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Implementation Completion Report (ICR) Review - Cn-ningbo Water And Environment Project


  
1. Project Data:   
ICR Review Date Posted:
06/21/2013   
Country:
China
PROJ ID:
P086505
Appraisal
Actual
Project Name:
Cn-ningbo Water And Environment Project
Project Costs(US $M)
 292.0  374.7
L/C Number:
L4770
Loan/Credit (US $M)
 130.0  130.0
Sector Board:
Water
Cofinancing (US $M)
   
Cofinanciers:
Board Approval Date
  03/17/2005
 
 
Closing Date
12/31/2010 12/31/2010
Sector(s):
Water supply (55%), Sewerage (45%)
Theme(s):
Water resource management (40% - P) Pollution management and environmental health (40% - P) Municipal governance and institution building (20% - S)
         
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Ramachandra Jammi
Robert Mark Lacey Soniya Carvalho IEGPS1

2. Project Objectives and Components:

a. Objectives:
(from the Project Appraisal Document or PAD)

"To facilitate the expansion of water and wastewater services in Ningbo City and Cixi City respectively in an economically efficient and environmentally sustainable manner, thereby protecting public health, improving the environment, and supporting economic growth."

(from the Loan Agreement)
"To assist Ningbo in the expansion of water and wastewater services in Ningbo City and Cixi City in an economically efficient and environmentally sustainable manner."

This review is based on the development objective as stated in the Loan Agreement.

b. Were the project objectives/key associated outcome targets revised during implementation?
No

c. Components:
Component 1: Ningbo Water Supply (at appraisal: US$157.9 million; at completion: US$204.6 million): (i) raw water supply line consisting of an intake tower at Jiaokou reservoir and a 9.6 kilometer (km) tunnel; (ii) 500,000 cubic meters/day (m3/d) Maojiaping water treatment plant (WTP); and (iii) treated water transmission pipes, including a new 47 km ring main around Ningbo City, and 29 km of transmission pipes from the Maojiaping WTP to the new ring main. The component was part of Ningbo’s overall plan to provide a safe and reliable water supply to the entire city.

Component 2: Cixi Wastewater (at appraisal: US$128.4 million; at completion: US$166.6 million): (i) two wastewater treatment plants (WWTP), one located in the north of Cixi (100,000 m3/d) and one in the east of the city (50,000 m3/d); (ii) associated system mains and link sewers (230 km of pipes and 58 pumping stations); and (iii) engineered wetlands to demonstrate the feasibility of lower cost treatment of wastewater. This component was to provide wastewater services for all urban areas of Cixi and reduce pollution to Hangzhou Bay.

Component 3: Institutional Development (at appraisal: US$4.5 million; at completion: US$3.1million): technical assistance (TA) to improve water planning, utility pricing and service regulation, and enhance the Ningbo Water Supply Company (NWSC) and the Cixi Municipal Sewerage Company (CMSC) operational and business management capacities. This TA supported strategic business planning and consultant services for design review, project monitoring and construction management to ensure smooth project implementation.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates
Costs: The overall project cost at completion was 29 percent higher than at appraisal.
The increase in project cost was due to several reasons. Resettlement costs for the Ningbo and Cixi components were higher than expected. There was a change in the US$:RMB exchange rate from 1:8.27 in February 2005 to 1:6.67 in December 2010. Other increase in costs were incurred by the Ningbo Water Supply for alignment changes for the ring main in sections that required pipe jacking; the increased excavation for the treatment plant site; and the slope protection works that became necessary to stabilize the exposed sloping face of the excavation. Also, the Ningbo Municipal Government’s decision to raise the mandated discharge standard from Class 1B to 1A for all treatment facilities discharging into the Hangzhou Bay resulted in increased costs.

Financing: The IBRD Loan of US$130 million was fully disbursed. There were no other external sources of financing.
The disbursement percentage for consulting services was increased from 91% to 100% in July 2008, in line with a Bank decision to include tax expenditures in disbursements for consultant services. GEF blend financing that was planned for two wetlands (for enhancing treatment at the northern and eastern wastewater treatment plants in Cixi) was delayed till June 2006; hence wetlands for the eastern wastewater treatment plant were financed through the Loan proceeds, while the northern wetlands were financed through a stand-alone GEF project scheduled to close on December 31, 2011.

