China - Yanshi Thermal Power Project

- sumt o f The World Bank FOR OMCIAL USE ONLY Repot No. P-5699-CHA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ONA PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO $180 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE YANSHI THERMAL POWER PROJECT December 17, 1991 This dociment has a restricted distribution and may be ued by recpients only in the performance of dther oMdal dutis. Its conents may so oterwise be diclsd without World Bank authoriation.  CURRENCY ElQIVALENTS (As of October 31, 1991) Currency - Yuan tY) Y 1.00 100 fen $1.00 Y 5.38 Y 1.00 - $0.19 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES 1 Kilometer (km) 0.62 miles 1 Gigawatt hour (GWh) = 1 million kilowatt hours (kWh) 1 Terawatt hour (TWh) - 1 billion kWh 1 Megawatt (MW) - 1 thousand kV 1 Kilovolt (kV) - 1 thousand volts 1 Ton ' 1 thousand kilograms (kg) ABBREVIATIONS AND ACRONYMS GOC - Government of China HIPDC - Huaneng International Power Development Corporation HPEPB - Henan Provincial Electric Power Bureau LRMC - Long Run Marginal Cost MOE - Ministry of Energy MOF - Ministry of Finance SEIC - State Energy Investment Corporation SPC - State Planning Commission  FOR OFFICIAL USE ONLY CINA YANSHI THERMAL POWER PROJECT Loan and Project Summary Borrower: People's Republic of China Beneficiary: Henan Provincial Electric Power Bureau (HPEPB) Amount: $180 million equivalent Terms: Twenty years, including a five-year grace period, at the Bank's standard variable interest rate. Onlendinft Terms: The proceeds of the loan would be onlent from the Government to HPEPB under a subsidiary loan agreement, with a 20-year term, including five years grace at the Bank's standard variable interest rate. HPEPB will bear the foreign exchange risk and commitment charges. Financing Plan: Local Foreign Total ---------- $ million ----------- IBRD loan - 180.0 180.0 State Energy Investment Corp. (SEIC) loan 115.8 32.1. 147.9 Provincial Government loan 115.7 16.0 131.7 Total 231.5 228.1 459.6 Economic Rate of Return: 16 percent Staff Apvraisal ReRort: Report No. 10201-CHA IBRD 21114R This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE YANSHI THERMAL POWER PROJECT 1. The following memorandum and recommendation on a proposed loan to the People's Republic of China to help finance the Yanshi Thermal Power Proj- ect is submitted for approval. Thte loan for $180 milli.on would have a term of 20 years, including five years of grace, at the Bank's standard variable interest rate. The proceeds of the loan would be onlent from the Government to the Henan Provincial Electric Power Bureau (HPEPB) on the same terms as the Bank loan. HPEPB will bear the foreign exchange risk and commitment charges. 2. Backaround. The shortage of electricity has become a major con- straint to China's economic growth and improving the living standards of the population. In many provinces, including Henan where the proposed project is located, customer demand exceeds the available electricity supply by about 20 percent, and this shortage is likely to continue until the end of this decade. The Government of China (GOC) has given high priority to electric power and its strategy is to promote energy conservation, accelerate the pace of indigenous energy resources development, construct large-scale, high effi- ciency and cost-effective coal-fired thermal power plants, interconnect power systems through extension of tranemission networks, and replace obsolete and heavy polluting plants with more efficient units. Moreover, the conservation effect, fuel diversification and better scale of plants (which can support more effective combustion controls) will all alleviate the environmental impact of electric power growth. 