FOR OFFICIAL USE ONLY
Report No: PAD3388
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF €89.10 MILLION (US$100 MILLION EQUIVALENT)
TO THE
PEOPLE'S REPUBLIC OF CHINA
FOR A
SICHUAN WATER SUPPLY AND SANITATION PUBLIC PRIVATE PARTNERSHIP (PPP) PROJECT
FEBRUARY 10, 2020
Water Global Practice
East Asia and Pacific Region
This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
CURRENCY EQUIVALENTS
(Exchange Rate Effective December 31, 2019)
Currency Unit = Chinese Yuan (CNY)
CNY 6.96 = US$1
EURO 0.89 = US$1
FISCAL YEAR
January 1–December 31
ABBREVIATIONS AND ACRONYMS
BCC Behavior Change Campaign
CAPEX Capital Expenditure
CBA Cost-Benefit Analysis
CEA Cost-effectiveness Analysis
CNAO China National Audit Office
CPF Country Partnership Framework
CP Condition Precedent
DA Designated Account
DBO Design, Build, and Operate
EIA Environmental Impact Assessment
EIRR Economic Internal Rate of Return
ENPV Economic Net Present Value
EPC Engineering, Procurement, and Construction
ESF Environmental and Social Framework
ESCP Environmental and Social Commitment Plan
ESMP Environmental and Social Management Plan
FM Financial Management
FMM Financial Management Manual
FSR Feasibility Study Report
FYP Five-year Plan
GBV Gender-based Violence
GDP Gross Domestic Product
GHG Greenhouse Gas
GI&CE Gender Inclusion and Citizen Engagement
GIF Global Infrastructure Facility
GRS Grievance Redress Service
HUCB Housing and Urban Construction Bureau
HUDB Housing and Urban Development Bureau
IFC International Finance Corporation
IFC C3P IFC PPP Advisory Team
IPF Investment Project Financing
IT Information Technology
JDFB Jingyang District Finance Bureau
JDG Jingyang District Government
Jingyang Jingyang District
KPI Key Performance Indicator
M&E Monitoring and Evaluation
MBR Membrane Bio-reactor
MOF Ministry of Finance
NCDP New Countryside Development Program
NDRC National Development and Reform Commission
NPV Net Present Value
NRW Nonrevenue Water
O&M Operation and Maintenance
OM Operations Manual
OPEX Operating Expenditure
PDO Project Development Objective
PIP Project Implementation Plan
PLG Project Leading Group
PMO Project Management Office
PPP Public-private Partnership
PPSD Project Procurement Strategy for Development
RAP Resettlement Action Plan
RPF Resettlement Policy Framework
SEP Stakeholder Engagement Plan
SOE State-owned Enterprise
SPAO Sichuan Provincial Audit Office
SPFD Sichuan Province Finance Department
SPV Special Purpose Vehicle
TA Technical Assistance
UNICEF United Nations Children's Fund
VAT Value Added Tax
WAB Water Affairs Bureau
WASH Water, Sanitation, and Hygiene
WSS Water Supply and Sanitation
WTP Water Treatment Plant
WWTP Wastewater Treatment Plant
Regional Vice President: Victoria Kwakwa
Country Director: Martin Raiser
Regional Director: Benoit Bosquet
Global Director: Jennifer Sara
Practice Manager: Sudipto Sarkar
Task Team Leader(s): Gang Qin, Victoria Hilda Rigby Delmon
The World Bank
Sichuan Water Supply and Sanitation PPP Project (P168025)
TABLE OF CONTENTS
DATASHEET ........................................................................................................................... 1
I. STRATEGIC CONTEXT ...................................................................................................... 6
A. Country Context................................................................................................................................ 6
B. Sectoral and Institutional Context .................................................................................................... 8
C. Relevance to Higher Level Objectives............................................................................................. 11
II. PROJECT DESCRIPTION.................................................................................................. 14
A. Project Overview and Key Concepts............................................................................................... 14
B. Project Development Objective...................................................................................................... 16
C. Project Components ....................................................................................................................... 17
D. Project Beneficiaries ....................................................................................................................... 20
E. Project Theory of Change and Results Chain .................................................................................. 21
F. Rationale for World Bank Involvement and Role of Partners ......................................................... 23
G. Lessons Learned and Reflected in the Project Design.................................................................... 25
III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 27
A. Institutional and Implementation Arrangements .......................................................................... 27
B. Results Monitoring and Evaluation Arrangements......................................................................... 30
C. Sustainability................................................................................................................................... 31
IV. PROJECT APPRAISAL SUMMARY ................................................................................... 32
A. Project Technical, Financial, and Economic Analysis ...................................................................... 32
B. Fiduciary.......................................................................................................................................... 38
C. Legal Operational Policies ............................................................................................................... 40
D. Environmental and Social ............................................................................................................... 40
V. GRIEVANCE REDRESS SERVICES ..................................................................................... 43
VI. KEY RISKS ..................................................................................................................... 43
VII. RESULTS FRAMEWORK AND MONITORING ................................................................... 46
ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN ................................... 54
ANNEX 2: FEASIBILITY STUDY REPORT AND OPTIMIZATION OF TECHNICAL DESIGN .............. 61
ANNEX 3: PPP STRUCTURING OPTIONS ................................................................................ 63
ANNEX 4: SUMMARY OF TERMS OF DRAFT PPP AGREEMENT ............................................... 68
ANNEX 5: ECONOMIC AND FINANCIAL ANALYSIS ................................................................. 73
ANNEX 6: GENDER INCLUSION AND CITIZEN ENGAGEMENT PLAN ........................................ 81
ANNEX 7: PROJECT MAP ...................................................................................................... 87
The World Bank
Sichuan Water Supply and Sanitation PPP Project (P168025)
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DATASHEET
BASIC INFORMATION
BASIC_INFO_TABLE
Country(ies) Project Name
China Sichuan Water Supply and Sanitation PPP Project
Project ID Financing Instrument Environmental and Social Risk Classification
Investment Project
P168025 Substantial
Financing
Financing & Implementation Modalities
[ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC)
[ ] Series of Projects (SOP) [ ] Fragile State(s)
[ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s)
[ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country
[ ] Project-Based Guarantee [ ] Conflict
[ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster
[ ] Alternate Procurement Arrangements (APA)
Expected Approval Date Expected Closing Date
03-Mar-2020 31-Dec-2026
Bank/IFC Collaboration Joint Level
Yes Complementary or Interdependent project requiring active coordination
Proposed Development Objective(s)
The objectives of the Project are to improve access to water supply and sanitation services and improve the quality
and efficiency of water supply and sanitation service delivery in select peri-urban and rural areas of Jingyang District
of Deyang City in Sichuan Province.
Components
Component Name Cost (US$, millions)
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Sichuan Water Supply and Sanitation PPP Project (P168025)
Institutional Strengthening and Infrastructure Investments to Improve WSS Services in
153.40
Jingyang District
Institutional Capacity Building and Technical Assistance (TA) for PPP Oversight, Project
1.00
Management, and Scale Up of the PPP Approach
Organizations
Borrower: People's Republic of China
Implementing Agency: Jingyang Project Management Office
PROJECT FINANCING DATA (US$, Millions)
SUMMARY -NewFin1
Total Project Cost 154.40
Total Financing 154.40
of which IBRD/IDA 100.00
Financing Gap 0.00
DETAILS -NewFinEnh2
Private Sector Investors/Shareholders
Equity Amount Debt Amount
Government Contribution 6.50 IFI Debt 100.00
Government Resources 6.50 IBRD 100.00
Non-Government Contributions 34.40 Commercial Debt 13.50
Private Sector Equity 34.40 Unguaranteed 13.50
Total 40.90 113.50
Expected Disbursements (in US$, Millions)
WB Fiscal Year 2020 2021 2022 2023 2024 2025 2026 2027
Annual 0.00 5.00 15.00 20.00 20.00 20.00 15.00 5.00
Cumulative 0.00 5.00 20.00 40.00 60.00 80.00 95.00 100.00
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Sichuan Water Supply and Sanitation PPP Project (P168025)
INSTITUTIONAL DATA
Practice Area (Lead) Contributing Practice Areas
Water
Climate Change and Disaster Screening
This operation has been screened for short and long-term climate change and disaster risks
SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)
Risk Category Rating
1. Political and Governance ⚫ Low
2. Macroeconomic ⚫ Moderate
3. Sector Strategies and Policies ⚫ Substantial
4. Technical Design of Project or Program ⚫ Substantial
5. Institutional Capacity for Implementation and Sustainability ⚫ High
6. Fiduciary ⚫ Substantial
7. Environment and Social ⚫ Substantial
8. Stakeholders ⚫ Substantial
9. Other
10. Overall ⚫ Substantial
COMPLIANCE
Policy
Does the project depart from the CPF in content or in other significant respects?
[ ] Yes [✓] No
Does the project require any waivers of Bank policies?
[ ] Yes [✓] No
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Sichuan Water Supply and Sanitation PPP Project (P168025)
Environmental and Social Standards Relevance Given its Context at the Time of Appraisal
E & S Standards Relevance
Assessment and Management of Environmental and Social Risks and Impacts Relevant
Stakeholder Engagement and Information Disclosure Relevant
Labor and Working Conditions Relevant
Resource Efficiency and Pollution Prevention and Management Relevant
Community Health and Safety Relevant
Land Acquisition, Restrictions on Land Use and Involuntary Resettlement Relevant
Biodiversity Conservation and Sustainable Management of Living Natural Relevant
Resources
Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Not Currently Relevant
Local Communities
Cultural Heritage Relevant
Financial Intermediaries Not Currently Relevant
NOTE: For further information regarding the World Bank’s due diligence assessment of the Project’s potential
environmental and social risks and impacts, please refer to the Project’s Appraisal Environmental and Social
Review Summary (ESRS).
Legal Covenants
Sections and Description
For the purposes of carrying out the Project, the Project Implementing Entity shall cause the Jingyang District, to
on-lend the proceeds of the Loan to the Project Company, pursuant to an on-lending agreement (the “On-lending
Agreement”) under terms and conditions acceptable to the Bank, identical to those of the Loan.
Sections and Description
Without limitation to the generality of Section 5.03 of the General Conditions, plan and provision each year in its
annual district budget, funds in an amount sufficient to ensure the viability of Part 1 of the Project, to provide to
the Project Company availability payments in accordance with the provisions of the PPP Agreement, for the
purpose of financing, among other things, the financing costs related to the operation of the new utility established
under Part 1 of the Project, debt servicing, return on equity and operational subsidies
Sections and Description
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Sichuan Water Supply and Sanitation PPP Project (P168025)
The Project Implementing Entity shall, and shall cause the Jingyang District to, ensure that the Project is carried out
in accordance with the Environmental and Social Standards, in a manner acceptable to the Bank.
Sections and Description
Throughout the implementation of the Project, the Project Implementing Entity shall, and shall cause the Jingyang
District to, apply the Project Operations Manual in a timely and efficient manner acceptable to the Bank. The
Project Implementing Entity shall, and shall cause the Jingyang District to, not amend, suspend, or waive said
Project Operations Manual or any provision or schedule thereof, without the prior written agreement of the Bank.
In the event of any inconsistency between the provisions of the Project Operations Manual and those of the Project
Agreement or the Loan Agreement, the provisions of the Project Agreement and the Loan Agreement shall prevail.
Sections and Description
Without limitation to the provisions of Section II.A.1 of the Project Agreement, the Project Implementing Entity
shall, and shall cause the Jingyang District to, prepare, under terms of reference acceptable to the Bank, and furnish
to the Bank no later than June 30, 2023, a consolidated mid-term review report for the Project, summarizing the
results of the monitoring and evaluation activities carried out from the inception of the Project, and setting out the
measures recommended to ensure the efficient completion of the Project and to further the objectives thereof.
Sections and Description
The Project Implementing Entity shall, and shall cause the Jingyang District to (with inputs from the Project
Company), provide to the Borrower not later than five (5) months after the Closing Date, for incorporation in the
report referred to in Section 5.08 (c) of the General Conditions all such information as the Borrower or the Bank
shall reasonably request for the purposes of that Section.
Sections and Description
No later than December 31, 2021, carry out a water and sewerage sanitation tariff roadmap study to identify a
medium-to long-term pathway for raising tariffs (and reducing subsidies) so that the tariff be both affordable to
customers and financially sustainable for the Concession and the Jingyang District’s water and sewerage sanitation
services.
Conditions
Type Description
Effectiveness The On-lending Agreement has been entered into between the Jingyang District and the
Project Company in accordance with the provisions of Section I.B.1 (a) of the Schedule to the
Project Agreement.
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Sichuan Water Supply and Sanitation PPP Project (P168025)
I. STRATEGIC CONTEXT
A. Country Context
1. Over the past 40 years, China experienced a period of high growth and significant poverty reduction.
Rapid economic growth was made possible by a wide range of reforms, which transformed a state-dominated,
planned, rural, and closed economy into a more market-based, urbanized, and open one. Real per capita
income increased 16 times between 1978 and 2017. More than 850 million people lifted themselves out of
poverty.
2. China has now entered a new stage in its development, transiting to slower but more balanced and
sustainable growth. Its previous growth model, based on resource-intensive manufacturing, exports, and
cheap labor, has largely reached its limits and has led to economic, social, and environmental imbalances. The
country is now undergoing a major economic transformation, shifting to a new growth model that is slower
but more balanced and based on services, consumption, innovation, and private sector participation.
3. Despite China’s economic and social gains, inequality and disparities remain a challenge. As of 2015,
about 10 million Chinese still lived below the international poverty line of US$1.90 a day. 1 Others live in
moderate poverty, still vulnerable to poverty shocks: there were 95.5 million people below the ‘lower middle
income’ poverty line of US$3.20 a day (in terms of purchasing power parity) and 373.1 million people below
the ‘upper middle income’ line of US$5.50 a day.2
4. Geography and the associated disparities in access to public services explains much of the inequality
in China. Unequal access to infrastructure and municipal services, which is associated with rural-urban disparity,
is a significant contributor to overall inequality. Disparities between coastal and inland provinces are also high.
The quality of public services in rural and lagging regions is often significantly worse than in coastal urban areas,
reflecting different fiscal capacities.
5. China has made progress in improving urban water supply and sanitation (WSS) services, but these
are lagging in the rural areas. There is still a need to improve WSS management, particularly in rural areas.3
China’s rural population accounts for 50 percent of the total population, but only 73 percent of these rural
residents have access to a piped water supply (compared to 95 percent in urban areas). While most rural
households have some form of on-site sanitation (often basic septic tank facilities 4 ), safe and complete
wastewater management services in rural areas lag behind water supply service provision. Nationwide, only 8
percent of the rural domestic sewage is collected and properly treated, mostly in coastal regions. Local
governments in rural and peri-urban areas lack the technical and managerial capacity for operations and
1 “Poverty headcount ratio at US$1.90 a day (2011 purchasing power parity) (% of population) | Data,” data.worldbank.org.
2 “Poverty headcount ratio at US$3.20 a day (2011 purchasing power parity) (% of population) | Data” and “Poverty headcount ratio
at US$5.50 a day (2011 PPP) (% of population) | Data,” data.worldbank.org.
3 China’s administrative hierarchy consists of central (capital) level, provincial level, prefecture level, county/district level, and
township/town level. Rural areas refer to the areas at the township/town level and below. A township/town usually consists of a
township-seat and several villages in the jurisdiction of the township/town, some are nearby, and some are remote. Urban areas in
China refer to the residential, industrial, and business areas at the central, provincial, prefecture, and county levels.
4 Most rural townships/towns have on-site sanitation and rudimentary discharge pipes, and households collect wastewater using
septic tanks and use the waste as fertilizer.
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Sichuan Water Supply and Sanitation PPP Project (P168025)
service delivery of WSS, particularly for wastewater, and low household connection rates combined with low
tariffs lead to sustainability challenges.
6. Local government financing challenges impact on the quality of public services in rural areas.
Following China’s 1994 Tax Reform, local governments receive lower levels of fiscal transfers from the Central
Government and are responsible for funding a larger share of local spending with their own funds. To finance
investments for rapid urbanization and development, local governments have relied increasingly on complex
financing structures, often in the form of ‘off-budget’ loans, which has led to unsustainable levels of debt. In
response, the Central Government has introduced constraints on local government spending, along with
measures to improve local debt management and limit off-budget borrowing and contingent liabilities.5
7. Public-private partnerships (PPPs) are viewed as a way to address these fiscal challenges and to
improve service delivery in China. China’s Central Government actively promotes PPPs as an alternative
procurement model for financing public infrastructure and services, recognizing the potential role PPPs can
play in reducing the fiscal burden of local governments (provided that associated contingent liabilities are
manageable), while bringing technical expertise, operational efficiency, and financing from the private sector.
The PPP approach has been applied extensively in WSS in China,6 although less so in rural WSS. However,
Chinese experience in WSS PPPs is mixed. Many PPP projects have been structured sub-optimally, have lacked
rigorous and effective procurement processes, have not been tailored to the development challenge they were
trying to solve (particularly in rural WSS, as discussed below), and have not clearly separated the roles and
responsibilities of service provider and government.
8. China’s Ministry of Finance (MOF) and the National Development and Reform Commission (NDRC)
recognized the shortcomings in PPPs in China and have recently undertaken a number of measures to
encourage local governments to manage debt levels prudently. In December 2015, the MOF issued a
document7 requiring that total debt of a local government should not exceed the quota allocated by its upper
level of government.8 Local governments that exceed their quota are not allowed to borrow from any bank
(including the World Bank). The MOF also strictly regulates PPP projects and tracks them through a PPP
approval process. In March 2019, the MOF issued a document,9 elaborating clear regulatory criteria that PPP
projects are required to meet to be eligible for approval. Two such criteria include (a) the cumulative contingent
liability for all PPP projects in the local jurisdiction must be less than 10 percent of general budgeted
expenditures in any given year and (b) any subsidies to the PPP partner must be paid based on performance. If
these regulatory conditions are met for such approved PPP projects, any operating expenditure (OPEX)
subsidies or viability gap funding paid by local governments to the PPP partner for providing long-term services
to the public can be considered regular expenditure of the government, rather than as government debt. In
addition, under such regulated PPP arrangements, any obligations to raise and repay commercial debt would
be the responsibility of the PPP partner and not the local government. With these measures, the MOF and
NDRC have begun to seek and support well-designed demonstration PPPs that present better PPP structures
and mechanisms and that can be applied and promoted in different sub-sectors in China.
5 Article 35 of the Budget Law of the People’s Republic of China and a document issued by the State Council (Guofa No. 43, 2014).
http://www.gov.cn/zhengce/content/2014-10/02/content_9111.htm.
6 According to the China PPP Center national PPP database, as of May 2019, there were 9,001 WSS PPP projects in China.
7 “Suggestions on Implementation of Debt Quota Management for Local Governme nts,” China Ministry of Finance. December 2015.
8 Debt quota allocations are allocated down through all levels of government, from province, to municipality, to district, and so on.
9 “Promoting Regulated PPP in China.” China Ministry of Finance. March 2019.
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Sichuan Water Supply and Sanitation PPP Project (P168025)
B. Sectoral and Institutional Context
9. Experience with WSS PPPs in China has been mixed. As noted above, PPPs have been applied
extensively in WSS in China (although less so in rural areas) and have contributed greatly to the rapid expansion
in wastewater treatment capacity. However, a PPP Risk Allocation Study conducted for this proposed project
and the market sounding conducted by the International Finance Corporation (IFC) during the project
preparation (see the Rationale for World Bank Involvement section below) identified the following general
challenges with PPPs in WSS in China:
(a) State-owned enterprises (SOEs) dominate the market and often operate outside their core sector.
(b) PPP projects typically focus more on construction of infrastructure rather than on sustainability
of operations and service delivery, resulting in rapid system breakdowns and a cycle of ‘build-
neglect-build’.
(c) Contracts lack clarity on risk allocation and scope and typically lack performance-based payments.
(d) There is rarely a requirement nor incentives in the PPP to connect households.
(e) Tenders are often priced unrealistically low.
(f) Government authorities typically lack the capacity to manage and enforce PPP contracts.
(g) For projects in small towns and rural areas, local government payment risk is often a concern.
10. In addition, World Bank experience with WSS services in rural and peri-urban areas in China indicates
a number of technical and management capacity challenges in the sector, including the following:
(a) Inappropriate design and technology. Water and sewage treatment plants tend to be
overdesigned and/or overly complex because rural water use forecasts fail to account for
migration patterns away from rural areas and expensive treatment technologies are often used.
This results in unaffordable facilities that are costly to build and operate.
(b) Unsustainable finances. While China promotes the principle of cost recovery in WSS systems,
water and wastewater tariffs are too low to recover costs, and often, rural wastewater tariffs are
not charged at all. As a result, operating revenues are low and, combined with costly and
overdesigned facilities, the services are not financially sustainable and require significant
government subsidy.
(c) Few utility models. WSS is typically managed by separate district-level engineering bureaus with
limited focus on customer service or business management. There are very few combined utilities
for WSS serving peri-urban and rural areas and limited cases of integrated water management.
WSS systems are also typically managed by men, with limited voice from women.
(d) Household connections are incomplete. Especially for rural sanitation, the focus is on building
treatment facilities and less on connecting households, leading to underutilized treatment plants.
(e) Local people have little or no voice in decision making on WSS initiatives. This is particularly the
case for women even though they are the primary household managers of water.
11. The proposed project is located in Jingyang District (Jingyang) in Sichuan Province in southwest
China. Sichuan Province is one of China’s less-developed economies, ranking 22nd among China’s 31 mainland
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Sichuan Water Supply and Sanitation PPP Project (P168025)
provinces by gross domestic product (GDP) per capita, and has an estimated population of 83 million, of which
48 percent is rural. 10 As typical with provinces in China, the rural population is declining as the younger
generation is attracted to urban areas. Sichuan Province’s GDP per capita in 2018 was about US$6,811 (below
the national average of US$9,770). Agriculture represents 11 percent of the GDP in Sichuan Province,
employing nearly half of the population,11 most of which lives in rural areas such as the one covered under the
project. Sichuan is divided into 21 prefecture-level divisions, 18 prefecture-level cities, and 3 autonomous
prefectures. It has 54 districts, 17 county-level cities, 108 counties, and 4 autonomous counties.
12. Jingyang is the main district of Deyang City and is a priority area for water pollution control as it is in
the upstream tributary area of the Yangtze River, and clean-up of the river is a priority of the Government
of China. Draft legislation has been proposed to protect the river through pollution control and water quality
improvement. Climate change is also expected to make the upstream Yangtze River region more vulnerable to
droughts.12 Accelerating urban construction and development pose significant challenges to the local water
environment in Jingyang, even though the district has in the past 20 years implemented several rural water
and environmental protection initiatives. Jingyang is an industrial city located on the northeast edge of the
Chengdu Plain in Sichuan Province, 70 km north of Chengdu, and covers 11 towns and 88 villages around (but
not including) Deyang City. The total population of Jingyang is over 750,000, with about 47 percent living in
rural areas. The proposed project area focuses on towns and villages (rural and peri-urban) of Jingyang,
covering an area of approximately 450 km2 and a population of 380,000.
Current Situation for Water Supply Management
13. In Jingyang, approximately 73 percent of the population in the peri-urban and rural project area
currently has access to a piped water supply system (211,600 people), in line with the national average of 73
percent. The current supply of piped water, however, is intermittent and unreliable, and water quality poses
potential health concerns. The water source is mostly shallow aquifer groundwater along with some local
reservoirs, both of which can be easily contaminated. Naturally occurring iron and manganate content in the
groundwater exceeds standards. For households that rely on boreholes, the situation is even worse as the
water quality varies considerably depending on the characteristics of the groundwater, time of the year, and
proximity to any contamination source. In addition, drinking water sources are not properly protected from
encroachment and pollution, posing further risks to hygiene and safety. Many households keep drinking water
tanks (a tank of 19 Liters cost CNY 38), for emergency and/or regular drinking use. Water quality testing is
sporadic, with the district lacking appropriate equipment and personnel, and drinking water sources are not
properly protected from encroachment and pollution, posing further risks to drinking water hygiene and safety.
