China - Henan (Qinbei) Thermal Power Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 18096 IMPLEMENTATION COMPLETION REPORT CHINA HENAN (QINBEI) THERMAL POWER PROJECT (LOAN 3980-CHA) June 29, 1998 Energy and Mining Sector Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  COUNTRY EXCHANGE RATES AND ABBREVIATIONS Currency Unit = Chinese Yuan (RMB) Yuan (RMB)/US$ EXCHANGE RATES AND CPI (Yearly Average) Exchange Rate Fiscal Year RMB/US$ January, 1996 (SAR) FY 97/98 8.3/1.00 FY 98/99 Measures and Equivalents 1. Ton (t) = I metric tonne = 1,000 kg 2,204 lbs. I kilovolt (kV) = 1,000 volts (V) I kilowatt-hour (kWh) = 1,000 watt-hours I Megawatt-hour (MWh) = 1,000 kilowatt-hours I Megavolt-Ampere (MVA) = 1,000 kilovolt-amperes (kVA) I Gigawatt-hour (GWh) = 1,000,000 kilowatt-hours I Terrawatt-hour (TWh) = 1,000,000,000 kilowatt-hours ABBREVIATIONS AND ACRONYMS BERI - Beijing Economic Research Institute CAS - Country Assistance Strategy CIDA - Canadian International Development Association EPH - Electric Power of Henan HFEESC - Henan First Energy Efficiency Service Company HPE - Harbin Power Engineering Company, Ltd. ICR - Implementation Completion Report IDRC - International Development Research Center MOEP - Ministry of Electric Power MOF - Ministry of Finance QEPC - Qinbei Electric Power Company SPC - State Planning Commission Vice-President: Jean-Michel Severino Director: Yukon Huang Sector Manager: Yoshihiko Sumi Task Manager: Noureddine Berrah  FOR OFFICIAL USE ONLY CHINA HENAN (QINBEI) THERMAL POWER PROJECT (LOAN 3980-CHA) IMPLEMENTATION COMPLETION REPORT Table of Contents PREFACE .................................................. ii EVALUATION SUMMARY ...................................................I A. Introduction ...................................................I B. Project Objectives ...................................................I C. Implementation Experience and Results ...................................................2 D. Summary of Findings, Future Operations, and Lessons Learned ...................................................6 STATISTICAL TABLES Table I - Summary of Assessments ...................................................8 Table 2 - Related Bank Loans/Credits ...................................................9 Table 3 - Project Timetable .................................................. 12 Table 4 - Loan Disbursements .................................................. 12 Table 5 - Key Indicators for Project Implementation .................................................. 13 Table 6 - Key Indicators for Project Operation .................................................. 13 Table 7A - Project Costs .................................................. 14 Table 7B - Project Financing .................................................. 14 Table 8 - Chronology of Events Leading to Loan Cancellation ....................................... 15 Table 9 - Bank Resources Staff Inputs .................................................. 18 Table 10 - Bank Resources Missions .................................................. . 18 MAP IBRD 27181 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.  - ii - IMPLEMENTATION COMPLETION REPORT CHINA HENAN (QINBEI) THERMAL POWER PROJECT (LOAN 3980-CHA) PREFACE This is the Implementation Completion Report (ICR) for the Henan (Qinbei) Thermal Power Project in China, for which Loan 3980-CHA in the amount of US$ 440 million equivalent was signed on January 23, 1997 and made effective on April 17, 1997. The project was not implemented as the entire loan was canceled on December 12, 1997 at the request of the Borrower, owing to differences of opinion in the procurement of major equipment for the proposed power plant. No disbursement was made from the loan. The project was designed to ease the power shortage in the Henan province and, at the same time, support major institutional and financial reform in the sector with the aim of putting Henan's power sector on a commercial footing. The proposed physical investments included: (a) a generation component comprising the installation by the Electric Power of Henan (EPH) of two coal-fired generating units, each of 600 MW capacity, to provide reliable and economical supply of electricity in the region; (b) a transmission component to accommodate the new generation with 165 km of 500 kV transmission lines to improve the quality and reliability of supply, and reduce the supply-side losses; and (c) an electricity conservation component to accelerate the implementation of electricity conservation measures by supporting economically and financially viable projects. Significant progress was achieved in the implementation of the power sector reform plan and excellent preparation was made for the energy efficiency project component; however, none could be pursued to the end because of the loan cancellation. This ICR was prepared by Mihir Mitra (Consultant, Power Engineer), with the assistance of Noureddine Berrah, Task Manager, and reviewed by Yoshihiko Sumi, Sector Manager, Energy and Mining Sector Unit, and Yukon Huang, Director, China. The ICR is based on the Staff Appraisal Report (No.15002-CHA), the Loan and Project Agreements, correspondences between the Bank and the Borrower, Back-to-Office Report of the two supervision missions, and internal Bank memoranda. A draft copy of this report was sent to the Borrower with request for comments and Borrower's contribution to the ICR; however, none was received.  - 1 - CHINA HENAN (QINBEI) THERMAL POWER PROJECT (LOAN 3980-CHA) EVALUATION SUMMARY A. Introduction 1. Henan Province, the selected location of the proposed Qinbei thermal power plant, is the most populous (following the creation of Chongqing Municipality in March 1997), yet one of the less developed provinces in China. At project appraisal, the provincial power sector was beset with acute shortages and serious problems resulting from frequent load shedding (84,000 times or 240/day in 1994) and severe limitations imposed on industrial consumers. 