China - Inner Mongolia (Tuoketuo) Thermal Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 36566 IMPLEMENTATION COMPLETION REPORT (SCL-41720 TF-29626) ON A LOAN IN THE AMOUNT OF US$400 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A INNER MONGOLIA (TUOKETUO) THERMAL POWER PROJECT June 29, 2006 Energy and Mining Sector Unit East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2005) Currency Unit = RMB (Yuan) Y1.00 = US$ 0.125 US$ 1 = Y8.0 Y1.00 = 100 fen Exchange Rate Effective throughout project implementation (1997-2005) Currency Unit = RMB (Yuan) Y1.00 = US$0.121 US$1.00 = Y8.28 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CAS/CPS Country Assistance Strategy/ Country Partnership Strategy DIP Datang International Power Generation Company Limited ERP Enterprise Resource Planning System EMP Environmental Management Program FMIS Financial Management Information System ICB International Competitive Bidding IERR Internal Economic Rate of Return IMAR Inner Mongolia Autonomous Region IMEPC Inner Mongolia Electric Power Company JJT Beijing-Tianjin-Tangshan Region NCPGC North China Power Group Company (later renamed as the North China Power Grid Company) PPA Power Purchasing Agreement QAG Quality Assurance Group RAP Resettlement Action Plan TA Technical Assistance T&D Transmission and Distribution TEPGC Tuoketuo Electric Power Generation Company Vice President: Jeffrey Gutman (Acting) Country Director David R. Dollar Sector Manager Junhui Wu Task Team Leader/Task Manager: Jianping Zhao  CHINA INNER MONGOLIA (TUOKETUO) THERMAL POWER PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 3 5. Major Factors Affecting Implementation and Outcome 13 6. Sustainability 15 7. Bank and Borrower Performance 16 8. Lessons Learned 18 9. Partner Comments 19 10. Additional Information 24 Annex 1. Key Performance Indicators/Log Frame Matrix 25 Annex 2. Project Costs and Financing 26 Annex 3. Economic Costs and Benefits 29 Annex 4. Bank Inputs 30 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 32 Annex 6. Ratings of Bank and Borrower Performance 33 Annex 7. List of Supporting Documents 34  Project ID: P003650 Project Name: TUOKETUO POWER/INNER Team Leader: Jianping Zhao TL Unit: EASEG ICR Type: Core ICR Report Date: June 28, 2006 1. Project Data Name: TUOKETUO POWER/INNER L/C/TF Number: SCL-41720; TF-29626 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Power (99%); Forestry (1%) Theme: Climate change (P); Pollution management and environmental health (P); Land administration and management (P); Regulation and competition policy (P); Other financial and private sector development (P) KEY DATES Original Revised/Actual PCD: 02/15/1996 Effective: 12/22/1998 Appraisal: 10/22/1996 MTR: Approval: 05/27/1997 Closing: 07/31/2004 12/31/2005 Borrower/Implementing Agency: Government of China/Inner Mongolia Electric Power Company (IMPEPC)/North China Power Group Company (NCPGC) Other Partners: STAFF Current At Appraisal Vice President: Jeffrey Gutman (Acting) Jean-Michel Severino Country Director: David R. Dollar Nicholas C. Hope Sector Manager: Junhui Wu Richard Scurfield Team Leader at ICR: Jianping Zhao Noureddine Berrah ICR Primary Author: Ivy H. Cheng 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: HL Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The project's original development objectives were to: (a) increase electricity supply and electricity trade in North China through the creation of an independent power generation company to develop a mine-mouth power plant in the Inner Mongolia Autonomous Region (IMAR) that would supply the Beijing-Tianjin-Tangshan (JJT) Regional Power Grid through long-term contractual arrangements; (b) improve the efficiency of energy supply and use in the region by: i) introducing modern technologies and implementing effective operations and maintenance practices and procedures in power generation, and ii) reducing losses in the transmission and distribution (T&D) systems of Beijing; (c) advance power sector reform process in China by promoting the development of electricity trade in North China through adequate and market-oriented commercial arrangements; (d) diversify financing sources, improve the access of power entities to international financial markets, and encourage private-sector investment in existing and new power sector enterprises; and (e) promote economic development and also improve soil conservation and desertification control in Tuoketuo County, IMAR. The objectives were responsive to the prevailing priorities of the Government, consistent with the Bank's strategy, and supportive of the implementing agencies' development objectives (refer to Section 3.5 Quality at Entry). 3.2 Revised Objective: The project objectives were not revised. 