Nonrevenue water (NRW)13 is high at around 32 percent and the systems are typically small-scale, incomplete,
and scattered. Even though the water supply systems are relatively new (having been largely rebuilt after the
2008 Sichuan earthquake), the focus (including funding allocations) has been on construction rather than
10 National Bureau of Statistics.
11 Sichuan Statistical Yearbook 2018, Sichuan Statistical Bureau.
12 The results of a study based on CMIP5 climate change forecast data and a variable infiltration capacity (VIC) hydrological model
(Guihua, Lu & Wu, Hongwei & Xiao, Heng & He, Hai & Wu, Zhiyong. 2016. “Impact of Climate Change on Drought in the Upstream Yangtze River
Region.” Water. 8. 10.3390/w8120576) show that temperatures in the upstream Yangtze River region will generally rise and annual
precipitation slightly increase in 2021–50, but that the summer and fall precipitation in most areas will drop. This means the next 30
years will see more frequent and prolonged droughts, and stronger regional droughts in the upstream Yangtze River region.
13 NRW is the difference between the volume of water that is treated and distributed and the volume that is billed to consumers.
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operations, maintenance, and service delivery. This has led to premature breakdowns of systems, affecting
service and sustainability.
14. Sichuan provincial and county governments are now proactively planning and implementing
investment programs aimed at improving WSS services. Objectives include moving away from decentralized
groundwater sources and toward centralized surface water systems and where feasible integrating rural
townships into the service areas of larger urban utilities nearby. For townships that cannot be connected to
larger systems, governments support development of independent piped water systems.
Current Situation for Wastewater and Sanitation Management
15. In Jingyang, only 15 percent of the population in the peri-urban and rural project area is connected
to a formal sewer system (43,350 people), with the rest of the population being served by septic tanks and
on-site treatment, many of which are not well designed or are malfunctioning. In the project area, there are
six recently commissioned wastewater treatment plants (WWTPs) and 154 anaerobic tanks (large septic tanks).
These WWTPs all reportedly meet required standards but are operating sub-optimally due to overdesign and
insufficient inflows (inflows are only 10–15 percent of design capacity). The local government has no capacity
to operate the WWTPs, and they are currently operated by the construction companies that built them, under
year-to-year contracts. The local government has not focused attention until now on building sewers and
connecting households to the wastewater system. Some households in the area use septic tanks (most are
functioning); otherwise, wastewater is discharged directly into nearby rivers without treatment—leading to
environmental pollution and broader public health risks downstream. Wastewater tariffs are only charged in a
few parts of the project area.
16. Sichuan’s current Three-Year Action Plan for Urban Sewage Treatment Facilities Construction (2017–
19) (Three-Year Action Plan)14 requires that, by 2020, sewage from 50 percent of administrative villages in
Sichuan Province should be collected and treated. Sichuan has planned to construct 1,238 wastewater
treatment facilities and complete investment of CNY 38.8 billion (US$5.63 billion) to improve wastewater
management. The provincial plans also aim to improve existing water supply service quality and capacity in
peri-urban areas. Moreover, the development of ‘complete’ wastewater management services (that is, starting
from improved household toilets, through sewage collection, treatment, and safe final disposal) is at the core
of the province’s development goals and is closely aligned with the Three Red Lines and Ecological Civilization
goals.15
Current Institutional Arrangements for Service Delivery
17. Piped water systems in Jingyang are owned and managed by the Water Affairs Bureau (WAB) of
Jingyang District Government (JDG). There are over 40 water service providers in the project area, and water
treatment facilities are operated by a mixture of bureau staff, water supply companies, farmers associations,
and local communities. Wastewater and sanitation management are the responsibility of the Housing and
14 Three-year Action Plan for Urban Sewage Treatment Facilities Construction (2017-2019): issued by Sichuan Department of Housing and
Urban-Rural Development.
15 China’s 13th national FYP for Social and Economic Development (FYP, 2016–2020) prioritizes the ideas of ‘Ecological Civilization’
and ‘Beautiful China’. These goals together ensure China’s economic development is characterized by more ‘harmonious coexistence
between humans and nature’—balancing priorities of GDP growth, with a new legal and policy framework that facilitates green and
low-carbon development.
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Sichuan Water Supply and Sanitation PPP Project (P168025)
Urban Development Bureau (HUDB) of the JDG. The WWTPs are operated under temporary contracts by the
contractors that built them. As noted, the focus in both sub-sectors has been on construction and operation of
assets. There is limited focus on maintenance, service delivery, connecting households and customer service,
or on integrated water resource management as the WAB and HUDB operate as separate engineering entities
rather than as a single utility. Some of the current workforce is under contract, reporting to different business
units. There is no business or asset management planning. There are currently few performance indicators
focused on service delivery.
18. WSS cost recovery in Jingyang is low, particularly with respect to wastewater. The cost recovery from
tariffs for operational expenditures of wastewater is around 20% for the wastewater plants that are in
operation. Costs that cannot be covered by tariffs are covered by the resources of the local government.
Inefficiencies in water management, together with high levels of water losses/NRW and low household
connection rates, result in much of the water produced not being billed and few paying customers. Rural
sanitation and wastewater services are not currently billed in most parts of the project area. There is significant
room to improve system efficiency and expand service for WSS. As is the case elsewhere in China, rural water
and wastewater tariffs are below the level of operation and maintenance (O&M) cost recovery.16 However,
local governments, as a matter of national rural development policy, ensure that capital and operating costs
are covered by tariffs or with subsides, as needed.
Climate Change Context
19. The project area’s main climate change vulnerability is increased stress on local water resources. The
project area lies along the sensitive upper tributaries of the Yangtze River, and unpredictable changes in rainfall
patterns potentially threaten water source availability and the project’s ability to supply water to rural
beneficiaries. This risk is compounded by the current conditions, where untreated wastewater is being
discharged directly into local water bodies. Therefore, properly managing efficient rural WSS systems to save
water and duly maintain infrastructure is important for adaptation to climate change-related water stress.
C. Relevance to Higher Level Objectives
20. This project supports China’s national and provincial policy plans and priorities, including the
Development-Oriented Poverty Reduction Program for China’s Rural Areas (2011–2020). These plans and
policies promote the development of rural infrastructure and the expansion of access to safe drinking water in
rural areas. The proposed World Bank financing helps improve access, quality, and affordability to WSS services
in rural areas of Sichuan, through a PPP model that aims to combine fragmented WSS services under one
sustainable utility model with modern systems and a clear risk allocation that can be replicated in Sichuan
Province and elsewhere in China. In particular, the project activities and achievements are highly relevant to
support China’s NCDP and the Sichuan Three-Year Action Plan; and the project will also help bridge the gap
between urban and rural service provision
21. The project supports the Chinese Central Government's ongoing efforts to strengthen policies for
PPP-financed projects in key sectors. Document No. 10,17 issued by the MOF in March 2019, identifies an
16 Current tariff rates in Jingyang are CNY 2.0 per m3 average for water and notionally between CNY 0.4 and CNY 0.85 per m3 for
wastewater (although wastewater tariffs are only charged in a few locations), while O&M breakeven points when the project
investments have been made are CNY 2.4 per m3 and CNY 4.0 per m3, respectively.
17 See footnote 9.
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objective to improve and standardize specific aspects of PPP project arrangements, including: allocating risk
between the public and private parties, ensuring that performance-based payment mechanisms are used,
ensuring value for money of the investments, and ensuring transparency in financial management (FM). This
project was selected by the MOF and NDRC (see section II-E) to be a pilot for these PPP improvements, and the
MOF and NDRC officials responsible for PPP policy in China have participated in key preparation activities—
from pre-identification to appraisal. The project preparation itself has already contributed to institutional
strengthening, guiding the JDG to manage sophisticated PPP contracts and shift to its new role as WSS sector
regulator, and by piloting improved PPP design practices, including legal due diligence, technical assessment,
and PPP procurement, which are not typically done in China. Such a model could potentially be scaled up to
the 2,500 similar rural counties across China and could also be replicated to improve water and sanitation
services in other countries. All of the project experience and lessons will be summarized and shared with
relevant officials in Sichuan Province and at the China Central Government.
22. The project is consistent with the World Bank Group (WBG) Country Partnership Framework (CPF)
for China (FY2020–2025) (Report 117875-CN), which was discussed by the Board of Executive Directors on
December 5, 2019. The project introduces an innovative approach focused on one of China's key development
challenges – closing the urban-rural gap in access to quality public services – while responding to the unique
set of technical, institutional, and financial challenges in the rural WSS sector, described above. The project
supports a new institutional set-up to provide WSS services in Jingyang, which may serve as a demonstration
project for PPP reforms on the national level and in other regions in China. It further responds to several of the
CPF’s selectivity criteria by delivering critical services in lagging regions, fostering the private sector, and
strategic piloting of approaches to address key development priorities.
(a) Delivering critical services in lagging regions. This project provides innovative institutional and
managerial solutions for WSS in rural China by creating a modern, efficient WSS utility that
improves access to and quality of WSS services. The project draws on World Bank global water
sector experience, including extensive project experience in China, to introduce systematic
institutional changes—including modern utility management, appropriate treatment
technologies, tariff rationalization, and cost recovery—for the provision of sustainable rural WSS
services. The project also supports other domestic and global public goods, such as greener
growth by protecting local environments through reduced discharge of untreated wastewater,
protecting water sources, reducing groundwater use, and constructing disabled-accessible public
toilets. The experience and lessons from this project are relevant for scale-up to similar rural
districts across China and in other countries.
(b) Fostering private sector engagement. This will be the first World Bank-financed PPP project in
the water sector in China. The water sector PPP experience in China has been mixed, and there
are needs at different levels to strengthen the market. At the national level, private entities in the
water sector need further clarity on PPP policies and regulations to inform their market analyses
and corporate strategies. Both the public and private entities need better clarity on their
respective roles and responsibilities for a given project, as well as on the allocation of risks for
each party so that both sides can understand and manage their roles and risks. At the transaction
and contracting level, the sector can benefit from improved processes and practices for PPP
project preparation and procurement, including disclosure of possible market advantages
conferred by the status of state-owned enterprise, in line with World Bank procurement policy.
This project responds to all of these needs by introducing a global, best-in-practice approach
intended to serve as a demonstration for PPP projects in the rural water sector in China. The
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project leverages financial and knowledge resources from the Government and the World Bank
Group to attract private sector expertise in WSS system operations, customer service, and
financial sustainability, along with private sector capital investment. As a demonstration, the
project experience will be shared widely in China and will help strengthen the market
environment and give greater confidence to the private sector.
(c) Strategic piloting of approaches to address key development priorities. This project has been
prepared by the World Bank and IFC working collaboratively as a joint team based on
international good practice. The World Bank brings global technical experience in the water
sector and project experience in China. The IFC is the formal transaction adviser to the client for
this project, bringing global experience in project financing and infrastructure PPPs and advising
the JDG on the PPP preparation, due diligence, project structuring, and procurement strategy to
optimize open and transparent competition in selecting an operator. The pre-qualification and
the bidding process will ensure that the selected utility operator has the technical and financial
qualifications to provide quality services. The lessons of this demonstration PPP project for rural
WSS services can be replicated in similar rural settings in China and the project will facilitate the
dissemination of this project’s experience.
23. The project supports other World Bank corporate objectives, including the following:
(a) Mobilizing Finance for Development. The proposed project leverages public assets to mobilize
capital from the private sector through a well-structured PPP for rural WSS service delivery. The
design of the PPP ensures that the PPP partner invests equity into the project, thereby easing
financial pressure on the JDG while improving service delivery and system efficiency through the
private sector expertise.
(b) Citizen engagement. Citizen engagement is seen as key to the success of the project. The project
has been designed to actively engage local citizens (who are the end users of WSS services), with
particular emphasis on female participation through community-based monitoring of customer
satisfaction, regular community meetings seeking feedback on WSS service quality, and customer
feedback mechanisms established within the project company (Project Company).18 The project
also includes Water, Sanitation, and Hygiene (WASH) behavior change campaigns (BCCs) to
promote household connections to the WSS systems and to motivate better community hygiene
practices. The project approach for citizen engagement includes differentiated roles and
responsibilities for the Government, the Project Company, and the community members (see
section III-A).
(c) Gender inclusion. WSS systems in Sichuan are typically managed by men. 19 Women play a
significant role as the primary managers of WASH in families and households; yet, they have little
or no information on WSS planning, no involvement in water operations or their management,
and little or no voice in decision making or feedback on water services at the community level.
For example, studies on village committees have shown an average of 25 percent of members
18
Special purpose vehicle (SPV) Project Company to be formed by the winning bidder for the PPP Agreement, see section II-A.
19
An International Benchmarking Network (IBNET)/World Bank Utility Survey from 2018 to 2019 found that only about 25 percent of
water and sanitation utility employees in China are women.
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are women. 20 To address this gap, feedback from local monitoring groups formed under this
proposed project will play a key role in informing monitoring reports on the private operators in
each village and their key performance indicators (KPIs), with poor performance being linked to
a potential deduction in payment for these companies. To increase gender inclusion, the newly
formed village monitoring groups (appointed by the village committees) will be required to have
at least 60 percent female members, a substantive shift from current norms. Further, at least 40
percent of the participants providing feedback on WSS services in community meetings are
targeted to be women. These targets and specific actions on outreach to women also aim to
address the gender differential in access to information on the project.
II. PROJECT DESCRIPTION
A. Project Overview and Key Concepts
24. The proposed project seeks to demonstrate an improved institutional model for delivering
integrated WSS services in rural areas in China. The project creates a modern, rural WSS utility to consolidate
existing infrastructure and expand services to new customers in Jingyang. The project also introduces an
approach to design and operate the WSS utility as a PPP based on international best practices, with the aim to
improve the quality and efficiency of the WSS services delivered. By investing in service delivery and
infrastructure, the project also intends to increase the resilience of communities in the project area to water
stress, which is expected to be exacerbated by climate change. Recognizing the WSS and PPP challenges
discussed in section I and the financing constraints on the local government, the project strengthens
institutional capacity for high-quality service delivery by the newly established WSS utility and also strengthens
the institutional capacity for the JDG to effectively manage the PPP contract and provide regulatory oversight
for the WSS sector. The project focus on institutional strengthening began with the detailed studies and
analysis conducted during project preparation (see section II-F), and lessons from the project can be scaled up
in China.
WSS Utility
25. The project seeks to transform rural WSS service delivery through the establishment of an integrated
WSS utility, which will be an Special Purpose Vehicle (SPV) Project Company established between the JDG
and a competitively selected operator. The Project Company will take on the typical functions of a modern
utility in the project area. Holistic utility functions include construction/expansion/rehabilitation of WSS
infrastructure, efficient and optimized system O&M, water and sanitation service delivery, customer service
and interface, billing and collection, accounting, long-term asset management, and utility administration. The
Project Company will also take on core responsibilities of water quality compliance. The Project Company will
be monitored in accordance with a specified performance regime and clearly defined KPIs set out in the PPP
20This gap was confirmed qualitatively during the project social analysis, and while recent quantitative data specific to the project
area was limited, the Women in Development Index for Enshi Autonomous Prefecture (2010) showed that only 25 percent of the
members of villagers’ councils were women. (Source: Zeng, Benxiang. 2014. Women 's Political Participation in China: Improved or
Not? International Journal of Women's Studies. 15(1):136-150)
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Agreement (see next paragraph), including KPIs for service coverage, service quality, customer satisfaction,
system efficiency, and financial sustainability, among others.
PPP Agreement and Procurement Process
26. The JDG and the Project Company will enter into a 25-year, output- and performance-based PPP
Agreement that will incentivize expanded coverage, efficiency, and improved customer service of the WSS
system. The PPP Agreement will be structured using the ‘Concession with Subsidy’ model.21 Under this model,
JDG retains legal ownership of the WSS system and awards a long-term concession to the Project Company
who will have beneficial use and ownership to construct, expand, rehabilitate, operate, and maintain the WSS
assets. Under the PPP Agreement, the Project Company will be contractually mandated to expand coverage
of WSS services (pipe networks and household connections), deliver high-quality WSS services, provide
responsive customer service, and sustainably operate and maintain the system assets. The PPP Agreement will
require the Project Company to hire existing members of the workforce that wish to transfer from the current
service providers. Under the PPP agreement the Project Company will also be required to maintain a minimum
level of equity (debt to equity ratio), ensuring that the Project Company and PPP partner are fully committed
and incentivized over the long-term contract period. The JDG will provide performance and regulatory
oversight of the Project Company. Annex 3 includes further detail on the allocation of roles and responsibilities
under the PPP.
27. The PPP will consist of two phases. Phase 1 will be a five-year (2020–2025) institution establishment
and infrastructure construction/rehabilitation phase, coinciding with the World Bank project implementation
period. During Phase 1, the Project Company will be established as an integrated WSS utility and will undertake
the engineering works as outlined in Subcomponent 1b. During the construction phase, the Project Company
will operate the existing WSS system in accordance with the existing (pre-project) performance standards for
service delivery. Phase 2 will be a 20-year (2025–2045) service delivery and operations phase, commencing
toward the end or after the World Bank project implementation period. During Phase 2, the Project Company
will operate the expanded and upgraded WSS system and will be subject to service level standards, specified
by rigorous KPIs in the PPP Agreement.
28. The PPP Agreement will be output- and performance-based, with clearly defined KPIs linking
performance payments to the Project Company. The KPIs will be defined with targets that are based on sector
efficiency values (water, energy, and so on) and that incentivize the Project Company to innovate and optimize
the construction and operation of the WSS utility and infrastructure. KPIs will include, but not be limited to,
expanded WSS service coverage, water and wastewater treatment capacity, increased water metering, NRW,
piped water quality, treated effluent quality, energy consumption, efficiency in redressing customer complaints,
and cost recovery. In particular, because energy consumption (for pumping, treatment, and distribution) is the
main operational cost component of WSS systems, the efficiency KPIs in the PPP Agreement will be a major
incentive to reduce water losses (NRW) and energy use. The performance regime under the PPP Agreement
will be overseen by a third-party independent engineer, to be hired jointly by the Project Company and JDG
before effectiveness of the PPP Agreement. This kind of a performance-based incentive structure is unique for
water sector PPPs in China. See further details on the PPP in section II-A and annex 3.
29. Revenues to the Project Company will come from water and wastewater tariffs as well as significant
subsidies from the JDG. The Project Company will collect tariff revenue directly from customers. The current
21 During project preparation, three different PPP structuring models were considered. See section IV-A and annex 3 for details.
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levels of water and wastewater22 tariffs in Jingyang are insufficient to fully cover operating costs. The JDG will
need to provide subsidies to the Project Company under the PPP Agreement for the entire duration of the
agreement to cover 100 percent of capital expenditure (CAPEX) and a portion of OPEX. The JDG has committed
to funding the required subsidies and has included/approved these subsidies in the next three years of its
budget. The PPP Agreement will specify formulas for paying CAPEX and OPEX subsidies under a performance-
based regime linked to the WSS service delivery KPIs described earlier. The OPEX subsidies will be based on
predetermined ‘efficient level’ O&M expenses, including energy. An innovative feature of the PPP design under
this project is that the PPP bidding documents will use the CAPEX subsidy as the bid parameter, incentivizing
bidders to minimize the total subsidy paid over the life of the agreement. The JDG is conducting a WSS tariff
road map study23, with the support of the World Bank, to identify a medium- to long-term pathway for raising
tariffs (and reducing subsidies) so as to be both affordable to customers and financially sustainable for the WSS
utility and JDG. Further details on the Project Company costs, revenues, tariffs, and subsidies are included in
the financial analysis discussion of section IV-A and in annex 5.
30. Procurement of the PPP partner will be through a competitive bidding process and in line with
international best practice. Prequalification criteria for the PPP partner have been developed to ensure that
only bidders with relevant operating experience are eligible to bid. SOEs are not precluded from bidding.
However, as per Bank procurement policy, they would need to establish that they: a) are legally and financially
autonomous (implying that they are not dependent on subsidies); b) operate under a commercial law; and c)
are not under supervision by the agency contracting them. Also, Bank procedures allow the rejection of
abnormally low bids that raise material concern about the capability of the bidder to meet the contract
conditions for the offered price. This is designed to ensure that the bid price is economic to provide quality
services and competitive among the pre-qualified bidders, irrespective of their ownership (SOE or private).
Market sounding carried out for the project indicated that there is potential interest from both SOEs as well as
private companies. Bid parameters used in the PPP procurement are defined so that qualified bidders compete
to minimize the total cost borne by the JDG over the life of the agreement.
B. Project Development Objective
PDO Statement
31. The objectives of the project are to improve access to water supply and sanitation services and
improve the quality and efficiency of water supply and sanitation service delivery in select peri-urban and
rural areas of Jingyang District of Deyang City in Sichuan Province.
PDO Level Indicators24
32. The following five Project Development Objective (PDO) level results indicators reflect the specific
outcomes that the project is aiming to achieve:
(a) Number of people benefiting from improved water supply services25
22 Wastewater tariffs are not currently collected in Jingyang; however, once construction has been completed, the JDG will introduce
billing for wastewater services for the first time.
23 The tariff roadmap study is currently underway and expected to be completed by the end of 2021.
24 See the Results Framework in section VII for definitions of the indicators.
25 This indicator is also disaggregated by gender.
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(b) Number of people benefiting from safely managed sanitation services25, 26
(c) Percentage of customers satisfied with the services provided by the Project Company25
(d) Reduction in Non-Revenue Water Rate (NRW) (percentage of NRW in total water produced)
(e) Cost recovery in water supply services
C. Project Components
33. The project has two components:
Component 1: Institutional Strengthening and Infrastructure Investments to Improve WSS Services in
Jingyang District (Estimated cost: US$153.4 million; IBRD loan: US$99 million) (Water: 34 percent,
wastewater: 66 percent)
34. This component has three key activity areas:
(a) Establishment of a modern, integrated WSS utility. The project will support the establishment
of the WSS utility and systems to enable efficient WSS service delivery. Establishing the utility
includes preparing and executing the PPP transaction as well as setting up and developing the
institutional systems (for example, management, personnel, administration, and billing and
accounting). Project support will also include developing an integrated smart water management
platform and installing smart meters to enable the Project Company to monitor, manage, and
operate WSS system assets efficiently. Establishing a financially sustainable, efficiently managed,
and well-maintained WSS utility will lead to a reduction in NRW and more reliable water and
sanitation services with less service interruptions and more consistent water quality. The
investments will enhance water security and reduce the discharge of untreated wastewater into
the tributaries of the Yangtze River (an important source of water), thereby increasing the
reliability and quality of the water and making the residents in the targeted areas more resilient
to climate change-exacerbated water shortages.
(b) Establishment of WSS utility customer service mechanisms. The project will support the WSS
utility to set up and conduct ongoing citizen engagement activities, including a community-based
customer satisfaction survey, community meetings on WSS service quality, and WASH BCCs. The
project will also support establishment of customer feedback mechanisms within the WSS utility,
including a customer call center and a smartphone application to address complaints, questions,
requests for repairs, and general feedback on the services provided. All of the citizen engagement
activities and customer feedback mechanisms will be overseen and managed by a customer
relations officer designated within the Project Company and in coordination with a social focal
point within the Project Management Office (PMO) (see section III).
(c) Support for engineering works. The project will support engineering works for both water supply
and sanitation, as listed below. All investments under the project will be implemented and
operated by the Project Company, providing the JDG with a single interface and contracting party,
rather than the many contractors and operators.
26Safely managed sanitation services mean access to (a) sewerage systems or (b) septage collection, together with, in each case,
adequate treatment and disposal.
