Shanghai Municipality to further improve the municipality’s management of the metropolitan area environment through select investments in high priority infrastructure, enhancement of financing architecture for urban environmental infrastructure investments and policy and institutional reform initiatives.” For the purposes of this report, the PDO as stated in the LA has been used. Key Indicators. (PAD page 29) The two Key Performance Indicators (KPIs) in the Results Framework (RF) and used consistently in project monitoring and evaluation (M&E) reporting were: a. Evidence of improved effectiveness in operations, management and finances of participating urban environmental service utilities and increased self-financing of capital requirements; and b. Level of participation of the surrounding districts in the metropolitan wide measures being taken by Shanghai to improve water quality, wastewater management and solid waste collection and disposal. However, another set of completely different KPIs (PAD page 5) that were never tracked were: a. Activities associated with environmental improvements in both the core city and the greater metropolitan area; b. Enhancement of municipal water, wastewater, and solid waste sector strategies; c. Expansion of infrastructure finance options; and d. Implementation of selected priority investments. Triggers for APL3. Performance triggers were defined by the Bank under APL2 for APL3. (See Section 2 and Annex 2 Table 2.13 for details of the triggers and compliance). 1.3 Revised PDO and Key Indicators, and Reasons/Justification There was no revision to the PDO and no major revision to the KPI. 1.4 Main Beneficiaries At appraisal eight participating districts were identified (Changning, Hongkou, Huangpu, Luwan,3 Putuo, Jiangan Yangpu and Zhabei.) At project closure, a total of 12 districts had participated in metropolitan wide initiatives (Chongming, Qingpu, Zhabei, Yangpu, Hongkou, Putuo, Baoshan, Pudong, Changning, Jiangan, Huangpu and Minhang). The total quantifiable number of beneficiaries was 10.6 million people. . (See details Annex 2 Tables 2.2 and 2.3) 1 Cities in Transition: World Bank Urban and Local Government Strategy. Report No. 21113 dated September 3, 200. 2 China-Country Water Resources Assistance Strategy. Report No. 48499 dated January 1, 2002. 3 Luwan District was amalgamated with Huangpu District on June 8, 2011. 2 Non quantifiable benefits included many staff of SMG /SDRC and the implementing agencies including SMWSC, SMSC, SLSB, CEAM and selected participating District staff benefitted from the 10 studies and targeted training activities under IST Component. By strengthening the institutional and management capability of implementing agencies, the secondary beneficiaries of the IST Component would ultimately be: (i) the entire population serviced by the Shanghai Municipal Waterworks South Co. Ltd (SMWSC), estimated to be more than 3 million water consumers; (ii) the customer base of Shanghai Municipal Sewerage Co. Ltd (SMSC), estimated to be in excess of 20 million people; (iii) all SMG metro region residents, estimated to be in excess of 23 million people4 because of enhanced capability for planning and managing metropolitan infrastructure by SMG. 1.5 Original Components. The project had five components as described below. Component A: Water Supply Management (US$54.23 million – 13.7% of base cost) This component would finance priority investments in the sector and would help consolidate management of the sector by reducing fragmentation. The investments included water supply distribution and reticulation network extensions to improve water service coverage and high quality water to a target population of about 200,000 in Qingpu District. The component also included technical assistance (TA) for: (i) network model augmentation and on-line simulation; (ii) network rehabilitation (maintenance) technology; and (iii) construction management and supervision. These TAs aimed to improve the management of the SMWSC and also funded independent construction management and supervision for this component. Component B: Wastewater Management (US$271.47 million – 68.5 % of base cost) This component supported priority investments to optimize the management and use of Shanghai’s existing trunk sewer assets to allow for future growth in the context of the Shanghai Wastewater Master Plan (2002). It had three major sub-components: (i) renewal and rerouting of 25.4 km of the Western Trunk Sewer (WTS) interceptor; (ii) decommissioning of 23 km of old redundant sewers; (iii) implementation of the first stage of Shanghai’s Sludge Management Plan for Metropolitan Shanghai, with two new major sludge treatment facilities at Bailonggang and Zhuyuan. The IST activities were aimed at strengthening the management performance of SMSC as follows: (i) Strategic Current Asset Rehabilitation Study; (ii) Support of Water Resource Protection Program Design, (iii) Core City Waste Management Strengthening; (iv) Social Participation in Wastewater Sector Financing; and (v) Management Options for Storm Water; and (vi) Advanced Management and Operations of WWTPs. TA was also provided for independent construction management and supervision. Component C: Solid Waste Management (US$7.12 million - 1.8% of base cost) The component was designed to assist Shanghai to develop best practice methodologies for dump closure and rehabilitation, which could be replicated in the municipality. The component comprised: (i) the in-situ closure of the Gucun and Minhang waste sites in the core , including the implementation of a program of site assessment, monitoring and rehabilitation; and IST activities: (i) implementation of a Management Information System (MIS) to assist the institutional strengthening of Shanghai City Appearance and Environment Sanitation Administration Bureau (SCAESAB) in its new role as sector regulator; (ii) carry out a multi- year analysis of the domestic waste composition in Shanghai, to assist in the development of a 4 Source - 2010 Census. 3 comprehensive demand management strategy for the sector. TA was also provided for construction management and supervision. Component D: Urban Environmental Infrastructure Financing-District Financing Vehicle (US$62.54 million – 15.8% of base cost) The specific objectives of this component were to: (i) strengthen participating suburban district governments’ capacity and interest to invest in environmental infrastructure and service improvements, initially with or without these investments being able to attract substantial commercial or private financing; (ii) lend comprehensive management support and guidance to district governments in addressing their needs, including securing necessary support from relevant agencies at municipal level and commercial banks, and increasing the effectiveness of participating district entities in their identification, planning, delivery, and cost recovery of the local infrastructure; (iii) through financial engineering, improve the provision of basic local services, by increasing the availability of management support and financing for infrastructure investments by applying a new and for China, innovative inter-governmental mechanism within a municipality. In order to deliver these three objectives, the project introduced the DFV that was designed to provide the managerial and financial support for infrastructure investments in water supply, wastewater treatment and solid waste management improvements in the participating suburban districts. The component also included TA for Shanghai Chengtou Environment Assets Management Co. Ltd (CEAM) and the respective participating districts, including four studies on regional delivery of environmental services and metropolitan-wide infrastructure development and management strategies. Component E: Institutional Strengthening and Training (US$0.73 million - 0.2% base cost) In addition to the TA described above, three strategic level metropolitan-wide studies were to be undertaken directly by the SMG: (i) a comprehensive study of Shanghai Municipal (Regional) development; (ii) a Global Megacity Infrastructure Performance Comparison Study; and (iii) Other Urban Development Studies (to be identified). 1.6 Revised Components (See details in Section 2.2 and Annex 2 below) For the DFV component, the proposed Jinshan District Solid Waste Transfer and Collection System sub-project was dropped in July 2010, due to changes of waste management in Jinshan District, and replaced by a new sub-project for the Qingpu Baihe Wastewater Collection System. In January, 2012 a new fifth sub-project was added to finance the Xujing Water Treatment Plant (WTP) Expansion and in February 2015 a sixth sub-project for the Mingfeng Raw Water Conveyer pipeline was approved for funding. For the 15 IST activities, 10 were completed and five were dropped. (See Annex 2, Table 2.12). 1.7 Other Significant Changes. The project was restructured (level 2) three times, twice in 2011 and again in 2014. The first two were for extensions of one and two years respectively. The third restructuring was more comprehensive and involved: a further one year extension; revision of the scope of some components; increases in disbursement percentages; reallocation of loan funds; and amendments to the RF and to a financial covenant. More details of each restructuring is in Annex 2 Table 2.4. Reallocation of Loan Proceeds. The March 2014 restructuring incorporated changes in the financing plan. Savings resulted because of: (i) the cancellation of civil works under Component C (US$2.2 million); (ii) a number of IST activities were own-financed and five others were canceled (US$3.0 million); and (iii) efficient procurement of goods under 4 Component A (US$1.96 million). Also an unallocated amount of US$9.05 million was reallocated. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Soundness of Background Analysis. Preparation of APL2 built on the sound background analysis used for the overall APL program and was based on the Bank’s long and successful experience and lessons learned from at least three previous urban environment projects in Shanghai5. This long term engagement had at its core a consistent approach based on careful planning and allowed time for the essential and often challenging policy reforms and initiatives to mature. Based on the Letter of Development Strategy and the related Shanghai Development Plan that under pinned the APL program, the Bank continued its involvement and support under APL2 and continued the support for. The SMG’s focus on the three key urban services sectors: water resources, wastewater and solid waste. Priority investments for each sector and reforms which supported Shanghai’s strategies 6 were reviewed and analysis and final selection of the infrastructure investments for each component included rigorous and comprehensive consideration of alternatives (See PAD Annex 9). The sector IST activities were also selected as integral parts of each sector master plan and were consistent with the objective of improving the management of environmental services. The rapid growth in the suburbs meant that SMG’s ability to contain the environmental degradation in the suburban districts depended on effectively managing and financing environmental investments on a coordinated, metropolitan-wide scale by encouraging the participation of these districts. These local governments also faced greater hurdles in accessing low cost capital and attracting private investor interest for developing and financing their expansion. The SMG expanded its urban environmental management and expertise to less affluent suburban areas by establishing the DFV, which was thoroughly analyzed in the PAD (Annex 10). Assessment of Project Design. The project’s design was not too complex in that it was in a well-defined geographical area, with the bulk of the investments concentrated primarily in the water supply and wastewater sectors with a small component in the solid waste sector. Some of the investments were technologically advanced, but SMG and its utilities also had strong capacity and any successful innovations in Shanghai could be disseminated nation-wide. The water sector investments were well chosen for their ability to improve sector management by eliminating smaller water supply facilities supplying uncertain water quality. And by centralizing supply intakes, providing proper treatment and unifying system management, along with the IST activities, could reasonably bring about improved sector management. In the wastewater sector, priority investments in the WTS and the two sludge treatment plants were designed the context of the Shanghai’s Wastewater Master Plan. The WTS renewal would contribute to the delivery of the PDO by optimizing the use and more efficient management of Shanghai’s existing trunk sewer assets by redirecting some of the catchment flow to allow for future increases in the rapidly growing north-west development. The investments in the Bailonggang and Zhuyuan STPs would also improve the environmental management responsibilities, particularly for the lower Yangtze River. 5 Urban wastewater investment (First and Second Shanghai Sewerage Projects SSP1-Ln. 2794-CHA and Cr. 1779- CHA) and Second Shanghai Sewerage Project ( SSP2) -Ln. 3987-CHA The Bank committed to the overall APL program (US$580 million) in three phases 2003, with APL1 (Ln.47050) successfully concluded. 6 Water Supply Master Plan vision 2020 (2002); Wastewater Master Plan vision 2020 (2002), Sludge Management Plan (updated 2005); Solid Waste Disposal and Development Plan (2002). 5 In the solid waste sector, the component was designed to introduce more environmentally friendly and cost effective solid waste management systems in the city and surrounding districts in step with other sector infrastructure developments. The priority investment was the closure of the two dump sites and would improve sector management by removing unregulated waste sites whose waste was leaching into surface and groundwater sources and would demonstrate proper process and improve sector management. The highly innovative DFV component was designed as a “bridge” between the rapidly growing demand for capital from the suburbs and financiers, such as the World Bank and domestic banks, as well as Chinese and international investors. The sound intention was to create a CEAM as a new management entity, established as a subsidiary of Shanghai Urban Development and Investment Co. Ltd (UDIC). In the medium to long term, CEAM would then be the focal point for innovation in project financing and for attracting private investors. Implementation management utilized the Project Management Office (PMO) set up under APL1. Clear responsibility and accountability for implementation of each component was assigned to Project Implementation Units (PIUs) set up within the relevant and experienced SMG implementing utilities. The new DFV innovation was assigned to a new dedicated PIU set up within CEAM. The effectiveness of the majority of IST activities was enhanced by assigning sector specific activities to the relevant PIU. PDO/KPI. Technically there were three different versions of the PDO in the project documentation: two in the PAD and a third in the LA. The PAD Annex 3 detailed the problems and issues, strategies, and expected results for entire APL program. APL2 was designed to address the second part of the overarching strategy, focusing on “deepening the environmental agenda” and addressing the problems the environmental deficiencies, particularly in terms of inadequate water quality, incomplete wastewater collection and treatment facilities and inadequate disposal of municipal solid waste. This was undoubtedly the basis for the PDO formulation in the PAD. However, the LA PDO presented a clearer formulation, emphasizing management improvement. The RF version (PAD p. 29) combined the PAD main text version and the LA version. There was also inconsistency in defining the KPIs (Section 1.2 above) between the main PAD text and the RF. The RF contained just two outcome indicators. The first was “evidence of improved effectiveness of service delivery”, but did not define what evidence would be admitted. The second was “level of participation of the surrounding districts” but did not stipulate what would constitute “participation”. Neither indicator supplied baselines, annualized targets for end-of-project targets, except for “some improvement” and “significant improvement”. (See Section 2.3.) Safeguards. The project was rightly classified as environmental Category A and safeguard screening Category S1. It triggered two Bank safeguard polices: (i) Environmental Assessment (OP/BP 4.01); and (ii) Involuntary Resettlement (OP/BP 4.12 and OD 4.30). The draft Resettlement Action Plans (RAPs), Resettlement Framework Plans (RFPs), Environmental Assessments (EAs), Environmental Assessment Frameworks (EAFs), the EA Summary and Environmental Management Plans (EMPs) were all disclosed in the Bank’s InfoShop on February 8, 2005. Final versions of all documents were disclosed on March 8, 2005. In addition, the EA documents in draft and final form were disclosed in local libraries, in the offices of the PMO and EA team and on websites of the Shanghai Environment Protection Bureau (SEPB) in Chinese. 6 Adequacy of Government Commitment. Both the GoC and the SMG remained fully committed to the overall objectives and goals of the APL program. For implementation, SMG committed to maintaining the effective and powerful Project Leading Group (PLG) that provided the same level of overall guidance, coordination and access under APL1. This included upward access to the political decision-making and downwards to the PMO and the PIUs. SMG also retained the PMO in the Shanghai Development and Reform Commission (SDRC) with PIUs established in each responsible line utility. SMG also remained committed to the enabling reforms for the public sector utilities, building on and reinforcing those begun during APL1. These reforms were critical in driving the project, improving management and contributing to longer term sustainability. SMG also strongly supported the new and innovative DFV component that enabled better coordination of metropolitan-wide environment actions. Assessment of Risks. The overall risk rating at appraisal was “Modest” and was appropriate given the long engagement with SMG. Five risks were identified, one relating to the attainment of the PDO centered on project level governance issues and four relating to component results. Most mitigation measures proposed for these were assessed as reasonably effective. The risks associated with the new DFV component were assessed as moderate/substantial. Given that there was no precedent at all in China, the risk should have been assessed as substantial, even with the in-depth study and analysis done during preparation and the development and publication (2006) of a high quality and detailed DFV Operations Manual. During project implementation, five additional risks emerged, two of which were foreseeable and three that were not. Firstly, an unforeseen risk was SMG’s change of policy with regard to sludge disposal that resulted in a significant change to the scope and the technology adopted at Zhuyuan STP and caused considerable implementation delays. (See Section 3.2 and Annex 2). The changes to and late inclusion of this significant sub-component also brought with it a risk to the non-achievement of the PDO if the STP was not completed. This risk was mitigated by extending the project to ensure that it was completed. Secondly, an unforeseen risk emerged with the delays to the decommissioning of old redundant WTS sewers because of a serious under estimation of the technical complexities involved not properly identified during appraisal. The third unforeseen risk was the impact of institutional/management changes in the solid waste sector that changed the status of the two planned dump site closures from “capital” to “maintenance”. 7 This made it very difficult to raise the necessary counterpart funds for the component. (See Section 2.2) The fourth foreseeable risk not documented at appraisal was the risk to the achievement of part of the PDO if the IST activities were not completed. (See Section 3.2) and the fifth foreseeable risk that should have been included was the risk that the utilities would not meet the financial covenants. Quality at Entry Rating: Moderately Satisfactory The project was not subject to a Quality at Entry (QAE) review by the Quality Assessment Group. The overarching strategic relevance, approach and objectives of the APL remained unchanged and APL2 built on the successful implementation of APL18. The clear triggers for APL2 helped to establish some of the criteria defining quality at entry, particularly the enabling 7 Capital investment items attract counterpart funding, while costs classified as recurrent annual or maintenance do not. 8 Report No. ICR00001578 and IEG ICR review Report No. ICRR 13554. 7 policy and institutional aspects. Preparation was thorough as evidenced by the quality and detail of the PAD, which adequately addressed the technical, financial, economic, environmental, social and fiduciary aspects. However, QAE was diminished by other factors, including inconsistencies with the stated PDO and the shortcomings of the RF and the project M&E (Section 2.3) and the risk assessment. Therefore, on balance, QAE is assessed as moderately satisfactory. 