China - Second Power Project

Dacu'Aa of The World Bank FOR OMl1CL USE ONM Rqut Ng. 12548 PROJECT COMPLETTON REPORT CHINA SECOJND POWER PROJECT (LOAN 2493-CiA) RDVUBER 22. 1993 MICROGRAPHICS Report No: 12548 Type: PCR Industry and Energy Operations Division China and Mongolia Department East Asia and Pacific Regional Office Ths docment has a esticed ditibution mg my be wed by rpents ony fn the pefom anceof their official duts Its contens may nt otherwise be didosd withou World Bank auhoztion.  CURRENCY EQUIVALENTS Currency Unit = Yuan (Y) Exchange Rates During Project Years (YI$) YsXl Ave. Eh 1984 (Project Apprased) 2.0615 2.8021 1985 (Project Approved) 2.9513 3.2095 1986 3.4626 3.7314 1987 3.7314 3.7314 1988 (Min. Components of Project Completed) 3.7314 3.7314 1989 3.7317 4.7339 1990 4.8596 5.2352 1991 5.3603 5.4478 1992 (Loan Closed) 5.4874 5.7245 FISCAL YEAR Januay 1 - December 31 WEIGHTS AND MEASURES 1 cubic meter (m) = 35.3 cubic feet ( 1 metric ton = 1,000 kilograms (kg) 1 Idlomet (kn) = 0.6215 miles (mi) 1 kilovolt (kV) = 1,000 volts (V) 1 megvolt-ampere (MVA) = 1,000 ldlovolt-amperes (kVA) 1 megawatt (MW) = 1,000 ldlowatts Okm) I gigawatt-hour (GWh) = 1 million klowatt-hours (kWh) ABBREVIATIONS AND ACRONYMS ACSR - Aluminum Conductor Stee Reinforced ECEPA - East China Electric Power Administraon ECEPDI - East China Electric Power Design Institute EHV - Extra High Voltage ICB - Internatonal Conmpetitive Bidding IEERR - Intnal Economic Rate of Retun JPEPB - riangsu Provincia Electric Power Bureau MOE - Minstry of Energy PCR - Project Completion Report SAR - Staff Apprasa Report TCC - Technical Cooperation Credit  FOR OFFICIAL USE ONLY TlHE WORLD BANK Washinton, D.C. 20433 U.S.A Office of Director-General operations Evaluation November 22, 1993 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on China Second Power Proiect (Loan 2493-CHA) Attached is the "Project Completion Report on the Second Power Project (Loan 2493-CRA)" prepared by the East Asia and Pacific Region. Part II vas prepared by the Borrower. The US$117 million Bank loan was the second project in the power sector and focused on power shortage alleviation by constructing an Extra-High Voltage transmission line from a mine mouth power plant in East China to Shangai. US$6.2 million were canceled. Cofinancing came from Italy (US$8.6 million). All physical components were implemented as planned. Transfer of technology and know-how was achieved except in financial management which was left out of the project. The PCR emphasizes that future projects should include training in this area. The project viability suffered from substantial foreign exchange losses and lessons learned called for measures to reduce the risks. The PCR gives a thorough account of project preparation and implementation which was mostly uneventful. Overall, the project is rated as satisfactory, its sustainability as likely, and its institutional impact as substantial. The project may be audited together with other power projects in China. This document has a restricted distribution and may be used by recipients only In the performnce of their official duties. Its contents may not otherwise be disclosed without WorlI Ban. authorization.  FOR OMCLu USE ONLY CHNA SECOND POWER PROJECT (LOAN 2493-CHA) PROJECT COMPLETION REPORT Table of Contents Preface ....................i................... i Evaluation Sunmary ...................... ..ii PART L PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity . . . .1....... 2. Backgound........1 3. Proeectives I... 4. Pro4ectDescription.... 2 5. Project Designand Organization .. .. 3 6. ProjectImplementation ........................... 3 7. LandAcquisition and House Removal . . . 4 8. i .rc..ectl.esults.. . 5 9. ProjectSustainability ...6 10. Ba7 Perorna.7 11. Bornower Performance ......... . 8 12. Financial Asects.... 8 13. Project Relationship ...... . .... . 9 14. Consulting Services and Training . . . 9 15. Procurement . ... 10 16. Project Documentation and Data . . . .11 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 17. Adequacy and Accuracy of Factual Information in Part m 12 18. Coinments on the Analysis Contained in Part I . .12 19. Evaluation of Bank's Perfornance ..12 20. Evaluation of Borrower's Own Performance . .12 PART III: STATISTICAL SUMMARY 1. Related Bank Loans. 14 2. Project Timetable ..16 3. Loan Disbursements ..16 4. Project Implementation ..17 5. Project Costs and Financing ..18 6. Project Results .19 7. Status of Covenants .21 8. Use of Bank Resources ..22 ANNEXES 1. Ex-Post Internal Economic Rate of Return 2. JPEPB Financial Statements This document has a restricted distribution and may be used by recipients only in the perfonnance of thir official duties. Its contents may not otherwise be disclosed without World Bank authorztion.  CHINA SECOND POWER PROJECT (LOAN 2493-CHA) PROJECT COMPLETION REPORT PREFACE This is the Project Completion Report (PCR) for the Second Power Project in China, for which Loan 2493-CHA in the amount of $117 million was approved on February 19, 1985. On September 8. 1992, the Bank canceled $6,203,386,96, which was no longer needed to complete the project. Thb s, the loan amount was reduced to $110,796,610.04. The loan was closed on June 30, 1992, against the original sche}uie of June 30, 1989. Total disbursement under this loan was $110,796,610.04 as of June 30, 1992.1/ Cofinancing for this project to the extent of $8,600,000 was provided by the Government of Italy. The Preface, Evaluation Summary, and Parts I and HI of this PCR were prepared by the Industry and Energy Operations Division, Country Department II (China and Mongolia), of East Asia and Pacific Regional Office; Part II was prepared by the East China Electric Power Administration (ECEPA). Preparation of this PCR was based on the Staff Appraisal Report (SAR) (No. 5147-CHA), the Loan and Project Agreements, Bank supervision reports, correspondence between the Bank and the Borrower/Beneficiary, intemal Bank Group memoranda, and a mission to China in February 1993. 1J I/ accordamce with Bak practice, the loat account has been left open-until September 30,1992, in order to complete the disbursements for eligible expenditures made until June 30, 1992.  