China - Daguangba-Hainan Multipurpose Project

 ICRR 10565 Report Number : ICRR10565 ICR Review Operations Evaluation Department 1. Project Data : Date Posted : 04/10/2000 PROJ ID : P003492 OEDID: OEDID : C2305 Appraisal Actual Project Name : Daguangba-Hainan US$M ) Project Costs (US$M) 193.0 197.5 Multipurpose Project Country : China Loan/ US$M ) Loan /Credit (US$M) 67.0 67.0 Sector, Major Sect .: Hydro, Electric Power US$M ) Cofinancing (US$M) 0 0 & Other Energy L/C Number : C2305; L3412 FY ) Board Approval (FY) 91 Partners involved : Closing Date 12/31/1997 12/31/1998 Prepared by : Reviewed by : Group Manager : Group : Alain A. Barbu Andres Liebenthal Gregory K. Ingram OEDST 2. Project Objectives and Components a. Objectives (a) develop non-polluting and cost-effective hydro-power resources (b) increase agricultural production and income of poor farmers (d) improve environment and public health in the Hainan region via environmental management program (e) promote prudent investment programming; and (f) improve HEPCO (the Hainan power utility)'s operational efficiency and finances b. Components (a) power component incl: (i) 56 m -high concrete dam; (ii) 4 X 60 MW generation units and associated transmission line and substation; (iii) load dispatch system; (iv) TA and training for HEPCO; (b) agricultural component, incl: (i) 16 km main irrigation canal; (ii) irrigation works on 12,700 ha (of which 1,400 ha related to resettlement; (iii) resettlement of about 23,800 people; (iv) agricultural services c. Comments on Project Cost, Financing and Dates Actual total project cost was 2.3 % above appraisal estimate. IBRD/IDA funds were fully disbursed. 3. Achievement of Relevant Objectives : The power facilities were completed on schedule (12/95), with only a small cost overrun (2.3%), and have been operating satisfactorily, helping improve the hydro -thermal balance in Hainan's grid. Phase I of the main canal has been completed generally as planned but Phase II is not yet complete due to shortage of local funds (by 1999, two thirds of the planned area had been irrigated ). Nonetheless, overall ERR on the total project has been recalculated at 16.1 % (vs. 15.0 % at appraisal) thanks to higher-than-expected- crop yields and based on power consumers' willingness to pay. The environmental program was generally successful in improving the area's ecology as well as health and sanitation. But the project's main institutional objectives were only partially achieved, with no improvement in power and water pricing policies, and HEPCO's finances remaining precarious (in sharp contrast with most Chinese power utilities). Most significantly, resettlement objectives have not yet been achieved for lack of sufficient local funds, with 40 % of resettled villagers having income at least 20 % below their pre-move income (however, the ICR reports that in Sept . 1999, the Government approved funds to complete the resettlement program, and an initial but temporary drop in incomes has been the norm in other Chinese resettlement programs ). 4. Significant Outcomes /Impacts : Project helped increase the efficiency of power production and dispatch in the province and contributed to higher agricultural yields, directly benefiting 5,000 of the poorest families in western Hainan . In addition about 10,000 jobs are reported to have been created by the project (although the basis for this estimate is not specified ) and additional tax revenues generated. 5. Significant Shortcomings (including non -compliance with safeguard policies ): On the power side, power tariffs have remained inadequate (due to the provincial government's inaction ) and as a result HEPCO has failed to meet a key financial covenant (self-financing ratio), even making losses in 1997 and 1998 (however, prospects for increased tariffs and debt restructuring appear to have improved in light of very recent Government decisions). The ICR mission aide-memoire also points to some past deficiencies in HEPCO's operation of the power plant (which are now being addressed ). On the irrigation side, water prices remain similarly insufficient . Lack of sufficient counterpart funding from the provincial government has delayed the implementation of the irrigation works and of the resettlement program . Resettlement problems were compounded by the absence of a provincial resettlement office (as has usually existed in other Chinese resettlement cases ) and the Bank's initial overestimation of Hainan' s institutional capacity . As a result, the borrower has not yet achieved the project's resettlement objectives (see 3 above), a departure from China's generally good record on recent dam resettlement programs. 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Marginally Satisfactory rating slightly downgraded on account of limited achievements of institutional and financial objectives, as well as poor progress to-date in implementing the resettlement program Institutional Dev .: Partial Modest ratings are consistent Sustainability : Likely Uncertain although very recent government decisions are encouraging, HEPCO's future finances and the completion of the resettlement program both hinge on Provincial Government's ability to live up to its funding and tariff approval commitments. Bank Performance : Satisfactory Satisfactory Borrower Perf .: Satisfactory Unsatisfactory largely on account of poor performance by provincial government (non-compliance with financial and resettlement covenants ) during project implementation period --although ICR also points to weaknesses in HEPCO's performance (plant and system operation, and environmental monitoring). Most recent government decisions augur well for future improvements on the resettlement and financial fronts, but come after loan closing. Quality of ICR : Exemplary 7. Lessons of Broad Applicability : Need for the Bank to: (a) carefully appraise early on all institutional arrangements for resettlement, particularly regarding land acquisition issues, even when, prima facie, relocation appears not to be required; (b) secure appropriate Borrower commitments to counterpart funding; (c) depart from prior (successful) approaches to power projects in China when specific circumstances warrant it (e.g. in this case a multipurpose project in a particularly poor and institutionally weak province ) 8. Audit Recommended? Yes No 9. Comments on Quality of ICR : Exemplary. Extremely thorough assessment of all aspects of project implementation and outcomes (including a full ex-post recalculation of the ERR). Also includes all necessary detailed tables and annexes, as well as an extract of a full-fledged Borrower completion report.