Document of The World Bank Report No: ICR00003951 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-80010) ON A LOAN IN THE AMOUNT OF US$100 MILLION TO THE PEOPLE’S REPUBLIC OF CHINA FOR A ZHEJIANG QIANTANG RIVER BASIN SMALL TOWN ENVIRONMENT PROJECT June 7, 2017 Social, Urban, Rural and Resilience Global Practice China and Mongolia Country Management Unit East Asia and Pacific Region CURRENCY EQUIVALENTS Currency Unit = Renminbi (RMB) US$ 1.00 = RMB 6.8 (Appraisal, December 12, 2010) US$ 1.00 = RMB 6.9 (Closing, December 31, 2016) FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS COD Chemical Oxygen Demand CPS Country Partnership Strategy CSI Core Sector Indicator DO Development Objective DRA Design Review Advisory DRC Development and Reform Commission EA Environmental Assessment EAP East Asia and Pacific EIRR Economic Internal Rate of Return EMP Environmental Management Plan FIRR Financial Internal Rate of Return FM Financial Management FYP Five-Year Plan GDP Gross Domestic Product IRBM Integrated River Basin Management ICR Implementation Completion Report IP Implementation Progress IOI Intermediate Outcome Indicator IST Institutional Strengthening and Training KPI Key Performance Indicator M&E Monitoring and Evaluation MTR Mid-Term Review NDRC National Development and Reform Commission NGO Non-governmental Organization O&M Operation and Maintenance PAP Project Affected People PCR Physical Cultural Resources PDO Project Development Objective PIU Project Implementation Unit PMO Project Management Office PPMO Provincial Project Management Office PPP Public-Private Partnership RAP Resettlement Action Plan RF Results Framework TA Technical Assistance TN Total Nitrogen TP Total Phosphorous WA Withdrawal Application WTP Water Treatment Plant WWTP Wastewater Treatment Plan ZPG Zhejiang Provincial Government Regional Vice President: Victoria Kwakwa Country Director: Bert Hofman Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager: Abhas K. Jha Project Team Leader: Guangming Yan ICR Team Leader: Guangming Yan ICR Principal Author: Zheng Jia PEOPLE'CHINA ZHEJIANG QIANTANG RIVER BASIN SMALL TOWN ENVIRONMENT PROJECT CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design ............................................... 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 5 3. Assessment of Outcomes ............................................ 12 4. Assessment of Risk to Development Outcome......................................................... 21 5. Assessment of Bank and Borrower Performance ..................................................... 23 6. Lessons Learned ....................................................................................................... 26 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 27 Annex 1. Project Costs and Financing .......................................................................... 28 Annex 2. Outputs by Component ................................................................................. 29 Annex 3. Economic and Financial Analysis ................................................................. 39 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 48 Annex 5. Beneficiary Survey Results ........................................................................... 50 Annex 6. Stakeholder Workshop Report and Results................................................... 51 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 52 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 62 Annex 9. Land Acquisition and Resettlement .............................................................. 63 Annex 10. Operation and Maintenance Arrangements of Built Assets ........................ 67 Annex 11. Photos of Project Achievements ................................................................. 68 Map Section .................................................................................................................. 75 A. Basic Information Zhejiang Qiantang River Basin Small Country: China Project Name: Town Environment Project Project ID: P116656 L/C/TF Number(s): IBRD-80010 ICR Date: 06/05/2017 ICR Type: Core ICR Lending Instrument: SIL Borrower: Original Total USD 100.00M Disbursed Amount: USD 85.69M Commitment: Revised Amount: USD 100.00M Environmental Category: A Implementing Agencies: Zhejiang Provincial Construction Commission Project Management Office Cofinanciers and Other External Partners: N/A B. Key Dates Revised / Process Date Process Original Date Actual Date(s) Concept 10/15/2009 Effectiveness: 05/06/2011 Review: Appraisal: 06/01/2010 Restructuring(s): 03/10/2015 Approval: 01/20/2011 Mid-term Review: 04/07/2014 04/14/2014 Closing: 12/31/2016 12/31/2016 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Highly Satisfactory Risk to Development Outcome: Moderate Bank Performance: Highly Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Highly Satisfactory Government: Highly Satisfactory Quality of Implementing Highly Satisfactory Satisfactory Supervision: Agency/Agencies: Overall Bank Overall Borrower Highly Satisfactory Satisfactory Performance: Performance: i C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Quality at Entry Project at any time No None (QEA): (Yes/No): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Major Sector/Sector Public Administration Public administration - Water, sanitation and 1 1 flood protection Water, Sanitation and Waste Management Wastewater Collection and Transportation 55 55 Water Supply 18 18 Waste Management 9 9 Sanitation 17 17 Major Theme/Theme/Sub Theme Environment and Natural Resource Management Environmental Health and Pollution 13 13 Management Air quality management 13 13 Soil Pollution 13 13 Water Pollution 13 13 Environmental policies and institutions 7 7 Urban and Rural Development Urban Development 53 53 Urban Infrastructure and Service Delivery 53 53 ii E. Bank Staff Positions At ICR At Approval Regional Vice President: Victoria Kwakwa James W. Adams Country Director: Bert Hofman Klaus Rohland Practice Manager: Abhas K. Jha Ede Jorge Ijjasz-Vasquez Task Team Leader(s): Guangming Yan Axel E. N. Baeumler ICR Team Leader: Guangming Yan ICR Primary Author: Zheng Jia F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project development objective was to assist Zhejiang Province in improving access to sustainable urban environmental infrastructure in selected cities, districts and towns in the Qiantang River Basin. Revised Project Development Objectives (as approved by original approving authority) N/A. (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Water Supply: Number of people served with potable water supply in Indicator 1.1: project areas (Number, Core) Value 60000 360000 360418 397000 Date achieved 12/31/2009 12/31/2016 12/31/2016 12/31/2016 The target was exceeded by approximately 10%. Together, the two water Comments (incl. % supply subcomponents in Zhuji and Wucheng provided improved water achievement) access to 397,000 people, 10% higher than the formally revised target. Water Supply: Number of water utilities that the project is supporting Indicator 1.2: (Number, Core) Value 0 2 2 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments This was a Core Sector Indicator added in response to satisfy a corporate (incl. % mandate. The project supported water utilities in Wucheng and Zhuji. achievement) Indicator 2.1: Wastewater: Amount of COD reduced (Tons/year, Core) Value 0 3745 3907 3974 Date achieved 12/31/2009 12/31/2016 12/31/2016 12/31/2016 iii The target was exceeded by constructing and operating the four Comments (incl. % wastewater treatment plants (WWTPs) in Jiande, Qujiang, Youbu, and achievement) Jianshan. Indicator 2.2: Wastewater: Amount TN reduced (Tons/year, Core) Value 0 239 141 182 Date achieved 12/31/2009 12/31/2016 12/31/2016 12/31/2016 The formally revised target was exceeded by 29%. The target was reduced Comments (incl. % from 239 to 141 when the assessment of wastewater at midterm review achievement) showed a lower-than-expected concentration of nitrogen in the influent. Indicator 2.3: Wastewater: Amount TP reduced (Tons/year, Custom) Value 0 45 30 42 Date achieved 12/31/2009 12/31/2016 12/31/2016 12/31/2016 The target was exceeded by 40%. The target was reduced from 45 to 30 Comments (incl. % when the assessment of wastewater at midterm review showed a lower- achievement) than-expected concentration of phosphorus in the influent. Solid Waste: Number of people served with sanitary solid waste Indicator 3.1: collection and disposal (Number, Custom) Value 0 175000 202500 219800 Date achieved 12/31/2009 12/31/2016 12/31/2016 12/31/2016 The target was exceeded by 8.5%. A total of 219,800 people benefitted Comments from the sanitary solid waste collection and disposal under the project. (incl. % achievement) The end target was formally increased in the project restructuring. Solid Waste: Industrial and municipal waste disposal capacity created Indicator 3.2: under the project (Metric ton, Core) Value 0 210000 280000 Date achieved 12/31/2009 12/31/2016 12/31/2016 This was a Core Sector Indicator added in response to satisfy a corporate Comments mandate. The target was exceeded by building and operating the (incl. % achievement) Meicheng Sanitary Landfill in Jiande City. Institutional: Number of agreed O&M plans operationalized (cumulative) Indicator 4: (Number, Custom) Value 0 6 6 Date achieved 12/31/2009 12/31/2016 12/31/2016 The target was achieved by operationalizing O&M plans in Wucheng Comments (incl. % Water Supply Plant, Jiande WWTP, Qujiang WWTP, Youbu WWTP, achievement) Jianshan WWTP, and Jiande Sanitary Landfill. Financial: Number of project areas with tariffs/user fees introduced Indicator 5: (cumulative) (Number, Custom) Value 7 11 10 10 iv Date achieved 12/31/2009 12/31/2016 12/31/2016 12/31/2016 The target was achieved. All the project cities/towns/districts introduced Comments (incl. % tariffs/user fees. The target was reduced from 11 to 10 at the project achievement) restructuring due to cancelation of the Pan’an Yunshan subcomponent. (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Water Supply: % of potable water connections to households: Zhuji City Indicator 1.1: (Percentage, Custom) Value 30 95 95 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments (incl. % The target was achieved. achievement) Water Supply: % of potable water connections to households: Wucheng Indicator 1.2: District (Percentage, Custom) Value 0 95 100 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments The target was exceeded. All households in the project area in Wucheng (incl. % District are connected to potable water supply. achievement) Water Supply: % of full costs covered by water supply tariffs: Zhuji City Indicator 1.3: (Percentage, Custom) Value 80 100 108 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments The target was exceeded by 8%. Full costs of the water treatment plant in (incl. % Zhuji was covered by water supply tariffs. achievement) Water Supply: % of full costs covered by water supply tariffs: Wucheng Indicator 1.4: District (Percentage, Custom) Value 0 100 101 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments The target was slightly exceeded by 1%. Full costs of the water treatment (incl. % plant in Wucheng was covered by water supply tariffs. achievement) Wastewater: % wastewater collected and treated: Jiande City (Percentage, Indicator 2.1: Custom) Value 0 85 97 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments (incl. % The target was exceeded by 14%. v achievement) Wastewater: % wastewater collected and treated: Qujiang District Indicator 2.2: (Percentage, Custom) Value 0 80 93 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments (incl. % The target was exceeded by 16%. achievement) Wastewater: % wastewater collected and treated: Lanxi City Youbu Town Indicator 2.3: (Percentage, Custom) Value 0 70 78 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments (incl. % The target was exceeded by 11%. achievement) Wastewater: % wastewater collected and treated: Pan'an County Jianshan Indicator 2.4: Town (Percentage, Custom) Value 0 65 77 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments (incl. % The target was exceeded by 18%. achievement) Wastewater: % wastewater collected and treated: Pan'an County Shenze Indicator 2.5: District (Percentage, Custom) Value 0 30 60 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments (incl. % The target was exceeded by 100%. achievement) Wastewater: % wastewater collected and treated: Pan'an County Yunshan Indicator 2.6: District (Percentage, Custom) Value 0 75 NA NA Date achieved 12/31/2009 12/31/2016 The wastewater subcomponent in Pan'an County/Yunshan District was Comments (incl. % dropped and the indicator was canceled as part of the project restructuring achievement) in March, 2015. Wastewater: % wastewater collected and treated: Tonglu County Jiangnan Indicator 2.7: Town (Percentage, Custom) Value 0 75 85 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments (incl. % The target was exceeded by 11%. achievement) Wastewater: % wastewater collected and treated: Longyou County Indicator 2.8: (Percentage, Custom) vi Value 0 85 91 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments The target was exceeded by 7%. (incl. % achievement) % of O&M treatment cost covered by wastewater tariffs: Jiande City Indicator 3.1: (Percentage, Custom) Value 0 100 139 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments (incl. % The target was substantially exceeded by 39%. achievement) % of O&M treatment cost covered by wastewater tariffs: Qujiang District Indicator 3.2: (Percentage, Custom) Value 0 90 100 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments (incl. % The target was exceeded by 11%. achievement) % of O&M treatment cost covered by wastewater tariffs: Lanxi County Indicator 3.3: Youbu Town (Percentage, Custom) Value 0 70 61 Date achieved 12/31/2009 12/31/2016 12/31/2016 The target was partially achieved. Youbu introduced industrial wastewater Comments tariffs in 2016, and will begin collecting residential wastewater tariffs in (incl. % 2018. The financial projection shows the target of 70% will be met in achievement) 2018 (see Annex 3). % of O&M treatment cost covered by wastewater tariffs: Pan'an County Indicator 3.4: Jianshan Town (Percentage, Custom) Value 0 70 101 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments (incl. % The target was significantly exceeded by 44%. achievement) Cumulative number of open solid waste dumps closed in Jiande City Indicator 4.1: (Number, Custom) Value 0 3 3 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments The target was achieved by closing three open solid waste dump sites in (incl. % Meicheng, Yangcunqiao, and Xiay achievement) % of solid waste collected and disposed at a sanitary landfill in Jiande Indicator 4.2: City (Percentage, Custom) vii Value 0 90 95 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments The target was exceeded by 6%. (incl. % achievement) % of O&M cost covered by solid waste user fees in Jiande City Indicator 4.3: (Percentage, Custom) Value 0 20 31 Date achieved 12/31/2009 12/31/2016 12/31/2016 Comments (incl. % The target was exceeded by 55%. achievement) G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 09/22/2011 Satisfactory Satisfactory 10.00 2 10/06/2012 Satisfactory Satisfactory 18.47 3 03/11/2013 Satisfactory Satisfactory 29.75 4 09/15/2013 Satisfactory Satisfactory 47.07 5 02/04/2014 Satisfactory Satisfactory 47.07 6 07/28/2014 Satisfactory Satisfactory 47.07 7 01/17/2015 Satisfactory Satisfactory 52.07 8 06/06/2015 Satisfactory Satisfactory 55.61 9 11/18/2015 Satisfactory Satisfactory 62.11 10 04/17/2016 Satisfactory Satisfactory 73.83 11 11/05/2016 Satisfactory Satisfactory 81.57 H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions The goals of the restructuring were to: amend the results framework; revise the 03/10/2015 N S S 52.07 financing plan; reallocate Loan proceeds; adjust the disbursement estimates; change the scope of certain viii ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions components; and update the costs. I. Disbursement Profile ix 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. Zhejiang Province is located in the southern wing of the Yangtze River Delta, one of China’s largest urban agglomerations, and experienced rapid economic growth in the decade preceding appraisal. In 2009, with only 1% of the nation’s land area and 3.8% of its total population, Zhejiang’s gross domestic product (GDP) reached RMB2.28 trillion, accounting for 6.8% of China’s total GDP. Its GDP per capita was US$ 6,490, ranking it fourth after Beijing, Shanghai and Tianjin. Zhejiang was also one of the most urbanized regions in China, with 58% of the population living in cities and towns compared to the national average of 46.6%. It was expected that by 2020, Zhejiang’s urbanization rate would reach 72%, which would add five to six million people to the urban population. At the root of Zhejiang’s urbanization trajectory were small towns, which served as a major engine of economic growth. While fully recognizing the benefits of agglomeration economies and the role of larger cities, Zhejiang’s 11th Five-year Plan (2006-2010) aimed to further promote the development of small towns, in view of their connective role between rural and urban areas. 2. The Qiantang River, known as the “mother river” of Zhejiang, is the province’s largest river and one of eight major water bodies in the province. With a total area of 49,113 km2, the Qiantang River Basin covers five municipalities, including Hangzhou, Quzhou, Jinhua, Shaoxing and Lishui, consisting of 27 counties, cities, districts and 188 towns. With a total population of 15 million in 2010, the Qiantang River Basin accounted for about 32% of Zhejiang’s total population and 35.3% of its GDP. However, Zhejiang’s rapid growth and urbanization put significant pressure on the water quality of the Qiantang River. The 2008 Zhejiang Environmental Status Report found that although 73% of the Qiantang River could meet Class I to III water quality1, only 62% of the monitored river water quality was meeting its stipulated quality standards. The equivalent pollution loads from industrial, domestic and non-point sources were 45%, 36% and 19% respectively. Given that the Qiantang River was the water source for 80% of Hangzhou City and most counties in the basin, environmental pollution posed serious threats to the living conditions and drinking water safety to a large number of urban and rural residents. 3. By 2010, Zhejiang’s larger cities, such as Hangzhou, Ningbo and Shaoxing had made good progress in addressing urban environmental challenges with significantly increased urban environmental infrastructure service coverage rates. However, small towns were lagging behind. Water supply was safe in only 29% of Zhejiang’s small 1 China’s Environmental Quality Standards for Surface Water (GB3838-02) defines five classes of surface water quality. Class I is for primary water sources and national nature reserves. Class V is for agricultural water usage and water for general landscape. The Standards can be found in the website of the Ministry of Environmental Protection of China: http://kjs.mep.gov.cn/hjbhbz/bzwb/shjbh/shjzlbz/200206/t20020601_66497.htm. 1 towns; wastewater treatment coverage was only 26%, compared to 73% for cities (including county towns) and sanitary solid waste disposal facilities were almost non- existent. One reason for the lower service coverage rates was the much weaker financial position of small towns and the resulting lower public infrastructure investment rates. For example, fiscal revenue per capita in the towns included in this project was estimated to be only 5% to 40% of that in the provincial capital, Hangzhou. 4. Rationale for Bank Support. The project supported three of the five themes of the 2006-2010 Country Partnership Strategy (CPS, Report 46896-CN): (a) reducing poverty, inequality, and social exclusion; (b) managing resource scarcity and environmental challenges; and (c) improving public and market institutions. By focusing on infrastructure investments in small towns, the project supported the objectives of China’s 11th Five-year Plan (2006-10) which aimed to facilitate the development of small towns and secondary cities to optimize its urbanization strategy, promote urban- rural integration and build a more environmentally friendly society. 5. The project was one of the Bank financed projects in China focusing on small towns, urban-rural integration, and new countryside development2. Before appraisal, the Bank had financed three urban projects in Zhejiang Province3 that focused on improving urban environment in large cities. In large cities, environmental infrastructure improved and institutions became more effective. However, in small towns, environmental infrastructure significantly lagged behind. 6. Zhejiang Provincial Government (ZPG) fully recognized these challenges and put in place provisions to improve urban environmental infrastructure services in the 11th Five Year Plan for Qiantang River Basin, the Eco-Province Construction Plan, and the Environmental Protection “811” Action Plan. ZPG’s strategy was to provide financial and technical support to counties and towns to invest in urban environmental infrastructure and to prioritize environmental protection in the Qiantang River Basin. 