Document of TheWorld Bank Report No.: 32664 PROJECTPERFORMANCEASSESSMENTREPORT PEOPLE'S REPUBLIC OF CHINA ERTANHYDROELECTRIC PROJECT I& I1 (LOANS3387 8z 3933) SICHUAN POWER TRANSMISSION PROJECT (LOAN 3848) ZHEJIANG POWERDEVELOPMENT PROJECT (LOAN 3846) June 27,2005 Sector, Thematic, and GlobalEvaluation Group Operations Evaluation Department Currency Equivalents(annual averages) Currency Unit = Yuan (y), 100fen = IYuan 1991 US$l.OO Y5.36 1995 Y8.35 US$l.oo US$1.oo US$l.oo 2000 Y8.27 2003 Y8.28 Abbreviationsand Acronyms PLPLA Analytical and advisory services CEPC Chongqing Electric Power Company EHDC ErtanHydropower Development Company Gencos Generation Companies GoC Government o f China HV HighVoltage IBRD InternationalBank for Reconstruction and Development ICR ImplementationCompletionReport MOEP MinistryofElectric Power MoF MinistryofFinance NDRC National Development and Reform Commission OED Operations EvaluationDepartment PPA Power PurchaseAgreement PPAR Project Performance Assessment Report RAP Resettlement Action Plan S A R Staff Appraisal Report SEPA SichuanElectric Power Administration SEPC Sichuan Electric Power Corporation SERC State Electricity Regulatory Commission SPC State Power Corporation SOE State-Owned Enterprise T & D Transmission and distribution TranscaIS Transmission Companies VAT Value AddedTax ZPEPC ZhejiangProvincial Electric Power Company GWh ggawatt-hour (1 million kwh) TWh terawatt-hour (1 billionkwh) kV kilo volt (1000 volts) MW megawatt (1000 kilowatts) FiscalYear Government: January 1-December 31 Acting Director-General, OperationsEvaluation : Mr.Ajay Chhibber ActingDirector, Operations EvaluationDepartment : Mr.R.KylePeters Manager, OEDSG : Mr.AlainBarbu TaskManager : Mr.FernandoManibog OED Mission: Enhancing developmenteffectivenessthrough excellence and independence inevaluation. About this Report The Operations EvaluationDepartmentassessesthe programsand activitiesof the World Bankfor two purposes:first, to ensurethe integrityof the Bank's self-evaluation processand to verify that the Bank'swork is producingthe expected results,andsecond, to helpdevelopimproveddirections, policies, and proceduresthrough the disseminationof lessonsdrawn fromexperience.As partof this work, OEDannuallyassessesabout 25 percentof the Bank's lendingoperations.Inselectingoperationsfor assessment, preferenceis givento those that are innovative, large, or complex;thosethat are relevantto upcomingstudiesor countryevaluations; thoseforwhich ExecutiveDirectorsor Bank managementhaverequestedassessments;andthose that are likelyto generate importantlessons.The projects,topics, and analyticalapproachesselectedfor assessmentsupport largerevaluation studies. A ProjectPerformanceAssessment Report(PPPAR)is based on a review of the ImplementationCompletion Report(a self-evaluationby the responsible Bank department)and fieldworkconducted by OED. To prepare PPARs, OED staff examine projectfiles and other documents, interviewoperationalstaff, and in most cases visit the borrowingcountry for onsitediscussions with projectstaff and beneficiaries.The PPPARtherebyseeks to validate and augment the informationprovidedin the ICR,as well as examine issues of special interestto broader OED studies. EachPPPAR is subjectto a peer review processand OED management approval. Once cleared internally, the PPPAR is reviewed by the responsibleBank departmentand amended as necessary. The completed PPPAR is then sent to the borrowerfor review; the borrowers' comments are attached to the documentthat is sent to the Bank's Boardof Executive Directors.After an assessmentreporthas been sent to the Board, it is disclosedto the public. About the OED Rating System The time-testedevaluation methods used by OED are suited to the broad range of the World Bank'swork. The methods offer bothrigorand a necessary levelof flexibilityto adaptto lending instrument,project design, or sectoralapproach. OED evaluators all apply the same basic method to arrive at their projectratings. Following is the definitionand ratingscale usedfor each evaluation criterion(moreinformationis available on the OED website: http://worldbank.org/oed/eta-mainpage.html). Relevance of Objecfives: The extent to which the project's objectivesare consistentwith the country's current development prioritiesand with current Bank country and sectoralassistancestrategiesand corporate goals (expressedin Poverty ReductionStrategy Papers,Country AssistanceStrategies, Sector StrategyPapers, OperationalPolicies). Possibleratings: High, Substantial, Modest, Negligible. Efficacy: The extent to which the project's objectiveswere achieved,or expected to be achieved, taking into accounttheir relativeimportance.Possibleratings: High, Substantial, Modest, Negligible. Efficiency: The extent to which the projectachieved, or is expected to achieve, a return higherthan the opportunitycost of capitaland benefitsat leastcostcomparedto alternatives.Possibleratings: High, Substantial, Modest, Negligible.This rating is not generallyapplied to adjustment operations. SustainabiMy:The resilienceto risk of net benefitsflows over time. Possibleratings: Highly Likely, Likely, Unlikely, Highly Unlikely, Not Evaluable. institutionalDevelopmentImpact: The extent to which a project improvesthe ability of a countryor region to make more efficient, equitableand sustainableuse of its human, financial, and natural resourcesthrough: (a) betterdefinition,stability,transparency, enforceability,and predictabilityof institutionalarrangements and/or (b) betteralignment of the missionand capacityof anorganizationwith its mandate, which derives from these institutionalarrangements. Institutional Development Impactincludes bothintendedand unintendedeffects of a project. Possibleratings: High,Substantial, Modest,Negligible. Outcome: The extent to which the project's major relevant objectiveswere achieved, or are expected to be achieved, efficiently. Possibleratings: HighlySatisfactory, Satisfactory,ModeratelySatisfactory, Moderately Unsatisfactory,Unsatisfactory, HighlyUnsatisfactory. Bank Performance: The extentto which services provided by the Bank ensured quality at entry and supportedimplementationthroughappropriatesupervision (includingensuringadequate transition arrangements for regularoperation of the project). Possibleratings: HighlySatisfactory,Satisfactory,Unsatisfactory,Highly Unsatisfactory. Borrower Performance: The extent to which the borrower assumedownershipand responsibilityto ensure quality of preparation and implementation,and compliedwith covenantsand agreements,towards the achievement of developmentobjectives and sustainabitity. Possibleratings: HighlySatisfactory,Satisfactory, Unsatisfactory,Highly Unsatisfactory. Contents Principal Ratings ................................................................................................................ v Key Staff Responsible ...................................................................................................... vi .. Preface.............................................................................................................................. v11 Summary ........................................................................................................................... ix Backgroundto the Projects ............................................................................................... 1 Ertan Hydroelectric Project .............................................................................................. 2 Project Description.................................................................................................. 2 Project Objectives .................................................................................................... 2 Appraisal. Quality at Entry. and Implementation.................................................... 3 Issues......................................................................................................................... 4 Performance Ratings ................................................................................................ 8 Sichuan Power Transmission Project ............................................................................ 11 Project Objectives.................................................................................................. 11 Project Description ................................................................................................ 11 Appraisal and Quality at Entry.............................................................................. 11 Institutional Development Issues........................................................................... 13 Performance Ratings ............................................................................................. 16 Zhejiang Power Development Project ........................................................................... 18 Project Objectives .................................................................................................. 18 Project Description................................................................................................ 19 Appraisal and Quality at Entry.............................................................................. 19 Implementation ...................................................................................................... 20 Institutional Restructuring Issues .......................................................................... 21 Finances ................................................................................................................. 23 Performance Ratings ............................................................................................. 24 Power Sector Overview: present problems and future directions .............................. 27 Lessons Learned ............................................................................................................... 32 Annex A Basic Data Sheet . .............................................................................................. 33 Annex B Structure oftheChineseElectricPowerIndustry . ...................................... 42 Annex C World Bank StudiesofReformsinthe ChineseElectricPower Sector 43 . ..... Annex D Borrower's Comments . .................................................................................... 45 Ths report was preparedby Sunil Mathrani who assessedthe projectinFebruary2005 The reportwas editedbyWilliamHurlbut. andHelenPhllip providedadministrative support . . V PrincipalRatings ICR* ICRReview* PPAR Ertan IHvdroelectricProject (Loan 3387) Outcome Highly Satisfactory n.a. Satisfactory Sustainability Likely n.a. Likely Institutional n.a. n.a. High Development Impact Bank Performance Satisfactory n.a. Satisfactory Borrower Performance Satisfactory n.a. Satisfactory Ertan IIHydroelectric Project (Loan 3933) Outcome Satisfactory Moderately Satisfactory Satisfactory Sustainability Likely Likely Likely Institutional Substantial Substantial High Development Impact Bank Performance Satisfactory Satisfactory Satisfactory Borrowerperformance Satisfactory Unsatisfactory Satisfactory Sichuan Power Transmission Project (Loan 3848) Outcome Satisfactory Satisfactory Satisfactory Sustainability Likely Likely Likely Institutional Substantial Substantial High Development Impact Bank Performance Satisfactory Satisfactory Satisfactory Borrower Performance Satisfactory Satisfactory Satisfactory Zhejiang Power Development Project (Loan 3846) Outcome Highly Satisfactory Satisfactory Satisfactory Sustainability Highly Likely HighlyLikely Likely Institutional High High High Development Impact Bank Performance Highly Satisfactory HighlySatisfactory Satisfactory Borrower Performance Highly Satisfactory satisfactory Satisfactory *The ImplementationCompletionReport (ICR) is a self-evaluationbythe responsibleoperationaldivisionof the Bank.The ICR Review is an intermediateOperations EvaluationDepartment(OED) productthat seeks to independently verify thefindings of the ICR.The ICR review had not been introducedat the time of the Ertan I loanclosure. vi Key StaffResponsible Project Task ManagedLeader Division Chief/ Country Director Sector Director Ertan Hydroelectric Project (Loans 3387 & 3933) Appraisal Vukota Mastilovic RichardStern Shahid Burki Completion NoureddineBerrah MohammadFarhandi Yukon Huang Sichuan Power Transmission Project (LOAN 3848) Appraisal Vukota Mastilovic RichardNewfarmer Nicholas Hope Completion JianpingZhao JunhuiWu Yukon Huang Zhejiang Power Development Project (LOAN3846) Appraisal BarryTrembath RichardNewfarmer Nicholas Hope Completion BarryTrembath JunhuiWu Yukon Huang vii Preface This is the ProjectPerformance Assessment Report (PPAR) for three electric power projects inChina (ErtanHydroelectric, Sichuan Transmission, andZhejiangPower Development) that were implementedduringthe period 1991-2003. They were supported by four IBRDloans andtwo commercial syndicated loans withpartialCredit Guarantees from IBRD. The purpose o f this assessment is to reviewprogress inthe Chinese power sector since the OED evaluationo fBank assistanceto China's energy sector that was undertakenin 1999. The report comprises three self-contained performance assessmentso f eacho fthe projects followed by a briefoverview o fthe present situationandproblems inthe Chinese power sector and a comparison with the position six years ago. Giventhe high quality and comprehensive coverage o fphysicalimplementationof the projects inthe ICRs, this performanceassessment i s selective inits coverage andpredominantly concentrates on policyissues, especially institutionalreforms. Lessons from the projects have beenconsolidated inthe report's final chapter. The ErtanHydroelectricprojectwas undertakenintwo consecutivephases, eachone the object o f a separate loan, one for US$380million (Ln.3387), approved inJuly 1991 and closed on schedule inDecember 1996, andthe secondo fUS$400million equivalent (Ln. 3933), approved inAugust 1995 andclosed on schedule inDecember 2001. A loanofUS$270millionequivalent (Ln.3848), approved inFebruary 1995andclosed two years late inDecember2003, supported the Sichuan Power Transmission Project. The Zhejiang Power Development Project was supportedby a loan(Ln. 3846) o fUS$400 million, approved inFebruary 1995 andclosed one year late inDecember 2003. This report is based on the ImplementationCompletionReports (Report no. 16583 o f May 15,1997; Report no. 24342 dated June 21,2002; Report no. 25612 dated June 16, 2004; andReport no.29194, o fApril 23,2004) preparedby the East Asia andPacific Regionthe appraisal documents (Report no. 8470, June 11,1991; Report no. 14072, July 7,1995; Report no. 13468, January 20,1995; andReport no. 13498, January 31,1995), loan documents, project files, and discussions with Bank staff. An Operations EvaluationDepartment (OED) missionvisited ChinainFebruarymarch 2005 to discuss the effectiveness o f the Bank's assistancewith the government andthe project implementing agencies. The collaboration and assistanceo f all their officials are gratefully acknowledged. Following standardOED procedures, the draft o fthis PPARwas sent to the borrower and implementingagencies for comments before finalization. Comments from theborrower have been attached as Annex D. i x Summary The projects examined by this PAR-ErtanHydroelectric I& 11,Sichuan Transmission, andZhejiangPower Development-cover a 12-year periodfrom 1991to 2003. They had a number of common objectives, most particularly the alleviation o fpower shortages and institutional development (including wide-ranging utility and sector-level reforms), as canbe seen from the table below: Project Objective Ertan Sichuan Zhejiang Power Hydroelectric Transmission Devt. Increasepower Y Y Y supply Transfer technology Y Y -- Capacity building Y Y Y . Tariffreforms N Y Y Sector reforms -- Y Y Of which: --- Commercialization Y Y Corporatization ---- Y Y Introduce N -- Y competition ReduceT &Dlosses -- -- Y The overalloutcome o fthe ErtanHydroelectric Project(Phases IandI1combined) was