CHINA SECOND POWER PROJECT (LOAN 2493-CPA) PROJECT COMPLETION REPORT EVALUATION SUMMARY Project Obiecfives 1. The Government's strategy for resolving issues and achieving its t-njectives in the power sector is to (a) introduce modern methods and enhance technology transfer in the powe subsector; (b) set energy prices to gradually ensure the financial viability of eergy pioducers and encourage the rational use of electric energy; (c) increase autonomy in investment and operational matters; (d) accelerate the pace of hydroelectric development, construction of large coal-fired thermal power plants, and extension of extra- high voltage transmission networks to transmit power to load centers and to interconnect major regional power systems; and (e) replace obsolete and small thermal power generatg plants with larger and more efficient units, and convert eipensive oil-fired generating units to coal-fiing to the extent pmcticable. The above objectives are being implemented step by step through the lending operations for the power subsector in China. This proect is the second power lending operation in China following the Lubuge Hydroelectrc Project (Ln 2382-CHA). The project was designed to contribute to mitigation of power shortages in the regional load c iter by construcing an Extra-High Voltage (EHV) transmission line. The main objectives of the project were (a) to construct an EHV line to transfer power generated at mine-mouth, coal-fired power stations to the regional load center; (b) to transfer modern technology in EHV line and substation design, construction, and maintenance; and (c) to adopt, by the Beneficiary, more appropriate techniques of system planning, investment programming, and financial planning (Part I, para. 3.1). ,Implementation Experience 2. All the main physical components of the project were successfully completed according to the orignal objectives in the SAR. The section of the transmission line from Xuzhou and Jiangdu (343 kIn) and associated substations were put into commission in December 1987, about one year behind the SAR schedule. The section of the transmission line from Jiangdu to Shanghai (272 km) and associated substations were put into commission between September and November 1988, three to six months behind the SAR schedule (Pat I, paras. 6.2 and 6.3). 3. The actual cost of the project expressed in US dollars was about 18 pent less than the appraisal estimate. The major reason for the cost underrun was a cost savings in a 500 kV transmission line because a shorter route was arranged than the apprais estinate called for (Part I, paras. 4f2 and 8.2).  - iii - 4. The closing date of the loan was extended three times from the original date of June 30, 1989, to June 30, 1992, because more time was needed for the procurement of additional equipment to strengthen the reliability of the Jiangsu Provincial Power Grid (Part 1, paras. 6.6 ano 15.4). 5. All the covenants contained in the Loan Agreement and Project Agreemer t were met. Results 6. The project fully achieved its main objectives through successful completion of the 500 kV transmission lines and associated substations. AU the lines were commissioned within the SAR schedule. Completion of this project contributed to developing and utilizing coal resources, promoting construction of mine-mouth power stations, mitigating the shortages of power supply in East China, and promoting industrial production and regional economic development (Part I, para. 8.1). 7. Training for technical personnel in design, construction, and operation of the latest technology of the EHV line and substation was carried out satisfactorily. However, institutional development through training for utility and financial management staff was less than expected (Part I, para. 14.6). Sustainability 8. This project is sustainable for the following reasons. The project was designed to promote the development of coal mine-mouth power generation in the western part of the region, along with the develcpment of EHV transmission lines to transmit the generating power to the load center in Shanghai area. Major benefits of the project included (a) promoting development of coal mine-mouth power stations in the western area of Jiangsu Province; (b) expanding capacity of power transmission from west to east; (c) raising the thermal power load rate in the western area and peak regulation capacity of the hydroelectric power within the region; and (d) increasing the stability of the power system in the region. The economic benefits in terms of the rate of return for this project are marginal (about 7.1 percent compared to the SAR estimate of 12.5 percent) because of the relatively low tariff level. The average sales price of electicity during project implementation was 14.14 fen/kWh against the SAR estimate of 7.39 fen/kWh. However, this was still a little below the long-run marginal cost The Chinese have made good progress in evaluating the economic costs of electricity and coal and in suggesting approaches for gradual price reform, through subsequent power projects supported by the Bank (Part I, paras. 8.6 and 9.1). Flndings and Lessons Learned 9. Major findings were as follows: (a) The project was well designed and implemented. Completion of this project yielded the following benefits in the East China Power Grid: {i) power  - iV- genemated by coal mine-moutfi power stations could now be transferred to the load center in the Shanghai area; (ii? the thermal power load in the westem part of the grid and peak regulation capacity of hydroelectric power within the system were increased; and (iii) the level of stability of the whole system and the reliability of the regional power supply were increased (Part I, para. 8.1). (b) The latest technology in design, construction, and operation of the EHV transmission system was transferred to the Beneficiary, Jiangsu Provincial Electric Power Bureau (JPEPB), with the assistance of the foreign consultant through implementation of the project including training activities (Part I, paras. 