China - Xiaolangdi Multipurpose Project

Document of The World Bank FOR OFFICIAL USE ONLY Repon No. 12329-CHA STAFF APPRAISAL REPORT CHG XIAOIANGDI MULTIPURPOSE PROJECT MARCH 25, 1994 Agriculture Operations Division China and Mongolia Department East Asia and Pacific Regional Office Thi document ha a resticted distibuton and ay be used by r.dpien.& only in the perfonnance of their officGia dudes. Its contents may not otherwise be disclosed without Wodd Bank authorzation.  CURRENCY EQUIVALENIS 1/ (as of January 1, 1994) Currency Unit - Yuan (Y) $1.00 = Y 8.7 Y 1.00 = $0.11S FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 cubic meter (m3 or cm) = 35.31 cubic feet 1 kilometer (Cm) = 0.62 miles 1 hectare (ha) = 15 mu 1 ton (t) = 1,000 kg 1 kilogram (kg) = 2.2 pounds ABBREVIATh)NS AND ACRONYMS BM - Basin Model Bcm - billion cubic meters cms - cubic meters per sec CCPN - Cental China Power Network CPLG - Central Project Leading Group CYJV - CIPM Yellow River Joint Venture CNTIC/lTC - China National Technical Import Corporation/International Tendering Co. DCA - Development Credit Agreement DOD - Dam Operation Department DSIERP - Dam Safety and Environmental/Resettlement Panel EIA - Environmental Impact Assessment EIRR - Economic Internal Rate of Return El. - Elevation level EM - Environmental Management EMO - Environmental Management Office FAO - Food and Agriculture Organization FD - Finance Divisiorn FIRR - Financial Intemal Rate of Return FPH - Flood Prevention Headquarters 1/ This project was apprised in April/May 1993 when the exchange rate was $1 = Y 5.7. All costs and financing have been recalculated at the rate of $1 = Y 8.7, effective January 1, 1994. Economic and financial analysis is based on ogmnal appraisal parametes. The devaluation would improve economic and fina_i results to some extent.  FOR OFFICLAL USE ONLY GOC - Government of China G TAO - Gross Value of Agricultural Output GVIO - Gross Value of Industdal Output GWh - Gigawatt hours ICB - International Competitive Bidding kV - kilovolt kW - kilowatt LCB - Local Competifive Bidding LG - Leading Group LRM - Lower Reach Model LRMC - long-run average margnal cost M&I - Municipal and Industrial MCM - million cubic meters MGM - Ministry of Geology and Mining MOA - Ministry of Agriculture MOC - Ministry of Communications MOE - Ministry of Energy MOF - Ministry of Finance MOP - Ministry of Power MURC - Ministry of Urban and Rural Construction MW - Megawatt (1,000 kW) MWR - Ministry of Water Resources NCGWR - National Coordination Group on Water Resources NCPN - North China Power Network NEPA - National Environmental Protection Agency NWPN - Northwest Power Network O&M - Operation and Maintenance PA - Project Agreement PAB - Provincial Audit Bureau PCC - Project Coordinating Committee PMO - Project Management Office PPLG - Provincial Project Leading Group ppm - parts per million RBC - River Basin Conservancy Commission RPDI - Reconnaissance, Planning and Design Institute SAA - State Audit Administration SEPC - State Environment Planning Commission SOE - Statement of Expenditure SPC - State Planning Comaission WRB - Water Resource Bureau XECC - Xiaolangdi Engineering Consultant Company YRCC - Yellow River Conservancy Commission YRCCRO - YRCC Resettlement Office YRWHDC - Yellow River Water and Hydropower Development Corporation This document has a resticted disribution and may be used by recipients only in the performance of their official duties Its contents may not othewse be disclosed without Wodd Bano athoato  CHINA XIAOLANGDI MULTIPURPOSE PROJECT Loan and Project Summary Borrower: People's Republic of China Beneficiary: Yellow River Water and Hydropower Corporation (YkWHDC) Amount: $460 million Terms: 20 years, including 7 years of grace, at the Bank's standard variable interest rate, with level principal payments. Onlending Terms: The proceeds of the loan (other than the Institutional Support Component for the Ministry of Water Resources, MWR) will be onlent from the Borrower to YRWHDC under a subsidiary loan agreemt, with a 20-year term, includi,ng 7 years of grace, at the Bank's variable interest rate, with level principal repayments. YRWHDC will bear the foreign exchange risk and commitment charges. Objecives: The main objectives of the project are to: (a) introduce flood control in the lower reaches of the Yellow River Basin to protect major infrstructure and 103 million people; (b) control siltation in the 800 km downstream channel of the nver and prevent further aggradation so that levee heights need not