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(i) For improved access to higher quality and more efficient piped water systems. The project
will support consolidation and upgrading of the current 40 treatment facilities operated by
different providers (of which 32 utilize groundwater as source, 7 utilize surface water, and
1 utilizes a nearby urban water treatment plant [WTP] as source) to a more integrated
configuration using two centralized surface WTPs27—one newly constructed (Bailong WTP,
with capacity of 25,000 m3 per day) and one expanded (Xinliu WTP, with capacity of 2,000
m3 per day)—operated by a single service provider. The above activities will lead to a more
efficiently operated utility and an increased supply of good quality water. The project will
also support protection of drinking water source sites and water intakes/wells, construction
and rehabilitation of pipe networks to expand the network and reduce losses/NRW
(including 148 km of transmission main, 347 km of distribution pipes, and 459 km of
household connection pipes), and installation of 86,000 smart meters. All these investments
will increase the supply of water and the service reliability, thus increasing community
resilience to potential climate change-related droughts. The project will also fully finance
the costs of household water supply connections, targeting to cover 94 percent of
households.
(ii) For improved access to higher quality and more efficient sanitation. The project will
support upgrading four existing WWTPs28 with a total capacity of 12,400 m3 per day and
construction of 10 new WWTPs29 with total capacity of 335 m3 per day. The project will
support construction of 93 km of trunk sewer pipes, 788 km of branch network sewer pipes,
1,063 km of household service pipes, and 51 wastewater pump stations (42 new and 9
existing septic collection tanks converted into pump stations). In hilly areas, the project will
support construction of individual household septic tanks to serve 6,712 scattered
households. The project will fully finance the costs of household sewer service connections
and septic tanks, for a total of 60,086 households. All these activities will reduce the volume
of untreated wastewater discharged into water bodies, reducing pollution and lowering
health risks to the population, as well as lowering the cost of treating the wastewater to
given standards.
(iii) Other works. There will also be improvements to public facilities, including providing access
to services for the disabled. Recent projects in China have also demonstrated that making
small investments in community public areas to enhance residents’ experience creates an
environment where households are more willing to connect. The Feasibility Study Report
(FSR) design includes some small investments for rehabilitation, ‘greening’, and
beautification of public areas.
27 Project WTPs will use conventional treatment processes, consisting of coagulation, aeration, sedimentation/clarification, and
filtration.
28 The upgraded WWTP at Bailong will have a treatment capacity of 395 m3 per day and will utilize aeration tank and secondary
sedimentation treatment technology. The other three upgraded WWTPs will have a combined capacity of 10,700 m3 per day and will
utilize the following treatment technology: primary treatment, cyclic activate sludge system, coagulative precipitation, denitrifying
deep-bed filter, cloth filter, and ultraviolet disinfection.
29 Among the new WWTPs, treatment technologies and capacities are membrane bio-reactor (MBR): 390 m3 per day, trickling bio-
filter: 145 m3 per day, anaerobic/anoxic/oxic: 200 m3 per day.
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Component 2: Institutional Capacity Building and Technical Assistance (TA) for PPP Oversight, Project
Management, and Scale Up of the PPP Approach (Estimated cost: US$1.0 million; IBRD loan: US$1.0
million).
35. This component has four key activity areas:
(a) Engagement of a project manager/independent engineer. The project will support the hiring of
an independent engineer (consultant) to oversee the performance of the PPP Agreement, to
supervise infrastructure construction, and to supervise the environmental and social
management of the project. The independent engineer will also be responsible for verifying the
KPI results and the energy and water efficiency gains reported by the Project Company against
the targets in the PPP Agreement.
(b) Local government capacity building for PPP oversight and project management. The public
counterpart (especially HUDB and the PMO) will have key functions that are not delegated to the
Project Company, including implementation of WSS policy and regulations, regulatory oversight
of the Project Company, business planning, tariff setting, long-term asset management, and WSS
system planning. The project will include capacity-building activities to support HUDB and the
PMO carry out these functions, such as project management and PPP oversight training, technical
training, FM, and PPP procurement training, as well as study tours of successful water sector PPP
projects in China and abroad. Project management and implementation support will include
management of and coordination with the independent engineer; establishment and operation
of a monitoring and evaluation (M&E) system; monitoring of Project Company KPI and efficiency
performance; and acquisition of office equipment, vehicles, and other operating resources
(c) Coordination of gender inclusion and citizen engagement (GI&CE) activities. The project will
support the PMO to supervise and monitor the GI&CE activities and customer feedback
mechanisms executed by the Project Company (described in Subcomponent 1b). The PMO will
designate a social focal point to coordinate closely with the Project Company on the community-
based satisfaction survey, the community meetings, and the operations of the customer call
center and smartphone application (see the institutional arrangements discussion in section III).
(d) Documentation and sharing of project experience (including lessons learned and PPP project
templates). The project will support TA activities to identify mechanisms for scaling up the PPP
approach developed under this project to other areas across Sichuan and China. In particular, the
project’s overall lessons in institutional strengthening and structuring the PPP will be highly
relevant to upstream PPP policies in China, including the implementation and investment
decisions under the ongoing Sichuan Province Three-Year Action Plan (see section I). Specific TA
activities include (i) preparing a summary report on experiences and lessons learned in PPP
project preparation and procurement, (ii) preparation of PPP template documents to be used in
the scale-up and replication of the project approach (for example, model contracts, bidding
documents, and project management tools), and (iii) dissemination events/publications at the
provincial/national level.
Readiness of PPP Transaction
36. The project has been prepared to meet domestic requirements as well as taking international good
practice into account. It is anticipated that: (a) requests for proposals for the PPP will be issued to qualified
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bidders in June 2020. The request for proposals will be only sent to pre-qualified firms that can demonstrate
that they meet the technical and financial requirements to deliver the required services. To pre-qualify,
companies would have to submit information on their ownership, qualifications, experience, and financial
statements, allowing for a transparent process to assess the eligibility of a company to be pre-qualified; b) the
private sector partner will be selected by October 2020, and (c) the PPP will reach financial close by December
2020 and that construction will commence soon thereafter. The construction (Phase 1) is expected to be
completed by the end of 2024; the PPP will then step into Phase 2 (O&M) from the beginning of 2025. The PPP
procurement documents and procurement processes will be subject to World Bank Operations Procurement
Review Committee30 (OPRC) review and no objection.
Project Financing
37. The total estimated project amount is US$154.4 million, including price and physical contingencies.
The JDG will finance US$6.5 million as counterpart funds. The remaining financing will come from the World
Bank loan (US$100 million), and the Project Company will be responsible to raise US$47.9 million, either
through equity or commercial loans, with the requirement that the equity investment must be a minimum of
20 percent at all times to ensure financial sustainability of the Project Company. The World Bank loan will be
on-lent by the JDG to the Project Company at the same cost provided by the World Bank to the MOF. The
proposed lending instrument is Investment Project Financing (IPF) with a 5-year implementation period, a
maturity of 25 years, and grace period of 6 years. For more information on the financing arrangements, see
section IV-A and B and annex 1.
Table 1. Project Cost and Financing by Component
IBRD
Project Cost IBRD
Financing
Project Components (US$, Financing
(US$,
millions) (%)
millions)
Component 1: Institutional Strengthening and Infrastructure Investments 153.37 99.0 64.67
to improve WSS Services in Jingyang District
Component 2: Institutional Capacity Building and Technical Assistance 1.00 1.0 100.00
(TA) for PPP Oversight, Project Management, and Scale Up of the PPP
Approach
Total project costs 154.40 100.0 64.78
Total financing required 154.40 100.0 64.78
D. Project Beneficiaries
38. The main beneficiaries are rural residents in the project area of Jingyang that will directly benefit from
newly constructed or rehabilitated water supply and wastewater services and connections, about 50 percent
of whom are women. It is anticipated that, by end 2025, out of 235,000 residents in the project area, 94 percent
will be served by improved water supply service and 85 percent will be served by safely managed sanitation
service. This will involve 86,310 households for water supply and 53,374 households for sewer connection and
6,712 households for access to safely managed septage system. Additionally, because the project as
30The OPRC reviews high value, high risk procurement contracts for goods, works, non-consulting, and consulting contracts over
specified values, by risk and by type of contract, as detailed in the World Bank Procurement Procedure.
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Sichuan Water Supply and Sanitation PPP Project (P168025)
implemented through the PPP will provide higher-quality water services and wastewater management, a larger
number of residents in the district will also indirectly benefit. The project’s holistic utility service delivery model
and introduction of commercial financing and expertise will benefit the WSS sector through modernization,
operational efficiency, and capacity building for district officials to more effectively serve the broader public.
E. Project Theory of Change and Results Chain
39. The Theory of Change for the proposed project is shown in Figure 1, illustrating the link from the
project’s key activities through to the main project objectives and outcomes. The project aims to improve
access to WSS services and improve the quality and efficiency of WSS service delivery. The project draws on
best practices from domestic and international experience to introduce a new model for a holistic, integrated
WSS utility operated as a PPP in peri-urban and rural areas of Jingyang in Sichuan Province. Engineering works
expand and improve WSS infrastructure and facilities, and citizen engagement activities will increase women’s
and men’s engagement in WSS service quality monitoring and improvement and motivate positive changes in
community WSS behaviors. Establishing community monitoring groups, with a majority being female members,
will reduce the gap in women’s voice in WSS service delivery and foster increasing their role in broader WSS
community decision making. The project pays special attention to institutional strengthening, through
establishment and capacity building of the new integrated, single WSS utility, and through capacity building for
the JDG to play its new role as WSS sector regulator and overseer of the PPP arrangement.
40. The success of the project following the Theory of Change relies on several assumptions. First, it is
assumed that in setting up the WSS service provider (Project Company) under the PPP model, there will be
sufficient interest from qualified operators to participate in the bidding. The project preparation work between
the World Bank, the client, and the IFC transaction advisory support help ensure this. Second, based on recent
surveys31 conducted in similar regions of China, it is assumed that rural households in the project area will be
willing to pay affordable tariffs for WSS services. The project citizen engagement activities help ensure
increased household connections and payment of tariffs. Third, it is assumed that the JDG will secure annual
budget for the subsidies required under the PPP arrangement. Budget has already been committed for the
next three years in the district budget, and the JDG’s close participation in the project preparation and the
selection of the proposed PPP structure help support this condition into the future.
(see Figure 1 on the next page)
31 See the references and assumptions in the economic analysis section of annex 5.
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Sichuan Water Supply and Sanitation PPP Project (P168025)
Figure 1. Project Theory of Change Diagram
Activities Outputs Outcomes/PDOs Long-term outcomes
Preparation Support
• PPP design & options analysis An established WSS service
• PPP transaction support provider (Utility) • Robust and financially
sustainable WSS Utility
Component 1 A customer service division within delivers high-quality WSS
the utility services
Establishment of a modern • Improved water and energy
WSS utility (through PPP) An integrated smart water efficiency of WSS service
Improved access to
• Setup of utility (contract, management platform
WSS services delivery
staffing, functions, KPIs, etc.)
• Number of people • Reduced pollution and
• Customer service mechanism Infrastructure established:
benefiting from improved improved environment
• Capacity building Water: protected water sources,
WTPs, pipe network, household
water supply services • Improved public health
• Number of people
Engineering works: connect
benefiting from safely • Increased community
• Piped water systems Sanitation: sewer pipe network, managed sanitation engagement in WSS service
• Sanitation systems WWTPs, septage collection and services delivery
treatment, household connect • Increased voice of women
Component 2 in community WSS and
Engagement of independent Service delivery and KPI reports resilience planning
engineer for monitoring • Increased resilience of
project area communities
Capacity building for local Local government staff with Improved quality and to climate change–related
government improved skills & capacity efficiency of WSS service droughts
• PPP oversight & mgmt. delivery • Improved financial situation
• WSS policy and regulation • Annual community-based • Percentage of customers of the JDG
• Project management satisfaction survey and satisfied with the services
monitoring committees • Rural WSS utility PPP model
▪ Gender Inclusion provided
• Percentage of women w/ replicated in Sichuan and
• Company service more China
responsive to women and men voice on WSS services
Coordination and oversight of in communities • NRW • Project experience is
GI&CE • Cost Recovery: water documented and shared in
• Customers are aware and supply service Sichuan and China
understand more about
benefits of WSS
Documentation and sharing of
project experience Summary report on project
• Inform China’s PPP policies experience
• Dissemination workshops (including lessons learned and Replicate lessons: regulations,
PPP project templates) policy, and knowledge sharing
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Sichuan Water Supply and Sanitation PPP Project (P168025)
F. Rationale for World Bank Involvement and Role of Partners
41. The MOF and NDRC sought cooperation with the World Bank to develop demonstration projects
for improved PPP approaches across several sectors in China, including water, transport, and energy. In
light of the technical, financial, and institutional challenges presented in section I-B, this project was
selected by the MOF and NDRC from a large database of potential projects and has benefited from close
participation and support from their experts at the central, provincial, and district levels. This project was
selected as a priority, representative demonstration project for the rural WSS sector in China because the
project area faces many challenges that are typical to the rural WSS sector in China and because Jingyang,
like many counties/districts in China, has reached its debt quota. During project preparation, a World Bank
Group task team—including experts from the World Bank and the IFC PPP Advisory team (IFC C3P),32 and
supported by the Global Infrastructure Facility (GIF) 33 —has mobilized extensive experience with WSS
projects and international PPP transactions to support the JDG in designing the PPP structure, the PPP
Agreement, and the institutional arrangements to ensure project success. In particular, the project has
been designed to add significant value in (a) strengthening of institutional capacity, (b) transfer of PPP
knowledge, (c) innovation, and (d) strategic piloting. The solutions demonstrated through this PPP project
are replicable in many rural counties and districts with similar conditions in Sichuan Province, as well as
to many of the 2,500 rural counties across China. The model used in this project can also be replicated to
improve water and sanitation services in other countries.
42. Focus on strengthening institutional capacity. A key focus of the project is to strengthen
institutional capacity for improved and sustainable WSS service delivery. China has significant capacity in
infrastructure engineering and construction, but as noted in section I, many rural water and sanitation
systems in China struggle with long-term sustainable operations. Furthermore, World Bank Group global
experience has shown that, while PPPs have become a powerful instrument to address financing
challenges for development, the capacity of implementing governments typically needs substantial
strengthening for PPPs to be successful and sustainable. Therefore, this project focused on building
institutional capacity during project preparation (see next paragraph) and fully embedded institutional
strengthening in the design of the project components. Component 1 establishes the new rural WSS
utility/Project Company to be operated as an output- and performance-focused PPP. Such a utility model
does not currently exist in Jingyang and represents an institutional innovation. Component 2 focuses on
building institutional capacity of the JDG to play its new role as the WSS system asset owner and regulator
for the WSS sector, as well as its role to ensure high-quality customer service and customer satisfaction
through community engagement and gender inclusion.
43. Transfer of PPP knowledge. The World Bank Group task team conducted detailed studies to
inform the design of the PPP which helped transfer knowledge on this topic to the authorities, with the
support of a grant from GIF. The World Bank Group provided institutional strengthening during project
preparation (and which will continue until PPP commencement), including the following:
(a) Detailed PPP risk allocation study for rural WSS. Supported by the World Bank, drawing on
best international practice and lessons learned from domestic projects to inform the design
of institutional and financial arrangements for the project. The study compared risk
32 IFC
is a global development institution focused on private sector development and PPPs.
33GIF is a trust fund administered by the World Bank among governments, multilateral development banks, and financiers that
provides funding and expertise to governments in bringing well-structured and bankable infrastructure projects to market.
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allocation in contracts in 20 similar rural WSS PPPs, looking at both successful and
unsuccessful PPP projects. It concluded that PPP agreements in the sector in China typically
lack a clear allocation of risks between the parties, that there are few performance-focused
KPIs, that the PPPs do not address household connections, and that projects focus on
construction and basic operations rather than on service delivery and customer service. This
study was shared with China’s Central Government to inform upstream PPP policies.
(b) PPP transaction advisory support. To prepare the PPP for competitive bidding, the World
Bank Group team leveraged its experience and international best practices to support the
JDG in conducting due diligence and the design of the PPP structure. Support included (i) a
detailed market sounding analysis to understand the risk appetite of potential PPP bidders
(such good practice market sounding is not typically done for PPP transactions in China), (ii)
a procurement strategy and tailor-made bidding documents(that is, bid parameters, two-
envelope bidding, two-stage request for proposals, and prequalification of eligible PPP
bidders), and (iii) a tailor-made PPP Agreement drawing on international best practice with
clear risk allocation and strong independent project management and dispute resolution
mechanisms.
(c) PPP structure options analysis. During project preparation, the World Bank Group team
supported rigorous analysis and comparison of three PPP structuring options to find the
structure most suitable to the JDG’s specific objectives and institutional context (including
cost comparisons and consideration of fiscal affordability). Three options were considered:
(i) an engineering, procurement, and construction (EPC) + O&M/design, build, and operate
(DBO) structure, (ii) a lease/affermage structure, and (iii) a concession with subsidy
structure. The JDG selected the concession with subsidy structure, which requires the PPP
partner to bring equity—this helps align incentives and manage risks and is also compatible
with the JDG’s borrowing constraints. The PPP options analysis is described in more detail in
section IV-A and annex 3.
(d) WSS tariff road map. During project preparation, the World Bank Group task team
supported a tariff study34 and worked with the JDG to develop a WSS tariff road map. The
tariff study analyzed existing tariffs and tariff methodologies used in similar jurisdictions in
rural Sichuan, elsewhere in China, and in international practice. The study presented options
and made recommendations for moving toward tariffs that are financially sustainable and
affordable for Jingyang. The tariff road map charts a pathway to gradually raise tariffs over
time and thereby increase OPEX35 cost recovery for both water and sanitation services and
reduce the burden of annual subsidies paid by the JDG to the Project Company. Under the
road map, the JDG commits to apply water tariffs that achieve at least 85 percent OPEX cost
recovery and introduce rural wastewater tariffs, for the first time, that achieve 21 percent
of cost recovery by the end of the project. Project tariffs, subsidies, and the tariff road map
are further discussed in section IV-A.
(e) Technical revisions to the FSR. The World Bank Group team supported the JDG and its FSR
consultant to improve technical solutions, reduce costs, and strengthen project viability.
Revisions included (i) more accurate population and service demand projections that helped
34The tariff roadmap study is currently underway and expected to be completed by the end of 2021.
35In China, CAPEX of rural WSS systems are still supported by the central and provincial governments, under policies for
national and social development, and are not expected to be fully recovered through tariffs.
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Sichuan Water Supply and Sanitation PPP Project (P168025)
right-size proposed system facilities, (ii) redesign of WTPs (two centralized, consolidated
plants rather than the original 40 decentralized plants) that significantly reduced land and
resettlement requirements), (iii) introduction of low-cost, rural-appropriate bio-trickling
filters for WWTPs, (iv) a whole-lifecycle costing approach (CAPEX + energy costs) to select
least-cost technical solutions (such an approach had not previously been used in similar FSRs
in China), (v) smart water meters to improve revenue collection, (vi) a revised wastewater
effluent discharge standard suitable for rural localities presented to and adopted by
government regulators, and (vii) basing the asset valuation methodology on the price of
beneficial use of assets (in line with international practice), which resulted in US$48 million
in project cost savings. These revisions led to lower upfront costs and are likely to reduce
operating costs.
44. Innovation. This project presents an opportunity to innovate within China’s WSS sector with a
PPP design and risk allocation model suited to China’s unique institutional context. Innovations in the
project include the following:
(a) A model PPP approach for innovative service delivery and procurement that responds to
the request from the MOF and NDRC for a replicable performance-based PPP approach. The
PPP model will establish a fully functioning, utility-like Project Company with clear roles for
the Government and the service provider and clear project management and dispute
resolution mechanisms to ensure transparency and objectivity. There will also be a
requirement for the PPP partner to raise some capital to ensure and incentivize its
commitment and efficiency, and the Project Company will have a mandate to deliver high-
quality and sustainable rural WSS services (the term sheet for PPP Agreement as set out in
annex 4).
(b) An integrated approach for rural wastewater management that combines structural,
infrastructure elements with nonstructural elements, such as tariff collection, low-cost rural-
appropriate technology, and citizen-oriented design. Together, these provide integrated,
long-term solutions that have lower upfront investment and lifecycle costs and are
appropriate and affordable for low-capacity rural areas.
(c) An incentive structure for performance is being incorporated into the PPP structure and
transaction documents with clear KPIs in the PPP contract to incentivize the Project
Company to achieve operating efficiencies and reduce NRW in system facilities.
45. Strategic piloting. This project supports an improved model for WSS service delivery that can be
replicated elsewhere in China and beyond. Lessons have been captured in real time as the project has
been prepared and will be incorporated into replicable design and transaction templates. The World Bank
Group has supported the Government to prepare a dissemination strategy for sharing project lessons and
knowledge products. It is also proposed to share experience internationally through case studies and
learning events.
G. Lessons Learned and Reflected in the Project Design
46. The following are relevant challenges and implementation lessons encountered in previous World
Bank projects, which have been considered in the design for this project.
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47. Behavior change communication and impact on demand and design. International experience,
as well as early site visits and surveys for this project, shows that without early consultation and
engagement of beneficiary communities, residents will not be aware of project benefits and will be less
likely to accept the final project system and associated costs (that is, costs of household connections and
tariffs for WSS services). In a World Bank project in Nicaragua, 36 effective public communication
campaigns helped achieve very high connection rates, even in poor communities. In WSS projects in China
and elsewhere, activities raising awareness at the community level of the benefits from improved WSS
and WASH have helped increase willingness to connect to WSS systems and pay for WSS services. During
preparation of the project FSR, the engineering, environment, and social consultants carried out
household surveys and disseminated project information to the local population. Citizen engagement has
been included in both project components, to be carried out by the Project Company and the PMO, in
accordance with the PPP Agreement, during project implementation and throughout the duration of the
PPP. Educational and behavior change activities are being provided during preparation and will continue
during implementation to improve WASH habits and instruct on basic care and maintenance of WSS home
facilities. These activities will help inform the community on how to benefit and improve their quality of
life through the new and improved WSS services. The assumptions on resultant change in behavior
regarding WSS and increased demand in the short to medium term were factored into the engineering
design and financial analysis.
48. Full involvement of the entity responsible for system operation during project design
strengthens ownership. In some previous government or development assistance projects, infrastructure
and facilities were constructed by a project office, and then ownership and operations were transferred
to a third party when the project was complete. Because of a lack of ownership or lack of experience, the
management of the constructed treatment facilities and the delivery of services were weak, and the
projects did not fully succeed. This project has incorporated this lesson into the design by making the
Project Company responsible for detailed design, implementation, and operation of WSS infrastructure
and service delivery under the project. In addition, the two departments that will retain legal ownership
of the water and sanitation assets have been involved in project design and will be responsible for
oversight of the project to ensure that the Project Company meets its service delivery obligations.
49. WWTPs need to be connected to sewers and houses. Previous efforts at rural wastewater
management in Jingyang (and in other parts of China) have faced difficulties because WWTPs and sewer
mains were built without simultaneously connecting households. Thus, inflows to WWTPs did not have
enough organic matter to ensure proper functioning of biologic wastewater treatment processes and
WWTPs have been underused. Recent World Bank experience with small-town and rural WSS projects in
China and elsewhere has provided useful lessons, and in this project, household water and sewer
connections (or septic tanks) will be fully financed with project funds. This also helps local residents to
afford the new and improved WSS services.
50. Right-sizing wastewater plants and assessing demand. In rural China, wastewater plants are
often oversized, as a result of inaccurate population and demand forecasting or because unsuitable design
standards are used. Oversized WWTPs are inefficient, and ultimately unsustainable. To overcome this, the
revised FSR surveyed population growth, water demand, and actual wastewater generation across a range
of different building types specific to Jingyang (for example, at single- and multi-family households, at
36 Greater Managua Water and Sanitation Project, P110092; Report No. ICR3467.
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hotels, and at restaurants). From these building types, better service estimates were determined, which
informed the sizing of investments.
III. IMPLEMENTATION ARRANGEMENTS
A. Institutional and Implementation Arrangements
51. A Project Leading Group (PLG) and a PMO have been established under the JDG. The PLG is
chaired by the district mayor, with members from key government institutions including the HUDB, the
WAB, the Finance Bureau, the Development and Reform Bureau, and the Ecology and Environment
Bureau. The preparation of the project has benefited from strong support from Deyang City and Sichuan
Provincial Government, as well as the NDRC and MOF at the Central Government level.
