China - Beilungang Thermal Power Project, Wujing Thermal Power Project, and Beilungang Thermal Power Extension Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 19510 PERFORMANCE AUDIT REPORT CHINA BEILUNGANG THERMAL POWER PROJECT (LOAN 2706-CHA), WUJING THERMAL POWER PROJECT (LOAN 2852-CHA), AND BEILUNGANG THERMAL POWER EXTENSION PROJECT (LOAN 2955-CHA) June 29, 1999 Operations Evaluation Department Sector and Thematic Evaluations Group 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 (annual averages) Currency Unit = Yuan (Y) 1986 US$1.00 Y 3.46 1987 US$1.00 Y 3.73 1988 US$1.00 Y 3.73 1989 US$1.00 Y 3.73 1990 US$1.00 Y 4.86 1991 US$1.00 Y 5.36 1992 US$1.00 Y 5.49 1993 US$1.00 Y 5.75 1994 US$1.00 Y 8.60 1995 US$1.00 Y 8.30 Abbreviations and Acronyms CIECC China International Engineering Consulting Corporation ECEPA East China Electric Power Administration ECEPDI East China Electric Power Design Institute ECG East China Grid ECPS East China Power System GOC Government of China ICB International competitive bidding ICR Implementation Completion Report MOEP Ministry of Electric Power MOF Ministry of Finance OED Operations Evaluation Department SEC State Economic Commission SMEPC Shanghai Municipal Electric Power Company SPC State Planning Commission SPG Shanghai Power Grid ZPEPC Zhejiang Provincial Electric Power Company Fiscal Year Government: January 1 - December 31 Director-General, Operations Evaluation Mr. Robert Picciotto Director, Operations Evaluation Department : Ms. Elizabeth McAllister Manager, Sector and Thematic Evaluations Group Mr. Gregory K. Ingram Task Manager Mr. Alain Barbu FOR OFFICIAL USE ONLY The World Bank Washington, D.C. 20433 U.S.A. Office of the Director-General Operations Evaluation June 29, 1999 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Performance Audit Report on China Beilungang Thermal Power Project (Loan 2706-CHA) Wujing Thermal Power Project (Loan 2852-CHA) Beilungang Thermal Power Extension Project (Loan 2955-CHA) Attached is the Performance Audit Report (PAR) prepared by the Operations Evaluation Department (OED) on the above three projects, approved in FY86, FY87, and FY88. The three loans, totaling US$590 million (US$225, US$190, and US$165 million), were almost fully disbursed and closed in FY94, FY95, and FY95, each two years behind the original schedule. The three projects were representative of the "first generation" of a series of 22 Bank projects approved since 1982 in China's power sector (total lending of about US$5.6 billion). They shared the same primary objectives to (a) reduce severe power shortages in Eastern China via the construction of large modern coal-fired generating plants; (b) introduce the latest plant design and construction technology; and (c) improve utility efficiency through capacity building. Secondary objectives were to promote pricing reform and the introduction of modern utility accounting and auditing standards. The main project components were (a) construction of two 600 MW units at Beilungang (Zhejiang Province) and two 300 MW units at Wujing (Shanghai municipality), with related transmission lines and substations; (b) consultant services for plant engineering, distribution planning, organization and management, and a tariff study; and (c) wide-ranging training for the staff of the two utilities (Zhejiang Provincial Electric Power Company, or ZPEPC, in Zhejiang and Shanghai Municipal Electric Power Company, or SMEPC, in Shanghai). Provisions were also made for annual auditing arrangements, financial covenants, compliance with Bank environmental guidelines, and carrying out of appropriate environmental monitoring and resettlement plans. Considering the sector's fundamental structural weaknesses in the early 1980s and the Bank's support for China's gradualist approach to economic reform, the emphasis in the projects on technology transfer and capacity building as a prelude to more radical reform was fully appropriate. The projects fully met their physical objectives, albeit with delays for Beilungang-largely due to ZPEPC's initial lack of experience with large-size units. The units were completed at very low cost (US$440-450 per kW) and are among the most efficient in the grid. The institution-building components of the projects and the experience gained during their implementation was critical in preparing ZPEPC and SMEPC for the technical and institutional challenges of the mid- and late-1990s: SMEPC is currently building cutting-edge supercritical 900 MW units at Waigaoqao (Loan 4197, FY97), and central 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. 2 authorities have selected Zhejiang province to be the testing ground for the most radical steps in sector reform, including the ongoing introduction of a competitive wholesale market (with Bank asssistance). Both companies have remained financially healthy to this day. Progress was only partial, however, in the areas of tariff structure reform and in the introduction of modern accounting and auditing practices. Implementation of the resettlement plans (about 1,500 people) was satisfactory, but environmental monitoring at Wujing has not been as systematic as in Beilungang (where ground monitoring stations were financed under a subsequent Bank loan). The audit rates the outcome of all three projects as satisfactory and their sustainability as likely (as did the ICRs, except for Wujing, which had been rated as highly satisfactory). The institutional development impact of the first Beilungang and Wujing projects is rated as substantial (as in the ICRs), while that of the Beilungang Extension project is rated as high (substantial in the ICR) in light of ZPEPC's impressive recent transformation, with continued substantial Bank support, into one of China's most efficient and leading reforming utilities. Both borrower and Bank performance for the Beilungang Extension project are rated as highly satisfactory. Borrower and Bank performance for the two other projects is rated as satisfactory (as in the ICRs). Key lessons and recommendations that can be derived from these projects are: * Initial technical problems at Beilungang point to the importance of establishing rigorous coal quality control systems in all existing and future coal-fired plants. The initial difficulties ZPEPC had in managing the interface between a large array of contracts points to the benefits inexperienced Chinese utilities can gain by hiring international engineering consultants to help in the procurement and management of complex construction projects. * The higher quality of environmental monitoring at Beilungang can be largely attributed to the Bank agreeing to finance the installation by ZPEPC of its own ground monitoring stations (in contrast, monitoring at Wujing was left to the Shanghai EPA). This approach should be considered in future similar projects to the extent possible. And the Bank's most recent initiative to carry out an ex-post environmental review of Bank-financed power plants after loan closing should be emulated in other countries where feasible. * The remarkable progress ZPEPC achieved over the course of three successive Bank projects and the acknowledged demonstration effect it has had on the sector point to the benefits, in China at least, of the Bank and the government jointly "picking a leader" and "staying with it" over the long haul. A premature Bank withdrawal from this long-standing relationship would likely jeopardize the Bank's future policy leverage in the sector. * The slow progress achieved in removing distortions in tariff structure points to the limits of the incremental and pragmatic approach followed by the Chinese government on tariff reform. While the dual "new plant-new price" policy addressed the sector's immediate financial needs, it went counter to basic economic principles and fostered inefficiencies. Also, the highly decentralized regulatory process has led to a proliferation, until very recently, of provincial and county-level surcharges, taxes, and fees, which have greatly complicated the central authorities' efforts at promoting rationale pricing. 