Document of The World Bankdocuments.worldbank.org/curated/en/...ICR Primary Author: Eddie Hum F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document)

Document of The World Bank

Report No: ICR00002898

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-48290)

ON A

LOAN

IN THE AMOUNT OF US$ 150 MILLION

TO THE

PEOPLE’S REPUBLIC OF CHINA

FOR A

HENAN TOWNS WATER SUPPLY AND SANITATION PROJECT

December 24, 2013

Sustainable Development Department China and Mongolia Country Management Unit East Asia and Pacific Region

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CURRENCY EQUIVALENTS

Currency Unit=Renminbi (RMB) US$ 1.00 = RMB 8.0080 (Appraisal May 2006)

US$ 1.00 = RMB 6.1000 (Project Closing June 2013)

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank CPS Country Partnership Strategy CQS Consultant Quality Selection C Y Calendar Year DBO Design Build Operate EA Environmental Assessment EIA Environmental Impact Assessment EMP Environmental Management Plan EPB Environmental Protection Bureau ERR Economic Rate of Return FM Financial Management FRR Financial Rate of Return FY Fiscal Year FYP Five Year Plan GDP Gross Domestic Product GOC Government of China HPEPD Henan Provincial Environmental Protection Department HPFD Henan Provincial Financial Department IBRD International Bank for Reconstruction and Development MOF Ministry of Finance MWR Ministry of Water Resources PIU Project Implementation Unit PMO Project Management Office PPMO Provincial Project Management Office RAP Resettlement Action Plan TA Technical Assistance WTP Water Treatment Plant WUC Water Utility Company WWTP Wastewater Treatment Plant Vice President: Axel van Trotsenburg, EAPVP

Country Director: Klaus Rohland, EACCF

Sector Manager: Mark Lundell, EASCS

Project Team Leader: Shunong Hu, EASCS

ICR Team Leader: Joanna Masic, EASCS

ICR Primary Author: Eddie Hum (Consultant)

CHINA

Henan Towns Water Supply and Sanitation Project

TABLE OF CONTENTS

Data Sheet A. Basic Information ...................................................................................................... iv B. Key Dates .................................................................................................................. iv C. Ratings Summary ...................................................................................................... iv D. Sector and Theme Codes ........................................................................................... v E. Bank Staff ................................................................................................................... v F. Results Framework Analysis ...................................................................................... v G. Ratings of Project Performance in ISRs ................................................................... vi H. Restructuring (if any) ................................................................................................ vi I. Disbursement Profile ................................................................................................. vii 1. Project Context, Development Objectives and Design ............................................... 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 4 3. Assessment of Outcomes .......................................................................................... 10 4. Assessment of Risk to Development Outcome ......................................................... 13 5. Assessment of Bank and Borrower Performance ..................................................... 13 6. Lessons Learned ....................................................................................................... 16 7. Comments on Issues Raised by Borrower/Implementing Agencies ......................... 17 Annex 1. Project Costs and Financing .......................................................................... 19 Annex 2. Project Outputs by Component ..................................................................... 20 Annex 3. Economic and Financial Analysis ................................................................. 26 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 32 Annex 5. Resettlement Implementation ........................................................................ 34 Annex 6. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 36 Annex 7. List of Supporting Documents ...................................................................... 40

DATA SHEET CHINA: Henan Towns Water Supply and Sanitation Project

A. Basic Information

Country: China Project Name: Henan Towns Water Supply and

Sanitation Project

Project ID: P081348 L/C/TF Number(s): IBRD-48290

ICR Date: 11/14/2013 ICR Type: Core ICR

Lending Instrument: SIL Borrower: People's Republic of China

Original Total

Commitment: US$ 150.00M Disbursed Amount: US$ 144.36M

Revised Amount: 144.36M

Environmental Category: B

Implementing Agencies: Henan Provincial Financial Department

Cofinanciers and Other External Partners:

B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 11/03/2004 Effectiveness: 12/18/2006

Appraisal: 11/02/2005 Restructuring(s): 11/28/2012

Approval: 06/27/2006 Mid-term Review: 02/25/2010 11/21/2012

Closing: 06/30/2013 06/30/2013

C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Unsatisfactory

Risk to Development Outcome: Substantial

Bank Performance: Moderately Unsatisfactory

Borrower Performance: Moderately Unsatisfactory

C.2Detailed Ratings of Bank and Borrower Performance (by ICR)

Bank Ratings Borrower Ratings

Quality at Entry: Moderately Satisfactory Government: Moderately Unsatisfactory

Quality of Supervision: Moderately Unsatisfactory Implementing Agency/Agencies:

Moderately Unsatisfactory

Overall Bank Performance:

Moderately Unsatisfactory Overall Borrower Performance:

Moderately Unsatisfactory

C.3 Quality at Entry and Implementation Performance IndicatorsImplementation Performance Indicators QAG Assessments (if any) Rating

Potential Problem Project at any time (Yes/No): No Quality at Entry (QEA): None

Problem Project at any time (Yes/No): Yes Quality of Supervision (QSA): None

DO rating before Closing/Inactive status: Unsatisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as% of total Bank financing)

Sanitation 9 9

Sub-national government administration 5 5

Wastewater Collection and Transportation 4 4

Wastewater Treatment and Disposal 5 5

Water supply 77 77

Theme Code (as% of total Bank financing)

Municipal governance and institution building 14 14

Pollution management and environmental health 29 29

Regulation and competition policy 14 14

Urban services and housing for the poor 29 29

Water resource management 14 14 E. Bank Staff

Positions At ICR At Approval

Vice President: Axel van Trotsenburg Jeffrey S. Gutman

Country Director: Klaus Rohland David R. Dollar

Sector Manager: Mark Lundell KeshavVarma

Project Team Leader: Shunong Hu Takuya Kamata

ICR Team Leader: Joanna Masic

ICR Primary Author: Eddie Hum

F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document)The objective is to help create or expand water supply and wastewater management services and improve the planning, regulatory, and operational capacity of sector institutions, thereby helping improve living conditions and the economic growth of participating county towns with relatively low incomes. Revised Project Development Objectives (as approved by original approving authority)

(a) PDO Indicator(s)

Indicator Baseline

Value

Original Target Values (from

approval documents)

Formally Revised Target

Values

Actual Value Achieved at

Completion or Target Years

Number of people with access to improved water supply in project towns (in thousands)

1,550 4,202 2,360 2,169.2

The final number of beneficiaries was collected from the 20 counties that remained in the project at the end of 2012, and did not include beneficiaries in counties that dropped from the project.

Number of people with access to wastewater management services in project towns (in thousands)

364 811 563 697

The total number of beneficiaries was 697,000 at the end of 2012, and does not include people that benefitted from investments in the counties that dropped from the project.

Aggregate net profit after taxes of participating WUCs (in million RMB)

-2.3 110.4 69.34 -5.58

Data was collected from 20 counties at the end of the project, but did not accurately reflect the true financial status of the project utilities as many remain government controlled and benefiting from large subsidies.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual Disbursements

(US$ millions) 1 12/12/2006 Satisfactory Satisfactory 0.00 2 02/12/2008 Satisfactory Moderately Satisfactory 10.38 3 04/24/2009 Moderately Satisfactory Moderately Satisfactory 24.29 4 06/29/2010 Unsatisfactory Moderately Unsatisfactory 39.46 5 06/27/2011 Unsatisfactory Unsatisfactory 54.00 6 12/28/2011 Unsatisfactory Unsatisfactory 62.48 7 06/13/2012 Unsatisfactory Unsatisfactory 70.64 8 12/24/2012 Unsatisfactory Unsatisfactory 70.64 9 06/25/2013 Unsatisfactory Unsatisfactory 116.43

H. Restructuring (if any) November 28, 2012 – Level II Restructuring.

I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal 1. At the time of appraisal in 2006, China had gone through nearly three decades of economic reform and opening up. Sustained industrial and rural development was key to China’s remarkable economic growth during this period. As a direct result of government policies for rural development, the number of towns increased from about 3,000 in 1980 to around 20,000 by 2003, and about 400 towns had grown into full-fledged cities. In general, a “town” was the official designation in China for urban areas with fewer than 120,000 residents. They were often semi-rural and provide non-farm employment for rural populations, which represented around 60% of total employment. Towns were also crucial in providing economic and social services for the rural populations. While towns had also been at the forefront of industrial growth, the pace of this growth slowed in 2006, constrained by limited economies of scales, lack of urban services, and inadequate human resources. Given the importance of towns for both economic growth and public welfare, especially for rural populations, the government had made their development a top priority. 2. In 2006, Henan was the most populous province in China, with about 97 million inhabitants. It covered the central plain fed by the Yellow and Huai Rivers, and was a key agricultural region, historically considered the core of the nation. While agriculture only contributed about 20% of its GDP, the province was still largely rural, with an urban population of only 23% compared with 42% for the country as a whole. The province was relatively poor, per capita income in 2005 – Yuan 6,436 – was about 75% of the national average, and the lowest quartile of China’s per capita distribution. The provincial government had made accelerating the pace of urbanization a pivotal development strategy, a crucial part of which was developing its major towns.

3. However, water supply in Henan was inadequate and unsafe. Even in major towns, coverage was below 50%, compared with over 90% for China cities and coastal towns as a whole. One reason for this lack of coverage was overall water scarcity exacerbated by pollution of shallow groundwater resources. This insufficient supply of clean and safe water limited the town’s capacity to absorb additional population from neighboring rural areas and accommodate increased economic activities. To expand the supply required substantial financial resources that were beyond the ability of the small water utilities at that time. Many of the water utility companies in Henan were earning little beyond the financial break-even point, while they were fairly well operated. The unaccounted for water in project towns ranged between 17% - 60%, and the number of employees per 1000 connections ranged between 7 – 55 number.

4. The Bank assistance was to help a larger number of Henan’s towns to develop the water supply and wastewater management services required both for an acceptable quality of life and for growth. It was also an important opportunity for the Bank to develop and refine operational mechanisms for production efficiency and sustainability.

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5. The project was in line with one of the five strategic pillars in the China Country Partnership Strategy (CPS, FY2006 – 2010, Report No. 35435): managing resource scarcity and better environmental management. In addition, it supported the acceleration of urbanization and improvement of growth and welfare in rural and semi-urban areas, which was one of the policy directions of China’s Eleventh Five-Year Plan (2006 – 2010).

1.2 Original Project Development Objective (PDO) and Key Indicators 6. The PDO in the PAD and the Loan Agreement were not the same. The PDO in the PAD was to help create or expand water supply and wastewater management services and improve the planning, regulatory, and operational capacity of sector institutions, thereby helping improve living conditions and the economic growth of participating county towns with relatively low incomes.

7. The PDO in the Loan Agreement was to assist the Borrower’s Henan Province in expanding water supply and wastewater management services and improving the institutional capacity of relevant institutions to plan, regulate and operate such services. 8. Key performance indicators (KPI) included (a) the number of people with access to improved water supply; (b) the number of people with access to improved wastewater management services; (c) population growth; and (d) aggregate net profit after taxes of the water utility company.

