Implementation Completion and Results Report (ICR) Documentdocuments.worldbank.org/curated/en/333601514406479155/pdf/ICR00003540-12182017.pdfRFP Resettlement Framework Plans SCADA

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: ICR00003540

IMPLEMENTATION COMPLETION AND RESULTS REPORT

<IBRD-48010>

ON A

LOAN

IN THE AMOUNT OF USD200 MILLION

TO THE

THE PEOPLE'S REPUBLIC OF CHINA

FOR A

SHANGHAI URBAN ENVIRONMENT (APL PHASE III) ( P096923 )

December 18, 2017

Social, Urban, Rural And Resilience Global Practice

East Asia And Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective {June 30, 2017})

Currency Unit = Renminbi Yuan

RMB 6.779 = US$1 (At close)

US$ 0.147 = RMB1 (At close)

FISCAL YEAR

July 1 - June 30

Regional Vice President: Victoria Kwakwa

Country Director: Bert Hofman

Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez

Practice Manager: Abhas Kumar Jha

Task Team Leader(s): Alessandra Campanaro, Sing Cho

ICR Main Contributor: Geoffrey Spencer

ABBREVIATIONS AND ACRONYMS

APL Adaptable Program Loan

BSTSS Bailonggang Southern Trunk Sewer System

BOD Biological Oxygen Demand

BWWTP Bailonggang Wastewater Treatment Plant

CAS County Assistance Strategy

CDB China Development Bank

CEAM Shanghai Chengtou Environmental Asset Management Co. Ltd.

CEIDC Shanghai Chengtou Environment Industry Development Co. Ltd

COD Chemical Oxygen Demand

CPS Country Partnership Strategy

DEMP District Environment Management Program

DFV District Financing Vehicle

DN Diameter Nominal

EA Environmental Assessment

EAF Environmental Assessment Framework

EIA Environmental Impact Assessment

EIAPF Environmental Impact Assessment Policy Framework

EMP Environmental Management Plan

FM Financial Management

FTZ Free Trade Zone

FYP Five Year Plan

GoC Government of the People’s Republic of China

GUIFF Green Urban Infrastructure Financing Facility

HH Household

ICR Implementation Completion and Results Report

ISR Implementation Status and Results Report

IRI Intermediate Results Indicators

IST Institutional Strengthening and Training

KPI Key Performance Indicator

M&E Monitoring and Evaluation

MIS Management Information System

MOF Ministry of Finance

MOM Management, Operations and Maintenance

MOU Memorandum of Understanding

MTR Mid-Term Review

NDRC National Development and Reform Commission

NRWC Nanhui Raw Water Conveyor

OM Operations Manual (DFV)

PAD Project Appraisal Document

PAPs Project Affected Persons

PDO Project Development Objective

PIU Project Implementation Unit

PLG Project Leading Group

PMO Project Management Office

POI Project Outcome Indicators

PTS Puxi Trunk Sewer

QCSC Qing Cao Sha Investment Construction and Development Company Limited

QCSRWP Qing Cao Sha Raw Water Project

RF Results Framework

RAP Resettlement Action Plan

RFP Resettlement Framework Plans

SCADA Supervisory Control and Data Acquisition

SCC Shanghai Chengtou Corporation

SCEID Shanghai Chengtou Environment Industry Development Corporation.

SDRC Shanghai Development and Reform Commission

SMG Shanghai Municipal Government

SMI Shanghai Investment Group Co.

SMR Shanghai Municipal Region

SMSC Shanghai Municipal Sewerage Co. Ltd.

SPC Shanghai Peoples’ Committee

SRWC Shanghai Raw Water Company

SSP1 First Shanghai Sewerage Project

SSP2 Second Shanghai Sewerage Project

SUEP Shanghai Urban Environment Project

SWA Shanghai Water Authority

SWAOD Shanghai Water Assets Operations and Development Co.

TA Technical Assistance

TOR Terms of Reference

UDIC Shanghai Urban Development and Investment Co. Ltd.

UHRRWP Upper Huangpu River Raw Water Project

WRCMS Shanghai Municipality Water Resources Comprehensive Management & Safe Guard Study

WTP Water Treatment Plant

W2P Willingness to Pay

WWMP Wastewater Master Plan

WWTP Wastewater Treatment Plant

XWTP Xujing Water Treatment Plant

Metric System

Ha Hectare

mg/L Milligrams per Liter

Mu Chinese unit of land measurement (1 Ha=15 Mu)

TABLE OF CONTENTS

DATA SHEET .......................................................................................................................... 1

I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 5

A. CONTEXT AT APPRAISAL .........................................................................................................5

B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) .......................................9

II. OUTCOME .................................................................................................................... 11

A. RELEVANCE OF PDOs ............................................................................................................ 11

B. ACHIEVEMENT OF PDOs (EFFICACY) ...................................................................................... 11

C. EFFICIENCY ........................................................................................................................... 22

D. JUSTIFICATION OF OVERALL OUTCOME RATING .................................................................... 24

E. OTHER OUTCOMES AND IMPACTS (IF ANY) ............................................................................ 25

III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 25

A. KEY FACTORS DURING PREPARATION ................................................................................... 25

B. KEY FACTORS DURING IMPLEMENTATION ............................................................................. 27

IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 30

A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 30

B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 30

C. BANK PERFORMANCE ........................................................................................................... 31

D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 34

V. LESSONS AND RECOMMENDATIONS ............................................................................. 34

ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ..................................................................... 37

ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ....................................... 45

ANNEX 3. PROJECT COST BY COMPONENT ................................................................................... 47

ANNEX 4. EFFICIENCY ANALYSIS ................................................................................................. 48

ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS .................... 53

ANNEX 6. SUPPORTING DOCUMENTS ......................................................................................... 54

ANNEX 7. DISTRICT FINANCING VEHICLE ...................................................................................... 55

ANNEX 8. EFFICACY ANALYSIS - PROJECT OUTPUTS AND OUTCOMES ................................................ 59

ANNEX 9. PROJECT SOCIAL SAFEGUARDS RESETTLEMENT, LAND ACQUISITION, DEMOLITION AND

COMPENSATION ..................................................................................................................... 73

ANNEX 10. THEORY OF CHANGE: SHANGHAI URBAN ENVIRONMENT PROJECT APL3 ............................ 75

ANNEX 11. LONG TERM BANK ENGAGEMENT IN SHANGHAI URBAN ENVIRONMENT 1987-2018 ............... 76

MAP CHN43328 ...................................................................................................................... 77

The World Bank Shanghai Urban Environment (APL Phase III) ( P096923 )

Page 1 of 77

DATA SHEET

BASIC INFORMATION

Product Information

Project ID Project Name

P096923 SHANGHAI URBAN ENVIRONMENT (APL PHASE III) (

P096923 )

Country Financing Instrument

China Adaptable Program Loan

Original EA Category Revised EA Category

Full Assessment (A) Full Assessment (A)

Organizations

Borrower Implementing Agency

The People's Republic of China Shanghai DRC

Project Development Objective (PDO) Original PDO

The project development objective for APL3 is to improve Shanghai's recources and environmental sustainability in the core andsuburban areas through strategic priority investments and selective institutional reforms in the water and wastewater sectors.


Page 2 of 77

FINANCING

Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$)

World Bank Financing IBRD-77070

200,000,000 200,000,000 200,000,000

Total 200,000,000 200,000,000 200,000,000

Non-World Bank Financing

Borrower 0 0 0

Local Govts. (Prov., District, City) of Borrowing Country

431,140,000 431,140,000 365,471,308

Total 431,140,000 431,140,000 365,471,308

Total Project Cost 631,140,000 631,140,000 565,471,308

KEY DATES

Approval Effectiveness MTR Review Original Closing Actual Closing

25-Jun-2009 03-Dec-2009 21-Jan-2015 30-Jun-2015 30-Jun-2017

RESTRUCTURING AND/OR ADDITIONAL FINANCING

Date(s) Amount Disbursed (US$M) Key Revisions

22-Jun-2015 156.59 Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Change in Financing Plan Reallocation between Disbursement Categories Change in Legal Covenants Change in Implementation Schedule

KEY RATINGS

Outcome Bank Performance M&E Quality

Moderately Satisfactory Moderately Satisfactory Substantial


Page 3 of 77

RATINGS OF PROJECT PERFORMANCE IN ISRs

No. Date ISR Archived DO Rating IP Rating Actual

Disbursements (US$M)

01 21-Jun-2010 Satisfactory Satisfactory .50

02 27-Jun-2011 Moderately Satisfactory Moderately Satisfactory .50

03 04-Apr-2012 Moderately Satisfactory Moderately Satisfactory 54.15

04 15-May-2013 Moderately Satisfactory Moderately Satisfactory 107.28

05 25-Dec-2013 Moderately Satisfactory Moderately Satisfactory 107.28

06 25-Jun-2014 Moderately Satisfactory Moderately Satisfactory 117.13

07 17-Dec-2014 Moderately

Unsatisfactory Moderately Unsatisfactory 144.17

08 24-Jun-2015 Moderately

Unsatisfactory Moderately Unsatisfactory 157.09





SECTORS AND THEMES

Sectors

Major Sector/Sector (%)

Water, Sanitation and Waste Management 100

Sanitation 20

Waste Management 5

Water Supply 74

Public Administration - Water, Sanitation and Waste Management

1

Themes

Major Theme/ Theme (Level 2)/ Theme (Level 3) (%)


Page 4 of 77

Public Sector Management 1

Public Administration 1

Administrative and Civil Service Reform 0

Municipal Institution Building 1

Urban and Rural Development 84

Urban Development 84

Urban Infrastructure and Service Delivery 84

Environment and Natural Resource Management 15

Environmental Health and Pollution Management 15

Air quality management 5

Water Pollution 5

Soil Pollution 5

ADM STAFF

Role At Approval At ICR

Regional Vice President: James W. Adams Victoria Kwakwa

Country Director: David R. Dollar Bert Hofman

Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez

Practice Manager: Ede Jorge Ijjasz-Vasquez Abhas Kumar Jha

Task Team Leader(s): Hiroaki Suzuki, Axel E. N. Baeumler

Alessandra Campanaro, Sing Cho

ICR Contributing Author: Geoffrey Spencer


Page 5 of 77

I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES

A. CONTEXT AT APPRAISAL

Context At the beginning of 2008, Shanghai was experiencing very rapid economic and demographic development, expanding

from the core city to the surrounding suburbs. Statistics for 20071 recorded a population of 18.2 million, with

population growth expected to top 24.5 million by 20202. However, actual growth was so rapid, the population had

already reached 23 million by 2010, with virtually all the growth occurring in the city’s suburban districts. As a result,

Shanghai continued to face serious problems due to environmental infrastructure investment that simply could not

keep pace with its growth rate.

In recognizing these challenges, the Shanghai Municipal Government (SMG) remained very committed to deepening

efforts to strengthen the coordinated metropolitan-wide approach for environmental improvements and the

provision of infrastructure, particularly in the suburbs, and to build a more resource efficient and environmentally

sustainable city. In the water sector, the main challenge was to enhance the supply of sufficient raw water of good

quality to meet the rapidly growing demand. In the wastewater sector, there was a priority need to continue to

expand Shanghai’s wastewater collection and treatment systems. (PAD paragraphs 5 and 6 page 2).

Rationale for Bank Involvement. The decision to seek financing from the Bank, amid other financing options

available to Shanghai was motivated primarily by the city’s desire to consolidate and deepen the existing partnership

with the Bank through implementation of priority investments and selective institutional and financial reforms that

were part of the APL program (2003-2017). The program also aimed to develop innovative approaches to address

complex urban management challenges, as well as to introduce new lending approaches in the Bank-China

partnership, which could be replicated in other provinces and cities in China. The Bank was not only able to continue

to bring to bear decades of global experience in the water supply and wastewater sectors, but also the added value

of its rigorous oversight of fiduciary and safeguards measures, quality assurance and the overall APL program

management. The Bank had successfully supported environmental services projects in Shanghai over the last 30

years beginning with the first sanitation type project in China in 19873. (See annex 11 on the overall achievements

of this long-term Bank engagement with Shanghai). Despite the Bank’s very minor financial contributions in the

context of the infrastructure investment programs to Shanghai over many years, the choice of Bank financed

investments were focused on the technically complex aspects of APL3, including the longest onshore water supply

conveyor in the QCS Raw Water Project; large and complex pipe jacking particularly under rivers; huge pumping

stations. Also, for the institutional and technical assistance aspects, the Bank had a comparative advantage in being

able to mobilize global expertise.

1 Out of 18.2 million people, the floating population accounts for 4.7 million (Shanghai Statistical Yearbook 2007). 2 “Shanghai Urban Environment Project – APL3 Report No. 1 – Shanghai Population Projection by 2030” (April 2008) - a report prepared by NJS (Japan) Consultants as input into the APL preparation. 3 Urban wastewater investment (First and Second Shanghai Sewerage Projects SSP1-Ln. 2794-CHA and Cr. 1779-CHA) and Second Shanghai Sewerage Project (SSP2) -Ln. 3987-CHA. The Bank committed to the overall APL program ($580 million) in three phases in 2003, with APL1 (Ln.47050) and APL2 (Ln.48010) were successfully concluded.


Page 6 of 77

Project Contribution to Higher Level Objectives. From the national perspective, the project was aligned with the

Government of China’s (GoC) strategic objectives as set out in the 11th Five Year Plan 2006-2010 (FYP) that aimed

to create a “harmonious society” balancing economic growth with distributional and environmental concerns.

Consistent with the national FYP, the SMG’s own 11th Five-Year Plan 2006 – 2010, outlined a number of initiatives

to improve resource and environmental management, particularly in the areas of land, energy, and water

efficiency, enhanced environmental protection and pollution control/treatment, and accelerated environmental

infrastructure development in suburban areas. Also, SMG’s third Three-Year Environmental Action Plan (2006-

2008) reemphasized the city’s 11th FYP investment priorities and set out an investment framework and program,

which amounted to RMB 40 billion (US$ 5.8 billion), for improvements and enhancements in the water supply,

wastewater and solid waste sectors. From the Bank’s perspective, APL3 directly supported two of the three

themes of the Bank’s 2006-2010 Country Partnership Strategy (CPS), which were: (i) managing resource scarcity

and environmental challenges; and (ii) improving public and market institutions. The project was also consistent

with the Bank’s Urban and Local Government Strategy and with the China Country Water Resources Partnership

Strategy (2013-2020)4.

Theory of Change (Results Chain) The overall APL program objective was “improving environmental conditions in Shanghai by progressive

development and integrated, metropolitan-wide environment management measures”. In this context, the Project

Development Objective (PDO) of ALP3 (Loan Agreement) was “to assist the Borrower’s Shanghai Municipality in

improving its resource and environmental sustainability in the core and suburban areas through strategic priority

investments and selective institutional reforms in the water and wastewater sectors”. For the purposes of this ICR,

this PDO is unpacked into two parts: (1) to improve Shanghai’s (water) resources sustainability through priority

investments and selected institutional reforms in the water sector; and (2) to improve Shanghai’s environmental

sustainability through priority investments and institutional reforms in the wastewater sector. A diagrammatic

representation of the Theory of Change for the APL3 is at Annex 10.

Links between project interventions, outputs, intermediate results and desired outcomes. There were reasonably

strong linkages between planned investment interventions and the institutional strengthening and training (IST)

component activities divided clearly into the water and wastewater sectors. This allowed investment outputs to be

well defined. Intermediate results indicators in each of these sectors where also reasonably clearly defined, as were

the expected final project investment outcomes. The institutional interventions were well designed and aligned with

and supported the PDO. The desired institutional reforms expected in both the water and wastewater sectors were

design and implemented by the respective water and wastewater sectorial agencies as an integral part of sectorial

interventions. There were a number of intermediate results indicators (IRIs) relating to both sectors. . Therefore,

for the water sector the results chain was clearly established, particularly with regard to the desired institutional

outcomes linked to the PDO (1). In the wastewater sector, there was one Project Outcome Indicator (POI) level

indicator “Reduction of water pollution in the Puxi area of the Upper Huangpu River” and an intermediate results

indicator measuring the “amount of wastewater intercepted and conveyed by the Puxi Trunk Sewer” (PTS) are

considered adequate to measure the investment impact in the wastewater sector. This established the required

linkages in the results chain for this sector as well. The District Environmental Management Program (DEMP)

component 3 had two elements. Firstly, to continue the development of the District Financing Vehicle (DFV) and

4 China Country Water Resources Partnership Strategy. Report No. 88320 dated January 1, 2013


Page 7 of 77

build on the APL2 achievements to establish a sustainable approach for financing environmental infrastructure in the

outer suburbs/districts. This DFV objective is consistent with and contributed to the overall PDO with respect to

“resource and environmental sustainability particularly focused on suburb areas. For the second part of the DFV the

objective was to develop and implement environmental improvement projects in suburban areas of Shanghai. (PAD

Page 55). The project was successful in evolving the DFV to a main stream financing vehicle. Also, the DFV funded

investment activities were included in the project on a programmatic basis and therefore intermediate and project

level indicators could not be established at appraisal. However, the outputs and outcomes of the two DEMP

component investments were recorded and both were in the water sector only and both contributed the

achievement of the PDO (1). Therefore, for the DEMP, the causal results chain can reasonably be established. The

two DFV sub component investments are discussed as part of first PDO (1) relating to the water sector.

Critical Assumptions. The achievement of the PDO was dependent on the completion by SMG of the linked projects

(Component 1 – the QCSRWP5, Component 3 – the Upper Huangpu River Raw Water Project (UHRRWP) and for

Component 2, the Bailonggang Southern Trunk Sewer System (BSTSS) and the expansion of the Bailonggang

Wastewater Treatment Plant (BWWTP) 6.

Project Development Objectives (PDOs) The PDO was to assist the Borrower’s Shanghai Municipality in improving its resource and environmental

sustainability in the core and suburban areas through strategic priority investments and selective institutional

reforms in the water and wastewater sectors.

Key Expected Outcomes and Outcome Indicators There were three broad aims for the project as follows: (i) increase the secure provision of good quality (raw) water;

(ii) reduction in the load of untreated sewage pollution discharging into water sources; and (iii) facilitating sustainable

investments in environmental infrastructure in suburban areas.

Based on the broad aims, there were five desired project outcomes as follows:

a. New supply of higher quality raw water to the east/southeastern areas of Shanghai through the completion

of the huge and linked Qing Cao Shaw Raw Water Project (QCSRWP), including the Bank financed Nanhui

Raw Water Conveyor (NRWC). (Component 1)

b. Provision of sewage services to the southeastern areas of Shanghai through the completion of the

Bailonggang Southern Trunk Sewer System (BSTSS), including the linked Bailonggang Wastewater Treatment

Plant (BWWTP) expansion, the Pudong Trunk Sewer and the Bank financed PTS. (Component 2).

5 The NRWC is the eighth of nine components of the Qing Cao Sha Raw project. The nine components are: (i) Qing Cao Sha Reservoir and pumping stations for water abstraction, storage and conveyance; (ii) the raw water conveyor on Changxing Island; (iii) the raw water conveyance tunnel crossing the Yangtze River; (iv) Wuhaogou raw water pumping station; (v) the Yangqiao raw water conveyor and associated pumping station; (vi) the Lingqiao raw water conveyor and associated pumping station; (vii) the Jinhai raw water conveyor and associated pumping station; (viii) the Nanhui raw water conveyor and associated pumping station (funded under this project); and (ix) rehabilitation of the upper Huangpu river raw water system.

6 The other section of the BSTSS is the Pudong Trunk Sewer and construction of this will be completed by SMG. Completion of the construction of this trunk sewer is directly linked to the Bank funded PTS under Component 2 and is covered by a project covenant. Wastewater collected through the Puxi and Pudong Truck Sewers will flow to and be treated at the existing Bailonggang Wastewater Treatment Plant (BWWTP). The capacity of the BWWTP will be increased by 50% from 1.6 to 2.4 million m³/day.


Page 8 of 77

c. Supply of treated water from the completed expansion of Xujing Water Treatment Plant (XWTP) financed by

the Bank. (Commenced under APL2 and financed to completion under APL3).

d. Further high priority suburban environmental services infrastructure investments under the DEMP

(Component 3) prepared, appraisal, approved and funded. (Minghang-Fengxian Raw Water Converyor

(MRWC) project included as part of the Upper Huangpu River Raw Water Project (UHRRWP).

e. Deeper policy and institutional reforms in the water and wastewater sectors.

There were four key outcome indicators as follows:

a. Total volume of quality water supplied by the QCSRWP;

b. Reduction of water pollution in Puxi area of the Upper Huangpu River;

c. Adoption of a management decision by Shanghai Chengtou Corporation (SCC) on the DFV’s strategic

evolution; (Dropped in June 2015); and

Improvement in water sector management in areas supported by the project’s Institutional Strengthening and

Training (IST) component activities. (Replaced in June 2015)

Components Original Components. To deliver the broad aims and desired outcomes, the project had three investment

components and one technical assistance (TA) component as detailed below.

Component 1: Water Supply and Management (US$409.31 million – 72.2% of total project base cost. IBRD loan

of US$137.20 ml or 68% of total loan). This component would finance the NRWC, which is one of the nine

components that make up the QCSRWP. The NRWC has a design capacity of 1.28 million m³/day and will supply raw

water to the rapidly developing south and east metropolitan areas of Shanghai, including the new container port

development and the high-tech industry and logistical complexes around the Pudong International airport (and

Shanghai Expo 2010 site). The civil works to be financed included 48.6 km of large diameter steel pipes, including

37.7 km of Diameter Nominal (DN) 1200mm to DN2000 mm; 3.6 km of DN1800mm; and 7.3 km of DN1600 mm. The

newly constructed NRWC would be connected to a new state-of-the-art monitoring and control system providing

coordinated management of Shanghai’s three raw water systems constructed as part of the QCSRWP with SMG own

funds.

