Document of The World Bank FOR OFFICIAL USE ONLY Report No: 66820-CN PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF $100 MILLION TO THE PEOPLE’S REPUBLIC OF CHINA FOR THE GANSU QINGYANG URBAN INFRASTRUCTURE IMPROVEMENT PROJECT April 30, 2012 China and Mongolia Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective Date: December 12, 2011) Currency Unit = RMB (Yuan) RMB Yuan 6.20 = US$1 FISCAL YEAR July 1 – June 30 ABBREVIATIONS AND ACRONYMS DA Designated Account PDO Project Development Objective EIA Environment Impact PIU Project Implementation Unit Assessment EMP Environmental Management PLG Project Leading Group Plan FIRR Financial Internal Rate of PMO Project Management Office Return FSR Feasibility Study Report PP Procurement Plan GoC Government of China QMG Qingyang Municipal Government GSFB Gansu Provincial Finance QUIIP Gansu Qingyang Urban Bureau Infrastructure Improvement Project IBRD International Bank for QWSSC Qingyang Municipal Water Supply Reconstruction and and Sewage Company Development ICB International Competitive QYFB Qingyang Municipal Finance Bidding Bureau M&E Monitoring and Evaluation RAP Resettlement Action Plan MOF Ministry of Finance TA Technical Assistance NCB National Competitive Bidding WWTP Waste Water Treatment Plant NPV Net Present Value WACC Weighted Average Cost of Capital OP Operational Policy XDG Xifeng District Government ORAF Operational Risk Assessment XFFB Xifeng District Finance Bureau Framework Regional Vice President: Pamela Cox Country Director: Klaus Rohland Sector Director: John Roome Sector Managers: Paul Kriss Vijay Jagannathan Task Team Leader: Ji You TABLE OF CONTENTS Page I. STRATEGIC CONTEXT .................................................................................................... 1 A. COUNTRY CONTEXT............................................................................................................. 1 B. SECTORAL AND INSTITUTIONAL CONTEXT ........................................................................... 1 C. HIGHER LEVEL OBJECTIVES TO WHICH THE PROJECT CONTRIBUTES ................................... 3 II. PROJECT DEVELOPMENT OBJECTIVES ................................................................... 3 A. PDO..................................................................................................................................... 3 B. PROJECT BENEFICIARIES ...................................................................................................... 3 C. PDO LEVEL RESULTS INDICATORS ...................................................................................... 4 III. PROJECT DESCRIPTION ................................................................................................. 4 A. PROJECT COMPONENTS ........................................................................................................ 4 B. PROJECT FINANCING ............................................................................................................ 5 C. LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN............................................. 6 IV. IMPLEMENTATION .......................................................................................................... 6 A. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS .................................................... 6 B. RESULTS MONITORING AND EVALUATION ........................................................................... 6 C. SUSTAINABILITY .................................................................................................................. 6 V. KEY RISKS AND MITIGATION MEASURES ............................................................... 7 A. RISK RATINGS SUMMARY TABLE......................................................................................... 7 B. OVERALL RISK RATING EXPLANATION ................................................................................ 7 VI. APPRAISAL SUMMARY ................................................................................................... 8 A. ECONOMIC AND FINANCIAL ANALYSES ............................................................................... 8 B. TECHNICAL ........................................................................................................................ 10 C. FINANCIAL MANAGEMENT................................................................................................. 11 D. PROCUREMENT .................................................................................................................. 11 E. SOCIAL (INCLUDING SAFEGUARDS).................................................................................... 11 F. ENVIRONMENT (INCLUDING SAFEGUARDS) ........................................................................ 12 ANNEX 1: RESULTS FRAMEWORK AND MONITORING .............................................. 14 ANNEX 2: DETAILED PROJECT DESCRIPTION .............................................................. 16 ANNEX 3: IMPLEMENTATION ARRANGEMENTS ......................................................... 19 ANNEX 4: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF) ................... 29 ANNEX 5: IMPLEMENTATION SUPPORT PLAN ............................................................. 32 ANNEX 6: MAP .......................................................................................................................... 34 CHINA GANSU QINGYANG URBAN INFRASTRUCTURE IMPROVEMENT PROJECT APPRAISAL DOCUMENT . EAST ASIA AND PACIFIC REGION (EASCS) Basic Information Date: April 30, 2012 Sectors: General Transport (60%) and General Water/Sanitation/Flood (40%) Country Director: Klaus Rohland Themes: Other Urban Development Sector Managers: Paul Kriss/Vijay EA Category: B Jagannathan Sector Director: John Roome Project ID: P123133 Lending Instrument: SIL Team Leader(s): Ji You Does the project include any CDD component? No Joint IFC: Borrower: People’s Republic of China Responsible Agency: Qingyang Project Management Office, Qingyang Municipal Government Contact: Zhihu Yan Title: PMO Director Telephone no.: 86-0934 8888918 Email: gsqywbx@163.com Project Implementation Start Date: July1, 2012 End Date: June 30, 2017 Period: Expected Effectiveness November 30, 2012 Date: Expected Closing Date: December 31, 2017 Project Financing Data(US$M) [X] Loan [ ] Grant [ ] Other [ ] Credit [ ] Guarant ee For Loans/Credits/Others Total Project Total Bank (US$M) 192.35 (US$M) 100 Cost : Financing : Total (US$M) 92.35 Financing Gap : (US$M) 0 Cofinancing : Financing Source Amount(US$M) BORROWER/RECIPIENT 92.35 million IBRD 100 million IDA: New IDA: Recommitted Others Financing Gap Total 192.35 million Expected Disbursements (in USD Million) Fiscal Year 2013 2014 2015 2016 2017 2018 Annual 3 15 30 25 15 12 Cumulative 3 18 48 73 88 100 Project Development Objective(s) The proposed Project Development Objective (PDO) is to assist Qingyang Municipality to improve selected urban infrastructure services including urban roads and urban environmental services. Components Component Name Base Cost (USD Millions) Component 1: Urban Infrastructure Improvement 163.68 Sub-component 1.1: Urban Bypass 82.26 Sub-component 1.2: Integrated Road Corridor 11.53 Sub-component 1.3: Drainage and Sewage 37.58 Sub-component 1.4: Wastewater Treatment Plant 32.31 Component 2: Institutional Strengthening and Capacity Building 3.30 Compliance Policy Does the project depart from the CAS in content or in other significant Yes [ ] No [�] respects? Does the project require any exceptions from Bank policies? Yes [ ] No [�] Have these been approved by Bank management? Yes [ ] No [�] Is approval for any policy exception sought from the Board? Yes [ ] No [�] Does the project meet the Regional criteria for readiness for implementation? Yes [�] No [ ] Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 � Natural Habitats OP/BP 4.04 � Forests OP/BP 4.36 � Pest Management OP 4.09 � Physical Cultural Resources OP/BP 4.11 � Indigenous Peoples OP/BP 4.10 � Involuntary Resettlement OP/BP 4.12 � Safety of Dams OP/BP 4.37 � Projects on International Waters OP/BP 7.50 � Projects in Disputed Areas OP/BP 7.60 � Legal Covenants Name Recurrent Due Date Frequency Execution of the QWSSC Agreement As condition of the N/A disbursement for Legal Opinion Confirming the Qingyang Agreement Part I. 4 of the N/A Project As condition of the Financial Performance Improvement Plan of QWSSC disbursement for December N/A Part I.4 of the 31, 2012 Financial Covenant of QWSSC (break-even Project N/A requirement) N/A Project Management and Supervision Assistance Not more N/A Starting January 1, than three 2015 months after the Effective Date or prior N/A to the commencing of the bidding process for any works to be procured under the Project, Independent Monitoring of EMP and RAP whichever Semi occurs first Annual Transport Action Plans March 15, N/A 2012 N/A Not later N/A than twelve (12) months after the Effective Date Description of Covenant Disbursement Condition: For Part I. 4 of the Project (Wastewater Treatment Plant)  The QWSSC Agreement has been executed and delivered on behalf of Xifeng District and QWSSC and is legally binding upon the parties thereto in accordance with its terms.  A legal opinion satisfactory to the Bank from counsel acceptable to the Bank has been received by the Bank confirming that the QWSSC Agreement has been duly authorized or ratified by Xifeng District and QWSSC, and is legally binding on such parties in accordance with its terms. Financial Covenants for QWSSC:  Not later than December 31, 2013, submit a financial performance improvement plan of QWSSC satisfactory to the Bank.  Except as the Bank shall otherwise agree, ensure that, commencing with the calendar year starting January 1, 2015, the sum of QWSSC's operating revenues and non-operating revenues will be no less than equal to the sum of its operating costs, including depreciation and taxes; debt service requirements; and funds required for other necessary operating investments, calculated in a manner satisfactory to the Bank. Covenants Applicable to Project Implementation:  Project Management and Supervision: Gansu shall, not more than three months after the Effective Date or prior to the commencing of the bidding process for any works to be procured under the Project, whichever occurs first, employ or cause to be employed under terms of reference satisfactory to the Bank, qualified consultants acceptable to the Bank to assist Qingyang Municipality, Xifeng District and the Project participants in Project management and supervision.  Independent Monitoring of EMP and RAP: Qingyang shall maintain and cause to be maintained policies and procedures adequate to enable it to monitor and evaluate, in accordance with guidelines acceptable to the Bank, the implementation of the EMP and RAP and the achievement of the objectives of said plans and by March 15 and September 15 of each year, commencing on March 15, 2013, furnish to the Bank semi-annual reports of such monitoring and evaluation activities with respect to the EMP and RAP, together with any revisions proposed to be introduced into said plans in order to achieve their respective objectives.  