Documentof The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Repon No. 12329-CHA

STAFF APPRAISALREPORT

CHG Public Disclosure Authorized

XIAOIANGDIMULTIPURPOSE PROJECT

MARCH25, 1994 Public Disclosure Authorized

Agriculture Operations Division and Mongolia Department Public Disclosure Authorized East Asia and Pacific Regional Office

Thi document ha a resticted distibuton and ay be used by r.dpien.& only in the perfonnance of their officGiadudes. Its contents may not otherwise be disclosed without Wodd Bank authorzation. CURRENCY EQUIVALENIS 1/ (as of January 1, 1994)

Currency Unit - Yuan (Y) $1.00 = Y 8.7 Y 1.00 = $0.11S

FISCAL YEAR

January 1 - December 31

WEIGHTS AND MEASURES

1 meter (m) = 3.28 feet (ft) 1 cubic meter (m3 or cm) = 35.31 cubic feet 1 kilometer (Cm) = 0.62 miles 1 hectare (ha) = 15 mu 1 ton (t) = 1,000 kg 1 kilogram (kg) = 2.2 pounds

ABBREVIATh)NSAND ACRONYMS

BM - Basin Model Bcm - billion cubic meters cms - cubic meters per sec CCPN - Cental China Power Network CPLG - Central Project LeadingGroup CYJV - CIPM Joint Venture CNTIC/lTC - ChinaNational Technical Import Corporation/International Tendering Co. DCA - Development Credit Agreement DOD - Operation Department DSIERP - Dam Safety and Environmental/ResettlementPanel EIA - Environmental Impact Assessment EIRR - Economic Internal Rate of Return El. - Elevation level EM - Environmental Management EMO - Environmental Management Office FAO - Food and Agriculture Organization FD - Finance Divisiorn FIRR - Financial Intemal Rate of Return FPH - Flood Prevention Headquarters

1/ This project was apprised in April/May1993 when the exchangerate was $1 = Y 5.7. All costs and financinghave been recalculatedat the rate of $1 = Y 8.7, effectiveJanuary 1, 1994. Economicand financialanalysis is basedon ogmnal appraisalparametes. Thedevaluation would improveeconomic and fina_i results to some extent. FOROFFICLAL USE ONLY GOC - Governmentof China G TAO - Gross Value of AgriculturalOutput GVIO - Gross Value of Industdal Output GWh - Gigawatthours ICB - InternationalCompetitive Bidding kV - kilovolt kW - kilowatt LCB - Local CompetifiveBidding LG - LeadingGroup LRM - Lower Reach Model LRMC - long-run average margnal cost M&I - Municipaland Industrial MCM - millioncubic meters MGM - Ministry of Geologyand Mining MOA - Ministry of Agriculture MOC - Ministry of Communications MOE - Ministry of Energy MOF - Ministry of Finance MOP - Ministry of Power MURC - Ministry of Urban and Rural Construction MW - Megawatt (1,000 kW) MWR - Ministry of Water Resources NCGWR - National CoordinationGroup on Water Resources NCPN - North China Power Network NEPA - National EnvironmentalProtection Agency NWPN - NorthwestPower Network O&M - Operation and Maintenance PA - Project Agreement PAB - ProvincialAudit Bureau PCC - Project CoordinatingCommittee PMO - Project ManagementOffice PPLG - ProvincialProject LeadingGroup ppm - parts per million RBC - River Basin ConservancyCommission RPDI - Reconnaissance,Planning and Design Institute SAA - State Audit Administration SEPC - State EnvironmentPlanning Commission SOE - Statementof Expenditure SPC - State Planning Comaission WRB - Water ResourceBureau XECC - XiaolangdiEngineering Consultant Company YRCC - YellowRiver Conservancy Commission YRCCRO - YRCC ResettlementOffice YRWHDC - YellowRiver Water and HydropowerDevelopment Corporation

Thisdocument has a resticteddisribution and maybe used by recipients only in the performanceof their officialduties Its contentsmay not othewse be disclosedwithout Wodd Bano athoato CHINA

XIAOLANGDIMULTIPURPOSE PROJECT

Loan and Project Summary

Borrower: People'sRepublic of China Beneficiary: YellowRiver Water and HydropowerCorporation (YkWHDC)

Amount: $460 million

Terms: 20 years,including 7 yearsof grace,at the Bank'sstandard variable interestrate, with levelprincipal payments.

OnlendingTerms: The proceeds of the loan (other than the InstitutionalSupport Componentfor the Ministryof Water Resources,MWR) will be onlent from the Borrowerto YRWHDCunder a subsidiaryloan agreemt, with a 20-yearterm, includi,ng7 years of grace, at the Bank's variable interest rate, with level principal repayments. YRWHDCwill bear the foreignexchange risk and commitment charges.

Objecives: The mainobjectives of theproject are to: (a) introduceflood control in the lower reachesof the YellowRiver Basin to protect major infrstructure and 103 millionpeople; (b) control siltationin the 800km downstreamchannel of the nver and prevent further aggradationso that leveeheights need not be raisedfurther during a periodof 20 years; (c) providewater for asred irrigationfor 2 millionhectares and more stablewater suppliesfor downstream citiesand industries; and (d) generatehydropower for supplementing the baseload of thermalstations in HenanProvince and the Central ChinaPower Network.

Description: The project would include the following components: (a) constructionof Xiaolangdirockfill dam (witha slopingcore), 154 meters high, with associatedintake and outlet structures; (b) constructionof a power stationand associatedsix tunnelswith turbineand gevrators withan installedcapacity of 1,800MW (6 x 300 MW) and associatedswitchyards, and transformers;(c) an environmentalmanagement component to monitor, manage and offsetany negativeimpacts of the project;(d) trainng and technical assistance for YRWHDC in contract management,project Ifi

scheduling,cost control,claims management,financial management, managementinformation systems, organizationalsupport, corporate planningand personnelmanagement; and (e) an institutionalsupport component for the Ministry of Water Resources and the Yellow River Conservancy Commission. The resettlement of 171,000 people displaced by the project and the development of their livelihoods is being undertaken through a separate project being processedsimultaneously.

Benefits: The project will generate enormous benefits: (a) flood control measureswi}l substantialyreduce the risk of normal annual floods, ice-dam breaches, and of major floods. The flood control benefits have been calculatedin tenns of damage reductionfor agriculture, urban and industrialareas. Benefitsfrom avoidanceof massiveloss of human life and suffering have not been quantified. About 103 million people will benefit from protection from infrequent catastrophicfloods and about 3 millionof someof the poorestpeople in Chinaliving between the levees and in flood detentionareas will benefit from preventionof annual and frequent floods (1-in-2 years or more); (b) sedimentcontrol benefitshave been calculatedin terms of reducing the expenditures on levee raising and maintenance; (c) power benefitswould be firm pea'. power generationand would replace building expensivealternative thermal generation using gas tines or other sources; and (d) irrigation and water supply benefits will raise yields of crops (mainly grain) to about double their present yieldsand croppingintensities on about 2.0 million ha and make more water available to cities such as Qingdao so as not to reduce industrial output. The internal economic rate of return calculated on the basis of the above benefits is about 18 percent. Project investmentswould increase labor productivityand incomes of about 4.5 millionfarm familieswith incomesrising by 33 percent in , and by 12 percent in Shandong.

Risks: The major risks are: (a) constructionrisks; (b) cost overruns; and (c) delays in the resettlement, thereby delaying the project implementation. Constructionrisks are within reasonablelimits and would be manageablewith continuoussupervision by foreign and Chineseconsultants and internationalpanels who have been retained for the constructionphase. Cost overruns have been minimizedby incorporatingactual prices for the three major civil works lots that form over 65 percent of the cost estimates. To minimizepotential risks associated with the execution of this project and the resettlementproject, assuranceswere obtained from the Government under the XiaolangdiResetdement Project that it would ensure an adequate and timely flow of funds, and establish and maintain - i -

effective project implementation management and detailed independentmonitoring.

EstimatedCost: Loa Foreign Total -($ ~~million) ------Site prepaation/local civil works 280.2 - 280.2 Dam & appurtenances 385.7 572.8 958.5 Turbirnes& gates 63.1 99.9 163.0 Generators& electrical works 95.1 38.1 133.2 Inst. dev. training 0.4 0.9 1.3 Engineeing & admin. 63.6 3.9 70.5 Implementationconsultants 2.9 16.6 19.5 Environmentalmanagement 9.1 9.7 18.8 MWR/YRCCinstitutional support 0.5 2.2 2.7

BawsCost 2Q36 744.1 1.647.7 Physicalcontingencies 90.1 77.5 167.5 Price contingencies 102.1 109.4 211.6 TarQi Cost la120252 6.8 Interest during constructionlb - 267.9 267.9 Total FinancingReauired 1 1.198.9 294.7 Fnacing Plan: GOC 1,095.8 738.9 1,834.7 IBRD Loan - 460.0 460.0 Total FinancingRequired 1,5j 2.294.7 EstimatedDisbursements: IBRD/IDAFY Lc 1994 i199 1996 1997 1998 ~~~---($million)------

Annual 40 150 150 115 5 Cumulative 40 190 340 455 460 Poverty Category: Not applicable EconomicRate of Return: 18 percent l Includestaxes and duties of $98.9 million. / Interest during constructionis basedon the Banks variable interestrate. /c Includes$24.0 million retroactivefinancing for expendiures after June 15, 1993. - v -

CONTENTS

1 Background ...... 1

A. Intrxduction ...... 1 B. Project Origin and Objectives ...... 1 C. Bank Group Lending for Developmentof the Yellow River Basin 2 D. Rationale for Bank Involvement ...... 3

2 TheYefowRiverBasin ...... 5

A. PhysiChatitics ...... 5 B. Land and Water ResourceDevelopment . . 8 Land Use and Agriculture ...... 9 and Reservoirs ...... 10 Irrigadonand Water Supply ...... 10 Soil Conservationand SedimentControl ...... 11 Flood Control Works ..... 11 C. Basin Studiesand InveshnentPlnning ...... 13 D. Planningfor the Future of the Lower Reach ...... 16 Flood and SedimentControl ...... 16 Irigation and Other Uws ...... 17 HydropowerDevelopment ...... 17

3 The Proiect ...... 18

A. Project Objectives ...... 18 B. Project Desckiption ...... 18 C. Project Formulatioi ...... 19 Site Selectionand ReservoirSizing ...... 19 DesignFlood ...... 20

This report is based on the findings of an appraisal mission (May 1993), comprising Messrs./Mmes.D.J. Gunaratnam(Task Manager), J. Voegele,B. Trembath,R. Reidinger, A. Fox, S. Gulyani (Bank);and M. Hollywood,F. Piccoli, M. Bi, Li Qun, M. Buitelaar, 0. Litjens, Jiang Ping, and Zhao Chuansao(Consultants). Others who contributedduring the preappraisalmission in September/October1992 are A. Ghani (Bank);and G. Kutcher, S. McGurk, X.Y. Zhang, and S. Mak (Consultants). Peer reviewers were Messrs. R. Anderson, B. Partridge, L. Berkoff, G. LeMoigne, W. Ochs, E. Motte, J. Furtado, and A. Lopez-Rivera. The Division Chief is Joseph Goldberg and the Acting Department Director is Zafer Ecevit. -vi -

D. Ptxect Works ...... 21 Dam Site ad Resevoir Gology ...... 21 TheDm...... 21 ReservoirOutlets, Spillwayand Powerhouse ...... 22 E. Reevoir peration ...... 23 OperaigPolicy ...... 23 Operating Rules during SedimentDeposition Penod ..... 23 Operating Rules for Post-DepositionPeriod ...... 24 EnvironmentalManagement ...... 25 Training for YRWHC ...... 25 InstitutionalProgram for MWR and YRCC ...... 26 F. Constrction Schedule...... 26 G. Project Cost Estimates ...... 27 H. FicigPlnancingP...... 28 I. Prournent ...... 29 I. Disbursements ...... 30 K. EnvironmentalImpact Assesmsent ...... 32 E. Resetdement ...... 33 M. Accountsand Audits ...... 35

4 Organization and ...... 37

A. Project Organizion ...... 37 B. Executionand Supeision of Dam Construction . .38 C. Overall Coordinationand Implementationof Resetflement 39 D. Opemions and Managementand Project Charges .. 40 Operationsand Managementof the Dam and Power Sintion . 40 Financial Aspects and P Chares.rect .41 E. Dam SafetyMonitoring and Flood Forecastng . .44 Dam SafetyMonitoring .. 44 FloodForecasting .. 45 F. Monitwring,Evaluation and Repr ...... rting ...... 45

S Benefits,JustificationandR s ...... 46

A. General ...... 46 B. ProjectJustification ...... 46 Costs,tices and Tariffs ...... 46 FloodControl Benefits...... 47 SedimentationContrl Benefits ...... 48 Power GenerationBenefits ...... 49 IrrigtionBenefits ...... 52 C. EconomicEvaluation ...... 54 D. Project Rikss...... 54

6 AgreementsandR mndaon ...... 56 - vii -

ANNs

1. ProiectParameters ...... 61 2. CostEstimates, Schedule of Expenditures,and Disbursements ..... 67 3. EconomicBenefits: Flood Control, Sediment Control, Irrigation, andPower ...... 77 4. Procurementand Disbursements ...... 104 5. FinancialAnalysis ...... 107 6. Scheduleof Earl) Eventsand SupervisionSchedule. 124 7. TrauiingandTechnicalAssistance . . .129 8. OrganizationalArrangements . . .142 9. EnvirorimentalImpact Assessment . . . 146 10. Consultants'Services . . .. 161 11. FloodForeAsting System ...... 169 12. SelectedDocument .ndData Availablein ProjectFiles ...... 172

MANs

1. Existingand Prposed Dam/HydropowerPlants in Basin(IBRD 25525) 2. Flood Areasand PopulationAffected (LBRD 25533) 3. Agricultal Incomesand FloodedAreas (IBRD 25547) 4. Industi Incomesand FloodedAreas (IBRD25548)

TAlUS iN TEXT

2.1 FloodRisk Areasin the LowerYelow RiverBasin ...... 8 3.1 ProjectCost Summary..28 3.2 FinancingPlan .. .. .29 3.3 ProcurementArnmgements . . .31 3.4 ResetdementPhasing . . .34

4.1 YRWHDC'sFuture Finances .44 5.1 RequiredPower Capacty Growth .. 50 5.2 Projeted Xiaolangdi pacityand Energy Production. 51 5.3 Seisitivity Analysis .. 55

FGUES IN EXT

3.1 FloodPtotection With and Withoutthe Dm .21 1. BACKGROUND

A. INTRODUCTIoN 1.1 The Governmentof China, recognizngthat flood controlhas very high priorityin its nationaldevelopment program because of the strtegic importanceof flood controlworks to major popuationcenters in China, has requestedBank assistance for financingthe XiaolangdiMultipurpose Project on the YellowRiver. Sincethe beginning of recordedtime, Chinesegovernments, most of whichkave been locatedin the Basin, havealways had to leat with floodprotection measures. This projectwill provideflood protecton for 100 milhonpeople in the North ChimaPlain, severallarge and medium cities,and majorindustrial centers. In addition,the projectwill controlsediment in the lowerreach, generatemuch needed hydropower and supplyirigation waterand increae the reliabilityof imgation for some2 milion hectr. Chineseengineers have been preparingthis project for decades, but it was formallyidentified by theBank in November 1989and preparedthereafter by the YellowRiver Water and HydropowerDevelopment Corporation(YRWIDC) with the assitce of intemationalconsdtants funded under the IDA SecondTechnical Cooperon Credit(Credit 1664-CHA).

B. PROJECrORIGIN AND OIUEmV

i.2 The struggleto tame the YellowRiver for the benefitof mankindhas a prominentplace in the earliestchapters of Chinesehistory. The fertle floodplainof the river has supportedseverl great dynastiesof China and is regardedas the cradle of Chineseciviliztion. However,the land alongthe river havealso beenthe sceneof great humansuffenng from floods, droughts, and faminesand it is only sincethe foundingof the People'sRepublic of Chinathat the river can be said to have been placed under control. Not onlyhave floods been contained and controlled, but vastareas have benefited fromirrigation and soil conservation, and majorsources of hydrodectricpower have been developed.Nevertheless much remains to bedone. A great flood,like the onethat visited the basinin 1843,could not be contahaiedby the exisdngflood control works, and would causesevere damage. The riveralso caries a vast quantityof siltthat accumulatesevery year in the lower reachesof theriver and causesthe river bed torise furtherabove the surroundingland. To keeppace withthis, the floodenbankments have to be raisedat a rate of 1 meterevery 10 years. 1.3 The proposedXiaolangdi Project woud servetwo importantobjectives. Its reservoirwould reduce the flood of record to a level that could be containedby the existingflood embankments, and wouldalso greatly reduce the damagesfromA floods of a lesserfrequency. The projectis designedto be opd in sucha way that it wouldtrp sedimentfor the first 20 yeas of its life an thenreach a stateof equilibriumso that the - 2 -

outflow of sediment over time would be equal to the inflow. The XiaolangdiReservoir would make it possible to flush sedimentsin the lower reach by creating artificial floods in the main channel. This, along with the initial sediment deposition would make it possible to defer raising of the embankmentsfor 20 to 30 years.

1.4 During this period there would be a continuation of the Government's program to reduce sedimentflow from the highest sediment-producingareas of the highly erodible Loess Plateau. This program has to date reduced the average annual sediment yield of the Yellow River by an estimated20 percent.

1.5 The XiaolangdiProject wouldalso have majorpower and irrigationbenefits. It wouldproduce oiha firm basis over 1,500MW' of clean, renewablehydroelectric power, provide additional water sufficientto greatly reduce dry-seasonshortages on more than 2 million hectares of irrigated land, and help meet the rapidly growing water iieeds of some of North China's largest cities. The XiaolangdiProject is, therefore, an essential element in the future developmentof the Yellow River Basin.

C. BANKGRouP LENDINGFOR DEVELOPMENTOF THE YELLOW RIVER BASE

1.6 The Bank Group has assisted in the financing of seven land and water resource developmentprojects in the Yellow River Basin since 1981. Most of these are aimed at improvingirrigation and drainage systemsbut severalinclude irrigation of unused land to take advantage of regulated flows produced by a recently completedlong-term storage dam at Longyangxiain the headwatersof the river. In addition to the physical works involved,all projectsinclude a wide range of supportinginfraswtructure and services. One of the first IDA operationsin China was the North China Plain AgricultureProject which improved irrigation, drainage and salinity control for 200,000 ha. This was followed by two projects in the upper part of the Basin: the Yindaruqin Project, a componentof the Gansu ProvincialDevelopment Project, will irrigate 70,000 ha of arid land in one of the poorest parts of the Basin; and the Northern Irrigation Project wiUl improve existing systems on 210,000 ha in Inner Mongolia, and create a new iigation systemon unused land in Ningxia Province. More recent Bank Group operationsinclude a project to irrigate 123,000ha in ShaanxiProvince, and projects for improved irrigation and drain ze of 272,000ha in ShandongProvince and 282,000 ha in Henan Province. Of particular note is a rcent project for improvementsin irrigation and drainage for over 1 million ha south of the river in Shandong,Anhui and Jiangsu Provinces;a considerable part of this area is served from the Yellow River. As regards soil conservation, a componentof the GansuProvincial Development Project supportswatershed rehabilitation on 76,000 ha in the LoessPlateau. In addition, the Loess PlateauWatershed Rehabilitation P;oject is being prepared in FY1994 for rehabilitationof 15,600 km2 in nine severely eroding tributary watersheds .of the Yellow River, through construction of land developmentand erosion control works. A PPAR on the North China Plain Project reported that the project had been highly successful. Progress to date on other Bank Group-financedprojects in the YellowRiver Basin suggeststa the favorableexperience with the North China Plain Project will eventuallybe repeated. -3 -

1.7 Althoughthe Bank has assistedin theseseven water resources and irrigation projectsin the YellowRiver basin, the mostpertinent lessons for this projectare from previoushydropower projects in other parts of Chinasuch as the ShuikouHydroelectric (Loan2775-CHA) and ErtanHydroelectric Projects (Loan 3387-CHA) with similardam constructionrequirements. These lessons include: (a) review of the project using internationaltechnical panels and consultantswho have madesubstantial contributions in improvingthe designs, economicimpact assessment,and resettlementplanning and designs;(b) definitionof civil worksprocurement packaging and joint venturezrrange- mentsbetween foreign and local contractorsto obtain transferof technologyand best internationalpractices; (c) early start-upof procurementfor majorcivil works so that bid awardwill correspondwith loan effectivenessin order to avoiddelays and to avoidcost overruns;(d) stringentprequalification criteria to ensureall partnersof foreignand local joint venturesare adequatelyqualified to fulfilltheir responsibilities; and (e) adequacyof resettlementplans, safety nets and budgets;an actionplan and a mid-termreview will be incorporatedinto the project to ensure proper implementationof the resettement component. The incorporationof these lessonshas already resultedin reducingthe estimatedcosts of the proposedproject by about20 percent.

D. RATIONALEFOR BANK INVOLVEVUNT 1.8 Past Bankassistance in water resourcesdevelopment was mainlythrough province-basedoperations. Bank involvement in the proposedproject aims to supportthe Central Governmenteffort in a major water resourcedevelopment with wide-ranging catastropheprevention, irrigation, water supply,power, and otherbenefits that will cut acrossseveral provinces. The Bankinvolvement will assist the government in resettlement planningand implementation, and in the envisagedestablishment of a viable,autonomous river basinand projectinstitution for resourcemobilization and projectmanagement. 1.9 Bank assistancein the preparationof the project.through the Second Technical CooperationCredit (Credit 1664-CHA)has already made significant contributionsto: (a) Reviewof the projectusing international technical panels aind consultants. The panelsand consultantsmade substantial contributions in improvingthe designs, economic evaluation,environmental impact assessment, and resettlementplanning and designs; (b) Settingup of a systemto clearlydefine authority and reponsibilityamong the owner (YRWHDC),the engineerXiaolangdi Engineering Consultant Company(XECC), and the contractor;

(c) Definitonof civil worksprocurement packaging and relationshipsbetween foreignand local contractorsto achievetransfer of technologyand best internationalpractices; - 4-

(d) Resettlementplanning-the Bank had particularimpact, amongother things. in ensuringthe adequacyof terms and amountsof compensationand making more transparentthe process for consultationincluding the grievance and appeals system for the affected population;

(e) Assistance in the establishmentof a financially autonomous operating agency, YRWHDC. Two subsidiarvunits are set up to managethe sale of power, and water for irigation and municipaland industrial(M&I) users. In addition, there will be collectionof special fees for flood and sediment control benefits. - -

2. THE YELLOW RIVER.BASIN

A. PHrSICALCHARtACrERsICS

2.1 General. The Yellow River rises on the northern slopes of the Bayankela mountains of Qinghai and traverses nine provinces or autonomous regions including Qinghai, Gansu, Sichuan, Ningxia, Inner Mongolia, Shaanxi, Shanxi, Henan, and Shandong. The river falls 4,450 m over a length of 5,465 kIn, drainingan area of 79S,000 km2 . In its upper reaches it flows through swampsand grassands and then enters a series of gorges in Qinghaiand Gansubefore traversing the desertsand grasslandsof Nmgxiaand Inner MongoLa. The river turns to the south before leaving Inner Mongolia to form the boundary betweenShaanxi and Shanxiand, after a sharp turn to the east, it flows across the North China Plain to its delta on the BohaiSea. A notablefeature of the Basin is the 430,000 km2 of wind-depositedmaterial in the middleand upper reaches which forms the largest loess deposit in the world. Because of intense soil erosion from this area, the Yellow River far exceeds any of the world's large rivers in terms of annual sediment transport. For example, it carries three times the sediment load of the Brahmaputra- Ganges with only 8 percent of the annual flow. In its lower reach, over a length of some 800 kIn, the river becomesa broad meanderingchannel containea by flood embankments and here the river drops part of its sedimentload and the bed rises above the suounding land at a rate of one meter every ten years. The Basin has a popuation at present of 126 milion, of which 104 million are rural and 22 million urban. Some 6 million ha are irrigated by the YellowRiver, of which about 3 millionha are irrigated from die lower reach in the North China Plain. These areas are plannedto increase by nearly 30 percent in the near future, althoughsuch goals are liky to be constrainedby potentiallyserious water shortages. The installedcapacity of the hydropowerschemes completed in the Basin to date is 5,410 MW and sites with a furtherpotential of 20,000 MW have been identified.

2.2 Climate, Hydrology and Sedientation. The Basin is typically divided into ftree main regions (see Map 25525). The upstream region from the source to Hekouzhen,where the river tums to the southas it leaves Inner Mongolia,drains an area of 428,000 kn2. The middle region from Hekouzhento Huayuankou,at the head of the lower floodplain,covers 345,000km 2. The lower region from Huayuankouto the sea has an area of 22,000 kn2, uniquely constrained by the fact that the river is above the floodplainand drainage proceedsaway from it. A much larger area outside of the basin is dependent on the river for its water. The Basin's climate is chAracterizedby hot summers, with tempeaures reaching 40°C, especiallyin the northern deserts, and dry cold winters with normal minimumtempetes of -15°C in the north and -70C closer to the sea.

2.3 The river in the upper region is 3,470 km long and drops 3,680 m. About 53 percent of the runoff and 9 percent of the sediment load comes from this region. - 6 -

Annual precipitationin the mountainsof Qinghaiaverages about 600 mm, but over most of the upper region annual rainfall is low, ranging from less than 150 mm in northern Gansuto 300 to 400 mm elsewhere. The middleregion, where the river is 1,225 km long and drops 895 m, contributes47 percent of the runoffand 91 percentof the sedimentload, and annual precipitationaverages about 500 mm for most of the region. In the lower region the river is 770 km long and falls 90 m, and rainfall averages 600 mm. In the middleregion, some 6D-70percent of the annual rainfallappears in the monthsof July and August, often in the form of intensestonns. An extraordinaryfeature of the middleregion is that the highest recorded 24-hour storms for many locationsoften exceed the average annual runoff. Rainfall of 400 mm to 600 mm in a few hours has been recorded in numerousplaces in the middlereach and one extraordinarystorm in August 1977produced 1,440 mm in 10 hours in Wushenqi, Inner Mongolia. It is these storms that produce the high floods in the lower reach and, in faling on the highly erodible soils of the Loess Plateau, produce the extremely high sedimentloads characteristicof the Yellow River.

2.4 Averageannual runoff at Huaqyuankouis about 47 billion cubic meters (n?). Nearly half of this comes from the part of the Basin lying in Qinghai, and most of the remainder comes from the major tributaries entering the river in the lower part of the middlereach below Longmen. In the driest year the flow is about one half the average and in the wettest year nearly twice the average. About 60 percent of the runoff occurs in the flood season from June through October.

2.5 Floods Inthe Lower YellowRiver Reach. Reports of YellowRiver floods and efforts to control themngo back to the year 2297 BC. Historical records and archaeologicalinvestigations provide evidence of manymajor floodswith someexceptional events in the years 223 AD, 1482, 1761 and 1843. Of these, the 1843 flood, with an estimatedpeak flow at the Xiaolangdidam site of 35,000 m3/s and a return period of 1,000 years, is regarded as the flood of record for the YellowRiver. A reasonablyaccurate set of water level records is available for the site of the existing (see Map 25525) upstream of Xiaolangdi since 1919, and since the 1950s water levels and discharges have been measured at Huayuanku at the head of the floodplain. These records show that the highestfloods since 1919 were in 1933 (20,000 nm/sat Sanmenxia) and in 1958 (22,000 m3/s at Huayuankou). There are essentially thuee flood producing areas: the area between Hekouzhenand Longmen, the area between Longmen and the SanmenxiaReservoir, and the area betweenSanmenxia and Huayuankou. Floods from the first two have been known to combine to produce the highest floods recorded. The third area has produced high floods but never in combinationwith the upstream areas.

2.6 Accuratereports of flooddamage are availablesince the tum of this century. In the flood of 1933, the main dikes broke in 54 locations. The total flooded area was 11,000 kn2; 3.6 millionpeople were affectedand 18,000 died. Two years later in 1935, dunng a relativelysmall flood, the dikes were broken again in ShandongProvince, and 12,000 km2 were flooded, affectinga popuation of 3.4 millionpeople (see Maps 25533, 25547, and 25548).

2.7 Since 1935 there have been no accidentalbreaches of the main dike, but there was a deliberatebreach of the dike near Kaifeng in 1938 in an attempt to stop the advancingwarring armies. As a result of the breachesthe water swept repeatedlythrough 44 counties during the following nine years, submerging1.3 million ha of cropland and leaving 12.5 million people homeless. The Yellow River flowed out to the sea during these years via the Huai River into the Yangtzeestuary. Some900,000 people were either drowned or died of hunger or diseases. Ten billion tons of silt were carried out to the plains, forming a 54,000 km2 "silt-coveredarea" that could not be used for growing crops. The YellowRiver's changeof course causeda large amount of silt to be deposited in the Huai River channel and reduced the channel capacity. It should be noted that historicaly this catastrophewas about the twenty-fifthmajor change in river course, with outlets ranging from the present Huai River in the south to the Hai River, 1,000 kn northward in Tianjin.

2.8 The 1958 flood was estimated by YRCC to be about a 1-in-40-year frequency. The main dikes held during this flood event, but there was serious floodingof the plains between the main dikes. The flood detentionbasins at lower reach points at Beijindiand Dongpinghuwere establishedsoon after this, in 1960. Since then, the largest floodoccurred in 1982, when the peak flow at Huayaunkouwould have been 15,800m 3/s, but was 14,000 m3/s because of flood regulation by Sanmenxia dam. This flood was estimatedby the YellowRiver ConservancyCommission to be a 1-in-10-yearpeak flow. The 1982 flood caused extensive floodingof the floodplainsbetween the main dikes. It flooded 65 percent of the plain area and damaged or destroyed the homes of 400,000 people in the floodplains. Attemptsto control the 1982 flood also required the deliberate floodingof the north (old) part of the Dongpinghudetention basin, which contains 100 km2 of cultivatedland and a populationof 100,000people. It must, however,be noted that the 3.1 million people living between the dikes and inside the detentionbasins are some the poorest people in China with incomesvarying from about Y 80 to Y 300 per capita ($16 to $58).

2.9 Apart from the summerfloods, there are also possibilitiesof floods from ice jams. After passing Luokouin the Lower Reach, the main stem of the YellowRiver takes a turn to the northeast. There is a gain of 3° in latitude when the river reaches the Bohai Sea. Accordingto statisticsof the past 35 years, the probabilityof freeze-upin the lower reach is 86 percent. The morphologyof the river is such that the channel is wide and shallowupstream and narrowand meanderng downstream. The differencesin latitude and width, as well as the variationof discharge, contributeto the complexityof ice regimes and floodingon the lower reaches of the YellowRiver.

2.10 After mid-December,a strong cold wave often prevails, which causes the river channel to freeze. The freeze-up date in the Henan reach is generally in early January, whereas freeze-upin the estuary zone (in the reach below Luokou in Shandong Province) is in mid or late December. Becauseof the differencesin intensity of cold air currents, the freeze-updates, the length of the river channel under ice cover, and the ice volumein the river channeldiffer greatly. The earliest freeze-update ever recorded was December 12, the latest February 17. The shortestsection that may freeze is only 40 kn, but the longest may be more than 700 km. The minimumvolume of ice in the nver channel is only several hundred thousand in3 , but the maximumvolume may reach 140 million n3 . The break-update in the Henan reach is generallyin late January, and in the - 8 -

Shandongreach it may be in late February or early March. Thicknessof the ice cover also varies from 0.1 m in the Henan reach to 0.3-0.5 m in the estuary.

2.11 Accordingto historicalrecords between 1883and 1936,there were 21 years whendikes have breachedduring the ice-floodperiod. In 1951 and 1955, icejams caused dike breaches in Lijin County (ShandongProvince). Much land and many villages at Zhanhua, Lijin and Kenli were floodedduring this disaster.

2.12 Flood Damage Potential in Different Areas. The principal areas that would benefit from flood control offered by the Xiaolangdiproject are the floodplains betweenthe dikes of the lower YellowRiver, the Dongpinghuand Beijindiflood detention basins, and the major areas protected by the main dikes -4fthe Yellow River (see Map 25533). The sizes of these principalprotected areas are stimmarizedin Table 2.1.

Table 2.1: ftoOD RUSKAREAS IN T8E LowER YEUUow IVER BA5nN

Area Total area Cultivatedarea Population (k2) (kmn) (million)

Floodplains 3,544 2,228 1.47 Detentionbasins Don8pinghu 627 352 0.27 Beijindi 2,316 1,560 1.44 Beijan 106 59 0.01 Ianjan 123 68 0.00 Protectedby main dikes 125,000 100.00

2.13 Sediment. The annual sedimentload at Huayuankouranges from 0.4 to 4.0 billion tons and averages about 1.5 billion tons. Most of thesediment load occurs during extreme floods produced by storms in themiddle region which lead to sediment concentrationsof more than 400 kg/m3. It has been estimated that during the period 1950-83,more than 50 percent of the sedimentwas generatedby 11 major floods. Of the average annual sedimentload of 1.5 billion tons, about 300-400million tons is deposited in the lower reach of the river and in irrigationsystems, and the remainder flows out to the sea. About 50 percent of the sedimentdeposited is in the coarse range >0.05 mm. Some 80 percent of this coarse material comesfrom an area of 100,000km 2 in the middle region of the Basin, and some 50 percent is believed to come from an area of only 38,000 km2. Thesediment runoff in parts of these areas reaches 25 kg/m2/year.

B. LAD ANDWATER RESoURCE DEVELOPMENT

2.14 Historical Background. Efforts to control the Yellow River in its lower reaches are recorded in Chinese legends going back more than 4,000 years to the time of the Emperor Yu who attemptedto divert floods into disposalareas and to train the river by closing distributary channels. Since that time the history of the river is replete with references to thebuilding and breaching of dikes and the many changes of the river's course betweenthe middlereach gorges and the sea. In 1855 the river swung to the north to take up its present course. This appears to have been due to sedimentdeposits blockdng the main channel, forcing the river against a vulnerablesection of the dike. Dikes were built along the present course after the 1855 avulsion,but in 1938 the dike at Huayuankou was deliberatelybreached by Guomintangtroops in an attempt to halt the advance of Japanesetroops. The repair of the dike at Huayuankouin 1947 brought the river back to its course. Tremendousefforts have been expendedsince that time on the reconstruction and maintenanceof a vast system of dikes. These efforts have succeededin contro}ling the river for more than 40 years without a single serious breach. This record has been achieved by a continuousprogram of raising, realigning and protecting dikes, and the constructionof river trainingworks to cope with the morphologicalchanges brought about by the river's enormous sedimentload. Large areas of land have also been reclaimedin the delta by flood protection and sea defence works. In parallel with these efforts there has been a vast increase in the area irrigated from the Yellow River in the North China Plain, and also in the upper reaches, especialy in Inner Mongolia.

2.15 The problemof erosionand sedimentationof the Loess Plateauis of ancient origin and dates from the first major influx of populationin the Qin and Han dynasties over 2,000 years ago which caused widespreaddestruction of vegetativecover. This was followedby a period of about 400 years when pressure on the land was reducedand the cover was to some extent restored but since the Sui dynasty (AD 589-618) successive waves of populationhave again degradedthe natural cover. However, since the founding of the People's Republicof China, massiveprograms of soil conservationworks have been attempted throughout the Loess Plateau to establish sustainable agriculture and reduce sediment runoff.

LamdUse and Agriculture

2.16 Of the Basin's total area of 795,000 kln2, some 41 percent is uncultivated land with little or no vegetativecover, 30 percent is grassland, 7 percent is forested, 16 percent cultivated,and the remaindertaken up by rivers, lakes, and populationcenters. Of the cultivatedarea of 130,000 am, about 57,000km 2 or 4 percent is irgated withn the Basin. In addition, over 20,000 km2 is irrigatedby the river in the North China Plain in areas that are not technicallypart of the drainage basin. There has been a five-fold growth in the area irrigatedby the Yellow River since 1950. A common irrigated crop rotation is wheat planted in the fall and harvested in the early summer, followed by summer maize. Cotton is also a significantcrop but it precludesplanting of a cereal crop in the same year and, therefore, a commonrotation is ftree crops in two years. Peanuts, soybeans,and rapeseedare also grown as irrigatedcrops in some areas with suitablesoils and climate. In the lower reach, paddy constitutesabout 7-10 percent of the irrigated cropping pattern. In recent years, in responseto market reforms, there has been rapid growth in intensive irrigated vegetable cultivationand the establishmentof orchards. Rainfedagriculture, chiefly devoted to a wheat/maizeor wheat/sorghumrotation, is subject to the risks of prolongeddroughts and destructiverain storms and sand storms; yieldsare much lower than for irrigated crops. - 10-

Dams and Reservoirs

2.17 There are several major dams on the Yellow River itself, several more medium to large dams on its tributaries, and several run-of-river plants and diversion barrages (see Map 25525). The furthestupstream of the dams, Longyangxia,is in Qinghai Provinceand was completedin 1988. With a gross storage capacity of 25 billion in3 , it is the largest reservoir in the Basin and it has the Basin's largest hydropowerplant with an installedcapacity of 1,280 MW. Downstreamof Longyangxiaare Liujiaxia(5.7 billion m 3, 1,160MVW), Yanguoxia (350 MW), Bapanxia(180 MW), Qingtongxia(272 MW), and Tianqiao (130 MW) power plants, and Sanmenxiareservoir (3.0 billion n3 , 250 MW). A dam at Lijiaxia, upstream of Liujiaxia,and another at Daxia, near Lanzhou, are under construction. These will primarilybe power projects.

2.18 In 1960 the Sanmenxia Reservoir was put into operation and began impounding. By March 1962 it wvasclear that the reservoir had trapped a vast amount of sedimentand much of the live storagecapacity bad been lost. It was then decidedto adopt new operating rules which simply stated aimed to "store clear water and release muddy water." The rules provide for floods below a certain flow to pass straight through the reservoir. Above this flow, the storageis managedin such a way that floods large enough to cause significantdamage downstream will be controlled by the reservoir. By 1964, it becameapparent that the reservoir outlet capacitywould need to be increased. By the end of 1973 the reconstructionwas complete and the project has since been operated to preserve a live storage capacityat Sanmenxiaof some 1.75 billion ti3, which is available for exercisinglimited control of high floodsgenerated above the dam, and also for control of icejams. Water is also stored each year when the risk of exceptionalfloods has passed and this allows the natural flow to be augmented for irrigation. The operation of Sanmenxiahas providedvaluable experience for the design of XiaolangdiDam and for the formulationof rules for its operation.

Irrigation and Water Supply

2.19 At present about 5.7 million ha are irrigated by the Yellow River and its tributaries. Above Lanzhouabout 230,000 ha are irrigated in numerous small projects, many of them involving high pumpingheads to lift the water from the river. Between Lanzhouand Hekouzhensome 1.17 millionha are irrigated with almost 50 percentof this in the Hetao Project suppliedby gravity from the Sanshengongdiversion dam. This area also containspump irrigationprojects in Ningxia where people have been resettled from the more arid and degraded areas of the Loess Plateau. The middle reach contains numerous projects serving over 2.3 million ha. In the lower reach, 2.0 million ha are irrigated with surface water, supplementedover much of the area by tubewellsowned by individualsor groups of farmers. The average annual use of water for irrigation in the Basin is about 34 billion mn, of which 7 billion m' is from groundwaterand 27 billion tin is from surface water. Municipal and industrialuse is on the order of 8 billion i, of which 4 billion ml is for industry and energy projects, a significant part of which appears as return flows. About 2.0 billion m3 is divertedoutside the basin to Tianjin, the seaport closest to Beijing, and other cities outside the Basin. - 11 -

Soil Conservation and Sediment Control

2.20 Vast recmation efforts have been under way in the Loess Plateausince the foundationof the People's Republic of China. These efforts have two objectives: to enhance land productivity and rural incomes and to reduce sediment mnoff. Soil conservationtechniques are designedto create sustainablefarming and forestry systems. About 25 percent of the area subjectto severeerosion has been treated. Afforestationhas been carried out on 46,000 km2,about 30,000 km2 has been terraced, and 12,000krm 2 of land has been placed in protectedreserves. Also, 130 large and mediumdams and 30,000 small dams i. we been built to fonn nearly 2,500 km2 of land by trapping silt. New cultural pracices and plant species have been introduced on a large scale. The Yellow River Basin * one of the few areas in the world where land developmentand check dams can have a matenal effecton sedimentrunoff. It has been estimatedthat the works carred out over the past 30 years have reducedthe annual sedimentdischarge of the YellowRiver by 300 million tons, or 20 percent of the long-term average. Based on this successful expenence, a Loess Plateau Watershed RehabilitationProject is in the final stages of preparation for IDA considerationin FY94.

2.21 Diversion of sediment-ladenwater to setting basins behind the dikes, a practiceknown as "warping,"reduces sediment deposition in the river and at the same time creates new arable land. In some areas warping is used to strengthen dikes on the landward side and it is sometimescombined with works to intercept sedimentat the head of large irrigationcanals. Warping retards, but does not prevent, depositionin the river channeland it can be effectvely combinedwith mainstreamreservoirs to appreciablydelay the need for raising the dikes which, under present conditions,has to be done every 10 years. Reservoirs such as Sanmenxianot only interceptlarge volumesof sediment but they can also be operated to concentratethe flow at certain times of the year to flush the deposited sediments to the sea. Further deails of this mode of operation are given in Chapter 3.

Flood Control Works

2.22 ExistingFlood Protection and Planned Improvements. It is fortunatethat serious floodingalong the lower reaches of the Yellow River has been avoided in recent decades, but the risk of very large floods will always exist, and flood control measures must be planned and constructed before these floods arrive. Flood control along the YellowRiver is providedthrough a combinationof embankmentdies, storage reservoirs, and detentionbasins.

2.23 The main dikes Vong the lower reach of the Yellow River extend from Mengin for a distance of 720 km to the sea. These dikes have been raised many times over the past 150 years in order to control the riverbed, which is continuouslyrising due to sedimentthat is being depositedat an averagerate of about 10 centimeters/year. This has resulted in main dikes which are now 8 to 9 meters high along most reaches, with a maximumheight of 13 meters in some places. However, it has become increasingly dangerousto raise the dikes becausethe geotechnicalfoundation conditions are relatively - 12 - weak. Improving the foundation conditionswould require reconstructinghundreds of kIlometersof dikes on both sides of the river, a prohibitivelyexpensive task.

2.24 Several storage reservoirs have also been constructed in recent years includingthe large Sanmenxiaproject and smallreservoirs on sometributaries, such as the Luoheand Yihe. If the combinationof dikes and storagereservoirs are not able to control floodingduring large floods that threaten the main dikes, then as a last resort the excess flows will be diverted into detention basins, in order to avoid the risk of uncontrolled flooding, which could be much more disastrous. The sizes of these basins are given in Table 2.1.

2.25 These detentionbasins were a low-cost solution 30 years ago, when funds for dam constructionin China were very limited. However, over the past decadesthere has been substantialeconomic growth in the rumraleconomies of these detentionbasins, and flood damage in these areas will be very gh if the basins ever have to be used for flood control.

2.26 Flood control planning for the future requires continued vigilance and continuedimprovements in the level of control. Clearly, the main dikes have to be raised periodicallyjust to maintainthe same level of flood control. However, the total level of flood control protection should also be increasedin future years for several reasons. As all sectorsof the Chineseeconomy continue to grow each year, the potentialflood damages that would result from a large flood will also continue to increase each year, and the optimumlevel of floodprotection that can be economicallyjustified, and that is affordable by the increasinglystrong Chineseeconomy, will continueto increase in future years. It is also clear that some of the solutionsintended for flood control in the past, such as the use of large inhabiteddetention basins, will becomeprohibitively expensive as the damage resultingfrom the use of such a detentionbasin increasesover time. Future flood control will therefore have to rely more on continued strengtheningof the dikes, and on the constructionof large reservoirs and dams, such as Xiaoangdi, with large flood control storage capacity.

2.27 The proposed Xiaolangdiproject is a part of this plan for improvingflood control in the lower reach of the Yellow River. The Xiaolangdiproject would provide 4.1 billion n3 of storage capacityfor flood control. This will substantiallyreduce the risk of floodingin the detentionbasins, in the floodplainareas, and in the major protectedareas outside the main dikes. The dam will not completelyeliminate the risk of floodingalong the lower YellowRiver, and continuedattention to strengtheningthe dikes and other flood control measures will also be required, but it will contribute significantlyto the overall level of flood control that can be achievedalong the lower YellowRiver.

2.28 In addition, Xiaolangdiwill reduce future damage due to floods generated by ice breakup and jamming in the floodplainareas by 24 to 33 percent; in the detention basins it wiU eliminate future damage by about 90 percent, and in the extensive areas protectedby the main dikes, it will almost completelyeliminate the hazard of damage due to overtoppingof the dikes. - 13 -

C. BASN STUDES AND JNVETrMENTPLANNING

2.29 Development Activities and Economic Growth. The social and environmentalbenefits from Yellow River developmentsin the past 40 years have been substantial. On the lower YellowRiver, the main embankmentdikes on both banks have been both raised 1 meter and strengthenedon three separate occasions;two major flood detentionareas, at Beijindiand Dongpinghu,have been completed;and over 1,000 km of warping, over 30 million rn3 of river training works, over 100 kamof channel training works, and over 70 diversionofftakes and numerousirrigation and water supply projects have been constructed. Eight major main-stemworks are currently in operationwith a total installed power generating capacity of 3,620 MW and total live storage of 29.9 billion m3._1 On the tributary streams, 141 large- and medium-scalereservoirs have been constructed. These works have permittedprotection from disastrous floods without a single serious dike breach. Diversionsfor irrigationhave been increasedand regulated to some extent, particularly in the upper reach. Constructionof the multiyear storage facility at Longyangxia has now allowed some limited use of upstream flows for downstreamwater supply, irrigationand estuary control. Power generation has increased dramatically.

2.30 The developmentof high-liftirrigation projects in centralGansu and Ningxia has permitted the transformationof arid waste lands into productivetree-lined farmlands with crop yields in excess of 3 tons/ha or irrigated grasslands.2/ Increasingly,chronic rural water deficits in these remote areas have been largely eliminated. Tremendous attention has also been paid to the ameliorationof waterloggedand salinizedlands along the river. In the well-establishedHetao irrigation areas along the Great Bend of the Yellow River in Inner Mongolia, massive drainage channels and siphons are currently under constructionto combat the consequencesof long-term immoderateirrigation. In some low-lying middle and lower reach plain areas adjacent to the river and prone to waterloggingand salinization,paddy has been introducedand rapidly adopted. In other similar areas, a combinationof pump drainage and warping has been used to control waterloggingand salinity. At present, on the lower reaches,over 70 percentof the saline- prone lands and 77 percent of the lands prone to waterloggingare under preliminary control. Over a third of a million ha on the lower reach has been reclaimedby warping, of which 30 percent is used for paddy.

2.31 The widespreaddissemination of irrigatedagriculture throughout the Basin in the last 40 years has enabled farmers to adopt high-inputfarming technologiesutilizng farmlandsmore intensivelyand thereby increasingincome levels. Before the introduction of irrigation, drought, waterloggingand salinity-resistantvarieties of sorghumand millet

1/ Longyangxia,Liujiaxia, Qingtongxia, and Sanmeaxia headworks were completed and four hydropower stationswere built at Yangouxia,Bapania, Tianqiao and Sanshengong. Z/ For example,Tongxin County in the GuhaiHigh-Lift ITigation Project has developed imgated area fromformer desert lands Grainoutput has reachedneady 3.5 tons/haand imgated grass area nearly 7,000h Thereare on average300 treesper capita. Farmper capitaincomes in the irrigatedareas of TongxinCounty average Y 340. Formely,per capitaincomes bovered around Y 50, JiangPing, 1991, -Irrigationissue in the XiaolangdiDam Proect Appisa (revised).- - 14 -

occupied a large share of cultivated area on the Yellow River. Yields to these local varieties were low, around 1.1 tons/ha for winter wheat and 1.2 tons/ha for cotton.j/ After water supplieswere assured, higher-yieldingcultivars, cropped far more intensively with attendant demands for chemical fertilizers and agrochemicals,began to make a significant impact on farm productionand incomes. Yields in excess of 5 tons/ha for irrigated wheat and maize and 1.8 tons/ha for irrigatedcotton are not uncommon.

2.32 Althougheconomic growth has been significantthroughout the Basin, major problemsstill confrontthe Lower YellowRiver Reach. YRCCplanning documents clearly indicate that the main function of planning is to enhance flood control capacity on the lower Yellow River. However, the Sanmenxia experience drove home a very clear message: Flood control cannot succeedwithout sediment control. Sedimentcontrol will take many years (80 to 100 years) before it can substantially reduce the amount of sediment flowing in the river. During that period, steps must be taken to remove the threat of floods and also reduce the sediment depositionin the lower reach to prevent further buildup of the riverbed. In addition, there is now no regulationof the waters in the lower reach for seasonalstorage. Several project optionswere consideredto reduce the threat of floods and also undertakesediment flushing.