52. As noted above, it is estimated that the PPP will reach financial closure before the end of 2020.
Before commencement of the PPP (pre-and post-project approval), the PMO has been and will continue
to be responsible for project preparation, including FSR design and approval, project appraisal, PPP
tendering, PPP selection, and PPP contract signing. In these efforts, the PMO has also coordinated inputs
and support from local government line agencies and from the World Bank Group. After PPP
commencement, the Project Company will be responsible for implementation of the PPP—including the
design, construction, financing, and O&M of the assets; establishment of a utility; and holistic service
delivery. The PMO structure and staff will remain in place at this stage, but their role and responsibilities
will change to focus on supervising Project Company performance of contractual responsibilities and
service delivery during implementation. The PMO will also function as a representative of the asset holder
and will implement any project and WSS activities that are outside the scope of the PPP. The PMO will
also remain responsible for M&E reporting throughout the project and will draw on data prepared by the
Project Company (as required by the PPP Agreement). The World Bank will work closely with the
Government and the PMO to ensure the PPP transaction is successful and will continue to supervise
project implementation.
53. Before effectiveness of the PPP Agreement, the JDG and the Project Company will jointly hire
an independent engineer consultant responsible for monitoring and verifying the performance and
results of the Project Company, including the KPIs in the PPP Agreement (see the results monitoring and
evaluation arrangements section). The World Bank will support the JDG in providing terms of reference
for the consultant. The PMO will hire environment and safeguards consultants to monitor implementation
of the safeguards documents.
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Sichuan Water Supply and Sanitation PPP Project (P168025)
Figure 2. PPP Transaction Structure and Participant Roles
JDG’s role
• JDG awards long-term
concession to private investor
who will construct, expand,
Water Supply and
rehabilitate, operate, maintain,
wastewater/sewer and manage assets.
PPP Agreement services • JDG retains legal
Project Customers title/ownership of water
JDG
Company (users) supply/sewerage system.
Concessional Revenue from • JDG provides subsidy (and
IBRD loan + supply/service potential guarantees) to
private investor to make PPP
subsidy
financially viable.
Project Company’s role
• Project Company has beneficial
Assets use and control of assets.
O&M/ • Project Company provides
rehabilitation water/wastewater services to
consumers.
• Project Company is responsible
to fund residual CAPEX
requirements not covered by
the subsidy.
54. Assessment of the JDG and the PMO. Throughout project preparation, the JDG has demonstrated
strong ownership and commitment to the project. The PMO is now fully staffed, with a dedicated working
space. The JDG and PMO have worked closely with the World Bank and IFC teams and their consultants
to improve the technical analysis during the revised feasibility study.
55. Assessment of the Project Company. The PPP bidding documents and PPP Agreement will
allocate roles and responsibilities between the JDG and the Project Company, including responsibilities
for investment, management, construction, customer service, and other service utility functions, as well
as for all of the assets and management systems created or upgraded under the project (see term sheet
in annex 4). The PPP will follow the concession with subsidy model, whereby the JDG will retain legal
ownership of the WSS infrastructure and assets but will award a long-term concession to a competitively
selected PPP partner or consortium, which will establish and capitalize a limited liability company as the
Project Company (see Figure 2). The Project Company will enter into the PPP Agreement and be required
to construct/expand/rehabilitate, operate, and maintain the WSS assets and provide WSS services to
customers in the project area in accordance with a specified performance regime with KPIs that will be
overseen by a third-party independent engineer. The Project Company will collect tariff revenue directly
from customers. It will take on relevant existing employees and contractors working in the service area
that have agreed to transfer. The JDG will provide a subsidy/annuity to cover capital costs, O&M costs,
and IBRD and commercial loan financing costs.
56. Gender inclusion. The project social analysis and stakeholder consultations carried out during
preparation found that women in the project areas generally had less information about the project and
its benefits, and that in most areas, women were less involved in community decisions about WSS
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infrastructure construction and operations. However, at the same time, women were found to play the
leading role for managing and carrying out family WASH activities. Within family households, women tend
to be more concerned with WSS service quality (availability, convenience, and affordability) and water
quality (as related to household cleanliness; family health; home environment; and the longevity of family
clothing, goods, and appliances). The project has incorporated the following gender inclusion activities
(see also annex 6).
(a) Increasing women’s voice through village monitoring groups. Each participating village
committee will appoint a group of five people who will use a community scorecard or simple
questionnaire to assess service delivery provided by the Project Company. They will monitor
two times per year for the first five years and then once a year thereafter. At least three of
these monitors, or a majority, will be women to address the gap in women’s voice in
monitoring and feedback on water. The group will collect the data, summarize the findings,
and submit a report to the village committee, which will then submit to the Project Company
and the PMO. The PMO will use the report for monitoring performance of the Project
Company to improve customer service, a KPI for which payment deduction can be made in
case of low performance. The percentage of women members and leaders of monitoring
groups is an intermediate result tracking progress toward reducing the gap in women’s voice
in WSS O&M.
(b) Increasing women’s active participation in community feedback on WSS service. Outreach
will be conducted to include women’s concerns and issues about WSS service delivery in
community meetings, through a smartphone application, and by other means to ensure their
voice is included and taken into account. A target of 40 percent women providing feedback
will be monitored for the Results Framework.
57. Citizen engagement. Achieving sufficient household connection rates for water supply and
sewerage is key for project success. Experience has also shown that while connecting households can take
time, effective citizen engagement, education, and behavior change activities can accelerate willingness
of households to connect to systems and pay WSS tariffs. Therefore, the project design emphasizes citizen
engagement, including the specific actions to address the gap in women’s representation discussed above.
The project has incorporated the following citizen engagement actions (annex 6 describes the
coordination of the GI&CE activities):
(a) Clearly defined activities and institutional arrangements for citizen engagement actions in
WSS. The GI&CE project activities will mostly be carried out by the Project Company, in close
coordination the PMO and local village committees. The Project Company will develop two
formal mechanisms within the WSS utility for customer feedback: a customer call center and
a smartphone application (see next paragraph). The Project Company will also develop and
conduct an ongoing community-based customer satisfaction survey, regular community
meetings on WSS service quality, and ongoing WASH BCCs. To manage these activities and
feedback mechanisms, the Project Company will designate a customer relations officer. The
PMO will coordinate with the Project Company to monitor the outcomes of the GI&CE
activities and provide technical support to the village committees for the community-based
customer satisfaction monitoring. The PMO will designate a social focal point for this
purpose. The JDG will also play an important supervising role to ensure completion and
quality of the activities. These roles and responsibilities will be clearly defined in the formal
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bidding documents and the PPP Agreement. It is expected that these arrangements may be
revised as the project proceeds to adjust and respond to external changes and new lessons
from project experience.
(b) Customer feedback mechanisms will be created by the Project Company including a call
center and a smartphone application to address complaints, questions about bills and
services, requests for repairs, and feedback on WSS services. The customer relations officer
will track the feedback, disaggregated by gender, and send outreach messages by
smartphone seeking women’s feedback on services. The customer relations officer will also
attend selected BCC events to seek community feedback (see below).
(c) Regular WSS service quality community meetings. The Project Company will organize
regular meetings with community members (with special effort to encourage attendance
and participation by women) to solicit formal feedback and opinions on the quality of the
WSS services delivered. Meetings will be held during both the construction and the
operational stages of the project. Feedback will be collected, documented, and shared back
to the Project Company and JDG leadership for careful consideration and incorporated into
decision making. The project targets 85 percent of communities to provide such feedback,
and a minimum of 40 percent of people providing feedback to be women.
(d) WASH BCCs. BCC strategy and materials will be developed by the Project Company, in
coordination with the communities (village committees and local governments at the district
and township levels). These campaigns will be tailored to motivate local people, in particular
women, to use safer and cleaner tap water instead of borehole groundwater and connect to
wastewater systems. The campaigns will also raise awareness of local residents, particularly
those living in hilly areas, on proper maintenance of household septic tanks. They will learn
how to request septic emptying services from the Project Company. The campaigns will also
include proper care and maintenance of household water and toilet equipment and better
hygiene practices.
58. To monitor the execution and outcomes of the GI&CE activities under the project, specific M&E
indicators have been included, and a number of indicators are disaggregated by gender (see Results
Framework).
B. Results Monitoring and Evaluation Arrangements
59. The Project Company will be responsible for monitoring and reporting its WSS service delivery
performance, as related to the specific KPIs defined in the PPP Agreement. The Project Company will
regularly report KPIs and project M&E to the PMO and/or the independent engineer (consultant)
responsible for project M&E. These reporting arrangements will be contractually specified in the PPP
Agreement. The community-based satisfaction monitoring data will be reported by the village committees
to the PMO/independent engineer and then shared with the Project Company. The independent engineer
will be responsible for collecting and verifying the results reported by the Project Company against the
KPIs in the PPP Agreement. Monitoring of the environmental and social safeguards will be done by the
environmental and social safeguards consultants and will be reported to the PMO (and through the PMO
to the World Bank).
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C. Sustainability
60. The preparation of this project has been carried out so as to ensure long-term sustainability of
the project investments, considered from three perspectives: institutional, technical, and financial
sustainability.
61. Institutional sustainability. This project was designed to include strong institutional
arrangements that will contribute to long-term sustainability. The PPP has been carefully structured,
drawing on international best practice, to ensure clear delineation of roles and responsibilities between
the public and private parties, supported through a strong management and dispute resolution
mechanism including a project manager/independent engineer that will objectively monitor and manage
contractual performance of the Project Company and JDG. The winning bidder will be required to inject
equity into the Project Company and finance some of the activities and will be paid based on outputs
throughout the project period, providing incentives for sustainable and efficient service delivery.
Moreover, the new, holistic, and integrated WSS utility (Project Company) established through PPP under
the project is being set up with the full support from the World Bank Group task team. The project also
focuses on GI&CE, which are critical to ensure the institutional sustainability of the project (refer to section
I-C).
62. Technical sustainability. From the technical perspective, and as noted in section I-B, a
comprehensive review of the project FSR identified several significant improvements to the proposed
technical designs which would right-size system facilities, select affordable and rural-appropriate
technologies, improve efficiency, and better enable system maintenance. In particular, consolidation of
the current complex and decentralized system and the introduction of a market-oriented WSS utility
(Project Company) will help manage assets and improve long-term and sustainable performance of the
project technical investments. Full financing of the household connections for water supply and sewerage
will also help to ensure the viable operation of the WSS facilities.
63. Financial sustainability. As noted previously, during project preparation, measures were taken to
reduce project up front and annual O&M costs. Least-cost analysis was used to identify and select among
a range of WSS treatment technologies. Detailed economic and financial modeling was used to assess and
recommend the most suitable PPP procurement and structuring option (see annex 3). Fiscal affordability
analysis was also conducted to estimate the JDG's long-term ability to financially manage and support the
project assets and service delivery under the selected option (see section IV-A and annex 5). The JDG has
committed budgetary funds for the annual CAPEX and OPEX availability payments to the Project Company
under the PPP Agreement, and the fiscal analysis concluded that the JDG has both adequate funding and
budget space for these payments. During market sounding, some potential bidders expressed concern
about the payment risk of the JDG. If this becomes an issue during procurement of the PPP and if deemed
necessary, then the JDG will consider risk mitigation mechanisms.37 To ensure financial sustainability of
the project, the JDG is also conducting a tariff road map by the end of 2021 to rationalize tariff revenue
with O&M costs.
37Such mechanisms could include setting aside several periodic subsidy payments, guarantees, and letter of credit–the
feasibility of each of which would be assessed.
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Sichuan Water Supply and Sanitation PPP Project (P168025)
IV. PROJECT APPRAISAL SUMMARY
A. Project Technical, Financial, and Economic Analysis
PPP Options Analysis
64. Three options for structuring the PPP were considered: Option 1 - EPC + O&M/DBO structure,
Option 2 - lease/affermage structure, and Option 3 - concession with subsidy structure. The three options
were rigorously analyzed in line with international practice to assess and compare factors relevant to the
JDG’s specific objectives and institutional context, including value for money, financial viability and fiscal
affordability, incentivization of the PPP partner to improve service quality and efficiency, demand
uncertainty, government creditworthiness and payment risk, and existing system legacy issues. These
analysis factors were informed by the project preparation due diligence and market sounding. Option 1
and Option 2 involve only public financing by the JDG, while Option 3 includes some financing to come
from the PPP partner (as equity or debt). The total costs for the three options, in terms of net present
value (NPV) and the net financial flow, are shown in Table 2. Further details on the PPP options, their
advantages and disadvantages, and the comparative analysis are included in annex 3 and annex 5.
Table 2. PPP Options Analysis - Total Costs to Government
Option Cost, NPV Net Financial Flow
PPP Structure Option
(CNY, millions) (CNY, millions)
Option 1 - EPC + O&M/DBO structure 1,037 1,825
Option 2 - Lease/affermage 1,107 1,950
Option 3 - PPP concession with subsidy 1,308 2,320
65. The JDG ultimately selected Option 3, the concession with subsidy structure. While Option 3 is
more expensive (NPV) than the other options, it has a number of advantages for the JDG’s fiscal and risk
allocation context:
(a) The PPP partner equity contribution aligns incentives and manages risk. Option 3 involves
an equity contribution from the PPP partner, which, along with the long-term duration of
the contract, helps ensure better alignment of interests between the PPP partner and JDG,
even considering that such contribution is eventually paid back through the capital subsidy
and that the cost of capital is higher. With the equity investment, the PPP partner is less
likely to walk away after construction (as it will only recover the costs of investment over the
contract period). The company also has a stronger incentive to construct facilities and
manage operations efficiently, as it will take on full commercial risk as an integrated
business. This model also helps achieve better risk allocation because the PPP partner is
responsible for efficient maintenance and management of the assets. The risk of
nonperformance of assets during the concession period and the consequent replacement of
such assets is also with the operator. Under the terms of the PPP contract, the PPP
contractor is paid an operational subsidy based on efficient level of O&M expenses, including
energy. Any excessive use of energy, chemicals, or other items required for O&M beyond
efficient levels will be borne by the PPP partner. Finally, the model also passes the risk of
any additional CAPEX (beyond the CAPEX subsidy) to the PPP partner, and hence promotes
efficient capital investments in contract execution.
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(b) Option 3 is consistent with China’s debt management and PPP regulations. For the JDG, the
current total level of debt is close to the debt quota allocated by Deyang Municipal
Government. Therefore, the JDG is no longer allowed to borrow from any commercial bank,
nor the World Bank (see the discussion on relevant PPP regulations in section I-A). For this
reason, Option 1 and Option 2 could not be selected. However, under the PPP structure of
Option 3, where the World Bank loan will be on-lent to the Project Company, the JDG is
allowed to borrow from the World Bank according to the MOF’s specific regulations and
requirements for PPPs. The World Bank loan, and any financing raised through a commercial
bank, will be held on the balance sheet of the Project Company and not counted as JDG
public debt. The JDG’s contingent liability for the project will be the annual subsidy to the
Project Company for CAPEX and OPEX. These subsidies will be performance-based, as
defined by the KPIs in the PPP Agreement, and will represent less than 5 percent of the JDG’s
general budget expenditure. With no other significant PPP projects in the district, that is, the
sum of all similar annual debt or subsidy obligations, the total cumulative liability for all PPP
projects in Jingyang is well below the 10 percent threshold set by the MOF. Therefore,
Option 3 fully meets the MOF's criteria for regulated PPPs.
Technical
66. FSR. The revised FSR was prepared by a selected design institute which had experience with World
Bank projects. The FSR was prepared in line with national and local technical standards and has been
reviewed by Sichuan Development and Reform Commission. The feasibility study was strengthened to
include key engineering aspects (described in more detail in annex 2): taking into account population and
water demand projections, wastewater projections, centralization of the water supply schemes, selection
of optimal wastewater and sanitation technical solutions, and applying a feasible rural effluent discharge
standard. In addition, attention was given to the reduction of NRW and improvement of the overall
efficiency and rate of household connections. Performance indicators and an incentive mechanism will be
incorporated into the PPP Agreement.
67. Project Implementation Plan (PIP) and project readiness for implementation. The PIP has been
completed by the PMO and includes descriptions on how each project component will be implemented;
a summary of the key PPP contract terms, FM, safeguards, and M&E plans; and descriptions of the
institutional arrangements and terms of reference for the project manager/independent engineer. The
bidding documents for the PPP will be consistent with the PIP.
68. Integrated smart water management platform. The WSS infrastructure and facilities to be built
under this project are distributed in 11 towns and 88 villages, covering more than 450 square kilometers,
and making efficient operations and management difficult. To improve management efficiency, the
Project Company will develop a ‘cloud-based’ integrated smart water management platform (smart
platform). Construction of the smart platform includes automation of WTPs, pump stations, and
distribution networks; automation of WWTPs and collection networks; installation of system monitoring
equipment (for pressure, flow, and so on); installation of household smart meters; construction of a
network control center (including a machine room, tiled display screens, and network and storage
devices); installation of internet connectivity and transmission hardware; and development of software
management platforms for water supply, sewage, environment, and customer account management (for
both billing and complaints information). The smart platform is expected to improve the level of WSS
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management in Jingyang, improve labor efficiency, improve WSS connectivity of towns and villages, and
save water and energy in system operations.
69. Energy saving and efficiency. Rural water supply and wastewater management systems are large
users of energy and can have an impact on climate change-causing carbon emissions. The energy
efficiency activities of this project (reducing leakage and upgrading equipment and facilities) will also help
reduce carbon emissions and mitigate global climate change. The PPP Agreement will emphasize energy
efficiency in line with keeping costs down, thus creating a framework for controlling the energy demand
from the project investments.
70. GHG accounting assessment. The GHG analysis indicates that the project will see an overall net
increase in carbon dioxide equivalent (tCO2) per year in GHG emissions when compared to the without
project case. This is because of the large number of project beneficiaries who currently do not have
adequate sanitation services and who will be connected to wastewater collection and treatment systems
under the project, and the resulting increase in power use for those systems. However, for the water
investments, reduced NRW and improved energy efficiency (from replacement/upgrading of system
facilities, reduced leakages, and optimization of treatment and distribution processes using the proposed
smart water platform) will contribute a net energy reduction when compared to the without project case,
helping to offset the total lifetime GHG emissions. Taking water and wastewater/sanitation activities
together, the net impact of the project on GHG emissions would be an increase of 290 tCO2 per year, or
a lifetime increase of 6,089 tCO2. The value of net GHG emissions under the project, using the Shadow
Price of Carbon, is negative ENPV of US$ 0.10 million. Details from the GHG accounting assessment for
the project’s relevant water and wastewater/sanitation activities, under the with- and without- project
scenarios, are included in annex 5.
Financial Analysis
Overview of Financial Arrangements
71. As noted previously, the JDG selected the concession with subsidy model to structure the PPP.
Under this model, the JDG retains legal ownership of the WSS system and awards a long-term concession
to the Project Company which will have beneficial use and ownership to construct, expand, rehabilitate,
operate, and maintain the WSS assets. This model also requires the PPP partner to invest equity into the
project. The total capital costs for the project are estimated at CNY 1.1 billion (20 percent of which are to
be financed by the PPP partner’s equity, and the remainder a mix of the World Bank loan and commercial
sources).
72. The JDG will pay the Project Company to expand, rehabilitate, and improve the WSS system
through an annual availability payment (CAPEX), which will be an on-lent portion of the World Bank loan
(see next paragraph). The JDG will also pay the Project Company to deliver improved WSS services through
an annual OPEX payment.
73. The World Bank loan will be progressively on-lent (at the same rate of interest and with no
surcharges) down through the administrative levels and ultimately to the Project Company, that is, from
the Sichuan Province Finance Department (SPFD) to the Deyang Municipal Finance Bureau, to the Jingyang
District Finance Bureau (JDFB), and then to the Project Company. The World Bank loan will be disbursed
by the World Bank directly to the Project Company.
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74. Revenues from tariffs paid by WSS system users will be collected and retained by the Project
Company and will be accounted for when calculating the OPEX subsidy. The Project Company will be paid
for delivering the WSS services through the OPEX subsidy based on the fixed and variable O&M and energy
costs incurred (using efficient, optimized unit cost values) and less the total collected user tariff revenues
(also using efficient unit rates and optimized volumes to promote system efficiency). It is proposed that
there will be a performance penalty for failure to meet specified service efficiency targets.
75. Given that the Project Company is to be operated on a commercial basis and to attract sufficient
interest from potential investors, the PPP structure and financial arrangements also include an expected
return on equity for the Project Company.
76. To assess the financial arrangements of the project’s PPP design, a financial analysis was
conducted to examine the financial gains and costs of the Project Company over the 25-year contract
period, and a fiscal affordability analysis was conducted to estimate the JDG's long-term ability to
financially manage and support the project assets and service delivery under the selected option. Further
details and the key assumptions for the financial analysis (for example, inflation, water demand, tariffs,
and operating margin) are summarized in annex 5.
Assessment of Tariffs, Revenues, and Required Subsidies
77. As noted, the Project Company will collect tariff revenue directly from customers. However, the
current levels of water and wastewater tariffs in the district are insufficient to fully cover operating costs.
To make up for this O&M shortfall, as well as to cover the operating margin and repay the capital costs
(financed by debt and equity), the JDG will need to provide CAPEX and OPEX subsidies to the Project
Company under the PPP Agreement for the entire duration of the contract. The JDG has committed to
fund the required subsidies and has included/approved these subsidies in the next three years of its
budget. Under the PPP Agreement, these will be paid in accordance with an established and performance-
based schedule. Overall, the project is expected to achieve the target return on equity and meet its debt
service obligations, with a debt service coverage ratio of 1.74 (at the lowest).
78. Low rural water and wastewater tariffs are a significant challenge for sustainable WSS operation
and cost recovery. While the current water tariff rate of CNY 2.0 per m3 is near to the O&M breakeven
point for water services (CNY 2.4 per m3), sewerage fees are not currently charged to customers in the
majority of the project area (in line with the practice in rural areas elsewhere in China). The JDG is
conducting a WSS Tariff Roadmap study, with the support of the World Bank, to identify a medium- to
long-term pathway for raising tariffs (and reducing subsidies) so as to be both affordable to customers
and financially sustainable for the WSS utility and local government. Because of the decentralized and
scattered nature of the water systems, it is difficult to estimate the current cost recovery ratio for water
system OPEX. However, under the tariff roadmap, the JDG has committed to apply water tariffs that meet
at least 85 percent of the level for cost recovery of OPEX by the end of the project construction period
(and in line with local administrative and decision-making procedures). These water supply cost recovery
objectives are also in line with the NDRC’s tariff policies for cost management in the water sector. For
rural wastewater, the sector is less market-oriented and developed than for water supply, and the
Government has committed to subsidizing wastewater collection and treatment services to improve the
lives of rural residents. Based on the tariff roadmap and under this project, the JDG is proposing to
introduce a sewerage fee of CNY 0.85 per m3 in 2025, to be collected along with water supply tariffs, once
construction has been completed and after the Project Company has made the necessary improvements
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Sichuan Water Supply and Sanitation PPP Project (P168025)
in sanitation services. This tariff will be in line with national and provincial regulations and will achieve
approximately 21 percent of the CNY 4.0 per m3 O&M cost recovery point for the sewerage services.
Financial and Fiscal Affordability Analysis
79. The project’s fiscal impact on the JDG is marginal. The IBRD loan is on-lent at each level of
government to the JDG and then on to the Project Company. The only element of the project and the PPP
that is booked on the JDG balance sheet is the estimated annual subsidy. This then serves as the legal
basis for future government spending. A fiscal assessment report was conducted for the JDG, 38 to
evaluate the fiscal burden on the JDG balance sheet as a result of the annuity subsidy. The JDG’s
contingent liability from the project is estimated to be 1.2 percent (maximum) of the district’s GDP. This
is well below the 5 percent threshold permitted by the MOF for local governments and indicates that the
district’s economy is large enough to take on this project. The JDG does not have other significant
contingent liabilities. The JDG is committed to fund subsidies to cover capital and operating costs and
has included the required subsidies for the next three years in its capital and operating budget plans.