Transport Action Plans including 1) Parking Action Plan; 2) Public Transportation Action Plan; and 3) Traffic Safety, Education and Enforcement Action Plan should be prepared and furnished to Bank for its comments not later than twelve (12) months after the Effective Date, and promptly thereafter carry out such plans taking into account the comments if any made by the Bank in accordance with schedule included in such plans. Team Composition Bank Staff Name Title Specialization Unit UPI Ji You Urban Specialist Task Team Leader EASCS 108727 Zhi Liu Lead Infrastructure Urban Planning EASTS 19222 Specialist and Urban Road Luquan Tian Transport Specialist Roads and Traffic EASCS 354488 Engineering Zhefu Liu Senior Social Development Social Safeguards EASCS 171201 Spec. Feng Ji Environmental Spec. Environmental EASCS 252836 Safeguards Haixia Li Senior Financial Financial EAPFM 259270 Management Spec. Management Jingrong He Procurement Analyst Procurement EAPPR 183511 Marta Elena Molares- Lead Counsel Project Lawyer LEGES 13064 Halberg Wenyan Dong Operations Analysis Risk Assessment EASCS 174039 Xin Chen Senior Program Assistant Operations EASCS 77978 Administration Vel Fernandes Program Assistant Document EASIN 32562 Processing Non Bank Staff Name Title Office Phone City Urban Planning and Rufei Zhang 86-021-53013701 Shanghai, China Operations Specialist Urban Road and Traffic Gladys Frame +44-131-446-9528 Edinburgh, UK Management Specialist Municipal Engineering Geoffrey Read London, UK Specialst Ning Wu Financial Analyst Beijing, China Municipal Sanitation Kezhi Dai Shanghai, China Engineer Locations Country First Administrative Location Planned Actu Comme Division al nts China Gansu Qingyang I. STRATEGIC CONTEXT A. Country Context 1. Over the last ten years, the Government of China (GoC) has made significant efforts to address the disparity between the relatively developed coastal region and the lagging region of western China. Implementation of the Western Regional Development Initiative has achieved remarkable outcomes. There is an accelerating trend of the country’s manufacturing industries shifting from coastal cities towards the western hinterland. Since 2008, there has been unprecedented GDP growth in many western provinces, surpassing growth in coastal provinces. 2. Encouraged by these trends, GoC further upgraded the Western Regional Development Initiative in the 12th Five Year Plan to be a top priority national agenda in the country’s regional development strategy. While implementation of this Initiative in the previous ten years was largely concentrated in promoting the development of regional large city anchors in the western region (such as Chengdu, Chongqing, and Xi’an), the focus under the 12th FYP has been fine- tuned to five sub-areas with rich oil and coal resources. 3. Most of these five sub-areas suffer from significant poverty, and so targeting them has an additional benefit of poverty reduction. The central government plans to trigger the process of industrialization, urbanization and urban-rural integration in these areas with a particular focus on the central cities and selected large towns. The selected project city of Qingyang is of national strategic importance as an energy production base, due to its rich oil and coal resources. B. Sectoral and Institutional Context 4. To reduce the pressure of massive rural-urban migration towards the coastal cities, China aims for cities in western China to accommodate local rural-urban migrants. Substantial urban infrastructure developments are needed for western cities to fulfill this task. 2009 indicators showed a significant gap in urban infrastructure services between western cities and coastal cities, in terms of: urban road space per urban resident (western cities averaged of 11.6 m2/person, eastern cities averaged 14.1 m2/person); length of drainage pipes per km2 of urban built-up area (western cities 6.8 km/km2, eastern cities 10.9 km/km2); percentage of wastewater treated (western cities 58.5%, eastern cities 72.6%); and percentage of solid waste collected and treated (western cities 72.3%, eastern cities 81.4%). Moreover, this gap is still expanding. In 2009, investment in urban infrastructure per urban resident in western cities was 17% less than in eastern cities. In response to this gap, the Government has assigned a high priority under the Western Regional Development Initiative to the development of urban infrastructure in western cities, particularly in medium and small cities. 5. While many coastal cities and large inland cities have had vast construction programs of primary road infrastructure in the past, and have now shifted their investment priority towards public transport and urban environmental infrastructure, cities in the west are still struggling for adequate investment in basic road infrastructure. In 2009, investments in public transport (subway/LRT) and in urban road construction accounted for 6% and 57% of total urban infrastructure capital investment respectively in western cities (compared to 24% for public transport and 41% for road constructions in coastal cities). Constrained by their limited funding 1 capacities, local governments of western cities consider road construction as a priority sector for capital investment, and fail to address the far more pressing needs of environmental infrastructure (drainage, wastewater, and solid waste). In 2009, per capita capital investment of urban road construction in western cities actually was 16% higher than that in coastal cities (western cities averaged RMB917/person, eastern cities averaged RMB788/person), but investment of environmental infrastructure in western cities averaged 42% lower than in coastal cities (western cities RMB141/person, eastern cities RMB244/person). Under-investment in environmental infrastructure has resulted in severe deterioration of the urban environment in China’s western cities, leading to the cities’ limited water resources being contaminated by untreated wastewater in the northwest region. 6. Local governments in western areas are eager to build livable and competitive cities to attract external investment. Urban infrastructure investments are usually at the core of the efforts to achieve this goal. But experience in more developed Chinese cities has shown that: (a) livable and competitive cities need to be supported by cross-sectoral, balanced urban infrastructures; and (b) development of road infrastructure alone is not sufficient to avoid traffic problems and achieve sustainable, equitable, and efficient transport. Bank experience in China’s western region suggests that supporting cities to improve their urban infrastructure in a cross-sectoral balanced manner and to improve the urban transport service through a comprehensive transport management approach remains a considerable challenge. 7. Measured by per capita GDP, Gansu Province ranked almost at the bottom among the 31 provinces in mainland China. Constrained by a long narrow corridor shaped territory, Gansu relies heavily on a few regional central cities along the corroder, including Qingyang, to drive its economic development. Recently, Gansu Provincial Government further upgraded the development profile of Qingyang in its provincial territory development strategy, and defined the city as a provincial industrial base for energy supply and petrochemicals. 8. Qingyang Municipality is located in the eastern most part of Gansu Province on the Loess Plateau and has a population of 2.64 million. Qingyang’s development has been held back by: (a) its relative isolated location and limited access to strategic markets in the region; (b) the monopoly of two key industries, petroleum exploitation and coal mining, by state-owned enterprises; (c) the low level of urbanization; and (d) severe shortage of water resources. With its abundant deposits of oil and coal resources, Qingyang is positioned by the central government as an emerging energy base of national significance, and is targeted by the central government’s initiatives of supporting and vitalizing the economies in the country’s western lagging areas. 9. Qingyang Municipality consists of one urban district and seven rural counties. The proposed Qingyang project would be focused on the municipality’s capital of Xifeng District. QMG’s efforts to improve the city’s livability and profile in order to attract and retain external investments have been constrained by the shortage of essential urban infrastructure services in Xifeng District. Public capital investments in Xifeng over the last few years have been concentrated mainly on constructing roads and widening the major streets in the existing urban area. Pressing needs for improving environmental infrastructure in the existing urban area have not been addressed. 2 C. Higher Level Objectives to which the Project Contributes 10. The proposed Gansu Qingyang Urban Infrastructure Improvement Project is consistent with the 2006-2010 Country Partnership Strategy (approved by the Board on May 23, 2006), which seeks among other objectives, to improve the competitiveness of the various regions of China and the overall investment climate, and to address the needs of disadvantaged groups and underdeveloped areas by financing infrastructure. The project serves three of the five pillars defined in the CPS: (a) reducing poverty, inequality, and social exclusion; (b) managing resource scarcity and environmental challenges; and (c) improving public and market institutions. 11. The objectives of the project are also expected to be consistent with the new CPS for FY2013-FY2016, which will be presented to the Board in 2012 in alignment with China’s 12th Five Year Plan, covering 2011-2015, by focusing on infrastructure investments in small towns. II. PROJECT DEVELOPMENT OBJECTIVES A. Project Development Objective 12. The proposed Project Development Objective (PDO) is to assist Qingyang Municipality to improve selected urban infrastructure services including urban roads and urban environmental services. B. Project Beneficiaries 13. Project beneficiaries include: (a) About 190,000 residents in Xifeng’s old urban area (47.4 % of whom are women, and 20 % are migrants), and 10,000 projected rural residents in Xifeng’s suburban settlements will be served by adequate storm water and wastewater infrastructures. (b) 21 % of urban residents in Xifeng’s urban area, and 5,000 rural residents who rely on untreated groundwater from individual small wells for their water supply, will benefit from the reduction of wastewater pollution to the city’s rivers and groundwater. (c) 11,000 existing bus riders and 26,000 projected new public transport users traveling on the three corridors that are likely to achieve significant improvement in mobility and accessibility. (d) 60,000 of users of all transport modes in Xifeng District who are likely to achieve travel time savings. 3 C. PDO Level Results Indicators 14. Achievement of the PDO will be measured through a series of indicators, including: (a) journey time saved for through traffic (freight); (b) share of through traffic (freight) on two corridors increased; (c) service speed of buses during rush hour on Nan Bei Street corridor; (d) percentage of built-up area serviced by storm water/wastewater networks increased; and (e) wastewater pollution reduction (BOD, COD, SS). III. PROJECT DESCRIPTION A. Project Components Component 1: Urban Infrastructure Improvements (a) Sub-component 1: Urban Bypass (Total Base Cost: US$82.26 million), including (i) construction of bypass roads of the southern section of Xifeng’s West Ring Road and the northern section of Xifeng’s East Ring Road with installation of associated pipes; (ii) construction of three connection roads to the two bypass corridors of West Ring Road and East Ring Road (connection road from West Ring Road to Provincial Highway 202; section of Anding Xi Road linking to West Ring Road; section of Guxiang Road linking to East Ring Road) with installation of associated pipes. (b) Sub-component 2: Integrated Road Corridor (Total Base Cost: US$11.53 million), including: (i) improvement of three selected main road corridors (Nan Bei Street, Anding Dong Xi Road, West Ring Road), including road pavement, traffic channelization, and lighting and greening, along with drainage and sewage system improvements; (ii) rehabilitation of three selected backstreets and small lanes for slow traffic (Nanyuan, Tianhe and Xifeng lanes); and (iii) carrying out, as part of the design of the integrated road corridor, the Parking Action Plan, the Public Transport Action Plan, and the Traffic Safety, Education and Enforcement Action Plan. (c) Sub-component 3: Drainage and Sewage (Total Base Cost: US$37.28 million), including: (i) construction of drainage and sewer mains for a section each of the West Ring Road, the Anding East Road and the Anding West Road; (ii) rehabilitation of sewage collection pipes in Xifeng District and associated improvements of road pavement, street lighting and greening