INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

STAFF APPRAISAL REPORT

China: Shanghai Environment Project

June 17, 1994

The above-captioned Staff Appraisal Report for China: Shanghai

Environment Projectis a revised version of the report prepared following

the approval of the Project by the Executive Directors of the Bank and

does not include information deemed confidential by the Government of

the People's Republic of China.

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STAFF APPRAISAL REPORT

CHINA

SHANGHAI ENVIRONMENT PROJECT

June 7, 1994

IN ACCORDANCE WITH THE WDfRLD AWilSPbOUCY 0-i DISCLOSURE Of IWRMTON

rwou DOC.-MENT U AVAIABE TO 7E PVUX.

Environment and Urban Development Operations DivisionChina and Mongolia DepartmentEast Asia and Pacific Region

I

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

AIDAB - Australian International Development Assistance BureauBOD - Biological Oxygen DemandCIDA, Inc. - Canadian International Development Agency IncorporatedCOD - Chemical Oxygen DemandDC - Direct ContractingDRA - Design, Review and Advisory (Consultants)EA - Environmental AssessmentEPB - Environmental Protection BureauGDP - Gross Domestic ProductGIS - Geographic Information SystemGNP - Gross National ProductICB - International Competitive BiddinglTC - International Tendering Company (of Beijing)JGF - Japanese Grant FacilityLCB - Local Competitive BiddingMSW - Municipal Solid WasteNEPA - National Environmental Protection AgencyNS - NightsoilODA - Overseas Development AdministrationPC - Project ComponentSAA - State Audit AdministrationSAES - Shanghai Academy of Environmental SciencesSCC - Shanghai Construction CommissionSEMC - Shanghai Environmental Monitoring CenterSEP - Shanghai Environment ProjectSEPC - State Environmental Protection CommissionSEPO - Shanghai Environment Project OfficeSESAB - Shanghai Environmental Sanitation Administration BureauSFB - Shanghai Finance BureauSlTC - Shanghai International Tendering CompanySM - Shanghai MunicipalitySMG - Shanghai Municipal GovernmentSMI - Surveying and Mapping InstituteSMWC - Shanghai Municipal Waterworks CompanySOE - Statement of ExpenditureSS - Suspended SolidsSSC - Shanghai Sewerage CompanySSPCC - Shanghai Sewerage Project Construction CompanySUCIS - Shanghai Urban Construction Information SystemSUPDRI - Shanghai Urban Planning and Development Research InstituteSWWTP - Songjiang Wastewater Treatment PlantTA - Technical AssistanceUNDP - United Nations Development ProgrammeWHO - World Health Organization

I

CH]NA

SHANGHAI ENVIRONMENT PROJECT

LoAN AM PRoJEWr SummARY

Borrower: People's Republic of China

Beneficiary: Shanghai Municipality (SM)

Amount: $160 million equivalent

Terms: 20 years, including 5 years of grace, at the Bank's standard variableinterest rate.

Onlendsng Terms: From the Government of China to SM: 15 years including 5 yearsof grace at 90.63 percent of the Bank's standard variable interestrate, and a commitment charge at the Bank's standard rate, withSM bearing the foreign exchange risk. From SM to implementingpublic utilities: 15 years including 5 years of grace at the Bank'sstandard variable interest rate, and a commitment charge at theBank's standard rate, with the utilities bearing the foreign exchangerislc.

Project Description: The project would support achievement of a sustainableenvironment for the long-term economic and social development ofShanghai, while providing a competitive framework for industrialgrowth. In particular, the project would focus on improving andprotecting drinking water quality and controlling pollution. Themain components would comprise: (a) construction of a major rawwater supply intake, pump stations, multibarrel supply main,improvements to existing water treatment facilities and distributionnetwork; (b) engineering protection measures in the Upper HuangpuRiver Catchment; (c) wastewater collection and treatment inSongjiang Town; (d) construction of a water quality monitoringfacility; (e) investments in mechanical plant and civil works toimprove solid waste, nightsoil and hazardous wastes collection anddisposal; and (f) technical assistance and training, includingpreparation of a water supply master plan, geographic informationsystems development in support of planning and the ShanghaiReform Action Plan, water supply management and environmentalmonitoring, institutional strengthening, feasibility studies and futureproject preparation.

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Project Benefits: The sustained provision of a safe potable water supply for Shanghaiis a prerequisite to enable sustained public health and economicgrowth. The project would enhance the Shanghai MunicipalGovernment's (SMG) economic reform efforts throughimplementation of fiscally rational charges for water and wastewaterservices. The reform momentum would be supported by thesectoral breadth of the proposed investments, including waterquality and catchment protection, select wastewater treatment, solidwaste and nightsoil management and technical assistance andtraining.

Risks: Project risks include (a) possible reluctance by SMG or SongjiangCounty government to approve and maintain the tariffs and servicecharges needed for financially sound operations; (b) possibleunwillingness by SMG to enforce the pollution control laws withrespect to financially weak enterprises, resulting in continuedincreases in pollutant levels in the Huangpu River; (c) delays bySMG in implementing the institutional development and trainingcomponents; and (d) a serious toxic effluent spill that would closethe new water system intake for a period. Project design has beenstructured to minimize these risks.

Project Costs:L& L& Foreign IQ1(S million)

Drinking Water Quality Protection 111.8 115.0 226.8Upper Huangpu Pollution Control 25.4 22.3 47.7Songjiang Pollution Control 13.1 16.0 29.1Water Quality Monitoring 1.2 2.7 3.9Solid Waste/ Nightsoil Management 26.9 5.9 32.8TA, Training & Studies 2.7 8.1 10.8

Total Base CostLk 181 I1 10 1

Physical Contingencies 21.2 18.9 40.1Price Contingencies 59.0 6.4 65.4

Total Project Cost 26u 125.3 456

La Project-financed goods are exempt from import duties and taxes.a Includes cost of land ($15.0 million).

Hna ndg Plan: LQa EQe IQI($ million)

Shanghai Municipality 261.3 35.3 296.6IBRD 0.0 160.0 160.0

IDal 26k3 1925 456.

Estimated Disbursements:

Bank FY 1995 1226 1997 1 1229(S million)

Annual 20.0 46.9 54.8 24.9 9.6 3.8Cumulative 20.0 66.9 121.7 146.6 156.2 160.0

Poverty Category: Not applicable.

Economic Rate of Return: Not applicable.

Map: IBRD No. 25283

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CONTENTS

1 The Envirommental Sector .1...........................

A. Environmental Conditions in China 1B. Institutional Framework. 2C. Environment Sector Issues and Problems. 3D. Government Strategy. 4E. Bank Group Operations in the Sector. 5F. Bank Group Role and Sector Lending Strategy. 6

2 Project Background. 8

A. Project Area. 8B. Economic Reform in Shanghai. 9C. Environmental Conditions in Shanghai .10D. Project Formulation ............................. 14

3 The Proposed Project ............................... 16

A. Project Objectives .............................. 16B. Project Description .............................. 16C. Project Cost Estimates ............................ 19D. Financing Plan ............ 20E. Procurement ............. 20

This report is based on the findings of an appraisal mission which visited China in June/July 1993. Project team members included Mr. Geoffrey Read (Senior Sanitary Engineerand Task Manager), Mr. Terry Hall (Sanitary Engineering Consultant), Mr. LynnHolstein (GIS Consultant), Mr. Edward Ke-Siong Hum (Environmental EngineeringConsultant), Mr. Patrick McCarthy (Financial Consultant), Miss Linda Mih (OperationsAssistant), Mr. Tore Semb (Solid Waste Consultant), Dr. George Taylor (ChemicalEngineering Consultant), Mr. Lee Travers (Economist), and Mr. Zhang Zhun (InstitutionalConsultant). Assistance was also provided by Mrs. Chongwu Sun (Operations Officer),Miss Xiaolan Wang (Secretary) and Mr. Xiaoyong Wu (Interpreter) of the China ResidentMission. Peer reviewers for the project were Mr. Arthur Bruestle (EnvironmentalSpecialist), Mr. Daniel Coyaud (Senior Sanitary Engineer), Mr. Harvey Garn (EconomicAdviser), and Mr. Graeme Lee (Senior Financial Analyst). The managing Division isEA2EU. The Division Chief is Ms. Katherine Sierra and the Acting Department Directoris Mr. Zafer Ecevit.

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F. Disbursement . ................................ 23G. Land Acquisition and Resettlement .................... 24H. Environmental Impact Assessment .................... 25I. Project Monitoring, Reporting and Supervision .... ........ 25

4 Project Mnagement and Implementation .................. 27

A. Project Management ........... .................. 27B. Implementation Responsibilities ...................... 28C. Status of Engineering .......... .................. 30

S Finance .................... .................... 31

A. Financial Management ........................... 31B. Accounting ................................ 31C. Audits ..................................... 32D. Municipal Finance .............................. 32E. Water Supply ................................ 34F. Sewerage Services .............................. 37G. Solid Waste and Nightsoil Management ...... ........... 39

6 Economic, Social and Environmental Considerations .40

A. Project Justification .40B. Least-Cost Solution .40C. Project Benefits .40D. Economic Benefits .41E. Environmental Impact .43F. Affordability .44G. Project Risks .44

7 Agreements Reached and Recommendation ................. 45

ANE

1. Organization of Environment Protection in China ............... 492. Water and Air Quality Standards in China ................... 503. Detailed Project Description ............................ 524. DetaiedCostEstimatesj/ ............................. 695. Schedule of Contract Pacges Z/.6. Terms of Reference: Institutional Strengthening for SUCIS Implementation 717. Disbursement Sche dule ......... ..................... 768. Land Acquisition and Res ntPan .................... 9. EnvironmentalAssessment .............................. 9010. Implementation Schedule .............................. 104

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11. Environment Improvement Monitoring Indicators ............... 10512. Organization of Shanghai Municipal Government ............... 10813. Shanghai Municipal Government Financial Projections 2/ .14. Shanghai Municipal Waterworks Company Financial Projections 2/....15. Songjiang Wastewater Treatment Plant Financial Projections 2/.16. Solid Waste and Nightsoil Management Financial Projections 2/ .17. Economic Analysis ................................. 10918. Selected Documents and Data Available in the Project File ... ...... 120

TABLES IN TEXr

3.1 Summary Cost Estimates .............................. 193.2 Financing Plan .................................... 203.3 Procurement Arrangements ............................. 22

5.1 Summary of Past Municipal Finances ...................... 335.2 Summary of Key Financial and Monitoring Indicators for SMWC ..... 355.3 Summary of Key Financial and Operating Indicators for SWWTP ..... 375.4 Summary of Financial Performance of SESAB ................. 39

6.1 Economic Cost Summary for Project Alternatives ............... 42

IBRD 25283

1/ Select details deleted at Borrower's request.2/ Not shown, at Borrower's request.

46

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1. THE ENVIRONMENTAL SECTOR I/

A. EVmONmwAL CONDmONS iN CHINA

1.1 Chinese cities have been undergoing remarkable growth and transformationsince the early 1980s, reflecting trends in the economy at large. After two decades ofstagnation, urban population and incomes have been increasing along with industrialproduction. The urban population has grown by about 5 percent a year during the 1980s,and now represents about 30 percent of the total population of China. However, thegrowing urban population and industrialization are causing widespread pollution in China,and environmental problems have become a central issue in Chinese cities. Waterpollution poses the most severe problem and directly affects human health. Manyimportant water resources, which are already scarce in most regions, have been seriouslythreatened. Further, few countries are as dependent on coal as China, with annualconsumption of about 1 billion tons. The combustion of bituminous coal is causing seriousatmospheric pollution from airborne particulate and sulfur dioxide emissions in manyindustrial areas. Moreover, growing toxic/hazardous wastes are not effectively controlledand are emerging as a major environmental problem. In the absence of adequateenvironmental management programs, increasingly adverse environmental degradation hashad serious ramifications, including health hazards and undermining of sustainabledevelopment in the longer run.

1.2 The Chinese authorities are aware of the need to address environmentalproblems and recent official policy calls for economic development to proceed in tandemwith environmental protection; China is confronted with the dilemma that promotingeconomic growth, alleviating poverty and protecting the environment are not alwayscompatible, presenting difficult choices. The Government's good intentionsnotwithstanding, there remains considerable scope for improvements in integratingenvironmental management effectively into macroeconomic policies and economicdevelopment plans. In this connection, there are ample opportunities for economic andenterprise reforms as well as sound investments that meet both environmental andeconomic objectives, as exemplified by the proposed project. However, there are alsoimportant instances in which economic and environmental objectives conflict to someextent. In particular, increased energy and raw material production are both a corollaryof economic growth and a major cause of pollution. Further, some of the priority cleanupprograms are, by nature, not economically productive. As a result, environmentalprotection objectives are often compromised by the scarcity of natural and financial

I/ For a detailed discussion, pleasw e China Environmental Strategy Pa' (Report No. 9669-CEA,Apl 1992).

resources. Thus, the Chinese authorities are faced with the challenge of formnulating acoherent development strategy that would strike an appropriate balance between the twooften-conflicting objectives of economic development and environmental protection.

B. INSXtIrlEONAL FRAMEWORK

1.3 EnvironmentalManagement Arrangements. The institutional frameworkfor environmental management in China provides a solid foundation for designingapproaches for dealing with environmental and ecological problems. The StateEnvironmental Protection Commission (SEPC), which includes the heads of all relevantministries and agencies, and ultimately the State Council, are at the apex of decision-making on environmental policy in China. SEPC provides policy direction at times andresolves inteagency disputes, but it meets only quarterly and hence cannot regularly setoverall policy. The Commission relies heavily on its secretariat, the NationalEnvironmental Protection Agency (NEPA), which was established in 1979. This agencyis responsible for all aspects of environmental policy, although it shares authority withother agencies for certain specific natual resources. NEPA liaises with the environmentalprotection units within most of the ministries and state entrprises, and sets the overallpolicies and regulations governing provincial and municipal environmental protectionbureaus (EPBs). &nnc I presents the institutional framework for environmentalprotection in China.

1.4 Environment Policies. Most environmental protecdon policies areimplemented at the subnational level. Provinces are responsible for implementing nationalpolicies and are authorized to act in the absence of preemptive national standards; wherewarranted by local conditions, they may also impose more stringent standards than thoserequired by the national government. In all provinces and municipalities and in mostcounties around the country, EPBs have boen established under local environmentalcommissions headed by a deputy governor or deputy mayor. The municipal, urban districtand county EPBs are the basic units responsible for ensuring compliance withenvironmental regulations and standards within their respective jurisdictions. They collectpollution charges from all enterprises that discharge wastewater, ecept those owned bythe Provincial or Central Governments, from which the pollution charges are collected andused by the provincial-level EPBs.

1.5 Several Central Government ministries are concerned with water quality andwater pollution control, and they support NEPA in carrying out its environmentalprotection work As an example, the Ministry of Water Conservancy is responsible fordetermining policies on the allocation and management of surface water resources in thecountry. Its policies are implemented through river basin commissions, provincial waterconservancy departments and water conservancy bureaus at various local governmentlevels. The Ministry of Geology and Minerals and the corresponding local governmentdepartments and bureaus are responsible for allocation and management of groundwater.The Ministry of Construction is responsible for urban and regional planning, andinfrastructure development planning at the national level. It provides guidance to theprovinces on land use planning and infrastructure development, including urban water

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supply and sewerage. The Ministry of Public Health is responsible for providing guidanceto local public health bureaus on drinkdng water quality regulations.

C. ENVIONMEWNT SECTOR LSS AM PROBLEMs

1.6 Issues in Enviromnental Management. While China has taken a majorstep in the right direction for the management of pollution from new investments, muchimprovement is still needed in enforcing these requirements. Current industrial cleanupmeasures include mostly end-of-pipe treatment. Insufficient consideration has been givento more efficient and economical methods for reducing pollution through recycling, processmodification, and the use of less polluting inputs. Often when it is realized thattechnological upgrading is the preferred solution, lack of financial resources, especiallyforeign exchange, is an impediment. In many cases when highly polluting factories arerelocated (a process that is tantamount to closing an existing factory and constructing a newone), the same industrial process is used in order to take advantage of existing (old)equipment, and technological changes are deferred until funds become available. Inaddition, environmental assessments (EAs) are often performed too late to influence projectapproval, location and design, and are too narrow in scope (project-specific rather thanregion-specfic). For existing polluters, financing constraints and access to low wastetechnologies are major hindrances to accelerating the pace of pollution abatement.

1.7 Existing istmments. A pollution levy system that imposes penalties forexceeding national (or local) standards has been introduced to deter pollution. However,the present fee is set considerably below the marginal cost of treatment to meet the effluentstandards, and most enterprises pay the fee rather than invest in treatment facilities. Whilethe level of the levies was increased by about 40 percent in 1991, it remains inadequate.Further, there are shortcomings in the present structure of the pollution levy system.Thus, the EPBs have to resort to administrative measures to compel the enterprises to bringtheir pollution discharge levels into compliance with the standards. In the wake ofdeepening enterprise reforms and increased decision-making at the enterprise level, boththe levels and structure of the pollution levies need to be adjusted to provide greaterfinancial incentives to the enterprises to protect the environment.

1.8 Pollution levies are the major source of funds for environmental protection.Approximately 20 percent of the levy is retained by the local EPBs to cover their operatingcosts and the balance (80 percent) is returned to industrial enterprises for financingpollution abatement measures. However, the demand for pollution control funding farexceeds the amounts available from the levies at the current level of charging andcollection. While the efficiency of levy collection in the municipalities generally is high,collection efficiencies in rural county areas are often less than 50 pecent.

1.9 The Government is aware of these problems. The environmental agenda ofthe 1990s calls for enhancement in the formulation, monitoring and enforcement of thepollution levies. In this connection, a complete review of the levy charging, collection andallocation system is being undertaken by NEPA with the assistance of internationalconsultants under a Japanese Grant Facility (aGF)-financed study. The objective of the

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study is to design a system that would be more consistent with the polluter-pays principleand reduce the administrative burden on the EPBs through improvements in economic andfinancial mechanisms for environmental management. Recommendations emerging fromthis study would be implemented first on a pilot basis in selected cities, includingChangzhou in Southern Jiangsu.2/ Effective implementation of the pollution levy systemwould enhance the financial incentives for pollution control and increase mobilization ofresources for environmental protection.

1.10 Desin Parameters for Future Policy and Investments Initiatives. Muchneeds to be done to improve the environment, but financing constraints would probablyimpede pollution control for at least a decade. Therefore, the real issues are: (a) how toincrease mobilization of resources for the sector; (b) how to utilize the scarce resourcesefficiently and effectively to address prionty problems; and (c) how to improve(i) environmental policy, (ii) the economic system and (iii) the govemment bureaucracyto maximize pollution prevention and exert greater control.

D. GovERNMET STRATEGY

1.11 In rocet years, the Central Government and local authorities have tamengreater initiatives to improve the environment. Since 1979, China has enacted acomprehensive set of environmental laws, regulations and standards. The frameworkestablished through the Environmental Protection Act of 1979 and subsequent regulationsprovides for environmental quality standards for different types of areas, pollutiondischarge standards and levies for effluent exceeding the standards, and environmentalimpact assessments and permits for most investment projects. Air and water pollutioncontrol regulations were introduced in China in 1979 and 1988, respectively. The Chinesestandards for water and air quality are summarized in Annex 2. Solid waste legislation isstill in the draft stage, while legislation pertining to industrial and hazardous wastemanagement is incomplete and too recent to be effectively enforced.

1.12 The Chinese Environmental Protection Law and ancillary regulationsemphasize 'prevention first (including requirements for EAs on new projects) and"polluter pays principle" (including fees, fines and compensation payments). With a viewto achieving its environmental goals, the country has adopted an eclectic assortment ofcommand-and-control and incentive methods. Command-and-control approaches includeEAs; integration of environmental protection measures at project design, construction andoperational stages (the "three simultaneous actions' system); relocation of industry awayfrom densely populated urban areas; requirements for low-polluting technologies in selectedindustries; centralized treatment of wastes; vehicle inspection programs; and a system ofresponsibility contracts (with both voluntary and binding agreements with industrialenterprises and municipalities to achieve environmental targets). Economic incentiveapproaches include a pollution levy system (the principal method); taxes on polluting

Z Refer- Mi Sother Jisn EnviromulProtectionProjec-(Staf AppmiaReportNo.11370-CHA).

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inputs; and tax incentives. In addition, a system of standards and permits is the basis forthe pollution monitoring and control program.

1.13 Recent urban growth and industrialintion are a direct reflection of theeconomic and institutional reforms being pursued by China. Recognizing environmentalimprovement as an essential part of economic development, the Government hasestablished decentralized institutional and financial frameworks and sanctioned largeinvestments in the sector. While public revenues consist predominantly of general taxrevenues shared between the central and local governments, the Government recentlyintroduced several new taxes and charges that local governments can fully use forenvironmental invetment and operations, and has also been encouraging increases in usercharges and other means of financing environmentally conscious urban services.

1.14 Under the current decentralized system, the Central Government limits itsrole largely to guidance and interregional coordination, giving local governments greatlatitude to manage local affairs. Subject to tax-sharing arrangements and annualconsultation, the local governments are largely free to allocate resources according to theirpriorities. NEPA and the Ministry of Construction provide policy and technical guidancefor local governments on infrastructure and environmental issues and sanction majorinvestment projects. Even on technical and regulatory matters, the central agencies nolonger set rigid norms but allow local agencies to adapt guidelines and standards to localcircumstances. The Centrl Government, in fact, encourages them to take initiatives andexperiment with new technical and managerial solutions, not only to allow local adaptationof national guidelines but also to find "best practices" through diverse experimentation anddisseminate them in other parts of the country. The reforms and experiments promotedinclude increases in public service tariffs, and loan financing for pollution reductioninvestments. Various innovations and large-scale investments for environmentalimprovement have been pursued most actively in coastal areas, consistent with the CentralGovernment's development strategy that identifies these areas as the forefront of economicgrowth and interaction with the rest of the world.

E. BAK GROUP OpTnIoNs IN TE SEcroR

1.15 The Beijing Environmental Project (Credit 2312-CHA/Loan 3415-CHA) andthe Ship Waste Disposal Project (Credit 2391-CHA/Global Environmental Facility, GrantNo. TF28613) were the first two free-standing environmental operations in China. TheBank Group is currently involved in eight projects in the water supply/sanitation sectorsin China that also bear on pollution control. These projects, which are now beingimplemented satisfactorily, are: (a) Shanghai Sewerage Project (Credit 17794CHA/Loan2794-CHA); (b) Medium-sized Cities Development Project (Credit 2201-CHA/Loan 3286-CHA); (c) Liaoning Urban Infrastructure Project (Credit 2219-CHA); (d) Tianjin UrbanDevelopment and Environment Project (Credit 2387-CHA); (e) Changchun Water Supplyand Environmental Project (Credit 2457-CHA); (f) Rural Water Supply and SanitationProject (Credit 2336-CHA); (g) Southern Jiangsu Environmental Protection Project (Loan3582-CHA); and (h) the Zhejiang Multicities Development Project (Credit 2475-CHA).Despite the complexity of these ongoing projects, and the initial unfamility of project

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officials with some Bank Group procedures, implementation has proceeded satisfactorily;the recently approve Environmental Technical Assistance Project (Credit 2522-CHA) willassist in strengthening central environmental management capacity. Two environmentalprotection projects (in Liaoning Province and Hubei Province) are currently underpreparation. Our ongoing dialogue in this sector is expected to remain productive andopen.

1.16 The ongoing Shanghai Sewerage Project is being implemented successfully.Though behind schedule, this major infrastructure investment is being well managed, andconstructed under difficult logistical and technical conditions. There have been delays withimplementing financial improvements including wastewater tariffs; these difficulties havebeen resolved and the Shanghai Municipal Government (SMG) has demonstratedcommitment to active financial reforms.

1.17 The common elements of good practice learned under the above-mentionedprojects include (a) commitment of the concerned municipal authorities to implement theprojects; (b) strong project management offices, with adequate staff to provide the requisitecoordination among multiple agencies; (c) thorough project preparation based on detailedfeasibility studies prepared by competent agencies and consultants; and (d) well-preparedbidding documents and technical specifications. On the negative side, the Bank has noteda tendency for China and its local governments to postpone the implementation of effectivecost-recovery policies, and for the need to adopt long-term plans for the provision ofessential urban environment services. The proposed project would address these issues.

F. BANK GRouP ROLE AD SECR LENING STATEGY

1.18 The Bank Group's Country Assistance Strategy, presented to the Board inAugust 1993, highlighted the need to support economic reform while assistinginfrastructure modeniization in an environmentally responsive manner. The recentlycompleted Environmental Strategy Paper (Report 9669-CHA, April 1992) concluded thatBank environmental assistance to China should focus on long-term protection and resourceconservation programs, strengthening sector management and supporting financiallyefficient least-cost environmental investments. It found that most environmental andpollution problems are best addressed at the municipal and regional level becauseindividual sources of environmental degradation and, therefore, appropriate solutions wouldvary. These correspond to the principal centers of economic investment decisions. It isalso around these levels of government that China's environmental policies and institutionsare centered. Thus, it is at the municipal and regional levels that the Bank's comparativeadvantage can be used most effectively. As industry is by far the main source of pollutionin the country, the Chinese authorities have accorded the highest priority to environmentalprotection in targeted industrialized cities and regions, including the Shanghai Municipalregion, where the proposed project is located.

1.19 Environment-related sector work carried out by the Bank has included (a) anurban sector survey in Liaoning Province in 1985, in cooperation with the United NationsDevelopment Program (UNDP) and the Australian International Development Assistance

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Bureau (AIDAB); (b) an urban sector study in Zhejiang Province (Report No. 6612-CHA),August 3, 1987; (c) a study of the efficiency and environmental impact of coal use inChina (Report No. 8915-CHA), March 20, 1991; and (d) the Environmental Strategy Paperfor China (Report No. 9669-CHA), April 1992. That paper identified major environmentalissues and their underlying causes, assessed China's policies and institutional capabilitiesfor addressing them, recommended areas for improvement, and proposed a multiyearprogram of environmental assistance. This included a series of environmental operations,including the proposed project. We have recently commenced work, with NorwegianGovernment assistance, preparing with the central and the Hubei and Yunnan provincialauthorities an urban environmental services sector study, which will strengthen our sectoralunderstanding and underpin future lending.

1.20 In addition, various environmental studies are in progress: (a) three studiesunder the Global Environmental Facility related to (i) the reduction of greenhouse gasemissions; (ii) loss of biodiversity in China; and (iii) ozone-depleting substances; and(b) five national studies under the JGF-financed technical assistance program to NEPA,covering (i) the environmental impact assessment process; (ii) waste minimization andpollution control in rural industries; (iii) hazardous/toxic waste management;(iv) economic/financial mechanisms for environmental management (para. 1.10); and(v) environmental information management systems. Finally, under the MetropolitanEnvironmental Improvement Program financed by UNDP and the World Bank, BeijingMunicipality regularly exchanges information on environmental management andtechnology with four other Asian member cities.

1.21 It is concluded that Bank participation in the environment sector in Chinawould continue to focus on (a) developing appropriate strategies for improving andmaintaining the quality of the environment (these would seek to optimize total benefits,including those from opportunities to improve the efficiency of industrial production andthe use of natural resources); (b) prioritizing the measures needed for environmentalimprovement, identification and preparation of plans for the most cost-effectiveinvestments; (c) financing high priority investments that would produce environmentalbenefits in the short term; (d) strengthening the institutions responsible for enforcingenvironmental protection regulations, as well as those that operate community systems forenvironmental pollution abatement; and (e) promoting sound financial and cost-recoverypolicies to sustain healthy operation of pollution abatement.

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2. PROJECT BACKGROUND

A. PROJECT APEA

2.1 Shanghai Municipality (SM) is located in the Changjiang (Yangtze River)delta plain (see IBRD Map 25283). The municipality comprises a total area of some6,340 square kilometers (km2), consisting of 12 urban districts and 9 rural counties.Shanghai's built-up urban areas covers 280 km2. Ten contiguous urban districts (referredto as the "city proper") cover 254 km2, and two additional urban districts contain thesatellite towns of Minghang and Wusong. The city proper ranks as one of the densestsettlements in the world with 30,945 inhabitants per km2. Shanghai is the second-largestmetropolis in China, with a total 1991 population of about 14 million, significantly greaterthan Beijing (10.40 million) and Tianjin (8.77 million), and exceeded only by Chongqingin Sichuan Province; the urban population is about 9 million. The natural populationgrowth rate was just 0.37 percent in 1990, but growing numbers of contract workers aremigrating from remote rumral areas to fill jobs in Shanghai and increasing the demand forservices. By the year 2000, the municipal population is projected to rise to 17 million,with an urban population of 11 million. Shanghai is one of three provincial-levelmunicipal governments in China, the other two being Beijing and Tianjin, and isadministered by the Shanghai People's Municipal Government (SMG).

2.2 Shanghai is one of the country's oldest and most important industrial basesand is a center of commerce, science, higher education, trade, and finance. It is thelargest port in China and lies at the head of the Yangtze Economic Zone (comprising theMunicipality of Shanghai and the Provinces of Jiangsu, Zhejiang, and Anhui), whichcontains 182 million people and accounts for some 25 percent of the national output ofindustry and agriculture. This region has the potential of becoming one of the largestcenters of international trade and commerce in the Pacific region. The total labor forceof the Municipality is estimated at 9.5 million, of which 11 percent work in the primarysector, and 60 percent and 28 percent in the secondary and tertiary sectors, respectively.Shanghai gross domestic product (GDP) per capita reached Y 6,663 in 1991, well abovethe national average of Y 2,163.

2.3 Growth in the secondary and tertiary employment sectors is expected toexpand the labor force to 10.5 million as Shanghai enters the twenty-first century. Itsgross national product (GNP) in 1991 was Y 85.8 billion (4.3 percent of the national total),with 71 percent of value added coming from primary and secondary industry. Rapidgrowth in tertiary or servces sector activity is expected to contribute to increased GNPgrowth in future. Shanghai's average labor productivity of Y 29,183 in industry, averageannual wages of Y 3,375 per capita, and savings of Y 1,118 per capita are among thehighest in China. Its labor force is among the best educated but also the most elderly in

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China and employers face steeply rising pay-as-you-go pension costs. Shanghai industrygenerated Y 20.2 billion in pretax profits in 1990 (down from Y 22.8 billion in 1988) witha net fixed asset base valued at Y 43 billion and working capital of Y 31 billion. Thesestatistics, however, mask an economic growth rate that has been declining during the pastdecade and was among the slowest in China in 1990 (GNP grew by only 3.5 percent thatyear compared to the national average of 5.2 percent-a situation that is typical of China'sheavily industrialized, sta-owned local economies). In common with a national surge ineconomic performance during the first half of 1992, Shanghai showed a 14 percentincrease in GNP on an annualized basis. However, the sustainability of strong economicgrowth would depend on the effectiveness of the economic reform program on whichShanghai has embarked, as well as the availability of adequate infrastructure and efficientmanagement of the residual public sector and its finances.

B. ECONOMIC REFORM IN SHANGHAi

2.4 Policy reforms introduced over the past decade have already significantlyincreased the exposure of Chinese state industries to market forces, with measurableimpacts on productivity growth. Serious constraints remain, however, to the morefundamental economic restructuring of the urban industrial sector. Shanghai embodiesmany of the more serious problems of obsolescent industrial structure and locationalpattern, and has also suffered from the deteioration of its physical infrastructure base andneglect of pollution control. Although the city was initially slow to adopt system reformslaunched in other coastal provinces, the current ladership is developing ambitiousprograms for the transformation of Shanghai's economic base, including multisectoralreforms and an enhanced role for foreign investment.

