As the first in a series of up to three loans to China over the next eight years, this project will support Shanghai’s efforts to reform the way urban services are managed and financed and to implement a long-term program of urban environmental improvements. It is supporting Shanghai’s strategy to: develop innovative measures for long-term infrastructure finance; extend opportunities for public/private partnerships; improve regional environmental management – thereby also supporting the local and regional business environment; and demonstrate the imperatives of market pricing and cost recovery for environmental services.

“This kind of programmatic loan allows for a more integrated and flexible approach to development and metropolitan management than a solely project-focused strategy and offers more scope for innovation,” said Mr. Geoffrey Read, Task Manager for the project. “It will assist the Shanghai government’s efforts to become an international economic and trade center with the highest standards of urban environmental quality – which will both enhance the quality of life of its citizens and help Shanghai to continue to attract high-quality foreign investment.”

While Shanghai – China’s most important industrial base, and the major center of commerce, trade, finance and science – has made substantial progress during the last decade in restructuring its economy and in upgrading its environmental infrastructure, persistent problems remain. Some 3 million of the urban residents live in very crowded conditions, with inadequate access to drinking water and sanitation. Less than 60 percent of wastewater and storm water in the city is hygienically intercepted and disposed of. Only 40 percent of sewage flows are treated and safely disposed of; the existing sanitary landfill for municipal solid waste disposal has only two years' capacity remaining; and the water quality in the Shanghai’s main source of water supply, the Huangpu River, has become increasingly polluted over the past five years, rendering it only marginally acceptable as a source of drinking water. Air quality has also deteriorated to unsafe levels.

The project plans to assist the Government’s efforts to address these environmental challenges in a three-phased approach. Phase one will lay the groundwork for metropolitan-wide policies for financial and institutional reform measures for the urban environmental infrastructure sector. This objective will be pursued through, among other things, supporting the development of new financing mechanisms – in particular innovative arrangements towards issuance of long-term infrastructure bonds by Shanghai that can serve as a precedent for future bond issues in China – and facilitating private sector participation.

Along with these innovations in financing and private sector participation, additional investments will be made in: providing facilities for the collection, treatment and disposal of domestic wastewater in the urban area of Shanghai and for environmentally secure solid waste disposal for the urban area; supporting urban environmental infrastructure services upgrading in under-served areas of the city; protecting water resources in the Upper Huangpu River Catchment; and strengthening institutions with responsibility for environmental and municipal management. Protecting the urban environment and public health will be major benefits of the project.

Phase two of the project will focus on consolidating the innovative approaches for financing environmental infrastructure, strengthening government management capacity, addressing pollution and fuel efficiency issues, and developing regulations for agricultural pollution control. Phase three will focus on expanding urban services infrastructure and development policy, and strengthening air and agricultural pollution management.

“By the conclusion of the three-part program, Shanghai will expect to have enhanced economic, financial, trade and manufacturing stature through achieving environmental and institutional and financial improvements and services. It will expect to have become more of a service facilitator than a service provider, and to have a cleaner environment leading to improved health for its citizens,” said Mr. Keshav Varma, Urban Sector Director for East Asia.

The operation, which builds on the main points of the Bank’s urban strategy – livability, good governance, bankability, and competitiveness – extends the idea of sustainable development into the setting of a broad city region. It is addressing sustainable urban development on a large metropolitan scale, and by focusing on the Chinese concerns for environmental improvements, the project addresses two interlocking issues – environmental quality and competitiveness – both seen as central to quality of life and the generation of livelihood in the region. “In the end, however, this challenging program is about people and communities, protecting public health and drinking water resources, and improving people’s daily lives,” concluded Mr. Varma.

(China.org.cn June 20, 2003)