China - Wujing Thermal Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15183 IMPLEMENTATION COMPLETION REPORT CHINA WUJING TRERMAL POWER PROJECT (LOAN 2852-CIA) DECEMBER 20, 1995 Infrastructure Operations Division China and Mongolia Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit: Yuan (Y) At Appraisal (December 1986) $1 = Y 3.7 Exchange Rates During Project Years Year Avg. 1987 - 3.73 1988 - 3.73 1989 - 3.73 1990 - 4.86 1991 - 5.36 1992 - 5.49 1993 - 5.75 1994 - 8.50 FISCAL YEAR January I - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS CIECC - China International Engineering Consulting Corporation ECEPA - East China Electric Power Administration ECEPDI - East China Electric Power Design Institute ECG - East China Grid GOC - Government of China ICB - International Competitive Bidding ICR - Implementation Completion Report MOEP - Ministry of Electric Power MOF - Ministry of Finance SMEPB - Shanghai Municipal Electric Power Bureau SPC - State Planning Commission SPG - Shanghai Power Grid  FOR OFFICIAL USE ONLY CONTENTS Preface ....................................................... ii Evaluation Summary ........................................................ iii Part I: Project Implementation Assessment .........................................................1 A. Project Objectives ........................................................1 B. Achievement Of Project Objectives ........................................................ 2 C. Implementation Record And Major Factors Affecting The Project ..............2 D. Project Sustainability .........................................................7 E. Bank Performance .........................................................7 F. Borrower Performance ........................................................7 G. Assessment Of Outcome ........................................................8 H. Future Operation ....................................................... 8 I. Key Lessons Learned ........................................................8 Part II: Statistical Tables ........................................................9 Table 1: Summary Of Assessments ........................................................ 9 Table 2: Related Bank Loans ....................................................... 10 Table 3: Project Timetable ....................................................... 13 Table 4: Loan Disbursements: Cumulative Estimated And Actual ............... 13 Table 5: Key Indicators For Project Implementation ...................................... 14 Table 6: Key Indicators For Project Operation ............................................... 14 Table 7: Studies Included In Project ....................................................... 15 Table 8a-1: Project Costs ....................................................... 15 Table 8a-2: Project Costs ....................................................... 16 Table 8b: Project Financing ........................................................ 16 Table 9: Economic Costs And Benefits ........................................................ 17 Table 9 Attachment: Ex-Post Internal Economic Rate Of Return Of Wujing Thermal Power Project (Ln 2852-CHA) .............................. 18 Table 10: Status Of Legal Covenants ....................................................... 19 Table 11: Compliance With Operational Manual Statements ........................ 20 Table 12: Bank Resources: Staff Inputs ....................................................... 20 Table 13: Bank Resources: Missions ........................................................ 20 ANNEX 1: ICR PREPARATION MISSION'S AIDE-MEMOIRE ..................... 21 ANNEX 2: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE ....................................................... 25 ANNEX 3: SMEPB FINANCIAL STATEMENTS ............................................... 27 This document has a restricted distribucion and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization.   IMPLEMENTATION COMPLETION REPORT CHINA WUJING THERMAL POWER PROJECT (LOAN 2852-CHA) PREFACE This is the Implementation Completion Report (ICR) for the Wujing Thermal Power Project in China for which Loan 2852-CHA in the amount of $190 million was approved on June 23, 1987 and made effective on April 14, 1988. The loan was closed on June 30, 1995, 24 months beyond the date originally envisaged, June 30, 1993, as the Beneficiary took advantage of the cost savings of $12.6 million under the loan for an expanded transmission and distribution component. Final disbursement in the amount of $194,995.17 was made on August 2, 1995 when the loan was fully disbursed. The ICR was prepared by Elaine Sun and Shigeru Kataoka, Infrastructure Division, China and Mongolia Department of the East Asia and Pacific Region, and reviewed by Mr. Richard Scurfield, Division Chief, and Mr. Yo Kimura, Project Advisor. The Borrower/Beneficiary provided comments, which are included as an annex to the ICR. Preparation of this ICR was begun during the Bank's final supervision mission in July 1995. It is based on the Staff Appraisal Report, the Loan and Project Agreements, Supervision Reports, correspondence between the Bank and the Borrower/Beneficiary, internal Bank memoranda and interviews with Bank and Borrower/Beneficiary staff involved in project implementation. The Borrower/Beneficiary contributed to the preparation of the ICR by commenting on the draft ICR, preparing an evaluation of the project's execution and implementation, and by contributing views reflected in the mission's aide-memoire.   - iii - IMPLEMENTATION COMPLETION REPORT CHINA WUJING THERMAL POWER PROJECT (LOAN 2852-CHA) EVALUATION SUMMARY Project Objectives 1. The Wujing Thermal Power Project was designed to support industrial growth in East China by increasing electricity supply to the Shanghai Power Grid (SPG), a part of the integrated East China Grid (ECG), which was suffering from acute power shortages. The project was also used as a vehicle to: (a) support development of a modem distribution network master plan for the city of Shanghai; (b) promote efficiency in the Shanghai Municipal Electric Power Bureau (SMEPB) through a staff training program; and (c) encourage financial reform through introduction of more appropriate financial performance targets. 2. Financing under the project was provided for: (a) extension of the existing coal- fired Wujing thermal power station by adding two generating units of 300 MW each; (b) construction of associated 220 kV transmission lines and substations; (c) on-line computer control and automatic load dispatching system for SMEPB's load dispatching center; (d) a master plan study of the distribution network in Shanghai; and (e) a training program for upgrading the technical, financial and management skills of SMEPB staff and equipping and upgrading SMEPB's technical schools. Implementation Experience and Results 3. Project implementation was highly successful and the above objectives were achieved within the original schedule. The project provided the two 300 MW units with high reliability and availability. The project's successful training programs for modernization of utility management, financial planning, and investment programming established an institutional capability primed for further development under subsequent operations. The final cost (including interest during construction) with expanded project scope was $190 million in foreign and Y 1,045.4 million in local expenditures, compared to an estimated $238.2 million in foreign and Y 476 million in local costs at appraisal. There was a major expansion in the project scope for the transmission and distribution component,  - iv - which caused a two-year extension of the loan closing date. With the same project scope, the final cost would have been $176.4 million in foreign and Y 709.8 million in local costs. The large increase in the local cost is due to higher than expected inflation in China and the devaluation of local currency from an exchange rate of Y 3.7 to $1 at the time of appraisal toY8.5to$1 bytheendof 1994. 4. Commercial operation of the project units was three months ahead of the appraisal schedule. To date, this is the only power project financed by the Bank to start commercial operation ahead of the original schedule. The internal economic rate of return (IERR) is also greater than originally estimated because "willingness to pay" for power is demonstrably higher than original estimates. Both transfer of technology and, in particular, institutional development objectives were achieved, and the good relations established with the power entities in the East China Grid are likely to assist the Bank to continue to positively influence the structure and commercial orientation of the power sector in East China. 5. All elements are present to ensure sustainability of the project. The power plant is of high quality, and efficient and economic operations are expected to continue. The pricing arrangements for the plant output will ensure satisfactory financial and economic returns. On the institutional side, the tide of economic reform in China is creating expectations far beyond those at appraisal. Shanghai is in the forefront of China's reform and the project entity (SMEPB) is expected to play a model role for other utilities in China. SMEPB is now preparing itself to be the first public utility in China to be listed on the stock exchange. 