Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: ICR00004511
IMPLEMENTATION COMPLETION AND RESULTS REPORT
IBR 80050
ON A
LOAN
IN THE AMOUNT OF US$ 150 MILLION
TO THE
The People's Republic of China
FOR
Liuzhou Environment Management Project Phase II
February 21, 2019
Water Global Practice
East Asia And Pacific Region
CURRENCY EQUIVALENTS
(Exchange Rate Effective February 1, 2011})
Currency Unit = Chinese Yuan Renminbi (CNY)
US$ 1.00 = 6.5938 (at appraisal)
US$ 1.00 = 6.933 (at closing)
FISCAL YEAR
January 1 – December 31
Regional Vice President: Victoria Kwakwa
Country Director: Bert Hofman
Senior Global Practice Director: Jennifer Sara
Practice Manager: Sudipto Sarkar
Task Team Leader(s): Gang Qin
ICR Main Contributor: Berta Macheve and Alek Cannan
ABBREVIATIONS AND ACRONYMS
BOD Biological Oxygen Demand
CAGR Compound Annual Growth Rate
COD Chemical Oxygen Demand
CPS Country Partnership Strategy
CRR Cost Recovery Ratio
DSCR Debt Service Coverage Ratio
EMP Environmental Management Plan
FIRR Financial Internal Rate of Return
FYP Five Year Plan
IBRD International Bank for Reconstruction and Development
ICR Implementation Completion and Results Report
ISR Implementation Support and Results Report
kWh Kilo Watt hour
LA Loan Agreement
LMG Liuzhou Municipal Government
LMWTC Liuzhou Municipal Wastewater Treatment Company, Limited
LZEMP Liuzhou Environmental Management Project
LZEMP II Second Liuzhou Environmental Management Project
M&E Monitoring and Evaluation
MIS/GIS Monitoring Information System/Geographical Information System
MTR Mid-Term Review
O&M Operation and Maintenance
OP Operation Procedure
PAD Project Appraisal Document
PDO Project Development Objectives
PMO Project Management Office
PPP Public Private Partnership
PS Pumping Station
RAP Resettlement Action Plan
RMB Renminbi (Chinese Currency)
RP Restructuring Paper
WW Wastewater
WWTP Wastewater Treatment Plant
TABLE OF CONTENTS
DATA SHEET ...........................................................................................................................1
I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVE S ...................................................... 5
A. CONTEXT AT APPRAISAL .........................................................................................................5
B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) .......................................9
II. OUTCOME .................................................................................................................... 10
A. RELEVANCE OF PDOs ............................................................................................................ 10
B. ACHIEVEMENT OF PDOs (EFFICACY) ...................................................................................... 11
C. EFFICIENCY ........................................................................................................................... 15
D. JUSTIFICATION OF OVERALL OUTCOME RATING .................................................................... 18
E. OTHER OUTCOMES AND IMPACTS (IF ANY) ............................................................................ 19
III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 19
A. KEY FACTORS DURING PREPARATION ................................................................................... 19
B. KEY FACTORS DURING IMPLEMENTATION ............................................................................. 21
IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 22
A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 22
B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 23
C. BANK PERFORMANCE ........................................................................................................... 24
D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 25
V. LESSONS AND RECOMMENDATIONS ............................................................................. 26
ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 27
ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 42
ANNEX 3. PROJECT COST BY COMPONENT ........................................................................... 44
ANNEX 4. FINANCIAL AND ECONOMIC ANALYSIS ................................................................. 45
ANNEX 5. RIVER WATER QUALITY COMPLIANCE................................................................... 52
ANNEX 6. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ... 54
ANNEX 7. SUMMARY OF THE BORROWERS ICR .................................................................... 54
The World Bank
Liuzhou Environment Management Project Phase II (P112626)
DATA SHEET
BASIC INFORMATION
Product Information
Project ID Project Name
P112626 Liuzhou Environment Management Project Phase II
Country Financing Instrument
China Investment Project Financing
Original EA Category Revised EA Category
Full Assessment (A) Full Assessment (A)
Organizations
Borrower Implementing Agency
The People's Republic of China LIUZHOU PMO
Project Development Objective (PDO)
Original PDO
To establish sustainable wastewater collection and treatment services within the urban area boundaries of Liuzhou
City and in four county towns located upstream of Liuzhou City.
PDO as stated in the legal agreement
To establish sustainable wastewater collection and treatment services within the urban area boundaries of Liuzhou
and in the Sanjiang, Rong’an, Rongshui and Liucheng Counties.
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Liuzhou Environment Management Project Phase II (P112626)
FINANCING
Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$)
World Bank Financing
150,000,000 150,000,000 150,000,000
IBRD-80050
Total 150,000,000 150,000,000 150,000,000
Non-World Bank Financing
0 0 0
Borrower/Recipient 138,390,000 138,390,000 133,839,000
Total 138,390,000 138,390,000 133,839,000
Total Project Cost 288,390,000 288,390,000 283,839,000
KEY DATES
Approval Effectiveness MTR Review Original Closing Actual Closing
10-Mar-2011 23-Aug-2011 18-Nov-2014 31-May-2017 31-May-2018
RESTRUCTURING AND/OR ADDITIONAL FINANCING
Date(s) Amount Disbursed (US$M) Key Revisions
10-Dec-2015 82.06 Change in Results Framework
Change in Components and Cost
Change in Loan Closing Date(s)
Change in Financing Plan
Reallocation between Disbursement Categories
02-Nov-2017 124.24 Change in Results Framework
Change in Loan Closing Date(s)
Reallocation between Disbursement Categories
Change in Implementation Schedule
KEY RATINGS
Outcome Bank Performance M&E Quality
Moderately Satisfactory Moderately Satisfactory Substantial
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Liuzhou Environment Management Project Phase II (P112626)
RATINGS OF PROJECT PERFORMANCE IN ISRs
Actual
No. Date ISR Archived DO Rating IP Rating Disbursements
(US$M)
01 22-Sep-2011 Satisfactory Satisfactory 0
02 11-Nov-2012 Satisfactory Satisfactory 8.35
03 08-Jun-2013 Satisfactory Satisfactory 16.32
04 17-Dec-2013 Satisfactory Satisfactory 30.03
05 25-Jun-2014 Satisfactory Satisfactory 44.39
06 16-Dec-2014 Satisfactory Satisfactory 55.94
07 07-Jun-2015 Satisfactory Satisfactory 68.21
08 17-Nov-2015 Satisfactory Moderately Satisfactory 77.66
09 21-Dec-2015 Satisfactory Satisfactory 82.06
10 10-Jun-2016 Satisfactory Satisfactory 95.68
11 11-Dec-2016 Satisfactory Satisfactory 105.26
12 01-Jun-2017 Satisfactory Moderately Satisfactory 124.24
13 04-Dec-2017 Satisfactory Satisfactory 132.92
14 31-May-2018 Satisfactory Satisfactory 145.64
SECTORS AND THEMES
Sectors
Major Sector/Sector (%)
Water, Sanitation and Waste Management 100
Sanitation 96
Waste Management 3
Public Administration - Water, Sanitation and Waste
1
Management
Themes
Major Theme/ Theme (Level 2)/ Theme (Level 3) (%)
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Liuzhou Environment Management Project Phase II (P112626)
Urban and Rural Development 50
Urban Development 50
Urban Infrastructure and Service Delivery 50
Environment and Natural Resource Management 51
Environmental Health and Pollution Management 51
Air quality management 17
Water Pollution 17
Soil Pollution 17
ADM STAFF
Role At Approval At ICR
Regional Vice President: James W. Adams Victoria Kwakwa
Country Director: Klaus Rohland Bert Hofman
Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Jennifer J. Sara
Practice Manager: Narasimham Vijay Jagannathan Sudipto Sarkar
Task Team Leader(s): Victor M. Vergara Gang Qin
Berta Adelaide Da Silva
ICR Contributing Author:
Macheve
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The World Bank
Liuzhou Environment Management Project Phase II (P112626)
I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVE S
A. CONTEXT AT APPRAISAL
Context
1. Liuzhou is located in Guanxi Autonomous Region and has a high concentration of developed industries. In 2011,
the gross domestic product (GDP) for the city of Liuzhou was RMB 154.3 billion1 and increased to 275.6 billion in 20172.
Along with economic development, Liuzhou also experienced large population growth. By 2007, Liuzhou’s total
population was 3.65 million, of which 1.02 million were urban3. By 2011, the Liuzhou urban population had grown to 1.2
million. It is estimated that by 2020-2025 the total population will reach 4.8 million, of which 3.0 million will be urban3.
This rapid economic and population growth has led to environmental degradation, particularly pollution of local
waterways, with most domestic and industrial wastewater being discharged directly into the Liujiang River without
treatment. As such, the river water quality deteriorated from Class III to Class IV from 2004 to 2006 (see details of river
water quality in Table A5-1, Annex 5). At the same time, the Liujiang River is the main source of water for domestic and
industrial use4.
2. In response to these challenges, in 2005 the Liuzhou Environmental Management Project – LZEMP (P081346;
“phase one”) was approved with the objective to improve and protect the water quality of the Liujiang River through
investments in improved wastewater treatment, public sanitation, and solid waste management. The LZEMP was
implemented over seven years, and four wastewater treatment plants5 (WWTPs) and their associated pumping stations
(PS) and sewerage networks were completed in the main urban areas of Liuzhou City. By 2010, the Liuzhou Municipality
wastewater collection and treatment capacity had increased from 100,000 to 500,000 m3/day, and the percentage of
wastewater treated had increased from 15 percent to 75 percent. The quality of the effluent discharged into the
downstream areas of the Liujiang River 6 from the WWTPs was controlled at the level of Class III (see Table A5-2, Annex
5). However, the counties neighboring Liuzhou did not have any WWTPs or collection systems for treatment and disposal
of wastewater. As a result, the domestic wastewater from these areas was directly discharged into the rivers.
3. The phase one LZEMP also intended to strengthen the institutional capacity for wastewater treatment at the city
of Liuzhou through the establishment of the Liuzhou Municipal Wastewater Treatment Company Limited (LMWTC)7. The
LMWTC was established to take over wastewater management from the Liuzhou government, and was given the right
to collect wastewater/sewerage tariffs – although, tariff collection by LMWTC was limited due to political constraints.
While wastewater tariffs did increase from RMB 0.5 per m3 in 2007 to RMB 0.8/m3 in 20098, this value was still below the
tariff level expected to ensure financially sustainable operation of the facilities (subsequent estimates projected that
1 https://hkmb.hktdc.com/en/1X09R58D/hktdc-research/Liuzhou-Guangxi-City-Information
2 Liuzhou Statistics Bureau. (2017 & 2016). 2017 & 2016 Liuzhou Statistical Annual Bulletin for Economic and Social Development
3 Project Appraisal Document for Second Liuzhou Environmental Management Project (P112626)
4 Feasibility Study Report for Liuzhou Environmental Management II (version 2) Project Appraisal Document for Liuzhou Environmental
Management Project (P081346)
5 Yanghe, Labao, Baisha and Longquanshan WWTPs
6 Implementation Completion Report for Liuzhou Environmental Management Project
7 Project Appraisal Document for Liuzhou Environmental Management Project (P081346)
8 Implementation Completion Report for Liuzhou Environmental Management
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tariff increases up to RMB 1.7 per m3 would be sufficient to achieve full cost recovery without relying in subsidies, see
further discussion below).
4. Although the quality of water in the Liujiang River improved because of the LZEMP (and was in compliance with
Class III standards from 2006 to 20109), by 2011, new challenges were identified that formed the basis for the design of
this Second Liuzhou Environmental Management Project (P112626) – LZEMP II. Specifically, the four upstream counties
of Liuzhou Municipality needed increased capacity for wastewater collection and treatment, which would enable the
Liujiang River to remain at Class III standards or better. Furthermore, Liuzhou Municipality and the surrounding four
counties needed further institutional strengthening and capacity building to improve operation and management of the
sewerage systems.
5. China water sector financial context: The speed and scale of recent urbanization in China have made
management and institutionalization of wastewater services difficult. In recent years, many new wastewater systems
have been constructed, but have suffered from limited focus on long-term operations and maintenance. In particular,
two key challenges include the fact that wastewater tariffs are generally too low, and that payment rates by customers
also tend to be low. In China, wastewater tariffs are collected as part of water service tariffs paid to local water companies
and local governments. Historically, and especially in cities like Liuzhou, wastewater tariffs have been too low to cover
the full costs of wastewater operations, capital investments, and debt servicing. Raising wastewater tariffs is a difficult
political issue and local governments have been unable to consistently raise tariffs to sustainable levels in a timely
manner (in some cases, tariffs have been raised, only to be lowered again because of social pressures). Non-payment of
tariffs is largely an awareness and behavioral issue, as residents in recently-urbanized areas are not accustomed to paying
wastewater fees, nor have they been made fully aware of the benefits of wastewater services. Both factors significantly
impact the financial sustainability of water/wastewater service companies in China. Therefore, and given that providing
improved wastewater services to rapidly urbanizing areas is a top priority of China's central and local governments, it is
a matter of established policy that local governments provide subsidies to wastewater companies (typically to cover
capital costs and debt servicing for financing new systems, and in some cases to cover operational costs when revenues
collected from tariffs are not enough). Subsidies represent a source of revenue to wastewater companies, guaranteed
by local governments, and thus ensuring that the systems are well operated and maintained. Central and local
governments are committed to providing such subsidies until the financial situation of China’s wastewater sector in lower
tier cities stabilizes.
Theory of Change (Results Chain)
6. The aim of this project was to establish new sustainable wastewater collection and treatment services in the
four upstream counties of Liuzhou, and to further improve wastewater management in the central urban areas of Liuzhou
Municipality. To meet these goals, new collection, treatment, and disposal systems were required; and under the project,
six WWTPs were constructed in the upstream counties along with the required sewerage collection networks and
pumping stations. In the central urban areas of Liuzhou Municipality, although there were five WWTPs in operation10 at
the time of appraisal, additional capacity was required for collection and treatment, and therefore two of the existing
WWTPs in Liuzhou were extended under this project. The target for both central urban areas and upstream counties
was to collect and treat up to 90 percent of the domestic wastewater before discharge into the Liujiang River.
7. Safe management of WWTP sludge was also included in the design of the project. At the time of appraisal,
sludge generated from existing WWTPs (including facilities built under the LZEMP) was being disposed of in a landfill.
9 Implementation Completion Report for Liuzhou Environmental Management Project
10 Yanghe, Labao, Baisha and Longquanshan WWTPs. Baisha and Longquanshan were built under the P081346
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Liuzhou Environment Management Project Phase II (P112626)
However, given the high-water content of the sludge (80%), the limitations on additional land and landfill space, as well
as the risk of potential environmental impacts from landfill sludge disposal, the project included the construction of
WWTP sludge storage and processing facilities in a cement plant located in a suburb of Liuzhou.
8. Together, the wastewater and sludge management systems developed under the project increased wastewater
collection, treatment, and safe disposal; thereby providing citizens in Liuzhou and surrounding counties with improved
access to sewerage services as well as allowing the municipality to reduce the discharge of pollutants into the river.
9. To ensure the sustainability of the wastewater and sludge management systems, the project also included
capacity building on project management, contract management, financial management, and project review and post
evaluation to strengthen and optimize the operations of wastewater systems and the human resources and management
staff. To improve financial management, the project supported wastewater tariff increases to cover O&M costs, as well
as strengthened the capacity for financial modeling of LMWTC. For technical sustainability, an MIS/GIS was installed
which allowed LMWTC to monitor and manage the assets built under the project, and capacity building was conducted
for LMWTC staff on wastewater facility operation and management, waste and storm water pipeline maintenance, water
quality monitoring, asset management, among other topics. For institutional sustainability, LMWTC benefitted from
managerial skills on construction and project management, procurement processes and financial management. Figure
1 shows the elements of the project Theory of Change.
Figure 1 – Schematic of Project Theory of Change
Intermediate
Activities Outputs PDO Outcomes Impacts
Outcomes
WWTPs constructed,
Wastewater collected
equipped and in
Construction and and treated
operation
equipping of WWTP
and Installation of Establish wastewater
sewerage pipes and Sewerage network Reduction on collection and
pumping stations concentration load of treatment services
constructed and
pollutants discharged within the urban area
connected to the
into the river boundaries of
WWPTs
Liuzhou and four
neighboring counties
Construction of
storage and Reduction of volume
Sludge combustion
processing facilities of WWTP sludge
facility developed and
for WWTP sludge disposed to the
in operation Environmental
combustion environment
conditions of Liujiang
River in the City of
Liuzhou improved
Asset management
MIS/GIS system in improved
operation
Establishment of Operation and
MIS/GIS system for management of Sustainability of the
Increased
asset management WWTP infrastructures wastewater collection
institutional capacity
and capacity building optimized and treatment
for LMWTC staff on
WWTP operation and services
optimization of Increased financial
infrastructure sustainability of
conducted LMWTC
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Liuzhou Environment Management Project Phase II (P112626)
Project Development Objectives (PDOs)
10. At approval and as per the Loan Agreement, the PDO was to: establish sustainable wastewater collection and
treatment services within the urban area boundaries of Liuzhou and in the Sanjiang, Rong’an, Rongshui and Liucheng
counties.
