China - Lubuge Hydroelectric Project

DocIuent of The World Bank FOR OFFICIAL USE ONLY Rkpot No. 12549 PROJECT COMPLETION REPORT CHINA LUBUGF. HYDROELECTRIC PROJECT (LOAN 2382-CEA) NOVEMBER 22, 1993 MICROGRAPHICS Report No: 12549 Type: PCR Industry and Energy Operations Division China and Mongolia Department East Asia and Pacific Regional Office This docunent has a resticted distrution 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 Currency Name - Renminbi Curency Unit - Yuan (Y) At Appraisa (1982) $1.0 = Y 2.00 Exchange Rates During Project Years Yearly Average End of Ye 1984 2.0615 2.8027 1985 2.9513 -3.2095 1986 3.4626 3.7314 1987 3.7314 3.7314 1988 3.7314 3.7314 1989 3.7317 4.7339 1990 4.8596 5.2352 1991 5.3603 5.4478 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 cubic meter (in) = 35.3 cubic feet (ft3) 1 metric ton = 1,000 kiograms (kg) I kilometer (kn) = 0.6215 miles (mi) I kilovolt (kV) = 1,000 volts V) 1 megavolt-ampere (MVA) = 1,000 kilovolt-apers (kVA) 1 megawatt (MW) = 1,000 klowatts kW) 1 gigawatt hour (GWh) = 1 million kilowatt hours (kWh) ABBREVIATIONS AND ACRONYMS ADAB - Australian Development Assistance Bureau AGN - Advisory Group of Norway FCB - Fourteenth Construction Bureau GOC - Govemment of the People's Republic of China HWL - High Water Level KHIDI - Kunming Hydroelectrc Investigation and Design Institute LPCMB - Lubuge Project Construction Management Bureauj SBC - Special Board of Consultants SMEC - Snowy Mountains Engineering Corporation TCC - Technical Cooperation Credit YPEPB - Yunnan Provincial Electric Power Bureau  FOR OFFICIAL USE ONLY THE WORD SANIK WmIton D.G 20433 USA Offce of "rector-Oeasral November 22, 1993 win5M TO T EXECUTIVE DIR11EClS AID T8E ESIDERT SUBJECT: Project Completion Report %n China Lubute Hvdroelectr4c Project (Loan 2382-CRA& Attached is the 'Project Completion Report on China - Lubuge Hydroelectric Project (Loan 2382-CHA)' prepared by the East Asia and Pacific Region. Part II was prepared by the Borrower. This was the first Bank loan to the power sector in China. The US$145.4 million loan increased the generation capacity for the Yunnan power. grid. All but US$4 million were disbursed. Suppliers' credits remained unused. Cofinancing was obtained in the form of grants from Norway, Australia and Canada (US$10.8 million, US$4.8 million and US$160,000, respectively). All project components were implemented including a fourth generating unit added to the original scope. The loan introduced into the Chinese power sector - with substancial benefits - not only modern technology, but international competitive bidding for civil works, and the use of a Special Board of Consultants. Generally, coordination between the Borrower, contractors and eonsultants was good. However financial covenants were not met. The PCR gives a thorough account of project preparation and implementation which was mostly uneventful. Overall, the project is rated as satisfactory, and its institutional impact as substantial. Its sustainability is uncertain as it depends upon the consolidation of tariff reforms by the government of the Yunnan Province. The project may be audited together with other power projects in China. This doc=mt as a restricted distributin and may be used by recipients only In the petformane of thelr official duties. Its conett may not otberiase n disclosed without World Dank authoriatio.  VOR OMCIL USE ONLY CHNA LUBUGE HYDROELECTRIC PROJECT (LOAN 2382-CHA) PROJECT COMPETION REPORT Table of Contents Pre1kce.............. EvaluationSummary ... PART I: PROJECT REVIEW FROM BANK'S PERPECnVE e Itdentity ........................... 1 Backound ........................ 1 rQjctObjeive ....................1 Pro.IectDesciption ......... ........ 2 ProjectDesignandCOrpnization .................. 2 ProIectmplementation. ................. ... 3 ctResults . ...................... 4 FinanciilPerfonance ....................... 6 Project Sustainability ....................... 7 Bank Performance ....................... 7 BornowerPerformance ........................ 8 PrjectRelationsip .. ...... .........10 Consuting Services .................10 ProjectDocmentatonandDa ta .11 ConclusionsadRecommendatons.11 PART II: PROJECT REVIEW FROM BOtROWER'S PERSPEV Adequacy andAcuracyofFactualnformation inPart m ........ 13 Comments onth Anlysis PtI. 13 EvaluationoftheBnksPerormane ..14 Evaluation of the Borrower's Own Performance . 14 PART IH: STATISTICAL NFORMATION Related Bank LAnS. .. 16 ProjectTimetable.. 17 Loan Disbursements ... 18 ProjectImplementation. ............ 19 IPr.ectRess .. ... 20 ProjectCostsandFinancing . . 23 Statusof Covenants ...25 UwofBankcResurces . .26 I',TNEXES 1. Overseas Training 2. EconomicAnayss 3. Finucial Statements This document has a restricted distribution and may be used by tecipients oanl in the performance of their official duties. Its contents may not otherwise be disclred without World Bank authoriastion.  C1- CEIUNA LUBUGE HYDROELECTRIC PROJECT (LOAN 2382-CHA) PROJECT COMIPLETION REPORT PREFACE This is the Project Completion Report (PCR) for the first power project in China, for which Loan 2382-CHA in the amount of $145.4 million was approved on February 21, 1984. The loan was closed on June 30, 1992, against the original closing date of June 30, 1990, two years later than originally expected. A total of $4.0 million was canceled on January 5, 1991. Total disbursements under this loan were $141.4 million. Cofinancing for this project included a grant in the amount of NKr 88 million (equivalent to about $10.8 million) from the Norwegian Government, a grant in the amount of $A 6.8 million ($4.8 million equivalent) from the Australian Development Assistance Bureau (ADAB), and a grant in the amount of Can$200,000 grant ($160,000 equivalent) from the Canadian International Development Agency (CIDA). No export/supplier's credits were used tor the procurement of turbines, generators, and auxiliaries, as originally planned. The Preface, Evaluation Summary, Part I, and Part HI of this PCR were prepared by the Industry and Energy Operations Division, Country Department IX (China and Mongolia), of the East Asia and Pacific Regional Office. Part II was prepared by the Lubuge Project Construction Management Bureau (LPCMB). Preparation of this PCR was based on the Staff Appraisal Report (SAR); the Loan and Project Agreements; Bank supervision reports; correspondence between the Bank, LPCMB, and the Yunnan Provincial Power Bureau (YPEPB); internal Bank Group memoranda; and a mission to China in February 1993. Valuable assistance and cooperation were provided to the mission by the staff of the Beneficiary (YPEPB) and LPCMB in the preparation of system information and financial statements, and in updating statistical data, particularly those included in Part III.  - 11 - CHINA LUBUGE HYDROELECTRIC PROJECT (LOAN 2382-CHA) PROJECT COMPLETION REPORT EVALUATION SUMMARY Project Objectives 1. The Government's strategy for resolving issues and achieving its objectives in the power subsector is to (a) introduce modem methods and enhance technology transfer in the power subsector; (b) set energy prices gradually to ensure the fimancial viability of energy producers and encourage the rational use of electric energy; (c) increase autonomy in investment and operation matters; (d) accelerate the pace of hydroelectric development, construction of large coal-fired thermal power plants, and extension of extra high-voltage transmission networks to transmit power to load centers and to interconnect major regional power systems; and (e) replace obsolete and small thermal power generating plants with larger and more efficient units, and convert expensive oil-fired generating units to coal- firing to the extent practicable. The above objectives are being implemented step by step through the lending operations in China. The Lubuge Hydroelectric Project is the first power project in China, the objectives of which are detailed in Part I, pan. 3. 1. Implementation Experience 2. All the main physical components of the project were successfully completed. The first 150 MW unit (Unit No. 4) was commissioned in accordance with the schedule set in the SAR. The second and third units (Unit Nos. 3 and 2) were put in operation about two-and-a-half and five months, respectively, behind the appraisal estimate, but were ahead of the state's revised target dates. 