3 * Continued uncertainty about the ownership structure of former centrally owned assets leaves a cloud over the reliability of many utilities' financial statements. Resolution of this issue should be a matter of priority for sector authorities and the Bank may consider making it a prerequisite for future lending; the Bank should also revisit its current auditing requirements for Chinese power utilities-and revenue-earning entities in general. Attachment  Contents Principal Ratings ............................................I............................................................................ iii Key Staff Responsible ..........................,......................................................................................iv Prefface ........................................ . ........................................................................................... v 1. Background ........................................................................................................................... 1 2. Project Objectives and Implementation..........................................................................2 Objectives and Design ..................... .... 0 . .... .....2 Project Implementation ...........................................3 Cost and Financing....................4.......... ............4 3. Achievement of Objectives and Sustainability .................................................................4 Physical Objectives ............4............... ..............4 Resettlement................................................5 Environmental Aspects .............................................5 Institutional Objectives .............6............. .............6 Financial Objectives..............................................6 Sustainability........ ............................................... 8 4. Borroiwer and Bank Performance ................................................................................... 8 Performance of Borrower and Implementing Agencies...... .................................8 Bank Performance ............................................ 8 5. Conclusions and Lessons Learned ...................................................................................... 9 Overall Assessment and Summary of Ratings ...........................9 Lessons Learned and Recommendations ...............................10 Annex A: Basic Data Sheet ..................................................................................................... 11 Annex B: Key Performance Indicators.................................. 17 Annex C: Semi-Annual Operational Data ...................................... 19 Annex D: Average Tariffs by Consumer Category...............................................................21 Annex E: Sources of Financing for ZPEPC and SMEPC..................................................23 Annex F: Comments from Borroiwer ..................................................................................... 25 This report was prepared by Mr. Alain Barbu (Task Manager) who audited the projects in March 1998. Mr. William Hurlbut edited the report. Ms. Soon-Won Pak provided administrative support.  111 Principal Ratings ICR Audit Outcome Satisfactory Satisfactory Sustainability Likely Likely Institutional Development Substantial Substantial Borrower Performance Satisfactory Satisfactory Bank Performance Satisfactory Satisfactory ICR Audit Outcome Highly satisfactory Satisfactory Sustainability Likely Likely Institutional Development Substantial Substantial Borrower Performance Satisfactory Satisfactory Bank Performance Satisfactory Satisfactory Beilun TCHA) ICR Audit Outcome Satisfactory Satisfactory Sustainability Likely Likely Institutional Development Substantial High Borrower Performance Satisfactory Highly satisfactory Bank Performance Satisfactory Highly satisfactory iv Key Staff Responsible Loan 2706-CHA Task Manager Division Chief Country Director Appraisal K. C. Ling Vineet Nayyar Gautam Kaji Completion Shigeru Kataoka Richard Newfarmer Nicholas Hope Loan 2852-CHA Task Manager Division Chief Country Director Appraisal D. Mehta Vineet Nayyar Gautam Kaji Completion Shigeru Kataoka Richard Scurfield Nicholas Hope Loan 2955-CHA Task Manager Division Chief Country Director Appraisal K. C. Ling Bernard Montfort Shahid Burki Completion Shigeru Kataoka Richard Scurfiled Nicholas Hope V Preface This Performance Audit Report (PAR) is based on a review of the Implementation Completion Reports (ICRs), the Staff Appraisal Reports (SARs), loan documents, and project files for the three projects as well as discussions with Bank staff. An Operations Evaluation Department (OED) mission visited China in March 1998 for discussions with the government and the project implementing agencies. Their cooperation and assistance are gratefully acknowledged. The ICRs for the three projects are of good quality and include detailed coverage on most aspects of project implementation. This audit report elaborates on environmental and auditing issues not covered adequately in the ICRs, identifies design characteristics and factors of performance common to all three projects, and provides some overall historical perspective to their evaluation. It does not attempt to extrapolate the evaluation of these three projects (all "first-generation" coal-based projects located in one region of China) into an overall evaluation of the Bank's assistance strategy in the power sector, given the latter's much broader scope (in terms of the sheer number of lending and non-lending interventions, subsectors addressed, types of projects financed and regions covered). This is the subject of OED's forthcoming China Energy Sector Impact Study. Following standard OED procedures, this draft PAR was sent to the borrowers for their comments. Comments received are shown in Annex F.  1. Background 1.1 The Bank has made 22 loans to China's electric power sector since 1982, for a total of US$5.6 billion. The three projects being audited were approved in FY86 (Beilungang, Loan 2706 for US$225 million), FY87 (Wujing, Loan 2852 for US$190 million), and FY88 (Beilungang extension, Loan 2955 for US$165 million) and are representative of the "first generation" of Bank projects in the sector. In the 1980s, power supply shortages had become a severe constraint to the rapid economic growth fostered by economic reforms. 1.2 Thus, key sectoral objectives at the time were to: * Expand generating capacity as fast as possible to reduce-and ultimately eliminate- shortages * Introduce modem technology in plant design, construction, and operation * Accelerate the pace of cheap hydro-power development * Develop larger and more efficient coal-fired power stations (as the sector was expected to continue to rely on coal for the bulk of its generation) * Remove financing constraints by increasing the financial autonomy of power enterprises and by introducing pricing reform. 