PCR: PRC: Henan Wastewater Management and Water Supply ... · Vice-President S. Groff, Operations 2...

Completion Report

Project Number: 34473 Loan Number: 2207 August 2012

People’s Republic of China: Henan Wastewater Management and Water Supply Sector Project

CURRENCY EQUIVALENTS

Currency unit – yuan (CNY)

At Appraisal At Project Completion 29 April 2005 31 December 2011

CNY1.00 = $0.1208 $0.1587 $1.00 = CNY8.2765 CNY6.3009

ABBREVIATIONS

ADB – Asian Development Bank BOD – biochemical oxygen demand BOT – build-operate-transfer COD – chemical oxygen demand EIA – environmental impact assessment EIRR – economic internal rate of return EMP – environmental management plan EMR – environmental monitoring report FIRR – financial internal rate of return HDRC – Henan Development and Reform Commission HECC – Henan Engineering Consulting Company HFD – Henan Finance Department HPG – Henan Provincial Government HPMO – Henan Project Management Office HRB – Hai River Basin M&E – monitoring and evaluation NH3-N – ammonia nitrogen O&M – operation and maintenance PIA – project implementing agency PPMS – project performance monitoring system PRC – People’s Republic of China WACC – weighted average cost of capital WSP – water supply plant WWTP – wastewater treatment plant

WEIGHTS AND MEASURES ha – hectare km – kilometer m2 – square meter m3 – cubic meter m3/day – cubic meter per day mu – a Chinese unit of measurement―1 mu = 666.67 m2

NOTE

In this report, "$" refers to US dollars.

Vice-President S. Groff, Operations 2 Director General R. Wihtol, East Asia Department (EARD) Country Director H. Sharif, Country Director, People’s Republic of China Resident Mission,

EARD Team leader Z. Niu, Senior Project Officer (Environment), EARD Team Members C. Chu, Senior Portfolio Management Officer, EARD X. Li, Associate Project Analyst, EARD Y. Song, Senior Project Officer (Resettlement), EARD F. Wang, Senior Project Officer (Financial Management), EARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1

A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 3 D. Disbursements 4 E. Project Schedule 4 F. Implementation Arrangements 4 G. Conditions and Covenants 5 H. Consultant Recruitment and Procurement 5 I. Performance of Consultants, Contractors, and Suppliers 6 J. Performance of the Borrower and the Executing Agency 6 K. Performance of the Asian Development Bank 7

III. EVALUATION OF PERFORMANCE 8 A. Relevance 8 B. Effectiveness in Achieving Outcome 8 C. Efficiency in Achieving Outcome and Outputs 9 D. Preliminary Assessment of Sustainability 10 E. Impact 11

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons 14 C. Recommendations 14

APPENDIXES 1. Project Framework 15 2. List of the Subprojects 18 3. Chronology of Major Events 19 4. Project Costs and Financing Plan 20 5. Projected and Actual Contract Awards and Disbursements 22 6. Appraisal and Actual Implementation Schedule 23 7. Organization Chart 24 8. Compliance with Loan Covenants 25 9. Civil Works and Equipment Packages 36

10. Economic Reevaluation 41 11. Financial Reevaluation 43 12. Land Acquisition and Resettlement 46 13. Environmental Impact Analysis 51 14. Social Impacts and Poverty Reduction 54

BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number

People’s Republic of China 2207 Henan Wastewater Management and Water Supply Sector Project People’s Republic of China Henan Provincial Government $100.0 million PCR: PRC 1334

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years) 8. Terms of Relending (if any) – Interest Rate – Maturity (number of years) – Grace Period (number of years) – Second-Step Borrower

21 April 2005 29 April 2005 24 October 2005 25 October 2005 09 December 2005 23 February 2006 24 May 2006 24 May 2006 0 30 June 2011 30 December 2011 1 London interbank offered rate (LIBOR) and fixed spread of 0.6% 25 5 LIBOR and fixed spread of 0.6% 25 5 Henan Provincial Government

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9. Disbursements a. Dates Initial Disbursement

05 July 2006

Final Disbursement

19 January 2012

Time Interval

66 months

Effective Date

24 May 2006

Original Closing Date

30 June 2011

Time Interval

61 months

Source: Asian Development Bank. b. Amount ($ million) Category Original

Allocation Last Revised

Allocation Amount

Disbursed Undisbursed

Balance 1. Civil works 56.5 56.0 56.0 0.0 2. Equipment 35.8 37.3 37.3 0.0 3. Capacity building 1.5 1.0 1.0 0.0 4. Unallocated 0.0 0.0 0.0 0.0 5. Interest during construction 6.2 5.7 5.7 0.0 Total 100.0 100.0 100.0 0.0

Source: Asian Development Bank. C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual

Foreign exchange cost 100.0 100.0 Local currency cost 100.0 156.4 Total 200.0 256.4

Source: Asian Development Bank.

2. Financing Plan ($ million) Cost Appraisal Estimate Actual

A. Asian Development Bank 100.0 100.0 B. Local banks' cofinancing 27.2 5.2 C. Counterpart funds 72.8 151.2 1. Central government 4.8 60.4 2. Provincial government 5.0 16.0 3. Municipal, county governments

and water companies 63.0 74.8

Total 200.0 256.4 Source: Asian Development Bank.

3. Cost Breakdown by Component ($ million)

Component Appraisal Estimate Actual Foreign Local Total Foreign Local Total

A. Base Cost 1. Representative subprojects

a. Wastewater management 32.9 34.5 67.4 40.4 61.7 102.1 b. Water supply 8.3 9.8 18.1 10.3 17.5 27.8

Subtotal (1) 41.2 44.3 85.5 50.7 79.2 129.9 2. Remaining subprojects 42.1 43.0 85.1 42.6 76.9 119.5 3. Capacity building 2.7 0.0 2.7 1.0 0.0 1.0

Subtotal (A) 86.0 87.3 173.3 94.3 156.1 250.4

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Component Appraisal Estimate Actual Foreign Local Total Foreign Local Total

B. Contingencies 1. Physical contingency 5.8 4.5 10.3 0.0 0.0 0.0 2. Price contingency 0.0 4.2 4.2 0.0 0.0 0.0

Subtotal (B) 5.8 8.7 14.5 0.0 0.0 0.0

D. Financing Charges during Implementation 8.2 4.0 12.2 5.7 0.3 6.0

Total 100.0 100.0 200.0 100.0 156.4 256.4 Source: Asian Development Bank.

4. Project Schedule Item Appraisal Estimate Actual Project inception May 2006 March 2006 Wastewater management Land acquisition and resettlement completion August 2007 November 2007 Engineering design completion March 2007 June 2007 First civil works bid approval August 2006 November 2006 First equipment bid approval May 2007 April 2007 Completion of WWTP construction November 2010 June 2008 Wastewater treatment plant commissioning January 2009 June 2008 Water supply Land acquisition and resettlement completion August 2007 December 2008 Engineering design completion March 2007 March 2007 Construction start January 2006 April 2006 Water supply plant commissioning January 2009 July 2008 Capacity building Establishment of water company July 2005 July 2005 Training start July 2005 January 2005 PPMS establishment January 2006 October 2006 First environmental monitoring report January 2006 December 2006 Consultant mobilization September 2006 September 2006

PPMS = project performance monitoring system, WWTP = wastewater treatment plant. Source: Henan Provincial Government. 5. Project Performance Report Ratings

Implementation Period Ratings

Impact and Outcome Implementation Progress From 1 June to 31 December 2006 Satisfactory Satisfactory From 1 January to 31 December 2007 Satisfactory Satisfactory From 1 January to 31 December 2008 Satisfactory Satisfactory From 1 January to 31 December 2009 Satisfactory Satisfactory From 1 January to 31 December 2010 Satisfactory Satisfactory From 1 January to 31 December 2011 Satisfactory Highly Satisfactory


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D. Data on Asian Development Bank Missions

Name of Mission Date Number of Persons

Number of Person-Days

Specialization of Members

Inception 19–31 Mar 2006 4 38 a, b, c, d Loan review 14–18 Aug 2006 7 35 a, b, c(2), d, e, f Loan review 25 Oct–03 Nov 2006 4 35 b(2), c, g Loan review 25 Jun–04 Jul 2007 4 22 a, b, h, i Environmental safeguard review

15–18 Oct 2007 2 8 j, k

Loan review 21–25 Jan 2008 1 5 b Midterm review 24–28 Nov 2008 3 15 b, c, l Loan review 7–11 Dec 2009 3 15 b, c, l Loan review 29 Nov–3 Dec 2010 3 15 b, c, m Loan review 25–29 Jul 2011 5 17 b, c, h, l, n Project completion review 27 Mar–1 Apr 2012 4 21 b, c, h, n

a = project specialist, b = project officer, c = project analyst, d = procurement officer, e = resettlement specialist, f = disbursement analyst, g = administrative assistant, h = resettlement officer, i = control officer, j = environment specialist, k = environment officer, l = financial officer, m = environment specialist (consultant), n = project management officer Source: Asian Development Bank

I. PROJECT DESCRIPTION

1. Henan province is in the central part of the People’s Republic of China (PRC). According to the sixth national population census conducted in 2010, Henan had a population of 94 million and was one of the PRC’s three largest provinces in terms of population. In 2010, Henan’s annual average gross domestic product per capita was CNY21,073—below the national average of CNY29,992. Henan province has 110 counties and county-level cities, of which 58 counties were classified as national or provincial key poverty counties. Seventeen county-level cities are in the upper reach of the Hai River Basin (HRB). The urbanization rate of this region was 31% in 2005. This region was heavily polluted by domestic and industrial wastewater. The polluted surface water contaminated shallow groundwater sources, on which a significant proportion of urban and rural residents depended for drinking water. However, the environmental infrastructure and services were insufficient and failed to keep up with the region’s rapidly growing economy, and to meet the public need for a good living environment. The project was therefore designed to (i) increase wastewater collection and treatment, (ii) provide adequate public water supplies, and (iii) improve the quality of surface and groundwater in and downstream of the project cities. The project impact was to improve the urban environment and public health of residents in the southern part of the HRB. 2. This was the first loan project funded by the Asian Development Bank (ADB) to support county-level wastewater management and water supply, and was also ADB’s first project using the sector loan modality in the urban sector in the PRC. The project comprised (i) a wastewater management component comprising 15 subprojects to develop wastewater treatment plants (WWTPs) and associated sewer connections, (ii) a water supply component of four subprojects to build water supply plants (WSPs) and pipelines, and (iii) an institutional capacity-building component covering a combination of consulting services and various training programs. The project framework is in Appendix 1. 3. The Henan Provincial Government (HPG) was the executing agency, acting through the Henan Finance Department (HFD). The Henan project management office (HPMO) under HFD coordinated overall project management and administration. For each subproject, the local wastewater management or water supply company was the project implementing agency (PIA) looking after day-to-day subproject administration.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. The project was consistent with ADB’s country strategy for the urban sector in the PRC, which included (i) supporting sustainable urban development and environmental management through its operations in water supply and wastewater management, (ii) focusing on small cities and townships, (iii) taking a river-basin-based approach to wastewater management projects to solve water pollution issues systematically, (iv) striving to achieve a wastewater treatment ratio in all cities of 70%, and (v) improving water and wastewater companies' management and governance capacity. The project was designed to improve the urban environment and public health in the southern part of the HRB through developing wastewater management and water supply facilities. This was ADB’s first loan project focusing on small-city wastewater management and water supply in the PRC. It improved significantly the operational capacity of water companies and strengthened the enabling environment for wastewater management in project cities and counties. With the project’s support, the wastewater treatment rate in the project cities reached 75%–90% in 2011.

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5. The project was highly relevant and consistent with the strategies of the central government to prevent and control water pollution in the HRB. The national and Henan provincial plans for the HRB set key objectives: (i) improve the environmental quality in drinking-water areas and transboundary river sections, (ii) increase the treatment rate of urban wastewater, and (iii) reduce the gross amount of water pollutants.1 HPG committed to reduce the chemical oxygen demand (COD) amount in the HRB by 12.8% by 2010 (from its 2005 level) and required that all counties had at least one WWTP by 2007. The project supported HPG in achieving its targets of developing the county WWTPs. Wastewater facilities built under the project contributed over 95% to the reduction of water pollutants in the project counties. 6. The project was formulated in line with the national and provincial water pollution control plans for the HRB. Counties to be involved in the project were selected based on their environmental infrastructure deficiencies and local government’s interest and commitment. The project adopted a sector loan approach in view of the many small but similar subprojects and the government’s tight schedule to have WWTPs constructed by 2007. HPG proposed 19 subprojects—15 for wastewater management and 4 for water supply in 15 counties in the HRB (Appendix 2). During appraisal, ADB reviewed 8 of the 19 candidate subprojects, representing four municipalities, to demonstrate the approaches and procedures of subproject selection and appraisal. The remaining 11 subprojects were reviewed and approved along the agreed criteria and procedures. The feasibility study for each remaining subproject was prepared by the participating county and municipality and included the environmental impact assessment (EIA) and resettlement plan. HPMO was responsible for subproject appraisal and engaged the Henan Engineering Consulting Company (HECC), a subsidiary organization of the Henan Development and Reform Commission (HDRC), to undertake detailed appraisal. HDRC prepared a subproject appraisal report for consideration by HPG. 7. During project preparation, a summary EIA covering 8 representative core subprojects was prepared in accordance with ADB’s Environmental Assessment Guidelines (2003). The EIAs for the remaining subprojects were approved by the municipal or provincial environmental protection bureaus during 2004–2007. The summary EIA for the remaining subprojects was prepared by HPMO following the format for the representative core subprojects and was confirmed by the Henan Environment Protection Department in May 2006. The project loan was approved on 9 December 2005 and became effective on 24 May 2006. Appendix 3 presents the chronology of the project’s major events. B. Project Outputs

8. Wastewater management component. This component constructed 14 WWTPs with a total treatment capacity of 565,000 cubic meters per day (m3/day), or 96% of the planned capacity, in 14 counties or cities. 2 About 692.2 kilometers (km) of intercepting or trunk sewers—103% of the planned sewers—were built in 15 counties or cities. Also, a total capacity of 100,000 m3/day of water recycling was established to reuse reclaimed water at Anyang Zongcun WWTP. A demonstration sludge treatment plant with a capacity of 30 tons per day was

1 (i) The national Eleventh Five-Year Plan to Prevent and Control Water Pollution in the Hai River Basin (HRB),

2006–2010; (ii) the Henan Provincial Eleventh Five-Year Plan for Environmental Protection, 2006–2010; and (iii) the Henan Provincial Eleventh Five-Year Plan for Water Pollution Prevention and Control of the HRB, 2006–2010.

2 A capacity of 50,000 m3/day was planned for Linzhou WWTP at appraisal. During implementation, a capacity of 25,000 m3/day was built as approved by the HDRC according to the updated government program. The additional capacity will be built using domestic funds during the 12th Five-Year Plan. Puyang WWTP built sewer systems of a total collection capacity of 50,000 m3/day to use the existing Puyang City WWTP for treatment, which has a capacity of 100,000 m3/day and was built before the project.

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constructed in Yanjin and became the first county-level sludge treatment plant in Henan province. The deviations from the length of the sewer systems estimated at appraisal reflect the updates based on the detailed engineering design. The deviations from the treatment capacity estimated at appraisal involved Linzhou and Puyang WWTPs and resulted from the revisions of the provincial government's development plans that HDRC had approved. The deviations did not affect overall project costs and expected subproject benefits, but rather boosted the project’s effectiveness. 9. Water supply component. This comprised four subprojects that built a total water supply capacity of 150,000 m3/day, or 100% of what had been planned, and 257.7 km of water supply distribution pipelines, or 112% of the planned amount.3 Twenty-four wells were built to provide raw water for the Qingfeng WSP. The longer water supply pipelines were constructed to meet the needs of updated urban development plans of the project counties and cities. All WSPs are in operation. 10. Institutional capacity building. The planned consulting services were recruited in a timely manner and completed effectively. In total, the project engaged 16 person-months of international and 89 person-months of national consulting services through three packages. A total of 39,080 person-months of training was also carried out under the project. HFD organized 26 training workshops for project managers, PIA staff, and local officials covering wastewater management, environmental protection, resettlement, financial management, auditing, and public consultation. The PIAs also organized their own training and study tours covering wastewater management, WWTP operation, public health, environmental management, accounting, and financial management. The consulting services and training programs proved very effective in building the capacity of water companies and local government agencies. Over 95% of staff obtained the necessary skills through these activities. Each local government established an adequately staffed entity that manages and operates the WWTP or WSP constructed under the project. 11. Comprehensive public awareness activities were carried out and well received by local water users, covering public health, water saving, environmental education, and gender equity. Water-saving brochures were prepared and disseminated. A plan for public awareness and participation in wastewater management and sustainable development in Henan province was formulated and disseminated to the public. Participatory workshops were conducted for local water users on water environment and health. Site visits to water plants were organized for local school students. An international study tour to the Netherlands was undertaken to learn wastewater management and WWTP operation. International training was held in the United States to learn good practices of financial and economic management of social infrastructures. C. Project Costs

12. The actual total project costs were $256.4 million, which was $56.4 million (or 28%) higher than the $200.0 million estimate at appraisal.4 The increased project costs were caused mainly by significant appreciation of the local currency (about 23%) during the project implementation period. The increased length of sewer and water supply pipeline networks also added to the overall project costs. Appendix 4 presents a detailed comparison of the project costs at appraisal and completion.