1.3 Revised PDOs and Key Indicators, and reasons/justification 9. The project was restructured in November 2012 as eleven subprojects did not follow Bank procurement procedures and were ineligible for Bank retroactive financing, as well as six subprojects withdrew from the Loan due to securing other financing sources. As a result, the total loan savings amounted to around US$44 million. The original PDOs remained unchanged, but the KPI on population growth was dropped because it was not relevant and the other KPI targets were revised as shown in table below.

Outcome Indicators Stage 2005 2006 2007 2008 2009 2010 2011 2012

1. No of people with access to improved water supply in project towns. (in 1,000)

Appraisal 1,550 1,550 1,516 1,921 2,569 3,191 4,202 4,202

Revised 847 850 835 1,062 1,426 1,772 2,351 2,360

2. No of people with access to waste water management services in project towns. (in 1,000)

Appraisal 364 364 364 445 594 743 811 811

Revised 249 249 250 306 410 514 562 563

3. Aggregate net profit after tax of participating WUCs. (in RMB Million)

Appraisal -2.3 -1.1 0.2 12.8 32 57.6 92.8 110.4

Revised -1.41 -0.68 0.12 7.94 19.91 35.90 58.11 69.34

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10. The restructuring added a new category (Goods) in the disbursement table to finance the purchase of office equipment; and the disbursement percentage for Works was increased from 66% to 95% to make use of the loan savings. The total cost of the project went down from the originally planned amount of US$302.62 million to US$239.27 million (or 79% of the original total project cost).

1.4 Main Beneficiaries, 11. As identified in the PAD, the primary beneficiaries were the 4.202 million people in 37 towns with access to project financed water supply services and 811,000 people in 10 towns with access to project financed wastewater management services. As part of the loan restructuring in November 2012, the number of people with access to water supply services was reduced to 2.360 million in 20 towns, and the number of people with access to wastewater management services was reduced to 563,000 in 6 towns. Furthermore, the project benefited staff from the PMOs, county towns and participating utilities through training and capacity building.

1.5 Original Components 12. The project comprised of three components as described below:

(a) Water Supply (Total Cost: US$203.95 million, of which the IBRD Loan was US$114.99 million).This component was designed to finance the construction of water supply facilities, including (i) water treatment facilities with a total capacity of 790,000 m3 per day; (ii) 2,400 km of water distribution networks, including user connections and installation of meters; and iii) the rehabilitation and expansion of water distribution networks, in 37 project counties.

(b) Wastewater Management (Total Cost: US$44.01 million, of which the IBRD

Loan was US$26.78 million).This component was designed to finance the construction of wastewater treatment facilities, with a total design capacity of 105,000 m3 per day, in five counties and installation of more than 440 km of sewer pipelines in 10 project counties.

(c) Technical Assistance (Total Cost: US$7.86 million, of which the IBRD Loan

was US$7.86 million).This component financed five different advisory services: (i) Regional Planning for Small Town Development (US$ 700,000); (ii) Water Sector Regulations (US$ 700,000); (iii) Project Management (US$ 1.14 million); (iv) Utility Staff Training (US$ 660,000); and (v) Detailed Engineering Design and Design Review (US$ 4.66 million).

1.6 Revised Components 13. The restructuring reduced the scope of the project as eleven subprojects were found ineligible for Bank financing during the first ex-post procurement review and

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another six counties received government or private sector funds to complete the subprojects after appraisal. The components were revised as follow:

(a) Water Supply Component. . The scope of the component was reduced to the (i) construction of water supply facilities in 20 counties with a total capacity of 445,000 m3 per day; and (ii) installation of 1,209.3 km of water distribution networks, including user connections and installation of meters.

(b) Wastewater Management Component. The scope of the component was reduced to install only 260.2 km of wastewater pipelines in 6 counties; and no wastewater treatment facility was financed under the project.

(c) Technical Assistance Component. This component remained unchanged, but the

Regional Planning for Small Town Development and the Water Sector Regulations studies were dropped due to delays in starting the procurement process and lack of time to complete either one after the restructuring and before closing of the project.

1.7 Other significant changes 14. The planned project costs were significantly reduced from US$302.62 million to US$239.27 million as 17 towns dropped out of the project (see Annex 1 and 2 for details). During the first three years of implementation, the costs of water distribution networks increased by 10% on average, and water supply facilities increased by 18%. In addition, the appreciation of the RMB against the US Dollar put additional pressure on the timely availability of additional counterpart funding, which caused delays in construction works. At restructuring, the borrower and the Bank agreed to increase the disbursement percentage of works, including supply of equipment, from 66% to 95%, in order to absorb loan savings and help reduce the counterpart funding burden following the constant devaluation of the US dollar against the RMB. 15. As mentioned before, the outcome indicator which monitors the aggregate population growth in participating towns was dropped; and some target of monitoring indicators and results framework to reflect the restructured components. The restructuring request also included a request for a Loan closing date extension of six months; however the Bank did not accept this request because the project had been in unsatisfactory status since June 2010.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry 16. Soundness of the background analysis. The background analysis was satisfactory. The project was and has remained consistent with the China Country

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Partnership Strategy FY 2006 to 2010 (Report No. 35435), the policy directions of China’s 11th Five Year Plan (2006 – 2010) and provincial priorities. It also incorporated lessons learned from earlier and similar operations in China. Lessons learned included: (a) qualified, appropriate and competent staffing and strong project management at provincial and county level are essential for good project implementation; (b) prevention of the tendency to develop excessive capacity for water and wastewater management services through realistic demand management; (c) a need for pricing reform to ensure financial sustainability of invested assets; (d) adoption of current market unit costs for project cost estimates; and (e) adequate resettlement planning, consultation and monitoring. At the time of project preparation, Henan was of more rural nature and the provincial government wanted to focus on urbanization through improvement of the infrastructural construction of small towns with a population over 50,000, and a key constraint to the towns’ development was cited as water supply and wastewater management. However, as it was the Bank’s first urban project in Henan, the project did not adequately achieve the criteria for selection of project towns, nor did it anticipate adequately any delays in implementation and completion dates of proposed subprojects during preparation. 17. Assessment of project design. The project design was moderately satisfactory. All selected project designs were assessed from technical, financial, environmental, social and institutional aspects. Based on the number of components and activities contributing to the PDO, this project was simple with very well defined components: one water component; one wastewater component; and one TA component, and the only financiers were the borrower and the Bank. The main issue was the geographic scope of the project with 37 towns spread over 12 counties. It is not very clear how the towns were chosen but it seems they were selected based on population size and poverty rates, but the commitment and readiness of each county to the project was not clearly recognized and there was little flexibility to replace subprojects. Due to the urgent need for improved water supply, a number of towns moved ahead as soon as subprojects were appraised and before project approval with procurement and contracting of subprojects using local funds. Unfortunately, Bank procurement procedures were not followed, and most work was not eligible for retroactive financing and was dropped from the project. In hindsight, it might have been advisable to have started with a few counties and towns so the Bank and PMO could work closely with local utilities, gain experience, make adjustments and then scale up with additional financing. Finally, the indicator on population growth was poorly chosen and eventually dropped, while an indicator related to the sustainability of project financed assets should have been included in the design.

18. Adequacy of government’s commitment. The Henan Provincial Government established a Steering Committee, chaired by a Henan vice governor, to offer overall policy direction for preparation of the project. The Henan PPMO, located in the Provincial Finance Department; municipal governments; county governments and water and wastewater utility companies were involved in the project design. Having the Provincial Finance Department coordinating a water and wastewater project, might not have been the most appropriate agency with little capacity to guide implementation, especially on technical issues. Moreover, the ownership and capacity at the county level

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was weak and municipalities were not engaged to support and coordinate activities, leading to many delays and challenges to coordinate activities at the Provincial level. While the commitment at the Provincial level was satisfactory, at the local implementation level the commitment was considered moderately unsatisfactory as many towns were not fully committed to this project and eventually dropped for different reasons.

19. Assessment of risks. Critical risks and mitigation measures were well identified, and technical and managerial risks were only rated moderate, where substantial would have been more appropriate for a project involving so many counties and towns. An expert group was recommended to provide training, and technical and supervision support during implementation and help mitigate some of the risks, however the expert group was never institutionalized, which had a significant impact on the preparation and implementation of the project. The mitigation measures to address some of risks and achieving the planned outcomes lacked a set of clear actions to be taken. In addition, the risk of a number of subprojects dropping out of the project during the first year after the loan became effective in December 2006 was not fully recognized and mitigation measures to replace these investments were not designed.

20. The Quality of Assurance Group (QAG) did not review quality-at-entry, but based on the review above, the quality-at-entry can be rated moderately unsatisfactory, due to problems with local commitment, the institutional framework and lack of clear understanding of Bank policies and procedures.

2.2 Implementation 21. The project became effective about five months after the Board approved in June 2006, and judging from the ratings in the data sheet, it immediately started slipping. Overall, project implementation was unsatisfactory due to (a) difficulties with procurement; (b) weakness in project management; (c) ineffective use of TA; (d) slow response to management issues. 22. Procurement Problems. Although procurement capacity was assessed during project preparation and training was conducted for the PMOs and participating utilities during project preparation, roughly one year after the loan became effective, the PPMO forwarded procurement documents of retroactive financing for eleven participating counties to the Bank for review and no objection, and all of them were found ineligible for the Bank financing. This led to eleven participating counties, accounting for about one third of the Loan, being dropped from the project. Another six counties dropped since they secured other local sources to finance the subprojects. As a result the loan savings amounted to about US$44 million. The Bank and the PPMO could have taken a more proactive approach to track retroactive procurement actions in earlier stages that carried out by participating counties and utilities in order to prevent these difficulties with procurement. On the other hand, there should be a way to check and ensure that the PMOs and PIUs clearly understand the Bank’s procurement rules and requirements after receiving training during the project preparation stage.

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23. Weak Project Management. Capacity in small towns is generally weak and can have a serious impact on project implementation. During preparation, the task team identified technical and managerial weaknesses in provincial and participating counties and correctly rated this risk as substantial. For mitigation of this substantial risk, the project recommended establishing an expert group and appointment of project management consulting company to provide technical guidance, strong supervision, and training for technical staff during implementation. During implementation, the province felt that the appointment of an expert group would be more cost-effective than hiring a project management consulting company, and delayed the appointment of project management consulting until October 2011 in project implementation. This ineffective use of TA funds, especially those designed to support the province and participating counties on project management, led to problems with procurement, lack of timely replenishment of counterpart funds, lack of replacement of dropped subprojects and utilization of loan savings, and delays in processing the project restructuring.

