Document of

The World Bank

Report No:

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

OF THE

WESTERN PROVINCES RURAL WATER SUPPLY, SANITATION AND HYGIENE

PROMOTION PROJECT

LOAN 4863-CHA

BOARD DATE: JUNE 26, 2007

TO THE

PEOPLE’S REPUBLIC OF CHINA

APRIL 24, 2012

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2

ABBREVIATIONS AND ACRONYMS

DfID Department for International Development

GBP

GOC

British Pound Sterling

Government of China

IBRD International Bank of Reconstruction and Development

KPIs Key Performance Indicators

MOF Ministry of Finance

MOU Memorandum of Understanding

PAD Project Appraisal Document

PDO Project Development Objective

PIU Project Implementation Unit

PMO Project Operation Manual

PPMO Provincial Project Management Office

RMB Renminbi (Chinese Yuan)

USD US Dollar

Regional Vice President: Pamela Cox, EAPVP

Country Director: Klaus Rohland, EACCF

Acting Sector Manager/Sector Director : Paul Kriss, EASCS/John Roome, EASSD

Acting Task Team Leader: Sing Cho, EASCS

3

CHINA WESTERN PROVINCE RURAL WATER SUPPLY, SANITATION AND HYGIENE

PROMOTION PROJECT

P081776

CONTENTS

Page

A. SUMMARY ........................................................................................................................... 6

B. PROJECT STATUS ............................................................................................................. 6

C. PROPOSED CHANGES ...................................................................................................... 6

ANNEX 1: RESULTS FRAMEWORK AND MONITORING ............................................... 11

4

Restructuring Status: Draft Restructuring Type: Level II

Last modified on date :

1. Basic Information Project ID & Name P095315 – Western Provinces Rural Water Supply,

Sanitation and Hygiene Promotion Project

Country China

Task Team Leader Paul Kriss

Sector Manager/Director Paul Kriss

Country Director Klaus Rohland

Original Board Approval Date June 26, 2007

Current Closing Date September 30, 2012

Proposed Closing Date [if applicable]

EA Category B

Revised EA Category No Change

EA Completion Date December 1, 2006

Revised EA Completion Date Not Applicable

2. Revised Financing Plan (US$) Source Original Revised

BORROWER 25.36 31.65

IBRD 25.00 25.00

DfID 25.00 15.50

Total 75.36 72.15

3. Borrower Organization Department Location

Ministry of Finance International Department Beijing, China

4. Implementing Agency Organization Department Location

Shaanxi Provincial Offices for

World Bank Projects

Sichuan Provincial Offices for

World Bank Projects

Shaanxi Foreign Loan Support

PMO;

Sichuan Rural Irrigation and

Water Conservancy Bureau

Xian, Shaanxi, China;

Chengdu, Sichuan, China

5

5. Disbursement Estimates (US$m) Actual amount disbursed as of 4/5/2012 19.21

Fiscal Year Annual Cumulative

2012 0.00 19.21

2013 5.79 25.00

Total 25.00

6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N

Have these been approved by Bank management

Is approval for any policy exception sought from the Board?

Does the scale-up of restructured projects trigger any new safeguard policies? If yes,

please select from the checklist below.

N

7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes

The development objective of the project is to increase access of poor participating communities to

sustainable and equitable water supply, sanitation and hygiene promotion services by adopting an

integrated and participatory approach.

7b. Revised Project Development Objectives/Outcomes [if applicable]

n.a.

6

CN-WESTERN PROVINCE RURAL WATER SUPPLY, SANITATION AND HYGIENE

PROMOTION PROJECT

RESTRUCTURING PAPER

A. SUMMARY

1. This Project Paper seeks the approval of the Executive Directors to introduce the

following changes in the China Western Provinces Rural Water Supply, Sanitation and Hygiene

Promotion Project (P095315): (a) reduction of project activities; (b) change in project costs,

reallocation of Loan proceeds, and increase in disbursement percentages; and (c) updating of the

results framework. The restructuring is necessary to reduce the scope and outcomes of the

project in line with the reduced funding envelope resulting mainly from: (a) the 2008 Wenchuan

earthquake that significantly affected both project provinces; and (b) the withdrawal of grant

funding from the United Kingdom’s Department for International Development (DfID) in 2010.

