Ex-ante Evaluation
1. Name of the ProjectCountry: The People’s Republic of China
Project: Henan Province Nanyang City Environmental Improvement Project(Loan Agreement: December 21, 2007; Loan Amount: 11,500 million yen; Borrower: The
Government of the People’s Republic of China)
2. Necessity and Relevance of JBIC’s Assistance
In China, the sewage treatment rate in urban areas has remained at 56% (2006), while in rural areas,
where majority of the population (more than 1 billion) live, sewerage facilities have not spread verymuch. Consequently, water pollution of rivers and freshwater lakes has become a serious problem.
Additionally, since China relies on coal for around 69% of its domestic energy consumption (2005),
acid rain caused by sulfur oxide (SOx), soot, dust and other particles are having a serious impact on
the health of local residents and the ecosystem. Given this situation, in the 11th Five-Year Plan forEnvironmental Protection (2006–2010), the government of China has set the goal of reducing theemission of principal pollutants by 10% from the level recorded in the 10th Five-Year Plan. Toward
this end, in addition to preventing water pollution in protected watershed areas through thedevelopment of sewage treatment facilities, as well as limiting the construction of coal-fired plants incities, the government of China promotes the development of heat sources with smaller pollution
burden such as co-generation facilities, gas supply facilities, etc.
Nanyang City (population in urban area: 800,000; land area: 75 km2), Henan Province, where thisproject is to be implemented, is located in the middle stream of the Yangtze River, one of the sevenlargest rivers in China. In Nanyang City, the construction of sewage treatment facilities is lagging(sewage treatment rate was 34% at the end of 2005) and untreated domestic sewage is directly
discharged into the natural environment. This causes serious water pollution in, for example, theWhite River, which runs through the center of the city and its water quality index during the dry
season is category –V.1 Additionally, while the city relies on coal and refined artificial coal gas for
86% of its energy demand, most of the coal-burning facilities do not have dust collectors anddesulfurizers, and they have become a main source of air pollution. In particular, apart from sulfur
dioxide and dust produced in the coal gasification, there are concerns that carbon monoxide
contained in the coal gas could lead to accidents triggered by its leakage from aging gas pipes.
Under these circumstances, the Henan Provincial People’s Government formulated the 11thFive-Year Plan for Economic and Social Development in Henan Province (2006–2010), and set as its
goal of a 10% reduction in the emission of principal pollutants by 2010. Toward this end, theNanyang Municipal People’s Government adopted the 11th Five-Year Plan for Economic and SocialDevelopment in Nanyang City and the 11th Five-Year Plan for Environmental Conservation inNaanyang City with the view to improving the city’s water quality through development of sewage
1 Category I: mainly water in headwaters, applicable to national nature reserves; category II: mainly headwater for centralized

livelihood drinking water in first-class reserves, applicable to rare fish habitats, spawning grounds of fish and prawn; category III:
mainly headwater for centralized livelihood drinking water in second-class reserves, applicable to general fish habitats and swimmingareas; category IV: applicable mainly to industrial water use areas and amusement water use areas people are usually not exposed to;
category V: applicable mainly to agricultural water use areas and water areas for general landscapes; category –V: water unsuitable for
agricultural water, etc.

-1-

treatment facilities, expanding gas supply facilities, improving air quality through implementation ofmeasures to strengthen monitoring of air quality, and reducing the total amount of emissions ofprincipal pollutants.
This project addresses environmental conservation, one of the priority areas designated in theEconomic Cooperation Program for China prepared by the government of Japan and JBIC’sMedium-Term Strategy for Overseas Economic Cooperation Operations. Thus, JBIC’s support forthis project is highly necessary and relevant.
3. Project Objectives
The project aims to reduce polluted effluents discharged into the rivers in Nanyang City and mitigate
air pollution by developing sewerage facilities and gas supply facilities that will reduce emissions ofair pollutants, and thereby help improve the living conditions of the city.
4. Project Description(1) Target Area
Nanyang City, Henan Province(2) Project OutlineThe project involves procurement of materials and equipment, civil works and training related to thedevelopment of sewerage facilities and gas supply facilities.
(a) Sewerage facilities: Sewage treatment plants, sewage pipes and drains(b) Gas supply facilities: Gas production facilities (bio-gas), gas transmission facilities(gasification, network of pipes, pressure adjusting facilities)(c) Training: Training in Japan concerning sewerage and gas supply projects(3) Total Project Cost / Loan Amount
27,388 million yen (Yen Loan Amount: 11,500 million yen)
(4) Schedule
September 2008–January 2013 (53 months). The definition of project completion is “final acceptanceof the project by the Henan Provincial People’s Government.”(5) Implementation Structure(a) Borrower: The Government of the People’s Republic of China(b) Executing Agency: Henan Provincial People’s Government(c) Operation and Maintenance System:
Sewerage facilities: Nanyang Sewage Purification Center
Gas supply facilities: Nanyang ZhengRan Fuel Gas Co., Ltd.
Henan TianGuan Enterprise Group Co., Ltd.
(6) Environmental and Social Consideration(a) Environmental Effects / Land Acquisition and Resident Relocation(i) Category: B-2-