3. The actual cost of the project, when expressed in US dollars at prevailing exchange rates, was about 8 percent lower than the appraisal estimate in spite of the addition of the fourth unit that was not in the original project scope (pam. 6.2), appreciation of foreign currencies with respect to US dollars, and higher local inflation than originally forecasted (Part I, para. 7.2). 4. Total loan amount disbursed was $141,500,000. The closing date of the loan was extended twice from the original date of June 30, 1990 to June 30, 1992, because part of the civil works was delayed and more time was needed for procurement of additional equipment, spare parts, testing instruments, and engineering services (Part I, para. 7.5).  * ~~~~~~~- iii - 5. The covenants contained in the Loan Agreement and Project Agreement were met with the exception of the revenue covenant and the debt service covenant (Sections 4.63 and 4.04 of the Project Agreement). The current tariff has not been adequately adjusted to enable YPEPB to cover all the operating costs and debt services (Part I, para. 8.1). Results 6. All the main objectives of the project were met; Lubuge Hydro station is now playing a key role in the Yunnan power system. In 1992, the four 150 MW units already generated 2,394 GWh of energy and 627 MW of valuable pealdng capacity, about 21.2 percent and 25.7 percent, respectively, of the system total, even though that was a very dry hydro year. 7. Outstanding results were achieved in the construction of the project, including, for the first time in China, use of the Special Board of Consultants (SBC) and foreign consultants in the optimization of project design, introduction of modem technology, use of international competitive bidding for civil works, application of effective construction management, successful cofinancing arrangements, and excellent coordination among LPCMB, consultants, contractors, and manufacturers. The positive impact of the Lubuge project on the construction industry in China far exceeded expectations. 8. The training program of the project was carried out successfully. Altogether, 76 lectures attended by 1,100 participants were given ty the consultants in Kunming and at the job site on engineering and design, modern construction technology, construction management, opeJation and maintenance of specific construction equipment, contract management and claim management. Thirty-six groups received a total of 292 staff- months of overseas training under different sources of financing in the areas of enginering and design, construction supervision and management, modern construction technology, plant operation and maintenance, and financial management. 9. The ex-post internal economic rate of remn (IERR) for the project was 10.2 percent, compared with the appraisal estimate of 12.0 percent (Pant I, para. 7.6). Sustainablity 10. The benefits that YPEPB is reaping from the project are definitely sustainable, since (a) YPEPB has demonstrated its ability to operate and maintain its facilities efficiently; (b) the demand for electncity in Yunnan is growing rapidly and has already absorbed fully the output of the plant within four years; and (c) GOC has consistently shown its commitment to institutional improvement. Flndings and Lessons Learned 11. Major findings are as follows:  - iv - (a) The project was well prepared and implemented. It has been operating satisfactorily since June 1991 with the exception of the fourth unit (Part I, paras. 6.2 and 7.1). (b) The left bank landslide about 1.5 km upstream of the dam has been stabilized. Drilling investigation and instrumentation observation confirmed that the slide was a shallow movement in the talus area. (c) The local government reforested both banks with the Reservoir Maintenance Fund, financed out of the revenues from power sales (Part I, para. 7.7). (d) The resettement program was carried out satisfactorily (Part I, para. 7.7). (e) The dam and other important structures have been monitored and inspected periodically, as required. (f) YPEPB's financial perfonnance suffered from a lack of timely and adequate increases in electricity tariff to meet YPEPB's revenue and debt service covenants specified in the Project Agreement (Part I, para. 8.1). 12. Major lessons learned from the project are summarized below: (a) Since this was the first power project in China, more time should have been alowed in the project cycle. About 13 months elapsed between project appraisal and loan negotiations to solve the issues of using SBC and foreign consultants, cofinancing arrangements, agreement on using ICB for civil works, and prequalification of bidders. (b) Because of the delays mentioned in para. 12(a), the construction schedule and the loan closing date were unreasonably tight. The project completion date should have been set six months after the commissioning of the last unit (June 30, 1990), and the loan closing date should have been set about onc year after the project completion date (June 30, 1991). (c) Contract packaging of procurement was very important for implementing the project. The success of the first ICB contract for civil works in China stemmed from the selection of the headrace tunnel as the first test case. Tunnel construction normally requires less labor compared with other civil works and is carried out continuously cycle by cycle. A foreign contractor would therefore be able to manage it more easily in a market environment prevailing at that time. (d) Introduction of the first Special Board of Consultants (SBC) to China was a success. It was highly justified by the abundant engineering experience, correct judgments, and recommendations of the board members. Not only did it save on project costs but it also shortened the construction period so that some of the key target dates on the critical path could be met. SBC's contribution would have  -V.. been even greater if it had been involved in the early stages of project preparation diuring the review of project layout and selection of dam type. (e) lTns to the grant funds provided by the Australian, Norwegian, and Canadian govemnments, convincing Chinese authorities to use foreign consultants for the first time in China was possible. The contribution of these consultants to the project was highly appreciated by all the related institutions because of their valuable sereces in engineenng and design, construction management and suprvision, and technology transfer and training. Foreign consultants have been used since then for nearly all the Bank-financed projects. The Technical Cooperation Credit's (TCC's) role in providing funds for project preparation remains very important. (f) The turbines and generators of the Lubuge project were supplied by the Lubuge Consortium consisting of Kvaener of Norway and Siemens of Germany. They subcontacted part of the work to a local electrical and machinery works with the first unit supplied mainly by Kvaener and Siemens, gradually reducing the share of foreign partners' inputs unit by unit. While this was a logical arrangement for transfernng technology and promoting domestic industres, it created the problems of quality control and integrity of responsibility. The first unit has been in operation since the end of 1988, generating 3,267 GWh (62.2 percent capacity factor) of energy without any problems. In addition to the time lost from a problem with the stator dunng erecton, the stator coil of the fourth unit caught fire twice during initial operation in 1991 and 1992.  CHINA LUBUGE HYDROELECTRIC PROJECT (LOAN 2382-CHA) PROJECT COMPLETION REPORT PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Proect Identity Name : Lubuge Hydroelectric Project Loan Number : 2382-CHA RVP Unit : East Asia and Pacific Region Country : China sector : Energy Subsector : Power 2. Background 2.1 The Yunnan provincial power grid had a total installed cpcity of 1,271 MW by the end of 1982, consisting of 754 MW of hydro (59.3 percent) and 517 MW of thermal (40.7 percent). Peak demand was 916.5 MW and energy generation, 5,360 GWh. The system was expected to -ow at ar. average rate of 7-8 percent over the 1983-91 period. The system had little resrve margin. To meet the expected load growth, the system had to be expanded. YPEPB's strategy was to develop indigenous resources, such as the mine-mouth coal-fired thermal station at Xiaolongtan (6 x 100 MW) and the renewable hydro resoures, the Lubuge Hydroelectrc Project, as implemented. Both projects formed parts of the least-cost sequence of development. The project was approved by the Govemment of the People's Republic of China (GOC) in June 1981. 