Component 2: Wastewater Component (US$67.84 million – 12% of total project base cost. IBRD loan of US$29.4ml

or 14.7% of total loan). This component would finance the construction of the PTS, which is one of two sections of

the extension of the BSTSS. The PTS is designed to collect about 390,000 m³/day of wastewater in the Xuhui District

and at appraisal, based on feasibility level studies and it was estimated that the component would fund at total of

8.12 km (7.67km of DN3000mm and 0.45km of DN2200mm pipes) and a major pumping station for the Puxi trunk

and connecting sewers.

Component 3: District Environmental Management Program Component (US$86.21 million – 15.2% of total

project base cost. IBRD loan of US$30 ml or 15% of total loan amount). This component consisted of continued

support to the DFV, which is a financing mechanism set up under APL2 dedicated to financing selected environmental

investments in Shanghai sub-urban areas targeting water, wastewater and solid waste investments. This component

was designed as a continuation and extension of the DFV component under APL2, using a programmatic approach

to selecting and including specifically investment sub-projects. Each investment proposal put forward was appraised


Page 9 of 77

by the Bank based on the revised DFV operations manual, incorporating lessons learned under APL2 and including

the latest applicable Bank fiduciary and safeguard policies and best practice. Therefore at the appraisal stage, the

Bank focused its efforts on the revision of the OM and on possible pipeline investment proposals.

Component 4: Institutional Strengthening and Training (US$3.40 million - 0.6% base cost. IBRD loan of US$3.40 or

1.7% of total loan)

This component was to provide strategic IST to the SCC, its subsidiary raw water and wastewater companies, and

the Shanghai Water Authority (SWA). The component had two dimensions: (i) sector wide policy and institutional

issues at government level, and (ii) operational efficiency and institutional development issues at the Chengtou

utility company level in both sectors. Specifically, the IST was to include the following six sub components: (i)

performance bench marking and regulation methods in the water sector; (ii) water demand management; (iii)

security of water supply; (iv) project management of urban infrastructure investments; (v) feasibility study of asset

management system; and (vi) optimization of the operations and management of water and wastewater systems.

The IST component would be delivered through strategic studies, specific trainings, study tours and workshops.

Subcomponents (i)–(iii) were for the water sector and subcomponents (vi) for the wastewater sector.

Subcomponent (iv) and (v) are for both sectors.

B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE)

Revised PDOs and Outcome Targets. There was no revision to the PDO throughout the project. In June 2015 the outcome target for the “total volume of quality water supplied by the QCSRWP” was revised slightly upwards by about +2%, based on operating data compiled from 2010 onwards. No other revisions to targets were recorded.

Revised PDO Indicators. The key outcome indicators (c) and (d) above were revised at the 2015 restructuring, with (c) being dropped because it lacked a clear definition of “management decision” and KPI (d) was dropped because of a lack of clear definition of “improvements in the management of the water sector”. This was replaced by a new KPI– “Inclusion of selected APL3 recommendations in the Shanghai water sector plans”. There were also other significant revisions to the Results Framework (RF). (See details in section IV A below).

Revised Components. For DEMP component 3, the Bank agreed, in March 2012 to drop the proposed Jiading Hazardous Waste Treatment and Disposal Facility investment because of uncertainty of the market for the hazardous waste treatment and disposal and the difficulty of land acquisition required for the buffer zone requirement in EIA. In its place, the Environment Asset Management Company (CEAM) identified the MRWC, which was a much higher investment priority, with higher impact and consistency with PDO (1).

Other Changes

The project was restructured (level 2) once on June 23, 2015 7. The primary purpose of the restructuring, was to

extend the loan closing date by two years to enable the completion of: (a) the PTS sewer crossing under the Huangpu

River and the associated sewers and pump station because of the significant technical problems encountered at the

Huanggpu river crossing. (See section B-Wastewater component 2 and annex 8 below for fuller explanation); (b) to

7 Restructuring Memo and Paper dated June 11,2015 Report N. RES11785.


Page 10 of 77

support the construction of the MRWC and associated investments that had recently been approved for financing by

the DFV; (c) the Nanhui North pumping station that is linked to the Nanhui conveyor; and (d) the expansion of the

XWTP. The satisfactory completion of these facilities was considered essential to achieve the PDO and would also

result in the effective utilization of all loan proceeds. The restructuring was comprehensive and also included: (i) the

dropping of a subcomponent feasibility study of an asset management system under Institutional Strengthening

Component; (iii) the removal of the Results Framework from the legal agreements and redefining it as a stand-alone

document; (iv) the revision of some of the indicators and targets in the Results Framework (RF); (v) the dropping of

two financial covenants from the Project Agreement (PA) associated with cost recovery and debt to service ratio of

water and wastewater utilities; and (vi) changes to the financing plan and the reallocation of loan proceeds as detailed

below.

Change of Financing Plan. The Bank agreed to revise the project Financing Plan to better reflect the modifications to

project activities and the actual project costs to date, including funding for the new MRWC sub-project. The revised

plan also took into account the total project financing needs, because of reduction in costs brought about through

competitive bidding process and optimization of detailed designs.

Reallocation of Loan Proceeds. During implementation there were considerable loan savings due to the competitive

procurement bidding process and optimization of detailed engineering designs compared to the feasibility or

preliminary designs used as the basis for appraisal. To fully utilize all loan proceeds, it was agreed by the Bank as part

of the June 2015 restructuring to increase the disbursement ratio for civil works under investment Components 1 and

2, from 80% to 100%, applied retroactively from August 1, 2012. Under Component 3, revisions to allow the hiring of

consultancy services for the preparation of DFV projects (e.g. technical, economic, financial, environment and social

safeguard), so as to enhance CEAM’s institutional capacity and ensure long-term sustainability of the DFV financing

platform were included.

Institutional arrangements in the water and wastewater sectors. During project implementation the SMG made

significant changes to the institutional arrangements in both the water and wastewater sectors. In the water sector,

it was assumed in the PAD that the Qing Cao Sha Investment Construction and Development Company Limited (QCSC)

would be responsible for the operations of the QCSRWP assets. The financial and operational indicators cited (Table

1 PAD pages 46-47) are unique to this organizational arrangement. However, the actual situation is that QCSC is a

sole-purpose construction company that will dissolve following the full transfer of the QCSRWP assets to Shanghai

Raw Water Company (SRWC), the ultimate owner and operator of all of Shanghai’s raw water assets. The transfer is

in the process and will be completed in 2018. Because the SRWC is not a project company, no operational and financial

data is available. In the wastewater sector, it was assumed in the PAD that the Shanghai Municipal Sewerage Company

(SMSC) would be the owner and operator of all Shanghai’s wastewater assets with its revenue tied closely to the tariff

level and the quantity of wastewater treated. Over the course of the project implementation, Shanghai’s wastewater

sector underwent significant structural reform with the wastewater treatment assets unbundled from the pipeline

assets with SMG assuming responsibility for all wastewater treatment assets, and SMSC retaining responsible

primarily for pipeline services. Thus, SMSC’s revenue is no longer linked either to tariff or to the quantity of

wastewater treated. SMSC receives payment from SMG through a series of annual lump sum contract with an implicit

government guarantee of full cost recovery, including both operating expenses and depreciation. Moreover, along

with the unbundling of the treatment assets from the pipeline services, the government is also taking over all liabilities

associated with the wastewater assets. With guaranteed full cost recovery and no outstanding debt service


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obligations, SMSC is now in a sustainable financial position, and in full compliance with the original financial covenants

associated with the loan. In light of this organizational change of the sector, the two financial covenants were

removed during the loan restructuring. (See Efficiency section below for more information).

Rationale for Changes and Their Implication on the Original Theory of Change. The changes made, including the: (i) extension of the project; (ii) inclusion of the MRWC under component 3; (iii) changes to the financing plan and loan allocations that allowed loan proceeds to be fully utilized; and (iv) changes to the RF making the measurement of project outcomes easier, all contributed to the achievement of the PDO. The parallel sectorial institutional changes also contributed to the financial sustainability of both sectors. Therefore, all changes had a positive impact on the theory of change and the expected or desired results.

II. OUTCOME

A. RELEVANCE OF PDOs

Rating: High At appraisal, the PDO was fully consistent with the Bank’s Country Partnership Strategy (CPS 2006-2011), and during

implementation, it supported the main aims and keys pillars of both the CPS-2006-20118 and CPS 2013-20169. At

completion, the PDO of APL3 (as well as the PDO of the entire APL program) remained highly relevant and supported

the current China CPS (2013-2016) strategic theme 1 - “Supporting greener growth through a continued focus on

enhancing urban environmental services”. This project was very closely aligned with and focused on enhancing urban

environmental services; natural (water) resource management; pollution management (wastewater); and

strengthening financial sustainability mechanisms for the accelerated provision of urban environmental investments.

ALP3 was also highly relevant and contributed to the attainment of the overall APL program objectives as a

continuation of program’s three phased support for both GoC’s and SMG’s 11th and 12th Five Year Plans and the

strategic Shanghai Water Master Plan (2002) and the Shanghai Wastewater Sector Master Plan (2001).

In addition, at closure, the project achievements supported three of the six priority areas framed in the 2013 strategic China 2030 Report that identified the importance of: (i) deepening structural reforms by redefining the role of government, developing the private sector, and deepening reforms in financial markets; (ii) accelerating the pace of innovation; and (iii) seizing the opportunity to “go green” through a mix of market incentives, regulations, public investments, industrial policy, and institutional development and by encouraging green development and increased efficiency of resource use to sustain rapid growth and address China’s manifold environmental challenges.

B. ACHIEVEMENT OF PDOs (EFFICACY)

Assessment of Achievement of Each Objective/Outcome

8 The project supported two of the three CPS 2006-2011 strategy themes: (i) managing resource scarcity and environmental challenges; and (ii) improving public and market institutions.

9 The project supported one of the three main area of engagement of the CPS 2013-2016 of Supporting greener growth, which was aimed at helping China shift to a more sustainable energy path; enhancing urban environmental services; promoting low-carbon urban transport; promoting sustainable agriculture practices; piloting sustainable natural resource management approaches; demonstrating pollution management; and strengthening mechanisms for managing climate change.


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Rating: Substantial

For the purposes of this ICR, the PDO will be unpacked into two parts, one relating to the water sector and the other to

the wastewater sector as follows: (1) improving (water) resource sustainability through strategic priority investments

and selected institutional reforms in the water sector; and (2) improving environmental sustainability through strategic

priority investment and selected institutional reforms in the wastewater sector. Each PDO part is analyzed below.

WATER SECTOR Rating: Substantial PDO Sub-objective (1) Improving the sustainability of water resources through priority investment and Institutional Reforms in the water sector. Component 1: Water Supply Management. The project financed the construction of the NRWC and associated pumping station, which was a major part of the QCSRWP. The main investment for the NRWC was the construction of a total of 89 km of steel pipelines of various diameters ranging from DN2000mm to DN1200mm, the longest onshore conveyor in the QCSRWP. The component was fully completed and operational by October 2012 and resulted in a new asset with a total design capacity of 1.28 million m3/day. As the NWRC was the final part, it contributed to the full completion of QCSRWP. (See Map CHN43328). Project Outcome Indicator #1. -Total volume of quality raw water supplied by QCSRWP. The average daily rate recorded as of June 30, 2017 was 5.18 million m³/day, matching the target. This total system outcome could not have been achieved without the completion of the NWRC. Therefore, the achievement of this POI contributed significantly to the achievement of the PDO (1) of improving Shanghai’s water resources sustainability in terms of delivery of high quality raw water supply that increases the spatial capacity to allow for growth. Outcomes. At project closure, the NRWC was supplying 0.746 million m3/d of raw water to a number of WTPs, exceeding the project end target of 0.580 million m³/d (+28.6%). The NRWC is now serving about 1.57 million people. The now completed QCSRWP network is supplying raw water to Water Treatment Plants (WTPs) designed to provide high quality potable water supply services to about 70 percent of Shanghai’s resident population and for industrial and commercial uses by 2020. Before 2010, more than 70 percent of Shanghai’s raw water supply was from Huangpu River. The completion of the QCSRWP shifts the focus of raw water supply to Yangtze River raw water system, securing both the quality and the quantity of water resources in Shanghai metropolitan area. Raw water diverted from the Yangtze River and transported through the QCSRWP and the NRWC to WTPs consistently exceeds the national parameters defining Class II raw water quality (See Annex 8 table 8.2 for details). Component 3. District Environmental Management Program Both subproject investments funded under were in the water sector and the outcomes from both contributed to the achievement of PDO (1) focused on water resource sustainability and by directly funding targeted and priority investment in suburban areas. Therefore, the investment outcomes and the DFV performance will be analyzed below. Sub-component 1: Minhang-Fengxian Raw Water Conveyor (MRWC)


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As an important part of the Upper Huangpu River Raw Water Project (UHRRWP), the MRWC was fully completed and went into operation in December 2016. The project comprises: (i) 706m of DN3000mm pipes for the Huangpu River crossing feeder conveyor and 2.35 km of DN2600mm pipes for the Minhang branch conveyor; and (ii) 9.2 km of DN3000mm pipes for the Fengxian branch conveyor. All pipelines are lined steel. The conveyor has a total design flow capacity of 2.15 million m³/d, bifurcated with 1.30 M m³/d delivered to the north side of the river by the Huangpu River Crossing Conveyor to supply the Fengxian Conveyor (0.85 M m3/d), delivering raw water to the Chedun WTP (0.2 million m3/d).

Intermediate Results Indicators (IRIs). Because of the programmatic nature of component 3, no IRIs were established at appraisal. However the project Management Information System (MIS) and progress reporting did track useful output and outcome data in qualitative and quantitative terms as follows:

• Volumes of Raw Water Received in Minhang and Fengxian. Volumes of raw water received at the upstream

receiving points of the Minhang and the Fengxian branch conveyor, measured in April 2017 were 619,230 and 353,

667 m³/d respectively (See Annex 8 table 8.3).

• Raw Water Quality Supplied from the Jinze Reservoir. Water supplied from this headworks storage of the UHRRWP

system exceeds the national parameters defining Class II raw water quality. (See Annex 8 table 8.4)

MRWC Outcomes. The entire UHRRWP is fully operational and is currently supplying a total 1.6 million m3/day raw water to the rapidly growing southwestern suburbs of Shanghai. This includes the supply of about 1.2 million m3/day of raw water to the MRWC supplying high quality raw water to the two rapidly growing districts of Minhang and Fengxian. The MRWC has been designed with a capacity to meet future raw water demand of these two districts that will have a planned service population of about 4.15 million by 2030. The evidence collected on the MRWC clearly establishes the casual link between the activity-outputs and outcomes and the contribution to the water sector PDO (1).

Sub-component 2: Xujing WTP Expansion

The total XWTP investment included: (i) all civil, electrical/electronic and mechanical engineering works necessary for the modernization of the existing 40,000m3/d treated water capacity; (ii) the construction of additional WTP capacity of 160,000m3/d, including all necessary civil, mechanical and electrical/electronic engineering; and (iii) construction of sludge treatment facilities to manage the sludge from the expected combined expanded capacity of 200,000m3/d involving primarily civil and mechanical engineering works. The works were fully completed, and put into trail operation since June 2017, and it will be fully operational by June 2018.

Intermediate Results Indicators. Because this sub-project was approved and included in the last year of implementation of APL2 (2014), no specific IRIs were established under AP2 and the APL3 appraisal was completed in 2009. However, the project MIS and project progress reports did track some useful output and outcome data that again establishes a clear, evidence based causal link between the activity-outputs and outcomes and the contribution to the water sector PDO (1).

XWTP Outcomes. The expansion to the XWTP will, by 2020 provide increased security and sustainability of good quality treated water services to a design population of about 510,000 people in the rapidly developing west and southwest


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suburbs of Shanghai. Also the raw water supplied to the XWTP has now been switched to the new QCSRWP, which has resulted in much improved quality and security of raw water to meet the anticipated increases in demand.

Project Outcomes PDO (1) – Direct Contribution to Shanghai’s Water Sector Strategic Objectives. The PDO was centered on the project funding priority level infrastructure investment in the water sector. Both the NRWC and the MWRC were an integral part of the strategically important QCSRWP and the UHRRWP respectively. The completion of these huge new raw water conveyance systems meant that the project achievements directly contributed to SMG’s strategic objective10 of improving the security and sustainability of raw water supplies to meet the future demands in Shanghai. To bring about the SMG’s strategic objective of enhanced flexibility and conjunctive use of raw water from these new systems, it also completed the construction of a pipeline connection between the new QCSRWP and UHRRWP raw water systems to further enhance the desired security and sustainability of raw water supplies. (Map CHN43328). In addition, there is now one central state-of-the-art monitoring and control center ensuring the conjunctive operations of both these two new raw water systems and the third existing raw water supply system to Shanghai. (See IBRD Map 43328). This significant outcome would not have been achieved without the APL3 funded NRWC and the MRWC investments. Component 4. (Part) Institutional Strengthening and Training (IST) in Water Sector. The three highest priority strategic policy and reform areas identified for the water sector were: (i) Performance Bench marking and Economic Methods; (ii) Water Demand Management; and (iii) Security of Water Supply. Given the importance of these three key issues, the Shanghai Water Authority/Shanghai Water Supply Administration (SWA/SWSA), who were responsible for implementation of this part, took a pivotal decision not to carry out three individual studies in isolation, but to combine all three policy and reform issues into one large, strategic comprehensive study called the Shanghai Municipality Water Resource Comprehensive Management and Safeguard Study (WRCMS). This provided an integrated approach for capacity building on a water sector wide basis. Strong ownership of the outputs and outcomes was ensured because the TOR and selection process for the international consulting firm incorporated the needs of SWA and allowed them to lead and control the study. This chosen approach was very efficient and effective and resulted in a high level of impact and provided useful knowledge for Shanghai’s current and future reforms in the water sector. The overall WRCMS comprised the consolidation of three integrated and distinct technical areas as follows: (i) Efficiency and Regulation of the Shanghai water sector; (ii) Water Resources and Demand Management component involving regulations, public education and awareness programs, and demand profile management; (iii) Water Supply Security Risk and Vulnerability Assessment to provide guidance on improvements to emergency situation response involving water quality or quantity shortfalls. To support capacity building in these three areas above, a well-designed and conducted series of associated high level training, seminars and study tours was carried out in order to introduce borrower staff and sector experts to global best practices in a number of strategic water resource/water supply management areas (see table 1). Six batches for a total of 47 officials from SMG participated in the trainings and study tours. To further support the introduction of more international best practice, the international consultants also facilitated one sizable high level international technical seminar attended by 50 middle and senior management staff and technical experts from SMG/SWA and invited international experts.

Table 1. Summary of Water IST Outputs

10 See PAD page 10 paragraph 31


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Three Main IST Water Studies

• Efficiency and Regulation of the Shanghai Water Sector

• Water Resources and Demand Management

• Water Supply Security Risk and Vulnerability Assessment

Supporting Study tours

• Water resource management laws and regulations

• Management models and water supply safeguards

• Raw water and drinking water quality standards supervision and water treatment technology

• Water price composition, water supply companies’ operation model and performance management

• Flood control system and flood risk management

• International best practice in water supply pipe network modeling and the reduction of the leakage rates and non-revenue water in the pipe network

Supporting Trainings

• Water Quality Security and Improvement

• Dam Safety

• Reservoir Regulation and Energy Efficiency Operation

• International experience in environmental infrastructure management: (i) Planning, Connecting & Financing Cities; (ii) Public-Private Partnerships for Urban Water Utilities; (iii) Energy Efficiency for Municipal Water and Wastewater Utilities.

Water Sector IST Outcomes and Impact. The international consultant consolidated outputs from all comprehensive

research, trainings and study tours into three major thematic reports (see above) with comprehensive strategic Action

Plans as part of each report11. (See more details of each comprehensive Action Plan content in annex 8). All reports

contained supporting recommendations for SWA, aimed at further improvements to the efficiency of the Shanghai

water management institutions and particularly the enhancement of capacity to analyze problems and improve decision

making process with respect to water resource management and water supply security. These series of reports and the

recommendations have been selectively incorporated by SMG into two strategic high level documents as follows (i) the

“13th Five-Year" Shanghai Water Supply Specialized Planning, and (ii) the Shanghai Water Resources Management

Regulation Provisions (Draft), which underwent local legislation process and was approved by Shanghai People’s

Committee on November 23, 2017. The new water regulation will be effective starting January 1, 2018. Consistent with

needs and continued reform direction for the water sector in Shanghai, the Water Resources Management Regulation

Provisions incorporated key recommendations from the three study reports and now contains the following provisions:

• Strengthen “multi-source complementary” principle and establish collaborative water resource dispatch mechanism for

water security in Shanghai,

• Strengthening coordination with authorities in other provinces/cities in the same watershed as Shanghai in drinking

water source protection (share information, coordinate actions),

• Set up performance indicators for water supply companies to enhance water leakage control,

11 See Annex 6. International Consultant’s final Summary report is in available in the project files.


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• Further increase public awareness of water savings, promote the use of water saving equipment in schools, enterprises

and institutes.

• SW and Environment Protection Authority in Shanghai should enhance transparency of water quality data and water

environmental protection information to the public.