2.2 Implementation The main factors that contributed to problems with implementation are discussed below, grouped into factors outside and within the control of the government or implementing agencies. Factors outside the Control of the Government or Implementing Agencies Effect of long implementation period on project costs and currency variations. The total project costs increased by 29% from US$434.24 to US$559.84 and the U.S. dollar depreciated about 24%. This significantly reduced the real value of the World Bank loan and increased the level of local funding required as most contracts were denominated in RMB. Counterpart funding requirements increased from US$254 million at appraisal to US$388 at project end (+53%). EXPO 2010. From May to October 2010, Shanghai hosted “EXPO 2010”, the first global World’s Fair since 1992. The fair was the largest ever covering some 5.3 km2, with about 250 participating countries and organizations, and over 73 million visitors. During this period, construction on the decommissioning of the old WTS was completely suspended, causing contractors to demobilize, resulting in implementation delays totaling about five months. Lack of knowledge and understanding of the technical complexities of the decommissioning of the redundant WTS. There were long delays to and an under achievement of this activity because: (i) with no precedent, the appraisal estimate of how long it would take was overly optimistic. Additionally, the technical complexities were compounded by a lack of “as constructed drawings”, location data and inundation problems from many illega l, undocumented connections to the old sewers, which led to painstakingly slow progress. (See Annex 2 for more details.) Factors within Control of the Government or Implementing Agencies Changes to sludge management and disposal policy and regulations. In 2007, under pressure from the GoC, SMG changed its policy for the moisture content of sludge to be disposed of to landfills. This policy change was the driver of significant changes to the scale and technical scope of the Zhuyuan STP and was the primary cause of delays in project implementation (See Annex 2). However, the higher level of environmental outcomes was significant, resulting in the successful introduction to China of a global best practice method of sludge incineration that included energy conservation utilizing biogases generated from the incineration process itself. Carbon Finance Proposal. As an innovative part of the project, it was proposed (PAD pages 36-37, 65) that the Bank would assist in the establishment of what would have perhaps been the world’s first carbon emissions reduction purchase agreement, based on the anticipated carbon emission reductions stemming from the two STPs (Bailonggang and Zhuyuan). In the early years of the project, the Bank facilitated the process, based on a Kyoto protocol deadline. A draft agreement was prepared, which included commitments from the governments of Spain and Italy to purchase the carbon credits. However, because of the above changes and delays 8 surrounding the Zhuyuan STP, SMSC decided to delay the process. The hope for any agreement lapsed when it became impossible to meet the Kyoto deadline. Dropping the closures of the solid waste dump sites. The closure of the two solid waste dumps was formally dropped as part of the March 2014 restructuring because of continuing delays brought about by: (i) the reorganization/restructuring of the SCAESAB, which resulted in a change of status of the closures from “capital” to “maintenance”; (ii) problems obtaining internal clearances for the closures because of differences in approaches and methodology for restoration of the sites between district governments and the implementation agency. (iii) Illegal encroachment activity at the Minhang site involving a large building and a large area planted with valuable commercial trees. Therefore proceeding with the closure would have triggered OP 4.12 and cost additional time to prepare the necessary safeguards documents. In May 2013, the borrower submitted a revised proposal that contained significant changes to the approach previously approved by the Bank (April 2012). These changes would have required detailed technical, environmental and social reviews and would have added to the already long delays. Although the closures were dropped from the project, the borrower is committed to completing them using their own funds. In addition and in accordance with GoC requirements, SMG has also committed to continuing a five year independent environmental monitoring program of the sites. Mid-Term Review (MTR). Originally planned for March 2009, the MTR was deferred until October 2010. During 2008 and 2009 the priority for both the Bank and the borrower was the significant changes required for the Zhuyuan STP. The new feasibility report was finally approved by the Bank in June 2009 and at that time, it was recognized that an extension to the closing date would be necessary, but could not be properly quantified. Inclusion of the modified component, although delayed, was strongly supported by the Bank because it remained a very important and highly relevant component of the project. Detailed design and implementation planning for the STP proceeded into 2010, and only at that MTR stage could the Bank make the appropriate judgements about the length of extension required. In the mean-time, the Bank made substantial supervision efforts on the remaining project activities as follows: (i) initiated an independent, wide ranging, consultant lead Medium-term Strategic Evolution study of the DFV; and (ii) fiduciary and safeguard policy adherence; and (iii) making sure that the required triggers for APL3 were met. Meeting APL3 Triggers. An important factor during implementation was the assessment of progress towards meeting the six triggers necessary to move from ALP2 to APL3. (See Annex 2 Table 2.15). The assessment was carried out by the Bank task team and then reviewed by a Bank committee external to the team. The committee confirmed that five of the six triggers had been fully met as well as the first part of trigger number 4. The second part of this trigger was partially met. The three mandatory triggers were in the key areas of: (i) sustainable financing of infrastructure; (ii) water supply expansion in the Qingpu District; and (iii) enhancement of solid waste management and services, including greater private sector involvement in urban areas managed by corporate entities. The optional three triggers related to: (i) increased institutional capacity of Shanghai Water Authority (SWA) to better carry out core responsibilities of strategic planning and investment and water source protection of the Upper Huangpu catchment (partially met); (ii) enhanced sludge management arrangement through greater private sector involvement (fully met); and (iii) reparation of a time bound action plan to improve air quality of Shanghai (fully met). The early satisfaction of the triggers allowed APL3 (Ln 7707-CN) to be prepared quickly and was approved by the Bank on June 9 25, 2009). This ensured the continuity of the ALP program and further demonstrated the continued commitment of SMG and GoC to the APL. In May 2013, project performance was downgraded from MS to MU because of continuing delays and issues centered on: submitting a restructuring plan to utilize an estimated US$32 million of savings; indecision on the closure of the SWM sites; and noncompliance with the financial covenants. The SMG responded quickly and adequately addressed the issues and as a result by December 2013, the project was upgraded to MS. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Rating: Modest Design. M&E design had notable shortcomings. The PAD PDO was “to expand Shanghai’s environmental management agenda in the metropolitan region…” but the KPI did not define what the “management agenda” was beyond activities in water, wastewater and solid waste. The PAD offered KPIs in three different places, each with different formulations (see pp. 5, 29 and 31). The indicator on page 31, “Evidence of improved effectiveness of service delivery…” did not define what kinds of “evidence” would be admissible. The indicators were not quantifiable, and had no baselines, annualized or end-of-project targets by which to track progress. The PAD’s “Arrangements for Results Monitoring” did offer reasonable results indicators for the physical works with baselines and annualized targets. For example in the water component, the result was that 200,000 people would have improved drinking water upon completion. But an increase in people served by the water component is not a strong measurement of improved utility management. In fact, none of these indicators attempted to track improvements in sector institutional or utility performance. The IST component aimed at strengthening the policy and institutional environments of the sectors, but the indicator simply tracked the number of activities completed. The results framework contained no output indicators by which to monitor physical progress. Concerning the DFV component, three performance indicators for CEAM were provided in the DFV PAD Annex 10, but were not incorporated in the RF. The RF counted only the number of subproject agreements signed and the number of subprojects completed. For the emphasis on attracting private investment, no indicator of the DFV’s leveraging power was included. Finally, the PAD provided only scant information about how the various implementing agencies would conduct M&E, saying it would be through progress and audit reports. No surveys or other types of M&E were foreseen. Implementation. In March 2014 with the third restructuring, the RF was improved somewhat. The “evidence of effectiveness” KPI was enhanced by adding a well-known utility management benchmark: “Number of staff per 1,000 connections for both water and wastewater management”. End targets were set at less than 6 staff per 1,000 connections for water and less than 8 staff per 1,000 connections for wastewater. One Core Sector Indicator “number of water utilities the project is supporting” was added to respond to corporate requirements. The PIUs regularly collected, consolidated and reported data on their respective components in the semi-annual progress reports. Data collection methods and data quality were acceptable. Separate social and environmental monitoring was done by experienced and competent third parties. However, with little data on management improvements per se, it was difficult to assess improvements in sector management effectiveness throughout much of implementation. 10 Utilization. Progress reports were used by the PLG, PMO and the Bank to monitor physical implementation. For example, for the first restructuring, data from M&E from the water component showed that the main investments would be completed on time and below budget with savings of about US$6 million. With the savings, the SWA and Bank agreed to proceed with some extra works that had been appraised, but not included in the PAD. These works were re-introduced to enhance the project’s results. M&E data was also used to measure progress against meeting the triggers for APL3. Sustainability of the M&E arrangements is assured by SWA and SMSC which continue to use productivity benchmarks and other indicators in their own internal reporting and for reporting under APL3. 2.4 Safeguard and Fiduciary Compliance Safeguard Compliance Environment Aspects. By design, the project resulted in significant environmental improvements through investments geared toward enhancing water quality, increasing wastewater collection and treatment, and increasing the quantity and efficiency of the treatment and disposal of sludge from WWTPs. The PMO and PIUs established and maintained satisfactory environmental management capacity, supplemented with external environmental monitoring consultants to independently carry out regular monitoring and reporting. Negative environmental impacts were adequately assessed and mitigated during the project as an integral part of each construction contract. A consolidated EMP monitoring report was regularly submitted to the Bank for review on a semiannual basis. For the DFV component, an Environmental Impact Analysis Policy Framework (EIAPF) was established and each DFV subproject was developed, appraised and implemented in accordance with the EIAPF. To build its environmental capability, CEAM engaged an EA specialist consultant to assist in environmental planning and implementation. Supervision of and monitoring of each DFV subproject was conducted satisfactorily and documented as part of the PMO’s project wide semi-annual reports and by regular field visits. Therefore compliance with Bank environmental safeguards policies was satisfactory. Social Safeguards. Resettlement aspects were well managed by the PMO/PIUs supported by an experienced, independent third-party social development consultant team, responsible for monitoring all social safeguard activities. The outcome was that the social impact of the project was greatly reduced. At appraisal, RAPs identified a total of 1,112 Project Affected Persons (PAPs) in 282 households (HHs), but the final actual figures recorded only 174 PAPs in just 44 HH were affected; the actual compulsory land acquisition was 598.5 Mu (40 ha) compared to the estimate of 697.65 Mu (46 ha); the actual number of affected or relocated commercial enterprises was only 10, compared the original estimate of 60. As a result of reduced resettlement and less property and land acquisition, the costs were reduced from an appraisal estimate of about US$54 million to an actual of US$22.8 million. (-58%) Most of the reductions occurred as a result of changed construction techniques for WTS sewer/pipe installation utilizing pipe-jacking instead of traditional open trench techniques in the heavily populated and commercialized downtown areas. The final external resettlement monitoring report confirmed that all resettlement had followed the prepared RAPs and that there were no outstanding issues. Therefore, resettlement implementation satisfactorily complied with Bank safeguard policies. (See Annex 10 for more details). Fiduciary Compliance 11 Procurement. Some shortcomings in procurement management were experienced during implementation. At times there were problems at both the PMO and PIUs levels where inexperienced staff lacked sufficient understanding and experience with Bank procurement policies and procedures to manage contract variations, some goods procurement and to deal effectively with cases involving conflict of interest. The PMO/PIUs did employee a number of procurement agents for the preparation of procurement documentation for International Competitive Bidding (ICB) and National Competitive Bidding (NCB) contracts. The quality of these documents tended to vary widely depending on the experience, knowledge and staff turnover of the particular agent and required at times, a lot of revisions to documentation. All the above management problems resulted in implementation delays. However, despite the range of problems, close Bank supervision ensured compliance with Bank procurement policies. Financial Management (FM). In general, the project had adequate FM systems that provided accurate and timely information on project implementation progress and that the loan was being used for the intended purposes. Audit reports did raise FM related issues from time to time, but these were properly addressed by the borrower. Unaudited Interim Financial Reports (IFRs) were satisfactorily submitted, with only the occasional delay. All audits were conducted by independent auditors satisfactory to the Bank and reports received unqualified “clear” opinions. Therefore, FM was satisfactory and in compliance with Bank fiduciary policies. 2.5 Post-Completion Operation/Next Phase By design, the project implementation arrangements were established within existing municipal and district government utilities, who would ultimately be responsible for the operation and maintenance of the facilities. Component A was managed by SMWSC, a well- established, staffed and financially secure organization, managing a huge asset base, supplying treated water to a very large customer group of domestic and industrial users in Shanghai. Component B was managed by SMSC which is one of the largest wastewater treatment and sewerage services providers of its type in the world. It is a professional organization with a proven track record of sound management, including financial management and has appropriate staffing to effectively deliver O&M for its large asset base. SMSC in looking forward to taking over the MOM of the new Zhuyuan STP, and at the time of project closure, was carrying out a very sound joint management, training and handover process to ensure that its staff had the requisite skills. Even though both the SMSWC and the SMSC did not meet the financial covenants, they are financially viable because of continuing SMG subsidies. (See Annex 3, Tables 3.3 and 3.5). For the five completed or nearly completed investments funded under the DFV component, responsibility for MOM of each rests with the respective district/county governments and their existing management utilities. As part of the appraisal process for each individual sub-project proposal, an assessment was made of the institutional and organization capability of each district implementing/management utility as specified in the DFV Operations Manual. As for the DFV, while it is playing an important role in financing environmental infrastructure investments in suburban areas, it is challenged in the long term, mainly due to institutional constraints related to the current regulatory and legal framework. The DFV is not a licensed financial intermediary (qualification reserved only for deposit taking institutions), and thus, it is not allowed to extend ordinary loans to sub-projects outside Shanghai Chengtou operated companies. Additionally, the facility is not allowed to raise capital in the markets until it can demonstrate three consecutive years of profit generation. The Shanghai Chengtou Corporation is in discussions with the GoC on transitioning the DFV to a more financially sustainable entity 12 and the Bank will planning to undertake additional analytical work in FY16 to consider the different options at hand. Based on the success of the DFV, a programmatic approach was adopted under APL3, aligned with the GoC’s strategy to introduce broader innovations in urban environment management and financing in Shanghai that could be replicated in other cities across China. The project management and post completion arrangements are detailed in Annex 2, Table 2.5. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Relevance of PDO. Rating: High In June 2003, the Bank approved a three tranche APL with the overarching objective of “improving environmental conditions in Shanghai by progressive development and implementation of integrated, metropolitan-wide environmental management measures”, in response to SMG’s desire to develop Shanghai as a sustainable, globally competitive municipality and as a center for international economic, financing, trade and shipping. At appraisal of APL2 in February 2005, SMG committed to pursue this strategy and confirmed its commitment to the APL. In this context, the objective of the APL2 of improving environmental services management remained highly relevant. As set out in Section 1 above, the project also supported the GoC’s 11th Five Year Plan and at start-up, APL2 supported two of the three China CAS (2003-2006) themes. During implementation, APL2 supported keys pillars of China’s Country Partnership Strategy (CPS - 2006-2011). The completion report for this CPS details the relative contribution this project made to the attainment of CPS pillars relating to: (i) improvements of the framework for public/private investment as well as the management and pricing of water supply and sanitation services; (ii) progress made by municipalities in setting up autonomous utility companies, recovering service delivery costs, and experimenting with private sector participation in urban services. At completion, APL2 (indeed the entire APL program) remained highly relevant and supported strategic theme 1 of the current CPS (2013-2016) of “Supporting greener growth through a continued foc us on enhancing urban environmental services”. Finally, the project supported three of the six priority areas framed in the 2013 strategic China 2030 Report that identified the importance of: (i) deepening structural reforms by redefining the role of government, developing the private sector, and deepening reforms in financial markets; (ii) accelerating the pace of innovation; and (iii) seizing the opportunity to “go green” through a mix of market incentives, regulations, public investments, industrial policy, and institutional development and by encouraging green development and increased efficiency of resource use to sustain rapid growth and address China’s manifold environmental challenges. Relevance of Design. Rating: Substantial The project activities, components and policy strengthening areas could reasonably lead to improved management of the metropolitan area’s environment. Priority investments in each sector were carefully selected in the context of well documented sector master plans and therefore could be expected to lead to the achievement of the PDO. The investments in the water sector would reduce service fragmentation and improve water quality by centralizing water services under a well-run utility. The technical assistance studies on network 13 augmentation and network rehabilitation technology would further improve management of that utility. This activities remained highly relevant and were completed as foreseen. The wastewater component works and studies would also lead to management improvements. (See Section 2.1) In the solid waste sector, the closing of the two dumps could be expected to lead to a best practice methodology for dump closure and rehabilitation for further replication. The MIS would logically assist in the institutional development of SCAESAB in its role as regulator and would support planning and management. The analysis of domestic waste could reasonably assist with developing a solid waste management strategy. Unfortunately during implementation the dump closure could not be carried out but the activity remained relevant and the borrower does intend to pursue it. Finally to improve environmental management in the rapidly growing suburbs, the project design introduced the very innovative DFV to act as an intermediary between the districts’ utilities and SMG, the Bank and other investors. It would increase management efficiency by carrying out identification and appraisal of subprojects, and by ensuring compliance with Bank safeguards and fiduciary guidelines. The DFV would also ensure that participating district investments were aligned with sector master plans. The DFV performed these functions well but its relevance is somewhat compromised by the institutional issues outlined in Sections 2.5 and 4. The project’s policy and institutional reform initiatives were to be delivered primarily through its 15 IST activities. During implementation, 10 IST activities were completed and five were canceled. Two of the canceled studies remained relevant and were carried out by the borrower outside the project. Unfortunately, the design was weakened by an inadequate RF. The first KPI “evidence of an improved effectiveness of service delivery…” was too broadly defined and was not broken down by sector, nor did it include baselines and targets. It may be that “evidence of improvement effectiveness” was meant to be discerned from the results indicators by component. However, these indicators were more oriented toward physical rather than managerial results. For example, the water supply management indicator tracked expanded coverage of water services, but did not contain any measures of water quality or management efficiency, such as a reduction in the number of operators in the sector. Late in implementation, management effectiveness indicators were added for the two utilities and for the IST activities, but the indicators did not provide a clear measure of “improved effectiveness of service delivery”. The second KPI “level of participation of surrounding districts” did not specify what would constitute “participation”. The DFV annex (PAD pp. 78-79) included environmental, managerial and financial engineering objectives, but these were not captured in the RF. As a result, it was difficult to quantify the project’s achievements at completion. 