The World Bank Chongqing Small Towns Water Environment Management Project (P133117) REPORT NO.: RES49348 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF CHONGQING SMALL TOWNS WATER ENVIRONMENT MANAGEMENT PROJECT APPROVED ON DECEMBER 23, 2014 TO PEOPLE'S REPUBLIC OF CHINA WATER EAST ASIA AND PACIFIC Regional Vice President: Manuela V. Ferro Country Director: Martin Raiser Regional Director: Benoit Bosquet Practice Manager/Manager: Sudipto Sarkar Task Team Leader(s): Shunong Hu The World Bank Chongqing Small Towns Water Environment Management Project (P133117) ABBREVIATIONS AND ACRONYMS CPF Country Partnership Framework EA Environmental Assessment EIA Environmental Impact Assessment ESMP Environmental Safeguards Management Plan EIRR Economic Internal Rate of Return ESIRT Environmental and Social Incident FM Financial Management GIS Geographic Information System IBRD International Bank for Reconstruction and Development ICR Implementation Completion and Results Report MOF Ministry of Finance NBF Non-Bank Financed O&M Operation and Maintenance OHS Occupational Health and Safety OP World Bank Operational Policy PDO Project Development Objectives PMO Project Management Office RAP Resettlement Acton Plan SA Social Assessment SCAP Safeguard Corrective Action Plan SORT Systematic Operational Risk Rating Tool The World Bank Chongqing Small Towns Water Environment Management Project (P133117) BASIC DATA Product Information Project ID Financing Instrument P133117 Investment Project Financing Original EA Category Current EA Category Full Assessment (A) Full Assessment (A) Approval Date Current Closing Date 23-Dec-2014 31-Dec-2021 Organizations Borrower Responsible Agency People's Republic of China Chongqing Project Management Office Project Development Objective (PDO) Original PDO The project development objective is to reduce flood risks and improve wastewater infrastructure services in selected counties of Chongqing Municipality. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-84560 23-Dec-2014 05-Mar-2015 03-Jun-2015 31-Dec-2021 88.00 64.76 23.24 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Chongqing Small Towns Water Environment Management Project (P133117) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. Background. On December 8, 2021, the Bank received a letter from Ministry of Finance (MOF) of the People’s Republic of China requesting a six months’ extension to the loan closing date to fully use the loan proceeds and accommodate the implementation of the Chongqing Small Towns Water and Environment Management Project (Loan No. 8456-CN), from December 31, 2021 to June 30, 2022. This proposed restructuring is to respond to the request from the MOF and also includes corresponding updates in the project costs and disbursement projections. 2. An IBRD loan of US$ 100 million for the Chongqing Small Towns Water Environment Management Project was approved by the World Bank Board of Executive Directors on December 23, 2014. The project became effective on June 3, 2015, with an original closing date of December 31, 2020. The Project Development Objective (PDO) is to reduce flood risks and improve wastewater infrastructure services in selected counties of Chongqing Municipality. The Project comprises five components: (i) flood management in Tongnan County; (ii) flood and wastewater management in Rongchang County; (iii) flood and wastewater management in Shizhu County; (iv) flood and wastewater management in Pengshui County; and (v) project management and implementation support. The total project cost was estimated to be US$ 218.6 million at appraisal, with the IBRD loan of US$ 100 million and counterpart fund of US$ 118.6 million. 3. This proposed restructuring is the second restructuring for the Project. The project was restructured in December 2020, to: (i) retroactively increase the financing percentage for civil works; (ii) extend the loan closing date by one year, i.e. from December 31, 2020 to December 31, 2021; (iii) cancel US$12.0 million of the loan proceeds and adjust the allocation of the loan in different disbursement categories; and (iv) adjust the PDO indicators targets. The first project restructuring was approved on December 15, 2020. 4. Landslide Incidents under Pengshui Component: Two civil works contracts under Pengshui Component encountered delays due to three landslides at Tianchi, Guihuabang and Juanzhipo which occurred in July 2020, causing damages to both project interventions (the river embankment and road under the project) and nearby houses but did not result in fatalities or injuries to people. After the incidents in July 2020, Pengshui County evacuated 39 families (169 people) from Tianchi and Guihuabang and relocated them to nearby transitional houses. Investigations concluded that the landslides were caused by the combination of unfavorable geological conditions, heavy rainstorms, and construction activities. To mitigate the physical impacts of the landslides, the remediation works have been designed and approved by the local government in August 2021. Based on the detailed geotechnical investigation, the remedial works comprise the removal of earth loads on upper part of the landslide bodies and replace the soft soil with the gravel at the lower part of the landslides. To facilitate implementation of the remediation works, it was agreed to include them in the current civil works contracts under the project. According to the Bank’s safeguards policies, the Resettlement Action Plan (RAP) and Environmental Safeguards Management Plan (ESMP) have been updated, cleared and disclosed. In addition, Pengshui has developed a Safeguards Corrective Action Plan (SCAP) according to the requirements of Environmental and Social Incident Response Toolkits (ESIRT) and the final SCAP had been submitted to the Bank on November 15, 2021. 