2. The project was funded by a combined investment of US$75 million: US$25 million

from a World Bank loan, US$25 million equivalent from a DfID grant, and a US$25 million

equivalent investment by the Government of China (GOC). The Loan and DfID Grant were

supported by three legal documents, dated September 29, 2007, namely: (i) a Loan Agreement

between the Bank and the People’s Republic of China; (ii) a Project Agreement between the

Bank and both borrowers – Shaanxi Province and Sichuan Province; and (iii) a Grant Agreement

between the People’s Republic of China and the Bank acting as administrator of the DfID Grant.

B. PROJECT STATUS

3. The project was approved on June 26, 2007 and became effective on December 20, 2007.

Project implementation fell significantly behind schedule for two reasons. Six months after

effectiveness, the both Sichuan and Shaanxi Province were hit by the Wenchuan Earthquake of

May 2008. The emergency response to the earthquake strained both provinces’ financial and

human resources and resulted in implementation delays of about one year.

4. Furthermore, the project suffered financing shortfalls for several reasons: (a) as a

consequence of the Wenchuan earthquake, the prices of construction materials and labor rose

significantly; (b) in 2009, DfID informed GOC and the Bank that it intended to close its China

program, and that the undisbursed portion (about US$6 million equivalent) of its grant would be

canceled in 2010; (c) the value of the Chinese RMB rose significantly compared to the US Dollar

and the British Pound Sterling (GBP), thus increasing the cost of the project in RMB terms; and

(d) the project provinces did not provide sufficient counterpart funds. At the mid-term review in

June 2010, the Bank advised the provinces to devise a restructuring plan to realign the project

scope with reduced available funding; however an agreed restructuring plan was not formally

submitted to the Bank until March 2012.

5. Due to lack of agreement on the scope and funding for the project, contracts could not be

signed and implementation stagnated for almost two years as demonstrated by the lack of

progress in fulfilling key performance indicators (KPIs). For example, the number of additional

7

people with access to safe water supply has reached about 378,840 or only 53% of the project

target. The increase in the percentage of households with improved latrines is only 23% in

Shaanxi (target is 100%) and 15% in Sichuan (target is 70%). The increase in the percentage of

people who have adopted safe hygiene and sanitation behaviors is not known because monitoring

and evaluation have been inadequate (the 2011 survey results should be available soon). Due to

slow implementation progress and the shortfall in financing, it is unlikely that the Project

Development Objective can be satisfactorily met to the extent reflected in the KPIs by the Loan

closing date of September 30, 2012. No funding was made available by the GOC to fill in the

gap. The purpose of the restructuring, therefore, is to allow the Loan to be fully utilized and

achieve most benefits in the remaining time.

6. Compliance with covenants. The last ISR reports that the project management offices in

each province have not delivered project reports, including M&E, in a timely manner and annual

work plans were not delivered by end October as expected, especially for 2010 and 2011. There

are no overdue audits and audits have consistently yielded unqualified opinions. The overall

safeguard compliance is downgraded due to the delay submission of updated external monitoring

and evaluation report on land acquisition.

C. PROPOSED CHANGES

Results/indicators by Component

7. All four project components will remain in both project provinces, but the outputs will be

scaled back as shown in the table below.

Table 1. Revised targets for Shaanxi Province

Project Activities by Component, Shaanxi Original

Targets

Restructuring

Targets

1. Water Supply Component

Multiple Village Piped Water Supply Schemes 34 28

Single Village Piped Water Supply Schemes 115 128

Rainwater Storage Reservoirs 75 0

2. Environmental Sanitation Component

Schools Three Compartment Latrines 297 41

Hand washing and Onsite Soakaway Systems 297 41

Solid Waste Drop-Off Points 71 66

Households Biogas Latrine 27,164 6095

Double Urn Latrine 45,918 9646

Three-compartment Latrine 460 0

Villages Solid Waste Drop-Off Points 719 671

Three Compartment Latrines 126 178

Promotional Materials and Activities

8

8. For the Environmental Sanitation component, some counties decided to construct a

greater number of public three compartment latrines to replace the household three compartment

latrines which were dropped due to inadequate funding.

9. For the Hygiene Promotion component, two final activities will be completed by loan

closing: (a) the last survey on behavioral change, which was already included in an existing

consulting service contract and (b) a local workshop to share experiences among county project

management offices.

