Document of The World Bank Report No: ICR2511 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-76040 IBRD-76050) ON TWO LOANS IN THE AMOUNT OF US$120.0 MILLION TO THE PEOPLE’S REPUBLIC OF CHINA FOR AN ECO-FARMING PROJECT December 23, 2014 Agriculture Global Practice East Asia and Pacific Region CURRENCY EQUIVALENTS (Exchange Rate Effective August 15, 2014) Currency Unit = RMB RMB1.00 = US$0.16 US$1.00 = RMB6.15 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS Biogas digester + Improvement of Kitchen, “1+3” M&E Monitoring and Evaluation Toilet and Pig Shed National Development and Reform ADB Asian Development Bank NDRC Commission BP Bank Policy NRBP National Rural Biogas Program CDCF Community Development Carbon Fund NPV Net Present Value CDM Clean Development Mechanism O&M Operation and Maintenance CER Certified Emission Reduction OP Operational Policy DOE Designated Operation Entity PDO Project Development Objective EA Environmental Assessment PIG Project Implementation Group EIA Environmental Impact Assessment PIO Project Implementation Office EIRR Economic Internal Rate of Return PLG Project Leading Group ER Emission Reduction PMO Project Management Office FECC Foreign Economic Cooperation Center PTEG Project Technical Expert Group GEF Global Environment Facility SAP Sustainability Action Plan GHG Greenhouse Gas SEPA State Environmental Protection Agency HH/hh Household T-bond Treasury Bond IBRD International Bank for Reconstruction and Dev. tCO2e Tons of Carbon Dioxide Equivalent United Nations Framework Convention on ICR Implementation Completion Results Report UNFCCC Climate Change MIS Management Information System WB World Bank MOA Ministry of Agriculture Regional Vice President: Axel van Trotsenburg, EAPVP Country Director: Bert Hofman, EACCF Global Practice Director: Juergen Voegele, Ethel Sennhauser, GFADR Global Practice Manager: Nathan M. Belete, GFADR ICR Team Leader: Wendao Cao, GFADR CHINA Eco-farming 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 ...................................................................................................................... 11 4. Assessment of Risk to Development Outcome ..................................................................................... 17 5. Assessment of Bank and Borrower Performance ................................................................................. 17 6. Lessons Learned.................................................................................................................................... 20 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners....................................... 21 Annex 1. Project Costs and Financing ...................................................................................................... 22 Annex 2. Outputs by Component.............................................................................................................. 23 Annex 3. Economic and Financial Analysis ............................................................................................. 27 Annex 4: Implementation Summary of Carbon Finance Component ..................................................... 30 Annex 5. Bank Lending and Implementation Support/Supervision Processes......................................... 44 Annex 6. Beneficiary Survey Results ....................................................................................................... 46 Annex 7. Stakeholder Workshop Report and Results............................................................................... 47 Annex 8. Summary of Borrower's ICR and/or Comments on Draft ICR ................................................. 48 Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders ................................................... 51 Annex 10. List of Supporting Documents ................................................................................................ 52 MAP (CHN35327, CHN35328, CHN35329, CHN35330, CHN35331) ................................................. 53 A. Basic Information Country: China Project Name: Eco-Farming Project Project ID: P096556 L/C/TF Number(s): IBRD-76040,IBRD-76050 ICR Date: 10/20/2014 ICR Type: Core ICR Lending Instrument: SIL Borrower: MINISTRY OF FINANCE Original Total USD 120.00M Disbursed Amount: USD 120.00M Commitment: Revised Amount: USD 120.00M Environmental Category: B Implementing Agencies: Anhui Provincial Agriculture Commission, Anhui Province, China Hunan Provincial Agriculture Department, Hunan Province, China Guangxi Provincial Agriculture Foreign Capital Project Management Center, Guangxi, China Chongqing Agriculture Bureau, Chongqing Municipality China Hubei Enshi Municipal Rural Energy Bureau, Hubei Province, China Ministry of Agriculture, Foreign Economic Capital Utilization Center, Beijing, China Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 05/17/2006 Effectiveness: 05/27/2009 05/27/2009 Appraisal: 06/11/2007 Restructuring: N/A 04/22/2013 Approval: 12/02/2008 Mid-term Review: 05/16/2011 05/27/2011 Closing: 06/30/2014 06/30/2014 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project at No Quality at Entry (QEA): None any time (Yes/No): Problem Project at any time Quality of Supervision No None (Yes/No): (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Agricultural extension and research 10 12 Crops 20 16 Other Renewable Energy 70 72 Theme Code (as % of total Bank financing) Climate change 29 30 Land administration and management 29 28 Other environment and natural resources management 14 12 Rural services and infrastructure 28 30 E. Bank Staff Positions At ICR At Approval Vice President: Axel van Trotsenburg James W. Adams Country Director: Bert Hofman David R. Dollar Practice Manager: Nathan M. Belete Ede Jorge Ijjasz-Vasquez Project Team Leader: Wendao Cao Sari K. Soderstrom ICR Team Leader: Wendao Cao ICR Primary Author: Weiguo Zhou, Bruce Trangmar F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The Project Development Objective was to deliver direct environmental and economic benefits from the integration of biogas in farming and cooking in rural households. In addition, the project aimed to reduce greenhouse gas emissions through methane combustion and reduced burning of coal and firewood in the project areas. Revised Project Development Objectives (as approved by original approving authority) None (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Target Values documents) Years Improved quality of life in rural households as kitchens, farmyards, and surrounding environments are Indicator 1: cleaner and healthier. Quite dirty, especially in summer In each project village Quality of life in the due to manure management. and for project project households has There is a lot of smoke in the households, living been significantly Value kitchens while cooking. conditions are improved demonstrated (quantitative or significantly better. by reduced kitchen smoke Qualitative) Manure management and improved has improved so that environmental conditions. surroundings are much better. Date achieved 03/25/2009 06/30/2014 06/30/2014 This was achieved primarily by project support to 470,141 households for “1+3” systems 1; use of biogas Comments as alternative fuel reducing firewood and coal use and saving cooking time; and cleaner house-yards and (incl. % surrounding environment. 155,560 new water connections provided clean water and hygienic and achievement) sanitary conditions. Raised households’ disposable income as fuel costs, gathering time, and cooking time are reduced and Indicator 2: as biogas slurry replaces synthetic fertilizer and pesticides. Households buy about 1,500kg Per project household, Per project household, coal/year. Spend about 15% of cost for coal will use of coal reduced by cash revenues for chemical decrease by 325kg/year; time saving fertilizer and pesticides. Spend 1- 30-50%, cooking time for cooking by 0.3 hr/day, Value 3 hrs/day on collecting firewood by 1-1.5 hrs/day, time and for firewood (quantitative or and 3-4 hrs/ day for cooking. for firewood collection collection by 0.12 hr/day; Qualitative) by 2 hrs/day. Part of replacement of a large chemical fertilizer and portion of chemical pesticides is replaced by fertilizer and pesticides biogas slurry. by bio-slurry. Date achieved 03/25/2009 06/30/2014 06/30/2014 Due to increase in the price of alternative energy sources, monetary savings for fuel per HH/year Comments exceeded the appraisal target by 127 percent. The increased disposable household income was a (incl. % combined result of reduced fuel expenses, saved labor time value, reduced farm production costs and the achievement) higher value of the improved quality and efficiency of farm production and livestock production. Reduction in greenhouse gas emissions as CH4 is extracted from wastes and converted to CO2 as it is Indicator 3: burnt as fuel. Value Currently households emit about Accumulative. Year 5: 785,000 tCO2e per year (quantitative or 4 tCO2e per hh/year. 800,000-1,000,000 Qualitative) tCO2e per /year. Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments The actual value achieved is slightly below the appraisal target value range due mainly to the actual 1 A phrase used under the project for construction of bio-digester and improvement of kitchen, toilet and pig shed. (incl. % reduced number of participating households (by 13%) and applying an ER rate from Hubei CDM Pilot achievement) Program which is smaller than anticipated (by 16.5%) at project appraisal. (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Target Values documents) Years Indicator 1: Targeted clients satisfied with agricultural services (percentage). Value (quantitative or 0.00 75.00 87.50 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments The original target value was over achieved by 12.5 percentage points. (incl. % achievement) Indicator 2: Targeted clients satisfied with agricultural services -male (number). Value (quantitative or 0 119,000 236,522 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments The actual value was almost double the original target value. (incl. % achievement) Indicator 3: Targeted clients satisfied with agricultural services - female (number). Value (quantitative or 0 277,000 197,289 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments The actual value achieved was about 29 percentage points less than the original target value caused by (incl. % achievement) the actual reduced number of participating household (by 13%). Indicator 4: Targeted clients - male (number). Value (quantitative or 0 158,400 251,621 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments The actual value achieved was about 59 percent more than the target value. (incl. % achievement) Indicator 5: Targeted clients – female (number). Value (quantitative or 0 369,600 214,342 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments The actual value achieved was only about 58 percen t of the original target value caused by the actual (incl. % achievement) reduced of participating household (by 13%). Indicator 6: Clients who have adopted an improved agricultural technology promoted by the project (number). Value (quantitative or 0 0 344,346 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments A newly added indicator at project Restructuring. The actual value achieved was 104 percent of the set (incl. % achievement) end target value. Indicator 7: Clients who adopted an improved agricultural technology promoted by project – female (number). Value (quantitative or 0 280,000 280,092 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments Despite the actual number of participating household (by 13%), the achieved value is still higher than (incl. % achievement) the original target value. Indicator 8: Roads constructed, Rural (km). Value (quantitative or 0 8,328 1,798 1,771 Qualitative) Date achieved 03/25/2009 06/30/2014 04/11/2013 06/30/2014 Comments The three types of rural roads were combined as one at project Restructuring in April 2013 and actual (incl. % achievement) roads constructed was 1771 km or 98percent of the adjusted target. Indicator 9: Client days of training provided (number). Value (quantitative or 0 1,812,681 1,454,866 1,464,254 Qualitative) Date achieved 03/25/2009 06/30/2014 04/11/2013 06/30/2014 Comments Number of farmers trained and project staff trained was combined at project Restructuring in April (incl. % achievement) 2013. The adjusted target number of training days was fully achieved. Indicator 10: Client days of training provided - Female (number). Value (quantitative or 0 0 0 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments Neither original target value was set nor actual achieved data was provided. (incl. % achievement) Indicator 11: Number of households who have implemented hh packages. Value (quantitative or 0 400,000-500,000 443,958 470,141 Qualitative) Date achieved 03/25/2009 06/30/2014 04/11/2013 06/30/2014 Comments The actual number of participating hh was within the original target and about 6 percentage points (incl. % achievement) higher than the adjusted number set at project Restructuring in April 2013. Indicator 12: Greenhouse gas emissions (tCO2e) from project households' cooking. Value (quantitative or 4 tCO2e per household per year 880,000 785,000 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 The GHG emission target value was under achieved. This is due mainly to the actual reduced number Comments of participating households (by 13%) and applying an ER rate from Hubei CDM Pilot Program which (incl. % achievement) is smaller than anticipated (by 16.5%) at project appraisal. Indicator 13: Chemical fertilizers and pesticides used by project households. Value Decrease by 20-30% per (quantitative or 500-1,500 kg/hh/year target household and 405kg/hh/year Qualitative) year Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments The original target was over achieved with a decrease by 19-73 percent. (incl. % achievement) Indicator 14: Percent of project households expressing improved quality of life due to biogas. Value (quantitative or 0.00 90.00 96.00 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments The original target value was over achieved by 6 percentage points at project completion. (incl. % achievement) Indicator 15: Changes in project household cash expenditures on fuel (hh/year). Value Decrease by about Decreased by about (quantitative or RMB500-1,000 RMB200-400 RMB806 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments Savings for annual average household cash expenditure on fuel exceeded the PAD target by 127 (incl. % achievement) percent based on the PAD target of RMB355 (Annex 10 of PAD). Indicator 16: Changes in project household cash expenditures on fertilizers and pesticides (hh/year) Value Decrease by about Decreased by about (quantitative or RMB1,000-2,000 RMB100-400 RMB222 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments The actual value achieved was within the original target value range while the cash expenditure on (incl. % achievement) fertilizers and pesticides for non project households decreased by only about RMB24 in comparison. Indicator 17: Project household time spent on collecting and preparing fuel (hour/day). Value (quantitative or 1-3 1-2 0.24 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments The actual household time spent on collecting and preparing fuel was much less than the baseline (incl. % achievement) value. Indicator 18: Project household time spent on cooking (hour/day). Value (quantitative or 3-4 2-3 1.8 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 The actual household time spent on cooking was 0.2 to1.2 hours/day less in average than the original Comments target values. Note: cooking time for baseline and as PAD target in Annex 10 of the PAD (51 labor- (incl. % achievement) day/year and 30 labor-day/year respectively) is not consistent with the values listed in this indicator. Indicator 19: Project household time spent on cleaning biogas system (hour/hh/year). Value (quantitative or 168 120 144 Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments The actual time spent on cleaning biogas system was not up to the original target; however, it was 24 (incl. % achievement) hours/hh/year less than the baseline value. Indicator 20: Number of new households connected to village water supply systems (Anhui, Chongqing, Guangxi). Value (quantitative or 0 167,800 154,808 155,560 Qualitative) Date achieved 03/25/2009 06/30/2014 04/11/2013 06/30/2014 Comments The original target number was downsized at project Restructuring in April 2013 and the adjusted (incl. % achievement) target value was fully achieved. Indicator 21: Number of farmers trained in biogas operation and management, and in new farm production practices (person days). Value (quantitative or 0 1,774,356 1,502,266 1,510,480 Qualitative) Date achieved 03/25/2009 06/30/2014 04/11/2013 06/30/2014 Comments The adjusted target number of farmer training days at project Restructuring in April 2013 was fully (incl. % achievement) achieved. Indicator 22: Number of project staff trained (person days). Value (quantitative or 0 16,950 18,500 18,825 Qualitative) Date achieved 03/25/2009 06/30/2014 04/11/2013 06/30/2014 Comments The original target number of staff training days was fully achieved. (incl. % achievement) Indicator 23: Number of workshops conducted. Value (quantitative or 0 20 55 25 Qualitative) Date achieved 03/25/2009 06/30/2014 04/11/2013 06/30/2014 Comments Both original and adjusted target values were not achieved due largely to the central government (incl. % achievement) restriction on travel activities. Indicator 24: Number of study tours conducted (person/day). Value (quantitative or 0 50 40 35 Qualitative) Date achieved 03/25/2009 06/30/2014 04/11/2013 06/30/2014 Comments Both original and adjusted