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Holistic Approach to Project Preparation to Attract External Finance

Xinyu, China
August 3, 2016
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CDIA Intervention: AUG/2012 – DEC/2012

Sector: Flood & Drainage Management

CDIA Support: US$ 362, 960

Estimated Investment Value: US$ 306 million

Context

Xinyu is a thriving industrial city in Jiangxi Province, southeast of China with gross financial revenue of 12.64 Billion RMB Its population of 1.15 million enjoys the city’s cultural heritage, and famous landscape of water bodies.

An unfortunate event prodded the city to reassess its priorities when in 2010, the central urban precincts were flooded by at least 1 meter of water – the worst flooding the city has experienced in the modern times. The most affected areas were on the lowest reach of the Kongmu River. Analyses by the Xinyu Meteorological Bureau shows rising temperatures and precipitation likely in relations to climate change. Since 2000, flooding has been occurring more frequently and poor urban drainage exacerbate the problem.

Lessons Learned

  1. Be flexible to create opportunities. Xinyu initially aimed to develop green transport and new energy to protect water resources. However, the PFS pointed out that the more pressing issue of flooding can be addressed by an integrated approach to minimize flood risks and improve water quality management through a hydrological lake system which would indirectly mitigate flooding.
  2. Encourage ownership of projects and seek high-level of commitment. Xinyu city staff members had an exceptional access and relationship with senior decision-makers which
    determined project success.
  3. Maximize the value of capacity development as complementary to infrastructure development. The project management staff members’’ knowledge and skills were
    enhanced through exchanges with other cities and local experts, and participation in training courses and international forum gave them up to date information, techniques, and technologies that are relevant to their project.

Response and Innovation

In 2012, the city reached out to CDIA for support them in project preparation. With a CDIA grant topped up by the city’s in-kind contribution, a Pre-Feasibility Study (PFS) on the Kongmu River Flood Control and Environmental Management was completed in 2013.

The recommended project and its subcomponents include constructing a 20 meter-width canal to connect nine natural reservoirs currently existing in the Kongmu River upstream, building anti-flood levees and water sluice gates along the reservoirs and canal, and constructing the mating drainage system, sewage pipe network, and sewage treatment system. In the event of heavy rainstorm, the nine reservoirs and canal will be able to adjust and the flood comprehensively. In addition, eco ecological recovery and environmental improvement to the surrounding greenland, thus creating a nicer landscape and improving the living environment.

The PFS also brought many new ways about on how to deal comprehensively dealing not only with flood control, but also environmental improvement, water quality management, ecological recovery, and climate change adaption. Six Hundred Thousand (600,000) citizens are envisaged to benefit directly or indirectly from the intervention.

CDIA support did not end with the PFS. In order to bring the project to implementation stage, project structuring was undertaken to attract external finance. As the identified investment required a substantial amount, CDIA and Xinyu approached the Asian Development Bank to support the project. Over a period of months of consultations and deliberations, a loan was approved in 2014 to the amount of 150 million USD.

The loan component further involved technical support and capacity development as well as the provision of knowledge and policy advice. Xinyu commits to cover the remaining 50% of needed finances from its own coffers.

As this is a collaborative project with a multilateral development bank, it is to be expected that due diligence is rigid and the timeline longer than locally-financed projects. The city face several challenges and created institutional mechanisms to respond to these:

Challenges Xinyu’s Approach
Given the big investment value and broad fields of intervention, it is difficult to coordinate during project preparation & implementation processes. A steering group was created with led by a municipal committee member, and a deputy mayor as the group leader to manage and coordinate the project.
The application, procurement and implementation period of an ADB project is relatively long (around 10 years), there are certain political risks associated. In order to guarantee the continuity of the implementation, Xinyu established an exclusive Project Management Office (PMO) and keeps it stable with not many staff changes.
ADB’s project management procedures & operating rules are complex. The city sought help from CDIA for the PMO staff to familiarize with the ADB and domestic management procedures and rules beforehand, and to learn from the experienced PMO from  other cities and provinces.
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