1.2 Original Project Development Objectives (PDO) and Key Indicators 7. The PDO was to assist Zhejiang Province in improving access to sustainable urban environmental infrastructure in selected cities, districts and towns in the Qiantang River Basin. The PDOs in the Loan Agreement and PAD were identical. 8. Key performance indicators (KPI) included: (i) number of people served with potable water supply; (ii) amount of Chemical Oxygen Demand (COD), Total Nitrogen (TN), and Total Phosphorous (TP) reduced (tons/year); (iii) number of people served with sanitary solid waste collection and disposal; (iv) number of agreed operations and 2 Sichuan Small Towns Project (Ln-8042), Chongqing Urban-Rural Integration Project (Ln-7920), and Ningbo New Country-side Development Project (Ln-7849). 3 The Zhejiang Urban Environmental Project (Ln-4724), the Ningbo Water and Environment Project (Ln- 4770), and the Zhejiang Multi-Cities Development Project. 2 maintenance (O&M) action plans operationalized; and (v) number of project areas/cities with wastewater tariffs introduced. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 9. In the restructuring approved in March, 2015, some key indicators were replaced with Core Sector Indicators (CSIs) and the redundant indicators were removed. Two new CSIs were added to satisfy corporate mandate. Some target values were revised to reflect actual implementation progress and the revisions in scope of certain subcomponents. However, there were no major changes to the KPIs. 1.4 Main Beneficiaries 10. The primary target groups 4were: (i) residents in urban areas provided with access to improved water sources; (ii) residents served with improved wastewater collection and treatment; and (iii) residents served with sanitary solid waste collection and disposal. The water supply and solid waste management investments were originally designed to directly benefit 360,000 and 175,000 people in eight counties/districts and 24 towns/townships/communities in four municipalities of Zhejiang Province. As part of the project restructuring, the targets of beneficiaries were increased to 360,418 (water supply) and 202,500 (solid waste management). At the project completion, both targets were exceeded - 397,000 and 219,800 people benefitted from improved access to water supply and solid waste management respectively. Beneficiaries of the wastewater component were not included in the results framework, but were monitored in the implementation progress reports consistently. At the project completion, a total of 388,000 people benefitted from improved wastewater collection and treatment services. 11. The secondary target group was government agencies, institutions, companies, as well as staff and officials who worked on the project. The project benefited staff and officials of the Provincial Project Management Office (PPMO), Municipal Project Management Offices (MPMOs), and Project Implementation Units (PIUs), as well as participating institutes and firms through the institutional strengthening and training component and on-the-job training. The focus on project management, financial reform, institutional sustainability, training and study tours greatly benefitted participating organizations and individuals. 4 Residents in the following locations: Jiande City of Hangzhou Municipality; Qujiang District of Quzhou Municipality; Lanxi City/ Youbu Town of Jinhua Municipalty; Pan'an County/ Jianshan Town of Jinhua Municipality; Pan'an County/ Shenzhe District of Jinhua Municipality; Pan'an County/ Yunshan District of Jinhua Municipality; Tonglu County/ Jiangnan Town of Hangzhou Municipality; and Longyou County/ Chengbei New District of Quzhou Municipality. 3 1.5 Original Components (as approved) 12. Component 1: Water Supply and Distribution (Total cost: US$35.64 million, of which IBRD US$18.99 million). Construction and/or installation of water supply treatment plants and clear water distribution networks to enhance water supply in the sub- urban areas and adjacent towns in: Zhuji City of Shaoxing Municipality and Wucheng District of Jinhua Municipality. 13. Component 2: Wastewater Collection and Treatment (Total cost: US$158.03 million, of which IBRD US$68.05 million). Construction and/ or installation of wastewater collection networks and treatment facilities, storm water collection networks, associated roads, and river embankment rehabilitation works. 14. Component 3: Solid Waste Management (Total cost: US$20.32 million, of which IBRD US$ 10.96 million). Improvements in solid waste management in Jiande City of Hangzhou Municipality through the construction of the Qingshankejiawu landfill in Meicheng Town which would serve five towns and one community of Jiande City; the construction of a tertiary leachate treatment plant; the closure of three existing open dumps; and the provision of solid waste collection vehicles and equipment. 15. Component 4: Institutional Strengthening and Training (Total cost: US$2.00 million, 100% IBRD). This component consisted of: i) provision of technical assistance (TA) for project management and implementation including advisory and quality control services to the PPMO, PMOs, and PIUs in support of the project’s infrastructure investments and on institutional and financial sustainability issues; ii) provision of TA to support the development of strategic master plans and/ or other specific sector studies for sustainable environmental infrastructure service provision in small towns; and iii) provision of training and study tours to build capacity of the PPMO, PMOs, and PIUs on technical, operational and institutional aspects of sustainable environmental infrastructure service provision in small towns. 1.6 Revised Components 16. The revised project components were as follows: - Component 1: the scope of subcomponent 1-1 Zhuji City Water Treatment and Distribution System was expanded to include the installation of 48.6 km of complementary distribution pipelines. - Component 2: under subcomponent 2-2 Qujiang District Wastewater Treatment, Storm water and Sewer Networks, the following activities were added: construction of 2.3 km roads (Jiangbindong and Guifangbei Roads) and the associated pipelines (4.4 km of storm water pipes, 2.3 km of water supply pipes, and 2.9 km sewer networks connecting to the wastewater treatment facility). - Component 2: under subcomponent 2-5 Pan’an County Shenze District Road, Storm water and Sewer Networks, the 4.3 km of Panjin road expansion and associated sewer and storm water networks were dropped from Bank financing. - Component 2: subcomponent 2-6 Pan’an County Yunshan District Sewer Networks was dropped from Bank financing. 4 1.7 Other significant changes 17. The following significant changes were made: - Some intermediate outcome indicators (IOIs) were slightly revised to reflect actual implementation and revisions in the scope of certain subcomponents; - The loan proceeds were reallocated among categories, and the disbursement ratios for goods and works were increased from 70% to 100% in Jiande City, and from 64% to 100% in both Lanxi City/Youbu Town and Tonglu County/Jiangnan Town to fully utilize the loan. - Due to competitive bidding and currency fluctuations, a total of US$14.3 million loan saving was canceled at project closing (April 30, 2017, end of grace period). 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Soundness of the Background Analysis 18. The background analysis was sound. The analysis led to the identification of three environmental infrastructure challenges that small towns in Zhejiang faced: (i) the environmental pollution of the Qiantang River Basin; (ii) the lack of environmental infrastructure services in small towns; and (iii) limited institutional and financial capacity in small towns to build and operate environmental infrastructure. 19. The project drew on lessons learned from similar projects in China5, and on Bank studies and reports of urban environment, water, and sanitation sectors6. Key lessons included: (i) consolidating horizontal and vertical service provisions in small towns for institutional sustainability; (ii) a balanced capital expenditure strategy without being over-optimistic about tariff increases or immediate full cost coverage by user fees; (iii) allocating debt to county governments rather than to the implementing agencies; (iv) mobilizing higher-level government grants to support counterpart funding; (v) introducing dedicated Design Review Advisory (DRA) services to improve quality of designs; and (vi) using demand projections, cost-effective analysis, and appropriate design standards to avoid overdesign. 5 Zhejiang Urban Environment Project (Ln-4714) and Second Shandong Environment Project (Ln-4852). 6 China Urban Development Program: A World Bank Portfolio Review (2007); Stepping Up: Improving the Performance of China’s Urban Water Utilities (2007); Town Water Supply and Sanitation: Challenges, Solutions, and Guidelines (2008); Financing Water Supply and Sanitation Investments (2005); Characteristics of Well Performing Public Water Utilities (2006); and Models of Aggregation for Water and Sanitation Provision (2005). 5 Assessment of Project Design 20. The project design was cost-effective, comprehensive, and technically sound. Component 1 on water supply and distribution selected the most cost-effective scheme, included plans for protecting sources of drinking water and planned water quality monitoring. Component 2 on wastewater collection and treatment selected the most cost- effective treatment processes for the wastewater treatment plants (WWTPs) with consideration of limited land, and invested in sewer networks to ensure connections. Component 3 on solid waste management followed a “cradle to grave” approach that invested in a sanitary landfill, a solid waste collection and transportation system, and closing of open dumps. Component 4 on institutional strengthening and training offered a balanced combination of technical assistance for project management, development of strategic master plans and sectoral studies, and training programs. 21. On technical design, for example, two design options for wastewater infrastructure were compared for Tonglu County Jiangnan Town: (i) building a new, small WWTP in Jiangnan, or (ii) investing in sewage networks and connecting to an existing WWTP in the neighboring town. The analysis led to adopting the latter option as it was more cost-effective and sustainable. On the financial and institutional aspects, two implementation covenants were included to improve the financial and institutional sustainability. – i.e., preparing O&M Action Plans and Financial Reports and Projections. Project towns were also strongly recommended entering contracts with durations of three to five years for operation and maintenance activities to improve the asset management. 22. The financial and economic analysis paid special attention to institutional set-up, tariffs and cost recovery, financial reporting and projections, and tariff affordability. Informed by the analysis, the project established different institutional models for the water supply, wastewater and solid waste sectors based on their levels of institutional maturity and financial capacity. The project also supported realistic financial models of a gradual move toward full recovery of O&M costs for the wastewater and solid waste subcomponents, rather than being overly optimistic for immediate cost recovery7. 23. Two major alternative approaches were considered. First, a programmatic approach was explored to allow flexibility based on lessons from other Bank financed small-town projects. Nevertheless, the National Development and Reform Commission (NDRC) and ZPG requested the Bank to identify and appraise all subprojects. Second, an Integrated River Basin Management (IRBM) approach was explored, as the pollution loads from industrial, domestic, and nonpoint sources were 45%, 36%, and 19% 7 Before this project, tariffs or user fees for environmental infrastructure did not exist in small towns in Zhejiang Province due to their weak technical and financial capacity. Through the project interventions, tailored environmental infrastructure was constructed in project towns. A series of tariffs/user fees policies and collection mechanisms, including realistic O&M cost recovery projections and higher-level government subsidies (i.e., respective city/county-level governments with stronger financial capacity and established budgeting systems), were rolled out to ensure sustainability of built assets. 6 respectively. However, ZPG decided not to use the approach due to foreseen challenges in project management and coordination that could not be smoothly solved. Assessment of Government’s Commitment 24. ZPG’s commitment to the Project was high, as evidenced in (i) launching a series of master plans in environmental rehabilitation and small-town development that guided the project; (ii) effective coordination at the provincial and municipal levels during project preparation; and (iii) provision of sufficient counterpart funding for preparation. At the local level, project towns were highly committed to the project by actively submitting/revising subproject proposals, and mobilizing local resources for preparation. Risks and Mitigation Measures 25. The overall risk rating of the project was assessed “Modest”, which was appropriate. The project identified two substantial risks. First, some components might drop out, which could lead to major changes and/or large amount of loan savings. Mitigation measures were: (i) limiting the number of sub-projects to eleven; and (ii) considering additional activities in support of the PDO at the mid-term review (MTR) if loan savings materialized. Second, weak capacity in small towns might impact successful implementation. This risk was mitigated by: (i) strong project implementation support for project cities and towns; and (ii) optimizing implementation arrangements to involve experienced operators. The other four risks were assessed to be modest and common approaches were used for mitigation. The risk identification and mitigation measures were appropriate. Quality at Entry 26. Overall, quality at entry is rated satisfactory. Project preparation was thorough and the resulting project’s logical chain was sound. The project was not subject to a Quality at Entry review by the Bank’s Quality Assurance Group. 2.2 Implementation 27. The project implementation proceeded smoothly and was completed by the original closing date of December 31, 2016. The project DO and IP ratings of the project remained fully Satisfactory throughout the implementation period. 28. Effective implementation arrangements and project management. The implementation arrangements and project management were appropriate and effective. The PPMO was experienced from having implemented the Zhejiang Urban Environment Project and was composed of dedicated leaders and competent staff. The PPMO played a leading role in project management and coordination. Given that all project cities and counties were new to working with the Bank, consultants were engaged to support the PMOs and PIUs in project management, contract management, detailed design review, bid document review, and project monitoring. Such support was instrumental. 7 Mid-Term Review and Project Restructuring 29. The Mid-Term Review (MTR), conducted April 14–18, 2014, found that the project was moving smoothly toward achieving its PDO and implementation progress was satisfactory. About 64% of the total activities had been satisfactorily completed and were delivering benefits to the targeted population, with disbursements at 52%. 30. By the MTR, the water supply component in Zhuji City and Wucheng District had been completed and was operating; three out of the four WWTPs had been completed and had started at least trial operations. The solid waste landfill and leachate treatment plant in Meicheng Town had been completed and had started operation. All project counties/cities except Jianshan had introduced tariffs to contribute to sustainability. The project management assistance, training, and study tours had progressed well and a technical study on small towns had been completed. 31. The MTR resulted in agreement on some revisions of the project scope (see Section 1.6) in the restructuring concluded by March 10, 2015. Using loan savings, the change in Component 1 expanded the distribution system and enhanced service provided by the Zhuji Qingshan water treatment plant, which was already constructed under the project. The expansion improved the water supply networks in Zhuji with a larger coverage area and 418 additional beneficiaries. In Subcomponent 2-2, the added infrastructure expanded the impact of the Qujiang District Wastewater Treatment, Storm water and Sewer Networks subcomponent by serving an additional area of 1.2 km2 and 2,000 more urban residents in Qujiang. In Subcomponent 2-5, a total of 4.3 km of Panji Road expansion and associated networks were canceled due to delay of the construction of a provincial highway. The activity was completed using counterpart funding of the Provincial Transport Bureau. Subcomponent 2-6 Pan’an County Yunshan District Sewer Networks was dropped as domestic funding became available. The activities were well completed outside the Bank financed project. 32. Some KPIs and IOIs were slightly revised to reflect such revisions. The loan proceeds were reallocated among categories, and the disbursement ratios for goods and works were increased in three project towns to better utilize the loan. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E Design 33. A logical, comprehensive results framework (RF) with realistic targets was designed at appraisal to monitor the project progress towards achieving the PDO. The design of RF, sources of data, and definitions of indicators were agreed with the PPMO and the local PMOs. The baseline survey was conducted in 2009 as part of project preparation by the PPMO in coordination with local PMOs, and was verified by the Bank task team. 8 34. The KPIs covered outcomes of the physical investments for water supply, wastewater (subdivided into the three key pollutants), and solid waste, as well as progress on institutional and financial sustainability, to link in the “sustainable” part of the PDO8. 35. Seven sets of intermediate outcome indicators (IOI) were designed to monitor the project outputs and progress towards the PDO, on water supply, wastewater, and solid waste components as well as institutional and financial sustainability. No other M&E surveys or studies were conceived such as beneficiary satisfaction with the infrastructure. M&E Implementation 36. Data for results monitoring was collected by the implementing agencies. The PPMO, with support from the project management company, consolidated all the data and reported in the comprehensive semi-annual progress reports and the Borrower’s ICR Report. Data for the RF was provided consistently throughout implementation. 37. The RF saw small revisions at the MTR, including: (i) removing the intermediate outcome indicator measuring the Pan’an Yunshan wastewater subcomponent due to the cancelation of the subcomponent; (ii) adjusting a few annual and end targets to reflect the actual implementation progress and the revisions of certain subcomponents; and (iii) introducing five Core Sector Indicators (CSIs) including two KPIs (i.e., number of water utilities, solid waste disposal capacity) and eliminating redundant indicators. 38. Progress in the institutional strengthening and training component was updated periodically in the project progress semi-annual reports. Activities and outputs were well documented. The institutional strengthening and training could have been even more systematically monitored if specific indicators and annual targets had been set in the RF. M&E Utilization 39. A consistent, periodically updated flow of M&E data during implementation enabled the Bank task team and the PPMO to monitor the implementation and evaluate the progress toward achieving the PDO. Moreover, the M&E data provided systematic evidence for diagnostics and restructuring. For example, the MTR found that the reduction of Nitrogen and Phosphorus achieved under the project could not meet the original targets because of the lower-than-expected pollutant concentration in some project areas. Such findings led to revision of a few end of project targets in the RF to reflect actual situations in small towns. Overall, the effective utilization of the M&E was a key factor to satisfactory completion of the project. 8 There were seven KPIs in five groups, including: one indicator monitoring number of beneficiaries under the water supply component; three indicators monitoring the pollution reduction achieved under the wastewater component (i.e., COD, TN, and TP); one indicator on number of beneficiaries of the solid waste component; one indicator monitoring the operationalized O&M plans on institutional sustainability; and one indicator monitoring the project areas with tariffs/user fees on financial sustainability. 