China - Beilungang Thermal Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 14717 IMPLEMENTATION COMPLETION REPORT CHINA BEILUNGANG THERMAL POWER PROJECT (LOAN 2706-CHA) JUNE 27, 1995 Industry and Energy Operations Division China and Mongolia Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used bv 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 (June 1985) $1 = Y 2.8 Exchange Rates During Project Years Year Ave. 1986 3.46 1987 3.73 1988 3.73 1989 3.73 1990 4.86 1991 5.36 1992 5.49 1993 5.75 1994 8.60 WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS ECEPA - East China Electric Power Administration ECEPDI - East China Electric Power Design Institute ECPS - East China Power System GOC - Government of China ICB - International Competitive Bidding ICR - Implementation Completion Report MOEP - Ministry of Electric Power MOF - Ministry of Finance SEC - State Economic Commission SPC - State Planning Commission WREPERI - Water Resources and Electric Power Economic Research Institute ZPEPB - Zhejiang Provincial Electric Power Bureau  FOR OFFICIAL USE ONLY CONTENTS Preface ........................................... i Evaluation Summary ..................................... ii PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Project Objectives .................................. 1 B. Achievement of Project Objectives ........................ 2 C. Implementation Record and Major Factors Affecting the Project ... ... 3 D. Project Sustainability ................................. 9 E. Bank Performance .................................. 10 F. Borrower Performance ................................ 10 G. Assessment of Outcome ............................... 10 H. Future Operation ................................... 11 I. Key Lessons Learned ................................ 11 PART II: STATISTICAL TABLES Table 1: Summary of Assessment ........................ 12 Table 2: Related Bank Loans/Credits ...................... 14 Table 3: Project Timetable ........................... 17 Table 4: Loan Disbursements: Cumulative Estimated and Actual ... .. 18 Table 5: Key Indicators for Project Implementation ............. 19 Table 6: Key Indicators for Project Operation ................. 19 Table 7: Studies Included in Project ....................... 20 Table 8a: Project Costs .. ............................. 21 Table 8b: Project Financing ............................ 22 Table 9: Economic Costs and Benefits ..................... 23 Table 10: Status of Legal Covenants ....................... 25 Table 11: Compliance with Operational Manual Statements ... ...... 27 Table 12: Bank Resources: Staff Inputs ..................... 28 Table 13: Bank Resources: Missions ....................... 29 ANNEX 1: ZPEPB Financial Statements ......................... 29 ANNEX 2: Project Review from the Borrower's Perspective ............. 34 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.   - i - IMPLEMENTATION COMPLETION REPORT CHINA BEILUNGANG THERMAL POWER PROJECT (LOAN 2706-CHA) PREFACE This is the Implementation Completion Report (ICR) for the Beilungang Thermal Power Project in China for which Loan 2706-CHA in the amount of $225 million was approved on May 29, 1986 and made effective on August 27, 1986. The loan was closed on June 30, 1994, 24 months beyond the date originally envisaged, June 30, 1992. Final disbursement was made on October 31, 1994 when the balance of the loan, $630,741.76, was canceled. The ICR was prepared by Shigeru Kataoka and Alice Huang, Industry and Energy Operations Division, China and Mongolia Department of East Asia and Pacific Region, and reviewed by Mr. Richard Newfarmer, 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 April 1994. 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.   - ii - CHINA BEILUNGANG THERMAL POWER PROJECT (LOAN 2706-CHA) EVALUATION SUMMARY Project Objectives 1. The Beilungang Thermal Power Project was designed to support industrial growth in East China by increasing electricity supply to the East China Grid, which was suffering from acute power shortages. The project was also used as a vehicle to: (a) transfer the latest technology in plant design and construction management of 600 MW thermal power units-then only recently introduced in China; (b) introduce more appropriate techniques of least-cost investment programming; (c) initiate modernization of utility management and financial planning; and (d) transfer up-to-date tariff analysis methodologies and provide a reference for future tariff adjustments. 2. Financing under the project was provided for: (a) construction of a coal- fired thermal power plant, including coal unloading facilities, at Beilungang, with one generating unit of 600 MW, two single-circuit, 500-kV transmission lines and associated substations; (b) a training program to enhance the capacity of the Zhejiang Provincial Electric Power Bureau (ZPEPB) to implement the project, address its long-term manpower needs, and manage the utility; and (c) a tariff study for the Grid. Implementation Experience and Results 3. Project implementation was generally successful and the above objectives were achieved within the budget. The project provided a fully integrated state-of-the-art 600 MW coal-fired unit that set technical and economic performance standards for a series of same size units that were subsequently installed in China. This was the first such unit designed, constructed and operated by ZPEPB and only the third in China. As such, it represented a remarkable technical achievement. 