2.5 In 1990, with Bank assistance a process was begun to (a) articulateShanghai's comprehensive reform policies, (b) establish detailed action plans forimplementation of reforms, and (c) to link the future public expenditure program andinstitutional development of Shanghai to the reform program. The main elements ofShanghai's proposed reform program are in the areas of enterprise reform, fiscal andfinancial reform, and housing, infrastructure and social security reform. Other importantrelated elements of the program included pricing and trade reform, land reform, and labormarket reform.

2.6 The integrated economic reform planning process was initiated in February1991 following an International Workshop on the Economic Development of Shanghaisponsored by SMG, the World Bank, UNDP and the Ford Foundation. The workshop'sconclusions recommended an agenda of reform priorities that were subsequently developedby SMG into a target timetable of preliminary objectives and measures covering fourgeneal, interrelated areas of action. This preliminary action plan was further developedby SMG through consultation with experts provided by the Bank and UNDP in September1991 into the Shanghai Economic Reform Action Plan. This Plan was subsequentlyadopted by SMG as its guiding policy framework and recognized by the Bank as a basisfor its future operations in Shanghai, including the proposed project, two tansport projectsand one industry project.

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2.7 Mobility of labor and the development of a land market are also objectivesof the reform program and would have an effect on the demand for new facilities andservices. In addition, SMG is placing great emphasis on the development of Pudong, onthe east bank of the Huangpu River. This development is seen, inter alia, as facilitatingenterprise restructuring, as well as urban restructuring in the existing city center, and istherefore regarded as contributing directly to the economic reform program goals.

C. ENVIRONMETAL CONDOM SIN SHANGI

2.8 The principal environmental problems in Shanghai derive largely from thedischarge of domestic and industrial wastewater to the Huangpu River and its tributaries,and from the poor management of solid and hazardous wastes, and of the considerablequantities of nightsoil. There is extensive urban and industrial development in thecatchment area of the Huangpu close to its confluence with the Changjiang and extendingmany kilometers upstream. Studies completed in late 1992 concluded that, thoughsignificant, air pollution was not a major environmental issue to be addressed through thisproject. Studies on this issue related to vehicular emissions would be carried out underthe soon-to-be-approved Second Shanghai Metropolitan Transport Project.

2.9 Water Quality. At present, 98 percent of Shanghai's potable water supplyis derived by abstraction from the middle and lower reaches of the Huangpu, and89 percent is abstracted at intakes at or close to Linjiang, in the middle reaches of theHuangpu, where the river is tidal. The Linjiang intake, some 46 km upstream of theconfluence with the Changjiang, was completed in 1987 as the first stage of a program bythe Shanghai Municipal Waterworks Company (SMWC) to improve the reliability of thewater supply by relocation of the major water abstraction upstream of pollution discharges.The longer-term intention was to relocate the abstraction point further upstream, at DaQiao, some 30 km from Linjiang.

2.10 The current abstraction of water from the Huangpu is of the order of20 percent of the average net river flow of some 315 cubic meters per second (m3/sec) andexceeds the 90 percentile flow. Thus abstraction of this magnitude would be expected tocause back flushing of pollution from further downstream in the river, impacting upon thewater quality.

2.11 Water movement in the Huangpu and its effect upon water quality atLinjiang is complex, principally because of the strong tidal influence of the Changjiang,the flow of which is about 100 times that of the Huangpu, and also of the exploitation ofthe upper Huangpu and its tributaries for irrigation. Under conditions of low natural flowin the Huangpu and high tidal influence of the Changjiang, there can be net upstream flowin the Huangpu for periods of up to several days. As a result of these effects, waterquality at Linjiang is influenced by four categories of polluting discharge to the Huangpuas follows: (a) discharges upstream of Linjiang; (b) discharges short distances downstreamof Linjiang that move upstream on a daily basis as a result of the normal tidal regime;(c) discharges further downstream that are carried upstream to Linjiang only under moreextreme tidal conditions and at low natural flows in the Huangpu; and (d) accidental

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pollution as a result of spillages or discharges either at factories located along the banksof the Huangpu or from ships (some 7,000 vessels per day pass the Linjiang intake).

2.12 The quality of water abstracted at Linjiang and passing into supply is underthreat in respect of the presence in the raw water of chemical species (such as chlorinatedorganic hydrocarbons) that are toxic or give rise to other health effects, and of chemicalsthat give rise to taste and to odor problems (such as phenol). These problems areexacerbated by the high concentrations of ammonia in the water that necessitate highdosages of chlorine for effective water disinfection.

2.13 Concentrations of phenol are measured routinely at a number of locations,including Linjiang, and data indicate that concentrations at Linjiang frequently exceed theChinese standard by a substantial margin and are at levels at which taste problems wouldoccur. There are wastewater discharges close to Linjiang, in particular that from theWujing Coke Works (10 kIm upstream of Linjiang), which could contain significantconcentrations of phenol.

2.14 A serious problem occurred at the Wujing Coke Works in March-June 1989when there were significant discharges of phenol to the Huangpu. Data for the Huangpuindicate that at Linjiang levels of phenol were up to 10-15 times the Chinese standardduring this period. It is important to note that phenol is derived primarily from industryand is the only pollutant of this type that is routinely monitored in the Huangpu, largelybecause of its particular importance in terms of taste problems in potable water. Itspresence on a regular basis must, however, be regarded as indicative of a range of otherchemicals of industrial origin that are not routinely monitored but that could also give riseto taste or health problems.

2.15 The problems of water quality in the Huangpu under conditions of lownatural flow, even at the proposed abstraction further upstream at Da Qiao, have beenrecognized for many years. Taihu Lake, to the west of Shanghai (see IBRD Map 25283),is the source of the Taipu River, a tributary of the Huangpu. In 1992, the Bank appraiseda project to increase the storage capacity of Taihu Lake, primarily for flood protectionpurposes, but also as a multipurpose water resource facility. It is now proposed todischarge water, at rates up to 300 m3/sec from Taihu Lake to the Taipu River at times oflow natural flow in the Huangpu (typically about two months per year) to augment flowsin the Huangpu and thereby sustain water quality at the abstraction point.

2.16 The Government of China has arranged for the construction of the TaipuPumping Station (for which a sum has already been allocated in the IDA-financed TaihuBasin Flood Control Project-Credit 2463-CHA) of a capcity at least 300 m31sec.Shanghai Municipality (SM) has acquired the right to require discharges of water fromTaihu Lake to safeguard the quality of water abstwacted for supply (para. 5.13).

2.17 Upper Huangpu Basin Management. The Upper Huangpu Catchment isa network of waterways that receive polluting discharges from domestic, industrial andagricultural sources. A protection zone has been declared, covering a 5 kam wide corridor

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on either side of the river, in which pollution control is more rigorous and developmentmore controlled. However, its effectiveness is limited because it is based mainly onadministrative boundaries rather than true catchment area. If water quality is to besustained at a level acceptable for potable supply then pollution control needs to be on anintegrated river basin basis, and covering all forms of pollution. Efforts are ongoing underthe Taihu Basin Project to establish coordinated water quality control measures for all threeprovinces in which the river basin is located (Jiangsu, Zhejiang and Shanghai).

2.18 There are significant discharges of industrial wastewater upstream of thepresent intake at Linjiang and there is also proposed development further upstream, notablyin Songjiang County. In particular, the population of Songjiang Town is expected to growby 36 percent by the year 2000 and this, coupled with associated industrial development,would substantially increase wastewater flows. Analyses of the industrial data basescovering some 600 major polluters with discharges exceeding 10,000 m3 per year havebeen undertaken. The analyses have identified 33 most polluting industries, determinedon the basis of annual discharge loads covering Chemical Oxygen Demand (COD),Biological Oxygen Demand (BOD), Suspended Solids (SS), Phenols and Oil. Atnegotiations, SMG provided an updated prioritized list of the 33 most polluting factoriesin the Wujing, Minhang and Songiang drainage basins, together with a phased programfor the factories to meet the effluent discharge standards by the end of 1996 [pan.3.5(b)(i)].

2.19 Municipal Solid Waste Management. The overall responsibility formunicipal solid waste collection and disposal rests with the Shanghai EnvironmentalSanitation Administration Bureau (SESAB) within SMG. However, in keeping withCentral Government policy of economic reform, there has been a decentralization of suchresponsibility during the past few years to the 14 district governments maling up SM.Generally, the streets of Shanghai are commendably clean, but there are seriousenvironmental and technical problems.

2.20 Of the approximately 12,000 tons of domestic, commercial and mixedindustrial wastes generated in Shanghai daily, only 60 to 70 percent of this is formallycollected and disposed of, but generally not in an environmentally acceptable manner.Disposal of the remainder, mainly mixed industrial waste, is largely controlled. Thebuilding and construction industry generates a further 3,000 tons a day of debris thatrequires disposal.

2.21 The current solid waste management system involves a complex system ofcollection, transfer, and transportation by water and land to the ultimate disposal sites thatare landfills located considerable distances from Shanghai. The collection vehicle fleet isold, the downtime of vehicles is unacceptably high, and replacement of vehicles andupgrading of the collection system is overdue. The dock transfer stations and the bargesystem are unsatisfactory from an environmental point of view because of spillage of wasteinto the water during loading/unloading operations.

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2.22 Waste tends to pile up during inclement weather conditions when the bargescannot be used to transport the waste to the two major landfills, Jiangzen and Laogang.Instead, an emergency disposal site on the banks of the Huangpu is used, and wastewaterfrom this site is a potentially serious source of pollution. Also, the Jiangzen landfill,which is located close to a proposed new airport, is polluting nearby water wells.Therefore, a solid waste transportation and disposal system needs to be developed that isenvironmentally sound and provides a reliable service under all weather conditions.

2.23 Efficient management of the collection and disposal of waste is impeded bythe Government's labor and purchasing regulations, resulting in an overemploymentproblem, and paradoxically, underutilization of the transportation fleet, and inadequatelyequipped workshops and facilities. Management is also compartmentalized, precluding costeffective and efficient operations and the development and use of an integrated managementsystem.

2.24 Nlghsoil Management. About 6.3 million people, or roughly 80 percentof the urban population, are served by nightsoil and septic tank collection and disposalsystems. The remaining 20 percent of the urban population are served by piped seweragesystems, which generally are combined sewers in the city center and separate sewers in theoutskirts.

2.25 About 2.5 million people use bucket latrines and are responsible foremptying their buckets at designated dumping stations, or in some cases, into septic tanks.Public toilets connected to septic tanks are emptied on a regular basis (weeldy or monthly),while the tanks serving housing developments and corporations are emptied every 2 to6 months. Nightsoil dumping stations are emptied daily.

2.26 The contents of dumping stations and septic tank sludge are collected intrucks and transported to barges for transport to storage facilities in the adjacent countiesfor subsequent use in agriculture. Because of limited capacity of the holding tanks at thedocks and the storage tanks in the adjacent districts, substantial quantities of sludge aredischarged into the rivers. Also, sludge barges cannot be operated during inclementweather conditions, and during these situations, the sludge has to be discharged into therivers.

2.27 The present nightsoil management system, responsibility for which rests withSESAB, entails a number of health risks during emptying of buckets at dumping stations,in the handling, collection, transportation and storage of the sludge, and particularly inapplication of raw nightsoil to agricultural fields. The sludge should be stored for areasonable period before being applied to fields, but the present treatment practices areinadequate in reducing pathogenic and other microorganisms.

2.28 SMG is committed to a policy of phasing out nightsoil collction anddisposal because it is unhygienic and costly, and because demand is declining as a resultof the preference of farmers for commercial ferdlizers. In the interim, the managementand operation of the service need to be improved, through improved maintance,

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replacement of old and worn-out equipment, expanded storage facilities, and improvedfinancial and management information systems.

2.29 Environmental Management. Responsibilities for the various facets ofenvironmental management rest with a number of agencies within SMG. There is potentialto improve planning and coordination among this multiplicity of agencies within SMG toavoid overlapping responsibilities, and to improve information flow, forecasting andanalysis capabilities through additional computerization and training.

2.30 The water and sewerage companies and other agencies providingenvironmental services would need to keep their tariffs and other service-related usercharges constantly under review in order to meet the financial objectives set for them bySMG. In particular, the pollution fees payable by industry for noncompliant dischargesof wastewater and emissions to atmosphere would need to be adjusted to generate anenvironment where polluting industries would find it more economic to provide pollutioncontrols and waste treatment than to continue to pay the pollution fees. A detailedevaluation and review of the pollution fee system is the subject of a JGF-financed technicalassistance program to NEPA.

2.31 In order to fund the massive amounts required for Shanghai to improve itsenvironment and service delivery, the proposed project would also complement theinitiatives being taken under the Shanghai Reform Action Plan (para. 2.6).

D. PRojEcr FORmATION

2.32 Recognizing that industry is the main source of pollution in China, theCentral Government has targeted Shanghai for receiving attention to improve itsenvironment. It therefore approached the World Bank for support in funding a long-termprogram of investments in environmental protection in Shanghai. At the same time, SMGrecognizes that the sustained protection of the environment is a prerequisite for long-termeconomic growth and considers that appropriate investments in environmental protectionare of the highest priority. Presently however, agencies are required to plan only up tothe year 2000. This time horizon is considered too short given that the proposed projectinvestments are expected to be completed by 1998. Therefore, understandings wereobtained during negotiations from SM that implementing agencies would be authorized andinstructed to adopt a 15-year planning horizon for infrastructure investments.

2.33 SMG has appointed a leading group to direct the preparation and executionof major urban projects, including the proposed project (para. 4.1). The group hasdirected that the project be prepared and managed by the Shanghai Municipal EPB. TheBank and bilateral agencies were approached for assistance in funding project preparation.As a result, the Overseas Development Administration (ODA) of the United Kingdom isfunding a major Design, Review and Advisory (DRA) consultancy to review the initialpreparation work already undertaken by SMG, and to assist in the completion of theremaining work supporting SMG-appointed consultants. It is also funding the ShanghaiReform Action Plan (para. 2.6), which would provide advice and assistance to the

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Shanghai Finance Bureau (SFB) toward improving the financial management of SMG. AJapanese grant is supporting the initial project preparation of the Solid Waste and NightsoilManagement component, and Norway is supporting a Hazardous Waste ManagementStudy. AIDAB is supporting the preparation of the Shanghai Environmental Master Plan.The Canadian International Development Agency Incorporated (CIDA Inc.) is supportingthe development of two systems: (a) a strategic planning information system and (b) awater supply management information system. The terms of reference for (a) the SolidWaste and Nightsoil Management, (b) the Hazardous Waste Management, and (c) theShanghai Environment Master Plan studies are included in the Selected Documents andData Available in the Project File (A=enx 1a.

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3. THIE PROPOSED PROJECT

A. PRoJEr OBjEcivEs

3.1 The principal objective of the project is to provide a sustainable environmentfor the long-term economic and social development of Shanghai, while providing acompetitive framework for industrial growth. In particular, the project would focus onensuring an adequate supply of potable water and halting the rapid deterioration of surfaceand groundwater quality in Shanghai. Specific objectives of the project are to:

(a) provide safe drinking water;

(b) identify and control sources of pollution;

(c) expand water quality monitoring;

(d) improve municipal solid waste and nightsoil management;

(e) improve municipal, environmental and utility management and finances; and

(f) support training, feasibility studies, and future investment projectpreparation.

3.2 The objectives of the project all contribute to protecting the Huangpu Riverand its tributaries, the principal source of water used by Shanghai citizens and industry.Unacceptable water quality at current intakes necessitates the relocation of the mainmunicipal water intake. The new intake itself would soon become unusable were not anumber of complementary investments undertaken to protect it. These include seweragesystems in Wujing and Minhang districts and Songjiang county, those areas closest to thenew intake site, to divert and treat wastewater flows; improved handling of nightsoil andmunicipal solid waste to end direct dumping in the river and leaching from landfills;expanded water quality monitoring to allow more rapid response to impending problems;and institutional strengthening to provide municipal managers with the information andskills needed to sustain improved water quality.

B. PRoJEn DESCRPTnON

3.3 The project would comprise financial and policy initiatives, and planning andmanagement reforms, supported by an investment program of environmentally orientedcapital works and related institutional strengthening. The financial and policy initiativesdeveloped as part of project preparation would focus on: (a) improving operational

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efficiency of urban services; (b) mobilizing resources through tariff increases and servicecharges; and (c) long-tenn environmental planning and investment programs. A summarydescription of the various project components is given below. A detailed description isgiven in Annex 3.

3.4 The investment program would comprise the following project components(PCs). The indicated costs include physical and price contingencies.

(a) PC1-Drinking Water Quality Protection ($291.7 million). Theconstuction of a major raw water supply system for SM, including anintake on the Huangpu River at Da Qiao (about 5.4 million ml/daycapacity), pumping stations, multiple-barrel low-pressure supply main (about25 km multiple-barrel culverts varying from 3.25m x 3.75m to 2.2mdiameter), surge protection, telemetry and controls, selected improvementsto the existing treatment facilities and distribution network, and thestrengthening of operational and financial procedures.

(b) PC2-Upper Huangpu Catchment Pollution Control ($64.6 million).The protection and improvement of water quality at the new Da Qiao intakeand conveyor system through the construction of wastewater conveyancesystems in Wujing and Minhang neighborhoods, including the provision ofsecondary and teriary sewers.

(c) PC3-SongJiang Wastewater Pollution Control ($38.9 million). Theprotection and improvement of water quality at the new Da Qiao intake andconveyor system through the extension of the domestic and industrialwastewater collection and treatment facility in Songjiang Town, includingprovision for system connections.

(d) PC4-Pollution Sources and Water Quality Monitoring ($4.7 million).The construction of a water quality monitoring laboratory at the new watersupply intake, together with associated sampling and analytical equipmentto monitor quality in the Upper Huangpu Catchment.

(e) PCS-Municipal Solid Waste and Nightsoil Management ($43.9 million).The development of appropriate solid waste and nightsoil managementstrategies, and investments in mechanical plant and civil works for systemimprovements.

(f) PC6-Institutional Strengthening through Technical Assistance andTraning ($12.8 million). Support for and strengthening of environment,financial and utility management and operations, training, preparation of aShanghai Water Supply Master Plan, geographic iformation systemsdevelopment in support of plannig and the Shanghai Economic ReformAction Plan, water supply and wastewater management and environmentalmonitoring, istitutional strengthening of SESAB including the management

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of workshops and landfill operations, feasibility studies and future projectpreparation. Two key environmental studies currently under way andfinanced by others, namely the Shanghai Environment Master Plan and theHazardous Waste Management Study, would also be implemented inpaadel.

3.5 The following assurances and understandings were obtained duringnegotiations:

(a) PCI-Dnkldng Water Quality Protection: rf) the understanding thatSMWC would, in planning the investments, make adequate provision for theeventual expansion of the Da Qiao intake and conveyor to Linyiang, in orderto caterforpossible abstractions to meetfuture demand beyond the existingcapacity of 5.4 million m'Iday; and rii) the assurance that SMWC would,under its normal program of works, and within a timeframe acceptable tothe Bank, compkte the following items of work, which are outside of thescope of this comnponent but which are essential to ensure the compkteintegrity ofproject investments: (a) Longxi Treatment Work; (b) trunk mainprogram (c) Linjiang pumps and main to Yangsi, (d) Linjiang TeatmentWorks; and (e) Linjiang Tunnel and Shafts;

(b) PC2-Upper Huangpu Catchment Pollution Control: r) the assurance thatSMG would cause the 33 most polluting industries to complete processchanges, or construct pretreatment facilities, within a time-bound ActionPlan agreed with the Bank, in order to meet relevant discharge standards;and ri) the understanding that SMG would cause industries in Wujing andMinhang neighborhoods to pretreat as necessary and make connections tothe 'northern trunk sewer, when it is completed;

(c) PCS-Municipal Solid Waste and Nightsoil Management. (i) the assurancethat SMG would inplement a time-bound Action Plan, agreed with the Bank,for connectng existing septc tank and nightsoil facilites to the city andcounty sewerage systesu, and rii) understandings that SMG would (1) causeSESAB to, before December 31, 1996, assume responsibility for providingcollection and saife disposal services for nonhazardous industrial solidwastes on request from industries, and (2) ensure that treatment anddisposalfacilities for nonhazardous industrial waste have been establishedbefore the temporary landfills are closed down.

(d) PC6-Instiulonal Strengthening through Technical Assistance andTraining: the assurance that SMG would implement a tme-bound ActionPlan, agreed with the Bank, forprocurement, management, inplementatonand monitoring of this component.

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C. PROJECr CoSr ESIATES

3.6 The estimated cost of the project, including contingencies, is Y 3,972.5million ($456.6 million). The foreign exchange component is Y 1,698.7 million ($195.3million), or about 43 percent of project costs. A summary of cost estimates is given inTable 3.1. Detailed cost estimates are provided in Annex 4.

Table 3.1: SummARY Cosr ESsnmAs

S Total* million

3 jjllg 2 Foreign bassLocal Foreign Total Local Foreign Total exchange coat.

Drinking wvter qualtyprotection 972.4 1,000.3 1,972.7 111.8 115.0 226.8 50.7 64.6Upper Buangpu catch-meat PC 221.4 193.6 415.0 25.4 22.3 47.7 46.7 13.6SongJ iag vastavater

PC 114.4 139.1 253.5 13.1 16.0 29.1 54.9 8.3Water quality mai-toriag 10.1 23.7 33.8 1.2 2.7 3.9 70.1 1.1SolUd vast & night-aoil ma-ag _ nt 233.5 51.2 284.7 26.9 5.9 32.8 18.0 9.3TA, tra4i4ig & studies 23.6 70.8 94.4 2.7 6.1 10.8 75.0 3.1

Total BaselineCosts 1.575.4 1.47L.7 3.054.1 1l.l 170. 0 ZSl.A 48.4 100.0

Physical contingencias 185.0 164.0 349.0 21.2 18.9 40.1 47.0 11.4Price contingencies 513.4 56.0 569.4 59.0 6.4 65.4 9.8 18.6Total ProsectCosts 2273.0 1.698.7 3.972.5 261.3 195.3 456.6 42.8 130.1

3.7 Project cost estimates are based on the DRA (para. 2.33) consultants'engineering designs, reflecting price levels prevailing in June 1993. The unit prices werederived through a reconciliation of data from the following sources: (a) quotadonsobtained from manufacturers and supplicrs; (b) prices of goods and works from recentcontracts in China; (c) construction costs according to prices published by the Government,adjusted for inflation; and (d) the findings of a 'Cost and Rates Study' commissioned bythe Bank during project preparation, funded partly by the Bank-administered AustralianTrust Fund. Physical contingencies of 15 percent have been applied to base costs for mostcomponents, except for the Drinking Water Quality Protection component where10 percent has been adopted to reflect the confidence level of the estimated cost of thiscomponent. To provide for inflation during project implementation, the following annualescalation rates have been applied: for local expenditures (excluding civil works),5.45 percent for the second half of 1993, 12 percent for 1994, 9 percent for 1995,8 percent for 1996, 7.2 percent for 1997, and 6.5 percent for 1998; for civil works,15 percent for the second half of 1993, 20 percent for 1994, 12 percent for 1995,10 percent for 1996, and 8 percent for 1997-98; for foreign expenditures, 0.65 percent forthe second half of 1993, 1.2 percent for 1994, 2.4 percent for 1995, 3.2 percent for 1996,3.4 percent for 1997, and 3.2 percent for 1998. Project management and engineering

overhead costs of 12 percent are also included.

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D. FINANCING PLAN

3.8 The financing plan for the project is shown in Table 3.2.

Table 3.2: PRoJEcr FNANCING PLAN($ million)

Source Local Foreign Total Percentage

Shanghai Municipality 261.3 35.3 296.6 65.0IBRD 0.0 160.0 160.0 35.0

Total 261.3 195.3 456.6 100.0

3.9 The loan would be made to the People's Republic of China. The loan of$160 million equivalent would be for a 20-year term, including a 5-year grace period atthe Bank's standard variable interest rte. The proceeds of the loan would be onlent to SMon terms and conditions satisfactory to the Bank, at 90.63 percent of the Bank's standardvariable interest rate for a 15-year period including 5 years' grace, and a commitmentcharge at the Bank's standard rate, with SM bearing the foreign exchange risk. SM wouldonlend the proceeds to SMWC, the Songjiang Wastewater Treatment Plant (SWWIP) andthe Shanghai Sewerage Company (SSC) at the Bank's standard variable interest rate for a15-year period including a 5-year grace period. These agencies would bear thecommitment charge and the foreign exchange risks. Assurances wre obtained duringnegotations on the onlending temzs and conditions between SM and SMWC, SSC andSWWTP. E&cep: for PC5-Mwucipal Solid Waste and Mghtsoil Management component,which would befuy financedfrom local budgetary allocations, SM would make the loanproceeds available to the remaining implementing agencies on a grant basis throughbudgetary allocations. The execution of subsidiary loan agreements between SM and (a)SMWC, (b) SSC, and (c) SWWTP, satisfactory to the Bank, is a condition ofeffectiveness. A separate Project Agreement, including operational, financial andmonitoring covenants, would be executed between SM and IBRD. Approval of the LoanAgreement by the State Council is a condition of loan effectiveness.

E. PROCUREMENT

3.10 Procurement procedures and arrangements satisfactory to the World Bankwere agreed with SMG. The Shanghai ntenational Tendering Company (SITC) and theInternational Tendering Company of Beijing (ITC) have been appointed procurement agentsfor the project. Both companies are experienced and competent procurement agents thatare familiar with, and have had recent and relevant experience in, international competitivebidding (ICB) work on World Bank Group-financed projects. The tender documents usedin the project would be based on the standard bid documents that were prepared by the

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Ministry of Finance and approved by the World Bank Group. All works and goods wouldbe packaged whenever practical to attract maximum international competition.Prequalification of bidders would be undertaken for all civil works contracts with anestimated value over $10.0 million each and for all goods contracts with an estimatedvalue over $1.0 million each, except for supply of steel plates and Yangshupu chemicalequipment replacement. Annex S lists the Schedule of Contract Packages and the methodof procurement, and Table 3.3 summarizes the procurement categories and the expectedprocurement methods. The contract packages and the method of procurement have beenagreed with the Shanghai Environment Project Office-SEPO (pam. 4.1).

3.11 Civil Works. There is a total of about $272 million of civil works, ofwhich about $210 million (77 percent) would be procured using ICB procedures. Qualifieddomestic contractors under ICB would be eligible for a 7.5 percent preference in bidevaluation, in accordance with the Bank's Procurement Guidelines. ICB procedures wouldbe used for all civil works conats of estimated value over $10.0 million (i.e., about eightcontacts). All remaining civil works are too small, scattered or scheduled too far apartto be packaged to be of interest to foreign firms. Of the remaining works, about $45million would be awarded through local competitive bidding (LCB) procedures and thebalance by other procedures (not Bank financed). The LCB procedures recentlypromulgated by the Government have been reviewed and approved by the World BankGroup. Interested foreign bidders would be allowed to bid for LCB contracts. Directcontratng (not Bank financed) would be used for contracts to be made with the localpower company to provide electricity supplies to the pump stations, buildings and facilitiesunder the project and for conveyor contracts at railway crossings.

3.12 Equipment ad Materials. There is a total of about $104 million ofequipment and materials in the project, of which about $68 million (66 percent) would beprocured using ICB procedures. Qualified domestic bidders would be eligible for apreference in bid evaluation of 15 percent or the actual customs duties and import tamespayable by a nonexempt importer, whichever is less. All equipment and materials withindividual contract values of over $200,000 equivalent would be procured using ICBprocedures. Equipment and materials with individual contract values of $200,000 or lesswould be awarded using LCB procedures acceptable to the Bank. Contracts costing$50,000 or less up to an aggregate amount of $0.5 million would be procured throughinternational or local shopping procedures consisting of at least three price quotations.

3.13 Technical Assistance and Training. All consultants retained under theproject would be recruited in accordance with the World Bank's "Guidelines for the Useof Consultants by World Bank Borrowers and by The World Bank as Executing Agency-August 1981." Local consultants and counterpart staff would be engaged or assigned bythe concerned agencies of SMG. Consultants have already been retained to provide forproject preparation and design (pam. 2.33). SMWC has signed a contract with aconsulting finn for the construction management and supervision of worls to beconstructed under PCI-Drinking Water Quality Protection. The Terms of Reference forthis and the other technical assistance and training assignments are in the Project File. Atypical terms of reference for institutional strengthening of the Shanghai Municipal

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Table 3.3: PRocuREMNT ARRANGEMENTS($ million, including contingencies)

Procurement methodProject Component ICB LCB Other NBE Total

Civil Works

Water Supply 169.8 6.9 - 5.9 182.6(47.6) (1.9) (49.5)

Water Quality Monitoring - - - 1.9 1.9(0.0)

Wastewater 40.2 38.4 - - 78.6(11.3) (10.7) (22.0)

Solid Waste/Nighteoil - - - 9.1 9.1(0.0)

Equipment & Materials

Water Supply 56.5 1.5 - 4.1 62.1(56.5) (1.5) (58.0)

Water Quality Monitoring 1.7 0.3 - - 2.0(1.7) (0.3) (2.0)

Wastewater 10.1 - - - 10.1(10.1) (10.1)

Solid Wastehtight.oil - - - 30.0 30.0(0.0)

Other

Land Acquisition - - - 15.0 15.0(0.0)

Institutional Development, - - 12.8 - 12.8Studies and Training (12.5) (12.5)

Implementation Support - - 5.9 46.5 52.4(5.9) (5.9)

Total 278.3 47L1 18.7 112.5 456.6(127.2) (14.4) (18.4) (160.0)

Note: Figures in parenthesis are amounts to be financed by the Bank. Other procurementmethods include international and local shopping (for the industrial pollutioncomponent and small equipment for water quality monitoring, solid waste), andconsultant services under technical assistance and traiiing. NBF = Not Bankfinanced.

Government's strtegic planning activities is shown in Annex . Implementation oftechnical assistance and training would be in accordance with a time-based Action Plan,which was agreed at negotiations.

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3.14 Review of Bid Documents and Contracts. All civil works packages (abouteight contracts, 78 percent of the works) in excess of $10 million and all equipment andmaterials contracts (about five contracts, 56 percent of the equipment and materials) of$1 million or more, and all consulting services contracts would be subject to the Bank'sprior review. Other contracts would be subject to selective postaward review.

3.15 Prequalification. The Standard Prequalification Document for the People'sRepublic of China, issued by the Ministry of Finance and approved by the World BankGroup, would be used for preparing the invitation document. The Shanghai EnvironmentProject Office, SITC and ITC hold copies of this document (together with standard biddingdocuments for ICB and LCB works and goods invitations).

