China - East China Jiangsu Power Transmission Project

Document of The World Bank Report No: ICR000051 IMPLEMENTATION COMPLETION AND RESULTS REPORT ( IBRD-43030 ) ON A LOAN IN THE AMOUNT OF US$164 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR AN EAST CHINA (JIANGSU) POWER TRANSMISSION PROJECT September 28, 2006 Energy and Mining Sector Infrastructure Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS ( Exchange Rate Effective 03/31/2006 ) Currency Unit = Yuan Yuan 1.00 = US$ 0.125 US$ 1.00 = Yuan 8 Fiscal Year January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy DO Development Objective EASES East Asia Social and Environmental Sector Unit ECEPGC East China Electric Power Group Corporation (later renamed the East China Grid Company Ltd (ECGC)) ECGC East China Grid Company EMP Environmental Management Plan FMIS Financial Management Information System GOC Government of China GWh Gigawatt-hour IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding ICR Implementation Completion and Results Report IERR Internal economic rate of return ILI Intensive Learning ICR ISR Implementation Status and Results Report JPEPC Jiangsu Provincial Electric Power Company M&E Monitoring and evaluation MVA Megavolt-Ampere MW Megawatt O&M Operation and maintenance PAD Project Appraisal Document PDO Project Development Objective QAE Quality at Entry QAG Quality Assurance Group QSA Quality of Supervision RAP Resettlement Action Plan SIL Specific Investment Loan T&D Transmission and Distribution TA Technical assistance TF Trust Fund TWh Terawatt hour cm Centimeter ha Hectare kV Kilovolt kW Kilowatt km Kilometer mu A traditional unit of land area in China approx. equal to 1/15 hectare or 667 square meters s/s Substation Vice President: James W. Adams Country Director: David R. Dollar Sector Manager: Junhui Wu Project Team Leader: Yuling Zhou  China East China (Jiangsu) Power Transmission CONTENTS 1. Basic Information....................................................................................................... 1 2. Key Dates................................................................................................................... 1 3. Ratings Summary....................................................................................................... 1 4. Sector and Theme Codes ........................................................................................... 2 5. Bank Staff .................................................................................................................. 2 6. Project Context, Development Objectives and Design.............................................. 2 7. Key Factors Affecting Implementation and Outcomes ............................................. 6 8. Assessment of Outcomes......................................................................................... 12 9. Assessment of Risk to Development Outcome........................................................ 17 10. Assessment of Bank and Borrower Performance .................................................... 17 11. Lessons Learned....................................................................................................... 21 12. Comments on Issues Raised by Borrower/Implementing Agencies/Partners.......... 22 Annex 1. Results Framework Analysis ....................................................................... 23 Annex 2. Restructuring (if any)................................................................................... 27 Annex 3. Project Costs and Financing......................................................................... 28 Annex 4. Outputs by Component ................................................................................ 30 Annex 5. Economic and Financial Analysis................................................................ 34 Annex 6. Bank Lending and Implementation Support/Supervision Processes ........... 35 Annex 7. Detailed Ratings of Bank and Borrower Performance ................................ 37 Annex 8. Beneficiary Survey Results (if any)............................................................. 38 Annex 9. Stakeholder Workshop Report and Results (if any) .................................... 39 Annex 10. Summary of Borrower's ICR and/or Comments on Draft ICR.................... 40 Annex 11. Comments of Cofinanciers and Other Partners/Stakeholders...................... 44 Annex 12. List of Supporting Documents..................................................................... 45 Annex 13. Additional Annexes ..................................................................................... 46  1. Basic Information Country: China Project Name: East China (Jiangsu) Power Transmission Project ID: P051736 L/C/TF Number(s): IBRD-43030 ICR Date: 09/28/2006 ICR Type: Core ICR Lending Instrument: SIL Borrower: GOC Original Total USD 250.0M Disbursed Amount: USD 151.1M Commitment: Environmental Category: B Implementing Agencies: East China Grid Corporation Ltd. Cofinanciers and Other External Partners 2. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 06/23/1997 Effectiveness: 07/29/1999 07/29/1999 Appraisal: 01/15/1998 Restructuring(s): Approval: 03/26/1998 Mid-term Review: Closing: 09/30/2004 03/31/2006 3. Ratings Summary 3.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory 3.2 Quality at Entry and Implementation Performance Indicators Implementation Performance Indicators QAG Assessments (if any) Rating: Potential Problem Project at any No Quality at Entry (QEA): None time (Yes/No): Problem Project at any time No Quality of Supervision (QSA): None (Yes/No): DO rating before Closing/Inactive Satisfactory status: 1  4. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Sub-national government administration 3 Information technology 2 2 Power 95 98 Original Priority Actual Priority Theme Code (Primary/Secondary) State enterprise/bank restructuring and privatization Secondary Secondary Regional integration Primary Primary Other urban development Secondary Secondary Pollution management and environmental health Primary Primary 5. Bank Staff Positions At ICR At Approval Vice President: James W. Adams Jean-Michel Severino Country Director: David R. Dollar Yukon Huang Sector Manager: Junhui Wu Yoshihiko Sumi Project Team Leader: Yuling Zhou Noureddine Berrah ICR Team Leader: Noureddine Berrah ICR Primary Author: Ivy H. Cheng 6. Project Context, Development Objectives and Design (this section is descriptive, taken from other documents, e.g., PAD/ISR, not evaluative) 6.1 Context at Appraisal (brief summary of country macroeconomic and structural/sector background, rationale for Bank assistance) Despite the progress achieved during the 1980s and early 1990s, China's power sector was still struggling in the mid-1980s to meet the fast-growing demand, especially in East China. The nation's power sector was still facing inadequate financing of power infrastructure, transmission bottlenecks, inadequate wholesale electricity and transmission pricing systems, and unclear corporate relationships between power sector entities. The sector-related Country Assistance Strategy (CAS) goal supported by the project was to remove infrastructure constraints, ensuring environmentally and socially sustainable economic development, and to transform state-owned enterprises into modern corporate entities. Bank involvement was critical to address those issues adequately based on successful international experiences. 2  6.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The project objective, as stated in the Project Appraisal Document (PAD), was to alleviate critical bottlenecks in the power transmission infrastructure and increase electricity trade on a commercial basis in East China. The objective was to be achieved through: (a) development of a reliable 500 kV transmission network to facilitate optimum location of state-of-the-art generating capacity and transfer of energy to load centers in a cost-effective way; (b) transformation of the East China Electric Power Group Corporation (ECEPGC) into a modern corporate entity; and (c) implementation of a regional power market for power exchange and trade. Selected key indicators to monitor the project impacts included a reduction in value of lost production because of power rationing, a reduction in unused generation capacity because of transmission bottlenecks, a strengthening of the 500 kV transmission network, improvements in transmission reliability, timely development of a power market and capacity building of network planning (Annex 1 (a)). In 2002 ECEPGC lost its autonomous legal status and became a regional department of the State Power Grid Company. Two years later, it was spun off and became the East China Grid Company (ECGC), a new legal entity entrusted with the assets of the former ECEPGC. As such, ECGC became the successor to ECEPGC, including all of ECEPGC's project-related obligations and all assets financed under the project. The Loan Agreement was amended and a new Project Agreement with ECGC, the new implementing agency, was signed. To avoid confusion, the latter's name and acronym (ECGC) are used from para. 6.3 onwards. 6.3 Revised PDO and Key Indicators (as approved by original approving authority), and reasons/justification The project objective was not revised. The project objective remained appropriate despite the important changes that affected China's power sector in the early 2000s. The development of a reliable 500 kV transmission system in Jiangsu Province and increased power trade on a commercial basis with neighboring provinces remained critical to the establishment of a competitive power market in East China to meet the more stringent requirements of the reform plan issued by the government in March 2002. Substantial cost savings allowed ECGC to cancel part of the loan and use the remainder to increase the scope of the physical component. The added component was fully within the scope of the original project objective. The key indicators were not revised during project implementation. 3  6.4 Main Beneficiaries, original and revised (briefly describe the "primary target group" identified in the PAD and as captured in the PDO, as well as any other individuals and organizations expected to benefit from the project) The project primarily benefited power consumers in Jiangsu Province, but also all power consumers in East China. ECGC benefited greatly from the technical assistance (TA) and training components. Finally, power generation companies in the region, including some partially privately owned independent power generators benefited from the reinforcement of the 500 kV transmission system which allowed them better access to their clients. 6.5 Original Components (as approved) The project originally included a physical component to alleviate transmission bottlenecks and TA and capacity building components to improve ECGC's management and further electricity trade in the region: (a) supply and construction of 993 km of 500 kV transmission lines, (b) supply and construction of five new 500 kV substations and extensions, (c) reinforcement of the Nanjing urban transmission systems, (d) consulting services for engineering and construction management, (e) consulting services for the detailed design and implementation of the power market in East China, (f) TA for improved accounting and financial management systems, and (g) management development and training. 