China - East China (Jiangsu) 500 kV Transmission Project

Report No. PIC5451 Project Name China-East China (Jiangsu) 500 kV Transmission Project (+ Region East Asia and Pacific Sector Electric Power & Other Energy Project ID CNPE51736 Borrower People's Republic of China Beneficiary East China Electric Power Group Corporation (ECEPGC) Estimated Project Cost US$800.00 million Financing Plan Million US $ IBRD 250.0 East China Electric Power Group Co. 110.0 China Construction Bank 220.0 State Development Bank 220.0 Total 800.0 Project Preparation July 1997 Pre-appraisal October 1997 Appraisal December1997 Negotiation March 1998 Board Presentation May 1998 Contact Mr. Xu Hang East China Electric Power Group Co. 201 Nanjing Road (E) Shanghai, China Sector and Institutional Background 1. Large-scale energy development and improvements in the efficiency of energy supply and use are critical to meet the fast growing demand, alleviate shortages and mitigate adverse impacts on the environment in China. China has experienced an annual growth rate of about 8.3 percent in installed capacity and energy generated in the period 1980-95. To meet the electricity demand in the most cost-effective manner, the Government is implementing a comprehensive strategy of sectorwide institutional reforms, energy price reforms, and encouraging energy conservation. Consumer prices for the major forms of energy now largely reflect economic costs. A well-developed institutional network exists to promote energy conservation at the central, provincial and local levels. These measures have helped China achieve a remarkably low 0.86 elasticity demand growth to GDP growth during 1980-95.  2. Yet even with further improvements in conservation, generation capacity must increase by more than 15 GW a year for the next five years if current shortages are not to become more acute. For continued efficiency improvements -- not simply in energy use but in the overall functioning of the sector -- and for the increased capital mobilization necessary for large-scale power industry development, China has launched an ambitious program of power sector reforms. Thus far, progress has been made in sector decentralization, cost recovery through major tariff reforms, and diversification of financing sources, including development of a variety of independent power generation schemes. In the gradual process of legal reform and sector restructuring, three important steps have recently been taken, with passage of the country's first Electricity Law, a decision to abolish the Ministry of Electric Power and divide its functions among existing government agencies, and a further decision to create a National Power Company to, inter alia, represent the state as owner of government-owned power assets. Furthermore, several joint venture companies have been established to build power plants in Shandong Province and Shanghai, while build, operate, transfer (BOT) schemes have been introduced in Guangdong and Fujian Provinces. The process of international competitive tendering for projects has also begun with the Laibin B project in Guangxi Zhuang Autonomous Region, which will be constructed by an international consortium, and bids will soon be issued for another project in Hunan Province. 3. Building on these accomplishments, the Government's future agenda for action includes: (a) further reforms to the sector's regulatory and legal framework; (b) further diversification in financing for power development, including private sector participation; (c) institutional restructuring via commercialization and corporatization of power companies, together with achievement of greater enterprise autonomy and sector restructuring; and (d) further measures to rationalize power tariffs. While actions have been initiated on all of the above fronts, measures to commercialize the power entities are now a focal point in the overall effort. These measures include separating the producing entities from the Government, granting them autonomy in business decision-making, and subjecting them to market forces in an arms-length regulatory framework. 4. The Chinese approach to reform encourages experimentation with different reform options and institutional forms. This gradual approach permits the Chinese to examine the relevance and applicability of specific reforms and also to fine-tune reform implementation for broader dissemination or replication in other parts of the country. 5. Accompanying the move to commercialization are efforts to curb air pollution related to the burning of coal and particularly to reduce the power sector's contribution to the problem. In terms of emission control in large and medium-scale plants, China has made substantial progress in particulate control, through deployment of high efficiency electrostatic precipitators. The Government announced in June 1994 that it would spend about $2 - 2 -  billion over the next seven years on an environmental program aimed at keeping S02 emissions at a level of 15 million metric tons a year, as part of a comprehensive program of acid rain abatement. The Government intends also to accelerate the development of hydropower and construction of large and efficient 300 and 600 MW coal-fired units to avoid the mushrooming of the small, highly polluting plants that still constitute about 60 percent of the additional installed capacity. The East China Power System - Area of Project Impact 6. The East China Power Grid Located in the east coast of China, the East China Power Grid (ECPG) is the largest inter- provincial (municipal) power network in China. ECPG covers the service area comprising the municipality of Shanghai and the three adjacent provinces of Anhui, Jiangsu, and Zhejiang. The region occupies a total area of 350,000-sq.km, 3.6w of China, and had a total population in end-1995 of 187-million, 15t of the population of China. 