China - Zhejiang Power Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6416-CHA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVAI.I.NT TO $400 MILLION AND A PROPOSED FINANCING GUARANTEE IN AN AMOUNT EQUIVALENT TO $150 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A ZHEJIANG POWFR DEVELOPMENT PROJECT FEBRUARY 1, 1995 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents ma) not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (as of December 1, 1994) Currency Unit = Yuan (Y) Y 1.00 = 100 fen Y 1.00 = $0.11 $1.00 = Y 8.5 WEIGHTS AND MEASURES km = Kilometer (= 0.62 miles) kWh = Kilowatt hour (= 860.42 kcal) GWh = Gigawatt hour (1,000,000 kilowatt hours) MW = Megawatt (1,000,000 watts) kV = Kilovolt (1,000 volts) MVA = Megavolt-ampere (1,000,000 volt-amperes) tce = tons of coal equivalent ABBREVIATIONS AND ACRONYMS EA - Environmental Assessment LTPR - Long-Term Prime Rate MOEP - Ministry of Electric Power MOF - Ministry of Finance ZPEPC - Zhejiang Provincial Electric Power Company FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY CHINA ZHEIANG POWER DEVELOPMENT PROJECT LoAN AND PRojEwr SUMMARY Borrower: People's Republic of China Beneficiary: Zhejiang Provincial Electric Power Company (ZPEPC) Poverty: Not applicable Amount: $400 million equivalent. A guarantee operation is also proposed to support commercial financing of $150 million equivalent. Terms: Twenty years, including a five-year grace period, at the Bank's standard variable interest rate. Commitment Fees: 0.75 percent on undisbursed loan balances, beginning 60 days after signing, less any waiver. Onlending Terms: The proceeds of the loan would be onlent from the Borrower to ZPEPC on the same terms and conditions as the Bank loan, with ZPEPC bearing the foreign exchange risk. Financing Plan: See Schedule A. Economic Rate of Return: 18.2 percent Staff Appraisal Report: Report No. 13498-CHA Map: IBRD No. 25933 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 waithout World Bank authorization.-   MEMORANDUM AND RECqMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND GUARANTEE TO THE PEOPLE'S REPUBLIC OF CHINA FOR A ZHEJIANG POWER DEVELOPMENT PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed loan to China for the equivalent of $400 million, and a proposed guarantee to support the equivalent of $150 million in commercial loans to help finance the Zhejiang Power Development Project. The loan would be at the Bank's standard variable interest rate, with a maturity of 20 years, including 5 years of grace. The proceeds of the loan would be onlent to Zhejiang Provincial Electric Power Company (ZPEPC) on the same terms and conditions as the Bank loan, with ZPEPC bearing the foreign exchange risk. The proceeds of the commercial loans under the guarantee would also be onlent to ZPEPC under the same terms as the commercial loans. 2. Country/Sector Background. The Government recognizes that large-scale energy development and efficiency improvements are critical to continued rapid economic growth and improvements in living standards. With continuation of structural changes in industry and strengthening of energy conservation, overall energy requirements in the 1990s are expected to grow at only about 60 percent of the rate of economic growth. Even so, the necessary supply expansion poses a major challenge. In the power sector, generation capacity must increase by about 17,000 MW a year in order to avoid exacerbation of the serious power shortages that already exist. Consequently, emphasis is being placed on construction of large and cost-effective power generation plants to meet demand and accelerate replacement of obsolete and heavily polluting small plants with more energy-efficient and environmentally acceptable units. 3. To improve efficiency and capital mobilization for the power sector, the Govemment is now actively pursuing an ambitious program of power sector reform. During the last several years, particular progress has been made in cost recovery through major tariff reforms and diversification of financing sources, extending to independent power production. The pace and depth of sector reform have picked up since mid-1992, and the Government's agenda now includes: (a) commercialization and corporati4ation of power companies; (b) rationalization of the power tariff structure; (c) revision of the legal and regulatory framework for the sector; and (d) further diversification in power development financing, including encouraging private developers. Although consensus exists at the national level on the basic directions of the program, implementation at the provincial and local level is only just beginning. 4. In line with the Bankwide power policy (The World Bank's Role in the Electric Power Sector, 1993), the Bank's power sector assistance program for China includes sector work, technical assistance and lending operations, at central, regional and provincial levels. At the central level, a 1993 study "Strategic Options in Power Sector  - 2 - Reform in China," supported by the Institutional Development Fund, provided a vehicle for dialogue between the Bank and key national and provincial representatives. Follow-up sector work culminated in the recent sector report, 'China Power Sector Reform: Toward Competition and Improved Performance' (Report 12929-CHA). More specific follow-up included a mission aimed at identifying options for mobilizing domestic and foreign savings in the power sector. The dialogue at the regional/provincial level is being developed primarily through lending operations such as the proposed project, which focus on implementation of key aspects of power sector reform. 