China - Beilungang Thermal Power Project

 Beilungang thermal power project Report No: ; Type: Report/Evaluation Memorandum ; Country: China; Region: East Asia And Pacific; Sector: Thermal; Major Sector: Electric Power & Other Energy; ProjectID: P003457 December 29, 1995 China: Beilungang Thermal Power Project (Loan 2706-CHA) The Implementation Completion Report (ICR) on China Beilungang Power project (Loan 2706-CHA, approved in FY86), was prepared by the East Asia and Pacific Regional Office with Annex 2 contributed by the Borrower. The loan in the amount of US$225 million was closed on June 30, 1994, two years behind schedule and after two extensions of the closing date, at which time US$0.6 million was canceled. The project objectives were to: (i) provide additional electric power to support the fast growing industrial region in East China, south of Shanghai; (ii) introduce the technology of large coal-fired power plants to make use of China's abundant coal reserves; (iii) construct extra high voltage transmission lines; and (iv) introduce least-cost investment planning tools, power tariffs design methodologies, and utility management and financial planning. Project components were: (a) construction of a large coal-fired power plant and its associated 500 kV transmission lines and sub-stations; (b) consultant services for engineering, procurement and construction management of the coal-fired power plant; (c) a large training program; and(d)a power tariff study. The objectives were demanding on physical components and institutional development grounds but were successfully met. The implementing agency, the Zhejiang Provincial Electric Power Bureau (ZPEPB), built and commissioned the first 600 MW unit at the Beilungang coal-fired thermal power plant and its associated 500 kV transmission lines. This contributed significantly to mitigating the shortages of power supply in East China and to promoting industrial production and regional development. Training of technical personnel (more than 500) transferred to ZPEPB modern technology for constructing and operating large coal-fired plants. Training on planning and utility and financial management improved ZPEPB performance, and the tariff study laid the ground for a future sector reform. Implementation was not problem free: procurement was protracted; construction and commissioning was delayed by 18 months due to problems in integrating equipment fabricated by numerous suppliers; and a serious boiler accident occurred after commissioning. ZPEPB complied with most financial covenants, and, where it did not, its results were close to covenanted targets (e.g., average rate of return was 7.9 percent compared to the covenanted 8.1 percent). The ICR recalculated a project economic rate of return of 10.5 percent (8.5 percent at appraisal). The Operations Evaluation Department (OED) rates the project outcome as satisfactory and its institutional development as substantial. OED rates project sustainability as likely since there is abundant coal for power generation, ZPEPB's staff are well-trained, and cost recovery is ensured by an adequate level of power tariffs and a booming demand for electricity. Finally, OED rates Bank performance as satisfactory. These ratings agree with the ICR's. Two main lessons can be drawn: (i) the introduction of a new technology calls for a comprehensive and well designed training program at all levels of the power utility; and (ii) procurement should be split into fewer, more self-contained packages to minimize coordination problems among suppliers. The ICR is of good quality. It presents a reasonable picture of project implementation and results, of financial performance of ZPEPB and plans for operating Beilungang and increasing ZPEPB's autonomy and business orientation. However, it could have included a better analysis of the impact of the devaluation of the Yuan on project cost estimates and project economic rate of return. The project may be audited together with three recently completed power projects in East China.