Document of The World Bank Public Disclosure Authorized
ReportNo. 14072-CHA
STAFF APPRAISAL REPORT Public Disclosure Authorized
CHINA
ERTAN II HYDROELECTRIC PROJECT Public Disclosure Authorized
JULY 7, 1995
Public Disclosure Authorized Industry and Energy Operations Division China and Mongolia Department East Asia and Pacific Regional Office CURRENCY EQUIVALENTS (As of March 1, 1995) Currency Yuan (Y) Y 1. 1 0= 100fen $1.00 = Y 8.5 Y 1.00 $0.12 WEIGHTS AND MEASURES km Kilometer (= 0.62 miles) kWh Kilowatt hour (= 860.42 kcal) GWh = Gigawatt hour (1,000,000 kilowatt hours) TWh = Terawatt hour (1,000.000,000 kilowatt hours) kW = Kilowatt (1,000 watts) MW = Megawatt (1,000 kilowatts) GW = Gigawatt (1 million kilowatts) kV = Kilovolt (1,000 volts) kVA Kilovolt-ampere (1,000 volt-amperes) MVA Megavolt-ampere (1,000 kilovolt-amperes)l mg = Milligram m- = Cubic meter tce = tons of standard coal equivalent ABBREVIATIONS AND ACRONYMS USED BERIWREP - Beijing Economic Research Institute for Water Resources and Electric Power CHIDI - Chengdu H:ydroelectric Investigation and Design Institute CNPC - China National Petroleum Corporation DRB - Disputes Review Board EAR - Environmental Assessment Report EEC - Ertan Engineering Company EHDC - Ertan Hydropower Development Company, Ltd EMP - Environmental Management Program ERP - Environment and Resettlement Panel GEF - Global Environment Facility GNP - Gross National Product HIPDC - Huaneng International Power Development Corporation MOEP - Ministry of Electric Power MOF - Ministry of Finance RB/SPG - Resettlement Bureau, Sichuan Provincial Government SAA - State Audit Administration SBC - Special Board of Consultants SDB - State Development Bank SDIC - State Development Investment Company SEDC - Sunblast Energy Development Company SEPC - Sichuan Electric Power Company SIC - Sichuan Investment Company SOEs - State-Owned Enterprises SPC - State Planning Commission SPG - Sichuan Power Grid FISCAL YEAR January 1 to December 31 CHINA
ERTAN II HYDROELECTRIC PROJECT
LoAN AND PROJECT SUMMARY
Borrower: People's Republic of China
Beneficiary: Ertan Hydropower Development Company, Ltd. (EHDC)
Poverty Category: Not applicable.
Amount: $400.0 million equivalent. A guarantee operation is also proposed to support commercial financing of $150 million equivalent.
Terms: Twenty years, including a five-year grace period, at the Bank's standard variable interest rate.
Commitment Fee: 0.75 percent on undisbursed loan balances, beginning 60 days after signing, less any waiver.
Onlending Terms: The proceeds of the loan would be onlent from the Borrower to Sichuan Province for onlending to the Beneficiary, each under a subsidiary loan agreement on the same terms and conditions as the Bank loan, with the Beneficiary bearing the foreign exchange risk.
Financing Plan: See Table 5.2.
Economic Rate of Return: 16 percent
Map: IBRD 26552
Project ID Number: CN-PA-3507
CONTENTS
1 The Energy Sector ...... 1
A. Overview ...... 1 B. Energy Sector Issues ...... 2 C. Energy Sector Strategy ...... 5 D. Bank Role in the Energy Sector ...... 6
2 The Power Subsector ...... 8
A. Background ...... 8 B. Power Subsector Reform ...... 9 C. Power Pricing ...... 12 D. Electricity Conservation and Environmental Protection ...... 14 E. Power System Planning and Technology Transfer ...... 15 F. Role of the Bank in the Power Subsector ...... 15
3 The Beneficiary ...... 20
A. Legal Status and Organization ...... 20 B. EHDC's Reform Implementation Plan ...... 21 C. Staffing and Training ...... 22 D. Planning, Budgeting and Control ...... 23 E. Accounting ...... 23 F. Audit ...... 25 G. Power Sales to SEPC ...... 25
This report is based on the findings of an appraisal mission that visited China in March 1995. The report was prepared by V. Mastilovic (Senior Engineer), E. Sun (Senior Financial Analyst), N. Berrah (Senior Economist), B. Trembath (Senior Engineer), S. Kataoka (Senior Engineer), R. Goodland (Environmental Advisor), W. Partridge (Principal Resettlement Specialist), T. Matsukawa (Financial Officer) and K.C. Ling (Consultant). Peer reviewers comprised: W. Cao (technical), M. Layec (economic), and S. Shum (institutional and financial). The Division Chief is Richard S. Newfarmer, and the Department Director is Nicholas C. Hope. - i -
4 The Power Market and Program ...... 27
A. The Sichuan Power Grid ...... 27 B. Load Forecast ...... 28 C. Power Development Program ...... 28 D. Electricity Conservation ...... 29
5 The Project ...... 31
A. Project Background and Objectives ...... 31 B. Project Description ...... 31 C. Cost Estimate ...... 35 D. Financing Plan ...... 35 E. Procurement ...... 38 F. Project Implementation and Operation ...... 40 G. Disbursement ...... 40 H. Environmental Considerations ...... 42 l. Resettlement Aspects ...... 44 J. Project Risks ...... 45 K. Monitoring and Reporting ...... 46
6 Financial Aspects ...... 48
A. Introduction ...... 48 B. EHDC's Past and Present Financial Performance ...... 49 C. Financial Performance Targets ...... 49 D. Future Finances ...... 50
7 Economic Justification ...... 53
A. Role of the Project in Sichuan Province ...... 53 B. Least-Cost Studies ...... 53 C. Environmental Benefits ...... 54 D. Economic Rate of Return ...... 55
8 Agreements and Recommendation ...... 56
TABLEs IN TExT
4.1 Load Growth of Sichuan Power Grid ...... 28 4.2 Load Forecast for Sichuan Power Grid .29
5.1 Summary of Project Costs ...... 36 5.2 Financing Plan for the Project .37 5.3 Summary of Proposed Procurement Arrangements .39 - 111 -
5.4 Implementation Schedule: Estimated Annual Contractual and Other Payments ...... 41
6.1 Key Financial Indicators, 1995-2004 ...... 51
7.1 Increases in Coal Consumption and Associated Emissions in the Without Ertan Case ...... 54
ANNEXES
1.1 Primary Energy Output in China (1949-93) .59 1.2 Total Production and Consumption of Energy vs. GNP Growth 60
2.1 Installed Capacity, Electricity Generation, and Consumption in the Power Subsector .61 2.2 Electricity Consumption by Sectors ...... 62 2.3 Major Ongoing Power Projects with External Financing Other than IBRD ...... 63 2.4 Future Thermal Power Projects under BOT or BOO Arrangements . . . 64 2.5 Power Pricing in Sichuan Province ...... 65
3.1 EHDC's Reform Implementation Plan ...... 72 3.2 Staffing of EHDC ...... 76
4.1 Installed Generating Capacity of Sichuan Power Grid ...... 77 4.2 Transmission Network of Sichuan Power Grid ...... 78 4.3 Energy Generation of Sichuan Power Grid ...... 79 4.4 Energy Consumption by Category of Consumers in Sichuan Province . . 80 4.5 Energy Forecast for Sichuan Power Grid ...... 81 4.6 Sichuan Power Development Program (1994-2003) ...... 82 4.7 System Demand and Energy Balance of Sichuan Power Grid ...... 84
5.1 Project Description ...... 85 5.2 Consulting Services (Terms of Reference) ...... 93 5.3 Organizational Restructuring and Financial Management Systems . .. . 103 5.4 Management Development and Training ...... 109 5.5 Project Cost Estimate ...... 115 5.6 IBRD Guarantee Operation ...... 118 5.7 Procurement Schedule ...... 121 5.8 Key Dates of Project Implementation ...... 122 5.9 Schedule of Disbursements ...... 123 5.10 Environmental Management Program ...... 124 5.11 Resettlement Action Plan ...... 134 5.12 Key Monitoring Indicators ...... 144 5.13 Bank Supervision Input into Key Activities ...... 146 - Iv -
6.1 Actual Financial Statements of EHDC (1992-94) ...... 147 6.2 Forecast Financial Statements of EHDC (1995-2004) ...... 149 6.3 Major Assumptions for Financial Projections ...... 153
7.1 Economic Justification of the Project .155
8.1 Selected Documents and Data Available in the Project File .157
CHARTS
1. Organization Chart of the Ministry of Electric Power .159 2. Organization Chart of the Ertan Hydroelectric Development Corporation 160 3. Project Implementation Unit ...... 161 4. Sichuan Power System .162 5. Implementation Schedule .163
MAP
IBRD 26552 ...... 165 1. THE ENERGY SECTOR
A. OVERVIEW
1.1 China has become the third largest producer of energy in the world. In 1993, the country's primary commercial energy supply and consumption amounted to 1,117 and 1,122 million tons of standard coal equivalent (tce), respectively. Coal is the most important source of energy, accounting for about 74 percent, and oil for 19 percent of the total production. Hydroelectric power (5 percent), natural gas (2 percent), and small quantities of oil shale and geothermal power make up the balance. T'he largest consumer of energy is the industrial sector (70 percent). followed by households (14 percent), services (10 percent), and agriculture (5 percent). Details of the primary energy outputs are given in Annex 1.1.