6. A master plan study of the distribution network in Shanghai, one key component of the project, was successfully completed in April 1991. Based on the study, Shanghai has implemented a major distribution system renovation project since 1991. The renovation costs for the first five years, 1991-95, were estimated at Y 1 billion, including $75 million for procurement of foreign equipment. About $12.6 million of loan proceeds under this project were used to import the required foreign equipment. 7. Bank performance overall was satisfactory. In particular, rigorous supervision by the Bank during implementation was considered very effective in resolving difficult problems for the project entity. SMEPB successfully completed the project ahead of schedule with a relatively modest cost overrun when expressed in local currency. It overcame problems as they arose, introduced and absorbed modem technologies and management skills, and took full advantage of training opportunities. Summary of Findings, Future Operations and Key Lessons Learned 8. The objectives of the project were consistent with those of the Chinese Government and the Bank and the project achieved all its objectives. The project is rated as highly satisfactory and is considered to be sustainable in all areas. Under the project, SMEPB successfully completed one of the most reliable high-quality, coal-fired 300 MW units in China. The project's rate of return calculated at completion is more than 15.9 percent,  - v - compared to the appraisal estimate of 11.7 percent. The higher return resulted from larger- than-anticipated tariff increases. 9. One important lesson learned from this project relates to procurement. A package contract for the major equipment (Boiler and Turbine-Generator package) under a single responsibility was applied. The experience of a single responsibility contract was very successful in terms of project coordination, quality control and implementation schedule control. The two 300 MW units were successfully completed ahead of the originally planned schedule. However, the outcome of the ICB for the main package under a single responsibility contract revealed a major shortcoming of the method, lack of competition. As a result, the Bank returned to the traditional procurement method of island-based contracts in the following Beilungang Extension Project (Ln. 2955-CHA). Management of interfacing problems has been a key issue experienced in the island based procurement method for the Beilungang Extension Project. Under subsequent projects, such as the Zouxian (Ln. 3462-CHA), Yangzhou (Ln. 3718-CHA), and Zhejiang Power Development (Ln. 3846-CHA) Projects, minimizing the number of islands and reinforcing project management systems have been reflected as lessons learned through this project, and the two Beilungang projects.   - I - IMPLEMENTATION COMPLETION REPORT CHINA WUJING THERMAL POWER PROJECT (LOAN 2852-CHA) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. PROJECT OBJECTIVES 1. In the mid-1980s, when this project was identified, East China was already one of the country's most important industrial areas, accounting for about 25 percent of total national production. However, a shortage of electricity supply forced industries in the area to operate only four to five days a week, with consequent underutilization of plant facilities and manpower. The Government attached high priority to electric power development, with a strategy that combined: (a) massive investment in new generating capacity, together with use of advanced plant design and modem construction techniques; (b) rapid expansion of transmission and distribution networks; (c) use of up-to-date techniques of load management, forecasting and investment planning; and (d) training and staff development. 2. The main objectives of the proposed project were: (a) to address the acute power shortage at a major load center in the East China power grid; (b) to support development of a modem distribution network master plan for the city of Shanghai; (c) to promote efficiency in the Shanghai Municipal Electric Power Bureau (SMEPB) through a staff training program; and (d) to encourage financial reform through introduction of modern appropriate financial performance targets. 3. The project comprised: (a) extension of the existing coal-fired Wujing thermal power station by adding two generating units of 300 MW each; (b) construction of associated 220 kV transmission lines and substations; (c) on-line computer control and an automatic load dispatching system for SMEPB's load dispatching center; (d) a master plan study of the distribution network in Shanghai; and (e) a training program for upgrading the technical, financial and management skills of SMEPB staff and equipping and upgrading SMEPB's technical schools.  - 2 - B. ACHIEVEMENT OF PROJECT OBJECTIVES 4. The project achieved its primary objective of addressing the acute power shortage at a major load center-Shanghai city-in the East China power grid. Economic and power demand growth in Shanghai were in line with expectations. The Internal Economic Rate of Return (IERR) was also greater than originally estimated. 5. The two 300 MW units, the main component of the project, were constructed to start commercial operation ahead of the original schedule, and have proven to have high quality and reliability. 6. The objective of transfering technology was also achieved. The Energy Management System (EMS) was successfully completed in the Shanghai load dispatching center. Based on a special study for Shanghai's distribution network improvement completed under the project, a major renovation of the system with a budget of Y I billion has been launched in Shanghai since 1991 to simplify voltage levels and improve the reliability. 7. The project's successful training programs for modernization of utility management, financial planning and investment programming established an institutional capability primed for further development. 8. Institutional development is the most remarkable achievement of this project. SMEPB has upgraded significantly its capability through the project in the areas of project management, quality control, contract management, procurement standards, and financial management. The real impact goes beyond the project and the company as a whole. The domestic manufacturers which provided the generator and boiler to the Wujing plant, have also enhanced the quality of their products as a result of the Bank's rigorous involvement in the quality assurance for the project. Recently, they successfuly won a contract from abroad as a result of their experience in the project. C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT Implementation Schedule 9. The construction of the two 300 MW units was completed highly satisfactorily. The No. I unit was synchronized to the system on November 19, 1991 according to plan schedule and put into commercial operation on February 24, 1992 which was three months ahead of the appraisal schedule. The No. 2 unit was synchronized to the system on September 17, 1992 which was two months ahead of the appraisal schedule and put into commercial operation on December 27, 1992 which was three months ahead of the appraisal schedule. The loan closing date was extended by two years, from June 30, 1993 to June 30, 1995, to permit the Beneficiary to make use of the cost savings of about $12.6 million for an expanded transmission and distribution component.  - 3 - 10. Power Generation. The operation record after the dates of commercial operation is summarized below: 1991 1992 1993 1994 1995 FH Unit #1 Power generation (GWh) 66.0 1,213.1 1,532.5 1,434.0 802.0 Availability factor (%) 60.0 83.9 73.0 La 85.9 Load factor (%) 77.0 69.5 74.8 71.1 Unit #2 Power generation (GWh) 182.8 1,520.3 1,741.7 534.1 Availability factor (%) 79.8 89.2 56.2 Lb Load factor (%) 72.5 74.3 72.3 Note: FH =first half. /a Scheduled overhaul from January 13 to March 23, 1994. lb Scheduled overhaul from April 6 to June 2, 1995. 11. The above record shows that the availability factors of the Wujing units are very high, compared with those of other new units in the East China Grid. Moreover, the Wujing units are currently the best units in the grid for cyclic operation (two-shift operation for day time and night time) and load regulation in the power grid. 12. Shanghai Distribution Network Improvement. The master plan study of the distribution network in Shanghai was successfully completed in April 1991 as planned. The study covered the network improvement plan for the Shanghai Urban District (149 kmi), including system planning software, management system for network construction and expansion, and plans for the short-term (1991-95), medium-term (1996- 2000), and long-term (2001-10). The network renovation is designed to simplify voltage levels (old system: 110, 35, 23, 10, 6.6 and 0.4 kV versus new system: 35, 10, 0.4 kV and 110, 10, 0.4 kV) and to improve the reliability of the system from 99.5 percent to 99.85 percent. The estimated costs for the short-, medium-, and long-term plans are estimated at about Y I billion, Y 0.9 billion, and Y 0.9 billion, respectively. Of the total budget of Y I billion for the first phase, a foreign cost of $75 million is included. Under the project, loan proceeds of about $12.6 million (about $7 million from remaining proceeds allocated to the Gubei and Shibei substations and the unallocated amount of about $5.6 million) were used to import some required foreign equipment. The closing date of the loan was extended by two years, from June 30, 1993 to June 30, 1995, to permit the above procurement and implementation of the associated renovation works. 