The World Bank Zhejiang Qiandao Lake and Xin'an River Basin Water Resources and Ecological Environment Protection Project (P159870) REPORT NO.: RES59565 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ZHEJIANG QIANDAO LAKE AND XIN'AN RIVER BASIN WATER RESOURCES AND ECOLOGICAL ENVIRONMENT PROTECTION PROJECT APPROVED ON JUNE 6, 2018 TO PEOPLE'S REPUBLIC OF CHINA ENVIRONMENT, NATURAL RESOURCES & THE BLUE ECONOMY EAST ASIA AND PACIFIC Regional Vice President: Manuela V. Ferro Country Director: Mara K. Warwick Regional Director: Anna Wellenstein Practice Manager/Manager: Ann Jeannette Glauber Task Team Leader(s): Qi Tian The World Bank Zhejiang Qiandao Lake and Xin'an River Basin Water Resources and Ecological Environment Protection Project (P159870) I. BASIC DATA Product Information Project ID Financing Instrument P159870 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 06-Jun-2018 30-Jun-2024 Organizations Borrower Responsible Agency People's Republic of China Zhejiang Provincial Construction Department Project Development Objective (PDO) Original PDO To strengthen integrated pollution and watershed management and increase access to improved water supply in selected landscapes in support of Zhejiang's program for the protection of Qiandao Lake and Xin’an River Basin. Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-88560 06-Jun-2018 10-Aug-2018 26-Nov-2018 30-Jun-2024 150.00 116.69 33.31 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Zhejiang Qiandao Lake and Xin'an River Basin Water Resources and Ecological Environment Protection Project (P159870) II. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES This restructuring paper seeks approval for the six-month extension of the closing date of Zhejiang Qiandao Lake and Xin'an River Basin Water Resources and Ecological Environment Protection Project (the Project) from June 30, 2024, to December 31, 2024. This is the second restructuring of the Project and would be the first extension of the Project’s closing date, which was formally requested by the Ministry of Finance in a letter dated February 4, 2024. Background: The US$150 million IBRD loan for the Zhejiang Qiandao Lake and Xin'an River Basin Water Resources and Ecological Environment Protection Project was approved by the Board of Executive Directors on June 6, 2018, and became effective on November 26, 2018. The Project Development Objective (PDO) is to strengthen integrated pollution and watershed management and increase access to improved water supply in selected landscapes in support of Zhejiang’s program for the protection of Qiandao Lake and Xin’an River Basin. The Project comprises three components: (i) Landscape Management Improvement; (ii) Water Resources Management Improvement; and (iii) Institutional Capacity Building, Monitoring and Project Management. A level II restructuring of the Project was approved by the Bank in October 2022 which introduced the following changes: (i) adding additional activities for forest rehabilitation, rural water supply service and research; (ii) adjusting the costs among components; (iii) and increasing the end target values for five indicators in alignment with the new activities. No modifications were made to the original PDO. Implementation Status: The Project has made significant progress in reducing water pollution loads and in restoring the ecosystems of the Xin’an River and the Qiandao Lake basin. All PDO-level indicators and Intermediate results indicators have exceeded their yearly targets for 2023 while 82 percent of the indicators have exceeded 90 percent of their Project end targets. Progress towards achievement of PDO and Implementation Progress have been consistently rated satisfactory since the loan became effective. All Bank-financed contracts in the procurement plans (at appraisal and after the October-2022 restructuring) have been awarded, with completion rate over 75 percent. The cumulative completed project investment is about US$ 250 million, or 87.1 percent of the total project budget. Disbursement from the loan is US$116.69 million (78 percent). The integrated watershed management approach has been implemented through low-pollution farming, ecologically friendly river restoration, rehabilitation of degraded forests, increased water supply to rural communities, and the development of integrated basin water and environment quality monitoring systems. The implementation status of the three components is summarized below. Component 1: Landscape Management Improvement (Total Cost: US$106.66 million, of which IBRD US$69.73 million). This component comprises the following key activities: (a) climate smart agriculture (CSA); (b) livestock waste management (LWM); (c) forest ecosystem protection; and (d) pilot wetland management. Comprehensive control measures have been adopted to reduce the agricultural non-point source (NPS) pollution in the Qiandao Lake basin. The efficiency of fertilizer application has been improved. The application of 132,000 tons of organic fertilizer was estimated to reduce the usage of 14,515 tons of chemical fertilizer . The application of slow release formula fertilizers, tailored for the local soil nutrient management has been scaled up in the entire Jiande County using government funds. The Integrated Pest Management (IPM) approach has been largely adopted by farmers in the Project, contributing to the production of green and high-quality agricultural products