3.2 Achievement of Project Development Objectives Rating: Substantial As stated earlier, the LA version of the PDO will be used. (See Section 1.2, For the sake of clarity, the metropolitan area included the areas shown on map IBRD 41739 and listed participating districts are tabulated in Table 2.2. Water Supply Sector. Rating: High 14 Prior to the project, the Xujing area was served through numerous small, old and disjointed systems that provided unreliable, poor quality water services. Raw water sources were local creeks and water bodies that were highly polluted and treatment was inadequate. The project financed construction of: 56 km of trunk water pipes (500-1200 mm diameter); about 4 km of connector pipes (200-500mm diameter); the replacement of about 95 km of old non-lined cast iron and concrete pipes of 500mm diameter or less; construction of two major pumping stations; and the installation of about 17,100 new water meters. All works, including the installation of water meters, were completed and commissioned in 2010, ahead of schedule and within budget. The savings of about US$6.0 million of loan funds were used to fund further works to increase the flexibility of bulk treated water supply by constructing a trunk connection to the Xujing WTP. As a result, the target area is now supplied with fully treated water meeting Chinese National Safety standards. The results indicator (Data Sheet IOI #1) was the improvement in treated drinking water service coverage and quality to a target of 200,000 people. The target was slightly exceeded with about 205,000 people (50,000 HHs) having clean, reliable sustainable water supply. Beside the direct service benefits, the outcomes also included the consolidated management by SMWSC of a number of smaller inefficient water supply companies. Sector management efficiency gains from centralizing the fragmented water supply systems to SMWSC was not measured as part of the project. No baseline was established that measured the number of staff employed under the fragmented system existing at appraisal. However, SMWSC is a professionally run utility whose efficiency is shown by it having less than six staff per 1000 connections (Data Sheet section F PDO KPI #1). In terms of institutional strengthening, two IST activities for the development of a computer based network-wide model for the simulation of augmentation; and for network-wide computer based technology for rehabilitation and maintenance were successfully completed with own- financing. These two activities significantly enhanced SMWSC’s efficiency and effectiveness to manage recurrent programs for maintenance and rehabilitation. The computer simulation programs also improved the ability of SMWSC to plan and implement targeted system augmentation investments. Wastewater Sector. Rating: Substantial A strategic objective in this sector was to optimize the use and management Shanghai’s existing trunk sewer assets to allow for future growth in Shanghai’s rapidly growing north-west corridor. Consistent with this, the project included a major priority investment for the renewal of the aging (1970s) Western Trunk Sewer system (WTS). The system collects and drains wastewater from a very large catchment area to the Shidongkou WWTP. (See map IBRD 41739) The investment funded extensive works including, 26 km of trunk sewer (2000 to 3000mm diameter), over 15 km of link sewers (300-1500mm diameter) and three major pumping stations with a combined capacity of 11.56m³/sec. The original objective target of an average flow 340,000 m³/d (i.e., 80% of 400,000m³/day) of collected sewage was exceeded in 2014 when 377,000 m3/day average flow was recorded. An estimated 2.18 million people in the drainage catchment benefitted from better, more reliable wastewater services. The decommissioning of the old redundant WTS is still ongoing and was delayed because of the technical complexities involved. (See Annex 2). There was relatively low physical achievement against the target (9/23km or 39%) at project closure. The completed activities were scattered throughout the WTS system in Baoshan, Zhabei and Putuo Districts. The borrower is very committed to completing the necessary decommissioning works, so achievement is highly likely in the short term. The WTS decommissioning under achievement 15 does not detract from the satisfactory achievement of objective of the main investment for the WTS renewal. The non-achievement of this very small investment (1.8% of total project cost) does not carry much weight relative to the achievement of this part of the PDO. In response to increasing pressure from GoC to reduce pollution levels from wastewater discharges to the Yangtze River, priority investments were made to enhance secondary treatment of sludge, in the context of the Shanghai wastewater sludge management strategy (developed under APL1) to treat the sludge generated from three of the largest WWTP at Bailonggang and Zhuyuan (I and II). The Bailonggang STP was competed in 2011 and by 2014, had reached an average daily operating capacity of 178 t/day against a target - 163 t/day i.e. 80% of 204t/d). The facility will be developed in stages and will ultimately treat 457 tons/day of sludge or about 60% of the total sludge from the Shanghai Metropolitan Region (MR). In response to the 2008 changes in sludge treatment policy and regulations affecting the moisture context of sludge, the scope and method of treatment of sludge at the new Zhuyuan STP were changed. This was a major shift and involved the introduction of a new high tech incineration method of sludge treatment to China that included energy conservation by harnessing waste energy for the adjacent power plant and biogas generated from the incineration process itself and is considered global best practice. However, the changes caused considerable delays, because of the need to carry out new feasibility studies, as well as an EA and EMP. The new Zhuyuan STP, which was completed only in July 2014, about four years behind the appraisal schedule. In March 2015 the new facility was successfully tested to 80% of the first phase load capacity of 150 t/day and at project closure, it was undergoing final operational performance evaluations. Unfortunately there was no measurable output against the target. However, on September 30, 2015, the STP was fully on-line and performing to target, producing 80% of the first stage capacity of 150 tons/day. (Data sheet section F) In the future, this massive facility is expected to treat up to 300 tons/day of sludge or about 40% of the total sludge volume of the Shanghai Metropolitan Region. Institutional Strengthening. At appraisal, six studies were identified for this sector. A more relevant sector wide study to strengthen the sludge and landfill strategies replaced a study of water sources protection program design and a study into project management systems replaced a proposed study of social participation in sector financing. The institutional capability of SMSC to better manage the wastewater sector and improve the policy environment was enhanced through the completion of four of the six studies: (i) Strategic Asset Rehabilitation; (ii) Sludge and Land-fill Strategy updates; (iii) Strengthening Core City Waste; and (iv) Management Options for Shanghai’s City Storm Water. A fifth study for the development of a suitable project management systems was made redundant because SMSC adopted a similar management system developed by the Shanghai Chengtou Corporation. Also, because the Chengtou Corporation had an ongoing study looking at advanced management and operations of wastewater plants, SMSC embraced this study and cancelled its own to avoid duplication. The management of the SMSC, as measured by the number of staff/1000 connections (Data Sheet section F PDO indictors #1) shows that the SMSC is efficient with less than 8 staff/1000 connections. Solid Waste Sector. Rating: Negligible The PAD foresaw the closure of two dumps as a way to provide a best practice model that could be disseminated municipality-wide. Unfortunately, progress on the closure s proceeded very slowly with many problems and issues and was not completed as planned. (See Section 16 2.2 for details). The activities and the corresponding indicator (Data Sheet IOI #4) were formally dropped in the March 2014 restructuring. Nevertheless the borrower is committed to completing these closures by June 2016 and has also committed to a five-year post closure monitoring process by an independent entity, in accordance with required national environmental monitoring standards. In terms of institutional strengthening, two IST studies were identified for the sector: (i) a multi–year metro-wide analysis of solid waste composition; (ii) development of a Solid Waste Management Information System (MIS) phase II. Management in the sector was improved following the successful completion of the solid waste composition study, the results of which were used to establish practical collection and disposal methods and opportunities to improve solid waste reuse rates in the city. The second activity started under APL1, but was dropped when it was developed outside the project and put into use. District Financing Vehicle. Rating: Substantial The DFV was effective in taking up this challenge, with the CEAM allowing SMG to improve urban environmental management and offer assistance to its less affluent suburban districts. The CEAM appraised, approved and entered into agreements for six environment infrastructure investment sub-projects. Of these, four completed, achieving or exceeding IOIs #5 and #6 (Data Sheet Section F). (At closure, a fifth sub-project 92% completed and will be finished under APL3.) The original appraisal estimate of the original four subprojects was US$66.3 million with DFV loan funding of US$29.4 million. At completion, the final total cost was US$136.92 million, (+206%), due to the uptake of the more expensive Qingpu WW collection system and currency and inflation factors. The DFV funding from the loan was fully utilized (US$29.76 million). More detail for each sub-component in Annex 2 and particularly Table 2.8. Unfortunately, M&E of the DFV was weak, in that the three specific performance indicators (PAD pp.82) were not included in the RF and DFV M&E was not included in the Operations Manual. The five sub-projects include two from Chongming Island (the Chengqiao WWTP and the Chongming Solid Waste Landfill) and three in Qingpu District (Huaxin WW collection, Baihe WW collection and Xujing WTP expansion). The inclusion of the two sub-projects on Chongming Island, the lowest income district, was consistent with the complicated challenges and pressures facing GoC and SMG for the sustainable and integrated development of the unique social, environmental and economic characteristics of the Island. The other three subprojects were in Qingpu District, which is one of the more rapidly developing Shanghai suburban Districts 9 . In total, 1.61 million people benefitted from the five DFV funded subprojects, bringing new water supply, wastewater or solid waste services to customers who might have otherwise gone unserved. The CEAM, as a new institution, had to quickly develop its own roles, responsibilities and management capacity, but also establish important relationships and support mechanisms with participating district governments and their implementing agencies. To assist in this, the project included and carried out relevant IST programs. Other TA helped produce a series of framework papers and background reports designed to assist and strengthen CEAM. These IST activities successfully developed legal and environmental and social safeguard capacity, 9 The 2010 census figures show that over the period 2000-2010, the population of this district grow by about 81% from 596,000 to 1,081,000. 17 including assistance from the National Center for Smart Growth Research and Education at the University of Maryland (USA) (See also Section 3.5). Other Managerial Improvements. In addition to the studies already discussed above, three more strategic, metropolitan-wide activities were to be implemented: (i) a comprehensive study of Shanghai’s metropolitan (regional) long-term development needs in the fields of water supply, wastewater and solid waste service; (ii) a Global Megacity infrastructure performance comparison study; and (iii) other urban development studies to be identified. At completion, only the Global Megacity infrastructure comparison study was completed and SMG is using the results as inputs into its strategic metropolitan-wide policy infrastructure performance management. The long-term development study was not pursued (although the reasons are unclear) and SMG did not propose other studies, so these were formally dropped with the December, 2011 restructuring. 3.3 Efficiency. Rating: Substantial Prior to the project the lack of or under-provision of environmental services was adversely affecting all residents in the project area and this impacted their quality of life and constrained economic opportunities and growth. Health and other economic benefits from the delivery of infrastructure investment and enhanced management of urban environmental services were likely considerable, but not easily quantifiable. Therefore, as was the case at appraisal, economic cost/benefit analyses were not attempted for individual environmental infrastructure investments, and were therefore not used for accessing this project at closure. 10 Instead cost- effectiveness methods (i.e., least-cost solutions) were used to determine the most effective investment choices. The PAD Annex 9 details a thorough analysis of options based on technical and costing input from experienced sector design institutes in China as part of feasibility and design studies. The technical, economic, social and environmental dimensions and impacts of each option were reviewed extensively by the Bank team, including international specialist consultants, to arrive at the best option. The significant changes to the Zhuyuan STP were analyzed separately and included a comprehensive technical and cost effectiveness assessment of the incineration versus the digestion option. The more cost effective and efficient incineration option was adopted because it resulted in a nearly 6 fold decrease in dried ash compared to partially dried sludge using the traditional process. (See Annex 2 Table 2.7). Incineration also resulted in a huge reduction in land required for disposal of the dried sludge less land; and the separation and removal of toxic waste substances not possible using traditional methods. For the DFV funded activities, the DFV Operations Manual included comprehensive guidance for the thorough and objective assessment feasibility reports for each sub-component covering economic, financial, social, environmental, technical and institutional viability factors. The substantial rating is based on the fact that the water supply, WTS, and Bailonggang STP and four out of the five DFV funded activities were all completed on time and within or below budget and within the original project life. Total beneficiaries for these activities amount to about 7.8 million or 64% of the total project beneficiaries (See Table 1) and a total project expenditure of US$365.21 (68%). The ZSTP, one DFV funded activity and some of the IST activities were delayed. Because the ZSTP was not fully operational at project closure, no benefits flowed (3.9 million people). Delayed expenditure of total project funds amounted 10 Based on a review of the Bank’s current practices (about 2004) in China/EAP that showed that most projects in the urban environment area are appraised using cost effectiveness. 18 US$240 million (31%). Therefore in monetary terms about two-thirds of the project was completed on time and delivered benefits to an equal amount of primary beneficiaries. Component A provided new and direct water supply services to 205,000 people at an average cost of just US$320 or about US$1000/household. This is considered good value for money and reflects the economies of scale of the component. For the WTS, there was a 75% reduction in the resettlement and relocation costs mostly because of more efficient construction methods used. (See Annexes 2 and 10). In the case of the Zhuyuan STP, the long delays were offset by the changed design, which is considered efficient because it resulted in a far more cost effective solution with a 50% reduction in operating cost. (See Annex 2 Table 2.5) and in far better environmental outcomes in the lower Yangtze River. Already this new technology is having a wider national impact through replication in major cities in China (Wenzhou and Foshan). By design, the integration of the majority of IST activities with the main sector investments and assigned to each line sector implementing agency established strong ownership, particularly by SMSC, SWMSC and CEAM and was efficient in that it contributed directly to the institutional strengthening and improvements in sector management. The notable areas of inefficiencies were with the solid waste site closures that were dropped and in the long delays experienced with the decommissioning of the old abandoned WTS sewers. 3.4 Justification of Overall Outcome Rating. Relevance of the PDO was high and relevance of the design at appraisal and throughout implementation was substantial. Efficacy in achieving the PDO was substantial overall, but with some shortcomings in the wastewater and particularly the solid waste sectors. Efficiency is rated substantial because two-thirds of the project was completed on time, within budget, and served the desired number of beneficiaries in the Shanghai MR. However, there is insufficient data for a comprehensive analysis of the economic benefits of the project investments and the results framework was weak. Therefore, the overall project outcome is rated moderately satisfactory. 3.5 Overarching Themes, Other Outcomes and Impacts Poverty Impacts. While the project did not have a direct poverty focus, it likely contributed to SMG efforts to manage growth in greater metropolitan Shanghai. Baseline data (2002) for the entire MR showed that despite strong growth in suburban areas, the income gap between richer and poorer residents remained large with an average annual per capital household income in the core city at RMB 13,250 compared to RMB 6,212 for the peri-urban/rural suburban districts. During project implementation (2005-2014), official data11 was collected as part of the social monitoring of the project (Annex 11). The data showed that core urban and suburban peri-urban/residential incomes both grew significantly during the project (2.56 and 2.54 times respectively) averaging about 11% per annum over 10 years. In 2014, incomes were RMB47, 710 and RMB21, 192 respectively. However, the ratio between richer and poorer households remained unchanged from 2.24 in 2005 to 2.25 in 2014. Gender Aspects. There was no specific focus on gender and no specific data was collected in this regard. However, improving water supply and wastewater services is known to positively impact quality of life at household level (cooking preparation, bathing, toilet facilities, 11 Official Shanghai Annual Statistics. 