China - Zouxian Thermal Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 19962 IMPLEMENTATION COMPLETION REPORT CHINA ZOUXIAN THERMAL POWER PROJECT (LOAN 3462-CHA) December 17, 1999 Energy and Mining Sector Unit East Asia and Pacific Region 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) US$ 1.0 - Y 5.38 (at appraisal) US$ 1.0 - Y 8.30 (actual average) WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CCB - China Construction Bank CDB - China Development Bank DER - Debt Equity Ratio DSC - Debt Service Coverage Ratio EIRR - Economic Internal Rate of Return ESP - Electrostatic Precipitators GOC - Government of China MOF - Ministry of Finance NWCEPDI - Northwest China Electric Power Design Institute SAR - Staff Appraisal Report SDPC - State Development and Planning Commission SEIC - State Energy Investment Corporation SEPGC - Shandong Electric Power Group Corporation SFR - Self Financing Ratio SIPDC - Shandong International Power Development Co. Ltd. SPC - State Power Corporation SPEPB - Shandong Provincial Electric Power Bureau ROR - Rate of Return Regional Vice President: Jean-Michel Severino, EAP Country Director: Yukon Huang, EACCF Sector Director: Yoshihiko Sumi, EASEG Task Manager: Elaine Sun, EACCF FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT CHINA ZOUXIAN THERMAL POWER PROJECT (LOAN NO. 3462-CHA) PREFACE This is the Implementation Completion Report (ICR) for the Zouxian Thermal Power Project in China, for which Loan No. 3462-CHA, in the amount of US$ 310 million equivalent was approved on April 21, 1992 and made effective on October 23, 1992. The loan was closed on June 30, 1999 as originally scheduled. An undisbursed balance of about US$9.0 million will be canceled upon closure of the loan account. The ICR was prepared by Yuling Zhou (Operations Officer), EASEG; reviewed by Elaine Sun (Principal Energy Specialist), Jianping Zhao (Energy Specialist), EACCF; Barry Trembath (Principal Power Engineer), EASEG; and endorsed by Yoshihiko Sumi, Sector Director, EASEG. Preparation of this ICR was begun during the ICR mission to China in March 1999. It is based on documents and material available in the project file, and on information and comments received from the implementing agency and the beneficiary. The Aide Memoire of the ICR mission is attached as Annex A. The Borrower's evaluation report is attached as Annex B. 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.  Table of Contents Preface ............................................................................................................... .............. i Evaluation Sum m ary .................................................................................................. Part I - Project Implementation Assessment A. Statement/Evaluation of Objectives.. .................................... 1 B. Achievement of Objectives ..................... .........2 C. Implementation Record and Major Factors Affecting the Project..........5 D. Project Sustainability ....................... .......... 10 E. Bank Performance .............1......................1 F. Borrower Performance ................ ................ 11 G. Assessment of Outcome................................ 12 H. Future Operations ........................................ 12 I. Key Lessons Learned ................................. 13 Part II - Statistical Tables Table 1: Summary of Assessments .............................. 15 Table 2: Related Bank Loans/Credits....................... 16 Table 3: Project Timetable ................................... 20 Table 4: Loan Disbursements................. ................ 20 Table 5: Key Indicators for Project Implementation..................21 Table 6: Key Indicators for Project Operation ......................22 Table 7: Studies included in the Project ............................ 23 Table 8A: Project Costs (Yuan million) ......................24 Table 8B: Project Costs (US$ million) ......................25 Table 8C: Project Financing .......................... .........25 Table 9: Economic Costs & Benefits (EIRR)............. ... ........26 Table 10: Status of Legal Covenants.......................27 Table 11: Compliance with Operational Manual Statements ..... .........28 Table 12: Bank Resources: Staff Inputs .............................. 28 Table 13: Bank Resources: Missions ....................... ......29 Annexes Annex A: Mission's Aide Memoire ..................................31 Annex B: Borrower's Evaluation Report............. ..............35 Annex C: Ex-post Calculation of Economic Internal Rate of Return............... 38 Annex D: SPEPB's Financial Statements and SIPDC's Key Financial Indicators ..........................39 Map IBRD No. 22046 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. s -1- CHINA ZOUXIAN THERMAL POWER PROJECT (LOAN NO. 3462-CHA) EVALUATION SUMMARY Introduction 1. The Zouxian Thermal Power Plant is located about 175 km south of Jinan, the capital city of Shandong Province. It is on average 15 km away from Yanzhou Coal Mine, one of the largest coal mines in the province. Before the Bank financed project, the Power Plant had installed capacity of 1200 (4x300) MW. Shandong is one of the most populous and fastest growing provinces in China. At the time of project identification and appraisal, there was an acute shortage of power supply in the province. The expansion of generating capacity in Shandong is virtually entirely based on thermal power stations as it is short of hydroelectric resources. Project Objectives 2. The Zouxian Thermal Power Project was designed to help alleviate the acute power shortage in Shandong and meet the province's projected power demand. In addition, it was also used as a vehicle to: (a) support national policies for developing large mine-mouth thermal power generating units to make effective use of China's abundant coal resources; (b) continue the efforts to introduce modem technology in plant design and project management for 600 MW thermal power units; (c) provide technical assistance to strengthen Shandong Provincial Electric Power Bureau (SPEPB)'s environmental planning for thermal power stations and to restructure power tariffs; and (d) upgrade SPEPB's capabilities in financial management and in the operation and maintenance of thermal power plants. 3. The project provided financing for: (a) addition of two 600 MW coal-fired thermal units to the existing Zouxian Thermal Power Plant; (b) construction of associated 500kV and 220kV transmission lines and substations to feed power into the grid; (c) provision of technical assistance for engineering, procurement and construction management; (c) studies on air pollution control for coal-fired power plant development in the coastal areas of China, as well as on tariff reform; (d) training; and (e) monitoring for environmental protection. 4. The design of the project responded to the country's regional and sectoral objectives at the time of appraisal. The project objectives were consistent with the Government's strategy to build coal-fired thermal power plant at mine-mouth for efficient deployment of energy resources and the Bank's county assistance goals regarding introduction of appropriate modem technology and utility management practice, institutional building, tariff reform, and environmental protection. - 11 - Implementation Experience and Results 5. Physical Implementation. The project was completed successfully. The two coal-fired 600 MW units (Units #5 and #6) and the associated transmission facilities were put into commercial operation in line with the original schedule. By the end of 1998, the two units have generated 9,709 GWh of electricity. Since the first half of 1998, power supply in Shandong has satisfied the demand. Therefore, the project's main objective to alleviate power shortages has been successfully achieved. 6. The two units are among the largest in China in terms of unit capacity. With the modern technology and management practice introduced, both units were awarded as outstanding projects by the State Power Corporation (SPC), the top authority in China for power sector operations. Unit #5 was the first 600 MW unit in China to meet the highest level national standards and performance indicators upon commercial operation. Because of the success of Unit #5, Unit #6 was granted exemption from state-level inspection. In addition, the two units were manufactured by a joint venture of a foreign supplier and a local manufacturer with the foreign supplier taking full responsibility for quality and performance guarantee. This arrangement has certainly facilitated technology transfer and promoted development of local manufacturing capacities for 600 MW units, as evidenced by the high quality of the two units under the project and the enhanced manufacturing capabilities of the local partner. In view of the above and the fact that the power plant is on average 15 km away from its source of coal supply, the associated project objectives of supporting national policies for developing large mine-mouth thermal power generating units to make effective use of China's abundant coal resources and continuing efforts to introduce the modern technology in plant design and project management for 600 MW thermal power units have been achieved. 7. Institutional Development. A special study on air pollution control was conducted and achieved its main objective of establishing criteria for power plant siting in China's coastal areas based upon air quality impacts. SPEPB management honored their environmental commitments in a professional manner. In recent years, they have taken various actions and achieved good results: (a) large scale investment was made to renovate outdated boilers by replacing the old precipitators with high efficient ESPs and some old thermal power plants were closed. As a result, flue gas ash volume decreased substantially despite the increase of coal consumption; (b) since 1997, all power plants have met the waste water discharge standards. In addition, waste water recycling facilities were installed in many plants and some plants even achieved "zero discharge", leading to substantial benefits from water savings; and (c) R&D in flue gas desulfurization technology would also result in potential benefits. 8. In line with the project design, training programs were carried out both in China and abroad with emphasis on training of high level staff in utility management and financial planning. Technical staff members were also extensively trained to further enhance SPEPB's traditionally sound technical performance. Training programs were also provided for technical school teachers and environmental staff. The actual training - Ill - taken place greatly surpassed the SAR targets. While it is difficult to quantify the impacts of the training programs on the SPEPB's performance, there are encouraging signs that SPEPB is benefiting from them. The Bank has noticed an increasing awareness of the importance of efficiency and customer services among SPEPB's management and staff. 9. Tariff Reforms. The tariff reform action plan, developed as a result of the tariff study financed under the project, has been implemented satisfactorily despite some delays and led to the following improvements: (a) unified tariff has been applied to all the consumers in the province; (b) time-of-day pricing was applied to all eligible consumers in the province by the end of 1996; and (c) average tariff level has been substantially increased while cross subsidies have been greatly reduced. 10. Environment Impact. The project was designed to meet environmental standards as set in Chinese regulations and the Bank guidelines and to provide for constant monitoring of the discharge, ambient and ash disposal areas. All the environmental related activities included in the SAR (special studies, training, purchase of monitoring equipment, and monitoring programs) have been completed, either met or exceeded the SAR requirements. The two units' ESP efficiency has reached the targeted 99.6 percent. 11. Project Cost. Compared to the appraisal cost estimates, there is an overall cost overrun of 2.7 percent when expressed in US dollar terms. Despite a foreign cost saving of 19.1 percent, the local cost (expressed in local currency) increased by almost 76.6 percent. Several factors contributed to this cost change: (a) substantial depreciation of the local currency (5.38 Yuan/US$ at the appraisal vs. average 8.30 Yuan/US$ actual); (b) local cost increase due to much higher-than-expected local inflation rates; and (c) the appraisal assumed full exemption from import duties and taxes, but import duties and value-added-tax were actually paid during project construction beginning from 1996 as a result of new Government tax regulations. 