be raised further during a period of 20 years; (c) provide water for asred irrigation for 2 million hectares and more stable water supplies for downstream cities and industries; and (d) generate hydropower for supplementing the base load of thermal stations in Henan Province and the Central China Power Network. Description: The project would include the following components: (a) construction of Xiaolangdi rockfill dam (with a sloping core), 154 meters high, with associated intake and outlet structures; (b) construction of a power station and associated six tunnels with turbine and gevrators with an installed capacity of 1,800 MW (6 x 300 MW) and associated switchyards, and transformers; (c) an environmental management component to monitor, manage and offset any negative impacts of the project; (d) trainng and technical assistance for YRWHDC in contract management, project  Ifi scheduling, cost control, claims management, financial management, management information systems, organizational support, corporate planning and personnel management; and (e) an institutional support component for the Ministry of Water Resources and the Yellow River Conservancy Commission. The resettlement of 171,000 people displaced by the project and the development of their livelihoods is being undertaken through a separate project being processed simultaneously. Benefits: The project will generate enormous benefits: (a) flood control measures wi}l substantialy reduce the risk of normal annual floods, ice-dam breaches, and of major floods. The flood control benefits have been calculated in tenns of damage reduction for agriculture, urban and industrial areas. Benefits from avoidance of massive loss of human life and suffering have not been quantified. About 103 million people will benefit from protection from infrequent catastrophic floods and about 3 million of some of the poorest people in China living between the levees and in flood detention areas will benefit from prevention of annual and frequent floods (1-in-2 years or more); (b) sediment control benefits have been calculated in terms of reducing the expenditures on levee raising and maintenance; (c) power benefits would be firm pea'. power generation and would replace building expensive alternative thermal generation using gas tines or other sources; and (d) irrigation and water supply benefits will raise yields of crops (mainly grain) to about double their present yields and cropping intensities on about 2.0 million ha and make more water available to cities such as Qingdao so as not to reduce industrial output. The internal economic rate of return calculated on the basis of the above benefits is about 18 percent. Project investments would increase labor productivity and incomes of about 4.5 million farm families with incomes rising by 33 percent in Henan, and by 12 percent in Shandong. Risks: The major risks are: (a) construction risks; (b) cost overruns; and (c) delays in the resettlement, thereby delaying the project implementation. Construction risks are within reasonable limits and would be manageable with continuous supervision by foreign and Chinese consultants and international panels who have been retained for the construction phase. Cost overruns have been minimized by incorporating actual prices for the three major civil works lots that form over 65 percent of the cost estimates. To minimize potential risks associated with the execution of this project and the resettlement project, assurances were obtained from the Government under the Xiaolangdi Resetdement Project that it would ensure an adequate and timely flow of funds, and establish and maintain  - i - effective project implementation management and detailed independent monitoring. Estimated Cost: Loa Foreign Total -($ ~~million) -------- Site prepaation/local civil works 280.2 - 280.2 Dam & appurtenances 385.7 572.8 958.5 Turbirnes & gates 63.1 99.9 163.0 Generators & electrical works 95.1 38.1 133.2 Inst. dev. training 0.4 0.9 1.3 Engineeing & admin. 63.6 3.9 70.5 Implementation consultants 2.9 16.6 19.5 Environmental management 9.1 9.7 18.8 MWR/YRCC institutional support 0.5 2.2 2.7 Baws Cost 2Q36 744.1 1.647.7 Physical contingencies 90.1 77.5 167.5 Price contingencies 102.1 109.4 211.6 TarQi Cost la 120252 6.8 Interest during construction lb - 267.9 267.9 Total Financing Reauired 1 1.198.9 294.7 Fnacing Plan: GOC 1,095.8 738.9 1,834.7 IBRD Loan - 460.0 460.0 Total Financing Required 1,5j 2.294.7 Estimated Disbursements: IBRD/IDA FY Lc 1994 i199 1996 1997 1998 ~~~---($million)------- Annual 40 150 150 115 5 Cumulative 40 190 340 455 460 Poverty Category: Not applicable Economic Rate of Return: 18 percent l Includes taxes and duties of $98.9 million. / Interest during construction is based on the Banks variable interest rate. /c Includes $24.0 million retroactive financing for expendiures after June 15, 1993.  - v - CONTENTS 1 Background . ................................. 1 A. Intrxduction . ................................ 1 B. Project Origin and Objectives ....................... 1 C. Bank Group Lending for Development of the Yellow River Basin 2 D. Rationale for Bank Involvement ..................... 3 2 TheYefowRiverBasin ..................5 A. PhysiChatitics ......................... 5 B. Land and Water Resource Development . . 8 Land Use and Agriculture ..................... 9 Dams and Reservoirs ........................ 10 Irrigadon and Water Supply .................... 10 Soil Conservation and Sediment Control .... ......... 11 Flood Control Works .....11 C. Basin Studies and Inveshnent Plnning ................. 13 D. Planning for the Future of the Lower Reach ...... .. ...... 16 Flood and Sediment Control ......... .. ......... 16 Irigation and Other Uws .......... .. .......... 17 Hydropower Development ..... ................ 17 3 The Proiect ....................... 18 A. Project Objectives .............................. 18 B. Project Desckiption ....... ...................... 18 C. Project Formulatioi ............................. 19 Site Selection and Reservoir Sizing ................. 19 DesignFlood ............................. 20 This report is based on the findings of an appraisal mission (May 1993), comprising Messrs./Mmes. D.J. Gunaratnam (Task Manager), J. Voegele, B. Trembath, R. Reidinger, A. Fox, S. Gulyani (Bank); and M. Hollywood, F. Piccoli, M. Bi, Li Qun, M. Buitelaar, 0. Litjens, Jiang Ping, and Zhao Chuansao (Consultants). Others who contributed during the preappraisal mission in September/October 1992 are A. Ghani (Bank); and G. Kutcher, S. McGurk, X.Y. Zhang, and S. Mak (Consultants). Peer reviewers were Messrs. R. Anderson, B. Partridge, L. Berkoff, G. LeMoigne, W. Ochs, E. Motte, J. Furtado, and A. Lopez-Rivera. The Division Chief is Joseph Goldberg and the Acting Department Director is Zafer Ecevit.  -vi - D. Ptxect Works ...................................... 21 Dam Site ad Resevoir Gology ................. 21 The Dm. . . . . ........................... 21 Reservoir Outlets, Spillway and Powerhouse .......... 22 E. Reevoir peration ............................ 23 OperaigPolicy ................. ... ....... 23 Operating Rules during Sediment Deposition Penod ..... 23 Operating Rules for Post-Deposition Period ....... ... 24 Environmental Management .................... 25 Training for YRWHC ........................ 25 Institutional Program for MWR and YRCC .......... . 26 F. Constrction Schedule .. . .. ........... .26 G. Project Cost Estimates ........... ................ .. 27 H. FicigPln ...............ancingP................ 28 I. Prournent . ................................. 29 I. Disbursements ..................... 30 K. Environmental Impact Assesmsent .. .......... 32 E. Resetdement .................... ............. 33 M. Accounts and Audits .. .......................... 35 4 Organization and ........................ 37 A. Project Organizion ............................ 37 B. Execution and Supeision of Dam Construction . .38 C. Overall Coordination and Implementation of Resetflement 39 D. Opemions and Management and Project Charges .. 40 Operations and Management of the Dam and Power Sintion . 40 Financial Aspects and P rect Chares. .41 E. Dam Safety Monitoring and Flood Forecastng . .44 Dam Safety Monitoring ..44 Flood Forecasting ..45 F. Monitwring, Evaluation and Repr rting .......... ....... 45 S Benefits, JustificationandR s ...... .... .................. 46 A. General ........ ........................... 46 B. Project Justification ....... .......... ............ 46 Costs, tices and Tariffs ...................... 46 Flood Control Benefits ........................... 47 Sedimentation Contrl Benefits .................. 48 Power Generation Benefits ..................... 49 Irrigtion Benefits ........ .................. 52 C. Economic Evaluation ...... ...................... 54 D. Project Riks ...............................s.. 54 6 AgreementsandR mndaon ........ .............. 56  - vii - ANNs 1. Proiect Parameters ............................... 61 2. Cost Estimates, Schedule of Expenditures, and Disbursements ..... 