Environmental and Social Safeguards Compliance Audit February 2012

PRC: Municipal Water Distribution Infrastructure Development Project ChongQing City YongChuan District QiaoLi Water Affairs Co., Limited Prepared by China Water Affairs Group Limited for the Asian Development Bank (ADB) This report has been submitted to ADB by China Water Affairs Group Limited and is made publicly available in accordance with ADB’s public communications policy (2005). It does not necessarily reflect the views of ADB.

ChongQing City YongChuan District QiaoLi Water Affairs Co. Limited

February 2012

Environmental and Social Safeguards Compliance Audit

(and Corrective Action Plan)

China Water Affairs Group Limited

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ESMS AUDIT REPORT Document Number: ESMS/QIAOLIWA/BP-AP/V1.0/20022012 Topic: Environmental and Social Safeguards Compliance Audit

(And Corrective Action Plan) Written and Prepared by ESMS Supervisor: Wen, Wei Verified and Approved by ESMS Manager: Li, Xing Ping Approved by Executive General Manager: Liu, Yong ESMS Committee Representative: Chan, Jacky

Contact Persons: Li, Xing Ping (ESMS Manager/ Deputy General Manager) Email: jzswlxp@vip.sina.com.cn Fax: +86 0755 33362493 (Office) Telephone: +86 0755 33360255 (Office)

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ABBREVIATIONS ADB – Asian Development Bank AP – Affected peoples by the Project CAP – Corrective Action Plan CWA – China Water Affairs Group Limited DRC – Development and Reform Commission (Government Authority) EIA – Environmental Impact Assessment EPB – Environment Protection Bureau (Government Authority) IPS – Intermediate Pressure Station IR – Involuntary Resettlement LA – Land Acquisition LAA – Land Acquisition Agreement LRB – Land Resource Bureau (Government Authority) PRC – People’s Republic of China RMB – The lawful currency of the PRC RWEP – raw water extraction point SPS – ADB’s Safeguards Policy Statement (2009) SR – ADB’s Safeguard Requirements (ADB SPS 2009) WP – water plant WRB – Water Resource Bureau (Government Authority)

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CONTENTS

I. INTRODUCTION ....................................................................................................... 1 A. Project Overviews ................................................................................................ 1 B. Objectives of the Report ....................................................................................... 2 C. Methodology ........................................................................................................ 3

II. AUDIT FINDINGS .................................................................................................... 3

A. Past and Present Related Safeguards Issues ......................................................... 3 i. Environment.................................................................................................. 3 ii. Land Acquisition and Involuntary Resettlement ......................................... 6 iii. The Indigenous Peoples ............................................................................ 10

B. Other Social Matters........................................................................................... 10 i. Sustainable Development ........................................................................... 10 ii. Gender and Employment ............................................................................ 11 iii. Labor and Community Health and Safety ................................................ 12

III. CONCLUSION AND RECOMMENDATIONS .................................................... 13

A. Conclusion ......................................................................................................... 13 B. Recommendations and Corrective Action Plan .................................................. 14

IV. ANNEX AND TRANSLATIONS

Annex 1 - Government Municipal Approval Annex 2 - Project Site (No.3 Water Plant) Surrounding Annex 3 - Entrustment L.A. Agreement Annex 4 - Entrustment Land Reclamation Agreement Annex 5 - Public Housing for L.A. Resettlement Annex 6 - Certified Letter

Annex 7 - Testing Result of Related Raw Water Source

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I. INTRODUCTION A. Project Overviews i. ChongQing City YongChuan District QiaoLi Water Affairs Co. Limited (hereinafter referred to as “Project Company”), a subsidiary China Water Affairs Group Ltd. (“CWA”), was acquired in 2007. The proposed Project, located in YongChuan District of ChongQing Municipality (Figure 1&2), is controlled by the CWA as CWA owns 100% shares of the Project Company.

Figure 1 – Chongqing Municipality (highlighted part) on the Map of China

Figure 2 - Project Location (YongChuan District of ChongQing Municipality)

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ii. Background and New Project Necessity: The YongChuan District, located in the west of Municipality ChongQing, has an urban population over 360,000 and covers urban land area approximate 35.3km2. (a) There are two (2) water plants in urban area of YongChuan District, contributing

total 85,000 m3/day distributing capacity – 55,000 m3/day from the No.1 WP (also named QiaoLi WP) and 30,000 m3/day from No.2 WP (also referred to as SunJiaKou WP). Both Water Plants extract raw water from GuanMenShan Reservoir 1, which is located approximate 30km southwest of No. 1 WP (see locations on Figure 2). According to the “Environment Quality Bulletin”, a research conducted by government environmental authority, it indicates that the water quality of GuanMenShan Reservoir fulfills the national requirement, and classified as Grade III surface water. (Annex 7)

(b) According to “YongChuan District General Planning for2004-2020”2, it predicted that water demands in YongChuan urban area would reach 129,200m3/day by 2015 and surpass 198,500m3/day by 2020.

(c) Issues associated with insufficient water supplying and under developed water distribution network have severely hindered the process of urbanization, especially after the State Council of PRC upgraded former YongChuan city to be one of the districts of the southwestern megacity ChongQing in 2006.

