Yantai GEF Document, modified version 03

PROJECT Development Facility

Request for PIPELINE ENTRY and PDF Block B Approval

Financing Plan (US$)
GEF Allocation
Project (estimated)	5,000,000
Project Cofinancing	253,000,000
PDF A*
PDF B**	350,000
PDF C
PDF Co-financing	40,000
Total PDF Financing:	390,000

Agency’s Project ID:

GEFSEC Project ID:

Country: China

Project Title: Second Shandong Environment Project

Related Program: World Bank/Global Environment Facility Strategic Partnership Investment Fund for Pollution Reduction in the Large Marine Ecosystems of East Asia.

GEF Agency: World Bank

Other Executing Agency (ies): UNDP/IMO, PEMSEA, Counterpart Governments

PDF B Duration: 4 months

GEF Focal Area: International Waters

GEF Operational Program: OP10 - Contaminant-based Operational Program

GEF Strategic Priorities: IW1 - catalyzing financial resources for policy reforms and pollution reduction measures; and IW3 - demonstrating, testing, and replicating innovative ways to reduce land-based pollution.

Estimated Starting Date (PDF-B): October 2005

Estimated WP Entry Date: November 2005

This proposal has been prepared in accordance with GEF policies and procedures and meets the standards of the GEF Project Review Criteria for approval.

Steve Gorman

IA/ExA Coordinator

Robin Broadfield

GEF Regional Coordinator

Date: October 17, 2005

Tel: 202 473 4355
Email: rbroadfield@worldbank.org

Record of endorsement on behalf of the Government:

Name:

Date:

Mr. Wu Jinkang

October 12, 2005

Operational Focal Point of China

Ministry of Finance, People’s Republic of China

PART I - PROJECT Concept

A - Summary

1. Strategic Framework

East Asia’s rapid economic growth has been accompanied by significant environmental degradation. Land-based pollution of the region’s seas, coasts, estuaries, and rivers is one of its most severe environmental problems and is degrading the region’s large marine ecosystems (LMEs). To help the littoral states address this problem, and in the context of the broader Strategic Partnership for Sustainable Development of the LMEs of East Asia, the GEF and World Bank have agreed to establish a Strategic Partnership Investment Fund for Pollution Reduction in the LMEs of East Asia (the Fund) with the objective of scaling up investment in land-based water pollution reduction in the region’s coastal areas and major river basins. This Fund would co-finance World Bank pollution reduction investment projects and offers a good opportunity for close collaboration with the GEF/UNDP/IMO Regional Programme on Building Partnerships in Environmental Management for the Seas of East Asia, implemented by PEMSEA. The Shandong Second Environment Project (SSEP) described herein is proposed for GEF co-financing from the Fund.

Shandong is a coastal province in eastern China with a land area of 156,700 sq km and a 3,000 km coastline on the Yellow and Bohai Seas. A majority of the province drains into the Bohai Sea, which is the only semi-enclosed shallow inland sea of China, with an area of about 77,000 sq km. It is an important source of food and has continuously provided support to China’s economy. The Bohai Sea’s major sources of pollution are the three provinces of Liaoning, Hebei and Shandong, which all have high economic activity, supporting a population of almost half a billion.

At present the Bohai Sea has become a pollution hotspot, with the health of its ecosystem severely damaged. Water quality in some 40% of the Bohai Sea area is unfit for recreational or aquaculture use. Wastewater discharged into the Bohai Sea reached about 2.8 million m³ in 1995 and the volume has been growing. Since 1995 red tides have struck the Bohai Sea more than 40 times, causing economic losses worth billions of Yuan. This trend must be arrested if the Bohai Sea is to meet the needs of present and future generations.

Recognizing the issue, the State Oceanic Administration - SOA (on behalf of the Government of China) the UNDP, GEF, IMO and the Regional Program on Building Partnerships in Environmental Management for the Seas of East Asia (PEMSEA) in 2000 signed a Memorandum of Agreement to establish the Bohai Sea Environmental Management Project (BSEMP) with the goal of fostering collaboration among adjacent provinces in managing pollution and reducing waste discharges. The Declaration of Environmental Protection of the Bohai Sea (Bohai Declaration) signed also in 2000 by the SOA and the Deputy Governors of Shandong, Hebei and Liaoning provinces expands the BSEMP. Subsequently, the State Environmental Protection Administration and SOA developed the Blue Sea Action Program and the Bohai Sea Integrated Restoration Program aimed at control and prevention of land-based pollutants, and at capacity building of respective agencies. Both programs provide necessary motivation to municipalities and industrial sectors to adopt more effective approaches to wastewater treatment.

China also actively participates in the recently inaugurated UNDP/GEF regional project aimed at reduction of pollution in the Yellow Sea: Reduction of Environmental Stress in the Yellow Sea Large Marine Ecosystem. This regional project would gradually be integrated into the broader Strategic Partnership currently being implemented.

2. Project Rationale

The second most populous province of China, Shandong has about 90.8 million residents, of which approximately 36 million (40%) live in urban areas. With rapid industrial and service sector growth, and the new government policy of accelerating urban development, urbanization is expected to continue at a high rate through the next decade and beyond.