satisfactory. Highlyrelevant objectives were achieved andproject resources were effectively utilized. The 3300 megawatt power plant will produce a large amount (15 terawatt-hours) o f clean electricity for several decades to come. It i s already yielding major economic and financial benefits for Sichuanwhich are highlyrobust. Sustainability i s assessed as likely. The project's institutional development impact was high. Bank and borrower performance were both satisfactory. The Sichuan Power Transmission Project was an indispensable complementto the Ertan project since it connected the Ertanpower plant to the major cities o f Chengdu and Chongqing bymeans o f a high-voltage transmission network. The project also addressed important reforms o fthe provincial power utility's organization, management, and financial practices. The overall outcome o fthe project was satisfactory. Its institutional development impact was highand sustainability is likely.Bank andborrower performance were both satisfactory. The physicalcomponents o fthe ZhejiangPower Development Project were completed satisfactorily andhave producedthe expected outcomes interms o fincreased output o f electricity andreduced technical losses. Institutionalcapacity building, thoughimportant, was not as crucial inthe Zhejiang PowerDevelopmentProject because it was a utility which was already somewhat ahead of most o f its provincial peers andwas also a long- X standingborrowerfi-om the Bank.Onthe other hand, the objective o fpromotingpower sector reforms carried much more weight inthis project, as Zhejiang served as apilot for numerous reforms that were later introducednationally. Manyuseful lessonswere obtained fiom the three-year experience with a competitive generation marketthat was set up inZhejiang province under the project. The experience increased awareness o fthe benefits o f competition beyondZhejiang to the Chinese power industry at large. The overall IDimpact of this project was highand sustainability i s likely. Bank andborrower performance were both satisfactory. The overall outcome o fthe project was satisfactory. The Chinese power sector hasbeenina state o f considerable flux since 2002, inthe wake o fthe government's decisionto separate generation from transmission. Booming economic growthcombined with insufficient investmentplanninghave ledto the reemergence of significant power shortages nationwide, which has complicated the process o f institutional reforms. This assessment found that the Chinese electricity sector i s presently experiencingconsiderable transitional difficulties inimplementing the 2002 sector reforms. Thebenefits fi-om unbundlingand competitionhave yet to manifest themselves andwill take several more years to do so. The biggestobstacle to greater efficiency and lower costs has been the supply-demand imbalance, which prevents any form o f competitionamong bulk suppliers, andthe absenceo f effectiveregulation. There remains a large agendao funfinishedbusiness to tackle inthe areas o f sector regulation, tariffsetting, powermarkets, andinvestment planning. The experience gainedunderthe three projectsreviewedinthis report, as well as from the pursuit o f concurrent power sector reforms at the nationallevel inChina, offers the following lessons o f general applicability: 0 Power shortages are a barrier to the pursuit o f marketreforms aimed at increasing competition. . 0 Effective regulatoryarrangements should be inplace at the same time (ifnot sooner) as power supply entities are unbundled, inorder to reduce abuses o f market power. 0 Indicative power system planningat the national leveli s essential inorder to avoid boom-bust investment cycles such as the one currentlybuildingup inthe Chinese power sector. Ajay Chhibber Acting Director-General Operations Evaluation 1 Backgroundto the Projects 1. Two o f the projects that are the subject o f this performance assessment (Ertan Hydroelectric and Sichuan Transmission projects) are located inSichuan province of southwest China, which has a populationof about 90 million. The third is inZhejiang, one o fChina's most economically advancedprovinces, located on the east coast, south of Shanghai . 2. Sichuan has a very large hydroelectric potential, only a fraction ofwhich hadbeen developedprior to the ErtanHydroelectricProject. About 40 percent o f installed generation capacity inSichuan at that time was hydroelectric, mostly small run-of-river plants.In2004, totalpower generation capacity inSichuanprovincewas about 20,000 MW', ofwhich two-thuds was hydroelectric. Sichuan is a net exporter of electricity to other provinces, while Zhejiang hasbeenan importer of electricity for about a decade. 3. The Yalong river, one o fthe majortributaries ofthe Yangtze, flows through Sichuan. The Yalong i s 1,500 kilometers long andhas its source inmountains west o f the Sichuan plateau above 4000 meters, dropping to about 1000meters inaltitude, where it joins the Yangtze. The river has the potential to provide about 25,000 MW o fpower generating capacity when all the 20 sites along its lengthare fully developed. 4. Acute power shortagesprevailedinSichuanprovince2inthe late 1980s andmid- 1990s. Power demand was growing robustly at 7 to 8 percent annually. The power sector ingeneralat that time suffered from ascarcity o fskilledmanpower, hadoutdated methods o futilitymanagement and lacked modemtechnology, particularly for power generation. The Sichuan Electric Power Administration (SEPA), the mainpower utility in theprovince, hadbeenresponsible for preparatoryactivities for Ertan, prior to the Government's (GoC) decisionto set up the ErtanHydroelectric Development Company (EHDC) in 1988 with the specific purpose o f developing the hydropower resources o fthe Yalong River. However, as the then sole client o fEHDC, SEPA was responsible for constructing the high-voltage transmission system to bringthe electricity producedat Ertanto the two major cities ofChengdu andChongqing. The latter project, which was supported by a separate IBRD loan approved in 1995, is part o fthis performance assessment. 5. Bythe time the Ertanhydroprojectwas approved in1991, the Bankalready had builtupaportfolio ofsevenpowerprojects inChina, includingthree other hydroelectric plants,butthis was its first project inSichuan, which at that time was China's most populous province. Interms o f design and content, the Ertanhydro project is part ofthe cohort of `first generation' power projects inChina, with a strong emphasis on technology transfer and capacitybuilding, but with minimal policy content. From 1994 onwards, (when the Bank and GoC undertook the first reviews o f sector reform options), ~ 1.The sixthlargest inChina. 2. This was also true of Zhejiangprovinceat that time. 2 the Bank's power projects nearly always addressedinstitutionalreform issues as part o f the design o fnew lendingoperations. The Sichuan Transmission andZhejiang Power Development projects thus belongto the subsequent `generation' o f Bank-fundedpower projects inChna. 6. The Bankhad already made two loans to the Zhejiang power utility to buildthe Phase Io fthe Beilungangcoal-fired power plant3,so it was a utilitythat was already well known to Bank staffbythe time power reforms came to prominence inthe Bank-GoC sector dialog inthe mid-1990s. Its role as a pioneer or `testing ground' for sector reforms duringthe secondhalfof the 1990swas therefore a logicalprogression. TheBankstill has an ongoing relationship4with the Zhejiang utility,However, there have beenno subsequent Bank-funded projects with the two power companies inSichuan, principally due to macro-economic and GoC borrowingpolicy decisions rather thansectoral factors. ErtanHydroelectricProject I& 115 PROJECTDESCRIPTION 7. The ErtanHydroelectric project was the first step inthe long-term development o f the hydroelectric potential o fthe Yalong River.The 240-meter-high curved arch Ertan damis at 1,200 metersabove sealevel, with a long, narrowreservoir that extends 145 kilometers upstream. The underground powerhouse contains six 550 MW generating units that canproduce an annual average total o f about 17terawatt hours (TWh) o f electricity. Untilthe Three Gorges Project, Ertanwas the largest hydroelectric plant in China. The plant i s connected to the cities o f Chengduand Chongqingby 500kV transmission lines that were constructed ina parallel Bank-supportedproject. 8. Giventhe large size and long gestation period o fthe project, it was clear from the start that two IBRDloans would berequired. The first for $380 millionwas approved in 1991,andthe second for $400 millionfollowed in 1995, accompanied by a Guarantee operation for commercial financing o f $150 million. Transmittingthe power from Ertan to the mainurbancenters o f Sichuan (Chengdu and Chongqing) requiredthe construction o f a 500kV system, which was partly financedby anotherBank loan o f $270millionto the Sichuan Electric Power Company, also approved in 1995 andreviewed inthis report. PROJECT OBJECTIVES 9. The mainobjectives ofthe ErtanIhydroelectric project were to: 3. The subject ofPPAR # 19510 issued in 1999. 4. Tongbai PumpedStorage Project. There were two consecutive phases o fthe Ertanhydroelectric project, each one the subject o f a separate loan. W i h the Bank,ErtanPhaseIand ErtanPhase I1were appraised at dfferent times and treated as separate `projects' with their own identification code. 3 (a) provide additional generating capacity to the power system inSichuan Province inorder to alleviate acute electricity shortages; (b) assist inthe transfer o fmodem technology and inthe introductionof efficient construction methods in order to reduce the cost andprevailinglong gestation periods o f large hydroelectricprojects inChina; (c) contribute to further improvements inthe analysis o f environmentaland ecological impacts o fhydroelectricresource development and inthe design o f related mitigationmeasures; (d) enhance the institutionaldevelopment o fEHDC by strengtheningits organization through a modernmanagement training program and introducingo f economic efficiency andpricing principles; and(e) provide technical assistanceinproject design and implementation, and for the promotion of optimal operation o f the power system, prudent financial management, andmanpower development. 10. Objectives (c), (d), and (e) can be considered as one objective, since they are in practice facets o fthe same overall goal o f institutional development o fthe project entity, rather thandistinct objectives intheir own right. 11. Itwas entirely appropriate that the samethree overall objectives were carriedover to the ErtanI1project when it was appraised five years later. However, at that stage two new objectives were added, namely: 0 thepromotiono fcompetitionthroughthe development ofmarket-oriented commercial arrangements for the sale of power generatedunder the Project; and 0 the diversification o f financing strategies for power development. APPRAISAL, QUALITY AT ENTRY, AND IMPLEMENTATION 12. The project was technically well prepared at appraisal. Good arrangements were inplacefor engineering andconstruction management, includingtheuseofinternational engineering consultants to assist with a very largeandtechnically difficult project. Ertan was the first time that intemational contracting practices were usedina Chinese hydro project. The ICR's coverage o f implementationis comprehensive andneednot be repeated here. 13. The environmental impact assessmentandresettlement programwere prepared to the prevailing standards at that time. The latter provedto be inadequate and a full-blown Resettlement Action Planwas prepared for the appraisal o fthe second loan, but this too turned out to have important shortcomings (para 17). Environmental mitigationmeasures also hadto be reinforced following the second loan, inorder to comply with more stringent World Bank and GoC noms that had come into effect since the first loanwas appraised. 14. Institutional and capacity buildingaspects were also dealt with appropriately in the project design.No safeguards or mitigatingmeasurescould have been incorporated at appraisal to have prevented the project from sufferingthe financial difficulties it encountered inits first five years o foperations (paras 25-26). 4 15. Theproject was appraised inlate 1989but the Bank was unableto negotiate the loanwith GoC due to the political climate following the events that year inTiananmen Square, with the result that major civilworks contracts could not be signed, with loss o f a construction season. Formalnegotiations were eventually concluded inMarch 1991. Bridge financing hadto be arrangedby EHDC/GoC to avoid losing a secondconstruction seasonbecauseBoardapproval took place only inJuly 1991. 16. Site preparation began in 1987, the first generating unit went into service in 1998, andtheproject was fully completedinearly2000, at a cost ofUS$2.2 billion6,about six months ahead o f schedule. Despite initial difficulties anddelays andthe demanding implementation schedule, all six units o fthe power plantwere inservice by end-1999. From a technical standpoint they have been operatingnormally since then, although productioninthe initial years hadto beheldback becauseo f financial anddemand- relatedfactors exogenous to the project (paras 25-26). The plant has beenoperating at close to full capacity in2003-04 and objectives (a) and (b) above canbe said to have been fully achieved. ISSUES Resettlement 17. As describedinthe ICR, at the time o fproject appraisal 29,000 people were expected to needrelocationsince their homes would be submerged by the reservoir. This estimate rose to 35,000 by the time the second loanwas appraised in 1995. However, the latter figure didnot include families affected only bythe loss o f land', nor didit take account of population growth duringthe 1990s amongthe affected families, which then raised the total to 46,000 covered inthe Resettlement Action Plan (RAP). Thereafter about 4,000 people hadto be shifted asecond time since the locations selected for their new settlements were too prone to landslidedamage or because the initial per capita land allocations made to them were insufficient to ensure incomerecovery to their former levels. There are still about 900 people awaiting secondary resettlement, which has provedto be much slower than anticipated, mainly due to the scarcity o f arable land. The assessmentmissionwas informedthat adequate funds are available to complete the program, but that it i s likely to take untilend-2006 to do so. This is aninordinately long period, giventhat all other aspectso fthe project hadbeen hlly completedby late-2000. 18. The financial costs o fresettlement were seriouslyunderestimated. These rose from $104 million at the initial appraisal, to $176 millionwhen the second loanwas appraised and finally to over $290 million at project "completion'", or about $6,300 per person. As indicated inthe ICR, the unit costs as well as the "headcount" for resettlement were poorly estimated, even at the time o fthe second appraisal andRAP. 6. Excludingthe high-voltage transmissionlines, which cost a further US$1billion. 7. Some families homeswere above the waterline andwere therefore excluded, eventhoughtheir land holdingswere submerged. 8. Includingthe unfinishedsecondaryresettlement o f about 900people. 5 19. The Honggeresettlement village visitedby the assessment mission appearedto be ingoodphysicalcondition, about 7 to 8 years after itwas set up.Household electrificationis 100percent, muchhigher thaninthe original villages. Higher-value agricultural activities, such as h i t crops and livestock that were started since the villages were established, seem to be contributing to raisinghousehold incomesbeyondpre- project levels.' However, statistical data on household income levels i s no longer collected, following the non-renewal o f an economic monitoring contract, so it is impossible to quantify the degree o fprogress, or the extent o fthe income shortfall o f those resettled elsewhere for a secondtime. The people still awaiting secondary resettlement have beenleft even further behindinterms o f income restorationin comparison with those now livinginHongge. 