targets of study tours were not achieved due largely to the central (incl. % achievement) government restriction on travel activities. Project progress and impact monitoring carried out with an MIS and M&E system agreed upon with Indicator 25: the Bank. Reports generated by Reports generated by Value MIS and M&E and MIS and M&E and were (quantitative or None submitted to the Bank in submitted to the Bank on Qualitative) a timely manner an agreed schedule. Date achieved 03/25/2009 06/30/2014 06/30/2014 Project M&E was carried out through implementation of three monitoring systems specifically Comments developed for project progress monitoring (MIS), project impact monitoring, and project social and (incl. % achievement) environmental monitoring. Indicator 26: % of targeted clients satisfied with agricultural services Value Year 3: 50%; Year 5: (quantitative or 0 Data not collected 75% Qualitative) Date achieved 03/25/2009 06/30/2014 06/30/2014 Comments This indicator was dropped at project Restructuring in April 2013. (incl. % achievement) Indicator 27: Number of farmers visited demonstration sites. Value (quantitative or 0 None specified n/a Data not collected Qualitative) Date achieved 03/25/2009 06/30/2014 04/11/2013 06/30/2014 Comments This indicator was dropped at project Restructuring in April 2013. (incl. % achievement) Indicator 28: Number of technician visits to farmers. Value (quantitative or 0 None specified n/a Data not collected Qualitative) Date achieved 03/25/2009 06/30/2014 04/11/2013 06/30/2014 Comments This indicator was dropped at project Restructuring in April 2013. (incl. % achievement) Indicator 29: % of trained farmers adopting the new practices. Value Year 3: 50%; Year 5: (quantitative or 0 n/a Data not collected 75% Qualitative) Date achieved 03/25/2009 06/30/2014 04/11/2013 06/30/2014 Comments This indicator was dropped at project Restructuring in April 2013. (incl. achievement) Indicator 30: % of project hh expressing reduction in travel/transportation time. Year 3: 50% of target Value households; Year 5: (quantitative or 0 n/a Data not collected 100% of target Qualitative) households Date achieved 03/25/2009 06/30/2014 04/11/2013 06/30/2014 Comments This indicator was dropped at project Restructuring in April 2013. (incl. % achievement) G. Ratings of Project Performance in ISRs Date ISR Actual Disbursements No. DO IP Archived (USD millions) 1 04/28/2009 Satisfactory Satisfactory 0.00 2 06/30/2009 Satisfactory Moderately Satisfactory 0.00 3 02/12/2010 Satisfactory Moderately Satisfactory 8.05 4 02/21/2011 Satisfactory Moderately Satisfactory 27.27 5 04/06/2012 Satisfactory Moderately Satisfactory 53.22 6 05/15/2013 Moderately Satisfactory Moderately Satisfactory 71.10 7 12/22/2013 Satisfactory Satisfactory 98.73 8 06/21/2014 Satisfactory Satisfactory 115.67 H. Restructuring (if any) A level 2 restructuring was approved by the acting Country Director for China in April 2013. The key adjustment introduced was to increase the sub-financing reimbursement amount of household package unit costs for all project provinces except Chongqing (see section 1.7) without Bank loan proceeds reallocation among expenditure categories. Some intermediate outcome indicators were also modified accordingly. I. Disbursement Profile 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1.1.1 Country and Sector Background. China's rapid economic development was accompanied by serious degradation of the environment affecting many areas and having its origins in several sectors, including agriculture. Intensive and mechanized farming, desertification, natural disasters, over-use of synthetic pesticides and fertilizers, and the rapid growth in livestock production were already beginning to take a toll on the resource base. Although there was significant migration out of farming to urban areas, millions of households still derive their livelihoods from agriculture, and their well-being and prospects for the future depend on the improved management of the natural resource base. 1.1.2 The intensification of Chinese agriculture was characterized by a shift to higher- valued crops, many of which are more nutrient-demanding and susceptible to pests than traditional crops. This resulted in an increase in use of pesticides and synthetic fertilizer which was starting to meet increasing consumer resistance in China. The rapid expansion of livestock production, while being interpreted as a generator of rural income and employment, also posed an environmental challenge in terms of waste disposal. 1.1.3 Although small farm households traditionally gathered firewood for fuel, substitution by coal for wood was increasingly taking place. Intensified use of both fuels had obvious environmental consequences: deforestation and air pollution respectively. In addition to more widely recognized atmospheric pollution, coal’s pollution was also apparent indoors, affecting households’ health and general welfare. Both fuels also made for slow cooking, and wood was time-consuming to collect. 1.1.4 The Government of China saw biogas utilization as a means of improving the lives of rural households and addressing environmental degradation. Biogas could easily emerge as an alternative fuel that is clean, cheap, requires no time-consuming collection, providing quick heat, and offered biogas slurry as a cheap source of natural fertilizer, rich in nutrients and organic matter. Households’ conversion of animal manure and other wastes to biogas reduced emissions of methane into the atmosphere. Until 2008, China’s biogas production from human, animal and other organic wastes had received strong government promotion and accompanying subsidies because it was seen to have significant local environmental benefits, among other positive externalities. A large National Rural Biogas Program (NRBP) was launched in 2001 with total investments by the time of project preparation of more than US$440 million. By 2007, more than 750 large- and medium-size biogas projects had been completed and a total of 7.2 million rural households were cooking using biogas. 1.1.5 It was anticipated that during the 11th Five-Year plan about US$7.3 billion would be invested in rural biogas development in China, through central government grant programs (estimated at US$1.9 billion), local government grant programs, internationally-financed programs (such as those supported by the World Bank and the Asian Development Bank - ADB) and private investments. With the commitment of the 1 government to building the “new socialist countryside 2 ”, biogas was a particularly attractive option because it could deliver both social and economic benefits to rural residents and also address environmental degradation issues simultaneously. 1.1.6 This project strategy was to operate at the interface of these rural agriculture- related development issues, in continuing to, and intensifying, harnessing livestock waste and crop residues to generate biogas as an energy source. It also proposed farm-level integrated management to support biogas production as a means of improving the lives and livelihoods of rural households. Based on the lessons learned during the two earlier major biogas campaigns, the government had invested in applied research, formulating rules and regulations, improving the technical design and quality, creating technical standards, and establishing centers to train and certify technicians. These measures had improved the construction and service systems. However, the sustainability of the biogas investments was hindered by inadequate support systems, especially at the post- installation stage such as technical support for sustainable operation and maintenance of the systems. Systematic and quantifiable monitoring and evaluation (M&E) indicators were also required to be developed to assess the economic, social and environmental benefits of the proposed multi-billion dollar government-led biogas development program. 1.1.7 Rationale for Bank Involvement. The project was consistent with two strategic areas of the Bank’s Country Partnership Strategy (2006-2010) for China. First, it aimed to manage resource scarcity and environmental challenges by contributing to improved land management and energy use and to protection of global environmental commons. Second, it aspired to reduce poverty, inequality and social exclusion by promoting sustainable income increase in rural areas. Overall, the project would contribute to the development of social infrastructure, energy security and enhancement of rural livelihoods – in line with the development objectives in the Government’s 11th Five-Year Plan. 1.1.8 Bank engagement in the project would assist the government in developing and testing approaches that will enhance biogas impacts and the methods to monitor them at the local level. The project would combine the use of Bank funds with the NRBP funds. Technical innovations would include demonstrations of how to better integrate biogas into on-farm production systems, and the establishment of systematic M&E processes at local level. An activity attempting to utilize carbon finance for household-level biogas development was to be piloted in parallel to the main project. 1.2 Original Project Development Objectives (PDO) and Key Indicators 1.2.1 Project Development Objective. The project development objectives were: (a) to deliver direct environmental and economic benefits from the integration of biogas in farming and cooking for rural households in the project areas; and (b) to reduce greenhouse gas emissions through methane combustion and reduced burning of coal and firewood in the project areas. 2 The concept of building a “new socialist countryside” incorporates investments in infrastructure, health, and education, social development and a grassroots democratization process. 2 1.2.2 Key Indicators of Project Performance. The project had three main PDO indicators: (a) Improved quality of life in the targeted households; (b) Increased disposable income for targeted households; and (c) Reduction in greenhouse gas emissions. 1.2.3 The project’s main private benefits consisted of the project households’ reduced expenditures for energy, saved time and improved living conditions. The households would also benefit from savings on chemical fertilizer purchases, improved agricultural practices and increased farm productivity. The main public benefits included reduced greenhouse gas emissions and increased carbon recycling through the reduced use of coal and biomass for energy. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 1.3.1 Neither the PDO nor its indicators were revised during project implementation. 1.4 Main Beneficiaries 1.4.1 Project primary target groups comprised the following: (a) Project households receiving the bio-bas development package. Between 400,000- 500,000 households were to benefit from significantly improved quality of life demonstrated by much improved living conditions and increased household revenue. (b) Project households under the Clean Development Mechanism (CDM) Pilot Program in Enshi prefecture of Hubei province. About 33,000 households, in addition to the benefits listed above, were to also benefit from trading of certified emission reductions (CERs) to further increase revenue as well as awareness and knowledge of CDM programs. (c) Local technical extension and biogas service technicians. This group was to benefit from improved service system and facilities, renewed knowledge and skills through training; and increased revenue from increased demand for services e.g. biogas system construction, operation and maintenance (O&M), trouble shooting and training. (d) National, local governments and their officials in Project Management Offices (PMOs). These agencies would have enhanced their capacities and skills in introducing innovative project design; in supporting efficient project implementation; and in regulating and monitoring an integrated and innovative project. 1.5 Original Components (as approved) 1.5.1 The project comprised three components and was implemented in five project provinces over five years: (a) Component 1: Integrated Eco-Farming Systems (US$ 382million, 28% IBRD financing). This component consisted of two sub-components: A. Integrated 3 Household Systems. Biogas systems (digesters, stoves and related equipment) were to be installed in households. Related household infrastructure (animal sheds, toilets and kitchens) were to be built or rehabilitated. Investments comprised integrated biogas-farm production packages, improvements to related farm infrastructure and production systems (e.g., new varieties of crops, and orchard rehabilitation). The combination of these investments would lead to improved quality and efficiency of farm production, including partial substitution of chemical fertilizer and pesticides with biogas residue. Linked with this component, a CDM Pilot Program was developed to: (i) demonstrate technical and methodological approaches for reducing greenhouse gas (GHG) at the household level; and (ii) pilot a carbon credit trading process for household-based GHG emissions in eight counties of Enshi prefecture in Hubei province. B. Community Development. To achieve maximum benefit from the integration of biogas with farm production, limited investments in rural water supply and village roads - as needed – were to be supported. Investments in water supply would enhance the impact on household health. Investments in rural roads would assist in optimizing the farm production system. A participatory planning process was to be implemented for the community development activities to ensure that household and community priorities are reflected in activity selection. (b) Component 2: Local Technical Extension and Biogas Service System (US$ 15 million, 52% IBRD financing). This component consisted of two sub- components: A. Service System Improvement. This aimed to improve the effectiveness of the biogas service system by financing refurbishment of service system facilities, providing equipment, supporting biogas and farmer associations, and applied research. B. Training. This would train households in biogas operation and maintenance, and integration of biogas with household production systems. A comprehensive training program would be implemented for technicians (county, township, farmer technicians) and farmers in biogas systems and farm management. (a) Component 3: Project Management, Monitoring and Evaluation (US$ 24 million, 17% IBRD financing). This component, comprising three sub-components relating to project management, institutional capacity building, and monitoring and evaluation, would respond to the need for establishment of an efficient and effective project management structure and systems, with well trained and appropriately resourced staff to implement and monitor the progress of the project and the impact of the various activities under the project. 1.6 Revised Components 1.6.1 The project components were not revised. 1.7 Other significant changes 1.7.1 Level 2 Restructuring in April 2013. The main focus of the restructuring was: (a) to reduce the number of “1+3” system households adopting the package resulting from increased unit costs, depreciation of the US Dollar, and unchanged total amount of World Bank loan. The total number of beneficiary households were reduced by 94,692 (17.6%) from an original total of 538,650 to 443,958. This was still within the overall 400,000- 4 500,000 households range specified in the Results Framework; and (b) to modify the list of Intermediate Outcome Indicators, as follows: (a) Number of new households connected to village water supply systems: Revised up from 150,000 to 154,800; (b) Length of new village roads connecting households to village roads: Revised up from 500 kms to 1,400 kms; (c) Percentage of households expressing reduction in travel/transportation time: Dropped; (d) Number of farmers trained in biogas operation and management, and in new farm production practices (person days): Revised from 300,000 to 1.5 million; (e) Percentage of farmers using new practices: Dropped; (f) Clients who have adopted an improved agriculture technology promoted by the project; New: 330,000 (of which 280,000 women) or 75% of the revised 440,000 households; (g) Number of technician visits to farmers: Dropped; (h) Number of farmers attended demonstration sites: Dropped; (i) Percentage of farmers satisfied with technical and biogas extension services: Dropped; (j) Targeted clients with satisfied agriculture services (%): New: 75% (or 396,000) (k) Targeted clients satisfied with agriculture services (number): New: 119,000 males and 277,000 females (totaling to 396,000); (l) Targeted clients: New: 158,400 males and 369,600 females (totaling to 528,000). 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 2.1.1 Project preparation took full account of the extensive experience and lessons learned from a large number of Bank funded projects in China and elsewhere, projects funded by other international agencies, as well as the various national biogas development programs in China. Such lessons covered aspects relating to technical design, institutional arrangements, capacity building and training, private benefits, project management and leadership, counterpart funds, monitoring and evaluation. 2.1.2 The project applied a comprehensive approach to fully integrate biogas development into farm production systems, including biogas technology solutions and biogas-related on-farm investments; institutional strengthening of biogas service and extension systems at provincial, county, township and village levels; technician, farmer and household training programs in integrated biogas and farming practices; and improved M&E systems. The project was fully integrated with the government’s NRBP in project provinces to achieve the maximum environmental, economic and social benefits and was built on existing institutional systems for implementation. The project also considered various alternatives to strive for an optimal design focused on innovation and practicality. 