3 The Puyang water supply subproject comprised only the pipelines. 4 At appraisal, the exchange rate was $1.00 = CNY8.08; at project completion, it was $1.00 = CNY6.30.

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13. At appraisal, ADB would provide $100.0 million, 50% of the total project costs, to cover 100% of the foreign exchange cost. The balance of the project costs covering 100% of local currency would be financed by counterpart funding, of which $27.2 million equivalent or 14% of the total project costs would be from domestic banks. At completion, the proposed ADB loan proceeds of $100.0 million were fully utilized. The counterpart funds (from the central and local governments) covered $151.2 million. The balance of $5.2 million equivalent was financed using domestic bank loans. Less domestic loan financing than estimated was used because the central government provided national debt funds to support the development of wastewater treatment facilities in Henan province. The detailed financing plan at appraisal and actual financing sources are in Appendix 4. D. Disbursements

14. The loan of $100.0 million was fully disbursed, from July 2006 to January 2012. Liquidating the imprest account took five months after the loan closing date. During implementation, various disbursement procedures were used for the withdrawal of loan proceeds, i.e., reimbursement, direct payment, imprest account, and statement of expenditures. By the loan closing date of 31 December 2011, ADB had approved 172 contract awards totaling $102.6 million equivalent, of which $62.4 million was for civil works, $38.9 million for equipment and materials, and $1.3 million for institutional capacity building. Of the $100.0 million disbursed, $56.0 million was for civil works, $37.3 million for equipment and materials, $1.0 million for capacity building, and $5.7 million for interest during construction and commitment charges. Appendix 5 lists the updated contract awards and disbursement. E. Project Schedule

15. ADB approved the loan on 9 December 2005. The loan agreement was signed on 23 February 2006 and the loan became effective on 24 May 2006. Civil works construction began for some subprojects in the fourth quarter of 2005 using government counterpart funds. The land acquisition and resettlement activities started in 2005 and were mostly completed in 2007. The first contract award using national competitive bidding was approved by ADB on 2 September 2006. The first contract award using international competitive bidding was approved by ADB on 16 March 2007. The first batch of consulting services was fielded in October 2006 to help HPMO establish the project performance monitoring system (PPMS) and contract management system. The recruitment of loan implementation consultants was completed in September 2007 and the consultant team was fielded in October 2007. Training and institutional capacity building began at project startup and was carried out during implementation according to the training plan that ADB had approved. Most of the WWTPs and WSPs were under commissioning in late 2008. The whole project was completed in December 2011. The appraisal and actual implementation schedule is in Appendix 6. F. Implementation Arrangements

16. HPG was the executing agency acting through HFD. A provincial leading group was established in 2005 to oversee preparation and implementation of the whole project. The group provided overall guidance, assisted interagency coordination, and supported implementation.5 HPMO under HFD was responsible for overall project coordination and for communications with

5 The leading group was headed by the executive vice governor of HPG and comprised representatives from the

Henan Development and Reform Commission; the provincial departments of agriculture; construction; finance; forestry; and water resources; and the provincial bureaus of statistics and poverty reduction.

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local project management offices and PIAs. HPMO and HFD’s international division coordinated overall project administration effectively, including disbursement, procurement, consultant management, institutional capacity development, project monitoring and reporting, and auditing. Each of the four prefectural cities established a project coordination office to oversee implementation within its jurisdictional coverage. Each city or county also had a leading group and project management office to coordinate and oversee subproject implementation. Each county or city PIA, i.e., the local wastewater management or water supply company, carried out the day-to-day subproject administration effectively. Each company is responsible for WWTP or WSP operation on behalf of the county or city. The organizational structure is in Appendix 7. 17. Three counties—Bo’ai, Neihuang, and Wuzhi—also tried to adopt a build-operate-transfer (BOT) modality and contracted private companies to construct the WWTPs. However, the local governments carried out insufficient due diligence of the contracted companies, due to their limited capacity. Eventually, the BOT contracts were terminated during implementation, because the contracted companies could not provide adequate counterpart financing. G. Conditions and Covenants

18. None of the loan covenants was modified or waived during implementation. All covenants were fully complied with, except for the covenants on closure of groundwater wells and annual review of wastewater tariffs and cost recovery, which were partially complied with. The loan became effective on 24 May 2006, within 90 days of the loan signing on 23 February 2006. The relending and onlending agreements were readily executed. HPG and the local governments as well as the water companies provided adequate local-currency counterpart funds and disbursed them in a timely manner to enable the completion of project activities. Each local government established a water company with adequate and capable staff to manage and operate the WWTP or WSP constructed. Land acquisition and resettlement activities were carried out in line with the resettlement plans and ADB’s Involuntary Resettlement Policy (1995). During implementation, the central government's and ADB’s environmental review procedures and guidelines were strictly followed, and effective measures were taken to mitigate adverse environmental impacts. Audited accounts and financial statements were submitted to ADB in a timely manner. The PPMS was established at the beginning of the project and updated periodically to ensure efficient monitoring. Public awareness activities promoting public health, water saving, environmental education, and gender equity were undertaken and well received by local water users. In particular, a plan for public awareness and participation in wastewater management and sustainable development was well prepared and disseminated successfully. The status of compliance with loan covenants is in Appendix 8. H. Consultant Recruitment and Procurement

19. During implementation, three packages of consulting services were recruited: (i) two individual consultants for 2 person-months of international and 3 person-months of national inputs to support HPMO in establishing the PPMS and baseline database; (ii) an international wastewater technical advisor for 2 person-months to assist PIAs in reviewing and improving the technical design of their subprojects; and (iii) loan implementation consulting services through a firm for 12 person-months of international and 86 person-months of national inputs to provide technical support and advice on implementation matters. Packages (i) and (ii) were recruited on an individual basis, and package (iii) was recruited through a firm using the quality- and cost-based selection method with simplified technical proposals in accordance with ADB’s Guidelines on the Use of Consultants (2005, as amended from time to time).

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20. Procurement of all contract packages followed ADB's Procurement Guidelines. HFD engaged three domestic tendering companies to assist in procurement. In the bidding documents and contracts, relevant sections of ADB's Anticorruption Policy (1998, as amended to date) were incorporated and implemented. In addition, domestically prevailing anticorruption practices were widely applied in civil works construction during implementation through a separate integrity and anticorruption contract. No advance contracting and retroactive financing was applied, although the loan agreement included such provisions. A detailed list of procurement packages is in Appendix 9. I. Performance of Consultants, Contractors, and Suppliers

21. The consultants engaged under the project performed satisfactorily. Two individual project management experts engaged at the beginning supported HPMO effectively in establishing the PPMS and baseline database. An international wastewater expert helped the PIAs review and refine the WWTP technical design and gave lectures on state-of-the-art approaches and technologies in wastewater management, for the water companies and local government agencies. The consulting firm provided comprehensive technical advice and assisted HPMO in conducting capacity building productively. In particular, the consulting firm helped (i) design a franchise model agreement that was adopted by Weihui, Changyuan, and Huojia WWTPs and showcased very promising operational approaches to ensure WWTP sustainability; (ii) develop a plan for public awareness and participation in wastewater management and sustainable development; and (iii) set up a financial management system for water companies. All consulting services were delivered effectively and productively and were highly appreciated by HFD and the PIAs. 22. Design institutes carried out the technical design of the subprojects in line with national standards and specifications. Efficiency of the design was acceptable and post-design services were provided in a timely manner. HECC was engaged to undertake appraisals of the subprojects and develop the project feasibility study report and foreign capital utilization plan. The efficient work by HECC secured the required domestic approvals promptly. National consultants engaged for external monitoring and evaluation of resettlement and environmental impacts performed well. 23. All contractors fulfilled their contractual responsibilities and organized construction activities and compliance equipment well. The works were completed according to design, contract requirements, and technical specifications. The equipment suppliers performed their contractual obligations effectively, delivering equipment on time and installing it properly, and gave local project staff the necessary technical training and services. J. Performance of the Borrower and the Executing Agency

24. The borrower, the Ministry of Finance, signed the loan agreement on 23 February 2006, 2.5 months after ADB Board approval, and it took about 3 months to complete the requirements for loan effectiveness, which was on 24 May 2006. The time from loan approval to loan signing and from loan signing to loan effectiveness was shorter than the average of ADB’s portfolio in the PRC.6 HPG had a strong institutional setup and provided adequate funds and policies to ensure successful project implementation. HPMO under HFD had previously implemented

6 In 2009, ADB's portfolio in the PRC showed an average of 5.1 months from loan approval to loan signing, and of

3.7 months from loan signing to loan effectiveness.

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projects financed by ADB and the World Bank. It was thus familiar with ADB’s procedures and policies and was able to manage project implementation effectively. 25. The project was implemented according to the arrangements envisaged at appraisal. All covenants were fully complied with, except for the covenants on closure of groundwater wells and annual review of wastewater tariffs and cost recovery, which were partially complied with. Self-supplied groundwater wells were closed in most project counties, except Qingfeng and Puyang. Each project county applies three different wastewater tariff levels, for domestic, industrial, and commercial users. The wastewater revenues are transferred to the local finance bureau, which then distributes the funds to the wastewater company according to the operational performance and budget. The standard wastewater tariff regime was set by HPG in 2005 and no adjustments have been made since. HPG is reviewing tariffs and plans to adjust these during the Twelfth Five-Year Plan (2011–2015). 26. The borrower and the executing agency provided adequate and timely counterpart financing. Land acquisition and resettlement were implemented in accordance with the resettlement plans and ADB’s Involuntary Resettlement Policy (1995). The environmental management plan (EMP) was implemented effectively during construction, and adverse environmental impacts were mitigated adequately. Capacity-building measures focused on counties as envisaged at appraisal and proved very productive in terms of (i) effective implementation of subprojects, (ii) more efficient financial management and operational capacity, (iii) stronger staff and institutional capacity of local water companies,7 and (iv) good operational performance as shown in cost effectiveness and sound environmental management. HPG and the local governments’ continuous commitment will ensure sustainable operation of WWTPs and WSPs in the long run. Overall, the performance of the borrower and the executing agency is rated satisfactory. K. Performance of the Asian Development Bank

27. ADB’s performance is rated highly satisfactory. ADB conducted 11 review missions during implementation, including the midterm review mission. HFD viewed ADB’s review and supervision of project implementation as productive and timely. In particular, the review mission in June 2007 conducted high-profile policy dialogue with the vice governor of HPG and gained strong high-level support for the project. ADB’s response to the inquiries and requests of HFD and the PIAs was prompt and constructive. HFD and the PIAs appreciated ADB’s advice and cooperation in resolving implementation issues, particularly in responding to HPG’s request to adjust the scope of several subprojects to reflect immediate and actual needs of local development. The adjustments optimized the project resources and boosted project outcomes. 28. ADB provided adequate advisory support during project implementation. At the beginning of project construction, an international wastewater expert was engaged and provided timely technical advice and training for the participating water companies to refine and improve engineering design and technical approach. Supported by the project, a demonstration sludge treatment plant was established in Yanjin county, the first county sludge treatment operation in Henan province. HPG promptly showcased it as an environmentally friendly and sustainable approach to managing sludge from county WWTPs. ADB also funded a study on operational mechanisms to support county-level sustainable wastewater management, whose

7 For example, two company managers of Weihui and Yanjin WWTPs trained through the project have been

appointed by the municipal government as wastewater advisors to provide review and advice on construction of new wastewater treatment plants in other cities and counties.

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recommendations were taken up by HPG. The study involved 3 person-months of consultant input that were funded through a technical assistance.8

III. EVALUATION OF PERFORMANCE

A. Relevance

29. The project is rated highly relevant. It was highly relevant to the government strategies to prevent and control water pollution in the HRB at appraisal and completion. The project contributed to the PRC's Eleventh Five-Year Plan for HRB Water Pollution Control, 2006–2010, which aimed to (i) improve the environmental quality in drinking-water areas and transboundary river sections, (ii) increase the urban wastewater treatment ratio, and (iii) reduce water pollution. The project also contributed directly to the Henan Provincial Eleventh Five-Year Plan for Environmental Protection, 2006–2010 by reducing the gross amount of water pollutants and by establishing county WWTPs. On average, wastewater facilities constructed under the project contributed over 95% to the reduction of water pollutants in the project counties. The project played a leading role in the campaign for sound wastewater management in the project counties and cities. With the project's support, the first county sludge treatment plant was built in Henan province, which HPG showcased as an environmentally friendly and sustainable approach to managing sludge from county WWTPs. This initiative fits in well with HPG’s Twelfth Five-Year Plan for Social and Economic Development, 2011–2015, which set the objective of having sludge treatment plants established in all its counties or cities by 2013. 30. The project was consistent with ADB’s country strategy for the PRC urban sector.9 The project was designed to improve the urban environment and public health in the southern part of the HRB by developing wastewater management and water supply facilities. The project was ADB’s first sector loan project in the PRC to support development of wastewater management and water supply in small cities. The project has significantly improved the operational capacity of water companies and strengthened the enabling environment for wastewater management in project cities and counties. With the project’s support, the wastewater treatment rate in the project cities reached 75%–90% in 2011. B. Effectiveness in Achieving Outcome

31. The project is rated highly effective. Its outputs (wastewater treatment and water supply, and institutional capacity building) were implemented successfully and to a high technical standard. Its outcome (strengthened wastewater management and water supply in 15 project counties and cities) was fully achieved. The institutional capacity of the participating water companies and public awareness of health and environmental issues in the project area have improved significantly. 32. Wastewater management. Fourteen WWTPs were built with a total treatment capacity of 565,000 m3/day (footnote 2). Totally, 692.2 km of intercepting or trunk sewers were constructed in 15 project counties and cities. All WWTPs were completed ahead of schedule

8 ADB. 2007. Technical Assistance to the People's Republic of China for Operational Capacity Development and

Value Addition. Manila. 9 ADB’s urban sector strategy includes: (i) supporting sustainable urban development and environmental

management through its operations in water supply and wastewater management, (ii) focusing on small cities and townships, (iii) taking a river-basin-based approach to wastewater management projects to solve water pollution issues systematically, (iv) striving to achieve a wastewater treatment ratio in all cities of 70%, and (v) improving water and wastewater companies’ management and governance capacity

9

and became operational in 2008. As a result, the wastewater treatment rate reached 85% in municipal cities and 80% in counties or county cities of the project area, higher than the targets at appraisal. These facilities have contributed to the reduction in 2011 of 36,774 tons of COD, 10% more than the annual COD reduction target set at appraisal; 3,667 tons of ammonia nitrogen (NH3-N); and 11,364 tons of biochemical oxygen demand (BOD) in project cities or counties.10 All WWTPs met the Class I-B standard of water quality according to the PRC's National Standard of Pollutants for Municipal Wastewater Treatment Plant Discharge (GB 18918-2002). All sludge is being reused or disposed of after dewatering in compliance with national and provincial regulations. Also, a total capacity of 100,000 m3/day of water recycling was built to reuse reclaimed water at Anyang WWTP. A demonstration sludge treatment plant was constructed with a treatment capacity of 30 tons/day in Yanjin, which HPG has used as a showcase for treating and reusing sludge in counties in an environmentally friendly manner. The operational efficiency of the 15 project WWTPs is above the average level of the 104 WWTPs in Henan province. Automatic central control systems were installed in all project WWTPs. 33. Water supply. Three WSPs and 257.7 km of water supply pipelines were constructed in four project cities (footnote 3). The total water supply capacity has reached 150,000 m3/day. All WSPs are operational and provide 0.6 million urban residents with uninterrupted supply of potable water that meets PRC quality standards for drinking water. 34. Institutional capacity building. All consulting services were recruited in a timely manner and delivered effectively. Technical assistance by the consultants helped HFD and the PIAs to undertake capacity building activities productively. Training was carried out that amounted to 39,080 person-months and improved the institutional capacity of local government agencies and water companies. Each local government established a financially and managerially autonomous company to manage and operate the project WWTP or WSP. All WWTP and WSP companies developed operational procedures and established financial control and management systems. Public awareness programs were implemented effectively and significantly improved people's knowledge of health and environmental issues. C. Efficiency in Achieving Outcome and Outputs