3. To strengthen the institutions in the power industry, GOC has initi- ated a number of actions to introduce modern energy technologies and methods, improve energy efficiency and conservation, recognize environmental conse- quences and mitigate adverse impacts, increase the financial and management autonomy of power supply entities, and rationalize power pricing policy. Particularly, GOC's "new plant, new price" policy guarantees debt servicing for power investments with the result that by mid-1990s the average price of electricity will exceed the long-run marginal cost of power generation. The GOC also has recently announced its intention to unify the old and new system rates into single, more transparent, average tariffs, and has taken concrete measures designed to eliminate gradually other distortions associated with the outmoded structure of power tariffs. Under a number of previous Bank projects sad with the assistance of Bank staff, the Chinese have done considerable work to evaluate the economic costs of electric power with a view to refining the ongoing reform of the overall tariff level and structure. 4. Rationale for Bank Involvement. The Bank's strategy in the energy sector, and specifically the electric power subsector, is to support national energy development and technology transfer, energy efficiency and conserva- tion, and improved environmental management. Through both project and sector work, the Bank seeks to encourage policies which provide appropriate incen- tives for sustainable energy development and efficiency of use. The Bank also  seeks to promote modern management, and greater enterprise autonomy and accountability. 5. Bank participation in the large and complex power projects, with a number of unique technical features, will particularly contribute to the opti- mal development and use of hydropower and coal resources in China; it also will support needed fuel diversification and the related reduction of atmo- spheric pollution. The proposed project will encourage development of an efficient power system and modern utility management and contribute to the introduction of state-of-the art power system planning, transfer of modern technologies, and extension of technical assistance and staff training. Institution building will be another major objective for Bank's participation in this project as the beneficiary needs assistance in strengthening its organization and developing operational/financial management capabilities. The Bank's support also has impacts beyond the project itself, such as the promotion of economic power pricing in Henan Province. An action plan for tariff structure improvements will be implemented under the project. 6. Project Obiectives. Pzincipal project objectives are to: (i) alle- viate the acute power shortage of a major load center in Central China by providing additional generating capacity in an environmentally and economically sound manner; (ii) support the national policy of locating thermal power plants at mine-mouths or close to coal mines; (iii) introduce up-to-date methods for investment plann'ing, tariff study, and system opera- tion; (iv) assist in transferring modern technologies and construc- tion/management practices for large thermal power plants; (v) enhance institu- tional development of HPEPB by strengthening its organization through staff training and introducing principles of economic efficiency and pricing; (vi) provide technical assistance in: project design and implementation; prudent financial management; and efficient operation and maintenance of the power system; and (vii) contribute to further improvement of the environmental aspects of HPEPB's thermal powar stations, including a monitoring program. 