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Project Administration Memorandum

Project Number: 34473 Loan Number: 2207 March 2005

People’s Republic of China: Henan Wastewater Management and Water Supply Sector Project

PROJECT ADMINISTRATION MEMORANDUM

The Project Administration Memorandum (PAM) is a working document and should be

read along with the RRP and Loan Agreement. It describes the details of major activities, implementation arrangements, procedures to be applied, inputs and cost estimates. The PAM was prepared based on the agreements reached between ECSS and Executing Agency during the Inception Mission. In case of discrepancies between the PAM, RRP, and loan agreement, the loan agreement will prevail. This PAM expressed in English Language, is the definitive text embodying the understanding of the parties. The parties, for the convenience of the Government and EA are also executing a Mongolian language version of the PAM. The Government and ADB have agreed that the English language version of the PAM shall be controlling for all purposes and that ADB assumes no responsibility for the accuracy of the Chinese language version.

CURRENCY EQUIVALENTS (as of 1 November 2005)

Currency Unit – yuan (CNY)

CNY1.00 = $0.124 $1.00 = CNY8.08

ABBREVIATIONS

ADB – Asian Development Bank DSCR – debt-service coverage ratio EIA – environmental impact assessment EMP – environmental management plan EPB – environmental protection bureau FIRR – financial internal rate of return GDP – gross domestic product HDRC – Henan Development Reform Commission HECC – Henan Engineering Consulting Company HHRP – Henan Hai River Plan HPG – Henan provincial government HPMO – Henan project management office HRB – Hai River Basin HRP – Hai River Plan IA – implementing agency LCB – local competitive bidding LIBOR – London interbank offered rate MDG – Millennium Development Goals MIS – management information system MLG – minimum living guarantee O&M – operation and maintenance PMO – project management office PPMS – project performance monitoring system PRC – People’s Republic of China RP – resettlement plan SAR – subproject appraisal report SEIA – summary environmental impact assessment SNWTP – South-North Water Transfer Project TA – technical assistance WACC – weighted average cost of capital WTP – water treatment plant WWTP – wastewater treatment plant

NOTES

(i) The fiscal year of the Government ends on 31 December.

(ii) In this report, "$" refers to US dollars.

TABLE OF CONTENTS LOAN PROCESSING HISTORY i DESIGN AND MONITORING FRAMEWORK ii

I. PROJECT DESCRIPTION 1 A. Project Area and Location 1 B. Objectives 1 C. Components and Outputs 1 D. Special Features 2

II. COST ESTIMATES AND FINANCING PLAN 5 A. Cost Estimates 5 B. Financing Plan 6 C. Allocation of Loan Proceeds 7

III. IMPLEMENTATION ARRANGEMENTS 7 A. Executing, Implementing Agencies and Project Management 7 B. Subproject Preparation and Appraisal 8

IV. IMPLEMENTATION SCHEDULE 9

V. CONSULTANT RECRUITMENT 9

VI. PROCUREMENT 10 A. Advance Procurement Action and Retroactive Financing 11

VII. DISBURSEMENT PROCEDURES 11

VIII. PROJECT MONITORING AND EVALUATION 12

IX. REPORTING REQUIREMENTS 12

X. AUDITING REQUIREMENTS 12

XI. MAJOR LOAN COVENANTS 13

XII. KEY PERSONS INVOLVED IN THE PROJECT 13

XIII. ANTI-CORRUPTION 13

APPENDIXES 1. Candidate Subprojects 2. Policy Framework 3. Institutional Capacity Building 4. Detailed Cost Estimates 5. Flow of Funds and Onlending Arrangements 6. Organization Chart of Project Management Arrangements 7. Process for Subproject Identification, Selection, Preparation, and Appraisal 8. Implementation Schedule 9. Outline Terms of Reference for Consulting Services during Implementation Phase 10. Summary of Consultant Procurement Procedure.

11. Contract Packages 12. Procurement Modalities and Procedures 13. Outline Project Performance Management System

LOAN PROCESSING HISTORY

a. Approval of PPTA December 2003

c. Fact Finding January – February 2005

d. Management Review Meeting (MRM) 13 April 2005

e. Appraisal Mission 21-30 April 2005

f. SRC/LTACC 14 June 2005

g. Loan Negotiations 24-25 October 2005

h. Board Circulation 18 November 2005

i. Board Consideration and Approval 9 December 2005

j. Loan Agreement Signing 23 February 2006

k. Loan Effectiveness including conditions

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DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets/Indicators

Data Sources/Reporting

Mechanisms

Assumptions and Risks

Impact Improved urban environment and public health in the southern part of the Hai River Basin

Public satisfaction with the urban environment increased (to be quantified when baseline is established through a social survey at project inception). Incidence of waterborne disease reduced from 26,600 in 2004 to 16,000 in 2015 Average number of sick days per person per month attributable to waterborne disease reduced from 15 in 2004 to 9 in 2015 Average amount spent per person per month attributable to waterborne disease reduced from CNY3.0 in 2004 to CNY1.8 in 2015

Annual socioeconomic surveys undertaken as part of a performance management system Public health department statistics Socioeconomic surveys Asian Development Bank (ADB) Project performance audit reports

Assumptions • Improved water and

wastewater services by utility companies are effective and will be sustained.

• The project city governments remain committed to implementing the Henan Hai River Plan.

Risk • Initiatives to curb

upstream pollution are ineffective.

Outcome Strengthened water and wastewater utility companies in 19 project cities providing sustainable water supply and wastewater services managed on commercial principles, and environmentally sound practices

Commercial-oriented operations and financial autonomy, and full cost-recovery water tariff revenues, as well as satisfactory level of capital utilization by 2012 Urban residents of 0.5 million in the project cities provided with uninterrupted potable water supplies that meet People Republic of China’s (PRC) quality standards by

Operating and financial reports of wastewater and water supply companies Reports by external auditors and municipal regulators Water supply companies information systems Public health department audits on water quality

Assumptions • Political will exists to

reform water utility management and financing managements.

• Sound financing plans limit debt to prudent levels.

• Existing unsatisfactory water sources are closed down.

• Sewer networks are built and residences/ businesses connected.

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Design Summary



Mechanisms


2010 Total pollution load reduced by 33,500 tons of chemical oxygen demand per year by 2010 Technical, financial, and managerial capacity of water supply and wastewater utility companies developed by 2015

Annual environment reports and operational reports by wastewater companies ADB project completion report

Risks • Water demand

exceeds forecast estimates.

• Wastewater treatment plants (WWTPs) are built or expanded in the project cities.

• Required training and staff exchanges/ secondment programs are provided on a timely basis.

Project Outputs 1. Increased collection and treatment of urban wastewater in the project cities

80% of urban wastewater in municipal cities and 70% in country cities treated by 2008 All sludge used or disposed of in compliance with PRC regulations by 2010

Wastewater company management information system (MIS) Environnemental protection bureau (EPB) compliance audits Wastewater company MIS EPB compliance audits EPB monitoring

Assumptions • Water sources prove

reliable. • Water quality

standards do not change.

• Political support for reform process continues.

• Political support for tariff increases is present.

• Governments and agencies concerned provide support.

2. Adequate urban water supplies (in terms of quantity and quality) for project cities

Total new water treatment capacity of about 150,000 cubic meters (m3)/day available by 2008 All new water treatment plants meet PRC water quality standards by 2008

Water supply company MIS Water supply company MIS Public health department audits

Risks • Increase in

wastewater flow exceeds estimates.

• Disposal regulations are changed.

• No suitable disposal sites are made available.

3. Reformed and integrated water and wastewater

utilities

Utilities all managerially autonomous by 2008

ADB supervision mission reviews

• Industries do not implement adequate pretreatment.

Water and wastewater services fully self-financed by 2008.

Review of wastewater company and water supply company financial statements

• Wastewater is too weak for effective treatment.

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Design Summary



Mechanisms


4. An effective WWTP operating regime introduced

All project WWTPs meet discharge standards from 2008 WWTPs exceed PRC efficiency norms from 2008

EPB monitoring Wastewater company MIS Comparative unit costs and trends

5. Improved public awareness of health and environment

Increased public awareness (to be quantified when baseline established)

Socioeconomic surveys

Activities with Milestones 1.1 Engineering design completed by June 2005 1.2 Land acquisitions and resettlement completed by June 2005 1.3 Construction of WWTPs with a total capacity of 590,000 m3/day

complete by 2008 1.4 Associated intercepting/trunk sewers with a total length of 670

kilometers (km) completed by 2008 1.5 70% of properties connected to public sewers by 2008 2.1 Engineering design completed by June 2005 2.2 Land acquisitions and resettlement completed by June 2005 2.3 Total water treatment capacity of 150,000 m3/day added by 2008 2.4 About 230 km of water pipelines completed by 2008 3.1 About 95% of capacity-building milestones related to managerial

financial, and operations training achieved by 2009 4.1 Development of operational procedures for the WWTPs and 80% of staff

achieved necessary skill level by 2008 4.2 Development of operational procedures for the water treatment plants

and 80% of staff achieved necessary skills level by 2008 5.1 Publicity initiatives for public awareness campaigns carried out by 2010

Inputs • ADB ADB project loan of $100 million Procurement review and approval Regular review missions • Government Counterpart financing of $100 million Project management offices established and maintained at all levels Capacity building and training budget of $2.7million Operation and maintenance budget and staffing (to be quantified during implementation)

• Cofinancing Domestic borrowing of $31.1 million.

I. PROJECT DESCRIPTION

A. Project Area and Location

1. The Project is in Henan province. Henan Province includes 18 municipalities and 117 counties and county-level cities with a total population of 96.7 million in 2003, growing at around 0.7% annually. The current proportion of urban dwellers is 27%, but the urban population has been growing at over 6% annually over the past decade. Henan covers the upper part of the Hai River Basin (HRB), one of the three most polluted river systems1 in the PRC. The northern part of Henan within the HRB includes five municipalities: Anyang, Hebi, Jiazhou, Puya1.ng, and Xingxiang. The main rivers in this part of the basin flow into Wei River and Zhangweinan Canal, and then eventually into Bohai Bay. Like other parts of the HRB, this subbasin is heavily polluted by domestic and industrial wastewater. The polluted surface water contaminates shallow groundwater sources, on which a significant proportion of urban and rural residents depend for drinking water. 2. The Government has proposed 19 subprojects2 (15 for wastewater management and 4 for water supply) in four municipalities and 15 counties in the HRB. Appendix 1 lists the candidate subprojects. The Fact-Finding Mission reviewed 8 of the 19 candidate subprojects, representing the four municipalities in the HRB. The review was to demonstrate the approaches and procedures of subproject selection and appraisal. The appraisal indicates that all 8 subprojects are ready for implementation and viable in terms of technical, institutional, social, financial, economic, and environmental aspects. B. Objectives

3. The overall objective of the Project is to improve the urban environment and public health through improved wastewater management and water supply. The Project will support (i) creating municipal wastewater companies and making them efficient and commercially managed, (ii) improving cost recovery from users through improved tariffs with gradual increases to full cost recovery, and (iii) using a comprehensive approach to river basin pollution prevention and control. The outcome is that water and wastewater utility companies in the project cities provide sustainable water supply and wastewater services managed on commercial principles and environmentally sound practices by (i) increasing collection and treatment of domestic and industrial wastewater, (ii) providing adequate public water supplies, and (iii) improving the quality of surface and groundwater in and downstream of the project cities. C. Components and Outputs

4. The Project comprises physical components covering construction of wastewater management and water supply facilities, and an associated capacity-building component to support project management and implementation by building capacity of the project management offices (PMOs) and implementing agencies (IAs). Policy dialogue under the Project supports these components and contributes to ongoing dialogue with the Government. Appendix 2 provides the policy framework addressing issues and actions required. The 8 representative subprojects are provided in the Supplementary Appendix D of the RRP. 1 The others are the Huai and Liao river systems. 2 A subproject is defined as a package of infrastructure investment for wastewater management or water supply in

one municipal city or county city.

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1. Wastewater Management Component

5. The wastewater management component addresses the infrastructure deficiencies for domestic and industrial wastewater collection and treatment. The wastewater subprojects will serve urban areas of a municipal city or a city proper of a county. Facilities include sewers, pump stations, WWTPs, and treatment facilities for effluent reuse. Most existing collection systems were developed piecemeal and have many deficiencies related to inadequate ground cover, adverse slope, and inappropriate routing of sewers. Most are combined and collect storm-water run-off during wet weather, as well as wastewater. Major portions of the collection systems will be rebuilt under the individual subprojects. Wastewater treatment will improve surface and groundwater quality in and downstream of the project cities and contribute to reduced transboundary pollution between Henan, Hebei, and Shandong provinces.

2. Water Supply Component

6. The water supply component addresses the immediate need to resolve the pollution problem with drinking water sources by reducing reliance on abstraction of groundwater from shallow wells. Raw water sources for urban water supplies are becoming severely affected by wastewater pollution of both surface and shallow groundwater. In addition, shallow groundwater sources are being severely drawn down, causing consolidation of soils and consequent subsidence of urban areas. Typical facilities under the water supply subproject include distribution pipelines and water treatment plants. The improved quality and availability of treated water will bring health, environmental, and social benefits to the communities.

3. Institutional Capacity-Building Component

7. The institutional capacity-building component addresses the weak capacity of implementing and operating agencies and will help ensure the financial and institutional sustainability of the Project. The component comprises a combination of consulting services and various training programs, and will predominantly target local IAs and PMOs. Specifically, this component will help the project companies (i) establish themselves as autonomous and financially sustainable utility companies that can effectively and efficiently meet the service obligations set out; and (ii) prepare a common operating manual and financial reporting manual, as well as improve public awareness of key project-related issues such as benefits accruing from sanitation investments. In addition it will help the project companies and their parent municipal and county governments (i) comply with relevant national policies for cost recovery, tariff, and enterprise reform of the water and wastewater management sector; and (ii) develop plans and programs for private sector participation in the water and wastewater management sector that support government policies for improving efficiency and service standards. Appendix 3 provides details of the capacity-building measures/activities. D. Special Features

8. Focus of Capacity Building on Counties. The Project is one of the first ADB projects in the PRC wastewater and water supply sectors to involve mostly fourth-tier governments. This characteristic has several implications. First, the physical size and cost of the possible subprojects are much smaller than previously ADB-financed wastewater or water projects. Second, the majority of participating cities and counties will have limited or no previous involvement with foreign-financed infrastructure projects, and certainly no substantive experience with ADB requirements.

