Document of The World Bank FOR OFFICIAL USE ONLY Report No: RES18068 RESTRUCTURING PAPER ON A PROPOSED RESTRUCTURING OF THE SHANDONG CONFUCIUS AND MENCIUS CULTURAL HERITAGE CONSERVATION PROJECT LOAN NUMBER 8051-CN APPROVED ON MAY 24, 2011 TO THE PEOPLE’S REPUBLIC OF CHINA MARCH 21, 2016 Social, Urban, Rural and Resilience 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 March 21, 2016) Currency Unit = Renminbi (RMB) RMB6.50 = US$1 US$0.15 = RMB1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS CPS Country Partnership Strategy EA Environmental Assessment EMP Environmental Management Plan ISDS Integrated Safeguards Data Sheet IPF Investment Project Financing LA Loan Agreement M&E Monitoring and Evaluation MOF Ministry of Finance O&M Operation and Maintenance PA Project Agreement RAP Resettlement Action Plan PAD Project Appraisal Document PMO Project Management Office PPMO Provincial Project Management Office RAP Resettlement Action Plan RMB Renminbi SACH State Administration of Cultural Heritage SORT Systematic Operations Risk-Rating TTL Task Team Leader UNESCO United Nations Educational, Scientific, and Cultural Organization Regional Vice President: Antonella Bassani, Acting EAPVP Country Director: Bert Hofman, EACCF Global Practice Senior Director: Ede Jorge Ijjasz-Vasquez, GSURR Practice Manager: Abhas K. Jha, GSU08 Task Team Leader: Ahmed Eiweida, GSU08 Co-Task Team Leader: Guangming Yan, GSU08 2 CHINA: SHANDONG CONFUCIUS AND MENCIUS CULTURAL HERITAGE CONSERVATION PROJECT TABLE OF CONTENTS DATA SHEET ................................................................................................................................ 4 A. Summary of Proposed Changes ................................................................................................. 5 B. Project Status .............................................................................................................................. 6 C. Proposed Changes ...................................................................................................................... 6 Annex 1: Revised Results Framework .......................................................................................... 18 3 DATA SHEET China China: Shandong Confucius and Mencius Cultural Heritage Conservation Project (P120234) EAST ASIA AND PACIFIC Social, Urban, Rural and Resilience Global Practice . Report No: RES18068 . Basic Information Project ID: P120234 Lending Instrument: Specific Investment Loan Regional Vice President: Antonella Bassani Original EA Category: Partial Assessment (B) Country Director: Bert Hofman Current EA Category: Partial Assessment (B) Senior Global Practice Ede Jorge Ijjasz-Vasquez Original Approval Date: 24-May-2011 Director: Practice Abhas Kumar Jha Current Closing Date: 31-Dec-2016 Manager/Manager: Ahmed A. R. Eiweida, Team Leader(s): Guangming Yan . Borrower: People’s Republic of China Provincial Project Management Office for Shandong Confucius and Mencius Responsible Culture Heritage Conservation Project, Jinan, Shandong Province, China Agency: Municipal Project Management Office, Jining Municipality, Jining, Shandong Province, China. . Restructuring Type Form Type: Full Restructuring Paper Decision Authority: Board Approval Restructuring Level 1 Level: . Financing (as of 18-March-2016) Key Dates Approval Effectiveness Original Revised Project Ln Status Signing Date Date Date Closing Date Closing Date P120234 IBRD-80510 Effective 24-May-2011 15-Jul-2011 11-Oct-2011 31-Dec-2016 31-Dec-2016 Disbursements (in Millions) % Project Ln Status Currency Original Revised Cancelled Disbursed Undisbursed Disbursed P120234 IBRD-80510 Effective US$ 50.00 50.00 0.00 18.48 31.52 37 . 4 Policy Waivers Does the project depart from the CAS/CPF in content or in other significant Yes [ ] No [ X ] respects? Does the project require any policy waiver(s)? Yes [ ] No [ X ] . A. Summary of Proposed Changes The proposed changes are to: (i) revise the PDO to align it better with the restructured project activities; (ii) adjust the project description (drop some activities related to old city regeneration and cultural heritage conservation, add new activities and consolidate capacity building activities under one component); (iii) revise the Results Framework to better measure achievement of the PDO and introduce core sector indicators; (iv) reallocate funds among expenditure categories and increase the disbursement percentages for some categories retroactively to the date of effectiveness; (v) reduce the Borrower's contribution and the total Project cost; (vi) drop one legal covenant and revise another; (vii) update the project risk analysis and align it with Systematic Operations Risk-Rating Tool (SORT); and (viii) address discrepancies between the PAD and Loan Agreement/Project Agreement (LA/PA) related to PDO formulation and Project description. Change in Implementing Agency Yes [ ] No [ X ] Change in Project's Development Objectives Yes [ X ] No [ ] Change in Results Framework Yes [ X ] No [ ] Change in Safeguard Policies Triggered Yes [ ] No [ X ] Change of EA category Yes [ ] No [ X ] Other Changes to Safeguards Yes [ ] No [ X ] Change in Legal Covenants Yes [ X ] No [ ] Change in Loan Closing Date(s) Yes [ ] No [ X ] Cancellations Proposed Yes [ ] No [ X ] Change to Financing Plan Yes [ X ] No [ ] Change in Disbursement Arrangements Yes [ ] No [ X ] Reallocation between Disbursement Categories Yes [ X ] No [ ] Change in Disbursement Estimates Yes [ X ] No [ ] Change to Components and Cost Yes [ X ] No [ ] Change in Institutional Arrangements Yes [ ] No [ X ] Change in Financial Management Yes [ ] No [ X ] Change in Procurement Yes [ ] No [ X ] Change in Implementation Schedule Yes [ ] No [ X ] Other Change(s) Yes [ ] No [ X ] Appraisal Summary Change in Economic and Financial Analysis Yes [ X ] No [ ] Appraisal Summary Change in Technical Analysis Yes [ X ] No [ ] Appraisal Summary Change in Social Analysis Yes [ X ] No [ ] Appraisal Summary Change in Environmental Analysis Yes [ ] No [ X ] 5 Appraisal Summary Change in Risk Assessment Yes [ X ] No [ ] . B. Project Status Overall Implementation Progress. The project made slow progress during its first years of implementation and has been a problem project since June 2014. The Mid-Term Review, conducted in October 2014, defined a clear and comprehensive action plan, which have improved implementation, particularly in terms of management and tendering pending investments and institutional development activities. To date, implementation of Component A, "Cultural Heritage Conservation and Presentation", is progressing well. Good progress has been made on the conservation of cultural heritage sites, protection of ancient trees, clean-up of the moat in Ming Old City in Qufu, and Yinli River rehabilitation in Zoucheng. The conservation subprojects at the Confucius Complex in Nishan won a national award of "Top Ten Cultural Heritage Conservation Projects of 2014". Component B, "Old City Regeneration and Infrastructure Upgrading" to be amended as "Old City Infrastructure Upgrading", is being simplified to focus on infrastructure upgrading in the historic areas. Two urban redevelopment sub-components (Block A) in Qufu and Zoucheng will be dropped because i) the proposed redevelopment plan will lead to relocation of a large number of residents; ii) the redevelopment plan is not in line with good global practice; and iii) the revision and implementation of the redevelopment cannot be completed in a foreseen time. Activities under Component B are moving forward. To date, two large urban infrastructure upgrading contracts in Qufu and Zoucheng have been awarded. Almost all studies under Component C, “Manuals, Guidelines and other Assistance to Project Implementation", have been completed (including the conservation techniques for wood, color paintings, stone tablets and inscriptions, and the guidelines for historic city regeneration, planning and development control, etc.). The Cultural Heritage Management Plan has been commissioned. Given such a progress made, the project ratings will likely be upgraded once restructured. With this restructuring and the agreed action plan, project implementation can be expedited during its last year of implementation in 2016. The performance of the implementing entities has also been improving. The implementing entities PMO have been working closely with the project management consultants to expedite project implementation and monitor results. Training on project management, procurement, and financial management has been conducted. The project is in compliance with safeguards and fiduciary requirements. Audit reports have been received on time and have received clean opinions. However, given the delays caused by past performance of the project implementing agencies and the large undisbursed loan balance of US$31.52 million (63% of the loan), it is possible that the closing date may need an extension. This will be reassessed during the second half of 2016. . C. Proposed Changes . Development Objectives/Results Project Development Objectives Original PDO The project development objective is to assist Shandong Province to enhance cultural heritage 6 conservation and tourism management and development in Qufu and Zoucheng. Change in Project's Development Objectives Explanation The second half of the PDO referring to enhancement of tourism management and development was too broadly defined and not fully supported by project design. Limited activities were included in the Project design to achieve it and no indicators were included to measure it. By focusing the PDO on tourism services, the related results can be more clearly defined and measured. There was a discrepancy in the formulation of the PDO between the original PAD and LA/PA as follows: Original PDO in the PAD: To assist Shandong Province to enhance cultural heritage conservation, and tourism management and development in Qufu and Zoucheng. Original PDO in the LA and PA: To assist Shandong Province to enhance cultural heritage conservation, development and tourism management in Qufu and Zoucheng. Proposed New PDO The Project Development Objective is to assist Shandong Province to enhance cultural heritage conservation and tourism services in Project areas in Qufu and Zoucheng. Change in Results Framework Explanation: The main reasons for changes in the Results Framework are to: (a) align it better with the PDO; (b) ensure attribution to project activities; (c) include core sector