Borrower Contribution: The Borrower contribution, at US$244.7 million, was US$83.2 million, or 51.5% higher than foreseen at appraisal. This was explained by additional counterpart funding from implementing agencies to meet the higher project costs.

Dates: The operation of the Ningbo water supply system, including the Maojiaping water treatment plant began in 2009, a year later than anticipated in the PAD. All planned investments for the two wastewater treatment plants and 280 km of sewers (over and above the target of 230 km) were completed by the original closing date. The Cixi City Government established a fund to assist townships in constructing secondary and tertiary collection networks which helped to accelerate the connection of remaining households. The project closed on schedule on December 31, 2010.


3. Relevance of Objectives & Design:

a. Relevance of Objectives:
Approximately 95% of the urban population in China is served by a municipal water supply system, and 68% have access to improved sanitation. Seasonal water shortages, however, affect more than 400 of China’s 669 cities, and around 110 cities are facing serious shortages requiring severe water use restrictions. Water shortages cause an average of US$36 billion in economic loss per year in China. The lack of adequate wastewater collection and treatment infrastructure results in severe water pollution, with an estimated 88% of rivers and 70% of coastal seas
classified as moderately to highly polluted. The tenth Five Year Plan (2001-2005) called for increasing the percentage of urban wastewater treated from 15% to 45%, and all cities with populations greater than 5 million should have treatment coverage of over 60%.

Ningbo Municipality is located near Hangzhou Bay, and comprises six districts, three county-level cities (one of which is Cixi) and two rural counties. Ningbo City generally refers to the six districts.

At appraisal, Ningbo City faced a water crisis on two fronts – frequent shortages; and poor water quality - which impeded economic growth and endangered public health. The core urban area of Ningbo City was served by the Ningbo Water Supply Company (NWSC), established about 80 years ago, while about 25 township water supply companies served populations located around Ningbo City. The companies drew water primarily from highly polluted local rivers and used outdated treatment technology that diminished the quality of piped water. Due to the lack of storage reservoirs and reliance on local rivers, Ningbo City often experienced water shortages during the dry season. With the city’s rapid economic expansion, the demand for water was increasing from between 5 and 10% per year. In spite of an aggressive water conservation program, the duration and the intensity of the shortages were increasing. The long-term plan of the Ningbo Municipal Government was to expand the new water supply to all residents of Ningbo City by incorporating the surrounding township water supply companies within Ningbo Water Supply Company.

Cixi City, located on the shore of Hangzhou Bay, also had a rapidly expanding economy. At appraisal, only 10% of its wastewater in the city was treated, and heavy pollution loads were flowing directly to the environmentally sensitive Hangzhou Bay - an area reputed for rare bird species - creating environmental and public health concerns, and inhibiting potential investments. In 2004, a new company, Cixi Municipal Sewerage Company (CMSC), was established, to be responsible for all wastewater collection and treatment facilities. The new CMSC management faced the dual challenge of starting up a new company and managing a large capital works program designed to provide coverage to all urban areas and industries by 2010.

Against this background, the project objective was highly relevant at appraisal, and remained relevant and consistent with the two key themes of the Country Partnership Strategies for 2006-2010 and 2011-2015: accelerating the transition to a market economy through improving public sector management and delivery of services, and facilitating an environmentally sustainable development process, through better management of resources. The main beneficiaries of the water supply investments were the 1.2 million people of Ningbo City and the population in surrounding townships. The main beneficiaries of the wastewater investments in Cixi were about one million people in the urban areas of Cixi City and townships within the Cixi City administrative area.

The relevance of the project objectives is rated high.

b. Relevance of Design:
The results framework for the project was clear and logical. The project would finance physical investments and technical assistance to yield outputs in the form of civil works and improved capacity for water supply in Ningbo and wastewater treatment in Cixi. These outputs would result in outcomes in terms of water availability and quality that would be economically and environmentally sustainable. The outcomes for the projects: availability of water, water quality, and environmental and economic sustainability were amenable to measurement.

The relevance of the project objectives is rated substantial.


4. Achievement of Objectives (Efficacy) :

Efficacy is assessed in terms of two sub-objectives implied by the PDO.

1. To facilitate the expansion of water services in Ningbo City in an economically efficient and environmentally sustainable manner. Rated Modest

Outputs
The 500,000 cubic meters/day water supply system meeting Class II standards and 97% reliability started operating in 2010. The water treatment plant's spare capacity will be used as existing water treatment plants are phased out and water sales agreements with townships are executed.