12. Economic Performance. The ex-post EIRR is 17 percent, higher than the appraisal estimate of 14 percent, indicating the strong economic viability of the project. 13. Bank Performance. Bank performance from project preparation through completion was satisfactory. The project was well appraised and risk assessments were realistic. The Bank supervised the project on a regular basis, and caused SPEPB to revise the project cost and implementation schedule from time to time based on actual situation. The Bank also cautioned SPEPB about delays in the implementation of project components in early stages, which ensured that the project was completed in a timely manner. The Bank maintained good relations with the borrower, the beneficiary, the implementing agency as well as the consultants. - iv - 14. Borrower performance. Borrower performance was satisfactory. SPEPB and other relevant Chinese agencies have shown a strong commitment to fully implement the project on schedule, at high quality and within budget. Various parties involved cooperated closely to address problems encountered. Special task forces were set up in connection with all major aspects of the project implementation such as procurement, quality control, budget control, environmental control, safety, training, commissioning and commercial operation preparation. They carefully studied lessons and experiences learned from similar 600 MW units in both domestic and abroad thus prepared themselves very well. They also paid great attention to training of their managers, engineers and operators. As a result of all above, the two units were started and operated successfully with all performance indicators achieved. 15. Both SPEPB's and SIPDC's financial performance has been satisfactory throughout the period of project implementation. They were in compliance with their respective financial covenants with one exception: SPEPB's debt service coverage ratio for 1996 and 1997 (about 1.2 times) was lower than the minimum required 1.4 times due to high debt service requirements in these two years. 16. Project Outcome. The project outcome is rated satisfactory. The main development objectives were successfully achieved. The two generating units and the transmission facilities financed under project were completed on schedule and have been under satisfactory operation and maintenance. The studies on air pollution and tariff reform were completed satisfactorily. The training program surpassed the appraisal targets. The tariff reform action plan has been implemented with delays but substantial progress has been made in rationalizing the tariff structure in the province. Summary of Findings, Future Operations, and Key Lessons Learned 17. The project was successfully completed and is sustainable. It is expected that the Zouxian Thermal Power Plant will continue to be managed and operated efficiently and effectively given the excellent operation performance it has already achieved and in view of the institutional building-up in the course of the project implementation. The agreed performance indicators are included in Table 6 of Part II, which set targets for future operation in terms of plant utilization, efficiency and environmental protection. 18. Key lessons learned from the project include: (a) the satisfactory implementation of the project has provided another example that strong implementing agencies and their ownership and commitment are key factors to a project's success; (b) procurement packages should be carefully determined to minimize the amount of interfacing work during implementation; (c) international consulting services are necessary but should be carefully defined according to the actual needs and with flexibility; and (d) more attention and guidance should be given by the Bank to policy related issues such as tariff reform, especially at the initial stages, to ensure timely implementation of policy reforms in line with the agreed framework. CHINA ZOUXIAN THERMAL POWER PROJECT (LOAN 3462-CHA) PART I. PROJECT IMPLEMENTATION ASSESSMENT A. STATEMENT/EVALUATION OF OBJECTIVES Background 1. The Zouxian Thermal Power Plant is located about 175 km south of Jinan, the capital city of Shandong Province. Shandong is one of the most populous and fastest growing provinces in China. At the time of project identification and appraisal, there was an acute shortage of power supply in the province. The expansion of generating capacity in Shandong is virtually entirely based on thermal power stations as it is short of hydroelectric resources. 2. The main objectives of the Project were to: (a) alleviate the acute power shortage in Shandong and meet the province's projected power demand by 1997; (b) support national policies for developing large mine-mouth thermal power generating units to make effective use of China's abundant coal resources; (c) continue efforts to introduce modern technology in plant design and project management for 600 MW thermal power units; (d) provide technical assistance to strengthen Shandong Provincial Electric Power Bureau (SPEPB)'s environmental planning for thermal power stations and to restructure power tariffs; and (e) upgrade SPEPB's capabilities in financial management and in the operation and maintenance of thermal power plants. 3. To meet the above objectives, the project consisted of the following components: (a) the expansion of the existing Zouxian coal-fired thermal plant, by the addition of two generating units of 600 MW each to reach an ultimate capacity of 2,400 MW; (b) construction of associated 500kV and 220kV transmission lines and substations to feed power into the grid; (c) construction management and provision of consulting services for equipment procurement, coordination and interfacing of engineering and design of different power plant islands, and review of suppliers' drawings; -2- (d) provision of technical assistance for a study on air pollution control for coal-fired power plant development in the coastal areas of China; (e) preparation of a tariff study and implementation of a phased, time-bound action plan for improving the structuring of power tariff in the Shandong power grid; (f) training program; and (g) a monitoring program for environmental protection. 4. The objectives remained unchanged for the duration of the project. They were clearly stated, for the most part, realistic, and consistent with the Government's strategy to build coal-fired thermal power plant at mine-mouth for efficient deployment of generation capacity and the Bank's county assistance goals regarding introduction of appropriate modem technology, staff training, tariff reform, environmental protection and modem utility management. B. ACHIEVEMENT OF OBJECTIVES 5. Alleviation of Power Shortages. The two coal-fired 600 MW units (Units #5 and #6) financed under the project commenced commercial operation in January and November 1997 respectively. The construction of the associated transmission lines and substations was completed in the same year or earlier. By the end of 1998, the two units have generated 9,709 GWh of electricity, which has made a valuable contribution to the alleviation of the acute power shortage in Shandong Province. Since the first half of 1998, power supply in Shandong has, for the first time ever, satisfied the demand. Therefore, the main objective of the project to alleviate power shortage has been successfully achieved. 6. Development of large mine-mouth thermal power plant and introduction of modern technology. The two units, with unit capacity (600MW) among the largest in China, and with modem technology and management practice introduced, were both completed basically in line with the SAR schedule or over one year ahead of the schedule set by the Chinese authorities. Unit #5 passed all inspections and was accepted by the State Power Corporation (SPC), the top authority in China for power sector operation, shortly after trial operation; it became the first 600 MW unit in China meeting the highest level national standards and performance indicators upon commercial operation. Because of the success of Unit #5, Unit #6 was granted exemption from state level inspection. Both Units were awarded as outstanding projects by SPC. In addition, the two units were manufactured by a joint venture of a foreign supplier and a local manufacturer with the foreign supplier taking full responsibility for quality and performance guarantee. This arrangement has certainly facilitated technology transfer and promoted development of local manufacturing capacities for 600 MW units, as evidenced by the high quality of the two units under the project and the enhanced manufacturing capabilities of the local -3- partner. In view of the above and the fact that the power plant is on average 15 km away from its source of coal supply, the Yanzhou Coal Mine, the associated project objectives of supporting national policies for developing large mine-mouth thermal power generating units to make effective use of China's abundant coal resources and continuing efforts to introduce modern technology in plant design and project management for 600 MW thermal power units have also been achieved. 7. Environmental Impact. The new generating Units #5 and #6 are equipped with efficient environmental protection facilities. The ESPs reached efficiencies of 99.6 percent for both units, meeting the designed target. The ESP efficiencies for all four of the older units have also reached 99.6 percent. 8. In addition, advanced equipment and instruments are installed to monitor air quality, water quality and noise levels. Upon completion of the two units, Shandong Provincial Environmental Protection Bureau inspected all the environmental related facilities and also monitored the environmental situation in the plant and surrounding areas. The inspection and monitoring results indicated that all the Chinese standards were met and the Bank Guidelines were generally adhered to. The measurement records of past years also show that the air and water quality meet the Chinese national standards, except that the noise levels in a few spots exceed the standards by a small margin due to noise produced by the water cooling tower. As no residents are located in the nearby area, the slightly higher noise levels have not caused adverse environmental impact. 9. Improvement of Tariff Structure. A tariff study was completed for SPEPB by a national research institute in 1994. As a result of the study, a six-year tariff reform action plan was developed and agreed between SPEPB and the Bank. The action plan consisted of three phases, namely: (a) adopting time-of-day tariffs for all eligible consumers during 1995 and 1997; (b) further increasing basic tariffs during 1998 and 1999; and (c) abolishing the traditional consumer classification and adopting new classification based on voltage levels in 2000 and thereafter. 10. Notwithstanding some delays in implementation, the tariff reform action plan played a catalyst role in the tariff reforms in Shandong Province as well as in other parts of China'. The tariff reforms implemented so far has resulted in substantial improvements in Shandong's tariff structure: (a) unified tariff 2 has been applied to all the consumers in the province; (b) time-of-day pricing was introduced in 1994 after approval of the state authorities. As of 1996, all the eligible consumers (who have the potential to benefit from load management) in the province have been charged the time-of-day Largely due to the Bank focus on tariff reforms under the Zouxian Thermal Power Project as well as other Bank financed power projects, the tariff reform has become a primary objective of the central Government agencies in charge of power sector regulation. 2 Unified tariff means all consumers in the province under the same consumer category pay the same price for kWh consumed. -4- tariffs'; and (c) average tariff level has been substantially increased while subsidies to the traditionally heavily subsidized consumers (such as residential and agricultural) have been greatly reduced. It is expected that the subsidies to residential consumers would be fully removed in 2000. 11. The average tariff excluding VAT was increased to 37.7 fen/kWh in 1997 (1998 tariff maintained the same level), which was 14.7 percent higher than the 1996 level or 45.7 percent higher than the 1992 level. While it is likely that the average tariff in 1999 would be maintained at the same level of 1998, the tariff structure would be further adjusted with focus on increase of the residential tariff towards full removal of the subsidies. 