14.1 and 14.2). (c) Because of the subsequent change in the state construction plan, the schedule for planning and constructing power sources in the East China grid was changed and postponed. As a result, the commissioning of the second 500 kV transmission from Xuzhou to Shanghai was postponed from 1989 (SAR estimate) to the Ninth Five-Year Plan (1996-2000) (Part I, para. 6.5). (d) No major environmental problems were encountered (Part I, para. 7.1). (e) During the implementation of the project, the devaluation of US currency against the Japanese and Western European currencies affected procurement activities. JPEPB lost $22.6 million equivalent in contracts in non-US dollar currencies (Part I, paa. 8.3.). 10. Lessons learned from this project are summarized as follows: (a) Training in financial management was left out under this project. With increasng financial autonomy given by the recently promulgated 'regulations on transformiing the operting mechanisms of state-owned industrial enterprises,' power utilities are expected to operate in a market- oriented environment. Training in financial planning and management lags behind and has to be strengthened. A specific training program for utility and financial management should be included in future projects (Part I, para. 14.6). (b) As mentioned in the discussion of major findings, the devaluation of the US dollar against Japanese and Western European currencies resulted in the beneficiary's loss of $22.6 million. Measures to avoid or minimize risks for the foreign currency movements should be sought (Part I, para. 8.3.) (c) JPEPB experienced several difficulties in procurement. Project management should have been strengthened to identify problems and seek solutions in a timely and efficient manner to avoid unfavorable impacts on the construction schedule (Part I, paras. 15.2 and 15.3).  CHINA SECOND POWER PROJECT (LOAN 2493-CHA) PROJECT COMPLETION REPORT PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity Name : Secouid Power Project Loan Number : 2493-CHA RVP Unit : East Asia and Pacific Region Country : China Sector : Energy Subsector : Power 2. Backgound 2.1 In the early 1980s, the metropolitan and industrial areas of Shanghai, Yangzhou, Nanjing, Changzhou, Wuxi, and Suzhou were experiencing a shortage of electric power, which was restricting industrial output and commercial advity. The development program of ECEPA showed that power in the quantity necessary to alleviate the shortage could best be provided by coal-fired thermal stations. The project was conceived to provide (a) an optimal linge between the demand centers and mine-mouth, coal-fired power stations located at Xuzhou and Penching in the north of Jiangsu Province by means of EHV (500 kV) transmission line; and (b) the transfer to JPEPB of the latest El V technology in construction, operation and maintenance. A preliminary design report for the Xu7hou-Jiangdu line was prepared by the East China Electric Power Design Institute (V 70DI) in 1982 and approved for implementation by the State Council in 1983. Construction for this section was started in October 1984. Detailed engineering and design for the Jiangdu-Shanghai line was completed before April 1985 by ECEPDI with the assistance of foreign consultants. 3. Project Objectives 3.1 The principal objectives of the project were the following: (a) to construct an EHV network to transfer power generated at mine-mouth, coal-fired power stations situated on the west side of the East China power grid to the regional load center located in the east side of the grid;  2- (b) to transfer modern technology in EHV line and substation design, construction, operation, and maintenance to JPEPB; (c) to transfer to JPEPB more appropriate techniques of system planning, investment programming, and fnacial planning and-control; and (d) to provide an opponunity for cofinancing. 4. Project Description 4.1 The proposed project comprised the following: (a) construction of a 500 kV transmission line of about 617 kan from Xuzhou to Shanghai, including the crossing over the Yangtze River; (b) installation of five substations at Xuzhou, Jiangdu, Sunan, Huangdu, -md Nanqiao and provision of equipment for hfree other substations in the grid of JPEPB; (c) provision of tele-control and telecommunications equipment at project substations and the dispatching centers at Shanghai and Nanjing for load dispatching and system control; (d) provision of equipment for installation, commissioning, and testing of substation facilities; (e) provision of consultg services to assist ECEPA and JPEPB in design, procurement, construction, and staff trining for the 500 kV of transmission lines and substations; and (f) establishment of a training center and provision of equipment to two existing electrical training schools for the operation and maintenance of 500 kV transmission lines and substations. 4.2 Transmission Unes and Substations. The 500 kV transmission line was divided into the following four sections: Xuzhou-Jiangdu (342.5 Iam), Jiangdu-Sunan (123.1 Iam), Sunan-Huangdu (91.7 kcm), and Huangdu-Nanqiao (53.9 kin). The total route length was 617 km,2/ including the 2 x 2.8 Ian crossing over the Yangtze River. The line was a single-circuit line with four-bundle Aluminum Conductor Steel Reinforced (ACSR) conductors of 400 mm?. A step-up substation with 2 x 500 MVA tansformers 2I The length of $00 kV transmission lines at the time of the appraisal was 683 km, consisting of Xuzbou- Jiangdu (340 km), Jiangdu-Sunan (15 km), Sunan-Huangdu (115 km), Huangdu-Nanquiao (110 km), and tbh Yangtze River CrossiAng (3 km). The total length of the lines was reduced to 617 km from the appraisal esdmate of 683 km as a result of obtinaing more direct rights-of-way in the vicinty of Shanga.  3- (for initial stage development) was established at Xuzhou near the Xuzhou No. 1 Thermal Power Station. Four step-down substations with 500 kV/220 kV auto transformers were established atJiangdu (500 MVA), Sunan (500 MVA), Huangdu (750 MVA), and Nanqiao (750 MVA). Some equipment for three other substations in JPEPB's grid was also included. 