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. In addition, the project's tariff study introduced marginal cost pricing principles that are now widely accepted throughout China. The final cost was $225 million in foreign expenditures and Y 1,330 million in local costs, compared to an estimated $289 million in foreign costs and Y 1,038 million in local costs. The local cost increase resulted from inflation-related cost increases for both labor and materials. 4. Commercial operation of the power plant was about 18 months later than expected at appraisal due to the need to correct deficiencies in equipment quality, delayed  - iii - procurement of equipment for one transmission substation, and difficulties in coordinating suppliers. The subsequent commissioning period was also prolonged by some technical difficulties and foundation settlement problems. Throughout, ZPEPB performed satisfactorily, and responded to problems appropriately by taking firm measures with contractors, expanding its project management staff, and reinforcing its quality assurance system. 5. However, on March 10, 1993, a serious accident in the power plant's boiler caused the death of 23 people and injuries to 24. Three independent Chinese groups investigated the accident and concluded that it was caused by the formation of a large amount of ash slag in the furnace. No agreement was reached between the Chinese and the boiler manufacturer regarding reasons for the formation of such a large amount of slag, although various factors were identified that could lead to this, including a variety of coal characteristics. The immediate cause of the accident was also disputed, with a gas explosion, steam blow-out due to falling slag, and furnace pressure increases due to tube failure variously cited. 6. Eventually, the Chinese and the boiler manufacturer agreed that both sides equally shared responsibility for the accident and noted defects in manufacturing, an incomplete operational manual, lack of ZPEPB's operational experience, and high variation in the coal quality used in the boiler. ZPEPB introduced a range of measures to prevent the recurrence of such accidents, including revised operational manuals and improved coal supply management and quality control. The boiler manufacturer contributed $2.5 million to repair the boiler and paid ZPEPB another $2 million in compensation for its loss from the power outage. Compensation of Y 7.6 million was provided to the families of those killed and injured in the accident, in accordance with Chinese rules and regulations. Summary of Findings, Future Operations and Key Lessons Learned 7. The project was instrumental in laying the basis for ZPEPB's future development, in terms of its facilities, manpower, financial strength and commercial orientation. First, the project facilitated the transfer to ZPEPB of up-to-date technology for the construction and operation of a 600 MW coal-fired unit, which was followed up with a second 600 MW unit and 500 kV transmission line under a subsequent Bank project, the Beilungang Thermal Power Extension Project (Ln. 2955-CHA, 1988), and by three additional 600 MW units and major transmission expansion under the Zhejiang Power Development Project (Ln. 3846-CHA, 1995). Second, institutional development under the project was followed up under the subsequent operation by a study for reorganizing ZPEPB's operations and further strengthening its management. Implementation of the study's recommendations realized the study' s goal of introducing managerial autonomy and accountability as well as modern management organizations, systems and procedures. Corporatization, the logical result of the previous efforts, is occurring under the current project. Third, the project's tariff study was followed up under the second operation by a tariff reform study, which resulted in ZPEPB's adopting an improved tariff structure.  - lv - 8. Under the project, ZPEPB was introduced to new, state-of-the-art technology and constructed a power plant of much greater dimensions than it had previously attempted. The project's rate of return calculated at completion is more than 10 percent, compared to the appraisal estimate of 8.5 percent. The higher return resulted from larger- than-anticipated tariff increases. 