People’s Republic of China: Evaluation Risk Mitigation and ......to dam failure. The effectiveness of the reservoirs in preventing flood damage was demonstrated in September 2018,

Performance Evaluation

Report

EvaluationIndependent

Raising development impact through evaluation

People’s Republic of China: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project

Project Number: 40683-013 Loan Number: 2700 Independent Evaluation: PE-818

Performance Evaluation Report November 2019

People’s Republic of China: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project

This document is being disclosed to the public in accordance with ADB’s Access to Information Policy.

NOTES

(i) In this report, “$” refers to United States dollars. (ii) For an explanation of rating descriptions used in Asian Development Bank

evaluation reports, see Asian Development Bank. 2016. Guidelines for the Evaluation of Public Sector Operations. Manila.

The guidelines formally adopted by the Independent Evaluation Department on avoiding conflict of interest in its independent evaluations were observed in preparing this report. To the knowledge of the management of the Independent Evaluation Department, there were no conflicts of interest of the persons preparing, reviewing, or approving this report. In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, the Independent Evaluation Department does not intend to make any judgments as to the legal or other status of any territory or area.

Director General Marvin Taylor-Dormond, Independent Evaluation Department (IED) Deputy Director General Véronique Salze-Lozac'h, IED Director Nathan Subramaniam, Sector and Project Division, IED Team leader Shimako Takahashi, Evaluation Specialist, IED Team members Lawrence Nelson Guevara, Senior Evaluation Officer, IED

Elizabeth Li-Mancenido, Evaluation Analyst, IED

Abbreviations

ADB – Asian Development Bank CPS – country partnership strategy EIA – environmental impact assessment EIRR – economic internal rate of return IWRM – integrated water resources management LPMO – local project management office M&E – monitoring and evaluation O&M – operation and maintenance PCR – project completion report PLA – permanent land acquisition PPER – project performance evaluation report PPMO – provincial project management office PRC – People’s Republic of China RRP – report and recommendation of the President SPS – Safeguard Policy Statement SPWRD – Shandong Provincial Water Resources Department TA – technical assistance

Currency Equivalents Currency Unit – yuan (CNY) At Appraisal At Project Completion At Evaluation (22 October 2010) (30 June 2015) (15 October 2019) CNY1.00 = $0.1503 $0.1610 $0.1415 $1.00 = CNY6.6523 CNY6.2083 CNY7.0676

Contents

Page

Acknowledgments vi

Basic Data vii

Executive Summary ix

Map xiii

Chapter 1: Introduction 1 A. Evaluation Purpose and Process 1 B. Expected Impact, Outcome, and Outputs 2

Chapter 2: Design and Implementation 4 A. Rationale 4 B. Time, Cost, Financing, and Implementation Arrangements 5 C. Procurement and Consultants 6 D. Safeguard Arrangements 7 E. Design Changes 7 F. Loan Covenants, Monitoring, and Reporting Arrangement 8

Chapter 3: Performance Assessment 9 A. Relevance 9 B. Effectiveness 11 C. Efficiency 17 D. Sustainability 19

Chapter 4: Other Assessments 23 A. Development Impact 23 B. Performance of the Asian Development Bank 24 C. Performance of the Borrower, Executing Agency, and Implementing Agencies 24

Chapter 5: Overall Assessment, Issues, Lessons, and Recommendations 25 A. Overall Assessment 25 B. Issues 26 C. Lessons and Recommendations 26

Appendixes 1. Summary Design and Monitoring Framework 29 2. Approved and Actual Project Costs 32 3. Safeguards 33 4. Summary Outline of Seven Subprojects 39 5. Economic and Financial Reevaluation 40

Acknowledgments This report was prepared by the Independent Evaluation Department (IED) of Asian Development Bank, led by Shimako Takahashi, with Lawrence Nelson Guevara and Elizabeth Li-Mancenido as team members. Consultants Ramon Abracosa and Chen Xiongfei provided valuable inputs and support. The evaluation was conducted under the supervision of Nathan Subramaniam, Director, Sector and Project Division, and under the overall guidance of Marvin Taylor-Dormond, Director General, IED. The evaluation team appreciates the support of the Shandong Provincial Government for facilitating preparation of the evaluation mission, data collection, the questionnaire survey, and review comments on the report. The team wishes to thank provincial and county governmental officials and representatives who made themselves available during the mission to the province. The team is also grateful to staff of the East Asia Department, Asian Development Bank, for providing project information and support as well as comments on the report. Comments received were incorporated as deemed appropriate. Review comments from Garrett Kilroy, Jonathan Cook, and Andres Liebenthal were also appreciated. IED retains full responsibility for the report.

Basic Data People’s Republic of China: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project (Loan No. 2700-PRC)

Safeguard classification: Environment Category B Sector classification: Agriculture, natural resources, and rural development Thematic classification: Environmentally sustainable growth, inclusive economic growth Borrower: People’s Republic of China Executing Agency: Shandong Provincial Government

Key Project Data ADB Loan Documents

($ million) Actual

($ million) Total project cost 90.1 88.4 ADB loan 29.8 25.2 Counterpart 60.3 63.2

Key Dates Expected Actual Appraisal 4–12 November 2009 Loan negotiations 18–19 October 2010 Board approval 19 November 2010 Loan agreement 24 January 2011 Loan effectiveness 24 April 2011 21 April 2011 Loan closing 30 June 2015 11 January 2016 First disbursement 29 August 2011 Completion report circulation September 2017 Validation report circulation September 2018

Type of Mission No. of Mission No. of Person-Day Fact-finding 1 24 Consultation 1 12 Loan negotiation 1 6 Inception 1 8 Special project administration 1 2 Review 3 12 Midterm review 1 12 Project completion review 1 4 Independent evaluation 1 15

ADB = Asian Development Bank, PRC = People’s Republic of China. Sources: ADB. 2017. Completion Report: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project in the People’s Republic of China. Manila; ADB. 2013. Technical Assistance Completion Report: Effective Reservoir Utilization for Integrated Water Resources Management in the People’s Republic of China. Manila; ADB (East Asia Department). 2017. Project Completion Review Mission to the PRC for Loan 2700-PRC: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project (22–25 May 2017). Back-to-office report (internal).

Executive Summary

This report presents the findings of the project performance evaluation of the Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project in the People’s Republic of China (PRC). Shandong Province, with the second-largest population in the PRC, is located in the lower reaches of the Yellow River. The project’s goal was to improve economic development in the downstream areas of seven reservoirs in five counties and one district: Huacun and Longwantao reservoirs (Sishui County), Muyu Reservoir (Laiyang County), Qiangkuang Reservoir (Zhucheng County), Renhe Reservoir (Qingzhou County), Shizuizi Reservoir (Shanting District), and Songshan Reservoir (Linqu County). Its anticipated outcome was to establish a sustainable and replicable reservoirs rehabilitation model. About 90% of all provincial reservoirs were built between the 1950s and 1970s while adopting the prevalent technical standards of those times. The province faced growing demand for water supply and needed to reinforce deteriorating reservoirs. The project sought to establish a sustainable and replicable reservoir rehabilitation and management model. Main components of the project were (i) rehabilitation of model reservoirs (i.e., reservoirs on which the rehabilitation and management model was applied), (ii) establishment of a sustainable reservoir rehabilitation and management model, and (iii) project management support. The intended beneficiaries were those populations residing

downstream of dam reservoirs (i.e., urban residents, enterprises, and farmers).

The Asian Development Bank (ADB) helped develop the project, which was funded by a concessional loan of $25.2 million from ordinary capital resources. Shandong Provincial Government was the executing agency, with its Shandong Provincial Water Resources Department as focal point. Implementing agencies were the governments of the five counties and one district. A leading group was established under the provincial government to spearhead the project’s preparation and implementation while providing overall project guidance. The leading group, chaired by the vice-governor of Shandong Province, included the deputy director of the Shandong Provincial Government Office and deputy directors general of the Shandong Provincial Finance Department, Development and Reform Committee, and Water Resources Department. The project was approved in November 2010. It became effective in April 2011 and was closed in January 2016. The total project cost was $88.4 million. The evaluation team conducted a desk review of the project and held discussions with staff from ADB, the provincial government, county agencies, and dam safety experts. It paid a field visit to three of the seven subprojects and conducted key informant interviews. The subprojects of

The Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project in the People’s Republic of China was designed to improve economic development in the downstream areas of project reservoirs in Shandong Province. It sought to establish a sustainable and replicable reservoir rehabilitation model. The evaluation assesses the project’s performance successful overall. It was relevant, effective, efficient, and likely sustainable. The rehabilitation of the seven reservoirs achieved the desired technical standards on designing flood volume and dam safety measures. This evaluation offers the following lessons: (i) flood control measures mitigate impact of extreme weather events, (ii) monitoring and evaluation is crucial for generating quality data and project implementation efficiency, (iii) increasing operation and maintenance budget and capacity are necessary for maintaining dam durability, and (iv) there is no one-size-fits-all model—the project reservoir rehabilitation and management model need to be customized to suit the reservoir requirements of other provinces.

x PRC: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project

Songshan Reservoir (Linqu County), Renhe Reservoir (Qingzhou County), and Qiangkuang Reservoir (Zhucheng County) were selected for the evaluation mission because of the investment size and social safeguard impact of these subprojects.

Performance Assessment

Relevance. The project was in line with the strategic objectives of the government and ADB. It was designed to serve the pressing need to rehabilitate old reservoirs in the province. The project also intended to develop and replicate the rehabilitation and management model throughout the country. Although the model was used in the province, the evaluation views that it was unrealistic for the project design to aim for replication of the model across the whole country, given limitations on provincial governments’ authorities to manage water resources beyond their individual provinces. Two reservoirs from the original nine endangered reservoirs were withdrawn midway during implementation. Notwithstanding, adequate information was generated from the remaining seven reservoirs in developing a sustainable model for reservoir rehabilitation and management. The project is assessed relevant. Effectiveness. The rehabilitation of the seven reservoirs achieved the desired technical standards on designing flood volume and dam safety measures. Of the three safety classes of reservoirs defined by national regulations—ranging from class 1 (safe) to class 3 (least safe)—the potential impact of class 3 reservoirs threatens lives and property downstream. Under the project, safety class of the seven reservoirs was improved from class 3 to class 1. The project contributed substantially to increasing water supply by 6.6 times and irrigation coverage by 59%. It led to increase in agricultural production and income levels. The project developed a sustainable and replicable reservoir rehabilitation model. It also contributed to reducing the risk for loss of life due to dam failure. The effectiveness of the reservoirs in preventing flood damage was demonstrated in September 2018, when two strong typhoons struck the region a week apart. Except for some damage at the foot of the spillway of one subproject, the project reservoirs sustained no damage to the embankments and dam structures. Further, the project safeguard implementation

was in line with ADB’s Safeguard Policy Statement. It turned out, however, that resettlement impact had been overestimated during project preparation. Nonetheless, the project promoted public dissemination and information sharing about the project and safeguard impacts before and during project implementation. This facilitated building consensus among local stakeholders at an earlier stage. The project is assessed effective. Efficiency. The evaluation recalculated the economic internal rate of return given in the report and recommendation of the President and project completion report. This showed that the project was economically viable with an overall economic internal rate of return of 20.9%. The project rehabilitation was completed on time. The project preparation period took 3 years, which was relatively shorter for ADB projects in the PRC but considerably longer than the government’s usual project preparation timetable of 1 year. The project is assessed efficient. Sustainability. The executing and implementing agencies exerted high levels of project ownership. The involvement of local engineering design institutes in assessing and designing the reservoir-strengthening measures implied that locally appropriate solutions were adopted, enhanced by international good practices, techniques, and a reservoir management model introduced by the project. The operations and maintenance (O&M) costs of the reservoirs are well within the fiscal capacities of the local governments. Dam safety management and a flood emergency response system are in place. However, there is no indication of increasing O&M in most of the project reservoirs. Considering potential impact due to excessive rainfalls and that the reservoir management authorities are not financially independent, adequate O&M budget needs to be secured. In addition, Shandong Province is well known for spring waters with high water quality and mountainous landscape scenery. Reservoir catchments are being maintained as ecological parks where farming, fishing, and settlements activities are strictly controlled. The project is assessed likely sustainable. Overall assessment. The project performance is considered successful overall; the project was

Executive Summary xi

assessed relevant, effective, efficient, and likely sustainable. Other Assessments Development impact. The goal to reduce poverty and increase income in downstream areas was achieved at the time of the evaluation. Incomes in downstream areas were enhanced through (i) improvement in agricultural production income and (ii) additional income derived by residents from increased tourism activities. Before the project, the livelihood of villagers depended on agricultural products, including wheat, corn, tobacco leaves, and silkworms. By making reliable irrigation water available, the project enabled crop fields located downstream to be more productive. Given that clean water is important especially for production of tobacco leaves and silkworms,

the project is likely to contribute to increased incomes. Linked with the water quality and landscape scenery of Shandong Province, tourism development is likely to be a significant benefit of the reservoir rehabilitation, although the project did not envisage this. Overall, the project has generated a positive feedback loop and created a strong economic incentive for both local governments and residents to protect the reservoir watersheds. The development impact is assessed satisfactory. ADB performance. ADB’s interactions with executing and implementing agencies were timely and appropriate. ADB was responsive to the government’s availability of funds and revised the scope of the project midway. Both the provincial and county governments visited during the independent evaluation mission provided positive feedback on the quality of ADB’s supervision and performance. There was adequate and timely consultation among stakeholders during the project preparation and implementation phases. At the design stage, however, ADB should have more commitment itself to provide clearer guidance in identifying resettlement impact inclusions. This would have prevented the overestimation of resettlement impact and inconsistent understanding on the impact inclusions. Overall, the performance of ADB is assessed satisfactory. Borrower, executing, and implementing agencies. This project provided the first ADB support

for the Shandong Provincial Water Resources Department. The executing agency possessed adequate capacity, appropriate governance structure and procedures, and capability in risk management for project preparation and implementation. The executing and implementing agencies demonstrated ownership during project processing and implementation. Establishment of the multilevel project management system contributed to fostering strong local ownership equally shared by individual executing and implementing agencies. It enabled good overall coordination of the project. The project was implemented in compliance with ADB’s Safeguard Policy Statement. The provincial project management office (PPMO) provided data during the evaluation, but data on irrigated areas and resettlement impact was of uneven quality. This made the task of verifying data and the overall evaluation exercise more challenging. That notwithstanding, the performance of the borrower, executing agency, and implementing agencies is assessed satisfactory. Issues, Lessons, and Recommendations Key Issues Discharge channels below the dams have not been fully rehabilitated. The project scope did not include strengthening discharge channels below the dams. As such, even if the reinforced dam spillways can safely pass floodwater, the unrehabilitated flood channels downstream may not be able to cope with the flood volume. Reinforcement of deteriorated downstream discharge channels is needed especially in the areas surrounding project reservoirs to ensure effective preventive measures for flood control. Data was of variable quality. This evaluation faced difficulty in verifying data on irrigation areas and resettlement impacts. This was due to (i) variability of data on irrigation areas submitted by the PPMO, (ii) discrepancies in resettlement impact data between the project completion report and PPMO, (iii) inconsistent understanding among executing and implementing agencies on whether or not public lands are included in resettlement impact, and (iv) confusing usage and various interpretations about permanent land acquisition and temporary land use. These factors contributed

xii PRC: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project

to overestimating resettlement impact at the design stage. Adequate O&M resources need to be in place for contingencies and sustainability. At the county level, reservoir management bureaus are responsible for dam safety management. However, they are not financially independent. Moreover, there is no sign of increasing O&M in most of the project reservoirs. Considering the typhoon experience in September 2018, proactive measures need to be taken to prepare for excessive rainfalls and mitigate disaster risk that might occur at any time. Lessons Flood control measures mitigate impact of extreme weather events. Functional linkage of dams and discharge channels is crucial for effective flood control. Rehabilitating non-project reservoirs, including the discharge channels below the reservoir dams, is necessary to mitigate flood impact. A dam and discharge channels below it need to be designed and managed as an integrated hydraulic system. For a similar project in the future, the full scope should be explicitly specified at design stage, even though future projects would be covered by domestic funds. Monitoring and evaluation (M&E) is crucial for generating quality data and implementation efficiency. Having quality M&E data is key to implementation efficiency and a sign of good project management. Institutional capacity for social safeguards implementation and data management needs to be strengthened.