2. In line with Bank-wide policy, the Bank's energy assistance program in China placed special emphasis on sector reform and energy conservation. The lending program for the Henan (Qinbei) Thermal Power Project, therefore, focused on the one hand on assistance for detailed aspects of implementation of power sector reforms, and -on the other on reducing the power shortages that continued to hamper development of the sector. 3. Because of large coal deposits, coal-fired thermal generation commands a major share of total power generation in China. The loan for the two, 600 MW coal-fired units, amounting to US$ 440 million equivalent, was signed on January 23, 1997, and made effective on April 17, 1997. While the institutional reform agenda and preparations for implementing the energy efficiency component proceeded extremely well, differences arose between the Bank and the Borrower during the procurement phase of the two major components of the proposed plant, namely, the boilers and turbine-generators. The differences relative to the turbine-generators were reconciled satisfactorily in the end; however, those in the evaluation of boilers could not be compromised. (See implementation experience for details.) As the Bank expressed its inability to concur with the contract award recommendation for the boilers, the Borrower requested on December 12, 1997 for the entire loan amount to be canceled. The Bank canceled the loan with effect from the same date. B. Project Objectives 4. The main objectives of the project were to: (a) reduce the acute power shortages and foster integrated development of the power system of Henan Province in the most cost-effective and environmentally sound manner; (b) support adequate implementation of power sector and power enterprise reforms and accelerate the transition of EPH to a legally and financially autonomous and business-oriented company, in line with the Company Law (recently enacted during project preparation); (c) assist in transferring new power technologies and in applying modem power operation/ maintenance methods; (d) support improvements in the efficiency of electricity use; and (e) contribute to rationalization of power tariffs. During project preparation, the Beneficiary (EPH) demonstrated full commitment to the objectives of the project and assisted in identifying performance indicators and critical success factors to ensure the achievement of these agreed objectives.  -2- C. Implementation Experience and Results 5. Reform Agenda. In line with the key objective of using the project as a vehicle to assist and facilitate the corporate restructuring of EPH and its affiliate enterprises, promote a more open sector structure, and initiate competition at the generation level, EPH prepared and agreed to implement a package of sector and enterprise-related reforms, consisting of appropriately sequenced, time-bound actions. The main elements of the implementation plan were: (a) incorporation of EPH as a limited liability company; (b) separation of government and enterprise functions; (c) commercialization of operations; (d) tariff reform; and (e) power sector restructuring. The Qinbei Electric Power Company (QEPC) was established as a limited liability company, as a first step, under the new Company Law, during project preparation itself. QEPC was established with the mandate to construct and operate the proposed Henan (Qinbei) Thermal Power Project. Equity shares of the company were held by four different investors, with EPH being designated as the organization responsible for overall project coordination and liaison with the World Bank. 6. The project also included a comprehensive technical assistance component to assist EPH with all aspects of its reform efforts, which included: (a) an institutional strengthening component directed at organizational restructuring and modernization of its financial management and administrative practices; (b) a comprehensive package of legal services to assist in corporatization, and preparation of the necessary contractual documents for sector restructuring; and (c) assistance in developing an appropriate tariff structure and transition plan to achieve the agreed financial targets. 7. Significant progress was achieved in the implementation of the reform agenda. EPH had established a working group comprising senior officials of the company to manage the reform process. It hired international consultants to assist in designing a comprehensive reform implementation plan and carrying out a tariff study. A model power purchase agreement was developed, EPH's administrative responsibilities were clearly defined and were ready to be transferred to the concerned provincial authority(ies) in accordance with the power sector reform schedule at the central level, more management autonomy was granted to subsidiary companies, several joint venture power projects were finalized, including one based on limited international bidding procedure (as required by the Bank) which resulted in increasing private sector involvement in power generation, and prices were unified in several prefectures and cross subsidies notably reduced paving the way to a full unification and more supply cost based tariffs in 1998. EPH deserves full credit for achieving such commendable progress on the reform agenda. 