2.33 YellowRiver Investment PlanningStudy. In March 1992, the Bank and YRCC undertook a Yellow River InvestmentPlanning Study (Report No. 11146-CHA, June 30, 1993). This study was motivatedby a desire to place investmentoptions in a consistent,basinwide economic framework, and to begin to evaluate them with respect to the developmentgoals and the physicaland economicconstraints under which they will operate. Although local planning efforts have been intense, they have suffered from inadequateand inconsistentagricultural and economicdata, and from the absenceof such an economicframework. A Basin Level Model (BLM) was constructedfor this study to provide (a) a consistent frameworkto resolve missing and inconsistentdata issues and force water supply-demandbalances; and (b) a logical fzameworkwithin which to test the implicationsof future developmentstrategies and thereby estimate the impactsof certain types of projects. The BLM maximizesthe value added from YellowRiver water subject to a variety of physical, hydrological,agronomic, and, if desired, policy constraints.

2.34 The study showed that the most important economic use of Yellow River water, by far, is for irrigation. From a very low base in 1949, nearly 44 percent of the cropped area was irrigated by 1990. In 1990, ipigation's value added of productiondue to water accountedfor an estimatedY 13.1 billion (77 percentof water-basedproduction), hydropowerfor Y 2.5 billion (15 percent)and M&I water supplyY 1.2 billion (8 pent), measuredin economicprices in agricultureand willingnessto pay charges for power and M&I. By the year 2010, irrigationadded value of productiondue to water would increase by 250 percent, but its share would drop to 66 percent, with the shaemof hydropower output increasingto 25 percent and M&I at 9 percent.

3/ Theseare esimates of conditionsat the endof the 1950. prior to the adventof widespreadinigation, Jiang Ping, 1991, lrrisaon issues in the Xiaolangi Dam Poject Apprisa (evised).' - 15 -

2.35 The studyreviewed the government'sinvestment plan, $10.5 billion between 1992 and 2010, whichreflects the diversityof problemsfacing the Basin, and the multitude of objectives for it: (a) to enhance flood control capacity; (b) to control the source of sediment-soilerosion; (c) to use and dispose of sediment; (d) to promote hydropower developmentand navigation;(e) to promote the rational use of water resources; and (f) to protect the water resource and environment.

2.36 Some of the main conclusionsof the study are:

(a) Xiaolangdi is the most urgent, and probably the most economicallyviable multipurposeproject proposed. Withoutit, the specterof a major flood will continue to overhang the entire lower reach, including some of its most productive farmlandand China's major oilfields.

(b) The plans for expandingthe irrigatedarea are undoubtedlyfar too ambitious given water availabilityand rapidly growingM&I and extrabasindemands. Only about half of the plannedaddition of 26 million mu is justified.

(c) Given the seventy of futurewater shortagesand the high marginalvalue of water in irrigation, the efforts to improve the efficiency of water delivery and use mustbe given the highestpriority in some 43 millionmu of existing irrigation. Current water loss rates are high in the upper basin areas, and farmers are withoutdoubt misusingwater becauseits cost to them is a small fraction of its economicvalue.

(d) The future water balance picture depends more on how much water is needed for flushingsediment than on any other singlefactor. Conservation efforts at the source must be promoted vigorously for about 60,000 to 80,000 km2 of the critical eroding areas in the middle reach of the basin. Xiaolangdi will be required to trap much of the coarse sediment and to regulate the flow to flush sedimentto the ocean. Without sedimentcontrol, a change in river course will occur sooner rather than later, and with catastrophiceconomic and social consequences.

(e) The study endorsed the rapid implementationof the 1988 Water Financial Directiveof MWR to price water at marginalcosts and to ensure complete cost recovery by 1997. The study also recommendedthat in view of the severe water shortages in the years 2000 to 2010 that MWR seriously consider introducingin addition to marginal cost pricing, an incremental element (30-50 percent) of opportunitycost in the water prices to reflect marginalrent for shortage,to be required for new consumptiveinvestments in the water sector.

2.37 Several of these recommendationsare being followedthrough in several of the existing Bank approved and proposed projects. For example item (c) referring to improvementsto irrigation is being followedthrough in the Northern Irrgation Project (Credit 1885-CHA), Shaanxi Agricultural Development Project (Credit 1997-CHA), - 16-

Shandong Agncultural DevelopmentProject (Credit 2017-CHA), Henan Agricultural DevelopmentProiect (Credit 2242-CHA),etc. Recommendation(d) is being followedin a proposed Loess Plateau Project being prepared for FY94. Various other recommendationsare also being implemented(e.g., for cost recovery) in almost all Bank Group irrigationprojects in China. The constructionof XiaolangdiDam is the only major item still to be undertaken.

D. PLANNINGFOR THE FUTUREOF THE LOWERREACH

Flood and Sediment Control

2.38 The lower reach of the Yelow River is vulnerableto an extreme flood and a breach at any point in the dikes would have disastrousconsequences. Many alternatives to Xiaolangdi for flood and sediment control have been consideredin the past, and the reasons for their rejectionare:

(a) Raising the dikes to control a 1,000-year flood: this option is very costly and would involveconsiderable uncertainty due to structuralweaknesses of the dikes. It would not reduce sedimentdeposition in the lower reaches of the River;

(b) Implementinglarge-scale conservation and rehabilitationmeasures in the Loess Plateauto reduce sedimentloss at source: this alone cannot solve the massive erosion problem in the operationalfuture. In some regions, the Plateau is eroding at a rate of 8-13 mm a year;

(c) Constructing an emergency flood channel parallel to the existing river course: this wouldrequire relocationof 700,000to 930,000people, disrupt irrigation, communicationand transportationfacilities, and present many difficult technicalproblems;

(d) Modifying the existing river channel configuration, or creating a new channel, abandoningpart or all of the existingchannel: this wouldhave the same effects as option (c). It would require resettlementof up to 500,000 people and give no sedimentcontrol in the lower reaches;

(e) Undertaking large-scalewarping (i.e., diversion and settling of sediment outside the river channel)at various locations: this would reduce sediment transport and depositionbut would not provide direct flood control, would not be effective until large reservoirsare constructedupstream and would require resettlementof about 900,000 people.

2.39 On the basis of flood control, sediment management and costs, the Xiaolangdi Project is the only project that will furnish reasonable flood protection and sediment control with a minimum amount of resettlement. The Xiaolangdi Project, operatedin conjunctionwith Sanmenxia,would provide a high degree of protectionagainst extreme floods. Its initial live storage of 12.6 billion m3 would reduce to 5.1 billion m3 - 17- within 20 years from first impounding. This volume of storage would be preserved indefinitelyand the reservoir would thereafter reduce a flood similar to the 1843 flood of 3 35,000 m3/s to 18,000m 1s at Huayuankou. Thereservoir would also be operated to flush sedimentsfrom the downstreamchannel and this, together with the interceptionof a large volume of sediment,would makeit possibleto defer for 20 years the raising of the dikes in the lower flood plain. However, the depositionof sediment in the lower reach will eventuallyresume unless further steps are taken to reduce the river's sediment load or to intercept the sediment upstream. Sevea dam sites have been identified upstream of Sanmenxiato provide further long-termsediment storage. The timing of such dams will depend on the effectivenessof the ongoing soil conservation programs in the Loess Plateau.

Irrigation and Other Uses

2.40 The LongyangxiaDam, completedin 1988,enhanced the flow availablefor irrigation in the upper reach. However, this additionalflow is alrady being used or is committedto projectspresently under construction. There is somescope for improvements in water use efficiency in some of the existing systems, but this will generally lead to highercropping intensities rather than a releaseof water to other projects. Xiaolangdiwill provide additionalwater to improve the reliability of supply to 2 million ha in the North China Plain and to keep pace with the growing municipaland industrial water demands. An emergingproblem in the North China Plain is the decline in groundwaterlevels. In recent years, governmentpolicies have increasedincentives to the Chinesefarmer, and this has led to rapid growth in groundwateruse to levels that may not be sustainable. While additional irrigationwater provided 4y Xiaolangdicould help to recharge aquifers in the mediumterm, the criticalimbalance between water supply and demandin the North China Plain has led to consideaion of long-termschemes to transfer water from the Yangtze Basin to the YellowRiver Basin. A start on one or more of the possiblediversion schemes is likely and probablydesirable, in the near future.

Hydropower Development

2.41 Presentand future hydropowerdevelopment in the Basin will mainlyoccur in the upper part of the Basin. The present installedcapacity is 5,410 MW and the average generationis about 22,370 GWh. Most of this power feeds the NorthwestPower Network (NWPN)where there is a surplusof hydropower. There is further potentialfor expansion of hydropowerin the upper basin. However, NWPN is one third the power capacity of the Cental ChinaPower Network(CCPN). In addition, the NWPNand CCPN are weakly interconnected. Hence, there is very little load flow betweenthe NWPN and CCPN. The CCPN generating capacity is mainly in thermal plants, which are not suitable f-wpeak power generation. Xiaolangdipower will be very important for the CCPN since it is one of the few well-locatedsources of peakingpower for this network. - 18-

3. THE PROJECT

A. PROJECrOBJECMES

3.1 The main objectivesof the project are to: (a) introduceflood control in the lower reaches of the YellowRiver Basin to protect major infrastructureand 103 million people; (b) control siltation in the 800-km downstreamchannel of the river and prevent further aggradationso that levee heights need not be raised further during a period of 20 years; (c) provide water for assured irrigation for 2 million ha and more stable water supplies for downstream cities and industries; and (d) generate hydropower for supplementingthe base load of thermal stations in Henan Provinceand the Central China Power Grid.

B. PROJECr DESCRIUMON

3.2 The main featuresof the project are:

(a) constructionof Xiaolangdirockfill dam, 154 m high, with a crest length of 1,370 m;

(b) construction of a common intake structure, feeding nine large diameter tunnelsand surfacespillway for river diversion,flood handling and sediment management,discharging into a commonplunge pool;

(c) construction of a with six associated power tunnels with turbine and generators with an installed capacity of 1,800 MW (6 x 300 MW) and associatedswitchyards, and transformers;

(d) an environmentalmanagement component to monitor,manage and offset any negativeimpacts of the project;

(e) training and technical assistance for YRWHC in contract management, projectscheduling, cost control,claims management, financial management, managementinformation systems, organiational support,corporate planning and personnel management;and

(f) an institutionalprogram for MWR and YRCCto support the reform process in the water sector, i.e., in adaptingto intenational accountingprocedures, sustainable resource mobilization for water resources projects, water pricing, water licensing, effective rver basin organization, and water- dispatchingsystems for basins. - 19 -

C. PROJECTFORMULATION

Site Selection and ReservoirSizing

3.3 The control of floods and the managementof silt depositionin the lower reach of the Yellow River require a site with ample storage capacity, as close to the upstream end of the lower reach as possible. Xiaolangdi is the only project below Sanmenxiacapable of storing an appreciable amount of sediment while maintainingthe long-termcapabilities of floodcontrol and of managingthe depositionef silt downstream. With its strategic location within a deep valley and yet close to the upstream end of the lower reach of the Yellow River, Xiaolangdicannot be replaced by any other project to achieve the same objectives. The possibility of developing the Yellow River between Sanmenxiaand Xiaolangdiin stages has been considered. Along that stretch of the river, eight dam sites were consideredout of which Renjiadui, Eight-Li Lane and Xiaolangdi were the best. These sites are respectivelylocated at 38.5, 100 and 131 km downstream of Sanmenxia.

3.4 A three-stagecascade development would have three low dams with a total effective storage volume of 500 million e 3. This scenario would not satisfy the multipurposerequirements of flood control, ice-jam prevention, sediment management, water supply and power generation. While the cost of the three dams is less than the cost of one large dam, the sedimentand flooddischarge facilities would be 4 to 5 times the cost of such facilitiesat Xiaolangdias a one-stagedevelopment. This is becausethe size of the sedimentand flood bypass tunnelswould have to be Iarger for each of the three low head- dams in order to pass the same volumesat much reduced heads. There are therefore no great economiesto be had by opting for a multistagedevelopment.

3.5 A two-stagedevelopment with two medium-highdams would feature a run- of-the-rivertype plant at Renjiadui. With this scenario, Xiaolangdireservoir would only store I billion m3 of sediment, as compared to 7.55 billion e 3 for a single-stage development. With respect to flood control, a flood storage volumecould be providedof 3.60 billion m3 as compared to 4.05 billion m3 for a single-stagescheme. A two-stage cascade developmentwas recognizedas a costly compromisesolution and a single, high dam at Xiaolangdiwas clearly the preferred alternative.

3.6 Geologicalinvestigations of the site were sarted in 1958 and have continued ever since. Studies by YRCC confirmed the suitability of the site for its intended multipurposedevelopment. At the initiativeof the State PlanningCommission (SPC) and the Research Center for Rural Development,a meetingwas convenedin March 1983 with broad participationto discuss the long-termprogram of harnessingthe Yellow River. In its 1983 report, the meetingconcluded that the crucial problem in harnessingthe river is the effectivemanagement of its sedimentload. Dikes aloneare not the long-termsolution. A substantialdecrease in sedimentdelivery from the Loess Plateauinto the YellowRiver by means of soil and water conservationcan only be expectedafter a considerableperiod of time. The meeting concludedthat the Xiaolangdi single dam project, with its flood prevention capability and sediment storage capacity, is the desirable next step in the - 20 - development of the river. International consultants and the panel of experts have repeatedlyconfirmed the findingsof the Chinese studies, over the past several years.

Desig Flood

3.7 The present dikes are able to safely pass a flow of 22,000 m3 s at Huayuankou. At this flow there are still several meters of freeboard in the dikes. The dikes will start to overtop when the flow is 30,000 m3/s (once in 200 years). Between 22,000 to 30,000 m3/s the dikes are unsafeand the probabilityof dike breachingincreases to 100 percent as flow nears the 30,000 m3/s flow. Withoutthe XiaolangdiDam the flood flow for frequenciesof 100, 1,000 and 10,000years measuredat Huayuankou are 24,500, 32,000, 45,000 m3 /s, respectively. The probable maximum flood at Sanmenxia is estimated at 51,000 m 3 /s. The present level of protection by the dikes is very low consideringthe value of the assets invested in the lower reach environs estimated to be about $400-600billion. This does not include the large number of lives that could be lost m the event of a catastrophic flood with a frequency of 100-year recurrence and upwards.1/

3.8 Flows as low as 10,000 m3/s (1 in 2 year flood) will inundate 1.4 million people in the floodplain. At a flow of 22,000 m3/s, 2,000 villages in the floodplainwill be endrely inundated and about 1.7 million people will have to be moved out of the floodplainand the Dongpinghudetention basin. At a flow of 30,000 m3/s a further 1.4 million people will be inundated in the Beijingdi Detention Basin and the Zhongguan olifield, which produces about 10 percent of China's oil will be inundated. Beyond 3 30,000 m 1s the breach of the dike i* certain.

3.9 The XiaolangdiDam and reservoir is designedto operate with all the other reservoirs(Guxian, Luhun and Sanmenxia)and will mitigatecatastrophic floods up to once in 10,000 years frequency, removing all possibility of dike breaching. A flood of 45,000 m3.'s is reduced to 27,500 m3/s and may pass through with a relatively good probabilityof dike endurance. A once-in-1,000-yearflood with the dam is reduced to 22,500 m3/s and will pass through the lower reach safely. In addition, the dam will be operated to reduce very dramaticallythe smaller floodsin the floodplains,which displace about 1.4 million people every other year. For examplea 12,000 m3/s flood (once in seven years) which would displace about 1.4 million people in the floodplainwould be reducedto about 6,000 m3/s, which wouldbe containedwithin the river channeland hence would not displace anybody. Figure 3.1 indicates the levels of protection for different levels of flood.

[/ In the 1843 floodof 33,000 in/s (sghly over 1 in 1,000yean) there were 54 breachesand the flood inundated 11,000 km2. In present-daytenms ftis flood wouldaffect about 9.20 millionpeople and probably kill about 100,000people. - 21 -

Figure 3.1: fLOODPROTECIION WtIT ANDWITrouT TH DAM

Flood M. tigating Effects of Dam

45

40-

35

so 30- 2~~~2

~10

10000 5000 10o 200 100 20 10 7 3

Flood FreqLncy In Yawr 0 Without Dam + With Dam O DJkes Overtop A yAMOSafe X Riva- Chan. Cap.

D. PROJECr WORK

Dam Site and Reservoir Geology 3.10 TheXiaolangdi dam site was selected after detailed studies of fivealternative sites extendingover a 13 km stretchof theriver. The sitegeology is wellunderstood as a result of extensive and thorough explorationsdating from 1958. These investigations have included 18 km2 of geologicalmapping, 27 kn of diamonddrilling, 2.3 km of alluviumdrilling, 4.1 kn of adits and shafts, as well as extensivegeophysical explorations, and soil and rock testing. Rock conditionson the left bank are considerablymore favorablefor the foundingof concretestructures and excavationof large tunnelsand cavems,and thisfactor was takeninto accountin locatingall ancillarystructures on this bank. An internationalpanel of expertsreviewed all aspectsof the damsite geologyand confirmedthe site selectedby YRCC. The Dam 3.11 The dam is a 1,370-mlong zonedearth and rockfillembankment, with a slopingimpervious core. The maximumheight is 154 m and the volume is about 47 3 millionm (seeAnnex I . Materialsfor constructionof the dam are in abundantsupply close to the site. Rockfillconsisting of hard, wellcemented sandstone is availablefrom a numberof closepotential quarry areas, but all requirementscan be met from a single - 22 - quarry located 3 km from the dam site. Similarlyfor the imperviouscore, 11 loess deposit areas were investigatedbefore selectinga single borrow area 1 km from the dam site. Gravel and sand deposits suitable for filter materialsand concreteaggregates are located within 10 kan of the site. Some processing of these materials is required to produce suitable gradations. Material from required excavationswill also be incorporatedin the embankmentand the dam section includesa random fill zone to allow maximumuse of these materials. 3.12 The highest section of the dam, about 500 m in length, is founded on alluvial sands and gravels, while the abutment sections are supported on bedrock. To minimizeseepage through the alluviumtwo barriers are provided, a concretecutoff wall extending from the core to bedrock, and a horizontal impervious blanket of blended nonliquefiablematerial placed under the upstreamshell as an extensionto the slopingcore. The blanket is intendedto connectwith the naturalsilt depositsthat will rapidly accumulate againstthe upstream face of the dam. The cutoffwall extendsup into the core to a height of 14 m, and settlementof the core around the wall is accommodatedby a plastic clay zone at the top of the wall. Extensive investigationsof the alluvium foundationhave proven it to be dense, and dynamicanalyses have verified that liquefactionwill not occur under the design earthquake.

Reservoir Outlets, Spillway and Powerhouse

3.13 Reservoiroutflows for sedimentmanagement, flood handling and power are passed through 16 large-diametertunnels (see Annex I , fed from an intake structure locatedin a left bank gully, entering the river just upstream of the dam. The grouping of these facilities is dictated partly by geology and topography, but the compact intake structure and approach channel layout also allows operations to keep all intakes free of siltation and debris. There are nine intake towers, each 60 m wide, in the upstream- downstreamdirection, and the total width of the towers perpendicularto the flow is 260 m. The highesttowers, which are those feeding the sedimentand power tunnels, are 112 m above their foundations. Total concrete volume is about 1 million m3. Dynamic analyseshave been carried out to verify structuraladequacy and strength under earthquake loading.

3.14 There are three 6.5 m diametertunnels for sediment managementwith their intakes locateddirectly below the power intakes. During flood penods additionalcapacity for handling sediment laden flows is available through three 14.5 m "orifice' tunnels, which serve initially as diversiontunnels. The three orifices in each tunnel are installed later to provide energy dissipationgiven the very high operating heads at high reservoir levels. Three free-flowtunnels of horseshoecross-section, 10 m wide, and a 28 m wide chute spillway serve to pass additional flood waters and floating debris. Total flood handling capacity of these tunnels at Full Supply Level (6 m below dam crest level) is 17,000 3l/s, sufficientto pass the ProbableMaximum Flood. Nevertheless,an emergency fuse plug type spillwaywith a capacityof 3,000 m3/s is also provided. All tunnelsand the service spiltwaydischarge into a commonpre-excavated plunge pool. The underground powerhouseis located within the highest part of the left ridge in a stratum of competent sandstone. The cavern has a span of 26 m, a height of 450 m and a length of 193 m. - 23 -

There are six 7.8 m diameterpower tunnels, one for each generatingunit, and six basically rectangularfree-flow tailrace tunnels 12 m wide x 16 m high.

3.15 In addition to the extensive site investigationsand mathematicalanalyses supportingthe designof these structures,51 hydraulicmodel studies have been undertaken. Typically, parallel studies of particular critical aspects are carried out in different institutionsto obtain a check on consistencyof results. Particularemphasis has been given to sedimenthandling (II models) and the orifice tunnels (30 models),since both features are virtually unique to the current project. To verify the results of smaller-scalemodels of the orifice tunnels, an orifice ring was installedin the 4.4 m diameter outlet tunnel of Sanmenxia. The internationalpanel of experts accepted, with minor modifications,the designs of the Yellow River Research, Planningand Design Institute (RPDI)after three missions during which they had discussionswith RPDI and site visits.

E. RESERVOIROPERATION

Operating Policy

3.16 The first priority of Xiaolangdiis to control floodingalong the YellowRiver below Huayuankou. XiaolangdiReservoir will be operatedto allow the level of protection to increase from the present 60-year return penod to 1,000 years. The reservoir will also be operated to reduce the peak of a 10,000 year flood so that it will not over-topthe dikes (see Figure 3.1). The project will also help to reduce floodingfrom ice jams in the river downstream of Xiaolangdi. Coordinatedoperation of the Sanmenxia and Xiaolangdi reservoirs will reduce river flows at the time of ice jam formationand thereby eliminate flooding.

3.17 The second priority is to manage the large volumes of sedimentsthat are being carried by the river. XiaolangdiReservoir will trap some of these sedimentsand pass the remainder through in a more controlled manner (paras. 3.20-3.21). This will result in a long-termpostponement in raising the dikes and thereafterreduce the frequency of subsequentraising of the dikes.

3.18 The third priority is to meet downstream water demands. The water demandsalong the YellowRiver exceedthe availablesupply. Nevertheless,large volumes of runoff, particularlyfrom the middlereach of the river, flow into the ocean every year due to lack of capacity to store it for future use. XiaolangdiReservoir will provide some of the requiredstorage capacity. These demandsin order of importanceare municipaland industrialwater supply diversionsto Hebeiand Tianjin, irrigation requirementsin Henan and Shandongprovinces, firm energy productionand water supply to the oi industry in the lower delta as well as fresh water to maintainspawning and hatching of fish in the lower delta. The operatingpolicy for the reservoiris summarizedbelow.

Operating Rules during Sediment Deposition Period

3.19 Immediatelyafter completionof the project, XiaolangdiReservoir will have a storage capacity of 12.6 billion m3. After approximately15 to 20 yeais of operation, - 24 -

3 3 sediment depositswill occupy 7.5 billion m (see Annx 1, leaving 5.1 billion m of live storage. During this depositionperiod, water levels in the dry season will be controlled in such a manner as to induce the coarse sediment particles to settle out and the finer particlesto pass throughthe reservoir. This will be achievedby progressivelyraising the wet-seasonoperating level over approximatelya 15-yearperiod from El. 205 (minimum operatinglevel for the turbines)to El. 254. This operationwill promotethe degradation of the river channel below Huayuankouand thereby maintainthe present capacity of the channeland floodplainwithin the existingdikes. After the depositionlevel in the reservoir has reached El. 254, the average flood season operating level will be lowered to approximatelyEl. 246. This action will promote the scouring of a channel through the depositedsediments behind the dam and the channel would reach an equilibriumlevel at the dam at El. 230.

Operating Rules for Post-DepositionPeriod

3.20 Once the reservoir has achievedits final stable storage capacity, it will be operatedon an annualbasis accordingto a dispatchingchart. The dispatchingchart divides the reservoir storage into eight operatingzones, the boundariesof which may vary during the year. As illustratedin the dispatchingchart, the reservoir will be drawn upon to meet various downstreamdemands. The ype of demand that will be satisfieddepends on the zone that the reservoir level occupiesat the time.

(a) Zone 1-normal wet seasonoperating zone for water and sedimentcontrol. The storage capacity in this zone between El. 230 and El. 254 is 1.0 billione 3.

(b) Zone 2-wet-season flood protection zone for major floods. The storage capacityis 4.1 billion i 3 from July to Septemberand 2.0 billion m3 during the first half of October.

(c) Zone 3-dry-year operating zone. Only municipal and industrial water demandsare firmly met. A minimumof 1.2 billion m3 is providedto Hebei and Tianjin. Some water may be supplied for irrigation in Henan and Shandongprovinces.

(d) Zone 4-reduced water supply zone. Water supply to Hebei and Tianjin is reduced by 20 to 40 percent and irrigation supply to Henan and Shandong provinces is reducedby 20 percent.

(e) Zone 5-firm water supply zone. All water demandsare satisfied.

(f) Zone 6-surplus water supply zone. All water demands are satisfied. Irrigation diversions to Henan and Shandongprovinces are increased by 40 percent. - 25 -

(g) Zone7-downstream ice managementzone. A volumeof 2.0 billionm 3 is reservedfrom December to Februaryto storewater to preventdownstream floodimgfrom ice jams. (h) Zone8-artificial floodzone. Largevolumes of waterare releasedto scour accumulatedsediments from the downstreamchannel. 3.21 The operationcan generallybe dividedinto wet-seasonoperation, July 11 to September30; and dry-seasonoperation, October 1 to July 10. EnviroumentalManagement 3.22 A salientfeature of the recommendedenvironment protection program is implementationof an EnvironmentManagement Plan, includedunder the project. The Plan includes provision for an EnvironmentalManagement Office (EMO) within YRWHDC,which will have lead and coordinatingresponsibility for implementingall neededenvironmental protection measures including (see also Annex : (a) Managementof continuingperiodic monitoring for assessingthe actual effectsof the project. The major impacts that will be monitoredand managedare the resettlementof 171,000people; public health (sanitation and antiepidemicmeasures) at the constructionsite andreservoir area; dam safetyaspects of the projectdue to reservoirembankment slides; and floods and sedimentflow managementthrough the dam; (b) Planningand implementationof needed correctionmeasures identified throughthe monitoringprogram; and, (c) Preparationof periodic reports (and special reports, when needed)for distributionto concernedgovernment agencies and to the Bank. Trainingfor YRWHDC 3.23 YRWHDC rainingProgram. YRWHDCwil be concernedwith the constructionstage of the Xiaolangdiproject in the earlieryears of its existencebut in the periodapproaching the year2000, it will becomemore involved in operatingthe damfor power generation,irrigation and flood control purposes. The training needs have accordinglybeen identified and reflect the developmentstages through which YRWHDC will progressin the period 1994-2000.Early attention will be paidto the needsof senior managersin theareas of contractmanagement, cost control and project scheduling and also in generaland financialmanagement concepts. Afterthe initialstage, attentionwill be paidto trainingin specificmanagement skills for seniorand middlemanagement. In the period immediatelypreceding the dam becomingoperational, attention will be paid to coveringthe managementof change in the ensuingperiod as well as ensuringthat supervisoryand clericalstaff are wellequipped to copewith the newoperting conditions and procedures. - 26 -

3.24 The trainingprogram that has been drawn up addressesthe followingmain areas: contract management;construction schedule and reporting; financialplanning and budgetary control; general managementand organization; financialaccounting systems; quality assurance systems; information management systems; cash and treasury management;planning, monitoringand performanceevaluation; personnel management; and internal auditing. A total of 170 staff will be trained and a total of 14 different types of trainingprograms have been planned (see Annex n. Assuranceswere obtainedduring negotiatonsthat trainingand technical assistance under this component will be carriedout by YRWIDCin accordancewith a programsatisfactoty to the Bank.

Institutional Program for MWR and YRCC

3.25 The prime purpose of this component is to assist MWR and YRCC to undertakethe presentlygovernment-mandated reorganizatic; aimed at increasedmanagerial accountabilityand financialself-sufficiency. MWR and YRCC's main functionsare both regulatoryand operational. PresentlyMWR has 14 departmentsand 26 special units and 7 river basin commissionsunder its supervision. After the reorganization,it is planned to have about the same number of departmentswhose functionswill be mainly regulatory and staff will be reduced by about 25 percent. The 26 other MWR units will be reorganizedto about 13 corporationsthat will be doing most of the operationalfunctions undertakenby MWR departmentspreviously. These corporationswill have to be more accouintableand charge for their services. Most of the revenuewill be derived from sale of water, from charges for fund mobilizationservices for water resources investments, planningand design services, water research services, etc. The river basin commissions will also have to be reorganizedso that regulatoryfunctions are separatedfrom operational functions. The regulatory functions will continue to be funded by government using generalrevenues, while the operationalactivities will be fundedby user charges with little or no governmentfunds. In order to face some of these challenges,several studies have to be undertakenand strategieshave to be developed. To this end, a componenthas been developedand includedin the project. This componentconsists of five studiesand training areas in: (a) resource mobilizationand management,(b) accountingreform, (c) water pricing, (d) river basin organizationand water licensingsystems, and (e) river basin real- time water-dispatchingsystems (see Annex ). The first two studies/institutionalsupport items are for MWR while the next two are for both YRCC and MWR and the fifth study and support program is for YRCC. Assurances were obtained during negotiationsthat trainingand technicalassistance under this componentwill be carded out by GOCin accordancewith a programsatisfactory to the Bank.

F. CONSTRuCrIONSCHEDULE

3.26 The constructionof preparatory works for the project began in December 1991and is progressingwell. These works includeaccess roads, sevenconstruction roads, bridges over the Yellow River, power supply lines, water supply, communicationlinks, construction camps, and health service facilities. land acquisition for construction purposes has been completed involving about 30,000 inhabitants and the first 9,944 resettlers will be successfullyrelocated in new villagesby June 1994, prior to the start of - 27 -

mobilizationof the internationalcontractor. Over 40 percent of the latter were already resettledby October 1993 and the standardsof constructionare generallyto a high quality.

3.27 Bids for the constructionof the dam (Lot 1), intake and outlet works (Lot 2), and powerhouse(Lot 3) were receivedon August 31, 1993 and the evaluationof the bids were completedby February 1994 so as to enable the award of the contract with the successfulbidders after the loan has been approvedin April/May 1994. The construction of the main civil works is scheduledto begin in May 1994, the diversionof the river for dam constructionin December 1994,and the commercialoperation of the first generating unit in 2000. The remaininggenerating units would be completed in sequence with the sixth unit installed by December 31, 2001 (see Annexi). The proposed schedule is consideredto be reasonableand attainable.

G. PROJECr CosT ESTIMATES

3.28 The totalcosts of the projectare estimatedto be $2,026.8 millionequivalent, of which $931 million (46 percent) represents the foreign exchange component. These estimatesexclude the costs of the resetdementprogram, totaling $571.3 million, proposed for separate financingby IDA. Annex 2 contains, in detail, the estimated costs of the project, which are summarizedin Table 3.1. The project base costs are in December 1993

Table 3.1: PRoJEcr CoST SUMMARY

Y million _ million _ foreign Local Foreign Total Local Foreign Total exchange

Dam and Power Station Site preparatlon & local works 1,618.3 - 1,618.3 280.2 - 280.2 0 Dam & appurtenances 2,227.9 3,308.8 5,536.2 385.7 572.8 958.5 60 Turbine & gates 364.0 577.1 941.1 63.1 99.9 163.0 61 Generators& electri- cal works 549.2 220.1 769.3 95.1 38.1 133.2 29 Inst. dev. training 2.5 5.1 7.6 0.4 0.9 1.3 68 Engineering & adamin. 384.6 22.4 407.0 66.6 3.9 70.5 6 Impl. consultants 16.9 95.7 112.6 2.9 16.6 19.5 85 EnvironmentalHanmzement 52.5 55.9 108.4 9.1 9.7 18.8 52 MWR/YRCCInst. Sungort 2.8 12.9 15.7 0.5 2.2 2.7 82 Total Base Cost 5.218.6 4.297.6 9.516.2 903.6 744.1 1.647.7 45 Physicalcontingencies 520.5 447.2 967.7 90.1 77.5 167.5 46 Price contingencies 3,485.6 3,726.3 7,211.9 102.1 109.4 211.6 52

Total Prol. Cost la 9,224.7 8.471.1 17,595.8 1,095.8 931.0 2.026.8 46 Interestduring construction Lb - 2,215.7 2,215.7 - 267.9 167.9 100 Total Pinancina Required 9.224.7 10,686.8 19.911.5 1,095.8 1.198.9 2.294.7 52

Includestaxes and dutiesof $98.9 million. /b Intest during consuction is based on the Bank's variable interestrate. - 28 -

pricesand were revisedduring negotiations for the devaluationof the yuan from $1 Y 5.77 to $1 = Y 8.7. The damand powerhousecosts are based on actualunevaluated contractorbids. The costsof electricaland mechanical equipment, transformers and gates are basedon recentquotations from manufacturers and suppliers for similarequipment and materialsinvolved. The costs of the remainingitems are based on the consulting engineers'data for similarworks. Physicalcontingencies are assumedas follows: 8 percentfor the damand undergroundpowerhouse; 12 percentfor the intakes,tunnels and outflowstructures; 10 percentfor the remainingpreparatory works, dam, engineering, contractadministration, technical assistance, environmental management, studies and training;and 10 percentfor the electromechanicalequipment. These percentagesare consideredto be reasonablein view of the site features,the stage of design,and the contractslet to date. The price escalationfor costs expressedin foreignexchange (US dollars)has beencalculated in accordancewith the anticipated international pnce escalation of 0.5 percentin 1993, 3.4 in 1994,2.9 in 1995,3.0 in 1996, 2.7 in 1997-98,2.5 in 1999-2000,and 2.4 in 2001. The price escalationfor costsexpressed in localcurrency is calculatedaccording to theprojected local inflation rates, 10.9percent in 1993,20 percent in 1994,12 percentin 1995,10 percentin 1996,and 8 percentin 1997-2001.YRW}DC has requestedthe exemptionfrom taxes and dutiesas have all previousBank projects in China. The total projectcosts also includeactual expenditures incurred before 1994that arerelated to thepreparatory works, purchase of start-upequipment, dam-site resettlement, and engineeringservices. 3.29 The breakdownof the project costs into foreign and local components reflects the borrower'sdecision to engage foreign constructionfirms and to import appropriatemodern constructionequipment and technology,and to apply effective managementmethods so as to ensureefficiency in projectconstruction.

H. FINANCINGPLAN 3.30 Early on in the project preparation,the Governmentof China (GOC) indicatedits preferencefor seekingBank financingin two stagesas was done for the ShuikouHydroelectric Project (Loans2775-CHA and 3515-CHA)and is also being plannedfor theErtan Hydropower Project (Loan 3387-CHA). Since this is a largeproject with a long gestationperiod (nineyears), a phasedfinancing approach would avoid tying up fincial resourcesthat couldbe used for other projectswith moreimmediate needs. In viewof the foregoing,it was agreedthat the proposedloan wouldbe used to finance the first phase of project construction(1994 to mid-1997). However,this would not preventGOC from seekingadditional assistance from the Bank for this project. GOC requested,and it has beenagreed, that the secondphase of the projectwould be included in the Bank's proposedpipeline of future projects. To enable timely and effective implementationof the project,it is necessaryto ensurean adequateflow of localfunds, as shown in Annex2. During negotiations, assurances were obtained that YRWHDC would submit to the Bank by December 15 of each year the financing plan and the proposed implementationprogram for the next year as approvedby GOC. 3.31 The financingplan for the projectwould be as shownin Table 3.2. The total financingrequirement would amount to $2,294.7 millionincluding interest during - 29 - construction,of which $1,198.9 million is foreign exchange. Because this project has a significantflood control component,the Chinese govemmentwill fund, as a grant, all the local and outstandingadditional foreign exchangeand interest during construction.

Table 3.2: FINANCINGPLAN ($ million)

Local Foreign Total

GOC 1,095.8 738.9 1,834.7 IBRD Loan - 460.0 460.0

lotal 1,095.8 1.198.9 2.294.7

3.32 The proposed Bank loan of $460 million would finance $430 million of project expenditures, which would meet about 46 percent of the total foreign exchange financingrequirement and also finance$30 millionof interestduring construction. Given the long implementationperiod noted above and the fact that YRWHDC would not be generatingcash intenWallyuntil after projectcommissioning (starting year 2000), the project circumstancesjustify extendingthe grace period of the Bank loan from five years (which is the standard period for China) to seven years, and substitutinglevel repayments of principalfor annuity payments. The loan would be made to GOC at the Bank's standard variable interest rate for a 20-year term, including7 years of grace. The proceedsof the loan would be onlent from GOC through the Ministry of Water Resourceswith the same tms as the Bankloan. An assurancewas obtained from GOCthat it wouldonlend the proceedsof the Bank loan (otherthan for the InstituionalSupport Program for MWR)to YRWHC, undera subsidiaryloan agreementwith a 20-yearterm, including7 years of graceand levelprincipalpayments, and thestandard variable interest rate for Bankloans. YRW C wouldbear thecomnuitment charges andforeign exchange risk. The execution of a subsidiaryloan agreementbetween GOC and YRWHDC,satisfactor to the Bank, wouldbe a conditionof effectivenessof the loan.

I. PROCUREMENT

3.33 The main items to be procuredare: (a) the main civil works; (b) electical and mechanicalequipment; and (c) engineeringand consultingservices.

3.34 Civil Works. Contracts for site preparatory works, totaling about $21210 million equivalent, were awarded in June 1993 following local competitive bidding proceduresacceptable to the Bank. These contracts would be financed partially by the Bank and by local funds. The procurementof the main civil works, through Internatio;.al CompetitiveBidding (ICB)procedures, has been divided into three lots, one for the dam, one for the intake and outflow works, including nine tunnels, and the other for the underground powerhouse and six power tunnels. These contracts would be mainly financedby the proposed Bank loan. Biddingdocuments for these main civil works were - 30 - reviewedand agreedby the Bankin January1992. Similarly,prequalification of bidders for these works was carried out in consultationwith the Bank. Applicationsfor prequalificationwere receivedin October1992 from 11 contractors,10 of whichwere prequalified,all Sino-foreignjoint ventures. Bids were receivedfrom all prequalified contractors. Bid evaluationwas carriedout by YRWHDC,MWR and the international consultantsand the bid evaluationwas reviewedand approvedby the Bank. The signing of the contractswith the lowestevaluated bidders for the main civil worksis expectedto takeplace in April/May1994. 3.35 Goods. The proposed Bank loan also would finance vehicles and environmentaland floodforecasting equipment, which would be procuredthrough ICB in accordancewith the Bank'sprocurement guidelines. Qualifieddomestic manufacturers would be eligible for a 15 percent preferencein bid evaluationsor import duties, whicheveris lower. Itemsor groupsof itemsestimated to cost lessthan the equivalentof $200,000per contract,up to an aggregateamnount of $3.0 million,may be purchasedon the basis of at least three quotationsfrom qualifiedsuppliers eligible under the Bank's procurementguidelines. Special proprietary gate-bearing and other mechanical equipment that needto be obtainedfrom specific suppliers, valued at $1.2 million,would be procured usingdirect contacing procedures.All contractpackages for worksand goodsfinanced by the Bankand estimatedto cost$5 millionequivalent or morefor worksand $1 million equivalentor more for goods wouldbe subjectto the Bank's prior review (about 98 percentof the loan). 3.36 Consultns. Consultantsfor constructionsupervision (953 person-months) and for electrcal workswill be financedunder the loan. In addition,there wouldbe consultingservices for training,institutional support and environmental management. They wouldbe selectedin accordancewith prnciplesand proceduressatisfactory to the Bank on the basisof the "Guidelinesfor the Use of Consultantsby WorldBank Borrowers." YRWHDCwill retain the present internationalconsultants who have prepared the feasibilitystudy, the detaileddesigns and tenderdocuments, for constructionsupervsion or, grounds of intimate knowledgeof the site, river hydrology.local construction conditions,and the overall project, i.e., in the interestsof project safety, economy, efficiencyand expedition. The consultantshave also been involvedin evaluationfor prequalifyingof contractorsand wereinvolved in bid evaluationwith YRWHDC. The procurementarrangements for the proposedproject are summarizedin Table3.3. J. DLsBuRsEMENTwS 3.37 The Bankloan wouldbe disbursedagainst: (a) 100 percentof foreign expendituresfor the ICBcivil works and 20 percentfor localcivil works;(b) 100percent of foreignexpenditures or 100percent of localex->nditures (ex-factory cost) of goodsand 75 percentof localexpenditures of other itemspit,vured locally; and (c) 100percent for consultingservices, studies and training. For expendituresrelating to training, and contractsfor works, goods and serviceseach costingless than $400,000equivalent, reimbursementswould be wade on the basis of Statementsof Expenditure(SOEs). Documentationsupporting the, SOEs would be retainedby YRWHDCand made available for reviewby Banksupervision missions. To facilitatedisbursements, a SpecialAccount - 31 -

Table 3.3: PRtocuRMsNrARKtANGEMENT ($ million)

Procureuent Method /a Total ICB LCB Other N8F Phase I Total

Civil Works

Site preparationllocalworks . 120.0 - 197.0 212.0 317.0 (21.9) (21.9) (21.9)

Dam & appurtenances 1,200.3 _ , - 580.5 1,200.3 (384.4) (384.4) (384.4) Goods & Services

Mechanicalworks/goods ^ - 1.2 204.6 59.6 205.8 (1.2) (1.2) (1.2)

Electrical vorks - - - 166.6 40.8 166.6

Office & design equipment - - 2.1 0.1 2.2 2.2 (2.0) (2.0) (2.0)

Vehicles 3.2 - - - 3.2 3.2 (2.8) (2.8) (2.8)

Consultants for - - 23.7 22.4 21.8 46.1 Implementation (11.5) (11.5) (11.5)

Contract mangemuent - 58.4 19.3 58.4 supervision

Training & Institutional - - 3.9 - 3.9 3.9 support (3.2) (3.2) (3.2) Envir_nmental d_anLement

Equipmentlmaterlals 1.2 - 1.0 - 2.1 2.1 (1.0) (1.0) (2.0) (2.0)

Coasultants (implementation) - - 5.2 15.9 10.6 21.2 tl.0) (1.0) (1.0)

Total Cost 1.204.7 12. 37.1 665.0 956.0 2,026.8 .3§1.2. (21.9) tl9-92 (430.0) (430.0) as Amountsin parenthesesare proposedBak fncing amounts.

Note:. thO - Refers to items relabd to procremnt of consultanMsere, directconacti and shopping. NBF - Non-Bank-fiaed items. in US dollars,with an authorizedallocation of $8 million,will be establishedin a bankand on termsand conditionssatisfatory to the Bank. Applicationsfor repleishmentwould be submittedmonthly or whenthe amountswithdrawn are equal to 50 percentof the authorizedallocation, wbichever occurs sooner. Retroactvefinancing in an aggregate amountof $24 millionwould be providedunder the loan to cover paymentsmade for expenditureson civil works, urgentlyneeded goods, consultantservices, and training incurredbefore signing the LoanAgreement, but afterJune 15, 1993. - 32 -

3.38 The disbursementschedLI - for the proposedBank loan is given in nnex4, Table 3. The disbursementperiod covers the first phase of the constructionperiod. Becauseof the phased financingarrangements for this project, it is not possibleto compare its disbursementwith that of other projects, except to some extent for that of the Shuikou Hydroelectric Project. The disbursement schedule is based on the detailed project implementationprogram. Althoughthe loan is expectedto be fully disbursedby June 30, 1998, the loan closure is delayed to correspond to the date of completion of the resettlement project, December31, 2000, to enable the Bank's supervision and coordinationbetween this project and the XiaolangdiResettlement Project.

K. ENviRONMENTALIMPACr ASSESSMENT

3.39 The major environmentalthreat in the lower Yellow River region is catastrophic flooding. Xiaolangdi will offer virtually complete protection in the downstreamreaches against the 1-in-1,000-yearflood, eliminatingthe threat of disastrous floodingand improvingice-jam control. Due to the initial sedimenttrapping and longer- term sedimentregulation operations in Xiaolangdi,the project will also defer dike raising and strengthening for 20 years and slightly reduce the magnitude of required dike reconstructionthereafter. It will also improve the quality of Yellow River water for at least the first 20 years of sedimenttrapping and eliminatecurrent cessationof flows to the estuary during dry periods, indefinitely. A detailed environmentalimpact assessment (EIA) was completedin December 1992 and the EIA summary was distributed to the Board on April 15, 1993. There are four significantimpacts of the project described in the report.

3.40 The major environmentalimpact related to the project is resettement of 171,000mostly rural residentsto be displacedby the reservoir. The resettlementprogram is comprehensiveand representsa pioneeringeffort in project resetdementin China. The resettlementprogram is designedto ensure that the populationsu bject to resettlement,both relocateesand hosts, shouldnot only maintaincurrent standardsof living but should share in project benefits. The resetdementprogram is discussedin paras. 3.43-3.52 below.

3.41 Three other potentialenvironmental issues are raised by the project: dam safety; salvage of archeologicalrelics; and public health and diseasecontrol. The dam has been designed to ensure its integrity in the event of earthquakes, and the results of remarkablythorough dam break analysesof both Sanmenxiaand Xiaolangdi have been incorporatedinto Xiaolangdi'sdesign. Offsettingplans have been developedspecifically for the salvage of cultural relics and protection of public health. As a result of the environmentalassessment of the project, an overall EnvironmentalManagement Plan (EMP)has been developed. The tasks to be completedto fulfillthe XiaolangdiEMP over the period followingProject loan approvaluntil the year 2010 are summaried in Annex 9, which show the various tasks correspondingto the significantenvironmental issues. Since the environmentalimpacts overlap with the proposed XiaolangdiResettlement Project, some activities of the managementplan will be part of the resetdement project. The agenciesparticipating in the managementplan and the cost and duration of the required activities are describedin the ETAsummary (referenced in Annex 12). - 33 -

3.42 This plan calls for the establishmentof a projectEnvironmental Management Office (EMO) with responsibilityfor assuring that all environmentalprotection measures will be implemented.During negotiations, assurances were obtainedthat YRWHDCwould continue to employ an internional panel of independentexpens to rewew and make recommendationsin respect of the EMPP;shall maintainits EMO with competent staff in adequate numbers and with responsibilitiesand functions acceptable to the Bank to manage, coordinateand monitor the implementaionof the EMP; shall ensure that all activitiesunder the Projectcomply with environmental standards and guidelinessad sfactory to the Bank, including those relating to darn safety, the preservation of archaeological relics and public health and dseasecontrol; that all necessary measures are taken to mitigate adverse environmentalimpacts causedby the constnrction,and that the EUIPis implementedin a tmely manner. In addidon, al detailed actionplans to be developed under the EMP are to befurnished to the environmentalpanel and to the Bankfor review three months beforebeing implemented.In addition,the Borrowershall take all necessary steps to ensure that YRCCand the project provinces carryout their respectiveparts of the EmP.

L. RESnTLEMENT

3.43 Resettlementplanning and management represent a major effort to be undertakenby all levels of GOC. A detailedplan has been prepared to be carried out in progressive stages. The people witl be moved in four stages over an 18-yearperiod, as shown in Table 3.4. About 9,944 would be resettled by June 1994 when the project processing is completed, leaving about 171,000 to be resettled during and after the construction phase of the dam. A separate IDA-supported project-Xiaolangdi ResettlementProject-has been designedto undertakethe resettement activities. Project details are more fully described in SAR Report No. 12527-CHA.

Table 3.4: RESSEMMN PH&VNGLa

Year No. of People

First Stage-Preconstruction 1992-94 9,944 Second Stage-BelowCoffer Dam 1993-96 21,690 Third Stage-CofferDam to El. 265 1997-2000 131,492 Fourth Stage-El.265-275 (Crest) 2010-11 17,924

La Total to be resetded in the second, third and fourth stages has been roundedoff to 171,000.

3.44 The two main objectivesof the resettlementplan are that both resette and host communitiesaffected will not be disadvantagedby the project and will share in the project benefits. Resettled families will be reesablished in a new location where the house, yard and amenitieswill be at least as good as the family's previous sitation; the family's new eaniing potential will be at least as good as previously; and the faimily's - 34 -

expensesand loss in incomein makingthe transitionwill be duly recognizedand accounted and compensatedfor. The potential for these objectiveswill be achievedby provision of adequate facilities in connection with economic effects, housing, amenities and public services, and social and cultural effects.

3.45 The resettlementproject comprisesfour major components: (a) residential and infrastructure development; (b) transfer of resettlers; (c) livelihood development, vocationaltraining, monitoring,supervision and socialadjustment; and (d) plamning,design and resettlementmanagement training.

