China - Yangzhou Thermal Power Project

stAJ sS / 1, - -/'/-r Docmuent of Trhe World Bank FOR OMCIAL USE ONLY Repat No. P-6195-cHA MCEORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE F ECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO t350 MILLION AND A PROPOSED EXPANDED COFINANCING OPERATION GUARANTEE FOR $120 MILLION EQUIVALENT SYNDICATED COMMERCIAL LOANS TO THE PEOPLE'S REPUBLIC OF CHINA FOR A YANGZHOU THERMAL POWER PROJECT FEBRUARY 23, 1994 This document has a restricted distribution and may be used by recipients only in the perfornmnoce of their official duties. Its contents may not otherwise be disclosed without World Bank- authorization.  CURRENCY EQUIVALENTS (as of January 24, 1994) Currency Unit - Yuan (Y) Y 1.00 - 100 fen $1.00 - Y 8.7 Y 1.00 - $0.11 WEIGHTS AND MEASURES 1 kilometer (km) - 0.62 miles I megawatt (MW) - 1,000 kilowatts (kW) 1 kilovolt (kV) - 1,000 volts (V) ABBREVIATIONS AND ACRONYMS CRISPP - China Reform, Institutional Support and Preinvestment Project EAR - Environmental Assessment Report ECEPDI - East China Electric Power Design Institute ECO - Expanded Cofinancing Operation GEF - Global Environment Facility IDC - Interest During Construction JPEPC - Jiangsu Provincial Electric Power Company JPIC - Jiangsu Provincial Investment Company SEIC - State Energy Investment Corporation YMIC - Yangzhou Municipal Investment Company FISCAL YEAR January 1 - December 31  FOR OMCIAL USE ONLY CHINA YANGZHOU THERMAL POWER PROJECT Loan and Proiect Summary Borrower: People's Republic of China Beneficiary: Jiangsu Provincial Electric Power Company (JPEPC) Amount: $350 million equivalent Terms: Twenty years, including a five-year grace period, at the Bank's standard variable interest rate OnlendinR Terms: The proceeds of the loan would be onlent from the Borrower to JPEPC on the same terms and conditions as the Bank loan, with JPEPC bearing the foreign exchange risk. Financing Plan: Local Foreign Total ---- $ million ------- State Energy Investment Corporation (SEIC) 162.8 20.0 182.8 Jiangsu Provincial Investment Company (JPIC) 135.7 16.6 152.3 Yangzhou Municipal Investment Company (YMIC) 189.9 23.3 213.2 JPEPC 54.3 6.6 60.9 IBRD - 350.0 350.0 IDA (CRISPP) a - 2.2 2.2 Expanded Cofinancing Operation (ECO) - 120.0 120.0 Total 542.7 538.7 1.081.4 Poverty Categorv: Not Applicable Economic Rate of Return: 14 percent Staff Appraisal Report: Report No. 12471-CHA Malps IBRD 25250 /a China Reform, Institutional Support and Preinvestment Project--CRISPP (Credit 2447-CRA). 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.  CHINA YANGZHOU TERMAL POWER PROJECT EXPANED COFNANCING OPEATON Award f Mandates 1. Ihe Ministry of Finance (MOF) of the People's Republic of China (China) has awaded mandates to BOT Internationl (Hong Kong) Limited, Dresdner (South East Asia) Limited, and Morgan Guaranty Trust Company of New York as underwrites of a $90 million loan, and to Nippon Life Insurance Company as underwriter of a Japanese yen loan of $30 raillion equivalent under the atached tenns and conditions. The mandated proposals are fully committed and underwritten subject to the conclusion of documentation satisfactory to MOF, the Bank and the lenders. These mandates are also conditiona upon the aroval of the Board of Executive Directors of the World Bank. Upon completion of the documentation of these loans, final Board apprval will be sought. Pricing of the ECO-Guaranteed Loans 2. The summary terms are as attached. For the Dollar Loan, the proposed interest rate of LIBOR + 0.4 percent per year for a matuity of 15 years is very favorable, wel below the average pricing of commercial bank borrowing (around LIBOR + 0.5- 0.75 percent) by Chinese sovereign entities for a much shorter maturity of 5 years. 3. For the Yen Loan, the proposed pricing of Long-Term Prime Lending Rate (LTPLR) + 0.3 percent per year to be fixed for the first 10 years and LTPLR (to be adjusted at the tenth anniversary) flat for the remaining 5 years is also very competitive. LTPLR + 0.3 percent per year is equivalent to 4.7 percent per year based on the current LTPLR of 4.4 percent per year, which is well below the histoical average. The exact prcing will be set against the LTPLR prevailing at the time of disbursement of the loan. The proposed yen loan pricing, if tanslated into US dollar LIBOR basis under the current swap market, would be no more han LIBOR + 0.1-0.2 percent per year at least for the first 10 years, which is relatively lower than the donar loan pricing. Documentation 4. The financial institutions that have been awarded the mandates for the Dollar L=an and the Yen Loan have agreed in principle that the loan documentation will include the proviions necssary to comply with the Bank's policy and legal requirements for the ECO documentation, as descnrbed in the Bank's guidelines for the ECO program.j/ JI IBRD Role in Fimcial Intermxdon Services: Expanded Cofinacing Opemrtions (R89-37, Mrch 13, 1989).  