Furthermore, these subsidy obligations have been reviewed and approved by the local People’s Congress,
which represents a firm and legal commitment from the Government.
80. Despite these commitments and estimates indicating that the project is affordable to the JDG,
market sounding conducted during project preparation indicated that some investors may have
reservations about government payment risk, given perceptions on the nature of the district’s revenue.
If these issues are raised during the procurement process, and if deemed necessary, credit enhancements
may be considered to be incorporated into the request for proposals.
Economic Analysis
81. The main economic benefits of the project include improved living conditions, amenities, and
public health owing to improvement in WSS services (both quality and quantity), along with productivity
and efficiency gains in the development and operations of water supply and wastewater treatment
facilities through the institutional arrangements of the project. The economic costs of the project include
capital investments (and associated resettlement and environmental mitigation costs) and O&M costs.
82. The economic analysis was carried out for a 25-year period, from 2020 to 2044 (inclusive of a five-
year construction period) and using a discount rate of 10 percent. The economic benefits and costs were
expressed in domestic currency and constant 2019 prices—net of the costs of transfer, financial charges,
and price contingencies. International costs were converted to local currency at an exchange rate of CNY
7.0 to US$1.00. An average value added tax (VAT) of 13 percent is excluded from goods, and shadow wage
factors of 0.8 and 1.0 were applied to unskilled and skilled labor, respectively.
83. As the data needed to estimate public health benefits are neither unavailable nor would be easy
to obtain, a mix of cost-benefit analysis (CBA) and cost-effectiveness analysis (CEA) has been used for the
economic analysis of the project. Additional details are presented in annex 5.
38Contingent liability was calculated based on World Bank-International Monetary Fund (IMF) developed, Project Fiscal Risk
Assessment Model (PFRAM) to calculate fiscal impact on the government balance sheet of the project.
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84. CBA was employed for water supply investments. With the project, the majority of the population
in the project area will be able to enjoy better-quality and more reliable water supply services provided
by new WTPs and upgraded water supply networks. Several technical design scenarios were first proposed
and analyzed cost-effectively. The scenario of constructing WTPs, water treatment stations, water
distribution stations, pumping stations, and additional water mains is the least-cost option and is selected
for CBA.
85. The economic benefit of the above option was further quantified from the willingness to pay for
improved water supply service of the beneficiary households. Using the benefit transfer approach
(adjusted to the current income level in the project area) and the results of willingness-to-pay studies
conducted in similar regions in China, the willingness-to-pay assumptions are 1.5 percent of disposable
income for those currently without access to piped water (approximately 27 percent of future service
population); 0.5 percent for population currently with access to piped, albeit inferior quality, water supply
(73 percent of the future service population); and CNY 3.0 per ton for non-domestic water supply (that is,
the current mean industrial tariff). It was estimated that the water supply investment will yield an
economic internal rate of return (EIRR) of 13.7 percent. It is worthwhile noting that the estimated EIRR is
conservative because the analysis does not include other benefits such as the efficiency gains due to NRW
reduction nor the benefits from reduced pressure on the many sensitive water resource protection areas,
and so on. Sensitivity analysis was carried out to assess a potential 20 percent increase in water supply
capital investment costs, with a resulting EIRR of 11.6 percent.
86. The wastewater treatment and sanitation investments are well aligned with the regulatory and
development targets that have been set by national and local governments. These targets are based on
their importance to public health and the quality of life of local residents, and the development and
modernization of small towns more generally. Due to the difficulty in quantifying and monetizing the
benefits of these components, the cost-effectiveness approach was used to ensure the selection of the
least-cost technical design option to achieve the development targets established by the governments.
The analysis first divided the project area into two districts by topography: Plain District and Hills District.
A few technical design alternatives were considered and compared. In the Plain District, the least-cost
design is to use 4 existing WWTPs and construct 881 km of sewerage collection networks and 30 pumping
stations. In the Hills District, centralized sewerage treatment systems are costly. The project will first
continue to use the two small-size wastewater treatment stations (200 m3 per day) and centralized septic
tanks already built in the area and extend their household coverage as long as gravity flow allows. The
project will further build 10 small-size wastewater treatment facilities (at around 50 m3 per day) with
house connection pipelines in other township seats and large villages. For clusters of households with
over 50 people but located far from existing or proposed WWTPs or stations, building septic tanks
separately for each household will be cost-effective and selected. Other scattered households will
continue to use their existing pit toilets without intervention from the project.
87. Given the objectives and economic benefits that the proposed project aims for, the population in
the project areas would generally benefit from the investment. As local governments agree to a block
tariff scheme to support and secure the basic water consumption of low-income households, the project
anticipates no negative impacts on the poor.
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B. Fiduciary
Financial Management
88. The district PMO staff are new to World Bank-financed operations. Since the JDG is approaching
the debt ceiling as regulated by the MOF, the full IBRD loan will be on-lent to the Project Company. The
JDG will account for any contingent liability in accordance with relevant regulations. The Project Company
will be responsible for routine FM tasks during project implementation and will be required to recruit
qualified financial staff to ensure project FM is smooth. The PMO will be responsible for overall project
FM.
89. The FM capacity assessments identified the principal FM risks to include (a) the fact that, as this
is the first World Bank-financed PPP project in China and the winning bidder will not have been selected
until after project assessment, the capacity of the winning bidder and Project Company to implement
project activities is uncertain; and (b) lack of knowledge and experience in managing World Bank-financed
projects as project staff at the district level do not have experience of World Bank-financed projects. This
could lead to misuse or inefficient use of project funds. Mitigation measures to be put in place to address
these risks are (a) inclusion of FM-related requirements in the PPP Agreement and bidding documents for
procuring the PPP partner, (b) preparation and distribution of a Financial Management Manual (FMM) to
standardize project FM procedures, and (c) provision of FM technical training and knowledge-sharing
workshops to be arranged by the World Bank and PMO. The foreign currency exchange risk will be jointly
borne by the JDG and the Project Company. The Project Company will bear the risk of the amount of
World Bank loan available to draw down in local currency, while the JDG will bear the risk on the amount
of principal to be repaid in euros.
Procurement
90. Procurement institutional arrangements. With the assistance of the other relevant government
line agencies, the PMO will be responsible for the selection of the PPP partner. HUDB will sign the PPP
Agreement on behalf of the JDG. The PMO will have the opportunity to benefit from the experience of
previous local PPP projects undertaken by the financial bureau of the JDG.
91. A procurement capacity assessment was undertaken through field visits and interviews with the
PMO. The JDG will conduct the procurement of the private partner through HUDB and the financial bureau
will provide support. As the government authority monitoring government procurement, the financial
bureau has knowledge of the domestic laws and rules regulating procurement of PPPs. In addition, the
PMO hired IFC as its transaction adviser to design the transaction and to propose an appropriate
procurement strategy. IFC has prepared a transaction structure report with recommendations on the
procurement method, setup of qualification criteria, evaluation methodology, and other details.
92. To enhance the PMO’s capacity to undertake the selection of the PPP partner, a domestic
procurement agent with extensive experience working on World Bank-funded operations and practical
experience of PPP procurement has been hired. From discussion with the procurement agent, the firm is
familiar with the domestic procedural requirements and policies related to PPP projects and has a set of
existing procurement documents (for example, prequalification and bidding documents) that have been
widely adopted for the domestic projects. The procurement agent is assisting the PMO to draft the
procurement documents, organize the selection process, and manage formalities on a centralized
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procurement information platform—all in coordination with, and on the basis of the transaction model
developed by, IFC. The procurement agent is also responsible for drafting the Project Procurement
Strategy for Development (PPSD).
93. The key procurement risks identified in the project risk assessment are the following:
(a) PPP has significantly more inherent complexity than traditional procurement methods, with
significant risk of lengthy selection process, multiple iterations of review, and consequent
delay in implementation;
(b) The PMO is unfamiliar with the World Bank’s new procurement framework and has a
tendency to follow the local practices in conflict with World Bank Procurement Regulations;
(c) Inadequate management and coordination capacity may lead to serious delay in
implementation; and
(d) The downstream procurement using the Project Company’s own procedures are in conflict
with World Bank core procurement policy and deemed not acceptable.
94. To mitigate these risks, the following actions were recommended:
(a) The PMO should assign experienced procurement staff and ensure a procurement agent
with qualifications and experience in World Bank projects has been hired to provide such
assistance;
(b) Working with the transaction adviser, procurement agent, and other line agencies, the PMO
should develop sound and detailed guidelines for managing the PPP process, setting up
realistic time frames and enhancing performance monitoring;
(c) The World Bank will provide constant procurement training and support during project
implementation;
(d) The PMO should develop an Operations Manual (OM) (already completed at time of
appraisal) including requirements for procurement using commercial practices to guide
procurement and contract management during implementation; and
(e) The PPSD should be prepared by the PMO to describe how procurement supports the PDOs
and achieves value for money.
95. Anticorruption. World Bank’s Anti-Corruption Guidelines shall apply. The PMO will stipulate in
the OM anticorruption requirements and a complaint-handling mechanism for the project. In addition,
the standard anticorruption provisions would be included in the OM so that they can be easily added to
the relevant procurement documents. The PMO would be required to report to the World Bank on time
the allegations of fraud and corrupt cases identified in the progress report. The World Bank will supervise
project implementation on a regular basis to verify if the relevant requirements are fulfilled on the ground.
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. C. Legal Operational Policies
.
Triggered?
Projects on International Waterways OP 7.50 No
Projects in Disputed Areas OP 7.60 No
.
. D. Environmental and Social
.
The environmental risk of the project is Moderate. The physical activities of the project include the
construction, upgrading, and rehabilitation of municipal wastewater and drinking water facilities, and
improvement of the living environment of eleven villages in the project area. The size of each specific facilities
ranges from very small (less than 50m3/day) to medium (25,000m3/day). The locations of the activities are
generally in rural areas already intensively affected by human activities, without involving critical natural
habitats and legally protected cultural heritages.
Overall, the project is expected to have positive environmental and social benefits in terms of reducing water-
borne diseases through provision of clean drinking water, and reduction of water pollution in receiving water
bodies by collecting and treating the wastewater. Adverse environmental and social impacts of the project
during construction stage include noise, dust, solid waste and wastewater, soil erosion, and the social
disturbance, such as traffic and road safety. During the operation stage, the project could lead to increase in
odor, noise and sludge, occupational health and safety concerns due to bacteria/pathogens within the
wastewater treatment facilities and working in a confined space. These impacts are expected to be of limited
magnitude given the size of the project. The non-physical activities (technical assistance and construction of
cloud platform) will not cause adverse environmental impacts. In future, dismantled water meters, originating
from non-physical activities, will need to be disposed properly.
The Client and its Project Management Office (PMO) in charge for project preparation, has been committed to
allocate adequate resources in terms of budget and full-time staff to coordinate and procure a Special Purpose
Vehicle (SPV), the project company, with the adequate environmental and social management capacity for the
implementation. ESMP and ESCP set requirements for SPV.
To address the risk and impacts associated with the project activities the following instruments were prepared,
disclosed and consulted prior to appraisal: Environmental Impact Assessment (EIA), Social Impact Assessment
(SIA), Environmental and Social Management Plan (ESMP), Resettlement Action Plan (RAP) all for identified
activities, Stakeholder Engagement Plan (SEP) and Environmental and Social Commitment Plan. The documents
were prepared by the Client following the ESF and the WB EHSGs, and relevant requirements of China, covering
all the project activities. Given that the borrow pits/deposit sites are not yet determined and the site and
alignment of water/wastewater facilities may be subject to modifications at the preliminary design stage, the
Environmental and Social Management Framework (ESMF) and Resettlement Policy Framework (RPF) have
been prepared.
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The treated effluent from the wastewater treatment plants will be discharged into Mianyuan, Shiting and Kai
rivers. The river sections within the assessment area are identified as natural habitats but with low biodiversity
value. Static modelling of the effluent impact on water quality in the three rivers show that the water quality
will not be affected. Conversely, the water quality of the rivers will be improved by the project, which will help
achieve the net gain of biodiversity in the long term.
Nearly all the project water will be taken from the Renmin Canal built in 1958 to transfer water from the
Minjiang River to irrigate farms in the Chengdu Plain, and not and not existing reservoirs. A water resource
study has been completed indicating that a very small percentage of the water will be taken by the project and
will not adversely affect downstream users. The Renmin Canal section within Jingyang District is being polluted
by wastewater discharge from households. The water source protection plan, prepared by the Deyang
Municipal Government, stipulates comprehensive actions protection and mitigation actions. A further
evaluation of actions has been incorporated into the ESCP to cope with this issue.
The environmental code of practice (ECOP) and site-specific measures have been developed under the ESMP.
To address concerns on traffic and community safety, a labor camp management plan and traffic management
plan, as well as a traffic safety awareness program for communities, have been developed under the ESMP and
incorporated into the ESCP. The occupational health and safety measures have been developed. In addition, a
sludge management plan has been developed covering the sludge quantity estimate, transportation and
disposal arrangements, and supervision. Monitoring requirements for sludge quality have been incorporated
into the environmental monitoring plan of the ESMP.
The social risk of the project is substantial.
The project will involve limited number of direct workers and contracted workers. In addition, government staff
will be involved in the early stage of the project implementation. Civil works will involve potential occupational
health and safety associated with the operation of the wastewater facilities. Occupational health and safety
measures have been developed and integrated into the ESMP and the ESCP. The labor management procedure
for direct workers and contracted workers has been developed as part of the ESMP. GRM has been established
separately for this ESS2 in the ESMP.
Construction will mostly be along the roads and cause disturbance to local traffic. Increased traffic near the
communities particularly schools may pose safety risks given the rural context. A traffic management plan has
been developed as part of the ESMP and ESCP, which also contain traffic safety awareness program for the
affected schools and communities.
The social assessment indicated that moderate amount of land will be acquired to accommodate project
activities affecting 179 persons from 58 households on collective land. Two enterprises will be resettled
affecting 2 persons from 2 households. Consequently, a RAP has been prepared. The water source protection
plan, to be finalized by early implementation, is expected to further increase land restrictions of around 70 mu.
An RPF has been prepared to address land acquisition that can only be confirmed during implementation. Both
the RAP and RPF prepared have been informed by consultations with the affected persons, and the draft RAP
and RPF has been disclosed to all stakeholders before finalizing. The social assessment confirms that no ethnic
minorities as defined by World Bank ESF have been identified in project sites.
A screening of cultural heritage concluded that the project will not affect any legally protected cultural heritage
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sites. However, a small temple built by local villagers in 2010 for good harvest blessing has been identified to be
potentially affected. A small pumping station will be built by the project 5 meters away from this temple. Dust,
noise, and vibration may be detrimental to this temple during construction stage, and noise and vibration
during operation. It is concluded that these impacts are moderate and readily mitigated by good engineering
design and measures. Villagers have been consulted in accordance to the project SEP and are supportive of the
project and agreed to the measures proposed to maintain the integrity of the temple. Alternative analysis for
the location of the pumping station indicates that this site is the only one feasible environmentally, socially and
financially. Mitigation measures including the Code of Conduct for workers have been developed, and it is
expected that the temple will not incur any material damage provided that the mitigation measures are
implemented. A chance find procedure has been developed and incorporated into the ESMP and the ESCP. No
intangible cultural heritage has been identified by the social assessment.
The social assessment screened for risks of gender-based violence (GBV) and concluded that given the largely
urban and peri-urban character of the area and the location of the camps, the GBV risks will be low. The social
assessment indicated that the only risk is at worker camps where there are female workers, and their health
and safety in the living and work environment might be neglected by construction companies. To address this
risk, the Environmental & Social Commitment Plan (ESCP) include that sound labor management procedures
covering GBV issues as part of the bid evaluation process for construction companies. Regular project
supervision will include monitoring GBV. Bidders should also present procedures on worker management,
where there is large number of workers from outside the area. Regarding risks from influx of labor, GBV risks
should also be addressed when educating these workers. The social assessment also found that the WSS sector
decision-making is almost exclusively a male domain for which women have little or no information, no
involvement in water operations or their management, and little or no voice in decision-making related to
water services at the community level. The project will address this gap by engaging women as members and
leaders in village monitoring groups, assessing the quality of service provided by the Project Company. It will
also include outreach to women for customer feedback through a mobile phone app. This data will inform the
. for satisfaction with services which is subject to deduction.
KPI
96. Disclosure of the project safeguards package. The full environmental and social safeguards
package for this project was disclosed on December 6, 2019.
97. Consultation with existing employees. The JDG has developed a plan for managing existing
employees working on WSS services in the service area, including retention, redeployment, transfer to
the Project Company, and retirement, and has consulted with existing employees. The JDG and the Project
Company will engage with existing employees and contractors to identify individuals who may wish to
transfer to the Project Company and on terms and conditions of employment and on capacity building
and training. The engagement of the public and communities and of existing employees has already begun
in the FSR and will continue through the preliminary design and subsequent project implementation
stages.
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V. GRIEVANCE REDRESS SERVICES
98. Communities and individuals who believe that they are adversely affected by a World Bank
supported project may submit complaints to existing project-level grievance redress mechanisms or
the World Bank’s Grievance Redress Service (GRS). The GRS ensures that complaints received are
promptly reviewed in order to address project-related concerns. Project affected communities and
individuals may submit their complaint to the World Bank’s independent Inspection Panel which
determines whether harm occurred, or could occur, as a result of the World Bank’s non-compliance
with its policies and procedures. Complaints may be submitted at any time after concerns have been
brought directly to the World Bank's attention, and World Bank Management has been given an
opportunity to respond. For information on how to submit complaints to the World Bank’s corporate
Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-
and-services/grievance-redress-service. For information on how to submit complaints to the World Bank
Inspection Panel, please visit www.inspectionpanel.org.
VI. KEY RISKS
99. Project overall risk rating. The overall risk rating is Substantial. During project preparation, the
identified project-level risks were substantially mitigated.
100. Sector Strategies and Policies Risk (Substantial). The water sector in China generally faces a
number of issues around unrealistic demand projections, unrealistic rural sewerage discharge standards,
facility overdesign, and household connection challenges, among others. Water and particularly
wastewater tariffs are lower than the level required for the full cost recovery of OPEX costs. To mitigate
these risks, a robust FSR (considering the typical sector issues) was prepared, the PPP transaction has been
designed to be performance-based and customer service-oriented (instead of the typical construction-
oriented), and the World Bank has worked with the local government to develop a road map to revise
tariffs for water and wastewater, and in line with local administrative and decision-making procedures.
The project can also draw on experience documented in the recent World Bank Water Global Practice
report, ‘Doing More with Less: Smarter Subsidies for Water Supply and Sanitation’, which can provide
insights into tariff policies for Jingyang, and for other provinces in China.
101. Technical Design of the Project (Substantial). Although the comprehensive preliminary technical
designs and the FSR have been completed, the Project Company has not yet been selected and will be
responsible for completing the detailed technical designs, which will then have to be approved by the
authorities. There is a risk that the cost requirements for the final system designs will be higher than those
estimated in the FSR, raising the burden of annual subsidies to be paid by the JDG. Additionally,
construction of the physical works will take place over a wide area, which may pose challenges. These
technical risks have been substantially mitigated by the close participation of the World Bank Group task
team in project preparation, which provided expertise for the detailed review and robust revisions to the
FSR technical designs and cost estimates. These risks will also be addressed through the independent
engineer providing oversight for efficient implementation of works under the guidance of the local
authorities. Finally, there is the risk that rural households may be unwilling to connect to the WSS systems
and pay tariffs. To mitigate these risks, the project will fully finance household water and sewer
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connections and will include community engagement activities to help promote household connections
and tariff payment.
102. Institutional Capacity for Implementation and Sustainability (High). A PPP approach has not
been used by the JDG before, and the JDG has not implemented a World Bank project before. In addition,
the WSS services are currently being managed under two separate bureaus and implemented by multiple
service providers. The newly proposed institutional arrangements have been fully agreed with the
Government, and measures have been taken to ensure sustainability of the project. Notably, (a) the World
Bank Group team has provided/will provide PPP transaction, implementation, and capacity-building
support to the PMO and JDG; (b) a robust FSR has been prepared, in which CAPEX and OPEX were
minimized; (c) subsidies are structured and agreed upon to enable long-term financial viability; and (d)
output-based performance requirements will be incorporated into the PPP Agreement. There have been
consultations with existing employees and contractors providing WSS services in the project area, and the
JDG has developed a staff transfer and redeployment plan that will be implemented by the JDG and
Project Company.
103. Fiduciary (Substantial). FM control risk was assessed as Substantial. Most project staff do not
have World Bank-financed project experience. To mitigate the risk, an FMM, which is one of the chapters
of the project OM (completed at time of appraisal), has been prepared to provide guidance and training
to project staff. In addition, the World Bank FM specialist provided necessary guidance and training to the
project financial staff. Procurement risk was assessed as Substantial. The IFC transaction advisory team
carried out early market sounding, bidding documents have been prepared based on best international
practice (adapted to the local context), the IFC transaction team has worked with the client to properly
identify risk allocation between public and private sectors, and a procurement strategy has been
developed that includes prequalification to ensure competent bidders. Finally, a robust financial analysis
was conducted, and the subsidies required were tailored to match the JDG’s financial capability, and a
study on WSS tariffs was conducted to support the financial analysis.
104. Environment and Social (Substantial). The Environmental and Social Framework (ESF) applies to
the project. As the JDG and PMO are new to the ESF, the World Bank team will support capacity building
during preparation and implementation of the project. The EIA and the ESMP, RAP, Social Assessment,
and Beneficiary Participation Plan have been prepared to meet the World Bank’s policy requirements.
Overall, the works for this project are small, without major disruptions to the environment and the
affected people. The environmental issues which were identified to have potential adverse impacts have
been clearly defined, and countermeasures have been included in the EIA. The social issues which were
identified to have potential adverse impacts have been clearly defined, and countermeasures have been
included. In the tariff structure, vulnerable and low-income beneficiaries will be exempt from payment of
water tariff up to a monthly baseline volume of water. Details refer to Section D Environmental and Social.
105. Stakeholders (Substantial). A lack of awareness of the benefits of piped water and a connection
to the wastewater system combined with the additional wastewater tariff may make households reluctant
to connect to WSS systems, posing a risk to the Project Company financial sustainability. To mitigate this
risk, the project will include a stakeholder participation mechanism to explain the benefits of connecting
to the WSS systems. The project will also support consultations and WASH BCCs for the participating
communities. The Project Company and the PMO will each play key roles with respect to community
engagement, and these will be clearly defined in the bidding documents and the PPP Agreement. Another
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stakeholder risk is the willingness of existing employees working on WSS services to transfer to the Project
Company. The JDG has developed a plan for managing these employees. Existing staff willing to transfer
will be hired by the Project Company. Other staff will be redeployed by the JDG or will take retirement.
The transfer of existing employees and contractors to the Project Company will be closely monitored, and
the Project Company will provide capacity building and training to transferred employees to enable a
smooth transition. Engagement with community members, including measures to give women more
voice, and existing employees began in the FSR and will continue through preliminary design and project
implementation.
.
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Sichuan Water Supply and Sanitation PPP Project (P168025)
VII. RESULTS FRAMEWORK AND MONITORING
Results Framework
COUNTRY: China
Sichuan Water Supply and Sanitation PPP Project
Project Development Objectives(s)
The objectives of the Project are to improve access to water supply and sanitation services and improve the quality and efficiency of water supply and
sanitation service delivery in select peri-urban and rural areas of Jingyang District of Deyang City in Sichuan Province.
Project Development Objective Indicators
RESULT_FRAME_T BL_ PD O
Indicator Name DLI Baseline End Target
To improve access to WSS services in Jingyang District of Deyang City in Sichuan Province.