5. Implementation Status and Achievement to Date: Currently, the progress towards achievement of the PDO is rated as Moderate Satisfactory (MS) as two PDO indicators, out of a total of three, have been met, and the third one is expected to be achieved by December 31, 2021. The overall implementation progress is rated Moderately Unsatisfactory (MU) due to the slow progress in treatment of the landslide incidents which had occurred in July 2020. To date, a total of US$ 64.76 million or about 74 percent of the loan amount has been disbursed. The World Bank Chongqing Small Towns Water Environment Management Project (P133117) (a) Relevance of the PDO. The PDO remains very relevant to the development priorities of the government which is committed to completing the Project. The Project is also aligned with the World Bank Group’s latest Country Partnership Framework (CPF) for China FY2020-2025 (Report No. 117875-CN) and contributes to one of the three engagement areas. This is Engagement Area 2: “promoting greener growth”, by enhancing urban environmental services, helping project areas to "build back better" in the wake of disasters, and building long-term resilience to natural hazards. As majority of the dikes and embankments have constructed, and the sewer networks completed, the project works have started to produce the intended benefits, i.e. protecting the urban land and population from floods and providing the urban population with sanitary services. (b) Implementation Progress. A total of 41 contracts out of 42 in the approved procurement plan, including six non-Bank financed (NBF) contracts, were signed with the total contract value of RMB 614.24 million (or US$90.56 million in equivalent). The remaining goods contract for purchasing the materials for flood emergency response has been signed on December 13, 2021 and will be delivered by December 28, 2021. (c) Implementation Status by Components. i) Component 1: Flood Management in Tongnan District: This component supports the construction of 6.3 km river embankment with dike-top roads, and non-structural flood management measures of flood emergency response and flood risk mapping. Status: All civil works for the construction of dikes, river embankment, dike top roads, and a warehouse, have been completed. For the non-structural activities, the materials for flood emergency response have been procured and delivered, flood emergency preparedness plan has been completed, and training activities are progressing as per plan. The contract for preparing flood risk mapping is expected to be completed by December 31, 2021, with commissioning and operational/maintenance training scheduled for completion in February 2022. ii) Component 2: Flood and Wastewater Management in Rongchang District. This component supports the construction of 13.54 km river embankment with dike-top roads and 13.65 km sewage/drainage pipes, and non-structural flood management measures of flood emergency response and flood risk mapping. Status: All major civil works contracts are completed. During the mission visit in June 2021, Rongchang informed the Bank that it has decided to drop the embarkment greening as there is not sufficient time to modify the proposed design which is needed to comply with relevant domestic standards and regulations. This change will not impact the achievement of the PDO and result indicators. The loan allocated to this activity will be fully utilized for the remedial works under Pengshui Component. For the non-structural activities, the materials for flood emergency response have been procured and training for flood risk response has been completed. The preparation of flood risk mapping and flood emergency preparedness plan are expected to be completed by December 31, 2021, with commissioning and operational/maintenance training scheduled for completion in February 2022. iii) Component 3: Flood and Wastewater Management in Shizhu County. This component supports the construction of 5.94 km river embankment with 6.94 km dike-top roads and 13.3 km sewage/drainage pipes, and non-structural measures of flood emergency response, flood risk mapping, Geographic Information System (GIS) sewer monitoring system and hydrology information system. Status: For the civil works, one contract of sewage pipes was completed in May 2016. Four contracts of dike construction have been substantially completed and the dikes have reached the design elevation. For the non-structural activities, the materials for flood emergency response have been procured and delivered. The The World Bank Chongqing Small Towns Water Environment Management Project (P133117) GIS sewer monitoring system, hydrology information system, and trainings for flood risk response have been completed. The preparation of flood emergency preparedness plan has been completed, while flood risk mapping is expected to be completed by December 