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9. At this level, project management and professional skills capacity are significantly less than that found in municipal and provincial cities. A partial counterbalance is that the subprojects are generally smaller and use well-proven approaches and technologies. However, the need for significant capacity building during project implementation is evident. The Project will provide consulting services and training with a focus on human resource development. 10. The project implementation consultants to be recruited under the Project will work with the provincial PMO, local IAs, and relevant officials from municipal and county governments. They will provide assistance and advice in the following areas: (i) project management and implementation support; (ii) institutional and managerial improvements; (iii) financial management; (iv) utility tariff setting, billing, and income collection; and (v) operational management. Other capacity-building activities include training in project implementation and utility operations, staff exchanges and secondments, and exposure to best practices in the PRC and internationally. 11. Integrated Water Resource Management. ADB has assisted the Government in formulating policy and designing investment programs based on an integrated approach to water and environmental management. The ADB assistance has drawn upon its growing experience in addressing basin environmental issues through ongoing projects in the HRB and in other environmental improvement projects in the PRC. The Project will complement these efforts by assisting the project municipal and county governments in formulating a practical approach to provide urban environmental services and introduce the principles of integrated water resource management and pollution control. 12. Environmental Impacts and Benefits. The Project provides the most sustainable prospect for reducing waterborne pollution, improving the quality of surface water and groundwater, reducing transboundary pollution disputes, and protecting drinking water sources. The wastewater collection systems will improve the urban environment by reducing exposure of the community to untreated wastewater with its associated impacts on public health and nuisance. The provision of centralized wastewater treatment facilities allows cost-effective treatment of industrial wastewater through pretreatment at individual enterprises prior to discharge to a wastewater collection system for subsequent treatment at a municipal WWTP. This provides greater assurance of protecting receiving waters through the efficient operation of centralized wastewater treatment facilities that can be more easily monitored than treatment facilities at individual enterprises. Treated effluent can potentially be reused beneficially either for industry or for irrigation: this forms a component of some subprojects. 13. The proposed use of new sources of water of improved quality and reliable yield for municipal water supply from either deep groundwater or from protected upland reservoirs will ensure improvements in the availability of water of an acceptable quality to the urban population served by each water supply subproject. The proposed extension, replacement, and refurbishment of water distribution systems will increase the size of the population provided with access to piped water supplies. These improvements in the distribution system will reduce water losses and the risk of contamination of treated water within the distribution system. 14. The SEIA for the eight representative subprojects and the SEIA for the remaining subprojects, including the EMP, cover all phases from project design to construction and operation. They conclude that the adverse impacts generated by the Project could be successfully mitigated to acceptable levels through the mitigation and monitoring measures specified in the EMP. The EMP proposes institutional strengthening and training to address the

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weak capacity of county governments and IAs. Supplementary Appendix J in the RRP summarizes the environmental impacts, mitigation measures, and monitoring plans. 15. The Poverty Reduction and Social Benefits. The poverty and social assessment for the 8 representative subprojects and the 11 candidate subprojects indicates that the Project will benefit a total urban population of about 1.5 million people through the provision of clean water and improvement of wastewater services. Of the total beneficiary population, about 170,000 or 11% are categorized as living below the poverty line of CNY1,348 per capita per year. The Project will support poverty reduction by (i) reducing the incidence of waterborne disease, cost of medical care, and sick days taken, thus reducing household health expenditures; (ii) providing safer and more reliable urban water supplies; (iii) improving the quality of life of the urban poor by eliminating uncollected sewage in poor neighborhoods and improving water quality in urban drainage channels; and (iv) providing employment opportunities for the poor. 16. The Project will improve public health by reducing waterborne disease through improved water supply and wastewater management services. Annual economic losses due to waterborne disease, which currently stand at CNY30 million are expected to be reduced by 40%. The Project will also create job opportunities for both skilled and unskilled labor during implementation. The Project will utilize about 6,000 person-years of labor during construction; about 30% of the job opportunities can be filled by the poor and women. The Project will stimulate local economic development, particularly in construction and tourism, and consequently will continue to provide a source of employment for local communities. 17. In the project area, three major social measures are designed to protect urban residents from falling into poverty. These include (i) a living allowance for laid-off employees, (ii) unemployment insurance, and (iii) a social support program under the minimum living guarantee scheme. All project cities have, through various social support programs, implemented a water tariff waiver or reduction for households with incomes below the poverty line. 18. The Project will promote public awareness and education programs about project benefits, social acceptance of user fees and tariffs for wastewater, public hygiene, and behavior of consumers on water saving and managing wastewater disposal. The Project will also provide gender-awareness training to project management staff to promote women’s participation in key areas such as employment opportunities, and set up gender-specific indicators to monitor and evaluate project impacts on men and women. Appendix 13 of the RRP provides a summary poverty reduction and social strategy for the Project. 19. Land Acquisition and Resettlement. Resettlement impacts were identified for the eight representative subprojects and 11 candidate subprojects. ADB reviewed and approved RPs for the eight representative subprojects and the resettlement framework for subsequent subprojects; these were uploaded on the ADB website on 9 July and 6 June 2005, respectively. Resettlement under the Project includes permanent and temporary land acquisition, and building demolition; but the resettlement impacts are relatively small. Considering the good experiences with other urban projects and the strong commitment of local authorities to the safeguard policies, significant problems are unlikely to be encountered. The IAs will fund the resettlement costs according to the standards set out in the RPs. Entitlements will be provided to those affected before demolition and ground-leveling commence, and before any loss of land. A resettlement information booklet was distributed to those affected through village offices, and the full RPs for the eight representative subprojects were made available at the village offices. Appendix 14 of the RRP provides a summary RP.

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20. For subsequent candidate subprojects, the RP will be finalized based on the detailed engineering designs. HPMO, assisted by the IAs, will be responsible for monitoring RP implementation and submitting reports to ADB. A regular reporting system was established to ensure that key resettlement activities are implemented on schedule. HPMO has engaged a domestic institute to carry out independent monitoring of resettlement implementation. Surveys will be conducted for annual evaluations for 2 years upon completion of resettlement, and the findings reported to HPMO and ADB. 21. Institutional Benefits. The capacity-building component under the Project and continued policy dialogue with the municipal governments will support institutional and financial reforms that will provide a more viable, commercially oriented basis for managing and operating water and wastewater systems, particularly by counties. The maturity of county institutional arrangements vary considerably between cities. Of the 15 project cities, 8 have established water utility companies and the remaining 7 will establish water utility companies no later than when their onlending agreements are signed. Of the 8 cities, 5 have established or will establish water group companies that have responsibility for both water supply and wastewater. HPG considers this water group company arrangement to be the preferred institutional arrangement for subproject implementation. The integrated approach supported by the Project may also serve as a model in similar cities in the PRC. 22. During the Fact-Finding Mission, broad financial management assessment was conducted, covering the areas of implementation arrangements, sustainability, and fiduciary risks and mitigation strategy. A detailed financial management assessment will be conducted at project inception. Based on the detailed financial management assessment, each wastewater or water utility will be assisted to establish a sound and solid financial management system at the beginning of project implementation. The financial management system will be in line with ADB's Guidelines for Governance and Financial Management of an ADB Investment Project (November 2003). Each utility will keep accounts in accordance with commercial accounting principles and be subject to independent external audit by a suitably qualified firm of commercial auditors. Accounting will be in accordance with relevant PRC accounting standards, which are largely in accordance with international norms.

II. COST ESTIMATES AND FINANCING PLAN

A. Cost Estimates

23. The total project cost is estimated at $200.0 million equivalent, comprising $100.0 million in foreign exchange costs and $100.0 million equivalent in local currency costs, including taxes and duties of approximately $16.3 million. Table 1 provides a summary of the cost estimates, and Appendix 4 gives detailed cost estimates and the assumptions behind them. The cost estimates are based on the 8 representative subprojects and the remaining candidate subprojects at mid-2005 prices.

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Table 1: Cost Estimates ($ million)

Component Foreign Exchange Local Currency Total A. Base Cost 1. Representative Subprojects a. Wastewater Management 32.9 34.5 67.4 b. Water Supply 8.3 9.8 18.1 Subtotal (1) 41.2 44.3 85.5 2. Provision for Remaining Subprojects 42.1 43.0 85.1 3. Capacity Building 2.7 0.0 2.7 Subtotal (A) 86.0 87.3 173.3 B. Contingencies 1. Physical 5.8 4.5 10.3 2. Price 0.0 4.2 4.2 Subtotal (B) 5.8 8.7 14.5 C. Financing Charges during Implementation 8.2 4.0 12.2 Total 100.0 100.0 200.0 Source: Asian Development Bank estimates. B. Financing Plan

24. The Government has requested a loan of $100 million from ADB’s ordinary capital resources to help finance the Project. The loan will have a 25-year term, including a grace period of 5 years, an interest rate to determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.75% per annum, and such other terms and conditions set forth in the draft loan and project agreements. The Government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB. 25. The ADB loan will cover the foreign exchange cost of the Project, including interest during construction. The PRC Government will relend to HPG. HPG will onlend to municipal governments, which will onlend to city and county governments, which will onlend to the IAs. HPG will retain $1,595,000 of the loan proceeds for implementation of the capacity building and training programs under the Project. All relending and onlending will be on the same terms and conditions as the ADB loan. The IAs will assume the foreign exchange and interest rate variation risks for the ADB loan. Appendix 5 illustrates the flow of funds and relending and onlending arrangements. 26. Local costs will be financed by contributions from (i) the central Government (state bonds), HPG (grants and the newly created Provincial County Economic Development Special Fund), and municipal/county governments as well as water companies, and (ii) domestic borrowing (local cofinancing). All loans, including the ADB loan, will be repaid from user charges. The financing plan is summarized in Table 2. The availability of counterpart financing was confirmed for the 8 representative subprojects during the ADB Fact-Finding Mission.

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Table 2: Financing Plan ($ million)

Source Foreign Exchange

Local Currency Total Percent

A. Asian Development Bank 100.0 0.0 100.0 50.0B. Local Banks Cofinancing 0.0 27.2 27.2 13.6C. Counterpart Funds 1. Central Government 0.0 4.8 4.8 2.4 2. Provincial Government 0.0 5.0 5.0 2.5 3. Municipal/County Governments

and water companies 0.0 63.0 63.0 31.5Subtotal (C) 0.0 72.8 72.8 36.4

Total 100.0 100.0 200.0 100.0Source: Asian Development Bank estimates. C. Allocation of Loan Proceeds

27. The loan will finance 100% of the foreign exchange costs ($100 million), which is 50% of the total project cost. ADB financing is allocated as follows: civil works – 56% of total expenditures, materials and equipment – 100% of foreign costs; and capacity building and training – 100% of foreign costs.

III. IMPLEMENTATION ARRANGEMENTS

A. Executing, Implementing Agencies and Project Management

28. HPG will be the Executing Agency responsible for overall project implementation. A project leading provincial group has been established to oversee preparation and implementation of the Project. This group comprising staff from the Financial Bureau, Development and Reform Commission, Construction Bureau, Water Resources Bureau, and Environmental Protection Bureau─is led by the executive vice governor of Henan province. 29. HPG has set up the Henan PMO (HPMO) to coordinate implementation of externally funded projects. HPMO will play a vital coordination role during both project preparation and project implementation, and ensure smooth communications with the local PMOs and IAs. HPMO will recruit the consultants to be engaged under the Project. It has considerable capacity for project implementation, and is experienced and has performed well in implementing major foreign-funded projects, including the ongoing ADB-funded agriculture project.3 30. Each municipality involved in the Project has or will set up a local project leading group and a municipal PMO to coordinate aspects of project preparation and implementation falling within their respective jurisdictions. Each county city planning to participate has set up a local project leading group and a county PMO to coordinate aspects of project preparation and implementation falling within their respective jurisdictions. These municipalities and county cities have experience managing domestic projects but not foreign-funded wastewater management and water supply projects. As the capacity of the institutions is considered weak, appropriate capacity-building measures were identified and institutional capacity will be strengthened through the Project. Supplementary Appendix E of the RRP presents a detailed assessment of

3 ADB. 2000. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

People’s Republic of China for the West Henan Agriculture Development Project. Manila

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the project institutions and the capacity-building measures included under the Project. Appendix 6 shows the project management arrangements. 31. For each subproject, a wastewater or water supply utility company will be the IA. The IA either is or will be established and will (i) be a properly constituted enterprise company established under the provisions of PRC law, and become largely managerially and financially autonomous; (ii) act as IA for the relevant subproject, working and liaising closely with the relevant local PMO, and various departments and agencies of local government; (iii) carry out procurement of civil works and equipment under its subproject; (iv) carry out O&M of project facilities; and (v) will be responsible for debt servicing. The Project’s capacity-building component is designed to take into account weaknesses identified by the financial management assessment of the 8 representative subprojects. With this provision, the Project’s financial management arrangements are considered satisfactory.

B. Subproject Preparation and Appraisal

32. In addition to the 8 feasibility studies reviewed by ADB, the identification, selection, preparation and appraisal of the remaining 11 subprojects for inclusion in the Project will follow the three stage approach below. 33. Subproject Identification and Selection. The subprojects have been or will be selected in accordance with the following basic criteria: (i) inclusion of the subproject in the HHRP; (ii) confirmation by the participating local government on its ability and willingness to arrange counterpart financing; (iii) confirmation by the participating local government on its willingness to comply with ADB safeguard policies and other requirements; and (iv) the implementation period of the subproject being in 2005-2010. 34. Subproject Preparations. The participating city government and IA will, with the assistance of HPMO, prepare a feasibility study for each of the remaining 11 subprojects. The feasibility study report will include EIA; resettlement plan (RP) (if required); rationale; scope and components; technical description and analysis; cost estimates and financing plan; implementation arrangements; and financial, economic, and institutional analysis, including financial management assessment and social dimensions. The consultants to be engaged under the Project and responsible staff of the county/municipal PMO will review the report, before submitting it to HPMO for appraisal. 35. Subproject Appraisal and Approval. HPMO will be responsible for the appraisal of the subprojects and has commissioned the Henan Engineering Consulting Company, a subsidiary organization of Henan Development Reform Commission (HDRC), to undertake detailed appraisals on its behalf. HDRC will prepare a subproject appraisal report (SAR) for consideration by HPG. The SAR will follow the format of the SARs for the 8 representative subprojects. HPG will appraise the subprojects in accordance with the criteria agreed upon by the Government and ADB. The SARs for the first subproject and for any subproject exceeding $10 million equivalent will be sent to ADB for approval. The remaining SARs will be sent to ADB for information. Supplementary Appendix F provides details on the subproject appraisal criteria. 36. For the environmental safeguard requirements, an SEIA covering the 8 representative subprojects was prepared in accordance with the PRC’s EIA Technical Guidelines and ADB’s Environmental Assessment Guidelines (May 2003). The EIA reports for individual subprojects used methodologies and standards consistent with relevant guidelines established by the State

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Environmental Protection Administration, in compliance with applicable laws and regulations. The individual EIA reports were approved by municipal or provincial environmental protection bureaus following domestic procedures. ADB reviewed the SEIA and posted it on the ADB website in March 2005 to meet the 120-day disclosure requirement. Processing procedures is in Appendix 7. 37. The remaining 11 subprojects have received the same extent of environmental safeguard scrutiny, modeled on the EIAs for the 8 representative subprojects and the SEIA. The EIAs for the remaining subprojects were approved by the municipal or provincial environmental protection bureaus. HPMO completed the SEIA for the remaining subprojects following the format of the first SEIA, reviewed by the Appraisal Mission, and submitted for confirmation to the provincial environmental protection bureau. Upon confirmation by the bureau, the SEIA was posted on the ADB website to meet the 120-day disclosure requirement. 38. RPs for the 8 representative subprojects were prepared in accordance with the PRC Land Law and the ADB involuntary resettlement policy.4 In April 2005, ADB reviewed and approved the draft RPs. The RPs were subsequently finalized based on ADB comments, approved by local government, and disclosed to relevant offices, villages, and people affected. (Supplementary Appendix G in the RRP). For the remaining subprojects, a resettlement framework was prepared and approved by ADB (Supplementary Appendix H in the RRP). Draft RPs have been prepared for other candidate subprojects and will be upgraded using the representative subproject RPs as models. A poverty and social assessment conducted for the 19 subprojects indicates no ethnic minorities will be affected by the Project.

IV. IMPLEMENTATION SCHEDULE

39. The Project will be implemented over 5 years from 2005 to 2010 (Appendix 8). This schedule is considered realistic because the project implementation structure is already in place, and preparatory works are under way. ADB’s successful experience with similar projects in the PRC and the basic level of technology and modest scale of the individual subprojects indicate that this schedule is realistic and achievable.

V. CONSULTANT RECRUITMENT

40. Provision is made for 28 person-months of international and 300 person-months of domestic consulting services to support HPMO, local PMOs, and IAs in project implementation and capacity building to be funded under the Project. The staff of IAs need to strengthen their expertise in (i) project management and implementation support, (ii) efficient operating procedures, (iii) preventive maintenance, (iv) financial management, (v) social impact and environmental monitoring, (vi) business planning and management information system development, (vii) human resource development, and (viii) corporate governance. Capacity building for IAs will be achieved through consultant inputs, hands-on training on project facilities, training in the PRC, and international training financed by the loan. The majority of the consulting services will be provided by domestic, not international, consultants. Because this type of capacity building is generally not new to the PRC, domestic experts have this knowledge and can provide more cost-effective support. However, the overall capacity-building program is large and diverse, and international consultants will provide general direction to capacity-building content. An international consulting firm will be recruited in accordance with ADB’s Guidelines on the Use of Consultants using the quality- and cost-based selection method with

4 ADB. 1998. The Bank’s Policy on Involuntary Resettlement. In Handbook on Resettlement. Appendix 1. Manila.

10

simplified technical proposals and other arrangements satisfactory to ADB on the engagement of domestic consultants. Domestic consultants will also be recruited for social impact and environmental monitoring in accordance with arrangements satisfactory to ADB on the engagement of domestic consultants. Appendix 9 presents outline terms of reference for consulting services. Summary of consultant recruitment procedures is in Appendix 10.