8. Site Preparation. EPH took timely steps to acquire the land for the proposed power plant. The site was virgin land, uninhabited and uncultivated, with no adverse social or economic impact. As a result, there was no resettlement issue. Site leveling, construction power and water supply, communication systems, access and in-site roads and culverts, 80 percent of the foundation work for the railway spur, including bridges, the main office building as well as associated facilities were completed by June 1997, as reported by the first supervision mission. EPH also moved to the new office building to be physically close to the project site. A sum of about 125 million RMB, or an equivalent of US$15 million, had been spent for all these front end preparations.  -3 - 9. Procurement. As long-lead items, the procurement of boiler island and turbine island contracts, under international competitive bidding procedures, was envisaged to proceed in parallel with project loan processing. A firm of international consultants was appointed to assist EPH in prebid meetings, bid clarification process, bid evaluation, bid evaluation report preparation, contract negotiations, coordination of design interfaces, review of drawings, design liaison and construction management. EPH performed an exemplary task of finalizing the preliminary engineering and design of the power plant as well as complete specifications for the boilers and turbine generators. A cost estimate for the various components of the plant and an agreed implementation schedule were developed. Bidding documents for the boilers and the turbine generators were prepared, and reviewed and approved by the Bank. A prebid meeting was held with interested bidders and bidding documents for both packages were issued on December 21, 1995. Bids were opened April 26, 1996 and evaluated. The Bid Evaluation Report was submitted to the Bank on March 21, 1997. In accordance with this evaluation, Harbin Power Engineering (HPE) of China was the lowest evaluated bidder for both bid packages. 10. The qualification requirements for both packages were that the equipment manufacturers, or their agents authorized to sell the products, "shall have designed and furnished at least two (2) 600 MW units or larger equipment which have been in successful operation for at least three (3) years. The successful operation shall mean the operation under design load with high degrees of reliability and availability." Even though not specifically defined in the bidding documents, the high degree of reliability and availability is internationally recognized as operation at a minimum of 80 percent capacity factor and 70% availability. However, based on information furnished by all interested bidders and assessment by EPH, Harbin Power Engineering, prima facie, was deemed qualified to bid. 11. A total of 9 bids were received for the turbine island and 8 bids for the boiler island. HPE's bids, as read out at bid opening, were the lowest. While bid evaluation was in progress, the Executive Director's office raised questions on HPE's qualification on the ground that HPE was a government-owned company and, therefore, should be disqualified in accordance with Clause 1.8(c) of the Bank's Procurement Guidelines. These guidelines state that: "Government- owned enterprises in the Borrower's country may participate only if they can establish that they (i) are legally and financially autonomous and (ii) operate under commercial law. No dependent agency of the Borrower or sub-Borrower under a Bank-financed project shall be permitted to bid or submit a proposal for the procurement of goods or works under the project." The Bank sought clarifications from EPH on this issue, and reviewed Harbin's Charter, annual reports and audited financial accounts. The documents helped establish the fact that HPE was indeed a legally and financially autonomous corporation, being operated under commercial law. Based on this finding, HPE's bids were determined as acceptable for evaluation. However, questions were raised on whether Harbin satisfied the post qualification requirements, as enumerated in para. 10 above. It appeared that the equipment offered in the bids were significantly different in design from the units cited as reference units in support of Harbin's experience. To obtain a fair assessment, therefore, the Bank requested that EPH's international consultants provide an independent opinion on the winning bid, specifically relative to the bidder's qualifications and experience to perform the contract. 12. Turbine Island. Of 9 bids received, the Bid Evaluation Committee found 2 bids incomplete and rejected them. The committee found the HPE bid as complete. The three lowest qualified bids, based on read-out prices (corrected for arithmetical errors, if any) were taken up for detailed evaluation. Harbin's bid was evaluated as the lowest.  -4 - 13. HPE, at bid opening, had manufactured only three, 600 MW units; two at the Pingwei station and one at Harbin (unit no. 3). However, only the Pingwei units were cited as reference units in the bid for the purpose of postqualification. Detailed examination of the features of the turbines offered by HPE revealed that the specific turbines offered in the bid were significantly different from those cited as reference units. The proposed turbines indicated extensive design modifications, which included a new profile for the steam path, different integral shroud blades, and modified technology for the control reaction stage in the high pressure turbine. The intermediate pressure and low pressure turbines also indicated similar changes. Additionally, the last two stages of the low pressure turbine blades had been redesigned. 