The economy of the province has grown at an average annual rate of more than 10 percent over the last decade. In 2003, its GDP reportedly reached $12,430 billion, an annual increase of 13.7%. Its 2002 per capita income of 8,399 RMB ($1.020) was above the national average. The 1985 proportion of GDP, generated by the primary, secondary and tertiary sectors reaching 35/43/22, has changed to 15/50/36 in 2001 with substantial growth of secondary and tertiary sectors.

Provision of urban water supply, wastewater and solid waste services is the responsibility of cities and their specialized agencies. In 2004 these produced 2,639 million m³ of drinking water, servicing about 24.6 million people, or about 68% of the total urban population[1] in addition to industry, commerce and institutions through over 4.6 million water connections.

In the same year the sewerage agencies served over 30 million urban residents, of which 20 million by combined systems (12,675 km) and 10 million by separate systems (7,400 km). In 2004 these systems collected 1,900 million m³ of wastewater, of which about 898 million m³ was treated, with 832 million m³ in secondary treatment plants.

In its effort to improve the urban environment, to reduce pollution in its rivers and to the Bohai Sea, which is the major sink of the province’s wastewater, and in the spirit of the Declaration to protect the Bohai Sea, the Shandong Province has sought a World Bank loan for a Shandong Second Urban Environment Project.[2] The project components, which are located in urban centers of several municipalities, focus on investments in urban wastewater collection network and treatment, water supply, and solid waste management, including institutional strengthening of the responsible agencies. The project would help the province to achieve an increase in treatment capacity of 11% of all wastewater generated in its urban areas and also substantially reduce the pollution load entering the Bohai Sea.

The government of Shandong has requested GEF assistance, through the Strategic Partnership Investment Fund, for activities that would leverage investments in Yantai Municipality, one of the municipalities proposed for inclusion in the SSEP. Shandong has proposed to use GEF financing to initiate investments in a very under-financed and insufficiently managed part of the wastewater sector in China – septage management. The project would improve the management of septic tanks (investment in collection and treatment of wastewater generated in selected urban areas) and strengthen respective operating agencies. The global environmental objective of the project is to contribute to the gradual reduction of pollution contributed directly, or indirectly by way of rivers, into both the Yellow and Bohai Seas.

Within its International Waters Focal Area, the GEF has a Contaminant-Based Operational Program (OP10), which seeks to remove barriers to pollution reduction. In the case of Yantai, barriers exist to the effective management of septage; the GEF project would identify and address these barriers, because the government of Shandong would not have the capacity to address these issues with traditional financing such as IBRD or government own-financing. The problems faced in Yantai are widespread in China, and the successful outcome of the GEF activities would serve as a demonstration for other areas, which is in keeping with GEF’s strategic priorities for the period 2003 - 06.

Further, it is important to highlight that the proposed project has the added feature of contributing to the replication of the septage management practiced being developed under the GEF Manila Third Sewerage Project, which also forms part of the Fund. The proposed GEF Shandong/Yantai project therefore represents a first stage of replication of the Manila project, and an exciting opportunity for the World Bank to catalyze regional dissemination of best practice in the very important area of septage management.

3. Objectives

The development objective of the project is to reduce land-based pollution discharges to the LMEs of East Asia, and to support sustainable improvements to the urban environment in Shandong Province through implementation of sector reforms and high priority investments in water supply, wastewater collection and treatment, and solid waste management in selected municipalities.

4. Outputs

The baseline project comprises two parts:

Part 1: includes investment programs in (a) water supply (Gaomi, Huantai, Taian); (b) wastewater (Gaomi, Huantai, Jining, Qixia, Weifang, Weihai, Yantai, Zaozhuang); and (c) solid waste management (Heze and Rizhao).

Part 2: includes a technical assistance program to support sector planning and reform, institutional development and capacity building, project management support, and future project preparation.

In 2010, upon completion of the baseline project, the cities would have a population of about 5.64 million supported by a range of industry, commerce and institutions. Within its investment part the project would (a) expand existing and provide new drinking water production capacity of 250,000 m³/day, construct 260 km of water transmission mains, an unspecified length of distribution pipelines and associated pumping stations, (b) expand existing and provide new wastewater treatment capacity of 575,000 m³/d, construct 340 km of interceptor sewers and drains and an unspecified length of secondary and tertiary network. The SSEP would expand the Xinanhe WWTP from 40,000 to 120,000 m³/d, construct several kilometers of interceptor sewers and unspecified length of drains to expand its combined sewer system, (c) provide new capacity of 100,000 m³/d for tertiary treatment of wastewater and 67 km of reuse pipeline, (d) rehabilitate 36 km of minor rivers in connection with laying of interceptor sewers, and (e) construct two new sanitary landfills, a composting facility and transfer stations, and provide waste transportation vehicles and associated on-site equipment for solid waste management.

The capital of Yantai municipality, Yantai City, a coastal city with an urban population of one million, is a major port with machinery, electronics, and equipment industries. It is also a popular summer vacation place for Shandong and Beijing urbanites owing to its clean sand beaches and relatively warm waters. Preservation of that lucrative tourist industry is one of several reasons why the Yantai City government has been paying close attention to environmental protection and to water quality improvement in the Bohai and Yellow Seas.

The GEF project would take place within the Yantai wastewater component of the SSEP. It includes, in the preparatory phase, studies relating to domestic wastewater management, and in the implementation phase, activities related to septage management as identified during the preparatory phase.

The World Bank has approved a second Shandong Environment Project, which is currently in preparation stage. It is expected to be appraised in March 2006, and presented to the World Bank Board in September 2006.