67 3. Economic Benefits: Flood Control, Sediment Control, Irrigation, and Power .................................... 77 4. Procurement and Disbursements ....................... 104 5. Financial Analysis . . . . . . ..... 107 6. Schedule of Earl) Events and Supervision Schedule. 124 7. TrauiingandTechnical Assistance . . .129 8. OrganizationalArrangements . . .142 9. Envirorimental Impact Assessment . . . 146 10. Consultants' Services . . ..161 11. Flood ForeAsting System ............................ 169 12. Selected Document .nd Data Available in Project Files ....... . 172 MANs 1. Existing and Prposed Dam/Hydropower Plants in Basin (IBRD 25525) 2. Flood Areas and Population Affected (LBRD 25533) 3. Agricultal Incomes and Flooded Areas (IBRD 25547) 4. Industi Incomes and Flooded Areas (IBRD 25548) TAlUS iN TEXT 2.1 Flood Risk Areas in the Lower Yelow River Basin .... ....... 8 3.1 Project Cost Summary..28 3.2 Financing Plan .. .. .29 3.3 Procurement Arnmgements . . .31 3.4 Resetdement Phasing . . .34 4.1 YRWHDC's Future Finances .44 5.1 Required Power Capacty Growth ..50 5.2 Projeted Xiaolangdi pacity and Energy Production. 51 5.3 Seisitivity Analysis ..55 FGUES IN EXT 3.1 Flood Ptotection With and Without the Dm .21  1. BACKGROUND A. INTRODUCTIoN 1.1 The Government of China, recognizng that flood control has very high priority in its national development program because of the strtegic importance of flood control works to major popuation centers in China, has requested Bank assistance for financing the Xiaolangdi Multipurpose Project on the Yellow River. Since the beginning of recorded time, Chinese governments, most of which kave been located in the Basin, have always had to leat with flood protection measures. This project will provide flood protecton for 100 milhon people in the North Chima Plain, several large and medium cities, and major industrial centers. In addition, the project will control sediment in the lower reach, generate much needed hydropower and supply irigation water and increae the reliability of imgation for some 2 milion hectr. Chinese engineers have been preparing this project for decades, but it was formally identified by the Bank in November 1989 and prepared thereafter by the Yellow River Water and Hydropower Development Corporation (YRWIDC) with the assitce of intemational consdtants funded under the IDA Second Technical Cooperon Credit (Credit 1664-CHA). B. PROJECr ORIGIN AND OIUEmV i.2 The struggle to tame the Yellow River for the benefit of mankind has a prominent place in the earliest chapters of Chinese history. The fertle floodplain of the river has supported severl great dynasties of China and is regarded as the cradle of Chinese civiliztion. However, the land along the river have also been the scene of great human suffenng from floods, droughts, and famines and it is only since the founding of the People's Republic of China that the river can be said to have been placed under control. Not only have floods been contained and controlled, but vast areas have benefited from irrigation and soil conservation, and major sources of hydrodectric power have been developed. Nevertheless much remains to be done. A great flood, like the one that visited the basin in 1843, could not be contahaied by the exisdng flood control works, and would cause severe damage. The river also caries a vast quantity of silt that accumulates every year in the lower reaches of the river and causes the river bed to rise further above the surrounding land. To keep pace with this, the flood enbankments have to be raised at a rate of 1 meter every 10 years. 1.3 The proposed Xiaolangdi Project woud serve two important objectives. Its reservoir would reduce the flood of record to a level that could be contained by the existing flood embankments, and would also greatly reduce the damages fromA floods of a lesser frequency. The project is designed to be opd in such a way that it would trp sediment for the first 20 yeas of its life an then reach a state of equilibrium so that the  - 2 - outflow of sediment over time would be equal to the inflow. The Xiaolangdi Reservoir would make it possible to flush sediments in the lower reach by creating artificial floods in the main channel. This, along with the initial sediment deposition would make it possible to defer raising of the embankments for 20 to 30 years. 1.4 During this period there would be a continuation of the Government's program to reduce sediment flow from the highest sediment-producing areas of the highly erodible Loess Plateau. This program has to date reduced the average annual sediment yield of the Yellow River by an estimated 20 percent. 