indicators; and (d) reflect the revised Project scope. The revised Results Framework is attached as Annex 1. . Change in Legal Covenants Explanation: There are two proposed changes in legal covenants. The first relates to the technical solutions for conservation of wood, color paintings, and stone tablets and inscriptions in the cultural heritage assets. The original covenant (PA, Schedule, Section IV, a) required that "(i) prior to implementation of any conservation activities, to develop technical solutions acceptable to SACH and the Bank for conservation of wood, color paintings, and stone tablets and inscriptions in the cultural heritage assets; and (ii) promptly engage recognized experts and institutions to advise and guide the conservation works on site". This covenant will be dropped for the following reason. The technical solutions and conservation techniques were supposed to be provided through a study under Component C. The study was completed, reviewed by the World Bank, and considered acceptable. However, SACH indicated that it is not part of their mandate to endorse or approve recommendations of a regionally or locally conducted study on conservation techniques. It must be noted that, notwithstanding dropping this covenant, all conservation works that required SACH approvals under the Project, had obtained SACH approvals prior to implementation. The second legal covenant (PA, Schedule, Section IV, c) required that "prior to the development of the Block A and the city block containing the Gupan pond in Qufu Ming Old City, and three street blocks and Block A in Zoucheng Old City, submit to the Bank for review and comments, the development plan and design proposals for such blocks". This will be renumbered pursuant to the change above to become Section IV (b), and amended to read as follows: "prior to the development of the three street blocks in 7 Zoucheng Old City, submit to the Bank for review and comments, the development plan and design proposals for such blocks". This is due to the removal of Block A activities from the Project. Additionally, Annex to the Project Agreement, Schedule, regarding indicators shall be deleted in its entirety. Accordingly, PA, Schedule, Section II.A.1 shall be amended to read as follows (emphasis on the Results Framework added): "Shandong shall monitor and evaluate the progress of the Project and prepare Project Reports for the Project in accordance with the provisions of Section 5.08(b) of the General Conditions and on the basis of the Results Framework. Each such Project Report shall cover the period of one (1) calendar semester, and shall be furnished to the Bank by March 15 and September 15 each year, starting March 15, 2012". Finance Ln Agreement Description of Covenant Date Due Status Recurrent Frequency Action Reference Finance Agreement: Project Agreement (PA), Schedule, Section I, Part C, para 3. Description: Maintain IBRD- Complied No policies and procedures 80510 with Change for M&E; prepare semi- annual progress reports on status of compliance with EMPs and RAPs. Frequency: Yearly Finance Agreement: PA, Schedule, Section II, Part A, para 1. Description: Shandong IBRD- shall monitor and evaluate Complied No 80510 project progress and with Change prepare project reports semi-annually starting March 15, 2012. Frequency: Semi Annual Finance Agreement: PA, Schedule, Section II, Part After IBRD- A, para 2. delay, No 80510 Description: Carry out complied Change mid-term review. with Due Date: 15-Sep-2014 Finance Agreement: PA, Schedule, Section II, Part B, para 2. After IBRD- Description: Have delay, No 80510 financial statements complied Change audited by independent with auditors and submit audits to Bank six months after 8 close of monitoring period. Frequency: Yearly Finance Agreement: PA, Schedule, Section IV, para (a). Description: Prior to implementation of conservation activities, Marked IBRD- Complied develop technical for 80510 with solutions acceptable to Deletion SACH and Bank and engage experts & institutions for guidance at work sites. Frequency: Yearly Finance Agreement: PA, Schedule, Section IV, para (b). Description: Issue Partially IBRD- No regulations adopting the complied 80510 Change guidelines for old cities with regeneration and development control. Due Date: 01-Jan-2012 Finance Agreement: PA, Schedule, Section IV, para (c). Description: Prior to development of Block A and city block with Partially IBRD- Gupan pond in Qufu and complied Revised 80510 3 blocks and Block A of with Zoucheng, submit for review development plan and design proposals for such blocks. Frequency: Yearly Finance Agreement: PA, Schedule, Section IV, para (c). Description: Prior to the development of the city Partially IBRD- block with Gupan pond in complied Proposed 80510 Qufu Ming Old City, and with the Three Street Blocks in Zoucheng Old City, submit to the Bank for review and comments, the 9 development plan and design proposals for such blocks. Finance Agreement: PA, Schedule, Section IV, para (d). Description: Starting Jan. 1, 2012, each year, increase respective annual IBRD- budget provisions for Complied No 80510 operation and with Change maintenance of cultural heritage in Qufu & Zoucheng by at least 10%, with 2011 as baseline. Frequency: Yearly . Financing Change to Financing Plan Explanation: The total project cost shall be reduced (without reducing the loan amount) due to the cancellation of certain activities related to urban regeneration subprojects (i.e., urban redevelopment of Block A in the Ming Old City; remodeling of private houses and infrastructure improvements in Block A and the Gupan pond block; urban redevelopment of three street blocks and Block A in the Zoucheng Old City, including remodeling of private houses, construction of infrastructure of firefighting facilities, archway, and reconstruction of Mencius primary school). Source(s) At Approval Current Proposed BORR 80,780,000.00 80,780,000 36,562,670 IBRD 50,000,000.00 50,000,000 50,000,000 Total 130,780,000.00 130,780,000 86,562,670 Change in Disbursement Arrangements Explanation: There are no proposed changes in the current disbursement arrangements. Reallocations Explanation: There are two proposed changes: a) to reallocate the Loan proceeds among the disbursement categories due to the revised Project activities and to combine some categories; and b) to increase the disbursement percentages retroactively to the effectiveness date for all categories to 100%, except for Part B4 under Category 2, which will continue to be financed at 66%. This is to solve the shortage of counterpart funding. Current Category of Disbursement % Ln/Cr/TF Currency Allocation Expenditure (Type Total) 10 Current Proposed Current Proposed IBRD-80510 US$ Goods 6,190,000 7,280,000 100.00 100.00 CW Pt. B.2 5,350,000 3,147,000 80.00 100.00 CW Pt.B.5.2 260,000 0.00 100.00 100.00 CW Pt.A.1 to A.3,B.1 14,395,000 15,335,000 70.00 100.00 CW Pt.A.4, B.3 21,760,000 13,442,000 66.00 100.00 CW Pt. B.4 0.00 6,955,000 0.00 66.00 CS, Train, Tour B5 (a) 150,000 563,000 50.00 100.00 and D5 CS, Train, Tour C1 to C6, D1, D2 and all 1,770,000 3,153,000 100.00 100.00 other Parts of the Project Designated Account 0.00 0.00 0.00 0.00 FRONT END FEE 125,000 125,000 0.00 0.00 Total: 50,000,000 50,000,000 Disbursement Estimates Change in Disbursement Estimates Explanation: Changes in the disbursement schedule reflect early implementation delays, reductions in the project scope and the financing changes described above. Fiscal Year Current (US$) Proposed (US$) 2011 0.00 0.00 2012 2,000,000.00 5,000,000 2013 5,000,000.00 0.00 2014 8,000,000.00 846,801 2015 10,000,000.00 6,159,592 2016 15,000,000.00 24,119,561 2017 10,000,000.00 13,874,046 Total 50,000,000.00 50,000,000 . Components Change to Components and Cost Explanation: Changes by component and subcomponents are described below: Component A. "Cultural Heritage Conservation and Presentation". 11 A1 "Conservation of cultural heritage assets in Qufu Confucius Complex and the Nishan Mountain including, inter alia, conservation of the Confucius temple, mansion and cemetery buildings, traditional pavements, gardens, stone tablets and inscriptions, modification works for adaptive reuse of heritage buildings; conservation of the Nishan mountain buildings, and slope protection for ancient trees". The subcomponent shall be amended. Due to late approval by SACH, the subproject related to the construction of gardens shall be canceled as it cannot be completed by the Loan closing date. A2 "Conservation of cultural heritage assets in the Ming Old City in Qufu including, inter alia, selected historic mansions and buildings, archways, ancient wells, ancient trees, and stone tablets and inscriptions". The subcomponent shall be amended. Part of the subprojects shall be canceled, including archways (did not obtain SACH approval), ancient wells, ancient trees (funded by domestic funding), stone tablets and inscriptions. A3 "Conservation, management and display of cultural heritage assets in the Lu Old City in Qufu including, inter alia, conservation of stone inscriptions, traditional roads, and walkways; protection and display of ancient city moat and wall; rehabilitation of rivers; and construction of wooden walkways, rest areas and sanitation facilities". The subcomponent shall be amended. Part of the subprojects shall be canceled, including conservation of traditional roads; river rehabilitation; and construction of wooden walkways, due to changes in the overall design of the old city walls to be conserved. A4 "Conservation of cultural heritage assets in Zoucheng Old City including, inter alia, conservation of the Mencius temple, mansion and cemetery buildings, traditional pavements, gardens and ancient trees; restoration of the cemetery boundary wall; modification works for adaptive reuse of heritage buildings; construction of a visitor center and parking lot; installation of safety and surveillance systems; and rehabilitation of Xishantou village infrastructure including roads, water supply, drainage, sanitation facilities and street lighting". The subcomponent shall be amended. Part of the subprojects shall be canceled, including construction of gardens, water supply, and sanitation facilities related to the rehabilitation of Xishantou Village infrastructure. River rehabilitation in Xishantou Village shall be added. Exhibits and displays at Mencius Museum shall also be added as per Zoucheng's request. A5 "(a) Provision of signage, interpretation and digital displays