4.3 Tele-Control and Telecommunications Equipment. Power carier and microwave tele-control and communications equipment was provided between these substations and the dispatching centers at Shanghai and Nanjing for load dispatching and system control. 4.4 Consulting Services. Project design was performed by introducing domestic (ECEPDI) and foreign consultants (a Canadian firm and a TJS firm). For foreign consultants, a total of about 60 staff-months was envisaged covering a period of 15 months. Terms of reference covered review of design, bidding documents, and procurement for 500 kV transmission lines and associated substations. Selection of consultants u. s carried out in accordance with Bank guidelines. 4.5 Trai Ig. A program was included under the project to establish and equip one taining center and two existing electrical training schools for operation and maintenance of 500 kV transmission lines and substations. The center and schools generated technical staff not only for the East China region, but also for all other regions in China for the extension of the 500 kV network. The progranm included the provision of laboratory and testing facilities and the upgrading of teaching staff. A training program for the Ministry of Energy's (MOE's) power planning staff, including overseas tmining and provision of some office equipment, was also part of the project. 5. Project Desigp and Organization 5.1 The administration and implementation of the project was carried out by JPEPB. The feasibility studies for the project were carried out by ECEPDI. Detailed engineering and design of the project was carried out by ECEPDI with the assistance of foreign consultants-the Canadian firm for transaiission design and the US firm for substation design. Reviews of optimization of designs for transmission lines and substations; preparation of bidding documents; and staff training in design, construction, operation and maintenance of the 500 kV system were performed by these foreign consultants. Design of the Yangtze River Crossing was carried out by the contractor and reviewed by ECEPDI and tMe Canadian firm- 6. Project Implementation 6.1 The project was implemented soundly and progressed to meet virtually all the original objectives expected in the SAR. No substantial problems were experienced. 6.2 The section of the transmission line from Xuzhou and Jiangdu (343 k1m) and associated substations were put into commission in December 1987, about one year behind  -4- the SAR schedule. The reason for fte delay stemmed from delay in procurement because JPEPB lacked experience in Intemational Competitive Bidding (ICB) in the initial stage. However, JPEPB's subsequent management of the ICB procumment process was timely and smooth. 6.3 The section of the transmission lines from Jiangdu to Shanghai (272 km, including Yangtze River Crossing) and associated substations were put into commission between September and November 1988, three to six months behind the SAR schedule. The main reasons of the delay were (a) five months' delay in the delivery of transmission line tower materials because of an industrial strike by the manufacturer (an Italian firm); (b) an error in the tnisport destination (tower materias were transported to a different port); and (c) five months' delay because of a change in design for the Yangtze River Crossing. 6.4 The No. 2 main transformer expansion component in Nanqiao Substation was delayea for 2.5 years beyond the date in the SAR schedule because of a delay in the DC transmission line project (rot a part of the Second Power Project). The No. 2 tansformer was an associated component of the second pole of the 500 kV transmission line project from Gezhouba to Shanghai, which was postpored from the original schedule. Since the No. I transformer in Nanqiao substation was commissioned in May 1988, the delayed commissioning of the No. 2 transformer did not affect opertion of the transmission line from Xuzhou to Shanghai in this project. 6.5 Because of a subsequent change in the state construction plan, the planning and construction of power sources within the East China Power Grid were changed, and construction of Xuzhou Second Power Plant in Jiangsu Province and Huaibei Second Power Plant in Anhui Province was postponed. As a result, commissioning of the second eircuit of 500 kV transmission line from Xuzhou to Shanghai was postponed from 1989 (SAR estimate) to the Ninth Five-Year Plan (1996-2000). Subsequently, the annual energy transfer along the Xuzhou-Shanghai transmission line was decreased and affected the economic return of the project. 6.6 The original loan closing date for the project was June 30, 1989. The final closing date was June 30, 1992, afte three extensions. With the Bank's agreement, JPEPB purchased additional equipment to strengthen the reliability of the Jiangsu Provincial Power Grid (see pam. 15.4). To ensure the payment for the additional proement, the loan closing date was correspondingly extended. 7. Land Acqutison and House Removal 7.1 The land acquisition was carried out smoothly in close cooperation with local authorities and the active participation of the affected people. The pcice in China for transmission lines is that only land for transmission towers is acquired, not the right-of- way, since the land under high 500 kV transmission lines cn normally be utilized for traditional cultivation. The principle for route selection is that no villages will te passed over or houses not relocated. The totl length of the transmission Lines from Xuzhou to  -5 - Shanghai was about 617 kn with 1,450 towers. Average landholding of each tower was 133 i2, totaling land acquisition of 19.3 ha. The landholders were compensated, and 119,725 m2 of residential houses were replaced. Compensation of Y 12.6 million was paid to the relocated people. Compensations of Y 3.9 million and Y 6.3 million were paid, respectively, for 754,000 trees cut down and for the year's crop of 1,228 ha. The land acquired for the substations was 33.3 ha, comprising 7.3 ha for Xuzhou Substation, 9.9 ha for Jiangdu Substation, 9.7 ha for Sunan Substation, and 6.5 ha for Huangdu Substation. (No acquisition was required for the expansion of Nanqiao substation.) The compensation for land acquisition for these substations was about Y 5 million. No major problems relating to the land acquisition and house removal were experienced. 