Increasing O&M budget and capacity are necessary for maintaining dam durability. Adequate O&M budgets should be secured to make rehabilitated reservoirs and facilities sustainable. Strengthening of O&M capacity is needed to develop preventive measures and provide robust preparedness for disaster risks. There is no one-size-fits-all model. The project reservoir rehabilitation and management model

need to be customized to suit the reservoir requirements of other provinces. Sharing the model and project experience will allow other provinces to utilize the model as a best reference and customize it to their own conditions. This would be useful in helping them to develop their own site-specific plans. Recommendations ADB should pursue dialogue with the government to prepare an overall rehabilitation plan for similar dam and water infrastructure, with a view to prioritizing completion of rehabilitating class 3 dams and their related facilities in the surrounding areas. It is important to verify the long-term structural integrity of the reservoirs based on recent rainfall data so that the provinces can have better options for designing subsequent water infrastructure solutions that are cost-effective. Subsequent ADB projects should ensure that project monitoring systems are well established and institutional capacities of executing agencies are strengthened to enable collection of credible data. This will require improved M&E and data management systems. More resources should also be invested in capacity development to improve data management, monitoring, and implementation of social safeguards at the provincial and county levels. A well established and maintained project monitoring system, even after project completion for at least 3 years, would be useful to ensure assessment of project sustainability and impact. ADB should consider providing an option for sector assistance through new approaches including sector development programs at national and/or provincial levels. This will help overcome budget constraints and limited resources for broader geographic coverages. It will also facilitate the government to develop (i) specific high flood management programs for dam cascades by using hydrodynamic modeling in provincial reservoirs by safety class, and (ii) a mechanism to ensure that county governments receive funds at the right time for repairs.

CHAPTER 1

Introduction 1. The People’s Republic of China (PRC) has experienced rapid economic growth over the past three decades.1 Facing many environmental challenges, including water scarcity, pollution of water resources, and climate change, the country’s water sector has had a strong need to increase water supply and maintain its intended function in a sustainable manner. In the PRC, reservoirs have played an important role in flood control, irrigation, hydropower generation, and water supply. A large proportion of reservoirs built during the 1950s–1970s used technical standards that had become unsuitable and outdated by the early 2000s. This was true also of Shandong Province, which is located in the lower reaches of the Yellow River. The province needed to reinforce existing deteriorated reservoirs and adopt current technical standards and a sustainable operating model for reservoirs to manage flooding, natural disasters, and other potential climate change impacts. A. Evaluation Purpose and Process 2. The Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project of Asian Development Bank (ADB) was implemented from 2011 to 2016.2 A project completion report (PCR) was prepared in 2017 and assessed the project to be highly relevant, effective, efficient, and likely sustainable.3 A subsequent project completion report validation report by the Independent Evaluation Department in 2018 assessed the project successful.4 The project performance evaluation report (PPER) assesses the performance of the project in accordance with ADB’s project performance evaluation guidelines.5 3. Primary data for the evaluation were collected during an independent evaluation mission conducted on 21–27 January 2019 through (i) discussions with the provincial government and offices, as well as county government agencies; (ii) discussions and key informant interviews with other project stakeholders and beneficiaries; (iii) collection of field data and observations; and (iv) discussion with project staff at ADB headquarters. Due to time and resource constraints, the mission visited three out of the seven subprojects (reservoirs, ): Songshan Reservoir (Linqu County), Renhe Reservoir (Qingzhou County), and Qiangkuang Reservoir (Zhucheng County).6 Subproject selection criteria considered the size of investment, number of beneficiaries, balance of medium and large reservoir capacities (size of operational water storage capacity), and social safeguard impact. Secondary data included project documentation, water resources regulation documents from the PRC, and ADB financial data.

1 ADB. 2016. Country Partnership Strategy: People’s Republic of China, 2016–2020. Manila. 2 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance

Grant to the People’s Republic of China for the Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project. Manila.

3 ADB. 2017. Completion Report: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project in the People’s Republic of China. Manila.

4 Independent Evaluation Department. 2018. Validation Report: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project in the People’s Republic of China. Manila: ADB.

5 ADB. 2016. Guidelines for the Evaluation of Public Sector Operations. Manila. 6 “Subproject” and “reservoir” are used interchangeably in project documents. The report adopts “subproject.” The Map shows

the subprojects (reservoirs) visited by the independent evaluation mission.

2 PRC: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project

4. The findings and lessons of this evaluation will feed into the ongoing corporate evaluation of the Safeguard Policy Statement (SPS) and the country partnership strategy final review validation for the PRC.

B. Expected Impact, Outcome, and Outputs 5. The expected impact of the project was to improve economic development in the areas downstream of nine reservoirs covered by six counties and one district of Shandong Province: Anjing and Yangzhuang reservoirs (Pingyi County), Huacun and Longwantao reservoirs (Sishui County), Muyu Reservoir (Laiyang County), Qiangkuang Reservoir (Zhucheng County), Renhe Reservoir (Qingzhou County), Shizuizi Reservoir (Shanting District), and Songshan Reservoir (Linqu County).7 The envisaged outcome was to establish a sustainable and replicable reservoir rehabilitation model in the province. Intended benefits were dam safety against collapse; reduced flood damage; increased water supply; and ecological enhancement, including environmental flows and watershed reforestation. The populations residing downstream of the dam reservoirs were the target beneficiaries and included urban residents, enterprises, and farmers as water supply recipients. 6. The project had three components: (i) rehabilitation of model reservoirs, (ii) establishment of a sustainable reservoir rehabilitation and management model, and (iii) project management support. This project was the first ADB support for rehabilitating reservoirs in the PRC. 7. Rehabilitation of model reservoirs. The first component (costing $52.1 million) focused on rehabilitating reservoirs to meet modern technical standards of safety. It included physical improvement of reservoir-associated facilities (e.g., spillway, grout curtain of dam, cutoff in dam body and foundation, and dam slope protection) and upgraded irrigation structures and roads. A cycle of rehabilitation, management, monitoring, and evaluation of model reservoirs was adopted, which also supported component 2. Component 1 had the following subcomponents: (i) detailed design of the subprojects, (ii) rehabilitation of the reservoirs, (iii) resettlement and compensation of affected persons, and (iv) implementation of environmental management plans in the subproject areas. 8. Establishment of a sustainable reservoir rehabilitation and management models. The second component (costing $22.4 million) aimed to develop practical and cost-effective technologies for reservoir rehabilitation. This component consisted of (i) technical guidelines for reservoir rehabilitation, (ii) a methodology for estimating risk of dam failure due to hydrologic overloading, (iii) a risk-based methodology for reservoir rehabilitation planning, (iv) a reservoir portfolio database for the province, (v) watershed management measures, and (vi) a reservoir safety management model. The model was expected to be applied ultimately to other reservoirs in and beyond the province. 9. Project management support. The third component (costing $12.9 million) sought to strengthen institutional capacity of executing and implementing agencies for (i) sustainable rehabilitation and management of reservoirs; (ii) effective use of reservoirs; and (iii) project management, including monitoring and evaluation (M&E), procurement, disbursement, and implementation of environmental and social safeguards. The design and monitoring framework and progress made against its targets as assessed by ADB’s PCR and by this PPER are presented in Appendix 1. 10. For the associated technical assistance (TA), Effective Reservoir Utilization for Integrated Water Resources Management, that was approved together with the loan in 2010, the major objective was to support component 2 of the loan and develop a model for effective use of the reservoirs for integrated water resources management (IWRM). In particular, the TA was intended to (i) establish model plans for integrated water use for a selected river basin in the province, integrated flood management, and greater

7 Administrative locations are as follow: Sishui County in Jining Municipality; the counties of Linqu, Qingzhou, and Zhucheng in

Weifang Municipality; Laiyang in Yantai Municipality; and Shanting in Zaozhuang Municipality.

Introduction 3

environmental benefits downstream; and (ii) disseminate the established model and develop capacity for effective reservoir use. The grant funded consulting services for data collection, conducting surveys, hydrological analysis and water resource modeling, as well as hydrodynamic and flood modeling; formulating plans; and provision of equipment and materials.8

8 ADB. 2013. Technical Assistance Completion Report: Effective Reservoir Utilization for Integrated Water Resources Management

in the People’s Republic of China. Manila.

CHAPTER 2

Design and Implementation 11. This chapter provides information on (i) the rationale for the project; (ii) implementation arrangements in terms of time, costs, financing, and executing agencies; (iii) procurement and consultants engaged; (iv) safeguard arrangements; (v) design changes; as well as (vi) loan covenants, monitoring, and reporting arrangements. A. Rationale

12. More than 87,000 reservoirs have been constructed in the PRC. About 90% of the reservoirs were built during the period of the Great Leap Forward and Cultural Revolution (1958–1976) while adopting low technical standards and inadequate plans, surveys, and designs for rapid construction compared to current safety standards. 9 After being used for 30–50 years, many reservoirs had deteriorated and could no longer store water as originally designed. This was due to water leakage, instability of water-retaining dams, poor slope stability and dam construction quality, weathered and obsolete equipment and facilities, and inadequate spillway capacity to cope with emergency discharge of rapidly rising floodwaters.10 Consequently, most of the reservoirs did not function well to control floods, supply irrigation and household water, and generate hydropower. Also, monitoring facilities were lacking and maintenance and management of the reservoirs were inadequate (footnote 9). Hence, the country’s water sector urgently needed to rehabilitate reservoirs to increase water supply and maintain its various intended functions in a sustainable manner. 13. In response, the central government prioritized the strengthening of endangered reservoirs to meet the growing water demand. The Ministry of Water Resources implemented the National Reservoir Strengthening Program during 2001–2010 (footnote 9). After the national program was completed, more than 30,000 unsafe reservoirs still required rehabilitation. According to national standards for reservoir dam safety evaluation, there are three safety classes of reservoirs: class 1, class 2, and class 3.11 Of these, class 3 is the least safe and such reservoirs threaten lives and property downstream.12 14. Located in the lower reaches of the Yellow River in the northeastern PRC, Shandong Province was the province with the second-largest population (of about 92 million) in 2010.13 At the time of

9 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance

Grant to the People’s Republic of China for the Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project. Sector Assessment (Summary): Agriculture and Natural Resources (accessible from the list of linked documents in Appendix 2). Manila.

10 Recent assessments of climate change anticipate increased rainfall intensities and attendant flood risks, as well as increased weather variability and extreme events. https://climateknowledgeportal.worldbank.org/country/china/climate-data-projections (accessed 16 April 2019).

11 Water Conservancy and Hydropower Projects and Flood Classification Standards (SL252–2000); Guidelines on Reservoir Dam Safety Evaluation SL258-2000 (issued in 2000); SL258-2017 (updated in 2017).

12 Government of the People’s Republic of China, Ministry of Water Resources. 2005. Dam Rehabilitation Decision-Making in China. Beijing: Dam Safety Management Center. (i) Class 1 (good dams): actual flood control ability conforms to the requirements of Flood Control Standards; (ii) Class 2 (common dams): actual flood control ability does not conform to the requirements, but fits in with the Flood Control Standards for Reinforcement and Rehabilitation of Hydraulic Projects in Recent Stages, dam normal operation, no significant quality problems and operation; (iii) class 3 (deficient dams): actual flood control ability does not conform to requirements, significant quality problems that may constitute a real danger to dam safety.

13 The population of Shandong Province was about 100 million in 2018, according to the National Economic and Social Development Bulletin of Shandong Province.

Design and Implementation 5

project formulation, the province’s water resources per capita were about one-sixth of the national average, indicating serious concern for water scarcity (footnote 2). About 83% of the total reservoirs in the province were categorized under the most unsafe class 3. This proportion of reservoirs under the most unsafe category in the province was much higher than the national average (43%).14 Shandong Provincial Government had sought measures to rehabilitate reservoirs at reduced cost and with reduced adverse impact on the environment and people. In addition, reservoirs rehabilitated under the national program needed to be properly operated, maintained, and managed for safety and sustainable use. Further, this project was expected to bring positive impact through poverty reduction and environmental benefits downstream by (i) mitigating the potential risk of reservoir failure and protecting lives, property, and livelihoods; (ii) providing more water for agriculture and household use; and (iii) improving the quantity of reservoir releases during dry seasons.15 These potential benefits led to formulation of the first ADB rehabilitation project for existing reservoirs in the PRC.16 B. Time, Cost, Financing, and Implementation Arrangements 15. Loan. The project was approved in November 2010 and became effective in April 2011. It was completed in January 2016 and had no formal extension. Nevertheless, there was a 6-month delay in closing the project’s accounts. 16. TA for Effective Reservoir Utilization for Integrated Water Resources Management (TA 7658). Upon request of Shandong Provincial Government, ADB provided policy and advisory TA toward improving reservoir utilization for integrated water resources management in conjunction with the loan (footnote 8). The TA, approved together with the loan in November 2010, became effective in December 2010. The TA activities were completed in March 2013 as scheduled. The TA was financially closed in June 2013. 17. Project cost. At appraisal, project cost was estimated at $90.1 million ($53.6 million for component 1, $19.9 million for component 2, and $11.3 million for component 3) plus $1.1 million for interest during construction. This comprised $29.80 million (33%) from ADB’s ordinary capital resources and $60.30 million (67%) from government funds. The actual cost at completion totaled $88.4 million, with ADB financing 28.5% and the government 71.5% of total project cost. ADB financing ($25.2 million) was 15% less than the appraisal estimate. The relatively lower utilization vis-à-vis the original ADB loan amount was due, in part, to a change in scope, in particular, the withdrawal of two reservoirs (Anjing and Yangzhuang) that were rehabilitated by the government using domestic resources (footnote 3). The TA was approved for a total of $0.5 million. TA resources totaled $0.3 million from ADB’s Technical Assistance Special Fund and $0.2 million from the Multi-Donor Trust Fund under the Water Financing Partnership Facility.17 At the end of the TA, ADB had disbursed a total of $493,770, which was 99% of the approved amount (footnote 8). Project cost at appraisal as well as actual costs and financing arrangements are shown in Appendix 2. 18. Implementation arrangements. The executing agency for the project was Shandong Provincial Government. Considering that the project had seven subprojects in five counties and one district, the project adopted a multilevel project management system. A leading group, chaired by the vice-governor of Shandong Province, was established under the provincial government to lead the project preparation

14 ADB (Independent Evaluation Department), the provincial project management office (PPMO). 15 Footnote 2. The project was also expected to “sustain wetlands and the health of flora and fauna, maintain fisheries, preserve

water quality, and improve groundwater resources.” 16 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance

Grant to the People’s Republic of China for the Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project. Project Administration Manual (accessible from the list of linked documents in Appendix 2). Manila.

17 Financing partners are the governments of Australia, Austria, Spain, and Switzerland.


and detailed project implementation while providing overall project guidance.18 The provincial project management office (PPMO) was set up in the Shandong Provincial Water Resources Department (SPWRD). The PPMO managed project implementation and monitored overall progress, including to (i) manage environmental and resettlement impacts; (ii) monitor project progress and impacts; and (iii) assist implementing agencies in rehabilitation, management, and M&E activities of the model reservoirs. It was also responsible for overall coordination, capacity building, and liaison with ADB and the dam safety panel. 19. In order to support dam safety management, the PPMO organized a dam safety panel comprising three eminent national engineers. The panel had the following functions: (i) reviewing the rehabilitation plans and their implementation for the model reservoirs; (ii) providing comments and technical guidance in coordination with the project consultants, design institutes, and contractors;19 and (iii) ensuring that national dam safety regulations were followed and that rehabilitation works complied with design specifications and national standards. 20. Implementing agencies were the governments of the five counties and one district (para. 5). Similar to the provincial level, each implementing agency set up a local leading group per subproject reservoir.20 Under the local leading group, individual local project management offices (LPMOs) were responsible for project implementation and liaison with the SPWRD, local administration, and beneficiary organizations. The leading group established under Shandong Provincial Government provided overall guidance for the TA implementation. The provincial government provided counterpart staff, office accommodation and logistical support, as well as organized training and workshops. PPMO and the LPMOs administered day-to-day TA activities. C. Procurement and Consultants 21. Under the loan, ADB funded one consulting firm. The project used 98.5 person-months of the firm’s consultancy services, 6 person-months more than allocated at appraisal. This increase was mainly due to environmental assessment and training related to safeguards even as LPMOs saved funds for civil works of rehabilitation. ADB also engaged three individual consultants, as planned, for project management, resettlement, and the environment (footnote 3). The TA was carried out by a team of consultants as planned, with 15.7 person-months of international consulting services used for IWRM and 25.12 person-months of national consulting services for data collection, surveys, hydrological analysis, water resources modeling, hydrodynamic and flood modeling, formulation of plans, capacity building, and dissemination of the TA’s project outputs (footnote 8). The PPMO hired an independent agency for external resettlement M&E. In addition, the PPMO and LPMOs engaged 7 design institutes, 3 dam safety panel members, 1 procurement agency, 265 bid-evaluation committee members, 7 monitoring and advisory agencies for construction supervision, and 6 local environmental monitoring stations. They followed the domestic recruitment method and used counterpart funds. 22. All civil works, goods, and services were procured in accordance with ADB's Guidelines on the Use of Consultants (2007) and Guidelines for Procurement (2006). There were no major issues in the procurement of goods and services.21

18 Members of the leading group included the deputy director of Shandong Provincial Government and the deputy directors-general

of the Shandong Provincial Finance Department, Shandong Provincial Development and Reform Commission, and Shandong Provincial Water Resources Department.