1.3 While admittedly narrow in terms of policy change and broad institutional reform, even by the Bank standards of the mid-1980s for the power sector, these objectives have to be seen in context: China had just initiated its transition away from a centralized planning system, and its power sector was still characterized by fundamental structural deficiencies, including obsolete technology, absence of modem financial and managerial systems, and wholly inefficient pricing. In that context, and considering the Bank's support to China's gradualist approach to economic reform, the strategic emphasis on technology transfer and capacity building as a prelude to more radical reform was fully appropriate. 2 2. Project Objectives and Implementation Objectives and Design 2.1 The three projects are in the East China Power system (Beilungang in Zhejiang province and Wujing in the Shanghai municipality).' This region was one of the fastest growing in China and consequently suffered from most severe shortages. Although it was not explicit in the SARs, it is clear from the record that the projects were also chosen for their demonstration potential, as the two utilities (Zhejiang Provincial Electric Power Company, or ZPEPC, in Zhejiang and Shanghai Municipal Electric Power Company, or SMEPC, in Shanghai) were already considered to be among the best performing in the country. All three projects shared the following primary objectives: * Reduce power shortages via construction of large modem coal-fired generating units and related transmission lines * Introduce the latest technology in plant design and construction * Improve utility efficiency via technical assistance and training in technical, financial, and managerial areas Secondary objectives were to: * Promote power pricing reform in East China * Promote the transition of the two utilities to modem accounting standards and greater financial autonomy. 2.2 To meet these objectives, the projects included the following components: Physical components: * Construction of two 600 MW units at Beilungang plus related coal unloading facilities and 500 kv lines and substations (Loans 2706 and 2955) * Construction of two 300 MW units at Wujing and related 220 kv line (Loan 2852) Institutional components: * Engineering consultant services for the three projects (all three loans) * Distribution planning studies for the cities of Shanghai, Hangzhou, and Ningbo (Loans 2852 and 2955) * A study of ZPEPC's organization and management (Loan 2955) 1. In addition to Zhejiang province and Shanghai, the East China interconnected power grid comprises the Anhui and Jiangsu provinces and currently accounts for about 20 percent of total power demand in China. 3 * A study of East China power tariffs (Loan 2706) * A series of training programs for ZPEPC and SMEPC staff in most aspects of utility operation and management (all three loans) 2.3 In addition, financial objectives were addressed via requirements for audited statements (following international norms) and financial covenants (minimum self-financing and debt service coverage ratios). Finally, provisions were made for the two utilities to abide by the environmental guidelines of both the Bank and China and to carry out appropriate environmental monitoring and resettlement plans (about 1,400 people for the three projects). 2.4 The design of the three projects, with its heavy emphasis on physical objectives and incremental approach to institutional and financial objectives, was consistent with sector priorities at the time (see above). The transfer of technology objective was critical for the two 600 MW units at Beilungang since these were among the first ones of that size to be built in China. It was less obvious in the case of Wujing, since China already had proven capacity in manufacturing and constructing 300 MW units. In retrospect, the Bank's acceptance-after a lot of internal soul-searching-of the modified turnkey procurement arrangement' proposed by the Chinese for Wujing was unwise: there were clear indications beforehand that it might deter foreign competition, which it did-only one Chinese bid was received. For the Wujing project, meeting demand quickly was clearly the prime physical objective. The tariff study, the first in China, was, in principle, quite timely as Chinese officials were just starting to open up to the idea of economic pricing in key sectors of the economy. Project Implementation 2.5 All project components were carried out, and some were even added later thanks to cost savings (financing of distribution works in Shanghai under Loan 2852). However, the two Beilungang units were commissioned with significant delays (18 months for one, 30 months for the other), in contrast with the Wujing units, which were completed 3 months ahead of schedule. Several factors explain this difference in performance: * The higher complexity of the Beilungang units (which were among the first 600 MW units to be built in China) and the lack of experience of ZPEPC in managing projects of this type * ZPEPC's (and the central authorities') decision to prematurely curtail the use of foreign consultants for the Beilungang extension project-a policy that was subsequently reversed for the implementation of the (next) Zhejiang Power Development project * Different procurement arrangements: Wujing was implemented on a modified turnkey basis whereas the packaging of the Beilungang project required some more complex contract management arrangements on the part of a still-inexperienced ZPEPC * Poor quality of some imported equipment under the Beilungang project, which required rectification on site. 2. More specifically a single responsibility contract that encompassed all major equipment, but not erection works, which were still routinely carried out on force account by all Chinese power utilities at the time. 4 Cost and Financing 2.6 Costs were kept under control for all three projects. Indeed, at a realized average unit cost of US$440 per kW for the two Beilungang units and US$450 per kW' for Wujing (excluding transmission investments), the projects proved very low by international and even Chinese standards. Apparent overruns for total project costs reported in the Beilungang Extension and Wujing ICRs (6 and 19 percent, respectively, excluding IDC) are misleading as they primarily reflect a flaw in the calculation of price contingencies at appraisal.' The second Beilungang unit was originally expected (in the 1986 SAR for Loan 2706) to be financed by credits from suppliers. When China's external debt situation worsened two years later, the government changed its mind and requested Bank financing, which led to Loan 2955. 3. Achievement of Objectives and Sustainability Physical Objectives 3.1 Beilungang plant. As previously mentioned, problems during construction, particularly of the first unit, delayed commissioning of the plant. In 1993, two years after the first unit was commissioned, the boiler exploded causing the death of 25 people. An investigation of the cause was inconclusive but suggested that the explosion resulted from a combination of factors: (a) poor design of the boiler; (b) substandard quality of the coal used; and (c) ZPEPC's lack of experience in operating this type of unit. Major improvements have since been made and both units have performed extremely well in recent years, as shown in Annex C. In fact, the Beilungang plant has been awarded the (top) "five-star" rating for operational efficiency by central authorities and is now showcased as a model to be emulated by other power plants in China. 