24. Lack of Commitment and Initiative. During project implementation there were a number of risks that were recognized at the outset, such as ensuring that designs were based on actual supply and realistic demand projections; lack of clear understanding of Bank procurement rules and requirements( even after receiving training); and delays in availability and disbursement of counterpart funds. However, many problems were not addressed swiftly by the Bank team nor the PPMO, causing major and continuous delays with project implementation thus resulted in the project not achieving the planned outputs and outcomes during implementation. Some of these problems could have been minimized with better communication and more frequent interactions between the Bank, the PPMO, local PMOs and PIUs so that they could have been addressed in a timely manner. The consulting company and the DI that supported the PMOs and PIUs to prepare project designs and support with project management were not very strong and did not deliver as expected, resulting in unsatisfactory implementation.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 25. The Results Frameworks for this project was unsatisfactory. 26. M&E design. There were four KPIs to monitor results and progress towards achieving the PDO focusing on building or expanding water supply and wastewater management services and improving the planning, regulatory, and operational capacity of sector institutions. However, there was no KPI to measure the part of the PDO about “improving living conditions” or “improving economic growth of participating county towns with relatively low incomes”. The Loan Agreement PDO was used because it was more concise. The lack of intermediate outcome indicators was a big problem. One of the four proposed indicators was dropped at restructuring because it was irrelevant. 27. M&E implementation. The selected project outcome indicators were oversimplified and inadequate to monitor the PDO and project implementation. Based on the proposed project outcome indicators and EMP, the monitoring and evaluation carried

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out by the participating counties was rated moderately unsatisfactory because of (a) a poor M&E framework at appraisal that was not enhanced during supervision; (b) poor Borrower’s performance on data collection and analysis; and (c) no intermediate outcome indicators introduced during implementation.

2.4 Safeguard and Fiduciary Compliance 28. The project was designed to improve the local environment and quality of life for local residents through improved water supply and enhanced wastewater management. The project was a Category B under OP4.01 Environmental Assessment, which was an appropriate categorization for this project. The project triggered EA, involuntary resettlement and dam safety policies. 29. Environmental Safeguards. The EA and EMP were prepared according to the national policies and regulations, and the Bank safeguard policies. Implementation of the EMP was rated moderately unsatisfactory because its implementation was delayed and monitoring data for air emissions, odor, influent and effluent quality of Baofeng WWTP were not submitted to the Bank. During project implementation, air quality PM10 and noise levels at construction sites were monitored, and all monitoring results were in accordance with the stipulated Standards (GB3095-96 and GB/T14623). Samples of both raw surface water and treated water (clear water) of the water supply subprojects were collected and analyzed. All laboratory results met the stipulated Environmental Quality Standards for Surface Water (GB3838-2002) and Drinking Water Standards (GB/T5750-2006).

30. Social safeguards. Resettlement activities were carried out moderately satisfactory. External monitoring of safeguard implementation was carried out in accordance with the legal agreements. A final report on resettlement implementation was prepared, but there are inconsistencies in the data, which the PPMO has not been able to clarify. The actual resettlement impacts included almost 660 mu of permanently acquired land, which affected 713 households or 2,834 people, and 300 m2 of residential housing demolition which affected 4 households or 15 people. Some land was temporarily used for water pipes installation, but most of it was along main urban roads and the land was returned to the owners shortly after installation was completed. Some temporarily used land affected crops and farmers received compensation according to local government regulations. The compensation rates for resettlement and land acquisition ended up higher than the rates agreed in the RAP, except for about 57.4 mu of land for which an annual rental fee is being paid. The original cost estimate for land acquisition and resettlement was RMB 97.67 million, but the final cost was much lower at about RMB 34.67 million. This was the result of subprojects in 17 participating counties being dropped from the project. More details are provided in Annex 5. 31. Dam Safety. The project did not finance the construction of dams. However, the Longxingxi Dam in Baofeng County and the Zhaopingtai Dam in Lushan County were used as raw water sources for the water supply subprojects under the Loan. The Bank’s

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dam safety expert visited both dams and reviewed documents concerning the safety of these dams. Both the Longxingxi Dam and the Zhaopingtai Dam are operationally safe. 32. Financial Management. Adequate financial management arrangements were put in place to ensure proper use and accounting of project funds. However, internal control of accounting matters, such as timely payments; certificates issued; accurate payments; etc., were weak and the Bank intervened on several occasions to train the staff and correct these weaknesses. Financial management was rated moderately satisfactory.

33. Procurement. Procurement activities were carried out unsatisfactorily by all agencies, Examples of difficulties with procurement include: (a) rejection of 21 contracts from 18 participating counties for not following Bank procurement procedures; (b) lack of bid evaluations and selection reports and inconsistent information; (c) complaints frequently ignored; and (d) long delays in the procurement process without adequate justification. At the end, a number of contracts had to be dropped as they were ineligible for Bank financing and had to be financed domestically.

34. To address the problems with procurement and reduce risks, the Bank requested that all procurement documents were sent to the Bank for prior review.

2.5 Post-completion Operation/Next Phase 35. It is likely that the subprojects financed under the project will be operated with marginal profits, as they will likely continue receiving limited subsidies from local governments. Participating utilities have the following plans or programs in place to reduce water losses, improve operation and maintenance, and increase revenues:

(a) Detecting and replacing old and leaking water pipelines to reduce unaccounted for water, which ranges from 30% to 60%;

(b) Conserving energy consumption and optimizing chemical use;

(c) Closing of self-supplied ground water wells; and

(d) Increasing water tariffs to cover costs. 36. In addition to the above-mentioned plans and programs, the participating utilities also have time-bound programs for staff training and development.

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3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation 37. The relevance of the PDO can be rated substantial as it was straight-forward and firmly addressed the situation identified during preparation. It was also fully supported by the government’s own policies and the Bank’s CAS at the time of appraisal. The PDO remained relevant right through to closing with the Bank’s current Country Partnership Strategy for China 2013 – 2016, supporting both green growth and promotion of more inclusive development. The basic design is rated modest as the project was mostly installing water systems and a few wastewater collection systems to meet the PDO, plus a TA component to improve the performance of participating water utilities, but the commitment of participating towns was not fully assessed. At the time of project closing, all components remained important but many subprojects were financed outside of the project and outcomes of these subprojects were not supervised nor monitored. The outcomes are unknown, thus, the project implementation is rated modest.

3.2 Achievement of Project Development Objectives Rating: Unsatisfactory 38. As mentioned in Section 1.2, the PDOs in the PAD and the PDOs in the Loan Agreement were different. The achievement is based on the PDO used in the Loan Agreement as the project did not contain any indicators related to (a) improving living conditions; and (b) improving economic growth of the project towns. Upon completion, the project only partially met the PDO and, therefore, the achievement is rated as unsatisfactory. Unfortunately, many subprojects were implemented using domestic funds and dropped from the project, these subprojects were not monitored and their outcomes are unknown. (a) Objective 1: Expanding water supply services. Rating: Moderately Unsatisfactory 39. At the time the loan was approved, the KPI related to the expansion of water services was “number of people with access to improved water supply in the project towns”. The baseline in 2005 was 1,550,000 and the appraisal and restructuring targets were 4,202,000 and 2,360,000 respectively. However, the actual achieved was 2,169,200, or 52% and 92% of the appraisal and restructuring targets respectively. 40. In terms of outputs, the number of project towns was originally 37, but was reduced to 20 for reason described in Section 2.2. The project outputs that expanded water supply services involved the following:

(i) Eighteen number of water treatment plants were constructed, increasing a total capacity by 445,000 m3/day, or 63% of the appraisal target of 790,000 m3/day.

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(ii) The project was targeted to construct 2,400 km of water distribution network but achieved only 1,286.50 km, or about 54% of the planned.

(iii) These networks and water treatment plants together have expanded water supply service in 20 project towns, to a total 2,169,200 people, or 52% of the original target of 4,202,000 people.

41. The 18 WTPs are operating above 75% of their respective built capacity and are delivering water meeting the China National Drinking Water Standards. (b) Objective 2: Expanding wastewater management services Rating: Unsatisfactory 42. At the time the loan was approved, the KPI related to the expansion of wastewater management services was “number of people with access to wastewater management services in the project towns”. The baseline in 2005 was 249,000 and the appraisal and restructuring targets were 811,000 and 563,000 respectively. However, the actual achieved was 697,000, or 86% and 124% of the appraisal and restructuring targets respectively. 43. In terms of outputs, the number of project towns was originally ten, but was reduced to six for reason described in Section 2.2.The project outputs that expanded wastewater management services involved the following:

(a) The originally four wastewater treatment plants of total capacity 105,000 m3/day were constructed using other financing.

(b) The project was targeted to construct 440 km of sewer network but achieved only 161 km, or 37%.

(c) These sewer networks have expanded wastewater management service in 6 project towns, to a total 697,000 people, compared to the appraisal target of 811,000, or 86%.

44. The built sewer networks are conveying wastewater to the existing WWTPs in the six project towns. However, neither the operational capacity nor the treated effluent quality of the WWTPs in the project towns was made available for the Bank. (c) Objective 3: Improving the institutional capacity of relevant institutions to plan, regulate and operate such services. Rating: Unsatisfactory 45. This objective was designed to provide technical assistance to improve institutional capacity at the provincial and county levels to perform utility regulatory functions, develop an improved regulatory framework for private sector participation in the water and wastewater treatment sectors, and develop specific guidelines and appropriate options for private service provision. It also called for the provision of TA to

12

improve management and operational capacities of the PIUs/WUCs to carry out the Project, as well as in the areas of financial management, resource mobilization (including tariff setting, operational efficiency, upgrading commercial operations) and human resource development. However, the values of the above-mentioned TA have not been well received by the PPMO and also the participating counties and they were not implemented when the requested extension of the project closing date was not accepted by the Bank. 46. The relevant KPI was “aggregate net profit after taxes of participating WUCs” with the end of the project target of RMB110.4 million. However, the data collected from the 20 counties at the end of the project does not accurately reflect the true financial status of the project utilities which did not become autonomous utilities, but rather remained under government control, benefiting from large subsidies.

47. Core Sector Indicators. The CSIs “Number of people in urban areas provided with access to improved water sources under the project” was 2,169,000; and “Number of utilities that the project is supporting” was 20. These were added very late in implementation in response to a new institutional mandate. Thus, they were not included in the Results Framework.

3.3 Efficiency Rating: Moderately satisfactory 48. Economic. Efficiency is rated satisfactory. The project improved the water supply and wastewater services in towns in participating counties in Henan province through capital investments, institutional development and capacity building. Detailed economic analysis is included in Annex 3 and shows that the efficiency of investments for water supply components was high. EIRRs were recalculated for low-income counties (e.g. Suiping and Yiyang), middle-income county (e.g.Suixian); and high-income counties (e.g. Tongxu and Weishi). The EIRRs of low-income, middle-income and high-income at completion were 21.9%, 12.5% and 31.1% respectively; compared to the estimated EIRRs at appraisal which were slightly higher 25.8%, 25.0% and 33.6% respectively. 49. Financial. Financial internal rate of return (FIRR) was reassessed for the water supply and wastewater components in each county. At appraisal, FIRRs for water components were mostly above 10%, ranging between 9.6% and 16.4%,and those for wastewater component were above 6.0%.At completion, FIRRs for the water components ranged from 0 to 12.4%.The FIRRs at completion were lower than what were forecasted at appraisal, the main reasons being: (a) most counties' tariffs were much lower than what was expected at appraisal, (b) most companies have employed more staff than needed; and(c) unaccounted for water is still high (ranging from 30% - 60%).