Attachment CHINA YANGZHOU THERMAL POWER PROJECT SummARY OF TEM OF EXPANDED COFNANCING OPERATION Borrower: Pewple's Republic of China (China) represented by the Minity of Finance (MOP) Beneficiary: Jiangsu Provincial Electric Power Company QPEPC). Loan proceeds wiUl be onlent to JPEPC by MOF Guarantor: International Bank for Reconstruction and Development Lenders: Dollar Loan: Syndicate of international commercial banks Yen Loan: Syndicate of Japanese insurance companies Lead Managers: Dollar Loan: BOT International (Hong Kong) Limited Dresdner (South East Asia) Limited Morgan Guaranty Trust Company of New York Yen Loan: Nippon Life Insurance Company Loan Amount: Dollar Loan: US$90 million or its equivalent in other currencies agreed under a multicurrency option Yen Loan: US$30 million equivalent in Japanese yen Use of Proceeds: (For both Dollar Loan and Yen Loan): The proceeds of the loans will be used to finance a part of the foreign exchange requirement in connection with the purchase of turbine generator and boiler island, and other auxiliary equipment and services Maturity: Dollar Loan: 15 years from the signing date Yen Loan: 15 years from the drawdown date Grace Pedod: (For both Dollar Loan and Yen Loan): five years Availabity Period: Dollar Loan: 3 years from the signing date Yen Loan: No later than May 31, 1994  -2- Att-ment Dlsbursement: Dollar Loan: Disbursements will be made to meet expenditumes for the goods and services specified for the loan, which would tale approximately thee years to complete Yen Loan: Lump sum disbursement to meet expenditures for certain equipment at the initial phase of the prcject Repayment: (For i'oth Dollar Loan and Yen Loan): Semiannual equal instalments after the grace period Prepayment: Dollar Loan: Subject to 30 days' prior notice, the borrower may prepay the whole or part of the loan without penalty at the end of any interest period Yen Loan: Subject to 30 days' prior notice, the borrower may prepay the loan in full only on the 20th interest payment date (10th anniversary of the drawdown date) with penalty of 0.5 percent of the amount prepaid Interest Rate: Dollar Loan: 0.4 percent per year owver six months' LIBOR, payable semiannually in arrears Yen Loan: 0.3 percent per year over Long-Term Prime Lending Rate (LTPLR) fixed for the first 10 years and for the remaining 5 years, the rate will be refixed at the LTPLR flat pevailing at the 10th anniversary of the drawdown date. Interest payable semiannually in arrears Fees: Dollar Loan: Management Fee: 0.75 percent flat Commitment Fee: 0.2 percent per year on undisbursed amount of the loan Agency Fee: $5,000 per year Yen Loan: Management Fee: 0.25 percent flat Commitment Fee: Nil Agency Fee: Yen 3 million flat Expenses: Dollar Loan: Out-of-pocket expenses to be paid by the borrower up to $5,000, except for legal fees and signing ceremony cost, which are to be agreed Yen Loan: Out-of-pocket expenses including legal fees to be paid by the borrower up to Yen 3 million, excluding signing ceremony cost  3 Atta-hment Governing Iaw: Dolar Loan: To be agreed Yen Loan: Japanese Law Taxes and Other Deductions: All payments to be made in connection with the loan to be free of any Chinese taxes and duties Agent: Dollar Loan: Dresdner (South East Asia) Limited Yen Loan: To be appointed World Bank Guarantee: Scope. The World Bank partial guarantee will cover the principal amount scheduled to be atstanding on and aft ten and a half years on an accelerable basis startng at that point in the event of payment default under the loan. Maxdmia Amount of Guarantee. Maximum amount of the guarantee will be equal to the outstanding amount of the loan on ten and a half years, based on the original repayment schedule (amount to be specified for each of Dollar Loan and Yen Loan). Total exposure of the World Bank under the two loans will be approximately $57 million equivalent (i.e., about 21 percent of the total loan amount on a present value basis) Guarantee Fee. 0.5 percent per year charged as guarantee fee on the disbursed guarantee exposure and 0.25 percent per year as commitment fee on the undisbursed guarantee exposure, both calculated on a present value basis and subject to any applicable annual waiver of such fees Iudemnity by China. China would enter into an lndemity Agreement with the World Bank in respect of its guarantee. Under this Agreement, China would undertake to reimburse the World Bank on demand, or as fte World Bank may otherwise determine, for any payment made by the world Bank under its guuarntee  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO ThE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND AN EXPANDED COFINANCING OPERATION GUARANTEE TO THE PEOPLE'S REPUBLIC OF CHINA FOR A YANGZHOU THERMAL POWER PROJECT 1. I submit for your approval the following memorandum and recommenda- tion on a proposed loan to the People's Republic of Chinia for the equivalent of $350 million and a proposed expanded cofinancing operation guarantee for $120 million equivalent syndicated commercial loans to help finance a Yangzhou Thermal Power Project. Tne loan would be at the Bank's standazd variable interest rate, with a maturity of 20 years, including 5 years of grace. The proceeds of the loan would be onlent to the Jiangsu Provincial Electric Power Company (JPEPC) on the same terms and conditions as the Bank loan, with JPEPC bearing the foreign exchange risk. The Bank would also guarantee an Erpanded Cc'inancing Operation (ECO) for the project in an aggregate amount of $120 million equivalent. The proceeds of the commercial loans under the ECGO would be also onlent to JPEPC under the same terms of the commercial loans. 2. Background. The Government of China recognizes that large-scale energy development and improvements in the efficiency of energy supply and use are of critical importance to China for continued rapid economic growth and improvements in living standards. It is therefore building upon the broad experience gained in the 1980s and further strengthening the country's well- developed institutional network for energy conservation, so that only about one-half of the additional energy service required in the 1990s will have to come from developing new resources; the other half is slated to come from energy efficiency improvements. Even so, the necessary power supply expansion poses a major challenge. Power production capacity must increase by at least 17,000 MW a year in order to avoid exacerbation of the serious power shortages that already exist. Emphasis is consequently being placed on construction of large and cost-effective power generation plants to meet demand and accelerate the replacement of obsolete and heavily polluting plants with more energy- efficient and environmentally sustainable units. 3. To improve the efficiency of and capital mobilization for the power subsector, the Government is now actively pursuing an ambitious program of power subsector reform. During the past several years, particular progress has been made in decentralization of the subsector, improvement in cost recov- ery through major tariff reforms, and diversification of financing sources, including development of a variety of independent power production schemes. The pace and depth of subsector reform has particularly picked up since mid- 1992, and the integrated agenda put forward by the Government for action now includes: (a) commercialization of power companies, including achievement of greater enterprise autonomy from the Government, and structural and managerial reforms to put power entities on a more commercial footing, (b) further mea- sures to simplify and rationalize power tariffs, (c) realignment of the regu- latory and legal framework for the subsector, including the promulgation of a National Electricity Law, and (d) active encouragement for further diversifi-  -2- cation in financing for power development, especially private sector partici- pation. While actions are occurring on all of the above fronts, implementa- tion of measures to commercialize the country's provincial power companies is now a central linchpin in the overall effort. 4. In line with the Bankwide power policy (The World Bank's Role in the Electric Power Sector, 1993), the Bank's assistance program in China places special emphasis on energy conservation and sector reform. Following recently completed Bank sector work, our energy conservation zupport program includes technical assistance through the Global Enviroivnment Facility (GEF), lending support in past and prospective projects in industry, urban environment and energy, and development of a series of new GEF investment operations. Stepped up since 1992, the Bank's assistance program for power subsector reform includes technical assistance on reform options with financing from the Bank's Institutional Development Ftnd (1993), sector work on subsector reform imple- mentation strategies, and reform-oriented lending operations. A Power Sector Strategy Paper for China is being completed, which will focus especially on a program to support the reform through Bank lending operations. 5. Jiangsu Province, where the proposed project is located, is of enor- mous economic importance to China, and an adequate power supply is crucial for its further growth. The province has also been recognized as one of the most advanced provinces in pursuing the nation's power subsector reforms. The commercialization program supported under the proposed project would include, for the first time in China, implementation of a program to separate govern- ment functions, carried out by the provincial power bureau, from the operation and management of JPEPC, the project's beneficiary. Also, providing a basis for commercialization of JPEPC will be project support for the development and implementation of a modern accounting system for JPEPC. 6. Proiect Obiectives. The main objectives of the proposed project are to: (a) support the implementation of power subsector reforms at the provin- cial level, through development of JPEPC as an autonomous company; (b) con- tribute to further rationalization of power tariffs; (c) promote the use of modern financial management techniques in transforming JPEPC's accounting system; (d) provide cost-effective and environmentally sustainable generation capacity to alleviate an acute shortage of power and improve the quality of power supply; (e) assist in transferring modern technologies for large coal- fired power plants, and in strengthening institutional capabilities for envi- ronmental management and monitoring; and (f) extend technical assistance for management development and staff training programs. 7. Project Description. The proposed project, located near Yangzhou city, would include: (a) construction of a coal-fired thermal power plant with two 600-MW generating units and associated equipment; (b) erection of two 500-kV transmission lines (about 30 km long) and reinforcement of the existing power transmission network; (c) provision of engineering and construction management services; (d) extension of technical assistance for the development and implementation of improved accounting and financial management information systems; (e) carrying out of environmental management and resettlement pro- grams; and (f) undertaking of management development and training. The proj- ect feasibility study and design report were completed by the East China Elec- tric Power Design Institute (ECEPDI) in 1990. Following the Bank's Guidelines  -3- the Chinese selected international engineering consultants to assist in final- izing designs, procurement of goods and works, and const=uction management. An Environmental Assessment Report (EAR) has been prepared by ECEPDI in accordance with the Government and Bank environmental review procedures and guidelines for thermal power projects. The EAR has been approved by all Gov- ernment authorities, and its Summary was distributed to the Executive Direc- tors on May 6, 1993. The design of the project is at an advanced stage, and appears satisfactory in its overall concept. Funding in the amount of $2.2 million out of the China Reform, Institutional Support and Preinvestment Proj- ect--CRISPP (Credit 2447-CHA) has been approved for engineering and other services for the preparation of the project. 8. Proiect Costs and Financing. The total financing requirements, including interest during construction, are estimated at $1,081.4 million equivalent. The State Energy Investment Corporation--SEIC (30 percent), Jiangsu Provincial Investment Company--JPIC (25 percent), Yangzhou Municipal Investment Company--YMIC (35 percent) and JPEPC (10 percent) would cover the financing of local costs and interest during construction. The Bank loan of $350 million and the ECO cofinancing of $120 million equivalent are expected to cover the full foreign exchange requirements, excluding interest during construction. The proposed ECO cofinancing would be arranged by the mandated financial institutions on a fully underwritten basis. It would consist of a US dollar loan ($90 million) with a floating interest rate structure, and a Japanese yen loan ($30 million equivalent) with a fixed interest rate. The maturity for both tranches would be 15 years or more, including a 5-year grace period. Part of the local financing would come in the form of equity contri- bution. A detailed breakdown of the project costs and the financing plan are shown in Schedule A. The amounts and methods of procurement and of estimated IBRD disbursements are shown in Schedule B. The project will be completed by December 31, 1999, and the closing date of the Bank loan would be December 31, 2000. A timetable of key project processing events and the status of Bank Group operations in China are given in Schedules C and D, respectively. A map (IBRD 25250) is also attached. The Staff Appraisal Report, No. 12471, dated February 22, 1994, is being distr_.uted separately. 9. The Proposed ECO Cofinancing. Following the approval of the Loan Committee of the proposed ECO operation for the Yangzhou Thermal Power Project in December 1993, the Bank and the Chinese Ministry of Finance (MOF) deter- mined the feasible financing framework with which the targeted commercial markets could be tapped for the ECO operation. Commercial bank market and Japanese insurance company market were chosen for a variety of reasons. One of the key requirements of PRC and JPEPC on the proposed ECO operation was the long maturity with amortizing structure comparable with that of the Bank loan to finance the construction of large-size power plant in order to match required debt service to the incremental cash revenue from the project. Mul- tiple disbursements over three to four years and a long grace period would be also required to acccmmodate the construction schedule and start-up of the operation. Financing terms which would become available in these markets would better fit the project compared with other financing alternatives such as puablic bond issue and private placement. This will be the first EGO opera- tion for PRC, and the first borrowing operation by PRC in these targeted mar- kets.  -4- 10. Award of Mandate. In solicicing the ECO financing proposals from the interested financial institutions, MOF invited institutions which repre- sent the major international markets (US, Japan, Europe and Asia), and are active In lending operation to PRC. Pollowing the competitive bidding process conducted in January, MOF is expected to award the mandate to arrange and underwrite the ECO cofinancing to the bidding groups with the best offers shortly. These mandates are conditional upon and subject to the approval of the Bank's Executive Directors on the provision of such ECO guarantee under the mandated terms. After the Board approval of the project and the ECO, PRC and the Bank will enter into the negotiation with the mandated lead managers to finalize the loan and guarantee a reement for the ECO financing. 1!. The World Bank Guarantee. It is proposed that the Bank guarantee would be in the form of a partial guarantee to cover the principal amount outstanding after 10 and a half years oased on the original repayment sched- ule, and the guarantee would be accolerable starting at that point. The pre- sent value of the Bank guarantee on the loan would amount to 21.2 percent of the total loan amoiLnt mobilized by the ECO calculated at the discount rate of 8 percent per annumn. The guarantee fee would be 0.5 percent per annum of the present value of the outstanding principal amount subject to any applicable annual waiver. The guarantee fee will be payable by PRC. 12. Benefits from the ECO. The immediate benefits from the ECO on the borrowing terms are clearly reflected in the proposed financing terms of the ECO. The maturity, in particular, is substantially longer than the typical maturity available for PRC without any credit enhancement by the third party. PRC typically borrows in the current commercial bank market with a maturity of 5 years, compared with the maturity of 15 years which would become available under the ECO. The ECO operation would also provide PRC and JPEPC with the flexibility of borrowing in a combination of their preferred currencies, spe- cifically for the project under the current market conditions. The proposed ECO financing comprises two loans: a US dollar loan and a Japanese yen loan, through which PRC could effectively lessen the risk of exchange rate fluctua- tion with these two major currencies. 13. More importantly, the proposed ECO will help PRC and JPEPC to attract private capital in the power projects in Jiangsu Province. Such diversification of financing sources is one of the key objectives of the pro- posed Yangzhou Thermal Power Project. 14. Consent of the Relevant Countries. In accordance with Article IV, section l(b) of the Articles of Agreement, the consents of the governments of the US and Japan, as well as other relevant countries, will be obtained for the proposed guarantee prior to the signing. 15. Proiect Implementation. JPEPC would be responsible for implementa- tion of the project, and would carry out the Action Plan for its commercial- ization in accordance with the timetable agreed with the Bank. A specialized construction company has been created within JPEPC to manage project implemen- tation. JPEPC is a well established power entity and has the necessary capa- bility for carrying out large power projects, and project implementation and management arrangoments appear appropriate. Assistance in construction man- agement will alsc. e provided to JPEPC by the engineering consultants during  -5- project implementation. Procurement arrangements for goods, works and ser- vices have been reviewed and agreed with JPEPC to enable efficient and timely implementation. 16. Proiect Sustainabilitv. The institutional and financial oiustaina- bility of the project will be supported by the planned strengthening of JPEPC's organizational structure and the Government's policy of allowing increased corporate autonomy in managerial, procurement, financial and person- nel matters. Financial covenants under this project would help to enhance the beneficiary's capability for cost recovery to finance debt servicing and internal cash generation for self-financing of future investments. Proper coordination of all project participants, delineation of authorities, and improvements in the related institutional framework will be actively pursued. Pricing of the project output will be devised in a manner to properly reflect the costs and benefits of this project as well as its role in the power grid. 17. Lessons from Previous Bank Involvement. The lessons learned from the previous power projects, especially five thermal power projects (Wujing, Beilungang I and II, Yanshi and Zouxian), are being taken into account in preparing the proposed project. Based on these lessons, particular attention is being given to proper assessment of project costs, improved and accelerated procurement procedures, enhancement of the role of project construction man- agement, and timely appointment of engineering consultants. 18. Rationale for Bank Involvement. The proposed project complies with the Bank's Country Assistance Strategy for China, as presented to the Board on August 3, 1993. That strategy highlights the need to support economic reform and promote corporatization and development of a regulatory framework, while assisting infrastructure modernization in an environmentally responsible man- ner. The shortage of electric power in China is one of the key remaining constraints to growth. The key objective of the Bank's involvement in this project is to provide an operational context for implementation cf China's power subsector reform. Following on from the wider dialogue on reform between the Bank and the Government, this project will provide a vehicle for support for detailed design and implementation in this province of specific reforms to commercialize provincial power companies, focusing in particular on separation of the provincial power company from the government, financial management and accounting system reform, and simplification of the power tar- iff system. 19. Agreed Actions. To meet the project's specific objectives, the following agreements were obtained: (a) from the Borrower that it would onlend the proceeds of the Bank loan to JPEPC on terms and conditions satis- factory to the Bank; and (b) from JPEPC that it would (i) engage management consultants to assist in the development and implementation of improved accounting and financial management systems, (ii) carry out the management development and training program in accordance with the timetable agreed with the Bank, (iii) carry out the environmental management and relocation of per- sons affected by the project in a manner satisfactory to the Bank, (iv) take necessary measures to achieve its financial performance targets (self- financing and debt service ratio), and (v) furnish to the Bank its rolling eight-year financing plan.  20. Environmental Aspects. In accordance with requirements of OD 4.01 (Environmental Assessment), this project has been assigned an environmental category of "A". To meet Bank requirements, the EAR (para. 7) has been updated taking into account comments and suggestions made by the Bank. The key environmental issues are: discharges to air, water and soil; coal charac- teristics, its transport, storage and delivery; ash handling and disposal; and resettlement and social conditions at and near the project site. Secondary impacts of project implementation are also to be considered. Virtually all environmental aspects are readily manageable. Mitigating measures for air, water and soil pollution are designed to meet all Chinese (national and local) requiremerts and/or World Bank environmental guidelines, whichever are stricter. In the absence of either, international standards or codes of prac- tice will be used. 21. The power plant site is in a semirural, agricultural area, close to the bank of the Changjiang (Yangtze River). It will require the acquisition of about 179 hectares of farmland and relocation of 1,053 households (about 4,500 people). According to the resettlement action plan, the affected people and communities will be compensated generously according to both national and local regulations. A well-organized environmental and resettlement unit has also been set up by the Yangzhou municipality and JPEPC to handle the reset- tlement planning and implementation. Arrangements for relocation, which have been made through a participatory process with land users and local authori- ties, are satisfactory. An environmental mitigation program and monitoring plan have been prepared. Institutional strengthening of JPEPC's environmental and resettlement unit will be included within the project. The Chinese have had extensive experience with World Bank policies and requirements for :nvi- ronment and resettlement, and have achieved good results in their implementa- tion. Environmental and resettlement specialists have participated in all Bank missions for the preparation and processing of the proposed project. 22. Proiect Benefits. This large power project will greatly increase the critically needed power generation capability of Jiangsu Province and the East China power grid as a whole. According to comprehensive analyses, the project is clearly part of the least-cost development program for meeting future power supply needs. The internal economic rate of return is estimated at about 14 percent. Other intangible benefits are also important, such as institutional development, reduced air pollution through phased retirement and restrictive use of old, small generating units, improved power grid operation, and the favorable influence on society at large by helping relieve excessive hardships caused by the acute power supply shortages. 23. Risks. Risks associated with project construction, cost overruns, and implementation delays are within reasonable limits and manageable with the planned supervision arrangements and involvement of competent engineering consultants. Particular attention will be given to the safety aspects of the project, coal supply and transportation matters, and to capabilities and per- formance of major contractfirs. Implementation of the power subsector reform in an efficient and timely manner represents another risk that would be addressed through active and continuous supervision of the project. The eco- nomic and financial risks would be minimal.  -7- 24. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve it. 25. 1 also recommend that the Executive Directors authorize the Bank to negotiate the guarantee provisions for the proposed $120 million syndicated loans for PRC, substantially in accordance with the terms described in this Memorandum and the Operational Guidelines for Expanded Cofinancing Operations. Upon satisfactory completion of negotiations, approval by the Executive Direc- tors of the ECO guarantee will be sought. Lewis T. Preston President Attachments Washington, D.C. February 23, 1994  - 8 - Schedule A CHINA YANGZHOU THERMAL POWER PROJECT Estimated Costs and Financing Plan ($ million) Local Foreign Total Estimated Proiect Cost Preparatory works 2.5 0.0 2.5 Land acquisition and compensation 23.0 0.0 23.0 Civil works 69.7 0.0 69.7 Harbor works 17.2 0.0 17.2 Plant equipment and materials 113.5 404.3 517.8 Transmission network 50.9 0.0 50.9 Construction administration 13.1 0.0 13.1 Engineering services 2.9 5.4 8.3 Environmental program 0.2 0.8 1.0 Management information systems 1.0 1.5 2.5 Training 0.6 2.8 3.4 Base Cost 294.6 414.8 709.4 Contingencies Physical 27.2 20.8 48.0 Price 24.3 36.6 61.0 Tax and duties 14.4 0.0 14.4 Total Proiect Cost 360.6 472.2 832.7 Interest during construction la 182.1 66.5 248.6 Total Financing Required 542.7 538.7 1.081.4 Financing Plan State Energy Investment Corp. (SEIC) 162.8 20.0 182.8 Jiangsu Prov. Investment Co. (JPIC) 135.7 16.6 152.3 Yangzhou Municip. Investment Co. (YMIC) 189.9 23.3 213.2 JPEIC 54.3 6.6 60.9 IBRD - 350.0 350.0 IDA (CRISPP) .lb 2.2 2.2 ECO cofinancing /a - 120.0 120.0 Total 542.7 538.7 1.081.4 /a Interest during construction (IDC) is based on onlending rates for pro- jected disbursements of loan proceeds. The foreign currency portion of IDC is based on the Bank variable loan rate and the projected rates for ECO financing. lb Credit 2447-CHA. lc $90 million syndicated loan from commercial banks (Tranche A), plus $30 million equivalent in Japanese yen from insurance companies (Tranche B).  - 9 - Schedule B Page 1 CHINA YANGZHOU THERMAL POWER PROJECT Summary of Proposed Procurement Arrangements ($ million) Procurement method Total Project element ICB Other NBF/s costs Works and Land Acquisition Preparatory works - - 2.5 2.5 Land acquisition & resettlement - - 23.4 23.4 Civil works - - 87.4 87.4 Harbor works - - 21.3 21.3 Goods Plant equipment & materials 591.5 9.0 - 600.5 (329.0) (9.0).b (338.0) Transmission Network - - 64.2 64.2 Services Construction administration - - 15.6 15.6 Engineering services - 9.7 - 9.7 (6.2) (6.2)/c Environmental program - 1.2 - 1.2 (0.9) (0.9) Management information systems - 2.9 - 2.9 (1.7) (1.7) Training - 4.0 - 4.0 (3.2) (3.2) Total 591.5 26.8 214.4 832.7fc (329.0) (21.0) (0.0) (350.0) la1 NBF Not Bank Financed. lb Limited International Bidding (LIB), shopping or direct negotiations for minor equipment, instruments, and monitoring and training equipment. /c Includes the CRISPP-related financing. Note: (1) Figures in this table include contingencies. (2) Figures in parentheses are the respective amounts financed by the Bank loan.  - 10 - Schedule B Page 2 Disbursements Amount of loan S of expenditures Category allocated to be financed ($ million) (1) Goods 319.0 10OZ of foreign expenditures, 100% of local expenditures (ex- factory cost), and 75% local expenditures for other items procured locally (2) Consultant services, and training 11.0 1OO1 (3) Unallocated 20.0 Total 350.0 Estimated Disbursement Bank FY 1995 1996 1997 1998 1999 2000 -------------------- ($ million) -------------------- Annual 34.3 46.4 120.0 99.1 39.1 11.1 Cumulative 34.3 80.7 200.7 299.8 338.9 350.0  - 11 - Schedule C CHINA YANGZHOU THERMAL POWER PROJECT Timetable of Key Proiect Processinf Events (a) Time taken to prepare the project: 20 montlhs (b) Prepared byz GOC and JPEPC with Bank assistance (c) First Bank mission: September 1992 (d) Appraisal mission departure: October 1993 (e) Negotiations: January 1994 (if) Planned date of effectiveness: July 1994 8g) List of relevant PCRs and PPARs: Lubuge Hydro (LN 2382-CHA), PCR Power Transmission (LN 2493-CHA), PCR The project was appraised by the followings Messrs./Mmes. V. Mastilovi6 (Task Manager), S. Kataoka (Senior Power Engineer), H.E. Sun (Financial Analyst), R. Taylor (Senior Economist), T. Hassan (Senior Counsel), K. Shimazaki (Senior Cofinancing Officer), B. Baratz (Principal Environmental Specialist), Y. Zhu (Resettlement Specialist), and K.C. Ling (Consultant). Peer reviewers com- prised: K. Sheorey (technical), M. Layec (economic), P. Cordukes (institu- tional), and M. Costan (financial). The Division Chief is Richard Newfarmer and the Acting Department Director is Zafer Ecevit.  - 12- Schedule 0 ?1 Page I of 3 STATUS OF BANK GROUP OPERAtIONS IN THE PEOPLE'S REPUBLIC OF CHINA A. STATEMENT CF BANK LOANS AND IDA CREDITS (As of Oecemoer 31, 1993) Loan/ Amount (USS million) Credit Bor- (net of cancellations) Nsinber FY rower Purpose Bank IDA Undisb.(a) 21 toans and 38 credits h.ve been futty disbtursed. 1950.4 2190.9 Of which SECAL: 2967/1932 88 P2C R.rak Sector Adj. 200.0 93.2 2501 85 PRC Changcun (L,an) Coat Mining 79.5 10.6 2540 85 PRC Railway IL 220.0 - 6.4 1664 86 PRC Technical Czoperation Credit tI - 20.0 4.2 2678/1680 86 PRC Thira Railway 160.0 (70.0)(b) 34.6 2689 86 PRC Tianjin Port 130.0 - 11.0 2706 86 PRC Beilungang Thermal Power 225.0 - 6.1 2707 86 PRC Yantan nyaroelectric 52.0 0.5 2723/1713 86 PRC Rurat HeaLtn & Preventive Med. 15.0 65.0 28.8 2784 87 PRC Shangnat Machine Tools 100.0 - 3.8 1764 87 PRC Xinjiang Agricultural Dev. 70.0 2.8 2794/1779 87 PRC Shangnai Sewerage 45.0 100.0 36.2 2811/1792 87 PRC Beijing-Tianjin-Tanggu Expressway 25.0 125.0 16.4 2812/1793 87 PRC Gansu Provincial Oev. 20.0 150.5 40.7 1835 87 PRC P.anning Support & Special Studies - 20.7 7.4 2838 87 PRC Fertilizer Rationalization 97.4 . 2.2 2852 87 PRC wujing Thermal Power 190.0 - 24.9 1871 88 PRC Rural Credit III - 170.4 2.0 2877/1845 88 PRC Huangpu Port 63.0 (25.0)(b) 30.4 2907/1875 88 PRC Dalian Port 71.0 (25.0)(b) 3.7 1885 88 PRC Northern Irrigation 103.0 20.1 2924/1887 88 PRC Coastal Lands Dev. 40.0 (60.0)(b) 6.4 2943 88 PRC Pharmaceuticals 127.0 4.6 2951/1917 88 PRC Sichuan Highway 75.0 (50.0)(b) 48.4 2952 88 PRC Shaanxi Highway 50.0 - 1.1 1918 88 PRC Daxing An Ling Forestry - 56.2 3.1 2955 88 PRC Beilungang 11 165.0 . 25.6 2958 88 PRC Phosphate Oev. 62.7 - 13.2 2968 88 PRC Railway IV 200.0 - 50.5 1984 89 PRC Jiangxi Provincial Highway - 61.0 7.0 1997 89 PRC Shaanxi Agricultural Dev. - 106.0 35.2 2006 89 PRC Textbook Development . 57.0 2.0 2009 89 PRC Integrated Reg. Health 5 52.0 19.7 3006 89 PRC Ningbo & Shanghai Ports 76.4 _ 21.2 3007 89 PRC Xiamen Port 36.0 - 13.6 3022 89 PRC Tianjin Light Industry 154.0 93.9 3060/2014 89 PRC Inner Mongolia Railway 70.0 (80.0)(b) 30.7 2097 89 PlC Shandong Agriculture Dev. 109.0 7.7 3066 89 PRC Hubei Phosphate 137.0 - 97.1 3073/2025 89 PRC Shandong Prov. Highway 60.0 (50.0)(b) 26.4 3075 89 PRC Fifth Industrial Credit 300.0 134.0 2097 90 PRC Jiangxi Agric. Dev. - 60.0 19.7 2114 90 PRC Vocational & Tech. Educ. - 50.0 11.5 2145 90 PRC National Afforestation 300.0 133.5 2159 90 PRC Hebei Agricultural Dev. 150.0 72.4 2172 91 PRC Mid-Yangtze Agricultural Dev. - 64.0 24.1 3265/2182 91 PRC Rural Credit IV 75.0 200.0 81.0 3274/2186 91 PRC Rural Indust Tech (SPARK) 50.0 64.3 61.7 3286/2201 91 PRC Medium-Sized Cities Dev.' 79.4 52.9 79.5 3288 91 PRC Shanghai industrial Dev. 150.0 - 147.9 2210 91 PRC Key Studies Development - 131.2 57.7 2219 91 PRC Liaoning Urban Infrastructure 77.8 20.8  13 - Schedule D Page 2 of 3 Loan/ Amount (USS million) Credit 8or- (net of canceltations) Number FY rower Pvrpcse gank IDA .ndisb.(a) 3316/2226 91 PRC Jiangsu Provt. Transpcrt 100.0 (53.6)(b) 54.7 2242 91 PRC Henan Agricu... :ev. 110.0 79.7 3337/2256 91 PRC Irrig. AgricUt. oirensif. 147.1 187.9 176.2 3387 92 PRC Ertan hyaroelectric 380.0 115.3 2294 92 PRC Tarim Basin 125.0 88.2 2296 92 PRC Shangnai Metro Trans-crt - 60.0 36.0 3406 92 PRC Raitways V 330.0 - 238.7 3412/2305 92 PRC Caguangoa Muttipurpose 30.0 37.0 39.9 2307 92 PRC Gjangaci-g ADP - 162.0 129.5 3415/2312 92 PRC Beijing Envirornment 45.0 80.0 96.4 2317 92 PRC Infect)--s and FnJemr' c Disease Cont - 129.6 103.1 3433 92 PRC Yanshi ThermaL Power 180.0 - 104.0 2336 92 PRC Rural water Suppty andi Sanitation 110.0 78.5 2339 92 PRC Educ. OeveLopment in Poor Provs. - 130.0 92.5 3443 92 PRC Regionat Cement Industry 82.7 77.2 3462 92 PRC Zouxian Thermat Pcuer 310.0 - 283.2 3471 92 PRC Zheiiarg Provincia, Kighway 220.0 - 178.8 2387 92 PRC Tianjin 4rban Devt. 1 Envir. - 100.0 85.3 2391 92 PRC Ship 6aste Disposat - 15.0 15.2 2411 93 PRC Sichuan AgricuLtuiaL Oevt. - 147.0 116.0 3515 93 PRC ShuiKcu mydroetectric it 100.0 - 82.7 2423 93 PRC FinanciaL Sector TA - 60.0 54.1 3530 93 PRC Guangoong Provincial Transport 240.0 - 213.8 3531 93 PRC Henan PrcvinciaL Transport 120.0 - 100.5 2447 93 PRC Ref. Inst'l and Preinvest. - 50.0 45.1 3552 93 PRC Shanghai Port Rest. and Oevt. 150.0 - 147.0 2457 93 PRC Changchun Water Supply & Env. - 120.0 112.7 2462 93 PRC Agriculture Support Services - 115.0 110.4 3560/2463 93 PRC Taihu Basin Flood Control 100.0 100.0 171.1 2471 93 PRC Effective Teaching Services 100.0 99.6 3572 93 PRC Tianjin Industry ll (c) 150.0 150.0 3582 93 PRC South Jiangsu Envir. Prot. (c) 250.0 - 250.0 2475 93 PRC Zhejiang MuLticities Devt. - 110.0 102.5 3581 93 PRC Railway VI 420.0 - 420.0 3606 93 PRC Tianhuangping HydroeLectric 300.0 - 300.0 3624/2518 93 PRC Grain Distribution 325.0 165.0 489.2 2522 93 PRC Environmental Tech. Assist. - 50.0 48.8 2539 94 PRC Rurat HeaLth Workers Devt. - 110.0 109.5 3652 94 PRC Shangnai Metro Transport II (c) 150.0 - 150.0 3681 94 PRC Fujian Provincial Highways (c) 140.0 - 140.0 3687 94 PRC Telecommunications (c) 250.0 250.0 Totat 9870.6 6980.0 7378.9 of which has been repaid 790.2 5.6 Total now held by Bank and IDA 9080.4 6974.4 Amount sold: Of which repaid Total Undisbursed 4967.5 2411.4 7378.9 (a) As credits are denominated in SORs (since IDA Replenishment VI), urdisbursed SDR credit balances are converted to dollars at the current exchange rate between the dollar and the SOR. In some cases, therefore, the undisbursed batance indicates a dollar amount greater than the original principal credit amount expressed in dollars. (b) Credit fully disbursed. (c) Not yet effective.  -14- Schedule 0 Page 3 of 3 S. STATEMENT OF IFC INVESTMENTS (As of Oecemoer 31, 1993) Invest- Type of Loan Equity Total ment No. FY Borrower Business --C--- (USS Miltinn ------- 813/2178 85/91 Guangzhou and Peugeot Automobile 15.0 4.5 19.5 974 88/93 China Investment Co. Investment 3.0 1.0 4.0 1020 88/92 Shenzhen China 3icycle 17.5 2.5 20.0 Bicycles Co. Ltd. Manufacture 1066 89 Crown Electronics Electronics 15.0 15.0 1119 89/93 Shenzhen Chronar Solar Solar (a) 2.0 3.0 5.0 Energy Energy 3423 93 Shenzhen PCCP Manufacturing 4.0 - 4.0 3150 93 Yantai Cement Cement 28.7 - 28.7 Not yet signed 93 JV Comnercial Bank 8anking 7.5 7.5 Not yet signed 94 China Walden Mgt. Capital Mkts. 7.5 7.5 Not yet signed 94 Dalian Glass Manufacturing 61.0 2.4 63.4 Total Gross Commitments 85.2 11.0 96.2 Less cancellations, terminations 17.9 - 17.9 repayment and sales Total Coamitments now Held by JFC 67.3 11.0 78.3 Totat Undisbursed 28.7 2.0 30.7 (a) Loan subsequently cancelled. t2/31/93 EA2DR  I tS HA N DON G t ,r - a{ 25250 S I~~ ~ I A N D O N G / ~~~~C H I N A YANGZHOU TZHERMAL POWER PROJECT 'MT CHINA POWER GRID .w