3. Project Objectives 3.1 The principal objectives of the project were (a) to provide generating capacity and energy to the Yunnan power grid; (b) to introduce modem technology in the construction of dams, tunnels, and underground powerhouses; (c) to introduce ICB for procurement of civil works and associated technical assistance; (d) to address financial and auditing issues; (e) to introduce financial forecasting; (1) to promote cofinancing witi bilatal and export credit sources; and (g) to provide staff trauning.  -2 - 4. Piroject Description 4.1 The Lubuge Hydroelectric Project comprised the following: (a) construction of a rockfill dam about 100 m high, a spillway system, an intake structure, a 9.4 km headrace tunnel, a surge tank, two penstock shafts with steel lininig, an underground powerhouse, a tailrace tunnel, with a switchyard and provision of equipment therefore; (b) provision and installation of three generating units of 150 MW each, with provision ultimately for a fourth unit; (c) provision and construction of two parallel 220 kV transmission lines (single- circuit) of about 184 km each from Lubuge to Kunming and one 220 kV transmission line (single-circuit) of about 129 km from Lubuge to Qujing with associated substations; (d) consultant services, a Special Board of Consultants (SBC) and coiwstruction management and supervision; and (e) a training program. 5. Project Design and Organization 5.1 Field Investigations. Feasibility study, engineering, and detailed design of the project were carried out by the Kunming Hydroelectric Investigation and Design Institutz (KHIDI). The Snowy Mountains Engineering Corporation (SMEC), financed under a grant by the Australian Development Assistance Bureau (ADAB), provided services to Phase I-Phase III for project preparation in reviewing the project design, preparation of bidding documents, bid evaluation, and training by 16 experts from December 1982 to July 1984, totaling 57 staff-months. SMEC also provided services from December 1984 to March 1989 for Phase IV in construction management and supervision for the headwork complex and the water conductor system, technology transfer, conta management, and erection supervision of the electrical and mechanical equipment and taining. Forty experts contributed 310 staff-months to the services. The Advisory Group of Norway (AGN), financed under a Norwegian grant, provided services for training, construction management, and supervision of the underground powerhouse and tailrace tunnel construction. Thirty-six experts contributed a total of 160 staff-months. 5.2 Entrusted by YPEPB, the Lubuge Project Construction Management Bureau (LPCMB) was established in April 1984 to carry out site management of the project and supervise the works constructed by the Fourteenth Construction Bureau (FCB) and the foreign contractors/suppliers with the assistance of SMEC and AGN. This was the first construction entity organized in China to supervise the project construction as the 'engineer' on behalf of the owner, YPEPB, for the tunnel contract, and to represent the Ministry as the owner for the FCB contract.  6. Project Implementation 6 1 The project was completed on December 31, 1991, about two years behind the appraisal schedule and one year behind the revised target date set by the state. The main reasons are: (a) addition of the fourth unit, which was not originally part of the project; (b) delay of part of the civil works, particularly the left bank spillway tunnel; and (c) procurement of additional equipment. 6.2 The first unit was put into commercial operation on December 27, 1988, as specified in the appraisal estimate, and three months in advance of the revised target date. The second and third units were commissioned on September 19, 1989 and May 21, 1990, respectively, about 2.5 months and 5 months behind the appraisal estimate, but ahead of the revised target dates. The fourth unit (not part of the original project) was added later on by the Ministry in order to generate more secondary energy during the wet season and to provide reserve margin to the system. This ur.it was commissioned on June 14, 1991, in spite of the delays caused by the poor quality of the laminated steel of the stator; it took nine months to repair. 6.3 The 220 kV transmission line from Lubuge to Kunming I, including the substation, was put into operation in November 1988, about one month ahead of the appraisal estimate. The remaining lines were about six months (220 kV Lubuge-Kunming II), 25 months (220 kV Lubuge-Qujing), and 21 months (110 kV Lubuge-Xinyi) behind the appraisal estimate. They were purposely rescheduled in accordance with the system's need to minimize early investment. 6.4 Training. The training program under the Lubuge project can be divided into two main categories: domestic training and overseas training. Domestic training was conducted mainly by two groups of consultants: SMEC and AGN. These groups gave lectures on engineering and design, modern construction technology, construction management, operation and maintenance of specific construction equipment, contract management, claims management, computer application, and English, both at the job site and in Kunming. Altogether, 76 lectures were given to a total of 1,100 participants. The overseas training provided by the consulting groups, contractor, and equipment suppliers totaled 292 staff-months in 36 groups in the area of engineering and design, construction management, modem construction technology, financial management and accounting, and plant operation and maintenance (see Annex 1 for details). 6.5 Through using foreign consultants and contractors and by introducing modern technology in construction management, the Lubuge project elevated the design, construction, and management capabilities in China and built up a team that can adapt itself to modern construction for large hydroelectric projects. As the experience and personnel  4 - of this project has spread to other projects, hydropower development of the whole country has been enhanced. 7. Project Relts 7.1 The project fully achieved its main objectives through successful completion of 4 x 150 MW generadng units and associated 220 IcV and 110 kV transmission lines and substations. The Lubuge station became the master plant of the entire Yunnan power grid, providing 25.7 percent of peaking capacity (627 MW) and 21.2 percent of energy generation (2,393 GWh) in 1992 (Part III). it also provides spinning reserve capacity to the system for frequency and voltage control and enables optimal utilization of other hydro resevoirs. The dam and other structures are being inspected periodically, as specified. The project is functioning satisfactorily, with the exception of the generator of the fourth urPit, because its stator caught fire on December 2, 1991, and again on Decembei 7, 1992 (because the stator coil end connection burned out). Since all the outages occurred in the dry season, there was no major impact on the plant generating output. 7.2 The estimated cost of the project at appraisal (excluding IDC and other financial charges) was Y 820 million in local cost and $205 million in foreign cost, equivalent to a total of Y 1,230 million when expressed in local currency and $615 million when expressed in US dollars at the then prvailing rate of exchange. The actual cost was Y 1,354 million in local cost and $157 million in foreign cost, equivalent to a total of Y 1,945 million when expressed in local currency and $567 million when expressed in US dollars (see Part III for details). Compared with the appraisal estimate, it has a cost undenrun of about 8 percent when expressed in US dollars and a cost overrun of about 58 percent when expressed in yuan. These variations were mainly caused by the devaluation of the local currency from an exchange rate of Y 2 to $1 at the time of appraisal to Y 5.45 to $1 by the end of 1991, the project completion date. The average of the exchange rate over the construction period was Y 3.43 to $1. 7.3 Project costs, expressed in yuan terms, increased for three reasons: (a) The additional cost of about Y 78 mi1lion for the fourth unit was not originally expected during appraisal. (b) Currencies used under the main contracts, such as Japanese yen and German mark, appreciated against the US dollar. (c) Local rates of inflation used in the calculation of price contingencies were on the low side (only 3 percent a year), compared with the actual inflation during project implementation (about 7-8 percent a year). 