(ii) Reason for Categorization
This project is classified as Category B according to the “Japan Bank for International
Cooperation Guidelines for Confirmation of Environmental and Social Considerations”(dated April 2002), as this project does not correspond to sectors or regions described in thesaid guidelines as being sensitive to negative impact, and as it is not deemed to have asignificant harmful impact on the environment.
(iii) Environmental Permit
The Environmental Impact Assessment (EIA) report related to the project was approved bythe Environmental Protection Bureau of Henan Province in November 2007.
(iv) Anti-Pollution Measures
Wastewater from sewage treatment plants and gas production facilities will be treated in astate and manner that meets the wastewater standards established in China. Thus, nosignificant adverse impact is foreseen. Additionally, the sludge generated in sewage treatment
plants will be appropriately disposed of in existing disposal areas.
(v) Natural Environment
The project site is not located in or around sensitive areas, such as national parks, and soadverse impact on the natural environment is assumed to be minimal.
(vi) Social Environment
The project involves land acquisition of about 22 ha, and it will be carried out in accordancewith the domestic procedures of China. The project does not involve resident relocation.
(vii) Other/Monitoring
In the project, the Environmental Protection Bureau of Nanyang City will monitor the water
quality and so on.
(b) Promotion of Poverty Reduction
To help the poor, Nanyang City has introduced a lower fee for water supply and sewerage,
and it will be applied to this project as well.
(c) Promotion of Social Development (e.g. Gender Perspective, Measure for Infectious Diseases
including AIDS, Participatory Development, Consideration for the Handicapped, etc.)
None(7) Other Important Issues
With the completion of the project, reduction in CO2 emission equivalent to approximately 290,000
tons/year can be expected.
5. Outcome Targets(1) Evaluation Indicators (Operation and Effect Indicator)
Target (2013,Baseline
Subproject
Indicatorat project(2005 actual)completion)
Population treated (10,000 persons)
52.2
79
Sewerage
3
Amount of wastewater treated (10,000 m /day)
1030
facilities
Percentage of wastewater treated (%)
3467Effluent quality (BOD concentration: mg/L)
280
30-3-Gas supplyfacilities

Effluent quality (COD concentration: mg/L)
Population served (10,000 persons)Gas supply capacity (10,000 m3/day)Amount of gas supply (10,000 m3/day)Gas supply rate (%)
TSP emission reduction volume (tons/year)
SO2 emission reduction volume (tons/year)

500
15
102.9
11.4
––

100
68
49.5
42
37.7
7,800
25,200(2) Number of beneficiaries
Approximately 790,000(3) Internal Rate of Return (Financial Internal Rate of Return)
Based on the following conditions, the financial internal rate of return (FIRR) of the project is 3.8%
for sewerage facilities and 8.1% for gas supply facilities.
(a) Cost: Project cost, operation and maintenance expenses(b) Benefit: Income from fee(c) Project Life: 30 years
6. External Risk Factors
・ Delays in construction due to site changes caused by changes in road maintenance areas,development areas, etc. in urban planning・ Impact on operation and maintenance due to limitation of domestic funds or shortages incollected fees due to changes in the policies relating to the fee sharing principle
・ Risk of fluctuation in the price of crops from which biogas is made.
7. Lessons Learned from Findings of Similar Projects Undertaken in the Past
From the ex-post evaluation of the Beijing Sewage Treatment Plant Construction Project, it has beenlearnt that it is important to set an appropriate fee system that considers operation and maintenancecosts, investment costs, payment ability of beneficiaries, and the outlook for budgetary supplements
in order to ensure the sustainability of the project’s effects. Based on this lesson, appropriate fee
system and technical standards will be confirmed to be established through interim monitoring andsupervision, etc.
8. Plans for Future Evaluation(1) Indicators for Future Evaluation(a) Population treated (10,000 persons)(b) Amount of wastewater treated (10,000 m3/day)(c) Percentage of wastewater treated (%)(d) Effluent quality (BOD concentration: mg/L)(e) Effluent quality (COD concentration: mg/L)(f) Population served with gas (10,000)(g) Gas supply capacity (10,000 m3/day)(h) Amount of gas supply (10,000 m3/day)(i) Gas supply rate (%)-4-

(j) TSP emission reduction volume (t/year)(k) SO2 emission reduction volume (t/year)(l) Financial internal rate of return (FIRR) (%)(2) Timing of Future Evaluation
At project completion-5-