Key Expected Outcomes and Indicators
11. The original PDO indicators at appraisal were:
a) Percentage of the population in the participating urban areas of Liuzhou Municipality served by
wastewater collection and treatment services; and
b) Annual Net Income (after tax) of the wastewater operations of LMWTC.
12. The project originally had eight intermediary indicators:
i. Capacity of the waste treatment plants in operation and volume treated (m3/d).
ii. Percentage of urban wastewater treated.
iii. Cash flow from wastewater operations covering capital investments and debt obligations relating to
wastewater (million RMB)
iv. Enforcement and operation of on-line automatic monitoring stations at major industrial discharges.
v. Quantity of sludge (with 80% moisture content) to be sent for co-combustion, (ton/d).
vi. Accumulated Number of Contracts Awarded.
vii. Power consumption in kwh per unit of wastewater treated in Baisha and Longquanshan WWTP, (kwh/m3
of wastewater treated).
viii. Accumulated Managerial and/or skill development Training received (Staff-days).
Components
13. At appraisal, the project had three components:
Component 1 – Wastewater Management (US$265.46 million of which the IBRD loan was US$143.33 million)
14. This component financed the following:
a) Construction and/or equipment for six wastewater treatment plants and sewerage systems. Four systems
were newly installed in each of the four upstream urban counties (Sanjiang, Rong’an, Rongshui and
Liucheng). Two WWTPs were also constructed/upgraded in the Liuzhou central urban area – one in Shatang
Town and one in Guantang District. The treatment process adopted for all wastewater treatment plants
was active sludge.
b) Upgrading and construction of a sewerage system in the “fringe” areas of the Liuzhou central urban area,
by installing 156.8km of sewerage collection pipes with four pumping stations and other related works and
rehabilitation of 6.1km section of Zhu’e Creek.
Component 2 – Sludge Management (US$6.90 million, of which the IBRD loan was US$4.76 million)
15. This component financed the development of a sludge co-combustion system by adapting the existing rotary
kilns of the Yufeng Cement Plant and constructing storage and processing facilities required for the operation of the
system. About 260 tons/day of dewatered sludge from five WWTPs in Liuzhou urban area were planned to be
transported, stored, and co-combusted at the cement production factory. Three out of four existing rotary kilns in the
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Liuzhou Environment Management Project Phase II (P112626)
cement factory were to be modified for dewatered WWTP sludge co-combustion and the exhaust gas emission were to
be monitored to ensure that air pollution control facilities in the cement factory meet national air emission standards.
Component 3 – Institutional Development and Capacity Building (US$1.91 million, all of which was IBRD loan)
16. This component financed technical assistance for: a) project management services including contract
management, financial review, and post evaluation; b) strengthening the operations of existing wastewater facilities,
including operation, optimization, and establishment of MIS/GIS for asset management; and c) workshops, study tours,
and training for human resource development of the LMWTC.
B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE)
17. The project was restructured twice, first in December 2015, and again in November 2017. The changes during
implementation are described in the paragraphs that follow.
Revised PDOs and Outcome Targets
18. The PDO remained unchanged throughout project implementation. The wording of the PDO in the first project
restructuring (December 2015) was slightly different from the PDO wording in PAD and Loan Agreement (LA); however,
this minor difference of wording did not affect project implementation, nor the assessment of the results achieved.
Revised PDO Indicators and Intermediate Outcome Indicators
19. The two original PDO outcome indicators remained unchanged throughout the project (i.e. “percentage of the
population in participating urban areas of Liuzhou Municipality served by wastewater collection treatment services” and
“Annual Net Income (after tax) of the wastewater operations of LMWTC”). However, the target for percentage of
participating population was increased, as described in paragraph 30.
20. During the first project restructuring, a total of three PDO indicators were added. Two of these were “core sector
indicators”, which were added in line with the Bank’s requirements, and for this project, to better quantify the impact
and benefits on the local environment and residents in Liuzhou. These indicators were first described in the
Implementation Status and Results Report (ISR) in November 2012 and then formalized during the first restructuring in
December 2015. The two core sector indicators added were: “people served by wastewater collection and treatment11”
and “volume (mass) of BOD load removed by the treatment plants under the project”. The third PDO indicator added
during the first project restructuring was the financial indicator, “Cost Recovery Ratio” 12 . This indicator was added
because the original set of PDO indicators did not fully measure the financial sustainability of LMWTC, given that cost
considerations were not included.
21. All eight intermediate outcome indicators remained unchanged throughout project implementation. However,
the target values for two of the intermediate indicators did get revised. The targets for the “capacity of wastewater
treatment plants in operation and volume treated” at all of the WWTPs in Liuzhou were increased. And the target for the
“Percentage of urban wastewater treated” was increased only for the Liuzhou WWTP13. The definitions of these indicators
11 Note that during project implementation, the results framework was revised to also include another core indicator, “people
provided with access to improved sanitation services” (and its associated sub-indicator, “people provided with access to
improved sanitation facilities - urban”). However, for the purposes of this assessment, this indicator and sub-indicator are
lumped together with the core PDO indicator, “people served by wastewater collection and treatment” as the both indicator
have the same definition and calculation methods.
12 The definition for ‘cost recovery ratio’ followed the financial covenant specified in the PAD. See PAD Annex 9, paragraph 8.
13 See Second Liuzhou Environmental Management Project Restructuring Paper, page 12.
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remained the same and were used in project Monitoring and Evaluation (M&E) through project closing. Original and
revised target values can be found in the project Results Framework in Annex 1.
Revised Components
22. The project components were not substantially revised during project implementation. Component 1 was
modified slightly to include expansions of the treatment capacity of the two WWTPs in Liuzhou Municipality (i.e. expansion
of Baisha WWTP from 100,000m3/day to 180,000 m3/day, and expansion of Longquanshan WWTP from 250,000 m3/day
to 350,000 m3/day). Expansion of these two WWTPs was possible as a result of project procurement savings (see details
on the midterm review below). As a result, the total component cost increased from US$274.27 million to US$283.84
million. However, the IBRD total loan remained the same at US$150.00 million and the additional US$9.57 million in costs
were fully covered by counterpart funds. The activities of Components 2 and 3 remained unchanged throughout project
implementation. However, because the prices of some of the contracts under Component 2 were slightly higher than
estimated, the cost of this component increased from US$6.90 million to US$7.09 million. Meanwhile, because the price
of the project management consultant was lower than estimated, the cost of Component 3 reduced from US$1.91 million
to US$1.82 million. Revisions to component activities and costs did not affect the defined project outcomes.
Other Changes
23. Project restructuring and timeline. The project was restructured and extended twice to allow for completion of
works. The first project restructuring and extension was carried out during the Mid-Term Review (MTR) in 2015 and
extended the closing date from May 31, 2017 to November 30, 2017 to allow time for completion of the newly added
capacity expansion of the two WWTPs. The second project restructuring and extension was carried out in November 2,
2017, and further extended the closing date from November 30, 2017 to May 31, 2018 because of unforeseen delays
caused by government reforms and institutional changes at the LMWTC, which were beyond the control of the project
(see the section on KEY FACTORS DURING IMPLEMENTATION below)14.
Rationale for Changes and Their Implication on the Original Theory of Change
24. The project restructuring did not alter the Theory of Change but provided additional indicators to measure
expanded activities and PDO achievement – particularly allowing better measurement of the project financial
sustainability with the addition of the cost recovery ratio indicator. The changes to the components during project
restructuring contributed to the PDO indicators’ achievement, as wastewater collection was expanded to additional areas.
II. OUTCOME
A. RELEVANCE OF PDOs
25. The PDO of the project remained highly relevant to China’s development priorities throughout the duration of the
project. Liuzhou, being the largest industrial center in Guangxi Autonomous Region, and in one of the twelve poorer
and less-developed Western provinces in China, has been experiencing significant economic and urban growth. The
14The second restructuring was approved in short-form, specifying the extension of closing date and a final reallocation
between Disbursement Categories.
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Thirteenth Five Year Plan (13th FYP, 2016-2020), emphasizes sustainable growth and development in China’s western
regions through effective and efficient development of water resources, while simultaneously protecting the
environment and improving ecological security. The 13th FYP furthermore aims to accelerate efforts that make access
to basic public services more equitable. This project was designed and implemented consistent with those goals.
26. The project also remained aligned with the Country Partnership Strategy (2013-201615, Report No. 67566-CN),
which focused on three main areas of engagement, namely:
a) Supporting greener growth by i) enhancing urban environmental services through expansion of safe
water supply to small towns and cities while improving quality and efficiency, ii) improving sanitation,
solid waste and other basic urban services in selected second tier cities, while reducing pollution and
iii) addressing environmental management including piloting of cutting-edge technologies to address
environmental challenges in large cities;
b) Promoting more inclusive development by i) geographically focusing on lagging regions and small
towns and supporting policies and demonstration projects that address inequalities and ii) enhancing
secondary town development by helping governments design integrated urban planning
development that includes water supply and sanitation;
c) Advancing mutual beneficial relations with the world by facilitating links between practitioners in
China and other countries in areas urban planning, climate change, and environmental protection.
Assessment of Relevance of PDOs and Rating
27. Given the close alignment of the project to China’s 13th FYP and the current CPS, as well as the project’s specific
relevance to Liuzhou Municipality’s development challenges, discussed in Section 1 above, the relevance of the PDO is
rated as “High”.
B. ACHIEVEMENT OF PDOs (EFFICACY)
28. Overall, the project development objective was achieved. For three of the PDO indicators, the target values were
met or exceeded (i.e. for “annual net income”, “percentage of people served by wastewater collection and treatment
services”, and “cost recovery ratio”). For the PDO indicator, “people served by wastewater collection and treatment”, the
target value was met or exceeded for all but one of the defined project areas (Shatang Town lagged behind in
performance), however, overall the target was exceeded. For the final PDO indicator, “volume of BOD removed”, the
target was substantially met (at about 80 percent). Considering these results, the overall project outcomes related to
establishing sustainable wastewater services in Liuzhou and four counties were achieved. The project PDO can be divided
into two parts: a) establishing wastewater collection and treatment services and b) ensuring these services are sustainable.
Further assessment of the achievement of these two parts of the PDO is discussed in the following paragraphs.
Assessment of the Achievement of Each Objective/Outcome
29. PDO Part 1, Establishing wastewater collection and treatment services: Project activities to achieve this part of
the PDO included: a) wastewater management, and b) sludge management. Three PDO indicators were used to measure
this part of the PDO: i) the percentage of population served by the wastewater collection and treatment services, ii) the
number of people served and iii) the volume of BOD removed. Three intermediate outcome indicators were also tracked:
i) the capacity of WWTPs and the volumes treated, ii) the percentage of urban wastewater treated, and iii) the quantity of
15The Country Partnership Strategy (2013-2016) is the latest available CPF. An updated CPF is currently under discussion and
not available for use.
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sludge sent for combustion. All of these indicators (except for the sludge sent for combustion) were disaggregated and
measured for each of the six services areas under the project: Liuzhou City, Sanjiang, Rong’an, Rongshui, Liucheng
counties, and Shatang Town.
30. Achievement of PDO outcome indicators. The targets for the percentage of the population served16 indicator were
exceeded in all service areas except for Shatang Town (where the actual percentage of the population served was 47.1
percent, compared to the target value of 53 percent). During the first restructuring, the target for the percentage of
population served in Liuzhou City, was decreased from 90 to 82 percent, because the scope of the service area was
enlarged during the project MTR, as compared to appraisal. By the project closing in May 2018, this revised target was
met. For Sanjiang, Rong’An, Rongshui and Liucheng counties, the targets were all also revised and increased from 70 to
72 percent in December 2017; and they were all met or exceeded. For Shatang Town, the target was increased from 50 to
53 percent in December 2017; however, by project closing this target value was not met, due to reasons beyond the
project (see below). See the detailed indicator results in Table 1, and in Annex 1.
31. The indicator for the number of people served17 was also exceeded in all service areas except for Shatang Town;
and in total, the six project WWTPs served 1.80 million people, reaching 104 percent of the target set at 1.73 million
people (see Table 1 and Annex 1 for details). Shatang Town generally lagged for all indicators because a college (with a
large number of students and water use) was originally located in its service area but was subsequently moved to a new
location outside the area.
32. For the indicator, volume of BOD removed, more than 90 percent of the target value was met in Sanjiang, Rong’an,
and Liucheng Counties. Rongshui County achieved 86 percent of its target, and Liuzhou City 78 percent. Shatang Town
removed 84.5 tons of BOD, achieving only 47 percent of the target (see Table 1). Most service areas in the project were
close to meeting their BOD removal target values; and the partial achievement can be attributed to the fact that actual
inflow BOD concentrations to the WWTPs were lower than what was estimated during facility design and when the targets
were set. Low inflow concentrations of BOD at WWTPs is a common phenomenon in many East Asian counties, including
China. This can be because of (i) the wide use of septic tanks prior to sewer connections; (ii) the common presence of
combined sewer networks; and (iii) groundwater infiltration – all of which reduce or dilute wastewaters before they enter
WWTPs. As a result, for this project, less total BOD was removed because less total BOD was flowing into the project
WWTPs. However, during operations, the WWTPs still provide sufficient treatment to protect the local environment and
waterways.
Table 1 - Targets and Achievements for WWTPs
Population served Population served (%) BOD removed Wastewater treated Plant capacity
WWTP (number, 100) (ton/year) (%) (1,000m3/day)
Target* Achieved** Target* Achieved** Target* Achieved** Target* Achieved** Target* Achieved**
Liuzhou City*** 1,425.0 1,478.0 82 84.3 14,860.0 11,539 75 69.5 510 540.1
Sanjiang County 32.9 37.2 72 72.1 195.4 184.6 70 94.6 8 10.2
Rong’An County 96.0 104.4 72 78.0 469.1 452.2 70 85.3 23 25.7
Rongshui County 58.8 75.2 72 75.5 312.7 268.5 70 87.7 15 17.7
Liucheng County 68.3 70.9 72 75.6 364.9 348.8 80 90.0 15 18.3
Shatang Town 50.6 4.6 53 47.1 180.5 84.5 53 21.2 12 8.8
Project Total 1,732.0 1,800.3 16,382 12,877 583 621
* Targets were set to be achieved by the end of 2017
** Values achieved by project closing (May 2018), except for BOD removals, which are reported as the most recent full-year of data, Dec 2017
*** Liuzhou City benefitted from construction and expansion of three WWTPs under the project, and the targets and achievements presented
are for all three new and extended WWTPs.
16 In the results framework of Annex 1, the naming of this indicator is not consistent. See the notes in the indicator comments.
17 See Footnote 16
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33. Achievement of intermediate outcome indicators. For the intermediate indicator, capacity of WWTPs and volume
treated, all of the WWTPs under the project exceeded their target values – except for Shatang Town, which achieved only
73 percent of its target (for similar reasons as described above). For the indicator, percentage of urban wastewater
treated, five WWTPs exceeded their target values, but Shatang only achieved a value of 44.4 percent, with a target of 53
percent. For the indicator, quantity of sludge sent for combustion, the overall target was partially achieved with 160
tons/day of sludge (62 percent of the target) sent to the Liuzhou Yufeng Cement Factory. Technically, the target for “co-
combustion” was not fully achieved because the cement factory was unable to receive and process the planned volume
of sludge (i.e. 260 ton/day, set at appraisal), due to market factors and reduced cement demand, with the result that
cement production was lower than expected. In response to this, alternate arrangements for treatment and reuse of the
sludge were made during project implementation to ensure sludge management was consistent with the environmental
sustainability objectives of the project (see the section on Environmental Sustainability, below). As such, the remaining
100 tons/day of dewatered sludge are hauled to a brick production factory for final treatment and disposal. Therefore,
the target amount of sludge has been fully treated and disposed, either through co-combustion or through brick making.