in Qufu and Zoucheng including inter alia, sound guiding systems, roads and street signs, descriptions and explanations of significance of cultural heritage assets, directions to other heritage sites and resting areas, production and distribution of brochures and promotional materials, interactive digital display systems. (b) Development of a digital display system in Confucius Academy to depict and disseminate Confucius’ teachings": No changes Component B. "Old City Regeneration and Infrastructure Upgrading" shall be amended to "Old City Infrastructure Upgrading". The subcomponents will be revised as follows: B1 "Carrying out of urban improvements in the Ming Old City in Qufu including, inter alia, urban redevelopment of Block A in the Ming Old City, renewal of all trunk infrastructure in the eastern zone of the Ming Old City, remodeling of private houses, and infrastructure improvements in Block A and the Gupan pond block, and construction of firefighting facilities". This subcomponent shall be amended to read as follows: "Carrying out of urban improvements in the Ming Old City in Qufu, including, inter alia, renewal of trunk infrastructure, and construction of firefighting facilities in the eastern zone of the Ming Old City". The following subcomponents shall be canceled: (i) Urban redevelopment of Block A in the Ming Old 12 City, and (ii) remodeling of private houses and infrastructure improvements in Block A and the Gupan pond block. For (i), cancellation is due to the deficiency in the proposed design, which involved the resettlement and relocation of a large number of households, and a proposed large-scale redevelopment. Given the shortage of time and the need for an extensive community consultation and compliance with UNESCO requirements for the buffer zone development, this subcomponent is dropped. For (ii), cancellation is due to the fact that no conclusions are expected to be drawn by the UNESCO World Heritage Committee at its 40th session in 2016 regarding the proposed redevelopment. It is, hence, unrealistic to utilize World Bank financing for this subcomponent before Loan closing. B2 "Rehabilitation of the city moat and Gupan Pond water system in the Ming Old City in Qufu, including diversion of water from the Si River, and landscaping and river course rehabilitation". This subcomponent shall be amended. The rehabilitation of the Gupan Pond water system in the Mind Old City in Qufu shall be dropped for the same reason as (ii) above. B3 "Carrying out of urban improvements in the Zoucheng Old City, including urban redevelopment of three (3) street blocks; urban redevelopment of Block A in the Zoucheng Old City including remodeling of private houses, construction of infrastructure and firefighting facilities; construction of archways; and reconstruction of the Mencius primary school". This subcomponent shall be amended. The following subprojects shall be canceled: (i) urban redevelopment of Block A in Zoucheng Old City, for the same reason as Block A in Qufu; (ii) remodeling of private houses, due to lack of financial mechanisms to incentivize private households to participate, and appropriate institutional arrangements to operationalize it; (iii) construction of infrastructure and firefighting facilities and construction of archways; and (iv) reconstruction of the Mencius primary school, due to the consolidation of educational resources at the provincial level. B4 "Rehabilitation of the Yinli River in Zoucheng including river dredging and regulation, river bank rehabilitation including footpaths, roads, wastewater interceptors, lighting, bridge, water retention weirs, public sanitation facilities, and landscaping": No changes. B5 "Cultural heritage conservation and tourism development in Qufu and Zoucheng, using a community participation approach, through:" (a) "Training and technical assistance support for heritage-related small business development, including handcraft development, improving quality of services, and design of marketable products, for selected residents of Qufu and Zoucheng". This subcomponent shall be amended. Activities related to handicraft development and design of marketable products shall be dropped, due to lack of expertise and ownership of these activities. (b) "Conservation of privately-owned historic buildings in Qufu, including essential structural repairs to stabilize the buildings". This subcomponent shall be canceled due to the lack of financial mechanisms to incentivize private households to participate, and weak institutional arrangements to operationalize it. (c) New subcomponent B5c "Training in sustainable tourism development, marketing, and tourism management" shall be added under component B instead of component D.4, which will be canceled (see below). Component C. "Manuals, Guidelines and other Assistance to Project Implementation": No changes. Component D. "Capacity Building and Assistance to Project Implementation". 