13

3.4 Justification of Overall Outcome Rating Rating: Unsatisfactory 50. The overall outcome rating of the project is assessed as unsatisfactory because the PDO was unsatisfactorily completed; the economic benefits were partially realized; and financial sustainability is unsatisfactory.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development (NA) 51. The project did not have a poverty reduction theme nor focus on gender aspects or social development aspects. However, it did contribute to improvement of the quality of life of people in 20 counties, and poor, including women, benefitted from the expanded clean water supply and sanitation services. (b) Institutional Change/Strengthening 52. The water and wastewater utilities were the implementing agencies responsible for project design, implementation, monitoring and reporting, and procurement of civil work contracts for the water supply and wastewater systems. The project targeted institutional reform by establishing financially autonomous utility companies that were able to manage and operate efficiently and effectively the assets placed under their ownership. However, the utilities actually did not implement the reforms envisaged in the PAD and little institutional progress was made as a result (see Section 3.2 in Annex 2 for further details). (c) Other Unintended Outcomes and Impacts (positive or negative) (NA)

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (NA)

4. Assessment of Risk to Development Outcome Rating: Substantial 53. The risks identified were: (a) inadequate financial and technical resources; (b) weak preparation and implementation; and (c) technical and managerial weakness. With technical and managerial weakness was rated substantial the other two risks were rated moderate. Mitigation measures were suggested for either prevention or minimization of the risks. Although the mitigation measures suggested were good, they had not received adequate commitment and attention in terms of (a) establishing a strong technical and managerial assistance from the provincial level; (b) introducing a tariff that covers most of the costs and commitment to revising them further; and (c) strengthening all PMOs with a team of diverse experts who could work together with the Bank. The overall risk

14

to development outcome is rated substantial because (a) there were very little gains on institutional capacity building; (b) there was no material on the status of O&M, financing and planning of the utilities. 54. Training of staff from PMOs and water utilities, as well as procurement of expert group and consultants could have done better to prevent the PMOs which had virtually operated business as usual during project preparation and implementation that proposed mitigation measures had not been translated into actions.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 55. The Bank performance in ensuring quality at entry is rated moderately satisfactory because the project was well focused on few sectors and the preparation and appraisal of technical aspects was well conducted, the Bank also ensured that fiduciary arrangements were adequate and that provision was made to respect safeguard. On the other hand, the project was complex and capacity of towns to implement these selection criteria for participating counties were not clearly listed and explained to the candidate counties. In particular, the time constraints and financing issues were not adequately highlighted to the candidate counties. There was an overly optimistic assessment of the ability of counties to secure and disburse counterpart funds; and monitoring and evaluation arrangements were weak. (b) Quality of Supervision Rating: Moderately unsatisfactory 56. The Bank team paid particular attention to technical issues, institutional development, other fiduciary matters and related development impacts and supported Henan to implement the project. However, the team could have been more proactive, address issues in a more timely fashion and strengthening supervision, including by: (a) giving more intensive training on all aspects of procurement for all counterpart staff who work on procurement issues; (b) encouraging the client to seek technical assistance from firms or individuals who have work experience with the Bank; (c) providing more solid and timely support on key issues raised by the government; (d) reducing differences in perception of development outcome and institutional development capacity building between the PMOs and the Bank; (e) ensuring sustainability of built assets; and (f) monitoring and evaluating project progress. (c) Justification of Rating for Overall Bank Performance

15

Rating: Moderately unsatisfactory 57. In line with ICR guidelines, the overall Bank performance rating is moderately unsatisfactory.

5.2 Borrower Performance (a) Government Performance Rating: Moderately unsatisfactory 58. The rating refers to the PPMO and local PMOs. Although the Provincial Government had shown strong commitment to the Project during preparation and appraisal, due to a shortage of multidisciplinary staff (in particular management, engineering and procurement professionals) in the PPMO and PMOs, it has impeded their ability to deliver the project in an effective and efficient manner was impeded. In addition, the commitment at the local level was not so strong and varied between counties. As the participating counties were new to the Bank projects, the Bank team had repeatedly urged the government to (a) establish a small but efficient PMOs with technical staff; and (b) engage experienced consultants and consulting firms in preparing feasibility study reports and designs, project management, contract management, detailed design review, bid documents review, and project monitoring and reporting. However, the Bank team’s recommendations were not fully endorsed by the local government and inexperienced consultants and design institutes were engaged. This resulted in poor designs and problems with delivering the project in the first few years of implementation. Eleven subprojects did not follow Bank procurement procedures and were not eligible for Bank retroactive financing, as well as six subprojects withdrew from the Loan due to securing other financing sources. The restructuring, which was discussed soon after subprojects started, dropping out of the project, was processed with great delay and only in November 2012. (b) Implementing Agency or Agencies Performance Rating: Moderately unsatisfactory 59. The implementing agencies (IA) performance is rated moderately unsatisfactory. During the first few years of project preparation and implementation, a large number of PIUs participated in the project. They showed commitment to deliver the project to achieve the PDO. During the first year of implementation, however, the Bank team found that a significant number of participating counties had already procured a number of contracts that did not follow the Bank’s guidelines and, therefore, were ineligible for Bank financing. The poor designs and lack of counterpart financing, further delayed project implementation. At the end, after many delays, project counties were able to build appropriate water supply facilities and sewerage systems which still benefited a large number of people with 2.169 million people getting access to water services and 697,000 people getting access to wastewater services.

16

60. Moreover, the PIUs have committed to operate and maintain the built assets and meet drinking water standards. In addition, they have also developed plans for financial self-reliance and sustainability. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately unsatisfactory 61. The performance of the borrower is rated moderately unsatisfactory, due to the problems during implementation with contracts being awarded and implemented without following Bank procedures, delays in allocation of counterpart funding to respective subprojects, issues with engineering designs and procurement documentation, lack of technical staff to support implementation, and extensive delays in processing the project’s restructuring. The implementation of the project was severely hampered by the delays in processing the restructuring of the project, which was finally processed only in November 2012.

6. Lessons Learned 62. Hiring of consultants to help the Borrower in project preparation must start at project identification stage. The risk of weak project preparation and implementation was identified as moderate during project preparation which was oversight. The lack of technical staff in the provincial PMO and weak capacity in small towns need strong support starting from project preparation. Thus, hiring of consultants to help the Borrower in project preparation must start in project identification stage. 63. A full understanding of the screening and selection criteria by participating counties is important to ensure success. The screening criteria for participating counties must be clearly presented, discussed and agreed among all stakeholders. It is very important that candidate counties clearly and fully understand project selection criteria which must properly consider time constraints, resources and final goals. Screening criteria for participating counties were not clearly defined nor fully understood by candidate counties and this led to the 11 participating counties which did not follow the Bank’s procurement rules for their retroactive financing subprojects and were rejected. 64. Engagement of both a team of experts and a design institute working in tandem to support the PMOs and WUCs in preparation of a FSR is not practical. The project was designed to engage both a team of experts and a design institute (DI) working in tandem to support the PMOs and WUCs in preparation of a FSR is not practical. This is particularly true regarding the preparation of FSR for small towns that often have weak capacity and might not engage the most appropriate team of experts to prepare the project. Not to mention that preparation of FSR calls for multi-disciplinary professionals working in a coordinated effort. It is important that the DI takes the full responsibility over the preparation of the FSR, and experts are only involved in a review

17

and advisory role, especially in areas were innovative approaches are introduced and the DI has limited experience. 65. Programmatic loan with a framework for selecting and appraising subprojects could have been more appropriated. Based on some of the lessons learned above, a phased approach could have been more appropriate for this project and reduced the risk of subprojects dropping out. During project preparation a framework could have been prepared for selecting and appraising subprojects and applied to the “most ready” subprojects (first 18 months of implementation). Clear triggers could have been designed for moving from the first phase to second phase of subprojects selection and implementation. A similar approach has been successfully applied around the world and in the case of the Wenchuan Earthquake Reconstruction Project (WERP) for projects involving a large number of counties and subprojects. In addition, a more demand driven approach can help create a competitive environment for counties and towns to access loan proceeds rather than pre-selecting counties that might not be fully committed to the project.

7. Comments on Issues Raised by Borrower/Implementing Agencies (a) Borrower/implementing agencies (See Annex 6) 66. Overall project objectives were largely met, although the financial targets for the water utilities were not met. Due to many subprojects dropping from the project, the overall projects costs went down. The financing by the Bank loan remained close to the originally planned amount, meaning that counterpart financing reduced considerably. According to the Borrower, the sustainability of the project is ensured since the institutional arrangement are appropriate, the utilities have the capacity to operate and maintain these facilities, although subsidies will be needed in the near future. The Bank’s performance during project preparation and implementation was considered satisfactory and the diligence of World Bank managers and staff was widely appreciated by all the implementing agencies. The Borrower also highlights that all different level of government were fully committed to the project and helped coordinate project implementation. The support of local staff, and training were insufficient, being insufficiently considered for the project appraisal phase. 67. The entire implementation process has been a valuable experience for all the agencies involved and capacity building of the PIUs has been achieved that will help them with their future projects. The Bank team introduced advanced management practices for project implementation and enterprise operation, such as modern project management systems, international practices for bidding and contracting, construction supervision, performance evaluation. More resources and manpower should have been provided during the project preparation period, especially technical assistance and consulting services to support the planning and designs. The borrower suggests more attention to training and sharing of templates like TORs to assist the PMO and PIUs and more resources are provided for the preparation and supervision of projects.

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68. The performance of the government and PMO was rated moderately unsatisfactory due to deficiencies, such as: lack of technical capacity and delays in mid-term review and restructuring of the project. The PMO actually hired a consultant company to provide technical support to the team and the delays in the mid-term review and restructuring was mainly caused by disagreements with NDRC regarding the revised scope of the project. Neither Henan Province nor the PMO were in the position to make a final decision and, after the restructuring was finally process and approved, the project actually achieved good outcomes. Therefore, the Borrower believes the performance should be rated moderately satisfactory instead. 69. The Borrower also did not agree with the rating of the PIUs’ performance as moderately unsatisfactory. This rating was based on the many contracts that were not in compliance with World Bank policies and procedures and were not eligible for Bank financing. In addition, counterpart funding was not provided in time, and the engineering designs changed many times. The Borrower believes that it was understandable that many PIUs went ahead and signed contracts before the project's effectiveness. The 42 subprojects that were appraised were high-priority investments and many counties could not wait until the Bank loan became effective. The problem of delays in counterpart financing is a common problem in World Bank projects, and the repeated changes in engineering designs were the result of the lack of clear guidance of the Task Team, which also changed over-time. Therefore, we believe the rating of the PIUs should be upgraded to moderately satisfactory.

