China - Beijing Transmission and Distribution Project

Report No. PID6712 Project Name China-Beijing Transmission & (+) Distribution Project Region East Asia and Pacific Sector Energy - Power Project ID CNPE51744 Borrower People's Republic of China Responsible Agency North China Electric Power Group Corporation 32 Zaolin Qianjie Xuanwu District Beijing 100053 People's Republic of China Tel: 86-10-8358-1840 Fax: 86-10-6354-3207 Date PID Prepared June, 1998 Projected Appraisal December 1998 Projected Board Date March 1999 Background 1. Country and Sector Background Inadequate development of transmission and distribution systems has adverse impacts on the reliability and efficiency of the power sector in China. It impedes optimum utilization of generation capacity, limits power trade between provinces thereby leading to sub-optimal decisions on the location of generation capacity, as well as requiring the transport of coal over large distances, leads to the proliferation of small units which pollute far more than economically sized units, and reduces the ability to plan, develop and finance larger unit sizes. In addition to the above constraints, large urban areas in China are faced with rapidly growing demand. Greatly overloaded infrastructure leads to high system losses and unreliable supply. With increasing urbanization, it is important for China to adopt the best available technologies and distribution management systems to meet the growing demand efficiently, reliably, and safely. The abolition of the Ministry of Electric Power in April 1998, and the transfer of its government/supervision functions to central government agencies, such as the State Economic and Trade Commission and the National Electricity Council has paved the way for a clearer separation of government from enterprises functions. [Note: Summarize assessments of key policy, institutional and other issues, and the Government's strategy to address them, referencing the economic and sector work of the Bank and other development agencies.]The Government is now initiating a second wave of reforms according to the following principles: - Complete separation of generation from the transmission and distribution functions. This strategy is being aggressively implemented in many provinces and all vertically integrated entities have been required to define  development strategies to create autonomous generation companies. - Expansion and mainstreaming of successful strategies employed to the engage private sector in financing power sector development, such as: (a) BOT projects with full foreign ownership; (b) joint investment projects with foreign investors; (c) domestic and foreign equity listing of power enterprises, and (d) securitization of existing power assets to raise private funds. - Clarification of corporate and commercial relationships between the State Power Corporation and its regional and provincial level subsidiary companies - Rationalization of wholesale and transmission tariffs, consistent with the move to completely separate generation from the network assets. This project is designed to help the Government of China and the beneficiary address both the infrastructure constraints in the transmission and distribution system and advance reform along defined directions. 2. Objectives The project aims at: 1. Increasing the efficiency and reliability of power supply to the rapidly growing Beijing urban area. Progress in meeting this objective will be measured by reduction in load curtailments, increased quality of supply, lower power losses, and improved customer management. 2. Developing a wholesale power market and introducing commercial relationships between the power entities in the North China Region. Progress in meeting this objective will be measured by meeting a time- bound plan for: separation and corporatization of generation entities, development and agreement on market operating rules, implementation of the defined power market, and development and implementation of an appropriate transmission tariffs. 3. Description The proposed project consists of the following main components: Transmission Component The Lianhuachi sub-component involves extending the substation from being only a 110/10-kV supply for the immediate area to being also a 220/110 kV supply point for a wider area. A 220/110/10 kV substation will be installed at Lianhuachi to supply both the local load over the existing 10 kV feeder system and also 3 other existing 110/10 kV substations in the wider area. These 3 existing substations will be supplied from Lianhuachi over existing 110 kV lines which are now importing power to Lianhuachi for its existing 110/10 kV substation. The selected approach to this project involves the reuse of an established transmission line right-of-way. An alternative involving a shorter transmission line was ruled out due to the much greater difficulty of establishing the required new right-of-way through densely developed urban areas. The Huangsi substation and Dongcheng substation are located close to each -2 -  other and are therefore most appropriately considered together. This sub- component will increase the availability of supply to this area by constructing a new 220/110 kV substation at Huangsi and replacing the existing 35 kV station at