China - Yangzhou Thermal Power Project

Document of The World Bank Report No: 25613 IMPLEMENTATION COMPLETION REPORT (SCPD-3718S; SCL-3718A; CPL-37180) ON A LOAN IN THE AMOUNT OF US$350 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE CHINA YANGZHOU THERMAL POWER PROJECT 06/17/2003  CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2002) Currency Unit = Chinese Yuan (Y) Y1 = US$ 0.12048 US$ 1 = Y 8.28 Exchange Rate During Project Years 1994 - Y 8.60 1995 - Y 8.30 1996 - Y 8.30 1997 - Y 8.30 1998 - Y 8.28 1999 - Y 8.28 2000 - Y 8.28 2001 - Y 8.28 2002 - Y 8.28 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS EAR Environmental Assessment Report ECEPDI East China Electric Power Design Institute ECO Expanded Co-financing Operation Edf Electricite de France EMP Environmental Management Plan FMIS Financial Management Information System gce grams of coal equivalent GWh Gigawatt hour IERR Internal Economic Rate of Return IPP Independent Power Producer JPEPC Jiangsu Provincial Electric Power Company JPG Jiangsu Power Grid kV Kilovolt kVA Kilovolt-ampere MOEP Ministry of Energy and Power MW Megawatt PUB Public Utilities Bureau QAG Quality Assurance Group SPC State Planning Commission VAT Value-Added tax ZPEPC Zhejiang Provincial Electric Power Company Vice President: Jemal-ud-din Kassum Country Manager/Director: Yukon Huang Sector Manager: Junhui Wu Task Team Leader/Task Manager: Jianping Zhao  CHINA China-Yangzhou Thermal Power 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 5 5. Major Factors Affecting Implementation and Outcome 11 6. Sustainability 14 7. Bank and Borrower Performance 14 8. Lessons Learned 16 9. Partner Comments 17 10. Additional Information 20 Annex 1. Key Performance Indicators/Log Frame Matrix 21 Annex 2. Project Costs and Financing 24 Annex 3. Economic Costs and Benefits 26 Annex 4. Bank Inputs 31 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 33 Annex 6. Ratings of Bank and Borrower Performance 34 Annex 7. List of Supporting Documents 35 Annex 8. Review of the Environmental Management and Monitoring Program 36 Annex 9. Summary of the Resettlement Completion Report 40 MAP 32482  Project ID: P003641 Project Name: CN-Yangzhou Thermal Power Team Leader: Jianping Zhao TL Unit: EASEG ICR Type: Core ICR Report Date: June 19, 2003 1. Project Data Name: CN-Yangzhou Thermal Power L/C/TF Number: SCPD-3718S; SCL-3718A; CPL-37180 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Power (99%); Sub-national government administration (1%) Theme: Infrastructure services for private sector development (P); Other financial and private sector development (P); Pollution management and environmental health (P); Regulation and competition policy (S); Climate change (S) KEY DATES Original Revised/Actual PCD: 01/05/1993 Effective: 12/13/1994 12/13/1994 Appraisal: 10/23/1993 MTR: Approval: 03/22/1994 Closing: 12/31/2000 12/31/2002 Borrower/Implementing Agency: PRC/JPEPC Other Partners: STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Gautam Kaji Country Director: Yukon Huang Zafer Ecevit Sector Manager: Junhui Wu Richard Newfarmer Team Leader at ICR: Jianping Zhao Vukota Mastilovic ICR Primary Author(s): Matthew Mitchell; Noureddine Berrah 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:HL Institutional Development Impact:SU Bank Performance:S Borrower Performance:HS 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 project's original objectives, as stated in the Staff Appraisal Report (SAR), were to: (a) support the implementation of the institutional and structural power sub-sector reforms at the provincial level, through the development of Jiangsu Provincial Electric Power Company (JPEPC) as an autonomous company; (b) contribute to further rationalization of the power tariff structure through implementation of a program to simplify the existing complex tariffs; (c) promote applications of more transparent and efficient financial management techniques to assist in transforming the provincial power company's accounting system; (d) provide cost-effective and environmentally sustainable additional generating capacity to alleviate a current acute shortage of power, meet power demand growth, and improve the quality of power supply in Jiangsu Province and in the East China power system, by the construction of the Yangzhou thermal power plant and associated facilities; (e) assist in transferring new technologies for large coal-fired power plants in China, applying modern power systems and strengthening institutional capabilities for environmental management and monitoring; and (f) external technical assistance in management development and staff training programs. Importance and Clarity of Objectives. The project's objectives addressed the technological, environmental and institutional development challenges facing China's coal-dominated power sector during the early years of the country's transition from a "command and control" to a "socialist market" economy. For clarity and easy understanding by the clients, they addressed the specific actions that needed to be undertaken to meet the fast-growing demand in a financially and environmentally sustainable way. The achievement of this objective was paramount to a sustained growth and openness to private sector involvement. Jiangsu Province in East China was a logical choice for testing new technologies and institutional models for implementing reforms to support this transition. It was experiencing one of the highest economic growth in the country. Industrial output in the province had expanded by 27 percent in 1992, despite power shortages. The installed generating capacity of Jiangsu Power Grid (JPG) was 8,280 MW and power shortages amounted to 10-20 percent of peak power supply even with conservation efforts. Consistency with Government and Bank Strategy for the Power Sector. The project was consistent with the Government's and the Bank's strategy for the power sector. The 1994 CAS called for "easing long-standing constraints to growth by alleviating infrastructure bottlenecks, particularly in the energy, transport and communications sectors." Furthermore, at the central level, the Bank and the Government had established a strong dialogue on reform through the completion of Strategic Options in Power Sector Reform in China. This dialogue had resulted in a reform strategy that consisted of: (a) increased autonomy of the provincial power companies; (b) commercialization of these companies through separation of government functions from company operations; (c) improvements in the regulatory framework to support commercialization and private sector