9 2.4 Safeguard and Fiduciary Compliance Safeguards Compliance 40. The project triggered four safeguard policies: Environmental Assessment (OP/BP 4.01), Physical Cultural Resources (OP/BP 4.11), Safety of Dams (OP/BP 4.37), and Involuntary Resettlement (OP/BP 4.12). The project complied satisfactorily with all four policies. The external monitoring reports on the implementation of the RAP and EMP were prepared and submitted by independent consultants annually. 41. Environment assessment. The project was justifiably classified as Category A as it invested in environmental infrastructure in small towns with weak capacity and the project sites were spread across the upstream, midstream, and downstream portions of the Qiantang River. A consolidated Environmental Assessment (EA) for the entire project and one EA for each subproject were prepared by accredited consulting institutes and disclosed locally in April 2010 and at the Infoshop in Washington in June 2010. The EAs identified potential adverse impacts and specified mitigation measures. Project affected people (PAP) were consulted and their opinions reflected in the environmental mitigation measures. Appropriate Environmental Management Plans (EMPs) were prepared for each subproject. For the new subprojects added with the restructuring, a supplemental EMP was locally disclosed in September and October 2014, and in November 2014 at the Bank’s Infoshop. 42. Physical cultural resources (PCR). Four ancient stone bridges in Youbu Town, Lanxi City were identified as Physical Cultural Resources. Mitigation measures conforming to Bank policy and national regulations were agreed on with stakeholders. During implementation, adverse impacts were mitigated through reducing vibration, dust, noise, solid and water pollution; avoiding night-time construction; minimizing traffic in sensitive areas; and detouring traffic around construction sites. Implementation of the mitigation measures was monitored as part of the EMPs, and was found satisfactory. 43. Safety of dams. The project did not finance construction of any dams, but two existing upstream dams (Qingshan Dam, Xinfan Dam) provided raw water for the water supply subprojects. The Bank’s dam safety specialist visited both dams and reviewed safety documents. Their O&M and Emergency Preparedness Plans (EPP) were found acceptable. During implementation, O&M and safety were found satisfactory. 44. Land acquisition and resettlement. The project triggered resettlement. Resettlement implementation was well monitored by the external monitoring consultants. Impacts on the project affected people (PAPs) were fully investigated, recorded, evaluated, and disclosed, with their full participation. Appropriate resettlement schemes were developed. Compensation standards for land use and house demolition were no lower than stipulated in the RPs. All compensation was paid ahead of relocation in a timely manner. Further, eligible PAPs, 1,207 in total, were provided with a social security program in line with national regulations. All resettlement restoration and rehabilitation measures were implemented in compliance with the RPs. Project resettlement took place 10 in Jinhua, Quzhou, Hangzhou and Shaoxing municipalities, and included 99 hectares of permanent land acquisition, 96 hectares of temporary land use, and 26,606 m2 house demolition. The impacts were lower than originally planned. The total population affected was 4,839, lower than the original RP. The final resettlement cost was $20.9 million in total, which was lower than the original RP budget (see Annex 9). Fiduciary Compliance 45. Financial management (FM) performance was satisfactory and complied with policy. The project’s FM system performed well. Consolidated project accounts were prepared in a timely manner. The accounts were audited, as covenanted, within six months of the end of the client’s fiscal year. All audits were conducted by auditors satisfactory to the Bank and opinions were clean with no significant issues found. 46. Procurement performance was satisfactory, and in accordance with Bank policy. The PPMO and PMOs designated staff responsible for procurement, some of whom had experience with previous Bank projects. The procurement agent assisted the client well. Procurement plans were realistic and detailed and were updated regularly. Bidding and contracting, including for variation orders, generally followed the procurement plans and guidelines. No serious issues arose during implementation, though some contracts were slightly delayed in certain project areas due to slight delays in land acquisition and resettlement as well as changes in local leadership. 2.5 Post-completion Operation/Next Phase 47. The project financed two water treatment plants (WTPs) with associated raw water mains and portable water distribution networks, four WWTPs and associated sewerage networks, and a solid waste sanitary landfill. All assets are operating effectively, meeting domestic regulations and standards. Eight utilities built under this project (two WTPs, four WWTPs, one sanitary landfill, and one leachate treatment plant) have contracted professional companies for their operations, including four private companies and four state-owned enterprises (SOEs). The professional companies are experienced in O&M (see Annex 10 on O&M arrangements). 48. The financial sustainability has been secured. The project introduced tariffs and user fees in all project towns. In accordance with legal covenants, the project participants prepared and implemented O&M action plans, and submitted annual financial reports and projections. The action plans included life-cycle O&M plans for all project utilities9; these plans were implemented, and are expected to continue to be implemented after project closing. The periodic financial reports and projections and provided evidence to support local governments in their calculation of tariff standards, budgeting, and applications for higher-level government subsidies for O&M to ensure financial sustainability. The financial performances of all the assets are healthy (see Annex 3). All 9 Zhuji WTP already had an adequate O&M plan in place at appraisal. The O&M action plan for the sanitary landfill and the leachate treatment plant was a combined one. 11 the city/county-level governments under the project have formally committed to subsidize the utilities if the collected tariffs or user fees cannot fully cover O&M costs. 49. The project not only emphasized implementation progress, but also ensured life- cycle management of the water supply, wastewater, and solid waste management systems. The water sources of the water plants were protected; the wastewater networks were connected to households in project areas; and the solid waste collection system was well operated. Moreover, all the WTPs, WWTPs, and the leachate treatment plant had professional monitoring systems in place to report the water quality regularly. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Relevance of Objectives Rating: High 50. The PDO remained highly relevant to the national and provincial development priorities throughout implementation. At the national level, water pollution control, urban water environment management, and small cities and towns development were integral to the national policy agenda from China’s 10th Five-Year Plan period (2001-2005). Management of surface water quality, provision of urban environmental infrastructure, and comprehensive development of small cities and towns became recognized as crucial to the national agenda on environmental protection and coordinated urbanization. These priorities were highlighted in China’s 11th and 12th Five-Year Plans, and specified in the National New Urbanization Plan (2014-2020). The current 13th Five-Year Plan (2016- 2020) further emphasizes enhancement of river water quality, safety of water supply, improvement of urban environment infrastructure especially the collection and treatment of wastewater and solid waste, and well-managed urbanization in small cities and towns. 51. At the provincial level, the Provincial 13th Five-Year Plan (2016-2020) delineated goals and targets of improving sustainable urban environmental infrastructure development. In 2013, ZPG launched its “Five Water” Management Master Plan (2014- 2020) aiming to improve the water environment through a strategic, integrated approach for the entire province. Most recently in late 2016, ZPG issued the Notice on Promoting Comprehensive Environmental Management in Small Cities and Towns across Zhejiang Province, further evidence of provincial dedication to improving water management. 52. The PDO remained highly relevant to the Bank’s CPS for FY2013-2016 (Report No. 67566-CN, October 11, 2012), particularly the pillars of “supporting green growth” and “promoting more inclusive development”. The project’s investments on sustainable urban environmental infrastructure are fully in line with the green growth pillar, which highlighted the water pollution challenge and recognized the need for an integrated approach to water and environmental management as well as to improved water supply and wastewater collection, treatment and disposal. Moreover, the project’s focus on 12 closing the infrastructure gap and providing high-quality public services in small cities and towns remains relevant to the inclusiveness pillar. Relevance of Design and Implementation Rating: High 53. The project design was internally consistent, and addressed key challenges of environmental pollution, lack of environmental infrastructure, and weak capacity in small cities and towns in Zhejiang. Project components were designed to achieve the PDO through improving access to urban environmental infrastructure (i.e., water supply, wastewater, solid waste) and enhancing institutional capacity (i.e., institutional strengthening and training) in selected areas of Zhejiang Qiantang River Basin. 54. The RF was well-articulated to monitor the project outcomes. The KPIs were comprehensive, covering five aspects of water supply, wastewater treatment, solid waste management, institutional sustainability, and financial sustainability. The IOIs were designed to monitor intermediate outcomes that lead to the PDO. The IOIs emphasized the “access” and “sustainability” aspects by monitoring rates of water connection, wastewater collection, solid waste collection, cost recovery of all utilities, as well as closure of open dumps for solid waste management. The overall RF design demonstrates strong causal linkage between the investments, outputs, and outcomes. 55. The design paid special attention to technical, institutional, and financial sustainability through: cost-effective and financial analyses, sound technical design, life- cycle asset management considerations, effective institutional arrangements, institutional strengthening assistance, and indicators on institutional and financial sustainability. Moreover, legal covenants on O&M plans and financial reports and projections were instrumental in guiding O&M and providing evidence for decision making. 56. The design incorporated lessons learned based on comprehensive review of sectoral reports, similar Bank projects, and alternatives were well discussed. The design also ensured effective connections between Bank-financed activities and non-Bank financed linked projects funded by counterpart resources. The counterpart funding paid for cost of land acquisition and resettlement, cost of certain components of the environmental infrastructure (e.g., water tanks, secondary water distribution networks, sewer networks, storm water networks that were designed with Bank-financed activities), and construction interests. This maximized the efficiency and impacts of the project. 57. The overall implementation progress (IP) ratings were Satisfactory throughout entire implementation. The loan disbursement progressed steadily during implementation10. The project restructuring in 2015 remained the design relevance. The project restructuring made revisions in the scope of four subcomponents. The water distribution system in Zhuji and the wastewater treatment networks in Qujiang were 10 Disbursement ratios remained the same in the ISRs recorded in September 2013 to July 2014, because the revolving funds in the designated account was sufficient to pay incurred expenses during that period. 13 expanded to benefit 2,400 additional residents. Two subprojects in Pan’an County were dropped, but were both completed satisfactorily with domestic funding. All subprojects (appraised or formally revised) were completed by original project closing date at a lower total cost. All subprojects were completed with high quality, and several subprojects won national, provincial, and city-level awards11. At closing, a loan saving of US$14.3 was mainly a result of competitive bidding and currency fluctuations (details in Annex 1 & 2). 3.2 Achievement of Project Development Objective Rating: High 58. The project fully achieved its PDO in all three sectors: water, wastewater and solid waste. By loan closing, the targets of all nine KPIs and 17 out of the 18 IOIs had been achieved or exceeded. The project benefitted a total of 1,004,800 residents with improved access to sustainable urban environmental infrastructure across ten counties/districts in Qiangtang River Basin (details in Datasheet Section F, Annex 2, Annex 3; results photos in Annex 11). Improving Access to Sustainable Water Supply and Distribution 59. The project significantly improved access to sustainable water supply in the project areas. The project financed the construction of two water treatment plants of 90,000m3/d of total capacity, a total of 88.2km water distribution networks, as well as associated pump stations and clear water mains. At appraisal, only 30% households in Zhuji and 0% households in Wucheng had access to reliable water supply. By the end of project, 95% households in Zhuji and 100% households in Wucheng had access to potable water. Per KPI #1, at appraisal, only 60,000 people had access to water supply in the project areas. By the end of project, 397,000 people were provided with access to improved water supply, exceeding the target of 364,418 by 10% (see Annex 2 and 11). 60. Water quality has improved significantly through this project. Before implementation, the drinking water supply quality in the project areas was unstable since each household collected their own water. By completion, all 106 standards of China’s Household Drinking Water Standards (GB5749-2006) were being met consistently. 61. Sustainability. The two water utilities achieved full cost recovery through tariffs as monitored by KPI #5 and IOI #1. Operations of the water supply infrastructure are sustainable. As mandated by the legal covenant and monitored by KPI #4, O&M action plans for protecting sources of drinking water were well prepared, financed, and implemented by the local governments with support from professional consultants. For example, Zhuji Government launched and started implementing the Protection Plan and 11 The Zhuji Water Supply and Distribution subproject won the Zhejiang Provincial Outstanding Installation Quality Award, Shaoxing “Orchid Award” for High-quality Municipal Projects and Zhuji “Pearl Award” for Outstanding Municipal Projects. The Wucheng Water Supply and Distribution subproject won the First Prize of Key Construction Projects in Jinhua. The Meicheng Sanitary Landfill won the National Municipal Engineering Gold Award in 2016. 14 Compensation Scheme of Sources of Drinking Water in 2013 to protect sources of drinking water through ecological rehabilitation. Wucheng District Government planned and invested in closing of 54 swine farms, regulating fishing, and building constructed wetlands to improve the quality of source waters. Operators and staff were trained under the project to improve their operational capacity. Water quality is monitored regularly and meets the national standard (details in Datasheet, Annex 2 and Annex 3). Improving Access to Wastewater Collection and Treatment 62. The project successfully improved access to sustainable wastewater collection and treatment infrastructure in the selected project areas. The project financed construction of four WWTPs with a total treatment capacity of 80,000m3/day, installation of wastewater collection pipes in seven counties/districts with a total length of 83.7km, as well as treated wastewater effluent pipes and associated pump stations. Before implementation, the project areas had almost no wastewater treatment systems. By the end of project, all project areas had sewage networks connected to WWTPs, and the percentage of wastewater collected and treated had achieved or exceeded their respective indicator targets (IOI #2), except Pan’an County Yunshan District which dropped from the Bank project in the restructuring but was completed using domestic funding and has functioned satisfactorily12. In total, the project benefitted 388,000 residents with improved access to wastewater collection and treatment. Percentage of wastewater collected and treated, as well as numbers of beneficiaries by county/district are shown as follows. Table A. % of wastewater collected/treated and number of beneficiaries: County/ Jiande Qujiang Youbu Jianshan Shenze Jiangnan Longyou District % At 0 0 0 0 0 0 0 Appraisal % Target 85 80 70 65 30 75 85 (IOI #2) Actual % At 97 93 78 77 60 85 91 Closing # 220,000 60,000 25,000 35,000 15,000 25,000 8,000 Beneficiaries 63. The project achieved a significant and measurable reduction in pollution discharges to local rivers. Before the project, wastewater generated in the project catchment areas was discharged directly to local rivers without treatment. At closing, most wastewater generated was being properly treated. This results in 3,974 tons of COD, 182 tons of TN, and 42 tons of TP pollution loads being reduced annually through the four WWTPs financed by the project. These values exceed the respective KPI #2 targets 12 The Yunshan subcomponent was dropped in the project restructuring as domestic funding became available. The activity was completed and has functioned well. In 2016, 85% of wastewater generated in Yunshan was collected, exceeding the original target of 75%. The collected wastewater has been treated in Anwen WWTP (O&M by the municipal management bureau), and the effluent has met Class 1A Pollutant Discharge Standard of China. Yunshan has introduced wastewater tariffs as the project originally designed. 15 of 3,745 tons/year (at appraisal), 141 tons/year (formally revised), and 30 tons/year (formally revised) respectively. Key parameters of the treated effluent were tested at regular intervals by an external environmental agency; and all the treated effluent met the Class 1A Pollutant Discharge Standard, China (details in Annex 2). Improved water quality is not solely attributable to the project’s investments, but they are undoubtedly contributing to improved water quality. For example, in Youbu where the Guxi River runs through the heart of the city, the water quality of the Guxi River was improved from Class IV in 2009 to Class III after the project13 (photos in Annex 11). 64. Sustainability. At closing, all the project areas had introduced wastewater tariffs as monitored by KPI #5 and IOI #2. As mandated by legal covenants and monitored by KPI #4, all the utilities responsible for the WWTPs had furnished and implemented O&M plans; financial reports and projections were made to guide the adjustment of wastewater tariffs and to support application of subsidies. In Jiande, Qujiang, and Jianshan, the tariffs fully or partially covered the O&M costs. This achieved or exceeded the indicator targets. One IOI did not meet the end-of-project target: in Youbu, the current level of tariffs covered 61% of the O&M costs, lower than the target of 70%. This is because Youbu as a small town only started collecting wastewater tariffs for industrial, commercial, and government activities in 2016, and will start collecting residential wastewater tariffs in 2018. Per the financial projection, the O&M costs covered by wastewater tariffs in Youbu will meet the indicator target in 2018 (details in Annex 3). 65. The project also demonstrated operational and financial sustainability in building and operating small-scale WWTPs. Based on the lessons learned, financial analysis, and study tours, the project introduced professional private-sector companies to operate and maintain the WWTPs through Public-Private Partnership (PPP) in Youbu, Qujiang, and Jianshan. Several small-scale WWTPs in the same city area (e.g., Lanxi) had been operated by the same private-sector company, which was proven effective in enhancing efficiency and economy of scale. Operators were also trained under the project to improve their managerial and operational capacity. Moreover, financial reports and projections as mandated by legal covenants provided evidence for tariff standards, budgeting, and subsidy applications. The respective city/county-level governments have committed to subsidize the O&M of WWTPs if the O&M costs are not fully covered by tariffs/user fees (see Annex 10 and footnote 7). Improving Solid Waste Management 66. The project significantly improved access to sustainable infrastructure of solid waste management in selected project areas. The project invested in construction of the first phase (280,000 m3 capacity) of a sanitary landfill (4,270,000 m3 total designed capacity), construction of a tertiary leachate treatment plant of 180m3/d treatment 13 China’s Environmental Quality Standards for Surface Water (GB3838-02). Class III water is suitable for secondary drinking water sources, ordinary fishery protection areas, and swimming areas. Class IV water can be used for industries but not suitable for human use. Guxi River was turned from a smelly river to a popular water landscape under the project, with COD, TN, TP levels decreased from 17mg/l, 0.85mg/l, and 0.21mg/l respectively in 2009 to 13mg/l. 0.81mg/l, and 0.17ml/g respectively in 2016. 