14. It transpired that the design changes were necessitated by the unsatisfactory performance of the Pingwei units during commissioning and the initial period of their operation. Their performance was nowhere near the international standard for reliability and availability mentioned earlier (para. 10). With all the changes made to the Pingwei turbines, there was not enough operating experience to satisfy the requirements of Para. 10. It was concluded, therefore, that the turbines offered in the bid did not have the required performance history to provide confidence in their design integrity or performance reliability. Based on their independent review, the international consultants also came to the same conclusion. As HPE did not satisfy the qualification requirements, the Bank recommended that the contract award be made to the next lowest evaluated bidder, the difference in the evaluated price amounting to about US$ 18 million. After protracted exchange of correspondences, EPH finally agreed with the Bank's recommendation and wrote the Bank officially to approve the award of contract to the second lowest evaluated bidder. The Bank sent its no objection letter to EPH on October 1, 1997. 15. Boiler Island. Of a total of 8 bids received, the Bid Evaluation Committee found 3 bids incomplete and rejected them. The committee also accepted the HPE bid, lowest in price as read out at bid opening, as complete. The next two bids, in ascending order of prices, were also taken up for detailed evaluation. 16. HPE, in their bid, offered a boiler that had design characteristics significantly different from those of the reference units. The coal pulverizers offered were of different design and the coal pipe configuration extremely unusual and cumbersome, without any industry precedence. According to the bid proposal, HPE offered three (3) coal pulverizers of a certain type. Even though this satisfied the requirements of the technical specifications which called for"no more than six pulverizers per unit", the arrangement proposed was not consistent with industry practice for a 600 MW unit. When questioned by the committee for supporting evidence, Harbin could not provide any reference of 600 MW units with only three mills. The bid evaluation committee as well as the international consultants did not think the number of mills and the arrangement proposed guaranteed adequate reliability and flexibility in plant operation. During bid evaluation, EPH raised these concerns and suggested major changes in the design, which included raising the number of pulverizers to six (6) per unit. EPH also recommended pulverizers of a preferred, foreign design. Harbin promptly agreed to substitute the pulverizers with those of the preferred design and the desired number of mills per unit, for a price increase of US$ 9.9 million equivalent for the two units. Additionally, in their original bid, HPE had forgotten to include the price of Boiler Water Circulating Pumps in their bid, even though the pumps were listed in the Equipment List. When asked to clarify, HPE admitted that this was an oversight on their part and required the price of the bid to be adjusted upwards by another US$ 3.4 million equivalent for the required number of pumps.  - 5 - 17. Bank's procurement guidelines stipulate that, during the bid clarification process, if a bid is not substantially responsive, it should be rejected and that it may not subsequently be made responsive by the Bidder by correction of the non-conformity (ITB 32.6). Also, the Guidelines for Procurement mandate that during the clarification process, no change in the price or substance of the bid shall be offered, sought or permitted (Clause 2.45). These guidelines were clearly violated during the evaluation process. 18. Violations of the evaluation procedure notwithstanding, since the design offered in the original bid was not supported by the required operating experience, Bank concluded that Harbin's bid did not satisfy the postqualification requirements enumerated in para. 10 in this case also. Bank therefore, recommended that the contract award for the boilers be made to the next lowest evaluated bidder. As evaluated, Harbin's bid price was about US$ 50 million equivalent cheaper than that of the second lowest. There were, therefore, questions as to whether HPE had grossly underquoted their price and whether they would be able to perform the contract. EPH continued to contest the Bank's recommendation. However, since no new information was provided to warrant a fresh review of the case, it was not possible for the Bank to revise its decision. To facilitate conclusion, Bank informed EPH on October 8, 1997 that Bank's decision was final and could not be changed. On December 12, 1997, the Ministry of Finance requested the Bank to cancel the loan. The Bank expressed disappointment at this decision and regretfully canceled the loan with effect from the same date. The chronology of events concerning the two procurements is tabulated in Table 8. 19. Energy Conservation Component TA. As part of the preparation of the proposed project, EPH carried out, with the assistance of Beijing Economic Research Institute (BERI), an integrated resource planning exercise. The study highlighted the economic benefits of electricity conservation investments and showed that the implementation of an aggressive electricity conservation program could alleviate electricity shortages and reduce the required generation capacity by 1,200 MW over the next seven years. It also indicated that, over the same period, coal consumption for power generation could be reduced by 10 million tons. The potential and identified technologies were reviewed and confirmed by international consultants during project appraisal. 20. Given EPH's strong interest in electricity conservation, the project included a $10 million loan component to: (a) develop pilot/demonstration projects aimed at reducing electricity consumption through introduction of state-of-the-art technologies, such as variable speed drive motor control systems, low loss transformers, high efficiency welding machines, etc.; b) implement a pilot/demonstration project of power loss reduction in the urban distribution system'; (c) demonstrate the viability of innovative commercially-based contractual and financing mechanisms; and (d) develop adequate monitoring procedures and test new market- oriented approaches, especially performance contracting and leasing, to speed up the implementation of electricity conservation projects. 