3.46 Residential and Infrastructure Reconstruction. This component will consist of constructing276 villages and 10 towns for the resettlers. About 35,000 new houses will be built coveringa floor space of 3.8 million i 2. Almostall houses will be made of brick and will be providedwith piped water supply, proper sanitation,electricity, drainage,etc. Publicfacilities such as schools,hospitals, clinics, culturalcenters, etc. will be built to service all new villagesand towns. Commercialand industrialenterprises will be reconstructedin the new sites. New infrastructurewill include roads, transmission lines, communicationslines, broadcastingfacilities, water supplyworks, hydraulicstations and other special items to service the settlementareas. A total of 1,750 km of roads will be built. Every village will be serviced with electricity requiring the constructionof 632 km of power lines and other facilities. Twenty-sevenwharves around the reservoir will be built and 132 ferries procured. A total of 524 km of telephone lines and broadcastingfacilities will be built to guarantee that every village is well linked with communications. Seven significant facilities above county level have to be relocateei includinga jail, a water supply project, a hydrologystation, etc. 3.47 Transfer of Relocatees. This componentmakes special provisions for transferof all salvageablematerials and personalbelongings, factory machinery and other goodsfrom the present to the newsites. The transportwill be contractedto localtrucking companieswho will move the goods at an appropriatetime. A total of 35 percent of the people will be moved downstreamto 37 host sites on the Wenmengtanplain and three countiesin Kaifeng,37 percentwill moveto newtownships within their homecounties at 120 hostsites, and another23 percentwill moveback away from the reservoirperimeter withintheir hometownships to 101host sites. The town populationtotaling 14 percent of the peoplewill be movedto the 11 new townscreated in the eight affectedcounties. 3.48 LivelihoodReestablishment, Superviion and Monitoring. The labor forceat the movingyear will be about75,220 people (about 1.9 per household),of whnich about78 percentare full-timefarmers, 11 percentare full-timerural industrialworkers, and 11 percent are governmentemployees. Althoughfarniing is the predominant occupation,there is rapid transformationoccurring in the economyto nonfarming activities.Off-farm income will accountfor 50 percentof rural per capitaincome in the future. Hence,plans for resettlersare to have50 percentfarmers, 29 percentindustrial workers,11 percentstate farm enterprise workers, and 10 percentgovernment employees. This shiftin employmentfrom agriculture to industrywill resultin additionalemployment with at least one familymember fully committedto a nonfarmjob that will result in existingincomes being exceeded in the future. - 35 -

3.49 For agriculturallivelihod reestablishment,11,100 ha of land will be developed,of which about 7,000 ha will be irrigatedand the rest will be dryland. A total of 300 groundwaterwells and pump stationswill be constructedto irrigate the land at the various sites. The dryland will be terraced and improved for soil fertility. A total of 116,050people will be involved in crop farming. In additionto crop fanming,there will be 530 ha of orchards (increaseof twofold),660 ha of aquaculture(an increase of fivefold) and 180 ha of grazing land. A total of 37,400 full-timefarmn jobs will be created through creating of the new farmland. 3.50 For industr development,252 existingsmall industries and mineswill be relocatedand reconstructedand the workers will move with these industries. Most of the factories will continue but some of the mines will be converted to industrial enterprises. In addition, about 85 new county and township industrieswill be established. These first- phase (1994-96) factories will consist of 50 percent new factories and about 50 percent existing factories that will be expandedin the resettlementareas, which will create new industrial employmentfor about 20,500 resettlers. These industries consist of fertilizer, ceramic, textile, refractory materials, brick and other plants.

3.51 Other aspects provided for in the resettlementprogram include:

(a) Grievances and Complaints Procedures. A mechanismbased on the Village Committees, which represent the villagers independentlyof the regular governmentstructure, is provided. If a matter cannot be resolved at the Village Committeelevel, procedures are provided for referring the matter to the local governmentand, subsequently,to higher government levels as needed up to the provinciallevel.

(b) Safety Nets. If resettlersor hosts are unsuccessfulin achievingsatisfactory incomelevels, they will have recourseto a specialReservoir Area Support Fund, which guaranteesminimum incomes if farm or nonfarmlivelihoods fail to meet their minimumneeds. Applicantsto the Fund will be referred through the village leader to the County ResettlementOffice. This Fund will remain in place until MWR deems that the Xiaolangdiresetders and affected hosts are no longer at any particular risk. The Fund will be partially financed by Xiaolangdi'selectric power revenues.

3.52 In summary, the plan for project resettlement and reestablishment of livelihoodis judged to be the mostdetailed and competentyet developedfor a major dam project, and it is believed that, with continuousperiodic monitoring the plan will be successfulas is already obviouslythe case for the 4,000 people resettledby October 1993. Based on the plan, it is not expectedthat resettlers or hosts will be disadvantaged.

M. ACCOUNTSAND AuDrrs

3.53 Accounting. Different accounting systems are used by enterprises (autonomousunits), construction units (which execute investment projects) and local - 36 - governmentdepartments, in accordancewith regulations prescribed by the Ministry of Finance (MOF). YRWHDC,like all state-ownedenterprises in China, followsa unified enterprise accountingsystem on an accrual basis. With a view to complementingthe ongoing efforts to deepen reforms in the financialsector and enterprise management,the accounting system in China is being modernized to permit satisfactory financial managementin an increasinglydecentralized and market-orientedenvironment. As a first step, the general principlesof enterpriseaccounting have recently been revised by MOF. These revised principles are generally consistentwith those of internationalaccounting standards. Withinthis broad framework,specific accounting standards would be developed with the assistance of the Bank Group under the Financial Sector Technical Assistance Project (Credit 2423-CHA).

3.54 Up to now, YRWHDChas maintainedtwo sets of accounts, one set for capital constructionand the other for operation. Since these two sets of accountsare not consolidated, the balance sheet for operations does not include construction work-in- progress and the related financing. However, under the newly revised general principles set forth by MOF, enterprises will have to consolidatethe capital constructionaccounts with the operationsaccounts. YRWHDCwill consolidate its accountsand specialtechnical assistance using foreign consultants has been included as part of the project to help translate the accounts.

3.55 Auditing. Auditsof Bank-financedproject have been conductedby the State Audit Administation's (SAA) Foreign Investment Audit Bureau, or by one of the Provincial Audit Bureaus (PAB) under its guidance. Under the project, YRWHDC's annual accounts will be audited by SAA. This arrangementis satisfactory. Assurances wereobtainedfrom YRWHDC that it wouldmaintain separate accounts for theproject and that the auditedproject accounts,statements of expenditures,andfnancial statens of YRWHDCwould be fienished to the Bankwithin six monthsafter the end of eachfiscal. The audited accounts would include the Special Account and the details of withdrawals from the loan account made on the basis of SOEs and the auditor's opinion as to whether such withdrawalswere made against expenditureseligible for disbursementby the Bank. YRWHDChas developedan internalauditing section (staffed with charteredaccountants), which periodicallywill examine the accounts of each operating unit. The objective of these examinationsis primarilyto test for accuracyand compliancewith MOF regulations. The section will serve as Liaisonbetween external auditors and the project entity. The Bank will review the internal auditingfunction during project implementationwith a view toward increasingits efficiencyand usefulnessto YRWHDC. - 37 -

4. ORGANIZATION AND MANAGEMENT

A. PROjECrORGANIZATION

4.1 General Structure. The Ministry of Water Resources (MWR) will have overall responsibility for the implementationof the project under the guidance of the Central Project Leading Group (CPLG) set up by the State Council. At the provincial level, the provincial leading groups of Henan, Shanxi and YRWHDC will guide project managementoffices for implementationof both the resettlementprogram and the dam construction.The general organizationof the project is shown in Annexa, Chart 1.

4.2 ProjectLeading Groups. Projectleading groups have been set up at cental and provinciallevels for the implementationof the dam constructionand for resettlement implementation.

(a) Central Project Leading Group (CPLG). The CPLG has been set up reporting directly to the State Council, headed by the Deputy Minister of MWR with representativesfrom the State PlanningCommission, Ministry of Finance, Henan and Shanxi governments, and the Chief Engineer of MWR as members. The main functionand role of the CPLG is to guide YRWHDC, the PPLGs and PMOs in project policy, fiscal matters, resettlementimplementation and dam construction,and to coordinateissue and problem resolutionat both central and provinciallevels;

(b) Provincid Project Leading Group (PPLG). Leading Groups have been set up in Henan and Shanxi, headed by Deputy Governors and including about 25 members from various provincial agencies (Bureaus of Resettlement, Water Conservancy, Construction, Agnculture, Finance, Planning Commission, etc.), with the lead role being played by the provincialresetdement director. The PPLGs will be mainly responsiblefor the coordinationof resettlementactivities within each province. In addition, aU the leadinggroups will be involvedin policy and fiscal matters and will resolve issues and problems in project implementation. Assurances were obtainedduring negotiations that the Borrowershall maintainits central projectcoordinating group and causethe Project Provinces to maintaintheir respectiveproject leadinggroups and project offices with composition, responsibilitiesandjinctions acceptabl to the Bank.

4.3 Project ManagementOffices (PMO). YRWHDCwill be thePMO for the implementation of the dam construction. YRWHDC will cooperate with YRCC's resettlement office (YRCCRO) with regard to the coordination of implementationof - 38 -

resettlementphasing with dam construction. YRWHDCis a state-ownedenterprise whose main functionis to build, operate and maintainthe dam. Its general manager reports to MWR. It has, at present, 140 staff and additional staff (up to 60 more) will be added during the constructionof the dam. AlthoughYRWHDC has only been formed recently, its staff have been involved in the construction of many large projects. Its general manager is the former director of constructionof MWR and has been involved in the constructionof several large dams. YRWHDC in general is capable of managingthe construction of this large dam. During negodations, assurances were obtained that YRWVDCshall nWntain its projectmanagement office with competent staff in adequate numberswith responsibilities and functions satisfactory to the Bank.

B. EXECUTIONAND SUPERviSION OF DAMCONsUCrION

4.4 Execution. YRWHDCwill execute the project. It will be responsiblefor preparationand executionof all bids for goods, servicesand additionalcivil works. It will also be responsible for contract management, cost control and quality control of all civil works and plant and equipment installation. It will be assisted by the Xiaolangdi Engineering ConsultingCompany (XECC) for constructionsupervision; the Research, Planning and Design Institute (RPDI) of YRCC for design changes and new designs; foreign consultantsfor contract management,cost control, etc.; and by a panel of experts to monitor dam safety and strengthen constructionmanagement. The organization for constructionsupervision is shown in Annex 8, Chart 2.

4.5 Construction Supervision. Constructionsupervision will be contractedto XECC, which will act as the "Engineer' for the client and will be responsible for constructionsupervision in terms of detailed fieldwork for quality control, authorization of payments for contractor, maintenanceof a field laboratory for testing of materials, revision of design documentsaccording to field conditions,etc. Several of the staff of XECC are from experienceddesign and constructionbureaus that have had longexperience in implementinglarge dam projects. XECC, with supportfrom YRWHDCand MWR and assistance from consultants,will have the capabilityneeded to managesuch a large dam project. The organizationof XECC is shown in Annex 8, Chart 4.

4.6 EngineeringDesign and TechnicalAssitance. RPDI has been retained by YRWHDC to assist in design. It is one of the most experienceddesign institutes in China, and in recent years it has completedthe design of several large hydroelectric projects. RPDI has over 3,000 professionalstaff and is equipped with modem facilities and laboratories. Nevertheless, YRWHDC recognizes the very complex and delicate nature of the constructionactivities of this project, and therefore will continue to use foreign consultantsduring the implementationof the project, as discussedin the succeeding paragraphs. Internationalengineering consultantshave also been actively involved in reviewing project design and resolving specific technical matters related to the dam, powerhouse, electromechanicalequipment, and log passing facilities. A number of technical delegationsand prominenthydropower expert visited the project site, offered valuablesuggestions, and shared their expeience with the Chinese in building large and complexprojects. - 39 -

4.7 Panel of Experts. YRWHDC will continue to employ dam safety panel (DSP) to assist in resolvingparticular project problems and in advisingon major design and constructionissues. DSP have been very active and effective in supportingproject preparationand reviewingprocurement documents for the main civil works. The services of these consultantshave been partiallyfunded by the SecondTechnical Cooperation Credit (Credit 1664-CHA). Under the proposedproject, DSP meetingswould be held regularly. An assurancewas obtainedfrom YRWBHDCthat it would continueto employDSP, independentof the designersof the project,who willconduct periodic reviews of designs and technicalspedficatons, will adwseon unforeseenproblems that ariseduring project implementation,and YRWHDCwould report theirfindings to the Bank and Borrower.

4.8 Foreign Consultants. Due to the magnitudeand complexityof the project and the use of foreign constructioncontractors and equipmentsuppliers, YRWHDChas appointed experiencedand qualifiedinternational consultants who would play a key role in assisting YRWHDC in managing project construction. The scope of work for the consultantswould include contract administration,cost control, scheduling,construction inspection and quality assurance, design engineering services, and construction site administrationduring the entire implementationperiod. The total input of engineering services and technical assistance is estimated to be about 953 staff-monthsof foreign consultants' services, which is considered reasonable for a project of this size and complexity(see Annex 1).

4.9 The proceduresfor inspecting, maintaining,ard monitoring the safety of hydro works and dams in Chinagenerally follow internationa'practices and are considered to be appropriatefor the proposed project. Nevertheless, order to ensure the safetyof the dam and other hydraulicstructures, an assurancewas obtainedfromthe Borrowerthat it wouldprepare, one year prior to completionof the dam, a satisfactoryprogram for maintenancefor project works;and that the Borrowerand independentexperts would undertakeregular inspecion of the dam and associatedworks and strures, and the SanmenxiaDam and relatedstructures in accordancewith sound engineering practices in order to determinewhether there are any deficienciesin the conditon of structuresor maintenanceor methodsof operationthat may endangertheir soyety.

C. OVERALLCOORDINATION AND MLEMENTATION OF RESETTLEMENT

4.10 Resettlement Coordination. Various agencies and jurisdictions are responsiblefor resetdementimplementation, so good coordinationwill be essential. As owner of the Xiaolangdi Project, YRWHDC will maintain overall supersion and coordinationof resettlementactivities by engaging the services of RPDI and YRCCRO. YRWHDC will not have direct financial control over resettlementbut would monitor progress independently and would audit reports prepared by the local government resetdementagencies.

4.11 MWR has authontyto ensure that guidelinesfor resettlementimplementation are followed. Also, MWR can use this authority to exert indirect control of the - 40 -

disbursementsof project-relatedresettlement funds from the Ministry of Finance to the provinces. In this way, MWR can act upon specificrecommendations from YRCC. The MWR ResettlementOffice has assignedstaff to coordinateand monitorthe implementation of Xiaolangdiresettlement.

4.12 The provincialgovernments of Henanand Shanxihave ultimateauthority for resettlementimplementation and bear the responsibilityfor the welfare of their citizens. The provincialResettlement Bureaus will be responsiblefor coordinatingthe various levels of local government and departments involved with implementation. Once funds are released from the Ministry of Finance, the provincial ResettlementBureaus control the disbursementof resettlementfunds. For this reason, close liaison betweenYRCC/MWR and the provinces must be maintainedon a continuousbasis. This will be one of the responsibilitiesof the YRCCRO.

4.13 The planned resettlement schedule and coordination arrangements are realisticand there is sufficientslack in the systemin the event the schedulefor construction of the dam is acceleratedor if resettlement implementationlags. Notwithstandingthe above, during negotiations assurances were obtained that the Borrower would (a) implementthe ResettlementPlan in a manner acceptableto the Bank, (b) ensure that the coffer dam constructed under the Project is not closed unless the progress of the resettlementprogram under the ResettlementPlan remains in line with the progress of the constructionprogram under the Project, and if the constructionof the dam is progressing faster than the rate of constructionprogress anticipatedin the ResettlementPlan by four months or more, the Borrowershall make revisions in the schedulefor resettlementand construction,satisfactory to the Bank, and (c) ensure that the water level of the dam constructedunder the Project is not pennitted to rise beyond 265 meters before the final details of the resettlementarrangements proposed for those who are to be resettledin the last stage (2010-11)under the ResettlementPlan have beenprovided to, and approvedby, the Bank.

D. OPERATIONSAND MANAGEMENT AND PRoJECr CHARGES

Operations and Managementof the Dam and Power Station

4.14 The organizational arrangements of YRWHDC for dam operation and maintenance (O&M) will be quite different from that for construction. The present YRWHDC will be transformed over a period commencingabout two years prior to completionof the project, to reflect the organizationfor O&M. There will be seven departments: power, dam operation, chief, engineer, environment, etc. (see Annex 8, Chart 3). The Power Division will be responsiblefor power generationand will respond to demands for power from the Central China Power Grid and the Henan and Shanxi Power Grids. It will coordinatewith the Dam OperationDepartment (DOD), which will be responsiblefor the overalloperation of the dam. The Power Departmentwill have 668 staff with seven divisions: operations, power inspection, technical, financial, administrative,etc. (see Chart 3). - 41 .

4.15 DOD will be responsiblefor all aspects of the operationsof the dam, i.e., irrigation, flood control, power and sediment releases. DOD will have four divisions: dam operations,hydraulic structures, inspection, etc. This division will coordinatewith YRCC's Flood Prevention Headquarters(FPH) in the event of major floods and make releases accordingto the requirementsof FPH. DOD will also coordinatewith YRCC's River Bureau for downstreamnirrigation and other releases. The Environmental ManagementDepartment will be responsiblefor all environmentalmatters and its activities will continue even after dam constructionis completed.

Fnancial Aspects and Project Charges

4.16 Project Charges. The Chinese governmentbegan to emphasize pricing policies and financialaccountability in the water conservancysector in the early 1980s. Since the mid-1980s,it has been governmentpolicy that the charges for irrigation water shouldbe high enough to recover all the capitaland O&M costs, while fees for M&I water should be raised to levels ensuring a reasonablereturn for productioninvestments.

4.17 In line with this policy, YRCC increasedits charges on water diverted at the lower reaches of the YellowRiver to a full cost-recovcrylevel in the early 1990s. For the proposed Xiaolangdi Project, an agreementwas signed between YRCC and YRWHDC, under which YRCC would set the water fees at the full cost-recoverylevel, and collect the fees for YRWHDCwith a service charge.

4.18 For power tariffs, a "new powerplant, new price" policy was adoptedin the mid-1980s,under which tariffs for power suppliedby new facilities are allowed to be set at a level ensuring that a reasonablerate of return to assets can be achieved. A policy allowingpeak/off-peak price differentialswas also adoptedduring the same period.

4.19 YRWHDCis controlled by MWR, while tariffs will be approved by the Henan and Shanxi provincialpower and price bureaus. This could complicatethe rate- setting process between the central governmentagencies (YRWHC and MWR) and Shanxiand Henan Provinces. (see Annew5). Thus, an assurancewas obtainedfrom the Borrowerand YRWHDCduring negotiations that beforeApril 30, 1998, a power sals agreement,acceptable to the Bank, willbe enteredinto whichestablishes: (a) the procedurefor initilly sening,and periodicallyadjusting the average tarifffor electricitysupplied by the Projea, to achievea projectedreal financil internalrate of return(FIRR) of no less than 10 percent,on the proportionof theproject capiW and operatingcosts allocatedto power; (b) theprinciplesfor detemining the tariff strucure, that is, theproportions of theaverage tariffthat are derivedfroncapacity charges and energycharges (whichmay also be variabledepending on time of day and season),to ensureefficient dispatch of thepower prodxced by theproject, and reduced financialriskof constrainedsupply de to low-flowhydrological conditions; and - 42 -

(c) the relative responsibilitiesof the Seller, YRWHDC,and the Buyer, Henan and Shanxi Power Bureaus, in operatingthe powerplant and the reservoir, and in dispatchingthe electricityproduced, to maximizebenefits generated by the project within specifledconstraints.

4.20 In addition, assurances were obtainedfrom the Borrower that it would constructtransmission from the high-voltagetenninals of the switchyardto the Shandiand Henan ProvincialGrids and shall do so in sufficienttime to enable transmissionof power as soon as the power station is commissioned.

4.21 With regard to the first provision, the proportion of common costs (dam, reservoir, resettlement,etc.) allocatedto the power unit was agreed by YRWHDCand the Bank at negotiations,using estimatedcosts and benefitsat the date of appraisal, and based on the separable-cost-remaining-benefitscost allocationmethodology.

4.22 The adopted mechanismfor tariff determinationand adjustmentshould as far as possible maintain power tariffs relatively constant in real terms, eliminating the negative impact of inflation, and provide for a good match between cash inflows and outflows. Acceptablemechanisms would include the debt service coverage ratio method or the rate of return on revalued assets method, which are set out in Annex 5.

4.23 FinancialManagement. To increasefinancial incentives and accountability, the government has also greatly decentralized its management system for the water resource sector. Water conservancy institutions were first asked to adopt business managementsystems in the early 1980s. Since the late 1980s, they have been allowedto convert themse:es into publicly owned corporations whenever conditions permit, and become fully responsiblefor their financialperformance according to the enterpriselaw. TIhis trend of decentralizationis further enhanced by recent government decisions to establish a marketeconomic systemin China.

4.24 Against this background, YRWHDCis set up as an independentpublicly owned corporation with financialautonomy and accountabilityas other publicly owned enterprises have according to the Enterprise Law. To further enhance the financial accountabilityof YRWHDC,a profit center (or unit) wouldbe set up for the hydropower operations, and separate cost accounts would be maintainedfor the water supply, and flood/sedimentationcontrol operations. Althoughcross-subsidization is not avoidablefor this multipurposeoperation because of the very different financialcircumstances of the three major operations, separateaccounts will be held for hydropower operations, water supply, flood and sedimentcontrol operations,and combinedoperations of YRWHDCto track the cross-subsidization.

4.25 In addition to the organizationalsetup, the project would further enhance financial management of YRWHDC by facilitating institution building, including (a) training in financial managementfor YRWHDC(see Annex ; and (b) agreements with YRWHDCand the governmenton financialperformance targets that would provide a frameworkfor financialdiscipline (Annex I and pams. 4.26-4.27). - 43 -

4.26 With a view to obtainingeconomic efficiency and promotingprudent financial management,assurances weK obtained during negodatons that financial performanceindices for YRWHDC'spower and water supply operationswill meet the followingrequirements: (a) YRWHDCwould take all measures,including but not limited to tariff adjustments,to ensurethat the internalcash generationfrom its powerunit is sufficientto maintainfor its powerunit, a debtservice coverage ratio of no less than 1.2 times between1999 to 2000, and no less than 1.6 times thereafter; (b) YRWIIDCwould set the waterrate at the levelthat it couldrecover no less than thefill O&Mcosts immediately after commissioning, and recoverfidl costs includingdepreciation by the twelth year of operations;YRWi9DC would also take all necessarymeasures to ensure that the waterfee collectionrate wouldnot be lowerthan 85 percent by the tweffihyear of operations. 4.27 To bufferthe impactof varyinghydrological conditions, an assurancewas also obtainedthat YRWHDCwould maintain a depositaccount in a bank on terns and contions acceptableto theBank of no less than 15 percentof annualcash requirements for operationsand debt servicewould be set up and maintainedwith retainedearnings. No new investmentwould be financed or dividendpaid with retainedearnings when the ratiois lowerthan 15 percent. 4.28 Future Fances. The projecdonsof YRWHDC'sfinances for 1999-2012 are presentedin Annex5, and summarizedin Table4.1 below. Theprojections are based on the assumptionscontained in Annex 5, which include tariff and water charge adjusitmentsneeded to allowYRWHDC to achievethe abovefinancial performance targets and conformto the agreedtariff andwater charge action plan. Underthese assumptions, the corporationwould reach and maintaina strong financialposition shortly after the commissioning.By the year 2015when the long-termdebt is completelypaid off, funds that could be used for new investmentswould be more than Y 7 billion in cumulative terms,assuming no remittancesare paid. 4.29 Actualpower supply will fluctuatesubstantially with changing hydrological conditions.According to theavailable hydrological data, the worstrecorded multiyear dry periodlasted for 12 years. If ftis worst multiyeardry periodoccurs immediately after commissioning,it will cause an averageannual reduction of 35 pent in powergeneration for almostthe entire repaymentperiod. However,even under the worst scenario,pealk power wouldonly be reducedslightly (around S percent);therefore, the extentthat the salesrevenue is reducedwill dependmainly on the price differentialbetween peak and base power. 4.30 Sensitivityanalysis shows that if the tarifffor peakpower is uheetmes ffiat of base power, the reductionof total power revenuewould be 22 percentper annum, - 44 -

Table 4.1: YRWHDC's FtR FNANcES (Y million)

Yeot Ended Dec*bqr 31 1999 2000 2001 2003 2003 2004 2005 2006 2008 2010 2012

En rgy Sales (a}) 0 2.307 3.760 3.947 4.075 4.675 4.847 4.875 4.6)s 5.574 5,574 AveragePrieo (Cfl/lhb) 0 29 30 37 39 40 50 52 5S 55 59 Vatar aupply (Yalua) 0 4,000 4,000 4.000 4.000 4.000 4,000 4,000 4.000 4.000 4.000 Average Price (fou/a) 0.00 2.23 2.73 3.21 3.69 4.18 4.66 5.14 6.11 7.07 7.57 Not S&le* Rsvenuv 0 779 1.202 1.523 1.985 2.041 2.562 2.671 2 986 3.256 3.537 Operating Income 0 245 143 820 1.Z37 1,275 177?7 1.665 2.131 2 330 2,538 Not income 0 (652) (462) (203) 222 309 423 715 975 1.200 1,468 AdjustmentTa a 0 0 0 0 0 0 0 0 0 0 Annal Capitol 9mp*UdItur** 3.616 3.381 914 192 22 22 22 22 22 43 43 Rato Ss. 0 5.405 12.278 14.372 15.058 14 905 14.486 14.074 13.351 12.429 11.6)9 Long-term Debt 6.159 6.n4 6.765 6,507 6,235 5.928 5.580 5.189 4,259 3.099 1,663 Debt Servl^e 0 520 826 1,132 1.173 992 999 1.006 1,019 1,030 1,039 Rate of Return - before icome tea bistorically Valued Aseets (2) 42 42 62 85 92 121 132 162 192 22S Notionally elvalu.d Asst. (2) 42 42 62 8S 62 82 82 92 102 105 Operating Rtio (2) 1472 1642 2172 2662 2672 3252 3302 3482 3542 3602 DebtlDebt+Equity Ratio (2) 332 332 322 302 292 272 262 222 172 II Debt Service Coverage 0.28 0.57 0.66 0.84 1.05 1.34 1.39 1.57 1.71 1.86 Current Ratio 0.23 0.25 0.X4 1.19 2.23 3.09 3.92 5.3" 6.36 7.05 resulting in a 2.1 percent reductionof FIRR for the power unit. The corporation would need to undertakeadditional borrowing for seven years, with a maximumyear-end balance of Y 998 million. Those figureswould be reduced to 1.8 percent, six years, and Y 886 million, if the peak/baseratio increasesto 4:1. However, should the same prices be paid for the peak and base power, the reduction on FIRR would be 3.6 percent, and the additionalborrowing would be needed for 16 years, with a maximumyear-end balanceof Y 1,923 million. This indicatesthe importanceof a proper tariff structurefor managing risk during low-flowyears.

E. DAM SAFETy MONITORNG AND FLOODFoREcAsTING

Dam Safety Monitoring

4.31 An instrumentation system has been designed so that the structural performanceof the dam can be monitoredafter construction. The instrumentationthat will be in place will be prezometers, surface monuments, earth pressure cells, accelerator seismometers,etc. These gauges will completelymonitor all movementsand settlement deflationsto give advance warning of any possible failures in the dam or its appurtenant structures. For momtoring reservoir-inducedearthquakes, a network of telemetenng seismometerstations will be in place at criticallocations around the reservoir.

4.32 An emergencyacton plan has already been prepared and will be in place at the start of construction. The prepartion of the plan was based on large flows generated if there is a very large flood, during constructionof the dam or if there is a coffer dam failure. A coffer dam break analysis was performedto indicate the affected areas downstreamdue to the large floods. All the affected areas will be informed several hours before any such failure occurredthrough sirens via telemeteredsignals. - 45 -

Flood Forecasting

4.33 Flood forecastingis undertak by Flood PreventionHeadquarts (FPH) and YRCC, whichare underthe jurisdictionof the NationalFlood Prevention Hleadquarters and MWR. FPH at differert levels are responsible for executing flood prevention measur"s in light of flood forecastsprepared. At present, communicationsare carried out through NationalTelecommunications Networks, shortwavetransmitters and a system of radio networks. Flood forecastingis performedbased on long-term(7-day) and short-term (3-day) meteorologicalforecasts. The forecasts are initially flood warnings based on meteorologicalforecasts and are confirmed with final flood forecasts based on ground movementsof rainfall (see Annex 11).

F. MONTRING, EVALUATIONAM REPORTING

4.34 YRWHDCand MWR would monitorthe project's progress and would keep a current account of physical and financial progress of each of their respective project components. Physicalindicators would includesuch itemsas civil works (for dam, intake and outflow and power house), equipment and materials to be procured and training undertaken. Financial reports would track project expenditures and claims for disbursementagainst loan proceeds. Infonliationon financialand physicalprogress would be included in semiannualprogress reports, to be prepared by YRWHDC,for submission to the Bank in June and December months each year. In addition, assurances were obtainedduring negotiations that the Borrowerwoudd no laterthan June 30, 1996carry out a mid-termreview with te Bank and YRWHDCof theprogress of andprospecs for project implementation.The final, broad assessmentof the project's impact would be the substance of the Project CompletionReport to be submitted not later than six months followingthe loan closure (June 30, 2001). - 46 -

5. BENEFITS, JUSTMICATION AND RISKS

A. GENERAL

5.1 Benefits. The primarymotivation for the Xiaolangdimultipurpose reservoir project is flood and sediment control. Xiaolangdi reserves 4.1 billion m3 of long-term reservoir storage for major flood control in the wet season, and, in the dry season, 2 billion m 3 for downstream ice management. In the first 20 years of Xiaolangdi's operation, 7.55 billion m3 of coarse sedimentcan be trapped in reservoir dead storage, and, after the reservoir reaches long-run equilibrium, it can be operated so as to pass floods (with the exceptionof major floods) and their sedimentloads, together with all of the sedimentaccumulated during the nonfloodseason, through the reservoir and the lower reach. Secondarybenefits of the prqect are substantial,primarily from power generation and imgation. The annual incremental economic benefits of the project at full developmentinclude $133 millionfor floodcontrol, $58 millionfor sedimentcontrol, $169 million for power generation,and $269 million for improved irrigation.l/ The present value of the economicbenefits of the project, discountedat 12 percent to the present, is $2,056 million.

5.2 There are also significant social and environmentalproject benefits. In particular, flood control will substantiallyreduce the risk of loss of life in the case of a major dike breach. Historical records of large floods, where there was both advance warning and orderly evacuation, suggest that fatality rates of nearly 1 percent of the affected pupulationmight be expected. Approximately103 millionpeople live and work in areas which could be inundated by a major flood combined with a dike failure. Xiaolangdi'scontrol of sedimentdeposition also reduces the risk of dike failure. Finally, Xiaolangdi's operationwill substantiallyreduce the socialand environmentalrisks attendant on uncontrolledflooding and diversionof a substantialportion of the total Yellow River flow over a new course perhaps 800 kn to the sea.

B. PRoJEcr JUSIXCATION

Costs, Prices and Tariffs

5.3 All investmentcosts, includingphysical contingencies,and operation and maintenancecosts have been taken into account in estimatingthe economiccosts of the project (see Annex 3). EconomicO&M costs include: electricity,valued at Y 0.4/kWh, contributedlabor valued at the shadow wage rate, as well as other labor, management,

1/ In consta 1993 dollarsin tbe yeaw2000. - 47 - maintenance,repair, overhauland replacementcosts expressedas economicvalues, see Annex3, para. 57.

5.4 The investmentcosts for the Xiaolangdihydropower plant and the thermal powerplants are basedon shadowprices developed in localstudies. Coal prices are based on the shadowprice at theplant site and include handling and transportationcharges. Fuel price is basedon coal equivalentusing 7,000 kcal/kg. Investmentcosts werecalculated usingstraight line depreciationwith a salvagevalue. 5.5 WorldBank price projections are usedto estimatefarm-gate economic prices in constant1993 terms for tradedinputs and outputs. Economicprices for nontradeables wereestimated using conversion factors are basedon an analysisof the deviationof social opportunitycosts from acual prevailingfinancial prices induced by tax and price distortionsin nontradedgoods on the lowerreaches of the YellowRiver. All economic values were convertedto local currency at a shadowexchange rate of Y 7.5 to $1. Agriculturallabor has been valuedat Y 3.2 per person-day,about two thirds of the averageproject area rural wagerate of Y 5 per person-day. Flood Control Benefrits 5.6 Flood and ice run control along the lower YellowRiver are presently providedthrough a combinationof mainworks-embankment dikes, storagereservoirs, and floodand ice run detentionbasins-and throughregular and coordinated programs of river taining, dikemaintenance and warping. If the storagereservoirs and dikescannot controllarge floodsthat thraten the maindiles, then,as a last resort,excess flood flows wouldbe divertedinto heavilypopuated detentionbasins, so as to controlflooding and avert catastrophicdike breaching. However, inundation of detentionbasins would become prohibitivelyexpensive as the socialand economic damages resulting from flood diversion into theseareas increase over time. As part of the YRCC'scomprehensive flood control program,the Xiaolangdiproject would provide 4.1 billionm 3 of floodstorage capacity, substantiallyreducing flood risks in the 3,172 km2 of detentionbasins, in the 3,544 km2 floodplainareas and in the 125,000km 2 majorprotected area behindthe main dikes(see Map 25533).

5.7 Flood controlbenefits are definedas the reductionin expectedaverage annualflood damage due to operationof the Xiaolangdiproject. Thesebenefits assume that withoutthe XiaolangdiReservoir regular programs of main dike maintenanceand strengthening,ice run control,river trainingand warping will continuein order to prevent underminingand othertypes of dike failure. Further,it is assumedthat the main dikes will be raised, as necessary,to keep up with futureaggradation of the river channeldue to sedimentdeposition. Underlyingestimates of expectedaverage annual damages with and withoutthe projectwere madefor floodplains,detention basins, oilfields, and areas protectedby the main dikes. Damagesinclude personal and publicproperty, and lost agriculturaland industrialproduction. The damageestimates are linked to the flood frequencysimulations through the use of percentagedamage rates for different flood depths and conditionsdeveloped by the YRCC. - 48 -

5.8 Total Flood Control Benefits. The annual incremental flood control benefitsof the Xiaolangdiproject, with allowancefoir futuregrowth of expectedbenefits, are calculatedin constant 1993 prices as $101-122million annually for the first 10 years, rising thereafterat rates of 3 to 5 percent (dependingon type of damage) to reflect future economicgrowth. The total flood control benefits,discounted at 12 percent to the present, are $486 million (Annex3, Table 17).

Sediment Control Benefits

5.9 On average, between 300 and 400 million tons of sediment have been deposited on the riverbed along the lower reacnes every year, resulting in a rise in the riverbedof 8-10 centimetersannually. Underexisting deposition conditions, it is necessary every decade to raise 696 kn of the main dikes at least 1 meter, to strengthen969 km of levees, to raise or strengthen 5,395 spurs in vulnerable sites, and to reconstruct or complete51 channel trainingworks and 439 spurs totaling40.8 km. The total cost of one of these decade-longcomprehensive programs is now estimated,in present costs, to be at least Y 4 billion ($755 million). These costs will increaseover time as the base of the dike is widenedand as the integrity of dike foundationsis threatenedby seepageand salinity as the riverbed rises.

5.10 The direct benefits of sediment reduction are defined as the difference betweencapital and resource expenditureson sedimentmanagement with and without the project. During the first 10 years of Xiaolangdi'soperation, 7.5 billion m3 of coarse sediment,responsible for most of the aggradationin the lower reach, will be stored in the reservoir. In the same period, there will also be some degradationalong the lower reach to Lijin. Eventually,a new equilibriumalluvial channelwill developthrougk the deposited sedimentsin the reservoir that will allow the prevailingflows through the flood season to just transportall of the annual sedimentload through the reservoir with neitherdeposition or erosion, preserving 5.1 billion e 3 of long-term reservoir storage. After Xiaolangdi reservoir reaches equilibrium, deposition along the lower reach will continue but at a slower rate, becausethe flows can be regulatedto increasethe durationof flows favorable to flushing sedimentsthrough the reach.

5.11 An extensiveYRCC measurementand research program has culminatedin a series of physical models of sediment depositionalong the lower reach. Based on projected deposition, maximum safe channel flow capacities, upon which system flood plans depend, were calculatedand used as the basis for estimationof the dike elevations required to maintainthat capacity(as the river aggrades)at 15 cross-sectionsfor the years 2000, 2020 and 2050. The cost of dike raising was determinedparametrically using the detailedquantities estimated for the current dike raisingwork program. Recent review of this work program has confirmed that it is a practical basis for estimating future dike raising needs. The analysis was repeated for 2020 and 2050 with and without Xiaolangdi and the difference betweenthe discountedcash flows was taken as the major component of sedimentmanagement benefits. - 49 -

5.12 Sediment trapping and regulation in Xiaolangdi will result in a sediment reduction time for the design series of 1950-1974of about 25 years, which is repeated givinga 50-year series of joint Sanmenxia-XiaolangdiReservoir operation. The deposition reduction period is defined as the diffe;rercebetween accumulateddeposition with and without Xiaolangdifor the design time series.2/ Over the life of the project (50 years), it will not be necessary to raise the dikes upstream of Huayuankou, the dikes between Huayuankouand Aishan will need to be raised only twice, and the dikes between Aishan and Lijin will need to be raised only four times. Unit labor and machinecost estimates, from YRCC engineering surveys of the 1974-85Third Dike Raising and Strengthening Campaign works, appropriatelyadjusted to reflect differences in dike works above and below Aishan and to 1993 economicprices, were used to estimatethe annual incremental sediment control benefits of this componentof the project./ The compledon of the cofferdam, after project year three, will permit postponement of major dike works downstreambetween year four and the project commissioningdate. Therefore, sediment benefits will accrue downstream during this early period. These benefits are net of expectedflood damagesdownstream.

5.13 Incremental benefits from controlling sediment deposition on the main channel and floodplain are calculated in 1993 prices as $48 million annually between completionof the cofferdamand project commissioning,$58 millionannually for the first decade,$37 millionannually for the second, $16 millionannuaRy for the third, $10 million annually for the fourth and $11.2 million annually thereafter. The net present value of sedimentcontrol benefits,discounted at 12 percent to the start of project, is $188 million (see Annex 3).

Power Generation Benefits

5.14 The economicbenefits of Xiaolangdipower generationare dependenton the nature of plants servingthe power marketinto which Xiaolangdi'soutput is to be fed, the level and pattern of future demand, and, finally, the hydropower characteristics of Xiaolangdiitself. An analysisof the power marketsthat Xiaolangdiwill service, the North and Central China Power Networks, was conductedand load forecasts based on differing assumptionsabout economicgrowth and power demand were derived. Based on these marketand demandfactors, and the design characteristicsof Xiaolangdiitself, economic operatng costs at various dependablecapacity factors were computed. Finally, a joint power generation/irrigationnonlinear optimization model of the Lower Reach, simulating every month of the 56-year design series, was employedto generate power outputs and value added in power generation.

5.15 Existinghydropower developments on the middlereach of the YellowRiver are limited to run-of-riverplants at Sanshenggong(40 MW) and Tianqiao (128 MW) in Inner Mongolia,and Sanmenxia(250 MW)in Shanxi/Henan. The power outputof the two a/ CYJVProject Brief, Volume1T, March 1991 in fte Project File.

31 SadimentContol BenefitsEvauation ( Prject File). - 50 -

daily storage facilitiesis fed into the NorthwestPower Network, while that of Sanmenxia feeds the Central China Power Network (CCPN). Xiaolangdi(1,800 MW installed) is designedto operateas a peakingplant usingonly five of its six units, supplying1,500 MW or 80 percent of power output to the CCPN throughthe Henan grid and 20 percent to the NCPN through the Shanxi grid. The NCPN covers Beijing and Tianjin municipalities, Hebei and Shanxiprovinces and the westernpart of Inner Mongolia. The westernpart of this system is rich in coal reserves, but the loads are mainlyconcentrated in Beijingand Tianjin. This situationgives rise to large mine-mouthcoal-fired power stationsand high- voltage transmissionlines, for example, the Shentouand Datong thermal power plants in Shanxisupply power via a 500 kV transmissionline to Beijingand Tianjin. There are only a few hydro resourceslocated in the servicearea of this grid and hydropoweraccounts for only 4.5 percentof capacityand 1.5 percent of energy. The hydropowerproportion in the CCPN, primarily locatd in the Yangtzebasin, accounts for 40 percent of total capacity and 38 percent of energy. The only Yellow River hydro station feeding into this network is the Sanmenxiapower station. With run-of-riverpower stationsaccounting for half of total capacity, hydro energy outputreduces to half during winter months, which, with very high system load factors, leads to difficultiesin meetingthe load during these months.

5.16 For the decade of the 1990s,generating capacity for the whole of China is conservativelyplanned to grow at about the same rate as the economy. Recent revised economic growth targets (as high as 10 percent) would also require upward revision of power generation targets. For the purposes of this appraisal, demand and capacity expansion forecasts were developed assuming average electricity growth rates of 7 percent and 10 percent. Total power and energydemands and installedcapacities at the generation level, and incrementaldemands over those of 1990 are shown in Table 5.1 for year 2000 and 2005.

Table 3.1: REQuED PowER CAPACrryGRowTH

Canaoitv Increments (MW) North China Grid Central China Grid

To Year 2000 Growth rate 7% 17,874 19,341 Growth rate 10% 29,454 31,872

To Year 2005 Growth rate 7% 32,509 35,178 Growth rate 10% 58,719 63,540

5.17 As presently conceivedXiaolangdi's pool elevationwill be graduallyraised through time and the reservoir operation priorities will be dictated by flood control, sedimentationcontrol and irrigation. In determining the power energy capability of Xiaolangdi(Table 5.2), it was assumedthat each of the six generatingunits could produce a maximumoutput of 300 MW and that from the year 2001 onwardsthe equivalentof one - 51 -

unit would always be out of service for planned maintenance. Xiaolangdiis designedto operate as a pealaingplant and its installed capacity was chosen based on minimum generationof four hours per day in dry monts. This is appropriateconsidering the very low proportion of peakingcapacity in the two power networks.

Table 5.2: PROJECTEDXIAOLANGDI CAPAcffy AN ENERGYPRoDuCTIoN

No. of Dry Year Average Period Units MW GWh 1W GWh

1999-2000 2 398 2,188 561 3,069 2000-2001 4 797 2,296 1,146 3,729 2001-2002 6 996 2,296 1,433 3,884 2002-2008 6 1,399 2,860 1,500 4,773 2008-2011 6 1,500 3,275 1,500 5,376 2011- 6 1,500 3,313 1,500 5,429

5.18 The benefitof electricityis traditionallyvalued on the basis of "willingness- to-pay," which is often computedby adding the average tariff paid by the consumerto the estimatedconsumer surplus. It is appropriateto use "willingness-to-pay"or alternative cost, whicheveris the lower. Chinahas large reservesof low-costcoal, and manufactures low-cost coal-fired generation equipment. In the potential service area of Xiaolangdi, alternativepower generationis limited to coal-firedthermal plants. If it can be shown that the "willingness-to-pay"is higher than the alternativecost of coal-fired generation, the appropriatebenefit measureto use is the cost of coal-fired generation.

5.19 Until 1986, electricitytariffs in China had been generally unchangedsince 1953 and were well below the marginal cost of supply. However, at that time, the Government recognized that large increases in electricity prices would be required to finance electricity system expansion. With this aim, the traditional practice of grant financing was replaced by debt financingof new power plants, and a "new power/new price" policy was formulated. This providedthat all consumptionabove 1985levels would be priced at higher levels, computed so as to permit new plants to repay debt. Since electricityconsumption has almost doubled since 1985, and demand is still constrainedby supply, there is ample evidence that, at the margin, consumers are willing to pay the higher price. In the NC and CC grids whereadditions have been largelycoal-fired plants, and where demandis particularlyconstrained, a "willingness-to-pay"tariff based on coal fired generationcosts is amply demonstrated. An even higher "Huaneng"price is being paid for power from a number of coal plants financed by export credits with short maturitiescommissioned in the late 1980s. It is reasonableto concludethat "willingness- to-pay" exceeds the alternativecost of supply based on coal-firedgeneration.

5.20 Generationcosts for coal plant at various capacity factors were calculated based on assumptionsconceming economic costs and plant characteristicsas shown in - 52 -

Annex 3. The optionsconsidered as candidatesfor supplyingthe load are coal-firedplant (unit sizes of 200 MW, 300 MW, 350 MW and 600 MW), 100 MW combustionturbines, a pumped storage plant (4 x 300 MW) at Bao Quan with the first two units coming into servicein 2001 and Xiaolangdi(5 x 300 MW) with the first two units coming into service in 1999.41 Because Xiaolangdi is designed with a capacity factor of 17 percent, it is appropriate to use the correspondingvalues derived from these assumptions for firm energy, that is, 51.7 fen/kWh. This installedcapacity is fully supportedby firm energy, therefore, the only value of secondary energy is the avoidance of thermal generation, valued at the variable generationcost of 3.95 fenlkWh.

5.21 In the Lower ReachModel (LRM),developed under the recent YellowRiver Basin Investment Planning Study (Report No. 11146-CHA), the power generating capabilities of Xiaolangdi and Sanmenxiaand the operation of lower reach irigation systems are jointly optimized. For both reservoirs, energy output is computed as a nonlinear function of two endogenousvariables, flow and head. Flow through the powerhouse is limited to maximum discharge capacity of 1,575 m3/s. Head is the differencebetween pool elevation, a functionof storage, and tailwaterelevation, a function of discharge, less a hydraulic efficiency factor. Given the design of Xiaolangdi for peaking and the very low proportion of peaking capacity in the gnds serviced by Xiaolangdi,firm power outputof Xiaolangdiwas limited to four hours per day. The LRM was run with a monthlytime-step, optimized on an annualbasis, for the full 56-year design series (1919-74),in which Xiaolangdiis modeledgiven an elevation storage relationship based on long-termeffective storage of 5.1 billion i 3.

5.22 Total Power GenerationBenefits. The total power generationbenefits of the Xiaolangdireservoir at filll developmentare computed to be $169 million annually. Power generationbenefits for the initial stages of the project were interpolatedgiven the power characteristicsof Xiaolangdias discussedabove. Discountedat 12 percent to the present, the present value of these benefitsis $483 million.

IrrigationBenefits

5.23 Approximately40 million mu (2.67 million ha) of physical area will be irrigable from Lower Yellow River sources by 2000-nearly double the current figure. About 2.0 million ha directly benefit from the regulated supply from the dam. Already, seasonalshortages appear in the drier years which adverselyaffect the yieldsof the major crops of wheat, corn, and cotton. In addition, shortagesof Yellow River water have inducedinvestments in privatetubewells which, in someareas of the lower reach, have led to seriousgroundwater mining. Projectionsmade to the year 2000 and beyondhave shown that water shortages will be severe given the planned level of irrigation development, particularlyin the absenceof Xiaolangdi. These shortageswill be most acute in the spring and early summer monthswhen wheatis ripeningand corn and cotton are being planted.

&4 Therml unitdata (opeatingdhacteisics andcosts) are presented in the YRCC/CYJVProject Bnef, Ref. A.l. VolumeM Annex 12. Th costd was adjustedtn rflect 1993 prices. - 53 -

5.24 Xiaolangdiwill alleviatethis situationthrough its ability to store and divert 2.7 billion m3 of water for irrigation on average, a 29 percent increase over projected availabilityin 2000. More importantly,this water will be availablein the criticallyshort spring and early summerperiod. Averagecrop yields in Henan and Shandongprovinces will therefore increasebetween 6 and 22 percent, and all of the projectedirrigable area can be served in all but the driest years on record. Grain productionwill increase by 1.03 million tons per annum, and cotton productionby about 58,000 tons. The annual gross value of this additionalproduction, at border prices, is $276 million.

5.25 Part (200 millioni 3) of the increaseddiversions due to Xiaolangdimay be used to displace more costly use of groundwater, giving rise to additional benefits. Equally important, Xiaolangdiwill permit future groundwateruse to be kept below levels of natural recharge of the aquifer, implying that irrigation with the project will be sustainable.

5.26 After taking into accountincreases in costs, includingthose connectedwith desiltation of increased diversions, annual economic benefits will be $257 million beginningin the year 2000. With the completionof ongoingand plannedirrigation system rehabilitationworks, and expected nonproject dependentimprovements in productivity, annual benefits will increase to $287 million by 2020. Discountedat 12 percent to the present, the present value of these benefits is $899 million.

5.27 The above benefitswere computedwith the assistance of the LRM, which jointly optimized irrigationand power benefits over the 56 years of available hydrologic data. Thus, the results are fully consistent with the energy outputs described above. Furthermore, the model enforcedthe high-priorityM&I diversionsin all months and all years, and, where possible, providedfor continuousminimum flows to the sea of 50 nd/s for preservationof the estuary environmentand fish spawninggrounds. This flow was interruptedin about 1 in 11 years, but the with Xiaolangdicase neverthelessrepresents a vast, but unquantifiable,improvement in these concernsover the withoutproject scenario.

5.28 Sensitivityanalyses were performed on a variety of data and assumptions required for the estimationof irrigationbenefits. The results are most sensitive to price and yield projections; a 10 percent shortfall in either will lead to approximatelya 0.8 percent drop in EIRR. The results are less sensitiveto the projectionsof canal system efficiencygains, lower reach inflows, and demandsfrom the energy sector for additional peaking capacity.

5.29 Employment. Construction of project works would generate 320,000 person-years of employmentduring the seven-year project period. Of this, 300,000 person-yearswill be employeddirectly or indirectly on the actual dam works in Henan, and 20,000 person-yearson intake structuresand silt basin constructionfor YellowRiver diversions in Henan and Shandong. Specializedlabor needs during project construction include: 10,000 person-yearsfor equipment operation, managementand maintenance. After the project is completed, 1,600 person-yearsof employmentwill be newly created - 54 -

for operationand maintenanceof hydraulicstructures, Xiaolangdi's power generation,and basin-wideYellow River water resource coordinationand management.