13. Project Costs. The estimated cost of the project at appraisal (including interest during construction) was $238.2 million in foreign costs and Y 476 million in local costs, equivalent to a total of $351.4 million (Y 1,508.7 million). The final cost was $190.0 million in foreign costs and Y 1,045.4 million in local costs, equivalent to a total of $381.8 million (Y 2,080.9 million) (see Tables 8a-1 and 8a-2 for details). Considering overall costs  - 4 - (foreign plus local), there is a cost overrun of about 8.7 percent and 38 percent when expressed in US dollars and local currency, respectively. However, to obtain a more exact comparison, the project scope needs to be adjusted as there was a major expansion in the transmission and distribution component which resulted in an additional foreign cost of $12.6 million and local cost of Y 335.6 million. With the same project scope, the actual final cost would have been $177.4 million in foreign and Y 709.8 million in local costs. It shows that foreign costs are about 25.5 percent lower, local costs are about 49 percent higher, and overall costs are about 12.5 percent lower when expressed in US dollars and 11.1 percent higher when expressed in local currency than estimated at appraisal. This represents relatively good agreement, considering the large local inflation rate and the devaluation of local currency from an exchange rate of Y 3.7 to $1 at the time of appraisal to Y 5.7 to $1 by the end of 1992, when the main components were completed. 14. A summary comparison of the estimated disbursements at appraisal with the actual disbursements is given in Table 4. The loan was fully disbursed on August 2, 1995. 15. Procurement. The project was designed to procure the main power plant equipment under a single responsibility contract covering detailed design, equipment supply and management of erection, testing and commissioning. During project preparation and appraisal, the Chinese Government requested such a single responsibility contract in order to expedite completion of the project. The request was considered carefully by the Bank. The Bank team reviewed the experience of four other projects in China (not financed by the Bank) where similar single responsibility contracts were awarded. The evidence indicated that: (a) significant time savings in project completion was possible (10-12 months); and (b) there was wide international competition, with bids being received from most of the reputable suppliers. 16. However, the ICB for the main equipment package of the project resulted in only one bid submitted by a domestic bidder. All prequalified foreign bidders declined to submit bids. Foreign bidders were reluctant to participate in bids for the main package of the project under a single responsibility, because they considered that they could not compete with domestic manufacturers for 300 MW units for which Chinese manufacturers were fully qualified. 17. As a lesson learned for the above ICB procurement for major equipment, the Bank returned to a traditional island-based procurement method. 18. Consulting Services and Training. A foreign firm was selected to carry out consulting services in two phases. Phase I, funded by the Bank Group's Technical Cooperation Credit (Cr. 1412-CHA), provided services for preparation of the project, including review of designs prepared by the China International Engineering Consulting Corporation (CIECC) with assistance of the East China Electric Power Design Institute (ECEPDI), preparation of bidding documents, and assistance to SMEPB for bid evaluation and contracting. Phase II, financed under the project, provided services for assistance in engineering and detailed design and review of vendors' drawings of the project. The  consultant input was very beneficial to SMEPB during the first phase. However, since the general contractor was a domestic company and most of the docuwnentations was in Chinese, the consulting service was not as significant at the second phase. 19. Both domestic and overseas training was provided under the project. SMEPB took full advantage of the Bank loan to finance a training program as well as development, upgrading and equipping of the existing educational training center of SMEPB and the Shanghai electrical school. 20. An extensive overseas training program was carried out for the tariff study, financial management, corporate management, operation and management of thermal power plants, and planning and maintenance of the distribution system. Visits abroad totaled 90.0 man- months to Hong Kong, France, Japan and Australia. 21. Economic Performance. At appraisal, the ex-ante internal economic rate of return (IERR) was estimated at about 11.7 percent, based on measurable economic costs and benefits associated with the 600 MW development. The ex-post IERR is about 15.9 percent (with shadow price adjustment as shown in Table 9). The higher IERR came from larger than expected tariff increases. 22. Financial Performance. Salient features of SMEPB's finances during the period 1986-94 are summarized in Annex 3. SMEPB's overall operating results and financial position were satisfactory as its actual average rate of return on fixed assets in service, 14.1 percent, exceeded the expected 13.4 percent at appraisal. Energy sales have fallen short of expectations since 1989 as a result of purposeful slowdown of the overheated economy by the government during 1989-92 and the consequent inadequate investments in power generation. SMEPB adjusted the tariff aggressively from an average rate of 8.7 fen/kWh in 1986 to 33.6 fen/kWh in 1994, a nominal increase of 18.4 percent and a real increase of 6.7 percent per year. As a result, SMEPB's net incomes over the period were largely in line with the appraisal estimates in spite of larger than expected increases in fuel costs and costs for purchased power, that increased annually by about 34 percent compared to an appraisal estimate of 7.7 percent. These two cost increase factors also led to much higher operating ratios. The overall performance of SMEPB was satisfactory as it maintained a sound debt service position, above 2.2 times throughout the period, and a conservative capital structure with the highest debt/equity ratio at 58/42 in 1992. Due to the very uneven tariff adjustments approved by the Shanghai Municipal Government year by year and much larger than expected special find expenditures for maintenance, renovations, employee benefits, and distribution improvements, SMEPB was short of the target self-financing ratio in a couple of years. As shown in Table 4 of Annex 3, SMEPB's self-financing ratio was 13.5 percent in 1988 and 19.4 percent in 1990 against the target of 25 percent set out in the project agreement. Nevertheless, it managed to achieve an average self-financing ratio of 25.3 percent during the period 1986-1994. Moreover, it has never had problems in meeting the covenanted debt service ratio of 1.3 times throughout the implementation period.  - 6 - 23. In 1993, new accounting regulations came into effect, and SMEPB has acted to bring its accounting procedures fully in line with Ministry of Finance regulations. Meanwhile SMEPB has started to segregate its equity with debt as a fundamental step to clarify the assets ownership right. In 1993, an overall fixed assets revaluation was carried out according to national requirements. Along with internal strengthening in financial management and introduction and use of international accounting and auditing practice, SMEPB is currently in a better position to draw more foreign investments and to jointly invest in future independent power plants. 24. The Bank's objective to promote prudent financial management was achieved through SMEPB's efforts to comply with project financial covenants, which required it to prepare long-term financial plans, focusing on its trends in production costs, future investment program, and related financing arrangements, and to review such plans annually with the Bank. 25. Environment, Land Acquisition and Resettlement. The project site is located at Wujing along the Huangpu River about 17 km south of Shanghai. The site is primarily a low population density agricultural area with a few industries. The project was designed to meet environmental standards set by Chinese and World Bank guidelines. SMEPB carried out periodic environmental monitoring before and after commissioning of the two 300 MW units. The monitoring showed that no excessive impacts were observed on the environment. 26. The investment for land acquisition and resettlement amounted to Y 100.2 million. The project required resettlement of 773 people, all of which was carried out satisfactorily, with standards of living sustained. Compensation levels were adequate, as indicated below: (a) Y 29.6 million was spent for land acquisition of about 53 hectares. (b) In the end, 773 people were relocated, for which compensation of Y 13.8 million was paid. Industry Development Corporation of Shanghai Municipal Minhang District was entrusted to accept and resettle farm laborers after resettlement. (c) Employment was provided to the resettlers through: (i) establishment of several small factories to produce toys, cartons, shoes, etc. for new employment; and (ii) persuasion of farmers over 55 years of age and women over 45 years of age to retire voluntarily with monthly pensions. 