Energy Resources
1.2 The main primary energy resources in China are coal, hydroelectric potential, crude oil and natural gas. In 1993, the country produced 1.14 billion tons of raw coal and by the year 2000 aims to produce 1.4 billion tons of coal a year. However, insufficient transport capacity makes it extremely difficult to move enough coal to the large consuming centers. China is rich in water resources and has a long tradition of harnessing them for energy and other uses, but only about 9 percent of these resources have been developed. Most of the potential is located in the southwest (70 percent), about 1,500 km away from the main demand centers. The long gestation period for hydroelectric projects has also inhibited the rapid development and utilization of hydroelectric resources. The country produced 144 million tons of crude oil in 1993, and the target output for the year 2000 is 200 million tons. In 1993, China produced 16.5 billion m3 of natural gas. About 44 percent of the current production is nonassociated gas, mostly fronmSichuan Province. The remaining gas production is associated with onshore crude oil production.
1.3 Known uranium reserves in China are sufficient to sustain 15,000 MW of nuclear power capacity for 30 years. China commissioned its first commercial nuclear power plant (300 MW) in 1992. In 1994, Daya Bay nuclear power plant (2x900 MW) was commissioned; 70 percent of its output is intended for nearby Hong Kong. The construction of a few additional plants is planned to start before the year 2000, primarily in regions that lack coal and hydroelectric resources. Other energy resources play a small role in energy supply and are used mostly in remote areas. Geothermal energy has been found in many locations covering nearly all the country. Although wind and solar energy have promising prospects, they are not expected to affect the overall supply of energy significantly in the near future. Oil shale deposits are large, but little is exploited because of lack of viable technology. - 2 -
1.4 Noncommercial biomass energy use currently amounts to about one-quarter of total energy consumption in China. Fuelwood and agricultural residues are the chief biomass fuels, and they are consumed almost entirely by rural households. China is promoting a variety of measures to achieve environmentally sustainable biomass supply and consumption levels, including more efficient use of biomass, tree planting, and substitution of other fuels for traditional biomass fuels.
Institutions of the Energy Sector
1.5 The Ministry of Electric Power (MOEP) has primary responsibility within the Central Government for policy, planning and regulations for the energy sector, along with the Ministry of Coal and the China National Petroleum Corporation (CNPC). Chart 1 shows the organization of MOEP. The State Development Bank (SDB), established in 1994, is responsible for onlending funds for projects of national importance and representing the Government in the joint financing of projects with other parties. The State Planning Commission (SPC), on behalf of the State Council, has responsibility for review and approval of the strategic plans, investment programs and general pricing policy of the energy sector.
Energy Investments
1.6 Energy investments in the 1980s were planned based on an expected economic growth rate of 7.5 percent a year. Actual economic growth rates exceeded this target by a significant margin, which has exacerbated energy shortages already existing at the outset. The Government has given high priority to developing the energy sector and also the transport sector, a bottleneck in economic development. In 1993, China dedicated 3.3 percent and 1.9 percent of its Gross National Product (GNP), respectively, to develop infrastructure for energy production and transportation. It invested a total of Y 80.4 billion ($14 billion) in the energy sector, representing 27 percent of state capital construction, as against 21 percent in the early 1980s. The power subsector accounted for 61 percent of the total. About 20 percent of the investment requirements of the Chinese energy sector are met by foreign loans and direct investments.
B. ENERGY SECTOR ISSUES
1.7 In addition to the already noted shortages, the main energy sector issues in China are: (a) the efficiency of energy supply and use; (b) the dominance of coal and associated environmental problems; (c) scale and technology in energy industries; (d) rationalization of energy pricing; and (e) institutional, regulatory and enterprise reform.
Efficiency of Energy Use
1.8 China's energy consumption per capita is low, but consumption per unit of GNP is high compared with other countries. The high share of industrial output in GNP, the structure of industry, the use of inefficient technology, and inadequate energy management practices are major factors that contribute to this. Efforts to improve the - 3 - efficiency of energy use have been a cornerstone of China's energy policy. Particular progress has been made in building a strong institutional framework for energy conservation. During 1980-93, China's energy intensity per unit of GNP fell by about 30 percent in real terms (Annex 1.2). Nevertheless, further improvements in energy efficiency are crucial. Energy supply targets for the 1990s imply that only about one-half of the increased energy services required will come from new energy supplies, while the other half should come from energy efficiency improvements. This will require major progress in addressing structural and systemic issues as well as still stronger programs to upgrade inefficient technology and strengthen energy management.
Dominance of Coal and Associated Environmental Problems
1.9 Many of China's air pollution problems are related to the heavy use of coal and its dispersed, small-scale applications. Environmental problems occur at every stage of the coal chain; mining and disposal of mine waste, coal washing, transport and handling, processing and combustion, and ultimately ash disposal. The ambient concentration of particulates is the most serious problem; it is largely related to the dominant small-scale use of coal, its high-ash content (20 to 30 percent), and the often incomplete combustion. The average sulfur content of the coal is relatively low (about 1.1 percent), but because coal is used so extensively sulfur dioxide emissions are increasing. The environmental implications of continued increases in coal use highlight the need for the strict enforcement of environmental regulations and more investment to conserve energy to mitigate the environmental effects of unnecessary coal consumption. Incorporation of modern technology, achievement of suitable scale economies, and elimination of backward small-scale capacity units is a key to improving coal utilization in many subsectors such as thermal power generation. The scope for substituting cleaner fuels remains limited. The country has insufficient proven natural gas resources; its production of oil is increasingly absorbed by transport and petrochemicals; and large hydropower resources are located far away from major consuming centers.
Scale and Technology in Energy Industries
1.10 Coal Subsector. Over half of the coal produced in China comes from small- scale mining operations. Exploitation of large coal reserves through uncoordinated small- scale mining has often led to inefficiencies in production and a waste of coal resources. In the larger mines, productivity and safety could be increased by making greater use of mechanized systems and applying more efficient mining methods.
1.11 Power Subsector. Large-scale power development in China is beneficial from the standpoint of both energy conservation and environmental protection. Modem thermal power plants, with unit capacities of 600 MW, are far more efficient than smaller units (para. 2.29). The boilers of the modern utilities also support better pollution control, thus raising the efficiency of particulate removal.
1.12 Petroleum Subsector. In the petroleum subsector, there is a need to employ more modern equipment and technology at all stages of exploration and development; - 4 - seismic survey and related data processing, exploratory drilling, and enhanced oil recovery in order to increase production from aging fields. Improvements in operating and maintenance practices are also needed to increase the efficiency of the subsector.
Energy Pricing
1.13 Energy price reform has proceeded steadily during recent years, resulting in substantial increases in real energy prices. In the mid-1980s, dual-track energy pricing was developed, whereby energy supplies allocated under the national plan were priced at "in-plan" prices, at levels well below incremental production costs or border prices, while higher, market-based prices were charged for energy supplied through the market ("outside of the plan"). Over the years, in-plan prices increased in real terms, and the portion of energy allocated at in-plan prices greatly declined. The Government has declared its commitment to abolish low, in-plan prices for all the chief forms of energy by the end of 1995, with the exception of a few consumer categories (e.g., ammonia-based fertilizer producers). The country is now in the process of completing this transition to market- driven prices. In general, average consumer energy prices are now close to the economic costs of supply in the principal demand centers. Distortions remain, however, in both the structure of prices and inequitable treatment of different producers and consumers, requiring further concerted action to complete the transition to a truly efficient pricing system suitable for the emerging market economy.
1.14 In 1994, the Government completed implementation of full deregulation of coal prices, so that all coal will be supplied at market-driven prices that are generally in line with the economic costs of domestic production and distribution and are close to or above international export price parity levels. The average retail price levels of major light petroleum products now are equal to or exceed border prices. Average prices of crude oil and heavy fuel oil, however, have been kept substantially lower. The Government has indicated that crude oil prices would be increased to international levels by the end of 1995. In 1994, crude oil prices were sharply increased, closing the gap with international prices in the case of second-class crude. As part of a gas pricing reform action plan under the Sichuan Gas Development and Conservation Project (Loan 3716-CHA) natural gas well head prices were increased by 80 percent in 1994. Producer prices for natural gas remain distorted and the Project provides for continuing price reform to provide better incentives to find and develop more resources.
1.15 Major progress has been made in increasing electricitv prices; in East China, for example, average consumer prices now approximate the long-run marginal costs (LRMC) of supply. Substantial improvements also have been made in producer prices in 1994. Although average levels still need to be increased to better reflect economic costs in some areas, such as Sichuan Province, many of the remaining problems in the electricity pricing system lie with its structure, unnecessary complexity, lack of transparency, and continued inequitable treatment of different types of producers and consumers (para. 2.21). - 5-
Economic System and EnterpriseReform
1.16 The process of transformation from a command economy to a market-based economic system, initiated in the 1970s, has gained momentum in recent years, fueled by past successes and the strong economic performance of the more liberalized sectors of the economy. Considerable progress has been made in putting in place the appropriate macroeconomic policy framework for the transition to a market economy, from trade to price liberalization, to encouragement of foreign investment and nonstate enterprise development, to decreased involvement of Government in the management and operations of state enterprises. Since mid-1992, efforts to reform China's state-owned enterprises (SOEs) have stepped up sharply, with the promulgation of new regulations granting greater autonomy to enterprises and reducing the Government role in enterprise operations. A wave of initiatives also has been launched to untie the social obligations that constrict SOEs and provide a more market-oriented operating environment, through reformns in the financial sector, fiscal system, pricing, housing, and the social security system. These reform efforts are indicative of the Government's resolve to transform gradually the SOE system into a structure of truly independent corporations. However, given the complexity and multidimensional nature of the reform, it will take time to complete the process.