Under the capacity building component, Ningbo Water Supply Company introduced organizational reform, clarifying staff responsibilities for key areas of accountability. An evaluation was also conducted to assess staff training needs. Ningbo Water Supply Company developed a Central Monitoring and Control System for the entire water supply and distribution network, which is a system-wide performance monitoring, reporting and evaluation system to support its operations. This system will provide much needed system performance indicators to further improve efficiencies A Ningbo City integrated water supply plan was developed, and by loan closure, nine of the 25 townships had already switched to the new water supply under water sales agreements with Ningbo Water Supply Company. Construction of new water distribution systems to service five townships in Beilun and Zhenhai was also in progress at loan closure. .

Outcomes
The percentage of high quality, reliable water supplied in Ningbo City – an outcome indicator - rose from the 2005 baseline of 10% to 83%, surpassing the target of 75%. There were no specific indicators specified for environmental sustainability or economic efficiency.


2. To facilitate the expansion of wastewater services Cixi City in an economically efficient and environmentally sustainable manner. Rated Substantial.

Outputs
Cixi has adequate wastewater treatment capacity, with tertiary treatment, to treat most of the wastewater generated.
Wetlands were constructed at each treatment plant in the last year, designed to achieve a discharge standard of Class 1A. Two wastewater treatment plants with a total capacity of 150,000 m3/d are operating at about 70% capacity. Spare capacity will be used when works on secondary and tertiary sewers connecting industries and townships are completed.

Cixi Municipal Sewerage Company introduced an institutional structure for managerial independence and accountability - an important factor for organizational sustainability. The Cixi Municipal Sewerage Companyinstituted a number of organizational reforms, including outsourcing the management of wastewater treatment plants, in order to ensure effective and efficient operation of its facilities, including operational standards, and staff training.

Outcomes
The wastewater treated in Cixi City increased from about 10% to 65%, meeting the indicator target following the successful completion of two wastewater treatment plants and associated networks. The wastewater treatment plants and the eastern wetlands now meet the discharge standards, namely, Class 1B and Class 1A, respectively.

These improvements have resulted in arresting Chemical Oxygen Demand (COD) and Biochemical Oxygen Demand (BOD) discharges of 2,439 tons and 711 tons, respectively, in the first year (2010) after completion of the treatment plants. These pollutants would have otherwise reached the environmentally sensitive Hangzhou Bay.

There was no specific indicator for economic efficiency.

5. Efficiency:

Ningbo Water Supply. The economic internal rate of return (EIRR) was 15.64% at project completion almost identical to the appraisal estimate of 15.59%, covering 55% of the project cost at completion. At both stages the same valuation techniques were used and the assumptions were the same for willingness-to-pay for improved water supply and cost savings from replacing bottled water.

Cixi Wastewater Treatment (covering 43% of the project cost at closure). According to the ICR, a cost effectiveness approach was adopted at appraisal to help select the least cost technology of wastewater treatment for the Cixi wastewater component. The ICR states (page 13) that the result from project implementation confirmed that the wastewater treatment technology was indeed selected based on the least-cost approach. No specific figures are provided as evidence. This technology provided the advantage of effluent of acceptable quality and lower operating costs, enabling compliance with the Class 1B standard agreed to at project appraisal. In addition, the wetlands at the eastern wastewater treatment plant were able to demonstrate the feasibility of enhancing the treatment level, at a lower cost (the ICR does not specify a benchmark), to achieve the Class 1A discharge standard, mandated by the Government after appraisal.

The overall project cost at completion was 29 percent higher than at appraisal partly due to a change in the US$:RMB exchange rate from 1:8.27 in February 2005 to 1:6.67 in December 2010. Also, the Ningbo Municipal Government’s decision to raise the mandated discharge standard from Class 1B to 1A for all treatment facilities discharging into the Hangzhou Bay resulted in increased costs. Resettlement costs for the Ningbo and Cixi components were higher than expected. Other reasons that may have been at least partly beyond the control of the borrower or the Bank included: an increase in costs that were incurred by the Ningbo Water Supply for alignment changes for the ring main in sections that required pipe jacking; the increased excavation for the treatment plant site; and the slope protection works that became necessary to stabilize the exposed sloping face of the excavation.