3.2 Wujing plant. In contrast with Beilungang, the two Wujing units have been mostly problem-free since commissioning and have consistently outperformed other 300 MW units in the Eastern China grid (see Annex C). This excellent operating record has a lot to do with Chinese utilities' (and SMEPC's)' greater familiarity with the construction and operation of smaller 300 MW units. 3.3 Despite the delays at Beilungang, the main objective of reducing power shortages in the Eastern China grid has clearly been achieved with the completion and operation at high load factors of all four generating units. Given the very low unit costs per kW, high operating efficiency, and the absence of more economic alternatives (the region currently has no cheap sources of natural gas or hydro-power), this can be assumed to have been done at least cost (a full ex-post system least-cost analysis was not feasible within the scope of the audit). The ex-post economic rates of return (ERRs) for the projects (10.5, 14.1 and 17.1 percent respectively for Beilungang, Wujing and Beilungang Extension) exceed appraisal estimates (8.5, 11.7 and 15.0 percent, respectively). This largely reflects the significant tariff increases (in real term) that have taken place since appraisal (see para. 3.11 below). 3. In current prices. 4. The exchange rate was assumed constant in spite of a significant differential in expected local and foreign inflation. 5 3.4 The distribution studies were satisfactorily completed, in part with the effective assistance of a Japanese utility. They helped contributed to the introduction of modem concepts of distribution planning, fostered cooperation between the two utilities, and prepared the ground for distribution works financed under subsequent Bank loans to ZPEPC and SMEPC. The full impact of distribution network modernization is difficult to measure accurately for two reasons: (a) a significant part of the agricultural and residential distribution system remains outside of the provinciallmunicipal utilities' immediate responsibility (being managed by counties and/or townships instead); and (b) data on quality of service at the retail level (e.g., outage durations, frequency fluctuation, etc.) remains spotty. Resettlement 3.5 The ICRs provide extensive details on the resettlement programs carried out under the three projects. The nature of the projects kept the number of people needing resettlement relatively low (by Chinese standards), at about 1,500 (773 for Wujing and 723 for Beilungang). Most of these were relocated from areas where new transmission lines were being constructed. The information provided shows that the programs were carried out satisfactorily, that compensation levels were adequate, and that living standards were sustained. This is consistent with Chinese utilities' satisfactory resettlement record evidenced in a recent OED study.s Environmental Aspects 3.6 The coverage of environmental issues in all three ICRs is superficial at best. The increasing emphasis the appraisals of the three projects give to environmental concerns- particularly air quality-illustrates the evolution of the Bank's approach in the late 1980s. The Beilungang I and Wujing SARs (1986 and 1987) give environmental issues a cursory review (one-page and one table) while the Beilungang Extension SAR (1988) includes the findings of an environmental impact report and detailed provisions for an environmental emission monitoring program. Even the latter, however, was far from the detailed analysis and reporting requirements included in more recent projects with the same two utilities, which put much more emphasis on the systematic monitoring of ambient air quality. Both the Beilungang and Wujing projects included high-efficiency, state-of-the-art electrostatic precipitators for removal of total suspended particulates (TSP) and high stacks to minimize ground concentration of sulfur dioxides (SO2) and nitrogen oxides (NOx). In both cases, the SARs stated that a flue gas desulfurization system (FGD) was unnecessary. While the latter assessment made sense for Beilungang, given its relatively isolated location, it certainly warranted further elaboration for Wujing, considering its proximity to Shanghai, a city which even at the time was one of the world's most polluted.' 3.7 The two utilities have regularly monitored stack emissions and, based on information provided to the audit mission, have been in compliance with both Bank and Chinese standards for TSPs, SO2 and NO,. However, monitoring of ground concentrations appears to have been carried out much more systematically at Beilungang (since 1996) than at Wujing. The records at Beilungang indicate compliance with Bank and Chinese standards whereas in Wujing the audit mission was unable to obtain data. This is largely explained by the fact that the Bank agreed to 5. "Recent Experience with Involuntary Resettlement. An OED Review" (1998). 6. The region pointed out that (a) proximity to Shanghai by itself does not necessarily mean that Wujing is a potentially significant polluter of Shanghai (as indicated by RAINS modeling); and (b) other methods, such as emissions trading can be cost effective alternatives to FGD. 6 finance ground monitoring stations at Beilungang, and included corresponding detailed reporting provisions, under the subsequent (Zhejiang Power Development) plant extension project. In contrast, ground monitoring at Wujing was (and remains) the responsibility of the Shanghai EPA and no regular reports were provided to the Bank by SMEPC in the period between plant commissioning (1992) and loan closing in 1995. In retrospect, the Bank should have pursued this issue more actively with SMEPC, both in the context of the last 3 years of project supervision and as part of the preparation of the subsequent Waigaoqao project' (particularly in light of the detailed environmental analysis carried out for that project). Indeed, the Bank might have considered financing monitoring stations, as well as pollution prevention and control measures, if warranted, at Wujing under the Waigaoqao loan. Alternatively, it could have considered ways to help the Shanghai EPA strengthen its own environmental monitoring and impact evaluation capacity. Most recently (May 1999), a Bank mission visited China to carry out an environmental review of eight Bank-financed coal-fired power plants (including Beilungang and Wujing). Although the mission's report is still under preparation, initial findings appear to corroborate this audit's assessment. Institutional Objectives 3.8 The capacity building objectives of the projects have been exceeded beyond all expectations, thanks to a judicious and intensive use of technical assistance and training. New technologies were absorbed rapidly, despite initial problems with the 600 MW units. Witness the latest project financed by the Bank in Shanghai (Waigaoqiao), which involves the construction by SMEPC of supercritical 900 MW units at the cutting edge of coal-fired plant technology. And the experience and knowledge gained by ZPEPC through its exposure to foreign engineering consultants and extensive technical training in the Beilungang project was brought to bear in its so-far highly satisfactory execution of the next phase of the Beilungang extension (under the Zhejiang Power Development Project, Loan 3846, 1995). Finally, the staff of both SMEPC and ZPEPC had only praise for the broad-based middle-management training programs included in the projects and credit them with contributing to instill a new "commercial" culture in the two utilities.' 