8. Project Results 8.1 The project fully achieved its main objective through successfil completion of the 500 kV transmission lines and associated substations. All the lines were in operation within the SAR schedule, although 6 to 12 months of inital delays were experienced, as mentioned in paras. 6.2 and 6.3. Completion of the project yielded the following benefits in the East China Power Grid: (a) Power generated by the Xuzhou Power Plant located at the mine-mouth and by neighboring power stations could be transferred to the Shanghai load center. (b) The project contributed to solving the problem of inadequate power transfer from west to east in the structure of the East China Power Grid. (c) The thermal power load rate in the western part of the grid was raised, as was the peak regulation capacity of hydroelectric power within the system. (d) The level of the whole system's stability was raised, and reliability of the regional power supply was increased. On the whole, the accomplishments of the project have played a positive role in developing and utdlizing coal resources, promoting construction of mine-mouth power stations, mitigating the power supply shortage in East China, and promoting industral production and regional economic development. 8.2 The estimated cost of the project at appraisal (excluding interest during construction and other financial charges) was $133.0 million in foreign costs and Y 344.0 million in local costs, equivalent to a total of $265.3 million when expressed in foreign currency and Y 689.8 milLion when expressed in local curency. The final cost was $119.4 million in foreign costs and Y 368.8 million in local costs, equivalent to a total of $218.2 million when expressed in foreign currency and Y 1,024.2 million when expressed in local currency (see Part m for details). As compared with the appaisal estimate, the project had a cost underrun of about 18 percent when expressed in US dollars and a cost overrun of about 48 percent when expressed in local currency. The reason for the  -6 - undenrun in terms of US dollars was based mainty on a cost saving in the 500 kV transmission line because a shorter route was arranged than the SAR estimate called for (see para. 4.2). The devaluation of the US currency against Japaneze and Western European currencies resulted in a cost overrun in substation equipment (see para. 8.3). The cost overrun in terms of local currency was caused mainly by the devaluation of local currency from an exchange rate of Y 2 to $1 at the time of appraisal to Y 3.73 to $1 by the end of 1988, the completion date of the main components of the project. Ihe average exchange rate over the construction period (1985-88) was Y 3.46 to $1. 8.3 Because of the appreciation of the Japanese and Western European currencies against the US dollar, JPEPB lost about $22.6 million equivalent, which accounted for approximately 19 percet of the total loan amount provided by the Bank. 8.4 The estimated disbursements at apprisal and actual disbursements are given in Part m. Total disbursement under this loan was $110,796,610.04. In accordance with Bank practice, withdrawal applications were made against eligible expenditues incurred until September 30, 1992, and the final disbursement was made on September 8, 1992. The undisbursed balance of $6,203,386.96 was canceled on this date. 8.5 The allocation of the loan into various categories and actual disbursements by category are shown in Part III. The original allocation was revised in January 1987 to shift the unused amount for consultng services and the unallocated amount to category (1) equipment and materials. 8.6 In the SAR, the ex ante internal economic rate of return (IERR) for the project was estimated at 12.5 percent, based on measurable economic costs and benefits associated with development of thermal power generating units in the western part of the region (Xuzhou area) 3/ and two AC 500 kV transmission lines. The ex post IERR is 7.1 percent (with shadow price adjustment) and 8.5 percent (without shadow price adjustment) as shc wn in Part IM and Annex 1. The lower IERRs came primarily from increases in tariffs, which were not sufficient to cover the total operating expenses, including debt service, and the delay in commissioning the second 500 kV transmission line (see para. 6.5). 9. Project Sustainabllity 9.1 This project is sustainable for the following reasons: (a) The project was designed to meet the Government's strategy to expand the power generation and transmission system by promoting the development 3/ The SAR was based on Xuzhou No. 1 Station (two units of 200 MW, completed in 1986 and 1987) and Xuzhou No. 2 Station (four units of 300 MW, completed in 1989, 1990, 1993, 1994, and one unit of 600 MW, to be completed in 1996). The PCR is based on te actual sa of Xuazou Station (two units of 200 MW, compleed in 1986 and 1987); Penchang No. 1 Station (two units of 300 MW, to be completed in 1996 and 1997); Penchng No. 2 Station (two units of 300 MW, to be completed in 1999 and 2000); and Huaibei No. 2 Station (two units of 300 MW, to be completed 1997 and 1998).  -7- of coal mine-mouth power stations in the western part of the region and the EHV transmission lines to transmit the generating power to the load center in Shanghai area. (b) Completion of this project successfully yielded the following benefits, as mentioned in pam. 8.1: (i) promotion of the development of coal mine- mouth power stations in the westem area; (ii) contribution to solving the problem of limited power transfer from west to east in the region; (iii) raising the thermal power load rate in the westem area and the peak regulation capacity of hydroelectric power within the system; and (iv) increasing the stability of the power system in the region. (c) Economic benefits of this project in terms of the rate of returi are considered marginal because of the relatively low tariff level. The average sales price of electricity during project implementation was 14.14 fen/kWh against the SAR estimate of 7.39 fen/kWh. However, this was still a little below the long-run marginal cost (see Annex 1). Through subsequent power projects supported by the Bank, the Chinese have made good progress in evaluating the economic costs of electricity and coal and in suggesting approaches for gradual price reform. For electricity, long-run marginal cost and target tariffs were established for East China in 1988. Since then, the Bank has continued to sponsor the formulation of tariff action plans and adapted them to the specific conditions of regional power grids. (d) As discussed in para. 14.6, institutional development through managerial and financial staff tWaining was less than expected in this project. This shortcoming has been rectified through subsequent power projects. 