China - Efficient Industrial Boilers (GEF)

 ICRR 12070 Report Number : ICRR12070 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 03/24/2005 PROJ ID : P035693 Appraisal Actual Project Name : Efficient Industrial Boilers Project Costs 101.4 121.1 (GEF) US$M ) (US$M) Country : China Loan/ US$M ) 32.8 grant Loan /Credit (US$M) 31.9 grant Sector (s): Board: EMT - District Cofinancing 0 0 heating and energy US$M ) (US$M) efficiency services (96%), Central government administration (4%) L/C Number : Board Approval 97 FY ) (FY) Partners involved : Closing Date 06/30/2001 06/30/2004 Prepared by : Reviewed by : Group Manager : Group : Peter W. Whitford Fernando Manibog Alain A. Barbu OEDSG 2. Project Objectives and Components a. Objectives To reduce Greenhouse Gas (GHG) emissions, as well as emissions of total suspended particulates, sulfur dioxide and nitrogen oxides, through : a) development of affordable energy -efficient and cleaner industrial boiler designs; b) mass production and marketing of the improved boiler models that have successfully met performance criteria; and c) broad dissemination of more energy -efficient and cleaner industrial boiler technologies throughout China through institutional strengthening, improved information exchange, and energy efficiency and environmental policy reform . These objectives were not revised . b. Components 1. Upgrading of existing Chinese boiler models . (Appaisal cost: $53.1 m.; actual $70.0 m.) 2. Adoption of new high efficiency boiler models . (Appraisal cost: $44.1 m.; actual $46.6 m.) 3. Technical assistance and training . (Appraisal cost: $2.1 m.; actual $2.3 m.) 4. Monitoring and evaluation and project management . (Appraisal cost: $2.1 m.; actual: $2.1 m.) c. Comments on Project Cost, Financing and Dates Reported local costs exceeded appraisal estimates by 30%, partly because of difficulties in cost assignment within the enterprises. The GEF grant was fully disbursed . The main reason for the time overrun of three years was procurement delays in the first phase . Use of standard Bank procedures for industrial equipment proved to be cumbersome, due to a limited number of qualified suppliers and other issues . 3. Achievement of Relevant Objectives: Regarding the overall objective of reducing GHG emissions, the ICR estimates that the project will reduce carbon dioxide (CO2) emissions by a cumulative amount of 160 millions tons by 2019, compared to 180 million tons by 2016 estimated at appraisal. Given the uncertainties inherent in such estimates and the rapid rate of change in China's energy market, this evaluation considers that the project objective was essentially achieved . This was done at a GEF cost of only $0.21/ton, which compares very favorably with the current value of traded carbon credits of $ 3 to 5/ton-CO2 eqivalent. Turning to the sub-objectives: a) Design development. All nine beneficiary boiler manufacturers successfully utilized international technology advances and built prototypes which met the predetermined and ambitious energy efficiency and environmental performance standards. [Achieved] b) Production and marketing. Eight manufacturers went on to commercial production of GEF -supported boiler models and have achieved initial sales success . However, energy savings of about 5% are offset by higher manufacturing costs and sales have fallen somewhat short of appraisal projections e .g. 51% of projections for the year of project completion (2004). However, if sales of GEF-supported grates, which can by themselves result in energy savings of 3 to 4%, are factored in, the project impact has exceeded appraisal projections by about 15%. [Partlialy Achieved] c) Broad dissemination. The project included a number of technical assistance, training and study activities towards the goal of dissemination . The ICR cites a number of factors which should support further dissemination of GEF-supported technologies, including supportive government energy and environmental policies and further Bank projects. The follow-up assessment proposed in the ICR for 2006 should shed further light on this issue . At present, it is too early to tell. 4. Significant Outcomes/Impacts: As China expects to be largely dependent on coal as an industrial fuel for the foreseeable future, the project objective of accessing western technology for greater boiler efficiency and lower emissions of pollutants, remains of critical importance both for national development reasons and for minimizing GHG emissions . As a result of the project, this technology is now well understood by the principal boiler manufacturers in China and the new models developed with GEF support are beginning to penetrate the market . These models are also able to meet China's increasingly stringent standards for emission of pollutants . The project also financed the revision of national and sector standards for boiler and boiler house designs and competency standards for boiler operators, thus expanding the influence of the project to many additional installations . While the GEF boiler designs have a higher initial cost than older models, by 10 to 20%, this is more than offset by improved thermal efficiency and reduced installation costs, resulting in a payback period of about three years . 5. Significant Shortcomings (including non-compliance with safeguard policies): The project was well prepared and the Project Document (PD) is comprehensive. While there is evidence of the input of real technology specialists in the project design, this may not have carried over into the procurement area, where the standard approach of two -stage bidding proved to be rather inefficient, given the small number of suppliers interested in dealing with China. Project risks may have been underestimated e .g. the risk of a change in government policy, which fortunately did not happen, or those related to privatization . Incremental costs were plausibly calculated. The main problem in implementation was procurement, resulting in a two year delay . A prolonged installation and testing period accounted for the remaining year's delay . Several changes in project management were also a factor . Safeguard Policies. Category 'B' was appropriate (it would likely be FI today). The PD includes an "environmental analysis", which, however, focusses mainly on the expected environmental benefits of the project . Negative impacts are handled in one sentence "the appropriate local environmental approvals must be obtained ", without explaining what this process involves, assessing its adequacy or mandating it through a covenant . The ICR is even more cryptic, stating that "All relevant safeguard policies were reviewed and thoroughly discussed and agreed with Government", without mentioning if this was at appraisal or as project units were installed and what exactly was discussed and agreed. Reliance on local environmental permits is appropriate, if the Bank is sure that such processes are adequate everywhere in China that project units were installed, and is backed up by the fact that the project units were designed to meet environmental standards . Nevertheless, some doubt remains as to whether every project unit is operating within acceptable emissions limits . The Bank should have paid more attention to these questions at appraisal and during implementation . No other safeguard policies are likely to have been triggered . The PD included a brief social assessment but this did not extend to the populations impacted by new coal -fired boiler installations. 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev .: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness. 7. Lessons of Broad Applicability: 1. Standard procurement processes may not be appropriate for non -standard items, for which the market in industrialized countries is disappearing . 2. GEF support can make a critical difference for the introduction of energy -efficient technology, especially when it is sustained through all stages of the product introduction cycle - design, demonstration, manufacture and marketing . 3. Consistent government support is also critical, especially during a period of rapid economic change, including privatization of manufacturing enterprises . 8. Assessment Recommended? Yes No 9. Comments on Quality of ICR: The quality oft he ICR is high and it presents a detailed and balanced picture of the project and its accomplishments . There are good explanations on the technology issues involved, the procurement history and on economics and benefits. The main shortfall is the lack of attention to safeguard issues (Section 5). Evaluation of technical assistance, institutional development and monitoring and evaluation is a bit vague, though, and data on Bank costs could have been included. Section 10 could have been used to discuss issues of interest to GEF but these were well presented elsewhere.