China - Zouxian Thermal Power Project

Document of The World Bank FOR OFFICIAL USE ONLY MICROFICHE COPY Report No. 10432-CHA Report No. 10432-CHA Type: (SAR) MASTILOVIC/ X82450 / A8081/ AS2IE STAFF APPRAISAL REPORT CHINA ZOUXIAN THERMAL POWER PROJECT MARCH 24, 1992 Industry and Energy Operations Division Country Department II East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duttks. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (As of December 31, 1991) Currency Yuan (Y) 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 km Kilometer (= 0.62 miles) kWh Kilowatt hour (- 860.42 kcals) GWh - Gigawatt hour (1,000,000 kilowatt hours) TWh Terawatt hour (1,000,000,000 kilowatt hours) kW Kilowatt (1,000 watts) MW Megawatt (1,000 kilowatts) GW - Gigawatt (1 million kilowatts) Kcal - Kilocalorie (- 3.97 British thermal units) kV Kilovolt (1,000 volts) kVA Kilovolt-ampere (1,000 volt-amperes) MBtu Million British thermal units NJ Mega-joule (1 million joules) MVA - Megavolt-ampere (1,000 kilovolt-amperes) GVA Gigawatt-ampere (1 million kilovolt-ampere) mf 8 Milligram m Cubic Meter toe - tons of oil equivalent ABBREVIATIONS AND ACRONYMS USED CIECC - China International Engineering Consulting Corporation CPECC - China Power Engineering Consulting Corporation GOC - Government of China GNP - Gross National Product HIPDC - Huaneng International Power Development Corporation IAEA - International Atomic Energy Agency MOE - Ministry of Energy MOF - Ministry of Finance NWREP - Ministry of Water Resources and Electric Power NEPA - National Environmental Protection Agency NWCEPDI - Northwest China Electric Power Design Institute PCBC - People's Construction Bank of China SAA - State Audit Administration SEIC - State Energy Investment Corporation SPAB - Shandong Provincial Audit Bureau SPC - State Planning Commission SPEPB - Shandong Provinciai Electric Power Bureau SPG - Shandong Power Grid TCC - Technical Cooperation Credit WREPERI - Water Resources and Electric Power Economic Research Institute  FOR OMCIAL USE ONLY ZOU THERMAL POW_ER PROJECT Loan and Proicat Suiarv Borro2ax People's Republic of China 5n f1ietrys Shandong Provincial Electric Power Bureau (SPEFB) Aounts: $310 million equivalent Ta=g rLi2 years, including flive years grace, at the Bnik's standard variable interest rate. Onlendine Terms: The proceeds of the loan will be onlent from the Govern- ment through Shandong Province to SPEPB under a sub- sidiary loan agroement, with a 20-year term, including five year. grace, at the Bank's otandard variable interest rate. SPEPB will bear the foreign exchange risk and the comitment charges. Prolact Obigtlive. and Descrlgtion: The principal objectives of the project are to: (i) alleviate the acute power shontage in Shandong; (ii) develop large modern mine-mouth thermal power gen- erating stations to make effective use of China's abun- dant coal resources; (iii) continue the effort to trans- fer the appropriate advanced technology in plant design and project management for 600 MW thermal power units; Civ) provide technical assistance to SPEPB for institu- tion building in the areas of environmental planning for thermal power soations and improving electricity tariff structures; and (v) upgr&de SPEPB's capability in financial managemena, accounting and budgetary control, and in the operation and maintenance of large thermal power plants. The proposed project is located about 175 kIm south of Jinan in Shandong. The project consists oft (i) the addition of two 600 MW generating units to the existing Zouxian thermal power plant to raise its total capacity to 2,400 MWI (ii) construction of 500 kV and 220 kV transmission lines and substations; (iii) provision of consulting services; (iv) provision of technical assistance to study the impact on air qual- ity of thermal power expansion progrema and to develop methodologies for selecting sites in China's coastal regions which minimize adverse environmental Impacts; (v) carrying out a power tariff study and a phased, time-bound action plan for improving Shandong's tariff structuret and (vi) a training program for the techni- cal, financial and management staff of SPEPB. 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.  