The operation of the Ningbo water supply system, including the Maojiaping wastewater treatment plant began in 2009, a year later than anticipated in the PAD. However, all planned investments for the two wastewater treatment plants and 280 km of sewers (over and above the target of 230 km) were completed by the original closing date. The Cixi City Government established a fund to assist townships in constructing secondary and tertiary collection networks which helped to accelerate the connection of remaining households. The project closed on schedule on December 31, 2010.

Taking all the above factors into account, overall efficiency is rated substantial.

a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:


Rate Available?
Point Value
Coverage/Scope*
Appraisal:
Yes
15.59%
55%
ICR estimate:
Yes
15.64%
55%

* Refers to percent of total project cost for which ERR/FRR was calculated

6. Outcome:

The relevance of project development objectives is high, and that of project design is substantial. Achievement of the first sub-objective is rated modest, given the lack of any indicator for both economic efficiency and environmental sustainability. The second sub-objective is rated substantial given the lack of any indicator for economic efficiency. The project completed practically all of its planned activities on time, and the higher than anticipated costs were at least partly beyond the project's control. Against this setting, and with a favorable economic internal rate of return and cost-effectiveness measures, efficiency is rated substantial , although no specific figures are provided to underpin the the least-cost claim for the wastewater component. On the basis of these individual ratings, overall project outcome is rated moderately satisfactory.

a. Outcome Rating: Moderately Satisfactory

7. Rationale for Risk to Development Outcome Rating:

Ningbo Water Supply Company (NWSC) has well trained staff as well as sufficient budget that will allow it to operate the new system efficiently. Moreover, the financial status of Ningbo Water Supply Company is expected to strengthen with the expansion of consumers, enabling it to enter into more water sales agreements, and effect further tariff revisions. Incremental water consumption is expected to reach 380,000 cubic meters/day from 2016 onwards and demand for water is high, so entering such agreements should proceed smoothly. Ningbo Water Supply Company as applied to the Ningbo Municipality to increase tariffs in 2011 to generate adequate revenue to meet full operating costs. Ningbo Water Supply Company has consistently generated adequate revenue to meet operation & maintenance costs, and the commitment of the Ningbo Municipal Government (NMG) to provide a quality water supply in Ningbo City will ensure necessary financial support when necessary. Over the long-term, Ningbo Municipality intends to consolidate the township water supply companies within NWSC - a significant innovation in itself, enabled by the project investments.

Although Cixi Municipal Sewerage Company (CMSC) is a relatively new utility, it has put in place a number of organizational reforms that ensure the effective operation of its facilities. It has recruited qualified staff and provided them with proper training. It has also established a special operational unit responsible for contracting out network maintenance to specialized and qualified contractors. Cixi Municipal Government’s commitment to support the development of the industrial zone in Cixi City and to address environmental concerns of pollution discharges to Hangzhou Bay will also ensure that risks to development outcomes will be low. The ambitious development plan of the newly-established Hangzhou Bay New Development Zone also assures low risk to development outcomes. CMSC plans are to: (i) encourage townships to expand the secondary and tertiary sewers and connect to the trunk sewer lines constructed under the project, for which the Cixi Government allocated RMB 200 million (about US$ 30 million) in 2010; (ii) propose to government to incorporate the township wastewater systems into the CMSC service area; and (iii) apply for another tariff increase. CMSC plans to make the wetlands for the northern treatment plant operational in 2011, following completion of necessary repairs and planting vegetation. Bank missions will continue to monitor the completion and operation of a stand-alone GEF project for the northern wastewater treatment plant, to ensure that the higher discharge standard is achieved in both wetlands.

a. Risk to Development Outcome Rating: Negligible to Low

8. Assessment of Bank Performance:

a. Quality at entry:
During project preparation, the Bank incorporated several tested good practices in system design, improved utility management, and long-term planning. In the case of Ningbo Water Supply these included ensuring reliability and quality of the water source that would be adequate to meet long-term demand; expanded coverage including all of Ningbo City and neighboring townships; uniform pressure system-wide through using the ring main (a 'ring main' is a loop servicing the entire distribution system); consolidation of water supply services to achieve economies of scale and improved service standards; long-term water supply planning and business development; and sustainability of operations through improved utility and financial management. Similarly for Cixi Wastewater, the expanded design coverage included all of Cixi City and townships; secondary wastewater treatment to Class 1B standard; enhanced, lower cost tertiary treatment in engineered wetlands to Class 1A standard; consolidation of all wastewater services in the long-term; and enhanced utility and financial management.