34. Improvement of River water quality. Although this was not defined as one of the project indicators, the project
sought to improve river water quality with the increase in proper disposal of treated wastewater. As such, the effluent
Chemical Oxygen Demand (COD) of the WWTPs were within the limits imposed by the LMG – i.e. at or below class Grade
I Standard B level (see Table A5-4 in Annex 5). The water quality in the river improved or was maintained between Classes
I and III in 2016 and 2017 (see Table A5-3 in Annex 5).
35. PDO Part 2, Sustainability of the wastewater collection and treatment services: The PDO description and the
definitions of the PDO and intermediary indicators in the PAD specified that the intention of the project was to achieve
financial sustainability. From a broader perspective however, the project also had implicit objectives for technical,
institutional, and environmental sustainability. The PDO indicators for sustainability are: i) annual net income and ii) cost
recovery ratio. The project had one sustainability-related intermediate indicator: cash flow from wastewater operations.
Two financial covenants were also defined and agreed upon at appraisal and included in the project agreement, namely:
i) full cost recovery (CRR), and ii) debt service cost recovery (DSCR). Other aspects of the operational and institutional
sustainability of LMWTC were captured with the last three intermediate indicators: i) power consumption per unit of
wastewater treated, ii) enforcement and operation of online monitoring stations, and iii) accumulated managerial/skill
development training received. All of these dimensions of sustainability are discussed in the following paragraphs.
36. Achievement of financial sustainability PDO indicators. The target for the annual net income indicator was
exceeded, reaching RMB 272 million compared to the target of 201 million. At project completion, the cost recovery ratio
was 1.1, exceeding the target of 1.0. This indicates that LMTC is able to recover all WWTPs O&M costs. Note that cost
recovery ratio is defined to include subsidies, as specified in the PAD and Project Agreement (PA)18. See Table 2 for target
and final values of the financial-related indicators. See further details in Annex 4.
18See the financial definitions in paragraph 6 in the PA, and the specific definitions of the two project Financial Covenants in paragraph 8
of the PAD, Annex 9. In the PAD, the ‘cost recovery ratio’ covenant is defined as: “total revenue (from operating and non-operating
sources, including subsidies) equivalent to not less than the sum of (i) total operating expenses (including depreciation) and (ii) the
amount by which debt service requirement exceeds the provision for depreciation”.
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Table 2 – Project Financial Indicators: Annual Net Income, Cash Flow and Cost Recovery of LMWTC
Financial Metrics Original Target (Dec 2016) Actual Achieved (May 2018)
Annual net income (RMB million) 201 272
Cost recovery ratio (with subsidies)18 1.0 1.1
Cashflow (RMB million) + Subsidies 7.5 -232
Debt service cost recovery (with subsidies)19 1.0 1.2
37. Achievement of intermediate sustainability indicator. The intermediate indicator of cashflow from wastewater
operations was below the target value at project completion (cashflow was negative RMB 232 million, and the target at
appraisal was positive RMB 7.5 million). The reason behind this is that the cashflow projections as defined in the PAD
assumed higher rates of wastewater tariff increases than actually took place through project implementation. At
appraisal, it was assumed that wastewater tariffs would be raised to a level of RMB 1.70 per cubic meter by the year 2016,
and that this tariff level would be sufficient to cover capital, operating and debt service costs (and that subsidies from
LMG to LMWTC would not be needed after 2016). However, in actuality, tariff levels had only reached RMB 1.19 per cubic
meter by 2016. Because of this, revenues for LMWTC (i.e. tariff revenue, without subsidies) were lower than total costs
(including capital investment and debt servicing), which led to the shortfall in the cashflow target, and LMWTC required
continued subsidies from LMWTC after 2016 and through project closing (see Annex 4 for details). However, it should be
noted that if looking at operations only, LMWTC O&M costs can be fully covered by the tariffs received; and the
Government provides sufficient subsidies to cover capital investment and debt service obligations. These subsidies
demonstrate LMG’s strong fiscal capacity, their commitment to the quality of the services, and their strong ownership of
the wastewater sector. Therefore, given the committed government support for subsidies, the fact that the cashflow
intermediary indicator had weak performance does not impact the overall project development objective (in fact, the
other PDO level indicators were defined to include subsidies as revenues, as discussed in Footnote 18, above). Also, the
LMWTC states in the borrower ICR that they plan to raise the sewerage tariffs, which will only improve the overall financial
situation, and also shows the local institutions’ willingness to meet the intention of these intermediate financial
sustainability indicators in the future.
38. Fulfillment of the Financial Covenants. The two financial covenants, namely full cost recovery rate (CRR) and debt
service coverage ratio (DSCR) were both in compliance at project completion. The CRR reached a value of 1.1 and the
DSCR a value of 1.2 (and both were to be above 1.0, as agreed at appraisal). Subsidies were included when assessing the
compliance of these covenants, consistent with the definitions in the PA and PAD (see Annex 4Error! Bookmark not
defined.).
39. Achievement of other intermediate indicators. The indicator, power consumption in kWh per unit of wastewater
treated, was monitored at the Baisha and Longquanshan WWTPs. The target value for this indicator was 0.24 kWh/m3;
and at completion, it was fully achieved. For the indicator, enforcement and operation of on-line automatic monitoring
stations at major industrial discharges, which mainly aimed at installing an MIS/GIS system to monitor the water quality
discharges in the river, a target value of 14 stations was set at appraisal; and at completion, the target was exceeded, with
18 stations online and operational. The target for the intermediate indicator, accumulated managerial/skill development
training received, was fully achieved, meeting the target of 2,300 staff-days (see Institutional Sustainability below).
40. Technical sustainability. LMWTC has successfully operated and managed the WWTPs built under the project. All
WWTPs contribute to the reduction of influent BOD and a reduced volume of pollutant loads discharged to local
waterways. To reduce pollution loads, the LMWTC has further increased the sewage collection network, collecting
19 The ‘debt service cost recovery ratio’ was also defined in the PAD and PA. See Footnote 18.
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additional wastewater that would otherwise be discharged directly to the river. Project activities, such as energy efficiency
and reduced power consumption at the WWTPs as well as the institutional and capacity building activities under the
project have helped LMWTC to further improve operations and manage assets for long-term technical sustainability of
the project investments.
41. Environmental sustainability. The project activities around sludge management particularly contributed to
environmental sustainability in Liuzhou Municipality, even beyond the stated objectives of the project. Sludge management
under the project diverted methane-producing sludge from landfilling to instead be beneficially reused as a fuel input for
cement production facilities (as intended in the project design) or as solid material in brick making facilities (as an alternate
use when the capacity of the cement facilities was limited due to market factors, discussed above). This sludge diversion
from landfills also has climate change mitigation benefits.
42. Institutional sustainability. To achieve this dimension of sustainability, the project included activities to build the
technical and managerial capacity of members of the LMWTC staff. As noted above, the indicator for accumulated
managerial skills and/or skill development was fully achieved by project completion. The LMTC staff were trained on:
wastewater facility operation and management, equipment maintenance, wastewater and stormwater pipeline network
maintenance, water quality monitoring, pump station operation, sludge treatment facility operation and management,
construction management and project management. The LMWTC also strengthened its capacity to monitor and enforce
wastewater discharge regulations with the development and operation of the online, automatic industrial discharge
monitoring stations financed under the project. In addition, through the World Bank procurement processes and training,
LMWTC strengthened its capacity to manage contracts. Under the project, 56 contracts were professionally procured and
implemented.
Justification of Overall Efficacy Rating
43. The overall efficacy rating is Substantial. This is based on the ratings of Parts 1 and 2 of the PDO. The outcomes
of the Part 1 of the PDO were achieved, with all planned WWTPs constructed and operating, substantially meeting the
performance indicators20, including the BOD removal (which was substantially achieved at around 80 percent of the
target). As such, Part 1 of the PDO rating is Substantial. For Part 2 of the PDO, sustainability indicators and the financial
covenants were achieved, except for cashflow, which is an intermediate outcome indicator. However, not meeting the
cashflow indicator did not impact the project’s financial sustainability in so far as subsidies have been provided to cover
the deficit.
C. EFFICIENCY
44. Economic and Financial Analysis: At project completion, the project investments were evaluated for their
economic and financial performance. A cost effectiveness approach matching what was done during appraisal was adopted
to evaluate the economic performance for the wastewater and sludge management components of the project. This
approach was selected because benefits for wastewater projects are difficult to quantity, especially those pertaining to
public health and environment. The financial analysis included assessment of the project financial sustainability indicators
and the project financial covenants (already discussed above), as well as the Financial Internal Rate of Return (FIRR) for
project investments). The results of the assessment are summarized briefly in the following paragraphs. Further details
can be found in Annex 4.
20 Except Shatang, which did not achieve the set target indicators.
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45. Cost Effectiveness of Wastewater Treatment Plants. While the WWTPs financed under the project were built
using the least-cost, appropriate technologies and had unit costs ($US per m3/d of capacity) similar to or lower than
previous similar Bank projects or other government funded projects in China, the issue with low influent BOD
concentrations discussed above had some impact on the overall project cost effectiveness and efficiency. During the design
of the project WWTPs, BOD concentrations were used which were higher than the actual BOD concentrations observed
during operation. This led to slightly over-sized WWTP processes and equipment, with the result of slightly higher costs.
It was not possible to estimate the exact impact on project costs, but this issue diminishes somewhat the project efficiency.
46. Cost Effectiveness of Sludge Management Activities. Two options were considered for the treatment and disposal
of sludge generated at the WWTPs in Liuzhou: i) sludge co-combustion in cement Kilns at Liuzhou Yufeng Cement Plant,
and ii) and sludge drying and landfill disposal. At the appraisal stage, the sludge co-combustion option was selected
because it had a lower total lifecycle cost than the landfilling option. The lifecycle costs were verified again at project
completion, and again it was found that the sludge co-combustion was the least cost option (with an expected lifecycle
cost of RMB 96 million, as compared to RMB 374 million for the landfilling option). This indicates that a cost-effective
technology was selected at project appraisal.
47. Effectively Using Bank Loan. Due to competitive bidding during project procurement, approximately 25 percent
of the total Bank loan amount had been saved at the time of the project MTR (US$37 million). These loan savings were
used to support the expansion of Baisha and Longquanshan WWTPs (in conjunction with additional Government
counterpart funds), which helped to exceed the project objective targets for wastewater treatment capacity in Liuzhou
(discussed above). Therefore, by project completion, the loan savings were reinvested for the construction of eight WWTPs,
as compared to six WWTP planned at appraisal (for an additional 180,000 m3/d of treatment capacity). In addition, aged
equipment was replaced and online monitoring equipment to measure TP, not included at appraisal, was financed under
the project.
48. Additional Project Economic Benefits. In addition to the above cost effectiveness and efficiency analysis,
estimates were made for additional economic benefits from the removal of environmental pollution under the project.
The project investments served to reduce a number of key pollutants from entering local water bodies (including COD, TN,
etc.). Benefits were estimated for removal of COD. A recent study in China on the cost of environmental water pollution
(using calculated shadow prices in China for pollution from agricultural wastewater21) shows that the average shadow price
of COD is RMB 8,266/ton. Therefore, based on this shadow price and the amount of pollutant removed by WWTPs in the
six project counties, the total avoided costs for pollutant removal is approximately RMB 894 million (US$129.0 million). For
comparison, the total capital investment for all WWTPs (not including pump stations and sewer networks) under the project
was US$95.9 million (excluding taxes). Also, health benefits from to better wastewater management due to the project
were not estimated as they are difficult to quantify; however, it is expected that improved collection and treatment of
wastewater will lead to better health outcomes in Liuzhou.
49. Financial Internal Rate of Return (FIRR). The original methodology used during appraisal to estimate project FIRRs
was not a standard method and has a number of limitations (i.e. FIRR evaluated only for WWTPs constructed, and not
including sludge management and sewer system investments; and the FIRR was evaluated with the entire tariff revenue
amount considered against only the costs of WWTPs. These assumptions are discussed in detail in Annex 4). Nevertheless,
in order to maintain consistency and comparability with the PAD, this same non-standard approach has again been used
for this ICR. See Annex 4 for details on the FIRR estimates in the project financial analysis. Key points of this methodology
are summarized here: i) the FIRR was defined to be calculated only for the six WWTPs built under the project, plus the two
21 See: Reduction potential, shadow prices and pollution costs of agricultural pollutants, by Kai Tang et al.
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WWTP expansions added at project restructuring (but excluding the non-revenue-generating components, such as sludge
management, sewers, etc.)22; ii) the entire tariff revenue amount (including increases in tariffs) were considered against
the costs of the WWTPs only23, i.e. not accounting for incremental capital and operating costs for other system facilities
and infrastructure (sewerage and sludge treatment, etc.); iii) the FIRR estimates exclude all subsidies; iv) the FIRR
calculations assumed tariff rates would rise about 20 percent per year over a 25-year time horizon; and v) the FIRR method
also included a number of assumptions that over-estimated wastewater volumes to be treated, and tariff revenues to be
collected (see Annex 4). Again, this is a non-standard approach, and does not provide a ‘complete’ FIRR for the entire
wastewater collection and treatment system but is intended to provide some insight into the financial viability of the WWTP
assets financed under the project.
50. The results comparing FIRR at appraisal and completion are shown in Table 3, along with the weighted average
cost of capital (WACC) 24 at each WWTP (which can be compared with the FIRR to assess the financial viability of
investments). Financial-related data were updated to use the latest/current values available for the FIRR calculations at
completion (see Annex 4). Notably, the revised FIRR estimates assume more realistic tariff increases of 15 percent every
four years (equivalent 3.6 percent per year). From Table 3, it can be seen that for five of the eight project WWTPs, the FIRR
is higher than the WACC, indicating financial viability of those WWTP investments. The WWTPs at Guantang, Shatang, and
Rongshui had FIRRs lower than their respective WACC values – indicating the further importance of reforming wastewater
tariff rates and/or providing subsidies to ensure financial sustainability of the WWTPs and LMWTC. Also, in Table 3, the
ICR-stage FIRR values are lower than the appraisal-stage FIRR values for each WWTP; but this can be attributed to the over-
estimates made in tariff revenues based on the assumptions and methodology used during the appraisal calculations (see
Annex 4).
51. It should also be noted that, despite the scope of the FIRR assessment being ‘limited’ to the WWTP assets only,
the other financial indicators discussed earlier in the PDO Part 2 portion of the Efficacy section above indicate the long-
term financial sustainability of LMWTC. In particular, the two cost recovery financial covenants were both positive (with
subsides); and as was noted, all operating costs for the project investments are able to be met with tariff revenues (without
subsidies). Also, capital investment, debt servicing, and deprecation costs are covered under commitments from the local
government to provide subsidies as needed to LMWTC. Furthermore, it is not expected that these subsidies will bring any
financial burden to LMG, as they represent less than 1 percent of the local government annual budget 25 . Financial
sustainability of LMWTC is not at risk, and the financial sustainability of the project should be judged on this basis of
covering costs through tariffs and subsidies.
22 See the PAD, Annex 9: Economic and Financial Analysis, paragraphs 2 and 3 where FIRR methodology was defined as being
limited to the wastewater treatment components only, and specifically excluding the “sludge management and urban-suburban
wastewater collection components, since they are not revenue generating investments”.
23 The magnitude of this assumption/limitation can be reasoned from the ratio of WWTP costs to overall project costs: total
investment costs for the project WWTPs were $103.63 million, which is 37 percent of total project investment (excluding
financial charges during implementation). See Annex 4.
24 The WACC for each WWTP considered the financing costs of the Bank loan and the local government counterpart funds. See
Annex 4.
25 In 2019, the fiscal revenues are projected to be about RMB 33.827 billion; and the debt service for the LZEMP I and LZEMP II
projects were about RMB 90 million in 2018, or about 0.3% of the local government annual budget.
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Table 3 - Comparison of FIRRs* for Project WWTPs, with WACC
(at 15 percent tariff increase every four years, or 3.6 percent increase annually)
WWTP PAD ICR WACC
Guantang 17.8% -0.9%† 2.0%
Shatang 13.7% -3.3%† 2.0%
Sanjiang 11.2% 4.5% 2.1%
Rong'an 15.5% 3.9% 2.1%
Rongshui 12.2% 1.0% † 2.1%
Liucheng 13.3% 6.4% 2.1%
Baisha II n/a 13.0% 1.9%
Longquanshan III n/a 15.5% 2.0%
Overall 7.4% 2.0%
* Note: FIRR calculations exclude subsidies
† These WWTPs had FIRR values lower than WACC
Administrative and Operational Efficiency
52. Project implementation proceeded smoothly, and all contracts were efficiently managed by LMWTC. The project
faced some delays because of the additional expansion of two WWTPs (co-financed with loan savings) and because of
LMWTC institutional changes; and these issues did slow down implementation and prompted two closing date extensions
and total extension period of one year. Despite these issues, the overall project administration and operational efficiency
were not affected, and the activities were completed as planned.