35. The project is rated efficient. The reevaluated economic internal rate of return (EIRR) indicated that the overall project remains economically viable. The reevaluated financial internal rate of return (FIRR) also confirmed the financial viability of the project. Analysis of the PIAs' financial performance suggested that the project will be financially sustainable. 36. Economic reevaluation. The reevaluated EIRRs for the water supply subprojects ranged from 15.4% to 25.2%, higher than the appraisal estimates. The reevaluated EIRRs for the wastewater treatment subprojects ranged from 12.1% to 18.0%, generally consistent with the appraisal estimates. In total, 17 of 19 subprojects reported EIRRs higher than the economic opportunity cost of capital of 12.0%. The EIRR for the overall project is 12.9%, indicating that the overall project remains economically viable. A sensitivity analysis was carried out to test the impacts of an increase in operation and maintenance (O&M) costs, decrease in benefits, and a combination of the two scenarios. The results showed that the project would continue to be economically viable under all sensitivity scenarios. The economic reevaluation is in Appendix 10. 37. Financial reevaluation. The recalculated FIRR for the water supply subprojects ranged from 8.8% to 10.4%. Two subprojects reported slightly lower FIRRs than the appraisal estimate

10 No reduction targets for ammonia nitrogen and biological oxygen demand were set at appraisal.

10

mainly because their operational capacity is yet to reach the design capacity due to inadequate piped connection and distribution to end-users, and to the existence of self-supplied groundwater wells in the two counties. The financial viability of the water supply component was confirmed, as the recalculated FIRR is higher than the weighted average cost of capital (WACC). 38. The recalculated FIRRs for the wastewater subprojects ranged from 4.3% to 8.6%, comparable to the appraisal estimates of 5.0%–7.4%. Some WWTPs reported relatively lower FIRRs mainly because their operational capacity had not fully reached the design capacity. In addition, treated water is yet to be reused commercially, which can considerably contribute to water companies’ revenues. The WACC was recalculated as 3.6%. The FIRRs are higher than the WACC, indicating the financial viability of the wastewater subprojects. 39. The analysis of the financial performance of the PIAs showed that the debt rates of most subprojects have been in a range of 30%–50%, lower than the appraisal estimate of 70%. The financial performance of the project is confirmed as acceptable. The financial reevaluation results are in Appendix 11. D. Preliminary Assessment of Sustainability

40. The project is rated likely sustainable. The WWTPs and WSPs were well designed and constructed to a high technical standard. Associated sewer systems and water pipelines were planned and integrated closely with the project cities’ updated plans for urban development and thus ensure sufficient wastewater collection and treatment to support sustainable urbanization. All WWTPs were installed with online metering and closed-circuit television systems to monitor the real-time volume and water quality at the plant. The monitoring systems are connected to the central supervision system in the Henan Urban and Rural Development Department and the provincial environment protection bureau to ensure consistent efficiency of WWTP operations.

41. With the project's assistance, the water companies established adequate institutional and financial management capacity to operate the WWTPs or WSPs effectively. The managers and technicians were well trained. A demonstration sludge treatment plant was established to showcase sustainable approaches to treating and reusing WWTP sludge. Three WWTPs adopted the service agreement model developed under the project and showed promising operational efficiency. Both the water supply and wastewater components were confirmed in financial and economic terms. The FIRR recalculated for the project is higher than the WACC. The financial analysis showed a well-controlled debt ratio. Furthermore, stormwater management facilities and facilities that reuse WWTP effluents will be extensively developed in the project counties according to local governments' development plans. The secondary and tertiary sewer connections will also be expanded significantly to improve the wastewater collection ratio. With these measures, the county WWTPs' operational capacity will be further boosted to ensure financial and operational sustainability. 42. HPG and the local governments set wastewater management and water supply as top local priorities for (i) achieving a better environment and better public health in line with the government agenda for a harmonious and moderately prosperous (xiaokang) society, (ii) fulfilling obligations to reduce the water pollution load in the HRB within its jurisdictional boundary, and (iii) creating necessary social infrastructure to attract investments for economic growth. HPG is strongly committed to wastewater management. It established regulatory and policy instruments to provide an enabling environment that ensures sustainable operation of WWTPs and WSPs. For example, HPG issued a series of policies and administrative guidelines for WWTP operation, such as Schemes to Ensure Operations of Wastewater Facilities released

11

in March 2009 and Operational Performance Evaluation Standards of Urban WWTPs released in August 2009. All these measures will ensure sustainable operation of the project WWTPs. 43. To strengthen wastewater management further, HPG in its Twelfth Five-Year Plan, 2011–2015 set the targets for the wastewater treatment rate at above 85% for counties and 90% for municipalities, and aims to treat WWTP sludge completely within the counties in an environmentally friendly manner by 2015. Furthermore, the plan commits to improving sewer networks in counties and to steadily closing self-supplied groundwater wells. HPG allocated substantial financial resources and established a high-level leading group to implement the plan. These efforts will further strengthen the sustainability of WWTPs and WSPs. E. Impact

44. The project has created significant social and environmental benefits in the project cities and counties, and had positive impacts on poverty reduction. The institutional capacity-building activities supported by the project strengthened public awareness of health and environment and generated a strong base for sound environmental management. Adverse environmental impacts during construction were minor and were mitigated adequately. Safeguard measures for land acquisition and resettlement were implemented effectively. 45. Land acquisition and resettlement. The project permanently acquired 1,066.1 mu (71.1 ha) of land,11 8.2% less than the 1,160.8 mu (77.4 ha) estimated at appraisal, and temporarily used 1,026.9 mu (68.5 ha) of land, 49.8% less than the 1,930.7 mu (128.7 ha) estimated.12 About 81% of the land lost permanently was farmland. This was also less than estimated in the approved resettlement plans because wasteland was used for some new sites. The project demolished a total of only 560 m2 of buildings, much less than anticipated. In fact, no residential houses were demolished because detailed design was able to avoid such impacts. A total of 2,354 rural people were affected by land acquisition. The average land loss was 0.4 mu (266.7 m2) per capita. 46. Land acquisition and resettlement was managed effectively and in accordance with the approved resettlement plans, ADB’s Involuntary Resettlement Policy (1995), the Land Administration Law of the PRC, and the rules and regulations of the provincial and municipal governments. Actual compensation rates were higher than those indicated in the resettlement plans in most project counties. However, the total cost for land acquisition and resettlement was 9.9% lower than estimated because of less farmland acquisition and house demolition that resulted from optimizing WWTP sites, construction design, and schemes. 47. During implementation, HPMO supervised overall land acquisition and resettlement for the project while the PIAs were responsible for implementing the resettlement plan and coordinating land acquisition for each subproject. HPMO engaged the National Research Center for Resettlement in Hohai University to carry out the independent monitoring and evaluation (M&E) of the resettlement activities during 2005–2008. Given that most land acquisition and resettlement was completed by 2008, the M&E reports were updated with the assistance of the loan implementation consultants from 2009 onward. During implementation, eight M&E reports were prepared and submitted to ADB to report the smooth implementation of resettlement activities.

11 A mu is a Chinese unit of measurement—1 mu = 666.67 square meters. 12 Mostly due to the Qingfeng water supply subproject, of which the actual temporary land acquisition was 80% less

than the planned due to the length reduction of water pipelines.

12

48. The resettlement process included extensive consultation and transparent information disclosure. All affected people were made aware of the land compensation rates. The resettlement compensation scheme mainly involved land reallocation and/or monetary compensation. In some subproject counties, the contracted and reserved land was redistributed to the whole village or the affected villager’s group to ease the impact of losing land and balance the amount of per capita cultivated land. Meanwhile, different schemes for income restoration were adopted, including (i) skills training for farmer and migrant labor, (ii) employment under project construction and operation, and (iii) other livelihood-restoring subsidies from the local government. The monitoring reports gave detailed evidence of livelihood rehabilitation measures in affected villages and confirmed that the income levels of affected people were fully restored and even exceeded the pre-project levels. Issues reflected in the M&E reports were adequately addressed. Appendix 12 presents the land acquisition and resettlement specifics. 49. Environmental impact. During construction, the environmental management plans (EMPs) for each subproject were implemented generally well. Mitigation measures proposed in the subproject EMPs were undertaken effectively. No major adverse environmental effects were caused by project-related construction. Each water company applies sound environmental management systems in accordance with the subproject EMP and maintains a good environmental performance. All WWTPs have met the water quality standards that apply to urban wastewater plants' effluent discharge. Sludge produced from the project WWTPs is reused or disposed of after dewatering in compliance with government regulations. Real-time monitoring facilities are installed at inlets and outlets to record and report water quality to the provincial wastewater monitoring system. 50. The project engendered significant environmental benefits in terms of reduction in COD, NH3-N, and BOD. Based on government surveys and reports in 2011, total pollution loads were lowered by reducing 36,774 tons of COD, 3,667 tons of NH3-N, and 11,364 tons of BOD. The reduction of COD represents 110% of the annual reduction target set by the summary environmental impact assessment. On average, wastewater facilities built under the project have contributed over 95% to the total reduction amount in the project cities and counties. The project ensured an uninterrupted supply of potable water to about 0.6 million urban residents and contributed to a significant reduction in the incidence of serious waterborne diseases in the project cities and counties. 51. During implementation, HPMO coordinated the overall environmental management for the project. Project management offices within counties and cities supervised and coordinated the environmental management for each subproject. Local environmental monitoring stations were engaged to conduct compliance monitoring covering air quality, noise level, and water quality, as per government laws and regulations. The loan implementation consultants assisted HFD in conducting project monitoring for the implementation of the EMPs. HFD submitted eight environmental monitoring reports (EMRs)—five semiannual reports from 2006 to 2008, and three annual reports during 2009–2011. Five EMRs were uploaded to ADB's website for information disclosure. A consolidated environmental review report was prepared for the project completion review with assistance from external consultants. All subprojects have passed the government's environmental completion review and acceptance. A comprehensive environmental analysis is in Appendix 13. 52. Socioeconomic impact. The project generated largely positive social impacts. The improvement of wastewater treatment and collection, and protection of raw water supplies directly and indirectly benefited a total population of about 2.55 million people in 15 project cities and counties. The project has contributed to a better living environment for local residents.

13

53. The project effectively contributed to poverty reduction in the project area by (i) reducing the incidence of waterborne disease, cost of medical care, and sick days taken, thus lowering household health expenditures; (ii) providing safer and more reliable urban water supplies; (iii) improving the life quality of the urban poor by eliminating uncollected sewage in poor neighborhoods and improving water quality in urban drainage channels; and (iv) providing jobs for the poor during construction and operation. From 2004 to 2010, the total number of the urban poor decreased by 13.8%, according to Henan provincial yearly statistics of social and economic development. All project cities implemented a water tariff reduction for poor households through various social support programs. 54. The project improved public health significantly by reducing the incidence of waterborne diseases through better water supply and wastewater management services. The incidence of serious waterborne diseases in the project cities decreased by 26.5% during 2007–2010. The improvement in public health reduced household spending on medical care, leaving more disposable income, and minimized the incidence of diseases that may cause poverty. The project provided about 15,000 jobs for local residents during construction and operation, of which about 17.2% were for the poor and 13.1% for women. Various public awareness and education programs were conducted that considerably improved the local residents’ awareness of environment and health, water saving, proper wastewater management, and active public participation in wastewater management. Appendix 14 summarizes the social impacts of the project and its contribution to poverty reduction.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

55. The project is rated successful. It was implemented effectively as planned and all project outputs were completed as envisaged at appraisal. The project outcome was successfully achieved and the long-term objectives are very likely to be achieved. The project (i) increased collection and treatment of urban wastewater in 15 cities and counties; (ii) established adequate water supply facilities that provide stable and good-quality water; (iii) improved institutional capacity of county and municipal water companies; (iv) contributed significantly to the reduction of COD, BOD and NH3-N in project cities; and (v) improved public awareness of health and environment. The implementation arrangements were effective. Of the 19 subprojects, 90% were completed ahead of schedule. The costs were well managed and the project was completed within budget. The environmental impacts were effectively mitigated and consulting services effectively delivered. Land acquisition and resettlement impacts were minimized through effective implementation of the resettlement plans. Initial operation of WWTPs and WSPs demonstrated that the project is financially sustainable and economically viable. The provincial and local governments strongly committed to taking ongoing, effective measures to ensure sustainable operation of the project WWTPs and WSPs. 56. In addition, the project played a leading role in the campaign for sound wastewater management in the project counties and cities. With the project's support, Henan province built the first county sludge treatment plant along sound environmental considerations. The project created several high-standard examples of cost and quality control during construction and high efficiency during operation of WWTPs. Compared with other plants, all WWTPs and WSPs constructed under the project were of higher construction quality. The project also incurred lower costs per unit of treatment capacity and per unit of pipe work length, as a result of competitive bidding. Sounder safeguard compliance, stricter financial management, and successful application of the PPMS strengthened the project’s impacts. Institutional capacity

14

and public awareness programs greatly improved the enabling environment for wastewater management in the project counties and cities. B. Lessons

57. At the beginning of project implementation, three local governments tried to adopt BOT modality and contracted private companies to construct the WWTPs. However, the local governments had inadequate capacity to conduct due diligence, and the contracted companies could not provide adequate counterpart financing. The unsuccessful introduction of BOT modality also showed that the capacity of individual WWTPs was too limited to ensure commercial viability. The BOT modality for WWTPs should have been carefully assessed during subproject appraisal. 58. Self-supply groundwater wells have not been closed completely as envisaged at appraisal and still exist in Qingfeng and Puyang counties. As a result, the actual operational capacity of three WSP subprojects is lower than designed. The self-supply groundwater wells also caused difficulties in collecting the wastewater tariff. Although the local and provincial governments subsidize water companies to guarantee operation of WWTPs and WSPs, the existence of self-supply groundwater wells has become a major constraint for water companies in achieving better financial performance and a viable water supply service in the longer term. HPG has considered the issues and will push ahead closure of groundwater wells effectively. C. Recommendations

1. Project Related

59. Reporting. Considering the concerns over incomplete operational capacity of several WSPs as discussed in para. 57, HFD agreed during the PCR mission in March 2012 to report to ADB annually on the (monthly) operational performance of those WWTPs and WSPs constructed under the project, covering the period from 2012 to 2013. Such reports should include information on the progress made in closing the groundwater wells in subproject counties and cities, wastewater tariff, and collection rates. 60. Timing of the project performance evaluation report. It is recommended that the project performance evaluation be conducted in 2013. The reuse of gray water in the Anyang Zongcun WWTP is also expected to be in full operation in 2012. Once all subprojects are fully operational, the impact of the project, including the economic and financial performance of its WWTPs and WSPs, can be fairly assessed.

2. General

61. During implementation, four representative core subprojects encountered difficulties as they were appraised at a time when the county government was already in the processing of developing a new plan. After loan effectiveness, the county government introduced a new urban development plan and those subprojects had to be modified accordingly. Future similar projects should ensure that subprojects are only included where no change in development plan is envisaged.

Appendix 1 15

PROJECT FRAMEWORK

Design Summary Performance Targets and Indicators

Appraisal Actual Impact Better urban environment and public health of the residents in the southern part of the Hai river basin.

Public satisfaction with the urban environment increased. Incidence of waterborne diseases reduced from 26,600 cases in 2004 to 16,000 cases in 2015. Average number of sick days per person per month attributable to waterborne diseases reduced from 15 days in 2004 to 9 days in 2015. Average amount spent per person per month attributable to waterborne diseases reduced from CNY3.0 in 2004 to CNY1.8 in 2015.

