Technical Assistance Consultant’s ReportPEOPLE’S REPUBLIC OF CHINA ASIAN DEVELOPMENT BANK...

Technical Assistance Consultant’s Rep Project Number: 40017 September 2008

PRC: Preparing the Qingdao Water Resources Management Project

Prepared by:

SOGREAH Consultants, France

For Qingdao Municipal Development and Reform Commission

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s consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and tents. (For project preparatory technical assistance: All the views

he proposed project’s design.)

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PEOPLE S REPUBLIC OF CHINA

ASIAN DEVELOPMENT BANK QINGDAO MUNICIPAL GOVT.

QINGDAO WATER RESOURCES MANAGEMENT PROJECT PPTA 4867-PRC FINAL REPORT VOLUME 1: MAIN REPORT & APPENDICES

OCTOBER 2008 1350337.R5 V1

PEOPLE’S REPUBLIC OF CHINA

ASIAN DEVELOPMENT BANK QINGDAO MUNICIPAL GOVERNMENT

QINGDAO WATER RESOURCES MANAGEMENT PROJECT PPTA 4867-PRC FINAL REPORT – MAIN REPORT IDENTIFICATION N° : 1350337.R5. V1

DATE : OCTOBER 2008

This document has been produced by SOGREAH Consultants as part of the ADB Project Preparation TA (Job Number 1350337)

This document has been prepared by the project team under the supervision of the Project Director following Quality Assurance Procedures of SOGREAH in compliance with ISO9001.

INDEX PURPOSE OF MODIFICATION DATE AUTHOR CHECKED BY

APPROVED BY (PROJECT DIRECTOR)

A First Issue Oct 2008 JFS,GDM GDM GDM

INDEX DISTRIBUTION LIST CONTACT ADDRESS

1 The Asian Development Bank (K. Kannan, Qingfeng Zhang, cc: Cynthia Carreon)

[email protected],[email protected],[email protected]

2 Qingdao Municipal (Mr. Jiang Dongmin) [email protected]

3 SOGREAH (Head Office) [email protected]

QINGDAO MUNICIPAL GOVERNMENT – ASIAN DEVELOPMENT BANK QINGDAO WATER RESOURCES MANAGEMENT PROJECT (PPTA 4867-PRC)

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TABLE OF CONTENTS TABLE OF CONTENTS ..................................................................................................... I

LIST OF TABLES ........................................................................................................... IV

LIST OF FIGURES...........................................................................................................V

APPENDICES................................................................................................................VI

ABBREVIATIONS, ACRONYMS AND UNITS ......................................................................VII

EXECUTIVE SUMMARY ..................................................................................................XI

1. THE PROJECT PREPARATION TECHNICAL ASSISTANCE .........................................................18 1.1. OBJECTIVES AND OVERALL SCOPE OF THE TA ...........................................................................18 1.2. TA PROGRAM AND REPORTING .......................................................................................................19 1.3. PURPOSE AND SCOPE OF THIS REPORT .......................................................................................20

2. RATIONAL: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES.............................22 2.1. PERFORMANCE INDICATORS AND ANALYSIS.................................................................................22 2.2. ANALYSIS OF KEY PROBLEMS AND OPPORTUNITIES ..................................................................23

2.2.1. CONCLUDING REMARKS & OPPORTUNITIES .....................................................................31 3. THE PROPOSED PROJECT.....................................................................................................................32

3.1. IMPACT & OUTCOME..................................................................................................................................32 3.2. OUTPUTS ...............................................................................................................................................32 3.3. LESSONS LEARNED ...................................................................................................................................34 3.4. PROJECT DESCRIPTION .............................................................................................................................35

3.4.1. INTEGRATED FLOOD AND WATER RESOURCES MANAGEMENT ......................................35 3.4.2. ENVIRONMENTAL MANAGEMENT AND POLLUTION CONTROL .........................................36 3.4.3. STRATEGIC ENVIRONMENTAL ASSESSMENT.....................................................................37 3.4.4. PROJECT MANAGEMENT SUPPORT ......................................................................................37

3.5. SPECIAL FEATURES...................................................................................................................................37 3.6. PROJECT INVESTMENT PLAN......................................................................................................................40 3.7. FINANCIAL PLAN ..................................................................................................................................41 3.8. IMPLEMENTATION ARRANGEMENTS ................................................................................................42

3.8.1. PROJECT MANAGEMENT.........................................................................................................42 3.8.2. PROJECT IMPLEMENTATION PLAN .......................................................................................43 3.8.3. PROCUREMENT.........................................................................................................................45 3.8.4. CONSULTING SERVICES ..........................................................................................................48 3.8.5. ADB’S ANTICORRUPTION POLICY..........................................................................................48


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3.8.6. INDICATIVE DISBURSEMENT ARRANGEMENTS ...................................................................48 3.8.7. ACCOUNTING, AUDITING, AND REPORTING.........................................................................49 3.8.8. PROJECT PERFORMANCE MONITORING AND EVALUATION..............................................49 3.8.9. PROJECT REVIEW.....................................................................................................................50 3.8.10. TECHNICAL ASSISTANCE ...............................................................................50

4. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS......................................................................51 4.1. BENEFITS AND IMPACTS.............................................................................................................................51

4.1.1. POLLUTION CONTROL BENEFITS & IMPACTS ..................................................................51 4.1.2. FLOOD MANAGEMENT BENEFITS & IMPACTS .................................................................54

4.2. SOCIAL DIMENSIONS..................................................................................................................................56 4.2.1. METHODOLOGY .......................................................................................................................56 4.2.2. SOCIOECONOMIC CONDITIONS ............................................................................................56 4.2.3. POVERTY ...................................................................................................................................57 4.2.4. GENDER ....................................................................................................................................58 4.2.5. SOCIAL BENEFITS ...................................................................................................................59 4.2.6. AFFORDBILITY TO PAY ..........................................................................................................60 4.2.7. SOCIAL RISKS...........................................................................................................................60 4.2.8. MEASURES ................................................................................................................................61

4.3. FINANCIAL ASPECTS..................................................................................................................................62 4.3.1. FINANCIAL MANAGEMENT ASSESSMENT ........................................................................................62 4.3.2. PROJECT FINANCIAL SUSTAINABILITY ANALYSIS .............................................................................63

4.4. ECONOMIC ASPECTS .................................................................................................................................64 4.4.1. BENEFIT ESTIMATION ....................................................................................................................64 4.4.2. ECONOMIC EFFICIENCY AND VIABILITY...........................................................................................67 4.4.3. BENEFIT DISTRIBUTION AND POVERTY IMPACT ANALYSIS...............................................................68

4.5. ENVIRONMENTAL IMPACT ASSESSMENT .....................................................................................................69 4.5.1. INTRODUCTION..............................................................................................................................69 4.5.2. PRC ENVIRONMENTAL IMPACT ASSESSMENT LAWS AND REGULATIONS.........................................69 4.5.3. ADB REQUIREMENTS....................................................................................................................69 4.5.4. CURRENT APPROVAL STATUS OF EIA............................................................................................70 4.5.5. IMPACT AND OUTCOME OF PPTA WORK........................................................................................70 4.5.6. REVIEW OF THE EIA ......................................................................................................................70 4.5.7. PUBLIC PARTICIPATION .................................................................................................................71 4.5.8. ALTERNATIVE COMPARISON ..........................................................................................................71 4.5.9. SUMMARY OF IMPACTS..................................................................................................................71 4.5.10. ENVIRONMENTAL MONITORING.......................................................................................72 4.5.11. ENVIRONMENTAL MANAGEMENT PLAN ...........................................................................72 4.5.12. CONCLUSIONS ...............................................................................................................73

4.6. RISKS AND MITIGATION MEASURES............................................................................................................73 4.6.1. OVERALL PROJECT. ......................................................................................................................73 4.6.2. FLOOD MANAGEMENT COMPONENT...............................................................................................74 4.6.3. POLLUTION CONTROL AND WASTEWATER MANAGEMENT COMPONENT...........................................74 4.6.4. SEA 74

5. ASSURANCES ......................................................................................................................................75

6. CONCLUSIONS & RECOMMENDATIONS ...................................................................................................77


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LIST OF TABLES

TABLE 1: REPORTS ISSUED..................................................................................................................................................................... 20

TABLE 2: REPORT VOLUMES ................................................................................................................................................................... 20

TABLE 3: COMPARISON OF WATERBORNE DISEASES IN JIAOZHOU WITH NATIONAL AVERAGE ................................................................... 27

TABLE 4: PROJECT COST SUMMARY (USD) ............................................................................................................................................ 41

TABLE 5: PRELIMINARY FINANCING PLAN ................................................................................................................................................ 42

TABLE 6: MINIMUM LIVELIHOOD SUBSIDY PROGRAM (2006) ..................................................................................................................... 57

TABLE 7: POVERTY SITUATION IN QINGDAO AND JIAOZHOU ...................................................................................................................... 58

TABLE 8: PAYMENT ABILITY ANALYSIS ..................................................................................................................................................... 60

TABLE 9: ESTIMATED FLOOD DAMAGE AND ANNUALIZED VALUES FOR SELECTED YEARS............................................................................. 65

TABLE 10: TOTAL HEALTH BENEFITS FROM THE PROJECT ....................................................................................................................... 65

TABLE 11: BENEFIT DISTRIBUTION AND POVERTY IMPACT ANALYSIS......................................................................................................... 68


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LIST OF FIGURES

FIGURE 1: ALGAL BLOOM IN QINGDAO COASTAL WATERS SUMMER 2008 ................................................................................................ 23

FIGURE 2: FRAMEXWORK FOR THE MANAGEMANT OF COASTAL URBAN WATER SYSTEMS ......................................................................... 24

FIGURE 3: LOCATION OF QINGDAO MUNICIPALITY AND JIAOZHOU COUNTY ................................................................................................ 24

FIGURE 4: MAJOR POLLUTION SOURCES IN JIAOZHOU BAY ...................................................................................................................... 25

FIGURE 5: PROJECTED GROWTH OF JIAZHOU URBAN POPULATION (CONSULTANTS ESTIMATES)................................................................ 26

FIGURE 6: DIRECT DISCHARGES & SOLID WASTE IN THE URBAN RIVERS OF JIAOZHOU.............................................................................. 27

FIGURE 7: IMPROVEMENTS IN WATER QUALITY OF THE DAGU RIVER (1999 – 2005)................................................................................... 28

FIGURE 8: POLLUTION LOADING RATES TO JIAOZHOU BAY IN TERMS OF COD AND P (DAGU RIVER = POINT 7) ......................................... 29

FIGURE 9: TYPES OF ORGANISMS IN INTERTIDAL ZONE OF DAGU RIVER ESTUARY FROM 1987 TO 2005...................................................... 29

FIGURE 10: SIMULATED FLOOD LEVELS ON THE YUNXI RIVER (BEFORE & AFTER THE SHAOHAI LAKE) ....................................................... 30

FIGURE 11: INTEGRATED APPROACH TO URBAN DEVELOPMENT IN COASTAL ZONES ................................................................................. 38

FIGURE 12: PROPOSED PROJECT ORGANISATION & FLOW OF FUNDS ....................................................................................................... 43

FIGURE 13: SUMMARY PROJECT IMPLEMENTATION PLAN.......................................................................................................................... 44

FIGURE 14: LOCATION OF CONTRACT PACKAGESS: FLOOD MANAGEMENT SUB COMPONENTS .................................................................. 46

FIGURE 15: LOCATION OF CONTRACT PACKAGES: WASTEWAATER SUB-COMPONENTS.............................................................................. 47

FIGURE 16: IMPACT OF THE PROJECT ON WASTEWATER LOADS (COD) DISCHARGED................................................................................ 52

FIGURE 17: IMPACT OF PROJECT ON WASTEWATER COLLECTION & PROPOSED GROWTH IN WASTEWATER TREATMENT CAPACITY ............ 53

FIGURE 18: COMPARISON OF WITH & WITHOUT JIAOZHOU WWTP IMPACTS ............................................................................................. 54

FIGURE 19: FLOODING PROJECTIONS WITHOUT PROJECT & WITHOUT SHAOHAI LAKE, YUNXI RIVER......................................................... 55

FIGURE 20: FLOODING PROJECTIONS WITHOUT PROJECT & WITH SHAOHAI LAKE, YUNXI RIVER ............................................................... 55

FIGURE 21: FLOODING PROJECTIONS WITH PROJECT & WITH SHAOHAI LAKE, YUNXI RIVER...................................................................... 55


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MAIN APPENDICES

N° DESCRIPTION Volume 1 DESIGN AND MONITORING FRAMEWORK 1 2 SECTOR ANALYSIS 1 3 PROBLEM TREE ANALYSIS 1 4 EXTERNAL ASSISTANCE 1 5 INTEGRATED APPROACH TO ENVIRONMENTAL MANAGEMENT IN COASTAL ZONES 1 6 DETAILED COST ESTIMATES 1 7 FLOW OF FUNDS 1 8 IMPLEMENTATION SCHEDULE 1 9 PROCUREMENT PLAN 1 10 TECHNICAL ASSISTANCE 1 11 FINANCIAL ANALYSIS 1 12 ECONOMIC ANALYSIS 1 13 ENVIRONMENTAL ANALYSIS 1

14 SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY 1 15 SUMMARY RESETTLEMENT PLAN 1


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SUPPLEMENTARY APPENDICES

N° DESCRIPTION Vol

A FLOOD MANAGEMENT COMPONENT 2 B WATER QUALITY & POLLUTION CONTROL COMPONENT 2

C NON STRUCTURAL MEASURES & ANALYSIS 2

D TERMS OF REFERENCE FOR CONSULTANT 2 E DETAILED COST ESTIMATES & FINANCING PLAN 2 F HEALTH IMPACT ASSESSMENT 2

G FLOOD RISK ASSESSMENT 2

H WETLAND ASSESSMENT & INTEGRATED URBAN MANAGEMENT FOR COASTAL AREAS 2

I DETAILED PROCUREMENT PLAN 2

J DETAILED FINANCIAL ANALYSIS & DETAILED FINANCIAL MANAGEMENT ASSESSMENT 2

K DETAILED ECONOMIC ANALYSIS 2 L INSTITUTIONAL ANALYSIS 3 M SHORT RESETTLEMENT PLANS 3

N DUE DILIGENCE RESETTLEMENT SHAOHAI LAKE 3

0 SOCIAL & POVERTY ANALYSIS 3

P SIEE & EMP 3


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ABBREVIATIONS, ACRONYMS, AND UNITS

$ US Dollar 10-FYP 10th Five-year Plan 11-FYP 11th Five-year Plan 3-H Basins Hai, Huai, and Huang [Yellow River] Basins ADB Asian Development Bank AF Affected Families AP Affected People BOD Biological oxygen demand BOT Build, operate and transfer BROT Build, rehabilitate, operate, and transfer C Celsius CNY Chinese Yuan COD Chemical oxygen demand CPPCC Chinese People’s Political Consultative Conference DRB Dispute Resolution Board EA Executing Agency EIA Environmental Impact Assessment EIRR Economic internal rate of return EMP Environmental Management Plan EPB Environmental Protection Bureau FGD Focus group discussion FSR Feasibility Study Report GDP Gross Domestic Product GEF Global Environment Fund IA Implementing Agency ICB International Competitive Bidding ICZM Integrated Coastal Zone Management IR Involuntary Resettlement IWRM Integrated Water Resources Management JCG Jiaozhou County Government JDRB Jiaozhou Development and Reform Bureau JEPB Jiaozhou Environmental Protection Bureau JFB Jiaozhou Financial Bureau Km2 Square kilometer


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kg/m3 Kilogram per cubic meter LARP Land Acquisition and Resettlement Plan LAS Land Acquisition Survey m/s Meters per second m3 Cubic meter MDG Millennium Development Goals MEP Ministry of Environmental Protection m3/d Cubic meter per day m3/yr Cubic meter per year mm Millimeter MHURC Ministry of Housing and Urban-Rural Construction MII Ministry of Industry and Information MMR Maternal mortality rate MOC Ministry of Construction MOF Ministry of Finance MWR Ministry of Water Resources N Nitrogen NESDP National Economic and Social Development Master Plan NPC National People’s Congress OCC Opportunity cost of capital O&M Operations and maintenance P Phosphorous PIU Project Implementation Office PLG Project Leading Group PMO Project Management Office PPMS Project Performance Monitoring System PPS Public – private sector PPTA Project Preparation Technical Assistance PRC People’s Republic of China PSFR Pre-Feasibility Study Report PSP Private sector participation QCBS Quality and Cost Based Selection QDRC Qingdao Development And Reform Commission QFB Qingdao Financial Bureau QM Qingdao Municipality QMG Qingdao Municipal Government R1 Inception Report RBCM River Basin Commissions RF Resettlement Framework ROT Rehabilitate, operate, and transfer RP Resettlement plan


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S Second SA Social analysis/assessment SDRC State Development and Reform Commission SEPA State Environmental Protection Administration SES Socioeconomic Survey SETDZ Special Economic and Technology Development Zone SOE State-owned enterprises SPA Social and Poverty Assessment SPG Shandong Provincial Government TA Technical Assistance TOR Terms of Reference TVE Township and Village Enterprises UNDP United Nations Development Programme WB World Bank WHO World Health Organization WQO Water Quality Objectives WTO World Trade Organization WWTP Wastewater Treatment Plan


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EXECUTIVE SUMMARY

I. INTRODUCTION

The objective of the technical assistance (TA) is to prepare an investment project that would improve water resources development and management efficiency in Qingdao Municipality. The TA has been implemented by a Consultant Team fielded by SOGREAH Consultants (Consultant) of France in close collaboration with QDRC/PMO and Jiaozhou County officials. Work under the TA has been carried out in two phases. Phase 1, which was undertaken over the period June – September 2007; Phase 2 commenced during March 2008 after an ADB Mission was fielded to Qingdao. Phase 2 consisted of (i) review of the Feasibility Study Report (FSR) and Environmental Impact Assessment (EIA) Report for the Jiaozhou Project; (ii) elaboration of the proposed Project and its components, including policy and institutional arrangements; and (iii) analysis of the feasibility of the proposed Project, its investment components, economic and financial analysis and assessment of their potential environmental and social (including poverty) impacts.

II. BACKGROUND AND RATIONALE

In the PRC, the urban population has grown rapidly in line with economic growth during the past two decades. An increase in the central urban population in Jiaozhou City of over 4% per year has been registered during the past 5 years with urban population now at over 300,000 (including floating migrants) and set to rise to over 500,000 in the near future has supported this economic growth. However the associated urbanization places pressure on an overloaded city infrastructure and causes a rapid increase in the demands for urban services and environmental threats from pollution.

Most of the water management problems in the People’s Republic of China (PRC), particularly for coastal cities, are the result of a fragmented approach to development. There is a need to move towards a more integrated management approach whereby the different tasks associated with water management (water supply, wastewater management, drainage) and ecosystem rehabilitation are managed together in close coordination with land use planning, coastal zone and water resource management, and pollution control at the river basin level. To reduce pollution in the country’s coastal waters and sustain ecosystems, a number of specific actions are needed, including (i) adopting a holistic approach to water management in river basins and coastal zones, (ii) reducing land-based pollution sources particularly industrial and urban point sources, and (iii) continuing institutional and financial management reforms to facilitate sustainable environment management.

While Jiaozhou City has implemented various water conservation and management projects, including notably the development of Shaohai Lake (serving both as a flood retention zone and artificial wetland at the confluence with the Dagu River), and the first phase of the centralized wastewater treatment facilities, there are still key opportunities to improve environmental management in relation to (i) the collection and interception of industrial and domestic wastewater discharge directly into water courses, (ii) the expansion and enhancement of the centralized treatment facilities to protect the Dagu River/Jiaozhou Bay wetlands, (iii) the improvement of urban rivers and stormwater networks in the old urban area, (iv) the development of an integrated approach for flood management incorporating the different structural and nonstructural measures currently operated separately by different entities, and (v) continuing institutional and financial management reforms to facilitate sustainable environmental management.


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Situated in close proximity to Jiaozhou City, the coastal wetlands of Jiaozhou Bay surrounded by Qingdao Municipality (including the county of Jiazhou itself at the head of the Bay) are vital representing the most important marine ecosystem of the Qingdao coastal region and the Shandong Peninsula, providing breeding grounds for many types of fish and shellfish, a resting place for migratory birds as well as maintaining coastal biological diversity. In addition, they play a key role in absorbing excessive nutrients before they enter the waters of the bay proper, thereby reducing eutrophication in the bay area. Since the 1950s, the coastal wetlands around Jiaozhou Bay have been severely impacted by human activities, notably in relation to excessive pollution generation; it is estimated since 1950 that the wetland area has reduced by 30%. Moreover, area of natural wetland has decreased with artificial wetland such as salt and aquaculture ponds doubling in area. These observations indicate that the effective upstream environmental and water resources management (reducing pollution loads, preserving river regimes) together with effective coastal zone management and zoning is required to reduce further wetland loss and degradation and thereby ensuring the preservation of the Jiaozhou Bay environment.

The City of Jiaozhou situated at the confluence of the Dagu River Basin and Jiaozhou Bay and adjacent to the protected wetland reserves, is one of the major pollution sources within the Dagu River Basin, itself the major source of organic pollution and a major source of nutrients to the bay. As it undergoes a dual transition from a rural to urban/industrial society, Jiaozhou has opened-up its economy and has vigorously been attracting both foreign and national private investors to participate acting as a key driving force in its development. As the municipality of Qingdao continues to develop and embrace further the bay area , the pivotal role of Jiaozhou between the eastern and western portions of the bay will be enhanced, acting as a pole for further enhanced urbanisation and industrialization. This rapid economic growth has however led to degradation of the immediate urban and water environment in Jiaozhou and will undoubtedly continue to threaten the integrity of the downstream wetlands unless immediate and concerted actions are undertaken.

The rationale for the proposed Project arises from the need to address the aforementioned problems and constraints confronting Jiaozhou’s water resources and environment sector and assist JCG in meeting its objectives and targets for the sector as embodied in its 11th FYP. Among a number of concerns identified in the course of the sector review and assessment, improvement of (i) environmental management and pollution control and (ii) water resources, particularly flood management, stand out as the most pressing requiring the priority attention of the county government. The proposed Project is designed to meet the need to ensure the sustainability of JCG’s immediate environment and water resources through infrastructure investments aimed at improving water quality via pollution control and flood/drainage management as part of an overall strategy for protecting environmental conditions in Jiaozhou Bay and preserving wetland areas. This latter goal will be reinforced by strengthening both Qingdao and Jiaozhou’s environmental planning capabilities by the development of a Strategic Environmental Assessment aimed at providing guidance for environmental management as Qingdao embraces the bay; the Jiaozhou City components will be designed and viewed as a demonstration project for facilitating the implementation of the recommendations and conclusions of the SEA. In addition the Project will reinforce the capability of local governments and communities to undertake environmental and flood management to complement the infrastructure investments. These interventions are expected to have a positive impact on both the immediate and downstream environments which, in turn, will have a significant impact on the sustainability of JCG’s and QMG’s economic development and on the improvement of the quality of life of affected communities.

III. THE PROJECT

A. IMPACT AND OUTCOME

The impact of the proposed project will be to contribute to improved quality of life, sustainable ecosystem, and biodiversity conservation in the Jiaozhou Bay through improved public health (notably reduced incidence of water borne diseases), improvements in river and lake water quality and reduction in flood damage.


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B. COMPONENTS AND OUTPUTS

The Project represents a major environmental improvement investment of Jiaozhou Bay, including Jiaozhou City and its downstream wetlands protection. It is classified as a targeted intervention because it contributes to achieving Millennium Development Goal 7, target 10, which calls for halving by 2015 the proportion of people without access to safe drinking water and improved sanitation. The Project will bring tangible benefits to the environment of Jiaozhou City and the bay area by (i) reducing water pollution; (ii) protecting water resources; (iii) reducing economic losses and disruption to livelihoods from frequent localized flooding; (iv) enhancing wetland ecosystems in both Shaohai Lake and the Dagu Estuary/Jiaozhou Bay wetlands; (v) promoting sustainable economic development; (vi) improving the environment, living conditions, and public health standards; and (vii) strengthening public service delivery through corporatization and improved financial sustainability. The impact of the Project will be enhanced by the replication of project lessons learned to other newly developed zones within the Qingdao Municipal Government by the implementation of a strategic environmental assessment (SEA).

The Project has three key outputs: (i) improved water resources and flood management, including (a) dredging, embankment and rehabilitation of four river courses with a total length of 19.5 kilometers (km); (b) upgrading flood retention facilities; and (c) constructing about 11.4 km of storm sewers; (ii) strengthening wastewater management and pollution control, including (a) constructing about 15.9 km of interceptor sewers; (b) establishing about 11.8 km additional sewerage networks to supplement the existing trunk sewerage; and (c) supporting the establishment of wastewater treatment plant with private sector involvement for an additional 50,000 cubic meter/day; and (iii) integrated water and ecosystem management. The integrated information system for Jiaozhou flood, water and wastewater management, and related emergency response system will be established. The management of the downstream Shaohai Lake will be strengthened by improving capacities of monitoring of biodiversity, surface water flow, water quality, and other ecosystem parameters and establishing a hydraulic and water quality simulation tool. The goal of protecting environmental conditions in Jiaozhou Bay and preserving wetland areas will be reinforced by strengthening both Qingdao’s and Jiaozhou’s integrated planning capabilities through preparation of SEA aimed at providing guidance for environmental management of Qingdao Municipality.

The flood management component will include improvements on the flood retention dam (erlihe reservoir) to (i) reduce risk of flooding and corresponding flood damage; (ii) improve discharge capacity and improve water flow during drought periods in the downstream of the river as well as meet the requirement of flood control of 50 years occurrence; and (iii) improve the water body environment within the dam. General works to be carried out under this subcomponent include the rehabilitation of areas I and II and the abandoning of area III.

The upgrading of urban storm drainage works will supplement the flood retention facilities in flood control and management by facilitating or improving the flow of stormwater into the drainage channel. A total length of stormwater sewerage of 11,350 m ranging in diameter from DN 800 mm to culverts of 2500x2500 mm is proposed to be financed under this project.

The integrated river course rehabilitation/upgrading will improve the ecological condition along the river courses by dredging/removing sediment, sludge, and domestic waste flushed from upstream and improve the flood conveyance capacity of these river courses thereby reducing flood risk. Four major rivers, with a total length of about 15.66 km will be rehabilitated.

The upgrading of urban wastewater drainage facilities will significantly reduce the serious water pollution and siltation problem in open-channels within the old district thereby improving the ecological and water environmental conditions in these channels. The wastewater management component is comprised of 2 parts: interception along rivers and sewerage trunks.; the total length of interceptors to be laid will be 15920 m ranging in diameter from DN 300-600 mm with a total length of sewerage of 11740 m is proposed ranging in diameter from DN 400-1000 mm.


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C. COST ESTIMATES AND FINANCING PLAN

The investment cost of the Project is estimated at $105.8 million, including taxes and duties of $3.1 million.

A loan of $45.0 million from the ordinary capital resources of the Asian Development Bank (ADB) will be provided under ADB’s London interbank offered rate (LIBOR)-based lending facility. The loan will have a 25-year term including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR-based lending facility, a commitment charge of 0.15% per annum on undisbursed funds, and such other terms and conditions set forth in the draft loan and project agreements. The financing plan is given in the following table:

Source Amount

($ million) % Asian Development Bank 45.0 42.5 Jiaozhou City Government 60.8 57.5

Total 105.8 100.0 Source: Asian Development Bank estimates.

D. IMPLEMENTATION ARRANGEMENTS

A Project Leading Group (PLG) has been established, headed by the vice mayor of JCG and comprising representatives from Jiaozhou City Construction Bureau, City Development and Reform Bureau, Finance Bureau, Environmental Protection Bureau, Planning Bureau, Shaohai Artificial Lake Management Bureau, Land Resources Bureau, and Water Resources Bureau. The PLG will provide overall policy guidance, facilitate interagency coordination, and resolve any institutional problems affecting project implementation. A project management office (PMO) has been established, comprising 10 staff from Jiaozhou City Construction Bureau, which include the project manager, and staff for undertaking activities related to procurement, disbursement, engineering, social and environmental safeguards, and interpreter

IV. PROJECT BENEFITS AND IMPACTS

A. OVERALL BENEFITS

The Project will benefit directly about 370,000 people living in the project area, of whom about 1.5% are poor, and indirectly about 3 million people in the Jiaozhou Bay area. All residents in Jiaozhou City will benefit, as their living conditions will improve as a result of (i) reduced pollution of Jiaozhou Bay’s surface water, with water quality improving to at least class V by 2014, with longer-term potential to be upgraded to class IV; (ii) protection from flooding and elimination of hazards resulting from poor drainage; and (iii) 40% reduction in the incidence of waterborne diseases from 2008 levels, with a corresponding decline in the number of sick days and expenses for medical treatment. Residents in the broader Jiaozhou Bay area will also benefit from (i) reduced pollution of Jiaozhou Bay, improved amenity values, reducing health risks from the consumption of shellfish and reduced algal growths in the bay and surrounding areas; and (ii) improved urban planning through the raising of environmental sustainability at the early stages of project conception.

The Project will create about 3,400 full-time jobs during construction, of which about 75% will be for the unemployed. To maximize the project benefits, women will be given priority in the employment and training opportunities generated in the Project’s construction and operation phases.


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The economic analysis provides a rationale and justification of the proposed Project based on policy, sector and local area analysis. It considers the Project, not as a stand-alone investment, but as an integrated part of the ongoing city, municipal and basin-wide environmental programs directly contributing to flood control and pollution reduction within the Dagu River Basin and the Jiaozhou Bay area. The economic analysis assesses the need and demand for the Project and assesses the alternatives.

The Project will generate direct economic benefits from improved flood control and management, improved health, and reductions in the extent of environmental degradation in the coastal wetlands from both the structural and nonstructural investments. For flood management, the annualized economic benefit in constant 2008 values is estimated at CNY90.8 million in 2011, increasing to CNY120.1 million in 2021; health benefits are expected to increase from CNY0.75 million in 2010 to CNY12.35 million in 2033; finally the value of wetland benefits was projected to increase from CNY0.04 million (from 1.1 ha saved) in 2011 to CNY6.97 million (from 196.1 ha saved) in 2033. The overall project economic internal rate of return is 14.7%. The project design is technically sound, economically efficient, affordable to beneficiaries, and is financially and economically viable.

B. SOCIAL ASPECTS AND RESETTLEMENT

Under the project a number of participation processes have been used to solicit the input of a cross section of stakeholders in the subproject cities and towns to date. A socio-economic survey was undertaken at household level, which covered 400 households and gathered information relating to 12,200 people. In addition, 8 community meetings including upstream and down stream were held with 76 people, among women, men and poor in the Jiaozhou to discuss in an open-ended manner topics related to the TA but not specifically covered in the socio-economic survey. A number of key informant interviews were also held with various bureaus, NGOs, the women’s federation, past and ongoing projects in complementary areas, etc to inform this project design. Formulation of the Resettlement Plans has utilized separate socio-economic surveys, community meetings, opinion surveys and specific impact studies from April to June 2008.

One short RP has been prepared by the EA with assistance of the PPTA Consultant. Impacts related to resettlement (physical and economic displacement) include are only minor and include 42.1 mu collective land is acquired (among which, 11.3 mu cultivated land, accounting for 26.8%; 30.8 mu pit-pond, accounting for 73.2%, 15 households, 51 persons are affected. 48.7 mu temporary crops are affected, which 60 households, 212 persons are involved. 149 mu state owned land is occupied temporarily. Among which, 96mu land is occupied in Wastewater pipelines, 64.3% of the total temporary state land occupation; 53 mu land is occupied in Stormwater pipelines, accounting for 35.7%. There is no vulnerable and ethnic minority group involved in this project.

The costs to be induced by land acquisition and resettlement are included in the overall budget of the Project. The total cost of land requisition and resettlement is estimated to be 2,354,700 Yuan at 2008 price. The project owners will pay compensation and other fees with domestic counterpart capital to the affected villages and individuals through Jiaozhou PMO. To ensure that land acquisition and resettlement can be finished successfully, Jiaozhou PMO will set up various financial and supervising organizations for the fund management in different levels.


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All APs will be compensated and resettled in a timely and adequate manner in accordance with the RP so that they will at least be as well off as they would have been without the Project. To ensure that APs have been adequately compensated and rehabilitated, the EA and the Implementing Agency (IAs), will keep the ADB informed of the progress of implementing the RPs through the quarterly progress reports until the resettlement is completed and will prepare a resettlement completion report. The EA and IAs will engage an independent agency for semi-annual monitoring and annual evaluation of land acquisition and resettlement until two years after the land acquisition, resettlement implementation and completion of resettlement. As indicated in the Summary Resettlement Action Plan (Appendix 14), the Project does not need an ethnic minority development plan, as ethnic minorities are few in number, are wholly integrated with the general population, and will benefit from the Project.

There is no record of important heritage and archaeological sites, and neither threatened nor endangered species on the land that would be temporarily or permanently lost.

C. ENVIRONMENTAL ASPECTS

The EIA for the proposed Project has undergone the well-established PRC EIA procedures. The Ocean University of China (OUC), an environment impact assessment (EIA) institute with Class-A certification, was engaged to carry out the EIA study for the proposed Project by the Jiaozhou Development and Reform Bureau in January 2008. The first version of the EIA report was completed in February 2008 and was submitted to the Qingdao EPB for appraisal on 18 March 2008. OUC updated the EIA report based on EPB comments in April; continued improvement works in May based on ADB comments.

The project will have largely positive environmental and social benefits as described previously in this chapter and in the SIEE. The Project will bring significant positive impacts to the safety and health of Jiaozhou City residents and assets by reducing flooding and associated pollution and health hazards in Jiaozhou urban city. The flood protection standard of Yunxi River, Hucheng River, Sanli River and Wushui River will be improved from 20-year to 50-year return period thereby improving capacity for flood control and management and consequently reducing risk of flooding and associated damages to life and property, also enabling further urban expansion in the area.

The Project will significantly improve water quality in the urban rivers and Shaohai Lake. Through sewage collection, the local river ecology and environment conditions will be enhanced, the current water quality, which is worse than Class V will be increased to close to Class IV or Class V.

In association with the extension of the existing Jiaozhou WWTP, the Project will reduce overall pollution loads to the Dagu River and Jiaozhou Bay. Associated with improved strategic planning the project is expected to reduce and eventually halt the degradation of the wetland areas in Jiaozhou Bay and contribute significantly to improved water quality conditions in the bay.

The major potential adverse environmental impacts during both construction and operation periods include noise, odor, dust, traffic congestion, sludge disposal, and associated impact from Jiaozhou WWTP. All these impacts have been analyzed in the project EIA report and SIEE. Specific environmental mitigation measures will be undertaken to minimize the adverse impact.


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V. MAJOR ISSUES FOR FACT-FINDING

A. SCOPE OF THE PROJECT, COSTS AND FINANCING PLANS

The ADB fact-finding mission will (i) finalize the objectives, scope, cost estimates and financing plan for the Project; and (ii) verify and confirm the adequacy of the financing sources for the counterpart funds.

B. POLICY DIALOGUE AGENDA

The policy dialogue to be pursed under the Project included: (i) integrated coastal zone management, river basin management and urban management, (ii) reducing flood risk in urban areas via non structural measures, (iii) industrial pollution control; (iv) wastewater management and reduction of pollution to open watercourses; (v) cost recovery and tariff reform, (vi) poverty reduction, and (vii) corporate governance and enterprise reform.

C ENVIRONMENT AND RESETTLEMENT ISSUES

The draft SIEE has been circulated to ADB for review and comments. The Project’s environmental impact is positive and the benefits greatly outweigh the negative impacts. The Project has been designed to mitigate all construction-related environmental impacts. The Mission will further discuss the EIA monitoring mechanisms for the Project. With the assistance of ADB’s Social Sectors divisional Poverty Reduction Specialist, the Mission will review the socio-economic assessment and social safeguards mechanisms in the proposed Project and accordingly strengthen them.

D. PROJECT RISKS

The mission will review the specific project risks (notably in relation to the parallel construction of the extension of the WWTP) and obtain the necessary assurances to mitigate these risks.

E. ASSURANCES

The ADB Appraisal Mission, in consultation with the Government, will formulate loan covenants considered necessary to ensure the technical, environmental, social, financial, and economic sustainability of the Project; these will be developed during the Fact-finding Mission. These covenants will cover the following aspects: (i) engineering services; (ii) implementation arrangements, (iii) land acquisition and resettlement; (iv) environmental issues; (v) counterpart funding; (vi) cost recovery; (vii) training; (viii) financial management and performance; and (ix) poverty and social development strategy.


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MAIN REPORT


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1. THE PROJECT PREPARATION TECHNICAL ASSISTANCE

1.1. OBJECTIVES AND OVERALL SCOPE OF THE TA

The objective of the technical assistance (TA) is to prepare an investment project that would improve water resources development and management efficiency in Qingdao Municipality. The TA outputs as initially defined included: (i) a review of the design of the Jiaozhou subproject and its development plans including wastewater treatment, afforestation, and biodiversity conservation; (ii) a review of the design for Quanxinhe Dam; (iii) additional technical studies/tests, if required; (iv) analysis of the economic and financial viability of both subprojects; (v) preparation of the project cost estimates; (vi) a review of current water management practices and institutional arrangements, and development of an integrated water resources management plan; and (vii) preparation of safeguard documents, i.e., environmental impact assessment (EIA), and resettlement plans according to ADB policies and guidelines.

The Consultants have worked closely with the Project Management Office (PMO), and the Implementing Agencies (IA) established for each of the two subprojects during the course of the PPTA, together with their respective design institutes in order to (i) prepare a feasibility study report, including an assessment of the financial, economic, social and environmental impacts of the Project in accordance with ADB’s policies and guidelines; and (ii) formulate an Investment Project to improve urban flood management, water quality and pollution control and preserve wetlands in Jiaozhou City and the Jiaozhou Bay area.

In relation to the ongoing policy dialogue between the ADB and the People’s Republic of China (the PRC) in conjunction with its lending program and to strengthen the dialogue in conjunction with the Project, the consultants have prepared notes for policy dialogue, based on discussions with the Qingdao Municipal Government (QMG) on (i) integrated river basin management; (ii) strategic environmental assessment for Jiaozhou bay; (iii) wastewater control and environmental planning and management; (iv) cost recovery and tariff reform; (v) urban poverty reduction, social protection and resettlement policies; (vi) regulatory enforcement and monitoring, and (vii) institutional strengthening. Specific presentations have been made on these issues during the different seminars and workshops held during the course of the PPTA.

At the beginning of Phase 2, a letter from the QDRC was transmitted to ADB indicating the withdrawal of the Laoshan Subproject from the proposed Project due to “timetable constraint” in meeting the requirements for inclusion in the Project. Based on these developments, the TA thereafter focused on Jiaozhou County components which has been assessed as having significant problems related to water resources and environmental management such as frequent occurrence of floods, inadequate drainage/sewerage capacity, and weak institutional capacity for flood control and environmental management.