Throughout the APL program, Shanghai has remained very committed to institutional strengthening of the water sector

with a concentration on policy and demand side management improvements. Beginning in about 2009, Shanghai was

one of earliest Chinese cities to implement the pilots of “Most Strict Water Management”. Greater attention to demand-

side management, through promotion and education of water saving activities, replacement of old and installation of

new water saving and economic measure has been very effective. Official data published by SMG shows that over the

period 2009-2016 there has been: (i) a reduction of daily average per capita household consumption from 139 to 118

litres/day (-13%) or a saving of an estimated 76,000m³/annum of water for household consumption; water productivity

for industrial water, as measured by the volume of water consumed/RMB of GDP has increased from 75 to

28m³/RMB10k (+63%). Some of the APL3 water sector IST activities under thematic study area (ii) Water Resources and

Demand Management provided a good opportunity for SMG to conduct comprehensive research based on the

experiences and data gathered since 2009 in order to provide solid evidence and lessons learned to push forward with

deeper water policy reforms that are relevant to Shanghai in the future.

Project Outcome Indicator #3 –Water Sector. The PDO indicator 3, “inclusion of selected APL3 recommendations in the

Shanghai Water Sector Plans” has been fully achieved and in turn contributed significantly to the achievement PDO (1)

relating to institutional reform in the water sector.

WASTEWATER SECTOR Rating: Substantial

PDO Sub-Objective (2) Improving the environmental sustainability through priority investments and institution Reforms in the Wastewater Sector. Component 2: Wastewater Management Outputs. The project financed the construction of the PTS, including a major in-line pumping station and major river crossing. The average design flow of the PTS was 390,000 m3/d. Actual construction totaled 8.10 km of DN2700mm trunk and connecting sewers, completed in three phases as follows: Phase 1 -pipe jacking of 4.390 km of DN2700 mm pipes; Phase 2 - pipe jacking of a total of 3.71km of DN2700mm (1.087km for Huangpu River crossing sewer and 2.575km for the connecting sewer to the link project of the Pudong Trunk Sewer), including three large jacking wells and four receiving wells. Phase 3 - Construction of a major in-line pumping station of 7.96 m³/second capacity with a total of eight large electric motors and centrifugal pumps, pre-screening station for rubbish removal up steam of the pumping station, all necessary to deliver the 390,000m³/day design capacity. All construction was completed by March 2017. However, starting in late 2013, significant technical problems arose when the jacked pipeline under the Huangpu River encountered extensive pile foundation from the old Lixin Shipyard in Pudong area. Further delays occurred in July 2014 caused by flooding problems. The Huangpu River crossing was successfully completed on October 23, 2016. Progressive PTS trials commenced on March 29, 2017, which marked the point of connection and successful operation of the PTS section of the BSTSS.


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The two linked projects: (i) the Pudong Trunk Sewer, which is also an integral part of the BSTSS was completed and fully

operational by December 2014 and (ii) the expansion of the capacity of the BWWTP by 50% (1.6 to 2.4 million m³/day)

has been completed and in fact, recorded a peak treatment capacity of 2.8 million m³/day 2017. The completion of

both these linked projects meant that the PTS could function as designed and for the desired outcome to be achieved.

Intermediate Results Indicators.

• Total population served through the Puxi TS section of the BSTSS is about is 1,810,100. (IRI was dropped but population

data was collected and is useful).

• Volume of wastewater intercepted and conveyed by the PTS section to the BWWTP (m³/day). Target 195,000 m³/day.

At project closure the actual measured capacity of the PTS was 200,000 m³/day, a +102.6% level of achievement.

Project Outcome Indicator #2. Annual reduction of water pollution in the Puxi area of the upper Huangpu River (COD

tonnes/year)12. The average annual COD reduction target was 464,000 tonnes/annum, (14,000 t/ann net increase

above baseline). At project closure, the actual measured performance was a reduction of 464,430 t/ann (net

14,430t/ann), or a 103% level of achievement.

The successful completion of the PTS and the two linked projects means that the BSTSS is fully functional and impacting

positively on Shanghai’s efforts to reduce and control pollution in the Yangtze and Huangpu Rivers. Therefore, the

achievement of this POI contributes significantly to the achievement of the PDO (2) of improving Shanghai’s

environmental sustainability through priority investments.

Project Outcomes PDO (2) Direct Contribution to Shanghai’s Wastewater Sector Strategic Objectives. Again, the PDO was centered on the project funding priority level infrastructure investments in the wastewater sector. By funding the construction of the PTS as an integral part of the BSTSS and linked to the expansion of the BWWTP13, the project contributed to the achievement of one of SMG’s strategic outcomes for the wastewater sector, which is to continue to expand its wastewater collection and treatment systems. Component 4 (Part): IST in the Wastewater Sector It is important to put the IST activities in the wastewater sector into proper perspective. Running in parallel, but not funded as part of the project, SMG undertook a major reorganization of the wastewater sector primarily to unbundle sewage collection and transportation, including sewers and pumping station assets from all Wastewater Treatment Plants (WWTP) and sludge treatment facility assets. As a result of the reorganization, Shanghai Municipal Sewerage Company (SMSC) now has only one primary core responsibility focused on the provision of wastewater services to its very large customer base. It achieves this through the management, operations and maintenance (MOM) of Shanghai’s vast reticulation, collection, pumping stations and trunk sewer networks that collects and delivers wastewater to the WWTPs. The SMG has assumed the equity ownership, and MOM responsibilities for the WWTP asset group. The Bank was not consulted and therefore, did not expect such drastic changes to SMSC’s role and responsibilities. The

12 The calculation of COD load is based on a scientific formula involving the variables of (i) flow rate (m3/day), and (ii) COD loading of raw sewage in the BSTSS (mg/Lit). 13 See PAD page 28 paragraph 23.


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changes were driven by the agenda of SMG and essentially resulted in a changed business model with SMSC no longer operating as an enterprise, but as an entity under Chinese definitions. The changes in the wastewater sector are consistent with most other urban services providers in Shanghai. The logic for the changes by SMG was to ensure improved wastewater service delivery in Shanghai by effectively allocating resources to ensure that service delivery keeps pace with rapid urban growth. The SMG is managing the largest metropolitan area in China and it on track to transition Shanghai to a world class metropolitan region. Because growth is very rapid, these changes will allow SMG to better control and develop programs to expand the urban service delivery to keep the pace with the growth. The Bank is of the opinion that the changes by SMG are consistent with the main thrust of the overall APL program, which is to improve the quality and efficiency of urban services delivery in Shanghai. (See also annex 7). Consistent with its new role and to build on the IST efforts under APL1 and 2 in the wastewater sector, APL3 included

three priority strategic studies/activities designed to build the medium to long term institutional capacity of the SMSC

to better manage wastewater services in Shanghai in more efficient and financially sustainable ways. The three priority

IST activities in this sector were identified as: (i) Project Management of Urban Infrastructure; (ii) Feasibility Study of

Asset Management System; and (iii) Optimization of Operations and Management of wastewater systems. In addition,

the need to build the implementation capacity and skills of SMSC for the proper implementation of the project were

also identified in important areas like procurement, financial and safeguard management, and M&E and reporting.

Outputs. Activity (i) was completed to the satisfaction of the Bank and is being utilized by SMSC to strengthen its institutional planning and management of its existing and future infrastructure needs. Activity (ii) was cancelled at the restructuring in June 2015, because it became clear that other subsidiaries of SMI had recognized the importance of establishing an asset management system and had conducted similar research and development and application of a suitable asset management system. Therefore, this asset management activity has been completed and fully operationalized by SMSC. This has exceeded the desired project outcome, which was just a feasibility study level study and pilot introduction of an asset management system. The mainstreaming of an SMSC wide asset management system has in fact resulted in enhanced institutional capability to manage, operate, maintain and replace its huge asset base. For study activity (iii), the Bank approved the terms of reference (TOR) during the project, but because of the delays in completing the PTS, the whole BSTSS operation was delayed. The study is focused on the BSTSS and therefore could not commenced until near the end of the project. Now that the BSTSS is fully functional, the study on “Optimization of Operation and Management” of this large and complex wastewater collection system has now commenced under the already approved TOR. The borrower is fully committed to the study and using their own domestic funds to complete it. The final comprehensive study report is expected no later than September 2018 and will be shared with the Bank for its records and comments as necessarily. Other similar studies on major trunk sewer systems in Shanghai, such as the Western Trunk Sewer System (APL2), have been carried out by SMSC recently and so the completion of this study as promised is highly likely. The study is very relevant to SMSC’s new role and responsibilities for all sewerage system MOM. (See Efficiency Section for more Details). In addition to the strategic level studies as listed above, at the operational level SMSC, who was responsible for

implementing component 2, also carried out other IST activities as an integral part of project implementation, including

overseas study tours and numerous domestic training sessions on procurement management, contract management,

technical issues and MOM.

Overall IST Component Intermediate Results Indicators. The PAD RF identified three IRIs that were combined for all

activities in both water and wastewater sectors. Restructuring (June 2015) reduced these IRIs to one. However, the


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MIS and project process reporting system continued to track all three and useful data is provided. Unfortunately, a

split between sectors was requested, but could not be done easily:

• Number of participants trained in formal training sessions, seminars, study tours and technical workshops. A

total of 1170 against a target of 1204 (97.2% achievement). There are an additional 46 staff who will undergo

training associated with the delayed SMSC strategic study (iii) Optimization of Operation and Management as

detailed in the IST wastewater output section immediately above. This training will be done as part of the study

at the borrower’s own cost.

• Number of studies completed. (Dropped). A total of 5 studies were completed against a target of 6 (83%

achievement). Of these, three were in the water sector (all Bank funded) and 2 in the wastewater sector (one

Bank and one client funded). One remaining in the wastewater sector is highly likely to be completed by SMSC.

• Number of study tours conducted. (Dropped). A total of 12 study tours were conducted, but no appraisal

target was set. (See PAD page 45)

Overall Achievements of Shanghai APL Although no specific indicators are associated with the overall achievement of the whole APL series, the whole program consistently contributed to the objective of “improving environmental conditions in Shanghai by progressive development and implementation of integrated, metropolitan-wide environmental management measures” (the “vision” of the whole program indicated in APL1 PAD), by supporting SMG in prioritized investments in water, wastewater, solid waste and related institutional strengthening. Overall, during the APL series, urban services capacity has been gradually expanded, from the core city to suburb districts, to meet the needs of fast growing population (see the table below for main outputs of the program).

Table 2. Summary of APL Activities and Outputs

Key Activities Key Outputs

Water Management (US$578ml, or 38.9% of total base costs)

APL1 Invested 2 WWTPs & related sewer networks to improve Upper Huangpu environment

• Adding 50,000 m3/d treatment capacity (Xinjiang WWTP

• Adding 14,000 m3/d secondary treatment capacity (Fengjing WWTP)

APL2 Expanded water service to provide quality water to suburbs

• On average 284,000 m3/day of water supplied to Qingpu District through supply system funded under the project

APL3 Constructed NRWC (as integral part of QCSRWP) Under DFV - MRWC (as integral part of UPRRWP) and expansion of Xujing WTP

• 0.746M m3/day raw water supplied through NRWC (in total 5.18M m3/day quality raw water supplied through QCSRWP).

• 1.2M m3/day raw water supplied through MRWC (in total 1.6M m3/day supplied through UHRRWP)

• Additional 160,000m3/day water treatment capacity and 200,000m3/day sludge treatment capacity at Xujing WTP.

• Quality of raw water supplied exceeded targeted Class II Chinese national standards.

Wastewater Management (US$831ml, or 55.8% of

APL1 Improved trunk sewer system and 2 wastewater collection systems; Construction of new wastewater treatment facilities

• Solved wastewater disposal in a service area of 172 km2 with a flow of 1.1M m3/d.

• Wastewater collection for additional service area of 133km2 with a flow of 0.8M m3/d.

• 0.5M m3/d secondary treatment capacity (Zhuyuan WWTP).


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total base costs)

APL2 Renewal of Western Trunk Sewer; construction of 2 sludge treatment plants Under DFV – a WWTP, 2 WW collection system, (part of) Xujing WTP expansion

• Adding 3 pumping stations (total capacity of 11.56 m3/sec).

• Bailonggang STP with a capacity of 204 t/d; Zhuyuan STP with a capacity of 150t/d.

• Adding 25,000m3/d WW treatment capacity (Chongming Chengqiao WWTP)

• 18,000 m3/d capacity in Qingpu Huaxin WW collection system

• 17,000 m3/d capacity in Qingpu Baihe WW collection system

APL3 Construction of Puxi Trunk Sewer, including trunk sewers, river crossing and pumping station

• Wastewater intercepted and conveyored by Puxi TS is 200,000m3/d (102% of target)

• Annual reduction of water pollution in Puxi area of the Upper Huangpu River (COD t/year) reached 464,000 (103% of target)

Solid Waste Management (US$69ml, or 4.6% of total base cost)

APL1 Expansion of an existing sanitary landfill; Piloted a food waste charging system and improved the waste collection system

• Expanded Laogang landfill’s capacity to 8,900 t/d with a useful life of 15 years after loan closing;

• 11 safe and hygienic vehicles in place to collect food waste.

• Containerized transportation of solid waste in core city increased from 24% to 100%;

• A comprehensive MIS for waste sector in place.

APL2 Under DFV- a solid waste landfill • Chongming Landfill with design capacity of 2.67M m3 with a useful life of 15 years.

IST (US$9.6ml, or 0.65% of total base cost)

APL1 Prepared Upper Huangpu Catchment Management Plan; Upgraded solid waste plan; Preparation of DFV; Prepared 1st municipal bond in urban environment in China.

• The catchment plan formed basis for the important UHRRWP.

• Solid Waste Master Plan upgraded.

• DFV's design and framework in place.

• SWAOD14 raised RMB1.5 billion (US$180 million at that time) in 2005 through bond issuance.

APL2 Online modeling & simulation for water supply (own funds); Prepared a solid waste composition study; Capacity building of DFV and district government staff.

• Enhanced water management, O&M, and delivery by SMWC15;

• The solid waste study was used by SMG for preparing the demand management strategy;

• Enhanced capacity of DFV and districts in appraising projects

• (Other) Introduced best practice sludge treatment technology and PPP practice (e.g. innovative DBO for Zhuyuan STP).

APL3 Prepared water management and security studies; project management of urban infrastructure; trainings of best practice water /wastewater management and infra finance.

• Recommendations of the water studies were incorporated in two high level water sector plans/regulation;

• Enhanced capacity of senior and operational level staff in water and wastewater sector in Shanghai.

Note: The amount in the first column are the project base costs (by sector) in the whole APL program.

The key investment highlights under the program have focused on water and wastewater sectors (38.9% and 55.8%

respectively of total project base costs of the entire program). In the water sector, Shanghai has two important raw

water programs put in place, namely the QCSRWP and the UHRRWP as the foundation to ensure the volume and quality

of the water supply in the Shanghai metropolitan area. The underpinnings and enabling conditions put in place during

APL1 (including the Huangpu catchment management plan and the expanded water services to suburbs area)

contributed to later implementation of these two key programs. APL3 further supported the prioritized investments

14 Shanghai Water Assets Operations and Development Co. (SWAOD), a subsidiary of Shanghai Chengtou. 15 Shanghai Municipal Water Supply South Company.


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such as NRWC and MRWC. In the wastewater sector, Shanghai has built up substantial treatment capacity to ensure

improved urban environment sustainability. Highlights include the introduction of state-of-art sludge treatment

technology (e.g. Zhuyuan STP) and the innovative PPP arrangements during APL2.

The whole APL program also focused on improving the city’s capacity in financing urban infrastructure. Besides supporting the preparation of the first municipal bonds in urban environment in China (under APL1), an important achievement of the whole program is the development and implementation of DFV as a pilot model to finance urban infrastructure in the suburb metropolitan districts.

The DFV as the core of the DEMP component had two objectives, firstly to develop and implement environmental infrastructure improvement sub-projects and secondly, to establish a financially sustainable model for main stream funding of environmental infrastructure in suburban areas. The continuation of the DFV funded sub-projects was effective in furthering efforts by SMG to improve suburban environmental management by offering assistance to its less affluent suburban districts. The success of the DFV pilot certainly contributed to the overall PDO. More importantly, it led to a new project with substantial scaling up in the suburban infrastructure financing. The new project and its innovative financing mechanisms will in effect reduce one of the risks to development outcomes identified in the APL2 ICR of guaranteeing sufficient funds for infrastructure financing, particularly for the suburban districts. Background and Context of DFV. The DFV was introduced as a pilot component under of APL2 to support environmental

infrastructure investments (mainly in water, wastewater and solid waste sectors) in the suburban districts of Shanghai.

The DFV was also intended to provide services comparable with Bank practices to smaller investment projects in district

governments in suburban Shanghai that the Bank and the SMG could not support directly. This continued under APL3,

but with a more flexible programmatic approach to sub project assessment and inclusion. The DFV faced several issues

during the course of APL2 and 3 implementation (See ALP2 ICR). One issue was the ability to identify eligible sub-

projects. Originally, the DFV was meant for “small projects” (> $10 million), but in fast-growing suburban areas of

Shanghai, it was difficult to attract such small projects and in the end, the two DFV-financed projects under APL3 were

much bigger than anticipated. The DFV was a pilot financing facility with consideration to lift a market that needed for

private leverage. The expectations were that if it was successful, it would form the basis of a new full scale facility, and

become a focal point for mobilizing financial, technical, and managerial expertise for suburban environment

improvement projects.

Evolution from Pilot to Proper Financing Mechanism. A key outcome achieved under APL3 was the decision to transform the DFV into a broader financial vehicle/fund, moving from the pilot phase under APL3 to a proper infrastructure financing mechanism. As a direct result, a new Bank funded project entitled Shanghai New Urbanization Financing and Innovation Project (P158124) is under preparation (Board FY19) with the objective of providing sustainable long-term financing to green infrastructure in selected small towns in the Shanghai metropolitan area and the Yangtze River delta region. At the core of this new project will be the establishment of a Green Urban Infrastructure Financing Facility (GUIFF) with a planned registered capital of RMB 2 billion (US$300 million), 55% of which will come from Shanghai Chengtou and 45% from the China Development Bank (CDB) Capital. With a greatly expanded capital base, a modified corporate and fund setup and management structure, and a more enabling regulatory environment, the GUIFF will extend DFV’s lifespan and bring it to the forefront of infrastructure financing development in China, overcoming barriers faced by DFV under the APL series. See annex 7 for details.

The IRI specifically for DFV funded sub-project(s) was the leverage ratio of DFV financing. The target was a ratio of 4 and the achievement was measured at 5.3 or (+132.5%) for the MRWC. Annex 7 has more details on: (i) the ownership


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and management structure and its evolution; (ii) the DFV project cycle; (iii) leveraging of public and private capital for DFV sub-project investments; (iv) contractual arrangements for DFV funded projects; and (v) next steps in the evolution of the DFV.

The success of the DFV pilot is a very important outcome. It not only contributed to the achievement of ALP3 PDO and the overall APL program objective but more importantly, the successful piloting of the DFV has resulted in the new project and a big scaling up in the financing of suburban infrastructure in greater Shanghai and elsewhere in China. The successful outcome will also serve to influence other Bank support projects globally. The new Shanghai based project and its innovative financing mechanisms will in effect reduce one of the risks to development outcomes identified in the APL2 ICR of guaranteeing sufficient funds for infrastructure financing, particularly for the suburban districts.

Justification of Overall Efficacy Rating

Rating: Substantial

The rating is based on the fact that the project fully achieved most of its objectives and intended outcomes or is likely to do so. The efficacy of the water sector investments was high and the institutional reforms is substantial. In the wastewater sector the investments were fully achieved (high), while the institutional reforms were assessed as modest.

C. EFFICIENCY

Rating: Substantial

Water sector.

In this sector, the project fully implemented all proposed activities and achieved or exceeded all IRI and POI targets and

outcomes, including the number of target beneficiaries. The biggest single investment, the NRWC (Component 1) was

completed for US$325.65 million, US$83.66 million (-20.4%) less than the appraisal estimate of US$409.31 million. (See

annex 3). It was completed in October 2012, two months ahead of the original implementation schedule. (PAD page

72). Both DFV funded sub-projects, including the completion of the XWTP expansion and the MRWC were completed

within the total (revised) resource allocation of the DFV (Component 4). However, both these investments required an

extension of the closing date to allow completion.

At appraisal, a cost-benefit analysis was carried out for the QCSRWP as a whole. This was appropriate because the

economic benefit of the Bank-financed NRWC could not be realized without the completed linked investments in the

QCSRWP. A comprehensive economic internal rate of return (EIRR) analysis was done at appraisal (PAD Annex 11),

based on three Willingness to Pay (W2P) scenarios using the water tariffs in Shanghai and the much higher Beijing water

tariff as a benchmark. Beijing was chosen as a reliable benchmark for W2P due to: (i) income levels in both cities are

comparable; and (ii) the price of water in Beijing, for which consumers were willing to pay, provided the price point that

made the Shanghai investment economically viable. With the W2P at this Beijing level, QCSRWP was estimated to yield

an EIRR of 16.2% at appraisal. The other two scenarios using W2P figures of 2 and 2.4 times existing Shanghai tariffs

yielded EIRRs of 5.5% and 10.8% respectively. At project closure, applying the same three scenarios, the EIRRS were

respectively 24%, 31% based on the Shanghai W2P tariffs of 2 and 2.4 times and 22% if the Beijing W2P tariff was used,

as shown in the table below.