2 (d) Housing totalling 19,860 m was built, for which Y 12.9 million was paid. (e) Some existing facilities, such as warehouses, pipelines and heavy and light oil tanks were demolished and removed, for which Y 32.1 million was paid. (f) Y 7.9 million was paid for leveling of the site and providing infrastructure such as electricity, water, communications and an access road.  27. Shanghai Municipal Southern Ash Yard constructed in the early 1980s was used as the ash yard for the project. Neither land acquisition nor resettlement for the ash yard was required. The land for the associated transmission and substation system was provided by the local government at a cost of Y 19 million. No resettlement was needed. D. PROJECT SUSTAINABILITY 28. All elements are present to ensure sustainability of the project. Technically, the finished Wujing thermal power plant is of high quality and the units have operated at a very high availability factor since the start of commercial operation. Efficient and economic operation is expected to continue based on SMEPB's past records and the management arrangement for the power plant. Financially, the pricing arrangements for the plant output will ensure satisfactory financial and economic returns. Institutionally, SMEPB, through training provided by the project, is well prepared to operate in a market-oriented environment. The company is in the process of further corporatization in order to prepare itself to be the first public utility in China to be listed on the stock exchange. The actions that SMEPB have taken include: (a) preparation of a plan to detach the nonproductive assets from the Company; (b) clarification of assets ownership between the central government and the Shanghai Government; and (c) employment of an international accounting firm to reconstruct its accounts to meet international accounting standards. E. BANK PERFORMANCE 29. Bank performance from project preparation through completion was satisfactory. The Bank maintained good relations with the borrower, the beneficiary and the consultants throughout project execution. During implementation, the Bank regularly supervised the project, including the construction schedule, procurement, financial aspects, loan covenants, project cost updating, and training activities, to ensure smooth implementation. In addition, with this project and subsequent projects (Beilungang II, Yanshi and Zouxian), the Bank established a basis for cooperation and dialogue between the borrower, beneficiary, and the Bank in the development of the power subsector in China, including institutional restructuring and electricity pricing reform. To date, the Bank has assisted in implementing 17 power projects in China with total assistance of about $3.8 billion. F. BORROWER PERFORMANCE 30. SMEPB successfully completed the major project components-its two 300 MW coal-fired units and associated 220 kV transmission line and substations-within the planned schedule. Close coordination between SMEPB and the general contractor under the single responsibility contract was also a key factor to the successful completion of the two units with high quality. SMEPB introduced and absorbed the latest design technology and construction and operational management techniques for the power plant, with the assistance of foreign consultants. It also took full advantage of the training opportunities and has upgraded its overall institutional capability. Based on the special study on a master plan for Shanghai distribution network improvement, a major renovation of the system in Shanghai started in 1991, partly financed by the Bank under this project.  - 8 - G. ASSESSMENT OF OUTCOME 31. The project outcome is rated as highly satisfactory. SMEPB achieved the project objectives, and completion of the project contributed significantly to mitigating the shortages of power supply, increasing load regulation capability in the Shanghai power grid as well as in the East China power grid, and promoting industrial production and regional economic development. Training for technical personnel in design, construction, commissioning, operation and maintenance contributed to transferring the up-to-date technologies needed for large-capacity coal-fired plants and distribution systems. Project training for utility and financial management staff contributed to institutional development that provided the basis for future reform. H. FUTURE OPERATION 32. Project achievements in institutional development were expanded in subsequent Bank-assisted operations in the power sector in China. 1. KEY LESSONS LEARNED 33. This project was only the Bank's fourth power project in China and its second to assist the Chinese in constructing a large-capacity (2X 300 MW) coal-fired power plant, following Beilungang I 600 MW project (Ln. 2706-CHA). With reference to the procurement method for the project, a package contract for the major equipment (Boiler and Turbine-Generator package) under a single responsibility was applied. Through this procurement, one important lesson was learned. On one hand, the project was well managed under a single responsibility and was satisfactorily completed, with high quality, within the original schedule. Interfacing problems which are generally unavoidable in the case of island based contracts could almost be eliminated. On the other hand, the ICB procurement for the main package of this project revealed lack of competition. Only one domestic bidder participated in the bid and all foreign prequalified bidders declined to participate. Foreign bidders considered that they could not compete with domestic manufacturers who were fully qualified for 300 MW class power projects. Based on this experience, the Bank returned to the traditional procurement method of island based contracts in the subsequent Beilungang Extension Project (Ln. 2955-CHA). Management of interfacing problems has been a key issue in the island based procurement method. Under later projects, such as the Zouxian (Ln. 3462-CHA), Yangzhou (Ln. 3718-CHA) and Zhejiang Power (Ln. 3846-CHA) Projects, minimizing numbers of islands and reinforcement of project management system have been reflected as lessons learned through this project and the two Beilungang projects.  -9- PART II: STATISTICAL TABLES TABLE 1: SUMMARY OF ASSESSMENTS Achievement of Objectives Not Substantial Partial Negligible Applicable Macroeconomic policies X Sector policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender concerns X Other social objectives X Environmental objectives X Public sector management X Private sector development X Project Sustainability Likely Unlikely Uncertain x Bank Performance Highly Satisfactory Satisfactory Deficient Identification X Preparation assistance X Appraisal X Supervision X Borrower Performance Highly Satisfactory Satisfactory Deficient Preparation X Implementation X Covenant compliance X Assessment of Outcome Highly Satisfactory Satisfactory Unsatisfactory Highly Unsatisfactory x  - 10- TABLE 2: RELATED BANK LOANS Year of Loan Title Purpose Approval Status Ln. 2382-CHA To construct a rockfill dam, a spillway, 02/21/84 Loan was closed on Lubuge Hydroelectric an underground powerhouse, to install 4 06/30/92. Project generating units of 150 MW each, 3 single circuits of 220 kV transmission lines; to provide consultant services and a training program. Ln. 2493-CHA To construct a 500 kV transmission line 02/19/85 Loan was closed on Second Power Project from Xuzhou to Shanghai and 5 06/30/92. associated substations totaling 3,500 MVA in capacity, to install tele-control and telecommunications equipment for load dispatching, and to provide training for 400 kV transmission lines and substations. Ln. 2706-CHA & To construct a coal-fired thernal power 05/29/86 & First loan closed Ln. 2955-CHA project with two units of 600 MW and 06/14/88 06/30/94. Second Beilungang Thermal two single circuit of 500 kV transmission loan closed 06/30/95. Power Projects I and II lines, and to carry out a tariff study, a study on ZPEPB's reorganization and management improvement and a study for improvement of distribution networks for the cities of Ningbo and Hangzhou. Ln. 2707-CHA To construct a 110 m high concrete 05/29/86 Loan was closed on Yantan Hydroelectric gravity dam, a spillway, a powerhouse, 06/30/94. Project and a shiplift; to install 4 generating units of 275 MW each, 2 single circuits of 500 kV transmission lines and 3 associated substations; and to carry out a training program. Ln. 2775-CHA & To construct a 101 m high concrete 01/06/87 & Implementation under Ln. 3515-CHA gravity dam, a spillway, a powerhouse 09/01/92 way. Closing dates Shuikou Hydroelectric and a navigation lock; to install 7 06/30/93 & 12/31/96. Projects I & II generating units of 200 MW each; to carry out a resettlement program in the reservoir, an action plan for tariff reform, and a training program for planning and financial management  - I1 - Table 2: (Cont'd) Year of Loan Title Purpose Approval Status Ln. 3387-CHA & To construct a 240 m high arch dam 07/02/91 Implementation under Ln. 3933-CHA with an underground