Benefits and Risks: The proposed project will greatly alleviate the expected power shortages in Shandong by 1997. Mine-mouth base load coal-fired plants represent the least-cost solution for meeting power demand in the Shandong power system, and extending the Zouxian power plant would enable the increase of the critically needed generating capacity in the most effective and efficient manner. Also, through the project, the Bank will be able to support the Gov- ernment's power subsector policy and its sectoral objec- tives in China. The technical and economic feasibility of the project has been well established. The project has been designed to comply with applicable World Bank and Chinese standards in order to keep environmental impacts within acceptable limits. An environmental monitoring program will be included under the project to further reduce the possibility of developing any adverse environmental problems. The project risks, therefore, are considered to be minimal. Estimated Costs: Local Foreian Total ---------- ($ million) ---------- Site preparation 8.4 0.0 8.4 Civil works 87.7 16.9 104.6 Plant equipment and materials 144.7 265.1 409.8 Transmission system 63.8 24.4 88.2 Air pollution control study 0.1 0.9 1.0 Training 1.3 2.2 3.5 Tariff action program 0.1 0.1 0.2 Engineering and construction management 30.3 2.6 32.9 Base Cost 336.4 312.2 648.6 Contingencies Physical 33.7 15.6 49.3 Price 51.4 45.7 97.1 Total Prolect Cost /a 421.5 373.5 795.0 Interest during construction /b 109.9 52.5 162.4 Total Financing Required 531.4 426.0 957.4 Financing Plan: Local ForeiRn Total ---------- ($ million) ---------- IBRD - 310.0 310.0 SEIC 265.7 - 265.7 Shandong Province 265.7 115.1 380.8 Japanese Grant Facility - 0.9 0.9 Total 531.6 426.0 957.4  Estimated Disbursements: Bank FY 1993 1994 1995 1996 1997 1998 1999 --------- ___------- ($ million) -------------------- Annual 12.9 52.9 92.8 98.9 32.7 14.8 5.0 Cumulative 12.9 65.8 158.6 257.5 290.2 305.0 310.0 Economic Rate of Return: 14 percent M p: IBRD 22046 /a The prcject is exempt from taxes and duties. /b Interest during construction (IDC) is based on onlending rate for pro- jected disbursements of loan proceeds. The foreign currency portion of IDC is based on the Bank loan variable rate.  CHINA ZOUXIAN THERMAL POWER PROJECT STAFF APPRAISAL REPORT Table of Contents PaRe No. I. THE ENERGY SECTOR . . . . . . . . . . . . . . A. Overview ............ .. . . . . . .... 1 B. Energy Sector Issues . ... . . . . . ............ . 3 C. Ersrgy Sector Strategy . . . . . . . . . . . . . *. 7 D. Bank Role in the Energy Sector . . .. . . . . . . . 7 II. THE POWER SUBSECTOR . . . . . . . . . . * . *... . . . . . . . 9 A. Background . . . . . . * . . . . . . . . . . . . 9 B. Institutions, Planning and Technology Transfer . . . . . 10 C. Power Pricing . . . . . . . . . . . . . . 11 D. Subsector Issues & Strategy . . . . . . .. . . . 12 E. Role of the Bank he Power Subsector . . * *. . . . 13 III. THE BENEFICIARY . . . . . . . . . . . . . . . . . . . . 15 A. Legal Status and Organization of SPEPB . . . . . . . 15 B. l'anagement . . . . . . I . * . . . . . . * . 15 C. Staffing and Training . . . . . . . . . . . . . . . . . . 16 D. Planning, Budgeting and Control . . . . . . . . . . . . . 16 E. Accounting . . . . . . . . . . . . . . . . . . . . . . . 17 F. Audit . . . . . . . . . . . . . . . . . . . . . . . . . . 18 G. Electricity Tariffs . . . . . . . . . . . . . . . . . 19 H. Billing and Collections .9.. . . 2C 1. Insurance . . . . . . * .*.. . . 9. . . . . . . . . . 21 J. Rural Electrification . . . . . .... . . . . . 21 K. Distribution System . . . . . . . . . . ..21 IV. THE POWER HARET AND THE PROGRAM . . . . . . . . . . . . . . 22 A. The Shandong Power Grid t. .......... 22 B. Load Forecast . . . . . . . . * * # . . . . . . . . . 23 C. The Power Development Program (1991-2000) . . . . . . . . 