13 D1 "assistance for design reviews, Project management and monitoring": No changes. D2 "assistance for preparation of a management plan for the World Heritage Site and sites on the Tentative List". This subcomponent shall be amended to drop part related to the tentative list This is due to the counterpart's decision not to include the Mencius complex in the UNESCO tentative list for World Heritage Sites. D3 "training and exchange program on cultural heritage conservation for staff of cultural heritage conservation agencies in Qufu and Zoucheng". This subcomponent shall be merged with subcomponent D5, in order to streamline Project design and implementation, and shall read as set out in for D5 below. D4 "training in sustainable tourism development, marketing, and tourism management" shall be merged with subcomponent B5 (as a new a subcomponent B5c above) in order to consolidate Project design, streamline implementation and avoid duplication. D5 "training and study tours for Project related capacity building" shall be amended to support training and study tours for Project related capacity building, including training and exchange program on cultural heritage conservation for staff of cultural heritage conservation agencies in Qufu and Zoucheng. D6 "provision of institutional support for the Project through acquisition of office equipments" shall be amended to correct the word “equipment". New D7 subcomponent "provision of consultants’ services to assist in external monitoring of resettlement in Qufu" shall be added to support the counterparts with better monitoring of resettlement, including improved practice of grievance redress mechanisms. Current Component Proposed Component Current Cost Proposed Cost Action Name Name (US$ M) (US$ M) Cultural Heritage Conservation and 25.42 22.18 Revised Presentation Historical City Old City Infrastructure Regeneration and 103.10 60.74 Revised Upgrading Infrastructure Upgrading Manuals, Guidelines and Other Assistance to 0.97 1.11 Revised Project Implementation Capacity Building and Assistance to Project 1.39 2.53 Revised Implementation Total: 130.88 86.56 . Appraisal Summary Appraisal Summary Change in Economic and Financial Analysis Explanation: 14 The original economic analysis for the project considered five benefit streams– three areas of anticipated benefits (tourism revenue, increased real estate values, and willingness to pay), and two areas of expected costs (capital investment and O&M). In the project restructuring, these benefit streams remain unchanged. Based on data collected as part of the project’s M&E, the Project is on track to achieve its projected benefits despite its reduced overall cost. The number of cultural heritage sites conserved under this project has remained the same as at appraisal, though some small sub-activities will be canceled. Activities that improve tourism infrastructure and services (e.g., visitor center, parking lot, digital display, signs, guiding systems) remain unchanged. The exhibits and displays at the Mencius Museum will be added. Activities in urban regeneration will be simplified to focus on infrastructure upgrading in the historic blocks. The main economic benefits from this project come from increased tourism revenue and real estate values. The numbers of tourists and the tourism revenues in Qufu and Zoucheng have significantly grown in recent years. In Qufu, the number of tourists increased from 8.7 million in 2010 to 16.4 million in 2014; and tourism revenues increased from US$1.1 billion in 2010 to US$2.1 billion in 2014. In Zoucheng, the number of tourists increased from 1.2 million in 2010 to 2.3 million in 2014; and tourism revenues increased from US$ 291 million in 2010 to US$ 567 million in 2014. The weighted average tourist satisfaction rate in these two cities has increased from 48% in 2010 to 78.8% in 2015. As of January 2016, 28 out of the 41 heritage sites have been conserved, which improved the heritage assets and tourism attractions of the two cities. The conserved heritage sites, improved tourism, and the ongoing urban infrastructure upgrading in the old cities (e.g., turning the Yinli River from a drainage ditch to a recreational urban landscape) under this project have contributed to the increased real estate values in the old cities. The average real estate value increased in Qufu from US$ 426/sq.m in 2010 to US$ 639/sq.m in 2014, and in Zoucheng, from US$ 489/sq.m in 2010 to US$ 693/sq.m in 2014. The proposed new activity at the Mencius Museum will further enhance the presentation of the Mencius heritage; and, thus, increased tourist satisfaction and spending. The capital investment of this project will decrease from US$130.78 million to US$86.56 million mainly due to the simplified activities of urban regeneration. The O&M cost for the heritage sites will not be influenced by the restructuring. Overall, the economic benefits from the project will not be significantly influenced by the restructuring, and the cost will be reduced. The restructuring will not reduce the economic returns. A socio-economic impact evaluation has been launched with the restructuring, which will further assess the benefits to local communities brought by the project. A post-investment cost-benefit analysis will also be conducted as part of the project’s Implementation Completion Report (ICR). Appraisal Summary Change in Technical Analysis Explanation: The new activities related to river rehabilitation in Xishantou Village, exhibits and displays at Mencius Museum, and the provision of consultants' services to assist in external