3.9 On the other hand, the ZPEPC organization and management study financed by Loan 2955 and carried out with the help of a French utility did not have much of an immediate impact folowing its completion in 1988. This is probably due to the unfavorable country and sector environment of that period-China's overall economic reform program was largely stalled between 1989 and 1993 due to political events. At most, it can be credited with sowing the seeds of the much more far-reaching restructuring and unbundling program that has been under way in both companies since 1993, under technical assistance activities financed by subsequent Bank loans. Financial Objectives 3.10 Tariffs. The Eastern China tariff study can be credited with exposing a large number of sector officials to the concept of economic pricing and marginal cost methodology-a novelty in China at the time. However, its practical impact has been negligible as almost none of its detailed 7. Loan 4197-CHA, approved in FY97. 8. ZPEPC's ratings of the quality and impact of individual Bank-financed TA and training activities, provided at the request of the audit mission, were all in the 4/5 range (on a scale of I to 5). 7 recommendations have been implemented and severe distortions persist in the structure of tariffs (both at bulk and retail level), in the Eastern China grid as in the rest of the country. Indeed, further distortions have been introduced since that time by the implementation of the dual "new plant-new price" policy and the proliferation of provincial and county-level taxes and miscellaneous surcharges.' Incremental changes introduced in tariff policy over the past decade have resulted in a highly complicated system that is in need of drastic reform and simplification. This has been amply documented in recent Bank reports, and improvements are being pursued under recent Bank operations, although with some difficulty. In particular, ZPEPC's efforts over the past two years to reform its tariff structure (in accordance with commitments made under the Zhejiang Power Development Project) have been complicated by conflicting instructions issued by the provincial pricing commission and central authorities."o 3.11 Finances. Although the tariff system remains excessively complex and not conducive to efficiency, significant across-the-board tariff increases implemented during the past decade have helped maintain the sector on a sound financial footing. Specifically, ZPEPC's and SMEPC's average tariff increased by 4.8 and [3.91 percent per year in real terms between 1987 and 1997. As a result, both ZPEPC and SMEPC have remained financially healthy throughout the project's implementation period, as reflected in key financial indicators (Annex B). Both utilities have also increasingly diversified their sources of financing (away from an almost exclusive reliance on government funds until the early 1980s): reflecting overall sector trends, borrowings (both local and foreign) accounted for as much as a third of total funding in recent years (Annex E). However, one looming issue for SMEPC is the recent growth of its accounts receivable, which the audit mission was told is related to the increasingly difficult financial situation of large state- owned enterprises, which account for a substantial share of Shanghai's power demand. 3.12 Accounting and auditing. The projects have only partially achieved the objective of promoting the introduction of modern accounting and auditing standards in the two utilities. Recent annual financial reports published by the two companies follow western-style formats and are a major improvement over the type of financial information available only a decade ago when the projects were appraised. But information gathered during the audit mission, and a closer look at the reports, raises concerns about the reliability of financial data and the consistency of the accounting standards used in China. As a case in point, SMEPC provided the audit mission with two sets of 1995/96 audited statements:" one by the Shanghai Municipal Audit Bureau-the ones routinely sent to the Bank-and one by the Hong Kong branch of Arthur Andersen (commissioned by SMEPC in anticipation of the company's listing on international stock markets). Although differences between the two statements can be explained (they largely relate to the accounting treatment of the still-uncertain ownership structure of some assets devolved by the central government), and neither set of figures implies non-compliance with the Bank's financial covenants, there is an issue as to whether the Bank should continue to accept locally audited statements (as it does for all China projects) when audit reports from international firms are known to be available. 9. The region pointed out that local surcharges were banned throughout China in January 1999. 10. The region pointed out that Zhejiang's unified tariff structure was finally approved by central authorities in May 1999. 11. Indeed, there is yet a third set of audited statements, i.e., that produced on the Wujing project accounts by the Municipal Audit Bureau (available only in Chinese). 8 Sustainability 3.13 Sustainability of all three projects on physical, economic, institutional, and financial grounds is highly likely in light of the plants' low cost, past operating record, and expected full utilization in future; of the impact of the technical assistance and training activities already demonstrated by the successful initial implementation of subsequent projects; and of the structural reforms currently under way in the sector. Whereas Beilungang's environmental sustainability seems assured given recent measurements (para. 3.7), that of the Wujing units needs to be verified by additional data on their impact on ground concentrations in the greater Shanghai area. 4. Borrower and Bank Performance Performance of Borrower and Implementing Agencies 4.1 The performance of SMEPC was fully satisfactory in terms of project management, absorption of new technology, and its being at the forefront of enterprise reform in the sector (indeed it was to be among the first utilities to be partially privatized via listing on the London and Hong Kong stock markets, when the 1997 East Asia crisis required these plans to be put on hold temporarily). However, one area where SMEPC fell short is in the systematic environmental monitoring of the Wujing plant (see para. 3.7). Although ZPEPC's performance was unsatisfactory early in the course of project implementation (see above-referenced project management weaknesses and boiler accident), the company showed an ability to learn quickly from its mistakes and is now recognized as one of the most dynamic and innovative provincial power utilities in China. This is reflected by the fact that Zhejiang has been selected by central authorities to be the testing ground for the most radical steps in sector reform (e.g., introduction of a competitive wholesale market) and has become the largest recipient of Bank assistance (with preparation of a fourth project currently being finalized). The evolution of key annual performance indicators for the two companies (Annex B) illustrates the remarkable progress achieved over the past decade in all aspects of their operations. 