1.5 The Xiaolangdi Project would also have major power and irrigation benefits. It would produce oih a firm basis over 1,500 MW' of clean, renewable hydroelectric power, provide additional water sufficient to greatly reduce dry-season shortages on more than 2 million hectares of irrigated land, and help meet the rapidly growing water iieeds of some of North China's largest cities. The Xiaolangdi Project is, therefore, an essential element in the future development of the Yellow River Basin. C. BANK GRouP LENDING FOR DEVELOPMENT OF THE YELLOW RIVER BASE 1.6 The Bank Group has assisted in the financing of seven land and water resource development projects in the Yellow River Basin since 1981. Most of these are aimed at improving irrigation and drainage systems but several include irrigation of unused land to take advantage of regulated flows produced by a recently completed long-term storage dam at Longyangxia in the headwaters of the river. In addition to the physical works involved, all projects include a wide range of supporting infraswtructure and services. One of the first IDA operations in China was the North China Plain Agriculture Project which improved irrigation, drainage and salinity control for 200,000 ha. This was followed by two projects in the upper part of the Basin: the Yindaruqin Project, a component of the Gansu Provincial Development Project, will irrigate 70,000 ha of arid land in one of the poorest parts of the Basin; and the Northern Irrigation Project wiUl improve existing systems on 210,000 ha in Inner Mongolia, and create a new iigation system on unused land in Ningxia Province. More recent Bank Group operations include a project to irrigate 123,000 ha in Shaanxi Province, and projects for improved irrigation and drain ze of 272,000 ha in Shandong Province and 282,000 ha in Henan Province. Of particular note is a rcent project for improvements in irrigation and drainage for over 1 million ha south of the river in Shandong, Anhui and Jiangsu Provinces; a considerable part of this area is served from the Yellow River. As regards soil conservation, a component of the Gansu Provincial Development Project supports watershed rehabilitation on 76,000 ha in the Loess Plateau. In addition, the Loess Plateau Watershed Rehabilitation P;oject is being prepared in FY1994 for rehabilitation of 15,600 km2 in nine severely eroding tributary watersheds .of the Yellow River, through construction of land development and erosion control works. A PPAR on the North China Plain Project reported that the project had been highly successful. Progress to date on other Bank Group-financed projects in the Yellow River Basin suggests ta the favorable experience with the North China Plain Project will eventually be repeated.  -3 - 1.7 Although the Bank has assisted in these seven water resources and irrigation projects in the Yellow River basin, the most pertinent lessons for this project are from previous hydropower projects in other parts of China such as the Shuikou Hydroelectric (Loan 2775-CHA) and Ertan Hydroelectric Projects (Loan 3387-CHA) with similar dam construction requirements. These lessons include: (a) review of the project using international technical panels and consultants who have made substantial contributions in improving the designs, economic impact assessment, and resettlement planning and designs; (b) definition of civil works procurement packaging and joint venture zrrange- ments between foreign and local contractors to obtain transfer of technology and best international practices; (c) early start-up of procurement for major civil works so that bid award will correspond with loan effectiveness in order to avoid delays and to avoid cost overruns; (d) stringent prequalification criteria to ensure all partners of foreign and local joint ventures are adequately qualified to fulfill their responsibilities; and (e) adequacy of resettlement plans, safety nets and budgets; an action plan and a mid-term review will be incorporated into the project to ensure proper implementation of the resettement component. The incorporation of these lessons has already resulted in reducing the estimated costs of the proposed project by about 20 percent. D. RATIONALE FOR BANK INVOLVEVUNT 1.8 Past Bank assistance in water resources development was mainly through province-based operations. Bank involvement in the proposed project aims to support the Central Government effort in a major water resource development with wide-ranging catastrophe prevention, irrigation, water supply, power, and other benefits that will cut across several provinces. The Bank involvement will assist the government in resettlement planning and implementation, and in the envisaged establishment of a viable, autonomous river basin and project institution for resource mobilization and project management. 