16 capacity, and closure of three open dumps in Meicheng Town, Jiande City. The project created 280,000 m3 capacity for the disposal of industrial and municipal waste, which exceeded the target of KPI #3. The project collected and treated 100% of the solid waste generated in the seven project towns, which exceeded the target of IOI #4. These efforts reduced pollution to the surface water, ground water, and soil. At closing, the project served 219,800 people in seven towns of Jiande with sanitary solid waste collection and disposal who could not access such service before the project. The target of KPI #3 on number of beneficiaries was exceeded by 8.5% (details in Annex 2; photos in Annex 11). 67. Sustainability. User fees were introduced in the project towns as monitored by KPI #5 and IOI #4. At closing, 31% of the O&M cost of the sanitary landfill including the tertiary leachate treatment plant had been covered by user fees which exceeded the indicator target. An O&M plan was prepared and implemented as mandated by the legal covenant and monitored by KPI #4, which improved the sustainability of the solid waste assets. Professional companies have been hired to operate and maintain the landfill and the leachate treatment plant. Quality of effluent has been monitored by independent monitoring agency every two months and has met the national standard of pollution control14. Operating managers and staff were trained under the project to improve their managerial and operational capacity. Jiande City Government has committed to subsidize the O&M costs that cannot be covered by user fees (details in Annex 3 and 10). 68. Moreover, sustainability has been enhanced in a broader perspective. Three open dumps were closed to reduce contamination to groundwater, as monitored by IOI #4. Groundwater quality at the closed sites has been monitored regularly by an external environmental agency that ensured the sites were appropriately closed. In addition, the sanitary landfill and the leachate treatment plant were opened to local students for visiting, to enhance public awareness on reducing, recycling, and reusing solid waste. Institutional Strengthening and Training 69. The project improved institutional sustainability. The project invested in project management and technical assistance, quality control services, training, and study tours. The component i) improved the quality of technical design and procurement; ii) improved the capacity of PIUs on project management; iii) trained operators of utilities; iv) supported making O&M plans and financial reports and projections; and v) monitored the project progress and results. The project trained 123 managers and staff of PPMO, local PMOs, PIUs, and O&M companies through five major training sessions on planning, construction, and O&M of environmental infrastructure, as well as project management, environmental engineering, financial projects, etc. The project supported six study tours for a total of 49 government officials and utility managers on environmental infrastructure, town planning, O&M, etc. These activities strengthened the capacity of the ZPG, local government bureaus and O&M companies, and contributed to the institutional sustainability of managing small-town environmental infrastructure (details in Annex 2). 14 Solid Waste Sanitary Landfill Pollution Control Standard of China (GB16889-2008). 17 70. The sectoral study on Development of Small-town Infrastructure and Conservation of Historic Neighborhoods and Vernacular Architecture in Zhejiang Province provided technical guidance on environmental infrastructure provision and its integration with historic conservation in small towns, as many small towns in Zhejiang have historic and cultural values and were built adjacent to water. The Study also provided inputs to provincial master plans. The integrated approach of the project design and the strategic master plan to address environmental challenges in small towns were mainstreamed into the provincial Master Plan “Five Water” Management of Zhejiang (i.e., wastewater treatment, flood prevention, storm water management, water security, and water conservation). This Master Plan launched in 2014 has guided extensive, province-wide actions of water environment improvement. The Study and Master Plan significantly contributed to sustainable small-town infrastructure development Zhejiang, which fully covered and went beyond the scope of the project (details in Annex 2). 3.3 Efficiency Rating: High 71. Financial analysis was carried out at appraisal to determine the financial sustainability of the components. The analysis demonstrated that water utilities had the financial strength to implement and operate the water supply component. Financial forecasts showed that Zhuji Water Company would develop positively with the project and maintain its debt service capacity. Other forecasts were made at appraisal to demonstrate the financial development of wastewater and solid waste utility services, which were not expected to recover their full costs and not carry debt service obligations. The forecasts showed that the operations would be financially stable with the levels of cost recovery expected. Financial Internal Rate of Return (FIRR) Analysis showed related positive returns to the investments made. 72. During implementation, the utility operations reported on their financial performance and forecasts as covenanted in the legal agreements. The water utility operations realized full O&M cost recovery. For the wastewater component, Jiande, Qujiang, and Jianshan WWTPs realized full O&M cost recovery from tariffs15 in 2016 which exceeded the end targets respectively. Youbu will start collecting residential wastewater tariffs and meet the O&M cost recovery target in 2018. For the solid waste component, the O&M cost recovery target was exceeded. The local governments have committed to subsidize the utilities (details in Annex 3). 73. End of project analysis was conducted to forecast near future financial sustainability of the utilities’ operations. All the eight utilities built under the project have remained financially sound in operations and will remain financially healthy in the near future (details in Annex 3). 15 The target of O&M cost recovery in Jiande WWTP was designed to reach 100%, as Jiande already had a WWTP and the project invested in expanding the WWTP. Other three WWTPs under the project were new and smaller, and thus aimed at partial O&M cost recovery (90% in Qujiang, 70% in Youbu and Jianshan). 18 74. Affordability analysis was conducted at appraisal to determine the affordability of wastewater fees for low-income-households. End of project analyses included updates of the assumptions for the affordability analysis and recalculations of the levels of affordability. As the income of low-income-households has increased faster than tariff increases, the affordability of households to pay for the project’s wastewater services has remained valid (details in Annex 3). 75. Fiscal analysis at appraisal concluded that the project would be fully affordable for the governments of project cities and counties, as the needed counterpart funding solely accounted for a small part of the project governments’ annual budgets and infrastructure expenditures. During implementation, counterpart funding was provided in a timely manner. The fiscal analysis showed that the maximal impact from debt service obligations related to the Bank funding was 2% or less of government revenues. The forecasts at appraisal were based on 5% annual increase in fiscal revenue, lower than actual numbers in Zhejiang Province which has seen 8-10% increases in fiscal revenues in the recent years. 76. Economic analysis was carried out at appraisal for the water supply, wastewater and solid waste components. Cost benefit analysis demonstrated the economic justification of implementing the water and wastewater components while cost effective analysis using least cost methodology guided the selection of priority interventions for the solid waste component. For the water supply components, the estimation of benefits to residents was based on willingness-to-pay surveys while estimates of benefits for industry and tertiary consumers were based on a productivity change approach. The results showed Economic Internal Rate of Returns (EIRR) from 15% to 20% for the water supply components. For the wastewater components, economic benefits were estimated based on a benefit transfer approach linking water environment degradation to GDP in the eastern provinces of China. Reduction of pollutants relative to total pollutants in cities was used to estimate economic benefits for the local GDP. The results showed EIRRs from 14% to 28%. For the solid waste component in Jiande two options for location were considered for the least cost evaluation, and selection was made in view of lower capital expenditures and larger storage capacity. The willingness-to-pay surveys resulted in a water price in Zhuji of RMB 1.89 per ton and a solid waste fee in Jiande of RMB 3.18 per household per month. 77. End of project analysis was carried out to follow up on the economic justification of the project. Least cost analysis of the solid waste component at appraisal was evaluated. Estimated costs at appraisal were compared to actual costs at implementation. The result shows that the decision made remains valid. For the water and wastewater components, the cost-benefit analyses were updated with actual costs of capex, opex, GDP and production outputs. The results showed higher returns for the water supply components primarily due to the increased value of water sales to industries. For the wastewater components, the analysis results remained the same as appraisal (details in Annex 3). 78. Project implementation also demonstrated high administrative efficiency: (i) original and formally revised project activities were completed with high quality at a lower total cost; and (ii) subcomponents added at restructuring did not require any extension of the closing date; and (iii) the project was completed on time. 19 79. Conclusion. The project efficiency was high. Overall, the results of the updated financial and economic analysis at project closing show that estimations and assumptions made at appraisal are in line with achieved numbers, and that the financial and economic justification of the project remains valid. The administrative efficiency was high. 3.4 Justification of Overall Outcome Rating Rating: Highly Satisfactory 80. The overall outcome of the project is highly satisfactory. The PDO remained highly relevant; the relevance of design and implementation was high. The efficacy was high for achieving all aspects of PDO. The project efficiency was also high. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 81. All the project counties/districts had GDP per capita levels lower than the provincial average. The project benefitted residents in underserved areas of project counties/districts, where lower-income households were more concentrated. The project significantly improved access to services of water supply, wastewater collection and treatment, and solid waste management; and contributed to improvement of environmental quality, all of which are known to improve living conditions of the poor. Specific poverty impacts of the project were not measured or monitored. 82. There were no gender specific themes under the project. Female residents benefitted from improved environmental infrastructure and environmental quality. Under the water supply component, many women in project areas used to be responsible for fetching water for their families. Having access to potable water at home released women from such labor. (b) Institutional Change/Strengthening 83. The capacity of staff at the provincial and local governments and their utilities was significantly improved through both the well-targeted institutional strengthening and training component and practical on-the-job experience. Especially, the project strengthened the institutional capacity in small towns, where poor capacity was identified as a key challenge. Although the provincial PPMO had gained experience under an earlier Bank project, all the project cities and counties were new to the Bank. Therefore, the training and experience on project management, contract management, fiduciary and safeguards compliance, as well as technical areas such as environmental infrastructure development and O&M in small towns helped build capacity at the city/county level. Moreover, exposure to domestic and international best practices in small-town development and environmental infrastructure broadened the horizons of local leaders and staff to apply lessons learned to this project and similar projects in future. 20 84. The O&M action plans as well as financial reports and projections, as mandated in the project legal covenants, introduced an evidence-based and analytical approach for local governments and utilities to manage assets, which established a foundation for institutional improvements. Moreover, the PPP arrangements leveraged advantages of different sectors which strengthened the management capacity and sustainability of utilities. In addition, the project catalyzed institutional reforms of some public utilities to operate in a more efficient and more financially self-sustained way (see Annex 7). (c) Other Unintended Outcomes and Impacts (positive or negative) 85. The local environment and economy of Youbu old town were significantly improved through this project. Before the project, Youbu town did not have wastewater collection or treatment system. The Guxi River located in the heart of the town was polluted. The project upgraded ancient roads with associated sewer and storm water networks in the old town center, built a WWTP, and rehabilitated the embankments of the river. By project closure, 78% of households in project areas had access to wastewater treatment system. The project benefited 25,000 out of 40,000 total residents in Youbu with improved access to wastewater treatment facilities and improved environment. 86. The river became a popular recreational landscape for residents and visitors (see photos in Annex 11). The transformational change of water quality, embankment of the centrally located river, and the upgraded roads under the project contributed to the rapid tourism growth and local economic development in Youbu old town (see table below), though such tourism growth is a result of multiple factors (e.g., overall growth of tourism in Zhejiang, renovation of historic buildings, improved connectivity, promotion). Table B. Tourism growth and local economic development in Yoube Old Town: Year Number of Local revenue Average Number of Number of tourists per from tourism annual tourism- tourism-related year (million USD) income per related jobs micro & small capita (USD) enterprises 2009 50,000 2.9 839 5 2 2016 300,000 41.4 1,913 35 15 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 87. No beneficiary survey or stakeholder workshops were conducted. 4. Assessment of Risk to Development Outcome Rating: Moderate 88. Institutional: Risk of weak capacity in small towns to operate and maintain the environmental infrastructure. Rating: Negligible to Low. Such institutional risk has been mitigated through four major measures. First, under the project, the implementing agencies drew up life-cycle O&M action plans for all the built assets, and these are being 21 implemented by the operators. Second, utilities in small towns have appropriate institutional arrangements in place to address their weak capacity. Small-scale utilities including the WWTPs in Youbu and Jianshan as well as the leachate treatment plant in Meicheng are operated by experienced, private-sector operators which manage other similar utilities in the region. The sanitary landfill in Meicheng Town are managed by the county-level urban management bureau of Jiande, which has stronger capacity than the towns. Third, the operational staff are professional and well trained. The institutional strengthening and training packages under the project improved the capacity of operational staff. Fourth, the local governments committed to support operating and maintaining the utilities. ZPG gave priority to small-town development, water supply, wastewater treatment, and solid waste management, as highlighted in its provincial Integrated “Five Water” Management Plan and the Provincial 13th Five-Year Plan. 89. Financial: Risk of insufficient O&M financing for the wastewater treatment solid waste management. Rating: Moderate. The financial sustainability of the wastewater and solid waste assets has been challenged by the tariffs/user fees only partially covering O&M costs for three out of eight utilities based on the current values and financial projections. The mitigation measures are introducing tariffs/user fees and increasing tariffs/user fees gradually, as well as securing subsidies from higher-level governments. All the project cities already introduced tariffs. Zhuji and Qujiang increased tariffs in 2013 and 2017 respectively; and Youbu will increase tariffs in 2018. The city/county governments under the project have committed to provide subsidies to wastewater treatment and solid waste management. Zhejiang was one of the pilot provinces under the 12th Five-Year Plan to promote urban-rural integration which transfers subsidies to small towns and rural areas, which will continue in the 13th Five-Year Plan period. 90. Water quality: Risk of the water sources of the two water supply plants getting contaminated. Rating: Negligible to Low. To mitigate such risk, the local governments have drawn up action plans to protect sources of drinking water, and these plans are being well implemented by the local governments. The pollution in the watersheds of Qingshan Reservoir and Xinfan Reservoir, water sources of the two water supply utilities, was significantly reduced through a series of actions. The water quality is being monitored at a regular basis. The governments have committed to continue the efforts in protecting the water sources and monitoring water quality. 91. Natural Disasters: Risk of damage to infrastructure due to natural disasters. Rating: Moderate. Zhejiang is vulnerable to a range of natural disasters including flooding and typhoons. There is a moderate risk of damage to the completed infrastructure due to natural hazards. The ZPG has plans and budgets on disaster preparedness, emergency response, and recovery for the entire province. Engineering designs of the project incorporated flood resistant requirements. Moreover, a number of subprojects improved the drainage systems to protect the towns against flooding. 22 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Highly Satisfactory 92. The Bank’s performance in ensuring Quality at Entry was highly satisfactory. The World Bank mobilized a wide range of experts in relevant sectors (environmental engineering, water resource management, economic and financial analysis, social and environmental analysis) to assist the Borrower in project preparation and to appraise it. The task team conducted a comprehensive review of the relevant government plans and policies, as well as sectoral reports and projects. Thus, the project addressed key challenges and proposed appropriate designs to improve sustainable environmental infrastructure in small towns of the Qiantang River Basin. 93. The team conducted in-depth technical, financial, and economic analysis to ensure the most cost-effective and sustainable investments. The team carefully reviewed the feasibility study, the EA and the EMP, the RAP and the procurement plan. Appropriate implementation arrangements and risk mitigation measures set the foundation for successful implementation. The team worked closely with the client and maintained effective communication at both the provincial and city levels. The project was delivered in 15 months from concept review to Board approval with a budget of US$356,230 and 63 staff weeks (See Annex 4). 