20. A ten-year post-project rehabilitationlevy of about 0.3 fen/kWh on EHDC's electricity sales provides funds for bothenvironmental protectionaroundthe reservoir as well as for infrastructure maintenance andimprovements andincome-boosting activities for the resettlement villages. This i s a useful instrument to help ensure project sustainability since it eliminates uncertainty about funding from budgetary sources. 21. Despite the unfinished secondaryresettlement, the Ertanresettlement program appearsto have beensuccessful overall andhas given satisfactory results interms o f restoration or improvemento f livingstandards andbetter access to infrastructure and other services for the bulk o fthe affectedpopulation. Nevertheless, the precarity o f the 900 people still to benefitfrom secondaryresettlement i s unsatisfactoryand GoC cannot be said to have fully met all its resettlement obligationsunder the project. 22. The experience gained from the Ertanresettlement program is likely to be useful inthe designandimplementationofthe subsequentEHDChydroprojects. Theuseofan international environmental andresettlement panel for the first time inChinaproved its worth. Anecdotal evidence suggeststhat the resettlement policies o f the Sichuan government have beenpositivelyinfluenced through exposure to Bankpractices under the Ertanproject, particularly as regardsmonitoring and evaluation. Finances 23. The SAR statesthat project sought to promote `prudent financialmanagement' andto `introduce economic efficiency andpricingprinciples'. This section examines what was achieved inthis regard. Electricity production and sales 24. Electricityproductionby EHDC in2004 was 15.6 terawatt-hours (TWh), two thirds o fwhich was purchased by SEPC. Chongqing Electric Power Company (CEPC) accounts for about a quarter o fpurchases and a few large state-owned industries in Sichuan take the remaining6 to 7 percent. 9. Manyo f the farmers grew lower-value cerealsprior to resettlement, which are not onlymore land- and water-intensive to cultivate, but also offer lower prospects for income enhancement. 6 EHDC-Electricitv sales Year Sales inTWB 1998 0.75 1999 5.o 25. The low level o f sales inthe years 2000-01 after full commissioningo f all six units was mainly due to the failure o f Chongqing Municipality to use its agreedquota'' o f power from EHDC, inviolation o fthe contractual agreement. Itpreferred to buypower from new plantsunder itsjurisdiction, to which it hadprovided fiscal incentives, rather thanbuyfrom Ertan.The slowdownindemand growthinSichuan following theAsian financial crisis also contributed to the problem. SEPC preferred to dispatch its own plants inpreferenceto Ertan. This ledto theperverse outcomeofEHDCbeingforcedto spill water while older, coal-burning power plants operated instead. 26. EHDCwas unableto enforce the terms o fthe PPAsdue to themonopsonistic power o f its two customers andthe absence o f a strong regulatory authority to arbitrate in the matter. The company sufferedserious financial lossesinterms o fforgone revenues at a time when its debt service burdenwas very high. Therewere also substantial economic losses to both Sichuan and Chongqingfrom their suboptimal generation plant dispatching policy. The adverse publicity (including the attention drawn to it bythe Bankinits communications with the central government) about the inability o f EHDC to frndoutlets for its power production, probably contributed to GoC's subsequent decision in2002 to separate generation from transmission, inorder to avoid future misuse o fmarketpower". Theproblemof suboptimal use anddispatch o f energy from Ertanprovedto beshort- lived andwas resolved once the demand for electricity rose sharply from 2003 onwards. Tariffs 27. EHDC's sale prices differ according to the buyer. SEPCnow pays anaverageo f Y0.26kWh while the tarifffor Chongqingis Y0.24kWh (including VAT). The industrial clients o f EHDC" pay less thanhalf(only about YO.l to 0.lSkWh) the price charged to the utilities. EHDCis incurring anannual financial loss ofat leastY0.lkWh onthe 1.2TWhthat it supplies to the state-owned enterprises, or more thanY120million 10.Following the separationof Chongqing, GoC decidedthat SEPC would take 68.5 percent ofthe power fromErtanandthe remainderwould go to CEPC, but these s h e s were later modified to reduce CEPC's share to 27 percentof an `optimal' output of 14.6 TWh. 11. The State Council Power SectorReformPlan(DocumentNo. 5,2002) explicitlyrefers to the problems of "unfair dispatch" and"provincialism" as barriers to the optimalallocation of energy. 12. These are energy-intensiveSOEs that were encouraged to set upplants inthe late 1990sto absorb the "glut" inhydropower from Ertanandwere offeredpromotional power tariffs as incentives. . 7 (USS15 million). Duringthe recent power scarcity, such preferential contracts had a very highopportunity cost becauseother consumerswouldhavereadilypaidmuchmorefor the power, butthe Sichuanprovincial government is unlikelyto eliminate these subsidies inthe foreseeable future. 28. Different prices are charged to SEPC inthe flood anddry seasons and there i s also a daily peak/off-peak price. However, only a single flat price i s usedfor sales to CEPC at all times. There i s no clear logic for this preferential treatment. Nor has the principle o f a separatecapacity andenergy charge inthe tariffbeenintroduced, even though it was agreed with the Bank at the time o f loan negotiations and explicitly covenanted inthe Project Agreement for the secondBankloan. A two-part tariffwith a lower energy charge would probably also have helpedEHDC to find outlets for more of its production inthe early surplus years, when its flat tariff was higher than the cost o f electricity fiom SEPC's old coal-firedplants. 29. Sales volumes above the contracted amount are apparently also to bepriced at the same level as the contract price, which has to be approved bythe Pricing Bureauo f NDRC. Clearly EHDC has little scope to orient its prices and sales to reflect scarcity or glut inthe powermarkets. The present situationis very far from the declaredproject objective o f "market oriented commercial arrangements for the sale o fpower." 30. Inaddition, thecurrent tariffs to SEPC andCEPCarestillsubstantially belowthe GoC approved bulk tariffo fY0.34kwh (including VAT) that was supposedto be reachedprogressivelyby 2006. The agreedtarget price has now beenrevised downby NDRC to YO.278/kWhy to reflect the improved debtprofile ofEHDC. However, average revenue per unit o f sales in2004 was only Y0.207kWh'3, which about the same as the average revenue inthe first three years o f operation. 31. It seems unlikelythat the largegap (over 50percent) between actual andthe "recommended/agreed" tariffwill be closed inunder two years. The looming generation surplus in2007-08 (para 130) will also make it hardfor EHDC to obtain significantly higherprices inthe coming years. Lack o fprogress inraisingtariffs hasbeena cause for concem ever since production started in 1998. The Bankrepeatedly brought the matter to the attention o fthe authorities at boththe provincial andnational level, butwithout success. Inconclusion, it appearsthat the project failed to meet the objective o f introducing economic pricingprinciples intariffsetting. Debt management 32. Inlate2003, theoutstanding$396millionequivalent ofIl3RDcurrencypool loans were prepaidby EHDC usinganew single currency U.S. dollar loan that it obtained from the Bank o f China at LIBORplus 0.6 percent. This has reduced EHDC's outstanding debt to IBRDto about $208 million at end-2004. The operation reduced the debt service outflows and also reduced the risks arisingfrom the currency pool. Currency fluctuation between the U.S. dollar andYuan i s minimal and current internationalopinion ~ 13. Including 17percent VAT, halfo fwhich EHDCi s allowed by GoC to retain as a temporary arrangement and consider as an increase inequity capital. 8 suggests that future changes would lead to arevaluation ofthe parityinfavor o f the Yuan, thereby reducingEHDC's debt service burdenevenfurther. Foreigncommercial cofinancing inEuros accompanied the second IBRD loan to EHDC, inpursuit o f the objective o f diversifying EHDC's financing sources and exposing it to intemational capitalmarkets. However, the commercial cofinancing has also been fully repaid andthe associated IBRD Partial Credit Guarantee canceled. Inaddition, EHDC was able to refinance some o f its local debt at lower interest rates andextendmaturitiesto 25 years. These adjustments to EHDC foreign debt illustrate its financial management capabilities andare evidence of the project's contributionto financialcapacity buildinginEHDC. Profzitability 33. EHDC recorded its first profits in2003 andwas estimated to have earned Y486 million on sales o fY2,756 million in2004. This i s a major turnaround from a loss o f about Y1billion in2000. Given the higher sales volumes and lower interest charges following its debt restructuring, EHDC's finances appear to be slowly reachinga sustainable footing, although its debt-equityratio (92/8)i s still unsatisfactory andwill limit its future borrowing capacity. Agreement inprinciplehasbeenreached for an increase inshareholders' equity14o f about Y300 to 400 million, which will help EHDC to increase its borrowing capability for a new hydro project at Jinping. 34. Lower than agreed tariffs meanthat EHDC i s still substantially below the Bank- covenanted rate of return (RoR) on assets (6 percent versus 15 percent). There were some concems that the RoRcovenant may have beentoo stringent and ifappliedwould have ledto unreasonably hightariffs andthe accumulation oflarge surpluses byEHDC. However, the outcome hasbeenthe opposite, with the non-applicationo f the tariff recommended by GoC itself. 35. There i s little reasonto expect abreakthrough on tariffs inthe near-term. Yet EHDC's financingneeds for the Jinpinghydro project are very large and a reasonable level o f internal cash generation i s importantto mobilize lenders to provide funds for this major project. Futureearningsneedto be reinvested indevelopingthe hydropower potential o fthe Yalong, inlinewith EHDC's mandate andmission statement, but current GoC policy towards EHDC does not appear to be supportive o f this goal. PERFORMANCERATINGS (PHASES 1AND 11COMBINED) Outcome 36. The Ertanhydro project will produce a large amount (averaging 15TWhannually) of clean electricity for several decades to come, eliminatingthe needto burnover six milliontons o f coal per year. As such it yields major economic and financial benefits for Sichuan which are highlyrobust. EHDC, its suppliers and contractor acquired the technology andproject management skills for the design and implementationo f very 14. The shareholders have yet to pay inthe full 20 percent ofthe initial project investment as equity in EHDC. 9 large, world-class hydroelectric schemes. The Bank's capacity buildingobjective for EHDC under the project appears to have beenlargely accomplished (paras 42-44) and it i s now well-placed to pursuenew hydroelectric development schemes on the Yalong. For these reasons, the project outcome i s rated satisfactory. Hadthere beenbetter financial results (para 34) and full completion o fthe secondary resettlement (para 17), the project would have merited a highlysatisfactory rating. Relevance 37. The three main objectives (alleviation o fpower shortages, transfer o f technology, andinstitutionaldevelopment) oftheprojectwere highlyrelevant to the circumstances prevailing at the time (late 1980s) inthe Sichuanpower sector. The creation o f a new entity, EHDC, to build and operatethe project meantthat the institutional development objective had considerably greater relevance thanwould otherwise have beenthe case. 38. Withhindsight, promotingcompetition as anobjective ofthe secondloanseems to have been both unrealistic andpremature inthe prevailingcontext. Its inclusion probably reflects internal World Bank pressuresrather thanan objective assessmento f relevance and feasibility. Onthe other hand, seekingnew financing approaches was certainly relevant and appropriate for anew entity with little exposure to international capital markets. 39. The overall relevance of the project objectives is assessed as high. The inclusion o f one inappropriate objective inthe second loan does not detract from the highrelevance o fthe others. 40. The project's efficacy is rated as high.Three broadproject objectives (increasing power supply, transferringtechnology and developingEHDC as an institution) were largely achieved. The promotion o f competition was not particularlyrelevant to the prevailing circumstances at that time andwas not achieved. Efficiency 41. According to the ICR, the project has an EIRR, o f at least 11percent at prevailing tariffs and considerablyhigher - 16percent when an estimate for the willingness to pay i s included". Efficiency ofresource use is assessedto be substantial. InstitutionalDevelopmentImpact 42. EHDC was converted into a limited liability companywith a Boardo fDirectors in1995, a step that the Bankattachedconsiderable importanceto as part ofthe approval process for the second loan. Today EHDC's share capital is dividedbetween the State DevelopmentInvestment Company andthe SichuanProvincial Investment Group with 48 15. Not recalculatedby the evaluator. 10 percent each, while the remaining4 percent is heldbythe China HuadianCorporation'6. Following GoC's decision to separate generation from transmission, SEPC, the main off taker o fEHDC's productionno longer has a stake init. EHDC has a staff o f about 300, about halfo fwhom are directly involvedinErtanpower plant operations. A new department has beenset up to handlepreparatory work for the construction o fthe Jinping hydro project", upstreamof Ertan. 43. EHDCbenefited from awide rangeo ftraining, advisory services andtechnical assistance duringthe decade-long project implementationperiod. They covered technical, organizationalmanagerial, financial, tariff, resettlement, and environmental matters and havebeenwell described inthe two ICRs. This PPAR considers their impact to have been highlybeneficialinbuildingup the new institution. 44. The project has undoubtedly helpedEHDC become a mature entitythat is now organizationally well placed andhas the capabilities to undertake further major hydroelectric developments on the Yalong River such as the much larger Jinping hydro project. The project's ID impact is therefore rated as high. Sustainability 45. Technical sustainability i s highly likely, given EHDC's demonstrated engineering andoperational strengths over thepast five years since projectcompletion. The Ertan hydroelectricproject will produce largepositive cash flows for EHDC for the next several decades, but financial concernsrelating to the non-observance o fthe approved tariffcannot be overlooked. Nevertheless, overall sustainability is considered to be likely. Bank Performance 46. Preparation and appraisal bythe Bankwere rigorous. High-quality supervision was undertaken very regularlyandrepeated efforts were made to protect EHDC's interests on tariff and dispatching issues. Bank staff exhibitedgreat diligence in supervision, even after loan closing. Overallperformance i s rated satisfactory. Borrower Performance 47. This challengingprojectwas successfully implementedbyEHDC andis producingmajor economic benefits for Sichuan. EHDC's performance was highly satisfactory.However, there were shortcomings inthe quality o fthe initial resettlement plan, GoCpricingpolicies, poor govemment decisions oncompetinginvestments and sub-optimal dispatch policies inthe early years o f operation, as well as inordinate delays incompletingthe secondaryresettlement program.Neverthelessasatisfactoryoverall performance rating isjustified becauseofthe successful implementation o f this large and difficult project. ~~ 16. One ofthe five major state-owned generationcompanies set upin2003. 