(d) Moreover, the newly established urban center of YongChuan is located far east from the existing water plants, causing inadequate water pressure in distribution system, considered an obstacle for the developing local economy.

iii. To Overcome the Issues: To overcome the issues presented above, the Project Company had negotiated with the District People’s Government of YongChuan, and formed an Investment Agreement. Pursuant to this Agreement, the No.3 Water Plant (hereinafter referred to as”No.3 WP”), building with an overall distribution capacity of 200,000m3/day, will be proceeded in two phases that each phase consists of 100,000m3/day facility construction. In 2010, ChongQing Municipal DRC officially approved the Phase I construction of No.3 WP (Annex 1). iii. Project Break down: (a) Major Infrastructure: Purification Facility (10m3/day) including flocculation and

backwashing sedimentation tanks; backwashing and distribution pump houses; chlorine processing, chemical dosing processing, sludge treatment processing and chlorine dioxide disinfection processing compartment.

(b) Auxiliary Facility: 320m2 equipment maintenance warehouse. (c) Utility Facility: 438m2 electrical room. (d) Environmental Protection: Industrial/ domestic wastewater treatment system; 1 GuanMenShan Reservoir – a major reservoir that serves YongChuan Area, established in 1982, with 6,400,000m3 normal capacity and 20km2 rain catchment area. 2 “YongChuan District General Planning for 2004-2020” – a research conducted by University of Chongqing, Urban Planning Design and Research Institute, in October 2006.

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chlorine absorbing system; sludge treatment and temporary storage compartment. (e) Office Facility: Office buildings in WP site and monitoring cameras at RWEPs. (f) Storage Rooms: Storage for chemicals and chlorine products. iv. Project Accomplishment and ADB Loan involvement: (a) Phase I began constructing at June 2010, until September 2011, 60% of the project

has been accomplished. (b) The Project Company decided to utilize the ADB facility, accounted for 68.5% of

the total investment, settling the outstanding payables of the Project.

B. Objectives of the Report: This Compliance Audit Report is being prepared to comply with the 2009 ADB’s SPS, including Safeguards Requirement and aims to identify past and present concerns from the production and business activities of Project Company that related to impacts on environment, involuntary resettlement (physical or economic displacement) and ethnic/ indigenous people, determines whether actions were in accordance with ADB’s SR1, SR2, SR3 principals, requirements and prepare a Corrective Action Plan (“CAP”) containing necessary remedial actions, approximate budget and time frame for resolution of any noncompliance. C. Methodology Four (4) experts from the ESMS committee from the Shenzhen China head-office of CWA have been sent to cooperate along with colleagues in local Project Company and conducted a series of investigation and verification, specific methodologies including: i. Review of documents which shall all conform to “the PRC of the Environment

Protection Laws” and other relevant documents: (a) “Feasibility Study for ChongQing YongChuan No.3 Water Plant” prepared by

the Municipal Engineering Southwest Design Institute in March 2009; (b) “Environmental Impact Assessment for ChongQing YongChuan No.3 Water

Plant Phase One Construction” prepared by ChongQing Environment Protection Engineering Design Institute in November 2010;

(c) “Approval of Feasibility Study for ChongQing YongChuan No.3 Water Plant (Phase I)” issued by ChongQing Municipal DRC in 2009;

(d) “Approval of Environmental Impact Assessment for ChongQing YongChuan No.3 Water Plant Phase One Construction” issued by ChongQing YongChuan District Environment Protection Bureau in 2010;

ii. Interview with persons who have involved in past and present production and

activities of WP, explore health and gender issues in the community; iii. Conduct onsite assessment, interview with affected people and local government

authorities who have involved in the land acquisition process; iv. Collect information from local government authorities such as municipal EPB,

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MWA, Construction Bureau, DRC, NLRB, and related Village Committees. Verify if any violation regarding environmental and social matter has been reported or documented against to Project Company. Acquire Certificate Letter if necessary.

II. AUDIT FINDINGS A. Past and Present Related Safeguard Issues i. Environment a. Environmental Impact Assessment: EIA of the Project was prepared by ChongQing Environment Protection Engineering Design Institute in November 2010 and approved by ChongQing YongChuan District EPB in the same year; it strictly in line with “the PRC of Environment Protection Laws”, "the PRC of Environment Impact Assessment Laws", “Environment Protection Management Regulation of Infrastructure Project Construction", and other related laws and regulations. b. It has been confirmed that the project facilities and/or related construction did/will not cross and traverse environmentally sensitive areas such as protected areas, wetlands, mangrove, estuarine, and buffer zone of protected area. c. It has been confirmed that the project and/or related construction did/will not encroach on historical/culture areas, disfiguration of landscape by road embankments, cuts, fills and quarries. d. Environmental Influences vs. Projects Construction: Project Company has been consistently devoting to mitigating any environmental influences caused by project construction by strict maintaining the routine of influences measurements for: (i) Noise Control: to apply low-noise devices and limit operation hours from 8:00 to

20:00, in order to reduce noise from construction and transportation. (ii) Dust Control: sprinklers would frequently water construction site thoroughly,

preventing dusts from spreading. (iii) Site Isolation: fences and construction signs would be in place prohibiting

pedestrians trespass the construction site and avoiding unnecessary incidents. (iv) Vegetation: for any construction that may damage the city vegetation coverage,

Local Landscape Department, the authorized party that handles city’s landscape property, would be informed initially. Professionals would transplant the affected trees and lawns prior to the construction and restore them back accordingly upon the project completion. All associated expenses would be on the Project Company.