along these roads. (d) Sub-component 4: Wastewater Treatment Plant (Total Base Cost: US$32.31 million), including construction of (i) a new wastewater treatment plant in the eastern area of Xifeng; (ii) a wastewater pumping station in Xifeng District’s northern area; and (iii) wastewater trunks and collectors associated to the investments in (i) and (ii) above. Component 2: Institutional Strengthening and Capacity Building (Total Base Cost: US$3.3 million) Provision of technical assistance for: (a) carrying out of a water resource study covering, among others, for water reuse, sub-basin water environment improvements and industrial wastewater discharge licenses in Xifeng District that supports the ongoing investments of 4 wastewater management; (b) the improvement of the operation and maintenance capabilities of QWSSC and Xifeng District’s Public Utility and Transportation Bureaus in the provision of urban infrastructure services in the key sectors of drainage and wastewater, urban road transport; (c) capacity building and training for Qingyang Municipality’s and Xifeng District’s agencies involved in project implementation; and (d) strengthening of QWSSC’s GIS-based system for the management of its drainage and wastewater pipes networks; and (e) strengthening the Qingyang Municipality’s capacity for project management and construction supervision of the Project. B. Project Financing Lending Instrument 15. The Project would be financed by an IBRD Specific Investment Loan (SIL) in the amount of US$100 million. The Bank Loan will be a US Dollar denominated, variable spread loan (VSL), based on six-month LIBOR, plus an additional variable spread, with a maturity of 25 years, including a five year grace period, and a front end fee of 0.25%. Project Cost and Financing 16. Table below indicates the Project cost and the Bank’s financing by component. Project cost IBRD Financing % IBRD Project Components (US$ million) (US$ million) Financing 1. Urban Infrastructure Improvement 1.1 Urban Bypass Road Construction 82.26 41.27 50.17 1.2 Integrated Road Corridor Improvement 11.53 7.83 67.91 1.3 Drainage and Sewage Pipes 37.28 26.21 70.31 1.4 Wastewater Treatment Plant (WWTP) 32.31 21.14 65.43 2. Institutional Strengthening and Capacity 3.30 3.30 100.0 Building Total Base Costs 166.68 99.75 59.85 Physical contingencies 12.09 Price contingencies 10.03 Total Project Costs 188.80 99.75 52.83 Interest During Implementation 3.30 Front-End Fees 0.25 0.25 100 Total Financing Required 192.35 100.00 51.99 5 C. Lessons Learned and Reflected in the Project Design 17. Project design incorporates lessons from the Bank’s urban infrastructure portfolio in China, in particular: (a) capacity building for local stakeholders during project preparation to address the challenge of preparing and implementing a Bank loan project of good quality in the city, where local capacity is relatively weak and which has no experience with Bank projects and procedures; (b) support for infrastructure investments of high impact that are selected and prioritized based on the City’s Development Strategy and Master Plan; (c) focus on a balanced package of investments in a people-oriented approach; (d) adding value through a practical yet comprehensive approach; and (e) strengthening the city’s skills and practices for Operation, Maintenance and Management (OMM) of urban roads and drainage/sewage. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 18. The Project will be implemented by Qingyang Municipal Government (QMG). A Project Leading Group (PLG) was established by QMG in March 2010, to provide overall leadership, policy guidance, and institutional coordination for project preparation and implementation. The PLG is headed by the Executive Vice Mayor, and is composed of senior officials from the Municipal Development and Reform Commission, Municipal Finance Bureau, Municipal Construction Bureau, Municipal Land Bureau, Municipal Environment Protection Bureau, Municipal Urban Planning Bureau, and the Director and Executive Vice Director of Xifeng District Government. See Annex 3 for further details. B. Results Monitoring and Evaluation 19. Annex 1 lists the main outcome indicators for the project, as well as the principal results indicators for each component. Additional indicators are listed in the various documents in the project files (for example, the Environmental Management Plan). While individual monitoring data will be collected by project implementing agencies designated for each component (Xifeng District Housing and Construction Bureau, Qingyang Municipal Water Supply and Sewage Company, Xifeng District Transportation Bureau), the PMO has the overall responsibility for coordinating collection of the data required for monitoring and evaluation, and the responsibility for consolidated reporting to the Bank. C. Sustainability 20. QMG and Xifeng District Government have provided assurances that the necessary human and financial resources will be available for project implementation, and to operate and maintain the assets created. However, long-term institutional, operational and financial sustainability are critical challenges for this project. To address these issues, special attention was paid during project preparation to ensure that the investments are in line with the city’s Master Plan, urban transport and wastewater management sector plans, and the 12th Five Year Plan; appropriate technical designs (i.e., avoiding over design, selecting least cost solutions); 6 sustainable institutional arrangements (i.e., designated PIUs); and financing strategies (i.e., higher level government financial support both at the municipal and district level). 21. Component 2, Institutional Strengthening and Capacity Building, includes additional support to the development of capacity in the PIUs for asset management, project management, construction supervision, and plans to improve public parking, traffic safety and water resource efficiency. V. KEY RISKS AND MITIGATION MEASURES A. Risk Ratings Summary Table Risk Rating Stakeholder Risk Moderate Implementing Agency Risk - Capacity Substantial - Governance Substantial Project Risk - Design Substantial - Social and Environmental Moderate - Program and Donor Low - Delivery Monitoring and Sustainability Moderate Overall Implementation Risk Substantial B. Overall Risk Rating Explanation 22. The overall risk of the Project is rated substantial. The most critical risks relate to: (a) implementing agencies, which have no experience in implementing Bank financed projects, especially on fiduciary aspects; (b) coordination among various municipal and district agencies for the Integrated Road Corridor Improvement; and (c) engineering designs. 23. To mitigate these risks, the concept and design of each component has been adapted for the Xifeng urban area. The city has also established a high level PLG chaired by the Executive Vice Mayor to oversee the preparation and implementation of the Project. The Bank has also initiated cross-dialogue and horizontal coordination among agencies and stakeholders, together with technical training and capacity building throughout project preparation; this will continue during project implementation. Construction management and supervision consultants will provide quality control for final engineering designs and bidding documents. 7 VI. APPRAISAL SUMMARY A. Economic and Financial Analyses 24. Economic Analysis. The main economic benefits of the project are related to transport and environmental improvement. They include: savings in travel time and costs; productivity increases; avoided loss of life and property from traffic accidents; better access to public services; energy savings and associated pollution reduction due to improved road condition in project areas; and increases in amenity and land value increase due to transportation and environmental improvement. The economic costs of the project are capital investment costs and O&M costs, including associated resettlement and environmental mitigation costs. 25. Cost-benefit analysis was used to evaluate the economic viability of each transport related activity. The results of the cost-benefit analyses show that the EIRR of the three road sub- components are 11.4%, 11.1%, and 24.7%, respectively. Sensitivity analyses (under the assumption of a 10% decrease in economic benefit and a 10% increase in total costs or both) show that the road investments are economically robust. The results of the economic analysis are summarized in the table below. Sensitivity Analysis (10% cost increase and 10% benefit NPV reduction) Components (RMB EIRR BCR million) NPV (RMB EIRR BCR million ) Existing road upgrading 109.8 11.4% 1.43 47.3 9.5% 1.17 Urban bypass road 164.6 11.1% 1.34 52.4 9.0% 1.10 construction Integrated traffic management 233.9 24.7% 3.15 188.8 21.5% 2.58 BCR: Benefit Cost Ratio 26. The wastewater treatment plant component aims to achieve the wastewater treatment targets set in the local government’s development plan. These targets are based on the importance of water pollution to public health and economic development. Due to the difficulty in quantifying and monetizing the health benefits of the wastewater treatment, the cost- effectiveness approach was used to select least-cost design options to achieve the wastewater treatment targets. Table below presents a comparison between three alternatives and shows that the unit cost of Alternative A is less than that of Alternatives B and C. 8 Alternative A Alternative B Alternative C A new WWTP (oxidation A new WWTP (oxidation A new WWTP (modified ditch process, capacity ditch process, capacity SBR process, capacity 20,000 t/d near term, 10,000t/d near term, 20,000t/d near term, 60,000 t/d long term) 30,000t/d long term) 60,000 t/d long term) Eastern area Associated trunk Associated trunk Associated trunk wastewater collectors 12.63 wastewater collectors 11.4 wastewater collectors km km 12.63 km A new WWTP (capacity A new sewage pumping A new sewage pumping 10,000 t/d near term, station (capacity 8,000 t/d) station (capacity 8,000 t/d) 29,000 t/d long term) Northern area Associated trunk Associated trunk Associated trunk wastewater collectors 5.58 wastewater collectors 5.58 wastewater collectors 5.58 km km km Associated wastewater pipe Associated wastewater 14.6 km pipe 14.6 km Capital Investment 286.5 287.5 297.1 (RMB million) O&M cost per cubic 3.86 3.97 4.15 meter (RMB) Total O&M cost per 19.74 20.32 21.23 year (RMB million) 27. Financial Analysis at Municipal Level. In addition to the Bank loan, the project will be financed by equity from Qingyang Municipal Government (QMG) and Xifeng District Government (XDG); each will provide 50% of counterpart funds. To assess the fiscal impact on QMG and XDG during the implementation of the project, revenues of QMG and XDG were projected and compared with their financial contribution to the project. QMG’s highest contribution to the project will be 1.6% of its revenue in 2014, while XDG’s highest contribution to the project will be 2.2% of revenue in 2014. 28. Financial Analysis at Entity Level. Qingyang Municipal Water Supply and Sewage Company (QWSSC), a legally autonomous agency wholly owned by the Xifeng District Government, is the implementation agency of the wastewater treatment sub-component. QWSSC’s financial statements show that it ran a deficit over the last 5 years. In order to ensure the financial sustainability of QWSSC and the wastewater investments under the project, the following financial covenants have been included in the Project Agreement: QWSSC shall not later than December 31, 2013, submit a financial performance improvement plan of QWSSC satisfactory to Gansu, Qingyang Municipality, Xifeng District and the Bank; and QWSSC should except as the Bank shall otherwise agree, ensure that, commencing with the calendar year starting January 1, 2015, the sum of QWSSC's operating revenues and non-operating revenues will be no less than equal to the sum of its operating costs, including depreciation and taxes; debt 9 service requirements; and funds required for other necessary operating investments, calculated in a manner satisfactory to Gansu, Qingyang Muncipality, Xifeng District and the Bank. 29. Financial Analysis at Project Level. At full cost recovery, the FIRR of the wastewater sub-component is estimated to be 7.41%, which is higher than the weighted average cost of capital (WACC) of 2.40%. B. Technical 30. The project design builds on the experience of similar Bank projects in China, as well as on international good practice. Chinese design institutes have prepared detailed feasibility study reports (FSR) for the investment components, which are technically sound. 