17.At about 1,900 meters altitude, JinpingI& I1would be plantsof 3600MW and4400MWrespectively. 11 Sichuan Power TransmissionProject PROJECT OBJECTIVES 48. The objectives o ftheprojectwere to: (a) alleviate an acute shortage o f electricity inSichuanprovince; (b) assistindesigningandimplementingpowersubsector reforms in Sichuan; (c) support the implementation o f further power tariffrationalization; (d) promotethe transfer o f contemporary technologies for extra highvoltage power transmission networks; (e) strengthen institutionalcapabilities for environmental management andresettlement planning:and (f) upgrade management and operation capabilities through stafftraining. 49. The above six objectives canbedistilledinto three: increase electricity supply, transfer technology, andpromote institutional development (including wide-ranging utility andsector-level reforms). Capacity buildingandtechnologytransfer were common objectives shared with the Ertanhydroelectric project. But unlike Ertan, which was solely a generation company, SEPC was an integratedpower utility, thereby presentingthe Bankwithanopportunity to engageit inbroader power sector reforms andstart the provincial-level implementation o f reformprinciplesthat hadbeenbroadly agreed at the nationalpolicy-making levels of GoC. PROJECT DESCRIPTION 50. The physical aspectso fthe project consisted o fthe constructiono f over 2,000 kilometers o f 500kV transmission lines and associatedsubstations to connect the Ertan hydroelectricproject to the Sichuanpower grid. Constructiono fthe first o fthese transmission lines was technically challenging due to the highaltitudes (as much as 3,500 meters), severe cold, ruggedandremote terrain that hadto be crossed during ' construction. The rest of the project consisted o fdiverse advisory services, training, and technical assistance to improve SEPC's organization, accounting and financial capabilities, andmanagement information systems. APPRAISAL AND QUALITY AT ENTRY 51, Bankassistancefor the transmission systemnecessary to bringthe electricity produced at Ertanto the major load centers inSichuan was perfectly logical -neither project could produce any returns without the other. Giventhe Bank's involvement inthe Ertanproject since the late 1980s, itwas essentialto ensurethat these crucial transmission lines were built inclose coordination with progress on Ertan. 52. Sichuan Electric Power Companywas a new borrower for the Bankthat untilthis project hadbeen largely untouchedby sector reforms that hadbeguninother provinces. The Bank's strategy at that time'' explicitly entailed addressing the problems inthe 18. SARpara 1.26. 12 provincial utilities and also proposed doing so inthe inlandprovinces where there had been no previous Bankinvolvement with the local utility. 53. Thereform agendawas ambitious but appearedfeasible. According to the SAR", it included: (a) commercializationofpowercompanies, includingprovisionofgreater autonomy; (b) rationalization o fpower tariffs; (c) realignment o fthe regulatory and legal framework for the sector, including the promulgationof a NationalElectricity Law; and (d) strong encouragement for further diversificationinfinancing for power development, includingprivate sector participation. The reform agendahadthe necessary political support andbuy-infrom decision-makers, who were requiredto translate GoC's new nationalpolicies2' for the economy -the transition to a socialist market economy-as well as SOE reform, into actions to improve the performance o fthe electric power sector. 54. Thepolicy content ofthe project was broadly inline withthe Bank's 1993 policy paper for power lending, which gave considerable weight to corporatizationand commercialization. However, transparent regulation, which was another major plankof the 1993 policy, didnot feature inthe designo fthe Sichuan reforms, but was expected to be addressedby a new national electricity law" that was under preparationat the time o f project appraisal. Nor was the unbundlingandprivatizationo fintegrated power utilities envisaged on the "menu" o freform options beingconsidered inChina at that juncture. ReformAction Plan 55. At the time ofproject appraisal in 1994, SEPC hadonlyjust begunto separate itself from the Sichuan Electric Power Administration (SEPA), an oversight body o f the provincial government. It hadnot yet become a limited liability company with a boardo f directors. Its operations andmanagement were still intertwinedwith SEPA. As with most provincial utilities inChina at that time, SEPC was involved ina wide array o f activities andservices far removed from its core business. Electricityprices at that time were among the lowest inChina andthe tariffs were extremely complex. Muchneeded to be done to introduce modem management techniques and financial practices. The project included a substantial package o f foreign technical assistance for capacity building across a broadrangeo f disciplines. 56. These reforms, which were a prominent Part o fthe project, were distilled into an action planfor the commercialization and corporatizationo f SEPC. The actionplanwas approved by GoC and annexed to the agreed minutes o fnegotiations. Implementationo f the actionplanwas also included as a covenant intheproject agreement betweenSEPC andthe Bank. 19. para 2.15. 20. The "Regulations on Transforming the Management Mechanismo f State-Owned Enterprises" (July 1992), the "Regulations on adoption o fNew Accounting System" (July 1993), andthe "Company Law" (Decemberl993), launched the process o f enterprise reform. 21. Adopted bythe NPC inlate 1995 and effective fromApril 1996.I t is still inforce inits original form, despite havingbeensupersededby subsequent changesinmanyimportant areas, butrevisions are being discussed. 13 PhysicalImplementation 57. The first circuit of the transmission line from Ertanto Chengduwas ready intime for the commissioning o f the first unit o fthe Ertanhydro plant andthe PPA with EHDC was also signedat about the same time. However, there were some delays incompleting the other transmission lines in 1999-2000. These were bottlenecks that contributed to the low productionfrom Ertan inits first two years. The final cost o fthe project was US$965 million andthe transmission lines have been operating satisfactorilyduringthe past five years, They are now the vital centerpiece o fthe entire high-voltage network inSichuan. 58. The 500kV system from Ertanhadto bereconfiguredto take account ofthe reductioninpower flows to Chongqing, whichwas originally supposedto receive two- thirds of the power from Ertan,butwhich chose to take only a third. Hence, the transmission system needed to beupgraded to delivermore power to the Chengdu area. This obliged SEPC to construct anadditional 500kV line and substation that hadnotbeen parto fthe original design. SEPC also took steps to strengthenthe transmission links with therest of the Central ChinaPower Gridto enable greater "exports" ofpower from Sichuan to other provinces22,particularlyinthe wet season. SEPC undertook these investments without recourse to additional World Bankfinancial assistance. In addition, the initial designcapacity o fthe transmission lines23was insufficient to evacuate Ertan's maximum power productionduringthe rainy season. Reinforcement is now underway to eliminatethis power transfer bottleneck. 59. About 3600 households were relocatedas a result o fthe project. As inthe case o f the Ertanproject, the quality ofthe initial resettlement actionplanwas poor, although prepared inaccordance with the Bank's requirements of the time. TheRAP'Sdeficiencies were remedied duringthe early phase ofimplementation andindependent monitoring and evaluation arrangements were put inplace to oversee the resettlement program, which was completed satisfactorily at a cost o fUS$64 million, five times greater thanestimated at appraisal. INSTITUTIONAL DEVELOPMENT ISSUES 60. The S A R statesthat project sought to "assist indesigning andimplementing power sector reforms". This section discusses the results achieved inpursuit o fthe project's refom goals. Implementationof Reforms 61. As statedinthe SAR, "the objective o fthe reforrmpackage isto develop SEPC into a limitedliability company infull conformity with the Company Law, separated fiom the government, financially autonomous and self-sufficient, with clearly defined ownership structures andrights, and operated according to modemcommercial 22. Net exports fromSichuan to other provinces in2004 were about 7,650 GWh, or about 12percent of electricity sales within Sichuan. 23.2,900 Mw versus the 3,300MW maximumcapacity of Ertan. 14 management principles andprocedures. SEPC's Action Planincludes an integrated, step- by-step program o fmeasures to achieve this objective by 1998." Although sector reforms proceeded somewhat differently than envisaged at appraisal, the above goals have been largely achieved, but took several years longer than expected. Onthe other hand, insome fields reforms have proceeded much furtherthan anticipated a decade ago, largely as a result o fthe landmark2002 State Council power sector reformplan(paras 123-124). 62. Accounting separation24of 10 generationplants and 15 power supplybureaus was achieved in 1999. The final transfer of governmental functions (policymaking and sector regulation) from SEPC to the Sichuan Economic Commission25was not achieved until mid-2000. This inturndelayed SEPC's own internalreorganization. SEPC was eventually registered as a limitedliability shareholding company in2000. 63. In1997, duringprojectimplementation, theboundaries o fSichuanprovincewere changed and Chongqing and its surrounding areas were carved out o f Sichuan and granted the administrative status o f a separatemunicipality (witha population of about 30 million) under direct control o fthe central government. Numerous complications arose ffom the creation o fChongqingmunicipality, includingthe transfer of some SEPC assets andstaff. Also major sections ofthe transmission lines from Ertanandtwo substations fell within the boundaries o fthe new ChongqingMunicipality. However, it was agreed that SEPC should retain sole responsibility for project implementation. The asset and staff split also delayed movesto change SEPC's legal status. 64. As a consequenceofthe2002 State Council decision to separategeneration fkom transmission (para 123), SEPC's power plantswere fully transferred to the new generation companies inmid-2004, with the exception o f one hydroelectricpeakingplant that it hasbeenallowedto retain. 65. Transferringnon-core activities such as staffmedical andeducational facilities to the provincial government is proving muchharder. These hadbeen separatedfrom SEPC inaccountingterms duringthe SEPC reorganizationin2000, butremainpartofits overall responsibilities. The Sichuan government i s reluctant to take onthe financial and staffburden, while the concerned staff are also unhappy as their service conditions would be inferior to their current ones. Due to these difficulties, the transfer is unlikelyto take place in2005. Spinningoff SEPC's 16 subsidiary companies that are involved inmore commercialbusiness activities may be less difficult, but also remains to be done. There are no ongoing plans for a furtherhivingoffo fthe 28 "branch" companies under SEPC that essentially deal withpower distribution. 66. Theproject didnot addressthe issue of sectorregulation, which was being handled mainly at the state level(para 128) throughthe now-defunct Ministry ofElectric Power26and its successor body. Provincial-level regulationwas entrusted to the Sichuan Provincial Commission on Economic Relations andTrade once the SEA was wound up 24. The unbundling of SEPC hadnot been envisaged at thatpoint. 25. SEPA was wound up. 26. Abolished in 1998, when operational and commercial functions were transferred to a new State Power Corporation, and governmental functionsto the State Economic and Trade Commission. . 15 in2000. Inthe coming years, Sichuanprovince will applyregulatoryprinciplesand pricingpolicies that have still to bedefinedby the concerned GoC bodies, SERC and NDRC. 67. Transmissionpricingwas not tackled under the project, since it was assumedthat all the power from Ertanwould be consumedwithin Sichuan and therefore the PPA between SEPC andErtanwould be adequate. Growingvolumes ofpower exchanges acrossprovincial andregionallines now meanthat it i s urgentto reach country-wide agreement on the pricingprinciplesto beusedfor power transmission. SEPC Finances 68. Rationalizationo f the power tariff structure was an explicit project objective. The process began inthe early years ofproject implementation, with the elimination o f differentiatedregionalprices for the same consumer categories, as well as a steady increase inthe price o f electricity. Time o fday and seasonalpricingis used for commercial and industrial consumers, inline with Bankrecommendations. SEPC's financial performanceimproveduntil2000, but then declined thereafter. A bigincrease in capital expenditure and short-term borrowing27coincidedwith slight falls inenergy demand and average power prices. These were the main factors behind its declining profitability during2001-03, that meantit was unable to comply with World Bankloan covenants on financial performance. Accounts receivable also mushroomed, due to poor- performing state-owned enterprises with payment difficulties. The problems were exacerbatedbynew tariffdistortions arising from the provincialgovernment's decision to offer incentives to certainconsumer categories(like energy-intensiveindustries andnew enterprises) inthe form o f discounts to stimulate electricity consumption. These incentives were short-sighted and stimulated the wasteful use o fpower at a time when surpluses were fast disappearing. Suchpreferential pricingwas a major factor contributingto SEPC's weak finances in2001-02. These measureswere finally abolished in2004, dueto thepower shortagesthathitSichuanin2003-04. Overall, theprojectcan be said to have met its goal o f improving tariff structures, although the recent experience inZhejiangprovince(para 105) showsthat there isstillmuchto bedone inSichuanwith regard to residentialelectricity pricing. 69. SEPC's financial performance in2004, with pre-tax profits o fabout Y870 million, was probably its best ever despitethe loss o f income arisingfrom the transfer o f generation plants. This was the result ofhigher energy sales, highersale prices, andthe abolition inmid-2004 o fpreferential tariffs. SEPC was also able to reduce its outstanding long-term debt to its lowest level since 1997. Its debtlequity andself-financing ratios as well as debt-service coverage are now muchhealthier. However, fbture profitability will depend inpart upon SERC/State Grid decisions on transmission pricing. At present, the respective shares o f the retail tariff going to generation transmission anddistribution appearsto be skewed infavor o f generation (para 133), which will need to be addressed 27. GoC's anti-recessionary measures following the 1998 Asian crisis includeda bigpushfor rural electrificationandcapital investment for network upgrading that provincial power companies hadto fund largely fiom their own or borrowedresources. 