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Table 3. Economic analysis of the water supply component

At appraisal At completion

W2P 2.0x current tariff


W2P Beijing tariff



W2P Beijing tariff

EIRR (%) 5.5% 10.8% 16.2% 24% 31% 22%

Assumed W2P (RMB/m3) - Domestic - Commercial - Industrial - Other

2.06 2.8 2.6 3.0

2.47 3.36 3.12 3.6

2.8 4.0 4.1 4.0

4.0 5.8 5.8 20.0

4.8 7.0 7.0 24.0

3.8 6.5 6.5 157.0

Financial Sustainability of the Water Sector. At appraisal, the raw tariff was about RMB 1.0/m3 (tariff portion of RMB

0.37/m3 and a subsidy portion of RMB 0.63/m3). Consequently, the QSCRWP had a financial internal rate of return

(FIRR) of 6.4%. At project closure, the actual project costs stood on par with the appraisal-stage estimates, thus the

required revenue per unit of raw water supplied from QCSRWP remains the same at around RMB 1.0/m3.

In January 2014, in an endeavor to reduce this high level of subsidy, SMG raised both the wholesale raw water resource

charge to SRWC from RMB 0.021/ton to RMB 0.10/ton (+376%), and the corresponding raw water tariff that SRWC

charges the water supply companies from RMB 0.331/m3 to RMB 0.63/m3(+90%). The result was a significant decrease

in SMG provided subsidies and now SRWC’s full cost of service, estimated at about RMB 0.73/m3 is subsided only by

about 13%. Historically, to ensure the security of Shanghai’s raw water supply, SMG had consistently maintained the

SRWC as a profit-earning entity. The ordered transfer of large QCSRWP assets and MOM costs, has meant that initially,

SRWC experienced an operating loss in 2015-16 in the range of RMB 150-169 million. However, in order to move SRWC

towards financial sustainability, SMG is expected to bring the SRWC back to profitability by the closure of the fully asset

transfer by the end of 2018 when the transfer of all the QCSCRWP assets is completed. Profitability would be

accomplished through a combination of the following: (i) operating subsidies; (ii) tariff increases; and (iii) equity infusion

through taking-on a portion of SRWC’s long-term debt service obligations.

Wastewater Sector.

There was only one major investment in the sector, the PTS (Component 2). This was completed and achieved all the

IRI targets and the POI outcomes. However, implementation was delayed, which in turn delayed the benefits provided

from the whole BSTSS. Again, because the benefits of the PTS could only be realized once the whole BSTSS was

completed, at appraisal a financial analysis was carried out for the BSTSS, based on the primary assumption that

domestic wastewater tariffs would increase from RMB 0.9/m3 to RMB 1.2/m3 (+33%) during 2009. The increase was to

be followed by further tariff increases for all wastewater categories (domestic and Industrial) by +30% in 2012 and

+20% in 2015. Based on these assumptions, the BSTSS investment yielded an FIRR of 7.0% at appraisal. The FIRR was

recalculated at project closure, using the actual tariff increases, which in fact happened slightly faster than assumed at

appraisal. Taking into account the effect of the delays at completion, the BSTSS component yielded an FIRR of 6.8%,

which is on par with the appraisal-stage stage estimate.


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Financial Sustainability in the Wastewater Sector. In order to move towards financial sustainability, Shanghai’s

wastewater sector has undergone significant organizational restructuring primarily to unbundle sewage collection and

transportation, including sewers and pumping station assets from all WWTP and sludge treatment facility assets. The

SMG has assumed the ownership and MOM responsibilities for the WWTP asset group. The SMSC, now has as only

one primary core responsibility focused the provision of wastewater services to its customer base. It achieves this

through the MOM of Shanghai’s vast reticulation, collection, pumping stations and trunk sewer networks that delivers

collects and deliver wastewater to the WWTPs.

As a result of the restructuring, SMSC’s revenue base is no longer linked to the quantity of wastewater treated. Instead,

revenue is now based on a number of annual lump sum contract(s) with SMG, based on the SMSC’s asset management

and MOM costs associated with each trunk sewer system. This arrangement guarantees the full recovery of SMSC’s

cost of services, including both MOM and depreciation costs. In addition, and as part of the sector restructuring, SMG

is taking over all outstanding liabilities associated with SMSC assets and converting debt to equity. Therefore, the SMSC

is operating debt free and with the contractual arrangements with SMG guarantying full cost recovery. In other words,

is now operating in a financially sustainable manner. The original financial covenants, (dropped at the June 2015

restructuring) were included to encourage SMG to reach this situation, primarily through tariff increases. SMG took a

different approach, utilizing the sector institutional and financial reorganization to reach the same end, that of the

financial sustainability of SMSC.

This role change is mainly driven by the agenda of SMG. China is a rather unique case where the system of ensuring

financial sustainability does not rely so heavily on tariffs but more on regular revenue transfers16. Given all the public

utilities enterprises (SOEs) in Shanghai are mostly controlled by SMG (except power supply), SMG can effectively

allocate their resource to ensure the urban service delivery to cater for the rapid urban growth, from major city in China

to metropolitan in the world. The concept is that the government needs synergy between the public utilities enterprises

(SOEs) to expand the urban service delivery in order to keep pace with rapid urban growth. As urban environment is

definitely the key aspect of Shanghai’s path to achieve a global city status, Shanghai will continue to allocate adequate

resources to ensure the sustainability of the urban environment sector.

Justification for rating. The rating of Substantial is given based on the fact that the EIRR for the water sector and the

FIRR for the wastewater sector at project closure were on par with the appraisal estimates and is what would

reasonably be expected in each sector.

D. JUSTIFICATION OF OVERALL OUTCOME RATING

Rating: Moderately Satisfactory The Relevance of the PDO was high at appraisal and throughout implementation. The Efficacy in achieving the PDO was substantial as was the Efficiency. However, there were two short-comings namely: (i) the late mid-term review (MTR) and restructuring and extension of the project (See Factors within control of the Bank, Section III, B (iv) below for full explanation); and (ii) the original RF design required corrective action late in implementation of the project. Therefore, the overall project outcome is rated moderately satisfactory.

16 In fact, most of utilities in Asia (include South Asia) heavily rely on subsidy of the wastewater services as willingness to pay is low given the pressure on CAPEX to expand the service in order to keep pace with rapid urbanization. IEG’s evaluation on the Bank’s support in water and sanitation in FY07-16 also showed that most Asian countries struggle with cost recovery if only relying on tariff.


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E. OTHER OUTCOMES AND IMPACTS (IF ANY)

Gender. The project did not specifically focus on gender. However, improved reliability, security and quality of raw water supplies (Nanhui and Minfeng conveyors) to WTPs and the treated water from wastewater investments, will result in the provision of better quality water supply and wastewater services at household level. This will positively impact on the quality of life of connected households in terms of cooking preparation, bathing, toilet facilities, laundry, home garden etc. Traditionally those who benefit most from such improvements are housewives, mothers and children. To this end, the core POI level indicator added to the RF in June 2015 tracked and measured direct project beneficiaries, including the percentage of females benefitting for project interventions. Of the 6,710,100 beneficiaries of the project, it is estimated that 3,287,900(49%) are women.

Institutional Strengthening. In the water sector, the IST higher level studies and associated activities lead by SWA, resulted in real reforms in the sector. (See details in section above on water sector IST). In the wastewater sector, parallel with the project, SMG undertook a major institutional and financial restructuring that separated collection and transportation from treatment of wastewater. One of the significant outcomes of this reorganization was the financial sustainability of the SMSC. (See Efficiency Section)

Mobilizing Private Sector Financing. The tapping of private financing was a key factor in the provision of counterpart funding for the investment components of the project, particularly the leveraging of a large amount of private finance by the relatively small amount of Bank funds for DEMP sub-projects. Also, the considerable amount of funds for the financing of all the linked projects (QSCRWP, UHRRWP, Pudong Trunk Sewer and the expansion of the BWWTP) had to be mobilized as a combination of SMG capital funds and private sector borrowings. (See annexes 3 and 7).

Poverty Reduction and Shared Prosperity. While the project did not have a direct poverty focus, it directly contributed to SMG’s efforts to provide and/or improve both water and wastewater services in metropolitan Shanghai, particularly the rapidly growing outer suburbs where the poorer people of Shanghai live. As an example of this, the expansion of the Xujing WTP from 40,000 to 200,000 m³/day will benefit about 200,000 people in the rapidly growing suburban Qingpu district where a large transient population resides.

Other Unintended Outcomes and Impacts. The technically complex problems encountered with the PTS and the subsequent long delays in finding a solution at the Huangpu River crossing resulted in increased costs and delayed benefits of the investment under project component 2.

III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME

A. KEY FACTORS DURING PREPARATION

PDOs. The PDOs were realistic and clear and consistent with APL program’s overall objectives (PAD page 42

Annex 3). The objectives set were ambitious, but achievable and very much aligned with the borrower’s strategic

objectives in the water and waste water sectors. (PAD pages 5 and 6).

Design. The ALP3 project design was not complex in that it included only four major high priority infrastructure

investments in the water supply and wastewater sectors (components 1 and 2 and the DFV investments under

component 3). The component design was consistent with the two parts of the unpacked PDO (See Efficacy


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Section). The institutional reforms in both sectors would have benefitted from more meaningful indicators.

Well-designed Results Framework (RF). There were some shortcomings in the design of the RF which, for some

components did not effectively link the PDO to key performance indicators and with intermediate outcome

indicators. These shortcomings were recognized and action was taken by the Bank team as part of the project

reconstructing. (June 11, 2015.) This improved the RF and made it more aligned with the development objectives

of the project. The baseline targets were appropriate, well thought through and realistic for the investment

components. Of the four revised POIs, two focused on measuring the outcomes of the two main investment

components 1 and 2. The other two original indicators relating to the DFV and water sector reforms were

dropped at the June 2015, because they both lacked clear definition and where difficult to measure. A new

indictor that better reflected project outcomes and impact of broad water sector institutional reforms resulting

from interventions under the IST component was added as follows: Inclusion of selected APL3 recommendations

in the Shanghai water sector plans. Also at POI level, a new core Bank standard monitoring indicator was added

that tracked and measured Direct project beneficiaries, including the percentage of females benefitting.

However, one shortcoming that was never corrected was the lack of a POI for the wastewater sector under the

IST component. This was an important omission because of the need to measure the impact of the IST activities

on institution reforms that was a firm part of PDO (2) relating to the wastewater sector. With respect to the

DEMP/DFV component 3, a new more relevant IRI that tracked and measured the Leverage ratio of DFV financing

was added and replaced the other original three IRIs. This new indictor better reflected the project’s outcomes

in leveraging financing of different sources for environmental project investment, which was the primary

objective of the DFV.

Appropriate plan for monitoring. The same collection and consolidation of project information and data

arrangements that were in place during the implementation of APL1 and 2 remained. The Project Management

Office (PMO) and each Project Implementation Unit (PIU) provided information and data on their respective

components and this was consolidated by the PMO, who issued biannual progress reports, always including the

updated RF data that provided evidence of progress towards the achievement of the desired project outcomes.

Appropriate selection of stakeholders to engage or beneficiary groups to target. At appraisal the benefitting

groups were the households that would ultimately benefit from more secure and high quality water and

wastewater services. However, at the June 2015 restructuring a new core POI level indicator was added that

tracked and measured: Direct project beneficiaries, including the percentage of females benefitting.

Adequacy of risk assessment and mitigation measures identification. The overall risk rating at appraisal was

appropriately assessed as substantial, even given the Bank’s the long engagement with SMG. Of the four risks

identified, (PAD, pages 10 and 11), all were rated substantial with three related to the financial sustainability of

the water and wastewater sectors and the further development and advancement of the DFV as a financial

instrument. The fourth was the risk to the further implementation of sector institutional reforms. Appropriate

mitigation measures were included within the project to address most risks including the financial and

institutional risk areas. Mitigating action to reduce the risks associated with financial sustainability was taken by

the SMG in the reorganization of institutional and financial responsibilities in both the water and wastewater

sectors. (See Efficiency Section). In addition, the Bank proactivity assisted SMG with the financial sustainability

as part of the DFV evolution issues. With respect to the institutional reforms, the water supply sector risks did

not eventuate, but the wastewater sector reforms as envisaged lagged behind those in the water supply sector.

During project implementation, a major unforeseeable technical risk emerged centered on the Huangpu River

crossing for the new PTS.


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Readiness for implementation. This was the third phase of the on-going APL program intervention in Shanghai.

The APL3 triggers contributed to and defined the foundation and the enabling environmental for readiness. The

PAD was also reasonably well prepared and the SMG, PLG, PMO and PIUs implementation management

arrangements existing and functioning during APL2 transitioned to APL3, with little or no loss of momentum.

Adequacy of Government Commitment. Both the GoC and SMG remained fully committed to the overall

objectives and goals of the APL program. For implementation of APL3, SMG committed to maintaining the Project

Leading Group (PLG) that provided overall guidance and coordination as under APL2. The high-level membership

of the APL PLG allowed it to operate at an important strategic level with upward access and influence into the

political decision-making mechanisms and downwards to the PMO and the PIUs. (PAD Annex 6). SMG also

retained the PMO in the Shanghai Development and Reform Commission (SDRC) with efficient and effective PIUs

established in each responsible line utilities. For APL3, the biggest difference was that the SCC played a more

dominant role in implementation with the establishment of a project coordination office to strengthen overall

coordination and supervision. SMG also remained committed to enabling reforms for the public sector utilities,

building on and reinforcing those begun during APL1 and 2. These reforms were critical in driving the project,

improving management and contributing to longer term sustainability. SMG also continued its strong support

the DFV component and to finding solutions to future funding mechanisms for suburban environmental

infrastructure investments to ensure better coordination of metropolitan-wide environment actions.

Safeguards. The project was rightly classified as environmental Category A and safeguard screening Category S1.

It triggered four Bank safeguard polices: (i) Environmental Assessment (OP/BP 4.01); (ii) Natural Habits (OP/BP

4.04); (iii) Involuntary Resettlement (OP/BP 4.12 and OD 4.30); and (iv) Safety of Dams (OP/BP 4.37). The draft

Resettlement Action Plans (RAPs), Resettlement Framework Plans (RFPs), Environmental Assessments (EAs),

Environmental Assessment Frameworks (EAFs), the Environmental Impact Assessment (EIA) and Summary and

Environmental Management Plans (EMPs) were all disclosed in the Bank’s InfoShop on August 27, 2008. Locally,

telephone hotlines were established for the public to access relevant documents and record comments. In

addition, the EA documents in draft and final form were disclosed in local libraries, in the offices of the PMO and

EA teams, on websites of the Shanghai Environment Protection Bureau in Chinese and in major local newspapers

from May to September 2008. The disclosure of EAs was announced in local newspapers on August 30 and

September 4, 2008. Final English versions of all documents were disclosed through the Bank’s InfoShop in

November, 2008. With respect to the two DFV financed subprojects (XWTP expansion and MRWC), their

appraisals followed the dedicated DFV “Environmental Assessment Framework” and “Policy Framework for

Resettlement and Land Acquisition”. Updated documents were disclosed in the Infoshop on November 11, 2008.

The safeguards documents for the appraised of the MRWC subproject, including the due diligence of the linked

UHRRWP, were disclosed locally following agreed procedures under the frameworks. According to the procedure

in the frameworks, the Chinese and English versions of the Environmental Assessment (EA) and the

Environmental Management Plan (EMP) of the MRWC subproject were disclosed in the Infoshop on March 23,

2015, and the Chinese and English versions of the RAPs were disclosed on March 29, 2015.

B. KEY FACTORS DURING IMPLEMENTATION

The key factors that contributed positively or negatively to implementation are discussed below. (i) Factors subject to government and/or implementing entities control


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Governance and politics. Both the GoC and SMG remained fully committed to the overall objectives and goals of the APL program and to the implementation of the third phase of the APL. SMG also remained committed to the enabling reforms for the public sector utilities, building on and reinforcing those that began during APL1. SMG also strongly supported the successful evolution of DFV component that enabled better coordination of metropolitan-wide environment actions. Commitment, Leadership, Coordination and Engagement. For implementation of APL3, SMG maintained the same strong and effective leadership, coordination and engagement arrangements as for APL 1 and 2 which included: (i) a powerful APL PLG that provided the same level of overall guidance, coordination and access. The APL PLG also provided upward access to the political decision-making and downwards to the PMO and the PIUs; (ii) for continued bureaucratic coordination, the PMO continued to operate within the Shanghai Development and Reform Commission (SDRC); (iii) implementation arrangements will PIUs established in each responsible sector line utility ensured clear accountability, ownership and priorities. Human resources and organizational capacity. Because the PIUs for the main investment components where set up and operated within the existing water and wastewater institutions (SWA and SMSC), the ability to utilize, as necessary all the required human resources and vast organization capacity of these institutions assisted implementation. Also, by design, the preparation and implementation of the IST activities in the water and wastewater sectors were assigned to the same sector institutions respectively ensuring sector ownership. Technical Problem Solving. The SMG had undertaken many similar major jacked pipeline river crossings in the past and had a lot of experience in this regard. However, finding solutions to technical complex issues surrounding the Huangpu River Crossing took a long time and caused significant delays in completion of PTS. The main reason for the delay was the unavailability of public information about the under-river obstacle and the complexion of the technical solution to be defined. The information was eventually acquired by the contractor and a viable technical solution to the problem was successfully implemented. The PMO, considered that for similar technically complex and critical infrastructure projects, it may investigate the costs and benefits of purchasing dedicated and specialize insurance to hedge construction risks. Basic logistics. As consistently reported in management letters, the logistical support for all preparation and supervision missions was also first class. Fiduciary. There were some persistence issues in procurement management pertaining to contract variations. Financial Management (FM) control and accounting mechanisms were well established utilized; and there were no budgetary issues reported, including the provision of counterpart funds. Therefore, fiduciary issues were in compliance with Bank policies. Social and Environmental. Safeguard activities were handled very well and the PMO was in compliance with the Bank’s safeguard requirements. The PMO engaged very competent and experienced third party consultants to independently monitoring EMPs and RAPs implementation. (See section IV (B) and annex 9 below for more details). Monitoring and Evaluation (M&E). Data collection methods and data quality were acceptable with the PMO/PIUs regularly collecting, consolidating and reporting data on their respective components. Separate social and environmental monitoring was done by experienced third parties. All data was then further consolidated by


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the PMO to provide project-wide data incorporated as part of project M&E in the semi-annual progress reports. Data was used by both the borrower and the Bank as part of their respective decision making processes. (See Section IV 1 below for more details). (ii) Factors subject to World Bank control Adequacy of supervision. Overall, supervision was efficient and adequate. However, the MTR could have been held earlier and the supervision of some IST activities could have been tighter. Because the fiduciary and safeguard experts were based in Beijing, they were able to effectively supervise these aspects during and between missions and solve problems or address issues arising quickly; the Bank responded well with additional consultant expert advice and guidance to the technical problems and challenges that delayed the Huangpu River crossing (component 2); and because the delayed MTR, changes to the RF and hence the M&E system were delayed. (See Section IV below). Adequacy of reporting. The reporting by the Bank through aide memoires and Implementation Status and Results Reports (ISRs) was of high quality, detailed, candid and realistic. The supervision missions included fiduciary and safeguard experts, who prepared detailed annexes to guide borrower. The quality and candor of ISRs allowed Bank management to monitor project progress and intervene as necessary. (iii) Factors outside the control of government and/or implementing entities. One of the key issues that resulted in project implementation delays to the wastewater component 2 was the hitting of major underwater obstruction under the Huangpu River. The obstruction was believed to be the foundation of an old and significant military or maritime structure that had not historical record of existence, therefore it was unforeseeable. (iv) Factors within the control of the Bank Mid Term Review (MTR). Project review and restructuring were first discussed extensively during the November 2013 supervision mission and included increasing the disbursement percentages retrospectively because significant savings; reallocation of Loan proceeds among categories; cancellation of some packages; revision of financial covenants and extension of the closing date by two years. The Bank agreed in principle to the restructuring in the covering management letter date January 2014. (See Restructuring Paper June 8, 2015 Report No. RES11785). During the next supervision mission (May 2014), the Bank set the MTR date for October 2014. The Bank considered that a further delay in the MTR was considered necessary to allow more time to find solutions to the Huangpu River crossing section of the PTS and to complete the feasibility of the MRWC proposal. This assessment was based on the fact that although the MTR was coming late in the project implementation, many of the restructuring issues had been discussed and preliminarily agreement reached in earlier missions going back as far as 2013. However, the formal MTR was not actually held until January 2015, and the outcome was a restructuring and extension and included amendments to the RF. The Bank’s agreement to the restructuring was conveyed to the borrower on June 23, 2015, just one week short of the original closing date. Although the MTR was late in implementation, this was necessary to establish a clearer view of the needed changes for the project to get better results at the end. The late restructuring allowed the project to better adapt to changed conditions


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and additional time to complete key woks and in the end, yielded very effective and positive impacts on the project implementation, its outputs and the realization of the expected outcomes.

IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME

A. QUALITY OF MONITORING AND EVALUATION (M&E) Rating: Substantial

M&E Design. The RF (PAD annex 3) had some design shortcomings with respect to the adequacy and relevance of some indictors (both the PDI and IRI) to measure and monitor project progress. These design shortcomings were partially addressed with the June 2015 restructuring when the RF underwent changes to: (i) remove it from Project Agreement and define the RF as a stand-alone document without amending the Loan or Project Agreement; (ii) include the core indicator of 'Direct Project Beneficiaries' as a project-level result indicator; (iii) drop the repetitive intermediate indicators; (iv) refine some indicators that lacked clear definition, rationalize some indicators to better reflect the outcomes of project interventions, simplify the framework by reducing the number of intermediate outcome indicators; and (v) drop core indicators related to improved access as the project did not finance water distribution and wastewater collection networks or household connections. This restructuring of the RF clarified and strengthened the linkage and continuity between project inputs/outputs, outcomes and impact. While the RF by design contained no output indicators by which to monitor physical progress, regular progress reports submitted by the PIUs and PMO tracked physical progress in this regard.