4.2 Government performance during the three projects was generally satisfactory. Across- the-board tariff increases were granted to allow for the required financing of local costs. And the government actively fostered the dissemination of the knowledge transferred as part of the projects (e.g., on coal plant technology, financial information systems, tariff methodology) via the organization of sector-wide seminars, workshops, and other means. Furthermore, since 1993 the government has been carrying out an ambitious program of sector reform, with the support of the Bank (involving, inter alia, the unbundling of key provincial utilities, the separation of the state's commercial and regulatory functions, and the listing of selected utilities in international capital markets). However, in two areas government performance has clearly been wanting: (a) its slow implementation of tariff structure reform (see para. 3.10); and (b) its reluctance to foster greater coordination of external donors' activities in the sector (exemplified by the government's policy to assign different counterpart central ministries to different donors). Bank Performance 4.3 The Bank's role in optimizing the design of the projects, helping resolve technical issues during implementation, and sensitizing Chinese officials to the need for exposure to foreign 9 technology and know-how was fundamental. The somewhat weak emphasis the Bank put on environmental monitoring at project design stage as well as during initial project implementation (particularly for Wujing), although clearly inadequate by today's standards, is more a reflection of the Bank's approach to environmental issues in the mid- and late-1980s than of poor appraisal quality. Indeed, subsequent projects with the same utilities appraised in 1995 (Zhejiang Power Development) and in 1997 (Waigaoqiao) include extensive provisions for such monitoring and have been the subject of systematic in-depth follow up by all recent Bank supervision missions. Furthermore, the region's most recent initiative to carry out an ex-post environmental review of a number of Bank-financed power plants after loan closing (para. 3.7) should be commended, as it represents a departure from the traditional narrow approach to project supervision. 4.4 Beyond the three projects, the Bank's assistance strategy in the sector-to promote institutional and policy change in a gradual and pragmatic manner-appears to have been successful judged by the progress achieved (particularly since 1993) on most fronts, with the exception of the issue of tariff structure.12 Construction management and operating efficiency have improved tremendously; newer power projects are at the cutting edge of technology; shortages have been reduced; and sector finances have remained generally sound-despite the East Asia crisis. One area where the Bank might have performed better is in pursuing closer cooperation with other donors (at least in the technical assistance and training areas), although this was (and still is) not easy given the government's lack of enthusiasm in that regard (para. 4.2). Major factors behind the Bank's generally successful performance in the sector, which OED's forthcoming China Energy Sector Impact Study will analyze in more depth, include (a) a balanced combination of substantial lending and high-quality, focused, and highly participatory sector work; (b) continuity and high level of expertise of Bank staff involved in the program (which probably explain the surprisingly low average lending costs of China power projects); and (c) a two-pronged involvement-at the central and provincial levels. 5. Conclusions and Lessons Learned Overall Assessment and Summary of Ratings 5.1 All three projects fully met their physical objectives (albeit with substantial delays for Beilungang), and even exceeded them considering the outstanding operating records of the plants in recent years. Ex-post ERRs are slightly above appraisal estimates and the Beilungang projects have largely met their institution-building objectives. However, environmental monitoring of the Wujing plant could have been more systematic, the companies' transition to modern accounting and auditing practices has not yet been fully completed (particularly in SMEPC) and the tariff study did not have the expected impact on tariff policy. For these reasons, project outcome is rated as only satisfactory for all three projects (the ICR for the Wujing project had rated outcome as highly satisfactory). Institutional development impact is rated as high (substantial in the ICR) for the Beilungang Extension project, considering ZPEPC's remarkable transformation, during the latter part of that project's implementation, into one of the most efficient and leading power utilities in China, and substantial (as in the ICR) for the first Beilungang and Wujing projects. The sustainability of all three projects is considered likely. Borrower performance is 12. Critics have argued that another weak area of progress has been in attracting foreign private investments- notwithstanding the fact that China has accounted for as much as a third of all such investments in East Asia. This topic is outside the scope of the audit but will be addressed in the forthcoming Energy Sector Impact Study. 10 rated satisfactory for the Beilungang and Wujing projects (instead of satisfactory and highly satisfactory in the respective ICRs) and highly satisfactory for the Beilungang Extension project (satisfactory in the ICR), in light of the remarkable progress achieved by ZPEPC in recent years, which more than offsets the delays in physical project completion. Similarly, Bank performance is rated satisfactory for the Beilungang and Wujing projects and highly satisfactory for the Beilungang Extension project (versus satisfactory in all three ICRs). Lessons Learned and Recommendations 5.2 The following key lessons and recommendations emerge from the experience of the three projects: * Initial technical problems encountered in Beilungang point to the critical importance of setting up rigorous coal quality control systems in all existing and future coal-fired plants (para. 3.1). And ZPEPC' s initial difficulties in managing the interface between a large array of contracts points to the benefits for inexperienced Chinese utilities of hiring international engineering consultants to help in the procurement and management of complex construction projects (para. 3.8). * The higher quality of environmental monitoring at Beilungang can be largely attributed to the Bank agreeing to finance the installation by ZPEPC of its own ground monitoring stations (in contrast, monitoring at Wujing was left to the Shanghai EPA). This approach should be replicated in future projects to the extent possible (para. 3.7). And the Bank's most recent initiative to carry out an ex-post environmental review of Bank-financed power plants after loan closing should be emulated in other countries where feasible (para. 4.3). * The remarkable progress ZPEPC achieved over the course of three successive Bank projects, and the acknowledged demonstration effect it has had on the sector as a whole, points to the benefits, in the Chinese environment at least, of the Bank and the government jointly "picking a leader" and "staying with it" over the long haul. A premature Bank withdrawal from this long-standing lending relationship