19 laundry, home garden etc.). Traditionally those who benefit most from such improvements are housewives, mothers and children. Institutional Change/Strengthening Reorganization of the Wastewater Sector in Shanghai. Concurrently with the project SMG, in April 2007 a major reorganization of the wastewater sector was implemented, involving the merger of three wastewater companies in urban Shanghai with SMSC and the creation of a new dedicated wastewater treatment company (Chengtou Wastewater Treatment Company - CWTC) to operate all SMSC owned WWTPs. The result of the sector reorganization was a substantial reduction in overhead and management costs of the SMSC, but because the newly created CWTC had to absorb staff from the merged companies (about 1000), there was no immediate and measureable reduction in the costs of wastewater treatment. Institutional Development of CEAM and District Governments. A central requirement for the efficient and effective management of DFV financing arrangements was the establishment of CEAM as a special purpose subsidiary of UDIC. The project funded the strengthening of CEAM particularly in the core areas of project management, accounting, treasury, credit, financial structuring and economic assessment, as well as Bank standard processes for safeguard assessment and monitoring. In assessing DFV project proposals from the participating districts, CEAM supplemented its core expertise with additional engineering, economic, environmental and social resources as needed from within SMG entities or local consultants. For the districts, activities concentrated on the provision of finances for environmental infrastructure and on-going management support from CEAM in the areas of engineering, economics, social and environmental assessment, all directed towards increasing the effectiveness of identification, planning, delivery, and cost recovery of the local infrastructure. Conference on Climate Change and Urban Development Shanghai. In October 2010, the World Bank Institute and Shanghai Chengtou Environment Industry Development Company (CEIDC) jointly organized a high level seminar on Climate Change and Urban Development in Shanghai. It was the first training seminar financed by the IST component of the APL3, but was attended by and had an impact on SMG institutions managing APL2. The wide-ranging agenda and topics that were relevant to APL2 included: (i) optimal population density in urban areas; (ii) systematic and sustainable solid waste management, and (iii) steps that needed to be taken to make a water utility climate change resilient. Other Unintended Outcomes and Impacts (positive and negative). The change of sludge management policy adopted by SMG was the driver of changes in method and approach for the Zhuyuan STP. These changes introduced global best practice technology for sludge treatment by incineration on a large scale, delivering far better environmental outcomes, particularly for the lower Yangtze River environment. Based on the successful introduction, GoC has now replicated the method in at least two other large metropolitan regions. The other unintended outcome was that the Bank, because there was no precedent in China, had to develop new procurement procedures to suit the preferred procurement method of an ICB, turn-key, Design-Build-Operate (DBO) contract. Procurement management procedures developed under APL2 have since been applied to similar large Bank-financed contracts in other countries such as Vietnam with Ho Chi Min City12. Also, two significant environmental improvements came as a result of the state-of-the art technology introduced. Firstly, toxic ash 12 This project is the Second Ho Chi Min City Environmental Sanitation Project financed with a US$200 million IDA Loan (IDA-55680) and a US$250 million IBRD Loan (IBRD-84600). 20 from the sludge drying process, estimated to be about 4 tons/day or 7% of all ash collected will be separated out and safely disposed of in designated toxic disposal facilities. Under traditional air dried sludge process, it is not possible to separate these toxic components and they remain in the dried sludge that is generally used as land fill with likely secondary pollution impact. Secondly, the STP is designed to be “energy neutral” by harnessing waste steam energy from an adjacent power plant and by fully utilizing biogas generated as part of the sludge incineration process itself. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops. n/a 4. Assessment of Risk to Development Outcome Rating: Moderate Financial Sustainability Risk. (Rating: Moderate) While significant and impressive policy improvements relating to financial sustainability and price increases occurred for both water supply (+86%) and wastewater services (+89%), cost recovery did not reach the level required to satisfy the legal covenants. (See Annex 3 for details.) These price rises, significant as they were, simply could not keep pace with servicing costs associated with the huge increase in capital investments required for the additional infrastructure necessary to provide water and wastewater services to the unexpected and unpredictable expansion in Shanghai’s metropolitan population. (See Section 1). Both APL1 and APL3 have very similar financial covenants, but the Bank has now accepted the fact that the financial goals/covenants are too limited to measure financial sustainability, hence they were dropped altogether as part of the June 2015 restructuring of APL313. SMG is in a strong financial position to support both water and wastewater companies during this critical expansion period and will continue to provide revenue subsidies (currently 21% SMWSC and 7% SMSC). Consistent with this, it is notable that the Bank, at part of the APL3 restructuring (June 22, 2015) is reconsidering the relevance and value added of the project financial covenants, based on the argument that they fail to adequately capture the reality of the rapid growth of Shanghai. Risk of Not Completing Infrastructure. (Rating: Low) There is a risk that SMSC will not complete the decommissioning of redundant old sewers, but this is deemed low because they are continuing the work under a fully funded domestic program. There is also a risk that the borrower will not complete the closure of the dump sites with proper attention to best practice including the environmental considerations. (Rating: Substantial). Risk of Natural Disaster. (Rating: Substantial) Natural disasters, especially flooding and typhoons, could have a detrimental impact on project assets. Shanghai is at high risk for inundation due to its position on the east coast of China, where rising flood waters related to climate change may affect the project assets. Flooding and drought may also diminish the availability and quality of raw water sources for the city and could affect the resilience of water supply infrastructure. Risk of Population Growth. (Rating: Substantial) There is a high risk that Shanghai’s population growth will continue at unprecedented levels. Investment may not be able to keep pace and available and suitable water resources may come under threat. 13 See Restructuring Paper for APL3 (P096923) dated June 22, 2015. 21 Risk that catchment management and water quality protection efforts undertaken at part of the APL and particularly APL3 will not continue once the APL program is finished. (Rating: Low) Risk that the suburban districts may not have the budgetary and administrative capacity to carry out proper operation and maintenance of the infrastructure assets. (Rating: Moderate) Risk of guaranteeing sufficient funds for infrastructure financing, particularly for the suburban districts, given the inflexibility of the financial sector framework and the continuing need for investment because of the rapid growth of Shanghai. It is to be noted that Shanghai requested and received approval from NDRC/ MOF in November 2015 for an additional operation (in pipeline) that further addresses the development and application of the DFV under APL3. However, under APL2, the DFV has only been able to on-lend APL loan proceeds and not expand its capital base. It is unlikely to be able to do much more unless the underlying regulatory and legal issues are addressed. (Rating: Substantive) 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance 5.1.1 Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory. The APL program represented a new level of development for Shanghai and grew out of a long and successful engagement by the Bank with SMG. In this strategic context, the second phase project was focused on improving the management of the various environmental sectors and not just on investment. Because the Bank was dealing with a mature client, the value- added by the Bank was more about providing higher quality, timely advice and challenging the client to introduce innovative ways of doing things and bringing global best practice The preparation and appraisal of APL2 proceeded relatively quickly and cost effectively, taking a total of 14 months (PCN to Board approval) at a cost of US$312,116 (about one third of the cost of the APL1 preparation) and involved 49 staff weeks (See Annex 4). The QAE of the project can be attributed in part to the high level and continuity of key staff. The same senior and respected task team leader and an environmental strategist were continuously involved with Shanghai over a long period (1992-2007). They lead a core team that developed the overarching APL program and in the context of this, the preparation of APL2. Many of the members of the core preparation team had previously worked on earlier environment development projects in Shanghai and other major cities in China. (See Annex 4). On the negative side, the issue that detracted from good QAE was the confusion with the PDO within and between the PAD and the LA, combined with the weak RF and M&E framework in general. The DFV was well prepared but the two indictors relating to the number of sub- projects signed and completed (Data Sheet section) do not adequately capture the richness of this initiative. At the time of design, the team included standard financial covenants. However, the Bank’s thinking has evolved on this issue. (See Section 6), so in hindsight the covenants were not the most suitable way to judge the financial sustainability of the implementing utilities. None of the 15 IST activities were designed to specifically help SMG to meet its obligations under the covenants. The transition to normal operations was seamless because the Bank designed in implementation arrangements that utilized PIUs located within the line agencies 22 that were ultimately responsible for the MOM of water, wastewater and solid waste facilities financed under the project. (See Section 2.5) 5.1.2 Quality of Supervision Rating: Moderately Satisfactory. This rating is based on the following assessment. During the implementation phase, there was a strong focus on development impact of not only APL2, but the impact in the context of the overarching APL program. This happened because of the strong continuity of project leadership with the same senior Task Team Leader (TTL) involved with APL1 responsible for APL2 preparation and appraisal. He then continued as TTL for the first 2.5 years of implementation. Supervision also benefited greatly from the fact that: (i) the core members, including the co-TTL were located in Beijing and could interact with the client on a day-to- day basis; and (ii) throughout the extended implementation period, the task team produced high quality, detailed and candid mission aide memoires and management letters that were issued promptly after each missions. Also internal Bank Implementation Status and Results reports (ISR) were well prepared and provided Bank management with candid and realistic assessments of project progress and challenges. Generally, supervision missions were carried twice yearly with many individual visits by team members in between to deal quickly with problems and issues as they arose. Because of the scale and technical complexity of some contracts, procurement management required additional effort and input from the TT. Supervision was cost-effective with the average annual supervision cost of about US$80,000 and an average of 13.3 person years. (See Annex 4). There was a higher than average supervision input (US$91,000/year) in the early years (2006-2009) consistent with the front loading of supervision resources. There was a spike in supervision costs in 2007 (US$120,000) that reflected the additional input and resources required for the assessment of the revised Zhuyuan STP proposal. Assembling a committee independent of the task team to review the APL3 triggers was sound and probably a first for the Bank, certainly in EAP. Later in the project, (MTR October 2010 and March 2014 restructuring) the Bank did take steps to try and fix the poor RF, but this late action was a missed opportunity and did not really have much effect. The team carried out close supervision of the financial covenants as part of each supervision mission. During the seven month period beginning in May 2013 when project progress was downgraded to MU (DO and IP), the Bank was very proactive in dealing with the issues at both GoC and SMG levels. Because of these efforts and the positive response from the borrower, the Bank was able to upgrade the project to MS by December 2013. The Bank contributed heavily with additional resources and took the lead in reviewing the technical, economic, and financial and environment issues arising from the changed approach to the Zhuyuan STP with the Bank team able to assemble the best global experts in the field of sludge incineration. Because there was no precedent for this technology in China and in fact in East Asia, the environmental assessment and procurement issues had to be carefully examined and workable solutions found. This process resulted in considerable delays, but set important precedents for the use of this global best practice technology not only in China, but other countries in the region. Also, the Bank fulfilled this role well in being the catalyst to try to broker a deal on carbon emissions purchasing agreement. (Section 3.2) 23 Under APL2, the Bank worked diligently on the evolution issues of the DFV and these efforts are continuing under APL3. These efforts included the mobilization of trust fund grant money from the Bank Netherlands Water Partnership Program (BNWPP) that funded a strategic study into the DFV Strategic Evolution. The main output was a useful report, accepted as satisfactory by the Bank. Its conclusions were then used to consider the practical development of the DFV under APL2. Also, as part of the DFV IST the Bank assisted and facilitated the involvement of the National Center for Smart Growth Research and Education at the University of Maryland (USA). (See Section 3.2) The Bank took the lead with the organization and active participation of the high level conference on climate change. (Section 3.5). The Bank also worked diligently to try and get resolution of the Solid Waste issues, but was unsuccessful. (See Section 2.2). Fiduciary and Safeguards Supervision. Supervision of fiduciary, environmental and social safeguards aspects was satisfactory. Specialists with the required skills in these fields were consistently part of the core Bank supervision missions throughout the project, in day-to-day follow-up, and interaction with the PMO and PIUs. The Bank also supplemented its procurement resources to deal effectively with the DBO aspects of the Zhuyuan STP. The quality of supervision of both the environmental and social safeguards aspects of the project was greatly enhanced by the high quality and competency of the third party monitoring consultants. 5.1.3 Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory Based on the above assessments, the overall rating for Bank performance is moderately satisfactory. 5.2 Borrower Performance 5.2.1 Government Performance Rating: Moderately Satisfactory Assessment of Government performance, includes both the GoC and SMG. There is a high level of ownership of the APL program by both GoC and SMG and the governments’ commitment to APL2 was reaffirmed at appraisal and negotiations. The currency fluctuations during the extended project required SMG to provide US$US394 million 180% more in counterpart funds than estimated at appraisal (+180%). (See Annex 1). The SMG made significant changes to the sludge management policy in 2008 aimed at ensuring better environmental outcomes. This in turn prompted the ground-breaking redesign of the Zhuyuan STP that introduced global best practice to China. Because those changes were without precedent, the SMG engaged at its own cost, highly regarded and knowledgeable international consultants to assist with the preparation of the feasibility study and detailed design of the plant. It retained the consultants to oversee procurement and supervise construction and commissioning. The SMG also strongly supported and remains committed to the DFV, not only as the instrument to provide much needed affordable financing to the suburban districts, but also as a way to better coordinate environmental investments on a metropolitan-wide basis and to strengthen and assist district governments. Recent commitments to build on the success shown under APL2 by SMG and GoC (NDRC and MOF) in terms of possible new lending are encouraging. 24 During implementation, the SMG fulfilled, in timely manner, the triggers necessary to move to APL3. In addition to the delays to the Zhuyuan STP as detailed above, there were also delays to a number of components or sub-components, including: (a) the WTS works because of the decision to suspend construction activity during Expo 2010; (b) delays and the ultimate dropping of the solid waste management component because in part of the inability of SMG to resolve the institutional and management issues surrounding changes in the solid waste sector (SCAESAB to SL&CAB), including the counterpart funding issues; (c) dropping of two of the three strategic IST studies designed to benefit SMG at a high level with little justification; (d) slow progress early in implementation leading to the necessity to extend the Loan closing date three times; and (e) despite significant increases in charges for both water supply and wastewater services, SMG failed to raise tariffs in line with project covenants to meet the full cost of supply. Therefore, despite SMG’s strong commitment to the project and its innovative aspects, certain short-comings delayed implementation. 5.2.2 Implementing Agencies’ Performances Rating: Moderately Satisfactory The implementing agencies included the coordinating PMO and a total of four PIUs for the water supply (SMWSC), wastewater (SMSC), solid waste (SL&CAB) and the DFV (CEAM). At each participating district, the DFV financed sub-projects involved the relevant local utilities for water supply, wastewater and solid waste management. PMO performance is assessed in two parts: (i) firstly, the higher level policy responsibilities of the PMO, which successfully focused the enabling reforms necessary to take the APL program forward, including proactively ensuring the fulfillment of the triggers for APL3 in a timely fashion; and (ii) the day-to-day management and administrative responsibilities associated with project implementation. Effectively the PMO acted as project co-ordination office rather than a PMO because the substantive work of project execution and implementation were delegated to and managed satisfactorily by the strong PIUs, who had the technical capacity to deliver the large infrastructure investments and were also directly accountable for the associated environment and social activities. Each PIU used the TA to provide independent construction supervision and quality control that resulted in the construction of high quality assets. Hence, although the PMO remained understaffed during much of implementation, the quality of the outputs and achievement of the project outcomes were not compromised. The reasons given for the under-filled positions in the PMO related to the nature of the client (very large stakeholder) and the relatively small size of the Bank project in the context of a whole range of other investment programs running in parallel. Hence, because of many other priorities, the client’s assessment was that as long as the physical investments were proceeding and adequate technical staff and capacity existed at the PIU level, it did feel compelled to ensure the PMO was fully staffed. The only real downside of the weak PMO, particularly in the last two years of the project, was delays in consolidating and submitting project-wide reporting, including the M&E data as reflected in ISR ratings. However, over the course of the 10 years, the PMO’s performance is rated as moderately satisfactory for overall coordination of this complex and innovative project. 25 PIUs. The PIUs played a significant role in project management and were responsible for the project’s achievements, with some two-thirds of the project being completed on time and within budget. Specific comments on each PIU follow. SMWSC. The performance of the SMWSC was satisfactory and the water supply component was well implemented, on time and within the budget and met the objectives associated with the expansion of good quality water service to customers. The two IST activities were competed and the results utilized to improve management of the sector per Section 3.2. However, compliance with financial covenants was mixed per the discussion below. SMSC. The performance of the SMSC is rated as moderately satisfactory. It had to manage the largest and most technically complex component, divided into four large investment sub- components. The WTS and Bailonggang sub-components were well implemented, fully completed with the objectives of each fully met. Decommissioning of the old WTS system was problematic and was not completed during the project, but did not impact on the operational performance of the new WTS investment. The revised proposal for the Zhuyuan STP was a major shift and was handled very well, given its scale and complexity and the fact that it broke new ground in China. SMSC had to virtually start the whole process again with a feasibility study, design, economic and financial assessment and environmental assessment, as well has manage the internal and external (Bank) approval processes. All this was done in the space of only 12 months. The SMSC employed considerable addition resources, including international TA to fast track the whole process. SMSC completed four of the six IST activities (per Section 3.2). See also paragraph 5.2.3 on compliance with covenants below. SL&CAB. The performance of SL&CAB is not rated because the investment part of this component was cancelled. However, two elements of compulsory trigger 3 (see Annex 2 Table 2.13) for APL3 for the solid waste sector were fully achieved in a timely fashion, and this was the first law, administrative framework and supporting regulation of its type in China. Also, the important IST activity of a multi-year study of Solid Waste Composition analysis was completed and used to strengthen management of the sector. CEAM. The performance of CEAM, as a new management and implementing agencies set up for the DFV is rated as satisfactory. CEAM quickly built its core capabilities using the IST. It leveraged these core capabilities by establishing, on a consulting basis, expert teams to assist with the technical, economic, environmental and social aspects of district proposals. It also developed a sound, supportive relationship with the participation district governments and implementing agencies. 