M&E Implementation. The restructured RF enabled the client and the Bank to better measure and monitor project progress towards the achievement of the PDO, including some of the anticipated institutional reforms. The PIUs regularly collected, consolidated and reported data on their respective components in the semi-annual progress reports. Data collection methods and data quality were acceptable, as was reporting intervals. Separate social and environmental monitoring was done by experienced and competent third party consultants.

M&E Utilization. Progress reports were used by the PLG, PMO, PIUs and the Bank to monitor physical implementation. For example, for the restructuring, discussion started in 2013, data from the M&E system showed that the main investments under component 1 would be completed two months ahead of time and with considerable savings (US83.66 million, annex 3). Information then allowed decisions on changes to the financing plan and reallocations to be considered as part of the restructuring. The revised RF provided more meaningful measurement of some project outcomes.

Justification of Overall Rating of Quality of M&E In consideration of the three aspects of design, implementation and utilization and the fact that corrective action was

taken to address the design short comings and strengthen the relevance of the RF to better measure project

outcomes, the overall rating of M&E quality is substantial.

B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE

The PMO had dedicated environmental and resettlement personnel and engaged experienced external consultants

to monitor all aspects of infrastructure construction activities under components 1, 2 and 3. Proper and effective


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measures were taken to mitigate the potential environmental impacts. The Bank closely supervised all aspects

through field visits and reviews of the project semi-annual monitoring reports. The implementation of the social and

environment safeguards was in-line with the EMPs and RAPs, and complied with Bank social and environment

safeguard policies.

Social Safeguards. The social impact aspects of the project, involving land acquisition, demolition of houses and

commercial enterprises, resettlement and compensation were well managed by the PMO/PIUs. The overall social

impact of the project was generally as identified and planned for in approved RAPs, but with two notable exceptions.

Compared to the approved RAPS, there was a significant reduction of 1164 (-45.6%) in the total number of Project

Affected Persons (PAPs) and a further reduction of 1150 (-45%) in the total number of persons required to be

resettled due to changes in detailed design, routing changes and in construction methods involving extensive pipe

jacking compared to the traditional open trench methods. There was also a slight reduction of about 5.1% in the area

of land acquired temporarily. The numbers of houses and commercial enterprises requiring demolition were 67 and

118 respectively, equal to the RAP assessed number. (See Annex 9 more details).

Dam Safety. As required by the Bank, the borrower established an independent Dam Safety Review Panel to assess

and review of the dam safety issues associated with the Qingcaosha Dam, all to the satisfaction of the Bank.

Therefore, implementation was fully complied with the Bank’s Dam Safety safeguard policy.

Financial Management (FM). There were no significant FM or disbursement related issues identified during

implementation. The project FM was satisfactory and the FM system was adequate to provide, on a reasonable basis,

timely and accurate information on the project implementation progress and that the Bank loan had been used for

its intended purpose. Therefore, FM was in compliance with Bank fiduciary policies.

Procurement Management. The main procurement management issues that occurred frequently during

implementation were the large (qualitative and quantitative) number of contract variations. This took a lot of extra

effort by the Bank team, firstly to educate PIU staff on Bank policies on contract variations and then the actual

assessment and processing of the variations. Despite these problems, the management of the procurement system

was complied with Bank procurement policies.

C. BANK PERFORMANCE

Quality at Entry

Rating: Moderately Satisfactory

Strategic relevance and approach. The Bank team worked closely with SMG to design APL3 based on: (i) close

alignment with the Bank’s CPS and other urban strategies; (ii) the updated and sound sector assessment centred on

the well-developed water and wastewater master plans; (iii) the context of and alignment with the overall objectives

of the APL program and to support the strategic the objectives and plans of SMG with respect to priority investments

needed; (iv) well defined and independently assessed APL3 triggers; (v) incorporation of lessons learned during APL

phases 1 and 2; and (vi) a realistic assessment of foreseen risks, again based on the long association with SMG and the

identification and incorporation into project design of appropriate risk mitigation measures.

Technical, financial, and economic aspects. The financial and economic assessments (PAD Annex 9) were thorough.

The technical appraisal for the large infrastructure investments, including procurement planning was done based on


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preliminary designs. Once detailed designed were completed progressively during implementation, many persistent

large variations with civil works contracts were identified. However, despite these variations, project investment in the

water sector was under budget. On the positive side, detailed design significantly reduced the number of PAPs and

saved money.

Environmental and Social Development Aspects. The preparation of EIA/EMPs and RAPs were thorough and disclosure

was done in accordance with Bank procedures. Also, based on lessons learned from APL2, the DFV Operations Manual

(OM) was strengthened to more effectively deal with the EIAs/EFPs and RFPs of the programmatic included DFV

subproject(s).

Fiduciary aspects. The fiduciary aspects, including FM and anti-corruption measures and procurement planning and

management were well prepared and built on the successful implementation management arrangements under ALP 1

and 2, utilizing and building on the same implementation PMO/PIU structures.

Policy and institutional aspects. The applicable and enabling policy and institutional aspects for APL3 were partly

addressed by triggers 1 and 4 that required: (i) SMG to develop a sustainable financing plan for environmental

infrastructure investments for APL3; and (ii) that the benefiting public utilities had taken steps to ensure that the fees,

tariffs or charges for services are adequate to cover the debt servicing costs of project financing. Trigger 4 specifically

required that the institutional capacity of the SWA be increased in the areas of planning and investment strategies for

urban environment services related to water across the entire Shanghai Municipal Region (SMR). (See PAD appendix 1

of annex 1). In order to strengthen the effectiveness and outcomes of the IST component activities, institutional

arrangements for overall coordination were assigned to the SCC with SWA playing a leading role in the IST activities

relating to water sector-wide policy and institutional reforms. The implementing institution of the QCSC and the SMSC

were assigned training and capacity building primarily associated with component implementation and management.

(See Section B Component 4 IST above).

M&E arrangements. The M&E arrangements utilized the existing well established (APL2) PMO/PIU structure. The only

real short-coming that detracted from the QAE was the design of the RF which, for some components did not effectively

link the PDO and key performance indicators with intermediate outcome indicators. This short-coming was later

corrected as part of the restructuring

Bank inputs and processes. The preparation and appraisal of APL3 proceeded reasonably quickly and cost effectively,

taking a total of 19 months (PCN to Board approval) at a cost of $412,521 and involved 62.1 staff weeks (See Annex 2).

Quality of Supervision Rating: Moderately Satisfactory

Focus on development impact. The aide memories and ISRs always focused on the desired development outcomes and

the Bank was proactive in finding solutions to problems that impacted on the attainment of the PDO. A good example

of this was when the Bank provided its own expert to ensure technical soundness of the decisions surrounding the PTS

and the Huangpu river crossing delays. Given the importance of the IST activities as part of the PDO, there should have

been more attention to this component. Whilst late in the project, the MTR and subsequent restructuring was squarely

focused on the development impact of the project.


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Supervision of fiduciary and safeguard aspects. Supervision of fiduciary, environmental and social safeguards aspects

was satisfactory. Specialists with the required skills in these fields were consistently part of the core Bank supervision

missions, in day-to-day follow-up, and interaction with the PMO and PIUs.

Due diligence of linked projects. The Bank carried out the necessary due diligence on all the linked projects to ensure

they were in compliance with applicable Bank environment, social and other applicable safeguard policies.

Adequacy of supervision inputs and processes. Supervision benefited greatly from the fact that: (i) formal supervision

missions were generally two per annum; (ii) always had the appropriate mix of skills to address implementation and

safeguard and fiduciary issues; (ii) in addition to these core supervision skills, the Bank from time to time included

technical specialists who provided hands-on solutions to key implementation issues, (iii) the Bank’s core members,

including the Co-TTL, safeguard and fiduciary staff were located in Beijing and were able to interact with the borrower

on a day-to-day basis; (iv) the Beijing based Co-TTL had a long association with the APL program, including the

implementation of APL2 and the preparation and implementation of APL3. He also provided excellent continuity for

the supervision of APL3 as there were four changes of the Washington based Task Team Leader (TTL) during project

implementation; and the project location was relatively confined and all within the SMR, making it easy and efficient

to supervise all project activities.

Candor and quality of performance reporting. Throughout the extended implementation period, the task team

produced high quality, detailed and candid mission aide memoires and management letters that were issued promptly

after each mission. Also internal Bank ISRs were well prepared and provided Bank management with realistic

assessments of project progress and issues.

Role in ensuring adequate transition arrangements.

Water Sector. The implementation and transition arrangements for the water and wastewater assets were well thought

through and agreed at appraisal (PAD Annex 6) utilizing existing institutional arrangements in each sector. The major

project investments in the water and waste water sectors were linked to other major infrastructure assets (QCSRWP,

and the UHRRWP respectively). Because of the size and scale of the QCSRWP/NRWC and the UHRRWP/MRWC, the SMG

set up separate Construction Companies to construct both huge raw water supply systems. At completion, both these

networks were in the process of being handed over to the Shanghai Raw Water Company (SRWC), the institution charged

with the coordination of management, operations and maintenance for all raw water supplies in greater Shanghai.

Wastewater Sector. The project funded PTS was an integral part of the BSTSS and the entire investment was

implemented by SMSC. The SMSC then assumed responsibility for the MOM of all the assets created under the project

and the entire BSTSS. SMSC is a holding company, responsible for all the major sewage network assets in Shanghai.

These transition arrangements were consistent with the long and successful involvement of SMSC in a number of Bank

financed projects, starting with the Bank’s first sewage project in Shanghai (Shanghai Sewage Project) in the late 1980s

(and since then SSP2, and SSP3 and APL2). (Also see Efficiency section on the parallel SMG driven institutional

restructuring of the wastewater sector).


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The MS rating is based on the following assessment. Supervision was efficient and cost-effective with the average

annual supervision cost of about US$72,465 and an average of 13.56 staff weeks per year (See Annex 2). Supervision

missions for APL2 and 3 were carried out concurrently during the period the projects were being implemented in

parallel, thus achieving Bank budget savings. There was a spike in supervision costs in 2014 and 2015 (in total

US$219,861 including trust fund budget) that reflected the additional input and resources required for the review and

assessment of the solutions for the PTS crossing of the Huang River. In order to assist the borrower, the Bank organized

two visits (May and December 2016) by an international pipe-jacking expert consultant. A positive aspect was the

steps taken by the Bank to amend the poor RF as part of the restructuring. This resulted more meaningful alignment

of project outputs, outcomes and impacts and allowed a very good assessment of the success of the project in meeting

the PDO.

Justification of Overall Rating of Bank Performance Rating: Moderately Satisfactory. The quality at entry is assessed as moderately satisfactory, and the Bank’s supervision performance is also assessed as moderately satisfactory. There were some moderate short comings surrounding the delayed MTR and restructuring of the project. Therefore, the overall rating for Bank performance were moderately satisfactory.

D. RISK TO DEVELOPMENT OUTCOME

Risk of natural disasters, including climate change driven events. (Rating: Substantial). Natural disasters, especially

flooding and typhoons could have a detrimental impact on project assets. Shanghai is at high risk for inundation due

to its position on the east coast of China, where rising flood waters related to climate change may affect the project

assets. Flooding and drought (rising sea water levels and increases salinity intrusion may also diminish the availability

and quality of raw water sources for the city and could affect the resilience of water supply infrastructure especially

on the lower Yangtze River. These risks have been mitigated to a degree. Salinity intrusion up the lower Yangtze River

has been factored into the design of the new QCS reservoir. This structure was a designated large dam and was

reviewed by the dam safety expert panel under the project. The impact of earthquakes, rising seas water levels and

flooding events on the safety and stability of the dam wall were part of the review. Also the major thematic report

(ii) on Water Security as part of water sector IST, included the adoption of the essential elements of best practice

integrated water resources management to offset the risks of climate change.

Risk of population growth. (Rating: Substantial). There is a high risk that Shanghai’s population growth will continue

at unprecedented levels. Investment may not be able to keep pace and available and suitable water resources may

come under threat.

Risk that the suburban districts may not have the budgetary and administrative capacity to carry out proper operation

and maintenance of the infrastructure assets. (Rating: Moderate)

V. LESSONS AND RECOMMENDATIONS

Long engagement with the client in fast growing cities can be better accommodated by the use of an APL type instrument that provides gradual and incremental support to improving urban infrastructure and improved service


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delivery performance. This is very important particularly for many Asian and African countries where large scale urbanization is just starting. The importance of and the heavy initial investment in developing a bold, long term strategic vision, supported by well-prepared policy frameworks and sectoral Master Plans are key enabling factors. From this strong foundation, priority investments were able to be identified. Lesson for the Bank is to invest in getting the upstream policy and strategic planning aspects right. For priority infrastructure investments, concentrate on and do a few things well. A lesson from this project was to concentrate the investment effort on a few large, strategically important investments and strategic TA. Building capacity to leverage external funds is more important than the number of environmental projects financed. The capacity to attract and leverage external funds for a financial window like DFV is more important than the sheer number of projects financed (which could be of different size and relevance). Ultimately the facility aims at involving private sector players in financing infrastructure and to have a demonstration effect, hence its impact will be stronger when its (limited) capital base can be multiplied. The successful DFV pilot has led to the follow-on mainstream new project that will effectively use “cascade” approach and will leverage private capital for urban environmental investments. The DFV successful evolution now has a large potential to serve as a platform to leverage public and private sector funding to finance urban environmental infrastructure. Also, the pilot trialed an international best practice process, and built the capacity of participating institutions/entities to carry out due diligence and properly appraise projects in the areas of technical, economic, fiduciary and the application of applicable safeguards standards as set out in the OM. Existing Country financial regulatory issues need to be carefully considered and assessed early-on as these may impact on the introduction and development of new financial instruments similar to the DFV. A strong pipeline of projects backed by technically strong and competent project sponsors was a key success factor for the DFV pilot. Careful design, including the level of technical assistance (international and/or national) and implementing arrangements of any deep policy/IST component/activity can lead to greater ownership, added value and desired outcomes that contribute to PDOs. Listening to and understanding the needs of the borrower and incorporating challenging, but politically realistic IST activities adds to desired outcomes. More meaningful outcomes for institutional reforms can be obtained if the institutional objectives are clearly defined, including working through the results chain to obtain results. Also there should be enhanced supervision effort by the Bank on the institutional aspects and greater client focus and involvement.

Consider the costs and benefits of purchasing dedicated and specialize insurance to hedge construction risks for some

large and technically complex infrastructure investments, according to the circumstances.

Financial covenants are not necessarily a good instrument to measure financial sustainability. The case of Shanghai is

emblematic in this sense. Emphasizing these covenants only partially captures the underlying reality of urban growth

and does not offer a complete and proper picture of the effective financial sustainability of the stakeholders. Over

time the use of these covenants has proven rather ineffective17 since the Bank has not enforced any contractual penalty

17 Internal Bank report prepared by Jan Rielaender (Jun 2007) reviewed 14 projects in water and sanitation with financial covenants and concluded that while they are included in projects, the covenants are not respected and the Bank does nothing about them, so they are ineffective.


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linked to non-compliance. They are also not meaningful, given their limited capacity to explain the underlying financial

and political environment.

Significant reduction of the social impact of major construction activities of projects can be achieved by considering the social factors and impacts starting at the feasibility stage and by considering alternative options, good detailed design and the application of modern construction techniques. Strengthened Country based teams can improve implementation performance, client communication, quicker problem solving and is can be a key success factor for project outcomes. .


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ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS

A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: To assist the Borrower's Shanghai Municipality in improving its resource sustainability in the core and suburban areas

Indicator Name Unit of Measure Baseline Original Target Formally Revised

Target

Actual Achieved at Completion

Total volume of quality water supplied by Qing Cao Sha raw water system

Cubic Meter(m3)

0.00 5003000.00 5108000.00 5108000.00

25-Jun-2009 30-Jun-2015 30-Jun-2017 12-May-2017

Comments (achievements against targets): Fully Achieved. (100%). The investment under component 1 was linked to and an integral part of the huge QCSRWP. The whole system reached the target capacity in June 2013.


Target


Inclusion selected APL3 recommendations in the Shanghai Water Sector Plans

Yes/No N Y Y Y

25-Jun-2009 30-Jun-2015 30-Jun-2017 12-May-2017

Comments (achievements against targets): Fully Achieved. New. Added at restructuring in June 2015 and replaced indicator 6 below. As a result of the major water supply sector institutional strengthening activities, the output from the main consultant activity directly influenced policy on: (i) the safety of


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raw water sources, (ii) promoting the advanced treatment at WTPs, higher water quality standards and (iii) improvements in laws and regulations. Recommendations have been incorporated in two important documents: Provisions on "the 13th Five-Year" Shanghai Water Supply Specialized Planning, and Provisions on Water Resource Management in Shanghai Municipality (draft). The later was approved by Shanghai People’s Committee on November 23, 2017 and will effective on January 1, 2018.


Target


Direct project beneficiaries Number 1500000.00 6660000.00 6660000.00 6710100.00

25-Jun-2009 30-Jun-2017 30-Jun-2017 12-May-2017

Female beneficiaries Percentage 49.00 49.00 49.00 49.00

25-Jun-2009 30-Jun-2017 30-Jun-2017 12-May-2017

Comments (achievements against targets): Fully Achieved. (101%). This relevant core indicator was introduced at the June 2015 restructuring and included the tracking of women as a beneficiary group. Total number of benefitting women is calculated at about 3,287,900.

Objective/Outcome: To assist the Borrower's Shanghai Municipality in proving its environmental sustainability in the core and suburban areas


Target


Reduction of water pollution in Puxi area of the Upper Huangpu River (annual COD reduction)

Metric ton 450000.00 464000.00 464000.00 464430.00

25-Jun-2009 30-Jun-2015 30-Jun-2017 30-Jun-2017

Comments (achievements against targets): Fully Achieved (103%). The Puxi Trunk Sewer (PTS) is an integral part of the Bailonggang Southern Trunk Sewer System (BSTSS). Therefore, this indicator was very dependent on the completion of component 2 and the two BSTSS linked projects.


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Target


Inclusion selected APL3 recommendations in the Shanghai Water Sector Plans

Yes/No N Y Y Y

25-Jun-2009 30-Jun-2015 30-Jun-2017 12-May-2017

Comments (achievements against targets): Fully Achieved. New. Added at restructuring in June 2015 and replaced indicator 6 below. As a result of the major water supply sector institutional strengthening activities, the output from the main consultant activity directly influenced policy on: (i) the safety of raw water sources, (ii) promoting the advanced treatment at WTPs, higher water quality standards and (iii) improvements in laws and regulations. Recommendations have been incorporated in two important documents: Provisions on "the 13th Five-Year" Shanghai Water Supply Specialized Planning, and Provisions on Water Resource Management in Shanghai Municipality (draft). The later was approved by Shanghai People’s Committee on November 23, 2017 and will effective on January 1, 2018.


Target


Direct project beneficiaries Number 1500000.00 6660000.00 6660000.00 6710100.00

25-Jun-2009 30-Jun-2017 30-Jun-2017 12-May-2017

Female beneficiaries Percentage 49.00 49.00 49.00 49.00

25-Jun-2009 30-Jun-2017 30-Jun-2017 12-May-2017

Comments (achievements against targets): Fully Achieved. (101%). This relevant core indicator was introduced at the June 2015 restructuring and included the tracking of women as a beneficiary group. Total number of benefitting women is calculated at about 3,287,900.


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A.2 Intermediate Results Indicators

Component: 1. Water Supply and Management Component


Target


volume of raw water supplied through the Nanhui conveyor to receiving water treatment plant

Cubic Meter(m3)

0.00 580000.00 580000.00 746000.00

25-Jun-2009 30-Jun-2015 30-Jun-2017 12-May-2017

Comments (achievements against targets): Fully Achieved (129%). Actual measured flow is +29% more than the target.


Target


Raw water quality transported to receiving water treatment facilities within the project area

Text Class IV Class II Class II Class II

25-Jun-2009 30-Jun-2015 30-Jun-2017 12-May-2017

Comments (achievements against targets): Fully Achieved. Indicator was revised at the June 2015 restructuring to better reflect the wider project area outcomes aimed at improving the quality of raw water transported to water treatment plants (WTPs) by the whole QCSCRWC. (See annex 8 for more details on Class II water standards/parameters)

Component: 2. Wastewater Management Component


Target



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Amount of wastewater intercepted and conveyed by the Bailonggang Southern Trunk Sewer (Puxi section) to the centralized treatment system

Cubic Meter(m3)

0.00 195000.00 195000.00 200000.00

25-Jun-2009 30-Jun-2015 30-Jun-2017 30-Jun-2017

Comments (achievements against targets): Comments (achievements against targets): Fully Achieved. (102%). At project closure, the completed BSTSS, including the augmentation of the Bailonggang wastewater treatment plant (BWWTP) was fully functional. The project financed Puxi Trunk Sewer (PTS) was the upstream section of this whole BSTSS.