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Annex 1. Project Costs and Financing CHINA: Henan Towns Water Supply and Sanitation Project

Table 1.1. Project Cost by Component (in US$ Million equivalent)

Components Appraisal Estimate

(US$ million) Latest Estimate (US$ million)

Percentage of Appraisal

Water Supply 203.95 205.31 101%

Wastewater Management 44.01 17.20 39%

Technical Assistance 7.86 2.18 28%

Land Acquisition and Resettlement 30.56 10.07 33%

Project Overheads 16.24 4.51 28%

Total Project Costs 302.62 239.27 79%

Interest During Construction 29.38 0.57 2%

Commitment Fees 3.32 4.30 130%

Front-end fee IBRD 0.38 0.38 100%

Total Financing Required 335.70 244.52 73%

Table 1.2. Project Financing

Source of Funds

Type of Co-financing

Appraisal Estimate(US$ million)

Latest Estimate (US$ million)

Percentage of Appraisal

Borrower Counterpart Fund 185.70 100.16 54%

IBRD External Borrowing 150.00 144.36* 96%

Total 335.70 244.52 73%

* The undisbursed balance of US$5.64 million was closed on November 25, 2013.

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Annex 2. Subprojects and Outputs by Component CHINA: Henan Towns Water Supply and Sanitation Project

Table 2.1. List of towns that dropped from the project. No Municipality County Cost Estimate

US$ million Reasons for Dropping Out

A Water Supply 150.49

1

Kaifeng

Weishi 11.97 Did not follow Bank Procurement Guidelines

2 Lankao 11.81 Completed with alternative local funds

3 Kaifeng 4.48 Did not follow Bank Procurement Guidelines

4 Luoyang

Yiyang 10.10 Completed with alternative local funds 5 Songxian 6.87 Completed with alternative local funds 6

Xinxiang Xinxiang 7.94 Completed with alternative local funds

7 Yuanyang 10.18 Problems with land acquisition

8 Xuchang Xiangcheng 9.03 Completed with alternative local funds 9

Sanmenxia Shanxian 8.00 Completed with alternative local funds

10 Yima 7.79 Completed with alternative local funds 11

Zhumadian

Queshan 7.40 Did not follow Bank Procurement Guidelines

12 Xiping 8.45 Completed with alternative local funds

13 Zhengyang 7.07 Did not follow Bank Procurement Guidelines

14

Xinyang

Minggan 5.60 Did not follow Bank Procurement Guidelines

15 Xixian 6.04 Did not follow Bank Procurement Guidelines

16 Yangshan 16.55 Completed with alternative local funds 17 Jiaozhou Mengzhou 11.21 Completed with alternative local funds B Wastewater Management 38.12

1 Luoyang

Mengjin 9.65 Completed with alternative local funds 2 Songxian 8.96 Completed with alternative local funds 3 Xinxiang Yuanyang 9.70 Did not follow Bank Procurement Guidelines

4 Xingyang Huangchuan 9.81 Completed with alternative local funds

Total 188.61

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Table 2.2. List of towns that stayed with the project. No Municipality County Cost

EstimateUS$ M

Appraisal Targets Actual

A Water Supply 205.31 445,000 m3/day WTP 1209.30 km water networks

445,000 m3/day WTP 1286.50 km water networks

1

Kaifeng

Tongxu 16.72 35,000 m3/day WTP 75.25 km water networks

35,000 m3/day WTP 102 km water networks

2 Qixian 14.18 25,000 m3/day WTP 63.72 km water networks


3 Luoyang Mengjin 10.66 20,000 m3/day WTP 51.70 km water networks


4

Pingdingshan

Baofeng 9.46 15,000 m3/day WTP 77.19 km water networks


5 Jiaxian 8.25 20,000 m3/day WTP 40.43 km water networks


6 Lushan 9.69 30,000 m3/day WTP 72.06 km water networks


7 Xinxiang Fengqiu 8.30 25,000 m3/day WTP 33.72 km water networks


8

Shangqiu

Suixian 12.21 20,000 m3/day WTP 31.65 km water networks


9 Xiayi 9.75 30,000 m3/day WTP 59.38 km water networks


10 Zhecheng 5.44 67.93 km water networks 32.10 km water networks

11

Nanyang

Dengzhou 10.66 30,000 m3/day WTP 88.77 km water networks


12 Xinye 14.56 30,000 m3/day WTP 66.45 km water networks


13 Sheqi 9.82 20,000 m3/day WTP 52.16 km water networks


14 Xichuan 3.00 25,000 m3/day WTP 45.67 km water networks


15

Zhumadian

Xincai 7.31 20,000 m3/day WTP 56.58 km water networks


16 Suiping 10.89 30,000 m3/day WTP 67.94 km water networks


17 Runan 11.02 30,000 m3/day WTP 67.96 km water networks


18 Xinyang Luoshan 9.97 54.91 km water networks 152.80 km water networks

19

Zhoukou

Shenqiu 13.31 20,000 m3/day WTP 68.84 km water networks


20 Xiangcheng 10.11 20,000 m3/day WTP 73.00 km water networks


22

B Wastewater Management 17.20 260.24 km of sewers 161.00km of sewers

1 Kaifeng Tongxu 1.39 79.71 km of sewers 25.90 km of sewers

2 Pingdinshan Baofeng 2.70 56.48 km of sewers 36.00 km of sewers

3 Shangqiu Suixian 3.66 17.98 km of sewers 18.00 km of sewers

4 Nanyang Xinya 2.70 32.90 km of sewers 33.00 km of sewers

5 Zhumadian Suiping 1.23 25.87 km of sewers 24.00 km of sewers

6 Xinyang Luoshan 5.52 47.30 km of sewers 24.10 km of sewers

Total 222.51 445,000 m3/day WTP 1209.30 km water networks 260.24 km of sewers

445,000 m3/day WTP 1286.50 km water networks 161.00 km of sewers

Table 2.3. Comparison of project outputs by component.

No Output Description At

Appraisal At

Restructuring Actual

Completed

A Water Supply

1 Number of county towns benefitted from the expansion and improvement of water supply services.

37 20 20

2 Cubic meters/day of water treatment plants proposed for expansion and construction.

790,000 445,000 445,000

3 Km of water distribution networks proposed for rehabilitation and/or construction.

2,400 1,209.3 1286.5

B Wastewater Management

4. Number of county towns benefitted from the expansion and improvement of wastewater management services.

11 6 6

5 Cubic meters/day of wastewater treatment plants proposed for construction.

105,000 0 0

6 Km of sewers proposed for rehabilitation and/or construction.

440 260.2 161

C Technical Assistance

7 Provision of technical assistance to carry out Regional Planning for Small Town Development.

1 1 Not

Implemented

8 Provision of technical assistance to carry out Water Sector Regulations.

1 1 Not

Implemented

9 Provision of technical assistance to carry out Project Management.

1 1 Partially

Implemented

10 Provision of technical assistance to carry out Utility Staff Training.

4 4 Partially

Implemented

11 Provision of technical assistance to carry out Detailed Engineering Design and Design Review.

1 1 Partially

Implemented

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Table 2.4. Outcome Indicators

Outcome Indicators Stage 2005 2006 2007 2008 2009 2010 2011 2012

1. No of people with access to improved water supply in project towns. (in 1,000)

Appraisal 1,550 1,550 1,516 1,921 2,569 3,191 4,202 4,202

Revised 847 850 835 1,062 1,426 1,772 2,351 2,360

Actual - 973 1,074 1,204 1,351 1,479 1,769 2,169

2. No of people with access to waste water management services in project towns. (in 1,000)

Appraisal 364 364 364 445 594 743 811 811

Revised 249 249 250 306 410 514 562 563

Actual - 297 321 388 410 457 604 697

3. Aggregate net profit after tax of participating WUCs. (in RMB Million)

Appraisal -2.3 -1.1 0.2 12.8 32 57.6 92.8 110.4

Revised -1.41 -0.68 0.12 7.94 19.91 35.90 58.11 69.34

Actual - -7.40 -8.78 -9.99 -8.63 -9.44 -9.58 -5.58

Table 2.5. Status of compliance with covenants

Project Agreement Reference

Description of Covenant Due Date Status

Article 2, Section 2.03 (b) (i)

Prepare, on the basis of guidelines acceptable to the Bank, a plan for continued achievement of the objectives of the Project.

Not later than December 31, 2013

Not complied

Schedule 2, Para 4(b)

Prepare, under Terms of Reference satisfactory to the Bank, and furnish to the Bank by March 30 and September 30 of each year semi-annual reports of the results of monitoring and evaluation activities with respect to the EMP (including monitoring the safety of the Project Dams) and RAP.

Commencing on March 30, 2007

Partially complied with

Schedule 2, Para 8

Furnish to the Bank a time-bound action plan, prepare in accordance with Terms of Reference satisfactory to the Bank (including actions to reduce cost related to inefficiencies), to improve its financial performance.

December 31, 2006


Schedule 2, Para 9 (c)

Prepare, under Terms of Reference satisfactory to the Bank, and furnish to the Bank a mid-term report, on the progress achieved in carting out of the Project.

About June 30, 2009


24

Table 2.6. Comparison of Project Targeted and Actual Outputs. Output Description At

Appraisal Actual

Completed

Water Supply

Number of county towns benefitted from the expansion and improvement of water supply services.

37 20

M3/d of water treatment plants proposed for expansion and construction.

790,000 445,000

Km of water distribution networks proposed for rehabilitation and/or construction.

2,400 1286.2

Wastewater Management

Number of county towns benefitted from the expansion and improvement of wastewater management services.

11 6

M3/d of wastewater treatment plants proposed for construction. 105,000 0

Km of sewers proposed for rehabilitation and/or construction. 440 161

Technical Assistance

Provision of technical assistance to carry out Regional Planning for Small Town Development.

1 Not Implemented

Provision of technical assistance to carry out Water Sector Regulations.

1 Not Implemented

Provision of technical assistance to carry out Project Management. 1 Partially Implemented

Provision of technical assistance to carry out Utility Staff Training. 4 Partially Implemented

Provision of technical assistance to carry out Detailed Engineering Design and Design Review.

1 Partially Implemented

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Table 2.7. Status of Compliance with Covenants. Project

Agreement Reference

Description of Covenant Due Date Status

Article 2, Section 2.03 (b) (i)

Prepare, on the basis of guidelines acceptable to the Bank, a plan for continued achievement of the objectives of the Project.

Not later than December 31, 2013

Not complied

Schedule 2, Para 4(b)

Prepare, under Terms of Reference satisfactory to the Bank, and furnish to the Bank by March 30 and September 30 of each year semi-annual reports of the results of monitoring and evaluation activities with respect to the EMP (including monitoring the safety of the Project Dams) and RAP.

Commencing on March 30, 2007


Schedule 2, Para 8

Furnish to the Bank a time-bound action plan, prepare in accordance with Terms of Reference satisfactory to the Bank (including actions to reduce cost related to inefficiencies), to improve its financial performance.

December 31, 2006


Schedule 2, Para 9 (c)

Prepare, under Terms of Reference satisfactory to the Bank, and furnish to the Bank a mid-term report, on the progress achieved in carting out of the Project.