would likely hamper the Bank's policy leverage in the sector (para. 4.1). * The slow progress achieved in removing distortions in tariff structure points to the limits of the incremental and pragmatic approach followed by the Chinese government on tariff reform. While the "new plant-new price" policy addressed the sector's immediate - financial needs, it went counter to basic economic principles and fostered inefficiencies (e.g., in plant utilization). Also, the highly decentralized regulatory process has led to a proliferation, until very recently, of provincial and county-level surcharges, taxes, and fees. which now greatly complicated the central authorities' efforts at promoting rationale pricing (para. 3.10). * The continued uncertainty regarding the ownership structure of former centrally owned assets leaves a cloud over the reliability of many utilities' financial statements. Resolution of this issue should be a matter of priority for sector authorities and the Bank may consider making it a prerequisite for future lending. The Bank should also revisit its current auditing requirements for revenue-earning entities-and at the very least insist on receiving international auditors' reports whenever they have been prepared (para. 3.11). 11 Annex A Basic Data Sheet CHINA: BEILUNGANG THERMAL POWER PROJECT (LOAN 2706-CHA) Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate Current estimate appraisal estimate Total project costs 625.5 378.20 60% Loan amount 225.0 224.36 Local bank 400.5 149.73 Other external sources 0.0 4.11 Cancellation Date physical components completed 12/31/91 7/1/92 Economic rate of return 8.5% 10.5% a. Financing for repair of the No. 1 boiler after the accident. The source of the financing was provided from production funds. Cumulative Estimated and Actual Disbursements FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 Appraisal estimate (US$M) 30.0 70.0 150.0 190.0 215.0 225.0 Actual (US$M) 16.9 24.4 132.2 168.9 181.3 203.7 218.4 224.4 Actual as % of appraisal /a 56.3 34.9 88.1 88.9 84.3 90.5 Date of final disbursement: October 31, 1994 a. $630,741.76 was cancelled from the loan on 10/31/94. Total disbursement of $224,369,258.24 was made on 10/31/94. Note: The loan closing date was extended twice due to delays in procurement of training simulator 500 kV protection relay system for the third transmission line and ash-handling system for the second unit. Project Dates Original Actual Identification - 08/84 Preparation 03/85 10/84 Appraisal 06/86 07/85 Negotiations 02/86 04/86 Board approval 04/86 05/29/86 Signing - 07/01/86 Effectiveness - 08/27/86 Project Completion 12/30/91 07/01/92a Closing date 06/30/92 05/30/94 a. Commercial operation. Staff Inputs (staff weeks) Planned Staff weeks Actual Staff weeks Actual US$ ('000)1 Preappraisal 57.5 155.3 Appraisal 30.0 45.0 121.5 Negotiations 5.0 13.5- Supervision 68.0 183.6 Completion 3.0 8.1 Total 178.5 482.0 12 Annex A Mission Data Date No. of Staff days Specializations Performance Rating Types of (month/year) persons in field represented' rating' trend problemsc Identification/ 09/84 2 7 E, E Preparation Appraisal Supervision 11/87 3 8 E, E, FA 1 P 03/89 3 10 E, E, FA 1 PM 04/90 2 5 E, E 1 PM 03/91 3 7 E, E, FA 1 PM 06/91 1 3 E 1 PM 06/92 1 3 E, E, FA 1 PM 09/92 1 6 EC 1 PM 06/93 1 8 E 2 BA 04/94 1 2 E 1 PM Completion a. E=Engineer; FA=Financial Analyst; EC=Economist. b. 1 = no significant problems; 2=moderate problems. c. Types of Problems: P=Procurement; PM=Project Management; BA=Boiler accident. Other Project Data FOLLOW-ON OPERATIONS Operation Credit no. Amount Board date (US$ million) Shuikou Hydroelectric Project I Ln. 2775 140 1/6/87 Shuikou Hydroelectric Project II Ln. 3515 100 9/1/92 Wujing Thermal Power Project Ln. 2852 190 6/23/87 Ertan Hydroelectric Project Ln. 3506 380 7/2/91 Ertan Hydroelectric II Project Ln. 3933 400 8/22/95 Daguangba Multipurpose Project Cr. 2305 37 10/31/91 Ln. 3412 30 Yanshi Termal Power Project Ln. 3933 400 8/22/95 Zouxian Thermal Power Project Ln. 3462 310 4/21/92 Tianhuangping Hydroelectric Project Ln. 3616 300 5/18/93 Yangzhou Thermal Power Project Ln. 3718 350 3/22/94 Zhejian Power Development Project Ln. 3846 400 2/28/95 Sichuan Transmission Project Ln. 3748 270 2/28/95 Henan (Qinb.) Thermal Power Project Ln. 3980 440 2/27/96 Tuoketuo Power/Inner Project Ln. 4172 400 5/27/97 Shanghai Waigaoqiao Thermal Power Project Ln. 4197 400 6/24/97 E. China/Jiangsu Transmission Project Ln. 4303 250 3/26/1998 Hunan Power Development Project Ln. 4350 300 6/18/1998 13 Annex A CHINA: WUJING THERMAL POWER PROJECT (LOAN 2852-CHA) Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate appraisal estimate Total project costs 321.9 381.8 119% Loan amount 190.0 190.0 Cofinancing Cancellation Date physical components completed 12/3/92 12/27/92 Economic rate of return 11.7% 15.9% Cumulative Estimated and Actual Disbursements FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 Appraisal estimate (US$M) 10.7 37.1 89.0 140.8 169.8 190.0 Actual (US$M) 0.0 21.8 42.5 92.8 139.3 161.8 169.6 189.2 190.0 Actual as % of appraisal 0.0 58.8 47.8 65.9 82.0 85.2 Date of final disbursement: August 2, 1995. The loan closing date was extended twice for procurement of electrical equipment for improvement of the Shanghai distribution network. Project Dates Original Actual Identification/Preparation 09/86 Appraisal 11/86 11/86 Negotiations 05/87 05/87 Board approval 06/23/87 Signing 02/03/88 Effectiveness 04/14/88 Project completion 12/31/92 12/27/92 Closing date 06/30/93 6/30/95 /a Commercial operation. 14 Annex A Staff Inputs (staff weeks) Actual Staff weeks $'000 Preparation to appraisal n.a. 26.1 Appraisal n.a. n.a. Negotiations through Board approval n.a. 2.7 Supervision 50.1 111.0 Completion 1.6 11.2 Mission Data Date No. of Staff days Specializations Types of (month/year) persons in field represented Is DO problems Identification/ 11/86 3 E, F, E Preparation Appraisal Supervision 03/89 3 5 E, E, FA 1 09/89 3 2 E, E, FA 1 10/90 3 5 E, E, FA 1 06/91 2 3 E, S 1 06/92 4 4 E, E, FA, S 1 06/93 1 3 E 1 06/94 2 2 FA, E 1 03/95 1 2 E 1 Completion 07/95 2 2 FA, E Specialization: E=Engineer; FA=Financial Analyst; S=Support. Implementation Status: 1 =no significant problems. 15 Annex A CHINA: BEILUNGANG THERMAL POWER EXTENSION PROJECT (LOAN 2955- CHA) Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of Estimate Current estimate appraisal estimate Total project costs* 260.9 276.89 106% Loan amount 165.0 164.94 Cofinancing Cancellation -- 0.06 Date physical components completed 5/31192 11/18/94 Economic rate of retum 15.0% 17.1% * Excl. IDC. Cumulative Estimated and Actual Disbursements FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 Appraisal estimate (US$M) 25.0 100.5 140.1 151.0 165.0 Actual (US$M) 19.0 48.6 111.7 130.5 136.7 140.7 145.6 164.9 Actual as % of appraisal /a 76.0 48.4 79.7 86.4 82.8 Date of final disbursement: October 31, 1995 Ia US$55,505.73 was cancelled from the loan on 10/31/95. Total disbursement was $164,944,494.27. Project Dates Original Actual Identification/Preparation 11/87 Appraisal 2/88 2/88 Negotiations 5/88 5/88 Letters of Development Policy Board approval 6/88 6/14/88 Signing 10/20/88 Effectiveness 02/02/89 Project completion 5/31/92 11/18/94/a Closing date 6/30/93 6/30/95 /a Commercial operation. 