7. By the end of 1996, the total installed generating capacity was 32.85 GW, of which only 6t was hydro-electric. The balance was mainly made up by coal fired thermal power plants. For the same year the peak load was 28.05 GW and total electricity generation was 174.7 TWh. Some 1.5-GW of curtailments had to be implemented in the summer of 1996, which was largely caused by (i) insufficient installation of generation capacities, in particular, peaking capacities, and (ii) inadequate investment in transmission and distribution systems to match the expansion of the generation systems. 8. The first 500-kV transmission lines were constructed in 1987 and owned and operated by ECEPGC. By the end of 1996 the 500-kV network had expanded to include 3184-km of single-circuit lines linking 10 substations with a total transformer capacity of 10.8- GVA. The associated 220-kV networks, currently operated by the four separate electricity supply authorities of Shanghai and the three provinces, included 16,217-km of transmission lines and 43.6-GVA of transformer capacity supplying consumers in the region. 9. The Jiangsu Provincial Power Grid (JPPG): The physical investment components of the project are located largely within Jiangsu province served by the Jiangsu Provincial Electric Power Corporation (JPEPC). Jiangsu province has experienced a rapid economic growth over the last 15 years or so. From 1990 to 1995, the average annual growth rate of GDP of the province was 18.0 percent. For the same period, the average annual growth rate of energy consumption was 11.4 percent. The forecast peak demand in 2005 will be around 25,370 MW and energy consumption 151 TWh at an annual average growth rate of 8.7w for demand and 8.0w for energy. 10. Despite significant addition of new capacities in the province in the last decade, energy shortages persist because of the fast economic growth. The major load centers are located in the southern part of Jiangsu. Due to lack of primary energy resources and limitations on site conditions, as well as environmental -3 -  considerations, future demand in this region will mainly be met by: (i) import of energy from Shanxi province where coal reserves are abundant but its level of industrialization and rate of increase in electricity demand is relatively low; and (ii) bulk transfer of energy from the north to the south within the province because the northern part has relatively more energy resources and less demand This is consistent with the national power development strategy to transfer electricity from areas of surplus to those in deficit. This planning approach will reduce the burden on the overloaded railway system as well as avoid pollution loads that exceed local absorptive capacities in the highly industrialized and densely populated areas. 11. The transmission grid in Jiangsu consists of 500 kV and 220 kV substations and lines. The existing transmission network is experiencing problems of reduced reliability, overloading of major substations and lines, and higher fault levels at 220 kV systems exceeding the permitted safe operating ranges. These problems are mainly caused by an inadequate investment in the transmission systems required to transmit the new production to load centers. Most generation projects only have enough transmission capacity to connect the plant to the nearest point on the system. Reinforcement of the core transmission system is urgently required Project Objectives and Description 12. The Project's development objective is to alleviate critical bottlenecks in power transmission infrastructure in the East China region and increase electricity trades on a commercial basis. This objective would be achieved by: (a) developing a reliable 500 kV high voltage transmission network to facilitate the cost-effective location of generation capacity and the transport of energy to load centers. This would help to alleviate an acute shortage of electricity in Jiangsu province. This transmission network expansion would support the development of a private power project (i.e. the Yancheng power plant 6x350 MW in Shanxi province) which would transfer bulk power from the north to load centers in southern Jiangsu. The would also serve to develop and strengthen an interprovincial high voltage grid capable of transferring power from areas where it can be produced in the most economical and environmentally sound way to major load centers, mainly located in densely populated areas with low local absorptive capacity. (b) assisting in the development and implementation of a commercial framework for power exchanges and trade. These capacity building components will help to increase power trade to improve efficiency and lower the cost of supply. This will include: clear definition of the transmission service and the right to transmit electricity; design of wholesale contracts for electricity sales/purchases conducive to economic dispatch and operational efficiency; and, definition of the implementation procedures and transitional steps. In addition the project will help clarify the ownership and operating relationship of the East China Electric - 4 -  Power Group Corporation (ECEPGC) with its subsidiary Provincial power companies. 13. The main project components are: -- Erection of a total of 993 km of 500 kV transmission lines which include: Renzhuang-Huaiyin (230km); Huaiyin-Jiangdu (134km); Jiangdu-Wunan (124km); Huaiyin-Yancheng (120km); Yancheng-Yangdong (135km); Yangdong-Doushan (30km); Doushan-Shipai (60km); Shipai-Huangdu (50km); Shipai- Shengpu (60km); line re-routes (50km); and a major river crossing (3 km). -- Construction of five new 500/220 kV substations with a total transformation capacity of 4000 MVA and one extension (750 MVA) of an existing 500/220 kV substation. These are Yancheng (750 MVA),Yangdong (750 MVA), Nantong (750 MVA), Wunan (750 MVA), Shipai (750 MVA), and Shengpu (1000MVA). -- Technical assistance for improved inter-provincial power exchange policies and procedures including transmission pricing issues. -- Capacity building for transmission network planning and analyses -- Technical assistance to improve accounting and financial management systems 14. Institutional and implementation arrangements: The beneficiary, East China