12. Notwithstanding the above, there were deviations in the implementation of the tariff reform action plan, such as: (a) to increase the kV or kVA charges (reduce the kWh charges if necessary) to reflect relative capacity costs and energy costs; in fact, the kWh charges were increased substantially, while the kV charges were kept unchanged, which further distorted the tariff structure; and (b) to increase the difference in tariffs between high and medium voltage to reflect network costs and energy losses; instead, the tariff structure continued to be mainly based on consumer categories rather than on supply cost. 13. Improvement of SPEPB's Performance. A special study on air pollution control for coal-fired power plant development in the coastal areas of China was conducted by Nanjing Environmental Protection Research Institute (NEPRI). This study successfully met all of its objectives in: (a) establishing criteria for power plant siting in China's coastal areas based upon air quality impacts; (b) establishing NEPRI as a center for excellence in air quality modeling (physical and mathematical) as well as in testing and evaluation of flue gas desulfurization schemes. 14. SPEPB management honored their environmental commitments in a professional manner. In recent years, they have taken various actions and achieved good results: (a) in connection with air pollution control, large scale investment was made to renovate outdated boilers by replacing the old precipitators with high efficient electrostatic precipitators (ESPs). In the meantime, two old thermal power plants were closed. As a result, though coal consumption in 1998 by all coal-fired power plants belonging to SPEPB increased by 7.8 percent compared to that in 1995, the corresponding flue gas ash volume decreased by 25.4 percent (or 6.8 tons); (b) regarding waste water control, all power plants have met the waste water discharge standards since 1997; in addition, waste water recycling facilities were installed in many plants and some plants even achieved "zero discharge", leading to substantial benefits from water savings; and (c) on-going R&D in flue gas desulfurization technology may also eventually result in environmental benefits. Time-of-day is divided into three periods: peak, shoulder and off peak. The price for the peak period is 1.5 times of that for the shoulder period, while the price for the off peak period is 0.5 times of that for the shoulder period. -5- 15. In line with the project design, training programs were carried out both in China and abroad with emphasis on training of high level staff in utility management and financial planning. Technical staff members were also extensively trained to further enhance SPEPB's traditionally sound technical performance. Training programs were also provided for technical school teachers and environmental staff. The amount of training that actually took place greatly surpassed the SAR targets. While it is difficult to quantify the impacts of the training programs on the SPEPB's performance, there are encouraging signs that SPEPB is benefiting from them. The Bank has noticed an increasing awareness of the importance of efficiency and customer services among SPEPB's management and staff. The borrower's own evaluation report explicitly acknowledged that "it is the training that guaranteed the successful startup and trial operation of the two units" (see the "Evaluation Report of Zouxian Thermal Power Project from the Borrower" in Annex B). C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT 16. Implementation Organization. The project was implemented during a period in which the power sector in China has undergone substantial reforms, most of which are in line with the recommendations made by the Bank. The reforms also affected the institutional environment in which the project is embedded. SPEPB, the beneficiary of the project and also the implementing agency, was a state-owned enterprise and vertically integrated (generation, transmission and distribution) provincial power utility. SPEPB was also assigned with sector regulatory function in the province. In the course of project implementation, Shandong Electric Power Group Corporation (SEPGC) was formed from SPEPB as a part of sector reform - separation of commercial enterprise from government function. In 1997, the ownership of Zouxian Thermal Power Plant was transferred to the Shandong International Power Development Corporation (SIPDC)4, a limited liability company set up in 1994 to mainly engage in power generation. While SPEPB holds majority of SIPDC's shares, the company is now also listed on the Hong Kong stock exchange. 17. Other main players in the project implementation included: the Northwest China Electric Power Design Institute conducted the design and engineering work; Shandong No. 1 Electric Power Construction Company undertook the construction work; Shandong Electric Power Research and Commissioning Institute carried out the work of commissioning and trial operation; and China National Technology Import & Export Corporation was the main procurement agency. In addition, two firms (one foreign and one local) provided consulting services. 4 The asset transfer was done with the Bank's concurrence. The legal agreements under the project were amended accordingly. -6- 18. Implementation Schedule. The issuance of bidding documents for the major equipment started in March 1992 and the contracts were signed in February 1993. The construction work for both units was commenced in November 1993 and completed in October 1996. The trial operation started on November 14, 1996 for Unit #5 and on October 1, 1997 for Unit #6, while commercial operation commenced on January 17, 1997 for Unit #5 and on November 5, 1997 for Unit #6. 19. Compared to the SAR schedule, the commercial operation of Unit #5 started half a month later, while Unit #6 started commercial operation almost two months earlier. Compared to the schedule set by the Chinese authorities, the commercial operation for Units #5 and #6 started one year and one and a half years earlier respectively. 20. In addition to the two power generating units, the following transmission facilities were also constructed under the project: 260 km of 500 kV transmission lines; 521.6 km of 220 kV transmission lines; extension of one existing substation by adding one 500 MVA transformer; one new 500kV substation (750 MVA); and seven new substations and five substation extensions with total incremental capacity of 1,800 MVA. The reinforced transmission facilities either met or surpassed the SAR targets (Table 5). 21. Procurement. As shown in the table below, the project included 76 procurement contracts for equipment and materials financed under the Bank loan, of which 29 were awarded through international competitive bidding (ICB), 30 through limited international bidding (LIB) and 17 through international shopping. The total amount of ICB procurement contracts was US$294.3 million, accounting for 98.1 percent of total, while the amount of LIB and shopping contracts was US$5.7 million, accounting for only 1.9 percent of the total contract value. Procurement was carried out in accordance with the Bank procurement guidelines as required under the legal agreements. Method Number of Contracts Contract Value (US$ m) Number Percent Amount Percent ICB 29 38.1 294.3 98.1 LIB 30 39.5 4.1 1.4 Shopping 17 22.4 1.6 0.5 Total 76 100.0 300.0 100.0 22. Consulting Services and Training. Out of the Bank loan, an amount of US$1.9 million was spent on consulting services and training. Consulting services were provided for: (a) engineering work, construction and implementation management; and (b) studies on tariff reform and air pollution controls. Overall, the consultants fulfilled their terms of reference and SPEPB was generally satisfactory with their performance and final products. However, according to the implementing agencies, the foreign consultants did not provide as much assistance as expected in project construction and commissioning due to their insufficient experience in this area. The tariff reform action plan developed as -7- a part of the tariff studies was subsequently approved by the Chinese authorities and has been implemented satisfactorily despite initial delays. The air pollution control study achieved its main objective with established criteria for power plant siting in China's coastal areas based upon air quality impacts. 23. The training program focused on power utility management, financial planning and management information systems, and technical and environmental related areas. Training took place in both China and abroad. About 206 persons (7,803 person-days) received training in the UK, Switzerland, Hong Kong, the USA, Japan and Australia. In addition, about 312 technicians (22,701 person-days) received training in various training centers, universities and power plants in China. The actual training conducted greatly surpassed the SAR targets. 24. Project Cost (excluding interest during construction). The project appraisal estimated a total project cost at US$795.0 million including US$373.5 million foreign cost and Yuan 2,418.5 million (US$421.5 million equivalent at the exchange rate of appraisal) local cost. The actual cost was US$816.7 million including US$302.2 million foreign cost and Yuan 4,270.4 million (US$514.5 million equivalent based on the average actual exchange rate) local cost. There is an overall cost overrun by about 2.7 percent when expressed in US dollar terms. Despite a foreign cost saving of 19.1 percent, the local cost (expressed in local currency) increased by almost 76.6 percent. The major factors contributed to the cost change include: (a) depreciation of the local currency: the exchange rate used at appraisal was 5.38 Yuan/US$, but the actual exchange rate during project implementation period was on average 8.30 Yuan/US$; (b) local cost increase due to much higher-than-expected local inflation rates '; and (c) import duty and taxes: the appraisal assumed full exemption from import duties and taxes, but import duties and value-added-tax were actually paid during project construction as a result of new Government tax regulations. 25. At the Bank's suggestion, the project cost estimates were updated from time to time during the period of project implementation in accordance with the situation changes as mentioned above. 26. Loan Disbursement. The loan disbursement was slower than estimated in the initial years and caught up in the last few years of project implementation. A comparison of the estimated loan disbursement schedule at appraisal with the actual disbursements is given in Table 4 (Part II). Out of the total loan amount of US$310.0 million, US$302.9 million, or 97.7 percent of total, was disbursed. The last disbursement was made on November 12, 1999. The undisbursed balance of US$9.0 million has been canceled. The closing date of the loan was June 30, 1999 as originally scheduled. The local inflation rate increased from about 7 percent per annum in 1992 to values ranging between 15 percent and 24 percent per annum during period of 1993 and 1995. Project appraisal assumed a local inflation rate of 8 percent for 1992 and 5 percent for 1993 and thereafter. -8- 27. Technical Problems. There were no major problems during the entire period of project implementation. Nevertheless, some technical problems were encountered during the commissioning period such as difficulties with control of boiler water level, bypass breakdown, and outlet pressure fluctuation of water supply pump. These problems, some due to equipment supplier's fault and some caused by inadequate materials or components, were solved and did not jeopardize the quality of the project as a whole. 28. Interfacing Issues. The many procurement packages both for domestic and foreign supply of goods caused problems of interfacing management. As a result, it took much longer time than expected to finalize the engineering. In particular, interfacing management between I & C packages and other main and auxiliary plant equipment required a great amount of information exchange to finalize the associated engineering and construction drawings. 29. Economic Performance. At appraisal, an economic internal rate of return (EIRR) was estimated at 14 percent. The ex-post estimate is 17 percent, higher than the appraisal estimate', indicating that the project is feasible from the overall economic point of view. Detailed calculation is included in Annex C. 30. Financial Performance. Comparative financial statements containing the appraisal projections and the actual data of SPEPB for the period of project implementation (1992 through 1998), as well as SIPDC's financial performance summary since its founding in 1994 are included in Annex D. 31. Throughout the period of project implementation, SPEPB's financial performance has been satisfactory. In 1998, though SPEPB's energy sales (64,850 GWh) decreased slightly by 1.3 percent compared to the 1997 sales level, its operating revenue increased by 5.8 percent due to increase of average tariff and the net income increased by 138.7 percent largely because of a substantial increase of non-operating income. From 1992 to 1998, SPEPB's energy sales increased by 46.6 percent (equivalent to an average annual growth rate of 8 percent); the operating revenue almost quadrupled while the net profit almost doubled. 