Number of people benefiting from improved water supply
0.00 220,900.00
services (Number)
Female (Number) 0.00 110,450.00
Number of people benefiting from safely managed sanitation
0.00 199,750.00
services (Number)
Female (Number) 0.00 99,875.00
Percentage of customers satisfied with the services provided by
0.00 85.00
the Project Company (Percentage)
Female (Percentage) 0.00 50.00
To improve the quality and efficiency of WSS service delivery
Reduction in Non-Revenue Water Rate [NRW] (Percentage) 32.00 17.00
Cost Recovery in water supply services (Percentage) 100.00 100.00
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PDO Table SPACE
Intermediate Results Indicators by Components
RESULT_FRAME_T BL_ IO
Indicator Name DLI Baseline End Target
Project Company Performance
Quality of water at tap meets quality standards (Yes/No) Yes Yes
Quality of effluent from wastewater treatment plants meets
effluent standards (Yes/No) Yes Yes
Project company is in compliance with the key performance
0.00 100.00
indicators set out in PPP Agreement (Percentage)
Community Engagement and Gender Inclusion
Percentage of communities (village committees) having provided
feedback on the WSS services provided by the Project Company 0.00 100.00
(Percentage)
Percentage of women in the communities participating in the
community feedback meetings on WSS service quality 0.00 40.00
(Percentage)
Percentage of female members on the village service quality
monitoring groups (Percentage) 0.00 60.00
Infrastructure
Number of households connected to improved piped water
system (Number) 0.00 86,310.00
Number of new households connected to wastewater system
0.00 53,374.00
(Number)
Number of households with improved septic tank and collection
0.00 6,712.00
and septage removal (Number)
Project Experience Sharing and Policy Support
Roadmap for tariff setting in Jingyang district to achieve
No Yes
operational cost recovery approved by JDG (Yes/No)
Number of workshops to share project experience and lessons in 0.00 3.00
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Sichuan Water Supply and Sanitation PPP Project (P168025)
RESULT_FRAME_T BL_ IO
Indicator Name DLI Baseline End Target
Sichuan Province and China (Number)
IO Table SPACE
UL Table SPACE
Monitoring & Evaluation Plan: PDO Indicators
Methodology for Data Responsibility for Data
Indicator Name Definition/Description Frequency Datasource
Collection Collection
The number of people who
previously did not have
access to piped water The Project Company
Communities
supply, or had access to an collect population Project Company
Once per served by the
Number of people benefiting from unimproved piped water information from the (verified by Ind. M&E
year Project
improved water supply services supply and who now do communities it consultant)
Company.
have access to an improved severed.
piped supply as a result of
the project. Measured in the
project areas.
Female
Safely managed sanitation
services means access to (i)
sewerage systems or (ii) Communities The Project Company
Project Company
septage collection, together Once per served by the collects population
Number of people benefiting from safely (verified by Ind. M&E
with, in both cases, year Project information from the
managed sanitation services Team)
adequate treatment and Company communities it served.
disposal The number of
people who previously did
not have access to sewerage
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Sichuan Water Supply and Sanitation PPP Project (P168025)
systems or septage
collection together with
adequate treatment and
disposal and who now do
have access as a result of
the project. Measured in the
project areas.
Female
The result of
In the annual service
the annual
satisfaction survey Every year, the Project
service
conducted by the Project Company will conduct a The Project Company
Percentage of customers satisfied with Once satisfaction
Company, the percentage of service satisfaction (verified by Ind. M&E
the services provided by the Project per year survey
users who chose survey using local social consultant)
Company conducted by
“satisfactory” among the media (mobile Apps).
the Project
total number of user
Company.
participant in the survey.
The result of
the annual
Every year, the Project
service The Project Company
Company will conduct a
satisfaction (verified by
Breakdown of the parent Once a year service satisfaction
Female survey independent M&E
indicator, as percent female. survey using local social
conducted by consultant)
media (mobile apps).
the Project
Company.
Directly The Project Company
measured in calculates the different Project Company
Reduction of NRW in the Once
Reduction in Non-Revenue Water Rate the field between the volume of (verified by Ind. M&E
service area of the Project per year
[NRW] based on the the drinking water it Team)
Company
design of pumps to the service
M&E system, areas and the volume
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Sichuan Water Supply and Sanitation PPP Project (P168025)
as included in of the billed drinking
the PPP water.
Agreement.
Total operating revenues
(including tariffs and Based on operations
Reported by The Project Company
government subsidies), Once per and financial
the Project (verified by Ind. M&E
Cost Recovery in water supply services divided by total operating year accounting from Project
Company. consultant).
costs (excluding financing, Company.
assets, and depreciation
costs).
ME PDO Table SPACE
Monitoring & Evaluation Plan: Intermediate Results Indicators
Methodology for Data Responsibility for Data
Indicator Name Definition/Description Frequency Datasource
Collection Collection
Directly
measured in
Drinking water sample
the field
will be taken by the
based on the Project Company (verified
In compliance with GB 5749- Once per Project Company and
Quality of water at tap meets quality design of by Independent M&E
2006, "Standards for year sent to a certified
standards M&E system, Team)
Drinking Water Quality" laboratory for
as included in
measurement.
the PPP
agreement.
Treated sewerage complies Directly Online water quality
Quality of effluent from wastewater with the "Water Pollutant Once per measured in measurement or taking Project Company (verified
treatment plants meets effluent Discharge Standards for Tuo year the field sample to the by Ind. M&E Team)
standards and Min River Basins in based on the laboratory to test.
Sichuan Province" as well as design of
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Sichuan Water Supply and Sanitation PPP Project (P168025)
discharge standards for M&E system,
small-scale of WWTPs as as included in
specified in the Project EIA. the PPP
Agreement.
The Project
Company's
The percentage of KPIs meet The Project Company
Project company is in compliance with the Twice semi-annual Refers to the PPP
that meets the targets as (verified by Inde. M & E
key performance indicators set out in PPP per year KPIs Agreement
included in the PPP Consultant).
Agreement Compliance R
Agreement
eport.
The result of
Percentage of communities
Percentage of communities (village the survey
participating in the service Once Using local social media Project Company (verified
committees) having provided feedback on conducted by
satisfaction survey per year (mobile Apps). by Ind. M&E Team)
the WSS services provided by the Project the Project
conducted by the Project
Company Company.
Company
The Project Company
has regular meetings
with the communities,
seeking feedback to the
service it delivers. The
The Project number of the women
Percentage of women in the communities The percentage of women Once Project Company (verified
Company's who participate in the
participating in the community feedback who participate in the per year by Ind. M&E Team)
Report. meetings will be
meetings on WSS service quality community meetings.
recorded, along with
the total number of
participants.
Suggestions provided
by women will be
noted, along with
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Sichuan Water Supply and Sanitation PPP Project (P168025)
company actions on
those suggestions.
The project monitoring
committees will
Village committees under provide written reports
the project are to be to the Project Company
composed of at least five The Project on the quality of their The Project Company
Once per
Percentage of female members on the people in each village. This Company's service at least once a (verified by Ind. M&E
year
village service quality monitoring groups indicator relates to the Report. year, including the consultant)
percentage of village number of women
committee members who members and the
are women. gender of the group
leader.
The number of households
that previously were not Directly
previously connected to measured in The Project Company
improved piped water Once per the field collect data from the Project Company (verified
Number of households connected to
supply that are now year based on the community and by Ind. M&E Team)
improved piped water system
connected to an improved design of contractors.
piped supply as a result of M&E system
the project. Measured in the
project areas.
The number of households
Directly
that previously were not
measured in The Project Company
connected to the
Once per the field collects data from Project Company (verified
Number of new households connected to wastewater system that
year based on the community and by Ind. M&E Team)
wastewater system now do have access to the
design of contractor.
wastewater system as a
M&E system
result of the project.
Measured in the project
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Sichuan Water Supply and Sanitation PPP Project (P168025)
areas.
The number of households
that previously did not have Directly
an improved septic tank measured in The Project Company
Number of households with improved with collection, septage Once per the field collects data from Project Company (verified
septic tank and collection and septage removal and treatment year based on the community and by Ind. M&E Team)
removal that now have such a design of contractor.
system as a result of the M&E system
project. Measured in the
project areas.
PMO demonstrate to
Roadmap for tariff setting in the Bank team that the
Roadmap for tariff setting in Jingyang Once per
Jingyang district to achieve PMO roadmap has been PMO
district to achieve operational cost year
operational cost recovery prepared and obtained
recovery approved by JDG
approved by JDG. government approval.
PMO reports to the
Number of workshops to
Number of workshops to share project Once Bank team the
share project experience PMO PMO
experience and lessons in Sichuan per year workshop has been
and lessons in Sichuan
Province and China conducted.
Province and China
ME IO Table SPACE
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Sichuan Water Supply and Sanitation PPP Project (P168025)
ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN
COUNTRY: People's Republic of China
Sichuan Water Supply and Sanitation PPP Project
Project Institutional and Implementation Arrangements
1. A PLG and a PMO have been established under the JDG. The PLG is chaired by the District Mayor,
with members from key government institutions including the HUDB, WAB, Finance Bureau, Development
and Reform Commission, and Environmental Protection Bureau. The preparation of the project has
benefited from strong support from Sichuan Provincial Government as well as the NDRC and MOF at the
Central Government level. Deyang City has also supported the preparation and will continue to support
implementation of the project.
2. Before the PPP transaction (that is, before PPP selection and contract signing), the PMO continues
to be responsible for project preparation, including FSR design and approval, project appraisal, PPP
tendering, PPP selection, and PPP contract signing. In these efforts, the PMO will also coordinate the
inputs and support from the local government line agencies and from the World Bank and IFC teams. After
commencement of the PPP transaction, the Project Company will be established (see paragraph 4) and
will be responsible for implementation of the PPP including the design, construction, financing, and O&M
of the assets and establishment of a utility and holistic service delivery. The PMO structure and staff will
remain in place at this stage, but their role and responsibilities will change to supervising the Project
Company and its performance of contractual responsibilities during implementation. The PMO will also
function as an asset holder and will implement any activities that are outside the scope of the PPP. The
PMO will remain responsible for M&E reporting throughout the project and will draw on data prepared
by the Project Company (as required by the PPP Agreement). The World Bank will work closely with the
Government and the PMO to ensure the PPP transaction is successful and will continue to supervise
project implementation.
3. Figure 1.1 shows a schematic of the institutional arrangements under the project.
4. The Project Company. The PPP will follow the concession with subsidy model, whereby the JDG
will retain legal ownership of the WSS infrastructure and assets but will award a long-term PPP Agreement
to a competitively selected partner (or consortium), which will form a Project Company. Where land and
assets are owned by farmers collectives, the JDG will enter into easement contracts with the farmers
collectives to gain access to the land and the assets. The Project Company will be responsible under the
PPP Agreement to construct/expand/rehabilitate, operate, and maintain the WSS assets, while providing
high-quality WSS services to customers in Jingyang. The Project Company will collect tariff revenue directly
from paying customers; and the JDG will also provide a subsidy to cover capital costs, O&M costs, and the
financing costs for the IBRD loan and any commercial loan. The Project Company will subcontract the
majority of its obligations under the PPP Agreement under an EPC contract and to an O&M contractor.
There are likely to be several investors in the Project Company (depicted as investor A and investor B).
Figure 1.2 shows a schematic of the key contracts under the project.
5. The proposed project seeks to create an integrated sustainable utility approach to WSS through
the PPP structure while introducing private sector efficiency, commercial finance, and a customer focus.
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In addition to the physical investments in the pipelines and treatment facilities, the project will support
investment in management systems that are used by modern utilities (for example, Geographic
Information System, customer management, and accounting systems). Few PPP contracts in China are
focused on these elements of service delivery and performance. The PPP model used in this project will
be output and performance based, incentivizing improved performance and service delivery.
Figure 1.1. Schematic of Project Institutional Arrangements
PLG
Government Authorities
PMO Central: MOF + NDRC
Coordination Local: HUDB, WAB, Finance
World Bank Group and Oversight
Team: Bureau, DRC, EPB
Support
World Bank
IFC C3P Project Company (SPV)
GIF Holistic WSS Utility
Figure 1.2. Schematic of Project Contracts
FM Arrangements
6. The district PMO staff are new to World Bank operations. Since the JDG is approaching the debt
ceiling as regulated by the MOF, the full IBRD loan will be on-lent to the Project Company. The JDG will
account for any contingent liability in accordance with relevant regulations. The Project Company will be
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responsible for routine FM-related tasks during project implementation and will be required to recruit
qualified financial staff to ensure FM is smooth. The PMO will be responsible for overall project FM.
Accounting and Financial Reporting
7. Project disbursement (see in ‘Disbursement Arrangements’) and FM tasks will be handled by the
Project Company and the PMO (for reviewing and supervising). The ‘Accounting Regulations for
Enterprises’ issued by the MOF will be adopted in the project. However, financial statements will be
prepared in the format stipulated by the MOF’s Circular 13.
8. The Project Company will manage, monitor, and maintain project accounting records for all
project activities including the TA activity. Original supporting documents will be retained by the company.
Project financial statements will be prepared by the company and then reviewed by the district PMO. The
unaudited semiannual project interim financial reports (whose format and content will be in accordance
with Circular #13, as agreed by the MOF) will be furnished to the World Bank by the district PMO no later
than 60 days following each semester, and will be in form and substance satisfactory to the World Bank.
9. Adequate project accounting staff with relevant educational background and commensurate
work experience in the work they are expected to perform will be one of the critical factors for successful
implementation of project FM. The district PMO was required to submit the curricula vitae of financial
staff of the PMO to the World Bank for review. The assessment identified that the district PMO does not
have World Bank-financed project experience and it is highly possible that the Project Company, once
formed, also will not. This could lead to misuse or inefficient use of project funds. Mitigation measures to
address this risk are as follows: (a) FM-related requirements are included in the bidding document for
procuring the Project Company, (b) preparation and distribution of an FMM to standardize project FM
procedures, and (c) provision of FM technical training and knowledge sharing workshops to be arranged
by the World Bank and the PMO.
10. The task team will monitor the accounting process, including the adequacy of the FM system and
staff training, especially during the initial stage to ensure complete and accurate financial information is
provided on time.
Internal Control
11. The internal control system comprises the following:
(a) Primary FM responsibilities of the district PMO will be, but not limited to, providing guidance
to the company’s FM work, reviewing expenditure reporting and financial reports submitted
by the company, and submitting the financial reporting to the World Bank. Although the
Project Company will be responsible for day-to-day FM work and submitting project financial
reports to the district PMO, it is required that a sound internal control system should be
established in the Project Company to ensure project funds are used for the intended
purposes.
(b) SPFD will oversee the disbursement document and the use of the World Bank loan for its
intended purpose.
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(c) Appropriate segregation of roles and responsibilities in all project entities is required.
(d) Project FMM is to be prepared to unify project FM work.
(e) Annual external audit to evaluate the performance of the overall internal control system.
The foreign currency exchange risk will be jointly borne by the JDG and the Project Company.
During the construction period, it will be fully borne by the Project Company; during the
World Bank loan repayment period, it will be fully borne by the JDG.
12. However, there are potential risks associated with weak communication between the PMO and
the Project Company about project FM and inadequate supervision of the works conducted by the Project
Company. To mitigate the risk, detailed internal control procedures including segregation of duties,
authorized review, approval and reporting procedures as well as the safeguarding of assets will be
established and documented in the FMM.
Audit Arrangements
13. The Sichuan Provincial Audit Office (SPAO) will be assigned by China National Audit Office (CNAO)
as auditor for the project. The annual audit report will be issued by SPAO. SPAO has extensive experience
with previous World Bank projects and is deemed acceptable to the World Bank. In addition, according to
CNAO’s quality assurance procedures, each first year’s audit report issued by provincial audit offices
should be reviewed by CNAO before the audit report is submitted to the World Bank.
14. The PMO will be responsible for submitting annual audit reports with project financial statements
to the World Bank within six months of the end of each fiscal year (June 30). According to the agreement
reached with the MOF and CNAO, the audit report and audited financial statements will be publicly
available in both World Bank and SPAO’s official websites. This requirement is stipulated in the loan
agreement.
Disbursement Arrangements
15. The proposed lending modality is an IPF. Therefore, the project will apply a traditional
disbursement mechanism by which disbursement will be made against eligible expenditure. A Designated
Account (DA) is to be established and managed by the provincial finance department; and furthermore,
the Project Company will be required to inject equity and invest the registered capital before
commencement of construction which means it should have sufficient funds to start the project activities.
Before the Project Company is established, no expenditure is expected to be financed from the World
Bank loan proceeds. To ensure that the winning bidder for the PPP leverages its own money to invest in
the project and does not only use debt, the Project Company is required to maintain a minimum equity
level of 20 percent (that is, a debt to equity ratio of 80:20). The disbursement percentage of World Bank
loan would be 85 percent (civil works and goods) and 100 percent (consultancy service, non-consultancy
service, and trainings). Four disbursement methods—advance, direct payment, reimbursement, and
special commitment—are available to the proposed project. The disbursement categories and amounts
are as listed in table 1.1.
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Table 1.1. Project Disbursement Categories and Amounts
Amount of Loan
Disbursement Category Allocated Disbursement Percentage
(in EUR)
Goods and works, under the
87,986,250 85%
Project
Non-consulting services,
consulting services, Incremental
Operating Costs and Training 891,000 100%
and Workshops under the
Project
Front-end Fee Amount payable pursuant to
Section 2.03 of the Loan
222,750 Agreement in accordance
with Section 2.07 (b) of the
General Conditions
Total 89,100,000
Budgeting
16. The annual PIP, including the funding budget and resources, will be prepared by the Project
Company. The district PMO will submit the annual plan to the World Bank for comment once it has been
approved. Budget variance analysis will be conducted by the Project Company on a semiannual basis and
any necessary actions will be taken to ensure that the project is implemented as planned. The World Bank
will work with the PMO to supervise the annual project plan and to enhance budget preparation and
execution during project implementation.
Funds Flow
17. The World Bank loan will be progressively on-lent (at the same rate of interest and with no
surcharges) down through the administrative levels from SPFD to the Deyang Municipal Finance Bureau,
to the JDFB, and finally to the SPV company (see figure 1.3). Considering the prevailing lower interest
reference rate for the euro, Deyang decided to select the euro as the commitment currency with fixed
spread. Total maturity is to be 25 years to match with the PPP agreement term, including six years grace
period. The front-end fee would be financed out of the loan proceeds; and premium and interest costs
would be financed by the government counterpart funds. The JDFB will then pay the Project Company
through both the on-lent loan portion for CAPEX costs (also at the same interest rate and with no
surcharges) and through the annual subsidy for OPEX costs. WSS system users/customers will pay tariffs
to the Project Company, which will then transfer to the JDFB (not shown in figure 1.3).
18. The project will use the traditional expenditure-based disbursement method and the payment
request prepared by the SPV company will be submitted to the PMO first, then reviewed by the JDFB and
the prefecture finance bureau, and then submitted to the provincial finance department. The reimbursed
funds will be delivered from DA to prefecture finance bureau, district bureau, and finally to
contractors/Project Company (if it is prepaid by the company). Based on the project’s request, the World
Bank can also disburse to the Project Company directly if related requirements are met.
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19. The proposed funds flow arrangement and related processing period should ensure that the
Project Company receives payment within the date range stipulated in the PPP Agreement. The World
Bank will closely monitor disbursement efficiency during implementation. If material payment delays
resulting from slow disbursement are observed, the World Bank will guide the project to explore a more
streamlined funds flow arrangement.
Figure 1.3. IBRD Loan Funds Flow Schematic
World Bank
SPFD
LEGEND
Prefecture Finance Bureau
Funds flow
District Finance Bureau
WA/Document
flow
District PMO
Project Company
Procurement
20. The implementation arrangements for procurement are described in the following paragraphs.
21. Applicable procurement rules and procedures. Procurement will be carried out in accordance
with the ‘World Bank Procurement Regulations for IPF Borrowers’, dated July 1, 2016, and revised in
November 2017 and August 2018, and hereafter referred to as ‘Procurement Regulations’. In addition to
the upstream procurement for selection of the private partner, downstream procurement will normally
be based on predominant domestic practices. ‘Guidelines on Preventing and Combating Fraud and
Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants’, revised as of July 1, 2016, shall
apply to the project. The procurement of the PPP partner is expected to be completed by September
2020.
22. Institutional arrangement for procurement. A PMO sitting at the district housing and urban-rural
development bureau had been established. The other relevant line agencies—such as WAB, financial
bureau, and district PPP center—are also involved in PMO operation. The PMO is staffed with the officials
from different line agencies. In addition to involving relevant line agencies, the PMO has been engaging
external consultants to provide specialized assistance for the implementation of the project. Specific to
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the procurement, IFC has been hired to design the transaction structure including the proposed
procurement methodology while a procurement agent has also been hired to deal with the processing of
procurement on the platform managed by the authority.
23. Major procurements envisaged. The major procurement under the project is the selection of the
private partner to reach PPP agreement, which is also referred to as upstream procurement. The selection
of the private partner would be managed by the PMO and go through competitive process. The selected
partner is expected to establish a Project Company, to handle the procurement of works, goods,
consultancy service related to the project, which is regarded as downstream procurement under the PPP
arrangement. The downstream procurement will adopt the Project Company’s own procedures that are
deemed acceptable by the World Bank. The procurement procedures that are applicable for this project
would be defined in the OM. The PMO will be responsible for ensuring that the procurement rules
specified in the OM are followed in practice.
24. Procurement strategy. A PPSD has been prepared by the borrower covering the aspects of
operational context, capacity assessment market analysis, procurement risk analysis, and other details.
Based on the transaction model and market sounding, taking the routine domestic practice for PPP
procurement into account, the preferred procurement approach for upstream procurement will be open
competitive process, to be more specific, single stage two envelops with prequalification. The PPSD
illustrates the logic to select such procurement approach.
25. OM. An OM was prepared at the project appraisal stage and sets out the rules to be followed for
implementing the downstream procurement. The procurement procedures that are applicable for this
project are described in the OM. Moreover, the OM specifies the minimum requirement on procurement
in the case of adopting commercial practice, which includes the following:
(a) The World Bank’s Anti-Corruption Guidelines shall apply. In particular, the contracts to be
financed by the proceeds of entrusted loan shall include relevant provisions on
anticorruption.
(b) The contracts cannot be awarded to firms or individuals suspended and/or debarred by the
World Bank (the listing of debarred firms can be found on the World Bank website:
www.worldbank.org/debarr).
(c) Procurement should ensure there is provision in the contract, permitting the World Bank to
inspect all accounts, records, and other documents relating to the procurement process and
selection and/or contract execution and to have them audited by auditors appointed by the
World Bank.
(d) In addition, conflicts of interest should be avoided in procurement.
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ANNEX 2: FEASIBILITY STUDY REPORT AND OPTIMIZATION OF TECHNICAL DESIGN
COUNTRY: People's Republic of China
Sichuan Water Supply and Sanitation PPP Project
1. FSR. The revised FSR was prepared by a selected design institute which had prior experience with
World Bank and PPP projects. The FSR was prepared in line with national technical standards. The FSR has
been cleared by Sichuan Development and Reform Commission. The engineering design and technical
issues listed in the following list have been given special attention to during project preparation.
(a) Water demand projections. Realistic water demand projections for the project were
conducted to determine CAPEX and OPEX costs and were prepared based on (i) national
codes, (ii) survey of households and user groups (1,000 households) on water use, (iii)
historic operational data from survey of existing water supply plants, (iv) provincial
population projections, and (v) standards for water use (including municipal, industrial,
landscaping, firefighting, and public facility water uses).
(b) Wastewater projections. Wastewater projections were prepared based on (i) national
codes, (ii) field survey of households and water user groups on wastewater generation data,
(iii) operational data and information from a survey of existing WWTPs in the townships, (iv)
current and projected water use (short term and long term), and (v) water pollution
coefficients derived for the project area;
(c) Water supply schemes. Current Government of China policy requires centralization of WTPs.
Two alternative configurations for water supply schemes were compared to identify the
least-cost option (based on CAPEX and energy costs). These included (a) improving the
current existing decentralized WTPs and supply schemes (largely drawing on groundwater)
and (ii) consolidating water supply to be provided by two centralized, surface water
schemes. Option (ii) was preferred because it simplifies the overall system and is in line with
the Government of China’s policy aims toward centralization and surface water, while still
utilizing existing assets (that is, the regional distribution networks and WTPs—where two of
the existing WTPs will be expanded/upgraded and the remaining WTPs will serve as pumping
stations). Option (ii) also avoids significant land acquisition and resettlement costs and has
the lowest life cycle combined CAPEX and OPEX cost.