7. Proiect Description. The proposed project is located about 90 km west of Zhengzhou in Henan Province. The project would include: (i) extension of the existing Yanshi thermal power plant by providing and installing two 300 IW generating units; (ii) construction of five 220 kV transmission lines (about 350 km long) with associated substations; (iii) provision of technical assistance for project engineering, a tariff study and a tariff action plan for the Henan Power Grid(HPG); (iv) a monitor- ing program for environmental protection, and (v, a trairing program for up- grading the technical, financial and management ski'Lls of HPEPB staff. The project feasibility study and design reports were prepared in 1985 by one of the most experienced Chinese design institutes, Southwest China Electric Power Design Institute. In addition to the review and ayproval by the Chinese authorities, the feasibility report was also reviewed in 1986 by the China International Engineering Consulting Corporation, supported by the China Electric Power Consulting Corporation and the Sargent and Lundy Engineers, USA, which confirmed that the design of the project met the highest standards and was entirely satisfactory in its overall concept. 8. Environmental AsDects. A comprehensive environmental impact assess- ment report has been prepared by the Chinese in accordance with long-standing  - 3 - GOC environmental procedures for thermal power projects. The report has been reviewad by the Bank and consultants and was found fully satisfactory. All environmental consequences of the proposed project have been considered care- fully and taken into account in project selection, siting, planning and design. Furthermore, an environmental control and monitoring program uill be fully incorporated in the project operations to prevent, minimize and mitigate any adverse impacts. 9. Procurement. Engineering consultants (financed under TCC) also assisted in the preparation of bidding documents, bid evaluation, including the preparation of bid evaluation reports, and in the interfacing of engineer- ing and design for different project islands. Procurement of goods and ser- vices have been carried out in accordance with the Bank's guidelines. All land needed for the power plant already is available and most of the common facilities have been completed. A well-staffed construction unit has been set up under HPUPB to supervise and coordinate the construction of the project. Bidding documents for boilers and turbine-generators were issued in 1989. Contracts for this equipment are expected to be signed shortly after loan signing. 10. Proiect Cost and Financing. The total cost of the project is esti- mated at $355.0 million equivalent, with a foreign exchange component of $180.0 million (51 percent). Total financial requirements, including interest during construction, amount to $459.6 million. Commissioning of the first unit is scheduled for December 1995, and the second unit twelve months later. The overall project completion date would be June 30, 1997, and the closing date of the Bank loan would be December 31, 1997. The State Energy Investment Corporation (SEIC) and Henan Province would cover the financing of local costs and interest during construction. A detailed breakdown of costs and the financing plan are shown in Schedule A. The amounts and methods of procure- ment and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in China are given in Schedules C and D, respectively. A map is also attached. The Staff Appraisal Report, No. 10201-CHA, dated December 17, 1991, is being distributed separately. 11. Aereed Actions. An assurance was obtained from GOC that it would: (i) onlend the proceeds of the loan to HPEPB on the same terms as the Bank loan; and (ii) provide the funding for any cost overruns under the project. 