2.1.3 The project assessed ten major potential risks and suggested appropriate mitigation measures at project appraisal. These were indeed the rightly identified major risks the project encountered during project implementation except the risks of reduced 5 coal price and reduced fertilizer/pesticide costs. In fact, market prices for coal, fertilizer/pesticide went up steadily. There is another risk that was not well identified is the risk of a reduction in pig farming and consequent shortage of manure which in turn poses a risk to the development outcome, if not handled properly. In many project locations the number of pigs raised in small-scale household-based operations declined significantly over the period of the project. This was partly due to increased urban migration (hence a lack of labor in villages). To a large extent it was also due to the introduction of central government policies encouraging commercial pig raising in large- scale operations, which resulted from concerns about food safety, an action which was unforeseen at the project design stage. In line with the risks, the project took various serious and solid actions throughout the project implementation to tackle these risks. As a result, the project was able to maintain the overall risk rating to a Moderate at the time for preparation of the ICR. 2.1.4 Project design and preparation were carried out in a full participatory process. Wide coverage surveys and various awareness raising campaigns were organized in all project provinces. Project activities were decided based on results of such surveys and campaigns. Community development activities were selected through a participatory planning process to ensure that household and community priorities were reflected in activity selection. The process involved households, community leaders, women’s representatives, minorities, PMOs, and technical experts to ensure that technical quality requirements were met. Participating households were also selected through a participatory approach. Among the selection criteria to ensure ownership of project activities was their willingness to participate and commitment to carry out project activities and use biogas as the major fuel following project implementation. 2.1.5 The project pioneered piloting a household-based biogas CDM initiative. The design of the CDM Pilot Program was relevant and the Program achieved all its expected outputs. It is the first registered household-based CDM biogas digester project in China. 2.2 Implementation 2.2.1 Overall project implementation was successful with almost all adjusted physical targets achieved by the original project closing date. The overall implementation quality of works remained satisfactory throughout the project implementation. 2.2.2 A formal project Mid-term Review was conducted for the project in May 2011. The mission highlighted a number of issues – slow implementation progress, slow reimbursement, slow checking and acceptance progress, slow availability of county counterpart funding, poor evidence of adoption of improved farm management initiatives (improved rice varieties or rehabilitated orchards), incomplete implementation of the “1+3” system, poorly functioning biogas associations and cooperatives in some counties, no environmental monitoring of bio-slurry and groundwater around the biogas pit. The mission provided a range of recommendations to address these issues and endorsed the government’s proposal for a project restructuring. 2.2.3 Following up on the recommendation of the MTR mission, a number of actions were taken and major progress was made in addressing main issues identified. One of the key actions taken was project restructuring in April 2013 after long discussions with China’s National Development and Reform Commission (NDRC). The key adjustment 6 introduced was to increase the sub-financing reimbursement amount of household package unit costs for all project provinces except Chongqing without Bank loan proceeds reallocation among expenditure categories. Some intermediate outcome indicators were also modified accordingly. The key change was necessary due to a sharp increase in unit cost of the “1+3” systems and the significant devaluation of the US$ of the Bank loan that has reduced the total amount of RMB available for the project financing. As a result, (a) the scale of “1+3” systems in four of the five project provinces was downsized; (b) minor adjustments among activities under the Community Development sub-component were agreed; (c) total number of project counties was increased to 65 from 64 identified at appraisal; (d) the total project costs were increased by about 5 percent; and (e) changes were made to the intermediate outcome indicators to better reflect the project achievements (see section 1.7 on Other Significant Changes). However, the PDO, project design, targets at the outcome level, the intended demonstration effect of the project and the project’s legal agreements remained unchanged. Project implementation has never been at Risk status. This restructuring proved to be very effective in accelerating project implementation and disbursement. 2.2.4 The CDM Pilot Program addressed all the issues and challenges, demonstrated the successful household-based biogas program development and operation approaches. The Program also demonstrated the mechanism in using the carbon emission reduction revenue as leverage to strengthen the biogas service support system, including monitoring system, and institutional capacity at community level. This CDM program has fulfilled its pioneer role through new methodology development to quantify the generated emission reduction (ER) and has paved the way for replication in similar CDM projects. The validations proved that the project biogas digesters were operated well and around 95.4 percent of designed CER amount was delivered by the project during the reporting period. The project has also demonstrated as a role model of successful CDM transaction for Community Development Carbon Fund (CDCF) portfolio by delivering a total of 213,940 tCO2e CERs, from February 2009 to December 2012. During implementation, the Program was awarded national and provincial/ministerial prizes including “1st Prize: China Agricultural Sci-technology Advancement”, “2nd Prize: State Sci-technology Advancement”. The Program is one of the best delivery performances in the Bank’s carbon finance portfolio with a stable delivery of about 53,500 tCO2e CERs annually. Please see Annex 4 for detailed CDM Biogas Pilot implementation summary. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 2.3.1 Project M&E was designed to assess the project’s economic, social and environmental impact and identify best practices for dissemination. The M&E system was developed based on overall project design and experience drawn from other similar projects. A large number of systematic and quantifiable M&E indicators were carefully selected to track project outcomes and outputs. This was the first project to introduce the results-based M&E system to the government’s NRBP in China. 2.3.2 Project M&E was carried out through implementation of three monitoring systems specifically developed for project progress monitoring, project impact monitoring, and project social and environmental monitoring. The M&E system comprised (a) a Management Information System (MIS), funded jointly by all five project provinces, was developed by the central PMO and used regularly by all PMOs at 7 central, provincial and county levels as an efficient tool for physical progress monitoring, contract-based procurement management and financial management; (b) project impact monitoring was conducted through village surveys, farmer household surveys and kitchen air quality sampling in years 1, 3 and 5 of project implementation. These surveys and sampling were undertaken in 15 project counties by independent institutions which provided creditable monitoring results; (c) project social and environmental monitoring was carried out throughout the project implementation. Training was provided for all project households (including women and minority participants) focusing on safe utilization of biogas and bio-slurry. Local languages were used where minority participants were concentrated. Environmental monitoring focused on the pathogenic level of bio-slurry and groundwater quality through sampling in 10 project counties for three consecutive years. This was lagging behind project implementation in earlier years of project implementation due mainly to weak capacity and lack of funding. Environmental monitoring was organized by each province and thus was conducted less consistently among project provinces. With special efforts made, environmental monitoring in all project provinces was accelerated to catch up in the last two years of project implementation. The results of last round of monitoring show that the pathogenic level of bio-slurry meets relevant national standards and most of the groundwater monitored also met applicable national standards. 2.3.3 Monitoring of key performance indicators undertaken by 15 sampling counties through household survey using questionnaires was unprecedented in terms of comprehensiveness, volume of information gathered and tremendous effort made by the PMOs. However, the design of the questionnaires could be improved as some questions were not so relevant or found to be unnecessarily too detailed, whereas other important aspects for the project (e.g. use of bio-slurry) should have been investigated in more detail. Experience and lessons should be well analyzed in order to benefit similar endeavors in the future. 2.3.4 Successful issuance of CERs over the past four reporting years demonstrated the Pilot Program’s full compliance with CDM monitoring requirements. Key features of the satisfactorily implemented monitoring and reporting system of project activity included: (a) centralized monitoring system ensuring all required data to be collected and maintained in a systematic manner; (b) solid organizational arrangements among implementation parties at all levels; (c) representative sampling plan ensuring a reasonable size of randomly sampled households on an annual basis; and (d) a training system in place covering training for all parties involved in the Program and including methodologies for CDM program related monitoring. 2.4 Safeguard and Fiduciary Compliance 2.4.1 Safeguard Compliance. (a) Social safeguards. It was decided at project appraisal that the Bank’s policies on Involuntary Resettlement (OP/BP 4.12) and Indigenous Peoples (OP/BP 4.10) were triggered. However throughout project implementation, it was concluded that: (i) neither land acquisition nor resettlement was required since all village roads were constructed on the basis of existing roads; and (ii) the Ethnic Minority 8 Development Plan was fully implemented by Hubei, Hunan and Guangxi where the Bank OP4.10 policy was triggered. (b) Environmental safeguards. The project was classified as Category B and triggered safeguard policies on Environmental Assessment (OP/BP 4.01). Measures for environmental assessment (EA) were followed in terms of construction of biogas facilities and village infrastructure. However, proper use of bio-slurry and associated training were relatively weak in earlier years of project implementation. Bio-slurry was mostly applied for backyard vegetable gardens and orchards rather than for staple crops or commercial vegetables in the field due mainly to the limited amount of bio-slurry generated by the household, transport cost, fertilizing frequency and quality enhancing effect on different agro-produce. Therefore, benefits of bio-slurry on soil and plants under the project should not be overestimated. 2.4.2 Fiduciary Compliance. (a) Procurement. The overall procurement was carried out in a satisfactory manner. This is despite the fact that the procedures of the Community Participation in Procurement were not strictly followed by some project counties in earlier years of project implementation. This was due mainly to lack of experience of county PMOs. Both the Bank’s Procurement and Consultant Guidelines were closely followed by all PMOs. (b) Financial Management. The overall project financial management was undertaken in a satisfactory manner which was assessed by the three main financial indicators i.e. counterpart fund delivery rate, investment completion rate, and loan disbursement rate. Counterpart fund delivery has been exceptional for the project as a whole which exceeded the committed amount. Counterpart funds were provided in a timely manner despite shortfalls remaining an issue in a few poorer project counties throughout the project implementation period. Project investment and loan disbursement were completed by project closing (June 30, 2014), although both investment completion rate and loan disbursement rate were lagging behind the PAD schedule prior to project restructuring (April 2013). The audit reports were timely and unqualified. 2.5 Post-completion Operation/Next Phase 2.5.1 It is highly likely that project financed facilities (i.e. “1+3” systems and village infrastructure (drinking water supply facilities and village roads)) as a whole will continue to be operated in a sustainable manner after project completion. This was ensured basically by: (a) the beneficiary households’ full ownership of the project financed “1+3” systems; (b) transition arrangements to post-completion operations developed by project counties and provinces; and (c) the O&M arrangements for project financed investments. The project efforts also received an additional impetus in the adoption of the 12th Five-Year Plan (2011-2015), which vigorously strives to green China’s growth process and lower its carbon intensity. 2.5.2 The project transition arrangement focused on sustainable operation of the biogas digesters constructed under the project within their designed life span of 10 to 15 years 9 and covering all project supported biogas digesters 3. A number of innovative models for sustainable operation of “1+3” systems were developed and successfully tested during the project implementation (see section 3.5.3 for details). These models, spread among project provinces and broadcasted in local media, provided practical options for sustainable post-completion operations. 2.5.3 The project O&M arrangements were carefully made. For “1+3” systems, the O&M responsibilities clearly rest with the beneficiary households supported by the service stations as households do not have the expertise to self-service their digesters. As an integral part of the national network, the project financed biogas technical extension and service system in all project provinces has been under the regular supervision and monitoring of the Rural Energy Offices. They receive continuous support from the central and local governments. The O&M responsibilities for the project financed village infrastructure would be transferred to: (i) relevant households and village committees for drinking water supply facilities; and (ii) county Transportation Bureaus, village committees or relevant enterprises respectively for village roads according to the specific nature of different village roads. 2.5.4 Various replication options were considered as part of post-completion actions: (a) replication of project experience within the jurisdiction of project county and province to remaining households suitable for construction of household biogas digesters; (b) replication of project experience to other counties and other provinces beyond project jurisdiction through NRBP and other government funded programs; and (c) replication of project experience to or knowledge sharing with other countries through the World Bank Institute and South-South Cooperation Program. The Central PMO has initiated a program to disseminate and replicate the project results. 2.5.5 Some project counties have developed a comprehensive Sustainability Action Plan (SAP) to incorporate best practices, successful experience and lessons learned from their own operations as well as from other project counties. The SAPs also spell out the detailed actions for transition arrangements to post-completion operation, O&M arrangements, institutional and funding arrangements, and the replication options. These SAPs formed a solid base to ensure the project’s long-term sustainability. Anhui reported that the provincial Finance Bureau has made an allocation of RMB22 million to continue supporting development of sustainable systems for O&M. 2.5.6 Hunan province has launched preparation of a new Agricultural Production Base Safety and Quality Improvement Project funded by a US$100 million IBRD loan. The new project is expected to involve similar government agencies as this project. Though still at the initial stage, support to sustainability of this project’s infrastructure and replication of project experience in the new project is being considered. 2.5.7 The successful experience of the CDM Pilot Program was extended to broad areas in China and beyond through site visits, south-south CDM workshops and various other approaches. More than 20 delegations from a number of provinces in China as well 3 Excluding those households without any user all year round, resettled away from the constructed biogas digesters, no longer showing any interest in using biogas for whatever reason. 