(d) Options for wastewater and sanitation schemes. In Jingyang, in the five years before
appraisal, six rural WWTPs were built—serving towns located in the relatively flat plains area
of the district. All of these plants were substantially oversized and underutilized (operating
at 10–15 percent of capacity). Three wastewater and sanitation options were compared: (i)
a centralized sewer scheme for all areas; (ii) a centralized sewer scheme for the plains area,
and decentralized solutions for hilly areas of the district; and (iii) decentralized solutions for
all areas (that is, improved septic tanks). Option (ii) was preferred because it connects more
households to the recently built and underutilized WWTPs and does not require
construction of additional large-scale WWTPs or septage treatment facilities. Under Option
(ii) in the plains, four WWTPs will be upgraded to comply with higher discharge standards
and six small-scale (less than 50 m3/d) WWTPs will be built. In the hilly areas where
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population and settlements are more remote and scattered, rural households will be served
by properly designed, prefabricated septic tanks—instead of building centralized sewer
networks. Option (ii) has the lowest combined CAPEX and OPEX cost.
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ANNEX 3: PPP STRUCTURING OPTIONS
COUNTRY: People's Republic of China
Sichuan Water Supply and Sanitation PPP Project
1. The following three main PPP structures were considered during project preparation: (a) a EPC +
O&M/DBO structure, (b) a lease/affermage structure, and (c) a concession with subsidy structure. These
three options are defined and described in Figure 3.1, Figure 3.2, and Figure 3.3. To analyze and compare
the PPP structuring options, the following issues were considered (some of which were identified in
market sounding):
Financial Viability and Government Affordability
(a) Given that revenues are limited and will be insufficient to cover capital and operating
expenses, the JDG will be required to provide significant subsidies to the Project Company
to ensure reasonable return.
(b) The local government would like to limit such subsidies to CNY 100 million per year.
Demand Uncertainty and Lack of Commercial Data
(a) As the nature of the current service provision is quite informal, there are limited data
available on the operations and finances of the existing service providers. The social
consultant has conducted a household survey on the affordability of tariffs, and a potential
drop in water consumption due to price elasticity needs to be factored in.
(b) CAPEX annuity (availability payment) or a guarantee on revenues and volumes will be critical.
Creditworthiness/Government Performance Payment Risk
(a) Given the need for a significant government subsidy, market feedback has indicated that
some potential bidders have concerns regarding the liquidity/creditworthiness of
government payments, and several have had experience of local governments in other areas
in China defaulting on their payment obligations. This could be mitigated through
guarantees, securities, and credit enhancements. However, it is proposed to initiate
procurement without such credit enhancements and see later if this is necessary.
Long-term Incentive for Sponsors to Improve Service Quality
(a) If the PPP were structured as an EPC, there would be a profit margin, but there may be an
imbalance in favor of the construction stage, because the O&M operations are a relatively
small part of the business (with less than 100 staff). Therefore, there is a risk that with low
O&M margins the PPP partner could walk away from the contract after the profitable
construction stage.
(b) Incentivizing operators to focus on both construction and O&M is a critical success factor.
This is better achieved through a bundled concession structure to the PPP, with reasonable
lock-in periods and stringent KPIs for operations. This could also be achieved to some extent
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through a DBO structure, but there is still a risk of focus on construction under such model
as the construction costs are paid for against milestones.
Transfer of Operations/Legacy Issues
(a) The existing operators are scattered and informal. Integrating them into a rural water utility
will require aggregating 40 small-scale operations, including transferring the use of their
assets and the staff.
(b) Legacy issues (for example, latent defects and claims) will also have to be addressed in the
PPP structure and bidding documents.
Figure 3.1. Option 1 - EPC + O&M/DBO Structure
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Figure 3.2. Option 2 - Lease/Affermage
Figure 3.3. Option 3 - PPP Concession with Subsidy
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PPP Structure Options Comparison
2. The advantages and disadvantages of each option are set out in Table 3.1:
Table 3.1. Advantages and Disadvantages of Three PPP Structure Options
Option 1 Option 2 Option 3
EPC + O&M/DBO Lease /Affermage Concession + Subsidy
Pros • It is less risky for PPP • It moves more operating risk • It requires PPP partner to
partner. to the PPP partner to align raise finance for certain
• Selecting one party incentives with the works, thereby ensuring that
responsible for both government by allocating it is vested, as it will only
EPC and O&M will commercial risk on recover the costs of
minimize interface risk operations. investment over the contract
and allow • Public financing for capex period, and less likely to walk
synergies/economies should lead to lower cost of away after construction.
and good coordination capital. • It creates a stronger incentive
overall. for PPP partner to construct
• Public financing for facilities and manage
capex should lead to operations efficiently as it will
lower cost of capital. take full commercial risk on
an integrated business.
Cons • Financing risk rests • Financing risk rests with • It introduces a higher cost of
with government. government. Government has capital for financing CAPEX,
Government has constraints on financing CAPEX which eventually gets passed
constraints on requirements. on to the Government.
financing CAPEX • As tariff is insufficient to cover • As tariffs are insufficient to
requirements. operational expenses, a cover operational expenses, a
• As tariff is insufficient subsidy is required. subsidy is required—which
to cover operational • Subsidy may reduce the will potentially be larger than
expenses, a subsidy is incentive for the PPP partner for other options.
required. to manage operations • The subsidy may reduce the
• Project is more likely to efficiently or to maximize incentive of the PPP partner
be skewed toward volumes/revenues. This could to manage operations
construction. While be mitigated through efficiently or to maximize
incentives can be operating KPIs and a capacity volumes/revenues. This could
included to prioritize annuity, or through minimum be mitigated through
service delivery during revenue or volume guarantees, operating KPIs and a capacity
operations, the private while imposing construction annuity or through minimum
party can still and NRW ramp-up. revenue or volume
potentially walk away • It creates interface risk for guarantees, with
after it has made profit government on the construction/NRW ramp-up.
on construction. This construction contracts. Alternatively, such risks could
risk could be mitigated Government has to manage be priced into the bids, with
through lock-in periods multiple contracts—with a the subsidy amount as the bid
and KPIs. potential for cost overruns. parameter (this approach is
• The domestic PPP market in recommended for this
China is unfamiliar with this project):
approach. o Greater complexity
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Option 1 Option 2 Option 3
EPC + O&M/DBO Lease /Affermage Concession + Subsidy
o More contingent liabilities
o Riskier for the PPP partner
PPP Structure Options Cost Analysis
3. As noted, three options for structuring the PPP were considered (including cost comparisons and
consideration of fiscal affordability) to find the structure most suitable to the JDG’s specific objectives and
institutional context. Cost analysis was conducted for the three PPP options to compare the total costs to
the local government. For details refer to annex 5.
4. The first two options involve only public financing by the JDG, while Option 3 includes financing
from other commercial sources to be raised by the PPP partner (as equity or debt). The JDG selected
Option 3, the ‘concession with subsidy model’, for reasons mentioned in section II-E of the main text.
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Sichuan Water Supply and Sanitation PPP Project (P168025)
ANNEX 4: SUMMARY OF TERMS OF DRAFT PPP AGREEMENT
COUNTRY: People's Republic of China
Sichuan Water Supply and Sanitation PPP Project
1. A draft of the PPP Agreement will be appended to the request for proposals for bidders for the
PPP. Proposed key terms of the draft PPP Agreement are set out as follows:
Key Terms Description
1. Parties • The JDG represented by Jingyang Housing and Urban-Rural Development Bureau
• Project Company
2. Conditions • Project Company
precedent (CPs) to o Commercial debt financial close
commencement o Other standard CPs
date • Government
o IBRD loan financial close and execution of on-lending agreement with the
Project Company
o Land expropriation/rights over collective land/easements/temporary land
occupation rights
o Other standard Conditions Precedent (CPs)
• Common CPs for both Parties
o Handover of existing infrastructure
o Permits/administrative authorizations
o Direct agreement with lenders
3. Consequences of • If none of the CP are satisfied or waived before the scheduled commencement
failure to achieve date, the parties shall meet and agree on a solution to satisfy or waive the CPs
commencement before a long stop date.
date • If the Project Company fails to meet CPs under its responsibility before the long
stop date, the Government has the right to terminate the PPP Agreement early
and draw on the bid security.
• If the Government fails to meet CPs under its responsibility before the long stop
date, the Project Company has the right to terminate the PPP Agreement early
and the Government shall return the bid security.
4. Term • 25 years from Commencement Date, including five-year construction phase and
20-year operation phase
• Commencement date achieved upon the satisfaction or waiver of all CPs
5. Extension of term • Term may be extended in accordance with the PPP Agreement:
o In case of Government default that justifies an extension of the scheduled
service commencement date or the operation period,
o In case implementation of the PPP is prevented by a force majeure event, or
o As a means of compensation, for example, for political force majeure or
change in law.
6. Transfer at project • On the Handover Date, the Project Company shall transfer to the Government all
handover project infrastructure and assets in accordance with the handover requirements
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Key Terms Description
and procedures under the PPP Agreement, free and clear of any liens or
encumbrance.
• The Project Company shall ensure that the relevant financing documents contain
provisions giving unconditional effect to the handover requirement.
7. Project agreements • IBRD Loan On-Lending Agreement - to be concluded between the JDG and Project
Company
• Easement agreements/temporary land occupation agreements/contracts for
construction and operation of water infrastructure on collective land - to be
concluded between the Government and farmer collectives
8. Scope of PPP • Rehabilitation of existing water supply plants/stations and upgrade of existing
Agreement sewage treatment plants
• Construction of new water supply plants, sewage treatment stations, and related
pipelines
• Construction of drinking water source protection works and cloud information
technology (IT) platform
• Operation of existing, rehabilitated, upgraded, and new infrastructure referred
above
• Ongoing improvement of services based on feedback from village monitoring
groups, community meetings, customer satisfaction surveys, and other feedback
from women and men
9. Existing • 40 water supply plants/stations, 6 sewage treatment plants, 9 biogas tanks, and
infrastructure existing water supply and sewage pipelines to be operated by the Project
Company in their existing conditions during the construction phase
• Rehabilitation, upgrade, financing, and operation of existing infrastructure to be
under the responsibility of the Project Company
10. New infrastructure • New water purification plants, water source protection works, pump stations,
water supply and sewage pipelines, demonstration projects, and cloud IT platform
• Financing, construction, and operation of new infrastructure to be the
responsibility of the Project Company
• Standard construction and commissioning provisions to be included in the PPP
Agreement
11. Land • The Government is responsible for expropriating land or securing rights to
construct and operate infrastructure on collective land.
• The Government or farmer collectives (where applicable) remain the owner of
land and land use rights.
• The Government undertakes in the PPP Agreement that the Project Company has
the exclusive right to occupy and use the land throughout the project term
• The Government ensures that easements and temporary land occupation rights
required for pipelines are obtained from third parties.
• The Project Company will bear land use taxes and costs incurred by expropriation,
easements, and temporary occupation of collective land (if any).
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Key Terms Description
12. PPP development • Fees taken on by the Government to carry out the feasibility study, environmental
fees assessment, design (if any), and land expropriation is to be borne by the
Government.
13. Land ownership • The Government remains the owner of the land and real properties.
• The Project Company will own moveable assets.
14. Government’s • Provision of land
specific obligations • Issuance of permits / provision of administrative authorizations
• General assistance
• Provision of subsidy
• Guidance on application of tariffs and regulations
15. Financing • Maximum debt equity ratio - 80:20 (subject to consultation with prospective
lenders who may require lower debt-to-equity ratio cap)
• Debt - US$ 100 million World Bank loan, plus commercial debt to be contributed
in accordance with the PPP Agreement
• Equity - to be contributed by the Project Company shareholders in accordance
with the PPP Agreement
• Securities - pledge of receivables and pledge of Project Company shares
• Direct agreement with banks providing step-in rights
16. Stability of • Lock-in period - construction phase + 2 years or more with several intervening
shareholders periods to allow for gradual step-down, during which no transfer of the Project
Company equity allowed beyond lock-in restrictions
• Upon expiry of lock-in period - change of control of the Project Company subject
to the Government’s approval
17. Regulatory • Piped water tariff payable by end users and to be collected directly by the Project
revenues Company
18. Non-regulated • Sewage treatment service fees payable by the Government to the Project
revenues Company (sewage treatment fees - collected by the Government through the
Project Company as agent; the Government then pays sewage treatment service
fees to the Project Company)
19. Subsidy structure • The Government will pay the Project Company the following subsidies:
o CAPEX subsidy to cover CAPEX and debt finance cost and equity return
o OPEX subsidy to cover shortfall of regulated revenues (at optimized volumes)
over efficient OPEX (optimized volumes are target volumes of water supplied
and wastewater treated) (This subsidy includes sewage treatment service
fees.)
20. Performance bonds • Performance bonds for construction
• Performance bonds for O&M
• Performance bonds for project hand back (and warranty) at the end of the project
term
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Key Terms Description
21. Liquidated damages • The Project Company to pay liquidated damages for the delay in achieving
payable by the scheduled service commencement date
Project Company
22. KPIs • Separate KPI regimes for water supply, sewage treatment, and pipe network,
covering (among others) water supply capacity and quality, sewage discharge
quantity and quality, and female and male customer satisfaction with services
• Differentiated KPI regime for five-year construction period adapted to existing
infrastructure and to allow ramp up in capacity and transition to more efficient
operations
• KPIs subject to payment deductions or liquidated damages
23. Existing employees • Government employees remain within the Government other than those that
agree to transfer to the Project Company and whom the Project Company agrees
to hire.
24. Utilities • The Government is responsible for providing power and water at the boundary
limit of the project site.
• The Project Company is responsible for connections/use of public utilities within
the project site.
• Power tariff - Power is to be provided by the Government, based on regulated
power tariffs which will be a pass-through item, although efficiency in power
consumption is a risk to be borne by the private partner.
25. Government access • The Government will have access to the project site in accordance with terms and
conditions of the PPP Agreement.
• The Government will have access to information in accordance with terms and
conditions of the PPP Agreement.
26. Reporting • Performance, security, financials, budget, issues, commercial contracts,
requirements environmental and social, water quality, water supply and sewage treatment,
health and safety, audit, and so on
• Annual reports - customer service satisfaction survey, customer feedback, and
actions taken.
27. Material breach • Project Company’s material breach:
o Failure to achieve commissioning date within a certain period
o Failure to consistently meet KPIs (that is, persistent breach)
o False or misleading representations and warranties
o Abandonment of project
o Assignment of any rights or obligations in contravention of the PPP
Agreement
o Voluntary or involuntary bankruptcy, insolvency, or wind-down of the Project
Company
• Government’s material breach:
o Persistent failure to make payments in accordance with the terms of the PPP
Agreement
o False or misleading representations and warranties
o Other material breach defined in the PPP Agreement
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Key Terms Description
28. Force majeure • Nonpolitical force majeure event—for example, lightning, fire, earthquake,
tsunami, flood, cyclone, or other natural calamity/act of God, epidemic or plague,
accident or explosion
• Political force majeure event—for example, change in law, expropriation,
nationalization, act of war, terrorism, civil unrest, strike, act of foreign enemy,
politically motivated sabotage war, or failure to obtain or provide necessary
administrative approvals
• Suspension of affected obligations during subsistence of force majeure event
• In case of a natural force majeure event—affected party has a termination right
that can be exercised after the expiry of the prolonged force majeure period
• In case of a political force majeure event—the Project Company has a termination
right that can be exercised after the expiry of the prolonged force majeure period
29. Termination • In case of a material breach by a party, the non-defaulting party may terminate
the PPP Agreement early after a cure period is provided to the defaulting party.
• In case of a prolonged force majeure, the affected party has a termination right
after the expiry of the prolonged force majeure period.
30. Termination • Government material breach/political force majeure event
compensation o Outstanding debt subject to gearing cap applicable from commencement
date
o Equity
o Certain level of return on equity, OR
o Fair market value of the concession based on NPV of the CAPEX subsidy
(similar to other China PPP projects)
• Material breach of the Project Company
o Maximum to be outstanding debt subject to gearing cap applicable from
commencement date
• Prolonged natural force majeure event
o Outstanding debt subject to gearing cap applicable from commencement
date
o Equity
o Minus insurance indemnity
31. Assignment • There will be no assignment of rights and obligations under the PPP Agreement,
unless the other party has granted its prior consent.
• The Project Company can pledge project revenues and the Project Company’s
shares to financing parties for project financing.
32. Governing law and • Governing law - Government of China law
dispute resolution • Independent expert for technical disputes
• China International and Economic Trade Arbitration Commission arbitration
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ANNEX 5: ECONOMIC AND FINANCIAL ANALYSIS
COUNTRY: People's Republic of China
Sichuan Water Supply and Sanitation PPP Project
Economic Analysis
1. The main economic benefits of the project are improved living conditions, amenities, and public
health owing to the investments of improving WSS (both quality and quantity) and productivity and
efficiency gains in the investment and operations of water supply and wastewater treatment facilities by
private sector participation. The economic costs of the project are capital investments costs (and
associated resettlement and environmental mitigation costs of the investments) and O&M cost.
2. The economic analysis was carried out for a 25-year period, from 2020 to 2044 inclusive of a five-
year construction period, and using a discount rate of 10 percent. The economic benefits and costs were
expressed in domestic currency and constant 2019 prices net of costs of transfer, financial charges, and
price contingencies. International costs were converted to local currency at an exchange rate of CNY 7.0
to US$1.00. An average VAT of 13 percent is excluded from goods, and shadow wage factors of 0.8 and
1.0 are applied to unskilled and skilled labor, respectively.
3. As the data needed to estimate public health benefits are either unavailable or would be very
difficult to obtain, a mix of CBA for water supply investment and CEA for wastewater treatment and
sanitation investment has been used in the economic analysis of the project.
Potential Economic Gains from PPPs
4. The main argument behind the promotion of infrastructure PPPs is that they may lead to
efficiency gains in service delivery because the long-term nature of the contracts generates adequate
incentives for private partners to internalize potential positive spillovers between the building and the
operating phases of the project.
5. Moreover, PPPs may offer a combination of private efficiency gains and public sector-specific
choice of performance indicators, such as quality or coverage. Indeed, PPPs offer the possibility for the
Government to contract over defined performance requirements by tying payments and penalties to
them, thus incentivizing the private operator to minimize its costs given these requirements. These
incentives may lead them to exert specific efforts to reduce some of the main and recurring problems in
large-scale infrastructure projects, namely construction delays and cost overruns.
6. For water utilities, Jiang and Zheng (2014) analyze a panel data set of water utilities from 200
Chinese cities between 1998 to 2007. Starting in the 1990s, there was entry of foreign water companies,
particularly through build-operate-transfer schemes39. They conclude that private sector participation in
water utilities has led to cost savings, and they find positive, although not significant, effects on labor
productivity and total factor productivity. For this project, economic efficiency and quality improvements
potentially arising from PPP arrangements may be observed in the following areas: (a) reduction in
39Yi Jiang and Xiaoting Zheng, "Private Sector Participation and Performance of Urban Water Utilities in China," Economic
Development and Cultural Change 63, no. 1 (October 2014): 155-189.
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technical losses (for example, spills/leakages can be used as a proxy for inefficiency), (b) improved access,
and (c) improved water quality.
Water Supply Investment
7. Baseline and problems of current water supply systems. In 2018, approximately 70 percent of
the population in the project area had access to a piped water supply from 40 small-scale water treatment
facilities provided by the rural township. The remaining 30 percent had to rely on boreholes on their
property for water supply. The current situation has failed to provide high-quality water supply to the
population in terms of quality, quantity, and reliability. The existing 40 small piped water supply systems
are small-scale, incomplete, and scattered, with poor reliability. As water supply is currently dependent
on groundwater, water quality also poses potential health concerns. The water source is mostly shallow
aquifer groundwater, along with some local reservoirs, both of which can be easily contaminated.
Naturally occurring iron and manganate content in the groundwater exceed standards. For the population
who live outside the existing water supply coverage area and rely on boreholes, the situation is even worse
as the water quality varies considerably depending on the characteristics of the groundwater, time of the
year, and proximity to any contamination source. In addition, drinking water sources are not properly
protected from encroachment and pollution, posing further risks to hygiene and safety. Many households
keep drinking water tanks, usually 19 L in size and costing CNY 38 per tank, for emergency and/or regular
drinking use. This illustrates the poor quality of current water supply systems faced by the population.
8. Projected beneficiary population of improved water supply service. Due to rural-to-urban
migration, the overall population in the project area is projected to decrease at an average annual rate of
0.5 percent. The proposed project will construct larger and more centralized WTPs to replace the existing
40 small water treatment facilities and most of the boreholes and develop and upgrade water supply
systems. The project is expected to increase to the coverage of municipal water supply to 94 percent of
the total population by 2025. Table 5.1 shows the projection of served population over years.
Table 5.1. Projection of the Served Population of Piped Water Network
2025 2030 2035 2040 2044
Water supply served population 235,365 230,108 225,531 221,486 218,550
9. Proposed technical interventions - Decentralized versus centralized piped water supply. The
proposed project will convert the current configuration of 40 water treatment facilities operated by
different providers to a more integrated configuration. Before assessing the economic return of the
proposed water supply investment, a set of technical scenarios were evaluated, from relatively
decentralized to more centralized water treatment and service provision. Across the spectrum of without-
and with-project scenarios, three scenarios were evaluated. Table 5.2 presents the details of the three
scenarios’ technical designs and costs.
10. Identification of the least-cost intervention. Of the three scenarios assessed, Scenario 1 has
minimal costs associated with water source protection and overall better service quality and reliability,
albeit at slightly high energy costs to pump the water through the longer pipeline network. Once the
opportunity cost of future land development is considered, this scenario comes out as the preferred
technical solution with the least amount of land restricted from development to protect the water source.
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40 water supply stations (32 using ground water and 8 using surface water) available; 2413 km
Current Situation
water supply pipelines (1107 km inter-village water mains and 1316 km within villages).
Table 5.2. Least-cost Analysis of Centralized Water Supply (US$, millions)
Scenairo 1 Scenairo 2 Scenairo 3
40 water supply stations (32 using ground water and 8 using surface water) available; 2413 km
Current Situation
water supply pipelines (1107 km inter-village water mains and 1316 km within villages).
2 water treatment plants, 2
14 water treatment plants, 2 6 water treatment plants, 2
water treatment stations (<200
water treatment stations, 25 water treatment stations, 33
Description of tons/day), 37 water
water distribution stations, 1 water distribution stations, 1
alternatives distribution stations, 5
pumping station, and 90 km pumping station, 123 km water
pumping stations, and 148 km
water mains mains
additional water mains.
Capital investment
Land and construction
cost of water source 4.97 19.71 6.48
areas
Land acquision Cost 0.81 0 0.7
Water treatment plants 7.18 14.57 9.17
Water mains 9.26 3.51 7.69
Water distribution
0.11 0.04 0.07
stations
Pumping stations 0.43 0 0
Subtotal 22.76 37.83 24.11
O&M costs (20 years) 4.53 1.82 3.25
11. A CBA was further conducted on the least-cost scenario to assess the economic return on the
water supply investment scenario, as compared to the without-project scenario.
12. Costs consist of capital investments and annual cost of O&M, both estimated in economic terms
in domestic currency and constant 2019 prices, net of costs of transfer, financial charges, and price
contingencies.
13. Benefits of the water supply investments mainly come from improved quality of life owing to the
improvement in sanitation conditions, amenities, and public health. The benefit was conservatively valued
at the total value of the willingness to pay of the beneficiary population for improved water supply service.
For domestic water supply, willingness to pay is estimated as a percentage of per capita disposable
income, considering households’ current access to piped water supply. As no willingness-to-pay survey
was done in the project area for the proposed project, the benefit transfer approach was adopted using
survey values from similar regions.