F. DI9uRsEmEr

3.16 The proposed loan of $160 million would be disbursed over a period of sixyears, as follows:

1. Civil Works (except PC4 $ 68.0 million 28 percent of expenditures& PC5)

2. Goods (except PC5) $ 66.6 million 100 percent of foreignexpenditures, 100 percent oflocal expenditures (ex-factorycost), and 75 percent of localexpenditures for other itemsprocured locally

3. Implementation Support, $ 17.4 million 100 percent of expendituresInstitutional Development,Studies and Training

4. Unallocated $ 8.0 million

Total S160.0 million

3.17 To expedite disbursements, a Special Account with an authorized allocationof $9.0 million, representing about four months' average disbursements, would beestablished. It would be replenished monthly or whenever the Special Account is drawndown to 50 percent of its initial value, whichever occurs first. Disbursements for trainingand contracts for civil works and goods valued at less than $300,000 would be made onthe basis of Statements of Expenditure (SOE), to be certified by SM. Documentssupporting the SOEs would be retained by SM and made available for inspection duringthe course of Bank supervision missions. All other disbursements would be made againstfully documented expenditures. A Schedule of Disbursements is given in Annex 7.

3.18 Because of the relatively limited amount of IBRD funding that is proposedto be provided, SMG has decided to finance the following items included in the project,from its own sources: civil works of PC4-Pollution Sources and Water Quality

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Monitoring; and civil works and goods of PC5-Municipal Solid Waste and NightsoilManagement. In view of the early start expected to be made by SM on some works,retroactive financing of up to $15.0 million would be provided for expenditures incurredfrom April 15, 1993, covering initial civil works, goods and services contracts.Construction work on preliminary works not financed by the Bank commenced in early1993. The project is expected to be completed by June 30, 1999, and, therefore, the LoanClosing Date would be June 30, 2000.

G. LAI AcQusoN AD RESEriMENT

3.19 Three project components would require the acquisition of land andresettlement of current users. These are the pump station and conveyor for the Da Qiaointake, the Wujing/Minhang Trunk Wastewater System, and the sewerage system andtreatment plant in Songjiang County Town.

3.20 Much of the land for the Da Qiao conveyor was acquired in 1985 and theaffected people resettled at that time. The remaining land needing to be permanentlyacquired for this component consists of one parcel of 4.7 hectares at the intake site and anadditional 1.5 hectares for an access road and 3 branch conveyors. The land to beacquired contains the dwellings of 87 families with some 350 members. Crops are plantedon the land needing to be acquired. In addition, 295 hectares of farmland wouldemporarily be needed during construction and later retuned to farmers. All such uses

would be compensated and all affected families would be resettled within the boundariesof their current village. Farmers losing land would be reemployed by SMWC or localcommercial or industrial enterprises. SMWC would be responsible for funding landacquisition and resettlement, and affected counties would implement that resettlement.SMWC has prepared a resettlement plan acceptable to the Bank that gives details on theaffected people, their losses, and how those losses would be compensated to ensure noadverse impact on their standard of living.

3.21 The construction of the Wujing/Minhang Trunk Wastewater System wouldrequire only limited land acquisition and no resettlement, as most of the work would beundertaken underground as a tunnel, using current microtunneling techniques mainly underpublic roadways. The Songjiang Wastewater Treatment Plant extension would require theacquisition of approximately 10.2 hectares of land. No residences and only one farmbuilding are located on the main 10-hectare parcel of farmland, so losses there would beentirely of crop output. A second parcel contains a vehicle workshop, which would berelocated. Songjiang County expects to absorb 20 percent (approximately 25 people) ofthe displaced farmers in their operations, while the remaining 80 percent (or 112 people)would be reemployed through the Songjiang County Labor Bureau. Songjiang county hasdeveloped a resettlement plan acceptable to the Bank.

3.22 Prior to negotiations, SMG forwarded to the Bank, an updated andacceptable land acquisition and resettlement plan. The Land Acquisition and ResettlementPlan is presented in Annex 8. Its implementation would be monitored by SEPO. Duringnegotiations, assurances were obtainedfrom SM that it would cause its concerned agencis

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to (a) carry out resettlement of persons affected by the project in a manner and accordingto a schedul which is satisfactory to the World Bank; and (b) report on the progress ofcarrying out the resettlement plan using monitoring indicators acceptable to the Bank.

H. ENVIRONNMTAL IeACT ASSESSMENT

3.23 The proposed project is a Category B project under the Operational Directiveclassification and would have an overall positive impact. Relocation of the water supplyintake would ensure that the quality of water abstacted is improved by at least one class(Chinese water quality standard, Annex 2), from Class IV to Class m. Specific pollutioncontrol components of the project would remove substantial pollution loads and thussimilarly improve water quality in the receiving watercourses. Chinese regulations requirethe preparation of an environmental assessment (EA) at the time of project design. SMGbrought to negotiations a copy of the comprehensive Environmental Assessment Report,approved by SM and NEPA. The EA report was reviewed by the World Bank and foundto be satisfactory (Ann)ex 9. Although the balance of the project in environmental termsis decidedly positive, some negative impacts have been identified during the EA processand mitigation measures developed. In particular, appropriate arrangements have beenmade for the beneficial use, wherever possible, of construction spoil, and for the use inagriculture of sludge from wastewater treatment. Similarly, the siting of wastewatertreatment plants is such that there is the minimum impact upon living conditions and thatthe discharges are to watercourses where the residual pollution load may be assimilatedwithout significant detriment to local water quality.

L PROJcCr MONrORING, REPoRING AM SupEvISIoN

3.24 The proposed project implementation schedule is shown in Annex 10. Theproposed monitoring indicators for environmental improvement are included in AnneLli.Financial monitoring indicators for SMWC and SWWrP are appended to the financialprojections for those entities, in Annexes 14 and 15, respectively. The format and contentof project progress reports and project impact monitoring indicators and methodology werediscussed and confirmed during negotiations. Monitoring of the PC6-InstitutionalStrengthening and Training Component would be in accordance with the Action Planagreed at negotiations.

3.25 Project impact would be monitored with respect to the objectives, for whichthe key indicators are summaized below:

(a) enhance drinking water quality:Indicatr. % Achievement of Class m standard;

(b) identify and control sources of pollution:iator. % controls on main polluters, and % system connections;

(c) expand water quality monitoring:Indicatr. % response time and deviation from quality standards;

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(d) improve municipal solid waste and nightsoil management:Indicator. % landfill new usage, and % nightsoil service reduction;

(e) improve municipal, environmental and utility management and finances:Indicato. Financial performance criteria;

(f) support training, feasibility studies, and future investment projectpreparation:Indicat . % Achievement of Action Plan.

3.26 Reports on project progress would be sent to the World Bank quarterly,commencing July 1, 1994. The last progress report of each year would include the latestproject cost estimate and financing plan for the following year, including SM's approvedbudget for local counterpart funds. A project completion report, reviewing the plannedobjectives and the achievements of the project, including costs and benefits derived, andperformance and contribution of all parties associated with project execution, would beprepared by SM and submitted to IBRD within six months of the Closing Date.

3.27 To facilitate implementation, a Project Launch Workshop would be held inearly 1994. Project supervision requirements would be based on our experience withsupervision of the ongoing Shanghai Sewerage Project. Bank supervision would requireabout 160 staff-weeks over the life of the project, of which about 76 staff-weeks would beat headquarters for the review of progress and audit reports, procurement actions andcorrespondence, and 84 staff-weeks would be in the field. More extensive supervisionwould be required during the first three years of the project during which time thetechnical assistance would be made operational and many procurement contracts would betendered, evaluated and awarded. Supervision would be provided by environmentalengmeering and financial staff, as well as other specialists as needed.

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4. PROJECT MANAGEMENT AND IMPLEMENTATION

A. PRoJEC MANAGEMENT

4.1 The Shanghai Major Construction Project Leading Group oversees thepreparation and execution of all major urban projects on behalf of SMG. It is headed bya vice-mayor and supported by the Vice Secretary-General of SMG and the Director of theShanghai Construction Commission (SCC) as group deputy leaders, and supported by themajor government agencies concerned with urban services and environmental management.An organizational chart of the Shanghai Municipal Government is presented in Annex 12.The Group designated the Shanghai Municipal Bureau of Environmental Protection as theagency responsible for managing the proposed project. This Bureau organized and staffedthe Shanghai Environment Project Office (SEPO) to prepare and execute the project,including the supervision and monitoring of contracts, maintenance of project records, andthe submission of progress reports to the Bank (paras. 2.33 and 3.26). SEPO has createdand staffed subproject offices in each of the following implementing agencies:(a) Shanghai Municipal Waterworks Company (SMWC); (b) Songjiang County (for theconstruction of a wastewater treatment plant); (c) Shanghai Environmental MonitoringCenter (SEMC); (d) Shanghai Environmental Sanitation Administration Bureau (SESAB);(e) Shanghai Sewerage Project Construction Company-SSPCC (for the construction ofwastewater conveyance systems in Wujing and Minhang districts); and (f) ShanghaiAcademy of Environmental Sciences (SAES).

4.2 SEPO has interacted well with the DRA Consultants (para 2.33), resultingin the project being prepared satisfactorily to date. Assurances were obtained duringnegotianonsfrom SM ta SEPO and its subproject offices would be maintained throughoutimplementation with stqffing and fitons satifactory to the Bank.

4.3 Day-to-day construction supervision would be provided by local consultingengineers, assisted by international consultants. SMWC has engaged a consulting firm forsupervising the works to be constructed under PC1-Drinking Water Quality Protectioncomponent (para. 3.13). The consultants' duties would include verification of compliancewith specifications for works and goods, supervision of construction, quality assurance ofconstruction materials and major items of plant and equipment, testing and commissioningof completed works and advice on taining of staff to operate the completed facilities.

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B. IMPLEMENrATON RESPONSIDIrEES

4.4 Implementation of the individual components would be carried out by thefollowing agencies:

(a) PCI-Drinking Water Quality Protection-Shanghai Municipal WaterworksCompany (SMWC);

(b) PC2-Upper Huangpu Catchment Pollution Control-Shanghai SewerageProject Construction Company (SSPCC) on behalf of and as agent for theShanghai Sewerage Company (SSC);

(c) PC3-SongJiang Wastewater Pollution Control-Songjiang WastewaterTreatment Plant (SWWTP);

(d) PC4-Pollution Sources and Water Quality Monitoring-ShanghaiEnvironmental Monitoring Center (SEMC);

(e) PC5-Municipal Solid Waste and Nightsoil Management-ShanghaiEnvironmental Sanitation Administration Bureau (SESAB); and

(f) PC6-Institutional Strengthening through Technical Assistance and Training-Shanghai Municipal Government (SMG).

SMG has confirmed that the implementing agencies would be vested with ownership of allassets created through the project, except for SSPCC, which would implement on behalfof the Shanghai Sewerage Company (SSC).

4.5 Shangai Municipal Waterworks Company (SMWC). SMWC wasestablished in 1952 as a state-owned enterprise company, taking over the assets andliabilities of a foreign-owned company that was created in 1881 to seve about 170,000people. Upon the creation of the People's Republic of China in 1949, the service areacovered about 137 k1I2, serving a population of around 4.4 million, with a peak waterproduction of about 0.6 million m3/day. In 1991, the service area covered 375 kIn2, andthe peak daily production was 4.7 million m3, serving about 8 million people. Annualwater sales in 1991 were 1,241 million m3.

4.6 SMWC reports to the Shanghai Public Utilities Bureau, which hasresponsibility, overall, for water supply planning and the issuance of licenses for waterextraction by major water users. SMWC supplies water mainly to the five districts thatmake up the inner core of the Shanghai Municipal area and has the necessary permits toabstract water from the Huangpu River. Other counties within SMG typicaly have theirown water supply arrangements, sometimes purchasing water in bulk from SMWC.

4.7 The organizational structure of SMWC comprises a management team of fiveofficers-a General Manager, throe Vice-Managers and a Chief Engineer. Up to 49 units,

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including departments and offices, water treatment plants and a training center, report toSMWC management. A number of other companies and departments perform functionsfor SMWC. The Shanghai Water Pipeline Construction Company, which is one of a groupof companies also reporting to the Shanghai Public Utilities Bureau, is administered bySMWC, but not as a subsidiary. It installs new pipes on behalf of SMWC and maintainswater pipes in Puxi. The Shanghai Water Supply Equipment and Engineering Company,which is a subsidiary of SMWC, maintains the water supply network of Pudong and alsomakes water meters and water purification equipment for domestic and industrial use.There is also a separate water meter factory, which is a department of SMWC.

4.8 Other Water Supply Companies. The following three companies in thefield of water supply were established in 1992: (a) Shanghai Raw Water Company, whichhas taken over the following assets from SMWC: (i) Linjiang intake works, pumps andpipeline, and (ii) Yuepu Water Treatment Plant; (b) Linqiao Water Company, which wouldbuild a water treatment works, partly financed by the Government of Italy, to service apart of the Pudong area; and (c) Changjiang Reservoir Company, which presently supplieswater to SMWC's Huepu Treatment Plant, and would also supply the new works atlinqiao when a conveyance has been constructed. The rationale for the establishment ofthese companies was to facilitate access to the stock market in order to raise funds for theconstuction of the facilities. SMG considers that as the above companies lack constructionor construction-management expertise, they should not be assigned any implementationresponsibilities under the project.

4.9 Shanghai Sewerage Project Construction Company (SSPCC). SSPCCwas established in 1986 to implement the IBRD/IDA-financed Shanghai Sewerage Project(Loan 2794-CHA/Credit 1779-CHA) on behalf of SSC (established in 1987).Organizationally, it comes under, and reports to, the Shanghai Major Construction ProjectLeading Group (para. 4.1). SSPCC's Manager, a senior engineer appointed by the Bureauof Municipal Engineering Administration of Shanghai, is a member of the Leading Group.Two deputy project managers, one technical, the other nontechnical, who are responsiblefor three and four departments, respectively, report to the Manager. An intemal auditdepartment reports directly to the Manager. Total staff strength is about 300. Physicalimplementation of the $373 million Shanghai Sewerage Project by SSPCC has beensatisfactory.

4.10 Songjiang Wastewater Treatment Plant (SWWTP). SWWTP, a state-owned enterprise established in 1993, presently disposes of about 50 percent, or about27,000 tons, of the maximum daily average of the domestic and industrial waste ofSongjiang Town. Under the project, SWWTP would be responsible for the construction,commissioning and operation of an extension of its existing sewerage system andwastewater treatment works in Songjiang Town.

4.11 Shanghai EnvironmentalMonitoring Center (SEMC). SEMC, which wasestablished in 1981, is part of a national organization responsible for the determination ofenvironmental standards and the enforcement of environmental regulations. It reports tothe Shanghai Municipal Bureau of Environmental Protection. SEMC is responsible for

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environmental monitoring of Shanghai City. Its major functions are: (a) planningenvironmental monitoring; (b) collecting and analyzing environmental monitoring data andpreparing environment quality reports; (c) providing technical and functional guidance todistrict and county monitoring stations; (d) carrying out studies for environment qualityassessment and monitoring technology; (e) organizing environmental investigations andoffering technical arbitration in pollution conflicts; and (f) defining and revisingenvironmental standards and regulations for Shanghai.

4.12 SMEC is headed by a director and has a staff of about 160, including some120 technical staff. Its organizational structure includes 13 departments, of which nine aretechnical, and the balance, administrative and material management. It has experience incontracting for both civil works and equipment purchases.

4.13 Shanghai Environmental Sanitation Administration Bureau (SESAB).SESAB is a line organization within SMG, reporting to SCC. It also has direct links tothe Shanghai Planning Commission, which reviews and approves its annual budget.

4.14 The reponsibility for collection and delivery to transfer stations of solidwaste and nightsoil was decetralizd to the 14 Districts and 6 County govenments in1985, and SESAB is therefore now directly responsible only for bulk transportation ofwastes and ultimate disposal at landfill sites. However, it continues to provide technicaland functional guidance to the district and county sanitation bureaus.

4.15 SESAB's organizational structure comprises a centrl, or municipal bureauwith 155 staff, supported by a number of "mid-grade' and 'subordinate' units with a totalof approximately 12,550 staff. These units, of which the main ones are the WaterTransport Company, the Truck Transport Company, and Water Environmental SanitationAdministration, are independent for accounting purposes. SESAB and its mid-grade andsubordinate units have had excperince in planning and implementing their past investmentprograms. The organization, therefore, is considered capable of planning andimplementing the sanitation investments proposed to be included in the project.

C. STATUS OF ENGNERING

4.16 Project preparation and design work has been undertaken jointly byinternational and local consultants and design bureaus to a high standard, and is welladvanced. ODA of the British Government provided financial support to SMG in thisconnection. Work on the final design and bidding documents preparation for the DrinkingWater Quality Protection component are scheduled to be completed by the end of 1993.For the remaining components of the project, this work is scheduled to be completed bymid-1994. SMG brought to negotiations (a) the preliminary engineering design of theWujing/Mhang Northern Trunk Wastewater System in connection with PC2; and (b) astudy, satisfactory to the Bank, of the assimilative capacity of the receiving waters of theproposed Bailonggang wastewater outfall for this system (para. 7, Annex 3).

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5. FINANCE

A. FINANCIAL MANAGEMENT

5.1 Since 1978, economic reforms have evolved gradually toward anincreasingly decentralized financial system in China. Most of the industrial production andprces have become free of govenment control, and enterprises have to purchase most oftheir inputs at market prces. Enterprse reform has become a high priority of theGovenment. In this connection, the guiding principles of the recently promulgated'regulations on transforming the management mechanisms of state-owned industrialenterprises' are to separate government administration from enterprise management,increase the autonomy and accountability of state-owned enteprises, and increasecompetition and market-orientation. Ihe reform efforts to improve economic policies andenterprise efficiencies are essential for sustaining both economic development andenvironmental protection in the longer run.

5.2 In order for the enterprises to assume their increased responsibilitiesefficiently and effectively, strengthening of their financial management is essential.Toward this end, the proposed project would support the applications of modernmanagement techniques and human resource development for SMWC, SWWTP andSESAB. Concurrently, ODA of the United Kingdom is supporting the financialstrengthening of the Shanghai Finance Bureau (para. 2.33).

B. ACcOuNTING

5.3 Different accounting systems are used by enterprises (autonomous units),construction units (which execute investment projects) and local government departments,in accordance with regulations prescribed by the Ministry of Finance.

5.4 Enterprise Accounting. All the state-owned enteprises in China havefollowed a unified enterprise accounting system on an accrual basis. The accountingframework was developed in the context of a highly centralized planned economy. Witha view to complementing the ongoing efforts to deepen reforms in the financial sector andenterprise management, the accounting system in China needed modemization to permitsatisfactory financial management in an increasingly decentalized and market-orientedenvironment. As a first step, the general principles of enterprise (the term to includepublic utilities such as water and sewerage companies) accounting were revised by theMinistry of Finance, and introduced from July 1, 1993. As part of the reforms,enterprises are also required to produce five reports for submission to Government:balance sheet, income statement, source and application of funds, profit distribution, anddetails of main business. The first two reports are required to be produced monthly, the

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remainder on an annual basis. SMWC and SWWTP have adopted the new accounting andreporting formats.

5.5 Government Accounting. The regular government department accountsreflect expenditures incurred against budget allocations by SM. Accounting is handled ina decentralized manner through transfers to subunits from which actual expenditures aremade and recorded on a cash basis. Accounts are kept at all levels, and each subunitreflects in its accounts the budget allocation it receives from the unit above.

5.6 Project Accounts. Separate project accounts would be maintained bySSPCC, SEMC and SESAB when implementing their respective project components.These accounts would be set up in accordance with the Government State ConstructionUnit Accounting System. The system is comprehensive, and is adequate for recordingworks under construction and financial resources expended, in order to determine fixedasset values and liabilities inCurred upon completion of the projects. Project-relatedexpenditures incurred by SMWC and SWWTP would be reflected within their respectiveentexprise accounting systems.

C. AUDm

5.7 As with other World Bank Group-financed projects in China, the ForeignInvestment Audit Bureau of the State Audit Administration (SAA), established in 1983,would have overall responsibility for auditing accounts conceming the project. The actualauditing work would be conducted by the Shanghai Municipal Audit Bureau under SAA'ssupervision (confirmed during negotiations). This arrangement is satisfactory. Duringnegoniaions, assurances were obtained that thefollowing annual audits would be submittedto the Bank within sa months after the end of the financial year: (a) audit of the projectaccounts maintained by SEMC, SESAB and SSPCC; (b) audit of the Special Account; (c)audit of SOEs, and (d) audits of the financial statements of SMWC, SSC and SWWIP.

D. MucIaaL FINANCE

5.8 Shanghai Municipality has two types of finance, budgetary andextrabudgetary. The revenues and expenditures recorded on municipal budgets areofficially sanctioned by the Center. The budgetary revenue is provided through taxeslevied on businesses operating within the Shanghai Municipal area. While the base andrate of these taxes are set by the Central Government, SM has substantial discretion to givetax exemptions, and is fully responsible for the administration of the taxes. Mostextrabudgetary revenues and expenditures consist of special fees to enterprises and are usedfor capital expenditures. Budgetary and extrabudgetary accounts are not consolidated; theaccounts of Shanghai's public service corporations are Iept on an enterprise basis and,therefore, not consolidated into the municipal accounts. Information on the extrabudgetaryrevenues and expenditures are closely guarded, and were not, therefore, provided to theBank. They are said, however, to be at least as large as the budgetary data.

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5.9 Table 5.1 provides a summary of five years (1988-92) of actual budgetaryrevenues and expenditures of SM, showing, also, the proportion of urban capital andenvironmental protection expenditures. Total revenues per capita amounted to Y 1,470 in1991, and represented about 22 percent of Shanghai's GDP. Annex 13 providesprojections of SM's municipal finances up to the year 2000, together with someassumptions underlying the data. Generally, the projections have been based on Shanghai'spast performance. However, given the additional accelerated growth projected forShanghai, and possible further changes that might arise out of the Shanghai Reform ActionPlan (para. 2.6), the projections should be treated guardedly.

Table S.1: SummARY OF PAsr MuNcI'.L FINANCES(Y billion, unless noted)

1988 1989 1990 1991 1992

Total Revenue Collected 14.7 15.3 15.8 19.2 20.3Less: Transfers to Center 10.5 10.5 10.9 11.1 10.9Aggregate Local Revenue 4.2 4.8 4.9 8.1 9.4

Total Expenditures 6.5 7.3 7.6 10.1 11.2Current Expenditures 3.6 4.3 4.6 7.1 8.2Capital Expenditure. 2.9 3.0 3.0 3.0 3.0of which Capital/Urban 1.0 2.0 2.1 2.0 2.5

an Z Total Expenditures 15.0 27.0 28.0 20.0 22.0of which Environmental Protection 0.1 0.1 0.1 0.1 0.1

as Z Total Expenditure. 2.0 1.0 1.0 1.0 1.0

Nat Income(Loas) (2.3) (2.5) (2.7) (2.0) (1.8)

Transfers from Center 2.3 2.5 2.7 2.0 1.8

5.10 Fnancial Resources for Environmental Protection. SMG's capital budgetfor environmental protection programs in 1992 amounted to about Y 11,873 million(equivalent to about $2,083 million), or about $160 per urban household, high for theincome level. These funds form a part of the regulr municipal budget and are allocatedby SFB and SCC. They are elastic in that they are based on sales and income of theenterprises under SMG jurisdiction. While they stagnated during the austerity period inthe late 1980s, they are liklly to increase steadily along with the ongoing economicrecovery, given the current tax rates and revenue-sharing arrngements with the CentralGovernment. The extrabudgetary revenues (para. 5.8) generally parallel the real rate ofeconomic growth and the change in unit rates determined by SMG, subject to nationalguidelines. Revenue growth would translate directly into increased investmentexpenditures, which accounted for the major part of the infrastructure budget in the past.

5.11 Given the growth prospects of resources, especially for capital accounts,additional expenditures attributable to the project represent a relatively small portion of

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SMG's infrastructure budget, as follows: about 17 percent in the first year; 25 percent inthe second year, declining to 11 percent, 3 percent and less than 1 percent in the third,fourth and fifth years, respectively. Debt service attributable to the project would beequivalent to less than 1 percent of the regular capital budget, rising to about 1.6 percentin the first year of repayment of principal, and declining thereafter. However, debt serviceon about 87 percent of project investments would be met from user charges, and wouldnot, therefore, be a drain on the municipal budget. Additionally, the operation andmaintenance expenses on the same 87 percent of project investments would be met fromuser charges. The operation and maintenance requirements on the remaining projectinvestments, which would need to be met by SMG, would represent an insignificantpercentage of budgetary revenues. These investments would, in addition, benefit fromboth savings due to enhanced system performance, and additional costs caused by themeasures taken to reduce pollution and increase service reliability. Counterpart funds forthe Drinking Water Quality Protection (about 65 percent of project cost), would be raisedby the Shanghai Raw Water Company through share issue (para. 4.8). There is, therefore,expected to be no drain on SMG's municipal budget to implement this component.

E. WATn SUPPY

5.12 Shanghai Municipal Waterworks Company. Financial statements ofSMWC, showing the past three years' audited operations (1990-92) and projections up tothe year 2000, with detailed assumptions, are given in Tables 1, 2 and 3 of Annex 14, andsummarized in Table 5.2. SMWC made small surpluses in 1990 and 1991, of Y 9 millionand Y 15 million respectively, after receiving a revenue subsidy from SMG of Y 41.93milion in 1990. In 1991, a profits tax charge, which, at the standard rate of 55 percent,would have been Y 9.78 million, was replaced with a charge of Y 1.0 million. In October1992, SWMC transferred assets valued at Y 398 million to the Shanghai Raw WaterCompany (para. 4.8), and made a payment to that company of Y 38 million for waterpurchased during the last quarter of 1992. Had the Raw Water Company not been created,SMWC would have made a profit in 1992. SMG has confirmed that the dividendsotherwise payable to it by the Shanghai Raw Water Company on the approximately73 percent of the nominal share capital of the company held by it would accrue to SMWC.This is recorded as nonoperating income in SMWC's projectod Income Statement(An&ex 14, Table 1).

5.13 In line with general economic and enterprise reforms, SMG has indicatedthat no further operating or capital subsidies would be made to SMWC, and in addition,has set financial objectives and approved tariffs for its water supply and seweragecompanies. These are to earn rates of return on net current fixed assets in operation ofbetween 8 and 15 percent. he projections in Annex 14 reflect the policy regardingsubsidies; however, they are more modest in the rates of return assumptions compared withSMG's stated financial objectives. The projections also provide for SMWC incurring partof the costs of pumping from Taihu Lake (pan. 2.16). The pumping capacity of theproposed Taihu Pumping Station would be a minimum of 300 m3/sec and up to thisquantity would be discharged to the Taipu/Huangpu River system when required due towater quality considerations at the Da Qiao Intake and requested by SMG. The conclusion

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Table 5.2: SUMMARY OF KEY FINANCIAL AND MONTORING INDICATORS FOR SMWC(Y million, unless noted)

Actual Est.1990 1991 1992 1993

Water Sold Mms 1,225 1,241 1,290 1,344Operating Revenue 178 277 357 577Operating Expense 189 258 341 505Net Income 9 15 16 66Average Tariff (Y/m') 0.14 0.22 0.28 0.43Operating Ratio 1.17 0.99 1.00 0.99Capital Expenditures 100 180 -206 381Debt Service Coverage Ratio - - - 9 23Contribution to Investment

(3-year average) - S 35.9 168.1 - 36.3Return on Revalued Assets- S -2.54 -0.86 -1.18 -5.02

of the agreement (para. 2.16) to operate and finance the operational costs of the proposedTaihu Pumping Station in an acceptable manner, is a condition of effectiveness.

5.14 Following two formal tariff increases in 1990 and 1992, SMWC's revenuesincrased from Y 133 million in 1989 to Y 357 million in 1992, a 2.7-fold increase overthe period. Operating expenses increased by 88 percent over the same period, withpersonnel expenses increasing by 92 percent and power costs by 89 percent. Water tariffs,as measured by the average price per e 3, have risen from Y 0.11 in 1989, to Y 0.14 in1990, to Y 0.28 in 1992, and to Y 0.43 in 1993 (the latest increase being as a result of acondition of appraisal). The current and previous tariffs are as follows:

Type of Consumer 1990 1992 1993------------- (Im')-------------

Domestic, bulk supplies endsmaller hotels 0.18 0.28 0.40

Standposts 0.13 0.28 0.30Industry and other 0.26 0.36 0.51Semitreated industrial water 0.18 0.28 0.40Foreign ships 0.50 0.60 0.80Other ships No charge

5.15 SMWC would need to be permitted to increase its tariffs regularly in orderto meet the capital and opeating costs of the project-financed and complementary fcilities.As water tariffs, properly applied, can discourage high usage, thereby leading to possible

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reduced consumption and to the deferment of future capital investments, the developmentof possibly more responsive tariff structures would be included in technical assistance toSMWC.

5.16 Assurances were obtained during negotiations that SM would cause SMWCto (a) generate revenues from its water supply operations in its fiscal year 1994, sufficientto cover its operatng and maintenance costs including depreciation, (b) complete, byJune 30, 1995, a pro-forma revaluation of its assets, valued as at December 31, 1994, inaccordance with criteria agreed with the Bank and, thereafter, make annual adjustmentsin accordance with criteria agreed with the Bank; (c) earn, forfiscal year 1995 and eachfiscal year thereafter, an annual return of not less than the following percentage of theaverage current net value of its fixed assets in operation: 2 percent in 1995, 3 percent in1996, 4 percent in 1997, 5 percent in 1998, 6 percent in 1999, and 7 percent in 2000 andeach year thercafter; (d) commencing not later than fiscal year 1995, collect and retain thesurcharge made when a large water user exceeds the water quota allotted to it; and (e)prepare, before September 30 in each of itsfiscal years, forecasts satisfactory to the Bank,(O) to review whether it would meet the requirements set forth above in such year and thefollowing fiscal year, and rii) to furnish the results of such review to the Bank. If any suchrevew would show that SMWC would not meet the requirements set out above, SMWCwould take all necessary measures, including adjustments to structure or lewls of its tariffsand charges, in order to meet the requirements.

5.17 An increase of SMWC's tariffs to levels sufficient to permit SMWC to meetthe covenanted requirement stated in (a) above is a condition of effectiveness.

5.18 Accounting and Auditing. SMWC maintains its accounts on an accrualsbasis. All accounting records are computerized; however, the final accounts are compiledmanually as the accounting program does not produce them in the required form. SMWCpresently produces 19 reports, for use intemally and by SMG. From July 1, 1993, itwould produce five standardized reports for SMG (see para. 5.4); however, it would befree to produce, and would probably continue with, most of its present reports for intemaluse. SMWC's accounting and financial reporting is sound, and there is a good level ofaccounting awareness among the senior staff of the finance department.

5.19 The Shanghai Municipal Audit Bureau carries out annual audits of theaccounts and financial statements of SMWC. It reported SMWC as having one of thebetter accounting system in China. SMWC has provided the Bank with three years(1990-92) audited financial statements. Under the project, it would be required to providecopies of audits of its financial statements to the Bank (para. 5.7).

5.20 Billing and Collections. All supplies, even those to standposts, aremetered. Only about 10 percent of water produced is unaccounted for, according toSMWC's records. There is an ongoing program of meter inspection and repair, coupledwith a policy of exchange and replacement of meters after 5 and 10 years, respectively.The billing operation is soundly based, with bills delivered by hand to the customer on theday after the meter is read. Bills are prepared on a series of personal computers using aprogram written in-house, with readings being take directly from the meter readingrecords, thus reducing the risk of error. Customers can pay their bills either at the offices

- 37 -

of SMWC, or at some 300 designated banks around the city. Accounts not paid withinnine days of delivery of the bills to the customer can be settled only at the offices ofSMWC, where a surcharge of 5 percent per day (with a minimum of Y 0.20 per day) isadded. Virtually all bills are paid within nine days of issuance, and 100 percent collectionis attained within two months. For the purposes of the projections, therefore, a collectionrate of 100 percent is assumed.