31. Urban Bypass Road Construction Sub-Component. Technical standards adopted for this sub-component follow national design and construction standards. Materials and techniques applied in the project roads are widely used in the local context, including in the sections of the two bypass roads that have already been constructed 32. Integrated Road Corridor Improvement Sub-Component. This sub-component introduces an innovative concept to the city: addressing traffic issues from a car-centered approach dominated by road engineering, to an integrated approach with an emphasis on moving people, meeting the needs of different road users, road safety, and traffic management measures. It is based on a comprehensive urban transport study, the participation of public transport operators, the traffic police, and other related stakeholders, and provides an appropriate set of integrated technical proposals. It will also rehabilitate selected backstreets and small lanes in the densely populated city core, and will thus improve the traffic environment and safety for pedestrians and cyclists. This will improve connectivity and accessibility to public transit and to the integrated corridors for pedestrians and cyclists, and divert slow traffic away from the city’s major road corridors. 33. Wastewater Treatment Plant (WWTP) Sub-Component. This sub-component introduces a comprehensive approach to wastewater management, focusing on the planning, budgeting and construction of a wastewater network and facilities. Based on an intensive review of the city’s plan, a plant with sizable treatment capacity, supported by pumping stations in each urban pocket, was chosen taking into account capital investment, O&M costs, service quality and long-term environmental benefits for the city. The new WWTP will be able to treat wastewater not only from the existing urban area, but also sewage from a planned new large-scale rural settlement in Xifeng’s rural area. This sub-component also includes additional collection pipes and facilities to enable full operation of the city’s existing underutilized WWTP. Technical designs for rehabilitation of the existing drainage/wastewater pipe network, in particular for connecting the fragmented drainage/wastewater mains into an integrated and efficient network, are acceptable to the Bank. 34. Effluent from the proposed new WWTP will be discharged to dry gullies. As the project cycle is too short to develop user markets for water reuse, the project includes technical Assistance (TA) to explore the potential for water reuse. 10 C. Financial Management 35. The Bank loan proceeds, including the Designated Account (DA), will be managed by Gansu Provincial Finance Bureau (GSFB). A financial management capacity assessment conducted by the Bank identified the principal risk to be the lack of any experience with Bank- financed projects on the part of the PMO and its financial staff. To address this risk, a detailed project Financial Management Manual (FMM) will be prepared and issued, and FM/Disbursement training will be provided to financial staff. 36. The FM assessment concluded that with the implementation of these actions, the financial management arrangements will satisfy the Bank’s minimum requirements under OP/BP 10.02. Annex 3 provides additional information on financial management. D. Procurement 37. Qingyang PMO, which will have overall responsibility for project implementation including procurement, is a newly established PMO, with staff hired from the respective government agencies responsible for the project components; more staff will be hired from the local market. Various government agencies have been designated as the Project Implementing Unit (PIU) for each project component. Institutionally and individually, Bank procurement policies and requirements are new to them. 38. A Procurement Capacity Assessment (PCA) was carried out during appraisal. The principal procurement risks are the lack of experience in Bank-financed project and procurement requirements. The PMO and the PIUs have already attended and will continue to attend more Bank procurement related training. In addition, a Procurement Management Manual (PMM) governing project procurement cycle management has been developed and a procurement agent with Bank project experience has been selected. 39. The PMO and the PIUs will implement the agreed measures to mitigate the identified procurement risks (see Annex 3 and Annex 4 for details). A procurement plan covering the initial 18 months of project implementation has been prepared in accordance with Bank procurement policy; a summary of the plan is provided in Annex 3. E. Social (including Safeguards) 40. The project will improve the quality of life of the local residents. Social impact analysis conducted during project preparation identified the potential negative impacts caused by the project, in particular the need for land acquisition and resettlement. 41. Resettlement and Land Acquisition. The project will need permanent land acquisition of 740 mu (49 hectares) in eight villages, with 862 people affected (201 families). Structure demolitions will affect 529 people (143 families). Some temporary land use will be required during project implementation by contractors, and related mitigation measures will be taken by them. The municipal resettlement office will supervise land acquisition and resettlement activities. 11 42. Information Dissemination. The Resettlement Action Plan (RAP) was advertised in the main local newspapers and posted on the Qingyang government website. Relevant project information has been provided to the affected villages through newspaper reports, posters and public meetings. A resettlement information booklet, with detailed descriptions of the key issues (e.g., compensation rates, social security policies and other entitlement policies, and grievance procedures) will be distributed to the affected people prior to their resettlement. 43. Participation Strategy. Focus group discussions and key informant interviews were held to consult with the affected persons and to obtain their views and preferences on resettlement impacts and mitigation measures, land compensation, and social security programs. These views and preferences have been taken into the account during RAP preparation. The majority of the affected persons agreed that the resettlement and rehabilitation measures proposed in the RAP are adequate to address and mitigate adverse impacts. 44. Linked Projects. Construction of a section of the West Ring Road and a middle section on the East Ring Road, financed by the local government, and two earth borrow pits have been identified as linked projects. Resettlement for these linked projects was implemented in 2009. Local resettlement policies implemented for these linked projects are consistent with Bank requirements and the compensation paid to the displaced families is acceptable to the Bank. F. Environment (including Safeguards) 45. This is a Category B project. It brings positive environmental benefits and contributes to the improvement of urban roads and urban environmental services in Xifeng District. The principal negative impacts include construction-related impacts as well as impacts during operation (e.g., soil erosion, sludge disposal, and noise from the WWTP and improved roads). Applicable environmental safeguard policies include: Environmental Assessment (OP4.01) and Physical Cultural Resources (OP4.11). 46. Environmental Assessment (OP4.01). An Environmental Assessment was carried out in accordance with Bank Operational Policy OP4.01. The assessment includes an analysis of the potential positive and negative project impacts, alternative analysis, mitigation measures, and an environmental monitoring plan. It documents the public consultation carried out during the preparation of the project. The assessment concluded that the project is overall positive. The identified negative impacts are not significant and are site-specific, and for which mitigation measures can be designed readily. An EMP has been developed specifying mitigation measures, monitoring plans, institutional arrangements, capacity building, and the estimated budget for EMP implementation. Environmental Codes of Practice (ECOPs) have been developed to address general construction-related impacts (refer to Annex 3). 47. Physical Cultural Resources (OP4.11). Road construction will cause the relocation of 35 household graves and the demolition of a farmer house (400m2) which is used as a church. New sites have been selected for the graves, and auspicious dates for their relocation will be agreed in advance. In addition, the church will be rebuilt in a site approximately two kilometers away from the existing one. An auxiliary building will be installed first as a temporary place to maintain the religious activities during the construction of the new church. Public consultation 12 has been conducted with the affected people and concerned parties, and concerns about the proposed measures have been incorporated in the EMP. 48. Public Consultation and Disclosure. In accordance with Bank Safeguard policies and Chinese regulations, public consultations were conducted from June to October 2011, including public consultation meetings and questionnaire survey, with project affected persons and other stakeholders. Their opinions and concerns have been taken into account in the EA process and project design. The EA and the EMPs were disclosed locally in November 2011 through announcements on the local website. The EA documents were sent to the Bank InfoShop for disclosure on December 7, 2011. 13 Annex 1: Results Framework and Monitoring CHINA Gansu Qingyang Urban Infrastructure Improvement Project RESULTS FRAMEWORK Project Development Objective (PDO): is to assist Qingyang Municipality to improve selected urban infrastructure services including urban roads and urban environmental services. Cumulative Target Values** Data Core Source/ Responsible. for Data PDO Level Results Indicators* Unit of Measurement Baseline Frequency YR 1 YR 2 YR3 YR 4 YR5 Method Collection ology Indicator 1: Journey time saved minutes 26.2 24.3 21.7 18.2 18.2 Reported XF District Housing and ■ 28.4 Annually Surveys Construction Bureau for through traffic (freight) (% change) (-8%) (-14%) (-24%) (-36%) (-36%) Indicator 2: Share of through 9.1 9.1 15 20 22 number of trucks 24 East:9.1 (0%) (0%) (65%) (120%) (142%) Reported XF District Housing and traffic (freight) on two corridors ■ Annually Surveys Construction Bureau hrs, (%) West: 66.2 66.2 66.2 68 70 72 increased (0%) (0%) (3%) (6%) (9%) Indicator 3: Service speed of 10.1 9.7 9.5 15.5 15.5 Reported buses during rush hour on Nan Bei ■ km/h (% change) 10.3 Annually Surveys PMO and Bus Company (-2%) (-6%) (-8%) (50%) (50%) Street corridor) Indicator 4: % of built-up area % (km2 of serviced Reported Municipal Water Supply and serviced by storm water/wastewater ■ 50.6 50.6 55.6 61 73.5 92 Annually Surveys Sewage Company area) networks increased BOD: 0 0 0 0 365 1168 Indicator 5: Wastewater pollution Reported Municipal Water Supply and ■ ton/year COD: 0 0 0 0 802 2569 Annually Surveys Sewage Company reduction (BOD, COD, SS) SS: 0 0 0 0 693 2219 INTERMEDIATE RESULTS Intermediate Results Component One, Sub-component 1: Urban Bypass Road Construction % of Road Construction Reported Field □ % 0 0 0 100 100 100 every quarter Visits Xifeng District Trans. Bureau Completed, by km 14 Average annual number of fatalities and severely injured in number of fatalities