32. Three financial covenants were included in the Legal Agreements, namely: SPEPB should (a) maintain a self-financing ratio (SFR) of not less than 25 percent for 1992 and 1993 and 30 percent thereafter; (b) debt service coverage ratio of at least 1.4 times; and (c) debt to equity ratio of not more than 75 to 25 for 1992 through 1996 and 70 to 30 thereafter. Over the course of project implementation, SPEPB has been in compliance with all these covenants except in 1996 and 1997, the debt service coverage 6 The higher-than-expected EIRR was a result of several factors. Compared to the SAR estimates, the ex-post costs (especially the fuel cost) increased substantially, and the energy sales decreased. However, the sales benefits increased even more substantially due to much-higher-than-expected sales prices. -9- ratio was only 1.18 and 1.21 times respectively due to high debt service requirements.' In 1998, SPEPB achieved a SFR of 86.7 percent, much higher than the covenanted 30 percent; the debt service coverage ratio was 2.6 times, meeting the minimum requirement of 1.4 times; and the debt to equity ratio was 41 to 59, satisfying the maximum limit of 70 to 30. 33. The Bank loan was initially on-lent to SPEPB and was transferred to SIPDC in 1997, when the original legal agreements were amended and two financial covenants were introduced for SIPDC, namely: (a) debt service coverage ratio shall be at least 1.5 times; and (b) debt to equity ratio shall not be greater than 70 to 30 for 1997 through 1999, and 60 to 40 thereafter. SIPDC, the new owner of Zouxian Thermal Power Plant, has recorded satisfactory financial results since its founding in 1994. From 1995 to 1998, SIPDC's energy sales have increased by an average 15 percent annually, and its net profit has increased by an average 37 percent annually. It has been in compliance with all the above mentioned financial covenants. 34. Since its establishment in mid 1994, SIPDC has tried several times to be listed on the Hong Kong stock exchange. However, due to various reasons including domestic macro adjustment, tariff issues and financial crisis in the East Asia region, the first few attempts did not go through. SIPDC's initial public offering (IPO) was finally successful on June 30, 1999. As of end July 1999, more than 1.43 trillion shares were issued on the Hong Kong market (at HK$1.58 per share). It is expected that the successful IPO will further strengthen SIPDC's financial position and performance. 35. Environment Impact. The project was designed to meet environmental standards as set out in Chinese regulations and the Bank guidelines and to provide for constant monitoring of the discharge, ambient and ash disposal areas. According to a recent Bank study on Environmental Performance of Bank-Financed Thermal Power Plants in China (August 1999 draft report), all the environmental related activities included in the SAR (special studies, training, purchase of monitoring equipment, and monitoring programs) have been completed, either met or exceeded the SAR requirements. Zouxian Thermal Power Plant honored its environmental commitments and obligations seriously. Although coal purchase policies in China have changed since the time the project was designed, the plant has managed to maintain actual purchase of 0.5 percent sulfur coal as required in the SAR. Annual average sulfur dioxide emission rates are estimated at 4.45 tons/hour, which is in excellent agreement with the SAR projection of 4.8 tons/hour. Ash sluice waters were to be entirely recirculated, but it turned out that a small amount (about 10 M3/day) is discharged. However, this has not resulted in adverse impacts. Constant and regular monitoring has been undertaken at stations and environmental vehicles by professional staff either from the Plant or from relevant Government authorities; and measurement records indicate that the Plant has met the Chinese environmental standards and Bank guidelines, except for the noise levels in SPEPB's debt service obligations reached peak period in 199611997 and then started to decrease in 1998. - 10- certain spots as noted above (para. 8). 36. Land Acquisition and Resettlement. The Bank-financed project was the third phase of Zouxian Thermal Power Plant. The required land was already available long before this expansion, thus neither land acquisition nor resettlement of people were needed in association with this expansion. 37. Concerning the transmission component, at the time of project appraisal it was estimated that about 200 houses would be required to be relocated. However, the transmission lines were rerouted during project implementation such that no relocation of houses and no resettlement of people were needed. Land use during construction was compensated according to the local policies and regulations. 38. Project Risks. At the appraisal, no major risks were expected to affect the project given the following factors: (a) the project was an extension of the existing power plant, land was already available and field conditions were well known; (b) the project was designed to meet the Chinese environmental standards and the Bank guidelines; an environmental program was included to further reduce the possibility of developing any adverse environmental impact; (c) the technical soundness and economic feasibility of the project were well established, and the project was to be implemented by SPEPB staff with extensive experience in power field; and (d) consultants, both local and foreign, were to be hired to assist in engineering and design, procurement, coordination and supervision of the project. 39. The above assessments were thorough and realistic. Overall it turned out to be the case. However, a few factors, although they did not greatly affect the project, should be noted: (a) much higher-than-expected local inflation during the project implementation resulted in much higher-than-estimated local cost, though the total project cost maintained basically at the SAR estimated level due to lower-than-estimated foreign cost resulting from international competitive bidding; and (b) there was a shortage of local counterpart funds in 1995, which resulted in delays in delivery of domestic equipment and finalization of construction drawings; nevertheless, the commercial operation of the two generating units still met the SAR targeted schedules. D. PROJECT SUSTAINABILITY 40. The project is sustainable. On the physical side, the annual output will be maintained at the contracted levels and the current power purchase price should enable the power plant to cover its costs and make reasonable profits. Efficient operation and maintenance of the power plant and transmission facilities can be expected given SPEPB's strong technical capabilities, past records and the training provided under the project. Both the power plant and the main transmission facility, Zibo 500kV Substation, have been awarded as outstanding projects by Chinese authorities. In fact, they have - 11 - become "best practice" models in China and attracted many people in the power sector to come for inspections and for training. For example, as of end 1998, Zibo 500kV Substation had received about 3,700 visitors. Furthermore, Zibo substation has only 13 staff, less than half of the 31 staffing target set by national authorities, which not only enables the substation to be operated more efficiently but also much more cost effectively. 41. On the technical assistance side, necessary follow-up actions have been taken after completion of the two studies. The criteria and methodologies established under the air pollution control study have been utilized for power plant siting in China's coastal areas based upon air quality impacts. The tariff reform action plan has been under implementation despite initial delays and has achieved good results (paras. 9-12). E. BANK PERFORMANCE 42. Bank performance from project preparation through completion was satisfactory. The Bank maintained good relations with the borrower, the beneficiary, the implementing agency as well as the consultants. The project was well appraised and risk assessments were realistic. The Bank supervised the project and monitored the progress on a regular basis and fielded 7 missions (including the ICR mission) during the project implementation period. As reflected in the supervision missions' aide memoires, the Bank reviewed in details the project implementation status and provided assistance as well as recommendations to SPEPB and other agencies concerning all aspects of the project. The Bank caused SPEPB to revise the project cost and implementation schedule from time to time based on actual situation and also cautioned SPEPB about delays in the implementation of project components in early stages, which ensured that the project was completed in a timely manner. 43. The borrower was satisfied with the Bank's performance. Borrower's own evaluation report (Annex B) states that "the World Bank was concerned much about Zouxian Phase III Project all the time and gave it great support and assistance. Every year they sent the mission to Zouxian site for supervision and inspection. As a result, all the given instructions promoted the project management, and our work at all aspects made us understand the management mode of the World Bank and accelerated the process to move towards the international standards." F. BORROWER PERFORMANCE 44. Borrower performance was satisfactory. SPEPB and other relevant Chinese agencies have shown a strong commitment to fully implement the project on schedule, at high quality and within budget. Various parties involved cooperated closely to address problems encountered. Special task forces were set up in connection with all major aspects of the project implementation such as procurement, quality control, budget - 12 - control, environmental control, safety, training, commissioning and commercial operation preparation. They carefully studied lessons and experiences learned from similar 600 MW units in both domestic and abroad thus prepared themselves very well. They also paid great attention to training of their managers, engineers and operators. As a result of all above, the two units were started and operated successfully with all performance indicators achieved. 45. Furthermore, implementing agencies also showed strong ownership of and commitment to the studies included under the project. The two studies were successfully completed. Implementation of the tariff reform action plan, despite initial delays, has been generally satisfactory. SPEPB has committed to continue the tariff reforms in line with the framework agreed with the Bank. G. ASSESSMENT OF OUTCOME 46. The project outcome is rated highly satisfactory. The main objectives were successfully achieved. The two generating units and the transmission facilities financed under the project have been under satisfactory operation and maintenance. The beneficiaries have shown a strong sense of ownership, commitment and capabilities which will ensure continued satisfactory performance of the power plant and transmission facilities. 47. The ex-post EIRR is 17 percent, higher than the appraisal estimate of 14 percent, indicating sound economic viability of the project. H. FUTURE OPERATIONS 48. It is expected that the Zouxian Thermal Power Plant will continue to be managed and operated efficiently and effectively given the excellent operation performance it has already achieved and in view of the institutional building-up in the course of the project implementation. SIPDC, the new owner of the power plant, successfully launched its IPO recently on Hong Kong market, which should further strengthen its financial position and management. SPEPB, the major share holder of SIPDC, should always be available to provide any assistance to SIPDC and Zouxian Thermal Power Plant if necessary. 