Assessment of Efficiency and Rating
53. The efficiency of the project is rated Modest. This rating is justified because while the project was cost effective
in using the Bank loan (i.e. loan savings allowed 180,000 m3/d of additional wastewater treatment capacity to be added
with the same total Bank loan amount), the overall FIRR for the project is positive and significant, and the financial
sustainability of LMWTC is solid, there were two issues that reduced the project efficiency. As noted, the project WWTPs
may have been somewhat overdesigned as a result of the higher BOD concentrations used during design, and the WWTPs
had FIRR values lower than anticipated at project appraisal. Also, the cashflow intermediary indicator was not met.
However, the project produced additional economic benefits related to environmental protection and public health; and
administratively, all of the project activities were completed as planned so that project implementation was carried out
smoothly and efficiently. These factors combined to contribute to the project’s overall efficiency rating of Modest.
D. JUSTIFICATION OF OVERALL OUTCOME RATING
54. The overall project outcome is rated as “Moderately Satisfactory”. Project Relevance was rated High, project
Results were rated Substantial, and the project Efficiency was rated Modest.
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E. OTHER OUTCOMES AND IMPACTS (IF ANY)
Gender
55. The project social impact assessment reviewed any negative impacts to local communities and vulnerable groups,
such as women and low-income families. Subsequent external monitoring paid particular to attention to include women
during consultations. Project activities focused on wastewater treatment and benefit to local communities. There were no
distinct negative impacts to women where about half of the project beneficiaries were women. During project construction,
measures were taken to avoid interruptions to local people’s daily life and reduce impact on the population.
Poverty Reduction and Shared Prosperity
56. In the early 2000s, wastewater tariff levels in Liuzhou Municipality were very low. During the time period between
the LZEMP and this current project, LMG increased the wastewater tariff in order to cover operational costs of LMWTC.
However, this imposed an additional financial burden on the low-income households in the city. In order to alleviate this
burden, and since the time of the phase one LZEMP, the LMG decided to exempt low-income families from paying
wastewater tariffs on the first four cubic meters of water used per person per month. Given that per capita water
consumption in low-income families in the city is less than 133 liters per person per day, this policy has exempted low-
income families from paying any wastewater tariffs in their bill.
Other Unintended Outcomes and Impacts
57. There were no other unintended impacts or outcomes from the project.
III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME
A. KEY FACTORS DURING PREPARATION
58. Soundness of background analysis: The project was designed based on detailed understanding of the wastewater
and environmental pollution challenges faced in Liuzhou Municipality. The project built upon the work of the previous
LZEMP; and was designed to provide wastewater collection and treatment services in the neighboring counties, as well as
to further strengthen the systems in the Liuzhou urban areas. Lessons learned from other projects in China and other
countries were incorporated into the design (such as improving sludge management, which the project sought to pilot the
use of wastewater sludge as an input for nearby cement production facilities).
59. Technical design. As noted earlier, the design of the WWTPs would have benefitted from studying the actual BOD
concentration of the wastewater influent, which could have been measured at the WWTPs that were already in operation
during the appraisal of LZEMP II. The fact that the WWTP were designed based on national standards that do not match
the current situation in Liuzhou, specifically in terms of BOD concentration, made it difficult to fully achieve the BOD’s
target. In this project, a BOD concentration value of 120mg/L was used in WWTP design, while the actual BOD concertation
of the wastewater is 68mg/L. Although this was a shortcoming of the technical design, and the targets could have been
adjusted during the project implementation, Chinese regulations had to be followed for approval of project feasibility
studies, which is why the national design standards were ultimately used. Nevertheless, this should be a lesson for future
wastewater projects.
60. Follow up on industrial discharge monitoring: During the first phase LZEMP, a policy framework and effective
action plans for municipal and industrial wastewater pollution control were developed and endorsed by LMG. This phase
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two LZEMP continues the support for effective municipal and industrial pollution control. According to the PAD, activities
around monitoring of top industrial polluters, and automatic online monitoring of industrial waste discharges were initially
identified to be included as technical assistance under LZEMP II; however, given the importance of such monitoring, these
activities were instead split off as a separate non-Bank financed component. These industrial monitoring activities did take
place in association with LZEMP but funded and implemented by the local Environmental Protection Bureau (EPB).
Nevertheless, during project restructuring, loan savings were identified which were able to be used to finance and procure
additional online pollutant monitoring instruments and equipment; which allowed the project to enhance the monitoring
of wastewater discharged from project WWTPs and complemented the efforts to improve the Liujiang River water quality.
61. The PDO, PDO indicators and the results framework: The PDO was clear and straightforward in defining the goal
to increase the provision of collection and treatment of wastewater services from Liuzhou and surrounding counties.
However, in terms of defining the goals for sustainability of the project investments, the PDO was less clear. The PDO
indicators could have been clearer by stating the specific and measurable aspects of sustainability that the project aimed
to achieve. During project preparation, the results framework was completed with definitions and targets for two PDO
indicators and eight intermediary indicators. Later, during project restructuring, three PDO indicators were added,
including: “people served by wastewater collection and treatment”, “volume (mass) of BOD load removed by the treatment
plants under the project”, and “cost recovery ratio” (as discussed above). These provided a fuller view of the project
performance and financial sustainability of LMWTC and its operations, complementing the original PDO indicators and
supporting monitoring and evaluation of project implementation
62. Readiness for implementation: This project benefitted from continuity with the previous LZEMP. Technical designs
and approvals proceeded smoothly from the previous project, and the institutional arrangements were already in place.
Of the eight WWTPs build or upgraded under the project, six WWTPs (i.e. one WWTP in each of the four upstream counties
and two at the fringes of Liuzhou) were built and completed prior to project approval and received retroactive financing.
The feasibility studies and detailed designs for the two WWTPs built in Liuzhou Municipality had been completed, approved,
and ready for implementation. Following the LZEMP, the same institutional arrangements were adopted for implementing
this project (i.e. the Project Leading Group formed under the LZEMP continued to supervise the project implementation,
provide policy guidance, and ensure cross departmental coordination, while the PMO remained responsible for daily
supervision and coordination of activities as the technical secretariat). For the additional two WWTP in the City of Liuzhou
that were extended under this project, the feasibility studies were completed and ready for implementation by the time of
project restructuring.
63. Risk assessment: Of the eleven identified risks26, two were rated moderate, namely i) Country/Sector Governance
and ii) Financial Sustainability. The mitigation measures in place were adequate for both risks, and LMWTC was able to
cope with all of their obligations.
64. FIRR methodology and estimation: At appraisal the methodology utilized to estimate the FIRR was not standard
and had a number of limitations (see Annex 4). However, the method used is common for government projects in China,
and for consistency and comparability the same methodology was used at completion. It would have been helpful to
evaluate FIRR using both standard methods and local specific methods.
65. Poverty and gender: The project social assessment stated that the project would provide equal access to
wastewater services to poor and vulnerable members of the community through setting affordable tariffs; and that the
PMO would pay special attention to Sanjiang, Rong’an and Liucheng counties and providing financial assistance to the poor
as needed. In fact, wastewater tariffs exemption for low income areas was granted. The social assessment considered and
recommended gender indicators to be included and monitored, which was monitored through the percentage of female
26 See pages 8 and 9 of the Second Liuzhou Environmental Management Project PAD (P112626)
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beneficiaries, which is approximately 50 percent of the total population. The design stage could have benefitted from more
specific activities to engage beneficiaries, particularly in the counties where the beneficiaries are not used to paying for
wastewater services. For example, the project could have included public awareness campaigns, carried out willingness to
pay studies and education activities to help with efforts to increase tariff collection rates.
B. KEY FACTORS DURING IMPLEMENTATION
66. Commitment from the implementing agencies: The implementation arrangements for the project followed the
same structure adopted for implementation of the LZEMP; and therefore, throughout most of the project implementation
period, activities were implemented as planned. Through project implementation, there was high commitment from the
LMWTC and the municipal authorities, which were always responsive to the issues raised during the project
implementation. LMWTC continuously followed the World Bank’s procedures while also observing Chinese standards and
regulations. In addition, LMWTC was proactive through project implementation and took the initiative to propose, for
instance, the use of loan savings to expand the WWTPs and replace the equipment on the WWTPs that were built under
the LZEMP.
67. Despite the good performance, LMWTC faced challenges during the period of government and institutional
reforms that took place at the end of 2016, but which were external factors to the project. Following the formation of a
Public Private Partnership (PPP) in 2007 to provide water supply services, the municipality carried out further institutional
reforms in 2016 that included a merger of the LMWTC (the entity responsible for wastewater management) and the Liuzhou
Veolia Water Affairs (the entity responsible for water supply management), thus forming Liuzhou Water Affairs
Investments. Despite the merger, the legal identity of LMWTC remained unchanged and both entities maintained financial
and institutional autonomy. However, due to staff reassignment, LMWTC was understaffed for six months which caused
delays in project activities at the Zhu’e Creek area and the sewer network at the Xidi Road. This fact resulted in a second
Project Restructuring on November 2017 and the closing date was extended to May 2018. By the extended project closing
all works had been completed.
68. Midterm review (December 10, 2015): By the time of the project midterm review, all four WWTPs in the upstream
counties were in operation and the two WWTPs in Liuzhou Municipality were under construction. In addition, the
installation of the sludge incinerator had been completed and was under operation. As a result of savings from competitive
bidding, construction costs were lower than the original estimates: there was a total IBRD loan saving of US$37 million. To
fully utilize the loan, LMWTC proposed an expansion of two WWTPs that had been constructed under the LZEMP (these
plants were already operating at their full design capacity). This proposal was approved by the Bank during the project
restructuring at MTR and the project closing date was extended from May 2017 to November 2017. Given that the total
cost of the expansion was estimated at US$55.6 million, and the loan savings were only US$37 million, the additional
amount of US$14.12 million was borne by the Municipality. Expansion of these WWTP facilities with the loan savings
allowed for an increase in the total capacity of wastewater collection and treatment in Liuzhou from 640,000m3/day to
820,000m3/day (i.e. a 28 percent increase). Also, during the midterm review and restructuring, three new PDO indicators
were included to better monitor and assess the impacts and financial sustainability of the project investments and the
LMWTC. It is also noted that after the midterm review, there were further cost savings in the procurement process, and
these savings were used to procure online equipment to monitor discharges of total phosphorus from the WWTPs in
response to the latest requirement of local environment authority. These additional investments further strengthened
LMWTC’s wastewater management capacity.
69. Challenges in construction of sewer network in the counties. Although in four counties of Liuzhou Municipality, the
separate systems were properly built in the new districts (areas), in older town areas of the counties, there are combined
systems built. In some areas where streets are quite narrow the households are not connected to the system due to
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challenges of construction, but discharge to the local small streams. In these cases, a part of the stream flows is intercepted
to the sewer main then to the WWTP. This situation is expected to be improved with rehabilitation of the old towns in the
counties.
70. Fiduciary issues (procurement): A procurement plan was prepared before project approval, which included the
acquisition of equipment for the four upstream counties’ WWTPs, the construction of two WWTPs in Liuzhou Municipality,
the construction of the incinerator facility, and the acquisition of goods and services. During the procurement process for
the expansion works of the two WWTPs added at MTR, two bidding qualification criteria27 were not followed and the Bank
requested the LMWTC to rebid the contracts for both WWTPs. This did not substantially impact the timeline of project
execution.
71. Fiduciary issues (Financial Management): No issues were encountered in Financial Management of the project.
LMWTC managed, monitored, and maintained all project account records, and all financial reporting was done in a timely
manner. Furthermore, LMWTC maintained all internal controls and carried out financial audits and reports were timely
submitted to the Bank.
72. Social safeguards: The project faced difficulties in acquiring land for rehabilitation of the Zhu’er Creek, (due to
legacy issues and the local government’s masterplans for urbanization) and for expansion of Baisha WWTP. However,
LMWTC and LMG were proactive, and the required land was acquired without affecting project implementation. After the
first project restructuring (December 2015), other challenges related to land acquisition were encountered, due to legacy
issues and the local government masterplan for urbanization, but these were solved in time and did not affect overall
project implementation.
IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME
A. QUALITY OF MONITORING AND EVALUATION (M&E)
M&E Design
73. The project results chain and theory of change were clearly defined showing how the project components and
activities would contribute the achievement of the outcomes set in the PDO. Two indicators were selected to assess the
progress towards achievement of the PDO, and eight intermediate outcome indicators were selected to assess the results
of the project components. As mentioned above, the PDO indicators for financial sustainability further complemented
during implementation with a “cost recovery ratio” indicator, following the definition of the financial covenants.
74. The results framework included indicators to monitor progress for each of the four treatment plants built in the
upstream counties. The disaggregation of indicators for individual WWTPs allowed for more detailed monitoring and
assessment of progress towards the objectives, and also allowed identification of corrective measures to be taken at each
plant as well as for the system as a whole. For the WWTPs in Liuzhou municipality, results were tracked and reported with
one combined indicator in the results framework; and while these plants were not disaggregated in the M&E system, the
LMWTC itself had more detailed information available to use in system monitoring and management.
27Experience in implementing contracts with no less than 80 percent of capacity of the WWTPs to be built and experience in
implementing contract with similar cost estimates (the cost estimates used for the bidding document were lower than the
actual cost estimate for construction of each of the WWTP).
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M&E Implementation
75. The M&E indicators were monitored by LMWTC and data was collected on a regular basis on the progress of the
project – using regular operational data collected from the LMWTC facilities and management systems. The indicators
provided by LMWTC were regularly spot-checked by the Bank team (who reviewed the data collection processes and
assessed the collected data). To assess project financial sustainability, in addition to the project indicators described
earlier in this report, audited financial reports were sent to the Bank as part of the financial agreement to support the
M&E. Additionally, the project monitored the power consumption for WWTPs of LMWTC. Finally, although not directly
stated in the project M&E, LMWTC continues to regularly monitor the quality of WWTP effluent before discharging into
the Liujiang River, to ensure compliance with Chinese Class 1A (for Guantang WWTP) and 1B (for all other WWTPs)
discharge standards.
M&E Utilization
76. The indicators and targets defined in the M&E framework were utilized by the LMWTC not only to monitor the
outcomes of the project, but also to monitor operation and management of the WWTPs constructed under the LZEMP.
For instance, during the project restructuring, information provided in the M&E was used to inform the actions that were
taken, such as the need to increase the capacity of treatment capacity and the need to include additional indicators to
monitor the financial sustainability. LMWTC consistently supervised and reported on the M&E results.
Justification of Overall Rating of Quality of M&E
77. The overall M&E quality rating is “Substantial”. This is because i) during design, appropriate PDO outcome
indicators and intermediate indicators were considered, ii) during implementation the M&E was regularly used to track
project progress, and the indicators on financial sustainability further strengthened iii) the M&E was used in decision
making, e.g. project restructuring.
B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE
78. Environmental: The design, categorization, and triggering of safeguards for this project were appropriately
identified during project preparation, and proper mitigation measures were put in place and complied with during project
implementation. Some safeguard issues related to the implementation of the EMP were found at an early stage, namely
a number of safety issues for workers working near deep pits, and the timely submission of environmental monitoring
reports. Immediate actions to remedy these issues were taken by the Liuzhou PMO, including enhancement of training
for contractors and the allocation of more resources to environmental management. Since 2013, the safeguard
compliance rating has continually been rated as “Satisfactory” due to the continued efforts and learning of the Liuzhou
PMO. Moreover, compliance issues did not have a material impact on the environment, on the implementation progress,
nor on the project objectives.
79. Social: At appraisal, land acquisition and resettlement activities were identified; and the involuntary resettlement
policy (OP4.12) was triggered. All resettlement and land acquisition works were successfully completed. The PMO
commissioned a specialist team to prepare a Resettlement Action Plan (RAP), which guided the implementation of the
land acquisition and resettlement actions identified during project preparation. After project restructuring, a subsequent
RAP was prepared for the land acquisition and resettlement related to the expansion of the two WWTPs in Baisha and Jila
village. An independent monitoring team was commissioned by the PMO to monitor the progress of resettlement work.
Management and implementation of OP4.12 was Satisfactory throughout the project cycle, although challenges and
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delays in land acquisition (both permanent and temporary) were encountered, mostly due to legacy issues and the local
government’s masterplans for urbanization. Independent reviews showed that livelihoods of affected persons have fully
recovered or became better off after the completion of land acquisition and resettlement.