19 Design institutes work on reservoir design at provincial and local levels. At provincial level, the institute is Shandong Province Water Resources Survey and Design Institute under the executing agency.

20 Local leading groups were set up for each subproject (reservoir) to coordinate with the executing agency and facilitate safeguard implementation. Mayor or vice mayor (chair), officials of the county government, including finance and water resources bureaus, and the development, and reform commissions (members).

21 Footnote 3. The PCR noted that there was advance contracting, with 12 works and 4 goods contracts signed before loan effectiveness. In addition, 8 works and 4 goods contracts were financed retroactively.

Design and Implementation 7

D. Safeguard Arrangements 23. Safeguards. As per ADB’s SPS, the project was classified as category B for the environment and involuntary resettlement and category C for indigenous people.22 The application of the SPS in this project was largely in line with domestic safeguard requirements.23 24. Implementing agencies were responsible for safeguard implementation at county level. The PPMO coordinated with each implementing agency, i.e., construction bureau, and relevant county government (water resources bureau, reservoir management bureau, and environmental protection bureau) to develop a detailed resettlement plan and an environmental management plan. The PPMO and LPMOs were jointly responsible for reporting to ADB and ensuring that mitigation measures identified in the environmental management plans were in compliance with the SPS. Independent external agencies commissioned by the PPMO assisted in environmental M&E of resettlement, including preparation of semiannual monitoring reports to ADB. 25. Environmental safeguards. Initial environmental examinations for the nine subprojects including environmental management plans were prepared during project preparation. Although environmental impact assessments (EIAs) were not applicable to the project due to its category B classification, local governments (counties or municipal) prepared their own EIAs under the PRC laws and regulations (footnote 23). 26. Social safeguards. The project had three types of resettlement impact: permanent land acquisition (PLA), temporary land occupation, and residential house demolition. With assistance from the local engineering design institutes, implementing agencies initially prepared resettlement plans for each of the nine subprojects. Owing to a design change during project implementation, two subprojects were removed and the resettlement plans of the remaining seven subprojects were updated. As a result, social safeguard impact was reduced. Safeguard implementation is discussed further in the assessment of effectiveness and in Appendix 3. The project was categorized to have some gender benefits, but a gender action plan was not required at project preparation. E. Design Changes 27. During implementation, there were two changes in project scope:

(i) Two subprojects, Anjing and Yangzhuang reservoirs (Pingyi County), were withdrawn from the project in December 2013. This occurred because the implementing agencies rehabilitated the two reservoirs themselves using domestic procurement procedures and government funds. 24 These withdrawals had been unforeseeable during project preparation according to the PCR and PPMO staff interviewed during the mission. This is discussed under relevance as a design issue and issue of efficiency.

(ii) There was a design change in the Muyu subproject in July 2011 for safeguard reasons to avoid PLA. During project preparation, the Muyu Reservoir subproject had anticipated PLA of 15.2 mu.25 Given that the original design was too complicated, the LPMO for Muyu Reservoir made adjustments to the flood prevention road.

22 ADB. 2009. Safeguard Policy Statement. Manila. 23 Government of the People’s Republic of China, Ministry of Environmental Protection. 2009. Management Guidelines on

Environmental Impact Assessment Categories of Construction Projects. 24 The change of removing two subprojects required subsequent changes including reallocation of ADB loan, addition of two new

civil works in the project scope, and changes in procurement. PCR and government completion report, back-to-office-report (April 2012 and December 2013).

25 1 hectare = 15 mu; 1 mu = 0.0667 hectares. Thus, 15.2 mu = 1.01 hectares.


F. Loan Covenants, Monitoring, and Reporting Arrangement 28. Loan covenants. The loan agreement had 51 covenants. All covenants under the loan and project agreements were complied with except for a covenant regarding discussions on financial statements, upon ADB's request, between ADB, Shandong Provincial Government, and local governments. As ADB did not request such discussions, it was not applicable. 29. Project monitoring and reporting. There was no additional monitoring and reporting mechanism other than a covenant provided to Shandong Provincial Government through the PPMO and each project local government through its LPMO to monitor and evaluate project outputs and outcomes through a project performance and monitoring system. Such system is to ensure that reservoirs covered under the project are rehabilitated and managed efficiently and that economic and social benefits are maximized. In particular, Shandong Provincial Government through the PPMO and each project local government through its LPMO was tasked to (i) collect necessary information on project performance prior to project implementation; (ii) establish a project performance and monitoring system not later than 3 months after the project implementation begins; (iii) report to ADB key findings of monitoring through semiannual progress reports; and (iv) submit a project completion report within 3 months after a project’s physical completion. Semiannual project progress reports including environmental monitoring were submitted to ADB during the entire project implementation period. LPMOs conducted adequate monitoring, especially operation and maintenance (O&M) of the reservoirs and flood management. The system worked well, especially when the project area experienced strong typhoons in 2012 and 2018. For safeguards, under the environmental management plan prepared for each subproject, LPMO and consultants conducted environmental monitoring during construction of the seven subprojects. The PPMO also recruited an independent external agency for resettlement M&E. The agency conducted follow-up surveys on livelihood status and submitted reports to ADB semiannually. The PPMO and LPMOs sometimes presented variable data, especially on irrigation areas and resettlement impacts. This is discussed in the effectiveness and performance sections.

CHAPTER 3

Performance Assessment 30. This chapter assesses the project’s performance based on four core criteria: (i) relevance in terms of development strategies and project design; (ii) effectiveness of achieving the envisaged objectives, outcomes and outputs; (iii) efficiency of utilization of resources from an economic and implementation perspective; and (iv) sustainability of the achieved outcomes and outputs. From these four criteria, an overall assessment is made in line with ADB’s Guidelines for the Evaluation of Public Sector Operations (footnote 5). A. Relevance 31. Strategic alignment. The intended outcome was strategically aligned with the government’s development goals of building a harmonious and moderately prosperous society through livelihood improvement. At appraisal, the project was in line with the government’s 11th Five-Year Plan for National Economic and Social Development (2006–2010). Among other objectives, the 11th five-year plan aimed to put growth and development on a sustainable path by balancing (i) economic and social development, (ii) urban and rural development, and (iii) economic growth and environmental sustainability.26 During implementation and evaluation, the project continued to be aligned with the next two plans: the 12th five-year plan of the PRC (2011–2015), which focused on strengthening construction of water conservation and disaster prevention and mitigation, and the 13th five-year plan (2016–2020), which stipulates importance of flash flood prevention and disaster management and the reinforcement of dilapidated reservoirs and sluices. 32. During appraisal, the project was consistent with ADB’s country partnership strategy (CPS) for the PRC, 2008–2010 (footnote 26). The CPS included water supply and sanitation, as well as agriculture and natural resources as priority sectors. ADB increasingly supported provincial and local governments to gain experience in alternative delivery mechanisms. During implementation, the project was in line with ADB’s CPS, 2011–2015 that sought to support demonstration projects of water and natural resources management and climate change initiatives.27 Sector priorities of the CPS encompassed water use efficiency and management, including flood control. Under ADB’s current CPS, 2016–2020, ADB supports the government’s efforts to develop an ecological civilization. Measures to achieve (i) environmental sustainability and pollution control, and (ii) climate change mitigation and adaptation play an increasing role. Emphasis has also been given to knowledge generation and innovativeness in priority sectors under CPS, 2011–2015 and CPS, 2016–2020 in line with ADB’s Strategy 2030.28 Finally, the project is on the same trajectory as the United Nations’ Sustainable Development Goals, specifically Goal 6 to ensure equitable access to water, increase water-use efficiency, and implement integrated water resources management. 33. Design. The design was based on the development priorities of the executing and implementing agencies in water resource management and on capacity and institutional analyses. Previous ADB water sector projects in the country had indicated the importance of sound watershed management and the necessity of strengthening IWRM to mitigate potential damage due to flood and prolonged and intensive

26 ADB. 2008. Country Partnership Strategy: People’s Republic of China, 2008–2010. Manila. 27 ADB. 2012. Country Partnership Strategy: People’s Republic of China, 2011–2015. Manila. 28 ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific. Manila.


rains. Lessons indicated that well planned and implemented projects required (i) strong commitment of the executing and implementing agencies in terms of financial and staff resources; (ii) thorough review of technical designs and technologies, rigorous economic and financial analysis, and detailed assessment of social issues; (iii) comprehensive analysis of the institutional capacity of the executing and implementing agencies; and (iv) thorough guidance of the executing and implementing agencies in relation to ADB policies, guidelines, as well as procedures for safeguards and procurement (footnote 2). The project was designed to strengthen the functions and resilience of existing reservoirs against potential discharge of floods, manage supply of irrigation and household water, and generate hydropower. 34. The project’s core objective was to rehabilitate dams and associated facilities. The project scope did not include rehabilitation of the discharge channels below the dams. Reinforcement should have been undertaken not only for the project reservoirs but also for discharge channels below. On this point, the PPMO responded that within the project funding size it was not possible to incorporate downstream channels in all of the seven subprojects. According to the PPMO, downstream channels are long and need considerable investments in reinforcement. These continue to be improved in sections using domestic funds under various programs for river channel improvement. The PPMO also noted that the government had understood the importance of the discharge channels during project planning and thus had made partial adjustments (e.g., in reconstructing the Qiangkuang Reservoir drainage channel and reconstructing the Huacun Reservoir’s irrigation channel). This indicates the government had an intention to rehabilitate discharge channels. In excluding the discharge channels, however, the project design did not maximize the rehabilitation scope to ensure effective preventive measures for flood control. 35. The project design had an outcome indicator of replication of the reservoir rehabilitation and management model in at least five provinces. Developing a reservoir management model depends on site conditions, including such geographic features as topography, geology, and stream characteristics, and thus it requires site-specific plans. An intention had been to replicate the rehabilitation and management model developed under the project throughout the country. Although the model was used in the province, it was unrealistic for the project design to aim for replication of that model across the whole country, given limitations on Shandong Provincial Government’s authorization to manage water resources beyond its individual province. In addition, SPWRD clarified that the majority of large and medium-sized reservoirs already had been reinforced. 36. Change in scope. The minor change in scope removing two subprojects was approved by Shandong Provincial Government in June 2011. This was due to the availability of domestic funding during implementation (para. 27). The executing agency and ADB were responsive to the change in scope, which was undertaken midway through the project. Although two reservoirs from the original target of nine endangered reservoirs were withdrawn from the project scope, adequate information was generated from the seven remaining reservoirs for use in developing a sustainable model for reservoir rehabilitation and management, including associated technical guidelines. This change did not affect the project’s relevance. 37. Innovative feature. In addition to the reservoir rehabilitation model, the project introduced multi-objective optimization modeling for reservoir operational control. Using this approach, the project addressed multiple functions of flood control, irrigation, drinking water supply, and environmental enhancement in ways that maximized and balanced the benefits obtained while optimally addressing water allocation issues. This added an innovative feature to the rehabilitation project. ADB’s support enabled the executing agency to adopt IWRM. It also contributed to improving the provincial government’s capability in water resources management. 38. To summarize, the project was in line with the strategic objectives of the government and ADB. It was designed to serve the pressing need to rehabilitate endangered reservoirs in the province while addressing issues based on past ADB and the PRC water resource management projects. The project

Performance Assessment 11

design remained relevant even though replication of the reservoir rehabilitation model beyond the province was deemed unrealistic by this evaluation. Overall, the project is assessed relevant. B. Effectiveness 39. The envisaged outcome was to establish a sustainable and replicable reservoir rehabilitation model in the province. The project had two major components: (i) rehabilitation of seven reservoirs, (ii) establishment of a sustainable reservoir rehabilitation and management model, and (iii) project management support. The achievements of these components can be measured by the increase in flood damage mitigation and water supply in areas downstream of the project area.

1. Achievement of Outcomes and Outputs a. Rehabilitation of Model reservoirs

40. The project undertook (i) dam rehabilitation, specifically the reinforcement of dam bodies and foundations, and (ii) spillway rehabilitation and/or reconstruction to improve spillway capacity for emergency discharge of rapidly rising floodwaters. Reinforcement of the dam bodies included installation of a diaphragm cutoff wall across the dam body and foundation, as well as dam slope protection against slumping. 41. A Dam Safety Management Center under the Ministry of Water Resources is responsible for national and provincial dam safety management, compiling national regulations and technical standards of dam safety inspection and assessment, and conducting monitoring and appraisal of dam safety. The rehabilitation of the seven reservoirs achieved the desired technical standards on designing flood volume and dam safety measures as defined by national regulations.29 As a result, and as shown in Appendix 4, the safety class of the seven reservoirs was raised from class 3 (least safe) to class 1 (safe).30 Also, the proportions of class 1 versus class 3 reservoirs was reversed. Before the project, 92 reservoirs were class 1 and 450 reservoirs were class 3. After the project, 453 reservoirs were classified class 1 and only 89 remained class 3.31 This allowed county governments (i.e., reservoir management authorities, water resource management bureaus, and construction bureaus) to save considerable labor and cost required for repairing reservoir facilities and downstream canals. 42. Reduced flood damage. Prior to the project, the reservoirs were in such poor condition that they only could protect against a 30-year flood.32 With the rehabilitation project adopting current dam safety standards, the flood protection level was raised such that the dams could protect against a 100-year design flood. The probability of a 30-year flood occurring in any given year is 3.3%, whereas the probability of a 100-year flood occurring in any given year is 1%. The reduction in flood risk is therefore calculated as about 70% risk reduction.33

29 Current specifications and standardized procedures issued by Chinese authorities in design and safe operation of reservoir

projects include (i) Regulations of Reservoirs Dam Safety Management, Ministry of Water Resources, 1991; (ii) Guidelines on Reservoirs Dam Safety Evaluation, SL258-2000, Ministry of Water Resources, 2000; and (iii) Law on Management of Degradation and Disuse of Reservoirs. Ministry of Water Resources, 2003.

30 With regard to size, small class 3 reservoirs have been reduced in number from 429 to 86; medium class 3 reservoirs from 17 to 3; and there are no more class 3 large reservoirs at the time of evaluation. Small, medium, and large classifications are based on reservoir capacity (i.e., volume of water storage).

31 As of 2008, reservoir safety in Shandong Province was of great concern in that 71% of the province’s reservoirs were in the least safe category of class 3. Neither the report and recommendation of the President nor the PCR provided any information about reservoirs by class. The PPMO reported during the mission that there were no project reservoirs under Class 2.

32 A 30-year flood refers to a flood that would occur, on average, once every 30 years. The probability of an N-year flood occurring in any given year is 1/N. For instance, the probability of a 30-year flood occurring in any given year is 1/30 or 3.3%. The probability of a 100-year flood occurring in any given year is 1/100 or 1%.

33 (3.3%−1%)/3.3% = 0.70.


43. The evaluation notes that the effectiveness of the reservoirs in preventing flood damage was demonstrated after the project. In September 2018, two strong typhoons struck the region just one week apart. These were the first strong and consecutive typhoons experienced since the project had been completed. Total rainfall was recorded at 1,100 millimeters during the year compared to the annual average of 650 millimeters.34 The reservoirs held up with no damage to their embankments and dam structures, except that there was some damage at the foot of the spillway at the Renhe dam. That damage has been repaired. 44. Water supply. Despite that the original dam and embankment heights themselves remained unchanged, the reservoir strengthening led to an increase in the operational capacity of the seven rehabilitated reservoirs. Profiles of the seven reservoirs are presented in Appendix 2. These show the changes in water supply, irrigation coverage, and operational water storage capacity. They also list the reservoir watershed area. 45. The project has led to a significant increase in urban and industrial water supply (Figure 1). Before project implementation, water supply was 9,720,000 cubic meters (m3)/year with only Longwantao Reservoir being connected to a distribution network. At evaluation, the water supply was 64,280,000 m3/year and six of the seven dams were connected to the water supply distribution system. The project contributed to increasing the water supply by 6.6 times in total.

46. The project also contributed to a significant increase in irrigated areas (Figure 2). Before project implementation, irrigation coverage for the seven subproject areas totaled 27,147 hectares. At evaluation, the irrigated area was 43,267 hectares.35 The project thus contributed to increasing total irrigation coverage by 59%. Each subproject showed a marked increase in irrigated area.

34 Rainfall was measured at monitoring stations near three of the reservoirs. 35 During the evaluation, the PPMO provided uneven data on irrigated areas, indicating that data management under the project

monitoring system should be improved.