16 by GoC ifthe other two brancheso fthe electricity supplyindustryare not to be deprived o f adequatefunds for investment. Creation of a Generation Market 70. In1999, SEPCsetupaninternalgenerationmarketforits 10plantsthat accounted for about halfo f all capacity inthe province. This was the first step toward the creation o f abulk power market inthe province and had not been envisaged at the time of project design. The initiative for it appears to have come from SEPC, not the Bank.Nor was it part ofthe initial reform actionplan agreed at the time of loannegotiations. By mid-2000 (when there was a capacity surplus inSichuan), the generation market hadbeen expanded to include non-SEPC controlledplants(PPs andErtan) and generators accounting for about 9,000MW o f capacity28were participating indaily biddingfor 96 quarter-hour "slabs" of generation. A Parallel"swap" marketwas also set up to permit thermal plantsto sell their generation "quotas" to hydro plants,particularly inthe wet season. This proved successful and ledto significant cost savings. However, inthe current environment o felectricity shortages inSichuan, the bulk supplymarket has little relevance. All generators receive the "cap" or ceilingprice o fY289MWh. Therewere manydistortions inthis initial experiment due to SEPC's role as market operator andthe attendant conflict o f interest arisingfrom its direct control over more thanhalfofall generation capacitybeingdispatched. Internationalconsultants (Mercatos Energeticos) were hiredunder the project to improve marketdesign andto draft operating rules. The briefexperience with competitionat the bulk level came to an endwhen the spare generation capacity was absorbed and shortages began in2003. But lessons from it mayprove to be useful in2007 andbeyond, when spare generation capacity is widely expected to be available. At that point, a bigger market -on a regionalrather than provincialbasis -is likelyto prove a more efficient arrangement, particularly as inter- provincial high-voltage transmission links are now muchmore developed thanthey were five years ago. PERFORMANCE RATINGS Outcome 71. The overallproject outcome is assessedas satisfactory, giventhat as a result o f the project, (i) electricity from the Ertanhydro plantreaches its mainmarkets inChengdu andChongqing, thereby contributingto alleviatingpower shortages; (ii) is a SEPC stronger utility andhas acquired the skills to undertake highvoltage transmission projects unassisted; and (iii) sector reforms continueto progress. These were the three broad objectives that the project sought to achieve. 28. About halfo f which was hydroelectric. 17 Relevance 72. Theproject objectives were highlyrelevantto the prevailing circumstances in Sichuan inthe mid-1990s: a pressing shortage of electricity, the unreformedpower supply sector andthe knowledgegap intechnology, utilitymanagement, andfinances. They were also fully consistent with Bank's strategy to support GoC's efforts to bring about a transition from communismto a socialist market economy through the reform o f state-owned enterprises. Today, a decade later, sector reformsretain their topicality and would feature prominently ifthere was to be a new Banklendingoperation. The relevance o fthe project objectives i s therefore rated as high. Efficacy 73. Theproject's efficacy is ratedas high,since all the six project objectives listed in parawere achieved without significant shortcomings. Thereis still a considerable amount o f unfinishedsectoral reformbusinessto complete, but that was not envisaged under the project. Nor was it expected that everything could be accomplished duringa single project with a life of less than a decade, The underlyingproblemo fpower shortages (which were easedas a result o fthe project) hasrecurred, but for reasonsunconnected with SEPC or the project (para 125). Efficiency 74. The project's EIRR as estimated by the ICR i s inthe 12to14 percent range, (dependingupontariffandwillingness to pay assumptions), whch is satisfactory. The estimates do not take account o fthe additional economic benefits arising fi-om the fact that the project facilitated power exports to other provinces. These exports to power-short provinces had a muchhigher economic value to the buyersthanthe tariffpaid bythem to SEPC duringthe power shortages o fthe last two years. Hence, the ElRR i s probably highe129thanestimated inthe ICR. Efficiency is therefore assessed as substantial. InstitutionalDevelopmentImpact 75. As describedinpara 61-65, the projectmade amajor contributionto the institutionalrefoims inSEPC. The extensive3'Bank-fundedtraining program inkey areas such as the design, construction, and operation ofhigh-voltage networks, utility finance, corporate planning, and environmental management also hada positive impact on SEPC's capabilities. Consulting services provided under the project endowed SEPC with a modernfinancial management informationsystem. Overall it i s amuchstronger, commercially-minded company with a better trained staffthan a decade ago. The project's IDimpact was high. 29. Not recalculated by this PAR. 30. Over 800 staff-months. 18 Sustainability 76. Project sustainability is rated likely, despitethe uncertaintyarisingfrom the incomplete sector reorganization. Following the unbundlingof generation and transmission, the 500kV network i s one o f SEPC's prime assets. It i s well maintainedand highly likelyto receive adequate operating andmaintenance funding, given its importance to SEPC's role as a transmission company. For the moment, the "loss" o f its generation assets to the new generation companies does not appear to have hurt SEPC's financial performance unduly. Greater financial autonomy and "independence" from the provincialgovernment depends uponthe quality o f sector regulation, which has yet to be tested, giventhe newness o f the regulator SERC, andthe lack o f clarity about its real authority to set tariffs. Bank Performance 77. The project was an astute blendo fhigh-priority physical investments that complemented the Ertanhydro project, andutilityreforms ina less-developed inland province. Project design and appraisal were good, while supervision was regular and comprehensive, even ifstaff efforts to counteract the adverse effects o fpoor decisions on tariffs and dispatching were ineffective. The Bank, lacking leverage (para 116), could only exhort and attempt to persuade GoC o fthe need to take a particular course o f action. Ideally, there should have been a follow-on project to continue supportingthe sectoral reforms, inthe manner o fthe Bank'swork with the provincial utility inZhejiang, ZPEPC. Overall Bankperformance i s considered satisfactory. Borrower Performance 78. Overallborrower performance i s rated satisfactory becauseo f successful implementation o f the project andrealprogress achieved insector reforms and institutionaldevelopment. These outweighthe shortcomings inthe pricing policies o fthe Sichuan govemment, suboptimal investment by Chongqing Municipality innew thermal plants, andthe underusageo fErtan's hydroelectricityinits earlyyears resultingftom SEPC's favoritism o fits own plants. Zhejiang Power Development Project PROJECT OBJECTIVES 79. The SAR lists the objectives o fthis project as: (a) helpmeet rapidly expanding electricity demand inZhejiangprovince ina least cost manner; (b) promote power sector reform including commercializationand corporatization o fthe provincial power enterprise; (c) upgrade management capabilities and systems to enable the enterprise to operate efficiently ina commercialenvironment; (d) promote competition at the generation levelthrough establishment o fmarket-oriented commercial arrangements between power generation andmarketingentities; (e) encourage alternative financing 19 strategies for power development; (f) improve supply-side efficiency through reduction of transmissionanddistribution losses; and(g) reduce environmental impacts ofnew generation. 80. The multiplicity o fobjectives listed above is striking for their number, diversity, andbreadth. Only a strong andexperienced implementing agency usedto working with theBank (which was the case) couldhavebeen expectedto tackle them all. They were undoubtedly all relevant, but hadvarying degrees o f importance. UnlikeEHDC or SEPC, capacity building, though important, was not as crucial ina utilitywhich was already somewhat ahead o fmost o fits provincialpeers. On the other hand, the objective o f promotingpower sector reforms carried muchmoreweight inthis project than ineither o f the other two projects reviewed inthis PAR andthis topic is therefore the mainfocus o fthe performanceassessmentthat follows. PROJECT DESCRIPTION 81. Inordertoincreaseelectricity supplyintheprovince, theprojectcomprised (1) the construction o f BeilungangPhase I1power plant (3 coal-firedunits o f 600 MW each) (2) transmission network expansion andreinforcement; and (3) distributionnetwork upgrading inHangzhouandNingbo Municipalities. 82. The remainder o fthe project consisted o f a carrying out an agreedprogramof power sector reforms andtechnical assistance andtraining for capacity buildingand reform implementation. APPRAISAL AND QUALITY AT ENTRY 83. The Bank hadbeenclosely involved inthe debates anddesign o fthe Chinese power sector reforms in 1993-94,prior to appraisal o fthis project. Followingthe mid- 1993 GoC-World Bankworkshop3`, it was agreed that Zhejiang would be one o ftwo pilot provinces for the development of sector reforms nationwide. Hence, the policy content o fthe project was given prominence right from the design stage. 84. Prior to appraisal, the Vice-Minister o fthe then Ministry o f Electric Power wrote to the Bank's CountryDirectoP2to spell out the broadprinciples o fpower sector reform that GoC intendedto pursue, essentially (i) the separation o f government from enterprises, (ii) the corporatization and commercializationo f the latter, (iii) improved an legal framework, (iv) expandingthe use o f foreign financing, and (v) tariffreform. These areas became the mainplanks o fthe reformplanfor the power industryinZhejiang and thereafter inmost other provinces as well. 31.The report "Chma Power Sector Reform: Towards Competition and ImprovedPerformance" Report No. 12929(1994) hadbeenpreceded in1993by an IDF-fundedworkshop, study tour and report onreform options prepared bya GoC task force ("Strategic options for power sector reforminChina," ESMAP Report No. 156193). 32. Letter dated 15 December 1993. 20 85. The content o fthe ReformPlanreflected thejudgment o fthe ZPEPC taskforce andhada highdegree o f client ownership. Implementation ofthe ReformAction Plan over four years to end-1997, with dated milestones was included as a loan covenant, even thoughZPEPC recorded its ~ o n c e m ~ that ~its ability to do so inaccordance with the timetable depended upon decisions to be takenby others outside its control. This was a judicious caveat, giventhe likelihood o f delays at the national level infinalizing the electricity law andthe fallout from the decision to wind up the Ministry o f Electric Power. With hindsight, given the path-breaking nature ofthe reforms, it appears that the timetable was rather unrealistic, even for those activities that were predominantlyunder provincial or ZPEPC control. IMPLEMENTATION 86. As described inthe ICR, the physicalcomponents ofthe project were completed satisfactorily andhave produced the expected outcomes intems of increased output and reduced technical losses. The new units o fthe BeilungangI1power plant were commissioned aheado f schedule andhave shown goodtechnical and environmental performance since then. 87. The project was largely completedby2002, but the closingdate was extendedby a year to end-2003 inorder to continue financing furtherwork on the financial management information system. The final cost o f the project amounted to US$1,494 million, two-thirds of w h c h was for the BeilungangI1plant. 88. A total o f2156 people were relocated as a result oftheproject, substantially less than estimated at appraisal. According to the ICR, better, largerhousingwas providedto the affected households. An independent survey o fthe resettledfamilies34revealed that per capita incomehad generally risensignificantly after relocation. 89. The ICR states that emissions from BeilungangI1are 20 percent less than comparable plants inChina, although no comparative datais provided. Since the wording of the project objective relatingto environmentalissuesis POO?, itis notpossibleto draw any meaningfulconclusion from the rather imprecise statement inthe ICR. Inany event, data on emissions36shows that the plant comfortably meets SEPA standardsfor waste water quality, flue gases and dust emissions. 90. ZPEPC's total transmission losses were reduced from 5.8% in 1995 to 4.3 percent in2001, inpartdueto theproject-funded500kV systemreinforcement. These havebeen reduced further to 3.3 percent in2003, although this cannot be attributed to the project. The distribution investments inHangzhouandNingbo helpedto meet demand that doubled infour years, while keeping energy losses inthose areas down to 3 percent. 33. Para 30, S A R Annex 3.4. 34bythe East ChinaInvestigation& DesignInstitute 35. The SAR statesthat the project's environmentalobjectiveis: "reducing the environmentalimpacts o f new generation", without stating what the comparator or benchmarkis. 36ICRp. 26 and Annex 10. 21 91. In order to better assessthe impact of ZPEPC's power plantson ambient air quality, the project providedthe hardware, software, andtraining for an environmental monitoring system. Datawas collected in 1997-98, prior to the commissioning o f BeilungangI1to provide a baseline, and for two subsequent years. The assessment missionwas told that analysis didnot reveal any significant difference inair quality which could be attributed to Phase 11. 92. Unfortunately, the monitoring system has fallen into disrepai?' and since the transfer o f ZPEPC's power plantsto the new generation companies (Gencos), no steps have been taken to revive it. There is no mandatory requirement for the Gencos to carry out air quality monitoring outside the plantperimete?' andthey are unlikelyto do so in future, believing that this i s for the State EnvironmentalProtectionAgency to deal with. INSTITUTIONAL RESTRUCTURING ISSUES 93, From 1998onwards, reform issues intermingled with those addressedunder the follow-on Tongbai Pumped StorageProject, particularly as regardspower markets.The two projects were supervised together and a single aide-memoire was issued, with a consolidated section dealingwith all reform issues for the two projects. Inaddition, given that it was the same set o fpeople on both sides dealingwith reforms under bothprojects, itisvirtually impossibleto attribute certainresults to one orthe other. 94. A revisedreformplan(without milestones) was agreedfor the Tongbai project in 1999. Although almost five years had elapsed since the reformplanagreed for the Power Development Project, a considerable amount o f the content o fthe new planwas a carryover o f unfinishedbusiness from the earlier project. However, the latter also addressednew reform areas such as the creation o f a generation pool andsingle buyer andthe conversionofpower supplybureaus into limited liability distribution companies. 95. BeilungangIpower plant39was established as a limitedliability company in 1997, butthe conversionofZPEPC into a limitedliability company, oneofthe keysteps ofthe reformplanagreed with the Bankwas heavily delayed, inpart becauseo fthe creation o f SPC at the national level andlack o f clarity about asset ownership between it andthe provincialpower companies. After the 2002 separation o fgeneration, ZPEPC retains two hydro plants with a capacity o f about 300MW that it managesonbehalfo f the East China Gridco. Ithas 10prefecture-level power supply bureaus that deal with distributionand still has a substantial numbero fnon-core subsidiary companies that are involved in design, construction, research, andtesting. While these now have a distinct legal status, they are inno way independent or commercially runbusinesses since they rely overwhelmingly on their parent company for work assignments. Financial flows between them andZPEPC are also far from transparent. Commercializationo f the ZPEPC group ~ 37. The equipment was expectedto last 5-6 years, which it did. Major upgrading i s now needed. 38. The four Bank-fhdedmonitoringstations were located 3-5km away from the plants. On-site and stack emissionscontinue to bemeasuredandrecorded. 39. Builtinthe late 1980s with financingfrom the first two IBRDloansto ZPEPC. 22 of companies still has some way to go before it canbe saidto be have been fully achieved. 