49. The performance indicators for future operation were discussed with SIPDC during the ICR mission. The agreed performance indicators are included in Table 6 of Part II, which set targets for future operation in terms of plant utilization, efficiency and environmental protection. - 13 - I. KEY LESSONS LEARNED 50. Several specific key lessons, which have operational and strategic implications for the design of future power sector projects, can be drawn from this project. These are summarized as follows: (a) The satisfactory implementation of the project has provided another example that strong implementing agencies and their ownership and commitment are key factors to a project's success. (b) Procurement packages should be carefully determined to minimize the amount of interfacing work during implementation. (c) International consulting services are necessary but should be carefully defined according to the actual needs and with flexibility. According to the implementing agencies, the foreign consultants selected under the project were well experienced with procurement related issues but did not meet the expectations in areas of engineering, construction and commissioning. However, it did not affect the project implementation adversely thanks to the strong technical capabilities of the implementing agencies. (d) More attention and guidance should be given by the Bank to policy related issues such as tariff reform, especially at the initial stages, to ensure timely implementation of policy reforms in line with the agreed framework. - 14- IMPLEMENTATION COMPLETION REPORT CHINA ZOUXIAN THERMAL PWOER PROJECT (LOAN 3462-CHA) PART H. STATISTICAL TABLES Table 1: Summary of Assessment Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual Table 5: Key Indicators for Project Implementation Table 6: Key Indicators for Project Operation Table 7: Studies Included in Project Table 8A: Project Costs (Yuan million) Table 8B: Project Costs (US$ million) Table 8C: Project Financing Table 9: Economic Costs and Benefits Table 10: Status of Legal Covenants Table 11: Compliance with Operational Manual Statements Table 12: Bank Resources: Staff Inputs Table 13: Bank Resources: Missions - 15- Table 1: Summary of Assessments A. Achievement of Objectives Substantial Partial Negligible Not aplicable Macro Policies O3 O Ol Sector Policies El E El Financial Objectives E Institutional Development Physical Objectives El Poverty Reduction R Gender Issues M Other Social Objectives M Environmental Objectives El Public Sector Management Private Sector Development EJ Other (specify) El [J El1 B. Project Sustainability Likely Unlikely Uncertain Highly C. Bank Performance satisfactory Satisfactory Deficient Identification Preparation Assistance Appraisal Supervision Highly D. Borrower Performance satisfactory Satisfactory Deficient Preparation Implementation - Physical - Institutional Covenant Compliance El Operation (if applicable) ElE High y_ Highly E. Assessment of Outcome satisfactory Satisfactory Unsatisfactory unsatisfactory O I El El - 16- Table 2: Related Bank Loans/Credits Loan No. Purpose Year of Status approval Preceding operations Ln. 2382-CHA To construct a rockfill dam, a spillway, an underground 02/21/84 Loan closed on Lubuge powerhouse, to install 4 generating units of 150 MW 06/30/92. Hydroelectric each, 3 single circuits of 220 kV transmission lines; to Project provide consultant services and a training program. Ln. 2493-CHA To construct a 500 kV transmission line from Xuzhou to 02/19/85 Loan closed on Second Power Shanghai and 5 associated substations totaling 3,500 06/30/92. Project 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 thermal power project with two 05/29/86 & First loan closed Ln. 2955-CHA units of 600 MW and two single circuit of 500 kV 06/14/88 06/30/94. Beilungang transmission lines, and to carry out a tariff study, a study Second loan Thermal Power on ZPEPB reorganization and management closed 06/30/95. Projects I and II 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 gravity dam, a 05/29/86 Loan closed on Yantan spillway, a powerhouse, and a shiplift; to install 4 06/30/94. Hydroelectric generating units of 275 MW each, 2 single circuits of Project 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 gravity dam, a 01/06/87 Loan closed on Shuikou spillway, a powerhouse and a navigation lock; to install 6/30/93. Hydroelectric 7 generating units of 200 MW each; to carry out a Project resettlement program in the reservoir. Ln. 3515-CHA To complete the ongoing Shuikou dam and 09/01/92 Loan closed on Second Shuikou hydroelectric power plan, upgrade the control and data 6/30/98. Hydroelectric acquisition system of the Fujian grid, carry out an action Current ICR.. Project plan for tariff reform, and a training program for planning and financial management. Ln. 3387-CHA & To construct a 240 m high arch dam with an 07/02/91 Implementation Ln. 3933-CHA underground powerhouse, to install 6 550-MW and under way. Ertan Hydroelectric generating units and associated equipment; to carry out 08/22/95 First loan closed Projects I & II an environmental management program, studies of 12/31/96. power pricing and reservoir operation, and a training Closing date of program. second loan 12/31/2001 - 17- Table 2: Related Bank Loans/Credits (cont'd) Loan No. Purpose Year of Status approval Cr. 2305-CHA & To construct a 56 m high gravity dam and an 10/31/91 Closed Ln. 3412-CHA underground powerhouse with 4 x 60 MW generating 12/31/98. Daguangba units; to erect a 36 km long double-circuit 220 kV Multipurpose transmission line and to build canals to irrigate 12,700 Project ha of land. Ln. 3433-CHA To install 2 300-MW generating units and 5 220-kV 01/14/92 Closed Yanshi Thermal transmission lines and associated substations; to carry 12/31/97. Power Project out a tariff study, a tariff action plan, and a training program for upgrading the technical, financial and management skills for HPEPB staff. Following operations Ln. 3606-CHA To construct a pumped-storage hydroelectric power 05/18/93 Implementat Tianhuangping plant with six 300 MW reversible pump-turbine units, ion under Hydroelectric together with upper and lower reservoirs, a water way. Project conveyance system, an underground powerhouse; to Closing date erect 250 km long 500 kV transmission lines; to carry 12/31/2001. out studies of optimal power plant operation and its output pricing; and to strengthen the beneficiary's organization through technical assistance and training. Ln. 371 8-CHA To construct a coal-fired thermal power plant with two 03/22/94 Implementat Yangzhou Thermal 600 MW generating units; to erect two 500 kV trans- ion under Power Project mission lines (30 km long); to extend technical way. assistance for the development and implementation of Closing date improved accounting and financial management 12/31/2000. information systems; and undertake management development and staff training. Ln. 3848-CHA To construct a new 500 kV transmission network 02/28/95 Implementat Sichuan consisting of 2,260 kmn of transmission lines and 5,250 ion under Transmission MVA of substations; provide technical assistance for way. Project implementation of sector reform plan, organizational Closing date improvements and fiancial management systems. 12/31/2001. Ln. 3846-CHA To construct Beilungang Phase 50 power plant consisting 02/28/95 Implementat Zhejiang Power of three 600 MW coal-fired units; to construct 400 ion under Development circuit-kin of 500 kV transmission lines, 2,250 MVA of way. Project 500 kV substations and reinforce distribution networks Closing date in Hangzhou and Ningbo; to extend technical assistance 12/31/2002. to assist the power company in commercialization and corporatization, establish computerized financial management information system, improve transmission and distribution planning and upgrade environmental monitoring. - 18- Table 2: Related Bank Loans/Credits (cont'd) Loan No. Purpose Year of Status approval Li. 3980-CHA To construct two 600 MW coal-fired thermal power 2/27/96 Canceled Henan (Qinbei) units; to erect two 165 km 500 kV transmission lines; to 12/12/97 Thermal Power assist HPEPB in engineering, procurement and without Project construction supervision; and to extend technical disbursement. assistance to support the implementation of the power sector reform action plan. Ln. 41 72-C HA To construct the first two coal-fired 600 MW units in 05/27/97 Implementation Tuoketuo Thermal Inner Mongolia Autonomous Region; to implement a underway. Power Project desertification control and dryland management Closing date program: to assist TEPGC with the introduction; of 7/31/2004. modern accounting and financial management systems, environmental management, operation and maintenance of the power plant and involvement of private investors in existing and new power projects in Inner Mongolia. To construct two 220 kV indoor substations in Beijing: to add a 250 MVA transformer to Wangfujing substation in Beijing; and to assist NCPGC to implement accounting and financial management systems. Ln. 4197-CHA To construct two 900-1000 MW coal-fired supercritical 06/24/97 Implementation Waigaoqiao units; to install FGD facilities at Shidongkou Power underway. Thermal power Plant to offset SO2 emissions from the project; to Closing Project construct two 500 kV transmission lines; to assist date1/31/2006. SMEPC to implement modern accounting and financial management systems, promote efficient management and power sector reforms including financial and corporate restructuring of the generation company. Ln. 4303-CHA To alleviate critical bottlenecks in power transmission 03/26/98 Implementation East China infrastructure and increasing electricity trade on a underway. (Jiangsu) Power commercial basis in the East China region by (a) the Closing date Transmission construction of 500 kV transmission lines and 09/30/2004. Project substations; (b) implementation assistance for engineering and construction management; (c) technical assistance for improved interprovincial power exchange policies and procedures; (d) technical assistance for improved accounting and financial management systems; and (e) institutional development and training. - 19- Table 2: Related Bank Loans/Credits (cont'd) Loan No. Purpose Year of Status approval Ln. 4304-CHA To support the introduction of (a) a market-based 03/26/98 Implementation Energy approach to financing energy conservation investments, underway. Conservation energy performing contracting, which has the potential Closing date Project to overcome some of the major impediments to energy 06/30/2006. conservation in China; and (b) a new energy information program, providing consumers with information on financially attractive energy conservation investments. The project components are: (1) Energy management company demonstration component; (2) Information and dissemination component; and (3) Program management and monitoring component. Ln. 4350-CHA To remedy power shortages in Hunan by providing 06/18/98 Implementation Hunan Power efficient, reliable, and environmentally sound power underway; Development supply. Project components include: (a) development of closing date Project two 300 MW anthracite-fired generating units; (b) 12/31/2004. supply and installation of about 794 km of 220 kV lines and 1,920 MVA of transformer substations capacity; (c) provision of technical assistance for construction management; (d) provision of technical assistance for preparation of commercial power purchase agreements and other relevant documentation; (e) provision of technical assistance for implementation of HEPC's restructuring plan; and (g) provision of technical assistance for improvement of the financial management system. - 20 - Table 3: Project Timetable Steps in Project Cycle Date Planned Date Actual/ Latest Estimate Identification (Executive Project Summary) - 08/15/88 Preparation - 09/16/89 Appraisal - 04/19/90 Negotiations - 03/09/92 Board Presentation - 04/21/92 Signing - 07/22/92 Effectiveness - 10/23/92 Midterm review (if applicable) - - Project Completion 06/30/98 10/20/98 Loan Closing 06/30/99 06/30/99 Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual (US$ million) FY93 FY94 FY95 FY96 FY97 FY98 FY99 Appraisal Estimate 12.9 65.8 158.6 257.5 290.2 305.0 310.0 Actual 0.0 26.8 80.7 207.1 273.6 295.3 301.0 Actual as percent of Estimate 0.0 40.7 50.9 80.4 94.3 96.8 97.1 Date of Final Disbursement December 17, 1999. (The loan account is still open at the time of ICR finalization. An undisbursed balance of about US$ 9.0 million will be canceled upon closure of the loan account.) -21 - Table 5: Key Indicators for Project Implementation A. Power Generation Component Indicators Appraisal Actual Comparison Estimates 1. Procurement (for major equipment) Issuance of bidding documents 12/31/91 03/18/92 + 3 months Contract signing 12/25/92 02/10/93 + 2 months 2. Plant Construction Start excavation 05/01/93 11/25/93 + 6 months Start boiler steel structure erection 05/01/94 09/09/94 + 4 months Hydraulic test of boiler 11/30/95 07/13/96 + 8 months Complete erection of T-G & auxiliaries 03/31/96 09/23/96 + 6 months Acid cleaning of boiler 04/30/96 09/15/96 + 4 months Blow-out of boiler 06/30/96 10/10/96 + 3 months Trial operation Unit #5 07/01/96 11/14/96 + 4 months Unit #6 07/01/97 10/01/97 + 3 months Commercial operation Unit #5 12/31/96 01/17/97 + 0.5 months Unit #6 12/31/97 11/05/97 - 2 months B. Transmission Component Item SAR Targets Actual Construction Number km or MVA Number km or MVA 500kV transmission line 1 258 km 1 260 km 200kV transmission line 9 511 km 9 521.6 km Transformer (Weifang S/S) 1 500 MVA 1 500 MVA New 500kV Substation 1 750 MVA 1 750 MVA New substation 7 1800 MVA 7 1800 MVA Substation extension 5 5 C. Training Program SAR Target Actual No. of Trainees Staff-months No. of trainees Staff-months Training in China 130 247.5 312 756.7 Training abroad 205 540.0 296 364.6 Total 335 787.5 608 1121.3 Note: Training areas included: utility management, management information systems, financial planning, procurement, environmental control, technical. - 22 - Table 6: Key Indicators for Project Operation Key Performance Indicators Benchmark 1997 1998 1999 2000 Utilization and Efficiency Annual Generation (GWh) * Unit #5 3,120 3168 2288 3180 3180 * Unit #6 3,120 438 3506 3180 3180 Annual average utilization hours * Unit #5 5200 5280 3814 5300 5300 * Unit #6 5200 730 5843 5300 5300 Equivalent availability factor (EAF, percent) a/ * Unit #5 76 or 85 86.5 68.5 85.0 85.0 * Unit #6 76 or 85 90.6 85.0 85.0 Standard coal consumption (g/kWh) * Unit#5 351 342 337 336 336 * Unit #6 351 337 336 336 Environmental Protection ESP efficiency (percent) b/ * Unit #5 99.6 99.6 99.6 99.6 99.6 * Unit #6 99.6 99.6 99.6 99.6 99.6 Notes: * Units # 5 and 6 started commercial operation in January and November 1997 respectively; therefore, Unit #6 generation in 1997 was much lower than benchmark; * Unit #5 went through an overhaul and an expanded maintenance in 1998, thus the lower actual performance than benchmarks; * a/ EAF benchmark: 76 percent with overhaul; 85 percent without overhaul. * b/ The other units #1-4 also achieve ESP efficiency of 99.6 percent; * No indicators for project operations were included in SAR/MOP. - 23 - Table 7: Studies Included in Project Purpose as Defined at Impact of Study Appraisal/Redefined Status Study 1. Study on Air To examine the impact Completed The study achieved its Pollution on air quality of and final objectives of: (a) Control operating all thermal report dated establishing criteria for units, and to develop August 1995. power plant siting in China's guidelines and coastal areas based upon air methodologies for quality impacts; (b) minimizing air establishing NEPRI as a pollution from thermal center for excellence in air power plants sited in quality modeling (physical coastal regions. and mathematical) as well as in testing and evaluation of flue gas desulfurization schemes. 2. Tariff Study To review existing Completed A six-year tariff reform pricing, metering and and final action plan was developed, billing arrangements; report dated which played a catalytic role to design a new tariff October in Shandong's tariff reform. structure and analyze 1994. The achievements so far the impact of tariff include: (a) improved tariff options and structure with unified tariff adjustments; and to and time-of-day pricing; (b) select a tariff structure increased tariff levels; and (c) and level to implement reduced cross subsidies under a four-year towards full removal in 2000. action plan. - 24 - Table 8A: Project Costs (Yuan Million) Appraisal Estimate Actual/Latest Estimate Item Local Foreign Total Local Foreign Total Costs Costs Costs Costs Site preparation 45.2 - 45.2 86.3 - 86.3 Civil works 471.8 90.9 562.7 845.8 156.0 1001.8 Plant equipment and materials 778.6 1426.1 2204.7 2433.6 2140.5 4574.1 Transmission system 343.4 131.3 474.7 840.8 196.7 1037.5 Air pollution control study 0.5 4.8 5.3 0.8 7.5 8.3 Training 7.0 11.8 18.8 12.5 7.4 19.9 Tariff action program 0.5 0.5 1.0 0.8 - 0.8 Engineering & construction management 163.0 14.0 177.0 49.8 - 49.8 Base Cost 1810.0 1679.4 3489.4 - - - Physical contingencies 181.0 84.0 265.0 - - - Price contingencies 427.5 480.2 907.7 - - - Total Project Cost 2418.5 2243.6 4662.1 4270.4 2508.1 6778.5 Interest during construction 591.0 282.6 873.6 868.2 274.8 1143.0 Total Financing Required 3009.5 2526.2 5535.7 5138.6 2783.9 7921.5 - 25 - Table 8B: Project Costs (US$ Million) Appraisal Estimate Actual/Latest Estimate Item Local Foreign Total Local Foreign Total Costs Costs Costs Costs Site preparation 8.4 - 8.4 10.4 - 10.4 Civil works 87.7 16.9 104.6 101.9 18.8 120.7 Plant equipment and materials 144.7 265.1 409.8 293.2 257.9 551.1 Transmission system 63.8 24.4 88.2 101.3 23.7 125.0 Air pollution control study 0.1 0.9 1.0 0.1 0.9 1.0 Training 1.3 2.2 3.5 1.5 0.9 2.4 Tariff action program 0.1 0.1 0.2 0.1 - 0.1 Engineering & construction management 30.3 2.6 32.9 6.0 - 6.0 Base Cost 336.4 312.2 648.6 - - - Physical contingencies 33.7 15.6 49.3 - - - Price contingencies 51.4 45.7 97.1 - - - Total Project Cost 421.5 373.5 795.0 514.5 302.2 816.7 Interest during construction 109.9 52.5 162.4 104.6 33.1 137.7 Total Financing Required 531.4 426.0 957.4 619.1 335.3 954.4 Table 8C: Project Financing Appraisal Estimate Actual/Latest (USsM) Estimate(US$M) Source Local Foreign Total Local Foreign Total Costs Costs Costs Costs IBRD - 310.0 310.0 - 302.8 302.8 SEIC/China Development Bank 265.7 0.0 265.7 12.3 - 12.3 China Construction Bank - - - 304.0 - 304.0 Shandong Province/Electric Power Fund 265.7 115.1 380.8 195.1 - 195.1 SIDP - - - 92.0 31.2 123.2 Electric Power Bond - - - 15.7 - 15.7 Japan Grant Facility a/ 0.0 0.9 0.9 - 1.3 1.3 TOTAL 531.4 426.0 957.4 619.1 335.3 954.4 a/ The JGF amount was JPY121.5 million, equivalent to US$0.9 million at the appraisal; due to JPY appreciation, the actual disbursement in US$ terms was US$1.3 million. - 26 - Table 9: Economic Costs and Benefits Appraisal Estimate Ex-post Estimate Internal Economic Rate of Return 14 percent 17 percent (IERR) a/ aJ For detailed calculations, see Annex C. - 27 - Table 10: Status of Legal Covenants Original Revised Agreement Section Covenant Present fulfillment fulfillment Description of covenant Comments type status date date Loan 3.01(c) 3 C GOC should enter into subsidiary loan agreements between GOC and Shandong Province and SPEPB, both under terms satisfactory to the Bank. 4.01(b) 1 C GOC will furnish to the Bank not later than 6 months after the end of each fiscal year the auditor's report. Schedule 5 C GOC and SPEPB shall employ consultants 4, satisfactory to the Bank for project Section implementation. i Project 2.01(a) 5 C SPEPB shall (i) carry out a program of training for the technical, financial and management staff of SPEPB; 11 CD (ii) design and carry out a phased, Implementation of timebound action plan for power tariff tariff action plan is structure improvements and Shandong satisfactory with Power Grid, including a tariff study; delays. 9 C (iii) carry out a monitoring program for environmental protection. 4.01(b) 1 C SPEPB shall furnish audited financial statements within 6 months after the end of each fiscal year. 4.02(a) 2 C SPEPB shall take all measures including adjustment of levels and structure of tariffs as determined by GOC to produce, for each of its fiscal years after its fiscal year ending on December 31, 1992, (i) net operating income equivalent to not less than 25 percent of its average annual investment program for years 1993 and 1994, and (ii) 30 percent thereafter. 4.02(b) 2 CP SPEPB shall not incur any debt unless a Debt service converge reasonable forecast of the revenues and for 1996 was 1.18; expenditures shows that the projected 1.21 for 1997. internal cash generation for each fiscal year during the term of the debt to be incurred shall be at least 1.4 times the estimated debt including the debt to be incurred. 4.02(c) 2 C SPEPB shall not incur any debt, if after the incurrence of such debt the ratio of debt to equity shall be greater than 75 to 25 for 1992-1996, and 70 to 30 thereafter. 4.03 2 C By April 30 of each year, commencing 1993, SPEPB shall prepare and furnish a rolling long term financial plan containing projected financial statements for reach of the next eight fiscal years. - 28 - Covenant types: I. = Accounts/audits 8. = Indigenous people 2. = Financial performance/revenue generation from 9. = Monitoring, review, and reporting beneficiaries 10. = Project implementation not covered by categories 1-9 3. = Flow and utilization of project funds 11. = Sectoral or cross-sectoral budgetary or other resource 4. = Counterpart funding allocation 5. = Management aspects of the project or executing 12. = Sectoral or cross-sectoral policy/ regulatory/institutional agency action 6. = Environmental covenants 13. = Other 7. = Involuntary resettlement Present Status: C = covenant complied with CD = complied with after delay CP = complied with partially NC = not complied with Table 11: Compliance with Operational Manual Statements Statement Number and Title Describe and comment on lack of compliance There are no OMS relevant to the Project that have not been complied with and/or been acted against. Table 12: Bank Resources: Staff Inputs Planned Revised Actual Stage of Project Cycle Weeks US$ Weeks US$ Weeks US$ Preparation to appraisal - - - - 59.3 133,999 Appraisal - - - - 71.3 175,937 Negotiation through Board approval - - - - 10.0 25,854 Supervision - - - - 62.5 147,733 Completion 10.0 42,300 - - 9.5 40,500 TOTAL - - - - 212.6 524,023 - 29 - Table 13: Bank Resources - Missions Performance Rating Stage of Month/ Number Days Specialized Types of Project Cycle Year of in Staff Skills IP DO Problems Persons Field Represented Through Appraisal 09/88 3 4 Power Eng. n/a n/a Fin. Analyst, Economist 03/89 5 11 Power Eng. n/a n/a Fin. Analyst Economist Eny. Specialist 09/89 5 20 Power Eng. n/a n/a Fin. Analyst, Economist 04/90 5 16 Power Eng. n/a n/a Fin, Analyst Economist Env. Specialist Appraisal through 09/91 7 5 Power Eng. n/a n/a Board Approval Fin. Analyst Economist Env. Specialist Board Approval 06/92 3 1 Power Eng., n/a n/a through Fin. Analyst Effectiveness Supervision 04/94 1 3 Power Eng. S S 05/95 1 3 Power Eng. S S Delays in implementation of tariff action plan. 11/95 3 1 Power Eng. S S Delays in implementation Fin. Analyst of tariff action plan. Eng. Specia. 06/96 3 3 Power Eng. S S Delays and partial Eng. Specia. compliance with implementing the tariff action plan. 11/97 1 3 Power Eng. S S Delays and partial compliance with implementing the tariff action plan. Completion 03/99 2 8 Op. Officer HS S Eng. Specia. Notes: * IP - Implementation Progress; * DO - Development Objective; * S - Satisfactory; *HS - Highly Satisfactory. - 30 - IMPLEMENTATION COMPLETION REPORT CHINA ZOUXIAN THERMAL POWRE PROJECT (LOAN 3462-CHA) ANNEXES ANNEX A: MISSION'S AIDE MEMOIRE ANNEX B: BORROWER'S EVALUATION REPORT ANNEX C: CALCULATION OF ECONOMIC INTERNAL RATE OF RETURN (EIRR) ANNEX D: SPEPB'S FINANCIAL STATEMENTS AND SIPDC'S KEY FINANCIAL INDICATORS - 31 - ANNEX A SUPERVISION/COMPLETION MISSION AIDE-MEMOIRE Introduction 1. This Aide-Memoire records the findings of a World Bank mission consisting of Mr. Yuling Zhou who visited Jinan during March 2 and 11, 1999 to review the implementation status of the project and to collect data for preparation of an Implementation Completion Report (ICR). Mr. Jianping Zhao joined the mission from March 2 to 4. The mission would like to express its appreciation to Shandong International Power Development Company Ltd. (SIPDC) for the excellent arrangements for discussions and site visits, and for the excellent preparation and assistance in providing data and information, as well as for the warm hospitality and cooperation extended to the mission during its stay. 2. The mission reviewed with SIPDC the ICR process and requirements, and collected relevant data and information for its preparation. It also visited the Zouxian Thermal Power Plant (third phase, two 600 MW units) and the Zibo 500 kV substation financed under the Bank loan. In addition, the mission provided assistance to SIPDC in preparing its own evaluation report which will be attached to the ICR. The mission advised that SIPDC's evaluation report should focus on: (a) assessment of the project's objectives, design, implementation, and operational experience; (b) evaluation of implementation agencies' performance during evolution and implementation of the project with special emphasis on lessons learned that may be relevant in the future; and (c) evaluation of the performance of the Bank during the evolution and implementation of the project, including the effectiveness of the relationship between the project implementation agencies and the Bank, with special emphasis on lessons learned. Overview of Project Implementation 3. The physical components have been successfully completed according to the scope, budget and schedule designed at the project appraisal. The Unit 5 was put into trial operation on January 17, 1997, almost one year ahead of schedule based on the national standard in China. It passed all the inspection and accepted by the State Power Corporation on October 22, 1997, and became the first 600 MW unit meeting the highest level national standards and performance indicators in China upon commercial operation. Unit 6 started trial operation on November 5, 1997, almost one and a half years ahead of schedule based on the national standard. It was accepted by Shandong Electric Power 4. 