1.17 System reform in the energy sector has followed trends in other parts of the economy. In the power subsector, the pace and depth of the reform program has increased especially; the Government is proceeding with a far-reaching program to commercialize the power companies, to revamp the regulatory and legal framework within which these companies operate, and to develop more diversified sources of financing, including private participation (para. 2.18). In the oil and gas sector, recent achievements include the further opening of concessions to international oil companies, major price reforms, and the introduction of competition among the various newly created subsidiaries of CNPC. Emphasis is now being given to the commercialization and corporatization of CNPC, as part of the drive towards greater market orientation (see China: Sichuan Gas Development and Conservation Project). In the coal sector, progress in reform has been slower.
C. ENERGYSECTOR STRATEGY
1.18 Sector reform now plays a central role in China's energy development strategy. To reduce the prevailing energy shortages in today's environment of rapid economic growth will require further major improvements in the efficiency of the supply system, in domestic and foreign capital mobilization, and in energy use. The Government is committed to the reforms needed to make these improvements, including the commercialization of enterprises, the achievement of greater autonomy with respect to the government, regulatory and legal reforms to provide the framework for more market- oriented enterprises, promotion of competition, completion of price reforms, and adoption of a variety of new means to mobilize financing.
1.19 Efforts to improve the efficiency of energy use remain a cornerstone of China's energy policy; it is well recognized that China's economic development goals cannot be attained without further major efficiency gains. Focus on environmental issues - 6 - also has increased sharply in recent years. While heavy reliance on coal is an unescapable necessity in China for the foreseeable future, improvements in the efficiency of coal use and reduction of pollution from coal are recognized as critical. The Government's strategy focuses on (a) strengthening environmental policy and regulations, (b) restructuring and renovation of inefficient, polluting industrial capacity, (c) achievement of greater efficiency and enhanced pollution control through development of large power and industrial plants that properly capture scale economies, and (d) transfer and development of more efficient and cleaner industrial and coal utilization technology.
D. BANK ROLE IN THE ENERGY SECTOR
1.20 The Bank has supported 16 projects in electric power development, 5 in hydrocarbons (including 1 natural gas project), and 1 in coal. In these projects, particular progress has been achieved in the Bank's support for transfer of modern technology, development of efficient large-scale energy production facilities, promotion of modern management practices, improvements in power system planning, rationalization of energy pricing, and greater attention to environmental issues. With the Bank's assistance, the Chinese have developed capabilities to assess properly the economic costs of power and coal projects, and formulate their price reform strategies. In the case of power, a joint effort to establish LRMC and pricing principles for East China has been followed up through the development of provincial tariff refonn action plans under recent power projects. A strengthening in environmental and resettlement policies and programs has been achieved through Bank assistance to develop and apply new methodologies and approaches for environmental impact assessments and resettlement planning, and adoption of environmental and resettlement procedures in strict conformity with Bank and national standards.
1.21 The Bank's assistance program for energy in China places special emphasis on energy conservation, improved coal utilization and sector reform. Through sector work, technical assistance and lending operations, the Bank is pursuing a program of assistance to increase energy efficiency, improve coal utilization and reduce air pollution stemming from coal use. A dialogue with the Government has been established through three joint studies, Efficiency and Environmental Impact of Coal Use (Report No. 8915- CHA, 1991), Environmental Strategy Paper (Report No. 9669-CHA, 1992), and the Energy Conservation Study (Report No. 10813-CHA, 1993). Further technical assistance and preinvestment work is under way with support from the Global Environment Facility (GEF), including a joint study by Chinese agencies, the Bank and UNDP, to examine options for greenhouse gas emission control (China: Issues and Options in Greenhouse Gas Emissions Control, 1994). A program of new GEF investment projects is being developed, including projects to promote the development and production of high efficiency industrial boilers, encourage energy conservation investment in industrial enterprises, and others. Because the issues involved concern energy use across the economy, investment and policy support also will continue to be provided through industry and urban/ environment Bank lending operations, as well as those in the energy sector. - 7 -
1.22 The Bank is actively involved in providing assistance for China's reform efforts in the oil, gas sector and power subsectors. Followingcompletion of a successful joint workshop in China on petroleum sector reform, a major technical assistance effort has been launched with Japan Grant Facility assistanceto review (a) establishmentof an appropriate legal and regulatory framework for the oil and gas sector, (b) competition policy and petroleum market development, and (c) institutionalrestructuring of CNPC. The Bank's power sector assistanceprogram includes sector work, technicalassistance and lending operations, at central, regionaland provincial levels. At the central level, a 1993 study, ("Strategic Options in Power Sector Reform in China") supported by the Institutional DevelopmentFund (IDF), provided a vehicle for dialogue between the Bank and key national and provincial representatives. Follow-up sector work culminated in a recent sector report ("China Power Sector Reform: Towards Competitionand Improved Performance," Report 12929-CHA,1994). The dialogue at regional and provincial levels is being developed primarily through lending operations, which focus on implementation of key aspectsof power sector reform and extensionof the reform program from advanced coastal provinces to less-developedinterior provinces. - 8 -
2. THE POWER SUBSECTOR
A. BACKGROUND
2.1 China is the fourth largest producer of electricity in the world. By the end of 1993, China's total installed capacity reached 182.9 GW, with 75.6 percent based on thermal power and 24.4 percent based on hydropower (Annex 2.1). China has 13 power networks with capacities of 1 GW or more. They include five regional power grids (East China, North China, Northeast China, Central China and Northwest China), which coordinate the systems of several provinces together, and eight major separate provincial grids. In 1993, the total length of extra high voltage (500 kV) transmission lines reached 10,231 km and the capacity of substations amounted to 35 GVA.
2.2 Total power generation in China reached 836 TWh in 1993, of which thermal power accounted for 82 percent. The share of hydroelectric power has remained fairly stable and the Government has maintained a strong commitment to hydropower development, but the distance of major resources from load centers inhibits more rapid development. In thermal power, coal-fired plants provide about 90 percent of generation. The share of oil-fired generation, accounting for most of the balance, has declined sharply since the early 1980s. Natural-gas-based generation is negligible and is expected to remain so, barring unforeseen major natural gas discoveries. Including all aspects of the power supply, regardless of ownership, transmission and distribution losses in China's power system amount to about 16 percent of generation.
2.3 Although China's power development program emphasizes addition of 300 to 600 MW units, over one-half of China's thermal power capacity is still in units below 200 MW. Only about 15 percent is in units of 300 MW or more, compared to 60 to 80 percent in industrialized countries. The average gross conversion efficiency of thermal units over 6 MW has improved slightly over the 1980s, reaching 31 to 32 percent in the early 1990s. This efficiency level is not unreasonable given the small unit sizes, but is substantially lower than the 36 to 37 percent typical of systems with larger units.
2.4 Industry continues to dominate electricity consumption in China, accounting for 76.6 percent of electricity use in 1993; 6.3 percent was consumed by agriculture, 8.9 percent by residential users, 6.3 percent by municipal and commercial consumers, and 1.9 percent in transportation/communications (Annex 2.2). Although service is of uneven quality, rural access to electricity is high; 96 percent of the nation's villages and about 80 percent of rural families now have access to electricity.
2.5 Between 1980 and 1993, total power generation in China grew at an average rate of 8.0 percent a year. Growth was particularly robust during 1985-88. It tapered off - 9 - during 1989-90, when economic growth slowed, but picked up once again, with increases in generation of 9 percent in 1991, and 11 percent in 1992 and 1993. Industrial demand has continued to drive overall power demand; 74 percent of incremental electricity use between 1985 and 1993 was in the industrial sector.
2.6 Despite the strong growth in electricity output, most areas of China continue to suffer from severe power shortages. Since GNP grew by 9.3 percent a year during the 1980-93 period, the elasticity of electricity consumption growth relative to GNP growth was only 0.86, an exceptionally low elasticity for any country over a sustained period, and particularly for an industrializing country such as China. The Chinese estimate that there is a shortfall between peak power demand and supply of 15 to 20 percent. Daily load curves are relatively flat, as industries have had to respond to power shortages during the peak daytime periods through rescheduling of work shifts. The minimum load factor in the Sichuan power grid in 1993, for example, was 82 percent.
2.7 China's GNP is expected to grow by at least 8 to 9 percent a year during 1995-2000. This growth will put tremendous pressure on China's electric power industry to avoid yet worse shortages. Building further upon the gains achieved over the last 10 years, the country's programs to increase the efficiency of electricity use must be greatly intensified. Even so, China's electric power construction program for the 1990s will be the world's largest. Assuming that an aggressive conservation effort can enable an electricity demand/GNP growth elasticity of 1.0 to be sustained, electricity demand could be expected to continue to grow at average rates of 8 to 9 percent a year during 1994- 2000. This implies an increase in production from 621 TWh in 1990 to 1,380-1,480 TWh in 2000, and a growth in installed capacity from 138 GW in 1990 to 300 GW in 2000. To keep pace with this demand growth, China would need to add some 17 to 20 GW of capacity a year, compared to the 14 GW added in 1991, 13 GW added in 1992 and 16 GW in 1993.