7.4 The specific cost of the project was about $945 per kW installed. This indicates favorble results achieved in constructing this cost-effective power project when compared with similar hydropower projects in other countries.  -5 - 7.5 A summary comparison of the eaimated disbursements at appraisal with the actual disbursements is given in Part III. The original loan closing date was June 30, 1990. The actual closing date was June 30, 1992, after two extensions dt, to the delay of the civil works and the procurement at the late stage of the project oi gas-insulated switchgear for integrating Yunnan power grid into one network ($11.5 million), spare parts ($2.3 million), testing instruments ($0.7 million), and engineering services for the fourth unit and training ($1.0 million). Based on the revised cost estimate in late 1991, $4.0 million was canceled from the loan on January 5, 1991. The last disbursement of $1,027,875.19 was made on July 1, 1992. Total loan amount disbursed was $141,500,000. 7.6 The economic reevaluation of the project was catried out as follows: (a) actual cost data were used for the project and associated transmission; (b) operational and maintenance costs were assumed to be 1 percent of the capital costs, both for generation and transmission; (c) distribution and other costs were calculated based on YPEPB's financial analysis reaching Y 0.008 per kWh in 1992 and thereafter; (d) the prevailing average tariffs were used as the minimum proxy of the economic value of electricity; (e) a surplus benefit of Y 0.01 per kWh was added for surcharges collected by the local governments for power development; and (f) all costs and revenues were converted to 1989 constant prices by aplying price indexes for local and foreign costs. On this basis, the ex-post internal economic rate of return (IERR) for the project was 10.2 percent, compared with the appraisal estimate of 12.0 percent (Annex 2). The lower return was due prmarily to the insufficient tariff increases. 7.7 Resettlement and Environmental Aspect. The population affected by the Lubuge project was successfully resettled. Out of 818 people in Yunnan province, 418 were engaged in farming in nearby areas above the reservoir level, 300 were resetded in a newly established village near Louping, and 100 were assigned to rservoir maintenance and other development activities by the local governments. Of 569 people in Guizhou province, most of them were engaged in farming in nearby higher areas, but some people were settled in Moponshan county. The affected people were adequately compensated. LPCMB prepared a detailed report on human resettlement in the project area that indicated that the living standard of the resettled people improved considerably over that of the preprqect time. The people were provided with more living area (about 40 m2 per capita), drinkdng water, elecricty, and transportation and communication facilities. Also, new modern schools and health centers were built. Those engaged in farming were provided-  -6 more cultivated land (about 1.1 mu per capita). The water conservancy and irrigation facilites built during the project have already enhanced land productivity. YPEPB decided to set aside Y I for every 1,000 kWh generated by the Lubuge plant to establish a Reservoir Maintenance Fund, 80 percent of which was used by the local governments for reforestation, fishery, and agricultural development activities; 20 percent was retained by the power station for reservoir cleaning, maintenance works, etc. Local institutions have been established to deal with such activities. 7.8 Instead of the traditional method of resettlement through compensation only, a new approach was introduced at Lubuge with the cooperation of the local governments. The approach consisted of helping the resettled people to engage in sideline activities and combining the resettlement with the reservoir maintenance and development. 8. Fiancial Performance 8.1 Salient features of YPEPB's finances over the period of 1984-92 are summarized in Annex 3. YPEPB's actual financial performance was less than satisfactory and fell short of expectations. YPEPB was not able to comply with the revenue and debt service covenants [Section 4.03(a) and Section 4.04 of the Project Agreement] since 1988. YPEPB met only on average 51 percent of its principal and interest payments due from 1988 to 1992, and the debt service coverage ratios of YPEPB over the same period dropped be'-zw 1. As a result, substantial loan repayments to the People's Construction Bank of China (PCBC) in the past five years were deferred. YPEPB's finances were adversely affected by (a) the higher-than-expected local inflation rates (3 percent a year projected in the SAR versus 7-8 percent a year actual and over 10 pe ;ent a year for construction work) during the implementation period; (b) the devaluation of the local currency from an exchange rate of Y 2 to $1 at appraisal to Y 5.45 to $1 by the end of 1992; (c) the escalated debt service requirements due to the above two factors; and (d) the slow pace in tariff adjustment. Although its tariff level increased (8 percent a year) faster tha-i appraisal forecast (3 percent a year), increases in operating cost (19 percent a year) outpaced the tariff increase by a significant margin. Fuel costs, mainly coal prices, went above even the general price increase. Dunng appraisal, the price for standard coal was projected to increase by 3.5 percent in 1985 and 3 percent in 1986 and onwards. The actual price for coal increased by 12 percent a year during 1984-92. The moderate growth in electricity sales, which was close to SAR projections, only partally offset the negative impact on YPEPB's pro.fttability. The rate of return on net fixed assets based on historical value before income tax declined to its record low level of 3.7 percent in 1988 and only recovered to 5.6 percent by 1992. Consequendy, YPEPB has experienced great difficulties in meeting its financial obligations. 8.2 During the period under review, YPEPB's average tariff would have to be increased at a pace of 12 percent a year to comply with the Bank's financial covenants. However, regulatory body or well-defined mechanism enforcing tariff adjustments so far does not exist in China. In the case of YPEPB, the provincial price bureau decides on its annual tariff adjustment. The provincl government was overly concerned about pnre stability in the province and approved only a fraction of the proposed price increases in the  -7- past few years. The general guideline of "new plant, new price" set by the centra! government has not been fly implemented in Yunnan. In fact, for most industries, the share of electrcity cost is less than 3-5 percent of their total operating expenses. An accelerated adjustment of the electricity tariff for most industrial users would not have a significant impact on inflation. Since YPEPB is no longer able to rely on government's budgetary support and given the huge investment plan along Lancangiiang in future years, it is imperative that the pace and magnitude of tariff adjustment be increased. It is encouraging to note that the provincial government has alrdy approved and implemented an increase of about 31 percent over 1992 in the average tariff for 1993. 8.3 The Bank's objective to promote prudent financial management at the entity level was achieved through YPEPB's compliance with the financial covenant that required YPEPB to prepare long-term financial planning, focus on its trend of production costs as well as its fuure investment program and related financing arrangements, and annual review of such plans with the Bank. 9. Project Sustanabi}ity 9.1 The growth of YPEPB electricity sales has been averaging about 10.5 percent a year over the past three years (1990-92). Sales of electricity sales are expected to continue to grow at an average of about 10 percent per year into the 1990s. The output of the Lubuge project has been fully absorbed by the system within four years of operation. The completion of the Xiaolungton thermal power project (6 x 100 MW) by the end of 1992 and the commissioning of the first unit of the Manwan hydroelectric project expected in 1993 will timely provide the system with needed capacity and electricity, even with surplus to export to Guangdong province through the Tanshengqiao transmission network. These projects formed not only part of the least-cost development program for YPEPB, but also met the objectives of GOC's energy policy by maldng optimal utilization of China's indigenous energy resources of coal and hydro potential. 