96. The need for a study ofdistribution restructuring was identifiedin2001, butput aside as premature. The arrangements for ruralpower supply are rather complex, with assets owned inpartby ZPEPC4', the provincial government andthe county government. The staffis employedbythe county, but since 2003 all the operations are managedby ZPEPC. Future separation of distribution into subsidiarycompanies will also require asset valuations and agreementson the respective ownership shares. 97. Work on provincial-level regulationwas heldup by a lack o f state-level guidelines anduncertainty as to where to fit it into the provincial administration. The GoC announcement in2002 of its intentionto create a state-level regulator appears to have ledto the issue beingshelved underthe project, thoughthe follow-on project includedsome technical assistanceto help designaregulatory system for Zhejiang. With hindsight, it seems that inadequate attention was given to the needfor progress in regulation at the state level to at least accompany (ifnot precede) the other sector reforms. Inpractice it has laggedbehind, with adverse consequencesnationwide, as discussed inthe final section ofthis report (paras 127-9). CompetitiveGeneration Market 98. This was a notable feature o ftheproject andthe actual outcome went beyondthe original reform plan, which envisaged an internal market for power purchases fkom ZPEPC plants.In1998-99, when Chinawas experiencing surplus power generating capacity, conditions were propitious for a pilot provincial generation market. 99. With the encouragemento f SPC andSETC at the nationallevel andwith Bank- funded technical assistanceunder the project, ZPEPC thoroughly designed andprepared a bulk trading system after anextensive review ofinternationalexperience. Withhelp from consultants funded under theproject, a state-of-the-art trading system andrelated technical facilities beganoperating on January 1,2000. Bythe time the market was suspendedinmid-2003 due to shortages andload shedding, 70 percent o fthe province's installedthermal capacity'" was participating init. 100. Enabling generatorsto participate inthe market first necessitated the clarification o f asset ownership andclear financial separation o fpower plants, thus layingthe foundation for the subsequenttransfer o f assets to the new Gencos in2003. The market resulted ingreater transparency o f generation costs andprices and ledto a reduction o f 1.5 percent inoverallpower purchase costs for ZPEPC. Gencos were given clear incentives to reduce their own costs, increaseproductivity, andthus enhance their ability to compete. It was also an extremely useful learningexperience for over 600 staff o f ZPEPC as well as the generators, so there was a biginstitutional development impact. 40. Prior to 1998 all rural distribution assetsbelonged to the counties, but subsequent networkupgradingby ZPEPChas led to itacquiring the newlimproved assets. 41.Nuclear andhydropower plants were excluded. 23 Finally, the experience increased awareness of the benefits o f competitionbeyond Zhejiang to the Chinesepower industryat large. The success o f the "experiment" was very likelyto have beena factor inthe State Council's decision to include the creationo f regionalbulk power markets with biddingfor dispatch inthe 2002 sector reformpackage. 101. Unsurprisingly,the market suffered from some imperfections dueto its small size andthe excessive marketpower ofthree generators, who controllednearly70percent o f the capacity. Transmission constraints prevented some plants from maximizing production at particular times to take advantage o f opportunities. As the singlebuyer, ZPEPC hadto support the risk of generation cost increases without the ability to alter its own sellingprices. Nevertheless, the project canbe saidto have achieved the objective o f promoting competitionat the generation level. Manyuseful lessons were obtained from the three-year experience, which will improve the workings o f any future generation markets to be set up inChinawhenthere i s once again an adequate reserve margm. FINANCES 102. After severaluninterruptedyears o ffully satisfactory financialperformance until 2002, ZPEPC was unable to meet the covenanted42self-financing ratio o f 30 percent in 2003 and 2004, due to the size o fits large annual (Y9-10 billion) investment the higher cost ofpower purchasesfrom other provinces, andthe reduced marginleft to it as a T&D company after the separationo fthe Gencos. The position didnot improve in 2004, when it made netprofits o f only Y0.5 billion on sales o fY56 billion, despite a 22 percent increase inits sales volume. Higherprofitability inthe future will depend upon an industry-wide tariff restructuring to redressthe unbalanced share o ftariffs granted to the T&D companies inthe wake ofthe 2002 separation ofgeneration (para 133). 103. Inthe samemanner as for theBank's Ertanloan, the IBRDcurrency poolportion o f the loan for this project was prepaid byZPEPC in2003. However, unlike EHDC it was able to do so from its own resources anddidnot needto refinance the loaninthe local capitalmarket. The Japanese Yenportion4 o fthe commercial cofinancingwas also prepaid. TariffReforms 104. The initial focus o f the Bankwas on achieving unification o fretail tariffs inthe province. Accordingto the action plan, this was due byJanuary 1,1996, but was finally introducedfrom 2001,five years later than covenanted. ~~ 42. Financialcovenants under the subsequent Tongbai pumped storage project have not yet beenrevisedto take account o fthe loss of generation assets andthe reduced share ofretail tariffs that ZPEPC is allowed to retain. 43. Largely funded by commercial borrowings. 44 5 billion Yen, or about US$SOm.The balance of the cofinancing (US$lOOm) was inU S dollars andhas not beenprepaid, so the IBRDpartial credit guarantee remains inforce. 24 105. Tariff improvementswere given aboost bythe power shortages inorder to better manage demand. In2003, for industrial users six time periods andthree rates were brought into flatten the demand curve. Inmid-2004, ZPEPC introducedpeak and off- peakpricing4'for residentialconsumers, as well aprogressively risingblock rateto dampenconsumption. They are the first provincial utility inChinato do so. The energy savings from the residential sector canbe sold at a higher tariff to industrial and commercialusers, who pay more. 106. Although there hasbeenrealprogress on tariff issues, other tariff anomalies continue to persist. For example, the Provincial Pricing Bureauimposes46different wholesale prices to different counties within Zhejiang province, to take account of differingeconomic conditions at the locallevel. 107. At thebulksupply level, ZPEPC pays different prices to thebig Gencos (who account for 60 percent o f its requirements), to prefecturalandmunicipal plantsandto other suppliers outside the province, who represent about 30 percent o f the total. The price o fpower from the latter i s negotiatedbilaterally, while NDRC sets the bulk price to the Gencos. The latter varies accordingto the age o fthe coal-fired plant andthe number o fhours o futilization. The Bankhas expressedits reservations about this kindo fpricing determined (para loo), when it operated a competitive generation market, but that no over many years to no avail. Between 2000-03, ZPEPC's bulk prices were partlymarket longer operates. PERFORMANCE RATINGS Outcome 108. As can be seen from the table below, the project didmeet its stated objectives and achieved tangibleprogress inmany areas, but several o fthe accomplishments were quickly undone -power shortages came back, competitionwas suspended, andZPEPC finances are declining. These were partlydue to exogenous factors, partlyto GoC. 45. Y0.56ikWh from0800 to 2200h andhalfthat rate during night hours, versus a flat tariffofY0.53kwh at all times. So far, over a millionconsumers have switched to the new system, out ofnearly 15 million residentialconsumers intotal. 46. Ultimately the decisionis endorsedby the NDRCpricingbureauinBeijing. 25 I Project Objective I Status I Help meet electricity demand Met, butpower shortagesrecurred. Pursue sector reform including commercialization and Largely met corporatization of ZPEPC Upgrade ZPEPC management capabilities and systems Met Promote competition at the generation level Achieved, but suspended Encourage alternative financing strategies for power Achieved via commercial cofinancing development; and WE3 guarantee Reduce transmission and distribution losses Achieved Reduce environmental impacts o fnew generation Unmeasurable 109. The overall outcome of theproject is assessedas satisfactory. Thetruncated nature o f the achievements o fthe project prevent it from meritinga higher rating. Relevance 110. As was the case inthe Sichuan Transmission project, expandingthe power supply andimplementingsector reforms were the two dominant goals o fthis project. The relevance o f these project objectives i s rated as high. 111. The project objectives were achieved, althoughto varying degrees andfor varying lengths of time. Hence the project's efficacy is assessedas high.The subsequent reversals that have occurred have beenignored inarrivingat this rating. Efficiency 112. Accordingto the ICR, the BeilungangI1plant, which accounts for over 60 percent o ftotal project expenditures, has anEIRRo f about 20 percent at prevailingbulk tariffs4', compared to the SAR estimate o f about 18 percent. The efficiency o fresourceuse i s therefore assessedto be substantial. 47. Not recalculatedby the PAR. 26 InstitutionalDevelopmentImpact 113. The Bankhas had a long andunbroken working relationship with ZPEPC stretching back about 20 years, andwhich continues today. Determiningthe IDimpact o f a specific project ina continuum is necessarily arbitrary.Duringthis period, the entity hasbeentransformed. Working with the BankhelpedZPEPC to upgrade the skill levels o f its staff, and expose them to new ideas andworking methods. ZPEPC exhibited openness andreceptivity to outside help and was able to extract the best o fwhat was on offer. The Bankhad considerable positive influence on ZPEPC's corporate culture as well as on sector policies. Overall IDimpact o fthis project is therefore assessedas high. 114. The process o f change is not yet complete andZPEPC's senior management recognizes that it has to face new challenges and meet higher standards o f service quality andreliability ifit is tojoin the ranks oftheworld's top power utilities, as it aspiresto do. Nevertheless, ZPEPC no longer needs the Bank's financial assistance and its own skill levels are now high enough for it to enter the internationalutility consulting Although ZPEPC would like to prolongits working relationshp with the Bank, seeing it as a "bridge" bothto GoC as well as to the outside world, the case for new lendingto ZPEPC is weak, for both financial and capacity buildingreasons. Sustainability 115. Setbacks inthe sector, such as the reappearanceo f power shortages, the suspensiono fthe competitive generation market and the declining financial performance o fZPEPC althoughnot directly attributable to the project, prevent the project's sustainability from beingrated as highlylikely.Nevertheless, there are goodreasonsto believethat these problems will bereversedinthe next 2 to 3 years. Power shortages are likelyto be eliminatedwithinthe next 12-18 months, which shouldpermitthe reintroductiono f competitionfor generation dispatch. Tariff discrimination against the T&D companies is also likely to beprogressively reduced. Longer-term sustainability is considered to be likely. Bank Performance 116. The good preparation andboldreform features o fthe project, and subsequent high quality supervision all deserve recognition. Possibly the Bank could have done more to highlightto GoC therisks o fnot having a satisfactory regulatoryframework inplace at the time o f sector unbundling, but as statedinthe 2004 CAE as well as inOED's Evaluationo f Assistance to China's energy sector (2000), the Bank's leverage was minimal andits influencehas always dependedupon"persuasion anddemonstration." 117. Bankperformance istherefore assessedas satisfactory. 48. Itis going to provide assistance inplanning, marketing andmanagement to a utilityinVietnam. 27 Borrower Performance 118. As is well described inthe ICR, ZPEPC deserves ahighlysatisfactory ratingfor its performance inimplementing the project. The performance of Zhejiang Provincewas also satisfactory. 119. Onthe other hand, GoC's performance was unsatisfactory. As described inthe subsequent section o f this report, the sector i s indifficulty today inlarge part due to GoC decisions taken duringthe project period- sector planningwas neglected, the moratorium on buildingnew plantswas too long, regulationwas delayed andineffective andtariffs are distorted. While itis true that GoC didimplementthe 2002 "big bang" reforms, and is belatedly hyingto get a grip onmatters inthe sector, thepositive effects are still to come (para 139). 120. Indistillingthe abovethreevaryingperformancesintoasinglerating, thisPAR concludedthat overall borrower performance canbe considered as satisfactory. Power Sector Overview: present problems and future directions 121. The Chinese electric power sector has been ina state o fflux duringthe past three years, following the "big bang" reforms o fApril 2002, when the unbundlingo f generation from transmission anddistributionbegan. 122. The start ofunbundlingwas amajor milestone ina sectorreformprocess that had been long inthe making, andinwhich the World Bankhadparticipated extensively through project lendingactivities, dialog with the Chinese authorities, andthe provision o f free-standing external advisory services stretchingback almost a decadeto 1993. Annex D lists important studies commissioned or supported bythe Bankthat contributed to the process o fdesigning the sector reforms. 123. The State Council-approved reformplano f2002 sought to "break monopoly, introduce competition, improve efficiency, reduce cost, develop more reasonablepricing mechanism, optimize resource allocation, promote power development, acceleratethe integration o f anational grid, andpromote the development o f a fair, orderly, healthy power market system under appropriate government reg~lation"~~.The reforms were expected to be essentially completedby end-2005. However, the above objectives are far from being achieved andthe processwill take at least another five to ten years to complete, with the likelihood o f encountering unforeseenproblems enroute. 124. The first step was the dissolutionof the State Power Corporation (SPC) andthe creation o f five new generation companies each with about 20 percent o fthe generation assets o fthe former SPC. They are all entirely state-ownedsoandthere are many instances 49. State Council DocumentNo.5,2002. 50. Although their core subsidiaries are partially listed onthe stock exchange, some internationally. 28 o f crosdmixed ownership o fpower plants among them. Two transmission grid companies (see Annex C for a description o fthe sector) were also set up at the same time. A nationalregulatoryagency, StateElectricityRegulatory Commission(SERC), was established in2003". 125. Meanwhile, the country was hitby power shortagesYs2which ledto power cuts in 2003 and 2004, andwhich are expectedto continue well into 2006. This i s the consequence o fvery rapid economic growth, which exceeded all forecasts, combined with insufficient new capacity beingbrought on line. The latter was due inlarge part to a two-year GoC moratoriumon issuingpermits for the construction o fnew generation plantsout o f concern that the generation overcapacity in2000-01 wouldmake it difficult to absorb the energy becoming available from the Three Gorges project. 126. The current shortageshave ledto a massive increaseinthe purchase anduse of oil-fired standby generators. Iti s estimatedthat about 20 percent o f China's incremental oil demandin2003-04 was due to captive power generators. The power crisis has also meant that plans for power trading and competitive dispatch, also part o f the sector reformplan, have had to be deferred. 