monitoring of resettlement in Qufu have been appraised by the Bank team and found to be appropriate to be included in the project and relevant to the achievement of the PDO. Appraisal Summary Change in Social Safeguards 15 Explanation: The restructuring will reduce anticipated negative livelihoods impacts due to cancellation of a series of construction activities. The only new activity that will have an impact on livelihoods is the conservation and display of the northwestern part of city wall of Lu Old City in Qufu. This activity will require renting of 93mu collective land affecting 28 people from eight households, and removal of two enterprises, affecting 13 people. An abbreviated Resettlement Action Plan (RAP) has been prepared to guide the land renting and enterprise removal. The rate for land renting will be based on local average land production values, and compensation will be paid to the two enterprises based on local standards, which will allow them to fully recover their losses. The abbreviated RAP was locally disclosed on July 9, 2015, and disclosed at InfoShop on December 31, 2015. The ISDS has been updated and approved. Appraisal Summary Change in Environmental Analysis Explanation: The additional civil works will not change the Environmental Category nor trigger any new environmental policy. The existing safeguard instruments are adequate to mitigate the potential environmental impacts. Appraisal Summary Change in Risk Assessment Explanation: The political and governance risk is adjusted to Low instead of Moderate due to the local government’s enhanced commitment to the project. The macroeconomic risk is now rated as Moderate instead of Low, reflecting the potential impact of the economic slowdown and new fiscal rules on the provision of counterpart funds, especially for investment projects financed at the municipal and provisional levels. The sector strategies and policies risk is reduced from Substantial to Moderate. The national and provincial policy environment has been improving to be aligned with the global good practices. The technical design risk is reduced from Substantial to Moderate due to the reduced and streamlined project scope, especially for urban regeneration activities. The institutional capacity for implementation and sustainability risk is reduced from High to Substantial. Despite the on-the-job training in the past few years, which has strengthened the capacity of PMOs and PIUs, there is a substantial institutional risk due to the involvement of several implementing entities and decision making layers. Other risk: The redevelopment plan of Gupan pond area (which is located in the buffer zone of a World Heritage Site) may pose a risk if delays in getting approvals continue, or site redevelopment does not comply with the UNESCO guidelines. As part of this restructuring, this activity would be financed out of domestic funds instead of the loan. It will be completely dropped from the project, although from a safeguards perspective the activity will remain linked to the Project and is subject to Bank supervision. . Systematic Operations Risk-Rating Tool (SORT) Risk Category Rating 1. Political and Governance Low 2. Macroeconomic Moderate 16 3. Sector Strategies and Policies Moderate 4. Technical Design of Project or Program Moderate 5. Institutional Capacity for Implementation and Sustainability Substantial 6. Fiduciary Moderate 7. Environment and Social Moderate 8. Stakeholders Low 9. Other Substantial OVERALL Substantial Explanation The Project's overall risk is reduced from High to Substantial. The two substantial risks are associated with (i) institutional capacity for implementation and sustainability; and (ii) potential other risk associated with the Gupan pond interventions on the part of the Government, notwithstanding that the project will not support any large scale, commercially-driven urban redevelopment, which may involve significant resettlement. There is a risk that the project activities may not be completed by the loan closing date. The project the closing date may need an extension. This will be assessed during the second half of 2016. 17 . Annex 1: Revised Results Framework Project Development Objectives Original Project Development Objective: The project development objective is to assist Shandong Province to enhance cultural heritage conservation and tourism management and development in Qufu and Zoucheng. Proposed Project Development Objective: The Project Development Objective is to assist Shandong Province to enhance cultural heritage conservation and tourism services in Project areas in Qufu and Zoucheng. Results Core sector indicators are considered: Yes Results reporting level: Project Level Project Development Objective Indicators Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target Revised Number of cultural heritage Number Value 0.00 30.00 41.00 sites conserved Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Comment Original # of cultural heritage sites Number Value 42.00 13.00 5.00 pending conservation Date 31-Dec-2010 31-Dec-2014 31-Dec-2016 Comment New In Qufu Number Value 0.00 18.00 23.00 Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Breakdown Comment New In Zoucheng Number Value 0.00 12.00 18.00 Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Breakdown Comment Marked for Cultural heritage sites pending Number Value 24.00 12.00 4.00 18 Deletion conservation at Qufu Sub Type Supplemental Marked for Cultural heritage sites pending Number Value 17.00 2.00 1.00 Deletion conservation: Zoucheng Sub Type Supplemental New Tourist satisfaction level with Percentage Value 48.00 78.8 75.00 tourism services (weighted Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 average) Comment New In Zoucheng Percentage Value 48.00 77.5 75.00 Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Breakdown Comment New In Qufu Percentage Value 48.00 79.1 75.00 Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Breakdown Comment Marked for % of local residents with access Percentage Value 0.00 0.00 80.00 Deletion to improved urban services Date 31-Dec-2014 31-Dec-2016 Comment New Direct project beneficiaries Number Value 0.00 2,139,554 2,155,000 Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Comment New % of female among non-local Percentage Value 0.00 57.3 50.00 tourists directly benefitting Sub Type from the project in Zoucheng Supplemental New % of female among non-local Percentage Value 0.00 54.7 50.00 tourists directly benefitting Sub Type 19 from the project in Qufu Supplemental New Number of non-local tourists Number Value 0.00 210,320 217,000 directly benefitting from the Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 project in Zoucheng Breakdown Comment New Number of non-local tourists Number Value 0.00 1,830,900 1,831,000 directly benefitting from the Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 project in Qufu Breakdown Comment New % of female among the total Percentage Value 0.00 42.3 42.00 residents directly benefitting Sub Type from the project in Zoucheng Supplemental New % of female among the total Percentage Value 0.00 48 48.00 residents directly benefitting Sub Type from the project in Qufu Supplemental New Number of local residents Number Value 0.00 95,734 103,000 directly benefitting from the Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 project in Zoucheng Breakdown Comment New Number of local residents Number Value 0.00 2,600 4,000 directly benefitting from the Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 project in Qufu Breakdown Comment New Female beneficiaries Percentage Value 0.00 1,163,758 1,069,180 Sub Type Supplemental Intermediate Results Indicators Status Indicator Name Core Unit of Measure Baseline Actual (Current) End Target Revised Number of cultural heritage Number Value 0.00 16.00 17.00 20 assets adaptively reused Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Comment Original # of cultural heritage assets Number Value 15.00 15.00 23.00 adaptively reused Date 31-Dec-2010 31-Dec-2014 31-Dec-2016 Comment Revised Number of cultural heritage Number Value 0.00 10.00 11.00 assets adaptively reused: Qufu Sub Type Supplemental Original # of cultural heritage assets Number Value 11.00 11.00 15.00 adaptively reused: Qufu Sub Type Supplemental Revised Number of cultural heritage Number Value 0.00 6.00 6.00 assets adaptively reused: Sub Type Zoucheng Supplemental Original # of cultural heritage assets Number Value 4.00 4.00 8.00 adaptively reused: Zoucheng Sub Type Supplemental New Roads rehabilitated – Non-rural Kilometers Value 0.00 0.00 6.30 Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Comment New In Zoucheng Kilometers Value 0.00 0.00 1.30 Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Breakdown Comment New In Qufu Kilometers Value 0.00 0.00 5.00 Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 21 Breakdown Comment Marked for Selected basic infrastructure in Percentage Value 0.00 0.00 100.00 Deletion place against the plan Date 31-Dec-2010 31-Dec-2014 31-Dec-2016 Comment New Length of river course Kilometers Value 0.00 8.30 8.30 renovated Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Comment New In Zoucheng Kilometers Value 0.00 2.90 2.90 Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Breakdown Comment New In Qufu Kilometers Value 0.00 5.40 5.40 Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Breakdown Comment Marked for Adoption of development Percentage Value 0.00 0.00 100.00 Deletion control handbook, development Date 31-Dec-2010 31-Dec-2014 31-Dec-2016 plan etc. formulated under the project Comment New Number of development Number Value 0.00 4.00 5.00 control manuals and Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 development plans prepared and duly recognized by the Comment government under the project New Number of people attending Number Value 0.00 400.00 700.00 project training and study tours Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Comment Marked for Trainees who apply the Percentage Value 0.00 0.00 90.00 Deletion knowledge learned in their Date 31-Dec-2010 31-Dec-2014 31-Dec-2016 22 daily work Comment New Number of people participating Number Value 0.00 2,387 2,400 in project consultation Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Comment New In Qufu Number Value 0.00 1,495 1,500 Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Breakdown Comment New In Zoucheng Number Value 0.00 892 900 Sub Type Date 31-Dec-2010 31-Dec-2015 31-Dec-2016 Breakdown Comment . 23