10. Bank Performance 10.1 The performance of the Bank from the project prepration through project completion was satisfactory. The Bank maintained good relations with the beneficiary and the consultants throughout execution of the project. 10.2 Major achievements of the Bank were as follows: (a) During project implementation, the Bank regularly sent a mission to supervise various aspects of the project, including the construction schedule, procurement, financial aspect, loan covenants, project cost updating, and training activity, to ensure smooth implementation of the project. (b) With completion of the Second Power Project, following the Lubuge Hydroelectric Project (Ln 2852-CHA), the Bank established a basis for cooperation and dialogue between the borrower/beneficiary and the Bank in the development of the power subsector in China. To date, the Bank has  -8- assisted the subsector in implementing 12 projects with a total assistance of about $2.1 billion. 11. Bonrower Perfornance 11.1 JPEPB successfully implemented and completed the project. The major project component of 617 km of 500 kV transmission lines with associated substations was successfully completed within the planned schedule. 11.2 JPEPB introduced and absorbed the latest design technology and management of construction and operation of the EHV transmission lines with the assistance of foreign consultants and tining activities. JPEPB's increased- experience in the modern EHV technology will contribute to subsequent construction of the EHV lines in the region. 11.3 Training for technical personnel was cariied out satisfactorily. However, taining for managerial staff, particularly financial management, was below expectations (see paa. 14.6). 11.4 Throughout implementation of the project, JPEPB became fii with relevant Bank guidelines, such as Procurent Guidelines and Guidelines for the Use of ConsuUants. JPEPB increased its experience with ICB procurement. 12. Fnanl Aspects 12.1 Salient features of JPEPB's finances during the period 1985-92 are summarized in Part m. JPEPB's operating results and financial positions were satisfactory, even though they fell short of expectations during the period under review. lPEPB met all the financial covenants set out in the Project Agreement, aside from not fiurnishing the Bank with its long-term rolling plan in 1986 and 1987 owing to technical problems. The average reun based on historically valued assets was 9.8 percent against 13.9 percent at appraisal for the period 1985-90. Since Jiangsu Province is the largest province and has one of the fastest-growing economies in China, energy sales grew at over 10 percent per year compae with the 6 percent per year forecast at appraisal for the period. The average tanff of JPEPB was adjusted at an annual rate of 10.2 percent compared with a flat rate of 7.4 fenlkWh throughout the period projected at appraisal. The return on assets, however, declined to 6.6 percent in 1992, about half that in 1985. The declning trend in the profitability stemmed from rapid escalation of JPEPB's operating costs. In particular, the cost for purchased power went up 338 percent between 1985 and 1990, an annual increase of about 34 percent, and accounted for about one third of the operatin.g costs in 1990 compared with 20 percent in 1985. Moreover, both the fuel and the operiting and maintenance costs rose beyond the general pnce increases. The negative impacts on JPEPB's finances were only partially offset by the robust growth in energy sales and impressive increases in the average tariff. The consequence is reflected in the lower-than-expected capital expenditure by JPEPB (a total of Y 2.7 billion verus -Y 4 billion projected at appraisal) over the period and the severe shortage of electricity in the  -9 province. The conservative management approach taken by JPEPB helped it maintain a high capitalization position, debt never exceeded 30 percent of total capital in comparison with the appraisal estimate of 63 percent for 1989 and 1990. Nevertheless, Jiangsu Province's economy suffered from a severe shortage of power supply and factories had to be shut down from dme to dme. 12.2 The Bank's objective to promote prudent financial management was achieved through JPEPB's compliance with the financial covenats since 1988, which required JPEPB to prepare long-term financial plans, to focus on its trends in production costs, as well as its future investment program and related financing arrangements, and to review such plans annually with the Bank. 13. Project Relationship 13.1 The relationship between the Bank and Beneficiary in the Second Power Project was not only one of mutual trust and faith, but also was highly complementary in al aspects of project implementation. Constraints and bottlenecks were removed efficiently and expeditiously without negative impacts on the Bank-Beneficiary relaionship. 13.2 The Bank's relationship with the Government's organizations, other national agencies and reiated institutions was also cordial. The Bank had no problem in gaining access to the highest level of government authorities to discuss policy and render professional advice. 