2.8 The principal issues that must be addressed in order to meet successfully China's development challenge in the power sector are discussed in the sections below.
B. POWERSECTOR REFORM
Achievements
2.9 General. Reforms in China's power sector during the 1980s involved a series of incremental adjustments, largely responding to the need to mobilize additional investment capital to finance rapid growth. Taken together, these adjustments have resulted in a sector structure that is largely unrecognizable from that of the previous three decades. In 1980, the power sector was fully controlled, managed and funded by Central Government departments. By the early 1990s, however, the sector had become much more decentralized and less vertically integrated. Particular progress has been made in diversification of financing sources, institutional restructuring, and pricing reform. - 10 -
2.10 Diversification of Financing Sources. Following change in investment funding from Government grants to loans in the early 1980s, the Government encouraged the development of financing for new projects from additional sources including provincial and local governments, independent corporations, and, in some cases, private foreign partners. Since the mid-1980s, the Government has allowed power produced from power plants financed through these nontraditional sources to be sold at prices that provide for adequate debt servicing and reasonable profit. The share of Central Government financing in power sector investment has fallen sharply, from 91 percent in 1980 to 30 percent in 1992. Empowered with rights to impose surcharges to accumulate funds for investment in power construction, provincial and local governments have become a key source of financing, providing about 44 percent of the investment funding in 1993.
2.11 Newly formed corporations also have become important players. The Huaneng International Power Development Corporation (HIPDC) was formed in 1985 with the aim of attracting foreign capital and technology for power plants located mainly in coastal areas. HIPDC had a mandate to raise funds from the international financial market, and it has tapped bilateral and suppliers' credits, and commercial bank loans. It is now seeking foreign equity participation through issuance of marketable shares on international markets. The recently established Sunburst Energy Development Corporation (SEDC) is another window for the Government's investment in cofinancing with the local governments and foreign sources in energy projects, with three large thermal power projects now under implementation.
2.12 As an independent power producer, HIPDC operates its 15 plants (5,800 MW total) under a build, own, and operate (BOO) framework. Build, own and transfer (BOT) schemes also have been introduced in China, most notably the privately financed Shajiao thermal power plants in Guangdong Province. Current Government policy encourages greater foreign direct investment in the sector (para. 2.18, and Annexes 2.3 and 2.4).
2.13 Institutional Restructuring. Provincial power companies have become the utilities in charge of management and operation of the bulk of the nation's power system. MOEP is charged with overall sector coordination and policy guidance, and is no longer involved in enterprise management. Regional power entities are charged with responsibilities for regional grid coordination and dispatching.
2.14 The nature of the provincial power companies varies substantially, but few remain as monopolies of the power supply systems in their respective provinces. At the distribution level, about one-third of the country's urban distribution companies and five- sixths of the country's rural distribution utilities are separate economic entities. At the generation level, semi-independent joint-investment plants and fully independent power plants have been developed in many areas, selling power to the provincial power companies. - 11 -
The Current Reform Agenda
2.15 In line with stepped-up national reforms toward a market economy begun in mid-1992, the Government recently initiated a broad program of sector reforms in the electric power industry. The reform agenda includes: (a) further commercialization of power companies, including provision of greater autonomy; (b) rationalization of power tariffs; (c) realignment of the regulatory and legal framework for the sector, including the promulgation of a National Electricity Law, and (d) strong encouragement for further diversification in financing for power development, including private sector participation.
2.16 Commercialization and Corporatization. The goal is to develop the nation's power companies into efficient, commercial, autonomous entities, fully responsive to market forces. The most important steps toward this goal, which also will be supported in Sichuan through this and other projects, are:
(a) Separation of government functions from power companies. To transform companies into commercial entities, government regulatory functions must be entrusted to agencies separate from the power companies, and the power companies should be given the mandate to operate as business-oriented enterprises.
(b) Strengthening of power company autonomy. In particular, provincial power companies need to be granted greater financial autonomy, including expanded rights to undertake investments and to raise funds.
(c) Adoption of modern, commercial accounting and financial reporting practices. In line with the introduction of international accounting practices, efficient cost accounting and financial reporting systems are necessary to enable power company managers to control costs and accept financial accountability.
(d) Clarification of asset ownership rights.
(e) A narrowing in power company operations to core activities, and gradual elimination of social welfare responsibilities, initiated through current efforts to "spin off" peripheral operations, and deepened as reforms proceed in the social security system, unemployment insurance, etc.
(f) Incorporation of companies operating in the sector into limited-liability or limited-shareholding companies.
2.17 Legal and Regulatory Reform. China is in the process of developing an overall legal and regulatory framework for operations in the power industry. The existing legal framework consists of a multitude of inconsistent regulations and rulings, developed over many years. There is a need to establish both the principles and model contracts for establishing more transparent and efficient economic relationships between the various entities now involved in the sector, including different grids, semiautonomous joint- - 12 -
investment power plants and independent power producers. To meet the needs of the new market-oriented environment, the Government is preparing the National Electricity Law for possible promulgation in 1995. This will provide the umbrella principles for the legal and regulatory system. A series of more specific regulations, consistent with the principles of the proposed Law is also being prepared. The emerging new regulatory system will include different government regulatory functions at central and provincial levels, and will include the separation of government oversight functions from power company management. A major and innovative experiment is being carried out in Hainan Province to make the transition to an unbundled sector structure with separate regulation. Actions undertaken include: creation of a transmission and distribution shareholding company. several generation companies, including a wholly foreign-owned one, and creation, on June 1, 1995, of a separate agency to regulate the sector. Lessons learned from this experiment will be taken into account in deepening the power sector reforms in other provinces, including Sichuan Province.
2.18 Further Diversification of Financing Sources and Private Participation. Financing of the power expansion program during the 1990s (para. 2.7) will require aggressive efforts to mobilize increased resources through all potential financing channels. The Government recognizes that domestic sources of financing and borrowings from international multilateral and bilateral institutions will not be sufficient to meet the sector's financing needs. Accordingly, the Government is encouraging direct foreign investment in the power industry. Independent power production schemes that have already been developed or are slated for future expansion include privately owned BOT schemes and Chinese/foreign joint-venture BOO schemes. Many other such schemes are in the negotiation stages, but progress is slow because the Government has no clear regulatory framework and policies to encourage competition at entry. Rapid expansion of this form of foreign investment may also require Government acceptance of higher rates of return to investors and acceptance of a greater share of risks, especially foreign exchange convertibility and other policy-related risks. Competitive bidding for power projects would be the best means of establishing the market rate of return to international investors.
C. POWER PRICING
2.19 Electricity price reform in China has involved a series of incremental changes taken over the last 10 years. In the mid-1980s, multiple-track pricing was introduced for both producers and for consumers, in line with the shift away from full vertical integration in the industry (para. 2.13). This strategy was successful in increasing overall tariff levels in most regions but, by the end of the decade, the power pricing system had become too complex and difficult to manage. Recent reforms have therefore focused on simplification and rationalization of the system.
2.20 Producer Prices. A full overhaul was completed during the summer of 1993 of the state catalog prices charged for power produced by plants financed by the Central Government. Prices for the electricity produced from all new power plants are now set by contract to cover financing and operating costs, on a plant-by-plant basis, and rolled into the power tariff. Cost recovery through the tariff system for new investments is thus - 13 - ensured. The electricity tariff applied for plants built with grant financing before 1985 has been revised and rationalized, and now includes an improved mechanism for automatic adjustment in prices to reflect annual changes in fuel costs. Revision of producer prices for old power plants to provide for an appropriate rate of return on revalued assets is expected shortly.
2.21 Consumer Prices. Consumer electricity prices include summations of the state catalog prices; the costs of the growing other sources of power supply not financed through the Government; and a series of local fees and surcharges. While the situation varies somewhat between regions, the nature of the existing pricing system is such that average consumer prices can now be expected to approximate LRMC levels in areas with rapid load growth, such as the coastal provinces. Prices in less-developed areas relying heavily on hydroelectric power, such as Sichuan Province (Annex 2.5), may still be somewhat below LRMC levels, but should gradually be brought into line with growth in new capacity.
2.22 While tariffs are approaching satisfactory levels in most regions, the structure of consumer prices remains too complex, lacks transparency, and is inequitable. In certain areas, unfair "old" administered rates and "new" guidance rates continue to be applied to different consumers. Some consumers are protected from high-cost electricity supply charges and certain local surcharges because they still hold "in-plan" quota allocations, but other new or small consumers must pay high prices well above actual supply costs.
2.23 Directions for Further Reform. While the 1993 reforms brought major improvements, further reforms are still necessary to increase tariff levels in the regions where they still remain somewhat under the cost of economic supply, and to simplify and rationalize the power tariff system. The proposed project will focus on rationalization of wholesale prices and long-term power sales agreement to achieve economic dispatch and increase potential for competition. Financial covenants on sale price will ensure a rate of return on revalued fixed assets of at least 15 percent, after full commissioning of the power plant (para. 6.11). Since the full cost of generation will be passed on to the consumers in accordance with the "new plant/new price" policy, the project will, given its size, contribute in bringing final consumer prices more in line with economic costs.