(v) Green Coverage: According to the WP’s Landscape Design, the overall green (vegetation) coverage of 35% was required. It was confirmed by ESMS team that during construction stage, only less than 10% of green coverage was achieved, the rest will be in place upon the Project completion.

e. Environmental Influences vs. WP Operation:

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(i) Noise: noise is caused by the operating equipment, mostly from the distribution pumps in pump house. Since all equipment are indoor devices and most of them equipped with proper enclosure, so that the noise level tremendously attenuated by the insulation. According to the EIA, the noise level of WP operation would be classified as level II, based on the “Industrial Enterprise Noise Emission Standard”, which should not affect surrounding neighbors. (Table 1) (Annex 2)

Table 1 – Statistics of Acoustic Level

Monitored Sites Distance3/ Orientation Daytime A.L. (dB)

Nighttime A.L. (dB)

Da Nan Elementary and Secondary School 60m/North 53.0 – 53.5 44.2 – 44.8 Closest Residential Site No.2 15m/South 56.6 – 57.0 48.7 – 49.3

(ii) Wastewater: the contaminated wastewater is mainly from the cleaning process of

flocculation tank and backwashing of sedimentation tank, would be separated from sludge after sludge treatment process and recycled by mixing with the raw water and re-entering the purification process. It successfully avoids further pollution and achieves zero pollutant discharge.

Figure 3 – Waste Water Treatment Flow Diagram

(iii) Sludge: approximate 600tons of dewatered sludge (dewatered rate less than 65%)

will be produced annually once No.3 WP Phase I involved into production. During the early stage of WP construction, dewatered sludge would use for land leveling and gardening purposes, however, most of portion shall be delivered to YongChuan District Waste Treatment Centre (daily handling capacity 400tons), located at ChenShi Town, by local Sanitation Department for further treatment and the project company will be responsible for all the costs.

(iv) Green Coverage: According to the WP’s Landscape Design, the overall green (vegetation) coverage of 35% is required. It was confirmed by ESMS audit team that as at May 2012, more than 30% of green coverage has been achieved. The landscape project will be finished upon the Project completion in June 2012.

3 Distance – the closest boundary to boundary distance between WP and monitored site.

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(v) Chlorine Dioxide is used for water disinfection purposes. The procurement/ delivery of chlorine related materials (sodium chlorate and hydrochloric acid) have been carried out in strict application procedures set forth by the local authorities, Work Safety Bureau, Transportation Bureau and YongChuan Police Department, with clear and detailed records in strict comply with the “High Toxic Chemical’s Procurement and Transportation License Management”, issued by Ministry of Public Security in August 1st, 2005. The shipment and logistics have been handled by qualified transportation company, ChongQing TianYuan Chemical Transportation Limited, which is licensed with the “Toxic Chemicals Road Transport Permit”. Necessary Chlorine leakage detectors, alarm, collection/ absorption units have been installed in chlorine storage and other applicable areas. Furthermore, automatic detection and alarm system would shut chlorine generation process down as soon as leakage is detected. In the meanwhile, chlorine collection and absorption units would be initiated, preventing chlorine from spreading. It has been confirmed by ESMS audit team that all chlorine equipment used in plants is inspected regularly and maintained properly and all are in good conditions. The Project Company has no chlorine incidents reported or documented since the No.1 and No.2 WP on operation.

f. Project construction and operation have been constantly being carried out in way that consistent with the National, Provincial and Municipal Laws and Regulations. Project Company will pay adequate attention on potential environmental safeguards issues and stick closely into the existing mitigation measures. Moreover, a 7-24 customer service hotline has been established for receiving any sort of complaints and concerns regarding project construction and operation. As a result of keeping maintaining the measurements mentioned above, none of environment issues have been received from the surrounding neighbors and local authorities until this moment. ii. Land Acquisition (“L.A.”) and Involuntary Resettlement (“I.R.”) a. L.A. and I.R. Legal Framework: The land acquisition was authorized and conducted by the YongChuan Land Acquisition and Resettlement Affairs Office (“YLARA”), a division of the Municipality of ChongQing People’s Government (refer to Table 2 for details) (Annex3). The acquired land then was transferred to the Project Company for constructing the No.3 WP. The L.A. process has been executed fully in line with “Land Administration Law of the PRC” (2004) (“the LAL”), “Land Administration Provision of Municipality of ChongQing” (No.53 Government File), “Land Acquisition Methodology of Municipality of ChongQing” (No.55 Government File) and “Circular of Municipality of ChongQing People’s Government Regarding Tuning Land Acquisition and Resettlement Policy” (2008, No.45 Government File), adhering to minimize the influences of the society, enhance the livelihoods of all Affected Peoples and improve the standards of living of the displaced poors as well as other vulnerable groups. Therefore, we could conclude that all related national, provincial and municipal Laws and Regulations are considered to be in line with the “ADB’s SPS (2009)” and its related SRs.

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b. Involved L.A. and I.R.: No.3 WP project is a part of the YongChuan Overall Urban Planning and within the scope of the municipal infrastructure development. The acquired land will be solely used for industrial purposes, which has been predetermined in “YongChuan Land Use Master Plan (2006-2020)”, and the usage rights transfer also consistent with the related national land resources allocation policies. Therefore all events of land acquisition have been supported and approved by ChongQing YongChuan DRC, Land Resource and Housing Authority and District Planning Bureau. Total 67.0725mu collective owned land was acquired in 2010 and 2011, from two (2) groups (ZhuanFang and CaoFang Groups) of the DaNan Village, including 59.7390mu cultivated land, 1.6410mu waste land and 5.6925mu residential land. All related Land Certificate Applications are being processed.