9.2 YPEPB has adequately trained its staff to operate the facilities efficiently under the project. More than 80 percent of the plant staff are high school graduates or above. They are a well-educated operating force who have been trained adequately, both domestically and overseas. 10. Bank Performance 10.1 The performance of the Bank from project preparation through project completion was satisfactory. The Bank maintained good relations with YPEPB, LPCMB, KHIDI, and the consultants throughout execution of the project. 10.2 In addition to the timely completion of its first major hydropower project in China, the Bank made the following noteworthy achievements: (a) Cofinancing Arrangements. The Bank successfully obtained support from the governments of Australia, Norway, and Canada to finance the consulting  services and SBC for the Lubuge project. Without this support, convincing Chinese entities to use foreign consultants would have been difficult. (b) ICB for Civil Works. The Bank obtained the agreement from GOC to experiment with ICB for civil works for the first time in China. Through the joint efforts of Bank engineers and procurement advisors, the details of supplying labors and materials, which were fair to foreign and local bidders, along with cntera for prequalifications, were worked out dunng the preparation of bidding documents. The result of the ICB procurement, as reflected in the quality of final product and contractor perormance, was outstanding. (c) Packaging of Works for ICB and Division of ResponsibMty between Consulting Groups. To effectively demonstrate the importance of construction management in a civil works contract, the headrace water conveyance system was wisely selected as the package for ICB. SMEC was assigned responsibility for the headwork complex, which included the main dam and the headrace water conveyance system, and AGN was given responsibility for the underground powerhouse and tlrace tunnel component, to best udlize the comparative strengths of respective consulting groups. (d) Training. A successfil training program was carried out by the consulting groups, contractors and equipment suppliers for the staff of KHIDI, YPEPB, and LPCMB in engineering and design, construction management and technologies, and plant operation and maintenance. (e) Assistance in Procurement. The Bank discussed in detail with KHIDI and LPCMB the ICB procedures, prequalification criteria for civil works bidders and provided assistance for the finalization of bidding documents. (f) Assistance Provided in YPEPB's Financial Statements and Projections. The Bank introduced the basic concepts of financial management and Western accounting to YPEPB's financial staff. The assistance provided by the Bank in this regard will facilitate YPEPB to move into the new accounting system effective on July 1, 1993. 11. Borrower Performance 11.1 KHIDI. KHIDI has been responsible for the field investigation, engineering and feasibility study of the project since 1976. The preliminary design report was completed in June 1991. With the assistance of foreign consultants, KHIDI was fully involved in the detailed engineering and design of the project, prepration of bidding documents for civil works and electrical and mechanical equipment, and construction supervision of the project. KHIDI did an excellent job in design (para. 13.1 on design optimization) and supervision, ensuring that construction was carried out as designed.  -9 - Through the learig process by working together with foreign consultants, KHIDI has developed itself into a well-established design institute. KHIDI is now involved in the engineering and design of the Tianshengqiao High Dam Project financed by the Overseas Economic Cooperation Funds of Japan and the cascaded development of hydro projects on the Lancang river in Yunnan. 11.2 YPEPB. YPEPB entrusted LPCMB with full responsibility and power to deal with any matter related to the project. During the critical period of 1988, YPEPB sent several electrical engineers to participate in the erection and commissioning of the first unit. The Lubuge General Power Plant, the operational unit of YPEPB, cooperated well with LPCMB during the entire erection penod and established itself through domestic and overseas training as a strong and experienced team for operating and maintaining the plant. With the exception of the financial setback for not being able to meet the revenue and debt service covenants, YPEPB was operated well and managed in a generally commendable manner (see Annex 4 for YPEPB's performance from 1984 to 1992). Its expansion program was carried out as originally planned to utilize effectively the indigenous coal reserves and hydro potential. Total system losses were kept to an acceptable level of 7 percent. Capacity factors of thermal and hydro plants both operated favorably at around 50 percent. 11.3 LPCMB. LPCMB was responsible for overall project management. It was well organized, staffed, and led by a group of experienced and capable engineers. It played an important role in coordinating, supporting, and managing the designer (KHIDI), the contractors (laisei and FCB), and the consultants (SMEC and AGN). LPCMB paid high regards to the Bank's project management from appraisal to follow-up supervision and to the Bank's emphasis on technology transfer, institution building, and staff training. LPCMB is preparing a paper to summarize their findings and the lessons learned. 11.4 Taisei Corporation. Taisei Corporation of Japan was the contractor for the headrace water conveyance system. Notice to proceed was issued on July 1, 1984, about seven months behind schedule. Because of its excellent planning of construction equipment and field management, it set a world record in tunnel excavation and concrete lining for an 8.8 m diameter tunnel. Average monthly progress for excavation (by the full face method) was 231 m, with a maximum of 873.7 m. Average monthly progress for concrete lining was 187 m, with a maximum of 270 m. The contract was completed on August 13, 1988, about four months ahead of the contracted schedule. 11.5 Fourteenth Construction Bureau (FCB). FCB was the contractor for the headwork complex, underground powerhouse, and tailrace tunnel. Preparatory works were completed in 1982. Diversion tunnel excavation started in December 1982. River closure was made on November 15, 1985, as scheduled. Reservoir impounding was started on November 21, 1988, to create the conditions for operating the first unit by December 27, 1988. The dam embankment reached the designed crest elevation of 1,138 m in July 1989. The performance of the works can best be demonstrated by the following indicators:  - 10- Design Value yMasued Core wall settlement of the maximum section (mm) Upon conpletion 2,700 1,651 (07/89) 2.5 years after completion 3,800 1,762 (02/92) Total leakage through the dam (liter/sec) 281 101 (12/88) (IWL 1130) (IWL 1110) 87 (12191) (HWL 1130) Other displacement measurements for the high walls of the spillway and the underground powerhouse indicated that everything was normal. 11.6 With the management experience, construction equipment, and technology gained during the construction of the Lubuge project, FCB has become a well-known construction force in China for rockfIl dams and underground works. After the successful completion of the Guangdong Pumped Storage Project (Stage 1), FCB will continue to work for the Stage II extension (another 4 x 300 MW). The bureau was recently awarded the contract for the lower reservoir and underground powerhouse for the Tianhuangping Pumped Storage Project (a Bank loan approved on May 18, 1993). 12. Project Relationship 12.1 The Bank-Borrower relationship for the Lubuge project was not only one of mutual trust and cooperation, but also was highly complementary in all aspects of project implementation. Constraints and bottlenecks were removed efficiently and expeditiously without negative impacts on the Bank-Borrower relationship. 12.2 The Bank's relationship with GOC, other national agencies, and related institutions was also cordial. The Bank had no problem gaining access to the high-level government authorities to discuss policy and render professional advice. 