10 as delegations and expert groups from Vietnam and other countries have visited the Program area. Similar CDM projects were replicated within China and in other countries. The stable carbon revenue stream provided incentives to participating households to maintain the performance of the biogas facilities. Following the Program’s effective performance-based rewarding mechanism, the Hubei government has been piloting the same mechanism to encourage its households to maintain their biogas digesters. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation 3.1.1 The project development objective remains relevant in terms of addressing issues in China relating to intensive agriculture (e.g. fertilizer substitution), livestock production (e.g. productive use of waste), and income increase in rural areas (e.g. through energy cost savings). The project developed solutions relating to biogas use for integration with farm production models and sustainability of the biogas approach itself, including service system development. The project design remains highly relevant and could be easily replicated across China in other areas where biogas facilities already exist or where there is a need to make biogas sustainable. 3.1.2 The project, as designed and implemented, addressed China’s priorities that remain highly relevant today, notably (a) increasing rural incomes; (b) building new socialist countryside; and (c) achieving the development objectives in the 11th Five-Year Plan. The project developed innovative and replicable models for China to address these priorities. The successful experience under the project is also of global significance for other countries to follow. The project addresses the GHG emission reduction issue, one of the global priorities through a household-based CDM Pilot Program in one of the project provinces. The project design and implementation are also highly relevant to two strategic areas of the Bank’s Country Partnership Strategy for China i.e. (a) managing resource scarcity and environmental challenges; and (b) reducing poverty, inequality and social exclusion (see section 1.1.3). 3.2 Achievement of Project Development Objectives 3.2.1 The project fully achieved its two development objectives as measured against the key indicators defined at the time of project appraisal. The first indicator was the improved quality of life in the targeted households which was reflected through actions in two specific areas: (a) reduction in smoke in kitchens while cooking; and (b) improvement in the dirty environment resulting from poor manure management. Smoke in kitchens while cooking was greatly reduced as a result of reduced use of firewood and coal as fuel which is the primary source of kitchen smoke and household ambient environment. Project monitoring results showed that use of firewood and coal was reduced respectively by 568 kg and 325 kg in average per HH/year and also time spent for cooking was reduced by 16 days in average per HH/year. Comparing the situations between project closing and baseline, project households with indoor air quality coming up to the national standards increased by 21.6 percent; household members with respiratory problems such as occasional cough, phlegm, asthma and 11 children with occasional cough, phlegm or breathing difficulties, and diarrhea all decreased, without exception, ranging from 1.6 to 6.5 percent for households among participating provinces. Project monitoring results also showed that pathogenic level of bio-slurry and most groundwater quality monitored met applicable national standards. Environmental conditions in all participating households were significantly improved primarily by implementation of the “1+3” systems. The bio-digesters using and treating the pig manure as well as other kitchen and human wastes, and the three improvements, namely animal sheds, kitchens and toilets upgrades helped achieve a cleaner environment in the house and in the farm yards. About 470,000 households deployed this package, indicating the extent of the spread of the clean environment actions, compared with the revised target of about 444,000 households. In addition, the project supported 155,560 new water connections provided clean water and hygiene and sanitary conditions in the households. All of these contributed to cleaner environment of the participating households. 3.2.2 The second indicator was the increased disposable income for targeted households. This was successfully achieved primarily through: (a) reduced fuel expenses; (b) time saving for firewood collection and cooking; and (c) reduced application of chemical fertilizers and pesticides. Reduced fuel expenses: At appraisal, there was an underestimation of the electricity grid coverage in project area and households electricity usage as an energy source. This resulted in an assumption of higher use of the conventional energy source (firewood and coal) and a lower use of electricity. Hence the target for reduction in firewood, coal, and natural gas was higher and that for electricity reduction lower. As a result, with the exception of electricity (actual reduction was 102 kWh per household per year versus a target of 35 kWh per household per year, or 292% of appraisal target), actual quantitative reduction of firewood, coal and natural gas did not meet the appraisal targets (69%, 74% and 68% respectively). The indicator however focused on increased household incomes. Due to increase in the price of alternative energy sources, monetary savings per HH/year (RMB806) exceeded the PAD target (RMB355) by 127 percent. Time saving for firewood collection and cooking: The target set at project appraisal was exceeded by over 29 percent (see Annex 3) and the annual household income from time saving at ICR was almost six times as envisaged at appraisal as a result of increased labor cost 4. Application of chemical fertilizers: The reduction at 405kg per HH/year in average exceeded the appraisal target, with actual reduction ranging between 19 and 73 percent against the baseline of 500-1500kg per HH/year. Against the baseline, the annual disposable household income increased by an average of RMB8,212) which was a combined result of reduced fuel expenses (RMB806), saved labor time value (RMB693), reduced farm production costs (RMB222) and the higher 4 Calculated based on assumption that 30% of the saved labor would be put into productive activities, the saved labor time was valued at RMB837 per HH/year (31 days x 30% x RMB90/day) at ICR while that was RMB144 per HH/year (24 days x 30% x RMB20/day). 12 value of the improved quality and efficiency of farm production (RMB4,209) and livestock production (RMB2,282). 3.2.3 The third indicator was the reduction in greenhouse gas emissions. The project was expected to achieve an annual average of about 0.8 million to 1 million tCO2e of CERs i.e. a reduction of about 2 tCO2e per HH/year based on conservative calculations 5. The GHG reduction was successfully demonstrated by the CDM Pilot Program in Hubei province where 33,000 units of installed biogas systems delivered a total of 213,940 tCO2e verified CERs 6 from February 2009 to December 2012 i.e. a reduction of about 1.67 tCO2e per HH/year 7. This implies an average annual reduction of about 785,000 tCO2e estimated based on the experience of Hubei’s CDM Pilot Program. The actual GHG reduction should be even greater if the emission reduction from the production of replaced chemical fertilizers is included. 3.3 Efficiency 3.3.1 Consistent with the approach adopted at project appraisal, both financial and economic analysis was performed to evaluate the project’s efficiency. The same methodology and same group of parameters were used for cost-benefit analysis. The average financial Net Present Value (NPV) for project households, the economic NPV of the project and the project’s Economic Internal Rate of Return (EIRR) were recalculated. All fundamental data for the analysis were from farm models afforded by the 5 project provinces. See Annex 3 for details. 3.3.2 Financial Analysis. Financial analysis was undertaken to assess the financial viability of the household investments in biogas systems. The financial benefits included the savings from (a) replacement of traditional fuel; (b) replacement of chemical fertilizers; and (c) labor time. Despite dramatically increased investment cost for “1+3” systems during project implementation, the average financial NPV (at 12 percent discount rate) for project households was re-calculated at a financially very attractive RMB5,802 against the PAD estimate of RMB1,060. This resulted from much higher value of saved traditional fuel, chemical fertilizer and labor time. 3.3.3 Economic Analysis. Economic analysis was conducted under three scenarios: (a) biogas facility; (b) agricultural activities; and (c) biogas facility plus agricultural activities. In addition to direct benefit generated by the project activities i.e. savings in traditional fuel, chemical fertilizer and labor time, and increased agricultural outputs, the project also produced multiple public goods benefits through impacts on health, environment and poverty. However, the only quantifiable environmental benefit i.e. the 5 This was calculated based on (a) decrease in GHG emission from firewood; (b) decrease in GHG emission for coal burning; (c) decrease in GHG emission released by human and animal waste; and (d) increase in GHG emission due to biogas leakage. 6 The CER payments were distributed as the following: (i) management fee (22%) including Qingjiang Seed Company (2%), prefecture PMO (4%), county/city PMOs (16%); (ii) technical service (10%); and (iii) HHs (68%). 7 This was calculated based on achieved verified CERs (55,106 tCO2e) and the total number of biogas HH (33,000) for the latest 12 months (2012) when bio-digesters were in normal operations. 13 economic value of CO2 emission reduction was included in the calculation of EIRR. As a result, the project yielded an economic NPV of RMB0.89 billion and an EIRR of 21.6 percent. The less robust economic NPV and EIRR were due mainly to the decline of economic value of the CO2 emission reductions. However, the project EIRR at ICR was still far above the standard discount rate of 12 percent. 3.4 Justification of Overall Outcome Rating Rating: Satisfactory 3.4.1 The project was highly relevant to current country and global priorities and to the Bank’s assistance strategy. It met or exceeded almost all targets as measured by outcome and impact indicators and so fully attained all development objectives. It was highly efficient, with an EIRR well in excess of the opportunity cost of capital though somewhat lower than appraisal expectations. This was due mainly to the decline of economic value of the CO2 emission reductions during project implementation which was out of the project’s control. 3.4.2 The satisfactory rating is also justified by the strong demonstration effect of the project (see section 2.5). Although not captured in the overall outcomes rating, the demonstration under the project that, with the innovations tested, agricultural production and farmers’ incomes of the participating households can be sustained as long as the project improved systems and infrastructures are sustained. This demonstration could prove, in the long run, to be the most valuable benefit of the project. The government has also highly appreciated and built in the ownership of the comprehensive approach developed under this project for improved quality of life, integrated approaches, and the institutional innovations. The experiences and lessons are already being scaled-up in the government NRBP and also in medium- and large-size household-based biogas programs. 3.4.3 Largely as a public goods operation, the project still yielded a robust economic NPV of RMB0.68 billion and an EIRR of 17.3 percent at ICR. This was over 5 per cent above the standard discount rate of 12 percent. 3.4.4 The CDM Pilot Program was validated in February 2009. Four verifications have been conducted for CO2e CERs generated during the period from February 2009 to December 2012. The accumulative delivered CERs of 213,940 tCO2e achieved around 95.4 percent of targeted delivery. The fifth verification process to verify the CER delivery in year 2013 is underway. About 5 percent of the installed biogas digesters were no longer in use because of households moving to cities for new jobs. All other biogas digesters were operating well with a stable delivery of CO2e CERs every year. Local technical extension and biogas service systems were further strengthened by using a portion of the revenues accrued from the CERs to promote the sustainable biogas digester O&M. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 14 3.5.1 The project paid special attention to the engagement of the poor, women and ethnic minorities for the purposes of alleviating poverty, promoting social inclusion and gender equality for sustainable development. Of the total beneficiary households, 41,346 households or about 9 percent were classified as poor households and 19,182 households of them were able to successfully alleviate poverty through participating in project activities. Their income was increased through project supported agricultural production and living cost was reduced by using biogas in terms of saved fuel and health costs as well as saved labour in cooking, firewood collection and other related heavy housework. They were mostly located in remote areas of the 15 nationally or provincially designated poverty counties. Of the total beneficiary households, 111,677 households or about 24 percent were ethnic minorities spread in a total of 1,533 villages of all five project provinces, especially in Guangxi, Hunan and Enshi of Hubei provinces. 477 minority households were selected to participate in project surveys. Women’s participation in the project was significant, especially with the women-headed households as a result of temporary migration of male members of such households. Women also benefitted the most from the project activities, the “1+3” systems in particular, as they traditionally took care of meal preparation and pig rearing. Women especially reported high satisfaction in benefits from the project in terms of enjoying cleaner and healthier living and cooking conditions, much less heavy housework. Participants received training throughout the project implementation. Of the total household training provided, about 40 percent and 17 percent were offered for women and minority households, respectively. Most of the training sessions were provided in the villages at convenient locations and at times when women trainees could attend. This training improved their technical skills as well as awareness and knowledge on environmental protection. Women particularly benefited very much from training on safety of using biogas, technical skills and methods in planting cash crops in agricultural production. The project showed very positive social impacts on people in project areas, especial women who gave a lot of positive feedback on the project. (b) Institutional Change/Strengthening 3.5.2 The project brought significant institutional changes and strengthening. The networks and institutional linkages among government line agencies (e.g. planning, finance, agriculture, forestry and rural energy, universities and research institutes) were established and functioning well. Project institutional capacity and staff skills were greatly improved through intensive capacity development programs, hands-on training, and project implementation practices. (c) Other Unintended Outcomes and Impacts (positive or negative) 3.5.3 Various innovative models for providing biogas services were developed and implemented very successfully during project implementation. The following typical models represented by project counties were unintended during project preparation. 15 (a) Shouxian county of Anhui Province established a unique service system to integrate livestock farms, biogas user households, and vegetable production farms through cooperation between the biogas cooperative and the vegetable cooperative. This model ensures benefits to all parties involved including the two cooperatives and is a sustainable operation. (b) In Kaixian county of Chongqing Municipality, the model was developed with distinguishing features: (i) offering 55 positions for providing biogas service at township level on the government payroll; (ii) making a trusteeship arrangement for biogas users at village level to provide overall services; and (iii) sharing information and knowledge through a cell-phone based mass-delivery system. This system is currently servicing about 400 project households and the county’s plan is to cover all 6,271 project households by the end of 2014 and all 63,000 biogas user households in the county by the end of 2015. (c) In Gongcheng county of Guangxi Zhuang Autonomous Region, the model involves a private company, whereby the company is responsible for providing project households with feed-stock from large animal husbandry operations, servicing and maintaining the biogas digesters, and collecting the bio-slurry for sale to orchards and large crop farms. The system also involves installation of gas meters in every household and collecting a subsidized tariff based on the volume of gas used. This gives the service company the incentive to ensure that gas production from the biogas digesters is maximized and that service and maintenance is adequate. The system has been serving about 500 households and its business plan is to cover over 10,000 households with biogas systems in the county in the next five years. (d) In Linli county of Hunan Province, the model contains 20 biogas associations and has been providing services under the principles of (i) government guidance, (ii) association operation, and (iii) household participation. Government budgetary allocation was provided for setting up the associations, O&M financing, and technician subsidies. The service has been covering all biogas user households in the county with an annual association fee of RMB50 per household. (e) In Enshi prefecture of Hubei Province, a “supermarket” model was developed to provide biogas services in a sustainable manner. The model is in the form of village-based convenience stores supported by township Agricultural Service Centers and under operation by farmer technicians. Such convenience stores were built with unified development principles, unified exterior design, unified development standards and unified operations. They supply biogas spare parts and stoves, seeds, pesticides, agricultural equipment, solar water heaters, and daily necessities; and provide biogas services for technical guidance, trouble shooting, repairing and maintenance. One remarkable result achieved is that most such convenience stores are able to provide satisfactory biogas services while making a profit in their operation. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops N/A 16 4. Assessment of Risk to Development Outcome Rating: Moderate 4.1 Sustainability of the biogas digester system beyond project completion was basically ensured as discussed in section 2.5. However, there is a potential risk to the sustainability closely linked with (a) feed-stock supply issues; (b) biogas service issues; and (c) institutional cooperation issues. Though still low, the risk is real and may become substantial if these issues are not handled properly. 4.2 Due to various reasons 8, about 30-40 percent of project supported biogas user households were no longer raising pigs by project closing. These households found feed- stocks for the biogas digesters through various sources including collecting pig manure from neighboring large and medium sized pig farms; using poultry manure; or using alternative feed-stocks (crop stalks, straw, grass and kitchen residues). Alternative feed- stocks, if not prepared properly (e.g. removing non-biodegradable fiber fraction, chopping into smaller pieces), reduce the efficiency of biogas production and may cause digesters to underperform or eventually fail. Despite various trials and demonstrations going on to deal with this issue in all project provinces with impressive and encouraging initial results, this tendency of biogas households without raising pigs is expected to continue and supply of good quality feed-stocks remains an issue and challenge to a large number of biogas user households. 4.3 Biogas service systems have been established and functioning well under the project, but issues exist. One of which was to maintain a team of professional biogas technicians willingly to work in the service system particularly at village and township levels. The current practice of providing service free of charge to the biogas households on a voluntary basis in many project counties was doubtful in retaining these technicians for providing sustainable post-completion services. All project counties have to make their own arrangements taking into consideration their specific situation to ensure a functioning service system. Only when the biogas technicians are ensured an income stream from their services either from government sources or users or both, can the technician team be stabilized and the biogas service issue eased. 4.4 Effective institutional cooperation among government line agencies is a critical element to ensure an appropriate institutional arrangement for the project’s post- completion O&M. This is vital especially for Hunan and Guangxi where the project implementation responsibility and project post-completion O&M mandates at both provincial and county levels are under different government line agencies. The project sustainability may be jeopardized without detailed and well coordinated plans to ensure effective institutional cooperation for a seamless transfer of project responsibility from implementation to post-completion operation. 5. Assessment of Bank and Borrower Performance 8 Including poor economic returns from pig raising, the central government’s policy preference shift from support for small scale household-based pig raising to larger livestock raising operations, migration of able- bodied workers out of the villages for wage labor elsewhere, and accelerated urbanization for villages and households adjacent to towns and cities. 17 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 5.1.1 The Bank ensured that the project design was consistent with the Bank’s Country Partnership Strategy for China, and in line with the development objectives in the Chinese Government 11th Five-Year Plan. It was technically sound, socially acceptable, environmentally sustainable, financially and economically viable. The Bank involved top international and national experts in the design of the CDM Pilot Program including development of new methodology. The Bank’s role in ensuring high quality at entry was widely recognized as exemplary by the government at all levels. (b) Quality of Supervision Rating: Satisfactory 5.1.2 During project implementation, the Bank was able to conduct 11 effective supervisions and provide timely support for successful completion of implementation of all project activities to achieve project objectives and development outcomes. The Bank was highly responsive to the client’s requests for advice, support and project restructuring. 5.1.3 The Bank has worked closely with the client to support smooth preparation, registration at UNFCCC, verification and CER issuance over the past four years (2009 – 2013) for the CDM Pilot Program. The Bank’s carbon finance experts were fully engaged to provide technical assistance and maintain regular dialogue with the client and designated operational entities (DOE), which facilitated the project validation and verification process. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 5.1.4 The Bank played a vital role in ensuring quality at entry and in providing timely support to the client during project supervision. The Bank maintained a responsive team and made a definite contribution to the success of the project and the CDM Pilot Program throughout the project preparation, implementation and completion. The satisfactory rating for overall Bank performance is fully justified. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory 5.2.1 The government at all levels demonstrated strong commitments and made significant contributions to the project throughout project preparation, implementation and completion. The overall commitment, contributions and support from the governments at all levels represented by Project Leading Groups (PLGs) were strong, 18 consistent and adequate. Notable and full involvement of the Ministry of Agriculture (MOA) in the project was demonstrated by the Foreign Economic Cooperation Center (FECC) in providing overall project coordination; and by the Department of Research, Education and Rural Environment in providing overall technical support through its local technical services system, and in providing counterpart funding (over 60 percent of total government funding) through its NRBP. (b) Implementing Agency or Agencies Performance Rating: Satisfactory 5.2.2 PMOs, Project Implementation Offices (PIOs) and Project Implementation Groups (PIGs), established under the project and supported by Project Technical Expert Groups (PTEGs), were assigned overall project management and implementation responsibilities. They were maintained throughout the project implementation period with capable, dedicated and adequate staff which was the fundamental base for the successful project implementation. The project implementing agencies working closely with the Bank were highly cooperative and effective, and their overall performance was rated satisfactory. Specifically, they (a) effectively implemented the project consistent with the project design; (b) closely followed the legal covenants specified in the legal agreements; and (c) efficiently managed the project in accordance with the agreements reached with the Bank. This included preparation of annual work programs for the Bank’s review; coordination of annual budgets for project activities; carrying out efficient project fiduciary, safeguards and M&E activities; organizing training and inter-provincial visits; and providing various project plans and reports. The PMOs and PIOs have been playing a critical role in ensuring successful project implementation. 5.2.3 For the CDM Pilot Program, the project entity’s performance was also rated satisfactory based on the following: (a) timely provision of funding for project preparation, implementation and operation; (b) fully complying with the project safeguards requirements; (c) high reliability of data measured and collected; (d) compliance with CDM operational and monitoring requirements; and (e) efficient maintenance of a database of technical and operational information to enable annual monitoring by the Bank as well as verification by DOEs. In particular, the project entity made great efforts to develop a comprehensive monitoring system and technical service system to ensure that the 33,000 biogas digesters, scattered in more than 600 villages of eight counties, could be operated in an appropriate manner to secure the stable ER delivery. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 5.2.4 Despite slower than expected implementation progress up to the time of project restructuring, the governments and project implementing agencies maintained their strong commitment. The satisfactory rating of Overall Borrower Performance was justified by (a) the government’s provision of 27 percent more counterpart funding(in RMB terms) than the committed amount in the PAD; (b) the successful completion of project implementation as originally scheduled; (c) the replication of the project’s successful 19 experiences and lessons in domestic programs; and (d) very successful operation of the CDM Pilot Program which was considered one of the best delivery performances in the Bank’s entire carbon finance portfolio. 6. Lessons Learned 6.1 Many factors contributed to the project’s success. The following are among the most important lessons learned. 6.1.1 Favorable national regulatory frameworks and policy instruments for biogas development and livestock pollution control provided legal ground and financial incentives for a successful project implementation. The “Renewable Energy Law of the People’s Republic of China” (Chinese People’s Congress 2005), the “Decree of Control and Management of Pollution by Livestock Production” (SEPA May 2001), National Rural Biogas Program (MOA 2001), Construction of New Socialist Countryside Development Program (Suggestion for 11th Five-Year Plan Outlines 2005), and “Guidance on Further Strengthening Construction of Rural Biogas” (NDRC and MOA 2012) were particularly relevant. In absence of such instruments, the project would not have been developed in the first place and project success would not be achieved. 6.1.2 Stakeholders’ commitment, dedication and capabilities are critical to ensure project success, sustainability and ownership. These were demonstrated by (a) strong leadership by government at all levels in providing policy guidance and counterpart funds; (b) effective cooperation and coordination among government line agencies; (c) full involvement of all key stakeholders in project design and implementation; (d) well established project management procedures and operational and monitoring systems; and (e) unremitting and concerted efforts and hard work by highly dedicated and capable project staff. Strong project management and leadership at the central level played an essential role for this specific project which involved multiple provinces and covered a wide range of project activities. This was also an experience for the Bank’s rural sector operations in China and the government’s programs. The project success could not have been achieved without timely provision of greatly increased counterpart funding to fill the huge funding gap caused by major depreciation of the US$ and large cost increase during project implementation. 6.1.3 Despite attractive financial returns and positive social and environmental benefits of the project investment, up-front significant subsidies as financial incentives are required to share the initial capital cost of the project facilities to help mobilize household participation. The project experience indicates that households were willing to participate and contribute once the project design was accepted and initial capital cost barrier was removed. The project statistics show that the final household’s overall contribution under this project is 42 percent which is a bit higher than the contribution rate (36 percent) for Guangdong province under the Global Environment Facility (GEF) financed Livestock Waste Management in East Asia Project. The project experience provided more evidence that a beneficiary’s contribution between 30 to 50 percent is a fair norm for other similar projects in China. 20 6.1.4 One of the key reasons for the smooth operation of the CDM Pilot Program was the integration of the CDM operations into the Bank Loan investment project. In the loan project great efforts were made in institutional capacity building, technical services provision, as well as monitoring system development and maintenance with adequate budgetary support. The CDM Pilot Program has also benefited extensively from the investment project’s timely training and technical assistance provided as well as quality control and monitoring of project activities. Carbon finance has played a vital role in successful operational performance of the biogas digester systems. With a portion of the carbon revenue used to support biogas community service station extension to the village level, training and maintenance services to households even at remote locations have been significantly strengthened. This has greatly ensured the sustainability of the Pilot Program activities. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies See Annex 8. (b) Cofinanciers N/A (c) Other partners and stakeholders N/A 21 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Adjusted Actual /Latest Percentage Percentage Components Estimate Estimate Estimate of Appraisal of Adjusted (US$ million) (US$ million) (US$ million) (%) (%) A. Integrated Eco-farming 382.07 398.50 432.11 113.1 108.4 System B. Local Technical Extension 15.24 18.88 17.97 118.0 95.2 and Biogas Service System C. Project Management, 23.85 24.20 20.45 85.8 84.5 Monitoring and Evaluation Total Project Costs 421.15 441.58 470.53 111.7 106.6 Interest during Construction 18.30 18.96 15.93 87.1 84.0 Front-end fee IBRD 0.30 0.30 0.30 100.0 100.0 Total Financing Required 439.75 460.84 486.76 110.7 105.6 (b) Financing Type of Appraisal Adjusted Actual /Latest Percentage Percentage Source of Funds Co- Estimate Estimate Estimate of Appraisal of Adjusted financing (US$ million) (US$ million) (US$ million) (%) (%) Government 143.32 172.80 163.48 114.1 94.6 Farmer Households 176.43 168.04 203.28 115.2 121.0 IBRD 120.00 120.00 120.00 100.0 100.0 Total 439.75 460.84 486.76 110.7 105.6 22 Annex 2. Outputs by Component The project’s outputs are summarized in the table below. Other outputs such as the amount of bio-slurry and bio-sludge used, amount of chemical fertilizer and pesticide saved, copies of project brochures produced, number of reports prepared etc. were not collected. Table 3: Outputs by Component Original Revised Actual Target Target Achieved % of % of Output Indicator Unit Value Value Value PAD Revised (PAD) (Restructured) (ICR) A. Integrated Eco-farming System 1. Integrated Household System a. Biogas Infrastructure Biogas digester no. 538,650 443,958 470,141 87 106 Animal shed improvement no. 538,650 443,958 458,608 85 103 Kitchen improvement no. 538,650 443,958 465,963 87 105 Toilet improvement no. 538,650 443,958 470,141 87 106 Average annual biogas produced m3 '000 211,000 173,907 160,000 76 92 b. Farm Production Low- & medium yield land ha. 1,713 1,591 1,839 107 116 Vegetable land improvement ha. 1,935 1,427 2,186 113 153 Grain crops ha. 4,754 4,633 7,132 150 154 Vegetable ha. 6,367 6,915 10,688 168 155 Tea ha. 775 775 775 100 100 Chinese herbs ha. 500 0 0 0 0 Fruit – annual ha. 1,511 1,609 1,783 118 111 Fruit - new perennial ha. 4,107 2,692 4,171 102 155 Fruit – rehabilitation ha. 7,642 5,671 7,759 102 137 Mulberry ha. 345 110 88 26 80 Fish pond rehabilitation ha. 712 712 736 103 103 New orchard land improvement ha. 1,607 1,429 1,986 124 139 HH adopting improved agri technology no. 18,626 n/a 344,346 1,849 n/a c. CDM Pilot Program Biogas digester no. 33,000 n/a 33,000 100 n/a ER delivery (annual) tCO2e 58,440 n/a 53,500 92 n/a ER delivery (2009-2012) tCO2e 224,190 n/a 213,940 95 n/a 2. Community Development a. Water Supply hh 167,800 154,808 155,560 93 100 b. Village Roads km 8,328 1,722 1,771 21 103 B. Local Technical Extension and Biogas Service System 1. Service System Improvement 23 Original Revised Actual Target Target Achieved % of % of Output Indicator Unit Value Value Value PAD Revised (PAD) (Restructured) (ICR) a. Provincial Service Center Centers updated no. 5 5 5 100 100 Service space renovated m2 400 500 500 125 100 1/ Equipment unit/set 5 0 0 0 0 Applied research no. 16 15 15 94 100 b. County Service Station Stations updated no. 64 65 65 102 100 Service space renovated m2 10,150 5,360 7,130 70 133 Equipment 2/ unit/set 230 464 483 Technical service vehicle unit 56 59 52 93 88 Pick-up unit 8 8 10 125 125 c. Township Service Station Stations updated no. 461 490 490 106 100 Service space renovated m2 7,000 10,000 10,052 144 101 3/ Equipment unit/set 862 642 664 Bio-sludge tank unit 0 5 5 n/a 100 Motorcycle unit 214 20 20 9 100 d. Village Service Sites Sites updated no. 3,047 2,966 2,600 85 88 Service space renovated m2 23,480 6,000 7,330 31 122 4/ Equipment unit/set 8,677 4,383 4,334 Bio-sludge tank unit 420 378 341 81 90 Four wheel tractor