94. The team well incorporated lessons learned, and designed the project that led to successful building and operating small-scale environmental infrastructure in towns with weak capacity. Dated legal covenants were used to improve institutional and financial sustainability, effective public-private partnership to manage operations, and engagement of consultants to enhance project management. (b) Quality of Supervision Rating: Highly Satisfactory 95. The Bank’s performance in ensuring Quality of Supervision was highly satisfactory. The task team focused on technical aspects and project management throughout the implementation period to ensure quality implementation to achieve the project outcome. The task team conducted supervision missions including extensive site visits every six months. The missions reviewed the implementation progress, quality of works, technical issues, fiduciary compliance, safeguards compliance, etc. Eleven thorough and candid Implementation Status Reports (ISRs) were timely produced (see Datasheet Section G). The implementation was completed on time with a budget of US$397,190 and 99 staff weeks (see details in Annex 4). Bank safeguards and fiduciary policies were complied with throughout implementation. 96. The China-based task team maintained frequent and efficient communication with the client and project participants, including the PPMO, local PMOs, PIUs, consultants, 23 design institutes, procurement agent, etc. The team was well-staffed throughout implementation. The second task team leader was familiar with the project context as a team member during project preparation, and led the implementation until completion. Key technical, safeguards, and fiduciary specialists remained the same as project preparation. The team also conducted the MTR on time and assisted the PPMO to advance the project restructuring, which enhanced achievement of the PDO using the loan savings achieved through efficient procurement and the dropping of the Pan’an Yunshan subcomponent. 97. The task team actively supported the PPMO in problem solving in a practical manner, especially on challenges in technical variations, land acquisition, and resettlement. For example, in Jiangnan Town, the master plan was revised during implementation which had implications on resettlements of the Bank invested activities. The task team proactively worked with the client to review and optimize the subcomponent design, and conducted due diligence to ensure the wastewater generated in the project areas was well collected to achieve the PDO. (c) Justification of Rating for Overall Bank Performance Rating: Highly Satisfactory 98. Based on the highly satisfactory ratings for Quality at Entry and for Quality of Supervision, the overall Bank performance is rated highly satisfactory. 5.2 Borrower Performance (a) Government Performance Rating: Highly Satisfactory 99. The ZPG’s performance was highly satisfactory. The project leading group effectively coordinated with the national government and across provincial agencies. Key agencies of the provincial government were fully supportive and effective in facilitating domestic approval procedures. ZPG demonstrated strong commitment during project preparation and implementation. Counterpart funds were sufficient and timely allocated. 100. The PPMO housed at the Provincial Construction Commission was effective and efficient in coordinating with relevant provincial government agencies, coordinating efforts of the local PMOs and PIUs, supervising project implementation progress, solving problems, and communicating with the World Bank. The PMO officials and staff were dedicated and competent; and key officials and staff were stable from project identification to completion. With inputs from the design institutes, procurement agent and project management consultants, the PPMO supervised timely and high-quality preparation of technical design documents, procurement plans, disbursement projections, bidding documents, auditing documents, withdrawal applications, semi-annual progress reports, Borrower’s ICR Report, etc. 101. The first disbursement took place merely two months after project effectiveness. The overall project implementation was smooth and there was no significant delay in 24 disbursement. The PPMO led the institutional strengthening and training activities which progressed well. The EA, EMP, and RAP were thoroughly prepared, and the safeguards monitoring reports were submitted on time. No significant safeguards or fiduciary issues occurred. The project closed on time with all the project activities (appraised and formally revised) completed, and all the PDO indicator targets achieved or exceeded. 102. The ZPG is also highly committed to the sector of small-town environmental infrastructure development. Inspired by the appraised TA package, the province prepared and implemented the extensive “Five Water” Master Plan. ZPG also prepared other sectoral studies and plans, such as the Environmental Infrastructure Development of Central Towns under the Provincial 12th Five-Year Plan (2011-2015); Study on Reforms of Urban Governance in Zhejiang; Study on Small-town Development in Zhejiang for the 12th Five-Year Plan; Guidelines and Study on Policies for Small-town Development in Zhejiang; and Study on Planning of Small Towns in the New Era. These plans and studies were financed and managed by ZPG. 103. During MTR, the PPMO worked with the Bank team to coordinate local PMOs and review progress of all subprojects. Subcomponent 2-5 of Roads, Storm water, and Sewer Networks were revised to drop the expansion of Panji road and associated sewer and storm water networks due to delay of constructing the linked provincial highway. Subcomponent 2-6 Pan’an County Yunshan Sewer Networks was dropped as domestic funding became available. The PPMOs and local PMOs actively discussed with the Bank and added incremental activities to utilize loan savings in line with the PDO16. 104. The experience of Zhejiang was shared with other provinces in China through peer learning activities. During implementation, Zhejiang PPMO and local PMOs introduced their experience on project management and sustainable operations of small- scale infrastructure to Shaanxi PPMO and Guizhou PPMO, who were respectively responsible for the Shaanxi Small Towns Infrastructure Project and Guizhou Cultural and Natural Heritage Protection and Development Project. (b) Implementing Agencies Performance Rating: Satisfactory 105. Performance of Implementing Agencies, including local governments and PIUs, was satisfactory. At the local level, the municipal governments played overall coordinating roles. The county-level governments guaranteed sufficient subsidies for the wastewater treatment and solid waste management in small towns. The municipal and county-level governments provided sufficient counterpart funding during implementation and ensured timely land acquisition and resettlement. 16 The MTR in April 2014 reviewed the implementation progress. The Bank team and the client discussed the possible areas to be restructured during the mission and in the following months. The mission in September confirmed areas to be restructured. Supplemental assessments and technical discussions were conducted subsequently. In December 2014, the Bank received the request for restructuring from MOF. The Bank completed the restructuring documents, and the restructuring was approved on March 10, 2015. 25 106. The local PMOs at the county level, though without prior experience in World Bank projects, demonstrated strong leadership and provided key project management support in key areas such as coordination, procurement, financial management, safeguards compliance, etc. Each local PMO effectively oversaw one to three PIUs. The town-level governments in this project demonstrated strong commitment to the project through proactive supports in project preparation and implementation, active efforts in problem solving and full compliance of Bank policies. 107. The PIUs satisfactorily managed and completed detailed design documents, design reviews, procurement, supervision of civil works, implementation of EMPs and RAPs, operating the utilities, and collecting data for monitoring and evaluation. Subprojects were completed with high quality and several subprojects won nation, provincial or city level awards. Most of subprojects were completed on time, except a few minor delays, which ensured the successful project closing on time. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 108. Based on the highly satisfactory rating for the Government Performance and the satisfactory rating for the Implementing Agencies Performance, the Overall Borrower Performance is rated satisfactory. 6. Lessons Learned 109. O&M of small-town environmental infrastructure can be effective and efficient through well-designed public-private partnerships (PPP) and capacity building, which address challenges of weak technical and O&M capacity in small towns. All assets built under this project are being operated by professional companies, including four state- owned enterprises and four private sector firms (details in Annex 10). The smallest utilities (i.e., Youbu WWTP, Jianshan WWTP, Jiande leachate treatment plant) are being operated in a highly professional manner by private firms. The operator of the Youbu WWTP operates several other small-scale WWTPs in the region; and the operator of the Jiande leachate treatment plant was contracted through an “engineering, procurement, and construction” arrangement. From a financial perspective, the PPP is valid, as resources and expertise are shared among several facilities. Although smaller WWTPs are usually more costly to operate than the larger WWTPs, the engagement of PPP for managing the new, smaller-scale operations in Jianshan, Youbu and Qujiang provided predictable cost structures and thereby reducing the financial risk. 110. Realistic financing mechanisms, with costs borne by tariffs/user fees and higher- level government subsidies, have proven instrumental in financing small-town environmental infrastructure. Small towns have relatively weak financial capacity to build and operate environmental infrastructure; and smaller-scale environmental infrastructure is usually more expensive to operate than larger ones. In this project, city/county-level governments, who were responsible for loan repayment, carried the 26 capital cost of building wastewater and solid waste treatment infrastructure in small towns. Based on realistic financial analysis, O&M costs of wastewater and solid waste components were borne by a combination of tariffs/user fees and higher-level government subsidies. The project introduced tariffs/user fees to all project areas and aimed only for full O&M cost recovery by gradually increasing tariffs. Such a financing mechanism addressed the financial challenge in small towns, echoed the national policies, mobilized resources from both higher-level governments and users, and ensured sustainability without being overly burdensome. 111. Preparing and utilizing O&M plans and financial projections are instrumental in improving the financial and institutional sustainability of small-town environmental infrastructure. Preparing O&M action plans and financial analysis and projections was mandated as legal covenants and proven useful. The action plans ensured O&M sustainability. The financial analyses and projections set the foundation for evidence- based decision-making of tariff standards design, subsidy applications, and business development plans for sustainability, based on which two project districts and one town increased or will increase their tariffs. The differential tariffs also incentivized locals to reduce their wastewater discharges. This lesson can be useful for other similar projects. 112. Technical design of environmental infrastructure in small towns should thoroughly incorporate local circumstances to ensure cost-effectiveness. Local opportunities and constraints in small towns can vary considerably, making locally specific solutions important to success. In Tonglu County Jiangnan Town, a new small- scale WWTP was originally proposed; however, based on comparisons of options and cost-effective analysis, the alternative was pursued to utilize an existing WWTP in an adjacent town and provide wastewater networks under this project. Another example where local circumstances merit close consideration was in deciding on the outcome targets for pollution reduction of small-town WWTPs. Some targets were originally set up based on domestic engineering design guidelines. However, the concentrations of influent pollutants in some small towns were lower than in the guidelines, so the targeted reduction could not be met, which led to its downward revision in the restructuring. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 113. A summary of the Borrower’s ICR is presented in Annex 7. Overall, the Borrower found the project to be successfully completed, and highlighted the guidance and support from the World Bank team as having contributed significantly to the project’s success. (b) Cofinanciers N/A (c) Other partners and stakeholders N/A 27 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Estimate Actual (USD Percentage of Components (USD millions) millions) Appraisal A. Water Supply & Distribution 35.64 41.95 118% 1. Zhuji 18.61 25.87 139% 2. Wucheng 17.03 16.08 94% B. Wastewater Collection & 158.03 126.58 80% Treatment 3. Jiande 17.35 14.78 85% 4. Qujiang 25.28 37.11 147% 5. Lanxi Youbu 12.09 11.55 96% 6. Pan’an Jianshan 7.48 7.58 101% 7. Pan’an Shenze 23.94 24.79 104% 8. Pan’an Yunshan 8.55 0 0% 9. Tonglu Jiangnan 19.58 9.93 51% 10. Longyou 43.77 20.84 48% C. Solid Waste Management 20.32 23.28 115% 11. Meicheng 20.32 23.28 115% D. Institutional Strengthening 2.00 1.20 60% & Training (IST) Total Project Costs17 215.99 193.01 89.4% (b) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Cofinancing (USD (USD Appraisal millions) millions) Borrower 116.00 107.32 92.5% International Bank for Reconstruction 100.00 85.69 85.7% and Development 17 including contingencies and front-end fee. 28 Annex 2. Outputs by Component A. Components 1, 2 and 3 of the project generated a wide range of urban environmental infrastructure outputs in 26 project towns/townships/communities with satisfactory outcomes. The main outputs and outcomes are shown below. Table 2.1: Outputs and Outcomes of Components 1, 2, and 3 Subcompone Planned Outputs at Appraisal Actual Completed Outputs Outcomes nt Component 1 – Water Supply and Distribution Zhuji City Improve water supply services in Datang, Project completed: - Provided improved water access Water Caota, Wangjiajing, Paitou, and Anhua - a 0.50 km raw water transmission main; to 247,000 residents; Treatment and towns of Zhuji City through construction - a 40,000 m3/d Qingshan water treatment - Increased potable water Distribution of: plant and a 44,000 m3/d raw water pumping connections to households in five System - a 0.50 km raw water transmission main; station; project towns from 30% to 95%; - a 40,000 m3/d Qingshan water treatment - a total of 93.1 km water distribution - Improved water supply plant and a 44,000 m3/d raw water networks; and conditions in rural areas in the pumping station; - a pumping station of 15,000 m3/d. southwest of Zhuji City; - a total of 44.5 km water distribution - Drinking water quality meeting networks; and China’s Household Drinking - a pumping station of 15,000 m3/d. Water Standards. Wucheng Improve water supply services in Tangxi Project completed: - Provided improved water access District Water town, Yangbu town, Luobu town, - a 0.50 km gravity main from Xinfan to 150,000 residents; Treatment and Jiangtang town and Xingfan township in reservoir; - Increased potable water Distribution Wucheng District of Jinhua City, through - a 50,000 m3/d Tangxi water treatment connections to households in the System construction of: plant; four towns and one township - a 0.50 km gravity main from Xinfan - a 12.8 km clear water main. from 0% to 100%; reservoir; - Provided potable water to the - a 1,500 m3 Dongmenshan high-level clear - a 50,000 m3/d Tangxi water treatment western area of Jinhua City. water tank; plant; and - Drinking water quality meeting - a 16.0 km clear water main. China’s Household Drinking Water Standards. 29 - a 1,500 m3 Dongmenshan high-level clear - a total of 15.2 km secondary water water tank; distribution networks in Tangxi town; and - a total of 15.2 km secondary water - a total of 24.4 km secondary water distribution networks in Tangxi town; and distribution networks in Jiangtang town. - a total of 24.4 km secondary water distribution networks in Jiangtang town. Component 2 – Wastewater Collection and Treatment Jiande City Improve the wastewater collection and The subcomponent improved the - Upgraded and expanded Wastewater treatment in Genglou, Xinanjiang, and wastewater collection and treatment in wastewater collection and Treatment and Yangxi communities through construction Genglou, Xinanjiang, and Yangxi treatment system in the core Sewer of: communities through construction of: urban area of Jiande City; Networks - a total of 24.0 km of sewer networks; - a total of 6 km of sewer networks; - Increased the percentage of - the 19,000 m3/d expansion of the - the 19,000 m3/d expansion of the wastewater collection and Chendong Wastewater Treatment Plant Chendong Wastewater Treatment Plant treatment from 0 to 97% in the (WWTP) from 30,000 m3/d to 49,000 (WWTP) from 30,000 m3/d to 49,000 m3/d; project area; m3/d; - concomitant upgrading of treatment - Improved the wastewater - concomitant upgrading of treatment processes so the treated effluent met the treatment processes so the treated processes to meet the Class 1A Standard Class 1A Standard; and effluent met Class 1A Standard; for treated effluent; and - a 4,500m3/d pumping station. - Reduced pollution to Xin’an - a 4,500m3/d pumping station. River; - Benefitted about 220,000 people with improved water environment. Qujiang Improve storm water collection system and The subcomponent improved storm water - Significantly improved the District the wastewater collection and treatment collection system and the wastewater wastewater collection and Wastewater system in Qujiang District through collection and treatment system in Qujiang treatment system in Qujiang; Treatment, construction of: District through construction of: - Increased the percentage of Storm water - a total of 9.6 km of sewer networks; - a total of 10.2 km of sewer networks; wastewater collection and and Sewer - a total of 10.5 km of storm water - a total of 9.8 km of storm water networks; treatment from 0 to 93% in the Networks networks; - Chengdong wastewater treatment plant project area; - Chengdong wastewater treatment plant with a capacity of 20,000 m3/d; - Separated the sewer collection with a capacity of 20,000 m3/d; and and treatment system from the 30 - a total of 30.8 km of sewer networks and - a total of 33.7 km of sewer networks and drainage system in Qujiang 22.0 km of storm water networks under 13 26.4 km of storm water networks under 13 District; roads to the west of Xiafei Road. roads to the west of Xiafei Road. - WWTP effluent met Class 1A Standard; Other parts of this subcomponent will be The following activities were added through - Reduced pollution to the Xin’an realized through non-Bank financing, the project restructuring to serve 2,000 River; including construction under Zhengxingxi additional residents and an additional - Benefitted about 60,000 people Road and Tongjiang Road: service area of 1.2 km2. These activities with improved water - 4.2 km sewer networks; and were successfully completed: environment. - 3.0 km storm water networks. - a total of 4.6 km of roads in Jiangbindong Road and Fangguibei Road; - a total of 3.8 km storm water pipes in Jiangbindong Road and Fangguibei Road; - a total of 2.6 km water supply pipes in Jiangbindong Road and Fangguibei Road; and - a total of 2.9 sewer networks in Jiangbindong Road and Fangguibei Road. Construction under Zhengxingxi Road and Tongjiang Road included: - 4.2 km sewer networks; and - 3.0 km storm water networks Lanxi City The subcomponent will improve the The subcomponent improved the - Increased the percentage of Youbu Town wastewater collection and treatment wastewater collection and treatment system wastewater collection and Wastewater system in Youbu Town through through construction of: treatment from 0 to 78% in Treatment, construction of: - a 5,000 m3/d wastewater treatment plant Youbu; 3 Sewer - a 5,000 m /d wastewater treatment plant - a 1.7 km discharge pipe; - WWTP effluent met Class 1A Networks, - a 1.7 km discharge pipe; - upgrading of 1.7 km of ancient roads with Standard; Roads, Storm - upgrading of 1.7 km of ancient roads with associated sewer and storm water networks - Rehabilitated infrastructure and water associated sewer and storm water networks in the old town center; urban environment in Youbu Old Networks, and in the old town center; - a total of 1.5 km new roads with Town; River Bank - a total of 1.5 km new roads with associated sewer and storm water networks - Improved the storm water Rehabilitation associated sewer and storm water networks in new town area; networks and sewer system in the in new town area; new town; 31 - a total of 11.1 km sewer networks in new - a total of 5.8 km sewer networks in new - Benefitted about 25,000 people town area; and town area; and with significantly improved water - rehabilitation of 0.7 km embankment of - rehabilitation of 0.7 km of embankments environment. the Guxi River. along the Guxi River. Pan’an The subproject will improve the The subproject improved the wastewater - Increased the percentage of County wastewater collection and treatment in collection and treatment in Jianshan Town wastewater collection and Jianshan Jianshan Town through construction of: through construction of: treatment from 0 to 77% in the Town - a total of 4.75 km of sewer networks; - a total of 4.75 km of sewer networks; project area; Wastewater - three pumping stations with capacity of - three pumping stations with capacity of - WWTP effluent met Class 1A Treatment and 5,000 m3/d, 3,000 m3/d and 2,000 m3/d 5,000 m3/d, 3,000 m3/d and 2,000 m3/d Standard; Sewer respectively; and respectively; and - Benefitted about 35,000 people Networks - a wastewater treatment plant with a - a wastewater treatment plant with a with improved water environment capacity of 6,000 m3/d. capacity of 6,000 m3/d. Pan’an The subproject will rehabilitate river The subproject rehabilitated river - Improved the wastewater County embankment and improve the sewer embankment and improved the sewer collection in Shenze District and (Shenze) networks along the Cuixi River, and networks along the Cuixi River, and connected the sewer networks improve roads, sewage system and improved roads, sewage system and with the existing WWTP; drainage system in Shenze District through drainage system in Shenze District through - Rehabilitated the river construction of: construction of: embankment of Cuixi River; - 2.30 km Cuixi river embankment - 2.30 km Cuixi river embankment - Increased the wastewater rehabilitation on both sides; rehabilitation on both sides; collection and treatment rate in - 2 x 2.3 km sewer networks on both sides - 2 x 2.3 km sewer networks on both sides Shenze from 0% to 60%; of Cuixi river; of Cuixi river; and - WWTP effluent met Class 1A - 4.3 km of Panjin road expansion and - 10 km of main sewers connecting Shenzhe Standard; associated sewer and storm water with the existing Anwen WWTP. - Benefitted about 15,000 people networks; and with improved water environment - 2 x 5.0 km of main sewers connecting Shenzhe with the existing Anwen WWTP. Pan’an The subproject will improve the The subproject was dropped from Bank The wastewater collection system County wastewater collection system and connect financing in project restructuring. The in Yunshan was improved with Yunshan the networks with the existing Anwen proposed activities were completed using non-Bank financing. 