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Table 2 – Details of Land Acquisition (Unit: mu and unit)

No. Acquired By

Acquired From

Acquired Land

Cultivated Land Wasteland Residential Land

No. of HuKou Conversion (1)

No. of Displaced Household/Person Paddy Field Dry Land Orchard Field

1 YLARA ZhuanFang Group

7.33 3.22 0.87 0 0 3.24 5 5/23

2 YLARA CaoFang Group

59.74 25.23 29.77 0.64 1.64 2.45 67 10/41

Sum 67.07 59.74 1.64 5.69 72 15/64

Note: (1) Number of HuKou Conversion: The number of persons that eligible for the National HuKou Conversion Policy is calculated based on the area of

the acquired land in the village. For instance, there are only 41 persons got physically displaced in CaoFang Group, however, total of 59.74mu acquired land makes 67 persons in this Group eligible for changing their HuKou from agricultural/rural to non-agricultural/urban HuKou status and participating in urban insurance, pension and education system.

Table 3 – Details of Land Occupation (Unit: mu)

Land Occupation Facility/ Activity Total Cultivated Land Wasteland Water Surface Residential (R)/ Industrial (I)

Others

Permanent Occupation

Pipeline From REWPs to WP ROW 0 0 0 0 ROW No.3 WP Phase I Construction 67.07 59.74 1.64 0 5.69 (R) 0 Pipeline From WP to Customers ROW 0 0 0 0 ROW WP Access Road 0 0 0 0 0 0

Temporary Occupation Pipeline Excavation ROW 0 0 0 0 ROW Temporary Construction Facilities ROW 0 0 0 0 ROW Spoil yard 0 0 0 0 0 0

Total Land Acquired 67.07

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Table 3.1 – Details of Affected Residential and Commercial Structures (14 households)

Household Name Village Division/Group Type of Structure Make of the Structures Carpet Area (m2) Construction Area (m2) Yang Bo CaoFang Group Residential Brick structure 75 75 Yang Zhongyou CaoFang Group Residential Brick exterior wall, Soil-made roof 156 260.66 Yang Yuanlin CaoFang Group Residential Brick structure 140 300 Yang Zhongjian CaoFang Group Residential Brick structure 76 92.3 Yang Yuangang CaoFang Group Residential Brick structure 78 153.56 Yang Jin CaoFang Group Residential Brick structure 80 80 Yang Zhongshi CaoFang Group Residential Brick structure 136 132.39 Deng Shihua CaoFang Group Residential/Commercial Brick structure 90 265 Yang Tao CaoFang Group Residential/Commercial Brick structure 120 182.42 Yang Ming ZhuanFang Group Residential Brick exterior wall, Soil-made roof 135 226 Yang Songtao ZhuanFang Group Residential Brick structure 127 210 Yang Hao ZhuanFang Group Residential Brick structure 75 95 Yang Yuanye ZhuanFang Group Residential Brick structure 90 160 Yang Min ZhuanFang Group Residential Brick structure 110 193

Table 3.2 – Summery of Cultivated Land before and after the L.A. Process (Unit: mu) Owner of the land Prior to the Acquisition Acquired

Cultivated Land After the Acquisition

Cultivation Land (mu)

Agricultural Population

Cultivated land per Capita

Cultivated Land (mu)

Agricultural Population

Cultivated land per Capita

1 ZhuanFang Group/division

286.45 241 1.19 4.09 282.36 236 1.2

2 CaoFang Group/division

254.81 254 1.00 55.64 199.17 187 1.07

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c. Compensation Mechanism: The compensation funding will be utilized for compensating the losses of assets, income and recovering livelihood source and minimized the impacts of the affected persons caused by land acquisition process. It consists of five (5) aspects: (i) Land Acquisition Compensation: Pursuant to “Municipality of ChongQing

YongChuan District Collective Land Acquisition, Compensation and Resettlement Implementation Methodology”, in order to speed up the urbanization process and improve living standards of the rural residents, with the approval of the ChongQing YongChuan People’s Government (Annex 1), the YLARA decided to proceed “Agricultural to Non-agricultural HuKou 4 Conversion”, bringing all affected persons, who registered with agricultural (rural) HuKou system, into non-agricultural (urban) HuKou system. All APs, who granted with new non-agricultural HuKou, could qualify for the benefits which are not available to people registered under agricultural HuKou, for instance, urban enterprise retirement pension5, medical care insurance, employment insurance, eligibility of enrolling their children into community school system, qualification on public housing and so on. During the transition period, RMB 25,000.00 would be allocated to each of the APs (notice that annual agricultural income per person was approximate RMB 5,000.00 in 2010); in order to assist them to find better employment opportunities, they are also entitled to receive free work training tutorials offered by Local Human Resource Department. According to the ESMS survey, agricultural income has contributed less than 10% to the annual earnings of a typical village household before the LA, which meanings traditional farming activity is not considered to be their primary livelihood source anymore, as most of the strong labors have committed to work in urban area which has better remuneration. By granting the APs an urban HuKou, they will be assured with extra socio-economic safeguard and personal privilege, and forged even closer to the urban life. Despite the urban HuKou, additional greenery compensation for any existing agricultural products will be recouped to each APs at RMB 1,650.00/mu as well.

(ii) Residential Housing Compensation: Residential Housing Compensation, consisted of House Demolition/Moving Compensation and House Establishment Compensation, has to be allocated to the affected people who lose their residential lots in L.A. process. (a) House Demolition/Moving Compensation: RMB 30,000.00 is for the loss of

house structure; RMB 2400.00/household is for losing of interior non-portable 4 HuKou (戶口) – the household registration system used in China has been classified into two categories - agricultural/rural (農業戶口/農村戶口) and non-agricultural/urban (非農業戶口/城市戶口), based on the mother’s status and the place where the mother was registered. HuKou status is a very strong determinant of rights and privileges affecting social standing and socio-economic wellbeing. 5 Urban enterprise retirement pension – for people who registered under such pension system will be granted pension funding based on their age after retirement, for (i) male (60-70)/ female (55-70): RMB 580.00/month; (ii) male/female (70-75): RMB 630.00/month; (iii) male/female (>75): 660.00/month.