6.6 Revised Components In 2002 a new component was added. It consisted of two new 500 kV/220 kV substations and extension of two existing 500 kV/220 kV substations, with a total transmission capacity of 2,500 megavolt-ampere (MVA). The added component cost amounted to US$31.1 million and was financed by part of the savings after completion of the original components. The added component was directly linked to the original development objective and was needed to further reinforce the system to meet the higher- than-expected increase in power demand in Jiangsu Province, especially in fast-growing cities such as Suzhou. At appraisal, the project focused almost entirely on the reinforcement of Jiangsu Province's transmission system. The new component and other additional investments financed by ECGC and the Jiangsu Provincial Electric Power Company (JPEPC) reinforced the interconnection with Anhui, Zhejiang, and Shanghai, increasing the potential for power trading and extending the project benefits to East China. This contributed to greater outcome of the project without increasing the risk or affecting management of the project. 4  6.7 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) The estimated total project cost at appraisal (excluding interest during construction) was US$719.7 million equivalent, of which US$250.0 million was in foreign costs (Bank loan) and US$469.7 million equivalent in local costs. After completion of the procurement of major equipment for the original project components, a comparison of actual equipment costs with the appraisal cost estimates showed significant savings in foreign costs. At the request of the borrower, an undisbursed loan amount of US$86 million was cancelled on July 23, 2002, and the Bank loan amount was reduced to US$164.0 million. The loan was also amended in September 2002, after Board consultation, to (a) use US$31.1 million of the foreign cost savings to finance an additional project component to further reinforce the transmission system; and (b) extend the loan closing date from September 30, 2004, to March 31, 2006, to allow completion of the project. The latest estimate of the total actual project cost (excluding interest during construction) was about US$530.2 million equivalent (of which about US$151.1 million was in foreign costs and about US$379.1 million equivalent in local costs). The latest estimate resulted in an overall cost savings of about 29 percent, compared with the appraisal estimate. The significant savings resulted from a combination of factors: (a) lower actual contract prices (about 10-20 percent lower) than the estimated cost at appraisal in the procurement of transformers, switches, conductors, and communication equipment because of intense competition in the fast-growing Chinese market, especially because of increased participation of Chinese manufacturers in the International Competitive Bidding (ICB) process (their costs were 15-20 percent lower than competitors); (b) lower Manufacturing Unit Value Index and local inflation and interest rates, than anticipated at appraisal; (c) optimized design during project implementation that limited the need for the physical contingencies provided at appraisal; (d) favorable movement of exchange rates; and (e) excellent project management. The latest estimate of project financing requirements amounted to US$552.2 million including interest during construction (compared with US$888.6 million at appraisal), of which US$151.1 million was provided by the Bank loan (compared with US$250 million at appraisal) and US$401.1 million equivalent provided by local loans and ECGC/JPEPC (compared with US$638.6 million at appraisal). Actual disbursement was about US$151.1 million; and the undisbursed balance of about US$12.9 million will be cancelled upon closing of the loan (see Annex 3(a) and 3(b) for details). 5  7. Key Factors Affecting Implementation and Outcomes 7.1 Project Preparation, Design and Quality at Entry (including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable) The project was designed to help alleviate infrastructure bottlenecks, increase electricity supply in an environmentally sustainable manner and promote interprovincial electricity trade. It was in line with two themes of the 1997 CAS: infrastructure development and environmental protection. The more reliable transmission system built under the proposed project was intended to: (a) reduce serious transmission bottlenecks; (b) contribute to reducing environmental pollution through the construction of larger and less polluting plants in optimal locations; and (c) promote interprovincial electricity trade to improve efficiency. The project objective is still relevant and consistent with three of the pillars of the Country Partnership Strategy for the period 2006-10: (a) Pillar 3: managing resources scarcity and environmental challenges; (b) Pillar 4: financing sustained and efficient growth (the stronger transmission system reduced the impacts of shortages in East China that affected growth in several provinces and increased trade led to better use of resources); and (c) Pillar 5: improving public and market institutions. The project was designed to directly address infrastructure bottlenecks; inadequate wholesale pricing and institutional barriers that hampered electricity trade in the region. It was also intended to indirectly address environmental issues by promoting larger-scale and less-polluting coal units located in populated areas. The Bank's safeguard policies on Involuntary Resettlement and Environmental Assessment (project was identified as Category B) were appropriately applied and even surpassed environmental documentation that was prepared according to Category A projects; lessons learned from other projects were identified and taken into account in the design of the project; and government commitment and implementation agency's ownership were very high. At appraisal, the six main risk factors were identified and the project was given an overall "Modest" risk rating. Assumptions and risk mitigation measures were clearly spelled out. The project objectives were consistent with the CAS in compliance with the government's commitment to further competition and market oriented in the whole economy in general and the power sector in particular during project preparation. They are still relevant under the current Country Partnership Strategy and government priorities. The project was highly relevant at the time of preparation. Its design was sound and focused on market development and corporate issues to increase the commercial orientation of the sector. The risks associated in the project were clearly identified and mitigation measures to address these were adequate. The quality at entry is therefore rated satisfactory (S). 