2.24 Furthermore, a package of tariff reforms to both increase the price level and to simplify and rationalize the consumer tariff in Sichuan is supported under the recently approved Sichuan Power Transmission Project (Loan 3848-CHA). The package includes (a) adjustments in the level of tariffs applied to SEPC's own generating facilities, to reach an average sale price (not including local add-ons) of 41.23 fen/kWh (equivalent to US¢ 4.85) in 1998 and higher thereafter, to conform with the financial covenants of the Sichuan Power Transmission Project; (b) implementation of time-of-day and seasonal tariffs for all customers supplied at the 100 kVA level or above by the end of 1995, accounting for about 60 percent of power sales; (c) application of time-of-day and seasonal tariffs to the sales of all power stations above 10 MW, between 1995 and 1997; (d) gradual implementation of reforms to unify the two-track system of administered and guidance consumer prices into one consumer tariff, with completion in all prefectures in the province in 1997; and - 14 -
(e) development and implementation of improved power purchase agreements between independent Power Producers (IPPs) and SEPC, beginning in 1995.
D. ELECTRICITY CONSERVATION AND ENVIRONMENTAL PROTECTION
Electricity Conservation
2.25 The industrial sector is the key to more efficient use of electricity (para. 2.4). At a macro level, the most important factors determining China's ability to produce more economic output with less electricity are the share of industry in future growth and changes in industrial structure. Other especially important issues include the rate of modernization in industrial process technology and China's ability to produce and disseminate high efficiency electricity-using equipment, such as transformers, motors, fans, purnps, and cooling equipment.
2.26 China has over 10 years of experience in the active promotion of electricity conservation, with a solid record of achievement. The strength of its program lies in the well-developed institutional framework. Electricity conservation is handled by the network of Three Electricity Offices, with offices at central, provincial, prefectural and county levels throughout the country. These offices are under the leadership of local Economic Commissions, and coordinate their work with provincial power companies. They monitor electricity intensity and use patterns in all major enterprises, promote adoption of conservation technologies and electricity management improvements, and assist, at times, in organizing funding for efficiency improvements.
2.27 Continuous improvements in the efficiency of electricity use are imperative if China is to realize its economic growth goals. Three areas receiving increased attention are: (a) improvements in coordination between industrial planning and electricity demand and supply planning at local levels; (b) expansion of programs to reduce losses in power distribution systems; and (c) development, production and dissemination of high-efficiency equipment, including variable-speed motors and modern appliances.
Environmental Protection
2.28 Thermal power production currently accounts for about one-quarter of China's coal consumption, and this share is expected to increase gradually. Improvements in the efficiency of coal use in this sector not only alleviate pressure on the coal production and transportation system, but also have a major impact on particulate, and sulfur and carbon dioxide emissions.
2.29 The achievement of economies of scale in thermal power production, through expanded development of large generating units, is an issue of overriding importance. Particularly disturbing is the recent rapid growth of small coal-fired power plants, in unit sizes of 50 MW or less. While national policy emphasizes the addition of 300 MW and 600 MW units, new projects have lagged behind demand, largely due to difficulties in mobilizing the necessary large investment resources. As a consequence, local governments - 15 - are continuing to invest in large numbers of new small plants. Compared with a state-of- the-art plant, these plants consume over 60 percent more coal per unit of electricity produced. This results in at least 60 percent higher sulfur dioxide emissions (depending upon the coal used), and roughly 60 percent greater emissions of carbon dioxide. Particulate emissions from the small plants are proportionally even higher, due to use of inefficient particulate control technology. If a sufficient pipeline of large-scale projects cannot be brought on stream in a timely fashion, there is little doubt that this problem will worsen.
2.30 In terms of emission control in large- and medium-scale plants, China has made substantial progress in particulate control, through deployment of high-efficiency electrostatic precipitators. As the country has large reserves of low-sulfur coal, China is just beginning to employ sulfur dioxide control devices in the power sector. Top priority should be given to areas that must rely on local high-sulfur coal, such as in southwest China. In these regions, thermal power plants often burn coal of over 4 percent sulfur content (i.e., 5 to 10 times the level typical in most of north and east China), and development of sulfur dioxide control strategies and corresponding investments are now urgent in these areas.
E. POWER SYSTEMPLANNING AND TECHNOLOGYTRANSFER
2.31 Power System Planning. Support for strengthening China's capabilities in least-cost generation planning in both east China and Sichuan was provided under previous Bank loans. As provincial systems become more complex, increased emphasis is required on transmission and distribution planning.
2.32 Modern Technology Transfer. For China to achieve its ambitious goals for the power sector, the transfer of appropriate modern technologies will be crucial. This is particularly important for thermal power plants, where increases in the steam parameters and unit sizes can improve efficiency and reduce atmospheric emissions. Technology transfer is also needed for large hydroelectric projects, particularly in connection with project management to reduce construction times, generating equipment quality and environmental assessments.
F. ROLE OF THE BANK IN THE POWER SUBSECTOR
2.33 The Bank has supported the Government's efforts to foster efficient and sustainable development of the power sector through sector work, policy dialogue, and a series of lending operations. In previous years, the Bank's participation in the power sector in China has particularly focused on institution building, price reform, improvements in system planning, and the transfer of appropriate modern technologies.
2.34 The Bank has helped to finance 16 large power generation, load management and transmission projects (seven hydro, seven thermal, and two transmission). Through these operations, the Bank has helped to introduce: (a) latest techniques in generation, transmission and distribution planning, and system operations and control; (b) modem - 16 - equipment for generation, pollution abatement and control; (c) new methods of project planning, design, construction management, and environmental impact assessment; (d) improved level and structure of power tariffs; and (e) improved financial planning and utility management.
2.35 All of the power projects financed by the Bank are being implemented in a satisfactory manner, generally on schedule, and within budget. The first five projects, Lubuge Hydroelectric (Loan 2382-CHA), the 500-kV Xuzhou-Shanghai Transmission (Loan 2493-CHA), the Yantan Hydroelectric (Loan 2707-CHA), the Beilungang Thermal (Loan 2706-CHA) and the Wujing Thermal (Loan 2852-CHA), have been successfully completed. Several initial problems in the implementation of the Shuikou Hydroelectric Project (Loan 2775-CHA and Loan 3515-CHA) were resolved and commissioning was almost on schedule. The construction of the Ertan Hydroelectric Project (Loan 3387- CHA), Daguangba Multipurpose Project (Loan 3412-CHA and Credit 2305-CHA) and Tianhuangping Pumped-Storage Hydroelectric Project (Loan 3606-CHA) is progressing well. The thermal power projects under construction, Beilungang Extension (Loan 2955- CHA), Yanshi (Loan 3433-CHA), Zouxian (Loan 3462-CHA) and Yangzhou (Loan 3718- CHA), are proceeding on schedule. The Sichuan Power Transmission Project (Loan 3848- CHA) and the Zhejiang Power Development Project (Loan 3846-CHA) were approved in February 1995.
Lessons Learned
2.36 Lessons learned from previous lending operations and from international experience in power sector restructuring were taken into account in developing the Bank power sector assistance in China and in designing the concept of the proposed project.
2.37 In power sector restructuring and reform implementation, international experience shows that even in countries with strong legal systems and open economies, the time needed to build consensus on the reform directions, establish a new regulatory framework, and implement structural changes can be very long. In the United Kingdom, the pioneer country in implementing power sector reformns,it took: (a) about 10 years for a government strongly committed to divesting and "demonopolizing" the utility sectors to build consensus and put out the "White Paper" that laid out the reform options; (b) two more years to draft the law and the licenses; and (c) another two years (for about 1,000 full-time specialists) to design the mechanisms to introduce competition. Currently, only large customers can choose their supplier and full choice for customers has been delayed until 1998. In the United States, where the power industry is mostly private, significant development of the independent power business began to take place more than 10 years after the enactment of the basic legal framework-which was intended to encourage cogeneration and alternative generation technology, not the business of independent merchant generation using medium- to large-scale conventional technologies. The first important structure change, under discussion in California, is planned to go into effect after 1996. In Central and Eastern Europe countries, hopes for achieving quick progress in economic regulation in all sectors have not materialized because of perceived weaknesses in their legal systems and the lack of interest of governments in attracting large-scale - 17 - private investments because of overcapacities and slow growth of demand. Considering China's 40-year history of a command and control economy, the progress achieved during the last decade and especially during the early 1990s clearly indicates the government's commitment to reform and to increasing the credibility of its macroeconomic policies, but the process will take time and require tremendous efforts as the country is learning by doing as well as from the experiences of other countries. As experience in Central and Eastern Europe shows, the pursuit of transparency and accountability of energy and other utilities is the best way to achieve progress in economic regulation. Along the same lines, the Bank's two-pronged power assistance program in China focuses on (a) policy dialogue at the central government level, to clarify the concepts of and stress the need for economic regulation and an adequate legal framework through technical assistance activities; and (b) requirement and implementation of adequate and reliable accounting and financial systems, proper methods for financial control of state-owned enterprises, encouragement of diversification of ownership, and adequate and binding contractual arrangements to increase transparency and accountability through lending projects.