5.2.3 Compliance with Covenants There were seven implementation covenants, (PA Schedules 2, 3 and 4) five of which were complied with. Of the remaining two relating to the financial sustainability of both the SMWSC and the SMSC, (the Cost Recovery Ratio-CRR and the Debt Service Coverage ratio- DSCR), the SMWSC was in compliance with the CRR, but not the DSCR and the SMSC was in compliance with the DSCR covenant, but not the CRR. (To be in compliance, each ratio had to be equal to or greater than 1.) Financial situations of both SMSC and SMWSC, when measured by the DSCR and CRR, did improve by about the MTR with the implementation of water and wastewater tariff increases. However, at closing, there was a gradual decline in the DSCR of both agencies. The SMG, in 26 an effort to comply with the DSCR, continued with equity injections and operating subsidies. More details of both the financial performance of SMWSC and SMSC are given in Annex 3. 5.2.4 Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory The overall rating is based on the moderately satisfactory ratings for the performance of both the Government and implementing agencies as detailed above. 6. Lessons Learned East Asia and the Pacific Region and China-Water Resources Related Projects Financial covenants were too narrow to measure financial sustainability. Covenants that focus narrowly on the financial sustainability of service entities provide only a partial picture of what is going on in a dynamic urban environment. The case of Shanghai is emblematic in this sense. Emphasizing these covenants only partially captures the underlying reality of urban growth and does not offer a complete and proper picture of the effective financial sustainability of the stakeholders. Over time the use of these covenants has proven rather ineffective14 since the Bank has not enforced any contractual penalty linked to non-compliance. They are also not meaningful given their limited capacity to explain the underlying financial and political environment. Overarching national regulatory frameworks in the financial sector may limit the extent and depth of local reforms. The timeliness of certain reforms carried out at local effort is as important as their relevance. The introduction of the DFV as a new way of financing environmental infrastructure may only be partially successful over the longer term because of limitations imposed by the overarching national regulatory framework in the financial sector which effectively does not allow the DFV to increase its capital base or act as a lender. In a certain sense, the DFV is a very important initiative that was born ahead of its time. Building capacity to leverage external funds is more important than the number of environmental projects financed. The capacity to attract and leverage external funds for a financial window like DFV is more important than the sheer number of projects financed (which could be of different size and relevance). Ultimately the facility aims at involving private sector players in financing infrastructure and to have a demonstration effect, hence its impact will be stronger when its (limited) capital base can be multiplied. Technological innovation in under APL2 was supported by innovative procurement methods. The introduction of the new complex and advanced technologically for the Zhuyuan STP was supported through flexible procurement arrangements involving a DBOT type contract. This type of contract offered many benefits to both the borrower and bidders, from a more efficient process, including greater flexibility and better quality, and more competitive and innovative bids. Uptake of technically innovative solutions linked to a supportive procedure process should be developed further particularly in advanced middle income countries like China where the Bank’s added value is in knowledge transfer. 14 Internal Bank report prepared by Axel Baeumler for the East Asia CMU (June 2007) reviewed 14 projects in water and sanitation with financial covenants and concluded that while they are included in projects, the covenants are not respected and the Bank does nothing about them, so they are ineffective. 27 Significant reduction of the social impact of major construction activities of projects can be achieved by considering the social factors and impacts starting at the feasibility stage and by considering alternative options, good detailed design and the application of modern construction techniques. Under this project, the social impact was substantially reduced in heavily urbanized areas by changing the method of sewage pipeline laying from open cut trenching to underground pipe-jacking methods. Global Related Lessons Use of advanced technology can improve environmental outcomes. The successful introduction to China of the advanced incinerator sludge treatment technology at Zhuyuan STP should encourage other selected developing countries to look to Shanghai for lessons learned and the incorporation of advanced, innovative technological solutions to environmental problems in large metropolitan in future Bank funded projects. Implementation delays can be mitigated by thorough preparation and knowledge gathering during the project preparation phase. When rehabilitating or decommissioning old assets on a major scale is planned, like the WTS decommissioning, data gaps in knowledge should be factored into cost estimates and implementation planning and scheduling to avoid delays. Also a separate and appropriate risk assessment should be carried out consistent with the level of data available at appraisal. Benefits of Long Term Engagement. Building on the success of APL1, this project continued the momentum to achieve further significant and sustainable environmental infrastructure improvements and management, while at the same time addressing complex policy issues in a major city. The Bank’s long t erm engagement and partnership has enabled the dialogue on both policy reform and technical designs to grow over time. Therefore, long term engagement is key to addressing urban development issues in fast growing urban areas and should be considered and applied, as appropriate to new lending instruments that have replaced the APL. Triggers can assist in gauging progress and continuing political commitment to long term engagements. As was demonstrated under APL2, well defined and designed triggers helped a great deal in moving from one APL phase to another in a rapidly changing major city environment. Triggers were designed to allow sufficient flexibility and adaptability without affecting the overall long term (APL) development objective. They also provided a clear indication to the Bank of continued political commitment that is important as government priorities change over time during a long term commitment. Triggers also give implementing institutions incentives to prepare and progress to the next level. Therefore, the use of triggers as part of the new lending instruments that have replaced the APL should be considered. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing Agencies. Section F of the borrower’s ICRR contained four suggestions to improve the implementation of future Bank financial projects as follows: Continuity of Task Team Leader. Suggested that the Bank’s TTL position remain unchanged as much as possible to guarantee continuity and support implementation efficiency. Comment: The Bank agrees that from the client’s perspective, this is an important point. The Bank, especially in China tries to limit as much as possible, the turnover of TTLs. Normally 28 this is not much of a problem, but in this case, the long duration of the project was a contributing factor. Improvements needed to the Bank’s procurement processes for variation orders (VO). Suggested that the VO process for contracts subject to prior review be improved or simplified to include a fast feedback system to make the process more feasible and practical and so improve project implementation. Comment: The Bank’s current guidelines on VOs have been developed, based on long experience both in China and globally and are considered fair and reasonable. The Bank agrees that when dealing with large, technically complex procurement packages, that the level of experience and training of the PMO/PIUs and the procurement agents’ staff is an important factor. Bank Financed Project procedures should be more aligned with Chinese national procedures. Suggested that to increase the efficiency of implementation that the procedures of both Bank and GoC be more aligned and that more value would be added if the foreign experts on the Bank side worked more closely with and enhanced the role of local experts on the borrower’s side. Comment: The Bank is very conscious of trying, where possible to align its procedures with domestic procedures and will continue to explore ways to strengthen this alignment. Need to develop and strengthening the partnership between the Bank and the implementing agencies. Suggested that project implementation could be enhanced if the Bank, with its rich international experience would listen to and take notice of PMO/PIU opinions, because of their unique understanding and knowledge of local conditions. Comment: This is a very good point. Every effect should be made by the Bank and the client to develop a unique partnership that will improve not only project implementation, but also outcomes. In addition, the borrower also provided comments and feedback on an advanced draft of the ICRR. The comments raised no issues with respect to any of the ratings. There were detailed comments on some aspects of the solid waste component, the DFV component and on some procurement issues. Where appropriate, these comments have been incorporated into this final document. (b) Co-Financiers Not Applicable. (c) Other Partners and Stakeholders None. 29 Annex 1. Project Costs and Financing (a) Project Cost by Component (in US$ million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (US$ millions) Appraisal (US$ millions) Water Supply Management 54.23 65.21 120% Wastewater Management 271.47 339.70 125% Solid Waste Management 7.12 2.46 34% Urban Environmental Infrastructure 62.54 136.92 219% Financing (DFV) Institutional Strengthening and 0.73 2.67 366% Training Total Baseline Cost 396.09 546.96 138% Physical and Price Contingencies 27.25 Interest during construction 10 18.90 189% Front-end Fee 0.9 0.45 50% Total Project Costs 434.24 566.31 130% (b) Financing Appraisal Actual/Latest Type of Co- Percentage of Source of Funds Estimate Estimate Financing Appraisal (US$ millions) (US$ millions) Borrower/Recipient (Local 254 394 155% Governments International Bank for Reconstruction 180 171.84 95% and Development Total (including US$18.9 million 434 566.31 130% interest during construction) Note 1. The costs above do not include the cost of land acquisition and resettlement compensation, which were US$72.9 million, all funded separately by the borrower. The BNWPP grant financing supported the 2009 Consultant Review and report of the DFV, which was directly related to the implementation and the medium-term sustainability of Component D. 30 Annex 2. Outputs by Component Table 2.1 Component/Sub-Component Outputs Targets Actually Achieved Project Component Revised PAD Restr. at Appraisal at Completion Output Description Targets (%) (%) (PAD) (ICR) Component A. Water Supply Management Expand the water (i) 55.7km of new (i) 62 km for service area in the 500-1200mm network Xujing area of Qingpu diameter pipes extension; District to provide high (ii) 3.9 km of new 96% (ii) 95km of quality water supply 200-500 mm network pipe services to additional diameter pipes rehab; population No (iii) Rehab. of 95km 100% N/A (iii) 2 pumping of up to 500mm dia. stations pipes; 101% (iv) Purchase and (iii) 2 pumping 100% installation of stations 17,000 (iv) 17,107 new 101% water meters. Component B. Wastewater Management Subcomponent B1: 24.4 km of trunk No (i) 25.59 km of trunk 105% NA Renewal and Rerouting sewer sewers 2-3m dia; of WTS to capture 80% (ii) 15.1 km link of the design flow of sewers 300-1500 mm 400,000 m³/d. dia; (iii) construction of two new and rehab of one existing pumping station total capacity 11.56m³/sec Subcomponent B2: 23 km No 9 km 39% N/A Closure/decommissioni ng of old WTS. Subcomponent B3: 1 No. including all No 1 No. Fully 100% N/A Construction of the civil works, completed and new 204 tons/day electro- functioning, Bailonggang Sludge Mechanical including all civil Treatment Plant, control equipment works, electro- and mechanical control instrumentation. equipment and instrumentation. Subcomponent B4. Completed STP No Fully competed STP, 100% N/A Construction of the under a turn-key including all civil new 150 t/day capacity Design Build works, electro - (first phase) Zhuyuan Operate (DBO) mechanical control Sludge Treatment contract equipment and Plant. (including all civil instrumentation. 31 Targets Actually Achieved Project Component Revised PAD Restr. at Appraisal at Completion Output Description Targets (%) (%) (PAD) (ICR) works, electro - mechanical control equipment and instrumentation.) Component C. Solid Waste Management Subcomponent C1. 2 No. Dropped 0 0 N/A Closure of 2 existing as part of Solid Waste March Management sites 2014 Restruc. Component D: District Financing Vehicle Subcomponent D1. WWTP completed No All civil works, 100% N/A Chongming Chengqiao and fully electro- mechanical functional treating control equipment up to 25,000 m³/d and instrumentation, of waste water 8.7 km of collection pipeline system and three pumping stations.) Subcomponent D2. Solid Waste No Completed and fully 100% N/A Chongming Municipal Landfill facility functional. Outputs Solid Waste Landfill with a capacity were mostly civil (Phase 1) 300 tons/day of works, including solid waste. access roads. Subcomponent D3. Waste Water No System fully 100% N/A Qingpu Huaxin Waste Collection System functional. Outputs Water Collection with a capacity of were 47 km of trunk 18,000m³/d. sewers and two pumping stations Subcomponent D4. Waste Water No System fully 100% N/A Qingpu Baihe Waste Collection System functional. Outputs Water Collection with a capacity of were 42.5 km of System 17,000m³/d. trunk sewers and three pumping stations Subcomponent D5¹. New 160,000 m³/d New All civil works and N/A 100% Xujing Water WTP ; inclusion elector-mechanical Treatment Plant with a Rehab and August and control treated water capacity Modification to 2012 equipment for the of 200,000m³/d. existing construction of: (i) a 40,000m³/d WTP; new 160,000m³/day New construction WTP; (ii) of a sludge modification of an treatment facility existing 40,000 32 Targets Actually Achieved Project Component Revised PAD Restr. at Appraisal at Completion Output Description Targets (%) (%) (PAD) (ICR) to treat sludge m³/day WTP; and from combined (iii) a new sludge WTP capacity of treatment facility. 200,000m³/d Number of completed 6 5 4 67% 80% projects Component E: Institutional Strengthening and Training Studies completed 15 11 10 67% 91% ¹ Under construction. To be completed under APL3. Table 2.2 District Participation in the Project In all, 12 districts of the wider Shanghai Metropolitan area participated in project activities as follows: Shanghai Districts Project Components participating in the project INNER CORE District 1 Huangpu Western Trunk Sewer renewal (Comp. B) OUTER CORE District 2 Changning Western Truck Sewer renewal 3 Hongkou Western Truck Sewer renewal 4 Jing’an Western Truck Sewer renewal 5 Yangpu Western Truck Sewer renewal 6 Putuo Western Truck Sewer renewal 7 Zhabei Western Truck Sewer renewal SUBURBAN Districts/ County 8 Baoshan Western Trunk Sewer renewal (Comp. B) 9 Chongming Xian Island WWTP and Solid Waste Landfill (Comp. D) 10 Minhang Water Supply service extension (Comp. A) 11 Pudong 1. Bailonggang and 2. Zhuyuan Sludge Treatment plants. (Comp B). 12 Qingpu 1. Water Supply service extension (Comp A); 2. Huaxin WW Collection (Comp. D); 3. Baihe WW collection system (Comp. D); 4. Xujing WTP expansion. (Comp. D) 33 Table 2.3 Summary Table of Project Beneficiaries Project Component Target Beneficiaries No. of People A. Water Supply Management Urban water service customers in Xujing 205,000 and Huanxin townships of Qingpu District B. Wastewater Management Consumers of the SMSC benefitting 10.4 million from: (i) the WTS renewal (2.2 million); (ii) Bailonggang STP (4.3 million) and (iii) Zhuyuan STP (3.9 million) C. Solid Waste Management Dropped. However, staff of SLSB Not benefitted from IST funded longer term quantified study for Solid Waste Component Analysis D. District Financing Vehicle District level consumers served by the 1.61 million five DFV sub-projects E. Institutional Strengthening and Staff of SMG /SDRC and the Not Training (IST) implementing agencies including quantified SMWSC, SMSC, SLSB, CEAM and selected participating District staff benefitted from the 10 studies and targeted training activities under IST Component. Table 2.4 Summary of Project Restructurings Approval Goals of Restructuring Comments/Justification date 03/29/2011 One year extension to March The extension was necessary to allow the borrower 31, 2011. to make substantive progress on civil works, installation of equipment and to implement TA activities. The borrower requested a three year extension, but the Bank approved a one year extension with the possibility of a further two year extension if implementation progress improved by early 2012. 12/22/2011 Two years extension to March Additional time was needed to: (i) complete the two 31, 2014. link sewers of the WTS system in order to achieve the wastewater interception target; (ii) complete the construction of the Zhuyuan STP; (iii) complete the closure of two solid waste dump sites; and (iv) implement the newly identified fifth DFV sub- project. 03/25/2014 (i) One year extension to Extension necessary to: (i) complete the Zhuyuan March 31, 2015; (ii) revise STP; (ii) decommission the remaining old WTS scope for some components; sewers; (iii) complete the fifth DFV sub-project for (iii) increase disbursement the Xujing WTP. Increased disbursement percentages for some percentages would permit full utilization the Loan categories, (iv) reallocate loan funds. . funds; (v) amend financial covenant and RF. 34 Table 2.5 Project Management Arrangements Component PIU Post completion WS Management and IST SMWSC SMWSC WW Management and IST SMSC SMSC Solid Waste Management and IST SCAESAB/SL&CAB* SL&CAB DFV and IST CEAM CEAM DFV Individual Investment Projects Chongming Chengqiao WWTP (Phase 1) Shanghai Chengtou Shanghai Chengtou Chengqiao Sewage Chengqiao Sewage Treatment Co. Ltd. Treatment Co. Ltd. Chongming Municipal SW Landfill Shanghai Chengtou Shanghai Chengtou (Phase 1) Yingzhou Municipal Yingzhou Municipal Solid Solid Waste Disposal Waste Disposal Co. Ltd. Co. Ltd. Qingpu Huaxin WW Collection system Shanghai Chengtou Shanghai Huaxin Trunk (Phase 1) Luyan Trunk Sewer Co. Sewer Management Co Ltd. Ltd. Qingpu Baihe WW Collection system Shanghai Qingpu Baihe Shanghai Qingpu Baihue Trunk Sewer Co. Ltd. Sewage Management Co. Ltd Xujing WTP expansion project Shanghai Municipal Xujing Water Plant/Water Investment (SMI) Production Branch of Water (Group) Co. Ltd. Shanghai SMI Water (Group) Co. Ltd. *In October, 2008, SMG merged the functions of original SCAESAB into the newly established Shanghai Landscaping and City Appearance Administration Bureau (SL&CAB). 2.1 Project Components/Sub-Components in detail Project Component A: Water Supply Management In the context of SMG’s Water Supply Master Plan, the high priority investment in the sector was to assist SMG/SMWSC with improving long term security of supply and the expansion of new high quality, reliable and flexible water services. Prior to the project, the area was served through a number of small, old and disjointed systems that provided unreliable and poor quality water services. Raw water sources were local creeks and water bodies that were highly polluted and proper treatment was not being achieved and the water was unsafe to drink. As a result, residences suffered from a number of waterborne health problems (especially diarrhea and gastroenteritis) related to poor quality water. This component was implemented by the SMWSC and included two sub-components to address these issues as follows: (i) the main investment activities for the augmentation and improvements to water supply services in the Qingpu - Xujing and Huaxin Township Water Supply areas; and (ii) relevant institutional strengthening and training activities. The target beneficiaries were 200,000 customers in the rapidly developing peri-urban townships of Xujing and Huaxin in Qingpu District, west of the core urban area that is now supplied with fully treated water, meeting Chinese National Safety standards 15 from the large existing Changqiao WTP. The investment under the project included the construction of: 56 km of trunk water pipes (500-1200 mm diameter); about 4 km of connector pipes (200-500mm diameter); the replacement of about 95 km of old non-lined cast iron and concrete pipes of 500 mm diameter or less; construction of two major pumping 15 Chinese National Drinking Water Standards GB3838-2002 and GHZB1-1999 2002-06-01. 