80. Fiduciary: Under the project, 56 contracts were procured and implemented following the Bank procurement
guidelines, and all fiduciary requirements were mostly satisfactorily complied with throughout project implementation
and the rating was satisfactory. However, when issues were encountered, the fiduciary rating was downgraded
moderately satisfactory until the issues were resolved. On Financial Management, LMWTC satisfactorily managed,
monitored, and maintained all project account recordings and all financial reporting was done in a timely manner. All
internal controls and financial audits (internal and external), and their associated reports, were submitted in a timely
manner to the Bank. Overall, throughout the project the FM performance of the project was rated satisfactory.
C. BANK PERFORMANCE
Quality at Entry
81. The Bank team ensured that the PDO was aligned with the overarching strategies at the country level, such as
China’s Eleventh Five-year Development Plan (2006-2010) and the (2006-2010) Country Partnership Strategy for China.
The Bank team also attempted to incorporate relevant lessons from other projects in China, such as a) the need to include
financial sustainability, b) the value of supporting project financing and local counterpart capacity building in small
counties, which in most cases lack funds for investing in this type of infrastructure and could jeopardize achievement of
project impacts, and c) ensuring that feasibility studies for the activities to be financed be carried out based on analysis of
the service coverage, standards, and realistic projections. As was noted earlier, the project could have done a number of
things better during the preparation stage, including: improving estimates of actual BOD concentrations and sizing WWTP
processes and facilities; calculating more comprehensive financial indicators; and including activities in the project design
aimed at engaging and educating the beneficiaries. Also, as was noted in the Efficiency section above, the Bank team
used a non-standard method for estimating the project FIRR in the financial analysis; this method was limited to include
only the capital and operating expenses at the project-built WWTPs and included all tariff subsidies as revenue against
those costs. As noted in Footnote 23, WWTPs only represent 37 percent of total project costs, and so this FIRR method
(although consistent with China national practice), does not give a full view of the financial performance of project
investments. In the future, it will be better to use more standard methods that look at whole-investment and whole-
system finances.
82. This project was a follow-up to the LZEMP, and the World Bank team considered the relevant earlier lessons to
improve the design of the LZEMP II. Some activities that were carried out under the LZEMP (i.e. solid waste and public
sanitation management) were not included in this new project. The Bank team included energy efficiency audits for
WWTPs build under the LZEMP and strengthening institutional capacity in the project design.
83. Moreover, given the difficulties that the municipality was facing in disposing of sludge from the WWTPs, one of
the reasons being the fact that it has high water content (80 percent), the Bank team engaged with the client to find
alternative solutions. The team identified the construction of an incineration facility at the cement plant to use the sludge
for cement production as the most viable solution.
Quality of Supervision
84. The Bank team conducted regular project supervision missions, conducted field visits to construction sites, and
provided prompt and adequate advice to the client to ensure that the project activities were implemented smoothly. Aide
Memoires and Management Letters were always prepared and Implementation Supervision Results (ISR) were always
updated to keep the Bank Management informed. In addition, the Bank team was composed of multidisciplinary experts
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(with skills in financial, procurement, environmental, social, technical, and M&E aspects) and they supported the client in
taking decisions and in reviewing all relevant documents whenever necessary.
85. Early in project implementation (i.e. at the second supervision mission), the team added two important indicators
to improve the monitoring of the financial sustainability. The inclusion of these indicators was later formalized during the
midterm review, along with adjustments to other indicators. Similarly, the volume of BOD removal indicator could have
been adjusted given the low BOD concentration in the influent. The project midterm review was carried out reasonably
on time, only two months after the originally planned date. The midterm review allowed timely discussions and decisions
with the client on the best use of funds saved during project implementation.
86. The Bank team was diligent in ensuring that all fiduciary procedures were followed. When fiduciary issues arose
during the bidding process for expansion of the two WWTPs in Liuzhou, they were immediately recognized and resolved
in a timely manner. In addition, the team provided regular updates to Bank management, escalating issues whenever
necessary.
Justification of Overall Rating of Bank Performance
87. The overall Bank performance is rated as “Moderately Satisfactory”. This is because while the quality of Bank
performance during project supervision was satisfactory and the team diligently spotted and resolved all implementation
issues timely and the quality at entry was overall good, yet the Bank team could have adopted more accurate technical
design parameters and financial analysis methods.
D. RISK TO DEVELOPMENT OUTCOME
88. Overall, LMWTC has shown strong commitment to improving the environmental conditions of Liuzhou
Municipality and the surrounding counties. The financial sustainability is being maintained with costs being fully recovered
through a combination of tariffs and subsidies, in line with common practice in China (where investment costs are partially
or fully covered by the government, in conjunction with the utility that provides the service). Wastewater tariffs were
increased through 2016, and LMWTC has a plan in place for future tariff increases (as per the Borrower’s ICR). Currently
the operating revenue of LMWTC is able to cover the O&M costs (excluding depreciation), but still unable to cover the
debt for the investments. However, the LMG follows the regular approach in China to provide debt subsidies to LMWTC.
With the expected tariff increases, LMWTC’s financial sustainability is expected to be maintained.
89. The wastewater systems constructed under the project have enough capacity to collect and treat wastewater for
the next five to seven years. With the improved quality of effluent discharged into the Liujiang River, see Table A5-4 in
Annex 5, both in the Municipality and in the four counties, it is expected that the overall quality of the river will remain at
category III. It is important to mention that although there have been improvements in river water quality, there is a risk
that the water quality in the river might degrade because of discharges of domestic and industrial wastewater from
upstream of Liuzhou.
90. While it is not expected that the WWTPs will operate at full capacity by the project closing, all WWTPs are
operating a lower BOD concentration in the influent comparing to the values design at appraisal. Therefore, in addition
to disconnecting the septic tanks from the sewer system, LMWTC should put effort into continuously increasing the
number of customers connected to the wastewater system, particularly for Shatang WWTP.
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V. LESSONS AND RECOMMENDATIONS
91. Importance of the use of updated and locally-based technical assumptions. As was noted above, the technical
design and Bank supervision of the WWTP design should have utilized more data-driven and realistic forecasts for
estimating the expected volumes of wastewater and the actual influent quality characteristics/concentrations (i.e. BOD
concentration) entering each of the WWTPs under the project. In this project, the WWTPs were designed based on
national standard values and assumptions, rather than actual wastewater influent quality data. As a result, the WWTP
processes and facilities were somewhat oversized, having some negative impact on the total investment and operating
costs for the WWTPs (reflected in the Modest Efficiency performance rating). However, the approach that was taken
during project design was driven by the design procedures mandated by national standards in China, and such a design
approach is required for approval of project facilities. Nevertheless, in the future, the Bank and the client should, to the
extent possible, ensure that feasibility studies and detailed designs look into actual measurements of wastewater demand
and concentration to ensure that investments costs correspond to the true needs and that project funds are used most
efficiently.
92. Financial sustainability of investments in the China context. The financial sustainability of WWTPs, and overall
water sector investments in China should take into account the local context and the financing arrangements commonly
employed in the sector. Tariff increases can be contentious and politically difficult to achieve; meanwhile, local
governments, as a matter of policy, are committed to providing subsidies to water and wastewater utilities in order to
cover operation and investment costs and ensure the ability of utilities to provide services to citizens. As such, projects
should clearly define and indicate how investment costs, operating costs, and debt servicing are expected to be covered,
and by whom, in the implementation and long-term operation of project-invested assets. Without clarity on these points,
PDO indicators can be incorrectly defined, and impossible to meet. In particular, which financial indicators (cashflow) and
FIRR assumed unrealistic tariffs increasing. Also, at the time of project completion, it was difficult to confidently follow
the same financial evaluation methods as were undertaken at appraisal (e.g. the FIRR method used at appraisal only
include capital and operating expenses for WWTP investments, and not the sludge and sewage collection assets).
Improving the definitions and documentation of these financial methods will lead to better, more realistic, and more
relevant definitions for the project results indicators and their associated target values.
93. Raising awareness and involving the beneficiaries from the initial stages of project implementation could be an
important contribution to the financial sustainability of the wastewater services. Because of the urgent need to reduce
pollution in the Liujiang River, the focus of this project was on collecting and treating domestic wastewater; and limited
attention was paid to engaging and educating the beneficiaries, which resulted in an inability of the counties to raise
tariffs, which resulted in a low tariff collection ratio. This a common issue that has been observed in small cities in China.
It is, therefore, important that future projects consider closer involvement of the beneficiaries in all stages of the project.
These efforts will raise awareness and promote the sense of ownership and willingness to pay for the services provided.
94. As a related issue, in the smaller upstream project counties, the household connection rate to sewers was lower
than in other areas. This was due to the fact that sewer systems in the older town areas of the smaller counties are
incomplete and a large number of households discharge sewage directly into small canals/streams/ditches. Therefore,
only portion of the total sewerage volume is able to be collected and transported to the WWTPs for treatment. The high
density of housings in these older town areas, and a lower level of residents’ awareness on the benefits of connecting
their households to the sewer system lead to this lower sewer connection rate. This is expected to improve as the planned
upgrading of the old towns proceeds (where a separate system is going to be built); but nevertheless, additional efforts
to increase local residents’ environmental and sanitation awareness can help future projects to succeed in motivating
more households to cooperate and connect to the sewer systems.
.
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ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS
A. RESULTS INDICATORS
A.1 PDO Indicators
Objective/Outcome: Sustainability of the wastewater collection and treatment services
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Annual net Income (after tax) Number 99.00 201.00 272.00
of wastewater operations of
LMWTC (RMB Million) 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target set for annual net income of wastewater operations was overachieved, reaching 135.3%
by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Cost recovery ratio Number 1.00 1.00 1.10
31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The set target for cost recovery ratio was overachieved, reaching 110.0% by the project closing date.
Objective/Outcome: Establish wastewater collection and treatment services within the urban area boundaries of Liuzhou and in the Sanjiang, Rong’an,
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Rongshui and Liucheng Counties
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Percentage of population in Percentage 65.00 90.00 82.00 84.30
participating urban areas of
Liuzhou municipality served 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
by wastewater collection and
treatment services: Liuzhou
City
Comments (achievements against targets): The target for percentage of population served in by wastewater collection and treatment in Liuzhou
City was overachieved, reaching 102.8% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Population served by Percentage 0.00 70.00 72.00 72.10
wastewater collection &
treatment - Sanjiang County 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target for percentage of population served in by wastewater collection and treatment in Sanjiang
County was achieved, reaching 100.1% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
People served by wastewater Percentage 0.00 70.00 72.00 78.00
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collection and treatment: 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Rong'An County
Comments (achievements against targets): The target for percentage of population served in by wastewater collection and treatment in Rong'An
County was overachieved, reaching 108.3% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
People served by wastewater Percentage 0.00 70.00 72.00 75.50
collection and treatment:
Rongshui County 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target for percentage of population served in by wastewater collection and treatment in
Rongshui County was overachieved, reaching 104.9% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
People served by wastewater Percentage 0.00 70.00 72.00 75.60
collection and treatment:
Luicheng County 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target for percentage of population served in by wastewater collection and treatment in
Liucheng County was overachieved, reaching 105.0% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
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People served by wastewater Percentage 0.00 50.00 53.00 47.10
collection and treatment:
Shatang Town 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target for percentage of population served in by wastewater collection and treatment in Shatang
Town was underachieved, reaching 88.9% by the project closing date. This is because a college (with a large number of students and water
use) was originally located in its service area but was moved to a new location outside the area
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Volume(mass) of BOD Tones/year 0.00 14877.10 16383.00 12877.00
pollution load removed by
treatment plant under the 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-Dec-2017
project
Volume(mass) of BOD Tones/year 0.00 13390.00 14860.00 11539.00
pollution load removed by
treatment plant under the 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-Dec-2017
project: Liuzhou City
(Tones/year)
Volume(mass) of BOD Tones/year 0.00 174.30 195.40 184.60
pollution load removed by
treatment plant under the 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-Dec-2017
project: Sanjiang County
(Tones/year)
Volume(mass) of BOD Tones/year 0.00 456.00 469.10 425.20
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pollution load removed by 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-Dec-2017
treatment plant under the
project: Rong'An County
(Tones/year)
Volume(mass) of BOD Tones/year 0.00 306.60 312.70 268.50
pollution load removed by
treatment plant under the 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-Dec-2017
project: Rongshui County
(Tones/year)
Volume(mass) of BOD Tones/year 0.00 357.70 364.90 348.80
pollution load removed by
treatment plant under the 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-Dec-2017
project: Liucheng County
(Tones/year)
Volume(mass) of BOD Tones/year 0.00 175.20 180.50 84.50
pollution load removed by
treatment plant under the 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-Dec-2017
project: Shatang Town
(Tones/year)
Comments (achievements against targets): The target for BOD pollution load removed was underachieved, reaching 78.6% by the project closing
date. This is because the actual concentration of BOD pollution load in the influent was lower comparing to the BOD concentration used in
the design of the WWTPs.
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Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
People provided with access Number 0.00 1588100.00 1732000.00 1800300.00
to improved sanitation
services 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
People provided with access Number 0.00 1588100.00 1732000.00 1800300.00
to “improved sanitation
facilities” - urban 31-Oct-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target set for number of people provided with access to improved sanitation services was
overachieved, reaching 103.9% by the project closing date.
A.2 Intermediate Results Indicators
Component: Component 1 – Wastewater Management
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Capacity of waste treatment Number 300.00 425.00 510.00 540.10
plants in operation and
volume treated (x 1,000 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
m3/d): Liuzhou City
Comments (achievements against targets): The target set for capacity of waste treatment plants in operation for Liuzhou City was overachieved,
reaching 105.9% by the project closing date.
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Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Capacity of waste treatment Number 0.00 7.00 8.00 10.20
plants in operation and
volume treated (x 1,000 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
m3/d): Sanjiang County
Comments (achievements against targets): The target set for capacity of waste treatment plant in operation in Sanjiang County was
overachieved, reaching 127.5% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Capacity of waste treatment Number 0.00 21.00 23.00 25.70
plants in operation and
volume treated (x 1,000 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
m3/d): Rong'An County
Comments (achievements against targets): The target set for capacity of waste treatment plant in operation in Rong'An County was
overachieved, reaching 111.7% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Capacity of waste treatment Number 0.00 14.00 15.00 17.70
plants in operation and
volume treated (x 1,000 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
m3/d): Rongshui County
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Comments (achievements against targets): The target set for capacity of waste treatment plant in operation in Rongshui County was
overachieved, reaching 118.0% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Capacity of waste treatment Number 0.00 14.00 15.00 18.30
plants in operation and
volume treated (x 1,000 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
m3/d): Liucheng County
Comments (achievements against targets): The target set for capacity of waste treatment plant in operation in Liucheng County was
overachieved, reaching 122.0% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Capacity of waste treatment Number 0.00 10.00 12.00 8.80
plants in operation and
volume treated (x 1,000 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
m3/d): Shatang Town
Comments (achievements against targets): The target set for capacity of waste treatment plant in operation in Shatang Town was
underachieved, reaching 73.3% by the project closing date. This is because the because a college (with a large number of students and water
use) was originally located in its service area but was moved to a new location outside the area.
Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target Formally Revised
Completion
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Target
Percentage of urban Percentage 65.00 90.00 75.00 75.10
wastewater treated: Liuzhou
City 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target set for percentage of urban wastewater treated in Liuzhou City was achieved, reaching
100.1% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Percentage of urban Percentage 0.00 70.00 100.00
wastewater treated:
Sanjiang County 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target set for percentage of urban wastewater treated in Sanjiang County was overachieved,
reaching 142.9% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Percentage of urban Percentage 0.00 70.00 85.70
wastewater treated:
Rong'An County 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target set for percentage of urban wastewater treated in Rong'An County was overachieved,
reaching 122.4% by the project closing date.
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Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Percentage of urban Percentage 0.00 70.00 88.50
wastewater treated:
Rongshui County 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target set for percentage of urban wastewater treated in Rongshui County was overachieved,
reaching 126.4% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Percentage of urban Percentage 0.00 70.00 80.00 91.50
wastewater treated:
Liucheng County 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target set for percentage of urban wastewater treated in Liucheng County was overachieved,
reaching 114.4% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Percentage of urban Percentage 0.00 50.00 53.00 44.40
wastewater treated:
Shatang Town 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target set for percentage of urban wastewater treated in Shatang Town was underachieved,
reaching 83.8% by the project closing date. This is because a college (with a large number of students and water use) was originally located in
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its service area but was moved to a new location outside the area.
Component: Component 2 – Sludge Management
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Quantity of sludge (with 80% Number 0.00 260.00 160.00
moisture content) to be sent
for co-combustion (ton/day) 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target set for quantity of sludge sent for co-combustion was underachieved, reaching 61.5% by
the project closing date. This is because of reduction of cement demand caused by market factors.