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Since the start of the TA, several configurations of the Jiaozhou Subproject were proposed by Jiaozhou City officials as well as the components to be financed under the ADB loan. Throughout the duration of Phase 1, the Consultant held several meetings with the officials to discuss the proposals and on September 12, 2007, an agreement was reached that the components to be proposed for ADB financing will concern the following: (i) rehabilitation of one water retention facility to increase capacity from its current level of 0.2 million m3 to 1.0 million m3; (ii) river upgrading and dredging works to improve flood control, prevent soil erosion, and improve overall environmental condition; and (iii) construction of storm and sewage pipelines to prevent pollution of the waterway. A concept paper was submitted to ADB, through QDRC, which elaborated several potential investments that may be considered for financing the ADB loan.. In this regard, a design institute was hired by the Jiaozhou officials to carry out the conduct of the FSR which in turn was completed in December 2007. The Environmental Impact Assessment (EIA) was completed in February 2008. Based on these developments, the TA now focuses on Jiaozhou County which has been assessed as having significant problems related to water resources and environmental management such as frequent occurrence of floods, inadequate drainage/sewerage capacity, and weak institutional capacity for flood control and environmental management.

1.2. TA PROGRAM AND REPORTING

The TA has been implemented by a Consultant Team fielded by SOGREAH Consultants (the Consultant) of France in close collaboration with QDRC/PMO and Jiaozhou County officials. Work under the TA has been carried out in two phases. Phase 1, which was undertaken over the period June – September 2007 involved a (i) review and assessment of the Project area’s water resources and environment sector with particular emphasis on policy and institutional aspects, water resources and environmental status, socioeconomic condition of target beneficiaries, and related plans and programs; (ii) identification of constraints, problems, and issues affecting the water resources and environment sector in the Project area; and (iii) review of relevant documents for the proposed Subprojects. The Interim Report was submitted to ADB and QDRC in September 2007.

After a delay (about six months), Phase 2 commenced during March 2008 after an ADB Mission was fielded to Qingdao and an agreement was reach with QDRC that the minimum requirements for remobilizing the Consultant have been achieved by Jiaozhou. Phase 2 consisted of (i) review of the Feasibility Study Report (FSR) and Environmental Impact Assessment (EIA) Report for the Jiaozhou Project; (ii) elaboration of the proposed Project and its components, including policy and institutional arrangements; and (iii) analysis of the feasibility of the proposed Project, its investment components, economic and financial analysis and assessment of their potential environmental and social (including poverty) impacts.

Project Deliverables. In compliance with the Consultant’s contract the reports as indicated in Table 1 have been issued (in both English and Chinese Versions). These reports have been accompanied by workshops held notably during the Inception Phase, the Interm Phase and Final phases of the project. Details of the discussions notably in relation to Policy Dialogue are provided in Appendix 5 of this report. Of particular note is the provision of an additional report during Phase 2 of the assignment (titled the Pre-Draft Final Report). This latter report was developed to provide the interim review of the Jiaozhou Components (insufficient material was available to the consultant to consider these components as part of the Interm Report). Comments received from all parties on the Pre Draft Final and the Draft Final Report have been addressed during the preparation of this Final Report.


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TABLE 1: REPORTS ISSUED

Report Issued during

(i) Inception Report July 2007

(ii) Interim Report September 2007

(iii) Pre Draft Final Report April 2008

(iv) Summary IEE June 2008

(v) Summary Resettlement Plan June 2008

(vi) Draft Final Report June 2008

Personnel & Activity Schedule. The consultant’s activity schedule has remained as issued in the Inception Report with the exception of the addition of attendance on the Mid-term, Familiarization and Fact-finding Missions. The changes in Project scope have been largely accommodated within the program framework and there are only minor resulting changes to the activity schedule.

1.3. PURPOSE AND SCOPE OF THIS REPORT

This Final Report presents the findings of the Project Preparation Technical Assistance. It updates and expands on the issues reported in the Interim, Pre Draft Final and Draft Final Reports and incorporates the results of comments provided by the ADB and QMG on those Reports. It also reflects the discussions and findings of the Final Review Mission, held in late June 2008.

This Report is divided into three volumes as indicated below:

TABLE 2: REPORT VOLUMES

Report Volume Contents

Volume 1 Executive Summary, Project Brief, Main Report and Main Appendices

Volume 2 Supplementary Appendices (A – K) inclusive

Volume 3 Supplementary Appendices (L – P) inclusive

The Main Report comprises the following chapters:

Chapter 1 (this chapter) provides a summary of the PPTA itself;

Chapter 2 describes the Rational: Sector Performance, Problems, and Opportunities; it provides a description og the background of the project and main project city, Jiaozhou within Qingdao Municipality. It explains the existing problems of water quality and seasonal flooding and the policies and actions being undertaken to mitigate these problems.


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Chapter 3 outlines the The Proposed Project – describes the objectives and scope each subproject within the context of government policy and plans; summarises cost estimates and describes the logical framework for implementation, the proposed organisational establishment, the proposed contract packaging and procurement and the review and monitoring of the performance of Project development.

Chapter 4 summarises the Project Benefits, Impacts, Assumptions, And Risks; major environmental and flood management benefits are outlined together with the economical benefits accruing from these investments; the financial impact of the projects are also summarised; the anticipated environmental impacts from the subprojects, sets out activities for an environmental monitoring plan and highlights the environmental benefits accruing from the Project; the resettlement issues and action planning are summarised and the social assessment issues are discussed; the risks that could affect the success of the Project and the mitigating measures that should be taken are described

Chapter 5 proposes and explains the assurances to be provided by government.


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2. RATIONAL: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

2.1. PERFORMANCE INDICATORS AND ANALYSIS

Since the opening up of the PRC in 1978, spearheaded by the coastal provinces, the PRC has achieved unprecedented gross domestic product (GDP) growth rates. Over this period, the rate of urbanization has increased from 17.9% in 1978 to 36% in 2000, and 40.5% in 2005. Thus, the urban population has tripled over a period of 25 years reaching a total of about 500 million city dwellers by 2005. By 2030, the urban population is expected to reach about 870 million representing around 60% of the total population. The increasing urban population is fuelling further industrialization, economic development, and intensification of agriculture and are straining the already overloaded infrastructure, and contributing to widespread pollution and environmental threats to the PRC’s rivers, lakes, and coastal waters. Urbanization pressures are particularly intense in the PRC’s coastal provinces; various activities (settlements, port, and industrial facilities) are competing increasingly for land in the narrow coastal zones. Increasing pollution loads, more frequent floods and droughts (exacerbated by climate change and rising sea level) are imposing threats to the sustainable water resources management in these coastal regions. A review of the sector is in Appendix 2.

Combined with the declining availability of base flows, the river courses, streams, and lakes have seen a progressive increase in the quantity of wastewater discharged into them. The total volume of wastewater discharged in the PRC has been increasing since 1991, with about 54 billion tons of wastewater discharged in 2006. The combined effects of overuse of water, water pollution, and water related developments are destroying aquatic ecosystems in the PRC. However, due to a lack of regular and systematic monitoring, it is difficult to quantify the effects. Most vulnerable among these aquatic systems are lakes and wetlands because of their lower assimilative capacity and vulnerability due to the adverse effects to sudden changes.

The Government’s plans to address water pollution have not kept pace with the rate of economic growth. During the 10th Five-Year Plan (FYP, 2001–2005), environmental protection was the only area of the 10th FYP that failed to achieve its targets fully, and as a result, eight of the 20 environmental targets remained unattained. In particular, emissions of chemical oxygen demand showed only a 2% decrease compared with the planned 10% reduction. Treated sewage envisaged under the 10th FYP fell short of the target of 45% by about 8%. Only about 60% of the targets for pollution control for the major rivers and lakes were accomplished; about 41% of the water in the seven major river basins do not meet the Class III national water quality standard and thereby is unacceptable as a source of drinking water supply. Marine ecosystems are also increasingly under stress with significant rises in the number of harmful algal blooms (HABs) over the last few decades; and during the 10th FYP, the number of HABs increased to over 100 events per year in coastal waters from around 20 in previous years. The recent occurrence of an algal bloom prior to the staging of the sailing regatta as part of the 29th Olympiad has significantly raised awareness of the issue. Several factors contributed to the poor environmental performance during the 10th FYP. Among the most significant were: (i) inadequate attention of local governments to environmental protection, (ii) high economic growth and rapid urbanization with low resource-use efficiency, (iii) weak regulatory supervision and enforcement, (iv) weak cross-sectoral and transboundary coordination, and (v) ineffective financing mechanisms.


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FIGURE 1: ALGAL BLOOM IN QINGDAO COASTAL WATERS SUMMER 2008

As part of the 11th FYP (2006–2010), the Government has given priority to several environmental and natural resource concerns which among others include: (i) land degradation, (ii) water shortage and pollution, (iii) poor urban environmental infrastructure, (iv) degradation of marine ecosystems and wetlands, (v) increasing frequency and intensity of environmental accidents, and (vi) global environmental issues such as climate change and greenhouse gas emissions. The Government issued a series of policy directives on environmental protection for the 11th FYP period. These policy directions are incorporated into the National Economic and Social Development Master Plan of March 2006. This Plan gives priority to: (i) protection and rehabilitation of valued ecosystems, (ii) increasing efforts in pollution control, (iii) improving natural resources management, and (iv) sustainable utilization of marine/water resources. As a guiding policy for the 11th FYP, the State Council Directive sets forth two broad environmental objectives for the next 5–15 years. By 2010, the environmental quality of key regions and cities will be improved, and the trend of ecological degradation will be arrested. By 2020, the quality of the environment and the state of the country’s ecosystems will have improved significantly. There are many other specific targets set under 11th FYP but the reduction in energy intensity by 20% and total pollution load as measured by COD by 10% are the two most prominent.

2.2. ANALYSIS OF KEY PROBLEMS AND OPPORTUNITIES

Most of the water management problems in the PRC, particularly for the coastal cities, are the result of a fragmented approach to development. There is a need to move towards a more integrated management approach whereby the different responsibilities associated with water management (water supply, wastewater management, drainage) and ecosystem rehabilitation are managed together in close coordination with land use planning, coastal zone management and water resource management, and pollution control at the river basin level. To reduce pollution in the country’s coastal waters and sustain ecosystems, a number of specific actions are needed, including (i) adopting a holistic approach to water management in river basins and coastal zones, (ii) reducing land-based pollution sources particularly industrial and urban point sources, and (iii) continuing institutional and financial management reforms to facilitate sustainable environment management.


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FIGURE 2: FRAMEXWORK FOR THE MANAGEMANT OF COASTAL URBAN WATER SYSTEMS

Waterresources-other uses

Watersources USERS Sea water

Marine resources-

ecosystems

URBAN AREA

NATURAL ENVIRONMENT

& CLIMATE

URBAN MANAGEMENT

Waterresources-other uses

Watersources USERS Sea water

Marine resources-

ecosystems

URBAN AREA

NATURAL ENVIRONMENT

& CLIMATE

URBAN MANAGEMENT

Qingdao Municipal Level. Qingdao municipality (QM), located in the southwest of Jiaodong Peninsula, is an important coastal city in China and also one of the municipalities under separate planning of the state. QM achieved rapid economic development over the past three decades through intensive public investments and encouraging foreign and private investors to participate in its development plans and activities. Over the last three years, its GDP grew at an annual rate of about 15%; this rapid growth was reflected in rapid urban and industrial development which have had a consequential negative impact on the municipality’s water resources and environment.

FIGURE 3: LOCATION OF QINGDAO MUNICIPALITY AND JIAOZHOU COUNTY


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The coastal wetlands of Jiaozhou Bay surrounded by the Qingdao Municipality (including the city of Jiaozhou situated at the head of the bay) are vital, representing the most important marine ecosystem of the Qingdao coastal region and the Shandong Peninsula. They provide breeding grounds for many types of fish and shellfish, a resting place for migratory birds, as well as maintaining coastal biological diversity. In addition, they play a key role in absorbing excessive nutrients from land-based activities, before they enter the waters of the bay proper, thereby helping to prevent eutrophication in the bay. The wetlands is also a key to flood management and coastal protection which will become of increasing significance to coastal cities as sea levels continue to rise as a result of global warming. Since the 1950s, the coastal wetlands around Jiaozhou Bay have been severely affected by human activities, notably in relation to excessive pollution generation. It is estimated that since 1950s, the wetland area has shrunk by 30%. As a result, the area of natural wetlands has decreased, while the artificial wetlands such as the salt and aquaculture ponds have doubled in area. Whereas the water quality conditions appear not to be eutrophic in the bay with generally high levels of oxygen and low levels of biomass, the frequency of algal blooms has been increasing and nutrient levels are considered to be sufficiently high to favor eutrophication should wetlands continue to degrade. These observations indicate that effective upstream environmental and water resources management (reducing pollution loads and preserving river regimes) together with effective coastal zone management zoning is required to reduce further wetlands loss and degradation, and thereby ensuring the preservation of the Jiaozhou Bay environment

FIGURE 4: MAJOR POLLUTION SOURCES IN JIAOZHOU BAY


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Jiaozhou County Level. Jiaozhou is located in the southwest of Jiaodong Peninsula and the south edge of Jiao-Wei Valley Basin. It is on the northwest coast of Jiaozhou Bay where the Dagu river joins Jiaozhou Bay at its estuary. It has a total area of 1,210 km2 and in 2007 had a total population of about 780,000 of which a little over 330,000 were urban population (230,000 with urban hukou and a large number of floating migrants, almost 100,000). The City of Jiaozhou itself is undergoing a dual transition from a rural to urban/industrial society. It has opened-up its economy and has vigorously been encouraging foreign and private investors to participate in its development plans and activities. Over the past three years, the county’s GDP grew at a significantly rapid rate of 20% per year, mainly attributed to substantial investments in industrial and urban development which grew at an average annual rate of about 25%. In addition during the period 2003 to 2007, overall urban population growth rates were over 4% per annum. This growth rate is envisaged to continue with the urban population reaching 450,000 in the period 2010-2015 and 650,000 in the period 2020-2025 (Figure 5 illustrates the results of the Consultants population estimates for Jiaozhou which show slightly slower growth rates than those of the official master plan)

FIGURE 5: PROJECTED GROWTH OF JIAZHOU URBAN POPULATION (CONSULTANTS ESTIMATES)

COLLECTION AND TREATMENT OF URBAN WASTE WATER JIAOZHOU - POPULATION FORECAST

215500234,200

271,969

368,468

479,895

600,773

696,994

282,664

333,742371,969

452,557

550,605

660,234

746,994

6716499,542 100,000 84,090 70,711 59,460 50,000

0

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200000

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400000

500000

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700000

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2000 2005 2010 2015 2020 2025 2030 2035

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AB

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URBAN RESIDENTS TOTAL POPULATION FLOATING& MIGRANTS

Severe Local Pollution & Elevated Waterborne Disease Levels. As a result of increasing direct discharges (see for example Figure 6) from both domestic and industrial source, water quality of the urban rivers passing through Jiaozhou is extremely poor (classified at less than Class V according to the national water quality standards). In addition data gathered from the social surveys undertaken as part of this assignment illustrates high levels of waterborne diseases (see Table 3) indicative of generally poor sanitary conditions.


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FIGURE 6: DIRECT DISCHARGES & SOLID WASTE IN THE URBAN RIVERS OF JIAOZHOU

TABLE 3: COMPARISON OF WATERBORNE DISEASES IN JIAOZHOU WITH NATIONAL AVERAGE

Diseases 2003 2004 2005 2006 2007 National Average

2003 Hepatitus A 1/100,000 23.22 19.24 23.84 22.52 41.35 7.37 Hepatitus

(other types) 1/100,000 750.89 621.99 572.08 728.16 785.65 94.72

Hepatitus (all types) 1/100,000 774.11 641.23 595.92 750.69 826.99 102.09 Dysentery 1/100,000 1,296.80 1,013.91 994.32 1,380.43 1,460.00 34.52 Typhoid 1/100,000 2.65 2.02 1.97 1.74 2.24 4.17

Since 2000 Jiaozhou County Government has intensified the integrated management and control of the Dagu River Basin particularly with the development of a wastewater collection network and a new wastewater treatment plant (developed as part of a BOT scheme). As indicated in Figure 7 the water quality of the Dagu River downstream has improved significantly from less than Class V to Class IV.


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FIGURE 7: IMPROVEMENTS IN WATER QUALITY OF THE DAGU RIVER (1999 – 2005)

0

10

20

30

40

50

1999 2001 2002 2003 2004 2005

BOD5 NH3-N CODMn COD

`

mg/l

However, the water quality of upstream rivers and the newly constructed Shaohai Lake remain severely impaired with evidence of eutrophication (algal blooms and fish kills) impacting the latter water body. Surveys conducted in 2007 indicate that approximately 30,000 m3/day on untreated effluient is discharged upstream of the Shaohai Lake in Jiaozhou City; with the rapid increase in urbanisation these discharges are set to increase with consequential further negative impacts on the immediate receiving waters and eventually reversing the improved trends on the Dagu River.

Jiaozhou County is situated at the head of the Jiazhou Bay area encompassing the lower estuarine reaches of the Dagu River, the largest river basin in QM. The Jiaozhou Bay and Dagu Estuary wetlands are located at the eastern part of Jiaozhou and are the only wetlands in QM included in the national wetlands protection list (see Figure 4). The wetlands area covers the mudflat and beach from the freshwater zone of the Dagu Estuary to the low saltwater zone of Jiaozhou Bay with a total area of about 50,000 ha. The coastal wetlands of Jiaozhou Bay are vital as these represent the most important coastal wetland ecosystem of the Qingdao coastal region. They provide breeding and nursing grounds for number species of fish and shellfish, a resting place for number species of migratory birds as well as maintain coastal biological diversity. In addition, they play a key role in absorbing excessive nutrients before they enter the waters of the bay proper, thereby reducing eutrophication in the bay area. However, due to the adverse impacts of industrial development and agricultural activities, the wetlands are now suffering from severe pollution and destruction in recent years. The number of wildlife species has declined (see

Figure 9) and ecosystem functions have been impaired, especially in some areas along the eastern bank of Jiaozhou Bay which are already degraded and consequently are no longer suitable to function as natural wildlife habitats. Since the 1950s, the coastal wetlands around Jiaozhou Bay have been severely impacted by human activities, with more than half of the coastal zones today occupied by man-made structures. The pressure resulting from unregulated human activities on the coastal wetlands has intensified over the last decade with relatively high natural population growth, over 4% annually in Jiaozhou City.


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FIGURE 8: POLLUTION LOADING RATES TO JIAOZHOU BAY IN TERMS OF COD AND P (DAGU RIVER = POINT 7)

Development in terms of urbanization, industrialization, and the intensification of agriculture has led to serious loss and degradation of the wetlands. Over the 50 years from 1950 to 2000, it is estimated that the wetland area has reduced by 30% or an annual decline of about 0.6%; this annual decline has accelerated in recent years reaching 0.9% reduction per annum over the period 1988-2005. The importance of the Dagu River as the largest source of organic pollution (as measured by COD) and one of the largest sources of nutrients (as measured by phosphates) (see Figure 8) can be clearly appreciated especially as the river discharges directly upstream of the protected wetland area. These observations indicate that the effective upstream environmental and water resources management (i.e., reducing pollution loads, preserving river regimes, etc.) together with effective coastal zone management is required to reduce further wetland loss and degradation and thereby ensuring the preservation of the Jiaozhou Bay environment.

FIGURE 9: TYPES OF ORGANISMS IN INTERTIDAL ZONE OF DAGU RIVER ESTUARY FROM 1987 TO 2005

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5

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30

1987 1990 1991 1992 1993 1995 2002 2003 2004 2005

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/y)

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Flood Damages. Seasonal flooding is of great significance throughout China. Many of the main rivers experience out-of-bank conditions on a regular basis and the Dagu River Basin is no exception. Recent historical data, records several important flood eventsover the period 1990 to 2007 causing significant damage and seriously affecting the towns and districts of urban Jiaozhou. Total economic losses at the time were estimatedat around 300 million RMB.

The City of Jiazhou has developed a flood control masterplan largely proposing structural upgrading of the flood management measures in Jiaozhou. A first step in this masterplan is the development of the Shaohai Lake detention area which is currently under construction. This facility serves primarily to protect the lower reaches of the urban rivers of Jiaozhou from high water levels in the Dagu River Estuary (in part influenced by tidal levels). Hydraulic analysis undertaken as part of this study illustrates the effectiveness of this facility in controlling floods in the downstream portions of the urban rivers; however, floods in the older/central urban area which occurred significantly in 2001 are not impacted by this structure (see Supplementary Appendix G).

FIGURE 10: SIMULATED FLOOD LEVELS ON THE YUNXI RIVER (BEFORE & AFTER THE SHAOHAI LAKE)

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2.2.1. CONCLUDING REMARKS & OPPORTUNITIES

Jiaozhou County has been carrying out measures for improving water resources and environmental management in the past years in light of the growing problems resultant from (i) frequent occurrence of floods, (ii) water pollution and its negative impact on the environment, (iii) low environmental awareness, (iv) aging and disrepair of water resource management infrastructure, (v) weak institutional capacity and non-structural measures for water resources management, (vi) water shortages, and (vii) obstructed river flows. The county, however, is constrained by weak institutional capacity to carryout its various water resources and environmental management programs/plans as well as by inadequate funds for investing in the construction of new and repair of aging water resource management infrastructure and their maintenance. Consequently, this has prevented realization of the full benefits from these projects. It is for these reasons that assistance is being sought from the ADB. The Jiaozhou County Government (JCG), for its part, intends to develop its water resources management and environmental protection facilities to improve flood management as well as improve overall environmental conditions in the area. The proposed interventions will include (i) improvement of flood/water retention facilities, (ii) upgrading of urban wastewater and stormwater networks, and (iii) rehabilitation of river courses.

In the past, too many water conservation programs in the PRC have failed due to the inability of county level governments to raise adequate counterpart funds, or have been distorted due to the need to focus on activities that create short and medium term revenues. There is a need for international financing institutions (IFIs) to fund those areas not supported by private funding sources. The current wastewater treatment system of Jiazhou is a good example where the establishment of sewerage networks is not attractive to private funding sources and is under-financed by the local governments.

While Jiaozhou City has implemented various water conservation and management projects, including notably the development of Shaohai Lake (serving both as a flood retention zone and artificial wetland at the confluence with the Dagu River), and the first phase of the centralized wastewater treatment facilities, there are still key opportunities to improve environmental management in relation to the (i) collection and interception of industrial and domestic wastewater discharge directly into water courses, (ii) expansion and enhancement of the centralized treatment facilities to protect the Dagu River and Jiaozhou Bay wetlands, (iii) improvement of rivers and stormwater networks in the old urban area, (iv) development of an integrated approach for flood management incorporating the different structural and nonstructural measures currently operated separately by different entities, and (v) continuing institutional and financial management reforms to facilitate sustainable environmental management. The initial results and lessons learned from these efforts to improve environmental management will be a good model for other county level governments in the PRC.

The Qingdao Municipal Government (QMG) and the Jiaozhou City Government (JCG) are requesting the Asian Development Bank’s (ADB) assistance to reduce flooding and pollution impacts, and improve environmental management on the upstream of Jiaozhou Bay wetlands. This Project will serve as demonstration for further development of other districts around the bay area. This is particularly consistent with QMG’s Master Plan for the Jiaozhou Bay, which aims for a balanced development along the western and eastern parts of the bay. It also supports ADB’s strategic priority in the Country Partnership Strategy (CPS), which aims to promote inclusive growth and environmental sustainability.


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3. THE PROPOSED PROJECT

3.1. IMPACT & OUTCOME

The impact of the proposed project will be to contribute to improved quality of life, sustainable ecosystem, and biodiversity conservation in the Jiaozhou Bay through improved public health (notably reduced incidence of water borne diseases), improvements in river and lake water quality and reduction in flood damage.

The project outcomes will be improved condition of water resources and environment in the Jiaozhou City, and the downstream wetlands.

By adopting an holistic approach to water management in coastal zones (see Figure 3), the Project will support QMG and JCG for (i) providing improved urban environment and public health conditions in Jiaozhou City; (ii) achieving the Government’s flood protection design standards for the river catchments within Jiaozhou Bay; (iii) provision of basic foul sewerage and storm drainage infrastructure in Jiaozhou City to approved standards; (iv) establishment of an ecologically-sustainable environment around the Shaohai Lake artificial wetland; and (v) development of an environmentally-sustainable Jiaozhou Bay.

3.2. OUTPUTS

Incorporating lessons from similar projects, implemented in China and abroad, the Project will adopt integrated approach to address the current constraints in flood management, wastewater, environmental management, and ecosystem conservation. The project outputs will comprise improved water resources and flood management, strengthened wastewater management and pollution control, integrated water and ecosystem management, and strengthened project management capacity. A detailed description of these components is provided in supplementary appendices A to C. Specifically, the proposed Project components, as verified through the conduct of problem tree (Appendix 1) and objectives tree (Appendix 1) analyses and presented in the proposed project design and monitoring framework (Project Logframe) (Appendix 1), are:

(1) Component 1: Improved water resources and flood management :This component will help (i) undertake river dredging, embankment works, and greening over a total length of 19.5 kilometers (km) for four river courses; (ii) upgrade the Erli’he flood retention facilities; and (iii) construct 11.4 km of storm sewerage facilities in the Jiaozhou City.

(1.1) Subcomponent 1.1: Improvement of the Erli’he Flood Retention Facilities:

Improvements on the flood retention dam will: (i) reduce risk of flooding and corresponding flood damage; (ii) improve discharge capacity and improve water flow during drought periods in the downstream of the river; and (iii) improve the water body environment within the existing reservoir.

(1.2) Subcomponent 1.2: Upgrading of Storm Drainage Facilities: Upgrading of

urban storm drainage works will supplement the flood retention facilities in flood control and management by facilitating or improving the flow of stormwater into the drainage channel.


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(1.3) Subcomponent 1.3: Rehabilitation of River Courses: The rehabilitation of river courses will improve the conveyance of flows, reducing flooding risk, improve ecological condition along the rivers by dredging/removing sediment, sludge, and domestic waste flushed from upstream. Four major rivers, with a total length of about 15.66 km will be rehabilitated, i.e., Yunxi River, Hucheng River, Wushui River, and Sanli River.

(2) Component 2: Strengthened wastewater management and pollution control: This component will help (i) construct 15.9 km of interceptor sewer along river embankments in the Jiaozhou City to collect and transport foul sewerage to the existing wastewater trunk sewerage system; and (ii) supplement the existing trunk sewerage system, with an additional network of 1.8 km. To expand wastewater treatment plant, a partnership with private sector has been established. The expanded treatment capacity of 50,000 cubic meter/day will be added to the existing wastewater treatment plant through a build-operate-transfer (BOT) contract between Jiaozhou authorities and a private company. As a result, the treatment level of the plant will be enhanced from the existing Class II to Class IB and will be adapted to treat limited/initial stormwater flows during rainfall periods. The Project will provide safeguards due diligence support to the Jiaozhou authorities with respect to wastewater treatment process design and environmental assessment.

(3) Component 3: Integrated water and ecosystem management: This component will complement the structural investments with a series of nonstructural measures to ensure effective utilization of the new infrastructure and facilities. Activities are clustered into three key tasks, namely (i) capacity building for flood and water resources management, (ii) environmental management and pollution control, and (iii) support for sustaining Shaohai artificial lake ecology.

(3.1) To enhance JCG’s capacity in flood and water resources management, the Project will help JCG develop an integrated information system for flood, water, and wastewater management. This system aims to gather data on hydrology, flood facilities, engineering, drainage and wastewater collection network, and water quality information and integrate it into one data system rather than scattered across various line agencies to promote a holistic management. In addition to capacity building on the integrated information system, training on emergency response measures, flood zone mapping, storm water control at source, and improved regulation for control structures will be provided under this component.

(3.2) The following activities have been designed to improve JCG’s capacity of

environmental management and pollution control: (i) strengthening the participation of local community and industries in the environmental management and pollution control via training, workshop, and compliance awareness improvement; (ii) corporatization and strengthening of wastewater services in Jiaozhou City ; (iii) wastewater tariff reform to ensure sustainable operations and to adopt a “pro-poor” approach; and (iv) enforcement of the environmental monitoring plan under the environmental management plan.

(3.3) To support the ecology of Shaohai Lake and its ecosystem management, the

Project will construct artificial wetlands and enhance habitats to reduce nutrient loads to Shaohai Lake. The management of Shaohai Lake will be improved by strengthening capacity for monitoring of biodiversity, surface water flow, water quality, and other ecosystem parameters and establishing a hydraulic and water quality simulation tool. Further details of this component are in Supplementary Appendix C.


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(3.4) The goal of protecting environmental conditions in Jiaozhou Bay and preserving wetland areas will be reinforced by strengthening both the Qingdao’s and Jiaozhou’s integrated planning capabilities through the preparation/formulation of SEA aimed at providing guidance for sustainable environmental management to ensure “Qingdao embraces the bay” (as described below under Section IV).

(4) Component 4: Project Management Support: The existing project management office

(PMO) of the Jiaozhou City Construction Bureau (JCCB) will be strengthened through staff training, and the provision of vehicles and equipment. Relevant staff from PMO will receive training at the start of the Project in financial management and reporting, and ADB disbursement and procurement procedures. The PMO will establish and maintain a project performance management system (PPMS) to monitor project implementation and performance in meeting project targets. To facilitate its activities, the PMO will be provided with vehicles and office equipment. An international project implementation specialist will be recruited to provide technical advice to PMO in technical design review, procurement, and project supervision. International and national experts in the following disciplines will also be provided to support project management: (i) procurement; (ii) hydraulic, structural, and wastewater engineering; (iii) project monitoring and evaluation; (iv) resettlement supervision; and (v) environmental monitoring. The outline terms of reference and full list of experts are in Supplementary Appendix D..

3.3. LESSONS LEARNED

Integrating water and environmental management is a relatively new concept In PRC, particularly in Shandong Province, and there has been little external assistance directly for this type of approach in Qingdao Municipality. In other parts of China, the UNDP/GEF project, Wetland Biodiversity Conservation and Sustainable Use in China, 2001–06, which involved the wetlands of Sanjiang Plain, Dongting Lake, and Yancheng, provided some lessons. However, this project has adopted an engineering approach to restoring the hydraulic regime at specific nature reserves, and its institutional arrangements from national level through State Forestry Bureau have been complicated and difficult to implement at the local level. ADB’s ongoing Sanjiang Plain Wetland Protection Project adopts a holistic approach to treat wetland protection and water resources management at the basin level and not just at the nature reserve sites. It is also implementing the project at the provincial level to improve interdepartmental coordination.

ADB’s water supply and wastewater loan projects in the PRC have been generally been well implemented. Lessons from previous projects in Songhua river, Nanjing Qinghuai river, Sanjiang Plain, and Baiyangdian lake were considered in policy dialogue with the Government, engineering designs of the project facilities, and capacity development programs. Lessons identified from ADB’s post-evaluation experience in water infrastructure projects also highlights the importance of nonstructural measures: (i) encouraging broad reforms, such as autonomous management, and introducing private sector participation for efficient and responsive delivery of water and wastewater services; (ii) appropriate pricing policies to encourage the sustainable water and sanitation services; (iii) the use of management tools such as management and geographic information systems and performance grading to manage more appropriately water service’s assets (both sunk and future); and (iv) educating, consulting, and involving the public in environmental improvement. In the project design, specific actions have been defined to reinforce the nonstructural element of this Project, notably taking into account the feasibility report recommendations.

Where projects have had difficulty, this has rarely been in the construction process itself but rather in relation to (i) inadequate or late treatment of resettlement issues leading to serious delays in construction start-up, (ii) inadequate or poor project design, (iii) inadequate knowledge of procurement procedures and complex procurement plans, and (iv) low proportion of civil works financing resulting in loan savings and cancellation of surplus loan amounts. These issues have been reviewed in detail during project processing and the relevant lessons have been incorporated in the project design.


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Recent reviews on reviving Tai Lake, Baiyangdian Wetland, Sanjiang Plain Wetland, and West Lake have identified a series of features common to effective restoration of lakes and wetlands: (i) strong and consistent leadership and action—restoration takes time and resources often beyond the rather narrow focus of the typical FYP and also requires effective cross-sectoral and transjurisdictional coordination. Catchment boundaries are rarely the same as jurisdictional boundaries, and thus there is a need to develop effective management and appropriate level structures to ensure coordination across administrative and sectoral boundaries; (ii) integrated planning and analysis—planning needs to integrate many sectors including land use, and should serve as a strategy that will be acceptable to all sectors for future development . The development of an integrated planning framework has often led to particularly notable long term and successful partnerships between the PRC and the major development agencies and commercial banks; and (iii) effective financial engineering—too many programs have failed due to the inability of county level governments to raise counterpart funds, focus spending on activities that create short and medium term revenue raising possibilities . There is a need for IFIs to fund those areas not supported by traditional and/or private funding sources. The domestic wastewater treatment systems is a good example where one of the major deficiencies is with respect to the funding of networks, which are not attractive to private funding sources. The key lessons have been incorporated in the project design. A more detailed discussion of lessons is in Appendix 5.

3.4. PROJECT DESCRIPTION

3.4.1. INTEGRATED FLOOD AND WATER RESOURCES MANAGEMENT

Improvements on the flood retention dam will: (i) reduce risk of flooding and corresponding flood damage; (ii) improve discharge capacity and improve water flow during drought periods in the downstream of the river as well as meet the requirement of flood control of 50 years occurrence; and (iii) improve the water body environment within the dam. General works to be carried out under this subcomponent are described in the following sections.

In order to increase the capacity of the facility, upgrading of the main dam, secondary dam and watergate will be undertaken. In the original FSR, some dredging and enlarging of the storage area, as well as slope protection, will be done in order to increase its capacity of the Erlihe Reservoir from about 0.2 million m3 to an active storage of about 0.708 million m3. The reservoir’s design flood storage will increase to about 0.916 million m3 while its check flood capacity will increase to about 1.071 million m3.

According to meetings held in Jiaozhou with the Construction Bureau (and municipality representatives) it was proposed to “abandon” area III reservoir (the most upstream one). Due to its weak capacity storage (even after dredging: no more than some 100 000 m3), area III reservoir would not contribute as storage reservoir or flood routing reservoir. Present gates could be dismantled in order to avoid increase of water level upstream during flood event and to avoid increase of flooding upstreamward.

Regarding Area II reservoir, the existing gates (2 gates of 5 m width and one of 1.9 m width), would be removed and replaced by 3 gates. The reservoir would be cleaned and dredged to reach a maximum volume of some 450 000 m3; works as presented in the initial FSR would be done. Bottom of gate (weir El.) is considered as 16.5m. 3 gates of 5m width are proposed, to avoid increase of water level during exceptional floods and avoid submersion of embankments. (Full opening 4m)

Regarding Area I reservoir (downstream), bottom of gate (weir El.) was considered as 12.8 m (similar FSR). 3 gates of 5m were considered (existing ones - Full opening 4m). Regarding dredging and excavation, the construction bureau expressed the wish not to excavate the FSR proposed area, and limit the works by dredging. This means that the maximum storage capacity of area I reservoir should be only some 350 000 m3 in spite of 1 210 000 m3 as proposed in the initial FSR.


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Upgrading of urban storm drainage works. The upgrading of urban storm drainage works will supplement the flood retention facilities in flood control and management by facilitating or improving the flow of stormwater into the drainage channel. This will significantly help in reducing the serious water pollution and siltation problem in some open-channels in the old district which, in turn, will improve the ecology and water environment within the open-channels. Subsequently, this will reduce the incidence of diseases due to contaminated water and vectors of water-borne diseases such as flies and mosquitoes. Specific works to be carried out under this subcomponent are described below.

As discussed with the project owner, it is comfimed to involve the drains on the following urban roads into the component, i.e. Dezhou Road, Fuzhou Road, Quanzhou Road, Beijing Road, Shanghai Road, Guangzhou Road and Hangzhou Road, in view of urgency in flooding mitigation and viability in urban infrastructure development plan. A total length of stormwater sewerage of 11,350 m ranging in diameter from DN 800 mm to culverts of 2500x2500 mm is proposed to be financed under this project.

The integrated river course rehabilitation/upgrading will improve the ecological condition along the river courses by dredging/removing sediment, sludge, and domestic waste flushed from upstream and improve the flood conveyance capacity of these reiver courses thereby redcuing flood risk. Specific works to be carried out under this subcomponent are described below.

Four major rivers, with a total length of about 15.66 km will be rehabilitated, i.e., Yunxi River, Hucheng River, Wushuihe River, and Sanli River. Civil works will mainly include dredging (about 1,483,600 m3), embankment protection and raising (26,920 m), road construction (148,670 m2), river bank greening (456,120 m2), and construction of one rubber dam.

All the above interventions will also ensure the long-term ecological integrity and sustainability of the Jiaozhou artificial lake and prevent it from being a depository of industrial and domestic wastes. The interventions will also establish an effective and efficient “natural cleaning process” for the artificial lake.

3.4.2. ENVIRONMENTAL MANAGEMENT AND POLLUTION CONTROL

The upgrading of urban wastewater drainage facilities will significantly reduce the serious water pollution and siltation problem in open-channels within the old district thereby improving the ecological and water environmental conditions in these channels. This will subsequently reduce the incidence of diseases attributed to contaminated water and vectors of water-borne diseases such as flies and mosquitoes. The wastewater management component is comprised of 2 parts: interception along rivers and sewerage trunks.

Interception Along Rivers: Pipelines for interception will be laid down on the 2 banks of Yunxi River, Hucheng River and Wushui River to collect foul water from the outfalls, in accordance with distribution of the outfalls. One interceptor has been installed in the midstream of Yunxi River from Taiping Road to Fuzhou Branch Road, so that there is no need to duplicate it on the same section. Wastewater to be intercepted will be directed to Yangzhou Road, Hangzhou Road, Lanzhou Road, Simenshou Road and Luzhou Road where sewerage trunks have been or will be constructed to feed the Municipal WWTP. The total length of interceptors to be laid will be 15920 m ranging in diameter from DN 300-600 mm.

Sewerage trunks are proposed as another part of wastewater management component to make for a comprehensive wastewater system for Jiaozhou. A total length of sewerage of 11740 m is proposed ranging in diameter from DN 400-1000 mm.


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3.4.3. STRATEGIC ENVIRONMENTAL ASSESSMENT

This study will be undertaken by a team of specialists hired under the Project to assess the environmental and socioeconomic situation as well as establish an inventory of resources within the Jiaozhou Bay area as a basis for mapping out a bay-wide integrated water resources and environmental management plan for further developing the other parts of Jaiozhou Bay. This will be in line with the 2006 - 2020 General Development Plan for the City Cluster on the Shandong Peninsula which aims to develop the area of Hangdao midway along Jiaozhou Bay and Huangdao on the western shore and calls for the development and reclamation of an area about 400 km2, mostly covered by shallow sea, wetlands, and saline marshes. This will facilitate a balance in the development along with the eastern part of the bay, where urban residents are crowded and confined by water and surrounding mountains and farmland that constrain further expansion, and at the same time provide the necessary environmental and social safeguards for conserving water resources such as rivers, wetlands, and saline marshes.

3.4.4. PROJECT MANAGEMENT SUPPORT

Given the inadequate staff capacity of the EA and IA in key disciplines, a Project management support office, complete with logistical facilities and technical staff, will be provided for effective Project implementation. An international project implementation specialist will be provided, on full-time basis, to render technical advice to the Project Management Office (PMO) and Project Implementation Unit (PIU) in project supervision and building capacity in integrated water resources and environmental management. International and national experts in the various disciplines will also be provided to support project management. The types of experts to be considered will be determined for the Draft Final Report and will have specialization in the following indicative fields: (i) institutional/training development; (ii) water resources planning; (iii) flood management; (iv) drainage management; (iii) environmental monitoring and pollution control; (iv) solid waste management; (v) watershed management; (vi) civil engineering; (vii) sanitation; (viii) procurement; (ix) financial management; and (x) forestry, among others. They will provide technical assistance to concerned QMG and Jiaozhou county agencies in the various aspects of project implementation, including, among others, community organization and social preparation, environmental monitoring, institutional strengthening, gender and development, and project monitoring and evaluation, as necessary.