35 stations; and the installation of about 17,100 new water meters. The indicator for improved water supply management was improved drinking water service coverage and quality for the Xujing area of Qingpu District, with a target of serving 200,000 people. The coverage target was slightly exceeded with about 205,000 people (50,000 HHs) benefitting from greatly improved, continuous and safe drinking water services. All works, including the installation of water meters on each service were completed and commissioned in 2010 ahead of schedule and well within budget. There were savings of about US$6.0 of loan funds that were used to fund further works to increase the flexibility of bulk treated water supply by constructing a truck connection to the Xujing WTP. The two planned IST activities were completed satisfactorily as follows: (i) Network Model Augmentation and On-line Simulation; and (ii) a Network Rehabilitation (Maintenance) Technology Study. Both studies (UWS 50.1 and UWS 50.2), which were originally to be Bank funded were completed satisfactorily using SMG’ s own funds.) See IST consolidated table under Component E below for additional details. Project Component B: Wastewater Management The component was implemented by the SMSC. It was divided into four investment sub- components that included: (i) replacement of the Western Trunk Sewer system; (ii) de- commissioning of the old abandoned/redundant parts of Western Trunk sewer system; (iii) sludge treatment and disposal from the existing Bailonggang WWTP; and (iv) sludge treatment and disposal from the Zhuyuan WWTPs. The other subcomponent included the IST wastewater sector activities including the following: (i) Current Asset Rehabilitation Strategic Study; (ii) Sludge Strategy and Landfill Study; (iii) Core City Wastewater Management Strengthening; (iv) SMSC Project Management System Study; (v) Study on Management Options Regarding Storm Water; and (vi) Advanced Management & Operations of Wastewater Plants. Sub Component B1- Renewal/Rehabilitation of the Western Trunk Sewer System The outputs for this sub-component included the renewal of the pipe network of the Western Trunk Sewer from Xincun Road pumping station to the existing Shidongkou WWTP, with a design capacity 400,000 m3/d. The approved investment amounted was about RMB9.46 billion, serving a population of about 2.18 million people. The main completed outputs included: (i) construction of 25.4 km of trunk sewers (2000~3000mm dia); (ii) construction of 15.1 km of link sewers (300~1500mm dia); (iii) rehabilitation of the existing Xincun Rd Pumping Station Capacity (2.89m³/sec); (iv) construction of two new pumping stations at Yunzaobang (capacity 4.04m³/sec) and Yueluo (capacity 4.63m³/sec); and (v) construction of associated storage tanks. Construction began in December, 2007 and was completed in June, 2010. In 2014 the system transferred an average of 377,670 m3/d of wastewater to the WWTP. Sub-component B2 - Decommissioning of old Sewers of the WTS System The original system was built in the 1970’s, originally as deep open sewers that were later covered. Decommissioning on this scale was without precedent in China and therefore needed a completely new and innovative technical approach. A decision was made to decommission the old sewers at project design, but because there was no precedent, the estimate at appraisal of how long it would take was, in hindsight, overly optimistic. In reality, decommissioning has been very technically difficult and painstakingly slow because of the lack of as constructed drawings and location data of the old sewers. The situation was further complicated because the old sewers were found to be still full of wastewater from many illegal connections. Therefore, the technique required divers and other technicians to work in these confined spaces to complete the work. In addition, access was limited and difficult because the old sewers are located under very density populated residential and commercial areas. At project close, only 36 about 9km (39%) of the 23 km of old sewerage system had been decommissioned. However, the borrower is very committed to finishing all decommissioning using its own funds as quickly as possible. Sub-component B3- Bailonggang Sludge Treatment Works This major subcomponent was completed satisfactorily, on time and on budget, and involved the construction of the Bailonggang STP with a first stage treatment capacity of 204 tons/day. Investment included: (i) sludge thickening; (ii) digestion treatment; (iii) conveyance system for dewatered sludge; (iv) bio gas treatment and utilization; (v) a sludge drying system; and (vi) a wastewater treatment system. The APL2 investment built the initial capacity of the STP (204t/day). The ultimate design capacity is 457t/day, which will enable about 60% of the sludge from metropolitan Shanghai to be treated. This capacity will be developed in stages as dictated by demand. Works under APL2 were completed at the end of 2011 and were handed over to the SMSC for management, operation and maintenance (MOM) in May 2012. Table 2.6 Project Operation Performance of Bailonggang STP Year 2013 2014 Average Sludge Digested (t/d) 156 178 Methane Produced (million 11.21 12.83 m3/Ann) Sub-Component B4 - Zhuyuan Sludge Treatment Plant (ZSTP) The originally approved sludge treatment method for the ZSTP was for a traditional process incorporating “anaerobic digestion + dewatering + the drying of partly dewatered sludge. However, regulatory changes to the Standard for Pollution Control on the Landfill Sites of Municipal Solid Waste, (July 1, 2008) stipulated that sludge from all WWTPs would only be accepted for landfill disposal if the dry solid content was at least 40%, (i.e. moisture content ≥60%). In reacting to this SMG, in November 2008 approval a new Shanghai Sludge Management Master Plan that incorporated the changed regulations and mandated that in order to meet the new moisture content specification, all sludge from the major WWTPs in the metropolis should from then on be treated by incineration, including the Zhuyuan STP. This drove the need to prepare a new proposal for the ZSTP starting with a new feasibility study, economical, financial, environmental and social assessments. The Bank reviewed the Feasibility Study Report and the EIA of the revised proposal, and issued its non-objection in June 2009. The revised estimated total cost was US$110 million (RMB820.24 million), including an unchanged loan allocation of US$49 million. The new design for the ZSTP utilized state-of-the- art, global best practice incineration technology primarily to treat sludge generated from Zhuyuan WWTPs I &Ⅱ and the Quyang and Sitang WWTPs. The treatment process was based on a four step, hi-tech process of: (i) sludge dewatering, followed by (ii) mechanical drying; followed by (iii) incineration; and (iv) the utilization of the inert fly ash as building material or used as land fill. The advanced process allows the separation of the small volume of toxic fly ash (about 7% by weight) and its safe disposal in designated safe disposal areas. This is a significant environmental plus because under traditional treatment methods, the toxic wastes stay in the sludge and are disposal of by land fill and can result in secondary contamination of land fill sites. A comparison of the traditional sludge treatment method versus the treatment by the incineration method demonstrates clearly the differences between the two processes as follows: 37 Table 2.7 Comparison of Sludge Treatment Methods for Zhuyuan STP Incineration Traditional Digestion Treatment Treatment Method Method Incoming sludge from WWTPs Tons/day 682 682 Outgoing dried ash Tons/day 76 - Outgoing toxic ash Tons/day 4 - Total Outgoing ash 80 Outgoing dewatered sludge Tons/day 467 Project Cost comparison US$ millions 150 144 Annual Operations Cost comparison US$ million 6.5 13 From the table it can be seen just how efficient the incineration process is. It produces a total of just 80 tons/day of dried ash compared to the 476 tons/day of partially dried sludge using the traditional process. Incineration reduces the incoming sludge by 88%, while the traditional process reduces the sludge by only 32% by weight. The dried sludge from the traditional process, which is more than five times that from incineration, can only be disposed of through land fill and this occupies a lot of land. The toxic waste substances remain in the land fill sites, with the risk of secondary contamination. On the other hand, the inert dried ash can be used as construction material or disposed of to landfill, with the big environmental plus of being able to separate out the toxic ash and this can be disposal of properly, so there is no risk secondary contamination. The economic analysis showed that the capital cost of the incineration option was only 5% higher than an equivalent traditional STP. However, the annual operating costs of incineration were half that of the traditional option, due in part to the energy self-sufficiency arrangements utilizing the waste heat energy from the adjacent power plant. The project financed the construction of Phase 1 of the ZSTP (150 tons/day) with an ultimate design capacity is 240 t/d to be built as future demand dictates. Construction began in October, 2011 under an innovative Design/Build/Operate (DBO) contract. The construction of civil works and the main and ancillary equipment installation comprised eight integrated sub- systems: (i) sludge receiving;(ii) storage tanks; (iii) conveying and drying system; (iv) incineration, and surplus heat utilization system; (v) chimney dust cleaning system; (vi) water- steam recycling system; (vii) ash separation, collection treatment system; and (viii) other associated auxiliary systems. All civil works construction was completed by June, 2013 and the main DBO contract, including mechanical electric equipment and electronic control systems was accepted as complete in July, 2014. Sludge was fed into the system for the first time in August, 2014, and systematic testing began in September, 2014 with load testing to 80% of capacity of both dryer/incineration lines (75 tons/day each) completed in May 2015. Unfortunately, because the plant was not fully operational at project closure, there was no measureable output against the target. However, as at September 30, 2015 the plant was fully on-line and was performing at 80% of the phase 1 design capacity. . When the ultimate capacity of 240 tons/day is developed, the facility is expected to treat about 40% of the sludge from metropolitan Shanghai. Project Component C: Solid Waste Management This component was a small part of the project, with an estimated total cost at appraisal of US$7.00 (1.8% of total) and an allocated loan amount of US$0.5 (0.3%). However, except for the IST study on Solid Waste Component Analysis, the other activities involving the closure of the two SW landfill sites and the development of the Management Information System (MIS stage II), the component was formally dropped as part of the restructuring of March, 2014. The 38 decision to drop the component was made in February, 2013 when key difficulties arose and slowed implementation. A revised technical proposal for closing the sites was submitted to the Bank in May 2013 and was very different from the original proposal cleared by the Bank in April 2012. The Bank assessed that the revised approach would only result in further implementation delays, because the substantial changes would require extensive and detailed technical and environmental reviews. This situation was further complicated upon discovery of a large permanent illegally built structure and valuable but illegally planted vegetation on one sites by “informal” operators. Removing the structure and plantings would have triggered the need to have a RAP, which would have been a lengthy process, adding to the Bank’s assessment that the closures could not be completed before Loan closing. In making the final decision to drop the closures, the borrower agreed to complete them using own funds no later than June 2016. The Bank, in agreeing to the funding change, ensured that the proper site geological investigations were carried out and that on-going monitoring processes were set up. On the positive side, a key IST study for a multi-year analysis of domestic solid waste composition was completed satisfactorily in December 2012. The study was then used to assist SMG with the development of a comprehensive demand management strategy for the solid waste sector. Project Component D: District Financing Vehicle Under this component, four environmental infrastructure projects were completed satisfactorily. A fifth subproject, Xujing Water Treatment Plant Expansion Project was approved in August 2012 and commenced construction under APL2 (US$6.7 million), with the balance (US$10.3 million) to be financed under APL3 DFV component. A sixth subproject for the Minhang- Fengxian Raw Water Conveyor Project was approved by the Bank in February 2015 and the formal agreement was signed on March 25, 2015. However, this new sub-project will be 100% financed under APL3. For APL2, there was a total investment of about US$137 million, including US$29.5 million of Bank financing. A summary of the six subprojects and their respective costs is shown in the Table 2.8 and a detailed description of the five projects either completed or under construction follows the table. Table 2.8 DFV Subprojects Project Total APL2 Status at March 31, Investment DFV 2015 (US$m) Financing US$m) Chongming Chengqiao WWTP (PhaseI) 29.50 4.71 Completed Chongming Municipal Solid Waste 23.55 3.20 Completed Landfill (Phase 1 ) Qingpu Huaxin Wastewater Collection 15.34 6.45 Completed System (Phase I) Qingpu Baihe Wastewater Collection Syst. 19.87 8.70 Completed Xujing Water Treatment Plant Expansion* 48.66 6.7/17* Partially completed under APL2 (US$6.7m) Total APL2 136.92 29.76 Minfeng Raw Water Conveyor Pipelines 135.84 33.17** Approved by Bank February 2015, and agreement signed March 25, 2015. . * The total DFV investment is US$17 million, financed US$6.7million APL2 and US$10.3 million APL3. ** Approved for inclusion during ALP2, but 100% financed under APL3. 39 Sub-Project 1. Chongming Chenqiao WWTP The total investment for the Chongming Chengqiao WWPT (Phase I) was about US$29.50 million (RMB184.62 million) and included: (i) the construction of the WWTP with a current treatment capacity under Phase I of 25,000m3/d, benefiting a population of about 310,000. (Design capacity is 50,000 m³/day to be built in subsequent stages); (ii) construction of 8.7 km of sewerage collection pipelines; and (iii) 3 pumping stations. It will serve approximately 270,000 people by 2020 within a service area of 77 km2. Construction commenced in November, 2005 and was completed in April, 2007. The WWTP was then brought into commercial operation in July, 2007. The operational performance is shown in Table 2.9. Table 2.9 Operational Performance of Chengqiao WWTP Year 2007 2008 2009 2010 2011 2012 2013 Average WW 30316 25000 25000 31649 28932 29362 30250 treated (m3/d) BO Quality 71/2.5 53/3.54 65/4.50 56/5.75 118/3.53 104/2.69 106/3.09 D CO (Influent/Effluent) (mg/l) 138/28.8 128/35.7 190/30 129/32 205/37.9 168/30.7 149/34.7 D Wager SS 135/9 96.0/11 696/23 122/21 98/12 96/10 127/12 NH3 13.6/3.55 16.8/10.8 18.8/4.48 18.0/4.48 23.6/4.73 21.3/1.2 21.9/5.18 -N Average TN - - - - 40.7/13.6 31.4/12.7 29.9/12.7 TP 3.14/0.84 3.24/0.89 15.22/0.45 3.79/0.71 4.0/0.96 3.40/1.04 4.09/0.80 Sub-Project 2. Chongming Municipal Solid Waste Landfill (Phase I) The MSW landfill site was designed serve the needs of the whole of Chongming Island (See map IBRD 41739) with a benefitting population of about 700,000. The design capacity of the facility is 2.67 million m3 with a life of about 15 years, based on a daily disposal capacity of between 300-600 tons/day to be built in phases. The total investment in the first phase development (300 tons/day) was US$23.55 million (RMB147.38 million). Construction commenced in November, 2005 and was successfully commissioned and operational in August 2007. By 2010 the daily disposal of solid waste had reached the desired Phase 1 target. The operational performance of the land fill is summarized below. Table 2.10 Operation Performance of Chongming MSW Landfill Year 2007 2008 2009 2010 2011 2012 2013 2014 Average MSW 246.7 251.0 270.0 305.1 306.6 319.6 327.3 335.2 Landfilled (t/d) Sub-Project 3. Qingpu Huaxin WW Collection System (Phase I) The purpose of the Qingpu Huaxin WW Collection System (Phase I) is to collect the wastewater and lead it to the Huaxin WWTP for safe treatment. The benefitting population is about 63,000. The total investment of the project was US$15.34 million (RMB96.00 million) and included the construction of 47 km trunk sewers and two pumping stations. The Phase 1 40 design capacity is 18,000 m3/d. Construction commenced in February 2006 and by August 2007 the trunk sewers had been completed, as well as the construction, installation and testing of two pumping stations. The completed collection network then underwent testing and commissioning in September 2007 and was formally handed over to the local government administration of Huaxin town in 2008. As the collection system is the only one draining to the Huaxin WWTP, its operational performance is directly related to the performance of the WWTP. From the Table 2.11, it can be seen that the phase 1 design capacity was reached in 2010. Table 2.11 Operation Performance of Huaxin WWTP Year 2007 2008 2009 2010 2011 Average WW Treatment 17,000 17,500 16,594 20,300 18,511 (m3/d) Note: The new Huaxin WW Collection System provides the primary source of raw WW input into the Huaxin WWTP. Measured output is therefore the average daily WW treated (m³/day) at this WWTP. Sub-Project 4. Qingpu Baihe WW Collection System This project was the first phase development designed to collect and drain about 17,000m³/day (ultimate design capacity of 28,000m³/day) of wastewater to the Baihe WWTP and benefit a population of about 63,000. The total investment of the project was US$19.87 million (RMB124.35 million) and included the construction of a 33.7 km trunk sewers serving the Baihe area and an 8.8 km trunk sewer serving the Zhaotun area of Baihe Town, as well as three lift pumping stations, all serving an area of about 64.40 km2. Construction commenced in April, 2008 and was completed, tested, commissioned and transferred to the local government administration in December, 2009. As shown in the table 2.12 below, by 2013 the system was collecting 10,191 m³/day or about 60% of the first stage design capacity of 17,000 m³/day. Table 2.12 Operation Performance of Baihe WWTP Year 2010 2011 2012 2013 2014 Average WW Treatment 9,342 9315 9,929 10,191 10,090 (m3/d) Note: The new Qingpu Baihe WW Collection System provides the primary source of raw WW input into the Baihe WWTP. Measured output is therefore the average daily WW treated (m³/day) at this WWTP. The water quality indicators for 2014 of influent and effluent in Baihe WWTP are shown in Table 2.13. Table 2.13 Average Concentrations of Water Quality Indicators in 2014 Water Quality Influent Effluent Indicator Concentration Concentration Unit: mg/l Unit: mg/l CODcr 250 30.7 Biological Oxygen Demand (BOD5) 68.6 3.4 Suspended Solids (SS) 236 18.7 Ammonia (NH3N) 14.2 0.8 Total Nitrogen(TN) 23.7 8.3 Total Phosphorus (TP) 3.74 0.27 41 Sub-Project 5: Xujing Water Treatment Plant The total investment of Xujing Water Treatment Plant Expansion Project is estimated at about US$48.66 million (RMB304.53 million) and includes: (i) the construction of a new 160,000m3/d conventional WTP; (ii) modifications to the current 40,000m3/d treated water output; and (iii) construction of sludge treatment facilities to manage the sludge from the expected total through put at the expanded WTP of 200,000m3/d. The construction of the subcomponent commenced in December, 2013 and is ongoing. At loan closing, the recorded expenditure was US$6.7 million. The DFV component of APL3 will finance the remaining amount, estimated to be US$10.3 million. The investment was designed to serve a population of 510,000 people by 2020. Project Component E: Institutional Strengthening and Training This component had a total of 15 well defined studies and training activities, 12 of which were carried out by the implementing agencies responsible as an integral part of each main component because of the direct relevance of the issues to improved management of these particular sectors. The implementation management responsibility of the remaining three activities were stand-alone, more strategic, Metropolitan-focused studies was given to SMG. At loan closure, 10 activities were completed and five were cancelled, including two of the three strategic level studies. (See Table 2.14 below). All of the 10 completed studies/capacity building activities contributed towards improving the environmental management of Shanghai. Water supply management, operations and maintenance and service delivery by the SMWC improved considerably because of the two studies focused on (i) improving network simulation and (ii) network rehabilitation (maintenance). The high level management of wastewater by SMSC was enhanced through the completion of four studies focused on: (i) asset rehabilitation, (ii) development of both sludge and landfill strategies; (iii) strengthening of core city waste management; and (iv) the development of options for the management of the city’s storm water drainage. The multi-year study of solid waste composition analysis was used as the basis to determine practical collection and disposal methods and potential re-use/ re-cycling of solid waste. The management of the DFV by CEAM benefitted from and was enhanced by the various framework papers and background reports. The capacity of CEAM and the participating suburban governments was improved through targeted training and capacity building activities in the areas of engineering, economic and financial assessment of projects, and Bank standards for environmental and social assessment. Table 2.14 Details of IST Activities Contract No. Description of Task Implementing Status Agency 1 UWS 50.1 Network Model Augmentation SMWSC Completed with own and On-line Simulation funds (originally BF) 2 UWS 50.2 Network Rehabilitation SMWSC Completed with own (Maintenance) Technology funds (originally BF) Study 3 SMSC 50.1 Current Asset Rehabilitation SMSC Completed with own Strategic Study funds (originally BF) 4 SMSC 50.2 Sludge Strategy and Landfill SMSC Completed with own Strategy Study (Changed from funds (originally BF) Water Source Protection Program Design.) 