Component: 3. District Environment Management Program


Target


Leverage ratio of DFV Financing

Text 2 4 4 5

25-Jun-2009 30-Jun-2017 30-Jun-2017 12-May-2017

Comments (achievements against targets): Fully Achieved. (125%) This new indicator was added at the June 2015 restructuring to better reflect the project’s outcomes in leveraging financing from different sources for suburban environmental project investment.

Component: 4. Institutional Strengthening and Training Component


Target


Number of participants in Number 0.00 1204.00 1204.00 1170.00


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training, seminars, study tours and technical workshops (cumulative)

25-Jun-2009 30-Jun-2017 30-Jun-2017 30-Jun-2017

Comments (achievements against targets): Achieved. (97%) Actual number of people trained was only 34 less than anticipated, but the very relevant training courses where well targeted to the SWA, QCSC and SMSC staff. Also, additional training for SMSC staff on operations related to Bailonggang Southern Trunk Sewer System (BSTSS) was delayed as the construction was complete in March 2017 and it had been under commissioning till the Project closure.


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B. KEY OUTPUTS BY COMPONENT

Objective/Outcome 1

Outcome Indicators 1. Total volume of water supplied by the QCSRWP 2.Inclusion of selected APL3 recommendation in the Shanghai water sector plans

Intermediate Results Indicators

1.Volume of raw water supplied through the NRWC to receiving WTPs 2.Quality of raw water transported by the QCSRWP to receiving WTPs 3.No. of participants in training, seminars study tours and technical workshops (water sector)

Key Outputs by Component (linked to the achievement of the Objective/Outcome 1)

1. Component 1. Completion of the NRWC and pumping stations and monitoring and control systems as an integral part of the QCSRWP switching raw water supplies to the Yangtze River and guaranteeing security and sustainable of raw water to about 70% of Shanghai. 2. Component 3. (i) Completion of the MRWC with a design capacity of 2.15 million m³/d and as an integral part of the UHRRWP utilizing a new source of better quality raw water, provides more secure and sustainable raw water supplies to the rapidly developing outer southwestern suburbs of Shanghai; (ii) the expansion of the XWTP with a capacity of 200,000 m³/d to supply high quality treated water to meet rapidly expanding domestic and industrial water demands in the outer southern areas of Shanghai. Security and sustainability of raw water supplied to the XWTP was improved because the WTP was switched to being supplied from the new QCSRWP. The completion of the project financial investments combined with the completion by SMG of the linked projects, meant that the PDO in the water sector was fully achieved. 3. Component 4. Key IST activities centered in high caliber outputs that resulted in recommendation to improve water management policy. All three strategic studies in the water sector were completed


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very well.

Objective/Outcome 2

Outcome Indicators 1.Reduction of water pollution in the Puxi area of the Upper Huangpu River (annual COD reduction)

Intermediate Results Indicators 1.Amount of wastewater intercepted and conveyed by the BSTSS (Puxi trunk sewer section) to the expanded BWWTP

Key Outputs by Component (linked to the achievement of the Objective/Outcome 2)

1. Component 2. Key outputs were the construction of the PTS and large inline pumping station and trash separation station, with a design flow of 390,000 m³/d. Again, the PTS is an integral part of the BSTSS and without the completion of the linked projects by SMG, the PDO for reduction of water pollution in the Puxi area would not have been fully achieved. 2. Component 4. Key IST outputs in the wastewater sector were the completion of two out of the three strategic studies and implementation skills training. The third study is under way and is highly likely to be completed.


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ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION

A. TASK TEAM MEMBERS

Name Role

Preparation

Hiroaki Suzuki Task Team Leader/ Lead Operations Officer

Axel N. Baeumler Co-Task Team Leader/ Senior Economist

Anthony Whitten Senior Biodiversity Specialist

Yiren Feng Environmental Specialist

Jun Zeng Social Development Specialist

Sing Cho Urban Specialist

Dawei Yang Procurement Specialist

Ximing Zhang Dam Safety Expert

Yi Geng Financial Management Specialist

Haixia Li Financial Management Specialist

Jiang Ru Operations Officer

Margaret Png Senior Counsel

Alessandro Palmieri Lead Dam Specialist

Supervision/ICR

Alessandra Campanaro, Sing Cho Task Team Leader(s)

Zheng Liu Procurement Specialist(s)

Haixia Li Financial Management Specialist

Geoffrey Spencer Team Member

Songling Yao Social Safeguards Specialist

Wenyan Dong Team Member

Axel E. N. Baeumler Team Member


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Yiren Feng Team Member

Jun Zeng Team Member

Toyoko Kodama Team Member

Ning Yang Environmental Safeguards Specialist

Yan Li Team Member

Taotao Luo Team Member

Xiao Wu Team Member

B. STAFF TIME AND COST

Stage of Project Cycle Staff Time and Cost

No. of staff weeks US$ (including travel and consultant costs)

Preparation

FY07 6.625 64,697.59

FY08 32.111 213,221.84

FY09 23.420 134,601.45

Total 62.16 412,520.88

Supervision/ICR

FY10 9.025 53,480.51

FY11 16.299 63,337.34

FY12 11.150 78,189.03

FY13 8.951 42,862.26

FY14 17.576 117,818.71

FY15 24.615 102,043.64

FY16 17.290 64,437.24

FY17 12.050 98,429.49

FY18 5.158 31,589.50

Total 122.11 652,187.72


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ANNEX 3. PROJECT COST BY COMPONENT

Components Amount at Approval

(US$M) Actual at Project

Closing (US$M) Percentage of Approval

(US$M)

Water Supply and Management

409.31 325.65 79.6%

Wastewater Component 67.84 47.35 69.8%

District Environment Management Program Component

86.21 158.61 184%

Institutional Strengthening and Training Component

3.40 2.39 70.2%

BASELINE COST 566.76 534.00 94.2%

Contingencies 31.33 - -

Interest During Construction 32.55 30.96 95.1%

Front End Fee 0.5 0.51 103%

Total 631.14 565.47 89.60%


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ANNEX 4. EFFICIENCY ANALYSIS

Economic analysis

Water component

At appraisal, a cost-benefit analysis was carried out for the Qingcaosha Raw Water Project (QCSRWP) as a whole.

This was appropriate because the economic benefit of the Bank-financed Nanhui conveyor cannot be materialized

without the linked investments in QCSRWP. A separate least-cost assessment was carried out for the Bank-financed

component prior to the appraisal, at the feasibility stage, to identify the least-cost solutions such as location selection

and technical solutions to ensure least-cost in land acquisition and O&M costs.

QCSRWP diverts the majority of Shanghai’s raw water supply (about 70%) from the Huangpu River to the Yangtze

River in order to provide a higher quality and more secure of raw water source. A key challenge for most economic

analyses is to estimate the willingness-to-pay (W2P) because consumer surplus cannot be directly quantified through

the market pricing. In many cases, a survey has to be carried out to assess W2P. For the cost-benefit analysis of

QCSRWP, a W2P survey was not carried out at appraisal due to political and social sensitivities. However, a

comparable benchmark using the average tariff level of Beijing was employed for the analysis. Facing tight resources

constraints, Beijing Government had implemented a conservation-oriented water tariff scheme with average tariff as

high as 2.6 times that of the Shanghai average water tariff at the time of the appraisal. The Beijing water tariff is a

reliable benchmark for W2P because: (i) income level in both cities are comparable; (ii) in Beijing, consumers were

not only willing but, in fact, paying for their water supply at precisely this price point. With W2P at this level, QCSRWP

was estimated to yield an economic internal rate of return (EIRR) of 16.2% at appraisal. To be conservative, this

analysis also assessed two lower W2P scenarios, one at 2.0 times and another at 2.4 times the average water tariff

level in the Shanghai, yielding an estimated EIRR of 5.5% and 10.8%, respectively. (See table below).

Table 4.1. Summary of economic analysis of QCSRWP at appraisal

W2P @ 2.0 x current Shanghai tariff

W2P @2.4 x current Shanghai tariff

W2P @ Beijing tariff

EIRR (%) 5.5% 10.8% 16.2%

Assumed WTP by category (RMB/m3) - Domestic - Commercial - Industrial - Other

2.06 2.8 2.6 3.0

2.47 3.36 3.12 3.6

2.8 4.0 4.1 4.0

Source: Table A9.10, Project Appraisal Document

Since the appraisal, both Shanghai and Beijing have raised their water tariffs considerably, and adopted a tier

pricing structure for residential consumption. Due to its lower starting point, the Shanghai average water tariff has

increased in percentage terms greater than that in Beijing. (See table below)


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Table 4.2. Water tariff* in Shanghai and Beijing (RMB/m3)

Shanghai Beijing

Appraisal Completion [1] Appraisal Completion [2]

Residential 1.03 Tier 1 1.92 (1.86x) Tier 2 3.30 (2.3x) Tier 3 4.30 (4.17x)

2.80 Tier 1 3.64 (1.3x) Tier 2 5.64 (2.0x) Tier 3 7.64 (2.7x)

Commercial 1.40 2.89 (2.06X) 4.00 6.50 (1.6x)

Industrial 2.89 (2.2X) 4.10 6.50 (1.6x)

Special 1.50 Min. 3.99 (2.7x) Max. 16.49 (11x)

4.00 157.0 (39.0x)

Note: * excluding wastewater [1] Shanghai Municipal DRC

[2] Beijing Municipal DRC

At completion, the actual investment and the cost of service from QCSRWP stood on par with the appraisal-stage

estimates, while the tariff reference points in both Shanghai and Beijing have increased considerably. The pricing

gap between the two cities has also narrowed with the average water tariff in Beijing standing at approximately 1.9

times that in Shanghai. Under the three appraisal-stage scenarios with W2P at: (i) 2.0 times and (ii) 2.4 times average

Shanghai tariff, and (iii) average Beijing tariff, QCSRWP investment would yield an EIRR of 24%, 31%, 22%,

respectively. (See table below). The higher EIRRs vis-à-vis appraisal-stage estimates under each scenario are due to

the higher W2P estimates backed by higher actual tariff levels in Beijing and Shanghai.

Table 4.3. Economic analysis of the water supply component




WTP Beijing tariff



W2P Beijing tariff

EIRR (%) 5.5% 10.8% 16.2% 24% 31% 22%

Assumed WTP (RMB/m3) - Domestic - Commercial - Industrial - Other

2.06 2.8 2.6 3.0

2.47 3.36 3.12 3.6

2.8 4.0 4.1 4.0

4.0 5.8 5.8 20.0

4.8 7.0 7.0 24.0

3.8 6.5 6.5 157.0

Financial sustainability

Water component


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Over the project implementation period, the assets constructed under QCSRWP have been gradually transferred to

Shanghai Raw Water Company (SRWC), the operator and asset holding company of majority of Shanghai’s raw water

assets, including two reservoirs, namely Chenhang and Jinze, and the operational portion of the QCS assets to date.

By end 2018, the assets from QCSRWP are expected to be fully transferred to SRWC, at which point the project

company, formed solely for the purpose of constructing the QSCRWP assets, will automatically dissolve. The process

being followed is in accordance with standard Chinese major infrastructure asset construction and transfer

procedures.

At appraisal, a subsidized raw tariff of RMB 1.0/m3 was estimated, including a tariff portion of RMB 0.37/m3 and a

subsidy portion of RMB 0.63/m3 to provide the QSCRWP with a financial internal rate of return (FIRR) of 6.4%. At

completion, the actual project costs stood on par with the appraisal-stage estimates, thus the required revenue per

unit of raw water supplied from QCS remains the same at around RMB 1.0/m3.

In January 2014, SMG raised both the raw water resource charge to SRWC from RMB 0.021/ton to RMB 0.10/ton,

and the corresponding raw water tariff from SRWC to the water supply companies RMB 0.63/m3 from RMB 0.331/m3.

In spite of the near doubling of the raw water tariff, it is still about 13% below SRWC’s full cost of service, estimated

at around RMB 0.73/m3. Historically, to ensure the security of Shanghai’s raw water supply, SMG had maintained

Shanghai Raw Water Company as a consistently profit-earning entity. With the gradual addition of the QSC operation,

SRWC had first seen an operating loss in 2015-16 in the range of RMB 150-169 million. SMG is expected to resolve

the situation and bring SRWC back to a profit earning position by the full completion of QCS asset transfer at the end

of 2018 through a combination of the following means: (i) operating subsidies; (ii) tariff increase; and (iii) equity

infusion through taking on SRWC’s long-term debt service obligations.

Wastewater component

At appraisal, a financial analysis was carried out for the Bailonggang Southern Trunk Sewer System (BSTSS)

component assuming that domestic wastewater tariffs will increase from RMB 0.9/m3 to RMB 1.2/m3 at some point

during 2009, followed by further tariff increases for all wastewater categories (e.g. Industrial wastewater) by 30% in

2012 and 20% in 2015. Based on these assumptions, the BSTSS investment yielded an estimated FIRR of 7.0% at

appraisal. The actual tariff adjustment trajectory was, in fact, slightly faster that the appraisal forecasts. However,

the effect is partly offset by the implementation delay to the completion of the Puxi Trunk Sewer and hence to the

completion of the whole BSTSS. Taking into account the effect of the delays at completion, the BSTSS component

will yield an estimated FIRR of 6.8%, on par with the appraisal-stage stage estimate.

In the meantime, Shanghai’s wastewater sector is undergoing a tremendous structural transformation with the

wastewater treatment assets unbundled from the pipeline assets. The SMG has assumed separate ownership of all

wastewater treatment assets, with SMSC, retaining responsible for all upstream sewerage reticulation, collection,

and trunk transportation to the WWTPs through its vast network of sewers and pumping stations. As a result, SMSC’s

revenue is no longer linked to the quantity of wastewater treated. Instead, revenue is now based on a series of

annual lump sum contract(s) with SMG that guarantees full recovery of SMSC’s cost of services, including both

operating expenses and depreciation. Moreover, along with the unbundling of the treatment assets from the pipeline

service, SMG is taking over all liabilities associated with the wastewater assets. With guaranteed full cost recovery


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and no outstanding debt service obligations, SMSC is in perfect financial standing, and in full compliance with the

original financial covenants associated with the loan. In light of this organizational change of the sector, the two

financial covenants were removed during the loan restructuring.

DFV

For the two DFV financed projects under APL3: (the XWTP extension project, and the MRWC), because the projects

were included on a programmatic basis, no economic assessment was documented at appraisal. The selection of

each DFV subproject was done based on the provisions of the OM.

At project completion, two separate cost benefit analyses were carried out, on the XWTP extension project, and

another for Upper Huangpu River Raw Water Project (UHRRWP) of which the MRWC is an integral part. The table

below provides a summary of the key assumptions for each project.

Table 4.4. Assumptions for DFV-financed projects

Xujing UHRRWP

Capacity addition (m3/day) Project investment (RMB million) Cost multiplier for associated system investment System loss (%) Variable O&M (RMB/m3) O&M (%)

160,000 298 2.0 10% 1.1 3.0%

2,150,000 8,334 All others assumed proportional to QCSRWP

To be consistent with the appraisal-stage economic analysis, three W2P scenarios are evaluated, i.e., 2.0x and 2.4x

of current water tariff in Shanghai, and current water tariff in Beijing. Based on the above assumptions,

• The XWTP expansion investment will yield an estimated EIRR of 17.5% and 21.6% with a W2P at 2.0 and 2.4

times existing tariff level in Shanghai; and an EIRR of 16.3% with WTP at the tariff level in Beijing.

• The UHRRWP investment will yield an estimated EIRR of 20% and 28% with a W2P at 2.0x and 2.4x existing

tariff level in Shanghai; and an EIRR of 19% with W2P at the tariff level in Beijing.

• Moreover, due to the considerably higher W2P backed by the tariff levels at completion, both projects have

achieved higher EIRR at completion than the would-be estimates at appraisal, if a similar analysis were

carried out.

Table 4.5. Economic analysis of DFV-financed project components

Xujing WTP Expansion UHRRWP



W2P Beijing tariff



W2P Beijing tariff

EIRR (%) 17.5% 21.6% 16.3% 20% 28% 19% Assumed W2P (RMB/m3)


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- Domestic - Commercial - Industrial - Other

2.06 2.8 2.6 3.0

2.47 3.36 3.12 3.6

2.8 4.0 4.1 4.0

4.0 5.8 5.8 20.0

4.8 7.0 7.0 24.0

3.8 6.5 6.5 157.0

Conclusions. In sum, the three water supply projects financed under APL 3, namely, (i) the QCSRWP/NRWC, (ii) the

Xujing WTP expansion project; and (iii) the UHRRWP/MRWC project, all achieved higher EIRRs than the appraisal

stage estimates due to: (i) higher economic value of the water supplied as a resulted of project investments; the

rapid growth in demand and hence income levels; and (iii) increase in the W2P in Shanghai reflected in increased

tariffs.

Table 4.6. Summary of economic analysis




WTP Beijing tariff



W2P Beijing tariff

QCSRWP 5.5% 10.8% 16.2% 24% 31% 22%

Xujing WTP expansion n.a. n.a. n.a. 17.5% 21.6% 16.3%

UHRRWP n.a. n.a. n.a. 20% 28% 19%

Moreover, the raw water tariff had more than doubled at project completion, well above the appraisal stage

estimate. However, without a subsidy, the tariff alone is still 13% below from full cost recovery for the raw company.

Historically, to ensure the security of Shanghai’s raw water supply, SMG had maintained SRWC as a consistently

profit-earning entity. With the gradual addition of the QSC operation, SRWC had first seen an operating loss in 2015-

16 in the range of RMB 150-169 million. SMG is expected to resolve the situation and bring SRWC back to a profit

earning position when by the closure of the QCS asset transfer is completed by the end 2018. The SMG intends to

bring the SRWC back to profitability through a combination of the following means: (i) operating subsidies; (ii) tariff

increase; and (iii) equity infusion through taking on SRWC’s long-term debt service obligations.

Furthermore, SMSC’s financial situation is strengthened by the project completion as a result of the sector’s structural

reform. With guaranteed full cost recovery and no outstanding debt service obligations, SMSC is in a sound financial

standing, and in full compliance with the original financial covenants associated with the loan. In light this

organizational change of the sector, the two financial covenants were removed during the loan restructuring.


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ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS

N.A

No substantial comments were received from the client, except for some minor typography comments and clarifications on the ICR draft. Those have been addressed and incorporated in the final version.


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ANNEX 6. SUPPORTING DOCUMENTS

1. Project Appraisal Document, Annex 12 Comprehensive list of documents in the project files up to and including appraisal. 2. Loan and Project Agreement Amendments. 3. Project Agreement revised from time to time. 4. Project Restructuring Paper and official notifications from the Bank. 5. Supervision Mission Aide Memoires, including the MTR and Management Letters. 6. Project Implementation Status Reports. 7. Financial Covenants in Urban Sector Projects in China. Jan Rielaender, June 2007. 8. Borrower’s Final ICR Report – June, 2017 9. Environmental Management Plans (EMP) for APL3 Implementation Completion Report by East China Normal University, June, 2017. 10. Final External Monitoring and Evaluation Report on Land Acquisition & Resettlement Action Plan of APL3 Projects, Economic, Legal and Social Consultancy Center Co, Ltd of Shanghai Academy of Social Sciences June 2017 11. DFV Operations Manual. Shanghai Chengtou Environmental Asset Management Co. Ltd – 2006 as amended from time to time. 12. District Financing Vehicle – APL3, Final Semi-Annual Report for the period to May 31, 2017. Shanghai Chengtou Environment Asset Management Co. Ltd. 13. District Financing Vehicle CEAM Project Appraisal Report for the Minhang Raw Water Conveyor Project – December 2014. 14. District Financing Vehicle CEAM Project Appraisal Report for the Xujing Water Treatment Plant Expansion Project - December 2011. 15. Shanghai Water Resources Comprehensive Management and Security Study - Main Report June 2015. 16. Technical Report on ‐ Site Visit for Construction of a Sewer Line Crossing Under the Huangpu River December 2016. 17. World Bank Project Concept Note on a proposed Shanghai New Urbanization Financing and Innovation Project (P158124).


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ANNEX 7. DISTRICT FINANCING VEHICLE

The Shanghai Chengtou Environment Asset Management Company (CEAM), also known as DFV was established as

a municipal financial management instrument during APL-2 to provide managerial and financial support for

infrastructure investments in water supply, wastewater treatment and solid waste management participating in

Shanghai’s suburban districts. The specific objectives were to:

(i) Strengthen participating suburban district governments’ capacity and interest to invest in environmental

infrastructure and service improvements, initially with or without these investments being able to attract

substantial commercial or private financing;

(ii) Increase the effectiveness of participating district entities in their identification, planning, delivery and

cost recovery of the local infrastructure by lending comprehensive management support and guidance to

district governments, including securing support from agencies and commercial banks, and;

(iii) Improve the provision of basic local services through financial engineering; increased availability of

management support and financing for infrastructure investments through the application of the DFV, a

new and innovative intergovernmental mechanism within the municipality.

Ownership and management structure

Registered with a capital of RMB 20 million (USD 3 million), CEAM/DFV is fully owned by the Shanghai Chengtou

Group, within which the parent company initially held 90% of its share, and Shanghai Chengtou Environment

Industry Development Corporation (SCEID), a prior subsidiary of Chengtou held 10%. Specializing in urban

environment infrastructure investments, SCEID had also managed the day-to-day operations of DFV. Following an

organizational change in Chengtou toward higher sector orientation, SCEID was dissolved in 2009; and the parent

company took over full ownership and direct management of DFV. (See figure below).