3.5. SPECIAL FEATURES

The proposed Project will implement interventions for mitigating the existing water resource and environmental management problems in Jiaozhou and at the same time prevent the re-occurrence of these problems in the future in light of the rapid industrial and urban development in the Project area. Although the interventions proposed under the Project are intended to directly mitigate the problems in the urban and industrial areas of Jiaozhou, these are intended to pre-empt the occurrence of environmental problems that may cause the deterioration of the ecological integrity of the wetlands and Dagu River due to rapid economic development. It is expected that the improvement of the management of water resources and environment, with its consequential positive impact on water quality and environment, will lead to the conservation of the adjacent wetlands and the Dagu River and ultimately bring about significant economic and environmental benefits. This is consistent with PRC’s current increasing concern on the conservation of the nation’s vulnerable wetland resources.

In PRC, like most other countries, the threat to environment is multi-sectoral but the response often follows single-sector approach which is not always efficient. As elsewhere in PRC, in the Jiaozhou Project area, soil, water, and air pollution is caused by the urban, industrial, and agricultural sectors. This Project “integrates” the Government’s response to contain pollution in the within the Jiaozhou River Basin by adopting an integrated, multi-disciplinary, and inter-agency planning, investment, and monitoring approach.


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The Project design incorporates the conduct of a SEA study which will assess the environmental and socioeconomic situation within the Jiaozhou Bay area. This will serve as basis for mapping out a bay-wide integrated water resources and environmental management plan for further developing the other parts of Jaiozhou Bay. The study will support the 2006 - 2020 General Development Plan for the City Cluster on the Shandong Peninsula which aims to develop the area of Hangdao midway along Jiaozhou Bay and Huangdao on the western shore.

FIGURE 11: INTEGRATED APPROACH TO URBAN DEVELOPMENT IN COASTAL ZONES

In summary therefore key special features of this project are:


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1. Strategic environmental assessment. The proposed SEA on the Jiaozhou Bay development in parallel with the proposed Project in Jiaozhou City will enable the initial results and lessons learned from the Jiaozhou project development to be incorporated into improved environmental planning over the whole bay area. The SEA will reinforce the institutional set up by encouraging the development of a bay wide environmental protection authority from the existing leading group structure, and thereby contribute significantly to the coordination and integration of the existing fragmented pollution control and water resources planning with urban development and marine ecosystem planning. The development of the SEA as a statutory planning document, guiding future detailed planning, and implementation will reinforce the project outcome enabling the Project to be replicated throughout the bay area, thereby enhancing significantly the project impact.

2. Integrated water and ecosystem management. Enhanced wastewater collection from about 55% to over 80%, will reduce significantly the pollution loads currently discharged to the Jiaozhou’s rivers and Shaohai Lake. As a result, the risk of increasing eutrophication of the lake could be mitigated. However, to reduce and further improve the already existing conditions, a number of “in situ” measures involving the development of wetland areas at the point of entry of the rivers to the lakes have been developed together with studies to monitor and further investigate improvements to water quality in the lake.

3. The Project will complement the structural measures with the designed nonstructural measures, which were well accepted by the Government. During project design, hydraulic simulation techniques were developed to diagnose current flooding behavior and test the adequacy of proposed structural measures. These simulation approaches will be continued during project implementation to develop operational rules, to cater for events rarer than the design events through flood mapping and emergency warning systems, and testing the effectiveness of stormwater source control. In addition to these measures, the Project will contribute to the corporatization of wastewater services and strengthening tariff reform. An integrated information system for flood, water, and wastewater management will be developed and operated during the project implementation.

4. Public-Private Partnership. Due to the underdevelopment of the sewage network, inadequate wastewater is being captured for the wastewater treatment plant. In this Project, ADB financing will support the construction and upgrading of the stormwater and wastewater interceptor and sewerage system as well as the development of nonstructural measures, which may not directly generate revenues but are crucial to ensure the sustainability of the water infrastructure investments. In addition, to expand the wastewater treatment plant, a partnership with the private sector has been established. An expanded treatment capacity of 50,000 cubic meter/day will be added to the existing wastewater treatment plant (WWTP) through a build-operate-transfer (BOT) contract between the Jiaozhou authorities and a private company. The Project will: (i) provide safeguards and due diligence support to Jiaozhou authorities with respect to wastewater treatment process design and environmental assessment, and (ii) promote the wastewater tariff reform in Jiaozhou City.

5. This WWTP will be constructed and operated under a 20-year BOT arrangement by the Zhongkecheng Environmental Company (ZEC) using the A2O treatment process. The agreement with ZEC has been signed and the construction will start from October 2008. The WWTP is expected to be operational by end of 2009. In addition to being responsible for the operation and maintenance (O&M) of the ADB-financed project, the public utility division under the Jiaozhou Construction Bureau will also be responsible for the supervision and management of the proposed WWTP.


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6. Optimization of design. Significant design optimizations were undertaken to improve both the efficiency of the overall Project and to reduce resettlement and associated social disruptions. The Erli’he Reservoir subcomponent investment was significantly reduced while preserving its overall function and reducing significantly the amount of resettlement and land acquisition required. Initially, it was proposed to separate the sewerage system in the older parts of Jiaozhou, thereby creating two sewerage systems. Experience has shown that this solution is both costly and difficult to achieve in practice. An alternative solution based on the use of an interceptor system (associated with separation of the secondary sewerage) has been developed, enabling to reduce both investment costs and social disruptions.

3.6. PROJECT INVESTMENT PLAN

The estimates of the cost of the Project and its components presented in this section are indicative. The cost of the civil works for (i) improving flood retention facilities, (ii) upgrading of urban stormwater drainage, (iii) rehabilitation of river courses, and (iv) upgrading of urban wastewater drainage facilities which were based on the costs provided in the FSR. Other costs presented are lump sum estimates, details for which will be provided after further analysis and discussions on the types of interventions/activities that will be recommended for each Project component.

The total base cost of the Project is estimated at about $82.3 million (about CNY576.1 million).1 Local and foreign costs comprise about 67 and 33%, respectively, of total Project base cost. The table below presents the component cost summary and its breakdown into local and foreign cost components.

In comparing these costs it should be noted that a significant portion of the wastewater subcomponent has been included in the costs of rehabilitation of river course subcomponent related particularly to the interceptors as these will be cosnstructed together with the embankments.

1 At an exchange rate of CNY7.0 to $1.00.


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TABLE 4: PROJECT COST SUMMARY (USD)

Item Amount a A. Base Costsb 1. Improving Water Resources and Flood Management a. Improvement of the Erli'he Flood Retention Facilities 5.5 b. Upgrading of Stormwater Drainage Facilities 14.4 c. Rehabilitation of River Courses 53.3 Subtotal 73.2 2. Strengthening Wastewater Management and Pollution Control a. Upgrading of Wastewater Collection System 6.4 Subtotal 6.4 3. Integrated Water and Ecosystem Management a. Capacity Building for Flood and Water Resources Management 0.8 b. Environmental Management and Pollution Control 0.6 c. Support for the Shaohai Artificial Lake Ecology 0.3 Subtotal 1.8 4. Strengthening Project Management Capacity 0.9

Total Base Cost (A) 82.3B. Contingencies 1. Physical Contingenciesc 7.7 2. Price Contingencies 10.0C. Financial Charges During Implementationd 5.8 Total (A+B+C)e 105.8 Notes: a In mid-2008 prices. b Includes taxes and duties of $3.1 million. c Contingencies will be financed by the Government. Price contingencies on local currency is 5.5% between data

collection and loan effectiveness, 5% for all subsequent years. On foreign exchange, 6.8% between data collection and loan effectiveness, and 0.7%, 1.4%, 0.4%, 0.5%, and 0.5% for subsequent years. Physical contingencies is at 10% other than for survey, design, and supervision where they are 0%.

d Includes interest during construction computed at the five-year forward London interbank offered rate (LIBOR), with a spread of 0.2%. Commitment charges were computed at 0.15% on undisbursed amounts.

e Figures may not add up due to rounding. Source: Asian Development Bank estimates.

Total Project cost, including provisions for physical and price contingencies and charges during implementation, is estimated at about $105.8 million (about CNY740.6 million) spread over an implementation period of four years. Physical contingencies are estimated at 10% of all base costs while price contingencies are based on ADB’s estimates of local and foreign currency escalation factors.2

3.7. FINANCIAL PLAN

Including physical and price contingencies, the Project will require a total financing of about $45 millionfrom ADB, through its ordinary capital resources, which is equivalent to about 43% of total Project cost. The remaining balance of approximately $60.8 million or about 57% of total Project cost, will be funded by Jiaozhou County Government,. The table below presents the summary of the financing plan for the whole Project.

2 The price escalation rates used will be verified as to their latest values. The rates used for this report are the following:

(I) 3.6%, 2.7%, 2.8%, and 2.0% respectively for years 2009, 2010, 2011, and 2012/2013 for local currency costs; and (ii) 0.7%, 1.2%, 1.2%, and 1.2% respectively for years 2009, 2010, 2011, and 2012/2013 for foreign currency costs.


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The remaining costs will be financed by JCG covering base costs, and physical and price contingencies. The local costs of JCG will be financed from land-use fees and urban construction and maintenance taxes. JCG has issued a commitment letter confirming the availability of counterpart funds

TABLE 5: PRELIMINARY FINANCING PLAN

Source Total % Asian Development Bank 45.0 42.5 Jiaozhou City Government 60.8 57.5 Total 105.8 100.0 Note: Figures may not add up to rounding. Source: Asian Development Bank estimates.

3.8. IMPLEMENTATION ARRANGEMENTS 3.8.1. PROJECT MANAGEMENT

The Executing Agency (EA) for the Project is JCG. A Project Leading Group has been established, headed by the vice mayor of JCG and comprising representatives from Jiaozhou City Construction Bureau, City Development and Reform Bureau, Finance Bureau, Environmental Protection Bureau, Planning Bureau, Shaohai Artificial Lake Management Bureau, Land Resources Bureau, and Water Resources Bureau. The leading group will provide overall policy guidance, facilitate interagency coordination, and resolve any institutional problems affecting project implementation. A PMO has been established, comprising 10 staff from Jiaozhou City Construction Bureau, which include the project manager, and staff for undertaking activities related to procurement, disbursement, engineering, social and environmental safeguards, and interpreter. During the project implementation, the PMO will be responsible for coordinating with the design institutes, specialists and contractors procured under the Project. Upon completion of the Project, the Public Utility Division under Jiaozhou Construction Bureau will be responsible for the O&M of the completed facilities including wastewater networks, drainage, river courses management, and also supervision and management of the WWTP which will be built by private sector through BOT modality. The capacities of water related agencies in Qingdao and Jiaozhou were assessed. It was concluded that there is a need for assistance for strengthening water resources management and conservation such as: (i) introduction of integrated information system, which will apply real-time data acquisition, GIS platform, river courses and drainage/sewer system simulation software, and decision support system for real-time flood management; (ii) training for the corporatization of wastewater services; and (iii) planning for wastewater tariff reform. The detailed analysis are provided in Appendix 3 and supplementary appendices C and L. The PMO’s financial, technical, and institutional capacity was assessed. Based on the assessment, Jiaozhou PMO will need training in relevant ADB procedures during project implementation. The detailed discussion is in Supplementary Appendix L


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FIGURE 12: PROPOSED PROJECT ORGANISATION & FLOW OF FUNDS

Legend: Oversight ResponsibilityCommand LineCoordinationFlow of FundRepayment Flow

Jiaozhou Construction

Bureau

Project Implementation

Unit(PIU)

Jiaozhou CountyFinance Bureau

Qingdao Finance Bureau

QingdaoDevelopment and Reform Commission

Project Management Office (PMO)

Ministryof

Finance

Asian Development

Bank

Qingdao Municipal

Government

Improvement of Flood Retention

Facilities

Upgrading of Urban

Stormwater and Wastewater

Drainage Facilities

River Course Rehabilitation

Qingdao Municipal Agencies with Oversight Responsibilities: - Environmental Protection Bureau - Water Resources Bureau - Land Bureau

County-Level Agencies with Oversight Responsibilities: - Development and Reform Bureau - Finance Bureau - Construction Bureau - Environmental Protection Bureau - Water Resources Bureau - Land and Resources Bureau

State Agency with Oversight Responsibilities: - National Development and Reform Commission

Project Leading Group

3.8.2. PROJECT IMPLEMENTATION PLAN

The Project will be implemented over 5 years from March 2009 to February 2014. The detailed project implementation schedule is included in Appendix 8 and summarised in Figure 13. The implementation period is estimated based on the project scope and construction technology requirements and ADB’s successful experience with similar projects in the PRC, combined with the knowledge and experience of JCG/QMG and the PMO in wastewater management and other urban environmental improvement projects. The first year will be spent mainly in setting up the PMO and PIU and in various preparatory tasks, including (i) preparation of work and financial plans, (ii) procurement of goods and services (i.e., consultants and engineering and service contractors), and (iii) setting up of the project performance monitoring system (PPMS).


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FIGURE 13: SUMMARY PROJECT IMPLEMENTATION PLAN

2009 2010 2011 2013

A. Flood & Water Resources Management

1. Erli'he Reservoir: Survey and Design

2. Erli'he Reservoir: Rehabilitation

3. Yunxi River: Survey and Design

4. Yunxi River: Rehabilitation

5. Hucheng River: Survey and Design

6. Hucheng River: Rehabilitation

7. Wushui River: Survey and Design

8. Wushui River: Rehabilitation

9. Sanli River: Survey and Design

10. Sanli River: Rehabilitation

11. Guangzhou Rd Stormwater: Survey and Design

12. Guangzhou Rd Stormwater: Construction

13. Dezhou Rd Stormwater: Survey and Design

14. Dezhou Rd Stormwater: Construction

15. Beijing Rd Stormwater: Survey and Design

16. Beijing Rd Stormwater: Construction

17. Quangzhou Rd Stormwater: Survey and Design

18. Quangzhou Rd Stormwater: Construction

B. Improved Wastewater Collection System

1. Simenshou Rd: Survey and Design

2. Simenshou Rd: Construction

3. Quangzhou Rd: Survey and Design

4. Quangzhou Rd: Construction

C. Non-Structural Measures

1. Capacity Building for Flood and Water Res. Mgmt

a. Equipment Upgrading

b. System Development

c. Capacity Building

2. Strengthening Community Participation

4. Strengthening O&M of Jiaozhou WW Utility

5. Support for Artificial Lake Ecology

a. Artificial Lake Construction

b. Monitoring of Lake ecology

D. Project Management

1. PMO Establishment

2. Environmental Monitoring

3. Selection and Engagement of Project Consultants

4. Preparation of Quarterly Reports

5. Preparation of Annual Reports

6. Preparation of Project Completion Report

7. Project Closing

20143 4 1 2 3 4 1 23

ACTIVITY2012

1 2 13 42 4 1 1 22 3 4


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3.8.3. PROCUREMENT

Goods, related services, and civil works financed partly or wholly by ADB will be procured in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). A Procurement Plan, has been prepared as described in detail in Supplementary Appendix H. During Project implementation, this will be reviewed and updated on an annual basis. Contract packages for goods and related services exceeding $1.0 million will be awarded on the basis of international competitive bidding (ICB), while those costing between $100,000 and $1.0 million may be awarded through national competitive bidding. Civil works contracts costing more than $10.0 million will be procured using ICB, while those valued between $100,000 and $10.0 million equivalent may be procured using the national competitive bidding procedures, in accordance with the PRC’s Tendering and Bidding Law (1999), subject to clarification to the Law that have been agreed with ADB for the purposes of ADB’s Procurement Guidelines. For small-scale works, contracts in rural areas may be awarded using community participation procedures. The selection of suppliers/contractors and award of contracts will be subject to ADB’s approval.3 The relevant sections of ADB’s Anticorruption Policy will be included in all procurement documents and contracts.

There are two primary options for contract packaging available to the IA: (i) a series of small contracts whose individual value is below the threshold(s) for international competitive bidding (ICB) procedures and (ii) one or two very large contracts whose value is such that ICB will apply. In practice it is unlikely that international contractors will either be interested or even competitive for bulk earthworks and landscaping civil works contracts in Jiaozhou. The domestic contractor’s capacity is large and competition is strong. It would, therefore, seem logical that domestic procedures shall apply which inherently limits the value of individual contracts under ADB procurement procedures to a value of $10 million. This, in turn, creates possible contractual difficulties when the overall balance of cut and fill earthworks and its transport becomes involved between several different contractors. This point has been discussed with the Implementing Agency and their design advisors and a practical solution reached and agreed whereby the civil works are split between road bridges across the rivers.

3 ADB will require the PMO to use ADB-approved standard bidding documents to ensure high quality and consistency of the documents, and

to facilitate ADB’s review of the documents.


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3.8.4. CONSULTING SERVICES

The Project will finance about 31 person-months of international consulting and 100 person-months of national consulting, to be funded under the Project, for project management support and implementation of nonstructural measures. Consulting services will be provided in the following specific areas: (i) development of an integrated information system for management of drainage and wastewater assets in Jiaozhou City, (ii) ecological upgrading of the Shaohai Lake wetlands, (iii) construction supervision and quality control, (iv) financial management and corporate governance, and (v) operation and maintenance. The international consultants will specifically provide training and capacity building in wastewater management and treatment planning, industrial pollution control, hydrological and hydraulic analysis, stormwater source control financial management, and environmental monitoring and management. Contracts for consulting services estimated at $200,000 and above will be awarded to consulting firms using the quality-and cost-based selection procedures (80:20), in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). The Consultant’s terms of reference are provided in Supplementary Appendix D.

3.8.5. ADB’S ANTICORRUPTION POLICY

ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with QMG and the IA. Consistent with its commitment to good governance, accountability, and transparency, ADB will reserve the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy will be included in the loan regulations and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project will include provisions specifying the right of ADB to audit and examine the records and accounts of QMG, the IA, and all contractors, suppliers, consultants and other service providers as they relate to the Project. The Project design and implementation arrangements provide for mitigating corruption risks. Risks associated with project management, including procurement and disbursement, will be mitigated by (i) engaging an international consultant and a national consultant to advise and assist in the procurement of goods and services, and the engagement of other consultants; (ii) introducing a dual signing system in which the civil works contractor awarded the contract will also sign an anticorruption contract with the employer; and (iii) periodical inspection by the PMO of the contractor’s activities related to fund withdrawals and settlements.

3.8.6. INDICATIVE DISBURSEMENT ARRANGEMENTS

The proceeds of the loan will be disbursed in accordance with ADB’s Loan Disbursement Handbook, as amended from time to time.4 Because many of the payments will be made for large contracts, direct payment, reimbursement, and commitment procedures will be used to withdraw funds from the loan account. A Project imprest account will be set up at the Jiaozhou Financial Bureau. To expedite the flow of funds and simplify document processing, the Statement of Expenditure procedure may be used to reimburse eligible expenditures for any individual payment not exceeding $100,000. The payments exceeding Statement of Expenditure ceiling will be reimbursed based on full documentation process.

4 ADB. 2007. Loan Disbursement Handbook. Manila.


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Project imprest accounts, for ADB funds, will be set up by the Jiaozhou Financial Bureau in a bank acceptable to ADB. The IA will be a sub-borrower and will enter into an onlending agreement with QMG for its share of the ADB loan funds and will be responsible for its repayment. PMO is not a borrower. Disbursements from the imprest accounts will be supported by an appropriate withdrawal application and related documentation. The initial amounts to be deposited in each imprest account shall not exceed the estimated expenditures for the next 6 months or 10% of the loan amount, which ever is lower.

PMO requires additional capacity and experience to efficiently deal with the operation and withdrawal procedures necessary for the operation of the imprest accounts. Accordingly, assistance and training will be provided so that PMO staff can expedite loan disbursements. An assessment of the financial management capability of the Financial Bureau of QMG and IA and specific arrangements for managing the project funds have been discussed in Appendix 10 of this report including recommendations for improving capacity for financial management.

3.8.7. ACCOUNTING, AUDITING, AND REPORTING

All agencies, i.e., the PMO, PIU, and IA, involved in project implementation will maintain records and accounts that identify goods and services from loan proceeds, financing resources received, expenditures incurred, and use of local funds. These accounts will be established and maintained in accordance with sound accounting principles and internationally accepted accounting standards. The PMO will review and consolidate these accounts and have them audited annually in accordance with sound accounting practices by the sovereign audit agency of the Government or other auditors acceptable to ADB. The audit report will include a statement verifying whether or not the funds disbursed by ADB were used for the purposes for which they were provided, as well as the auditor’s opinion on the use of the imprest account and statement of expenditures procedures. Copies of the audited accounts and auditor’s report will be submitted to ADB within 6 months after the end of each financial year. PMO will prepare consolidated quarterly reports indicating progress made, problems encountered during the period, steps taken or proposed to remedy the problems, proposed program of activities, and progress expected for the next quarter. Within three months of physical completion of the Project, the PMO will submit to ADB a completion report that describes the achievements in relation to the Project’s expected impact, outcome and outputs.

3.8.8. PROJECT PERFORMANCE MONITORING AND EVALUATION

To monitor the progress of the Project in achieving the planned outcome and outputs, the PMO will establish and maintain a project performance management system (PPMS), which will be designed to permit adequate flexibility to adopt remedial action regarding Project design, schedules, activities, and development impacts. The PPMS will adopt the following agreed indicators (i) physical progress of subproject implementation; (ii) results of capacity development program; (iii) water quality and quantity improvements in the open-channels, river courses, and other waterbodies including the artificial lake; (iv) improvement in water resource and environmental conditions; and (v) social and poverty development. At Project inception, PMO, in consultation with the IA, will develop comprehensive PPMS procedures to systematically generate data on inputs and outputs of the Project activities, and the socioeconomic, health, and environmental indicators to measure Project impacts.

PMO will refine the PPMS framework, confirm achievable targets, firm up monitoring and recording arrangements, and establish systems and procedures no later than six months after Project implementation begins. Baseline and progress data will be reported at the requisite time intervals by the IA to the PMO, including annual reporting on the water resources and environmental management plan. PMO will be responsible for analyzing and consolidating the reported data through its management information system (which will be proposed), and for reporting the outcome to ADB through the quarterly progress reports.


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3.8.9. PROJECT REVIEW

In addition to regular monitoring, the overall performance of Project the will be reviewed at least once a year jointly by ADB and the Government. The review will assess implementation performance and achievement of progress towards Project outcomes and outputs, financial progress, identify issues and constraints affecting implementation, and work out a time-bound action plan for their resolution. ADB and the Government will undertake a midterm review to assess implementation status and take appropriate measures including modification of scope and implementation arrangement, and reallocation of loan and grant proceeds, as appropriate, to achieve the Project’s objectives.

3.8.10. TECHNICAL ASSISTANCE

An advisory TA grant of $750,000 is requested to strengthen the capacity of QMG in integrated environmental planning and management to support SEA on the Jiaozhou Bay development. QMG, through Qingdao Environmental Protection Bureau as the EA, will provide $250,000 for in-kind costs. The TA will address three priority issues identified by the sector analysis and the lessons learned from previous interventions that need to be improved in the implementation of ecosystem-based integrated water resources management scheme: (i) the integrated planning and analysis, (ii) the effective management scheme, and (iii) appropriate mechanism to monitor and ensure effective implementation.

The advisory TA comprises three components to support the SEA: (i) support the creation of an effective management mechanism for strategic environmental and planning process; (ii) strategic environmental assessment of Jiaozhou Bay’s further development for an integrated planning; and (iii) operational guideline and monitoring system for implementation.

An international firm will be engaged through quality- and-cost-based selection method (80:20) using simplified technical proposals in accordance with ADB's Guidelines on the Use of Consultants. Fifteen person-months of international consulting services and 60 person-months of national consulting services will be required. The indicative consultant needs and outline terms of reference of the consultants are provided in Appendix 10. Implementation of the TA will commence in the first year of the Project (2009).


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4. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

4.1. BENEFITS AND IMPACTS

The Project will benefit directly about 370,000 people living in the project area, of whom about 1.5% are poor, and indirectly about 3 million people in the Jiaozhou Bay area. All the residents in Jiaozhou City will benefit and their living conditions will improve as a result of (i) reduced pollution of Jiaozhou’s surface water, with water quality improving to at least class V by 2014, with longer-term potential to be upgraded to class IV; (ii) protection from flooding and elimination of hazards resulting from poor drainage; and (iii) 40% reduction in the incidence of waterborne diseases from 2008 levels, with a corresponding decline in the number of sick days and expenses for medical treatment. Residents numbering approximately 3 million in the broader Jiaozhou Bay area will benefit from (i) reduced pollution of Jiaozhou Bay, improving amenity values, reducing health risks from the consumption of shellfish, and reduced algal growths in the bay and surrounding areas; and (ii) improved urban planning through the raising of environmental sustainability at the early stages of project conception.

4.1.1. POLLUTION CONTROL BENEFITS & IMPACTS

The interception of wastewater will contribute to reducing overall pollution loads discharged to the environment thereby improving water quality in the Jiaozhou urban rivers, Shaohai Lake and the Dagu/Jiaozhou Bay Wetlands. Appendix A2 and the SIEE (Appendix R) provide details of the analysis developed to detail these benefits and impacts. Figure 16 below summarises the impact of the proposed project on wastewater loads discharged from Jiaozhou City. The first column illustrates the total generation of pollution (in this case measured as COD) in the area; the second column summarises the load discharged “without the project” assuming that the collection of wastewater and its subsequent treatment remains at current levels; finally, column three illustrates the load discharged “with the project” consisting of both improved wastewater collection and treatment. Without the project, future wastewater loads will gradually increase and eventually surpass the total load without treatment; with the project, total wastewater loads will decrease significantly.


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FIGURE 16: IMPACT OF THE PROJECT ON WASTEWATER LOADS (COD) DISCHARGED

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2007 2010 2015 2020

CO

D L

oadi

ng

Total Load Load Discharged Without Load Discharged With

The interception of wastewater from the urban areas of Jiaozhou will clearly increase significantly the flow transferred to treatment (as illustrated in Figure 17). It will therefore be necessary to increase significantly the capacity of treatment at the existing WWTP in phases as the intercepted flow builds up. In addition to maintain total discharged loads within the assimilative capacity of the Dagu River (and the downstream wetlands) it will be necessary to enhance the treatment level from the current Class II to Class IA or Class IB.


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FIGURE 17: IMPACT OF PROJECT ON WASTEWATER COLLECTION & PROPOSED GROWTH IN WASTEWATER TREATMENT CAPACITY

JIAOZHOU -WWTP CAPACITY

0

50000

100000

150000

200000

250000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

YEAR

M3

DA

Y

WWTP CAPACITY WASTE WATER VOLUME

By enhancing the treatment level of the existing WWTP, it should prove possible to maintain overall loads at levels similar to those discharged currently. The impact of the future WWTP should therefore remain similar to that of the current WWTP; the impact of the latter as derived from the initial EIA document is illustrated in Figure 18. It can be hypothesised that this improvement (that has already been demonstrated in the Dagu water quality has lead to a certain recovery of species biodiversity in the wetlands – see

Figure 9)


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FIGURE 18: COMPARISON OF WITH & WITHOUT JIAOZHOU WWTP IMPACTS

Calculated COD Concentration Field before WWTP operation(daily average)

Forecasted COD Concentration Field after WWTP operation (daily

average)

4.1.2. FLOOD MANAGEMENT BENEFITS & IMPACTS

Flood control achieved by the Project will contribute to the overall well being of the population residing in the subproject areas by minimizing loss of life and damage to property, agriculture and infrastructure. There will be less disruption to urban life and trade. In particular the Project will raise the current flood protection standard from approximately 1 in 5 years to 1 in 50 years.

Hydrological and hydraulic simulation studies conducted by the PPTA Consultants (see Supplementaty Appendix E) has permitted to quantify the benefits arising from the project in conjunction with the associated Shaohai Lake detention area. Prior to the construction of the Shaohai Lake flooding was frequently observed at the junction of the Dagu River with the urban rivers passing through Jiaozhou (see Figure 19). The following example illustrates the peak water levels (blue line) against ground levels (green line) for the 1 in 50 year event for the Yunxi River . In this instance, significant flooding is seen to occur predominantly at the lower parts of the Yunxi River (junction with the Dagu River) and in isolated locations in the upstream reaches.


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FIGURE 19: FLOODING PROJECTIONS WITHOUT PROJECT & WITHOUT SHAOHAI LAKE, YUNXI RIVER

209

y2 y3

604

y4 y5

997

y6 y7

1389

y8 y9

1774

y10

y11

2173

y12

y13

2574y1

4y1

52929

y16

y17

3285

y18

y19

3682

y20

y21

4103

y22

y23

4509

y24

y25

4909

y26

y27

5307

y28

y29

5704

y30

y31

6108

y32

y33

6505

y34

y35

6915

y36

y37

7309

y38

y39

y40

8834

ybf

10034

y40 ybf -y40. y ybf . y

NodeLi nk

m AD

0. 0

9. 0

1. 0

2. 0

3. 0

4. 0

5. 0

6. 0

7. 0

8. 0

m

Similar simulations were conducted to assess the impact of the Shaohai Lake alone (currently under completion). As can be seen from Figure 20 below the lake permits to reduce significantly flood levels in the lower reaches of the urban rivers; however, significant flooding would still occur in the mid and upper reaches without further interventions.

FIGURE 20: FLOODING PROJECTIONS WITHOUT PROJECT & WITH SHAOHAI LAKE, YUNXI RIVER

209

y2

404

y3

604

y4

793

y5

997

y6 y7

1389

y8 y9

1774

y10

y11

2173

y12

y13

2574

y14

y15

2929

y16

y17

3285

y18

y19

3682

y20

y21

4103

y22

y23

4509

y24

y25

4909

y26

y27

5307

y28

y29

5704

y30

y31

6108

y32

y33

6505

y34

y35

6915y3

6

y37

7309

y38

y39

7634

y40

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -NodeLi nk

m AD

2. 0

9. 0

2. 53. 03. 54. 04. 55. 05. 56. 06. 57. 07. 58. 08. 5

m

Finally simulations with the project and with the shaohai lake have been conducted; as illustrated below the project reduces significantly flood risk for a 1: 50 year flood event (see Figure 21); in fact the freeboard in most cases would appear significantly larger than the 60 cm value required by the design guidelines.

FIGURE 21: FLOODING PROJECTIONS WITH PROJECT & WITH SHAOHAI LAKE, YUNXI RIVER

209

y2

404

y3

604

y4

793

y5

997

y6 y7

1389

y8 y9

1774

y10

y11

2173

y12

y13

2574

y14

y15

2929

y16

y17

3285

y18

y19

3682

y20

y21

4103

y22

y23

4509

y24

y25

4909

y26

y27

5307 5704 6108 6505 6915 7309 7634- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

NodeLi nk

m AD

1. 0

9. 0

2. 0

3. 0

4. 0

5. 0

6. 0

7. 0

8. 0

m


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Further sensitivity analysis (see Supplementary Appendix E) has assessed the impact of dredging and embankment raising separately on flood levels The simulations indicate the necessity of dredging particularly in the mid to lower reaches of the rivers (except for the Wushui River) as this enables the Shaohai Lake levels to have an impact directly on upstream water levels; in conclusion, it may not be necessary to raise embankments as high as envisaged to provide 1:50 year protection, except for the Wushui River.

4.2. SOCIAL DIMENSIONS

Social analysis is undertaken in line with ADB guidelines on social dimensions, gender, poverty reduction, indigenous peoples and minorities, as set out in the Handbook on Poverty and Social Analysis. The social demensions describes poverty and social conditions in Jiaozhou, presents information on ethnic minorities, discusses gender aspects, and provides recommendations for consideration in the preparation of the final Project design. The objective of the poverty and social analysis is to improve understanding of the conditions that will affect project impacts and identify ways to both prevent or mitigate adverse impacts and enhance benefits, particularly for the poor. 4.2.1. METHODOLOGY

In this social and poverty assessment, The TA Consultant has utilized a number of participation processes to solicit the input of a cross section of stakeholders in the subproject cities and towns to date. A socio-economic survey was undertaken at household level, which covered 400 households and gathered information relating to 12,200 people. In addition, 8 community meetings including upstream and down stream were held with 76 people, among women, men and poor in the Jiaozhou to discuss in an open-ended manner topics related to the TA but not specifically covered in the socio-economic survey. A number of key informant interviews were also held with various bureaus, NGOs, the women’s federation, past and ongoing projects in complementary areas, etc to inform this project design. Formulation of the Resettlement Plans has utilized separate socio-economic surveys, community meetings, opinion surveys and specific impact studies from April to June 2008.

4.2.2. SOCIOECONOMIC CONDITIONS

The Project comprises three components that are Improvement of Flood Retention, Facilities River Course Rehabilitation and Upgrading Urban Drainage subproject. The project’s main benefited areas include 5 sub-district offices5, 88 village committees and 54 neighbourhood committees in downtown Jiaozhou, with a benefited area of 129.69 km², 75,000 benefited families and a total benefited population of 229,600. The Erli River Interception Project will affect the Beiguan Sub-district Office mainly, the Urban Watercourse Integrated Improvement Project will affect the Zhongyun, Fu’an, Nanguan and Yunxi Sub-district Offices mainly and the Urban Drainage Project will affect the 5 sub-district offices.

Jiaozhou City governs 13 towns, 5 sub-district offices, 811 village committees and 61 neighborhood committees.The city has a latitudinal span of 51 kilometers, a longitudinal span of 54.3 kilometers, a total area of 1,210 km2, an urban area of 39.8 km2, including an arable area of 556.09 km2.

Jiaozhou has 785,258 registered residents in 238,718 households; of the total registered population, 393,023 are male and 392,235 are female; 10,5742 are floating population for 11.2% of total population. Births totalled 9019 and the birth rate is 11.54‰; deaths totalled 5336 and death rate is 6.83‰. Population increased by 3683 at a 4.71‰ natural growth rate.

5 The 5 sub-district offices affected were: Fu’an, Zhongyun, Beiguan, Nanguan and Yunxi.


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There are 50 minority groups, 33,000 resident minority people (0.44% of total population), and 40,000 floating minority people (0.53% of the total population) in Qingdao. Minority people have been assimilated in the local community through intermarriage with people belonging to the Han group. In Jiaozhou, there are no minority people.

The project’s main benefited areas are located in downtown Jiaozhou, with a per capita GDP of 57,000 yuan, an urban per capita disposable income of 13,000 yuan and average wages of staff and workers of 16,000 million yuan. There is almost no farmland in the affected areas, and the farmers’ livelihood has been largely urbanized. The primary industry accounts for 1.5% in the whole GDP structure only.

In Jiaozhou county, the education sector has been developing at a steady pace. At the end of 2006, there were 45,027 students enrolled in 31 ordinary middle schools, of which five are senior schools with an enrolment of 16,366 students, and 22 are junior schools with 24,365 students. There were five technical secondary and vocational schools with a student population of 9,922. There were 124 primary schools (nearly two primary schools for every 10,000 persons) with a total enrolment of 56,950 pupils, and 436 pre-schools with14,955 pre-school aged children. The public health sector has also shown considerable growth, although not as fast as Qingdao. At the end of 2005, there were 33 public health institutions (0.4 institutions for every 10,000 persons, much lower than the average of Qingdao), consisting of 24 hospitals, one epidemic prevention institution, and one children’s and women’s health care center. There were 2,367 medical professionals (30 for every 10,000 persons), including 1,097 doctors (nearly 14 doctors for every 10,000 persons). Medical beds numbered 2,046 (26 beds for 10,000 persons), and the population participating in the rural medical insurance increased to 560,000 people, representing 71.31% of the total rural population.

4.2.3. POVERTY

The State Council Leading Group Office of Poverty Alleviation and Development recently announced that the current extreme poverty line is CNY693 per capita per year, and the low-income poverty line is CNY958 per capita per year. In 2005, about 64.3 million in the rural areas were said to live below the CNY944 poverty line set for that year, of whom around 23.6 million lived below the extreme poverty line of CNY683. In addition, about 15 million people in the urban areas lived below the minimum livelihood subsidy standard for that year.

In Jiaozhou, the rural and urban minimum livelihood subsidy standards of CNY1,500 per capita per year and CNY240 per capita per month, respectively, are lower than the international poverty line. However, most of the poverty in Jiaozhou could be classified as “relative poverty” by Chinese poverty standards. Accordingly, poor populations in Jiaozhou totalled 10,493, with poverty rates of 1.53%. The poverty rate in urban communities is 0.58% based on a $1 dollar income per capita per day, while in the rural areas, it is 4.8%. (Tables3-1 and 3-2).

TABLE 6: MINIMUM LIVELIHOOD SUBSIDY PROGRAM (2006) Qingdao City Jiaozhou County Item

Rural Urban Rural Urban Standard (CNY per capita per year)

1,500 300 per month

1,500 240 per month

Total investment/year (CNY) 61,160,000 86,470,000 8,180,000


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TABLE 7: POVERTY SITUATION IN QINGDAO AND JIAOZHOU Poverty Line Qingdao Jiaozhou

Urban (CNY/month) Population % Population % Poverty rate (incl. urban and rural poor) 106,637 1.42 10,493 1.53 Poverty and poverty rate based on the international poverty line - - 28,107 3.58

Urban (CNY/year) Population % Population % p<193 382 0.05 193 <p<220 408 0.05 220<p<228 586 0.07 228<p<240 978 0.12 240<p<260 260<p<300

41,131 0.55

Rural (CNY/yr) Population % Population % p<693 557 0.07 693<p<958 7614 0.97 958 <p<1500

65,506 0.87 1088 0.14

1500 <p<2738 ; 17472 2.23 Sources: Statistics Bureaus of Qingdao and Jiaozhou

In May 2001, China announced the official implementation of the China Rural Poverty Reduction and Development Program, 2001-2010 after the National 8.7 Poverty Reduction Plan. The implementation of the Program marked a new historical era in China's poverty reduction and development effort in the early years of the 21st century. The Program spelled out the following key poverty reduction tasks in the new era: (i) providing food and clothing to the poor who are currently inadequately fed and clothed; (ii) helping the poor, who have been given assistance with their food and clothing needs, to further upgrade their production and living conditions, consolidate the achievements already made, and improve their quality of life and general capacities; (iii) intensifying rural infrastructure construction in poor rural areas, improving the eco-environment, and gradually reversing the social, economic, and cultural conditions in poor communities so as to improve their overall well-being.

In addition, Jiaozhou has regular programs of assistance to poor people, including the following: (i)minimum livelihood subsidy program; (ii)health care assistance system for poor residents;(iii)housing assistance system;(iv)natural disaster aid system;(v)education assistance system;(vi)rural five guarantees support system; and vagrants and beggars assistance system. The detail poverty and social analysis and SPRSS are prepared. Supplementary Appendix Q Appendix 15.

The project will contribute to poverty reduction through improving the local economy, protecting the environment by reducing pollution and risks to health, and supporting the PRC’s national and regional infrastructure development strategies. It will also provide employment opportunities during both construction and operation of project facilities, with anticipated flow on effects to economic development. The project have designated approximately 30% direct and indirect employment opportunities created by the project construction for the poor, which are most likely to be filled by currently laid-off or unemployed persons, for the positions such as production workers and auxiliary production workers.