10. For the Institutional Development and Capacity Building, three domestic study tours will

be conducted to learn about the operations and maintenance experiences of other rural water

supply projects in China.

Table 2. Revised targets for Sichuan Province

Project Activities by Component, Sichuan Original

Targets

Restructuring

Targets

1. Water Supply Component

Multiple Village Piped Water Supply Schemes 27 19

Single Village Piped Water Supply Schemes 220 55

Cluster of Household Piped Water Supply Schemes 1816 484

Single Household Wells 23,247 16,103

2. Environmental Sanitation Component

Schools Three Compartment Latrines 151 56

Hand washing and Onsite Soakaway Systems 151 8

Solid Waste Drop-Off Points 151 86

Households Biogas Latrine 28,824 12,287

Three Compartment Latrines 57,648 14,897

Waste Water Soakaway Systems 51 0

Villages Solid Waste Drop-Off Points 452 330

Three Compartment Latrines 36 8

Promotional Materials and Activities

11. For the Hygiene Promotion component, the only activity scheduled before closing is

execution of the last survey on behavioral change, which is already included in an existing

consulting service contract.

12. For the Institutional Development and Capacity Building component, Sichuan will hire a

consultant to review the project outcomes and prepare the borrower’s completion report. Annex

1 on the Results Framework and Monitoring shows the key indicators and the expected final

outputs for the reduced project to be reflected in the amendment of the Project Agreement. All 3-

in-1 model adoption/replication related indicators originally shown in the Project Appraisal

Document will be dropped, and all HP related indicators to be replaced with behavior based

indicators because of inadequate available data or attribution issues.

9

13. With regard to safeguard review, as only slight reduction in project scope is proposed, the

environmental category of the project remains category B, and no new safeguard policies are

triggered. The restructuring did not bring any changes to the project financial management

system which has been assessed and reviewed as acceptable to the Bank.

14. Financing The table below provides the updated project costs by component.

Table 3. Project Costs (US$ million)

Components/Activities Current (PAD) Proposed

Water Supply 44.45 51.29

Environmental Sanitation 19.00 16.51

Hygiene Promotion 3.79 1.24

Institutional Strengthening and Training 3.93 3.05

Contingency 4.19 N/A

Financial Charges (front-end fees of the Bank) N/A 0.06

Total 75.36 72.15

15. Water Supply. Funding for this component is being increased from $44.45 million to

$51.29 million in order to cover the increased costs of construction materials and labor, and

depreciation of USD.

16. Environmental Sanitation. Funding for this component is being reduced from $19

million to $16.51 million because of the reduced available financing envelope following DfID’s

withdrawal.

17. Hygiene Promotion. This component’s funding will be reduced from $3.79 million to

$1.24 million because the mass media campaign in Shaanxi was financed through an alternative

source and because of the reduced funding available for other activities following DfID’s

withdrawal.

18. Institutional Strengthening and Training. This component will be slightly reduced by

trimming down the number of domestic study tours for experience learning.

19. The revised Financing Plan is available from the datasheet proposed by the Borrower

and acceptable to the Bank to reflect the withdrawal of DfID. There is no change in the IBRD

loan of US$25 million. The DfID contribution has declined from US$25 million to US$15.5

million, which was the amount disbursed when DfID withdrew from the project. With the

substantial appreciation of the Chinese RMB against the USD (and GBP), the borrower’s

contribution has risen from $28.51 million to US$31.65 million to be provided by Sichuan and

Shaanxi provincial governments.

20. Reallocations and Increase in Financing Percentages. The Loan proceeds will be

reallocated among the disbursement categories and the financing percentages for several

10

categories of expenditure will be increased in order to (a) alleviate funding shortages following

the withdrawal of DfID and to (b) enable full disbursement of the Loan by the September 30,

2012 closing date. These changes are shown in the Tables 4 and 5.