4. The trail operation of both units went through smoothly. During the trail operation, Unit 5 generated 1,664 GWh electricity and Unit 6 generated 1,590 GWh. As of end 1998, Unit 5 generated 5,640 GWh and Unit 6 generated 4,060 GWI. The two units were awarded "outstanding" project by the State Power Corporation in April 1998. -32- 5. In addition to the two 600 MW units, the Bank loan has financed a power transmission component, including two 500 kV substations (one new and one expansion), 12 220 kV substations (7 new and 5 expansion), one 500 kV transmission line (260 km in length), and nine 220 kV transmission lines (with a total length of 522 km). All these transmission facilities have been successfully completed according to schedule and are now under commercial operation. It should be noted that the Zibo 500 kV substation, since its commercial operation started on November 11, 1995, has played a key role in stabilizing and strengthening the Shandong Power Grid. It was also the first 500 kV substation passing the highest level national standards and performance indicators in China upon commercial operation. 6. The successful completion of the project has made valuable contribution to the alleviation of the acute power shortage in Shandong Province. Since the first half of 1998, power supply in Shandong has, for the first time, satisfied the demand. It means the main objective of the project has been achieved. 7. The technical assistance (TA) components have also been completed. The power tariff study played a catalyst role in Shandong's tariff reform. The time-of-day tariff was approved by the state authorities and introduced in 1994. As of 1996, all the eligible consumers in the province have been charged the time-of-day tariff. Time is divided into three periods: peak period, shoulder period and off period. The price for the peak period is 1.5 times of that of the shoulder period. The price for the off period is 0.5 times of that of the shoulder period. "New electricity, new price" was also introduced for all debt financed power plants to enable them to meet their debt service requirements. The average tariff in 1997 and 1998 was Fen 37.7/kWh (including VAT), 14.7 percent higher than the 1996 level. While it is likely that the average tariff in 1999 would be maintained at the same level, the tariff structure would be adjusted with focus on increase of the residential tariff. It is expected that the subsidies to residential consumers would be fully removed in 2000. 8. Under the training program, 296 people were trained abroad with a total of 10,937 person-days, and 312 people participated in domestic training (with a total of 22,701 person-days). The training areas included utility management, information systems, financial planning, procurement, construction, technical operation, and environmental control. The actual training conducted greatly surpassed the targets set at the project appraisal. Review of Financial Aspects 9. Shandong Provincial Electric Power Bureau (SPEPB)'s financial performance has been satisfactory. In 1997, its energy sales reached 65,690 GWh, 6 percent higher than the 1996 level. Its net profit was 736 million Yuan, 56 percent higher than that in 1996. It was in compliance with the financial covenants under the except the debt service - 33 - coverage ratio. For 1997, SPEPB's self-financing ratio of 68.3 percent met the required 30 percent; the debt equity ratio of 1.16 satisfied the maximum limit of 2.33 times. Its debt service coverage ratio was 1.21 times, slightly below the covenanted 1.4 times. 10. The Bank loan was initially on-lent to SPEPB and was transferred to SIPDC in 1997. SIPDC, now the owner of Zouxian Thermal Power Plant, has recorded satisfactory financial results in recent years. From 1995 to 1998, SIPDC's energy sales have increased by an average 15 percent annually, and its net profit has increased by an average 37 percent annually. It is in compliance with all the financial covenants under the loan. 11. Since its establishment in mid 1994, SIPDC has tried several times to go on market. The most recent one was in January/February 1999. However, due to various reasons including domestic macro adjustment, tariff issues and financial crisis in East Asia, the first few attempts did not go through. The road show in early 1999 actually went through quite well, but due to the market volatility occurred in Hong Kong at the last minute, SIPDC had to decide to postpone its IPO. It is now continuing to look for appropriate opportunities and will try to go on market as soon as possible. Recalculation of Economic Internal Rate of Return (EIRR) 12. An Economic Internal Rate of Return (EIRR) of 14 percent was calculated at the time of project appraisal using the estimated economic costs of the project and associated investments in transmission and distribution. Such an IERR has been recalculated at 17 percent in the same methodology based on the current projections. Project Sustainability and Operational Plan 13. The outcomes of the project are very likely to be sustainable. The completed generation and transmission facilities have been integrated into the Shandong power grid and have been under normal commercial operation. The mission was assured that the project entities have adequate technical and financial capabilities to operate and maintain these facilities at a high professional level. Relevant performance indicators were discussed with SIPDC and will be finalized and attached to the ICR. Disbursement 14. As of end February 1999, out of the US$310 million Bank loan, US$302.2 million or 97.5 percent has been disbursed. The mission reminded the implementation agencies that the loan will be closed on June 30, 1999. Though the Bank may grant a four-month period after loan closing for disbursement purpose, the balance of the loan can only be disbursed against the expenditures associated with goods delivered or services rendered on or before the loan closing date. Any unutilized loan proceeds will be cancelled. - 34 - Agreements Reached and Next Steps 15. It was agreed that: (a) SIPDC will continue to provide the Bank with data and information at the request of the Bank during preparation of the ICR; (b) SIPDC's own evaluation report (in English) will be submitted to the Bank by June 30, 1999; and (c) A draft ICR will be send to SIPDC for comments by the end of September 1999. SIPDC will forward its comments, if any, to the Bank with a month after receipt of the draft ICR. The ICR will be finalized and printed latest by December 1999. 16. It was also agreed that SIPDC will keep the Bank informed of its IPO progress. March 11, 1999 Jinan, China - 35 - ANNEX B Evaluation Report of Zouxian Thermal Power (Phase III) Project from the Borrower 1. The two 600MW generating units of Zouxian thermal power expansion project (Phase III) and its corresponding power transmission component are financed to construct under the World Bank loan. The initial borrower of the Bank loan was Shandong Provincial Electric Power Bureau (SPEPB). Inl997, the loan was transferred from SPEPB to Shandong International Power Development Company (SIPD) under the Subsidiary Loan Agreement. The two 600MW units have been put into operation. The total installed capacity of Zouxian Power Plant now is 2,400 MW, which makes Zouxian Power Plant the largest thermal power plant in China. With the excellent operation efficiency and management , this power plant was awarded by the State Power Corporation "China First-level Thermal Power Plant" in 1998. 2. Zouxian Thermal Power project (Phase III), which is financed by the Bank loan, has made valuable contribution to the alleviation of the acute power shortage in Shandong Province and accelerated the national economy development of Shandong Province. Zouxian Power Plant is a large modem mine-mouth thermal power generating station and also a power load center of Shandong Power Grid. So the project not only made effective use of the abundant coal resources of Shandong Province, but also reduced the project costs and operation fees as well. So to finance this project is an outstanding decision made by the World Bank. The world Bank was concerned much about Zouxian Phase III Project all the time and gave it great support and assistance . Every year they sent the mission to Zouxian site for supervision and inspection. As a result, all the given instructions promoted the project management, and our work at all aspects made us understand the management mode of the world Bank and accelerated the process to move towards the international standards. 3. Through the Zouxian Phase III Project, we have learned from abroad a lot of advanced experience and expertise in terms of design, installation, commissioning and operation, and introduced some advanced manufacturing technology, which greatly upgraded our design, project management, operation and maintenance, production and financial management level for 600MW units. - 36 - Under the technical agreements, we have strengthened the environmental protection study and the tariff reform study for Shandong thermal power plants. At present , the environmental protection of Zouxian Phase III project is completely up to the national standards . The tariff reform of Shandong is now in the critical stage, and the benign tariff system has primarily come into being. In 1998, the average tariff of Shandong Power Grid was 14.7 percent higher than the 1996 level. 4. During the whole period of the project construction, SPEPB, as the major borrower, played a very important role in mobilization, coordination and decision, which strengthened the whole procedural management in respect of design, procurement, construction, commissioning and operation. During the project construction, China Northwest Electric Power Design Institute carried out seriously the design principle of "safe, reliable, applicable and effective" with consideration of the situation of china. Meanwhile it also optimized continuously the blueprint and system of this project. Shandong Electric Power Construction NO.1 company held its policy of "Safety First, Quality First ". And it also utilized actively the new technology and new technique, which shortened the construction periods greatly. Shandong Electric Power Research and Commissioning Institute took charge of all work of commissioning and trial operation, carried out the work seriously and carefully, and at last all commissioning indicators all met the national standards and performance indicators. Zouxian Power Plant took active part in the whole procedure management of the project, and paid more attention to the production standards, especially to the training of operators. Because of the common efforts and close cooperation among all parties, the two 600MW units both started their trial operation ahead of schedule. The construction periods were shortened by almost 11.8 months and 17.2 months ahead of schedule based on the national standard respectively. This project was awarded by the State Power Corporation as the outstanding project with "the high speed construction , the excellent project quality, the moderate and reasonable cost". The first 600MW unit of Zouxian Power Plant and its auxiliary transmission facility - Zibo 500KV substation were respectively awarded by the State Power Corporation as the first standard-reaching 600MW unit and the first standard-reaching 500KV substation in China on commercial operation. 5. When we purchased the major equipment and materials utilizing the Bank loan, the whole procedure was implemented strictly based on the procurement rules of the World Bank and the International Competitive Bidding (ICB). The technology performance indicators of the purchased equipment are proven to be very good with the excellent quality and reasonable price. The S & L Company and China International Engineering Consulting Corporation were invited to be the consulting companies for this project. The above - mentioned two companies provided us the excellent consulting services on preparing the bidding documents, reviewing the bidding evaluation and conducting the technical negotiation etc. We fully realized the benefit resulted from the International Competitive Bidding - 37 - (ICB) for procurement of the major equipment and materials and the necessity to invite the consulting company in the international competitive - bidding system. 