13. Consulting Services 13.1 Valuable contributions were made by SBC, SMEC, and AGN, either individually or jointly, throughout the project implementation period. They not only introduced the modern hydropower technology to China, but also optimized the design to reduce project costs and expedite the construction schedule. Ten major contributions were proposed by the three consulting groups and applied by KHIDI. At least Y 46 million was saved, about 2.0 percent of the total project costs. The main cont-'butions to cost savings are summarized as follows: (a) use of weathered materials for the dam core;  - ~~~~- 11 - (b) cancellation of the bottom grouting gallery and reduction of dam foundation grouting from 52,000 m to 28,000 m; (c) modification of diversion tunnel lining; (d) adoption of a high wall for the vertical spillway by using anchoring rods and wir mesh; (e) reduction of the thickness of the headrace tunnel lining and use of pin concrete for 70 percent of the tunnel; (1) reduction of the span of the powerhouse from 24 m to 18 in; and (g) use of bench-cut, prestressed, and grouted anchor rods as support for the crane girdle without concrete columns. 13.2 Some of the technologies have now been widely used in China. In addition, these consultants provided the Chinese staff with domestic and overseas training, as well as instructions in their day-to-day work together on construction management, contract management, quality control, cost control, and schedule control. With the experience and knowledge gained during the Lubuge project, they developed into a backbone construction group, a majority of whose staff are now working at the 3,300 MW Ertan Hydroelectric Project (Loan 3387-CHA). 14. Project Documentation and Data 14.1 The legal agreements for the Lubuge project were appropriate for achieving the project objectives and adequately reflected the Bank's interest in satisfactory execution of the projects. The Staff Appraisal Reports were comprehensive, well prepared, and useful for the Bank, YPEPB and LPCMB during the project implementation. LPCMB submitted quarterly progress reports, which served as a valuable tool for supervising and monitoring the project. YPEPB submitted annual financial statements, an annual audit report by independent auditors, and future investment programs, as covenanted in the Project Agreement. 15. Conclusions and Recommendations 15.1 The Lubuge project was well prepared and constructed. All the major objectives of the project have been met. In spite of some project delays and two extensions of the loan closing date, the project was highly successful. 15.2 GOC selected Lubuge as the first power project in China to utilize the Bank loan and to test its "open door' policy and the Bank's ICB procurement procedures for the headrace tunnel. The excellent performance of the Japanese contractor shocked the entire hydroelectric construztion circle and the building industry. The Chinese realized that a  - 12- compact orgnization, modern construction technology, and effective field mgement ar the key factors of success. Local competitive bidding has been widely used since then to replace the old system of assignment and negotiation. Attention has been paid all over China to learn the experience of Lubuge in project manaement-the sG-caled Lubuge Pounding. 15.3 Use of SBC and foreign consultants was well justified. They need to be ,involved at the early stage of project preparation. Starting with the Lubuge project, availbility of TCC funds has greatly facilitated the establishment of a strong pipeline of projects for Bank financing. 15.4 Training also has played an important role in changing the overall concept about nagement, strenghenig managers' decision-making capabilities, and improvring their project management sklls. However, financial management is still a weak link. Training in this respect lags behind and needs to be strengthened. 15.5 As further measures of economic and system reforms are being undertaken in China, YPEPB's future finances are subject to considerable uncertainties. With a view to promoting financial management, YPEPB should place increased emphasis on long-term financial planing and continue to update its rolling long-term financial plan from time to time to reflect significant changes in the parameters affecing its finances. 15.6 To improve YPEPB's financial position, the tariff must be adjusted at a faster pace so that it can meet all its financial obligations and generate sufficient cash to fimance its expansion plan. 15.7 Efforts should be made to reduce the bed load into entenng the reservoir by constructing debris dams upstream of reservoir and on the tributaries. Watershed management should also be enforced. Reservoir sedimentation will not only reduce the effective storage capacity, but will also produce erosion and maintenance problems for hydraulic structures, particularly the nght bank sluice tunnel. 15.8 Monitoring of the left bank landslide area 1.5 km upstream of the dam should be continued, particularly during the first flushing operation of the reservoir, which is expected in 1993. 15.9 The power plant is short of certain spare parts and consumables. Measures should be taken so that they can be procured and shipped expeditiously. 15.10 After completion of the downstream Tianshengqiao high dam scheme, now under construction on the Nanpan river, sedimentation entering that reservoir would eventually silt up as far as the tailwater zone of the Lubuge plant. Appropriate measures should be taken in due time to minimize its effects on the normal operation of the Lubuge plant.  - 13 - PART I: PROJECT REVEW FROM BORROWER'S PERSPECTVE 16. Adequacy and Accuracy of Factual Information in Part HI 1/ 16.1 The factual information of the project presented in the tables of Part 111, prepared by the Borrower's related institutions including IPEPB, LPCMB and KHIDI, were reiewed and cross-checked thoroughly with the Bank's mission in February 1993. They are adequate and accurte. 17. Comments on the Analysis Contained in Part I 17.1 Most of the analyses made by the Bank are based on the factual information n the tables of Part m. The comments and analyses made by the Bank are comprehensive, fair, and objective. 17.2 The Bank's analysis of project implementation was compared primarily on the basis of the staff appraisal report (SAR). It compared with the State plan, the results are as follows: State Plan Actual ComPizQn Project Completion End 1990 End 1991 Delayed by one Date year due to late delivery of the 4th unit. Project Cost 1,661.07 1,587.54 A savings of (Y million) (excluding transmission (on the same about 4.5% lines and substations) basis) The project is therefore considered as reasonably on schedule (the fourth unit was not originally a part of the project) and within cost. 17.3 The impact of the project to the hydro construction and building industnes in China was indeed great. This was detailed with lessons learned in a report entitled Lubuge and Lubuge Impounding," prepared jointly in 1992 by LPCMD, the Xinhua News Agency, and the Editorial Office of Water Power" of MOE and MNR. This project changed completely the local bidding process and the concept of construction management system in China. 17.4 The direct benefits of the project consisted of 627 MW of pealing capacity and 2,392 GWh of energy generation in 1992, representing 25.7 percent and 21.2 percent, repectively, of the system total. It becomes the master plant of the system for frequency 1/ Pdmrily based on a project completion rport prpared by LPCMB (kpt in the Project File).  14- control and voltage control and for optimized operation with other hydro reservoirs. Other indirect benefits include: (a) promoting development of the project area through a new approach of the resettlement program; (b) accelerating development of hydropower construction in China; and (c) training of staff. 18. Evaluation of Bank's Performace 18.1 From the experence gained under the Lubuge Project, we found that the Bank's Project Cycle procedures in handling its projects are scientific and effective (a detailed report suinmarizing our findings is being prepared by LPCMB). It played an important role in making possible the successful achievements of the project. Appreciation was due specfically to the Bank for providing assistance in cofinancing arrangements, transferring of modern technologies through the use of foreign consultants, introduction of ICB for civil works and equipment, institutional building in the areas of accounting, auditing and financial projection, and staff training. 