5. The proposed project is located in Zhejiang Province, whose power system is part of the East China Grid, which covers the provinces of Jiangsu, Zhejiang and Anhui, and Shanghai Municipality. This area is experiencing remarkable economic growth, and its industrial output increased about 30 percent in 1992 despite acute power shortages. Zhejiang as a coastal province has been in the forefront of China's opening to foreign investment, and in its efforts to transform from a centrally planned to a Socialist market economy. ZPEPC has also been the pilot for Bank-sponsored power sector reforms through two previous projects, the Beilungang Thermal Power Project (1986) and the Beilungang Thermal Power Extension Project (1988). For example, a tariff study, carried out under these projects introduced marginal cost pricing principles, which are now widely accepted in China. While Shandong Province and Shanghai Municipality were originally designated as pilots for power sector reform, the Ministry of Electric Power (MOEP) confirmed during project preparation that Zhejiang will receive equal priority. 6. Lssons Learned from Previous Bank Operations. With regard to previous Bank transmission projects, no particular problems have occurred that need to be addressed in the current project. With regard to the generation component, there are lessons to be learned from the previous six thermal power projects, particularly the two previous Zhejiang projects. In these projects, procurement was somewhat protracted, and construction and commissioning delays occurred due to contractual interface problems and weak project management. Also, a serious boiler accident occurred at the first unit of Beilungang after commissioning. In response to these problems, the following actions have been taken: (a) increased grouping of equipment supply contracts to reduce interfaces between contractors and suppliers; (b) timely staffing and training of the project implementation organization; (c) use of model procurement documents; and (d) greater consultant assistance to the designers and project managers. In the light of the boiler accident, boiler design parameters such as furnace heat liberation and furnace exit gas temperature have been reviewed; operator training and operation manuals will be improved; and coal supply management and quality control will be strengthened. 7. Rationale for Bank Involvement. The proposed project is consistent with the Bank's country assistance strategy for China as presented to the Board in August 1993, which emphasizes support to economic reform, regulatory framework development and corporatization of enterprises in parallel with environmentally responsible infrastructure development. It is also in line with the detailed strategy set out in the recent power sector report, which recommends direct support to provincial power companies in their transition to autonomous and business-oriented enterprises. Through inclusion in the project of ZPEPC's Action Plan for Power Sector Reform and its Tariff Action Plan, the project supports the Govemment's reform agenda in: (a) clarification of ownership and  corporatization of enterprises; (b) enhanced competition at the generation level and regulation of the monopolistic segments of the industry; (c) overhaul of the regulatory framework; and (d) further rationalizntion of electricity pricing. New sources of financing are promoted through the proposed guarantee, and through technical assistance to prepare a security package for a joint venture developed cogeneration plant. The guarantee is consistent with the Bank's strategy for these instruments in using them in the Yangzhou Thermal Power Project (Loan 3718-CHA) and the proposed project to introduce the Chinese and their project entities to the international financial markets, and allow these markets to familiarize themselves with Chinese institutions and practices. Other benefits of the guarantee arise from incentives to speed up corporatization, extension of maturities well beyond current market terms for syndicated loans, and a considerable improvement in pricing in comparison with that currently available in the commercial market. The proposed project is also designed to support the establishment of a longer-term framework that would attract the private sector, both foreign and domestic, to take up a larger part of China's project financing requirement. Such a framework would consist of four major legs that include: (a) policy, legal and regulatory reforms; (b) facilitation and promotion of private infrastructure projects (based on transparency and increased competition); (c) unbundling and mitigating risks, with clear identification of risks to be bome by the private investors, consumers, and the Government; and (d) domestic provision of private, long- term debt financing on terms appropriate for infrastructure projects. 