B - Country Ownership

1. Country Eligibility
The Republic of China is eligible for GEF assistance in the International Waters Focal Area through the World Bank.

2. Country Driven-ness

The project is consistent with (a) China’s strategy for reducing municipal water pollution, which stresses adequate pricing, service expansion and operational efficiency; (b) the transboundary diagnosis and strategic recommendations of the PEMSEA-facilitated Sustainable Development Strategy for the Seas of East Asia (SDS-SEA), which China has endorsed; (c) the objectives of the Bohai Sea Environment Management Project (BSEMP); and (d) the objectives of the Reduction of Environmental Stress in the Yellow Sea Large Marine Ecosystem project, both latter projects sanctioned by UNDP and China. The project is therefore consistent with China’s strategy, both on a national and international scale, to reduce pollution and sustainably manage the environment.

On a local scale, Yantai, as a tourist city, with good climate, bathing beaches and a number of historic sites, has been named Tourism City of Excellence, Exemplary Environment Protection City, and Garden City by the State. It regards environmental protection as an important part of its economic growth, and environmental protection has been included in the city's national economic and social development plan. It issued environment management regulations for water, air and noise control, and in the past several years, has refused to approve more than 200 projects that would cause major pollution. The city has closed, relocated or renovated numerous industries, and has strengthened controls on automobile emissions. As such, the proposed GEF project complements existing locally driven initiatives to protect and enhance the environment.

The Shandong Province and Yantai municipality governments have requested the Bank and GEF to support the Yantai component within SSEP and to apply best international engineering and management practices and innovative approaches to its wastewater sector. Both governments have confirmed that the project and its service and environmental targets reflect national and local priorities. Yantai local communities would be notified of and briefed on the project through the involved agencies and consultative meetings.

C – Program and Policy Conformity

1. Program design and Conformity
The Shandong project is being processed within the Strategic Partnership Investment Fund for Pollution Reduction in the LMEs of East Asia. As such, it meets the seven eligibility criteria to receive financing from the Fund, which are: (i) to be located within the coastal watersheds of one of the six East Asian LMEs: East China Sea, South China Sea, Yellow Sea, Sulu-Celebes Sea, Gulf of Thailand, and the Indonesian Seas; (ii) to demonstrate an innovative technical, institutional, or financial mechanism to combat land-based water pollution, and/or to remove a significant technical, institutional, or financial barrier that reduces cost-effective investments in pollution control in that location; (iii) to have high likelihood of replication and/or scalability in that country and/or more widely in East Asia coastal regions; (iv) to be unlikely to proceed without grant financing from GEF; (v) to have necessary co-financing available; (vi) to have been endorsed by the proposing country’s GEF focal point, and (vii) to meet all relevant World Bank appraisal criteria.

The GEF SSEP component is consistent with the GEF’s Contaminant-Based Operational Program (OP) 10, within the International Waters Focal Area: it would remove barriers to pollution reduction by demonstrating and encouraging the feasibility of replicable innovative approaches to wastewater collection and treatment. It would specifically define and implement a policy to manage septic tanks and establish appropriate institutional responsibilities, both issues having been identified as barriers to pollution control. This would lead to reduction of land-based pollution and contamination of an international water body. Its innovative features include: (a) implementation of servicing of residential septic tanks connected to combined sewerage system; (b) treatment of collected septage in wastewater treatment plant; and (c) establishment of an implementing agency and appropriate policies, including cost recovery systems, all of which are uncommon in China.

The GEF SSEP component is also consistent with GEF Strategic Priorities (SP) 1 and 3 for the period 2003 - 06 in the International Waters Focal Area. With respect to SP1, it would facilitate the efforts of a nation that signed the Putrajaya Declaration of Regional Cooperation for the Sustainable Development of the Seas of East Asia to mobilize financial resources for implementing policy/institutional reforms and stress-reducing investments to address a priority transboundary water issue (land-based pollution of a shared water body) that is highlighted in the Declaration. Furthermore, as called for by SP1, these resource mobilization efforts are mainstreamed into the regular program of a GEF agency, in this case the World Bank, under the framework of a Strategic Partnership among nations and the GEF agencies that support World Summit on Sustainable Development’s Plan of Implementation outcomes.

With respect to SP3, the project would demonstrate the feasibility of innovative technical and technological solutions accelerating investments in wastewater structures that reduce pollution of the recipient ocean. The introduction of septage collection from septic tanks per se is a technical novelty in China and its joint treatment with wastewater represents the least-cost technological solutions in Yantai, which generates a mix of local and ultimately global benefits. The project would also contribute to the UNEP Global Program of Action for the Protection of the Marine Environment from Land-Based Activities.

A similar project being considered for GEF support is under development in Manila (Philippines). The Yantai GEF-supported activity is oriented towards the barriers faced in the septage sector in China - the primary objective is to develop methods of servicing septic tanks and treating the septage sludge, activities that are almost non-existent in Chinese cities. In Manila, the servicing of septic tanks was introduced several years ago and the GEF-supported activity focuses on the overall integrated approach to city sanitation and on the search for suitable technologies for joint septage-wastewater treatment. Both projects focus on finding cost-effective treatment methods for septage sludge, and to this common goal, the projects would collaborate and technology developed through one project could be applied in the other. Already, the identification process for the projects have prompted interaction between the Manila and Shandong clients through their respective Bank task teams and therefore there are very strong opportunities for south-south collaboration, regional dissemination and replication through these projects.