6  7.2 Implementation (including any project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable) Factors outside the control of government or implementing agency: The project completion cost was significantly lower than the original cost estimate because of the favorable market conditions during the procurement of goods, lower inflation rates than anticipated, and a steady decline in interest rates. All these factors were difficult to foresee and out of the control of the government and implementing agency. Construction of the Yangtze River Crossing suffered delays during project implementation. The suspension towers of the 500 kV river crossing procured through ICB are currently the tallest in the world (346.5 meters high, weighing 4000 tons each, and with a span of 2,303 meters between towers). Their special nature required more stringent fabrication tolerances and special welding skills to ensure that stress limits in the structure were not exceeded. The contract was awarded to a reputable company whose bid was substantially lower than competitors, at about US$19 million. However, implementation encountered problems from the beginning. Design drawings and fabrication of the structure have been substantially delayed because (a) the supplier seemed to have underestimated the difficulties in the design and fabrication of the towers, and (b) the supplier's local subcontractor lacked adequate experience in the welding of thick steel. As a consequence, critical tower components, such as the angle cruciform of panels between meter 206 and meter 286, did not meet the required specifications and had to be replaced. Thanks to the owner's focus on the quality and integrity of this important component, these hurdles were overcome and the tower was successfully commissioned in November 2004. Fortunately, the one-year delay did not have adverse impacts on the North-South power transmission capability at the time, since commissioning of one of the power sources in the north was also postponed. Factors generally subject to government control: Macroeconomic policies and conditions remained stable during the project implementation period while restructuring of the power sector deepened. The government continued to be committed and supportive of ECGC and the project, especially during the development of a power market in East China despite the emergence of tensions after the unbundling of the sector. Local governments facilitated the implementation of the resettlement and environment program and were very supportive during their successful implementation (see section 7.5). 7  However, cumbersome procurement processes caused delays in the approval of procurement documents. Factors generally subject to implementing agency control: ECGC's decision to custom design its Financial Management Information System (FMIS) and integrate it into an Enterprise Resources Planning (ERP) system was a carefully considered and well-justified decision. The process and phased implementation took longer than envisaged because of two changes in ECGC's legal status during the project implementation period. Despite some implementation delays in constructions and TA activities, the total project cost was well below estimates, counterpart funding was secured in a timely manner and construction quality was excellent. The TA and training programs were also well implemented to meet the company's needs. Overall, project management, staffing, and monitoring and evaluation (M&E) were highly adequate. 7.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Based on the project's intended development objectives, impact were monitored according to quantifiable performance indicators developed during project preparation, with the assistance of the beneficiaries. They mainly include the reduction in value of production because of power rationing, a reduction in unused generation capacity because of transmission bottlenecks, improvements in transmission reliability, and timely development of a power market (refer to Annex 1 for details). These performance indicators were regularly reported on, reviewed, and evaluated against their baseline and target figures in the course of project implementation and supervision. In addition, ECGC's financial performance, compliance with the agreed financial covenants and reporting obligations were regularly monitored and evaluated (refer to section 8.3 for details). The resettlement activities were implemented in accordance with the approved Resettlement Action Plan (RAP). An extensive resettlement M&E network was established within all implementation agencies to allow corrective actions in case of complaints and deviation from the RAP to ensure that entitlements were being delivered to affected people and that the livelihood conditions were restored or improved. In addition, an experienced external monitoring team was selected to carry out external M&E. The regular monitoring efforts and well-prepared reports reinforced the communication between affected people and