85% of District Sewer WWTP through construction of: domestic funding. wastewater generated in project Networks - a total of 17.1 km sewer networks; and 32 - a pumping station with capacity of 2,000 area has been collected and m3/d. treated. Tonglu The subcomponent will improve the The subcomponent improved the - Provided infrastructure of County wastewater collection and treatment wastewater collection and treatment system sewage and drainage system Jiangnan system in Jiangnan Town through in Jiangnan Town through construction of: through an integrated manner in Town Road, construction of: - two pumping stations with capacity of Jiangnan Township; Storm water - two pumping stations with capacity of 6,000 m3/d each; - Increased the coverage of and Sewer 6,000 m3/d each; - 5.25 km of sewer networks and 4.25 km wastewater collection and Networks - a total of 4.1 km pressure pipes; storm water networks; and treatment from 0 to 85% in - 13 km of sewer networks and 13 km - 2.1 km roads with associated sewer and Jiangnan Township; storm water networks; and storm water networks (length calculated - Benefitted about 25,000 people - 5km of roads and associated sewer and above). with better infrastructure and storm water networks in villages. water environment. Longyou This subcomponent will improve the water This subcomponent improved the water - Provided infrastructure of roads, County supply, drainage system, and wastewater supply, drainage system, and wastewater water supply, drainage and Chengbei collection and treatment system in collection and treatment system in Chengbei sewage system through an New District Chengbei District through construction of: District through construction of: integrated manner in Chengbei Road, Water - 7.3 km of roads; - 12.4 km of roads; District of Longyou County; Supply, Storm - 7.3 km of sewer networks, 7.3 km of - 11.2 km of sewer networks, 12.4 km of - Increased the coverage of water and storm water networks, 7.3 km of clean storm water networks, 12.4 km of clean wastewater collection and Sewer water distribution networks, and 7.3 km of water distribution networks of, and 12.4 km treatment from 0 to 91% in Networks industrial water supply distribution of industrial water supply distribution Chengbei District; networks; networks; - Improved infrastructure of - 1.0 km of effluent discharge outlet; and - 1.0 km of effluent discharge outlet; and roads, water supply, drainage and - 1.4 km water distribution networks, 1.4 - 0.35 km water distribution networks, 0.35 sewage in surrounding villages. km sewer networks and 1.4 km of km sewer networks and 0.35 km of - Benefitted about 8,000 people discharge pipes in surrounding villages. discharge pipes in surrounding villages. with better infrastructure and water environment. Other parts of this subcomponent will be realized through non-Bank financing, including: - 11.8 km of roads; and 33 - 11.8 km of sewer, storm water, clean water distribution, and industrial water distribution networks. Component 3 - Solid Waste Management Jiande City Collection and sanitary disposal of solid The subcomponent improved the collection - Collected and sanitarily waste in Dayang Town, Sandu Town, and sanitary disposal of solid waste in disposed 95% of solid waste from Yangcunqiao Town, Xiaya Town, Dayang Town, Sandu Town, Yangcunqiao in the service area of the sanitary Meicheng Town and Yangxi Community Town, Xiaya Town, Meicheng Town and landfill; of Jiande City through: Yangxi Community of Jiande City through: - Treated discharge that meets - constructing the first phase (210,000 m3 - constructing the first phase (280,000 m3 China’s Solid Waste Sanitary capacity) of a sanitary landfill (4,270,000 capacity) of a sanitary landfill (4,270,000 Landfill Pollution Control m3 total capacity) in Meicheng Town; m3 total capacity) in Meicheng Town; Standard - constructing a tertiary leachate treatment - constructing a tertiary leachate treatment - Benefitted 219,800 people plant (180 m3/d capacity). plant of 180m3/d capacity; and through access to sanitary - closure of three existing open dumps in - closure of three existing open dumps in disposal of solid waste; Meicheng, Yangcunqiao and Xiaya; and Meicheng, Yangcunqiao and Xiaya. - Closed three open dumps in - upgrading of garbage collection fleet. Meicheng, Yangcunqiao, and The upgrading of 6 garbage collection fleet Xiaya; and was achieved using domestic financing. - Monitored the groundwater quality at closed sites regularily As part of the project restructuring March 2015, four small works/activities were dropped from the original project scope Components 1, 2, and 3, and two activities were added. These changes and the reasons are listed in detail in the table below. Table 2.2: Project Scope Changes and Their Reasons Change Reason (i) Component 1: the scope of subcomponent 1-1 Zhuji City Water Using loan savings, this change expanded the distribution system and Treatment and Distribution System was expanded to include the enhanced service provided by the Zhuji Qingshan water treatment installation of 48.6 km of complementary distribution pipelines. plant, which was already constructed under the project. The expansion improved the water supply network in the same project area. (ii) Component 2: under subcomponent 2-2 Qujiang District Using the loan savings, the added infrastructure will expand the impact Wastewater Treatment, Storm water and Sewer Networks, the of the Qujiang District Wastewater Treatment, Storm water and Sewer 34 following activities were added: construction of 2.3 km roads Networks subcomponent by serving an additional area of 1.2 km2 and (Jiangbindong and Guifangbei Roads) and the associated pipelines 2,000 city residents in Qujiang. including 4.4 km of storm water pipes, 2.3 km of water supply pipes, and 2.9 km of sewer networks connected to the WWTP. (iii) Component 2: under subcomponent 2-5 Pan’an County Shenze The road and associated networks were canceled due to the delay of District Road, Storm water and Sewer Networks, the 4.3 km of Panjin the construction of provincial highway. The activity was completed road expansion and associated sewer and storm water networks were with non-Bank financing from the transport bureau. dropped from Bank financing. (iv) Component 2: subcomponent 2-6 Pan’an County Yunshan District The subproject was dropped as domestic funding was available. The Sewer Networks was dropped. activities were completed with non-Bank financing. B. Component 4 comprised three consulting packages. Package A provided project management and implementation to the PPMO and PIUs during implementation. Package B provided a technical study on environmental infrastructure development and its integration in historic conservation in small towns in Zhejiang. Package C offered several training and study tours to strengthen the institutional capacity. Details of outputs and outcomes are listed in the table below. Table 2.3: Outputs and Outcomes of Component 4 Package Planned Outputs at Appraisal Actual Outputs Outcomes Package A: TA and quality control services to TA and quality control through: - Improved the quality of Project support the project’s infrastructure - reviewing project designs and bidding technical design and Management and construction as well as institutional documents; procurement; Implementation and financial sustainability through: - preparing and evaluating bids, as well as - Improved the capacity of PIUs Assistance. - reviewing project designs and negotiating bids; on project management and bidding documents; - monitoring contract execution and financial management; - preparing and evaluating bids, as supervision; - Trained operators in water well as negotiating bids; - resolving contract issues; supply, wastewater treatment, and - monitoring contract execution and - preparing progress reports and the Borrower’s solid waste management to supervision; ICR; improve the O&M of the assets - resolving contract issues; - providing training; built under this project; - preparing progress reports and the - preparation and implementation of the O&M - Supported O&M plans as well Borrower’s ICR; plans; and as financial reports and - providing training; projections of the plants to 35 - preparation and implementation of - monitoring the implementation of EMPs and improve the financial the O&M plans; and RAPs by independent consultants. sustainability; - monitoring the implementation of - Monitored project progress and EMPs and RAPs by independent results; consultants. - Monitored implementation of EMPs and RAPs with no complaints on environmental, land acquisition or resettlement issues. Package B: The package will help Zhejiang - The package supported a technical study on - The technical study provided Master Planning Province develop a strategic master Development of Small-town Infrastructure and technical guidance and for Small Town plan, or any other such study that Conservation of Historic Neighborhoods and recommendations on Urban the Bank may agree upon, for Vernacular Architecture in Zhejiang, environmental infrastructure Environmental small-town infrastructure in support conducted by Zhejiang University. Many small development and its integration in Infrastructure in of environmentally, intuitionally, towns in Zhejiang have historic and cultural historic conservation in small Zhejiang operationally, and financially values and were built adjacent to water. The towns in Zhejiang Province. The Province sustainable service provision. study provided technical guidance on study provided inputs to other integrating infrastructure development and provincial master plans such as historic conservation in small towns. the “Five Water” Management Master Plan of Zhejiang and - The strategic master plan proposed in the Infrastructure Development of project inspired a series of master plans and Towns under the Provincial 12th studies in Zhejiang Province, including the Five-Year Plan. extensive “Five Water” Management Master Plan of Zhejiang (wastewater treatment, flood - The master plans and studies prevention, storm water management, water significantly contributed to the security, and water conservation); improvement of water Infrastructure Development of Towns under environment and the sustainable the Provincial 12th Five-Year Plan; Study on development of small towns in Reforms of Urban Governance in Zhejiang; entire Zhejiang Province, which Study on Small-town Development in Zhejiang fully covered the original in the 12th Five-Year Plan Period; Guidelines proposal of the package. For and Study on Policies for Small-town example, the “Five Water” Development in Zhejiang; and Study on Master Plan guided the provincial 36 Planning of Small Towns in the New Era. actions on water environmental These master plans and technical studies were improvements. financed and managed by ZPG. Package C: The package will support capacity The package supported: - Officials & technical staff from Trainings and building for the PPMO, local - Two training sessions overseas with 33 project authorities learned from Study Tours PMOs, and PIUs on technical, attendees in total (including experience and good practices in operational and institutional aspects provincial/county/town-level government China and other developed for sustainable infrastructure officials and PIU managers) on planning, countries about municipal service provision in small towns, as construction, and O&M of environmental services (i.e. water supply, well as expose decision makers to infrastructure in small towns: one in US and wastewater management, and relevant international and domestic one in Sweden. solid waste management), small best practices. - Three domestic training sessions with 90 town development, and project attendees in total (including managers and staff management. of PIUs and O&M companies) on project - Enhanced the technical capacity management, municipal engineering, and broadened the horizon of environmental management, financial project staff, which contributed to projections, and World Bank fiduciary and project implementation. safeguards procedures: one in Shaoxing, one in Ningbo, and one in Pan’an; - Four study tours overseas with 23 attendees in total (including provincial/county/town-level government officials and PIU managers) on city planning, municipal infrastructure, water supply, wastewater and solid waste treatment, and historic town conservation: one in Brazil and Peru; one in Russia, Poland and Hungary; one in Australia and New Zealand; and one in the US and Canada. - Two domestic study tours with 26 attendees in total (including provincial/county/town-level government officials and PIU managers) on water supply, environmental infrastructure, and public health: one in Shaanxi, and one in Guizhou. 37 Table 2.4: Summary of WWTPs Built under the Project WWTP Jiande18 Youbu Jianshan Qujiang Designed capacity (tons/day) 49,000 5,000 6,000 20,000 Current average daily flow (tons/day) 30,617 3,200 4,400 16,000 CODCr 188.83 120.00 85.40 120.60 BOD5 65.28 - 65.40 36.22 NH3-N 11.39 12.13 17.40 14.52 Influent (mg/l) SS 125 265.00 70.52 213.54 TN 16.97 - 28.99 21.08 TP 2.30 1.15 3.64 1.56 CODCr 24.48 40.00 24.40 22.55 BOD5 6.90 - 5.50 8.20 NH3-N 0.21 4.03 0.36 0.21 Effluent (mg/l) SS 8.00 14.00 6.10 10.00 TN 9.20 - 8.28 2.18 TP 1.03 0.52 0.39 0.38 18 The capacity of the WWTP in Jiande was expanded from 30,000 tons/day to 49,000 tons/day under this project. 38 Annex 3. Economic and Financial Analysis 1. Economic Analysis Economic Analysis was carried out at appraisal for the water supply, wastewater and solid waste components. Cost benefit analysis demonstrated the economic justification of implementing the water and wastewater components while cost effective analysis using least cost methodology guided the selection of priority interventions for the solid waste component. Cost benefit Analysis For the water supply components estimation of benefits to residents was based on willingness-to-pay survey while estimation of benefits to industry and tertiary consumers was based on a productivity change approach. The results showed Economic Internal Rate of Returns (EIRR) at 17 to 20% for the water supply components. For the wastewater component, economic benefits were estimated based on a benefit transfer approach linking water environment degradation to GDP, in the eastern provinces of China accounting for 1.5% of GDP. Reduction of pollutants relatively to total pollutants in Cities was used to estimate economic benefits from local GDP. The result showed EIRRs from 14% to 28%. For the solid waste component in Jiande two options for location were considered for the least cost evaluation, and selection was made due to lower capital expenditures and larger storage capacity. The willingness-to-pay surveys compiled resulted in acceptable water price in Zhuji on RMB 1.89 per ton and solid waste fee in Jiande on RMB 3.18 per household per month. At project completion, Cost Benefit Analysis was carried out for the water and wastewater subcomponents. The cost benefit analysis used the same methodology of quantifying benefits - for the water supply sub components residents’ willingness to pay and tertiary sector’s productivity change – while for wastewater subcomponents linking GDP to water environment degradation. At project completion the benefit calculation was based on local production output, GDP and pollution rather than same numbers at provincial level. For the costs the actual cost of implementing and operating the components were included. The analysis shows that the EIRRs in general are as expected, but with small differences due to changes in costs, background statistical information, production output etc. The result of the analysis is shown in the table below. Table 3.1: Economic Rate of Return at appraisal and at completion Water Supply Subcomponents EIRR Appraisal Completion 1. Zhuji Water Treatment and Distribution System 20% 33% 2. Wucheng Water Treatment and Distribution System 17% 50% 39 Wastewater Subcomponents EIRR Appraisal Completion 3. Jiande Wastewater Treatment and Sewage System 28% 30% 4. Qujiang Wastewater Treatment and Sewage System 24% 26% 5. Youbu Wastewater Treatment and Sewage System 23% 23% 6. Jianshan Wastewater Treatment and Sewage System 24% 24% 7. Shenze Sewage System 18% 20% 8. Yunshan Sewage System 14% NA 9. Jiangnan Sewage System 19% 20% 10 Longyou Sewage System 25% 26% Cost Effectiveness Analysis The Cost Effectiveness Analysis at appraisal of the solid waste component in Jiande compared two alternative treatment technologies and two alternative sites for the location of a sanitary landfill. Establishment of a sanitary landfill rather than incineration of the solid waste was chosen mainly due to significant lower cost of O&M of landfill sites compared to incinerators. Qingshan was chosen as the site for the landfill due to lower unit costs (Capex and O&M) of solid waste disposal. The main assumptions of the least cost analyses were costs of O&M and Capital Expenditures. At project completion, the numbers for capital expenditures and cost of operation and maintenance used in the Cost Effectiveness were compared to the actual numbers achieved. The comparison shows that cost of operation and maintenance has increased significantly while capital expenditures had decreased. As the cost of O&M is the same for the two alternatives compared, the conclusion of choosing the Qingshan location rather than the Qiujiawu location is still valid. Table 3.2: Comparison of costs used for the cost effectiveness analysis Sanitary Landfill at Qingshan Estimated at Actuals at RMB million appraisal completion Capital Expenditures 138.18 114.7 Cost of Operation and Maintenance 3.05 4.58 The follow-up economic analysis at project completion overall shows, that assumptions made at appraisal were reasonable and that the results of the analysis still apply. 2. Financial Analysis Financial Analysis was carried out at appraisal to determine the financial sustainability of the assets implemented. 