In China as elsewhere in the world, regulations require construction of septic tanks in association to residential buildings, and responsibility for their servicing is retained with the owners of buildings. Owing to the expense involved with regular servicing (emptying sludge from the tank) the owners service their tanks only when it becomes absolutely necessary, i.e. in case of blockage and overflowing. Municipalities in China have not invested resources towards this issue primarily because of the lack of experience in this sector in China, the enormous scale of the problem in each city, which represents a barrier, particularly for the initial effort, and the lack of information about the location, size and number of users of each tank. The GEF-supported activity in this project would demonstrate the feasibility of ensuring normal servicing of septic tanks through technical and institutional arrangements and the positive impact of such an activity on reducing Yantai’s pollution contribution to Bohai Sea. Technology for final disposal of septage may vary from city to city depending on the status of sanitation facilities. In Yantai, the joint wastewater-septage treatment appears the least-cost technological solution.

Both Manila and Yantai projects focus on the improved management of septic tanks to reduce land-based marine pollution. While the barriers to implementation of good septage management in both cities are basically different, the structure of the Strategic Partnership Investment Fund provides an opportunity for both to demonstrate a spectrum of technical and institutional variations (considering that in Manila the sector is managed by a private operator) and to share and gain from each other’s activities, thereby reinforcing and scaling up the benefits of the individual components under the program. These benefits would be obtained through south-south technology transfers, study tours, regional workshops or specific consultations.

2. Project Design

Problem Statement

Unprecedented economic growth in East Asia has resulted in rapid urbanization, in coastal regions especially. The urban population concentration in coastal regions has caused the seas of East Asia to largely bear the brunt of the environmental impact of this development. The result is that land-based pollution of East Asia’s seas, coasts, estuaries and rivers is a severe problem that is well recognized by the countries in the region, including China, illustrated by the scale of environmental degradation in the Bohai Sea, which has not been matched by the wastewater management in its catchment.

Within Shandong Province, Yantai City poses a particularly serious pollution reduction challenge, but also, owing to its strong environmental commitment, an excellent opportunity for innovative and replicable action. Yantai’s wastewater is collected by a mixed separate-combined sewer network and treated in two wastewater treatment plants (WWTP) - Taoziwan and Xinanhe, with the total capacity of 290,000 m³/d. During storm events, the combined sewer network interceptors only have capacity for a volume equivalent to twice the dry weather flow, and the storm overflows discharge any volume above that to the nearest river. For these reasons each house is provided with a septic tank to protect recipients during overflows from solids, which are normally retained in the tanks. Since the tanks are not regularly serviced, sludge fills the entire tank over time and raw sewage flows through the tanks unaltered. During rains, a portion of the raw wastewater is discharged into surface waters without any treatment, increasing the pollution load to the Bohai Sea. Achievement of acceptable water quality in the sea is important not only for seafood production but also for tourism, as Yantai’s beaches are extensively used during summer.

While wastewater generated in the city has been treated (and treatment capacity is undergoing expansion with Bank support) the sewage overflows still cause considerable pollution during rains, chiefly because of under-serviced and non-functioning septic tanks. Lack of policies for management of septic tanks and of institutional responsibilities is the main cause of this status.

Baseline Scenario

Many of the trends identified above - increased urbanization, in coastal cities in particular, and the resulting pollution of the sea - are inevitable. In the worst-case scenario - no Bank-supported project - the wastewater treatment capacity of the Yantai component would not expand, and a considerable and increasing volume of raw wastewater would continue to discharge into the sea. In the baseline scenario below - with the Bank-supported project but without GEF co-financing - part of Yantai municipality raw wastewater would be appropriately treated, but pollution due to storm overflows of combined sewers would continue to flow into the sea due to non-functioning septic tanks.

The Yantai baseline scenario includes:

a) Expansion of Xinanhe WWTP from 40,000 to 120,000 m³/d, to serve a population of 500,000, as well as institutions and industries;

b) Construction of 14 km of interceptor sewers, some combined sewers, and upgrading a pumping station: and

c) Establishment of a self-financing municipal enterprise (Yantai Wastewater Company -YWWC) as a successor of the current Urban Drainage Division (UDD) to manage wastewater activities[3].

GEF Alternative Scenario

GEF funds would support a significant enhancement of the Yantai baseline scenario as outlined below. With GEF support, institutions responsible for management of drainage, wastewater treatment, and servicing of septic tanks in Yantai would review overlaps in their responsibilities, develop suitable and controllable policies and operating procedures, and would integrate their activities to implement proposed innovations.

GEF support would initiate and make possible the proposed major institutional and technological task, which would not otherwise be carried out by any wastewater sector agency in China. Below is a summary of the proposed three additional components:

GEF Component 1: Implementation of Septic Tanks Policy and Establishment of Septic Tanks Servicing Institution

In 2002 Yantai government improved its wastewater policy with regard to septic tanks. It ruled that:

- the management (servicing) of wastewater facilities in the municipality (septic tanks and wastewater connections) would be turned over from the building property company (the owner), to UDD;

- the septic tanks would be serviced twice a year; and

- the servicing cost would be borne by the building property company.