VI. PROCUREMENT

41. ADB-financed goods and services will be procured in accordance with ADB’s Guidelines for Procurement, and the PRC’s Tendering and Bidding Law and procurement regulations. Appendix 11 provides indicative procurement packages. All civil works contracts are estimated at below $10 million will be procured through local competitive bidding (LCB) procedures as local contractors have the expertise and capacity to undertake these works, in accordance with the standard procurement procedures as provided for in the Tendering and Bidding Law of the Borrower and acceptable to ADB,. Since these works involve mainly labor costs, international contractors are not likely to be interested in the work. However, in accordance with ADB requirements, foreign contractors may participate in bidding for LCB bidding contracts. The first draft English version of bidding documents for the first civil works contract will be submitted to ADB for prior review and approval. The ADB approved bidding documents for the first civil works contract shall be used as a model for the other civil works contract on the basis of LCB. Prior ADB review of bidding documents shall not be required for subsequent civil works contracts where the contract value is estimated to cost the equivalent of $10 million or less. Promptly after each civil work as contract is awarded, ADB shall be furnished with three copies of (1) minutes of public opening of bids; (ii) summary and evaluation of the bids; and (iii) signed contract. ADB reserves the right to refuse to finance a contract where the civil works has not been procured under procedures substantially in accordance with those agreed between the Borrower and ADB, the Guidelines for Procurement or the provisions of the loan agreement. Salient features of procurement modalities and procedures are in Appendix 12. 42. Civil works contract estimated to cost the equivalent of more than $10 million will be awarded through international competitive bidding (ICB) and will be prequalified before the bidding. 43. Major contracts for equipment and materials estimated at more than $1 million will be undertaken through ADB ICB procedures, while lower value contracts will be procured by international shopping (IS) or direct purchase (DP) if below $100,000. The internationally tendered equipment packages for the main process equipment will include the technical support necessary for ensuring proper system coordination and integration, as well as installation, testing, commissioning, and training. This approach will ensure quality control in equipment installation and operator training, utilizing the manufacturers’ and suppliers’ specialist technical experts for successful execution of the total process system. 44. For contracts to be awarded on the basis of ICB, a General Procurement Notice [(GPN) (which ADB will arrange to publish separately)] in such form and detail and containing information as ADB shall reasonably request shall be submitted to ADB as soon as possible not later than 90 days before the issuance of either the first prequalification invitation to bid or the first invitation to bid. ADB will be provided the necessary information to update such GPN annually as long as any goods and works remain to be procured on the basis of ICB. Procurement actions will be subject to ADB review in accordance with the procedures set forth in Chapter IV of the guidelines for Procurement. Each draft prequalification bidding documents

11

and each draft bidding documents to bid will be submitted to ADB for approval before it is issued. 45. In comparing bids under ICB, a margin of preference may be provided, at the option of the Borrower and in accordance with the provisions of the loan agreement. 46. Each supply contract estimated to cost the equivalent of $1 million or less will be awarded through IS as described in Chapter III of the Guidelines for Procurement. Each draft invitation to bid and related bid document need not be submitted to ADB for approval before they are issued. The invitation to bid and related bidding documents shall be issued to a reasonable number of suppliers, which shall not be less than three and from more than one eligible source country and shall whenever practicable, be advertised in an English language newspaper of general circulation in the borrower’s country. The bids or quotation received shall be opened publicly and compared and evaluated as in ICB. After each contract is awarded, ADB shall be furnished with three copies of (i) summary and evaluation of the bids or quotations received; and (ii) signed contract. 47. Equipment or material estimated to cost less than the equivalent of $100,000 may be procured directly from the manufacturer of the original equipment or from suppliers or agents in accordance with para. 3.05 of the Guidelines for Procurement. After the award, three copies of each contract for such items shall be submitted to ADB. A. Advance Procurement Action and Retroactive Financing

48. The Government requested, and ADB approved, advance procurement action for civil works, and recruitment of project implementation consultants up to contract signing. To meet the target of construction of wastewater collection and water supply systems by 2007, the six project counties for the nine subprojects have to initiate early rehabilitation of pumping stations, sewer networks, and water distribution systems; and construction of wastewater treatment plants and water treatment plants (Appendix 11). Advance procurement action is necessary to support these works. ADB has also in principle approved retroactive financing up to $8 million equivalent for expenditures incurred on the nine subprojects from 30 April 2005 to the date of loan effectiveness.5 The Government was advised that ADB approval of advance procurement action and retroactive financing will not in any way commit ADB to approve the proposed loan, and ADB financing will be dependent upon compliance with all aspects of ADB procedural requirements, including compliance of the Government and HPG with relevant provisions of the loan and project agreements and ADB guidelines.

VII. DISBURSEMENT PROCEDURES

49. HPMO will establish an imprest account after loan effectiveness in accordance with ADB’s Loan Disbursement Handbook (January 2001). Disbursements from the imprest account will be supported by an appropriate withdrawal application and related documentation. Such documentation will demonstrate, among other things, that the goods/services (i) were produced in and procured from ADB members, and (ii) are eligible for ADB financing. The initial amount to be deposited into the imprest account will not exceed the estimated capital expenditure for the next 6 months, or 10% of the loan amount, whichever is lower. The statement of expenditures procedure may be used for reimbursement of eligible expenditures; any individual payment to be reimbursed or liquidated under the procedure will not exceed $200,000. Summary

5 These actions were reported in ADB Business Opportunities (internet edition) in May 2005.

12

disbursement procedures and modalities are in the Disbursement letter (Appendix 14) to be sent by our Controller’s Department.

VIII. PROJECT MONITORING AND EVALUATION

50. Project performance monitoring system (PPMS) indicators include service levels, treated wastewater quality and other measures of operational performance, percentage of wastewater collected and treated, user satisfaction with the urban environment, and relevant economic and health data to monitor project impacts. The relevance and practicability of data collection for the indicators were confirmed with HPMO. Appendix 13 outlines the contents of the PPMS. Supplementary Appendix I in the RRP presents methodologies for health benefit estimation and monitoring health benefits to be achieved. 51. At the beginning of project implementation, HPMO and the municipal PMOs, with the assistance of consultants, will develop comprehensive PPMS procedures to systematically generate data on inputs and outputs of the project components; and the socioeconomic, health, and environmental indicators to measure project impacts. HPMO and the municipal PMOs will refine the PPMS framework, confirm achievable targets, firm up monitoring and recording arrangements, and establish systems and procedures no later than 6 months after project inception. 52. Under the PPMS framework, baseline and progress data will be reported at the requisite time intervals by the local PMOs to HPMO, including semiannual reporting on the environmental management plan (EMP). HPMO will be responsible for analyzing and consolidating the data through its management information system. The PPMS will be designed to permit adequate flexibility to adopt remedial action regarding project design, schedules, activities, and development impacts. HPMO, with assistance from the consultants, will monitor and assess activities, and report to ADB quarterly on the physical implementation and financial aspects of the Project to ensure that impacts are monitored and reported in line with ADB requirements.

IX. REPORTING REQUIREMENTS

53. HPMO will prepare quarterly progress reports (sample format in Appendix 15) indicating progress made, use of loan proceeds, problems encountered during the review period, steps taken or proposed to remedy the problems, proposed program of activities, and progress expected for the following quarter. HPMO will ensure that reports are consolidated and submitted to ADB in a timely manner (10 days after the end of the quarter). The quarterly progress report will be used by ADB in updating ADB Project Performance Report (PPR), Appendix 16. Within 6 months of physical completion of the Project, HPMO, with support from the municipal and county PMOs and IAs, will submit to ADB a completion report that describes institutional strengthening and water sector policy reform; implementation of the wastewater management and water supply systems; other project implementation matters; actual costs incurred in relation to cost estimates, benefits, and beneficiary consultations; and other information requested by ADB.

X. AUDITING REQUIREMENTS

54. HPG and each IA will maintain records and accounts that identify the goods and services financed from the loan proceeds, financing resources received, expenditures incurred for the Project, and use of local funds. The accounts will be established and maintained in accordance with sound accounting principles and appropriate accounting standards. The annual

13

project accounts of HPG and the IAs, and each set of financial statements for the IAs, will be audited by auditors acceptable to ADB. A separate audit report on the use of imprest account and statement of expenditure procedure will be provided to ADB. The audit reports, management letter, and related financial statements will be submitted to ADB not later than 6 months after the end of the fiscal year to which they relate, or the project closing date if earlier. ADB informed the Government of its policy on submission of audited accounts, which covers failure of submitting audited accounts and financial statements by the due date. A formal warning will be issued for accounts more than 6 months overdue, and disbursements will be suspended for accounts that are 12 months overdue. Sample Audit Letter is in Appendix 17.

XI. MAJOR LOAN COVENANTS

55. In addition to the standard assurances, the Government has given the following assurances, which were incorporated into legal documents. The loan covenants are in Appendix 18.

XII. KEY PERSONS INVOLVED IN THE PROJECT

55. List of the key people involved in the Project is given in Appendix 19.

XIII. ANTI-CORRUPTION

57. ADB’s Anticorruption Policy (1998) was explained to and discussed with the Government/Borrower and Executing Agency. Consistent with its commitment to good governance, accountability and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the loan regulations and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of the Executing Agency and all contractors, suppliers, consultants and other service providers as they relate to the Project.

Appendix 1 14

CANDIDATE SUBPROJECTS

Approximate Cost Location Subproject

Type Plant

Capacity (m3/day)

Pipeline / Sewer

(km) CNY million $ million equivalent

Anyang Municipality Anyang (Zongcun)a Wastewater 100,000 51.8 243.9 29.4 Huaxian County Wastewater 30,000 71.9 110.3 13.3 Linzhou County a Wastewater 50,000 43.3 99.8 12.0 Neihuang County Wastewater 30,000 27.7 60.6 7.3 Jiaozuo Municipality Boai Countya Wastewater 50,000 36.1 102.4 12.3 Boai Countya Water supply 50,000 45.5 67.5 8.1 Wen County Wastewater 20,000 13.1 50.6 6.1 Wuzhi County Wastewater 30,000 32.9 66.0 8.0 Puyang Municipality Nanle County Wastewater 30,000 42.6 74.7 10.9 Puyang Countya Wastewater 50,000 41.2 110.9 13.4 Puyang Countya Water supply 40,000 80.9 59.5 7.2 Qingfeng County Wastewater 30,000 67.3 82.6 9.0 Qingfeng County Water supply 30,000 88.9 57.9 5.5 Xinxiang Municipality Changyuan County Wastewater 30,000 26.7 72.6 8.7 Fengqui County Wastewater 30,000 34.9 75.7 9.1 Huojia County Wastewater 30,000 24.7 63.7 7.7 Weihui Countya Wastewater 50,000 45.6 98.3 11.8 Weihui Countya Water supply 30,000 50.0 53.1 6.4 Yanjin County Wastewater 30,000 37.8 72.2 8.7

km2 = square kilometer, m3 = cubic meter. a Representative subproject. Source: Henan provincial government.

Appendix 2 15

POLICY FRAMEWORK

Policy Issue and Explanation Action Required

1. Promotion of Integrated Water Resource Management

• An integrated and coordinated basin approach to water resource planning and environmental management has been shown to give optimum results.

• Treated wastewater is a potentially valuable water resource to be considered in water resource planning.

• Demand management can play an important role in water conservation and alleviating water stress.

(i) Prepare integrated water resource plans to

achieve comprehensive watershed management.

(ii) Improve coordination of water resource planning with water quality planning.

(iii) Promote the beneficial reuse of treated wastewater wherever this is economic.

(iv) Undertake demand management initiatives (leakage control, and promoting water saving).

2. Municipal Wastewater Management Effective policies, guidance, and procedures are required to ensure • comprehensive collection of wastewater, • sewerage separation policies that fit local

circumstances and can be effectively implemented and policed,

• maintenance of effluent strength, and • protection of wastewater facilities from

pollution discharges.

(i) Build capacity of local implementing

agencies in the management and operation of sewerage networks.

(ii) Issue guidance on standardized application of a discharge permit system, with a deadline for practical implementation.

(iii) Review and consider strengthening penalties for noncompliance with discharge standards.

3. Industrial Pollution Control • People’s Republic of China (PRC) laws and

regulations define permitted discharge standards for different industrial effluents, but these are frequently not adhered to in practice.

• Centralized treatment of pretreated industrial effluents is normally the most economic means of treatment, but is only viable where effective monitoring and enforcement arrangements are implemented.

(i) Promote centralized wastewater treatment

with pretreatment of industrial effluents. (ii) Implement wastewater discharge permitting

systems for discharges to the urban sewerage system.

(iii) Implement comprehensive monitoring and enforcement for compliance with industrial discharge standards.

(iv) Clarify respective responsibilities of implementing agencies and the local environmental protection bureaus once wastewater treatment plants are commissioned.

4. Cost Recovery and Tariff Reform • Tariff levels based on the principles of full cost

recovery will allow water and wastewater companies to be financially autonomous.

• Government subsidies must be eliminated or significantly reduced. Tariffs structures and levels should promote the economic use of resources.

• Adequate funds for loan repayment, operation, maintenance, and ultimate replacement of project facilities must be assured.

(i) Implement Circular (1999) 1192, which

encapsulates full cost recovery as an objective in tariff setting.

(ii) Develop more specific guidance to support policy implementation.

(iii) Refine social policies to protect financially disadvantaged customers.

(iv) Improve arrangements for enforceability of wastewater charges.

Appendix 2 16

5. Enterprise Reform, Governance. and Diversification of Investment

• Sustainability of wastewater facilities requires establishing implementing agencies as financially and managerially autonomous enterprises.

• High standards of corporate governance are required to ensure public confidence.

• Large investments needed in the PRC water sector cannot be financed by the public sector alone. Diversified investment channels need to be promoted to achieve sector goals. Private investors can also add value by improving efficiency and service standards.

(i) Implement Government policies for

separation of government and enterprises. (ii) Promotion of combined water supply and

wastewater companies (iii) Development of governance best practice

and guidance on its application (iv) Promote a fuller understanding of the

different financing options, for these to be considered early in the project life cycle.

(vi) Develop best practice guidelines on private sector procurement and market testing for outsourcing contracts

Appendix 3 17

INSTITUTIONAL CAPACITY BUILDING

Types of Capacity Building to be Applied Reference Number

Capacity Building

Requirement Consulting

Services Domestic Training

Familiarization Visits

Staff Exchanges

and Secondments

Remarks

A. Physical Implementation

1. Set up internal land acquisition and resettlement monitoring and reporting procedures

Give advice and guidance on setting up monitoring procedures, with follow up visits to each implementing agency (IA).

Workshop(s) to be held by consultants on Asian Development Bank (ADB) requirements

Independent external monitoring institute will give technical advice on resettlement plan (RP) implementation.

2. Design and operation of project performance monitoring system (PPMS)

Design the PPMS, and provide guidance to ensure consistency in its use. Follow-up visits to IAs to be made as necessary.

Workshop to be held to explain PPMS

Spreadsheet to be provided to facilitate standard data presentation and collation

3. Project planning Ad hoc support as necessary

Training workshop by loan consultants Selective extended training for key staff.

Provision of project planning and management software

4. Project management

Ad hoc support as necessary

Training workshop by loan consultants Selective extended training for key staff Training in MS Project or equivalent

Visits to ongoing ADB projects under implementation (e.g., Hebei province)

Provision of project planning and management software

5. Procurement and bid evaluation

Ad hoc support as necessary

Training in ADB requirements and People’s Republic of China (PRC) bidding law

6. Environmental monitoring

Provide advice and guidance on setting up monitoring procedures, with follow up visits to

Workshop(s) to be held by consultants on ADB requirements

18 Appendix 3


Capacity Building




Staff Exchanges

and Secondments

Remarks

each IA B. Institutional

Development

1. Design and improvement of organizational structures

Review IA proposals and recommend improvements based on best practice.

Principles of organizational design

Discussion with other water and wastewater companies

Case studies of similar PRC and international organization charts

2. Development of staffing plans

Review IA plans and suggested modifications.