31, 2021, with commissioning and training on operation and maintenance scheduled for completion in February 2022. iv) Component 4: Flood and Wastewater Management in Pengshui County. This component supports the construction of 4.69 km river embankment with 4.69 km dike-top roads and 4.83 km sewage/drainage pipes, and non-structural measures of flood emergency response, flood risk mapping, and hydrology monitoring system. Status: The two major civil works contracts of dike and sewage pipe construction experienced delays due to the outbreak of COVID-19 in early 2020 and landslide incidents occurred later in July 2020. The original works under these two contracts are about 80 percent completed. Based on the latest schedule, the remaining works and landslide treatment works of both contracts are expected to be completed by March 31 and May 31, 2022 respectively. For the non-structural activities, the materials for flood emergency response have been procured and training for flood risk response have been completed. The consulting service for preparing flood risk mapping is expected to be completed by December 31, 2021, with commissioning and operational/maintenance training scheduled for completion in February 2022. v) Component 5: Project Management and Implementation Support. This component has three service contracts of which a contract for Technical Assistance had been completed. Two contracts for project management and independent monitoring of safeguards instruments are under implementation. These two contracts are expected to close by June 30, 2022 as to continue their services to the end of newly proposed closing date of the Project. 6. Environmental Safeguards. The current environmental performance is rated as MS due to the landslide incidents at the Pengshui project site which caused damages to the houses nearby. The landslide remediation plans, developed by Pengshui PMO to stabilize the landslides area and deformation area, are currently underway. Safeguards Corrective Action Plan (SCAP), developed by Pengshui PMO, is also being implemented by the Pengshui PIU and being monitored by the Bank, following the requirements of the Environmental and Social Incident Response Toolkit (ESIRT). The project triggered four environmental safeguards policies, i.e. Environmental Assessment (OP4.01), Natural Habitats (OP4.04), Physical Cultural Resources (OP4.11), and Safety of Dams (OP4.37). The implementation of the Environmental Impact Assessment (EIA) and the Environmental Management Plan (EMP) is in compliance with these safeguards policies as confirmed by the external monitoring reports. Annual dam safety reports that have been submitted in a timely manner are of good quality. 7. Social Safeguards. The current social safeguards performance is rated as MS. All counties, except for Pengshui and Tongnan, have completed the land acquisition and resettlement satisfactorily. The implementation of Resettlement Action Plan (RAP) is consistent with the OP 4.12 requirement. The landslide remedial works in Pengshui also affected 60 households with 311 persons, including the relocation of 40 households with 159 persons. Following the RAP, the Pengshui County government had allocated the resettlement budget into a designated account, satisfying the need to compensate the people affected by the landslides. The report from Pengshui shows that the compensation for land acquisition has been paid to all affected people (311 people) by November 30, 2021. As of December 15, 2021, 34 households (85% of a total of 40 households) that would be physically relocated have accepted and signed the relocation compensation agreements, and 31 households have received the relocation compensation while the compensation process for other households is ongoing and will be completed by December 28, 2021. 8. Separate from the issues of landslides, Tongnan has not obtained the required land approval for the 1.324 ha land due to a technical design change (realignment of about 200 m of dike at its southern end). The delay of obtaining the The World Bank Chongqing Small Towns Water Environment Management Project (P133117) land approval is mainly because of a combination of external factors such as the introduction of the new Land Management Law and the pending issuance of the Spatial Master Plan. The government suspended processing the requests for land approval until recently whence the Chongqing Municipality issued the Spatial Master Plan. The land approval forms the basis for 42 affected persons to access the social security1. The Tongnan PMO has worked out a stepwise plan to proceed with the land approval. The land approval application will be submitted to Chongqing Planning and Natural Resources Bureau by March 15, 2022, and the land certificate is expected to be obtained by April 2022. Before the land certificate is approved, Tongnan will continue to pay the affected persons RMB500 per month per person to compensate the late coverage of the social security. The Bank team will monitor it closely during the project’s remaining implementation period. 9. Procurement. Project procurement is rated as Satisfactory and procurement activities are in compliance with the Bank Procurement Guidelines and Consultant Guidelines. There have been no significant issues relating to either procurement or contract management. 