Electric Power Group Corporation (ECEPGC), will be the main executing agency for the project. ECPGC has been operating the East China Power Grid for more than ten years and has qualified personnel to undertake project preparation, implementation and operation. In addition, the JPEPC, one of the strongest utilities in China will also be involved in project preparation and implementation. Jiangsu Electric Power Design Institute (JEPDI) and East China Electric Power Design Institute (ECEPDI) will undertake preparation of technical bidding documents, bids evaluation, detailed construction design with the assistance of international consultants. Project preparation (and future implementation) is being coordinated by a steering committee chaired by ECPGC's vice president in charge of overall project management and coordination, reform and financial issues. The steering committee consists of members from ECEPGC and JPEPC. The institutional reform elements of the proposed project will be supervised by the Ministry of Electric Power (MOEP) and its successor entities (i.e. State Power Corporation). State Power Corporation will be responsible for obtaining State Council approvals on major reform issues. The provincial government representatives will oversee the planning and implementation of resettlement. Benefits and Target Population -5-  15. Direct Benefits: The Project would have a marked impact on the economic development of the East China region. The direct benefits attributable to the project are: (a) reduction in the value of lost production due to power rationing in Jiangsu province from an estimated 16 billion RMB in 1997 to 0.08 billion RMB in 2005; (b) reduction in the amount of available capacity that cannot be utilized currently due to transmission system overloading from about 1000 MW in 1997 (4t of total installed capacity) to virtually zero in 2005; and (c) improvements in quality of supply in terms of reduced interruptions and recognized but more difficult to quantify service parameters, such as, frequency, voltage, reactive energy. 16. The other major benefit of the project is the development and implementation of incentives for power trade in the East China region. The development of an improved framework for power trade is the most important means to achieve increased system efficiency and introducing competition at the generation level. The clear separation of the generation costs from the transmission costs will increase the transparency of power pricing and would allow more effective regulation of power tariffs. The creation of a regional power market in east China will be a major milestone in China's gradual reform approach. 17. Regional Sector Reform Benefits: From a regional perspective the Project will also help to clarify the ownership and operating relationship of the East China Electric Power Group Corporation (ECEPGC) as the core power enterprise in the East China region with its Subsidiary Companies: Jiangsu Provincial Electric Power Company (JPEPC); Anhui Provincial Electric Power Company (APEPC); Zhejiang Provincial Electric Power Company (ZPEPC); and the Shanghai Municipal Electric Power Company (SMEPC). The Government has decided to make ECEPGC its representative to hold and manage its equity interests in the above Subsidiary Companies (SC). This project would help in clarifying the responsibilities of other Regional Power Group Corporations in China. 18. Environmental Aspects: (See Annex 1) 19. Resettlement Aspects: From earlier work on projects where transmission investments have been required, it has been determined that a complete resettlement action plan (RAP) cannot realistically be completed before project negotiation. The nature of transmission projects are such that most of the detailed routing of the transmission line and sitting of transmission towers is done in stages once the project financing is fully secured and the detailed engineering commences. Resettlement will be undertaken under a two- stage Resettlement Action Plan (RAP) approach. The first-stage RAP will specify the resettlement policies and regulations, institutional arrangements, implementation procedures for all resettlement actions that would be carried out under the project, and a preliminary census of affected population. The first RAP will be completed before the project preparation mission. At the early stages therefore it is possible to agree on the resettlement policies and guidelines. In subsequent stages it is possible to ascertain the actual impact and whether the agreed policies and - 6 -  guidelines are being followed. Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington, D.C. 20433 Telephone No.: (202) 458-5454 Fax No.: (202) 522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the Public Information Center week ending August 1, 1997. -7 -  Annex 1 Environmental Aspects 1. In accordance with Bank OD 4.01 (Environmental Assessment), the project has been assigned to Category B. International consultants specializing in environmental issues related to power transmission will be engaged at the inception of the project to assist in preparation of environment assessment. The major environmental issues, relate to safety, noise and fire hazards from transformers and radiation, and leakage and contamination from transformer oil or PCB-containing equipment. The implementing agencies follow internationally acceptable design standards in this regard. During supervision, compliance with these standards would be monitored. Tower placement will be made so as to minimize impacts to farm fields. Lines rates will be selected to avoid populated centers, especially schools and clinics. Transmission lines slack will be designed to have sufficient height in order not to interfere with traffic. No PCBs will be utilized in transformers to be financed. China banned PCBs from the early 1970s. 2. The Environmental Assessment Report is expected to be completed at the time of appraisal and will be available only in hard copy at the Public Information Center (PIC) at Bank Headquarters. - 8 -