However, the responsibility for tanks servicing has not been transferred because of the housing owners’ reluctance to pay for such servicing; subsequently the institutional capacities could not be created due to lack of financing., Further adding to the confusion on implementation of the 2002 policy is the fact that the issue of responsibility for maintaining the combined sewerage network, including identifying necessary financing sources, was not included in the above ruling and therefore still remains to be done.

With GEF acting as a catalyst, the Yantai government would, on the basis of a PDF B-financed study, confirm for UDD (and its successor – YWWC) the extended responsibility for taking over the septic tank servicing activity, support it with adequate financial and other resources and respective legislation and would rule with regard to provision of adequate maintenance of combined sewers.[4] Also, to implement the Bank-financed component, the municipality has established within UDD the Project Management Unit (PMU) as the municipal government agency, which would be later absorbed into UDD (and its successor) to take over responsibility for operations upon the component completion.

Within its organization, UDD would include a separate unit responsible for management of septic tanks in Yantai municipality, including technical, financial and environmental aspects. It would provide the unit with adequate equipment, and properly trained staff in sufficient numbers and caliber. The organization and management system of the unit would be compatible with the rest of UDD and upgraded as proposed in the PDF B-financed study. In accordance with the legislation to be approved by the Yantai government later, the UDD’s incremental cost related to septic tanks operations would be borne through servicing fees by the building property company.

GEF Component 2: Preparation of Septage Collection System - Provision of Facilities

Following the recommendations of the PDF B-financed study, the UDD and its new Septic Tank Unit (STU) would prepare the establishment of a septage collection system. Assisted by a suitable firm of consultants,[5] it would (a) draft technical and commercial bidding documents for procurement of computer hardware and software; (b) draft an instruction manual for systems operational staff (management of records on septic tanks status and monitoring of servicing) and carry out training; (c) recommend equipment for collection of septage from septic tanks and draft technical and commercial bidding documents for procurement of equipment; (d) draft an instruction manual for septage collectors/drivers and carry out training; (e) design necessary garages, washing bays and adequate parking for collection vehicles as well as suitable sanitary facilities for staff; and (f) draft technical and commercial bidding documents for procurement of proposed civil works including necessary equipment.

On the basis of approved final technical and commercial bidding documents in a second stage the STU would procure (a) office equipment for management and monitoring of septic tanks servicing, including computer hardware and software, (b) specialized fecal vacuum tankers, which would empty the septic tanks and deliver the septage for disposal at the WWTP, and (c) washing bays and garages for vehicles and sanitary facilities for collectors/drivers.

The UDD, jointly with the new STU, would ensure continuous training of staff in knowledge and use of various manuals and compliance with procedures.

GEF Component 3: Design and Construction of WWTP for Joint Treatment of Sewage and Septage

Treatment of septage in WWTP has been practiced elsewhere but never used or tested in Yantai or in China. To accept septage, the design of the treatment plant must specify the exact amount of septage to be treated. Moreover, while separate pre-treatment of septage may not be required if a limited amount of septage is discharged to an interceptor upstream of the plant, some preliminary treatment facilities would need to be provided in the WWTP to accept greater septage loads from septic tankers. Adaptation of the designs from elsewhere is difficult since the septage characteristics varies widely between countries for various reasons such as climate, user habits, septic tank size and type, and servicing frequency. The Yantai design must be based on pilot tests and practical experimentation. Such experimental testing of technology in a new environment is an excellent candidate for support from GEF.

This proposed component would support: (a) design modification for joint treatment of sewage and septage in Xinanhe WWTP; and (b) construction of additional facilities to accept septage. Where appropriate, results from the ongoing work under the GEF Manila Third Sewerage Project would be incorporated into the design.

GEF Component 4: Implementation of septage collection, treatment, monitoring and evaluation

Collection of septage can start in its entirety only after completion of the WWTP. The PMU would ensure that all systems, programs, procedures and equipment are operational, and staff adequately trained. This component would therefore support: (a) monitoring the servicing of septic tanks, quantity and quality of septage, inputs of septage and wastewater in the WWTP, outputs and performance of WWTP, including quantitative and qualitative parameters necessary for environmental and cost-benefit analyses, and overall evaluation; (b) provision of technical assistance and training of septage operators to improve current practices in hauling septage; (c) evaluation of pilot and one-year operations; and (d) organization of knowledge dissemination workshops for watershed agencies based on the results of the experiment.

3. Sustainability (including financial sustainability)

The Shandong Provincial Government is attaching great importance to the comprehensive improvement of the urban environment and its ecological status. The project and its objectives are fully consistent with the overall development plans of the province and the relevant municipalities, which would push forward the urban environmental improvements and the project sustainability in Shandong.

Similarly, Yantai Municipality is strongly committed to the success of the project as the future environmental status of Yantai city depends on the successful implementation of the project. The degree of importance attached to the project is reflected in the active participation of high-level government officials in the Leading Group (LG), which would guide implementation of the component.

Financial sustainability of the component is critical to its success. Accordingly, Yantai Municipality has recently increased wastewater tariffs and is set to increase tariffs again to ensure the sustainability of the component and of all wastewater activities. Yantai UDD and the new PMU have well-qualified technical staff that would ensure successful and timely implementation of the component and adequate and efficient operation of the facilities.