14. Consulting Services and Training 14.1 A US firn was selected as a foreign consultant to optimize the substation design, prepare bidding documents, evaluate bids, and train staff. A Canadian firm was selected as a foreign consultant to optimize the transmission line design and the Yangtze River Crossing design, prepare bidding documents, evaluate bids and train staff. The performance of the consultants was satisfactory and met the requirements stipulated in the terms of reference in the SAR. 14.2 The Canadian firm carried out the overseas training for JPEPB's staff in managing the construction, operation and maintenance of the 500 kV line, which contributed positively to raising the level of management of construction, operation and maintenance after the project was put into operation. 14.3 In the SAR, the following trining program was planned: (a) One training center for the 500 kV power grid was to be established and two electric power schools (one in Shanghai and the other in Nanjing) were to have advanced facilities. (b) Overseas training was offered to the electric power planning pesnd originally under the Ministry of Water Resources and Bectric Power.  - 10- 14.4 The actual training during implementation of the project was as follows: (a) Procurement for the training facility was canceled because the training schools were unable to repay the credit, and the necessary items of equipment for experiments and testing were purchased with domestic funds. (b) The power planning personnel were sent to the foreign consultant (US firm) for tning in planning management of the system. 14.5 In addition, some relevant technical personnel were trained by equipment manufacturers under the equipment contacts, and a small number of financial personnel were sent to participate in overseas training or financial seminars for other projects. 14.6 As a whole, training for technical personnel in design, construction and operation of the latest technology of the EHV transmission line and substation was carried out satisfactorily. On the other hand, training for managerial staff, particularly for financial management, was not sufficiently performed. Financial training for all Bank- financed power projects in China is centrally managed by MOE and the State Energy Investment Corporation. A financial management training program was proposed in 1989, but was canceled at the final stage. 14.7 The consultant services and training for the project, not including the training in the procurement contracts, utilized $530,000 from TCC fund and $375,000 from the loan for the project, totaling only $905,000 against the SAR estimate of $3.6 million. 15. Procurement 15.1 The number of procurement contracts signed for the prQject was 101, of which 41 were ICB packages. The total amount of the procurement contracts was $110,425,000. All procurement activities for the project were performed in accordance wi the Bank's procurement guidelines. 15.2 The following difficulties were expenenced by JPEPB in procurement: (a) A Chinese firm was selected to supply ACSR conductors of 3,500 km (about 5,300 tons) in a contract amount of $6.9 million. In the contract finalization- stage, the company declined the contract because it could not fulfill its contractual obligations and deliver the conductors, mostly because of increases in aluminum prices. Subsequently, JPEPB contracted the above item (2,540 km, 3,800 tons) to another Chinese firm for $5.0 million. (b) For the procurement of 6 X 167 MVA transformers and 3 X 250 MVA transformers, the lowest evaluated bidder (an Italian firm) declined contracts during contract finalization stages because of the devaluation of the US  - 11 - dollar against Japanese and Western European currencies. Subsequently, JPEPB signed contracts with the second lowest bidders (Japanese firms). (c) A Yugoslavian firm delayed delivery of the remote control facility for 11 months. (d) An Italian firm delayed delivery of the transmission line tower materials for five months because of labor strikes. One section of the transmission towers collapsed in August 1989 from high wind velocity (26 mfsec). This accident resulted in halted operations for 47 days. Countermeasures to reinforce the strength of the towers were carried out. (e) Xuzhou Substation experienced trouble with a flushover in 500 kV current transformers, supplied by a Japanese firm, in July 1988, which was related to defects in design. The current transformers were replaced with ones of improved design. 15.3 One of the lessons learned through the procurement activities of the project was that project management should have been strengthened to find problems and seek measures in a timely and efficient manner in order to avoid unfavorable impacts on the construction schedule. 15.4 During implementation of the project, lPEPB needed to purchase additional equipment, 500 kV shunt reactors and spare parts, to strengthen the reliability of the East China grid. The Bank agreed to the additional procurement of these items, which resulted in the extension of the closing date (see para. 6.6). 16. Project Docunentation and Data 16.1 The legal agreements for the Second Power Project were appropriate for achieving the project objectives and adequately reflected the Bank's interest in satisfactory execution of the project. The SAR was comprehensive and well prepared, and provided a useful framework for the Bank and JPEPB during project implementation. JPEPB submitted quarterly progress reports and annual financial statements, annual audit reports by independent auditors, and future investment programs, as stipulated in the Project Agreement. The reports served as a valuable tool for project supervision and monitoring.  - 12 - PART II: PROJECT REVW FROM BORROWER'S PERSPECTIVE 17. Adequacy and Accuracy of Factual Information in Part III 17.1 The factual information of the project presented in the tables of Part III, prepared by ECEPA and JPEPB, was reviewed and cross-checked thoroughly with the Bank's mission in February 1993. It is adequate and accurate. Comments on the Analysis Contaied in Part I 18.1 The analyses and remarks made by the Bank are comprehensive and objective. 19. Evaluation of Bank's Performance 19.1 Throughout project implementation, the World Bank maintained a good cooperauve reaionship with the Borrower/Beneficiary. The World Bank regularly sent supervision nissions to supervise, inspect and direct all phases of the project to ensure smooth performance of the project. 