F. SEwERAGE SERVICES

5.21 Sonjiang Wastewater Treatment Plant. Financial statements of SWWTPshowing the past three years' audited operations (1990-92) and projections up to the year2000, with detailed assumptions, are provided in Tables 1, 2, and 3 of Annex 15, andsummarized in Table 5.3. SWWTP's accounts were prepared on a cash basis, with noprovision being made for depreciation, doubtful receivables, etc. The projections,therefore, were constructed from SWWTP's Fund Flow Activity financial statement andits overstandard discharge tariff collection schedule, as there was no readily availableincome statements and balance sheets.

Table 5.3: SummARY OF KEY FINANCLAL AND MONITORING INDICAToRs FOR SWWTP(Y million, unless noted)

Actual Eat.1990 1991 1992 1993

Wastewater VolUme m3 6.2 8.3 9.4 9.8Wastewater Treated m' 6.2 8.3 9.4 9.8Sewer Connection. ('000) 89 104 125 146Sewerage Coverage (Z) 36 34 33 32Operating Revenue 2.0 2.5 2.7 4.2Operating Expense LS 2.4 3.1 3.4 3.2Net Income 0 -0.2 -0.2 1.0Average Tariff (Y/Im') 0.32 0.30 0.29 0.43Operating Ratio 1.48 1.49 1.47 0.91Capital Expenditures 0 0 0.5 1.4Covenant Revenue Requirement 2.9 3.7 3.9 3.8Sewer Income minus Covenant - - - 0.3

LB Excluding deprciaion.

5.22 SWWTP operations have been financed from three sources: (a) an annualsubsidy of Y 1.0 million from SFB; (b) a standard wastewater discharge tariff (Y 0.12 perm3 from 1988 to March 1993, and Y 0.40 per m3 thereafter); and (c) 30 percent of anoverstandard discharge tariff of Y 0.40 per COD m3 (the remaining 70 percent beingremitted to the Songjiang County Construction Bureau for municipal construction). Tariffsare collected only from industrial companies; no tariffs are colected from domestic users.Total revenue grew from Y 2.0 million in 1990 to Y 2.7 million in 1992, or averagingabout 16 percent per year, with about 50 percent coming from a single source-the

- 38 -

Songjiang Paper Mill. This mill, however, closed in June 1993. In line with generaleconomic and enterprise reforms, and as in the case of SMWC (para. 5.13), no furtheroperating subsidies would be paid to SWWRP. Operating costs increased at about19 percent per year over the period 1990-92.

5.23 The financial projections assume that SWWTP would: (a) retain all of theproceeds of tariffs and charges relating to the collection and treatment of wastewater inSong.iang Town; (b) receive capital equity contributions from SCC, Songjiang County andthe Shanghai EPB to cover all the local project investment costs and part of the foreignexchange costs (with the balance of the foreign costs being covered by the proceeds of theloan); and (c) achieve financial objectives similar to those being achieved by SSC underthe World Bank Group-financed Sewerage Project (Loan 2794-CIA/Credit 1779-CHA).

5.24 Assurances were obtained during negotiations that commencing infiscal year1995, SWW1P would be permutted to bill, collect and retain all tariffs and charges relatingto the collection, eatment and disposal of wastewater in Songfiang Town. Commencingwith SWWTP's fiscal year 1996, SWWrP would produce rewenues sfficient to r() cover itstotal operating costs and the amount by which its debt service requirements exceeddepredation and rii) have a debt service coverage of at kast 1.3. SWWTP wouldpreparebWfore September 30, in each fiscal year, forecasts satisfactory to the Bank, reviewingwhether it would meet the requirements set forth above in such year and the followingfiscal year, and furnish the results of such review to the Ban. If any such review wouldshow thot SWWTP would not meet the reqirements set out above, SWWTP would take allnecessary measures, including adjustments to the structure of its tariffs and charges, inorder to meet the requirements.

5.25 Understandings were obtained during negotiations that SM would (a) causeSongjiang County Government to facilitate the connections of premises to SWWTP's sewersystem; and (b) faclitate the connections to the northern" trunk sewer in Wujing andMinhang neighborhoods.

5.26 Accounting and Audit. Effective July 1, 1993, SWWTP commencedkeeping its accounts, and preparing its financial statements, in the new formats mandatedby the Ministry of Finance in Beijing (para. 5.4). During the project period, SWWTPwould be required to provide copies of audits of its financial statements to the Bank(pam. 5.7).

5.27 Shanghai Sewerage Company (SSC). The debt service obligations andoperation and maintenance requirements ansing out of the construction and subsequentoperation of the conveyance system pertaining to PC2-Upper Huangpu Catchment PollutionControl component would be the responsibility of SSC.

5.28 The finances of SSC are being monitored under the ongoing World BankGroup-financed Shanghai Sewerage Project (Loan 2794-CHAICredit 1779-CHA). Thefinancial obligations of SSC under that project are (a) to produce revenues sufficient tocover (i) its total opeating costs and (ii) the amount by which its debt service requirementsexceed depreciation; and (b) to have a debt service coverage of at least 1.3. To date, SSChas been in compliance with the above. Assurances were obtained dunng negotiations that

- 39 -

these same financial obligations arising out of the proportion of the proposed projectrelaong to SSC would be met for each fiscal year.

G. SoLD WASrE NIGHISOL MANAGEMENT

5.29 A financial analysis has been undertaken of the cost effectiveness of theshort-term improvements proposed to be implemented on an incremental basis during theproject implementation period. In addition to enhancing the efficiency and productivity ofequipment and manpower, a 25 percent reduction in labor costs is planned to beimplemented over the five-year implementation period. Projected consolidated revenue andexpenditure statements of SESAB covering (a) its operations and the existing withoutproject situation; (b) the proposed project investments; and (c) an alternative incinerationproject are shown as Tables 1, 2 and 3 of Annex 16, and summarized in Table 5.4. Thelong-term financial benefits of the proposed investments are shown, together withjustification for improving on existing landfill methods of disposal rather than adopting anincineration strategy.

Table S.4: SummARY OF FINANCLAL PwRFORmANCE OF SESAB

Present valueoperating coats Present value average

Discount + depreciation incremental coat (Y/ton)rate (Z) (Y million) Solid waste Nightsoil

Existing Situation10 3,477 228 7112 3,217 227 7015 2,879 225 69

ProDosed Proiect (ImprovedLandfill Disposal)

10 3,192 209 6512 2,960 209 6515 2,657 208 64

Incineration Alternative10 3,751 246 7712 3,459 244 7515 3,080 241 74

5.30 The projections and analysis clearly demonstrate that the proposed projectinvestments would assist in the disposal of more solid waste and nightsoil at a lower costper ton than is the case with the existing situation, and in a more environmentally effectivemanner. The long-term environmental benefits, which cannot be meaningfully quantified,are substantial and are descibed in para. 6.10.

- 40 -

6. ECONOMIC, SOCIAL AND ENVIRONMENTALCONSIDERATIONS

A. PROJEcr JUSTrCATION

6.1 Justification of the project is based on the following considerations:

(a) the project would provide a raw water source for Shanghai that allows thesafe supply of drinking water meeting national health standards;

(b) associated sewerage investments would protect the quality of the new sourceof water supply and, in conjunction with other investments such as ShanghaiSewerage (Loan 2794-CHA/Credit 1779-CHA), would reverse the overalldeterioration of surface and groundwater quality in Shanghai;

(c) in addition to protecting water quality, the improved management ofmunicipal solid waste and nightsoil systems would reduce land and waterpollution and associated health hazards, and enhance the city environment;and

(d) SMG is committed to improving the environment, having already establishedan organizational framework for environmental management, and isprepared to address the longer-term environmental improvementrequirements arising out of the ongoing Shanghai Environmental MasterPlan Studies.

B. LASr-COsT SOLumION

6.2 The selection of the water supply and transmission alternative, as well as theproposed Songjiang wastewater investments, have been subjected to rigorous least-costanalysis. Final design decisions on the Wujing-Minhang wastewater conveyance systemwould undergo similar analysis once design alternatives have been prepared. On the basisof the analyses conducted and environmental considerations, and further confirmed bysensitivity tests, the least-cost investments in water quality protection and catchmentpollution control were recommended for implementation. Details are contained inAnnex 17 (paras. 8-10).

C. PRoJEcr BENEFm

6.3 The cost-effective provision of a safe potable water supply for Shanghai isa prerequisite to the sustained public health and economic growth of the most important

- 41 -

city on the eastern seaboard of China. The project would enhance the government's effortsto reform the economy, through the implementation of fiscally rational charges for water,wastewater, nightsoil and solid waste services. The momentum of economic reform wouldbe supported by the sectoral breadth of the proposed investments, including water qualityprotection, catchment protection, wastewater treatment, waste minimization measures, andsolid waste and nightsoil management; these would provide an enabling framework fordevelopment.

D. ECONOMIC BENEFtns

6.4 The primary project benefits-pollution abatement and the guarantee of areliable and safe driking water supply for Shanghai residents that meets the World HealthOrganization (WHO) and Chinese quality standards-can be identified but not easilyquantified. Significant benefits of the new intake include those of improved health, theamenity value of safe and more palatable water fIee from unpleasant tastes and odors thatcurrently prevail, and reduced risk of an accident forcing intake closure. The sewerageinvestments further reduce the risk of pollution accidents forcing an intake closure andreduce the pollution load in the Huangpu and certain of its tributaries. Those latterbenefits would reflect in increased amenity value of the river and contribute to a broadereffort to restore river quality to a level in which fish can return. The municipal solidwaste and nightsoil management improvements would reduce direct dumping of bothpollutants into the river, again improving water quality and amenity value, and lessenillegal dumpig on land, reducing pollution both of land and groundwater, and increaseamenity values. Additional impacts would be realized in reduced water treatment costs forthe municipality, for industries directly extracting river water or groundwater, and forcitizens now forced to use filters or purchase bottled water.

6.5 All of the above project benefits are, in theory, quantifiable. In practice,reliable estimates of the various magnitudes would be very costly to obtain. Healthbenefits from urban water supply improvement have been shown to be particularlyintractable to analyze short of a full-scale epidemiological research effort, the time andexpense of which were not deemed justified when current supplies have already beenshown to fail internationally accepted norms. The reduced risk has been addressed inAnnex 17 (paras. 20-30), but again, economic magnitudes were not assigned due to thecost of obtaning satisfactory estimates. Most amenity value estimation techniques performbadly in highly distorted markets such as those that characterize Shanghai land and water,and were therefore not applied in this situation. Under these circumstances, theappropriate strategy in making project choices is to establish the economic least-costapproach to attain the desired health and service goals, instead of attempting to calculatean economic rate of return. The least-cost strategy shaped the choices made in thisproject, and is discussed in the following paragraphs and, in more detail, in Anna 17.

Water Supply

6.6 The no-project altemative has been shown to result in unacceptable levelsof pollutants in the drinkig water supply of Shanghai. The broadest possible array of

- 42 -

interventions has been considered for remedying that problem and four alternatives, eachwith several variations, were judged the most feasible and subjected to fiull financial andeconomic costing (see Annex 17 for details). The alternatives considered were:(a) relocation of the intake to Da Qiao; (b) improved water treatment at the currentLinjiang intake; (c) construction of a new intake on the Changiang; and (d) water pollutionabatement sufficient to maintain water quality at acceptable levels at the present intake.This option would require, inter alia, the completion of two sewerage systems, the Phase IIsewerage system for the Pudong and Puxi areas and the Zhonggang sewerage system forthe Wujing and Minhang Districts.

6.7 Construction, operating and maintenance (O&M) costs of the fouralternatives cited above were estimated using economic prices (the financial estimates forthe alternatives can be found in project files). The results are shown in Table 6.1.

Table 6.1: ECONOMIC COS SummARY FOR PROJECr ALTERNATVE(Y million)

Annual Presentoperating costs value of capital

Capital at full and oDerating costsOption cost development 10S 122 15S

Da Qiao Intake 2,198 127.0 2,795 2,604 2,369Advanced Water Treatment 3,867 457.4 6,701 6,131 5,442Changjiang Conveyor 9,189 401.6 10,698 10,316 9,201Improved PollutionControl 6,604 814.3 11,586 10,606 9,425

6.8 The Da Qiao alternative is clearly the superior option, such that the Da Qiaointake option costs so much less than the other options that no reasonable alternativeassumptions about construction or O&M costs would alter the choice. In addition, thebenefit stream would commence earlier (in 1997) with the Da Qiao option than either theChangjiang conveyor or improved pollution control. Given the magnitude of theinvestment and remaining design work, neither of those alternatives could be completeduntil after the year 2000. Advanced water treatment could probably go on stream at aboutthe same time as the Da Qiao intake. The four options have different risk profiles(analyzed in Annex I) not captured in the economic prices, with the Da Qiao intakesuperior to advanced water treatment, but once they come on stream, the Changjiangconveyor and improved pollution control both dominating Da Qiao. Improved pollutioncontrol remains an element of the project, but with a different focus and investment patternthan envisaged in the option above.

- 43 -

Pollution Abatement

6.9 Pollution abatement to protect Shanghai's surface water and groundwaterrequires a combination of sewerage systems and treatment plants, reduced pollutiondischarges from industry, and improved solid and hazardous-waste handling. The projectincludes investment in new and expanded sewerage systems and treatment plants inSongjiang County, a rapidly industrializing area whose surface waters discharge into theHuangpu just above the new water intake. The least-cost strategy to bring Songjiangsurface water to Class II would involve relocation of some highly polluting industry(particularly a paper mill), process technology innovations in others, improved end-of-pipeprocessing of industrial wastes, and the expansion of one existing sewerage system andconstruction of another. The County would implement sewage tariffs sufficient to offsetthe full cost of the sewerage system. The unmeasured but substantial benefit of reducedpollution, argues for a strongly positive economic rate of return on this component.

6.10 The municipal solid waste and mghtsoil management component of theproject includes support to upgrade landfills, close down temporary dumps, establishadditional landfills for both municipal and nonhazardous industrial waste, convert theparticularly dangerous emergency dump at Sanlintang, on the banks of the Huangpu River,to a containerized transfer station, introduce a fully containerized waste and roadtransportation system, and upgrade the manually handled collection points to enclosedcontainer facilities. The component would address the pollution and public healthproblems associated with uncontroled dumping and inadequate treatment of nightsoilbefore land application. The bucket latrine and septic tank systems would be graduallyphased out, to be replaced by connections to the sewers. It would also invest in technicalassistance to strengthen the institutional capability in order to enhance the low equipmentand manpower productivity, improve equipment cost effectiveness, and enable SESAB toestablish proper workshop and landfill operation management. The financial benefits thatwould accrue are reflected in the projected average unit cost, which would decline fromabout Y 164 per ton to Y 102. This assumes that vehicle utilization would be increasedfrom about 50 percent to about 85 percent, and that the staff would be trimmed by about25 percent. The associated cost savings are estimated to be about 40 percent, or Y 60 perton. An estimated 60 tons/day of solid waste spillage into the rivers from the docks alonewould be stopped, uncontrolled dumping of nightsoil would be reduced by 1,000-2,000tons/day, and about 3,000 tons/day of haphazard industrial waste dumping would becontrolled. Approximately 2.5 million people would be connected to sewers, with theresult that nightsoil treatment and land application would be greatly reduced. Additionalaesthetic and environmental benefits would come from the improved collection services,closing of temporary dumps and controlled landfilling.

E. ENVIRONmENrAL IMpAcT

6.11 The project would contribute significantly to improving the environment andis rated category -B- in terms of the World Bank's Operational Directive onEnvironmental Assessment. Accordingly, a detailed annex of the environment has been

- 44 -

prepared (Annex 9), which summarizes the findings of the Chinese EAs on the variouscomponents and reflects the appraisal mission findings.

F. AFFORDABILTY

6.12 The present water tariffs are low for both residential and industrial use. Theaverage domestic water bill equals about 0.5 percent of average per capita cash income andconsumer surveys show that this amount is regarded as a trivial element of the householdbudget. Industrial tariffs are currently not high enough to inhibit excessive use of waterby international production standards. The tariff structure proposed for implementationunder the project would result in the 5 percent of lower quartile population paying about1.6 percent of average monthly household income on water by the year 2000. Pricingpolicy options would be explored under the Water Master Plan.

G. NxojEcr RiSKS

6.13 Project risks include (a) possible reluctance by SMG or Songjiang Countygovernments to approve the tariffs and service charges needed for financially soundoperations; (b) possible unwillingness by SMG to enforce the pollution control laws forinancially weak enterprises, resulting in continued increases in pollutant levels in the

Huangpu; (c) delays by SMG in implementing the institutional development and trainingcomponents; and (d) a serious toxic effluent spill that would close the new water systemintake for a period. The risks have been the subject of continuous dialogue during projectpreparation. An acceptable schedule of water and wastewater tariff increases wasdeveloped during appraisal; and a carefully designed institutional development and trainingprogram would ensure SMG ownership of specific project components. There is also aminor risk that the assumptions of revenue collection and unaccounted-for water may proveoptimistic; this would necessitate higher tariff adjustments.

6.14 The risk of a toxic spill would be reduced by the sewerage and industrialpollution abatement components of the project, and subsequently on implementation of therecommendations of the Hazardous Waste Management Study, now under way(para. 2.33). Should a toxic spill occur, the decision to relocate the intake through theproject to a point far upstream of the industrial and shipping centers representing the mostprobable sources of a spill would have substantially decreased the danger to the drinkingwater supply. To provide additional protection, the current intakes would remain availablefor standby operation.

6.15 Sustainability. Proposed revenue and service charge enhancements,together with the investments to improve the quality of drinking water and reduce the risksto Shanghai of toxic spills in the water supply would provide a framework for projectsustainability. The operations and maintenance costs to support the investments would beprovided through existing revenue arrangements; these would be fiurther streamlined andenhanced as part of the project.

- 45 -

7. AGREEMENTS REACHED AND RECOMMENDATION

7.1 The following assurances were obtained at negotiations:

(a) SMWC would complete the additional works needed to complement project-related works, within an agreed time frame, as part of its normal capitalworks program [pam. 3.5(a)(ii)];

(b) The 33 most polluting industries in the Upper Huangpu Catchment wouldcomplete process changes, or construct pre-treatment facilities, inaccordance with an agreed time-bound Action Plan, in order to meetrelevant discharge standards [para. 3.5(b)(i)];

(c) An agreed time-bound Action Plan would be implemented for connectingexisting septic tank and nightsoil facilities to the city and county seweragesystems, and thereafter implemented [para. 3.5(c)(i)];

(d) Loan proceeds would be onlent to implementing agencies on terms andconditions satisfactory to the Bank (para. 3.9);

(e) Implementation of technical assistance and training would be in accordancewith an agreed time-bound Action Plan [paras. 3.5(d) and 3.13];

(f) Implementing agencies would (i) carry out the resettlement of personsaffected by the project in a manner and according to a schedule that issatisfactory to the Bank; and (ii) report on the progress in carrying out theresettlement plan, project progress and project impact using monitoringmethodology and indicators satisfactory to the Bank (para. 3.22);

(g) SEPO and its subproject offices would be maintained throughoutimplementation, and with staff and functions satisfactory to the Bank(para. 4.2);

(h) The following annual audits would be submitted to the Bank within sixmonths after the end of the financial year: (i) audit of the project accountsmaintained by SEMC, SESAB and SSPCC; (ii) audit of the SpecialAccount; (iii) audit of statements of expenditure; and (iv) audits of thefinancial statements of SMWC, SSC and SWWTP (pam. 5.7);

(1) SMWC would (i) generate revenues from its water supply operations in itsfiscal year 1994, equivalent to not less than its total opeaing and

- 46 -

maintenance costs including depreciation [(para. 5.16(a)] and (ii) earn, forfiscal year 1995 and each fiscal year thereafter, an annual return of not lesshan the following percentage of the average current net value of its fixedassets in operation: 2 percent for fiscal year 1995, 3 percent for fiscal year1996, 4 percent in fiscal year 1997, 5 percent for fiscal year 1998,6 percent for fiscal year 1999 and 7 percent for fiscal year 2000 and eachfiscal year thereafter [para. 5.16(c)];

(j) SMWC would complete, by June 30, 1995, a pro-forna revaluation of itsassets valued as at December 31, 1994 in accordance with criteria agreedwith the Bank and, thereafter, make annual adjustments in accordance withcriteria agreed with the Bank [para. 5.16(b)];

(k) SMWC would, commencing not later than fiscal year 1995, be permitted tocollect and retain the surcharge made when a large water user exceeds thewater quota allotted to it [para. 5.16(d)];

(1) SMWC would, before September 30 in each of its fiscal years, prepareforecasts sadstory to the Bank (i) to review whether it would meet therequirements set fourth in para. 7.1(i) above in such year and the followingfiscal year; and (ii) to furnish the results of such review to the Bank. If anysuch review would show that SMWC would not meet the requirements setout above, SMWC would take all necessary measures, including adjustmentsto structure or levels of its tariffs and charges, in order to meet therequirements [para. 5.16(e)];

(m) SWWTP would, commencing in fiscal year 1995, be permitted to bill,collect and rein all revenues from its nondomestic tariffs and chargeselating to wastewater collection, treatment and disposal in Songjiang Town

(pam. 5.24);

(n) SWWTP would, commencing in fiscal year 1996, produce revenuessufficient to (i) cover its operating costs and the amount by which debtservice requirements exceed depreciation and (ii) have a debt servicecoverage of at least 1.3 (para. 5.24);

(o) SWWTP would, before September 30 in each fiscal year, prepare forecastssatisfactory to the Bank to review whether it would meet the requirementsset forth above in such year and the following fiscal year, and to furnish theresults of such review to the Bank [para. 5.24]; and

(p) SSC would for each fiscal year produce revenues sufficient to cover (i) itstotal operating costs; and (ii) the amount by which its debt servicerequirements exceed depreciation; and to have a debt savice coverage of atleast 1.3 [para. 5.28 (a) and (b)].

- 47 -

7.2 The following understandings were obtained during negotiations and referredto in the minutes of negotiations:

(a) Implementing agencies would be authorized and instructed to adopt a15-year planning horizon for infrastructure investments (para. 2.32);

(b) SMWC would make adequate provision in planning for the expansion of DaQiao intake and conveyor to Linjiang to cater for possible abstractions tomeet future demands beyond the existing capacity of 5.4 million m3/day[para. 3.5(a)(i)];

(c) Industries in Wujing and Minhang neighborhoods would pretreat, asnecessary, and make connections to the 'northern trunk sewer, whencompleted [para. 3.5(b)(ii)];

(d) SESAB would before December 31, 1996 assume responsibility forproviding collection and safe disposal services for nonhazardous industrialsolid wastes on request from the industry [para. 3.5(c)(ii)(1)];

(e) Treatment and disposal facilities for nonhazardous industrial waste wouldbe established before the temporary landfills are closed down [para.3.5(c)(ii)(2)]; and

(f) Sewer connections in SongJiang County and Wujing and Minhangneighborhoods would be facilitated (para. 5.25).

7.3 The following are conditions of loan effectiveness:

(a) Execution of subsidiary loan agreements satisfactory to the Bank betweenSM and (i) SMWC, (ii) SSC and (iii) SWWTP (para. 3.9);

(b) Approval of the Loan Agreement by the State Council of China (pam. 3.9);

(c) Conclusion of the agreement to operate and finance the operational costs ofthe proposed Taihu Pumping Station in an acceptable manner (pana. 5.13);and

(d) Increase in SMWC's tariffs to levels that would permit it to meet its 1994financial covenant (para. 5.17).

7.4 Subject to the foregoing, the proposed project would be suitable for a Loanof $160 million equivalent for a period of 20 years, including 5 years of grace, at theBank's standard variable interest rate, to the People's Republic of China.

- 49 - ANNEX 1

ORGANIZATION OF ENVIRONMENT PROTECTIONIN CHINA

|Pople's Republicof China

Sitat Council3Biijing, Shanghai Provincial & National Miniatrio,s

& Tianj in Autonomoue Izvironmental StateMhnicipal Regional Protection Commiasions

Governments Gvormnents Agency Admdnistration

ProvinciclEnviront atlProtection

Bureaus(EPBO

_oermenvn.ats

Si ll rArrangemat_.

as under hncl-Huicpal U BB

Covonrsnts

UrbaldDistrict L

Couty

Urba, DistrictL

County EPB~

| UrbaNeighborhood,

Town, TownabLip

| | Urb^n ~I ogh-borhood, Tovn,

Township EPOffice.

-50- ANNEX2

WATER AND AIR QUALITY STANDARDS IN CHINA

ENVIRONmEwAcL QUALITY STAARD FoR SURFACE WATRCHNES STANARD GB 3838-88 (REPLAaNG GB 383843)

IN 1 C 5 j II Ow la I cO a I c-.w I C" vAUl .sur _S." w s 4M sn a, f...&..sa -s. i, ,r-, .,M. AA PM*pa66 m11sn *15 S"- ta,au& a e-us'.. p ,ea.,, Plsa"M msUr a. A fl" . fi*M es.-5.. tl f "Mr v .4

5uy r n

C l'TiAaC * sI.w .t. if rasy _ ._ ._4 Kuula4. _P *w Ois aw..* b_ sr n . s ..

I. Gas * a o,- . * & ,. a... a a b u.m

2' ~I4 r ____*______ n ________ ______ _*_ t4_

I V r,zr _>nr4 ~A"fg vaass 4 t-tn_4 nr. a saiegr onlrd < I

d"mi C * r Cvmases vmmif d_ us -mm Pane <c

3 Sssspsss (3051 - 210 210 zw ]-14I I C Cnd s(0) _ 210 [ 2S0! 2IN 1 240 1 2o1 | 1s i oJ.6 MM -C 0- _ o. I _ zo

TowiShA.sm * I 0.1 1 0. S i0

7 __T__ __-e_e_ 1.0 0. 1* 1 L.0 1.0i 1.1, MAi 0.0:) 0 z::j

| TZ ^ as < } ~~~~~0.05 M .1.O, Ma 0.o I 10 1 S.ua. IsI I) -C I I __ to_ _ I 12

| 10 1 T .aM CM 0.0: I 0.1 0 O I 1.0 1121.1 D.rs OM A I 0.02 6O I 0 I 3 _____O_

I! 001 woa< Loo.1I o.s_____ 2.::

10 i TUM.Vl 4 e_ am 0.0: I 0.1( a 0. 0.: j 0:2 Tea psu" < C sS a 0. L r.&) 0 1. I a i _ _ I

TaI.. PI C . O. 3 I 0~ I . 01

t3 Csm su Me a -C s 2 1 .o . * -- T ID2i DTeaI *.. M I Ci L I am j I 3 0.1I sI COD -CW I U |IU U I ___ Zs__

171 SODS < I I I 10 t Il

.1 I un"* (&S 4r C 1.0 f 1. .0 1 1.3 1 1.3V9I } 4 I.0 1 C 0.02 I 0.3 021 = - , _ :_,*0MI Tl n .C r 2 O.03 I 0. iI 0.:. 0 121I T.us T i. -C I 0.0000 I :.moo0 O.ool I .a wl0. 0.3 = I Tl" esnasZ < I o1.m11 G. 0.00 3 .O 0.005 S 01 LM3 3 l< 0l.0 I .td 3 o.td O.t' I 0.2- Tl < I 0.01 I 0.0 1 0.01i1°°l

:N i TZ * ^- < | F tirM |~~~Mal 0.010'0 rfi 0: MS)1 j .

iupy prciu n. (fiCnZa a.oon *150 (fr O.O fis sI h

:sw,,; ..... 61 ;Pee .0M2 I atx : 0305 021 it111 M:s.. lass-ls as source aa001s 1 2 .0S O .O S 0.:

:s .Um.S $.d.ua O . .: ! 0.: 1 0.3 2 3 1:9 _^ i :§.Ilta r>4l I :OoO)sC 3:s. supL) < I o0 MU ub O 1s .

IV Msiy md for water soures. moral ifuru1 up. uuoa lr_a.n Miriy syLoe as source ua runt ra protcort area for cmstusurl drnkl reer

ou;piy. ptrccous rLst prwacL* rc . spawning g-oftd for fuhand u&t repa.

:11 nMo-y s,:i bodiys asaumeot in tor cu roa.a

e.-'vrnj ge sut pply, fishery prosmic wa and publie swrns ^g arL

V Mas.sy su=sic for *Sg d.uadl -. uar s_uply. ai t am ares" for loPsin.

sc.e WAInc- s -actr r:i=c a si..onc *'r a nuz1cr of poasiasJ as,. class&rd=:on -wl be accrorng toii j are. W'here Mc.-c 1eas.s dtcrenc: ba.-r. asasoau. ro ras. &L&ssafi&Aon c"a be asd.

- 51 - AN 2

AIR ENVIRONMENTAL QUALrY STANDARDCBWNESE STANARD GB 3095-85

A.r cnvLro=neotal qualiry uS divided Dnw _ce clAsse as foUows:Class I Required for the prot--ioc of amrual ecoloy and human heslth frc=

bamful effecu under loag tem exposue.Class UI Required for the protectioa of hunsm beslth and Lai and vegetauon

in urbaz ad rural areas against harmfl coctstions Eh:t can ariseunder long and shor tenrm ex;posure.

Class m Required for the protection of bumau -.omu:n.ies agaiast acute orchronic toxic illnesses, and for nor'al growth of animal and vegetationlife (e_:pt for tiose wimh a!Hergic comditioms).

The hifi!ig - Ir r.f te air poiltZ=Ls fcr Lhe three staieardsare lisLo.:- the hl- below.

|I '-:_g: L tmlisumd'rd --Pollutant Sazzzlimg Tizc I Class I 1 Class II C:ass m I

Total Suspended jDaily Avengte' (1S | 0.30 C.50S_ li_s_ Ay I:idwc -e 0.30 1.00 1.50)us. Daly Avenge - 0.05 0.15 0.25

_Azy Incident 0.15 0.50 0.70Sulphur Dioxide Yearly Averaset 0.02 0.06 0.10

Daily Av-age 0.05 0.i5 0.25. IDcident 0.15 0.50 0.70NiLrou.s Oxides Daily Avernge 0.05 0.10 0.1S

Anv Incident I 0.10 0.15 0.30C.rnom Monoxide Daily Avenge| 4.00 4.00 6.00

A--v Ln::dez I 10.00 10.00 t __._t ______ _____ _____ _____ ____ _____ __________

___I 20.00L.4.t Che:mstry One Hour Avenge 0.12 0.16 0.20OL^'toz Rc2cnzt j _|

(O ,)I

N'otes

* 'Daily vesa-g refers to the lamit which u am be ede by tbe average ofthe sapJa tkm it a day.''Ay Lacidmt' mefmr to the limit which muK ami be eacded by any ample saL"Yeary Avcrate' refen to the liait whoch =u t be e by the avenge in a

year of the 'dtiy average&' amur d.T.S.P. Toal suwpeLded solids tefer to pamcuhaea wvh.ch am smaler tde 100 LicroeA.Dust Dut rcfers to pmnuculu whch ar smalccr then 10 mucrom. This iteAm a

reference xandrd onrly.Ozone Light Cbec.ury Ouodaon Reagent (03). one hour average value should sot be

cxccded once :n a :monh.