The project design was consistent with the priorities of both Ningbo and Cixi Cities and with the approach supported by the (Ningbo Municipal) Development and Reform Commission (DRC). Project design incorporated lessons from previous water sector operations in China including (a) the need to avoid creating excessive treatment capacity; (b) the policy of phased cost recovery for wastewater services allowing more time for consolidation; (c) the need to improve water supply planning; and (d) the need to modernize utility management. An institutional and financial reform agenda was also incorporated into the project design for (i) improving planning of water supply and water resource planning; (ii) improving financial management in the Ningbo Water Supply Company; (iii) establishing an autonomous company in Cixi City to manage wastewater services; and (iv) introducing financial performance targets to improve financial management of the two companies. Project design included financial performance criteria and covenants for both Ningbo Water Supply Company and CMSC. The performance requirements for the newly-established CMSC especially achieving full cost recovery for wastewater services in five years (including the construction period) were ambitious. This was addressed, however, through the definition of ‘total revenue’ in the legal agreements, which provided for ‘non operating income’, i.e., government subsidies, thereby facilitating a phased approach to full cost recovery.

The technical and financial risks to the project’s development outcomes sought to be mitigated through technical assistance (TA) and financial performance covenants for Ningbo Water Supply Company and CMSC; strategic business plan for Ningbo Water Supply Company to expand water supply services based on sound water supply planning; project management support to CMSC to enhance its capacity to implement the wastewater component; and technical assistance to improve business management and revenue to CMSC to enable it become commercially oriented. Project design appropriately addressed the risk that government might not adjust tariffs adequately to assure the financial viability of the two utility companies by providing for ‘non-operating income’, i.e., government subsidies, to meet shortfalls. The requirement for Ningbo Water Supply Company to provide 20% of annual average capital expenditure from internally generated revenue was highly appropriate for an established water supply company, but compliance depended on its ability to raise revenue through tariff revisions, which were not under its control. One risk not identified at appraisal, but which materialized during implementation was the potential risks associated with large volume excavation in rock involving blasting, for which a more generous physical contingency provision should have been provided.

In respect of monitoring & evaluation, additional indicators could have been used to measure the environmental and economic sustainability of expanding water and wastewater services. Apart from the indicators discussed in the section 10 on M&E below, others could have covered parameters such as the reduction of pollution discharges to Hangzhou Bay; the higher discharge standard achieved at lower costs in the engineered wetlands (in the Cixi wastewater treatment plants); and the utilization rate of the new water supply in the surrounding townships of Ningbo City.

Quality-at-Entry Rating: Satisfactory

b. Quality of supervision:
The task team conducted eight supervision missions over the five year implementation period, at regular intervals. Among other issues, the missions focused on focused on institutional development activities; compliance with loan covenants; and other agreements geared toward achieving sustainability. In the last 3 years of implementation, the Task Team Leader was based in the Beijing Office which helped to resolve issues more quickly, and enabled the Bank to stay closely associated with project implementation. The mid-term review was conducted somewhat later in the project than originally planned due to a change in task team responsibility. However, this delay had no impact on the project as no restructuring was necessary, and there were no loan savings. The task team devoted special efforts to guide the Cixi Municipal Sewerage Company (CMSC) through its consolidation and the challenges it faced in improving its financial systems and extension of services to the townships. The task team provided guidance on the design of wetlands that were to demonstrate lower cost wastewater treatment, and upgrade the discharge standard to Class 1A. Procurement and financial management specialists based in the Beijing office satisfactorily supervised implementation of all fiduciary aspects of the project specified in the legal agreements, and carried out adequate field visits to review physical progress.


Environmental and social safeguards specialists based in the Beijing office satisfactorily supervised implementation of all safeguard issues specified in the legal agreements. The team carried out adequate field visits to review progress and ensured the submission of the external monitor’s report on safeguard implementation.