Percentage of interviewees in the project cities who expressed satisfaction with their urban environment in terms of water supply, sanitation, and waste disposal increased from 81.8% in 2007 to 92.5% in 2010. Incidence of reported waterborne diseases (dysentery, cholera, and hepatitis A) in project cities reduced from 2,926 cases in 2007 to 2,150 cases in 2010, according to the records of Henan Disease Control and Prevention Center. Average number of sick days per person (of all patients) attributable to waterborne diseases reduced to 2.3 days in 2010, according to Henan Public Health Department statistics. Average amount spent per person per month attributable to waterborne diseases reduced to CNY1.2 in 2010, according to the project performance monitoring system and social survey conducted by the executing agency.

Outcome Strengthened water supply and wastewater services in 15 project cities.

Commercial-oriented operations and financial autonomy, and full cost-recovery water tariff revenues, as well as satisfactory level of capital utilization by 2012. 0.5 million urban residents in the project cities provided with uninterrupted potable water supplies that meet PRC quality standards by 2010. Total pollution load reduced by 33,500 tons of chemical oxygen demand per year by 2010. Technical, financial, and managerial capacity of water supply and wastewater utility companies developed by 2011.

Each of the four water supply and 15 wastewater treatment subprojects is being operated by company that is financially and managerially autonomous. The reevaluation indicated that all subprojects were justified in financial and economic terms by 2011. About 0.6 million urban residents in Weihui city and Bo’ai, Qingfeng, and Puyang counties have been provided with uninterrupted supply of potable water that met the standards for drinking-water quality of the PRC by 2011. Totally, 36,774 tons of chemical oxygen demand, 11,364 tons of biochemical oxygen demand, and 3,667 tons of ammonia nitrogen were reduced in 2011 through operation of the 15 wastewater treatment subprojects. Technical, financial, and managerial capacity of water supply and wastewater utility companies has been developed sufficiently. The companies were equipped with adequate staff, proper financial management system, and office facilities. Training on project implementation and management, financial management, and operation of the utilities was provided to staff of the companies.

16 Appendix 1


Appraisal Actual Outputs 1. Increased collection and treatment of urban wastewater in the project cities.

80% of urban wastewater in municipal cities treated by 2010. All sludge used or disposed of in compliance with PRC regulations by 2010. 70% of urban wastewater in county cities treated by 2010.

In three municipal cities—Weihui, Linzhou, and Anyang—the rate of wastewater treatment exceeded 80% by 2010. The sludge from three WWTPs is reused after dewatering. Sludge from the other WWTPs is disposed of in local landfills after dewatering, in compliance with national and local regulations, since operations began in 2008. The rate of urban wastewater treatment in the project county cities exceeded 75% by 2010.

2. Adequate urban water supplies (in terms of quantity and quality) for project cities.

Total new water treatment capacity of about 150,000 m3/day available by 2008. All new water treatment plants meet PRC water quality standards by 2008.

Four water supply plants with a total water treatment capacity of 150,000 m3/day were completed and in operation by 2010. In addition, 257.7 km of water pipelines were constructed under the project. The potable water provided from the newly constructed water supply plants in the cities of Bo'ai, Weihui, Qingfeng, and Puyang met the standards for drinking-water quality of the PRC by 2011.

3. Reformed and integrated water and wastewater utilities.

Utilities all managerially autonomous by 2008. Water and wastewater services fully self-financed by 2008.

All 19 water companies that manage project utilities are financially and managerially autonomous. Water supply and wastewater services were self-financed in 2010, except for water supply in Qingfeng and Puyang counties, where the operational capacity has not reached the designed capacity due to the presence of self-supplied groundwater wells.

4. An effective WWTP operating regime introduced.

All project WWTPs meet the discharge standards since 2008. WWTPs exceed the PRC efficiency norms from 2008.

Discharged wastewater from all 15 WWTPs has been in compliance with the Discharge Standard of Pollutants for Municipal Wastewater Treatment Plant (GB 18918-2002) since 2008. The average rate of application of full load of the 15 WWTPs reached 72.1% in 2011, which was about 15.6% above the average of the104 WWTPs in Henan province. The average operational cost was lower than the average level in Henan. In addition, an autonomic central control system has been installed in the project WWTPs.

Appendix 1 17


Appraisal Actual

5. Better public awareness of health and environment.

Increased public awareness.

Public awareness programs were prepared and effectively implemented with sufficient budget support. The programs covered water-saving education, environmental protection education, and health education. The public awareness activities included dissemination of booklets to the local citizens and training of middle-school students. In addition, the local governments designated each WWTP as an environmental education base. The WWTPs in Bo'ai and Wuzhi regularly received local residents and middle-school students to learn about water environment protection.

km = kilometer, m3/day = cubic meters per day, PRC = People’s Republic of China, WWTP = wastewater treatment plant. Sources: Project performance monitoring and evaluation reports, project progress reports, and socioeconomic impact-monitoring reports.

18 Appendix 2

LIST OF THE SUBPROJECTS

No. Subproject Project Scope

Project Cost (CNY million)

Completion Year Treatment Capacity

(m3/day) Pipeline/Sewer

(km)

A. Wastewater Management Component

1 Anyang Zongcun a 100,000 91.159 300.715 2010

2 Bo'ai a 50,000 37.080 89.607 2008

3 Changyuan 30,000 42.000 77.639 2008

4 Fengqiu 30,000 18.888 66.773 2008

5 Huaxian 30,000 42.055 65.078 2007

6 Huojia 30,000 41.591 77.154 2008

7 Linzhou a 25,000 36.107 76.329 2007

8 Nanle 30,000 38.617 76.188 2008

9 Neihuang 30,000 41.954 73.365 2008

10 Puyang a 50,000 76.530 90.570 2010

11 Qingfeng 30,000 57.952 86.840 2008

12 Weihui a 50,000 50.410 132.760 2008

13 Wenxian 20,000 11.080 46.353 2008

14 Wuzhi 30,000 78.570 91.439 2008

15 Yanjin 30,000 28.160 87.681 2008

B. Water Supply Component 16 Bo'ai a 50,000 47.184 64.935 2011

17 Puyang a 40,000 87.200 54.225 2010

18 Qingfeng 30,000 72.123 53.652 2009

19 Weihui a 30,000 51.146 39.690 2007 km = kilometer, m3/day = cubic meters per day. a Representative subproject. Source: Henan Provincial Government.

Appendix 3 19

CHRONOLOGY OF MAJOR EVENTS

Date Project Events

21 January–4 February 2005 Loan fact-finding mission 13 April 2005 Management review meeting conducted 21–29 April 2005 Loan appraisal mission 24–25 October 2005 Loan negotiations 9 December 2005 Loan approval 23 February 2006 Loan signing 18–31 March 2006 Inception mission 24 May 2006 Loan effectiveness 14–19 August 2006 Loan review mission 1 September 2006 Project administration transferred to PRCM 25 October–3 November 2006 Loan review mission 29 November 2006 First national competitive bidding of civil works approved 1 March 2007 Categorization and allocation of loan proceeds approved 11 April 2007 First equipment and material package approved 25 June–4 July 2007 Loan review mission 21–25 January 2008 Loan review mission 17 April 2008 Changes in scope of Anyang Zongcun subproject

approved 24–29 November 2008 Midterm review mission 2 December 2009 HPMO restructuring acknowledged 7–11 December 2009 Loan review mission 23 November–3 December 2010 Loan review mission 7 December 2010 Extension of loan closing date by 6 months, from

30 June 2011 to 31 December 2011, and reallocation of loan proceeds approved

25–29 July 2011 Loan review mission 16 December 2011 Loan proceeds reallocation approved 31 December 2011 Loan closing date 27 March–2 April 2012 Project completion review mission PRCM = People's Republic of China Resident Mission, HPMO = Henan Project Management Office. Sources: Henan Provincial Government and Asian Development Bank.

20 Appendix 4

PROJECT COSTS AND FINANCING PLAN

Table A4.1: Project Costs by Category ($ million)

Component Appraisal Actual Foreign Local Total Foreign Local Total

A. Representative Subprojects 1. Civil works 27.1 21.8 48.9 31.2 51.6 82.8 2. Materials and equipment 14.1 0.0 14.1 19.5 5.0 24.5

3. Environmental management plan 0.0 1.2 1.2 0.0 1.9 1.9

4. Land and resettlement 0.0 7.9 7.9 0.0 5.3 5.3 5. Project management 0.0 5.3 5.3 0.0 26.7 26.7

Subtotal (A) 41.2 36.2 77.4 50.7 90.5 141.2

B. Other Subprojects, Capacity Building, and Taxes and Duties 1. Other subprojects 42.1 34.8 76.9 42.6 39.4 82.0

2. Capacity building and training a 2.7 0.0 2.7 1.0 0.0 1.0 4. Taxes and duties 0.0 16.3 16.3 0.0 26.2 26.2

Subtotal (B) 44.8 51.1 95.9 43.6 65.6 109.2 C. Contingencies

1. Physical contingency 5.8 4.5 10.3 0.0 0.0 0.0 2. Price contingency 0.0 4.2 4.2 0.0 0.0 0.0

Fixed investment cost 5.8 8.7 14.5 0.0 0.0 0.0 D. Interest During Construction

1. ADB Loan IDC 8.2 0.0 8.2 5.7 0.0 5.7 2. Other Loan IDC 0.0 4.0 4.0 0.0 0.3 0.3

Subtotal (D) 8.2 4.0 12.2 5.7 0.3 6.0

Total Project Cost 100.0 100.0 200.0 100.0 156.4 256.4 ADB = Asian Development Bank, IDC = interest during construction. a The actual costs were less than the estimate because: (i) the proposed office equipment was not purchased; (ii) the approved training activities in the training plan were partially funded through government capacity building programs; and (iii) the budget for the loan implementing consulting services was reduced due to less person-months input of national consultants. Sources: Asian Development Bank and Henan Provincial Government.

Appendix 4 21

Table A4.2: Summary Financing Plan ($ million)

Source Appraisal Estimate Actual Foreign Local Total % Foreign Local Total %

A. Asian Development Bank 100.0 0.0 100.0 50.0 100.0 0.0 100.0 39.0 B. Local banks' cofinancing 0.0 27.2 27.2 13.6 0.0 5.2 5.2 2.0 C. Counterpart funds 1. Central government 0.0 4.8 4.8 2.4 0.0 60.4 60.4 23.6 2. Provincial government 0.0 5.0 5.0 2.5 0.0 16.0 16.0 6.2 3. Municipal or county

governments and water companies

0.0 63.0 63.0 31.5 0.0 74.8 74.8 29.2

Subtotal (C) 0.0 72.8 72.8 36.4 0.0 151.2 151.2 59.0

Total 100.0 100.0 200.0 100.0 100.0 156.4 256.4 100.0 Sources: Asian Development Bank and Henan Provincial Government.

22 Appendix 5

PROJECTED AND ACTUAL CONTRACT AWARDS AND DISBURSEMENTS

Table A5.1: Projected and Actual Contract Awards ($ million)

Year Projected Awards Actual Awards Actual/Projected

(%) By Year Cumulative By Year Cumulative

2006 1.2 1.2 3.1 3.1 258 2007 30.0 31.2 50.7 55.0 169 2008 10.0 41.2 17.5 71.2 175 2009 18.0 59.2 11.1 82.3 61 2010 5.0 64.2 6.5 88.8 129 2011 3.2 64.2 13.9 102.7 439


Table A5.2: Projected and Actual Disbursements ($ million)

Year Projected Disbursements Actual Disbursements Actual/Projected

(%) By Year Cumulative By Year Cumulative

2006 0.6 0.6 8.2 8.2 1,367 2007 10.0 10.6 26.2 34.4 262 2008 30.0 40.6 22.8 57.2 76 2009 20.0 60.6 9.2 66.4 46 2010 15.0 75.6 15.6 82.0 104 2011 17.9 75.6 16.9 98.9 94


Appendix 6 23

APPRAISAL AND ACTUAL IMPLEMENTATION SCHEDULE

Q1 = first quarter, Q2 = second quarter, Q3 = third quarter, Q4 = fourth quarter. Sources: Asian Development Bank and Henan Provincial Government.

ComponentsA. Wastewater Management1. Land Acquisition

2. Resettlement

3. Design and Prepare Bidding Documents

4. Bidding and Evaluation

5. Construction and Commissioning

B. Water Supply1. Land Acquisition

2. Resettlement

3. Design and Prepare Bidding Documents

4. Bidding and Evaluation

5. Construction and Commissioning

C. Capacity Building1. Technical and Engineering Management

2. Institutional and Managerial Development

3. Financial Management

4. Operation Management

5. Resettlement Monitoring

6. Project Performance Monitoring System

7. Environmental Management and Reporting

8. Training

Appraisal Actual

Q2 Q3 Q4Q3

2005 2006 2007 2008 2011Q4Q4 Q1 Q2

20102009Q1Q2 Q3 Q4Q3 Q4 Q1 Q4 Q1Q4 Q1 Q2Q2Q1 Q3Q1 Q2 Q2 Q3 Q3

24 Appendix 7

ORGANIZATION CHART

MG = municipal government, PMO = project management office. Source: Henan Provincial Government.

Appendix 8 25

COMPLIANCE WITH LOAN COVENANTS

Covenants Reference Compliance Status

Project Management

1. HPG shall be the Project Executing Agency. The Project Leading Group, established by HPG to oversee the preparation and implementation of the overall Project, is headed by the executive Vice Governor of HPG and comprises representatives of the HP Financial Bureau, HP Development and Reform Commission, HP Construction Bureau, HP Water Resources Bureau and HEPB. The Project Leading Group shall provide overall guidance, facilitate inter-agency coordination and support the Project implementation.

LA Schedule 6, para.1 PA Schedule para. 1

Complied with. HPG was the executing agency acting through HFD. The provincial leading group was established in 2005 to oversee the preparation and implementation of the overall project. The group provided overall guidance, facilitated inter-agency coordination and supported the project implementation

2. HPMO, established by HPG, shall be responsible for overall Project coordination and for communications with the local PMOs and the Water Companies. HPMO shall be headed by a Director who shall be a director or other official of the same level of Henan Finance Bureau. Throughout the Project implementation, HPMO shall be adequately staffed with full-time qualified personnel to carry out the Project requirements. HPMO shall also be responsible for recruiting the consultants to be engaged under the Project.


Complied with. HPMO coordinated the overall project administration effectively. In 2009, HPMO was merged into the International Division of HFD due to HPG’s organizational reform and its functions were continually taken by HFD.

Implementing Agencies 3. Each Subproject shall be implemented by a Water Company

responsible for the day-to-day implementation activities including procurement of civil works and equipment, operation and maintenance of Project facilities, and debt servicing.


Complied with.

4. Each municipality involved in the Project has or will set up a municipal PMO to coordinate aspects of project preparation and implementation falling with their respective jurisdictions. Each city at county level involved in the Project has or will set up a local project leading group and a local PMO to coordinate aspects of project preparation and implementation falling within their respective jurisdictions.


Complied with. Each of four municipalities had a project coordination office to oversee the project of the counties within its jurisdictional coverage

Counterpart Funds

5. Without limiting the generality of Section 4.02 above, the Borrower, through HPG, the Local Governments and the Water Companies, shall ensure that (i) the local currency counterpart financing necessary for the Project is provided and disbursed in a timely manner to enable completion of Project activities; and (ii) additional counterpart funding (including foreign exchange) shall be provided for any shortfall of funds or cost overruns, including without limitation, those shortfalls or overruns resulting from price and/or physical contingencies.


Complied with. HPG and local governments as well as water companies provided adequate local currency counterpart funds and disbursed in a timely manner to enable completion of project activities

Material Change

6. The Borrower, through HPG and the Local Governments, shall ensure that (i) throughout the Project, no material organizational changes (either financial, operational, or structural) to, nor material asset transfers to or from the


Complied with.

26 Appendix 8


Water Companies, including changes in ownership of the Project facilities, will be formally approved or implemented without the prior approval of ADB, if such changes would affect HPG’s, any Local Government’s or any Water Company’s ability to perform their obligations under the Project Agreement or any of the Onlending Agreements; and (ii) any such changes shall be carried out in a legal and transparent manner.

Project Review 7. The Borrower and ADB shall undertake a mid-term review

two years after the commencement of Project implementation. The review will include a detailed evaluation of scope, implementation arrangements, wastewater tariffs, resettlement, achievements of scheduled targets, and progress on the agenda for policy reforms and capacity building measures.