21. The Bank arranged for two US$ 90,000 equivalent (total of US$180,000) TA program financed by the Canadian Trust Fund to: (a) help prepare for the creation of the Henan First EPH also prepared terms of reference to optimize supply and reduce losses in Zhengzhou, capital of Henan Province. It was agreed that an international consultant would be engaged to finalize the TOR  Energy Efficiency Service Company (HFEESC), with a clearly defined business plan; (b) assist HFEESC in developing a business plan; (c) assess the economic and financial viability of the first projects to be included in the energy efficiency component; and (d) training on energy efficiency nuances of HFEESC staff during the assignment. EPH staff also received training under the program to conduct energy efficiency business. Subsequently, HFEESC initiated the selection of the projects to be included in the electricity conservation component based on the following principles: financial and economic profitability, measurability, technical innovation, and replicability. Significant steps were taken by the company in implementing these pioneering initiatives to develop energy conservation schemes on a for-profit commercial basis. 22. With EPH's active support, HFEESC completed a significant amount of preparatory work to launch the energy conservation initiative. Based on three reports, two by consultants and one by the Engineer, several project components, including the procurement of Variable Speed Drives for industrial applications, the upgradation of facilities at the Luoyang Steel Plant, more efficient welding machines, high efficiency distribution transformers, as well as the Zhengzhou City Loss Reduction Component optimizing the operation of the distribution network and demand management, were selected for implementation. The steel plant program was later dropped because the procurement packages were not prepared according to Bank procurement guidelines. The Bank is exploring options to continue assisting EPH in the implementation of this program under another ongoing Bank project. D. Summary of Findings, Future Operations and Lessons Learned 23. Summary of Findings. Procurement under Bank-financed projects has become one of the most difficult problems in China, particularly in thermal generation projects. Loose interpretation of the Bank's guidelines, combined with the pressure exerted by domestic manufacturers on the beneficiaries, results in unusually long bid evaluation periods and consequent delays in the effectiveness of projects. This is also becoming a major problem with the Bank's Board. It is obvious that a massive effort on procurement training should be undertaken, as soon as possible, to train new officers and to refresh and update the knowledge base of the existing cadre in China so that Bank's procurement guidelines are followed assiduously. The problem is further exacerbated by the fact that there is a massive turnover of officers in the Government departments, as well as in the tendering companies. 24. Procurement procedures, as agreed during loan negotiations, are included in the legal documents. For the specific project, therefore, these agreed procedures become binding on all parties. Specifically, evaluation of bids are required to be performed strictly in accordance with the provisions of the bidding documents. In this case, divergence in the bid evaluation results arose because of the difference in the interpretation of the bid specifications concerning the qualification criteria. 25. A perception seems to prevail that there is more room for interpretation of procurement guidelines than there actually is. As a matter of policy, the Bank's interest as a cooperative institution, is in giving all eligible bidders from developed and developing countries an opportunity to compete in providing goods and works financed by the Bank. This needs to be ensured with due attention to considerations of economy and efficiency without regard to political or other non-economic influences or considerations (Article 1.2). The broadest possible competition while assuring the critical performance or other requirements for the goods and/or works under procurement will bring maximum benefit to the beneficiary. Loss of this  - 7 - fundamental perspective, rendering the evaluation process to a negotiation of the application of procurement guidelines, led to the unfortunate impasse and eventual loan cancellation. The Bank's rejection of EPH's recommendation for boiler award after EPH followed the Bank's suggestion for turbine award seems to have been perceived as a rigid position rather than a justified decision strictly based on adequate application of procurement procedures and post qualification criteria, clearly spelled out in the bidding documents. 26. The episode suggests whether or not two-stage bidding procedure should be mandated for the procurement of major pieces of equipment. Since this procedure entails prequalification of all prospective bidders, it takes more time. In the case of Qinbei, there was a danger that this would further delay project implementation. Even single-stage procurement in China, with post qualification of bidders, is taking almost two years to finalize, with the bid evaluation process itself taking more than one year. Procurement being as important as it is, due attention should be given to considerations of economy and efficiency without regard for political or other non- economic influences or considerations. 27. Future Operations. A high level meeting was held in China on January 23, 1998, between the Chinese government officials and the Bank to discuss the unsatisfactory project outcome. This was followed by a high level interaction between the Bank's Procurement Advisors and officials of the Chinese Government to discuss, inter alia, the procurement problems encountered on this project. Much was made out of our past successful collaboration and it was hoped that this was an isolated problem. It was also pointed out that some of the provisions of recently issued MOF Procurement Guidelines seemed to contradict the Bank's Procurement Guidelines. It was apparent that these guidelines should be carefully reviewed by the Bank as soon as possible and the contradictions fleshed out. Nevertheless, past successful collaboration between China and the Bank clearly demonstrates the need to intensify our dialogue to remove uncertainties among all parties concerned and adequately address procurement issues to ensure continued cooperation between the Bank and the Chinese Government in the successful implementation of the Bank's energy policy in China as enumerated in the CAS. 28. Lessons Learned. (a) Procurement being the single most important operation in loan administration, it is extremely important for the Bank to ensure that the knowledge base on the Bank's procurement guidelines in the Borrower's country is maintained at the highest level at all times. In the shorter term, procurement workshops are organized to acquaint project beneficiaries with Bank Procurement Guidelines and Procedures at the early stages of project preparation. In the longer term, there is a proposal to establish procurement training courses in Chinese universities. The universities, in turn, will offer this training on a continuing basis. This initiative will be supported by the Bank in the earlier years of its implementation. (b) To ensure best practice in procurement processing, the Bank needs not only to perform a careful review of all documents, but also wide consultation involving external technical/procurement staff, as necessary. This approach has been very helpful in developing a consensus during the review of the evaluation of the project by the Bank. The external consultant's independent opinion also played a central role in reaching a decision. (c) Procurement efficiency can only be ensured if project implementation is done with due diligence and without extraneous considerations.  CHINA HENAN (QINBEI) THERMAL POWER PROJECT (Loan 3980-CHA) Statistical Tables Table 1: Summary of Assessment A. Achievement of Objectives. None of the objectives was achieved as the loan was canceled. B. Project Sustainability. Not Applicable. C. Bank Performance Highly Satisfactory Satisfactory Deficient Identification Preparation Assistance U Appraisal U Supervision Not Applicable D. Borrower Performance Highly Satisfactory Satisfactory Deficient Preparation O Implementation Covenant Compliance Not Applicable Operation Not Applicable E. Assessment of Outcome Highly Satisfactory Satisfactory Deficient .  -9 - Table 2: RELATED BANK LOANS Year of Loan Title Purpose Approval Status Ln. 2382-CHA To construct a rockfill dam, a spillway, an 02/21/84 Loan was closed on Lubuge underground powerhouse, to install 4 generating 06/30/92. Hydroelectric units of 150 MW each, 3 single circuits of 220 Project kV transmission lines; to provide consultant services and a training program. Ln. 2493-CHA To construct a 500 kV transmission line from 02/19/85 Loan was closed on Second Power Xuzhou to Shanghai and 5 associated substations 06/30/92. Project totaling 3,500 MVA in capacity, to install tele- control and telecommunications equipment for load dispatching, and to provide training for 500 kV transmission lines and substations. Ln. 2706-CHA To construct a coal-fired thermal power project 06/14/88 Loan was closed on Beilungang with the first 600-MW unit with the first single 06/30/94. Thermal Power circuit of 500 kV transmission line with Project associated substations, and to carry out a training program and a tariff study for the East China power grid. Ln. 2707-CHA To construct a 110 m high concrete gravity dam, 05/29/86 Loan was closed on Yantan a spillway, a powerhouse, and a shiplift; to install 06/30/94. Hydroelectric 4 generating units of 275 MW each, 2 single Project circuits of 500 kV transmission lines and 3 associated substations; and to carry out a training program. Ln. 2775-CHA & To construct a 101 m high concrete gravity dam, 01/06/87 & Implementation Ln. 3515-CHA a spillway, a powerhouse and a navigation lock; 09/01/92 under way. Closing Shuikou to install 7 generating units of 200 MW each; to dates 06/30/93 & Hydroelectric carry out a resettlement program in the reservoir, 12/31/96. Projects I & 11 an action plan for tariff reform, and a training program for planning and financial management Ln. 2852-CHA To install 2 additional coal-fired units of 300 06/23/87 The loan was closed Wujing Thermal MW each and associated 220 kV transmission on 06/30/95. Power Project lines and substations; to provide online computer control and automatic load dispatching center; to carry out a masterplan study for the distribution network in Shanghai and a training program. Ln. 3387-CHA & To construct a 240 m high arch dam with an 07/02/91 Implementation Ln. 3933-CHA underground powerhouse, to install 6 550-MW & under way. Closing Ertan Hydroelectric generating units and associated equipment; to 08/22/95 dates 12/31/96 and Projects I & II carry out an environmental management 12/31/2001. program, studies of power pricing and reservoir operation, and a training program.  - 10- Table 2: (Cont'd) Year of Loan Title Purpose Approval Status Cr. 2305-CHA & To construct a 56 m high gravity dam and an 10/31/91 Implementation Ln. 3412-CHA underground powerhouse with 4 x 60 MW under way. Closing Daguangba generating units; to erect a 36 km long double- date 12/31/97. Multipurpose circuit 220 kV transmission line and to build Project canals to irrigate 12,700 ha of land. Ln. 3462-CHA To install 2 additional 600 MW generating units; 04/12/92 Implementation Zouxian Thermal to construct 500 kV and 220 kV transmission under way. Closing Power Project lines and substations; and to carry out an air date 06/30/99. quality control study, a power tariff study, an action plan for tariff adjustment, and a training program for the technical, financial, and management staff of SPEPB. Ln. 3606-CHA To construct a pumped-storage hydroelectric 05/18/93 Implementation Tianhuangping power plant with six 300 MW reversible pump- under way. Closing Hydroelectric turbine units, together with upper and lower date 12/31/2001. Project reservoirs, a water conveyance system, an under- ground powerhouse; to erect 250 km long 500 kV transmission lines; to carry out studies of optimal power plant operation and its output pricing; and to strengthen the beneficiary's organization through technical assistance and training. Ln. 3718-CHA To construct a coal-fired thermal power plant 03/22/94 Implementation Yangzhou Thermal with two 600 MW generating units; to erect two under way. Closing Power Project 500 kV transmission lines (30 km long); to date 12/31/2000. extend technical assistance for the development and implementation of improved accounting and financial management information systems; and undertake management development and staff training. Ln. 3848-CHA To construct a new 500 kV transmission 02/28/95 Implementation Sichuan network consisting of 2,260 km of transmission commenced. Transmission lines and 5,250 MVA of substations; provide Closing date Project technical assistance for implementation of sector 12/31/2001. reform plan, organizational improvements and financial management systems. Ln. 3846-CHA To construct Beilungang Phase II power plant 02/28/95 Implementation Zhejiang Power consisting of three 600 MW coal-fired units; to commenced. Development construct 400 circuit-km of 500 kV transmission Closing date Project lines, 2,250 MVA of 500 kV substations and 12/31/2002. reinforce distribution networks in Hangzhou and  - 11 - Table 2: (Cont'd) Year of Loan Title Purpose Approval Status Ningbo; to extend technical assistance to assist the power company in commercialization and corporatization, establish computerized financial management information system, improve transmission and distribution planning and upgrade environmental monitoring. Ln. 4172-CHA To construct the first two coal-fired 600-MW 05/27/97 Project has been Tuoketuo Thermal units in Inner Mongolia Autonomous Region; to approved but not Power Project implement a desertification control and dryland signed yet. management program: to assist TEPGC with the introduction; of modem accounting and financial management systems, environmental management, operation and maintenance of the power plant and involvement of private investors in existing and new power projects in Inner Mongolia. To construct two 220 kV indoor substations in Beijing: to add a 250 MVA transformer to Wangfujing substation in Beijing; and to assist NCPGC to implement accounting and financial management systems. Ln. 4197-CHA To construct two 900-1000 MW coal-fired 06/24/97 Implementation Waigaoqiao Thermal supercritical units; to install FGD facilities at commenced. Power Project Shidongkou Power Plant to offset SO, Closing date: emissions from the project; to construct two 500 01/31/2006 kV transmission lines; to assist SMEPC in construction supervision, interfacing and quality assurance control; to provide technical assistance to SMEPC to implement modem accounting and financial management systems, promote efficient management and power sector reforms including financial and corporate restructuring of the generation company. Ln. 4303-CHA 500 kV transmission network; transformation of 03/26/98 Project has been East China (Jiangsu) ECEPGC into a modem entity: develop regional approved but not Power Transmission power market signed yet. Project Ln. 4304-CHA To achieve large, sustained and growing 03/26/98 Project has been Energy Conservation increases in energy efficiency, and associated approved but not Project reductions in the rate of growth in carbon signed yet. dioxide emissions and other pollutants Ln. 4350-CHA To alleviate power shortages in Hunan by 06/18/98 Project has been Hunan Power providing efficient, reliable and approved but not Development Project environmentally sound power supply. signed yet.  - 12 - Table 3 Project Timetable Steps in Project Cycle Date Planned Date Actual Identification 2/94 February, 1994 Preparation 7/94 July 8-15, 1994 Preappraisal 11/94 November 5-19, 1994 Appraisal 4/95 May 15-27,1995 Postappraisal - October 16-27, 1995 Negotiations 9/95 January 9-11, 1996 Board Presentation 10/95 February 27, 1996 Loan Signing __January 23, 1997 Loan Effectiveness - April 17, 1997 Project Completion 8/01 Loan Canceled Loan Closing 6/03 December 12, 1997 Table 4: Loan Disbursements FY98 FY99 FY00 FY01 FY02 FY03 | FY04 Appraisal Estimate 35.5 94.9 167.6 91.9 18.8 21.2 10.1 Actual Loan Canceled. No disbursements made. Actual as % of Estimate Not Applicable Date of Final Disbursement Not Applicable  - 13 - Table 5: Key Indicators for Project Implementation 1. Procurement Package Bid Opening Evaluation Complete Contract Award L/C Open Planned Actual Planned Actual Planned Actual Turbine Generators 4/96 4/96 8/96 3/97 10/96 - - Steam Generators 4/96 4/96 8/96 3/97 10/96 - - Instrumentation&Controls 8/96 - 8/96 - 3/97 - - Electrical Equipment 8/96 - 8/96 - 3/97 - - Ash Handling 9/96 - 9/96 - 4/97 - - Coal