127. The lack o f a high-level policymakingbody such as a ministry for energy at the national level i s a handicap inthe current fluid andtransitional phase o f sector reforms. Fragmentation inthe sector has led to a loss of controlby GoC and a considerable diffusion o fresponsibility. Itplays into the hands o fthe electricity supply enterprises, which to a large extent are able to pursuetheir own expansion plans withminimal ~versight.'~ The absence o f an effective sector regulator exacerbatesthis tendency. 128. Two years after its creation, SERC i s still struggling to establish its authority54 in the face of fuzzy "ground rules" set bythe State Council andthe countervailingauthority of long-established andmorepowerfulbodies such as the National Development and Reform Commission (NDRC), which still has the final word on electricity tariffs nationwide. Lines o f responsibilitybetween SERC andNDRC are not yet clearly demarcated, with the latter seemingly reluctant to surrender any of its regulatory powers over the sector, eventhough it i s over-stretched. SERC has little autonomy and still depends upon abudgetary allocation fromthe Ministryo fFinance (MoF) to cover its operating costs. 129. While the Chinese energy sector abandoned prescriptive centralplanninglong ago, it didnot replace it with strategic or indicative planning. Today, sector planningis virtually impossible given the decentralized andfiagmented context andno single body has a complete picture o f ongoing trends and activities. This is illustratedby the near- 51. "Power Sector Regulationin a Socialist Market Economy," 1997 [WDiscussionPaperNo. 3611was aninfluentialstudythat contributed to the settingupo fa stateregulatory agency. 52. Estimatedby SERC to have been 30,OOOMW in 2004 (Source: China Daily, 26 February 2005) 53. However, they too are suffering fromthe negative effects ontheir overall profitability o fthe lack of GoC control over coal prices. 54. Described inthe localpress as a "toothless tiger" (China Daily, 26 February 2005). 29 spontaneous nationwide boom inpower plant construction triggered bythe power shortages. Many o fthese plants are beingbuilt without the usual governmental clearances anduntilrecentlythe central govemment was unaware ofthe massive scale o fnew investment ingeneration capacity. 130. A recent NDRC investigation hasrevealedthat about 300,000MW ofnew capacity is presentlyunder construction, which i s a massive amount", even by Chinese standards, given that total installed generation capacity (excluding captive generators) in China in2004 was about 400,000MW. About 50,000MW ofnew capacity was brought online in2004 and at least as much i s likely this year. Eventhoughthe demand for electricity is still rising at above 10percent annually, a significant portiono fthis new capacity i s therefore likely to be to requirementsin2007-08, even ifrapid economic growth continues. 131. The expected glut will have a considerable impact on the power sector. Normally, major new generation investments would be accompanied by commensurate expansiono f transmission and distribution, but it i s far fkom clear ifthe provincial power companies are undertakingthese complementary investments. Financial constraints on them, anda less bullishperceptiono f demandis probablyrestrainingtransmission anddistribution (T&D) investments. Hencethere is alikelihoodo fnewpower plantsbeingunable to get their potentialoutput to consumers due to T&D bottlenecks. Inaddition, the surplus capacity could also have serious implications for the Chinesebankingsystem. Ifpower supplyoutstrips demandas expected?manyo ftheseprojects mayrun at low levels of capacity utilization andtheir promoters may have difficulty ingenerating sufficient cash flows to service their loans5'. 132. Conscious o fthe lack o f firm direction for energy policy, the government recently decided to set up an energy policy task force under NDRC, but this will not have the powers o f a ministry or be able to compensatefor ineffective sector regulation andthe lack o finvestment planning. Nor will it be able to prevent a generation supply glut in 2006-07 andthe attendant financial costs. Giventhe substantial amount o fpreparatory work done58on sector regulationinthe five years preceding the 2002 "big bang," it is surprisingthat more was not done earlier by GoC to ensurethat regulationdidnot lagthe institutionalchanges. 133. At the time the generation companies (Gencos) were created in2003, the somewhat ad hoc split o fretail tariffs appears to have given an overly generous share to 5 5 . About 50,OOOMW o fnew capacity was added to the system in2004. 5 6 . Older, less efficient plants could be mothballed, but the experience with Ertanhydro (paras 2 5 - 2 6 ) inits early years suggests that this i s unlikely, unless tariffpolicies (that,Qscriminate against new plants) are changed andgenuine competitiondevelops inthe generation market. 57. Since the major portion o f the loans are fiom state-owned banksto state-owned generation companies, formal defaults are unlikely, but loanrescheduling on a large-scale would be needed to avoid adding to the stock of the banks' non-performing assets. 58. With considerable Bank support, partlyunder the Zhejiang Power DevelopmentProject andpartlyas self-standing AAA such as thejoint MOEP-WB study (discussionpaper 361, 1997)"Power sector regulation ina socialist market economy." 30 the Gencos, which today receive about 70percent ofthe total tariff, while the T&D companies have to cover all their costs with the remaining 30 percent. Furthermore, generation tariffs do not distinguish between capacity and energy charges, distortingplant dispatch andhandicapping new, more efficient plants.The principles to beusedto determine transmission pricing have not yet been finalized by SERCNDRC, over two years after the creation o f the Gencos. Meanwhile, the T&D companies have to bear the bruntofthese regulatory andtariffshortcomings. They feel that they have suffered financially as a result o f the unbundlingo f generation andthat they are underfunded, while the Gencos are able to pursue an "oversized" investment program. While examining the profitability o fthe Gencos was beyondthe scope o f this PPAR, it i s true that transmission has historically been neglected inthe Chinese power sector, andthere are very substantial "catch-up" needs to bemet before the country has an integrated national high-voltage grid. So there i s aprimafacie case that the share o fthe tariffs going to the transmission companies (Transcos) i s inadequate. Since there is no sectoral- mechanism to transfer surpluses from Gencos to Transcos, it i s clear that future tariff increaseswill have to be heavily skewed infavor o fthe Transcos. This process has already begun, inthat the Gencos were only allowed to pass on 70 percent o fthe increase incoalprices to the Transcos at the time ofthe lasttariffadjustment inmid-2004. 134. Although OED undertook a Country Assistance Evaluations9for China in2003- 04, the latter was largelybasedon the detailed OED review o fthe Bank's energy sector assistance to China completed inlate 199g60.It i s instructiveto compare how the situation has evolved inthe five years since then. That report (para 3.25) found that: "...a number o f serious issues remain to b e addressed for the sector to sustain its rapid growth, as highlighted in recent Bank reports and elaborated upon in various parts of this report: gaps in the legal and regulatory framework for private participation; suboptimal system planning, which led to a relative neglect of transmission and distribution investments and gas-fired generation, and the unbridled growth of small and inefficient locally-financed power plants; persisting distortions in wholesale and retail tariffs; apparent inefficiencies in local distribution systems; persisting lack of clarity in power assets ownership and insufficient reliability of utilities' financial data; and uneven monitoring and enforcement o f environmental regulations. The reforms promoted by the Bank under its recent projects aim at addressing most of these issues.'' 135. Taking eacho fthe above issues inturn, this PPARfinds that today, the legal framework hasweaknesses for public enterprises involved inthe power sector. For example, ErtanHydropower Development Company has had difficulties ingetting the terms o f its PowerPurchase Agreements (PPA) observed. Inaddition, there havebeen continuing shortcomings for private players.61The 1996 Electricity Law has been overtakenby subsequent institutional changes andi s no longer an adequate basis for the sector's future development. The regulatoryframework has hardlyprogressed, despite the creation o f SERC. 59. ReportNo. 29734, (OED, July 2004). 60. "The Bank's Assistance to China'sEnergy Sector," Report No. 21891(OED, 2001) 61. This was probablyalso the case five years ago, eventhoughit was not highlighted by theOED report. 31 136. The near-absenceo f systemplanning i s still a serious shortcoming, contributing to a misallocationo f sectoral investments (such as the current over-building o fnew generation plants and insufficient investment inregionalhighvoltage interconnections)62. Infactthepresent situationasregardsplanningmaybeworse thanthatidentifiedfive years ago, becauseofthe largenumber entities that became involved inthe sector following the,2002 unbundling and because o f the further dispersal o f spending authority. The recommendation by OED inits 1999 review that the Bank should help promote comprehensive energy planningdoes not appear to have been followed up. 137. The performance o f distribution systems hasprobably improved as a result o f the substantial investments made innetwork upgrading inrecent years, althoughthere i s no consolidated data to confirm this. Asset ownership i s certainly clearer, following the corporatizationo fmanypower enterprises and the setting up of limitedliability companies. However, the spinning-off o fnon-core businessesby the provincial power companies i s far from complete and likely to take several more years. 138. Oldtariff distortions have been substantially reducedbutnot eliminated63,whle new ones have been created (para 133) that are contributingto resource misallocations. Most powercompanies now probably have better financial informationand accounting systems than inthe late 1990s and follow better environmental practices, althoughthis view i s largelyconjectural since it i s not based on a survey. 139. Inconclusion, this PPARfinds thatthe Chinese electricity sectorispresently experiencing considerable transitional difficultiesMinimplementingthe 2002 sector reforms. The benefits from unbundlingand competition have yet to manifestthemselves andwilltake severalmore years to do so. The biggest obstacle to greater efficiency and lower costs has been the supply-demand imbalance, which prevents any form o f competition6' among bulk suppliers, andthe absence of effective regulation. There remains a large agenda o funfinishedbusiness to tackle inthe areas o f sector regulation, tariffsetting, power markets, andinvestmentplanning66. .The Bank'sE.Asia Regionproject staff argued that "as far as power system planning is concerned, there has been a lot o fprogress in the planningo ftransmission networks and distribution grids, particularly in the area o fregional andinter-regional transmissionnetworks". 63. For example, the persistence o fpreferential tariffs inSichuan andthe use o f a flat tarifffor the energy from the Ertanhydro plant. The Bank's E. Asia Regionproject staff commented that "The sector is not experiencing more difficulties thanthe rest o f the Chinese economy, andis actually performing better than other similar industries." 65. Italso remains to be seen how muchreal competition will occur betweenthe five Gencos, so long as they continue to havejoint shareholdings in plants and all remain fully state-owned. 66The Bank's E. Asia Region project staff commented that "this i s a normal stage inall reforms andthat the Chinese authorities are working out the process slowly but efficiently". They added that "China has made most impressive progress inreforming its power sector inless than three decades". 32 LessonsLearned 140. The experience gained under the three projects reviewed inthis report, as well as from the pursuit ofconcurrent power sector reforms at the national level, offers the following lessons of general applicability: 0 As amply illustrated inthe ICR for the Ertanhydroelectric project, good institutions for resettlement are kef. Chinahas three institutionalfeatures that facilitate successful resettlement and canbereplicated elsewhere: (i) enlightened policies by central andprovincial governments that establish the principles and incentives for resettlement as a development opportunity; (ii) planningand execution based on sound guidelines, managedby dedicated local authorities and open to a fair andParticipatoryprocess; and (iii) o fpost-resettlement funding activities by a levy from project-generated income. Power shortages are a barrier to the pursuit ofmarketreforms aimed at increasing competition. This emerges clearly from the short-lived experience with competition for generation dispatch inboth Sichuan andZhejian provinces68. 0 Effective regulatory arrangements should be inplace at the same time (ifnot sooner) as power supply entities are unbundled,inorder to reduce abuses o f marketpower such as that which occurred inSichuan following the commissioning ofthe Ertanhydroelectric plant6'. 0 Indicativepower system planningat the national level is essential inorder to avoid boom-bust investment cycles such as the one currently buildingup inthe Chinese power sector. The absence o fnational-level oversight andplanning, combined with imperfections inthe flow o f informationto investors was well as to the authorities andinadequate controls on lending(due diligence) by the Chinese financial system, have contributed to over-investment ingeneration and under-investment intransmis~ion~~. 67. This lesson is reproduced verbatim from the ICR o f ErtanI1since it is bothclear and succinct. The Bank's E. Asia Regionproject staff commented that "It is the interference o f government incase o f tight supply that createdthe problems not the market. Reformcouldbe implementedintight supply conditions and ifmarkets are well designed they will rationpower inthe most optimum way". 69The Bank's E. Asia Regionproject staff commented that "The real lesson i s that it would be a long process to change from command-and-control type o f operation to market operation based on contracts and rules, and from old style government control to modem light-handed regulation. The reformprocess should be designedto recognize this". 70The Bank's E. Asia Region project staff commented that "No doubt China needs better energy planning ingeneral andpower systemplanninginparticular. Butthis isnotthe root o fthe current over-investment. This seems to be more o f the issue o f state owned company governance (bank governance as well) rather thanthe issue of sector planning and regulation". 33 Annex A Annex A. BasicData Sheet ERTANHYDROELECTRIC I PROJECT(LOAN 3387) Key ProjectData (amounts in US$million) Appraisal Actual or estimate current estimate Total projectcosts 2200 2601 CumulativeEstimatedandActualDisbursements FY92 FY93 FY94 FY95 FY96 FY97 Appraisalestimate(US$M) 110.0 213.0 286.0 380.0 Actual (US$M) 139.1 243.5 294.4 371.1 377.0 380.0 Actual as % of aDDraisal 126.5 114.5 102.9 97.7 Dateof final disbursement: December 17, 1996 ProjectDates Original Actual Identification/Preparation 07/03/87 Appraisal 12/89 I 11/26/89 Negotiations 03/25/91 Board presentation 07191 07/02/91 Signing 07/91 07111/91 Effectiveness 09/91 09/06/91 Proiectcompletion 12/31196 12/31I2000 Loan closing 12/31196 12/31196 StaffInputs(staff weeks) Weeks 9000 Preparationto appraisal 141.5 397.9 Appraisal 32.5 98.2 Negotiationsthrough Boardapproval 39.5 125.4 Supervision 46.1 121.0 Completion 4.3 11.1 Total 263.9 753.6 34 Annex A MissionData Date No. of Staff Specializations Performance rating Types of (monwyear) persons days in represented problems' field Devel. status objectives Through 02/91 5 5 Engineer, Financial appraisal Analyst (2), Resettlement Specialist, Environmental Consultant Supervision 1 08/92 2 3 Engineer (2) 2 07/93 1 4 Engineer 3 04/94 2 4 Economist(2) Tariff study delayed. 