unit 1,745 215 241 14 112 e. Farmer Association no. 72 75 93 129 124 2. Training For county technician per.day 21,400 19,200 26,444 124 138 For township technician per.day 44,100 41,100 49,362 112 120 For farmer technician per.day 71,750 64,350 65,051 91 101 For farmers per.day 1,762,000 1,407,185 1,414,875 80 101 For demonstration households per.day 33,731 30,731 30,554 91 99 C. Project Management, M&E 1. Project Management a. Project Institutional Arrangement 5/ PLGs established no. 70 71 71 101 100 PMOs established no. 70 71 71 101 100 Township PIOs established no. 461 490 490 106 100 Village PIGs established no. 3,047 3,241 3,241 106 100 Provincial PTEG established no. 5 5 5 100 100 b. Office Equipment 6/ For Provincial PMOs unit/set 40 41 44 110 107 24 Original Revised Actual Target Target Achieved % of % of Output Indicator Unit Value Value Value PAD Revised (PAD) (Restructured) (ICR) For County PMOs unit/set 319 391 438 137 112 For Township PIOs unit/set 378 185 187 49 101 c. Vehicles For Provincial PMOs unit 4 3 3 75 100 For County PMOs unit 38 38 31 82 82 d. Project Management Fee For Central PMO RMB m 5.0 5.0 5.0 100 100 For Provincial PMOs RMB m 13.8 13.8 16.7 122 122 For County PMOs RMB m 64.0 64.4 74.7 117 116 7/ 2. Institutional Capacity Building a. Domestic Training per.day 16,950 16,950 18,825 111 111 b. Domestic Study Tours per.day 4,704 4,855 4,678 99 96 c. Overseas Study Tours per.day 2,935 2,890 622 21 22 d. Workshops no. 20 22 25 125 114 3. Monitoring and Evaluation a. M&E Activities Impact monitoring surveys no. 3 3 3 100 100 8/ Impact monitoring villages no. 225 225 225 100 100 Impact monitoring households 9/ no. 2,700 2,700 2,700 100 100 Indoor air quality monitoring 10/ no. 360 360 360 100 100 Pathogen sampling counties no. 10 10 10 100 100 Pathogen sampling years no. 5 5 5 100 100 Pathogen samplings per year, county no. 10 10 10 100 100 Pathogen total samplings no. 500 500 500 100 100 Groundwater sampling counties no. 5 5 5 100 100 Groundwater sampling years no. 2 2 2 100 100 Groundwater samplings per year, county no. 5 5 5 100 100 Groundwater total samplings no. 50 50 50 100 100 b. MIS Development and Maintenance RMB m 0.5 0.2 0.2 46 116 c. Technical assistance RMB m 8.1 0.9 1.0 12 100 Notes: 1/ Including laptop computers and digital projectors; 2/ Including desktop computers, laptop computers, digital projectors; digital cameras, multi-media, copying machines, telephone sets, fax machines, biogas maintenance equipment, biogas spare parts; 3/ Including desktop computers, laptop computers, digital cameras, telephone sets, biogas spare parts, training equipment and materials; 4/ Including telephone sets, biogas spare parts, training equipment and materials; 25 5/ Including desktop computers, laptop computers, fax machines for all provincial and county PMOs and PIOs, additional equipment of video camera, air conditioners, furniture, copying machines, digital projectors; digital cameras for provincial and county PMOs; 6/ PLGs and PMOs include those at central, provincial and county levels; 7/ Slippage in study tours was affected by the central government’s restrictions on travel activities; 8/ Baseline survey was conducted in 225 villages; samplings were collected from 344 households for the second indoor air quality monitoring; 9/ Impact monitoring household number was 2,698 in the year 3 survey; 10/ Samples were collected from 344 households for the second indoor air quality monitoring; 26 Annex 3. Economic and Financial Analysis Analysis Methodology 1. Financial analysis was undertaken to assess the financial viability of the household investments in biogas systems. The financial benefits included the savings from (a) replacement of traditional fuel; (b) replacement of chemical fertilizers; and (c) labor time. Only the actual cash income and expenditure of household impacted by the project activity were taken into account of the calculation of financial net benefit. 2. Economic analysis was conducted under three scenarios (a) biogas facility; (b) agricultural activities; and (c) biogas facility plus agricultural activities. In addition to direct benefit generated by the project activities, such as reduction in use of traditional fuel and chemical fertilizers, saving of labor time, yield improvement of agricultural products, the project also produced multiple public benefits through impacts on health, environment and poverty. However, only the quantifiable environmental benefit i.e. the economic value of CO2 emission reduction was included in the calculation of EIRR. Shadow prices were adopted for non-tradable goods such as labor and CO2 emission reduction; for tradable goods, market prices were used directly as their economic prices. 3. All fundamental data for the analysis were from farm models provided by the five project provinces. The calculations followed the same analysis models adopted in the PAD for comparability between the PAD and the ICR. Financial Analysis 4. The prices of the main inputs and outputs changed significantly compared with the beginning of project implementation. In summary, the investment cost for the “1+3” system increased significantly because of the much more expensive cost of labor and feed-stock. The increase of investment cost for the biogas system had a negative impact on the financial returns of biogas investment. On the other hand, the simultaneous increase of prices of traditional fuels, chemical fertilizer and labor had positive impact on the financial returns of investment. The investment on biogas was more financially valuable due to the more expensive labor and fuels because operation of the biogas system saved the farmer’s labor input in firewood collection and the input of fuels such as coal and liquid gas,. 5. Tables 4 and 5 summarize the actual impact of the biogas facility on household’s labor saving and the use of traditional fuels, respectively, compared with the impact projected in the PAD. The tables show that the actual RMB value of energy saving was much higher than that projected in the PAD, mainly because of the increasing energy prices in the past 6 years. The actual labor saving impacted by the biogas system was higher compared with the PAD projection. If the remarkable increase in labor value is considered, the actual impact on the value of labor saving was also more positive than the PAD projection. 27 Table 4: Annual Energy Saving (per HH) Items Unit PAD ICR Firewood saved Kg/yr 1110 768 Coal saved Kg/yr 441 325 Natural gas saved M3/yr 113 77 Electricity saved kWh/yr 35 102 Monetary saving RMB 355 806 Table 5: Time Impact of a Biogas System for Typical Rural Household (labor-day saved per year) Activities PAD ICR Collection of firewood 15 20 Cooking 21 16 Cleaning animal shed 3 6 Bio-slurry and fertilizer application time -15 -11 Total time saved, labor-day per year 24 31 6. Actual prices of inputs and outputs were adopted in the financial analysis. RMB90 per labor-day was used as the financial value of off-farm labor. It was assumed that 30 percent of the saved labor would be put into productive activities, i.e., about RMB27 per labor-day was valued for the financial benefit of labor saving induced by the biogas system. The calculation showed that the actual financial NPV equaled a financially attractive RMB5,802, given the discount rate of 12 percent. It was evidently higher than the projection of the PAD, which was RMB1,060, given the same discount rate. Economic Analysis 7. The same impact of the change of prices on economic analysis has its impact on the financial analysis: more expensive inputs and outputs would have both negative and positive impact on the investment of agricultural activities. But CO2 was an exception. The CO2 emission reduction was one of the important outputs of the biogas system, butthe price for CO2 emission reduction declined greatly in recent years. Shenzhen City became the first city which launched Carbon Trading in China in June 2013. RMB30/tCO2e, the price for the first batch carbon trades in Shenzhen City, was used for the project’s economic analysis at ICR, while the price of RMB80/tCO2e was estimated and used in the PAD. 8. The same economic analysis model adopted in the PAD was used at ICR. Table 6 summarized the results of EIRRs of the biogas system, agricultural activities and the whole project in the PAD, at project Restructuring and at ICR respectively. It showed that, comparing with that projected in the PAD and at project Restructuring, EIRRs for biogas facility of the five project provinces at ICR declined, due mainly to the decline of economic value of the CO2 emission reduction; while EIRRs for agricultural activities increased. The project as a whole yielded an EIRR for biogas facility, agricultural activities and biogas + agriculture scenario of 23.0 percent, 21.1 percent and 21.6 percent 28 respectively and an economic NPV of RMB0.89 billion (at discount rate of 12 percent). The less robust economic EIRRs and NPV were due mainly to the decline of economic value of the CO2 emission reductions. However, the project EIRR at ICR was still far above the standard discount rate of 12 percent. Table 6: EIRRs at PAD, Restructuring and ICR Province Project Activities PAD (%) Restructuring (%) ICR (%) Biogas Facility 29.2 23.5 24.5 Anhui Agricultural Activities 12.8 15.2 19.1 Biogas + Agriculture Scenario 27.6 23.6 21.5 Biogas Facility 30.1 22.0 14.5 Chongqing Agricultural Activities 14.5 15.2 25.7 Biogas + Agriculture Scenario 28.4 22.9 15.9 Biogas Facility 22.0 15.5 27.3 Guangxi Agricultural Activities 13.1 19.0 22.5 Biogas + Agriculture Scenario 18.3 16.6 24.3 Biogas Facility 36.6 33.2 18.6 Hunan Agricultural Activities 15.7 14.5 33.9 Biogas + Agriculture Scenario 35.1 32.4 17.8 Biogas Facility 29.7 25.3 27.9 Hubei Agricultural Activities - - - Biogas + Agriculture Scenario 29.7 25.3 27.9 Biogas Facility 29.6 23.5 23.0 Total Agricultural Activities 13.5 13.8 21.1 Biogas + Agriculture Scenario 27.0 23.3 21.6 29 Annex 4: Implementation Summary of Carbon Finance Component ACRONYMS CDCF Community Development Carbon Fund CDM Clean Development Mechanism CER Certified Emission Reduction CO2 Carbon Dioxide DOE Designated Operational Entity EMDP Ethnic Minority Development Plan EMP Environmental Management Plan ER Emission Reduction ERPA Emission Reduction Purchase Agreement GHG Greenhouse Gas ICR Implementation Completion and Results Report OP/BP Operational Policy/Bank Procedures PDO Project Development Objective PMO Project Management Office t Ton tCO2e Ton of Carbon Dioxide Equivalent UNFCCC United Nation Framework Convention on Climate Change 30 CONTENTS 1. DATA SHEET 32 A. Basic Information..................................................................................................... 32 B. Key Dates ................................................................................................................. 32 C. Ratings Summary ..................................................................................................... 32 D. Sector and Theme Codes ......................................................................................... 32 E. Bank Staff ................................................................................................................. 33 F. Emission Reductions Delivery to Date ..................................................................... 33 2. ACHIEVEMENT OF IMPLEMENTATION OBJECTIVES AND OUTCOMES 33 3. BANK AND PROJECT ENTITY PERFORMANCE 40 4. COMMENTS FROM PROJECT ENTITY AND OTHER PARTNERS 40 5. JUSTIFICATION FOR MOVING TO THE SECOND PHASE (CARBON FINANCE MONITORING PHASE) AND SAFEGUARDS COMPLIANCE 41 31 1. DATA SHEET A. Basic Information Country: China Project Name: Hubei Eco-farming Biogas Project Project ID: P105046 ICR Date: November 28, 2014 ER volume (Contract ER): 337,190 tCO2e Bank/IFC lending or grant: (in loan/grant currency): N/A Environmental Category: B Project Entity: Hubei Qingjiang Zhongye Company Cofinanciers and Other External Partners: N/A ICR prepared by: Zijun Li (CCGCF) and Jin Liu (GENDR) Approved by Senior Global Practice Director: Juergen Voegele (GFADR) Concurred by Global Practice Manager: Nathan Belete (GFADR) Concurred by Country Director: Bert Hofman (EACCF) B. Key Dates ERPA signing date April 25, 2008 ERPA effectiveness date April 25, 2008 ERPA amendment date N/A (if applicable) ERPA termination date December 31, 2017 (if applicable) Project commissioning date April 1, 2007 C. Ratings Summary Outcomes (project performance) Highly Satisfactory Bank performance Satisfactory Project entity performance Satisfactory D. Sector and Theme Codes Sector Codes (in %) Renewable energy 70% Agriculture extension and research 30% Theme Codes (Primary/Secondary) Climate Change Primary Rural services and infrastructure Secondary 32 E. Bank Staff Position Team members Team members at ERPA signing at ICR Task Team Lead Jin Liu Jin Liu Deal Manager Nuyi Tao Zijun Li Senior Rural Development Wendao Cao Wendao Cao Specialist Carbon Finance Specialist Zijun Li Senior Council Xueman Wang Xueman Wang Environmental Specialist Xin Ren Xin Ren Social Development Meixiang Zhou Meixiang Zhou Specialist F. Emission Reductions (ER) Delivery to Date Year Emission Reduction Purchase Actual ER delivery Agreement (ERPA) volume ERs (tCO2e) (tCO2e) 2009 50,190 31,237 2010 58,000 72,976 2011 58,000 54,624 2012 58,000 55,106 2013 58,000 2014 55,000 Total 337,190 213,943 2. ACHIEVEMENT OF IMPLEMENTATION OBJECTIVES AND OUTCOMES 2.1 Basic project description and summary of any significant changes since ERPA signature 1. The Project Development Objective (PDO) is to demonstrate innovative technical approaches and a credible carbon trading model for a household-based Clean Development Mechanism (CDM) biogas digester program. It was developed to install household-based biogas digesters to appropriately tread livestock manure and generate thermal energy for households’ cooking and heating. Through the design, construction, and management of biogas digesters that utilize pig manure as raw material, the project supports the reduction of greenhouse gas (GHG) emissions and the improvement of local rural environment and household living conditions, including household health. The key project performance indicator is annual delivery of Certified Emission Reductions (CERs) based on monitoring results of actual 33 emission reductions that are annually verified by the Designated Operational Entity (DOE), a third party verifier. 2. The project was developed under a Bank financed Eco-Farming Project (a Bank Loan Project, P096556), piloting the first CDM household based biogas operation in China. As the Trustee of the Community Development Carbon Fund (CDCF), the Bank is purchasing CERs resulting from the operation of household biogas systems. For the period from February 9, 2009 to December 31, 2014, a total of 337,192 tCO2e of CERs have been contracted for purchase by CDCF, with 213,943 tCO2e of CERs purchased already. 3. No significant project changes were made since Emission Reduction Purchase Agreement (ERPA) signed. 2.2 Project implementation and commissioning Achievement of PDO: Highly Satisfactory 4. The project has achieved its PDO and its overall outcome is rated as Highly satisfactory. Project design was relevant and the project achieved its planned outputs at a high rate of efficiency. In February 2009, the project was registered at the Executive Board of United Nation Framework Convention on Climate Change (UNFCCC), becoming the first registered household-based CDM biogas project in China. Before the project, many domestic and international institutions had been exploring the development of CDM operations in the biogas sector, but without success because of the complexities of baseline determination and the challenging organizational and monitoring arrangements needed to involve thousands of households across very broad remote rural areas. By addressing these challenges, the project has demonstrated a successful development and operational approach for CDM household-based biogas operation. The project has further demonstrated a market mechanism that uses carbon emission reduction (ER) revenue to strengthen the support network for biogas technical services, including monitoring systems and community-level institutional capacity building. Technical support network had typically been considered weak, which caused poor and unstable performance of biogas digesters for similar programs. 5. As the first registered household-level biogas project in China, the CDM project has played a pioneering role by developing a new methodology to quantify the generated emission reductions, thus paving the way for the development of similar CDM projects worldwide. In addition, the project communities are receiving significant project benefits through the improvements in rural sanitation, enhanced ground water quality, and the provision of easy-use and clean energy to households. 6. The CDM verifications show that the project biogas digesters have been operating well. During the 2009-2012 reporting period, 213,943 tCO2e CERs or around 95.4% of contracted CER volume were delivered (Table 1). (The verification for the ERs to 34 be issued from 2013 is currently underway). The project represents one of the best delivery performances in the Bank’s carbon finance portfolio with a stable delivery of about 53,500 tCO2e CERs annually. 7. In terms of community benefits, the successful application of the “one digester, three renovations” principle—referring to the improvement of toilets, pig pens, and kitchens, while installing the biogas digester, has significantly improved local environment and human health conditions in the project areas, which demonstrated a sustainable model to efficiently solve a range of problems related to animal manure management, sanitation conditions improvement and rural clean energy generation. 