4.2.4. GENDER

As a developed city in China, women living in Qingdao are in the face of a greatly improved gender environment. The sexual ratio in Qingdao is 102:100, better than the current sex ratio in China of 118:100, which shows some gender equality. As mentioned in demograghic section, there are 7,493,812 people in 2,393,320 households in Qingdao, including 3,779,891 males and 3,713,921 females. In 2006, there were 392,235 women, 49.95% of the total population in Jiaozhou county.


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In the recent five years, various employment services were provided for women in Jiaozhou, including skills training and employment guidance. In rural areas, more and more women acquire new knowledge and working skills through training, and it was reported that 9,000 women had acquired “green certification” training. In urban areas, more than 90% of female workers were given entrepreneurship training.

Aiming at the problem of women’s development in Jiaozhou, the Municipal Women’s Association has conducted a series of activities and initiatives to drive women’s development, and the relevant policies include the Outline of Women’s Development of Jiaozhou, the Opinions on the Implementation of the “Hundred-Thousand-Ten Thousand” Project, the 2007 Implementation Plan of New Farmer Training of Jiaozhou, maternity insurance and other social security measures.

The Women’s Association addresses the women environment protection awareness education; some programs related to environment protection are being conducted. For example,’ clean three piles (dunghill, scrap heap and woodpile) program”, women are encouraged to clean dunghill, scrap heap and woodpile near their house to beauty their village environment, which could reduce the residents’ behaviours of throwing rubbish everywhere. In additional, it is understood that women take an important role in environmental protection education to their children through the demonstration behaviours, which are good for the project subsequent management.

4.2.5. SOCIAL BENEFITS

The project will improve the flood protection and discharge, sewage treatment and water resources integrated management capacities of downtown Jiaozhou, improve the urban rain and sewage drainage system, enlarge the coverage of the environmental infrastructure, improve the water environment, meet the diversified needs of the groups in the affected areas, relieve poverty, improve the affected residents’ social, economic and environmental situation, and eventually realize the harmonious unification of human and nature, promote coordinated social, economic and environmental development.

4.2.5.1. JOB OPPORTUNITY CREATION

The Project intends to create a number of employment opportunities to the local community during the construction and operation stage. A two-part job opportunities analysis covering project construction and post-construction operations was completed, and two types of employment benefit including direct and indirect are considered.

It is estimated that the Project will create 3448 job positions and additional 5517 indirect jobs, there into, 75% of construction jobs are assumed to be unskilled jobs and are likely to be filled by currently unemployed persons (an average unemployment rate of 3.8% among primary respondents from the socioeconomic survey).

Since unemployment is a prior cause of poverty in the project area and women always meet with unequal treat in process of applying for jobs, the poor and women will benefit disproportionately from this job creation. Synchronously, there are enough remnant labour, such as flowing population and rural transfer labour, which would seem to indicate that an enough labour pool exists for these employment benefits to be realised. A lot of employed experience and training will provide them with further employment opportunities after the project completion. Of the employment generated, about 50% of unskilled job positions will be provided to the poor and 25% unskilled jobs will take in women. The types of jobs for unskilled labor include greening, excavation for foundation, soil and earth transportation, construction workers, etc.

Given that the average wage for unskilled construction labour is 50 CNY/day and skilled is 100 CNY/day, and assuming the working days are 250(5 *50 weeks =250) days per year, approximately CNY138.41 million costs will return to the local economy.


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4.2.5.2. HEALTH BENEFITS

A comprehensive analysis of economic benefit attributable to improvements in health as a result of the project can be found in Appendix D and is summarised hereafter in the economic analysis.

4.2.5.3. FLOOD LOSS MITIGATION

Large flood damage has occurred more frequently since the 1990s, which resulted in cost of flood damage for about CNY114 million annual average 1990-2007. Projection of cost of flood damage is assumed to increase following the same trend of rapid urban and industrial development-27% each year over the last 3 years, so it estimates reduction in flood damage every year is about CNY190 million or CNY177 million in economic terms with project, which is assumed to be 50% of total flooding losses.

The poor are disproportionately affected by flooding either caused by extreme seasonal rainfall which pools rather than draining away, or overflow from the sewer system. This is because the poor are more likely to live at ground level (of apartments) or in simple houses. For example, there are 1,366 people within 415 families were pauperized in flood 1999 and 921 people out of 310 families were pauperized in flood 2001.so flooding disaster control may direct relief the poor population.

4.2.6. AFFORDBILITY TO PAY

Currently , the non-poor spends about only 1.29% of household income for water supply and wastewater treatment , this is within the international threshold of 3%.However, the estimated average share of tariffs in poor households income is 2.51% , higher than that of non-poor households , but still within the international threshold of 3%. Furthermore, the minimum living standard guarantee is to be adjusted frequently to reflect the increase of basic needs of the poor. Details are showed in Table 3-3. The project construction may cause wastewater tariff to increase. If the water tariff will increase 10%, the average share of tariffs in non poor and poor households income are 2.7% and 1.4% respectively,

TABLE 8: PAYMENT ABILITY ANALYSIS

Affected people

Composite Water rate (yuan/m3)

Domestic water consumption (liters/person-day)

Water charge (yuan/person-year)

Average Income(yuan/person-year)

Percentage of water rate

Poor people

1.8 110 72.27 2880 2.51%

Non-poor 3.2 150 168 13000 1.29%

4.2.7. SOCIAL RISKS

Based on the survey, the project will impose different negative effects on the stakeholders, so the project’s main social issues include: (i)Vulnerable groups such as poor, women are excluded in employment opportunity during construction and operation period; (ii)Poverty groups cannot afford sewage treatment tariffs; (iii) Lack of public environment protection awareness; (iv) No compensation or reasonable policies for the temporary crops in the river;(v) Lack of solid waste collecting and system.


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4.2.8. MEASURES

In order to optimize the project design, benefit more groups fairly, minimize conflicts between the affected residents, enterprises, stores and the implementer, define pollutant producers and their social responsibility and help take subsequent measures for environmental protection, the SA Team conducted a survey in all the affected areas to learn the relevant regulations and policies, carried out public participation actively, and conducted sufficient discussions with the government authorities, the Owner, the implementer, the affected residents and other key stakeholders. On this basis, the following measures and monitoring and assessment mechanism are suggested so that the project’s possible social risks are minimized and the project progresses successfully.

(i) Measures to vulnerable groups excluded in employment opportunity. A large number of unskilled jobs will be created during the construction and operation period. Through discussing with the relevant institutions, Jiaozhou Municipal Development and Reform Bureau, the Owner, the Labor and Social Security Bureau and the Women’s Association are advised to provide 50% of jobs to the poor population, 25% of jobs to women, and 25% of jobs to the other vulnerable groups in the affected areas in order to improve long-term and short-term employment. These vulnerable groups also will be provided training and skills, which are good for further self-development.

(ii) Jiaozhou city will benefit an update of waste water collection and treatment. There is, however, a potential that water tariffs may be increased from the current level of RMB 3.2/m3 for ordinary residents and RMB 1.8/m3 for the poor. Through consultation meeting, the government authorities are advised to hold a hearing on the rise of various charges at the implementation period of this project to ensure the poor population benefits from the project; in the water rate reform, the allowance standard for the disadvantaged groups can be increased to a certain extent.

(iii) To ensure project sustainability, it is necessary to strengthen the education on public environmental health, and punish environmental pollution and substandard discharge more severely. Jiaozhou Municipal Environmental Protection Bureau is advised to formulate a long-term environmental protection propaganda plan for water conservation, civilized treatment of sewage and refuse, prevention of waterborne diseases and waste recycling through newspaper, TV, broadcast and other mass media, community and enterprise environmental protection initiatives, and by erecting billboards on busy roads and disclosing heavy polluters. At the same time, it is important to increase the punishment standard and strengthen punishment to prevent environmental pollution.

(iv)The Short Resettlement Plan will be prepared in accordance with the PRC land administration Law(1998), the state council decision to deepen reform and strictly enforce land administration(2004) and ADB policy, to ensure the affected people will be made better off. For the temporary crops in the river courses, notify crop planters before the sowing period not to plan crops in order to reduce losses; the existing crops should be compensated for, which is linked to Short Resettlement Plan.

(v) The measures to improve solid waste management should be considered synchronously. Though not a part of the Project, the Government acknowledged the importance of improving solid waste management, as it could continue to pollute the river water after the Project. SA team advise sanitation department to increase the investment in urban infrastructure, provide more dustbins near the river, especially in the upstream districts.

The relevant measures against the social risks of the project are shown in supplementary Appendix O


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4.3. FINANCIAL ASPECTS

The Project is considered financially-viable and sustainable. The Government does not charge beneficiaries directly for its flood protection services and other project-related environmental services. The interventions will not directly generate any revenues. Therefore, the project financial analysis only focuses on three aspects: (i) funds flow and Jiaozhou City’s fiscal capacity, (ii) the EA and PMO’s financial management capacity, and (iii) the project’s cost recovery and financial sustainability. These are discussed in detail in Appendix 11 and Supplementary Appendix J.

4.3.1. FINANCIAL MANAGEMENT ASSESSMENT

Jiaozhou City’s fiscal capacity. Jiaozhou has adequate experience in servicing loans from international financial institutions such as the World Bank and ADB. The Jiaozhou fiscal revenue situation indicates that adequate funds are available for the project counterpart contribution and debt servicing. The major source where such funds can be drawn from is the land-use fees and urban construction and maintenance taxes. The land-use fees and urban construction and maintenance taxes are estimated at an annual average of CNY655 million and have been stable in the past.

According to the projection of fiscal status of Jiaozhou City by 2020, the total debt service will be about 3% of the city’s total fiscal revenue in the first year of the project implementation in 2009 and decreasing to about 2% in 2014, the last year of implementation. As a percentage of annual GDP, total debt service is estimated at about 0.2% in 2009 and is projected to decrease to about 0.1% in 2013. Total counterpart funds and debt service as a percentage of total potential sources of funds ranges from 13–15% during the period 2009– 2014, the period of project implementation. This is projected to decrease to about 5% and even 4% thereafter. As debt service accounts for only a small proportion, it is safe to indicate that JCG will more than adequately cover the required repayments under the loan.

Project financial management assessment. Financial management assessment (FMA) has been undertaken to determine the institutional capacity of each IA, funds flow arrangements, staffing, accounting policies and procedures, internal and external auditing arrangements, reporting and monitoring aspects, and information system. JCG is the EA of the proposed Project. A PMO was set up within the EA in May 2008. A financial management assessment questionnaire (FMAQ) was adapted to the subprojects’ conditions. Issues or risks associated with the financial management systems were identified and the most appropriate risk mitigation measures were determined as part of project design and/or project implementation arrangements.

The results of the FMAQ were analyzed with particular focus on the accounting and auditing procedures and staff expertise. In terms of accounting and auditing procedures, the existing financial information system (i.e., accounting, reporting, and internal control system) is complete and applicable for domestic construction entities. In terms of staff expertise, the PMO under the Jiaozhou Construction Bureau has rich experience in infrastructure construction financed by domestic funds, but has never implemented any ADB project. Training on ADB procedures and advanced financial management will be necessary to ensure success of implementation of the proposed Project

Effective financial management is a critical factor to ensure the benefits of a well designed and implemented project are sustainable. The EA / IAs financial management arrangements should be capable of and adequate for recording all transactions and balances, supporting the preparation of regular and reliable financial statements, safeguarding the entity’s assets, and are subject to audit (of substance and form acceptable to ADB).

Financial Management Assessment (FMA) had been undertaken to assess the institutional capacity of each implementing agency, funds flow arrangements, staffing, accounting policies and procedures, internal and external auditing arrangements, reporting and monitoring aspects, and information system. The findings are given in Appendix 10.


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A Financial Management Assessment Questionnaire (FMAQ), initially proposed and prepared by the ADB, was slightly modified, where appropriate, to adapt to the specific conditions of the subprojects and formed the basis for the assessment. The completed questionnaires are included in Appendix K. Issues or risks associated with each entity’s financial management systems were identified and appropriate risk mitigation measures were recommended for adoption as part of the Project design.

4.3.2. PROJECT FINANCIAL SUSTAINABILITY ANALYSIS

Cost recovery is a key issue for successful implementation of the Project. An effective tariff mechanism is needed to ensure sufficient contributions from beneficiaries to support operation and maintenance and finance overhead costs including debt servicing. In addition, it is necessary to ensure adequate and timely provision of counterpart funds during Project implementation.

Project financial sustainability was conducted by comparing the O&M costs of each project component with their financing sources. Such analysis was done separately for the flood management component and environmental management components under the Project. Under the environmental components, considerations were not only paid to the O&M of the wastewater collection and treatment, but also the O&M of the downstream wetlands

In terms of financial sustainability of the flood management component, the incremental annual O&M cost is CNY4.32 million per year, which is to be financed through flood control management fee. Analysis shows that by year 2020, the flood management fee could reach CNY178 million per year, providing sufficient funds for the flood management O&M. In order to assess the financial sustainability of the wastewater network subcomponent, the existing wastewater collection and treatment facilities were examined. Analysis shows that the annual O&M costs are about CNY16 million for the WWTP. The Jiaozhou City government pays the WWTP CNY18 million per annum at a BOT price for wastewater treatment services. Therefore, WWTP has the adequate revenue to cover the O&M costs of wastewater treatment. The Government collects wastewater treatment fees from households, institutions, and industries at different tariffs. Tariff analysis shows that current tariff is lower than the BOT price, resulting in a fiscal subsidy of around CNY2 million per year for wastewater treatment. The subsidy comes from Government’s general budget, especially from the urban construction and maintenance tax, which is around CNY46 million per annum. In the long run, it is advisable for the Government to increase the wastewater treatment fees in order to reduce such subsidies, but in the short- and medium- term, the Government has the sufficient fiscal resources to cover the O&M for wastewater treatment. The annual O&M costs of wastewater network and pumping stations are CNY2.3 million and CNY0.5 million, respectively, which are generally financed by the fiscal budgets.

Analysis shows that a tariff level of CNY1.35 per cubic meter (as compared to the current tariff of an average of CNY0.88 per cubic meter) would allow the wastewater treatment work to be self-financed, even with a small profit. A willingness-to-pay survey and an affordability analysis were conducted to assess households’ acceptance of potential tariff increase in the future. Ninety percent of the interviewees find the current water tariff acceptable except the extreme poor. Other things being equal, an increase of wastewater treatment fee from the current CNY0.88 per cubic meter to CNY1.35 per cubic meter would increase the total water expenditure as a percentage to the household total income from 0.6% in 2008 to 0.75% in 2013. The JCG has submitted to ADB a wastewater reform plan which aims to increase the wastewater tariff to CNY 1.40 per cubic meter by 2014. The affordability analysis is in Appendix 11.

Current wastewater tariffs are at 0.70 RMB/m3 for domestic users; as the rate charged by the BOT operator of the existing WWTP is near to 1.0 RMB/m3, the government ahs to subsidise the current operations of the wastewater service from other sources. With the project (particularly with the likely increase in costs associated with the WWTP), the operation and maintenance costs will increase significantly with a tariff nearer to 1.35 RMB/m3 required to provide full cost recovery (see Supplementary Appendix I).


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4.4. ECONOMIC ASPECTS

4.4.1. BENEFIT ESTIMATION

The economic analysis provides a rationale and justification for the Project based on policy and sector analysis. It considers the Project directly contributing to pollution reduction and flood control. These will in turn decrease health costs and increase the overall quality of urban life. The economic analysis includes the rationale for the Project through demand analysis, the selection of the optimal design through least cost analysis design of the plan, and the determination of economic benefits.

The Project will generate direct economic benefits from improved flood control and management, improved health, and reductions in the extent of environmental degradation in the coastal wetlands from both the structural and nonstructural investments. Currently, in the “without project” situation, Jiaozhou experiences frequent flood damage caused by severe siltation and poor flood-discharge capability of the Yunxi and Hucheng rivers. This mainly affects industrial/commercial and private properties within the city proper, and from various Jiaozhou documents is estimated to occur with a frequency of once in 3 years. Based on these data, the 2001 flood, which caused CNY298 million of damage, was estimated to represent the 30-year flood return period. An estimate of the impact of the 50-year flood return period was obtained from the flood simulation model. With this information, the annualized economic benefit, in constant 2008 values, was estimated at CNY90.8 million in 2011, increasing to CNY120.1 million in 2021.

Since the interventions proposed under the Project are inter-related with one complementing, and to some extent strengthening, the others the determination of economic benefits was carried out for the Project as a whole with no attempt to separate the benefits from improved flood management from those of improved wastewater handling and treatment. Quantifiable benefits were thus estimated for the projection of benefit streams for the overall Project and compared to the cost of the overall Project plus the expansion of the Jiazhou WWTP. Economic costs comprised all investment costs and operating and maintenance (O&M) costs.

Economic benefits considered in the analysis mainly relate to: (i) reduction in flood damage due to improved flood management; (ii) health benefits such as reduced incidence of stomach and intestinal diseases due to improved water quality and environment as a consequence of the upgrading of wastewater facilities; and (iii) reduced degradation of the wetlands at the downstream of Dagu River as a consequence of improved water resource and environmental conditions resulting from Project interventions aimed at (i) improving flood control and management, (ii) reducing water pollution, and (iii) strengthening institutional capacity and community participation for environmental management and monitoring.

Flood benefits. The cost of flood damage is expected to be significantly reduced in the with-project situation since the proposed infrastructure is expected to provide protection from floods up to the 50-year return period starting in 2011, by which time most of the work should have been completed and commissioned. Since the proposed work will provide full protection for floods up to the 50-year return period the value of damage avoided is the same as the annualized value of damaged caused by floods up to the 50-year return period with the current level of protection. The estimated values flood damage for specific floods and annualized values for flood intervals for selected years are shown in Table 9.


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TABLE 9: ESTIMATED FLOOD DAMAGE AND ANNUALIZED VALUES FOR SELECTED YEARS Estimated value of damage from flood of specified probability (CNY mn)

Annualized value of damage for floods within frequency ranges (CNY mn)

Annualized value of flood damage up to 50-yr (CNY mn)

Year

3-year 30-year 50-year 3-30 year 30-50 year Financial Economic2008 0.0 380.1 775.9 57.0 7.6 - - 2011 0.0 567.3 1,128.3 85.1 11.3 96.6 90.8 2012 0.0 616.0 1,225.0 92.4 12.2 104.6 98.5 2013 0.0 645.3 1,283.3 96.8 12.8 109.6 103.2 2014 0.0 657.6 1,307.8 98.6 13.1 111.7 105.2 2015 0.0 670.1 1,332.7 100.5 13.3 113.8 107.2 2021 0.0 750.4 1,492.4 112.6 14.9 127.5 120.1 Source: Consultant’s estimates

Health benefits are expected from the impacts of specific project interventions. Upgrading of wastewater drainage facilities is expected to significantly reduce serious water-pollution and siltation problems in open-channels and rivers traversing the project area as well as in major surface and groundwater sources of drinking water. Improvement of flood retention facilities and rehabilitation of river courses will further increase the flow of water and facilitate the natural cleansing process in river courses and open-channels, thereby improving the ecological and water environmental conditions. This will reduce the incidence of diseases attributed to contaminated water and waterborne vectors such as flies and mosquitoes.

The stream of health benefits derived from the Project was based on estimated annual health cost savings calculated as reductions in (i) medical costs incurred in the course of undergoing treatment and recovering from stomach diseases; and (ii) loss in income earnings of those suffering from the diseases. Therefore, calculation for arriving at total benefits from the Project is as follows: (total reduction in medical treatment cost + total reduction in loss in income). The results of the projections are presented in Table 10.

TABLE 10: TOTAL HEALTH BENEFITS FROM THE PROJECT

Year

Total Reduction in Medical Treatment Cost and Loss in

Income

(persons) (work-days) (CNY million) (CNY million) (CNY million)

2009 - - - - - 2010 1,213 24,262 0.745 0.938 1.683 2011 2,581 51,617 1.584 1.996 3.580 2012 5,491 109,813 3.370 4.246 7.617 2013 5,841 116,811 3.585 4.517 8.102 2033 20,096 401,910 12.335 15.542 27.876

Total Reduction in Work-days

Missed/Days Spent Providing

Care

Total Reduction in Equivalent Loss in

Income

Total Reduction in Disease Incidence

Total Reduction in Medical Treatment

Cost

Source: PPTA Consultant estimates.


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The premise underlying the estimation of benefits derived from strengthened water resources and environmental management is that waste production and disposal of industrial, rural, and urban communities will be effectively regulated and controlled thereby significantly reducing exploitation of wetland resources and pollution loads being deposited into the wetlands. This, in turn, is expected to reduce the continuing threat of human activities on the integrity of the wetlands at the downstream of Dagu River and thereby saving the natural wetlands for further degradation. While these threats are not expected to be entirely eliminated, the degree of environmental damage will be substantially reduced. In addition the implementation of the Strategic Environmental Assessment for Jiaozhou Bay is expected to have a significant longer-term impact on the wetlands as it increases awareness of degradation and provides a legal basis for reduction. Thus, under the with-project situation, the annual rate of degradation of these resources will be lower than without project. Moreover, the benefits expected from improved water resources and environmental management interventions rely heavily on the assumption that the rapid degradation of the wetlands will be significantly reduced as the capacity of institutions and communities is strengthened to allow them to implement environmental management and monitoring interventions, to enforce regulations for controlling environmentally destructive activities in their respective areas, and to conduct awareness campaigns throughout the community. However, the rate at which these benefits can be achieved should not be overestimated and consequently the analysis has assumed a conservative build up over a 5-year period starting in 2001 and reaching full impact by 2015.

The wetlands in Jiaozhou are important sources of aquatic products that are utilized by communities as food and raw materials. These also serve as recreational and cultural areas. The total economic value of the direct uses of wetland services is estimated at about CNY11,392/ha/yr in 2008 terms. The vegetation growing in the wetlands cushion the surfs from ocean waves, typhoons, and storms which in turn protect the coastal areas from erosion. This service function, referred to as disturbance regulation, is valuated at about CNY6,757/ha/yr. The nutrient cycling function is any important service provided by wetlands, particularly with regard to pollution control, and removal of excess nutrients/pollutants. For the current analysis a conservative estimate of an economic value of CNY14,880/ha/yr has been used. The wetlands also serve as habitat and refuge for resident and migratory water birds, some of which are rare and protected (estimated value CNY1,561/ha/yr). Rapid economic development in Jiaozhou has exerted adverse impacts on the condition of these ecological systems, mainly due to overexploitation and heavy pollution, and consequently has diminished the quality of their services and associated values over the past years. The degradation rate of wetlands in Jiaozhou Bay area is estimated at 0.9% per year over the period 1952- 2000.6

For the economic analysis, wetlands are estimated provide about CNY35,520/ha/yr worth of benefits from the services provided. This value was used in the economic analysis for estimating the incremental benefits derived by protecting the wetlands from further degradation. The expected incremental benefits derived from effective water resources and environmental management, specifically protection and conservation of the wetlands, mainly refer to the difference between the estimated service values of the wetlands under the with- and without-project scenarios. This difference represents the value of wetland areas saved (or protected) from pollution and degradation accruing to effective implementation of water resources and environmental management interventions in the Project area.

Incremental benefits derived from wetlands were based on the calculated difference between the benefit stream derived from a scenario with effective water resources and environmental management interventions (with-project scenario) and the benefit stream derived from a scenario which assumes the continuation of current exploitative and environment-unfriendly practices (without-project scenario). The annual average decline in the wetlands area of 0.9% over the period 1952 – 2000 was projected to continue in the without-project scenario. As the total service value of wetlands is dependent on their areas, the benefits derived from wetlands in the without-project scenario would similarly decline by 0.9%/yr.

6 Dongqi Gu, Yuanxi Zhang, and Xuling Zhang, The Landscape Pattern Characteristics of Coastal Wetlands in

Jiaozhou Bay Under the Impact of Human Activities, 5 August 2006.


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Given the proposed interventions in the project area, and the expected improvements in institutional capacity for water resources and environmental management and community participation in environmental monitoring and pollution control, it is expected that the decline/ degradation wetland areas will be reduced but not totally eliminated. Hence, the estimated annual rate of degradation under the with-project situation was estimated to build up from 0% in 2010 to 50% in 2015 and thereafter to remain at 50%: that is the annual degradation rate was expected to decline from 0.9% without-project to 0.45% with-project.

The stream of incremental benefits was calculated by multiplying the wetlands area in each year, which was estimated based on the assumed annual degradation rate, by the service value per hectare wetland for both with- and without-project scenarios. Total wetlands area, under the without-project scenario was projected to decline from about 2,477ha in 2009 to about 1.994 ha in 2033. Correspondingly, the total value of the wetlands was projected to decline from about CNY88.0 million to CNY70.835 million over the same period. Under the with-project scenario, total wetlands area was projected to decline from about 2.477 ha in 2009 to about 2190 ha in 2033 while the corresponding values were calculated to decrease from CNY88.0 to CNY77.8 million during the same period. Incremental benefits in terms of total wetland areas saved from degradation were projected to increase from about 1.1 ha in 2011 to 196.1 ha in 2033. Incremental benefits, in terms of the total value of wetlands saved from degradation, were estimated at about CNY0.039 million in 2010, increasing to about CNY6.965 million in 2033.

4.4.2. ECONOMIC EFFICIENCY AND VIABILITY

Least Cost Analysis. An analysis was conducted to determine whether cost-effective water resources and environmental management measures have been proposed under the Project to achieve overall intended targets. In this regard, least cost analysis was carried out to determine if the proposed investments for (i) improving flood retention facilities, (ii) upgrading urban storm drainage network, (iii) rehabilitating river courses, and (iv) improving wastewater drainage facilities are the least cost options. The least cost analysis indicated that the proposed investments entail the least cost compared with other investment options. Moreover, the proposed investment options can be effectively implemented and completed within the four-year Project implementation period.

Calculation of Economic Internal Rate of Return. The economic analysis conducted for the whole Project includes benefits from (i) reduced cost accruing to reduced flood damage, (ii) improvements in health of affected population, mainly reduction in the occurrence of stomach and intestinal diseases, resulting from improved drainage and improved environmental conditions in the affected area, and (iii) decline in the rate of degradation of service functions, and corresponding service values, of the natural wetlands. These are then assessed against the total Project cost which were derived from COSTABs and converted to economic values by removing taxes and adjusting the local currency costs by the SCF. The expected cost of the extension of the WWTP of CNY110 million, to be financed entirely by the Government, was also converted to its economic cost using the same approach.

The project economic internal rate of return (EIRR) is estimated at 14.7%. The result indicates that the Project as a whole is economically viable. Sensitivity analysis shows that the project EIRR will fall to (i) 13.0% if economic benefits fall by 10%; (ii) 13.3% if investment costs increase by 10%; (iii) 12.6% if commissioning delays for 1 year and 11.1% if for 2 years; and (iv) 11.7% if (i) and (ii) occur together. Sensitivity analysis is also tested for each benefit and indicated that flood benefits had the greatest impact on economic viability. Sensitivity tests indicate that the returns to the overall Project are generally robust. The economic analysis is in Appendix 12. Detailed economic analysis is presented in Supplementary Appendix K.


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4.4.3. BENEFIT DISTRIBUTION AND POVERTY IMPACT ANALYSIS

The distribution of benefits and costs among the various Project stakeholders is based on estimates of incremental benefits and costs generated by subproject investments. All financial and economic benefits and costs are in 2008 prices and expressed in present value terms at a discount rate of 12% (Table 11:).

TABLE 11: BENEFIT DISTRIBUTION AND POVERTY IMPACT ANALYSIS Financial Economic

Present Value (@12%) Net Present Net Present Difference Jiaozhou Total(in million CNY, 2008 Price) Value Value Urban1 Rural2 County

Government(1) (2) (1) -(2)

Incremental Benefits From3 787.78 751.10 36.68 12.10 24.57 - 36.68 Reduced flood damage 702.49 669.78 32.71 10.79 21.91 32.71 Improved health 72.62 69.24 3.38 1.12 2.27 3.38 Decelerated degradation of wetlands 12.67 12.08 0.59 0.19 0.40 0.59 Incremental Costs 627.29 598.08 29.21 - - 29.21 29.21 Project investment cost 594.64 566.96 27.69 27.69 27.69 Project O&M cost 32.65 31.13 1.52 1.52 1.52 Net Benefits 160.49 153.02 7.47 12.10 24.57 (29.21) 7.47 Proportion of Poor4 0.58% 4.80%Net Benefits to the Poor 0.07 1.18 - 1.25 Poverty Impact Ratio 0.17 1 Urban population is estimated at about 33% of total population. Proportion of benefits accruing to urban communities is based on this estimate.2 Rural population is estimated at about 67% of total population. Proportion of benefits accruing to rural communities is based on this estimate.3 Based on net present value (at 12% discount rate) of incremental net benefits generated from investments under the Project.4 Proportion of poor is based on international poverty threshold as estimated from the socioeconomic survey conducted during the PPTA.

CommunitiesDistribution of Benefits/Costs

Source: Consultant’s Estimate

Incremental benefits due to government policies will be generated from infrastructure investments aimed at improving capacity for flood control and management which, in turn, will generate incremental benefits estimated at about CNY32.71 million (Table 11:). Other incremental benefits such as from improvements in health and decelerated degradation of the natural wetlands are estimated at about CNY3.38 million and CNY0.59 million, respectively, will mainly accrue to urban and rural communities located within the Project area. The difference between total financial and economic incremental benefits is estimated at about CNY36.68 million. The distribution of benefits between urban and rural communities is estimated based on the proportion of urban and rural population benefiting from Project interventions which is at about 37 and 63%, respectively. Based on these proportions, the distribution of benefits from reduce flood damage is about CNY10.79 million and CNY21.91 million, respectively. Correspondingly, health benefits among urban and rural communities is about CNY1.12 million and CNY2.27 million, while benefits from protection of wetlands is about CNY0.19 million and CNY0.40 million, respectively. Total incremental benefits accruing to urban and rural communities derived from all Project interventions are about CNY12.10 million and CNY24.57 million, respectively (Table 11:).

Incremental costs are estimated based on (i) Project cost of about CNY627.29 million in financial terms and CNY598.08 million in economic terms and (ii) operation and maintenance cost of CNY32.65 million in financial terms and CNY31.13 million in economic terms. The difference between the financial and economic present values of incremental cost, about CNY29.21 million, is mainly treated as cost to the Jiaozhou County Government (Table 11:).

The total net benefit is estimated at about CNY7.47 million. Based on the proportion of poor by subsector, the total net benefit accruing to the poor is estimated at about CNY1.25 million and the poverty impact ratio is calculated at 0.17 (Table 11:).


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4.5. ENVIRONMENTAL IMPACT ASSESSMENT

4.5.1. INTRODUCTION

The SIEE for the Project has been prepared in a format required by ADB in accordance with the PRC Environmental Impact Assessment Technical Guidelines and ADB Environmental Impact Assessment Guidelines (May 2003), and on the basis of environmental impact assessment (EIA) report for individual subprojects prepared by the Ocean University of Qingdao. This latter EIA for the original subprojects has also been revised and updated.

4.5.2. PRC ENVIRONMENTAL IMPACT ASSESSMENT LAWS AND REGULATIONS

China issued Environmental Impact Assessment Technical Guidelines in 1993, which are national standards used in conducting EIAs for all construction Projects in China. The EIA procedures for construction Projects in the People’s Republic of China (PRC) using credits and loans from International Financing Organizations (IFO) are described in the Circular on Strengthening Environmental Impact Assessment Management for Construction Projects Financed by IFOs issued by SEPA and three other state ministries or commissions in 1993. The EIA requirements and procedures based on the existing laws and regulations in China are basically consistent with the ADB requirements and review procedures. Review and approval of EIA reports for construction Projects partly funded by IFOs should follow Chinese EIA review and approval procedures. Meanwhile, revision and strengthening of EIAs based on ADB requirements are needed.

4.5.3. ADB REQUIREMENTS

The ADB has instituted environmental assessment (EA) requirements and established environmental review procedures to ensure that environmental considerations are properly integrated and monitored in each stage of the Project cycle.

The ADB requires some form of EA for all Projects, especially for environmentally sensitive projects or those projects expected to have significant environmental impacts. The degree of severity of potential project impacts is indicated by the environment category assigned to the project. This in turn determines the need for and the required type of EA report that is either an initial environmental examination (IEE) or EIA.

The ADB categorization of each proposed project is made according to its potential impact and availability of cost-effective mitigation measures. Based on the Environmental Assessment Requirements (1998) issued by the ADB Office of the Environment and Social Development (OESD), Projects are assigned to one of the following three categories:

• Category A: projects with significant adverse environmental impact as predicted by

the IEE; an EIA is required • Category B: projects with adverse environmental impacts which are of lesser degree

and/or significance than those of Category A; although an EIA may not be required, an IEE is required for these Projects

• Category C: projects unlikely to have adverse environmental impact; no EIA or IEE is normally required


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For projects under Category A and selected Projects under Category B which OESD believes would benefit from external review, a SEIA should be prepared to comply with ADB requirements. This Project has been classified as Category B by ADB and a SIEE is thus required. All the subprojects are considered construction projects based on Chinese criteria, and as such a full-scale EIA for each subproject has been prepared under Chinese law.

4.5.4. CURRENT APPROVAL STATUS OF EIA

The EIA for the proposed Project has undergone the well-established PRC EIA procedures. The Ocean University of China (OUC), an environment impact assessment (EIA) institute with Class-A certification, was engaged to carry out the EIA study for the proposed Project by the Jiaozhou Development and Reform Bureau in January 2008. The first version of the EIA report was completed in February 2008 and was submitted to the Qingdao EPB for appraisal on 18 March 2008. OUC updated the EIA report based on EPB comments in April; continued improvement works in May based on ADB comments, and finished the second version EIA in May 2008.

4.5.5. IMPACT AND OUTCOME OF PPTA WORK

The purpose of this element of the PPTA is to review the environmental assessment reports, prepared under PRC regulations, give guidance on their enhancement, where necessary, based on ADB procedures and requirements and prepare a SEIA for the Project. The ADB requirements and procedures used as a basis are as follows:

• Environmental Assessment Requirements, Office of the Environment and Social

Development, ADB, 1998 • Environmental Guidelines for Selected Infrastructure Projects, Office of the

Environment and Social Development, ADB, 1993 • Workbook on Economic Evaluation of Environmental Impacts, ADB, 1996

The methodology for review of environmental impacts and SEIA preparation includes:

• Review of existing Feasibility Study • Review of EIA report • Identification of important environmental impacts in the construction and operation

phases • Review of the proposed mitigation measures and environmental management

program • Preparation of the SEIA in accordance with the ADB guidelines • Strengthening or updating of the SEIA, if necessary

4.5.6. REVIEW OF THE EIA

The EIAs review has identified deficiencies in the EIA reports in comparison of the requirements of the Circular7 and ADB environmental assessment guidelines. The PPTA team has prepared detailed comments and instruction for improvement for each of the four EIA reports of the subprojects which have been communicated to the respective EIA teams. The purpose of these documents is to provide assistance and guidance to the EIA institute working on this Project to revise, update and improve the EIA reports to satisfy ADB requirements and to provide the necessary information for SEIA preparation. Based on the requirements of PPTA environmental specialists, enhancement on the reports has focused on the following:

7 The Circular refers to The Strengthening of EIA and Management of Construction Projects financed by International Financial Institutions, SEPA, SPC, MOF and PBC, June 1993.


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• Identification and Assessment of Environmental Impacts • Project-wide Impacts, Benefits and Justification • Discussions on the with- and with-out Project scenarios; • Discussions on the alternative surplus disposal • Public participation • Environmental monitoring • Environmental management

4.5.7. PUBLIC PARTICIPATION

Extensive public participation is a requirement of project preparation. The EIA teams have organized workshops for specialist and affected persons, and have conducted extensive surveys through questionnaires. NGOs and the government officials have also been consulted. The surveys indicate more than 98 percent of those contacted are in favour of the proposed Project, while less than 2 percent are against the Project. Detailed discussion of the results has been presented in the EIA reports of the subprojects and in the SIEE (Supplementary Appendix R).

It is necessary to develop a detailed public participation program for both construction and operational phases. Public participation is one of the most effective measures to address problems in environmental protection, especially during the operational phase.

4.5.8. ALTERNATIVE COMPARISON

During the Project development, various alternatives have been proposed, screened and compared with technical, economic as well as environmental criteria. In terms of the environmental comparison for the alternatives, the primary objective was to identify and adopt options with the least adverse environmental impacts and maximum environmental benefits. The results of option analysis have adopted by the government in rationalizing the Project components, such as reusing the surplus materials instead of disposal them in spoil site, using the existing wastewater treatment plant instead of constructing a new one, reducing land acquisition and house demolition by rationalizing the Project scope etc.

4.5.9. SUMMARY OF IMPACTS

The project will have laregely positive environmental and social benefits as described previously in this chapter and in the SIEE. The Project will bring significant positive impacts to the safety and health of Jiaozhou City residents and assets by reducing flooding and associated pollution and health hazards in Jiaozhou urban city. The flood protection standard of Yunxi River, Hucheng River, Sanli River and Wushui River will be improved from 20-year to 50-year return period thereby improving capacity for flood control and management and consequently reducing risk of flooding and associated damages to life and property, also enabling further urban expansion in the area.

The Project will significantly improve water quality in the urban rivers and Shaohai Lake. Through sewage collection, the local river ecology and environment conditions will be enhanced, the current water quality, which is worse than Class V will be increased to close to Class IV or Class V.

In association with the extension of the existing Jiaozhou WWTP, the Project will reduce overall pollution loads to the Dagu River and Jiaozhou Bay. Associated with improved strategic planning the project is expected to reduce and eventually halt the degradation of the wetland areas in Jiaozhou Bay and contribute significantly to improved water quality conditions in the bay.


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The major potential adverse environmental impacts during both construction and operation periods include noise, odor, dust, traffic congestion, sludge disposal, and associated impact from Jiaozhou WWTP. All these impacts have been analyzed in the project EIA report and SIEE. Specific environmental mitigation measures will be undertaken to minimize the adverse impact.

4.5.10. ENVIRONMENTAL MONITORING

A detailed environmental monitoring program is presented in the EMP (Supplementary Appendix P). Environmental monitoring programs includes: (i) actual environmental impacts compared to those predicted; (ii) performance of the mitigation measures or compliance with related regulations; (iii) trends of impacts; and (iv) overall effectiveness of the Project EMP.

During the construction and operation phases, an environmental monitoring center will be engaged for compliance environmental monitoring. The center will have qualified staff with monitoring equipment and technical capability for monitoring of water, air, noise, and soil. When complaints are received from the public, monitoring staff will immediately conduct additional monitoring. The center will have qualified laboratory assuring the accuracy of the analytical results and their legal standing.

Besides compliance monitoring, detailed internal environmental monitoring programs during the construction and operation phases with higher monitoring frequency will be prepared at the beginning of Project implementation by PMO, IAs and environmental management consultants (EMC). These monitoring programs and budgets will be included in the construction and operation contracts and program, with mitigation measures monitored by the construction supervision companies CSCs and EMCs. At the beginning of project implementation, the PMOs, IAs and the Project Implementation Consultants, will develop comprehensive project performance monitoring system (PPMS) procedures to systematically generate data on inputs and outputs on components of the Project and develop detailed environmental and related socio-economic indicators to be used to measure project impacts.

Results from the detailed internal environmental monitoring and mitigation programs for both construction and operation phases will be submitted by the contractors and IAs to the Jiaozhou EPB and PMO on a monthly basis and to ADB on an annual basis.