Handling 9/96 - 9/96 - 4/97 - - Construction Equipment 9/96 - 9/96 - 1/97 - - Plant Monitoring/Testing 5/97 - 6/97 - 1/98 - - Equipment Steel 5/96 - 5/96 10/96 2. Construction and Commissioning Schedule Planned Actual Excavation 6/97 Boiler Steel Structure Erection 2/98 Boiler Drum Lift 8/98 Turbine LP Casing in Place 9/98E Hydraulic Pressure Test of Boiler 8/99 Trial Run: Unit l//Unit 2 9/00//6/01 Commercial Operation: Unit I//Unit 2 3/01//12/01 Project Completion 12/02 Loan Closing 6/03 Canceled 12/97 Table 6: Key Indicators for Project Operation No longer relevant  - 14- Table 7A: Project Costs Contract Package Appraisal Estimate Actual Cost Foreign, ------------US$ million ----------- -----------US$ million ---------- as % of Total Local Foreign Total Local Foreign Total Preparatory Works 11.0 0.0 11.0 Land Acquisition 7.8 0.0 7.8 Civil Works 96.2 0.0 96.2 Erection 54.5 0.0 54.5 Administration 15.0 0.0 15.0 Plant Equipment and 71.8 389.4 461.2 84.4 Materials Transmission System 154.5 22.1 176.6 12.5 Engineering Services 12.7 3.7 16.4 22.6 Environmental Protection 0.1 0.7 0.8 92.1 Technical Assistance and 0.3 4.6 4.9 93.3 Studies Training 1.8 2.8 4.6 61.0 Electricity Conservation 10.0 10.0 20.0 50.0 Project Total Base Cost 426.2 433.3 859.5 50.4 Physical Contingencies 41.6 20.8 62.4 33.3 Price Contingencies 43.6 43.3 86.9 49.8 Import Duties and VAT 152.2 0.0 152.2 0 Total Project Cost 663.7 497.4 1,161.1 42.8 Interest During 165.0 85.2 250.2 34.1 Construction Total Financing Required 828.7 582.6 1,411.3 41.3 Table 7B: Project Financing Local Cost Foreign Cost Total Cost ---------------------------US$ million-------------------------- Central China Electric Power Group Company 414.4 42.6 457.0 Henan Province Construction Investment Company 248.6 25.6 274.2 Electric Power of Henan 165.7 17.0 182.7 Cofinancing 0.0 55.0 55.0 IBRD 0.0 440.0 440.0 IDA 0.0 2.4 2.4 Total 828.7 582.6 1,411.3  - 15 - Table 8 Chronology of Events Leading to Loan Cancellation Event Correspondence Reference Comments From To Date Draft bid doc. for IFB-I EPH Bank 6/21/95 For review and and IFB-2 comments Review comments Bank EPH 8/3/95 Commercial sections at variance with approved Model Bid Documents; Technical specification shortcomings Reminder Bank EPH 9/29/95 Expedite finalization of bid documents Revised bid documents EPH Bank 11/7/95 Internal Bank reviews Div. RPA 11/7/95 Additional comments Bank EPH 12/5/95 Few additional comments Final bid documents EPH/CNMIEC Bank 12/6/95 Confirmation that comments incorporated Final Clearance Bank EPH 12/10/95 Issuing bids approved Bids Issued, IFB-1&2 12/21/95 Bid Opening, IFB-1&2 4/26/96 8 bids recd. for IFB-1; 9 bids for IFB-2 Evaluation Report EPH Bank 3/21/97 For both bids Harbin Power Engineering (HPE) recommended for contract award HPE qualification in Bank EPH 3/30/97 Raised by Bank even question earlier on 10/4/96. Company charter, financial statements reqd. to prove autonomy and company experience Clarification EPH Bank 4/7/97 Autonomy acceptable; technical experience still in question  - 16 - Event Correspondence Reference Comments From To Date Internal Bank review 4/14/97 Discussed HPE eligibility Independent technical Bank EPH 4/25/97 Bank requested int'l evaluation of HPE bid consultants to evaluate independently Consultant (Sargent & S&L/EPH Bank 6/4/97 Technical evaluation of Lundy) report both bids Internal Bank review 6/14/97 Referred to OPRC OPRC meeting 6/25/97 OPRC concurred with conclusion that evaluation was flawed; HPE did not satisfy qualification requirements spelled out in bidding documents Notification to EPH Bank EPH 6/25/97 Bank position conveyed recommending award to next lowest evaluated Request for EPH Bank 7/11/97 reconsideration by Bank Bank reiterating position Bank EPH 7/11/97 Emphasized that HPE capabilities never in question; but that HPE failed to satisfy the qualifying criteria Bidder in support of its HPE Bank 8/1/97 Dealing at length with qualifications its qualifications. As Bank does not correspond with Bidders during bid evaluation process, letter forwarded to EPH for disposal Expediting Bank EPH 8/26/97 Requested early resolution  - 17- Event Correspondence Reference Comments From To Date Acknowledgment EPH Bank 8/29/97 Will advise when decision is reached Further representation EPH Bank 9/5/97 In support of their selection for award Internal Bank review Div RPA 9/5/97 No new information to warrant change of decision Bank position Bank EPH 9/11/97 Decision final Agreement on Turbine EPH Bank 9/30/97 Agreed to award contract to next lowest evaluated bidder. EPH pleaded again in favor of HPE on the boiler. Clearance on turbine Bank EPH 10/1/97 Bank cleared contract contract award to Sumitomo Bank position on Boiler Bank EPH 10/8/97 Regret decision cannot be changed Conclusion MOF Bank 12/12/97 Requesting cancellation of entire loan. Bank complied  - 18 - Table 9: Bank Resources: Staff Inputs Staff inputs in carrying out the various tasks in the project cycle from preparation in FY through loan cancellation in FY98 were as follows: Task Input (Staff-Weeks) Project Preparation 8.9 Project Preappraisal 64.4 Appraisal 47.9 Loan Negotiations 5.1 Board through Loan Effectiveness 1.0 Project Supervision 12.4 Loan Closing (incl. ICR) 3.0 Table 10: Bank Resources: Missions Project Cycle | Month/Year No. of Days in Specialization ia Performance Type of I I Persons Field I I Rating /b Problems /c Supervision No. 1 7/97 6 4 E,FA,LE,SP 3 Procurement Supervision No. 2 11/97 4 3 SP,E I /a E: Engineer; FA: Financial Analyst; EN : Environmental Specialist; LE : Legal; SP: Specialist; C: Consultant /b I No major problems; 2 = Moderate problems; 3 = Major problems /c I = Implementation Delays; PR= Procurement delays; FN/IN = Financial/Institutional problems  IBRD 27181 |(200 1 3 0 Ehnghl 15 7