20. Evaluation of Borrower's Own Performance 20.1 The project was implemented we}l and progressed smoothly. The main objectives of the project were met. No major problems were experienced. By its completion, the project had become an important part of the main framework of the East China Power Grid and caused power generated at mine-mouth, coal-fired power staions on the west side of the grid to be transferred to the load center on the east side of the grid. 20.2 In the process of projec implementation, the Borrower/Beneficiary carefully followed the Laan Agreement and the Project Agreement and met all the covenants, and also strictly respected relevant Bank's guidelines for procurement, use of consultants, and the disbursement handbook. 20.3 The Beneficiary introduced and absorbed the latest and advanced technology on design, procurement, construction, and operation and maintenance of the EHV transmission line. 20.4 Lessons leamned from the project are: (a) The truning of technical personnel in design, construction and maintenance was carnied out to meet the objective of the project. However, the training of managerial staff, particularly for financial managements was not implemented sadsfactorily. This should be reinforced in future projects.  - 13 - (b) The project lost $22.57 million in foreign exchange because of a US dollar devaluation, which accounted for 19.6 percent of the total loan amount. Measures to minimize the risk in exchange rates should be sought in future projects. (c) In procurement contracts for the project, performance of some contractors was not satisfactory. Delays in delivery schedule, damage to equipment during operation, and declination of contracts were experienced. Project management should be strengthened to expedite procurement, improve contract performance and avoid unfavorable impacts on the construction schedule.  - 14 - PART m: STATSTICAL SUMMARY 1. Related B =s Year of Loan title Purpose Approval Status La 2382-CA To construct a rockfill dam, a 02121184 Loan was closed on Lubuge Rydro- spillway, an underground power- - 06/30/92. e 1 a c t r i c house, to inotall four generating Project units of 150 KW each, three sin- le circuits of 220 kV transmis- sion lines; to provide consultant services and a trainitg program. Lu 2707-CH& To construct a 110 m higb con- 05129186 Implementation under way. Yantan Hydro- crete gravity dam, a spillway, a Closing date 06/30/93 as a 1-e c t r i c powerhouse, and a ship lift to scheduled. Project install four generating units of 275 mw esch, two single circuits of 500 kV transmission lWies and three associated substations; and to carry out a training program. Lu 2775-CErA & To construct a 101 m high con- (}) Implementation under way. La 3515-CiA crete gravity dam, a spillway, a 01/06/87 Closing dates: Shuiko Hydro- powerhouse and a navigation lock, (II) (1) 06/30/93 a 1 e c t r I c to install 7 generating units of 09/01192 (11) 12/31196 Projects I & 200 MW each; to carry out a re- II settlement program in the reser- voir, an action plan for tariff reform and a training program for planning and financial manage- meat. La 3387-CHA To construct a 240 m high arch 07/02191 Implementation under way. Ertan Hydro- dm vith an underground power- Closing date 12131/96 electric Pro- home, to iastall 6 550 NW gener- ject ating units and associated equip- ment; to carry out an environmen- tal maaagement program, studies of power pricing and reservoir operation, and a training pro- gram. Credit 2305 & To construct a 56 a high gravity 10131/91 Implementatiou under way. Lu 3412-CHA dam and an underground powerhouse Closing date 12/31197 Daguangba with 4 x 60 MW generating units; Multipurpose to erect a 36 km long double-cir- Project cult 220 kV transmission line; and to build canals to irrigate 12,700 ha of land.  - 15 - 1. RClate Bank LT (cont'd) Loaa title Purpose Approval status LU 2706-CA & To coustruct 2 coal-fired units (1) (1) Comercial operation LU 2955-CH& of 600 MW each aad associated OS129/86 is scheduled In 1993. Beiluiigang I 500 kV transmission lines and Closing dates 06130194 & II substations; to carry out a (II) (1I) Commlssioning it training program and a tariff 06/14/88 scheduled in 1994. Clbs- study for East China power grid lg dates 06/30195 for Project I (Lu 2706-CHA) to (expected). -provide consultant services and to carry out a study oa ZPEPB's reorganizatiou and management improvement and a study for di.- tribution network improvement and a training progran for project It (La 2955-CHA). Lu 2852-CMA To Install 2 coal-fired units of 06123187 Two units comaission in Wijing Ther- 300 NW each and associated 220 kV 1992. Closing date mal Power transmission lines and substa- 06/30194 Project tions; to provide oa-line coM- puter control and automatic load dispatching center; to carry out a master plan study for the dis- tribution network in Shanghai and a training program. Lu 3433-CMA To install 2 300 YAW generating 01/14192 Implementation under way. Yanshi Ther- units and 5 220 kV transmission Closing dat 12/31/97. mal Power lines and associate4 substations; Project to carry out a tariff study, a tariff action plan, and a train- ing program for upgrading the technical, financial and manage- meat skills for HPEPB staff. Ln 3462-CHA To install 2 additional 600 MW 04112192 Implementation under way. Zouxian Ther- generating units; to construct Closiang date 06130199 mal Power 500 kY and 220 kV transmission Project lines and substations; and to carry out an air quality control study, a power tariff study, an action plan for tariff adjustment and a training program for the tecbnical, financial, andmanage- ment staff of SPEP8.  - 16 - 2. Proect TjeCta Items Date planned Date revised Date actual Appraisal mission Loan uegotiation Board approval 02119185 Loan signaturs 03115185 Loan effectiveness 06112/85 Loan closing 06/30189 (i) 06130/90 06/30/92 (ii) 06130/91 (iii) 06/30192 Loan completion - 09/08192 3. Lan Disbursements Bank fiscal year Estimated Actual Actual as 2 of and semester cumulative cumulative estimate