-52 - ANNEX 3

DETAILED PROJECT DESCRIPTION

1. The components of the proposed project investments are described in detailbelow and summarized in tabular form.

A. PC1-DRBnKNG WATER QUALuy PROTECoToN: RELOCATION OFRAW WATER INTAxE FROM LNeNG T DA QIAO ($291.7 million)

2. Introduction. The scheme is designed for the year 2000, based upon therelocation of the raw water intake for the major potable water supply for Shanghai, fromLinjiang to Da Qiao, with a raw water capacity of 5.4 Mm3/d, together with urgentrehabilitation of existing treatment facilities. The scheme components include allowingflexibility for future expansion by about 50 percent if this is deemed appropriate in thelight of longer-term demand analyses and comparison of alternatives for least-costdevelopment.

3. Da Qiao Intake Scheme. The scheme is designed to cater for the peakdaily demand in the year 2000 of 6.6 Mm3/d based on the medium demand forecast. Atotal of 5.0 Mm3/d of fully treated water would be provided from the Da Qiao source.This equates to a raw water capacity of 5.4 Mm3/d when the assumed 8 percenttransmission and treatment losses are taken into account; Figure 1 shows a schematiclayout of the new water conveyor system. The works would comprise:

(a) Intake on the north bank of Huangpu river located about 1.5 kamdownstream from Songpu bridge comprising the intake structure, screens,pipelines, pump station, and miscellaneous works;

(b) Intake Pumping Equipment comprising about 12 variable- and fixed-speedpumps each of capacity of about 6.5 m3/sec;

(c) Balancing Tank at Intake of about 40,000 e capacity;

(d) Raw Water Conveyor System comprising the following culverts andpipelines: from Intake to Zhong Che Cun, about 14.2 kam of four-sectionculvert of about 3.75 m * 3.25 m size; from Zhong Che Cun to Linjiang,about 4.0 km of four-section culverts of about 3.6 m * 3.25 m size; ZhangChe Cun to Changqiao branch, about 3.0 km of two-section culvert of about3.9 m * 3.25 m size; Longxi branch of about 2.5 kn of pipeline/tunnel ofabout 2.2 m diameter; Changqiao branch of about 3.5 km of pipeline/tunnelof about 3.5 m diameter; Linjiang tunnel comprising a length of about

- 53 - ANNEX 3

Figure 1: SCEMATIC DErAIs OF DA QUo SCHME

Gencral Layout

/ ; wenwTDo Qao PS& Z./ jtv/ /Balancing tank

S

me im ,cl d I. in hs project

WTW-Wag.tTiwem Air w atkj hmgloP

(9 ~~~~ > _ < |~~Nr LinJisng PS|

WTW-Wac.r T,_.^mm Works fPS Pump Sti 3

Hydraulic Profile

Legend 12,, LongxdPressure Envelope 7 , 7l io7mn

Treatment WorksPumping Station

Changqiao

. 1,,. 8, ,v, s t-^s 0 ~ ~ ~ ~ ~ m 1.71

s i ' '<i'g'" '' ==2_ D orLl ;~~~~~~~~~injang

m~~~~~~~~~~~~~~~~~~~~~~~~~~a

Da Qiso Intake ZhwanCho Cun Huang Puand Pump Station River Crossing

- 54 - ANNEX 3

0.7 klm of about 4.0 m diameter (to be constructed by SMWC utilizingseparate funding);

(e) Pump Station at Changqiao of capacity of about 1.7 Mm3/d with aboutfive pumps each of capacity of about 4.25 m3/sec and about three pumpseach of capacity of about 1.0 m3/sec, 10 m head; and

(f) Balancing Tank at Linjiang of about 20,000 ni capacity (to be constructedby SMWC utilizing separate funding).

4. Rehabilitation of Existing Facilities. This comprises the rehabilitation oftreatment plants, control systems and other works included in the project including:

(a) Yangshupu Water Treatment Plant comprising replacement of chlorineequipment of about 2,400 kg/hour capacity; alum dosing plant of about120,000 liters/hour installed capacity; and ammonia plant and equipment ofabout 160 kg/hour capacity; together with civil works;

(b) Nanshi Water Treatment Plant comprising civil works and hydraulicimprovements of 0.95 Mm3/d capacity; and

(c) Telemetry and Central Control comprising communication and controlsystem for SMWC's water supply operations.

5. The following items of work, which are outside the scope of PC1, areessential to ensure the complete integrity of the PCI works. These additional works wouldbe carried out by SMWC under its normal annual program of works utilizing local funds:

Desroton Estimated Cost(Y million)

Longxi Treatment Works 350 1996-98Trunk main program under programming 1994-97Linjiang pumps & main to Yangsi 280 1997-98Linjiang Treatment Works 280 1997-98Linjiang Tunnel and Shafts 20 1993-97

B. PC2-UPPER HUANGPU CATCHMNT POLLUrMON CONTMOL ($64.6 million)

6. Introduction. The Huangpu Catchment, which extends over an area of23,800 kIn, is a network of waterways, all of which receive polluting discharges fromdomestic, agriculture and industrial sources. It is therefore of the utmost importance thatwater quality in the river is afforded the required degree of protection for drinking waterpurposes. It is necessary to implement and operate an effective water pollution controlstrategy for the whole catchment to maintain the drinking water quality from the HuangpuRiver in the long term for the water supply for Shanghai. Factors that need to be taken

- 55 - ANNEX3

into account in such a strategy include the tributaries entering the river and the need tocontrol development in critical areas of the river catchment.

7. Wujing/Minh Wastewater Conveyance System. This projectcomponent would comprise the following works:

(a) Wujing/Minhang trunk wastewater conveyance system comprising about15 km of reinforced concrete-lined tunnel, tunnels, culverts, pipelines, orother construction, in sizes in the range 0.8 to 2.5 m, access shafts and/orpump stations to convey wastewater from south to north through Wujing andMinhang, including an inverted syphon crossing the Huangpu River;

(b) A system of secondary conveyor sewers comprising about 25 km of pipesof reinforced concrete or other materials in the range 300 to 1,600 mmdiameter; and

(c) System and property connections totaling about 35 m length in sizes between200 and 300 mm diameter.

Flows would eventually discharge into the Changjiang (Yangtze River) at Bailongangthrough the proposed east-flowing conveyor. The assimilative capacity of the proposedoutfall at Bailongang as reported by SMG was reviewed during negotiations and found tobe satsfactory.

8. The component would be supported by strengthened pollution control in theUpper Huangpu Catchment comprising a program to address industrial and other pollutionat various locations in the catchment in accordance with a time-bound Action Plan. Theprogram, which would not be financed under the project since other sources of finance areavailable, would focus on selected in-factoryu process change and effluent pretreatment,principally at 33 priority industrial units to ensure compliance with standards for dischargeto the sewerage system (see para. 9 below).

Industrial Wastewater Pollution

9. Analysis of the industrial data bases covering some 600 major polluters withdischarges exceeding 10,000 m3/d has been undertaken and the 33 priority pollutingindustries determined on the basis of annual discharge loads covering Chemical OxygenDemand (COD), Biological Oxygen Demand (BOD), Suspended Solids (SS), Phenols andOil. These pollution loads were considered together with location in relation to Da Qiaointake and hydraulic considerations to determine the priority industries that are responsiblefor most of the industrial pollution in Shanghai Municipal area, contribute between 50 and80 percent of the overall pollution load, and contribute of the pollution at Da Qiao.

- 56 - ANNEX-3

Options for Mnhang and Wuiing Discharges

10. Earlier studies indicate the important need to control the industrial dischargesin Minhang and Wujing in order to safeguard the drinking water quality of the HuangpuRiver at Da Qiao. At present, these wastes discharge directly into the Huangpu over a30 km stretch of river between Minhang (only 10 km below Da Qiao) and Linjiang. Thissituation is a serious cause for concern, particularly during adverse tidal conditions at timesof low (or negative) net river flow at Da Qiao.

11. It is important that the proposed measures to improve water quality bycontrol of these discharges are effective, economic and readily enforceable. Control ofthese discharges, some of which are understood already to be partially treated, requiresinvestment on the part of industry and this approach would not remove problems of plantupsets and releases of pollution as a result of spillage or leakages from storage tanks.

12. Where discharges currently exceed the discharge standards, a fee is payable.The fee rates are understood not to have been increased since 1988, although the chargeis increased by 5 percent for each successive year that standards are not met. Althoughthe levels of the fee and water tariff are such that it is probably not economic to usedilution by mains water to achieve standards, nevertheless the levels of fee appear to betoo low to have the required incentive purpose in respect of complying with standards.This would clearly impact upon the preparedness of industry to undertake treatment plantinvestment at projected financing cost.

C. PC3-SONGJIANG WASTEWATER POLLUrMON CONTROL ($38.9 million)

13. Introduction. The Songjiang Wastewater Pollution Control works are anessential part of the Upper Huangpu Catchment Pollution Control program and comprisethe extension of the existing sewerage system, property connections and wastewatertreatment at Songjiang.

14. The provision of new wastewater collection and disposal facilities for Sijing,a fast-growing industrial town with a population of about 15,000, located some 13 kam tothe north of Songjiang and about 20 km from the Huangpu River, would be dealt withunder a subsequent program since the pollution load from this center does not directlyaffect the sustainability of Da Qiao intake. The Maogang Stud Stock Farm waste treatmentscheme, as a demonstration plant for the treatment of farmyard waste in the UpperHuangpu Catchment, would also be executed under a separate program. Songjiang, Sijingand Maogang are all located within Songjiang County.

15. Songliang Wastewater Scheme. The scheme caters for wastewater flowsof 112,000 m3/d in year 2010 with trunk conveyor sewer extensions designed to meet thisrequirement with phased implementation to suit the town planning development. Theextensions to the treatment facilities would be implemented in two phases, each of about45,000 m3/d capacity. Each phase would comprise two procss streams. The works tobe implemented under this component of the project would comprise:

- 57 - ANNE 3

(a) Trmk Conveyance System Extensions totaling about 22 km of reinforcedconcrete or other pipe materials in sizes between 300 and 1,200 mmdiameter;

(b) Link Sewers and Connection comprising about 30 km of secondary sewersand property connections in sizes between 200 and 300 mm diameter,including interception of dry-weather flows in existing combined seweragesystem and nightsoil from communal facilities;

(c) Pump Stations. Reinforced concrete pumping structures, equipment andelectrcal connections of about 22,000 m3/d total capacity;

(d) Refurbishment of Existing Wastewater Treatment Works to provideeffective treatment for about 18,000 m3/d of mixed wastewater; and

(e) Wastewatr Treatwent Extension Works to provide effective treatment forabout 45,000 m3/d of mixed wastewater. The process would includepnmary and secondary sedimentation, aeration and sludge digestion (onestream only).

D. PC4-POLUmON SouRCESm WATER QuAL MONTORING ($4.7 million)

16. A new laboratory, to be operated by the Shanghai Municipal EnvironmentalMonitoring Center (SEMC), would be constructed close to the new intake at Da Qiao,located on the bank of the Huangpu with nver access. The laboratory would allow SEMCto centralize monitoring of the upper Huangpu Catchment, in terms of both river qualityand individual pollution sources. Suitable vessels would be provided to allow access to allparts of the upper catchment for water quality monitoring to be undertaken, and forsamples to be returned rapidly to the new laboratory by river to minimize sample transporttime, thereby improving both monitoring efficiency and data reliability. Road vehiclesequipped with refrigeration facilities would be provided for sampling land-based pollutionsources.

17. The new laboratory would be equipped with a wide range of analyticalinstrumentation to enhance facilities both for the current routine monitoring activities andto permit the analysis of a range of specific micropollutants. The latter is essential in viewof the industrial nature of the Huangpu Catchment and the fact that the Huangpu Riverserves both as a potable water source and a receiving water for industrial wastewaterdischarges, some of which may contain chemicals of concern in terms of quality of potablewater. Monitoring data management would be enhanced by the provision of computerizedinformation management systems.

E. PCS-MuMCVIAL SOUD WA= AM NIGErSOIL MANAGEMEr ($43.9 millon)

18. The objectives of this project component are to alleviate the environmentalpollution and health risks associated with the present municipal solid waste and nightsoil

- 58 - ANNE 3

management practices; and to enhance the efficiency and productivity of the ShanghaiEnvironmental Sanitation Bureau's (SESAB) systems, equipment and manpower.

19. Municipal Solid Waste (MSW). The investment program proposesmeasures that would yield long-term environmental improvements, including upgradinglandfills at Laogang and Jiangzen, closing down or controlling landfill oprations atnumerous temporary dumps in the city, and developing new collection, treatment anddisposal facilities for municipal and nonhazardous industrial solid wastes. The emergencydump at Sanlintang, on the banks of the Huangpu River, would be removed and replacedby a major waste transfer station, enabling the MSW to be taken to the Laogang Landfill.

20. Measures to improve the cost-effectiveness and environmental conditions ofthe collection and transportation systems would be implemented on an incremental basis.Both the water and road transportation systems would over time be fully containerized.Initially, it is proposed to upgrade four to six transfer stations (docks) along the HuangpuRiver and Suzhou Creek for container transport, and to introduce compatible barges andtrucks. This would eliminate spillage of waste into the watercourses during barge loading,and reduce the vulnerability of the system during inclement weather conditions.

21. While the collection coverage is high, there is still scope for improvements.It is proposed to start to replace concrete collection bins with covered plastic and steelcontainers and compatible mechanized container-loading trucks, improving theenvironmental conditions and enhancing equipment utilization, as manual loading iseliminated. Competitive bidding for the provision of MSW collection services would betried out in two districts on a pilot basis, but this activity would have cost implication forthe short-term investment program.

22. Nightsoil (NS). The nightsoil disposal system, based on storage, treatmentand farm application in the adjacent counties, no longer functions satisfactorily. Thedemand for NS is diminishing, farmers prefemng commercial fertilizers. As the countyfacilities become dilapidated and overloaded, uncontrolled dumping into the creeks andrivers surrounding Shanghai takes place. The proposed NS improvement program would(a) reduce the volume of NS by mechanical dewatering and discharging the supernatant toexisting sewers, and transporting the concentrated NS to the counties, and (b) phase outthe bucket latrines and septic tanks by connecting public toilets and buildings directly tosewers. A pilot project is proposed in four subdistricts.

23. People complain about NS spillage, public health hazards and smell from theNS collection vehicles; to address this, improved collection vehicles would be introducedthrough the project.

24. Two technical assistance subcomponents are proposed to strengthen theinstitutional capability of SESAB, one aimed at improving the management of information,systems performance, accounts and service revenues; and the other aimed at enablingSESAB to establish proper workshop and equipment management and landfillingoperations.

- 59 - ANNE 3

F. PC6-INsgTunoNAL STIENGTHENG TROUGH TECHNcAL ASSrANCEAm STmIEs ($12.8 million)

25. A comprehensive program of institutional strengthening, technical assistance,studies and training are included that would support and complement proposed physicalinvestments. Details of the scope of work are contained in the reports prepared duringproject preparation (fully described in Annex 18), and summarized below and in Annex 5.

PRojer COMPONENr SUMMARY

No. Component Location Description Capacity/Size Function

PCI Drinking WaterOualitv Protection

Intake and Pwnp Da Qio Reinforced concrete intake and 5.4Mm'/d To absact raw water fromStation (PS) pump sructure, balancing reservoir Huangpu river and pump toof 40,000m capacity, 12 vertical Linjiang pump station, andmixed flow pumps (each 6.Sm3Iusc, Cbangqiao and Longxi17m head, 8 constant speed, 4 Treatment Workvariable speed) meters, pipework,electrical equipment

Conveyor Da Qiuo to Zhang Reinforced concrete low preue 4 No 3.25*3.7Sm To convey SA4MmO/d rwCbo Cun multiple section culvert 14.2km water from Da Qiao to ZhangCho Cun

Conveyor Zhang Cho Cun to Reinforced concrete low premsur 4 No 3.25*3.60m To convey 3.3Mm3/d rawLinjiang Tunnel multiple section culvert 4.0km water from Zhang Che Cun toLinjiang Tunnel

Conveyor Thing Cbo Cun to Reinforced concrete low premure 2 No 3.25*3.90m To convey 2. Mm3/d rawChangqiao Branch multiple section culvert 3.0km. water from Zhang Che Cun toChangqiao Branch

Changqi&olLongxi Branch to Pressre pipeline, steel with mortar 1.7km 3.5m dia To convey raw water toPipeline Chbngqiao and lining, cathodic protection 1.2km 2.2m din Changqiao and LongxiLongxi Treatment Works

Changqiao Longxi Changqiao and Tunnel construction with reinforced 1. 8km 3.5m dia To convey rw water toTunnels Longxi concrete segment or other lining 1.3km 2.2m dia Changqiao and LongxiTreatment Works

... Coninued

No. Compont Location Description Capity/Si Function

Chsngqiao Pump Changqiao Reinforced concrete stutureb with l.7MmY/d To raise opreu of rawStation - No sspended bowl constant water to inlet of Changqiaospeod Fump setb (5 No each of Treatmnt Works4.25ml/sec, 3 No each of1.Om3/sec, lOm head)

Nanshi Treatmnt Yanqiso Civil works and hydrulic 0.9SMMm/d To improve pure of rwWorks iovents water to supply NanshiTreatment Works

Yangshupu Yangshupu Reinfored corete and building 1.4Mmi/dToTreatment Works Tatment Work mtucture with Chlorine, Mum and replac outdatedChemical Plant Ammonia dosing equipmont chlorination, alumand ammoniadosing equipment

Telemetry and Shanghai city, Tdemetry and SCADA control Commnication and controlcentral control Linjiang & Da system for SMWC opeationl system for SMWC waterQiao control supply operationsPower Supplies Da Qiao & Substtion and power supplies To prvide power sTplies forChangqiao

Da Qiso and Changqiao PumpSttions

Distribution System Shanghai citywide Pressure pipelines deeL, ductile iron to be determined Distribution improvement tomaerls to be selected improve em pressuresDitribution Network Shgnghai citywide Sysemtic anlysis of disribution Detormine plamnedAnalysis sydem strengthening of distibution

sydemMiscellan Shanghai Miscellaneous opertion To support sydematicEquipmnt equipment including flow met, network analysis andpressure metr and softwae operational ctivities

... Continued

No. Component Location Description Capecity/Sizu Function

PC2 Unper Huantou To be determined: To ensr compliance withPollution Control 33 priority effluent discharge standards,industries to be control pollution levels inIn-factory Wujing and Construction of 'in-factoty addressd Hugpu catchment, andPretreatment Minhang effluent pretreatment facilities for sustain viability of Da Qiaoat Priority Industries those industries identified s major water supply systempolluters of Huangpu catchment

Wujing Sewer Wujing and Reinforced concrete culvert or pipe 1Skm First Stage of system toPrimary Conveyor Minhang materials, tunnel constnrution or by convey 0. 7Mm/d wastewaterpipe jacking, with reinforced from Wujing/Minhang areasconcrtet egment or other lining in to East China Seamies betweon 0.3 and 2.5m, pumpstations and ccess shafts, andHuangpu River cossing

Wujing Sewer Wujing and Reinforced concrete or other pipe 25km To convey wastewater fromSecondafy Conveyor Minhang materials in sizes between 300mm Wujing and Minhang areas toand 1,600mm dia, and pump primary conveyorstations

Link Sewes Wujing and Reinforced concrete or other pipe 35km To convey wastewater toMinhang materials in sizes between 200mm tnmk sewer systemand 300mm dia

PC3 SonniingWastewater Pollution

Songjiang Extension of existing tunlk 6.7km 300mm dia To convey wastewater toSongjiang sewerage system, reinforced 5.7km 450mm dia Songjiang Treatment PlantWastewater concrete or other pipe materials 1.4km 600mm diaConveyor System 1.8km 800mm di&3.3km lO00mmdia3.2km 1200mmdia

.. Continued

No. Component Location Description Capacity/Size Function

Songjiang Songjiang Reinforced concfete pump I Nox2M,OOOm~/d To convey wastewater toWasteater structus and equipment, I Nox l,SOOm3/d Sonajiag treatment plantConveyor Syem pipewo, screens, elcbicalequipment

Link Sewers and Songjiang Reinforced concrete or other pipe To convey wastewater toConnetions materials, pump stations and tunk sewer systemequipment

Songliang Son4iang Extension of existing Songjiang 63,OOOm3/d To treat wastewater fromwastewater WTP fom 18,000/d to Songjiang to acceptableTreatment Plant 63,000m3/d with treatment quatity for discharge to(WTP) Pc comrising primar and Huangpu riversecondary sdimentation, aertionand sludge digestion

PC4 Water Ozlitv

Da Qiao Reinforced concrete and building Huangpu river water qualityMonitoring Center construction to house equipment, monitoring facility.laboratory, for water qualitymonitoring and analysis.

Water Monitoring Da Qiao Supply and instIlation of Huangpu river water qualityEquipment equipment and facilities comprising, monitoring fcility.analytical equipment, 2 No boatsfor river water sampling, 2 Novehicles for oporations.

LAbonato Da Qiao Supply of computerized lboortory To improve water quality dataInformction data management system mnagementManagemet Sydem

... Continued

No. Component Location Description Capacity/Size Function

PCS Municitl SolidWaste and NiehtsoilManatement

MunicipR1 SolidW"o Ssalintang Excavate, transport and diopose of 147,000 tons To provide facility for solid

MSW stockpiled at the site, waste transfer operationsSanlintang Tranfer Convert the site to a transfer staionStation Civil Works for barge to road container

tanwspoirtation.

Transfer Station Sanlintang Rail track crane for 17 rni (alt. 10 4,750 tons/day Equipment for transferringEquipment n3) containers, containers to trucks orstorage.

Trport System Sanlintang to Flatbed trucks for 2 containers per 70 To tranport solid waste fromlaogang Lanfill load. Sanlintang to LaogangLandfills.

Leogang Landfill LAogang Improving the infratcture for - Upgrading of LaogangCivil Works container truck trsportation, Landfill site.upgrading road bridge and repair ofweighbridges.

Loogang Landfill Laogang Equipment for unlooding containers 4 container cranes, Improving the bargeEquipment and transportation to landfill site. 16 tipping trucks, unloading capacity andEquipment for improved waste 2 compectors, 1 upgrading the disposalcompaction in the landfill, and mobile compositor medhods at Laogang Landfillproduction of compost to be used as site.cover MAterial.

Laogang Landfill Laogan Monitoring and laboratoy Wells and Monitoring the groundwater,Monitoring equipment sampling pumps, surface water and air qualityand portable gas at the landfill.monitors.

... Continued

No. Component Location Description Cspcity/Size Function

Jiangzien Landfill Pudong Site improvement, excavation and 1.2 million tons Improve the environmentalCivil Worb plaing cover material on old fill, conditions at the landfill.build leachate handling system andmonitoring wells.

Jiangrzhn Landfill Pudong Povide steel wheeled compctor. I No. Improved wast compsctionand loger useful life of thesite.

Tempoay Duwp Xinjin, Dacng, Cloing down 2 and refurbishing 5 1.0 miflion tons Improving the envionmentSites Civil Works Jin Quio, Qiyi sites. and upgrading for temporary(2), Gucun and uo existing dump sites.Ho

New LandfiU Sites Various Siting and prepartion of new - To provide suitable landfillCivil Works landfill sites for MSW and sites closer to the wasteindustrial waft. generation areas West of °Suzhou Creek.

Trnsfer Docks Civil Huangpu River Demolition of existing buildings, 4-6 docks Contanerization of waste forWorks and Suihou Creek. new foundations, buildings, improved trprtation.concrete slabs and river walls.Water Transport Various Modify existing 100-ton barges for 36 No. Improved efficiency,System contsiner trnsport, and supply of 108 No. environment and workers'new 80-ton barges. sfetyContainer System Various Supply 17 m? (alt. 10 mn) 823 No. As Above.containo.

Collection System Various Remove concreb bins and replace 1,000 No. Improve the environmentalCivil Works with encloses and steel and/of conditions at collection points.plastic bins.

.Continued

No. Component Location Description Capacity/Size Function

Collection Sydem Various Supply bin-lifting collection 50 No. Improve the collectionvelicles, efficiency.

Pilot Collectdon Shanghai Contracting out collection services 2 districts Improved collection sevices.Project in open competition. No additionalinvestments.

Nightsoil

Zhabei and Putuo Build dewatering stations, 4 subdistrict pilot Study the feasibility of NSPilot Project Districts connecting septic tanks at public area dewatering and discharge totoilets to sewers. sewers.Nightsoil Hadling Shanghai Supply of collection vehicles and 30 No. Volume reduction beforeEquipment mobile sludge dewatering units. 2 No. trn ation and disposal.

PC6 Technical Assistance.Project Mansaementand Tmaining

Water Distribution SMWC Local/Foreign Technical assistance - To assist SMWC inAnalysis and equipment systematic analysis of thedistribution network systemfor improved operationalplanning.

Shanghai SEPB Local/Foreign Technical assistance To improve the efficiency andEnvironment effectiveness of SEPBTmining Center Trining Center.

Financial Accounting SMWC Local/Foreign Assistance To assist SMWC in thend Managemnnt for development of improvedSMWC financial accounting efficiencyand techniques.

. .. Connnued

No. Component Location Description Capcity/Size Function

Water Supply SMWC lAxal/Foreign Technical Assi - To improve opertionalInflvmation Sytem efficiency, long-rtngeplanning capcity andfacilities managment.

Istitutional SESAB Local and foreign technical Stgthod tochnical andStUghening assistanc to develop mangemet financial manaement, andinformation sydsem, budget and improved serviceaccomting prc and billing performance.system.

Workshop SESAB Local and foreign techmical Improved maintenance andMangement assistanc to enble SESAB to rq,ir routines and vehicleestablish proper workshop utilization.maae3t.

Future Project Shanghai Local/Poreign Technical Aistane - To assist SMO and concernedPrepration agencies in prepartion offuture investment programs

Wujing Sewer SSPCC Local/Foreign Technical Aistance - To assist SSPCC inFeasibility/Design formulating least-cost study/design options.

Huangpu River Basin SEPB Local/Foreign Tchnical Aidstac - To assist SEPB/SEMC inMonitoring SEMC implementing Huangpu basinInfonnstion Sysem water quality management.and Water Quality

Modeling

Poect Mangement Songjiang and Local/Foreign Tchnical Aidance - To assist in managementStudy/Design Other studies and design studies.

... Continued

No. Component Location Description Capcity/Siu Function

Water Supply Mister SMWC Local/Foreign Technical Assidsane - To assist SMWC inPlan developing a sound basis forlong-term water supplydevelopmmts in Shanghai.

Strategic Planning Shanghai Urban Local/Foreign Technical Asistanc - To assist SUPDRI inInformation System Planning and forrmlating and implerentingDesign Research a high level stdrtegicInstitute (SUPDRI) information system.

Institutional Support and Mapping to prde digital map tInstitute (SMl) bases in line with SMI'sagreed sftrtegy of informationsystems.

Information System Shanghai Local/Foreign Technical Assistance To strengthen SUCIS officeConstruction capacity to provide guidanceCommission and leaders por a(SUCIS) networked information systemfor Construction Commissionagencies.

Trinine

Project Training Songjiang WWTC Training of SWWTC personnel in - Improved agency capability.construction technology andoperation

Pollution Soumres SEPB Monitoring Training of SEPB personnel in - Iroved agency capabilityand Water Quality Center opertion d n maintenance of aefficiency in operation ofMonitoring monitoring equipment water quality monitoringequipment for sustained riverquality control.

Wastewater Shanghai Agencies Training of sector professionals in - Improved agency capabilityTreatment recent wastewater technology for future, applications ofTechnology development options in relation to wastetr tchnologylocal applications

SUMMARY Accoutrs Cosw SUmmARY

RMB USS X Total------------------------------ --------------------------- X Foreign BaseLocal Foreign Total Local Foreign Total Exchange CostsI. INVESTMENT COSTS

A. Civil Works 924.7 833.3 1758.0 106.3 95.8 202.1 47.4 57.6B. Materlsis & Equipment 223.1 530.6 753.7 25.6 61.0 86.6 70.4 24.7C. TA & Training 23.6 70.8 94.4 2.7 8.1 10.8 75.0 3.1D. Land Acquisitn & Resetimt 102.5 0.0 102.5 11.8 0.0 11.8 0.0 3.4E. Design, Spn and Mgt 301.4 0.0 301.4 34.6 0.0 34.6 0.0 9.9F. Construction Supervision 0.0 44.0 44.0 0.0 5.1 5.1 100.0 1.4

Total BASELINE COSTS 1575.4 1478.7 3054.1 181.1 170.0 351.0 48.4 100.0Physicat Contingencies 185.0 164.0 349.0 21.3 18.9 40.1 47.0 11.4Price Contingencies 513.4 56.0 569.4 59.0 6.4 65.4 9.8 18.6…. … - - - - . - - . . - -.Total PROJECTS COSTS 2273.8 1698.7 3972.5 261.4 195.3 456.6 42.8 130.1a====== =f========= mftgf===-r=3===… … …ft…== ==== s== ==s…_________________

______________.__- ______ --_ _ -- - - _.._____________________________._____...________

Values Scaled by 1000000.0 - 2/2/1994 16:43

SUMMARY AccouNs BY YEAR(Yuan)

Totals Includlng Contingencies Totels Including Contingencies

1993 1994 1995 1996 1997 198 Total 1993 1994 1995 1996 1997 1998 Totalgss--3us3.s----s..R.M.fl.t3....uul.*us-- u---n---sm.s--.u- u.ufu..Usa-uu..3U.n-su.MSSSS-e------------

ws--stncruwu1. IIVESTMENT COSTS....................

A. Cvlil Works 1.9 654.7 933.2 620.0 154.7 3.9 2368.3 0.2 75.3 107.3 71.3 17.8 0.4 272.2B. Materials & Equipuwnt 0.0 231.1 525.1 80.7 47.4 22.5 906.8 0.0 26.6 60.4 9.3 5.4 2.6 104.2C. TA & Trainlng 0.0 18.7 19.3 30.2 21.0 22.0 111.1 0.0 2.1 2.2 3.5 2.4 2.5 12.80. tand Acquslitn * Resetltmt 11.4 63.1 29.0 13.1 14.0 0.0 130.6 1.3 7.3 3.3 1.5 1.6 0.0 15.0E. Design. Spn and Ngt 0.2 106.7 181.9 86.1 25.7 3.9 404.7 0.0 12.3 20.9 9.9 3.0 0.5 46.5F. Construction Supervislon 3.0 14.1 17.2 13.0 3.3 0.4 50.9 0.3 1.6 2.0 1.5 0.4 0.0 5.9Total PROJECT COSTS 16.6 1088.5 1705.6 843.0 266.1 52.7 3972.5 1.9 125.1 196.0 96.9 30.6 6.1 456.6Values caled b 100000.........................................0-2/2/1994 .16:43

E ~~~~Values Scaled by 1000000.0 2/2/1994 16:43

- 71- ANNEX6

TERMS OF REFERENCE: PC6-TECHNICAL ASSISTANCEAND TRAINNG

INSITuloNAL STRENGTHNING FOR SUCIS IMPLENAnoN

Background

1. To support the dynamic economic growth of the City of Shanghai and ensurethat there is a coherent basis for planning the related required urban services, the ShanghaiMunicipal Government (SMG) has been investigating and planning Geographic InformationSystem (GIS) implementation. A decision was made in 1987 was made to establish acomputerized system to manage the large of amounts of information required for urbanplanning, infrastructure development and construction, environmental management, andurban services administration. A Project was established in the Construction Commissionto coordinate system planning and development designated the Shanghai UrbanConstruction Information System (SUCIS).