Quality of Supervision Rating: Satisfactory

Overall Bank Performance Rating: Satisfactory

9. Assessment of Borrower Performance:

a. Government Performance:
The Ningbo and Cixi Municipal Governments were fully supportive of the project objectives because of the importance of improving water quality and expanding wastewater treatment to support economic growth. Both municipal governments increased water and wastewater tariffs as required in the legal agreements, although not enough to ensure cost recovery. The Ningbo Municipal Government (NMG) ensured preparation of the Ningbo City Integrated Water Supply Plan. The highly experienced Ningbo Municipal Project Management Office (NMPMO) provided excellent project management functions. The two municipal governments also ensured that counterpart funds were available as necessary for the Ningbo Water Supply Company (NWSC) and Cixi Municipal Sewerage Company (CMSC) throughout project implementation. For instance, as the Renminbi appreciated against the US dollar , NMG provided additional funds to complete the 18 slope protection works at the wastewater treatment plant Cixi also provided 15 percent towards the cost of sewage connections for towns and villages and provided subsidies to CMSC enabling it to meet the loan covenants. NMG approved two tariff increases during the project period, and stood ready to provide necessary financial support to NWSC to enable it to maintain a high quality water supply. Ningbo and Cixi municipal governments provided close oversight to ensure that resettlement activities conformed to the Resettlement Action Plans necessary stakeholder consultations were carried out; and affected persons’ livelihoods were restored. Compliance with dam safety requirements was also satisfactorily implemented.

Government Performance Rating: Satisfactory

b. Implementing Agency Performance:
Ningbo Water Supply company, with its well-established professional capacity, completed all the planned works within the original loan closing date. Cixi Municipal Sewerage Company, which was established in 2004 prior to project appraisal, performed satisfactorily, first concentrating on the large investment program and later addressing the institutional reform issues. Both the agencies were able to conduct adequate maintenance of water supply and wastewater services. The two implementing agencies received support from the Municipal Government for tariff increases and improving their financial viability, and complied with the project’s legal covenants.

Implementing Agency Performance Rating: Satisfactory

Overall Borrower Performance Rating: Satisfactory

10. M&E Design, Implementation, & Utilization:

a. M&E Design:
There were only two key performance indicators (KPIs) to measure outcome: one measured the increase in water supply and the second, the increase in wastewater collected and treated. However, these indicators did not capture the project’s role in improving coverage. There was no indicator to for measuring economic efficiency. The indicators for measuring compliance with the terms of the loan financial covenants specified only two tariff increases. These targets were too modest to enable the companies to meet their obligations and could not ensure compliance with the financial covenants in respect of adequate revenue to operations & maintenance, and the debt- service coverage ratio. The lone indicator for environmental sustainability was the discharge standards for water quality. However, the environmental indicators could have been enhanced to demonstrate the outcomes such as: (i) the impact of the reduction of wastewater discharges to Hangzhou Bay, through monitoring water quality in key rivers or streams leading to Hangzhou Bay; and (ii) water quality improvement achieved from the use of lower cost natural treatment through the use of wetlands in Cixi.

The implementing agencies Ningbo Water Supply Company and Cixi Municipal Sewerage Company were responsible for M&E. For the specified indicators, baseline data was provided where applicable and available.

b. M&E Implementation:
M&E was carried out primarily through monitoring of the agreed outcome and output performance indicators, and reported in the semi-annual progress reports. The consolidated semi-annual progress reports summarized physical and financial progress, financial expenditures by component, details of resettlement, revisions to the resettlement action plans (RAPs), and the progress in meeting the key performance indicators.

a. M&E Utilization:
The monitoring indicators were utilized by the two cities to adjust implementation schedules; promote industry sites to investors; monitor pollution levels in Hangzhou Bay, and make decisions on policy, investments and regulatory interventions by the local governments.

M&E Quality Rating: Modest

11. Other Issues:

a. Safeguards:
This project was placed in Environmental Assessment Category ‘A”. In addition to Environmental Assessment (OP 4.01), the safeguard policies for Involuntary Resettlement (OP 4.12) , Dam Safety (OP 4.37) and Cultural Property (OP 4.11) were triggered. According to the ICR (page 17), ”environmental and social safeguards specialists based in the Beijing office satisfactorily supervised implementation of all safeguard issues specified in the legal agreements. The team carried out adequate field visits to review progress and ensured the submission of the external monitor’s report on safeguard implementation.”


The ICR (page 10) reports that all implementing agencies established independent environmental management teams that were responsible for implementation, supervision and monitoring of the Environmental Management Plans (EMPs). Specific environmental protection measures included staffing and training, dust control, noise control, and disposal of sludge. The long-term internal and external environmental monitoring results confirmed that the environmental impacts during construction were mitigated and controlled to acceptable levels. Monitoring data also indicated that the applicable standards for water supply and wastewater treatment were met. No complaints on environmental issues were registered.