5.30 Incomes. Project investments would increase labor productivity and incomes of project farmers, farmers with incomesonly 61 percent of the national rural average and only 58 percent of the provincial rural averages in Henan and Shandong, Annex 3.51 To estimate increases in family income, farm models were developedfor several representativeYellow River irrigation areas, Annex 3. By the year 2000, the project would increase annual farm householdincomes (of 4.5 million households)by 33 percent in Henan, from $322 to $429, and by 12 percent in Shandong,from $483 to $539. By 2020, conservativeyield increaseswould improvefarm incomes39 percentover the withoutcase in Henan, to $449, and 20 percentin Shandong,to $578. Averagereturns per person-day would improve from Y 9.3 to Y 12.4 (in 2000 and to Y 13 in 2020) in Henan, and from Y 16.1 to Y 18 (and Y 19.3 in 2020) in Shandong.

C. ECONOMICEVALUATION

5.31 Projectinvestment, incremental operation and managementcost streams, and benefit streams are presentedin Annex 3, Table 17. Based on the assumptionscontained in these cost and benefitstreams, and a 56-yearperiod of analysis,the EIRR of the project is estimatedat 17.9 percent. Its net present value discountedat 12 percent (to 1993) is $875 million. Improved irrigation generates 43.1 percent of these benefits; sediment control, 9.1 percent; flood control, 23.6 percent; and power, 23.5 percent. These returns are in spite of relativelydifficult to measureprimary flood and sedimentcontrol benefits, and exclude any attempt to quantify the value of lives which might be lost in a major flood. The project is not rendered unprofitable by significant changes in costs and benefits: irrigationbenefits will need to be 57 percent lower than estimatedor incremental costs more than 80 percent higher before the EIRR will fall to 12 percent.

D. PRoJEcr RISKS

5.32 The major economic risks associated with the project are related to: (a) construction risk; (b) cost overruns; (c) inappropriate reservoir operation and management; (d) disastrous flooding or hyper-concentrated flows; (e) delays in commissioningof power units; (f) inadequatedike and offtake maintenanceprograms, resulting in failure to achieve the crop yields assumed for 2000; and (g) delays in resettlement, thereby delaying project implementation. Constructionrisks are within reasonablelimits and would be manageablewith continuoussupervision by foreign and Chinese consultantsand internationalpanels who have been retained for the construction phase. Cost overruns have been minimizedby incorporatingactual bids for the three major civil works lots, accountingfor over 65 percent of the cost estimate. In any event, as discussed above, the economic benefits of the project are relatively robust to large changes in costs and benefits. Chinese water resourceengineers and managershave had

S/ The 1992 rur per capita incomein Henan was $86, in Shandong$119 and the nationalaverage was $113. - 55 - considerbleeerience with the survey,design, construction, operation and management of largeresrvoirs on the YellowRiver, subject to heavyflooding and hyper-concentrated flows. In all aspectsof the appraisedwork, the tremendouscare and cautionof Chinese water resourceengimers and managerswith respectto flood and sedimentcontrol is pronounced.The likelihoodof egregiouserrors in reservoiroperation and management or dike or offtakeoperation and managementin the faceof large floodingand/or hyper- concentratedflows is minimal. he operationof the reservoirwill drasicallylessen the possibilityof disastrousflooding. A two-yeardelay in the startof constructionwfll reduce grosspower benefitsby 20 percent;however, delays would also postponeproject costs. Extensionof the constructionschedule by as muchas two yearsonly reducesgross power benefitsby ll.S percent, which reducestotal benefitsby 2.5 percent. To minimize potentialrisks associated with the executionof the prqjectand its assodatedresettlement program,assurances were obtained from GOC under the XiaolangdiResettlement Project that it wouldensure an adequateand timelyflow of funds,and establishand maintain effectiveproject implementation management and detailed independent monitoring. Table 5.3 summarizesthe sendtivityanalysis for thoseriss that can be quantified.

Table 5.3: SENsnw ANALYSS

Dis- Dis- Switch- counted counted Benefits/ ing Item Risk benefits costs costs EIRR value mln) ($ mln) (2) (2)

Base case 2,056 1,181 1.74 17.9 Agriculturalprices -102 1,912 1,181 1.62 17.0 57 Crop yields -102 1,912 1,181 1.62 17.0 57 Delays in construc- tion I /a n.a. 1,840 1,181 1.55 16.1 - Delays in construc- tion II .b n.a. 2,004 1,181 1.70 17.5 - Cost overrun +102 2,056 1,290 1.59 16.8 80 Cost overrun +20S 2,056 1,399 1.48 15.9 80 la All proect benefitsdelayed one year, cost schedulemaintained. & Powerbenefits delayed one year, cost schedulemaintained. - 56 -

6. AGREEMEN1S AND RECOMMENDATION

6.1 The followingagreements were obtainedat negotiationsthat:

(a) the Borrower would:

(i) carry out training and technicalassistance under this componentin accordancewith a program satisfactoryto the Bank (para. 3.25);

(ii) onlend the proceedsof the Bank loan (otherthan for the Institutional Support Program for MWR) to YRWHDC,under a subsidiaryloan agreementwith a 20-year term, including7 years of grace and level principalpayments, and the standardvariable interest rate for Bank loans. YRWHDCwould bear the commitmentcharges and foreign exchangerisk (para. 3.32);

(iii) take all steps necessary to ensure that YRCC, Shanxi and Henan Provincescarry out their respectiveparts of the EMP (para. 3.42);

(iv) maintainits central projectcoordinating group and cause the Project Provinces to maintain their respective project leading groups and project offices with composition, responsibilities and functions acceptableto the Bank [para. 4.2(b)];

(v) prepare, one year prior to completion of the dam, a satisfactory program for maintenancefor project works; and that the Borrower and independentexperts would undertakeregular inspectionof the dam and associatedworks and structures, and the SanmenxiaDam and related strucures in accordancewith soundengineering practices in order to determine whether there are any deficiencies in the conditionof structuresor maintenanceor methodsof operationthat may endanger their safety (para. 4.9);

(vi) (a) implementthe ResettlementPlan in a manner acceptable to the Bank; (b) ensure that the coffer dam constructed utder the Project is not closed unless the progress of the resettlementprogram under the Resettlement Plan remains in line with the progress of the constructionprogram under the Project, and if the constructionof the dam is progressingfaster than the rate of constructionprogress anticipatedin the ResettlementPlan by four months or more, the Borrower shall make revisions in the schedulefor resettlementand - 57 -

construction,satisfactory to the Bank-,and (c) ensurethat the water level of the dam constructedunder the Projectis not permittedto rise beyond265 metersbefore the final detailsof the rsettement arrangementsproposed for thosewho are to be resettledin the last stage(2010-11) under the ResettlementPlan havebeen provided to, and approvedby, the Bank(para. 4.13); (vii) constructthe transmissionlines fromthe high-voltageterminals of the switchyardof the project to the Shanxiand HenanProvincial Gridsand shall do so in sufficienttime to enabletransmission of power as soonas the powerstation is commissioned(para. 4.20); and (viii) no later than June 30, 1996carry out a mid-termreview with the Bank and YRWHDCof the progressof and prospectsfor project implementation(para. 4.34).

(b) YRWHDCwould: (i) carry out trainingand technicalassistance under this componentin accordancewith a programsatisfactory to the Bank(para. 3.24); (i) submitto the Bankby December15 of eachyear the financingplan and the proposedimplementation program for the next year as approvedby GOC(par. 3.30); (iii) continueto employan internationalpanel of independentxexrts to reviewand makerecommendations in respectof the EMP; maintain its EMO with competentstaff in adequate numbersand with responsibilitiesand functionsacceptable to the Bank to manage, coordinateand monitorthe implementation of the EMP;ensure that atl activitiesunder the Project comply with environmental standards and guidelinessatisfactory to the Bank,including those relatingto dam safety, the preservationof archaeologicalrelics and public healthand diseasecontrol; that al necessarymeasures are takento mitigateadverse environmental impacts caused by the construction; and that the EMP is implementedin a timelymanner. In addition, all detailedaction plans to be developedunder the EMP are to be furnishedto the environmentalpanel and to the Bank for review three monthsbefore being implemented (pam. 3.42); (iv) maintainseparate accounts for theproject and that the audited project accounts,statements of expenditures,and financialstatements of YRWHDCwould be furnishedto the Bankwithin six monthsafter the end of each fiscalyear (para. 3.55); - 58 -

(v) maintain its project managementoffice with competent staff with adequatenumbers and responsibilitiesand functions satisfactory to the Bank (para. 4.3);

(vi) continueto employ DSP, independentof the designersof the project, who will conduct periodic reviews of designs and technical specifications,will adviseon unforeseenproblems that arise during project implementation,and YRWHDCwould report their findings to the Bank and Borrower (pan. 4.7);

(vii) maintainfinancial performance indices for YRWHDC'spower and water supplyoperations to meet the followingrequirements: (a) take all measures, including but not limited to tariff adjustments, to ensure that the internal cash generation from its power unit is sufficientto maintain for its power unit, a debt service coverage ratio of no less than 1.2 times in 2000, and no less than 1.6 times thereafter,and 0b)set the water rate at the level that it could recover no less than the full O&M costs immediatelyafter commissioning, and recover full costs includingdepreciation by the twelfth year of operations; and also take all necessary measures to ensure that the water fee collectionrate would not be lower than 85 percent by the twelfth year of operations[para. 4.26(a)(b)];and

(viii) maintain a deposit account in a bank on terms and conditions acceptable to the Bank of no less than 15 percent of annual cash requirementsfor operationsand debt service would be set up and maintained with retained earnings. No new investmentwould be fmanced or dividend paid with retained earnings when the ratio is lower than 15 percent (pan. 4.27).

(c) the Borrower and YRWHDCwould:

(i) ensure that YRWHDCenter into a power sales agreement, before April 30, 1998, acceptableto the Bank, which establishes: (a) the procedure for initiallysetting, and periodicallyadjusting the average tariff for elecricity suppliedby the Project, to achieve a projected real financialrate of return (FMR) of no less than 10 percent, on the proportion of the project capital and operating costs allocated to power; (b) the principlesfor determiningthe tariff structure, that is, the proportionsof the average tariff that are derived from capacity charges and energy charges (which may also be variable depending on time of day and season),to ensure efficientdispatch of the power produced by the project, and reduced financial nsk of constrained supply due to low-flowhydrological conditions; and (c) the relative responsibilitiesof the Seller, YRWHDC,and the Buyer, Henan and Shanxi Power Bureaus, in operating the power plant and the - 59 -

rservoir, and in dispat ing the electricityproduced, to maximize benefitsgenerated by the projectwithin specified constraints [pam 4.19(a)(b)(cJ.

6.2 There ethre conditionsof loaneffectiveness: (a) aproval of the Loan Agreementby the Bonrower'sState Council, (b) executionof the SubsidiaryLoan Agreementon behalfof the Borrowerand YRWHDC;and (c)cros effectivenesswith the DevelopmentCredit Agreement for the XiaolangdiResettlement Project. 6.3 Subjectto the above, the proposedproject would be suitablefor a loan of $460 millionto the People'sRepublic of China. The loan would be for a term of 20 years,including a graceperiod of 7 years,at the Bank'sstandard variable interest rate and with levelpnncipal repayments. - 61- ANNEXI

MAIN INDlCES OF THE XIAOLANGDIPROJECT

Item Unit Amount

A. Uyd14wlgy

Total YellowRiver basin kIu2 795,000 Drainagearea, upstreamof Xiaolangdi kM2 694,155 Mean annual runoff 109in 42.32 Long-termaverage flow m3/s 1,342

Flood volumes: observedmax., 12 days l0'm3 9.19 desigp, 12 days 10' n3 13.90 check, 12 days 10, m 17.20

Natural waw levels: recorded lowest (Feb. 2, 1961) m 133.44 recorded ghest (July 17, 1958) m 144.88 historic highest(August 1843) m 150.9

B. Flood discharueat XTAOLANODI

50 year before reguation m 23,600 after regulationby Sanmeuxia m3/s 17,960 3 after regulation by Sanmexia and Xiaolangdi m 1s 9,910

100 year. before regulation m3/s 27,500 after regulation by Sanmexia m3/s 19,410 after replation by Sanminexiaand Xiaolungdi m13/ 9,860

1,000 year before regulation m3/s 40,000 after regulationby Sanenxia m 3 /s 28,000 after regulon by S_ienia and Xiaolangdi m3/s 13,480

10,000year. before regulation m318 52,300 3 after regulation by Sanenxia m 1s 37,600 after regulationby Sameaxia and Xiaolangdi le/s 13,990

Recorded max.(July 17, 1958) m'Is 17,000 }istoric max.(August, 1843) m"is 32,500 - 62 - ANNEX 1

Item Unit Amount

B. Flood disarVe at (cont'd)

Design: before regulation m/8 40,000 after regulationby Sanexia m 28,000 aftr regulationby Sanmeaxiaand Xisolangdi rs 13,480

Check: before regulation mi/I 52,300 after regulaton by Sanmexia and Xiaolangdi m3/s 13,990

Total dischargecapacity at FSL of alUoutlet wois, excludingpower tnnels, inlding emrgency apillway mI/s 20,310

Maimum disharge during flooddorage level mNs 17,000 Maximumdischarge during design flood level mI/8 13,360 Maximumdischarge duing check flood level n3I/S 13,570 Maximumdischarge during normal dead level m3 s 8,758 Maximumdischarge during abnoml dead level m/8s 8,032 Mamum dischargefor power generation m3 s 1,560

C. Re" noir prmei

Max. water level m 275 Cbeck flood water level m 273 Deign flood water level m 272.3 Min. water level m 230 Extrememin. water level m 220

Area at water level km2 272.3 Length km 128 Lengthof shorelineat water level 275 km 950

Storagecapacity: at FSL, EL 275 10' l 3 12.65 for flood control 109m1 4.05 for sedimentmanagement 10'm3 1.05 for ice control 10 m3 2.0

Sedimentdeposition 109no 7.55

D. Sime

Meanannual volume 10 t 1,594 Mean content kg/w? 37 Recordedmax. content(August 7, 1977) kg/m? 941 - 63 - ANNEX I

Item Unit Amount

E. Dam and pOwersaion

Dampsamtes: type zoned earth and rockfif with sloping,impervous core foundation sand and gravel daluvium,maximum depth 70 m crest elevadon m 281 cast width m 1S dam width at FSL, EL 275 m 41.1 cret length m 1 317 max. height of dam (ibove foundation)l m 154 snkruJoceatupstnam dopes. 2.0 H : I V (aboveEL 274.33) 2.6 H : 1 V (beow EL 274.33) embankmentsldopes,downstrem 1.5 H : 1 V (above EL 268.72) 1.75 H : 1 V (belowEL 268.72) volumeof dam lo, me 48.5 feeuboad m 6

Flood -and sedimenttwmels:

Onfice tunnels: using closelyspaced orifices as energy dissipationdevices number nos. 3 shpe circuar ED: 14.5 m length m 1 100+/- invert elevation: upstrem EL 175, downstem EL 129.0 and 138.5 max.capacityat FSL 1 632 + 2 x 1 580 = 4 792 m3/s

Free flow tunnels: number nos. 3 6hape city gate width m 10 height m 11.5 - 13.5 length m 1 000+/- invert elevation usream EL 195, 209, and 225, downsteam EL 152.13, 173.79and 175 max.capacityat FSL 2 680 + 1 973 + 1 796 = 6 449 m3Is

Sedimenttunnels: pressmetunels with reinfored and pressd concretelinings Mber nos. 3 shape circula ID : 6.5 m lengh m 1 000+/- invert elevation: upseam EL 175.0, downtrm EL 148.0 max.capacityat FSL 3 x 675 = 2 025 m3/%

Service spillway:chute type

width m 28 war crest EL 258.0 length m 932 max. capacity m11/8 3,764 -64-

Item Unit Amount

E. Daamand power staion (cont'd)

Emergencyspillway: weir, closedoff by rockfllldam with impetviouscore.In case of emergency,the dam would be breached. width m 100 weir crest 268 m, top elevationof dam EL 280.0 m max. capacityat FSL ruNs 3,000

Intake towers: number nos. 10 free standingheight of the towers above the substructure m 53 total height includingsubstructure m 112

Plunge pool: One concrete-linedplunge pool to serve ali flood- and sedimnt tumnelsas well as the seriice spillway.Pool is divided into tIhreecells by two concretewalls. Max. depth of pool 25.2 m .

Power tunnels: pressure tunnelswith reinforcedconcrete lings number nos. 6 shpe circular D: 7.8 m length m 375 invert elevationof intakes 2 at EL 190, 4 at El 195

Penstocks: steel lined, encased in rock number nos. 6 shape circular ID : 7.8 m

Powerhouse: underground,160m x 26.2m. Tie six geneating units spced at 26.Sm. One servicebay, 59m long.

Draft tube tunnels: reinforcedconcrete number n 6 shape rectagular, 9.S x 7 m changingto 9.5 x 13.5 m

Tailracetunnels and channels: reinforcedconcrte number nos. 3 shape city gate 12 m x 19.6 m

Sedimentgate at dischargeof tairace: number nos. 6 openings 11.S m x 14 m elevationof sills EL 130

Switchyard: conventional,outdoor, 220 IV. Overhed ciruits connectthe switchyad to six 220 kV and one 500 kV power tansmission lines. cti~~~~~~~~~~~~~~~~~~~~~i

4 g ~~~i I.a {t01[[[

a t [v i-s X a A

0N " N0| ff ffi|8": tt t Sfi 9 Net W°m tf i -66- ANN I

Item Unit Amount

G. Civil Works Ouantities

Approximate quantities for major civil construction items: dam, rockflhl 10' iM 35.8 dam, impervious material 10'om 9.3 dam, filters 10' no 2.S open earth excavation 105 Mn 15.2 open rock excavation 10', in 13.1 underground excavation, tunel 10' no 2.7 underground excavation, power facilities 10' no 2.S2 concrets 10' Mn 2.8 pressed concrete Mn 37,000 shotueb MP 174,000 grouting, consolidation m 260,000 grouting, cutain m 260,000 steel reinforcement t 180,000 Peoples Republic of China Xiaolangdi Multipurpose Project -- Phase 1 & 2 (1994-2002) Project Components by Year (US$ Million)

same Cloak _1993 192L 19L 2996 1997 1998 _219 i 20i 7002 Total

A. DaM a Power Station 1. Major Civil Works a. Main Dam - Lot 1 - 2.65 42.63 42.72 S5.08 37.68 40.09 43.11 40.23 11.14 315.3S b. 'ntake Structures, Tunnels & Spillway - Lot 2 - 19.05 90.09 89.06 94.17 51.75 48.56 48.99 54.00 - 495.66 c. Power Pacilities - Lot 3 - 3.32 '9-.2 30.21 4..46-5 32.21 9 qa 0.78 -3 1.47S Subtotal Major Civil Works 25.02 151.92 161.99 195.79 121.65 98.17 92.87 99.98 11.14 958.S4 2. Minor Civil Works a. Site Preparation Works 93.36 40.01 ------133.37 b. Civil Works by Local Contractors ... A3 2..5S -..7 itl1.t 2.?29 13.35 0.1j 10- 10-96 0.44 146.. Subtotal Minor Civil Works 143.75 63.56 5.97 11.18 20.29 13.35 0.10 10.61 10.96 0.44 280.20 3* Mecbenic Works a. Mechanic Plant/Gates - - 1.17 49.26 11.57 35.07 30.28 28.96 3.92 - 160.22 b. Installation of Mechanic Plant - - - -_ oA.ss 0 64 0.64 0.6..0 26 2. 72 8ubtotal Mechanic Works - - 1.17 49.26 11.S7 35.62 30.92 29.60 4.55 0.26 162.94 4. Electric Works a. Blectric Plant/Generators - - 21.40 20.69 5.88 27.58 29.35 20.96 5.37 - 131.23 b. Installation of Blectric Plant - - _ o-----0.04 . i 0.49 .__ ..12 0.47L2 ------7 Subtotal Bledtric Works - .. 2 .4a 20.69 S."L 28.07 2A 8. __.1_1 5A4 - 13..,20 Subtotal Dom a Power Btation 143.75 88.58 180.46 243.12 233.57 198.69 1S9.03 154.52 121.34 11.84 1,534.89 B. Admimistration/MEgin ering 1. Office/Design Rquipment /a - 0.38 0.77 0.17 - - - - 1.92 2. Vehicles /b - 0.ss 1.09 1.09 ------2.74 3. Consultancy Services 0.12 3.21 3.80 2.91 3.03 2.53 1.SS 1.17 1.17 - 19.50 4. Contract Management/Site Supervision 2.80 8.40 9.40 7.40 7.40 7.40 7.40 7.40 6.40 1.80 65.82 5. Training 0..2Q 0.23 0.24 _ 0.26 0.. A o o . gj. o 0 6 - - C1 Subtotal Adnmiastration/Kegineering 3.13 12.78 15.31 12.43 10.51 10.06 9.06 8.64 7.57 1.80 91.29 Ch C. Institutional Support - 0.54 1.09 1.09 _ _ _ 2.72 D. Environment Management 2. Environment Management - 1.21 1.47 1.19 0.87 0.46 0.46 0.32 0.65 - 6.63

3. Environment Monitoritag - - 0.7 I....s.A.. LAI 9 1..3.. .270 0.27 - Subtotal Eavironment Mbnagemet e. -_ 2 U .L2a 354 2.26 . * c 1 8. 0 59 0J2 18- 77 Total EAsELIME COSTS 146.87 104.08 202.13 260.48 246.34 210.60 169.94 163.74 129.83 13.65 1,647.66 Physical Contingencies 8.94 8.41 21.80 28.36 27.57 22.90 17.42 17.06 13.93 1.17 167.54 Price Contingencies Inflation Local 8.05 17.96 42.23 70.31 85.05 89.41 75.20 90.75 84.95 10.32 574.23 Foreign 0.00 0.,2 5.98 12J7 ___16.S2 17.15J 18.1.49.. 17.11 1 AL 109S45 Subtotal Inflation 8.05 18.48 48.22 83.28 101.58 106.55 93.35 109.97 102.06 12.15 683.68 Doevaluation -7.68 -16.08 -36.18 -58.85 -70.00 -72.75 -60.58 -73.16 -68.S3 -8.26 -472.08 Subtotal Price Contingencies 0..7 _ 2.4s 12.04 __.a_4a 31.LSa 3ASO 32.77 .. L 8 . 33.s2 3A. 9 211.6 Total PROJECT COSTS 156.18 114.89 235.97 313.26 305.48 267.31 220.13 217.61 177.29 18.70 2,026.81

Taxes 7.80 5.79 11.52 15.22 14.90 12.86 10.?1 10.51 8.64 0.97 98.93 Foreign Exchange 0.28 24.02 116.33 164.93 1S8.66 134.27 121.17 112.69 89.S7 8.75 930.97

\e including otfice equipment for YRCC \b including vehicles tox TRCC and XBCC

Fri Mar 25 13809,05 1994 1tCp

1-1 Project components by Year Peoples Republic of China Xiaolangdi Wultipurpose Pr"eat -- PDbae I 4 2 (1994-2002) Proleot ceemDto by *aer (U86 Million)

tala includina Connti.ngeias 1992 _199 192L 199S 1997 -1L9 1t49 900, 20fl1 _ 2002 Tota

a. DS a Pover Staticn 1. major Civil works a. Main Dam - 1ot 1 - 2.93 48.54 50.08 66.41 46.66 50.92 56.13 53.67 15.22 390.55 b. Intake Structures, Tunnels SSpillway - Lot 2 - 21.81 106.37 108.26 117.13 '(.45 63.97 66.15 74.69 - 625.43 c. Power Pacilities - Lot 3 - 3.80 72,26 36.72 sa.'9 41.JI 192fi4 1 gc 7.2S _ 14.29 Subtotal major Civil Works - 28.54 117.59 195.06 242.32 154.46 127.43 123.32 136.32 15.22 1,200.26 2. hlnor Civil Works a. Site Preparation Works 99.20 43.30 ------142.50 b. Civil Works by Local Contractors S3.s3 25.66 7.20 13.s9 2f.i9Z 17.49 ol .... 4t59 .S.42 .64 1.4.49 Subtotal Minor Civil Works 152.73 68.96 7.20 13.90 25.91 17.49 0.13 14.59 1S.42 0.64 316.98 3. X Mchanic Works a. mechanic Plant/fatet - - 1.38 59.04 14.36 44.40 39.20 38.41 5.33 202.12 P. Installation of Mechanic Plant .- - - . 0- a 0.as a7 40-j6 3-62 subtotal e^bcanic Works - - 1.38 59.04 14.36 45.11 40.04 39.26 6.20 0.36 205.75 4. Electric orbks a. Electric Plant/Gonerattors - - 24.77 24.63 7.21 34.68 37.85 27.66 7.27 - 164.07 b. Installation of Electric Plant . . _- -. .o s 0 . 4 .. 0...,67 0..h ... 6 Subtotal Electric Works - - 4.277 24.S3 4s3,326 40 .. .4. 2. 28 149 - 166.6_ Subtotal Dam a Power Station 152.73 97.50 220.93 292.64 289.06 252.35 206.08 205.46 165.84 26.22 2,889.62 B. Adminietration/Eaginaeriag 1. Office/Design Equipment /a - 0.43 0.89 0.92 - - - 2.24 2, Vehicles /b - 0.61 1.27 1.31 - - - 3.19 3, Consultancy Services 0.14 3.61 4.41 3.47 3.72 3.20 2.00 1.SS 1.S9 - 23.69 4. Contract Management/Site Supervision 3.09 9.44 10.88 8.80 9.04 9.27 9.S0 9.73 8.62 2.48 8O.S0

S. Training 0.22 0.26 0.27 _ .. 0.. 0 oo09 16 .e o,,oq - Subtotal Administration/Ungineering 3.45 14.35 17.72 14.81 12.86 12.63 11.66 11.37 10.20 2.48 111.53 0\ C. Institutional Support - 0.58 1.20 1.23 - - - - 3.01 D. Eaviroment Mbnegecrt 2. Snvironment Management - 1.36 1.70 1.42 1.06 0.s7 O.S9 0.43 0.88 - 8.00 3. Environment Monitoring . 1.09 4___A2. 3 J6 ',72 1.76 .... ao..0.flf.. - 9.C_ Sfbtotal Enviroment management - 245 ... 4ss.5A 2.77 2.331 . 0,Q 7B . 1 - 22_6 Total PROoMCT COSTS 156.18 114.89 235.97 313.26 305.48 267.31 220.13 217.61 177.29 18.70 2,026.81

\a including office equipment for YRCC \b including vehicles for YRCC and XBCC

Pri Mar 25 12z09t45 1994

2-1 Peoject C_onents by Tear Peoples Republic of China Xiaolangdi Multipurpose Project -- Phase 1 & 2 (1994-2002) Table 1. Main Dam - Lot I Detailed Costs (US$Million)

Irntal Includina Contingenclea 1991 -22isi 199 _1S96_ 99 _1L1299 2191 0 02t Total

X. Investment Costs A. Mobilization/Demobilization - - 17.13 ------1S.22 32.35 S. River Diveraion & Care of Water - - 0.70 0.72 0.74 0.76 - - - - 2.93 C. Excavation - - 4.16 3.33 3.S7 3.14 4.80 5.29 5.42 - 29.70 D. Jet Grouting - - - - 2.97 - - - - - 2.97 B. Poundation Preparation/AccessRoad No. 1S - - 0.10 0.16 0.17 0.15 0.23 0.2S 0.26 - 1.32 P. Drilling, Grouting & Drainage - - - 2.27 2.43 2.14 3.27 3.60 - - 13.71 0. Embankment Pilling - - 11.42 27.44 29.43 2S.88 39.51 43.55 44.61 - 221.85 R. Concrete Cut-off Wall - - - - - 6.61 - - - - 6.61 I. Concrete, Formwork & Reinforcement - - - 0.62 0.67 0.59 0.90 0.99 1.01 - 4.78 .V. Shotcrete - - 0.10 0.08 0.09 0.08 0.12 0.13 - - 0.60 X. Instrumentation - - - 0.75 0.80 0.71 1.08 1.19 1.22 - S.74 L. Access Road Maintenance - - 0.88 0.71 0.76 0.67 1.02 1.12 1.15 - 6.30 K. Other (correction) - 2-23 _14.04 11.9 24-.2 5.9L 0.01 D.. =_ .. - 6.6 Total - 2.93 48.54 50.08 66.41 46.66 50.92 56.13 53.67 15.22 390.55

Fri Mar 25 12:14:47 1994

0'

wm

1-1 Main Dan - Lot 1 Peoples Republic of China Xiaolangdi Multipurpose Project -- Phase 1 & 2 (1994-2002) Table 2. Intake, Tunnels & Spillway - Lot 2 Detailod Costs (US$ Million)

TYtala InoluAlna centlnaenleae e1994 19' 1996 1997 199a 199l 20Q0 2001 2002 Total

I. Investint Costs A. General - 3.26 - - 3.26 B. Mobilization/Demobilization - 7.41 13.25 - - - - - 19.90 - 40.56 C. River Diveroson - - 0.29 0.28 0.25 - - - - - 0.02 D. Care of Water - - 0.31 0.30 0.26 0.41 0.44 0.45 - - 2.17 B. Cleaning & Grubbing - 0.04 0.03 ------0.07 P. flcavation - 8.40 30.03 28.93 25.64 - - - - - 93.00 G. Rock Support - - 6.13 5.90 5.23 - - - - - 17.26 H. Sbotcrete - 0.57 2.03 1.96 1.74 - - - - - 6.29 r. Surface Preparation - - 0.33 0.32 0.28 0.4S 0.48 0.49 0.50 - 2.8S J. Drilling, Grouting a Drainage - 1.68 3.01 2.90 2.57 4.06 4.30 4.41 - - 22.92 t. Coucret Concrete Placement - - 20.23 19.49 17.28 27.30 28.94 29.66 30.39 - 173.30 Pormwork - - 4.72 4.55 4.03 6.37 6.75 6.92 7.09 - 40.41 %eiforcing Steel - - 10.16 9.79 8.67 13.71 14.53 14.89 15.26 - 87.00 Prestressed Concrete - - - - 1.98 3.13 - - - - 5.12 expansion Joints _ - - 0 50 0.49 0.43 0...fi 0.72 0-74 °.7.212 - 4_2 Subtotal oncrete - - 35.61 34.31 32.39 51.19 50.94 52.21 53.49 - 310.15 L. Pill - - 0.5S9 - 1.01 2.40 - 0.87 - - 4.88 K. Xnstrumentation - - 0.10 0.38 0.34 0.54 0.57 0.29 - - 2.22 S. Mechanical Works - - - 2.70 3.19 5.04 5.35 5.48 - - 21.77 0. Electrical Works ------0.42 0.43 - - 0.86 P. Metal Works - - - 0.48 0.42 0.67 0.71 0.73 - - 3.00 0. Miscellaneous - - - - 0.14 0.23 - - - - 0.37 R. Access Road Maintenance - - 0.54 0.52 0.46 0.72 0.77 0.79 0.80 - 4.59 S. Other (correction) _ 0.. . 4-. _2L2A .4.3.0 o7 _ - - - - 8P-39 Total - 21.81 106.37 108.26 117.73 66.45 63.97 66.15 74.69 -625.43

Fri Mar 25 12:14:58 1994

2 s

2-1 Intake, ?unnels & Spiliway - Lot 2 Peoples Republic of China Xiaolangd,iMaltipurpose Project -- Pthase1 & 2 (1994-2002) Tabla 3. Power Facilities - Lot 3 Detailed Coate (Us$ Million)

Yotala Incl3udna CantI,w encef1. 1_U3 1994 1J95 1Mi6 1997 1448 199t 2000 2 003 TotalL

I. Zavt esat Coats A. General - 0.71 0.97 - - - 1.68 B. mobilization/Demobilization - - 6.12 2.31 - - - - 7.96 - 16.38 C. Care of Water - - 0.13 - 0.23 0.56 0.62 0.64 - - 2.18 D. Excavation - 2.91 6.01 9.08 10.89 3.34 - - - - 32.23 8. Rock Support - - 3.02 4.56 5.47 1.68 - - - - 14.72 P. Stotcrete - - 0.87 1.31 I.S7 0.48 - - - - 4.24 0. Concrete concrete Placement - - 1.80 2.72 6.53 8.01 4.47 - - - 23.53 Forawork - - 0.57 0.86 2.07 2.54 1.42 - - - 7.46 Reinforcing steel - - 1.20 1.81 4.35 5.34 2.97 - - - 15.67 Expansion Joints - 0.03 o e.0. 0.-12 . o..s.oI -. 0.41 Subtotal Concrete - - 3.61 5.44 13.06 16.03 8.94 - - - 47.08 B. Steel Penstocks - - - - 10.79 13.24 - - - - 24.04 I. Fill - - - - - 0.10 - - - - 0.10 J. Instrumentation - - 0.29 0.22 0.26 0.32 0.36 0.27 - - 1.71 R. Mechanical Works - - - - 0.82 - 1.12 - - - 1.94 L. Electrical Works - - - - - 0.27 0.30 - - - 0.58 M. Metal Works - - - - O.OS 0.06 - - - - 0.11 H. Piping - - 0.04 O.OS 0.06 0.08 0.09 - - - 0.32 0. Access Road Maintenance - - 0.11 0.08 0.10 0.12 0.13 0.14 - - 0.67 P. Retention Money - 0.18ja . _ 1 3.67 14.J9 5.07 0.98 _ _. - -- - 6313 Total - 3.80 22.67 36.72 58.19 41.35 12.54 1.05 7.96 - lS4.29

Fri Mar 25 l2sI5,06 1994 |

Ln

3-1 Power Facilities - Lot 3 Peoplee Republic of China Xiaolangdi Multipurpose Project -- Pbaee 1 A 2 (1994-2002) Table 8. Blectric Plant Detailed Costs (US$ Million)

t3alA Thcuding cofntinq=noian _1291 -94 S 199 _12*2 199L _Ul ft- 2 2* _28Q2_ XTLA1_ S. zmeataent Costs A Local Ulectric Plant High Voltage System - - - - - 2.04 2.76 1.43 0.73 - 6.98 Power Supply to Dam Area (permanent) - - - - 0.25 0.26 0.26 0.09 - 0.86 Lightening Protection 4 Grounding System ...... - - O os OPS 0.06 °.Q2 - 41 Subtotal Local Ulectric Plant - - - - 0.30 2.35 3.10 1.53 0.73 - 8,02 S. Xeported Blectric Plant Generator Procurement - - 19.41 - - 14.02 16.77 17.18 2.51 - 69.89 Power station Blectric Works - - 5.36 19.30 1.42 1.45 - - - 27.S3 Power Station Communication System - - - 1.04 1.07 1.10 0.38 - Main Transformers - 3.59 - - - - - 11.21 15.34 7.86 4.03 - 38.44 Specialized Computer System - - 3.31 3.41 3.50 1.20 - - - 11.42 Other Instrumentation _ _ -.... . 1-9.0d4 .. Ji o6 1 - Total 5.18 - - 24.77 24.63 7.21 34.68 37.85 27.66 7.27 - 164.07 Fri Har 25 12:28:12 1994

1-1 Electric Plant Peoples Republic of China Xiaolangdi Multipurpose Project -- Phase 1 & 2 (1994-2002) Table 6. Mechanic Plant Detailed Costa tUS$ Million)

Thot1s Tnclud4ng Contingecies

1993~~_199 199 1996 12V 199f -1O_ 2000 1001 Tor,Xgal_

I. Inv5aset Coats A. Local Mechanic Plant /a Powerhouse Mechanic Works - - 1.38 4.9S 0.36 0.37 - - - - 7.07 Vebicles used in Powerhouse - - - - - 0.39 - - - 0.39 Orifice Tunnel Gates - - - 3.76 3.96 4.62 0.68 - - 12.92 Free Flow Tunnel Gates - - - 2.62 2.69 3.22 0.47 - - - 9.00 Sedinent Tunnel Gates - - - 1.88 1.93 2.31 0.34 - - - 6.47 Power Tunnel Gates - - - 2.64 2.71 3.25 0.48 - - - 9.08 Draft Tube Gates - - - 0.29 0.30 0.36 0.05 - - - 1.00 Diversio/OrificeTunnel Gates - - - 0.58 0.60 0.71 0.10 - - - 1.99 Irrigation Tunnel Gate - - - 0.04 ------0.04 Blevators & Other Accessories - - - - 0.26 0.26 0.27 0.09 - - 0.88 Presure Balance Pipes & Valves - - - - - 0.16 0.16 0.17 0.06 - 0.54 Gates Maintenance Vorkshops a Others - - - - - 0.04 0.04 0.04 0.01 - 0.14 Xi Gully Outlet Tunnel Gates - - - - -. 0 02 01° 0.01 .0L°0 ° - o Subtotal Local Mechenic Plant - - 1.38 16.77 12.71 15.32 2.99 0.31 0.07 - 49.55 D. Imported Mechanic Plant Turbine Procure_nt - - - 38.90 - 27.39 32.87 33.70 4.92 - 137.78 Spillway Gates - - - 0.60 - - 0.54 0.89 0.11 - 2.15 Tailrace Channol/SedimentTunnel Gates - - - 1.17 - - 1.05 1.73 0.22 - 4.17 Specicial Procurement ------1.0s.9 A l . ss 1.74 .2,7A ...... - 0.47 Total - - 1.38 59.04 14 36 44.40 39.20 38.41 5.33 - 202.12

\a Installation of gates is covered by three civil works lots.

Fri Mar 25 12%26t23 1994

I pe

1-1 N.ee Dlea Peoples Republic of China Xiaolangdi Multipurpose Project -- Phase 1 & 2 (1994-20021 Table 10. Adainistration/Ungineering Detailed Coats (US0 million)

ntals Tnchludiog Contingencies -gg 1094 Igr 19 -3LU2 199L _12U 2000 _2g8_ ~2flfl T14l

Xest_at Coat* A. Office/Deasign qpmet 1 Oftiee Eipmnt for Taw= a XaCC coimunication Facilities - 0.03 0.05 0. - - 0 .13 Copier - 0.03 0.05 0.05 ------0.13 Computer - 0.12 0.2S 0.26 ------0.64 Otber Office Equipment - 0.02 0.04 0.04 ------0.09 Training and Overseas Survey ------O..s 0..Oo .10 - _ - 0_24° Subtotal Office Bquipnt for UVC aXPCC - 0.24 0.49 0.50 ------1.23 2. Offtie/Desgn Equpipmt for aPaor Cammunication Facilities 0.04 0.06 0.0o ------0.19 copier - 0.02 0.05 0.05 ------0.12 Computer - 0.08 0.16 0.17 ------0.41 Other Office Equipmet - 0.01 0.02 0.02 ------0.05 Training & Overeeas Training 0.. 0.LA .L10 ------0-.4 Subtotma Office/Desiga Equpmet for I0PD.1XA 40.... OJI ...... 1,0: Subtotal Office/Doee squipent 0.43 0.89 0 92 - - - - - 2 224 S. Vebicles 1. Vehicles tor TRHDC A XCC - 0.54 1.11 1.15 ------2.80 2. Vehicles tor RP&DX _ Oe.k J0.1 U... e--___ Subtotal Vehiales 0.61 1.27 1.31 ------3.19 C. foregn Consulteacy Service 1. Panel of Experts 0. 01 0 001.01 01 0.01 001 0 01 0.01 0.01 - 0.07 2. foreign Coesultants Design/Iastallation Review of Bquipoent 0.06 0.16 0.16 0.17 0.17 0.18 0.18 0.19 0.19 - 1.48 Studies on Special Issues - 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 - 0.09 SS Consultants for Construction Supervision - 1.43 1.26 0.79 0.61 0.62 0.64 0.66 0.67 6.67 cost Control/estimate - 0.21 0.11 0.11 0.06 0.06 - - - - 0.55 Technical/LaborotoryServices - 0.50 1.61 1.10 0.66 0.24 - - - - 4.19 Inspection/Quality control - 0.95 0.98 1.01 1.04 0.71 0.46 - - - 5.15 Supervision on Mechanic/ElectricEquipment - - - - 0.87 1.07 0.43 0.44 0.45 - 3.25 Co0munication with Head Oftice - 0.03 0.03 0.03 0.03 0.03 0.03 - - - 0.17 Others 0-o.i 0.24° 2025 .2S o 26 °-27 4.F24__Q25 _ °2?6 _ 2-06 Subtotal Yoreign Consultants OAA1 .3 6t1 __A,3 3A4 3.71 1L12 1.99 _._5i1-. 5a 2- 62 Subtotal Foreign Cansultancy Servica 0.14 3.61 4.41 3.47 3.72 3.20 2.00 1.SS 1.5S - 23.69 D. Training 1. Oversees Training Contract Management 0.03 0.03 0.03 0.04 - - - - 0.14 Financial Planning/Budgeting 0.02 0.02 0.03 0.03 0.01 0.01 - - - - 0.12 Cenaral Kanagement/Organisation 0.05 - - - - 0.05 Accounting System, Reporting & Standards 0.02 0.03 0.01 0.01 ------0.08 Quality Assurance 0o. 0.01 0.03 0.01 0.01 - - - - - 0.05 infomeationTechnology/Computer Skills 0.02 0.02 0.04 0.04 ------0.12 Personnel Management - 0.02 0.02 0.02 ------0.05 Cash/Treasury Management - - 0.02 0.02 ------0.03 Management f SnSormation System - 0.02 0.03 0.03 - 0.07 0.07 - - - 0.21 Internal Auditing - 0.02 - - 0.02 mnagement During Transition Period to Operation Stage - - - 0.03 _- _ _ 0.03 Others 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 - - 0.16 fU Trairing Organization Pees 0..a 0.. 1 0.Q 0..01 0.02 °,Q2 _.Q.Q °Q2 -- .0 2 Subtotal Overseas Training 0.19 0.20 0.22 0.25 0.05 0.11 0.10 0.04 - - 1.16 2. tocal Trxafiig Financial Planning/Budgeting 0.01 0.01 0.01 0.01 ------0.03

1-1 Administration/8ngineering 11u A .ty crm 0.00 0.00 0.00 0.00 0.00 - - - 0.00 Infoation Technology a computer Skills - 0.00 0.00 ------0.01 ConstructioS 4cheuling/Reporting - 0.02 0.02 0.02 0.01 - - - - 0.06 Internal Auditing - 0.00 0.00 0.00 - - - - - 0.00 _anagemet During Tranition Period to Operation Stage - - - - - 0.02 0.01 0.01 - - o.Os Others .. L 0L*l 0,03 0D1 .. L 0.31 0.L 0-.0 - Subtotal Lo"I trainig .... Q,M 0.06 D.0. ." .0. DJ5 D S . q - 0. 3 Bubtota. Training 0.22 0.26 0.27 0.31 0.10 0.16 0.1 0.09 - - 1.56 I. Ugiaewing 4ad aperviulon Bngineering Supervision 1.54 4.49 4.63 4.76 4.89 S.01 5.14 6.26 5.3s - 41.10 Contract Mnagement 1.55 I-Si L.62 .67 L.U L2i 1Jfl J.4A 1..A 1-.s ..17.384 Subtotal Sagineoring and Supervision 3.09 6.07 6.25 6.42 6.60 6.77 6.94 7.10 7.27 1.93 s8.43 P. Local Design Consultant and Invest. - IJ 4.6 2ja 2..44 2,S1 2._S7 2.6. __1_15 O-SI 522.42 Total 3.45 14.35 17.72 14.01 12.86 12.63 11.66 11.37 10.20 2.40 111.53 Wed Nar 23 14s40:39 1994

N nI

1-2 Ad.dinictn tion/Rngineexing Peoples Republic of China Xiaolangdi Multipurpose Project -- Phase I & 2 t1994-2002) Table 12. 8nvironment Management Detailed Costs (wus Million)

TotAln InaluA ng eWnt ngano4ea 199_199 X§Sdi 19°! 3l "Z6 122L 1901I 200 29al_ 2002 TAtAl

X. InVetMent Costs 1.Envromt Managemenat Establishment of Rnvironment Leading Group & SW - 0.70 0.72 0.49 0.50 - - - - - 2.41 Sanitation& Antiepidemic Program - 0.26 0.27 0.28 0.29 0.30 0.30 0.31 0.32 - 2.33 PublicHealth - 0.10 0.10 0.10 0.11 0.11 0.11 0.12 0.12 - 0.87 Special Studies on Envirnuental Issues - - - 0.39 - - - - 0.44 - 0.83 Environment Library, consultancy & Technical Transter _ _ t 3O 0Q61 .0.16 0.19 02 0.1o7 _.S _ _ _.7 Subtotal Environmet Management - 1.36 1.70 1.42 1.06 O.SJ 0.59 0.43 0.a8 - 8.00 *. Bnvitrmentwoustoriag 1 8deic monitoring Investigation Ftes - 0.01 0.01 ------0.02 Design oesg - - 0.01 0.01 ------0.02 Instrument Procurement/Installation tor Horizontal Seismic Monitoring Station - - 0.04 0.10 ------0.14 Instrument Procurement/Installation for 3-D Seismic Monitoring Station - - 0.03 0.07 - - - - - 0.09 Instrument Procurement/Installation for Transit Station - - 0.04 0.10 ------0.1s Instrument Procurement/Installation for Center Station of Net-Work - - 0.06 0.14 ------0.19 Calibrating Imnstrument Procurement & Installation tor the Net-Work - - 0.02 0.04 ------0.06 Procurement of Transportation/Communication - o0.02 o.Os - - - - 0.07 Cost ot met-work Rousing - 0.02 0.07 0.01 ------0.11 Construction ot Remote Monitoring Stations/transit Statios - 0.00 0.01 0.00 ------0.02 Otfi¢e/Service Equipment - - - 001 - - - - - 0.01 Land Acquisition of Stations - 0.01 ------001 Conetruction of Access Roads - 0.00 0.00 0.00 ------0.01 Survey/Preparation of Position of Stations & 1.s5OGeographic map - 0.01 ------0.01 I starting-up Cost - 0.00 - - - - 0.00 Operation/Msnagement Cost -0.05 0.05 o0.05 0.0 0.05 0.06 0.06 0.06 - 0.34 Data Interpretation end Analysis 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 - 0.14 Miscellaneous _ e.jg .j4 5.J5_ - _ - -- _ Oubtotal 8eismia Monitoring - 0.12 0.39 0.61 0.07 0.07 0.07 0.08 0.08 - 1.49 2. leoodForecasting/Vetev Quality etc. Monitoring at Dae Site - 0.75 1.SS 0.25 0.26 0.27 0.27 0.28 0.29 - 3.92 Monitoringin Reservoir Region for Plood Control - 0.22 1.16 0.96 ------2.34 Computerlsed Automatic System . _-_. 1- 4 1.La 1_2 .1.4A m - ____- _ 6 Subtotal flood Porecasting/Wttr Quality ec. _ _JOA 4.. . 2-ss 1 1-S4 .Ls _1.1 9 0.29 _9 -1 62 Setal - 2.4S 6 A 4.58 2.77 2.33 2.39 0.70 1.24 - 22.65

Wed Mar 23 14t41100 1994

1-1 EnvironmentManagement - 77 - EX 3

ECONOMICBENEFITS

A. INTRODUCnON 1. Xiaolangdiis a multipurposeproject that willgenerate substantial economic benefits of at least four types: flood control, sedimentcontrol, irrigation, and hydroelectricpower. Thebenefits from each was estimated separately with methodologies specificallytailored to the type of benefit. The methodsand numericalestimates are describedin turn in this annex,and the overalleconomic assessment is presentedin the finalsection.