6. To meet the requirements of the Bank, we paid much more attention to the staff training. Under the training program, 285 people were trained abroad with a total of 9314 person-days, and 312 production backbones participated in domestic training (with a total of 22701 person-days). The training areas covered the utility management, financial management, procurement, information management, environmental protection, technical operation and simulator training. The actual training areas, person-days conducted surpassed the targets set at the project appraisal. It is the training that guaranteed the successful startup and trial operation of the two units. 7. Suggestions: 1) If utilizing the World Bank loan, the period is too long from the pre-appraisal of project through the bidding and the procurement and down to the loan disbursement. So we suggest that the World Bank should simplify some unnecessary procedures so as to pick up the work of the project in earlier stage. 2) When utilizing the World Bank loan, it is very fair, open and just to purchase the equipment under the International Competitive Bidding, however the procedures are so complicated, with much manpower and time consumed and the procurement period is too long. So we suggest that the World Bank should simplify some approval procedures and constrict the working term of all stages, so as to accelerate the speed of equipment procurement. 3) The consultative experts have rich experience in the International Competitive Bidding, but they can't be fully competent while consulting special issues and resolving actual engineering problems occurring in the construction stage. So it is suggested that the World Bank should give more instructions on selecting the consultative experts and on signing the consulting contracts, meanwhile allow more flexibility. - 38 - ANNEX C Zouxian Thermal Power Project (Loan 3462-CHA) Ex-Post Calculation of Economic Internal Rate of Return (EIRR) RMB Yuan million Capital Cost O&M Cost Fuel Total Generation Sales Total Net Year Gen. Trans. Gen. T&D Cost Cost (GWh) (GWh) Benefits Benefits 1992 32.0 32.0 (32.0) 1993 241.6 241.6 (241.6) 1994 448.7 127.0 575.7 (575.7) 1995 1,491.1 445.0 40.4 1,976.5 (1,976.5) 1996 2,329.4 382.0 67.0 2,778.4 (2,778.4) 1997 1,624.1 253.0 372.0 84.4 272.3 2,605.8 3,544.1 3,346.6 1,566.7 (1,039.1) 1998 477.1 66.0 473.0 17L9 525.3 1.713.3 5,793.9 5,472.1 2,625.0 911.7 1999 225.3 171.5 594.1 991.0 6,240.0 5,894.0 2,827.3 11836.4 2000 251.0 171.6 623.8 1,046.5 6,240.0 5,894.0 2,827.3 1,780.8 2001 260.2 171.8 655.0 1,087.0 6,240.0 5,894.0 2,827.3 1,740.3 2002 270.2 172.0 687.8 1,129.9 6,240.0 5,894.0 2,827.3 1,697.4 2003 284.2 172.1 722.1 1,178.4 6,240.0 5,894.0 2,827.3 1,648.9 2004 296.0 172.2 758.3 1,226.5 6,240.0 57894.0 2,827.3 1,600.9 2005 308.9 172.2 796.2 1,277.2 6,240.0 5,894.0 2,827.3 1,550.1 2006 326.8 172.2 836.0 1,335.0 6,240.0 5,894.0 2,827.3 1,492.3 2007 342.1 172.2 977.8 1,492.1 6,240.0 5,894.0 2,827.3 1,335.2 2008 358.7 172.2 921.6 1,452.6 6,240.0 5,894.0 2,827.3 1,374.8 2009 382.1 172.2 967.7 1,522.1 6,240.0 5,894.0 2,827.3 1,305.3 2010 401.9 172.2 1,016.1 1,590.2 6,240.0 5,894.0 2,827.3 1,237.1 2011 422.0 172.2 1,036.5 1,630.7 6,240.0 5,894.0 2,827.3 1,196.7 2012 451.0 172.2 1,057.2 1,680.4 6,240.0 5,894.0 2,827.3 1,147.0 2013 475.2 172.2 1,078.3 1,725.7 6,240.0 5,894.0 2,827.3 1,101.6 2014 510.7 172.2 1,099.9 1,782.8 6,240.0 51894.0 2,827.3 1,044.5 2015 540.0 172.2 1,121.9 1,834.0 6,240.0 5,894.0 2,827.3 993.3 2016 572.1 172.2 1,144.3 1,888.6 6,240.0 5,894.0 2,827.3 938.7 2017 619.1 172.2 1,167.2 1,958.6 6,240.0 5,894.0 2,827.3 868.8 2018 658.1 172.2 1,190.6 2,020.9 6,240.0 5,894.0 2,827.3 806.5 2019 701.1 172.2 1,214.4 2,087.7 6,240.0 5,894.0 2,827.3 739.7 2020 748.5 172.2 1,238.7 2,159.4 6,240.0 5,894.0 2,827.3 668.0 2021 800.9 172.2 1,263.4 2,236.5 6,240.0 5,894.0 2,827.3 590.8 2022 858.8 172.2 1,288.7 2,319.7 6,240.0 5,894.0 2,827.3 507.7 1EIRR 17.0% Note: Assumptions for ex-post estimate of EIRR are available in the file. - 39 - ANNEX D ZOUXIAN THERMAL POWER PROJECT SHANDONG PROVINCIAL ELECTRIC POWER BUREAU (SPEPB) INCOME STATEMENT (Yunn1 Million) Year Ending December 31 1992 1993 1994 1995 1996 1997 1998 SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual Electricity Sales (GWh) 42,045 44,227 45,672 47,054 49,430 53,093 53,495 57,794 57.821 61,988 62,498 65,690 67,480 64,850 Annual Sales Growth (%) 7.7 13.2 8.6 6.4 82 12.8 8.2 89 8 1 73 8 1 6.0 80 (1.3) Average Tariff(Fen/kWh) 172 14.9 19.1 18.3 206 19.0 22.2 22.3 23.3 286 249 33.7 26.3 36.2 Operating Revenue: Sales Revenue 7,222 6,611 8,710 8,610 10,170 10,095 11,882 12,876 13,469 17,739 15,572 22,137 17,774 23,461 Less: Sales tax 1,189 753 1,386 1,381 1,588 43 1,821 55 2,044 69 2,331 107 2,620 155 Total Operating Revenue 6,033 5,858 7,324 7,229 8,582 10,052 10,060 12,821 11,426 17,670 13,241 22,030 15,153 23,306 Operating Expenses: Fuel 2,532 2,931 3,365 3,864 4,411 5,030 5,634 Purchased Power 950 1.062 1.114 1,167 1,224 1,232 1,372 Operating& Maintenance 578 671 765 866 997 1,176 1,377 Administration 123 135 147 160 174 189 205 Depreciation 497 582 662 741 864 1,053 1,277 Other Expenses 22 26 31 36 40 47 53 Total Operating Expenses a/ 4,701 4,760 5,408 6,426 6,083 9,410 6,833 12,196 7,709 16,895 8,726 20,132 9,918 20,973 Operating Income 1,332 1,098 1,916 803 2,499 642 3,228 625 3,716 775 4,515 1,898 5,235 2,333 Non-Operating Income NetNon-Operatinglncome 60 (39) 60 23 60 94 60 312 60 260 60 252 60 1,064 FinanceExpenses 440 557 142 672 250 659 384 882 352 1,112 1,107 1,176 1,151 Total Non-operating Income (380) (39) (497) (119) (612) (156) (599) (72) (822) (92) (1.052) (355) (1,116) (87) Net Income Before Income Tax 953 1,059 1,419 684 1,888 486 2,629 553 2,895 683 3,463 1,043 4,119 2,246 Income Tax 531 137 799 128 998 158 1,401 159 1,527 211 1,632 307 2,024 489 Net Income (Loss) 421 922 620 556 889 328 1,228 394 1,367 472 1,831 736 2,095 1,757 Average Rate Base 7,984 8,790 9,334 11,892 10,473 10,894 11,514 8,891 13,430 12,022 16,664 17,672 20,445 22,696 Rate of Return (%) 16.7 12.5 20.5 68 23.9 5.9 28.0 7.0 27.7 64 27.1 10.7 256 10.3 Operating Ratio (%) 77,9 81.3 73.8 88.9 709 93 6 679 95.1 67.5 95.6 65.9 91.4 65.5 900 al Breakdown of the actual operating expenses are not available. - 40- ZOUXIAN THERMAL POWER PROJECT SHANDONG PROVINCIAL ELECTRIC POWER BUREAU (SPEPB) BALANCE SHEET (Yuan Million) Year Ending December 31 1992 1993 1994 1995 1996 1997 1998 SAR Actunl SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual ASSETS Current Assets Cash 657 1,017 674 1,046 710 1.608 725 3,046 762 3,178 813 3,548 856 3,989 Account Receivables 396 1,101 477 1,256 557 1,732 651 2,262 738 2,007 853 2,854 974 3,336 Inventories 658 540 741 688 832 488 931 879 1,061 443 1,209 452 1,364 332 Other Current Assets 12 1 45 19 32 3,968 Total Current Assets 1,711 2,658 1,893 3,002 2,099 3,829 2,308 6,232 2,560 5,647 2,876 6,886 3,194 11,625 Long-Term Investment 90 273 4,099 1,671 4.350 4,067 6,814 Fixed Assets: Plant in Service 11,592 11,767 13.248 19,785 15,115 10,996 16,732 16,039 20,552 18,243 25,117 28,654 30,444 30,160 Less. AccumulatedDepreciation 2,795 2,857 3,377 4,912 4,039 4,082 4,780 5,172 5,644 5,066 6,697 6,488 7,974 6,934 NetPlantinService B,797 8,910 9,870 14,073 11,076 6,914 11,952 10,067 14,903 13,177 10,420 22,166 22,471 23,226 Construction WIP 2,382 2,076 3,563 2,575 5,010 1,847 7,690 5,192 8,204 8,341 8,486 2.558 8,147 2,041 Total Fixed Assets 11,179 18,986 13,434 17,448 16,086 8,761 19,642 16,059 23,113 21,518 26,907 14,724 30,618 25,267 Special fund Assets/Other L-T Assets 306 337 275 432 16 485 152 597 3,418 723 4,874 833 1,525 Intangible Assets& Deferred Assets 356 63 4 204 370 103 TOTALASSETS 13,196 13,734 15,663 21,354 18,617 16,908 22,435 24,318 26,269 35,137 30,S8 41,721 34,644 45,334 LIABILITIES AND EQUITY Current Liabilities S.TLoan/C"rrentPormonofL-T Debt 230 231 95 420 1,893 2.239 2,246 AccountPayable 764 1,662 880 1,682 993 2,481 1,122 1,206 1,260 2.110 1,418 1,412 1,596 1,183 Other Current Liabilities 40 105 41 360 43 239 45 2,242 47 1,844 49 2,955 51 3,850 Total Current Liabilities 804 1,997 922 2,273 1,037 2,815 1,166 3,868 1,307 5,837 1,467 6,606 1,647 7,279 Long-Term Loan 8,311 7,414 10,051 10,021 11,969 4,543 14,540 7,636 16,805 12,050 18,701 15,193 20,278 15,703 Other Long-Term Liabilities 134 228 281 39 336 581 (157) Total Long-Term Liabilities 8,311 7,648 10,051 10,249 11,969 4,824 14,540 7,675 16,805 12,386 18,701 10,774 20,278 15,546 Minority Stockholders Equity 922 971 975 1,034 Working Capital Funds 142 164 189 209 263 327 402 Government Funds 3,161 3,676 4,409 5,394 6,601 8,498 10,632 SpecialFunds 779 851 1,013 1,125 1,295 1,512 1,685 Owner's Equity: Paid-inCapital 4,020 8,088 7.519 7,519 7,760 8,840 10,065 CapitalSurplus 5 271 893 3,110 6,540 7,355 8,285 Surplus Reserves 288 614 845 1,224 1,643 2,171 3,125 Retained Earnings (124) (141) 12 - Total Equity 4,081 4,189 4,691 8,832 5,611 9,269 6,728 12,775 8,158 16,914 10,338 19,341 12,719 22,509 TOTAL LIABILITIES & EQUITY 13,196 13,734 15,663 21,354 18,617 16,908 22,435 24,318 26,269 35,137 30,505 41,721 34,644 45,334 Debt Equity Ratio(debtas%ofdebt+equity) 67 64 68 53 68 33 68 37 67 42 64 44 61 41 Current Ratio (times) 21 .3 2 1 I 3 2.0 1.4 20 1.6 20 1.0 2 0 1 0 1.9 1 6 -41 - ZOUXIAN THERMAL POWER PROJECT SHANDONG PROVINCIAL ELECTRIC POWER BUREAU (SPEPB) FUNDS FLOW STATEMENT (Yuan Million) Year Ending December 3J 1992 1993 1994 1995 1996 1997 1998 SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual Internal Sources of Funds: Net Income Before Interest 869 922 1,186 638 1,571 485 1,897 393 2.261 470 2,955 736 3,285 1,762 Depreciation 457 560 537 693 615 675 688 925 819 986 1,007 1.499 1,228 1,919 Amortization 149 90 27 8 13 Maintenance 252 299 343 387 455 559 683 Debt to be paid by tax reduction 475 607 774 978 1,221 1,524 1,804 Other Internal Source of Funds 60 387 65 44 70 125 76 I 82 19 89 51 96 17 Total Internal Sources 2,113 1,869 2,694 1,375 3,373 1,434 4,027 1,409 4,837 1,502 6,134 2,294 7,096 3,711 Other Sources of Funds Borrowings 2,239 1,498 2,583 3,845 3.033 1,732 3,935 2,696 3,925 5,357 4.342 5,44S 4,373 4.149 Fixed/Intangible Assets Shifted Out 3,367 2,860 Net ncrease of Paid-in Capital 47 880 906 2,310 4,133 2,422 3,110 Others 128 Total Other Sources of Funds 2,239 1,673 2,583 4,725 3,033 6,005 3,935 5,006 3,925 12,355 4,342 7,870 4,373 7,259 Total Sources of Funds 4,352 3,542 5,278 6,100 6,406 7,439 7,962 6,415 8,763 13,857 10,476 10,164 11,469 10,970 Capital Expenditures Increase in Fixed-Assets and WIP 2,459 1,763 2,837 4,028 3,314 2,520 4,297 3,570 4,334 6,466 4,847 5,143 4,971 3,211 Increase in Long-Term Investment 182 3,825 387 2,860 517 1,947 Increase in Intangible & Deferred Assets 3,938 1,397 Total Capital Expenditures 2,459 1,763 2,837 4,210 3,314 6,345 4,297 3,957 4334 13,264 4,847 7,062 4,971 5,158 Operational Requirements Increase/Decrease in Working Capital 27 25 3 I 43 22 40 20 Increase/Decrease in Special Funds 38 31 95 53 112 (26 I10 Debt Service (total) 663 739 843 1,126 ,1t5 373 1,363 587 1,661 1,216 2,446 1,704 2,796 753 Remittances to Government 270 476 617 922 995 1,044 1,339 Special Fund Expenditures 434 491 528 609 721 809 1,014 Interest Charged to Operations& IDC 440 557 672 659 882 1,112 1,176 Distribution of Profit 779 696 497 392 470 570 Total Operational Requirements 1,873 1,518 2,424 1,822 3,857 870 3,649 979 4,392 1,686 5,578 2,274 6,455 753 Total Application of Funds 4,332 3,281 5,261 6,032 6,371 7,215 7,946 4,936 8,727 14,950 10,425 9,336 11,427 5,911 Increase/Decrease in Cash 21 261 17 68 36 224 16 1,479 36 (1,093) 52 828 43 5,059 Debt Service Coverage (times) 1.5 2.5 1.6 1.2 1.6 27 1.8 I 9 1.6 L2 1.5 1.2 .6 2.6 SelfwFinancing Ratio (%) 20.8 26.0 62.1 26.8 574 32.6 48.7 32.0 43 2 33.9 68.3 39.1 86.7 - 42 - ZOUXIAN THERMAL POWER PROJECT SHANDONG INTERNATIONAL POWER DEVELOPMENT CO. LTD. (SIPDC) a/ KEY FINANCIAL INDICATORS (Yuan Million) Year Ending December 31 1994 1995 1996 1997 1998 Energy Sales (GWh) 6,026.6 12,143.8 11,502.6 14,520.7 17,554.2 Average Price (fen/kWh) 14.29 14.29 19.23 29.45 34.85 Operating Revenue 735.8 1,482.7 1,890.2 3,654.7 5,228.1 Operating Expense 711.2 1,481.5 1,833.3 3,346.9 3,861.2 Operating Income 24.6 1.2 56.9 307.8 1,366.9 Net Income (after tax) 15.6 0.8 37.7 207.1 915.8 Rate Base 3,181.2 3,065.4 3,551.5 7,428.5 10,926.0 Rate of Return(%) 0.77 0.04 1.60 4.14 12.51 Operating Ratio (%) 96.7 99.9 97.0 91.6 73.9 Current Ratio (times) 1.0 1.1 0.6 1.0 0.8 Debt Service Coverage (times) 347.8 258.3 46.5 2.3 1.6 Debt Equity Ratio (times) 0.18 0.36 2.03 2.17 2.29 Debt Equity Ratio (15:85) (26:74) (67:33) (68:32) (70:30) Note: a/ SIPDC was established in 1994 as a limited liability company. 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