LA Schedule 6, para.7

Complied with. The mid-term review mission was conducted in November 2008.

8. The Borrower and ADB shall jointly review Project implementation twice a year for the first two years of Project implementation and once a year thereafter.

LA Schedule 6, para.8

Complied with. Totally 10 review missions were conducted.

Project Agreement 9. In the carrying out of the Project, HPG shall employ

competent and qualified consultants and contractors, acceptable to ADB, to an extent and upon terms and conditions satisfactory to ADB.

PA Section 2.03. (a)

Complied with.

Except as ADB may otherwise agree, all goods and services to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Schedule 4 and Schedule 5 to the Loan Agreement. ADB may refuse to finance a contract where goods or services have not been procured under procedures substantially in accordance with those agreed between the Borrower and ADB or where the terms and conditions of the contract are not satisfactory to ADB.

PA Section 2.03.(b)

Complied with. All civil works, goods, consulting services and training were procured in line with ADB policies and guidelines for procurement and consultant.

10. HPG shall carry out the Project in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to ADB. HPG shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.

PA Section 2.04

Complied with.

11. HPG shall cause each Water Company to take out and maintain with responsible insurers, or make other arrangements satisfactory to ADB for, insurance of the Project facilities to such extent and against such risks and in such amounts as shall be consistent with sound practice.

PA Section 2.05.(a)

Complied with

Without limiting the generality of the foregoing, HPG undertake to insure, or cause to be insured, the goods to be imported for the Project and to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such goods.

PA Section 2.05.(b)

Complied with. Relevant provisions were included in the contracts.

Appendix 8 27

Covenants Reference Compliance Status 12. HPG shall maintain records and accounts adequate to

identify the goods and services and other items of expenditure financed out of the proceeds of the Loan to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, their operations and financial condition.

PA Section 2.06

Complied with.

13. ADB and HPG shall cooperate fully to ensure that the purposes of the Loan will be accomplished.

PA Section 2.07.(a)

Complied with.

HPG shall promptly inform ADB of any condition which interferes with, or threatens to interfere with, the progress of the Project, the performance of its obligations under this Project Agreement, or the accomplishment of the purposes of the Loan.

(PA Section 2.07.(b)

Complied with.

ADB and HPG shall from time to time, at the request of either party, exchange views through their representatives with regard to any matters relating to the Project, HPG and the Loan.

PA Section 2.07. (c)

Complied with.

14. HPG shall furnish, through HPMO, to ADB all such reports and information as ADB shall reasonably request concerning (i) the Loan and the expenditure of the proceeds thereof; (ii) the goods and services and other items of expenditure financed out of such proceeds; (iii) the Project; (iv) the administration, operations and financial condition of each Water Company; and (v) any other matters relating to the purposes of the Loan.

PA Section 2.08. (a)

Complied with. Project progress reports submitted by HPMO included adequate information related to these matters.

(b) Without limiting the generality of the foregoing, HPG shall furnish, through HPMO, to ADB quarterly reports on the execution of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following semester.

PA Section 2.08. (b)

Complied with. HPMO submitted 14 project progress reports to ADB, quarterly in 2006 and 2007 and semiannually thereafter.

Promptly after physical completion of the Project, but in any event not later than six (6) months thereafter or such later date as ADB may agree for this purpose, HPG shall prepare and furnish, through HPMO, to ADB a report, in such form and in such detail as ADB shall reasonably request, on the execution and initial operation of the Project, including a description of institutional strengthening and water sector policy reform, implementation of the wastewater management and water supply systems, benefits, beneficiary consultations, actual costs incurred in relation to cost estimates, the performance by HPG of its obligations under this Project Agreement and the accomplishment of the purposes of the Loan.

PA Section 2.08.(c)

Complied with. A comprehensive project completion report was provided to ADB in March 2012.

15. HPG shall cause each Water Company to (i) maintain separate accounts for the Project and for its overall operations; (ii) have such accounts and related financial statements (balance sheet, statement of income and

PA Section 2.09.(a)

Complied with.

28 Appendix 8


expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, promptly after their preparation but in any event not later than six (6) months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and compliance with the covenants of the Loan Agreement), all in the English language. HPG shall cause each Water Company to furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

The audited project accounts and financial statements were submitted to ADB in a timely manner.

HPG shall (i) maintain separate accounts for the Project; (ii) have such accounts audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, promptly after their preparation but in any event not later than six (6) months after the close of the fiscal year to which they relate, certified copies of such audited accounts and the report of the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and compliance with the covenants of the Loan Agreement) and a separate audit report on the use of the procedures for imprest account/statement of expenditures, all in the English language. HPG shall furnish, through HPMO, to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

PA Section 2.09.(b)

Complied with. The audited project accounts and financial statements were submitted to ADB in a timely manner.

HPG shall cause each Water Company to enable ADB, upon ADB's request, to discuss its financial statements and its financial affairs from time to time with its auditors, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of the relevant Water Company unless HPG shall otherwise agree.

PA Section 2.09.(c)

Complied with.

16. HPG shall cause each Water Company to enable ADB's representatives to inspect the Project, the goods financed out of the proceeds of the Loan, all other plants, sites, works, properties and equipment of such Water Company to the extent relevant to the Project, and any relevant records and documents.

PA Section 2.10.

Complied with.

17. HPG shall cause each Water Company to, promptly as required, take all action within its powers to maintain its corporate existence, to carry on its operations, and to acquire, maintain and renew all rights, properties, powers, privileges and franchises which are necessary in the carrying out of the Project or in the conduct of its business.

PA Section 2.11 (a)

Complied with.

HPG shall cause each Water Company to conduct, at all times, its business in accordance with sound administrative, financial, environmental and water or wastewater treatment practices, and under the supervision of competent and experienced management and personnel.

PA Section 2.11.(b)

Complied with.

Appendix 8 29


HPG shall cause each Water Company to operate and maintain, at all times, its plants, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound administrative, financial, engineering, environmental, water or wastewater treatment, and maintenance and operational practices.

PA Section 2.11.(c)

Complied with.

18. Except as ADB may otherwise agree, HPG shall not, and shall cause each Water Company not to sell, lease or otherwise dispose of any of its assets which may be required for the efficient carrying on of its operations or the disposal of which may prejudice its ability to perform satisfactorily any of its obligations under this Project Agreement.

PA Section 2.12.

Complied with.

19. Except as ADB may otherwise agree, HPG shall, and shall cause each Local Government and each Water Company to, apply the proceeds of the Loan to the financing of expenditures on the Project in accordance with the provisions of the Loan Agreement and this Project Agreement, and shall ensure that all goods and services financed out of such proceeds are used exclusively in the carrying out of the Project.

PA Section 2.13.

Complied with.

20. Except as ADB may otherwise agree, HPG shall cause each Local Governments and each Water Company to duly perform all its obligations under the relevant Onlending Agreement, and not to take, or concur in, any action which would have the effect of assigning, amending, abrogating or waiving any rights or obligations of the parties under the relevant Onlending Agreement.

PA Section 2.14.

Complied with.

21. HPG shall cause each Water Company to promptly notify ADB of any proposal to amend, suspend or repeal any provision of its charter and to afford ADB an adequate opportunity to comment on such proposal prior to taking any action thereon.

PA Section 2.15.

Complied with

Selection, Evaluation and Approval of subprojects 22. Except as ADB may otherwise agree, the Subprojects shall

be selected in accordance with the criteria set forth hereinafter. Each Subproject shall be evaluated in accordance with criteria relating to technical aspects, sustainability, environment, finance, economic, institution, resettlement, social impacts and poverty alleviation as agreed with ADB. Each participating Local Government and related Water Company shall prepare a feasibility study report which shall include an EIA, RP (if required), rationale, scope and components, technical description and analysis, cost estimates and financing plan, implementation arrangements, financial, economic, and institutional analysis including financial management assessment, and social dimensions. The consultants to be engaged under the Project and responsible staff of the local PMO will review the feasibility study report before submitting to HPMO for appraisal. HPMO shall undertake detailed appraisal of the Subprojects through the Henan Engineering Consulting Company which shall review the feasibility studies for each Subproject and prepare a Subproject appraisal report for each Subproject

PA Schedule, paras. 5-9

Complied with. All subprojects in addition to representative subprojects were selected, evaluated, and approved in line with criteria and procedures as set in the project legal documents.

30 Appendix 8


for approval by HP. The Subproject appraisal reports shall be in the format of the Subproject appraisal reports of the 8 representative Subprojects.

Wastewater and Water Supply Services Improvement 23. HPG shall cause each Local Government to implement a

discharge permit system to cover all non-domestic discharges by the end of 2007.

PA Schedule, para. 12

Complied with. HPG issued the discharge permit management measures in April 2010.

24. HPG shall cause each Wastewater Company to implement an existing sewer rehabilitation program and a long-term septic tank abandonment program for those connected to centralized system to ensure wastewater flows and quality can be enhanced for the overall sewer and WWTP system performance.


Complied with. The sewer rehabilitation had been integrated with local urban developments since 2006.

25. HPG shall cause each Water Supply Company to carry out a rehabilitation and loss reduction program on their existing water distribution system.


Complied with.

26. HPG shall ensure that each Local Government cause private operators to close their ground wells when sufficient water supply is available from the urban water supply system.


Partially complied with. Self-supplied groundwater wells were closed effectively in most of the project counties except Qingfeng, Puyang.

27. HPG shall cause each Wastewater Company to implement a long-term monitoring program for the wastewater flows and quality to ensure that the designed basis can be obtained prior to the final design and the data can be obtained for the future operation guidelines.


Complied with. Each of WWTPs has been equipped with on-line metering and closed-circuit television systems to monitor the volume and quality, which is connected to the central supervision system maintained by HEPB.

28. HPG shall ensure that for beneficial reuse of sludge produced from WWTPs, each Wastewater Company engages a qualified institute to determine if it is suitable. If the sludge is found to be of an acceptable standard, potential market will be identified for the Wastewater Company to negotiate arrangements with potential users of the sludge.


Complied with. A demonstration sludge treatment was established at Yanjin WWTP. Sludge from Weihui and Huojia WWTPs are reused. Other WWTPs will build sludge reusing treatment based on feasibilities during the 12th Five-Year Plan period (2011-2015).

29. HPG shall cause each Wastewater Company to develop and implement a connection program that shall include provisions for: (a) any new development to connect to the trunk sewer connections; (b) household connections; (c) all major industries to connect to the sewer system; and (d) poor households to connect to the sewer system.


Complied with. The connection program was formulated and integrated with local urban development plans.

30. HPG and the Local Governments shall undertake a review and revision of local regulations for management of the local wastewater/drainage systems by the end of December 2006. These regulations should include a clear assignment of responsibilities between involved agencies, and provide for effective collection of the wastewater tariff, monitoring of wastewater discharges to sewers, and regulatory control of sewer connections. The effectiveness of regulations is to be


Complied with. Institutional mandates were clearly assigned including WWTP construction, operation, sewer maintenance, tariff collection, and monitoring.

Appendix 8 31


formally reviewed every two years with relevant changes in responsibilities made ahead of wastewater treatment plant commissioning.

Implementation Arrangements 31. HPG shall ensure that the Subproject appraisal criteria and

implementation procedures agreed upon with ADB are followed, including environmental and social safeguard requirements.


Complied with.

32. HPG shall notify ADB of any proposed change in the agreed implementation arrangements, and shall seek ADB's concurrence to these before they are implemented.


Complied with.

Water Companies 33. HPG shall cause each Water Company (i) to be a properly

constituted enterprise company established under the provisions of the Borrower’s law; and (ii) to have appropriate financial and managerial autonomy.


Complied with. All 19 water companies are financially and managerially autonomous.

34. HPG shall ensure that the board of directors of each Water Company operates effectively and fully discharges its supervisory and management responsibilities. The board shall be required to meet at least monthly and shall undertake all the functions provided for in the company charter.


Complied with.

35. HPG shall cause each Water Company to appoint external auditors that are qualified to undertake company audits in the People’s Republic of China and are acceptable to ADB. An audit committee of each Water Company’s board of directors shall be established to review internal and external audit reports and to consider other issues of corporate governance.


Complied with. The auditing has been carried out regularly according to the government laws and regulations.

Land Acquisition and Resettlement 36. HPG, through the relevant Local Governments and Water

Companies, shall ensure that: (a) all land and rights-of-way required by the Project are made available in a timely manner; (b) the RPs shall be implemented promptly and efficiently in accordance with their terms, all applicable laws and regulations of the Borrower, and ADB’s Policy on Involuntary Resettlement; (c) all affected persons are given adequate opportunity to participate in resettlement planning and implementation; (d) timely provision of counterpart funds will be paid for land acquisition and resettlement activities; (e) any obligations in excess of the RP budget estimates are met; and (f) the affected persons shall be at least as well off as they would have been in the absence of the Project.


Complied with. All land acquisition and resettlement activities were undertaken effectively according to the RPs and government regulations.

37. HPG, through the relevant Local Governments and Water Companies, shall ensure that: (a) adequate staff and resources are committed to supervising and internal monitoring the implementation of each Subproject RP; (b) ADB is provided quarterly reports on resettlement implementation, and a resettlement completion report for each Subproject; (c) an independent agency, acceptable to ADB, is engaged to monitor progress semi annually and


Complied with. An external monitoring agency was engaged to monitor and evaluate the RP implementation and associate impacts. Monitoring reports were submitted timely and

32 Appendix 8


evaluate results through annual survey updates for two years after completion of resettlement, including data disaggregated by gender where applicable, and these monitoring reports are submitted to ADB and the Borrower; (d) ADB is promptly advised of any substantial changes in the resettlement impacts and, if necessary, a revised RP is submitted to ADB for its approval; (e) civil works contractors’ specifications include requirements to comply with the RPs and entitlements for permanent and temporary impacts to affected persons; and (f) the contractors are supervised to ensure compliance with requirements of the RPs, applicable law and ADB’s Policy on Involuntary Resettlement.

adequately. HPMO and county PMOs had adequate staff looking after the resettlement matters.

38. For the remaining Subprojects to be selected under the Project, HPG, through the relevant Local Governments and Water Companies, shall: (a) make all land and rights-of-way required for Subprojects available in a timely manner; (b) prepare a RP for each Subproject in consultation with the affected persons and in accordance with the RF; (c) submit the RPs to ADB for approval at least three months prior to dispossession and displacement of affected persons from their houses, and assets; (d) the RP for each Subproject shall be disclosed to the affected persons prior to its submission to ADB and shall be posted on ADB’s website upon approval by ADB; (e) implement the RPs, including the provisions for compensation and entitlements for affected persons, in accordance with ADB’s Policy on Involuntary Resettlement; and (f) compensate adequately all affected persons.


Complied with. Resettlement plans for the remaining subprojects were prepared and approved following the resettlement framework prior to commencement of the subproject construction. The land acquisition and resettlement activities were implemented effectively according to the approved resettlement plans.

Environment 39. HPG shall cause each Local Government and the Water

Companies to construct, operate, maintain, and monitor the Project facilities in strict conformity with (a) all applicable laws and regulations, including national and local regulations and standards for environmental protection, health, labor, and occupational safety; and (b) ADB’s Environment Policy and the environmental mitigation and monitoring measures detailed in the approved EIAs, SEIAs, and EMPs for the Project.


Complied with

40. HPG, through the Local Governments, shall cause the Water Companies to (i) engage an adequate number of full-time personnel, and sufficient resources to implement the environmental monitoring program, under guidance of the relevant local Environment Protection Bureau and environmental monitoring center and (ii) provide monthly monitoring reports to HPMO who shall prepare and submit to ADB semi-annual environmental reports in a format acceptable to ADB until the Loan Closing Date.


Complied with. Environment monitoring was conducted adequately and 13 environment monitoring reports were submitted.

41. HPG shall cause the Wastewater Companies to ensure that (a) the detailed designs of the WWTPs adequately address potential effluent and sludge reuse issues; (b) prior to startup of the WWTPs, measures will be completed to assure collection of wastewater from major industrial and other dischargers; and (c) arrangements will be in place for sludge disposal in accordance with the Borrower’s regulations.


Complied with. Anyang Zongcun WWTP has built effluent reusing facilities. Sludge from three WWTPs is reused. All sludge is disposed of in compliance with national and local regulations. Industrial and other wastewater is treated prior to discharge in all project counties.