B. FtOOD CONTROLBENEFT 2. The existingflood control system in the YellowRiver's lower reachesis adequatefor a flowof 22,000m 3/s (at Huayuankou)-adischarge of recurrenceprobability of onein 60 to 70 years. As the riverbed continues to rise fromsediment deposition, this probabilitywill continueto increase. Xiaolangdi'sprimary function will be to reducethis probabilitysubstantially. 3. Flood controlalong the lower YellowRiver is providedfor througha combinationof main works-embarkmentdikes, storagereservoirs, and flooddetention basins-and throughregular and coordinatedprograms of river training,dike maintenance andwarping. If the storagereservoirs and dikes cannot control large floodsthat threaten the main dikes, then, as a last resort, excessflood flows will be divertedinto heavily populateddetention basins, so as to controlflooding and avert catastrophic dike breaching. However,such use of detentionbasins will becomeprohibitively expensive as the social andeconomic damages resulting from flood diversion into these areas increases over time. As part of YRCC'scomprehensive flood control program, the Xiaolangdiproject would provide4.1 billionm 3 of flood storagecapacity, substantially reducing flood risks in the 3,172 km2 detention basins, in the 3,544 km2 floodplainareas and in the 125,000Ima 2 protectedarea behindthe maindikes. The protectedareas with their cultivatedareas and populationare as shownin Table 1. 4. Flood controlbenefits are definedas the reductionin expectedaverage annualflood damage due to operationof the Xiaolangdiproject. Thesebenefits assume thateven without the Xiaolangdi Reservoir regular programs of maindike maintenance and strengtening, erosioncontrol. ice run control,river trainingworks, and warpingwill continuein order to preventundermining and other typesof dike failure. Further, it is assumedthat the main dikes will be raised, as necessary,to keep up with future aggradationof the river channeldue to sedimentdeposition. - 78 - AN= 3

Table 1: FLOOD-AFFECTEDAPEAS

Total area Cultivated area Population (1m2) (kom)

Floodplains 3,544 2,228 1,471,000

Areas protectedby the main dikes 125,000 100,000,000

Detentionbasins: Dongpinghu 627 352 271,000 Beijindi 2,316 1,560 1,443,000 Beizhan 106 59 12,000 Nanzhan 123 68 14,000

Total DetentionBasins 3.172 2.032 1.726.000

Total ProtectedAreas 131.716 103.191.000

Table 2: CALCATION OF LONG-TERM FLOOD CONTROL BENEFm IN FLOODPLAN

Yitbout xi"ola di With Xiaoldt Condition Aer4pe reOUiTty "Iera rroasseuty Lntegra of flood at Flooded dag flood of flood exPocted of flood expected lhuayuanlkou laud ratec damage excded Intenral da_age exceeded Interval da (WIsec) (10.000 eua) (lmtaY)/ (mfl) (Ilyr) (2) (T inion) ( (2)llo)

5 000 0 0 ss.0s 95 0S 6.000 45 352 158 76.e0 19.o0 15.0 76.01 19.01ox.0 7.500 97 352 341 35.01 21.01 52.4 S5.02 21.e0 52.4 8.000 107 352 377 50.O 5.02 18.0 SO.O 5.0S 18.0 8,500 117 1,208 497 44.01 6.0S 26.2 10.0Z 40.01 174.8 10.000 143 1,208 815 31.01 13.02 83.3 6.32 3.72 24.3 13,000 190 1.208 1379 16 ox 13 O. 164.6 2.01 4.S3 47.2 15.00o 217 1 967 1 705 10.01 6.02 92.5 101 1.O1 15.4 20,000 282 1 967 2,987 2.9S 7.12 166.6 0.21 0 .x 18.8 24,200 311 1 967 3 554 1.01 1.92 62.1 0.12 0.12 3.3 28 000 334 1.967 4,007 0.32 0.7 26.5 o.es OI 3.8 50,000 334 1,967 4,007 0OS O.3 12.0 0.01 0.4 Total I mill i73.4 32.2 Reduction ta daage If *11 floode controlled 347.8 Reduction In damage If 50S are coutrolled 173.9

CMZUUAI0 Of 1L000DCONUOL 31125 2 NLPXU, US 1.10 5 000 0 0 93.01 9s.02 6.000 45 352 158 76.01 19.01 15.0 76.Q0 19.01 15.0 6,100 48 352 169 75 .0 1.01 1.6 20.01 56.02 91.6

Total Y mllion 721.4 238.3 Reduction In dag If ell fla controlled 483.1 Raduction in damage if SO a* controlled 241.6

5. The estimates of expected average annual damages with and without the project are based on 1989 representativecounty-level economic production data, a 1990 YRCC householdlevel propertyvalue sample survey which were updatedto 1993 prices, and floodfrequency simulations of the Sanmenxia-Guxian-Luhun-Xaolangdimultireservoir - 79 - ANNEX 3

system with and without Xiaolangdi.l/ The production and property value data are linked to the flood frequency simulationsthrough the use of percentagedamage rates for different flood levels and conditions developed by YRCC in 1982 for the Beijindi DetentionBasin.

6. Flood control operationsand the probabilityof floodingof specificareas are described in detail in the Project Brief.2/ Routing 1933, 1954, 1958 and 1982 Type I 1:1000 year flood hydrographs through the Sanmenxia-Guxian-Luhun-Xiaolangdi multiresevoir system demonstratesthat with Xiaolangdi these floods can be contained within the main dikes withoutthe use of the BeijindiDetention Basin and only limited use of the lake bed of the Dongpinghu Detention Basin. However, after filling the 7.5 billion m3 dead storage of Xiaolangdiwith sedimentduring the initial 10 to 15 years of operation,Xiaolangdi will need to flush throughthose medium-sizefloods arising above Sanmenxia Reservoir with heavy sediment concentrations,to avoid excessive sediment depositionin either Sanmenxiaor XiaolangdiReservoirs. It is estimated that about half of the floods affecting Xiaolangdi will need to be passed on directly downstreamand therefore, flood control benefits on floodplain areas have been appropnately adjusted. Average annual incrementalXiaolangdi project flood control benefits on the floodplains would be a reductionof expectedflood damagesof about 33 percent in the first 10 years of operationand about 24 percent in the longer term. The analysis ignores the potential flood control benefitsof increasedchannel capacity during the first 20 years of operation, due to degradationof the nverbed below Xiaolangdifrom net sedimentdeposition in the reservoir, channel scouring and sedimenttansport.

7. Floodplain Areas. For low levels of flooding (less than 8,000 m3 /s at Huayankou),only damagesto agriculturalproduction is expected. The loss, accordingto the above-mentionedsurvey, is Y 352/mu. Above 8,000m 3 /s propertydamage is expected as well, at an estimated incrementalrate of Y 1,208/mu for agriculture and property. Maximum incremental damages occur above 15,300 m 3 /s, at an incremental rate of Y 1,967/mu. The table abovecombines these estimatedlosses per mu and the sizes of the areas affected with the probabilitydistributions of floods with and without Xiaolangdifor the long term-after reservoir stabilizationoccurs within 20 years. The damagesfor each segmentof the probabilitydistribution are integratedto yield expected total damagesper year of Y 721.2 million without Xiaolangdi,and Y 373.4 million with Xiaolangdi. The difference, Y 347.8 million, is the flood control benefitto the floodplainareas attributable to the project. However, since in the long term Xiaolangdi will flush through those moderate-sizefloods with heavy sedimentflows arising above Sanmenxia,about half of all floods, total annual flood control benefits on the flood plains will be about Y 173.9 million for 1993 conditions. Prior to stabilization,i.e., in the first 10 years of operation whenavailable flood control storageis larger, the distributionof flood probabilitiesis less skewed,and the benefitsare somewhatgreater. The calculationsfor the initial penod are shown in Table 1.

1/ VolumeI, AnnexI FloodContrl BenefitsStdy, Sepmber 1991, Reerence Al., Annex 12.

V Volumem, PAatI, Reeree Al., Anxe 12. - 80- ANNEX 3

3. Detention Basins. Dongpinghuis the first detentionbasin to be used in the event of flood. It consistsof two parts, the North (old, containingDongping Lake), and the South (new). Without Xiaolangdi,the North would be flooded one year in six; the South, one in 22. With Xiaolangdi,the rates are 1 in 50 and 1 in 200 years, respectively. Agricultural damage rates were estimated at Y 712/mu, and property damages, Y 2,290/person. The total flood control benefitswork out to Y 47 million.

9. Beijindiis the largestdetention basin, and containsthe importantZhongyuan oilfields. Given the serious consequencesof its flooding, it will only be used if flows exceed22,000 m3/s at Huayankou,a 1 in 60 year flood without Xiaolangdi,a 1 in 1,000 year flood with the project. Flood depths throughoutthe region wouldvary considerably, so the areas were segmentedinto four depths. Withineach segment,estimates of damage rates and values for 10 classesproperty were estimated. The segmentsand damage rates for representativeclasses of propertyare given in Table 3.3/

Table 3: D RmmoN OF DAMAGEAREAm A RATESFOR DETENmONBAS

2 of 2 of X of S of Depth (m) area buildings industry agriculture

<1 15.2 20 30 80 1-3 38.7 50 40 100 > 3 21.8 70 S0 100 "strong currents" 24.3 100 60 120

10. Summationover segmentsaffected and damage potental in each property class/segment yields a preliminary total potential damage of Y 6,732 million. By assumption, 1 in 60 to a 1 in 100 year floods will cause 25 percent of the maximum potentialdamage and floods over 1 in 1,000 year return frequency will give rise to the maximum potential damage. The total flood control benefits for Beijindi (oilfields included)amount to Y 95.7 millionper year.

11. Downstream Basins. The downstream detention basins Beizhan and Nanzhanare subject to floodingdue to ice jams with probabilitiesof 1 in 12 and 1 in 25 years, respectively. With Xiaolangdi,the risk would become negligible. Using similar flood damagecalculations as describedabove, the benefitsto these areas are calculatedas Y 14.9 million/year.

12. Primary Protected Areas. The largest potential damage from a flood would occur in the event of overtoppingor breachingof the main dikes. The last major breach was induced in 1938 on the south side near . About 30,000 kn2 were

3/ Damagentes and damagepotential calculations ae presentedin fil in 'FloodControl Benefit Evaluation,"Reference Al, VolumeIm, Amex 12. -81- ANNEX3 inundated,wfit half of this sufferingdisastrous damages. Nearly one millionpeople were kdlled,about 9 percent. The main dikes now protect about 120,000km 2 with a population greater than 100 million. Fatality rates could be as high as 2-3 percent with a major flood (the lower rate reflect a much improved communicationsystem). At present, the main 3 dike will be overtpe by a flood event exceedinga flow of 30,000 m /s at Huayuankou, a recurrence frequencyof 1 in 200 years. With the project, the probabilitywould drop to near zero. BetweenHuayuankou and the main inlet gates to Beijindiis a section of main dike that is vulnerableto breachingfrom piping at some return year greater than 1 in 60. The ChineseIntenatonal TechnicalConsulting Corporation has estimatedthat the expected flood damages from breachingare 10 percent of the integral of expected flood damages betweena return event of I in 60 and 1 in 450.

Table 4: FLoODDAmAGE POTzmAL iN AREAS PROTECTEDBY THE MAIN DI

No. Total Category Damage rate affected damage (Yuan per..) (million) (Y million)

Agr. crops & other damages 698 mu 15.0 10,470 Other agriculturaldamages 101 mu 15.0 1,515 Loss of farmland from deposition 1,841 mu 0.3 552

Total AariculturalDemaae 12.537

Rural housing & contents 2,319 person 9.57 22,193 Rural public property 508 U 9.57 4,862 Urban housing & contents 2,319 " 1.43 3,316 Urban public property 3,495 n 1.43 4,998

Total Property Dama&e 35.369

Rural economic productionloss 86 n 9.57 823 Urban economic productionloss 1,166 a 1.43 1,667 Railways diaruption 245 Emergency flood relief 184 n 11.0 2,024 Loss of life (qualitative)

Total PotentialDamages 52,665

13. Conservativedamage esimates weremade fora floodinundating 15,000 km2 (two thirds of which would be cultivated) and affecting 11 million people. Separate calculationswere made for the categoriessummarized in Table 5. No attemptis made to place an economic value on the potential loss of life. The total potential damage of Y 52,665 million(Table 4) gives an annualbenefit of Y 187 million, Y 110.6million from reducingthe danger of dike overtpping and Y 76.4 millionas a result of diminishingthe possibilityof dike breech (able S). These calultons were carried out using 1993prices and for 1993 economicconditions. Beause they are all based on economicvalue and/or -82 - ANNEX3

productivitythey need to be raisedaccording to projectedrates of economncgrowth for the variousaffected regions: for the peiod 1993-2000,dike-protectd areas 5 percent, detentionbasins 4 percent,and floodplains3 percent;thereafter, the rates are reducedby one percentagepoint. Table 5: CALCATON OFLONG-TEM WOOD COoL BENEFITS FoR 1993CONDONS A PRICES

Flooded if flow at Probability Flood Huaymankou of Iloodlans. damage Flood equals or W/o WI poten- control Areas subject to flood exceeds ILD XLD Reduction tial benefits Subtotals (m is) ----- (2lyear)------(Y million) ------

FloodplainBetween Main Dikes Frequentflood 8,500 44.0 10.0 34.01 497 Larger flood 15,300 10.0 1.0 9.0Y 1,705 Total Benefits 173.9 173.9 DougpinghuDetention Basin old Section 13,000 16.0 2.0 14.02 169 23.7 New Section 18,200 4.5 0.5 4.01 581 23.3 47.0 Beijindi Partial damages 22-24,200 0.7 0.1 0.6S Damage to localeconomy 1,683 10.1 Damage to oilfields 595 3.6 Full damages ) 24,200 1.0 0.1 0.91 Daage to local economy 6,732 60.6 Damage to oilfields 2,381 21.4 95.7 DownstreamDetention Baeins Beithan 8.0 0.0 8.01 117 9.4 Nanzhan 4.0 0.0 4.01 138 5.5 14.9 Major Protected Area Dike Overtopping 30,000 0.22 0.01 0.21S 52,665 110.6 DIke Breech 22-30,000 1.67 0.22 1.45S S2,665 76.4 187.0 Total Benefits (Y million) 518.5

14. Total Flood Control Benefits. The projectedbenefits are reportedin Table 6, by areaas describedabove. Theytotal $129.0 million for 1993price levels. The life-of-projectstream, discounted at 12 percent,has a presentvalue of $486 million.

C. SEDMEN CONTROLBEm

15. Withlong-term average loads of 37.5 lWem3, the lower YellowRiver has the highestsediment concentions of any river in the world. Despitemassve soil and waterconcentration efforts over thelast 35 years,sediment delivery to the lowerreach has decreasedby onlyabout 16 percent. About85 percentof thisdelivery occurs dunng short, intensestorms in the flood season. As a consequence,aggradation of the lower-reach riverbedconfinues at an unmanageablepace; about 300 to 400 milliontons of sedimentare depositedeach year and at someplaces, the riverbedrises on average10 m3 per year. Dikeshave needed to beraised three tmes since1950, and plans are in placeto ruse them againat an estmatedcost of Y 4 billion. In additionto continuingsoil conservationand sediment-trappingefforts in the sedimentsource area, theLoess Plateau, sedinent control - 83 - ANNEX 3

Table 6: FLOODCONROL BENEFIIS(1993 Y milion)

Year Dikes DB8 ICe DBS Oilfields Floodplains Total

1993 Price.

1999-2008 187.0 121.2 14.9 25.0 241.6 589.7 2009-2049 187.0 117.7 14.9 25.0 173.9 518.5

Growth Rates

1993-2000 51 42 42 01 32 2001 + 41 31 32 01 21

Cash Flow Stream

1999 263.1 159.5 19.6 25.0 297.1 764.4 2000 276.3 165.9 20.4 25.0 306.1 793.6 2001 287.3 170.9 21.0 25.0 312.2 816.4 2002 298.8 176.0 21.6 25.0 318.4 839.9 2003 310.8 181.3 22.3 25.0 324.8 864.1 2004 323.2 186.7 23.0 25.0 331.3 889.2 2005 336.1 192.3 23.6 25.0 337.9 915.0 2006 349.6 198.1 24.3 25.0 344.7 941.7 2007 363.6 204.1 25.1 25.0 351.6 969.3 2008 378.1 210.2 25.8 25.0 358.6 997.7 2009 393.2 210.2 26.6 25.0 263.3 918.3 2010 409.0 216.5 27.4 25.0 268.5 946.4 2011 425.3 223.0 28.2 25.0 273.9 975.4 2012 442.3 229.7 29.1 25.0 279.4 1,005.5 2013 460.0 236.6 29.9 25.0 285.0 1,036.5

2048 1,815.3 665.6 84.3 25.0 569.9 3,160.1 2049 1,887.9 685.6 86.8 25.0 581.3 3,266.6 PV @ 121 1,467.8 787.9 98.0 93.9 1,198.1 3,645.7 PV @ 101 2,255.3 1,181.0 147.3 133.8 1,724.7 5,442.1 efforts have involvedchannel flushing using the small regulatingcapacity of Sanmenxia to increase the duration of flows favorableto sediment flushing. Without the increased sediment control that Xiaolangdi is designed to provide, further costly dike-raising is inevitableto maintainthe flood-carryingcapacity of the channel.

16. Xiaolangdiwill reduce or reverse sedimentdeposition along the lower-reach rverbed in two ways. First, the reservoir will trap 7.5 billion m3 of coarse sediment (>0.05 mm) during the first 20 years of operation. This quantity would otherwise be responsiblefor future aggradation. Meanwhile,the dischargeof clear water will result in some scouringand degradationalong the lower reach to Lijin. Second,after the reservoir reaches equilibrium at 5.1 billion m3 of long-term storage, sediment management 84 - opeations, (storing clear water during nonflood seasons and passing floods with their sedimentloads) will result in substantiaUyslower aggradation. Xiaolangdi'soperation will also reduce sedimentconcentration in water diversionsalong the lower reach, diminishing desilting needs in warping basins and conveyanceand distrbution channels.

17. The direct benefits of sediment reduction are defined as the difference betweencapital and resource expenditureson sedimentmanagement with and without the 2roect.

Cost Savings in Dike Raising

18. Under existingdeposition rates along the lower reach, it is necessaryto raise 696 kn of the main dikes at least one meter (a total of 80.6 million m3 of earthworks),to strengthen969 km of levees (189 millionm 3 of earthworksincluding warping and siltation works, levee buttressing, and levee strengthening with vertical cutoff), to raise or stegthen 5,395 spurs in vulnerable sites (10.1 million n3 of earthworks and 5.49 million n3 of rockworks),and to reconstructor complete51 channel training works 3 3 and 439 spurs totaling 40.8 km (12.78 million m of earthworksand 1.2 million m of rockworks)every 10 years.4! The total cost of one of these decade-longcomprehensive progams is now estimated, in present costs, to be at least Y 4 billion ($766 million). These costs will increase over time as the base of the dike is widenedand as the integrity of dike foundationsis threatenedby seepageand sal;iity as the riverbed rises.

3 19. During the first 10 years of Xiaolangdi'soperation, 7.5 billion m of coarser sediments,rsponsible for most of the aggradationin the lower reach, will be stored in the reservoir. During the same period, Xiaolangdi's operation will also induce some degrdation along the lower reach to Lijin. Eventually,a new equilibriumalluvial channel will developthrough the depositedsediments in the reservoir that will allow the prevailing flows through the flood seasonto just transportall of the annual sedimentload throughthe 3 reservoirwith neitherdeposition or erosion, preserving5. 1 billion m long-termreservoir storage. After the reservoir reaches equilibrium, depositionalong the lower reach will continue but at a slower rate, because the flows can be regulatedto increase the duration of flows favorableto flushing sedimentsthrough the reach.

20. An extensiveYRCC measurementand researchprogram has culminatedin a senes of physical models of sediment deposition along the lower reach. Based on projected deposition, maximum safe channel flow capacities, upon which system flood plans depend, were calculatedand used as the basis for estimationof the dike elevations required to maintainthat capacity(as the river aggades) at 15 cross-sectionsfor the years 2000, 2020 and 2050. The cost of dike-raisingwas determinedparametrically using the detailedquantities estimated for the current dike-raisingwork program. Recent review of this work program has confirmedthat it is a prdctcal basis for future dike-raisingneeds. The analysis was repeated for 2020 and 2050 with and without Xiaolangdi and the

I/ Appex V: Straitheing of the Leveeand River Course Traizig Workson the LowerYellow River,Yeilow River Water nd HydtoeloctdcDevelopmet Corporatin, December 1989. -85- A 3 difference between the discounted cash flows was taken as the major component of sediment managementbenefits.

21. Sediment trapping and regulation in Xiaolangdiwill result in a sediment reductiontime for the design series of 1950-1974+1950-1974of about 20-22 years over the 50-year period of joint Sanmenxia-XiaolangdiReservoir operation. The deposition reduction period is defined as the difference between accumulateddeposition with and without Xiaolangdifor the design time series.5/ Over the life of the project, it will not be necessary to raise the dikes upstreamof Huayuankou,the dikes between Huayuankou and Aishan will need to be raised only twice, and the dikes betweenAian and Lijin will need to be raisedonly four times. Unit labor and machinecost estimates(per 100 m3 earth and rock works), from YRCC engineeringsurveys of the 1974-85Third Dike Raisingand StrengtheningCampaign works, appropriatelyadjusted to reflect differencesin dike works above and below Aishan and to 1991 economicprices updatedto 1993 prices, were used to estimate the annual incremental sediment control benefits of this component of the project. The completion of the cofferdam, after project year three, will permit postponement of major dike works downstream between year four and the project commissioningdate. Therefore, sediment benefits will accrue downstream during this early period. These benefits are net of expectedflood damagesdownstream.

22. Incremental benefits from controlling sediment deposition on the main channeland floodplainare calculated in 1993 prices as $58 million annually for the first decade,$37 millionannually for the second, $12 millionannually for the third, $10 million annually for the fourth and $12 million annuallythereafter. The net present value of this componentof sediment control benefits, discountedat 12 percent to the start of project, is $188 million.

Cost Savings in ReducedSedinent Concentration In Diversions

23. A smaller componentof sedimentmanagement benefits are the cost savings realized from the reductionof sedimentconcentration in lower-reachdiversions. YRCC estimates that without Xiaolangdi 147 million tons of sedimert will be diverted into agricultureand municipaland industrial(M&I) uses annuaUybetween 2000 and 2010 and 325 milliontons annualy between2011 and 2030. After adjustingfor seasonaldifferences in water and sedimentconcentradons (sediment is concentratedin flood monthsbut water diversionsin nonfloodmonths) these totals declineto 63 millionand 68 milliontons. With the sediment-trappingand regulation operations of Xiaolangdi, these adjusted annual sedimentdiversions will decrease to 42 millionand 54 million tons, respectively.

24. Of the sediment diverted, between 35-45 percent is deposited in desilting basins, 30-45 percent in major and branch canals and 20-25 percent at the farm level. Managementof this diverted sedimentincurs costs throughoutthe water delivery system but YRCC sediment and irrigation engineers assert that at the farm-gate these costs are

fI CYNVProject Brief, Volume II, March1991, Referce Al., Anex 12. - 86- ANNE 3

offset by the benefitsrelized from the increasednutrients deliveredwith the sediment.fi/ For this reason, cost savingsfrom reductionsin sedimentdiversion with Xiaolangdiwere estimatedas the product of these reductionsin sediment diversionsand unit cost savings in desiltingbasin and conveyancechannels works (fromcomparable Shandong ADP, Tuhai Basin and XiaolangdiWenmengtan resettlement area desiltmg basin cost data), effectively excluding cost savings below the desilting basin. These cost savings amount to Y 82 millionper year between2000 and 2010 and Y 53 millionannually thereafter, see Table 7. Discountedat 12 percent, this componentof sedimentbenefits amountsto $51 million.

25. Total incremental sediment control benefits of the Xiaolangdi project, calculatedin 1993prices, are given in the rightmostcolumn of Table 7. These results are based on a design long-term storage of Xiaolangdi of 5.1 billion mn3(trapping 7.5 billion me of sedimentin dead storage), Option2 in Table 7.

Senitiity Tests

26. Two other sedimentcontrol optionswere examinedto test the robustnessof these benefits. Due to the difficulties in accurately modeling the complex physical processes in the estuarinereach, there is considerableuncertainty about the nature of the sediment benefits to be realized. Thus, Option 1 considers the extreme case that incrementalbed depositioncontrol benefitsare realized only above the estarine reach. The present value of these benefitsis only 59 percentof the base case, Option2. Option 3 examinesthe possibilitythat Xiaolangdiwill trap somewhatmore sedimentthan planned, 8.45 billion m3. The present value of bed depositioncontrol given increased reservoir sediment trappingis 2.5 percent greater than the base case.

D. IUUGATION BENEMlS

Introduction

27. The irrigation benefitsfrom Xiaolangdidepend on a variety of interrelated factors and assumptionsthat are beyond the capabilitiesof typical spreadsheetanalyses. In order to make all of the necessary assumptionsexplicit, and provide a framework whereby benefit measures could be obtained under a wide variety of inflow regimes, reservoir operatng rules, and diversionpreferences, a nonlinearprogramming model of the Lower Reach (LRM) was denved from a Yellow River Basin model.2V Like the Basin Model, the LRM jointly maximizes the net economic benefits from irrigation, hydropowt, production, and M&I suppliessubject to water availabilityin each month and a variety of hydrological, technical,physical and agronomicconstraints. Solutionsmay oe obtainedfor any and all of the 56 years for which runoffdata are available. A "switchw

it This sslion is contadictedby otherswho poin to the iceaig difficultiesi findmgappro sits for the sedimentand the high labor cosb of winter-sasoa ditch clearing.

1/ TheBasin Model is descibedmi deail in AnneA6 of Chin- Yelow River B InvestmentPlaning Study,' Report Nc. 111464CHA.World Bank (June 30, 1993). - 87- ANNEX3

Table 7: SUDWNT CONoROLBzqnnS EXnUMTON(1993 Y millon)

Option 1 Cost Total above savin8 e aedi-ent Project Calendar AlShan Option 2 Option 3 in vater control year year only 7.5 Bi' 8.45 B3o diversions benefits

7 1999 184.4 355.1 355.1 82.0 437.1

60 1

16 2008 184.4 355.1 355.1 82.0 437.1 17 2009 184.4 355.1 355.1 53.0 408.1 18 2010 206.6 224.2 240.0 53.0 277.2

2-7 2019 206.6 224.2 240.0 53.0 277.2 28 2020 47 66.7 102.7 53.0 119.7

36 2028 47 66.7 102.7 53.0 119.7 37 2029 47 66.7 102.7 66.7 38 2030 52.6 74.7 119.4 74.7

47 2039 52.6 74.7 119.4 74.7 48 2040 58.9 83.7 138.8 83.7

57 2049 58.9 83.7 138.8 83.7

PV @ 12% Y million 671.0 1,137.3 1,165.6 272.5 1,409.6 PV @ 12Z $ million 89.5 151.6 155.4 Ila 187.9

(with or without)ensures that the benefitsfrom Xholangdiwill be isolated,and the differece betweena correspondingwih' and without'Xiaolangdi scenario will produce an undistord measureof the benefits. 28. The LiM optimizesthe monthlyoperation of Sanmenxiareservoir as well as Xiaolangdiwith respect to monthlychanges in storage, peak and off-peakpower production,releases for downstram diversionsto irigation and M& in the two lower reachprovinces, Henan and Shandong,and extrabasin diversions to lianjin and Qingdao. -88- AN5

The simulationof both reservoirsis constrainedby live storagecapacity and elevation limitsreflecting summer flood season and winterice-run control storage requirements.

29. The four major irrigatedcrops consideredin the modelare wheat, corn, cotton,and paddy. Togetherthey compriseover 90 percentof the crodppedarea in the lowerreach. Croppingpatterns are prespecifiedas percentagesof the effectiveirrigated area in each province. For simulationsof the year 2000 and beyond,these areas are: Henan 13.3 million mu (867,000ha); Shandong28.4 millionmu (1,893,000ha).J/ Givensufficient water, the modelwill irrigatethe entire area accordingto the assumed croppingpattern:

Henan Shandong wheat 70% 60% corn 60 50 cotton 20 33 paddy 10 7 whichresults in croppingintensities of 160 and 150percent, respectively. Under all but the driestrunoff scenarios, these intensities are achievable. If not, the modelrelegates one or more cropsto rainfedstatus. 30. Cropyields are also endogenous.Following FAQ-sanctioned practice,2/ a maximumyield is obtainedif irrigationsupplies are sufficient.If not, yieldsare reduced by the productof the factors:

Ya/Ym= 1- ky(ETm-ETIa)/Eb where

Ya/Ymis the yieldreduction factor, ky is a parameter,and ETa andETm are actualand maximumevapotranspiration in a given growth stage. (ETm-ETa) is the shortage experiencedby a givencrop, whileETm is the sumof effectiverainfall during the crop's growing season and YRCC-recommendedirrigation applications.10/ In the lower reach, shortagescan be expectedto occurduring the springand early summermonths, whichpermits application of the techniqueto onlyone growthstage for eachcrop, greatly diminishingcomputation time.

8/ Although2.8 millionha areaffected, about 0.8 millionha have firm supplies. About 2.0 millionha actuallybenefit from this project.

21 FAOIrrigation and Drainage Paper #33 Yield Response to Water.

10/ YRCCtecommended irrigation applications were checed againstFAO's CROPWAT derivations and a consultant'sindependent _ m. Theywere found tc berealistic and constet wbenextrapolated to basin-levelmagnitudes of irrigationwater demand. (Reference A7., Annex12) -89- 3

Base Case 2000 31. Thebase casepertains to the year2000, when the fulleffects of Xiaolangdi on irigation are expectedto be felt. The maximumyields expected to be attinable with full water supply are given in row "Average Yields-Maximum' of TAble8, and the maximumarea cropped is given in row "Irrigated Area-Maximum." Important parametersinclude the averagecanal system and field efficienciestargeted to the be achievedby 2000. Theseare: Henan Shandong Canal efficiency 0.60 0.60 Field efficiency 0.85 0.90 Total systemeff. 0.51 0.54 Equallyimportant to Xiaolangdi'sperformance is the assumptionabout inflowsto the lowerreach, i.e., main stem flowsto Sanmenxiaand lower reach runoff. The former dependson assumedrates of economicgrowth and hence diversion,supstream from Sanmenxia,which have been projected by YRCCto total about22 billion n3 .

Table 8: IRGATE AREA,YIELD, ANDPOWODUCTIN, WMn ANDWrHour nTEPioJEcr (2000PRoJECTD CoNDMoNs)

Ron= Tat ur: or kottron rauy Man..: OtUtO3 Xacy U~ .m Ott". r*

Irrizat.d Are* (llion WA) 1(aalm 718.347.1 2.39 1.19 16.2 13.31 8.9 1.89 24.38 20.S6 11.31 5.08 Without 8.34 7.07 2.35 1.19 14.22 13.51 8.69 1.89 24.58 20.38 11.24 3.08 Witb 8.34 7.17 2.39 1.19 16.22 13.51 8.92 1.89 24.58 20.68 11.31 3.08 averer1.ld (kaIe) WaZ3Mz 267 300 67 400 280 347 67 413 276 384 47 408 Witbout 218 232 33 400 270 294 61 413 232 276 40 408 WItb 262 251 S2 400 279 324 46 413 273 299 55 408 2 iur..z 20.51 8.42 12.6Z 0.0S 3.22 8.72 7.0S 0.0 8.31 8.6. 8.12 O.OZ Production(mllion too*) maxima 2.232 2.131 1S0 476 4.342 4 958 598 n7 6 774 7,109 758 1.257 withoeut 1,8!9 1.640 129 476 4,387 4.031 544 781 6S20S 3 S71 674 1 257 With 21.2 1.803 148 476 4.528 4.383 584 781 s,7206,186 732 1,237 tucez*". 373 143 19 0 141 332 40 0 314 313 59 0 2incese 20.53 9.9S 14.35 0.OS 3.21 8.72 7.41 0.02 8.31 9.11 8.7S 0.02 Valu of Production(Y millin) Witbout 3,373 1.419 1,438 649 8.14 3 436 4,043 1.044 11,507 3,113 7, 00 1,713 with 4,064 1,624 1.444 689 8,395 3.9336 4,509 1.064 12,439 5,579 8,133 1,713 lurcee. 491 147 208 0 241 3a1 444 0 952 465 6O5 2 ucr. 20.31 9.92 14.5X O.O 3.22 8.72 7.42 O.O 8.31 9.1S 8.72 0.01

32. WithoutXiaohngdi, small pats of the irrigatedarea revert to Iainfedin the driestyears, and wate shortagesforce achieved yields far belowtheir maxima. Itrigated productionis projectedto total 13.13million tons of grainand 674,000tons of cotton,and annualvalue added from irrigatedproduction is estimatedby the LRM at Y 19,383 million. With Xiaolangdi,it is never, in the 56 years simulated,necessary to abandon irrigatedland to rainfedstatus, and yieldsof all cropsexcept paddy increase by -te than -90_ - AI X 3

8 percent.11/ Productionof grains rises 1.03 million tons, and o)tton, by 59,000 tons. Value added from the irrigatedarea increases by Y 2,066 mililin.

33. The reductionin crop water stress in obtainedpartly from increases in total diversions to agriculture and by a redistributionof the seasonal irrigation pattem. As shown in Table 9, total diversionsincrease by about 2.6 billion 3 , but the increase in the 3 critical months, March-June,is even slightlymore. About 200 millionm of groundwater use is displaced.

Table 9: CKANGE iN DRSoNS AD GROwUWATERUSE (bi}lion m3)

Henan Shandong Total Change

WithoutXiaolanadi Agriculturaldiversions 3.025 6.656 9.681 Percentage 31.2Z 68.92 100o Groundwaterextractions 0.456 1.903 2.359

With Xiaolanxdi Agriculturaldiversions 4.218 8.065 12.283 2.689 Percentage 34.1S 65.9Z 1001 Groundwaterextractions 0.408 1.752 2.160 -0.199

34. The relative provincial allocations of Yellow River is of concern to policymakers;SPC has set the ratio betweenareas downstreamof Huayankouin Henan and Shandongat 1:2. Without the project, the Henan area faUsbelow this ratio, but with the project, the allocation (unconstrainedwithin the LRM) turns out to lie within a close tolerance. However, the increase in value added due to the project is relatively biased towards Henan (46 percent of the total) because (a) Henan's irrigation sector was more highly stressed in the without-projectcase, and (b) Henan has relativelysmaller reserves of annually exploitablegroundwater (1.05 billion ti3) than Shandong(2.5 billion m3).

35. Most of the benefit from Xiaolangdiis due to the reductionin crop water stress that increases yields closer to their maxima. A small part arises from the displacementof more costlygroundwater use, costedat Y 0.11/m 3 comparedto less costly Yellow River water (Y 0.04/m3 in Henan and Y 0.05/i 3 in Shandong). Costs of diversions (which include a desilting component) increase with diversions. The componentsof benefits, in Y million, are:

11/ Neither the aa undet pady nor its yield is pemitted to vuy with or wihout e project. - 91- ANEX 3

Increasein crop productionvalue (+) 2,066 Decreasein GWpumping costs (+) 22 Increasein diversioncosts (-) 162 Totalannual benefit 1,926 No increasein nonwater-relatedproduction costs as a resultof the yieldincreases were taken into account;most nonwater-relatedirrigated production costs are invariantwith respectto ultimatecrop yield.12/ 36. Examinationof the resultsfor eachof the 56 hydrologicalyears maldng up theaverage benefit revealed that Xiaolangdi'sbenefits are positivein everyyear, andquite stableover a widerange of runoff. Onlyin the verydriest years (wheninsufficient water is avalable to makefull use of the storage)and in the very wettestyears (whenthe need for additionalstorage is diminished)do benefitsdrop off. In the so-calleddesign year correspondingto P75, benefitsare about2,176, or 13 percentgreater thanthe 56-year averagewe adoptfor the base case.

Table 10; RUNOFFAND IIUUGATIoN BENEFTS (BASE CASE)

Probability range Average runoff Average annual benefit (billionm;) (Y million)

P75-P99 16.96 1,786 P50-P74 25.58 2,176 P25-P49 33.49 2,182 P01-P24 50.65 1,559 Entirerange 33.69 1,926

Base Case2020 37. The2000 base caseresults rest in largepart on the combinedjudgments of YRCCand mission staff to project certain parameterssuch as crop yields, canal efficiencies,and effectiveirrigated areas from tfie current base to 2000. In general,those projectionswere quite conservative. Beyond 2000, the projections become more difficult. With any degree of certainty,only crop yields and canal system efficienciescan be expectedto increase. We assumethe formerto growat a modest1 percentrate between 2000and 2020, and we assumethe latterwill havereached the "fullyrehabilitated' stage, currentlytargeted for 2010. Thus, canalsystem efficiencies in 2020 are takento be 0.72

IV Ina recentungaion prjec n thelower rech, abor mputs for wheat wee inad tomcrse by only11 pent whenyields icrased by 43 percent-a muchhrger changethan that pertiing toths project-HnH AgcdturluDevelopmentProject,World BankI.eportNo.9041-CHA (Aprl1991), p. 80. - 92 - ANNEX 3

and field efficiencies,0.90, in both provinces. Effectiveirrigated area is assumedto reach its upper limits by 2000, given systemwidewater shortages.

38. With these projectedchanges, average annual benefits are estimatedby the LRM to be Y 2,151 millionin 2020, an increaseover the base case 2000'of 11.7 percent. Between2000 and 2020, benefitsare interpolatedto increaselinearly. After 2020, benefits are assumed to remain constant.

Sensitivity Anayses

39. A number of sensitivityanalyses were performed with the base case 2000 model to determine the directionand probable magnitude of differencesin assumptions. Specifically:

(a) Crop Yields. If 2000-20('maximum") crop yields achieveonly 90 percent of the projectedlevels, then average annual irrigation benefitsdecrease by about 9 percent and the net present value of total project benefits will fall by Y 650 miflion,or 4.2 percent.

(,) Economic Prices. lf 2000 and later economic crop prices fall short of projections by 10 percent, then average annual irrigation benefits also decrease by 9 percent, and total project NPV decreasesby 4.2 percent.

(c) Canal System Efficiendes. If projected canal efficiency improvements result in efficiencies 10 percent lower than projected (i.e., 2000 shows no improvementfrom the 1990 levels, and 2020 shows achievementof 2010 projectedlevels), then averageannual irrigation benefits increase marginally to Y 1,942 million (0.8 percent). Although this scenario results in substantiallower gross productionand value added in both the with- and without-projectcases, the differencesbetween them actuallyincrease: lower canal efficiencies imply more intense seasonal shortages that Xiaolangdi alleviates.

(d) Upstream Demands. If upper- and middle-reach demands tum out 10 percent greater than projected (resulting in about 2.3 billion m3 less main-stemflows at Sanmenxia),then average annual benefits increase to about Y 2,101 million , or 9.1 percent. As was the case in (c), higher upstream demandsimply more intense shortagesfor the Lower Reach.

(e) Staged XiaolangdiOperations. If Xiaolangdi'spool elevation reservoir storage curve is specified by stage of operation,l3/ annual average incrementalbenefits in irrigationare marginallybetter, Y 1,963 million, an increase of 1.9 percent.

Il/ Thatis, 15 distinctresevoir elevationstorage curves, one stage foreach of the 14 yearsprior to the reservoirreaching equilibrum and one stagereflecting long-term equilibrium conditions. -93- ANN 3

Additional Considerations

40. M&I Supplies. Meeting M&I demands is given the highest priority by YellowRiver policymakers. Accordingly,the LRM was required to meet these demands first, and was able to do so in all inflow scenarios, both with and with'outthe project. Thus, no potentialbenefits from increasingthe reliabilityof M&I suppliesare taken into account.

41. Estuy Flows. In order to preserveestuary fisheriesand provide a reliable water suppl; to the oilfields in eastern Shandong, YRCC targets a constant flow of 50 m3/secat the sea. WithoutXiaolangdi, this requirementcould not be met in at least one month in 6 out of the 56 years simulated. With Xiaolangdi,it can be met in all months of all years. No attempt has been made to estimate the economic benefits from this improvement.

42. Sediment Fluhing. The need to manage sediment to reduce channel aggradationin the lower reach is one of primary motivationsof the project. Provisionfor sufficientwater to flush sedimentto the sea is a related concern among many studentsof the YellowRiver. YRCC studieshave indicatedthat 20-24 billion e 3 are neededannually for flushingwithout Xiaolangdi, and about 16 billion n3 , with Xiaolangdi. Given inflows to the lower reach, such targets are clearly infeasiblein many years, even if diversions were to be sharply curtailed. In fact, without Xiaolangdi,20 billion m3 was achievedin only 18 of the 56 years; with Xiaolangdi 16 billion n3 is achieved in 19 of 56 years. Rather than forcing the LRM to meet a hypotheticalsediment flushing constraint, the relevant YRCC experts were asked to review the flows simulated by the model to determie their adequacy. Thejudgment was that simulatedflows were adequateto ensure desired sediment flushing, closely matching those obtained from independent YRCC analyses. Therefore, no attempt was made to includea sedimentflushing constraint in the LRM, with or without Xiaolangdi.

43. Flm Power. The LRM attemptsto meet firm power targets in each monh defined as 16.67 percent of installed capacity (equivalent to four hours of pealdng generationper day) in 95 percentof months. The model achievedthe target in all but 5 of the 672 months simulated,a 99 percentreliability. This factor probablyresults in a small underesimatdonof benefits from irrigation.

E. PowER BENEJITS

44. The economicbenefits of Xiaolangdipower generationare dependenton the nature of plant serving the power market into which Xiaolangdi'soutput is to be fed, the level and pattern of future demand, and, finally, the hydropower characteristics of Xiaolangdi itself. These factors are briefly discussed; then results of the LRM joint optimizationof Xiaolangdifor power and imgation are presented. This annex concludes with a discussionof the results of a number of sensitivityanalyses. - 94 - EX3

Power Market

45. Existinghydropower developme'its on the middlereach of the YellowRiver are limited to run-of-riverplants at Sanshenggong(40 MW) and Tianqiao (128 MW) in Inner Mongolia,and Sanmenxia(250 MW) in ShanxilHenan. The power'outputof the two daily storage facilitiesis fed into the NorthwestPower Network, while that of Sanmenxia feeds the Central China Power Network (CCPN). Xiaolangdi(1,500 MW) is designedto operate as a peakingplant supplying80 percent of power outputto the CCPN through the Henan grid and 20 percent to the NCPN through the Shanxigrid.

46. North ChinaPower Network (NCPN). The North China Power Network covers Beijingand Tianjinmunicipalities, Hebei and ShaAxiprovinces and the westernpart of Inner Mongolia. The westernpart of this systemis rich in coal reserves, but the loads are mainly concentratedin Beijingand Tianjin. This situation gives rise to large mine- mouthcoal-fired power stationsand EHV transmissionlines, for example, the Shentouand Datong thermal power plants in Shanxi supply power via a 500 kV transmissionline to Beijingand Tianjin. There a;e only a few hydro resources located in the service area of this grid and hydropower accounts for only 4.5 percent of capacity and 1.5 percent of energy.

47. Central China Power Network (CCFN). The Central China Power Networkcovering Henan, Hubei,Hunan and Jiangxiprovinces, was initiallyformed in the 1960s with the interconnectionof the Hubei and Hernangrids through Danjiakou hydropower station on the Han River (a tributary of the Yangtze). In 1988, with the commissioningof the 5,600 kV transmission line connecting Gezhouba power station (2,715 MW, 16,000 GWh)on the Yangtze,to Zhuzhouin Hunan, the network as it exists today was basicallyformed. The hydropowerproportion in this network,primarily located in the Yangtzebasin, accounts for 40 percent of total capacityand 38 percent of energy. The only Yellow River hydro station feeding into this network is the Sanmenxiapower station. With run-of-river power stauons accountng for half of total capacity, hydro energy output reduces to half during winter months, which, with very high system load factors, leads to difficultiesin meeting the load during these months.

Load Forecast

48. The followinghistorical load demand data (fable 11) were obtained from MOE/MWRpublications. Peak load numbersin this tableare thoseat the consumerlevel, i.e., excluding losses, whereas the energy generation numbers are evidently at the generation level, i.e., includingsystem losses and consumptionby plant auxiliaries. In 1990,line lossesin the NCPNand CCPN were respectively7.39 percentand 9.52 percent. Stationusage throughoutChina averaged6.9 percent, but could be as high as 9 percentfor systemswith a high proportionof coal fired thermal capacityand as low as 2 percent for largelyhydro based systems. To provide a consistentbasis for maximumload forecasting, maximumdemand at the generation level was estimated (taking into account the above losses) to be 13,280 MW and 12,949 MW for the North and Central China grids. The annual peak load in the various networks occurs in November. - 95 - ANNEX3

Table 11: PEAKLOAD AND ENERGYGENATED

NorthChina Grid Central China Grid Peak load Energygenerated Peak load Energygenerated (aW) (GWh) (NW) (GWh)

1984 8,218 59,084 7,020 56,315 1986 9,972 69,409 7,960 66,412 1988 10,632 82,499 10,040 82,735 1989 12,600 88,141 10,800 90,125 1990 13,280 97,589 10,950 96,654

49. Energygeneration growth rates in the SeventhFive-Year Plan (7FYP)period (1986-90)were 8.7 prcen. and 9.2 percent, respectivelyfor the North and Central China grids. Peak demandgrowth rates were lower, at 8.3 percentand 7.4 percent, respectively, indicatingsupply constrainedgrowth. This is confirmedfor the daily systemload factors that are relativelyhigh, 88.8 percentand 89.2 percent, respectively. As a result of supply constraints, energy generation for the whole Jf China during the 1980s increased at an annual rate of 7.5 percent, slower than GDP growth of 8.9 percent. However, large capacity increases during the 7FYP permitted annual energy generation growth of 8.6 percent to exceed GDP growth of 7.6 percent.

50. For the decade of the 1990s, generatingcapacity for the whole of China is conservatively planned to grow at about the same rate as the economy. Even with concerted efforts in energy conservationand demand management,a faster growth is conceivable,in view of the plannedredeployment of basic industriesand of the likely rapid growth in the residential component. Growth in generating capacity will also need to exceed demand growth rates so as to achieve governmentplans to retire older, smaller, dirtier, and less-efficientcoal-fired plants. Recent revised economicgrowth targets (as high as 10 percent) would also require upward revisionof power generationtargets. For the purposes of this appraisal, demandand capacityexpansion forecasts were developed assumingaverage electricity growth rates of 7 percent and 10 percent. Total power and energy demandsand installedcapacities at the generationlevel, and incrementaldemands over those of 1990 are shown in Table 12 for the years 2000 and 2005.

51. The load forecastfor the Henan Power Grid was reviewed with the Henan Power Bureau. The actual load for 1989 and 1990 was 4,700 MW and 5,000 MW, respectively;however, about 1,400 MW of load was not met in 1989. The load forecast for 1995 is 6,035 MW. However, this value still excludes some 1,000 MW that will be curtailed due to a shortage of generation. The load forecast in the year 1999, the in-serviceyear for the first two units at Xiaolangdi,is about 9,380 MW and it is assumed the load curtailmentswill be negligible. The load growth rate used in the study over the following10 years is about 6 percentand is consideredto be reasonablyconservative. The -96 - ANE 3

Table 12: CAPACiTYJNCREmEN (MW)

North China Grid Central China Grid

To Year 2000 Growth rate 7% 17,874 19,341 Growth rate 10% 29,454 31,872

To Year 2005 Growth rate 7% 32,509 35,178 Growth rate 10% 58,719 63,540

load forecast for the Henan grid is summarizedin Table 13. The loads indicated in Table 13 include systemlosses and therefore represent the generationrequirements.

Table 13: FoREcnsr OF PEAK LOAD AND ENERGY

Year Peak Load Energy Load Factor (MW) (G) (%)

1995 6,035 39,830 75.3 1999 9,384 61,209 74.5 2000 10,481 68,150 74.2 2005 13,801 86,950 71.9 2010 17,936 109,410 69.6 2015 22,731 136,400 68.5

HydropowerStation Chancteristics

52. As presentlyconceived, Xiaolangdi's pool elevationwill be graduallyraised through time and the reservoir operation priorities will be dictated by flood control, sedimentationcontrol and irrigation. Based upon studies carried out by YRCC, it is anticipatedthat the power energy capabilityof Xiaolangdiwill be as follows (Table 14).

53. In determining these capabilities it was assumed that each of the six generatingunits could producea maximumoutput of 300 MW and that from the year 2001 onwards the equivalent of one unit would always be out of service for planned maintenance. Xiaolangdiis designedto operateas a peakingplant and its installedcapacity was chosen based on minimumgeneration of four hours per day in dry months. This is appropriateconsidering the very low proportion of peaking capacity in the two power networks. -97 -AMUX 3

Table 14: XIAOLANGDIGENERAIION LOAD AND ENERGY

Period No. of Dry Year Averame Units MW GWh MM GWh

1999-2000 2 398 2,188 561 3,069 2000-01 4 797 2,296 1,146 3,729 2001-02 6 996 2,296 1,433 3,884 2002-08 6 1,399 2,860 1,500 4,773 2008-11 6 1,500 3,275 1,500 5,376 2011- 6 1,500 3,313 1,500 5,429

The Wiflingness-to-Payfor Electricity

54. The benefitof electricityis traditionallyvalued on the basis of "willingness- to-pay," which is often computedby addingthe average tariff paid by the consumerto the estimated consumnersurplus. It is appropriateto use "willingness-to-pay"or alternative cost, whicheveris the lower.

55. China has large reserves of low-ost coal, and manufactureslow-cost coal- fired generationequipment. Oil and gas resourcesare limited, and in view of their value as chemicalfeedstocks, the Governmenthas banned oil and gas use for power geneation. Natural gas generationexists in smallamounts, but only in areas where gas is availableand coal is in short supply. In the potential service area of Xiaolangdi,which has very little existinghydro to providepeaking capacity, alternative power generationis limitedto coal- fired thermal plants. If it can be shown that the "willingness-to-pay"is higher than the alternativecost of coal-firedgeneration, the appropriatebenefit measure to use is the cost of coal-firedgeneration.