8. More specifically, project implementation has contributed to the reduction of household indoor air pollution through the use of biogas for household cooking and heating (thus reducing the consumption of coal and fuel wood). The project further contributed to (a) a reduction of local ground and surface water contamination through improved manure management; (b) an increase in the employment of skilled labor for the installation, operation, and maintenance of biogas digesters; and (c) a savings in households’ labor time by reducing the time needed to collect fuel wood. The project monitoring results indicate that all of the pre-set community development targets under the project have been reached or exceeded (Table 2). 9. The successful project experience has been disseminated to other regions in China as well as worldwide, through on-site visits, a south-south CDM workshop, and various other channels. In January 2012, the lessons learned from the project was selected as Smart Lessons by the Bank competition process and published in Bank SmartLesson website. During project period more than 20 delegations from various provinces in China, as well as delegations and expert groups from numbers of Asian and African countries, have visited the project areas. The project has been replicated within China and in other countries. Assessment of implementation performance: Satisfactory 10. All project institutional arrangements are fully in place in the project areas and all designed project activities have been completed; the biogas facilities show good operational performance and a functional and improved technical service network is in place. Project Management Offices (PMOs), responsible for the project management, are established at both prefecture and county levels. Staff numbers at each level have been stable; the relevant knowledge and project management capacity, which was built up through progressive training, are well maintained. 11. Supported by well-structured institutional arrangements and strong commitments from project agencies, project implementation has led to the installation and stable operation of all designed biogas digesters, with ER targets and community development targets reached or exceeded. Project implementation performance is therefore rated as satisfactory. 35 12. Specifically, since May 2008, 33,000 biogas digester units have been installed and put into operation in 625 villages in 8 project counties (Jianshi, Badong, Lichuan, Xuanen, Laifeng, Enshi, Hefeng and Xianfeng Counties) in Enshi Prefecture, Hubei Province to appropriately treat the pig manure and generate cooking and heating energy for 33,000 households. The breakdown of the biogas installations is as follows: 10,082 biogas digesters with a reactor size of 8 m3; 14,181 biogas digesters with a reactor size of 10 m3; 4,167 biogas digesters with a reactor size of 12 m3; and 4,570 biogas digesters with a reactor size of 15 m3. 13. The project was registered in February 2009 and four verifications were conducted for ERs generated between February 2009 and December 2012. For that period, a total of 213,942 tCO2e of CERs were delivered, achieving around 95.4% of the targeted delivery. The fifth project verification process that verifies ER delivery in 2013 is currently underway. The project therefore, reached its performance objective in Certified Emission Reductions (CERs) as programmed. While most biogas digesters have been operating well with a stable annual delivery of CERs, about 5% of the installed bio digesters are out of operation mainly due to project households having moved to a city for employment purposes. The table below summarizes the delivered CERs under the project. Table 1: Summary of Delivered CERs Year ERPA volume ERs Actual ER delivery (tCO2e) (tCO2e) 9 2009 50,192 31,237 2010 10 58,000 72,976 2011 58,000 54,624 2012 58,000 55,106 Total 224,192 213,943 14. In addition to the reduction in GHG emissions, the project’s integration of biogas system management with farming and cooking has also delivered environmental and economic benefits to the targeted households, including the improvements in quality of life and increased disposable income. According to the monitoring results, significant community benefits included (a) the improvements in household sanitation status, reported by 88-91% of surveyed households; (b) a reduction in household labor, with around 36-55 labor days per year saved by each household; (c) an increase in job opportunities of around 660-760 person-days for local farmers; 9 The actual ER delivery in 2009 includes the ER delivered from Feb. 19 2009 to August 31, 2009 (half year); 10 The actual ER delivery in 2010 includes the ER delivered during the period of Sept. 1, 2009 to Dec. 31, 2010 (1.4 years). 36 and (d) the use of biogas slurry to replace the use of livestock manure and chemical fertilizers on farmlands, with around 100% of biogas slurry applied to farmlands. In all cases, project targets were exceeded (Table 2). Table 2: Project Benefits to Communities No. Community Indicators with 2009 2010 2011 2012 benefit set target values 1 Improvement Improvement 88% 90% 91.1% 91% of household reaches 87.5% sanitation of all surveyed status households 2 Labor time Surveyed 36 36 37 38 saving households days/year days/year days/year days/year report no less than 18-20 days/year of labor timing saving 3 Job creation 660 person-days 648 824 759 760 4 Application Percentage of 100% 100% 100% 100% of bio slurry households and sludge applying slurry reaches 100% 15. During project implementation, special attention was paid to the provision of technical services and the development of monitoring systems. Various types of local technical extension and biogas service systems were developed, including one prefecture-level biogas association, 8 county-level rural energy service centers, 88 township-level biogas service stations, and 1,025 village-level service networks to provide technical services, trainings, and biogas maintenance support to local farmers, including the 33,000 CDM project households. The technical service systems set at the county-to-village levels significantly improved institutional capacity in biogas management through the provision of technical training and services to local famers in the aspects of biogas installation, operation and maintenance; application of biogas slurry; and implementation of project safeguard policies and monitoring plans. The strengthened local capacity and timely technical services further ensured the stable operation and maintenance of biogas facilities in each of the project villages. Meanwhile, the established monitoring system enabled project quality control for the successful CER verifications and issuances. 16. The project also paid great attention to engaging poor farmers and women. The project counties are located in remote areas and all are nationally designated poverty counties, with around 20% of project villagers and households are below the poverty line. In the household training provided by the project, women constituted around 55% of the participants. Project monitoring further indicates that the populations of 37 both women and children have been key project beneficiaries, with for example 4% and 2% reductions in the incidences of cough and diarrhea, respectively, among children. 17. In summary, the project performance has been very good, with key contributions to: (a) delivering environmental and economic benefits though the integration of biogas management with household farming and cooking; (b) implementing a comprehensive monitoring and evaluation protocol, including a central monitoring information system and effective organizational arrangements; and (c) supporting the stable operation and maintenance of the biogas digesters by using part of the carbon revenue (the payments for the CERs) to strengthen local technical extension and biogas service systems. 2.3 Monitoring and Reporting: Satisfactory 18. Successful issuances of CERs over the past four reporting years demonstrate the project’s full compliance with CDM monitoring requirements. Key features of the project’s satisfactorily implemented monitoring and reporting system are as follows: • Set up and use of a centralized monitoring system to ensure all required data is collected and maintained in a systematic manner. • Solid organizational arrangements among the different parties involved in the implementation. Responsibilities for project management were assigned to the counties, with quality control and overall coordination managed and coordinated by designated staff at township and village levels; daily data recording is the responsibility of the participating households. • Use of a sampling plan to ensure that a reasonable number and representative sample of households is randomly selected from the pool of 33,000 households on an annual basis. • Set up of a training system to cover training for all involved parties (ranging from the prefecture energy bureau to biogas digester users), including training on monitoring methodologies of CDM-related parameters record, data aggregation processes, and document and record filing. 2.4 Lessons learned 19. Importance of strong commitment by the provincial and local governments. One of the main drivers of the project has been the strong commitment by the provincial and local governments to pursue clean energy for rural households and improve rural environmental conditions. This commitment is demonstrated by the strong project management and systems in place, with financial support and technical assistance provided by lines of government agencies at provincial, prefectural, and county levels. 20. Benefits of integrating CDM operations into Bank loan investment projects. Another key reason for the smooth operation of the project as a CDM demonstration project is the integration, by the Bank team, of CDM operations into the Bank loan 38 investment project. The investment project’s efforts to strengthen institutional capacity and technical services provision, develop a sound monitoring system, and ensure proper maintenance with adequate budget support, have all greatly benefitted the CDM operation. 21. Successful use of carbon finance to support stable operations of biogas digesters. Carbon finance has played a vital role in the successful operational performance of the project by supporting the stable operation of individual digesters.. The stable carbon revenue stream has provided incentives for individual farmers to ensure good performance of the biogas facilities. Learning from CDM program’s performance- based payment process, namely that the payment would be based on the performance of biogas facility operation, Hubei government is piloting a similar performance rewarding mechanism by providing participating households a subsidy of RMB 150- 260 (up to annual households biogas consumption) per year to encourage maximum operation of their biogas digesters. 22. The success of the project can also be largely attributed to good maintenance and monitoring through the project’s network of technical assistance and maintenance services. During operation, biogas facilities usually require more maintenance work than other renewable energy facilities (such as solar power), creating a major challenge for biogas projects to ensure sufficient resources for maintenance and repairs. By using part of the carbon revenue to support the extension of biogas community service network to the village level, the project was able to significantly strengthen the provision of training and maintenance services for households at remote locations, thus ensuring the sustainability of the project. 23. Including and encouraging women participation in biogas management. Over the course of the project, many female family members were trained and educated in the use and maintenance of biogas facilities. Women often spend considerable time at home and typically take care of cooking; they are also usually the first point of contact with technical and maintenance support teams. As a result of the trainings— along with helpful brochures and pictures (with phone numbers that could be posted in the kitchen)—the women are able to carry out routine inspections of the systems and identify problems that require technical support. According to the project progress report, women accounted for 55 % of the trained farmers in project counties. 24. Careful selection of household-based biogas project areas to limit the impacts of urbanization. Rapid changes in social and economic environments impact the level of PDO achievement of household-based projects. For instance, continued increased large amount of urban infrastructure construction and the emergence of new towns and cities result in the migration of young labor out of the rural area to city and the relocation of some households to the centralized residential buildings. However, for the project, though the impacts of urbanization have being gradually increased and emerged over past years, as the project areas are located in the remote mountainous areas, only a small numbers of households moving to cities and/or concentrated rural residential buildings, which largely limited the impact of urbanization on the biogas 39 operation. Therefore, careful consideration of the project areas is important to ensure the long-term stable operation of household-based biogas digesters and CER generation. 3. BANK AND PROJECT ENTITY PERFORMANCE 3.1 Assessment and rating of overall Bank performance Rating: Satisfactory 25. The overall Bank performance for the preparation and implementation of the carbon finance operation is rated as satisfactory. This is reflected in the smooth project preparation, registration, verification and CER issuance over the past 5 years (2009 – 2013). In particular, the task team has successfully supported the innovative project by: (a) bringing in top international and national experts to support project design and implementation (including the development of a new methodology); (b) promptly identifying issues and difficulties and providing sound advice to address those problems; and (c) focusing on capacity building for all project implementation agencies to ensure sound project preparation and implementation. The project’s validation and verification processes were facilitated by experts from the Bank’s Carbon Finance Unit, who engaged throughout the project cycle to provide technical assistance and maintain the dialogue with the client and Designated Operational Entities (DOE). 3.2 Assessment and rating of overall project entity performance Rating: Satisfactory 26. Overall project entity performance is rated as satisfactory in terms of its (a) timely provision of funding for project preparation, implementation, and operation; (b) full compliance with project safeguards requirements; (c) high reliability of data measured and collected; (d) compliance with CDM operational and monitoring requirements; and (e) efficient maintenance of a database of technical and operational information to enable annual monitoring by the Bank as well as verification by DOEs. In particular, the local governmental agencies made great efforts in developing a comprehensive monitoring system and technical service networks to ensure the stable operation of the biogas digesters of 33,000 households (across more than 600 villages in 8 counties), to secure a stable ER delivery. The well-functioned monitoring system has also demonstrated best practice in biogas program management in biogas sector. 4. COMMENTS FROM PROJECT ENTITY AND OTHER PARTNERS 4.1 Project entity 27. The project agencies consider the project’s Implementation and Completion Results Report (ICR) fully acceptable. Gaining carbon income, as an incentive, has greatly encouraged households to ensure smooth biogas operations and maintain well- 40 functioning biogas technical services, which does not only promote income generation from carbon trade, but also enhances project environmental benefits and improves biogas management. 28. In addition, through successful CDM registration and CER issuance, Enshi biogas sector has established itself as a credible results-oriented partner for collaboration and innovation. It has also well positioned itself to become a major contributor in China’s emerging domestic Emission Trading Scheme. 4.2 Other partners and stakeholders N/A 5. JUSTIFICATION FOR MOVING TO THE SECOND PHASE (CARBON FINANCE MONITORING PHASE) AND SAFEGUARDS COMPLIANCE 5.1 Compliance with safeguards and implementation challenges in the first phase (supervision phase) 29. Overall, the project has contributed significantly to reducing rural pollution, including indoor pollution, by the anaerobic treatment of animal manure and the use of the generated biogas to replace coal and wood fuel for cooking and heating of local households. As confirmed during project supervision missions undertaken during the implementation period, the project fully complied with the Bank’s safeguards policies. The project agencies and households have strictly implemented the Environmental Management Plan (EMP) and the Ethnic Minority Development Plan (EMDP). Biogas slurry application and biogas facility construction and operation have largely generated positive environmental impacts; the potential social and environmental concerns were appropriately addressed and the safe use of biogas is ensured. From a social perspective, no land acquisition or involuntary resettlement was occurred during project preparation and implementation. The land for the construction of biogas digesters are the project households’ housing plots or their nearby farming (vegetable/fruit) fields. Good progress has also been made in the implementation of the EMDP. The farmers, including ethnical minority people, have had an equal opportunity to participate in the project and have benefited from the carbon revenue, trainings, and technical services provided under the project. 