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facility; RMB 285.00/m2 is for the old house demolition; and RMB 1000.00/person is for the moving subsidy.

(b) Housing Resettlement Compensation: displaced persons have two (2) options for housing resettlement, either choosing one-time currency settlement or moving into unified constructed public housing.

1) One-time Cash Settlement: under this compensation scheme, the displaced persons voluntarily give up the offer of the Public Housing, and receive a one-time cash payment. The calculation of payment is based on the following elements: the fair market value (approximate RMB 2,600.00/m2); the possible decoration expenses (RMB160.00/m2); and necessary transaction costs.

2) Public Housing: the displaced persons who choose the public housing as their way of compensation are offered with one unit or multiple units, making up the total construction area they lost without any payment. An exceptional low purchase price RMB 285.00/m2, compared with the market price RMB 2,600.00/m2, would be applied for any additional construction area: RMB 142.00/m2 for any additional area up to 5m2; RMB 285.00/m2 for any additional area up to 5-10m2; and RMB 2,600.00/m2, the market price, for any additional area over 10m2. Furthermore, a transitional fee, RMB 100.00/person per month, is distributed to every displace person in the affected households until all of them are settled with satisfaction.

(iii) Commercial Housing Compensation: for non-residential house used for on-going commercial activities, one-time currency settlement RMB 2,500.00/m2 is compensated for the unit which area is less than 20m2; on the other hand, RMB 5,000.00/m2 is recouped for the unit which its area exceeds 20m2.

(iv) Miscellaneous Compensation: Collective owned attachments and structures, such as mini-scale irrigation system, vegetation, scatted distributed graves, access roads, and etc., is unified compensated to the Collective Economic Organization at a flat rate of RMB 15,000.00/mu. The funding is used for village’s future infrastructure projects.

(v) Taxes and Handling Fees: fees includes additional construction land and cultivated land right of usage fee, transaction charge, all related taxes and land acquisition administration expenses.

d. Consultation, Information Disclosure and Grievance Redress: Even though the YLARA has authorized to handle all LA related matters on behalf of the local government and the Project Company, the Project Company still insists on disclosing information in timely manner via company various channels, making construction and operation highly transparent. Moreover, a Compensation Affairs Office was established as well as the 24-7 service hotline, for consulting inquiries of the affected communities and individuals, trying to ease the concerns in early stage and

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achieving bilateral consensus if necessary. On the other hand, according to “Civil Laws of the PRC”, the affected people also entitle to file appeals to the People’s Court in corresponding level, getting their legitimate interests protected. e. Present Status and Feedback on the Land Acquisition and Resettlement: (i) Land Acquisition Compensation:

It confirmed by ESMS team that the APs have received their non-agricultural (urban) HuKou successfully; they have been covered under the umbrella of the city’s pension and issuance system. Besides, all the funding such as compensation for transitional period, greenery, housing demolition, and resettlement have recouped accordingly, so that livelihood of all APs could be recovered and no further economic displacements are involved. Showing in table 3.1, the cultivated land per capita in DaNan Village has maintained the same figure after the land acquisition process, because of the decreased agricultural population in CaoFang and ZhuanFang Division. Furthermore, the additional 37.5885 mu cultivation land has been redistributed for reclamation, re-balancing the local agricultural supply-demand once again (Annex 4). Through the interviews with selected APs and local Authorities, it has been verified that the APs were satisfied with the LA transition and no disputes/ grievances have been reported or documented to date (Annex 6).

(ii) Residential Housing Compensation:

Six (6) out of fourteen (14) households have made the decisions and moved into the unified constructed public housing (Annex 5). The construction area of the affected houses of these 6 households ranges from 60m2 to 300m2 (Table 3.1). All affected people are compensated with a unit/units which has/have at least the same construction area at no charge. However, due to the limitations of the layout of the public houses which only available at 60 sqm, 90sqm, and 120sqm unit, some of the APs were given more than one unit to make up their loss. It was reported that they all moved into the public housing without any payment with the similar construction area they had lost previously, and were able to purchase for any additional area with considerable low rate. The other eight (8) households have chosen the one-time cash settlement which is considered more flexible way for resettlement. To date, all displaced are satisfied with their compensation in that their living conditions have been improved significantly, therefore, no disputes were reported (Annex 6).

(iii) Commercial Housing Compensation

Two cases involving commercial housing resettlement were compensated accordingly without any further grievance. Both of the households previously leased out part of their units on monthly basis; however, the income was unstable as the premises often kept vacant in last three years. After obtaining the Urban HuKou, related social insurance, and new public houses in high rise building, the

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two affected households have decided to discontinue rental business. They are now accepted free work trainings provided by the local HR department and ready for pursuing new careers with much steady income (Annex 6).

(iv) Miscellaneous Compensation:

This compensation was used for updating local infrastructure, such as strengthen local irrigation system and construct more access roads in the villages.

iii. The Indigenous Peoples

As few as 0.22% of ethnic minorities are registered in YongChuan District, all of them have adopted the life style of the Han’s, as they do not self-distinguished themselves as a distinct culture group. Furthermore, the Project have no involvement of any ethnic minorities in particular, therefore, it can be concluded that no IP safeguard issues associated with the Project.