8. The Bank's environmental/energy conservation agenda is supported through the physical components of the project since they reflect China's overall power development strategy, incorporating a balanced mix of large, clean, efficient thermal plants, and transmission and distribution development to reduce supply-side losses. That strategy complements Zhejiang's energy conservation plan aimed at reducing energy intensity per Y 10,000 of GNP from 3.08 tce in 1990 to 2.60 tce in 1995 and 2.33 tce in 2000. Two major electricity conservation programs were successfully carried out during the Seventh Five-Year Plan 1986-90: (a) renovation of 180,000 pumps and fans, totaling 1,900 MW of installed capacity, to achieve estimated savings of 160 GWh/year; and (b) renovation of 1,500 of the 5,000 electric furnaces installed in the province to achieve savings estimated at 100 GWh/year. Other programs are currently being implemented and electricity intensity was reduced by about 10 percent in 1992. 9. Project Objectives. The objectives of the proposed project are to: (a) help meet rapidly expanding power demand in Zhejiang Province in a least-cost manner; (b) promote power sector reform, including commercialization and corporatization of ZPEPC; (c) upgrade management capabilities and systems to enable the enterprise to operate efficiently in a commercial environment; (d) promote competition at the generation level through establishment of market-oriented commercial arrangements between power generation and marketing entities; (e) encourage alternative financing strategies for power development; (f) improve supply-side efficiency through reduction of transmission and distribution losses; and (g) reduce the environmental impact of new generation. 10. Project Description. The proposed project would include power sector reform, investment and institutional development components as follows: (a) a time-bound implementation plan for commercialization and incorporation of the power company (the Action Plan for Power Sector Reform and the Tariff Action Plan); (b) Beilungang Phase II  - 4 - consisting of three 600 MW coal-fired units (Units 3 to 5) at the Beilungang Power Station; (c) transmission network expansion and reinforcement by the addition of about 400 km of 500 kV transmission lines and 1,500 MVA of 500 kV substations; (d) reinforcement of the urban distribution networks in Hangzhou and Ningbo Municipalities; (e) engineering and construction management services for Beilungang Phase II; (f) technical assistance in preparing the security package for the Wangjiangmen cogeneration plant, which will be developed by a foreign/local joint venture; (g) technical assistance to assist the power company in its commercialization and corporatization, establish a computerized financial management information system, improve transmission and distribution planning, upgrade environmental monitoring and support ZPEPC's training program. 11. Project Cost and Fnancing. The project cost is estimated at about $1,284.0 million equivalent, with a foreign exchange component of $574.0 million equivalent. The total financing required, including interest during construction, is $1,789.3 million, of which the Bank would finance $400 million equivalent and provide a guarantee for cofinancing of $150 million. Retroactive financing totaling $1.0 million would be provided for expenditures incurred before signing of the loan but after June 30, 1994, for early expenditures on project management and financial management advisory consultants, which are critical to efficient project start-up. A breakdown of costs and the financing plan are shown in Schedule A. 12. The Proposed Guarantee. Following the endorsement of the Guarantee Review Group of the proposed guarantee operation for the Zhejiang Thermal Power Project in September 1994, the Bank and the Ministry of Finance (MOF) determined the detailed financing framework under the guarantee operation. The proposed Bank- guaranteed cofinancing would consist of a $100 million Eurodollar syndicated loan from commercial banks (the Dollar Loan) and a $50 million equivalent Japanese yen syndicated loan from Japanese insurance companies (the Yen Loan). The summary terms are as shown in Annex 1. The dollar loan would have a floating interest rate and the yen loan would have a fixed rate for the first 10 years. The maturity of both tranches would be 15 years, with a five-year grace period and semiannual equal installments of the principal thereafter. It is proposed that the Bank guarantee would be in the form of a partial credit guarantee to cover the principal amount outstanding on and after 11 years, on an accelerable basis on and after that point. The nominal amount of the guarantee would be approximately $64 million at the maximum. The Bank's exposure under the guarantee represented by the present value of the guarantee would initially amount to 20 percent of the total loan amount mobilized by the guarantee calculated at discount rates for respective currencies (8.25 percent for the dollar loan and 5.15 percent for the yen loan). 13. Two options would be included in the proposed guaranteed loans to allow a further reduction in the Bank's exposure under the guarantee. First, the borrower would have prepayment options, canceling both the loan and guarantee. Second, as a new feature of the Bank guarantee operation, the lender would have guarantee release options exercisable on and after year five in return for additional loan interest equivalent to the Bank's guarantee fee otherwise charged to the borrower. Such an option would encourage the lender to reexamine the borrower credit to take advantage of the higher spread and cancel the guarantee on a voluntary basis, while the financial cost to the borrower would remain unchanged.  14. Under the new guideline stipulated in the Board paper on Mainstreaming of Guarantees, the Bank would charge a two-tiered fee for its guarantee: a standby fee of 0.25 percent per year during the guarantee noncallable period and a guarantee fee of 0.4 to 1.0 percent per year during the callable period. The fees would be calculated on the nominal amount of the guarantee. The Bank would refund to the government all but a standard fee of 0.25 percent on the Bank's guarantee exposure, which is represented by the present value of the guaranteed amount. l/ In the case of the proposed Zhejiang guarantee, since the borrower would be the government itself, it is proposed that the Bank charge the effective fee (after-refund) of 0.25 percent per year of the Bank's exposure. 15. The MOF of China conducted the competitive bidding for the financing in December and has awarded a conditional mandate for the Dollar Loan to an underwriting group of Bank of America National Trust and Savings Association, Daiwa Overseas Finance Limited, the Fuji Bank, Limited, Korea First Bank and the Norinchukin Bank, and that for the Yen Loan to the Yasuda Fire & Marine Insurance Company, Limited. The mandates are on a fully committed and underwritten basis, subject to the approval of the Board of Executive Directors of the World Bank and the conclusion of documentation satisfactory to MOF, the Bank and the lenders. The mandated financial institutions have agreed in principle that legal terms and conditions of the loan and the guarantee will need to comply with the policy and legal requirements for guarantee of the Bank. After the Board approval of the project and the provision of the guarantee under the mandated terms, China and the Bank will enter into negotiations with the mandated lead managers to finalize the loan and guarantee agreement for the financing. Conclusion of satisfactory Indemnity Agreements between the Government of China and the Bank in respect of both the Dollar Loan and the Yen Loan will, among other things, be conditions of drawdown of the said loans. Consents under Bank Articles will be obtained from relevant countries of currencies and markets for the financing. 16. The mandated interest rate for the Dollar Loan is six-month LIBOR+ 0.345 percent per year. This is very favorable pricing for the final maturity of 15 years, well below the average pricing of commercial bank borrowing (about LIBOR+0.5- 0.6 percent) by Chinese sovereign entities for a much shorter maturity of five years. The mandated pricing for the Yen Loan is Japan's Long-Term Prime Rate (LTPR)+ 0.05 percent per year fixed for the first 10 years at the time of disbursement of the loan, and LTPR flat for the remaining 5 years refixed over the LTPR prevailing at the tenth anniversary. This is very aggressive pricing, considering that top-rated borrowers would borrow around LTPR in the Japanese yen loan market. Given the current LTPR of 4.9 percent, the proposed yen loan pricing would be translated into US dollar LIBOR+ 0.2 percent, approximately based on the current swap market. The mandated pricing of both loans is even better than the pricing achieved for China's first Bank-guaranteed financing for the Yangzhou Thermal Power Project closed in May 1994 (LIBOR+ 0.4 percent for the dollar loan: LTPR+0.3 percent for the first 10 years and LTPR flat thereafter for the yen loan). The current pricing was achieved despite the reduction of 1/ The Board paper on mainstreaming of guarantees did not state clearly that the fee retained by the Bank will be applied to the Bank's exposure and not the face value of the guaranteed loan amount. The reason for doing this is to maintain the loan-equivalency pricing for the borrower country where the credit alternatives offered by the Bank (loans and guarantees) are priced comparatively.  - 6 - Bank guarantee coverage from the previous transaction (the Bank provided an accelerable guarantee of principal from year 10.5 under the Yangzhou transaction). 17. Project Inplementation. The Project would be implemented by ZPEPC. Construction management and construction supervision would be carried out by subsidiary companies that had similar responsibilities for construction of the first-phase power plant. Based on experience from this construction, special emphasis is being placed on reinforcement of the engineering unit with experienced personnel and timely training in modem project management practices and techniques. International engineering consultants have also been employed to assist in design review and procurement, and others will be engaged to assist in construction supervision and project management. 18. Schedule B shows procurement arrangements and the estimated disbursement schedule. 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 is also attached. The Staff Appraisal Report, No. 13498-CHA dated January 31, 1995, is being distributed separately. 19. Project Sustainability. The institutional and financial sustainability of the project will be secured by the inclusion of an Action Plan for Power Sector Reform and a Tariff Action Plan. The first action plan provides for: (a) separation of regulatory functions from ZPEPC and setting-up of a provincial regulatory body; (b) commercialization of ZPEPC through the following steps: (i) adoption of commercial and financial objectives; (ii) provision of increased managerial and financial autonomy based on implementation of the State Council's "Regulations on Transforming the Management Mechanisms of State-Owned Industrial Enterprises" of June 30, 1992; (iii) completion of accounting and financial system reforms; (iv) consumer tariff structure reform and formalization of power purchases from producers based on clear contractual arrangements; (v) commercial arrangements between ZPEPC and its affiliated enterprises; and (c) corporatization of ZPEPC and its subordinate generating enterprises to establish them progressively as shareholding or limited-liability companies under the new Company Law; these companies would operate in a competitive market environment, and have separate accounts, autonomous management, and responsibility for profits and losses. _ ~ ~ ~ ~ ~ ~ - - - - - - - - - -  - 7 - The action plan was drawn up by the ZPEPC task force on power sector reform, and is satisfactory to MOEP and the Bank. 20. The Tariff Action Plan will provide for unification of consumer prices so that a uniform tariff is charged to all customers in a particular category. This would be a major step in rationalizing the pricing system in Zhejiang Province. At the wholesale level, the objective of the action plan is that generation from all power plants will be priced to the grid at a tariff level and in accordance with a tariff structure that will ensure economic dispatch and pricing of generated power. The power purchase agreement for the Wangjiangmen cogeneration plant, to be developed with technical assistance under the proposed loan, will ensure economic dispatch and pricing of energy and heat from the plant. Financial covenants for ZPEPC will ensure an overall tariff level to adequately cover debt service and self-finance 30 percent of future power development. This requires an increase in tariff levels of 1 percent per year in real terms over a seven-year period, which should be readily achievable. 21. Agreed Actions. The Government agreed that it would: (a) furnish audited project accounts to the Bank within six months of the end of each fiscal year; and (b) onlend the proceeds of the proposed Bank loan and commercial loans under the guarantee to ZPEPC on terms and conditions satisfactory to the Bank. 22. ZPEPC agreed that it would: (a) implement an Action Plan for Power Sector Reform; (b) furnish audited project accounts and ZPEPC financial statements to the Bank within six months of the end of each fiscal year; (c) implement the Tariff Reform Action Plan by January 1, 1996; (d) engage risk management consultants to review its insurance covers by September 30, 1995; (e) carry out environmental mitigation measures and a monitoring plan in a manner satisfactory to the Bank; (f) carry out the Resettlement Action Plan in a manner satisfactory to the Bank; (g) employ by December 31, 1995 financial management consultants to review its accounting practices, and implement agreed changes; (h) take all necessary measures to ensure that it meets its financial performance targets (self-financing ratio of 30 percent and debt service coverage ratio of 1.5); and (i) each year fumish to the Bank a rolling eight-year financial plan. 23. Envirornmental Aspects. The project is classified as Category A. Environmental assessments (EAs) have been prepared for all components and cleared by responsible Chinese authorities. The EAs underwent considerable refinement in response to Bank comments, and are now of a high standard. The Bank is satisfied that all environmental concerns have been satisfactorily addressed. An Environmental Assessment Summary (revised to include a major change in project scope) was distributed to the Board on November 28, 1994. The coal-fired power plant to be extended is located near Ningbo city in an area dedicated to industrial, port and transshipment facilities. The main environmental impacts are due to atmospheric emissions, thermal discharges, ash disposal and noise. Measures have been included in the plant design to limit impacts to reflect Chinese and World Bank standards. The EA reports for the transmission and distribution components addressed the impacts in relation to water quality (runoff during construction), noise, electromagnetic radiation, safety and aesthetics. These impacts will be at acceptable levels. The project will require acquisition of 75.9 ha of land, demolition of 165,920 m2  of floor space, and relocation of 1,644 households. A Resettlement Action Plan has been received, which is satisfactory to the Bank. 24. Project Benefits. The large generation additions, and associated transmission, will help to remove the severe constraints to economic growth in the East China grid imposed by power shortages. Energy conservation and environmental benefits will accrue from the cogeneration plant addition, and from the energy loss reduction from transmission and distribution reinforcement. Institutional reforms will be a step towards the long-term financial sustainability and economic efficiency of the power sector. The estimated economic intemal rate of return for the project is 18.2 percent. 25. Risks. All proposed technologies are in successful use in China. Cost estimate risks were addressed by advanced procurement action, such that bids for major equipment were received before negotiations. The risk of delay in project construction due to project management weaknesses are being minimized by timely staffing and training, and by the assistance of experienced engineering consultants. The risk of nonperformance in the environmental and resettlement area has been addressed by the establishment of appropriate monitoring organizations and procedures. There is a risk that the action plan for power sector reform will not be completed as scheduled, mainly because not all aspects of the plans are under the control of ZPEPC, or directly involved Government ministries. ZPEPC have recognized this problem and have based their action plan on a conservative assessment of expected progress in reform of related areas of the economy. Nevertheless, the risk of uneven progress in power sector reform still exists. There is also a risk that opposition by provincial-level enterprises, which are most affected by tariff structure changes, will delay the tariff reform program. The risk of this has been minimized by obtaining the commitment of the Govemor of Zhejiang to tariff unification. Economic and financial risks are judged to be minimal. 26. 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. I also recommend that the Executive Directors authorize the Bank to negotiate the guarantee provision for the proposed $150 million syndicated loans for the People's Republic of China, substantially in accordance with the terms described in this Memorandum. Lewis T. Preston President Attachments Washington, D.C. February 1, 1995  - 9 - Schedule A CHINA ZHEJIANG POWER DEVELOPMENT PROJECT EsTIMATED Cosms AND FINANCING PLAN ($ million) Local Foreign Total Estimated Cost Beilungang Phase II 446.0 459.2 905.2 500 kV Transmission 79.2 29.7 108.9 Hangzhou Distribution 48.6 24.3 72.9 Ningbo Distribution 46.4 22.5 68.9 Preparation/Implementation 22.0 2.2 24.2 Institutional Development 4.5 9.3 13.8 BASE COST 646.7 547.2 1.193.9 Physical Contingencies 53.2 14.9 68.1 Price Contingencies 10.3 11.8 22.1 Total Project Cost 710.2 573.9 1,284.1 Interest During Construction /a 301.5 203.7 505.2 Total Financing Required 7777.6 1.79.3 Financing Plan: ZPEPC 364.2 81.9 446.1 Zhejiang Provincial Electric Power Development Company 344.0 77.4 421.4 East China Electric Power Group Investment Company 303.5 68.3 371.8 IBRD 0.0 400.0 400.0 Cofinancing under IBRD Guarantee 0.0 150.0 150.0 Total 1Q011.Z 777.6 1.789.3 /a Interest during construction (IDC) is based on the onlending rate for projected disbursement of loan proceeds. Foreign currency portion of IDC is based on Bank loan's variable rate, and on respective rates for guaranteed commercial financing tranches.  - 10 - Schedule B Page 1 of 2 CHINA ZHEJLIANG POWER DEVELOPMENT PROJECT SUMMARY OF PROPOSED PROCUREMENT ARRANGEMETS ($ million equivalent) Procurement Method /a ICB OtherLk NBFL Total Cost Civil Works - - 368.4 368.4 Goods Mechanical and 501.7 6.0 333.5 841.2 Electrical Equipment (381.5) (6.0) (387.5) Consultancies Engineering and Construction - 2.2 - 2.2 Supervision (2.2) (2.2) Institutional Development, - 15.1 - 15.1 Studies and Training (10.3) (10.3) Miscellaneous Compensation and Environment - - 28.7 28.7 Administration/Local Engineering - - 28.5 28.5 Totai 501.7 23. 759.1 1,284.1 (381.5) (185)(400.0 /a Amounts include taxes and duties of $108.0 million. Figures in parentheses are the respective amounts to be financed under the prospective Bank loan. /b Consultants employed in accordance with Bank guidelines. Equipment purchased by LIB or shopping. /c NBF = Not Bank-financed (includes $189.7 million procurement to be financed by $150 million Bank-guaranteed funds).  - 11 - Schedule B Page 2 of 2 DIuRsBEMS ($ million) Amount of the Loan Percentage of Expenditure Category allocated to be financed (1) Goods 355.0 100% of foreign expenditures, 100% of local expenditures (ex-factory), and 75% for local expenditures for other items procured locally (3) Consultants services & training 12.5 100% (4) Unallocated Total 4000 Estimated IBRD Disburseme Bank FY 1995 1299 1927 199 1929 2Q 2MI2 ---------------------------------- $ million ---------------------------------- Annual 0.6 39.2 25.0 87.6 80.8 97.4 55.6 13.8 Cumulative 0.6 39.8 64.8 152.4 233.2 330.6 386.2 400.0  - 12 - Schedule C CHINA ZHEJUING POWER DEVELOPMENT PROJECT IMTABLE OF KEY PRoJEcr PROCESSING EVENTS (a) Time taken to prepare the project: 20 months (b) Prepared by: ZPEPC with Bank Assistance (c) First Bank mission: February 1993 (d) Appraisal mission departure: April 1994 (e) Negotiations: January 1995 (f) Planned date of effectiveness: April 1995 (g) List of relevant PCRs and PPARs: Lubuge Hydro (LN 2382-CHA), PCR Power Transmission (LN 2493-CHA), PCR The project was appraised by the following: Messrs./Mmes. B. Trembath (Task Manager), P. Cordukes (Principal Financial Analyst), N. Berrah (Senior Economist), S. Kataoka (Senior Power Engineer), T. Hassan (Senior Counsel), T. Matsukawa (Financial Officer), J.P. Zhao (Operations Officer) and Y.X. Zhu, A. Huang, M. Hoskote, C.N. Chong, P.H. Tio (consultants). The Division Chief is Richard S. Newfarmer and the Department Director is Nicholas C. Hope.  - 13 - Schedule D Page 1 of 3 STATUS OF BANK GROUP OPERATIONS IN THE PEOPLE S REPUBLIC OF CHINA A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of December 31, 1994) Loan/ Amount (USS million) Credit Bor- (net of cancellations) Number FY rower Purpose Bank IDA Undisb.(a) 33 Loans and 42 credits have been fully disbursed. 3,118.3 2,602.3 Of which SECAL: 2967/1932 88 PRC Rural Sector Adj. 200.0 93.2 2678/1680 86 PRC Third Railway 160.0 (70.0)(b) 10.4 2723/1713 86 PRC Rural Health & Preventive Med. 15.0 65.0 12.9 1764 87 PRC Xinjiang Agricultural Dev. - 70.0 1.9 2794/1779 87 PRC Shanghai Sewerage 45.0 (100.0)(b) 6.6 2811/1792 87 PRC Beijing-Tianjin-Tanggu Expressway 25.0 125.0 9.6 2812/1793 87 PRC Gansu Provincial Dev. (20.0)(b) 150.5 17.2 1835 87 PRC Ptanning Support & Special Studies - 20.7 5.2 2852 87 PRC Wujing ThermaL Power 190.0 - 8.2 2877/1845 88 PRC Huangpu Port 63.0 (25.0)(b) 7.4 1885 88 PRC Northern Irrigation 103.0 8.9 2943 88 PRC PharmaceuticaLs 127.0 - 0.8 2951/1917 88 PRC Sichuan Highway 75.0 (50.0)(b) 22.7 2955 88 PRC Beilungang II 165.0 - 22.3 2958 88 PRC Phosphate Dev. 62.7 - 9.4 2968 88 PRC Railway IV 200.0 - 13.4 1984 89 PRC Jiangxi Provincial Highway - 61.0 3.5 1997 89 PRC Shaanxi Agricultural Dev. 1 106.0 18.8 2006 89 PRC Textbook Developmnent - 57.0 0.4 2009 89 PRC Integrated Reg. Health - 52.0 14.4 3006 89 PRC Ningbo & Shanghai Ports 76.4 - 9.2 3007 89 PRC Xiamen Port 36.0 - 1.3 3022 89 PRC Tianjin Light Industry 154.0 - 42.1 3060/2014 89 PRC Inner Mongolia Railway 70.0 (80.0)(b) 9.0 3066 89 PRC Hubei Phosphate 137.0 47.1 3073/2025 89 PRC Shandong Prcv. Highway 60.0 (50.0)(b) 21.8 3075 89 PRC Fifth Industrial Credit 300.0 - 0.8 2097 90 PRC Jiangxi Agric. Dev. - 60.0 3.2 2114 90 PRC Vocational & Tech. Educ. - 50.0 5.5 2145 90 PRC NationaL Afforestation - 300.0 89.9 2159 90 PRC Hebei Agricultural Dev. - 150.0 45.7 2172 91 PRC Mid-Yangtze AgricuLtural Dev. - 64.0 17.7 3265/2182 91 PRC Rural Credit IV 75.0 200.0 39.6 3274/2186 91 PRC Rurat Indust Tech (SPARK) 50.0 64.3 28.0 3286/2201 91 PRC Medium-Sized Cities Dev. 79.4 52.9 40.5 2210 91 PRC Key Studies Developmnent - 131.2 45.3 2219 91 PRC Liaoning Urban Infrastructure - 77.8 10.6 3316/2226 91 PRC Jiangsu ProvL. Transport 100.0 (53.6)(b) 30.2 2242 91 PRC Henan Agricul. Dev. 110.0 64.2 3337/2256 91 PRC Irrig. Agricul. Intensif. 147.1 187.9 101.8 3387 92 PRC Ertan Hydroelectric 380.0 47.3 2294 92 PRC Tarim Basin - 125.0 66.6 2296 92 PRC Shanghai Metro Transport - 60.0 20.0 3406 92 PRC Railways V 330.0 - 127.5 3412/2305 92 PRC Daguangba MuLtipurpose 30.0 37.0 14.6 2307 92 PRC Guangdong ADP - 162.0 111.5 3415/2312 92 PRC Beijing Environment 45.0 80.0 76.0 2317 92 PRC Infectious and Endemic Disease Cont - 129.6 103.8 3433 92 PRC Yanshi Thermal Power 180.0 - 32.2 2336 92 PRC Rural Water Supply and Sanitation - 110.0 68.8 2339 92 PRC Educ. Development in Poor Provs. - 130.0 70.8 3443 92 PRC Regional Cement Industry 82.7 - 38.7  - 14 - Schedule D Page 2 of 3 Loan/ Amount (USS miltion) Credit Bor- (net of cancellations) Number FY rower Purpose Bank IDA Undisb.(a) 3462 92 PRC Zouxian Thermal Power 310.0 229.3 3471 92 PRC Zhejiang Provinciat Highway 220.0 - 137.3 2387 92 PRC Tianjin Urban Devt. & Envir. - 100.0 72.4 2391 92 PRC Ship Waste Disposal - 15.0 15.9 2411 93 PRC Sichuan Agricultural Devt. - 147.0 93.2 3515 93 PRC Shuikou Hydroelectric II 100.0 - 68.5 2423 93 PRC Financial Sector TA * 60.0 53.5 3530 93 PRC Guangdong Provincial Transport 240.0 - 178.0 3531 93 PRC Henan Provincial Transport 120.0 - 83.0 2447 93 PRC Ref. Inst'l and Preinvest. - 50.0 43.5 3552 93 PRC Shanghai Port Rest. and Devt. 150.0 - 132.3 2457 93 PRC Changchun Water Supply & Env. - 120.0 117.7 2462 93 PRC Agriculture support Services - 115.0 98.7 3560/2463 93 PRC Taihu Basin Flood Control 100.0 100.0 144.2 2471 93 PRC Effective Teaching Services - 100.0 98.2 3572 93 PRC Tianjin Industry II 150.0 - 150.0 3582 93 PRC South Jiangsu Envir. Prot. 250.0 - 235.9 2475 93 PRC Zhejiang Multicities Devt. - 110.0 97.4 3581 93 PRC RaiLway VI 420.0 - 362.4 3606 93 PRC Tianhuangping Hydroelectric 300.0 - 277.5 3624/2518 93 PRC Grain Distribution 325.0 165.0 475.5 2522 93 PRC Environmental Tech. Assist. 50.0 45.9 2539 94 PRC Rural Health Workers Devt. - 110.0 105.6 3652 94 PRC Shanghai Metro Transport II 150.0 - 74.0 3681 94 PRC Fujian Provincial Highways 140.0 122.6 3687 94 PRC Telecommunications 250.0 - 250.0 2563 94 PRC Second Red Soils Area Devt. - 150.0 140.8 2571 94 PRC Songliao Plain Agric. Devt. - 205.0 195.1 3711 94 PRC Shanghai Envirorynent 160.0 - 157.0 3716 94 PRC Sichuan Gas Devt & Conservatn. 255.0 - 255.0 3718 94 PRC Yangzhou Thermal Power 350.0 - 350.0 3727 94 PRC Xiaolangdi Multipurpose 460.0 - 400.6 2605 94 PRC Xiaolangdi Resettlement - 110.0 107.9 2616 94 PRC Loess Plateau Watershed Devt. - 150.0 144.2 2623 94 PRC Forest Resource Devt. & Prot. * 200.0 192.3 3748 94 PRC National Highway 380.0 - 380.0 3773/2642 95 PRC Ent. Housing/Soc Sec Reform 275.0 75.0 351.9 3781 95 PRC Liaoning Environment (c) 110.0 - 110.0 3787 95 PRC Xinjiang Prov. Highways (c) 150.0 - 150.0 2651 95 PRC Basic Ed for Poor/Minorities (c) - 100.0 100.3 3788 95 PRC Shenyang Industrial Reform (c) 175.0 - 175.0 2654 95 PRC Economic Law Reform (c) - 10.0 10.0 2655 95 PRC Comp Maternal/Child Health (c) - 90.0 89.7 Total 12,118.6 8,026.2 8,697.6 of which has been repaid 1,005.7 14.2 Total now held by Bank and IDA 11,112.9 8,012.0 Amount sold: Of which repaid - - Total Undisbursed 5,735.1 2,962.5 8,697.6 (a) As credits are denominated in SORs (since IDA Replenishment VI), undisbursed SDR credit balances are converted to dollars at the current exchange rate between the dollar and the SDR. In some cases, therefore, the undisbursed balance indicates a dollar amount greater than the original principal credit amount expressed in dollars. (b) Credit fully disbursed. (c) Not yet effective.  - 15 - ScheduLe D Page 3 of 3 B. STATEMENT OF IFC INVESTMENTS (As of December 31, 1994) Invest- Type of Loan Equity Total ment No. FY Borrower Business ------ (USS MiLlion) ------- 813/2178 85/ Guangzhou Auto Automobile 15.0 4.5 19.5 86/91 974 87/88 China Investment Co. DFCs 3.0 - 3.0 1020 88/ China Bicycles Bicycle 17.5 3.4 20.9 92/94 BicycLes Co. Ltd. Manufacture 1066 89 Crown Electronics ELectronics 15.0 - 15.0 1119 89 Shenzhen Solar Electric 2.0 1.0 3.0 Light/Power 3423 93 Shenzhen PCCP Manufacturing 4.0 1.0 5.0 3150 93 Yantai Cement Cement 28.7 2.0 30.7 3881 94 China WaLden Mgt. CapitaL Mkts. - 7.5 7.5 94 Dynamic Fund Venture - 20.0 20.0 Capital 94 Newbridge Inv. Securities Mk - 8.0 8.0 Financing Instit. 95 Dalian Glass GLass 61.0 - 61.0 Total Gross Corinitments 146.2 47.4 193.6 Less canceLLations, terminations, 57.3 - 57.3 repayments, write-offs, and sales Total Commitments now HeLd by IFC 89.0 47.4 136.4 Total Undisbursed 17.5 28.4 45.9 1/20/95 EA2DR  - 16- ANNEX 1 CHINA ZHEJIANG POWER DEVELOPMENT PROJECT SummARY OF TERms OF BANK-GuARANTEED FINANCING Borrower: People's Republic of China (China) represented by the Ministry of Finance Beneficiary: Zhejiang Provincial Electric Power Company Guarantor: International Bank for Reconstruction and Development Lenders: Dollar Loan: Syndicate of international commercial banks Yen Loan: Syndicate of Japanese insurance companies and/or other financial institutions Lead Managers: Dollar Loan: Bank of America National Trust and Savings Association Daiwa Overseas Finance Limited The Fuji Bank, Limited Korea First Bank The Norinchukin Bank Yen Loan: The Yasuda Fire & Marine Insurance Company, Limited Loan Amount: Dollar Loan: $100 million Yen Loan: $50 million equivalent in Japanese yen Maturity: (For both Loans): 15 years Grace Period: (For both Loans): 5 years Repayment: (For both Loans): Semiannual equal installments commencing from the fifth anniversary of the signing date Availability Period: Dollar Loan: 3.5 years from the signing date Yen Loan: One-time drawdown immediately after the signing date Prepayment: Dollar Loan: The Borrower may prepay at the end of any interest period Yen Loan: The Borrower may prepay at the fifth and tenth anniversary of the drawdown date  -17 - ANNEX 1 Guarantee Release: (For Both Loans): The Lender may release the IBRD Guarantee for the remaining life of the Loan on a several basis on and after the fifth anniversary of the signing date. A Lender who exercises the option and thereby cancels the IBRD Guarantee will receive in turn compensation from the Borrower in the form of additional interest payment that is equivalent to the Guarantee Fee amount otherwise charged to the Borrower by IBRD. Interest Rate: Dollar Loan: 0.345 percent per year over six-month LIBOR, payable semiannually in arrears Yen Loan: Fixed at 0.05 percent per year over the Long- Term Prime Rate (LTPR) prevailing at the signing date for the first 10 years, capped by the absolute rate of 5.15 percent, and for the remaining 5 years the rate will be refixed at the LTPR flat prevailing at the tenth anniversary of the drawdown date. Interest is payable semiannually in arrears. Commitment Fee: Dollar Loan: 0.125 percent per year on undisbursed amount, commencing on the 61st day from the signing date, payable semiannually in arrears Yen Loan: Nil Management Fee: Dollar Loan: 0.55 percent flat Yen Loan: 0.1 percent flat Agency Fee: Dollar Loan: $7,000 per year, payable annually Yen Loan: Yen 3 million flat Expenses: Dollar Loan: Out-of-pocket expenses to be paid by the Borrower up to $50,000, including legal fees Yen Loan: Out-of-pocket expenses to be paid by the Borrower up to Yen 2 million, including but not limited to legal fees Governing Law: Dollar Loan: Laws of England Yen Loan: Japanese Law Taxes: All payments to be made free and clear of any Chinese taxes and duties Agent: Dollar Loan: The Fuji Bank, Limited Yen Loan: To be appointed  -18- ANNEX 1 IBRD Guarantee: (For both Loans): IBRD will provide a guarantee covering the principal amount outstanding on and after the 13th installment under the proposed repayment schedule on an accelerable basis, i.e., on and after such installment. Maximum Amount of Guarantee. Maximum amount of the guarantee will be equal to the outstanding amount of the Loan on the 11th anniversary, based on the original repayment schedule. Total maximum exposure of the Bank under the two Loans will be 43 percent of the initial total Loan amount or approximately $64 million equivalent. The Bank's guarantee exposure, which is represented by the present value of the guaranteed amount, will initially amount to approximately $30 million equivalent or 20 percent of the total Loan amount. IBRD Guarantee Fee: 0.25 percent per year of the Bank's exposure under the Guarantee (calculated on a present value basis) payable by the Borrower to IBRD on a semiannual basis in arrears. lndemnity by China: China will enter into an Indemnity 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 the World Bank may otherwise determine, for any payment made by the World Bank under its guarantee.  IBRD 25933 119 CHINA 120' \12 N G S U 122' ZHEJIANG POWER DEVELOPMENT PROJECT ZHEJIANG POWER GRID ,- UNDER FUTURE EXISTING CONIS ICTlON PECT PROJECT - - 500kV TRANSMISSION LINE ( (1,625MW) \ / tdongkou(1,800M4 c00MW A A A * 500kV SUBSTATION * 6 oshon Seelmill(2x350MW1) u, ',' ~~~Suzhou,^ <Zoe(,4M 0 0 * THERMAL POWER PLANT 0 Zhabei(4,646MW) HYDRO POWER P Hu 0 Nonshi(86MW) -31 i [i1 - N'CLEAR POWE0PLANT I 3f 31