Figure 1: Increase in Water Supply (10,000 cubic meters/year)

Sources: Shandong Provincial Water Resources Department, Provincial Project Management Office, and Asian Development Bank (Independent Evaluation Department).

0

500

1000

1500

2000

2500

Qiangkuang Renhe Huacun Longwantao Songshan Muyu Shizuizi

Before Project After Project


b. Establishment of a Sustainable Reservoir Rehabilitation and Management Model

47. Development of the model. The term model and its components specifically refer to (i) technical guidelines for reservoir rehabilitation, (ii) methodologies (translated into a manual) for estimating the risk of dam failure due to hydrologic overloading, (iii) a framework for setting up a provincial reservoirs database, (iv) a general manual for reservoir safety management, and (v) watershed management measures. The executing agency confirmed that the model’s technical guidelines were fully applied to the strengthening of other small reservoirs in the province. Apart from their dissemination, the replication of the model within the province is supported by evidence as follows:

(i) Technical guidelines. The guidelines provided methodologies for reservoir rehabilitation and sustainable management derived from testing in the seven project reservoirs (i.e., by monitoring and evaluating technologies used in the project reservoir rehabilitations). SPWRD handed over the guidelines, including a manual for dam failure risk analysis, to the provincial water resource design institutes engaged regularly in designing the strengthening of reservoirs in the province.36

(ii) Methodologies for estimating dam failure risk. The design institutes updated pre-project dam failure risk analyses during project implementation. The updated dam failure analyses and flood risk mapping made use of more accurate hydrodynamic simulation models whereas risk analyses prior to the project were carried out using empirical equations.37 The manuals were prepared for dam safety planning and operation. The manuals translated into Chinese were provided to the authorities in charge of the seven reservoirs. The design institutes have used these in preparing flood risk maps to delineate flooded areas associated with different levels of dam failure. This capability has been applied for other of the province’s large and medium-size reservoirs (e.g., Mengjiagou Reservoir in Weifang City and Zhuangli Reservoir in Zaozhuang Municipality).

(iii) Reservoir portfolio database model. A reservoir portfolio database model developed under the project has been used to support reservoir management in the province (down to municipal and county levels). Because the model was for a database management system, the assembled information on all the project reservoirs (e.g., their structural

36 Those institutions include the Shandong Water Resource Survey and Design Institute, Shandong Provincial Water Science Institute,

and various county and/or city design institutes. 37 The provincial design institutes in Shandong are all well established. They have long track records in reservoir reservoir-

strengthening design and are equipped with hydrodynamic modeling tools of their own.

Figure 2: Increase in Irrigation Coverage (1,000 hectare)

Sources: Provincial Project Management Office, Asian Development Bank (Independent Evaluation Department).

0

5

10

15

20

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Qiangkuang Shizuizi Muyu Renhe Songshan Huacun Longwantao

Before (2009) After (2016)


components, water regime characteristics, and flooding situations) in the database is being updated regularly by SPWRD.38

(iv) Guidelines for watershed management. SPWRD adopted measures drawn from the IWRM study. The operation and management of the reservoirs are currently being undertaken in accordance with IWRM management principles and practices. The IWRM model is fundamentally a set of management principles emphasizing optimization of efficient and equitable use of reservoir water, effective flood management, enhanced environmental benefits downstream of the reservoirs, and stakeholder participation.

(v) Guidelines for reservoir safety management. The flood prevention and emergency response plans, including the management and maintenance plan for each reservoir, were set up with reference to the model. For two subproject sites, Qiangkuang and Shizuizi reservoirs, the reservoir safety management guidelines have been developed into an O&M manual.

48. Under the accompanying TA, the project demonstrated the application of IWRM to reservoir operation. The TA project introduced multi-objective reservoir operation optimization modeling and flood modeling software tools. The IWRM plan was fitted to the basin’s specific hydrological characteristics and the concerns of multiple stakeholders there. For example, a plan specific to the Xianhe basin, covering the Muyu Reservoir, optimized use of the reservoir for flood control in combination with use of stored water for drinking water supply and for enhanced environmental flow benefits downstream.39 It was prepared to serve as an IWRM model as well as reference for the province.40 The model completed by the end of 2012 was afterward disseminated within the province. 49. Model dissemination and replication. The term dissemination refers to sharing of information, whereas replication means actual application of the model. The reservoir rehabilitation and management model developed under the project was disseminated widely through conferences and publications as well as websites and social media. For example, at a workshop organized by the Huai River Conservancy Commission in March 2016, CD-ROMs and brochures of the model were distributed to participants from provincial, city, and county water resource departments and/or bureaus from Anhui, Henan, Jiangsu, and Shandong provinces. The materials were shared on a request basis with non-project water resources bureaus beyond the province (e.g., the Water Resources Bureau of Tianjin Municipality along the Huai River). 50. Replication cannot be confirmed if it were to mean actual use of the model outside Shandong Province. The executing agency explained that the guidelines, methods, and measures described in the model were meant to serve as best-practice reference for other provinces. In fact, other provinces do not rely on the model exclusively because the rehabilitation and safety design of any given reservoir design depends on site-specific conditions. Similarly, the general manual developed for reservoir safety management had to be customized to serve as site-specific manuals and provide practical measures for Shizuizi and Qiangkuang reservoirs. 51. As such, the model guidelines and methods are primarily useful for reference in developing site-specific plans. Exact model replication across the PRC was neither realistic nor expected by the province. The evaluation notes that the reservoir rehabilitation and management model developed has been widely disseminated. Whether the model was replicated across the country could not be ascertained. Nevertheless, there is room for the province to disseminate the model to other provinces, including the

38 ADB (Independent Evaluation Department). 39 Technical and management tools appropriate to the basin’s needs are used in setting up the management plan. The water

resource management system is continually improved during implementation. 40 Various models were used in the project. However, the main model was the “reservoir rehabilitation and management model”

that was developed and applied to seven reservoirs, which then served as models. The project also used “hydrodynamic simulation models” to estimate flood extent and damages, a multi-objective reservoir operation optimization model (developed under the overall IWRM model) and also set up a reservoir portfolio database model.


guidelines, methods, and measures. It would be useful to others in developing their own site-specific plans.

c. Project Management Support

52. Training and workshops were the core of project management support and contributed to enhance capacities of the executing agency and implementing agencies. A local project management office under individual implementing agencies was responsible for preparation and implementation of reservoir rehabilitation in the counties and for safeguard implementation. While staff in charge of water resource management of the executing agency and the implementing agencies had adequate skills and experience in dam and reservoir rehabilitation, ADB’s safeguard policies were a new experience for them. They were active in learning about the safeguard requirements and worked hard along with the resettlement plans and the environmental management plan. 53. According to the implementing agencies, however, more ADB safeguard training for their staff was needed, given most of the staff were civil engineers. Only one staff, the chief of the construction bureau, participated in the safeguard training but that was not adequate to cover all aspects of ADB safeguard requirements. The problem of skills upgrading was aggravated by staff turnovers within county governments. Monitoring system should have been more solid for generating quality data. Institutional capacity of safeguards and data management needs to be further strengthened at county levels.

2. Assessment of Safeguards Conditions

54. The application of SPS for this project was largely in line with the PRC’s domestic safeguard requirements.41 Gaps between the PRC and ADB requirements relate to aspects of public consultation and information disclosure, as well as grievance redress mechanisms. Implementing agencies at the county level were responsible for safeguard implementation (para. 24). The safeguard analysis is detailed in Appendix 3. 55. Environmental impact. Environmental impacts were temporary and limited to water and air quality, noise, dust, soil erosion, and solid waste during construction in the dry season, at which time impacts on flooding and water turbidity were minimal. The capacity for safeguard implementation was developed through practical training on environmental management, monitoring, and grievance redress mechanisms. An emergency response plan (e.g., regarding discharge of rapidly rising floodwaters) for the period of the rehabilitation works was prepared for each reservoir site and the plan was shared with the people living downstream. 56. Resettlement impact. There were three types of resettlement impact: (i) PLA, (ii) temporary land use, and (iii) residential house demolition. The PPMO provided updated data on social safeguard impact showing significantly lower resettlement impact compared to that reported in the PCR, especially of PLA. Table 1 summarizes land acquisition and resettlement impacts reported for the three stages, design, completion, and evaluation.

41 Management Guideline on EIA Categories of Construction Projects, Ministry of Environmental Protection (effective in 2003).


Table 1: Impact of Land Acquisition and Resettlement

Impact

Unit

Design Completion Evaluation PCR PPMO b PCR PPMO b PPMO b

Permanent land acquisition

Total land (mu) 302.9a 58.35 b 269.2 a 32 b 32b Affected households (no.) 169 99 112 72 72 Affected persons (no.) 618 344 382 231 231

Temporary land use

Total land (mu) 399.9 496.2 259.7 253.8 Affected persons (no.)

1,019 609

House demolition

Total area (m2) 1,056 1,042 189 Affected households (no.) 6 3 7 1

PCR = project completion report, PPMO = provincial project management office. Note: 1 mu = 0.667 hectares. a From the PCR (Appendix 10, Table A10.1), including bureaus’ land (nine subprojects). b PPMO, excluding bureaus’ land, and Asian Development Bank (Independent Evaluation Department). Sources: Asian Development Bank. 2017. Completion Report: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project in the People’s Republic of China. Manila; PPMO; and ADB (Independent Evaluation Department).

57. There was a discrepancy in total land size under PLA in each stage. At evaluation, the PPMO reported the PLA related to village and farmers’ land only. Regarding the gap, the PPMO confirmed that the report and recommendation of the President and PCR had included government bureaus’ lands (public property) in PLA impact and thus overestimated that impact. Also, there was some confusion in the implementing agencies on how to deal with public land in terms of impact and compensation scope.42 According to the ADB safeguard policy, for those without formal land rights, loss of assets based on the land is regarded as impact entitled to be compensated. Similarly, this report denotes resettlement impact as land areas that were vacated and could not be used because of the project, regardless of whether land belongs to counties or villages and individuals. 58. Most temporary land use concerned land belonging to the reservoir management bureaus. Farmers had been planting crops or trees on those public lands for many years before the project. Local governments had allowed villagers to cultivate the lands until the project started. During project implementation, implementing agencies recognized the inconsistent understanding on temporary land use and defined the meaning of temporary land use and kinds of structures eligible under house demolition impact.43 The implementing agencies explained the definition and related compensation scheme to affected persons, upon which explanation they agreed. The project compensated only for the loss of young crops, trees, and structures in line with the SPS.44 As a result, compensation cost was reduced from CNY10.5 million to CNY4.7 million.45 59. Overall, there was inconsistent understanding among executing and implementing agencies about (i) how to deal with “public” lands in identifying impact, and (ii) confused usage and various interpretations about PLA and temporary land use. These points should have been clarified at the design stage to bring all project agencies onto the same page. Such inconsistent understanding about resettlement impact resulted in overestimating the impact under the project.

42 For example, the PPMO did not recognize public land to be compensated and thus did not include it in resettlement impact.

According to the SPS, the land, whether it is public or private, should be counted as resettlement impact. 43 At the evaluation stage, housing demolition impact counted only the residential houses of villagers, excluding such ineligible

structures as tobacco drying rooms or fruit tree watching rooms. 44 According to the SPS, the project affected persons who had used public lands temporarily are defined as “persons who lost the

land they occupy in its entirety or in part who have neither formal legal rights nor recognized or recognizable claims to such land,” to which the involuntary resettlement requirements apply. Under the SPS, they were entitled to be compensated “for the loss of assets other than land, such as dwellings, and also for other improvements to the land, at full replacement cost.”

45 ADB (Independent Evaluation Department).


60. Public dissemination. The interview responses of beneficiaries and affected persons were thoroughly positive about (i) the project benefits from reduced flood damage and increased stable water supply and irrigation coverage; and (ii) safeguard experience, including consultation and compensation before the project start and information disclosure during implementation. Both the environmental management and resettlement plans were disseminated publicly prior to the project. That facilitated building consensus among local stakeholders, and especially affected persons, from the beginning.

61. To summarize, the project strengthened the flood risk control function of the model reservoirs. Safety class of the seven reservoirs was improved from class 3 to class 1. Consequently, more water became regularly available for irrigation and drinking water supply, and that contributed to enhancing income levels. The project safeguard implementation was in line with the SPS. As it turned out, however, resettlement impact had been overestimated at project preparation. Nonetheless, public dissemination and information sharing about the project and safeguard impacts, before and during the project, facilitated building consensus among local stakeholders. The project is assessed effective. C. Efficiency 62. Economic efficiency. The economic internal rate of return (EIRR) was calculated for the three visited subprojects and the project as a whole to reexamine the economic viability of the project and subprojects at the time of project evaluation using ADB’s standard methodology for EIRR calculation.46 The resulting EIRR was 20.9%. The economic analysis is detailed in Appendix 5. 63. The economic analysis considered the following benefits: (i) flood damage avoided, (ii) increased agricultural production, (iii) increased water supply, and (iv) increased aquaculture production. Excluded are such benefits as (i) harm to people avoided, (ii) indirect impact of enhanced tourism development, (iii) development of a reservoir rehabilitation and management model for replication in the province, (iv) employment generated during project implementation, and (v) strengthening management capacity. Given that significant additional indirect and unquantifiable benefits, such as environmental benefits, were not included into the calculation, the recalculated EIRRs are conservative estimates as to the economic viability of the subprojects and overall project. 64. With regard to cost, the incremental economic cost consists of the capital cost of reservoir rehabilitation and subsequent O&M. In the PCR, the pre-project O&M cost appears to have been treated as sunk cost and was excluded from the cost calculation. This PPER reasoned that the pre-project O&M cost would continue to have been incurred in a without-project scenario and should be considered in calculating the incremental cost of O&M.

65. Table 2 compares EIRRs at project appraisal, project completion, and this evaluation. At appraisal, the project’s EIRR was estimated to range from 14.8% to 17.5% by subproject and the overall project EIRR was 16.2%. At completion, the EIRRs ranged from 15.1% to 18.7% and the overall project EIRR was 15.8%. All the recomputed EIRRs were higher than the 12% benchmark, indicating that the seven subprojects and project as a whole were economically viable at completion. At evaluation, the recalculated EIRRs had a wider spread among subprojects, ranging from 15.4% to 25.6%. All seven subprojects are deemed economically viable.

46 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila. The current ADB cutoff rate is 9%, but this evaluation uses

the previous ADB cutoff rate of 12% because the appraisal year is 2010.


Table 2: Recalculated Economic Internal Rates of Return at Project Appraisal, Completion, and Evaluation (%)

Subproject EIRR at

Appraisal a EIRR at

Completion a EIRR at

Evaluation Qiangkuang 15.0 15.9 24.9 Shizuizi 17.3 17.3 19.6 Muyu 14.8 16.6 20.3 Renhe 14.9 15.1 15.4 Songshan 17.3 17.3 21.5 Huacun 17.5 18.7 25.6 Longwantao 17.5 16.3 15.7 Overall project 16.2 15.8 20.9

EIRR = economic internal rate of return. a From project completion report. Sources: Asian Development Bank. 2017. Completion Report: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project in the People’s Republic of China. Manila; and Asian Development Bank (Independent Evaluation Department).

66. For the overall project, the recalculated EIRR of 20.9% at evaluation was higher than the computed EIRR of 15.8% at completion. The difference was due to (i) the fact that the PCR calculation was based on an increase in O&M cost after the project, whereas the PPER calculation was based on the latest PPMO data showing a decrease in O&M cost (in economic terms) after the project; and (ii) updated costs for land acquisition and resettlement. 67. The robustness of the subprojects and overall project’s economic viability was further subjected to a sensitivity analysis using three scenarios: (i) 10% increase in prevailing O&M costs, (ii) 10% decline in benefits, and (iii) combination of (i) and (ii). For all three scenarios, the subprojects and overall project remained economically viable, the overall EIRRs being 20.8%, 19.3%, and 19.2%, respectively (Appendix 5, Table A5.3). That analysis proved the EIRRs to be more sensitive to the reduction in benefits than the increase in O&M costs. This is because the evaluation calculations used incremental O&M cost, which was reduced as a result of the rehabilitation. 68. Further, the executing agency noted that meeting ADB’s requirements during project preparation (including loan processing and documentation) took 3 years, considerably longer than the government’s usual project preparation timetable of 1 year. As a result, some reservoir rehabilitation subprojects that could potentially have been included in the project decided to stay out if domestic funding was available. The project did not anticipate this change in project profile.47 To be fair, however, the preparation period was relatively short, considering that many foreign-funded projects take 4–5 years for project preparation. 69. In summary, the EIRRs for the project and subprojects were found to be economically viable even were there to be a combination of increase in cost and decline in benefits. The project was completed as scheduled and had no formal extension. Project preparation (including meeting the requirements of ADB) took considerably longer than the government’s usual project preparation timetable of 1 year. Given the robust EIRRs, however, the project is assessed efficient.