Component: Component 3 – Institutional Development and Capacity Building
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Cash flow from wastewater Number -45.04 7.50 -232.00
operations covering capital
investments & debt 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
obligations relating to
wastewater (RMB M)
Comments (achievements against targets): By the project closing date, the target set for cashflow was not achieved, in fact at project closing the
cashflow reduced drastically, comparing to the value at appraisal. This is because the actual tariff increases that took place during project
implementation were less than what was projected at the appraisal stage – leading to lower revenues than expected.
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Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Enforcement and operation Number 14.00 14.00 18.00
of on-line automatic
monitoring stations at major 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
industrial discharges
Comments (achievements against targets): The target set for enforcement and operation of online automatic monitoring stations was
overachieved, reaching 128.6% by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Accumulated Number of Number 0.00 38.00 56.00
Contracts Awarded
31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target set for number of accumulated contracts awarded was overachieved, reaching 147.4% by
the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Power consumption in Number 0.25 0.24 0.24
kwh/unit of wastewater
treated in Baisha and 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Longquanshan WWTP
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Comments (achievements against targets): The set target for power consumption in Baisha and Longquanshan WWTPs was achieved, reaching
100%, by the project closing date.
Formally Revised Actual Achieved at
Indicator Name Unit of Measure Baseline Original Target
Target Completion
Accumulated managerial Days 480.00 2300.00 2300.00
and/or skill development
training received (staff-days) 31-Dec-2010 31-Dec-2016 30-Nov-2017 31-May-2018
Comments (achievements against targets): The target set for accumulated managerial and/or skill development training was achieved, reaching
100%, by the project closing date.
Results Framework Supplemental Table – Performance Indicator Data for People Served Under the Project
Note: The Results Framework table above does not include data for the PDO Indicator, “People served by wastewater collection and treatment". These
data are presented in the supplemental table below. Values here are for number of people (in thousands) served under the project. This indicator was
formally added as a corporate core sector PDO Indicator during the project restructuring to be in line with the Bank’s effort s to standardize performance
measurement across projects.
Actual achievement at
Indicator Name Unit of measure Baseline Original target
completion
People served by wastewater Number 0 1,425.0 1,478.0
collection and treatment (1,000) –
Liuzhou City December 2010 December 2017 May 2018
The target set for number of people served in Liuzhou city was overachieved, reaching 103.7% by the project closing date.
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People served by wastewater Number 0 32.9 32.7
collection and treatment (1,000) – May 2018
Sanjiang County December 2010 December 2017
The target set for number of people served in Sanjiang County was practically achieved, reaching 99.4% by the project closing date.
People served by wastewater Number 0 96.0 104.4
collection and treatment (1,000) –
Rong’An County December 2010 December 2017 May 2018
The target set for number of people served in Rong’An County was overachieved, reaching 108.8% by the project closing date.
People served by wastewater Number 0 58.8 75.2
collection and treatment (1,000) –
Rongshui County December 2010 December 2017 May 2018
The target set for number of people served in Rongshui County was overachieved, reaching 127.9% by the project closing date.
People served by wastewater Number 0 68.3 70.9
collection and treatment (1,000) –
Liucheng County December 2010 December 2017 May 2018
The target set for number of people served in Liucheng County was overachieved, reaching 103.8% by the project closing date.
People served by wastewater Number 0 50.6 34.6
collection and treatment (1,000) –
Shatang Town December 2010 December 2017 May 2018
The target set for number of people served in Shatang Town County was underachieved, reaching 68.4% by the project closing date. This is because a
college (with a large number of students and water use) was originally located in its service area but was moved to a new location outside the area
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B. KEY OUTPUTS BY COMPONENT
Objective/Outcome 1: Establishment of wastewater collection and treatment services
1. Percentage of population in participating urban areas of Liuzhou Municipality served
by wastewater collection
Outcome Indicators 2. Population served by wastewater collection & treatment in four counties and in
Municipality of Liuzhou
3. Volume of BOD load removed by treatment plant under the project
1. Capacity of the wastewater treatment plant in operation and volume treated
Intermediate Results Indicators 2. Percentage of urban wastewater treated
3. Quantity of sludge (with 80% moisture content) to be sent for co-combustion
1. Number of wastewater treatment plant built under the project
Key Outputs by Component 2. Kms of sewer network installed
(linked to the achievement of the 3. Number of people connected to the wastewater system
Objective/Outcome 1) 4. Number of accumulated contracts awarded
5. Quantity of sludge collected and incinerated
Objective/Outcome 2: Sustainability of the wastewater collection and treatment services
1. Annual net income (after taxes) of wastewater operations of the client (RMB million)
Outcome Indicators
2. Cost recovery ratio
1. LMWTC Cashflow
Intermediate Results Indicators
2. Power consumption in kWh per unit of wastewater treated
1. Number of people trained
Key Outputs by Component
2. Annual revenues collected
(linked to the achievement of the
3. Accumulated managerial and skill development training received
Objective/Outcome 2)
4. Enforcement and operation of online automatic monitoring stations
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ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION
A. TASK TEAM MEMBERS
Name Role
Preparation
Victor Vergara and Sing Cho Task Team Leader(s)
Jianjun Guo and Zen Liu Procurement Specialist(s)
Geng Yi Financial Management Specialist
Xin Ren and Yiren Feng Environmental Safeguards Specialist
Jun Zeng Social Safeguards Specialist
Vellet Fernandes, Xin Chen, Xuemei Guo and Dan Xie Program Assistant
Supervision/ICR
Gang Qin Task Team Leader(s)
Zheng Liu Procurement Specialist(s)
Yi Geng Financial Management Specialist
Huiying Guo Team Member
Xin Ren Environmental Safeguards Specialist
Aimin Hao Social Safeguards Specialist
B. STAFF TIME AND COST
Staff Time and Cost
Stage of Project Cycle
No. of staff weeks US$ (including travel and consultant costs)
Preparation
FY09 3.150 22,031.19
FY10 24.401 187,603.60
FY11 13.744 83,943.97
FY17 0 1,990.16
Total 41.30 295,568.92
Supervision/ICR
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FY10 0 0.00
FY11 3.325 17,852.59
FY12 16.325 66,517.99
FY13 4.800 21,950.18
FY14 8.000 36,899.83
FY15 9.825 50,568.69
FY16 10.057 45,345.24
FY17 13.625 68,875.36
FY18 15.309 112,117.23
FY19 10.725 50,703.52
Total 91.99 470,830.63
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ANNEX 3. PROJECT COST BY COMPONENT
Amount at Approval Actual at Project Percentage of Approval
Components
(US$M) Closing (US$M) (US$M)
Wastewater Management 265.46 274.93 103.6
Sludge Management 6.90 7.09 102.8
Institutional Development
1.91 1.82 0.9
and Capacity Building
Total* 274.27 283.84 103.5
*Excluding World Bank Finance Charge
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ANNEX 4. FINANCIAL AND ECONOMIC ANALYSIS
Introduction
1. At project completion, the project investments were evaluated for their economic and financial
performance. This annex includes a summary of that analysis, divided into three parts: i) Economic Analysis
(including: cost effectiveness analysis, effective use of the Bank loan, and estimation of additional economic
benefits); ii) Financial Analysis (including: the project financial sustainability indicators, the project financial
covenants, and the Financial Internal Rate of Return (FIRR) for project investments); and iii) the Liuzhou Municipal
Wastewater Treatment Company (LMWTC) Overall Financial Situation.
Background
2. For this project, to achieve the PDO, apart from constructing wastewater collection, treatment, and sludge
facilities, the project has to be financially sustainable. This means that at the PIU level (i.e. for LMWTC), the
company must have revenues that cover its costs. The costs for LMWTC as a company include capital costs
(CAPEX), operating costs (OPEX), and debt service costs. As a utility company and state-owned enterprise (SOE),
LMWTC’s revenues come from two sources: i) operating-related revenue (i.e. revenue collected from
water/wastewater tariffs), and ii) non-operating revenue (i.e. subsidies provided by the local government, Liuzhou
Municipal Government (LMG)).
3. Wastewater Tariffs and Subsidies. During LZEMP Phase 1, the wastewater tariff was increased from RMB
0.50 per cubic meter in 2007 to RMB 0.80 in 2008. This tariff level was sufficient to allow LMWTC to fully cover
OPEX costs with tariff revenues. However, this tariff level was not able to cover LMWTC’s capital and debt service
requirements, and the LMG continued to provide subsidies to the company. By the time of the LZEMP II
preparation stage, it was projected that wastewater tariffs would be further increased from RMB 0.80 per cubic
meter in 2008 to RMB 1.70 in 2016. Under this assumption, it was expected that the LMG would continue
providing subsidies as needed through the year 2015, but that starting in 2016, subsidies would no longer be
needed by LMWTC. However, as it turned out, wastewater tariffs did not increase by the amounts projected in
the PAD. Raising wastewater tariffs is a difficult political issue and local governments have been unable to
consistently raise tariffs to sustainable levels in a timely manner (in some cases, tariffs have been raised, only to
be lowered again because of social pressures). By 2016, the actual wastewater tariff level had only reached RMB
1.19 per cubic meter. As a result, tariff revenues were also lower than projected in the PAD, and the LMG
continued providing subsidies to LMWTC. See Table A4-1 for historic data on the tariffs and subsidies in Liuzhou.
Table A4-1 Historic Values of Wastewater Tariffs and Subsidies in Liuzhou Municipality
2011 2012 2013 2014 2015 2016 2017
Avg. Wastewater Tariff [RMB/m3] 0.80 0.98 1.10 1.10 1.10 1.19 1.25
Tariff Increase Between Years [%] n/a 22.5% 12.2% n/a n/a 8.2% 5.0%
Actual Subsidies [million RMB] 115 86 53 124 13 9* 271**
Projected Subsidies [million RMB] 30 41 2 8 20 0 0
* The actual subsidy value for 2016 was estimated. Tariff revenues for wastewater are collected by Liuzhou Water Supply Company and
transferred to the local government Finance Bureau. The local government then transfers funding to the Liuzhou Municipal
Wastewater Treatment Company, including a portion of tariff revenues along with subsidies. The breakdown of tariff revenues and
subsidies is not always clear; and for the 2016 data, the value of the subsidies was estimated.
** The actual subsidy value for 2017 was unusually high because the Liuzhou local government issued bonds to help LMWTC
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repay all local debts (and passed through as a subsidy on the LWMTC books). Previously, the local government relied on SOEs
(such as LMWTC) to borrow from commercial banks to finance infrastructure investments. To improve the local government’s
control over financing and investments in infrastructure, and to reduce debt burdens on the SOEs, recent policy changes have
allowed local governments to issue bonds for infrastructure. In 2017, LMG issued bonds and transferred funds to LMWTC to
repay all their commercial loans – and this is reflected in the large ‘actual subsidy’ value for 2014 in Table A4-1.
4. World Bank Project Financial Covenants. In order to secure the financial sustainability of LMWTC and the
project investments, the Project Agreement (PA) and the PAD specify that LMG is legally obligated to provide
subsidies if the operating-related revenue (i.e. from tariffs) is lower than expenses. See the financial definitions
in paragraph 6 in the PA. Furthermore, these obligations were specifically defined in the two project Financial
Covenants (see paragraph 8 of the PAD, Annex 9), which area as follows:
a. Cost Recovery Ratio (CRR) Covenant: Total revenue (from operating and non-operating sources, including
subsidies) equivalent to not less than the sum of (i) total operating expenses (including depreciation) and
(ii) the amount by which debt service requirement exceeds the provision for depreciation
b. Debt Service Cost Recovery (DSCR) Covenant: The LMWTC shall not incur any debt unless a reasonable
forecast of its revenues and expenditures of LMWTC shows that the estimated net revenues of LMWTC
for each fiscal year during the term of the debt to be incurred shall be at least equal to the estimated debt
service requirements of LMWTC in such year on all debt of LMWTC including the debt to be incurred.
5. Therefore, in the Economic and Financial Analysis, subsidies from LWG to LMWTC were included as normal
(no-operating) revenue when calculating indicators such as net annual income, cost recovery ratio, and debt
service cost recovery ratio. But subsidies were not included when calculating the FIRR (according to normal
practice). See details in the sections below.
Economic Analysis
6. The project economic analysis (at completion) included three aspects: cost-effectiveness analysis
(following the appraisal methodology), an assessment of effective use of the bank loan, and estimation of
additional project economic benefits. These are summarized here.
7. Cost Effectiveness. At appraisal, a cost effectiveness approach was adopted because the benefits of
wastewater projects are difficult to quantity, especially those pertaining to public health and environment. At
project completion, this same approach was used, and the cost effectiveness was analyzed for the wastewater
and sludge management components. The results of the assessment are presented here.
▪ Cost Effectiveness of Wastewater Treatment Plants. While the WWTPs financed under the project were
built using the least-cost, appropriate technologies and had unit costs ($US per m3/d of capacity) similar
to or lower than previous similar Bank projects or other government funded projects in China, the issue
with low influent BOD concentrations discussed earlier in this ICR impacted the overall project cost
effectiveness and efficiency. During the design of the project WWTPs, BOD concentrations were used
which were higher than the actual BOD concentrations observed during operation. This led to slightly
over-sized WWTP processes and equipment, with the result of slightly higher costs. It was not possible to
estimate the exact impact on project costs, but this issue diminishes somewhat the project efficiency.
▪ Cost Effectiveness of Sludge Management Activities. Two options were considered for the treatment and
disposal of sludge generated at the WWTPs in Liuzhou: i) sludge co-combustion in cement Kilns at Liuzhou
Yufeng Cement Plant, and ii) and sludge drying and landfill disposal. At the appraisal stage, the sludge co-
combustion option was selected because it had a lower total lifecycle cost than the landfilling option. The
lifecycle costs were verified again at project completion, and it was again found that the sludge co-
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combustion was the least cost option – with an expected lifecycle cost of RMB 96 million, as compared to
RMB 374 million for the landfilling option. This indicates that cost effective technology was selected at
project appraisal. See Table A4-2 for sludge option cost comparison data, at appraisal and completion.
Furthermore, as can be seen in Table A4-2, actual costs at completion were lower than those estimated
at project appraisal.
Table A4-2 - Sludge Management Least Cost Technology Comparison (appraisal and completion)
At Appraisal At Completion
Co- Drying & Co- Drying &
combustion Landfill combustion Landfill
Incoming Dewatered Sludge (22% dry sludge) [ton/day] 300 300 260 260
Outgoing Dewatered Sludge (90% dry sludge) [ton/day] 0 72 0 62
Capital Cost, net present value [million RMB] 38 188 41 228
Operation Cost, net present value [million RMB] 85 295 55 146
Total Cost, Net Present Value [million RMB] 124 483 96 374
8. Effectively Using Bank Loan. Due to competitive bidding during project procurement, approximately 25
percent of the total Bank loan amount had been saved at the time of the project MTR (US$37 million). These loan
savings were used to support the expansion of Baisha and Longquanshan WWTPs (in conjunction with additional
Government counterpart funds), which helped to exceed the project objective targets for wastewater treatment
capacity in Liuzhou. Therefore, by project completion, the loan savings were reinvested for the construction of
eight WWTPs, as compared to six WWTP planned at appraisal (for an additional 180,000 m 3/d of treatment
capacity). In addition, aged equipment was replaced and online monitoring equipment to measure TP, not
included at appraisal, was financed under the project. These factors enhanced the cost effectiveness and
economic performance of the project.
9. Additional Project Economic Benefits. In addition to the above cost effectiveness and efficiency analysis,
estimates were made for additional economic benefits from the removal of environmental pollution under the
project. The project investments served to reduce a number of key pollutants from entering local water bodies
(including COD, TN, and TT). At completion, the benefits of removing COD were estimated. A recent study in
China on the cost of environmental water pollution (using calculated shadow prices in China for pollution from
agricultural wastewater28) shows that the average shadow price of COD is RMB 8,266/ton. Therefore, based on
this shadow price and the amount of pollutant removed by WWTPs in the six project counties, the total avoided
costs for pollutant removal is approximately RMB 894 million (US$129.0 million). For comparison, the total capital
investment for all WWTPs (not including pump stations and sewer networks) under the project was US$95.9
million (excluding taxes). Also, health benefits from to better wastewater management due to the project were
not estimated as they are difficult to quantify; however, it is expected that improved collection and treatment of
wastewater will lead to better health outcomes in Liuzhou.
Financial Analysis
10. The project financial analysis (at completion) also included three aspects: performance against the project
financial sustainability indicators, compliance with the project financial covenants, and estimating the FIRR for
project investments. These are summarized here.