23 This report was prepared based on the findings of an appraisal mission which visited China in April/May 1990 and a post appraisal mission in September 1991. The report was prepared by V. Mastilovic (Task Manager), B. Baratz (Principal Environmental Speci-list), S. Kataoka (Senior Power Engineer), W. Cao (Senior Power Engineer), H.E. Sun (Financial Analyst), 0. Koenig (Senior Economist), and K.C. Ling (consultant). Peer reviewers comprised: D. Mehta (Principal Power Engineer), K. Jechoutek (Senior Economist), S. Shum (Senior Financial Analyst), and N. Anderson (Senior Project Officer). The Division Chief is J. de Merode, and the Department Director is S.J. Burki.  Page No. V. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . 25 A. Project Objectives . . . . . . . . 25 B. Project Description . . . . . . . . . . . . . 25 C. Cost Estimate . . . . . . . . .. . . . . . .. 29 D. Financing Plan . . . ... . * . . . . . . . . . . . . 30 E. Procurement . . . . . . . . .. . . . . . . . . . . .. 32 F. Project Implementation . . . . . . . . . . . . . . 32 G. Disbursement .... ...... .... . 33 H. Monitoring and Reporting . . . . . . . . . . . . 34 I. Environmental Considerations . . . . . . . . . . 35 VI. FINANCIAL ASPECTS ................ . 38 A. Introduction . . . . . . . . . . . . . . . . . . . . . 38 B. Financial System . . . . . . *............ . 38 C. Past and Present Financial Performance . . . . . 38 K D. Financing Plan . . . . . . . . . . . . . . . . . . . . 39 E. Future Finances . . . . . . . . . . . . . . . . . . . . . 40 VII. JUSTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 43 A. Need for Power System Expansion .. . . . . . . 43 B. Least-Cost Studies.. * . . . . . . . . . 44 C. Economic Rate of Return . . . . . . . . . . . . . . . . . 44 D. Risks ........... . .......... 45 VIII. AGREEMENTS AND RECOMMENDATION.............. 46 TABLES IN TEXT 3.1 Distribution of SPF?E Consumption . . . . . . . . . . . . . . 20 4.1 Load Growth on Shandong Power Grid . . . . . . . . . . . . . 22 4.2 Load Forecast for Shandong Power Grid . . . . . . . . . . . . 23 5.1 Summary of Project Costs . . . . . . . . . . . . . . . 30 5.2 Financing Plan for the Project . . . . . . . . . . . . . . . 31 5.3 Summary of Proposed Procurement Arrangements . . . . . . . 33 5.4 Implementation Schedule: Estimated Annual Contractual and Other Payments . * . . . . . . . . # . . . . . . . . . 34 6.1 SPEPB's Key Financial Indicators, 1985-90 . . . . . . . . . . 39 6.2 SPEPB's Financing Plan, CY92-98 . . . . . . . . . . . . . 40 6.3 SPEPB's Key Financial Indicators, 1990-200 . . . . . . . . . 41 7.1 Energy and Capacity Balance . . . . . . ... . . ... .. 43 7.2 Comparison of Alternatives . . . . . . . . . . . . ..... 44  - iil - 1. Installed Capacity, Electricity Generation, and Sales ir. the Power Subsector . . . . . . . . . . . .. . . . . . 48 2. Growth Index of Electricity Generation and Primary Energy Demand . . . . . . . . . . . . . . . . . . . . . . . 49 3. Electricity Consumption by Sectors . . . . . . . . . . . . . 50 4. Major Ongoing Hydro and Thermal Power Projects . . . . . . . 51 5. Performance Indicators for Shandong Power System . . . . . . 53 6. SPEPB Staffing . . . . . . . . . . . . . . . . . . . 54 7. Planning, Budget and Control of Chinese Power Bureaus . . . . 55 -. SPEPB Electricity Tariffs . . ............ . . . . 58 9. Major Generating Facilities in Shandong Province . . . . . . 59 10. Energy Consumption by Category of Consumer . . . . . . . . . 63 11. Power Davelopment Program of SPG (1991-2000) . . . . . . . . 64 12. System Demand and Energy Balance of SPG . . . . . . . . . . 66 13. Terms of Reference for Consulting Services . . . . . . . . . 67 14. Development of Methodologies and Guidelines to Minimize Air Pollution from Thermal Power Stations Sited in Coastal/Complex Regions . . . . . . . . . . . . . . . . . 71 15. Terms of Reference for Tariff Study . . . . . . . . . . . . . 79 16. Action Plan for Power Tariff Structure Improvements . . . . . 84 17. Institutional Development and Training Program . . . . . . . 86 18. Project Cost Estimates . . . . 95 19. Procurement Schedule ... .... . .......... 96 20. Key Dates of Project Implementation .. . . . . . . . . . . 97 21. Disbursement Schedule . . . . . . . . . . . 98 22. Air Pollution Characteristics of the Zouxian Thermal Power Plant . 9 . . . . . o . . . . . . . o o . . . . . 99 23. Summary of Mitigating Measures Recourended in the Environmental Impact Assessment . o . . . . . . . . . . . . 