3.3 Original Components: The project included two main components, and was to be carried out by two implementing agencies. The Tuoketuo Thermal Plant Component, under the responsibility of the newly established independent Tuoketuo Electric Power Generation Company (TEPGC), included: (a) construction of the first two 600 MW coal-fired sub-critical thermal units in IMAR as the first phase of the Tuoketuo power plant; (b) technical assistance (TA) to TEPGC for: i) further development of management capacity including the design and introduction of modern accounting and financial management systems; ii) construction management and engineering services; iii) environmental management and monitoring; iv) the use of simulator and computerized systems to develop operational staff capabilities in plant operation and management; and v) implementation of a plan for assets divestiture and involvement of private investors in existing and new power projects in IMAR; and (c) a desertification control and dryland management program to improve the environmental conditions in Tuoketuo County. The component was designed to help TEPGC and IMAR achieve all the stated project objectives (refer to Section 3.5 Quality at Entry). The Beijing Transmission and Distribution Component, under the responsibility of the North China Power Group Company (NCPGC), included: (a) construction of two 220 kV indoor substations at Xibianmen and Xizhimen; (b) addition of a third 250 MVA, 220/110/10 kV transformer in the underground Wangfujing substation; and (c) TA to NCPGC for the implementation of accounting and financial management systems. The component was designed to support NCPGC to achieve project objectives (a), (b) ii), and (c) (refer to Section 3.5 Quality at Entry). 3.4 Revised Components: Due to concerns over slower than expected load growth, uncertainties surrounding the ongoing power sector reform, and dwindling interest from potential investors resulting from the East Asian financial crisis, the Inner Mongolia Electric Power Company (IMEPC) decided not to further pursue the asset divestiture program as earlier planned. With the Bank's concurrence in 2001, item (b) v) of the Tuoketuo component was dropped (refer to Section 4.2 A (b) for details). - 2 -  3.5 Quality at Entry: Satisfactory. The sector study Strategic Options in Power Sector Reform in China (1993) and the sector report China Power Sector Reform: Toward Competition and Improved Performance (1994) provided vehicles for dialogue between the Bank and Chinese institutions. The project was designed to support their joint agenda of improving the efficiency and minimizing the environmental impacts of electricity delivery and use while alleviating shortages and satisfying surging demand. Specifically, the project was to support two themes stated in the 1997 Country Assistance Strategy (CAS) for China: infrastructure development, and protecting the environment. It was also envisaged to address all key sector issues identified by Government - infrastructure bottlenecks; inadequate pricing structures; lack of commercial orientation; inadequate financing for transmission; potential negative environmental impact; and low efficiency. The project's objectives were to be achieved through physical investment and institutional development. The project components were designed to ensure adequate electricity supply to the fast growing JJT region, and improve the reliability and efficiency of the important JJT Power Grid. Compared to available alternatives the project was deemed the most cost effective, and the least detrimental to the environment. Besides efficient production of thermal power, the new capacity additions would also result in reduced use or retirement of older, less efficient, and more polluting units. Prior to loan approval international engineering consultants were engaged to support TEPGC in design finalization, procurement of goods, engineering, design interface coordination, and construction management (with US$2.4 million funding from CRISSP). Project preparation also benefited from a PHRD grant (US$960,000) that funded consulting services. The Beijing T&D efficiency improvement study aimed to strengthen NCPGC's planning capacity also involved hands-on training for one of the company's power supply bureaus selected for piloting. The Bank's safeguard policies on Environmental Assessment, Indigenous Peoples, and Involuntary Resettlement were appropriately applied. Lessons learned from relevant projects were identified and taken into account in the design of the project. Government commitment and the implementing agencies' ownership were high. At appraisal, four main categories of risks were identified and analyzed; they were: (a) financial sustainability including electricity demand and pricing; (b) cost including equipment prices, impact of delays in construction, and coal prices; (c) delay in the implementation of sector reforms; and (d) operational performance including those affected by the quality of the facilities, coal, maintenance and management. Overall risk was considered modest and manageable. Assumptions and risk mitigation measures were clearly spelled out. In view of the project objectives' clear linkage to the prevailing CAS and government priorities, the quality of project design, and the reasonableness of the risk assumptions, the quality at entry was considered satisfactory. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: Satisfactory. Despite a different global context (including the East Asian financial crisis), shifting government priorities, a new CAS in 2003 and a new Country Partnership Strategy (CPS) in 2006, most of the project's outcome objectives remained relevant to the government at completion. The project, as designed, addressed a critical challenge faced by China