Principles of human resource planning

Reference to Ministry of Construction (MOC) standards and comparisons with similar utility companies

3. Development of standards of service

Make recommendations based on common practices.

Regulatory requirements (e.g., MOC guidelines)

Participatory approaches to be used where relevant

4. Development of business plans

Work with each IA to prepare initial plan.

Principles of business planning Workshops on business plan preparation

5. Development of executive information systems (EIS)

Provide conceptual design and support each IA with customization.

Information management Use of EIS software

Demonstration of working EIS in modern water and wastewater companies

Provision of EIS software

6. Corporate governance

Review existing arrangements and suggest improvements on (i) role of board, (ii) internal audit, (iii) external audit, (iv) internal control procedures, and (v) transparency and public reporting.

Principles of corporate governance Role and responsibilities of members of the board Internal auditing

Discussions with management teams of fully established enterprises Presentations on international arrangements

Circulation of case studies on governance failings

C. Financial Management

1. Financial control procedures

Review controls and procedures, and recommend

Principles of financial control

Financial staff of IAs to spend time

Appendix 3 19


Capacity Building




Staff Exchanges

and Secondments

Remarks

measures to strengthen them.

Practical application of PRC financial control regulations and guidelines

working in municipal water companies

2. Financial information systems

Help IAs specify their needs, select hardware/ software, and complete the initial transfer to the new system.

Supplier-provided training in the new financial software Workshop(s) on identifying needs, and implementing the new system(s)

Visits to companies running computerized financial systems

Software supplier to provide some on-site support

Provision of personal computers with financial software IAs will create user group(s) to support and learn from each other.

3. Budgeting and cost control

Review existing process, including budget preparation methods and cost allocation (chart of accounts). Prepare model reporting formats.

Concepts of budgetary control Budget preparation Budget/cost monitoring and control techniques

Discussions on practical budgetary issues

Secondment of financial staff to larger companies to be involved in their budget process

Process to be supported by new software

4. Financial planning

Assist in developing simple financial models. Provide on-the-job support and training.

Role of financial planning and basic concepts Developing and using financial models in practice

Viewing the practical use of financial models to aid decision taking

IAs to create user group(s) to support and learn from each other

5. Improved tariff collection

Review existing procedures, record keeping, and systems. Conduct workshop(s) to identify and discuss current issues.

Income budgeting Principles of debt recovery and practical procedures to be followed

Viewing modern PRC and international billing and collection systems

Secondments of staff from larger companies to support local collection staff

Improved (new) billing and collection software Explore interutility cooperation

6. Financial awareness for senior managers

Identify detailed training needs. Promote the understanding of financial management as a key management skill.

Seminars on key financial concepts (to include financial control, financial planning, performance analysis)

Secondment of senior managers to larger, more financially aware organizations

20 Appendix 3


Capacity Building




Staff Exchanges

and Secondments

Remarks

D. Operational Management Capacity

1. Wastewater treatment plant (WWTP), water treatment plant (WTP), and asset commissioning

Prepare commissioning plans, including assignment of responsibilities. Provide support during commissioning.

Overview workshop on commissioning process Supplier provided training on equipment operation

Visits to other WWTP at commissioning stage

Secondment of operations staff with prior commissioning and operations experience

Provision of operation and maintenance manuals from suppliers

2. WWTP and WTP operations

Develop operating procedures and manuals. Advise on process monitoring and control. Conduct safety and performance audits.

Wastewater treatment operations Water treatment operations Operational quality assurance Operational safety

Visits to operating WWTP/WTP with similar processes

Secondment of experienced operators from other WWTP/WTP

Provision of operational equipment to be specified in mechanical and electrical contracts, such as that needed for process measurement and operational safety.

3. Asset maintenance

Provide advice on asset records and maintenance planning.

Supplier provided maintenance training Maintenance planning and record keeping

Visits to suppliers facilities

Supplier provided maintenance manuals Consideration to be given to computerized asset management

4. Industrial pollution control

Review record keeping, responsibilities, extent of monitoring, and enforcement procedures.

Permitting and other record keeping for industrial wastes Monitoring of discharges Tracing the source of pollutants entering the WWTP

Reviews of national and international practices

Possible use of loan savings to improve the extent and capability of automatic monitoring of key discharges

5. Sewerage system operation and management

Review existing arrangements and advise on adjustments in operating regimes needed to get best use of the new WWTP

Inspections Confined space entry Sewer maintenance and rehabilitation techniques

Review of equipment needs and possible use of loan savings to upgrade operations equipment

Appendix 3 21


Capacity Building




Staff Exchanges

and Secondments

Remarks

6. Management of house connections

Review procedures for inspection, record-keeping, and initiating required work.

Visits to cities where sewer separation and house connection programs have recently been completed

Staff exchange with larger cities with already separated sewer systems

7. Leakage and nonrevenue water control

Review current procedures, record keeping skills, and equipment.

Equipment supplier training (where relevant) Leakage control planning, techniques, and methods

Visits to cities with active leakage control programs (such as Beijing)

Exchange of staff with cities with active leakage control programs

Review of equipment needs and possible use of loan savings to upgrade operations equipment

E. Other Capacity Building Needs

1. Public awareness

Visits to domestic and international cities where successful public awareness campaigns have been conducted

Inclusion of a pilot public awareness program in project budgets

2. Gender awareness

Advise on gender awareness programs and development of gender sensitive performance indicators.

Gender awareness workshops

3. Regular customer feedback and participatory approaches

Make design recommendations for regular socioeconomic surveys.

Survey design and conduct of surveys to give reliable feedback Survey enumerator training/briefing

Utilize experienced institutes where budgets allow

Source: Asian Development Bank estimates.

22 Appendix 4

DETAILED COST ESTIMATES 1. The cost estimates exclude routine operation and maintenance costs of the provincial/ municipal project management offices and the infrastructure by the Project. Table A6 gives total project costs by cost type and the assumptions behind them.

Table A6: Project Costs by Category CNY Million $ Million Equivalent Item Foreign Local Total Foreign Local Total A. Representative Subprojects 1. Civil Works 224.0 176.0 400.0 27.1 21.3 48.4 2. Advance Site Works 0.0 4.0 4.0 0.0 0.5 0.5 3. Materials and Equipment 117.0 0.0 117.0 14.1 0.0 14.1 4. Environmental Management Plan 0.0 10.0 10.0 0.0 1.2 1.2 5. Land and Resettlement 0.0 65.0 65.0 0.0 7.9 7.9 6. Project Management 0.0 44.0 44.0 0.0 5.3 5.3 Subtotal 341.0 299.0 644.0 41.2 36.2 77.4 B. Other Subprojects, Capacity Building, and Taxes and Duties 1 Other Subprojects 348.0 288.0 636.0 42.1 34.8 76.9 2. Capacity Building, All 16.0 0.0 16.0 2.0 0.0 2.0 3. Training, All 6.0 0.0 6.0 0.7 0.0 0.7 4. Taxes and Duties 0.0 135.0 135.0 0.0 16.3 16.3 Subtotal 370.0 423.0 793.0 44.8 51.1 95.9 C. Contingencies 1. Physical Contingency 48.0 37.0 85.0 5.8 4.5 10.3 2. Price Contingency 0.0 35.0 35.0 0.0 4.2 4.2 Fixed Investment Cost 48.0 72.0 120.0 5.8 8.7 14.5 D. IDC 1. ADB Loan IDC 68.0 0.0 68.0 8.2 0.0 8.2 2. Other Loan IDC 0.0 33.0 33.0 0.0 4.0 4.0 Subtotal 68.0 33.0 101.0 8.2 4.0 12.2 Total 827.0 827.0 1,654.0 100.0 100.0 200.0

ADB = Asian Development Bank, IDC = interest during construction. Note: The project costs estimates are based on cost and price data as of mid-2004 and use the following general

assumptions and parameters: (i) The exchange rate is assumed at CNY8.27 = $1. (ii) Domestic inflation of 3.0% for 2004, 2.7% for 2005, and 3.0% thereafter, as given by ADB. Foreign

exchange inputs adjusted at International Bank for Reconstruction and Development manufacturer’s unit value (July 2004) annual rates of 6.0% for 2004, -1.6% for 2005, 0.0% for 2006, 0.8% for 2007, 0.8% for 2008, and 0.6% for 2009.

(iii) Physical contingencies included at 5% for materials and equipment and at 8% for civil works. (iv) Interest during construction estimated using an interest rate of 4.11% per annum, the rate applicable to

the 5-year swap London interbank offered rate for US dollars at loan fact-finding, plus 0.6% ADB mark-up and moderated down by 25% to recognize current rates are significantly lower.

(v) Commitment charges at 0.75% of the shortfalls in disbursement from the disbursement thresholds indicated in the loan agreement. The thresholds are 15% of the total loan amount for the first year of project implementation, and 45%, 85%, and 100% for the second, third, and fourth years, respectively.

(vi) The front-end fee is assumed to be waived. (vii) Local currency costs include taxes and duties of approximately $16.3 million equivalent at 10% on

materials and equipment, and 14% on civil works. (viii) The foreign exchange content will be 100% of materials and equipment, 56% of civil works, and 100% of

capacity building and training. Source: Asian Development Bank estimates.

Appendix 5 23

FLOW OF FUNDS AND ONLENDING ARRANGEMENTS

Asian Development Bank

Ministry of Finance (on behalf of the Government)

Direct payment to suppliers, consultants, and

contractors

Henan Finance Bureau for Henan Provincial Government

Municipal Finance Bureau on behalf of Municipal Governments

County Finance Bureau on behalf of County Governments

AWAG Anyang IA (note 2)

Individual County Subproject IAs

Domestic Banks Users

ADB/ Counterpart funds

ADB Repayments Local Bank funds/ User charges Local Bank repayments ADB = Asian Development Bank, AWAG = Anyang Water Authority Group, IA = implementing agency. Notes: 1. ADB funds will be onlent on the same terms and conditions as those received by the Ministry of Finance 2. Anyang Water Authority Group has the same relationship with domestic banks and users as

county IAs.

Onlending

ADB Loan ($100 million)

Relending (note 1)

Onlending Onlending

Water and Wastewater Charges

24 Appendix 6

ORGANIZATION CHART OF PROJECT MANAGEMENT ARRANGEMENTS

Asian Development Bank People’s Republic of China Government

Henan Provincial Government

Project Leading Group

Henan Project Management Office (PMO)

Active and Monitoring Consulting Services

Resettlement Plan Monitoring Institute

Auditing Bureau

Provincial Vice Governor Henan Finance Bureau (lead) Henan Development Reform Commission Henan Construction Bureau Henan Environmental Protection Bureau Others as required

County Governments (each with local PMOs)

Anyang MG, (including PMO)

Xinxiang MG, (including PMO)

Jiaozuo MG, (including PMO)

Puyang MG, (including PMO)

Individual County Implementing Agencies

Local implementation support from local design institutes, design review agencies, tendering companies. Construction supervision companies, resettlement agencies, and others as required.

MG = municipal government, PMO = project management office. Source: Henan provincial government.

Appendix 7 25

PROCESS FOR SUBPROJECT IDENTIFICATION, SELECTION, PREPARATION, AND APPRAISAL

A. Background

1. Under the sector loan approach, the Henan provincial government (HPG) (the designated Executing Agency), in consultation with the loan Fact-Finding Mission from Asian Development Bank (ADB), has established a three-stage approach for identification, selection, preparation, and appraisal of subprojects for inclusion in the Project. 2. Now in operation, these procedures will be used to appraise the remaining subprojects, and identify and select additional subprojects needed to ensure a full utilization of the ADB loan. 3. HPG has delegated various actions and decisions to the Henan project management office (HPMO) and Henan Development Reform Commission (HDRC). B. Stage 1: Subproject Identification and Selection

4. HPG has invited municipal and county governments in the southern part of the Hai River Basin in Henan province to express their interest in participating in the Project to be partly financed by ADB loan. In issuing this invitation, HPG refers to basic selection criteria.

(i) The subproject must be either involve wastewater management or water supply and be included in relevant sector or development plans (Henan Hai River Plan).

(ii) The local government must confirm its ability and willingness to arrange counterpart finance.

(iii) The local government must confirm a willingness to subject the subproject to ADB safeguard policies and other requirements.

(iv) The preferred implementation period is during 2005–2010.

5. For subprojects meeting these selection criteria, HPG then asked the relevant local government to undertake detailed preparations. C. Stage 2: Subproject Preparations

6. Preparations by local governments involves designating an implementing agency (or initially an office of the government) to prepare a detailed project proposal, feasibility study, environmental impact assessment, and (if required) a resettlement plan to standards necessary to meet both domestic and ADB requirements. Governments must also determine suitable institutional arrangements for project implementation and prepare a detailed financing plan. 7. Local governments are supported by local design and other specialist institutes (locally appointed) for their work and compliance with ADB requirements. 8. To facilitate an orderly and consistent appraisal of the subprojects, HPMO requires an integrated feasibility study in a common format to be prepared (to ADB standards) for each proposed subproject, including technical, social, financial, economic, and institutional analysis.

26 Appendix 7

D. Stage 3: Subproject Appraisal and Approval

9. The ADB project team developed a detailed set of evaluation criteria, which was discussed and agreed with HPG. This was to ensure that individual subproject appraisal is conducted in accordance with ADB standards. 10. HPG is responsible for subproject appraisal and has commissioned the Henan Engineering Consulting Company, a subsidiary organization of HDRC, to undertake detailed appraisals on its behalf. The company is qualified under domestic accreditations to conduct project reviews of provincial urban infrastructure projects. The project team reviewed the company’s qualifications and experience and considers it suitable for this task. 11. Henan Engineering Consulting Company will review the subproject feasibility studies and prepare a subproject appraisal report (SAR) for consideration by HDRC and HPMO. 12. Rejected subprojects are to be referred to the relevant local government with indications of where the preparations and proposals are deficient; and for additional preparation work (assuming the subproject has a realistic chance of meeting the agreed evaluation criteria). 13. Subprojects that are approved by HPMO will be forwarded to ABD for approval or for information purposes as appropriate:

(i) ABD will approve the first feasibility study and its SAR.

(ii) ADB will approve all SARs for subprojects with a total cost estimate in excess of $10 million equivalent.

(iii) ADB will receive other SARs for its record purposes only.

14. All subproject approvals by ADB or HPG will only be made if

(i) the subproject is included in an summary environmental impact assessment that

has been endorsed by Henan Environmental Protection Bureau and ADB, and been subject to relevant public consultation and disclosure; and

(ii) a resettlement plan meeting ADB requirements has been prepared and approved

by the relevant local government, and endorsed as satisfactory by ADB.

Appendix 7 27

PROCESS FOR SUBPROJECT IDENTIFICATION, SELECTION, PREPARATION, AND APPRAISAL

Stage 1 Stage 2 Stage 3 Identification and Selection Preparation Appraisal

HPMO invites local governments to submit

proposals based on agreed selection criteria

Local government commissions the project preparation process and

establishes a project management office

HPMO commissions HECC to review the integrated feasibility

study report against the appraisal criteria.

Local governments submit project proposals

HPMO reviews project proposals and confirms

compliance with selection criteria

Preparation of domestic feasibility

study

Preparation of safeguard documents

(environmental impact assessment and

resettlement plan)

Financial and institutional plans

Public participation and consultation

Integrated feasibility study report prepared in format issued by HPMO with financial and economic analysis

in accordance with ADB procedures.

HECC prepares summary appraisal reports with subproject

recommendation

HPMO and HDRC review summary appraisal report and make appraisal

decision

Subproject rejected Subproject approved

Required documents sent to ADB for information or approval.

ADB = Asian Development Bank; HDRC = Henan Development and Reform Commission; HECC = Henan Engineering Consulting Company; HPMO = Henan project management office. Source: Henan provincial government.