Reported Police project corridors over a three-year □ and severely injured 14 14 14 14 9 9 Annually Reports Traffic Police period (relative to base year- (persons) period) Intermediate Results Component One, Sub-component 2: Integrated Road Corridor Improvement Passenger ridership of buses during number of 5,845 6,100 6,400 6,700 11,000 12,000 Reported rush hour on Nan Bei Street □ passengers for Annually Surveys PMO and Bus Company (0) (4%) (9%) (15%) (88%) (105%) corridor increased 12hrs, (% change) Reported Field XF District Housing and Bus stops reconstructed/upgraded □ Number of bus stops 0 0 11 11 33 33 every quarter Visits Construction Bureau Number of unsignalized zebras Reported Field XF District Housing and converted to signalized mid-block □ Number of crossings 15 15 60 60 103 103 every quarter Visits Construction Bureau crossings on the three corridors Number of intersections with Number of Reported Field XF District Housing and □ 12 12 21 21 27 27 every quarter Visits Construction Bureau traffic channelized intersections User satisfaction surveys (feedback of public transport users, including % expressing Reported disabled and vulnerable groups, □ positive opinion on 27 27 27 27 60 65 Annually Surveys PMO and Bus Company through bus user surveys on Nan the services Bei Street corridor) Intermediate Results Component One, Sub-component 3: Drainage and Sewage Pipes % of New Drainage/Sewage Pipe Reported Field XF District Housing and □ Cumulative % 0 5 20 35 65 100 every quarter Visits Construction Bureau Construction Completed, by km % of Drainage/Sewage Pipe Reported Field XF District Housing and □ Cumulative % 0 10 30 50 75 100 every quarter Visits Construction Bureau Reconstruction Completed, by km Intermediate Results Component One, Sub-component 4: Wastewater Treatment Plant % of Wastewater Treatment Plant Reported Municipal Water Supply □ Cumulative % 0 15 40 60 80 100 every quarter Field Visits and Sewage Company Investment Completed, by US$ % of associated pipes construction Reported Municipal Water Supply □ Cumulative % 0 5 20 35 65 100 every quarter Field Visits and Sewage Company completed, by km Intermediate Results Component Two: Institutional Strengthening and Capacity Building Cumulative Number Reported Study Completed □ 0 0 1 2 3 5 every quarter Surveys PMO of studies Cumulative Number Reported Staff Trained □ 0 15 35 75 95 110 every quarter Surveys PMO of staff 15 Annex 2: Detailed Project Description A. Project Context 1. Measured by per capita GDP, Gansu Province ranked almost at the bottom among the 31 provinces in mainland China. Constrained by a long narrow corridor shaped territory, Gansu relies heavily on a few regional central cities along the corridor, including Qingyang, to drive its economic development. Recently, Gansu Provincial Government further upgraded the development profile of Qingyang in its provincial territory development strategy, and defined the city as a provincial industrial base for energy supply and petrochemicals. 2. Qingyang Municipality is located in the eastern most part of Gansu Province on the Loess Plateau and has a population of 2.64 million. The per capita GDP in 2009 was RMB11,973 compared with the national average of RMB26,180. Qingyang is considered under-developed in China, even in Gansu Province where the provincial average is RMB12,852. Qingyang’s development has been held back by: (a) its relative isolated location and limited access to strategic markets in the region; (b) the monopoly of two key industries, petroleum exploitation and coal mining, by the state-owned enterprises; (c) the low level of urbanization (compared to the national average of 45.7% in 2008, Gansu Province was 32.1% and Qingyang was 24.5%); and (d) severe shortage of water resources (Qingyang’s per capita water resources are only 13.7% of the national average, and 26.3% of Gansu’s provincial average). With its abundant deposits of oil and coal resources, Qingyang is positioned by the central government as an emerging energy base of national significance, and is targeted by the central government’s initiatives of supporting and revitalizing the economies in the country’s western lagging areas. 3. Qingyang Municipality consists of one urban district and seven rural counties. The proposed Qingyang project would be focused on the municipality’s capital of Xifeng District. Xifeng District was upgraded from a small town to an urban district to be the political and economic center for Qingyang Municipality in 1985. It had a population of 200,000 in 2011 and a small stock of urban infrastructure. 4. QMG’s efforts to improve the city’s livability and profile in order to attract and retain external investments have been constrained by the shortage of essential urban infrastructure services in Xifeng District. Public capital investments in Xifeng over the last few years have been concentrated mainly on constructing roads and widening the major streets in the existing urban area. Pressing needs for improving environmental infrastructure in the existing urban area have not been addressed. For example, the lack of adequate drainage meant that parts of Xifeng have been flooded repeatedly over the last decade. 5. The following infrastructure improvement and investment needs have been identified as priorities in Xifeng District’s existing urban area, based on its urban master plan and needs assessments: (a) Improvement of the road network and transport management. (b) Environmental infrastructure improvement, particularly storm drainage, sewage collection and treatment. 16 (c) Capacity building and institutional strengthening to sustainably manage existing urban infrastructure assets, as well as those to be created under the project. B. Project Components Component 1: Urban Infrastructure Improvement Sub-component 1: Urban Bypass Road Construction (Total Base Cost: US$82.26 million) 6. This sub-component will support construction of some key segments of two bypass roads in Xifeng District, including: (a) construction of bypass roads of the southern section of Xifeng’s West Ring Road and the northern section of Xifeng’s East Ring Road (4.504 km) with installation of associated pipes; and (b) construction of three connection roads to the two bypass corridors of West Ring Road and East Ring Road (2.242 km) with installation of associated pipes. 7. The two bypass corridors for freight traffic (West Ring Road and East Ring Road) have been planned to divert through traffic (especially oil tankers), improve the city’s mobility, address the worsening traffic congestion in the central area, and improve road access to the two industrial areas located in the southern and northern parts of Xifeng. Sections of these two bypass roads have already been constructed or are under construction, except for the missing sections to be constructed under the proposed project. Construction of three associated connection roads will improve connectivity between the two bypass corridors and the city’s existing road network. Component 1: Urban Infrastructure Improvement Sub-component 2: Integrated Road Corridor Improvement (Total Base Cost: US$11.53 million) 8. This sub-component will help improve traffic management, public transport services, pedestrian and cyclist facilities, and road safety on three corridors in Xifeng’s existing urban area, including: (a) improvement of three selected main road corridors (Nan Bei Street, Anding Dong Xi Road, West Ring Road), including road pavement, traffic channelization, and lighting and greening, along with drainage and sewage system improvements; (b) rehabilitation of three selected backstreets and small lanes for slow traffic; and (c) carrying out the Parking Action Plan, the Public Transport Action Plan, and the Traffic Safety, Education and Enforcement Action Plan. 9. Rehabilitation of selected backstreets and small lanes in Xifeng’s densely populated city core has the key objectives of : (a) improving the traffic environment and safety for pedestrians and cyclists; (b) improving the connectivity and accessibility to public transit and integrated corridors for pedestrians and cyclists, diverting slow traffic modes on city’s major road corridors, and improving the traffic capacity and traffic efficiency of the road network in the city’s central area; (c) scaling up the number of local residents (in particular the poor) who will benefit from the proposed urban infrastructure improvements, with the focus not just on motor vehicles; and (d) helping to build the missing last-kilometer pipe connections between households and the storm water/wastewater network along major roads. 17 10. Transport Action Plans will be prepared and furnished to Bank for review within 12 months from the Loan Effectiveness Date, and thereafter carried out, taking into account any comments made by the Bank. Sub-component 3: Drainage and Sewage Pipes (Total Base Cost: US$37.28 million) 11. This sub-component focuses on expanding the service catchment of the existing drainage and sewage networks by constructing trunk lines, connecting isolated networks, and filling in the gaps in the collection pipe network. It will finance: (a) construction of drainage and sewer mains for a section each of the West Ring Road, the Anding East Road and the Anding West Road (4.702 km of pipes); (b) rehabilitation of 22.91 km of sewage collection pipes in the built-up area and associated improvements of road pavement, street lighting and greening along these roads. Component 1: Urban Infrastructure Improvement Sub-component 4: Wastewater Treatment Plant (Total Base Cost: US$32.31 million) 12. This -subcomponent will finance the construction of a new wastewater treatment plant and associated pumping stations and sewer mains in Xifeng District, including: (a) a new wastewater and treatment plant in eastern Xifeng (capacity of 20,000m3/day); (b) a wastewater pumping station in northern Xifeng; and (c) wastewater trunk mains and collectors associated with (a) and (b). Component 2: Institutional Strengthening and Capacity Building (Total Cost: US$3.30 million) 13. This component includes provision of technical assistance for: (a) carrying out a water resource study covering, among others, water reuse, sub-basin water environment improvements and industrial wastewater discharge licenses in Xifeng District that support the on-going wastewater investments; (b) improvement of the operation and maintenance capabilities of QWSSC, and the Public Utility and Transportation Bureaus; (c) capacity building and training for QMG and Xifeng District agencies; and (d) strengthening of QWSSC’s GIS-based system for the management of its drainage and wastewater pipe network, and (e) strengthening the Qingyang Municipality’s capacity for project management and construction supervision of the Project. 18 Annex 3: Implementation Arrangements A. Summary of Institutional Responsibilities Entity Project Responsibilities  Oversee the progress of each component PMO (established within Xifeng District  Implement Capacity Building Component Government)  Conduct overall monitoring & evaluation.  Lead the implementation of two sub-components: Xifeng District Housing and Construction Bureau Drainage and Sewage Pipes; and Integrated Road Corridor Improvement.  Implement Wastewater Treatment Plant sub- component. Qingyang Municipal Water Supply and Sewage  Maintain and operate drainage/sewage facilities Company (including pipes and WWTP) constructed under this project.  Implement Urban Bypass Road Construction sub- component. Xifeng District Transportation Bureau  Maintain and operate the road assets and facilities established under this project. B. Project administration mechanisms 1. Qingyang Municipal Government (QMG) will implement the Project. A Project Leading Group (PLG) was established by QMG in March 2010 to provide overall leadership, policy guidance, and institutional coordination for project preparation and implementation. The PLG is headed by the Executive Vice Mayor of QMG and is comprised of senior officials from relevant agencies of Qingyang Municipality and Xinfeng District. 