40 Water Supply The analysis at appraisal demonstrated that the implementing companies and end- borrowers, Zhuji Water Company and Xinfan reservoir Management Division, had the financial strength to implement and operate the water supply component. Financial forecasts showed that the Companies will develop positively with the project implemented and maintain the capacity of servicing the debt. Financial Internal Rate of Return Analysis (FIRR) showed related positive return of the investments made in the water supply. To maintain monitoring of the water supply companies’ repayment capacity during project implementation, the on-lending terms included covenanted financial rate of cost recovery to be reported on an annual basis. During the project the utility operations have reported financial performance and forecast as covenanted in the legal agreements. For Zhuji Water Supply Company specifically the company has shown compliance with the financial covenant documenting its repayment capacity of the funds on-lend. The company has remained financially sound with the sub- components implemented and in operation, and the company has remained profitable. For the Xinfan Reservoir Management Company the institutional setup was changed during the project implementation, from a situation where the operation of the implemented assets is being a responsibility of the Jinxi Water Supply Company, which is partly owned by the implementing company. The transition was described in the project appraisal document. The Xinfan Reservoir Management Company is as such solely responsible for supply of raw water for the operations. Jinxi Water Supply Company is responsible for operation of the water supply services to a larger part of Wucheng district. At project completion, financial projection of selected project water companies was produced to demonstrate financial sustainability of the utility operations within the cost recovery assumptions made. For Zhuji Water Supply Company specifically the actual financial results and the forecasts show that the company will remain profitable and be able to service the debt. The financial forecasts are presented in the table below. Table 3.3: Financial performance and forecast of Zhuji Water Supply Company Actual results Forecasts ‘000 yuan 2013 2014 2015 2016 2017 2018 Sales Total water sales volume 71,570 71,240 70,050 71,801 73,596 75,436 (tm3) Average water tariff 2.04 2.34 2.34 2.34 2.34 2.34 (yuan/m3) Revenue Revenue from water 145,665 166,897 164,195 168,300 172,508 176,820 supply operations Other revenue 8,320 15,860 21,000 18,000 18,800 18,800 Business tax -1,700 -2,020 -2,520 -2,600 -2,750 -2,750 Total revenue 152,285 180,737 182,675 183,700 188,558 192,870 Expenses Electricity expenses -4,270 -4,420 -3,800 -4,200 -4,380 -4,380 Chemicals expenses -1,701 -1,540 -1,470 -1,500 -1,531 -1,531 41 Raw water and resource -23,369 -23,930 -23,226 -23,610 -24,106 -24,106 fees Staff costs -16,625 -16,870 -17,600 -18,000 -19,000 -19,000 Repair & Maintenance -9,190 -9,240 -9,500 -9,900 -10,100 -10,100 Total cost of operation -55,154 -56,000 -55,596 -57,210 -59,118 -59,118 Other costs -15,560 -22,400 -22,400 -22,000 -22,400 -22,400 Financial margins EBITDA 81,570 102,337 104,679 104,490 107,040 111,353 Depreciation -41,950 -44,540 -46,750 -48,310 -49,260 -49,260 EBIT 39,620 57,797 57,929 56,180 57,780 62,093 Financial expenses -39,580 -37,970 -39,950 -44,280 -44,860 -44,860 EBT 40 19,827 17,979 11,900 12,920 17,233 Other financials Fixed assets in operation 919,270 922,070 935,000 966,200 985,200 985,200 Total debt service -39,580 -37,970 -39,950 -48,480 -49,340 -49,340 Cost recovery indicator 101% 114% 112% 108% 109% 111% Table 3.4: Financial performance and forecast of water supply in Wucheng District Actual results Forecasts ‘000 yuan 2013 2014 2015 2016 2017 2018 Sales Total water sales volume 7,154 8,421 9,165 11,494 11,583 11,713 (tm3) Average water tariff 1.58 1.58 1.60 1.58 1.60 1.59 (yuan/m3) Revenue Revenue from water 11,291 13,273 14,620 18,130 18,495 18,659 supply operations Other revenue 2,637 1,051 2,005 2,790 1,030 1,030 Business tax -677 -390 -307 -397 -555 -560 Total revenue 13,250 13,934 16,317 20,523 18,970 19,130 Expenses Electricity expenses -132 -132 -136 -175 -175 -185 Chemicals expenses -154 -188 -205 -278 -278 -290 Raw water and resource -1,602 -1,884 -2,160 -2,424 -2,424 -2,595 fees Staff costs -2,684 -3,144 -3,249 -3,505 -3,505 -3,145 Repair & Maintenance -467 -670 -442 -1,206 -1,206 -1,205 Total cost of operation -5,039 -6,018 -6,192 -7,588 -7,588 -7,419 Other costs -3,759 -2,337 -2,601 -3,696 -3,696 -2,176 Financial margins EBITDA 4,453 5,579 7,524 9,238 9,421 9,590 Depreciation -4,000 -4,087 -4,173 -4,250 -4,258 -4,094 EBIT 452 1,492 3,352 4,989 5,163 5,496 Financial expenses -43 -1,407 -3,344 -4,824 -1,010 -1,010 EBT 409 85 7 165 4,153 4,486 Other financials Fixed assets in operation 109,491 109,845 110,531 110,741 106,483 102,389 Total debt service -43 -1,407 -3,344 -6,850 -2,770 -2,770 Cost recovery indicator 103% 101% 100% 101% 128% 131% 42 Wastewater and Solid Waste For the wastewater and the solid waste operation it was expected that cost recovery from user fees would cover just a smaller part of the total costs of operating the assets implemented. Targets were set at appraisal for cost recovery of a share of the cost of operation and maintenance of the wastewater treatment plants and the solid waste disposal site. Financial forecasts were prepared to support the decision of level of cost recovery planned for. During implementation, the wastewater operations in the towns of Qujiang, Jianshan and Youbu have engaged professional management companies to operate the treatment plants. Jiande Wastewater has been merged into Jiande Water group for the water and wastewater services to Jiande being consolidated under the same company. To follow on the development of cost recovery the individual components have produced financial forecast in a simplified format on an annual basis during implementation. At project completion, the level of cost recovery was reviewed with adding additional years to the forecast. The financial analysis show that all sub-components will be complied with the end-target within a couple of years after project completion. For Youbu specifically the cost recovery target of 70% is expected to be met as indicated in the table below. Currently Youbu do not levy the wastewater tariff at residential consumers, but will start initiating this in 2018. For Jiande the cost recovery exceeded 100%. The cost recovery targets relate solely to O&M of the WWTPs, and as such only to at share of the total costs of providing the wastewater services. Any additional collected wastewater fees above the targets will as such add to the financial sustainability of the wastewater service provided. Table 3.5: Financial performance of Youbu Wastewater Treatment Plant Operation Actual Forecast ‘000 yuan 2016 2017 2018 Revenue indicators Volume of wastewater treated (m3/year) 1,369 1,460 1,557 Average wastewater tariff (yuan/m3) 0.74 0.81 0.89 Revenue from consumer fee collection (t yuan/year) 1,019 1,186 1,382 Cost indicators Unit fee to WWTP operating company (yuan/m3) 1.23 1.23 1.23 Operating cost of wastewater treatment (t yuan/year) -1,686 -1,796 -1,916 Cost recovery indicator Cost recovery of wastewater treatment from consumer 61% 66% 72% tariffs Table 3.6: Financial performance of Qujiang Wastewater Treatment Plant Operation Actual Forecast ‘000 yuan 2015 2016 2017 2018 Revenue indicators Volume of wastewater treated (t m3/year) 5,250 7,050 7,580 8,175 Average wastewater tariff (yuan/m3) 0.79 0.98 1.09 1.09 Revenue from consumer fee collection 4,080 6,875 8,248 8,914 (t yuan/year) Cost indicators 43 Unit fee to WWTP operating company 0.893 0.893 0.893 0.893 (yuan/m3) Operating cost of wastewater treatment -5,188 -6,896 -7,769 -8,300 (t yuan/year) Cost recovery indicator Cost recovery of wastewater treatment from consumer tariffs 79% 100% 106% 107% Table 3.7: Financial performance of Jianshan Wastewater Treatment Plant Operation Actual Forecast ‘000 yuan 2015 2016 2017 2018 Revenue indicators Volume of wastewater treated (t m3/year) 1,345 1,457 1,603 1,603 Average wastewater tariff (yuan/m3) 0.93 0.94 0.94 0.94 Revenue from consumer fee collection 1,563 1,713 1,884 2,072 (t yuan/year) Cost indicators Unit fee to WWTP operating company 600 600 600 600 (t yuan/year) Operating cost of wastewater treatment -1,486 -1,703 -1,733 -1,733 (t yuan/year) Cost recovery indicator Cost recovery of wastewater treatment from 105% 101% 109% 120% consumer tariffs Table 3.8: Financial performance of Jiande Wastewater Treatment Plant Operation Actual Forecast ‘000 yuan 2015 2016 2017 2018 Revenue indicators Volume of wastewater treated (t m3/year) 10,350 11,500 11,500 11,500 Average wastewater tariff (yuan/m3) 0.88 0.88 0.88 0.88 Revenue from consumer fee collection 13,374 13,435 13,435 13,435 (t yuan/year) Cost indicators Unit fee to WWTP operating company NA NA NA NA (yuan/m3) Operating cost of wastewater treatment -9,184 -9,632 -9,632 -9,632 (t yuan/year) Cost recovery indicator Cost recovery of wastewater treatment from 146% 139% 139% 139% consumer tariffs The financial performance of Jiande solid waste operation is shown in the table below. The cost recovery of the service provided was at appraisal expected to be low and much lower than for wastewater services. The target was defined as cost recovery of a share of the cost of O&M of the two sanitary landfill sites in Jiande. 44 Table 3.9: Financial performance of Jiande Meicheng Solid Waste Operations Actual result Forecast ‘000 yuan 2013 2014 2015 2016 2017 2018 Solid waste fees Fees from residential 1,526 1,610 1,619 1,651 1,651 1,651 households Fees from commercial 0 1,800 2,200 2,200 2,200 2,200 activities Construction waste 0 240 320 320 320 320 transport fees Waste disposal fee 621 670 920 920 920 920 Total solid waste revenue 2,147 4,320 5,059 5,091 5,091 5,091 Cost of solid waste collection and transport Solid waste share of -2,800 -2,970 -2,560 -2,700 -2,700 -2,700 cleaning activities Solid waste collection -3,874 -3,946 -3,530 -3,590 -3,590 -3,590 Solid waste transit -300 -1,169 -1,000 -1,200 -1,200 -1,200 operations Total solid waste collection -6,974 -8,085 -7,090 -7,490 -7,490 -7,490 Cost of solid waste disposal Shouchang landfill site -4,761 -7,125 -5,900 -5,105 -5,310 -5,310 operations Meichen Town Landfill -1,070 -3,378 -4,305 -4,059 -4,174 -4,174 Site Operations Staff -247 -615 -696 -800 -900 -900 Fuel -159 -165 -114 -150 -170 -170 Electricity -8 -96 -34 -35 -40 -40 Chemicals -81 -67 -75 -85 -100 -100 R&M -45 -103 -100 -150 -170 -170 Other direct costs -165 -138 -457 -600 -640 -640 Miscellaneous -365 -179 -138 -160 -180 -180 Leachate treatment - -2,016 -2,690 -2,079 -1,974 -1,974 Total cost of landfill site -5,832 -10,504 -10,205 -9,164 -9,484 -9,484 operation Total solid waste revenue 2,147 4,320 5,059 5,091 5,091 5,091 Total costs of solid waste -12,806 -18,589 -17,295 -16,654 -16,974 -16,974 operation Cost recovery from fees 17% 23% 29% 31% 30% 30% 45 Summary Financial Performance of Implemented Utility Services Table 3.10: 2016 performance of utility services in participating cities and towns Water Supply Water sales Average water Full cost Cost Recovery tariff1 recovery tariff percentage m3/day yuan/m3 yuan/m3 Zhuji City 196,700 2.34 2.18 108% Wucheng District 31,500 1.58 1.56 101% Wastewater Wastewater Wastewater O & M cost Cost Recovery Treatment4 treated fees collected2 recovery fee percentage m3/day yuan/m3 yuan/m3 Jiande City 31,500 1.17 0.84 139% Qujiang District 19,300 0.98 0.98 100% Youbu Town 3,750 0.74 1.23 61% Jianshan Town 3,990 1.18 1.17 101% Solid Waste Solid waste Solid waste O & M cost Cost Recovery Collection and disposed fees collected3 recovery fee percentage Disposal m3/day yuan/m3 yuan/m3 Jiande City 472 30 97 31% 1 Fees collected per volume of water sales 2 Fees collected per volume of treated wastewater 3 Fees collected per volume of solid waste disposed 4 Wastewater treatment only – not sewerage collection network 46 3. Affordability Analysis Affordability Analysis was prepared at appraisal to demonstrate that future water and wastewater fees were to be affordable to population and particularly to low-income urban households. The affordability was expected lower in poorer project towns. At project completion, a follow-up analysis was made in the town of Youbu. The affordability analysis show that income has increase as expected in the analysis at appraisal, and that a combined water and waste bill is within around 4% of the households’ income (5% is considered as a benchmark for combined utility fees of water and wastewater). The analysis is shown below. Table 3.11: Affordability of low-income urban households 2016 2017 2018 Water Supply tariff (RMB/m3) 1.4 1.4 1.4 Wastewater tariff (RMB/m3) 1.2 1.2 1.2 Total tariff (RMB/m3) 2.6 2.6 2.6 Water consumption lcd 100 100 100 Water fee (RMB/year) 204 204 204 Wastewater fee (RMB/year) 175 175 175 Total fee payable (RMB/year) 380 380 380 Low-income households income per cap 19,131 20,087 21,092 (RMB) Water fee as % of income 1.07% 1.02% 0.97% Wastewater fee as % of income 0.92% 0.87% 0.83% Total fees as % of low income 1.98% 1.89% 1.80% Annual income growth rate 5% 4. Fiscal Analysis Fiscal Analysis was prepared at appraisal to investigate the project’s expected government budget impact. The analysis showed that the debt service related to the funding from the World Bank was at a manageable level in most project towns at significant below 1% and in two towns at 2%. In the latest years from 2013 to 2015 the provincial fiscal revenue has increased by annually 8-10%. As the projected fiscal impact at appraisal was forecasted with 5% annual growth in fiscal revenue the funding from the Bank is found manageable still. 47 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Axel Baeumler Senior Infrastructure Economist EASIN Task Team Leader Environmental Ji Feng Environmental Specialist EASCS Specialist Songling Yao Social Specialist EASCS Social Specialist Guangming Yan Municipal Engineer EASCS Municipal Engineer Eddie Hum Senior Municipal Engineer/Consultant EASIN Municipal Engineer Knud Lauritzen Senior Financial Analyst/Consultant EASIN Financial Analyst Environmental Jian Xie Senior Environmental Specialist EASER Specialist Mansha Chen Urban Specialist EASER Urban Specialist Water Resource Ximing Zhang Water Resource Specialist EASCS Specialist Xiaowei Guo Senior Procurement Specialist EAPPR Procurement Specialist Fang Zhang Financial Management Specialist EAPFM FM Specialist Marta Molares Lead Counsel LEGES Counsel Vellet Fernandes Program Assistant EASIN Program Assistant Xuemei Guo Program Assistant EACCF Program Assistant Jennifer Sara Sector Manager LCSSD Peer Reviewer Ming Zhang Sector Manager LCSUW Peer Reviewer Param Iyer Senior Water & Sanitation Specialist MNSWA Peer Reviewer Supervision/ICR Guangming Yan Senior Urban Development Specialist GSU08 Task Team Leader Guoping Yu Senior Procurement Specialist GGO08 Procurement Specialist Xiaowei Guo Senior Procurement Specialist GGO08 Procurement Specialist Eddie Hum Senior Municipal Engineer/Consultant GSU08 Municipal Engineer Knud Lauritzen Senior Financial Analyst/Consultant GSU08 Financial Analyst Fang Zhang Senior Financial Management Specialist GGO20 FM Specialist Feng Ji Senior Environment Specialist GEN2A Safeguards Specialist Songling Yao Senior Social Development Specialist GSU02 Safeguards Specialist Ximing Zhang Senior Dam Specialist GWAGP Team Member Zheng Jia Urban Analyst GSU08 ICR Author Xiao Wu Team Assistant EACCF Team Member 48 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) USD Thousands Stage of Project Cycle No. of staff weeks (including travel and consultant costs) Lending FY2009 4.67 21.19 FY2010 42.60 255.52 FY2011 16.04 79.51 Total: 63.31 356.23 Supervision/ICR FY2011 7.32 32.20 FY2012 20.60 71.70 FY2013 10.62 51.05 FY2014 10.59 55.65 FY2015 16.87 62.07 FY2016 15.08 61.13 FY2017 18.02 63.39 Total: 99.1 397.19 49 Annex 5. Beneficiary Survey Results N/A 50 Annex 6. Stakeholder Workshop Report and Results N/A 51 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Section 1. Project Background, Objectives & Design 1.1 Project Background Qiantang River, the mother river of Zhejiang Province, is the biggest river as well as one of the eight major water systems in Zhejiang. Environmental pollution was a real threat to the living condition of rural and urban population, considering Qiantang River has provided drinking water for 80% of residents in Hangzhou, as well as residents in most cities and counties in the river basin. Zhejiang Provincial Government (ZPG) has adequately recognized these challenges. Relevant plans were issued aiming at improving urban environmental infrastructure. The general objective was to make sure that the water quality in Qiantang River should fully meet the national requirement by year 2020. 1.2 Project Objectives and Key Indicators 1.2.1 Original Project Objectives and Key Indicators 1. Project development objective To improve access to sustainable urban environmental infrastructure in selected cities, districts and towns in the Qiantang River Basin. 2. Key indicators Implementation of project development objective should be evaluated by the indexes listed in results framework, which include the following:  Population provided with tap water service;  COD, TN and TP emission reduction (Ton/Year);  Population with sanitary collection and disposition of solid waste;  Number of executed Operation & Maintenance (O&M) plans;  Number of project areas or cities charged with wastewater treatment fees. 1.2.2 Specific Objectives of Original Project 1. Objective of Zhuji water supply project Provide Anhua, Wangjiajing as well as southwestern rural area with water supply and improve drinking condition. Water supply coverage should reach 95%. 2. Project objective in Wucheng, Jinhua Provide western Jinhua with reliable and secure water supply. Water supply coverage should be improved to 95%. 3. Objective of Jiande wastewater project Improve wastewater collection rate to 85%. 4. Objectives of Qujiang wastewater treatment and rain/water pipeline network project  80% wastewater collection rate should be achieved;  Rainwater collection pipeline network should be built and separate rainwater from wastewater in Qujiang; 52  Wastewater treatment plant with corresponding scale should be constructed to meet domestic requirements of wastewater treatment. 5. Project objectives in Lanxi (1) Water pollution treatment:  Wastewater collection rate should be improved 70%.  New wastewater treatment plant should be constructed in Youbu to meet domestic requirements of wastewater treatment. (2) Ancient town protection  Protect ancient town area;  Regulate Guxi River and construct landscapes alone the bank;  Improve living environment in new urban restrict. 6. Project objectives in Jianshan, Pan’an (1) 65% wastewater collection rate should be achieved; (2) Wastewater treatment plant with corresponding scale should be constructed. 7. Project objective in Shenze, Pan’an 30% wastewater collection rate should be achieved. 8. Project objective in Yunshan, Pan’an 75% wastewater collection rate should be achieved. 9. Project objective in Tonglu 75% wastewater collection rate should be achieved in Jiangnan Town. 10. Project objective in Longyou Road, water supply, wastewater and rainwater pipeline network integration should be achieved in the park area as well as the villages around the perimeter. Both water supply and wastewater collection rate should reach 85%. 11. Objective of Jiande solid waste project Domestic garbage collection rate should reach 90%, and full decontamination should be achieved for the villages and towns within the service area. 1.2.3 Modified Project Objectives No modification regarding project objectives was made. 1.2.4 Modified Key Performance Indexes No major modification regarding key performance indexes was made, except some end of project target values to reflect the realistic progress and situation. 1.2.5 Main Beneficiaries According to the information provided by local offices, Zhejiang Qiantang River Basin Small Town Comprehensive Environment Management Project has benefited about 1,004,800 people. Details are listed in table 1-1. Summary Table of Main Beneficiaries (Table 1-1) Beneficial Population No. Project Name （Thousand） 53 1 Zhuji water supply subproject 247 2 Wucheng water supply subproject, Jinhua 150 3 Quzhou wastewater treatment subproject 60 4 Jiande wastewater treatment subproject 220 5 Youbu wastewater treatment subproject, Lanxi 25 6 Jianshan wastewater treatment subproject, Pan’an 35 7 Shenze environment subproject, Pan’an 15 8 Yunshan wastewater treatment subproject, Pan’an 17 9 Jiangnan wastewater treatment subproject, Tonglu 25 North city water supply and drainage subproject, 10 8 Longyou 11 Jiande solid waste subproject 220 Total 1,005 1.3 Project Design 1.3.1 Project Contents during Evaluation Component 1: Tap water supply distribution (Total investment $35.64 million, $18.99 million of which were loaned from World Bank) Component 2: Wastewater collection and treatment (Total investment $158.03 million, $68.05 million of which were loaned from World Bank) Component 3: Solid waste management (Total investment $20.32million, $10.96 million of which were loaned from World Bank)) Component 4: Institution strengthening & training (IST) (Total amount of $2 million, all loaned from World Bank) 1.3.2 Adjusted Project Contents Added contents: (1) Zhuji water supply subproject contract: WSZJ3C, WSZJ4C and WSZJ5C; (2) Qujiang wastewater treatment subproject contract: WWQJ7C, WWQJ8C; (3) Increase World Bank loan proportion in some subprojects. Loan proportion of payment from subprojects in Jiande, Jiangnan and Youbu were increased to 100%; (4) Yang’an pump station equipment contract and constructed wetlands project; (5) Qujiang wastewater treatment subproject: WWQJ2S, WWQJ3S. Cancelled contents: (1) Jiande solid waste project contract package: SWMC1G; (2) Tonglu wastewater project contract package: WWJN3C; (3) Shenze comprehensive environment treatment subproject contract: WWSZ3C; (4) Shenze comprehensive environment treatment subproject contract: WWSZ1C; 54 (5) Genglou and Xin’anjiang wastewater pipeline network (wwjd2c) in Jiande wastewater project was adjusted to main pipeline phase II project, from main urban area to wastewater treatment plant located in east of the city. (6) Implementation agency of Yunshan project requested to cancel from this project. 