9. As might be expected, implementation of this technically very challenging project was not problem-free. Procurement was somewhat protracted, and construction and commissioning delays occurred due to contractual interface problems and project management deficiencies. A serious boiler accident also occurred after commissioning. In response to these problems, the Borrower has taken the following precautions under the two subsequent operations: (a) increased grouping of equipment supply contracts to reduce interfaces between contractors and suppliers; (b) timely staffing and training of the project implementation organization; (c) use of model procurement documents developed by the government with Bank assistance; and (d) provision of increased consultant assistance to the designers and project managers. In light of the boiler accident, boiler design parameters such as furnace heat liberation and furnace exit gas temperatures have been reviewed; operator training and operational manuals are being improved continually; and coal supply management and quality control have been strengthened. The successful implementation of the subsequent project and the challenging technical, institutional and financial agenda under the third, most recent project testify to how well the Borrower has internalized these initial lessons.   - 1 - IMPLEMENTATION COMPLETION REPORT CHINA BEILUNGANG THERMAL POWER PROJECT (LOAN 2706-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 development of transmission lines and substation facilities also failed to meet demand, and the highest transmission voltage was 220 kV. 2. Of necessity, the Government's commitment to industrial development entailed a commitment to modernize and expand the power sector and make it more efficient. To this end, it encouraged: (a) increased financial autonomy of sector enterprises; (b) gradual introduction of a more rational pricing system; (c) modern techniques in project design and system planning; (d) development of additional generating capacity; (e) construction of extra-high-voltage transmission lines; and (f) improved energy efficiency. The Beilungang project responded to these goals by providing additional electric power and constructing 500 kV transmission lines to transfer power between optimal generating sites and load centers and to facilitate eventual regional interconnections. 3. In 1984, the Zhejiang provincial power grid had a total installed capacity of 2,714 MW, or about 22 percent of total installed capacity of the East China grid (including Jiangsu, Anhui and Zhejiang Provinces and Shanghai Municipality). Of total capacity, 44 percent was thermal and 56 percent was hydro. Peak demand in Zhejiang, at 1,560 MW in 1984, was expected to grow at almost 12 percent a year until 1992 owing to strong projected growth of industry. A long-range power development optimization study for the East China grid showed that the Beilungang Thermal Power Project, with four units of 600 MW each to be commissioned from 1990 to 1993, formed part of the system's least-cost expansion program. Until 1991, when Beilungang would come into operation, power supply in the area would continue to be inadequate.  - 2 - 4. The Beilungang Power Project for construction of the first of these 600-MW units was intended to: (a) transfer the latest technology in plant design and construction management of a 600 MW thermal power unit; (b) introduce more appropriate techniques of dynamic, least-cost investment programming; (c) initiate modernization of utility management and financial planning; and (d) transfer the most up-to-date tariff analysis methodologies and provide a reference for future tariff adjustments. 5. The project financed: (a) construction of a coal-fired thermal power plant, including coal unloading facilities at Beilungang with two generating units of 600 MW each; (b) construction of two single circuits of 500 kV transmission lines from Beilungang to Pingyao substation (about 245 km) and two associated substations (Pingyao and Shaoxin) to interconnect Beilungang plant with the East China power grid and the existing provincial transmission system; (c) consultant services for engineering, detailed design, procurement and construction management of the thermal power plant; (d) a training program to assist the Zhejiang Provincial Electric Power Bureau (ZPEPB) address its long-term manpower needs and modernize utility management and financial management, among other things; and (e) a tariff study for the East China power grid. B. ACHIEVEMENT OF PROJECT OBJECTIVES 6. The project provided a fully integrated state-of-the-art 600 MW coal-fired unit that set technical and economic performance standards for a series of same size units that were subsequently installed in China. This size unit was, and remains, the most efficient, economic and environmentally acceptable. The smaller units of 50 MW or less that have dominated China's power sector consume over 60 percent more coal per unit of electricity produced, and result in 60 percent higher sulfur dioxide and carbon dioxide emissions (depending on the coal used) and proportionally even higher particulate emissions. 7. This was the first 600-MW unit designed, constructed and operated by ZPEPB (and only the third in China). It represented a remarkable technical achievement and set the stage for the Beilungang Thermal Power Extension Project (Ln. 2955-CHA, approved in 1988) for, inter alia, construction of a second 600 MW unit and 500 kV transmission line, and for the Zhejiang Power Development Project (Ln. 3846-CHA, approved in 1995) for construction of three additional 600 MW units and a major transmission network expansion.  - 3 - 8. Project studies and institutional development support similarly laid the groundwork for major reforms. The project's successful training programs for modernization of utility management, financial planning and investment programming (see Table 5) established an institutional capability primed for further development. Consequently, under the subsequent project, a study was carried out for reorganizing ZPEPB's operations and further strengthening its management. Implementation of the study's findings realized the study's goal of introducing managerial autonomy and accountability as well as modern management organizations, systems and procedures. Corporatization, the logical result of the previous efforts, is occurring under the most recent project. 9. The project's tariff study similarly set the stage for improvement of ZPEPB's financial performance. The study reviewed the level and structure of power tariffs for the East China power system, and introduced the marginal cost pricing principles now widely accepted in China. A tariff reform study carried out under Ln. 2955-CHA resulted in ZPEPB's adopting the improved tariff structure. C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT Implementation Schedule 10. The project power plant was put into commercial operation in July 1992, 18 months behind the appraisal estimate. The delay resulted from: the need to correct deficiencies in equipment quality; delay in procurement of equipment for the Shaoxin substation; and difficulties in coordinating suppliers. However, the appraisal timetable was unrealistic in setting a three-month interval between synchronization of the new unit to the system and the start of commercial operations. A six-month period would have been more appropriate. The project's first 500-kV transmission line between Beilungang and Pingyao (145 km) was completed to coincide with commissioning of the unit. The second transmission line (100 km) was completed at end-1993. Implementation Difficulties 11. Construction proceeded satisfactorily for the most part. However, as might be expected in carrying out such a large project for the first time, ZPEPB experienced some problems, particularly in the early stages of implementation. The following were observed: (a) some subcontracted steel structures, including those for the boiler and electrostatic precipitator, were not manufactured to specifications, necessitating repairs and modifications on site; (b) leakage in the boiler economizer was repaired and its cause investigated jointly by ZPEPB, the Chinese authorities and the manufacturer. After repairs, the boiler performed satisfactorily during testing and was found ready to send steam to the turbine;  - 4 - (c) interfacing problems occurred between various contract islands (instrumentation, boiler, turbine generator, ash-handling, electrical, etc.). Changes in the suppliers' designs for the turbine generator were responsible for one major interfacing difficulty; and (d) the instrument and control (I&C) system required final adjustments due to software modifications, missing items and deviations from contract specifications. ZPEPB took firm action with contractors to resolve these problems, and the project unit was successfully synchronized to the system on March 21, 1991. 12. During the subsequent commissioning, performance tests and trial operation of the unit in 1991-92, two major problems were experienced-low reheater steam temperature and condenser tube leakage, the latter caused by insufficient expansion of the condenser plate and tubes, and resulting in corrosion of the inner steel plate of the compound plate. Other defects encountered were: (a) the need to replace welds of 38 tubes in the reheater; (b) settlement differences between piled and unpiled building, with particularly uneven settlement of the unpiled circulating water pumphouse due to the turbine generator plant's foundation in high-compression soil, with a depth of more than 20 m. Concrete was used successfully to reinforce the foundation; (c) a number of corrections needed to the I&C system, due in part to ZPEPB's lack of experience in adjusting and tuning a state-of-the-art microprocessor-based distribution system; and (d) frequent mistripping of the medium voltage (MV) protection relays. 13. All of this resulted in a prolonged commissioning period and delayed start of commercial operations. Throughout this period, however, ZPEPB performed satisfactorily. It responded to the problems appropriately, by expanding its project management staff and reinforcing its quality assurance system. 14. Boiler Accident. On March 10, 1993 at about 2:00 pm, a serious accident occurred in boiler No. 1 of the power plant, killing 23 people and injuring 24. When the accident occurred, the unit was operating with a 400 MW load or 67 percent of full capacity. The main steam pressure was 15.22 MPa, the main steam temperature was 513