2. QMG established a Project Management Office (PMO) for the proposed project in Qingyang in March 2010. Stationed in the Xifeng District Government, the PMO is responsible for daily management, supervision and coordination of project preparation and implementation. The PMO will be the primary coordinating body responsible for communicating with the World Bank, ensuring that implementation is consistent with all relevant World Bank policies and procedures, and ensuring continuity and good coordination between the different implementing entities. 3. Project Implementation Unit each in QWSSC and Xifeng District Housing and Construction Bureau and Xifeng District Transportation Bureau shall be responsible for implementing their respective components, including leading the engineering design, procurement, signing and managing the contracts and authorizing disbursement for each subcomponents accordingly. (a) The Xifeng District Housing and Construction Bureau, a project development agency and sectoral administrator for urban construction under the Xifeng District Government, has been designated as the PIU for the sub-components of Drainage and Sewage Pipes and Integrated Road Corridor Improvement. 19 (b ) The Qingyang Municipal Water Supply and Sewage Company (QWSSC), wholly owned by the city, is the designated implementing agency and operating agency for the wastewater sub-component. (iii) The Xifeng District Transportation Bureau, a construction and operation agency of urban roads and highways under Xifeng District Government, has been designated as the implementing agency and operation agency for the Urban Bypass Road Construction sub-component. (iv) The Project Management Office (PMO) will be the implementing agency for the Institutional Strengthening and Capacity Building sub-component. C. Financial Management, Disbursements and Procurement Financial Management 4. The FM assessment rated the residual financial management risk after mitigation as Moderate. 5. Financial staff in the PMO does not have any experience with Bank-financed projects. To address this, a detailed project Financial Management Manual (FMM) will be prepared and issued and FM/Disbursement training will be provided to financial staff. 6. Funding sources for the project include the Bank loan and counterpart funds. The Bank loan will be signed between the Bank and the People’s Republic of China (PRC) through MOF. On-lending arrangements for the Bank loan will be signed between PRC, through MOF, and Gansu Provincial Government (through GSFB); and between GSFB and Qingyang Municipal Government, through Qingyang Municipal Finance Bureau (QYFB); and finally between QYFB and Xifeng District Government, through Xifeng District Finance Bureau (XFFB). Loan repayment will be borne by QYFB and XFFB. Counterpart funds will be from the municipal and the district government budgets. Bank loan proceeds will flow from the Bank into a project designated account (DA) to be set up at and managed by GSFB, and disbursed to PMO via QYFB and XFFB based on withdrawal applications. 7. Budgeting. The annual project implementation plan, including the funding budget and resources, will be prepared by the PMO. Budget for counterpart funds committed by the local government will be reviewed and approved by the local People’s Congress and will be included in their sectoral budget. Based on the approved budget and implementation progress, the related finance bureau will provide government appropriations to the project. Budget variance analysis will be conducted on a semi-annual basis by the PMO and necessary actions will be taken to implement the project as planned. The Bank will work with the PMO in supervising the project budgeting system to enhance the PMO’s budget preparation and execution for the project. 8. Funds Flow. The Bank loan proceeds will flow from the Bank into the project DA. GSFB will be directly responsible for the management, maintenance and reconciliation of the DA activities. Supporting documents required for Bank disbursements will be prepared and 20 submitted by the PMO through QYFB and XFFB for review and verification before sending to GSFB for further disbursement processing. 9. Accounting and Reporting. The administration, accounting and reporting of the project will be set up in accordance with Circular #13: “Accounting Regulations for World Bank- financed Projects� issued in January 2000 by MOF. The standard set of project financial statements has been agreed between the Bank and MOF, and includes the following: balance sheet of the project; statement of sources and uses of fund by project components; statement of implementation of loan agreement; statement of designated account; and Notes to the financial statements (required only for annual financial statements). 10. The PMO and each PIU will manage, monitor and maintain project accounting records for the activities they execute. Original supporting documents will be retained by the PMO and each PIU. The PMO will work together with GSFB to prepare the project consolidated financial statements. The unaudited semi-annual project interim financial reports (IFRs) will be prepared and furnished to the Bank by the PMO no later than 75 days following each semester (the due dates will be March 15 and September 15). 11. Internal Control. The related accounting policy, procedures and regulations were issued by MOF to uniformly align the financial management and disbursement requirements for all Bank financed projects. The project FMM will align project financial management policies and procedures among PIUs. 12. Auditing. Gansu Provincial Audit Office (GSAO) has been identified as the auditor for the project. The annual audit report will be issued by GSAO. The annual audit report of project financial statements will be due to the Bank within six months after the end of each calendar year. Disbursements 13. Four disbursement methods are available for the project: advance, reimbursement, direct payment and special commitment. Supporting documents required for Bank disbursement under different disbursement methods are documented in the Disbursement Letter. 14. One DA in US dollar will be opened at a commercial bank acceptable to the Bank and will be managed by GSFB. The ceiling of the DA is documented in the Disbursement Letter. 15. The Bank loan would be disbursed against eligible expenditures (taxes inclusive) as in the following table: 21 IBRD Loan Percentage of Allocated Expenditures Category Amount to be financed 1) Works and non-consultant services for Parts I.1, I.2.(a) and(b) and I.3.(a) 75,130,000 80% and(b) of the Project 2) Works and non-consultant services for 21,120,000 80% Part I.4 of the Project 3) Goods, Consultants’ Services, non- consultant’s Services and Training for 3,500,000 100% Parts 1.2(c), and II of the project Front-end Fee 250,000 Total 100,000,000 16. Retroactive financing, up to a ceiling of $20 million, may be utilized for project expenditures incurred on or after May 1, 2012. 17. For Part I. 4 of the Project (Wastewater Treatment Plant), the following disbursement conditions are applied;  The QWSSC Agreement has been executed and delivered on behalf of Xifeng District and QWSSC and is legally binding upon the parties thereto in accordance with its terms.  A legal opinion satisfactory to the Bank from counsel acceptable to the Bank has been received by the Bank confirming that the QWSSC Agreement has been duly authorized or ratified by Xifeng District and QWSSC, and is legally binding on such parties in accordance with its terms. D. Procurement 18. Following the procurement capacity assessment, the overall procurement risk for the project is assessed as substantial. The principal risks are: (a) low capacity of PMO and PIU procurement staff; (b) lack of a Procurement Management Manual to guide procurement cycle management; and (c) differences in procurement policy and procedures between Bank requirements and local government requirements. 19. The following measures will be taken to mitigate these risks:  Capacity strengthening of the PMO and PIUs’ Procurement Staff. A procurement agent with qualifications and experience satisfactory to the Bank will be hired to assist the PMO with project procurement. The PMO will ensure that qualified and experienced key staff is assigned by the selected Procurement Agent. Depending on need, the Procurement Agent will also update knowledge on Bank procurement policies and procedures, and consult the Bank in advance. 22  PMO staff will attend annual procurement training organized by the Bank. In addition, the Bank procurement specialist will provide project tailored procurement training based on progress and issues identified.  Staff from the respective PIUs will strengthen their contract management capacity by participating in relevant training provided by the Bank and other training agencies.  A Procurement Management Manual (PMM), acceptable to the Bank, will guide procurement cycle management during the project.  Differences between Bank procurement requirements and the requirements of local regulations have been addressed in the legal agreement and in the PMM. 20. Procurement under the project will be carried out in accordance with: the World Bank “Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers� dated January 2011; “Guidelines: Selection and Employment of Consultants by World Bank Borrowers� dated January 2011; and the provisions stipulated in the Legal Agreement. NCB shall be carried out in accordance with the Law on Tendering and Bidding of the People’s Republic of China promulgated by the order of the President of the People’s Republic of China on August 30, 1999 subject to the modifications stipulated in the Legal Agreement in order to ensure broad consistency with Bank Procurement Guidelines. 21. Prior Review Thresholds and Procurement Methods. Prior review and procurement method thresholds for the project are indicated in Table 2. Table 2: Thresholds for Procurement Methods and Prior Review Contract Value Prior Review Threshold Expenditure Category Threshold Procurement Method (US$ thousands) 1/ (US$ thousands) 1. Goods and Non- ≥1,000 ICB All Consulting Services <1,000 NCB ≥300 <100 Shopping 1st Contract, irrespective of value None Direct Contracting All 2. Works and Supply and ≥20,000 ICB ALL Installation of Plant and <20,000 NCB ≥5,000 Equipment <200 Shopping 1st Contract, irrespective of value None Direct Contracting All 3. Consultants Services ≥300 QCBS/QBS All <300 CQS ≥100 Para.3.6 of Consultant LCS All Guidelines Section V of Consultant Individual Consultant ≥50 and 1st contract, Guidelines irrespective of value Para.3.8 of Consultant Single Source Selection All Guidelines (firm) 23 Section V of Consultant Sole-Source Selection All Guidelines (individual) 1/ All contracts to be financed through retroactive financing, irrespective of value, will be subject to prior review. A contract whose cost estimate was below the Bank’s prior review threshold is subject to prior review if the price of the lowest evaluated responsive bid (or, in the case of consulting services, the financial offer of the selected firm) exceeds such threshold at the bid evaluation stage; 22. In addition to prior review, Bank missions will carry out procurement post reviews on an annual basis, with a sampling rate of one in ten contracts. 23. Procurement Plan. The PMO has developed a procurement plan for the initial 18-month period of project implementation, which has been agreed with the Bank; it includes contracts to be procured under retro-active financing. The various items under different expenditure categories are summarized in Table 3. The procurement plan will be updated annually or as required to reflect project implementation needs. The procurement plan and its updates will be published on the Bank’s external website in accordance with the Guidelines. Table 3-Summary of Procurement Plan 1 2 3 4 5 6 7 Ref. Description Estimated No of Domestic Review* Comments No. Cost Packages Preference by Bank (Prior Review US$ (million) (yes/no) (Prior / Post) Contracts) Summary of NCB (Works) 1 125.50 12 N/A Prior /Post ≥US$5m packages Fist contract Summary of Shopping 2 0.15 2 N/A Prior/Post through (Goods) contracts Shopping Summary of number of 3 contract ≥US$0.2m , to be let 3.50 5 N/A Prior All under QCBS/QBS E. Environmental and Social (including safeguards) Environmental Safeguards 24. This Category B project will bring positive environmental benefits and will contribute to the improvement of urban roads and urban environmental services in Xifeng District. Applicable environmental safeguard policies for the project include: Environmental Assessment (OP4.01) and Physical Cultural Resources (OP4.11). 