12. Assurances also were obtained from HPEPB that it would: (i) carry out a tariff study and implement an action plan acceptable to the Bank for tariff structure improvements; (ii) take all necessary steps to implement an environmental monitoring program satisfactory to the Bank; (iii) carry out a training program acceptable to the Bank; (iv) take measures, including but not limited to increasing its tariffs, to ensure that it earns a net operating income sufficient to meet a minimum of 20 percent of its annual investment program for the period of 1992-1994, and a minimum of 25 percent of its annual investment program thereafter; (v) incur additional debt only if a reasonable forecast of its revenues and expenditures indicates that internal cash genera- tion would provide debt service coverage of not less than 1.3; and (vi) furn- ish to the Bank by April 30 of each year, commencing in 1993, a rolling eight-  - 4 - year financial plan containing projected income statements, sources and appli- cation of funds, and balance sheets. 13. Prolect Benefits. The project will greatly increase the generating capability of the Henan power system. An economic analysis of the project, based on optimizing the Henan power system, has confirmed that there are no better alternatives than the proposed project in meeting future power demand. The extension of the existing Yanshi power station provides the cost-effective and efficient method of augmenting power system generating capacity in Henan province. The development of the project will also enhance industrial and agricultural production in its nearby areas. Furthermore, the project will address the subsector's institutional development, system operations, and management and staffing. The economic rate of return, using the covenanted tariff as a proxy for economic benefits, is estimated at 16 percent. 14. Risks. Since it is an extension of the existing power station, no major risks are foreseen for the proposed project. Construction risks are within reasonable limits and should be manageable with the continuous supervision arrangements, involving foreign and Chinese consultants, who are already involved in implementation of the project. The economic risks, if any, would be minimal. The project has been designed taking into account the requirement that the environmental impact from operating the station not exceed the internationally accepted norms. An environmental monitoring pro- gram will be included under the project. HPEPB will also replace the precip- itators for the existing 2X200 MN units by high efficiency electrostatic precipitators. 15. Recommendations. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Lewis T. Preston President Attachments Washington, D.C. December 17, 1991  - 5 - Schedule A CHINA YANSHI I1ERMAL POWER 1'ROJECT Estimated Costs and Financina Plan ($ million) Local Foreign Total Estimated Costs Civil works 44.1 6.4 50.5 Plant equipment and materials 57.4 159.9 217.3 Transmission a-stem 26.1 - 26.1 Environmental protection 0.2 0.1 0.3 Training 1.3 1.0 2.3 Tariff study 0.5 - 0.5 Engineering and construction management 17.0 1.2 18.2 Base Cost 146.6 168.6 315.2 Contingencies Physical 14.6 8.4 23.0 Price 13.8 3.0 16.8 Total Project Cost La 175.0 j80.0 355.0 Interost during construction 56.5 48.1 104.6 Total Financinf Required 231.5 228.1 459.6 Proiect FLnancina Plan IBRD loan - 180.0 180.0 SEIC loan 115.8 32.1 147.9 Provincial government loan 115.7 16.0 131.7 Total 231.5 228.1 459.6 la The project would be exempted from import duties and taxes.  -6- t Schedule B Pasge 1 of 2 CHINA YANSHI THERMAL POWER PROJECT Procurement Method and Disbursements ($ million) Procurement Procurement Method Total Item ICB Other N.B.F. cost 1. Woriss 1.1 Site preparation - 12.1 12.1 1.2 Civil yorks - - 39.7 39.7 2. Goods 2.1 Plant equipment 170.6 3.0 68.5 242.1 and materials (170.6) (3.0) (173.6) 2.2 Transaission - 31.8 31.8 system 2.3 Construction 3.9 - 3.9 equipment (3.9) (3.9) 3. Consultancies 3.1 Engineering and construction- 21.8 - 21.8 management (1.3) (1.3) 3.2 Training 2.7 - 2.7 (1.1) (1.1) 3.3 Tariff Study 0.6 0.6 3.4 Environmental 0.1 0.2 0.3 protection (0.1) (0.1) Total 170.6 31.5 152.9 355.0 (170.6) (9.4) (180.0) Note: Figures in parentheses are the respective amounts financed by the Bank loan. N.B.P. - Not Bank-financed.  - 7 - Schedule B Page 2 of 2 DisburseSents ($ million) Amount of the loan Percentage of expenditures Category to be allocated to be financed (1) Goods 167.6 100l of foreign expenditures, OOZ of local expenditures (ex-factory), and 752 for local expenditures for other items procured locally (2) Consultants services & training 2.4 100% (3) Unallocated 10.0 Total 180.0 Estimated IBRD Disbursements Bank FY: 1993 1994 1995 1996 1997 1998 ---------------- ($ million) --------------- Annual 44.2 79.9 40.6 6.6 5.3 3.4 Cumulative 44.2 124.1 164.7 171.3 176.6 180.0  - 8 - Schedule C YANSHI THERMAL POWER PROJECT Timetable and Kev Proiect Processirng Events (a) Time taken to prepare: Five years (b) Prepared by: GOC and HPEPB with Bank assistance (c) First Bank mission: September 1986 (d) Appraisal mission: September 1988 (e) Negotiations: May 1989 (f) Post-appraisal mission: September 1991 (g) Planned Date of Effectiveness: June 1992 (h) List of relevant PCRs and PPARs: None  9- Schedule 0 Page 1 of 3 STATUS OF SANK GROUP OPERATIONS IN THE PEOPLE'S REPUBLIC OF ChiNA A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of Septesrer 30, 1991) Loan/ Amount (USS million) Credit sor- (net of cancellations) Niumber FY rower Purpose Bank IDA Undiab. (a) Thirteen loans and seventeen credits hav been fully disbursed. 1245.94 958.9 Of which SECAL: 2967/1932 88 PRC Rural Sector AdJ. 200.0 o . ... .... . .. 1411 64 PRC PolytechncicTV University 85.0 17.2 2382 84 PRC Lubuge Hydroelectric 141.4 * 10.3 1472 84 PlC Rural Health & Nedical Educ. - 85.0 5.4 2444/1500 84 PRC Agricultural Education 2t 45.3 (23.5)(b) 3.4 1516 85 PRC Agricultural Research 11 25.0 1.2 t55t 8S PRC University Developnent It 145.0 11.4 2493 85 PRC Power It 117.0 8.5 2501 85 PRC Changcun (Luan) Coal. Mining 79.5 42.6 1578 85 PRC Rural Water Supply 80.0 0.2 2540 85 PRC Rallway IT 220.0 84.5 1605 85 PRC Forestry Developnent 47.3 6.4 2579/1606 85 PRC PiShiHang-Chaohu Area Dev. 17.0 (75.0)(b) 0.8 2580 85 PRC Weiyuan Gas Field Technical 25.0 4.5 Assistance 2659/1663 86 PRC Industrial Credit III (Cie 111) 75.0 25.0 5.6 1664 86 PRC Technical Cooperation Credit It - 20.0 15.3 1671 86 PRC Provincial Universities - 120.0 12.4 2678/1680 86 PRC Third Railway 160.0 70.0 119.5 2689 86 PRC Tianjin Port 130.0 64.5 1689 86 PRC Freshwater Fisheries - 60.0 1.9 2706 86 PRC Beilungang Thermal Power 225.0 42.3 2707 86 PRC Yantan Hydroel.ctric 52.0 - 15.9 2723/1713 86 PRC Rural Nealth & Preventive Med. 15.0 65.0 43.3 1733 87 PRC Red Soils 40.0 0.8 2775 87 PRC Shulkou Hydroelectric 140.0 * 46.3 2783/1763 87 PRC Industrial Credit IV (CIB IV) 250.0 50.0 75.9 2784 87 PRC Shanghai Machine Tools 100.0 36.7 1764 87 PRC Xinjiang Agricultural Oev. - 70.0 24.3 2794/1779 87 PRC Shanghai Sewerage 45.0 100.0 95.6 2811/1792 87 PRC 8eijlng-Tienjin-Tanggu Expressway 25.0 125.0 53.6 2812/1793 87 PRC Gansu Provincial Dev. 20.0 150.5 93.7 1835 87 PRC Ptanning Support & Special Studies 20.7 14.5 2838 87 PRC Fertilizer Rationalization 97.4 * 24.2 2852 87 PRC WuJing Thermal Power 190.0 - 97.0 1871 88 PRC Rural Credit III - 170.0 14.6 2877/1845 88 PRC Huagpu Port 63.0 25.0 66.3 2907/1875 88 PRC Dalian Port 71.0 25.0 50.0 188S 88 PRC Northern trrigation 103.0 49.6 2924/1887 88 PRC Coastal