Table 4. Revised Disbursement Table for Shaanxi Province

Component Allocation (US$) % of Financing

Current Revised Current Revised

(1) With respect to Shaanxi Province:

(a) Goods, works and consultants’ services under Part A:

Safe Water Supply

7,467,500

8,891,750 36% No change

(b) Goods, works and consultants’ services under Part

B of the Project (excluding Household Subsidies)

350,250 1,697,087 35% No change

(c) Household Subsidies under Part B of the Project 2,758,000 728,148 50% of

Household

Subsidies

paid

No change

(d) Goods, works, non-consulting services, consultants’

services, workshops and training under Part C:

Hygiene Promotion

937,500 327,441 50% 100%

(e) Goods and consultants’ services under Part D:

Institutional Strengthening and Development

577,000 629,207 50% 100%

(f) Workshops and training under Part D: Institutional

Strengthening and Development

378,500 195,117 50% 100%

Front-End Fee 31,250 31,250 100% No change

Total 12,500,000 12,500,000

Table 5. Revised Disbursement Table for Sichuan Province

Component Allocation (US$) % of Financing

Current Revised Current Revised

(2) With respect to Sichuan Province:

(a) Goods, works and consultants’ services under Part A:

Safe Water Supply

7,051,750 9,572,750 35% 70%

(b) Goods, works and consultants’ services under Part B

of the Project (excluding Household Subsidies) 343,500 171,860 35% 70%

(c) Household Subsidies under Part B of the Project

3,243,500 1,653,250

50% of

Household

Subsidies

paid

100%

(d) Goods, wors, non-consulting services, consultants’

services, workshops and training under Part C:

Hygiene Promotion

959,500 341,310 50% 100%

(e) Goods and consultants’ services under Part D:

Institutional Strengthening and Development 437,500 352,360 50% 100%

(f) Workshops and training under Part D: Institutional

Strengthening and Development 433,000 377,220 50% 100%

Front-End Fee 31,250 31,250 100% No change

Total 12,500,000 12,500,000

ANNEX 1:

Results Framework and Monitoring

CHINA: WESTERN PROVINCES RURAL WATER SUPPLY, SANITATION AND HYGIENE PROMOTION PROJECT

PDO Level Results Indicators*

Co

re

D=Dropped

C=Continue

N= New

R=Revised Unit of

Measure Baseline

Cumulative Target Values**

Responsibility

for Data

Collection YR 1

YR 2

YR 3

Mid-Term

Review

YR 4 YR5

(end target)

Indicator One: Increase in

number of people with access to

safe water supply

R Number 0 0 Shaanxi: 49,282

Sichuan: 75,113

Shaanxi: 146,005;

Sichuan: 127,536

Shaanxi: 326,716

[No Change];

Sichuan: 258,000

PPMO

Indicator Two: Increase in

percentage of people in project

communities and schools who

have adopted safe hygiene and

sanitation behaviors

R Percent 0 0 Shaanxi: 15%

Sichuan: 0%

Unknown Shaanxi: 70%

Sichuan: 60%

PPMO

Indicator Three: Increase in

number of schools with access to

safe water supply

R Number 0 0 Shaanxi: 13

Sichuan: 16

Shaanxi: 46;

Sichuan: 57

Shaanxi: 124;

Sichuan: 57

PPMO

Indicator Four: Increase in number

of people with access to improved

sanitation services

R Number 0 0 Shaanxi: 12,960

Sichuan: 9,228

Shaanxi: 59,755

Sichuan: 83,678

Shaanxi: 78,705;

Sichuan: 121,800

PPMO

Indicator Five: Increase in number

of schools with access to improved

sanitation services

R Number 0 0 Shaanxi: 0

Sichuan: 6

Shaanxi: 0

Sichuan: 57 Shaanxi: 41;

Sichuan: 57

PPMO

Indicator Six: Percentage of water

supply schemes operating

sustainably after one year3

C Number 0 0 0 Most schemes

operating but less

than one year

100% [No Change]

PPMO

12

Intermediate Outcome Indicators*

Co

re

D=Dropped

C=Continue

N= New

R=Revised

Unit of

Measure Baseline

Cumulative Target Values** Responsibility

for Data

Collection YR 1

YR 2

YR 3

Mid-Term Review

YR 4 YR5

(end target)

Indicator One: Access to and use of safe water supply in participating communities

(a) Increase in percentage of

households using safe water supply

in participating communities

C 0 0 Shaanxi: 16.7%

Sichuan: 15% Shaanxi: 45%

Sichuan: 27%

100% [No Change]

PPMO

(b) Average time saved by

households in obtaining safe

drinking water

C 0 0 Shaanxi: No data

Sichuan: 15 min Shaanxi: No data

Sichuan: 20 min [No Change]

PPMO

(c) Percentage of water supply

systems meeting the tariff covenant

after the first year of operations

C 0 0 0 Most schemes

operating but less

than one year

100% [No Change]

PPMO

(d) Percentage of water supply

systems meeting its full design

supply capacity two years after

construction completion.