participation; (d) diversification of external financing sources, particularly increasing financing from the private sector; and (e) rationalization of the pricing system more in line with a market-oriented economy. Bank lending operations were the key vehicle for implementing the - 2 -  strategy at the regional/provincial level and the successful commercialization of the company was to serve as a model for commercialization in other provinces. Project Complexity, Capability of the Borrower, and Risks. The project was complex because it was to introduce new power plant technology combined with a diversity of institutional changes that were still not ingrained in the country's laws and regulations. The project was also JPEPC's first experience with managing a Bank-funded operation. However, the project's implementation was considered within JPEPC' s reach given the consulting services provided. JPEPC, an experienced and technically competent utility, was capable of formulating an expansion plan and implementing complex power projects. The directed, high-level technical assistance was designed to help them strengthen project implementation and management capabilities for a smooth transition from a government department to commercial utility and, at the same time, to increase the company's knowledge of international business practices. Prior to the Yangzhou Thermal Power Project, the Bank had considerable project experience working with the Government of China, as Borrower. The Bank had financed 12 large power generation and load management projects in the country (five thermal projects and seven hydro project) and one transmission project. The implementation of most projects had been satisfactory and within budget. Overall, Bank projects had helped to introduce important elements of modern utility management and planning. These included: (a) international competitive bidding for goods and works; (b) transfer of modern technologies in project construction and management; (c) improved efficiency of pollution abatement; (d) increased power tariffs to cover higher portion of costs of supply; (e) integration of regional power systems; (f) development of master plans for modern networks; (g) improved operational efficiency; and (h) prudent financial management. The SAR found most of the risks associated with the project to be reasonable or minimal. The project's construction risks were manageable given continuous supervision arrangements under the project, involving foreign and Chinese consultants. The economic risks were minimal since the economic analysis of the project had determined that coal-fired power plants were clearly the least-cost solution. Consultations with cofinanciers and market sounding activities had concluded that the financial risks were manageable within the Expanded Co-financing Operation (ECO) framework. Other risks cited, but considered manageable, concerned possible problems with timely procurement and delivery of equipment as well as the effective implementation of the environmental program. 3.2 Revised Objective: There was no formal revision of project objectives. However, substantial cost savings allowed JPEPC to finance an additional transmission component, discussed in Section 3.4 below. This component fell within the original physical objective to alleviate shortages of power supply in the Jiangsu Province. It also allowed the deepening of the reform process by supporting inter-provincial electricity trade and private sector involvement to alleviate capacity constraints. 3.3 Original Components: The design of the project's components followed good practices and adequately incorporated lessons learned from earlier projects. The project's components consisted of: (a) construction of a coal-fired thermal power plant with two 600-MW generating units and associated equipment and facilities; (b) erection of two 500-kV transmission lines (about 30 km long) and reinforcement of the existing - 3 -  power network; (c) engineering and construction management services; (d) an environmental management and monitoring program; (e) a resettlement program for households affected by the construction of the power plant and the transmission line; (f) assistance for the development and implementation of improved accounting and financial management systems; and (g) management development training. The project's physical components had a substantial amount of preparatory work. The East China Electric Power Design Institute (ECEPDI) prepared the feasibility study and design report in 1986, revising and updating it in 1992. ECEPDI prepared an Environmental Assessment Report in 1993, in accordance with Chinese and World Bank environmental standards. The consulting services for engineering and construction that the project was to provide, adequately complemented JPEPC's skills in technical and engineering areas. The components for accounting/financial systems and training supported the project's reform objective for greater commercialization of JPEPC. The project's provisions for environmental protection and population resettlement met the safeguards standards of the Bank and the Government of China at the time of project preparation. In support of JPEPC's commercialization and related diversification of financing sources, the project's financing plan included an expanded co-financing operation to allow JPEPC direct access to international financial markets. JPEPC was to borrow US$120 million equivalent directly from international markets with the support of a Bank guarantee. This arrangement was to allow commercial lenders and investors an opportunity to review the company's financial and operational performance in order to facilitate JPEPC's access to these financing sources on its own at a future stage in the company's development. At the request of the Ministry of Finance, the Bank's Co-Financing Department conducted informal market soundings in major international financial markets. These activities reviewed the strengths and constraints of various market instruments. The preparatory work also considered foreign exchange risks. As a result, the Ministry of Finance and JPEPC decided on two-tier financing. They selected the US dollar as the preferred currency for the larger tranche, in the interest of wider market participation, and the Japanese yen for the second tranche, to take advantage of the currency's fixed interest rate, which was at an historically low level. 3.4 Revised Components: The Bank and the Borrower amended the project in 1998, using the savings of US$60 million from original components to support the financing of a new component