Lands Dev. 40.0 (60.0)(b) 26.8 1908 88 PRC Teacher Training - 50.0 12.7 2943 88 PRC PharmaceutIcals 127.0 * 31.7 2951/1917 88 PRC Sichuan Highway 75.0 50.0 92.5 2952 88 PRC Shaarnx Highway 50.0 - 22.9 1918 88 PRC Daxing An Ling Forestry - 56.9 29.1 2955 88 PAC Beilwugang It 165.0 * 50.5 2958 U PRC Phosphate Dev. 62.7 59.0 2968 88 PRC Railway IV 200.0 - 116.1 1984 89 PRC Jiangxl Provincial Highway - 61.0 41.9 1997 89 PRC Shaanxi Agorcultural Dev. 106.0 88.6 2006 89 PRC Textbook Developuent - 57.0 4.2 2009 89 PRC Integrated Reg. Health 52.0 43.1 3006 89 PRC Ningbo & Shanghai Ports 76.4 - 29.6  - 10 - Schedule D Page 2 of 3 Loan/ Amount (USS million) Credit 80r- (net of cancellations) Number PY rower Purpose Sank IDA Undisb. (a) 3007 89 PRC Xiamen Port 36.0 - 31.5 3022 89 PRC Tianjin Light Industry 154.0 - 124.2 3060/2014 89 PRC Irwer Mongolia Railway 70.0 80.0 125.4 2017 89 PRC Shandong Agriculture Oev. 109.0 57.7 30"6 89 PRC Hubei Phosphate 137.0 - 134.9 3073/2025 89 PRC Shandong Prov. Highway 60.0 50.0 94.9 3075 89 PRC Fifth Industrial Credit 300.0 - 200.2 2091 90 PRC N.China Earthquake Reconstr. - 30.0 4.8 2097 90 PRC Jiangxi Agric. Dev. 60.0 54.7 2114 90 PRC Vocational & Tech. Edue. - 50.0 40.3 2145 90 PRC National Afforestation - 300.0 265.1 2159 90 PRC Hebei Agricultural Dev. - 150.0 114.6 2172 91 PRC Mid-Yangtze Agricultural Oev. 64.0 54.2 3265/2182 91 PRC Rural Credit IV 75.0 200.0 230.2 3274/2186 91 PRC Rural Indust Tech (SPARK) 50.0 64.3 110.8 3286/2201 91 PRC NediuwiSized Cities Dev. 79.4 89.0 153.1 3288 91 PRC Shanghai Industrial Dev. tc) 150.0 - 150.0 2210 91 PRC Key Studies Development - 131.2 124.3 2219 91 PRC Liaoning Urban infrastructure - 77.8 67.4 3316/2226 91 PRC Jiangsu Provl. Transport 100.0 53.6 141.4 2242 91 PRC Nenan Agricul. Dev. - 110.0 104.6 3337/2256 91 PRC Irrig. Agricul. Intensif. 147.1 187.9 336.2 3387 92 PRC Ertan Hydroelectric 380.0 380.0 2294 92 PRC Tarim Basin (c) 125.0 127.6 2296 92 PRC Shanghai Metro Transport (c) 60.0 60.4 3406 92 PRC Railways V (c) 330.0 330.0 Total 6,414.1 5,090.1 5,527.1 of which has been repaid 375.7 0.0 Total now held by Bank and IDA 6,038.5 5,090.1 Amount sold: Of which repaid - Total UndIsbursed 3,217.6 2,309.5 5,527.1 (a) As credits are denominated in SDRs (since IDA Replenishment VI), undisbursed SOR credit balances are converted to dollars at the current exchange rate betwein the dollar and the SOR. In some cases, therefore, the undisbursed balance indicates a dollar amount greater than the original principal credit amount expressed in dollars. Cb) Credit fully disbursed. Cc) Not yet effective.  - 11 - Schedule D Page 3 of 3 B. STATEhENT OF tfC INVESTMENTS (As of September 30. 1991) Invest- Type of Loan Equity Total ment No. FY Borrower Business ----C- (USS Million) 813 85 Guangzhou and Peugeot Automobile 15.0 4.5 19.5 974 87 China Investment Co. Investment 3.0 0.0 3.0 1020 87 Shenzhen China Sicycle 5.0 5.0 Bicycles Co. Ltd. Manufacture 1066 88 Crown Electronics Electronics 15.0 15.0 1119 89 Shenzhen Chronar Solar Solar (a) 2.0 1.0 3.0 Energy Energy Total Gross Commitments 40.0 5.5 45.5 Less cancellations, terminations 2.0 * 2.0 repaywent and sales Total Commitments now Held by IFC 38.0 5.5 43.5 Total Undisbursed 0.0 0.0 (a) Loan subsequentLy cancelled. 10/9/91 AS3CO  ! X} 113, PoCha.,gbh r-, _ IBRD 2111415 / \ 0ANYAN G OGOI. - . .. S H A N X I - t k . 9 KOREA DAPRAR V~~'4 JAPAE SAN0MENX (250MWI ,1 S ,v t J A$ N~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ hM.g Ko.g, U.K. i35- i ,s- --- eyS H A N D O N G - Y 35 , / 8~~~~~~~~~~~~~~~~~~~~~~LLAJ~N~G MPP, oA -. Tot aoo ~ ~ ~ I T F g t S~~~~~~~~~~~~~~~~~ N G S U )~~~~K ! w ; S ]Y4\:4' SHAANXI K -r CHINA , _ - 4X3gL,tL^ I uHE - -YANSHI THERMAL POWER PROJECT e A; - W/ A N H U I HENAN PROVINCE POWER GRID