2. SUCIS focuses on implementation, by the year 2000, of a new shared systemfor land and infrastructure records management to support governments' response to therapid pace of development in Shanghai and to facilitate management of infrastructureconstruction and environmental management. SMG's Ten-Year Strategy for developmentand implementation of SUCIS identifies 10 principal subsystems largely based on theexisting organizational structure of the Construction Commission: (a) mapping subsystem[responsibility of the Surveying and Mapping Institute (SMI)]; (b) underground pipelinesubsystem-data base of municipal public facilities (water supply, sewerage, gas, electricpower, etc.); (c) housing and real-estate management subsystem; (d) urban planningsubsystem; (e) environmental sanitation subsystem; (f) environmental protection subsystem;(g) construction commission headquarters office subsystem; (h) twaffic managementsubsystem; (i) underground pipeline subsystem; and () land administration subsystem.

3. As part of the Ten-Year Strategy, a pilot project was conducted in part ofan inner urban district to help identify techniques, functionality, and institutionalmechanisms for SUCIS implementation. A Middle-Stage Project is now in progress as anextension of the pilot project in order to provide a better test of data sharing and subsystemintegration. Participating agencies would each acquire their own technology and build theirown data base. Communication requirements and approaches are still being detemined.

4. SMG is proposing to spend considerable resources on GIS technology by theend of this decade. The eventual level of functional benefit would be directly related tothe manner in which this investnent is managed. At the present time, the overall SUCISinitiative is being constrained by a lack of adequate resources (human, financial, technical)

- 72-

and a loosely defined information policy framework. Consequently, effective institutionalmechanisms required to implement SUCIS throughout Shanghai have not been adequatelydesigned nor are sufficient resources being allocated towards eventual implementation ofthe system. Consultancy assistance under the Shanghai Environment Project (SEP) wouldaddress the overall institutional development of SUCIS under this technical assistance (TA)assignment.

5. The mapping subsystem of SUCIS would provide the unified geographic basefor all the other subsystems. Topographical mapping is provided by SMI at two primaryscales in urban areas (1:500 and 1:2000) and contains many of the features used by otheragencies. There are approximately 4,800 1:500 scale maps that comprise the urban areaof Shanghai, compiled from aerial photography through stereo compilation and from fieldsurvey measurements. The paper and mylar manuscripts covering the city are beingconverted to computer format (digitized) by manual line tracing with simple DOS-basedCAD technology. However, the resulting digital data are not well suited to constructionof spatial entities as required for GIS implementation. A number of SMG agencies havealready acquired GIS software that requires GIS data formats, and several others arepreaing to acquire such software. To use the digital map data from SMI, the data mustbe convertd to GIS format Assistance in doing so would be provided through thisassignment.

6. The Shanghai Urban Planning and Development Research Institute(SUPDRI), within the Construction Commission's Planning Bureau, has been working withGIS technology in parallel with SUCIS development, including involvement in the Middle-Stage Project. SUPDRI began GIS investigation and experimentation in 1987, and hasdeveloped a system with limited scope in terms of data and applications. SUPDRIcurrently requires assistance in developing a Planning Information System, as part ofSUCIS, to help guide strategic decisions on land uses, tanwsport, infrastructure, andeconomic development in the rapidly growing metropolitan region. A related technicalSEP-supported assistance assignment would provide this expertise.

7. The Shanghai Waterworks Company (SWC) is responsible for maintainingand developing one of the largest urban water distribution systems in the world. It hasbeen involved in SUCIS since its inception, including participation in the pilot project andthe current Middle-Stage Project. SWC, along with its subsidiary organizations, requiresassistance in developing and implementing a comprehensive Water Information System forShanghai in order to manage its resources more effectively and efficiently in repair,maintenance, and system augmentation. This assistance would be provided under thefourth SUCIS-related SEP-supported TA assignment.

Objectives

8. The aim of this TA (Institutional Strengthening for SUCIS Implementation)is to enhance the following GIS-related institutional mechanisms within SMG to a level thatwould enable the cost-effective implementation of SUCIS across Shanghai: policiesconcerning organizational mandates regarding the gathering, processing, storage, retieval

- 73 - ANNEX 6

and dissemination of geographically referenced information; definition of roles andresponsibilities within SUCIS' constituent organizations; definition of realistic levels ofresources (human, technical, financial) to fulfill the required organizational mandateswithin SUCIS, including measures to obtain, sustain, and eventually augment theseresources through the formal municipal budgeting and programming process (includingtransparent measures for cost-recovery); systems for inter- and cross-organizationalexchange of information; an overall technology architecture that meets realisticrequirements of SUCIS' participants (including data communication and exchange); anda monitoring and evaluation mechanism that would provide the necessary feedback to SMGon technical, management, and financial aspects of SUCIS.

Scope of Work

9. Much of the background work required for this TA has been performed bythe SUCIS General Office and in the course of CIDA-financed World Bank preparationstudies. These reports should be reviewed as background to the following tasks comprisingthe work required under this TA: (a) analyze strategic issues concerning successfulimplementation of SUCIS and achievement of the objectives outlined in the SUCIS Ten-Year Plan; (b) in consultation with SMG agencies and the SUCIS General Office, developmanagement principles dealing with the following technical issues: data management;technology standards; system design methods and standards; and data communication andexchange; (c) define standard interagency data management responsibilities including,where possible, primary, secondary, and tertiary responsibilities and primary datacollection, storage, and maintenance responsibility by data set and agency; (d) developmodel interagency agreements for data sharing, exchange, and pricing, and facilitate actualagreements between agencies or groups of agencies on related policy; (e) review optionsfor system financing and prepare recommendations for funding implementation and ongoingoperation of SUCIS; (f) establish the organizational structure for a secretariat to supportdevelopment and application of SUCIS policy and define professional competency standardsrequired to staff the secretariat; advise on the implementation of this secretariat; (g) designa training program to develop skills required for SUCIS design and implementation; (h) inconsultation with SMG and SUCIS management, consolidate resolution of specificmanagement issues into a policy framework for SUCIS design and implementation;(i) prepare a final report documenting immediate, intermediate, and long-term policydirections, and indicating the steps linking policy requirements in each time period.

Work Organization and Program

10. The Consultant would report to the SEP Office of SMG, and work closelywith the SUCIS Steering Committee and the SUCIS General Office.

11. The TA would be conducted by a Consultant comprised of a single teamof Chinese and foreign specialists. Experdse of the Chinese specialists would includesystems planning and design; geographic data management and data base design;information technology networks design and operation; and information technologymanagement and policy development.

- 74 -

Study Outputs and Reports

12. An inception report defining the program of work and the key issuesrequiring resolution would document the status of SUCIS development and define the keyissues to be resolved to successfully establish necessary implementation policy. Theinception report would also define the schedule of work, indicating the sequence ofsubsequent worldng papers and a schedule of workshops. Each working paper would befollowed by a review period and a workshop. An Interim Report documenting proposedmodifications to the SUCIS policy framework and institutional changes required to supportimplementation would be prepared. The Draft Final Report would be reviewed in a finalworkshop prior to preparation of the final version of the Final Report.

13. The following reports would be prepared and submitted by the Consultant:

RZort: Due Date (from commencement of work):

Study Inception Report 1 month after contract signingMonthly Progress Report duration of assignmentWorling Papers to be defined in Inception ReportInterim Report start of month 8Draft Final Report end of month 26Final Report end of month 30.

14. Tbere would be a detailed review period after the submission of each report.Reports would be preared initially in draft, and finalized after the aproval of theShanghai Environment Project Office (SEPO) and the SUCIS Leading Group. Twentycopies of Draft Reports and 40 copies of Final Reports would be required. Reports wouldbe produced in English and Chinese.

Level of Effort

15. Approximately 14 person-months of foreign and 70 person-months of localconsultant time is envisaged over a 30-month period. The multidisciplinary foreign teamshould be comprised of specalias in design of geographic information systems;information technology policy and strategic planning; structuring multiagency informationtechnology projects; institutional development; and information systems training andtechnology transfer.

Facilities to be Provided by the Client

16. SEPO would enter into the contract with the Consultant and would beresponsible for logistical aspects and formal correspondence. Day-to-day contact andworking relationships, however, would be with the staff of the SUCIS General Office andthe SUCIS Leading Group. SEPO would use its good offices to fcilitate the Consultant'swork and nominate an officer to act in liaison with the World Bank, local counterpartorganizations, and the Consultant throughout the contract period.

- 75 - ANNEX 6

17. The SUCIS General Office would provide:

(a) furnished, serviced, cleaned and air-conditioned office accommodations,together with telephone and telex facilities for noninternationalcommunication;

(b) a designated, suitably qualified officer to work with the Consultant on a full-time basis, together with selected line staff for both implementation andtIaining, proposed as part of the project preparation process;

(c) access to all available relevant reports and data required to undertake theassignment; and

(d) access to computer and communications hardware, software, and data basesexisting within the Shanghai Municipal Government's ConstructionCommission considered necessary by the Consultant for the efficient andeffective conduct of the work.

Facilities to be Provided by the Consulant

18. The Consultant would include in its proposal the following items:

(a) all staff and personnel costs including international and local travel andhousing accommodations;

(b) interpreters and secretarial staff support; and

(c) international communications costs and cost associated with report writing,tnslation, and printing.

Comments by the Consultant

19. The consultant is requested to make any comments on and suggestions forimprovements to these terms of reference in its technical proposal. The financialimplications, if any, of these suggestions and comments are to be shown separately.

-76- ANNEX7

DISBURSEMENT SCHEDULE($ million)

Bank fiscal year Disbursement (S million) Project Bank(FY) & semester Semester Cumulative Profile Profile L-

(2) (2)

1994 Second 0.0 0.0 0.0 0.0

1995/b First 10.1 10.1 6.3 3.0Second 9.9 20.0 12.5 6.0

1996 First 20.9 40.9 25.6 10.0Second 26.0 66.9 41.8 18.0

1997 First 31.1 98.0 61.2 30.0Second 23.7 121.7 76.1 42.0

1998 First 16.3 138.0 86.2 54.0Second 8.6 146.6 91.6 66.0

1999 First 6.3 152.9 95.6 74.0Second 3.3 156.2 97.6 82.0

2000 First 2.4 158.6 99.1 86.0Second 1.4 160.0 100.0 90.0

2001 First - 94.0Second - 98.0

2002 First - 99.0Second - 99.0

2003 First - 100.0

La Disbursement profile for China (all sectors), issued May 1992.lk Includes Special Account disbursement of $9.0 million.

- 77 - ANNEX 8

LAND ACQUISIT[ON AND RESEITLEMENT PLAN

PC1-DRDNKG WATER QUALrrY PROTECONREI'nzLENr PLAN ANIMPLmENTATION PROCEDURE

Introduction

1. The relocation of the existing raw water supply intake from Linjiang to DaQiao is the principal component of the Shanghai Environment Project. In addition toimproving the river water quality for the people of Shanghai, a better investment climatefor the economic development of Shanghai and the Pudong New Area would be achieved.

2. The eisting water intake is located in the polluted middle reaches of theHuangpu and the present project is to relocate the intake in the upper reaches of theHuangpu at Da Qiao near Songpu Bridge. The scheme would comprise:

(a) 5.4 Mm3 Raw Water Pumping Station at Da Qiao;

(b) 16.6 km long 4 box concrete culvert (each box 3.75 x 3.25 m) from DaQiao to a junction at Zhang Che Cun in the Caohang Township of ShanghaiCounty;

(c) 4.2 Ikm long 4 box concrete culvert (each 3.60 x 3.25 m) eastward to thewest bank of the Huangpu River at Linjiang;

(d) o.72 Im long 4.0 m diameter tunnel across the Huangpu to enter aregulating reservoir at Linjiang Pumping Station;

(e) 3.0 Ian long 2 box concrete culvert (each box 3.90 x 3.25 m) from ZhangChe Cun northward to a bifurcation point (C) located on the south side ofthe proposed outer ring road;

(f) 3.35 km long 3.5 m dia steel pipe including 1.1 km of 3.5 m dia tunnelfrom point (C) eastward to Changqiao Water Works; and

(g) 3.15 km long 2.2 m dia steel pipe including 0.8 km of 2.2 m dia tunnelwestward to the new treatment works at Longxi.

3. The works are located in Songjiang County, Shanghai County and XuhuiDistrict.

- 78 - ANNEX 8

4. In order to minimize disruption, the works are located wherever possible inopen county. The culvert would have a 2-meter cover to allow cultivation aftercompletion. Some areas of land would have to be acquired and a few dwellings wouldhave to be removed and their occupants resettled; some disruption would therefore occur.All inhabitants and units affected would be given proper compensation and resettlement inaccordance with statuary regulations.

5. Laws and Regulations Related to Demolition and Resettlement. TheShanghai Government has officially approved the project in the document, 'ShanghaiPlanned Investment' (1993) No. 51:

fThe water diversion from the upper reaches of the HuangpuRiver second phase project is approved to be listed as asubitem of the Shanghai Environment Project for the use ofthe World Bank Loan."

6. Shanghai Government Release (1987) No. 51, 'Utilization of LandAcquisition Costs for State Construction in Shanghai City,' stipulates the responsible bodyfor land acquisition:

'Land acquisition is the sole responsibility of the CountyPeople's Government under the organization and guidance ofthe Land Administration Bureau of Shanghai City. Landacquisition costs include land compensation, green cropscompensation, compensation for surface and undergrounditems of rural collectives and individuals, resettlementallowances, construction and development funds for newvegetable farms, land acquisition administrativc funds,unforeseen expenses, and other expenses as stipulated by thestate and city.'

7. The administrative requirements for land acquisition is contained in"Shanghai Government Release' (1980) No. 119:

'At the time of land acquisition the necessary land forconstruction must be assured and in addition the immediateinterests of local inhabitants must be considered.

The project unit responsible should make appropriatearrangements for the livelihood of commune teams, units andindividuals affected.

All communes teams, units and individuals affected by landacquistion should abide by the State Decrees and activelysupport the State construction so as to ensure constructionstarts on time.'

- 79 - ANNEX 8

8. Compensation standards are set out in the document, 'Financial and MaterialCompensation Criteria for Land Acquisition in Shanghai City.' Guidance on houseevaluation is contained in the document, 'Provisional Criteria for Housing Evaluation inShanghai City."

9. The detailed administrative requirements are set out in 'DetailedImplementation Regulations for Demolition and Resettlement in Shanghai," Decree No. 4,People's Government of Shanghai. For demolition and resettlement of housing, thefollowing documents must be obtained: 'Approved construction plan, plaming license foruse of construction land, certificate for use of land, and license for demolition andresettlement. " It is also necessary to hold an agreement signed by the relocatee on termsof compensation and resettlement.

10. Program of Demolition, Removal and Resettlement. According toengineering design, the Da Qiao Pump Station would require a permanent plot of land aswell as land to be leased for construction. For the conveyor only, the vent stacks andjunction wells require land acquisition; the remainder of the land would only be leased.The land to be leased is 120 m wide for four-box conveyor, 95 m wide for two-boxconveyor; the land to be leased for Changqiao 3,500 mm diameter steel pipe branch lineis 70 m wide, and that for Longxi 2,200 mm dia steel pipe branch line is 35 m wide. Allinstallations within the range of the land to be acquired and leased are required to bedismantled and moved.

11. To inhabitants with their housing removed, the township or villagegovernment would be entrusted to build house for them at a nearby site chosen within thescope of their own village. The duration of house building is considered as four to sixmonths. Units would be given compensation or resettled at another plot of land to beacquired. The labor force from land to be acquired would be substantially recruited asworkers of the Da Qiao Pumping Station or absorbed by local township enterprises.

Study to Minimize land Acquisition, Demolition and Resettlement

12. An on-site survey has been carried out along the entire length of thebuildings located within the width of land to be leased. Buildings in the area but notdirectly in the excavation zone would be preserved wherever possible by reducing widthof land to be leased at local spots together with the use of protective measures.

13. For the Changqiao and Longxi branch pipelines that have sections partlypassing through densely populated area, it is recommended that pipe laying would bereplaced by pipe-thrust boring at a depth of 20 m underground; hence, considerabledemolition and resettlement can be avoided. Since the culvert construction line stretchesto 4-5 k:m in one construction contract, it is impractical to start construction simultaneouslyalong the entire length. It is recommended therefore that construction would be conductedsection by section and the application for land leasing would follow in step with differentconstruction period. Contractors would be requested to backfill and level the ground in

- 80 - ANNEX8

time at the construction site, so that the duration of land leasing may be reduced to aminimum.

Investigation and Verification of Amount of Demolition and Resettlement

14. Demolition and resettlement was carried out once in 1985 along theconveyor length, but regulations were not enforced further due to financial restrictions andpostponement of the project. Now following the optimized and verified project schemejointly compiled by the Shanghai Municipal Engineering Design Institute and the BritishMott MacDonald Consulting Company, an investigation team of five from the ShanghaiMunicipal Waterworks Company carried out a detailed survey for land acquisition,demolition, removal, and resettlement for the present project from October 1992 to January1993. This has received support from governments of county, township and village alongthe entire pipeline and from the planning and related departments of Shanghai City.Through the on-site investigation, the amount of demolition, removal, and resettlement hasbeen defined, and an estimate has been compiled for compensation and resettlementexpense in accordance with related regulations.

15. Ihe Amount of Permanent Land to be Acquired. The amount ofpermanent land to be acquired is small relative to the amount of land to be used in thewhole project, mainly due to the comparatively large amount of land temporarily leasedfor culvert construction. The culvert line is 30.2 km in full length (inclusive of Changqiaoand Longxi branches). It is divided into six contract packages. Different time-scales fortemporary land acquisition would be arranged according to the construction schedule andin consideration of the combined economic and social effects. Farmland along theconveyor line would be leased (generally no demolition or resettlement) as well as areasfor temporary installation during construction (see the Project File for location drawings).

16. Amount of Land to be Acquired or Leased and Buildings Removed.Quantities for the land acquisition, land leasing and resettlement as shown in Table 1.

(a) Da Qiao Pumping Station. All the land to be acquired is farmland.Thirteen houses have to be removed and the inhabitants resettled locally;

(b) Main Conveyor: Da Qiao-Linjiang. A construction width of 120 m isrequired, but would be locally reduced to avoid unnecessary demolition ofbuildings. The permanent land to be acquired is all farmland; land leasedwithin the construction width is 80 percent farmland with the remainderroad, railway or river. Four separate areas (total 120,000 m2 of farmland)would be leased for temporary installation. For access to the site existingtractor roads would be utilized where possible but an allowance of oneaccess every 500 m x 150 m long x 8 m wide has been made. Two unitswould be demolished; mainly boundary walls storage areas and a fewbuildings.

- 81- ANNEX8

Table 1: SummARY OF LAN AND REErNENr REQUnREMEM

Do 01,.. ei.n U racb Ppel. to Pfpel Cbay be lo.thnutce.yor conveyor C qto to 1ougP " o borigs Total

Pezaeaet lead to be aquired(eu) 46.S00 11.700 1.500 1.000 - 5.000 400 64.400Lead to be looed for ee.atmc.tim (VP) - 2, 54.000 279,000 151.100 ao,5o0 5.000 14.000 2,772.300Lad to be leased for t_preryziaete±ttoa Cu) 39.640 120.000 13,000 24O000.j 4,400 - - 201,540Area to be leas" for easess to

emotruetie sites (ue) - 51,000 - - - - - 53,000to be deioUed

Imbr 1} 11 40 4 17 - - 7Area (MP) 1.000 1,400 3,500 $00 2.500 _ _ 10,200LeA to be ecqired forbmaee or site (u') - - 4,500 - - - 44.500units to be donalishadummr I 1 14 4 - - 2Are (u) - 2,000 14.000 2,400 1,400 - - 13,600

La IdClud land to be leaed for acceu.

(c) Brnch Conveyor to Cbangqiao and Longxi. The permanent land to beacquired is all farmland. For leasing within the construction area, a 95 mwide construction width has been allowed; the area is mainly farmland butpartly river and township grade roads.

(d) Changqiao Branch Pipeline. The pemanent land acquisition is mainlyfamland; for temporary leasing during construction mainly farmland butincludes part city road and part river. Land to be leased temporarily duringconstruction is all farmland.

(e) Lonipd Branch Pipeline. The land leased for the 35 m construction widthis 60 percent farmland with the remainder ether river or township graderoads. For temporary installations, all land to be leased is farmland. Unitsto be demolished include four buildings and part of the boundary wall.

(f) Changqiao Lift Pump Station. All land to be acquired or leased isfarmland.

(g) Changqiao/Longxl Thrust Bores. All land to be acquired or leased isfarmiland.

Resettlement

17. Resettlement Program for Inhabitants. Since there are not manyinhabitants and no concentration of residence to be moved along the entire pipeline, allthose individual households would be settled down nearby in their own village accordingto regulations. If there are in the city or township new communal residential quartersaffording better living conditions to the existing residence, those households would bedemolished and may be allowed to move in those new quarters. inhabitants who build theirown house would obtain a building area equal to the existing plot as compensation, andthose to move into new quarters would be allocated 55 m2 (building area) per householdin general.

-82 - ANNEX 8

18. Resettlement Program for Units. Since the ground layer on top of theconveyor after completion can be restored only for farming, and not for building, units tobe demolished would generally move to other selected places nearby under the auspices ofthe Shanghai Municipal Waterworks Company. Some of these units would reduce theiruse of land through internal rearrangement and obtain compensation as allowance for landbeing acquired.

19. Resettlement Program for Labor Force. The principle of labor forceresealement is that those who have land to be acquired would be recruited as workers atthe Da Qiao Pumping Station; some of them may enter local township enterprises forplacement on a voluntary basis.

20. The land acquisition for Da Qiao Pumping station would make redundant 74laborers; of this total 14 are over 45 year or want to work in local township enterprises.According to the Shanghai Municipal Government Regulations this latter group would becompensated at the rate of Y 35,000/person. The remaining 60 persons would beemployed on the oprating and maintenance staff of Da Qiao Pumping Station; the WaterCompany would also arrange for the cultural education and technical training of this groupthat would represent about two thirds of the total pumping station staff.

21. Along the length of the culvert the only land required to be acquired is thatassociaed with the air vent shafts-about 30 m3/shaft. The land to be acquired in eachtownship is of the order of 100 m2/township. Individual laborers would be compensatedaccording to the Shanghai Government Regulations.

Costs for Land Acquisition, Land Lease, Demolition, Removal and Resettlement

22. All costs for land acquisition, land lease, demolition, removal andresettlement would originate from the domestic counterpart fund of the subproject, totalingY 90.53 million.

23. Principle and Criteria of Land Acquisition, Demolition, RemovalCompensation Expenses. According to related regulations, compensation throughevaluation would be given to inhabitants and units who have building being demolished;the units would be given expenses for land acquisition, equipment moving, compensationfor loss due to stoppage of production (including compensation for personnel due tosuspension of work).

Compensation criteria and expenses (Yuan) of major items:

(a) land Acquisition. The standard compensation rate would be in accordancewith Shanghai Municipal Government regulations. The compensation coversdirect and indirect economic loss caused by land acquisition and is slightlyhigher than the income which would be derived from farming (Table 2);

- 83 - ANNEX 8

Table 2: LAI AcQuIsmoN BY CouNrY

Location Type Area Total(y/m2) (Y million)

Songjiang County basic paddy field 105 5.15Shanghai County half paddy field 150 9.26

half vegetableTotal Land AcquisitionCost 14.42

(b) Land Lease. The total lease duration would be three years with two yearsfor construction (The project contractors are requested to lease landaccording to schedule and to level the ground after completion ofconstruction in due time with backfill of original tillage soil) plus one yearas allowance for inadequacy in soil fertility;

Total land lease expense: Y 55.89 million as detailed in Attachment 1.

(c) Relocation Costs for Inhabitants. Total costs as Attachment 1 is Y 8.65million; and

(d) Dismantling and Moving Expenses for Units. Due to dismantling ofwarehouses, the Shanghai Glass Enclosure Factory, the Meilong andLongxing Township Flavoring Factory would suffer loss from suspensionof production and would be given a compensation of Y 20,000 each,amounting to a sum of Y 60,000. A further Y 10.06 million is required ascompensation to other units, as shown in Table 3.

24. The expenses for land acquisition, land lease, demolition, removal andresettlement make a grand total of Y 89.03 million, as detailed in Attachment 1. Thecompensation for moving electric poles, trees, etc. amounts to Y 1.50 million, giving agrand total of Y 90.53 million (see Attachments 2 and 3 for details).

Organization and Responsibility: Land Acquisition, Demolition, Removal andResettlement

25. The land acquisition, demolition, removal and resettlement work is anarduous and complicated task, requiring a strong political policy, widespread socialrelations, and timely completion, which would directly affect the progress of the projectand livelihood of the people. Consequently, the Shanghai Municipal Government has paidhigh attention, promulgated a series of policy regulations and established a city and countytwo-level organizations, with accumulated abundant experience.

- 84 - ANNEX 8

Table 3: LIA AcQuISmoN FOR INDUS-RAL UNITS

Item Area Unit Unit rate Total(Yuan) (Y million)

Moving expenses for highwaymaintenance squad room andoffice building Lump sum - 0.20Moving axpense for cattle sheds,etc. Lump sum - 0.10Damage to concrete floor 3,000 m' 90 0.27Damage for dismantling buildings(storied house) 5,000 m2 800 4.00Basic buildinge, cattle sheds,etc. 21,400 ml 250 5.35Boundary walls 800 m 100 0.08

Total 10.06

26. The relocation of the water intake is a major environmental project to beimplemented by the Shanghai Municipal Government. In order to assure the successfulimplementation of this item, the Municipal Govemment has set up an environment projectoffice as the organization for overall liaison and coordination. As the proprietor of thePC1 loan, the Shanghai Municipal Waterworks Company has set up a subproject office andorganization corresponding to the project construction office, with a working team of 11personnel responsible for the earlier stage project dealing with acquisition and resettlementissues. In Shanghai and Songjiang County, which are districts of major construction work,a site office for the inital stages of the project has been set up together with the localplanning and land management deparanents. This would assist the Shanghai MunicipalWaterworks Company to jointly carry out the program.

27. Responsibility of the resettlement project team of the Shanghai MunicipalWaterworks Company:

(a) In areas of construction defined in the design to carry out on-the-spotinvestigations and determine the amount of expenses for land acquisition,land lease, demolition, removal and resettlement;

(b) To confirm the expenses for compensation that would arise from domesticcircumstances;

(c) To conduct land allocation license of project constuton, certificate for useof land, license for housing demolition and removal;

(d) To map out plan for demolition, removal, resetlement and action plan;

- 85 - ANNEX8

(e) Being responsible for the disposition of surplus labor force from landacquisition.

28. Responsibility for the site office for initial stages of the stage work projectin Shanghai County and Songjiang County is as follows:

(a) To provide working personnel of 20 for each organization;

(b) To sign agreement with inhabitants and units to be removed, oncompensation and resettlement, under the supervision of the ShanghaiMunicipal Waterworks Company;

(c) To draw up a report on compensation for various installations andagricultural production that would be affected; and

(d) To carry out the demolition, removal and resettlement plan.

Program

29. Preparatory Work Stage. From October 1992 to March 1993, theShanghai Municipal Waterworks Company together with working personnel of ShanghaiCounty and Songjiang County has carried out on-the-spot investigation of the project andexpense estimate, and formulated plans for the initial stages of the project.

30. According to plan of action, the Shanghai Municipal Waterworks Companywould from May 1993 apply for land allocation license for construction planning,certificate for use of land from the Shanghai Municipal Planning Administration Bureau,the Shanghai Land Administration Bureau, and would accomplish in September 1993.

31. Implementation Stage. The Da Qiao Pumping Station: From September1993 to February 1994.

32. The Conveyor:

(a) Songjiang County section: From September 1993 to January 1994;

(b) Shanghai County section: From November 1993 to April 1994.

33. Changqiao and Longxi branch line, (including pipe-thrust boring): FromSeptember 1993 to April 1994.

34. Changqiao and Nanshi Booster Pumping Stations: From October 1993 toMarch 1994.

PC2-UIm HUANGPU CATCMENT POLLUrnON CONMMOL

- 86 - ANNEX 8

35. The construction of the WujingJMinhang Trunk Wastewater System wouldrequire only limited land acquisition and no resettlement, as most of the work would beundertaken underground as a tunnel, using current microtunneling techniques mainly underpublic roadways.

PC3-SONGJLANG WASnEWAM POLLUTION CONTMOL

36. The Songiang wastewater treatment plant extension would require theacquisition of approximately 10.2 hectres of land. No residences and only one farmbulding are located on the main 10 hectare parcel of farmland, so losses there would beentirely of crop output. A second parcel contains a vehicle workshop, which would berelocated. Songjiang county expects to absorb 20 percent (approximately 25 people) of thedisplacd farmers in their operations, while the remaining 80 percent (or 112 people)would be reemployed through the Songiang county labor bureau. Songjiang county hasdeveloped a resettlement plan acceptable to the Bank.