which increased the farmers' income. Chun’An County released the Implementation Plan to Restrict the Use of Pesticides in July 2023 to further strengthen pesticide management. Livestock waste management (LWM) practices have been introduced and have reduced pollution discharge and methane emissions. About 10,035 ha of degraded and damaged forests have been The World Bank Zhejiang Qiandao Lake and Xin'an River Basin Water Resources and Ecological Environment Protection Project (P159870) rehabilitated and reforested, resulting in a mixed forest structure and mainstreaming of biodiversity for ecological resilience. The last batch of 22 forest contracts in ChunAn are planned for the completion audits in April 2024. Component 2: Water Resources Management Improvement (Total Cost: US$160.09 million, of which IBRD US$71.11 million). This component finances: (a) wastewater management; (b) watercourse improvement;and (c) potable water supplies in rural areas. All sub-projects for rural water supply, river restoration and wastewater treatment approved at appraisal have been completed and are in operation with the O&M mechanisms established. Over 200 km of riverbanks has been rehabilitated and 85 overflow weirs have been upgraded which have exceeded and reached the Project end targets respectively. Nature-Based Solution (NbS) practices have been introduced in the Project areas for the rehabilitation of river embankments and overflow weir sub-projects to help stabilize the riverbanks with natural materials, reduce non-point source discharges, and mitigate the risks of flooding and river sedimentation. The Shouchang Wastewater Treatment Plant has been expanded using counterpart funds to increase its treatment capacity and improve its operational efficiency. Four contracts added through the October-2022 restructuring have been completed. However, the construction of three contracts was delayed and couldn't be completed by the current closing date of June 30, 2024 (as explained under the Rationale for restructuring and proposed changes). Component 3: Institutional Capacity Building, Monitoring and Project Management (Total Cost: US$10.19 million, of which IBRD US$8.79 million). This component supports: (a) technical assistance, training, and research; and (b) a Monitoring and Evaluation System. The training program has made good progress with the end targets of the indicators achieved. The Project has promoted dialogue and interprovincial collaboration through workshops/meetings between Anhui (the upstream province) and Zhejiang (the downstream province), facilitating knowledge sharing. A technical expert team has been set up at the provincial level to provide technical support to the Project Management Offices (PMOs) and the Project Implementation Units on project implementation. Three newly added research activities are on track to be completed by June 2024. Project Compliance Environmental and social safeguards: The Project has been in compliance with environment and social safeguard requirements with Satisfactory ratings since the Project launch. The compensation for land acquisition and temporary land use of the water supply plants and pipeline projects has been distributed to affected individuals as verified by the third-party monitoring consultant in January 2024. A GRM is effectively implemented with the established mechanisms and enhanced capacity building. Fiduciary: There are no outstanding audit reports and no significant issues have been identified by the auditors. Legal covenants: The Project has been in compliance with legal covenants. Rationale for restructuring and proposed changes The proposed six-month extension is needed to allow for the completion of three contracts for the rural water supply services under component 2, added through October-2022 restructuring, and achieve the relevant PDO targets (PDO indicator 4: people provided with access to improved water sources) and two intermediate indicators (increase in delivery capacity of safe water supply and new piped household water connections under the Project) . While the majority of physical works have been completed, due to the unexpected impacts by a new government road program, remaining activities were delayed, including 2.1 km of pipeline construction, the last mile of upgrade of the Lijia Rural Water Supply Plant and the finalization of the Local Water Supply Geographic Information System. The Provincial PMO The World Bank Zhejiang Qiandao Lake and Xin'an River Basin Water Resources and Ecological Environment Protection Project (P159870) and Jiande PMO are coordinating the construction schedule with the responsible government agencies and have agreed on the timely completion of remaining activities under the Project within the proposed extension period. The client has prepared a time-bound action plan for the remaining project activities, which has been discussed with the Bank and deemed viable. There are no changes to the Project design, the PDO and the results framework, which remain relevant. All Project activities are expected to be completed, and the PDO will be fully achieved by the proposed new closing date. Performance of the Borrower and of the Implementing agencies is satisfactory. The proposed extension will not lead to changes to the overall risk which remains Moderate. III. DETAILED CHANGES LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-88560 Effective 30-Jun-2024 31-Dec-2024 30-Apr-2025