Dongcheng with a new 110 kV located nearby and supplying it from Chaoyangmen. Distribution Component: Work will be undertaken on 258 lOkV feeders served by 42 substations. The work involves upgrading the reliability of the feeders through the use of insulated instead of bare conductors, replacing the existing Peterson coils with a low resistance grounding system, installing automatic sectionalizing switches and replacing oil circuit breakers by vacuum circuit breakers. Existing pole mounted distribution transformers will be equipped with automated reactive power compensation facilities and new communication cables will be installed to facilitate remote monitoring and control of the new controllers and sectionalizing switches. The effectiveness of these measures has been demonstrated in previously completed pilot projects. Ten residential districts have been selected to have their entire supply system rebuilt. The new systems will involve the use of longer 10 kV feeders supplying a larger number of smaller capacity distribution transformers connected to shorter feeders. Automated reactive power compensation devices are equipped with the transformers. In addition, some 300 km of new communications cables will be installed to allow remote control and monitoring of various items of equipment. Customer Management Systems: A pilot project will be undertaken in Tuanjiehu, one of the 10 residential areas, to explore the provision of one revenue meter for each customer instead of the existing practice of providing a single meter for each multiple family building or floor. Among the issues that need to be considered in the full scale adoption of individual metering is the increased ancillary services required such as meter reading and billing. The pilot project will provide useful experience on both implementation and the ongoing operation of the program. The work required to convert to one meter per customer includes replacing much of the internal wiring in buildings as well as installing the revenue meters and load limiting devices in theft-proof enclosures. Reform Implementation Assistance: Technical assistance will be provided through the project to achieve the following reform targets: (a) complete separation of the generation from transmission and distribution functions. Restructuring of existing generation assets into independent generation companies; (b) defining commercial contractual arrangements between the generators and the transmission and distribution network company to gradually introduce competition at the generation level; (c) developing a mechanism to ensure power exchange and trade between the different provincial systems in the north China region; and (d) strengthening the commercial focus of the North China Power Group Corporation (NCPGC) by transferring all policy and regulation functions to government/independent agencies. T&D Planning Capacity Building (Tentative): It is required to strengthen T&D planning capability in NCPGC so as to appropriately expand T&D network responding to the rapid growth of power demand. Technical assistance will be provided on (a) training on T&D planning with a modern power system planning - 3 -  software, (b) Study on long-term T&D system upgrading principle including feasibility study of streamlining the transmission system voltage levels and simplifying the configuration of circuit breakers in transmission substations. Training will also be provided in "customer management systems" to support the "one household-one meter" pilot program. 4. Financing (preliminary) Million US $ IBRD 268.0 NCPGC - sponsors equity 117.3 Consumers' Contribution 142.2 Local Debt 59.0 Total 586.5 5. Implementation Executing Agency: NCPGC is the beneficiary of the proposed loan and the main executing agency of the project. NCPGC is also the beneficiary of the T&D component of the Inner Mongolia (Tuoketuo) Thermal Power Project, which is under implementation and rated as satisfactory (despite delays in the procurement of the boiler and turbine islands.) NCPGC has been operating the North China Power Grid for more than ten years and has qualified personnel to undertake project preparation, implementation and operation. Its corporate charter and other legal documents will be reviewed during project preparation. The Beijing Power Supply Bureau (BPSB), a unit of NCPGC, will be in charge of the distribution component of the project. The Beijing Power Supply Design Institute (BPSDI), entrusted by NCPGC to carry out the design and engineering studies of the project, has extensive experience in designing T&D systems and in other power infrastructure facilities. International consultants are being engaged, using CRISPP funds, to review the design and assist in preparing the bidding documents. Project Coordination: A steering committee has been established to coordinate project preparation (and future implementation). It is chaired by NCPGC's vice president in charge of planning. The members of the steering committee include BPSB, BPSDI, and NCPGC's resettlement and environment units. Project Oversight and Policy Guidance: the sector reform elements of the proposed project will be supervised by State Power Corporation (SP) which will be responsible for obtaining State Council approvals on major reform issues. BPSB will oversee the planning and implementation of resettlement through a Resettlement Office jointly organized by BPSB and Beijing Chaoyang District Government. 