2.38 Problems identified in previous lending operations, particularly the Lubuge, Yantan and Shuikou Hydroelectric Projects were specifically addressed in the preparation of the first Ertan project, and are largely responsible for its successful execution to date. Weaknesses in the International Competitive Bidding (ICB) process for civil works were corrected, as a result of which strong joint ventures have been employed for Ertan. Similarly, the ICB process for generating equipment was adjusted to ensure that technically and financially qualified manufacturers take full responsibility for supply. Local procurement in previous projects has generally been efficient in terms of cost, quality and completion time. Exceptions have been taken into account in the current project, in that high voltage (500 kV) transformers are now internationally procured. The Chinese also learned from the earlier projects the value of experienced foreign consultants and expert review panels and, for the Ertan project, they have reinforced the experienced local organizations with the best expertise available internationally. In the past, institutional development studies have been slow to start. Therefore, in the proposed project, procurement of consultants for the organization and management study has already commenced, and the supervision plan includes appropriate specialists to ensure that these studies achieve their objectives. Lessons learned from earlier reservoir resettlement projects in China in relation to resettlement budgeting, flexibility in resettlement planning and monitoring arrangements, have been taken into account in the proposed project. Although performance in environmental areas has been satisfactory in Chinese projects, the emphasis given to environment in the first Ertan project and in the current project, is much greater than for earlier projects.
The Current Bank Power Sector AssistanceProgram
2.39 In line with the Bankwide power policy (The World Bank's Role in the Electric Power Sector, 1993), the Bank has developed a new power sector assistance program in China that places central focus on reform. This is outlined in the Country Assistance Strategy (CAS) presented to the Board of Executive Directors on June 1, 1995, and is discussed in detail, together with complete analysis of the related issues, in the recently - 18 - issued report China Power Sector Reform. Towards Comnpetition and Improved Performance (Report 12929-CHA, 1994). At the central level, a strong dialogue on reform was initiated through completion in 1993 of a study entitled Strategic Options in Power Sector Reform in China, involving the Bank and key national agencies, with support from IDF. Arising from this study was the above-mentioned report that outlined a strategy for power sector reform. Specific follow-up was provided with a study aimed at identifying options for mobilizing domestic and foreign savings in the power sector, and recently a new initiative has been launched, again with IDF support. Technical assistance will be provided to central authorities to develop an improved legal and regulatory framework for the power industry.
2.40 The dialogue at the regional/provincial level is being developed primarily through lending operations. While the focus of each operation varies, all new power sector lending operations in China are being designed to implement key aspects of the overall reform program. Some operations, such as the Yangzhou and Zhejiang Projects, concentrate on deepening the reform program in relatively advanced provinces, and the implementation of reform initiatives that can serve as models for other areas. The Sichuan Power Transmission Project and the proposed project concentrate on extending the reform program to less-advanced inland regions, in part through dissemination of experiences gained elsewhere.
2.41 The June 1995 Country Assistance Strategy for China identified six main points to provide the focus for Bank assistance:
(a) commercialization and corporatization of operating companies and enterprises;
(b) realignment of regulatory and legal frameworks;
(c) introduction of competition and transparency;
(d) ensuring adequacy of the tariff policy;
(e) development of new sources and methods of financing; and
(f) transfer of new technology and modem operational and environmental techniques.
2.42 The proposed project supports the Bank strategy in most of the above areas. Commercialization and corporatization are achieved through the incorporation of EHDC as a limited-liability company, and through its Reform Implementation Plan. Competition, transparency and tariff reform are promoted through the establishment of EHDC as an independent power producer with a fully commercial power sales agreement with SEPC, which ensures an economic tariff level and structure. Financing diversification is supported through the use of the Bank-guaranteed commercial cofinancing. Transfer of technology and modem environmental techniques are also encouraged through investment, technical assistance and training components of the project. The power sector and tariff - 19 - reform measures of the proposed project complement those agreed to be implemented as part of the recently approved Sichuan Power Transmission Project (Loan 3848-CHA). The latter project targeted reform of the overall power sector in Sichuan, and particularly the Sichuan Electric Power Company (SEPC). It provided for: (a) studies to define the optimum structure of the power sector in Sichuan Province; (b) implementation of a package of province-wide tariff reforms; and (c) separation of government functions from, and incorporation of, SEPC. Taken together, the two projects provide for comprehensive power sector reform at the provincial level. - 20 -
3. THE BENEFICIARY
3.1 China is in the process of reforming its state enterprise system through progressive development of a suitable corporate legal system. It has thus come a long way from carrying out its economic agenda through state enterprises wholly owned, controlled and operated by line departments and agencies of the Government. The Law of the People's Republic of China on Industrial Enterprises Owned by the Whole People enacted by the National People's Congress in 1988 has introduced the concept of semi-independent management and allowed more operational autonomy. Following the promulgation of the Company Law in late 1993 (effective from July 1, 1994), the Government is actively promoting the transformation of state enterprises into shareholding or limited-liability companies.
A. LEGAL STATUS AND ORGANIZATION
3.2 The Beneficiary of the proposed loan is the Ertan Hydropower Development Company, Ltd. (EHDC), an independent enterprise created in 1988 with the aim to accelerate the construction of large, economical hydroelectric projects in southwest China. EHDC is responsible for the development of hydroelectric resources of the Yalong, Jinsha and Dadu rivers in Sichuan Province, the first of such schemes being the Ertan hydroelectric development. EHDC is a separate legal and accounting entity with sole responsibility for procurement. A Charter of EHDC was issued in 1990. At that time, however, EHIDC's activities were dominated by the construction of the Ertan hydroelectric plant. As the commissioning of the plant approaches, EHDC is preparing for its future role as the most important IPP in Sichuan Province. To ensure a smooth transition to this role, governance, and to take into account the new laws and regulations enacted since its creation, EHDC has recently revised its Charter.
3.3 The registered capital of EHDC is Y 4.6 billion. The new Charter (dated February 9, 1995) empowers EHDC to obtain funds from various sources such as: (a) investments from the state and the province; (b) loans from financial sources such as banks and financial organizations both domestic and foreign; (c) electricity sales and charges for specific power use; (d) stocks and bonds; and (e) joint ventures with foreign companies. EHDC is also authorized to use its retained profits for investment purposes. Although EHDC has the corporate powers to invest and issue bonds, these activities are regulated and government approvals are required at various levels.
3.4 EHDC has been entrusted by central and provincial governments with the management and administration of the Ertan hydroelectric project. The scope of EHDC's business includes undertaking construction of power projects funded either by the state or by local finance. Pursuant to the Charter, EHDC has the power to obtain loans from and - 21 - to enter into contracts with various organizations including foreign institutions (with the permission of concerned government authorities). EHDC therefore has the requisite authority to receive the proceeds of the proposed Bank loan through the Central Government, to carry out the proposed project, and to enter into a project agreement in respect thereof with the World Bank.
3.5 The new Charter provides for the establishment of a Board of Directors to represent the interests of the investors (owners) and supervise the management of the company. Members of the Board are appointed by the State Development and Investment Corporation (SDIC), Sichuan Investment Company (SIC) and Sichuan Electric Power Company (SEPC). EHDC is headed by a General Manager appointed by MOEP (in consultation with the Board of Directors) and assisted by three Deputy General Managers. The organizational structure of EHDC is shown in Chart 2. Satisfactory results have been achieved in establishing EHDC and recruiting its management and professional staff. The organization of EHDC is suitable for managing major hydroelectric projects and appears appropriate for the current institutional setup in China. Although EHDC has a capable and experienced staff, further enhancements are needed in managing EHDC's affairs and developing staff skills. Therefore, EHDC managerial staff will continue to broaden and acquire the modern management knowledge and experience necessary not only for carrying out large and complex hydroelectric projects in an effective and timely manner, but also for operating efficiently and commercializing the output of the plant after its commissioning. To this end, systematic management development and staff training will be provided and supported by the proposed project. The exercise of managerial and administrative powers (e.g., hiring and firing of staff and labor) is, however, controlled by "relevant state rules and regulations." EHDC has pursuant to the Charter issued various administrative rules and regulations including regulations on power plant management.
B. EHDC's REFORM IMPLEMENTATION PLAN
3.6 A key objective of the proposed project is to assist EHDC's conversion into the most independent (nonutility) power producer in Sichuan Province and increase its commercial orientation and responsiveness to market signals. In consultation with the Bank, EHDC has prepared a Reform Implementation Plan for the Commercialization of EHDC (Annex 3.1), which consists of an integrated, time-bound package of reforms, many of which would be implemented in China for the first time. The principal features of this package include:
(a) incorporation of EHDC into a limited liability company fully in accordance with the Company Law, with autonomy in its own operations, accountability in its own operations, accountability for its profits and losses, and self- sufficiency in its development; this step has been completed;
(b) development of internal regulations to promote adequate corporate governance; - 22 -
(c) restructuring of EHDC's internal organization, improvement of its management and control systems and development and implementation of suitable financial management and accounting systems adapted to the restructured internal organization; and
(d) negotiation of an appropriate power sales agreement for the power and energy generated by the Ertan plant, to protect its commercial interests and ensure the most efficient use of its assets.
3.7 Working together with SEPC, beneficiary of the Sichuan Transmission Project (Loan 3848-CHA) and other relevant agencies, EHDC will also prepare a detailed evaluation of the option of direct access to large customers. EHDC's program has been approved by the Board of Directors of EHDC, the Sichuan Provincial Government and MOEP and its implementation has commenced.
3.8 The above plan complements the reform plan discussed and agreed at the provincial level under the Sichuan Transmission Project. The Sichuan Reform Plan includes: (a) a study to assess the structure for the power industry, identify the needs for further structural reforrn, including entry and competition at the generation level, and clearly demarcate an optimal role for SEPC as the province's core utility and manager of the unified grid; and (b) a detailed plan to corporatize SEPC and fully separate government functions, particularly regulation, from the company by 1998.
C. STAFFINGAND TRAINING
3.9 Currently, EHDC has a total staff of 500, of which about 20 percent are engineers and technical staff, 10 percent administrative staff, and 70 percent service personnel and workers. EHDC has contracted construction management of Ertan to the Ertan Engineering Corporation (EEC) headed by the EHDC's Deputy General Manager and Chief Engineer (para. 5.23). Most of the personnel are experienced staff transferred from other power agencies, including (a) Lubuge Project Construction Management Bureau; (b) Chengdu Hydroelectric Investigation and Design Institute (CHIDI); (c) various hydroelectric construction bureaus in China; and (d) other electricity supply bureaus. Of the 500 total staff, 148 are regular staff and the balance are contract staff. EHDC has 14 functional divisions and offices. The organization structure of EHDC and EEC is presented in Chart 2 and Chart 3, respectively. Details of staffing for EHDC and EEC are shown in Annex 3.2.
3.10 EHDC does not yet have staff training facilities. Currently, it is dependent upon the training facilities of SEPC, which includes one technical school/training center for skilled workers, and two electric power institutes for technicians. There are 1,503 teaching and administrative staff in all these training and educational centers, which have a total enrollment of 6,742 students. This training capacity is sufficient to meet the long- term needs of SEPC and EHDC. However, the skills of teaching staff and quality of teaching facilities need to be upgraded and modernized. Training needs to be designed to help senior managerial, financial and technical staff adapt to the new situations brought - 23 - about by a larger and more complex hydroelectric plant. The training component included in the proposed project is designed to meet these needs. It also covers upgrading and equipping of EHDC's training institutions and project-related training for technical staff (paras. 5.10-5.11).
D. PLANNING, BUDGETING AND CONTROL
3.11 Power bureaus and companies are responsible for developing annual and five- year production and investment plans that are integrated into the national plans and are approved, through MOEP's and EHDC's auspices, by SPC. In the past, financial planning was confined to attaching monetary values, predetermined by the former Ministry of Energy, to the quantities being planned. Although a power entity's plan might be revised to reflect changes, it would ordinarily not be revised to reflect differences between estimated prices and actual prices.
3.12 However, with the economic changes in the 1980s, prices have begun to move toward market levels and the Government has begun to finance more investments through loans rather than grants. Centralized control is being relaxed and replaced by greater financial autonomy and responsibilities for the power entities. To address these changes, EHDC will need to incorporate modern financial and operational planning.
3.13 MOEP recognizes the importance of financial management in the power subsector in China and are organizing a comprehensive training program for all the power institutions under its control. Many of the power bureaus/companies have been equipped with computers and software for planning, budgeting, and accounting functions. Information from the bureaus/companies can be transferred to MOEP and consolidated into regional and national data.
3.14 The new systems represent a good first generation of automated management information; however, they still are not sufficiently flexible to take into account price changes at the local level or those associated with large-scale debt service obligations. Currently MOEP, with assistance from the Bank, manages a number of seminars in China and overseas covering computer-based management information systems as well as tariffs, cost control, project financing, comparative accounting systems, and the organization and structure of financial management. After EHDC installs the new financing management information system to be financed under the proposed project (para. 3.16), it will be able to significantly upgrade its financial planning, budgeting and control capability.
E. ACCOUNTING
Enterprise Accounting
3.15 All the state-owned enterprises in China, including EHDC, follow a uniform enterprise accounting system according to detailed regulations established by the Ministry of Finance (MOF). The old accounting framework in effect before July 1, 1993 was developed in the context of a highly centralized planned economy. With a view to - 24 - complementing China's move toward a market-oriented economy and strengthening enterprises' financial management, MOF introduced new regulations covering accounting rules and financial affairs on July 1, 1993. The revised accounting principles are generally consistent with international accounting standards. Within this broad framework, specific accounting standards are being developed with the assistance of the Bank under the Financial Sector Technical Assistance Project (Credit 2423-CHA).
3.16 The main differences between traditional Chinese accounting practices and international practices relate to: (a) the approach for determining and accounting for equity and for separating those items now accounted for through special funds that relate to liabilities, such as provision for payments to employees; (b) the need to include construction in progress and related liabilities in the accounts, which are now only included after construction has been completed; (c) the introduction of concepts for providing for probable losses, such as a provision for doubtful debts and for stating inventories at the lower of cost and net realizable assets; (d) the need to deduct general administrative expenses allocated to products not sold from operating income during the year the expense items incurred; (e) the need to treat overall costs as capital expenditures; and (f) the change to record sales and costs on an accrual basis from a cash basis. These differences have been generally addressed in the new regulations. It is essential for EHDC to implement a new accounting and financial management system that will recognize commercial practices in a market-oriented economy and provide transparent information for investors, government lenders, and the public in general. Under the proposed project, training in modern financial management, including international accounting practices, would be provided to financial staff of EHDC.
3.17 The proposed project would include a technical assistance component to support EHDC to make a speedy and smooth transition to the new accounting system, based on the principles promulgated by MOF in 1993 and upgrading its financial management system, including provision of software and hardware, as well as enhancement of its staff skills (para. 5.9 and Annex 5.3). Training in modern financial management, including international accounting practices, would also be provided to senior managers and financial staff of EHDC (para. 5.10).
Revaluation of Fixed Assets
3.18 The Chinese traditional accounting system has not required revaluation of fixed assets. In the past, the revaluation of assets probably would not have had a major impact on enterprises' financial status because of low inflation and low foreign content in existing assets. However, with recent inflation and the depreciation of the renminbi, the need to revalue assets became more compelling and, following guidelines on asset revaluation issued by the State Council in 1993, all power entities in China revalued their fixed assets. This revaluation had no impact on EHDC because it had not completed any project by the end of 1993. Also, under the revised accounting principles, enterprises in certain categories such as those who enter into joint ventures with foreign partners or merge with other enterprises are required to revalue their assets prior to the restructuring. Furthermore, regular revaluation of fixed assets is now recognized in China as being - 25 - essential for the future corporatization of power entities and for a better foundation for managing state assets.
F. Al)DIT
3.19 Under the proposed project, EHDC's accounts will be audited by Sichuan Provincial Audit Bureau under the supervision of the State Audit Administration (SAA). This arrangement is satisfactory. Assurances were obtained from EHDC that they would: (a) have audited EHDC financial statements and project accounts for each fiscal year bv auditors acceptable to the Bank; and (b) furnish the Bank witli financial statements and project accounts as so audited within six months of the end of each fiscal year. Understandings were also reached that EHDC would require its auditors to: (a) include in the audited financial statements a summary of any differences in the basis of accounts due to the conversion to new accounting policies; (b) provide a management letter summarizing any significant errors that may have been discovered during the audit, and any major weaknesses in internal control; and (c) provide, on request, a copy of its audit plan.
G. POWER SALES TO SEPC
3.20 The Ertan hydroelectric plant is being built by EHDC exclusively to serve the Sichuan power market through the network owned by SEPC. The planned output will provide 20 to 30 percent of SEPC's sales to consumers over years 2000-2010. A formal sales contract between EHDC and SEPC will need to be entered into before the Ertan hydroelectric plant begins operations in 1998. Under the previous loan, understandings were reached with the Government and EHDC on the following principles governing the sales contract:
(a) the revenues generated by EHDC's sales would ensure its financial viability, as measured by the agreed financial performance targets (para. 6.11);
(b) the project output would be fully dispatchable under the instructions of SEPC's control centers, according to the principles of the power sales agreement;
(c) charges would be levied separately on a functional basis for peaking capability (kW) and energy output (kWh); and
(d) the above charges should not exceed SEPC's avoided costs defined as the fuel and capacity costs that SEPC would have to incur in the long run if the project output were not available.
Given the increasing independence of provincial power companies, before negotiations, EHDC submitted a memorandum of understanding signed by SEPC and EHDC, which confirmnsthat: (a) the future power sales contract will be based on the above principles; and (b) the agreement will be finalized no later than June 30, 1997. Technical assistance will be provided to EHDC under the project to assist EHDC in negotiation of an - 26 - appropriate power sales agreement. Assurances were obtained from the Borrower that it will take all measures necessary to ensure that SEPC will enter into a power sales agreement conforming to the above principles, not later than June 30, 1997, and from EHDC that it will take all measures required on its part to enter into such an agreement by that date. The date for finalization is one year later than provided for in the existing loan agreement, but still well before the October 1998 commercial operation of the first generating unit. It has been delayed as long as possible to ensure that latest developments in accounting reform, possibly involving frequency and procedures for revaluation of assets, are taken into account in the agreement. - 27 -
4. THE POWER MARKET AND PROGRAM
A. THE SICHUAN POWER GRID
4.1 The proposed project would be located in Sichuan Province, which is experiencing remarkable economic growth; its industrial output increased in 1993 about 21 percent in spite of acute power shortages. Many problems with power supply in the area have so far been averted by improved power subsector performance, especially energy conservation and load management measures. Also, increased capacity will be needed in view of the Government's open-door policy and the consequent foreign investments and private sector developments, which require an adequate supply of high-quality power. Sichuan is expected to match the degree of market orientation that other provinces already display.