47 This risk should be anticipated, particularly when working in countries with strong financial capability such as the PRC.


D. Sustainability 70. Institutional ownership. The executing and implementing agencies demonstrated high levels of ownership during project preparation and implementation. The involvement of local engineering design institutes in assessing and designing the reservoir-strengthening measures meant that locally appropriate solutions were adopted and were enhanced by international best practices, techniques, and the reservoir management model introduced by the project. The establishment of a multilevel project management system (i.e., provincial executing authority, leading group advisers, dam safety expert panel, and local government implementing agencies) enabled strong local ownership by and smooth facilitation among county governments over the project period (paras. 18–20). 71. Operation and maintenance. After the project, the executing agency turned over the rehabilitated facilities to the local governments. The reservoir management authorities for the seven rehabilitated reservoirs are responsible for reservoir O&M. The O&M costs of the reservoirs have been well within the fiscal capacities of the local governments. Table 3 shows the revenue generation and debt service capacities of those local governments. Reservoir O&M cost is small in relation to the fiscal capacity of the county governments, including their ability to cover debt servicing. The annual debt service is a small fraction (ranging from nil to 0.17%) of the annual self-generating revenue of the county local governments.48 Shandong Provincial Government has guaranteed the loan of the six local governments. The guarantee amount represents less than 0.001% of the provincial budget.

Table 3: Revenue Self-Generation Capacity Compared with Debt Servicing Requirements in 2017

Local Government Zhucheng Shanting Laiyang Qingzhou Linqu Sishui

Reservoirs Qiangkuang Shizuizi Muyu Renhe Songshan Huacun and Longwantao

Annual self-generating revenue (CNY million)

8,247 1,447 3,800 6,584 2,802 1,824

Annual debt service (CNY million) 247.00 0.62 2.74 0.25 1.54 3.09

Debt service as a percentage of annual self-generating revenue (%)

0.03 0.04 0.07 0 0.05 0.17

Source: Shandong Provincial Water Resources Department, Provincial Project Management Office. 72. The reservoir management authorities are not financially independent entities, and the costs are covered from various provincial, city, and county government sources. This is supplemented by income from irrigation tariffs collected by the reservoir management authorities. Each reservoir management authority receives a special allowance for O&M from the county government. In the case of Renhe Reservoir, the allowance is CNY250,000 annually. Additional budget for reservoir damage repair is provided when needed. When in 2018 a sidewall section of the Renhe spillway was damaged by typhoons, for instance, the local government provided CNY6 million for the repair. In addition, they charge water supply tariffs that partly support O&M costs. Specifically, an irrigation water supply tariff is collected directly by the reservoir management authorities and is used for O&M.49 73. Other tariffs related to water sourced from the reservoir are not collected directly by the reservoir management authorities. For instance, the water supply companies that source raw water from the

48 Self-generating revenue means revenues collected by the county governments, such as local taxes and user fees. It is not revenue

transferred from the central government. 49 In the case of Renhe Reservoir, the irrigation water tariff is CNY0.06/m3 for a service area covering 30,000 mu.


reservoir charge urban users for drinking and industrial water supply.50 The water supply companies in turn pay (i) a water source tariff, (ii) a water resource tax, and (iii) a water treatment tariff to the local government.51 In this way, the local governments generate revenues with which to sustain O&M of the reservoirs through budget allocations, including funds for emergency repairs. 74. Before the rehabilitation’s completion, reservoir O&M costs in financial terms ranged from CNY0.38 million to CNY5.55 million per year. After rehabilitation, corresponding O&M costs have been reduced—except in the case of Muyu Reservoir—and have ranged on average from CNY0.24 million to CNY0.92 million per year. For Muyu Reservoir, the O&M cost rose from CNY550.00 million to CNY910.00 million (Table 4). According to the PPMO, the high O&M cost for Muyu is because of its large size and mainly water supply function. Considering potential impact due to excessive rainfalls and that the reservoir management authorities are not financially independent, adequate O&M budget needs to be secured. The current reservoir O&M budgets should be closely monitored and reviewed as needed. On this point, SPWRD has clarified that (i) maintenance funds are to be arranged every year according to the data and cost estimates provided by the reservoir administration authorities; and (ii) in the event of damage and need for reinforcement, the Shandong Province financial administration will allocate special funds for the rehabilitation.

Table 4: Reservoir Operation and Maintenance Cost (CNY 10,000)

Reservoir

O&M Cost Before Rehabilitation (2011 data)a

O&M Cost After Rehabilitation

2015 2016 2017 Qiangkuang 98 96 92 89 Renhe 65 47 49 49 Songshan 45 30 30 30 Muyu 550 900 910 920 Huacun 38 24 26 29 Longwantao 65 42 46 52 Shizuizi 40 22 25 25

O&M = operation and maintenance. a Data on O&M costs were provided by the reservoir management bureaus Source: Shandong Provincial Water Resources Department, Provincial Project Management Office.

75. Dam safety management. An issue concerned how to conduct and ensure dam safety management after the project. The dam safety panel had been established only for the seven project reservoirs (i.e., it was a project-based panel). The executing agency clarified that it has commissioned dam safety experts to provide technical support for restoration and construction of the project reservoirs. As a result, the expert dam safety team has supported the PPMO’s dam safety management work even after the project consultants had left. Thus, the panel has been engaged to secure the project reservoirs’ safety after the project. 76. Since the project, no new dam safety panels have been established for non-project reservoirs.52 Similar levels of safety check and risk management are needed for non-project reservoirs. Dam safety regulation is national in scope and administered by the Dam Safety Management Center at the Ministry of Water Resources (para. 41). Under these regulations, a water storage safety assessment is required to be conducted for each reservoir upon completion of rehabilitation works. This process requires various

50 The water supply companies charge CNY3.3/m3. 51 In Qingzhou County, for example, which operates the Renhe Reservoir, the water source tariff is set at CNY0.38/m3 and the water

resource tax is CNY0.4/m3. The water treatment fee is CNY0.9/m3. Total county government collection from water-related tariffs is CNY1.68/m3.

52 SPWRD implied that there is no need to set up additional expert panels because the Shandong Provincial Government is being supported by dam safety experts involved in the construction or restoration of reservoirs within the province.


completion and acceptance tests. The SPWRD has explained that the Shandong Provincial Government engaged its own dam experts for rehabilitating non-project reservoirs. At county level, individual reservoir management bureaus have been responsible for dam safety management after the project. As required by the regulations, the bureaus have conducted daily inspection tours of the reservoir facilities every flood season (July–September). A comprehensive inspection of the reservoir and dam is made before onset of the flood season and this is repeated at the end of the flood season. Before flood seasons start, each reservoir management bureau is required to update its flood protection and emergency response plan. The frequency of inspections is reduced during the dry season.53 77. Flood warning. A flood emergency response system is in place. The Flood and Drought Control Division, under the water resource bureau of each county government, is responsible for issuing flood warnings and for coordinating with the water resource bureau and reservoir management authorities.54 Once issued by the county water resource bureau, a flood warning is transmitted to the township administration, which in turn relays the warning to the village committee and down to the residents. There are four levels of flood warning. When big typhoons crossed the province in September 2018, the highest alert (level 1) was issued: four telephone warning calls in 1 day were received by the villagers located downstream of the Renhe Reservoir. Some residents were evacuated. Sirens are also used for flood emergency warning. Communities living near the dams are given regular emergency response training and drills.55 78. Ecological enhancement. The value of watersheds goes beyond reservoir maintenance and water quality protection. Shandong Province is well known for spring waters with high water quality and mountainous landscape scenery. Prior to the rehabilitation, there were no reservoir protection zones designated in the upstream areas of the project reservoirs.56 Reservoir catchments are being maintained as ecological parks where farming, fishing, and settlement activities are strictly controlled. Watersheds as eco-parks serve to encourage ecotourism activities. Watershed areas of each reservoir are classified either as conservation areas or national parks, as shown in Table 5 and Appendix 4.57 79. Tourism development. Tourism provided a significant source of additional income to residents, mostly farmers. The additional income was attributed to ecotourism (i.e., from selling farm products and souvenirs to visitors) and from wages of restaurant and hotel employees. Tourism development has turned out to be a significant benefit of reservoir rehabilitation beyond what the project had anticipated.

Table 5: Extent of Watershed Protection Area (hectare)

Reservoir Watershed Area under Protection Qiangkuang 65,600 13,560 Renhe 9,440 2,000 Songshan 5,550 213 Muyu 45,500 1,824 Huacun 12,900 216 Longwantao 14,300 359 Shizuizi 4,950 108

Source: Shandong Provincial Water Resources Department, Provincial Project Management Office.

53 In the case of Qiangkuang Reservoir, for example, the frequency of reservoir inspections is daily during the flood season, but

three inspections per month during the dry season. 54 Each county has a flood control and drought relief headquarters, and its office is located in the county water resource bureau. 55 Drills are held at least once a year, as in the case of villages downstream from Qiangkuang Reservoir. In the case of villages near

Renhe Reservoir, drills are conducted twice before onset of the flood season. 56 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance

Grant to the People’s Republic of China for the Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project. Initial Environmental Examination (accessible from the list of linked documents in Appendix 2). Manila.

57 The PPMO reported during the evaluation mission that in the case of Qiangkuang Reservoir the watershed forest cover has increased from (about) 60% before the project to the current 80%.


80. To summarize, there is strong provincial and county government ownership, and this is expected to remain. The O&M status of the executing agency and implementing agencies have been institutionally and financially satisfactory. Dam safety management and flood emergency response systems are in place. The agencies have been well prepared for emergencies. There is no indication, however, of increasing O&M in most of the project reservoirs. Considering the potential impact due to excessive rainfalls and that the reservoir management authorities are not financially independent, adequate O&M budget needs to be secured. The project is assessed likely sustainable.

CHAPTER 4

Other Assessments 81. This chapter assesses the noncore evaluation criteria, which are development impact as well as performance of ADB and the executing and implementing agencies. The ratings do not form part of the overall assessment. A. Development Impact 82. As stated in the design and monitoring framework, the expected impact of the project was improved economic development in the areas downstream of the seven reservoirs in Shandong Province. On the whole, the goal to reduce poverty and increase income in downstream areas had been achieved at the time of the evaluation. The project targeted to increase crop output value from CNY12.5 billion in 2007 to CNY22.3 billion by 2020 and reduce poverty incidence by 50% from 2007 to 2020 in the project counties downstream of the seven model reservoirs. Achievement of the two targets appears to be on track. Crop output value stood at CNY24.5 billion in 2017 and poverty incidence had been reduced by 60.8% as of 2018. 83. Before the project, the villagers’ livelihoods depended on agricultural products, including wheat, corn, tobacco leaves, and silkworms. The evaluation observed increased fruit production in all those subprojects visited: Songshan Reservoir (Linqu County), Renhe Reservoir (Qingzhou County), and Qiangkuang Reservoir (Zhucheng County). Beneficiaries and affected persons alike who were interviewed by the evaluation mission said their incomes had risen by between 33% and 160% compared to prior to the project.58 By making reliable irrigation water available, the project enabled crop fields located downstream to be more productive. Given that clean water is important for producing tobacco leaves and silkworms, the project is likely to contribute to increased incomes. 84. For large cities and townships situated downstream of the dams, the attribution of economic development benefits of rehabilitation is difficult to assess. Many factors are in play, including development of transportation and other infrastructure. For the villages surrounding the reservoirs, however, the enhancement of economic development can be attributed in part to the project, which contributed to improving farmers’ incomes due to increased irrigation and tourism activities centered around the reservoirs. Since 2012, the project has provided more livelihood options for villagers, especially linked with ecotourism. Overall, the project has generated a positive feedback loop and created a strong economic incentive for both local governments and residents to protect the reservoir watersheds (paras. 78–79). 85. The project contributed to significantly reducing the risk of loss of lives due to dam failure, both at the nearby villages and the cities and townships further downstream. A heightened sense of security has encouraged people to invest in production-related activities. The project’s development impact is assessed satisfactory.

58 ADB (Independent Evaluation Department). Interviews with affected persons.


B. Performance of the Asian Development Bank 86. ADB took into account the lessons learned from previous projects, especially the urgent need to strengthen damaged reservoirs in the PRC. ADB’s interactions with the executing and implementing agencies were timely and appropriate. ADB was responsive to the government’s funds availability and revised the scope of the project midway. Both the provincial government and county governments visited by the evaluation mission provided positive feedback on the quality of ADB’s supervision and performance during preparation and implementation. The opinions from the government representatives met indicate that there was adequate and timely consultation among stakeholders during the project’s preparation and design phases. Although the project was completed on time, ADB should have made more commitment at the design stage to provide clearer guidance in identifying resettlement impact. This would have prevented overestimation of resettlement impact and inconsistent understanding among executing and implementing agencies with regard to it, including whether or not to include public lands under the impact. It also would have saved time spent in preparing resettlement plans and costs for safeguard implementation. Overall, ADB’s performance during the implementation period is assessed satisfactory. C. Performance of the Borrower, Executing Agency, and Implementing

Agencies 87. This project marked ADB’s first support for SPWRD, which had prior experience working with such other international financing organizations as the World Bank and Japan International Cooperation Agency. The executing agency was deemed to have considerable capacity, as well as appropriate governance structure, procedures, and risk management systems for project preparation and implementation. 88. During project preparation and implementation, the executing agency demonstrated strong engagement. Both executing and implementing agencies took adequate ownership throughout project preparation and implementation. Establishment of the multilevel project management system fostered strong local ownership that was shared equally by individual executing and implementing agencies. It also enabled good project coordination. The project was implemented in compliance with ADB’s SPS. The project received positive recognition from both ADB and the PRC’s Ministry of Finance.59 During the evaluation, the PPMO provided data on irrigated areas and resettlement impact under the project, but it was of uneven quality. This made the task of verifying data and the overall evaluation challenging. This indicates that the project monitoring system was not well-established during project implementation. The performance of the borrower, the executing agency, and the implementing agencies is assessed satisfactory.

59 In 2012, ADB and the Ministry of Finance recognized the project as the best performing in the year. In 2015, ADB recognized the

project for its technical assistance work and SPWRD awarded its water resources soft science first prize to the project. After project completion, the Finance Department of Shandong Province rated the project as highly successful, which is the highest level in its four-level rating system.

CHAPTER 5

Overall Assessment, Issues, Lessons, and Recommendations

89. This chapter summarizes the evaluation by providing an overall assessment of the project. It highlights some of the key issues and lessons and offers some recommendations derived from the evaluation. A. Overall Assessment 90. The project was aligned with the development goals of the government and ADB’s country partnership strategies. Its design and implementation arrangements were largely appropriate. The rehabilitated reservoirs met the design and safety standards of the Ministry of Water Resources. The project established a sustainable reservoir rehabilitation model for demonstrating reservoir rehabilitation technologies and sustainable management methods in the province. Water supply, irrigation, and reservoir watershed area all were increased. The project strengthened the flood control function of project reservoirs. It also contributed to reducing the number of risky reservoirs within the least-safe class. As a result, the project increased the operational water storage capacity of the rehabilitated reservoirs. The evaluation recalculated the EIRRs for the seven subprojects and project overall, showing that the subprojects individually and the project as a whole were economically viable. Dam safety management and flood emergency response systems are in place. The O&M capability of the executing agency and implementing agencies has been institutionally and financially satisfactory, but there is no indication of increasing O&M in most of the project reservoirs. Considering the potential impact due to excessive rainfalls and that the reservoir management authorities are not financially independent, adequate O&M budget needs to be secured. On this point, the Shandong Province financial administration will allocate special funds for the rehabilitation in the event of damage and need for reinforcement. 91. Overall, the evaluation assesses the project performance successful as it was relevant, effective, efficient, and likely sustainable (Table 6).

Table 6: Overall Assessment of Project Performance

Evaluation Criteria PCR PPER Key Reasons for Disagreement

and/or Comments Relevance Highly relevant Relevant It was unrealistic for the project

design to expect replication of the model throughout the PRC.

Effectiveness Effective Effective

Efficiency Efficient Efficient Sustainability Likely sustainable Likely sustainable Overall assessment Successful Successful Preliminary assessment of impact Expected Satisfactory Performance of borrower and executing agency

Satisfactory Satisfactory

Performance of ADB Satisfactory Satisfactory ADB = Asian Development Bank, PCR = project completion report, PPER = project performance evaluation report, PRC = People’s Republic of China. Source: ADB (Independent Evaluation Department).