4. Replicability

The proposed GEF-supported activities have significant potential for replication in Shandong Province, other provinces in China and throughout East Asia. Cities in Shandong Province (and in China generally) normally collect wastewater by a mix of combined systems in older areas and separate systems in newly developed housing. Even if long-term plans foresee conversion of all systems to separate, the high cost involved would ensure the current status for several decades. Accordingly, Shandong would impress upon respective municipalities to consider in their projects the Yantai experiment with upgrading servicing of septic tanks even before the results are made available a few years later. Shandong Province would also actively participate in broadly disseminating the Yantai experience upon completion of the GEF-supported activity, and would consider applying regulatory steps supporting the application of the lessons learned from the experiment in other municipalities.

In addition, joint septage-sewage treatment has a significant potential of replication in China and throughout Asia. The project workshops would provide media for sharing knowledge, skills and best practices in ecosystem-based management with partners and communities within and outside the watershed. Given PEMSEA’s familiarity with the Bohai Sea and the situation in Shandong Province, through the work that PEMSEA has been doing as part of the Bohai Sea Environmental Management Project, PEMSEA would promote the replication of good practices and innovative technologies in appropriate areas of the region. Furthermore, in the spirit of the Strategic Partnership, a delegation from Shandong is planned to carry out a study tour to Manila, Philippines, to study a similar septage management project.

Lastly, consistent with guidance on the GEF’s online resource in International Waters (IW:LEARN), funding would be provided to officials from Shandong to participate in the IW biennial conferences and projects would participate in IW:LEARN activities. The project would be allocated a travel budget for Shandong participants to share their experiences with other provinces in China and countries in the region.

5. Stakeholder Involvement/Intended Beneficiaries

There are multiple beneficiaries for the GEF activities including: i) owners of the septic tanks; ii) fishermen and aquaculturists along the coastline, as well as consumers of seafood from Yantai; iii) environmentalists and persons who are interested in the management system of the septic tanks; iv) citizens in Yantai who wish to enjoy a clean and healthy environment; v) the multiple government agencies responsible for environmental protection and land management in Yantai municipality; vi) other cities in Shandong, which would apply lessons learned; and vii) all stakeholders in the tourism industry (hoteliers, tourists).

During the preparation of the proposed project, there would be consultations with all of these key stakeholder groups, and an effort made to reach consensus on appropriate project design. The results of the consultations would be recorded and analyzed, and a stakeholder plan produced as a specific block-B activity.

6. Monitoring and Evaluation
A monitoring and evaluation (M&E) plan would be developed during the preparation phase, which would include a strategy to monitor pollution reduction loads to the Yellow and Bohai Seas. The M&E plan would monitor volume of sewage and septage collected and treated, influent and effluent concentrations of key parameters (including BOD, COD, N and P) to demonstrate compliance with Chinese environmental standards, as well as monitor total amounts of pollution prevented from entering the Bohai and Yellow Seas. The Shandong baseline project would construct five wastewater treatment plants, with a total capacity to treat 420,000 m3/day of wastewater, and the capacity to reduce BOD by 8,400 t/yr.

Similarly, appropriate M&E parameters on capacity building, and institutional and regulatory reform would be prepared during the preparation phase. M&E indicators for this objective, for example the number of workshops, the number of people included in capacity building programs, and the number of presentations by Shandong representatives at domestic and international workshops, would be developed during preparation.

D – Financing

The total project cost is US$ 300 million, of which half is a Bank loan, and half is government financing. Of the total US$ 300 million, US$ 253 million is related to wastewater and water pollution, while the remainder is related to solid waste and water supply management:

Wastewater Management US$ 245 million

Capacity Building US$ 8 million

Total US$ 253 million

For the purposes of this project, co-financing against GEF funds has been estimated as the amount invested in wastewater only (physical infrastructure and capacity building). Thus GEF funds are leveraged at 5 (GEF) : 253 (Wastewater) or approximately 1 (GEF) : 50 (Wastewater).

E - Institutional Coordination and Support

1. Core Commitments and Linkages

The project would be a component of the World Bank/Global Environment Facility Strategic Partnership Investment Fund for Pollution Reduction in the LMEs of East Asia. Its design reflects the lessons learned from the World Bank’s large portfolio of water pollution reduction projects, including WB/GEF Danube/Black Sea Program.

The Government of China accords high priority to the pursuit of economic growth in a manner consistent with the protection, preservation and revival of the quality of its fresh and marine waters. It is the signatory of the Putrajaya Declaration of Regional Cooperation for the Sustainable Development of the Seas of East Asia and participates in the GEF/UNDP/IMO Regional Program on Building Partnerships in Environmental Management for the Seas of East Asia (PEMSEA). It requested Bank support for the project and allocated the responsibility for overall coordination of the project to Shandong Province, which has been guiding the respective municipalities in technical and institutional preparation and would continue advising them on subsequent implementation of individual components. Beside its baseline project component, Yantai municipality would also manage the GEF-supported part, including responsibility for designing the respective policies, their enforcement, and establishment of appropriate institution for implementation.

The project would address a key element of the World Bank’s China Country Assistance Strategy (CAS), which is to accelerate the transition to a market economy through improving public sector management and delivery of services in areas where progress can be made quickly and success can be replicated; and to facilitate an environmentally sustainable development process through strengthening the effectiveness of environmental institutions.

2. Consultation, Coordination and Collaboration between and among Implementing Agencies, Executing Agencies, and the GEF Secretariat, if appropriate.