1.3.3 Reasons for Adjustments 1. Project design was modified; 2. Change of resettlement during implementation; 3. Other domestic funding became available. Section 2. Key Factors Influencing Project Implementation & Outcomes 2.1 Preparation, Design and Quality during Project Launch 2.1.1 Project Design The design of this project was under the guidance and evaluation of an experienced team. Thorough review was conducted by economic and financial experts in key stages. 2.1.2 Risk Assessment The risk of this project was appropriately ranked as “moderate”. Four objectives were ranked as “moderate” and two were ranked as “substantial”. See in table 2-1. Risk and Risk Mitigation Measure (Table 2-1) Risk Ranking Risk Risk Mitigation Measure After Mitigation Regarding project development objective As the project was composed - Subprojects amount was limited at 11 of several subprojects, some - When loan savings occur, investment aiming subprojects may quit and Substantial at project objective would be increased cause changes in project during mid-term evaluation. outcome and/or loan balance. Regarding subproject objective/results - Strengthen and train subproject through organizations, and make sure every Implementation may be participating city and county gets powerful affected when small towns support during implementation. Substantial were lack of capacity. - Involve experienced infrastructure operators in the project, and optimize executive arrangements. Environmental infrastructure - Adjust charge fees over time to realize full finance can hardly maintain cost recovery. sustainability where - Apply strategy of balance, acquire financial Moderate investment was high and support from superior government, and charges were low. optimize debt distribution. The lack of counterpart - Counterpart funding support from superior Moderate funding in financially weak government. 55 cities and counties may slow - Eliminate financially weak cities in project down project progress. deciding stage. Disconnection from - Thoroughly investigate technical design and wastewater pipeline network; standards, the connection to pipeline Moderate technical risk of wastewater networks. Avoid oversized design for equipments during operation. wastewater treatment equipment. Meeting the procurement and - Thorough financial management & financial management procurement assessment. requirements of World Bank - Attach importance to training and capacity remains a challenge as the Moderate building. Help participating cities meet cities in this project had no procurement and financial management experience of participating in requirements. World Bank projects. Overall risk Ranking Moderate 2.2 Analysis of Key Factors Influencing Project Implementation & Outcomes 2.2.1 Key Factors Influencing Project Implementation Factors that influenced project implementation (water supply, wastewater and solid waste projects) are basically the same. Details are as follow: (1) Institutional guarantee; (2) Sophisticated design; (3) Funds; (4) Policy context; (5) Implementation agency. 2.2.2 Key Factors Influencing Project Outcomes Influencing factors of project results regarding water supply, wastewater and solid waste projects are different from one another. 1. Water supply: (1) Environmental factors in water source; (2) Dam safety factors need to be considered; 2. Wastewater: (1) Wastewater pipeline supervision; (2) Establish wastewater tariff systems. 3. Solid waste: (1) Ensure leachate emissions meet required standard and monitored periodically; 2.3 Monitoring & Evaluation of Project Design, Implementation and Operation 2.3.1 Project Design M&E framework was reasonable in initial design. 2.3.2 Project Implementation Reliable monitoring and information from consistent assessment enables the World Bank team to evaluate project performance and its potential sustainability. 2.3.3 Use of Information 56 The information obtained will be used by local government as basis for environmental infrastructure construction in future. 2.4 Security Policy & Credit Conformity Assessment 2.4.1 Social Security Resettlement evaluation report suggested resettlement was completed successfully, and the living conditions project affected people were improved. World Bank Operation Manual OP4.12 was in this project, OP4.10 on indigenous people was not triggered. 2.4.2 Environmental Security This project was set as Category A. An environmental assessment (EA) report, and an environmental management plan (EMP), were prepared according to World Bank policies and regulations in China. The report and plan were disclosed to the public. According to World Bank OP4.01, the project was well managed and in compliance. 2.4.3 Culture Heritage Security This project triggered Physical Cultural Resources Policy OPN11.03. Project design met the requirement of OPN11.03 and the Physical Cultural Resources Policy OP4.11. 2.4.4 Dam Security A Dam Safety expert from World Bank confirmed that the two dams are operating under safe conditions. Acceptable O&M and emergency plans were prepared to make sure they met the requirements of World Bank Operation Manual OP4.37. 2.4.5 Procurement Procurement was conducted according to World Bank Procurement Guidelines. The process was very satisfactory. 2.4.6 Financial Management Financial management was satisfactory during the whole implementation process. 2.5 Subsequent Operations/ Follow-up Work The wastewater tariffs should be increased gradually over time to fully cover the O&M cost of wastewater treatment plants. The government subsidies have been secured. Section 3. Project Outcome Assessment 3.1 Relational Evaluation between Objective, Design and Implementation Ranking: Satisfactory The objectives and design of this project are in complete conformity with current development strategy and policy focus in the country, in its industry as well as its province. Products and services from this project provided solutions to water supply, wastewater treatment and solid waste disposal demands in the project areas. 3.2 Implementation of Project Objectives Ranking：Very Satisfactory 57 Reasons are as follow: 1. Safe and stable water supply in urban and rural areas was improved. Water supply quality in Zhuji and Jinhua can fully meet the requirement of Standards for Drinking Water Quality (GB5749-2006). Zhuji water supply subproject won the Zhejiang Provincial Outstanding Installation Quality Award, Shaoxing “Orchid Award” for High-quality Municipal Projects, and Zhuji “Pearl Award” for Outstanding Municipal Projects. Wucheng water supply project was awarded First Prize of Key Construction Projects in Jinhua in 2012. 2. Wastewater and solid waste treatment capacity were improved, and pollutant reduction goals were achieved. Solid waste collection and disposal rate in urban and rural areas in Jiande reached 95%. Jiande urban and rural solid waste project won National Municipal Engineering Gold Award by China Municipal Association on Jan. 20, 2016. 3. Public-private partnership was enhanced and wastewater tariff systems were established. Through the cooperation between World Bank and international consultants, implementation agencies were able to apply financial prognosis tools and facilitate the implementation of wastewater tariff policies in project areas. 4. The project provided demonstration for Qiantang River basin small-town comprehensive water management. Apart from effectively improving infrastructure services in Qiantang River basin small towns, the implementation of this project also provided city administrators with broader visions, more international experiences and prime opportunity of training. It has provided Qiantang River basin and even the whole Zhejiang Province with demonstration of comprehensive environment management. 5. Project results were fruitful. See Table 3-1. Project Results Summary Table (Table 3-1) Target Actual Baseline Results Indicator Unit Value Value 2009 2016 2016 Water supply：Urban population with improved water source due to this project; Number 60,000 360,418 397,000 Number of Water facilities supported by this project 0 2 2 Wastewater： COD reduction to be achieved under this project Ton/Year 0 3,907 3,974 Total Nitrogen reduction to be achieved under this Ton/Year 0 141 182 Total phosphorus reduction to be achieved under Ton/Year 0 30 42 this project Solid waste: Population with sanitary collection and disposition of solid waste under Number 0 202,500 219,800 58 Organization: O&M action plans prepared and Number 0 6 6 implemented Finance：Number of project areas introduced Number 7 10 10 tariffs/user fees Proportion of families with access to drinking a: Zhuji City % 30 95 95 b: Wucheng District % 0 95 100 Full-cost recovery rate of water supply (%)： a: Zhuji City % 80 100 108 b: Wucheng District % 0 100 101 Wastewater collection & treatment rate（%）： a: Jiande City % 0 85 97 b: Qujiang District % 0 80 93 c: Youbu Town, Lanxi % 0 70 78 d: Jianshan Town, Pan’an % 0 65 77 e: Shenze District, Pan’an % 0 30 60 f: Yunshan District, Pan’an % 0 75 85 g: Jiangnan Town, Tonglu % 0 75 85 h: Longyou County % 0 85 O&M treatment cost recovery rate from wastewater tariffs (%) a: Jiande City % 0 100 139 b: Qujiang District % 0 90 100 c: Youbu Town, Lanxi % 0 70 61 d: Jianshan Town, Pan’an % 0 70 101 Cumulative number of closed open dump sites in Number 0 3 3 Jiande City Percentage of solid waste with sanitary collection % 0 90 95 and disposal in Jiande City (%) Percentage of O&M cost covered by solid waste % 0 20 31 user fees in Jiande City (%) 3.3 Efficiency Ranking：Satisfactory This project generated positive environmental benefits, contributing to environmental infrastructure supply and Qiantang River environmental improvement strategy in Zhejiang. 3.4 Ranking of Overall Outcome and Reason Ranking：Very Satisfactory Overall outcome of this project was ranked as very satisfactory. 59 Reason: Project objectives were achieved; economic benefits were realized; and financial sustainability was also delivered substantially. 3.5 Theme, Other Results and Impacts (1) Poverty impact, gender aspect and social development No specific theme regarding poverty reduction, gender aspect or social development has been brought up. However, it has improved living condition in a broader way for people in located area, including better health service for women and the poor, which leads to better chance of higher income. (2) Institution alteration/enhancement The project enhanced institutional capacity. As the catalyst of institutional reform, this project has helped Public Utility Corporation operate and manage assets more efficiently via the establishment of financial autonomy. 3.6 Review of Beneficiary Survey and Stakeholder Forum Not Applicable. Section 4. Risk Assessment of Project Outcome Development Ranking: Moderate (1) Pollutant concentration of influent water may be low when wastewater networks construction falls behind schedule; (2) Water quality of the water supply component may be affected due to inadequate pollution control on upper stream; (3) Low wastewater and solid waste tariffs/user fees may challenge sustainability. Section 5. Performance Evaluation of Borrower in Project Preparation & Implementation 5.1 Government Performance Evaluation (1) Government Performance Ranking: Very Satisfactory Central and provincial governments have promised strong impetus for project preparation and implementation. Not only did the loan and counterpart funds were effective on time, but also the project preparation and implementation were well delivered. (2) Implementation Agency Performance Ranking: Satisfactory Detailed design, design review, procurement management, construction quality control and safeguard measures were all satisfactorily carried out by implementation agency. Most of initial subprojects were completed before closing date. Project outcome, output index supervision and report quality were satisfactory. 60 5.2 Overall Performance Evaluation of Borrower Ranking: Satisfactory Section 6. Performance Evaluation of World Bank during Project Preparation & Implementation 6.1 Performance Evaluation of Quality Assurance in Early Stage Ranking: Very Satisfactory World Bank was very cautious and spent about a year to make sure the project design addressed the need of key development objectives in project cities. 6.2 Performance Evaluation of Quality Supervision Ranking：Very Satisfactory World Bank team leader maintained good relationships with relevant parties (provincial project office, local project office, project implementation agency, design institutes and procurement agency). Timely and strategic decision was adopted by World Bank to achieve the project objective. Land acquisition, resettlement, design modifications, project restructuring and other problems were solved properly. 6.3 Overall Performance Evaluation of World Bank Ranking: Very Satisfactory This evaluation was based on outstanding achievements in project preparation and project supervision. Section 7. Project Experiences & Lessons (1) Actively explored the realization of urban-rural infrastructure integration; (2) The project was an innovation where a single environment project was converted to a comprehensive environment management project; (3) Advanced project management approaches from World Bank were applied; (4) Strong government support was a key factor for project success; (5) A meaningful exploration of the reforms of urban & rural wastewater treatment operation models; (6) Corresponding technical assistance played an important role in project progress. Section 8. Conclusion The implementation of this project improved Qiantang River basin small-town infrastructure, and provided city administrators with broader vision, more international experiences and great opportunities of training. It’s a demonstration of comprehensive environment management in Qiantang River basin and even the entire Zhejiang Province. 61 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders N/A 62 Annex 9. Land Acquisition and Resettlement The Project triggered land acquisition and resettlement. The subprojects involved water supply, wastewater, and solid waste sectors in eight counties of four municipalities. The land acquisition and resettlement objective was achieved, and the resettlement implementation was satisfactory. Land acquisition and resettlement took placed in Hangzhou, Shaoxing, Jinhua, and Quzhou municipalities. The actual resettlement impacts included 99 hectares of permanent land acquisition, 96 hectares of temporary land use, and 26,606 m2 demolition of houses. The total area of permanent land acquisition was almost the same as the Resettlement Action Plan (RAP), though the areas specified for permanent land acquisition in the RAP were reduced in Hangzhou, Shaoxing, and Jinhua while the area was increased in Quzhou. The total area of temporary land use was 17% higher than the RAP, mainly because of the installation of pipes in Zhuji added in the project restructuring. The total area of housing demolition was 47% lower compared with the original RAP, mainly because the utility design was revised in Tonglu, Hangzhou to reduce housing demolition, and a civil works contract was dropped in Pan’an, Jinhua. The total population affected by land acquisition and resettlement was 4,839, 14% less compared with the RAP. The final resettlement cost was US$20.88 million (RMB142 million) which was about 15.5% lower than the budget in the RAP. Details of land acquisition and resettlement are showed in the tables below. Impacts on the affected people/entities were fully investigated, recorded, evaluated, and disclosed, with participation of the affected people, local governments, and project owners. Proper resettlement schemes for each affected household were developed in consultation with the affected households. Compensation standards for land acquisition and house demolition were not lower than those stipulated in the RAPs. All compensations were paid prior to relocation and actual impacts occurrence. Further, all the eligible affected people, 1207 in total, were totally identified and provided with social security program in line with the national regulation. All rehabilitation measures of economic livelihoods for affected households were implemented in compliance with the RAPs. Compared with the RPs, the following major changes occurred in resettlement implementation: i) minimizing scope of land acquisition and resettlement in Tonglu and Pan’an via design modification; ii) increasing relocation in Jiande and Qujiang due to relocating additional households in buffer zones of the landfill and Qujiang WWTP; and in Longyou due to urban planning modification to adapt to expansion of urban areas. The implementation of RAP was well monitored by Hohai University. Periodical monitoring reports testified, and Bank’s supervision verified at the visited sites, that the affected people restored their standards of living and were generally satisfied with the resettlement implementation. 63 The resettlement implementation also generated such experiences as: i) possessing stable and accountable project management personnel in the PMOs and the Bank task team; ii) implementing Bank safeguards policy to protect households in the buffer zone of landfill and WWTP in Jiande via relocation and resettlement of the households; iii) innovating resettlement approach in Qujiang through acquiring the affected houses but allowing the households to stay till the last moment before demolition of houses; iv) mitigating resettlement via design modifications in Tonglu and Pan’an; v) hiring and engaging early qualified consultants on resettlement planning and monitoring. 64 Table 9.1: Affected Households and People by Land Acquisition and Resettlement Permanent Land Acquisition Demolition of Houses Temporary Land Use City Subproject Planned Actual Planned Actual Planned Actual HH* PPL** HH PPL HH PPL HH PPL HH PPL HH PPL Jiande 59 237 44 132 31 122 14 46 0 0 0 0 Tonglu 84 296 75 225 67 235 0 0 0 0 0 0 Hangzhou Meicheng 42 148 62 220 47 166 35 145 26 92 26 92 Sum 185 681 181 577 145 523 49 191 26 92 26 92 Shaoxing Zhuji 39 159 39 159 0 0 0 0 128 355 128 355 Wucheng 0 0 0 0 0 0 0 0 418 1672 420 1684 Youbu 25 90 25 90 0 0 0 0 56 201 56 201 Jianshan 52 177 57 171 0 0 0 0 0 0 0 0 Jinhua Shenze 192 548 57 150 19 56 3 9 71 185 71 185 Yunshan 0 0 0 0 0 0 0 0 0 0 0 0 Sum 269 815 139 411 19 56 3 9 545 2058 547 2070 Qujiang 58 219 94 374 21 85 1 5 2 8 2 8 Qujiang Longyou 60 210 60 210 18 66 20 76 86 302 86 302 Sum 118 429 154 584 39 151 21 81 88 310 88 310 Total 611 2084 513 1731 203 730 73 281 787 2815 789 2827 * Number of households affected ** Number of people affected 65 Table 9.2: Area and Cost of Land Acquisition and Resettlement Permanent Land Acquisition Demolition of Houses Temporary Land Use Total Cost (RMB 000) City Subproject (Ha) (m2) (Ha) Planned Actual Planned Actual Planned Actual Planned Actual Jiande 3.68 4.6 8360.5 5209 0.7 0 16492.3 22636 Tonglu 12.26 6 20036 0 6.12 0 29819.5 3701.7 Hangzhou Meicheng 17.33 19.33 13395 13395 0.94 0.94 26661.6 40430 Sum 33.27 29.93 41791.5 18604 7.76 0.94 72973.4 66767.7 Shaoxing Zhuji 1.88 0.88 0 0 30.61 54.94 9965.1 12430 Wucheng 0 0 0 0 23.16 23.16 2244.3 1688.9 Youbu 2.69 3.99 0 0 1.45 1.73 5085.9 5790 Jianshan 2.07 2.07 0 0 0.67 0 4109.8 2113.9 Jinhua Shenze 7.75 2.92 2400 700 1.38 1.38 10968.6 4026.9 Yunshan 0.07 0.07 0 0 2.56 0 2259.7 420 Sum 12.58 9.05 2400 700 29.22 26.27 24668.3 14039.7 Qujiang 3.7 11.36 400 400 11.61 10.9 6647.7 17237 Quzhou Longyou 47.51 47.51 5630 6902 2.84 2.84 52755.4 31524.3 Sum 51.21 58.87 6030 7302 14.45 13.74 59403.1 48761.3 Total 98.94 98.73 50221.5 26606 82.04 95.89 167,009.9 141,998.7 66 Annex 10. Operation and Maintenance Arrangements of Built Assets Asset Operator Type of operator Number of Financial staff operating sources in the the utility next five years Zhuji WTP Zhuji Water SOE 25 Tariffs Company Wucheng WTP Jinxi Water SOE 38 Tariffs Company Jiande WWTP Jiande Wastewater SOE 30 User fees Treatment Company Qujiang WWTP Zhejiang Bohua Private firm 22 User fees (and Environment government Technology Co., subsidy if Ltd. needed) Youbu WWTP Beijing Sander Private firm 5 User fees and Environmental government Engineering Co., subsidy Ltd. Jianshan WWTP Xianju County Private firm 10 User fees (and Jinxu government Environmental subsidy if Engineering Co., needed) Ltd. Jiande Sanitary Jiande Urban County-level 10 User fees and Landfill Management government government Bureau agency; SOE subsidy (management); Jiande Solid Waste Treatment Co., Ltd. (O&M) Jiande Leachate Shanghai Tongji Private firm 4 User fees and Treatment Plant Construction Co., (joint venture) government Ltd. subsidy 67 Annex 11. Photos of Project Achievements (1) Zhuji Qingshan Water Treatment Plant 68 (2) Wucheng Tangxi Water Treatment Plant 69 (3) Jiande Chengdong WWTP Phase II 70 (4) Quzhou Chengqu WWTP 71 (5) Lanxi County Youbu Town, Guxi River Before: After: 72 (6) Pan’an County Jianshan District WWTP 73 (7) Jiande Solid Waste Management Meicheng Sanitary Landfill: Closed open dump in Yangcunqiao: 74 MAP SECTION 75 76