Environmental monitoring costs are included in the EMP. Compliance monitoring costs are borne by Jiaozhou EPB. Internal monitoring costs are borne by the IAs, construction contractors and CSCs during the construction phase and by the IAs during the operation phase. Before implementing the monitoring plan, responsible agencies will present a further detailed breakdown of the estimated budget. During Project implementation, the budgets will be adjusted based on actual requirements.

4.5.11. ENVIRONMENTAL MANAGEMENT PLAN

The Environmental Management Plan (EMP) covers all phases of the Project from preparation and construction to commissioning and operation, and aims to ensure control of environmental impacts through monitoring and mitigation implementation. The full EMP of the Project will be incorporated into the construction and operation management plans of the Project as appropriate.

During Project preparation and implementation, organizations with different environmental management responsibilities, such as QEPB and JEPB, PMO, IAs, design institutes (DIs), environmental management consultants (EMCs), contractors and construction supervision companies, have been or will be involved in environmental management. PMO, contractors and IAs will appoint dedicated and qualified environmental specialists to oversee environmental management and ensure implementation of the EMP.


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Bills of quantities (BoQs) of mitigation measures during the construction phase will be included in the tender and contract documents where appropriate. Costs related to mitigation measures for the construction phase will be borne by contractors while that for the operation phase will be borne by the IA. The IA will establish an environmental management office with two employees. These offices will be supported and supervised by the Jiaozhou EPB and EMCs.

Plans for public involvement during the design, construction and operation phases have been developed during the Project preparation stage. These plans include public participation in: (i) monitoring impacts and mitigation measures during the construction and operation phases; (ii) evaluating environmental and economic benefits and social impacts; and (iii) interviewing the public after the Project is completed. These plans will include several types of public involvement, e.g. site visits, workshops, investigation on specific issues, interviews, and public hearings.

The PMO will ensure that the Project’s progress and impacts are monitored and reported in line with ADB requirements. The effectiveness of mitigation measures and monitoring results will be evaluated through the feedback reporting system. Corrective actions in responding to monitoring results will be taken if necessary. Jiaozhou EPB and PMO will play critical roles in this feedback and corrective mechanism.

4.5.12. CONCLUSIONS

It is anticipated that the proposed Qingdao Water Resource Management Project will have significant positive environmental impacts on the project area, including improved water quality of urban rivers and lakes and enhanced urban flood prevention in Jiaozhou City; the proposed Strategic Environmental Assessment to be implemented together with the infrastructure investment would enable QMG to develop sustainable approaches to urban development thus protecting and maintaining the functions of the coastal wetlands and ecosystems. Based on the results of the SIEE, the Project will not generate significant environmental impacts, provided the mitigation measures are implemented appropriately.

4.6. RISKS AND MITIGATION MEASURES

The Project does not have any unusual technical risks. Standard engineering designs will be adopted for flood control and wastewater management. During project implementation, consultants will support the PMO by undertaking design review and ensuring that constructed works, goods, and equipment comply with bidding documents and associated quality standards.

4.6.1. OVERALL PROJECT.

The following risks could affect the timely implementation, the economic viability, and reduce the available benefits of the Project. The design of the Project will, as far as possible, address and mitigate these points as discussed.

(i) If any land acquisition and resettlement issues are not resolved this will create constraints to the efficient implementation of the Project works.

(ii) The timely availability of counterpart funding of the Project will be essential for the contract procurement process and efficient implementation procedures.

(iii) A lack of familiarity with ADB procedures (notably procurement) within the IAs will result in inefficient Project development and timely implementation.


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4.6.2. FLOOD MANAGEMENT COMPONENT

Completion of the Shaohai Lake and effective operation of the associated gates are essential to the performance standard for flood control within the downstream areas of the Jiaozhou urban rivers; and it is thus necessary for these works to proceed as quickly as possible; certainly to be completed by the end of the Project period;

4.6.3. POLLUTION CONTROL AND WASTEWATER MANAGEMENT COMPONENT

The proposed extension to the wastewater treatment plant covering both an increase in capacity and an increase in the treatment level should be implemented prior to completion of the interceptor works; otherwise unacceptable impacts will occur in relation to the Dagu River and downstream wetlands.

Wastewater services are not today corporatised in Jiaozhou, except for the wastewater treatment plant; dedicated staff and equipment together with the necessary funding need to be provided to ensure adequate operation and maintenance of the facilities.

Necessary tariffs should be set and collection rates achieved to support cost recovery for the subproject;

4.6.4. SEA

The SEA should be implemented rapidly and in parallel with the development of planning proposals for urban development around Jiaozhou Bay in order to have an influence on sustainable development in the region


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5. ASSURANCES

In addition to the standard assurances, the Government and QMG/JMG have given the following assurances, which are to be incorporated in the legal documents:

(i) JCG will ensure that capacity of Jiaozhou’s private sector funded WWTP is extended by 50,000 m3/day nominally, and the discharge content is raised from Class II to Class IB in parallel with the wastewater network extensions to be undertaken under the Project, but in any case no later than 2010.

(ii) JCG will ensure that (a) the regulations for industrial pollution control and water conservation are enforced strictly; (b) a comprehensive plan for reusing the storm water and treated wastewater is developed, adopted, and implemented in a timely manner; (c) the water savings master plan adopted under the 11th FYP for Jiaozhou is carried out effectively; (d) a community-based monitoring team, acceptable to ADB, is set up to assist with independent monitoring of the environmental impact of the project activities and carrying out of the environmental protection awareness education.

(iii) JCG will ensure that (a) all local and foreign currency counterpart financing necessary for the Project, including cash advances, are provided as and when due to enable completion of the project activities in the scheduled implementation period; (b) additional counterpart funding will be promptly provided for any shortfall of funds or cost overruns; and (c) the wastewater entity to be established by JCG adopts and maintains an appropriate financial management system acceptable to ADB.

(iv) Wastewater tariff reform. JCG will ensure that the wastewater fees charged are set at a level that ensures full cost recovery of O&M, depreciation and financial costs including debt service obligations, and a reasonable profit margin for wastewater treatment.

(v) Pro-poor subsidy. JCG will ensure that prior to the implementation of any tariff increases, the City Price Bureau will (a) conduct a comprehensive review to determine the number of poor people, including those living at or below the poverty line, who would be affected by such tariff increase, and the impact of such wastewater adjustments on the poor; (b) prepare a scheme acceptable to ADB, which may include price subsidies or other measures such as lifeline tariffs, to ensure that the livelihood or standard of living of the affected poor is at least just as good after the tariff increase as it was in the period preceding such increase; (c) hold public hearing to consult with the affected people; (d) issue a decree before the tariff increase takes effect to ensure that all those affected are provided with subsidy or other appropriate measures are taken; and (e) monitor the effectiveness of the subsidy provided or other measures taken.

(vi) JCG shall ensure that (a) the RP is implemented promptly and efficiently in accordance with its terms; (b) all land and rights–of–way required by the Project are made available in a timely manner; (c) the RP provisions, including compensation and entitlements for affected persons (APs), will be undertaken in accordance with all applicable PRC laws and regulations, and ADB’s Policy on Involuntary Resettlement; (d) all APs are given adequate opportunity to participate in resettlement planning and implementation; (e) compensation and resettlement assistance are given to the APs prior to dispossession and displacement; (f) the APs will be at least as well off as they would have been in the absence of the Project; (g) counterpart funds for land acquisition and resettlement activities are provided in a timely manner; and (h) any financial obligations in excess of the RP budget estimates are promptly met. JCG shall (a) upon the completion of detailed design, update the RP based on detailed measurement survey, disclose it to the APs and obtain approval from ADB prior to award of civil works; and (b) during project implementation, advise ADB and reflect any significant material changes in project scope in an updated RP and submit to ADB for approval.


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(vii) JCG shall ensure that (a) adequate staff and resources are committed to supervising and monitoring the implementation of the RP and providing quarterly reports on such implementation to ADB; (b) an independent agency acceptable to ADB is engaged to carry out monitoring and evaluation, and to forward to ADB monitoring reports semi-annually during resettlement implementation, and a post evaluation report prior to project completion.

(viii) JCG shall (a) ensure that civil works contractor specifications include requirements to comply with the RP and entitlements for permanent and temporary impacts to APs; (b) supervise contractors to ensure compliance with requirements of the RP, applicable laws and regulations, and ADB’s Policy on Involuntary Resettlement; and (c) ensure that contractors are required as a priority to provide employment to APs.

(ix) JCG will ensure that project facilities are constructed, operated, maintained, and monitored in strict conformity with (a) all applicable laws, regulations, and standards of the PRC for environmental protection, health, labor, and occupational safety and relevant ADB policies; (b) the environmental mitigation and monitoring measures detailed in the approved EIA, summary IEE, and EMP for the Project are undertaken in strict conformity; and (c) that adequate numbers of personnel are engaged to monitor implementation of the EMP, under guidance of the Jiaozhou Environment Protection Bureau and/or Jiaozhou City environmental monitoring center.

(x) The Government will cooperate closely with ADB in preparation of the strategic environmental assessment (SEA) for the Jiaozhou Bay under an ADB-financed technical assistance project, to ensure that appropriate integrated planning methodologies are identified and incorporated in the applicable environmental regulations following their approval by the relevant authorities by 2011.

(xi) JCG will ensure compliance with all applicable labor laws, including the prohibition of child labor, and provision of equal pay for men and women for work of equal value undertaken for this Project. JCG will likewise ensure that women shall be given priority in the employment and training opportunities generated in the Project’s construction and operation phases. JCG will closely monitor compliance with these provisions during project implementation.


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6. CONCLUSIONS & RECOMMENDATIONS

It is anticipated that the proposed Qingdao Water Resource Management Project will have significant positive environmental impacts on the project area, including improved water quality of urban rivers and lakes and enhanced urban flood prevention in Jiaozhou City; the proposed Strategic Environmental Assessment to be implemented together with the infrastructure investment would enable QMG to develop sustainable approaches to urban development thus protecting and maintaining the functions of the coastal wetlands and ecosystems.

Although the overall scope of the project is largely consistent with the draft domestic FSR, considerable changes to the infrastructure components themselves have been developed by the PPTA Team in collaboration with the local Design Institute and the PMO/PIU. It is recommended that these changes are integrated into a revised local FSR.

Two options exist for the Erlihe Reservoir offering different flood protection for downstream reaches; the optimal solution should be studied in detail as part of the revised local FSR. Finally, certain mitigation measures to further protect the Shaohai Lake including the development of small artifical wetlands at the entrance of the urban rivers into the lake are proposed to be included in the River Rehabilitation component.

The interception of wastewater in Jiaozhou will convery significant quantities to the exsiting WWTP which is already operating near to its design capacity; it is critical that the planned extension of this WWTP goes ahead in parallel with the wastewater collection upgrading.


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SOGREAH – JFS 1350337 – JUNE 2008

APPENDIX 1 - DESIGN AND MONITORING FRAMEWORK

Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets/Indicators

Data Sources/Reporting

Mechanisms

Assumptions And Risks

Impact • Improved quality of life,

sustainable ecosystem, and biodiversity conservation in the Jiaozhou Bay area

• Reduced incidence of water-

borne diseases by 40% by 2015

• Water quality in Jiaozhou rivers restored to Class IV/V by 2015

• Water quality in Jiaozhou Bay maintained in non-eutrophic conditions by 2015

• Reduced episodes of harmful algae blooms in Jiaozhou Bay by 2015

• Annual public health

reports by the QMG and JCG

• Annual state of the environment report by QMG and JCG.

• Monitoring of Ocean and Fisheries Bureau

Assumptions • Jiaozhou Urban Master

Plan (2005–2020) is effectively implemented.

• Focus on the preservation of the quality of the ecosystem is maintained by Jiaozhou as embodied in the 11th FYP QECEP.

Risks • Adequate Government

budget is not provided. • Over-heated economic

growth.

Outcome • Improved condition of

water resources and environment in the Jiaozhou City and the downstream wetlands area

• Reduced COD and P

discharges by 28% and 43%, respectively, in or around Jiaozhou Bay by 2014

• Improved hygienic conditions and reduction of water-borne diseases for 370,000 people in Jiaozhou City by 2014

• Enhanced flood protection for about 370,000 people in Jiaozhou City by 2014

• Reduced pollution loads in Jiaozhou Bay by 2014

• Jiaozhou Environment

Protection Bureau and Ocean and Fishery Bureau reports

• Annual livelihood surveys by the Poverty Alleviation and Development Office of JCG

Assumptions • 11th FYP QECEP is

effectively implemented. • Jiaozhou Water

Resources 11th FYP is effectively implemented.

• Jiaozhou Pollution Control Plan is effectively implemented.

• Local communities are willing to participate.

Risks • Ineffective enforcement of

environmental regulations.

• Results and recommendations of SEA not implemented.

• Extension to the wastewater treatment facilities of Jiaozhou are not implemented.

Output 1: Improve Flood and Water Resource Management • Major river courses

rehabilitated/upgraded • Flood retention facilities

improved • Urban storm drainage

network

• A total of 19.5 km of

riverbanks upgraded/rehabilitated in four major rivers by 2011 Yunxi River - 9.4 km Hucheng River - 3.9 km Wushui River - 3.2 km Sanli River -3.0 km

• Existing Erli’he flood

retention facilities upgraded from 0.2 million m3 to 0.8 million m3 by 2011

• A total of 11.4 km of storm drainage pipelines installed

• PQPRs by the JCB • Annual development

reports by QMG and JCG

• ADB mission reports (i.e., annual progress, mid-term, and project completion)

Assumptions • Institutions have an

appreciation and feel the need for improving their capacity on flood management.

• Adequate counterpart funds are made available on time.

Risk • Implementation of the

Project is delayed by external factors.

Appendix 1

Design Summary



Mechanisms


installed/upgraded

by 2011

Output 2: Strengthening Wastewater Management and Pollution Control • Urban wastewater

drainage network upgraded

• A total of 27.7 km of

wastewater drainage pipelines installed by 2011

• PQPRs by JCB • ADB mission reports

(i.e., annual progress, mid-term, and project completion)

Assumption • Institutions and local

communities have an appreciation and feel the need for wastewater management and pollution control.

Risk • Economic development is

accorded higher priority over water resource and environmental protection by JCG.

Output 3: Integrated Water and Ecosystem Management • Shaohai Lake and Jiaozhou Bay ecosystem

protection measures developed

• Water resources and flood

management strengthened in Jiaozhou

• Environmental

management and pollution control strengthened in Jiaozhou

• SEA on Jiaozhou Bay

Development prepared

• About three artificial

wetlands established and habitats enhanced by 2011

• Operations manual for Shaohai Lake ecosystem management in place by 2013

• Integrated information

system for flood, water, and wastewater management developed and operated by 2012.

• A total of 30 persons trained within JCG by 2014

• A total of 5 communities

and surrounding industries mobilized for trainings and awareness raising activities by 2011

• Public education and awareness program implemented by 2012

• Wastewater service corporatized by 2014

• Wastewater tariffs reformed by 2014

• Environmental monitoring plan is enforced by 2011

• SEA incorporating integrated planning methodologies approved by relevant authorities by 2011



Assumptions • All concerned local

governments along the Jiaozhou Bay area feel the need of the SEA study.

• Institutions and local communities have an appreciation and feel the need for ecosystem management .

Risks • Development along

Jiaozhou Bay does not proceed as envisioned and as planned.

• Trained staff remain in their respective positions/institutions and perform the duties they are trained for.

Output 4: Strengthen Project Management Capacity • Project management

support provided

• PMOs and PMOs

established and operational


Assumptions • PMO and PMO staff are

appointed on time and most stay with the Project throughout its

Appendix 1

Design Summary



Mechanisms


by 2009; adequate budgetary resources allocated; office equipment and vehicles procured by 1Q 2009; 92 person-months of consulting services provided by 2014

• A total of $0.2 million provided for logistical support (i.e., computers, equipment, etc.)


implementation. • Relevant staff are

nominated on time for training.

Risk • Adequate counterpart

funds are not made available on time.

Activities with Milestones Component 1: Water Resources and Flood Management 1.1 Four river courses, totaling 19.5km, rehabilitated and completed by 2011. 1.2 Erli’he flood water retention facilities are upgraded by 2011. 1.3 Urban stormwater drainage network, totaling 11.4km, upgraded by 2011. Component 2: Wastewater Management and Pollution Control 2.1 About 15.9 km of urban interceptor sewer constructed by 2011. 2.2 About 11.8 km of additional trunk sewerage system constructed by 2011. Component 3: Integrated Water and Ecosystem Management 3.1 Shaohai Lake and Jiaozhou Bay ecosystem protection

3.1.1 Artifical wetlands between the four river courses and Shaohai lake constructed by 2011.

3.1.2 Shaohai Lake Ecosystem Management System developed by 2014. 3.2 Strengthening capacity for water resources and flood management in Jiaozhou.

3.2.1 Integrated information system for flood, water, and wastewater management is developed in Jiaozhou City by 2014.

3.2.2 Emergency response measures, flood zone mapping, stormwater source control, and improved control structure regulation developed by 2014.

3.3 Environmental management and pollution control in Jiaozhou. 3.3.1 Participation of community and industrial enterprises in environmental

management and pollution control strengthened through training and awareness raising by 2014.

3.3.2 Wastewater services in Jiaozhou City are corporatized and strengthened by 2014.

3.3.3 Wastewater tariff reform is conducted by 2014. 3.3.4 Environmental monitoring plan enforced by 2014.

3.4 SEA is developed by 2014. Component 4: Project Management 4.1 Municipal PMO and city PMO established by 1Q 2009. 4.2 PMO and PMO staffed and provided with initial training by 1Q 2009. 4.3 Consultant for project implementation and capacity building engaged by 1Q 2009.

Inputs ($million) ADB loan: 45.0 Jiaozhou: 60.8 Total Cost: 105.8 Civil works: 67.2 Goods and Equipment: 8.0 Consulting: 7.0 Interest during implementation: 5.8 Contingencies: 17.7

11th FYP QECEP = 11th Five-Year Qingdao Ecological Conservation and Environmental Protection, ADB = Asian Development Bank; COD = chemical oxygen demand, GDP = gross domestic product, IA = implementing agencies, JCB = Jiaozhou Construction Bureau, JCG = Jiaozhou County Government, km = kilometer, mu = 0.067 hectare, P = phosphorus, PIU = project implementation unit, PMO = project management office, PQPR = project quarterly progress report, QMG = Qingdao Municipal Government, SEA = strategic environmental assessment.


R5: FINAL REPORT

SOGREAH – GDM 1350337 – JUNE 2008

APPENDIX 2 – SECTOR ANALYSIS

Appendix 2

SECTOR ANALYSIS

1. The proposed Project is located in Jiaozhou county-level city, Qingdao municipality in the southeast of Shandong Peninsula. Qingdao is so-called “Eastern Switzerland”, surrounding Jiaozhou Bay in the Yellow Sea, facing the People’s Democratic Republic of Korea, Republic of Korea, and Japan. As an important coastal city with an increasingly open economy, Qingdao’s annual gross domestic product has increased at an average of more than 10% per year. Its major industries include tourism, electrical appliances, and petrochemicals. Qingdao is also a major city for finance and foreign trade in Shandong Province. Seven districts and five county-level cities are under the administration of Qingdao with a total area of 10,654 km2 and a total population of 7 million people. In addition, Qingdao is the host city for the sailing regatta of the 29th Olympiad which was held in the People’s Republic of China (PRC) in August 2008. 2. Qingdao, including Jiaozhou City, experienced rapid economic development over the past 3 decades through intensive public investments and encouraging foreign and private investors to participate in its development plans and activities. This has resulted in rapid urban and industrial development, along with the associated problems, which have had detrimental effects on the water resources and on the overall condition of the municipality’s environment. The Qingdao Municipal Government (QMG) is aware of the need to address these problems and strengthen the capacity of the institutions that are mandated to manage water resources and environment in order to meet its development objectives and targets. It is also aware of the need for a comprehensive and integrated water resource and environmental management approach to address the complex and interrelated problems as a requisite for sustainable economic development and improved quality of life within the Jiaozhou Bay area. 3. It is for this purpose that QMG is requesting for Asian Development Bank’s (ADB) assistance in designing a project that will effectively address these problems which, in turn, may serve as pilot for further replication to other economic/industrial zones along the bay area. This is particularly relevant to and consistent with QMG’s Master Plan for the Jiaozhou Bay which aims for a balanced development along with the western and eastern parts of the bay. 4. The Project incorporate the following plans:

(i) In 2006, the Shandong Peninsula City Cluster Development Strategy Plan was approved by Shandong Provincial Government and has been implemented from the end of 2006. The general objective of the plan is to develop Shandong Peninsula cluster cities to be one of the essential advanced manufacturing and service centers in the PRC and even in the economic region around Yellow Sea. Qingdao is one of the eight core cities and will be developed into the largest city in Shandong. The populations of Qingdao and Jiaozhou are expected to be 12 million and 1 million by 2020, respectively. Especially, as a leading city in Shandong Province and middle-to-downstream Yellow River, Qingdao will be developed into an international seaport with developed and coastal tourist city with modern manufacturing and service industry with an urban population of 5 to 5.5 million.

(ii) In order to incorporate Shandong Peninsula City Cluster Development Strategy

Plan, QMG started to adjust the Qingdao Master Plan from March 2008. The principal conception was to involve the whole Jiaozhou Bay development and address the future population of an extra 3 to 3.5 million in 2020 in Qingdao

Appendix 2

28

urban area. One of the key issues for the new planning is to focus the detailed planning of several regions including Shaohai New Area in Jiaozhou City. The features of the new bay development will highlight environment priority, industry, tourism, and eco-supporting in new planning urban area.

(iii) Water resources and environmental management are always critical in the

development. Qingdao has set as its goal to improve the integrity of its ecological and environmental settings in its 11th Five-Year Plan (FYP). In line with these policy statements and consistent with its 11th FYP and overall plan for economic development, QMG intends to improve its capacity for water resources and environmental management by focusing on Jiaozhou City which suffers from a variety of interrelated problems related to severe flooding, and consequently, pollution of its watercourses and overall environment. Structural and nonstructural measures will be considered simultaneously to effectively address the problem of environmental degradation.

5. Jiaozhou is situated at the head of the Jiazhou Bay area encompassing the lower estuarine reaches of the Dagu River (the largest river basin in Qingdao Municipality). The coastal wetlands of Jiaozhou Bay are vital representing the most important coastal wetland ecosystem in Qingdao coastal region, providing breeding grounds for many types of fish and shellfish, a resting place for migratory birds, as well as maintaining coastal biological diversity. In addition, the wetlands absorb excessive nutrients in the river flow before it reaches the sea, thereby reduce eutrophication in Jiaozhou Bay. 6. Since the 1950s, the coastal wetlands around Jiaozhou Bay have been severely impacted by human activities including urbanization, industrialization, and the intensification of agriculture. From 1950 to 2000, it is estimated that the wetland area has been reduced by 30%; moreover, natural wetland has replaced by artificial wetland such as salt and fishery (shellfish/shrimp) ponds. The water environment in Jiaozhou City has deteriorated significantly. As the same time, urbanization has changed the population structure and water consumption in this area. Both existing natural environmental resources and management systems are facing big challenges to prevent further degradation in wetland area and water environment as well as to maintain the fast economics and social development in this area. A. Overview of Water Resources and Environment in Qingdao and Jiaozhou 7. Qingdao is a coastal city located at the tip of the Shandong Peninsula between the Yellow Sea to its east and southeast, and Jiaozhou Bay to its west and southwest. The total area of Qingdao Municipality is 10,654 km2, including cultivated land of approximately 484,600 hectares. Annual rainfall is only 689.2 millimeters (mm) on average, but large water surface evaporative losses (about 1,000–1,100 mm annually) compounded by uneven geographic and seasonal distributions present particular challenges for water resource management in Qingdao. Total annual water resources are only 313–342 m3 per capita, only about 14% of the national average and far less than 500 m3 per capita which is recognized as the international standard for water scarcity. Due to the serious water shortage, the Yellow River has been diverted since 1990 for municipal and industrial use in Qingdao City and southern Laoshan District with an amount of 51–130 million m3/year. Current domestic water tariff is CNY2.5/m3 (including CNY 0.7/m3 for wastewater treatment charge) and is considered low as it does not reflect the actual production costs which are estimated at about CNY3–4/ m3.

Appendix 2

8. According to Qingdao Environmental Report 2006, water qualities in 40.4% of 31 river courses were found to meet Class III national surface water standard or better; water qualities in 42.9% of 47 river courses were found to be worse than Class V standard. There were around 75 thousand wells supplying water from underground in Qingdao Municipality in 2004. In general, groundwater quality is poor in shallow aquifers as reported in Qingdao Water Resources Report 2006. Poor water quality was reported in more than 65% of monitored wells. 9. Jiaozhou is located in the southwest of Jiaodong Peninsula and in western Qingdao Municipality and along the northwestern Jiaozhou Bay. The whole area of the city is 1,210 km2. Geographical coordinates are 36°–36°30’ north latitude and 119°37’–120°12’ east longitude. The central region consists of hills and plains while the northeast region consists of alluvial plains. On the east region is the estuary where the land and the sea join each other. Jiaozhou has a temperate monsoon climate, with high humidity, higher rainfall, and moderate temperatures. Annual average temperature in Jiaozhou is 12°C. Average annual wind speed is estimated at 5.3 m/s which is dominated by the southeast wind. The City’s average annual rainfall is estimated at 776 mm, and annual water evaporation rate is 1,100 mm. Most of the rainfall occurs in June to September. Rainfall can be heavy in July and August and lead to flooding. Annual fluctuation is high with a ratio of 1:4.5. 10. There are 27 rivers in Jiaozhou City, mainly tributary to three water systems—Dagu River, South Jiaolai River, and Yanghe River. These rivers are characterised by rapid flow and brief riverhead. During the high-water season, flash floods frequently occur, while during the low-water season, runoff volume is so low that the rivers usually dry-up. In urban area, Yunxi River and Danzi (Sanli) River join together from west and west-southwest respectively and flow into Dagu River in eastern Jiaozhou City. Water quality in both the Yunxi and Danzi rivers is poor. In 2005, there were 50 reservoirs operating in Jiaozhou City. These included two medium reservoirs and 48 small reservoirs with a total water storage capacity of 62 million m3. 11. There are two operating water supply factories owned by the Jiaozhou City Water Company with a capacity of about 60,000 m3/d, service area of 50 km2 and service population about 300,000 including Jiaozhou urban area, Jiaodong town, and Yinhai town. Qianhan water factory derives groundwater from Dagu River basin with a design capacity of 35,000 m3/d. Zhuanglitou water factory derives surface water from Sanzhou reservoir and Qingnien reservoir with a design capacity of 20,000 m3/d. Due to aging of water supply facilities (which were built nearly 40 years ago) and poor maintenance of distribution networks, water loss ratio is estimated to be 25% including leakage, billing errors, and unmetered water use. Jiaozhou wastewater treatment plant (phase I) was constructed in 2003 with a designed capacity of 50,000 m3/d. The other wastewater treatment plant was built in the industry park for textile factories with a capacity of 20,000 m3/d. 12. A wetland area is located in the eastern part of Jiaozhou. The Jiaozhou Bay and Dagu Estuary wetland, the only wetlands in Qingdao Municipality, is included in the national wetlands protection list. The wetland covers the mudflat and beach from the fresh water zone of the Dagu Estuary to the low-salt water zone of Jiaozhou Bay with a total area of about 50,000 hectares (ha). The wetlands are home to 156 species of waterfowl and miscellaneous fishes, and post-house to many migratory birds. However, due to the adverse impacts of industrial development and agricultural activities, the wetlands have suffered from severe pollution and destruction in recent years. The number of wildlife species is declining and ecosystem functions are impaired, especially in some areas along the eastern bank of Jiaozhou Bay which are already degraded and consequently cannot function as natural wildlife habitats anymore.

Appendix 2

30

B. Problems Affecting Water Resources and Environment in Qingdao and Jiaozhou 13. With rapid urban development and population growth, water shortages as well as frequent flooding have become key constraints to sustainable development in Qingdao Municipality and Jiaozhou City. The latter has implemented various water conservation and management projects in recent years. However, it is constrained by inadequate fund in investing in new (and incomplete) water resources management infrastructures as well as poor maintenance and management. Key problems affecting the Jiaozhou environment sector are summarized as follows:

(i) Frequent occurrence of destructive floods. Jiaozhou City suffers from frequent occurrence of destructive floods due to the natural topography and aggravated by ineffective river flood control system. There are mainly three kinds of floods. First, high water level in the main stream of Dagu River outside the City combined with high tide level restricts the discharge of Yunxi River and Sanli River from Jiaozhou City area; furthermore, storm surges from Dagu River goes back to Jiaozhou City through these rivers in some situations. Within the city, floods are induced by either default of the drainage system or local river flooding from Yunxi River and the Sanli River. The Jiaozhou Municipal Government constructed a proper flood gate in Yunxi River in 2003 to prevent the storm surges from Dagu River and has started to build a flood plain named Shaohai Lake to contain the flooding water from Jiaozhou City. There are still needs to improve drainage facilities in flood prone areas to prevent waterlogging, and upgrade watercourses in local rivers.

(ii) Water pollution and subsequent impact on environment. Severe water

pollution has become an increasing problem in the City. In 2006, the Jiaozhou Environmental Protection Bureau carried out wastewater discharge investigation. The survey shows that, within Jiaozhou City, about 48,500 m3/d wastewater is connected into wastewater treatment plant (WWTP), an additional 31,000 m3/d is directly discharged into rivers. A significant portion of the untreated effluent is from industrial wastewater. Effluent from the Textile Industrial Park is currently treated at a specialized WWTP for the park; other industrial area discharge wastewater directly to the rivers or to the sewers; many of the latter are currently not connected to the centralized WWTP. As a result, based on water quality surveys by Jiaozhou Environmental Monitoring Station in 2005, the water quality in the rivers through the main urban area are poor quality and classified as Class V, with total phosphorus and chemical oxygen demand are especially beyond the acceptable standards.

(iii) Water loss and soil erosion. Jiaozhou experiences severe water loss and soil

erosion every year with significant adverse impact on production, living condition of the population, and integrity of the environment in the affected drainage basins. Contributing to this situation is the lack of a comprehensive plan for controlling/preventing water losses and soil erosion for the City. Moreover, there is need to raise public awareness on the water conservation as well as to establish measures for curbing and monitoring activities that contribute to this problem. Institutional capacities for supervising and monitoring soil and water conservation and management also need to be strengthened.

Appendix 2

(iv) Weak institutional capacity and nonstructural measures for water resource management. The capacity of relevant institutions involved in water resources management in Jiaozhou City cannot match the requirement for developing and implementing projects/programs/strategies concerning integrated water resources planning and management. There is a need for assistance for developing mechanisms and strengthening capacities for monitoring of water-related activities and the required enforcement of regulations for ensuring that the water quality from scarce resources is maintained properly for drinking purposes. This requires a complete human resource development plan for improving institutional capacities, as well as the provision of incentives, to mitigate the rapid turnover of staff. Furthermore, plans and policies related to water resources management need further clarification and be actually integrated into the district overall development plan. Emphasis should be made on nonstructural measures for improving water resources management and conservation such as (a) introduction of integrated information system, which will apply real-time data acquisition, geographic information system (GIS) platform, river courses and drainage/sewer system simulation software, and decision support system for real-time flood management; (b) training for the corporatization of wastewater services; (c) planning for wastewater tariff reform; and (d) strict enforcement of regulations for water conservation and environmental protection, for those measures which have already been installed, these need to be reviewed and strengthened. This should be complemented by exploring alternative improved management practices and technology for flood control and water resources conservation. The detailed discussions are in supplementary appendices C and L.

14. In addition—water shortage, low awareness of water conservation, and high portable water leakage—are existing constraints. Jiaozhou City is currently exploring opportunities for maximizing its surface water retention capacity through improvements in existing reservoirs (particularly the Guanlu reservoir) and water diversion projects. There is also need to maximize utilization of existing storage capacity of flood retention areas in conjunction with new construction of flood control infrastructure in urban areas. This will ensure availability of safe drinking water in urban and rural areas. 15. While Jiaozhou City has implemented various water conservation and management projects, including notably the development of Shaohai Lake (serving both as a flood retention zone and artificial wetland at the confluence with the Dagu River), and the first phase of the centralized wastewater treatment facilities, there are still key opportunities to improve environmental management in relation to the (i) collection and interception of industrial and domestic wastewater discharge directly into water courses, (ii) expansion and enhancement of the centralized treatment facilities to protect the Dagu River/Jiaozhou Bay wetlands, (iii) improvement of rivers and stormwater networks in the old urban area, (iv) development of an integrated approach for flood management incorporating the different structural and nonstructural measures currently operated separately by different entities, and (v) continuing institutional and financial management reforms to facilitate sustainable environmental management.


R5: FINAL REPORT


APPENDIX 3 – PROBLEM TREE ANALYSIS

32 Appendix 3

PROBLEM TREE ANALYSIS

Low quality of life in Jiaozhou Bay

area

Unsustainable ecosystems in

Jiaozhou Bay area

Degraded water resources and environment in Jiaozhou with downstream impact on the Shao Hai artificial lake, Dagu River, and Jiaozhou Bay

DevelopmentProblem

Low awareness on water

resources and environmental management

Lack of community participation in

water resources and environmental management

Poor planning for water reosurces

and environmental management

Weak institutional capacity for water

resources and environmental management

Weak institutional capacity for

environmental monitoring

Unsustainable biodivesity

conservation in Jaiozhou Bay area

Weak flood and water resource management

Weak environmental management and pollution control

Weak institutional capacity for integrated water and ecosystem management

Inadequate and deteriorated flood control/prevention

facilities

Deteriorated river courses

Deteriorated and inadequate storm drainage facilities

Deteriorated and inadequate wastewater

drainage network

Weak/absence of non-structural measures for

environmental management

Lack of trained personnel for flood

management

Inadequate logistical facilities

for flood management

Low investment in new flood

control/prevention facilities

Poor maintenance of existing flood

control/prevention facilities

Poor maintenance of

river courses

Low investment in new storm

drainage facilities

Poor maintenance of existing storm

drainage facilities

Low investment in new

wastewater drainage facilities

Poor maintenance of existing wastewater

drainage facilities

Poor planning for flood control and

drainage

Weak flood monitoring capacity

Absence of flood zone mapping

Weak planning capacity for

water conservation

and reuse

Inadequate financial support for institutional

capacity building

Source: Asian Development Bank.


R5: FINAL REPORT


APPENDIX 4 – EXTERNAL ASSISTANCE

Appendix 4 33

EXTERNAL ASSISTANCE

Donor Project Title Year Amount ($ million)

Integrated Ecosystem and Water Resources Management in the Baiyangdian Basin

2008 100.0

Kunming Qingshuihai Water Supply 2007 80.0 Nanjing Qinghuai River Environmental Improvement 2006 100.0 Shandong Hai River Basin Pollution Control 2006 80.0 Wuhan Wastewater and Stormwater Management 2006 100.0 Hunan Flood Management Sector 2006 200.0 Strengthening Flood Management Sustainability in Hunan Province 2006 0.5 Henan Wastewater Management and Water Supply Project 2005 100.0 Sanjiang Plain Wetlands Protection 2005 15.0 Fuzhou Environment Protection 2005 55.8 Jilin Water Supply and Sewerage Development 2005 100.0 Fujian Soil Conservation and Rural Development II 2004 80.0 Evaluation of Environmental Policy and Investment for Water Pollution Control in the Huai River Basin and the Taihu Lake Basin

2004 0.5

Sanjiang Plains Wetlands Protection Project 2004 15.0 Wuhan Wastewater Management 2003 83.0 Harbin Water Supply 2003 100.0 Hebei Province Wastewater Management Project 2002 82.0 Hebei Zhanghewan Pumped Storage 2002 144.0 Tianjin Wastewater Treatment 2000 130.0 Fuzhou Water Supply and Wastewater Management 1998 102.0 Zheijiang-Shanxi Water Supply Project (Phase I) 1997 100.0 Anhui Environmental Improvement Project for Municipal Wastewater 1996 28.0 Anhui Environmental Improvement Project for Industrial Pollution 1996 112.0 Hainan Agriculture and Natural Resources Development 1995 53.0 Beijing Environmental Improvement Project 1994 157.0 Dalian Water Supply Project 1994 160.0 Yunnan-Simao Forestation and Sustainable Wood Utilization 1994 77.0 Tangshan and Chengde Environment Improvement 1993 140.0

Asian Development Bank

Qingdao Environmental Improvement Project 1992 103.0 Bengbu Integrated Environmental Improvement 2008 100.0 Western Provinces Rural Water Supply, Sanitation and Hygiene Promotion

2007 25.0

Second Guangdong Pearl River Delta Urban Environment 2007 96.0 Tai Basin Urban Environment 2004 61.3 Guangdong Pearl River Delta Urban Environment 2004 128.0 Huai River Pollution Control 2001 105.5 Liao River Basin Rehabilitation 2001 100.0

The World Bank

Second Shanghai Sewerage 1996 250.0 Conservation and Sustainable Utilization of Wild Relatives of Crops 2006 8.0 Reducing Environmental Stress in the Yellow Sea Large Marine Ecosystem

2005 14.3

Biodiversity Management in the Coastal Area of China’s South Sea 2002 3.5 Multi-agency and Local Participatory Cooperation in Biodiversity Conservation in Yunnan’s Upland Ecosystem

2000 0.7

United Nations Development Programme

Wetland Biodiversity Conservation and Sustainable Use 1999 12.0 Capacity Building of Clearing House Mechanism and Preparation of Second National Conference of the Parties of Community of Practice

2002 0.4

Support to the Implementation of the National Biosafety Framework of China

2001 0.9

Lop Nur Nature Sanctuary Biodiversity Conservation 1998 0.7

United Nations Environment Programme

National Biodiversity Strategy, Action Plan and the First National Report to the Convention on Biological Diversity

1997 0.6

Sources: Asian Development Bank, International Bank for Reconstruction and Development, United Nations Development Program, United Nations Environment Program, and World Bank.


R5: FINAL REPORT


APPENDIX 5 – INTEGRATED APPROACH TO ENVIRONMENTAL

MANAGEMENT IN COASTAL ZONES

34 Appendix 5

INTEGRATED APPROACH TO ENVIRONMENTAL MANAGEMENT IN COASTAL ZONES

1. Conventional urban water management is generally solely concerned with the built up environment and the provision of water services. This is usually the responsibility of one or more water utilities (either public or private). Each part of the infrastructure is managed separately; different functional units will operate different parts of the service. Such an approach was acceptable while the pressures were low and resources capacity were high. However, with the present situation that development pressure has been highest and most concentrated, a far more integrated approach needs to be taken to address environmental management in coastal areas.

2. Integrated approach requires the progressive expansion of the “boundaries” of the managed system as illustrated below. Three general levels of integration can be developed notably: (i) “functional integration” in which the management of the different water infrastructure and services are coordinated as a whole; second, an “area wide integration,” in this context corresponding to the interlinking planning of management of the three interacting systems: urban area, river basin management, and coastal zone management; and (ii) “sectoral policy” integration, in which urban water management is coordinated with higher national and international policy and sectoral policies and goals.

3. Integrated management approaches are common features to the clean up and preservation of all aquatic ecosystems (rivers, lakes, coastal bays, and large marine ecosystems). Best practice and successful examples in the USA include the Chesapeake Bay and Boston Harbor clean up), in Europe (clean up of the Rhine River, Danube River, Lac Leman and at a smaller scale, the bays of Mont St Michel and Cardiff Bay). The common features of all of these successful interventions has been (i) the development of high level organizations such as river basin agencies, bay protection agencies, regrouping political, private sector and public representatives from the communities included in the geographical scope of the intervention; (ii) the development of long-term strategic environmental planning often supported by national government policies; and (iii) the development and identification of financial sources to support effective implementation of the strategic planning.