Appendix 8 33

Covenants Reference Compliance Status 42. HPG shall cause each Local Government to implement its

part of the industrial pollution control plan. PA Schedule, para. 31

Complied with.

43. HPG, through the Local Governments, shall cause the Water Companies to (a) make an SEIA available to the general public at least 120 days before each Subproject is approved; and (b) for each Subproject, carry out public consultations (i) once during the early stages of the EIA field work, and (ii) once the draft EIA is available.


Complied with.

Cost Recovery 44. HPG shall cause each Local Government participating in the

Project to undertake annual reviews of wastewater tariffs/water tariffs, and to determine tariffs in accordance with project financing needs and the need to maintain the financial autonomy of the Water Companies, subject to compliance with laws and regulations of the Borrower. Tariffs shall be adjusted to ensure full recovery of operations and maintenance costs, interest charges, and the greater of depreciation or debt repayment, together with a reasonable profit margin for the Water Companies. HPG shall cause HPMO to forward summaries of these reviews to ADB within three months of completion.


Partially complied with. HPG is reviewing the tariff regime and will update according to laws and regulations while subsidizing operational costs of WWTPs partially for great public and environmental benefits delivered.

45. HPG, through each Local Government, shall ensure that no entity receiving wastewater service, whether government agency, institution, or enterprise, regardless of ownership, shall be: (a) exempted from the tariff established for each customer classification; (b) granted a preferential rate; or (c) excused for delays in payments without penalty.


Complied with. HPG has issued regulations for tariff collection and management.

46. User charge levied and collected by HPG shall not be used for purposes other than waste water or water supply activities.


Complied with.

Training

47. HPMO, in consultation with the Water Companies, to prepare and submit a training plan(s) to be implemented under the Project to ADB for review and concurrence, and shall ensure that training institutes for such purpose shall be selected in accordance with procedures acceptable to ADB. Following each training event, the Water Companies shall submit a training completion report to HPMO for consolidation and transmission to ADB.


Complied with. Totally, 39,080 person-months training were conducted according to the training plan approved by ADB.

Financial Ratios

48. Except as ADB shall otherwise agree, HPG shall ensure that, commencing from the first year of full commercial operation of the Project facilities by a Water Company, such Water Company shall not incur any debt unless a reasonable forecast of the revenues and expenditures of such Water Company shows that the estimated net revenues of such Water Company for each fiscal year during the term of the debt to be incurred shall be at least 1.2 times the estimated debt service requirements of such Water Company in such year on all debt of that Water Company including the debt to be incurred and no event has occurred since the date of the forecast which has, or may reasonably be expected in the future to have, a material adverse effect on the financial condition of future operating results of such Water Company.


Complied with.

34 Appendix 8

Covenants Reference Compliance Status 49. Except as ADB shall otherwise agree, HPG shall ensure that,

commencing from the first year of full commercial operation of the Project facilities of a Water Company, such Water Company shall not incur any debt, if after the incurrence of such debt the ratio of debt to equity shall be greater than 70 to 30.


Complied with. Debt ratio of most subprojects ranges from 30% to 50%.

50. Except as ADB shall otherwise agree, HPG shall ensure that a Water Company shall maintain either a ratio of current assets to current liabilities of not less than 2 to 1 or a ratio of liquid current assets to liabilities of not less than 1 to 1.


Complied with.

Financial Management

51. HPG shall cause each Water Company to establish and maintain a sound and solid financial management system comprising: (a) management accounting; (b) corporate planning, budgeting and budgetary control; (c) financial accounting; (d) cost accounting; (e) internal control and internal audit systems; and (f) data processing. This shall involve the establishment of separate bank accounts and the maintenance of minimum balances to ensure smooth cash flow and the timely settlement of Project construction liabilities and future debt servicing.


Complied with. All water companies have been equipped with financial management information systems.

Poverty and Social Development Strategy 52. HPG shall cause each Local Government to review the

impact of increased water and wastewater tariffs on the poor and maintain the provision of water tariff waiver and minimum living standard scheme to protect the basic living standard of the poor.


Complied with. All project counties have implemented a tariff waiver or reduction.

53. HPG shall cause HPMO to take necessary measures to (a) encourage women to participate in project implementation activities; (b) monitor effects on women during project implementation through the monitoring and evaluation system, in consultation with local governments and local women’s federations; and (c) conduct a gender awareness program on water and sanitation for key stakeholders, particularly staff at the PMO and implementing agencies.


Complied with. About 15,000 labors were employed in the project construction and operation, of which 13.1% were for women.

54. HPG shall cause HPMO to ensure that public awareness and education programs about the Project, its benefits and on changing attitudes and behavior of the consumers on clean water saving and managing wastewater disposal shall be conducted in all Subproject areas.


Complied with. Public awareness programs were conducted effectively.

Project Performance and Monitoring Evaluation 55. Project performance monitoring system (PPMS) indicators

include service levels, treated wastewater quality and other measures of operational performance, percentages of wastewater collected and treated, user satisfaction with the urban environment, and relevant economic and health data to monitor Project impacts.


Complied with. All indicators were included in the PPMS.

56. At the beginning of Project implementation, HPG shall cause HPMO, and local PMOs, to develop comprehensive PPMS procedures to systematically generate data on inputs and outputs of the Project components and the socio-economic, health and environmental indicators to be used to measure Project impacts. HPMO and local PMOs shall


Complied with. The PPMS was established in November 2006 including the framework, baseline data and procedures, and has been updated regularly.

Appendix 8 35


refine the PPMS framework, confirm achievable targets, firm up monitoring and recording arrangements, and establish systems and procedures no later than six months after Project inception.

57. Baseline and progress data shall be reported to HPMO at the requisite time intervals by the local PMOs including the environmental management plan’s semi-annual reporting. HPMO shall be responsible for analyzing and consolidating the data through its management information system. The HPMO will monitor and assess activities, and report to ADB quarterly on the physical implementation and financial aspects of the Project to ensure that impacts are monitored and reported in line with ADB requirements.


Complied with.

ADB = Asian Development Bank, EIA = environmental impact assessment, EMP = environment management plan, HEPB = Henan Environment Protection Bureau, HPG = Henan Provincial Government, HPMO = Henan Project Management Office, LA = Loan Agreement, PA = Project Agreement, PMO = Project Management Office, PPMS = project performance monitoring system, PRC = People's Republic of China, RF = resettlement framework, RP = resettlement plan, SEIA = summary environmental impact assessment, WWTP = wastewater treatment plant.

Sources: Henan Provincial Government and Asian Development Bank.

36 Appendix 9

CIVIL WORKS AND EQUIPMENT PACKAGES

Appendix 9 37

38 Appendix 9

Appendix 9 39

40 Appendix 9

Appendix 10 41

ECONOMIC REEVALUATION

A. Scope and Methodology

1. The economic reevaluation recalculated the economic internal rate of return (EIRR) of the Henan Wastewater Management and Water Supply Sector Project and compared the results with the appraisal estimates. The project had 15 wastewater management subprojects and 4 water supply subprojects. Project costs and benefits were reassessed on the information provided by the implementing agencies of the subprojects. The economic costs and benefits were valued using the domestic numeraire and expressed in constant 2011 prices. The EIRR was calculated for each subproject and for the whole project. The EIRR was compared with the economic opportunity cost of capital (EOCC), which was assumed to be 12.0%. Sensitivity analysis was undertaken to assess the robustness of the EIRR calculation. B. Costs

2. The project costs consist of capital and operation and maintenance (O&M) costs. The actual capital costs have been converted to economic values by deducting taxes, duties, interest, and financial charges, and by applying relevant conversion factors. Actual O&M costs in past years were applied and were assumed to remain constant in real terms during the evaluation period. C. Benefits

3. The wastewater management subprojects improved the urban environment by reducing exposure of the residents to untreated wastewater, which generated benefits in public health and environment. The main benefits quantified in the reevaluation were based on the willingness to pay (WTP) of beneficiaries. The health benefits were excluded to avoid double counting of the benefits, as the WTP incorporated such a factor. For water supply subprojects, the benefits derived from improvements in the water availability and quality of service to the urban population by each water supply subproject. Such benefits were quantified also on the basis of WTP for better water delivery services. D. Economic Internal Rate of Return

4. This approach yielded EIRRs ranging from 12.1% to 18.0% for the wastewater subprojects, and from 15.4% to 25.2% for the water supply subprojects. All subprojects reported an EIRR higher than the EOCC of 12.0%. The EIRR for the project as a whole is 12.9%, indicating that the overall project remains economically viable. The EIRRs at project completion are relatively higher for water supply subprojects. At appraisal, calculated EIRRs for the representative subprojects ranged from 14.0% to 18.0% for the wastewater subprojects and from 17% to 20.0% for the water supply subprojects. Table A10.1 presents the EIRR calculation results. 5. Sensitivity analysis was carried out to test the impacts of (i) increased O&M costs, (ii) a decrease in benefits, and (iii) a combination of both scenarios. According to this analysis, the project would remain economically viable if the O&M costs were 10% higher but would not be robust in other scenarios. However, considering the conservative values of WTP applied in the reevaluation, the likelihood of benefits being lower than the base-case estimate is small. The results of the sensitivity analysis are in Table A10.2.

42 Appendix 10

Table A10.1: Recalculation of the Economic Internal Rate of Return

(CNY million) Year Capital Costs O&M Costs Total Costs Benefits Net Benefits 2005 26.57 0.00 26.57 0.00 (26.57) 2006 347.51 0.00 347.51 0.00 (347.51) 2007 531.74 0.00 534.74 6.12 (525.62) 2008 178.82 11.38 190.20 46.32 (143.87) 2009 221.58 12.98 234.56 55.41 (179.15) 2010 134.42 12.98 147.40 63.65 (83.74) 2011 49.79 40.18 89.97 112.61 22.64 2012 0.00 50.29 50.29 139.96 89.57 2013 0.00 50.29 50.29 258.16 207.87 2014 0.00 50.29 50.29 306.32 255.92 2015 0.00 50.29 50.29 356.51 306.22 2016 0.00 50.29 50.29 399.26 348.96 2017 0.00 50.29 50.29 412.75 362.46 2018 0.00 50.29 50.29 415.94 365.65 2019 0.00 50.29 50.29 419.44 369.14 2020 0.00 50.29 50.29 423.27 372.98 2021 0.00 50.29 50.29 423.27 372.98 2022 0.00 50.29 50.29 409.78 359.49 2023 0.00 50.29 50.29 409.78 359.49 2024 0.00 50.29 50.29 409.78 359.49 2025 0.00 50.29 50.29 409.78 359.49 2026 0.00 44.10 44.10 409.78 359.49 2027 0.00 44.10 44.10 409.78 359.49 2028 0.00 44.10 44.10 409.78 359.49 2029 0.00 44.10 44.10 409.78 359.49 2030 0.00 44.10 44.10 409.78 359.49

EIRR NPV (at 12%)

12.9% 92.50

() = negative, EIRR = economic internal rate of return, NPV = net present value, O&M = operation and maintenance. Source: Asian Development Bank estimates.

Table A10.2: Sensitivity Analysis for the Whole Project Scenario EIRR (%) NPV at 12%

(CNY million) Base Case 12.9 92.50 (i) Benefit reduced by 10% 11.6 (38.16) (ii) Operation and maintenance costs increased by 10% 12.7 72.02 (iii) Combination of (i) and (ii) 11.1 (108.40) ( ) = negative, EIRR = economic internal rate of return, NPV = net present value. Source: Asian Development Bank estimates.

Appendix 11 43

FINANCIAL REEVALUATION A. Introduction 1. The financial internal rate of return (FIRR) was recalculated for the subprojects completed under the Henan Wastewater Management and Water Supply Sector Project, which included 15 wastewater and 4 water supply subprojects in 15 counties of Henan province. The reevaluation followed the approaches applied for appraisal and was based on financial and operational information obtained from the project implementing agencies and several revenue and cost assumptions. Capital costs included all incremental capital expenditures but excluded price contingencies and interest during construction. Operation and maintenance costs included annual incremental expenses incurred in operating the subprojects but excluded depreciation. No residual value was considered. All revenues and expenses were expressed in constant 2011 prices. The calculation period covered the construction phase and 20 years of operation. 2. Operation and maintenance costs were based on the actual performance of the water companies. Revenues were calculated according to volume of water supplied or wastewater treated and actual tariffs collected by taking the collection ratio into account. The volumes of water were projected based on the expected growth in consumption and the design capacity of those plants. The income tax rate was 25% for all companies. The value-added tax (VAT) was 13.0%. City construction tax and education surcharge were levied at 7.0% and 4.0% on the VAT. B. Water Supply Component 3. The project at completion included 4 water supply subprojects in four counties. Each county sets its own water tariffs in a range of CNY1.35–CNY1.70 per cubic meter (m3) for domestic households, CNY1.50–CNY3.80 per m3 for industrial and commercial customers, and CNY2.60–CNY9.00 per m3 for special users. The tariffs and operation costs are assumed to remain constant in real terms. The recalculated FIRRs ranged from 8.8% to 10.4%. Two subprojects reported slightly lower FIRRs than the appraisal estimate mainly because the present operational capacity is yet to reach the design capacity due to the inadequate piped connection and distribution to end-users and the presence of self-supplied groundwater wells in the two counties. The financial viability of the water supply component is confirmed, as the recalculated FIRR is higher than the weighted average cost of capital (WACC). The results of the representative subprojects are in Table A11.1.

Table A11.1: Financial Results of Representative Water Supply Subprojects Subproject FIRR at Completion FIRR at Appraisal

Bo'ai 10.4% 10.3% Puyang 9.2% 13.4%

Weihui 8.8% 5.1% FIRR = financial internal rate of return. Sources: Asian Development Bank and Henan Provincial Government.

C. Wastewater Management Component 4. This component involved 15 wastewater treatment plants (WWTPs). The FIRR was recalculated based on actual capital costs, actual and forecast volumes of wastewater treated, and operational costs. Each county sets its own wastewater tariff regimes of CNY0.65 per m3 for domestic households, CNY0.80–CNY0.85 per m3 for industrial customers, CNY0.65–CNY1.00

44 Appendix 11

per m3 for commercial users, and CNY1.00 per m3 for self-supplied users. In most project counties, the wastewater tariff is billed with the water supply charge for domestic households and is collected by the water supply company. For other users, the wastewater tariffs are collected by the government tariff management offices. The wastewater revenues are transferred to the local finance bureau, which then distributes funds to the wastewater company according to its operational performance and costs. Both tariffs and operation costs are assumed to remain constant in real terms. 5. The reevaluated FIRRs ranged from 4.3%–8.6%, comparable to the appraisal estimates. For those WWTPs that reported relatively lower FIRRs, the reason is mainly that their operational capacity has not fully reached the design capacity. In addition, treated water is yet to be reused commercially, which can considerably contribute to water companies’ revenues. The after-tax WACC recalculated as 3.6% based on the actual capital mix and cost of various financing sources. The FIRRs are higher than the WACC, indicating the financial viability of the subprojects. The results of the core subprojects are in Table A11.2. 6. The overall project FIRR was estimated as 6.03%. The sensitivity analysis indicated that the FIRR would be down to 4.96% if the revenues were 10% lower than the forecast, and to 5.85% if the O&M costs were 20% higher than forecast.

Table A11.2: Financial Results of Representative Wastewater Subprojects Subproject FIRR at Completion FIRR at Appraisal

Anyang 5.7% 5.0% Bo'ai 8.2% 5.2%

Linzhou 5.7% 5.4% Puyang 4.3% 7.4%

Weihui 8.6% 5.1% FIRR = financial internal rate of return Sources: Asian Development Bank and Henan Provincial Government.