powerhouse, to & way. Closing dates Ertan Hydroelectric install 6 550-MW generating units and 08/22/95 12/31/96 & 12/31/2001. Projects I & II associated equipment; to carry out an environmental management program, studies of power pricing and reservoir operation, and a training program. Cr. 2305-CHA & To construct a 56 m high gravity dam 10/31/91 Implementation under Ln. 3412-CHA and an underground powerhouse with way. Closing date Daguangba Multipurpose 4 x 60 MW generating units; to erect a 12/31/97. Project 36 km long double-circuit 220 kV transmission line and to build canals to irrigate 12,700 ha of land. Ln. 3433-CHA To install 2 300-MW generating units 01/14/92 Implementation under Yanshi Thermal Power and 5 220-kV transmission lines and way. Closing date Project associated substations; to carry out a 12/31/97. tariff study, a tariff action plan, and a training program for upgrading the technical, financial and management skills for HPEPB staff. Ln. 3462-CHA To install 2 additional 600 MW 04/12/92 Implementation under Zouxian Thermal Power generating units; to construct 500 kV way. Closing date Project and 220 kV transmission lines and 06/30/99. substations; and to carry out an air quality control study, a power tariff study, an action plan for tariff adjustment, and a training program for the technical, financial, and management staff of SPEPB. Ln. 3606-CHA To construct a pumped-storage hydro- 05/18/93 Implementation under Tianhuangping electric power plant with six 300 MW way. Closing date Hydroelectric Project reversible pump-turbine units, together 12/31/2001. with upper and lower reservoirs, a water conveyance system, an under- ground powerhouse; to erect 250 km long 500 kV transmission lines; to carry out studies of optimal power plant operation and its output pricing; and to strengthen the beneficiary's organization through technical assis- tance and training.  - 12 - Table 2: (Cont'd) Year of Loan Title Purpose Approval Status Ln. 3718-CHA To construct a coal-fired thermal 03/22/94 Implementation under Yangzhou Thermal power plant with two 600 MW gener- way. Closing date Power Project ating units; to erect two 500 kV trans- 12/31/2000. mission lines (30 km long); to extend technical assistance for the develop- ment and implementation of improved accounting and financial management information systems; and undertake management development and staff training. Ln. 3848-CHA To construct a new 500 kV transmis- 02/28/95 Implementation Sichuan Transmission sion network consisting of 2,260 km of commenced. Closing Project transmission lines and 5,250 MVA of date 12/31/2001. substations; provide technical assis- tance for implementation of sector reform plan, organizational improve- ments and financial management systems. Ln. 3846-CHA To construct Beilungang Phase II 02/28/95 Implementation Zhejiang Power power plant consisting of three 600 commenced. Closing Development Project MW coal-fired units; to construct 400 date 12/31/2002. circuit-km of 500 kV transmission lines, 2,250 MVA of 500 kV substa- tions and reinforce distribution net- works in Hangzhou and Ningbo; to extend technical assistance to assist the power company in commercialization and corporatization, establish compu- terized financial management informa- tion system, improve transmission and distribution planning and upgrade environmental monitoring.  - 13 - TABLE 3: PROJECT TIMETABLE Steps in project cycle Date planned Date actual/latest estimate Identification/Preparation 09/86 Appraisal 11/86 11/86 Negotiations 05/87 05/87 Board presentation 06/23/87 Signing 02/03/88 Effectiveness 04/14/88 Project Completion 12/31/92 12/27/92La Loan closing 06/30/93 06/30/95 La Commercial operation of the second unit. TABLE 4: LOAN DISBURSEMENTS: CUMULATIVE ESTIMATED AND ACTUAL FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 Appraisal estimate 10.7 37.1 89.0 140.8 169.8 190.0 Actual 0.0 21.8 42.5 92.8 139.3 161.8 169.6 189.2 190.0 Actual as% of estimate 0 58.8 47.8 65.9 82.0 85.2 Date of final disburement: August 2, 1995. Comments: The loan closing date was extended twice for procurement of electrical equipment for improvement of the Shanghai distribution network.  - 14- TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION Appraisal Indicators estimate Actual I . Award of major equipment contract 03/88 07/22/88 2. Construction of units a. Start of excavation 01/89 04/22/89 b. Start of erection of boiler steel structure (#1 unit) 10/22/89 c. Boiler drum lift 11/89 (21m) 04/25/90 (21m, #1 unit) 05/15/91 (33m, #2 unit) d. Boiler hydroelectric pressure test 09/90 (31m) 12/22/90 (29m, #1 unit) 03/27/92 (44m, #2 unit) e. Synchronizing 06/91 (40m) 11/19/91 (40m, #1 unit) 09/17/92 (50m, #2 unit) f. Commercial operation #1 12/91 (46m) 02/24/92 (43m, #1 unit) #2 12/92 (58m) 12/27/92 (55m, #2 unit) 3. Training a. Domestic training of plant management, 250 men 215 men financial management, management information 314.5 man- 387 MM system, local dispatch and automation months (MM) b. Overseas training of power plant 46 men 94 men management, distribution 144 MM 90MM management, accounting, personnel management TABLE 6: KEY INDICATORS FOR PROJECT OPERATION (Not Applicable)  - 15 - TABLE 7: STUDIES INCLUDED IN PROJECT Purpose as defined at Study appraisal/redefined Status Impact of study A study for To fornulate a master plan Completed Based on the study, renova- distribution network for the next 15 years to tion of substations has been improvements for meet demands of rapid load ongoing since 1991. Volt- Shanghai area growth and improve relia- age levels have been sim- bility of power supply plified and improvement in system reliability is expected from 99.5 percent to 99.85 percent. TABLE 8A-1: PROJECT COSTS Appraisal estimate ($ M) Actuallatest ($ M) Item Local Foreign Total Local Foreign Total Site preparation 15.7 - 15.7 19.19 0.15 19.34 Civil works 26.7 15.4 42.1 40.00 8.15 48.15 Plant equipment and materials 18.1 156.5 174.6 22.14 156.85 178.99 Transmission system 13.3 13.0 26.3 90.00 18.58 108.58 Distribution network study 0.5 1.5 2.0 - 0.64 0.64 Load dispatching equipment - 3.0 3.0 - 1.90 1.90 Training 1.0 1.7 2.7 0.79 3.73 4.52 Supervision and administration 16.7 - 16.7 19.69 - 19.69 Total Base Cost 92.0 191.1 283.I 191.81 190.00 381.81 Contingencies Physical 10.6 9.3 19.9 - - - Price 5.3 13.6 18.9 - - - Total PrQject Cost 107.9 214.0 321.9 191.81 190.00 381.81 Interest during construction IBRD loan - 24.2 24.2 - - - Local loans 5.3 - 5.3 - - - TotalFinancing Required 113.2 238.2 351.4 191.81 190.00 381.81 Note: $1 = Y 3.7 for appraisal; $1 = Y 5.45 for actual.  - 16- TABLE 8A-2: PROJECT COSTS Appraisal estimate (Y M) Actual/latest (Y M) Item Local Foreign Total Local Foreign Total Site preparation 58.1 - 58.1 104.56 0.82 105.38 Civil works 98.8 57.0 155.8 218.05 44.42 262.47 Plant equipment and materials 67.0 579.0 646.0 120.65 854.83 975.48 Transmission system 49.2 48.1 97.3 490.51 101.26 591.77 Distribution network study 1.8 5.6 7.4 - 3.49 3.49 Loaddispatchingequipment - 11.1 11.1 - 10.36 10.36 Training 3.7 6.3 10.0 4.29 20.33 24.62 Supervision and administration 61.8 - 61.8 107.29 - 107.29 Total Base Cost 340.4 707.1 1047.5 1,045.35 1,035.50 2.080.85 Contingencies Physical 39.2 34.4 73.6 - - Price 73.6 186.0 259.6 - - Total Proiect Cost 453.2 927.5 1.380.7 1.045.35 1.035.50 2.080.85 Interest during construction IBRD loan - 104.5 104.5 - - Local loans 22.8 - 22.8 - - Total Financing Required 476.0 1.032.0 1.508.0 1,045.35 1.035.50 2.080.85 Note: $1 = Y 3.7 for appraisal; $1 Y 5.45 for actual. TABLE 8B: PROJECT FINANCING Appraisal estimate ($ M) Actual/latest ($ M) Item Local Foreign Total Local Foreign Total IBRD - 190.0 190.0 - 190.0 190.0 Localbank - 48.8 48.8 26.11 - 26.11 Otherextemal sources/a 112.7 - 112.7 165.70 - 165.70 Total 112.7 2 351.5 M9A.8I 190Q 381.81 /a Shanghai Energy Investment Corporation: Y 810.2 million SMEPB: Y 15.5 million Bond: Y 77.3 million  - 17- TABLE 9: ECONOMIC COSTS AND BENEFITS Appraisal estimate Actual Internal economic rate of return (IERR) 11.7% 15.9% Assumptions: Price base end- 1986 end- 1994 Fuel cost Y 99/ton Y 264.7/ton (6,000 kcallkg) (5,250 kcal/kg) Y 0.13/kWh Fuel consumption (kg of standard coal per kWh) 0.316 #1: 0.354 (1994) #2: 0.355 (1994) Efficiency of power plant 38.97% #1: 34.7% (1994) #2: 34.6%(1994) House auxiliaries consumption 11.0% for 5.5% plant use and System loss (for transmission & distribution) T&D losses 7% Average sales price of electricity (Y/kWh) 0.1 0.295 (1993) 0.336 (1994 & 1995FH) 0.386 (1995SH) 0 & M cost: - for generating plant 3% of capital investment 1.53 fen/kWh - for transmission (T) 1% of capital investment 2.46 fen/kWh (for T&D) - for distribution (D) 2% of capital investment Note: See Attachment.  - 18- TABLE 9 ATTACHMENT: Ex-PosT INTERNAL ECONOMIC RATE OF RtTURN OF WUJING THERMAL POWER PROJECT (LN 2852-CHA) Capital Investmrent Cost O&M Cost Genera- Energy Costs Power Trans- Distri- Genera- Transm. Fuel Total tion Sales and Year Plant mission bution tion Distrr. Cost Cost (GWh) (GWh) Revenue Benefits 1988 0.0 0.0 0.0 0.0 0.0 1989 533.0 278.6 0.( 811.6 (811.6) 1990 443.5 164.2 0.0 607.7 (607.7) 1991 436.4 162.6 0.0 599.0 (599.0) 1992 335.7 60.5 (.0 40.9 66.0 347.4 850.5 3,041.0 2,672.6 569.3 (281.2) 1993 68.2 82.4 0.0 41.0 66.3 348.7 606.6 3,052.0 2,682.3 791.3 184.7 1994 0.0 29.8 14.7 42.7 68.9 362.9 519.0 3,176.0 2,791.2 937.9 418.8 1995 1.0 31.2 43.0 69.5 365.6 510.3 3,200.0 2,812.3 1,015.2 504.9 1996 42.8 69.0 363.3 475.1 3,180.0 2,794.7 1,078.8 603.7 1997 42.5 68.6 361.0 472.1 3,160.0 2,777.2 1,072.0 599.9 1998 42.2 68.2 358.7 469.1 3,140.0 2,759.6 1,065.2 596.1 1999 42. 