16 Annex A Staff Inputs (staff weeks) SWs $'000 Preparation to appraisal 54.8 27.3 Appraisal 25.1 47.7 Negotiations through Board approval 16.4 33.8 Supervision 58.0 165.4 Completion 3.0 13.0 Total 157.3 287.2 Mission Data Date No. of Staff days Specializations Performance Rating Types of (month/year) persons in field represented rating trend problems Identification/ 11/87 3 17 E, E, FA Preparation Appraisal 2/88 3 12 E, E, FA Supervision 03/89 3 5 E, E, FA 1 04/90 3 5 E, E, FA 1 11/90 2 4 EC, EC 2 IM 03/91 3 7 E, E, FA 1 CW 06/91 1 3 E 1 06/92 4 4 E, E, FA, L 1 SC 09/92 1 6 EC 1 QU 06/93 1 4 E 2 PM, Q 04/94 1 2 E 1 PM, Q Completion 03/95 1 3 E 1 Specialization: E=Engineer; FA=Financial Analyst; EC=Economist; L=RMC staff. Performance Rating: 1 =no significant problems; 2=moderate problems. Types of Problems: IM=Delay in implementation of a study on ZPEPB's organization and management; CW=Delay in civil work due to soft socil condition; SC=Delay in schedule; QU=Quality Control; PM=Project Management. 17 Annex B Key Performance Indicators Beilungang and Wujing Thermal Power Projects (Loans 2706, 2955 and 2852) ZPEPC 1987 1989 1991 1993 1995 1997 * Energy Sales (Gwh) 14,187 16,372 20,569 26,935 34,123 * System load factor (%) 86.5 85.9 85.3 86.6 87.3 88.6 * Average coal consumption (g/kwh) 410 408 397 388 342 * No. of customers per employee 27 32 34 33 38 * Net sales per employee (Mwh) 420 510 610 770 940 * Average tariff (1997 fen/kwh)* 21.3 20.3 25.2 36.1 32.0 33.9 * Self financing ratio (%) 8 15 44 104 * Debt service coverage (times) 2.0 2.4 2.1 3.5 * Debt equity ratio 36:64 53:47 64:36 49:51 * Accounts receivable (days of sales) * excl. VAT SMEPC 1987 1989 1991 1993 1995 1997 * Energy Sales (Gwh) 17,190 18,751 20,774 25,885 28,737 * System load factor (%) 86.7 85.0 84.8 84.8 84.4 * Average coal consumption (g/kwh) 360 357 351 334 333 * No. of customers per employee 24 31 38 49 79 * Net sales per employee (Mwh) 540 600 670 810 900 * Average tariff (1997 fen/kwh)* 23.3 25.7 28.2 34.5 31.7 * Self financing ratio (%) 31 32 24 28 * Debt service coverage (times) 4.1 5.2 4.9 * Debt equity ratio 43:57 47:53 57:43 52:48 * Accounts receivable (days of sales) 24 29 excl. VAT  19 Annex C Semi-Annual Operational Data Table 1. Beilungang Thermal Power Projects (Loans 2706 and 2955-CHA) The Whole Plant Unit 97(FH) 97(SH) 97 96(FH) 96(SH) 96 95(FH) 95(SH) 95 Power generation MWh 3821380 3820620 '7642000 2857350 3923400 6780750 2792470 3706070 6498540 Availability % 88.81 94.21 91.53 64.25 91.44 77.92 76.41 80.92 78.68 Equivalent availability factor % 88.52 93.51 91.03 62.60 90.75 76.76 73.96 77.35 75.67 House auxiliaries loss % 3.86 4.28 4.07 3.98 3.98 3.98 4.78 4.46 4.60 Coal consumption (g/standard coal per kWh) g/kWh 317.50 321.80 319.60 322.20 323.40 322.90 330.60 321.60 325.50 Unit 97(FH) 97(SH) 97 96(FH) 96(SH) 96 95(FH) 95(SH) 95 Power generation MWh 2032440 1889020 3921460 1637890 2163900 3801790 1743170 2253610 3996780 Availability % 97.58 92.26 94.90 74.80 99.62 87.28 85.99 95.05 90.56 Equivalent availability factor % 97.47 91.61 94.51 72.04 98.87 85.54 83.34 93.02 88.22 House auxiliaries loss % 4.35 4.68 4.51 4.46 4.39 4.42 4.87 4.57 4.70 Coal consumption (g/standard coal per kWh) g/kWh 318.30 320.80 319.50 320.60 322.90 321.90 327.20 320.90 323.60 Unit 97(FH) 97(SH) 97 96(FH) 96(SH) 96 95(FH) 95(SH) 95 Power generation MWh 1788940 1931600 3720540 1219460 1759500 2978960 1049300 1452460 2501760 Availability % 80.05 96.15 88.16 53.70 83.27 68.56 66.83 66.78 66.80 Equivalent availability factor % 79.56 95.41 87.55 53.16 82.63 67.98 64.58 61.67 63.11 House auxiliaries loss 3.30 3.88 3.60 3.32 3.47 3.41 4.63 4.29 4.43 Coal consumption (g/standard coal per kWh) g/kWh 316.50 322.80 319.80 324.40 324.10 324.20 336.30 322.60 328.30 Note: FH=First half; SH=Second half 20 Annex C Table 2. Wujing Thermal Power Project (loan 2852-CHA) Year Unit no. Efficiency Coal Coal Electricity Plant Heat Steam Equivalent Equivalent Vacuum consumption consumption generated electrical consump- rate available forced degree in power in power consump- tion rate stop rate generation supply tion rate % g/Kw.h G/Kw.h 1OMW.h % k/kW.h kg/kW.h % 1993 Unit 11 1t semi-year 43.86 336 353 71091 5.03 8762 3.33 72.80 16.95 0.99 2nd semi- 38.41 344 364 82156 5.50 8384 3.18 84.45 8.87 0.99 year Unit 12 is semi-year 39.60 335 353 77801 4.98 9116 3.29 79.03 10.06 0.99 2nd semi- 40.60 343 362 74223 5.26 8861 3.26 81.63 10.88 0.99 year 1994 Unit 11 1d semi-year 38.23 331 349 53465 5.15 9403 3.33 57.54 7.16 91.54 2nd semi- 38.59 338 356 89975 4.98 9344 3.37 74.42 4.52 89.34 year Unit 12 1st semi-year 39.92 332 350 86916 5.08 9026 3.35 90.43 3.91 94.53 2nd semi- 39.85 341 359 87258 5.06 9037 3.34 91.05 3.34 92.62 year 1995 Unit 11 15 semi-year 39.93 334 353 80203 5.32 9004 3.26 86.54 10.21 92.06 2nd semi- 40.00 335 353 96325 5.13 8953 3.32 89.32 2.91 89.86 year Unit 12 1s semi-year 40.50 333 352 53412 5.41 8864 3.23 58.20 6.05 93.41 2 semi- 40.94 335 353 86773 5.04 8780 3.24 71.50 4.58 91.38 year 1996 Unit 11 1sl semi-year 39.48 334 350 87927 4.65 9116 3.24 82.44 3.33 93.05 2nd semi- 38.97 336 353 87288 4.98 9238 3.32 84.07 2.23 89.44 year Unit 12 1st semi-year 41.91 333 349 91988 4.61 8594 3.18 87.15 2.90 94.17 2nd semi- 41.19 336 353 88784 4.95 8960 3.30 89.66 1.71 91.84 year 1997 Unit 11 1" semi-year 39.83 331 347 75903 4.62 9042 3.26 71.66 15.18 88.12 2nd semi- 38.92 336 353 98506 4.82 9254 3.29 83.75 7.06 89.13 year Unit 12 is semi-year 41.16 331 347 94237 4.69 8750 3.24 88.37 0.14 92.99 2nd semi- 40.43 334 350 99793 4.60 8906 3.27 92.79 0.12 92.12 year I I I Note: The 2no semi-year figures of Equivalent available rate, and Equivalent forced stop rate refer to the whole year's average value. 21 Annex D Average Tariffs by Consumer Category Chart 1. ZPEPC Tariff (including VAT, no local surcharge) 60 50 40 30 20 10 1994 1995 1996 1997 --- large industry ---cornwercial/small industry --A- agnculture x--- residential -e-- non-residential lighting -- bulk sales --*-average Chart 2. SMEPC Tariff (including VAT but excluding surcharges) 60 55 50 .C 45 40 35 5 30 .~25 20 15 10 q! 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 ---- lighting -us commercial/small industry --- large industry -6-- agriculture ***W-average  23 Annex E Sources of Financing for ZPEPC and SMEPC Chart 1. Source of ZPEPC Investment 4000 3500- 3000- 2500-- . 200 S1500-- 1000 500-- Chart992 i193Fo 1994r 1995 1996 2. Sources of SMEPC Investment 5000 4500 4000 - E 3500 S3000 - 2500 2000- 1500- 1000- 500 0o- 1993 1994 1995 1996 E Local Borrow ing e Foreign Borrow ing i Consumer Contribution a Equity Contribution s 25 Annex F Comments from Borrower LZHIANG PROVINCIAL ELECTRIC POWR COMPANY Mr. Gregory K. Ingram Manager Sector and Thematic Evaluations Group Operations Evaluation Department The World Bank July 13, 1999 Dear Mr. Ingram, Beilungang Thermal Power Project (Loan 2706-CHA) Beilugang Thermal Power Extension Project (Loan 2955-CHA) Draft Performance Audit Report The Draft Perfomance Audit Report has been received with thanks. We have no comments to the report. We will try our best to learn the experience and lesson from the two projects and fulfil the objectives for Zhejiang Power Development Project Yours sincerely, hen Jimin General Manager Zhjiang Provincial Electric Power Company 26 Annex F SHANGHAI MUNICIPAL ELECTRIC POWER COMPANY TO: MrAlain Barbu THE WORLD BAK GROUP FAX NO: 001-202-5223 123 FROM: Cli Jianchou Shanghai Municipai EIctic Company FAX NO: 0086-21-6329-1440 Thank you for your fax dated June 16,1999. We have no objecdon to the Performance Audit Report. Best regrds, Cui Jianchou Deputy Chief Engineer SMEPC oQ100