About June 30, 2009


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Annex 3. Economic and Financial Analysis CHINA: Henan Towns Water Supply and Sanitation Project

3.1 Economic Analysis

1. The economic evaluation approach is set out in OP/BP, Handbook on Economic Analysis of Investment Operation. At appraisal, a cost-benefit analysis was carried out to assess the economic return. The three selected counties (Yiyang, Suixian, and Weishi) were analyzed in PAD. The same methodology was applied at project completion to re-assess the economic return of project activities in the three counties. 2. Methodology. Information comparison for the three selected counties is listed in table below. Estimated annual growth rates of population in Yiyang and Weishi are close to actual. Estimated annual growth rate of population in Suixian is higher than actual. Table 3.1. Comparison on Information of the Three Selected Counties At appraisal At Completion

County GDP per Capita (2004)

Population in downtown ('000)

GDP per Capita (2011)

Population in County

RMB 2004 2010 Annual

growth rate RMB 2006 2011

Annual growth rate

Yiyang 3,469 118 140 3% 24,904 607 695 2.7%

Suixian 4,122 59 85 6% 15,236 745 858 2.9%

Weishi 5,729 135 160 3% 24,642 792 941 3.5%

Tongxu 5,343 24,792 578 629 1.7%

Suiping 2,631 15,547 476 553 3.0%

Note 1. Data at completion and Per Capita GDP of Tongxu and Suiping are sourced from Henan Statistical Yearbook (2007, 2012). 2. Yiyang and Weishi were dropped from World Bank Loan Project. 2. In economic analysis, Tongxu and Suiping replaced Yiyang and Weishi in term of GDP per capita level.

3. Willingness-to-pay (WTP) for improved water. At appraisal, Social Impact Assessment Team did social survey and willingness-to-pay analysis. At completion, the ICR adopted some conclusion and updated WTP results. The main results of the WTP analysis are:(i) self-supplied consumers are expected to gradually switch to an improved water supply because their WTP is on average significantly higher than the future level of water tariffs; and (ii) gradual substitution to an improved supply is expected to occur even in poor counties in the central government’s list.

4. Table 2 below provides a summary of the results. The economic returns of Suixian are on the same level of appraisal. The difference is that population growth rate in downtown is lower than what was estimated at appraisal.

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Table 3.2. Comparison on Economic Internal Rate of Return Economic Internal Rate of Return

At Appraisal At Completion

Yiyang* 25.8% 21.9%(Suiping)

Suixian 25.0% 12.5%

Weishi* 33.6% 31.1% (Tongxu)

*Note: 1. Yiyang and Weishi were dropped from World Bank Loan Project. 2. In economic analysis, Tongxu and Suiping replaced Yiyang and Weishi in term of GDP per capita level. 3. Benefit was calculated based on population served by component.

3.2 Financial Analysis

5. Water Tariffs. Current water tariffs are listed in table below. Most counties have increased tariffs during 2006-2013. Water tariffs comparison is listed in Table 3. Generally, the range of water tariffs increase is different from that in PAD. At appraisal, the median tariff value was expected to increase from RMB1.2 to RMB1.6/m3 for residential, from RMB1.5 to RMB1.9/m3 for institutional, from RMB1.6 to RMB2.1/m3 for industries, from RMB1.7 to RMB2.4/m3 for commercial, and from RMB2.1 to RMB3.1/m3 for special commercial. At completion, the median tariff values are RMB1.35/m3 for residential, RMB1.55/m3 for institutional, RMB1.60/m3 for industrial, RMB2.00/m3 for commercial and RMB2.60 for special commercial. Table 3.3. Current Water Tariff (RMB/m3) Category Residential Institutional Industrial Commercial Special

Commercial

Qixian 1.1 1.5 1.5 2 1.9

Tongxu 1 1.6 1.6 1.7 2.1

Mengjin 2.3 2.8 3.2 3.2 5.2

Sheqi 1.35 1.55 1.55 1.8 3.5

Xichuan 1.4 1.5 1.7 2.3 2.6

Xinye 1.35 1.45 1.6 2 2.6

Baofeng 1.3 1.5 1.5 1.8 2.8

Jiaxian 0.94 1.31 1.41 1.41 /

Lushan 1.1 1.42 1.42 2.5 5

Dengzhou 1.6 2.45 2.45 2.45 8

Suixian 1.21 1.58 1.68 1.87 2.3

Xiayi 1.7 2 2 2 4

Zhecheng 1.21 1.58 1.68 1.87 2.3

Fengqiu 1.2 1.3 1.3 1.4 1.7

28

Luoshan 1.3 1.5 1.5 2 2.4

Shenqiu 1.9 2.1 2.3 2.3 4.6

Runan 1.85 2.85 2.85 2.85 4

Suiping 1.35 1.45 1.5 1.7 2.1

Xincai 1.55 1.9 1.9 1.9 2.6

Xiangcheng 2.2 2.75 2.75 2.75 5

Table 3.4 Water Tariff Comparison (RMB/m3) Planned At appraisal At completion

Category Tariff range Median tariff Tariff range Median tariff

Residential 1.2-3.2 1.6 0.94-2.30 1.35

Institutional 1.6-3.9 1.9 1.30-2.85 1.55

Industrial 1.2-4.0 2.1 1.30-3.20 1.60

Commercial 1.7-6.0 2.4 1.40-3.20 2.00

Special Commercial 1.8-15.0 3.1 1.70-2.50 2.60

6. Wastewater Tariff. At appraisal, eleven counties have sewer collection and WWT plants. Wastewater charges were to be set at RMB0.65/m3 for residential users, RMB0.8/m3 for institution, industrial and commercial users, and RMB1.0/m3 for special commercial users. In term of the Notice on Efforts to Increasing Urban Sewage Treatment Fee Collection to Promoting Development of Urban Sewage Treatment Sector issued by Henan Provincial Government, average wastewater tariff was increased to RMB0.8/m3 since January 1, 2005. The document is the latest and effective document on wastewater tariff. It is very obvious that current wastewater tariff level is lower than what is expected at appraisal. Table 3.5. Current Wastewater Tariff (RMB/m3)

Category Residential Special Sector and Self-service water supply facility

Other

RMB/m3 0.65 1.00 0.80

29

Table 3.6 Financial Analysis Result

No. County

FIRR Resident Tariff Resident Tariff

At appraisal At Completion Planned in PAD Current

Water Supply

1 Tongxu 10.96% 2.28% 1.4 1

2 Qixian 9.90% 3.21% 1.5 1.1

3 Mengjin 16.39% 7.43% 2 2.3

4 Baofeng 14.49% <0 1.4 1.3

5 Jiaxian 14.09% <0 1.56 0.94

6 Lushan 14.70% <0 2 1.3

7 Fengqiu 14.58% 4.54% 1.5 1.2

8 Suixian 10.17% <0 1.8 1.21

9 Xiayi 14.40% 9.39% 1.7 1.7

10 Zhecheng 12.66% 5.86% 1.4 1.21

11 Dengzhou 10.12% 4.51% 1.8 1.6

12 Xinye 9.57% <0 1.55 1.35

13 Sheqi 10.01% <0 1.55 1.35

14 Xichuan 11.69% 12.30% 1.55 1.4

15 Xincai 13.62% 2.57% 1.9 1.55

16 Suiping 10.36% 4.18% 1.6 1.35

17 Runan 10.71% 8.05% 1.58 1.85

18 Shenqiu 14.39% 6.34% 1.9 1.9

19 Xiangcheng 14.88% 6.93% 2.5 2.2

20 Luoshan 11.14% 6.68% 1.8 1.3

WWT

1 Baofeng 5.99% 0.09% 0.85 0.65

7. Financial internal rate of return (FIRR) was re-reviewed for the water supply and wastewater components for each county. At appraisal, FIRRs for water components are mostly above 10%, ranging from 9.6%-17.8%, and those for wastewater components are above 5%, ranging from 5.1%-6.1%. At completion, FIRRs, for water components1 are listed in the table below which are calculated at following assumptions: i) tariff will

1The components only refer to the component not dropped from World Bank Loan Project.

30

be increased by 30%, 20% and 10%per five year; ii) all plant will fully running at the 5th-7th year after completion; and iii) investment cost is the same as the level at appraisal. FIRRs are lower than what was forecasted at appraisal and the main reasons are: i) most counties' tariff are much lower than the level at appraisal; ii) currently, there are a lot of labors and staff employed for project operation and maintenance. Most company employed over 100 staff. It is necessary to improve staff's work efficiency; iii) low collection efficiency for water tariff (namely, high leakage rate). The collection efficiency are mostly lower than 70%, ranging from 50%-75%; and iv) actual investment costs of components are higher than cost estimate at appraisal. These components apply to Jiaxian, Xinye, Sheqi, Shenqiu and Xiangcheng.

Projected Financial Performance of WUCs

8. At appraisal, financial projections of participating WUCs were prepared. Two companies were discussed in details in PAD. They were Tongxu County Water Supply Company and Yuanyang County Wastewater Company. Yuanyang component was dropped from World Bank Loan Project and no information on company was available. 9. Tongxu County Water Supply Company. The proposed component isn't put in running in 2012. In 2012, company's revenue reached RMB3.86 million, operating cost was RMB2.87, profit before tax was RMB369,784 and net profit was 247,756. Collection efficiency is about 67%. At appraisal, it was expected that revenues would increase during the first four years of operation and stabilize at RMB22 million annually. Net profit before taxes would be above RMB3 million in the first year and with a net profit of 25% of the revenue. Based on current collect efficiency and operation ratio, it is very difficult to reach a revenue of RMB22 million and make profit. 10. The total asset value of Tongxu County Water Supply Company was RMB74.51 million and the debt was RMB69.88 million in 2012. The debt/equity ratio (ratio of long term debt to total debt and equity) was 79%. It is higher than expected satisfactory level of 60% at the start of appraisal. 11. If collection efficiency can't be improved and operation and management cost remains high, the net inflow of the Company will not be high as RMB 6 million annually as projected, from year six onwards at appraisal. Debt service coverage ratio in 2012 was 4.13 which are satisfied with the ratio of above 3 at appraisal.

Fiscal Capacity Analysis

12. Some counties were dropped from the project and there are 20 counties at completion. At appraisal, GDP per capita was used to measure economic strength and outstanding explicit debt over revenue was used for the debt burden (not total debt, since data on contingent liabilities are not available). The twenty counties' per capita GDP are listed in Table 7. It is very outstanding that GDP per capita of each county were improved greatly but most counties are still below the national level of RMB 35,083.