B. Issues 92. Discharge channels below the dams have not been fully rehabilitated. The project scope did not include strengthening of discharge channels below the dams. Under such condition, even if the reinforced dam spillways can safely pass floodwater, the unrehabilitated flood channels downstream may not be able to cope with the flood volume (para. 34). Reinforcement of deteriorated downstream discharge channels is still needed in the areas of project reservoirs to ensure effective preventive measures for flood control. 93. Data was of variable quality. Conducting this evaluation encountered difficulty in verifying data on irrigation areas and resettlement impacts. This was owing to (i) variability of data on irrigation areas submitted by the PPMO, (ii) discrepancies in resettlement impact data between the PCR and PPMO, (iii) inconsistent understanding among executing and implementing agencies on whether public lands should or should not be included in resettlement impact, and (iv) confusing usage and various interpretations about PLA and temporary land use. This resulted in overestimating resettlement impact at the design stage (paras. 57–59). 94. Adequate O&M resources need to be in place for contingencies and sustainability. Although at county level reservoir management bureaus are responsible for dam safety management, they are not financially independent. There is no sign of increasing O&M in most of the project reservoirs (para. 72). Considering the typhoon experience in September 2018, proactive measures need to be taken to prepare for excessive rainfalls and to mitigate risk of disaster that might occur at any time.60 C. Lessons and Recommendations

95. Key lessons arising from this evaluation are the following:

(i) Flood control measures mitigate impact of extreme weather events. Functional linkage of dams and discharge channels is crucial for effective flood control. Rehabilitating non-project reservoirs inclusive of the discharge channels below the reservoir dams is necessary to mitigate flood impact. A dam and discharge channels below it need to be designed and managed as an integrated hydraulic system. For a similar project in the future, the full scope should be explicitly specified at the design stage, even though future projects might be covered by domestic funds.

(ii) M&E is crucial for generating quality data and implementation efficiency. Having quality M&E data is a sign of good project management. Institutional capacity for social safeguards implementation and data management needs to be strengthened.

(iii) Increasing O&M budget and capacity are necessary for maintaining dam durability. Adequate O&M budgets should be secured in the province to make the rehabilitated and other reservoirs and facilities sustainable. Strengthening O&M capacity is necessary to develop preventive measures and provide robust preparedness for disaster risks.

(iv) There is no one-size-fits-all model. The project reservoir rehabilitation and management model need to be customized to suit the reservoir requirements of other provinces. Sharing the model and project experience will allow other provinces to utilize the model as a best reference and customize it to their own conditions. This would be useful for them in developing their own site-specific plans.

60 SPWRD clarified that in the event of disaster damage and need for reinforcement the Shandong Province financial administration

would allocate special funds for the works.

Overall Assessment, Issues, Lessons, and Recommendations 27

96. The evaluation proposes the following recommendations for ADB’s consideration:

(i) ADB should pursue dialogue with the government to prepare an overall rehabilitation plan for similar dam and water infrastructure, with a view to prioritizing completion of rehabilitating class 3 dams and their related facilities in the surrounding areas. It is important to verify the long-term structural integrity of the reservoirs based on recent rainfall data, so that the provinces can have better options for designing next water infrastructure. Cost-effective solutions should be pursued.

(ii) Subsequent ADB projects should ensure that project monitoring systems are well established and institutional capacities of executing agencies are strengthened to enable collection of credible data. This will require improved M&E and data management systems. More resources should be invested in capacity development to improve data management, monitoring, and implementation of social safeguards at the provincial and county levels. A well established and maintained project monitoring system, even after project completion for at least 3 years, would be useful to ensure assessment of project sustainability and impact.

(iii) ADB should consider providing an option for sector assistance through new approaches including sector development programs at national and/or provincial levels. This will help overcome budget constraints and limited resources for broader geographic coverages. It will also facilitate the government in developing (a) specific high flood management programs for dam cascades by using hydrodynamic modeling in provincial reservoirs according to safety class, and (b) a mechanism to ensure that county governments receive funds at the right time for repairs.

Appendixes

APPENDIX 1: SUMMARY DESIGN AND MONITORING FRAMEWORK

Design Summary Indicators/Targets

PCR 2017 PPER 2019 Original Revisiona Impact Improved economic development in areas downstream of reservoirs

80% increase in crop output value, from CNY13.7 billion in 2007 to CNY24.6 billion by 2020, in the seven counties downstream of the nine model reservoirs

80% increase in crop output value, from CNY12.5 billion in 2007 to CNY22.3 billion by 2020, in the six counties downstream of the seven model reservoirs

15% increase in crop output value, from CNY12.5 billion in 2007 to CNY14.4 billion in 2015, in the six counties downstream of the seven model reservoirs (source: statistical yearbooks for 2015 of the six counties)

As of 2017, the crop output value in the six counties downstream of the rehabilitated reservoirs was CNY24.5 billion.

50% reduction in poverty incidence, from 7.4% in 2007 to 3.7% by 2020, in the seven counties downstream of the nine model reservoirs

50% reduction in poverty incidence, from 6.0% in 2007 to 3.0% by 2020, in the six counties downstream of the seven model reservoirs

53% reduction in poverty incidence, from 6.0% in 2007 to 2.8% in 2015, in the six counties downstream of the seven model reservoirs (source: statistical yearbooks for 2015 of the six counties)

60.8% reduction in poverty incidence, from an average of 7.4% in 2007 to 2.9% by 2018, in the counties downstream of the model reservoirs.

Purpose (Outcome) Sustainable rehabilitation and management of reservoirs

Establishment of the sustainable reservoir rehabilitation and management model by 2014 and rehabilitation of 200 class III reservoirs yearly in Shandong Province following the model after 2014

No change

The sustainable reservoir rehabilitation and management model established by the end of 2014, and 575 class III reservoirs rehabilitated in 2015 and 2016, using the model in Shandong Province (sources: ADB missions and PPMO)

Achieved. Prior to the project, 92 reservoirs were class 1 (safe) and 450 class 3 (least safe). After the project, 453 reservoirs were classified as class 1 and 89 were class 3. This reduction of unsafe reservoirs applies to all sizes of reservoir.

Operation of reservoir management model in the nine model reservoirs in Shandong Province by 2014

Operation of reservoir management model in the seven model reservoirs in Shandong Province by 2014

Reservoir management model being operated for the seven model reservoirs since 2014 (sources: ADB missions and PPMO)

Confirmed.

Replication of the reservoir rehabilitation and management model in at least five provinces by 2015

No change

Model disseminated to provincial water resources departments and municipal, city, and county water resource bureaus in Anhui, Jiangsu, Henan, and Shandong provinces, and Tianjin Municipality (source: PPMO)

Dissemination activities were conducted involving county water resource bureaus in Anhui, Henan, Jiangsu, and Shandong provinces and Tianjin Municipality.

30 Appendix 1


PCR 2017 PPER 2019 Original Revisiona Replication of the model outside Shandong Province has not been confirmed

Replication of the specific models outside Shandong Province cannot be ascertained.

Reduction in the threat of reservoir failure and mitigation of the threat of flood damage for 1.0 million people on 1,303 km2 of the areas downstream of the nine model reservoirs by 2011

Reduction in the threat of reservoir failure and mitigation of the threat of flood damage for 0.97 million people on 1,208 km2 of the areas downstream of the seven model reservoirs by 2011

The threat of reservoir failure reduced and the threat of flood damage mitigated for 2.79 million people on 1,634 km2 in areas downstream of the seven model reservoirs by the end of 2012 (source: LPMOs)

Confirmed.

Increase in irrigation area, from 27,300 ha in 2009 to 38,300 ha by 2015, in the areas downstream of the nine model reservoirs

Increase in irrigation area, from 27,147 ha in 2009 to 36,407 ha by 2015, in the areas downstream of the seven model reservoirs

Irrigation area increased from 27,147 ha in 2009 to 43,273 ha in 2016, in the areas downstream of the seven model reservoirs (source: PPMO project completion report)

Achieved. Confirmed.

Output 1: Rehabilitation of model reservoirs

Rehabilitation of nine model reservoirs, and monitoring and evaluation of technologies used in the rehabilitation, by 2011

Rehabilitation of seven model reservoirs, and monitoring and evaluation of technology used in the rehabilitation, by 2011

The seven model reservoirs were rehabilitated and technology used in the rehabilitation monitored and evaluated, by the end of 2013 (source: ADB missions and PPMO)

Achieved.

Output 2: Establishment of a sustainable reservoir rehabilitation and management model

Establishment and dissemination of sustainable reservoir rehabilitation and management model by 2014, and establishment of technical guidelines for reservoir rehabilitation by September 2012

No change

Sustainable reservoir rehabilitation and management model was established by the end of 2014 and has been disseminated since 2013, and technical guidelines for reservoir rehabilitation was established by the end of 2013 (source: ADB missions and PPMO)

Achieved. Confirmed.

Establishment of effective reservoir use model for IWRM for a model river basin and dissemination of the model by 2013

No change

Effective reservoir use model for IWRM for a model river basin established by the end of 2012 and being disseminated since 2012 (source: ADB missions and PPMO)

Confirmed.

Provision of facilities and equipment necessary for the operation and management of the nine model reservoirs by 2012

Provision of facilities and equipment necessary for the operation and management of the seven model reservoirs, by 2012

Facilities and equipment necessary for the operation and management of the seven model reservoirs provided by the beginning of 2015 (source: ADB missions and PPMO)

Confirmed.

Summary Design and Monitoring Framework 31


PCR 2017 PPER 2019 Original Revisiona Output 3: Project management support

Conduct of training in project management for 200 staff of the executing and implementing agencies by 2011, and for reservoir rehabilitation and management by 2014

No change

Training in project management conducted for 320 staff of the executing and implementing agencies during 2010−2012, and training in reservoir rehabilitation and management conducted for 90 staff of the executing and implementing agencies in 2012 and 2013 (source: PPMO)

Achieved.

ADB = Asian Development Bank, ha = hectare, IWRM = integrated water resources management, km2 = square kilometer, LPMO = local project management office, PCR = project completion report, PPER = project performance evaluation report, PPMO = provincial project management office. a Revisions (minor change) in 2011 are underlined. Source: ADB.

APPENDIX 2: APPROVED AND ACTUAL PROJECT COSTS

Table A2.1: Total Project Cost ($ million)

Cost Approval ($ million)

Actual ($ million)

Difference ($ million)

ADB Loan 2700 29.8 25.2 4.6 Civil works Equipment Consultants Training, study tours, conferences, and workshops

22.9 1.3 0.8 0.1

4.6

Government counterpart 60.3 63.2 (2.9) Total project cost 90.1 88.4 1.7 ADB TA 7658 0.5 0.49 0.006

Technical Assistance Special Fund 0.3 0.29 0.006 Multi-Donor Trust Fund 0.2 0.20

ADB = Asian Development Bank, TA = technical assistance. Sources: ADB. 2017. Completion Report: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project in the People’s Republic of China. Manila; ADB. 2013. Technical Assistance Completion Report: Effective Reservoir Utilization for Integrated Water Resources Management in the People’s Republic of China. Manila.

Table A2.2: Project Cost by Component

($ million)

Component Appraisal Actual Investment costs

Rehabilitation of model reservoirs 53.6 52.1 Establishment of a sustainable reservoir 19.9 22.4 rehabilitation and management model Project management support 11.3 12.9

Contingencies 4.3 0.0 Financial charges during implementation 1.1 0.9 Total 90.1 88.4

Note: Amounts may not add up exactly due to rounding. Source: ADB. 2017. Completion Report: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project in the People’s Republic of China. Manila.

Table A2.3: Total Project Cost by Financing

($ million)

Cost Appraisal Actual Implementation costs Borrower financed 59.2 62.3 ADB financed 29.8 25.2 Subtotal 89.0 87.5 Interest during construction Borrower financed 1.1 0.9 ADB financed 0.0 0.0 Subtotal 1.1 0.9 Total 90.1 88.4

ADB = Asian Development Bank. Source: ADB. 2017. Project Completion: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project in the People’s Republic of China. Manila.

APPENDIX 3: SAFEGUARDS 1. In the case of this project, the Safeguard Policy Statement (SPS) of the Asian Development Bank (ADB)1 is largely in line with domestic safeguard requirements of the People’s Republic of China (PRC).2 Gaps between the domestic regulations of the PRC and ADB requirements relate to aspects of public consultation and information disclosure, as well as the grievance redress mechanism.3 2. Environmental impact. There were no significant adverse environmental impacts created by the project during or after the rehabilitation works. Environmental impacts were temporary and limited to water and air quality, noise, dust, soil erosion, and solid waste during construction. Because the construction took place in the dry season, the impacts from flooding and water turbidity were minimal. Residual environmental impacts were mitigated to acceptable levels throughout project implementation. After completion of the civil works, site clearing of working areas and ecological restoration were undertaken at the subproject sites. These activities included full landscaping and revegetation. Staff of the provincial project management office (PPMO), local project management offices (LPMOs) at county level, contractors, and monitoring agencies (about 140 PPMO and LPMO staff) received four training courses on environmental management during November 2010 and October 2012. The capacity for safeguard implementation was developed through practical training on environmental management, monitoring, and grievance redress mechanism. In addition, an emergency response plan (e.g., describing discharge of rapidly rising floodwaters) for the period of the rehabilitation works was prepared for each reservoir site and that plan was shared with the people living downstream. 3. Resettlement impact. There were three types of resettlement impact: (i) permanent land acquisition (PLA), (ii) temporary land use, and (iii) residential house demolition. The executing agency provided updated data on social safeguard impact showing significantly reduced resettlement impact compared to what was reported in the project completion report (PCR), especially regarding PLA. PCR data showed that actual impact was (i) 269.2 mu relating to 119 affected households with 382 affected persons, (ii) 259.7 mu of temporary land use, and (iii) 1,042 square meters (m2) of house demolition relating to seven affected households and 30 affected persons. 4 The reduced impact reported at evaluation was (i) 32 mu of PLA relating to 72 affected households with 231 affected persons, (ii) 253.8 mu of temporary land use and 609 affected persons, and (iii) house demolition impact of 189 m2 relating to 1 affected household. The impact of land acquisition and resettlement reported for the three stages design, completion, and evaluation is summarized in Table A3.1.

1 ADB. 2009. Safeguard Policy Statement. Manila. 2 Management Guideline on Environmental Impact Assessment Categories of Construction Projects, Ministry of Environmental

Protection (effective in 2003). 3 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance

Grant to the People’s Republic of China for the Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project. Manila.

4 ADB. 2017. Project Completion: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project in the People’s Republic of China. Manila. A mu is a Chinese unit of measurement (15 mu = 1 ha or 1 mu = 666.67 square meters).

34 Appendix 3

Table A3.1: Impact of Land Acquisition and Resettlement

Stage Design Completion Evaluation

Source PCR PPMO PCR PPMO PPMOb

Permanent land acquisition

Total land (mu) 302.9a 58.35 b 269.2 a 32 b 32b Affected households (no.) 169 99 112 72 72 Affected persons (no.) 618 344 382 231 231

Temporary land use

Total land (mu) 399.9 496.2 259.7 253.8 Affected persons (no.)

1,019 609

House demolition Total area (m2) 1,056 1,042 189 Affected households (no.) 6 3 7 1

m2 = square meter, no. = number, PCR = project completion report, PPMO = provincial project management office. a PCR (Table A10.1) including government bureaus’ land (nine subprojects). b PPMO, excluding government bureaus’ land. Sources: Asian Development Bank (ADB). 2017. Project Completion: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project in the People’s Republic of China. Manila; PPMO; and ADB (Independent Evaluation Department).

4. Permanent land acquisition. There were discrepancies in terms of total land size under PLA at each stage. At evaluation, the PPMO reported the PLA related to village and farmers’ land only and excluded government bureaus’ lands as public property. The report and recommendation of the President (RRP) and PCR, however, referred to the total permanent land area regardless of ownership. At evaluation, the PPMO confirmed that RRP and PCR included government bureaus’ lands in PLA impact and thus overestimated that impact. In addition, there was some confusion in the implementing agencies (PPMO and LPMOs) on how to deal with public land (which belonged to water management bureaus of seven individual counties) in terms of impact and compensation scope. Regardless of whether land belongs to counties or villages and individuals, this report addresses resettlement “impacts” as the land areas that were vacated and could not be used because of the project. 5. Excluding the two subprojects cancelled during implementation, there were seven subprojects out of which PLA impacts were reported in four subprojects—Muyu, Qiangkuang, Renhe, and Songshan.

6. At design stage, Songshan had the biggest PLA impact (235.5 mu) among the seven subprojects.5 This, however, turned out to be temporary during project implementation. In other words, during design, temporary land use was counted as PLA. Because the impact of Songshan was temporary land use but treated as PLA in the PCR, large gaps between PCR and PPMO occurred (302.9 mu versus 58.35 mu at design, 269.2 mu versus 32 mu at completion, Table A3.1).