5 SMSC 50.3 Core City Waste management SMSC Completed (Bank Strengthening. Financed) 42 6 SMSC 50.4 Project Management System SMSC Cancelled (Note 1.) Study (Changed from Study of Social Participation in the Wastewater Sector Financing. 7 SMSC 50.5 Management Options for Storm SMSC Completed with own Water in Shanghai funds (originally BF) 8 SMSC 50.6 Advanced Management & SMSC Cancelled Operations of Wastewater Treatment Plants. 9 USW 50.1 MIS Phase II SL&CAB Cancelled 10 USW 50.2 Solid Waste Component SL&CAB Completed (Bank Analysis Financed) 11 DFV 50.1 Training Programs for CEAM DFV/CEAM Completed (Bank and District Administrative Financed) staff/professionals. 12 DFV 50.2 Framework Papers and DFV/CEAM Completed (Bank Background Reports to assist Financed) CEAM. 13 IST 10.1 A Comprehensive study of SMG/SDRC Cancelled (Note 2.) Shanghai Metropolitan (Regional) Development 14 IST 10.2 Global Megacity Infrastructure SMG/SDRC Completed (Bank Performance Comparison Financed) study 15 IST 10.3 Other Urban Development SMG/SDRC Cancelled (Note 3.) studies Notes: 1. The study into Project Management System (serial 6) was dropped at MTR because Chengtou Corporation had developed their own management system, making the study redundant. 2. Dropped in January 2011. 3. Dropped in January 2011. Table 2.15 Evidence/Outputs Produced to Satisfy Compliance with APL3 Triggers Trigger/Key Issue Evidence/Outputs Received Remarks by the Bank 1. Trigger 1 (Compulsory) Sustainable financing plan for Acceptable financing plans for The trigger required that at Shanghai’s Environmental APL3 project components least 50% of local costs Infrastructure to be financed received. (counterpart funds) be financed under APL3 from long term sources or the DFV. This trigger was met because on aggregate at least 70% of local costs (counterpart funds) are sourced from long term sources. Each benefitting public utility Inputs into financial projects of Bank financing to ensure for APL3 (see APL3 PAD rates of fees, tariffs or charges annex 9) for services are adequate to cover the redemption and/or repayment of such financing Trigger 2 (Compulsory) At least 50,000 people in Progress reports on water unserved areas of Qingpu supply improvements under 43 District have benefitted from APL2 component A; (ii) improved water supply Documented evidence from: services under component A of The results of a Satisfaction APL2 Survey of water supply to residents on the Xujing and Huanxin areas of Qingpu District, (ii) Water quality data at Changqiao WTP showing improvements in quality levels). Trigger 3 (Compulsory) Solid waste services covering SMG’s Municipal SW All SW transported to the at least 25% of the total Marketization and Laogang SW site, (33% of SW volume of solid waste in the Commercialization Status in Shanghai) is managed by a urban areas of Shanghai report(s) private company. Municipality are managed by corporate entities; and SMG has adopted an SMG Order No. 5 – Shanghai In July 2008, SMG adopted administrative framework and Municipal SW Collection and Order No. 5, which specifies implementing regulations for Disposal Management Method the service contracting and the execution either service, bidding arrangements for management or concession SWM operations in Shanghai contracts for solid waste including concession services. arrangements. Trigger 4 Increased institutional capacity SWA Charter issued on 2000; Specifically in 2005, SWA and resources of the SWA to SWA institutional brochure refocused its activities on enable it to carry out its 2005; regulation and planning with responsibilities for: (i) the formal transfer of the planning and investment responsibility for all water strategies for urban resources, water supply and environment services related to wastewater companies to water, wastewater and Chengtou. SWA then increased drainage; and (ii) prepare and its resources and staffing in its implement the Upper Huangpu Water Planning and Design Catchment Management Plan. Research Institute, a key division responsible for planning and regulation. Trigger 5 Implement environmentally Signed agreement for sludge In May 2006, the Zhuyuan and acceptable and sustainable disposal from the Zhuyuan and Bailonggang WW companies sludge through (i) entering into Bailonggang WWTPS; and (ii) signed contracts with the suitable management contract SMG issued formal document Laogang Landfill Company arrangements for sludge for sludge treatment and ensuring that about 400 t/day management at the Zhuyuan disposal arrangements for of sludge is transported to and and Bailonggang complexes; WWTP over 50,000m³/day. disposed of at the Laogang and (ii) enter into acceptable Shanghai EPB approved Landfill Phase 1; (ii) All arrangements at the major Bailonggang WWTP sludge practices for sludge treatment (over 50,000 m³/day) WWTPs Management Plan. (dewatering, incineration etc.) in Shanghai and subsequent disposal in sanitary landfills were assessed by the Bank as satisfactory. Trigger 6 44 SMG to prepare a time bound Report commissioned under SMG prepared time bound action plan to improve air APL2, IST component entitled action plan using the report as quality in Shanghai Air Quality Report for the basis, particularly Chapter Shanghai. 5, Identification of the Measures for Air Quality Improvement in Shanghai Core Sector Indicators for Water and Wastewater Projects - Performance Results As part of the MTR, the Bank team introduced core sector performance indicators (CSI) that were mandatory for all Bank water and wastewater projects. These indicators summarized the beneficiaries of the project. By project closure, it had reached its targets for both water supply wastewater as shown in the following Table 2.16. Table 2.16 Core Sector Indicators Implementing Agency Unit Value Water Number of people provided with access to Total 000 205 “Improved Water Sources” under the project Including Xujing town SMWSC 000 100 Huaxin town SMWSC 000 105 New piped household water connections that Total 000 50 are resulting from the project intervention Including Xujing town SMWSC 17 Huaxin town SMWSC 33 Piped household water connections affected by 000 N/a rehabilitation works undertaken under the project Improved community water points constructed No. N/a or rehabilitated under the project, if applicable Number of water utilities that the project is No. 1 supporting Number of other water service providers that No. N/a the project is supporting, if applicable Wastewater Number of people with access to improved Total 000 675 sanitation under the project (connected or via advanced latrine) Urban Including North waste drainage area wastewater SMSC 000 200 management Chongming Chengqiao WWTP DFV 000 270 Qingpu Huaxin wastewater collection system DFV 000 105 Qingpu Baihe wastewater collection system DFV 000 100 Number of people with access to improved 000 N/a sanitation under the project (connected or via advanced latrine) Rural 45 Number of new sewer connections 000 76 constructed under the project Number of improved public latrines constructed number N/a under the project, if applicable BOD pollution loads removed by treatment Tons/y 11 plant outlets financed under the project Number of people trained to improve hygiene 000 N/a behavior or sanitation practices under the project, if applicable 46 Annex 3. Economic and Financial Analysis I. ECONOMIC ANALYSIS At project appraisal, cost-effectiveness analysis was used to assess the individual project components in APL2 due to the inherent difficulty in quantifying precisely and meaningfully the benefits in environmental projects, particularly those relating to public health and environmental improvements. The same approach was followed during ICR. The objective of the economic evaluation was to demonstrate that the specific APL2 investments fitted into the overall sector strategies in a, logical and cost effective manner. Therefore, the Economic Evaluation of each Project Component is as follows. 1. Water Supply Sector-Extension of Network to Qingpu District The objective of this component was to help SMG advance it’s Water Supply Master Plan which would provide a more centralized, but flexible water supply system and to eliminate smaller water supply facilities of uncertain quality. The objective of this component has been achieved. The implementing agency – SMWSC was to expand its water service coverage and its improve water quality for a population of about 200,000 in parts of Shanghai's peri-urban area west of the core urban area, in Qingpu District. At project completion, SMWSC provided a continuous, high quality water supply service to 205,000 people in Qingpu District, which slightly exceeds the end-of-project target. At project appraisal, two alternatives were considered: (i) complex and risky treatment of the degraded raw water available to Qingpu; and (ii) connection of Qingpu District to the SMWSC network. Due to the less incremental cost, the second alternative was selected for the project. This connection has been completed and on average, about 284,000 m3/d of water was supplied to Qingpu District in 2014. 2. Wastewater Sector Western Trunk Sewer (WTS) Component. The objective of this component was to optimize the use of Shanghai's existing trunk sewer assets by redirecting some of the catchment flow from the Shidongkou catchment into the existing sewerage system that leads sewage to the Zhuyuan WWTP, financed previously by the Bank under the SSP1 project. This diversion would then create capacity to meet future increases in Shanghai's rapidly growing north-west development corridor. This objective has been achieved. The western trunk sewer was the main wastewater conveyor in the Shidongkou catchment area, which was one of the six main catchment areas in the Shanghai Sewerage System. The total estimated flow from the catchment was about 900,000 m3/day and projected to increase to 1.2 million m3/day at the end of the project planning period. The wastewater from the catchment was conveyed through the western trunk sewer to Shidongkou and discharged near the shore of the Yangtze River. The Shidongkou WWTP with a capacity of 400,000 m3/day, together with other smaller WWTPs in Wusong and Sitang (40,000 m3/day and 20,000 m3/day), would absorb the key part of the wastewater flow. The construction of a new sewer’ under the project has been completed and in 2014 the system conveyed an average of 377,670 m3/d of wastewater to Shidongkou WWTP. 47 At project appraisal, four alternatives were considered to address the issue of wastewater treatment in Shidongkou catchment. The first was ‘no project’ which was rejected based on the risks associated with operating the western trunk sewer in an un-repaired state. The second was the construction of a new sewer. The total cost was estimated about RMB1.2 billion. The third was the full diversion of all flows into the SSP1 system. This was also rejected because it was assessed as too risky in terms of potential capacity constraints in light of the anticipated increase in primary utilization of the SSP1 system. . The fourth was the full rehabilitation of the current sewer system which was estimated about RMB1.4 billion. The second alternative was selected as the least cost solution and implemented under the project. The construction of a new sewer has been completed and during 2014 the system conveyed an average of 377,670 m3/d of wastewater to Shidongkou WWTP. At project appraisal, the benefits of the alternative selected by the project included: (i) the structural safety of the western trunk sewer, (ii) effective use of the released capacity at Shidongkou wastewater treatment plant, (iii) the partial diversion of flows from the center of the city further downstream would be advantageous to the extent possible, (iv) maximization of the capacities and utilization of the existing wastewater assets, and (v) the normal economic health benefits. At project completion, the new sewer has replaced the ‘old sewer’ which was built in the early 1970s and operated for 30 years in a very poor state of repair. Sludge Disposal Management The objective of this component was to assist SMG to dispose of the huge volumes of sludge generated from WWTPs in an environmentally optimal manner by upgrading the sludge treatment and disposal processes at the major WWTPs. This objective has been achieved. At project appraisal, Shanghai had 3 large WWTPs in operation, i.e., Zhuyuan, Bailonggang and Shidangkou, and one additional large WWTP due to commence construction at Zhuyuan (Zhuyuan 2). These WWTPs produced significant volumes of sludge from a total wastewater flow of some 4.5 million m3/day. SMG committed to undertake a phased program to treat the sludge generated in an environmentally optimal manner. The target established under this APL2t was to build sludge treatment capacity at both the Bailonggang and Zhuyuan STPs to treat 80% of the first stage design capacity at each plant. The new sludge treatment plant constructed under the project at Bailonggang has been operating satisfactorily since October 2011, and by 2024 was producing on average 178 tons/day of dried sludge (tDS/d) or about 87% of the first stage design capacity of 268tDS/d. The first stage of the Zhuyuan sludge incinerator constructed under the project went through system commissioning in March 2015 and is expected to be fully on line by September 2015. The first stage design capacity is 150 tDS/d, with an ultimate design capacity will be 240 tDS/d. However, because the STP was not fully on-line at project closure, there was no measured output. 3. Solid Waste Sector This component supported SMG’s objective that solid waste from households and the growing volume from food services would be collected, transferred, treated, and disposed of in ways that protect the public health and atmospheric, terrestrial and aquatic environments across metropolitan Shanghai. Investment was intended to develop best practice methodologies for dump closure and rehabilitation, by the closure of the Gucun and Minhang Waste Dumps 48 located in the core city of Shanghai. The processes and procedures developed and could then be replicated elsewhere in the municipality. However, due to the various issues, the closure of Gucun and Minhang dump sites was canceled from the project. (see Annex 2) 4. Tariff Setting Process and Affordability Analysis The PAD described the tariff setting process applicable in Shanghai at project appraisal. This process is still valid at project completion. The PAD also listed the water and wastewater tariff from 1996 to 2004 and expected the next tariff increase would be in 2006. The following table presents the water and wastewater tariff from 2004 (1 year overlap with PAD) to 2014. Table 3.1. Evolution of Water and Wastewater Tariff in Shanghai (RMB/m3) Year Water Tariff Wastewater Tariff 2004 1.03 0.90 2005 1.03 0.90 2006 1.03 0.90 2007 1.03 0.90 2008 1.03 1.08 2009 1.33 1.08 2010 1.63 1.30 2011 1.63 1.30 2012 1.63 1.30 2013 1.92 1.70 2014 1.92 1.70 Table 3.2. Breakdown of Water Tariff among Different Types of Users Domestic Industrial Hotel Special Since 2002 1.03 1.30 1.50 10.00 Since October 2008 1.03 1.50 1.70 10.60 Since June 2009 1.03 2.00 2.00 10.60 Since November 2010 1.63 2.00 2.00 10.60 Since 2013 1.63 2.00 2.00 10.60 II. FINANCIAL ANALYSIS At project appraisal, the financial analysis reflected the institutional responsibilities within SMG for construction, asset management, and operations & maintenance. Financial analysis of the selected schemes and the implementing agencies was conducted to evaluate capacity for raising counterpart financing. The financial forecasts accessed the long term financial sustainability of the project, the implementing agencies, and the guarantors for each of the components. The current and forecast levels of cost recovery in Shanghai were also analyzed and compared with other cities in China. At project completion, the financial evaluation consists of the institutional responsibilities within SMG for asset management and MOM, the assessment of the long term financial sustainability of the implementing agencies, and forecast of the levels of cost recovery in Shanghai. Institutional Setup for the Implementation of Project Activities The Shanghai Municipal Waterworks South Co. Ltd. (SMWSC) implemented the water supply extension to Qingpu District and the Shanghai Municipal Sewerage Co. Ltd. (SMSC) 49 implemented the three wastewater sub-components (WTS, and the Sludge Treatment Plants at Bailonggang and Zhuyuan. The SMSC has the responsibility for provision of wastewater services throughout the core city of Shanghai and wastewater services in the suburban districts of Shanghai are operated directly by the districts. Financial Analysis of Project Implementing Agencies Shanghai Municipal Waterworks South (SMWSC) At appraisal, the financial situation of SMWSC was reviewed. Financial projection for SMWSC was made that a tariff increase of 20% would need to be effected in 2007 and another 25% in 2010, to maintain full cost recovery and comply with the financial covenants under the loan. The financial situation of SMWSC at project completion was also reviewed. The following table presents the financial situation of SMWSC before and after the project. Table 3.3 Financial Situation of SMWSC before and after Project (RMB million) December. % of December. % of 31, 2004 Revenue. 31, 2014 Revenue. Total Cost: 486 80 2,160 >1  Salary & Wages: 57 9 194 10  Material/fuel/elect: 302 50 649 34  Admin.: 120 20 64 3  Interest: 7 1 95 5  Depreciation: Nab 336 17 Total Assets: 4,031 7,773 Gross Revenues: 605 1,928  Domestic 149 25 526 27  Non Domestic: 347 57 899 47  Municipal govt. budget: 0 410 21  New connection charges: 109 18 121 6 Total Liabilities and Net Worth: 4,031 7,773 Debt Equity Ratio: 1.2 2.3 The status of financial covenants is summarized in the following table: Table 3.4 SMWSC Performance against Financial Covenants 2010 2011 2012 2013 2014 Cost Recovery Ratio 1.1 1.1 1.0 1.1 1.0 Long-term debt service coverage Ratio 1.3 1.1 0.5 0.9 0.3 The SMWSC did not comply with the financial covenant of long-term debt service coverage ratio, and the covenant relating to cost recovery ratio is only complied with because of a continuing 21% revenue subsidy from SMG. Shanghai Municipal Sewerage Company (SMSC) At appraisal, the financial situation of SMSC was reviewed. Financial projection for SMSC was made that tariff increase of 25~35% would need to be effected in 2007 to debt service and operating ratio covenants under the loan. The financial situation of SMSC at project completion was also reviewed. The following table presents the financial situation of SMSC before and after the project. 50 Table 3.5 Financial Situation of SMSC before and after Project (RMB million) December % of December. % of Operating Costs and Revenue 31, 2004 Revenue. 