The project is part of a regional pollution reduction program that the World Bank and the GEF are developing jointly, in close collaboration with the UNDP/IMO PEMSEA project, it which has been briefed on the project and will help to disseminate information about. During project preparation a survey of other ongoing related activities among other implementing agencies, executing agencies, and the GEF Secretariat would be undertaken and appropriate collaboration pursued.

3. Implementation/Execution Arrangements

The GEF implementing agency for the project would be the World Bank, through the East Asia Urban Development Sector Unit (EASUR), which is responsible for the overall Strategic Partnership Investment Fund. The World Bank task team responsible for the SSEP would also supervise the GEF project.

The Yantai Municipal Government, under the policy direction of the Shandong Provincial Leading Group, would execute the Yantai component. Yantai municipality has established the municipal Leading Group (LG), consisting of relevant government agencies including the Planning Commission, Environmental Protection Bureau, Land Resource Management Bureau, Agriculture Bureau (which includes the Marine Bureau), and Construction Bureau. The Vice-Mayor in charge of construction leads the LG. The municipality also established PMUs with adequate numbers and qualification of staff to provide overall management, coordination and monitoring of the component. The PMUs would also undertake the actual GEF-related activities.

PART II - Project Development Preparation

A - Description of Proposed PDF B Activities

The activities during the PDF-B grant period are described below:

Activity 1: Design of Septic Tanks Policy and of Septic Tanks Servicing Institution

A firm of consultants would be contracted to (a) review the current policies for septic tank provision and operation; Yantai municipal practices, responsibility for construction, inspection and regular servicing, including policies and practices for cost recovery related to tanks servicing; policies and practices for septage final disposal; (b) evaluate impacts and efficiency of the current policies and practices on residual water pollution of storm water overflows; and (c) propose alternative policies, practices and institutional responsibilities to reduce storm water overflow pollution in recipient seas. The proposal for institutional responsibility would also include assessment of staff and equipment requirements, procedures, cost recovery practices, etc.

Activity 2: Investigations and Design of Septage Collection System and of Facilities

A firm of consultants would be contracted to: (a) investigate a representative sample of septic tanks in Xinanhe catchment area with the objective of creating a database of key information necessary for proposed improved management of septic tanks in accordance with sanitary engineering practices; (b) outline specifications for computer hardware and associated software necessary for management of septic tanks in the respective catchment area; (c) outline instruction manual for systems operational staff and recommend respective training; (d) outline equipment for collection of septage from septic tanks and draft technical and commercial bidding documents for procurement of equipment; (e) outline instruction manual for septage collectors/drivers and recommend training; (f) outline necessary garages, washing bays and adequate parking for vehicles as well as suitable sanitary facilities for staff; and (g) estimate costs of the above activities, outline implementation process and tentative schedule.

Activity 3: Design of sewage/septage WWTP.

A firm of consultants would: (a) identify design parameters for WWTP to accept septage; (b) identify optimal quantity of septage for Xinanhe WWTP; (c) outline modification of the current preliminary designs to reflect new parameters; (d) propose appropriate amendment of bidding documents, in procurement process and in construction supervision; and (e) design monitoring and evaluation process and period for pilot operations to observe and measure sewage and septage inputs and treatment performance.

Activity 4: Conduct workshops, build consensus, and prepare a Stakeholder Plan.

A key component of the PDF-B project will be the stakeholder consultation and consensus-building process. UDD will organize a number of workshops to identify existing issues and constraints with respect to septage management. The aforementioned consultants will assist the executing agency in the organization and implementation of the workshops. Study visits for management and technical national professionals would also be organized.

Activity 5. Dissemination and Replication

Under the PDF-B, a plan for specific replication and dissemination activities under the project, including workshops, presentations, and technical publications will be prepared. Under the project, funding will be allocated for the project’s representatives to participate in GEF’s IW: LEARN website and activities, and in conferences such as the biannual GEF International Waters Congress and the PEMSEA East Asia Seas Congress. Finally, the dissemination and replication plan will include specific provisions for coordination with PEMSEA’s Regional Partnership activities, whereby PEMSEA will help disseminate the knowledge from the Shandong/Yantai experience and the documents from the described dissemination activities.

Activity 6. Prepare M&E Plan:

As part of the overall preparation of SSEP, a monitoring and evaluation program for the project’s objectives, outputs, and inputs will be developed during the preparation phase. For the joint septage-sewage plant, this will include a strategy to confirm pollution reduction loading estimates achieved through the project. The results will be used for improving operational performance, as well as providing scientific information on the technology, which will be disseminated for the use of other interested parties. On the institutional and regulatory reform component, appropriate monitoring and evaluation parameters will be prepared during the preparation phase.

Activity 7: Conduct study/exchange visits. Study visits for management and technical national professionals would also be organized. Shandong Province would support the dissemination of the project achievements among the province municipalities and respective cities. A study tour by Shandong officials to Manila, Philippines, which has a similar, but further advanced, septage management project, is planned as a form of exchange and learning.

B - PDF Block B Outputs

The outputs expected from financing from the PDF B are:

1. Design of new policies and respective institutions for septic tanks management in Yantai municipality;

2. Identification of proposed task, necessary facilities and equipment;

3. Design and testing of joint sewage/septage treatment, proposal for monitoring;

4. Stakeholder Plan

5. Replication and Dissemination Plan

6. GEF Project Document including M&E.

C - Institutional Arrangements

The World Bank and Yantai UDD would jointly execute the Yantai PDF B activities. The World Bank task team leader would be responsible for contracting international consultants to assist in the development of the project proposal. The UDD would be responsible for contracting domestic consulting firms/design institutes to assist in project preparation and for obtaining any necessary domestic clearances.