B. Other Social Matters

i. Sustainable Development. a. Based on the latest statistics, the current water tariff of the YongChuan District is RMB 2.15/m3, and the average monthly water consumption per person is around 8.0m3. It indicates a monthly expenditure per capita of RMB 17.20 spent in accessing tap water, which accounts for merely 1.28% of monthly disposable income of YongChuan population, considered far lower than the global average of 4%. Therefore, the water tariff of YongChuan District is within an affordable range of local communities that has very limited influence over residents’ daily life. b. Water Tariff Mechanism: Request of tariff hikes shall be proposed by the Project Company and submitted to municipal authorities for reviewing. Project Company has to disclose all related information to general public, including the reasons and the amount of the price adjustment, by participating in series of conferences, called “Public Hearings”, which held by Municipal Pricing Bureau. Essentially, the board of municipal government will determine whether to approve the request of such tariff hikes, based on the following factors: (i) the public opinions and (ii) whether the profit of the Project Company could adequately cover necessary capital expense for further water infrastructure projects to maintain a reliable water distribution system so that the society of YongChuan could achieve healthy and sustainable development. (iii) Furthermore, payment affordability of vulnerable groups, such as single parent families and low-income households, must be taken into considerations. The current subsidies policy of Project Company states that: for the each low income household, identified by the YongChuan District People’s Government, 80% of the first 3m3 water usage charges shall be waived from the monthly water bill statement. c. Corporate Social Responsibility. Over the last five (5) years, the Project Company has invested series of projects in improving the reliability of the local water

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distribution system. In addition, the project construction and operation provided plenty of job opportunities to the local community. Furthermore, The Project Company always believes in that water resource, one of the most essential elements to human life, desired a mind of preservation from the public especially in a water stressed country like China. It has been kept promoting the ideas of water conservation in campaigns through a variety of media channels. The Company also establish temporary information booth in local communities once a year, disseminating knowledge regarding the methods to improve water usage efficiency. ii. Gender and Employment a. Principal of Gender Equality: the Project Company currently employs 49 female staffs, accounting for 37% of the total (133 staffs). They are approximate equally allocated in various job categories (Table 4). The Project Company adheres to the equal gender principal and do not disaggregate job description and remuneration level by sex, as all job opportunities are equally competed by all potential candidates and salary standard are determined only according to the job description and work load performed by the employees.

Table 4 - Staff Distribution (disaggregated by sex)

Job Category Number of

Staffs Female Staffs

Number (Percentage) Male Staffs

Number (Percentage) Remarks

Managerial 25 4 (16 %) 21 (84 %) Senior Management, Middle level Management

Administrative 66 37 (56 %) 29 (54 %) Administration, Accounting, Human Resource, Customer Service, Secretary

Technical 42 8 (19 %) 34 (81 %) Electrical, Mechanical, Chemical, Technician and I.T. Supports

Total 133 49 (37 %) 84 (63 %) -- b. Protection of Female’s Rights: the Project Company always pays adequate attention to the rights of female staff by maintaining their beneficiary policies, for instance, the four (4) months maternity leave with 100% wage and welfares, as well as the voluntary breast-feeding leave with the 90% wage and 50% welfare. Company also provides annual gynecological examination to female employees. iii. Labor and Community Health and Safety a. In full compliance with associated national laws, policies, and regulations, for instance, “the Labor Contract law” (2008), “Trade Union Law” (1992), “Labor Law”

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(1995), “the Production Safety Law” (2002), and “the Provisions on Collective Contracts” (2004), the Company provides its employees with (i) pension premium, unemployment insurance, industrial injury insurance, medical insurance, maternity insurance, and housing accumulation funds, (ii) strictly regulated working hours (The maximum of forty (40) working hours a week, including comprehensive overtime compensation policy), (iii) Equal Pay for Equal Work remuneration policy, which is maintained by solo-operated human resource department, as well as (iv) the Labor Union, whose members of the board were elected by the employees. The Union acts as a bridge between the company and the staffs. On one hand, it represents the management and conducts consultation to the employees, assuring everyone understand corporate policies; on the other hand, it shares the same version with the staffs, standing against and negotiating with the management over essential issues associated with entitlements of the employees, including improvement of wages, social benefits, working conditions, and the policy of the workplaces. The Union has played a significant role over the years, as it provides an appropriate channel to settle disputes and keeps the collective interests of the employees under umbrella. b. Health and Social Safety Policies: The Project Company has a good reputation for maintaining healthy and safe working environments. It has prepared a series of regulations and policies, such as “Occupational Safety Management Procedures”, “Occupational Health Management Programs”, “Hazardous Levels of Chemical Safety Management Procedures”, and etc.. The emergency routines set forth in above-mentioned polices requires to be performed regularly to handle specific circumstances. No safety incidents have been reported or recorded since the No. 1, 2 Water Plants put into operation, and no cases of injury or death have ever occurred. d. “Contingency Plans for Failure of Water Distribution” was prepared and approved by the related Government Authorities. It provides specific solution and procedure for situations, such as emergency water resource pollution, nature disaster, chlorine product leakage, equipment failure, major urban pipeline broken and etc. The Contingency Plan would be revised at least every three years. c. The Project Company has conducted regular training on health and safety for staff since 2007 with updated training materials, and has more than 30 staffs trained every year by qualified experts/professionals.