56. Until 1986,electicity tariffs in China had been generally unchangedsince 1953 and were well below the marginal cost of supply. However, at that time, the Government recognizedthat large increases in electricity prices would be required to finance electricity system expansion. With this aim the tradiFionalpractice of grant financingwas replaced by debt financingof new power plants, and a "new power/new price" policywas formulated. This providedthat all consumptionabove 1985levels would be priced at higher levels, computed so as to permit new plants to repay debt. Since electricityconsumption has almost doubled since 1985,and demandis still constrainedby supply, there is ample evidence that. at the margin, consumers are willing to pay the higher price. In the North China and Central China grids where additions have been largely coal-firedplants, and where demandis particularlyconstrained, a "willingness-to- pay" tariff based on coal-fired generationcosts is amply demonstrated. An even higher "Huaneng"price is being paid for power from a numberof coal plantsfinanced by export credits with short maturitiescommissioned in the late 1980s. It is reasonableto conclude - 98 - AN= 3 that "willingness-to-pay"exceeds the alternativecost of supply based on coal-fired generation. 57. Generationcosts for coalplants at variouscapacity factors were calculated on the followingassumptions concerning economic costs and plant characteristics as shown below: Flxed Operating Costs CapacityCosts Y 2,830ikW(generation level Disbursements 100%,30%, 40%, 20% EconomicLife 30 years AnnuityCost Y 409/kW O&Mper kW Y 85/kW(3% of capitalcosts) Totalper sent out firm Y 697/kW(77% availability, 8% auxilaries)

VariableOperating Costs LRMCcoal Y I10 per ton Consumption 0.325kg/kWh of standardcoal of 7000kcal/kWh Fuel cost 0.0358/kWhgenerated 0.039/kWhsent out (8% auxiliaries) Var. operatingcost Y 0.0005/kWh Totalvariable cost Y 0.0395/kWh

OperatingCosts at VariousDependable Capacity Factors CapacityFactor Cost per kWh 16.67% Y 0.517 25% Y 0.358 78% Y 0.142

58. The optionsconsidered as candidatesfor supplyingthe load are coal-fired plant (uMtsizes of 200 MW, 300 MW, 350 MW and 600 MW), 100 MW combustion turbines,a pumpedstorage plant (4 x 300 MW) at Bao Quanwith the first two units cominginto servicein 2001and Xiaolangdi(5 x 300 MW)with the first two unitscoming into servicein 1999.14/ 59. The annualsystem load factor for the Henangrid is 78 percent. Sincethe systemis largelycoal based, the valuecalculated should approximate the LRMCat the sent-outlevel of the system. Adjustingfor 20 percenttransmission and distributioncosts and7 percentdistribution losses, gives a costof Y 18.2/kWhat theconsumer level, which is very close to the LRMCof Y 17.7/kWhestimated in the YanshiThermal SAR, which confirmsthe consistencyof the estimatingapproaches. Since Xiaolangdi is designedwith a capacityfactor of 17 percent,it is appropriateto use the correspondingvalues derived above for finn energy, that is, 51.7 fen/kWh. Since this instled capacityis fully

141 Thermalmt data(opetng chaactenstis and costs)ae prsentedn theYRCCICYN Proct bief dat September1991. The cost dab wereadjusted to reflect1993 prices. - 99 - AN 3 supportedby firmenergy, the onlyvalue of secondaryenergy is the avoidanceof thermal generation,valued at the variablegeneration cost of 3.95 fenlkWh. The EconomicBenefits of XiaolangdiPower Generation 60. In theLRM, the power generating capabilities of Xiaolangdiand Sanmenxia and the operationof lower reach irrigationsystems are jointly optimized. For both reservoirs,energy olltput is computedas a nonlinearfunction of two endogenousvariables, flowand head. Flov throughthe powerhouseIs limitedto maximumdischarge capacity of 1,575m 3 /sec. Headis the differencetetween pool elevation, a functionof storage,and tailwaterelevation, a funhionof discharge,less a hydraulicefficiency factor. Giventhe designof Xiaolangdifor peakingand the very low proportionof peakingcapacity in the grids servicedby Xiaolangdi,firm power output of Xiaolangdiwas limitedto four hours per day. The LRM.was run with a monthlytime-step, optimized on an annualbasis, for the full56-year desigr, stries (1919-74),in whichXiaolangdi is modeledgiven an elevation storagerelationship based on long-termeffectve storageof 5.1 billion n3. Summary resultsfor the powercomponent of LRMfor the year 2000are presentedin Table 15.

61. The averageannual simulated energy output is 9 percenthigher than YRCC expectations. CIPM's simulationmodel computedan average annual energy output between6,100 and 6,300 GWh;however, these resultsdo not accountfor Xiaolangdi's sedimentcontrol operationsduring the flood season. By contrast,the LRM reduced maximumpowerhouse discharge limits 30 percentduring the floodseason to reflectthese operations. YRCCmanually adjusted simulation results downwards to 5,430 GWhin an unknownmanner. 62. The firmpower target was metin 99 percentof the months. This is a slight overestimateof the 95 percentfirm power reliabilitytarget usually assumed in Chinese estimatesand is an artifact of the high price paid for firm power and the model's assumptionthat the systemis operatedwith foresightso as to optimizethese high-valued poweroultputs. The averagemonthly pattem of energyoutput is somewhatsmoother than that producedin YRCCand CIPMsimulations. 63. Given that Xiaolangdiis designedas an annual storagefacility it is not unexpectedthat annual average incremental value added in agricultureis largelyunaffected by large changesin annualaverage energy production. While minimum incremental value addedin irrigationis only 11 percentless thanaverage, minimum annual energy output is 61 percent less than average.l5/ A more interestingexamination of the tradeoffs betweenagriculture and energyis analyzedin the sensitivityexperiment that comparesan increasein monthlyfirm target against the base case, seebelow. NotwithstandingYRCC's relatve priorites for the lower reach, the benefitsof Xiaolangdipower generationare substantial,on average$241 million per year(88 percentfrom firm power and 11 percent

15/ In the wetest years incrementdvalue added in agdcultureis very low becue thee ar sufficit iMflowsto meet an nees. l0 - ANNEX 3

Table 15: POWR GENERATIONBY XJAOLAGDI

56-Year Avg. 56-YearMax. 56-Year Min.

Power Generation (GWh) Peak power 2,186 2,194 2,000 Base power 3,720 7,27' 293

Total Power 5.906 9.465 2.293

Monthly Eneriv Output (GWh) July 570 697 114 A4gust 593 697 182 September 423 697 59 October 485 1,095 182 November 583 1,095 225 December 581 1,095 182 January 374 664 192 February 199 251 182 March 496 848 183 April 499 1,016 183 May 433 1,095 183 June 669 1,095 183

Value of Enerav (Y million) Peak power 1,130 1,134 1,034 Base power 147 291 12

Total Power 1.277 1.422 1.046

Value Added in Irrigation (Y million) With XLD 13,955 15,491 9,345 Without XLD 12,354 15,376 7,917

Incremental 1.601 115 1.428 from secondarypower), 80 percentof averagemcremental value added in irrigapionand fullyone thirdof all projectbenefits. Sensitiviy Analyses 64. The sensitivityof the base case was tested by examiningthe effect of increasingand decreasingtrbine units in the powerhouse,by increasesin offes upstreamof Sanmenxia,and by assumingnew peaking capacity additions to the gdd that requre Xiaolangdi'sfim powertarget to be increasedto six hoursper day. Average incrementalvalue added in agncultureis remarkablystable to large clanges in power generaon cacity. Energyoutput changesin predictablefashion without, however, - 101- AN-I markedlychanging total energy value; a 20 percent decrease (increase) in capacity only decreases(increases) total energy value 17 percent (16.5 percent). This subduedresponse is the result of model efforts to maximizepeaking capability. Similarly, a 6.5 percent decrease in averageannual inflows inducesa 7 percent decreasein averagenet diversions, a 2 percent decrease in average total value of energy and only 0.6 percent decline in average firm power, but average secondary power output declines 12 percent. An experimentto examinethe effect of highermonthly firm power targets confirmsthat in any reasonableenergy-irrigation tradeoff, irrigation is basically unaffectedby large monthly changes in firm power targets. With a monthly firm power target of 25 percent of installedcapacity (six hours a day, valued at 35.8 fen/kWh),incremental value added in agriculturedeclines 6 percentfrom the 2000base case and value addedin power 2 percent. As expected, total power output is almost identical but firm power increases 47 percent while secondarypower declinesby 30 percent. Summaryresults of these experimentsare presented in Table 16.

F. SUARY RESULTSOF ECoNoMc ANALYsS

65. The economicbenefit cash flow streams, as derived from the analysesof the previous four sections,are containedin the columns(B) through(E) of the summarytable (Table 17), togetherwith the total benefitsby year (F). Column (G) containsthe economic costs of the projectderived from Annex2, Project Costs. Economicprices for tiontraded inputs were calculatedbased on the local free-marketprices or were estimated using the conversionfactors. The conversionfactors were estimated based on an analysis of the derivation of social opportunitycosts from ctual financialprices prevailing in the project area caused by taxes and price distortions in nontraded goods. The foreign exchange componentsof costs were convertedto local currency using tiie shadow exchangeratz of Y 7.5 to $1. The cost entry for the year 2002 includesthe economicvalue of operation and maintenance,which is assumedto constantat Y 255 millon thereafter.

66. Column (H) is the net benefitstream, the differencebetween total economic benefitsand total economiccosts. The net benefitof the project, discountedat 12 percent, is Y 4,628 million, and the internal rate of return is 17.9 percent

67. Extensive sensitivity analyses on these results were carried out and are described earlier in this annex, and in Chapter 5 of the main report. -102 - ANNEXa

Table 16: Pow= GECRATINSENMSV ANALYSI

Peak B8s, Total Iner. Peak Bose Total Energy Energy Energy Value Energy Energy Energy Value Value Value Irrig. ------(GWh) ------(Y milliov) ------

Base Case Avg 2,186 3,720 5,906 1,130 147 1,277 1,601 Max 2,194 7,271 9,465 1,134 291 1,422 115 Min 2,000 293 2,293 1,034 12 1,046 1,428

4 Turbines Avg 1,752 3,790 5,542 960 152 1,056 1,622 Max 1,756 6,824 8,580 908 273 1,177 115 mnm 1,668 623 2,291 862 25 887 1,453

6 Turbines Avg 2,606 3,553 6,159 1,347 142 1,488 1,583 Max 2,633 7,705 10,339 1,361 308 1,666 115 Min 2,277 6 2,283 1,177 - 1,178 1,432

IncreasedUp- stream Offtakes Avg 2,173 3,260 5,433 1,123 130 1,252 1,75f' Max 2,194 6,982 9,177 1,134 279 1,410 177 Min 1,793 - 1,793 927 - 927 753

IncroasedFirm Power Target Avg 3,211 2,682 5,893 1,150 107 1,255 1,501 Max 3,285 6,168 9,453 1,176 247 1,420 115 Min 2,406 - 2,406 861 - 861 1,449 - 103 - ANNEX3

Table 17: SUmmARYOF Cosr BENEFTICASH FLow STEAMS (Y mmion) Disc. Benefits: Y 15,418 million B/C 1.74 Disc. Costs: Y 8,855 million EIRR 17.9% Exch. Rate (Y/$) 7.5 Tot. Econ. Cost (Y million): 13,925 Tot. Econ. Cost ($ million): 1,856

Total Itri- Sedmaent Flood Total Project gation Control Control Pwevr Benefits Costs B-C (B) (C) (D) (E) (Y) (G) (8)

NPV @ 12X 6,740 1,409 3,645 3,624 15,418 8,855 6,563 (S million) (899) (188) (486) (483) (2,056) (1,181) (875) 43.71 9.12 23.62 23.5 100.01 1993 758 (758) 1994 1,510 (1,510) 1995 1,548 (1,548) 1996 2,245 (2,245) 1997 2,246 (2,246) 1998 1,779 (1,779) 1999 1,734 (1,734) 2000 437 764 1,202 1,372 (170) 2001 1,926 437 794 631 3,788 382 3,406 2002 1,937 437 816 857 4,048 349 3,699 2003 1,949 437 840 926 4,151 255 3,896 2004 1,960 437 864 1,119 4,380 255 4,125 2005 1,971 437 889 1,119 4,416 255 4,161 2006 1,982 437 915 1,119 4,453 255 4,198 2007 1,994 437 942 1,119 4,491 255 4,236 2008 2,005 437 969 1,119 4,530 255 4,275 2009 2,016 437 998 1,119 4,569 255 4,314 2010 2,027 408 918 1,268 4,622 255 4,367 2011 2,039 277 946 1,268 4,530 255 4,275 2012 2,050 277 975 1,268 4,570 255 4,315 2013 2,061 277 1,005 ?,277 4,621 255 4,366 2014 2,072 277 1,037 1,277 4,663 255 4,408 2015 2,084 277 1,069 1,277 4,706 255 4,451 2016 2,095 277 1,102 1,277 4,751 255 4,49G 2017 2,106 277 1,136 1,277 4,796 255 4,541 2018 2,117 277 1,172 1,277 4,843 255 4,588 2019 2,129 277 1,208 1,277 4,891 255 4,636 2G20 2,140 277 1,246 1,277 4,940 255 4,685 2021 2,151 120 1,285 1,277 4,833 255 4,578 2022 2,151 120 1,326 1,277 4,874 255 4,619 2023 2,151 120 1,368 1,277 4,916 255 4,661 2024 2,151 120 1,411 1,277 4,959 255 4,704 2025 2,151 120 1,456 1,277 5,004 255 4,749 2026 2,151 120 1,503 1,277 5,051 255 4,796 2027 2,151 120 1,551 1,277 5,099 255 4,844 2028 2,151 120 1,601 1,277 5,148 255 4,893 2029 2,151 120 1,652 1,277 5,200 255 4,945 2030 2,151 67 1,705 1,277 5,200 255 4,945 2031 2,151 75 1,761 1,277 5,263 255 5,008 2032 2,151 75 1,818 1,277 5,320 255 5,065 2033 2,151 75 1,877 1,277 5,379 255 5,124 2034 2,151 75 1,938 1,277 5,440 255 5,185 2035 2,151 75 2,001 1,277 5,504 255 5,249 2036 2,151 75 2,066 1,277 5,569 255 5,314 2037 2,151 75 2,134 1,277 5,637 255 5,382 2038 2,151 75 2,204 1,277 5,707 255 5,452 2039 2,151 75 2,277 1,277 5,780 255 5,525 2040 2,151 75 2,352 1,277 5,855 255 5,600 2041 2,151 84 2,430 1,277 5,942 255 5,687 2042 2,151 84 2,510 1,277 6,022 255 5,767 2043 2,151 84 2,594 1,277 6,105 255 5,850 2044 2,151 84 2,680 1,277 6,192 255 5,937 2045 2,151 84 2,770 1,277 6,281 255 6,026 2046 2,151 84 2,862 1,277 6,374 255 6,119 2047 2,151 84 2,958 1,277 6,470 255 6,215 2048 2,151 84 3,057 1,277 6,569 255 6,314 2049 2,151 84 3,160 1,277 6,672 255 6,417 2050 2,151 84 3,267 1,277 6,778 255 6,523 Peopls Republicof China XaobngdlMultipurpose Pr*ct PhaseI and11 (1994-2001 June) ProcwuentArrangemnts (US$ Minion) Procuremet Metho Categoryof AeUvies Intemational Local Training Competitive Competite intrnional Diect Consulilng Bldring dd S Contracti Servics N.13.F. Total A. ChivWork MajorChl Works/a 1,200.26 1200.26 (384.38) (384.38) MinorCdi Works b - 120.00 - 196898 316.9B (21.90) (21.90) B. MechanicWorks MechanicPiantUats etc - - - 1.20 - 200.92 202.12 (1.20) (1.20) Installationof Meanic PiGes - - - - - 3.62 3.62 C. Eletic Works ElecticPlant - - - 1-64.07 164.07

Instalaonof Elc Pta - - - - - 2.66 2.66 D.Admlnlstlo geng Offic/Design Equipment - - 2.10 - - 0.14 2.24 (2.05) (2.05) Vehiles kc 319 - - - - - 3.19 ° (2.78) (2.78) ForeignConsullancy Seves id - - - 23.69 - 23.69 (11.47) (11.41) LocalConsulancy Services - - - - 22.42 - 22.42

ContractManagement /Sie SupevisonIs - - - - 58.43 58.43 TrainingI * - ,1.05 - 1.05 (0.61) (0.81) E. InstitutionalSupport - - - 0.54 2.35 - 2.89 (0.43) (1.94) (2.38) F. EnvironmentMonltoting3Management/g 1.21 0.10 0.94 - 5.18 15.86 23.29 (1.04) (0.02) (0.94) (1.04) (3.04) Total 1,204.66 120.10 3.04 2.79 53.64 842.58 2.026.81 (88.21) (21.92) (2.98) (2.44) (14.45) (0.00) (430.00)

Note:Figures in parenhesis are the respective amounts financed by Theintemationa Bank of Reconsrucion& Development Ox \a Themajor divworks Is dMdsd into three lots. b Includingsite preparation and woiks done by localconttactors bcincuding vehicles for RP&DI,Consultant \d accordingto Annex10 is Inncudhgthe recruibtent of localconsutant V includingoverseas & ocaltraining includingprocurement of instrumrentand construction of infrastructure -105- ANNEX4 Table 2

;~~~~~*e i .0 t. *! * s t p.. C S ~~~~~~~~~~~~~~~C

aXi 'a i 9 | I I I X | I0S 4.f ,{§t|c

i d si ,,, .: (i4 gs9s>C

i l ' 0 ~~~~~~N 0 t 40

- - -, -~~~~~~~~~~~~d

id~~~~~~~~~~~

t~~~~~~~~ -106 - 4 Table 5 CHINA

XIAOLANGDIMULTIPURPOSE DAM PROJECT

LOAN DISBURMENTSCHEDULE

IEBRD Disbursement Project FiscalYear Semestral Cumulative Cumulative Profile/a Semester - US$Million - (%) (%) 1994 1st 0.00 0.00 0.0 0.0 2nd 40.00 40.00 8.7 30.0 1995 1st 75.00 115.00 25.0 . 38.0 2nd 75.00 190.00 41.3 46.0 1996 Ist 75.00 265.00 57.6 54.0 2nd 75.00 340.00 73.9 66.0 1997 Ist 60.00 400.00 87.0 70.0 2nd 55.00 455.00 98.9 82.0 1998 1st 2.50 457.50 99.5 86.0 2nd 2.50 460.00 100.0 94.0 1999 1st 0.00 460.00 100.0 96.0 2nd 0.00 460.00 100.0 98.0 2000 1st 0.00 460.00 100.0 98.0 2nd 0.00 460.00 100.0 100.0

Ia Disbursementprofile - Bankstandard disbursement profile for agriculturalsector in China CompletionDate: December31, 1999 ClosingDate: December31, 2000 - 107 - ANNEX

FINANCIALANALYSIS

Background

1. Water Charges. The Chinese governmentbegan to emphasize pricing policies and financial accountabilityin the water conservancysector in the early 1980s. Since mid-1980s,it has been the governmentpolicy that the charges for irrigation water shouldbe high enoughto recover all the capital and O&Mcosts, while fees for M&I water should be raised to the level that a reasonablereturn for the investnents can be obtained.

2. In line with this policy, YRCCincreased its chargeson water divertedat the lower reaches of the YellowRiver to a ful cost-recoverylevel in the early l990s. For the XiaolangdiProject, an agreementhas been signed betweenYRCC and YRWHDC,under which YRCC would set the water fees at the full cost-recoverylevel, and collect the fees for YRWHDCwith a service charge after the project is completed.

3. Power Market Structure and Tarfff. Since there is only one buyer in the major market for the project, i.e., the Henan Provincial Power Bureau, this is a market where the buyer processesconsiderable monopsony power over the suppliers. Therefore, unless buyers for the free-standingsuppliers in the grid increase to a reasonablenumber, regulatorymeasures to containthe monopsonypower will alwaysbe necessary.

4. A "new power, new price" policy has been adoptedby the governmentto encourageinvestment to the power sector since the mid-1980s. Under this policy, tariffs for power suppliedby new facilitiesare alowed to be set at a level that a reasonablerate of return to assets can be achieved. For power projects financed with domestic nonbudgetaryfunds, a clearly defined picing procedure/mechanismwas stipulated in government regulations. Policy allowing peak/off-peakprice parity was also adopted during the same period. However, for projectsfinanced by foreign funds, the regulations only vaguely stipulated that tariffs should be determined based on costs, taxes and necessaryprofit. No clear-cutprocedures/mechanism have been defined so far.

5. YRWHDCis ownedby MWR while tariffsare determinedby the Henanand Shanxiprovincial power and price bureausaccording to the governmentregulations, which is determined by the Ministry of Power (MOP). Under the ongoing trend of decentralization,provincial authorities always attempt to retain resourcesin the provinces as much as possible. This compelsthe provincialbureaus to lower the tariffs for projects controlled by the central authoritiesso that less resources will be transferred out of the provinces. - 108 - ANNEXS

6. MWR is currently not in the position to exert control over provincialpower bureaus. However, its administrativepower still can be used to convince provincial authorities to pay higher prices for the centrallyowned projects. From a business point of view, as a single se}lerfacing the monopsonyof provincialbuyers, YRWHDCis in a very weak negotiatingposition to obtain a favorablepower tariff.

7. A high supply tariff policy can have the very different implicationsfor power suppliers within MOP or outside the MOP system. For projects within MOP system, a higher supplier price will usually end up with more income for the power authoritiesas a whole. If the supplieris solelyowned by the power authorities,the higher supplierprice basicallyrepresents an internaltransfer price, while for those suppliersonly partly owned by the power authonties, the power bureaus still can benefit from its ownership. However for a project controlled by MWR, which is outside of MOP's control, a higher supplier tariff would result in reduction of the incomes of the power bureaus.

8. There is a lack of well-definedregulations to streamline the emerging supplier-monopsonybuyer relationshipfor the power sector. This lack of regulation affects the many free-standingsuppliers for the power grds that are now in the market.

9. Despiteof above-mentioneddifficulties, assurance will be obtainedfrom the governmentthat before April 30, 1998, a power sales agreement,acceptable to the Bank, will be entered into which establishes:

(a) the procedure for initially setting, and periodicallyadjusting the average tariff for electricity supplied by the Project, to achieve a projected real financialrate of return (FIRR)of no less than 10 percent, on the proportion of th.eproject capital and operatingcosts allocated to power;

(b) the principlesfor determiningthe tariff structure, that is the proportion of the averagetaiff that is denved from capacitycharges and energy charges (which may also be variable depending on time of day and season), to ensure efficientdispatch of the power producedby the project, and reduce the financialrisk of supply due to the low-flow hydrologicalconditions.

10. With regard to the first provision, the proportion of common cost (dam, reservoir, resettlement,etc;) atlocatedto the power unit was agreed by YRWHDCand the Bank at negotiations,using estimatedcosts and benefits at the negotiations,and based on the separable-cost-remaining-benefitscost allocationmethodology.

11. The adopted mechanismfor tariff determinaon and adjustmentshould as far as possible maintain power tanff relatively constant in real terms, eliminating the negative impact of inflation, and provide for a better match between cash inflows and outflows of YRWHDC. -109 - ANNEX S

12. Flnancial Autonomy. To increase financialincentives and accountability, the government greatly decentralized its management system of the sector. Water conservancyinstitutions were first asked to adopt businessmanagement systems in early 1980s. Since the late 1980s, they have been allowed to covert themselvesinto publicly owned corporations, and become fully responsible for their financial performance accordingto the EnterpriseLaw. This trend of decentralizationis furtherenhanced by the recent governmentdecision to establisha market economyin China.

13. Against this background, YRWHDC has been set up as an independent publiclyowned corporation. It will have the same financialautonomy and accountability other publicly owned enterprises have according to the Enterprise Law. To further enhancethe financialaccountability of YRWHDC,a profit center would be set up for the hydropower operations, and separate cost accounts would be maintained for the water supply, and flood/sedimentationcontrol operations. Althoughcross-subsidization is not avoidable for this multipurpose operation because of the very different financial circumstancesfor the three majoroperations, it wouldbe clearly separatedfrom the actual revenue and expensesof the accountingunits.

14. Changing PolicyEnvironment. There are several policy changesthat will have important bearings on this analysis. First, in 1989 new guidelines for financial/ economic evaluation of hydropower projects was adopted by MWR and Ministry of Energy, in which an FIRR of 10 percentwas selectedas the minimumacceptable financial rate of return for a hydropowerproject. Second,a new accountingsystem designed in line with internationallyaccepted practices replaced the existing system on July 1, 1993. Implicationsof the new systemon the existingpower pricing policy, e.g., the "new power, new price" policy is still unknown, as details of the system are still being formulated. Anotherimportant movement in the accountingaspect is regulationsfor assets revaluation, which are reportedlybeing formulatedfor the water resources sector, and already being tested in some of the large grids for the power sector. Objectivesof FinancialAnalysis

15. Based on the discussionsabove, the analysis should mainly focus on the power component and should be aimed to establish the basis for a proper pricing mechanism. More specifically,the analysis should determine an appropziateprice level that has to be obtainedand also recommenda price adjustmentmechanism that will ensure its realization. The analysisshould then test the financialhealth of YRWHDCaccordingly. In fact, the niore conventionalanalysis could not be carried out before tariff level is determined. For water charges, as an agreement which calls for full recovery of total water supplycosts, has be signed betweenYRCC and YRWHDC,to correctlyidentify the costs is what have to be accomplishedin this analysis for the water supply component.

Methodology

16. Taking into accountthe specialfeatures of the project mentionedabove, the analysis was carried out in the following steps. First, sepate projected financial -110 - ANNEXS statementswere establishedfor the corporationas a whole and for the power unit. The separablecost remainingbenefit approach was used in allocatingthe commoncosts to the power unit. Other detailedassumpdons are listed in Appendix1 of this report. A roughly estimatedtariff level was used for the financialstatements at this stage.

17. Second, a constant tariff was derived using the 10 percent required FIRR criterion and was compared with the economic tariffs obtained during the economic analysis. This was aimed to check whether the tariff derived was consistent with the economic objectives.

18. Third, using the required FIRR as a benchmark, four different price determinationapproaches were then tested for their susceptibilityto inflation, smoothness of the derived tariffs, and whether tariff levels are appropriatecompared to the economic tariff level. The followingare the four approaches:

(a) The "new power, new price" approach, where tariff are adjustedevery year so that during repaymentperiod, the power sales revenue covers the debt service requirement,operating costs minus the portion of depreciationthat is allowedto be used for repayment,and the averagelevel of retained profit for the grid. After repaymentis completed,the required revenue is set at the level that a grid average rate of return on assets can be achieved;

(b) The debt servicecoverage ratio method,where tariff are adjustedevery year so that during repaymentperiod, predeterminedratios between net revenue and total debt service requirementscan be maintained;

(c) Rate of return on assets method. Under this approach, tariff will be adjusted every year to obtain predeterminedrates of return on revaluated assets;

(d) The constantprice plus index method,where a price level is first established at a constant price level, and then indexed to the inflation rate for later years.

19. Fourth, the future financialhealth of the corporationand the power unit was then checkedunder each pricingassumptions. Sensitivityanalysis, including the sensitivity on the changinghydrological conditions, were also tested in this stage.

20. A spreadsheet model was built to carry out the analysis. The model is equippedto test aU the four differentpricing approachesand their sensitivity. The model can also handleforeign exchange losses and asset revaluationgains, and test variables such as river flow. -111l - A X 5

Conclusions

21. Tariff Level and Pricing Mechanism. The 10 percent required FIRR turned out to be quite acceptable. A constanttariff of about 18 fenlkWhat the 1993 price level is required for the power unit to reach this FIRR. The price is sligl5tlyhigher than tL.eLRMC value, which standsat 17.5 fen/kWh, and lower than the avoidedcost tariff of 23.4 fen/kWh. Consideringthe difficultieswe are facing, this is a realisticand achievable price level. This is more so when the specific pricing mechanism is taking into consideration. Under the first three approachesmentioned above, tariff would be set at a much higher level (20-23 fen/kWh)in the first 10 years or so than the later years.

22. The debt service coverage ratio based pricing approach seems to be very promising. With this approach, the tariff remain quite constantat 19-21 fenlkWh (1993 price level) during the first 10 years after commissioning,which is right in between the power values based on avoided cost and LRMC. Due to the fact that most of the items used in deriving the ratio are quite inflation-proof,this approach is also very insensitive toward changinglevels of inflation. The rate of return approach is also very promising, with similar feature of the debt service coverageratio.

23. The "new power, new price" approach gives a lower FIRR (8-9 percent), due to the longer terms of the 1BRDloans. However, there is some built-in vaguenessof the approach, e.g., the grid average retainedprofit of the power generationenterprise, etc. The ongoingreforms of the accountingsystem also imposessome majoruncertainties. For instance, whether the debt service will be allowedbefore or after income tax payment is not clear althoughtheir implicationon the enterprises' cash flow will be substantial. Time is needed before more details of the reforms is unfolded.

24. The indexingapproach resultedin a poor match betweenthe cash inflows and outflow at the early years of operations. This approach is unfavorablefor a new enterprise like YRWHDC. To select a suitable price index may also be a difficult undertaking. Furthermore, the indexingmethod as a whole is not likely to be acceptedby the price bureaus becauseof the lack of acceptabilityby consumers.

25. Future Finance. The projectionsof YRWHDC's financesfor 1992-2008 are presented in Tables 1-5. The projections are based on the assumptionscontained, which include tariff and water charge adjustmentsneeded to allow YRWHDCto achieve the above financialperformance targets and conformnto the agreed tariff and water charge action plan. Under these assumptions, the corporation would reach and maintain a strong financialposition shortly after the commissioning. By the year when the long-termdebt is completelypaid off, funds that could be used for new investmentswould be more than Y 7 billion in cumulativeterms, assumingno remittancesare paid.

26. Actual power supply will fluctuate substantially with the changing hydrologicalconditions. Accordingto the availablehydrological data, the worst recorded multiyear dry period lasted for 12 year. If this worst multiyear dry period occurs immediatelyafter commissioning,it will cause an averageannual reductionof 35 percent -112- ANN 5 in power generationfor almostthe entire repaymentperiod. However,even under the worstscenario, peak power would only be reducedslightly (around 5 percent);tfierefore, to whatextent that the salesrevenue is reducedwill dependmuch on the tariffsfor peak and off-peakpower. 27. Sensitivityanalysis shows that if the tariff for peak poweris three timesof that of base power, then the reductionof total powerrevenue would be 22 percentper annum,resulting in a 2.1 percentreduction of FIRRfor the powerunit. The corporation wouldneed to makeadditional borrowing for seven years, with maximum year-end balance of Y 998 miLlion.Those figures would be reducedto 1.8 percent,six years, and Y 886 million,if the peak/baseratio increaseto 4:1. However,should the sameprices be paid for the peak and base power, the reductionon FIRR would be 3.6 percent, and the additionalborrowing would be neededfor 16 years,with a maximumyear-end balance of Y 1,923million. This indicatesthe importanceof a propertariff structurefor managing hydrologicalrisk due to low flows. CHINA Xfaolangdf Multipurpose Project Yetlo"4 River later and Hydro-Etectric Power Devetopment Corporation ~...... Projected Balance Sheet (1994 - 2016) )ebt Coverage Pricing) (NftlionYuan) ...... tar Ended Oeceber 31 1°.9 20D0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 isets wrrent Assets Cash 30 31 32 115 675 1,304 1,861 2,509 3,170 3,866 4,566 5,272 5,991 6,7t6 Accounts receivabte (net) Power 0 56 92 115 150 153 196 203 21t 225 Yater 234 243 2S2 262 0 44 54- 63 73 82 92 101 110 120 129 139 144 149 Provisionfor bak debt 0 (14) (18) (23) (23) (23) (23) (23) (23) (23) (23) (23) (23) (23) Inventories 32 34 36 38 40 43 45 48 51 54 57 60 64 68

Total currentassets 62 151 195 308 915 1,559 2,172 2,838 3,519 4,244 4,964 5,692 6,428 7,172 ...... ------. ---- ...... ixed Assets Fixed assets at cost 0 t1.004 14,300 IS,948 16,482 16,488 16,510 16,531 16,552 16,573 16,594 16,619 16,661 Accumulated 16,704 depreciation 0 306 700 1,110 1,538 1,966 2,395 2,823 3,251 3,679 4,108 4,536 4,964 5,392 Revaluationgains 0 0 (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) Net book vatue 0 10,698 13,600 14,838 14,944 14,522 14,115 13,708 13,301 12,894 12,487 12,083 11,697 11,311 ...... - - .. . . . t . . . . instructlon- In-Progress 10,958 3,943 1,768 415 17 32 32 32 32 32 53 71 71 71 Of which asset revaluationgains (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) I' tsettlement/otherCapital Costs 8,261 7,528 7,180 6,935 6,679 6,538 6,397 6,255 6,114 5,973 5,832 5,690 5,549 5,408 Totat assets 19,280 22,320 22,743 22,497 22,555 22,651 22,715 22,833 22,966 23,142 23.335 23,536 23,74S 23,963

labilities& Equity ...... jrrent Liabilities Accounts payable 318 302 99 42 30 31 33 35 37 39 43 46 48 5t Short-term loans 0 67 127 0 0 0 0 0 0 0 0 0 0 0 Current portion of tong-term debt 0 213 354 374 397 421 447 476 507 541 578 619 663 711 Totalcurrent liabilities 318 582 581 416 426 452 480 511 544 580 621 664 711 762 ...... --- ...... ----...... mg term Loans 5,555 5,782 5,818 5,596 5,362 5,098 4,799 4,462 4,085 3,663 3,191 2,665 2,080 1,430 wermrent equ Ity 13,707 16,776 17,450 17,642 17,642 17,642 17,642 17,642 17,642 17,642 17,642 17,642 17,642 17,642 :tained capital 0 0 0 0 0 0 0 0 0 0 0 talned 0 0 0 benefit fund 0 0 0 0 0 0 110 204 310 435 574 726 892 1t73 stained earnings (299) (820) (1,107) (1,158) (876) (542) (317) 13 384 822 1,307 1,838 2,420 3:055 Asset revaluationgains (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) Loan revaluation(losses) (299) (428) (55) (746) (920) (1,088) (1,248) (1,401) (1,545) (1,679) (1,801) 01,911) (2,007) (2,087) Total liabilitiesand equit 19,280 22,320 22,743 22,497 22,555 22,651 22,715 22,833 22,966 23,142 23,335 23,536 23,745 23,963 CHINA Kiaotangdi Hultipurpose Project Yellow River Uater and Hydro-Electric Power Development Corporation Prorata Balance Sheet of the Power Unit (1994 - 2016) (Debt CoveragePricing) (MiltionYuan) ...... …...... Year Ended Oecember 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 ...... Assets CurrentAssets Cash 9 9 10 35 207 400 571 769 972 1,186 1,400 1,617 1,837 2,0S9 Accounts receivable (net) Power 0 56 92 115 150 153 196 203 211 225 234 243 252 262 Water 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Provisfonfor bak debt 0 (4) (S) (7) (7) (7) (7) (7) (7) (7) (7) (7) (7) (7) Inventories 13 13 14 1S 16 17 18 19 20 21 23 24 26 27 Total currentassets 22 75 1tt 159 366 563 778 98S 1,196 1.426 1,650 1,877 2,108 2.342 Fixed Assets Fixed assets at cost 0 4,352 5,747 6,486 6,976 6,979 6,989 6,998 7,008 7,017 7,027 7,038 7,057 7,076 Accuulated depreciation 0 121 284 459 651 843 1,035 1,228 1,420 1,612 1,805 1,997 2,189 2,381 Revaluationgains 0 0 (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) Met book value 0 4,231 5,463 6,027 6,325 6,136 S,953 5,770 5,588 5,405 5,222 5.041 4.867 4,694 Construction-in-Progress 4,275 1,609 873 377 3 3 3 3 3 3 3 3 3 3 Of which asset revaluationgains (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0)

Resettlement/otherCapital Costs 2,247 1,552 1,305 1,172 1,036 1,015 993 972 951 930 909 888 867 846 Total assets 6,543 7,467 7,752 7,735 7,730 7,716 7,728 7,731 7,738 7,764 7,784 7,809 7,846 7,885 ,...... ----...... ---- ...... Liabilities& Equity ...... Current Liabfiftfes Accounts payable 127 121 40 17 12 12 13 14 1S 16 17 18 19 20 Short-term loans 0 67 127 0 0 0 0 0 0 0 0 0 0 0 Current portion of long-term debt 0 213 354 374 397 421 447 476 507 541 578 619 663 711 Total current liabilities 127 400 521 391 408 433 461 490 522 557 595 637 682 731 Kong-termloans 5,555 5;782 5,818 S596 5,362 5,098 4,799 4,462 4,085 3,663 3,191 2,665 2,080 1,430 Goverreentequity 116 1,266 1,965 2,159 2,289 2,289 2,289 2,289 2,289 2,289 2,289 2,289 2,289 2,289 2,289 Retainedcapital 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Retainedbenefit fund 0 0 3 3 3 3 31 60 91 91 91 91 91 91 Retainedearnings (405) (680) (750) (545) (333) (107) 149 429 751 1,164 1,618 2,126 2,703 3,344 Asset revaluationgains tO) (0) tO) tO) (0) tO) 10) (0) tO) t°) tO) tO) (0) (0) Loan revaluation(Losses) (299) (428) (585) (746) (920) (1,088) (1,248) (1,401) (1,545) (1,679) (1,801) (1,911) (2,007) (2,087) Total liabilitiesand equit 6,543 7,467 7,752 7,735 7,730 7,716 7,728 7,731 7,738 7,764 7.784 7,809 7,846 7,885 …...... ClINA XiaotanadiNultipurpose Project YeltouRiver hater and iydro-Etectric PowerDevetopment Corporatfon ...... Projected IncomeStatements (1994-2016) ,...... (Debt CoveragePricing) (itllion Yuan) ...... ,,,,,,,,.,,,,,,,,,,,,,,,,,,,,,,.,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,_

Year EndedDecember 31 1999 2000 2001 2002 2003 2004 2005 2006 200? 2008 2009 2010 2011 2012 ...... Operating Revenue Electricity sates 685.8 1,118.5 1,399.4 1,825.6 1,858.6 2,385.3 2.472.7 2,564.4 2,738.6 2,844.9 2,955.2 3,069.0 3,189.4 Water supAplyrevenue 89.9 109.0 128.2 147.3 166.5 185.7 204.8 224.0 243.2 262.3 281.5 291.1 301.4 Flood control charses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total operating revenue 775.7 1,227.5 1,527.6 1,972.9 2,025.1 2,571.0 2,677.5 2,788.4 2,981.8 3,107.2 3,236.7 3,360.1 3,490.7 OperatingCosts: Depreciation 306.1 393.6 410.0 428.3 428.3 428.3 428.3 428.3 428.3 428.3 428.3 428.3 428.3 Damlreservior maintenance 191.9 209.9 223.5 242.4 256.9 272.3 288.7 306.0 324.4 343.8 370.6 392.8 416.4 Naterial costs 11.8 25.0 39.7 42.1 44.7 47.3 50.2 53.2 56.4 59.8 63.3 67.1 71.2 WagesL benefits 11.9 12.7 13.4 14.2 15.1 16.0 16.9 18.0 19.0 20.2 21.4 22.7 24.0 Other direct expenses 6.0 6.3 6.7 7.1 7.6 8.0 8.5 9.0 9.5 10.1 10.7 11.4 12.0 overhead 4.8 5.1 5.4 5.7 6.0 6.4 6.8 7.2 7.6 8.1 8.6 9.1 9.6 Administrative expenses 17.9 19.0 20.1 21.3 22.6 24.0 25.4 26.9 28.6 30.3 32.1 34.0 361 1 Totaloperating costs 550.3 671.6 719.0 761.2 781.1 802.3 824.7 848.5 873.7 900.5 935.0 965.4 997.6

Sales& misc. taxes 14.5 23.0 25.6 33.6 3S.6 37.7 40.0 42.4 44.9 47.6 57.7 61.2 64.8 operatingincome 210.8 532.9 782.9 1,178.21,208.4 1,730.9 1,812.8 1,897.5 2,063.1 2,159.1 2,244.0 2,333.6 2,428.3 interest chargeable to operations 444.9 482.1 486.5 460.8 444.5 426.0 404.9 381.2 354.5 324.5 290.9 253.5 211.7 Provisionsfor bad debt 34.7 40.7 46.1 51.1 5S.5 59.4 62.8 65.7 68.1 70.0 71.3 69.9 68.3 Amortizationof resettlement/otherc 124.1 141.5 141.5 141.5 141.5 141.5 141.5 141.5 141.5 141.5 141.5 141.5 141.5 Loanrevaluation losses 188.6 216.6 221.2 233.8 227.6 160.7 152.8 143.8 133.8 122.4 109.8 95.6 79.9 Other income 1.2 1.2 1.3 4.6 27.0 52.2 74.5 100.3 126.8 154.7 182.7 210.9 239.6 Net incomebefore tax (580.4) (346.8) (111.1) 295.7 366.3 995.5 1,125.2 1,265.6 1,492.1 1,655.5 1,813.2 1,984.0 2,166.S Incometaxes 0.0 0.0 0.0 0.0 0.0 328.5 371.3 417.7 492.4 546.3 598.3 654.7 715.0 met income (580.4) (346.8) (111.1) 295.7 366.3 667.0 753.9 848.0 999.7 1,109.2 1,214.8 1,329.3 1,451.6 ,, ,,,,,,, , , , , , , .... _... _...... E...... Xiaotangdlfultipwposo Project Yellow River Mater and Nydro-ElectrfcPower Dewlopement Corporation Prorata IncomeStatements of the PowerS,hsidiary (1994-2016) (KClICfn Yuan) CDbt CoveragePricing) ......

Year EndedDeceier 31 1999 2000 2m1 2002 2003 2004 2005 2006 2007 2008 2009 ...... …...... __ 2010 2011 2012 Operating Revenue Electricity sales 685.8 1,118.5 1,399.4 1,82S.6 1,858.6 2,385.3 2,472.7 2,564.4 2,738.6 2,844.9 2,955.2 3,069.0 3,189.4 Matersupply revenue 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 C.0 0.0 0.0 0.0 Floodcontrol charges 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 yotal operating revemue 685.8 1t8.5- 1,399.4 1,825.6 1,858.6 2,385.3 2,472.7 2,564.4 2,738.6 2,844.9 2,955.2 3,069.0 3,189.4 ...... --- ...... ------...... ____.. _.. Operating Costs Opreciation 121.1 163.0 174.4 192.3 192.3 192.3 192.3 192.3 192.3 192.3 192.3 192.3 192.3 0oaawreserviormIntenance 39.2 48.1 52.0 60.6 64.2 68.1 72.2 76.5 81.1 86.0 97.3 103.1 109.3 Materiat costs 11.8 25.0 39.7 42.1 44.7 47.3 50.2 53.2 56.4 59.8 63.3 67.1 71.2 Vages & benefits 5.7 6.0 6.4 6.8 7.2 7.6 8.1 8.6 9.1 9.6 10.2 10.8 11.5 Otherdirect expenses 0.9 0.9 1.0 1.1 1.1 1.2 1.3 1.3 1.4 1.5 1.6 1.7 1.8 Overhead 2.3 2.4 2.6 2.7 2.9 3.0 3.2 3.4 3.6 3.8 4.1 4.3 4.6 Administrativeexpenses 8.5 9.1 9.6 10.2 10.8 11.4 12.1 12.8 13.6 14.4 15.3 16.2 17.2 1

Totaloperating costs 189.5 254.6 285.7 315.8 323.2 331.0 339.3 348.2 357.5 367.4 384.1 395.6 407.8 4 ...... _...... ---- ...... o

Sales & misc. taxes 14.5 23.0 25.6 33.6 35.6 37.7 40.0 42.4 44.9 47.6 57.7 61.2 64.8 Operating Income 481.8 840.9 1,08.0 1,476.3 1,499.9 2,016.5 2,093.3 2,173.8 2,336.2 2,429.8 2,513.4 2,612.2 2,716.7 interestchargeable to operatfas 444.9 482.1 486.5 460.8 44.5 426.0 404.9 381.2 354.5 324.5 290.9 253.5 211.7 Provisions for baddebt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Amortization of resettlelent/other c 18.6 21.2 21.2 21.2 21.2 21.2 21.2 21.2 21.2 21.2 21.2 21.2 21.2 Loan revaluation losses 188.6 216.6 221.2 233.8 227.6 160.7 152.8 143.8 133.8 122.4 109.8 95.6 79.9 Other income 0.4 0.4 1.4 8.3 16.0 22.8 30.8 38.9 47.4 56.0 64.? 73.5 82.4 Net incomebefore tax (169.9) 121.4 360.5 768.8 822.5 1,431.5 1,545.2 1,666.5 1,874.2 2,017.7 2,156.1 2,315.' 2,466.3 Income taxes 0.0 0.0 0.0 0.0 0.0 328.5 371.3 417.7 492.4 546.3 598.3 654.7 715.0 Met income (169.9) 121.4 360.5 768.8 822.5 1,103.0 1,173.9 1,248.9 1,381.8 1,471.4 ...... 1,557.8 1,660.? 1,7M.3 _...... ,,.. ,, .

n1 CHINA Xiaotangdf Nultipurpose Project Yellow River Uater and Hydro-Etectric Power Development Corporation ...... Projected Funds Flow Statements (1994-2016) (Debt CoveragePricing) (NillionYuan) ...... _......

Year Ended December31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sourcesof funds ...... Generatedfrom (absorbedby) operatf Net Incomebefore interest 0 211 533 m 1,178 1,208 1,731 1,813 1,897 2,063 2,159 2,244 2,334 2,428 Depreciation 0 306 394 410 42? 428 428 428 428 428 428 478 428 428 Interestincome 0 1 1 1 5 27 52 74 100 127 155 183 211 240 Total internalsources 0 518 928 1.194 1,611 1,664 2,211 2,315 2,426 2,618 2,742 2,855 2,973 3,096 Governmentcontribution 3.318 3,068 674 192 0 0 0 0 0 0 0 0 0 Borrowings Long-termbank loans 874 312 239 0 0 0 0 0 0 0 0 0 0 0 Short-termtoans 0 67 61 0 0 0 0 0 0 0 0 0 0 0 Total borrowings 874 379 300 0 0 0 0 0 0 0 0 0 0 0 ......

Total sourcesof funds 4,192 3,965 1,902 1,387 1,611 1,664 2,211 2,315 2,426 2,618 2,742 2,855 2,973 3,096 F' ...... ---- .... . ---- .... . ---- ...... ---.-......

Applicatiorsof funds ...... Capital expenditures Capital investment 3,816 3,381 914 192 21 21 21 21 21 21 43 43 43 43 Interestduring constructfon 386 Total capital expenditures 4,202 3,381 914 192 21 21 21 21 21 21 43 43 43 43 ~~~~~...... Operational requirements Debt service long-term 0 439 689 839 846 853 859 865 871 877 882 886 890 894 Debt service-short-term 0 6 11 139 0 0 0 0 0 0 0 0 0 0 Energy & transport.fund 0 0 0 0 44 55 133 141 159 187 208 228 249 272 Country budegtaryfund 0 0 0 0 30 37 89 94 106 125 139 152 166 181 Enterprisebenefits 0 0 0 0 0 0 110 94 106 125 139 152 166 181 Bad debt write off 0 35 41 46 51 56 59 63 66 68 70 71 70 68 Income tax 0 0 0 0 0 0 329 371 418 492 546 598 655 715 Inc/dec in working capital 10 105 246 88 59 13 54 17 l8 25 17 19 15 16 Total operationalrequirements 10 584 987 1,111 1,030 1,013 1.633 1,647 1,743 1.899 2,000 2,106 '2,211 2,328

Total applfcationsof funds 4,212 3.965 1,901 1,303 1,051 1,034 1,654 1,668 1,765 1,921 2,043 2,149 2.254 2.371 tncrease (decrease) in cash (20) 1 1 83 560 630 557 647 661 698 699 706 718 725 ' I .....--- t-.....--.-'-'''''''''''''''''''''''''''''''''''''''' u.n CHINA

Xiaolangdi Multipurpose Project

Yetlow Rfver Water and Hydro-Electric Power Development Corporation ...... Pro-rat& Funds Flow Statements of the Power Sthbidiary (1994-2016)

Debt Coverage Pricing) (Miltion Yuan) ...... …...... 2009 2010 2011 2012 Vear Ended Decerber 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 ...... sources of funds ...... Generatedfrom (absorbedby) operatl Operating (ncomr 0 482 841 1,088 1,476 1,500 2,017 2,093 2,174 2,336 2,430 2,513 2,612 2,717 0 121 163 174 192 192 192 192 192 192 192 192 192 192 Depreciation 65 73 82 interestincome 0 0 0 1 8 16 23 31 39 47 56 0 603 1,004 1,264 1,677 1,708 2,232 2,316 2,40S 2,576 2,678 2,770 2,878 2,991 Total Internalsources ...... 0 0 0 0 0 Governaentcontribution 875 699 194 130 0 0 0 0 0 Borrowings Long-termbank loans 874 312 239 0 61 0 0 0 0 0 0 0 0 0 0 0 Short-termloans 0 67 0 874 379 300 0 0 0 0 0 0 0 0 0 0 Total borrowings .... -...... ------...... -..... 2,678 2,770 2,878 2,991 F- Total sourcesof funds 1,749 1.681 1,498 1,394 1.677 1,708 2,232 2,316 2,405 2,576 . . --- - ...... -~------'~ * ...... ~~o

Applicationsof ftunds ...... 10 10 11 19 19 Capital Inpendit 1,362 1,011 433 130 2 3 10 10 10 Interestduring construction 386 0 1,011 433 130 2 3 10 10 10 10 10 11 19 19 Total capital expenditures 1.749 ...... ~~~...... operationalrequirements 886 890 894 Debt service-Ltong-term 0 439 689 839 846 853 859 865 871 877U82 0 0 0 0 0 Debt service-short-term 0 6 11 139 0 0 0 0 0 0 0 20 54 115 123 182 194 206 228 243 257 274 292 Energy & transport.fund 183 195 fund 0 0 13 36 77 82 121 129 137 152 162 171 Countrybudegtery 138 147 156 166 177 Enterprisebenefits 0 0 9 0 0 0 83 88 94 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Bad debt write off 546 598 655 715 Incometax 0 0 0 0 0 0 329 371 418 492 4 59 116 46 41 3 44 8 8 15 8 9 10 10 Inc/decin workingcapitat 2,078 2,177 2,283 operationalrequirements 4 504 859 1,113 1,079 1,061 1,617 1,655 1,734 1,902 1,988 Total -.. .-. . ... --- .... -- ...... 2,089 2,197 2,302 Total applicationsof funds 1,753 1,515 1,293 1,243 1,081 1,064 1,627 1,665 1,743 1.911 1,998 680 681 681 689 before transfer (4) 166 205 151 596 644 605 652 662 664 Cash flow 4"6 465 461 467 to corporationheadquarters 2 166 205 125 425 451 434 453 459 451 Transfer 214 216 220 222 increase (decreese) in cash (6) 0 0 25 172 193 171 198 203 214 ...... … CNINA Xiaotangdi Nuttipurpose Project , ...... - Yellow River Water and Nydro-Electric Power Devetopment Corporation ...... Frojected Financial Ratios (1994-2016) )ebt Coverage Pricing) ...... …...... tar Ended December 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 ...... iquidity Ratios Current 0.26 0.34 0.74 2.15 3.45 4.52 5.55 6.47 7.31 7.99 8.57 9.04 9.42 Quick ratio 0.23 0.31- 0.70 2.11 3.40 4.47 5.51 6.42 7.26 7.94 8.51 8.98 9.36 Sates/receivabte 7.70 8.43 8.57 8.86 8.62 8.94 8.80 6.68 8.64 8.56 8.48 8.49 8.50 Sates/working capitat verage Ratios Debt service coverageratio 1.1 1.3 1.2 1.8 1.8 1.7 1.8 1.7 1.8 1.7 1.7 1.7 1.7 Ebit/interest 0.47 1.11 1.61 2.56 2.12 4.06 4.48 4.98 5.82 6.65 7.71 9.21 11.47 averageRatios F

Debt/equityratio 0.38 0.39 0.36 0.34 0.32 0.30 0.28 0.25 0.22 0.19 0.16 0.13 0.10 Debt/totalassets 0.27 0.28 0.27 0.26 0.24 0.23 0.22 0.20 0.18 0.16 0.14 0.12 0.09 peratingRatios Operatingincome/net worth 1X 2X 4X 6X 6% 9X 9% 10X 10X 10X 10 101 11X Operating Income/total assets 0 21 31 5 5% 8% 81 8X 91 91 10X 10X 101 Operating Income/fixedassets 1X 3X 5X 81 8% 121 131 141 161 171 181 201 211

Sales/totalassets 3X 51 71 9X 91 111 121 121 131 131 141 141 151

...... _...... *PIE CHINA

Xiaolangdi Multipurpose Project Yetlow River Water and Hydr-oEtectric Power Devetopment Corporation Projected Financial Ratios of the Power Susidiary (1994-2016)

...... (Debt,...... Coverage...... Pricinig) ......

Year Ended Decemrber31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 ......

Liquidity Ratios Current 0.19 0.21 0.41 0.90 1.30 1.69 2.01 2.29 2.56 2.77 2.95 3.09 3.20 Quick ratio 0.16 0.19 0.38 0.87 1.27 1.66 1.98 2.27 2.53 2.74 2.92 3.06 3.18 Sales/receivable 12.17 12.17 12.17 12.17 12.17 12.17 12.17 12.17 12.17 12.17 12.17 12.17 12.17 Sales/working capital Coverage Ratios Debt service coverage ratio 1.41 1.43 1.43 1.79 1.79 1.78 1.78 1.78 1.78 1.78 1.78 1.78 1.78 Ebit/interest 1.08 1.74 2.24 3.20 3.37 4.73 5.17 5.70 6.59 7.49 8.64 10.31 12.83 Leverage Ratios Debt/equity ratio 4.72 4.46 3.42 2.94 2.53 2.13 1.78 1.47 1.19 0.94 0.73 0.54 0.37 0 Debt/total assets 0.81 0.81 0.77 0.75 0.72 0.68 0.64 0.59 0.54 0.48 0.42 0.35 0.27 Operating Ratios 47% Operating Income/net worth 38% 60% 62% 75% 69% 82% 75% 69% 66% 61% 56% 51% Operating income before tax/total 6% 11% 14% 19% 19% 26% 27% 28% 30% 31% 32% 33% 34X operatino income/fixed assets 8% 13% 17% 23% 24% 34% 36% 39% 43% 46% 49% 53% 57% Sales/total assets 9% 14% 18% 24% 24% 31% 32% 33% 35% 37% 38% 39% 40% 10.02 12.22 12.57 14.79 14.20 17.19 16.82 16.45 16.58 16.24 15.4' 15.10 14.80 ...... CHINA XIaotangdl Nuttipurpose Project Yellow River water and Nydro-Etectric PowerDevelopment Corporatlon ...... YURHODCSFUTURE FINANCES (Debt Coverage Pricing) (Ymillion) ......

Year EndedDecember 31 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 ...... Energy Sates (GWh) 0 2,507 3,760 3,947 4.875 4,875 4.875 4.875 4,875 4,875 4,875 5,574 5,574 5.574 AveragePrice (fen/kWh) 0 27 30 35 37 38 49 51 53 56 58 53 55 57 Uatersupply (mtn m3) 0 4,000 4 000 4,000 4 000 4,000 4,000 4,000 4,000 4,000 4,000 4 000 4,000 4.000 AveragePrice (fen/n3) 0.00 2.25 2.73 3.20 i. 68 4.16 4.64 5.12 5.60 6.08 6.56 7 04 7.28 7.53 MetSates Revenues 0 741 1,187 1,481 1,922 1,970 2,512 2,615 2,723 2,914 3,037 3,165 3,290 3,422 OperatingIncome 0 211 533 783 1,178 1,208 1,731 1,813 1,897 2,063 2,159 2,244 2,334 2,428 Net Income 0 (580) (347) (111) 296 366 667 754 848 1,000 1,109 1,215 1,329 1,452 AdjustmentTax 0 0 0 0 0 0 0 0 0 0 0 0 0 0 AnnualCapital Expenditures 3,816 3,381 914 192 21 21 21 21 21 21 43 43 43 43 RateBase 0 5,349 12,149 14,219 14,891 14,733 14,319 13.912 13,504 13,097 12,690 12,285 11,890 11,504 Long-termDebt 5,555 5,782 5,818 5,596 5,362 5,098 4.799 4,462 4,085 3,663 3,191 2,665 2,080 1,430 DebtService 0 445 701 977 846 853 859 865 871 877 882 886 890 894 Rate of Return -- before incometax HistoricallyValued Assets (X) 4X 4X 6% 8X 8% 122 13% 142 162 17X 18X 202 21X NotionallyRevatued Assets (X) 4X 42 4% 6X 8X 8X a% 8X 92 92 10X 10X 10X operatingRatio (X) 1412 1832 212X 2592 259X 320X 3252 3292 3412 345X 3462 348X 3502 Oebt/Debt+EquityRatio (M) 292 28X 272 262 252 23% 222 202 182 162 14X 122 9X DebtService Coverage 1.12 1.30 1.20 1.79 1.79 1.72 1.75 1.74 1.76 1.74 1.73 1.70 1.68 CurrentRatio 0.26 0.34 0.74 2.15 3.45 4.52 5.55 6.47 7.31 7.99 8.57 9.04 9.42 ...... *......

If

soI - 122 - ANNEX S

APPENDIX 1

ASSUMPTIONS TO YRWHDC'S FINANCIALPROJECIION

IncomeStatement

1. Power Unit. Tariffs are assumed to be adjusted so that the average revenueswould be adequatefor achievingthe required debt service coverage ratio. For the purposesof calculatingthe debt servicecoverage covenant, internal cash generationhas been defined as net income plus operational interest and depreciation, amortizationof resettlement costs, and expended foreign exchange losses. The payment for "energy transportfund" (15 percent of net profit) and "budgetadjustment fund" (10 percent of net profit) are treated as income tax and included in the cash requirements that have to be covered by the power revenue.

2. The operatingcosts consist of separablecosts for the power plant and the portion of dam operatingcosts (commoncosts) allocated to the power plant. Separable- cost-remaining-benefitmethodology is also used in the allocation.

3. Material costs are assumed to escalatewith local inflation rates.

4. Wages are assumed to escalatewith local inflationrates.

5. Straight-line method was used in deriving depreciationand replacement schedule of various items of fixed assets.

6. Resettlementcosts are assumed to be amorfized equally over a 50-year period.

7. Foreign exchangelosses during the constructionperiod are assumed to be expendedin the first five years of operations. The losses that occur in the operationperiod are expended in the same year when they occur.

8. Incometax is assumedto be 33 percent of net operatingincome less interest expense, foreign exchangelosses, amortizationof resettlementcosts. In linewith te new accountingrules for industrialenterprises, principlepayment on loans are not assumedto be tax deductible. Since income tax is paid based on the overall operations of the corporation, no income tax payment is assumedbefore the firm becomes profitable as a whole. - 123 - ANNEX5

9. ReservoirUnit. The water rate is assumeto be set at O&Mcost recovery level at the beginning of operations, and is assumed to reach full cost (including depreciations)level by the tenth year of operations. The average collectionrate of water charges is assumed to increase from 60 to 90 percent in the first 10 years of operation. Provisions for bad debt are allocated for the water supply operationsonly. Other items are treated the same as those for the power unit.

Balance Sheet

10. Power Unit. The separable-cost-remaining-benefitmethodology is used to allocate commoninvestment costs to the power unit.

11. One hundred percent of borrowing of the corporation is assumed to be allocated to the power unit. Total long-termborrowings are assumed to be $1 billion.

12. The internationalFisher effect is assumed to be in hold, and the foreign exchangerate witl be adjustedaccording to the change of price parity betweenChina and the United States.

13. The average collection period of accounts receivable is assumed to be 30 days.

14. Minimumcash requirement during the operaion period is assumed to be 1 percent of the operatingcosts.

15. Accountspayable is assumedto increase with productioncosts.

16. Ten percent of the net profit is assumedto be allocatedto the enterprisefund annually.

Funds Flow Statement

17. For the power unit, positive net cash flows are assumed to be shared with the corporation at a ratio of 32:68, i.e., 32 percent will retained by the power unit and 68 percent handed over to the corporation. )XaolangdiMulUpurpose DamProject, MWR, CHINA _ ~~~~~~~~~~~~~~~~~~~~~1092 lm 1131994 I19 19M- I 8199B IM -im -2000 200 I200 200 200 ID Name Dur Staul 1II Implementationof Xlaolangdl Multipurpose Dam 513:33w 0212I1-A 2 1.1Local CIvlIWoiks 4 OT6w _W9_+i-irr- 1v f ir p 3 1.1.1Site Prepaation &LCE Works do 69.3w 21911_ 4 1.1.2LCC Works done dudng the Cons 206w N92111__ _ | 5 '.2 TenderProcess (Phase 115.4w 9W22 6 1.2.1Prequaillcatlon 44.71w 9212122 alicanii -12 1.Z2Selling of TendetrDocumtents 25.1W 3M131

13 1.2.3Pre-tender Meeting 0. 6 GM3N 14 1.2.4Issuance ofAddendum &Crcular 6a.6 93151 i| 151 11.2.Tender Opening Ow 93831TndrOpnn is 1.2.0Tender Evaluation 15.63w 630191 e~ut 25 1.3Bank Loan Process 0.92w 9112130MLe *W Pcs 32 1.4Tendet Process (Phase Ii12) 11.114w of Ptcess a I 33 1.4.1Ptenegoliation wlth Selected Pot 1.17w W41122 l Tl 341 I.A. Selectionof Contractor&lssuanc 0.67 4 *1131i 35 1.4.3Negotation of ContactCondliUon 3.33w 94214 -4 38 1.4.4NotlflcalIon toSuccessful Tender 0.17w NW1rf| 371 1.4.5Sign of Contracts 0.17w 94I115 38 1.4.8Issuance ofNolce to Commence Ow 90i4415 IssuaneofNo to CIommence 39 1.5Clvil Works Lolt 376.44w 9414115

40 1.5.1Nobiltallon r414 - 1W 11 41 1.5.2RIght Abutment Excavallon 54.9w 9461300 42 1.5.3Left Abutment Etcavatlon 29w 5111126 43 1.5AJet Grouling 91.08w 951419

46 1.5.5Concrete Cutoff Wail 11.4w 98142c re

AN -$ XiaolangdiMullipurpose Dam Projec, NIWR, CHII*A l _~~~~~~~~~~~~~~~~~~~11921 193_11 41115s111r9 1 I 11- 200 2M§ - 3 2_ ID Name O. Sd H I I1 4_ 1.5. UpstreamCoffer-dam 6 Rivet Cb 10019w 961h_ I 54 1.5.7FoundatIon ExcavagIn &Surace 141.46w 91i_1_ 58 1.5.8Embankment 21W 951030 591 1.5.8Dam Crest Road 2w Olf 60 1.5.10Completion of Dam Constctulon ow 1|11of | II 1.8Civil Works Lot 2 - Intake,Tunnes & SpI 37.29w 944115 62 1i.61Mobilization _ W115 631 1.8.2DiversIon Tunnels fxcavaton 86.7w 1411,1 64 1.6.3DiversIonbTunnels Concrete Linin 95.5w8511211 1 l ME 65 1..4 DIversionTunnels belng Convewte 4.8w 911114 io g

61 1.6.5 vetslonTunnels Closure 197 30 _

n2 1.6.6Installaton of MWdl Chamber Ga 63.1w 9W8a131_ chambe 7S 1.6.7 Excavadonof Intake Tower Found 61.1w 0416130 le 1.6.86nt ToweConcretePlacement 182.67w 81171i

n 1.6.9Intake Tower Gates & Hoists Insta 104.16w 8112131 _ _ _ _ "NM 78 1.6.10Plunge Pool & Discharge Chann 86.7w 9415130 79 1.6.11Plunge Pool Concrete Pbcement 102w 9511111 t0 1.8.12Tallrace Channel &Gate Foundal 65w 9416130 II1 1.6.13SedIment Tunnels fxcavatlon 82.3w 051615li 84 1.6.14Sedimenl Tunnel Concrete Unra 69.4w 9611012 85 1.6.15Preparation ofSediment Tunnel 73.7w 971811 88 1.6.15ExcavatIon of Free Flow Tunnels 158.3w 9419-129 sKcavalonof 95 1.6.17Concrete Placement of Free Flow 76.1w 9712110 _ _ _ _ a aFe d a 98 1.6.18Groutlng & DrainageTunnels Es 171w 9711115 09 1.6.19Groulng & OraInage Tunnels Co 142.4w 0711115

_NE _=. XaaolangdlMultpurpose Dam Project, MWR, CHINA 1992 1993 1994 19i 1990_ 1 9_ 199 1999 2000 2001 2002 2003 2004 It Name Dr. SW 100 1.620Power Tunnel Itake 50m Excava 9.7w 95_3_29 1O0 1.8.21rnigaton Tunnel Inake 15m Ex 4.3w 951114 102 1.6.22ServIce SpUlway Excnvaton 21.7w 0014___

103 1.6.23Concrete Placemenl ofServce S 39.1w 09125 _ 104 1.6.24Installation ofSevtce Spilway G 21.7w 0111124

105 1.6.25Completion of Intake. Tunels & Ow 01110 1 s 1o0 1.7CIvI Works Lot 3- PowerFacillites 323.32w 9441115 107 1..1MoblIzatlon 3 44l 108 1.7.2CIvIl Works of Tallrace Turnels & 183.29w 992 - -811a-lra tG _n c wa 111 1.7.3CMIvI Work of PowerTunniels 34.8w 95112121 114 1.7.4Penstock Tuinnels 1I'.,9

114 1.7.6Powerhouse &TnormerwGaier _-8.7w 13h 94131i -os ja,IcatIoI T o 120 1.7.9Concrete Placement ofPowrhou 177n." t711129 124 1.7.7Installatlon ofTemporay Cran 6242w 9613130 127 1..8 DraftTube Gats & Hols Inslb 26w 996289 121 17.STaIace Tunnel Excavaion 60.6w I 2Y_ 1291 1.7.10Concrete Macement ofTalrace 29w 9913127 130 1.11 TatraceGatst HolIsInslaall 23.9 991U110O

131 1.7.12Completon of Power FacIlies Ow 0012412

132 2Procurement ofMechanitcalltectrIcal Works 233.5w 9wno I71I0 t of

133 2.1 TurbInes 1111 96M ------134 22Generators 191w 95sim 1 1 1 _ 135 2.3Mechanical Woks ofPowerhouse 104w 971111 136 2.4ElecrI alWo of Powerhouse 104w 97111 1 1 I L. L IE I 1371 2.6Man Transformes .l .. ., (lGaolangdIMultOpurpose Dam Project MWR, CHINA _~~~~~~~~~~~~~~~~~~~~~I _ S 993 _1S9 JM1|5 |te JM JM 29J00 2001 2002 21X0 ID Name 138 2.1Othet ElerAuIcai Works 0 sit 1293 Pwcuremenl of Gales 140 3. Gatof Ordfico Tunnels 5 1 T t

141 3.2Gates of FreeFlow Tunns 95X mn 142 3.3Gas of SeaDnimenTT.nuei_sm

14 3.4Gates ofPower T_ws 9_ _ _ 144 3.5Gabes ofD Tubes _ _ _ _|

145 30GOaes ofDiversion Tunnels _ _ t 148 3.7Gatesof Spiliway 2W O 147 3.8oat"s offTaliracWem 143 3.8Gates of kilgailon Tunnels; 2 U 140 3.1 Auxsilais 6w Wl 45K.4CkesOt A Sufidings SW 1515 LandAcquisition SSW 2 152 6Procurement of OlicelDesign Equlpment &Vehl 30.33w 451 P.uremntOf ceIDesignEq puentI ebies i

153 6. ForYRWHDC &XECC 1 OM 154 1.2For RPDJ 8 0w 1557 Reservoir Flilling 1032.17w Oi11f 156 7.1Fillng Phase I uplo El 180 304O 2 FE 1st 7.2Filiig Phase2upto El. 205 114w sm1 tl 158 .3Flillng Phase 3upto E. 235 62 tO1 l 159 7.4FiUMlngPhas4uptoEL 2l5 lO1 5h }t 160 1.5FiiflnPbae5 upio El.275 5o 1`02

ANNEI. ANNE 6 - 128- Table 5

XIAOLANGDI flTMVRFOSE DAM PROJECT BANK SUPERVJSION I2PUT INTO KEY ACTIVITIS

Appmlmat Espeed s5da Date (montyear) Acvty Rque t lgp,

05194 SUPERVISION MISSION

Project IbmtChwodaop. Pulew of: P nt spe s Emh Anangement of e Pmiject Pin_c at & _nxgeaentspecast. labg 14 Disbausement Tuhdng Pwgmm Envilnua spedall e_wIzu upexpEt MAngement nd RtpotingSyste Offlee Equipment & Vehic P*ocmuet

10(94 SUPERVISION MISSION

Review of: Conutct Ma.9gement; Cost Couftu; Cad conh s_ca,t coaubc Englneedng Aspecb; Taining Piom auamg t spedial geologlad & 14 Pmgsess; Tuibin Bid Docmient PMNpazo0 mockmecitid eapei n Pmcmement Docmnent of Mechamdc Wods spedas, wdlnlcd expeft (Gates); Cost Contml Compueuzed comptrsedalt Mangement Systme zngplemenl Punc of the Pnject; Qai CorUni System Setp

0405 SUPERVISIOtF MISSiON

Reviewof: F!ndal Mugemerr4 Power *t . F a= K cnstrucion Set-up & TaZff Arnngeinn Eneeeing niugemnt specat _tsblaxkmt 12 Pngzss; Reselement Pnguu In te ezpap iedmmt speeft t Conet on Zone.

0Y9% MID-TERM REVIEW MISSION

Review of: ContmactManagement; Cost Cntl; imal spcalt mehnl Pmcument of Mechanic Plat Poject spedl,t co_udon expet 12 hnpleentallono Fi ln Repoding Systenc nl &It eupet ge9ologcal Envlsunent M dronWg; Qualit Cotol, seIlit Pmcumewnt Pucess Phepatlon of Second Lo=n Reseuleriet

10196 SUPERVISION MISSION

Review of Inqdementatdon of *e Pujec; ComnatdUmqUdfspmal ConbanctManagepmnt Enfgneeng Aspecls casmcta expe*, trll specast 12 Quality Contml; Tmg Pagmu Pzog;s ttdenspcis Resetmenent Pngss

619t SUPERVISION MSSION

Review of: Prepamion for RmeservoiFg Cotad lyst, ecrofete eape Cost Esdtadt of the Project to Conjipnm c expest, hydzologid Resettlement below 180 nt level; Pm _mt expet, gob muecha specast Documentl of Meharical Woaks, Pogss of the Prw,ect - 129 - ANNEX I

TRAING AND TECHNICAL ASSISTANCE

A. TRAiNNGAND TECHNCAL AsSISTANcE FOR YRWI)C (CoNsnRucTloN/GENENALMANAGEMENT AND FINANCIAL MANAGEMENT TRAINNG)

Objectives

1. The general managementdevelopment and financialmanagement training program is designed to enhance YRWHDC's managerial and financial capabilities. YRWHDCis still in a formativestage, recruitingits staff from other organizationssuch as design institutes and constructionbureaus. Some taining in the contract management area has already been carried out and is ongoing, but this needs to be increasedand also to be supplementedby the training of managerialand financial staff. Xiaolangdi is a challengingand exciting project and little difficulty has been experienced in recruiting engineeringand technical staff. The main objectivesof the program are:

(a) to enable YRWHDC to function as a autonomousbody in the efficient developmentand operation of water and hydropower projects, and be capable of exploitingopportunities expected to arse from the current wave of enterprisereform in China; and

(b) to staff YRWHDCwith appropriatelysdilled personnelcapable of handling the planning, general management,and financial managemr,entduring the constructionand operationof such water and hydropowerprojects, and in the running of YRWHDCas a businessenterprise.

Scope

2. Training will relate to senior and middle managementwho will receive training in a wide range of generaland financialmanagement tools. These would include organizational arrangements, planning, monitoring and performance evaluation, managementinformation systems, advanced management slills development,management of change, budgeting, costing, auditing, quality assurance, information technology, computer skills and personnelmanagement. It would be necessaryfor there to be some initial overseas training for top manageme. 1993 in some of the general and financial concepts which would be useful in the early stages of YRWHDC'sdevelopment. Much of the training would, however, be carried out at various stages of the implementation phase, with particular .mphasison ensuring preparedness for the post-implementation phase. -130 - ANNEX 7

3. The general approach would be:

(a) For the first two or three years, a proportionof the training resourceswill be on contract management,while introductorycourses on basic and key generaland financialmanagement skills and conceptsfor seniormanagement will be carried out.

(b) From 1995 to 1997, more emphasis will be placed on developmentof individual general and financial managementskills and managementand financial reporting systems for senior and middle management to get equippedfor the transition.

(c) From 1998 to 2000, trainingon change managementfor senior and middle managementand extensive training on new operational conditions and procedures for supervisoryand clerical staff will be provided to ensure smoothtransition from implementationto operationstage.

Organization of Training

4. While most of the training for senior managementwould need to be carried out overseas,as much of the remainingprogram as possiblewould be conductedin China. This would enable a greater numberof staff to be coveredby the program at less cost and would also enable the program to relate more readily to the operating environmentin China. The level of language skills of the trainees would also need to be consideredin developingthe training materialsand conductingthe courses.

5. The trainingprogram should be undertakenwith assistancefrom an overseas agency, which would arrange or undertakethe overseas element, and also be involved in the implementationof the remainderof the prograw in China. An organizationcurrently involved in the managementof a large-scaleorganization with responsibilitiesin a river basin environmentwould be well suited to undetake this assignment. The organization would also need a clear understandingof the way in which the employeesof a recently created and developingcorporation can best be trainedand developedto operateand carry out its functionsin a businesslikeand efficient manner. This organizationmight have its own training capabilityor could work with other tmning establishmentsto implementthe program.

6. There is a clear understandingof the areas of training that need to be addressed during the period covered by the training program, but it is impossibleto be certain that the actual needs will be as now understood. It is for this reason that a provisionfor some 30 percent of the total trainingprogram has been left unspecified. This provisionis a direct reflection of new and specific requirementsthat can be expectedto emerge in the early part of the trainingperiod in the light of the taining undertakenand the expenence gained by senior managementin the early stage of the developmentof YRVWHDC.Full accountwould also need to be taken of the advice and experienceof the overseasorganization appointed by the corporationto assist with the implementationof the - 131 - *ANNIEX7 program. A formal review of the training needs should be undertakenafter 18 months from commencementand at similar intervals throughout the training program to take account of such revisions as may be necessary. The controlled flexibility within this approach allows for the dynamic nature of the developing training needs that can be expecteAto arise during a period of significantchange.

Implementation

7. Details of the trainingand durationof the generaland financialmanagement training program are set out below.

8. Provision has been made in the program for the training of some 120 employeesin skills relevant to their responsibilities. Provision has been made for the trainingof a further 40 employeeswhose need for training is only likely to emergeduring the penod covered by the training program. Allowancehas been made for the costs of overseasand local training, includingconsultants' costs, travelingcosts, overseas training advisorsand for contingenciesand price inflationover the period. It is estimatedthat the cost of this programwould be $1.42 million, most of which relates to overseas consultants.

Training Details

9. YRWHDC is a relatively new corporation and it has recognized the importanceof training in developingthe sldcllsand techniquesof its staff in order to run the corporation as a business enterprise. YRWHDC will be concerned with the constructionstage of the Xiaolangdiproject in the earlier years of its existencebut in the period approachingthe year 2000, it will becomemore involvedin operatingthe dam for power generation, irrigation and flood control purposes. The training needs have accordinglybeen identifiedand reflect the developmentstages through which YRWHDC will progress in the period 1993-2000. Early attentionwill be paid to the needs of senior managers in the areas of contract management and also in general and financial managementconcepts. After the initial stage, attentionwill be paid to training in specific management skills for senior and middle management. In the period immediately preceding the dam becoming operational, attention will be paid to covering the managementof change in the ensuing period as well as ensuring that supervisory and clerical staff are well equippedto cope with the new operatingconditions and procedures.

10. The programthat has been drawn up by YRWHDCaddresses the following main areas:

(a) Contract Management. This will equip senior staff with the capabilityto handle the managementof large-scalecontracts. It will cover all stages of contract processing, including tender documents, contractors' claims and observanceof internationalcontract conditions.

(b) Construction Schedule and Reporting. This is intended to equip appropriate staff with expertise in the constructionscheduling of a major - 132 - ANNEX7

projectas well as the reporting needs of any external organizationto whom reports have to be submitted.

(c) Fnancial Planning and Budgetary Control. This will equip senior staff with the necessary expertise in undertaldngfinancial planning for both capital investmentand operating costs and revenues. It will also ensure familiarity with the budgeting process and an understanding of the importance of exercising proper controls in relation to any authorized budget.

(d) General Management and Organization. This is intended for senior managersto acquire a knowledgeof basic managementand organizational concepts and skills. This would extend to running a corporation as a businessentity and maldng senior managersaware of the externalpressures to which businessesare subjected.

(e) Flnancial Accounting System, Reporting and Standards. This will provide expertise to senior financialstaff to account for the running of its business to whatever accountingstandards may be required. It will cover aspects of financial accounting and will address the relevance of internationalaccounting requirements to this particularbusiness undertaking.

(t) Quality Assurance SystemDevelopment. This will makeappropriate staff aware of the importanceof qualityassurance in all aspects for YRWHDC is responsible. This will range from operational and administrative proceduresto constructionworks.

(g) iformation TechnologyOMl and Computing Skills. This would enable staff at various levels to acquirea knowledgeof the potentialbenefits to an organization from fT with attention being paid to the pros and cons of distributedprocessing vis-i-vis mainframeprocessing. The relevanceof an fT strategy for a business environment would also be addressed. Appropriatestaff would also obtain suitablecomputing skdlls to enable them to operate the equipmentmost suitableto their needs.

(h) CaTr Magemet. This will provide a small number of financialstaff with the necessaryexpertise to maximizethe benefitsof cash handlingand invesunents. The need for proper procedureswill be stressed. The requirements in respect of short-term and longer-term financial managementwill also be addressed.

(i) Managementiformation System (MIS). A knowledgeof the availability of various managementinformation systems would be obtained, so as to enable senior staff to understandtheir importanceand potentil benefit to YRWHDC. An understandingof the requisite flow of information in a - 133 - ANNEX 7

normal business environmentwould be obtained along with a knowledge required of a computerizedapproach to MIS. aj) PPlannig,Monitoring and PerformanceEvaluation. This shouldequip senior staff with the necessary skills to undertakecorporate planning, and obtain an understandingof the various elementscovered by the planning process and of their interrelationships,and relevance to the determination of corporateobjectives.

(k) Personnel Management. The managementof human resources is very importantto any organizationand this should enable senior staff to become familiar with current thinkingin this area. In so doing, it should identify how efficiencieswithin a corporationmight be obtainedthrough challenges and opporturnitiesfor developmentof staff, while maintainingdue regard to their welfare.

(1) Managementof Change. This would be undertakenso as to equip senior and other staff to cope with the period during which YRWHDCwould be subject to fundamentalchange. It would enable such staff to identify the challengesand problemswhich might arise and understandthe importance of handlingthe transitionalpenod satisfactonly.

(m) InternalAuditing. This is for a small numberof specializedstaff involved with intemnalauditing. Althoughmuch of the current auditing procedures and requirementsflow from the State's requirements,this training would also seek to acquaint the staff with a knowledge of internal auditing practices in other countries.

11. The program satisfactorilyaddresses the importantareas which can be seen to confront the corporation in the period 1993-2000. Any program covering svch a prolonged period, needs to be subject to regular review and the first such review is intended to take place 18 months after commencementof the program.

12. It is recognized that YRWHDC requires assistance in devising and implementinga detailed trainingprogram and also in carrying out the periodic reviews of its training requirements. Such assistanceis expectedto be obtained overseaseither from an operatingorganization with responsibilitiesin the river basin managementenvironment, a training organizaton or from consultants.

B. INSTmJmoNALSUPPORT PROGRAM FOR MINmY OF WATER REsouRcEs (MWR) ANDYELOw RIVERCONSEVANCY COMMsSON (YRCC)

Objectives

13. The prime purpose of this component is to assist MWR and YRCC to undertakethe presentlygovernment-mandated reorganizamon aimed at increasedmanagerial Table 1: YRiEIDC TRAININGPROGRAM, 1993-2C000

No. of Duration estimated Training topics T1Qing Training target trainees (Man-months) cost ($) Location

Contractmanagement 1993-1996 Heads of dept. & corp. staff 1S 15 120,000 abroad Financial plan4nig and budgeting 1993-1996 Heads of dept. & senior staff 5 6 70,000 abroad 7 7 24,000 local 1995-1998 Corp. staff 2 24 30,000 abroad General management & organization 1993 Top management of corp. 3 3 42,000 abroad Accounting system, reporting & 1993-1994 Heads of f4nance dept. and 3 3 42,000 abroad standards 1994-1996 corp. staff 2 24 30,000 abroad Quality assurance 1993-1997 Top management 3 3 42,000 abroad Heads of dept. & corp. staff 6 6 4,000 local Information technology and 1993-1994 Heads of dept. & seniorstaff 3 3 42,000 abroad computer skills 1994-1995 Corp staff 15 15 6,000 local 1995-1996 Heads of dept. & senior staff 5 5 65,000 abroad Personnel management 1994-1996 Top management& heads of dept. 3 3 42,000 abroad - Cashitreasury management 1994-1996 Heads of finance dept. & corp. staff 2 2 28,000 abroad Manag3ementof information systems 1994-1996 Top management & heads of dept. 3 3 42,000 abroad 1994-1996 Top management & heads of dept. 1 12 20,000 abroad 1998-1999 Heads of dept. & supervisors 10 10 104,000 abroad Construction scheduling & reporting 1994-1997 Heads of dept. & supervisors 7 7 49,000 local Planning, monitoring and performace evaluation 1995-1997 Top management & heads of dept. 10 10 104,000 abroad Internal auditing 1994-1996 Head of dept. 1 1 14,000 abroad Corp. staff 3 3 2,000 local Managemeontduring transition period 1996 Top mnfagement 2 2 24,000 abroad to operation stags la 1998-2000 Beads of dept. & senior staff 20 20 35,000 local Others 1993-2000 Corp. staff 10 20 130,000 abroad 30 30 205,000 local Training organization fees 100,000 Total Cost lb 1.416.000

La Wil be undertaken by the Government using its own resources. & Tota in the project costs is $1.05 million. - 135 - ANNE 7 accountabilityand financialself-sufficiency. MWR and YRCC's main functionsare both regulattoryand operational. Presently, MWR has 14 departmentsand 26 special unitsand sevenriver basin commissionsunder its supervision. After the reorganizationit is planned to have about 12-14departments whose functionswill be mainlyregulatory and staff will be reduced by about 25 percent. The 26 other MWR units will be reorganizedto about 13 corporations, which will be doing most of the operational functions undertaken by MWR departmentspreviously. These corporationswill have to be more accountableand charge for their services. Most of the revenuewill be derived from sale of water, from charges for fund mobilizationservices for water resources investments, planning and design services,water research services,etc. The river basin commissionswill also have to be reorganized so that regulatory functionsare separatedfrom operationalfunctions. The regulatoryfunctions will continueto be fundedby governmentusing generalrevenues, while the operationalactivities will be fundedby user charges with little or no government funds. In order to face someof these challengesseveral studieshave to be undertakenand strategieshave to be developed. To this end, the followingcomponent has been developed and included in the project.

Scope of Studies and InstitutionalSupport Component

14. This componentconsists of five studiesand training areas on: (a) resource mobilizationand management,(b) accountingreform, (c) water pricing, (d) river basin organizationand water licensing systems, and (e) river basin real-time water dispatching systems. The first two studiescum institutionalsupport items are for MWR while the next two are for both YRCC and MWR and the fifth study and supportprogram is for YRCC.

(a) Mobilizationand Managementof Funds for Water Resources (WR) Projects

15. WR projectshave usuallybeen financedpartly by centralgovernment grants to the provincesand partly by the provinceexercising a right to borrow funds from MWR. This includes payments in kind (e.g., the provision of steel for industrial projects). Alternative means of financingWR projects need to be investigated,so as to reduce the burden of such financingfrom State funds and also to ensure ready finance in the future for such projects.

16. MWR is actively involvedin arranging central governmentfinancing and providing loans to provinces for WR projects. These services are provided free, and because of the benefit that arises from these services and also in the light of the arrangementsthat apply when similar facilities are made available commercially, it is envisagedthat these services might well be paid for in future. Therefore, a study of the practicabilityof such an arrangementis required.

17. The main study areas are the following:

* mobilizationand allocationof funds for both central and-provincial projects, - 136 - ANNEX 7

* the principles to be applied for fund raising and repayment for particular type of project,

* the relationshipbetween fund sources,including joint ventures, cofinancing, equity financing,etc.,

* the role of MWR in fund raising, fund managementand related charges,

* the policy, legal and financial considerationsin implementingdecisions arising from the above studies.

18. Initially, a joint group of five local consultantsand two or three foreign consultantswill be formed. This group will studyover a six-monthperiod the basic scope of data collectionand analysis for the abovetasks. The local consultantswith the help of MWR staff w1 collect the data and subsequentlythe five local and two or three foreign consultantswill study in line with the tasks the resource mobilizationand management requirementsand the possible charges that can be levied for this work to the provinces. The study group will cover all aspects of planned investmentsfor provinces and national- level projects, use of different financialinstruments, taxes, prices etc.

19. While undertakingthese studies, there wili be two visits (two groups of six staff) to several developedcountries to understudythe existing legal, financial, pricing, etc., mechanismsto raise and managefunds for water resourcesdevelopment.

(b) Accounting Reform

20. In the future, state-ownedenterprises will eventuallyhave to become less dependenton State finance. The prospectof eventualfinancial autonomy and independence suggests the need to prepare the water resources sector organizationsfor the possible raising of overseas finances for their future investment needs. Compliance with InternationalAccounting Standards would almost certainly be a prerequisite for such an eventuality,and would also be more appropriateto a business enterprise operating in a marketenvironment.

21. MWR has recognizedthe need to prepare for the future and is planningto examinethe current accountingsystem in use in the Water ResourcesSector in China and determine the changes necessaryto comply with InternationalAccounting Standards.

22. The detailedtasks would be concernedwith:

* the general principlesunderlying the InternationalAccounting Standards,

* specificmethodology and proceduresrelating to these standards,

* the role of accountantsin the managementand decision-makingprocess in water enterprises. - 137- AM=

(c) Water Pricing System 23. The State Councildocument No. 94 issuedin 1985 "WaterConservancy Projects,Water Charge Estimates, Collection and Management"lays downthe principles that shouldbe followedin determiningcharges and these havebeen followedby YRCC in determiningprice levels for water made availableby the YellowRiver diverting headworks.Charges are currentlyencouraged to be determinedby referenceto fullcost recovery,including cost of new projectsundertaken and by differentialprices in periods of peakdemand.

24. The value of water madeavalable in the differentreaches of the Yellow Riversuggests that pricing might also be differentfor eachof thereaches. Thiscould only be done by referenceto certainprinciples that would need to be determined. 25. The presentsituation is that watercharges are muchtoo low if theyare to recoverproject investment costs. Thereis certainlya needto generatemore revenueto financefuture investmentschemes and also to make YRCCless dependenton State fimcing.

26. Studies are required on water pricing methodsin other countriesto determinetheir possible relevance to chargesin China. This wouldencompass: Principlesof PricingPolcies, including:

3 optimum pricing structure reflecting total cost recovery, including depreciationon all assets, * premiumpayment stucture to reflectpeak periods and differentusers, * demandmanagement and marginalrent priing for shortage, * relevanceof licensingsystem used for waterallocation purposes. Pricing Levels,including:

* relationshipof prices to levels of prevailingcommodity prices/earnings levels, * levelsof servicesprovided, * pricesto ensurecost recovery. Price RegulationSystem, including:

* the formof controlexercised over prices, - 138 - ANNEX

* criteria are applied in determiningcharging limits,

A length of review period,

* flexibilityavailable between each review period.

(d) Organization of River Basin Management, Water AHocation-Licensing System

27. One of the features of the present water allocation arrangementsis the predeterminationby State Councilof the water allocatedfor particular provinces. Allied to these allocationsare licensingarrangements that are operated by the ProvincialRiver Affairs Bureaus within YRCC.

28. The need for YRCC to interfaceeffectively with provincial and other levels of governments is self-evident, but in dealing with units of local govemment whose boundanes do not coincide with irrgation districts or catchment areas nver basin managementinterests are at varance with the interess of other levels of governments. Potentialconficts will always be present so long as the responsibilitiesin the river basin managementare divided between various bodies. While one organization with total responsibility,and accountableonly to central government,would be an extreme scenario in the contextof China, examplesof such arrangementsdo exist elsewherein the world. Clearly, there will always be a need for a strong rive- basin managementorganization.

29. It is accordinglysuggested that a stu y be undertaken:

e of the ways in which other countries allocatewater resources and whether a licensingsystem, allied to charging, is an effectivemethod of determniing water allocation;

* of the interrelationshipsbetween river basin managementorganizations and local politicaladministrations in other countries, not only in the specificarea of water allocationbut also in their general interrelationships;

* of the extent of involvementof, or consultationwith, the local political administrationsin the controlor managementof the river basin management organizations;

* of the organization and constitution of dver basin management organizations,including a comparativestudy of YRCC to examinewhether practicesand arrangementselsewhere mightequip YRCC more effectively to operate successfullyin the moves towardsa "marketeconomy" in China. -139 - ANNEX2

(e) Water-Dispatching Models and Improved Forecasting Capability

30. Presentlythe YellowRiver basin has several long-termoperating rules that form the basis of most of their daily operation. These rules essentiallyrelate to flow levels at differentpoints in the river basin to ensure adequatewater supplyduring the dry season or flow restrictionsduring the winter months to prevent developmentof ice jams. Most of these rules are based on simulationsperformed over several years of observedhistorical flows. If issues arise due to the flow requirementsnot being met at differentpoints, the YRCC Upper River Regulaton Committee regulates the release of water from Longyangxiaor Liujiaxiadams in the upper reach. YRCCclearly wants to developa real- time modelfor water dispatching. The presentYellow River BasinModel developedunder the economicmodeling exercise seems to be too cumbersomeand does not seem to be easy to operate on a daily basis. A dispatchingmodel to be developedwill have to have the ability to dispatch water within the constraints of all the requirements of irrigation, hydropower,and M&I needs and at the same time ensure that all mimmumand maximum flow requirementsare satisfied. It shouldalso be able to maximizethe economicbenefits derived from the system. In order to developsuch a model and operationalizea water- dispatchingsystem, the followingare required:

Model Building

Firstly, a Medium/Long-TermRiver Flow Forecasing Model must be developed, which gives the inflows at all points in the river basin on a daily, monthlyand annual basis. Some of the short-termforecsting can be based on simple inflow forecastingtracing historicaldata on a probabilistic basis. The longer-term forecasting will depend on weather and rainfaU forecastingfor several monthsbased on satellitedata on high altitude snow accumulationor other sources of data. Very long-term forecasts will depend on statisticalanalysis of trends that give the probabilityof the dry- cycle or wet-cycletrends and probabilityof coming out of the cycle;

Secondly, a waterdispatching model will be developed for monthly dispatchingof water at differentpoints in the basin. The dispatchingmodel will essentally be adapted for dispatching water on a daily and weekly basis.

Operational Water-Dipatching Task

Specifyingclear economic objectives and obtaining agreement from all parties before pilot runs are undertalen

Calibratingthe modelsand developingoperational rules for dams/reservoirs and other structres. Trial runs of the dispatching system over different parts of the basin. Since the YellowRiver is very long and time of travel is very long, pilot runs must be made to calibrate the dispatching. - 140- ANNE 7

ForeignOperationaI Water-Dispathing Systems

* Whiledeveloping the dispatchingmodels and rules, the studyteams will makeseveral trips to largebasins in the UnitedStates or othercountries to reviewthe existingoperational water-dispatching systems. Method of Implementationof the Istutional Progrm 31. It is intendedthat these various studies should be underbaenfor MWRand YRCCby an overseasorganiation with experienceof operatingwithin a river basin environmentor by a firm of overseasconsultants with world wideexperience of water resourcesmanagement. A combinationof two suchparties might act jointlyto undertake the studies. The organization/consultantsappointed would be responsiblefor advisingon and arrangingfor the provisionof the overseastaining component. Cost FAtimate 32. Anoutline estimate of thecosts of consultants,overseas studies, training and localcosts for data collectionis shownin Table2. - 141 - A X 7

Table 2: MWR/YRCCJNsnumONAL SUPPORTPtoGRAM

Item $°000

AccountingReform Foreign consultants 120 Overseas training 157 Local consultants 30

Mobilizationof Funds for WR Projects Local consultants 184 Overseas consultants 240 Overseas study tours 322

W-aterPricing System Foreign consultant 330 MWR/YRCCstaff - overseas study tour 85 Local consultants 120 eorganization of River Basin Ma,iagement -WatrAllocation- _icensing Sy=tm Foreign consultants 240 MWP/YRCC staff - overseas study tour 197 Local consultants 55

Water Volume Dispatches- Imovd ForecastingCapability Foreign consultants 800 Oversas study tour - YRCC staff 100 Overseas training 50

Tota 280 General organization Chart for Proj et Implementation

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ENVIRONMENTAL ASSESSMENT SUMMARY

A. INTRODUCFION

1. The XiaolangdiProject is a major multipurposedam and reservoir project thathas beensubject of environmentalassessment extending over six yearsby a teamfrom the YellowRiver ConservancyCommission (YRCC), supported by 88 Chineseexperts and also by an InternationalPanel of Experts appointed to male inputs on dam design and safety factors. The results of this work are reportedin 22 specialistreports and an environmentalassessment (EA) Reportof considerablelength and complexity.The EA ExecutiveSummary was submittedto the Boardon April 15, 1993.

B. BASELN DATA

2. The EnvironmentalStudy Area (ESA) extends for approximately1,000 km alongthe YellowRiver, fromthe SanmenxiaDam to the estuaryand deltaat BohaiBay. This was dividedinto three ar.s for EIA studypurposes: (a) the reservoirarea and surroundingregion upstream to SanmenxiaDam, (b) the lower river reaches,and (c) the estuaryand deltaregions.

3. The baseline data for all three areas is discussedextensively in the EnvironmentalExecutive Summary (referenced in Annex 12. The followingrelates specificallyto the reservoirarea and surroundingregion.

4. The reservoirarea extends along 130 kn of the YellowRiver valley. The main stream of the River throughthis stretchis deeplyincised with little floodplain development.Eleven tributaries enter this sectionof the river. General Characteristicsof ESA (Reservoirand DownstreamRegion)

5. Climate. The climateis warmtemperate with cold dry wintersand warm wet summers. Averageannual temperatureis 10-15C and annual precipitationis 600 mm. Droughtsare common. Air qualityin the reservoirand surroundingarea is generallygood althoughsuspended particulates due to dust blown in from the Loess Plateauare high.

6. Geography. The area is boundedby mountainsto the north, west and south,which change gradually to hillstowards the broadfloodplain of the lower Yellow Riverto the east. Almosthalf of the area has a gradientover 250. The east-westaxis of the Kuangkouanticline passes through the damsite. Seismiczones have been identified - 147 - ANNEX 9

for the area and earthquakesof magnitude5 on the Richter scale have occurred in the reservoir area.

7. Mineral Resources. The mineral resources of the region are significant includingvaluable reserves of coal, bauxite, copper, iron and building materials. The reserves most affected by the reservoir will be coal, bauxite and sulfur-iron.

8. Soils. Loess makes up the majority of the soils found below 1,000 m elevation. Thesevery importantagricultural soils are commonlyslightly alkaline with only 0.5-1 percent organic matter.

9. Water Quality. Surface water qualityis generallyvery good, even though the River has an exceptionaly high silt load. There is some localized pollution, due mainly to mining enterprises, with minor contributions from agricultural runoff and domestic sewage. The shallow and artesian groundwater in the area is recharged by rainfall, and is generallysuitable for drinldng.

10. Flora and Fauna. The location of the region near the southern edge of the warm temperatezone plus the variable geographyresults in terrestrial plant communities that can be relativelycomplex and diverse. Locallyhowever, there has been a long history of settement and cultivation, and the natural vegetationand diversity have been greatly diminished. The diversity and abundanceof wild animals are very low throughoutthe region. Waterfowlare diverse, but populationsare low.

11. Aquatic Resources. Riverine aquatic habitats are generally poor, and aquatic communitiesare marginal because of the very high silt content in the river. Significantfishery habitat is mainlylocated in the tributaries. Fish is not a significantpart of the local diet, and fish productivity,including aquaculture, represents only 0.2 percent of agriculturalincome in the lower basin.

12. Population. The populationof the reservoir and surroundingarea is about 2.8 million people, approximately171,000 (moving year count) of whom live in the reservoir backwaterarea and will be relocated under the developmentplan. Agricultural familiescomprise 90 percent of the populationof the ESA and over 92 percent in the area to be flooded. The main agriculturalcrops are cereals and cotton. Overall agricultural productivityis low. Annualper capitaagricultural income in the regionvanes from Y 325 to Y 900, averaging about Y 580.

13. Public Health. The main public healthproblems identified include malaria, diseases related to agricultural practices (such as Brucellosis), encephalitis-B,diseases carried by rats, sanitation related diseases, waterborne intestinal diseases, and endemic fluorosiscauses by cooldng with the high-fluoridelocal coal.

14. Archaeological Values. A detailed archaeologicalsurvey identified over 100 culturalrelics and historic sites in the area to be submerged. While none of these are classifiedas protectedby either the State or the province, someof the items are regarded - 148 - ANNEX 9 as precious resources for research on architecturaland art history. There are also many important cultural resources in the area surroundingthe reservoir.

C. ENVIRONMENTALEMPACTS

15. Although the EA covered all environmental aspects, four issues were identified as being of importance: (a) dam stability and safety, (b) resettlement, (c) cultural heritage; and (d) public health. The findingson these are summarizedin the following.

Dam Stability and Safety

16. Dam Safety. This issue was the subject of extensiveanalysis by the by the YRCC and an InternationalPanel of Experts (ref. EA Executive Summary Annex 12). The assessmentsof and provisionsfor dam safetyare believedto be the most detailedever undertakenfor a major dam. A wide range of safety featuresare provided in the project design including: (a) access road systemsare located so that, if access to one bank is intewrupted, access to the other bank will be maintained; (b) a comprehensive communicationssystem will be provided, includingmicrowave and radio; (c) emergency power supplies are available; (d) an integrated reservoir flood regulaion plan has been prepared, to utilize all reservoir capacitiesto minimizeflood hazards under extreme flow conditions;(e) emergencyresponse planning has been completedto account for possible failureof the cofferdam during construction;(f) a Flood EmergencyResponse System has been establishedand is opewationalin the lower basin and elsewhere.

17. Stability During Earthquakes.The mass of the dam may increasethe risk of inducedearthquakes in or near the reservoirarea. Becausethe dam site is in a region prone to senous earthquakes,dam safety has been given particular attention.

18. Extensive studies were undertaken by the YRCC including geological mappingof the area, a thoroughreview of reservoir-inducedearthquakes within China and abroad, and detailed earthquakeprobability assessments. These studies led YRCC to concludethat the potentialmagnitude of inducedearthquakes subsequent to floodingof the XiaolangdiReservoir is between5.5 and 5.6 on the Richter scale.

19. Based on a consensusbetween YRCC and the InternationalPanel of Experts the dam, embankmentsand intake tower have been tested by modelingfor stabilityduring a postulatedearthquake of magnitude6.25 on the RichterScale witha hypocentraldistance of 10 kn and a correspondinghorizontal peak accelerationof 0.5 g. The results indicate that the dam, embanknent and the intake towers would not be endangeredunder these conditions. The seismicdesign of the dam is consideredto be fully consistentwith the best state of the scientificknowledge on these aspects. - 149 - ANNEX 9

Resettlement and Reestablishment of Idvelihoods

20. Resettlement planning and management represented a major effort in planningand managementthat outweighedthe rest of the environmentalstudies program by an order of magnitude.

21. A total of 171,000people will require resettlementfrom the reservoir area and a detailedplan has been preparedto be carried out in progressive stages. Accounthas been taken not only of the populationdirectly affected by the project (i.e., the people displacedby inundation),but also the populationin the areas receiving resettlers, which will be indirectlyaffected. The two main objectivesof the resettlementplan are that both resettlersand host communitiesaffected: (a) will not be disadvantagedby the Project; and (b) will share in the project benefits.

22. To achieve objective(a) for resettler families: (i) the resettledfamilies will be reestablishedin a new location where the house, yard and amenities will be at least as good as the family's previous situation; (ii) the family's new earning potential will be at least as good as previously;and (iii) the family's expensesand loss in income in making the transitionwill be duly recognizedand accountedand compensatedfor.

23. The EnvironmentalExecutive Summary referred to in Annex 12 assessesthe potential for these objectives to be achieved by reviewing provisions and proposals in connectionwith; economiceffects, housing, amenitiesand public services, and social and cultural effccts. The conclusionsof that review are summarizedfollowing.

24. For Resettler Families

(a) Economic Effects. Adequate compensationprovisions have been made beginning with generous cash compensationfor all material assets. Since the continuationof an agriculturallifestyle is likely to only maintaincurrent incomes(rather than increasethem), additionalnonfarm jobs would be made available to ensure that incomes are at least maintained and probably increased. The successfulrelocation of rural people from the three most affected countieswill be completedearly to accommodatethem. Care has been taken not to overestimatepotential crop yields in resettlementareas, since this will tend to reduce the areas of land allocated to resettlers. Early action has also been taken to complete agreementsbetween resettlers and host villages.

(b) Preferential PoUcies. Considerationis now being given to introducing preferentialpolicies for rural resettlers and hosts includingspecial status for scarce farm inputs, direct sales of farm products, training, exemptionor reductionof grain quotas,priority forjobs in rural enterprises,subsidies and tax exemptions. - 150 - ANNEX 9

(c) Housing, Amenitiesand Public Services. The availabilityof these services will be better than prior to moving(two thirds of the floor space of existing housingof the 181,000resettlers is in caves that are characteristicallydamp and commonlya cause of rheumatism).

(d) Social and Cultural Aspects. Almost all resetders and host families are Hans and no ethnic problems are likely. Most resettler families surveyed were aware that they will have to move, and althoughcontracts have been signed between townshipsfew had any firm concept of the specificsto be involvedexcept those whose who are going to be resettled within the next few years. In order to minimizethe social dislocationimpact villages will be movedas a whole group so as to be not be separatedfrom their village neighbors. The main concernis that the move shouldresult in an improved standard of living, especially given the opportunity to switch from agriculturalto nonagriculturallivelihoods.

25. For Host Families

(a) Economics Aspects. Althoughthere will be some loss of agriculturalland there will be improved irrigation and access to nonfarm jobs. This will result in increase of incomesfor host families.

(b) Infrastructure and Public Services. The analysis showed that the resettlementprogram will supplementthe existinginfrastructure and services to accommodatethe increasedloadings without loss in level of service. In most cases the new infrastructure will improve living standards for the hosts.

(c) Social and Cultural Aspects. Surveys indicatedthat about 70 percent of the host population were aware of the proposed resettlementplan. The majorityof these indicated that the program will have significanteffects on their livelihoods,and about two thirds seemed willing to accommodatethe resettler families. The indication is that the socioculturalimpacts will be acceptable provided that the host villagers are not made worse off economically.

26. Other aspects provided for in the resettlementprogram include:

(a) Grievances and Complaints Procedures. A mechanismbased on the Village Committees, which represent the villagers independentlyof the regular governmentstructure, is provided. If a matter cannot be resolved at the Village Committeelevel, proceduresare provided for referring the matter to the local governmentand, subsequently,to higher government levels as needed up to the provincial level. - 151- ANNEX 9

(b) Safety Nets. If resettlers or hosts are unsuccessfulin achievingsatisfactory incomelevels, they will have recourseto a specialReservoir Area Support Fund, which guarantees minimumincomes if farm or nonfarm livelihonds fail to meet their minimumneeds. Applicantsto the Fund will be referred through the village leader to the County ResettlementOffice. This Fund will remain in place until Ministry of Water Resources(MWR) deems that the Xiaolangdiresettlers and affected hosts are no longer at any particular risk.

(c) Transport Capacity for Relocation. This has been a problem on other resettlementprograms and specialprovision has been made to ensure that there will be adequatetransport capacity for movingresettler families from existingto new sites.

27. Implementationof the plan is already under way for resettler familiesin the coitstructionarea; of the 9,944 people (2,330 families) in this area, some 4,000 (909 families) representing 40 percent of the total have been moved to host villages in the constructioncamp vicinity. An inspectionof the 909 family situationsmade by the World Bankmission on October 10, 1993,including discussions with the resettlers,indicated that the resettlers were quite satisfiedwith YRCC's managementof them thus far and incomes have already risen 10 to 60 percent from the 1992incomes.

28. The resettlementplan also makes provision for monitoringand reporting. Special reporting forms will be completedby resettlementpersonnel at xiang or village level, and submitted to provincial and municipalresettlement bureaus. These will be submitted to the YRCC ResettlementOffice and enclosed in the constructionprogress reports submittedby supervisingengineers.

29. YRCChas engagequalified social scientists to conductindividual evaluations of resettlers' socioeconomicprogress. This service aims at evaluating,and reporting on, the level of living conditionsand social servicesof the affectedpopulation, both before and after resettlement. The evaluationwill be done annually.

30. In summary,the projectresettlement and re-establishmentof livelihoodplan is judged to be the most detailedand competentyet developedfor a major dam project in the developingworld, and it is believedthat, with continuousperiodic monitoring the plan will be successful-- ,s already seen in the 4,000 people resettled so far. Based on the plan, none of the resettlers or hosts will be disadvantaged.

Cultural Heritage

31. The YellowRiver runs through the "Cradle of Chinese Civiliztion," and archaeological relics are plentiful throughout the river basin, especially in the main populationand farmingareas of the middleand lower River reaches but less so near the dam site. - 152 - ANNEX 9

32. A detailed comprehensive archaeologicalexploration, classification and salvageprogram has been undertakento locate, recoverand protectimportant underground and surface relics and cultural treasures in the inundatedarea. To date, work has focused in the area of knownand importantsites, and priority has been given to those areas which will be floodedfirst. There will be more time availableto completethe required work in the host areas and the inundatedareas at higher elevations.

33. The most importantunderground relics and sites include the Yangshaoand Longshanrelics of the New Stone Age plus other city sites, tombs and kilns of the Shang Dynasty. Importantsurface relics includecarvings, statues, temples,grottos and buildings from various dynasties, includingthe Tangdi Temple in Henan Province.

34. The EIA team, together with their governmentcounterparts with expertise in the subjectarea, will monitorthe salvageand curationof these archaeologicrelics. The overall budget for the archeologicaldetection and salvage program makes provision for exploratoryborings, excavation and relocationand reconstruction.The archeologicalrelics protection program is on schedule, and all critical tasks will be completedwithin budget and accordingto plan.

Public Health

35. The prevalent communicablediseases common in the study area include malaria,encephalitis, hemorrhagic fever, brucellosis,paragonimiasis, and sanitation-related enteric diseases includingdysentery, hepatitisand typhoid.

36. Theproject will markedlychange the hydrologyof the YellowRiver through the creation of a reservoir, and providing an opportunityfor increased irrigation of the surroundingand downstreamagricultural areas. These changeswill modifythe ecological conditions for vector-borne diseases such as malaria and encephalitis, and for communicablediseases such as dysentery, hepatitis and typhoid. Inundation of the reservoir area will also force the mass out-migrationof disease-bearing rats, almost certainlyresulting in an increasedincidence of hemorrhagicfever in the surroundingarea and population. The influxof constructionworkers will increase the risk of both insect- borne and sanitation-relatedenteric diseases in the vicinity of the constructionand host areas.

37. The public health vector control and sanitationprograms to be implemented are summarizedas follows:

(a) Malaria. During the construction phase, medical screening of construction workers for carriers of malaria (as well as other contagiousdiseases), and routine sprayingof constructionsite buildingsand breedingareas to control mosquitoeswill be undertaken. The EA report recommendedthat mosquito control be carried out using Bacilhs thuringiensis serovar israliensis (Bti), which is a biological alternative to chemical insecticides. During the operation phase, disease prevention to be undertaken in both the reservoir - 153 - ANNEX 9

and irrigation areas comprises periodic medical checks of the affected population to determine malaria incidence, and periodic monitoting of potentialmosquito breeding sites for anophelinelarvae to determinethe need for special control measures. Special control will include spraying to control anophelinelarvae, habitat modificationwhere cost-effective,and medicalprevention and treatmentprograms.

(b) Encephalitis. The encephalitis control program is similar to that for malaria, except that different mosquitospecies are involved.

(c) Hemorrhagic Fever. Rats are the principalvectors of hemorrhagicfever. The prevention and control program to be implemented during tht constructionand operation stages consists of: (i) destructionof rodents in the area inundatedprior to inundation;(ii) monitoringrodent density and the incidence of hemorrhagic fever in the control area in the year prior to inundation; and (iii) monitoring after inundation, and applying rodent control and medical treatmentas required.

(d) Sanitation-Related Enteric Diseases. Enteric diseases will be controlled by hygiene,provision of clean water and adequatesanitation facilities at the constructionsite. Contract documents will require construction contractors to comply with relevant provisions and the EnvironmentalManagement Office will monitor compliance. In resettlement areas, clean water and adequatesanitation facilities will be providedin the host areas and villages for controllingenteric diseases.

Other Forms of Impact Analyzed

38. Other forms of impact analyzedincluded fisheries (in-stream,aquaculture, estuarineand coastal),water quality, land accretionin coastalareas, inundationof physical resources, landslides in the reservoir, reservoir seepage, reservoir area clearing, rare species and special habitats, wetlands, and global environmentalissues. The analyses showed that the adverse impacts on these aspects of the environmentwill generally be smalland/or controllable. Some forms of impact (e.g., on greenhousegas emissions)were assessedas being positive.

D. ENVRONMNTAL MANAGEMENT PLAN

39. A salient feature of the recommendedenvironment protection program is implementationof an EnvironmentManagement Plan (Table 1), fully funded through the project. The Plan includesprovision for an EnvironmentalManagement Office (EMO), which will have lead and coordinating responsibility for implementing all needed environmentalprotection measures including:

(a) Managementof continuing periodic monitoring for assessing the actual effects of the project; - 154 - ANNEX 9

(b) Planning and implementationof needed correction measures identified through the monitoringprogram; and,

(c) Preparation of routine periodic reports (and special reports, when needed) for distributionto concernedGovernment Agencies and to the Bank.

Environmental Management Plan Approach

40. The approachused in the EMP to ensure compliancewith the Environmental ProtectionMeasures (EPMs) specified in the EMAis illustratedin Figure 1 and comprises the followingelements:

(a) Final design for the project, including contract documents, plans and specificationsmust include the EPMs specified by the EIA.

(b) Provisionsfor the constructionstage must includeenvironmental monitoring and surveillance, as well as the usual construction supervision for engineeringactivities.

(c) On completionof construction,a trial run or other appropriate testing will be conducted to be sure that EPMs have been effectivelyimplemented or prepared for.

(d) Operational-phasemonitoring and reporting will be done to ensure that the project is being operated in compliance with the measures intended to protect the environmentand to provide the feedback necessary to identify and correct residual problems or to take advantage of enhancement opportunities.

(e) The approval and support of officialswill be gained so that the necessary engineeringor institutionalcorrection measures can be carried out.

41. The EnvironmentalManagement Plan for Xiaolangdiincludes provisions to carry out each of these steps. These provisionsinvolve institutionaldevelopment, funding mechanisms,technical planning and programs,further studiesinto effects and opportunities for enhancement of benefits, and training and technology transfer in support of the activities required in the Plan.

42. The Plan that has been developedis consideredto be compatiblewith both Chinese and World Bank requirements. The EMP itself fully addresses all requirements of Annex C to World Bank OperationalDirective 4.01 (1991) concerning environmental managementplanning. Figure 1: ENSURG COMPLANCEwrIH ENVIRONMETALPROTECTION MEASURES

|General Manager

Environmental Management Office

Final Project Design . Construction Stage start-up Environmental Correction Compliance Compliance Compliance Monitoring Measures t Temporary Temporary Temporary Continuing Continuing Year I to 2 Year 3 to 10 Year 11 Year 3 to 20 Year 3 to 20

Notes: 1. Final design for the project, includingcontract documents, plans and specificationsmust includethe EPMs specifiedby the EIA. 2. Provisionsfor the constuction stage must includeconstruction supervision for environmentalmatters as weU as the usual constuction supervision for engineeringactivities. 3. On completionof constuction, a trial run will be conductedto be sure that EPMs have been implementedeffectively. 4. Operationalphase monitoringwill be done to ensure that the project is being operated in compliancewith the constraintsintended to protect the environment,and to provide feedbacknecessmy to identifyand correct residual problemsor to take advantageof enhancementopportunmities. 5. Approvalof officialswill be gained so that required engineeringor institutionalcorrection measures can be carried out. - 156 - ANNEX9

Environmental ManagementSystem

43. Environmental Management Administration. To ensure effective administrationof environmentalmanagement, the YRWHDCwill createthe Environmental ManagementLead Group (EMLG) and the EnvironmentalManagement Office (EMO), whosecombined responsibility is the administrationand implementationof the EMP. The Lead Group will be comprised of senior officials of the YRWHDC, the provincial environmental agencies and the other agencies that will have responsibilities for undertaking specific environmentalmanagement tasks. This Group will develop the necessaryinstitutional arrangements and provide the necessaryauthority to implementthe specificEPMs.

44. The EnvironmentalManagement Office (EMO) will be responsiblefor the technicalplanning and implementationof the functionsnoted in para. 47(a)-(e). While the actual work may be delegatedto and carried out by other agencies and units, such as the various divisions of YRCC, Provincial and County governments, universities and consultants, the EMO will coordinatethe planning, surveillanceand monitoringof all the EPMs, and will itself set objectivesand evaluateperformance. The reporting functionof the EMO will be of criticalimportance to the Lead Groupand other interestedobservers.

45. Until the creation of the EMO, the existing EIA team will continue its preparationsfor environmentalmanagement of the XiaolangdiProject. The EIA team will assistin the transitionperiod to get the EMO fully functionalas expeditiouslyas possible.

46. The tasks to be done to fulfillthe XiaolangdiEMP over the period following Project loan approvaluntil the year 2010 are summarizedin Tables 1 to 3, which show the various tasks corresponding to the significant environmental issues, the agencies participatingin the managementplan which will carry them out, and the cost and duration of the required activities.

Environmental ManagementActivities

47. Project Preparation Phase. During preparationfor construction,the EMP priorities will be:

(a) To finalize the institutionalarrangements and create the new agencies and relationships,

(b) to prepare environmentallyrelated clauses for the tender documents,

(c) to ensure that the results of the EIA are included in the final planning and design documentsrelated to the project,

(d) to perform environmentalsurveillance and monitoringduring preparationof the construction site and to commence environmental monitoring of resetflement,and - 157- ANNEX9

Table 1: Cosr ESffMTE FOR TlmEXP ENVIRONMENTALMANAGEMExr PLAN (Y million)

Capital Implementation & Item Total Construction Equipment Operation Cost

1. Seismic monitoring 7.63 0.33 2.02 5.28

2. Resettlement Management la 1.07 - - 1.07 a. ImpactAssessment 0.61 - 0.61 b. Management& Monitorina 0.46 _ - 0.46

3. Salvage of Cultural Relics /a 17.16 - - 17.16

4. Sanitation& AntiepidemicIs 4.24 0.27 0.30 3.67 5. Monitoring of Hydrology, Sediment, Meteorology & Water Quality 77.46 15.84 15.30 46.32

6. Reservoir Clearing LS 10.85 - - 10.85 a. Optimization 0.04 - - 0.04 b. ReservoirClearing 10.81 - - 10.81 7. RHO(including library) 4.70 0.50 0.60 3.60

a. Technical Exchanges & Training 0.50 - - 0.50

9. Special Studies 0.65 - - 0.65

10. Advice by Experts 13.20 - - 1.34

11. Subtotalof items 1-10 125.60 16.94 18.22 90.44 12. Contingency 8.56

13. Total of Items 1-12 134.16

/a Hasbeo mamlyincluded in the XiaolangdiResettlement Project.

(e) to commencethe mobilizationof the variousagencies reWonsible for EPMs.

48. Constuction and Operating Phases. The major priorities during project constructionand operationwill be monitoringof the implementationof the EPMs, and the performanceof studiesrelated to environmentaleffects and opportunites for enhancement The monitoringand reportin_ systemis designedto (a) ensure that the project contractors 3indopeators are observing the constrints imposed for environmentalprotection, and (b) to evaluatethe adequacyof the environmentalprotection plan. In this activity the EMO will observe the actual environmentaleffects of the project. In the event there are unacceptableadverse effects, or promisingopportunities for environmentalenhancement that have been overlooked, it will possible to recommendappropriate action.

E. OVERALLASSESSMENT

49. The XiaolangdiMultipurpose Dam Project, as planned, represents a sound economnic-cwm-environmentaldevelopment project for the Lower YellowRiver Basin. It Table2: SUMMARYDEsCRiWTON OF ENVIRONMENTALMANAGEENT PLAN (Unit for cost: Y million)

Ite Description TIplementor Monitor Duration = re toCot ToeeoflSp Emiron Rawin So4At.Vztvtx rctani:ec and moitor Implementation of environmental protection YUEIIDC ENPA. MR 993-2010 4.65 4.65 j1s::Jc8!OoftotorI 1. To set up a Seismic Stations, 1 relay station and recording SPDI under IISC r 1993-2010 7.63 b 7.63 p!~i~ 8 Hontorina eto 2. fo mItor th region 35 ti upstream and 10 downstrem of the 3. *rrour ttayy d it±ouely report

S o a 'IL e5ett wrot pects of resettlt j' tts - h r 1993-2011 1.07 37.271b 3. 34,L! t t *ttt-t: Ro2prtStuart rlv rt rcsottltt rc I e 4t.rPlyed

s. TodcLduct evirouseatal anagemnt of developut projects. 1. To q=tU 2ed cultural relic to be affected Iu construction Prvncial 1 "al 1992-2000 17.16 18.661c 33.82,c 2: Oprearequarter 7 progress reports. b"ureauco Ud u

oTnI4tAtorep~f~i at at 1. to Ot ot rees. Remrritot Dt of tRINDo 1993-2010 4.24 4 4.241A 8rntro- pawic 2.i !nd nitorupolde IL,Vtun= rSC= or 0cs,:t n St W nd10Xst;- 3. | curl,ica4 :ert (to prevnt mlaria, enceplitis a Pt 1 4. to" wgestbvRcco o susnceptible caminitie. ctIr Eve

*w"ta. A oroR . TO COWUCt asteorozo.ical .ton ag I-" f 1:10 yz:twra:rqu!ty4 4tt-se m prgt phjader 1993-2010 77.46 L. 77.46 lvTenvirotnm tnn-tal prot ction Le" EN der 1993-2000 If

IRoorvoir Clearitg To clear the reservoir areaopttlment Wder 1993-2010 10.5 5a 10.S5 S cro 8tudfos on . tu ot ac and urotr bal ac Y elevan fpsf r 1993-2000 0.65 L tu 1vironme=t i. o ccwnetrsa0uaculture; t Itrits er 1993 0.65 .recOt ztIa .*s l; atSt or reservoir na vigation Province or igal areas. viroeital *. to set up an enir tel libr UWNOdrTRW= 1993-2010 1.49 1.89L& Ss .W cgi { ot ¢ rtrgntOf|uS

Total k 134.16 61.52 195.68 No additionalcost to others is anticipated. Preliminaryestimate of cost of Environmentalmpemenation in Rsten t. IU estimatedtotal is 3,582. Duringconatction CRB estimatethat 1,716can be spent. Morewill be spent,up to the full estimate,if dme allows. d Ilncmnt cost to exing stationsm host areas have not been estimnted. /eEMO cat for this itemis nchudedin the Item #1 estimat. TInementalcost to EPBshas not been estimatedand incrementalcost to contractor-reatedenviromnental stipulations in teneing has not been esimated. j I _u costs to others of occasionaltraining has not beenestimed. M Ultimatecost will be higher due to cost itema missingfrom this estiuate. - 159- ANNEX9

Table 3: SUmmARYOF PROPOSEDFoLLow-uP STnDs La

Cost Item Description Agency (Yuan) Shehduling

Study of ground and 1. Survey aud study of underground IPDl of UCC! Shandoag 350.000 To submit study urf ac meter bal- vater resourc.s in irrigation Hydrograpbic & Goologi- reports to 1996. onco areas. cal Tess; Iananlydro- 2. Benefits of supplemeting under. graphic & Geological grouad vater source. in irriga- T tton eresge 3. Monitoring progras of under- ground water trends; 4. Study of relationahip between ground and surface water; S. Optimizstion of surface and groundwater use. Peasibility of Down- 1. Land area suitahl, for develop- Diversified Ecoeomy 50.000 To submit study stream Aquaculture gont of pond, and poole along Office of YRCCIHenan reports in 1996. the lever banks (nearby and Aquacultural Bureau; irrigation areas)l Sheadong Aquacultural 2. Planning of aquaculture develop- Bureau meat and analysis of benfitsl 3. Coarison of benefits vith *ad without XLD. implentattou Pro- I. *Asaesmnt of recreation RPDI of 11CC; naab 30.000 To eubmit reports it gr for Reservoir resourceas Administrative Bureau of 1996. lecreation 2. Estimating umber of touriste; Tourism 3. Progrm of recrection develop- 4. Recreation facilitiesa . invecstmet, economic evaluation and financial anslysiel 6. Methodology of development. reasibility of Ravi- 1. flavigation conditiona in theb Hnan Design Institut* 30.000 To submitreports in Ltion in Reservoir reservoir areas of Tranaportation 1997. Sr 2. Freight capacity; 3. Constructiou of bosic uavigation facilities; 4. Selection of ships; S. Cost estimate, conomicevalua- tion and fiancial analysis. NA of lrrigation 1. Assessmnt of sanitationand RPDI of SRCC Eron- 100.000 To submitreport iu Area ExpaeiO public belth; mentalDepartt of the 2000. 2. Enviromental impacts of irriga- Chinece cademy of tion and draingeg Sciencoe 3. Environmental impct sn oil of irrigation; 4. Assessment of socioeconomc progress in Irrigation areas. Planmn Future 1. Altera tives for tow develop- Construction Plannin 30.000 To aubmit report by Ccmity Dev lop- ment; Agency and IPDI of 11CC the end of 1998. Sent in1S Da Site 2. Scale of possiblefuture town; 3. Industrial and co asrcial possi- bilities; 4. Distribution of tmporary snd permanentbuilding. EnvirormentalGuide- 1. Preparation of a pmphlet for RPDI 60,000 Available by the eud lines for the Con- use of construction site person- of 1992. ctruction Site nel; 2. Printing of 10,000 copies. Total 650,000

/a Proposed undergovernmentprograms. furnishes cntically needed flood protection for the highly developedlower basin with its 103 millionpeople who have been plaguedby floods for centuries. The flood hazard has been progressivelyincreasing to now serious levels due to continuoussitation.

50. The project will also controland arrest silt depositionin the lower reach for a period of 20 years during which many river control structures can be developed to protect the dikes.

51. The project provides many subsidiary economic benefits that should markedly enhance socioeconomicconditions in the lower basin region. The proposed environmentalmanagement plan, when implemented,should offset any significantadverse environmentaleffects. -160 - ANNEX 9

52. Especially significant in overall assessment of the project is the detailed comprehensiveattention given to the issue of resettlement, representing a pioneering approach for major dams in China and in Asia by which it is proposed that all possible effort is being made so that no resettlers will be disadvantagedand most resettlers will significantlybenefit from the project. - 161 - ANNEX10

DRAFT TERMS OF REFERENCE FOR CONSULTANT

ResponsibiLities

1. Ministry of Water Resources (MWR) has entrusted YRWHDC with the overall responsibilityfor implementationof the Project. YRWHDChas entrusteddesign responsibilitiesto RPDI, and constructionmanagement and supervisionresponsibilities to XECC.

2. YRWHDCwill employ foreign contractorsfor the major civil works, and foreign suppliersas necessary to obtain the most modem and efficientequipment. It also will employ local contractors and suppliers for various works and equipment as appropriate.

3. YRWHDCwill employconsultants from insideand outsideChina to provide consulting services for the Owner, Designer and Engineer of the Project during the constructionperiod.

4. YRCC has appointeda Panel of Experts comprisingeight world-renowned experts (44 person-months)to perodically convene and provide independent specalist review of design, construction,environmental management and resettlement.

5. These terms of reference summarizethe scope of services envisaged to be providedby foreignconsultants (the 'Consultant') whowill assistthe Owner, Designerand Engineerduring the constructionperiod. In his proposal,the prospectiveConsultant shall elaborate on the scope of services he proposes to provide. He may also propose modificationsto the proposed scope, giving explanationsfor the proposed adjustments.

Scope of Consulting Services

6. To the Owner and Designer:

(a) To prepare internationalcompetitive bidding documentsfor 220 kV XLPE dielectric solid dry cables, and computer-aidedcontrol systems, for water management,power station operationand instrument observationfor dam and hydraulicstructures.

(b) To review the technicalspecifications for generators, 500 kV transformers and switchgear,and other majorequipment procured under localcompetitive bidding to ensure high qualityand compliancewith modern standards. -162 - ALNNEX10

(c) To assist in evaluatingbids and preparing bid evaluation reports for ICB bids.

(d) To assist in managementof the design and drawing production program. This would include the setting up of computerizedsystems to track the designs and drawings through the various preparation, approval and amendment stages, to enable on-time production of drawings and accountabilityof the various design units.

(e) To assist in controllingquality of the design and drawing process, covering establishment of design criteria and standards; ensuring consistency of approach in design and quality, completeness, consistency with specifications,dimensional consistency of issued drawings, and accuracyof English Languagetitles and notations.

(f) To recommendhardware and software for general and specialist design applications,and CADD systems,assist in procurement,and train local staff in their use.

(g) To provide specialist advice in critical design areas, particularly where innovative design solutionsare proposed or where designs and transfer of technology may benefit from exposure of Chinese engineers to foreign experienceand unfamiliarmodern design techniques.

(h) To assist in the review and approvalof detailed manufacturing,fabrication and installation drawings, designs and calculations, schedules of characteristics, bills of materials, erection instructions and operating manuals, prepared by the several equipment contractors, to ensure adequacy,compliance with specifications and coordinationbetween suppliers and contractors; with regard to equipment that has been bid on an ICB basis, the consultant will coordinate English language comments and correspondence.

(i) To assist in setting up a computerizedsystem to monitor and control the developmentof the electromechanicaldesign and the status of each drawing and documentreceived from the manufacturers;the objectiveof this system would be to ensure that responses to manufacturers' submissions, and interfaces with civil contractors meet contractualrequirements.

Oj) To recommendinspection proceduresand other measures to monitor the compliancewith standardsand specificationsduring manufacturing.

(k) As necessary, and as requestedby the Owner, to accompanythe Designer in visiting design offices of equipmentcont 1-actorsto discuss and clarify technical matters, or to witness tests such as turbine model tests and essential shop acceptancetests of the main electromechanicalcomponents. -163- ANNEX 10

(1) To assist the owner in developing policies and procedures for optimum operation of the reservoir and power plant.

(m) To assist the Designer in preparing reports to be submittedin the English language includingthe following:

* Designer's input to brief monthly and detailed quarterly progress reports;

* Bid evaluationreports for ICB contracts;

* Technicalreports in preparationfor Panel of Expert meetings;

* Designer's input to the completionreport for the project;

* General Project Operationand MaintenanceManual;

7. To the Engineer. The Consultantwill assist the Engineer in carrying out the followingresponsibilities:

(a) ContractualAspects

(i) Carrying out the functionsof the Engineer in accordancewith the FIDIC Conditionsof Contract.

(ii) Determiningpowers, authoritiesand responsibilitiesto be delegated to the Engineer's Representative, in accordance with the FIDIC Conditions of Contract, and in respect to such delegation, establishingprocedures for supervision,for communicationswith the contractor and for filing and recording contractualcorrespondence.

(iii) Review and evaluation of claims made by the contractor during construction and recommendationsto the Owner regarding their depositionon a monthlybasis.

(iv) Reviewof reports of work defectsor discrepanciesthat could not be corrected at job level. Reporting of these to the Owner with recommendationsfor corrective action.

(v) Upon award of contract, preparation of an 'Early Action Items" letter to the Contractor, pointing out the items required from the Contractor prior to or during the initial phase of the construction work. Monitoring insurance and bond coverage to ensure appropriatenotification prior to potential expiration. - 164- ANNEX 10

(vi) Establishmentof a progress payment administration system, to facilitate recommending work acceptance and payment to the contractors for the work performed. Certification of progress payments.

(vii) Establishmentof procedures for dealing with change orders in a systematicmanner. This system should provide for recognitionof changes,preparation of an independentestimate, negotiationof a fair price when unit pricesdo not prevail, issue of notice to proceedand review, approval and documentationof change orders. Issue of change orders.

(viii) Establishmentof a standard close-out procedure, covering system commissioning,final inspectionand acceptanceof all contracts.

(b) Planning, Coordination, Control and Reporting

(i) Preparationand maintenanceof a master project CPM that includes all key interfaces between civil works contractors, equipment suppliersand erectors and the Designer.

(ii) Monitoringprogress of contractors' work with respect to the master project schedule, and determinationof necessary adjustments to contractors schedulesto meet contract completiondates.

(iii) Arranging,presiding over and minutingscheduling and coordination meetingswith contractorsand suppliers.

(iv) Collectionand assemblyof contractor supplieddata and projections on manpower,materials and equipment.

(v) Preparationof brief monthlyand comprehensivequarterly progress reports for the Owner, and assisting the Owner in liaising with and reporting to the World Bank.

(vi) Coordination of the preparation of the following reports and technicaldocuments:

* TechnicalReports as necessaryfor the meetingsof the Panel of Fxperts;

* ConstructionReport for each Project Structure;

* Project CompletionReport;

* Geologicalmapping of all excavations; - 165- ANNEX 10

* Recordsof all foundationtreatments, taes of the grout holes, etc.;

* Records of all quality control tests carried out during constructionsupervision;

* Installationdata in relationto all instrumentationand readings taken during constructionperiod;

* As built drawings;

* All records related to quality control and commissioningof the equipment.

(c) Budgeting, Cost and Fmancial Control Functions

(i) Establish and maintain a cost control system that continuously monitorsin foreign and local currency: incurred costs, committed costs and cost estimatevariations due to actualgeological conditions, design changes, additional work, escalation and currency fluctuations.

(ii) Update on a six-monthlybasis cost estimate to completion and projected disbursementschedules for each financier.

(d) Inspectionand Quality ControlFunctions

(i) Carry out the functions of the Engineer's Representative in accordancewith the FIDIC conditions. For the civil works, it is expectedthat the functionswill be carried out by three groups, each one having primary responsibilityfor one of the ICB civil works contracts. Responsibilitiesinclude the following:

(ii) Monitoringof performanceof constructionand technicalsupervision thereof to ensure compliancewith contracts;

(iii) Documentingthe progress and quality of all stages of construction including: daily records of progress, events and oral instructions; weekly updating of as built records and marked-up drawings; recording of qualitycontrol and qualityassurance records including test data;

(iv) Monitoringof contractor's quality control activities, review of test results, and recommendationof remedial actions; -166 - ANNEX 10

(v) Review and approval of contractors' submissionswith respect to sequence and timing of work, equipment, materials, temporary works, detailed working or construction drawings and other documentssubmitted in accordancewith the contracts.

(e) Technical and Laboratory Services

(i) Set up and operate a site laboratoryto:

* carry out quality control testing for embankmentmaterials, concrete and concrete materialsand welding;

supervise contractors quality control testing and review manufacturerstest results;

monitorthe microseismicnetwork to be set up at the site, and instrumentation of the embankment and underground structures.

(ii) Provide support to inspection and quality control groups with technical specialists in areas such as geology, geotechnical engineering (embankments),rock mechanics, tunneling, grouting, diaphragm walls, concrete construction, concrete technology, prestressingoperations, and instrumentation.

(f) Survey

(i) Establishing key reference points for the works and check the contractorssetting out of the works.

(ii) Measure, compute and certify monthly and final quantities of the work.

(g) Mechanicaland ElectricalErection Supervision

(i) Direct, supervise, inspect, coordinate and approve the equipment erection work performed by the several electromechanical contractors.

(ii) Direct the acceptance tests of the power plant and other major mechanical and electrical installations, and prepare a commissioning report. -167- ANNEX 10

Consultants Staffing

8. It is envisagedthat the Consultantwould providethe followingstaff to carry out the required functions:

(a) a full-timesenior advisor to the SupervisingEngineer, to assist him in all areas of managementof the project;

(b) as required throughout the term of the contract, advisors in project managementsystems, contract administration,contract claims, scheduling systems, constructionscheduling and reporting;

(c) a cost control systemsspecialist to work with the Engineer in setting up a cost control systemfor the project, workingwith and taining the local staff until the use of the system is firmly established. This advisor will also assist in establishingprocedures for cost estimatingthroughout the project, and may also be periodicallycalled on in cost estimate reviews relating to importantchange orders and contractors' claims;

(d) full-time senior advisor for each lot of the civil works contract. These adviseos should have extensiveexperience in the followingareas: Lot 1, embankment dams; Lot 2 and Lot 3, underground works and massive concrete constructions;

(e) advisors in each specialistareas such as geology,geotechnical engineering (embankments),rock mechanics, tunneling, grouting, concrete, concrete technology,prestressed concrete, instrumentation,and in other specialist areas as required throughoutthe course of the project;

(f) full-timeelectrical and mechanicaladvisors oughout the erection period up until the commissioningof the first unit of the powerhouse. Part-time advice will then be provided as necessary until the completion of commissioningof the electromechanicalworks. The full-timeadvisors will be supplementedas necessaryby advisors in specialistareas such as control systemsand commissioning.

'2. The person-months requirements is estimated to be about 953 for constructionsupervision. Table 1 providesa list of consultantswith the expectedamounts of input estimatedby the owner.

13. The 44 person-monthsof the panel of experts is presented as item 1 but these should not be included as person-monthsfor the consultant. - 168- hNaNEX 10

Table 1: CONSLTING PESON-MONTH ESMATE FOR XLD PRojEkr Year 1993 1994 I995 199 1997 1998 199 2000 2001 Total

I Panel of Experts - - 44.0 Embankment 0.5 0.5 I I 1 1 I 0.5 0.5 6.5 Undergroundworks 0.5 0.5 I I I I 1 0.5 0.5 6.5 Mechanical/electrical works I I 0 0 0 1 1 2 2 6

____ Conatruction management 0.5 0.5 1 2 2 1 1 1 1 9 Resettlementtenvironnent 1 1 1 I 1 1 1 1 1 8 Others I 1 1 1 1 1 1 1 1 8 2 Design/installation review of equipment for (RPDI) -___ Speciaists (for RPDl) 3 6 6 6 6 6 6 6 6 39 3 Studies on special issues 4 4 4 4 4 4 4 4 32 4 Consultants for construction supervision (YRWHDC) Key consultants 12 12 12 12 12 12 12 12 96 Contract nanagement 12 12 3 3 3 3 3 3 42 Claim management 3 3 3 3 3 3 3 3 24 -__ Projectmanagement 6 2 2 10 Planningsysem 6 2 2 10 Construction planning 12 12 6 3 3 3 3 3 45 I_ rPreparationof repons | 3 3 | …-… = 6 S cost control/esimate I Cost control system 6 2 2 - 10 Etimate 2 2 2 2 2 10

6 Inspection/qualityconArol ------Lot l/Main Dam 12 12 12 12 3 3 54 |Lot 2unnels 12 12 12 12 9 6 63 Lot 3/Power Facilities 12 12 12 12 12 6 66 7 Technical/Laboratory Services

=_ Geology - 3 3 6

Soil MeohanicsAmbankmenr - 12 6 6 6 = 30 Rock Mechanics 6 6 3 3 = 18 Tunnels 6 12 6 6 30 Grouting 3 3 6 Concrete 3 12 12 3 30 =__ Concrete technique 4 4 2 2 2 14 Preatrssed concrete 4 4 8

Intrurmentation - 3 3 3 9 8 Supervision of mechanica/ electrical equipment Intaltion of mechanical 12 12 3 3 3 33 equipment- Insallation of electrical 12 12 3 3 3 33 equipment - Operation 6 6 6 6 24 Special issues 6 6 2 2 2 18 9 Communication with 1 I I 1 1 1 6 head-office 10 Others 2 9 9 9 9 9 8 8 8 71 Subtotal 6.5 141.5 170 133 138 119 75 59 59 843 11 Design Manager (RPDI) 12 6 3 3 24 =__ Quality Control (RPDI) 24 241 12 12 72

___ CAD Specialist (RPDI) 12 2 1 = 14 TOTAL (2-11) 6.5 189.5 202 148 153 119 75 59 59 953 ANNEX1 1 -169 - CHART1 YELLOWRIVER BASIN FLOOD FORECASTING SYSTEM

Flood Prevention Command System Professional FloodPrevention Agencies

|State Council

|National Flood Prevention HO MWRFlood Prevention HO

FloodPrevention NationalFlood Headquatersof Preventionf YellowRiver Conservancy Commission YellowRiver Office 4

0 v ~~~~~~~~~~~RiverEngineefingBureau, YellowRiver HydrologicalBureau, Telecom ProvincialFlood FloodPreven- Henan& Dept.,Computer Center PreventionHeadqu. tionOffice Shandong (Henan,Shandong) RiverBureaus

FloodPrevention RiverEngineerinn RaiTnelolTere- DistrictHeadquarters DistrictBureau TelecomWater meter _ ~~~~~~~~~~~~~~~~~~~StationsgLevel Stations z _ i Gauge FloodPrevention CountyHeadquarters Prefecturengnee- Bureau FloodPrevention CountyEngineer. Township CountyFlood Office Headquarters PreventionOffice If , I Is* Flood Prevention River_____'__Rler_ | VilageHeadquarters nstr- Dike Sluice IGroup Maint- Maint-

r | t I| r Z t g --- , L | GrO8~~~rlrID Group| Dike Sluice Mobile Rescue Transp- Mobile Protect- Protect- Reser- IGr'ouJpI rGpR ionGrp ionGrp ve Grp. GrouppReserve I l_ __ | g Group Yellow River Basin Flood Forecasting Data Collection System rYellow River Converancy Commissio

HydrologicalBureau

Watcr ~~~~~ ~ ~~~~~~~~WaterPlnig Informiation Monitowing Computcr Administration Resources rPlancing&Lgsi DivisionDiviion DivisionOffce Protection Diisanion Divistion DivisionDiionDvsn

Instituteof Laanzhou Yuci Sannmen,xia Zhengzhou Jinan Water WaterQuality Resource Monitoring, Protection Center

F-ieldSurvey Hiydrological Stg ttos Rain Gauige Evaporation WaterQuality Groups Stations StagationsonsStat ions WaterLab OOnl

J - Xiaolangdi Flood Forecast System

0~~~~~~~~~~~~~~~

di

X«'tt~~~~~ \ J / t T_od t ~~~~~~

_x Yry^ - 172 - ANNEX 12

SELECTED DOCUMENTSAND DATA AVAILABLE IN THE PROJECT FILEI/

A. Reports and Studies Related to the Project

A.1 Xiaolangdi Multipurpose Dam Project Brief, RPDI-YRCC & CIPM Joint Venture (September 1992) - Volume I: Summary Report - Volume II: Date Data and Analysis - Volume m: Project Planning, Economic and Financial Analysis - Volumes IV, V, VI, VII, VIII Project Layout of Dam, Hydraulic Structures, etc.

A.2 Xiaolangdi Multipurpose Dam Project Brief, RPDI-YRCC & CIPM Joint 'Venture (September 1992): Volume IX - SummaryReport - Resetdement Main report Vol. IX - Construction Zone Resettlement Implementation Plan Vol. IX-1 - Detailed Design of Resettlement Plan Below EL 180 Vol. IX-2 - Detailed Plan for Mengjin Resettlement Vol. IX-3 - Pilot Project Plan for Xiaolangdi Village Resettlement IX-4 - Report on Resettlement Planning for Yellow River Flood Plain IX-5 - Report on Resettlement Plan for the Three Downstream Counties IX-6 - Yuangqu County Resettlement Plan (Based on the Houhe Reservoir) IX-7 - Feasibility Study of Dryland Farm Expansion for Mianchi Resettlement IX-8 - Land Carrying Capacity Analysis of Xin'an and Mianchi Counties IX-9 - Agricultural Development Backgrounds in , Mengjin and Xin'an IX-10 - Results of Household Surveys IX-11 - Feasibility Study of Industrial Resettlement at County Level IX-12 - A Review of Women in Development with Respect to the Proposed Xiaolangdi Project (WID) IX-13 - Milestones of Consultation During Resettlement Planning IX-14

1/ Most of tbee rpois will not be availableto the public. -173- ANNEX 12

AnalysisReport on the Present Income Level in the AffectedAreas IX-15 CompensationStandards for Affected Population and Industries/ InstitutionsIX-16 Study on NonagriculturalResettlement Criteria IX-17 FeasibilityReport on Typical Projects for Nonfarm Resetdementat County Level IX-18 Feasibility Report on Typical Projects for Typical Agricultural ResettlementIX-19 Brief Report on the Grievances and Appeal Procedures for RelocateesIX-20 SummaryOf ResettlementCost EstimateIX-21

A.3 XiaolangdiMultipurpose Project Brief - EnvironmentalSummary Volume 10, RPDI-YRCC& CIPM Joint Venture (September1992)

A.4 XiaolangdiMultipurpose Project Brief - EnvironmentMain Report Vol 10, RPDI-YRCC& CIPM Joint Venture (September1992)

A.5 XiaolangdiResettlement Project Brief - EnvironmentImpact Assessment, RPDI-YRCC& CIPM Joint Venture (September1992)

A.6 Xiaolangdi MultipurposeProject - ResettlementMaps Vol XIII, RPDI- YRCC & CIPM Joint Venture (September1992)

A.7 China: YellowRiver Basin InvestmentPlanning Study, Report No. 11146- CHA, World Bank

A.8 China InvoluntaryResettlement Study, Report No. 11641-CHA,June 8, 1993

A.9 East Asia Region Report on Resetdementfor the Bank-WideResettlement Review, December 1993, (InternalDocument) World Bank

A. 10 Xiaolangdi Multipurpose Project ResettlementSummary Report, RPDI- YRCC & CIPM Joint Venture (September 1992), December 1992

B. Working Papers

B. 1 DetailedProject Schedules,Appraisal Mission, August 1993

B.2 DetailedCosts, AppraisalMission, July 1993

B.3 Irrigationissues in the XiaolangdiDam Project Appraisal, 1991 International Boundarles CHINA P?ROIECT - ProvlnceBoundaries ( China>,<\~ XIAOLANGDI MULTIPIJRPOSE

Mongolia EXISTING & PROPOSED DAM/HYDROPOWER PLANTS IN BASIN YllowSea

Inner Mongolia Plai9---'

YowR s

AA

~~~~~~~~ ~~~~~~NbgKia Plaio -"0 Bi8 The - ~~~~,, Nwgzla ruiui k ~~~~~~~L,Interior Basn ~

w*,17 fStd ( / ! (F ',FoiPlaini

tg - &-!/ pe * u¢ fr PMIh offi..,Mg>t , (I Z- ~ow ~ ~ ~ 2n>a tl.,. K - R1 - 1t >1

Waf R. ,RXs .W..f~ ~ ~ WV' f. ftg 4t A~~~~~~~~~~~~~~~

i .ii2 -12 N13

zhw R.~ ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~DWR

*- f ~~~~A 1.R Tianqiao ,{, 9. Iiujianu '>".A \iA .... % ~~~~~~~~Plain ~ ~~Wei2. Wanjiazhai 10. Bapanxia :A- . Qikou m3. 11. Longya ia , _ > s ~~~~~~~~~~~~~~~~~~~~~4.Longmen 12. Laxiwa X~° ~ ~ 41 . 'f0 6Z 13#^, !; -'.' jSe, B ' .' ' 13.Lijiaxia @ 2 ~~~~~~~~~~~~~~~~~Denaft LA.eFlood! D_,& A. Caft c_ A. 6. Samen3da 14. Dai

+~~~~Ae--- dI yf B" xtW m&*wP 7. Samungong 15. Qingtongxia t 4^ lode f DBrgk 3 x /PweKPen 8. Yanguoxia 16. Daliushu

I~~~~0 40D1 YellmtRime PlodpWai PlDmPomwePbne Pla* Internationol Boundaries t Xiaolangdi Multipurpose Project Boundaries China: - - ntProvince Affected Mongolia China Flooded Areas and Population

Mongolia~~~~~~~~~~~~~~~~~~~~~~~~~~(10min epe

r e aF l ood e d if D y k e s B r e ak W 0 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~A 0) .^FZ z< -7 . | ~~~~~~~~~~~~~~~~~~~~~BoijintiFlood Detention Basin Flote od Aespopulationaffced X~~~~~~~~~~~~~~~~~~~~~~~~~~~onpnj f X < Lak> Fl O4po)odDiverion A re

Yelv3/< u >_ \~ EHloFodpn (YewRiver)

Jinan~lrsnaLiaolangdPersons/Klm XiaolangdiDam ": / < )oo F< . 100- 200 200 - 400 400 - 660

600 -800

> 800

-~~~~~~~~~~~~~~~~~~d--r --d-- W - .- s,,,d l

Luoyang Kmn Local Rivers ,,, t^,| | F > \ < +- e 00 20 -ntemattonal% Boundariesf -Provntce- Boundaries Chi a: Xiaolangdi Multipurpose Project

- ProvMongouia Ch Agricultu al Net Income and Flooded Areas

derorninot,bns Ord 7any oth'. intornakm ih... ch'~ hk '"op do, not ;nnPy~ on the part at The World anik Group, any Ldacnlono on MP legal statws atO ('y trerrtor epOory e" of such

, 1 < > < Flooded~~~~~~~~~~~~~~~~~~~~hAra/oauldorn.ck'

Yinan~~~~~r C~taeat¶t

: k- .3 _- 9 of Mog K EX f (0.4ireaFlooded Areas/Population

. Area(100 M20ionFlooded People) it Dykes Break I ijinti Flood Detention Basin (123Million people) > Dongping Lake Flood Diverson Area (0.4 MillfionPeople) Floodplain (Yellow River) A 9 Q _.t . aLuoiangul (1.4 Mlon People) ... ,... (Note: Total affecd population is 103 million.)

------~~~~~~~~~~~~~RMBPer Capita

F-I < 100 100 - 200

200 - 400

400 -600 ~~~~~~~~~~~ ~~~~~~~~~Local Rivers > J- ~~~ZhlengzhouKaifong D600- 800 ~~j \~~~.~ ~ ~ ~~,Luoyang Km >80

0 100 200 - International Boundaries f f Province Boundaries China + l Mongolia industrial Income (1989) and Flooded Areas

de,,n,nof,ns alnd any otter ;nrormqrionshown? gn th)s mnap do not At= Of Afsp ~~~~~~~~~~~~~~~~~~~~~~~~~impIy.on the port Of h W. d B'Vndrk6,p, o1tatusof any terrtory, of any en,dorsement a, Mc4ePtance af such

< uH v t . .)-. <- > '.t ...... 1> .# ~~~~~~~~~~~~~~~~~~~~~~~~~oy.iu~rnn anth/ ga

Flooded Areas/PopuJation

Area Flooded if Dykes Break

y (\ ,sf rr ( f> ; W Ff ws A _ 1 r o > ~~~~~~~~~~~~(100 oMi Peop1* Beijlndi Flood Detention Basin (1.3 Million Poople) Dongping Lakc Flood Dhcrsion Area ______t ,fX1-> / <-t /(0.4 Million People) _Xiaclangdi Dam Ffloodplain (Yellow River) t \ A Damt< olangdi 1 1 & A t: :: ~~~~~~~~~~~~~~~~~~~~~(1.4Millon People) (Note: Total affcted population is 103 million.)

RMB Per Capita < 100

4-~~~~~~~~ ~~100 - 200 200- 400 County Lounndaries 400 - 600 LocalRivers - \ Zhengzhouy zW g SC5~~ Kaifong 600- 800 0 Kg 9 )Luoyang Km n >800 ,_.4_s - L .,II § S \ 1x_) 0 100 200