- 87- ANNEX 8

ATTACHMENT 1BUDGETARY ESTIMATE FOR LAND COMPENSATION

Total pricaItem/Category Unit price (Y) Amount (Y m11ion)

Land Acauisition CostsSongjiang County: paddy field 105/m2 49,143 m2 5.16Shanghai County: paddy field,vegatable fam, 501 each 150/32 61,733 D2 9.26

Subtotal 14.42

Land leaae Casts at 2 years' durationplus 1 year for soll inadequate offertilityPaddy field 20.2/32 1.8921 Mm.2 38.22042Vegetable farm 29.97/3 0.32297 Mm2 9.67941Orchard go/r2 0.02133 lb2 1.9197Rest (voodLand fishpond) 7 5/*2 0.81046 IM2 6.07815

Subtotal 55.8993

Compensation for Residence RemovalReward expense for removal 500/household 87 households 0.0435Resettling building expense (axclu-sive lend acquisition expense) 652/32 0.0102 lb' 6.6504

Compensation for dismantling 1(average) 19295 040102 Ifi2 1.9584

Subtotal 8.6523

ComPenastion for Unit Demolition andRemoval

Stories house (exclusive of lendacquisition expense) 800/mi 5,000 *2 4.00

Cattle shed, etc. (exclusive ofLend acquisition expense) 250/m2 0.0214 lmb 5.35

Concrete floor go/32 3,000 *2 0.27Inclosing wall 100/32 800 m2 0.08Moving cattle sheds 0.10ovinlg office bldg., squad room 0.20

Damage, suspension of production 0.06

Subtotal 10.06

Other Compensation CostsSidevalk trees 360/treeZlectric poles 5,000/people 1.50Green belt 45/m2

Total 90.53

- 88 - ANNE 8

ATTACIMENT 2STATUS OF RESIDENCE DEMOLITION AND REMOVAL

No. of households Area of residenceRegion to be moved to be removed (m2 ) Population

Songiiang CountyChedun Township 13 1,000 61

Shanghai CountyZhuangqiao TownshipJinjiazhai 7 1,750 39

Shanghai CountyCaohang TownshipGujiatang 4 650 18

Shanghai CountyCaohang TownshipXiaosunjiazhai 3 180 15

Shanghai CountyMeilong TownshipZhujiatang 23 2,380 78

Shanghai CountyHeilong TownshipJiting Brigade 20 1,740 79

Shanghai CountyHeilong TownshipChangmucun No. 2 Teem 10 1,980 36

Shanghai CountyMeilong TownshipChangmucun No. 1 Team 7 520 24

Total 87 10.200 350

- 89 - ANNEX 8

ATTACEIMENT 3STATUS OF DEMOLIIION AND REMOVAL OF UNITS

RexionlCatexory

Main ChannelEnclosing wall 2 places 500 mStorage ground 2 places 3,000 M2

Chanmaiao, Lonaxi Branch ChannelWar-house (one-story) 2 houses 1,600 m2Office building (three-story) 1 building 2,400 a'Cattle shed 3 sheda 360 M2Watch house (fishpond) 2 houses 40 mfPaved ground 7,650 32Enclosing vall 450 m

Chanaaiao Waterworks Branch PipelineWarehouse (one-story) 7 houses 1,700 m2Cattle shed 4 sheds 320 M2Shop building (one-story) 3 buildings 600 m3

Lonezi Waterworks Branch PipelineEnclosing vall 50 mCattle shed 1 shed 80 mlGuard house (composite) 1 house 100 M2Warehouse (composite) 1 house 300 32Paved ground 900 M2

-90- 90-

ENVIRONMENTAL ASSESSMENT 1/

Introduction

1. Shanghai is located in the Changjiang delta plain and is the largest and mostheavily industrialized urban agglomeration in China. At present, 98 percent of theShanghai water supply (some 4.7 Mm3 in 1990) is obtained from the middle and lowerreaches of the Huangpu River, with 89 percent being abstracted at intakes at or close toLinjiang. The lower reaches of the Huangpu have become increasingly polluted bydischarges of domestic and industrial wastewater, and the Linjiang abstraction (capacity2.7 Mm3/d) was completed in 1987 as the first phase of the Shanghai MunicipalWaterworks Company (SMWC) program to improve the reliability of drinking waterquality by relocating the major abstraction point to Da Qiao, some 30 kam upstream andfurther away from the major sources of pollution of the river.

2. Water demand projections indicate a requirement of some 6.6 Mm3/d by theyear 2000. This level of demand is equivalent to about 20 percent of the average flow(about 315 m'/s) of the Huangpu and of similar order to the 90 percentile low flow.Abstraction of such a major proportion of the river flow affects water movement in theriver and results in upward movement of poorer quality from the lower reaches of theriver. The situation is exacerbated by the tidal effects caused by the large flow of theChangjiang (average flow of the order of 30 000 m31s some 100 times that of the Huangpu.The effect is particularly acute under extreme low flow conditions in the Huangpu, whenthere may be net upstream flow at Linjiang for periods of several days. As a result, waterquality at Linjiang is regarded as unsatisfactory and unreliable, in respect of increasingtreatment costs and danger to the public in terms of consumption of water containingchemicals causing taste and potential health problems.

3. In order to address these concerns, the water-related components of theproject are focused on improvement of water quality in the Huangpu considering thefollowing principal issues:

(a) enhancement and protection of the quality and reliability of the water supplyfor Shanghai;

(b) reducing treatment and distribution costs;

1/ TMe Environental Aammat Report pepard by the Shanghai Mumcipal Govenmmt u m theProject File. This Annex represets a Project-wide mummay.

- 91- ANNEX 9

(c) ensuring an adequate supply through at least the year 2000.

4. Technical support and training would be provided to SWC and to otherenvironment sector agencies in Shanghai including the Shanghai Environment ProtectionBureau (SEPB), Shanghai Research Institute for Environmental Protection (SRIEP) and theShanghai Environmental Monitoring Center (SEMC) in terms of environmental planning,management and monitoring. In particular, comprehensive water quality monitoringfacilities, including a new laboratory, are being provided to assist SEMC in water qualitymonitoring and planning for the upper Huangpu basin.

Administrative and Institutional Framework

5. The State Environmental Protection Committee is the highest level ofauthority on environmental policy and includes the State Council and heads of all relevantministries and agencies. The national Environmental Protection Agency (NEPA) functionsas the secretariat of SEPC and is responsible for all aspects of environmental policyalthough shares authority with other agencies for certain natural resources. NEPA setsoverall policies and regulations goveming the provincial and municipal environmentalprotection bureaus (EPBs) and implementation of environmental policy is through themunicipal and provincial EPBs.

Project Description

6. The proposed project components comprise:

(a) Huangpu River Water Quality Protection-relocation of the water supplyintake from Linjiang to Da Qiao and construction of pumping stations,multiple-barrel low pressure supply main, improvements to existing watertreatment and distribution systems;

(b) Upper Huangpu Catchment Pollution Control-pollution controlinvestments in the upper Huangpu catchment including sewerage forMinhang and Wujing to divert wastewater flows into the Shanghai sewergesystem for ultimate treatment/discharge to the Changiiang, supported bypromotion of wastewater treatment/in-plant process improvements at keyindustries in the catchment;

(c) SongJiang Wastewater Pollution Control-provision of domestic andindustrial wastewater collection and treatment facilities for Songjiang county(including one treatment plant);

(d) Pollution Sources and Water Quality Monitoring-provision of a newwater quality monitoring laboratory at the new supply intake together withextensive analytical and associated equipment to develop effective waterquality monitoring for the upper Huangpu basi;

- 92 - ANNEX 9

(e) Solid Waste and Nightsoil Management-investigations into appropriatesolid and hazardous waste and nightsoil management strategies to besupported by suitable investments for system improvements; and

(f) Technical Assistance and Training Components-including projectmanagement, financial management, geographic information systems, riverbasin water quality management, planning and monitoring.

7. Of these components only (a), (b) and (c) involve physical works in theimmediate term and are therefore covered by the EA studies. Physical works will beinvolved in (e) in due course. The EA for this component is therefore only qualitative atthis stage; a more comprehensive quantitative EA will be prepared for the proposed workswhen identified in detail.

Baseline Data

8. Shanghai is China's largest and most heavily industrialized conurbation,producing about 11 percent of national industrial output. Shanghai Municipality, locatedin the Changjiang delta plain, occupies an area of 6 200 kin2, of which 300 Ikm2 areclassified as urban. The Shanghai Municipality area (population 7.5 million in the 12districts in Shanghai City and a further 6 milion in the adjacent five counties) is borderedto the north by Jiangsu Province and to the east by Zhejiang Province.

9. Shanghai lies in a convergence zone of cold, dry and warm, humid airmasses. Rainfall patterns are influenced both by monsoons and temperate cyclones. Thereare well-defined seasons with average monthly temperatures ranging from 3.4°C in Januaryto 27.2°C in August. Annual average rainfall is 1,148 mm with a pronounced rainyseason from June to September. The prevailing wind is northwesterly in winter andsoutheasterly in summer.

10. The river Huangpu flows through the Shanghai municipal area, flowing intothe Changjiang at Wusongkou some 18 km to the north of the city. Flows in the Huangpuare measured at the gauging station at Mishidu, close to Da Qiao. The average flow atMishidu is approximately 315 m3/s, but the river is tidal and this figure thereforerepresents the net downward flow. Maximum rates of flow on the flood and ebb tides canreach 10,000 and 6,000 m3/s, respectively. Under extreme conditions of low natural flowin the Huangpu and peak tidal influence from the Changjiang, of which the flow canexceed 100 times that of the Huangpu, there can be net upwards flows at Mishidu forperiods of up to several days.

11. The main sources of the Huangpu, which all rise outside the ShanghaiMunicipality area, are as follows (percentage contributions to the flow in parentheses);

ianlugang River (outlet from Dianshan Lake) (50.3%)Taipu River (outlet from Taihu Lake) (42.9%)Damaogang River/Yuanxiejing River (6.8%)

- 93 - ANNEX 9

All sources are generally of good quality, although the Damaogang has significantconcentrations of ammonia, believed to be as a result of agricultural pollution.

12. Water quality in the Huangpu declines as it traverses the ShanghaiMunicipality area as a result of discharges of domestic and industrial wastewater and runofffrom agricultural areas. The estimated total discharges of BOD and ammonia to theHuangpu are 280,000 tons/year and 91,000 tons/year, respectively, of which 62,000tons/year and 28,000 tons/year, respectively, are to the upper catchment.

13. Water quality problems are exacerbated by the pattern of water movementin the Huangpu which is dominated by the tidal influence of the Changjiang. Underconditions of low natural flow in the Huangpu, this tidal influence causes extensiveupstream movement of pollution from the lower reaches of the river.

14. A water quality protection zone has been created by the ShanghaiMunicipality in the upper Huangpu catchment extending a distance of 5 km from eitherbank of the river upstream of the city as far as the Municipality boundary, which crossesDianshan lake. The objective of creating the zone was to control the discharge ofwastewater mto the river; the zone boundary was based on administrative boundaries ratherthan the whole catchment and its effectiveness is therefore limited.

15. There are nevertheless significant discharges of pollution to the upperHuangpu as referred to above. This pollution originates from a number of sourcesincluding domestic and industrial wastewater, livestock-rearing activities and runoff fromagricultural land. Thus, in order to sustain water quality at Da Qiao, it is necessary tohave an effective integrated basin management program for the upper Huangpu as a whole.

Water Qualty Standards

16. Two categories of national water quality standard are appropnate in respectof water quality in the Huangpu reflecting its status as a source of potable water forShanghai, the Environmental Quality Standard for Surface Waters (GB 3838-88) and theSanitary Standard for Drinking Water (GB 5749-85). In addition, there is a ShanghaiMunicipality Environmental Quality Standard for Surface Water covering six water qualityclasses. The National Standard GB 3838-88 defines water quality standards applicable tofive different classes of surface water and water to be abstracted for potable supply shouldmeet at least the Class Ell standard.

17. The longer-term water quality objectives proposed for the Huangpu are asfollows:

(a) Upstream of Mishidu - Class II

(b) Mishidu to boundary of Shanghai City - Class m(c) Shanghai City downstream - Class IV

- 94 - AN 2

18. Water at the Linjiang and more downstream intakes fails to comply with theClass m standard for a number of important parameters. At Da Qiao, water generallycomplies with the Class m standard.

19. In terms of parameters with specific impact on potable water quality theconcentrations of phenols and ammonia at Linjiang and downstream are cause for concernbecause of frequent taste problems of water in supply. Concentrations of phenol atLinjiang repeatedly exceed Chinese standards for drinking water, largely as a result ofdischarges of industrial wastewater to the Huangpu upstream of Linjiang. In particular,an upset in 1989 at the coke works at Wujing, some 10 km upstream of Linjiang, causedphenol concentrations to exceed the drinking water standard by factors of 10 or more.Levels of ammonia, indicative of pollution from a number of sources (domestic andindustrial wastewater; agricultural runoff) are also high and necessitate the use of highdoses of chlorine in disinfection of water for potable supply.

20. Since the major source of phenol in the Huangpu is industrial wastewater,concern has been expressed that there may be other industry-derived chemicals in the rawwater at Linjiang that could give rise to taste problems in themselves or as a result ofreactions with the high levels of chlorine used in disinfection. Surveys carried in 1992indicated the presence of concentrations exceeding WHO standards of chemicals of concernon health grounds (carbon tetrachloride, 1,2 dichloropropane, 1,2 dichloroethane andchloroform) under extreme low flow conditions in the Huangpu and on grounds of potentialtaste problems even at average flows.

21. Concenations of phenol at Da Qiao are consistently within the Chinesedrinking water standard requirements, and ammonia concentrations are typically lower thanthose at Linjiang by factors of 2 to 3. Under normal flow conditions concentrations ofchemicals with potential to cause health and taste problems are not cause for concern.

Effects of Talhu Basin Project

22. The implementation of the multipurpose Taihu Basin project, also supportedby the World Bank, will include the construction of the Taipu Pumping Station to augmentflows in the upper Huangpu by means of discharges from the lake to the river Taipu, oneof the sources of the Huangpu. Discharges of up to 300 m3/s to the Taipu will be possible,but part will be abstracted for use in agriculture in Zhejiang province and there will befurther losses into the network of waterways adjacent to the Taipu and upper Huangpu.

23. It is estimated that at the 90 percentile low flow (monthly average) conditionin the Huangpu of 80 n3ls, the effect of the discharge of 300 m3/s would be to increaseflows by only 90 m3/s. Nevertheless, there would be a substantial beneficial effect of thisenhanced flow, particularly in the upper reaches of the Huangpu. The potential effect ofthe Taihu discharge at the 90 percentile low natural flow is shown below for waxer qualityat Linjiang and Da Qiao, from which it will be seen that it is possible to sustain acceptablewater quality at Da Qiao but not at Linjiang (shown in Figure 1).

-95- ANINEX 9

Peak Ammonia-N Concentrations (mg/ )90S low flow + TaihuLocation 90S low flow /a discharge (300 m3/mec)

Linjiang 5.6 4.0Da Qiao 1.91 1.0

La Nmety percentile monthly average flow. Daily flows within the month could beconsiderably lower, at times even net upstream flows.Lk For comparison, this concentration is approximately the average concentration atLinjiang.

Solid Waste and Nightsoil Management

24. Approximately 12,000 tons per day of domestic, commercial, industrial andconstruction/demolition wastes are produced in Shanghai. Most construction/demolitionwaste is probably reused and most domestic and commercial wastes is collected, but thereis little control over industrial and hazardous wastes. Shanghai is served by three majorlandfills, the largest of which is Laogang, some 70 k:m from Shanghai on the banks of theChangiiang. Transport of refuse to the site is by river/canal.

25. A total of some 6,300 tons per day of nightsoil (contents of bucket latines,public toilets and septic tanks) are collected in Shanghai and transported to transfer stations(docks) where it is loaded onto barges. These haul the nightsoil by river to storage tankfacilities in adjacent counties, from which it is sold to farmers as a soil conditioner orferdlizer. There is a declining demand for agricultural use of nightsoil, and it has beenestimated that substantial quantities of nightsoil may be discharged to the Huangpu. Thereis also evidence that nightsoil is being used without the necessary storage, with theassociated health risks. In addition to the environmental problems, the nightsoilmanagement system is very costly.

Consideration of Alternatives

26. Alternatives to the relocation of the intake from Linjiang to Da Qiao toachieve at least the same degree of improvement in water quality have been investigated.The schemes evaluated were as follows:

(a) Advanced water treatmept at Linjiang;

(b) Abstraction from the Changjiang;

- 96 - ANNEX 9

Fgure 1: HuANGPU RIvER WATER QuALmrr MODELING ANALYSIS

Risk of Pollution Reaching Intake Sites Under Three Flow Conditions

- 97 - ANNE 9

(c) Enhanced water pollution control in upper Huangpu by means ofconstruction of sewerage systems and wastewater treatment.

27. These alternatives were rejected in favor of the chosen scheme primarily forreasons of greater cost and respectively of:

(a) excessive land take in urban areas to extend existing water treatment sitesand inability to sustain drinking water quality at times of gross pollutionincidents;

(b) excessive environmental impact of reservoir (necessary because of excessivechloride concentrations in the Changjiang under certain flow/tidalconditions) and construction of long (in excess of 40 kmn) water conveyorsthrough urban areas; and

(c) excessive time period required for construction of facilities required to beeffective.

28. The program of wastewater treatment at Songjiang and of on-site wastewatertreatment at key industries and sewerage of the Wujing and Minhang areas was selectedon the basis of the particular significance of Songjiang and the Wujing and Minhang areasin terms of pollution loads in the catchment, cost effectiveness and potential speed andeffectiveness of implementation. Alternatives to Wujing/Mfinhang sewerage included morewidespread and more extensive industrial wastewater treatment and a sewerage schemebased on treatment and discharge to Hangzhou Bay. The former would involve a verysubstantial number of individual treatment plants and would not provide treatment ofdomestic wastewater in the areas nor effectively solve the potential problem of spfllagesat industrial sites close to the intake. Discharge to Hangzhou Bay could be problematicin environmental terms.

Impacts and Mitigation

29. The project as a whole is highly positive in environmental terms and thenegative impacts are greatly outweighed by the benefits. Nevertheless, impacts have beenidentified in the EA process for all components that require detailed analysis and mitigationmeasures. The principal impacts are described below for each project component.

Huangpu River Water Quality Protection

30. The relocation of the water supply intake, coupled with the beneficial effectsof the water transfers to the Huangpu from Taihu will give a substantial improvement inthe quality of water supplied to Shanghai. There are, however, a number of impactsassociated with the construction and operation of the facilities involved which requiredetailed assessment and in some cases mitigation. The principal impacts are discussedbelow, and all significant impacts are listed in Table 1, together with the associatedmitigation measures.

-98 - ANEX 9

Intake Relocation Effects on Water Movement

31. Relocation of the intake, coupled with the increased abstraction, will affectthe flow pattern and water quality at and downstream of Da Qiao. The quantity abstractedis about 75 percent of the 90 percentile low river flow and increases the backflushing ofpollution discharged downstream. The effect of the relocation and abstraction has beeninvestigated by mathematical modeling of ammonia concentrations. Abstraction at Da Qiaois predicted to increase ammonia concentrations at Da Qiao by about 20 percent under bothnormal and low river flow conditions, but the resulting water quality is still considerablysuperior to that at Linjiang under the same conditions.

32. The increase at low flows is more than offset by the diluting effect of thedischarge of water into the upper Huangpu from Taihu, as shown below.

Ammonia Concentration (mIl1) at Da OiaoFlow Condition Intake at Linjiang Intake at Da Qiao

Average 0.61 0.72

90 percentile low flaw 0.93 1.13

90 percentile low flow with n/a 0.86300 m;3/ from Taihu

Spoil Disposal

33. Excavation for the construction of the conveyor from Da Qiao to Linjiangwill generate about 1 Mm3 of spoil for disposal. A spoil disposal plan will be preparedand its impact assessed. A spoil disposal plan has been prepared based on beneficial useof spoil, wherever possible, in construction, for landscaping and development of publicopen space areas, and for land-raising in low-lying areas at risk of flood damage. Landfillwould be only a last-resort option and is not expected to be necessary.

Enforced Land Use Changes

34. The construction of the conveyor corridor will involve the enforcedtemporary change in land use of an area of 295 ha, with a permanent land take of 6.2 haand demolition of 87 residences. A program for restoration of the land to beneficial useis being prepared. During the excavation process, topsoil will be stored on-site for use inrestoration of the land for agriculture.

-99 - 9

Impacts on Transportation

35. The route of the conveyor crosses 8 highways, 63 minor roads and 60 riversand canals. Construction of the conveyor will involve closure for periods of some months,and diversions will be provided to maintain access to agricultural land and propertythroughout.

Aquatic and Terrestrial Environment

36. Tunneling and pipe-jacking will be used in the construction of the conveyoracross major rivers and bunding and draining in the case of smaller rivers and canals.Where there will be disruptions to flows in a river or canal being bunded that is ofimportance as a drainage channel or irrigation source, water flow will be maintained bydiversion or overpumping. Land crossed by the conveyor is intensively farmed and thereare no natural or even seminatural habitats. Ecological impact of the conveyorconstruction will be slight.

Cultur and Historical Sites

37. No known cultural or historical site in the upper Huangpu catchment willbe crossed by the route of the conveyor or the related works proposed in the project.However, in the event that during excavation archeological remains are discovered, it isproposed to halt work temporarily while appropriate specialists assess the significance ofthe findings.

Upper Huangpu Catchment Pollution Control

38. The Huangpu River will remain the primary water resource serving theShanghai Municipality area and it is of the utmost importance that water quality in theupper Huangpu catchment be afforded the required degree of protection. This componentis therefore based on the control of the key point-source pollution discharges in terms oftheir significance in relation to water quality at Da Qiao. The proposals compnse theprovision of wastewater treatment facilities for Songjiang County, and a program ofindustrial wastewater collection and treatment dealing with the most significant dischargeslocated mainly in Wujing and Minhang, between Da Qiao and Linjiang.

39. The proposals for Songjiang will provide treatment for industrial wastewaterscurrently discharged untreated and will result in a substantial reduction in the volumes ofnightsoil generated. The treated wastewater from Songjiang will contribute onlyapproximately an additional 0.02 mg/l (less than 5 percent) of ammonia to the HuangpuRiver at average flow. The treatment proposals involve the extension of an existingtreatment plant and therefore the minimum impact in terms of land take and disruption.Sludge from the extended treatment plant will be disposed of by agricultural use as aferdlizer/soil conditioner.

-100 - ANNEX 9

40. The provision of industrial wastewater collection and treatment facilities willnaturally have a positive environmental impact in terms of water quality at the future DaQiao intake. In addition the construction of the Minhang/Wujing area trunk sewer intunnel will result in minimal land take, building demolition and disturbance duringconstruction. However, diversion of the wastewater into the Shanghai sewerage systemwill increase wastewater flows for discharge to the Changjiang estuary by about10 percent. The impact of this additional flow at the disposal location and the associatedtreatment requirements, if any, will require detailed evaluation.

41. The impacts and their associated mitigation measures are listed in Tables 2and 3.

Solid Waste and Nightsoll Management

42. The focus of the proposals is to improve the service both in environmentalterms and in respect of operational efficiency. The Laogang landfill site will be upgradedwith the provision of leachate treatment and an existing landfill located on the bank of theHuangpu near Linjiang will be converted to provide a major refuse transfer station facility.There will also be associated improvements to the other refuse transfer stations andprimary collection facilities, with the objective of improving sanitary and aestheticconditions, and to maintenance workshops. A Hazardous Waste Management Strategy andMaster Plan is also under preparation with the objective of progressive control of thecollection, transport and disposal of hazardous wastes.

43. The focus of the nightsoil management proposals is based upon the enhanceduse of sewerage capacity by a program of connections of existing septic tasks along thealignments of existing sewers. This will have the effect of reducing nightsoil arisings byup to 30 percent. The remaining systems will be upgraded to improve environmentalconditions by a program of upgrading of storage facilities, transfer docks, sludge emptyingvehicles and sludge dewatering plants.

44. The environmental benefits of the solid waste and nightsoil managementproposals include improvements in water quality in the upper Huangpu system as a resultof diversion of nightsoil to sewer systems; aesthetic and air quality improvements resultingfrom improved handling of both solid waste and nightsoil, in particular prevention ofspillages into the Huangpu; and health benefits from improved nightsoil management.Improved standards of operation at the Laogang landfill site, including landfill gasextraction, will result in a substantial reduction in the emissions of methane (an importantgreenhouse gas); it is expected that use of the landfill gas to generate electricity (potentiallong-term yield in the order of tens of megawatts) will prove economic and contributesignificantly to local electricity supplies.

- 101 - ANNEX 9

Table 1: HUANGPU RvER WATR QUALTY PRoTEc1oN-SJMMARY OF ENVIRoNMENrAL IPAC AN MInGAnON MEASURES

It_ potential ngative iwect litigatin _namre nd iitoring

Rosidh ee loesttlmut of Ie fr_ convyer Reeettieut Schedul rrm u. uOroute (87 bkum.. invlved) ChiMe. regulati_s for resettlamnt cteTwabiiprequire M.Go,,rot(a) e*enaetie(b) e o ef equivalet or etter

wr_ ~ ~ ~ ~ ~ ~ ~~~~qInduetri e 1 S_eric oeft 1trie wll 1 vt av to *_e ep mmcamors*al protedctiepren±eee

Agrianlteral LOW Taerary iees of no. Lead Acquisition Schedule drawn up SMDO/.Chimes. regulatione provid, for MC/Towfshipcemgp*uAtLan OwovrneemtLoee of sell fertility Topseoi fr_ whole wor" width to be MCstaged seperately

Sit, to be cleared bwfoe resteratie mmLoss of irriSetim water TSerary vaterenreas to be

emetrutedlWater p_*. my be used if necessary am

Lose of ac t_erary acee to be *_truated ElnwhipGovermentRiver. and een" Pledin irmiem ofr _orpmpin of key amdrainag watereonreo

Lobes and p1nd Log Reestabliebeet nearb if detred by MC/Temabp

Dwterift oemetic wells d_atred Potable water to be prove by MCtreamtnt or ta*korig when, requirdPiuatem ad river. and easale Water not to be diecargod Sae iTo..fehipfiaherieo watercoursees tlrentbode TMoreIy alesore Diversion to b provided elOCCesty

Traffic DeparneTrake T*_rary *leeure Alterntive *cceme provided whre Sr/Timahipneeassary Gowe,ieuUalmys Dieturibeae i jacking to be dSCRivere end cana" Teoperay eloenre, Accsee via etber reatee

Varnnl-g wig= to be provided (lt at _ICnight)iffu -water Pollatem drawn upetrom P_ 3_0 w?Ie of water free lka n isoc= ,.-Y ~~~~~~~~~~~~~during 902 low flow oveema

Voedl.d Lose Replant trees withi workinr wdth, Cesept ever aemugyor

Azchaoo Disturbne of undiscovered mitae Contructi wor t be blited if a mmdiecoery to ned

Kceleg iseturbena. of rivers s eanle Rivers eNd *anl vi be fully suCrestored

water pollutieo Water nay Mt b dircharged Snte aRCITwa/Sipsanls ned for fiehre SeoveretPollutio reduction neamaree in ether*_eoente af toMiliary T _rary re_eal of neo Woring width to be retrieted iseIhrmicatie

order to owoi renea tlIlto

Dndargremd Severence Comiclaticne authority to be Scables eomeulted beore aeaaation

S.ciee~omm Parnenent le ofd agritural land lamnre to be offered jobs at pimpi SCetatimD*lecatio of mleya required at am wll prvie" traneport daly aCba Qie. pumping station

Larp SMStrwctiole f ODeror Centractor to provide M-alte _CaccumedatiemUSC to provide mrvis. am

spoil diopeal "lup naterl to be dispoed aterial to be used beneficially i BCeantructi, iendeaping or land-ratlngeNot"e DietuzAnce during construction Cintruction not aSaeda iamhtwithin R000 of reei tilproperty

- 102 - AX 9

Table 2: SONGJiANG CoUNrY WASThWATER PROPOSALS-SummARY OF ENVIRoNMENrAL IMPACS AN PROPOsED MAIGATKoN MEASURES

It_ Potential Nesative Impct Mitigating Measures tatie Monltorin

Zefluet diacharge Ri4agctlo in ater quanty Dincharge to 3aafpu which a -k-euLffILciant a.. Lltivecapcity

lesidenos S@ettla t of "lo fr_ No davoliti.n rerird -site

AgricAlture slad Pernmnt aquicitie of *.3 Lend Acqulaitie SobsAil UUTvha drina up

CilWO* regulAtion PrWids OWJIvTOWn.b XMfor copeneWstion p overnment

STees Lee. Replat esql or larger usmber 01W SMof tre.

Odor U ffect - reeiemcee Sludge to be digested WA1V IM

Deig and Oeratio to he 51nr Smeptinised

Unise fDiaturbase Contructios oly snowed Cotractor 5111Asring day

Operetional machiry to be sV Smsen"tatan la machiss

Traffu Cetwwtim Vehicles Seed, hoSe uffictit Apacity

*ludge diSpe.a Tr boprt y barp "sw asreed

Imerepe iagptim of traffic County Trafic Department to S1111 Smbea esneuted

dima. impect hpeeras of Laniscoi2i with trees en SWW@ mother p ats

Sludg dispseal Esey _etal. _ farmlan Moitor copesiti Nd Mao of MAT S0Jita VIeludge in eccordance With Q

Pathogens m crops Digest sludge enedontrol the s5111 Smej i-a DIthog reP cre~974pe to which It iacappliedby guidace to farmers

Industrisl effluets Ucedmee oSf di charge Moitor end eforce staard WA VdiCharged to works stanard.

- 103 - ANNEX 9

Table 3: WUJING/MINHANG SEiWAGE-SuMMARY OF ENVIRONmeTAL IMPACTSAN PROPOSED MTGATION MEASUES

Itm Potetil Negative IW&ct Kitlating g eamr.u I t-ti. IeiteriyTmll.g Spel pIell dip.eal Breficial use In ceatructin so= (for m(.EU qaatitiLe involved) IC)*_mrage Traffic diesrtia. Mt IAa41 if my. ir ct *elm 581CC (for EDoeomatrltia met". dsimolitina ly *exectiem to tu_al OKC).iolvd C_utr;cterDineharge of Imoread polItim load to Cb.wia,ha c astential 5SP1C (for 8DBwetevat_ r to Cbeagi tan Ia eapd ciqt? SWC). snUba.ghai eiuneree treatment Poe lbelsis e _ry _eccs ry

Ia&astril e ffl_er Diceblrg. of tgice Pretrestmet provided at key gm 3DBdieharged to *ve.re industri.s monitor endout rce standard.

SQ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~9

-g~~~~~~~~~~~~~~~~~~

a~~~~~~~~~~~~~~C

I

- 105 - ANNEX 1-1

ENVIRONSMENT IMPROVEMENTMONITORING INDICATORS

1. These environmental improvement monitors are based on the objectives ofthe Shanghai Environment Project in respect of the implementation of the components forHuangpu River Water Quality Protection, Upper Huangpu Catchment Pollution Control andMunicipal Solid Waste and Nightsoil Management. They assume the completion of theTaihu Basin project, also supported by the Bank, in particular the facility to dischargeflows of up to 300 m3/s from Taihu to the Taipu River and thence to the Huangpu River,together with the completion of implementation of the ongoing Shanghai Sewerage Project(Credit 1779-CHA) supported by PC2 (the northern sewer system through Minhang andMinhang) to permit diversion of wastewater discharges from the Upper HuangpuCatchment.

ComZoent EnvironmentalImproement

Huangpu River 1. Water abstracted for potable supply toWater Quality Protection meet Class El[ standards for all normal

flow conditions and Class II for criticalwater supply parameters (eg phenol).Due Dates:90% of time January 199895% of time January 1999 onwards100% of time January 2000 onwards

2. Chemicals causing taste and healthproblems absent from water abstractedexcept under exceptional flow conditions.Due Dates:90% of time January 1999100% of time January 2000 onwards

3. Water quality in SMWC supply tocomply with Chinese Drinldng WaterStandards.Due Dates:90% of time January 1999100% of time January 2000 onwards

-O 10- ANNEX Ill

4. Concentration (median and 90percentile) of ammonia in water abstractedfor supply to reduce by 50%.Due Dates:90% of time January 199895% of time January 1999 onwards100% of time January 2005 onwards

Upper Huangpu Catchment 5. Pollution control at key point sourcesPollution Control in upper catchment.