implementation agencies and ensured the smooth implementation of the RAP. 8  The implementation of the Environmental Management Plan (EMP) was regularly monitored and evaluated by the National Electric Environmental Protection Institute, one of the most respectable environment institutes in the country. Its findings were discussed and followed up on with ECGC/JPEPC management during supervision missions. High- quality Environmental and Management and Monitoring Implementation Reports were regularly submitted in a timely manner. The noise, dust emissions, wastewater and sewage, and electric and magnetic field were closely supervised and were in compliance with technical specifications (refer to section 7.4 for details). As the implementation environment evolved, a minor number of indicators and covenant were modified and amended by the Bank team over time, in consultation with the Borrower and implementing agencies. The rationale, justification, and process for such changes were reflected in supervision documentations. However, the original M&E design is still considered as appropriate in terms of coverage and practical in terms of reporting and evaluation of the outputs and outcome of the project. It also proved to be adaptable as the institutional environment evolved and the reform objectives changed. 7.4 Safeguard and Fiduciary Compliance (focusing on issues and their resolution, as applicable) Resettlement The project complied with all Bank social and environmental requirements. The resettlement for all project components was implemented in a highly satisfactorily manner and according to the policies and requirements of the RAP. The resettlement entities in charge of the RAP implementation from JPEPC down to the city- and county- level government departments and power supply bureaus were established and adequately staffed. During project implementation, the project managers from ECGC and JPEPC attached great importance to the resettlement activities and were very responsive to Bank suggestions and recommendations. Three resettlement workshops were conducted for all resettlement staff from different project components to improve understandings of Bank resettlement policies and RAP requirements. After correcting some problems encountered at the local level for two substations in early implementation, JPEPC required a prior review of compensation contracts for all subprojects before implementation to ensure compliance with the RAP. These efforts were considered to be best practice by the Thematic Resettlement Mission carried out by the East Asia and Pacific Region Environment and Social Development Sector Unit (EASES). At project completion, about 94 ha of farmland had been acquired (22 percent reduction compared with the RAP permanent land acquisition), 351,775 square meters of private housing had been demolished (reduction of about 2 percent compared to the RAP) and 10,039 people had been relocated (69 percent less than planned relocation). The land acquired and the number of relocated households was much lower than planned in the RAP, because of the efforts deployed by the implementing agency to minimize the resettlement impact during 9  the final design, including use, as much as possible, of existing corridors, and adjustment of the alignment of the towers to avoid populated areas (see Annex 13). Environment ECGC implemented the EMP in a highly satisfactory manner. They hired the State Power Environment Protection Institute to carry out the monitoring program defined in the EMP. All the requirements specified in the EMP were faithfully implemented and monitored by the project manager and executive managers in ECGC and JPEPC. ECGC paid particular attention to the timely measurements of electric and magnetic fields. The Bank received ten biannual reports in a timely, complete, and consistent manner. Mitigating measures were fully described and, as appropriate, analyses of the data were presented. The reports and site supervisions indicated that monitoring results primarily for noise, waste sewage, and electric and magnetic fields were in full compliance with all Chinese and World Bank environmental regulations and standards. The implementing agencies followed up on all recommendations made during supervision missions. Procurement A procurement management group was established within ECGC since the inception of the project. This facilitated the preparation for procurement activities for a large quantity and variety of technologically complex equipment. The procurement was carried out in compliance with the Bank's guidelines. A total of 53 packages of equipment and materials were successfully procured through ICB. In hindsight, the decision to split the transmission equipment to smaller packages proved to be successful, because each package required highly specialized technical knowledge. In many cases, however, the time taken by the various offices of the government and ECGC to clear the procurement documents and evaluation reports, as well as contract negotiations, was longer than expected. Financial Management ECGC maintained a set of dedicated accounts for the project. They prepared the project financial statements every quarter. Thorough review of project accounts and discussion and audits confirmed that the financial management of the project funds was adequate. 10  7.5 Post-completion Operation/Next Phase (including transition arrangement to post-completion operation of investments financed by present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable) Rationale for Sustainability Rating: Highly likely The sustainability of transmission services is contingent on good planning, timely investments and operational, financial, and institutional capabilities of the utility(ies). The project prepared ECGC/JPEPC to meet these requirements: