China - Xiaolangdi Multipurpose Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 22493 IMPLEMENTATION COMPLETION REPORT (CPL-37270) ONA LOAN IN THE AMOUNT OF US$460 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FORA XIAOLANGDI MULTIPURPOSE PROJECT June 28, 2001 Rural Development and Natural Resources Sector Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective January 2001) Currency Unit = Yuan (Y) Yuan 1 = US$ 0.12077 US$ I = Y 8.28 Year Average 1994 --- Y8.70 1995 --- Y8.30 1996 --- Y8.30 1997 --- Y8.30 1998 --- Y8.28 1999 --- Y8.28 2000 --- Y8.28 2001 --- Y8.28 FISCAL YEAR January December ABBREVIATIONS AND ACRONYMS EIA -Environmental Impact Assessment EIA/XLD -EIA for Xiaolangdi Project EIRR -Economic Internal Rate of Return EMP -Environmental Management Plan EMO -Environmental Management Office FIRR -Financial Intemal Rate of Retum MWR -Ministry of Water Resources NPV -Net Present Value POE -Panel of Experts RPDI -Reconnaissance Planning and Design Institute RS -Resettlement SAR -Staff Appraisal Report SBC -Special Board of Consultants SOE -State Owned Enterprise XECC -Xiaolangdi Engineering Consulting Company XLD -Xiaolangdi Project YRWHDC -Yellow River Water and Hydropower Development Corporation YRCC -Yellow River Conservancy Commnission Vice President: Jemal-ud-din Kassum Country Manager/Director: Yukon Huang Sector Manager/Director: Mark Wilson Task Team Leader/Task Manager: Daniel J. Gunaratnam  FOR OFFICIAL USE ONLY CHINA XIAOLANGDI MULTIPURPOSE PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 2 5. Major Factors Affecting Implementation and Outcome 15 6. Sustainability 18 7. Bank and Borrower Performance 20 8. Lessons Learned 21 9. Partner Comments 22 10. Additional Information 22 Annex 1. Key Performance Indicators/Log Frame Matrix 23 Annex 2. Project Costs and Financing 24 Annex 3. Economic Costs and Benefits 27 Annex 4. Bank Inputs 28 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 30 Annex 6. Ratings of Bank and Borrower Performance 31 Annex 7. List of Supporting Documents 32 Annex 8. Project Scope 33 Annex 9. Loan Covenant Compliance 37 Maps IBRD 25525 and 25533 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.   Project ID: P003562 Project Name: XIAOLANGDI MULTIPURPOSE Team Leader: Daniel J. Gunaratnam TL Unit: EASRD ICR Type: Core ICR Report Date: June 28, 2001 1. Project Data Name: XIAOLANGDI MULTIPURPOSE L/C/TF Number: CPL-37270 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Al - Irrigation & Drainage; PH - Hydro KEY DATES Original Revised/Actual PCD: 07/21/1988 Effective: 09/22/1994 09/22/1994 Appraisal: 04/08/1993 MTR: 06/30/1996 06/30/1996 Approval: 04/14/1994 Closing. 12/31/2000 12/31/2000 Borrower/lmplementing Agency: People's Republic of China/Yellow River Water and Hydro. Dev. Corp. Other Partners: US EXIM Bank STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Gautam Kaji Country Manager: Yukon Huang Nicholas Hope Sector Manager: Mark Wilson Joseph Goldberg Team Leader at ICR: Daniel Gunaratnam Daniel Gunaratnam ICR Primary Author: Daniel Gunaratnam 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The main objectives of the project are to: (a) introduce flood control in the lower reaches of the Yellow River Basin to protect major infrastructure and 103 million people; (b) control siltation in the 800 km downstream channel of the river and prevent further aggradation; (c) provide water for assured irrigation and more stable water supplies for downstream cities and industries; and (d) generate 5,400 GWh per year of hydropower for supplementing the base load of thermal stations in Henan and the Central China Power Network and Shanxi Power Network. 3.2 Revised Objective: The objectives of the project were not revised during the project. 3.3 Original Components: The main components consisted of the following components: Component Costs /a Performance (in $ million) Rating lb Construction of a Dam across the Yellow River 390.6 HS Construction of Intake and Outlet 625.6 S Construction of an 1,800 MW Hydropower Station 184.3 S Implement and Environmental Management Plan 22.6 S Technical Assistance (TA) for training YRWHDC Staff 1.0 S MWR and YRCC Institutional Support 3.0 S Administration and Engineering 111.5 S /a Costs do not include minor works amounts which total about $317 million. /b HS--Highly Satisfactory, S--Satisfactory. 3.4 Revised Components: The components were substantially unchanged to date. 3.5 Quality at Entry: There was no quality at entry assessed. Normal performance reviews rated the project as very satisfactory. However, the second stage of this project was assessed as highly satisfactory for quality at entry. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: All the objectives of the project were achieved by the time the loan was closed. This was not originally anticipated in this loan period. The main objectives of the project and achievements are presented below: Objective A: Introduce flood control in the lower reaches of the Yellow River Basin to protect major infrastructure and 103 million people. Achievement: The Xiaolangdi Dam was completed in early 2000 and the reservoir was partially filled during the 2000/2001 dry season. The dam is now capable of regulating the flows of the Yellow River during the flood and dry seasons. The flood forecasting system has been significantly enhanced and the institutions are in place to undertake flood forecasting. The reservoir is capable of completely reducing flood losses downstream. The reservoir is also capable of regulating flows -2-  so that ice floods can be completely avoided. During the 2000 winter, ice appeared on the piers in the river in Shandong but there was no freezing of the river because adequate flow was released from the reservoir to prevent freezing. Objective B: Control siltation in the 800 km downstream channel of the river and prevent further aggradation. Achievement: The Xiaolangdi Dam is now being operated for sediment control. In the year 2000 the reservoir stored 233 million tons of silt and a further 19 million tons eroded downstream of the river channel, giving a total amount of silt control of 252 million tons in the first year of operation, which is very remarkable. The average sediment control for an year should be about 300 million tons. In a dry year the amount of silt control could be far less (say 100-150 tons per year) but even in the dry year, 100 percent more silt entrapment occurred. Objective C: Provide water for assured irrigation and more stable water supplies for downstream cities and industries. Achievement: The project was already supplying water in 2000, one year ahead of schedule, to industries and to cities. In 2000 when there was a severe drought the Xiaolangdi Dam regulated the flows so that Tianjin received 860 million cubic meters (Mcm) of water. Another 1,150 Mcm were supplied downstream for irrigation and for industry (Shengli Oil Fields) and for cities, giving a total of 2.0 billion cubic meters (Bcm) supplied during one of the worse droughts of the 20th century. Objective D: Generate hydropower for supplementing the base load of thermal stations in Henan and the Central China Power Network. Achievement: Power generation has not done as well as the other objectives. The power station started power generation in February 2000 as scheduled after the first unit was installed but could not sell its power because the power sales agreement did not have a tax code. However, this was rectified and in 2000, 550 GWh (33 percent) were generated was compared with the 1,650 GWh that should have been generated in 2000. The decrease in power generation was mainly due to the change in priority in reservoir operation to releasing water for water supply due to the massive drought (1 in 80- to 90-year recurrence period) throughout northern China. This change in priority of operation of the dam deprived the system of water supply and water heads for power generation. In a normal water flow year, however, power generation will reach projected generation amounts. Other Achievements: 1. The dam regulated water flows in FY 2000 and managed to keep water flowing in the lower reaches with no days when the river dried up. In 1990 the river would dry up for up to 180 days. The continuous flow of the Yellow River will have significant impact on the estuarial ecology. 2. For the first time for many centuries the water below Xiaolangdi is clear and silt free. This will significantly reduce the cost of water treatment for urban and agricultural use. It will also enhance freshwater ecology in the river since most freshwater fish cannot nornally survive in highly silted water. -3-  3. The dam has managed to regulate the flows even in a 1-in-80-year drought and was the only main river in northem China that had water to supply to many cities that ran out of water resources. 4.2 Outputs by components: The major outputs from the five components have been essentially satisfied as defined in the Staff Appraisal Report (SAR): (1) Dam and Inlet and Outlet Structures. The diversion of the river occurred on November 26, 1997. The dam and most of the outlet structures were essentially completed by June 2000, almost 12 months ahead of schedule. The construction of the dam and appurtenant structures was completed to exactly the same geometric requirements as required in the appraisal (see Annex 8 for detailed quantities). The quality of works was excellent. All concrete, steel and earthworks met the highest requirements of engineering standards. Most of the main works were handled by international contractors while some of the smaller works were by local contractors. The main outputs of the dam were: (a) Flood Control: With the dam completed, a reservoir was created with a storage capacity of 12.1 Bcm. The reservoir storage is three times the flood storage for regulating even a catastrophic flood of 45,000 cubic meters per second (cm/s) so that levels of water downstream are fully contained between the dikes and breaching of the dikes can be avoided. In addition the high frequency of floods (1 in 2 years without the dam) has now decreased to I in 7- to 10-year recurrence. The floods presently spill over the riverbanks into the floodplains between the dikes and can cause considerable (44 percent) damage for 1 million people living in these floodplains. In 1996 the one- to two-year flood destroyed thousands of houses and farmland of people living between the dikes. (b) Sediment Control for Downstream River Channel Siltation. During the first year of operation over 250 million tons of silt was trapped in the reservoir or eroded downstream. This level of silt control in the first year of operation clearly demonstrate that silt control by the dam is working very well. Silt control is extremely important because the river flow capacity has decreased from 22,000 cm/s in 1958 to 7,000 cm/s in 1996. The riverbed has been aggrading during this period and has lost 65 percent of its flow capacity. With the Xiaolangdi dam it will be possible to recover some of these losses in capacity in the river channel because the dam will release water to flush out the silt from time to time. (c) Water Supply for Irrigation and Municipal and Industrial Water. The dam has been supplying water to irrigation and to cities and clearly this output has become a very important because of the dire need for municipal and industrial water due to the drought in northern China. Presently the losses due to water shortages amount to Y60 billion per year. The water supplied for firming up 2 million ha irrigation and to several cities has been resimulated and is similar to the output defined in the Staff Appraisal Report. Water for irrigation increased by 2.3 Bcm/year to Henan Province and by 1.2 Bcm to Shandong (see Table 1). Groundwater is not changed but surface water use for municipal and industrial (M&I) purposes increases from 2.72 Bcm/year to 5.22 Bcm/year. Even under low flow conditions M&I water supply is increased. This increase should meet the deficit in water for cities in the lower reaches. Grain production increases by 3.6 million tons and added value will increase by Y7.5 billion (Table 2). - 4 -  Table 1: Supply of Water to Henan and Shandong River Regime RivErblw Diverted to Diverted to GW use in GW use in Municipal Henan Shandona Henan Shandona and Industrial Water Use Without Proiect Average Flow 34.1 6.5 11.1 0.9 2.5 2.7 Maximum 70.6 10.2 23.0 1.0 2.5 2.9 Minimum 13.3 4.3 3.1 0.8 2.1 2.5 With Proiect Average Flow 34.5 8.8 12.2 1.0 2.5 5.2 Maximum 71.0 12.7 21.6 1.0 2.5 5.3 Minimum 13.1 3.2 2.6 0.8 2.1 3.1 Table 2: Effective Irrigated Areas and Added Value EFF-AREA IRRARE SIM-DIVR VAL-ADDED GRAINS mil ha mil-ha BCM/vr Bil Y Mil-Tons With Project Henan 13.3 21.3 11.5 6.5 5.4 Shandong 26.7 40.0 15.2 11.2 7.9 TOTAL 40.0 61.3 26.7 17.6 13.3 Without Proiect Henan 10.0 10.0 6.0 3.5 2.4 Shandong 26.7 30.9 9.1 10.1 7.3 ITOTAL 36.7 40.9 15.1 13.6 9.7 (2) Power Generation. Power generation was commissioned in January 2000 on schedule. However, due to the drought conditions, the high priority for city water supply, and the lack of water in the river, power production was much lower level (30 percent) of power production for the first year. However, it is expected that in normal years power production will increase to almost the appraisal levels of power production. In addition, the power markets in China have declined considerably. There is now a surplus of power compared to the period of the appraisal of the project (1993/94) when there was a deficit of power. With power market reform, many of the smaller inefficient and polluting coal-fired plants being banned, and introduction of two-tier power pricing, the power markets should be restored. GOC has decided that during drought conditions it is more important that Xiaolangdi is used to reduce water shortages for M&I water supply, thereby limiting economic losses (by about Yl5 billion) rather than generating hydropower which may generate Y1.4 billion in income. (3) Environmental Management Component (a) Environmental Impacts and Environmental Protective Measures (EPMs). As described in the Environmental Impact Assessment for Xiaolangdi (EIAIXLD), the major adverse impacts due to the project included resettlement of some 180,000 people, risks due to reservoir-induced earthquake, loss of cultural relics and potential for public health disasters. Corresponding environmental protective measures (EPMs) were developed in the EIA to compensate, mitigate or minimize the impacts. Basically, all these EPMs have been implemented during project - 5-  implementation as described below. a. 1 Resettlement. The implementation of EPMs for the resettlement program was carried out separately by the Environmental Management Office for Resettlement (EMO/RS) in a separate IDA project: Xiaolangdi Resettlement Project. Detailed information was available in the EMO/RS. The people to be relocated due to the Xiaolangdi Project was estimated and confirmed to be 197,000 and a fund of Y8.6 billion was approved for the overall resettlement program. By the end of March 2001, a total of 148,000 people had been successfully relocated with available funds of Y6.8 billion. a.2 Dam Safety. All dam safety measures including establishment of a panel of experts, setup of an earthquake monitoring network, and all earthquake-resistance design measures have been implemented and all are working effectively. Several small-scale and medium-scale earthquakes were recorded in the project area and no effects on the dam were identified, which now is completed. a.3 Cultural Relics. The cultural relics program was also a component of the Xiaolangdi Resettlement Project. Excavation and preservation of cultural relics sites have been carried out by the Henan and Shanxi provincial archaeological bureaus in accordance with a program plan, with a budget of some Y30 million. All programs for excavation and preservation of identified relics below El.235 have basically been completed as planned. Two summary reports (books) have been prepared and published separately by the Henan and Shanxi provincial archaeological bureaus in 2000. Detailed information is available in the EMO/RS. a.4 Public Health. Effective measures on public health including provision of safe drinking water, food sanitation, medical screening, rat and mosquito killing, and vaccinations have been continuously taken by all contractors and the project owner. Only a few separate communicable disease cases including hepatitis, tuberculosis and dysentery occurred in the entire project area and no outbreak has happened since commencement of the project in 1993. (b) EPMs During Project Implementation b. I Worker Safety. XECC has a special department, Safety Department (SD/XECC), with responsibilities of surveillance of safety in construction areas. Each contractor has a corresponding safety division with responsibilities of safety management. All possible measures have been taken to reduce work accidents. Overall work accident statistics show that a total of 1,852 injuries occurred in the six-year period, from June 1995 to February 2001, in which 187 workers were seriously injured and 36 were killed. However, considering the total number of workers involved, nearly 10,000 at peak, and the duration, six years, in such a complicated project, with over 100 tunnels and huge underground powerhouse, the number of accidents was within the acceptable range. b.2 Solid Waste Management. All solid waste including production waste such as construction spoils and wastes from camps are collected and transferred to designated disposal sites. b.3 Water Pollution Control. All wastewater discharged from all the project construction areas and camp areas basically meets the national standards and continuous monitoring results have shown that the impacts of the wastewater discharge on the Yellow River water quality was -6 -  negligible. b.4 Dust and Noise ControL Responsibilities for dust control in all construction areas and roads were assigned to different contractors and project owners. Regular road watering was conducted by contractors and YRWHDC on their responsible roads in every 20-40 minutes during working hours, except for rainy days. Noise due to construction was monitored and controlled at acceptable levels. Measures were taken for those noise sources with impacts to local residents. As an example, the Heqing Village School near the construction area was relocated due to the noise impact with funds provided by the contractor and YRWHDC. (c) Environmental Monitoring. A complete environmental monitoring system was established and has been functioning well in XLD. Environmental monitoring tasks related to the XLD darn site such as water quality, public health, air quality, water pollution control are assigned to and carried out periodically by different monitoring institutes. Systematic and large amounts of monitoring data were obtained and some actions were taken to resolve environmental problems identified by monitoring such as the Heqing School relocation, use of wastewater treatment facilities by the Lot II contractor, etc. (d) Comparison of Environmental Components. Table 3 shows the comparison of environmental components required in project SAR and the components implemented during project implementation. It was seen that all the components required in project SAR have been implemented with satisfactory results and some even with highly satisfactory results. Table 3: Comparison of SAR Requirements with Implementation SAR Requirements Implementation Evaluation 1. Establishment of EMO with Competent Staff Established from 1994 to now Satisfactory 2. Employment of International Panel of Experts Employed from 1994 to now Satisfactory 3. Environmental Protection Measures on 3.1 Dam Safety 3.1 All measures planned have been implemented Satisfactory 3.2 Cultural Relics 3.2 Planned program has been completed Satisfactory 3.3 Public Health 3.3 All measures have been taken with excellent Highly Satisfactory results 4. Resettlement Some 148,000 people have been successfully Satisfactory relocated with 6.8 billion yuan fund (A separate IDA ____ ____ ____ ____ ___ ____ ____ ____ ____ ___ project)_ _ _ _ _ _ _ _ _ _ 5. Measures to mitigate adverse impacts cause by An effective environmental management system has Highly Satisfactory project construction been established and been functioning well with minimized impacts by project construction 6. Timely EMP Implementation EMP implemented with project progress Satisfactory 7. Review of detailed action plans by Panel and Yes Satisfactory Bank 8. Ensure YRCC, Henan, Shanxi participation Yes Satisfactory (e) Review of Panel of Experts Reports. The International Panel of Experts on Enviromnent and Resettlement (POE) was established in June 1994. The objective of the panel was to ensure implementation of the Enviromnental Management Plan and minimize adverse environmental impacts caused by the implementation of the project. By the end of March 2001, a total of 12 panel meetings had been held and, accordingly, 12 panel reports have been prepared. Review of all the reports shows that the panel has played a very important role in the whole process of environmental management in the XLD project, especially on establishment, improvement and effective - 7 -  functioning of the environmental management system mentioned above. The Xiaolangdi experience has suggested that such a panel is necessary to ensure successful implementation of EMPs, especially for those large-scale projects with significant environmental damage potential. (4) Training and Technical Assistance. Training has been an important aspect for the project. Local training was undertaken by the intemational consultants for construction supervision, inspection of works, quality control, construction scheduling, claims management, etc. Local training was also undertaken for professional staff for financial management. About 100 staff were trained in financial management. For very specialized training staff were sent overseas to the United States, Canada, Switzerland, Italy, France, Germany, England, and Hong Kong (China) and some 107 staff were trained, which essentially follows the SAR table 1 page 134. Details of the training undertaken are as given in Table 4. Table 4: Forei Mn Specialized Training Foreign Courses Number Trained Engineering Engineering supervision 2 23 Project Scheduling 1 2 Hydropower Engineering 2 9 Construction Management 5 35 Claims Management 2 6 Computer Systems Information Systems 2 10 Computer Systems 1 3 Financial Internal Auditing 3 8 Financial Planning 3 6 Transitioning from Construction to operation 1 5 Total 22 107 The ICR mission assessment on training was that although the training followed most of that which was prescribed in the appraisal document there are two key areas of training that were not done which needs to be done during the operation of the project. The areas left out were in (a) Cash /Treasury Management and (b) Personnel Management. In addition some of the courses should have for longer durations. Overall, considerable training was undertaken during the project and had significant impact on building up the capabilities of the staff. (5) Institutional Program. The institutional program was mainly for YRCC and MWR. The five major areas identified in the SAR under the institutional program para. 3.25 and a summary of the evaluation of each component is given in Table 5. MWR regarded this component as very important. However, it took MWR some time to get organized before it could start the executing it because of the lack of familiarity with Bank procedures. -8 -  Table 5: Institutional Program SAR requirements ICR Evaluation Resources Mobilization and Management partialy completed marginal. Satisfact. Accounting Reform completed satisfactory Water Pricing completed satisfactory River Basin organization and Licensing system completed highly satisfactory Real Time Dispatching System for Yellow River basin partially completed satisfactory (a) Resource Mobilization and Management. This component was initially created to determine how water agencies could mobilize their resources and be self-financing for all sectors of water resources including flood control. There was no major study undertaken but several small studies incorporated in the studies of other components. It was determined in the early stages of the project that there are no really successful examples of large-scale rural water institutions that were successfully mobilizing their own water resources. Hence this study faded away and more focus was put into other studies. (b) The accounting reform component was very timely because in March 1993 the Ministry of Finance (MOF) and the People's Bank of China (PBC) issued a regulation to reform the accounting systems of all public and private enterprises. This regulation was for starting an Accounting Entry System (Charting of Accounts, forming of Journals and General Ledger Systems). Subsequently the State Council issued a regulation in July 1993 to request MOF to develop an accounting system that is not cash-based (accrual system), double-entry, etc. and to develop proper financial statements (balance sheets, income statements, etc.). Under the project for accounting reform a study was completed to review the accounting system of the water sector for about 10 countries (developed and developing) and to make reconmnendations for the accounting reform in China. MWR used the project study and other local studies to initiate MOF's accounting reform for the water institutions, which is still being undertaken. Clearly this component was very timely in assisting MWR to implement its accounting reforming program. (c) Water Pricing Reform. Under this component the Yellow River Basin was selected as the area to undertake the study. The study investigated the pricing system on several large- and medium-scale irrigation schemes and the water price to ensure self-financing capability. The study also identified some of the shortcomings of the institutional arrangements in the irrigation system level which need to be rectified before water pricing takes effect. As a result of this study and others MWR has developed several regulations on water pricing. This study was therefore fairly effective. (d) River Basin Organization and Licensing. This study also seemed very timely because GOC was in the process of developing a new law on managing river basins. A study was undertaken to review intemational experience in river basin management systems. MWR also studied and developed a river basin law for managing the waters within a basin. The licensing system was also developed by MWR for both the Yellow River Basin and independently for all of China. and 80 percent about the waters of China are licensed today. (e) Real Time Water Dispatch System. The component was initially developed for the lower river reach because MWR did not have authority over the operations of the key reservoirs in the middle and upper reaches of the basin. Hence in 1999-2000 with the assistance of a foreign consultant a contract was given to Reconnaissance Investigations Planning Design Institute (RPDI) of YRCC to -9-  develop the dispatch models for the lower reaches from upstream of Sanmenxia dam to Lijin which is at the mouth of the Yellow River in the Bohai Sea. The model was developed and was successfully verified. The main issue was that RPDI, the designer of the models, does not have the authority to operate the dispatch system and this has yet to be resolved. The main authority to undertake the dispatch system would be the Flood Information Center in YRCC in conjunction with YRCC's River Bureau. However in 2001 it became apparent to the State Council that the water dispatching of the whole Yellow River Basin is extremely important in times of drought and therefore YRCC was given the mandate to develop a real-time dispatch system for the entire Yellow River Basin. YRCC has therefore submitted a proposal Y76 million to be funded locally for equipment and software development for a dispatch system for the whole basin. This component has achieved it stated goals of initiating a pilot program, which has motivated the Government to invest almost 10 times the amount to develop a basinwide real-time water dispatch system. The institutional arrangements for the dispatch system are being worked out by YRCC and MWR. 4.3 Net Present Value/Economic rate of return: Net Present Value and Economic Rate of Return. At appraisal, the internal economic rate of return (IERR) was estimated at about 17.9 percent, based on the shadow-priced investment and operation and maintenance (O&M) costs and the benefits were computed for the various uses of water: (a) Flood Control: (ice and summer) floods based on damage avoidance due to the dam; (b) Sediment Control based on reduction cost in the raising of levees (c) Irrigation supply to increase crop production (d) Hydropower generation based on peak and energy tariffs Benefits for water supply for M&I were not estimated separately in the appraisal due to the lack of inforrnation. It was therefore included as part of the irrigation benefits. The benefits were reestimated for the implementation completion report (ICR) using a similar constrained optimization model used for the appraisal mission. Prices were updated for the most recent output and input values. Table 6 shows a comparison of the revised appraisal estimates compared to the ICR estimates (in year 2000 values). - 10 -  Table 6: Appraisal and ICR Estimates of NPVs and EIRRs Project/Component Appraisal Estimate \a ICR Estimate Benefits Costs NPV EIRR\b Benefits Costs NPV EIRR (Y bln) (Y bln) (Y bln) I (%) (Y bln) (Y bln) (Y bln) (%/6) Flood control 7.49 5.73 1.76 12.0% 8.11 3.88 4.23 22.0% Sediment control 2.89 2.46 0.43 11.0% 3.95 1.93 2.02 22.0% (environmental -direct) Irrigation water supply 13.85 5.28 8.57 33.0% 10.12 4.01 6.12 21.0% M & I Water na na na na 1.90 0.75 1.14 21.0% Power station 7.44 4.73 2.71 14.0% 8.28 6.53 1.75 12.1% Enviroment benefits na na na na na na na x (indirect) _ _ Total Project 31.67 18.20 13.47 17.5% ! 32.35 17.10 15.26 17.9% \a Appraisal estimates were up dated to end-2000 values and to exchange rate changes \b EIRR estimated from approximated distribution of costs and benefits It will be noticed that although the overall benefits computed for the ICR are only 2 percent above the appraisal estimates and costs are only 5 percent lower, the benefits for each of the different sectors did change significantly. Flood control and sediment benefits have increased because the value of assets being protected have increased. Sediment benefits have also increased and are based on the Xiaolangdi Stage II evaluation done in 1997. Inrigation benefits have declined because of the reduction of output prices. M& I benefits have been included for the ICR evaluation. The hydropower benefits are more in the ICR evaluation because the energy tariffs assumed during the appraisal of 3.95 fen/kWh were very low compared to the current energy market prices of 10 fen/kWh. Peak power values assumed during the appraisal of 51.7 fen/kWh were too high and a value of 40 fen/kWh was adopted based on the power sales agreement reached between YRWHDC and the Henan Power Bureau. The benefits estimated reflect that water supply for irrigation and for M&I is a very important priority for the project viability. Despite these variations in benefits the overall rates of return of 17.5 percent (reestimated) for the appraisal value compare very closely with the ICR estimate of IRR of 17.9 percent. The net present value (NPV) has increased 13 percent from YI 3.47 billion to Y1 5.26 billion. Figure I shows more graphically the changes in the discounted costs and benefit estimation. - 1 1 -  Appraisal & ICR Discounted Costs and Benefits 35 30i ;S 25l 0 20 WAppraisal Estimate O > i ;15 3 1 CR Estimate 10I 5 - ~ ~ .5 0 0 2