18.2 The visits made by the Bank's supervision missions were timely and fruitful, particularly during the crucial periods of river diversion and commissioning of the first umit. Valuable assistance was provided in expediting the urgently needed construction equipment and in convincing the field supervisors of the equipment suppliers to bring about a better cooperation during erection. Assistance was also provided by mission members in procurement, effective utilization of the Ban loan, financial projection, tariff level calculation and repayment capability, etc. 18.3 However, the procedures of ICB for both civil works and equipment were too complicated and time-consuming. This accounted for the delays in the early stage of project implementaidon. More lead time should be provided for project preparation and the procurement procedures should be fturther simplified and improved. 19. Evaluation of Borrower's Own Performance 19.1 We concurred fully with the obserations made by the Bank in Part I regarding the Borrower's performance. YPEPB, as the owner, provided fill support to the project. LPCMB, as an agency responsible for the overall management of the project, played an effective and successful role in coordinating, supporting, and managing among the designer (KHIDI), the contractors Craisei and FCB) and the consultants (SMEC and AGN). With the assistance of SBC and foreign consultants, KHIDI did an excellent job in optimizing the design of the project. 19.2 To express our apprecaton to SMEC and AGN, LPCMB prepared the following two reports in 1989:  - 15 - (a) Friendly Assistance and Successful Cooperation on Utilization of Australian Grant for Lubuge Project (1982-89); and (b) Friendship and Cooperation on Utilization of Norwegian Grant for Lubuge Project (1984-88). They summarized the successful utilization of the grant funds for project design, supervision and construction management, and staff training. 19.3 Lessons learned from the project are: (a) The use of SBC and foreign consultants is highly justified. Their early involvement for project preparation should be sought through the utilization of the TCC fund. 0b) LPCMB is the first of its kdnd established in China for the management of iternational contracts for civil works. While the same practice has been followed up for the Shuikou and Ertan Hydroelectric Projects, these organizations should be maintained on a relatively long-term basis and their staff should be utilized effectively from job to job, so that they can adapt themselves for increasing numbers of international contracts in the future. (c) The relation between LPCMB and KHIDI should be rectified to establish a better design management and construction supervision system. (d) Through its excellent performance of the Taisei Corporation for the water conveyance system, the importance of construction management was fully realized by the hydro construction industry in China. The construction management system is being renovated and local competitive bidding is now widely used in China. (e) To comply with the Bank's loan covenants, YPEPB decided, effective January 1993, to increase its average tariff level by Y 3.78fkWh to meet its debt service requirements.  - 16 - PART Ell: STAIISTICAL INFORMATION 1. Related Bank Loans Loan title Purpose Approval Status Ln 2493-CHA To construct a 500 kV transmis- 02/19/85 Completed in December Second Paver sion line from Xuzhou to Shanghai 1988. Project and 5 associated subatations totaling 3,500 MVA in capacity. to install tele-control and tele- communications equipment for load dispatchitg. and to provide training for 500 kV transmissioa lices and substations. Ln 2706-CA & To construct a coal-fired thermal 05/29/85 Commercial operation for Ln 2955-CHA power project with 2 unita of 06/14/88 No. I is expected in the Bellungang 600 NW and 2 single circuits of first quarter of 1993. Thermal Pover 500 kV transmission lines and 2 Closing date extended for Projects I & substations, and to carry out a one year to 06/30/93. II training program and a tariff No. 2 unit still under study for East China power grid. implementation. Closing date 06130/95. Ln 2707-CHA To construct a 110 m high con- 05/29/86 Implementation under way. Yantan Hydro- crete gravity dam, a spillway, a Closing date 06/30/93 as a I e c t r i c powerhouse, and a shiplift; to scheduled. Project install 4 generating units of 275 NW each. 2 single circuits of 500 kV transmission lines and 3 associated substations; and to carry out a training program. Lu 2775-CHA & To construct a 101 -m high, con- 01/06/87 & Implementation under way. Ln 3515-CHA crete gravity dam, a spillvay, a 09/01/92 Closing dates 06/30/93 & S h u i k o u powerhouse and a navigation lock; 12/31196. Hydroelectric to install 7 generating units of Projects I & 200 MU each; to carry out a re- II settlement program in the reser- voir, an action plan for tariff reform, and a training program for planning and financial man- agement. Ln 2852-CHA To install 2 additional coal- 06/23/87 Two units coumissioned in Wujing Ther- fired units of 300 MW each and 1992. Closing date mal Power associated 220 kV transmission 06/30/93. Project lines and substations; to provide on-line computer control and automatic load dispatching cen- ter; to carry out a masterplan study for the- distribution net- work in Shang-ai ant a trainIng program. Lu 3387-CMA To construct a 240 m high arch 07/02/91 Implementation under way. Ertan Hydro- dam with an underground power- Closing date 12/31/96. e I e c t r i c house, to install 6 550 MW gea- Project - erating units and associated equipment; to carry out an envi- rormental management program, studies of power pricing and res- ervoir operation, and a training program.  - 17- 1. Relate Bank LeAn (cont!id) Loan title Purpose Approval Status Cr 2305 & To construct . 56 a high gravity 10/31191 Implematation under way. La 3412-CHA dam and aa underground powerhouse Closing date 12/31/97. Daguaagba with 4 x 60 W generating units; Multipurpose to erect a 36 km long double- Project circuit 220 kV transmission line and to build canals to irrigate 12,700 ha of land. Ln 3433-CaA To install 2 300 MW generating 01114192 implementation under way. Yanshi Ther- uuits and 5 220 kV transaission Closing date 12/31/97. Mal Power lines sad associated substations; Project to carry out a tariff study, a tariff action plan, and a train- -ing program for upgrading the technical, financial and manage- ment skills for HPEPB staff. La 3462-CHA To install 2 additional 600 MW 04/12192 Implemeutation under way. Zouxian Ther- generating units; to construct Closing date 06/30/99. mal Power 500 kV and 220 kV transmission Project liaes and substations; and to carry out an air quality control study, a power tariff study, an action plan for tariff adjust- meat, and a training program for the technica!, financial, and management staff of SPEPB. 2. Project Timetable Items Date Planned Date Revised Actual Date Identification/ preparation 09/81 09/81 Preappraisal 04/82 04/82 04/82 Appraisal 08/82 10/82 10/82 Loan Negotiations 03/83 03183 12/09/83 Loan Approval 05/83 10/83 02/21/84 Loan Signature 03/12/84 Loan Effectiveness 06/12/84 Loan Closing 06/30/90 (i) 06/30/91 06130192 (ii) 06/30/92 Loan Completion 07/01/92 COMMENTS: About 13 months were needed betweeu' projeCt appraisal and loan negotiations to resolve issues of using SBC and foreign consultants, cofinancing arrangements, agreement on using ICB for civil works, and prequalification of bidders.  - 18- 3. Loan Disburaements Cumulative Estimated and Actual Disbursements ($ million) Bank Fiscal Year Estimated Actual Actual as Z of and Semester cumulative cumulative /a estimate 1984 I II 14.5 0.3 2.1 1985 I 21.8 36.3 2.7 II 5.0 12.4 13.8 1986 I 50.8 65.3 21.9 II 42.0 43.1 64.3 1987 I 79.3 94.3 61.2 II 69.5 76.7 78.7 1988 I 108.8 123.3 81.9 II 97.0 75.3 78.7 1989 I 130.6 137.9 106.0 II 109.9 81.2 79.7 1990 I 141.6 145.4 113.9 II 119.1 80.4 81.9 1991 I 121.1 83.3 II 127.8 87.9 1992 I 140.4 96.6 II 141.41b 97.2 la $4,000,000 was canceled from the loan on 01/05/91. 1b Total disbursement under this loan was $141,400,000.00. The last disbursement of $1,027,875.19 was made on 07/01/92. Comments: The loan closing date was extended twice due to delays in procurement of switching equipment, spare parts, testing instruments, additional engineering services, and training in order to further improve the performance of the Yunnan power system.  - 19 - 4. Projct Implementation -Appraisal Revised target Indicators estimate set by state Actual (1) Project Completion Date 12/31/89 12/90 12f31191 (2) Civil Works 06/30/89 08191 (3) Generating Units: lt 12131/88 03131189 12/27/88 2nd 06/30/89 11/30/89 09/19/89 3rd 12131/89 08/31190 05/21190 4th 09/30/91 06/14/91 (4) Transmission Lines and Substations: 220kV Lubuge-Kurnming 1 12/31/88 11/88 220kV Lubuge-Kunming II 12/31/88 06/89 la 220kV Lubuge-Qujing 12/31/88 01/91 La 110 kV Lubuge-Xinyi 12/31/88 09/90 la Kunming I substation (Dongqiao) - 12/31/88 11/88 /a Kuming II substation (Dongqiao extension) 12/31/88 12/89 /a Qujing Substation 12/31/88 01/91 La (5) Training a Rescheduled in accordance with the system's need to avoid early investment.  -20 - 5, Riedfsu}ts A. Direct Benefits Appraisal Actual Indicatore estimate 1991 1992 1. Lubuge Power Plant Annual Generation CGW) 2,750.0 2,426.6 2,393.4 (long-term average) Capacity Factors 52.3Z 46.12 45.52 Dependable Peaking Capaeity (NW) 307.3 450.0 450.0 Peak Generation (MW) 600.0 638.0 627.0 Contribution to YPEPB System Energy Generation 27.82 24.22 21.2S Peaklng Capacity 20.22 28.42 25.72 Equipment Efficiency (2) let unit 4th unit Turbine 93.77/a 94.34 93.92 Generator 98.45a N.A. 98.51 2. Training Engineering and Design Construction Supervision and Construction Plant Operation and Maintenance Equipping of Technical Schools Total 5.0 million 2.38 million 292 staff-months n.a. = not available. fa Contact specified. COMMEArM:(l) 1992 was a very dry year, once in 100 year. (2) The maximum output of 4 units all exceeded the rated capacity of 150 MW.  - 21 - B. Economic Impact Appraisal Estimate Actual Economic Rate of Return (IERR) 12.0% 10.21 COMMENTS: (1) The lower IERR is due primarily to increases in tariffs that were insufficient to cover the total operating expenses, including debt services. (2) No surplus benefit has been taken into consideration for its additional contributions as a master peaking plant of the Yunnan power grid. C. Financial Impact YPEPB's actual financial statements for 1984-92 and the related appraisal projections under Lubuge Hydroelectric Power Project are presented in Annex 3, Tables I to 4. The following table summarizes the key operational results forecast in the SAR for Lubuge Hydroelectric Power Project, compared with actuals.  YPEPB's Key Financial Indicators, 1984-92 (Million Yuan) Year ended Decembor 31 1984 1985 1986 187 1988 1989 1990 1991 1992 bAR T cutuai l *4 ACtua E U. 5* 4 46 AC U A*tUSl sL u tu 3U T Enargy s*l.s (MO) 4,S51 5,070 5,113 5,201 5,622 5,823 6,122 6,495 6,787 6,726 7,543 7,371 8,403 8,140 9,026 8,991 10,053 Averoge revenue (ffenjWh) 6.5 6.7 7.0 6.8 t.0 6.9 7.0 7.2 7.5 7.8 7.5 8.9 7.5 10.9 8.0 11.5 12.3 Break-*Ven average tariff (fan/kwh) 6.8 6.S 7.9 7.9 9.1 11.7 13.0 13.7 14.5 Operating revenue 315 338 358 352 394 407 429 467 509 525 566 660 630 849 722 1,034 1,232 Ope?rting expenses 212 232 231 274 263 327 295 396 336 466 382 546 438 686 473 S05 1,025 Operattig incove 101 106 127 78 130 SO 134 71 173 S9 184 114 192 163 249 229 207 Iet incoae before tcom tea & interest 104 105 127 77 130 75 134 65 173 57 184 109 192 151 249 215 194 Rate base 1,360 1.104 1,477 1,231 1,691 1,406 1,845 1i446 2,191 1.541 3,045 1.894 3.631 2,441 3,679 2,969 3,408 Anzusl Cspital *xpenditure 433 389 334 465 358 478 3SI 466 655 355 647 456 1,024 470 0SO 1,089 Construction work In progress 858 956 *44 1,167 958 1,457 1,345 1,251 1,740 382 2,146 667 2.136 452 2,499 2,865 IiZa6 sassts additions 52 48 291 311 225 144 167 66 652 396 1,225 465 171 760 1SS 661 156 Reat of return on bict. aesets (2) 7.6 9.3 6.6 6.3 7.7 5.3 7.3 4.5 7.9 3.7 6.0 S.8 5.3 6.2 6.8 7.2 5.6 Operating rstio IS) 67 69 65 78 67 SO 69 85 66 89 67 83 68 S1 66 78 83 se1f.financing ratio (2) 28.7 28.1 28.9 18.6 17.9 18.8 20.3 21.7 Debt rvice coverrge (times) 30.0 8.5 35.0 9.5 11.8 1.4 7.0 1.2 5.7 0.8 3.2 0.5 2.2 0.6 1.9 0.7 0.7 Debt as* of debt plu equtity 31 9 38 44 45 48 49 56 52 60 54 66 57 66 58 69 73 Average collection p 6Ti (days) 49 13 44 41 43 25 42 28 37 29 36 29 34. 34 32 29 21 Current ratio (tines) 2.0 3.1 2.0 3.6 2.1 2.7 2.2 2.5 2.3 2.1 2.4 2.2 2.5 2.5 2.6 2.6 4.2 Debt servico 5 10 S 8 16 59 29 74 43 118 87 275 143. 981 205 429 506 of whichs Principal 3 9 3 S 9 39 17 51 28 76 so 164 64 230 121 277 356 Interest 2 1 2 3 7 20 12 23 1s 41 37 112 79 152 84 11 2 170  - 23 - 6. Project Costs and Financing A. Comparison of Estimated and Actua Project Costs la Actual Prolect costa Ib Appratlal*stiMtL. Y milLion SiUlon ~~~~~~~~~~~~~~~~ rl,I1,IIt X sso XsAr -L.OCI; Yor-in Total L3cM& wreretn To-= Land aequ5sitiou & r.eattl.wnt 17.2 6.6 62.98 - 62.96 19.24 - 19.24 Halo cvil worka 639.1 319.6 807.50 24s.66 1056.16 274.02 72.28 346.30 a4draulic equipset 18.7 9.3 22.85 - 22.85 6.53 - 79.58 ectrical 4 scbanical *quipnut 160.1 90.1 250.59 120.76 371.35 59.55 33.10 92.65 TransGi9sion un.. & su14tation 105.8 52.9 174.51 182.54 357.05 39.66 39.90 79.58 Consultant aerviC*. 54.4 27.2 31.57 31.86 65.43 10.16 9.72 19.88 Tr.inius 10.0 5.0 1.85 6.92 8.77 0.54 1.84 2.38 Bass Coot 1.025.3 512.7 1,353.85 590.74 1,944.59 40e.72 156.84 566.56 Physical coutingenci-s 71.6 35.8 _ _ _ Pdce contingencies 1353.1 66. Total Protect Coat - 1.230.0 615.0 1,353.85 590.74 1.944.59 409.72 156.84 566.56 N oft incling IDC and other finanaW charges. 1b Each payment of foreign cost was conveted to yuan and US dollars based on the prevailing exchange rates at the date of payment.  - 24 - B. Prject Financing ($ million equivalent) AyRralsaL Planned Actual Sources/items financed Local Foreign Total Local Foreign Total lBRD Loan Civil works for water conductor system - 35.4 35.4 - 35.7 35.7 Imported construction equipment - 24.9 24.9 - 29.7 29.7 Imported construction material - 26.8 26.8 - 20.3 20.3 Transmission lines & substation equipment - 19.4 19.4 - 35.9 35.9 Electrical and mechanical equipment (other than turbines, generators, and auxiliaries) - 17.6 17.6 - 18.2 18.2 Training - 1.0 1.0 - 0.2 0.2 Consultant services - 0.2 0.2 - 1.0 1.0 Front-end fee - 0.4 0.4 - 0.4 0.4 Unallocated - 19.7 19.7 - - - Subtotal 145.4 145.4 _ 141.4 141.4 Norwegian Government Grant Construction equipment and materials for underground powerhouse and tailrace tunnel - 11.6 11.6 - 10.8L& 10.8 Consultant services for above worke and training Australian Development Assistance Bureau Consultant services for dam, water conductor system and installation of generators - 7.1 7.1 _ 4.8/b 4.8 Training Canadian International Development Agency Consultant services for Special Board of Consultants - 0.2 0.2 - 0.2 0.2 Export/Supplier's Credit Turbines, generators and auxiliaries le - 40.9 40.9 - - - Peovle's Construction Bank of China Local costs Foreign costs of turbines, generators and auxiliaries 364.8 45.0 409.8 409.3 - 409.3 Technical Cooperation Credit Consultant services for Special Board of Consultants - - - - 0.1 0.1 Total 364.8 250.2 615.0 409.3 157.3 566.6 14 NKr 88.0 milliol. /b $A 6.8 million. /c Turbines, generators, and auxiaies were supplied by a consortium of Kvaener of Norway and Siemens of Germany under a contract with the China National Technical Import Corporation (CNTIC). The forein cost component was paid by CNTIC to the suppliers out of GOC's foreign exchange reserves.  - 25 - 7. Status of Coven Covenant Subject Status Loan Agreement Dated March 12, 1984: 3.01 (b) Subsidiary Loan Agreement with YPEPB Complied with. Project Agreement Dated March 12. 1984: 2.01 (b) Maintain LPCMB with appropriate stafflg and Complied with. authority. 2.02 Employ Consultants. Complied vith. 2.08 Training Program. Complied vith. 3.04 (b) Inspection of the Dam and Appurtenant Complied with. Structures. 4.02 Annual Audit by Independent Auditors. Complied with. 4.03 (a) Gross revenue from all sources not less than YPEPB met 1002 of the Bauk loan YPEPB's total operating expenses. payments, but made only partial payment of local loans. 4.04 Internal cash generation at least exceeds the Not complied with. debt service requirement. 4.05 Future investment programs. Complied with.  -26 - 8. Use of Bank Resources A. Staff Inputs (Staff-weeks) 1101 ns82 1183 1184 1Y85 1Y86 Y$87 P8" 1189 1Y90 1Y91 119 113 oted Preparatio 1.7 70.7 9.3 - 81.7 Appra. - 54.9 _ _ _ _ _ _ _ _ _ 54.3 &otiatt. - _ 19.S 55.8 - - - 75.3 Lino .pproval - 4.2 7.7 8.4 - _ _ - _ - - - 20.) Suwzrvi"i<w - _- - 8.9 27.2 10.3 9.1 3.7