China - Ertan Hydroelectric

 Ertan Hydroelectric Report No: ; Type: Report/Evaluation Memorandum ; Country: China; Region: East Asia And Pacific; Sector: Hydro; Major Sector: Electric Power & Other Energy; Project ID: P003506 CHINA: Ertan Hydroelectric Project (Loan 3387-CHA) The China Ertan Hydroelectric Project (First Phase), supported by Loan 3387-CHA for US$380 million equivalent, was approved in FY92 (the project’s second phase is being supported by Loan 3933-CHA for US$400 million, approved in FY96). The loan was fully disbursed and closed in FY97, as scheduled. Co- financing for US$5 million was provided by the Government of Norway. The Implementation Completion Report (ICR) was prepared by the East Asia Regional Office. A summary of the completion report prepared by the Borrower is attached to the ICR. No comments were received from the co-financier. The main objectives of the project are to: (i) provide additional generation capacity in Sichuan Province to alleviate the acute shortage of electricity; (ii) assist in the transfer of modern power technology and efficient dam construction; (iii) contribute to further improvements in the analyses of environmental and ecological impacts of hydroelectric resource development; (iv) enhance the institutional development of the beneficiary, Ertan Hydroelectric Development Corporation (EHDC), by strengthening its organization through a comprehensive management training program and introduction of economic efficiency and sound pricing principles; and (v) provide technical assistance in project design and implementation, and for the promotion of the optimal operation of the power system, prudent financial management, and manpower development. The project comprises: (i) construction of a dam across the Yalong River, together with an underground powerhouse complex and related works and structures; (ii) installation of six 550 MW generating units; (iii) resettlement of about 45,800 people; (iv) an environmental science station and management program; (v) engineering and project management consultancy services; (vi) power pricing and reservoir studies; (vii) technical assistance and training for EDHC staff. All of the project objectives have been achieved so far, in spite of higher-than-expected costs. The first phase of the project (consisting primarily of the resettlement program and civil works), supported by Loan 3387-CHA, was completed satisfactorily and on time. Excavation for the dam and powerhouse were virtually complete by October 1996 and reservoir filling is to start by the spring of 1998, as scheduled. Current cost estimates are higher than appraisal figures (by about 22 percent in real terms), due to higher expenses for project engineering and supervision required to address unforeseen geological difficulties and to an increase in the scope of the resettlement program (from 30,000 to 45,800 people) —the latter in response to more stringent national and Bank guidelines enacted after project appraisal. However, the project’s reestimated ERR is still a high 14.4 percent (14.9 percent at appraisal), even though it does not capture the project’s full benefits (in terms of consumers’ willingness to pay and environmental benefits). EHDC, the provincial authorities, the Chinese Government and the Bank rose to the challenge of successfully implementing a larger-than-expected resettlement and environmental program which included human and animal health protection, biodiversity protection, and preservation of historical relics. Other achievements include the successful transfer of modern large dam and powerhouse construction technology to EHDC, the successful training of EDHC staff, and the corporatization of EHDC—which was unexpected at the time of appraisal. The Operations Evaluation Department (OED) rates project outcome as highly satisfactory, institutional development impact as substantial and sustainability as likely (as in the ICR). The Bank’s performance is rated as satisfactory (instead of highly satisfactory in the ICR), given the Bank’s somewhat optimistic assessment, at appraisal, of the project’s technical risks and of the institution’s initial implementation capacity—for which it more than made up by its proactive and flexible approach to project supervision.  The key lessons of the first phase of the project relate mostly to the importance of establishing adequate implementation systems and arrangements prior to project start up. These include: (i) adequate training of personnel in construction management and contract administration, as well as set up of the commensurate computerized management systems; (ii) adoption of procurement and contracting arrangements to minimize interface problems and contractual difficulties; and (iii) adequate and advance preparation of a comprehensive resettlement plan that ensures effective coordination of activities among all main stakeholders. The ICR is satisfactory. No audit is planned.