25. Environmental Assessment (OP4.01). Environmental Assessments (EAs) were conducted by Lanzhou University in accordance with China’s legal and EA policy frameworks as well as applicable Bank safeguard policies. The assessment concluded that the project will have an overall positive environmental impact. The EIA identified some negative impacts, which along with the corresponding mitigation measures are summarized below. 26. Soil Erosion. The EA includes an analysis of water and soil conservation in the project area. The EMP specifies soil conservation measures for the construction activities. To minimize the impacts of Chengdong WWTP effluent discharged to a nearby gully, mitigation measures 24 include: (a) proper selection of discharge points; and (b) control of effluent flow velocity along the gully to avoid or minimize soil erosion. 27. Sludge Disposal. 19.5 tons/day of dewatered sludge (60% moisture content) will be generated from the new Chengdong WWTP. Sludge cake will be sent for disposal to a nearby sanitary landfill, which is equipped with lining and leachate collection and treatment facility. The EA confirms that the sludge cakes can be disposed at the landfill in an environmentally sound manner. Traffic impacts associated with the transport of dried sludge for off-site landfill disposal will be minimized by restrictions on the times of day allowed for sludge transport. 28. Other Operational Impacts. Noise and odor from the operation of the wastewater treatment plant and pumping stations will be minimized by proper siting and by the provision of buffer zones and landscaping. The odor impact will be minimized by a bio-filter system which is an integral part of the WWTP. 29. Traffic on the improved roads will increase the noise level to some extent. The sensitive receptors have been identified. The noise impact will be reduced to the acceptable level by the provision of acoustic barriers and noise insulation facilities. 30. Construction-related Impacts. General construction-related impacts will be site- specific and reversible in nature, for which mitigation measures can be designed readily. Environmental Codes of Practices (ECOPs) have been prepared to address these general impacts (e.g., dust, spoil disposal, noise, wastewater, disturbance to local communities) and will be included in bidding documents and civil works contracts. 31. Environmental Risks. Risk assessment, as part of the EA, has been conducted on the potential for accidents during transportation of chemicals on project roads, and chlorine leakages at the Chengdong WWTP. Preventive measures and emergency measures have been included in the EMP to prevent/minimize these risks. 32. Physical Cultural Resources (OP4.11). Road construction will cause the relocation of 35 household graves and the demolition of a farmer house (400m2) which is used as a church. New sites for these household graves have been selected and auspicious dates for the relocation will be agreed in advance with the project affected people. The church will be rebuilt on a 7 mu site (equivalent to 4,669m2) approximately two kilometers away from the current site. The new site offers better access to the city road networks. An auxiliary building will be installed first as a temporary place to maintain religious activities during the construction of the new church. Public consultation with affected people (e.g., priest, farmers) and concerned parties (e.g., local Religious Affair Bureau) has been conducted, and concerns about the proposed measures have been incorporated into the EMP. 33. Alternative Analysis. Technical alternatives were considered for the investment components during the feasibility study and the EA to minimize environmental impacts. The EA and the feasibility study analyzed alternatives for WWTP configuration (two small WWTPs vs. one large WWTP), WWTP sites, wastewater treatment technology, sludge treatment technology, and road construction. The EA also includes the “without project� situation. 25 34. Environment Management Plan (EMP). An EMP has been developed for the project as a stand-alone document. The EMP includes mitigation measures, monitoring plans, institutional arrangements, capacity building, and estimated budget of the mitigation measures and monitoring programs for both the construction and operation phases. The EMP specifies site- specific mitigation measures, both for construction and engineering design; and remedial measures in case of non-compliance by the contractors. Mitigation measures for the construction phase will be entered into bidding documents and supervised by relevant institutions. 35. Public Consultations and Information Disclosure. In accordance with Bank Safeguard policies and Chinese regulations, public consultations were conducted from June to October 2011, including public consultation meetings and questionnaire survey with project affected persons and other stakeholders. Their opinions and concerns have been taken into account in the EA process and project design. The EA and the EMPs were locally disclosed in November 2011 through announcements on the local website and the PMO. The EA safeguard documents were sent to the Bank InfoShop for disclosure on December 7, 2011. Social Safeguards 36. The project has significant social benefits as it supports the development of storm water and waste water collection, construction of WWTP and related pipe facilities, road construction and traffic management improvement. Social impact analysis during project preparation enabled the project to identify and address the potential negative impacts caused by land acquisition and structure demolition. Measures to mitigate these identified negative impacts have been taken in the project. In some cases displaced people consider the housing demolition as an opportunity to significantly improve their living conditions. 37. Resettlement and Land Acquisition. Eight villages in five townships in Xifeng’s peri- urban area will be affected by the project. The project needs permanent land acquisition of 740 mu (49 hectares), whose land use is as follows: cultivated land (363 mu, or 24 hectares); forest land (133 mu or 8.9 hectares); orchard land (110 mu or 7.3 hectares); housing lots (89 mu or 6 hectares); and unused land (45 mu, or 3 hectares). The dominant current landuse is for growing corn and wheat (50 percent of the land area). Some temporary land use will be required during project implementation by contractors, and related mitigation measures will be taken. The municipal resettlement office will supervise the activities. The project will affect 201 families (862 people) by land acquisition and 143 families (528 people) by structure demolition in peri- urban areas. 38. The RAPs prepared by the project entities provide detailed descriptions of the key aspects of the resettlement polices and regulations, compensation rates and budget, measures to restore incomes, as well as necessary institutional and monitoring arrangements. 39. Indigenous People. A socio-economic impact survey found no indigenous people community in the project area. OP 4.10 on Indigenous Peoples is therefore not triggered. 40. Information Dissemination. The survey identified all households and villages that will be affected by the project. The RAP was advertised in the main local newspapers and posted on the Qingyang government website. The RAP is available at the Qingyang Municipal Library free 26 of charge. Relevant project information has been provided to the affected villages through newspaper reports, posters and public meetings. A resettlement information booklet with detailed descriptions of the key issues (e.g., compensation rates, social security policies, other entitlement policies and grievance procedures) will be distributed to the displaced people prior to their resettlement. 41. Participation Strategy. Focus group discussions and key informant interviews were held to consult with project affected persons to obtain their views and preferences on resettlement impacts and mitigation measures, land compensation, and social security programs. These views and preferences have been taken into the account during RAP preparation. The majority of project affected persons agree that the resettlement and rehabilitation measures proposed in the RAP are adequate to address and mitigate the adverse impacts. The affected villages played a key role in determining and implementing the livelihood restoration programs. For example, after land compensation amounts are calculated, each village will determine how the land compensation funds can be best used to improve, or at least restore, income-earning potential in the villages. 42. The project entity will set up procedures to supervise the use of land compensation funds, and local banks will participate in resettlement monitoring. Both internal and independent monitoring of the resettlement program would be conducted regularly during project implementation. 43. Consultation with NGOs and Civil Society. Villages and farmer groups were consulted and participated in the process of resettlement planning and project preparation, and their feedback has been incorporated into the RAP. These consultations concluded that the resettlement and rehabilitation measures proposed in the RAP are adequate to address and mitigate the impacts of land acquisition and house demolition. 44. Institutional Arrangements. An experienced resettlement monitoring institute will be contracted to serve as the independent monitoring agency of the resettlement program. The project will be monitored and the living standards of the project-affected people will be evaluated during project implementation; the results will be reported twice a year and, if needed, remedial actions will be devised. 45. Linked Projects. Construction of a section of the West Ring Road and a middle section on the East Ring Road (both financed by the local government) and two earth borrow pits have been identified as linked projects to the proposed project. Resettlement work on these linked projects was completed in 2009. Bank due diligence reviews of the compensation paid to the affected persons indicated that these are acceptable to the Bank. 46. Resettlement Costs. The estimated cost of resettlement is about $25.51 million, accounting for 13.3% of project costs. Qingyang municipality and Xifeing District will finance resettlement costs and will compensate the affected entities and individuals. 27 F. Monitoring & Evaluation 47. Monitoring indictors to assess the achievement of the PDO were agreed at appraisal between the Bank, QMG, and the Government at Project Appraisal. The agreed set of PDO Level Result Indicators and Intermediate Outcome Indicators, details of indicator measurement, frequency, and responsible agencies of data collection and reporting for these Indicators are shown in Annex 1: Results Framework and Monitoring. Project agencies collected the baseline data and defined the annual targets for each of these indicators for the five year construction period. 48. Responsibility for progress monitoring rests with the PMO. The PMO will engage a construction supervision agency or agent to carry out supervision. While individual monitoring data will be collected by the implementing agency of each component/sub-component (Xifeng District Housing and Construction Bureau, Qingyang Municipal Water Supply and Sewage Company, Xifeng District Transportation Bureau), the PMO has the overall responsibility for coordinating collection of the data required for monitoring and evaluation, as well as the responsibility for ensuring timely progress reporting to the Bank, and for the accuracy of the reports. 