C 0 0 0 Most schemes

operating but less

than one year

45% [No Change]

PPMO

(e) Percentage of Water Quality

Certification of water supply scheme

done on time.

C 0 0 0 Most schemes still

under

commissioning, not

yet hand over to

operator for

operation

100% [No Change]

PPMO

Indicator Two: Access to and use of improved sanitation services in participating communities.

(a) Increase in percentage of

households with improved latrines

R 0 0 Shaanxi: 6.42%

Sichuan: 6% Shaanxi: 16%

Sichuan: 15%

Shaanxi: 21.4%

Sichuan: 50%

PPMO

(b) Increase in percentage of schools

in project areas with improved

latrines, hand washing facilities,

soak-away systems and garbage

drop-off points.

R 0 0 Shaanxi: 0%

Sichuan: 7% Shaanxi: 0%

Sichuan: 38%

Shaanxi: 33%

Sichuan: 50%

PPMO

(c) Number of community garbage

drop-off points and public latrines

sustainably managed by communities

R 0 0 0 Shaanxi: 7

Sichuan: 19

Shaanxi: 671

Sichuan: 258

PPMO

Indicator Three: Access and use of improved hygiene services in participating communities

(a) Increase in percentage of school

children hand washing with soap

N 0 0 0 Shaanxi: 17%

Sichuan: 25%

Shaanxi: 30%

Sichuan: 45%

PPMO

13

(HWWS) after toilet use

(b) Increase in percentages of

community HWWS at 5 key

occasions

N 0 0 0 Shaanxi: 8%

Sichuan: 16%

Shaanxi: 20%

Sichuan: 30%

PPMO

(c) Increase in percentage of

household disposal of the Feces of

young child in a safe manner

N 0 0 0 Shaanxi: 48%

Sichuan: 60%

Shaanxi: 70%

Sichuan: 80%

PPMO

Indicator Four: Access and use of improved hygiene services in participating communities

(a) Proportion of vulnerable

households receiving and using safe

water supply service

C 0 0 Shaanxi: 15%

Sichuan: 12%

Shaanxi: 44%

Sichuan: 24% 100% [No Change]

PPMO

(b) Proportion of vulnerable

households receiving and using

improved sanitation services

R 0 0 Shaanxi: 6.42%

Sichuan: 7%

Shaanxi: 16%

Sichuan: 22%

Shaanxi: 100%

Sichuan: 60%

PPMO

(c) Number of WASH Committees

established by following principles

and requirements set out by the

project

C 0 0 Shaanxi: 273

Sichuan: 33%

Shaanxi: 282

Sichuan: 34% 100% [No Change]

PPMO

(d) Percentage of vulnerable

households and women

representatives in executive

committee of WASH Committee

C 0 0 Shaanxi: 20%

Sichuan: 29%

Shaanxi: 20%

Sichuan: 15% 20% [No Change]

PPMO

(e) Number of WASH Committee

members and percentage of women

participating in training for capacity

building

R 0 0 Shaanxi: 1540/20%

Sichuan: 660/

Unknown

Shaanxi: 1540/20%

Sichuan: 660/

Unknown

Shaanxi: 1540/26%

Sichuan: 824/20%

PPMO

(f) Number of WASH Committee

managed Single Village and Cluster

household Water Supply Schemes

working sustainably

R 0 0

Shaanxi: 0

Sichuan: 0

Shaanxi: 132

Sichuan: 24

Shaanxi: 140

Sichuan: 55

PPMO

(g) Number of meetings of WASH

Committees

R 0 0 Shaanxi: 206

Sichuan: 206

Shaanxi: 312

Sichuan: 471

Shaanxi: 468

Sichuan: 618

PPMO

(h) Percent of spot-checks of

schemes in which community needs

have been satisfactorily reflected in

project planning.

R 0 0

Shaanxi: 20%

Sichuan: Unknown

Shaanxi: 85%

Sichuan: 60%

Shaanxi: 90%

Sichuan: 80%

PPMO