Figure 7.1. Ownership and management structure

APL 2 (before Chengtou reorganization)

APL 3 (after Chengtou reorganization)

DFV provided management support and guidance to the participating districts throughout the entire project

delivery cycle. Under the management of SCIED during the implementation of APL2, the DFV selected four projects

Shanghai Chengtou Group (90%)

Shanghai Chengtou Environment Industry Devleopment Corporation (SCEID) (10%)

Shanghai Chengtou Envrionment Asset Mangement Company (CEAM/DFV)

Shanghai Chengtou Group (100%)

Shanghai Chengtou Envrionment Asset Mangement Company (CEAM/DFV)


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from SCEID’s extensive project pipeline for district-level environmental projects. At the project identification stage,

CEAM/DFV identified project sponsors, generally district sector authorities with whom SCEID would sign a

Memorandum of Understanding (MoU). Once a project company was formed, SCEID would send one of its sector

experts as the general manager to oversee all aspects of the project design, implementation, including day-to-day

training and supervision. Under APL3, CEAM/DFV tapped into the large project pipelines of Chengtou Water Group,

and selected among the list two highest impact projects to the implemented in suburban Shanghai districts.

Through Chengtou, CEAM/DFV kept close interactions with the project utilities throughout the feasibility, financing,

design and implementation stages of the project development.

Figure 7.2. DFV-funded project cycle and CEAM/DFV’s role in each stage

Figure 7.3. Leverage Ratio and Financing Portion of DFV Sub-projects

•CEAM/DFV screen SCEID's pipeline

•CEAM/DFV select top candidates

•CEAM/DFV identify project propoentsProject identification

•SCEID or Chengtou sign MoU with project proponents

•Project proponents select project companies through competitive bidding

Preliminary approval

•Project company prepare FSR, incl. EA, EMP

•PP submit FSR, EA, EMP for approval

•CEAM/DFV review FSR, EA, EMP in full detailFeasibility assessments

•CEAM/DFV assess credit risks of project companies and guarantors (usually district UDICs)

•CEAM/DFV facility project company secure goverment grants

•CEAM/DFV and project company sign framework agreement

Project financing

•CEAM/DFV assign ex-SCEID experts to head project companies

•CEAM/DFV assist with review of design,

•CEAM/DFV ensure procurement, safeguards complianceDesign & implementation

3.0

2.4

2.0

2.2

2.6

5.3

Chongming WW management

Chongming solid waste land fill

Huaxin waste collection

Baihe wastewater collection

Xujing WTP expansion

Mingfeng raw water conveyor

Leverage ratio

51%

37%

49%

30%

30%

30%

16%

22%

20%

Chongming WW management

Chongming solid waste land fill

Huaxin waste collection

Baihe wastewater collection

Xujing WTP expansion

Mingfeng raw water conveyor

Equity & grant portion of financing


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Leveraging public and private capital through enhancing financing architecture urban environment infrastructure

investments. Through its eligibility criteria, DFV sets minimum thresholds of equity financing and project fund

leverage ratios. All participating Districts are required to provide a minimum 30% capital contribution that shall not

be obtained via debt instrument of any kind. Also required is a maximum financing percentage of DFV funds of no

more than 45% of total sub-project costs, or a minimum leverage ratio of 2.2. More importantly, through its

affiliation with Chengtou, CEAM/DFV actively facilitated the project companies to bridge the financing gap,

especially in securing municipal and district governments’ commitments in providing the project companies with

on-going revenue streams either in the form of tariff or subsidies.

Moreover, the DFV framework allows for the experimentation of a wide array of arrangements, such as Build Own

Operate (BOO)18 and Build, Operate and Transfer (BOT)19 for its funded projects, which were largely unexpected

innovations when DFV was set up.

Table 7.4. Contractual Arrangements of DFV-funded projects

Project Contractual arrangements

1. Chongming WW management BOT 2. Chongming solid waste land fill BOT 3. Huaxin wastewater collection BT 4. Baihe wastewater collection BOO 5. Xujing WTP expansion Traditional 6. Mingfeng raw water conveyor Traditional

Next stage of DFV – Overcoming regulatory barriers through the establishment of a Full-fledged Green Urban

Infrastructure Financing Facility. Because CEAM/DFV it not a defined lending company under PRC Company Law,

its ability to expand its lending operations to fund projects beyond Chengtou Group’s umbrella had been greatly

limited. With the success of the DFV operations under APL 2&3, recognizing the large ongoing demand for urban

environment infrastructure investments for small towns, Shanghai Chengtou and the Bank are preparing to set up

an Urban Infrastructure Financing Facility (GUIFF) with a planned registered capital of RMB 2.0 billion, 55% of which

will come from Shanghai Chengtou (SMI) and 45% from the CDB Capital (P158124). The Facility will also be able to

overcome the regulatory barriers DFV faced under the APL series. With a greatly expanded capital base, a modified

corporate and fund setup, and a more enabling regulatory environment, the GUIFF will extend DFV’s lifespan and

bring it to the forefront of infrastructure financing development in China. The new GUIFF is envisaged to operate in

the following structure:

18 BOO (build, own, operate) is a public-private partnership (PPP) project model in which a private organization builds, owns and operates some facility or structure with some degree of encouragement from the government. Although the government doesn't provide direct funding in this model, it may offer other financial incentives such as tax-exempt status. The developer owns and operates the facility independently 19 Build–operate–transfer (BOT) is a form of project financing, wherein a private entity receives a concession from the private or public sector to finance, design, construct, own, and operate a facility stated in the concession contract.


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Figure 7.5. Draft Implementation Structure of GUIFF


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ANNEX 8. EFFICACY ANALYSIS - PROJECT OUTPUTS and OUTCOMES

The PDO is unpacked as follows: (1) improving (water) resource sustainability through strategic priority investments and selected institutional reforms in the water sector; and (2) improving environmental sustainability through strategic investment and selected institutional reforms in the wastewater sector. WATER SECTOR PDO Sub-objective (1) Improving the sustainability of water resources through priority investment and Institutional Reforms in the water sector. Background and Strategic Context. Prior to the project, the Water Sector Master Plan (2002) identified three main strategic priorities for the sector. Firstly, Shanghai needed to augment its two existing raw water sources with a new raw water source. To this end, Shanghai started to implement the huge QCSRWP on the lower Yangtze River. Secondly, Shanghai needed to plan strategic connections between existing water sources and the QCSRWP to ensure flexible and secure water supplies throughout the city; and thirdly, Shanghai needed to complement physical investments with a comprehensive water conservation policy, which could include improved water demand management and further improvements in operational efficiency and water system management. In 2007 it was estimated that raw water demand in Shanghai would increase from 6.8 million m³/d to 13.6 million m³/d by 2020 (+100%) and would therefore require Shanghai to boost its raw water intake by about 7.3 million m³/day. Consistent with this strategic approach and in order to meet this demand, during the 12th Five-year Plan (FYP), Shanghai focused its priority investments in the water sector on the following: (i) development and protection of raw water sources by rationalizing and expanding the supply of high-quality raw water sources from the Yangtze River via the new, large and complex Qing Cao Sha raw water storage and conveyance system; and (ii) through the development of the Upper Huangpu Raw Water conveyance system. As integral parts of these priority investments, the Bank funded the Nanhui Raw Water conveyor as part of the QCRSWP and the Minfeng Water Converyor as part of the UHRRWP (See map IRBD 43328). The evidence presented below shows a strong causal relationship between the project funded water sector investment activities, their outputs and the sector achieved outcomes relative to PDO (1). Component 1: The project financed the construction of the NRWC and was a major part of and linked to the completion of the huge QCSRWP. The QCSRWP had nine sub-investments activities, of which the NRWC was one.20 The now completed QCSRWP raw water supply network is supplying raw water to WTPs designed to provide high quality potable water supply services to about 70% of Shanghai’s resident population and for industrial and commercial uses by 2020. The SMG investments in the QCSRWP included state-of-the-art centralized control of raw water operations for all of Shanghai and includes real-time matching/dispatching of raw water supplies with demands from the numerous WTPs supplied.

20 The nine components of QCSRWP are: (i) Qing Cao Sha reservoir (area of 70 km2 and 7 m water depth) and pumping stations for water abstraction, storage and conveyance; (ii) raw water conveyor on Changxing Island; (iii) raw water conveyor tunnel crossing the Yangtze River; (iv) Wuhaogou raw water pumping station; (v) raw water conveyor Yanqiao and associated pumping station; (vi) raw water conveyor of Lingqiao and associated pumping station; (vii) raw water conveyor Jinhai and associated pumping station; (viii) raw water conveyor of Nanhui and associated pumping station; and (ix) rehabilitation of raw water system of Upper Huangpu river. The Nanhui Conveyor under APL 3 is a part of the eighth component.


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Outputs: The main investment for the NRWC was the construction of a total of 89km of steel pipelines of various diameters ranging from 2000mm to 1200mm. The component was fully completed in December 2016 and resulted in a new asset with a total design capacity of 1.28 million m3/day. Performance: The impact of successful completion of the NRWC in 2012 as an integral part of the QCSRWP is that a new higher quality raw water system is now fully functional to meet the growing water demands of Shanghai, increasing both the security and sustainability of supplies. At project closure, the NRWC supplied 0.746 million m3/d, exceeding the target of 0.580 million m³/d by about 28.6%. The linked and completed QCSCRWP supplied an average of 5.108 million m3/d, matching the target volume as shown in the following table.

Table 8.1. Summary of Raw Water Supplied by QSCRWP and NRWC

Year 2010 2011 2012 2013 2014 2015 2016

Total Volume of water supplied by the QCSRWP (Million m³/day)

1.023 3.297 4.220 4.954 5.022 4.975 5.108

Volume of raw water supplied through NRWS (Million m³/day)

NIL NL 0.764 0.717 0.703 0.714 0.746

Raw Water Quality Improvements. A key strategic objective of the QCSRWP investment was to develop a water source that would supply better quality raw water to the SMR. The point of monitoring is located at the Qing Cao Sha Reservoir outlet (See map IBRD 43328). The target was that raw water entering the QCSRWP from the Yangtze River/ Qingcaosha Reservoir should meet Class II national standards for raw water (surface sources).21 The outcome was that since the first full year of operation (2011) and including the NRWC (2012), the QCSRWP has consistently delivered raw water that exceeded the targeted Class II Chinese national standards. Results are shown in table 8.2 below.

Table 8.2. Raw Water Quality Supplied by the QCSRWP –Surface Sources.

Parameter

(National Standards

GB3838-2002)

Ammoni

a

NH3-N

Chemical

Oxygen

Demand

COD Mn

Dissolved

Oxygen (DO)

Total Nitrate

(NO3)

Biological

Oxygen

Demand

(BoD5)

Chinese National Standard

for Class II Raw Water-

Surface Waters (mg/L)

≤ 0.5 ≤4 ≥6 ≤10 ≤3

21 Chinese Ministry of Water Resources National Environmental Quality Standards for Surface Water (GB 3838-2002); Assessment Methods for Environmental Quality of Surface Water (Provisional) (H.B. [2011] No. 22; and Chinese National Ministry of Environment - Standards for Centralized Drinking Water Sources (H.H [2004] No. 282.


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Avg. 2010 0.13 2.5 9.7 < 2

Avg. 2011 0.07 2.5 9.6 1.0 <2

Avg. 2012 0.06 2.7 9.8 1.21 <2

Avg. 2013 0.06 2.6 9.7 1.33 <2

Avg. 2014 0.06 2.4 9.8 1.60 <2

Avg. 2015 0.06 2.5 9.6 1.37 <2

Avg. 2016 0.06 2.3 9.4 1.09 <2

Intermediate Results Indicators (IRIs). The PAD identified three IRIs as follows:

• Total benefitting population. The NRWC was estimated to benefit an estimated 1.57 million people.

• The average volume of raw water. At project closure, the NRWC was supplying 0.746 million m3/d of raw

water to a number of WTPs and exceeded the project end target of 0.580 million m³/d by +28.6%.

• Raw water quality. Raw water diverted from the Yangtze River and transported through the QCSRWP and

the NRWC to WTPs consistently meets the national parameters for Class II raw water.

Project Outcome Indicator. -Total volume of quality raw water supplied by QCSRWP. The average daily rate recorded to June 30, 2017 was 5.18 million m³/day. This total system outcome could not have been achieved without the completion of the NWRC, as an integral part of the QCSRWP. The achievement of this POI in turn contributes to the achievement of the PDO (1) of improving Shanghai’s water resources sustainability. Component 3 District Environmental Management Program Sub Project Investments in the Water Sector

Both subprojects investments funded under this component were in the water sector and the outcomes contributed to the PDO (1) focused on water resource sustainability and by directly funding targeted and priority investment in suburban areas. Therefore, the investment outcomes are analyzed and assessed in the section and the performance of the DFV, as a financial instrument is discussed in detail in annex 7. The two investments funded were a new subproject for the MRWC, which was an integral part of the new UHRRWP and a carryover subproject from APL2 for the completion of the expansion of the XWTP.

Minhang-Fengxian Raw Water Conveyor (MRWC)

Background and Context. The development plan for augmenting drinking water sources in the Upper Huangpu River was approved by SMG on 18 October 2013 (Hu.Fu. [2013] No. 97. The plan was to provide augmented drinking water supplies to five rapidly growing districts in the southwest of Shanghai (Qingpu, Songjiang, Jinshan, Minhang and Fengxian) through a new raw water storage and conveyance system (The Upper Huangpu River Raw Water Project - UHRRWP). In Minhang and Fengxian the quality of existing drinking water sources was assessed as substandard (Class III-IV), or even Class V by some indicators. Therefore one of the objectives of the UHRRWP and the APL3 funded MRWC was to provide a more sustainable and better quality source of raw water utilizing the new Jinze Reservoir and the UHRRWP to improve the overall raw water quality and to provide and augment the supply and security of raw water security to the rapidly developing Minhang and Fengxian Districts.


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The MRWC project therefore had two upstream linked projects, i.e. Jinze Reservoir/water storage project and the UHRRWP project, both of which are located in the Upper Huangpu water source protection zone. (See map IRBD 43328). Outputs. The MRWS was fully completed and comprises: (i) 706m of DN3000mm pipes the Huangpu River crossing feeder conveyor and 2.35 km of DN2600mm pipes for the Minhang branch conveyor; and (ii) 9.2 km of DN3000mm pipes for the Fengxian branch conveyor. All pipelines are steel. The conveyor has a total design flow capacity of 2.15 M m³/d, bifurcated with 1.30 M m³/d delivered to the north side of the river by the Huangpu River Crossing Conveyor to supply the Fengxian Conveyor (0.85 M m3/d), delivering raw water to the Chedun WTP (0.2 million m3/d). On the south side of the Huangpu River the Minhang branch conveyor be supplied with 1.1 Mm3/d of raw water. (See map IBRD 43328) Intermediate Results Indicators. Because of the programmatic nature of selection and inclusion of the sub-projects to be funded under the component 3, no IRIs could be established at appraisal. However the MIS/M&E system did track performance data in qualitative and quantitative terms as follows:

Table 8.3: Volumes of Raw Water Received in Minhang and Fengxian

Volume of Raw Water Received (m³/d)

2017

January February March April

Receiving point Minhang 571,924.8 600,905.6 622,544.7 619,230.3

Receiving point Fengxian 326,048.4 329,960.7 350,096.8 353,666.7

Table 8.4: The Raw Water Quality of Jinze Reservoir unit: mg/L

Parameter

(National Standards

GB3838-2002)

Ammonia

NH3-N

Chemical

Oxygen

Demand

COD Mn

Dissolved Oxygen (DO)

Total

Nitrate

(NO3)

Biological Oxygen Demand (BoD5)

Chinese National

Standard for Class II

Raw Water- Surface

Waters mg/L

≤0.5 ≤4 ≥6 <10 ≤3

Average Data During Jan.to Apr. in 2017

0.20 3.6 10.6 1.42 2.2

Sub-Project Outcome and contribution to the PDO The entire UHRRWP is fully operational and is currently supplying a total 1.6Mm3/day raw water. This includes the supply of about 1.2Mm3/day of raw water to the MRWC. The MRWC has been designed with a capacity to meet future raw water demand of these two districts to 2030, and a planned service population 4.15 million.

Xujing WTP Expansion


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Background and Context. The Shanghai suburban areas served from the existing XWTP are rapidly developing and it is anticipated that there will be about 510,000 people requiring treated water supply services by 2020. In order to meet this future growth, this sub-project funded the modernization and expansion of the treated water capacity from 40,000 to 200,000m³/day.

Outputs. The total investment included: (i) all civil, electrical/electronic and mechanical engineering works necessary for the modernization of the existing 40,000m3/d treated water capacity; (ii) the construction of additional WTP capacity of 160,000m3/d including all necessary civil, mechanical and electrical/electronic engineering; and (iii) construction of sludge treatment facilities to manage the sludge from the expected combined expanded capacity of 200,000m3/d involving primarily civil and mechanical engineering works.

Intermediate Results Indicators. Because this sub-project was approved and included under APL2, no specific IRIs could be established at appraisal. However, the MIS/M&E and project progress reports did track some useful outcome data that again establishes a clear causal link between the activity-outputs and outcomes and the contribution to the water sector PDO (1).

XWTP Outcomes. The completed expansion to the XWTP will, by 2020 provide increased security and sustainability of good quality treated water services to a design population of about 510,000 people in the rapidly developing west and southwest suburbs of Shanghai. Also, the raw water supplied to the XWTP has now been switched to the new QCSRWP, which has resulted in much improved quality and quantity of raw water to meet the anticipated increases in demand. The original water intake for the XWTP, located on the Dianpu River is now designated as a stand-by intake for emergency use only, as an added security element.

Institutional Strengthening and Training (IST). Component 4 (Part) Water Sector. The three highest priority strategic policy and reform areas identified for the water sector were: (i) Performance Bench marking and Economic Methods; (ii) Water Demand Management; and (iii) Security of Water Supply. Given the importance of these three key issues, the Shanghai Water Authority/Shanghai Water Supply Administration (SWA/SWSA), who were responsible for implementation of this part, took a pivotal decision not to carry out three individual studies in isolation, but to combine all three policy and reform issues into one large, strategic comprehensive study called the Shanghai Municipality Water Resource Comprehensive Management and Safeguard Study.(WRCMS) This provided an integrated approach for capacity building on a water sector wide basis. Strong ownership of the outputs and outcomes was ensured because the TOR and selection process for the international consulting firm incorporated the needs of SWA and allowed them to lead and control the study. This chosen approach was very efficient and effective and resulted in a high level of impact and provided useful knowledge for Shanghai’s current and future reform in the water sector. The overall WRCMS comprised the consolidation of three integrated and distinct technical areas as follows: (i) Efficiency and Regulation of the Shanghai water sector; (ii) Water Resources and Demand Management component involving regulations, public education and awareness programs, and demand profile management; (iii) Water Supply Security Risk and Vulnerability Assessment to provide guidance on improvements to emergency situation response involving water quality or quantity shortfalls. To support capacity building in these three thematic areas above, a well-designed and conducted series of and Associated high level training, seminars and study tours was carried out in order to introduce borrower staff and sector experts to global best practices in a number of strategic water resource/water supply management areas (see Table 8.5). Six batches for a total of 47 officials from SMG participated in the trainings and study tours. To further support the introduction of more international best practice,


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the international consultants also facilitated one sizable international technical seminar attended by 50 middle and senior management staff and technical experts from SMG/SWA.

Table 8.5. Summary of Water IST Outputs

Three Main IST Water Studies

• Efficiency and Regulation of the Shanghai Water Sector

• Water Resources and Demand Management

• Water Supply Security Risk and Vulnerability Assessment

Supporting Study tours

• Water resource management laws and regulations

• Management models and water supply safeguards

• Raw water and drinking water quality standards supervision and water treatment technology

• Water price composition, water supply companies’ operation model and performance management

• Flood control system and flood risk management

• International best practice in water supply pipe network modeling and the reduction of the leakage rates and non-revenue water in the pipe network

Supporting Trainings

• Water Quality Security and Improvement

• Dam Safety

• Reservoir Regulation and Energy Efficiency Operation

• International experience in environmental infrastructure management: (i) Planning, Connecting & Financing Cities; (ii) Public-Private Partnerships for Urban Water Utilities; (iii) Energy Efficiency for Municipal Water and Wastewater Utilities.

Water Sector IST Outcomes and Impact. The international consultant consolidated outputs from all comprehensive

research, trainings and study tours into three major thematic reports (see above) with comprehensive strategic

Action Plans. All reports contained supporting recommendations for SWA, aimed at further improvements to the

efficiency of the Shanghai water management institutions and particularly the enhancement of capacity to analyze

problems and improve decision making process with respect to water resource management and water supply

security. These series of reports and the recommendations have been selectively incorporated by SMG into two high

level documents as follows (i) the 13th Five-Year" Shanghai Water Supply Specialized Planning, and (ii) the Shanghai

Water Resources Management Regulation Provisions (Draft), which was approved by Shanghai People’s Committee

on November 23, 2017 and will go into effectiveness on January 1, 2018. Consistent with needs and continued reform

direction for the water sector in Shanghai, the Water Resources Management Regulation Provisions now contain the

following provisions that are a direct result of the three study reports recommendations:

• Strengthen “multi-source complementary” principle and establish collaborative water resource dispatch

mechanism for water security in Shanghai,

• Strengthening coordination with authorities in other provinces/cities in the same watershed as Shanghai in

drinking water source protection (share information, coordinate actions),

• Set up performance indicators for water supply companies to enhance water leakage control,


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• Further increase public awareness of water savings, promote the use of water saving equipment in schools,

enterprises and institutes.

• SW and Environment Protection Authority in Shanghai should enhance transparency of water quality data

and water environmental protection information to the public.