31

Table 3.7County GDP Per Capita (RMB/year)

County GDP per

capita County

GDP per capita

County GDP per

capita County

GDP per capita

2011

Qixian 18636 Jiaxian 20190 Dengzhou 17836 Shenqiu 14563

Tongxu 24792 Fengqiu 11359 Suixian 15236 Xiangcheng 17836

Mengjin 33641 Xichuan 21396 Zhecheng 15547 Runan 14407

Baofeng 41180 Sheqi 15214 Xiayi 14555 Suiping 23560

Lushan 11531 Xinye 31446 Luoshan 21451 Xincai 13833

2003(at appraisal)

Qixian N/A Jiaxian 5,280 Dengzhou 5,940 Shenqiu 2,664

Tongxu 5,366 Fengqiu N/A Suixian 4,122 Xiangcheng 4,757

Mengjin 5,285 Xichuan 5,365 Zhecheng 2,367 Runan 2,687

Baofeng 8,382 Sheqi 3,779 Xiayi 3,056 Suiping 5,446

Lushan 3,946 Xinye 7,626 Luoshan 3,946 Xincai 3,146

32

Annex 4. Bank Lending and Implementation Support/Supervision Processes CHINA: Henan Towns Water Supply and Sanitation Project

(a) Task Team members Names Title Unit Responsibility

Lending

Songsu Choi Task Team Leader SASDU Former TTL

Yonghui Fan Consultant EASUR Financial Analyst

Vellet E. Fernandes Program Assistant EASIN Program Assistant

Shunong Hu Sr Water Engineer EASCS Water Engineer

Hubert Mathieu R. Jenny Sr Municipal Engineer EASUR Engineer

Takuya Kamata Task Team Leader ECCUZ Task Team Leader

Xiaoping Li Sr Procurement Spec. AFTPW Procurement

Xiaofeng Li Operations Analyst UDRUR Operations Analyst

Elisa Muzzini Sr Economist SASDU Economist

Margaret Png Lead Counsel LEGLE Lawyer

Chongwu Sun Sr Environmental Spec. EASCS Environmental Safeguards

Yan Zhang Sr Urban Economist EASPS Economist

YoulanZou Consultant EASCS Resettlement Specialist

Supervision/ICR

KnudBitschLauritzen Consultant EASCS Utilities Financial Analyst

Yi Dong Sr Financial Management Spec. EASFM Financial Management

Vellet E. Fernandes Program Assistant EASIN Program Assistant

Jingrong He Procurement Spec. EASR2 Procurement Spec.

Shunong Hu Task Team Leader EASCS Task Team Leader

Yoonhee Kim Sr Urban Economist LCSDU Urban Economist

Xiaoping Li Sr Procurement Spec. AFTPW Procurement

Zheng Liu Procurement Spec. EASR2 Procurement

Edouard Henri Motte Consultant EASCS Urban Engineer

Claudio Purificato Consultant CEUPP Water and Sanitation Spec.

Xin Ren Environmental Spec. EASCS Environmental Safeguards

Mei Wang Consultant EASCS Economist

Songling Yao Sr Social Development Spec. EASCS Social Safeguards

Fang Zhang Financial Management Spec. EASFM Financial Management

Meixiang Zhou Social Development Spec. EASCS Social Safeguards

33

(b) Staff Time and Cost

Stage of Project Cycle

Staff Time and Cost (Bank Budget Only)

No. of staff weeks US$ Thousands

(including travel and consultant costs)

Lending

FY03 0.48 2.75

FY04 15.57 73.38

FY05 37.17 121.59

FY06 63.69 334.99

Total: 116.91 532.71

Supervision/ICR

FY07 19.30 89.90

FY08 13.70 72.66

FY09 9.27 58.68

FY10 11.65 80.05

FY11 10.63 46.33

FY12 11.63 68.80

FY13 6.20 23.27

FY14 2.13 14.85

Total: 84.51 454.54

Total: 987.25

34

Annex 5. Resettlement Implementation CHINA: Henan Towns Water Supply and Sanitation Project

1. As appraisal, the project supported (a) 37 water supply schemes (including the plants and water resource facilities) required that 1,005 mu of farmland be acquired, averaging 27 mu per scheme; and (b) four wastewater treatment schemes and 10 wastewater collection schemes needed 206 mu of land, or an average 41 mu for each. All areas involved farmland in the suburbs of the county towns. The water distribution system and sewage networks occupied farmland temporarily during construction, for which farmers were compensated for income reduction. 2. At project mid-term restructuring, many participating counties were dropped or decided to leave the project as discussed before. Approximately 660 mu land was permanently acquired mostly for water plant construction and wells for clean water sources. In total 713 households and 2,834 people were affected and adequately compensated. A total of 300m2 house were demolished and affected 4 households with 15 people, see details in the Table 5.1.

Table 5.1. Land permanently acquired by the project 19 subprojects

No. Subproject Actually acquired

land (mu) Households

affected Number of people

affected

1 Dengzhou Water supply 72.12 87 348

2 Xinye Water supply 31.76 53 202

3 Sheqi Water supply 10.69 10 40

4 Baofeng Water supply 20 14 53

5 Jia County Water supply 22 15 65

6 Lushan Water supply 24 130 520

7 Mengjin Water supply 24 36 104

8 Qiufeng Water supply 38.8 50 209

9 Qi County Water supply 47 41 152

10 Tongxu Water supply 21.59 49 200

11 Sui County Water supply 40 22 91

12 Xiayi Water supply 60 23 95

13 Zhecheng Water Supply 37.5 30 122

14 Xiangcheng Water Supply 44 41 172

15 Shenqiu Water Supply 22.77 17 72

16 Runan Water Supply 30 33 134

17 Suiping Water Supply 42.6 23 91

18 Xincai Water Supply 41.9 22 93

19 Luoshan Water Supply 14 7 29

20 Xichuan Water Supply 15 10 42

Total 659.73 713 2,834

35

3. Land compensation fees were conducted according to different types of land and the local resettlement policy. In order to meet the requirements of the affected persons, some compensation standards were improved during land acquisition and resettlement. A comparison between the planned and actual land acquisition and resettlement is shown in Table 5.2. Comparison between Planned and Actual Resettlement Activities under the Project

Description

Permanent Land

Acquisition (Mu)

Housing Demolition

(m2)

Temporary Land

Acquisition (Hectare)

Affected People

Total Cost (RMB

million)

P A P A P A P A P A

Water supply Component

1,005 644.95 - 300 - 80 - 1,041 97.67 36.47

Wastewater Component

206 - - - - - - - - -

Total: 1,211 644.95 - 300 - 80 - 1,041 97.67 36.47

Legend: P = Planned; A = Actual 4. The original cost estimate for land acquisition and resettlement was RMB97.67 million. The updated cost is RMB36.47 million, or RMB61.20million less after all has been fully settled. 5. In 2007, the Resettlement Research Center of Hohai University was contracted by the PPMO to carry out external resettlement monitoring. Four resettlement external monitoring reports were prepared from March 2007 to March 2012. The project was under mid-term restructuring in 2011.In 2013, the 5th monitoring and evaluation was done for the project completion evaluation.

36

Annex 6. Summary of Borrower's ICR and/or Comments on Draft ICR CHINA: Henan Towns Water Supply and Sanitation Project

Project Objective & Quality of Project Design and Preparation 1. Project Development Objective. The project objective is to help create or expand the water supply and wastewater management services and to improve the planning, regulatory and operational capacity of the sector institutions, thereby helping to improve the living conditions and the economic growth of participating county towns with relatively low incomes. During Project implementation, some of the Project scope was modified, and the general scope of the Project reduced. The remaining subcomponents were implemented based on the Project development objectives.

2. Project Change. Originally the Project had 42 subcomponents including 37 water supply subcomponents and 5 wastewater treatment subcomponents, individually distributed in 38 project counties. Up to the end of Project, only 21 subcomponents had been included comprising 20 water supply subcomponents and 1 wastewater subcomponents. These involved 20 project counties. The remaining subcomponents were deleted from the scope of the Project. Table 6.1 below is the summary of original list and the deleted subcomponents.

Table 6.1List of Components and Subprojects City Sub-components

A.Water Supply

Kaifeng 1 Weishi(Dropped); 2 Tongxu; 3 Lankao(Dropped); 4 Kaifeng(Dropped); 5Qixian

Luoyang 6 Mengjin; 7 Yiyang(Dropped); 8 Songxian(Dropped)

Pingdingshan 9 Baofeng; 10 Jiaxian; 11 Lushan

Xinxiang 12 Xinxiang(Dropped)，13 Yuanyang(Dropped); 14 Fengqiu

Xuchang 15 Xiangcheng(Dropped)

Sanmenxia 16 Shanxian(Dropped); 17 Yima(Dropped)

Shangqiu 18 Suixian; 19 Xiayi; 20 Zhecheng

Nanyang 21 Dengzhou; 22 Xinye; 23 Sheqi; 24 Xichuan

Zhumadian

25 Queshan(Dropped); 26 Xincai; 27 Xiping(Dropped); 28 Zhengyang(Dropped); 29 Suiping; 30 Runan

Zhoukou 31 Shenqiu; 32 Xiangcheng

Xinyang 33 Xixian(Dropped); 34 Luoshan; 35 Yangshan(Dropped)36 Xinyang(Dropped);

Jiaozuo 37 Mengzhou(Dropped)

B．Wastewater Management

Luoyang 38 Mengjin(Dropped); 39 Songxian(Dropped)

Pingdingshan 40 Baofeng

Xinxiang 41 Yuanyang(Dropped)

Xinyang 42 Huangchuan(Dropped)

C.Technical Assistance

Province 43 TA and Training

37

3. Amendments to the Project and Loan Agreements were signed on November 20, 2012. Within the Loan Agreement, 21 subcomponents remained, and as a result the percentage of expenditures to be financed was modified. In the Project Agreement, the project KPIs were updated.

4. The original completion date of the loan was June 30, 2013, which was not change, despite a request by the Project Management Office to extend the loan by 6 months. The Bank granted the project an extension of the final disbursement completion date by 4 months to October 31, 2013.

Achievement of Objectives and Outputs

5. Outcome Achievement of Objective. The project objective is to help innovation within the sector; to create or expand water supply and wastewater management services; and to improve the planning, regulatory, and operational capacity of government; thereby helping to improve the living conditions and the economic growth of the participating county towns with relatively low incomes.

6. The Project comprises 20 water supply subprojects, including 15 new water works, with a total water supply capacity of 395,000 tons per day, and total of 1286.4 km new water distribution pipelines. The total Project serviced a population reaching to 2,373,000, providing them with safe and reliable drinking water supply. The Project included one wastewater subproject, and six subprojects with construction of drainage pipeline networks. The new sewage pipeline network is in total 161.1 km long, providing new wastewater facilities to a total service population of 650,000 people.

7. Project Development Objective Indicators. During the Project’s Appraisal, the Project’s Development Objective Monitoring Indicators were set. However, since 21 subprojects dropped from the project, the indicators were revised during the Mid Term Review and updated after restructuring. The revised indicators began to use the figures of the populations which had new facilities in the project towns, and those which had new wastewater treatment facilities. These indicators were basically satisfied during the course of the Project. In summary, therefore, it was considered that the Project Development Objectives were generally met. It was noted, however, after-tax-profit figures of the water companies have not yet reached the results expected.

Cost and Financing

8. The total project costs at the time of the appraisal was US$ 335 million, whereas on completion has out-turned at US$ 204 million. The total completion cost of the Project id therefore 61% of the estimated project cost at appraisal.

9. The necessary counterpart funds were provided through a mixture of State Bonds, the resources of the Municipal Governments and the implementing agencies. The final financing split is 71.8% (RMB910.6million) relating to the World Bank Loan and 28.2% (RMB358.1million) relating to local funding. This compares with the 54.5% (RMB1.30billion) of World Bank Loan to 45.5% (RMB1.09 billion) of local funding determined at the time of the Appraisal.