10. Financial Management (FM). The project complies with Bank FM policies. There are neither outstanding audits nor qualifications in the audit reports. The financial management rating is currently MS due to the slow disbursement. The Bank loan is fully committed and will be 100% disbursed by project closing. 11. Compliance with Covenants. The project is in compliance with all legal covenants. B. RATIONALE FOR RESTRUCTURING 12. The purpose of the proposed restructuring is to ensure that additional time is provided to allow the utilization of the IBRD loan for the proper remediation for landslides in Pengshui County, which were assessed to have occurred due to a combination of factors, including poor geological condition along the riverbank, heavy storm, and project construction activities. 13. Extension of Loan Closing Date. The Ministry of Finance (MOF) has requested the Bank to extend the loan closing date by six months through a letter dated December 7, 2021. This level 2 restructuring is proposed to further extend the loan closing date from December 31, 2021 to June 30, 2022. This restructuring includes also corresponding updates in the project costs and disbursement projections. Details of the restructuring are presented in the next section. The proposed new closing date of the Project will allow sufficient time for the completion of all remaining activities in order to fully achieve the PDO. II. DESCRIPTION OF PROPOSED CHANGES 14. The proposed Level 2 restructuring will include the following changes: 15. Extension of Loan Closing Date. The Loan closing date is proposed to be extended from December 31, 2021 to June 30, 2022. This would be the second extension of the loan closing date. The proposed closing date extension would provide the client sufficient time to fully complete all the project activities, especially the proper treatment of landslides in Pengshui County to ensure sustainable operation of the project facilities. 1 The social pension program for affected persons is a special program in China to ensure that the land-lost farmers can have a fair pension after reaching retirement ages (55 for the female and 60 for the male). It means that their Hukou (household registration) is converted from rural to urban. Only after the government have received the approval for land acquisition (land certificate), the government can pay the premium of social pension for relevant affected persons. The World Bank Chongqing Small Towns Water Environment Management Project (P133117) 16. Changes in Project Costs and Financing: The total project costs are increased slightly from US$ 179.22 million (at the first project restructuring) to US$ 186.25 million, due to the cost increase caused by the resettlement and remedial works for treating the landslides in Pengshui, as well as to reflect the changes due to the contract variations and fluctuation in foreign exchange rate. Comparing with the total project costs of US$218.60 million at appraisal, the Bank is now financing US$88.0 million and the remaining costs of US$98.25 million will be financed by counterpart funds. Table 2. Changes in Project Costs At Appraisal At 1st Restructuring At Proposed Restructuring Estimated Costs IBRD Estimated Costs IBRD Estimated Costs IBRD Project Component RMB US$ US$ RMB US$ US$ RMB US$ US$ (million) (million) (million) (million) (million) (million) (million) (million) (million) Component 1 257.10 42.10 17.86 259.14 38.09 15.54 256.87 38.39 15.68 Component 2 280.40 46.00 23.40 300.19 44.02 22.70 264.41 39.50 18.27 Component 3 305.90 50.20 27.61 316.03 46.40 23.82 317.59 47.77 24.18 Component 4 299.30 49.00 25.14 288.51 42.69 22.58 346.28 51.94 25.88 Component 5 35.00 5.70 5.74 26.72 3.11 3.11 25.06 3.74 3.74 Sub-Total: 1,177.70 193.00 99.75 1,190.58 174.31 87.75 1,210.20 181.34 87.75 Contingency 89.80 14.70 - - - - - - - IDC and CF 64.60 10.60 - 31.57 4.66 - 31.35 4.66 - Front-end fee 1.50 0.30 0.25 1.70 0.25 0.25 1.70 0.25 0.25 Total: 1,333.60 218.60 100.00 1,223.85 179.22 88.00 1,243.24 186.25 88.00 Notes: Component 1: Flood management in Tongnan County Component 2: Flood and wastewater management in Rongchang County Component 3: Flood and wastewater management in Shizhu County Component 4: Flood and wastewater management in Pengshui County Component 5: Project Management and Implementation Support IDC and CF - Interest During Construction (IDC), and Commitment fee 17. Changes in Disbursement Estimates. The disbursement estimates are updated to reflect the proposed closing date extension. 18. Overall Risk Rating. The Environmental and Social risks are rated as Substantial because (i) the potential secondary landslides risk caused by geological instability before completion of the landslides remedial works that are currently underway, and the risks associated with the site remediation work such as water and soil loss, community safety and workers’ Occupational Health and Safety (OHS) risk; and (ii) the resettlement for Pengshui landslides is ongoing and The World Bank Chongqing Small Towns Water Environment Management Project (P133117) the Tongnan has not yet obtained the land approval for 1.324 ha land. The overall risk for this project remains as Substantial to be consistent with the Environmental and Social Risk Rating. There is continued commitment from the government to complete the project activities, in spite of the implementation