• For those currently without access to piped water today (approximately 27 percent of future
service population), willingness to pay is estimated based on past survey results. One survey
(2006) of 1,500 households in five districts of the Chongqing municipality concluded that
willingness to pay for improved water service was between 1.5 percent and 2.0 percent of
the disposable income. 40 Another survey among residents of Beijing suggested a similar
40Wang, H, J. Xie, and H. Li. “Water Pricing with Household Surveys: A Study of Acceptability and Willingness to Pay in
Chongqing, China.” China Economic Review 21 (2010): 136–149.
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range of 1.2 percent and 2.0 percent. Both surveys revealed a higher percentage of
household disposable income willing to be allocated to pay for improved water supply
among rural households whose absolute income is lower. Given these considerations, the
analysis assumes the willingness to pay for improved water supply among rural residents of
the project area at 1.5 percent of disposable income.
• For those currently with access to piped, albeit inferior quality, water supply (approximately
70 percent of the future service population), a study measuring willingness to pay of piped
water quality improvement using a contingent valuation survey in Songzi, Hubei (2011)
estimated a willingness to pay for the drinking water quality improvement program at 0.3
percent of the household disposable income.41 As the quality improvement brought about
by the project investments goes beyond drinking water to all aspects of water consumption
in household daily life, the willingness to pay as a percentage of household income is
assumed at 0.5 percent of disposable income.
• For non-domestic water supply, willingness to pay is assumed at CNY 3.0 per ton, the mean
tariff for industrial customers in the project towns.
14. The above willingness-to-pay results were adjusted to reflect the current income level in the
project area. In 2018, per capita disposable income among rural residents of Jingyang stood at CNY 18,524,
thus translating to a per capita willingness to pay for improved water supply of CNY 278 a year for
individuals currently without access to piped water, and CNY 92.6 for those currently with access to piped
water supply.
Table 5.3. Estimates of Willingness to Pay
Estimates of Willingness to Pay
Percentage of Service Willingness to Pay as Willingness to Pay
Population Percentage of Income (CNY)
Domestic
• Currently with access 73 0.5 92.6 per year
• Currently without access 27 1.5 277.9 per year
Non-domestic Mean industrial water tariff in the project townships 3.0 per ton
15. Outcome of the CBA. Based on the above assumptions, the water supply component of the
project yields an EIRR of 13.7 percent, exceeding the economic opportunity cost of capital. Thus, the
investment is economically justified. The GHG impact, for water investments, has a rather trivial impact
on the project’s economic return as the projected savings in carbon emissions are negligible. After
factoring in the shadow price of carbon, the EIRR of the project investment is estimated at 13.8 percent.
Moreover, it is worthwhile noting that the EIRR estimate here is conservative because the analysis does
not include other benefits such as the efficiency gains due to NRW reduction.
41Jin Jianjun, Wang Wenyu, Fan Ying and Wang Xiaomin. “Measuring the Willingness to Pay for Drinking Water Quality
Improvements: Results of a Contingent Valuation Survey in Songzi, China.” Journal of Water and Health (2016) 14(3): 504-512.
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16. Sensitivity analysis. Sensitivity analysis was carried out to assess the scenarios for potential
increases in total capital investment cost. With an assumption of a 20 percent increase in the cost, the
EIRR is 11.6 percent, which is still above the acceptable threshold. Therefore, the results are quite robust.
Wastewater Treatment and Sanitation Investment
17. Baseline situation. Currently, only 15 percent of the population in the project area is connected
to a municipal sewer system. The rest of the population is served by septic tanks and on-site treatment,
many of which are not well designed or are malfunctioning. The project area is currently served by six
recently commissioned WWTPs and 154 anaerobic tanks (large septic tanks). All 6 WWTPs are operating
sub-optimally due to overdesign and insufficient inflows (inflows of only 10–15 percent of the design
capacity), although all plants do meet Class 1A standards. Some households in the area utilize septic tanks,
or else, wastewater is discharged directly into nearby rivers without treatment, resulting in environmental
pollution and broader public health risks downstream as polluted water flows into the river system.
18. Proposed interventions. The project will upgrade the existing wastewater treatment facilities and
significantly expand the sewerage collection networks. It will increase the percentage of population under
the coverage of municipal sewerage collection systems to 85 percent, that is, 216,000 people, by 2025.
19. Benefits of sanitation investments. Economic, environmental, and social benefits will be
generated by improved wastewater management and sanitation. This includes avoided or reduced health
costs linked to diarrheal disease and other water-borne diseases, increased quality of living of the local
population due to better collection and treatment of wastewater and septage, reduced pressure on the
local aqua system (including underground water sources in the project areas), and increased operational
efficiency of the WWTPs. These health and environmental benefits are difficult to quantify, and as a result,
a CBA has not been conducted. A CEA was, therefore, conducted to analyze alternative options and select
the least-cost solution.
20. The wastewater treatment and sanitation investment is well aligned with regulatory and
development requirements and with the targets that have been set by national, provincial, and local
governments, such as the rural water pollution control laid out in the China Water Pollution Prevention
and Control Law which required enhancing centralized wastewater treatment, the Water Pollution
Prevention and Control Action Plan issued by the State Council, and a series of ecosystem protection and
green development plans of Sichuan Provincial Government. These targets are based on their importance
to public health and the quality of life of local residents and the development and modernization of small
towns.
21. The analysis first divided the project area by topography into two districts: Plains District and Hills
District. In the Plains District, different technical scenarios to collect and treat residential wastewater were
identified and analyzed using the least-cost approach.
22. In the Plains District. Table 5.4 presents two technical alternatives considered for wastewater in
the Plains District and their cost estimates. It shows Alternative 1, which will upgrade and use the existing
4 WWTPs and build 881 km sewerage collection pipelines and 30 pumping stations to fully use the
treatment capacity of the 4 WWTPs, will cost less, and this was selected in the project.
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Table 5.4. CEA of Wastewater Treatment in Plains Area (US$, millions)
Current situation 4 WWTPs with a treatment capacity of 12,800 m3 per day available, however only
8,190 m3 per day wastewater was actually collected and treated; 154 centralized
large septic tanks each serving a cluster of multiple households; 229 km sewerage
collection networks built
Alternative 1 Alternative 2
Technical design Upgrade and use the existing 4 WWTPs Upgrade and use the existing 4 WWTPs
and construct 881 km sewerage collection and build 29 new wastewater treatment
pipelines and 30 pumping stations. stations and additional 826 km sewerage
collection pipelines without the need for
pumping.
Capital cost
Sewerage networks 62.07 60.07
New pumping stations 1.51 0.00
New wastewater treatment 0.00 8.07
stations
Upgrading existing WTPs 5.14 5.14
Subtotal 68.72 73.27
O&M cost (20 years) 47.82 65.39
Total 116.53 138.67
23. In the Hills District. It is infeasible to adopt centralized wastewater treatment systems as it is very
costly to construct sewerage collection pipelines and pumping stations in hilly landscape. The project will
first continue to use existing two small-size wastewater treatment stations (200 tons per day) and
centralized septic tanks and extend their household coverage as long as the gravity allows. Ten small-size
wastewater treatment facilities (at around 50 tons per day) with house connection pipelines will be built
in other town seats and large villages. A number of wastewater treatment technologies (bio-trickling filter
process, biological contact oxidation processes, anaerobic/anoxic/oxic process, and MBR process) were
considered and compared. MBR technique is selected based on its quality of reducing wastewater and
relatively easy management.
24. For the cluster of households with over 50 people but located far from existing or proposed
WWTPs or stations, the options of separate septic tanks and centralized septic tanks were analyzed
according to their cost-effectiveness. The results of the CEA are shown in Table 5.5. It shows that building
septic tanks separately for each household will be cost-effective, and this approach was selected.
Table 5.5. CEA of Wastewater Treatment in Hills Area (Taking Zhongxing Village as an Example) (US$, millions)
Current situation 91 households and 228 residents living in the village, all using simple pit toilets
or septic tanks; no sewerage collection and treatment facilities
Alternative 1 Alternative 2
Technical design Separate septic tank (1 m3) in each One centralized septic tank for all
targeted household households
Capital investment
Household connection cost 1.13 1.13
Separate septic tanks 0.39 0.00
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Collection pipelines 0.00 1.30
Centralized septic tanks 0.00 0.32
Subtotal 1.52 2.75
O&M (20 years)
Septic tanks 2.08 0.28
Sewerage networks 0.00 1.25
Subtotal 2.08 1.54
Total 3.60 4.28
GHG Accounting Assessment
25. Based on the results of the GHG accounting assessment of the project’s relevant activities, GHG
impact is estimated based on power consumption under the with- and without- project scenarios.
26. Water supply. Under the with-project scenario, the piped water system will be expanded and
rehabilitated, there will be more households connected to the system, and there will be reductions in
NRW and improvements in efficiency (all under Subcomponent 1b). Combined, these component
activities should result in a decrease in power consumption from 4,173 MWh per year for the without-
project scenario to 3,635 MWh per year for the with-project scenario. See the table below. With the grid
emission factor at around 0.65 kg per kWh in Sichuan Province, the project would emit an estimated 2,712
tCO2 per year under the without-project scenario (i.e. at the current level of NRW) and 2,363 tCO2
equivalent per year with reduced NRW under the with-project scenario. The net impact is a reduction in
GHG emissions of 349 tCO2 per year because of the project, or a lifetime avoidance of 7,335 tCO2 due to
energy efficiency. After factoring the shadow price of carbon at the midpoint of the upper and lower
bounds recommended by the World Bank’s Guidance Note on Shadow Price of Carbon in economic
analysis, the net GHG impact of the water supply component is valued at an economic net present value
(ENPV) of US$ 0.16 million.
Table 5.6. GHG Impact of the Water Supply Component
Electricity (MWh Annual Emission Lifetime
Lifetime (tCO2)
per year) (tCO2 per year) (US$, millions @ 10%)
Without project 4,173 2,712 56,956 (1.27)
With project 3,635 2,363 49,621 (1.10)
Net impact (537) (349) (7,335) 0.16
27. Wastewater and sanitation. Under the with-project scenario, the operations of the WWTPs,
pump stations, and septic tanks will consume an estimated 2,288 MWh of electricity each year, compared
to the without-project case of an estimated 693 MWh per year. See the table below. The increase under
the project is because the wastewater system is being expanded, many more households are being
connected to the network, and more septage is being collected and treated (all under Subcomponent 1b).
The net incremental power consumption associated with the project investment is around 1,595 MWh
per year. With the grid emission factor at around 0.65 kg per kWh in Sichuan Province, the net impact
under the with-project scenario for wastewater sanitation component would be an additional 1,036 tCO2
emitted each year due to higher electricity consumption. The component will also impact emissions of
CH4 and N20 from the wastewater processes, with a net emission reduction for both gases under the
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with-project case, i.e. 192 tCO2 per year reduced for CH4 and 205 tCO2 per year reduced for N2O (see the
table below). Combining the net emissions from electricity and from direct wastewater gases, the Project
wastewater component will have a net annual increase in GHG of 639 tCO2 per year, or a total net lifetime
increase in GHG emissions of 13,424 tCO2. After factoring the shadow price of carbon at the midpoint of
the upper and lower bounds recommended by the World Bank’s Guidance Note on Shadow Price of
Carbon in economic analysis, the net GHG impact of the wastewater and sanitation component is valued
at a negative ENPV of US$ 0.30 million
Table 5.7. GHG Impact of the Wastewater and Sanitation Component
Annual
Electricity Electricity CH4 N2O Lifetime
emission Lifetime
(MWh per (tCO2 per (tCO2 per (tCO2 per (US$, millions
(tCO2 per (tCO2)
year) year) year) year) @ 10%)
year)
Without 693 451 607 1,521 2,579 54,154 (1.20)
project
With project 2,288 1,487 415 1,316 3,218 67,578 (1.50)
Net impact 1,594 1,036 (192) (205) 639 13,424 (0.30)
28. Taking water and wastewater/sanitation activities together, the net impact of the project on GHG
emissions would be an increase of 290 tCO2 per year, or a lifetime increase of 6,089 tCO2. The value of
net GHG emissions under the project, using the Shadow Price of Carbon, is negative ENPV of US$ 0.10
million.
Financial Analysis
29. A financial analysis was conducted to examine the financial gains and costs of the Project
Company for a 25-year contract period, using current prices. Key details and assumptions follow the
revised project FSR and include the following:
• Inflation (annual inflation rate applied to O&M costs and tariffs)
• Construction period
• Population, customer base, and water demand
• NRW and changes over time
• Water and wastewater tariffs
• Cost of funds
• Operating margin
30. To assess and compare the costs of three PPP options to the Government, the Government's
financial flows under each option were calculated. This financial analysis provided detailed comparison
of the lifecycle costs of the three PPP options considered and helped to inform the selection of the option
most suitable for Jingyang District’s context and objectives. The total net financial flows and their NPV to
the Government are Option 1 - CNY 1,825 million (NPV - CNY 1,037 million), Option 2 - CNY 1,950 million
(NPV - CNY 1,107 million), and Option 3 - CNY 2,320 million (NPV - CNY 1,308 million). Detailed financial
projections for each of the three options are available in the project files but have not been disclosed here
per the request from the client and authorities, in order to protect information for the PPP procurement
process.
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ANNEX 6: GENDER INCLUSION AND CITIZEN ENGAGEMENT PLAN
COUNTRY: People's Republic of China
Sichuan Water Supply and Sanitation PPP Project
Overview
1. Global experience has clearly demonstrated the critical role of community participation in the
success and sustainability of water and sanitation programs. Citizen engagement in the planning and
implementation of programs is important to build a sense of local ownership and willingness to adopt and
pay for connections for improved water and wastewater systems, properly care for household sinks and
toilets, empty septic tanks routinely, and change hygiene behavior. It is also important to ensure that
citizen engagement is inclusive, particularly for women because they play critical roles in management of
household water and sanitation. Women’s voices are seldom heard in planning for water and sanitation
development, particularly in rural areas where women have lower levels of education and fewer
opportunities for earning income. Few women play leading roles in local governance particularly related
to infrastructure. The SIA for this project found that women in the project area are less informed than
men about water and sanitation projects.
2. The project’s GI&CE plan provides a road map for raising awareness among both women and men
in project communities about the risks of using borehole water and of improperly disposing of waste. This
will be achieved through a BCC designed by the Project Company’s consultant and carried out by local
grassroots organizations, including women’s organizations. The plan also provides a road map for gender
inclusion and women’s empowerment, by engaging community members, a majority of whom will be
women, and 60 percent of the group leaders will be women, in monitoring customer satisfaction with the
Project Company’s actions to minimize the impacts of construction and, after construction, the quality of
water and sanitation service provision. The reports of these committees will inform the Results
Framework and the Project Company KPIs. In addition, it calls for the creation of customer
relations/customer service mechanisms within the Project Company, including establishment of a
customer relations officer, setting up a customer call center, and setting up a smartphone application as
a convenient means for customers, particularly women, to ask questions about billing and service, request
repairs, report problems, and provide feedback on the services. The public relations officer will also attend
selected BCC events to answer customer questions and receive feedback on the quality of services. It also
calls for the establishment of a social focal point in the PMO who will have oversight on GI&CE activities.
Scope of the GI&CE Activities
Workplan and Time Line
3. The Project Company will develop a workplan and time line for the BCC and customer relations
mechanisms. The PMO social focal point will review the plan to ensure that it meets the requirements of
the Results Framework. The village committee leaders will review the plan and time line to ensure that
they will respond to the needs and schedules of the community members.
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Behavior Change Communication Campaign on WSS Connections, Household Maintenance, and Hygiene
4. The Project Company will hire a BCC consultant to develop a BCC strategy and campaign package
appropriate for the project beneficiaries. The package will incorporate international best practices in
WASH BCC (World Bank Water and Sanitation Program, International Red Cross, World Health
Organization, UNICEF, and so on) and adapt existing materials, messages, and participatory activities (for
example, use of song, drama, and games) to the needs, concerns, and levels of education of the project
beneficiaries. The consultant will consult with village committees to ensure that the proposed messages,
participatory activities, and materials will be understandable and motivating to all of their community
members. The BCC consultant will also train village committee representatives and grassroots
organization leaders on the content of the BCC package and effective, participatory methods for behavior
change communication. The BCC consultant will provide advice and technical support to the grassroots
organizations during the first year of the BCC as needed. The Project Company will be responsible for the
quality oversight for the BCC package and the quality and completeness of the training and technical
support provided by their BCC consultant.
5. Development of the WASH BCC strategy and campaign package will begin as soon as the PPP
contract is awarded. The BCC will continue through the end of the construction phase (five years).
6. The WASH BCC will focus on increasing community households’ understanding of the importance
of and promoting behavior change on connection to safe water, connection to wastewater systems (or
routine septic tank septage removal), good practices to care for and avoid clogging drains or damaging
water and sanitation equipment within the home, and good hygiene practices for water and sanitation
(for example, hand washing, handling and disposal of infant fecal material, and cleaning toilet area).
7. The PMO social focal point and the village committees will provide support in identifying
grassroots organizations for training and implementing the WASH BCC and mobilizing community
members to participate in the BCC activities. Special outreach will be undertaken by the village
committees and grassroots organizations to ensure women’s participation. Local opinion leaders (for
example, village committee members, teachers, and grassroots organization leaders) will be encouraged
to participate in the BCC events and mobilize others to join them. The results of the BCC activities led by
the company will be measured by the numbers of connections to safe tap water and to wastewater.
Community Monitoring of the Quality of the WSS Service Delivery
8. Village committees in each participating village will appoint five-person community monitoring
groups to monitor community satisfaction with WSS conditions and services. The PMO social focal point
will assist the village committees in establishing the village service delivery monitoring groups and their
leaders. A minimum of three women will participate in each monitoring group. Through the customer
service data collection activity, the group will represent the community regarding customer satisfaction
with the performance of the Project Company.
9. The purpose of these groups is to conduct customer satisfaction assessment using scorecards or
simple surveys with community members and summarize the findings, broken down by male and female
respondents, and report then to the village committee who will send them to the PMO and the Project
Company. These community satisfaction data will be used by the Project Company to improve service and
by the PMO for monitoring the customer satisfaction indicator in the Results Framework.
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10. Clear, measurable, and easy-to-understand criteria for assessing customer satisfaction will be
developed in collaboration with community representatives and PMO WSS specialists to ensure that the
wording will be understandable for community members and that the criteria for water and wastewater
or septic tank services is consistent with the Results Framework indicators (for example, (a) for
construction period - the Project Company actions to reduce noise, air, land, and water pollution from
construction, traffic and road safety issues and (b) for service delivery - adequacy of water pressure;
continuous or interrupted service; water quality—smell, color, and clearness; response time for service
requests (unclogging sewer pipes, emptying septic tanks, and repairing water pipes); responses to
customer questions about billing and service; and so on). The PMO social focal point will be responsible
for finalizing the customer satisfaction scorecard that will be used in all of the villages.
11. The PMO social focal point will provide technical support and capacity building to the village
committees on forming the monitoring groups and training to collect customer satisfaction data and
summarize the findings, disaggregated by male and female responses. These monitoring data are part of
the project Results Framework. The PMO and village committees will be responsible for the supervision
and quality of the monitoring work.
12. The Project Company will pay a fee for this reporting to the village committees who will pay the
members of the monitoring group for their work. Payment will be 50 percent in advance, and the
remainder will be paid after the completed community satisfaction checklist/survey report is submitted.
The monitoring groups will be required to collect customer satisfaction responses from at least 50 percent
of the members of each community.
13. The scorecard or simple survey data will be administered by the monitoring group two times per
year during years 2–6 of the project, and once per year during the period after the sixth year. During years
2–4, the focus will be on construction issues. In year 5, the focus will be on both construction and service
delivery. From year 6 onward, the focus will be on service delivery.
Project Company Customer Relations Mechanisms
14. The Project Company will establish a customer relations office with staff. A customer relations
officer will coordinate with the PMO social focal point on citizen engagement activities.
15. The customer relations officer will oversee the development of effective mechanisms for
customer feedback and questions including, but not limited to, a mobile phone application based
feedback mechanism, following the approach used in the World Bank’s Zhejiang Rural Water Supply and
Sanitation Project (P133018), and a telephone call center to enable community members to ask questions
about services and billing, request repairs, voice complaints, and make suggestions for improving services.
16. The Project Company customer database will include time-stamped customer requests,
(disaggregated by male and female) and dated responses to customers, as well as customer feedback on
services, which will be reported annually. Special efforts will be made to seek feedback from women, as
the primary managers of WASH in households. The village committee will encourage community members
to provide feedback to the Project Company, particularly women.
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Table 6.1. Roles and Responsibilities for GI&CE Activities
Community
Members and
Contract Company PMO Village Committees
Grassroots
Organizations
Activity: GI&CE planning
• Prepare a workplan and time line for GI&CE activities in • Appoint a social focal point to • Provide feedback
coordination with PMO and village committees. lead the GI&CE activity on the company
monitoring. GI&CE workplan
• Prepare a plan and time line for and time line.
the community monitoring.
• Provide feedback on contract
company GI&CE workplan and
time line.
Activity: Community monitoring of customer satisfaction
• Pay a fee per monitoring report to the village committee for • Train and provide technical • Identify five • Group collects
the work of the monitoring group. support to village committees. members of the satisfaction
• Analyze results of monitoring and report on actions to be • Organize representatives from community data from at
taken to address any issues. village committees and satisfaction survey least 50% of
monitoring groups to discuss the (at least three the
wording and completeness of the women). community—
monitoring criteria. • Train and supervise both women
• Finalize the scorecard to be used the community and men.
in all villages. monitoring group in • Group
• Supervise development of data collection. summarizes
monitoring scorecards to ensure • Guide group findings on
the outputs will be consistent analysis of the smartphone
with the Results Framework findings (breaking application and
reporting. down the results by transmits to
• Review village monitoring group male and female). the village
reports and company response. • Transmit findings to committee.
the PMO and
Project Company
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The World Bank
Sichuan Water Supply and Sanitation PPP Project (P168025)
Community
Members and
Contract Company PMO Village Committees
Grassroots
Organizations
• Submit report to independent using smartphone
engineer for the Results application.
Framework monitoring. • Pay the monitoring
• Note that TA will be required to group for their
train the social focal point and work (fee paid by
develop the application for contract company).
submitting the study findings.
Activity: BCC
Contract BCC consultant to: • Review the BCC package to ensure • Review the • Grassroots
• Adapt existing best practice WASH BCC materials, media, and the messages are consistent with campaign package groups carry
activities to Jingyang plains and mountain areas populations. government policy and project to ensure that the out the BCC at
• Develop appropriate messages for women, men, and children objectives. messages will be the village level
on benefits of safe water and wastewater system connections, understood by the with advice as
risks of not connecting, hygiene, and care and maintenance of local community. needed from
water and sanitation facilities in homes. • Identify groups the village
• Provide a BCC package to each village committee (materials, (such as social committee and
activities, and messages). organizations with a BCC contractor.
• Train groups identified by village committees to use the government
materials and activities to conduct the WASH campaign. mandate to work
• Provide technical support as needed to the groups conducting on community
the campaign during the first year of the campaign. development) to
carry out the WASH
campaign.
• Help mobilize
community
members to
participate in BCC.
• Conduct special
outreach to
encourage
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The World Bank
Sichuan Water Supply and Sanitation PPP Project (P168025)
Community
Members and
Contract Company PMO Village Committees
Grassroots
Organizations
women’s
participation.
Activity: Customer relations
• Appoint a customer relations officer who will coordinate with • Coordinate with customer • Encourage • Community
the PMO social focal point and lead customer service activities relations officer of the contract community members
of the company. company. members to provide
• Set up a call center for customer questions and complaints. provide feedback to feedback to
• Set up a smartphone application for customer questions, the contract company
complaints, repair requests, and billing and payment. company, through
• Participate in selected BCC activities to answer community particularly women. smartphone
members’ questions and seek their feedback. app and call
• Conduct special outreach to women, seeking their feedback center and
through email and other media. during BCC
• Record feedback from male and female customers and report events
to PMO and independent engineer. attended by
public relations
officer of the
contract
company.
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The World Bank
Sichuan Water Supply and Sanitation PPP Project (P168025)
ANNEX 7: PROJECT MAP
Page 87 of 87