1.9 Bank assistance in the preparation of the project. through the Second Technical Cooperation Credit (Credit 1664-CHA) has already made significant contributions to: (a) Review of the project using international technical panels aind consultants. The panels and consultants made substantial contributions in improving the designs, economic evaluation, environmental impact assessment, and resettlement planning and designs; (b) Setting up of a system to clearly define authority and reponsibility among the owner (YRWHDC), the engineer Xiaolangdi Engineering Consultant Company (XECC), and the contractor; (c) Definiton of civil works procurement packaging and relationships between foreign and local contractors to achieve transfer of technology and best international practices;  - 4- (d) Resettlement planning-the Bank had particular impact, among other things. in ensuring the adequacy of terms and amounts of compensation and making more transparent the process for consultation including the grievance and appeals system for the affected population; (e) Assistance in the establishment of a financially autonomous operating agency, YRWHDC. Two subsidiarv units are set up to manage the sale of power, and water for irigation and municipal and industrial (M&I) users. In addition, there will be collection of special fees for flood and sediment control benefits.  - - 2. THE YELLOW RIVER.BASIN A. PHrSICAL CHARtACrERsICS 2.1 General. The Yellow River rises on the northern slopes of the Bayankela mountains of Qinghai and traverses nine provinces or autonomous regions including Qinghai, Gansu, Sichuan, Ningxia, Inner Mongolia, Shaanxi, Shanxi, Henan, and Shandong. The river falls 4,450 m over a length of 5,465 kIn, draining an area of 79S,000 km2. In its upper reaches it flows through swamps and grassands and then enters a series of gorges in Qinghai and Gansu before traversing the deserts and grasslands of Nmgxia and Inner MongoLa. The river turns to the south before leaving Inner Mongolia to form the boundary between Shaanxi and Shanxi and, after a sharp turn to the east, it flows across the North China Plain to its delta on the Bohai Sea. A notable feature of the Basin is the 430,000 km2 of wind-deposited material in the middle and upper reaches which forms the largest loess deposit in the world. Because of intense soil erosion from this area, the Yellow River far exceeds any of the world's large rivers in terms of annual sediment transport. For example, it carries three times the sediment load of the Brahmaputra- Ganges with only 8 percent of the annual flow. In its lower reach, over a length of some 800 kIn, the river becomes a broad meandering channel containea by flood embankments and here the river drops part of its sediment load and the bed rises above the suounding land at a rate of one meter every ten years. The Basin has a popuation at present of 126 milion, of which 104 million are rural and 22 million urban. Some 6 million ha are irrigated by the Yellow River, of which about 3 million ha are irrigated from die lower reach in the North China Plain. These areas are planned to increase by nearly 30 percent in the near future, although such goals are liky to be constrained by potentially serious water shortages. The installed capacity of the hydropower schemes completed in the Basin to date is 5,410 MW and sites with a further potential of 20,000 MW have been identified. 2.2 Climate, Hydrology and Sedientation. The Basin is typically divided into ftree main regions (see Map 25525). The upstream region from the source to Hekouzhen, where the river tums to the south as it leaves Inner Mongolia, drains an area of 428,000 kn2. The middle region from Hekouzhen to Huayuankou, at the head of the lower floodplain, covers 345,000 km2. The lower region from Huayuankou to the sea has an area of 22,000 kn2, uniquely constrained by the fact that the river is above the floodplain and drainage proceeds away from it. A much larger area outside of the basin is dependent on the river for its water. The Basin's climate is chAracterized by hot summers, with tempeaures reaching 40