0 67.7 356.5 466.1 3,120.0 2,742.0 1,058.4 592.3 2000 41.5 67.1 353.0 461.7 3,090.0 2,715.6 1,048.2 586.6 2001 41.3 66.6 350.7 458.7 3,070.0 2,698.1 1,041.5 582.8 2002 41.0 66.2 348.5 455.7 3,050.0 2,680.5 1,034.7 579.0 2003 40.7 65.8 346.2 452.7 3,030.0 2,662.9 1,027.9 575.2 2004 40.5 65.3 343.9 449.7 3,010.0 2,645.3 1,021.1 571.4 2005 40.2 64.9 341.6 446.7 2,990.0 2,627.8 1,014.3 567.6 2006 39.9 64.5 339.3 443.7 2,970.0 2,610.2 1,007.5 563.8 2007 39.7 64.0 337.0 440.7 2,950.0 2,592.6 1,000.7 560.0 200X 39.4 63.6 334.8 437.8 2,930.0 2,575.0 994.0 556.2 2009 39.1 63.2 332.5 434.8 2,910.0 2,557.5 987.2 552.4 20)10 38.7 62.5 329.0 430.2 2,880.0 2,531.1 977.0 546.7 2011 38.5 62.1 326.8 427.3 2,860.0 2,513.5 970.2 542.9 20)12 3R.2 61.6 324.5 424.3Z 2,840.0 2,495.9 963.4 539.1 201 3 37.9 (1.2 322.2 421.3 2,820.0 2,478.4 956.6 535.3 2014 87.6 60.8 319.9 418.3 2,800.0 2,460.8 949.9 531.5 2015 37.4 60.3 317.6 415.3 2,780.0 2,443.2 943.1 527.7 2016 37.1 59.9 3 1 5.3 412.4 2,760.0 2,425.6 936.3 523.9 2017 36.8 59.5 313.0 409.4 2,740.0 2,408.0 929.5 520.1 2018 36.6 59.0 310.8 406.4 2,720.0 2,390.5 922.7 516.3 Total 1,816.8 778.9 45.9 Volas: (NPV 12%) 4.108.0 13,609.3 0.159 (LRAIC Y/kwh) 0.30 1. 2x300 MW construction 2. All costs are indicated in Y mtillion of constanit end- 1994 price. 3. Shadow price for investment costs (Locad poition): CF=SCF*(0.7 for labor and material+0.3*2 for equipment). 4. Inflation Index: MUJV Index 5. Fuel cost: Y 0.13/kWh 6. Electricity sales price: Y 0.386f/kWh (sellin2 price of Wujing bulk supply) I llouse auxiliaries loss: 5.5%"F Transmnission and distribution losses: 7.0%.  - 19 - TABLE 10: STATUS OF LEGAL COVENANTS Cove- Original Revised Agree- nant Present fulfillment fulfillment ment Section type status date date Description of covenant Comments Loan 3.01(b) 13 C GOC shall enter into a subsidiary loan Article IlI agreement with SMEPB under terms satisfactory to the Bank. 4.01(b)(ii) I C GOC will furnish to the Bank not later Article IV than 6 months after the end of each fiscal year the auditor s report. Sched. 4 5 C GOC and SMEPB shall employ consul- Section 11 tants satisfactory to the Bank. Project 2.06(a) 10 C SMEPB shall (i) carry out the study ot Article It thc power distribution network in Shanghai including the development of a master plan for the next 5 years: and (ii) take necessary steps to implement such recommendations ol such studies as mav be agreed between the Bank and SMEPB. 2.06(b) 10 C SMEPB shall carry out the training of Article 11 /i) SMEPB's planninig and implementation stafl in distribution system planning, design, construction and management; and (ii) SMEPB staff in implementation operation and nianagement of the prqject. 3.04 6 C SMEPB shall take all necessary steps to Article Ill implemeiit an environmental monitoring program satisfactory to the Bank. 4.01(b) 2,1 C SIMEPB shall fumish audited financial Article IV statements and auditor's report within 6 months aRier the end of each fiscal year. 4.02(a) 2 C SMEPB shall take all measures including Article IV adjustmenit of the levels and sticture of tariffs as detennined by GOC to produce, for each of its fiscal years after its fiscal year endinig on December 31, 1986. net operating income equivalent to not less than 25% of its average anuial investment program. 4.03(a) 2 C SMEPB shall not incur any debt unless a Article IV reasonable forecast of the revenues and expenditures shows that the projected intemal cash generation for each fiscal year during the term of the debt to be incurred shall be at least 1.3 tines the estimiated debt including the debt to the incurred 4.04 2 C By December 31 of each year. commnec- Article IV ing December 31, 1987, SMEPB shall prepare anld fumish a rolling long-term financial plan containiing projected inconle statements, sources anud applications of funds, and balance sheets for each of the next five fiscal years.  - 20 - TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS (Not Applicable) TABLE 12: BANK RESOURCES: STAFF INPUTS Planned Revised Actual Stage of project cycle Weeks $'000 Weeks $'000 Weeks $'000 Preparation to appraisal n.a. 26.1 Appraisal n.a. n.a. Negotiations through n.a. 2.7 Board approval Supervision 50.1 111.0 Completion 1.6 11.2 Total TABLE 13: BANK RESOURCES: MISSIONS Performance rating Specialized Imple- Devel- Stage of project cycle Month/ No. Of Days staffskills mentation opment Type of year persons in field represented /a status objectives problems Through appraisal 11/86 3 E,F,E Appraisal through Board approval Board approval through effectiveness Supervision 1 03/89 3 5 E,E,FA I 2 09/89 3 2 E,E,FA I 3 10/90 3 5 E,E,FA I 4 06/91 2 3 E,S I 5 06/92 4 4 E,E,FA,S I 6 06/93 1 3 E I 7 06/94 2 2 FA,E I 8 03/95 1 2 E I Completion 07/95 2 2 FA,E La E: Engineer, FA: Financial Analyst, S: Support.  -21- ANNEX 1 ANNEX 1: ICR PREPARATION MISSION'S AIDE-MEMOIRE (July 13 - 19, 1995) General 1. A World Bank mission consisting of Ms. Sun and Mr. Kataoka visited Shanghai from July 13 to 19, 1995 to review the overall status of project execution, achievement of project objectives, and financial performance of the beneficiary, Shanghai Municipal Electric Power Bureau (SMEPB), and compliance with Loan and Project Agreement covenants and to collect necessary data and information for preparation of the implementation completion report for Wujing Thermal Power Project (Loan-2852-CHA). The mission would like to express its appreciation for the excellent arrangements for the visit, warm hospitality, and cooperation extended to the mission. This Aide-Memoire outlines the principal matters discussed and understanding as well as agreements reached. 2. The mission discussed in detail with SMEPB on the institutional development impact of the Wujing Thermal Power Project. High remarks were given to the impact brought about by the project on SMEPB and Shanghai. Specifically, through the project, SMEPB has upgraded significantly its capability in the areas of project management, quality control, procurement, contract management, and financial management. Now the impact has already been felt in other projects and the company as a whole. The Bank's regular and vigorous supervision mission and the thorough procurement rules have ensured the quality of the major equipment supplied by Shanghai Factories. There is a significant difference in quality between the equipment for Wujing plant and the similar turbine generator/boiler units made by domestic manufacturers in the past. In the East China Grid, the Wujing units is highly ranked for its availability. Now the same supplier successfully won a contract in Pakistan (WAPDA, Muzaffagrha #7, 300MW) due to its experience in Wujing. SMEPB also highly valued the training program under the project. The management and a large number of technical and financial staff were trained overseas. SMEPB believes it prepared them well for a market-oriented market and has already seen some efficiency gains. Operation of Wujing Power Plant (two 300 MW units) 3. The two units have been operating satisfactorily since they were put into commercial operation, no. I unit on February 24, 1992 and no. 2 on December 27, 1992). The availability factors of the Wujing units are very high, compared with those of other new units in East China Grid (Beilungang and Shidonkou). Moreover, the Wujing units are currently the best units for cyclic operation (two-shift operation for day time and night time) in China and most effectively contributing to load regulation in the power grid.  - 22 - ANNEX 1 Transmission Lines and Substations 4. All transmission lines and associated substations financed under the project were completed on schedule. Gubei and Shibei substations were put into commercial operation on November 8, 1993 and April 15, 1994, respectively. Shanghai Distribution Network Improvement 5. Based on the special study for Shanghai Distribution Network Improvement, renovation of forty five substations (voltage change from 35 to 110KV) was completed as of March 1995. Further renovation of 30 to 40 substations is expected to be completed by the end of 1995. The network renovation has been designed to simplify voltage levels (old system: 110, 35, 23, 10, 6.6, 0.4KV; new system: 35, 10, 0.4KV and 110, 10, 0.4KV) and improve the reliability of the system from 99.5 percent to 99.85 percent. Total budget for the renovation amounts to Y 1 billion for five years, including a foreign cost of $15 million per year for imported equipment. Under the project, loan proceeds of about $12 million were allocated for the network renovation. Training 6. SMEPB completed ten overseas training programs during 1992-1995 in areas of planning of distribution, tariff, personnel management, corporate management, advanced thermal technology, power plant maintenance, accounting and financial management. The loan proceeds budgeted for training purpose were fully utilized. Environmental Monitoring and Resettlement 7. SMEPB will submit to the Bank a final summary report of the environmental monitoring before and after the completion of the two 300MW units by the end of August 1995. Disbursement 8. The loan was almost fully