31, 2014 Revenue. Total Cost: 1,047 112 2,933 113  Salary & Wages: 61 7 368 14  Material/fuel/elect: 233 25 1,505 58  Admin. Sale Tax etc.: 24 3 1 0  Interest: 46 5 144 5  Others, incl. depreciation: 684 73 913 35 Total Assets (incl. accumulated loss): 7,088 23,811 Gross Revenues: 936 2,585  Domestic 129 14 914 35  Non Domestic: 611 65 1,306 50  Storm Water Subsidy (SMG): 84 9 200 7  Others 112 12 165 6 Total Liabilities and Net Worth: 7,088 23,811 Debt Equity Ratio: 2.3 1.1 The status of financial covenants is summarized in the following table: Table 3.6 SMSC Performance against Financial Covenants 2010 2011 2012 2013 2014 Cost Recovery Ratio 1.0 0.9 0.8 0.9 0.9 Debt Service Coverage Ratio 2.5 0.4 0.8 0.8 1.5 In 2014, SMSC did comply with the financial covenant for debt service coverage ratio due to increased depreciation charges and increased SMG subsidies for city storm water services. However, despite these ongoing subsidies, SMSC did not comply with the financial covenant for the cost recovery ratio. Shanghai Chengtou Corporation (UDIC) A subsidiary of UDIC was to implement the solid waste components, including the closure of two solid waste sites, which at a total cost of RMB71 million is about 0.05% of the existing assets of the parent company. Due to the many delays during implementation, this component was cancelled. Accordingly no financial evaluation on the subsidiary of UDIC was carried out during ICR. 51 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Current Title Current Unit Specialty Lending TTL Institutional Geoffrey Read Municipal Engineer/Retired EASUR Analysis Sr. Urban Management Co-TTL plus Finance, Mats Andersson GSURR Specialist/Retired Institutional Ke Fang Lead Transport Specialist GTIDR Resettlement Margaret Png Lead Counsel LEGLE Legal Counsel Economic Financial Axel E. N. Baeumler Sr. Infrastructure Economist GSURR Assessment Shenhua Wang Sr. Urban Specialist GSURR Public/Private sector Sr. Environmental Specialist / Environmental Anthony J. Whitten EASES Retired Assessment Jian Xie Sr. Environmental Specialist GENDR Economic Assessment John Morton Sr. Urban Specialist GSURR EA Review Sr. Financial Management Yi Geng GGODR Financial Management Specialist Sr. Social Development Songling Yao GSURR Resettlement Specialist Zhentu Liu Sr. Procurement Specialist GGODR Procurement Sr. Social Development Chaogang Wang GSURR Social Safeguards Specialist Quality Control and Joanne S. Nickerson Operations Officer GSURR Compliance with Bank’s Internal Procedures Mara K. Warwick Manager Operations EACCF Environmental Engineer Ji You Urban Specialist GSURR Technical/Engineering Hao Zhang Sanitary Specialist / Retired - Wastewater Component Zhang Hao Municipal Engineer / Retired EASUR Engineering Procurement Specialist Dawei Yang EACCF Procurement /Retired Huiying Guo Program Assistant EACCF Team Support Xuemei Guo Country Program Assistant EACPQ Team Support Vellet E. Fernandes Program Assistant/Retired GTIDR Team Support Municipal Solid Waste Specialist Tore Roy Semb - Solid Waste Management Consultant/Retired Water Quality & Environment Specialist George M. R. Taylor - Wastewater Treatment Consultant/Retired Strategies Zhun Zhang Institutional Specialist/Retired - IST Activities Air Quality Specialist Consultant James Richer - Air Quality Aspects /Retired Country Sector Andres Liebenthal IEGCC Bank Safeguards Policies Coordinator/Retired Environment Environmental Dahong Li - Specialist/Consultant Assessment 52 Yan Li Economist Consultant Economic Assessment Patrick E. McCarthy FM Specialist/Retired - Financial Analysis Supervision/ICR Sr. Urban Management TTL Implementation Mats Andersson GSURR Specialist/Retired Management Takuya Kamata Country Manager SACNP TTL Hiroaki Suzuki Lead Urban Specialist/Retired GPSURR TTL Takao Ikegami Sr. Sanitary Engineer/Retired ECAJP TTL Suhail J. S. Jme’An Program Leader SACKB TTL Alessandra Campanaro Sr. Urban Specialist GSURR TTL Sing Cho Urban Specialist and Co TTL GWADR Engineering/Technical Procurement Kofi Awanyo Lead Procurement Specialist GGODR Management Paul Kriss Lead Urban Specialist GSURR Project Review Axel E. N. Baeumler Sr. Infrastructure Economist GPSURR Economic Assessment Ning Yang Sr. Environment Specialist GENDR ENV Safeguards Alexander V. Danilenko Sr. WS and Sanitation Specialist GWASP Institutional Performance Sr. Financial Management David I GGODR Project FM and Fiduciary Specialist Sr. Social Development Jun Zeng GSURR Resettlement Specialist IST Component Sheng Li Sr. Learning Specialist/Retired Activities Sr. Social Development Jun Zeng GSURR Resettlement Specialist Quality Control and JoAnne S. Nickerson Operations Officer GSURR Compliance with Bank’s Internal Procedures Urban Specialist Municipal Ji You GSURR Engineering/Technical Engineer Hao Zhang Municipal Engineer/Retired EACCF Engineering/Technical Gang Qin Water and Sanitation Specialist GWADR Engineering/Technical Operational Support and Toyoko Kodama Urban Specialist GWADR Quality Control EMP and Bank Yiren Feng Environmental Specialist EACCF Safeguards Procurement Zheng Liu Procurement Specialist GGODR Management Zhuo Yu Finance Officer WFALN Financial Management Institutional Geoffrey Read Municipal Engineer/Retired Strengthening Water Resources Geoffrey Spencer GPSURR ICRR Primary Author Management/Consultant Isabel Duarte Program Assistant GWADR Team Support Team Support and Client Yu Liu JPA/Consultant GSURR Liaison Huiying Guo Program Assistant EACCF Team Support Wenyan Dong Operations Analyst GSURR Project Analysis Environmental Eddi Ke-Siong Hum GSURR Engineering/Technical Engineer/Consultant 53 Inneke Herawati Ross Sr. Program Assistant GSURR Team Support Water Supply and Sewerage Kezhi Dai - Engineering/Technical Engineer/Consultant Financial/Fiduciary Masato Sawaki Financial Analyst/Consultant - Management ICRR Wu Ning Consultant GWADR Economic/Financial Environmental WQ and Waste Water George M. R. Taylor - Specialist/Consultant Strategies Institutional Zhun Zhang - IST Activities Specialist/Consultant Yanling Zang Translator/Consultant - Translation/Interpretation Songyun Ma Translator/Consultant - Translation/Interpretation Junru Sheng Translator/Consultant - Translation/Interpretation (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ thousands (including No. of Staff Weeks travel and consultant costs) Lending FY04 FY05 49.3 312,116 Total 49.3 312,116 Supervision/ICR FY06 11.6 81,207 FY07 15.7 120,582 FY08 17.9 81,542 FY09 18.1 82,539 FY10 6.5 42,195 FY11 13.6 67,215 FY12 12.6 72,687 FY13 7.1 37,459 FY14 18.6 122,047 FY15 11.7 92,415 Total 133.4 799,888 54 Annex 5. Beneficiary Survey Results Not Applicable 55 Annex 6. Stakeholder Workshop Report and Results Not Applicable 56 Annex 7. Summary of Borrower's ICRR Letter of feedback from Borrower, received on November 11, 2015. 对世行编制的 APL 二期的完成报告的反馈意见 （2015 年 11 月 10 日） Dear Madam Alessandra Campanaro, 感谢你对上海 APL 项目付出的辛勤劳动，现在我们把对世行编制的 APL 二期 项目完成报告的反馈意见传上，请收，并希望能编入该完成报告中。 Thank you for your hard work on Shanghai APL projects. Now we are sending you our feedbacks to the ICR of APL 2, which is hoped to be incorporated in the final ICR. 1. 下面是上海市绿化和市容管理局的反馈意见： Below are the feedbacks from Shanghai City Appearance & Environmental Sanitation: 有关两个堆场的描述，尤其 Section 2.1 和 2.2 中的相关原因描述，我方认为均不客 观。主要意见如下： Related with the two dumping site descriptions of the causes, especially in Section 2.1 and 2.2, we find that they did not meet the facts. Our comments are as follows: 1.1、关于机构变化问题，属于正常的政府职能调整，相关职责并未取消，与此同 时，配套经费来源只是名称发生变化，实质的支持对象并未改变，所以不存在配套资 金风险。 You wrote: The reorganization/restructuring of the Shanghai City Appearance & Environmental Sanitation Administration Bureau (SCAESAB), which resulted in a change of status of the closures from “capital” to “maintenance”, which meant that no counter-part funding could be provided; “ Our comments: It was a normal adjustment of government functions and did not cancel any related responsibilities. Meanwhile, the source of counterpart fund changes only its name and did not change its supporting objectives. Therefore, there was no risk of counterpart funds. 1.2、关于区局与项目单位实施方式和方法矛盾，经协调，已经解决，并未影响后 续设计方案的批复和推进。 You wrote: Problems obtaining internal clearances for the closures because of differences in approaches and methodology for restoration of the sites between district governments and the implementation agency. The Bank made efforts to be the “honest broker”, but was unable to get resolution; Our Comments: The problems obtaining internal clearances for the closures because of differences in approaches and methodology for restoration of the sites between district governments and the implementation agency was solved after coordination and it did not impact the follow up approving and pushing forward the design options. 57 1.3、关于 2013 年 1 月闵行堆场实际发生的变化确实存在，但对于后续主要封场措 施不会形成干扰。 1.3. It was true that there were some actual changes at Minhang sit, but we don’t think it will impact the main closure measures. 1.4、项目方案讨论时间延长确实存在。但主要在于世行方面专家组变更引起，在 之前已经初步形成的共识被推翻，导致项目被延迟。 1.4. It was true that discussions of the project options took a long time, but it was mainly because of the changes of the World Bank’s experts, which caused the repudiation of the previously agreed options and which caused the delay of the project. 1.5 我方非常重视封场的实施，目前已经通过城市维护资金确定了项目实施 方案，已准备封场施工，并建立了持续的观测计划。 1.5 We have paid great attentions to the closure of the two dumping sits. So far we have finalized the project implementation also best option through the city’s maintenance funds and are ready for construction and have also made a continuous monitoring plan. 2. 下面是 DFV 的反馈意见： 2. Below are the feed backs from DFV. 2.1、报告 2.5 Post-completion Operation/Next Phase，p13，Table 3. Project Management Arrangements，涉及 DFV 部分 PIU 等描述错误，修改详见附件（项目 公司即 PIU）； 2.1 Section 2.5 of the ICR -- Post-Completion Operation/Next Phase，p13，Table 3: Project Management Arrangements, related DFV should be as shown in the table below: Component PIU Post completion Chongming Chengqiao Shanghai Chengtou Chengqiao Shanghai Chengtou Chengqiao WWTP(Phase Ⅰ ) Sewage Treatment Co., Ltd Sewage Treatment Co., Ltd Shanghai Chengtou Yingzhou Shanghai Chengtou Yingzhou Chongming Municipal Solid Municipal Solid Waste Municipal Solid Waste Disposal Waste Landfill (Phase Ⅰ) Disposal Co., Ltd Co., Ltd Qinpu Huaxin Wastewater Shanghai Chengtou Luyan Shanghai Huaxin Trunk Sewer Collection Systerm (Phase Ⅰ) Trunck Sewer Co., Ltd Management Co., Ltd Qingpu Baihe Wastewater Shanghai Qingpu Baihe Trunk Shanghai Qingpu Baihe Sewage Collection System Sewer Co., Ltd Management Co., Ltd Xujing Water Plant under Water Xujing WTP Expansion Shanghai SMI Water (Group) Production Branch of Shanghai Project Co., Ltd SMI Water (Group) Co., Ltd 2.2、 报告 Achievement of Project Development Objectives，p17，District Financing Vehicle. Rating: Substantial 部分，第三段描述，...... but agreement not signed，描述错 误，闵奉支线项目的协议实际于 2015 年 3 月 25 日签署；......the fifth was 92% completed with the balance to be funded under APL3，徐泾项目 APL2 期使用世行贷款数 占合同总金额的比例为 38%； 2.2 P 17 of the ICR, Achievement of Project Development Objectives，p17，District Financing Vehicle. Rating: Substantial, the corrections are below. At the end of the project, the judgement is that the DFV was a successful intervention with the CEAM well established and functioning and five environment infrastructure investment 58 agreements signed and a sixth project approved, but agreement not signed (Wrong, it was signed on March 25, 2015). This new project will be funded under APL3. Of the five agreements signed, four sub-projects were completed and the fifth was 92% completed with the balance to be funded under APL3. (The loan under APL 2 for Xujing project accounts for 38% of the total value of contracts. ) 2.3、 报告 5.2.2 Implementing Agencies Performance，p25，前两段粗体字母错误， SMSC 应为 SMWSC，SMWSC 应为 SMSC； 2.3 Section 5.2.2 of the ICR Implementing Agencies Performance, P25, the corrections are shown below in yellow and read: SMSC (should be SMWSC) The performance of the SMSC (should be SMWSC) was satisfactory and the water supply component was well implemented, on time and within the budget estimates and met the objectives associated with the expansion of services to customers. …… SMWSC (should be SMSC). The performance of the SMSC is rated as moderately satisfactory. It had to manage the biggest and most technically complex component, divided into four large investment sub-components. …… 2.4、 Annex 2. Outputs by Component，p36，Table 2.4 DFV Subprojects，城桥污水厂 通过 DFV 融资支持数额（4.41）有错误，应为 4.71； 2.4 P36 of Annex 2 Outputs by Component, the correction is shown below in yellow and read: Table 2.4 DFV Subprojects (of Annex 2, Outputs by Component, P36) Project Total Investment APL2 DFV Status at (US$m) Financing 31MAR15 US$M) Chongming Chengqiao 29.50 4.41 (should be 4.71) Completed WWTP (Phase Ⅰ) 2.5、Annex 2. Outputs by Component，p39，Table 2.10. Details of IST Activities， USW20.1/USW20.2 是两个设备合同号，其相应的 IST 合同号应为 USW50.1/USW50.2. 2.5 P39 of Annex 2 Outputs by Component, Table 2.10: Details of IST Activities, USW20.1/USW20.2 are the contract Nos. for equipment and their corresponding IST contract Nos. are USW50.1/USW50.2. Table 2.10 Details of IST Activities Contract No. Description of Task Implementing Status Agency 9 USW 20.1（This is the Contract No. for equipment, its IST No. MIS Phase II SL&CAB Cancelled should be USW50.1） 10 USW 20.2（This is the Contract Solid Waste SL&CAB Completed No. for equipment, its IST No. Component Analysis (Bank should be USW50.1） Financed) 另外，完成报告第 9 页上对项目办、项目单位以及采购代理有关对世行采购程序了解 的描述也不够事实。比如上海市城市排水有限公司负责项目采购的从 80 年代就开始做 59 世行项目了，已经采购了 6～7 亿美元的世行贷款合同了。我们的采购代理上海国际招 标公司也从 80 年代就开始代理世行项目了。因此这样的描述说不理解世行的采购和变 更是不太好的，建议把这方面的描述去掉。 In addition, the descriptions on Page 9 of the ICR about the understanding of the World Bank procurement procedures at PMO and PIUs level and by the procurement agents are not as the matter of fact. For example, the staff responsible for procurement in Shanghai Municipal Sewerage Company Ltd has engaged in the World Bank projects since 1980’s and procured nearly about 600 ~ 700 million US$ World Bank financed contracts. The procurement agency Shanghai International Tendering Company has been the procurement agency for the World Bank financed project over 30 years. It is therefore not fair and as a matter of fact to make such description as lack of the understanding of the bank procurement procedures, etc”. We hope such description in the ICR should be deleted. 上面是我们的一些主要的反馈意见。 That’s some of our main feedback Best regards, Shanghai PMO __________________________________ Summary of Borrower’s ICR The Borrower prepared a useful ICR report that generally followed the Bank’s recommended format. The report was presented in six main sections, with many subsections providing detail on project component/subcomponent outputs. However, the scope of the report did not provide sections or commentary on factors affecting implementation, lessons learned, and comments on borrower’s own performance. The full report is in the project files. (See Annex 9). The table of contents of the borrower’s report as is as follows: Section A: Introduction including subsections on Background, Development Objective, Components, Milestones, Results Indicators and Final Results and Triggers for APL3. Section B: Project Implementation Entities. A Summary of the Project Implementing Units (PIUs) responsible for each project component. Section C: Project Description by Component. This section of the report was divided into four subsection, each detailing to the four investment components (A-Water Supply Management, B-Wastewater C- Management Solid Waste Management, and D- the District Financing Vehicle). Details for each of these components included: (i) description/introduction; (ii) completion and operational performance; (iii) loan withdrawal; and (iv) results and for components A and B, an implementation Completion Summary Table based on procurement packages. Section D: Institutional Strengthening and Training. A summary of the three strategy IST component activities that remained centrally controlled by the SMG. 60 Section E: Management of Safeguards RAPs and EMPs Section F: World Bank Performance  Included comments about the high level of cooperation between the Bank’s task team and the PMO/PIUs leading to the smooth and successful implementation of the project and the attainment of he designed objectives for ALP2;  Commented on the large number of changes of the Bank’s TTL (six) during the implementation period that resulted in much unnecessary communication. The PMO suggested that the TTL position be kept as stable as possible in order in guarantee continuity and efficiency of project implementation;  Suggested that the Bank’s procurement processes, particularly for prior review of procurement packages be improved to make them simpler and more practical in order to speed up implementation;  The conditions of Bank Lending and that of the borrower’s national lending should be more aligned.  International experts should work closely with local experts with local experts’ knowledge, skill and expertise recognized and utilized fully;  The World Bank is an international financing institutions with rich experience in project management and advanced management concepts. However, implementation of the project could have been improved even further, if a stronger partnership between the PMO/PIUs and the Bank’s team had developed, including the Bank listening to and understanding the perspective of problems and issues from the PMO/PIUs. 61 Annex 8. Comments of Co-Financiers and Other Partners/Stakeholders Not Applicable 62 Annex 9. List of Supporting Documents 1. Project Appraisal Document, Annex 13 Comprehensive list of documents in the project files up to and including appraisal. 2. Loan Agreement revised from time to time. 3. Project Agreement revised from time to time. 4. Project Restructuring Papers and official notifications. 5. Supervision Mission, including the MTR Aide Memoires and Management Letters. 6. Project Status Reports and Implementation Status Reports. 7. Borrower’s Final ICRR Report – May 2015 8. DFV Operations Manual. Shanghai Chengtou Environmental Asset Management Co. Ltd - 2006 9. District Financing Vehicle Medium-Term Strategic Evolution (Final) Report- May 2009. 10. District Financing Vehicle - APL2, Final Semi-Annual Report for the period to June 30, 22015. Shanghai Chengtou Environment Asset Management Co. Ltd. 10. Zhuyuan Sludge Treatment Plant (Incinerator) Feasibility Report. 11. Zhuyuan Sludge Treatment Plant –detailed Bank comments on EIA and EMP. 12. Shanghai Solid Waste Management Strategy. 13. Shanghai Sludge Management strategy. 14. Shanghai Water Supply Master Plan. 63 Annex 10. Project Resettlement and Land Acquisition Involuntary resettlement and land acquisition activities were needed in seven sub-projects namely the Xujing-Huaxin water supply extension, the western trunk sewer renewal and the five DFV sub-projects (Chongming WWTP and MSW Landfill, Huaxin WW collection, Baihe WW collection and the Xujing WTP expansion). Construction activity involved water supply pipelines, WTP expansion, sewerage collection pipelines and new and expanded WWTPs. Details of Land Acquisition and PAPs. At appraisal the total land acquisition was estimated to be 697.65 Mu (46.5 ha). However, the final area acquired was 598.5 Mu (39.9 ha) or 13% less than the estimate. The appraisal estimate for PAPs was 1112 people, but the actual number was significantly reduced to only 174. (-84%). Costs of Compensation. Independent monitoring confirmed that full compensation as stipulated in each individual RAP was paid. The overall compensation for land acquisition, demolition of structures and resettlement was estimated at appraisal to be about RMB448 million, while the actual compensation was RMB188.26 million. (-58%). The most significant cost reduction associated with land acquisition, HH demolition, PAPs and affected commercial enterprises occurred as a result of changed construction techniques for sewer/pipe installation utilizing pipe-jacking instead of traditional open trench techniques in the heavy populated down town areas for WTS. Also, after construction was completed, affected public land and facilities, were restored and/or renovated. A summary of appraised and actual performance is shown in Table 10.1 below. Table10. 1 Actual Completed Land Acquisition, Compensation and Affected People Water Supply DFV Sub-Projects WTS Sub-Project Total Xujing- Huaxin (5) RP Act. % RP RP RP Act. % Act. % Act. % Est. Est. Est. Est. Permanent 31.6 31.7 +0.3 255.6 19.7 -92 442 587 +33 698 598 -13% Land Acquisition (Mu) Temporary for 6 6 0 4.23 6 10.2 +70% construction Resettled 0 0 1064 0 -100 48 174 +263 1112 174 -84% PAPs (No.) Relocated 0 0 266 0 -100 16 44 +175 282 44 -84% HHs (No.) Relocated/ 3 8 +166 62 0 -100 5 2 -60 70 10 -86% affected commercial enterprises (No.) Total Cost 19.8 28.2 +42 354.8 87.2 -75 73.4 72.9 0.46 448 188.3 -58% RMB millions As for APL2, both the project owner of every project and corresponding street offices paid much attention to public participation and consultation, including mutual communication and door-to-door investigations on affected enterprises or individuals, publication of land acquisition, demolition as well as construction. Since these activities have been conducted in 64 a sound manner, there is no appeal case during the construction period. Neither affected ethnic minorities nor vulnerable groups were affected by this project. Impact of Land Acquisition and Demolition The independent monitoring consultant conducted post- construction completion surveys of all sub- projects where resettlement occurred. The surveys confirmed that: (i) there was no instances of any negative impact on the PAPs surrounding area; (ii) due compensation was paid in every case for land acquisition and resettlement; (iii) also due compensation was paid to rural households for losses associated with farming and crop plantings. The surveys also confirmed that as part of their resettlement package, rural PAPs in particular were offered a change of life style through retraining to allow them to make a living from other means. This training and support was provided through local village committees. Those PAPs that had taken advantage of the programs on offer were very satisfied with improvements in their living standards and their improved household income. 65 Annex 11. Socio Economic Impact and Improved Incomes Although no specific data was collected to directly link project activity to incomes, the APL2 project was set in the context of assisting SMG in implementing several key elements of Shanghai’s development program (February 2002), focused on the provision of environmental to the core city and the less affluent districts outside the core city, with particular emphasis on water supply, wastewater and solid waste management. According to official statistics, from 2005 to 2014, the per capita disposable income per household of Shanghai's urban and peri- urban/rural residents has been improved significantly. Table 11.1 Per Capita Disposable Income per Household of Shanghai Core Urban and Peri- Urban/Rural Residents Per Capita Annual Per Capita Disposable Disposable Annual Growth Year Income/Core Urban Income/Peri- Growth Rate Rate Household (RMB) Urban/Rural (%) (%) Household (RMB) 2005 18, 645 8,342 2006 20, 668 10.85% 9,213 10.44% 2007 23, 623 14.30% 10,222 10.95% 2008 26, 675 12.92% 11,385 11.38% 2009 28, 838 8.11% 12,324 8.25% 2010 31, 838 10.40% 13,746 11.54% 2011 36, 230 13.79% 15,644 13.81% 2012 40, 188 10.92% 17,401 11.23% 2013 43, 851 9.11% 19,208 10.38% 2014 47, 710 8.80% 21,192 10.33% Average annual growth rate over 11.00% 10.92% the decade Source: Shanghai Annual Statistics Urban residents, enjoyed a 2.56 times increase (from RMB18, 645 in 2005 to RMB47, 710 in 2014) or an average annual increase of 11%. Over the same period, peri-urban/rural house- holds enjoyed a similar increase of 2.54 times (from RMB8, 342 in 2005 to RMB21, 192 in 2014 or annual 10.91%. However, the gap between Urban and peri-urban/rural changed little over the 10 year period. (45% in 2005 to 44% in 2014.). Detailed information in Table 10.2 above. Household Income Details In 2014, the per capita annual disposable income per Urban household was RMB47, 710 (US$7950) and an annual growth rate of 8.8%. Deducting price factors, the actual growth was 5.9%. Household income was made up of the following: (i) wage income of RMB30,629, (an increase of 7.4%); (ii) net operating income of RMB2,345, (an increase of 1.2%); (iii) property income of RMB846, (an increase of 7.4%); and (iv) transfer income of RMB13,890, (a growth of 13.6%). In contrast, in 2014 the per capita annual disposable income per peri-urban/rural household was RMB21192 and an annual growth rate of 10.3%. Again, deducting price factors, the actual growth was 7.4%. Household income was made up of the following: (i) wage income of 66 RMB13, 430, (an increase of 8.5%); (ii) net operating income of RMB1, 035, (an increase of 12.5%); (iii) property income of RMB1,757yuan, (an increase of 10.7%); and (iv) transfer income of RMB4, 970, (a growth of 15%). 67 MAP IBRD 41739 68