4. Compared to other countries, conditions of the PRC’s aquatic ecosystems (rivers, lakes, coastal waters, and wetlands) reflect the cumulative impact of a number of interconnected factors. There have been unfortunately few success stories—for example, in spite of large amounts of investment, the clean up of lakes such as Dianchi and TaiHu have not yielded to date marked improvements (indeed water quality has been deteriorating). Where there have been successes, such as the West Lake in Hangzhou and the lower Huangpu in Shanghai, reviews have identified a series of features common to effective restoration programs: (i) strong and consistent leadership and action—restoration takes time and resources often beyond the rather narrow focus of the typical Five-Year Plan (FYP) and also requires effective cross-sectoral and transjurisdictional coordination. Catchment boundaries are rarely the same as jurisdictional boundaries; there is a need to develop effective management and high level structures to ensure coordination across administrative and sectoral boundaries; (ii) integrated planning and analysis—planning needs to integrate many sectors including notably land use and serve as a strategy agreed by all sectors for future development. The development of an integrated planning framework has often led to particularly notable long term and successful partnerships in development between the PRC and the major development agencies and banks; and (iii) effective financial engineering—too many programs have failed due to the inability of lower level governments to raise counterpart funds, or have been distorted due to the need for

Appendix 5 35

local governments to focus spending only on activities that create short and medium term revenue raising possibilities. In addition, there is a need for the development institutions to fund those areas not supported by traditional and/or private funding sources; this is especially the case with regard to domestic wastewater treatment systems, where one of the major deficiencies has been the funding of networks which are not attractive to other/private funding sources.

5. Within the particular sectors such as urban water supply, wastewater and flood management, the construction of infrastructure has generally been well-undertaken. The lessons identified from ADB’s post-evaluation experience in water infrastructure projects highlight the importance of nonstructural measures among which one can cite (i) encouraging broad reforms, such as autonomous management, and introducing private sector participation will promote efficient and responsive delivery of water supply and wastewater services; (ii) appropriate pricing policies to encourage the sustainable delivery of water and sanitation services; (iii) the use of management tools such as management information system/geographic information system and performance grading enables water services to manage more appropriately both existing and future assets; and (iv) educate, consult, and involve the public in environmental improvement. In addition, ADB has supported the development of a national flood management strategy

1 through two technical assistance (TA) projects; and supported

urban utility tariff reform and technical strategies2 through a series of TA projects. In the project

design, separate actions have been defined to reinforce the nonstructural element of this Project, notably taking into account the recommendations from these reviews and TA projects.

6. ADB’s Country Partnership Strategy (2008–2010) suggested that the priority areas for ADB assistance in wastewater subsector will include strengthening the institutional capacity of wastewater service companies, particularly for financial management, improved accountability, and increased transparency. The design of an institutional capacity development program needs to incorporate the best international practices for wastewater management companies.

7. In the proposed Project, a series of measures are designed to complement the structural investments, including: (i) the construction of artificial wetlands at the point of entry of the rivers to the lakes to reduce nutrients loads; (ii) improvement of ecosystem management of the Shaohai Lake Ecosystem; (iii) development of an integrated information system for Jiazhou flood, water and wastewater management; (iv) development of emergency response measures, flood zone mapping, stormwater source control, and improved control structure regulation; (v) promotion of wastewater service corporatization and strengthening wastewater tariff reform; and (vi) strengthening of community participation in environmental management and pollution control. 8. The Project is designed to use ADB financing to support the construction and upgrading of stormwater and wastewater interceptor and sewerage system as well as the development of nonstructural measures, which can not directly generate revenues but very crucial to ensure the 1 (i) ADB. 2005. Technical Assistance to the People’s Republic of China for Preparing the National Flood

Management Strategy. Manila; and (ii) ADB. 2008. Technical Assistance to the People’s Republic of China for Implementing the National Flood Management Strategy. Manila.

2 (i) ADB. 1999. Technical Assistance to the People’s Republic of China for Water Supply Tariff Study. Manila; (ii)

ADB. 2001. Technical Assistance to the People’s Republic of China for National Guidelines on the Urban Wastewater Tariffs and Management Study. Manila; and (iii) ADB. 2008. Technical Assistance to the People’s Republic of China for Urban Wastewater and Solid Waste Management for Small Cities and Towns. Manila.

36 Appendix 5

sustainability of the water infrastructure investments, while the partnership with private sector to build wastewater treatment plant has been established. The expanded treatment capacity of 50,000 cubic meter/day will be added to the existing wastewater treatment plant through the build-operate-transfer contract between Jiaozhou authorities and a private company. The Project will provide safeguards due diligence support to Jiaozhou authorities with respect to wastewater treatment process design and environmental assessment. 9. An integrated approach takes into account not only water resources but the land as well, and considers the greater efforts needed to strengthen coordination between sectors and jurisdiction. The proposed strategic environmental assessment (SEA) on Jiaozhou Bay development in parallel with the proposed Project will strengthen the QMG’s integrated planning capabilities through streamlining environmental consideration and ecosystem conservation into its plan of further embracing Jiaozhou Bay. The SEA will reinforce the institutional set up by encouraging the development of a bay wide environmental protection authority from the existing leading group structure and thereby contribute significantly to the coordination and integration of the existing fragmented pollution control and water resources planning with urban development and marine ecosystem planning. It will enable the initial results and lessons learned from the Jiaozhou project development to be incorporated into improved environmental planning over the whole bay area. This SEA (as detailed further in Appendix 9) will specifically extend the scope of the proposed interventions in Jiaozhou to other areas around Jiaozhou Bay. Three key steps have been outlined involving (i) the reinforcing of the existing leading group into a Jiaozhou Bay Protection Authority, (ii) the development of the SEA itself, and (iii) proposals for monitoring the implementation of the SEA.


R5: FINAL REPORT

SOGREAH – GDM /WCJ/TZJ1350337 – JUNE 2008

APPENDIX 6 – DETAILED COST ESTIMATES

Appendix 6

37

DETAILED COST ESTIMATES

Table A6.1: Detailed Cost Estimates by Expenditure Categorya

% % Total(US$ Million) Foreign Base

Local Foreign Total Exchange Costs

I. Investment Costsb A. Civil Works

1. Flood Retention 3.0 1.6 4.7 35 62. Urban Stormwater Drainage Network 8.1 4.4 12.5 35 153. Urban Wastewater Drainage Network 3.4 1.8 5.2 35 64. River Course Rehabilitation 29.1 15.7 44.8 35 545. Ecological Construction 0.1 0.0 0.1 35 -

Subtotal Civil Works 43.7 23.5 67.2 35 82B. Survey and Design 1.0 1.0 1.9 50 2C. Preparation, management, supervision & quality review 3.0 - 3.0 - 4D. Vehicles 0.1 0.1 0.2 70 -E. Equipment and Materials 2.3 5.5 7.8 70 9F. Consulting Services

1. International Consultants 0.1 0.6 0.7 92 12. National Consultants 1.0 - 1.0 - 13. Consultant Support 0.1 0.0 0.1 26 -

Subtotal Consulting Services 1.2 0.7 1.8 36 2G. Capacity Building

1. Training 0.1 - 0.1 - -J. Monitoring and Reporting 0.2 0.0 0.2 10 -

Total BASELINE COSTS 51.5 30.8 82.3 37 100Physical Contingenciesc 4.8 3.0 7.7 - -Price Contingenciesc 7.3 2.7 10.0 - -

Total PROJECT COSTS 63.5 36.4 100.0 37 100Interest During Implementationd - 5.7 5.7 100 7Commitment Charges - 0.1 0.1 100 -

Total Costs to be Financed 63.5 42.3 105.8 42 107 a In mid-2008 prices. b Includes taxes and duties of $3.1 million. c Contingencies will be financed by the Government. Physical contingencies were computed at 10% of base costs,

other than for Survey, Design, and Supervision where they are 0%. Price contingencies were computed using foreign escalation factors of 6.8% for 2008, 0.7% for 2009, 1.4% for 2010, 0.4% for 2011, 0.5% for 2012 and 2013, and a local escalation factor of 5.5% for 2008 and 5% for 2009–2013.

d Includes interest during construction computed at the five-year forward London interbank offered rate (LIBOR), with a spread of 0.2%, and a commitment charge of 0.15%.

Source: Asian Development Bank estimates.

Table A6.2: Detailed Cost Estimate by Financier ($million)

Asian Development Jiaozhou City LocalBank Government Total For. (Excl. Duties &

Amount % Amount % Amount % Exch. Taxes) Taxes

I. Investment Costs A. Civil Works

1. Flood Retention 2.1 44.7 2.6 55.3 4.7 4.4 1.6 2.9 0.22. Urban Stormwater Drainage Network 5.6 44.8 6.9 55.2 12.5 11.8 4.4 7.7 0.43. Urban Wastewater Drainage Network 2.3 44.2 2.9 55.8 5.2 4.9 1.8 3.2 0.24. River Course Rehabilitation 20.2 45.1 24.6 54.9 44.8 42.3 15.7 27.6 1.55. Ecological Construction 0.1 100.0 0.1 100.0 0.1 0.1 0.0 0.1 0.0

Subtotal Civil Works 30.3 45.1 37.0 55.1 67.2 63.5 23.5 41.4 2.3B. Survey and Design - - 1.9 100.0 1.9 1.8 1.0 0.9 0.1C. Preparation, management, supervision & quality review - - 3.0 100.0 3.0 2.8 - 2.9 0.2D. Vehicles 0.2 100.0 - - 0.2 0.2 0.1 0.0 0.0E. Equipment and Materials 6.7 85.9 1.1 14.1 7.8 7.4 5.5 1.9 0.4F. Consulting Services - - - -

1. International Consultants 0.7 100.0 - - 0.7 0.7 0.6 0.0 0.02. National Consultants 1.0 100.0 0.1 10.0 1.0 0.9 - 1.0 0.13. Consultant Support 0.1 100.0 - - 0.1 0.1 0.0 0.1 -

Subtotal Consulting Services 1.7 94.4 0.1 5.6 1.8 1.7 0.7 1.1 0.1G. Capacity Building - - - -

1. Training 0.1 100.0 - - 0.1 0.1 - 0.1 -H. Monitoring and Reporting 0.2 100.0 - - 0.2 0.2 0.0 0.2 -

Total PROJECT COSTS 39.1 47.5 43.1 52.4 82.3 77.8 30.8 48.4 3.1Contingencies - - 17.7 100.0 17.7 16.7Interest During Implementation 5.7 100.0 - - 5.7 5.4 - - -Commitment Charges 0.1 100.0 - - 0.1 0.1 - - -

Total Disbursement 45.0 42.5 60.8 57.5 105.8 100.0 30.8 48.4 3.1 Source: Asian Development Bank estimates.

38 Appendix 6


R5: FINAL REPORT

SOGREAH – GDM /ZX 1350337 – JUNE 2008

APPENDIX 7 - FLOW OF FUNDS

FLOW OF FUNDS

Legend: Oversight ResponsibilityCommand LineCoordinationFlow of FundRepayment Flow

Jiaozhou Construction

Bureau

Project Implementation

Unit(PIU)

Jiaozhou CountyFinance Bureau

Qingdao Finance Bureau

QingdaoDevelopment and Reform Commission

Project Management Office (PMO)

Ministryof

Finance

Asian Development

Bank

Qingdao Municipal

Government

Improvement of Flood Retention

Facilities

Upgrading of Urban

Stormwater and Wastewater

Drainage Facilities

River Course Rehabilitation

Qingdao Municipal Agencies with Oversight Responsibilities: - Environmental Protection Bureau - Water Resources Bureau - Land Bureau

County-Level Agencies with Oversight Responsibilities: - Development and Reform Bureau - Finance Bureau - Construction Bureau - Environmental Protection Bureau - Water Resources Bureau - Land and Resources Bureau

State Agency with Oversight Responsibilities: - National Development and Reform Commission

Project Leading Group

Appendix 7 39


R5: FINAL REPORT

SOGREAH – GDM /YCY/ZGL 1350337 – JUNE 2008

APPENDIX 8 - IMPLEMENTATION SCHEDULE

Appendix 8

40

IMPLEMENTATION SCHEDULE

2009 2010 2011 2013

A. Flood & Water Resources Management

1. Erli'he Reservoir: Survey and Design

2. Erli'he Reservoir: Rehabilitation

3. Yunxi River: Survey and Design

4. Yunxi River: Rehabilitation

5. Hucheng River: Survey and Design

6. Hucheng River: Rehabilitation

7. Wushui River: Survey and Design

8. Wushui River: Rehabilitation

9. Sanli River: Survey and Design

10. Sanli River: Rehabilitation

11. Guangzhou Rd Stormwater: Survey and Design

12. Guangzhou Rd Stormwater: Construction

13. Dezhou Rd Stormwater: Survey and Design

14. Dezhou Rd Stormwater: Construction

15. Beijing Rd Stormwater: Survey and Design

16. Beijing Rd Stormwater: Construction

17. Quangzhou Rd Stormwater: Survey and Design

18. Quangzhou Rd Stormwater: Construction

B. Improved Wastewater Collection System

1. Simenshou Rd: Survey and Design

2. Simenshou Rd: Construction

3. Quangzhou Rd: Survey and Design

4. Quangzhou Rd: Construction

C. Non-Structural Measures

1. Capacity Building for Flood and Water Res. Mgmt

a. Equipment Upgrading

b. System Development

c. Capacity Building

2. Strengthening Community Participation

4. Strengthening O&M of Jiaozhou WW Utility


a. Artificial Lake Construction

b. Monitoring of Lake ecology

D. Project Management

1. PMO Establishment

2. Environmental Monitoring

3. Selection and Engagement of Project Consultants

4. Preparation of Quarterly Reports

5. Preparation of Annual Reports

6. Preparation of Project Completion Report

7. Project Closing

20143 4 1 2 3 4 1 23

ACTIVITY2012

1 2 13 42 4 1 1 22 3 4


R5: FINAL REPORT

SOGREAH – GDM /JW 1350337 – JUNE 2008

APPENDIX 9 - PROCUREMENT PLAN

Appendix 9

41

PROCUREMENT PLAN

Project Information Country People's Republic of China Name of Borrower Government of the People's Republic of China Project Name Qingdao Water Resources and Wetland Protection Project Loan Reference To be determined (tbd) Date of Effectiveness tbd Loan Amount ($million) 45.1 Of which, Committed Nil Executing Agency Jiaozhou County Government Approval Date of Original Procurement Plan Tbd Approval Date of Most Recent Procurement Plan Tbd Publication for Local Advertisementa Tbd Period Covered by this Plan 2009-2014 a For ICB invitations for bids, invitations for prequalification, draft prequalification documents, draft bidding documents,

prequalification and bid evaluation reports are to be submitted to ADB for prior review and approval. For NCB the first draft English language version of the procurement documents should be submitted for ADB review and approval

regardless of the estimated contract amount. ADB-approved procurement documents should be used as a model for all NCB procurement financed by ADB for the project, and need not be subjected to further review. ADB will review the bid evaluation report (BER) and award of contract on a post-review basis. For Shopping and Direct Contracting, ADB will normally review the award of contract on a post-review basis.

Procurement Thresholds, Goods and Related Services, and Works Procurement Methods To be used above/below ($) ICB works > $10,000,000 ICB goods

>$1,000,000 NCB works </= $10,000,000 > $100,000 NCB goods </= $1,000,000 > $100,000 Shopping works </= $100,000 Shopping goods </= $100,000 Direct contracting </= $10,000 Procurement Thresholds, Consulting Services Procurement Method To be used above/below ($) Quality- and Cost-Based Selection (QCBS) At least $200,000 Consultants Qualifications Selection (CQS) Less than $200,000 Least Cost Selection (LCS) Less than $100,000 List of Contract Packages in Excess of $100,000 for Goods, Works, and Consulting Services

Contract Description Estimated Costs ($)

Procurement Methods

Expected Date of

Advertisement

ADB Reviewa

Comments

A Goods 7,989,641 1. Pipes 1,831,261 JMAT 10.1 HDPE 522,174 NCB First 18 months Post JMAT 10.2 reinforced concrete pipes 1,309,087 ICB First 18 months Prior 2. Other Construction Goods 5,711,858 JMAT 20.1 Lighting 3,314,145 ICB First 18 months Prior JMAT 30.1 Guardrail Stone Column 496,754 NCB First 18 months Post JMAT 30.2 Guardrail Steel Pipe 470,145 NCB First 18 months Post

JMAT 40.1 Geotextiles 362,304 NCB First 18 months Post

JMAT 50.1 Road Brim stones 757,519

NCB First 18 months Prior/post

JMAT 60.1 Rubber dam 104,348 NCB First 18 months Post

JMAT 70.1 Gates & other misc items 206,643 NCB First 18 months Post

3. Non-Structural and PIO 446,522 JIRR 60.1 Jiaozhou DIS 70,000 Shopping First 18 months Prior JWWM 60.1 Jiaozhou WW Vehicles &

equipment 257,971 NCB First 18 months Prior

Appendix 9

42

Contract Description Estimated Costs ($)

Procurement Methods

Expected Date of

Advertisement

ADB Reviewa

Comments

JMON 10.1 Environmental Monitoring Equipment

50,000

Shopping

Post

JPIO 10.1 PIO Equipment & Vehicles 68,551 Shopping First 18 months Post B Works 67,248,831 1. Integrated River Rehabilitation: 50,256,187 JIRR 10.1 Erli'he Flood Retention

Facilities 4,655,989 NCB First 18 months Post

JIRR 20.1 Yunxi River: Erli River lower dam-Xihu Park

3,561,588 NCB First 18 months Post

JIRR 20.2 Yunxi River: Xihu Park - Fuzhou branch Road


JIRR 20.3 Yunxi River: Fuzhou branch Road - Haier Road


JIRR 20.4 Yunxi River: Haier Road-Shaohai inlet


JIRR 30.1 Hucheng River: Xihu Park-Guangzhou Road


JIRR 30.2 Hucheng River: Guangzhou-Yunxi River estuary


JIRR 40.1 Wushui River: Jiaohuang Railway-Haier Road


JIRR 40.2 Wushui River: Haier Road-WWTP


JIRR 50.1 Sanli River: Jiaohuang Railway-Haier Road


JIRR 50.2 Sanli River: Haier Road-Shaohai Inlet


2. Upgrading Storm Water Drainage 12,503,913 JSWM 10.1 Guangzhou & Hangzhou

Rd 4,120,507 NCB First 18 months Post

JSWM 20.1 Dezhou & Fuzhou Rd 2,594,046 NCB First 18 months Post JSWM 30.1 Beijing & Shanghai Rd 2,050,446 NCB First 18 months Post JSWM 40.1 Quanzhou Rd 3,738,913 NCB First 18 months Post 3. Upgrading Wastewater Collection 4,374,528 JWWM 10.1 Simenshou Rd Sewerage 2,671,586 NCB First 18 months Post JWWM 10.2 Quanzhou Rd Sewerage 1,702,942 NCB First 18 months Post 4. Non-Structural Ecological Construction 114,203 First 12 months JECOL 10.1 Jiaozhou Lake

Ecological Upgrading 114,203 NCB First 18 months Post

A+B: goods+works 75,238,471 C Consulting Services 7,021,619

1. JCON 10.1 Project Management 793,000

QCBS (80:20, SP, firm)

First 18 months Prior

2. JCON 20.1 Strengthening Jiaozhou Wastewater Services

264,600

QCBS(80:20, BP,firm)


3. JCON 30.1 Jiaozhou Integrated Information System

753,800 QCBS (80:20, SP, firm)


4. JCON 30.3 Community Awareness & Public Consultation

50,000 LCS First 18 months Post

5. JCON 35.1 Lake Ecology 223,420 QCBS(80:20, BP, firm)


6. Survey, Design and Supervision 4,913,796 N. B. F. 7. Environmental Monitoring Plan 23,003 DC Prior

BP = biodata proposal, SP = simplified proposal, CQS = consultants’ qualification selection, DC = direct contracting, ICB = international competitive bidding, LCS = Least Cost Selection, NCB = national competitive bidding, QCBS = quality- and cost-based selection. Note: US$1 = CNY6.9.


R5: FINAL REPORT

SOGREAH – KL 1350337 – JUNE 2008

APPENDIX 10 – TECHNICAL ASSISTANCE

QINGDAO MUNICIPAL GOVERNMENT – ASIAN DEVELOPMENT BANK QINGDAO WATER RESOURCES MANAGEMENT PROJECT

STRATEGIC ENVIRONMENT ASSESSMENT - CONCEPT PAPER

SOGREAH – 2008 PAGE 1

Strategic Environment Assessment of

Qingdao Municipality “Surrounding Bay Protection, Embracing Bay

Development” Strategy

Technical Assistance Project

Concept Paper

1. Background and Necessity of SEA Project ............................................................................2 1.1 Background of SEA Project ................................................................................................2 1.2 Necessity of the SEA Project ..............................................................................................3

2. Basic Characters of SEA ..........................................................................................................4 2.1 What is SEA........................................................................................................................4 2.2 Development of SEA around World ...................................................................................5 2.3 Status of SEA in China .......................................................................................................5 2.4 Characters and Effects of SEA............................................................................................6

3. Work Outline ...............................................................................................................................6 3.1 Objective of SEA ................................................................................................................6 3.2 Principles of SEA................................................................................................................7 3.3 Scope of SEA......................................................................................................................7 3.4 Key Issues to be Assessed...................................................................................................7 3.5 Working Procedures..........................................................................................................10 3.6 Proposed Assessment Methodologies ...............................................................................10

4. Outputs ......................................................................................................................................11 4.1 SEA Report of Qingdao Municipality “Surrounding Bay Protection, Embracing Bay Development” Strategy ...........................................................................................................11 4.2 Maps Volume....................................................................................................................13

5. Action Plan ................................................................................................................................14 5.1 Organization and Responsibilities.....................................................................................14 5.2 Working Phases.................................................................................................................15 5.4 SEA Consultants Input......................................................................................................16 5.5 Budget and Financing Plan ...............................................................................................17




1. Background and Necessity of SEA Project

1.1 Background of SEA Project

The Asian Development Bank (ADB) provided a loan assistant to the People’s Republic of China (PRC) on a proposed “Qingdao Water Resources Management Project”, so to support the Qingdao Municipality Government’s (QMG) water resource management, solve the difficulties and restrictions in water resource and environment sectors faced by Jiaozhou Government. This project has been listed in ADB 2008 project pipeline, which is envisioned to enhance water resource management and pollution control capability, promote harmonization development in water resource, environment and social economy for both Qingdao and Jiaozhou Government.

ADB also provided a project preparatory technical assistance (PPTA No. 4867-PRC) to the Qingdao Project for better project preparation in various aspects. During the process of ADB’s PPTA review, QMG introduced ADB the situation of Qingdao “Surrounding Bay Protection, Embracing Bay Development” Strategy. To import international innovative ideas and technologies, further fulfill the requirements on Strategy Environment Assessment (SEA) endorsed in national Environment Assessment Law, QMG has requested ADB to provide associated technical assistance to carry out SEA works on the embracing Jiaozhou Bay development strategy, which aims to map out an integrated water resources and environmental management plan for further developing the other parts of Jiaozhou Bay.

Based on this, ADB plans to provide a technical assistance (TA), to help QMG to carry out SEA to “Surrounding Bay Protection, Embracing Bay Development” strategy of Qingdao municipality. Import innovative concepts, utilize scientific technologies to overall analyze and assess the Jiaozhou bay environment condition, exact clarify the environment limitations and capacities in different regions. Study the key objectives and tasks of the strategy, forward optimization and revision suggestions from the view of harmonization development between economy and environment. So to further speed the government to integrate the environment factor to the whole decision making and planning preparation process of Jiaozhou bay development, prevent environment pollution and ecology deterioration from the decision source, provide long term guidance to Jiaozhou bay environment protection and city sustainable development, and serve as an example for other similar development in China and abroad.

During the discussion within ADB, National Ministry of Environment Protection(MEP), Qingdao Development and Reform Committee (QDRC), Qingdao Land-use and Resources Bureau, Qingdao Environmental Protection Bureau (QEPB), Qingdao Water Resource Bureau(QWRB), Qingdao Agriculture Bureau (QAB) together with




Sogreah Consultants and other agencies, it has received a consensus that, carry out SEA project for Qingdao “Surrounding Bay Protection, Embracing Bay Development” strategy, will perform benefits to enhance planning capabilities of QMG, improve environment management strength of local government and communities, reinforce protection potentiality to Shaohai Wetland and Dagu River, which, in turn, will behave as a significant compensation for infrastructure construction of Qingdao Water Resource Management Project, and, will be viewed as a demonstration project for upgrading Project EIA to Strategy EIA and facilitating the SEA implementation in China.

1.2 Necessity of the SEA Project

Qingdao municipality is located in the south of Shandong Peninsular with total area of 10,654 km2 and population of 8 million. Qingdao is a key costal city in east of China, and the most important economic center and port city, also a historical culture city and scenery resort, the host city for the 29th Olympic Sailing Game.

Jiaozhou bay is the development cradle of Qingdao, and is also regarded as “Mother Bay” of Qingdao. The Jiaozhou bay is a typical semi-closure bay with water area of 362 km2. The Qingdao harbor cluster within the Bay behave as the important trade port and marine transportation hub; the Philippine clam harvested here is the characteristic production of Qingdao with annual yield of more than 300,000 ton; in north and west-north of sallow marine area, the biodiversity is rich, the ecological activities are active.

But, due to irrational and excessive development, Jiaozhou Bay is undergoing deterioration in its environment including degradation of ecological environment and water quality, shrinkage of the green area and wetland and decrease in biological diversity, which in turn turns out as an obstacle in the process of regional sustainable development. The biological field in Jiaozhou Bay has changed dramatically in the last three decades due to the proliferation of industries, aquaculture, agriculture, and domestic sewage around or inside the bay. Averaged concentrations of total inorganic nitrogen and phosphate have increased by a factor of 10 or large from 1962 to 1992. The atomic ratio of total inorganic nitrogen to phosphate was about 10 in 1962-63, but is now up to 24.2. Investigation of heavy metal concentration in mollusks Ruditapes philippinarum and seaweed Codium sampled in different sampling station in Jiaozhou Bay was carried out in 1996-1999. The results of the study demonstrated that the heavy metals accumulated in Jiaozhou Bay and contaminated the sediment habitat were possible source of high mortality of invertebrates and algae species and decrease of benthic species diversity in the region. Only 62 species were captured in Jiaozhou Bay according to the macrobenthic fauna surveys in 1998-2004. The species diversity of benthic community decreased rapidly in past decades according to these results.




To maintain the sustainable development of whole city and Jiaozhou Bay, keep scientific and effective utilization of Jiaozhou bay, enhance eco-environment and wetland protection, Qingdao municipality brought forward the strategy of “Surrounding Bay Protection, Embracing Bay Development”. The strategy follows the concept of “plans guided, stepped implementation, stress development together with protection, and prioritize the protection”, integrate the ordered development with reasonable protection. Based on Jiaozhou Bay, adjust and comprehensive develop the various environment regions, accelerate old city rehabilitation, initiate new district construction. Surrounding Jiaozhou bay, progress city development, enlarge and optimize city layout, improve urban enterprises structure, better domestic life quality, promote urban harmonization development, and realize the city transformation from peninsular type to bay-embracing type, so to exploit Jiaozhou bay region to a key carrier and core layer of future economic and social development of Qingdao municipality. So to search an innovative urban development mode with characters of nature respect, ecology protection and cycle sustainability.

Implement the strategy of “Surrounding Bay Protection, Embracing Bay Development”, construct the city surrounding the bay, carry out development and protection with multi-layer, multi-region, diversity and all-around characters, no former examples before can be adopted in China. So, it is very important and urgent to carry out strategy environment assessment, protect environment from decision making source, integrate the environment issues throughout the whole planning process, and provide long-term guidance to Jiaozhou bay protection.

2. Basic Characters of SEA

2.1 What is SEA

The SEA, is the integrated expression of strategy idea of “control pollution from source” by in-depth analysis, forecasting and assessment on resource and environment bearing capacity for policies, regulations and plans; through adoption of prevention measures and other mitigations, control environment pollution from source.

In Environment Guidelines of Asian Development Bank, Strategic Environmental Assessment is being introduced as a method and approach for conducting environmental assessment of program loans, sector development program loans, and sector loans. SEA can also be used as tool in country environmental analysis. SEA provides a mechanism for incorporating into decision-making considerations related to sustainable development; i.e., development that meets the needs of the present without compromising the ability of future generations to meet their own needs. SEA can draw attention to potential environmental problems early so that decision makers can filter out environmentally damaging projects that might otherwise be the source of




costly and protracted delays and controversy.

SEA is distinguished from EIA and there are different categories of SEA. Using the definitions above, SEA can be defined as “a systematic process for evaluating and anticipating the consequences of decisions taken prior to the project stage.... Its purpose is to ensure that environmental considerations and alternatives are addressed as early as possible and on a par with economic and social factors in policy, plan or program development.”1

2.2 Development of SEA around World

1) SEA mechanism came into being from “National Environment Policy Law” of America in 1969. In this law, it is required that “for any proposal or legislation which may potentially impact environment quality, the responsible official has to provide the explanations to this environment impact”.

2) In the mid of 1970s, other countries began to expend EIA application to strategy. 3) In the end of 1980s, the SEA was general accepted in the world. The EIA is

implemented in the whole strategy process(Policy-plan-program-project). The innovative EIA system formed into shape. Canada, England, Holland, Denmark, Sweden and other countries all established the SEA system.

4) In 1993, the European Union endorsed a regulation, that “any development activity or new legislation has to undergo SEA process”.

5) In Asia, Korea had also issued the SEA regulation; Japan established a whole set of “Planning EIA System”, focusing on the SEA in regional development.

The practices from the above counties had justify, the SEA is the bridge to switch sustainable development strategy from macro to practical, from abstract to detail; the guarantee system for integration between environment and development.

2.3 Status of SEA in China

The “Environment Impact Assessment Law of People’s Republic of China” put into forced on 1 September 2003, has definite the status of SEA. The law had clarify the EIA requirement for region, basin and sea development plan together with 10 specialized plans, which is regarded as a significant improvement to China EIA institution.

In 2006 on the Sixth National Environment Protection Conference, Premier Wen Jiabao made a clear request to strengthen plan EIA, control environment pollution and ecology deterioration from the decision source. SEPA also stressed that based on the State Council’s environment protection decision, adopt more practical measures,

1 Environmental Assessment Guideline, Asian Development Bank, 2003




active push the plan EIA works for key cities, regions, basins and sectors, accelerate plan EIA to integrated environment protection ad macro decision, realize “determine development mode, scheme, rate and strengthen based on environment conditions”, push revolution on environment protection.

2.4 Characters and Effects of SEA

（1）Based on bearing capacity and volume of environment resource, analyze the environment and resource requirement of certain strategy or plan. Based on environment bearing capacity, bring forwards according counterpart measures.

（2）SEA allows for the systematic consideration of cumulative and broad scale (i.e., regional and global) environmental effects. SEA introduces environmental considerations into decision making early, before project location and scale decisions have been made. Also, SEA allows decision makers to focus on the environmental effects of strategic choices, before specific projects are considered.

（3）SEA and Plan EIA can guarantee the harmonization between regulations and environment policies, consider social, environment and economy as a integration, optimize resource and environment capacity so to reduce the confliction and inconsistency on environment and resource.

（4）Promote the circle economy concept within the whole process of development activity. Analyze the cumulative impact within the planned region, set the environment capacity of the region, restrict total pollution discharge load, so to control the economy development size within the environment permission scope.

（5）SEA and Plan EIA consider the indirect and related environment impacts, promote the publicity of government affairs and push democratic and scientific revolution within government decisions, which are always the key issues to be solved in national admin6istration and policy reform.

（6）SEA takes the overall harmonization and sustainable development as ultimate objection. It is benefit to break the limitation within sectors and regions, mitigate the sector separation, avoid repeated and blinded construction, and turn redundancy to optimization.

3. Work Outline

3.1 Objective of SEA

To realize sustainable development, carry out SEA for Qingdao “Surrounding Bay




Protection, Embracing Bay Development” strategy. The objectives are, based on environment and resource bearing capacity of Qingdao municipality and Jiaozhou Bay, carry out scientific environment assessment to strategic plans; forward practical and reasonable suggestions to strategic activities, production layouts and resource relocations, so to guarantee the healthy development of economy and society, and provide decision reference to strategic plan.

3.2 Principles of SEA

During the process of carrying out SEA works for Qingdao “Surrounding Bay Protection, Embracing Bay Development” strategy, the following principles will be adopted.

1）Insist scientific, objective, and impartial principles, comprehensive analyze the impacts to various environment factors and ecology systems from the strategy implementation; provide scientific reference to decision making.

2）Analyze the environment requirements from the strategy, integrate circle economy concept and practical capacities within whole strategy process, and harmonize environmental consideration into the strategy.

3）Connect the Strategy with existed or planed laws, regulations, plans and programs, integrated analyze the whole system.

4）Public participation principle. Carry out public participation and involvement during the SEA process, fully consider the benefits and proposition from various communities.

5）Consistency principle. SEA depth will be keep consistent with the strategy depth.

6）Operable principle. Try to select simple, practical and justified assessment methodology, so to turn the SEA conclusions operable.

3.3 Scope of SEA

Select Jiaozhou bay region as assessment scope, which is the core circle of “Surrounding Bay Protection, Embracing Bay Development” strategy. Carry out plan analysis, analyze the harmonization with other relative plans, environment function zonings, and eco-protection zonings.

3.4 Key Issues to be Assessed

Based on “Surrounding Bay Protection, Embracing Bay Development” strategy scope, combined with regional environment and social conditions, it is planned that the SEA




works will take the followings as key issues.

(1) Analyze the rationality of the strategy, from the requirements to resource and environment, circle economy, the harmonization with environment policies and regulations.

(2)Carry out environment baseline investigation and monitoring for Jiaozhou Bay, clarify the environment conditions and capacity of Jiaozhou Bay. Based on the environment quality assessment, identify key environment limitation factors to the regional economy development, carry out environment impact analysis and comprehensive justification, and bring forward improvement suggestions and counterpart measures.

(3) Analyze social economic situation of Qingdao municipality, find out main environment issues facing by Jiahzou bay region. Analyze environment sensitive areas of Jiaozhou bay, emphasize biodiversity and conditions of coastal wetland, Dagu estuary, Yanghe estuary and nearby marine regions. Analyze environment protection and resource management condition of Jiahzou bay, discover the environment bearing capacity to the sustainable development of core circle under Embracing Bay Development strategy.

(4) Carry out environment impact forecasting to the “Surrounding Bay Protection, Embracing Bay Development” strategy, including forecast the direct, indirect, especially cumulative impacts potentially deduced from each cluster construction, emphasize the impacts from advanced-technology district development and Shaohai new district. Analyze and assess the key environment impacts from the strategy; especially focuse on the impacts from the core layer, Jiaozhou bay region, to the environment protection objectives and environment quality; emphasize the development tendency of social, economy, and environment after the strategy implement, and analyze the harmonization potentiality to regional ecology bearing capacity.

(5) Adopt national advanced models, forecast water quality changes in Jiaozhou bay. Include: modeling pollutants trails, concentrations and evolutions in marine bay and coastal estuaries; modeling environment capacity under different development scenarios; forecast temporal and spatial transformations of water quality; modeling sand evolutions and locomotion, study impacts to marine ecology system; quantify water quality impacts from various pollution discharge layout, include locations of pollution outlets, discharge mode and discharge quantity, so to optimize pollution discharge layouts.

(6) Propose environment protection counterpart measures and steps to the strategy, prepare conclusion comments and suggestions to the strategy assessment. Following




the principal of “Prevention First”, according to the “Surrounding Bay Protection, Embracing Bay Development”, insist the concept of balance development with protection, prioritize protection, analyze the environment feasibility of the strategy, and forward counterpart environment protection measures and suggestions, optimize current development strategy, and conclude the final conclusive opinions and comments.

(7) Prepare implementation plan and scheme for the monitoring plan and follow up assessment plan, utilize current environment standards and monitoring system, monitor the environment impacts after the strategy implementation; through the expert consultation and public participation, supervise the environment impacts from the strategy. At the same time, through the environment impacts monitoring, find out if the strategy assessment has been effectively implemented, and determine the improvement measures for the next phase, so to realize continuous improvement and sustainable development.




3.5 Working Procedures

3.6 Proposed Assessment Methodologies

Assessment Process Assessment

Methodology Assessment Process

Assessment

Methodology

Verification tables Input and output

analysis

Matrix method Maths models

Compare, analogy,

compatible analysis

method

Scenario analysis

Preliminary screen of

strategic plans

Experts consultation

method

Weighted analysis

method

Environment capacity Information collection,

Environment impact

forecasting and

assessment

Cost-benefit analysis




on-site investigation

and monitoring method analysis

GIS Layer analysis method

Verification tables

Sustainable

development capacity

assessment

Matrix method Comparative

assessment

Internet method Environment bearing

capacity analysis

Systematic flow chart

method

Experts consultation

method

Layer analysis method Verification tables

Environment Impact

Identification

Scenario analysis Matrix method

Conference discussion Scenario analysis

Verification tables Systematic flow chart

method

Public involvement Bearing capacity

analysis

Public participation

News media

Accumulated impact

assessment

Biplot+GIS

4. Outputs

4.1 SEA Report of Qingdao Municipality “Surrounding Bay Protection, Embracing Bay Development” Strategy

According to “Environment Impact Assessment Guidelines” and ADB environment assessment policies, submit the report of “Strategy Environment Assessment Report of Qingdao ‘Surrounding Bay Protection, Embracing Bay Development’ strategy”. The main contents are:

1Introductions

1.1 Basic Reference

1.2 Assessment objectives and principles

1.3 Assessment contents and key issues

1.4 Depth of assessment works

1.5 Assessment scope

1.6 Assessment phases

1.7 Environment protection objectives

1.8 Environment function zoning

1.9 Environment assessment factors and strategy assessment factor




1.10 Environment protection standards

1.11 SEA working procedures

2 Strategy Introduction

2.1 Strategy name, location, and area

2.2 Guidelines and objectives of the Strategy

2.3 Scheme of the Strategy

2.4 Overall layout of the Strategy

3 Environment baseline of Strategy area

3.1 Nature environment and resource condition

3.2 Social and Economic conditions

3.3 Main environment issues in the region

3.4 Main environment sensitive districts

3.5 Jiaozhou Bay environment protection and resource management condition

3.6 Regional environment retrospection and limitation assessment

4 Preliminary Strategy analysis

4.1 Consistency analysis between the Strategy and relative policies and regulations

4.2 Consistency analysis between the Strategy and regional environment and resource

4.3 Consistency analysis between the Strategy and regional overall master plan

4.4 Consistency analysis between the Strategy and regional environment protection plans and

other plans

5 Resource and energy assessment

5.1 Resource and energy situation

5.2 Bearing capacity analysis and restriction analysis

6 Ecology assessment

6.1 Ecology situation investigation

6.2 Ecology and biodiversity analysis on coastal wetland, Dagu Estuary, Yanghe Estuary, and

nearby marine area

6.3 Ecology impact assessment

7 Water impact forecasting and total capacity calculation

7.1 Surface water impact analysis

7.2 Ground water impact analysis

7.3 Marine water impact analysis

7.4 Water environment total capacity calculation

7.5 Water environment modeling and forecasting

8 Air impact forecasting and total capacity calculation

8.1 Pollution meteorology analysis

8.2 Air impact forecasting

8.3 Air environment capacity calculation

8.4 Air environment bearing capacity analysis

9 Noise and Solid waste environment impact assessment

10 Social and economic impact assessment

11 Public participation




11.1 Objective and methodologies

11.2 Public investigation

11.3 Public opinions and implementation

12 Environment management, monitoring and follow-up plan

12.1 Environment management

12.2 Environment supervision development

12.3 Environment monitoring capacity building

12.4 Environment monitoring plan

12.5 Staff and equipment

12.6 Environment decision-making support system

12.7 Follow-up monitoring and assessment plan

13 Total load control

13.1 Air pollution total load control

13.2 Water pollution total load control

13.3 Solid waste total load control

14 Strategy justification and environment protection counter-part measures

14.1 Resource and environment feasibility justification

14.2 Pollution control measures in strategy region

14.3 Ecology protection and construction plan

14.4 Strategy optimization plan

14.5 Environment protection investment cost

15 Conclusion and comments

15.1 Environment situation and retrospection analysis

15.2 Energy and resource utilization and pollution source analysis

15.3 Air environment impact

15.4 Water environment impact

15.5 Ecology impact

15.6 Inter-active impacts within the region

15.7 Total load control plan

15.8 Strategy optimization and environment protection measures

15.9 Overall conclusion and suggestion

4.2 Maps Volume

Finish the following maps for strategy decision making reference.

(1) Overall layout map of the Strategy

(2) Remote sense image map of the region

(3) Topography and physiognomy map of region

(4) Plant category and coverage map

(5) Land utilization existing and forecasting map

(6) Environment bearing capacity and capacity map




(7) Soil erosion map

(8) Water balance map

(9) Marine environment quality and forecasting map

(10) Water course and water quality GIS map

(11) Jiaozhou Water Discharge Points Layout GIS map

(12) Jiaozhou wetland area and forecasting map

(13) Digital GIS Water Quality evolution maps

5. Action Plan

5.1 Organization and Responsibilities

（1）Leading group

Qingdao “Surrounding Bay Protection, Embracing Bay Development” strategy, develop city clusters surrounding Jiaozhou bay, carry out exploration and protection with multi-layer, multi-regions and multi-difference, and wide spread in geological areas, cover various sectors and agencies.

To actively promote the strategy implementation, in April 2008, Qingdao Communist Party Committee, Municipal Government established “Coordination Leading Group for Qingdao Embracing Bay Development Planning and Construction”(Issue No. 88, Qingwei[2008]). In the Leading group, the vice mayor of Qingdao municipal government acts as group leader; group members are leaders from Qingdao Plan Bureau, Qingdao Development and Reform Commission, Qingdao Economy and Trade Commission, Qingdao Construction Bureau, Qingdao EPB, Qingdao Land and Resource Bureau, Qingdao Ocean and Fishery Bureau, Qingdao Transportation Commission, Qingdao Public Utility Bureau, Qingdao Financial Bureau, Qingdao Labour & Social Security Bureau, Qingdao Foreign Trade & Economic Cooperation Bureau, State-owned Assets Supervision and Administration Commission, Standing Committee of CPC Committee of Shinan District, Shibei District, Sifang District, Li Cang District and Chengyang District, Qingdao Science and Technology Committee, Qingdao Economic Development Zone, and Jiaozhou Municipal Commission (Annex 1 for more detailed information).

To guarantee the smooth implementation of SEA works, it is recommended through the above “Coordination Leading Group”, carry out the overall SEA project management, and guarantee the effective implement and full of SEA outcomes and suggestions.

(2) Project implementation unit




The project implementation unit is Qingdao EPB, who will organize the SEA works with following responsibilities:

Be responsible to communicate between strategy-preparation agency and SEA agency.

Be responsible to organize the public consultation works in SEA works. Be responsible to organize the collection of data, reports, and maps.

(3) SEA report preparation unit

The unit who carry out SEA works will be responsible for:

Prepare implementation plan and schedule for SEA works. Organize and carry out the SEA works. Finish the report of “Strategy Environment Assessment Report for Qingdao

“Surrounding Bay Protection, Embracing Bay Development” Strategy”. Be responsible for the technical quality of the report.

(4) Cooperation agencies

In the SEA process, Water Resource Bureau, Ocean Bureau, Plan Bureau, local environment monitoring stations will be invited to co-operate into the works. Their responsibilities include:

Provide relative planning document, economic and environment data. Provide environment situation investigation data; include pollution data, nature

environment data, ecological data, water and soil erosion data and meteorology data.

Regional environment quality data and historical records; be responsible for the veracity and reliability of the data.

5.2 Working Phases

For the SEA works of Qingdao “Surrounding Bay Protection, Embracing Bay Development” Strategy, it is estimated that Three phases and total 12 months are needed.

（1）Preparation phase（3 months）

Collect and understand the relative strategies, policies, regulations and plans within the project region.

Collect pollution data, environment quality data, pollution meteorology data, nature ecology data, etc.

Collect social, economy and energy data.




Set up assessment scope, objectives, and assessment parameters. Set up SEA working plan; organize the working schedule for next phases.

（2）Formal working phase（6 months）

Finish data collection, on-site investigation, and monitoring works. Analyze and assess the environment quality, analyze the strategy plan. Assess the impacts to environment, resource and energy from strategy

implementation. Bring forward overall mitigation measures and counter-part actions to the

environment, resource and energy impacts. Carry out public participation; analyze the public opinions and suggestions. Prepare the SEA report.

（3）Report review and Dissemination phase（3 months）

Cary out review, update and complement works for the SEA report. Submit the SEA report to relative agencies for review and comments. Based on the review opinions, update the report and finish the final version, report and disseminate to relative national departments, project related cities and counties.

5.4 SEA Consultants Input

To carry out SEA works smoothly, it is proposed to organize a consultation team comprised by international and national consultants in a variety of disciplines. According to the project schedule and tasks required, a total of 49 person-months will be engaged.

International Consultants Person-Months

1 Team Leader 9

2 Resource and Energy Specialist 2

3 Wetlands Ecologist 2

4 Environment Specialist 4

5 Water Quality Modeling Specialist 2

SUBTOTAL 19

National Consultants Person-Months

1 Deputy Team Leader 9

2 Resource and Energy Specialist 2

3 Wetlands Ecologist 2

4 Environment Specialist 4

5 Financial Analysis Expert 2

6 Social Development Specialist 2




7 Water Quality Modeling Specialist 5

8 GIS Specialist 4

SUBTOTAL 30

TOTAL 49

5.5 Budget and Financing Plan Cost Estimates and Financing Plan ($,000)

Item Cost ($,000)

A Asian Development Bank Financinga 1. Consultants a. Remuneration and Per Diem i. International Consultants 400 ii. National Consultants 200 b. International and Local Travel 40 c. Reports and Translation 40 d. Communications 10 e. Administrative Support 10 2. Data Collection 70 3. Water Models 40 4. Office Equipmentb 20 5. Surveys/Site Visits 20 6. Seminars/Workshops/Conferences/Consultations 50 7. Abroad Study Tours 60 8. Contract Negotiations 10 9. Contingencies 30 Subtotal(A) 1,000 B. Government Financing 1. Remuneration of Counterpart Staff 120 2. Administrative Support and Local Transport 30 3. Office Space and Facilities 150 Subtotal(B) 300 Total 1,300

a Financed by Asian Development Bank’s technical assistance funding program. b Including computers, copier, facsimile machine, scanner, and other associated equipment.




Annex 1: Notice on Establishment of Coordination Leading Group for Qingdao Embracing Bay Development Planning and Construction Issued By Qingdao Committee and Qingdao Government

Date: April 14, 2008

To whom it may concern, the coordination leadership for Qingdao Embracing Bay Development Planning and Construction is to be set up according to the instruction from Qingdao Committee and Qingdao Government in order to fulfill the strategic planning for Qingdao Urban Space and the framework of modern city, to build the core economic zone of Jiaozhou Bay and to play Qingdao’s role in Shandong Province and the Coastal Economic Lay-out. The list of leadership membership is showed as follows, Leader: Hu Shaojun, Deputy Mayor Co-leaders: Tao Ruiping, Counsel of the Qingdao Municipal Planning Bureau

Wang Weiping, Deputy Secretary-General of the Qingdao Municipal Government Wang Yajun, Director-General of the Qingdao Municipal Planning Bureau Members: Dong Baojun, Deputy Director-General of the Policy Research Office of Qingdao

Committee Zhang Daoxiang, Deputy Director-General of the Survey Office of Qingdao

Municipal Government Liu Min, Deputy Director-General of the Qingdao Planning Bureau Mr.Wang Qi, Deputy Director-General of the Qingdao Development and Reform

Committee Dong Deyi, Deputy Director-General of the Qingdao Economic and Trade

Commission Sun Mengyuan, Economic and Trade Commission of the Qingdao Construction

Commission Song Chunkang, Deputy Director-General of the Qingdao Environmental

Protection Bureau Wang Laixiang, Vice Counsel of the QingDao Territeries Resources And House

Administration Bureau Wang Shulian,Deputy Director-General of the Qingdao Oceanic and Fishery

Bureau Han Shouxin, Deputy Director-General of the Qingdao Communication

Committee




Shi Zhiqiang, Deputy Director-General of the Qingdao Public Utilities Bureau Du Yunyan, Deputy Director-General of the Qingdao Financial Bureau Zhang Zhenghong, Vice Counsel of the Qingdao Labour & Social Security

Bureau Xing Lizhi, Deputy Director-General of the Qingdao Foreign Trade & Economic

Cooperation Bureau Yang Changjun, Deputy Director-General of the State-owned Assets Supervision and Administration Commission Sun Zhaojun, Deputy District Chief of the Standing Committee of CPC Committee of Shinan District, Qingdao Municipality Jia Funing, Deputy District Chief of the Shibei District, Qingdao Municipality Wang Bo, Deputy District Chief of the Sifang District, Qingdao Municipality Zhao, Deputy District Chief of the Li Cang District, Qingdao Municipality Wang Yuanbin, Deputy District Chief of the Chengyang District, Qingdao Municipality Liu Yunting, Deputy Director-General of the Qingdao Municipal Committee of Science and Technology Guo Jishan, Deputy Director-General of the Qingdao Economic Development Zone Wang Jin, Standing Committee Member of Jiaozhou Municipal Commission, Deputy Mayor The Leadership office is to be set in Qingdao Planning Bureau, Tao Ruiping is appointed as office director.


R5: FINAL REPORT

SOGREAH – KL 1350337 – JUNE 2008

APPENDIX 11- FINANCIAL ANALYSIS

46 Appendix 11

FINANCIAL ANALYSIS A. Introduction

1. The Government does not charge beneficiaries directly for its flood protection services and other project-related environmental services. The interventions will not directly generate any revenues. Therefore, the project financial analysis only focuses on three aspects: (i) fund flow and Jiaozhou City’s fiscal capacity; (ii) the project management office’s (PMO) financial management capacity; and (iii) the Project’s financial sustainability. B. Fund Flow and Jiaozhou City’s Fiscal Capacity

2. Qingdao municipality is one of the few special cases in the PRC, which reports directly to the Central Government in terms of its fiscal revenues and outlays. Therefore, in terms of loan disbursement, ADB loan proceeds will be disbursed directly from the Ministry of Finance (MOF) to the Qingdao Financial Bureau (QFB) which is under the Qingdao Municipal Government (QMG). The imprest fund account will be set up in QFB, which has prior experience in dealing with loans from the international institutions such as the World Bank, Japan Bank for International Cooperation, and Asian Development Bank (ADB). QFB then on-lends the loan proceeds to the Jiaozhou Finance Bureau (JFB) with the same loan terms. JFB disburses the funds to the contractors for the project implementation. In terms of loan repayment, JFB pays QMG on behalf of Jiaozhou City Government (JCG). QMG then repays MOF, which in turn repays ADB. The fund flow of the proposed project is shown in Appendix 6. 3. Jiaozhou City was ranked fourth among county-level cities in Shandong Province and 26th among top 100 county-level cities in all of the PRC in 2005. In 2007, its gross domestic product (GDP) was estimated at CNY42 billion and GDP per capita was about CNY50,000. The internal fiscal revenue of Jiaozhou City was about CNY1.5 billion. Total revenues, including transfers from the upper-level governments (i.e., Qingdao Municipality, Shandong Provincial Government, and Central Government), are estimated at about CNY1.7 billion.

4. By the end of 11th Five-Year Plan (FYP, 2010), Jiaozhou City sets the fiscal target of “3211”, which means (i) the internal fiscal revenue of city proper should reach CNY3 billion; (ii) the disposable income for urban inhabitants should be CNY20,000 per capita; (iii) the net income of rural inhabitants should be CNY10,000; and (iv) the GDP per capita should be US$10,000. Projections of GDP and aggregate fiscal revenue were conducted according to the 11th FYP based on historical data provided by Jiaozhou’s project implementation office (PMO) (Table A10).

5. The Jiaozhou fiscal revenue situation indicates that adequate funds are available for the project counterpart contribution and debt servicing. Although there are multiple sources where such funds can be drawn from such as land-use fees, urban construction and maintenance taxes, and wastewater tariffs, major source is the land-use fees and urban construction and maintenance taxes. These are estimated at an annual average of CNY655 million and have been stable in the past (Table A11).

Appendix 11 47

Table A11: Projections of GDP and Aggregate Fiscal Revenue 2009 2010 2011 2012 2013 2014 2015 2016

Funds required for counterpart contribution and debt servicing (RMB million)a 93 98 103 104 18 36 35 35

GDP (RMB million) 60,236 72,284 86,018 102,361 121,809 144,953 172,494 205,268 Funds required for counterpart contribution and debt servicing as a percentage of GDP 0.15% 0.14% 0.12% 0.10% 0.01% 0.02% 0.02% 0.02%Fiscal Revenve (RMB million) 2,803 3,476 4,170 5,014 6,012 7,220 8,660 10,394 Funds required for counterpart contribution and debt servicing as a percentage of fiscal revenue 3.32% 2.82% 2.47% 2.07% 0.30% 0.50% 0.40% 0.34%

Potential sources of funds: land-use fee and urban construction and maintenance fee 655 664 675 687 702 720 741 766 Funds required for counterpart contribution and debt servicing s a percentage of land-use fee and urban construction & maintenance fee 14.20% 14.75% 15.27% 15.13% 2.56% 5.00% 4.73% 4.57%a Including the outstanding debt service of the World Bank loan of 0.5-0.8 million RMB per year. 6. With the Project, the total counterpart contribution and debt service for Jiaozhou ranges from RMB93 million to RMB104 million during the project implementation from 2009 to 2012, then decreases to RMB18–36 million per year after 2012. This is about 0.15% of GDP of Jiaozhou in 2009, and is projected to decrease to 0.02% of GDP in 2016. According to the projection of the fiscal status of Jiaozhou City to 2020, the total counterpart contribution and debt service account for 3% of the city’s total fiscal revenue in the first year of project implementation in 2009 and decrease to about 2% in 2012, the last year of implementation. Total counterpart funds and debt service as a percentage of total potential sources of funds ranges from 14–15% during the period 2009–2014, the period of project implementation. This is projected to decrease to about 3–5% thereafter. As counterpart contribution and debt service accounts for only a small proportion of funds available, it is safe to conclude that JCG will more than adequately cover the required repayments under the loan (Table A11). 7. Jiaozhou City has experience in servicing loans from international financial institutions such as the World Bank and ADB. A subproject of Jiaozhou Carbon Black Group with an ADB loan amount of $25 million was included in the Qingdao Tyre Project in 1989. The loan maturity was 20 years with a 4-year grace period. The debt service has been fulfilled according to the loan agreement and there is no outstanding loan amount for this Project. A World Bank-financed subproject of the Qingdao Irrigation, with the loan amount of $1.43 million, started from fiscal year 2001 with a loan period of 20 years and a grace period of 5 years. The outstanding debt service is shown in Table A11. C. Project Financial Management Assessment

8. Financial Management Assessment (FMA) has been undertaken to assess the institutional capacity of each implementing agency, funds flow arrangements, staffing, accounting policies and procedures, internal and external auditing arrangements, reporting and monitoring aspects, and information system. JCG is the project executing agency (EA) of the proposed Project. A project management office (PMO) was set up within the Jiaozhou Construction Bureau in May 2008. A financial management assessment questionnaire (FMAQ) was adapted to the subprojects’ conditions and shown in Appendix J. Issues or risks associated with the financial management systems are identified and the most appropriate risk mitigation measures are determined as part of project design and/or project implementation arrangements. 9. The results of the FMAQ were analyzed with particular focus on the accounting and auditing procedures and staff expertise. In terms of accounting and auditing procedures, the existing financial information system (i.e., accounting, reporting, and internal control system) is

48 Appendix 11

complete and applicable for domestic construction entities. The PMO has a long experience in implementing/constructing infrastructure projects and is very knowledgeable in carrying out these works following the accounting procedures of Accounting Standards for State-owned Construction Entities issued by MOF in 1995. The financial statements prepared regularly according to the standards are: (i) balance sheet, (ii) infrastructure investment statement, (iii) statement of investment to be deferred, (iv) statement of loans for infrastructure, and (v) statement of lump-sum investment. The statements are reported to JFB on a monthly basis. PMO uses accounting software (User Friend), from which all required financial statements are automatically produced. PMO has also established budgeting systems for internal control and a sound auditing system, both internally and externally. There is an internal auditor in JCB and performs auditing regularly. As a government agency, it is audited annually by the Jiaozhou Auditing Bureau. Also, it is subject to external auditing each year and the auditing reports are usually produced by accounting firms before the end of the first quarter. 10. In terms of staff expertise, PMO has rich experience in infrastructure construction financed by domestic funds, but has never implemented any ADB project. The PMO has a staff of 10 personnel among whom an accounting staff, with many years of experience in domestic project management, will work full time over the duration of the proposed Project. All other accounting staff at PMO have no experience in implementing projects financed by ADB or other international financial institutions. Training on ADB procedures and advanced financial management will be necessary to ensure success of implementation of the proposed Project. D. Project Financial Sustainability Analysis 11. Project financial sustainability was conducted by comparing the operation and maintenance (O&M) costs of each project component with their financing sources. Such analysis was done separately for the flood management component and wastewater management component under the Project. Under the wastewater management component, consideration was not only paid to the O&M of the wastewater collection and treatment, but also the O&M of the downstream wetlands.

12. Financial sustainability of the flood management component. The rivers are not well managed in Jiaozhou City and 240,000 square meters (km2) river courses are only maintained once a year at the present. The annual O&M cost is merely CNY480,000. With the Project, 720,000 square meters of river course will be maintained three times a year, resulting in the increase of annual O&M cost to CNY4.32 million. 13. The river course O&M is financed through flood control management fee. Since the year 2000, JCG has been collecting the flood control management fee for the river course improvement and flood control. It is levied at 0.1% of the turnover of enterprises in Jiaozhou City. During 2003–2006, the turnover of the enterprises of Jiaozhou City has increased from CNY20 to 55 billion with the annual growth rate of over 30%. In a conservative way, the turnover is projected at 10% per annum from 2007 to 2020. The flood management fee should be CNY55 million in 2006, but the collection performance before 2008 was not satisfactory with the collection rate of 10% or even less. Since May 2008, a new directive published by JCG that the flood management fee should be levied together with other mandatory taxes or sub-taxes such as urban construction and maintenance tax and education sub-tax. The collection rate could be improved significantly from 10% in 2007 to 50% in 2008, and later in 2020 could reach 85%. By year 2020, the flood management fee could hit CNY178 million. Analysis shows the O&M cost as a percentage of the total flood management fee revenue of the Government will decrease from 10% in 2006 to 2% in 2020.

Appendix 11 49

14. Financial sustainability of wastewater management component. In order to assess the financial sustainability of the wastewater network subcomponent, the existing wastewater collection and treatment facilities were examined. Analysis shows that the annual O&M costs are about CNY16 million for the wastewater treatment plant (WWTP), CNY2.3 million for the wastewater network, and CNY0.5 million for the pumping station. 15. In terms of wastewater treatment, JCG pays the WWTP, at build-operate-transfer (BOT) price of CNY0.998 per cubic meter, and CNY18 million per annum. Therefore, WWTP has adequate revenue to cover the O&M costs of wastewater treatment. The Government collects wastewater treatment fees from households, institutions, and industries at different tariffs. Tariff analysis was conducted and the weighted average of tariff is CNY0.88 per cubic meter, CNY0.11 lower than the BOT price per cubic meter. This results in a fiscal subsidy of around CNY2 million per year for wastewater treatment. The subsidy comes from the Government’s general budget, especially from the urban construction and maintenance tax, which is around CNY 46 million per annum. In a longer run, it is advisable to increase the wastewater treatment fees in order to reduce such subsidies,

1 but in the short- and medium- term, the Government

has the sufficient fiscal resources to cover the O&M for wastewater treatment. 16. As far as the wastewater network is concerned, it is owned by JCG and operated and maintained by the Municipal Engineering Division (MED) under JCB. An annual O&M cost of CNY2.3 million is partially financed by JCG (CNY1 million) and partially by profits of other engineering projects operated by MED (CNY1.3 million). The O&M cost of pumping station is around CNY500,000 per year, including CNY100,000 for electricity and CNY400,000 for eight management staff and three workers. While salaries are paid by the Government from budgetary recurrent expenditures, the electricity expenditure comes from the urban construction and maintenance tax. 17. River course management and wastewater collection and treatment will improve the ecological environment of Jiaozhou wetland located at the downstream of the Erli’he River. However, the benefits of the wetland will not be fully obtained unless there is additional O&M work in the wetland area. For the wetland in Shaohai, it will be managed by a major real estate developer in the area, Guangdong Liantai Real Estate Group Corporation, with the BOT contract price at CNY3 billion including infrastructure construction and preparation, environment improvement and wetland protection, etc. For wetlands in other areas, it will be maintained by the Water Resource Bureau and the source of fund is flood management fee which, according to the PMO, is sufficient nowadays for both river course and wetland. However, due to data limitations, such costs cannot be accurately quantified at this stage.

1 Analysis shows that a tariff level of CNY1.35 per cubic meter (as compared to the current tariff of an average of CNY0.88 per

cubic meter) would allow the wastewater treatment work to be self-financed, even with a small profit. A willingness-to-pay survey and an affordability analysis were conducted to assess households’ acceptance of potential tariff increase in the future. Ninety percent of the interviewees find the current water tariff acceptable except the extreme poor. Other things being equal, an increase of wastewater treatment fee from the current CNY0.70 per cubic meter to CNY1.35 per cubic meter would increase the total water expenditure as a percentage of the household total income from 0.6% in 2008 to 0.75% in 2013. More detailed analysis is included in Supplementary Appendix J.


R5: FINAL REPORT

SOGREAH –GDM/GYCY/ZGL 1350337 – JUNE 2008

APPENDIX 12 – ECONOMIC ANALYSIS

50 Appendix 12

ECONOMIC ANALYSIS A. Introduction

1. The proposed Project provides public goods including flood prevention, wastewater collection and treatment, and wetland preservation for the relatively densely populated county of Jiaozhou located in Shangdong Province. There exists a clear and strong rationale for public interventions. The proposed Project includes both structural components and nonstructural components including: (i) water resources and flood management; (ii) wastewater management and pollution control; (iii) integrated water and ecosystem management; and (iv) project management support. In addition, a strategic environmental assessment is proposed to be financed by an advisory technical assistance (TA). Economic analysis was undertaken for the overall Project, including the TA, since the proposed interventions to improve flood control and management, and to upgrade wastewater collection and treatment are interrelated, and to some extent, strengthen each other. Similarly, no separation of the costs and benefits of structural and nonstructural benefits was attempted since the nonstructural interventions were considered necessary to sustain the impact of the structural ones. Achievement of the full benefits from wastewater activities will also require investment in an extension of the existing wastewater treatment plant (WWTP) by 2010, an investment that is being implemented by the Government through a build-operate-transfer (BOT). Completion of structural investments is expected to take 3 years and the final two project years will be required to complete all nonstructural investments as well as for full commissioning of the structural investments. 2. The project life is assumed to be 25 years, including the 5-year implementation period. Flood control benefits are assumed to be fully achieved on completion of the infrastructure. Benefits from improved health and environment are staged over 3 and 5 years following completion of investments, to reflect the build-up of impact from the nonstructural investments. For the economic analysis, economic costs, and benefits have been valued using the world price numeraire. Financial costs of non-traded goods are adjusted to their respective economic values using a standard conversion factor (SCF) of 0.93.

1 The shadow wage rate factor for

surplus labor was estimated at 0.90 of the prevailing wage rate, reflecting the high level of activity in the project area, and the shadow wage rate for scarce labor was estimated at 1.0. These were adjusted by the SCF to derive economic values. All traded inputs and outputs were valued at their market prices. Financial investment costs, including physical contingencies, have been converted to economic values by deducting taxes and duties and applying relevant conversion factors to the various investment components including foreign exchange costs, local currency costs, unskilled labor, and skilled labor.

2 The resultant values represent the

economic investment costs of the Project according to the world price numeraire. The analysis is based on constant 2008 prices. The economic analysis has been conducted in accordance with Asian Development Bank’s (ADB) Guidelines for the Economic Analysis of Projects. The detailed methodology and supporting tables for the analysis are available in a supplementary appendix.

1 The standard conversion factor of 0.93 is based on the economic analysis in recent ADB RRPs e.g., (i) ADB. 2006.

Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for Inner Mongolia Autonomous Region Environment Improvement Project. Manila; and (ii) ADB. 2007. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for Integrated Ecosystem and Water Resources Management in the Baiyangdian Basin Project. Manila.

2 Costs of the proposed extension to the WWTP were estimated based on a unit cost of CNY2,500 per m3, which is

in line with similar projects in the PRC. Taxes were assumed to account for 5% of costs while the breakdown into foreign exchange, local currency and unskilled labor was assumed to be the same as for the Project.

Appendix 12 51

B. Demand Analysis

3. The population of Jiaozhou City was estimated to be about 891,800 in 2007,3 of which

about 230,000 lived in the project area. The population is estimated to be increasing at an average annual rate of 1.12%. Based on local data, economic growth in the project area has averaged about 20% per annum in real terms over the past 3 years, well above the national average, and this rapid growth is expected to continue in the intermediate term, albeit with some gradual slowing as the economy develops. Immediate impacts of this rapid development have included (i) an increase in the incidence of flooding in the expanding urban areas, (ii) a high rate of waterborne disease incidence, and (iii) increasing environmental damage to the Jiaozhou Bay. While flooding was relatively rare in the 1990s, the incidence has subsequently increased to about once in every 3 years with damages valued in excess CNY200 million. As the economy continues to develop rapidly, the extent and value of this damage is expected to further increase. The incidence of waterborne diseases, particularly stomach diseases is estimated to be well above the national average and is expected to increase in the future without attention to wastewater collection and treatment, and increased public awareness of personal hygiene. The current situation, where much wastewater is drained into open channels and the river network which transverses the project area and permeates into the groundwater is not conducive to overall development and reduced incidence of stomach and intestinal illnesses. In addition, the extent and quality of the wetlands in Jiaozhou Bay has seriously deteriorated over recent years and the annual rate of loss is currently estimated at about 0.9%. All of these factors are having a serious impact on continued local development and together contribute to a strong demand for remedial action.

C. Least Cost Analysis

4. Least cost analysis was conducted to determine whether cost-effective water resources and environmental management measures have been proposed to achieve overall intended targets of (i) improving flood retention facilities, (ii) upgrading urban storm drainage network, (iii) rehabilitating river courses, and (iv) improving wastewater drainage facilities. Based on the findings, further revisions of the preliminary design were investigated. The resulting proposed investments entail the least cost compared with alternative investment. Moreover, the proposed investments can be completed within the 5-year project implementation period.

D. Project Cost and Benefit Analysis

5. Economic costs. Financial capital costs, including physical contingencies, are converted to economic capital costs by deducting taxes and duties, and then applying the relevant conversion factors to the shares of local costs, unskilled labor, skilled labor, and other costs. The resultant values represent the economic capital costs of the Project in world price numeraire. Annual operation and maintenance (O&M) costs include: (i) operating costs for project investments in flood control, stormwater collection, river improvement, and wastewater collection; and (ii) operating and maintenance costs for the wastewater treatment plant (WWTP) extension to be financed from Government source.

6. Economic benefits. The Project will generate direct economic benefits from improved flood control and management, improved health, and reductions in the extent of environmental degradation in the coastal wetlands from both the structural and nonstructural investments. Due

3 2007 Jiaozhou Statistical Yearbook.

52 Appendix 12

to the extent of road and pavement repair as well as greening of the urban environment, there are expected significant direct and indirect benefits that can be attributed to these activities. However, no attempt is made to quantify these benefits due to the lack of data.

7. Currently, in the “without project” situation, Jiaozhou City experiences frequent flood damage caused by severe siltation and poor flood-discharge capability of the Yunxi and Hucheng rivers. This mainly affects industrial/commercial and private properties within the city proper, and from various Jiaozhou documents is estimated to occur with a frequency of once in 3 years. Based on these data, the 2001 flood which caused CNY298 million of damage, was estimated to represent the 30-year return period flood. For the economic analysis, the damage caused to urban areas, the benefiting area, was extracted from the detailed flood information and adjusted to 2008 values. A further adjustment was made to reflect economic growth in the area since 2001, and also economic growth that is expected to occur in future years. An estimate of the impact of the 50-year return period flood was obtained from the flood simulation model assuming a constant relationship between flood depth and area flooded, and hence caused the damage. With point estimates of the expected financial value of flood damage for the 3-year, 30-year, and 50-year return period floods,

4 the annualized financial benefit, in

constant 2008 values, was estimated through a triangulation process at CNY96.6 million in 2011, increasing to CNY127.5 million in 2021. The financial values were converted to economic values by applying a group conversion factor of 0.94, which reflects the foreign exchange, local currency, labor and tax composition of the damage. The resultant economic values were CNY90.8 million in 2011 and CNY120.1 million in 2021.

8. Economic benefits from reduced disease incidence were estimated based on statistical data from Jiaozhou and information collected in the socioeconomic survey. The main diseases included in the analysis are diarrhea, dysentery, gastroenteritis, and hepatitis A. Due to lack of data, stomach and intestinal cancers and pollution-related diseases were excluded. The financial cost of disease incidence was estimated as the total of the cost of medical consultations, treatment, including lost workdays of care providers who attend particularly to children and the elderly. Without the Project, the incidence of stomach illnesses was projected to increase from about 11,400 in 2009 to 50,200 in 2033. A 40% reduction in these diseases is expected following project completion and the benefits are expected for both urban and rural populations. With an economic cost for medical treatment of CNY613.80/person/year,

5 the

benefits are expected to increase from CNY0.75 million in 2010 to CNY12.35 million in 2033. Economic benefits are also derived from the reduced losses in income either by the sick persons or those having to provide care particularly to the young and aged. This is estimated at about CNY0.94 million in 2010 increasing to CNY15.5 million in 2033. Total health benefits are estimated at CNY1.7 million in 2010 increasing to CNY27.9 million in 2033.

9. The premise underlying the estimation of benefits derived from strengthened water resources and environmental management is that wastewater production and disposal of industrial, rural, and urban communities will be effectively regulated and controlled, thereby significantly reducing exploitation of wetland resources and pollution loads being deposited into the wetlands. This, in turn, is expected to reduce the continuing threat of human activities on the integrity of the wetlands at the downstream of Dagu River, and thereby saving the natural wetlands for further degradation. In addition, implementation of the strategic environmental assessment (SEA) for Jiaozhou Bay is expected to have a significant longer-term impact on the

4 The flood management structures were proposed to be designed up to the 50-year flood. Over-design probably

ensures that they will protect against the 100-year flood but this additional benefit was not included in the analysis. 5 Based on a financial cost of CNY660 converted to economic values using the SCF of 0.93.

Appendix 12 53

wetlands as it increases awareness of degradation and provides a legal basis for reduction. Direct and quantifiable environmental benefits are both identified as direct uses—food production, raw materials, recreation, and cultural—and indirect uses—disturbance regulation, nutrient cycling, biological control, and habitat/refuge. Of these, the main benefit is nutrient cycling for which direct estimate of the benefit was made based on the cost of treating the total amount of wastewater currently produced to remove nitrogen and phophorus, since this is the major source of such pollution of the wetlands. This was expressed in terms of the cost per hectare of wetlands. The values of other benefits were estimated using a benefit transfer approach based on similar wetlands around Shanghai. The value of wetland benefits was projected to increase from CNY 0.04 million (from 1.1 ha saved) in 2011 to CNY6.97 million (from 196.1 ha saved) in 2033. There may be additional benefits from the improved status of the wetlands that are not lost but these have not been included.

10. Economic internal rates of return. Based on the identified benefits and costs, the economic internal rate of return (EIRR) of the Project is estimated at 14.7%. The result indicates that the Project as a whole is economically viable.

Table A12. Economic Analysis

YearInvestment Operation Total Reduced Health Reduced Total Net

Cost and Costs Flood Benefits Wetlands Economic EconomicMaintenance Damage Degradation Benefits Benefits

(CNY million) (CNY million) (CNY million) (CNY million) (CNY million) (CNY million) (CNY million) (CNY million)2009 218.299 218.299 - - - - (218.299) 2010 393.332 5.201 398.532 - 1.683 - 1.683 (396.850) 2011 74.807 10.401 85.208 90.759 3.580 0.039 94.378 9.170 2012 2.049 10.401 12.450 98.538 7.617 0.156 106.310 93.860 2013 1.292 10.401 11.693 103.230 8.102 0.347 111.679 99.986 2014 - 10.401 10.401 105.197 8.618 0.651 114.466 104.064 2015 - 10.401 10.401 107.200 9.168 1.027 117.394 106.993 2016 10.401 10.401 109.242 9.752 1.397 120.391 109.990 2017 10.401 10.401 111.323 10.373 1.762 123.459 113.057

2018 10.401 10.401 113.443 11.034 2.123 126.601 116.199

2019 10.401 10.401 115.604 11.738 2.478 129.820 119.419

2020 10.401 10.401 117.806 12.486 2.829 133.121 122.720 2021 10.401 10.401 120.050 13.282 3.175 136.506 126.105 2022 10.401 10.401 120.050 14.128 3.516 137.694 127.292 2023 10.401 10.401 120.050 15.028 3.852 138.931 128.529 2024 10.401 10.401 120.050 15.986 4.184 140.220 129.819 2025 10.401 10.401 120.050 17.005 4.511 141.566 131.164 2026 10.401 10.401 120.050 18.089 4.833 142.972 132.570 2027 10.401 10.401 120.050 19.242 5.151 144.443 134.041 2028 10.401 10.401 120.050 20.468 5.464 145.982 135.581 2029 10.401 10.401 120.050 21.772 5.773 147.596 137.194 2030 10.401 10.401 120.050 23.160 6.078 149.288 138.886 2031 10.401 10.401 120.050 24.636 6.378 151.064 140.662 2032 10.401 10.401 120.050 26.206 6.674 152.930 142.528 2033 10.401 10.401 120.050 27.876 6.965 154.892 144.490

EIRR = 14.66%NPV@ 12%= 119.202

Note: OCC is at 12%.

Project Cost Economic Benefits

E. Risk and Sensitivity Analysis

11. Sensitivity analysis shows that the project EIRR will fall to (i) 13.0% if economic benefits fall by 10%; (ii) 13.3% if investment costs increase by 10%; (iii) 12.6% if commissioning delays for 1 year and 11.1% if for 2 years; and (iv) 11.7% if (i) and (ii) occur together. Sensitivity analysis is also tested for each benefit and indicated that flood benefits had the greatest impact

54 Appendix 12

on economic viability. Sensitivity tests indicate that the returns to the overall Project are generally robust. Switching values indicated that the investment cost would have to increase by 19.9% or overall benefits decrease by 15.0% for the Project to become non-viable. Considered together, the change would have to be 9.1%. Even in the absence of any health benefits, or wetland environmental benefits, the Project would remain economically viable.

F. Distribution Analysis

12. Distribution analysis involves the allocation of net economic benefits among the poor and non-poor in both rural and urban areas. The analysis shows that urban communities receive about CNY11.1 million while rural communities receive CNY22.6 million. The economic cost to JCG is CNY54.7 million. Based on a poverty rate of 0.58% in the urban area and 4.80% in the rural area, the benefits to the poor are estimated at CNY0.06 million and CNY1.09 million, respectively, and the poverty impact ratio is estimated at 0.06.

G. Financial Sustainability Analysis

13. Financial sustainability analysis was conducted for each project component and is included in Appendix 10.


R5: FINAL REPORT

SOGREAH – JW/LCW 1350337 – JUNE 2008

APPENDIX 13 – ENVIRONMENTAL ANALYSIS

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55

ENVIRONMENTAL ANALYSIS A. Introduction

1. This environmental analysis summarizes the findings and recommendations from the environmental assessment carried out for the Qingdao Water Resources Management Project. The Qingdao Municipal Government (QMG) and the Jiaozhou City Government (JCG) requested Asian Development Bank (ADB) assistance to improve environmental conditions in Jiaozhou City, the newly developed Shaohai Lake, and the downstream located in Jiaozhou Bay wetlands. The Project aims to reduce flooding risks and pollution loads, and to further strengthen the JCG environmental management capacity. The Project will also serve as a demonstration project for further introducing sustainable development of other economic/industrial zones around the bay area. 2. In accordance with the People’s Republic of China (PRC) environmental assessment regulatory framework, an environmental assessment (EA) was carried out for the proposed Project by the Jiaozhou Development and Reform Bureau.

1 A first draft of the EA report was

completed in February 2008 and submitted to the Qingdao environmental protection bureau (EPB) for appraisal on 18 March 2008. In the EPB appraisal meeting, representatives and leaders from Qingdao EPB, Jiaozhou EPB, and Jiaozhou Construction Bureau presented their comments to the EA report. The panel regarded the report as satisfactory to be used as a reference document for further project processing and approval. JCG updated the EA report based on EPB comments in April, continued improvement works in May based on ADB comments, and finished the second version of the report in May 2008. 3. During the technical assistance implementation, a summary initial environmental examination (SIEE) was prepared in accordance with the EA guidelines (May 2003) of ADB. The SIEE is based on the EA report for Jiaozhou project and includes an environmental management plan (EMP) summarizing the main mitigation measures, institutional responsibilities, and monitoring arrangements. The first version was finished in April 2008. The SIEE was revised and finalized in July 2008 based on comments received from the Jiaozhou and Qingdao governments and key stakeholders, including ADB. B. Project Description

4. The proposed Project will introduce an integrated approach to pollution control, water resources, and environmental management. The approach comprises an investment program and technical assistance

2 to address key-problems/constraints hindering effective management

of water resources and environment in the project area. The Project will be implemented over a period of 5 years from March 2009 to February 2014. The total project cost is estimated at $106.1 million. ADB will finance $45.1 million (42% of the total project cost). A summary of the Project’s four components is given below.

1 The environmental assessment was carried out by the Ocean University of China, an EIA institute with Class-A

certification. 2 The proposed technical assistance aims to reinforce the goal of protecting environmental conditions in Jiaozhou

Bay and preserving wetland areas by strengthening both Qingdao’s and Jiaozhou’s integrated planning capabilities through the preparation/formulation of a strategic environmental assessment.