7. Expected PLA impacts were 15.2 mu for Muyu Reservoir, 32 mu for Qiangkuang Reservoir, and 11.2 mu for Renhe Reservoir. After design optimization to reduce adverse impact on farmers, PLA no longer occurred at Muyu and Renhe reservoirs. As a result, only 32 mu of PLA remained, that being at Qiangkuang Reservoir.

8. Impact is broken into two types: compensated and non-compensated. Out of the 32 mu PLA as project impact, 13.22 mu land belonged to the Qiangkuang Reservoir’s management bureau as public land (Table A3.2). This means that land of 32 mu was considered as project impact, but 13.22 mu of that was not to be included in the scheme for entitlement to compensation. The remaining 18.78 mu land was village collective lands, for which the project paid compensation.

5 On this, however, there was a discrepancy between a summary of the project resettlement plan and the resettlement plan of

Songshan (ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grant to the People’s Republic of China for the Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project. Resettlement Plan: Summary and Resettlement Plan: Final Resettlement Plan for Songshan Reservoir Subproject in Linqu County (English), (accessible from the list of linked documents in Appendix 2). Manila). According to the former document, Songshan had PLA impact of 235.5 mu while the latter reported no PLA impact within the scope of the Songshan subproject. This indicates there was confusion about PLA and temporary land use within the project team. A mu is a Chinese unit of measurement (1 mu = 666.67 square meters).

Safeguards 35

Table A3.2: Impact of Permanent Land Acquisition by Subproject

Reservoir RRP (ADB)

Design PPMO Design Completion Evaluation

Compensated Portion of Impact

(Reference) Qiangkuang 32.0 32.0 32.0 32.0 18.78 Renhe 11.2 11.2 0 0 0 Huacun 0 0 0 0 0 Longwantao 0 0 0 0 0 Songshan 235.5 0 0 0 0 Muyu 15.2 15.2 0 0 0 Shizuizi 0 0 0 0 0 Total 293.9 58.4 32.0 32.0 18.78

ADB = Asian Development Bank, PPMO = provincial project management office, RRP = report and recommendation of the President. Sources: Provincial Project Management Office and Asian Development Bank (Independent Evaluation Department). 9. Temporary land use. The ownership of most temporary land was with the reservoir management bureaus. Farmers had been planting crops or trees on those public lands for many years before the project. Local governments allowed villagers to cultivate the lands until the project came. Owing to the land ownership by county governments, the project compensated only for the loss of the young crops, trees, and attachments. During project implementation, the implementing agencies clarified what “temporary land use” meant and explained the concept and compensation scheme of temporary land use. Farmers agreed to the explanation. 10. According to the SPS, project-affected persons who used public lands temporarily are “persons who lost the land they occupy in its entirety or in part who have neither formal legal rights nor recognized or recognizable claims to such land,” to which the involuntary resettlement requirements applies. Thus, they are entitled to be compensated “for the loss of assets other than land, such as dwellings, and also for other improvements to the land, at full replacement cost.” The project compensated affected persons in accordance with the SPS. 11. Residential house demolition. According to the PPMO, the RRP and PCR included such ineligible buildings as tobacco drying rooms. This led to overestimation of residential house demolition during design and completion. At the evaluation stage, housing demolition impact counted only the residences of villagers. This explains the discrepancy between total demolished area at design (in the RRP) and at evaluation. 12. Compensation. The clarification of the temporary land ownership and housing demolition led to a reduction in project compensation from CNY10.5 million to CNY4.7 million.6 The bureaus’ temporary lands no longer needed to be rehabilitated because prior to the project the implementing agencies took back the land from farmers and did not let them use it again. In fact, the reservoir water level increased after reservoir rehabilitation, which did not allow the farmers to use the land. The PPMO reported the cost of compensation and resettlement by subproject (Table A3.3) in line with the reduced impact reported by the PPMO at evaluation. The evaluation notes that PLA occurred only in Qiangkuang and the total compensation fee was reduced correspondingly.

6 Provincial project management office.

36 Appendix 3

Table A3.3: Land Acquisition and Resettlement Compensation Fee/Resettlement Fee (CNY 10,000)

Reservoir PLA Temporary Land Use

Crops and Trees a

Housing Demolition Others b Subtotal

Qiangkuang 47.76 20.6 40.07 0 10.00 118.43 Renhe 0 1.33 38.79 0 0 40.12 Huacun 0 8.23 99.04 0 0 107.27 Longwantao 0 8.32 96.33 0 0 104.65 Songshan 0 12.12 7.79 79.01 0 98.92 Muyu 0 0 5.95 0 0 5.95 Shizuizi 0 0 0 0 0 0

Total 47.76 50.6 287.97 79.01 10.00 475.34 PLA = permanent land acquisition. a Including aboveground attachments. b Surveying and drawing, management fee for PLA. Source: Provincial Project Management Office. 13. Response of affected persons. Overall, affected persons interviewed by the evaluation mission were well informed about the project, compensation entitlements, and grievance redress mechanism, as described below:

(i) Affected persons of the three reservoirs visited by the evaluation mission confirmed that adequate information disclosure was provided before the project started. Two consultations at least were held for each affected village—the first to explain the project scope, schedule, and works to be done, and the second to explain the compensation scheme for affected persons.

(ii) Compensation was in accordance with the resettlement plan standard.7 Compensation for permanent land loss was based on the Land Administration Law of the PRC8 and other relevant regulations.9 The compensation for temporary land loss was set as per notices of the Shandong Provincial Government.10 Compensation for house demolition was based on provincial and municipal regulations. No adjustments were proposed on compensation standards from ADB’s side. All affected persons met by the evaluation mission said they were satisfied with the compensation received.

(iii) Villagers and affected persons knew how the grievance redress mechanism worked under the project. Contact numbers were given so that they could call with any concerns or complaints about the project, especially regarding the compensation scheme for land acquisition. Complaints and grievances reported to LPMOs were fully recorded and reported to ADB. There were few instances when affected persons used the grievance mechanism.11

7 Resettlement plans were prepared for each subproject. ADB. 2010. Report and Recommendation of the President to the Board

of Directors: Proposed Loan and Technical Assistance Grant to the People’s Republic of China for the Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project. Linked Documents 11–19 (accessible from the list of linked documents in Appendix 2).

8 PPMO. Amended in 2004. 9 The State Council Decision to Deepen Reform and Strictly Enforce Land Administration (Document 28, November 2004), the

Circular Concerning Certain Issues Regarding Strengthening Land Adjustment and Control (31 August 2006), and the Regulations on Land Requisition Compensation and Resettlement for Construction of Large and Medium-Sized Water Conservancy and Hydropower Projects (effective in 2006). ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grant to the People’s Republic of China for the Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project. Resettlement Plan: Summary (accessible from the list of linked documents in Appendix 2). Manila.

10 Notice of the Shandong Provincial Government on Adjusting the Annual Output Value and Compensation Standards of Land Acquisition (Lu Zheng Ban Fa [2004] No. 5; Notice of the Shandong Provincial Government on Approving the Compensation Standards for Relevant Aboveground Attachment for Land Acquisition (Lu Price Fees Fa [1999] No. 314 (External resettlement monitoring report No. 7, p. 6).

11 In 2012, four affected persons raised a grievance to ADB regarding the Songshan Reservoir subproject. Their houses had been built without the Songshan administration’s approval. A road nearby was to be inundated by the reservoir’s maximum water level. The PPMO, Linqu County government, and its LPMO, took the corrective actions of (i) maintaining lower water level until

Safeguards 37

14. The interview responses of beneficiaries and affected persons were thoroughly consistent, especially involving the project and safeguards. They were positive about (i) the project benefits due to reduced flood damage and increase in stable water supply, and (ii) safeguard experience, including consultation and compensation before the project start and information disclosure during implementation. The villagers acknowledged that, by changing scope and removing two subprojects, the LPMOs made timely efforts to optimize the design and reduced the size of land acquisition and affected households as much as possible. Information sharing was timely, and compensation was adequate. This is corroborated by affected persons’ satisfaction with compensation packages and the timing of payment as ascertained during the evaluation mission. 15. Public consultation. Public consultation and information disclosure are absent from the PRC’s regulations while ADB safeguards require them. To fill the gap, the PPMO and LPMOs disclosed information before and during the project. Public consultations were conducted from February 2007 to October 2009. The consultations covered: (i) informal visits to communities and households in the project areas, (ii) questionnaire surveys, and (iii) a wider stakeholder meeting attended by representatives of affected households and concerned stakeholders.12 16. Public consultation and information sharing took place adequately for safeguard implementation. Under the project environmental management plan, environmental monitoring was conducted regularly by the reservoir management bureau at the county level. Environmental monitoring results were briefed to stakeholders and neighbors of the reservoirs during implementation. Monitoring procedures for resettlement activities were implemented as specified in the resettlement plans. Supervision and monitoring of resettlement plans in compliance with the plan were done and confirmed by the implementing agencies. Through quarterly reports, they kept ADB informed of the progress, including any issues that arose. 17. Both the environmental management plan and resettlement plans were disseminated publicly prior to the project. That facilitated building consensus from the beginning among local stakeholders, and especially affected persons. This public dissemination process smoothed project implementation while implementing agencies made timely efforts to optimize the design and reduce the land occupation and affected households as much as possible. 18. Finding. In the case of this project, there are no contradictory statements between the PRC’s country safeguard system and the SPS. Along with the SPS, safeguard implementation under the project was successful in minimizing the adverse project impacts on the environment and affected persons, sharing project information in advance, and ensuring adequate level of compensation before the relocation took place.

19. Issues. The evaluation had difficulty in verifying data on social safeguard impacts, partly because confusion prevailed among executing and implementing agencies. There was inconsistent understanding among executive and implementing agencies about resettlement impact, especially how to deal with “public” lands in the impact and how to interpret PLA and temporary land use. These points should have been clarified at the design stage to bring all project agencies onto the same page.13 The PPMO and LPMOs were not aware of the confusion until the evaluation stage. Training in social safeguards is needed

the affected persons were relocated to a higher place, and (ii) providing a compensation package to the satisfaction of the affected persons. The affected persons accepted the new corrective plan and compensation. (PCR, Appendix 10, paras. 21–23) confirmed by PPMO.

12 According to IEE, approximately 95% of the consulted stakeholders were supportive of the Project (ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grant to the People’s Republic of China for the Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project. Initial Environmental Examination, accessible from the list of linked documents in Appendix 2). Manila).

13 According to the ADB safeguard policy, for those without formal land rights, loss of assets based on the land is impact which is entitled to be compensated.

38 Appendix 3

for all safeguard-relevant staff of the PPMO and LMPOs to impart a solid understanding on resettlement impact. Doing so will provide a solid basis for developing resettlement plans. 20. During implementation, staff of the PPMO, LPMOs, contractors, and monitoring agencies received safeguards training on environmental management, monitoring, and grievance redress mechanism. Nonetheless, the implementing agencies reported that more ADB safeguard training for implementing agency staff is needed, because most of the staff are civil engineers.14 Only the chief of staff of the construction bureau was invited to the safeguard training. One engineer staff member at such bureau mentioned that learning by doing was not adequate to cover all the bases of ADB safeguard requirements. The safeguard process includes analyzing environmental risks and expected negative impacts, identifying geographic coverage, developing mitigation measures and environmental management plans, conducting monitoring, and coordinating with stakeholders throughout the whole process. This normally requires a long-term commitment with projects, so one-time safeguard training with limited government officials is scarcely adequate. Institutional capacity for environmental and social safeguards needs to be further strengthened at county level. 21. Lessons. Environmentally sustainable projects are primarily achieved through a good project design in combination with effective environmental management and monitoring during project implementation. Integrating environmental considerations into the project design calls for incorporating environmental assessment and management into the economic, financial, institutional, social, and technical analysis of a project. Initial environmental assessment followed by environmental management during implementation enables continued improvement of environmental performance throughout the life of a project. 22. Smooth implementation of both environmental and social safeguards requires the following:

(i) Good preparation of environmental impact assessment, environmental management plans, and resettlement plans, as well as other related basic documents is a prerequisite to providing a fundamental basis for information sharing and developing plans with beneficiaries and affected persons.

(ii) High-quality internal monitoring and professional external monitoring are essential to tracing and checking safeguard implementation in terms of living standards, timely and adequate compensation, and potential grievances.

(iii) Establishment of a workable grievance redress mechanism is a key element in resolving grievances. Regular communication and interactive consultation with affected persons will help in resolving grievances before they develop into more serious problems.

(iv) Public dissemination and sharing information about the project, the environmental management plan, safeguard impacts, and resettlement plans, are crucial to facilitating good decision making. This should be done at earlier stages of project planning, so that building consensus among local stakeholders can be done effectively.

23. An intensive training program dealing with environmental and social safeguards should be prepared for implementing agencies, and especially all relevant staff engaged in safeguard implementation, under ADB projects. The training program should provide practical information covering the key points of resettlement impacts, compensation eligibility, and monitoring (both in environmental and social safeguard aspects). The training should be customized to suit capacity and experience of each participant (including at implementing agencies, external monitoring agencies, and consultants). This will help local stakeholders to fully ensure smooth safeguard implementation.

14 This is further aggravated by staff turnovers within county governments. For example, the chief used to work with construction

bureau during the project was transferred to reservoir management bureau after the project.

APPENDIX 4: SUMMARY OUTLINE OF SEVEN SUBPROJECTS Table A4 outlines the seven subprojects of the project counties or district. Linqu County (Songshan Reservoir), Qingzhou County (Renhe Reservoir), and Zhucheng County (Qiangkuang Reservoir) were selected for the evaluation mission’s visit. The size of investment, number of beneficiaries, and social safeguard impact by subproject were main selection criteria.

Table A4: Profiles of the Seven Reservoirs

County or District

Subproject Reservoir

(Size,a construction year)

Project Cost per

Subproject (CNY million)

Population Protected

from Floodingb

Dam Safety Class

(Before and after project)

Drinking and Industrial

Water Supply (10,000 m3/year)

Irrigation coverage

(1,000 ha)

Operational water storage capacity

(MCM) Reservoir Watershed

Protection

Before (2007)

After (2016)

Before (2009)

After (2016)

Before (2007)

After (2016)

Total Watershed

Area (ha)

Protected Area (ha)

Zhucheng Qiangkuang (large, 1960)

111.2 400,000 3 to 1 0 1,600 16.0 25.3 328.0 387.0 65,600 13,560

Qingzhou Renhe (medium, 1980)

46.2 1,025,000 3 to 1 0 800 1.0 2.0 16.6 28.2 9,440 2,000

Sishui Huacun (medium, 1960)

41.3 250,000 3 to 1 0 0 1.7 3.0 57.9 68.2 12,900 216

Longwantao (medium, 1960)

43.4 3 to 1 972 1,440 2.9 3.0 52.0 52.1 14,300 359

Linqu Songshan (medium, 1971)

55.0 300,000 3 to 1 0 288 3.3 4.7 40.5 56.3 5,550 213

Laiyang Muyu (large, 1960)

107.3 400,000 3 to 1 0 2,000 1.4 3.5 107.4 189.4 45,500 1,825

Shanting District

Shizuizi (medium, 1979)

53.9 125,000 3 to 1 0 300 0.9 1.7 23.9 26.2 4,950 108

Total 458.3 2,500,000 972 6,428 27.2 43.2 626.3 807.4 158,240 18,281

ha = hectare, m3 = cubic meter, MCM = million cubic meter. a Size refers to reservoir capacity. b Data from Shandong Provincial Water Resources Department, Shandong Provincial Government. c Among watershed areas in the left column, protected areas show area designated as conservation or national or provincial park. Sources: Shandong Provincial Water Resources Department, Shandong Provincial Government, and Asian Development Bank (Independent Evaluation Department).

APPENDIX 5: ECONOMIC AND FINANCIAL REEVALUATION A. Method and Assumptions

1. An economic reevaluation was conducted for the seven subprojects and overall project, comparing with- and without-project scenarios and using the same methodologies and assumptions as in the economic analysis undertaken at project completion.1

2. The economic internal rate of return (EIRR) recalculation methodology is based on guidelines for the economic analysis of projects issued by Asian Development Bank (ADB).2 Two measures are calculated, the net present value (NPV) and the EIRR:

(i) NPV is calculated at the discount rate (economic opportunity cost of capital) used for the project, which is 12%, and is the difference between the present value of the benefit stream and the present value of costs (for each subproject). It should be greater than zero for a project to be considered viable.

(ii) EIRR is the rate of return achieved on all project costs (capital and operations and maintenance [O&M], including land acquisition and foregone outputs during construction) measured in economic prices. It represents the discount rate for which economic NPV is zero. For an efficient subproject, the EIRR should be above the economic opportunity cost of capital.