6. Sustainability [Note: Flag the factors critical for the sustainability of project - 4 -  benefits.]The project is mainly aimed at creating the conditions for a sustainable development of the transmission and distribution systems in Beijing to meet the high growing demand. NCPGC's planning, design, and implementation capabilities will be strengthened and prices will be adjusted to recover full costs of system development. 7. Lessons learned from past operations in the country/sector [Note: Lessons learned from completed and ongoing projects financed by the Bank and other development agencies.](a) Limited and Achievable Objectives of Power Sector Reform. Setting specific and achievable reform goals in the most recent projects has proved to be more effective. This approach is better understood by the beneficiaries and matches their implementation capacity. It is clear that the power sector reform agenda in China is far reaching and can be achieved only gradually. It is important to define clear priorities and focus on specific and limited areas of reform for each project and avoid the more appealing, but less effective, broad brush reform approach. (b) Better Preparation of Procurement Packages. Procurement in transmission projects involves multiple packages in comparison with generation projects. Each package requires very specialized technical knowledge. Inadequate project management caused significant delays in procurement and hence delays in project implementation. Non-compliance with the Bank Procurement Guidelines due to a lack of awareness, and poor quality of bid evaluation reports have required more time for clarification and has resulted in delays. Learning from recent experience, the project team organized a training session during June 15-19, 1998, to acquaint the Chinese project team with Bank procurement guidelines and procedures. The training session was conducted by experienced procurement specialists from the Resident Mission, Chinese experts, and the leading tendering companies. International consultants will also assist in the preparation and evaluation of the bidding documents to improve the quality of the bidding documents and bid evaluation reports. (c) Need for Early Government Approval of Project: In recent power projects, there were delays in project processing stemming from delayed internal Government approvals. These delays arose from inadequate counterpart funding sources, delayed approval of feasibility studies, etc. The approval process for the proposed project is well advanced. However, delays may be experienced because of the recent government reorganization. The project team stressed the issue during the identification mission and requested that NCPGC make every possible effort to secure government approval as soon as possible. (d) Cost Recovery in Transmission Investments: This project builds upon advances in power sector reform and the emerging recognition of transmission services. As in the East China (Jiangsu) Transmission project, the municipal government's approval will be sought at the preparation stage to ensure that the project costs will be recovered through tariff increases. 8. Poverty Category This project does not explicitly address poverty alleviation. 9. Environmental Aspects In accordance with World Bank Operational Directive 4.01 (Environmental - 5 -  Assessment), the Project has provisionally been assigned as a Category B project. The project will not have any major impact on environment. To the contrary it will improve environmental conditions and the safety of power supply by introducing insulated wires with larger cross-section, and underground cables. The new customer management system will enhance interest in energy conservation. The environmental issues to be considered in the Environmental Assessment Report and the Environmental Management Plan will include: (a) during construction: increased burden on local infrastructure from labor force; poly chlorinated biphenyls (PCBs); increased level of dust and noise from use and movement of construction equipment; (b) during operation: electromagnetic field (EMF) impacts on human health, noise (from corona discharge), and waste discharges at substations. According to preliminary estimates, only 8 mu. (0.5 ha) of land will be acquired for tower bases and about 50 rural households will be relocated. It is expected that (a) the affected people will be able to rebuild their houses within the perimeters of their villages; and (b) the project will have no impact on their jobs or income sources. A Resettlement Action Plan is under preparation and will be submitted to the Bank for review in August 1998. It will ensure that the living conditions and income of the project affected persons will be improved or at least restored. 10. Program Objective Categories Infrastructure development 11. Contact Point The InfoShop 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 activities and/or components may not be included in the final project. Processed by the InfoShop week ending August 14, 1998. - 6 -  Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID. -7-