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Table A13: Project Summary Matrix Project Components Performance Targets/Indicators Estimated

costs ($ million)

Component I: Improving Water Resources and Flood Management 73.2 Flood retention facilities improved.

Existing Erli’he flood retention facilities upgraded from 0.2 million m3 to 0.8 million m3 by 2011.

5.5

Urban storm drainage network installed/upgraded.

A total of 11.4 km of storm drainage pipelines installed by 2011. 14.4

Major river courses rehabilitated/upgraded.

A total of 19.5 km of riverbanks upgraded/rehabilitated in four major rivers by 2011. (Yunxi River - 9.4 km; Hucheng River - 3.9 km; Wushui River - 3.2 km; Sanli River -3.0 km)

53.3

Component II: Strengthening Wastewater Management and Pollution Control 6.4 Urban wastewater drainage network upgraded.

A total of 27.7 km of wastewater drainage pipelines installed by 2011. 6.4

Component III: Integrated Water and Ecosystem Management 1.7 1. Capacity Building for Flood & Water Resources Management

A total of 30 persons trained by 2013. A total of $0.2 million provided for logistical support (i.e., computers, equipment, etc.).

0.8

2. Environmental Management and Pollution Control

Wastewater service corporatized. Wastewater tariffs reformed.

0.6


Artificial wetlands established and habitats enhanced. Integrated Information System for flood, water, and wastewater management developed and operated. Operational Manual for Shaohai Lake Ecosystem Management in place. Strategic Environmental Assessment on Jiaozhou Bay prepared.

0.3

Component IV: Strengthening Project Management Capacity 0.9 Project management support provided.

Project Management Office (PMO), and Project Implementation Units (PIO) established and operational by 2009; adequate budgetary resources allocated; office equipment and vehicles procured by 1Q 2009; 92 person-months of consulting services provided 2013.

Total Base Costs: 82.3 Contingencies/Financial Charges 23.8 TOTAL PROJECT COSTS: 106.1

C. Description of the Environment

5. Jiaozhou City is one of the county level cities under the administration of Qingdao, located to the west of the main city of Qingdao and on the northwest coast of the Jiaozhou Bay. Jiaozhou City has a total area of 1,210 km2 and a total population of 780,000 in 2005, of which 40% were residents in the main urban area. It is an important industrial processing and warehousing logistic based in the economic zone around Jiaozhou Bay. 6. Rapid urban and industrial development in Qingdao and Jiaozhou City has had detrimental effects on its water resources and on the overall condition of the environment. In Jiaozhou City, based on water quality surveys by Jiaozhou Environmental Monitoring Stations in 2005, the water quality in the rivers passing through the main urban area are poor and are classified as Class V, with total phosphorus and chemical oxygen demand above the standards. Moreover, during the high-water season, flash floods frequently occur; while during the low-water season, runoff volumes are low with rivers often dry. In order to meet its sustainable development objectives and targets, JCG and QMG are aware of the need to address these problems and strengthen the capacity of the institutions that are mandated to manage water resources and environment. They are also aware of the need for a comprehensive and integrated water resource and environmental management approach to address the complex

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and interrelated problems as a requisite for sustainable economic development and improved quality of life within the Jiaozhou Bay area. D. Environmental Impacts and Mitigation Measures 7. Environmental benefits. The Project will mainly have environmental benefits and strengthen the capacity of the Jiaozhou Government to implement improved environmental management practices. The river rehabilitation projects will reduce flooding risk, and thereby significantly improving public health. The wastewater interception and collection subcomponents will significantly reduce direct pollution discharges to the rivers in Jiaozhou City. Water quality is anticipated to improve urban rivers, the newly-constructed Shaohai Lake, and the Dagu River and the downstream Jiaozhou Bay wetlands. As part of the nonstructural measures, the Project will also provide technical assistance to the Jiaozhou Government to improve its capacity to monitor and control pollution in the entire county. Through the establishment of a management information system (MIS), support for a ‘wastewater group’ in the city government, and effective coordination and guidance of the Project’s ‘Leading Group’, it is anticipated that compliance with environmental standards will be increased and pollution loads will be reduced. 8. Impacts during the construction phase. The Project will cause limited environmental impacts during the Construction phase. An estimated 1.8 million cubic meter dredged sludge from Erli’he River Reservoir, Yunxi River, Hucheng River, Wushui River, and Sanli River will have to be disposed off. Sediment sampling was undertaken during the EA for regular tests on heavy metal concentrations.

3 The results showed that all monitored items are below the

maximum permissible concentrations for neutral and alkaline soil of the “Pollution Control Standards of Sludge Used in Agriculture" (GB4284-84). Based on the sludge characteristics, field utilization is proposed, which has been applied for years in Jiaozhou City for river sludge disposal. In this Project, sludge excavation will be undertaken during dry season to reduce water contents and minimize environment impacts. Sludge from different rivers will arrange disposal specifically. For Yunxi River (east of Haier Avenue), Erli River and Sanli River, the sediment from these three rivers can be used for farmland around Shaohai Lake. Sludge from the Yunxi River (west of Haier Avenue), Hucheng River, and Wushui River will be used in forest fields or greening lands inside urban districts. 9. Limited negative impacts on soil, air, water, acoustic environment, flora/fauna, and surrounding communities are also expected during standard construction activities. The impacts will be temporary and localized, and if proper mitigation measures are implemented during the construction period, the impacts can be minimized or eliminated. The residual impacts are judged to be insignificant. Similarly, construction activities have the potential to disturb cultural and/or historical sites, although none has yet been identified. A 2007 survey of the culture relics in Jiaozhou City indicates that cultural relics, which are from Neolithic Age, Han Dynasty, and Qing Dynasty are located outside the Jiaozhou urban city, mostly in rural towns surrounding the Jiaozhou urban city. The impacts from project construction and implementation to the culture relics is small and neglected if any existed. To mitigate possible risks, contractors will protect relevant sites immediately and report to local culture administration agency if some culture relics are encountered, as described in Article 32 of “Culture Relic Protection Law.”

3 Compared with “Soil Environment Quality Standards” (GB15618-1995), basically all the sludge samples can satisfy

Class-II Standard, which is the level for guaranteed agriculture production and healthy growth of crops. Mercury in Wushui River and arsenic in Yunxi River are higher than Class-II of GB15618. Sludge of Erli River and Sanli River are all around Class-I standard of GB15618, which is the quality level for basic natural conditions.

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10. Impacts during operation phase. Environmental impacts during the operation phase have been identified and addressed in the project design. As major parts of the wastewater collection, infrastructure will consist of a combined system, sewer overflows will occur during heavy rainfalls. While diluted sewage may be discharged directly to the river systems, impacts are minimized by the higher dilution in the rivers during the wet seasons. The noise impact from the operation of two pump stations is small and negligible. The collected wastewater will require adequate treatment. Although the wastewater treatment plant (WWTP) is not financed through the Project, JCG has ensured that the capacity of the existing Jiaozhou WWTP will be expanded and that all wastewater will be treated to a 1 B level4 prior to discharging into the Dagu River. 11. Due diligence. The development of the Shaohai Lake and the required expansion of the capacity of the WWTP have been identified as “associated impacts to be assessed” with the Project and a due-diligence review has been carried out. The development of the Shaohai Lake, key to improved flood and water quality management was started in 2004. The approved EIA report has been reviewed and it is considered that environmental impacts were addressed adequately. For the wastewater to be collected by the Project, proper treatment has been assured by JCG through its commitment (project covenant) to expand the capacity of the existing WWTP and improve the quality of the treatment process (1 B level). Moreover, JCG will monitor and ensure, through the support of the Project, that all industrial establishments will apply pre-treatment to comply with the national PRC regulations. Similarly, JCG has provided proof that the sludge from Jiaozhou WWTP is disposed off safely. Since 2008, the sludge is sent to Qingdao Diendi Biological Technical Company and produced into plant fertilizers through biological degradation and harmless treatment. 12. Cumulative impacts. No cumulative impacts have been identified for the proposed project activities. 13. Environmental management plan (EMP). An EMP has been prepared (i) to agree on appropriate mitigation measures, and (ii) to guide the establishment of institutions or mechanisms to monitor and ensure compliance with environmental regulations and implementation of the proposed mitigation measures. The EMP describes (i) objectives, (ii) summary of potential impacts, (iii) mitigation measures, (iv) environmental monitoring, (v) planned public consultation, (vi) responsibilities and authorities for implementation, (vii) institutional strengthening and training, (viii) reporting and supervision, (iv) work plan, (x) procurement and cost estimation, and (xi) mechanism for feedback and adjustment. The EMP will be reviewed and updated at the end of the detailed design in order to be consistent with the final detailed design. E. Institutional Requirements and Environmental Monitoring

14. Executing agency. JCG, being the Executing Agency, will be responsible for the overall implementation and compliance with the EMP and monitoring plan. JCG will ensure that as part of standard project monitoring arrangements, environmental monitoring reports will be submitted to ADB on a semi-annual basis. JCG will also be responsible to handle any disputes arising from non-compliance with the EMP. 15. Project management office. A project management office (PMO) has been established, comprising 10 staff from Jiaozhou City Construction Bureau, which include the project manager, 4 Discharge standard of pollutants from municipal wastewater treatment plant (GB18918-2002).

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staff for procurement, disbursement, engineering, social & environmental safeguards, and interpreter. The PMO will be overall responsible for supervising implementation of environmental mitigation measures and reporting to ADB. It will be responsible for the day-to-day implementation and compliance with the environmental management plan and ensuring that implementation of mitigation measures, as described in the EMP, and will support the Executing Agency in handling any disputes arising from non-compliance with the EMP. The PMO will provide the periodic environmental monitoring reports to JCG and ADB. On completion of the Project, the wastewater entity under Jiaozhou Construction Bureau will be responsible for the O&M of the wastewater networks, drainage and river courses management. 16. Project leading group. To increase project effectiveness, a project leading group (PLG), established by the Jiaozhou Government, will provide general oversight and coordination over the project implementation. The PLG is headed by the Vice Mayor of Jiaozhou City, and includes members from the Jiaozhou Development and Reform Bureau, Jiaozhou Finance Bureau, Jiaozhou Water Resource Bureau, Jiaozhou Environment Protection Bureau, Jiaozhou Land Resource Bureau, JCB, Jiaozhou Planning Bureau, and Jiaozhou People Bank.

17. Environmental monitoring arrangements. The PMO will nominate at least one full-time and qualified environmental management staff to undertake environmental management and monitoring activities. The PMO will further engage a construction supervision consultant to assist in carrying out environment management monitoring activities, prepare semi-annual progress reports, report to ADB, and conduct necessary trainings. On behalf of Government, the QEPB/JEPB will delegate environmental monitoring to the Qingdao Environment Monitoring Center/Jiaozhou Environment Monitoring Centers (QEMC/JEMC). 18. Reporting schedule. The PMO, with the assistance of project consultants, will monitor and assess overall project activities under the project design and monitoring framework (PDMF), including environmental targets. PMO will submit to ADB the EMP progress reports and information on project implementation and the environmental performance of the contactors. These reports will include (i) semi-annual environmental reports on EMP implementation, and (ii) environmental compliance monitoring and audit report of the completion of each subproject. 19. Monitoring costs. The costs for the implementation of the monitoring plan during the construction phase is minimal, estimated at CNY120,000 over a period of 4 years. The annual costs for monitoring at during the operation phase will be approximately CNY40,000/year. These costs have been included in the project cost tables. F. Public Consultations and Disclosure

20. Public consultations. Two rounds of public consultations and information disclosure have been conducted in January and February 2008. The consultations focused on project- affected people in Shinan Community, Yunxi New Village, Yunxi Street Administration Office, Zhongyun Street Administration Office, and Fuan Street Administration Office. A questionnaire survey was conducted among project affected peoples living in Dongguan Street, Lanzhou Street, Shimenshou Street, Longzhou Street, and Lanzhou West Street. More than 87% of interviewed people live within 2 km area of the proposed Project. Being dissatisfied with current status of water quality, and eager to solve the existing problems of environmental pollution, 98.2% of the total interviewed people agreed with the construction of the Project, and expressed their expectations that the Project will bring significant environmental benefits. During the consultation, local communities also expressed concerns regarding possible adverse impacts

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during construction phase, and would like construction agencies to take suitable measures to mitigate the impacts. 21. Disclosure. Disclosure of project information was carried out in two rounds from 14 March 2008 and early April 2008. The project scope, environmental impacts, and mitigation measures were posted on www.jiaozhou.gov.cn. In addition, (i) the SIEE will be made available for review at www.adb.org before consideration of the Project by the ADB Board; (ii) copies of the full EA report will be made available on request; (iii) all environmental monitoring reports will be provided to the QEPB/JEPB and ADB; and (iv) a formal grievance redress committee will be established, so to answer public complaints as discussed in former sections. G. Findings and Recommendations

22. The Project will have positive environmental impacts by reducing flooding and associated pollution and health hazards in Jiaozhou urban city. The Project will significantly improve water quality in the urban rivers and Shaohai Lake. By assuring that all wastewater collected by the Project will be treated to a IB level through an expansion of the existing Jiaozhou WWTP, JCG will reduce overall pollution loads to the Dagu River and Jiaozhou Bay. Complemented with an improved environmental management capacity, the Project is expected to initiate sustainable planning process and contribute to halting the degradation of the wetland areas in Jiaozhou Bay and contribute significantly to improved water quality conditions in the bay. 23. Potential adverse environmental impacts during both construction and operation periods include unsafe disposal of dredged sediments and WWTP sludge, and limited standard construction impacts. All these impacts have been analyzed in the project EA report and SIEE. Specific environmental mitigation measures will be undertaken to minimize the adverse impact. No further studies are considered to be necessary. 24. Extensive community consultation indicated that most of the affected people have a positive attitude toward the Project and that they believe it will benefit the local environment, living standards, and economic development. Negative opinions on the Project focused on localized noise, odor, and air pollution associated during construction phase. The environmental mitigation measures have been developed to address these specific concerns. H. Conclusions

25. The proposed Project will have significant positive environmental impacts in the project area, including enhanced urban flood prevention in Jiaozhou City and improved water quality of urban water bodies, the Shaohai Lake, and the downstream Jiaozhou Bay wetlands. The proposed strategic environmental assessment will enable JCG and QMG to introduce sustainable approaches to urban development, thus protecting and maintaining the functions of the coastal wetlands and ecosystems. Based on the results of the SIEE, the Project will not generate significant environmental impacts, provided the mitigation measures are implemented appropriately.


R5: FINAL REPORT

SOGREAH – CSJ 1350337 – JUNE 2008

APPENDIX 14 – SUMMARY POVERTY REDUCTION AND

SOCIAL STRATEGY

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61

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

Country/Project Title: Qingdao Water Resources and Wetland Protection Project Lending/Financing Modality: Project Loan Department/

Division: EARD/EAAE

I. POVERTY ANALYSIS AND STRATEGY

A. Linkages to the National Poverty Reduction Strategy and Country Partnership Strategy The goal of the Government of the People’s Republic of China’s (PRC) 11th Five-Year Plan (FYP 2006–2010) is to build a harmonious society. To achieve the goal, the Government aims for a balanced development strategy that builds a harmonious society and a socialist market economy that is energy-efficient and environmentally friendly. In the FYP, a number of environmental and natural resources concerns are given priority, which include, among others: (i) land degradation, (ii) water shortage and pollution, (iii) poor urban environmental infrastructure, (iv) degradation of marine ecosystems and wetlands, (v) increasing frequency and intensity of environmental accidents, and (vi) global environmental issues such as climate change and greenhouse gas emissions. The Chinese Communist Party and the State Council issued a series of policy directives on environmental protection for the 11th FYP period. These policy directions are incorporated into the National Economic and Social Development Master Plan which was developed in March 2006. This Plan gives priority to: (i) protection and rehabilitation of valued ecosystems; (ii) increasing efforts in pollution control; (iii) improving natural resource management; and (iv) sustainable utilization of marine/water resources. As a guiding policy for the 11th FYP, the State Council Directive sets forth two broad environmental objectives for the next 5–15 years. By 2010, the environmental quality of key regions and cities will be improved, and the trend of ecological degradation will be arrested. By 2020, the quality of the environment and the state of the country’s ecosystems will have improved significantly. There are many other specific targets set under 11th FYP but the reduction in energy intensity by 20% and total pollution loading by 10% are the two most prominent.

In accordance with the PRC’s FYP, ADB’s Country Partnership Strategy for PRC 2008–2010 emphasizes inclusive growth through balanced development and environmental sustainability. The Asian Development Bank (ADB) as per its Strategy 2020, will pay greater attention to poverty reduction, management of natural resources and ecosystems, increasing its investment in natural resources management, agriculture, and rural development.

The proposed Qingdao Water Resources and Wetland Protection Project (the Project) supports ADB’s strategic priorities. With rapid urban development and population growth, severe pollution of water resources as well as frequent flooding have become key constraints to sustainable development in Qingdao Municipality and Jiaozhou City. While various water conservation and management projects have been implemented by the PRC Government in recent years, there are still opportunities to improve environmental management in the area. The Project aims to bring tangible benefits to the environment of Jiaozhou Bay area by (i) reducing water pollution; (ii) protecting water resources; (iii) reducing economic losses and disruption to livelihoods from frequent localized flooding; (iv) enhancing wetland ecosystems in both Shaohai Lake and the Dagu Estuary/Jiaozhou Bay wetlands; (v) promoting sustainable economic development; (vi) improving the environment, living conditions, and public health standards; and (vii) improving public service delivery through corporatization and improved financial sustainability. The poverty and social analysis shows that the Project will contribute to: (i) reduced surface and ground water pollution; (ii) reduced risks of exposure to water-borne and vector-borne diseases, with associated reduction in medical costs and number of workdays lost; (iii) increased employment opportunities and income generation activities from temporary job creation during the construction period and permanent job creation during the operation period; and (iv) decrease in flood-associated damages and economic losses. The expected outcome is improved condition of water resources and environment in Jiaozhou and the downstream wetlands. Its impact is improved quality of life, sustainable ecosystem, and biodiversity conservation in Jiaozhou Bay. The project impact will be enhanced by the replication of project lessons to other newly developed zones within Qingdao Municipal Government territory by the implementation of a Strategic Environ mental Assessment as an integral part of the strategic planning of future economic development in the Jiaozhou Bay area. The Project will benefit directly about 370,000 people living in the project area, of whom about 1.5% are poor.

The Project will also assist PRC’s progress in achieving the Millennium Development Goal 7, Target 10 to halve by 2015 the proportion of people without access to basic sanitation by increasing coverage of the Jiaozhou public service systems including urban drainage etc, to serve an estimated 370,000 people by 2010 and 450,000 by 2015.

B. Poverty Analysis Targeting Classification: General Intervention 1. Key Issues Currently, 34 poor counties and more than 2.3 million people in Shandong province are living below the rural poverty line of CNY1,000 per capita per annum. Qingdao City in Shandong Province, however, is a rapidly urbanizing municipality, and the

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per capita annual net income of urban and rural residents is greater than that both the PRC and Shandong Province. The Qingdao 2006 Statistics Yearbook shows that per capita annual net income of rural residents was CNY6,546 and per capita annual disposable income of urban residents CNY15,328. The poor population who had been supported by the Government’s livelihood subsidy program – those living on CNY1,500 per capita per annum in rural areas and CNY3,600 per capita per annum in urban areas – were 106,637 people or 1.42% of the total population in the city. In Jiaozhou City, the rural and urban minimum livelihood subsidy standards are set at CNY1,500 per capita per annum for rural areas and CNY2,880 per capita per annum for urban areas. Those who were entitled to this subsidy totaled 10,493 or 1.5% of the total population in the city. The socioeconomic survey showed that most of the urban poor are unemployed workers, part-time workers, disabled, elderly and retirees. The cause of urban relative poverty groups are low income from employment (68.1%), illness (12.1%), lack of knowledge or skills(12.1%), insufficient labor(4.3%), and others(3.4%). This unemployment is usually due to lack of employment opportunities and income resources. 2. Design Features The Project has incorporated two key features to benefit the poor. First, to mitigate the financial burden of the poor from increased wastewater collection tariffs due to service improvement, the Project has negotiated with the Government that subsidies would be provided to poorer families. Second, the Project will provide 75% of the jobs generated in the Project to vulnerable groups including the poor and the women to increase their income. It is expected that the Project will generate 3,448 jobs during the construction period. To maximize the project benefits, women will be given priority in the employment and training opportunities generated in the Project’s construction and operation phases. The Project is also expected to have the following positive effects on the poor:

(i) Improving the living environment. The Project can improve the living environment of the poor families by providing better waste water collection and cleaning up the polluted rivers.

(ii) Reducing incidences of waterborne diseases. The Project will improve hygienic environment and drinking water problems thereby reducing incidence of waterborne diseases. Poor families often ignore minor illnesses, at times even the major ones, due to financial constraint. The Project can reduce incidences of waterborne diseases and guarantee the poor families’ basic living standard.

(iii) Poverty-relief effect. The Project is expected to reduce natural disaster (flooding) associated damages, providing a guarantee to the poor population’s housing and finance.

II. SOCIAL ANALYSIS AND STRATEGY

A. Findings of Social Analysis A poverty and social analysis was undertaken in line with ADB guidelines to collect detailed social information necessary to inform project design, identify poverty reduction and social development objectives, outcomes, and indicators. The poverty and social analysis identified vulnerable groups, opportunities for pro-poor interventions and recommended social action measures, participation and mitigation plans to achieve positive social benefits.

The Project will provide improved public services to residents in Jiaozhou. The direct social benefits include improved cleanliness and health, reduction in incidence of disease, increased job opportunities, and flooding control. However, the main social risks are identified, such as the poor family could not afford the service of basic infrastructure and facilities such as wastewater services, and less ability to cope with pollution and a degraded environment. They often suffer from wastewater pollution and poor urban environmental sanitation, which in turn increase their exposure to water pollution. This may put them in high risk of diseases related to water pollution such as diarrhea, hepatitis, and respiratory diseases. Thus, the Project will provide equal benefits to poor people through the actions of reducing or free of the wastewater treatment charges.

B. Consultation and Participation

1. Provide a summary of the consultation and participation process during the project preparation. The poverty and social assessment (PSA) utilized a number of participation processes to solicit the input of a cross section of stakeholders. Stakeholder analysis was conducted during the PSA. Various methods and approaches have been conducted, including 400 HH sampling socioeconomic survey, stakeholder consultation meetings and workshops, eight focus group discussion, and 103 key informant interviews. The main stakeholder groups are urban residents, women, poor, enterprise owner, and local decision makers including relevant government agencies at county/committee levels, project management office, project implementation agencies, and private sector. Formulation of the short resettlement plan has utilized separate socioeconomic surveys, community meetings, opinion surveys and specific impact studies in May 2008. Additionally, three rounds of public consultations in the project areas were carried out to prepare the environmental impact assessment (EIA), social assessment (SA) and the short resettlement Plan (RP). The public consultations and information disclosure included: (i) introducing the project components to the stakeholders; (ii) collecting ideas, suggestions, comments, concerns, and critiques on the potential environmental implications of the Project; and (iii) presenting the findings of EIA, SA and short RP, summarizing potential environmental impacts and mitigation measure, and providing answers raised by

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workshop participants. The participation will be carried out throughout the whole process of the RP, EIA and EMP implementation. 2. What level of consultation and participation (C&P) is envisaged during the project implementation and monitoring?

Information sharing Consultation Collaborative decision making Empowerment

Public consultation and participation, which have been key elements of the project design, will continue during project implementation, monitoring, and evaluation. Ongoing consultations will be carried out by the IAs to (i) meet the evolving needs and expectations of the users, (ii) increase the awareness of the public about the benefits of the Project, (iii) encourage the active involvement of local communities to maximize their support for the Project, (iv) promote environmental protection, and (v) raise the social acceptance of tariff increases. Moreover, measures to actively involve communities have been established in the design. Community-based monitoring team is planned to be set up to help project construction laborers’ selection, environmental protection awareness education, coordination with other stakeholders, reflect their views on the project implementation etc. The Project will provide CNY20,000 for the local residents to establish and conduct monitoring activities. 3. Was a C&P plan prepared? Yes No If a C&P plan was prepared, describe key features and resources provided to implement the plan (including budget, consultant input, etc.). If no, explain why. It is expected that the following results will be achieved through the C&P: (i) increased participation of local population in the project implementation and monitoring; (ii) increased awareness of project benefits and acceptance of the Project; (iii) increased hygiene knowledge and reduced incidence of water-and vector-borne diseases; and (iv) increased participation of beneficiaries related by this Project. Furthermore, stakeholder consultation and disclosure of information will be conducted through environment management plan (EMP), RP and SDAP (social development action plan) during the project implementation and operation.

C. Gender and Development 1. Key Issues Women are often the ones who are more negatively impacted by water than men, as they take care of household chores and children. The health benefit would be greater to women, elderly, children, and the poor as they are most vulnerable to such diseases. Women, with more chances of contact with water from domestic chores, will benefit disproportionately from the improvement of urban drainage faculties. A target of 30% for women’s employment in operation and maintenance of infrastructure has been set, plus an assurance from the PMOs to encourage contractors to hire as much female construction labor as possible. Men stand to benefit more than women from the unskilled construction jobs that will be created through the Project, due to the requirement for physically demanding labor. However, there is no constraint to women’s participation in the skilled operation and maintenance work which will be created, as evidenced by the number of women already working in these sectors and the equal numbers of male and female graduates with technical qualifications. There are also requirements for consultation with women in the resettlement plans. 2. Key Actions. Measures included in the design to promote gender equality and women’s empowerment—access to and use of relevant services, resources, assets, or opportunities and participation in decision-making process:

Gender plan Other actions/measures No action/measure Summarize key design features of the gender plan or other gender-related actions/measures, including performance targets, monitorable indicators, resource allocation, and implementation arrangements. Appropriate participation and consultation is appreciated by women, and is more likely to lead to longer-term support and success of the technical inputs. Women in the community will be actively engaged for the Public education and awareness program (PEAP), promote hygiene education, garbage recycling program, and social acceptance of tariff increase. For the PEAP, the Project will work closely with local women’s organization such as women association and women’s street committee. The short RP and EMP will include gender disaggregated data, where relevant.

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III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS

Issue Significant/Limited/ No Impact

Strategy to Address Issue Plan or Other Measures Included

in Design Involuntary Resettlement

Limited

As the resettlement impacts are not significant, a short RP has been prepared in accordance with the relevant PRC laws and regulations, and ADB’s Policy on Involuntary Resettlement, to ensure the affected people will be made better off, or at least not worse off.

Full Plan Short Plan Resettlement

Framework No Action

Indigenous Peoples

No Impact

In Jiaozhou City, there are no minority people and hence the Project has no impact on indigenous peoples.

Plan Other Action Indigenous

Peoples Framework

No Action Labor

Employment opportunities Labor retrenchment Core labor standards

No Impact The Project will create about 3,400 job positions during construction period, of which 75% will be allocated to the vulnerable, such as the poor and women.

Plan Other Action No Action

Affordability Limited An affordability analysis has been undertaken and two representative household groups were considered: (i) the general income group; and (ii) the low-income group, which is defined as below MLG. Ten percent of the proposed tariff increased is assumed for purpose of affordability analysis. It indicates that both groups will have no problem with affordability of a tariff increase since the share of income expenditure for the service is below 3% benchmark. The impact of expenditure increase for water is considered to be given that the total percent paid by each common household is a small percentage of their total income. Impact on the MLSS households can be potentially significant but will be mitigated through the planned subsidy program.

Action No Action

Other Risks and/or Vulnerabilities

HIV/AIDS Human trafficking Others(conflict, political

instability, etc), please specify

Limited Health and safety training will be provided to the construction workers. The PMO will ensure that contractors involved in the project implementation will receive and disseminate information on the health and safety issues. Employees involved in the Project will be protected in accordance with the PRC labor laws and other regulations and guidelines issued by Qingdao Municipal Government.

Plan Other Action No Action

IV. MONITORING AND EVALUATION

Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? Yes No


R5: FINAL REPORT

SOGREAH – CSJ 1350337 – JUNE 2008

APPENDIX 15 – SUMMARY RESETTLEMENT PLAN

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SUMMARY RESETTLEMENT PLAN

1. The Qingdao Water Resources and Wetland Protection Project consists of three physical subprojects: (i) improvement of Flood Retention Project in Erlihe Reservoir, (ii) upgrading of Urban Stormwater and Wastewater Drainage Project, and (iii) River Course Rehabilitation Project. These subprojects will not only increase the storage capacity of reservoirs and enhance the flood discharge capacity of watercourses, but will also improve the drainage system and control the watercourse pollution. 2. According to the resettlement investigation, impacts related to the project resettlement include: (i) people affected by the permanent acquisition of land, (ii) people affected by permanent occupation of informal farmland along the river banks, and (iii) people affected by the temporary occupation of state-owned land. A total of 2.80 hectares (ha) of collective land will be acquired, of which 0.75 ha (26.8%) is farmland and 2.05 ha (73.2%) is pit-pond; 15 households with 51 persons are affected. About 3.25 ha of informal farmland along the river banks or inside the existing reservoirs/ponds used for seasonal crops are affected, which involves 60 households with 212 persons. Also, 9.93 ha of state land (i.e., roads, sidewalks, or boulevards) will be temporarily occupied for laying wastewater and stormwater pipelines. There is no demolition of residential houses or shops, and there is no vulnerable or ethnic minority group involved in this Project. See details in Table A15.1 Local officials, leaders from sub-districts and villages, and the affected persons (APs) were closely consulted during the feasibility study stage in order to avoid or minimize land acquisition and resettlement.

Table A15.1: Summary of Resettlement Impacts

Name of

Subproject

Name of

Subproject

Permanent Land

Acquisition (mu

1)

Temporary Crops

Occupation (mu)

Temporary Land

Occupation (m2)

Household

Affected

Population

Affected

The pond of Area 1 0 0 0 0 0

The pond of Area 2 30.8 1 0 3 11

Erlihe Water Retention Reservoir Project The pond of Area

3 0 5 0 11 42

Erli River 0 0 0 0

Yunxi River 0 41 0 38 133

Hucheng River 0 0.2 0 2 4

Wushui River 0 1.5 0 0 0

River Course Rehabilitation Project

Sanli River 11.3 0 21 73 Wastewater pipeline 0 63,889 Urban

Sewage and Drainage Project

Stormwater pipeline 0 35,419

Total 42.1 48.7 99,308 75 263

3. As the resettlement impacts are not significant, a short resettlement plan (RP) has been prepared on the basis of Asian Development Bank’s (ADB) Policy on Involuntary Resettlement. All

1 Fifteen Chinese “mu” equals 1 hectare.

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APs will be eligible for compensation and assistance. The cutoff date for eligibility for compensation and assistance under the Project will be the date Jiaozhou Municipal Government approves the RP, and announced to all APs immediately afterward. Once the detailed designs of the subprojects are finalized, the RP will be updated and submitted to ADB for approval. 4. Due diligence was required for the previous resettlement impacts caused by the construction of East Lake (Shaohai), since this is a part of the integral project which was constructed prior to ADB involvement. The due diligence report has been prepared to evaluate the resettlement results, compensation and rehabilitation measures, and present conditions of the APs. The due diligence report shows that the compensation and rehabilitation measures are in line with national and local policies on resettlement, and APs are satisfied with the resettlement activities. There are no remaining issues on resettlement in Shaohai East Lake Project. 5. For people who will be unavoidably affected by the Project, the resettlement objective is to achieve equal, or better income and living standards, in line with the national laws and local regulations, as well as ADB’s Policy on Involuntary Resettlement. Consulting with local governments and APs, the JCG as the executing agency (EA) adopted a set of compensation standards based on the replacement cost and general practice in the project districts and counties. The resettlement principles established for the Project are: (i) wherever feasible, land acquisition and involuntary resettlement will be avoided or minimized through the development of design alternatives and the choice of the best alternative; (ii) compensation and entitlements provided will be based on market value or replacement value and must be adequate to allow those affected to at least maintain or better yet, improve their pre-project standard of living; (iii) temporary land occupancy and the period of disruption are to be kept to a minimum; (iv) all the people affected, whether legal or non-legal residents, are to be taken into consideration and accounted for; (v) where the landholding per capita is not enough to maintain the previous livelihood standards, other income-generating activities will be provided for; (vi) vulnerable groups will be given preference in such matters as compensation and employment; (vii) all those affected will be adequately informed about eligibility, compensation rates and standards, livelihood and income restoration plans, and project timing; and (viii) close monitoring and timely actions will be carried out to identify and resolve problems as they arise. The APs will be compensated and resettled in a timely and adequate manner in accordance with the RP so that they will be made better off or at least not worse off as they would have been without the Project. 6. As for land acquisition, the compensation standard is determined by consulting with the affected villages whose land will be acquired. Land compensation for farmland is 10 times of the average annual output value (AAOV)

2, and resettlement subsidy for farmland is 14 times of the

AAOV. Land compensation and resettlement subsidy will be paid to the affected village committees while young crops compensation will be paid to individuals. To restore the income losses, the following measures will be implemented during the resettlement process: (i) the village committee will adjust the remaining land within the whole villages; (ii) land compensation and resettlement subsidy will be deposited in banks for income earnings or welfare from interest, such as distributing rice, flour, and edible oil to all villagers; (iii) land compensation will be used for basic social insurance for the land-lost farmers; (iv) secondary and tertiary industries will be developed or expanded to generate employment opportunities and recover the income of the APs, and technical training will be provided to the APs to make them master non-agricultural skills; and (v) the project EA will give the APs priority to be employed in the activities during the project construction and operation. 7. As for the loss of access to informal farmland which does not legally belong to farmers, the APs will be informed 6 months prior to civil works to stop planting temporary crops along the river

2 AAOV of 2005, 2006 and 2007 is 1,600 yuan/mu in the affected areas, as per Jiaozhou Statistical Bureau.

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banks, or pay one-season young crops compensation to individuals. Moreover, skill training programs and employment will be provided for family laborers to help integrate these APs into the urban society. 8. As for the businesses or residents that may be temporarily affected or inconvenienced by the construction of wastewater and rainwater network, mitigation measures are also provided to avoid or minimize the potential impacts during the construction period. Most construction impacts will last less than 1 month; if impacts last longer, compensation will be negotiated between EA and the affected businesses or residents. Other mitigation measures such as disclosing construction information, setting warning signs, and prohibiting construction schedules will be implemented. 9. The Jiaozhou City Government (JCG), as the project executing agency (EA), will assume the overall responsibility for resettlement. Jiaozhou PMO will take charge of resettlement compensation payment and supervision. The PMO will also coordinate the planning, implementation, financing, and reporting of land acquisition and resettlement progress to ADB. 10. The cost of land acquisition and resettlement is included in the overall budget of the Project, which is estimated to be CNY2.8 million. The project owners will pay compensation and other fees with domestic counterpart capital to the affected villages and individuals through PMO. To ensure that land acquisition and resettlement can be finished successfully, PMO has set up various financial and supervising organizations for the fund management at different levels. 11. The APs were fully consulted and informed during the preparation of the RP. Local representatives participated in planning meetings, interviews, focus group discussions, public consultation workshops, community consultations, and their comments and concerns are integrated into the RP. The draft RP was distributed to the affected subdistricts and villages in July 2008, and resettlement information booklets were disseminated to the affected villages and APs on 3 September 2008. The grievance redress procedures are well established; they are explained in the RP and referred to in the resettlement information booklets. 12. The RP implementation will be subject to internal and external monitoring, as described in the RP. The EA will supervise the implementation and monitor the progress quarterly to ensure compliance with the provisions of the RP. Each resettlement agency within the EA will undergo capacity building during land acquisition and resettlement; the resettlement staff training programs and budgets are included in the RP. PMO will entrust an independent agency for monitoring and evaluation of land acquisition and resettlement activities twice a year, and external monitoring reports will be forwarded directly to PMO and ADB. 13. The resettlement implementation schedule is based on the overall project preparation and construction timetable. The process of land acquisition is scheduled to begin in the second half of 2009 and be completed by yearend. Before land acquisition, the detailed land acquisition plan and agreements required under the PRC regulations will be approved by Jiaozhou Land Resourses Bureau, after negotiation with and acceptance by the APs. If there are any significant changes in land acquisition, resettlement impacts, or entitlement, the RP for this Project will be updated to reflect the changes, and the changes will be disclosed to the APs and submitted to ADB for approval before land is acquired or civil works commence. PMO and EA have agreed on a set of supervision milestones with ADB for timely and effective resettlement (see Table A14.2).

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Table A15.2: Resettlement Supervision Milestones No. Resettlement Tasks Target Responsible Agency Deadline Status

1 Disclosure

1.1 Information booklet to APs 75 households PMO 3 Sept 2008 complete

1.2 Resettlement plan distribution 30 copies Subdistrict Office July-Sept 2008 complete

1.3 RP placed on ADB website RP ADB 5 Sept 2008 complete

2 Resettlement Plan and Budget

2.1 Approval of feasibility study all subprojects

Qingdao City Gov’t, design institutes

27 Aug 2008 complete

2.2 Approval of RP & budget CNY2.8million Jiaozhou Government 14 July 2008 complete

2.3 Approval of compensation rates Jiaozhou Government July 2008 complete

3 Detailed Rehabilitation Plans

3.1 Village rehabilitation plans 2 villages Villages, Subdistrict Office, PMO May 2009

3.2 Farmland adjustment agreements 1 village Affected village May 2009

3.3 Technical training plan for APs all APs Subdistrict Office May 2009

4 Detailed Design and RP Updating

4.1 Detailed design for components Design institute May 2009

4.2 Staking survey and Detailed Measurement Survey (DMS)

Jiaozhou Land Resources Bureau, towns and villages

June 2009

4.3 Updated RP based on DMS, including plans in item 3 above PMO, EA 30 June

2009

4.4 Land use approval 41.2 mu Qingdao Land and Resources Bureau July 2009

5 Compensation Agreements

5.1 Village agreements 2 villages Subdistrict Office July 2009

5.2 Household agreements 15 HHs Subdistrict Office July 2009

6 Implementation Capacity

6.1 Subdistrict Office resettlement staff 2 villages Subdistrict Office April 2009

6.2 Designate village representatives 20 persons Subdistrict Office April 2009

6.3 Training of staff all staff PMO, subdistrict office April 2009

6.4 Setting up grievance redress 15 staff PMO, Subdistricts April 2009

7 Monitoring and Evaluation

7.1 Baseline survey 30 households External Monitor July 2009

7.2 Set-up internal supervision PMO, subdistrict office April 2009

7.3 Contract external monitor PMO June 2009

7.4 Internal monitoring reports Quarterly PMO April 2009 1st report

7.5 External monitoring reports Semiannual External Monitor Dec 2009 1st report

7.6 Post Evaluation report Once External Monitor 2012

8 Documentation of Consultation PMO Ongoing

9 Documentation of Grievances Quarterly PMO, Subdistricts Sept 2009 1st report

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No. Resettlement Tasks Target Responsible Agency Deadline Status

10 Flow of Funds / Compensation

10.1 PMO CNY2.8million Jiaozhou Finance Bureau June 2008

10.2 Subdistrict Offices CNY2.8million PMO July 2008

10.3 To affected households 75 households Subdistrict Offices July 2008

11 Commence Land Acquisition 41.2 mu Jiaozhou Land Resources Bureau, villages

July 2009

12 Commence Civil Works Contractors July 2009 ADB = Asian Development Bank, AP = affected people, CNY = yuan, EA = executing agency, HHs = households, PMO = project management office, RP = resettlement plan.

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