III. CONCLUSION AND RECOMMENDATIONS A. Conclusion The project, No.3 Water Plant construction, is considered a significant milestone improving the life quality of residence in YongChuan District. Upon the completion, a more reliable urban water distribution system network will be established. The Project has gained great supports from both municipal administration and the general publics, so that related documents, such as feasibility study and EIA, could be

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processed and approved in a prompt and smooth manner. Furthermore, all construction contracts were assigned through public biddings which made the process transparent and legally binding. i. Environmental Influence: based on the Audit Findings of environmental sector, necessary mitigation measurements were promptly and thoroughly addressed, besides, no environmental related complaints have been received since QiaoLi WP and SunJiaKou WP put into operation. Since neither environmental accidents nor safety incidents have been recorded and all aspects on potential impacts including noise, dust, wastewater, sludge and chlorine have been well managed within expected targets, no Corrective Action Plan is considered necessary. ii. Involuntary Resettlement: as previously mentioned in the Audit Findings, it has confirmed that all HuKou transitions of AP have been completed and they have now received insurance, transitional cash compensation and all other compensation has been allocated to affect Collectives Economic Organizations and physical/economic displaced individuals. For the peoples who chose public housing as their resettlement, they have already moved in to better housing units in a high rise building with dedicated management/maintenance and security team. Their living standard have improved significantly as their old houses were standalone units with poor structure, even without water supply and sewage connection. For those losing cultivation lands, they were compensated and can continue with their livelihood as lands were redistributed so there are no economic displacements to date, there are no outstanding complaints and grievances associated with L.A. and /or I.R., and no CAP will be required. iii. Indigenous People: pursuant to the Audit Findings on indigenous peoples, there are no safeguard issues associated with minority and indigenous people, so that no CAP will be required. iv. Other Social Dimensions: Project Company has always committed in providing a gender equal, healthy and safe working environment to the employees, promoting idea of water conservation to the public and contributing sufficient cap-ex on local water infrastructure projects so that the municipality could have accomplished a sustainable social development. B. Recommendations and Corrective Action Plan i. Through the ESMS compliance audit, it has confirmed the related constructions and operation were fulfilled the requirements of ADB’s SPS (2009), including SR1, SR2, and SR3 principals. Thus, it is not necessary to prepare further corrective action plan at this present, however, pursuant to Facility Agreement, subsequent audits and monitoring reports will be prepared accordingly by Project Company and submitted to CWA and ADB for reviewing purposes.

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Annex 1_ Government Municipal Approval

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Annex 1_Translation_Government Municipal Approval

ChongQing Municipal Peoples’ Government YuFuDi [2010] No.1423

ChongQing Municipal Peoples’ Government Approval on YongChuan No.3

Water Plant Construction (PH I) Related Land Acquisition and Type Change

To YongChuan District People’s Government: Your “Request Regarding Construction of YongChuan No.3 Water Plant Phase I Project Related Land Acquisition and Land Type Change” has been received, and approved as follow:

I. Has agreed your requests regarding rural land type change, re-cultivation of new land from local land banks, land acquisition, resettlement and re-distribution plan, and authorized your District People’s Government for further executions.

II. Has agreed your proposal that acquiring 3.3977ha agricultural land (2.0469ha cultivation land) as well as 0.1049ha waste land for construction land, in addition to another acquisition of 0.3757 construction land. Total 3.8782ha construction land was approved for acquisition. After all legal procedures and according to national and municipal land resource allocation policies, the Land Resource Administration will assign/change the type of above land to industrial land for solely purpose of constructing No.3 WP Phase I.

III. Has agreed your acquisition resettlement proposal that transferring HuKou status of 44 APs to Urban HuKou and accept them into urban pension and insurance safeguard system, the AP’s include 4 APs from ZhuanFang Village, 40 from CaoFang Village, (the actually number of AP’s will subject to change based on implementation). The further execution is authorized to your District People’s Government.

IV. Has agreed your proposed agricultural land back-up and re-cultivation plan, Your District People’s Government have to ensure the quality of related implementation and adequately restore livelihood resource of the AP’s.

V. The Implementation of this land acquisition, resettlement have to be executed strictly based on the following Laws and Regulations: “Implementation Ordinance of National Land Resource Administration Laws of the PRC”, “Ordinance of National Land Resources No.10 File”, “Ordinance of ChongQing Peoples’ Government No.53, 55 Files” and YuFu FileNo.45[2008] and File No.26.

VI. Your District People’ Government has to file all records of implementation to National Land and Housing Administration, including the events of land acquisition and resettlement with actual status. Municipal ChongQing People’s Government (Seal) Date: 2010. 12. 28

A-2

Annex 2_Project Site (No.3 Water Plant) Surrounding

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A3

Annex 3_ Entrustment L.A. Agreement

A-3_T-1

Annex 3_Translation_ Entrustment L.A. Agreement

Entrustment Agreement of Land Acquisition and Resettlement Compensation

Entrusting Party: ChongQing YongChuan QiaoLi Water Affairs Co. Limited (Hereinafter referred to as Party A) Entrusted Party: YongChuan Land Acquisition and Resettlement Affairs Office (“YLARA”) (Hereinafter referred to as Party B) YongChuan District No.3 Water Plant Phase I construction has been pre-approved according to YongFa [2010] File No.117 and YongGuoFang [2010] File No.300, including 67.0725mu collective land acquisition from CaoFang and ZhuanFang Groups of DaNan Village. In order promoting project acquisition works under fairness environment, pursuant to ChongQing People’s Government YuFuFa[2008] No.45 and YuFuFa[2008] No.26 Files as well as YongChuan People’s Government YongChuanFuFa [2008]No.22 and YongChuanFuFa[2010]No.37, through negotiation between Party A and Party B, Party A decided to let Party B handle all land acquisition and resettlement related affairs, agreement as follows:

i. Job scope and description: Party B will implement related land acquisition matters including land compensation, HuKou status conversion, greenery compensation, structure attachments, house demolition and relocation compensation, as well as related income loss and working expense.

ii. Compensation Fee and Working Expense: 1. All land acquisition related compensation, charges, tax will be paid to Collective Economic