28 Appendix 8

IMPLEMENTATION SCHEDULE

2005 2006 2007 2008 2009 2010 Components Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 A. Wastewater Management

1. Land Acquisition 2. Resettlement 3. Design and Prepare Bidding Documents

4. Bidding and Evaluation 5. Construction and Commissioning

B. Water Supply 1. Land Acquisition Resettlement 2. Design and Prepare Bidding Documents

3. Bidding and Evaluation 4. Construction and Commissioning

C. Capacity Building 1. Technical and Engineering Management

2. Institutional and Managerial Development

3. Financial Management 4. Operation Management 5. Resettlement Monitoring 6. Project Preparatory Monitoring System Framework

7. Environmental Manage-ment and Reporting

8. Training Q1 = first quarter, Q2 = second quarter, Q3, third quarter, Q4 = fourth quarter. Source: Henan provincial government estimates.

Appendix 9 29

OUTLINE TERMS OF REFERENCE FOR CONSULTING SERVICES DURING IMPLEMENTATION PHASE

A. Introduction

1. The Henan project management office (HPMO) will recruit the project implementation consultants, although most of the consulting services will be provided to the various project implementing agencies (IAs) located in 15 cities (mostly at the county level) within the municipalities of Anyang, Jiazou, Puyang, and Xinxiang, . HPMO will act in a coordinating and supervisory role, ensuring the consulting services are provided in a timely and effective manner. 2. The majority of the consulting services are expected to be provided by domestic experts as the type of capacity building is generally not new to the People’s Republic of China (PRC). Domestic consultants can provide more cost-effective support. However, the overall capacity-building program required is large and diverse, and international consultants will be required to provide direction (capacity building, content, etc.), to establish the monitoring systems to Asian Development Bank (ADB) standards, and for some special advisory inputs. 3. Almost all direct consulting support to the individual IAs will be provided by domestic consultants operating in the PRC to minimize difficulties in communication and interpretation. This will ensure advice provided takes account of the specific conditions found in the PRC, such as local laws, regulations, and standards.

B. Scope of Work 4. The consultant will work with HPMO, the general manager, other senior management of the IAs, and relevant local government officials to provide assistance and advice on the following: 5. Project Management and Implementation Support. The consultant will undertake the following:

(i) Develop comprehensive project implementation plans and procedures for monitoring and control.

(ii) Review designs, drawings, and bidding documents; identify potential technical problems; and suggest means of resolving these, including incorporating environmental mitigation measures where appropriate. Recommend a practical and effective design supervision system.

(iii) Develop detailed reporting formats for submission to ADB, including the preparation of the initial progress report.

(iv) Help prepare detailed commissioning plans and provide support as required during the wastewater treatment project (WWTP) commissioning process.

(v) Provide training and on-the-job guidance on items (i) to (iv).

(vi) Establish a framework for the project performance monitoring system (PPMS), including its design, data collection, and analysis procedures, and provide training in its use.

(vii) Undertake a review of both the internal and independent external resettlement monitoring and reporting arrangements, and the reports produced. Recommend actions necessary to ensure compliance with approved resettlement plans. Provide

30 Appendix 9

training in resettlement monitoring in accordance with ADB requirements and follow up advice and support to local IAs.

(viii) Develop and help implement public awareness and education programs to help increase public awareness of project-related issues such as public health improvement, benefits of wastewater treatment, personal responsibilities for environmental protection, and water conservation.

(ix) Develop and help implement a gender awareness program, provide training on mainstreaming gender into project design and implementation, and develop gender sensitive indicators as part of the PPMS.

(x) Develop and implement an environmental monitoring program and reporting procedures to ensure that appropriate mitigation measures are undertaken during construction and operation of the project facilities. Provide training in environmental monitoring in accordance with ADB requirements and follow up advice and support to local IAs.

(xi) Provide support to IAs in preparing, refining, and processing supplementary feasibility studies, environmental impact assessments, and resettlement plans that might become necessary if new subprojects are included within the sector loan.

6. Institutional and Managerial Improvements. The consultant will undertake the following:

(i) Review the overall management organization of the utility companies to identify where changes in organizational structure (the management model) might lead to improvements in the business performance of the organization.

(ii) Review human resource planning procedures and assessment of staffing requirements. Make recommendations for improving human resource planning and assist in preparing a revised human resource plan in accordance with these recommendations. Develop a practical strategy for adjusting staffing levels to match assessed staffing needs.

(iii) Develop (or review) standards of service with special emphasis on the service provided to customers, and gain agreement to these.

(iv) Develop and agree on a set of strategic performance indicators and targets to measure and assess the overall performance of the company. These targets and indicators will include financial, operational, construction, human resources, and external relations.

(v) Develop (or refine) integrated 3–5-year business plans that cover all main activities of the companies. The business plans should incorporate progress toward defined standards of service and a quantification of planned business performance based on the strategic indicators and targets. The plans should incorporate resource needs in terms of operating budget, capital investment, human resource, etc. and the resulting pricing implications necessary to meet financial targets.

(vi) Design and help develop an executive information system to allow senior management of the company to monitor actual company performance against plans. Advise on the broader development of management information systems within the company consistent with the business plan and operational management needs.

Appendix 9 31

(vii) Using the business plans as a base, develop a model performance contract between the companies and the relevant governments to allow strategic arms length supervision on the part of the local government.

(viii) Assist relevant departments of local governments in developing procedures for effective regulation of the utility companies based on agreed business plans. Include the use of comparability studies as appropriate and a definition of information needs to facilitate proper regulation and supervision by local governments.

(ix) Identify requirements and make recommendations for the development of human resource policy to improve the skills and performance of the workforce, including consideration of (a) staff appraisal and performance measurement, (b) identification of training needs, and (c) reward mechanisms and levels.

(x) Provide advice on arrangements for corporate governance and how these arrangements can be made more effective.

(xi) Prepare, agree on, and implement a program of management training to include international and in-country training for the implementation phase of the Project, and make recommendations on how longer term training needs should be met.

7. Strengthening of Financial Management. The consultant will undertake the following:

(i) Review financial information systems and procedures in the IAs and propose modifications. Include a review of the use and potential use of financial information as an aid to management decision taking within the companies.

(ii) Prepare and gain agreement to a financial management development plan (FMDP) to modernize companies’ financial management arrangements. The scope of the plan will include (a) recurrent and capital budget reporting and controls, (b) improved cost control, (c) use of job costing and activity-based costing as appropriate, (d) development of relevant financial performance indicators and ratios, (e) control of working capital and cash flow, (f) use of financial planning and financial input to business plans, (g) computerization of systems as appropriate, (h) financial training for financial staff, (i) financial training for nonfinancial managers, and (j) improvements in financial procedures and regulations. .

(iii) Assist in implementing the FMDP by helping select software for computer-based systems for financial and management accounting and other financial systems (payroll, payment of suppliers, etc.).

(iv) Assist in implementing the FMDP by helping prepare implementation plans for computerized systems and ensure adequate attention is given to (a) training (basic computer awareness and systems specific), (b) systems testing, (c) transfer of live data, (d) systems security (physical location, hardware, and software related) and disaster recovery, and (e) systems documentation for users and system managers.

(v) Prepare a program of financial training seminars and courses for different levels of accountants, economists, and financial managers, with content reflecting the development needs identified in the FMDP.

(vi) Prepare and deliver a series of training courses in financial management for nonfinancial managers, including (a) financial and budgetary control, (b) unit cost accounting, and (c) financial ratios.

32 Appendix 9

8. Utility Tariff Setting, Billing, and Income Collection. The consultant will undertake the following:

(i) Develop a methodology for the periodic review of water supply and wastewater tariffs so that the various different interests of the local government, customers, and IAs are safeguarded. This methodology will include (a) compliance with national and provincial pricing regulations and guidance, (b) systematic examination of customer affordability (industrial and domestic), (c) review of company performance in terms of service and efficiency, (d) provision for the financial viability of the IAs, (e) review and justification of any cross-subsidization in pricing, (f) surveys of customer satisfaction and willingness to pay and other uses of public consultation in the price setting process, and (g) setting a defined timetable for price reviews.

(ii) Design, for implementation by Henan provincial government, a socioeconomic survey to regularly measure customer satisfaction with utility services and willingness to pay.

(iii) Review tariff billing and income collection arrangements, and develop an action plan for improving these where effectiveness or efficiency of income collection is in need of improvement. This review will include (a) the extent of computerization and scope for systems enhancement; (b) need for staff training; (c) management information to aid debt recovery; (d) methods of billing, payment, and payment processing; and (e) bill layout and explanations given to customers.

(iv) Develop proposals for a program of activities to improve public awareness of environmental and wastewater management, including measures to improve willingness-to-pay for water and (especially) wastewater charges.

9. Improvements in Operation Management. The consultant will undertake the following:

(i) Identify options for alternative operation and maintenance arrangements, including full or partial contract operation by the private sector or other relevant forms of private sector participation. Assess and evaluate options that appear viable and make recommendations accordingly. Assist in procuring operation contracts where relevant.

(ii) Review local IA operation practices and procedures, and make recommendations for improvements to create possible cost savings and/or enhanced performance.

(iii) Provide guidance in operation standard setting and in preparation of operational procedures to improve reliability and consistency of service provision.

(iv) Investigate and make recommendations on other local operational issues identified during the course of the work, by local management, or from other sources.

(v) Undertake a general review of the compilation of maintenance programs and the degree to which these are adhered to. Make recommendations on any improvements needed in maintenance planning or resources.

(vi) Review procedures for the control of discharges of industrial waste and recommend improvements, including (a) licensing and record keeping of discharges, (b) monitoring regimes and methods, and (c) enforcement procedures.

Appendix 9 33

(vii) Review and recommend improvements to sewer inspections and maintenance programs and available equipment, including activities to reduce infiltration and unauthorized connections.

(viii) Review policies and procedures for sewer connections programs, use of septic tanks, and arrangements for protecting the structural integrity of buried assets. Include any specific arrangements made or required to ensure access to services by the poor.

(ix) Review policies and procedures for water supply connections and their financing. Include any specific arrangements made or required to ensure access to services by the poor.

(x) Review existing water leakage from water networks and make proposals for how this can be reduced to economic levels. Include details of supplementary metering, equipment, staffing, and training needs.

C. Indicative Resourcing

10. An indicative resource schedule for consulting services was prepared based on the IAs’ needs as assessed during project preparation (Table A11).

Table A11: Indicative Consulting Inputs Required for Project Implementation Area of Expertise International

Person-Months Domestic

Person-Months Technical and Engineering Management (including Tendering and Procurement)

10 57

Institutional and Managerial Development 6 38 Financial Management 6 76 Operation Management 3 76 PPMS Framework and Resettlement Monitoring

2 19

Social Development - 6 Public Awareness - 15 Environmental Monitoring and Reporting 1 19 Total 28 300 Source: Asian Development Bank estimates.

34 Appendix 10

SUMMARY OF CONSULTANT RECRUITMENT A. Basic Principle 1. ADB considers that in most cases the general policies and procedures concerning the engagement of consulting firms can best be addressed through competition among qualified shortlisted firms in which the selection is based both on quality of the proposal and the cost of the services to be provided, quality cost based selection (QCBS). QCBS is the ADB’s preferred selection method for consulting firms, however in some cases, QCBS is not the most appropriate selection method. For complex or highly specialized assignments, selection is usually based on the quality of proposals alone, and this case quality based selection may be used. For this Project, QCBS was agreed to be most appropriate. In case that QBS will be proposed, adequate justification should be provided. The selection of consultants shall be based solely on technical proposals. Price proposals shall be used only for contract negotiations with the first-ranked consultants. 2. Local taxes and duties levied to consultants, if any, are not eligible for ADB financing. B. Recruitment of International Consultants 1. The recruitment of international consultants shall be in accordance with the ADB's Guidelines on the Use of Consultants. 2. Draft invitation documents, consisting of (i) draft Letter of Invitation, (ii) proposed evaluation criteria, (iii) draft TOR, and (iv) a short list of consultants shall be submitted to ADB for review and approval. A minimum of five weeks should be provided for the review. 3. A proposed short list of consultants shall include 5-7 consultants with fair representation of three regions (Asia and Pacific, North America and Europe). Thus, up to two local firms (including consortia led by local firms) may be short listed (subject to ADB concurrence as per item 2 above). 4. A minimum of 60 days shall be provided for the preparation of technical proposals. 5. After the evaluation of technical proposal (TP), technical proposal evaluation report (TER) will be submitted to ADB for review and approval. Upon receiving ADB approval of TER, all qualified TPs shall be invited for opening of financial proposals. The financial evaluation report shall be submitted to ADB for review and approval. Upon selecting the first-ranked consultants and completing contract negotiations with them, the draft negotiated contract with the first-ranked consultants shall be submitted to ADB for review and approval. A minimum of three weeks should be provided to ADB for review. 6. After the conclusion of negotiations but before signing of the contract, ADB shall be furnished with (i) draft negotiated contract for approval. Promptly after the contract is signed, three copies shall be submitted to ADB. 7.. Should any substantial amendment of the contract is proposed after its execution, the proposed changes shall be submitted to ADB for prior approval.

Appendix 10 35

C. Recruitment of Domestic Consultants 1. It is ADB’s policy to encourage the use of domestic or local consultants. The recruitment of domestic consultants will be in accordance with the prevailing applicable procedures of the Government, acceptable to ADB. 2. ADB and Borrowers should give special consideration to the use of domestic consultants to the extent possible, subject to the required technical qualifications and standards being met. 3. Foreign consulting firms are encouraged to collaborate with domestic consultants who are capable of providing part of the services required. 4. An English translation of a summary of draft TORs shall be submitted to ADB for prior review. Also, for the first such contract, other invitation documents, including draft Letter of invitation, proposed evaluation criteria, and proposed short list of consultants shall be submitted to ADB for information, prior to their issuance.

36 Appendix 11

CONTRACT PACKAGES

1. Procurement packages are divided into two phases: (i) retroactive financing, and (ii) the remaining procurement.

Table A10.1 Procurement Packages for Retroactive Financing Package

Amount (CNY million)

Loan Financing ($ million)

Procurement Mode

A. Wastewater Management 1. Civil Works for Anyang 17.3 1.2 LCB 2. Civil Works for Boai 13.0 0.9 LCB 3. Civil Works for Linzhou 14.2 1.0 LCB 4. Civil Works for Puyang 5.5 0.4 LCB 5. Civil Works for Weihui 13.0 0.9 LCB 6. Civil Works for Wuzhi 19.5 1.3 LCB

B. Water Supply 1. Civil Works for Boai 8.2 0.6 LCB 2. Civil Works for Puyang 14.2 1.0 LCB 3. Civil Works for Wuzhi 13.5 0.9 Total 118.4 8.0

LCB = local competitive bidding Source: Henan provincial government.

Table A10.2: Procurement Packages Beyond Retroactive Financing Total Cost Estimate

Package

Number of Subpackages CNY

million $ million

equivalent

Procurement Mode

A. Wastewater Management 1. Civil Works 44 659.5 79.46 LCB 2. Equipment and Materials 50 288.0 34.70 ICB/IS/DP Subtotal (A) 947.5 114.16

B. Water Supply 1. Civil Works 12 113.1 13.62 LCB 2. Equipment and Materials 10 15.0 1.81 ICB/IS/DP Subtotal (B) 128.1 15.43

C. Capacity Building 1. Office Equipment Various 4.0 0.50 IS 2. Project Management

Consultant 1 13.0 1.55 ICB

3. International Training Various 2.0 0.25 ICB 4. Domestic Training and

Other Consulting Services Various 3.0 0.30 LCB

Subtotal (C) 22.0 2.60 DP = direct purchase, ICB = international competitive bidding, IS = international shopping, LCB = local competitive bidding. Source: Henan provincial government.