D. Financial Sustainability of Project Implementing Agencies 7. According to the project agreement, starting from the first year of commercial operation, the water company shall maintain (a) minimum debt-service coverage ratio of 1.2:1, (b) maximum debt–equity ratio of 70:30, and (c) minimum current ratio of 2:1 or quick ratio of 1:1. The analysis on the financial performance of the project implementing agencies (PIAs) indicated that they will be able to comply with covenant targets upon full operation at their design capacity. The main contribution is the effective control of construction costs and the fact that the debt ratios of most subprojects have been in the range of 30%–50%, which is lower than the appraisal estimate of about 60%. County governments periodically review the water and wastewater tariffs to ensure cost recovery as well as debt payment. Affordability of water and wastewater services was reassessed, and the average costs of these services ranged from around 1.9% to up to 3.9% of average household income. The financial performance of the project is acceptable. Table A11.3 shows the details of the analysis. 8. Although the project's overall financial performance is acceptable, several subprojects need to be closely monitored to ensure their financial sustainability given the following issues: (i) lower wastewater collection ratio due to incomplete tertiary wastewater systems, particularly to old residential districts, and combined sewers of storm runoff and wastewater; (ii) lower water supply operational capacity due to the existence of self-supplied groundwater wells; (iii)

Appendix 11 45

inadequate reuse of treated water from WWTPs; and (iv) limited commercialization of WWTP operation. The Henan provincial and local governments have fully considered these issues and are taking substantial measures to solve them. For example, the urban drainage plan guidelines issued by the provincial government in 2010 clearly request that a separate stormwater drainage system be developed in new urban plans. The Henan Twelfth Five-Year Plan for Environmental Protection set targets to develop water-reusing facilities for all WWTPs and expand the counties' secondary and tertiary sewer connections. The provincial government also included wastewater tariff collection and closure of self-supplied wells as elements of any evaluation of local governments' administrative performance. With these measures, the operational performance of county WWTPs will be further boosted to ensure financial sustainability.

Table A11.3: Financial Indicators of Project Implementing Agencies

Subproject Minimum DSCR Maximum Debt–

Equity Ratio Minimum

Current Ratio Affordability a

(%) Water Supply

Bo'ai 1.2 53:47 2.6 1.9 Puyang b … … ... … Weihui 3.7 49:51 6.3 3.9

Wastewater Anyang 1.3 38:62 2.0 1.9

Bo'ai 1.2 51:49 2.6 2.3 Linzhou 1.0 24:76 3.4 2.9 Puyang b … … ... … Weihui 1.3 45:55 2.4 3.5

… = not applicable. DSCR = debt-service coverage ratio. Notes: a. The affordability indicators are the percentages of combined water and wastewater charges take in urban

poor household incomes. b. Puyang water supply and wastewater subprojects constructed only pipelines and do not involve operation

of water supply or wastewater treatment plants. Source: Henan Provincial Government.

46 Appendix 12

LAND ACQUISITION AND RESETTLEMENT A. Background 1. The Henan Wastewater Management and Water Supply Sector Project comprised 19 subprojects (15 for wastewater management and 4 for water supply) in 15 county cities. Resettlement plans for 8 core subprojects were prepared and approved during appraisal in 2005. Resettlement plans for the 11 non-core subprojects were prepared according to the resettlement framework approved by the Asian Development Bank (ADB), and were approved during 2006–2007. During project implementation, resettlement plans for 4 subprojects were updated to reflect variations in the final engineering design and changes in subproject scope.1 B. Land Acquisition, House Demolition, and Resettlement Impacts

2. Table A12.1 presents the actual land acquisition impacts of each subproject compared with those estimated in its approved resettlement plan.

Table A12.1: Land Acquisition Impacts

Subproject

Land Acquisition (mu) Affected People (person) Permanent Land Temporary Land

Planned Actual Variation (%) Planned Actual Variation

(%) Planned Actual Variation (%)

Wastewater Management Component Anyang 206.9 135.2 (34.7) 60.0 60.0 0.0 465 304 (34.6) Bo'ai 60.0 60.0 0.0 22.0 22.0 0.0 95 95 0.0 Changyuan 102.6 102.6 0.0 0.0 0.0 0.0 212 212 0.0 Fengqiu 49.9 49.9 0.0 0.0 0.0 0.0 95 95 0.0 Huaxian 75.5 75.5 0.0 90.0 86.0 (4.4) 76 76 0.0 Huojia 41.6 41.6 0.0 24.7 24.7 0.0 74 74 0.0 Linzhou 63.0 63.0 0.0 8.0 8.0 0.0 411 411 0.0 Nanle 42.6 42.6 0.0 0.0 0.0 0.0 196 196 0.0 Neihuang 46.0 42.0 (8.7) 27.0 27.0 0.0 182 152 (16.5) Puyang 7.0 7.0 0.0 0.0 0.0 0.0 17 17 0.0 Qingfeng 54.8 54.8 0.0 25.0 0.0 (100.0) 191 191 0.0 Weihui 86.0 76.9 (10.6) 10.7 10.7 0.0 153 153 0.0 Wenxian 45.0 45.4 0.8 60.0 15.2 (74.7) 120 120 0.0 Wuzhi 55.0 59.0 7.3 144.0 100.0 (30.6) 60 60 0.0 Yanjin 73.6 73.6 0.0 124.0 0.0 (100.0) 96 96 0.0

Water Supply Component

Bo’ai 83.0 83.0 0.0 338.3 338.3 0.0 0 0 0.0 Puyang 0.0 0.0 0.0 170.0 170.0 0.0 0 0 0.0 Qingfeng 48.0 39.0 (18.8) 812.0 165.0 (79.7) 83 83 0.0 Weihui 20.2 15.0 (25.9) 15.0 0.0 (100.0) 19 19 0.0

Total 1,160.8 1,066.1 (8.2) 1,930.7 1,026.9 (46.8) 2,545 2,354 (7.5) ( ) = negative, mu = Chinese unit of measurement (1 mu = 666.67 square meters). Source: Henan Provincial Government.

1 Updated resettlement plans for the Qingfeng water supply, and Bo’ai wastewater management and water supply

subprojects were approved in January 2008, and for Puyang wastewater management in May 2010.

Appendix 12 47

3. All resettlement activities had been completed smoothly by 2008. Totally, the project acquired permanently 1,066.1 mu of land, 8.2% less than 1,160.8 mu as per the approved resettlement plans, of which 868.2 mu was farmland. 2 The project occupied temporarily 1,026.9 mu of collective-owned land, 49.8% less than the 1,930.7 mu in the resettlement plans. The permanent land acquisition directly affected 2,354 persons. The number of affected people was 7.5% lower than in the approved resettlement plans. 4. Measures were undertaken to minimize the land acquisition and resettlement impacts during construction, such as (i) using the pipe-jacking construction method rather than open-cut sewer laying for sewer pipeline construction according to the local conditions; (ii) optimizing project technical design and site selection; and (iii) integrating installation of sewer pipelines with local road construction before starting the project. The project demolished a building with a total area of 560 square meters (m2) owned by an enterprise in one subproject city, which was consistent with the approved resettlement plan. No residential houses were demolished as anticipated because designs were optimized to avoid such impacts. C. Resettlement Policy and Compensation Rates 5. Land acquisition and resettlement was implemented according to the resettlement plans, ADB’s Involuntary Resettlement Policy (1995), the Land Administration Law (1999) of the People's Republic of China (PRC), Implementation Stipulations of Land Administration Law of the PRC (1999), State Council Document No. 28: Decision to Deepen Reform and Strictly Enforce Land Administration (2004),3 Urban House Demolition Management Regulations (2001), provincial rules, and rules and regulations of local governments involved in the project. Most of the actual compensation rates that the project paid were higher than those in the approved resettlement plans. Extensive consultation had been carried out before project implementation, and the agreements were signed after getting concurrence with the affected communities and people. 6. Compensation for permanent land acquisition—consisting of land compensation fees, resettlement subsidy, and young crops and attachments compensation fees—was based on average annual output value (AAOV) of varied lands and consultation with affected communities. The land occupied temporarily by the project was compensated based on the duration and AAOV or average season output value of the affected cultivated land. The house compensation rate applied in the Anyang WWTP subproject was CNY400 per m2, higher than the rate of CNY310 per m2 planned in the subproject resettlement plan. Table A12.2 compares the actual and planned compensation rates for each subproject.

Table A12.2: Compensation Rates for Land Acquisition (CNY per mu)

No Subproject Permanent Land Acquisition Temporary Land Occupation

Planned Actual Variation Planned Actual Variation 1 Anyang WWTP 44,996 61,500 16,504 1,364 3,000 1,636 2 Bo’ai WSP 5,508 5,508 0 640 640 0 3 Bo’ai WWTP 29,440 30,640 1,200 640 640 0 4 Changyuan WWTP 26,341 26,341 0 553 553 0 5 Fengqiu WWTP 26,650 26,650 0 650 650 0

2 A mu is a Chinese unit of measurement (1 mu = 666.67 m2). 3 This regulation required approval for use of basic farmland. For this reason, some sites for wastewater treatment

plants had to be changed.

48 Appendix 12

No Subproject Permanent Land Acquisition Temporary Land Occupation

Planned Actual Variation Planned Actual Variation 6 Huaxian WWTP 30,550 30,550 0 650 650 0 7 Huojia WWTP 16,413 20,413 4,000 600 600 0 8 Linzhou WWTP 55,000 55,000 0 800 800 0 9 Nanle WWTP 32,500 32,500 0 - - -

10 Neihuang WWTP 20,100 20,100 0 600 600 0 11 Puyang WSP - - - 1,323 1,323 0 12 Puyang WWTP 63,980 63,980 0 1,200 1,200 0 13 Qingfeng WSP 32,500 44,590 12,090 1,300 1,300 0 14 Qingfeng WWTP 23,660 29,360 5,700 0 598 598 15 Weihui WSP 40,690 40,701 11 690 701 11 16 Weihui WWTP 24,600 24,600 0 600 600 0 17 Wenxian WWTP 32,100 32,100 0 800 800 0 18 Wuzhi WWTP 26,200 26,200 0 1,200 1,200 0 19 Yanjin WWTP 30,210 30,210 0 610 610 0

WSP = water supply plant WWTP = wastewater treatment plant. Source: Henan Provincial Government. D. Livelihood Rehabilitation 7. Five subprojects involved land reallocation: Bo'ai, Changyuan, Nanle and Wenxian WWTPs, and Weihui WSP. Land use plans for the contracted and partially reserved land of the village collectives were readjusted in the whole village or the affected villager’s group to ease the impact of land loss by balancing the area of per capita cultivated land. Table A12.3 shows the change of the cultivated land area per capita before and after relocation carried out in these five project counties.

Table A12.3: Cultivated Land Area Per Capita Before and After Reallocation (mu per person)

Land Relocation Method Subproject Before After Land Loss Readjusting land in the whole village

Weihui WSP 0.91 0.84 7.6% Bo'ai WWTP 0.56 0.56 0

Readjusting land in the affected villager's group

Wenxian WWTP 0.65 0.45 30.7% Changyuan WWTP 1.07 0.60 43.9% Nanle WWTP 0.92 0.86 6.5%

WSP = water supply plant, WWTP = wastewater treatment plant. Source: Henan Provincial Government. 8. For monetary compensation, the resettlement subsidies were paid to the villagers affected by land acquisition and land readjustment in all subprojects, while the land compensation fees were redistributed in Anyang city and Huojia county. The redistribution of land compensation fees was utilized for village public affairs and agreed between the village group and the affected villagers. Table A12.4 shows the distribution of the monetary compensation in the subprojects. 9. To assist the affected households in their income restoration and livelihood improvement, different schemes for income restoration were carried out on the basis of the economic characteristics of affected villages. The main measures for income restoration were: (i) free technical training for the affected people to boost their skills in farming and migrant labor, (ii) provision of jobs during project construction and operational phases, and (iii) a special subsidy from the municipal government. As for the Anyang WWTP subproject, in addition to the

Appendix 12 49

relevant compensation, the affected households received CNY1,000 per mu from the city finance department.

Table A12.4: Distribution of Land Compensation Fees and Resettlement Subsidies

Subproject Land Compensation Fees Resettlement

Subsidy to Affected Villagers

Proportion for Village Group

Proportion for Affected Villagers

Anyang WWTP 20% 80% 100% Yanjin, Neihuang, Wuzhi, Weihui, Fengqiu, Linzhou, Qingfeng, Puyang, and Huaxian WWTP

0 100% 100%

Huojia WWTP 100% 0 100% WWTP = wastewater treatment plant. Source: Henan Provincial Government.

10. By implementing income restoration measures, the income of affected households was restored and even increased from that before resettlement. Surveys results of 179 sample households that lost land showed that compared with income levels in the baseline year, the per capita annual net income had increased by 21% to CNY3,073 on average by 2009. The income of all sampled households was reported to be higher than their income before resettlement, and affected households were satisfied. E. Resettlement Cost 11. The total actual cost of land acquisition and resettlement was CNY82.4 million, 9.9% less than the CNY91.5 million estimated in the approved resettlement plans. The reasons for variations in land acquisition and resettlement costs are: (i) reduced project impacts, particularly in the amount of permanent land acquisition (i.e., Anyang, Neihuang, and Weihui WWTP and Weihui WSP subprojects), (ii) reduced area of temporary land use, and (iii) higher compensation rates than those in resettlement plans (i.e. Bo’ai, Huojia and Qingfeng WWTP subprojects). Table A12.5 presents the land acquisition and resettlement costs for each subproject.

Table A12.5: Resettlement Costs by Subproject (CNY million)

No. Subproject Planned Actual Variation (%) 1 Anyang WWTP 24.643 21.390 (13.2) 2 Bo’ai WSP 1.950 1.950 0.0 3 Bo’ai WWTP 6.298 6.502 3.2 4 Changyuan WWTP 2.876 2.877 0.3 5 Fengqiu WWTP 2.019 2.053 1.7 6 Huaxian WWTP 8.690 8.669 (0.2) 7 Huojia WWTP 1.599 1.733 8.4 8 Linzhou WWTP 2.871 2.968 3.4 9 Nanle WWTP 2.629 2.490 (4.9) 10 Neihuang WWTP 1.546 1.434 (7.3) 11 Puyang WSP 0.644 0.644 0 12 Puyang WWTP 11.730 10.480 (10.7) 13 Qingfeng WSP 2.352 2.310 (1.8) 14 Qingfeng WWTP 5.438 5.590 2.8 15 Weihui WSP 1.520 0.950 (37.5)

50 Appendix 12

No. Subproject Planned Actual Variation (%) 16 Weihui WWTP 5.865 5.045 (14.0) 17 Wenxian WWTP 2.834 2.060 (27.3) 18 Wuzhi WWTP 2.480 2.560 3.2 19 YanjinWWTP 1.900 1.519 (20.1)

Total 89.884 83.224 (7.4) ( ) = negative, WSP = water supply plant, WWTP = wastewater treatment plant. Source: Henan Provincial Government. F. Institutional Arrangements 12. Organizations responsible for land acquisition and resettlement were established at provincial, municipal, and county levels. Henan Project Management Office (HPMO) oversaw the resettlement management of the project while the project management office of each subproject county was responsible for implementing the subproject-specific resettlement plans. The project management office of the municipality liaised and coordinated the land acquisition and resettlement activities within its administrative coverage. In addition, the resettlement specialist engaged under the loan consulting services provided substantial guidance for implementing resettlement plans during project implementation. G. Participation and Consultation

13. During project preparation and implementation, local governments and the agencies responsible for resettlement adopted participatory approaches and ensured that resettlement plans were implemented transparently. The resettlement policies were disclosed in timely fashion. Affected people were consulted adequately and participated in all resettlement activities. Various consultation meetings were held in affected communities on the allocation of compensation and income-restoration strategies. The entire process of resettlement planning and implementation was highly consultative and participatory. As a result, there were no serious complaints from affected people and groups. H. Resettlement Monitoring and Evaluation 14. HPMO and the project implementing agencies kept records on resettlement and included internal monitoring results in the quarterly project progress reports. Additionally, the external monitoring was undertaken by the National Research Center for Resettlement from 2005 to 2008. Given that most land acquisition and resettlement was completed by 2008, the monitoring and evaluation reports were updated with the assistance of the loan implementation consultants from 2009 onwards. Eight external monitoring reports were prepared and submitted to ADB during project implementation. I. Conclusions and Recommendations 15. Land acquisition and resettlement activities planned for the project were successfully implemented. Resettlement impacts were minimized by optimizing site selection and construction design. Affected people were actively involved through extensive participatory consultation and programs. Most affected people now enjoy higher incomes, easy access to public services, and more job opportunities associated with WWTP operation, e.g., in transportation and sanitation.