Due Dater:90% interceptions January 199895% interceptions January 1999 onwards100% interceptions January 2005 onwards

6. Average concentration of ammonia atDa Qiao reduced by up to one-third.Due Dates:90% of time January 199895% of time January 1999 onwards100% of time January 2000 onwards

7. Industry derived organic chemicalssuch as chlorinated hydrocarbons removedfrom water abstracted for supply.Due Dates:90% of time January 1999100% of time January 2000 onwards

-107- ANNX

Municipal Solid Waste and Nightsoil 8. Efficient and hygienic collection andManagement transport and sanitary landfill introduced

for all city's refuse.Due Dates:90% of time January 199895% of time January 1999 onwards100% of time January 2000 onwards

9. Landfill gas collected from majorlandfill sites.Due Dates:50% of sites January 199880% of sites January 1999 onwards100% of sites January 2000 onwards

10. 40% reduction in overall nightsoilquantities and 80% reduction in quantitiescollected for use in agriculture.Due Dates:50% achievement January 199875% achievement January 1999 onwards100% achievement January 2004 onwards

ORGANIZATION OF SHANGHAI MUNICIPAL GOVERNMENTshowing in detail the Shanghai Municipal Construction Commission

InstitutionalRc nsibililes

Coale-setting,policy formulation, [. * Shanghai Municipal Covernment (8OM)regulation

Multisectoral, Pln ning Construction Science I Tech-integrated as Cossion Comaishion (SCC) nology Commissionstrategic planning

00Sectoral strategic Municipal Land- Ev. Land Planning Real Estate Env. Publicplanning, 1-. Engineering scaping Protection Admn. Bureau L Housing Sanltation Utilitiesprogrmming Bureau Bureau Bureau Bureau Bureau Adm.n Bur. Bureau(SEPB * SEPO) _ (SESAB)

Buangpu R. Academy of Env.. Urban Plan- urvey municipal UtilityOperations and - Research Enviromental Monitoring ning L Des. W Happing Waterworks Companiesmaintenance Department Sciences Center Res. Inst. Istute Company (SSC,I_______________(AK S) (5 1) | | (SMWC) SSPCC)

District Goverments, County Cavernments(Songjiang, SWWTP)

-109- ANNEX 17

ECONOMIC ANALYSIS

1. The recently completed Environmental Strategy Paper for China (Report No.9669-CHA) concluded that decades of economic growth, while ignoring environmentalprotection, has created a serious threat to the sustainability of that growth. The threatmanifests itsdf in most areas of China, but is particularly acute in large urban areas wherethe concentration of population and economic activity has led more rapidly to anoverloading of the absorptive capacity of the environment. In response, the Bank hasformulated an urban environmental lending strategy that assists Chinese reforms aimed atrestructuring economic incentives to internalize more fully the economic costs ofproduction and consumption, while also assisting in the long-neglected task of providinga physical infrastructure that can provide services and manage pollution in the most cost-effective manner.

2. The decision to support Shanghai follows directly from the Bank's strategy.As the largest and most developed urban area of China, Shanghai has long served as amodel for China's urban and industrial development. Shanghai has the oldest industialbase of all Chinese cities, but the pressure to remit a high percentage of profits to theational government has, until recently, seriously constrained Shanghai's ability to invest

in social infrastructure. By the early 1980s, that underinvestment had resulted in rapidlyincrasing transportation costs over an antiquated road network; in industrial effluentdischarges far exceeding national standards, often discharged directly into waterways usedfor industrial and drinking water supply; in uncontrolled hazardous waste disposal; and insolid waste disposal into landfills with no provision for leachate control. Little attentionhad been given to systematic evaluation of these problems either singly or, mostimportantly, in their cumulative impact.

3. Since 1984, the Bank has been working with Shanghai to address this rangeof problems. Transportation constraints are being eased through the first ShanghaiMetropolitan Transport (SMTP I) project and the follow-on SMTP II, which financetransportation planning, improved traffic management, and investment in key urban roads.As a first step in a long-term program to end the direct discharge of effluents intomunicipal waters, the Shanghai Sewerage Project would capture the waste- and stormwaterdischarges in downtown Shanghai for primary treatment and disposal through an outfall onthe ChangJiang, relieving pressure on the most highly polluted waters in the urban core ofthe municipality. Those IDA credits have speeded the infrastructure construction program,but much more remains to be done.

4. Drinking water for Shanghai is abstracted directly from the Huangpu River,which flows for much of its length through the municipality and bisects its urban core.Effluent discharge to the Huangpu and its tributares left raw water untreatble to national

- 110 - ANNEX 17

and World Health Organization (WHO) drinking water standards by the early 1980s. Asan interim remedy, the Shanghai Municipal Waterworks Company (SMWC) constructeda new intake at Linjiang, upstream of existing intakes. That intake became operational in1987 and began supplying 57 percent of Shanghai's raw water, water of much higherqualit than that extracted lower in the system. But even at commissioning Linjiang drewraw water that usually exceeded at least some WHO and Chinese guidelines at all timesand far exceeded them in the two summer low-flow months. The water treatment plantsin the system can ensure that coliform bacteria counts are held well under WHO standards,but is unable to cope with oil, phenols, and ammonia that seasonally continue above safelevels. As a result, Shanghai consumers have continued to suffer from drinking watervirtually unpalatable out of the tap for up to two months each year. Domestic users furthertreat the water by boiling (which can reduce the more volatile pollutants), and higher-income families can avoid the problem through use of activated carbon filters or thepurchase of bottled water. The latter remedies are not accessible to the poorer membersof the population, although the basic supply of piped water remains extremely inexpensiveby intemational standards (see the affordability discussion). Industrial and commercial userface treatment costs additional to those expected when tap water meets international norms.

5. Linjiang was, from the start, conceived as the first stage of a program thatwould move the intake even furtier upstream to Da Qiao where a larger intake couldabstract water of a quality consistently meeting or exceeding the WHO and Chineseguidelines. Recognizing that relocation of the intake would be only a temporary solutionto the water quality problem in the absence of other measures to control water pollution,the Shanghai Municipal Government (SMG) has embarked on a program of comprehensivereduction of water pollution from the various industrial and household sources. However,funding constraints and the demands of other programs have to date not permittedextension of the conveyor and construction of the new intake nor have they allowed rapidimplementation of other program elements.

Proposed Project

6. SMG requested Bank assistance in a multifaceted program designed toprovide at the least cost a supply of water that can be safely and sustainably consumedfrom the tap. The program (see Annex 3 for a detailed description) involves relocation ofthe main raw water supply intake and measures to reduce current and future pollutiondischarges into the surrounding waterways. The reduction of discharges would protect thewater quality at the new intake, would improve the quality of water abstracted for otherpurposes, and, in conjunction with the Shanghai Sewerage Project, would lower pollutantsto a level that would allow the return of fish to the river. The solid waste componentwould reduce direct dumping into waterways and cut leachate infiltrtion into ground andsurface water. Investments in management information systems would improve theefficiency of urban service delivery and give planners the ability to understand and controlinteractions between elements of the environmental management system.

-111A- 17

Economic Evaluation

7. The proposed Bank-supported investment program has few benefits forwhich the approximate magnitudes of economic returns can be meaningfully quantified.The main investment, in a new raw water intake, provides a clean substitute source ofwater rather than augmenting total water availability. The primary benefits of pollutionabatement and the guarantee of a water supply for Shanghai residents that meets WHO andChinese health guidelines do not yield easily to calculation of economic benefits.Therefore, for the new intake and conveyor, the sewerage works, and improved solidwaste management that form the core of the project, the mission has opted foridentification of the least-cost strategy to sustainably meet internationally accepted healthstandards in water supply.

Water Supply

8. The no-project altemative has already been shown to result in unacceptablelevels of pollutants in the drinking water supply of Shanghai. The broadest possible arrayof interventions has been considered for remedying that problem and four alternatives, eachwith several variations, were judged the most feasible and subjected to full financial andeconomic costing. The alternatives thus valued were:

(a) Relocation of the intake to Da Qiao. This includes a new intake andpumping station at Da Qiao; a 21.4 km long multiple-barreled conveyorsystem; a 4.96 km long pipeline through the urban area to connect theexisting treatment works at Changqiao and the new proposed treatmentworks at Longxi; inlet booster stations at Changqiao treatment works; atunnel under the Huangpu; and a balancing tank at Linjiang. Feasibilitystudies showed that to maintain Da Qiao intake water quality at the requiredlevel in low-flow periods, the works would have to be complemented by a300 m3/sec pumping station on Taihu Lake that would supply water via theTaipu River. The option of boosting net water output through wash-waterrecovery at the treatment works was also considered;

(b) Improved water treatment at the current Linjiang intake. Two basic processstreams were considered, including:

(i) biological treatment for ammonia removal coupled with thetreatment sequence of coagulation; sedimentation, and filtration;followed by activated carbon for organics removal; and chlorinationfor disinfection;

(ii) biological treatment for ammonia removal coupled with the tetmentsequence in (i) above; followed by ozonation for breakdown oforganics; activated carbon for adsorption of organics; andchlorination for disinfection;

- 112 - ANNEX 12

(c) Construction of a new intake on the Changjiang. This intake would requirea storage reservoir holding approximately 35 Mm3 on the banks of the riverto supply water during periods of high salinity and the construction of aconveyor of between 39 Ikm and 67 km in length, depending on routing.Three alternative reservoir/conveyor routing options were costed. Asidefrom avoidable salinity problems during certain tides, the Changjiang waterquality is substantially higher than that at Da Qiao, although the latter alsomeets raw water standards when additional water is pumped from TaihuLake during low flows; and

(d) Water pollution abatement sufficient to maintain water quality at acceptablelevels at the present intake. This option would require the completion oftwo sewerage systems, the Phase II sewerage system for the Pudong andPuxi areas and the Wujing and Minhang Districts sewerage system. Thesesewerage systems are necessary in the long run for maintenance of HuangpuRiver water quality, regardless of the water supply option now chosen, sothe issue is one of investment timing. As shown below, the investmentsneeded for these schemes are so massive that they cannot be completedbefore the year 2000 and were therefore not preferred. The proposedproject does, however, include funds for continued design work and partialconstruction of the Wujing/Minhang system in order to minimize long-runrisk to Da Qiao sustainability. Without intake relocation, this alternativewould also require substantial additional plant-level pollution controlmeasures in industries outside the sewerage districts.

9. Construction and operation and maintenance (O&M) costs of the fouraltemnatives cited above were reestimated using June, 1992 economic prices (the financialestimates for the alternatives can be found in project files-AnneJ1C). The results areshown in Table 1.

Table 1: ECONOMIC CosT SummARY FOR PROjEcr ALTERNATIve(Y million)

Annual Present valueoperating of capital and

Capital costs at full operatint costsOption cost development 10% 12Z 15%

Do Qiao Intake 2,273 133.0 2,890 2,693 2,450Advanced Water Treatment 3,867 457.4 6,701 6,131 5,442Yangtze Convoyor 9,189 401.6 10,698 10,316 9,201Improv-d Pollution Control 6,604 814.3 11,586 10,606 9,425

- 113 - ANNEX 17

10. The Da Qiao Scheme is clearly the superior option. Indeed, the Da Qiaointake option costs so much less than the other options that no reasonable alternativeassumptions about construction or O&M costs would alter the outcome. In addition, thebenefit stream would commence earlier (in 1997) with the Da Qiao option than either theChangiang conveyor or improved pollution control. The option of advanced treatment atLinjiang is not only much more expensive, but would also not treat the problem of pollutedwater from other intakes that the larger-capacity Da Qiao would replace. Given themagnitude of the investment and remaining design work, neither of those alternatives couldbe completed until after the year 2000. Advanced water treatment could probably go onstream at about the same time as the Da Qiao intake. The four options also have differentrisk profiles not captured in the economic prices and these are discussed below inparas. 20, 26 and 27.

Upper Huanpu Pollution Control

11. The proposed Loan would also finance three interventions designed toimprove water quality in the Upper Huangpu River. These components would have twopurposes: firstly to protect the quality of water extracted at Da Qiao supporting theformally created Upper Huangpu Catchment Protection Zone; and secondly to improve thequality of water for all uses along the river. Without focused long-term programs tocontrol pollution in the Upper Huangpu catchment, pollution and toxicity levels at Da Qiaocould, in the medium term, approach those now experienced at Linjiang, threatening theviability of the proposed Da Qiao investment, and the sustained economic growth ofShanghai. The three components include (a) a water quality monitoring program for theUpper Huangpu; (b) investments in improved wastewater management and extendedsewerage systems within Songjiang Town; and (c) detailed design and construction of theWujing/Minhang sewerage scheme. These subprojects would be discussed in turn.

Water Quality Monitoring

12. This project component would strengthen and extend the capacity to monitorHuangpu River water quality. The Shanghai Municipal Environmental Monitoring Center(SEMC) currently monitors a small number of quality indicators at Da Qiao and has amonitoring station at Linjiang, which has yet to be commissioned due to lack of funding.Bank assistance would permit SEMC to commission the Linjiang station, improve theequipment at both stations, and extend regular monitoring to major tributaries of theHuangpu. Review of SEMC work shows that they also would benefit from technicalassistance in analysis of the data collected. This monitoring work would help SMG trackthe impact of continued industrial development and pollution abatement programsthroughout the Huangpu watershed. It would provide early warning of possible threats toexisting and future intakes and assist in the management of the watershed. Analysis of thisinformation in conjunction with that from Taihu Lake monitoring work to be undertakenby the Taihu Basin Authority with Bank support would provide a much more completeunderstanding of how the river basin functions and where the most effective pollutionabatement investments can be made.

- 114 - ANNEX 17-

13. During appraisal, SEMC monitoring plans and capabilitY were reviewed; itwas concluded that the proposed program to be an efficient means of accomplishing thegoals listed above. Recurrent budget allocations would be sufficient to sustain the type andlevel of monitoring proposed.

Songiang Wastewater Treatment

14. The proposed Da Qiao intake is located within Songjiang County, which hasexperienced rapid industrial development in recent years. Currentdy, the Songjiang Townsewerage treatment works can treat less than 50 percent of the maximum average dailytotal wastewater discharge from the town and untreated wastewater is discharged tosurrounding watercourses, which themselves discharge to the Huangpu near Da Qiao. Thissource of domestic and industrial effluents is the most immediately threatening to Da Qiaoand effective treatment of this pollution load would remove that threat. Songjiang Countywould be expected to revise their current sewerage tariff system to recover the full cost ofthe investmeat. The tariff increases would further shift pollution costs from theenvironment to individual polluters, providing an incentive to reduce pollution througheffective within-plant treatment.

15. Design work continues on the Songjiang scheme. The existence of atreatment plant with available adjacent land makes treatment plant expansion the least-costoption. However, as part of the design optimization, the least-ost technology compatiblewith the expansion is being determined.

Upper Huangpu Catchment Pollution Control Component: Wujin/MinhWastewater System

16. The Wujing and Minhang neighborhoods of Shanghai, on the west bank ofthe Huangpu River below Da Qiao, contain a concentration of industry responsible formuch of the pollution discharge to the Huangpu. That pollution affects Da Qiao in allseasons due to tidal flows, but the problem is partcularly serious during low flows, whenflow reversals in the Huangpu have been noted to last for extended periods. An extensivestudy conducted in 1986 showed that even secondary treatment of the predominantlyindustrial wastewaters produced in those disticts would not achieve the required waterquality objectives at Linjiang or lower in the Huangpu. Therefore, among the manyabatement options evaluated, those requiring discharge to either Hangzhou Bay or theChangjiang River were considered in full.

17. In view of the importance over the long term of (a) minimizing andcontrolling pollution in the Huangpu from Wujing and Minhang, and (b) the need toprotect the ecologically sensitive Hangzhou Bay from wastewaters generated outside thenatural catchment, the project would support the construction of a Northern Sewer Systemthat would intercept Wujing and Minhang wastewater flows including both domestic andpreteated industrial flows. The system would discharge into the Changiiang through theproposed east-flowing conveyor at Baolongang, ensuring the long-term protection of theHangzhou Bay from these polluting flows. The engineering work identified least-cost

-115 - ANNE 17

options; the related financial and economic work would support the tariffs beingimplemented for the existing Shanghai wastewater services as agreed with the Bank underthe ongoing Shanghai Sewerage Project (Credit 1779-CHA), such the Shanghai SewerageCompany will produce revenues in each year equivalent to not less than the sum of its (i)total operating expenses and (ii) the amount by which debt service requirements exceed theprovision for depreciation.

Municipal Solid Waste Management

18. The Shanghai Environmental Sanitation Administration Bureau (SESAB) isresponsible for the disposal of some 6,000 tons of municipal solid waste and some2,000 tons of constuction waste daily, as well as 6,000 tons of nightsoil. Industries areresponsible for collection, treatment and disposal of their own solid waste and most of thatwaste (including hazardous) is either recycled or disposed of in an uncontrolled manner.The building and construction industry generates another 3,000 tons a day, which isrecycled, used as fill material, or disposed of in so-called temporary dumps. Currentlandfills include sites along the Huangpu and adjacent to other watercourses. They provideno protection against leachate flow to surface or groundwater and constitute an importantsource of water pollution. The project component includes support for conversion of badweather dumping facilities to a properly prepared site away from surface water, use ofcontainers to minimize spillage, and investment in technical assistance and new plant andequipment to raise the very low productivity of the collection system. Least-cost optionswould be supported by the project. Piloting of alternative organizational forms for wastecollection, such as contracting for the services through local competitive bidding wouldalso be supported.

Environmental Plannin and Information Systems

19. The above comprehensive program to improve the Shanghai environment isbased on least-cost investments. The technical assistance component is designed to providea framework for future investment planning and management of the current system, butis not amenable to quantifiable economic returns. The technical assistance includedevelopment of geographical information systems, a hazardous waste strategy study, theShanghai Environmental Master Plan and other technical assistance and training. Not allof this work would be financed under the loan and credit, but these inputs are crucial tothe comprehensive approach taken by this project to analyzing and addressingenvironmental problems. The full value of the physical investments would be realized onlyif they are well managed; the various studies, technical assistance and training contributeto that goal.

Risks

20. The proposed options have embedded in them risks that vary in nature anddegree. Those risks potentially affect the final choice of project and here are grouped intothree types: implementation risks (of construction and operation); catastrophic accidentrisk; and risks to long-term sustainability. Each qpe of risk was reviewed.

- 116 - ANNEX 17

Implementation Risks

21. Thesw risks include a variety of physical, institutional, and economic factorsthat could interfere with the timely construction or implementation of any of the projectelements. Consideration of these types of risks largely reinforces the selection of the DaQiao option for meeting water quality standards. The Da Qiao option requires the leastcapital and the least foreign exchange, protecting against difficulty on the part of SMG onobtaining sufficient quantities of either. Construction and operation conditions are thesame as those for the Linjiang intake and conveyor, which were constructed in recent yearsand have been operated successfully. The Changjiang option has similar characteristics anda substantially similar profile in this regard. The advanced treatment option, however,would require the operation of a treatment plant much more sophisticated than thatcurrently used, with high recurrent costs and maintenance needs. The pollution controloption depends on sewerage technologies successfully constructed and operated inShanghai. These risks primarily concem operational problems in the event that industriesfail to meet their effluent etment standards.

22. Proper operation of any alternative solution to the water supply wouldrequire a dependable source of income and that, in tum, depends partally on thewilingness of SMG to endorse timely water tariff increases or to make the necessarypayments from the municipal budget. Here, Da Qiao also ranks as the least risky simplybecause it has the lowest recurrent costs and would therefore require the smallest tariffincreases or government funding allocations. An undertaking to approve and sustain therequired tariff increases would be obtained from SMG. The projected revenue collectionrate and expected unaccounted-for water may prove optimistic, giving a small risk to theproject; taiff adjustments would need to increase to address this risk.

23. The construction of the WujingfMinhang Northern Sewer presents nosignificant risk; it is technically and institutionally straightforward. A minor but notsignificant risk is the possible reluctance of the local enterprises and bureau to connect upto the completed sewer; this has been dealt with through obtaining assurances from SMG.

24. The Songjiang sewerage component faces the same funding risks as the DaQiao project component. These have been minimized through design optimization, analysisof the financial capabilities of Songjiang County, and county government agreement toinstitute sewerage tariffs sufficient to cover O&M costs and debt service. The proposedtechnologies are well known i the area and within the operational capabilities of thecurrent wastewater treatment works management and staff.

25. The solid waste project would work primarily to improve efficiency ofcurrent operations without requiring substantial changes in the basic technology of thatoperation. Nonetheless, implementation would depend on altering management habits thatmay not easily yield even to the possibility of substantial cost savings. In addition to thecommitment of the leaders of solid waste management operations, the project seeks toovercome this risk through a carefully designed program of technical assistance andtraining.

- 117 - ANNE 17

26. The remaining project elements depend on strengthening current operationswhile adding innovative management or planning advances from experience elsewhere.The techniques to be introduced have been successfully used in many settings, andtherefore the implementation risks are that they would not be successfully adapted to theparticular institutional circumstances of Shanghai. Project design minimizes these risksthrough thorough prior review of the proposed project elements by the institution thatexpects to implement them. Implementation would be monitored carefully to identify andaddress problems as they arise, a process aided by the provision of adequate funds fortechnical assistance.

Catarophic Risk

27. This type of risk applies to the water supply component of the project andarises if an accident or willful act prevents operation of the proposed supply scheme. Thiscould occur if, for example, a major pollution spill took place that reached the intake orif the works itself had to shut down for mechanical or other reasons. The Shanghai watersupply system contains little storage capacity-approximately two hours of operation-increasng the damage from any such event. The Linjiang intake currently supplies mostof the operating capacity and risk in that operation is lowered through design of the intakeand pumping plant as well as the fact that most treatment plants continue to have standbyfacilities to extract water directly from the Huangpu. Of the four project altematives, theChangiang option would reduce this risk the most by extracting water from a completelydifferent source and delivering it over a separate conveyor system. The Da Qiao optionwould face risks similar to those faced by Linjiang, although the Linjiang intake wouldcontinue to remain operational, as would direct extraction by the treatment plants,providing somewhat increased redundancy in the system. The advanced treatment optionwould lower the current Linjiang risks by increasing the ability to cope with pollution spillsand the pollution control option would lower the probability of such a spill.

28. Modeling of the Huangpu shows that moving the intake to Da Qiao fromLinjiang would substantially lower the risk of a catastrophic pollution spill by moving theintake upstream of the most dense shipping and industrial activity (see Annex 9, Figure 1).Because of the hydrology of the Huangpu, even a downstream event can affect Da Qiao,but the concentration of pollutants from any given spill near Da Qiao would besignificantly lower than they would be at Linjiang. Despite the attractiveness of theChangjiang option in this regard, at this time the very high additional cost is judged notto warrant the choice of that option. In addition, the upper Huangpu monitoringcomponent of the project would provide early warning of a major pollution threat, givingmore reaction time than currently available.

Risks to Long-Term Sustainabilty

29. One class of risks to long-term sustinability, that of financing andmanagement in project implementation, was discussed in paras. 20-23. The appraisalmission also considered another fundamental risk to the chosen water supply option. If theDa Qiao intake is built but the various abatement measures are ignored, increasing

- 118 - ANNEX 17

pollution in the Huangpu could, within a decade, leave Da Qiao in the untenable positioncurrently occupied by Linjiang. This threat is increased by the rapid industrial growth inthe region. For this reason, the project components to control effluent discharge to watersaround Shanghai and to abate the pollution from solid wastes are considered integral to thelong-term sustainability of the water supply system. If those goals can be met, the DaQiao intake should be able to meet Shanghai water needs for not only the next decade, butwith expansion of the pumping station and conveyor, for the decade thereafter.

30. SMG and the relevant sector agencies fully recognize the importance ofincreased control and management of pollution throughout the municipality. The Phase IISewerage Project and the proposed Songjiang sewerage schemes were developed by SMGover the past decade and the timing of implementation is mainly dependant of theavailability of funding. The Phase I Sewerage Project (supported by Credit 1779-CHA),which is to begin operation in December 1993, would reduce the urban district pollutantload on the Huangpu by 30 percent, and provide some protection to Da Qiao duringextreme low-flow conditions. As mentioned earlier, the major polluting industies havebeen successfully required to reduce their total effluent load by about half and investmentscontinue using the pollution levy fund. The mission considers that SMG has demonstratedits commitment to pollution control and that the project assists SMG in meeting its goalsfor further control and continually lowered risk of sustainable extraction of Huangpu Riverwater for drinking.

Other Economic Benefits

31. An improved water supply system offers benefits and returns beyond meetingnationally and internationally accepted standards for drinking water. The most importantof these returns include the relaxation of quality and quantity constraints on industrial watersupplies. Preliminary analysis by the Shanghai Environment Project Office (SEPO) andthe Design, Review and Advisory (DRA) consultants suggests that the return to increasedsupplies are substantial.

Water Tariffs

32. Water and sewerage tariffs under this project would be increased to reflectthe full financial cost of the water supply. Demand management options and future pricingstrategy would be investigated during the preparation of the Shanghai Water Supply MasterPlan, which would be supported under the project.

Pollution Levy System

33. SEPO and their DRA consultants have studied the impact of the system onenterprise choices of pollution levels. The levy appears to be decreasing in real terms,while abatement costs keep pace with or exceed the inflation rate, inducing less rather thangreater pollution control efforts. This would be further investigated during preparation ofthe project-supported Shanghai Water Supply Master Plan.

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Water Demand

34. A separate note in the project files (Annex 18) discusses the estimates ofwater demand against which Da Qiao was designed. That note shows that under the highdemand scenario, Da Qiao would meet demand until the year 2004, and under the mediumdemand scenario, until 2008. The mission has affirmed that the proposed Da Qiao intake,as well as the Changdiang intake, could be expanded to satisfy all probable demand levelsto the year 2010. The Bank conducted a sensitivity analysis on the economic costs of thosetwo options under alternative demand assumptions and finds that up to a further 35 percentincrease in demand above the current high demand scenario by the year 2005, an expandedDa Qiao intake remains less costly than a Changjiang intake. This finding affirms thechoice of Da Qiao and associated works as the least-cost option for a satisfactory supplyof water to Shanghai.

Social Impact and Affordability

35. Almost all housing in urban Shanghai is served by 24-hour piped water, withonly 1 permcnt of the population now relying on standpipes for water supply. Theproposed project would therefore have no effect on domestic water quantity. It would,however, significantly improve water quality. Currently, households can somewhatimprove the paatability of the water through boiling, which is a common practice at allincome levels. Households wishing additional quality improvements must resort toactivated carbon filters or the purchase of bottled water. Both options are expensive andresorted to by few households. The project would make water of acceptable qualityavailable to all households. The associated doubling of the real water tariff would for thepoorest households double the water bill from approximately 1 to 2 percent of householdincome (conservatively assuming no increases in real incomes for the poor and noreduction in the already low quantities of water used). The 2 percent level is low byinternational standards and there are no plans to institute a 'lifeline' tariff. However,SMG has studied the possibility of such tariffs for various public utilities and wouldconsider implementation if the tariff burden was judged too great. Unfortunately, the tariffincrease does prevent unambiguous conclusions about the welfare impact of water qualityimprovement in the absence of high-quality consumer water demand surveys. This wouldbe further investigated during preparation of the project-supported Shanghai Water SupplyMaster Plan.

I

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SELECTED DOCUMENTS AND DATA AVAILABLEIN THE PROJECT FILE

1. Shanghai Environmental ProjectPredesign Review Report Volume 1 - Main Report

Volume 2 - AppendicesMott MacDonald, Consulting Engineers, December 1992

2. Shanghai Environmental ProjectHuangpu River Water Quality Protection PC1Draft Prefeasibility Study Volume 1 - Main Report

Volume 2-4 - Appendices A to KMott MacDonald, Consulting Engineers, December 1992

3. Shanghai Environmental ProjectPreliminary Resettement PlanMott MacDonald, Consulting Engineers, February 1993

4. Shanghai Environmental ProjectPreliminary Environmental Assessment ReportMott MacDonald, February 1993

5. Shanghai Environment ProjectConstruction Unit Cost Data and Rates StudySEPO with Ausino Engineering Consultants with Kinhill Engineers, December 1992

6. Shanghai Solid Waste and Nightsoil Management Study: Terms of Reference

7. Shanghai Environmental Master Plan (SEMP): Terms of Reference

8. Shanghai Hazardous Waste Management Study: Terms of Reference

9. Shanghai Environment ProjectTechnical Assistance and Training Activities Report:Terms of Reference for Technical Assistance Items TAl-T14, and T01-T04.Mott Macdonald & Partners, September 1993Chreod Consultants, September 1993

10. Shanghai Municipal Waterworks Company. Upper Huangpu Da Qiao WaterSupply Scheme. Background Papers. 1990 through 1992.

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11. Construction Management and Supervision of PCI: Terms of Reference

12. Shanghai Municipal Finance Data Analysis, July 1993

13. Urban Construction Information System, City of Shanghai.Preparation Study. Consultants Chreod Ltd., May 1993

14. Water Demand in Shanghai. Project Working Paper. Lee Travers, August 12,1993 Version.

15. Shanghai Environment ProjectProject Preparation Studies and Peasiblity ReportsMott MacDonald/KPMG and PartnersPCI through 6, dated June 1993, September 1993 and December 1993

16. The Comprehensive Plan of Shanghai, 2 maps.

17. Shanghai Municipal Solid Waste and Nightsoil Management, Five-YearImprovement Plan.

18. Taihu Basin Hydrological Dynamic Mathematical Model and Typical Year WaterSupply Calculations; Hehai University, October 1992

19. Pollution Sources and Water Quality Monitoring ProjectPrefeasibility Study Report, Appendices 1-10Subproject Office of Pollution Sources and WaterQuality Monitoring System, October 1992

20. Shanghai Municipal Waterworks Co. Enterprise StandardsQ/SS-GL-02-14406-89

Outlines of Elementary Accounting Work (trial)Issued February 1989 Trial circulated March 1989

21. Shanghai Municipal Waterworls Co. Enterprise StandardsQ/SS-GZ-01-05-89

Worling Standards for Financial Section (trial circulation)Issued February 1989 Trial circulated March 1989

22. Shanghai Municipal Waterworks Co. Enterprise StandardsQ/SS-GL-02-14-01-89

Accounting System (trial)Issued February 1989 Trial circulated March 1989

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23. Shanghai Municipal Waterworks Co. Enterprise StandardsQ/SS-GL-02-14-02-89

Cash Management System (trial)Issued February 1989 Trial circulated March 1989

24. Shanghai Municipal Waterworks Co. Enterprise StandardsQ/SS-GL-02-14-08-89

Fixed Asset Management System (trial)Issued February 1989 Trial circulated March 1989

25. Annex A: SMWC Fixed Asset Classification Standards and Terms of Depreciation

26. Shanghai Municipal Waterworks Co. Enterprise StandardsQ/SS-GL-02- 14-05-89

Flow Currency Management System (trial)Issued February 1989 Trial circulated March 1989

27. Shanghai Municipal Waterworks Co. Enterprise StandardsQ/SS-GL-01-14-07-89

Cost Management System (trial)Issued February 1989 Trial circulated April 1989

28. Shanghai Municipal Waterworks Co. Enterprise StandardsQ/SS-GL-02-14-03-89

Regulation for Preparing Financial Budget Program (trial)Issued February 1989 Trial circulated March 1989

29. Notice regarding revision of SMWC Management System of low-cost consumablesShanghai Municipal Waterworks Co., February 16, 1989

30. Shanghai State-owned Industrial Enterprise Annual Accounting Statement (1992)prepared by Shanghai Municipal Waterworks Co., administered by Public UtilitiesBureau, January 20, 1993

31. Shanghai State-owned Industrial Enterprise Annual Accounting Statement (1991)Shanghai Municipal Waterworks Co. administered by Public Utilities Bureau,January 18, 1992

32. Charging for Wastewater DischargeSongjiang Wastewater Treatment Plant, February 1993

33. Statement of Funds Activityby Songjiang Wastewater Treatment Plant, 1990, 1991 & 1992