The ICR (page 10) also reports that the project “made adequate provisions to compensate for the losses of the affected population” based on the Resettlement Action Plan (RAP). Almost 70 hectares (ha) of land were acquired, in contrast to the 61 ha planned at appraisal, and 427 square meters structures were demolished, in contrast to 916 square meters planned at appraisal. Cost of resettlement was about 11% higher than the amount estimated at appraisal and was fully covered by Ningbo Municipality. The ICR states that the independent resettlement monitoring consultant confirmed that (i) the goal of the resettlement rehabilitation was achieved, the negative impacts on the incomes and livelihoods of the displaced families were restored and improved; (ii) compensation for property losses was appropriate, houses and facilities were reconstructed, and their living conditions were greatly improved, and farmers affected by the land acquisition were able to increase their family incomes satisfactorily; (iii) internal monitoring and independent monitoring played adequate roles in resettlement activities; and (iv) the Project Management Office carried out all involuntary resettlement related work.

The construction of the Zhougongzhai dam was satisfactorily completed according to approved designs. Annual progress reports on construction progress were submitted to the Bank, and emergency preparedness plans were also prepared for the Jiaokou and Zhougongzhai dams, in compliance with the project’s legal covenants for dam safety (ICR, page 10).

The project was not expected to affect any above ground cultural heritage sites. Chance find procedures were included in all contracts, but none was uncovered.

b. Fiduciary Compliance:
Procurement of works, goods and services was generally carried out in accordance with the Bank’s procurement policies. The Procurement Plan was updated periodically, contracts were awarded on time, and there were no cases of misprocurement.

The ICR (pages 10-11) reports that the project had an adequate project financial management system that provided information that the loan proceeds were used for the intended purposes. Audits were received on time and without any qualifications. The project accounting and financial reporting were in line with the regulations issued by the Ministry of Finance (MOF) and the requirements specified in loan agreement. Withdrawal procedures and funds flow arrangements remained appropriate, enabling the loan to be disbursed in a timely manner.

According to the ICR, pages (12-13) Both Ningbo Water Supply Company and the Cixi Municipal Sewerage Company complied with the financial covenants for the debt asset ratio, and maximum debt to asset ratio (0.7), and maintaining a debt service coverage ratio of greater than 1.3. The Ningbo Municipal Government adjusted tariffs for both Ningbo Water Supply Company and Cixi Municipal Sewerage Company, but the tariff levels remained low the former. Ningbo Water Supply Company has generated sufficient revenue to met immediate service delivery needs while the Cixi Municipal Sewerage Company generated adequate revenue to cover Operations & maintenance and debt requirements.

c. Unintended Impacts (positive or negative):
---

d. Other:
---



12. Ratings:

ICR
IEG Review
Reason for Disagreement/Comments
Outcome:
Satisfactory
Moderately Satisfactory
Lack of sufficient indicators or evidence for economic efficiency and environmental sustainability which were integral parts of the project objective. 
Risk to Development Outcome:
Negligible to Low
Negligible to Low
 
Bank Performance:
Satisfactory
Satisfactory
 
Borrower Performance:
Satisfactory
Satisfactory
 
Quality of ICR:
 
Satisfactory
 
NOTES:
- When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
- The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate.

13. Lessons:
Economies of scale across water utilities can be obtained through regional planning and implementation, but this requires commitment and cooperation between municipal governments. The prevailing practice in China is for each local government jurisdiction to construct its own facility for water supply and wastewater treatment. This approach increases unit costs; requires the levy of higher tariffs; and does not realize economies of scale that could be achieved through regional planning, rationalization and consolidation of services. The stated policy of Ningbo Municipality – to integrate the 25 water supply companies under NWSC – is a good example for the rest of China and other country situations. Municipal Government leadership and commitment are required to fully achieve this objective.

The degree of complexity of project design and components should be balanced with the institutional capacity of the implementing agencies. An often noted lesson from IEG's ICR reviews is the negative impact on project outcome from complex and ambitious project design that does not sufficiently take into account the existing capacity of implementing agencies or overestimates their ability to absorb technical assistance. This project illustrates the benefits of appropriately balancing project design with implementing capacity.

14. Assessment Recommended?

No

15. Comments on Quality of ICR:

The ICR is concise and clearly written. While it provides considerable data and information to assess the project’s performance, it could have been more diligent in providing data, as for instance benchmark figures for cost-effectiveness of the Cixi component of the project.

a. Quality of ICR Rating: Satisfactory

(ICRR-Rev6INV-Jun-2011)
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