28 See: Reduction potential, shadow prices and pollution costs of agricultural pollutants, by Kai Tang et al.
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11. Achievement of the Project Financial Sustainability Indicators. Financial sustainability and financial
assessment were a key part of the project development objective and associated indicators. The PDO indicators
for sustainability were: i) annual net income and ii) cost recovery ratio. And, the project had one sustainability-
related intermediate indicator: cash flow from wastewater operations. See Table A4-2 for target and final values
of the financial-related indicators.
▪ Annual Net Income. The target for the annual net income indicator was exceeded, reaching RMB 272
million compared to the target of 201 million. Net income includes operating and non-operating revenues.
▪ Cost Recovery Ratio. At project completion, the cost recovery ratio was 1.1, exceeding the target of 1.0.
This indicates that LMTC is able to recover all WWTPs O&M costs. Note that cost recovery ratio is defined
to include subsidies, as specified in the PAD and Project Agreement (PA)29.
▪ Cashflow. The intermediate indicator of cashflow from wastewater operations was below the target value
at project completion (cashflow was negative RMB 232 million, and the target at appraisal was positive
RMB 7.5 million). The reason behind this is that the cashflow projections as defined in the PAD assumed
higher rates of wastewater tariff increases than actually took place through project implementation. At
appraisal, it was assumed that wastewater tariffs would be raised to a level of RMB 1.70 per cubic meter
by the year 2016, and that this tariff level would be sufficient to cover capital, operating and debt service
costs (and that subsidies from LMG to LMWTC would not be needed after 2016). However, in actuality,
tariff levels had only reached RMB 1.19 per cubic meter by 2016 (see Table A4-1). Because of this,
revenues for LMWTC (i.e. tariff revenue, without subsidies) were lower than total costs (including capital
investment and debt servicing), which led to the shortfall in the cashflow target, and LMWTC required
continued subsidies from LMWTC after 2016 and through project closing. However, it should be noted
that if looking at operations only, LMWTC O&M costs can be fully covered by the tariffs received. The
LMG then provides sufficient subsidies to cover capital investment and debt service obligations. These
subsidies demonstrate LMG’s strong fiscal capacity, their commitment to the quality of the services, and
their strong ownership of the wastewater sector. Also, the LMWTC states in the borrower ICR that they
plan to raise the sewerage tariffs, which will only improve the overall financial situation, and also shows
the local institutions’ willingness to meet the intention of these intermediate financial sustainability
indicators in the future. Therefore, the weak performance of the cashflow intermediary indicator does
not impact the overall project development objective for cost recovery.
Table A4-3 – Project Financial Indicators: Annual Net Income, Cash Flow, and Cost Recovery of LMWTC
Original Target Actual Achieved Projection for
Financial Metrics
(Dec 2016) (2017) 2018
Annual net income (RMB million) 201 272 30
Cashflow (RMB million, including subsidies) 7.5 -232 -184
Cost recovery ratio (including subsidies)18 1.0 1.1 1.1
29The definition for ‘cost recovery ratio’ followed the financial covenant specified in the PAD and the financial definitions listed in the
Project Agreement (PA). See paragraph 6 in the PA, and see PAD Annex 9, paragraph 8 where the CRR Covenant is defined as: “total
revenue (from operating and non-operating sources, including subsidies) equivalent to not less than the sum of (i) total operating
expenses (including depreciation) and (ii) the amount by which debt service requirement exceeds the provision for depreciatio n”.
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12. Fulfillment of the Financial Covenants. The two financial covenants, namely full cost recovery rate (CRR)
and debt service coverage ratio (DSCR) were both in compliance at project completion. The CRR reached a value
of 1.1 and the DSCR a value of 1.2 (and both were to be above 1.0, as agreed at appraisal). Subsidies were included
when assessing the compliance of these covenants, consistent with the definitions in the PA and PAD (see
Footnote 29Error! Bookmark not defined.). Table A4-4 shows the performance of LMWTC with regard to the
financial covenants throughout the project.
Table A4-4 - Compliance with Financial Covenants (RMB million)
Item 2011 2012 2013 2014 2015 2016 2017 2018 Target
Cost Recovery Ratio (CRR)* 0.7 0.7 1.0 1.0 1.0 1.0 1.1 1.1 1.0
Debt Service Cost Recovery (DSCR)* 1.4 1 4.8 5.5 1.3 1.1 1.2 1.5 1.0
* See the definitions for these financial covenants in the Background section of this annex, above.
13. Financial Internal Rate of Return (FIRR). The original methodology used to estimate project FIRRs during
appraisal was not a standard method and has a number of limitations. Nevertheless, in order to maintain
consistency and comparability with the PAD, this same non-standard approach has again been used for this ICR.
▪ FIRR at Appraisal. FIRRs were estimated at appraisal for the project wastewater treatment components
under the following assumptions:
‐ FIRR evaluated over 25 years of operation; with assumed projections that tariffs will increase about 20
percent per year over that time period (i.e. from RMB 0.80 per cubic meter in 2007 to RMB 1.70 in 2011).
‐ FIRR evaluated only for the WWTPs constructed under the project, and specifically excluding the sludge
management and the urban-suburban wastewater collection components, since they are not revenue
generating investments.
‐ Following the above assumption, for the purpose of calculating FIRR, the entire tariff revenue amount
(including increases in tariffs) were considered against the costs of the WWTPs only, and not accounting
for incremental CAPEX and OPEX costs for other system facilities and infrastructure (i.e. sewerage and
sludge treatment); this is a non-standard approach.
‐ The tariff revenue base includes all customers served by the water supply company (whether their
wastewater is treated or not); and at appraisal it was also assumed that a number of large industry SOE’s
who originally had their own independent water supply and wastewater systems would connect to the
LMWTC system, adding a large and steady volume to the LMWTC revenues. In reality, the SOEs have been
slow to connect to the system, and this assumption over-estimates the volume of wastewater collected
and treated, and the amount of revenues to be collected.
‐ FIRR evaluated only to include those capital expenditures associated as project costs proposed under the
Project, and not including other non-project investments (concurrent or future) that may be required to
further increase wastewater treatment capacity in Guantang and the four county towns.
▪ Limitations of FIRR at Appraisal. As noted, the FIRR methodology used at appraisal was non-standard, and
has a number of important limitations to consider, including:
‐ The tariff revenue base was overly optimistic.
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‐ The cost base underestimated future capital costs, because it did not consider the additional CAPEX that
LMWTC would have to invest in the future in order to meet increasing demand.
‐ A limited view of the project (and system) FIRR was taken – only WWTPs were included, and sewers and
sludge treatment facilities were specifically not considered. This does not provide a full picture of the
financial performance of the project investment. Meanwhile, the appraisal FIRR assumptions evaluate all
tariff revenues against only the WWTP components constructed under the project. The magnitude of this
assumption/limitation can be reasoned from the ratio of WWTP costs to overall project costs: total
investment costs for the project WWTPs were US$103.63 million, which is 37 percent of total project
investment (excluding financial charges during implementation);
‐ Over-optimistic assumptions about increased tariffs and reduced subsidies led to an inaccurate picture of
the LMWTC revenue streams and financial independence: government subsidies were assumed to be zero
in and after 2016, but in reality, continue to be needed (as noted in the Background section above).
‐ Altogether, the assumptions and limitations of the FIRR methodology used at appraisal over-estimate the
values of FIRR for the project WWTPs.
▪ FIRR at Completion. For comparability, the same methodology (although non-standard) used at appraisal
was also used to estimate project FIRRs at the completion stage. Namely: FIRRs were calculated only for the
WWTPs built under the project, subsidies were not included in FIRR estimates, and all of the WW tariff
revenue were used to calculate FIRR for only the WWTPs. Nevertheless, a number of adjustments were made
for the completion stage FIRR (to update financial-related values with actual or current data). The
adjustments, method notes, and results of the completion-stage FIRRs are as follows:
‐ Base costs for the FIRRs were the updated (actual) costs incurred during implementation (again, for
WWTPs only).
‐ The tariff revenue base was adjusted to the actual tariff revenue collected, so as to reflect the real
situation observed during implementation and at completion.
‐ Future tariff projections were adjusted to a more reasonable level, consistent with recent historic trends,
and more conservative (realistic) than were projected at appraisal. The tariff increase was assumed to be
15 percent every four years (i.e. compound annual growth rate (CAGR) of 3.6 percent; and the actual tariff
increase was from RMB 0.80 per cubic meter in 2011 to RMB 1.25 in 2017, or 7.7 percent per year, CAGR).
‐ Note that actual tariff increases lagged behind projections (at appraisal, 2016 tariffs were projected to be
RMB 1.60 per cubic meter). As a result, total actual tariff revenues are lower than projected at appraisal,
LMG provides more subsidies to LMWTC than originally projected.
‐ The results of the completion stage FIRR calculations for project WWTPs are shown in Table A4-5, along
with the FIRR values projected at appraisal. For comparison, Table A4-5 also shows the weighted average
cost of capital (WACC) at each WWTP. WACC represents the financial cost of capital investments, and
normally the FIRR of a revenue-generating project can be compared with its WACC. If the FIRR exceeds
the WACC, the project is deemed to be financially viable.
‐ The calculation of WACC for each WWTP considered the financing costs of the Bank loan and the local
government counterpart funds. The financial cost of the Bank loan only included interest, which was the
12-month LIBOR of 2.827 percent plus a spread of 1.3 percent. This financial cost was converted to the
real cost. The inflation rate for the Bank loan is the dollar inflation rate, which was 2.177 percent. The
financial cost of the local government counterpart fund was 4.27 percent, which is the interest rate of a
5-year state bond. This financial cost was converted to the real cost; and the inflation rate for the
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government contribution was 2.111 percent. Since the FIRR was the FIRR before tax, the WACC was not
converted to an after-tax cost.
‐ The ICR stage FIRR values are lower than the appraisal stage FIRR values for each WWTP; but this can be
attributed to the over-estimates made in tariff revenues based on the assumptions and methodology used
during the appraisal stage FIRR calculations (see the discussion above).
Table A4-5 - Comparison of FIRRs for Project WWTPs, with WACC
(at 15 percent tariff increase every four years, or 3.6 percent increase annually)
WWTP PAD ICR WACC
Guantang 17.8% -0.9%† 2.0%
Shatang 13.7% -3.3%† 2.0%
Sanjiang 11.2% 4.5% 2.1%
Rong'an 15.5% 3.9% 2.1%
Rongshui 12.2% 1.0% † 2.1%
Liucheng 13.3% 6.4% 2.1%
Baisha II n/a 13.0% 1.9%
Longquanshan III n/a 15.5% 2.0%
Overall 7.4% 2.0%
* Note: FIRR calculations exclude subsidies
† These WWTPs had FIRR values lower than WACC
LMWTC Overall Financial Situation
14. Given that the non-standard method used for estimating the project FIRR does not give the full picture of
the project financial performance, the ICR financial analysis also examined and summarized the overall financial
situation of the LMWTC by the close of the project. From the good performance of the PDO financial indicators
and project financial covenants (discussed above), the long-term financial sustainability of the LMWTC as a
company looks ensured. See the data in Table A4-4. Company operating revenues steadily rose throughout
project implementation, as tariff rates increased. Meanwhile, operating costs remained steady. In particular, and
as was noted above, the two cost recovery financial covenants were both positive, indicating that all operating
costs for the project investments are able to be met with tariff revenues. And, capital investment, debt servicing,
and deprecation costs are covered under commitments from the local government to provide subsidies as needed
to LMWTC. Furthermore, it is not expected that these subsidies will bring any financial burden to LMG, as they
represent less than one percent of the local government annual budget30. Therefore, in conclusion, in evaluating
the project and looking at both economic and financial performance of the investments, the project was confirmed
to be reasonably cost-effective (least cost), the financial indicators were met with reasonable FIRR of project
WWTPs, and the financial sustainability of LMWTC is not at risk.
30In 2019, the fiscal revenues are projected to be about RMB 33.827 billion; and the debt service for the LZEMP I and LZEMP II
projects were about RMB 90 million in 2018, or about 0.3% of the local government annual budget.
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ANNEX 5. RIVER WATER QUALITY COMPLIANCE
Table A5-1 – River water quality in three sections of Liujiang River from 2004 to 2006
Water quality in the Liujiang River in three sections
Liuzhou II Yaohu Jila
Month 2004 2005 2006 2004 2005 2006 2004 2005 2006
January N/A III IV N/A III IV N/A IV V
February N/A III III N/A III IV N/A III V
March N/A III III N/A IV III N/A III III
April N/A III III N/A IV III N/A V V
May N/A IV III N/A IV V N/A V III
June III III III III IV IV III IV V
July III III V III III V V III IV
August III III II IV IV V IV III IV
September III III III V V III IV IV IV
October III III III III V III V V V
November III III IV V V III III IV V
December III III IV V V V III III V
Table A5-2 – Compliance with Class III standards of Liujiang River from 2006 to 2010
Pollutants Class III surface 2006 2007 2008 2009 2010
water standards
Dissolved Oxygen (mg/L) ≥ 5.00 7.43 7.64 8.15 8.17 8.11
Ammonia Nitrogen (mg/L) ≤ 1.000 0.629 0.714 0.496 0.435 0.443
COD (mg/L) ≤20.0 - 2.3 2.3 2.3 2.3
BOD5 (mg/L) ≤4.0 2.0 2.0 2.0 2.0 1.1
Table A5-3 – River water quality in three sections of Liujiang River in 2016 and 2017
Water quality in the Liujiang River in three sections
Lutang Shaying Mt.
Month 2016 2017 2016 2017 2016 2017
January I III III III II III
February I III III III III III
March II I II II II II
April II III II III II III
May II II II II II II
June II II II II III II
July II II II II III II
August II I II I II I
September II II II III II III
October I I II II II II
November II I II II II I
December I I II II II II
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Table A5-4 – Chemical Oxygen Demand (COD) of the effluent in four WWTPs
Year Allowable COD Liucheng Rong’an Rongshui Sanjiang
concentration (mg/L) (mg/L) (mg/L) (mg/L)
(mg/L)*
2014 60 37.1 29.8 21.8 17.7
2015 60 18.8 24.8 13.3 12.6
2016 60 20.5 18.7 29.1 14.2
2017 60 24.4 21.9 17.5 16.5
* During appraisal Grade I Standard B level (see Table A5-5) was the standard agreed for WWTP effluent discharge
in to the Liujiang River.
Table A5-5 – Highest allowable discharge concentration of water pollutants from sewerage
treatment plants (daily average) – unit: mg/L
Grade I Standard Grade II Grade III
Basic Controlled Indicators A B Standard Standard
COD 50 60 100 120 (1)
BOD5 10 20 30 60 (1)
Suspended Solids (SS) 10 20 30 50
Animal and Plant Oil 1 3 5 20
Petroleum 1 3 5 15
Negative Ion Surface Active Agent 0.5 1 2 5
Total Nitrogen (as N) 15 20 - -
NH3 (as N2) 5 (8) 8 (15) 25 (30) -
Total P (as P) Built before December 2005 1 1.5 3 5
Built after Jan 1, 2006 0.5 1 3 5
Color (dilution magnitude) 30 30 40 50
pH 6–9
Bacillus Coli (count/L) 1000 10000 100000 -
Notes:
(1) Removal rate indicators shall be higher than 60% when inlet water COD is higher than 350 mg/L, higher
than 50% when BOD is higher than 350mg/L
(2) Values outside brackets refer to controlled values when the water temperature is >12 C, those inside
refer to controlled values when the water temperature is ≤12C
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ANNEX 6. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS
ANNEX 7. SUMMARY OF THE BORROWERS ICR
Objective, Design and Quality
1. The overall objective of Liuzhou Environment Management Project [LZEMP] (Phase 2) is to
develop a sustainable wastewater collection and treatment system in the city of Liuzhou, counties of
Sanjiang, Rong-an, Rongshui and Liucheng. Through the construction of sewerage and wastewater
facilities, untreated wastewater discharging to Liujing River would be reduced by industrial pollution
control with an aim to maintain the river water quality in Liuzhou section of Liujian River at Level III
standard. Meanwhile, the collection rate of wastewater would reach 90% in the city of Liuzhou and the
targeting wastewater treatment rate not less than 50 percent in the developing counties of Sanjiang,
Rong-an, Rongshui and Liucheng.
2. The Phase 2 project comprises three major components: wastewater treatment, sludge
management and institutional development and capacity building. The overall project cost is US$274.27
million where Loan in the amount of US$150 million were funded by World Bank (WB). The loan
agreement was signed on May 25, 2011 with an original loan closing date on May 31, 2017. Upon
agreement with WB during the course of the project (on December 10, 2015 and November 2, 2017), the
loan closing date had been postponed to May 31, 2018.