5.2 Project entity’s capacity to carry out key functions related to safeguard requirements 30. The project entity has demonstrated sufficient capacity to carry out key functions related to the safeguards requirements. The PMOs at the different levels have been able to ensure a stable number of employees over a long period of time with sufficient financial resources. With the project’s well-established project management systems and the project entity’s accumulated project experience, it is 41 believed that the project entity is capable of sustaining project operations to meet the Bank requirements for the second phase. 5.3 Potential issues in post completion operation, including project entity’s capacity and ability of the project to deliver the contracted emission reductions. 31. Project operational performance has been stable during the project implementation period and this performance is expected to continue. Therefore, no technical, social, and environmental issues are expected to put future delivery of contracted CERs at risk. The only factor that could have a potential impact on emission reductions generation is the phasing out of a small percentage of biogas digesters (around 5%) due to the relocation of rural households in some areas. However, this risk is limited and projected as manageable given the geographical location of the project areas, which minimizes the impacts of urbanization on the project. The majority of project households are expected to maintain a stable operation of their biogas digesters in the future. 5.4 Justification for moving to the second phase (carbon finance monitoring phase) 32. The project has been successfully implemented: since project commissioning in 2008, biogas facility operations have been stable and the issuance of CERs over five years has proven to be consistent with the project design; all management structures and technical protocols have been put in place; and no major risk exists for complying with the limited safeguard requirements related to biogas digester operation and maintenance. Therefore, the project is ready to be transferred to the second phase: the monitoring phase. 33. 5.5 Recommendations and guidance for project monitoring in the second phase (carbon finance monitoring phase) As the technical services for biogas digester operations are in place and the households have obtained the relevant skills for operating the biogas system (including biogas slurry application), the focus in the second phase should be on safeguard compliance—the continued monitoring of the implementation of the EMP and the disbursement of carbon revenue. The EMP includes detailed environmental management measures that the project households should be undertaking during the project operation stage. As the EMDP mainly deals with the community consultation and development during the project design and implementation phases, in the operation stage, its monitoring should focus more on the timely carbon revenue delivery to ethnic minority people. 34. The project agencies have committed that the PMOs at Enshi prefectural and project county levels will be maintained with sufficient financial resources to continue their responsibility for the project’s verification process, technical assistance provision, and safeguard policy implementation during the project monitoring period. The ER reporting requirements, which incorporate the monitoring of the EMP implementation and carbon income distribution, were also agreed with project agencies. The Bank recommended that field visits are carried out once every year by 42 the Bank team to ensure that the project will continue to comply with the Bank safeguard policies; that its motoring system is operating well; and that carbon revenue is being properly disbursed to the participating households, including ethnic minority groups. The Table 3 below listed the monitoring requirements recommended in Phase 2. Table 3: Phase 2 Monitoring Requirements Subject / Monitoring Frequency of Safeguard Parameter requirement and reporting policy associated evidence required triggered in Phase 1 Environmental Pathogenic field Monitoring and Once a year OP/BP 4.01 survey reporting to the Environmental Bank the level of Assessment pathogenic microorganism of bio-slurry to ensure its pathogens and zoonotic levels have been reached acceptable levels for application. Social Carbon revenue Annual monitoring Once a year OP/BP 4.10 delivery to report Indigenous ethnic minority Peoples people Community Monitoring report Every three Benefit years Indicators as per ERPA annex 2 43 Annex 5. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Ms. Anis Operations Officer EASSD Operations Officer Sr Financial Management Sr Financial Management Yi Dong EASFM Specia Specialist Achim Fock Senior Economist AFTA3 Senior Economist Senior Social Development Senior Social Development Zong-Cheng Lin EASCS Spec Specialist Gayane Senior Environmental Senior Environmental EASER Minasyan Economist Economist Li Ouyang Program Assistant EACCF Program Assistant Senior Procurement Jinan Shi EASR1 Senior Procurement Specialist Specialist Sari K. Sector Manager ENV TTL, Sector Manager Soderstrom Sergei Soryza Senior Economist EASER Senior Economist Hongwei Zhao Program Assistant EACCF Program Assistant Weiguo Zhou Consultant EASER Consultant Bruce Trangmar Consultant EASER Consultant Supervision/ICR Xieli Bai Program Assistant Program Assistant EACCF Wendao Cao Senior Rural Development GFADR TTL, Senior Rural Specialist Development Specialist Luc Senior Economist AFRCE Senior Economist Christiaensen Sr Financial Management Yi Dong Sr Financial Management GGODR Specialist Specialist Gayane Senior Environmental GENDR Co-TTL, Senior Minasyan Economist Environmental Economist Zijing Niu Program Assistant EACCF Program Assistant Xin Ren Environmental Specialist GENDR Environmental Specialist Yunqing Tian Team Assistant EACCF Team Assistant Yuan Wang Procurement Specialist GGODR Procurement Specialist Jun Zhao Rural Development GFADR Rural Development Specialist Specialist Meixiang Zhou Social Development GSURR Social Development Specialist Specialist 44 Bruce Trangmar Consultant GFADR Consultant Tim Zachernuk Consultant GFADR Consultant Kurt Roos Consultant GFADR Consultant (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY06 30.58 122.88 FY07 68.39 245.99 FY08 8.26 32.24 FY09 6.68 59.35 Total: 113.91 460.46 Supervision/ICR FY09 7.33 55.60 FY10 23.09 79 FY11 14.59 70.51 FY12 19 37.51 FY13 13.56 46.03 FY14 14.12 47.31 FY15 1.2 20.22 Total 92.89 356.18 45 Annex 6. Beneficiary Survey Results No beneficiary survey was performed. 46 Annex 7. Stakeholder Workshop Report and Results No stakeholder workshop was organized. 47 Annex 8. Summary of Borrower's ICR and/or Comments on Draft ICR In order to deal with continuing environmental deterioration, increase farmers’ income and improve the inadequate technical support, management, and monitoring and evaluation (M&E) system of the National Rural Biogas Program (NRBP), the Ministry of Agriculture cooperated with the World Bank in the implementation of the China Eco- Farming Project. This project involved a total 470,141 rural households in 3,241 villages, 490 townships, 65 counties and 25 cities, in Anhui, Hunan and Hubei provinces, Chongqing municipality and Guangxi Zhuang Autonomous region. The project combined the use of World Bank loan (US$ 120 million) with the investment of NRBP, for a total investment of US$ 487 million. Project implementation lasted for 5 years, becoming effective in May 2009 and closing on June 30, 2014. The design and implementation of the project are highly consistent with national policies and industrial development planning, as well as the World Bank’s country partnership strategy. The project development objective is to deliver direct environmental and economic benefits from the integration of biogas in farming and cooking in rural households. In addition, the project aims to reduce greenhouse gas emissions through methane combustion and reduced burning of coal and firewood in the project areas. Specifically the project included three components: Component 1: Integrated Eco-Farming Systems, aiming to demonstrate technical best practices for biogas development for replication; Component 2: Local Technical Extension and Biogas Service System; and Component 3: Project Management, Monitoring and Evaluation. In addition, a Clean Development Mechanism (CDM) pilot program under this project was established in Enshi, Hubei, which aims to reduce greenhouse gases by changing traditional manure management methods and recovering methane from manure for the households’ thermal energy needs by installing and operating biogas digesters, and to complete carbon credit trading. In the course of the project implementation and in view of changes to project conditions such as central government grants, unit costs of construction and exchange rate, while adhering to the principle of maintaining project development objectives, components, the overall investment and the total size of the loan, adjustments were made to construction sites, scale of construction, unit prices of reimbursement, and M&E indicators. Meanwhile, the project implementation process was affected by various factors, including the increase of central government grants, the increasing number of migrant workers, and national incentives promoting large scale animal husbandry production. Nevertheless, through the coordination and concerted efforts of central and local project management offices and relevant government agencies the five provinces successfully overcame the effect of various negative factors, minimized risks, and smoothly completed the project. During the five year implementation, the five project provinces completed various project activities as planned. The construction of “one biogas system + three improvements” was completed for 470,141 households. Water supply was improved for 155,560 households and 1770.8 km village road were built. A 5-Level technical extension service involving provinces, cities/prefectures, countries, townships and villages was established. Province, city/prefecture and county project management offices were set up, and office facilities 48 were improved to fulfil various project management responsibilities successfully. Sound project M&E systems were established and the stated project outputs, outcomes and development objectives have all been achieved. The project has achieved fruitful economic, social and environment benefits and the health and quality of life of farmers have been effectively improved. First, through the “one biogas system + three improvements”, the sanitation conditions of rural households have been improved by changing their previous conditions, which was characterized by smoky interiors of homes, and toilets shared by humans and animals. Second, the disposable income of rural households has increased. The implementation of the project reduced the use of conventional fuel such as coal and firewood, etc., substituted chemical fertilizer and pesticide with solid and liquid bio-slurry, reduced time spent on gathering fuel and cooking, and reduced spending on chemical fertilizer and pesticide which, in turn, effectively increased the incomes of rural households. Third, greenhouse gas emission has been decreased. In the project, toxic gas such as methane produced by livestock and poultry manure has been collected. It was burned and emitted in the form of CO2, which effectively reduced greenhouse gas emission. Fourth, throughout project implementation special attention was paid to women, ethnic minorities and poor households. During the project a large number of women in rural households, ethnic minorities and poor households participated in project implementation and received trainings conducted by the project. Women in rural households have saved time on housework and their labor efforts have been reduced, which increased their income and savings and improved their knowledge on environment protection, technical skills, and other aspects. The Central Project Management Office and provincial project offices have also gained valuable World Bank project experience through project implementation. For the design and implementation of future projects, they could fully utilize, promote and demonstrate the experience and concepts of project design and management used by the World Bank. First of all, the priority assigned by government officials to the project, sound institutional structures and proactive steering provided by World Bank were prerequisites for the success of this project. Second, scientific project design and the mature, standardized management practices of the World Bank were essential for the success of this project. Third, the project has fully respected farmers’ wishes and carried out extensive informational campaigns so that rural households could fully understand the economic, social and environmental benefits brought by the project. The voluntary participation of rural households was vital to achieving the project objectives. Fourth, the project combined biogas construction and agricultural production, focused on the establishment of technical service systems and delivery of training, emphasized the establishment of M&E systems, and developed quantitative appraisal system, which were all indispensable for the successful implementation of the project and outcome monitoring. This was a major highlight of the project. 49 This project, indeed, has also left us with some lessons. First, personnel changes among managers and staff members of project offices affected the consistency of the project. Second, it was discovered that a few counties of a few provinces withheld project funds, gave sub-standard subsidies and diverted project funds. After discovering such problems the responsible project counties/cities promptly rectified the abovementioned problems. In summary, the performance evaluations of both the Bank and the Borrower are satisfactory. From project design to implementation, and through to completion of the project, various state ministries, governments of project provinces, central and local project management offices and World Bank have all played crucial roles at different levels and from different perspectives. The National Development and Reform Commission (NDRC), Ministry of Finance, and Ministry of Agriculture have all proactively participated in project application, negotiation and signing of agreements, resolved the provision of project counterpart funds through coordination, established a central project management office, and devised project implementation and management arrangements. Local governments of all five provinces have also invested abundant manpower, material and financial resources, which laid foundation for the smooth approval, implementation and completion of the project. During project implementation both central and local project management offices played important roles in coordination and communication, assisted World Bank supervision missions, conducted trainings on project management knowledge, and promptly finished and submitted project plan and reports, including progress, finance, auditing and M&E, and completion report. Both central and local project management offices were highly effective, which guaranteed the smooth implementation of each project activity. During the project design and preparation stage, the World Bank did a large amount of work on planning and deployment of project components, progress plan and establishing an impact M&E system. During the implementation of the project the World Bank also sent out teams for 11 supervision missions to promptly rectify issues and provide copious constructive comments, which played a significant role in the successful implementation and smooth completion of the project. 50 Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable. 51 Annex 10. List of Supporting Documents By the Borrower: 1. Project Feasibility Study Report by FECC 2. Social Assessment 3. Environmental Impact Assessment 4. Good Environmental Practice Manual 5. Ethnic Minorities Development Plan 6. Policy Framework for Land Acquisition and Resettlement 7. Project Implementation Manual by FECC 8. Project Implementation Manual by Anhui Province 9. Project Implementation Manual by Chongqing Municipality 10. Project Implementation Manual by Guangxi Autonomous Region 11. Project Implementation Manual by Hubei Province (Enshi Prefecture) 12. Project Implementation Manual by Hunan Province 13. Procurement Plans for Anhui, Chongqing, Guangxi, Hubei (Enshi), and Hunan 14. Terms of Reference and Methodology Note for Monitoring and Evaluation 15. China Eco-Farming Project Evaluation Design Framework 16. ICR Report by FECC June 30, 2014 17. ICR Report by Anhui Province June 30, 2014 18. ICR Report by Chongqing Municipality June 30, 2014 19. ICR Report by Guangxi Autonomous Region June 30, 2014 20. ICR Report by Hubei Province (Enshi Prefecture) June 30, 2014 21. ICR Report by Hunan Province July 2014 22. Semi-annual Progress Reports 23. Village and Household Surveys in 2009, 2012 and 2014; By the Bank: 1. Project Concept Note 2. PCN Review Meeting Minutes 3. Mission Aide Memoires 4. Financial Management System Assessment 5. Procurement Capacity Assessment 6. Detailed Cost Tables 7. Cost & Benefit Analysis Excel Files 8. Line of Credit Review Memo 9. Memo to the Country Director about National Program Support Component 10. Memo declaring Appraisal completed 11. Project Appraisal Document November 3, 2008 12. Restructuring Paper April 11, 2013 13. ICR Report for Carbon Finance Operations, Hubei Eco-farming Biogas Project July 2014 52 MAP (CHN35327, CHN35328, CHN35329, CHN35330, CHN35331) 53 54 55 56 57