Appendix 12 37

PROCUREMENT PROCEDURES

INTERNATIONAL COMPETITIVE BIDDING

A. Introduction 1. International competitive bidding (ICB) is the most appropriate method of procurement under ADB financing in most cases. This provides an executing agency (EA with a wide choice in selecting the best bid from competing suppliers and contractors. It gives prospective bidders from eligible source countries equal opportunity to bid on goods and related services or works that are being procured under ADB financing. The flow chart in Appendix 1 shows the main steps for procurement under ICB. 2. The EA must follow ADB’s Procurement Guidelines and procedures in preparing prequalification, bidding, and contract documents; advertising bid invitations; and accepting, opening, and evaluating bids. These requirements are discussed in subsequent PAIs. Draft prequalification and bidding documents, bid evaluation reports, and proposed awards of contract are subject to post or prior review and approval by ADB as explained in PAI 3.01. B. Price Thresholds for International Competitive Bidding 3. ICB procedures are normally employed for contracts with an estimated value that exceeds the threshold values set for national competitive bidding (NCB). The threshold values are normally stated in the procurement plan. Where thresholds are not specified in the procurement plan, refer to values specified in PAI 3.04 or consult with the Central Operations Services Office (COSO). C. Type and Size of Contracts 4. Whenever possible, procurement should be such that each bid package or contract is large enough to attract ICB. The size and scope of individual contracts will depend on the size, nature, and location of the project. The objective is to divide the requirements of the project into a manageable number of appropriate contract packages that will produce the maximum competitive response from bidders. To do this, the nature and value of goods being grouped into each contract package, and the conditions of the potential market of supply, must be understood. Contract packaging is concluded during project processing by agreement between the EA and ADB. The contract packages and methods of procurement are documented in the procurement plan and reported in the report and recommendation of the President (RRP). 5. Each contract includes only goods of the same or related specialty. For projects requiring both civil works and supply and installation of equipment, separate contracts are normally awarded for these items. When a large, complex contract is to be undertaken, a design, supply, install (turnkey) contract should be considered. Sometimes, however, a project may comprise several components of similar works, where the works are located in areas far from each other. An example of this would be the construction of irrigation canals in different parts of the country. In this case, although the nature of the work is similar, the works can be awarded as separate contracts because of the distance between the construction sites. 6. Contract size must also be considered. International suppliers and contractors are unlikely to be interested in competing for small contracts, so where feasible, each bid package or contract

38 Appendix 12

is to be large enough to attract international competition. NCB may be considered in the circumstances set out in PAI 3.04. 7. For similar but separate construction works or items of equipment, bids are to be invited under alternative contract options so contractors or suppliers (both small and large) can bid for individual sections of the contract or for a group of similar goods. Bids and combinations of bids are evaluated simultaneously to determine the least cost combination of bids. The method of evaluation and award of contract must be clearly stated in the bidding documents. D. Design, Supply, Install (Turnkey) Contracts 8. Design, supply, install (turnkey) contracts are those under which the engineering, design, supply of equipment, and the construction and commencement of operation of a complete plant are provided through a single contract. E. Bidding Procedures 9. ADB has adopted four bidding procedures from which the EA may select to suit the procurement: single-stage, one-envelope; single-stage, two-envelope; two-stage, two-envelope; and two-stage biddings. Choosing the appropriate bidding procedure will depend on the complexity of the contract and the circumstances surrounding procurement. 1. Single-Stage, One-Envelope Bidding Procedure 10. For this procedure, bidders submit the price proposal and the technical proposal in one envelope. These envelopes are opened in public on the date and at the time designated in the bidding documents. The bids are evaluated, and following ADB approval (where prior review and approval is applied), the contract is awarded to the bidder who submitted the lowest evaluated substantially responsive bid. 2. Single-Stage, Two-Envelope Bidding Procedure 11. For this procedure, bidders submit two sealed envelopes simultaneously, one containing the technical proposal and the other the price proposal.

• Initially, only the technical proposals are opened on the date and at the time advised in the bidding documents. The price proposals remain sealed and are held in custody by the EA. The technical proposals are evaluated by the EA and cannot be amended or changed. The objective is to allow the EA to evaluate the technical proposals without referring to price. Bids that do not conform to the specified requirements may be rejected, with ADB’s approval in the case of prior review, as deficient bids.

• Following ADB’s approval of the technical evaluation (where prior review and

approval is applied), and on the date and at the time advised by the EA, the price proposals of the technically responsive bidders are opened in public. The price proposals of the technically responsive bidders are evaluated, and following approval by ADB (where prior review and approval is applied), the contract is awarded to the bidder who submitted the lowest evaluated substantially responsive bid.

Appendix 12 39

3. Two-Stage, Two-Envelope Bidding Procedure 12. For this procedure, bidders submit two sealed envelopes simultaneously, one containing the technical proposal and the other the price proposal

• Initially, only the technical proposals are opened on the date and at the time advised in the bidding documents. The price proposals remain sealed and are held in custody by the EA. The technical proposals are evaluated, and if the EA requires any amendments or changes they are discussed with the bidders, and all bidders are advised in writing by the EA of the changes required. The objective is to ensure that all technical proposals conform to the same acceptable technical standard and meet the EA's technical requirements. Bids of bidders who are unable or not prepared to amend their technical bids to conform to the final technical standard required by the EA may be rejected, with ADB approval in the case of prior review, as deficient bids

• Following ADB’s approval of the evaluation of technical proposals (where prior

review and approval is applied), the bidders who meet the qualifying criteria are invited to submit revised technical proposals and supplementary price proposals. The supplementary price proposals must only contain changes in price resulting from changes in the technical proposals. Supplementary price proposals that contain changes other than those discussed during technical evaluation may result in rejection of the bids.

• The original and supplementary price proposals, and the revised technical

proposals, are opened in public on the date and at the time advised by the EA. They are evaluated, and following ADB approval (where prior review and approval is applied), the contract is awarded to the bidder who submitted the lowest evaluated substantially responsive bid.

4. Two-Stage Bidding Procedure 13. For this procedure, bidders first submit their technical proposals, in accordance with the specifications, but without prices:

• The technical proposals are opened on the date and at the time advised in the bidding documents. The EA evaluates the technical proposals and discusses them with the bidders. Any deficiencies, extraneous provisions, and unsatisfactory technical features are discussed with the bidders, and all bidders are advised in writing by the EA of the changes required. The bidders who meet the qualification criteria are invited to revise or adjust their technical proposals to meet the EA's technical requirements. The objective is to ensure that all technical proposals conform to the same acceptable technical standard and meet the EA's technical requirements. Bids of bidders who are unable or not prepared to amend their technical bids to conform to the technical standard required by the EA may be rejected, with ADB approval in the case of prior review, as deficient bids.

• After ADB approves the evaluation of technical proposals (where prior review and

approval is applied), the second stage is to invite bidders who meet the qualification criteria to submit revised technical proposals and price proposals that

40 Appendix 12

are opened in public on a date and time designated by the EA. In setting the date, the EA is to allow time for bidders to prepare revised technical proposals and price proposals. The revised technical proposals and price proposals are evaluated and, following ADB’s approval (where prior review and approval is applied), the contract is awarded to the lowest evaluated substantially responsive bidder.

5. Overview

14. The single-stage, one envelope bidding procedure is the main bidding procedure

and is used in most procurement financed by ADB.

• The single-stage, two-envelope bidding procedure allows bids to be evaluated initially on purely technical and commercial grounds without reference to price.

• The two-stage, two-envelope bidding procedure is used for large and complex

contracts and for procurement where alternative technical proposals are possible, such as for certain types of machinery, equipment, or manufacturing plant.

• The two-stage bidding procedure may be adopted for large and complex contracts

where technically unequal proposals are likely to be encountered or where the EA is aware of its options in the market, but for a given set of performance requirements, two or more equally acceptable technical solutions are available to the EA.

F. Invitation, Submission, and Opening of Bids 1. Introduction 15. The EA should be informed of the following procedures for inviting, submitting, and opening bids. 2. Invitation for Bids and Bidding Documents 16. Three copies of the invitation for bids and all related bidding documents for ICB (including instructions to bidders, conditions of contract, specifications, and bid forms) must be submitted to ADB for approval. Where prior review is used, the documents must reach ADB at least 21 days prior to the proposed date for issuing bidding documents to allow sufficient time for review and approval, and to allow time for a specific notice to be published on adb.org. The scope of ADB review will include review of:

• the invitation for bids—to ensure it contains complete and necessary information and is consistent with the information contained in the bid data sheet;

• the instructions to bidders—to ensure that it is identical to the relevant provisions of

the relevant User’s Guide; 1

1 The relevant User Guides are as follows: Guide on Bid Evaluation, ADB, August 2005; Procurement of Plant-Design, Supply, Install, ADB, September 2005; Procurement of Goods, ADB, November 2004; Prequalification of Bidders (Standard Procurement Document), ADB, September 2005; Procurement of Works (Small Contracts), ADB, September 2005; or Procurement of Works, September 2005.

Appendix 12 41

• the bid data sheet—to ensure that it contains complete and necessary information and is consistent with the RRP and the financing agreement for the project, and the Procurement Guidelines and Chapter 3 of the PAI;

• the evaluation and qualification criteria—to ensure that the parameters adopted for

each criterion are adequate and reasonable and otherwise conform to parameters recommended by ADB in the Procurement Guidelines and the User’s Guide;

• the bidding forms—to ensure that they conform to the standard forms in the User’s

Guide and that any additional statements or deviations comply with the Procurement Guidelines and Chapter 3 of the PAI and the requirements in the bid data sheet and the evaluation and qualification criteria;

• the list of eligible countries—to ensure that the list is updated and complete; • the schedule of supply or employers requirements, as relevant—to ensure that it

contains complete and necessary information to allow bidders to efficiently and accurately prepare bids that are realistic and competitive;

• the general conditions of contract—to ensure that it is identical to the relevant

provisions of the relevant User’s Guide; • the special conditions of contract—to ensure that all information that the general

conditions of contract require to be included have been included and that any additional provisions comply with the Procurement Guidelines and Chapter 3 of the PAI;

• any specific conditions to the award of the contract or covenants required to be

complied with under the relevant financing agreement for the project—to ensure they are complied with; and

• the procurement plan.

Where post review is used, 5 working days should be given to allow posting of invitations. Irrespective of whether post or prior review is applied, initial review by ADB of draft bidding documents will be conducted by the concerned sector division, COSO, and the Office of the General Counsel (OGC). OGC will review the special conditions of contract and will advise on specific legal issues, including covenants required to be complied with under the relevant financing agreement. EAs must use ADB’s appropriate standard bidding documents (SBDs). Modifying or departing from the SBDs for project-specific conditions must be

• minimal and consistent with the Procurement Guidelines; • subject to ADB approval; and • introduced only through bid data sheets, and the special conditions of contract or

conditions of particular application.

Where ADB has not issued relevant SBDs, the EA must use similar internationally recognized bidding documents acceptable to ADB.

42 Appendix 12

3. Issuing the Invitation for Bids 17. As soon as the invitation for bids is advertised in accordance with the Procurement Guidelines, ADB is to be given a report on the advertising. Such a report must include

• the name of the web site or newspaper in which the invitation for bid was advertised,

• the date of advertising, and • a copy of the published advertisement.

18. For ICB procurement, invitations for bids require a minimum bidding periods of 6 weeks. This period is counted from the publication date of the relevant invitation in the Business Opportunities section of adb.org, or locally in English (locally known website or local newspaper), or the date when documents are available for issue, whichever is the latest, up to the date for submission of bids. 19. The date, hour, and place for the latest delivery of the bids are to be clearly stipulated in the invitation. The manner for submitting bids must also be specified, and besides allowing for submission in person, delivery of bids by registered mail or electronically will similarly be acceptable and stated in the instructions to bidders.

4. Opening of Bids 20. Bids delivered after the deadline for submission are to be returned unopened. 21. Bids must be opened in public on the date and at the time and place stipulated in the documents. The name of each bidder and, the total amount of its bid, discounts, bid security (if required), and other important information are to be read aloud and recorded. All the aforementioned information is to be included in the record of the opening of bids, together with the names of the representatives present. G. Examination and Evaluation of Bids and Award of Contracts 1. Examination and Evaluation of Bids 22. The examination and evaluation of bids must be consistent with the method, terms, and conditions set forth in the bid documents and follow the procedures set out in the Procurement Guidelines. 2. Conditions of Contract 23. General conditions of contract are provided in the Standard Bidding Documents (SBD). Terms and conditions specific to the bidding are specified in the bidding documents. The Procurement Guidelines include provisions related to currency of payment, terms and method of payment, price adjustment, performance security, liquidated damages, language, transportation and insurance, and disputer resolution, force majeure, applicable law and settlement of disputes. These provisions should be reviewed when developing specific conditions of contract. The following guidance (which is not intended to be exhaustive) is also provided:

Appendix 12 43

• Performance security is required for works contracts and, in some circumstances, for supply of goods. Requirements for performance security and are to be described in the bidding documents. Its form shall be either cash, or a bank guarantee. It must be issued by a reputable bank or financial institution. If the issuer is located outside the borrower’s country, it must have a correspondent in the borrower’s country to insure enforceability. Performance security would normally be about 10% of the contract value.

• Liquidated damages are to be specified in the bidding documents. Normally, liquidated damages will be limited to about 10% of the contract value.

• Price adjustment provisions must be provided in contracts with delivery or completion periods that exceed 18 months. They are not required for simple supply contracts with short delivery periods. The method and formula for price adjustment is specified by the EA and provided in the bidding documents. The formula indices will be given by the EA and the bidder, depending on the source (for example, some indices might reflect costs in the bidder’s home country, in which case they would be specified by the bidder as provided for in the bidding documents).

3. Proposal for Award 24. Where prior review is applied, as soon as the bids are evaluated and the EA has determined the lowest evaluated bid, the evaluation results and the proposal for award of contract are to be submitted to ADB for review and approval. The recommendation must be approved by ADB before a contract is awarded or a letter of intent is issued. For this, promptly after the bid evaluation but at least 30 days prior to expiration of bid validity, ADB must be given three copies of

• an account of the public opening of the bids (together with the minutes of bid opening),

• a summary and detailed evaluation of the bids, • the proposal for award (together with the consultants' recommendations, where

applicable), • a draft contract if such a draft differs from the draft previously approved by ADB,

and • an appropriate certificate of eligibility for the proposed contract.

25. For single-stage (two-envelope), two-stage (two-envelope), and two-stage bidding procedures, ADB's approval of the evaluation results of each envelope are to be obtained before the results are communicated to the bidders and prior to opening the second envelope or proceeding to the second stage. 26. Under post review procedures, the EA submits the documentation described in para. 24 above, for review, but continues the procurement process without waiting for the outcome of the review. Documents should be submitted for post review as soon as they are completed and issued, but no later than one month after their issuance. ADB should ideally complete its post review within one month—if it is not done within 6 months, it is assumed ADB has no objection. If, through its post review, the ADB disapproves of an action by a borrower, it can declare misprocurement, even though a contract may have been executed. Depending on the circumstances, the financing for the contract may be cancelled. Borrowers are informed of this risk when requesting post review.

44 Appendix 12

4. Award of Contract 27. Where prior review is used, if the contract proposed to be executed differs substantially from the draft approved by ADB or if any substantial amendment to the contract is proposed, the proposed changes are to be submitted to ADB for prior approval. Promptly after each contract is awarded, ADB is to be given three copies of the contract as executed. Where post review is used, ADB will check the contract as executed for substantive amendments to the recommendation of the evaluation and award process. 28. Modifications to contracts, awarded under a post review arrangement, will require ADB prior approval in some cases. Changes orders that increase the original contract amount by more than 15% in aggregate require ADB prior approval. Material extensions in time, and modifications or waivers of conditions of contract similarly require prior approval of ADB. In all cases, contract amendments must be submitted to ADB for its records. H. Variations to International Competitive Bidding 29. There are circumstances where international bidding is followed, but normal ICB procedures can be varied. The Procurement Guidelines prescribe modified procedures in the following circumstances:

1. Limited International Bidding 30. Limited International Bidding (LIB) is employed where there is only a limited number of potential bidders, or other exceptional circumstances exist that justify a departure from the full open tendering process provided for under ICB procedures (possibly including where the estimated contract amount is not large enough to interest foreign suppliers and contractors through the ICB process). The use of SBD is not required, although using SBD as a model to develop simplified documents is recommended (invitation to bid, instructions to bidders, and conditions of contract from the ICB SBD, for example, can be used with little modification). Domestic preference cannot be applied under LIB procedures. A flow chart showing the main steps for procurement under LIB is provided in Appendix 2. For LIB procurement, the EA

• issues written invitations to bid (providing clear technical specifications for the required goods and related services or works, and the terms and conditions of purchase) to all bidders judged able to provide the goods, preferably a minimum of three bidders, with a minimum bidding period of 3 weeks;

• where it is thought additional suppliers might be interested in the procurement, advertises the notice inviting bids in English (on web site, in local newspaper, through notice to embassies, etc) with a minimum bidding period of 4 weeks;

• adopts the procedures for public bid opening; and • evaluates the bids in the same way as for ICB.