Original Objectives
Component A: Wastewater Treatment (A total cost of US$265.46 million where WB loan in the amount of
US$143.33 million)
3. Construction of sewer network and six wastewater treatment plants, in support of autonomous
operation by the wastewater company. These include the first wastewater treatment plant at each of the
four counties (Sanjiang, Rong-an, Rongshui and Liucheng) and two new wastewater treatment plants in
Shatang Town and Kwuntong area of Liuzhou; modification and newly construction of approximately
156.80 km of sewerage system (including four pumping stations); and river training of 6.1 km Zhu’exi
Creek.
Component B: Sludge Management (A total cost of US$6.9 million where WB loan in the amount of
US$4.76 million)
4. Using the rotary cement kiln of Yufeng Cement Plant, a mixing incineration system of the
dewatered sludge would be developed. A storage and conveyance facility would be constructed to
facilitate the operation. Three hundred tons of dewatered sludge would be generated daily from the five
wastewater treatment plants and be transported to the cement plant for storage and mixing incineration.
Regular monitoring of the flue gas would be carried out to ensure the existing air pollution control
measure in the cement plant complies with the national gas emission standards.
Component C: Institutional Development and Capacity Building (A total cost of US$1.91 million where WB
loan in the amount of US$1.91 million)
5. This component includes (a) Project management, contract management, financial review and
project completion assessment; (b) Improvement of current operation of the wastewater treatment
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facilities, operation optimization and establishment of asset management and information system; (c)
Provision of three types of technical support, including seminars, duty visit and human resources
development training to LMWTC.
Revised Objectives
6. The original objectives remain valid and no revisions were made during implementation.
Revised Components
7. Changes were made to the scope of works and investment to better cope with the actual
environment, city master plan, applicable exchange rate and changes in loan balance during the course of
the project implementation. (As-constructed infrastructure and investment as compared with the PAD
and preliminary design is summarised in the attached tables). Major changes are listed as follows:
Component A – Wastewater Treatment, Newly added Expansion of Wastewater Treatment Plants and
Equipment Replacement
8. Expansion of Baisha Wastewater Treatment Plant (Phase 2). With the approval of WB, civil works
for expansion of the wastewater treatment plant (secondary treatment) with an average capacity of
80,000 m3/day had been added and all related and necessary equipment. In addition, an item on supply,
installation, testing and commissioning of equipment associated with the wastewater treatment plant had
been added.
9. Expansion of Longquanshan Wastewater Treatment Plant (Phase 3). With the approval of World
Bank, civil works for expansion of the wastewater treatment plant (secondary treatment) with an average
capacity of 100,000 m3/day had been added and all related and necessary equipment. In addition, an item
on supply, installation, testing and commissioning of equipment associated with the wastewater
treatment plant had been added.
10. Procurement of Equipment Replacement. With the approval of WB, the contract package of
equipment replacement and technical reformation had been added. Procured equipment included screw
conveyer, bridge type scraper, wire-rope coarse screen, belt conveyor and inline analytical instruments
and laboratory equipment, etc.
Project Extension and Cause
11. The original closing date of the loan was on May 31, 2017. During the course of project
implementation, the progress was affected and unable to complete by the original closing date due to the
reasons as listed below. With the approval of WB, extension of the closing date of the loan was granted
twice (December 10, 2015 and November 2, 2017) until May 31, 2018. The first on December 2015, was
due to extension of two WWTP, given the savings from the loan, while the second was to allow the
completion of the works, delayed because of the institutional issues that the LMWTC faced.
Overall Assessment of achievement and Outcome of Objectives
12. Through the implementation of the project, significant contribution in improving the
environmental condition of the city of Liuzhou, counties of Sanjiang, Rong-an, Rongshui and Liucheng and
reducing pollution to Liujiang River had been achieved. The newly constructed sewer network and
pumping stations are playing an important role in ensuring the conveyance of wastewater into the
treatment plant for treatment at nearly its design capacity. The capacity of Liuzhou Wastewater
Treatment Plant was upgraded from 500,000 m3/d to 820,000 m3/d. At present, the wastewater
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treatment plants constructed under LZEMP (Phase 2) had already achieved, in advance, the requirement
of the operation loading rate at 85 percent (in 3 years after completion), as stipulated by the Housing and
Construction Commission of the Autonomous Region (up to May, 2018, the loading rate is 98 percent in
the city of Liuzhou, 102 percent in Sanjiang County, 85.67 percent in Rongan County, 88.5 percent in
Rongshui County and 91.5 percent in Liucheng County). This enables the water quality of downstream
Liujiang River to maintain at Class III standard. A section of river has a trend of improvement in water
quality from Class III to Class II, which enhances the ecological water environment for enjoyment by the
citizens as an outcome of the environmental improvement project.
13. Through the implementation of LZEMP (Phase 1 & 2), Zhuexi Creek, the largest scale inland river
in Liuzhou, had been effectively rehabilitated, with progressive improvement in ecological and
landscaping function along the bank. While intercepting the wastewater and avoiding direct discharge to
the creek, flood control of the creek can also be achieved. In particular, landscaping & greening had
significantly improved the water pollution of the previously “dirty, decayed, chaotic, and poor” condition
along the creek, improving the living environment of local resident, city appearance and sanitation levels,
safeguarding raw water supply sources, and unleashing the development potential of the cities along the
banks. Along with the Zhuexi Creek Improvement Works, the sewage outlets along Zhuexi Creek was
intercepted for collection and pumping to Longquanshan Wastewater Treatment Plant for treatment prior
to disposal, which safeguards the raw water supply sources in Liujiang.
14. The sludge treatment has adopted a synergic handling method by incineration of mixed cement
clinker and sludge for production of cement at a rate of 300 tons sludge with a water content of 80
percent. The works comprises three system: dewatered sludge collection and conveyance system,
dewatered sludge storage and pumping system and sludge incineration system. This is a main and
highlighted component in the LZEMP (Phase 2) project. Furthermore, it is the first project of WB in China
to make use of dewatered sludge from wastewater treatment plant for production of construction
material, which serves as a role model of green treatment and recourse utilization of municipal sludge.
The wastewater treatment plant has fulfilled “non-harmful, reducing, stabilizing and recycling” and the
treatment of sludge has ultimately resolved pollution issue with protection of surface water and
groundwater and further enhanced the environment in the city of Liuzhou.
15. The implementation of LZEMP (Phase 2) has significant contribution to the environmental
management of Liuzhou. “Green mountain, clear water and clean ground” has become a name card for
the city of Liuzhou. Since 2009, Liuzhou was awarded “China Habitat Environment Prize”, “National
Garden City” and “Top 20 Cities of China Energy Saving and Emission Reduction”, etc.
Major Factors Affecting Project Implementation and Outcome
Factors Beyond the Control of Government or Implementation Agencies
16. The exchange rate of USD was 1:6.79 during the Assessment stage of the project (June 2010).
Resulting from the fluctuation of the exchange rate between RMB and USD (from 1:6.3 to 1:6 in the period
of 2012 to 2014) during the implementation stage, the actual available fund from the WB was reduced.
On the other hand, as the assessment policy of WB adopts “the lowest price bid”, many tenders were
awarded to “the lowest price” which was far below the estimated assessment price. As a result, the
remaining loan is increased.
17. Because of the low price bid, which is far below the market price, negotiation with the Owner
often occurs during implementation phase, particularly when the market price of the construction
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material rises, causing progress delay and difficulties in contract management for some civil works.
Factors Subjected to Control by Government or Implementation Agencies
18. Relevant division of the autonomous region and the Government of Liuzhou had provided strong
support during implementation on all stages of the project. The city of Liuzhou had established a
competent project management office for resolving and coordinating issues encountered during the
project implementation. City, County and District Government’s efficient and proactive leadership and
participation are the key to the success of the project.
19. As a result of restriction from National Government Land Regulation and adjustment on city
master plan, part of the land acquisition and relocation could not be implemented in accordance with the
original plan. Individual sewers alignment was adjusted, affecting the overall progress of the components.
Moreover, some of the components were delayed due to land acquisition and relocation.
20. Majority of the engineering design is satisfactory. Nonetheless, the depth of some advanced
geotechnical investigation was insufficient, particularly due to the geological condition of Karst in Liuzhou,
which causes additional difficulties during trenchless construction. As a result, a number of variations in
design were required during the implementation.
Factors Subjected to Control by WB
21. The performance of WB is satisfactory from loan preparation to components implementation
stages. The proactive working attitude of WB team had impressed the implementation agencies and well-
recognized by the Government of Liuzhou.
22. During the preparation and assessment stage of the project, WB officials provided beneficial
guidance on project preparation. During the implementation stage of the project, WB supervisory team
regularly deployed onsite technical, procurement, immigration and financial specialists to assess and
provide advice, as well as proactively resolving issues, which contribute significantly in fulfilling the project
target. For tender documents and assessment report that require the review by the WB, timely input,
review and approval was obtained without any delay.
Project Sustainability
Overall Sustainability Assessment
23. In our opinion, the entire LZEMP is considered sustainable. The Government of Liuzhou has
experience in managing WB loan projects and has paid high attention to environmental management.
During the implementation of the project, the project management office has efficiently coordinated the
relevant authorities, which provided full support to the implementation agencies.
Institutional Development and Managerial Sustainability
24. The implementation agency of LZEMP is LMWTC, established in December 2004, which has
extensive experience in successful implementation of LZEMP (Phase 1). LMWTC is responsible for the
operation of the newly constructed wastewater components (wastewater treatment plants, pumping
stations and wastewater collection and conveyance network).
25. River Management Office of Water Conservancy Bureau, funded by the City Government, is
responsible for the daily maintenance and management of Zhuexi Creek. The managing department of
Municipal Administration, funded by the City Government, is responsible for the daily maintenance and
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management of the stormwater and the existing combined sewers.
Operational Sustainability
26. In 2010, LMWTC has been awarded “Class A Qualification for Operation of Environmental
Protection Facilities” by the Chinese Ministry of Environmental Protection based on its track-record in
operational performance. The WB-funded project had been constructed in high quality standards with
no obvious defects identified as of to date. The sewer network, wastewater treatment plants, pumping
stations, as funded by the WB are in operation as designed. Industrial discharge into the municipal sewers
is considered reasonably under control with no particular issue on the operation of the wastewater
treatment plants. All wastewater treatment plants are equipped with a well-established operational
system and a formal well-planned maintenance schedule.
Financial Sustainability
27. A high priority in budget allocation is granted to environmental management and flood protection
by the Government of Liuzhou. The rapid economic growth in Liuzhou has resulted in a similarly rapid
growth in Government revenues and budgets. The Government’s capability for budget and funding
allocation is much improved as compared with the time at Project’s appraisal.
28. LMWTC has sufficient cash flow with a plan to raise sewage tariffs, together with a medium-term
subsidy from the District Government would enable financial sustainability of the project. The sewage
tariff has been increased for a number of times and is now higher than the estimation during the project
appraisal stage. The sewage tariff together with subsidies has provided sufficient revenue to satisfy the
financial needs for operation and maintenance, as well as loan repayment.
29. Currently, the billing rate of sewage tariff averages 95 percent. All the revenue is directly paid to
LMWTC, which allows the Company to monitor income and billing status to achieve financial autonomy.
Performance of WB and Borrower
Performance of WB
30. The performance of WB in project identification, preparation, assessment and implementation is
satisfactory. WB officials provided highly effective assistance, guidance, training and management to the
implementation agencies. The Government of Liuzhou and the project management office expressed
gratitude to the effort by the WB officials.
31. At the same time, members of WB supervisory team have a better understanding of local
circumstances in China, which is helpful in resolving issues that have been arisen from the earlier days. A
sincere cooperative partnership has also been established between Liuzhou City and the WB. WB has also
demonstrated a high level of flexibility in handling issues related to Liuzhou project, for instance, change
in the usage of the remaining fund, increase the proportion of payment, etc., which have contributed
significantly to the implementation of the project. The support from WB is greatly appreciated.
Performance of Borrower
32. During all stages of the Project implementation, the Autonomous Region and Liuzhou
Government have provided strong support to the project in accordance with the commitments made at
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the time of the loan agreement. During the project implementation, relevant authorities in Liuzhou
actively fulfilled their managing function and proactively assisted in problem-resolving in order to ensure
smooth completion of the components. With the support of financial departments at all levels, not only
the project was progressing smoothly, the withdrawal and reimbursement were efficiently carried out in
a timely and efficient manner.
33. Through the implementation of LZEMP (Phase 1 & 2), particularly with the cooperation of an
experienced international consulting firm, the Project Management Office and implementation agencies
have gained valuable experience, acquired and trained a group of talents who can proceed with bidding
and procurement, project management and financial management in accordance with international
standards, improving the overall management standard and fulling the objective of institutional
development and capacity building. To date, all facilities constructed under LZEMP are well-operated and
maintained, achieving the anticipated targets.
Experience Sharing
34. From our perspective, the WB loan program does not simply provide construction fund, but also
offer training, advanced concept and experience to talents for future business operation and management
through the project implementation. This is the major difference between WB loan and loan from
domestic commercial bank.
Project-Specific Experience
Project Design
▪ Conducted in-depth investigation on project information and data collection. The project design
adopted well-established techniques and the design documents were prepared in compliance with
the relevant specifications and technical requirements to ensure smooth implementation of the
project.
▪ The project design paid attention to technical, financial and economic perspectives, particularly to
the confirmation of overall planning scheme and adaptability of the financial model, etc., in order to
achieve both project adaptability and development goals.
▪ The environment appraisal report, social assessment report, environmental management plan,
resettlement action plan, financial model, procurement plan, etc. all covered the entire project
process and played a certain role in ensuring the implementation of the project and achieving the
project targets.
▪ Environmental appraisal report and environmental monitoring report were prepared; Qualified
entities were regularly recruited for inspecting various environmental elements in accordance with
the approved plan and prepared report. No complaint was received.
▪ Social assessment and resettlement action plan were prepared and implemented accordingly;
conducted external monitoring and prepared report. No complaint was received.
Experience in Procurement, Construction Management and Consulting Services
35. At the early stage of procurement, detailed preparation should be conducted. All the design
documents should be prepared fulfilling the requirement of National Government’s regulation and
supported by information from geotechnical investigation in sufficient details; High quality tendering and
procurement documents is the key to ensure smooth project implementation and minimize claims. Prior
to the implementation of the project, land acquisition and demolition works are critical factors in
determining the progress of the project; During implementation of the project, contract management and
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monitoring of variation orders should be strictly conducted; Procurement plan should be updated and
reviewed based on project funding and budget. The mechanism for providing consulting services in
management and institutional development is well-operated; technical assistance plays a positive role in
the implementation of project. The experienced consulting team contributes significant during the
implementation stage. Both parties have a pleasant cooperative experience and achieved the anticipated
targets.
Experience in Institutional Development and Financial Reform
36. Utilizing the “Fixed Assets Management Software”, procured by the WB funds, the company is
able to perform the following: comprehensive tracking of the fixed assets, asset inventory with automatic
scanning of QR code, managing comprehensive dynamic monitoring; upgrading the traditional fixed assets
management to a whole new comprehensive information dynamic management.
37. Enhancement of financial management and optimization of financial management control; To
secure project funding and utilize fund in accordance with the project budget from the beginning of the
year for cost-saving and optimization of fund allocation.
Suggestion to Future Projects
Tendering and Procurement
▪ Procurement and assessment methods are inconsistent between WB’s and National Government’s
procedures. If the implementation agencies and the judges or relevant departments could not be
explained clearly, WB should provide additional support for further clarification.
▪ In order to avoid unreasonable low-price bidders or unbalanced quotation, etc., it is recommended
to develop a “quantifiable assessment method” (e.g., restriction to tender from offering bid lower
than market price; increasing the security deposit amount for the tender with unrealistic low
quotation, etc.). With such assessment method, the risk to the Owner can be estimated at early
state, in order to avoid unreasonable and disordered competition.
▪ Well managed and transparent procurement processes can enhance the economic benefits of the
project. Open, fair and effective management would facilitate smooth project implementation.
Institutional Development and Financial Reform
▪ The institutional reforms of the wastewater industry in the city of Liuzhou have been commended
by WB in various occasions, which should serve as a role model for other cities.
▪ Gradually raise the sewerage tariff to increase the operational capacity of the wastewater utilities
company and to fulfil the requirements of WB’s financial terms during the project period, in order to
generate a reliable source of funding for the project.
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