28 Annex 4: Operational Risk Assessment Framework (ORAF) Project Stakeholder Risks Rating Moderate Description : Risk Management : The city government may sacrifice quality and the innovative Provision of information to the local government on good practices of comprehensive urban transport concepts in order to speed up construction. management and study tours to learn from other Chinese cities that have addressed the traffic issues in a cost-effective and sustainable way. Resp: Qingyang Stage: Preparation & Due Date :On-going Status: PMO/Bank Implementation Resp: Stage: Due Date : Status: Implementing Agency Risks (including fiduciary) Capacity Rating: Substantial Description : Risk Management : The City and the PMO have no experience in preparing and A project financial management manual will be circulated to all project financial staff to guide their daily implementing a Bank-financed project, especially on procurement work; financial management and procurement training will be provided to furnish them required and financial management requirements. knowledge in managing project funds and procurement activities. GSFB and QYFB, which have experience with Bank-financed operations and management of DA, will closely monitor the work of the PMO and the PIUs and provide guidance. A lower prior review threshold has been set and the Bank will prior review more contracts. The technical capacity of the city is weak. PIU and Local Bank will provide training/study tours to help city officials and PMO / PIUs to develop the necessary consultants do not have adequate experience preparing and technical knowledge/skills. This will include organizing activities for Qingyang to learn from the implementing the Bank financed comprehensive urban transport experience of other more advanced Chinese cities. projects. Counterpart funds will be confirmed in the local government’s annual budget before and during project Financial capacity to provide the required counterpart funds may implementation. be lacking. Stage: Preparation & Resp: WB and QMG Due Date :On-going Status: Implementation Governance Rating: Substantial Description Risk Management : The city may lack the same degree of ownership and commitment Continuous and strengthened communication with Qingyang municipal and Xifeng district government to the project exhibited to date when its leadership changes particularly when the leaderships change. overtime, in particular at the decision-making level of Municipal Regular and on-demand supervision with particular focus on ownership, commitment, accountability and District Government. and decision making. The city government may implement its own financed The Bank team will also keep regular contact with GMG on its own financed infrastructure projects 29 infrastructure projects which may have certain impacts on the which are closely linked with the investment under the project. investments under the project without proper consultation with the Bank. A municipal-level leading group will oversee overall project implementation, provide policy guidance The profile of the Xifeng District Government PMO may be not high and institutional coordination. enough for coordinating with related government agencies of Qingyang Municipal level. Resp: WB and Stage: Preparation & Due Date: On-going Status: QMG Implementation Project Risks Design Rating: Substantial Description : Risk Management : The city’s master plan and sectoral plans of road network, drainage Continuous discussion with the city government and related sector agencies led to agreement on and sewage infrastructure may be over-designed. reasonable projections of service demand, construction phasing, and scales of related infrastructures for various timeframes. Reputable Chinese Design Institutes and an international consulting firm with extensive experiences on Bank projects in China prepared the technical documents and will provide support for preparing preliminary technical designs. The integrated road improvement and traffic management The Bank will provide support during implementation through the inclusion of appropriate technical component is new to the city. experts in missions. Outreach has been made to the Traffic Police, a key agency for the operation of traffic management measures. Resp: QMG and PMO Stage: Implementation Due Date: On-going Status: Social & Environmental Rating: Moderate Description : Risk Management : Even though detailed arrangements for the implementation of the Project design includes internal and external monitoring of the implementation of safeguard EMP and the RAP are part of these documents , the agreed EMPs instruments. Bank missions will review the monitoring reports and initiate remedial actions, where and RMPs, may not be implemented properly. necessary. Resp: PMO and Bank Stage: Implementation Due Date: On-going Status: Program & Donor Rating: Low Description : Risk Management : This is a free standing project and no other donors are involved. Resp: Stage: Due Date: Status: Delivery Monitoring & Sustainability Rating: Moderate Description : Risk Management : Limited skills and experience in project management, in particular, Continuous training on procurement and financial management will be carried out. PMO and PIUs will in procurement and contract management. recruit experienced procurement agents to assist procurement during the initial implementation phase. Undeveloped ability to reliably measure outcomes. The Bank team will monitor the implementation of agreed mechanisms for measuring delivery quality. O&M of urban infrastructure are not adequately served in the city, Carrying out specific TAs for knowledge transfer and skill strengthening to operating agencies of key 30 particularly with the urban roads. Low capacity and efficiency of urban infrastructure facilities in the city. O&M services may affect the performance of infrastructure assets delivered by the project. Resp: PMO and Stage: Implementation Due Date: On-going. Status: Bank Overall Risk Rating: Substantial Comments: The key risks for the achievement of the PDO relate to design, governance, capacity of the PIUs. Risk management measures have been built into the project design and the Bank will monitor their implementation carefully during implementation support missions. 31 Annex 5: Implementation Support Plan Strategy and approach 1. The strategy for implementation support is based on the ORAF, where the risks to achieve the project development objective and the agreed mitigation measures have been identified. The implementation plan will be reviewed and updated based on the periodic assessments of risks and the appropriateness of the mitigation measures implemented. 2. Capacity. Weak implementation capacity of the PMO and related PIUs has been identified as the key risk to project implementation. Bank implementation support will focus on assisting the client in strengthening implementation capacity, particularly in financial management and procurement, immediately following project start-up. Frequent supervision early on during the first half of the implementation period is expected to assist with compliance with Bank FM and procurement policies and procedures. 3. Procurement. Implementation support will focus on ensuring that: (a) the procurement agent is performing effectively; (b) PMO and PIU staff are fully familiar with, and adheres to the Procurement Management Manual (PMM); and (c) planned procurement training is provided to all procurement staff in a timely manner. In addition, the Bank procurement specialist will carry out prior and post reviews of procurement transactions and monitor the implementation and updates of the procurement plan. 4. FM. The Bank will supervise the implementation of the identified and agreed actions for strengthening PIUs’ financial management and pay specific attention to the timely provision of the required counterpart funds. The FM specialist will ensure that counterpart funds committed by the Qingyang Municipal Government as well as Xifeng District Government will be included in their annual budgets. Standard provisions on interim financial reporting and external audit and their compliance will be monitored. 5. Design. Specific technical expertise on road engineering and traffic management, civil engineering and wastewater management, OMM, and financial aspects will be mobilized during regular semi-annual supervision missions. The challenges associated with the detailed design and implementation of traffic management measures under the integrated road corridor improvement component will be monitored by the Bank’s technical specialists during routine supervision. 6. Governance. Implementation support will focus on: (a) continuous and strengthened communication with the city and district government to maintain a high degree of client ownership and commitment to the project, particularly when the leadership changes; (b) regular and on-demand supervision with particular emphasis on ownership, commitment, accountability and decision making; (c) keeping regular contact with GMG on its own financed infrastructure projects which are closely linked with the investments under the project. 7. Other risks. The team’s environmental specialist will monitor compliance with environmental safeguards and adherence to the Environmental Monitoring Program, while the 32 social specialist will pay particular attention to the implementation of the RAP. They will make field visits on a semi-annual basis. The task team leader and most of the team members are based in Beijing and will provide timely and on-demand implementation support to the client when needed. 8. An overview of the focus and timing of Bank support is presented in Table 1 and the required skill mix in Table 2. Table 1: Supervision Inputs Time Focus Skills Needed First 12 months  Task and team leadership  TTL  Technical support/Detailed designs  Technical skills  FM and Procurement  Bank policies  Safeguards  Bank policies  M&E framework and baseline data  Technical skills 12-60 months  Task and team leadership  TTL  Technical support/Project quality/sustainability  Technical skills  FM and Procurement  Bank policies  Safeguards  Bank policies  M&E  Technical skills Table 2: Skill Mix Number of Number of Skills Needed Staff Remarks Trips Weeks  TTL/civil engineering 10 8 Bank staff  Urban Transport Planning & Traffic engineering 10 8 Bank staff / consultants  Urban Road Engineering 10 8 Bank staff / consultants  Wastewater Management 10 6 Bank staff / consultants  Storm Water Engineering 8 4 Bank staff / consultants  Bank Safeguard Policy 8 4 Country-office based  Bank FM Policy 4 2 Country-office based  Bank Procurement Policy 8 4 Country-office based 33 ANNEX 6: PROJECT LOCATON MAP IBRD 39185 34 94 96 98 100 102 104 106 108 110 MONGOLIA CHINA XINJIANG GANSU QINGYANG To Ürümqi URBAN INFRASTRUCTURE To EjinQi IMPROVEMENT PROJECT 42 40 106 108 110 This map was produced by the Map Design Unit of The World Bank. NEI MONGOL The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. To Wuhai Anxi e Shule H Yumenzhen Jinta Jiayuguan H Dunhuang Jiuquan e) ei uang H He 40 Gaotai 38 Linze . 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Jone NINGXIA MAIN ROADS (Hua Li Xian Sea ng Min Xian QINGHAI He Luqu Liangdang JIANGSU RAILROADS ) Xihe CHINA SHAANXI HENAN Tanchang Hui Xian ANHUI SHANGHAI East COUNTY (XIAN) CAPITALS Tewo Cheng Xian HUBEI G SICHUAN ZHEJIANG PREFECTURE CAPITALS IN XIZANG China NEPAL Zhou Qu Q NG Wudu O JIANGXI CH Sea PROVINCE CAPITAL Maqu To Hanzhong HUNAN FUJIAN 34 GUIZHOU COUNTY (XIAN) BOUNDARIES Kang National Capital TAIWAN Xian MARCH 2012 IBRD 39185 YUNNAN 34 PREFECTURE BOUNDARIES Province Boundaries GUANGXI GUANGDONG Philippine To Chengdu Wen Xian MYANMAR HONG KONG International Boundaries MACAO Sea PROVINCE BOUNDARIES Bay of LAO VIETNAM HAINAN INTERNATIONAL BOUNDARY SI C HU A N To Guangyuan B e n g a l THAI- P.D.R. PHILIPPINES 98 100 102 104 106 108 LAND