Organization (“CEO”), each affected individual and Party B 2. Working expense (commission fee) will be paid to Party B at a lump sum rate RMB

3,000/mu in one-time payment, sum of RMB 201,218.

iii. Responsibilities of Party A and Party B 1. Party A shall:

a. Provide Party B with all government certificates and approvals. Any issues and conflictions caused by delayed submission of necessary files would be responsible of Party A.

b. Pay Working Expense (Commission fee) within 7 days after signing of this document. c. Disburse partial Resettlement Compensation, RMB 6,000,000.00, to Party B within 7

days after signing of this document. The rest of compensation will be processed in the following stages.

d. In case of any government policy changes, the execution will be based on the new policy as long as the Approval Certificate from the government has not been received.

e. Coordinate with Party B for any necessary resettlement affairs. 2. Party B shall:

a. Process land acquisition based on the spirit of YongChuan People’s Government’s YongChuanFuFa [2008] No.22 and YongChuanFuFa [2010] No.37 files.

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b. Conduct adequate public consultation and explain policy thoroughly, and responsible for all issue solving and assure project proceed smoothly.

c. Paid compensation to affected CEO, communities, and individual APs. d. Settle all associated leftover issues afterwards. e. File and organized all paper works and documents. f. Leading to resolve all land related affairs.

V. Other Promises:

1. Party A will be responsible for all losses and responsibilities caused by fault in providing compensation payment or necessary paper works by Party A.

2. Party B will be responsible for all losses and responsibilities caused by any defaults that supposed to be delivered.

VI. Others: 1. For any affairs that not covered in this Agreement, will be proceed based on negotiation

between Party A and Party B. 2. There are six (6) executive copies and distributed to Party A and Party B, three (3) for each,

all with the same legal binding. 3. This Agreement will be effected upon the signing.

Party A (Seal) Legal Representative: (Signature) Party B (Seal) Legal Representative: (Signature) Date: 2010. 12. 17

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Annex 4_Entrusted Reclamation Agreement

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Annex 4_Translation_Entrusted Reclamation Agreement

Entrusted Agreement of Reclamation of New Cultivation Field

Party A: ChongQing YongChuan QiaoLi Water Affairs Co. Limited Party B: YongChuan District Land Arranging Centre Due to Construction of No.3 Water Plant, 67.0725mu collective owned land, including 37.5885mu cultivation land, was acquired. According to “National Land Resources Administration Laws of the PRC”, to recover the loss of agricultural land, Party A entrusted Party B to reclaim the same quantity and quality land, Party A and Party B achieved the following agreement:

1. Reclamation Engineering Expenses: calculated based on the area of newly distributed cultivation field at a rate of RMB10, 000.00/mu, as Party A should pay Party B an engineering expense RMB 375,885.00.

2. Payment Due Date and Payment Method: Party A shall disburse Party B one-time full amount payment within 5 days after signing this agreement. Party B Account information: XXX.

3. Newly distributed cultivation and supplement: After Clarence of the payment, Party B will issue YuGengBu[2010] No.208 File, and redistributed the same quantity and quality of land for supplement, and balance the agricultural loss during former land acquisition.

4. Total four (4) executive copies will be distributed to Party A and Party B, effect upon signing.

Party A (Seal) Representative: Party B (Seal) Representative: Date: 2010. 09. 24

A-5

Annex 5_Public Housing for L.A. Resettlement

A-6

Annex 6_Certificate Letter

A-6_T

Annex 6_Translation_ Certificate Letter

Certificate Letter

To Whom It May Concern: It has confirmed that at Oct. 2010, ChongQing YongChuan Land Acquisition Affairs Department has conducted land acquisition consistent with National and municipal Laws and Regulations, and acquired collective land of 67.0725mu, including 59.739mu cultivation land, 1.641mu waste land and construction land 5.6925mu from CaoFang and ZhuanFang Groups of DaNan Village. The land was then transferred to QiaoLi Water Affairs Limited for its No.3 Water Plant Phase One construction. It also has confirmed that, all compensation for land acquisition, house relocation and resettlement has been paid and allocated to Village Committee and individual APs. All affected Peoples (72) have voluntarily participate HuKou Conversion and got their status accordingly and have moved into the newly constructed public housings. The living condition has improved significantly. Until today, no compliant and grievances have been received. Sincerely ChongQing Municipal Land Resource and Housing Administration Bureau, Second Division (Seal) Date: 2012. 02. 22

A-7

Annex 7_Testing Result of Related Raw Water Source

Unit: mg/L

Note:

• Testing results based on data collected in July 2012. • SS and Turbidity tests are not mandatory required according to national standard GB3838-2002; however the Project Company

has been keeping close track on the test results on daily basis. • SS testing is carried out by the observers/testers through naked eye observation.

Raw Water Source PH SS Turbidity BOD5 CODcr COD DO Mineral Oil

TP TN NH3-N Fecal Coliform

GuanMenShan Reservoir

7.3 - 6.4

3.75 5.76 18 5.8 0.03 0.08 0.61 0.1 2400

Environmental Quality Standard for Surface Water [GB3838-2002]

Grade II 6-9

- - 3 4 15 6 0.05 0.1 0.5 0.5 2000

Grade III 6-9 -

- 4 6 20 5 0.05 0.2 1 1 10000

Remarks No copper, zinc, selenium, arsenic, mercury, cadmium, and chromium 6+ detected; No cyanide, play phenol, and sulfide detected; Iron <0.03mg / l; Manganese <0.01mg / l; Fluoride: 0.37mg / l; Chloride: 16.1mg / l; Sulfate: 88 mg / l; Nitrate: 0.5mg / l.