Appendix 13 51

ENVIRONMENTAL IMPACT ANALYSIS A. Introduction

1. The Henan Wastewater Management and Water Supply Project of the Asian Development Bank (ADB) comprised 19 subprojects (15 for wastewater management and 4 for water supply) in 15 county cities. The project built 14 wastewater treatment plants (WWTPs) with a total wastewater treatment capacity of 565,000 cubic meters per day (m3/day) and 3 water supply plants with a total capacity of 150,000 m3/day. 1 The project constructed 692.2 kilometers (km) of intercepting or trunk sewer systems and 257.7 km of water pipelines. The project supported the construction of water recycling facilities with a total capacity of 100,000 m3/day at Anyang Zongcun WWTP. In addition, a demonstration sludge treatment plant was constructed with a capacity of 30 tons per day at Yanjin WWTP. 2. The project was classified as environmental category A. At appraisal, a summary environmental impact assessment (EIA) report covering the 8 representative subprojects was prepared based on the domestic environment impact assessment (EIA) for the individual subprojects in accordance with ADB’s Environmental Assessment Guidelines (2003). The EIAs for the remaining subprojects were approved by the municipal or provincial environmental protection bureaus during 2004–2007. The summary EIA for the remaining subprojects was prepared by the Henan Project Management Office (HPMO) following the format for the representative subprojects and was confirmed by the Henan Environment Protection Department in May 2006. The summary EIA concluded that the project would generate significant environmental benefits from better wastewater treatment and reduced water pollution, and that limited adverse impacts due to construction activities could be mitigated effectively. All the subprojects have passed through the required domestic completion review and acceptance for environmental protection. B. Environmental Management and Monitoring

3. During implementation, the project management office under the Henan Finance Department (HFD) coordinated the overall environmental management for the project. Project management offices within municipalities and counties oversaw and coordinated the environmental management of each subproject according to the subproject's environmental management plan (EMP). All procurement bidding documents and awarded contracts included environmental protection provisions. During operation, the water company is responsible for the subproject's environmental management. Online monitoring systems are installed at each WWTP to record and report water flow, volume, and quality to the provincial wastewater monitoring center on a real-time basis. 4. Local environmental monitoring stations were engaged to conduct compliance monitoring covering air quality, noise level, and water quality as per government laws and regulations. The loan implementation consultants assisted HFD in conducting project monitoring for the implementation of the EMPs. HFD has submitted eight environmental monitoring reports (EMRs)—five semiannual reports from 2006 to 2008, and three annual reports for 2009–2011. Five EMRs were uploaded to the ADB website for information disclosure. A consolidated environmental review report was submitted for the project completion review. 1 The Puyang wastewater and water supply subprojects constructed only sewer systems and water pipelines,

according to the government's updated urban development plan.

52 Appendix 13

C. Environmental Impacts and Mitigation Measures

1. Air pollution

5. During construction, air pollution impacts were very minor and insignificant. Limited impacts from earth excavation and transportation were well controlled by covering and spraying water on the exposed areas. During operation, nuisance odor from WWTPs is being contained by bar screens, sedimentation tanks, aeration tanks, and sludge-handling facilities. As all WWTPs are far away from residential areas, impacts are limited. Nevertheless, greenbelts and buffer zones were established around the odor sources to absorb and reduce air emissions. The WWTP sludge is handled in a separate room and is transported in covered containers to minimize odor emission. An odor-control facility utilizing bio-film absorption–filtration technique was installed at Yanjin WWTP.

2. Noise

6. During construction, low-noise equipment and machinery was used to minimize noise. Construction activities were scheduled carefully to minimize the impact of machinery noise. Certain noisy machines, such as pile drivers and concrete vibrators, were not used at night. During operation, noise comes mainly from ventilators and air compressors and is minor and limited at the plant site. Adequate noise-control devices, greenbelts, or buffer zones were established in each WWTP and WSP in compliance with national standards.

3. Water Pollution

7. During construction, the amount of wastewater from construction camps in each project city was small. Sewage and other wastewater from construction camps were collected and treated using septic tanks before discharge. During operation, no water pollution is envisaged directly from WSP and WWTP operations. Online monitoring systems are installed at each WWTP to record and report water flow, volume, and quality to the provincial wastewater monitoring center on a real-time basis. Effluents from all WWTPs have met the PRC National Standard of Pollutants for Municipal Wastewater Treatment Plant Discharge (GB 18918-2002).

4. Solid Wastes

8. During construction, solid wastes were mainly from excavation materials due to pipeline and plant construction and the amount was insignificant in each project city. All construction wastes were well managed according to the subproject EMP. During operation, sludge from WWTPs is the main type of solid wastes. In 2010, 46,110 tons of sludge were generated from the project WWTPs. The sludge from three WWTPs is reused after dewatering, while sludge from the other WWTPs is disposed of in local landfills after dewatering in compliance with the national and local regulations. Sludge treatment facilities will be built for all WWTPs to ensure a more environmentally friendly sludge management by 2015 in accordance with the Henan Provincial Twelfth Five-Year Plan, 2011–2015 for Environmental Protection. D. Environmental Benefits

9. The project has produced significant environmental benefits by reducing the water pollution in the Hai river basin. With the project's support, the wastewater treatment rate in the municipal cities involved has reached over 80%, and 75% in the county-level cities. The total pollution loads have been reduced significantly. According to the government survey and EMRs,

Appendix 13 53

reductions of 36,774 tons of chemical oxygen demand (COD), or 110% of the annual COD reduction target set in the summary EIA for the project; of 3,667 tons of ammonia nitrogen; and of 11,364 tons of biochemical oxygen demand were achieved in 2011. On average, wastewater facilities built under the project have contributed over 95% of the total reduction amount in the project cities and counties. In addition, about 552,000 urban residents in Weihui city and Bo’ai, Puyang, and Qingfeng counties have been provided with uninterrupted potable water that met the PRC standards for drinking-water quality by 2011. E. Public Participation

10. During project implementation, public participation programs were extensively designed and implemented effectively. Public awareness activities were undertaken and well received by the local water users, covering public health, water saving, environmental education, and gender equity. Water-saving brochures were prepared and disseminated. The framework for a plan on public awareness and participation in wastewater management and sustainable development in Henan Province was formulated and disseminated to the public. In addition, the local governments designated each WWTP as an environmental education base. The WWTPs in Bo'ai and Wuzhi regularly received local residents and middle-school students to learn about water and environment protection. The percentage of interviewees in the project cities who expressed satisfaction with their urban environment in terms of better water supply, sanitation, and waste disposal increased from 82% in 2007 to 93% in 2010, according to social surveys by the loan implementation consultant. E. Conclusions

11. During construction, all contractors fulfilled their obligations to protect the environment and implement mitigation measures. The EMP for each subproject has been implemented effectively. The adverse environmental impacts due to project-related construction were minor and limited, and have been mitigated adequately. During operation, sufficient environmental management measures are being employed to minimize the negative impacts from the project plants. The project has shown significant benefits in improving the environment and public health in the project counties and cities.

54 Appendix 14

SOCIAL IMPACTS AND POVERTY REDUCTION A. Background 1. The Henan Wastewater Management and Water Supply Sector Project comprised 19 subprojects (15 for wastewater management and 4 for water supply) in 15 county cities. The project impact was to improve the urban environment and public health of residents in the upper reach of the Hai river basin (HRB). A social and poverty analysis was conducted during project preparatory technical assistance, which indicated that the project would benefit a total urban population of about 1.5 million through the provision of clean water and improvement of wastewater services. The project would support urban poverty reduction by (i) reducing the incidence of waterborne disease, cost of medical care, and sick days taken, thus reducing household health expenditures; (ii) providing safer and more reliable urban water supplies; (iii) improving the quality of life of the urban poor by eliminating uncollected sewage in poor neighborhoods and improving water quality in urban drainage channels; and (iv) providing jobs for the poor. B. Environmental Improvement 2. The project significantly reduced water pollution and improved wastewater treatment, sewage and sludge management, and water supply. At the start of the project, the residents in the medium-sized and small towns did not fully realize how the environment would improve. Through public participatory and awareness activities, more and more people in the project area became aware of and satisfied with the environmental improvement. The annual socioeconomic surveys from 2007 to 2010 indicated that public satisfaction increased considerably after the project was implemented. On average, about 92.5% of interviewees in four project cities were satisfied with their urban environment in 2010, 13.1% more than in 2007 (Table A14.1).

Table A14.1: Public Satisfaction Improvement (% of respondents)

Option Year Anyang Jiaozuo Puyang Xinxiang Average

Persons interviewed expressing satisfaction with urban environment

2007 83.8 87.5 69.6 86.2 81.82010 90.0 95.3 92.4 92.2 92.5

Increase Rate 7.5 8.9 32.8 7.0 13.1Source: Henan Provincial Government. 3. Meanwhile, the negative impacts induced by the construction of the water and wastewater facilities were minimized to the extent possible. Entitlements were fully disclosed to the affected people and they were consulted on the proper mitigation measures. Noise level and air quality were well controlled in compliance with the national ambient standards. All environmental standards were disseminated to local residents through public consultation meetings and public participatory forums. Taking the Bo'ai wastewater treatment plant (WWTP) as an example, the project implementing agency (PIA) organized a special satisfaction survey on the mitigation measures, whereby 82% of the interviewees were satisfied with the implementation of mitigation measures. C. Public Health 4. Better wastewater treatment and greater quality of water supply have reduced the pollution of channel water and the incidence of waterborne diseases, which helped raise the

Appendix 14 55

living standards and improved the public health of residents in the project area. According to statistics from the Henan Public Health Department, the average number of sick days per person (of all patients) attributable to waterborne diseases fell from 15 days in 2004 to 2.3 days in 2010. The average amount spent per person per month attributable to waterborne diseases was reduced from CNY3.0 in 2004 to CNY1.2 in 2010. The incidence of waterborne diseases and the positive impact on public health were noted. Monitoring of the waterborne disease incidence from 2007 to 2010 revealed that the overall incidence of waterborne diseases in the project area declined by 26.5%, from 2,926 in 2007 to 2,150 in 2010 (Table A14.2).

Table A14.2: Total Incidence of Waterborne Diseases1

Project City 2007 2010 Decrease

Number Rate (%) Anyang 1,938 1,401 537 27.7 Jiaozuo 333 289 44 13.2 Puyang 206 102 104 50.5 Xinxiang 449 358 91 20.3

Total 2,926 2,150 776 26.5 Source: Henan Provincial Government. D. Socioeconomic and Employment Development 5. The project has fundamentally contributed to economic development through a better urban environment. Statistics show that per capita capital asset investment in the project counties reached CNY15,286 in 2010, a rise of 623% from CNY2,114 in 2004. The project also supported the development of industrial districts. Taking Qingfeng county as an example, 22 enterprises were opened in the county’s industrial park and 15 additional ventures are in progress for a total investment of CNY10.8 billion. 6. The project created jobs in construction, operation, and management of water and wastewater services for both skilled and unskilled workers. About 15,000 laborers were employed in project construction and operation, of which 17.2% were poor people and 13.1% were women. Table A14.3 summarizes the jobs created under the project. Furthermore, the project has also benefited women by improving water quality and reducing the incidence of water-related illnesses, potentially saving time spent on medical care and improving hygiene and health since the women take main responsibility for housework, including washing clothes, cooking, and taking care of ill persons.

Table A14.3: Jobs Created in the Project Municipal Cities

Project Cities

No. of Laborers Average Annual Income per

Capita (CNY)

Poor Women

Construction Operation Total No. of people % No. of

people %

Anyang 2,051 218 2,269 8,588 550 24.2 150 6.6 Jiaozuo 870 870 1,740 14,300 436 25.1 237 13.6 Puyang 2,021 921 2,942 18,596 333 11.3 117 4.0 Xinxiang 6,957 1,093 8,050 9,350 1,260 15.7 1,460 18.1

Total 11,899 3,102 15,001 11,622 2,579 17.2 1,964 13.1 Source: Henan Provincial Government.

1 The data include dysentery, cholera, and hepatitis A, and combinations thereof.

56 Appendix 14

E. Public Awareness

7. The project promoted public awareness and education programs of project benefits, social acceptance of water fees and wastewater tariffs, and public hygiene, and changed consumers' attitude toward water saving and managing wastewater disposal. In particular, the water utilities played a key role in improving public awareness by showing environmentally friendly water treatment facilities and approaches. Each year, the PIAs, assisted by loan implementation consultants, organized numerous public awareness activities on Consumer Rights Day, World Water Day, and World Environment Day. From 2007 to 2010, the Qingfeng water supply plant held about 15 public awareness campaigns and/or activities, and handed out thousands of information booklets to the citizens. In 2010, they held special activities in the local middle school to raise public awareness. Besides, WWTPs facilitate the dissemination on sustainable development and wastewater discharge control. All local governments have designated their WWTP as an environmental education base. The WWTPs in Bo'ai and Wuzhi regularly receive local residents, particularly middle-school students, to learn about water and environmental protection.

F. Poverty Reduction 8. The project did not include direct intervention for poverty reduction. It supported poverty reduction indirectly through job creation and promotion of sustainable economic development in the project areas. There were about 775,110 poor people in both rural and urban areas in the project counties in 2004. The total number of the urban poor decreased by 13.8%, from 138,660 in 2004 to 119,571 in 2010.2 Poverty incidence also decreased considerably by 25.5%–47.1% in the project cities. Table A14.4 shows the details.

Table A14.4: Urban Poverty Incidence in the Project Cities (persons)

Project City 2004 2010 Change Rate (%) People Incidence (%) People Incidence (%)

Anyang 32,057 7.1 31,479 4.7 33.8 Jiaozuo 16,241 4.1 14,120 2.4 41.5 Puyang 18,968 4.7 20,141 3.5 25.5 Xinxiang 71,394 8.5 53,831 4.5 47.1

Total 138,660 - 119,571 - - Source: Henan Provincial Government. 9. The project supported poverty reduction in the project area by (i) reducing the incidence of waterborne diseases, cost of medical care, and sick days taken, thus reducing the household health expenditures; (ii) providing safer and more reliable urban water supplies; (iii) improving the quality of life of the urban poor by eliminating uncollected sewage in poor neighborhoods and improving water quality in urban drainage channels; and (iv) providing jobs for the poor during construction and operation. G. Mitigation of Social Risks

2 The urban poverty line was set at CNY152 per month in 2004 and CNY202 per month in 2010, according to the

minimum life security system.

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10. The chief social risk during construction mainly arose from involuntary resettlement. Active and broad consultations and negotiations were held during project implementation. This approach helped the local people understand the project and its resettlement policies, which eased project progress and mitigated the potential social risks. By using pipe-jacking sewer construction rather than the open-cut method and giving reasonable compensation also mitigated social risks. For the impacts from construction, the PIAs compensated the villagers promptly and reasonably through cooperation with the local district and/or township governments. Compensation for land loss was made to the affected people. According to the resettlement monitoring and evaluation reports, most affected people were satisfied with their compensation packages. Income and livelihood restoration schemes were implemented and the income and livelihood of affected people was effectively restored and even improved. 11. A comparison of surveys shows that the average water tariff paid per household accounted for 1.2% of total annual income per household in 2010, versus 1.0% in 2004. The increase in tariff expenditure was mainly due to increased household water usage. The proportion decreased in 5 counties—Anyang, Fengqiu, Huojia, Nanle and Yanjin—ranging from 0.2% in 2004 to 1.0% in 2010, and increased in 8 counties—Bo'ai, Huaxian, Linzhou, Puyang, Qingfeng, Weihui, Wenxian and Wuzhi, —ranging from 0.1% in 2004 to 3.0% in 2010. Generally, the increase in the water tariff is reasonable according to the affordability reassessment, which indicated an affordability ranging from 1.9% to 3.9%. In addition, to ensure that vulnerable people stay included among the beneficiaries, all project cities, through various social support programs, have introduced a water tariff reduction for households with incomes below the poverty line. For example, the water tariff for low-income households in Qingfeng county is CNY1.86 per cubic meter (m3) compared with CNY2.02 per m3 for ordinary families. H. Conclusions 12. The project has contributed to a better living environment for local residents and better water quality of local rivers and lakes without causing any social and health risks to people. The decrease in the incidence of waterborne diseases has reduced household spending on medical care and sick days taken, thus providing more disposable income and mitigating disease-caused poverty. This is especially meaningful to poor households, which are more susceptible to waterborne diseases, and to women, who are responsible for caring for sick children and the elderly. 13. The following policy implications apply to the successful implementation of future projects: (i) a strong project management office with competent staff and persistent efforts at every stage of project management is essential, (ii) project managers need strong coordination skills to mobilize and allocate local government resources and staff initiatives, (iii) attention must be drawn to the needs of vulnerable groups and women, and (iv) beneficiaries and inclusiveness of the project need to be maximized.

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