Throughout the APL program, Shanghai has remained very committed to institutional strengthening of the water

sector with a concentration on policy and demand side management improvements. Beginning in about 2009,

Shanghai was one of earliest Chinese cities to implement the pilots of “Most Strict Water Management”. Greater

attention to demand-side management, through promotion and education of water saving activities, replacement of

old and installation of new water saving and economic measure has been very effective. Official data published by

SMG shows that over the period 2009-2016 there has been: (i) a reduction of daily average per capita household

consumption from 139 to 118 litres/day (-13%) or a saving of an estimated 76,000m³/annum of water for household

consumption; water productivity for industrial water, as measured by the volume of water consumed/RMB of GDP

has increased from 75 to 28m³/RMB10k (+63%). Some of the APL3 water sector IST activities under thematic study

area (ii) Water Resources and Demand Management provided a good opportunity for SMG to conduct

comprehensive research based on the experiences and data gathered since 2009 in order to provide solid evidence

and lessons learned to push forward with deeper water policy reforms that are relevant to Shanghai in the future.

Table 8.6. Key Themes, Action Plan and Recommendation Topics of the WRCMS

The Three Thematic Studies of the WRCMS

Action Plan and Recommendation Key Topics Areas

(i) Efficiency, Laws Regulations

Water Source Assessment Methods

Water Source Water Quality Monitoring

Drinking Water Quality Standards

Regulatory Transparency

Water Quality Emerging Threats

Water Management Structures for the Water Sector in Shanghai

Water Sector Management Best Practice

Annual Benchmarking

Expansion/consolidation of Key Performance Indicator Measurement Processes

Full Price Modelling for Water Pricing

Recommended delivery Model for Future Major infrastructure Projects (ii) Water Resources Management and Demand Management

Watershed Co-ordination and planning

Enhanced Co-operation with the Shanghai Environmental Protection Bureau to strengthen Water Quality Modelling

Water Sources Water Quality Assessments

Land Development Impact Minimization

Water Resource Demand Management

Water Recycling and Reuse

Non-Revenue Water Reductions (iii) Water Resources Security

Groundwater Recharge

Sources Protection/Monitoring Huangpu River


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Source Protection Monitoring Huangpu River at Songpu

Qingcaosha Reservoir and Yangtze River Modelling

Algae Treatment and Management Strategies

Wuhaoguo Pumping Station Management

WTP Capacities Assessments

WTP Review of Operations

Distribution System Water Quality Record Keeping

Distribution System Water Flow and Quality Modelling

Water Treatment Processes

Process Research Facilities

Supervisory Control and Data Acquisition (SCADA) Consolidation

Software Systems

Water Network Security

Standards and Cost Effectiveness

SCADA Development Strategies

Climate Change Impacts

Water Safety Plan Activities

Also at a high level, in the four years from October 2010 to October 2013, the Shanghai Municipal Investment Group

(SMI) organized four high-level seminars, each year in line with the needs of business development needs of urban

infrastructure in Shanghai. The four seminars were: (i) “Climate Change and Urban Development”, (ii) “Advanced

Technology for Sludge Treatment and Disposal”, (iii) "Energy Efficient Technology Development and Application”

and (iv) “Urban Infrastructure Investment”. SMI then used the seminar outputs for its formulation of major tasks

and development strategies during the “12th Five-year Plan” period and to give impetus to the business expansion of

SMI.

The seminars were attended by a total of 432 people, mainly from relevant SMG agencies at senior and middle

management levels and by all the SMI Chief Engineers. In addition, representatives from China’s large commercial

banks and securities companies attended.

During the implementation of APL3, CEAM translated and published three significant documents namely: "Planning,

Connecting & Financing Cities"; "Public-Private Partnerships for Urban Water Utilities", and "A primer on Energy

Efficiency for Municipal Water and Wastewater Utilities". These publications served as the inputs for high-level

training on the one hand, and introduced good international practices in infrastructure management with the aim of

providing better guidance and improving the business management capability on the other hand.

At the operational level, QCSC was responsible for implementing the institutional strengthening and training (IST)

activities as an integral part of the implementation management of component 1 and carried out overseas study

tours and domestic training sessions on procurement contract management and reservoir dam safety and operation.

Measures/campaign taken for water savings. The SMG has been promoting water saving activities in schools, enterprises and other institutes by installing pilot water saving equipment or techniques. By the end of 2016, there are 2652 residential communities, 295 schools, 17 industrial zones, 294 enterprises, 3 agricultural zones and 9


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institutes participating in this movement. The Shanghai Water Supply Management Bureau (a department under SWA) also organized evaluation of the participating entities, including re-assessing the measures and performance indicators. Also, Shanghai launched a replacement of old type of household tap program in 2013 and by 2017, 80,000 new household taps (screw lifting cast iron type) have been replaced. More than 42,000 households have benefited from the initiative. Table 8.7 below has more data of water savings achievements:

Table 8.7. Water Savings Achievement in Shanghai

2015 2017

Replacement of old fashion taps 60,000 80,000

Beneficiaries (households) 33,800 42,000

Installation of water saving equipment 40,600 N.A

Inspection and repair of leakage (places) 1,398 N.A

Reduced leakage (k m3/day) 149.8 N.A

Household water savings (k m3/year) N.A 75.9

Source: http://www.ljzfin.com/news/info/37873.html http://www.shanghai.gov.cn/nw2/nw2314/nw2315/nw4411/u21aw1128117.html Water consumption indicators. The table 8.8 below shows the achievements in Shanghai of reducing water intensity, and per capita household water consumption. From 2009 to 2016, the productivity of water used for industrial production) has improved from 75 m3/RMB10k to 28 m3/RMB10k, a 62% improvement. The per capita household consumption is also showing a declining trend. The evidence shows that Shanghai's attention, efforts and programs to address water demand management since 2009 is having a measurable impact. A lot of the data generated since 2009 was used in the research areas under the IST of the APL3 project.

Table 8.8. Water Consumption Indicators Shanghai

Year Total water

supply (100

million m3)

Total water

sold (100

million m3)

Household

(100 million

m3)

Industrial

(100 million

m3)

Per capita

Household

Consumption (L)

Water

Consumed/GDP

(m3/RMB10k)

Population

(thousand)

2016 32.04 25.24 20.42 4.82 118 28 24197.0

2015 31.22 24.58 19.64 4.94 112 33 24152.7

2014 31.73 24.82 19.68 5.16 113 60 24256.8

2013 31.91 24.92 19.69 5.23 116 N.A 24151.5

2012 30.97 24.35 19.17 5.18 115 N.A 23804.3

2011 31.00 24.41 18.81 5.60 113 N.A 23474.6

2010 30.90 24.22 18.64 5.80 117 60 23026.6

2009 30.47 24.06 18.47 5.59 139 75 22102.8

Source: Shanghai Statistics Yearbook.

http://www.ljzfin.com/news/info/37873.html

http://www.shanghai.gov.cn/nw2/nw2314/nw2315/nw4411/u21aw1128117.html


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The key water sector indicators 2009-2017 are presented in table 8.9 below:

Table 8.9 Key Water Sector Indicators

Key Sector

Indicators Unit 2009 2010 2011 2012 2013 2014 2015 2016 Data source

Population million 22.10 23.03 23.47 23.80 24.15 24.26 24.15 SSYB

Water Production

million

m3/d 8.35 8.47 8.53 8.48 8.74 8.69 8.55 SSYB

of which supplied by

QCS

million

m3/d - 1.02 3.30 4.22 4.95 5.02 4.98 5.11 PMO

of which supplied by

QCS % - 12% 39% 50% 57% 58% 58% Calculated

Water sales

million

m3/d 6.59 6.70 6.69 6.67 6.83 6.80 6.73 SSYB

Residential

million

m3/d 2.67 2.68 2.66 2.73 2.81 2.75 2.71 SSYB

Commercial

million

m3/d 2.39 2.42 2.50 2.52 2.59 2.64 2.67 SSYB

Industrial

million

m3/d 1.53 1.59 1.53 1.42 1.43 1.41 1.35 SSYB

Per capita L/person 139 117 113 115 116 113 112 SSYB

Raw water tariff to

WSC RMB/m3 0.37 0.63 SRWC

Water tariff RMB/m3

Residential RMB/m3 1.03 1.92/3.30/4.30 SDRC

Commercial &

industrial RMB/m3 1.40 2.89 SDRC

Special RMB/m3 1.50 3.99-16.49 SDRC

Source: Shanghai Statistical Year Book


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WASTEWATER

PDO Sub Objective (2) - Improving the environmental sustainability through priority investments and institution Reforms in the Wastewater Sector. Background and Context. Shanghai needed to continue to expand its wastewater collect and treatment facilities and systems to not only keep pace with the rapid growth of the City, but also to reduce environmental pollution, particularly in water bodies surrounding the city. A key deficit identified in Shanghai’s Wastewater Management Master Plan, (WWMP) was the lack of adequate wastewater collection capacity serving the rapidly developing outer south eastern suburbs of Shanghai. Growth was being driven partially by the economic success and consequent regional development centered on the Pudong International Airport and major investments in the new Nanhui Deepwater port. In addition, the economic growth of the Minhang and Wujing areas on the west side of the Huangpu River meant that existing wastewater collection services in that area were nearing capacity as well. Therefore, consistent with the WWMP, wastewater flows in the Pudong and Puxi areas would be intercepted by new trunk sewer systems, the BSTSS and conveyed to expanded wastewater treatment facilities at the BWWTP. When completed, the whole BSTSS would result in a significant reduction in the amount of untreated wastewater entering the river systems and degrading water quality. The APL3 investment was for the construction of the PTS as an integral part of the BSTSS. The linked Pudong trunk sewer and the expansion of the capacity of the BWWTP from 1.6m³/d to 2.4 m³/d were financed by the borrower, in parallel to the project. Both of these linked projects have been satisfactorily completed. The evidence presented below shows a strong causal relationship between the wastewater sector investment activities, their outputs and the sector achieved outcomes relative to the PDO (2). Component 2: The project financed project the construction of the Puxi Trunk Sewer (PTS), including as major in-line pumping station and major river crossing. The average design flow of the PTS was 390,000 m3/d. Outputs: Based on detailed design, actual construction totaled 8.10 km of DN2700mm trunk and connecting sewers. Construction was competed in three phases as follows: Phase 1 -pipe jacking of 4.390 km of DN2700 mm pipes; Phase 2 - pipe jacking of a total of 3.71km of DN2700mm (1.087km for Huangpu River crossing sewer and 2.575km for the connecting sewer to the link project of the Pudong trunk sewer), including three large jacking wells and four receiving wells. Construction also included a major in-line pumping station of 7.96 m³/second capacity with a total of eight large electric pumps, pre-screening station for rubbish removal up steam of the pumping station all necessary to deliver the 390,000m³/day design capacity. All construction was completed by March 2017. Both these linked projects were also completed and this allowed the PTS to function as designed.: (i) the Pudong

Trunk sewer,was completed and fully operational by December 2014 and (ii) the expansion of the capacity of the

BWWTP by 50% (1.6 to 2.4 million m³/day) has been completed and in fact in 2017, a peak treatment capacity of 2.8

million m³/day was recorded.

On December 11, 2013, pipe jacking under the Huangpu River was halted when an abandoned and extensive pile foundation from the old Lixin Shipyard in Pudong area was discovered about 27m below the river bed. This was an unexpected and complex technical problem and was further compounded in July 2014 by flooding problems in the pipeline and later with leaking joints. This required a redesign and rerouting of the river crossing and pipe jacking was only able to recommence on June 2, 2016 with the Huangpu River crossing completed on October 23, 2016. Construction of the major Huajing Port pumping station commenced on March 29, 2012, but because of the delays in the river crossing, could only undergo water commissioning of the eight large pump sets on March 26, 2017.


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Progressive trial-runs commenced on March 29, 2017, which marked full connection and successful operation of the PTS section of the BSTSS. PTS Performance

Table 8.10. Operational Performance of PTS Section of BSTSS

2015 2016 2017 Target %

Annual reduction of water pollution in the Puxi area of the

upper Huangpu River (COD tonnes/year)

Baseline

450,000

450,000

464430

(14430,

nett)

464,000

(14,000

net)

103% of

net

target

Volume of wastewater intercepted and conveyed by the

BSTSS (Puxi TS section) to the BWWTP (m³/day)

NIL NIL 200,000 195,000 102.6

Intermediate Results Indicators. The PAD identified two IRIs as follows:

• Total population served through the P TS section of the BSTSS is about is 1,810,100.

• Volume of wastewater intercepted and conveyed by the PTS section to the BWWTP (m³/day). Target

195,000 m³/day. Project end actual measured performance was 200,000 m³/day, which exceeded the target

by +2.6%.

Project Outcome Indicator. Annual reduction of water pollution in the Puxi area of the upper Huangpu River (COD

tonnes/year)22. The average annual COD reduction target was 464,000 tonnes/annum, (14,000 t/ann nett increase

above baseline). At project closure, the actual measured performance was a reduction of 464,430 t/ann (net

14,230t/ann), which is 103% achievement of the net target of 14,000 t/ann.

The successful completion of the PTS and the two linked projects means that the BSTSS is fully functional and

impacting positively on Shanghai’s efforts to reduce and control pollution in the Yangtze and Huangpu Rivers.

Therefore, the achievement of this POI contributes to the achievement of the PDO (2) of improving Shanghai’s

environmental sustainability through priority investments.

Institutional Strengthening and Training Component 4 (Part) Wastewater Sector.

It is important to put the IST activities in the wastewater sector into proper perspective. Running in parallel, but not

funded as part of the project, SMG undertook a major reorganization of the wastewater sector primarily to unbundle

sewage collection and transportation, including sewers and pumping station assets from all WWTP and sludge

treatment facility assets. As a result of the reorganization the SMSC, now has as only one primary core responsibility

focused on the provision of wastewater services to its very large customer base. It achieves this through the MOM

of Shanghai’s vast reticulation, collection, pumping stations and trunk sewer networks that delivers collects and

delivers wastewater to the WWTPs. The SMG has assumed the ownership and MOM responsibilities for the WWTP

asset group.

22 The calculation of COD load is based on a scientific formula involving the variables of (i) flow rate (m3/day), and (ii) COD loading of raw sewage in the BSTSS (mg/Lit).


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Consistent with its new role and to build on the IST efforts under APL1 and 2 in the wastewater sector, APL3

included three priority strategic studies/activities designed to build the medium to long term institutional capacity

of the SMSC to better manage wastewater services in Shanghai in more efficient and financially sustainable ways.

The three priority IST activities in this sector were identified as: (i) Project Management of Urban Infrastructure; (ii)

Feasibility Study of Asset Management System; and (iii) Optimization of Operations and Management of

wastewater systems. In addition, the need to build the implementation capacity and skills of SMSC for the proper

implementation of the project were also identified in important areas like procurement, financial and safeguard

management, and M&E and reporting.

Outputs. Activity (i) above was completed to the satisfaction of the Bank and is being utilized by SMSC to strengthen

its institutional planning and management of its existing and future infrastructure needs. Activity (ii) was cancelled

at the restructuring in June 2015, because it became clear that other subsidiaries of SMI had recognized the

importance of establishing an asset management system and had conducted similar research and development and

application of a suitable asset management system. Therefore, this asset management activity has been completed

and fully operationalized by SMSC using their own resources. This has exceeded the desired project outcome of just

a feasibility study level study and pilot introduction of an asset management system. The mainstreaming of an SMSC

wide asset management system has in fact resulted in enhanced institutional capability to manage, operate, maintain

and replace its huge asset base. For study activity (iii), the Bank approved the TOR during the project, but because

of the delays in completing the PTS, the whole BSTSS operation was delayed. The study is focus on the BSTSS and

therefore could not commenced until near the end of the project. Now that the BSTSS is fully functional, the study

on “Optimization of Operation and Management” of this large and complex wastewater collection system has now

commenced under the already approved TOR. The borrower is fully committed to the study and using their own

domestic funds to complete it. The final comprehensive study report is expected no later than September 2018 and

will be shared with the Bank for its records and comments as necessarily. Other similar studies on major trunk sewer

systems in Shanghai, such as the Western Trunk Sewer System, have been carried out by SMSC recently and so the

completion of this study as promised is highly likely. The study is very relevant to SMSC’s new role and responsibilities

for all sewerage system MOM upstream of, but not including WWTPs. (See Efficiency Section for more Details).

In addition to the strategic level studies as listed above, at the operational level SMSC, who was responsible for

implementing component 2, also carried out other IST activities as an integral part of implementation, including

overseas study tours and numerous domestic training sessions on procurement management, contract

management, technical issues and management operations and maintenance (MOM).

Overall IST Component Intermediate Results Indicators. Three IRIs for the IST component were tracked as follows.

Unfortunately these could not be separated between the sectors.

Table 8.11. IST Intermediate Results Indicators

Intermediate Results Indicator Actual Target % Achieved

Number of participants trained informal training sessions, seminars, study tours

and technical workshops

1170* 1204 97

Number of studies completed (Dropped from RF in June 2015)

5 (water 3 wastewater 2)

6 83


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Number of study tours conducted. (Dropped from RF in June 2015)

12 No target established in PAD IRI dropped

N/A

*A total of 1170 against a target of 1204 (97.2% achievement). There are an additional 46 staff who will undergo training

associated with the delayed SMSC strategic study (iii) Optimization of Operation and Management as detailed above in the IST

wastewater output section immediately above. This training will be done as part of and/or at the completion of the study at

the borrower’s own cost.


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ANNEX 9. Project Social Safeguards Resettlement, Land Acquisition, Demolition and Compensation

The SUEP APL3 Project consisted of four large-scale construction projects as follows: (i) the Nanhui Raw Water Conveyor pipeline project (Component 1); (ii) the Puxi Trunk Sewer project consisting of sewer pipelines major pumping station and a major river-crossing of the Huangpu River (Component 2); (iii) the Minfeng Raw Water Conveyor pipeline project (Component 3); and (iv) the expansion of the Xujing Water Treatment Plant capacity to 200,000m3/d. Note this activity was approved and started construction under APL2. Construction was completed under APL3. All resettlement actions were completed as part of APL2 and only engineering construction works were funded under APL3. For the first three listed major construction projects, all tasks included in the RAPs including land acquisition,

demolition, compensation, resettlement and external monitoring were completed at the end of May 2017. For the

fourth listed project, partially funded under APL3, the XWTP expansion, all RAP related activities were completed by

the end of April 2014. Therefore, the assessment of the social safeguards aspects of the XWTP is in annex 10 of the

APL2 ICR. For APL3, an external, independent and experienced consultant team was responsible for the monitoring

and evaluation of all RAPs, including the submission of external monitoring reports on a regular basis and a final

report dated June 2017.

As part of this final report, the independent consultant provided a concise overall evaluation on the land acquisition,

demolition and resettlement aspects of the project as follows. “Generally speaking, this project didn’t have negative

impacts on society thanks to sufficient compensation on affected enterprises, villagers or public facilities. Normal

daily life for enterprises and villagers has been restored by means of reasonable, timely and sufficient resettlement.

It is our finding that the processes employed and compensation paid, to both the affected enterprises and individuals

were satisfactory for both resettlement and land acquisition, and for land-borrowing/temporary acquisition”.


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Table 9.1 Summary of Land Acquisition demolition and compensation for AP3 Projects

Contents Nanhui Raw Water Conveyor

Minfeng Raw Water Conveyor

Puxi Trunk Sewer Totals

RAP Actual Var. RAP Actual Var. RAP Actual Var. RAP Actual Var.

Total area permanent acquisition (Mu)

548 549 1 4161 4162 1 11 11 0 4721 4722 2

State owned 323 0 -323 606 606 0 8 8 0 937 614 -323

Collectively owned 226 549 323 3556 3547 -9 4 4 0 3785 4099 314

Area which was arable

103 103 0 1433 1433 0 4 4 0 1540 1540 0

Total area temporarily acquired (Mu)

138 243 105 4,208 3,869 -340 122 129 7 4,468 4,240 -228

Total Affected PAPs. Nos.

202 202 0 2353 1189 -1164 0 0 0 2555 1391 -1164

PAPs subject to Resettlement Nos.

202 200 -2 2353 1205 -1148 0 0 0 2555 1405 -1150

Retired people 142 140 -2 2337 1189 -1148 0 0 0 2479 13299 -1150

Working People 60 60 0 16 16 0 0 0 0 76 76 0

No. of displaced HHs

26 26 0 0 0 0 0 0 0 26 26 0

PAPs affected by housing demolition

67 67 0 0 0 0 0 0 0 67 67 0

Area house demo (m²)

3413 3413 0 0 0 0 0 0 0 3413 3413 0

No. Comm. Enterprises

12 12 0 1 1 0 105 105 0 118 118 0

Area of enterprise demolition(m²)

4576 4576 0 0 0 0 0 0 0 4576 4576 0


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ANNEX 10. Theory of Change: Shanghai Urban Environment Project APL3


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ANNEX 11. Long Term Bank Engagement in Shanghai Urban Environment 1987-2018

Note: 1) “Upstream” refers to the main TA and IST activities in each APL projects. 2) In order to present the whole picture of Shanghai’s achievement in urban environment during this long-term engagement, the data on sector achievements were extracted from Shanghai Yearbook on the total capacity and impacts in the city (not limit to WB projects).


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MAP CHN43328

Documents

Implementation Completion and Results Report (ICR) Documentdocuments.worldbank.org/curated/en/333601514406479155/pdf/ICR00003540-12182017.pdfRFP Resettlement Framework Plans SCADA