D - Timeline & Budget

(See Annex 1) The PDF B-funded activities are expected to begin immediately after GEF approval of the proposal in October 2005 and would be completed by August 2006. The budget estimate is presented below:

Cost Estimates for Yantai PDF B-GEF Proposal

Yantai PDF B Activities	Total	Bank Executed	UDD Executed
Yantai PDF B Activities	US$
Design of policies and institutions	80,000	0	80,000
Investigations and procurement of equipment	150,000	0	150,000
Design of sewage/septage STP and monitoring parameters	80,000	0	80,000
Prepare GEF project documents including replication, dissemination, stakeholder and M&E plans.	30,000	30,000	0
Conduct a workshop, study visits	50,000	0	50,000
TOTAL	390,000	30,000	360,000

Part III – Response to Reviews

A - Convention Secretariat

Comment 1.

“Cofinancing should cover only the sewage collection and treatment systems and any tech assistance to design it and make it function. Other urban infrastructure should be reduced from project cofinancing--like water supply.”

Response 1.

The amount of cofinancing was adjusted to reflect the amount of the loan for wastewater (US$ 245 million) and for technical assistance (US$ 8), making a total in wastewater of US$ 253.

Comment 2.

“Recommend submitting a revised concept that has a global objective in the project objective to "reduce pollution discharges to the LMEs of East Asia. See the objectives wording for Liaoning project.”

Response 2.

The objective was changed to include pollution reduction: “The development objective of the project is to reduce land-based pollution discharges to the LMEs of East Asia, and to support sustainable improvements to the urban environment in Shandong Province through implementation of sector reforms and high priority investments in water supply, wastewater collection, and treatment, and solid waste management in selected municipalities.”

Comment 3.

“Replicability strategy is missing as is reference to GEF IW:LEARN website

and participation in learning activitities.”

Response 3.

Section on replicability has been modified, and includes reference to IW:LEARN.

Comment 4.

“While M & E plan is to be produced during the Block B prep, the estimated amount of COD, BOD, N and P reduced in the sewage works as well as the septage treatment should be estimated in a section of the concept on M & E. The plan should include monitoring to document the actual amount of pollution reduction achieved and any improvements in the river downstream. The M & E Plan should set GEF IW M & E indicators in the process, stress reduction, and environmental status categories. So include an M & E section like Liaoning project in this project in a revised concept to be resubmitted ASAP.”

Response 4.

M&E section has been added and includes estimated BOD reductions.

B - Other

UNDP & PEMSEA comments on World Bank Concept/PDF-B submissions:

Comment 1.

“This project was reviewed from two perspectives, namely conformity with: a) the objectives and activities identified in the SDS-SEA implementation program; and b) the criteria for selection of eligible projects under the GEF/World Bank Strategic Partnership Investment Fund (Fund).

a) SDS-SEA Implementation Objectives and Action Programs

PEMSEA is quite familiar with the Bohai Sea and the situation in Liaoning and Shandong Provinces, as a result of the work PEMSEA has been doing in the area as part of the Bohai Sea Environmental Management Project. The barriers to addressing the critical issue of pollution reduction from point and non-point sources in the area have been well-presented in the concept papers, and we feel that such critical issues can be successfully explored and addressed with GEF support, complementing the major investments in infrastructure that are required at these two sites. We also are aware that the national, provincial and local governments are committed to financing environmental infrastructure projects in the Bohai Sea region.

The two Bohai Sea projects present an opportunity for strengthening collaboration between PEMSEA, World Bank and Bohai Sea stakeholders, with the development and implementation of the Phase 3 GEF/UNDP/PEMSEA project. The technologies, institutional arrangements and financing mechanisms being tested under these two projects are likely to have application elsewhere within the Bohai Sea coastal and watershed areas. The proposed PEMSEA project is tasked with evaluating good practices and innovative technologies and promoting their replication in appropriate areas of the region. Specifically, the proposed work involving public-private partnerships and water and sanitation facilities for small and medium-sized communities are issues in which PEMSEA is currently engaged under the GEF/UNDP/IMO MSP on PPP. We would therefore hope to collaborate closely with the World Bank as these two projects develop.

b) Selection Criteria for Fund Projects

The Shandong concept paper makes no reference the 7 eligibility criteria, nor does it state that these criteria are fully met.

Our impression is that, before a project can be considered under the Fund, it must meet all 7 criteria. Thus, in the interests of transparency, the project concepts should clearly demonstrate project eligibility.”

Response 1.

The eligibility criteria have been added as part of the text.

Comment 2.

“One area that we had particular difficulty in determining conformity was Fund criterion 5, which requires the project proponent to have the necessary (capital) co-financing (for the pollution reduction infrastructure project) available. From our experience in the Manila Bay Fund project, this means that the capital co-financing for the required infrastructure must be confirmed (i.e., World Bank has a willing, eligible borrower), before the Fund grant can be considered. Our review noted:

1. The Shandong paper refers to the government’s request for a Shandong Second Urban Environment Project, which will presumably get a positive response from World Bank;”