3. The numeraire for the EIRR recalculation is domestic price level, and the unit of account is the domestic currency (yuan). 3 The dollar exchange rate was CNY6.8 at project completion. The EIRR recalculation was done over a period of 40 years from 2010, as in the project completion report (PCR). The first 4 years are used for construction. Benefits are assumed to accrue after the fourth year. The reference year for pricing is 2017. Financial costs of capital incurred prior to 2017 were adjusted to base price equivalent value using the annual inflation rate during the intervening period. 4. The economic costs and benefits of tradable goods and services were derived from the respective financial values using a standard conversion factor of 0.926, equivalent to a shadow exchange rate of 1.08. The shadow wage rate factor applied was 0.5 of the prevailing wage rates for unskilled labor, and 1.0 for skilled labor. The evaluation used these numbers consistent with the conversion used at appraisal and completion. Transfer payments, such as taxes, duties, and subsidies, were excluded from the valuation of economic costs and benefits. Costs and benefits after project completion were expressed in constant 2017 prices (i.e., excluding inflation).

B. Benefits and Costs 5. Incremental project benefits measured at domestic market prices include flood damage avoided, agricultural output from areas irrigated through the project, domestic and industrial water supply, and increased reservoir fisheries and aquaculture output. Capital inputs consist of the value of the construction contracts, including project management, the cost of permanent and temporary land acquisition, and repair cost of damage to discharge channels that occurred in 2018.

1 Asian Development Bank (ADB). 2017. Completion Report: Risk Mitigation and Strengthening of Endangered Reservoirs in

Shandong Province Project in the People’s Republic of China. Manila. 2 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila. The current ADB cutoff rate is 9%, but this evaluation uses

the previous ADB cutoff rate of 12% because the appraisal year is 2010. 3 ADB’s guidelines state that “bank economic analysis will generally be undertaken in the currency of the borrowing country…and

(that) there is also a preference for using the domestic price level to conduct economic analysis (p. 25).”

Economic and Financial Reevaluation 41

6. As in the PCR, the following benefits were included and estimated using 2017 constant prices:

(i) Flood damage avoided. This is based on estimates of damage to tangible assets corresponding to flooding extents4 at various frequencies (return periods) and with reference to the design flood adopted for the rehabilitated reservoirs. Tangible assets include agricultural and industrial facilities, highways and bridges, historical and cultural monuments, and residential properties. Asset valuation was based on socioeconomic data from county and district statistical records. An annual increase of 2% was assumed for the future economic value of assets to be protected in order to reflect expected development in the project area.5 For the project as a whole, the calculated annual flood avoidance benefit in economic terms is CNY82.3 million.6 This benefit starts accruing in 2014 and is assumed to increase at 2% annually.7

(ii) Increased agricultural production. This results from incremental irrigation water supply provided by the rehabilitated reservoirs. Incremental output was calculated based on the net value of crops produced (i.e., after deducting production cost) upon completion of the subprojects and with reference to the pre-project level. For the with- and without-project scenarios, updated data on the extent of irrigated areas for each subproject provided by the Provincial Project Management Office (PPMO) were used instead of the data from the PCR. The total increases in irrigated area based on the PPMO and PCR data are almost equivalent.8 As in the report and recommendation of the President (RRP) and PCR, only half the benefits stemming from increased irrigation water supply were included into the calculation. This is because the irrigation benefits cannot be attributed solely to the project, as, for example, rehabilitation of the irrigation canals was undertaken separately (i.e., outside the project scope). For the project as a whole, the calculated incremental irrigation benefit in economic terms is CNY32.83 million per year.

(iii) Increased water supply. For domestic and industrial use, this is applicable to all the subprojects, except Huacun. The total increase in water supply is 54.5 million cubic meters per year in the PPMO’s data, which was used in the EIRR recalculation.9 For the project as a whole, the calculated annual incremental water supply benefit is CNY7.5 million.

(iv) Increased aquaculture production. Estimates applicable to three subprojects (Renhe, Songshan, and Huacun) as a result of improved water retention in the reservoirs were adopted from the PCR. The total annual incremental economic benefit from aquaculture is CNY0.7 million.

7. As in the RRP and PCR, benefits from harm avoided to people (flood-related injuries and hospitalization costs, emergency evacuations, and deaths) were not quantified. The indirect impact of enhanced tourism development also was not quantified. According to the reservoir management bureaus, reservoir-centered tourism activities have significantly been enhanced since completion of the project.

4 Damages were estimated by the reservoir design institutes based on flood risk maps corresponding to various frequencies (return

periods) prepared by the respective reservoir management bureaus. 5 This is a conservative estimate, because economic output in the project area has been growing at more than 2% per year since

project completion. 6 Valued at 2017 reference price, which is applied also to the calculation of agricultural, water supply, and aquaculture benefits. 7 As in the report and recommendation of the President (RRP) and PCR, and considering that no subproject reservoirs were meeting

minimum safety standard prior to rehabilitation, flood mitigation benefits were assumed to be fully attributable to the project. 8 The PCR had reported the total size of irrigated areas as 43,274 hectares (ha) and the PPMO reported 43,267 ha. Baseline for

both was 27,147 ha. Footnote 1 and ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grant to the People’s Republic of China for the Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project. Manila.

9 In the PCR, the total incremental water supply was estimated at 58.4 million cubic meters, which is 3.9 million cubic meters larger than reported by the PPMO.

42 Appendix 5

8. Other unquantified benefits include the development of reservoir rehabilitation and management models for replication elsewhere in the province, employment generated during project implementation, and management capacity strengthening (e.g., training of reservoir management staff). 9. Incremental economic costs consist of the capital costs for reservoir rehabilitation and subsequent O&M. Capital costs cover the costs of (i) reservoir rehabilitation; (ii) land acquisition and resettlement; (iii) temporary losses in crop production and aquaculture due to reservoir rehabilitation works; (iv) replacement of equipment and metal structures scheduled in 2034; and (v) other project items, including subproject management, surveys, engineering designs, contract supervision, and environmental management.10 10. For the purpose of economic reevaluation, all costs that were incurred prior to the project implementation (i.e., before 2010) were treated as sunk costs and were excluded.11 Capital costs for the rehabilitation works and scheduled replacement of equipment in 2034, including cost of surveys and temporary production losses during construction, were adopted from the PCR. The cost of permanent and temporary land acquisition was updated using information provided by the PPMO. The costs of repairing the discharge channels below the dam spillways in 2018 were added to the full cost of reservoir strengthening so that the projected flood damage reduction benefit would be maintained. 11. Updated information on O&M costs for each reservoir (before and after rehabilitation) was provided by the PPMO.12 The data show that, in financial terms, O&M costs generally decreased after the rehabilitation, except for Muyu Reservoir. The PPMO explained that this is because of the positive effects on O&M following reservoir rehabilitation. For Muyu Reservoir, however, the O&M cost increased due to its large size and its mainly water supply function. Accounting for inflation, the savings in O&M costs in 2017 prices for the six other reservoirs after rehabilitation are quite significant.13 For these six reservoirs, the savings represent about 10% of the pre-rehabilitation O&M cost in 2017 prices.14 The reservoir O&M costs before and after the rehabilitation are shown in the Table A5.1.

Table A5.1: Reservoir Operation and Maintenance Costs Before and After Rehabilitation

Reservoir O&M Cost Before Rehabilitation

(CNY 10,000)

O&M Cost After Rehabilitation (CNY 10,000)

2015 2016 2017 Qiangkuang 98 96 92 89 Renhe 65 47 49 49 Songshan 45 30 30 30 Muyua 550 900 910 920 Huacun 38 24 26 29 Longwantao 65 42 46 52 Shizuizi 40 22 25 25

O&M = operation and maintenance. a According to the provincial project management office, the O&M of Muyu Reservoir is high compared with the other

reservoirs because of its large size and mainly water supply function. Source: Government of the People’s Republic of China. Shandong Provincial Water Resources Department, Provincial Project Management Office.

10 The provincial-level project management cost constituted 1.04% of the capital cost. 11 In the project performance evaluation report (PPER), the pre-project O&M costs were considered in calculating the incremental

O&M costs. In the PCR, the pre-project O&M costs appear to have been treated as sunk costs and excluded from the calculation. We did not follow the PCR approach. In the PPER, we reasoned that the pre-project O&M costs would continue to have been incurred in a without-project scenario and should therefore be considered in calculating incremental costs of O&M.

12 Data was obtained from a follow-up communication with the PPMO, on March 2019,. 13 This is with reference to O&M costs before rehabilitation (2011 data) and after the rehabilitation (data for 2015–2017). 14 The incremental O&M costs used in the PCR are higher than the values used at PPER based on the latest PPMO data. As a result,

the subproject EIRRs calculated in the PCR are lower than the EIRRs calculated in the PPER.


12. The cost of land acquisition and resettlement is shown in Table A5.2.

Table A5.2: Land Acquisition and Resettlement Costs (CNY 10,000)

Reservoir Subtotal

Permanent Land

Acquisition

Temporary Land

Acquisition

Crops and Aboveground Attachment

Residential Housing

Demolition Others Qiangkuang 118.4 47.8 20.6 10.4 0 39.7 Renhe 40.1 0 1.3 20.2 0 18.5 Huacun 107.3 0 8.2 59.8 0 39.3 Longwantao 104.6 0 8.3 70.5 0 25.8 Songshan 98.9 0 12.1 0 79.0 7.8 Muyu 5.9 0 0 5.9 0 0 Shizuizi 0 0 0 0 0 0 Total 475.3 47.8 50.6 166.8 79.0 131.2

Note: Line item values may not add to column totals because of rounding. Source: Shandong Provincial Water Resources Department, Provincial Project Management Office.

C. Economic Reevaluation

13. Economic internal rates of return were recalculated following the method, assumptions, and updated data described above. This was done for each subproject and for the overall project. The results are shown in Table A5.3. All seven subprojects are economically viable with reference to the benchmark economic cost of capital at 12%.

Table A5.3: Recalculated Economic Internal Rate of Return and Sensitivity to Benefits Realization and Cost of Operations and Maintenance

(%)

Subproject EIRR at PPER

Sensitivity Analysis at PPER O&M Costa

+10% Benefit −10% O&M Cost +10% and Benefit −10%

Qiangkuang 24.9 24.9 23.1 23.1 Shizuizi 19.6 19.6 18.2 18.2 Muyu 20.3 19.7 18.7 18.2 Renhe 15.4 15.4 14.0 14.0 Songshan 21.5 21.5 20.0 20.0 Huacun 25.6 25.6 23.6 23.6 Longwantao 15.7 15.7 14.6 14.6 Overall project 20.9 20.8 19.3 19.2

EIRR = economic internal rate of return, O&M = operation and maintenance, PPER = project performance evaluation report. a This refers to the post-rehabilitation O&M cost, not the incremental O&M cost. Source: Asian Development Bank (Independent Evaluation Department).

14. The robustness of the project’s economic viability was tested under three scenarios: (i) a 10% decline in benefits, (ii) a 10% increase in prevailing (after completion) O&M costs, and (iii) a combination of these two. The seven subprojects and the overall project would remain economically viable under these scenarios, consistent with the earlier findings from the project appraisal and at completion. 15. Note that the EIRR remains basically unchanged even if the prevailing O&M cost is increased by 10%. This is probably because the O&M costs are low in relation to the capital costs and benefits. As explained above, there was reduction in the O&M cost after the rehabilitation. Given the significant additional indirect and unquantifiable benefits not included in the calculation, the recalculated EIRRs represent conservative estimates of the economic viability of the subprojects and the overall project.

44 Appendix 5

16. Furthermore, the real annual increase in the value of tangible assets protected from flooding during 2008–2016 was more than 2%, and economic output in the region was projected to grow at more than 6% per year during the following 5 years.15 Recalculations using a 3% and 4% annual increase in the value of assets protected from flooding result in project-level EIRRs of 21.2% and 21.4%, respectively, which underscore the economic viability of the project. 17. EIRR values calculated at appraisal (RRP), at completion (PCR), and at post-completion evaluation (project performance evaluation report) are compared in Table A5.4.

Table A5.4: Comparison of Calculated Economic Internal Rates of Return (%)

Subproject EIRR at Appraisal EIRR at PCR EIRR at PPER Qiangkuang 15.0 15.9 24.9 Shizuizi 17.3 17.3 19.6 Muyu 14.8 16.6 20.3 Renhe 14.9 15.1 15.4 Songshan 17.3 17.3 21.5 Huacun 17.5 18.7 25.6 Longwantao 17.5 16.3 15.7 Overall project 16.2 15.8 20.9

EIRR = economic internal rate of return, PCR = project completion report, PPER = project performance evaluation report. Source: Asian Development Bank (Independent Evaluation Department).

18. At project completion, the calculated project EIRR was lower than that at appraisal. The difference resulted from (i) changes in capital costs due to various factors (e.g., competitive bidding, changes in material and labor costs, and changes in compensation rates for land acquisition and resettlement) and O&M costs lower than estimated at appraisal; (ii) changes in economic benefits, particularly the inclusion of water supply benefits in the PCR calculation; and (iii) the withdrawal of two subprojects that had higher appraisal EIRRs than did the remaining seven (footnote 15). 19. At evaluation (project performance evaluation report), the calculated project EIRR is higher than that at completion. The difference resulted from (i) reduced value of the incremental O&M cost, and (ii) updated cost of land acquisition and resettlement.

D. Financial Reevaluation 20. The local governments operating the reservoirs do not generate revenue directly from the reservoirs’ operation and are not financially independent entities, even though they charge water tariffs that partly fund O&M. Consequently, financial sustainability was assessed by checking if the local governments have adequate financial resources to make loan repayments and cover O&M costs. 21. The Shandong Provincial Government onlent the loan to the local governments (five counties and one district) that operate the reservoirs on the same terms and conditions as those in the ADB loan. The six local governments are thus responsible for loan repayment. The local governments derive their fiscal revenues through self-generation and funds transferred from upper-level government entities. The loan interest and principal repayments were estimated based on the outstanding amount of each subloan to the six local governments as of end-2016. Reckoned from that time forward, there remains an 18-year repayment period (2017–2035) with a loan interest rate of 2.92% per annum.

15 ADB. 2017. Completion Report: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province Project in the

People’s Republic of China. Manila. Appendix 8: Economic and Financial Reevaluation.


22. Reservoir O&M cost is small in relation to the fiscal capacity of the responsible local governments. The annual reservoir O&M cost is a small fraction (ranging from 0.001% to 0.24%) of the annual self-generating revenue of the local governments.16 Similarly, the annual debt service is a small fraction (ranging from nil to 0.17%) of the self-generating revenue (Table A5.5).

Table A5.5: Self-Generating Revenue Compared with Subproject Operation and Maintenance Cost and Debt Servicing

Local Government Zhucheng Shanting Laiyang Qingzhou Linqu Sishui

Reservoir Qiangkuang Shizuizi Muyu Renhe Songshan Huacun &

Longwantao

Annual self-generating revenue in 2015a (CNY million)

7,700 522 1,567 4,599 747 901

Annual self-generating revenue in 2017b (CNY million)

8,247 1,447 3,800 6,584 2,802 1,824

Average annual O&M cost after reservoir rehabilitation (CNY million)

0.92 0.24 9.10 0.48 0.3 0.73

Annual reservoir O&M cost as a percentage of self-generating revenue

0.011 0.016 0.239 0.001 0.010 0.040

Annual debt service in 2017b (CNY million)

2.47 0.62 2.74 0.25 1.54 3.09

Debt service as a percentage of annual self-generating revenue (%)

0.03 0.04 0.07 nil 0.05 0.17

O&M = operation and maintenance a ADB. 2017. Completion Report: Risk Mitigation and Strengthening of Endangered Reservoirs in Shandong Province. Appendix 8:

Economic and Financial Reevaluation. Manila. b PPMO dated 20 March 2019.

Sources: Shandong Provincial Water Resources Department, Provincial Project Management Office.

23. The increase in the self-generating revenue of the local governments from 2015 to 2017, as shown in Table A5.5, underscores the financial capacity to sustain operation of the reservoirs. The Shandong Provincial Government guaranteed the respective loans of the six local governments. The guaranteed loan amount represents a very small fraction (less than 0.001%) of the provincial budget.

E. Conclusion

24. The project remains economically viable and robust.

25. The local governments responsible for the rehabilitated reservoirs have more than adequate financial capacity through self-generated revenues to sustain the cost of reservoir operation and maintenance, including annual debt servicing of the ADB loan.

16 Self-generating revenue means revenues collected by the county governments, such as from local taxes and user fees. It does not

include revenue transferred from the central government.