4 07/94 1 13 Engineer 1 5 10195 4 11 Engineer, 1 Environmental Consultant(2), Resettlement Specialist 6 06/96 3 4 Engineer, 1 Resettlement Environmental budget Consultant, approval Resettlement delayed Specialist 7 11/96 4 5 Engineer(2), 1 Resettlement Specialist, Economist Completion Combinedwith 7th supervisionmission Other ProjectData FOLLOW-ONOPERATIONS Operation Loan no. Amount Board date (US$ million) Ertan IIHydroelectricProject 3933 400 08/22/1995 35 Annex A ERTAN HYDROELECTRIC I1 PROJECT (LOAN 3933) Key ProjectData (amounts in US$million) Appraisal Actual or Actual as % of Estimate currentestimate appraisal estimate Total project costs 2200 2601 118.0 ProjectDates Original Actual Appraisal 02/17/1995 Board approval 08/22/1995 Effectiveness 0111711996 1/I711996 Closingdate 12/31/2001 12/31I2001 StaffInputs(staff weeks) Weeks $'OOO IdentificationlPreparation 89.9 356.00 Appraisal/Negotiation 36.2 187.50 Supervision 97.1 585.25 Completion 12.4 45.20 Total 234.7 1173.95 36 Annex A Mission Data Date No. of Specializationsrenresenfed -.-..- .. --- - ~ - ,- Perf(wmance rating (montMyear) persons Implementation Development progress objectives IdentificationlPreparation 10194 9 EnergySpecialist,Economist, Environmental EnvironmentalSpecialist, FinancialSpecialist, Resettlement Specialists(21, Engineers (3) 04/94 10 FinancialSpecialists(3), Energy Preappraisal Specialist,Resettlement Specialist,Economists (2), Engineers (3) Appraisal/Negotiation 0311995 8 Economist, Environmental Specialist, Financial Specialists (2), ResettlementSpecialist (I), Engineers (3) Supervision 06/96 6 Manager, EnergySpecialist, HS HS Economist, Environmental Specialist,Resettlement Specialist,Engineer 11/96 4 FinancialSpecialist, HS HS ResettlementSpecialist, Engineer,Economist 06/97 3 EnvironmentalSpecialist, HS HS ResettlementSpecialist, Engineer 03/98 4 Environmental Specialist, HS S ResettlementSpecialist, Engineers(2) 07/98 3 Environmental Specialist, HS S ResettlementSpecialist, Engineer 12/98 4 Economist, Energy Specialist, HS S ResettlementSpecialist, Engineer 05/99 2 EnergySpecialist, HS S EnvironmentalSpecialist 11/99 4 Energy Specialist,Economist, HS S EnvironmentalSpecialist, ResettlementSpecialist 05/00 7 EnergySpecialist,Economist, S S EnvironmentalSpecialist, FinancialSpecialist, ResettlementSpecialists, Engineers, ITSpecialist 11/00 7 EnergySpecialist,Economist, S S FinancialSpecialist, ResettlementSpecialists (3), Engineer 05/01 10 EnergySpecialist,Economist, S S EnvironmentalSpecialists (2), FinancialSpecialist, ResettlementSpecialists (2), Engineers, Agricultural DevelopmentSpecialist, Micro Credit Specialist 11/01 5 Economist,FinancialSpecialist, S S ResettlementSpecialists, Engineers(2) Completion 04/02 5 Economists(2), Resettlement S S Specialists(2), Engineer 37 Annex A SICHUAN POWER'I"SMISSI0N PROJECT (LOAN3848) Key Project Data (amounts in US$million) Appraisal Actual or Actual as % of Estimate current estimate appraisalestimate Total project costs 874 852 97 Project Dates Original Actual Appraisal 0612511994 Board approval 02/28/1995 Effectiveness 11/20/1995 11/20/1995 Closing date 12/31/2002 12/31/2003 Staff Inputs(staffweeks) Weeks $'OOO Identification/Preparation 2.2 5.4 AppraisallNegotiation 42.7 294.8 Supervision 96.4 401.2 Completion 7.1 33.8 Total 148.4 735.1 38 Annex A Mission Data Date No. of Specializations represented Performance rating (monwyear) persons Implementation Development progress objectives 4 Economist,FinancialAnalyst, ~~IdentificationlPreparation 02/93 Engineers (2) 08/93 7 Engineers (3), Economist, FinancialAnalyst, Resettlement Specialist, Environmental Specialist Appraisal/Negotiation 06/94 8 Power Engineers(4), Economists(2), Financial Analyst, Resettlement Specialist Supervision 03/96 4 Power Engineer, Economist, S S FinancialAnalyst, Operations Officer 04/97 4 Power Engineer, Economist, U U FinancialAnalyst, Resettlement Specialist 12/97 2 Operations Officer, S S ResettlementSpecialist 11/98 4 Operations Officer, Economist, S S FinancialAnalyst, Resettlement Specialist 05/99 3 Operations Officer, Energy S S Specialist,Resettlement Specialist 11/99 3 EnergySpecialists(21, S S ResettlementSpecialist 5/00 6 EnergySpecialist, Energy S S Economist, Power Engineer, FinancialAnalyst, Financial ManagementSpecialist, ResettlementSpecialist 12/00 4 EnergySpecialist,Energy S S Economist, FinancialAnalyst, EnvironmentalSpecialist 06/01 5 EnergySpecialists(2),Financial S S Analyst, Resettlement Specialists(2) 11/01 4 Energy Specialists(2), Financial S Analyst, FinancialSpecialists 04/02 2 Operations Officer, S S ResettlementSpecialist 09/02 4 Energy Specialist,Energy S S Economist, FinancialSpecialist, ResettlementSpecialist Completion 11/02 2 EnergyEngineer, Operations S S Officer 39 Annex A ZHEJIANGPOWERDEVELOPMENT PROJECT (LOAN3846) K e y Project Data (amounts in US$million) Appraisal Actual or Actual as % of estimate current estimate apnraisal estimate Total projectcosts ~~ 1574 1494 95 Project Dates Original Actual Appraisal 312411994 Boardapproval 2/28/1995 Effectiveness 0812311995 Closing date 12/31/2003 12/3112003 Staff Inputs(staff weeks) Weeks 9000 IdentificationIPreparation 80.8 347.3 AppraisallNegotiation 65.0 285.6 Supervision 77.6 400.0 Completion 7.6 61.5 Total 231.O 1094.4 40 Annex A Mission Data Date No. of Specializations represented Performance rating (monthlyear) persons Implementation Development progress objectives IdentificationlPreparation Identification 7 Power Engineers(2), Energy 07/93 Economist FinancialAnalysts (2), Thermal Plant Specialist, EnvironmentalSpecialist Preappraisal 7 Power Engineers(2), Energy 10193 Economist,FinancialAnalyst, Thermal Plant Specialist, EnvironmentalSpecialist, ResettlementSpecialist AppraisaVNegotiation Appraisal 14 Power Engineers(4), Energy Q4/94 Economist, FinancialAnalysts (4), Thermal PlantSpecialist, EnvironmentalSpecialist(2), ResettlementSpecialist,Lawyer Roadshowfor 3 Division Chief, FinancialAnalyst, Guarantee Lawyer 11/94 Supervision Resettlement 2 Power Engineer, Resettlement HS HS Supervision Specialist Mission 10195 04/96 3 Sr. Power Engineer, Financial S HS Analyst, Consultant- Resettlement 12/96 3 FinancialAnalyst, Sr. Power S HS Engineer,Consultant- Resettlement 06/97 3 Pr. FinancialAnalyst, Pr. Power S HS Engineer, Consultant- Resefflement 12/97 3 Pr. Power Engineer, Pr. S HS FinancialAnalyst, Consultant- Resettlement 05/98 4 Pr. Power Engineer,Power S HS Engineer, Pr. FinancialAnalyst, Consultant-Resettlement 11/98 3 Pr. Power Engineer, S HS RestructuringSpecialist, Consultant-Resettlement 09/99 5 Pr. Power Engineer, Sr. Energy S HS Specialist, EnergySpecialist, FinancialManagement Specialist,Consultant- Resettlement 05/00 9 Pr. Power Engineer, Pr. Energy HS HS Specialist, Sr. EnergySpecialist, Sr. Power Engineer,Power Engineer, EnergySpecialist, FinancialManagement Specialist,Consultant-IT, Consultant-Resettlement 06/01 6 Lead PowerEngineer,Lead HS HS EnergySpecialist, Sr. Energy Specialist,Consultants(3) 11/01 3 LeadPowerEngineer, Lead HS HS EnergySpecialist,Operations Officer 04/02 1 LeadPower Engineer HS HS 09/02 2 Sr. Operations Officer, HS HS Consultant-Resettlement 41 Annex A Date No. of Specializationsrepresented Performancerating (monthlyear) persons Implementation Development progress objectives Completion Stakeholder 7 LeadPower Specialist, Sr. Workshop OperationsOfficer, LeadPower 11/02 Engineer, YP, Consultants- Power, Market,Resettlement(3) 09/03 2 Lead Power Engineer, Sr. HS HS Operations Officer Other Project Data FOLLOW-ON OPERATIONS Operation Loan no. Amount Board date (US$ million) Tongbai Pumped Storage project 4529 320 42 Annex B Annex B. Structure of the ChineseElectricPower Industry There i s no longer a ministry for energy or electricity inChina at the state (national) level. The MinistryofElectricPowerwas dissolvedin1998andits administrative andregulatoryfunctions were transferred to the State Economic andTrade Commission (SETC), the State Development and Planning Commission (SDPC), andthe Ministry ofFinance (MOF). A State ElectricityRegulatoryCommission (empoweredbythe State Council) was set upin 2003. It i s inthe processo festablishing six regional andnumerousprovincialbureaux. Regulatory responsibilities remain dividedbetween SERC andthe NationalDevelopment and ReformCommission (NDRC), whose EnergyBureauis responsible for sector policy-making, while its PricingBureauis still the ultimate authority onpower tariffs. The State Power Corporation, createdin 1998, was wound up in2002 as Part o fthe State Council mandated"big bang" inthe sector. Nearly 500 power plants under its control were divided up among five generation companies. Generation comDaniescreatedfrom the former SPC: China Huadian Corporation -controls 38 GW of capacity, o fwhich 75 percent is thermal. China Datang Corporation -controls 42 GW o fcapacity o fwhich 12percent i s hydroelectric China Guodian Corporation -controls 37 GW of capacity, o fwhich 80 percent i s thermal. China Power Investment Corporation-controls 28 GW o f capacity, o f which 67 percent i s thermal. It controls the former SPC- owned nuclear plants. China Huaneng Group -controls 32 GW of capacity (8 percent o ftotal national capacity) -Itpredatesthe2002breakupofgenerationasitwassetupin1985toattractforeign investment tojoint-venture projects inthe power sector. There is also a large amount o fgeneration capacity runby other "independent" companies, many o fwhich are small insize andrunon a "semi-commercial" basis. Transmission comuanies createdfrom the former SPC: State GridCorporation of China -owns and controls five regional grid companies covering North, Northeast,Northwest, Eastand Central China. It also owns provincial power companieslike SEPC andZEPC. China SouthernPower Grid Co. -covers the remaining 5 provinces inthe extreme south o f China (Guangdong, Yunan, Guizhou, Hainan and Guangxi). 43 Annex C Annex C. World Bank Studies of Reforms in the Chinese Electric Power Sector "Strategic options for power sectorreform inChina", Ministryo fFinanceMinistryo f Electric PowerNorldBank, ESMAPReportNo. 156/93, (1993). "China Power Sector Reform: Towards Competition and Improved Performance", WB Report No. 12929(1994). "Power Sector Regulationina Socialist MarketEconomy" WB Discussion Paper No. 361, (1997). "The private sector andpower generationinChina", WB Discussion PaperNo. 406, (2000). "Fostering competitioninChina's power markets", WB Discussion paperNo. 426, (2001). "New Wave OfPowerSectorReformInChina", StateDevelopment andPlanning CommissionnilrorldB d n e r g yFoundation, Workshop Report andWorking Papers, (2001). "Private participation ininfrastructure inChina: Issues & recommendations for the roads, water andpower sectors", WB Working paperNo. 2 (2003). "Making competitionwork inelectricity", SallyHunt,Chineselanguageedition published bythe World Bank (2004). 45 Annex D Annex D.Borrower's Comments - .-- - _c_ 63. Secrion4, sorrthRen" Road,Chmgdu Sichufn, Chi- 610041 Tcl.: +86 28 68133462 Fax:4 6 28 82986604 Fax TransmissionPage ~ ~ ~ DearMr.Alah Barbu, Wehavereceivedyour draftProject Perfonmnce AssessmentReport. Upond i n g the draft report,wehow, generally,theprincipalratings for SichuanPowerTransmissionProject arebasicallythe m e as those b the ICR except the ratingon institutional development impact, which is upgraded fiom "substantial"to '%igh". Iconcur with the consultant opinionoftheBankinupgmdingofthatrating. Sichum Power Transmission Project and Ertan Hydropower Station k c e d with World Bank are now playing a critical role iathe present tightsituationofelectricitysupply anddemandinSichuan. TOO@ 46 Annex D The new management of SEPC has been making tremendous effom kt strengthening management of operations with strong suppart h m the State Grid Corporationof Chinaand the People's Governmentof Sichurm Province. The perfomce of SEPC hasbeen improving steadily, which filndnmentnllychangethethendeterioratingfinancialsituationinthe late years (2001 to 2002) oftheProject The 500kV"ISsionnetworlcsinSichuanisnow steppinginto a new era o fspeedy expansion. The 500 kVErtanpowertransmissionnetworks builtundertheProjectis cwentlybeingreinforced. Iwouldliketotakethisopportunivtoexpressmygratitudeagaintothe WorldBankandthe Bankprojectteam inpa&Aar for the longstanding support forthe Project. - Best regards ZhuCkmgh, GeneralManager SichuanElectricPower Corporation 47 Annex D _.- FROM :EHK FOREIGN RFFAIRS FAX No. :66 28 82987711 J ~ 23. m:ae P I June20,2005 Mr.FernandoManibg The World Bank Fax: 001202 522 3123 DearMr.Manibog, We ackuowIedgerecdptofthe dafto fPmjectPe$ormunce Assessment Report forE m HydroeIectricProjectI&liandanothertwoprojcco inchina. As far as EmnProjectiscdncemed, wethinkthe ~ p t i o n and comments&ed S in the Report aretrue and objective. The ratingsgiveninthe Reportis inline with rhe ICR, indicating that the latter has gentrally reflected the m e situation of the Project The commentsandlessons discusredinthe Reportare not only importantfor the Worid Bank to improve its futures lending opemtions, but also much valuable for us to e"a successfd developmentoffutureprojecfsontheYalong. &theReporthasnoted,EHDChasachievedalotoverthelastthreeyearsinareaslike power sales, SnanciaI performance and institutional development. We believe tbat the company has come to a trackofhealthy and steady development, and we areconfident in its futuregrowth. Of couxse, the Report bas also mrded the issucs still in existmoc, Le. delayed completion of the secondary resedement and slow progress ineffecThg the approved powerM.Onresettlement, EHDCis well awate ofthe WorldBank's ''ze!ro-dmnce policy", and thus has always.beenpositivelyworking with the govemmat authoritiesto b+- tht resettlementworkto a full success.Tofinishthe o%andhg work ina fast and proper "ex, we will continueto give ouc full ~pport rhc reredementdepanments. w & Mr.Matbraniwas informedduringhisvisit, the resenlementoffices havealready worked out a plan, andwe willurge them to acceleratethe process so that these people inayget properlyresenledsooner, graduallyrestowandding theirincomelevel. As for the power&$ our goalisto acbicvc &e government-approvedtariff within2-j years, and we have been actively working toward this goal. Based on what we have achieved,we ace confident. 48 Annex D -. FROM :EHK FOREIW RFFQIRS FAX NO. :E6 tB 82967711 Sun. 23 2885 88:88 P 2 HydropowerD e v o l o pCompany, Ltd. ~ Theinvolvemeat o fthe WorldBankinErtandidnotonlysolvethe financingproblem,but more importantly brought in advanced mauagement concept and mechanism, thereby making the success of E M not only reflected in good control of the project quality, schcdulc and costs, but also dcmonspated by the high-staadardimplementation of the resertlement and envimnment management, and by systematic eahancement of the capacityofEHDC as an IPP.This will thecompany ona long-term basis. InconclusionIwouldIiketotakethisopportunitrtothankyouforthegreatassistancethe WorldBankhas given us overthe years, andthe pcrsktentendeavorsthe Bankhas made to helpimproveour business environment GeneralMamger ' cc: Mr.AlainBarbu ManagerSector,T h d c andGlobalEvaluationGroup OperationsEvaluationDeparunent Thc WorldBank Mr.WuJinkang Director I l l m o dDepartment MinistryofFinance Fa:010-68551125
Groupe de la Banque mondiale · Project Performance Assessment Report
China - First and Second Ertan Hydroelectric Projects, Sichuan Power Transmission Project, and Zhejiang Power Development Project
Voir le document original
Le texte intégral est hébergé par l’organisation qui le publie. lawenc.com indexe les métadonnées et renvoie vers la source officielle.
Texte intégral
Informations clés
Organisation
Groupe de la Banque mondiale
Type de document
Project Performance Assessment Report
Pays
Chine
Source
Banque mondiale