disbursed as of June 30, 1995, except two special commitments for the remaining payment of about $1.5 million equivalent for the procurement of oil filled cables and GIS. It is expected to be fully disbursed before the end of October. Due to exchange rate's movement, the final required payment may exceed the loan amount. SMEPB will cover the difference by its own resources. Updated Project Cost 9. Updated project cost is $190 million in foreign costs and Y 1045.35 million in local costs, equivalent to a total cost of $381.85 million (Y 2,080.85 million). As compared with the appraisal estimate, the project has a cost underrun of 20 percent in foreign cost when expressed in US dollar and a cost overrun of 120 percent in local cost when expressed in local currency. The substantial local cost overrun is partially due to the expansion of scope  -23 - ANNEX I on the distribution network improvement component. SMEPB will prepare detailed explanations on the reasons for the above cost overrun and underrun by the end of August 1995. Financial Aspects 10. The net profit of SMEPB declined by about 22.4% in 1994. However, the result of 1994 is not fully comparable with the previous year due to different accounting treatments for depreciation and interest expense and new tax laws enacted in 1994. The energy sales and average tariff grew by 4.6% and 13.4%, respectively, have contributed to 10.1% improvement in SMEPB's operation income during 1994. With regard to financial covenants, SMEPB's debt service coverage was over 1.4 times in 1994 which met the minimum target of 1.3 times set out in the Project Agreement. However, the information disclosed in SMEPB's financial statements and the notes to the statements are not sufficient to arrive at a self-financing ratio. The required information will be provided by August 10. Information And Data To Be Provided And Timetable For Completing ICR 11. In order to complete the Implementation Completion Report, the following data need to be prepared by SMEPB in accordance with the agreed schedule: First, the following data (in Chinese) should be provided on July 25 and the English translation should be faxed to the Bank before the end of July. (a) Project Cost Tables 8a-1 and 8a-2. (b) Project Financing Table 8b. (c) Data required for IERR calculation: (i) yearly capital expenditures for transmission and distribution (expressed in Yuan for local and foreign expenditures); (ii) yearly generation (GWh, actual for 1991-1995 and forecasting in future, total 25 years operation); (iii) calorific values and unit cost for coal, oil and light oil; and (iv) tariff (average sales price fen/kWh) for 1991 through 95 and future. (d) Availability factor of the units (8,760 hr. = A+B+C, where A: operating hour; B: scheduled outage; C: forced outage). (e) Training: actual data for tables 2A, 3, 4, and 5 of SAR. (f) Resettlement and land acquisition for power plant, ash yard and transmission/substations, details on compensation should be given.  - 24 - ANNEX I Second, the following data and information should be submitted to the Bank before August 10: (a) 1986-1994 actual vs appraisal estimate financial statements in SAR's format including income statements, balance sheets, funds flow statement, and key financial indicators. (b) 1986-1995 tariff structure and a description of the changes in the structure and policy taken place during the period. (c) SMEPB's own analysis of its financial performance during 1986-1994. (d) Detailed breakdowns and explanation on the following items: (i) accounts receivable; (ii) inventory; (iii) capital base and movements in the each items of equity base; (iv) drastic movement in other current liabilities; and (v) movement in long-term loans. (e) Recalculation of debt service coverage and self-financing ratio. 12. The mission and SMEPB agreed to process the paper work in accordance to the following time table in order to complete the report by the end of 1995: Borrower/Beneficiary's comments : end-August Bank's draft ICR : end-September Borrower/Beneficiary's comments on the draft ICR: November 1 Final version : December 20 July 19, 1995, Shanghai  - 25 - ANNEX2 ANNEX 2: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE 1. Basically, the 6th Extension Project of Wujing Thermal Power Plant (2x300MW units) was smoothly completed according to the original objectives under the guidance of the World Bank. The commissioning of the Project makes a great contribution to the improvement of power supply in Shanghai. The successive commissioning of the Project together with Shidongkon II Power Plant before 1992 not only increased the installed capacity in Shanghai and East China Network. but also provided a solid material base for realizing vast changes in Shanghai within 3 years from 1992 to 1994. Shanghai Municipal People's Government highly appraises such an achievement. 2. Our work strictly followed the stipulations in the Loan Agreement and World Bank Guidelines from project pre-assessment to completion of procurement and finally to commercial operation of the units. Assisted by our foreign and domestic Consultants, we completed the work in successive stages without any delay. Thus we gained experience in the implementation of a power plant project according to international practice. The experience which can be spred and applied to other power plant projects includes: (a) SMEPB organized personnel from East China Electric Power Design Institute (ECEPDI) and the power plant. etc. to collect overseas information and elaborate equipment procurement bid documents by ourselves. According to the requirement of the World Bank, we engaged Sargent & Lundy Engineers, USA as our foreign Consultant whose first task was to assist us in reviewing and revising the bid documents in order to meet the requirement of international practice. After that, tendering was carried out strictly in accordance with the stipulations in the World Bank Procurement Guidelines. The experience in this context has already been applied to the equipment procurement of other projects. (b) Due to the insistence of the World Bank, Shanghai United Electric Corporation Consortium (SUECC). who was awarded the Contract, engaged Bechtel, USA as their foreign Consultant to assist the Consortium in the implementation of the Project. An advanced international project quality assurance system was introduced during the consultation of Bechtel. This system has also been applied to the management of other projects and improvement of project quality has resulted. (c) The World Bank normally despatched its inspection team to Shanghai twice a year for overall examination of the Project's progress. During  - 26 - ANNEX2 inspection, the team usually proposed a lot of valuable comments which promoted the smooth progress of the Project. (d) According to the Loan Agreement, besides the power plant project as a main item, followed a number of subitems such as procurement of relevant transmission equipment, consultation for city network, equipment procurement for city network, procurement of facilities for Shanghai power education, and training of senior management personnel, etc. These items were very helpful, especially the training programs for the senior management personnel and the consultation for Shanghai city network. The execution of these two subitems enormously increased the management and technical competence of the personnel in SMEPB and will exert an immeasurable influence in future. 3. This Project was implemented by SUECC under single responsibility contract awarded to a single bidder. During the early stage of equipment procurement, serious delay occurred. Although this was improved after the World Bank and SMEPB urged against it, yet adverse effects had resulted. Additionally, since all equipment had to be procured by SUECC, it neglected the quality requirement of ordinary equipment in order to save cost. Thus some quality problems were found in equipment as conveyors in coal system, some valves in steam and water system, soot blowers, air compressors and station transformers, etc. These quality problems affected normal operation of the units during the early stage of commissioning. These equipment were renewed or regulated after representations. This is the deficiency of single responsibility contract.  - 27 - ANNEX3 ANNEX 3: PROJECTED AND ACTUAL FINANCIAL STATEMENTS OF SMEPB (1986-94)  Table 1: INCOME STAT'EMENT (Y million) 1986 1987 1988 1989 1990 1991 1992 1993 1994 Yea.r Ended Deceinber31 Proj Act ProProj Actual Proj. Actual Proj. Actual Proj. Actual Proj Actual Proj. Actual Proj. Actual Proj. Actual Qpoeratine Revenues SalesIncrease%o) 27 48 76 55 68 5.4 11( 3.4 130 3.4 105 71 104 10.9 80 123 92 4.5 Fnergy Sales (GWh) 15,990 16,292 17,202 17,190 18,368 18,128 20.384 18,751 23,040 19,390 25,480 20,774 29,120 23,043 30,382 25,885 33,189 27,063 Ac`iagePnce(feniklWh) 86 8.7 90 9.3 9 1 106 9.6 144 99 15.6 1()6 169 110 21? 113 295 117 336 Total Operauinr Rccnsues 1377 1413 1540 1,595 165 1,914 1,966 2702 2_83 3.018 '699 3517 3.099 4996 3.419 7,6 3,898 7.766 Operaung, Costs Fuel 382 440 415 5D7 467 517 604 855 725 960 971 1.240 1,144 1,247 1,205 1,622 1,421 1,883 PuldiasedPocr 352 292 403 340 431 514 470 630 521 713 489 676 512 1,813 629 3,147 635 3,147 Operation & Maintenatice 59 77 68 133 82 116 107 161 126 209 176 286 222 431 242 775 267 925 Administration 29 17 32 29 37 48 42 88 49 99 55 99 63 93 71 132 80 204 SalesTax 206 263 231 276 209 304 198 411 228 394 270 483 309 586 312 659 390 18 > IDeprcciallto 79 75 95 90 130 116 168 146 212 179 267 258 301 324 330 457 385 632 00 Otlier lxpenses 0 12 I 22 0 10 0 54 0 84 il 95 0 87 0 81 0 119 Total Operating_LC s L, ( 1716 I '44 1,397 1 359 1 625 1 589 29345 1.861 2638 2928 L3 ,55l 4.581 2_81 _6.83 3,178 6,928 O(eratin Incoimle 270 237 296 198 316 289 377 357 422 380 471 380 548 4(5 600 78, 720 838 Other Incoume (losses) 0 0 0 0 0 0 0 0 0 0 0 O 0 0 0 0 0 0 lInterest Cliarged to Operation 3 0 7 0 I 0 4't 0 58 0 99 0 156 0 143 80 I63 214 N-t 1Incotle Before Inicoine Tax 267 237 289 198 3011 289 313 357 364 380 372 380 392 415 457 709 557 624 Irncomre Tax 145 122 155 94 107 106 122 127 146 102 137 102 130 102 166 186 98 218 Net Inicoine 122 115 134 104 194 183 211 230 218 278 235 278 262 313 291 523 459 406 Disti ibuition of Net Income Reimiittance to Government 1(12 50 HI 35 71 40 82 62 102 58 93 58 86 57 115 21 59 0 TransferredtoGoscitmentFund 4 12 7 26 85 97 93 108 88 161 112 183 156 221 155 158 322 0 Z ChargeabIelDC 0 0 0 0 21 0 18 0 10 0 II 0 0 0 0 0 57 0 Z Employee Benelit Special Fu,nds 16 17 16 10 17 46 18 60 18 59 19 37 20 35 21 329 21 0 (tlteT 0 36 0 33 0 0 0 0 0 0 0 0 0 0 0 15 0 406 Net lnconite 122 115 134 104 194 183 211 230 218 278 235 278 262 313 291 523 459 406 Rate of Return on Average Net Fi.\ed Assets iu Service 30.9 270 24.7 19.7 162 20.4 13.7 17.0 11.6 13.7 9.8 13.1 10.2 80 10.4 11.7 10.6 9.5  Table 2: BALANCE SHEET (Y million) 1986 1987 1988 1989 1990 1991 1992 1993 1994 AsofDecember31 Proj Actual Proj. Actual Proj. Acttial Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual ASSETS Current Assets Cash 229 377 265 360 296 349 316 426 321 644 328 641 377 774 433 589 482 1,025 Inventones 55 194 63 220 79 128 98 407 122 371 156 1,384 174 1,685 190 2,258 225 2,004 Accounts Receivable 65 151 66 (75) 67 271 67 457 68 888 68 764 68 913 68 1,815 67 3,104 OtherCurrentAssets 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10 0 145 Total Current Assets 349 721 394 505 442 749 481 1.290 512 1.903 552 2.789 619 3 372 692 4.672 774 6 277 Long-tenn Investment 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 289 0 678 Fixed Assets Plant in Service 2,267 2,257 2,875 2,478 4,004 3,281 4,784 4,110 6,168 4,989 7,552 6,778 7,872 8,083 8,997 11,419 10,609 14,082 Less: Accumulated Depreciation (1,325) (1,315) (1,420) (1.409) (1,551) (1,517) (1,719) (1,681) (1,930) (1,853) (2,197) (2,119) (2,498) (2,426) (2,828) (3,607) (3,213) (4,271) Net Plant in Serice 942 941 1,455 1,069 2,453 1,764 3,066 2,429 4,238 3,136 5,354 4,658 5,374 5,657 6,169 7,813 7,396 9,811 Construction WIP 587 449 809 1,034 765 1,008 978 1,071 668 1,053 454 452 1,297 692 1,415 2,429 1,028 4,302 Total Fixed Assets 1528 1.390 2263 2.103 3218 2.77 4044 3.500 4.906 4.18 5.808 5.110 6.671 6.349 75S4 10241 8424 14.112 SpecialFundAssets 313 324 336 416 357 597 371 417 397 498 422 563 435 858 461 0 506 0 I Defenfed and Intangible Assets 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 174 0 118 90 TotalAssets 2.190 2435 2.993 3 023 4.017 4118 4896 5206 5.814 6.590 6.2 8462 7.724 10.578 8.736 15.376 9.704 21.185 LWABLITES & EOUIIY Cunrent Liabilities Accounts Payable 25 354 25 330 26 372 26 631 27 1,044 27 995 27 1,225 27 1,404 27 3,087 DuctoGovernment 2 (8) 2 (11) 2 68 2 192 2 363 2 363 2 496 2 780 2 123 Short-ternm Loan 0 0 0 5 0 17 0 41 0 47 0 79 0 137 0 840 0 1,079 Total Current Liabilities 27 346 27 323 28 457 28 865 L9 1455 29 1.437 29 .L59 29 3.023 29 4 289 Consumer Deposits 11 0 11 0 11 0 11 0 11 0 11 0 11 0 11 0 11 0 Working Capital Funds 59 61 59 74 59 92 59 102 59 114 59 168 59 246 59 0 59 0 Long-term Debt 656 707 1,254 1,126 1,970 1,745 2,544 1,987 3,162 2,349 3,800 3,886 4,372 4,926 5,009 6,402 5,371 9,409 Govenment Funds 873 767 1,010 869 1,245 1,027 1,482 1,499 1,697 1,700 1,937 2,005 2,227 2,230 2,504 0 2,982 0 Special Funds 565 555 633 630 705 797 772 754 857 973 946 965 1,026 1,318 1,125 0 1,253 0 Owners'Equity 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5,950 0 7,487 ;. Total Liabilities & Equity 2.190 2.435 2 993 3023 4017 4.11S 4.896 5.206 5.814 6.590 6.782 8462 7.724 10.578 8.736 15.376 9.704 21.185 5 Long-tenm Debt%asofLTDebt 31.3 34.8 43.3 42.9 50.3 48.9 53.0 46.9 55.3 46.8 56.9 56.7 57.3 58.1 58.0 51.8 55.9 55.7 and Equity Ctrrent Ratio 12.9 2.1 14.6 1.6 15.8 1.6 17.2 1.5 17.6 1.3 19.0 1.9 21.3 1.8 23.8 1.5 26.7 1.5  Table 3: FUNDs FLOW STATEMENT (Y million) 1986 1987 1988 1989 1990 1991 1992 1993 1994 Year Ended December 31 Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proi. Actual Proj. Actual Proj. Actual Proj. Actual SOURCES OF FUNDS Intemnal Cash Generation Net Income 122 116 133 105 194 183 211 230 218 277 235 279 262 313 291 523 459 406 Depreciation & Amortization 79 81 95 98 130 125 168 157 212 190 267 274 301 354 330 499 385 693 Maintenance 27 28 30 32 38 38 54 48 65 83 84 123 104 156 108 0 124 0 Connection Charge 120 373 121 413 122 150 124 131 125 133 126 140 127 379 129 0 130 0 Other Resources 0 3 0 60 0 252 0 127 0 401 0 297 0 514 0 255 0 206 Total ntemnal Souirces 348 601 380 707 485 748 557 693 620 1.085 712 1.112 794 1.715 858 1.278 1.097 1.305 Bonrowilitis Proposed IBRD Loan 0 0 3 0 83 67 137 50 225 287 144 256 71 103 41 146 0 146 WujingProjectRelatedLoan 0 0 49 0 93 92 169 114 245 120 135 118 58 97 18 58 0 10 Other Loans 439 289 530 420 625 739 403 272 301 351 561 815 679 845 787 3,056 800 4,862 IDC Borrowed 13 0 28 0 23 0 16 0 25 0 23 0 35 0 60 0 4 0 Total Borrowinas 452 289 610 420 823 898 724 436 796 758 863 1.188 843 1,045 906 3259 805 5.018 Government Funds - Grants 41 31 74 34 74 0 67 174 72 12 78 16 83 22 88 0 93 0 Increase in Capital 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,548 0 2,136 Total Sources of Funds 841 9221 1063 1.160 1.382 1.646 1.348 1.30' 1.487 1.854 1.653 2.316 1.719 2.781 1-851 7.085 1.995 8459 APPLICATIONS OF FUNDS Carxita Exponditure Proposed WujingProject 0 0 52 0 172 137 292 28 440 407 255 373 129 200 59 217 0 0 O Other Construction 480 422 605 751 703 761 483 581 404 363 663 830 762 867 875 648 893 1,507 Interest During Construction 13 0 28 0 47 0 48 0 64 0 58 0 35 0 60 0 61 0 Completed Renovations 54 0 63 0 70 0 87 0 98 0 117 0 138 0 148 2,986 168 2,725 Distnbution Improvement 30 0 84 0 97 0 98 0 99 0 100 0 101 0 102 0 103 0 Total Capital Expenditures 577 422 831 751 1089 898 1.007 609 1.104 769 1.193 1.203 1,164 1,067 1.243 3.851 1.225 4.232 Operational Requirements Changesain Working Capital (22) (5) 9 (9) 16 (2) 19 22 24 (209) 34 (72) 18 (96) 16 0 34 0 Changes in Special FundsAssets 73 89 23 92 21 128 14 (54) 25 81 26 65 13 295 26 329 45 406 LoanRepayment 6 0 12 0 103 116 137 168 148 200 201 214 270 304 270 200 442 492 RemittancestoGovemment 103 75 III 57 71 40 83 83 102 87 93 73 86 86 115 14 59 9 SpecialFundExpenditures 39 253 43 351 52 423 68 500 79 539 99 718 119 959 124 0 141 0 Increase in Long-term Investment 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,936 0 2,771 Other Expenditures 0 0 0 0 0 0 0 17 0 168 0 117 0 35 0 206 0 206 Total Operational Reuiiireitients 200 417 196 490 262 705 321 735 378 866 453 1.116 506 1.582 552 2686 721 3.883 Total Applications of FLinds 777 833 1.027 1.241 1.351 1,603 1.32 1R345 1.482 1,636 1.647 2.192 1.670 2.649 1.795 6,536 1.946 8.115 ln(de)creases in Cash 64 36 (81) 31 43 21 a43 5 218 6 L3 49 133 57 548 49 344 ;0. Debt Service Coverage (tnies) 39.0 -- 20.6 -- 4.2 6.4 3.3 4.1 3.3 5.4 2.7 5.2 2.2 5.6 2.4 4.9 2.1 2.2 C z1  Table 4: KEY FINANCIAL INDICATORS (Y million) 1986 1987 1988 1989 1990 1991 1992 1993 1994 Year Ended December 31 Proj Actual Proj. Acmtal Proj. Actual Proj Acttial Proj Actual Proj Actual Proj. Actual Proj. Actual Proj. Actual Energy Sales (GWhi) 15,990 16,292 17,202 17,190 18,368 18,128 20,384 18,751 23,040 19,390 25,480 20,774 29,120 23,043 30,382 25,885 33,189 27,063 Average Price (fen/kWh) 86 87 9.0 9.3 91 106 9.6 144 9.9 15.6 10.6 16.9 11.0 21.7 11.3 29.5 11.7 33.6 Operating Revenue 1,377 1,413 1,540 1,595 1,675 1,914 1,966 2,702 2,283 3,018 2,699 3,517 3,099 4,996 3,419 7,662 3,898 7,766 Operating Income 270 237 296 198 316 289 377 357 422 380 471 380 548 415 600 789 720 838 RemittancestoGovemment 102 50 111 35 71 40 82 62 102 58 93 58 86 57 115 21 59 0 Annual Capital Expenditure 577 422 831 751 1,089 898 1,007 609 1,104 769 1,193 1,203 1,164 1,067 1,243 3,851 1,225 4,232 Rate Base 877 877 1,198 1,005 1,954 1,416 2,759 2,096 3,652 2,782 4,796 3,897 5,364 5,157 5,772 6,735 6,783 8,812 Long-term Debt 656 707 1,254 1,126 1,970 1,745 2,544 1,987 3,162 2,349 3,800 3,886 4,372 4,926 5,009 6,402 5,371 9,409 Debt Service 9 0 19 0 118 116 181 168 206 200 300 214 426 304 413 280 605 706 Caslh in Banks 229 377 265 360 296 349 316 426 321 644 328 641 377 774 433 589 482 1,025 Rate of Retum Hlistorically Valued Assets(%) 309 270 24 7 19.7 162 20.4 13 7 17.0 11 6 13.7 9.8 13.1 102 8.0 10.4 11.7 10.6 9.5 Self-financing Ratio (%) 30.2 27.4 30.9 30.9 269 13.5 28.0 31.7 30.6 19.4 30.0 23.5 27.1 273 301 28.2 31.3 254 Operating Ratio (%) S0.4 83.2 80.8 87.6 81.1 84.9 80.8 86.8 81 5 87.4 82.5 892 82.3 91.7 82.5 89.7 81 5 89.2 LT Debt/(LT Debt + Equity) (%) 31.3 34.8 43.3 42.9 50 3 48 9 53.0 46.9 55.3 46.8 56.9 56.7 57.3 58.1 58.0 51.8 55.9 55.7 Deblt Service Coverage (time) 39.0 -- 206 -- 4 2 6.4 3.3 4 1 3.3 5.4 2.7 5.2 2.2 5.6 2.4 4.9 2 1 2.2 ;JJ    IMAGING Report No: 15183 Type: ICR