delays. The Bank team will continue to support the counterparts and closely monitor the progress in resettlement and landslide remedial works under Pengshui Component. The Bank will also monitor the progress in the government’s approval of the land certification and payment of social pension premiums for affected persons under Tongnan Component. No changes are proposed to any other risk ratings in the SORT. 19. Economic and Financial Analysis. The same approach for economic and financial analysis at appraisal, i.e. cost- effectiveness analysis, has been adopted to evaluate the feasibility of the project flood risk management component. With the project costs reduced under Rongchang Component and increased under Penghshui Component, the result of economic analysis shows the flood risk management component is still viable economically, i.e. current Economic Internal Rate of Return (EIRR) of 13.1 percent in Rongchang, 9.9 percent in Tongnan, 6.7 percent in Pengshui, and 10.1 percent in Shizhu, comparing to the original EIRR at appraisal of 16.4 percent in Rongchang, 13 percent in Tongnan, 11.6 percent in Pengshui, and 13.2 percent in Shizhu. On the wastewater management component, the economic analysis shows this component is also viable, as the costs reduced and number of beneficiaries slightly increased. A more detailed economic assessment will be carried out at the ICR stage. 20. Technical Analysis. This project restructuring does not include any changes to the technical aspects of the project approach and design. 21. Social Safeguard Analysis. The project has completed the land acquisition and resettlement for the Bank-financed subprojects, with only a small area of land (1.324 ha) that has not yet obtained the land certificate for Tongnan. Tongnan has updated the roadmap to proceed with obtaining land permits and has completed several steps as required by the current land laws and regulations. The landslides in Pengshui affected 60 households with 311 persons, for which Pengshui PMO prepared an updated RAP. The updated RAP for Pengshui landslides was cleared by RSA on October 25, 2021, and locally disclosed on November 25, 2021 and on the Bank website as of November 29, 2021. The CPMO and Tongnan and Pengshui governments have shown a strong commitment to addressing the outstanding resettlement issues. These activities were well monitored and documented. The updated RAP will be implemented and monitored during the remaining implementation period. 22. Environmental Analysis. This proposed restructuring will not change the Environmental Assessment category of the project and no new safeguards policy will be triggered. The new activities supported by this project restructuring are the remediation works to landslide sites in Pengshui. The environment-related risks associated with the landslides and landslide remediation works include potential secondary landslide risk caused by geological instability, water and soil loss, community safety and workers’ Occupational Health and Safety (OHS) risk, dust, noise and spoil, etc. An ESMP including an Emergency Response Plan has been developed by Pengshui PMO to manage these environmental risks. III. SUMMARY OF CHANGES Changed Not Changed Components and Cost ✔ Loan Closing Date(s) ✔ Disbursement Estimates ✔ The World Bank Chongqing Small Towns Water Environment Management Project (P133117) Implementation Schedule ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 1: Flood Component 1: Flood 38.09 Revised management in Tongnan 38.39 management in Tongnan County County Component 2: Flood and Component 2: Flood and wastewater management in 44.02 Revised wastewater management in 39.50 Rongchang County Rongchang County The World Bank Chongqing Small Towns Water Environment Management Project (P133117) Component 3: Flood and Component 3: Flood and wastewater management in 46.40 Revised wastewater management in 47.77 Shizhu County Shizhu County Component 4: Flood and Component 4: Flood and wastewater management in 42.69 Revised wastewater management in 51.94 Pengshui County Pengshui County Component 5: Project Component 5: Project Management and 3.11 Revised Management and 3.74 Implementation Support Implementation Support TOTAL 174.31 181.34 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-84560 Effective 31-Dec-2020 31-Dec-2021 30-Jun-2022 30-Oct-2022 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2015 0.00 0.00 2016 1,000,000.00 1,000,000.00 2017 9,000,000.00 9,000,000.00 2018 13,229,518.00 13,229,518.00 2019 10,224,068.00 10,224,068.00 2020 13,869,228.00 13,869,228.00 2021 31,877,186.00 9,897,186.00 2022 8,800,000.00 25,780,000.00 2023 0.00 5,000,000.00 OPS_DETAILEDCHANGES_COMPLIANCE_TABLE The World Bank Chongqing Small Towns Water Environment Management Project (P133117) COMPLIANCE Safeguard Policies Safeguard Policies Triggered Current Proposed Environmental Assessment (OP) (BP 4.01) Yes Yes Performance Standards for Private Sector No No Activities OP/BP 4.03 Natural Habitats (OP) (BP 4.04) Yes Yes Forests (OP) (BP 4.36) No No Pest Management (OP 4.09) No No Physical Cultural Resources (OP) (BP 4.11) Yes Yes Indigenous Peoples (OP) (BP 4.10) No No Involuntary Resettlement (OP) (BP 4.12) Yes Yes Safety of Dams (OP) (BP 4.37) Yes Yes Projects on International Waterways (OP) (BP No No 7.50) Projects in Disputed Areas (OP) (BP 7.60) No No .