31. Unless otherwise indicated in the procurement plan and financing agreement, ADB's review will generally occur after the award of the contract (but before authorizing disbursement) when the EA sends

• the withdrawal application; • copies of the signed contract; • the bidding documents;

Appendix 12 45

• details of bid opening procedures, including minutes of bid opening; • the bid evaluation report; • the results of the evaluation; and • a certificate of eligibility of the contract where required by ADB.

These steps ensure fairness and transparency. ADB reserves the right to refuse to finance the contract in case of misprocurement. ADB, therefore, discourages the system of prior award of contract by the EA and after the fact approval by ADB unless the EA has sufficient funds to finance the contract if ADB declares misprocurement. 32. Normally, LIB is permitted for contracts estimated at up to a maximum value of $1,000,000. In special cases, project processing missions may recommend higher ceilings for LIB, appropriate to the competence and experience of the EA, as well as the size and nature of the goods and related services or works to be procured. Justification for proposing higher ceilings of LIB rather than using ICB procedures are to be included in the issues identified for management review meeting (MRM) and, if approved by the MRM, in the RRP under the procurement section. For rules related to consideration of LIB contracts by the procurement committee, see PAI 3.11.

33. LIB is the most appropriate method of procurement where the needed items are available only from a limited number of suppliers, or early delivery is of paramount importance for certain works under the project. Bidders that will satisfy this requirement probably has an uncommon technical specialty, skill or product, and best results will be obtained by ensuring bids are not restricted to local suppliers (although local representatives of foreign suppliers may be used). Contract packages proposed for LIB, the ceiling amount, and provisions for prior or post review will be detailed in the procurement plan. The requirements for adopting LIB (regardless of the amount involved) should be identified during project processing, fully justified and authorized by the MRM.

2. Repeat Order 34. Additional items may be procured through repeat order bidding when more of the same items procured earlier through ICB are urgently needed, loan funds are available, and no advantage can be gained through competitive bidding. Under this procedure, bids may be invited only from those who submitted responsive bids for the earlier advertisement, or if many bidders originally responded, from the five original lowest responsive bidders, with a bidding period of 30 days. 35. In exceptional cases, when few bidders originally responded and the lowest evaluated bid was superior (in price, reliability of equipment, availability of spare parts and after-sales service, and delivery period) the additional items required may be procured by a repeat order with that bidder. This is if

• the repeat order follows shortly after the earlier order, • no better offer is likely, and • the unit price for the repeat order is not more than the original unit price.

36. The repeat order is to follow within 18 months of the earlier order, and the additional quantities are not to exceed 30 percent of the original quantities. A repeat order may also be

46 Appendix 12

made when the EA, with ADB's agreement, provides an option to order additional items in the original contract documents.

AI 3.03 Appendix 1

Procurement under International Competitive Bidding(with no prequalification)

Executing Agency

ADB Suppliers/

Contractors Loan/advance contracting approved

Finalize list of goods/ works to bid (from procurement plan)

ADB review and Approval a

Prepare draft invitation for bids and bidding

documents ADB review and approval a

Advertise invitation for Advertise invitation for bids bids in www.adb

Locally in English and issue bidding

documents; inform ADB of the advertisement; Purchase bidding

(minimum bidding period documents from EA 6 weeks) and submit bid

Public opening of bids Prepare record of public

opening of bids

Evaluate bids and ADB review and recommend contract Approval a

award

Prepare contract Sign contract agreement agreement and send and return to EA

to supplier Provide performance Security (if required)

Send 3 copies of signed contract to ADB

Signed contract received Deliver the goods and Prepare PCSS for payment related services and purposes works to the EA

Goods inspected and received

Payment received (from supplier’s bank under L/C procedures)

a Approval not required under post review

Appendix 12 47

Procurement under International Competitive Bidding

(with prequalification)

Executing Agency

ADB Suppliers/

Contractors

Review list of goods or Loan or advance contracting works to bid (from procurement plan) approved

ADB review and approval a

Prepare draft PQ documents and draft bidding documents b ADB review and approval a

Advertise the invitation for PQ in www.adb

Advertise in locally in English and issue the PQ documents; submit

to ADB a report on advertising (minimum 6 week period given for Purchase PQ documents from EA

submission of PQ applications) and submit PQ application

PQ applications received

Evaluate PQ applications Recommend prequalified firms ADB review and approval a

EA Notifies prequalified and ADB approval received disqualified firms

Issue bidding documents to

prequalified firms (minimum bidding period 6 weeks)

Purchase bidding documents from EA and submit bid

Public bid opening

Prepare record of public bid Opening

Evaluate bids and recommend

contract award ADB review and approval a Sign contract agreement and

Prepare contract agreement return to EA, and send to suppl ier Provide performance security

Send 3 copies of signed contract

to ADB Review signed contract; Prepare PCSS for payment purposes Contract implementation

a Approval not required under post review b The draft bidding documents can be prepared at a later stage provided that ADB approval is obtained before issuance o

bidding documents to prequalified firms.

48 Appendix 12

Procurement under Limited International Bidding1

Executing Agency ADB Suppliers

Loan/advance contracting Review list of goods to bid (from

procurement plan) approved

Prepare draft bidding documents

Advertise notice inviting bids locally in

English and make bidding EA informs ADB of the documents available Advertisement if done

(optional) Purchase bidding documents from the EA

EA issues written invitations to bid preferably to 3 bidders Prepare and submit bids

(3 week min preparation, 4 if advertised)

Public opening of bids; prepare minutes of public opening of bids

Evaluation of bids in same manner as Return signed contract to the EA

ICB process and award contract Provide performance security

Send ADB withdrawal application with - copies of the signed contract - bidding documents ADB review and approval of - details of bid opening plus minutes contract award before processing - bid evaluation report The withdrawal application.2 - results of the bid evaluation If approved prepare PCSS - a certificate of eligibility of the contract where required by ADB

Supervise and monitor contract Execute contract _________________________________________ 1 LIB is primarily used for procurement where there are a limited number of suppliers and full ICB is not practical, in

accordance with criteria in ADB’s Procurement Guidelines. 2 ADB prior approval is strongly recommended in the case of an inexperienced EA, or where the EA cannot demonstrate

sufficient funds to finance the contract, in case of ADB’s refusal to approve the contract award.

Appendix 12 49

NATIONAL COMPETITIVE BIDDING A. Introduction 1. International competitive bidding (ICB) is the most appropriate method for procuring ADB-financed goods and related services, or works in most cases. However, other procurement methods conducted within the borrowing developing member country (DMC) may sometimes be more appropriate. Alternatives include national competitive bidding (NCB) and Shopping. NCB and Shopping may be more economical than ICB as they normally require shorter prequalification and bidding times. Bidding documentation may be simpler as well, especially for Shopping. NCB and Shopping also supports one of ADB's guiding principles of promoting domestic manufacturing and construction industries in the DMCs. Foreign bidders from other ADB member countries have the right to bid under ADB-funded NCB and Shopping procedures. The flow chart in Appendix 1 shows the main steps for procurement under NCB. B. National Competitive Bidding 2. NCB may be considered only if ADB is satisfied that

• foreign contractors and suppliers are not likely to be interested in bidding; • local production or construction facilities are available, offer prices below the

international market, and are adequate for prompt delivery; • domestic procurement procedures are satisfactory to ADB; and • where the borrower requested the use of NCB.

Moreover, NCB may be considered for contracts that

• are of small value; • consist of a series of small-value works; • are located in several areas that may be far apart in the borrowing DMC; and • will be executed at different times.

3. Where NCB is proposed as a method of procurement, ADB’s processing missions are to satisfy themselves that an adequate number of domestic producers or contractors are capable of providing the required quantity and quality of goods and related services or works at reasonable costs and within the required time frame. The threshold for NCB is between $1.0 million and $10 million for works contracts, or between $0.5 million and $1.0 million for supply of goods, depending on the capacity of the borrower. Where the threshold is set above the lowest value in the range, it is determined on a country-by-country basis, in consultation with the Central Operations Services Office (COSO). Contracts above the threshold would normally be procured following ICB procedures, unless another method (such as direct contracting, or limited international bidding) has been specifically described and agreed upon in the procurement plan.

50 Appendix 12

C. Shopping 4. Shopping is a simplified procedure, used for procuring low-value, readily available off-the-shelf goods, or simple civil works of low value. When considering Shopping, ADB should be satisfied that there are a sufficient number of local suppliers (or contractors for works) that can meet the requirements of the procurement and ensure a satisfactory level of price competition. 5. The threshold for Shopping is currently set at $100,000 for all borrowers, but may be adjusted in consultation with COSO depending on the capacity of the borrower. Contracts above the threshold would normally be procured following NCB or ICB procedures, unless another method (such as direct contracting, or limited international bidding) has been specifically agreed for in the relevant financing agreement and the procurement plan. 6. For the procurement of items below $10,000, the EA may purchase the items directly from the supplier. In such cases, ADB should be satisfied that the price paid is reasonable. D. Role of Project Processing Missions 7. ADB’s processing missions formulate procurement packages with the executing agency (EA). These are documented in the procurement plan. Every effort must be made to formulate packages for ICB. NCB may only be used if the EA has complied with all conditions stated in paras. 2–3. COSO is to be consulted when finalizing the use of NCB and Shopping procedures. Approval is to be secured at the management review meeting or through the back to office report of the processing missions. Prior to, and if necessary, during loan negotiations, ADB and the borrower are to agree upon

• the list of contract packages1 for which NCB and Shopping is to be adopted; • the procedures to be used to ensure acceptability to ADB; and • the threshold amounts for NCB and Shopping, and the requirements for ADB

approval that are to be reflected in the procurement plan. 1 The type or category of contracts envisaged for NCB or Shopping should be specified in theprocurement plan, even if the contracts cannot be listed because of the nature of the project and timing of processing missions. E. Evaluating Procedures 8. Project processing mission review NCB procedures normally used by the proposed EA under the laws and regulations of the borrowing DMC and verify their acceptability to ADB. While NCB procedures need not be identical to ADB's ICB procedures, they must provide adequate competition to ensure reasonable prices and must not conflict with the basic principles underlying ADB’s Procurement Guidelines. Evaluation of bids and contract awards must be fair, and evaluation criteria must be made known to all bidders. Factors to be considered when evaluating NCB procedures of an EA are briefly described in Appendix 2. Similarly, Shopping procedures should be reviewed during project processing to ensure they meet the requirements of ADB’s Procurement Guidelines. F. Treatment of Foreign Bidders 9. Suppliers and contractors from all member countries are entitled to participate in local procurement and may not be denied participation due to nationality. Contractors and supplies may

Appendix 12 51

apply for prequalification (where used) and to bid for contracts under NCB bidding procedures. ADB requires the borrowing DMC to permit such participation, but foreign bidders must adhere to local procedures acceptable to ADB, including using the local language and paying in local currency, if required by the bidding documents. Under local procurement procedures, the delivered cost of materials including import duties and other taxes may be used when comparing bids. ADB's domestic preference policy shall not be applied. G. International Advertising 10. Bidding of NCB contracts estimated at $500,000 or more for goods and related services or $1,000,000 or more for civil works is advertised concurrently with the general procurement notices in the Business Opportunities section of adb.org. Prequalification, if used for NCB contracts, is similarly advertised. H. Using Standard Bidding Documents for NCB 11. Borrowers are to be encouraged to use ADB-approved standard bidding documents for NCB, ideally based on the standard bidding documents for ICB. This will help ensure high quality and consistency in the documents and will hasten ADB's review. The documents should reflect local procurement requirements but must not contravene the basic principles underlying the Procurement Guidelines. If standard bidding documents acceptable to ADB are not yet available in borrowing DMCs, COSO may provide assistance to help develop them. Once prepared and approved, the use of standard bidding documents will be mandatory for all ADB-financed NCB contracts in the DMC (as for ADB-funded ICB contracts). I. ADB Review of Procurement Documents 12. For each project, the first draft English language version of the procurement documents should be submitted for ADB review and approval regardless of the estimated contract amount. The documents will be reviewed by the sector division, COSO, and the Office of the General Counsel (OGC). OGC will review the special conditions of contract and will advise on specific legal issues, including covenants to be complied with in the financing agreement, in accordance with agreed review procedures (post and prior review). ADB-approved procurement documents should be used as a model for all procurement financed by ADB for the project, and need not be subjected to further review unless specified in the procurement plan, or required under special arrangements. J. Approval of Contract Award 13. For NCB, ADB will review the bid evaluation report (BER) and award of contract on a post-review basis. The concerned sector division may, however, agree with the EA to conduct prior review of the BER and to give prior approval for contract award. This would depend on the borrower’s procurement capacity and should be described in the procurement plan. The review arrangements will also be specified in the procurement plan. Similarly, for Shopping, ADB will normally review the award of contract on a post-review basis. 14. The EA must submit copies of the BER and signed contract in English to the concerned sector division or resident mission for post review as soon as possible following contract award (unless prior review is specified in the procurement plan. The EA should be advised that ADB reserves the right to refuse financing for the contract if it is found during post review that the procurement has not been conducted in accordance with the Procurement Guidelines, or other

52 Appendix 12

provisions specified in the financing agreement. Requirements for consideration of the procurement committee apply to local procurement (see with PAI 3.11).

PAI 3.04 Appendix 1

Procurement under National Competitive Bidding1

Executing Agency ADB Suppliers/

Contractors

Prepare list of goods/ Loan/advance contracting works to bid approved

(For contracts over $0.5M in goods and related services or $1.0M in civil works)

Prepare draft PQ documents 2 Advertise LCB contract packages and bid documents Concurrently with GPN in adb.org

ADB review, first contract only

Advertise locally and issue PQ documents2;

Inform ADB of advertisement (4 weeks notice to suppliers is Purchase PQ documents

acceptable) from EA; submit PQ application

Evaluate PQ applications and select and/or recommend

prequalified firms 2 EA notifies ADB of PQ results. 3 EA notification to prequalified

Issue bidding documents to and disquali fied firms prequalified suppliers

(4-week bidding period is acceptable) Purchase bidding documents and submit bids

Public bid opening; prepare record of public bid opening

Evaluate bids; prepare bid evaluation

report; proceed to and or recommend contract award.3

Prepare Contract Agreement and Return signed contract to EA;

send to supplier. Provide performance security

Send at least one English version of ADB post review, salient features of signed contract if approved, prepare PCSS. 3

to ADB Execute contract

Supervise and monitor contract 1 While NCB procedures are not required to be identical with ADB’s ICB procedures, they must reflect the underlying

principles and not contravene ADB’s Procurement Guidelines. 2 Prequalification is discouraged for NCB. DMCs may have a register of suppliers. The processing mission should

ensure that the registration system is acceptable to ADB (e.g., it reflects the underlying principles of ADB’s Procurement Guidelines); and where acceptable, a PQ may not be required.

3 If the prequalifcation or procurement requires prior consideration of the procurement committee, in accordance with PAI 3.11, the EA must be advised not to notify prequalified firms or award contract prior to the committee’s deliberations and subsequent ADB approval.

Appendix 12 53

OTHER FORMS OF PROCUREMENT

1. While international competitive bidding (ICB) is often the method of procurement used under ADB financing, other methods may sometimes be more appropriate. National competitive bidding (NCB) and Shopping are described in PAI 3.04 and other methods of procurement are described here. A. Direct Contracting 2. Direct contracting (single source) involves contracting without competition (single source) involving a particular manufacturer, supplier, or contractor, and is allowed by ADB in any of the following circumstances:

� when standardization is important, and equipment and spare parts needed to expand or repair existing equipment must be procured from the original supplier or from a supplier of identical goods;

� when the equipment or goods is proprietary and obtainable only from one supplier; � when critical items are to be procured from specialist suppliers as a condition of a

performance guarantee; � when the civil works are a natural extension of an earlier or ongoing job, or when

engaging the same contractor is shown to be more economical and ensures compatibility of work quality;

� when additional items are required under an existing contract, which was awarded in accordance with ICB procedures; and

� in exceptional cases, such as in response to natural disasters.

3. In all these cases, ADB must be satisfied that the prices to be paid are reasonable and that competitive bidding offers no advantage. As such, contract packages to be procured using direct contracting are to be identified in the procurement plan and justified at the management review meeting (MRM). 4. Direct contracting for standardization is justifiable if the original equipment is suitable and outweighs the possible advantages of having another make of equipment and an alternative supplier. Similarly, in direct contacting (negotiation) for extension of civil works, the following must be shown:

� the original contract was awarded following ICB, limited international bidding (LIB), or NCB procedures acceptable to ADB;

� the unit rates of the earlier contract, were updated in accordance with the provisions in the original contract to reflect any increase or decrease in the cost of construction, and were valid and reasonable;

� the contractor's performance has been satisfactory; and � the additional work would be unlikely to result in lower prices if subjected to

bidding.

5. If a number of distributors stock the same parts and are free to compete for their supply, then proprietary parts must be purchased through competitive bidding.

54 Appendix 12

B. Procurement from Specialized Agencies 6. A variation on direct contracting involves single source procurement from agencies such as the UN. This would typically involve the procurement of items such as vaccines or drugs, which an agency such as the UN may offer the best combination of quality, price, and availability. The agency might, for example, benefit from volume purchase and be able to pass on these benefits to the procuring executing agency (EA). Items to be procured from specialized agencies should be packaged so as to take full advantage of the offered benefits (by, for example, combining expected purchases into larger packages to avail of volume pricing). Contracts to be procured from specialized agencies should be identified and justified in the procurement plan. C. Force Account 7. Execution of works by force account (departmental workforces) means undertaking works using the resources of a public agency of the EA’s government without competitive bidding or negotiated contracts. Use of force account is on an exceptional basis and must be fully documented in the procurement plan and justified at the MRM. 8. Force account is employed when the size of the works and its location make it unsuitable to adopt competitive bidding (this may include work such as village wells and village access roads, minor irrigation works, and other small and remote scattered works). Force account may also be used in other special cases where local contractors do not express interest in undertaking the works or where force account can be demonstrated to be the most efficient and effective method of implementation. 9. In agreeing to the use of force account, ADB must be satisfied that the construction facilities are efficient and the EA is capable (with advisers' or consultants' assistance) of undertaking the works quickly and to the required quality, at reasonable cost. ADVERTISING PROCUREMENT OF GOODS AND WORKS

A. Advertising Locally 1. Disseminating information on procurement contracts subject to international competitive bidding (ICB) is done by advertising invitations for prequalification or bids in adb.org and locally through either (i) an English language newspaper of general circulation in the country of the executing agency (EA), or (ii) an internationally known and freely accessible web site in English. PAIs 3.03 and 3.04 detail minimum prequalification and bidding periods for ICB, national competitive bidding (NCB), and limited international bidding (LIB) procedures. Advertising requirements for NCB, LIB and shopping are also provided in these PAIs. 2. The EA forwards a report to ADB on local advertising of the invitation as soon as it is available. If prior review is used, a reminder is sent by ADB to the EA if the report is not received within one month of ADB approval of the prequalfiication or bidding documents. Advertisement on adb.org is arranged by ADB and so the information required for the advertising must be received by ADB in sufficient time to post the advertisement and meet minimum advertising time requirements.

Appendix 12 55

B. Publishing Notices on adb.org and United Nations Development Business 3. ADB advertises procurement opportunities that it finances on adb.org and United Nations Development Business (UNDB), now published on-line. Advertisement in UNDB is, however, not mandatory as ADB has no control over its publication. UNDB carries public procurement notices on projects financed by international organizations. adb.org carries information only on ADB-financed projects, including procurement notices and contract awards. 4. adb.org and UNDB contain general procurement notices (GPNs) and specific notices (SNs).

(i) A GPN contains general information about a project that is approved or is being considered for financing, and includes

� the name of the borrower; � the loan number (when available), and title and description of the project; � the agency responsible for procurement, its mailing address, facsimile and

telephone numbers, and email addresses; � a description of the goods or works subject to international competitive

bidding; � a description of the goods or works subject to national competitive bidding;

and � sufficient other information to enable potential bidders to determine their

interest. The GPN for a project appears in adb.org for at least one month, but preferably three months, before the first prequalification (where prequalification is to be carried out) or bidding documents are made available for issue.

(ii) An SN refers to the advertisement for prequalification (where prequalification is to be carried out) or bidding for an individual contract, and includes

� the name of the borrower; � the loan number, and title and description of the project; � the agency responsible for procurement, its mailing address, email address,

facsimile and telephone numbers; � the EA, its address, email address, facsimile, telephone number (if different

from the procurement agency); � a detailed description of the works or goods to be procured under the

specific contract; � the price of the prequalification or bidding documents; � the deadline for submitting the prequalification applications or bids; � the place, complete address, date, and time for submission of

prequalification applications or bids; � the place, complete address, date, and time for opening of prequalification

applications or bids; and � whether the domestic preference scheme will apply.

5. Publication of the SN for an individual contract follows immediately after the publication of the invitation for prequalification or bids in a local English newspaper of general circulation or on a well-known web site.

56 Appendix 12

6. In addition to the GPN and SN, advance information on proposed projects, which are in the early stages of processing, is also included on adb.org and is updated as processing proceeds. More detailed information on these projects, appears later in the GPN. 7. Internal procedures for handling these procurement notices are in Appendix 1. The Central Operations Services Office (COSO) coordinates ADB activities for preparing and publishing procurement notices in adb.org and UNDB. 8. To ensure that an SN is prepared for every contract subject to ICB in a timely manner, the administering department provides COSO with the completed data form (Appendix 1, page 4) using information from the prequalification or bidding documents not later than the day following receipt of the documents.

Appendix 12 57

Appendix 1

Internal Procedures for Procurement Notices

(to be published in adb.org and UNDB)

A. General Procurement Notices 1. During processing, the borrower is advised of the need to publish, and the content of, procurement notices in adb.org . 2. After the management review meeting but before loan negotiations, a draft GPN is prepared by the sector division and forwarded to the EA for review and concurrence. An example of a GPN is given in Appendix 1, page 2. 3. At least one month, but preferably three months before the scheduled issuing of the first invitation for prequalification or bids, the sector division finalizes the draft GPN with any additional information from the EA and transmits it to COSO. 4 After reviewing the GPN, COSO publishes it in adb.org. B. Specific Notices 5. An SN is published at the prequalification stage if prequalification is used, otherwise it is published at the stage of inviting bids. 6. After receipt by ADB of draft prequalification or bidding documents, the sector division completes the attached data form (Appendix 1, page 4) using information from the prequalification or bidding documents and forwards it to COSO not later than the day following receipt of the documents. 7. COSO prepares a draft SN (Appendix 1, page 5) using information from the data form forwarded by the sector division, and sends the draft SN to the sector division for review; the draft SN is returned to COSO with any suggested revisions, within two days of receipt. 8. COSO finalizes the SN and publishes it in adb.org and also sends it to UNDB to be published. 9. In transmitting ADB's approval of draft prequalification or bidding documents, the EA is advised that an SN will be published on adb.org and forwarded to UNDB.

58 Appendix 12

Example of General Procurement Notice (to be published in adb.org and UNDB on-line)

LOAN XXXX Environmental Improvement for Industrial Pollution Abatement

The xxxxxxxxxxx has received a loan from ADB to help finance the cost of the xxxxxxxxx

Project.

The Project will support environmental improvements and institutional reforms to correct degradation of the lake basin. An effective and sustainable environmental management program for the basin will be formulated, capacity building will be provided for the agencies involved, and polluting industrial enterprises will be assisted to convert to non polluting methods. The Project will substantially reduce wastewater, hazardous air emissions, and release of untreated solid waste in xxxx and xxxx, and promote enterprise reform.

The proceeds of the loan are intended to be used for the procurement of the following: (i) through international competitive bidding,

� limestone crushing system; � sandstone crushing system; � limestone preblending system; � sandstone, iron cinder, and coal preblending system; � raw material grinding system; � clinker burning system; � raw meal homogenizing and kiln feeding; � clinker cooler; � coal grinding system and main exhaust fan; � pulverized coal weighfeed system; � conditioning tower and electrostatic precipitator; � mechanical conveying loading and unloading equipment; � transport vehicles; � excavation equipment; � lifting equipment; � loading and unloading equipment; � computer control system; � automatic control instrument; � high tension and low tension electrical equipment; � cable, cable bridge, and accessories; � cement grinding and packing; � refractory; and

(ii) though national competitive bidding procedures,

� civil works associated with lake basin (5 packages); and � dredging works (2 packages).

Appendix 12 59

The first batch of bidding documents for the above items is expected to be available on or about dd/mm/yy, subject to a nominal charge. Interested bidders from ADB member countries who wish to obtain additional information may contact

Name and Address of Agency Concerned Mailing Address : ________________ Telephone Number : ________________ Fax Number : ________________ email : ________________

60 Appendix 12

Specific Notice1

(data form for specific notice (SN) to be published in adb.org and UNDB on-line)

1 Where prequalification is used, this form is accomplished on receipt of draft prequalification documents and is published as the invitation for prequalification. Publication of invitations for bids is not required for the same contract for which the prequalification invitation has already been published in adb.org.

1. Loan No. and project title 2. Detailed description and quantity of goods and works to be procured 3. Date bidding documents will be available 4. Name, address, email address, telephone, and facsimile numbers of the EA to

obtain bidding and prequalification documents 5. Address, date, and time for receipt of prequalification applications or bids 6. Address, date, and time for opening of prequalification applications or bids 7. Price of prequalification or bidding documents in local currency and in US$ 8. Bid security (yes or no, if yes how much) 9. Domestic preference scheme (yes or no) 10. Other pertinent information on prequalification or bidding conditions and

instructions that need to be included in the SN for firms to decide on their interest

Appendix 12 61

Publishing Procurement Notices in adb.org and UNDB (sample of specific notice)

Invitation For Bids

[Date] [Loan No. and Title]

[Contract No. and Title] 1. This invitation for bids follows the general procurement notice for this Project that appeared in

adb.org, on [insert date].1 2. The [insert name of borrower] [has received/has applied for/intends to apply for] a loan from

the Asian Development Bank (ADB) toward the cost of [insert name of Project], and it intends to apply part of the proceeds of this loan to payments under the contract for [insert name/no. of contract].2

3. The [insert name of purchaser] now invites sealed bids from eligible bidders for [insert

description of goods and related services to be procured].3,4 4. International competitive bidding will be conducted in accordance with ADB's [insert appropriate

bidding procedure]5 procedure and is open to all bidders from eligible source countries.6 5. Interested eligible bidders may obtain additional information from [insert name of purchaser] and

inspect the bidding document at the address given below, [insert address at end of document] from [insert office hours].7

6. The bidding document, in English, may be purchased by interested bidders on the submission of a

written application to the address below [state address at the end of document] and upon payment of a nonrefundable fee8 [insert amount in local currency] or in [insert amount in specified convertible currency]. The method of payment will be [insert method of payment].9 The document will be sent by [insert delivery procedure].10 No liability will be accepted for loss or late delivery.

7. Bids must be delivered to the address below [state address at the end of document] at or before

[insert time and date]. All bids must be accompanied by a bid security of [insert amount in local currency or an equivalent amount in a freely convertible currency."]. Late bids will be rejected. Bids will be opened in the presence of the bidders' representatives who choose to attend at the address below [state address at end of document) at [insert time and date]. 12

8. The [insert name of purchaser] will not be responsible for any costs or expenses incurred by the

bidders in connection with the preparation or delivery of bids. 9. To compare the bids, ADB's domestic preference scheme will be applied in accordance with the

provisions stipulated in the instructions to bidders.13 [Insert name of office] [Insert name of officer] [Insert postal address] and/or [Insert street address] [Insert telephone and facsimile number, indicate country and city code] [Insert email address]

62 Appendix 12

Notes: 1. Day, month, year; for example, 31 January 2006. 2 Insert if applicable: "This contract will be jointly financed by [insert name of cofinancing agency].

The eligibility rules and procedures of ADB will govern the bidding process.” 3. A brief description of the type of goods and related services should be provided, including

quantities, location of project, and other information necessary to enable potential bidders to decide whether to respond to the invitation. A bidding document may require bidders to have specific experience or capabilities; such restrictions should also be included in this paragraph.

4 [Insert if applicable]. The delivery/completion period is [insert no. of days/months/years or dates]. 5. Insert one of the bidding procedures adopted by ADB, which are single-stage, one-envelope;

single-stage, two-envelope; two-stage, two-envelope; and two-stage. 6. Occasionally contracts may be financed from special funds that would restrict eligibility to a

particular group of member countries. When this is the case, mention this in this paragraph. Also indicate any margin of preference that may be granted as specified in the financing agreement and set forth in the bidding document.

7. For example: 09:00 to 12:00 hours. 8. The fee, to defray printing and mailing/shipping costs, should be nominal. 9. For example, cashier's check, direct deposit to specified account, etc. 10. The delivery procedure is usually airmail for international delivery, and surface mail or courier for

local delivery. If urgency or security dictates, courier services may be required for international delivery. Documents may be distributed through downloading from a web site (see PAI 3.13).

11. The amount of bid security should be stated preferably as a fixed amount, or as a minimum

percentage (approximately 2 percent) of the bid price. Alternatively, if a bid security is not required, the paragraph should state this.

12. The place for bid opening may not necessarily be the same as that for issuance of documents or for

bid submission. If they differ, each address must appear at the end of para. 7 and be numbered; as, for example, (i), (ii), and (iii). The text in the paragraph would then refer to address (i), (ii), etc. Only one place and its address may be specified for submission, and it should be near the place where bids will be opened.

13. Include only if domestic preference is provided in the loan agreement and is included in the

instructions to bidders.

Appendix 13 63

OUTLINE PROJECT PERFORMANCE MANAGEMENT SYSTEM

Reference Indicator Baseline Monitoring Mechanism A. General Urban Development Measures 1. Public satisfaction with urban environment Socioeconomic surveys 2. Level of environmental public awareness Socioeconomic surveys 3. Per capita gross domestic product and gross

domestic product growth in project cities Official government statistics

4. Level of disposable income

Official government statistics Socioeconomic surveys

5. Number (and %) of urban poor Official government statistics 6. Unemployment rate in project area Official government statistics 7. Satisfaction of affected persons (%) Socioeconomic surveys B. Project Implementation Measures 1. Compliance with environmental management plans Independent monitoring reports 2. Compliance with resettlement plans Independent monitoring reports 3. Incidence of waterborne disease

(i) Total incidence (ii) Deaths from waterborne disease (iii) Cost of medical care (iv) Sick days taken

Health statistics Socioeconomic surveys Cause of death records Socioeconomic surveys and hospital records Socioeconomic surveys

C. Wastewater and Water Supply Measures 1. Water quality in receiving rivers EPB monitoring data 2. Urban wastewater collected (%) Utility information system 3. Properties connected to sewer (%) Utility information system 4. Urban wastewater treated (%) Utility information system 5. Total WWTP capacity Utility information system 6. Length of main sewer Utility information system 7. Water and wastewater tariff levels Price Bureau data 8. Cost recovery (%) Utility financial statements 9. WWTP/water treatment plant cost efficiency Utility information system 10. Customer affordability of water and wastewater

services Calculated from government statistics

Socioeconomic surveys 11. Customer willingness to pay Socioeconomic surveys 12. WWTP operational performance EPB)/ Utility monitoring data 13. Utilization of WWTP (%) Utility information systems 14. Number of industrial discharges licensed EPB Utility information systems 15. Number of discharge license violations EPB/Utility information systems 16. Total water treatment plant capacity Utility information system 17. Total water demand Utility information system 18. Per capita water consumption Utility information system 19. Urban supplies meeting PRC water quality

standards (%) Utility information system

20. Level of nonrevenue water Utility information system 21. Closure of private wells Time-bound action plan 22. Assessment of job skills Utility information system 23. Institutional capacity-building milestones Project reviews

EPB = Environmental Protection Bureau, WWTP = wastewater treatment plant. Notes: 1. Baseline performance will be added once the project performance monitoring system framework is agreed.

2.Utility refers to either a water supply or wastewater company. Source: Henan provincial government.