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LESSONS:

People’s Republic of China: Harbin Water Supply Project [Loan 1995-PRC]

sector: Water and Other Urban Infrastructure and Services | country: China, People’s Republic of

1. The commitment shown by ADB and the municipal government was fundamental to the project s success. Careful assessment and project design during loan processing, detailed procurement and implementation planning, and timely availability of counterpart funding and decision making ensured smooth implementation and commissioning of the project about one year ahead of schedule. [Main text, paras. 67-68, 72]

2. The government recognizes that water resource problems in the People s Republic of China (PRC) are related to various economic, technical, regulatory, and other developmental issues, and that an integrated and comprehensive approach is required to ensure that adequate volumes of water of requisite quality are available on a sustained basis. Such an integrated approach includes protection of upstream water sources, watersheds, rivers and other water bodies, and includes but is not limited to (i) alleviating risk of pollutant contamination from point and non-point sources of pollution; (ii) treating wastewater before discharge into such water bodies; (iii) monitoring and analyzing water quality; (iv) developing alternative sources of water supply; (v) setting up an institutional framework and strengthening the institutions; and (vi) establishing a regulatory framework that provides the right incentives for implementation of such measures. The success achieved by the project and the progress made so far in improving the Songhua River s water quality attests to the benefits of such a comprehensive approach. [Main text, paras. 30,73]

3. While price setting in a tightly regulated market is often an act of balancing a large number of concerns, it is important to give due consideration to the long-term sustainability of the water utility, including investment in its modernization and expansion. If tariff income falls short of requirements (assuming normative operational efficiencies), government support is required. However, as ADB may not be in a position to influence water tariff levels and structures, ADB should review the merits of including tariff setting-related covenants in the loan and project agreements, or seeking assurances on this matter. [Main text, paras. 53,74]

4. Project covenants affected by institutional changes need to be closely attended to, especially if these are crucial to the attainment of project outcomes. The project design was based on the premise of achieving full cost recovery and this was reflected, among others, on the project financial covenant on water pricing. However, the institutional set-up of the Harbin s water sector has changed since the project s appraisal which made the financial covenant difficult to meet. Certain project covenants could have been revised to ensure that the Harbin municipal government can continue to follow up on some aspects of water pricing. [Main text, paras. 71,75]

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