100 24. Environmental Monitoring Program . . . . . . . . . . . . . . 102 25. Financial System Followed by Chinese Power Bureaus . . . . . 108 26. Annual Financial Statements of SPEPB . . . . . . . . . . . . 112 27. Calculation of Economic Rate of Return . . . . . . . . . . . 122 28. Selected Documents and Data Available in the Project File . 126 CHARTS 1. Organization Chart of MOE 2. Organization Chart of SEIC 3. Organization Chart of SPEPB 4. Organization Chart of the Proposed Construction Unit 5. Project Implementation Schedule M4AP IBRD 22046  CHINA ZOUXLAN THERMAL POWER PROJECT I. THE ENERGY SECTCR A. Overview 1.1 China has made remarkable progress in developing its energy resources over the last four decades and became the third largest producer of commercial energy in the world. In that period, the output of coal has increased at an average annual rate of 9.1 percent, crude oil production at 19.3 percent, and electricity generation at 13.1 percent. In 1990, the coun- try's primary commercial energy supply amounted to 727 million tons of oil equivalent (toe). Coal is the most important source of commercial energy, accounting for about 74 percent of the total. Oil accounts for 19 percent of the total and provides about 7 percent of the country's export earnings. Hydroelectric power (4.6 percent), natural gas (2 percent), and small quanti- ties of shale oil and geothermal power make up the balance. Noncommercial energy, equivalent to about one-third of commercial energy production, is very important in rural China. 1.2 In 1990, China's final consumption of commercial energy was esti- mated to be about 686 million toe. The largest consumer of commercial energy is the industrial sector (62 percent), followed by households (24 percent), services (9 percent), and agriculture (5 percent). About 20 percent of oil and 2 peL-,nt of coal production currently are exported. Coal and its by- products meet 70 percent of the fuel requirements for industry and power gen- eration, provide 60 percent of the raw materials for chemicals, and satisfy 80 percent of the commercial energy needs of households. The country also is the third largest consumer of commercial energy in the world. Still, energy consumption per capita is low--about 0.6 toe, or one-third of the world aver.- age. Energy Resources 1.3 Coal. China has large coal deposits with recoverable reserves of about 900 billion tons, of which 30 percent are proven. In 1990, the country produced 1.1 billion tons of raw coal, of which it exported only 16 million tons. By the year 2000, China aims to produce 1.4 billion tons of coal a year. Coal is produced in many provinces and the amount and quality vary. The best quality coals are found in North China, which is also the region with the largest coal surplus. However, insufficient transport capacity makes it extremely difficult to move coal from mines in North China to the large con- suming centers in Southeast, Central, and East China. 1.4 Hydroelectric Potential. China is rich in water resources and has a long tradition of harnessing them for energy and other uses. The country's hydroelectric potential is estimated at 1,900 Thh a year, but only about 9 percent of it has been developed. Most of the potential is located in four major river basins in the Southwest (70 percent) and Northwest (12 percent),  -2- about 1,500 km away from the main demand centers. The long gestation period for hydroelectiic projects also has inhibited the more rapid development and utilization of hydroelectric resources. 1.5 Crude Oil. China's ultimately recoverable reserves of crude oil have been estimated at some 80 billion tons, of which 16 percent are proven. The country produced 138 million tons of crude oil in 1990, and the target output for the year 2000 is 200 million tons. In view of the natural decline in production from exicting aging fields, it seems unlikely that this produc- tion target can be met. China's refining capacity is the sixth largest in the world and allows it to produce a relatively high share of high and medium distillates. 1.6 Natural Gas. China's natural gas resources are estimated at 33 trillio..- _.ubic meters (m3), of which 2.6 percent are proren. About 50 per- cent of the