38

Sustainability

10. The Project is judged overall to be sustainable. The sustainability of the Project needs to be viewed in terms of (a) whether an appropriate institutional arrangement has been set up to provide for managerial autonomy and sustainability;(b) the ability to operate and maintain the facilities; and (c) financial sustainability. The overall Project’s sustainability can be measured against these criteria.

Bank and Borrower Performance

11. World Bank Performance. The World Bank’s performance during the phases of project formulation, identification, preparation, appraisal and implementation for the project has been satisfactory. The diligence of World Bank managers and staff was widely appreciated by all the implementing agencies. The work of the World Bank Beijing Office was also highly appreciated in terms of instructions to Henan PPMO on World Bank procedures, review, comments, and approval of bidding documents. A number of World Bank Task Managers have worked on this Project, and they have made valuable contributions to the Project’s implementation.

12. Borrower’s Performance. The National and Municipal Government’s commitment to the project remained strong and supportive during all phases of the project. The PPMO and PIUs took active management functions throughout the project. Each component entity designated necessary resources to execute their respective components. The Municipal Government has provided all the component implementing units with sufficient counterpart funding. Local governments in the project districts/counties have strongly supported construction activities at all the component sites. The treated water supply projects have required approvals and coordination from district/county agencies for the laying of utility pipelines in busy city streets. Government support is also acknowledged for successful implementation of the project-related land acquisition and resettlement.

13. The county-level staff arrangements, their inputs and training were insufficient, being insufficiently considered for the project appraisal phase.

Lessons Learned

14. Highlights of Lessons Learnt from the Project. The project, in general, was successfully implemented and most of its original objectives were achieved. The entire implementation process has been a valuable experience for all the agencies involved, and capacity building of the PIUs has been achieved that will help them with their future projects. The Bank has not just simply helped finance the Project, but has also introduced advanced management practices for project implementation and enterprise operation, such as modern project management, international practices for bidding and contracting, construction supervision, performance assessment, and the completion evaluation. Significant capacity building has been achieved in procurement, contract and project management, operation and maintenance of the newly built facilities, environmental monitoring, and financial management. The Bank’s project implementation rules and

39

procedures on procurement, contract management and construction management were well implemented, and have been broadly accepted as fair procedures, giving greater assurance of a satisfactory outcome.

15. Suggestions for Future Projects. Further training and guidance could be provided to the PMO in preparing the Terms of Reference for recruiting Project consultants. For the locals it was their first such project. Examples of TORs from other similar projects in China and internationally could have been shared with the PMO.

16. In view of the special characteristics of the small cities project, and the inexperience of the small towns and design institutes, more resources and manpower might have been provided during the project preparation period, especially technical assistance and consulting services to support the planning and designs.

17. In view of the insufficient knowledge and skills of the staff of the PIUs in project management and implementation, extensive training to strengthen the PIU’s knowledge on World Bank’s procedures and methods could have been provided. The focus for such training could be on project procedures, bidding, land acquisition, resettlement, safeguards and engineering management.

18. The percentage of expenditure to be financed was increased from 66% to 95% after the project mid-term review. This greatly relieved the pressure on counterpart funding and sped up the progress of project implementation. As issues relating to the shortage of counterpart funding may be common, it is recommended that the disbursement ratio of the loans for the direct costs of the project be increased during the time of Project’s Appraisal.

40

Annex 7. List of Supporting Documents CHINA: Henan Towns Water Supply and Sanitation Project

1. Project Appraisal Document 2. Loan Agreement 3. Project Agreement 4. Resettlement Action Plans 5. Environmental Impact Assessment 6. Environmental Management Plan 7. Mission Aide Memoires and BTO Reports 8. Implementation Status Reports 9. Semi-Annual Progress Report 10. Amendment of Loan Agreement on 20 November 2012 11. Amendment of Project Agreement on 20 November 2012 12. Borrower’s ICR Report

II

II

II

II

II

I

II

II

I

I II

II

II

II

II

I

I II

II

II

II

II

II

II

KAIFENGKAIFENG

LUOYANGLUOYANG

PINGDINGSHANPINGDINGSHAN

XINXIANGXINXIANG

XUCHANGXUCHANG

SANMENXIASANMENXIASHANGQIUSHANGQIU

NANYANGNANYANGZHUMADIANZHUMADIAN

ZHOUKOUZHOUKOU

XINYANGXINYANG

JIAOZHOUJIAOZHOU

XinyangXinyang

YangshanYangshan

ZhumadianZhumadian

WuyangWuyang

XipingXiping

XincaiXincai

SuipingSuiping

ZhengyangZhengyang

Yu XianYu Xian

WeishiWeishiTongxuTongxu

YuanyangYuanyang

LushanLushan

BaofengBaofengJiaxianJiaxian

XiangchengXiangcheng

YanshiYanshiYiyangYiyang

MengzhouMengzhouMengjinMengjin

YichuanYichuan

RuzhouRuzhouSongxianSongxian

TaikangTaikang

LankaoLankao

LiangyuanLiangyuan

MinquanMinquan

ZhechengZhecheng

XiayiXiayi

NinglingNinglingSuixianSuixianQixianQixian

HuaHuaXianXian

TangheTanghe

XixiaXixia

XichuanXichuanFanchengFancheng

SheqiSheqiWanchengWancheng

XinyeXinye

MianchiMianchi

LushiLushi

ShanxianShanxian

YimaYima

LingbaoLingbao

LuanchuanLuanchuan

DengzhouDengzhouQueshanQueshan

PingyuPingyu

XixianXixian

LuoshanLuoshan

MingganMinggan

RunanRunan

HuangchuanHuangchuan

FengqiuFengqiu

AnyangAnyang

XinxiangXinxiang

KaifengKaifeng

ZhoukouZhoukou

ShangqiuShangqiu

XuchangXuchang

LuoheLuohe

XiangchengXiangchengShenqiuShenqiu

PingdingshanPingdingshan

NanyangNanyang

HebeiHebei

JiaozuoJiaozuo

LuoyangLuoyang

SanmexiaSanmexia

PuyangPuyang

ZHENGZHOUZHENGZHOU

H E N A NH E N A N

HUBEI

SHANXI

H E N A N

ANHUI

JIANGSU

SHANDONG

HEBEI

Xinyang

Yangshan

Zhumadian

Wuyang

Xiping

Xincai

Suiping

Zhengyang

Yu Xian

Weishi Tongxu

Yuanyang

Lushan

Baofeng Jiaxian

Xiangcheng

Yanshi Yiyang

Mengzhou Mengjin

Yichuan

Ruzhou Songxian

Taikang

Lankao

Liangyuan

Minquan

Zhecheng

Xiayi

Ningling Suixian Qixian

Hua Xian

Tanghe

Xixia

Xichuan Fancheng

Sheqi Wancheng

Xinye

Mianchi

Lushi

Shanxian

Yima

Lingbao

Luanchuan

Dengzhou Queshan

Pingyu

Xixian

Luoshan

Minggan

Runan

Huangchuan

Fengqiu

Anyang

Xinxiang

Kaifeng

Zhoukou

Shangqiu

Xuchang

Luohe

Xiangcheng Shenqiu

Pingdingshan

Nanyang

Hebei

Jiaozuo

Luoyang

Sanmexia

Puyang

ZHENGZHOUKAIFENG

LUOYANG

PINGDINGSHAN

XINXIANG

XUCHANG

SANMENXIA SHANGQIU

NANYANG ZHUMADIAN

ZHOUKOU

XINYANG

JIAOZHOU

Grand Canal

Huang He (Yello

w River

)

Huang

He (Yellow

River)

DanjiangkouReservoir

Han Shui

Tang

He

Bai H

e

Xi Chuan

Luo He

YahekouReservoir

Huai He

Ru He

Hong He

Beirui He

Ying He

Jialu He

Guo He

Huiji He

Jindi H

e

Wei

He

Qin He

38

1

2

3

5

6

7

8

9

10

11

12

13

15

16 17

18

19

20

21

22

23

24

14

25 26

27 31 32

33

34

35

36

37

28

29

30

4

111°

36°

35°

34°

33°

32°

31°

36°

35°

34°

33°

32°

31°

112° 113° 114° 115° 116° 117°

111° 112° 113° 114° 116°

KAIFENG MUNICIPALITY:WeishiTongxuLankaoKaifengQixian

LUOYANG MUNICIPALITY:MengjinYiyangSongxian

PINGDINGSHAN MUNICIPALITY:BaofengJiaxianLushan

XINXIANG MUNICIPALITY:XinxiangYuanyangFengqiu

PROJECT TOWNS*:

12345

678

91011

121314

XUCHANG MUNICIPALITY:Xiangcheng

SANMENXIA MUNICIPALITY:ShanxianYima

SHANGQIU MUNICIPALITY:SuixianXiayiZhecheng

NANYANG MUNICIPALITY:DengzhouXinyeSheqiXichuan

PROJECT TOWNS*:

15

1617

181920

21222324

ZHUMADIAN MUNICIPALITY:QueshanXincaiXipingZhengyangSuipingRunan

ZHOUKOU MUNICIPALITY:ShenqiuXiangcheng

XINYANG MUNICIPALITY:MingganXixianLuoshanYangshanHuangchuan

JIAOZHOU MUNICIPALITY:Mengzhou

PROJECT TOWNS*:

252627282930

3132

3334353637

38

BEIJING

HEILONGJIANG

JILIN

LIAONING

NEI MONGOL

HEBEI

BEIJING

TIANJIN

SHANXI

SHAANXI GANSU

QINGHAI

XINJIANG

XIZANG

NIN

GXI

A

SHANDONG

HENAN

ANHUI

JIANGSU

ZHEJIANG

SHANGHAI

SICHUAN

CHO

NGQIN

G

HUBEI

GUIZHOU

HUNAN JIANGXI

FUJIAN

GUANGXI GUANGDONG TAIWAN

HAINAN

YUNNAN

HONG KONG SARMACAO SAR

RUSSIAN FEDERATION

MONGOLIA

JAPAN

PHILIPPINES

VIETNAM MYANMAR

LAO

REP. OF KOREA

D.P.R. OF KOREA

P.D.R.

Sea ofJapan

YellowSea

EastChinaSea

PACIFICOCEAN

National Capital

Province Boundaries

International Boundaries

0 25 50 75 100

KILOMETERS

IBRD 34329R

NOVEMBER 2013

CHINAHENAN TOWNS WATER SUPPLY

AND SANITATION PROJECT

EXPRESSWAYS

EXPRESSWAYS UNDERCONSTRUCTION

HIGHWAYS

HIGHWAYS UNDERCONSTRUCTION

RAILROADS

SELECTED CITIES

PROVINCE CAPITAL

MUNICIPALITIES BOUNDARIES

PROVINCE BOUNDARIES

PARTICIPATING COUNTIES

COUNTIES DROPPED FROM THE PROJECT

N

N

This map was produced by the Map Design Unit of The World Bank.The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

GSDPMMap Design Unit