4.2 In 1993, Sichuan Province had a total installed generating capacity of 10,527 MW; 5,968 MW thermal and 4,559 MW of hydropower (Annex 4.1). The major generating facilities include 8 hydro and 12 thermal power plants owned by Sichuan Electric Power Company (SEPC), 2 thermal power plants owned by HIPDC, and a number of captive and other local plants. The captive power plants total about 1,015 MW in installed capacity. Electricity generated in the province in 1993 amounted to 47,087 GWh, of which 19,586 GWh was generated by hydro plants and 27,501 GWh by thermal power plants. SEPC's operated power plants produced 27,145 GWh, about 58 percent of the total. The composition of the power system in Sichuan Province is rather complicated. It is explained in Chart 3 and the documents in the Project File (Annex 8.1).
4.3 The transmission system in Sichuan Province in 1993 consisted of 5,064 km of 220 kV lines, and 9.257 km of 110 kV lines. SEPC owns and operates nearly all 220 kV, and 110 kV networks. The system also includes transformer substations, with a total capacity of 6,356 MVA in 220 kV and 8,117 MVA in 110 kV (Annex 4.2).
4.4 The growth of energy generation and requirements in the Sichuan Power Grid (SPG) between 1987 and 1993 is shown in Annex 4.3 and summarized in Table 4.1. SPG's peak demand has increased more rapidly than energy requirements. The system has a maximum daily load factor of about 93 percent and an annual load factor of 82 percent. The peak load usually occurs in September/October.
4.5 In 1993, electricity consumption of the SPG amounted to 35,345 GWh, of which industry accounted for 84 percent, agriculture 2.6 percent, residential 8 percent, commercial and other municipal customers in the cities 3.4 percent, and transport/ telecommunications 2 percent (Annex 4.4). - 28 -
Table 4.1: LOAD GROWrH OF SICHUANPOWER GRID
Year Energy requirement (GWh) /a Peak demand (MW)
1986 21,035 2,894 1987 22,449 3,088 1988 24,418 3,188 1989 26,848 3,488 1990 28,229 3,666 1991 30,518 3,926 1992 33,051 4,290 1993 35,345 4,874
Average annual growth 7.6% 7.7%
/a Including generation and purchased energy.
B. LOAD FORECAST
4.6 Load forecasts for the years 1995 through 2005 have been developed as part of the economic planning process carried out by SEPC and its consultants. The forecasts were obtained by applying a combination of statistical methods and planning targets to every major consumer category. In particular, industrial loads were estimated on the basis of a market survey and the projected industrial output growth and electricity intensities for different categories of industry. Rural loads were estimated based on past trends for drainage and irrigation, rural industries loads, and lighting. Municipal loads were estimated based on market surveys of hotels, buildings, and government projects. Specific demand management and energy conservation measures have been fully incorporated in the load forecasts. Details of the energy forecasts for SPG are given in Annex 4.5 and summarized in Table 4.2.
4.7 The load growth forecasts appear to be reasonable considering that: (a) power shortages have been occurring for a long time, so there is likely to be a lot of suppressed demand for electricity; and (b) Sichuan Province has been one of the fastest growth areas in China. This load growth is expected to sustain a GNP growth of about 8 to 9 percent in real terms up to the end of the century. Without further implementation of the province's electricity conservation programs (para. 4.10), growth in demand would be yet higher.
C. POWER DEVELOPMENTPROGRAM
4.8 A study of the least-cost investment program was made by the Beijing Economic Research Institute for Water Resources and Electric Power (BERIWREP) in 1993 and revised in 1994. The study is based on an optimization of SPG's expansion program for the period 1994-2010. The analysis shows that the development program for - 29 -
Table 4.2: LoAD FORECASTFOR SICHUANPOWER GRID (SPG)
Year Energy requirement (GWh) Peak demand (MW)
1993 (actual) 35,345 4,874 1994 39,000 6,180 1995 42,300 6,730 1996 45,900 7,330 1997 49,800 8,000 1998 54,000 8,700 1999 58,000 9,400 2000 62,000 10,000 2005 87,000 14,100
Average annual growth:
1994-2000 8.3% 10.8% 1994-2005 7.2% 8.5%
SPG should be based primarily on construction of the Ertan Hydroelectric plant, other baseload coal-fired thermal power plants and related power transmission network expansion. The study also confirms that there are no other alternatives better than the proposed project (paras. 7.4 and 7.5) to meet the future power supply requirements.
4.9 A summary of the power development program (1994-2005) for the SPG system is given in Annex 4.6. The balances between power demand and supply are presented in Annex 4.7. They demonstrate that the power system will be short of energy supply and capacity up to the year 1998. Only after the completion of the Ertan project, the power system will have adequate reserve margin in energy and peaking capacity.
D. ELECTRICITY CONSERVATION
4.10 Similar to most other provinces in China, Sichuan operates a well-organized program for electricity conservation (demand-side management). The program is jointly implemented by the Provincial Economic Commission and SEPC, and their respective subunits at prefecture and county levels. The program focuses primarily on (a) close monitoring of unit electricity consumption levels in individual industrial enterprises, as part of the power consumption quota system; (b) assisting enterprise managers to identify areas for electricity savings; (c) implementation of electricity conservation measures in power stations and the transmission and distribution network; and (d) promotion of new electricity-saving technologies. Electricity conservation plans are prepared each year, and results evaluated the following year, for overall improvement in the efficiency of electricity use per unit of industrial output, electricity conservation within the electric power system, reduction in unit electricity levels in specific enterprises, and adoption of electricity-saving equipment and specific technical renovation measures by consumers. - 30 -
4.11 During 1990-93,unit electricityconsumption per unit of gross industrialoutput in Sichuan Province fell by about 14 percent. Within the electric power system, electricity conservationmeasures focused particularly on replacementof inefficient fans and pumps in older power plants, distributionline upgrading and renovation, replacementof high-loss transformers, and addition of capacitancefor power factor correction. Electricity-saving technologies for consumers specially promoted during the last few years have included computerizedenergy managementsystems, more efficientfans and pumps, more efficient lighting equipment, and a wide variety of specializedindustrial process equipment. End- use technical conservationinitiatives monitored by SEPC yielded a total savings of about 550 GWh during 1990-93. - 31 -
5. THE PROJECT
A. PROJECT BACKGROtND AND OBJECTIVES
5.1 Project Background. The Ertan Hydroelectric Scheme is located on the lower reaches of the Yalong River in southwestern Sichuan Province. The Executive Directors approved the first loan for the Ertan Hydroelectric Project in July 1991. The loan amount of $380 million, requested by the Government, was relatively low in comparison to the their estimated foreign cost of $1,155 million. The first loan was earmarked for financing of the first five years of construction, and in consideration of the size of this large project with a nine-year construction period, it was understood that the Bank would consider a request for a second loan for the remaining period of the project.
5.2 Project Objectives. The objectives of the Project are to assist in the (i) alleviation of acute power shortages in Sichuan in a least-cost manner through the completion of the Ertan Hydroelectric Scheme; (ii) further institutional development of EHDC as an autonomous, financially sound and commercially-oriented entity; (iii) promotion of competition through the development of market-oriented commercial arrangements for the sale of power generated under the Project; (iv) diversification of financing strategies for power development: and (v) transfer of modern technology for hydroelectric power plants in the Borrower's territory.
B. PROJECT DESCRIPTION
5.3 The proposed project would first provide for the completion of the Ertan hydroelectric scheme, all components of which were covered under the first loan. There are virtually no changes in the original description of the physical facilities of the project, as detailed in Annex 3.1 and in the Staff Appraisal Report of June 11, 1991 (Report No. 8470). However, this second project will include a Reform Implementation Plan (para. 3.6) supported by technical assistance and training to incorporate EHDC as a limited- liability company, in accordance with the new Company Law, and upgrade its management systems and capabilities to undertake its operational and commercial functions after the commissioning of the first unit in 1998.
5.4 The Ertan Hydroelectric Project consisted of:
(a) preparatory works, including access roads and bridges, water and electricity supply, communication links, and various construction plant and site facilities;
(b) construction of a parabolic, double-curvature arch dam (240 m high with a crest 775 m long) across the Yalong River, together with an underground - 32 -
powerhouse complex, log conveyance system, and appurtenant works and structures;
(c) supply and installation of six 550-MW generating units and associated electrical equipment, including a 500-kV step-up substation;
(d) resettlement of about 30,000 people affected by the project;
(e) an environmental management program (EMP) and creation of a science station for environmental monitoring and studies;
(f) consulting services for engineering, procurement, management of construction, and preparation of future power projects;
(g) studies of (i) power pricing for Sichuan Province and optimal operation of the power plant and reservoir, and (ii) investigations and tests related to safety of structures, monitoring of energy-dissipation facilities, and powerhouse ventilation; and
(h) management and staff training, computers and application software, and accessories.
The proposed project covers continuing work on all of the above components and an expanded resettlement program for about another 5,000 persons (Annex 5.11). For Technical Assistance components, the proposed project will contain (a) TA for Policy Support (Reform plan and Financial MIS -- para. 5.9); (b) TA for Project Implementation Support (Engineering and Construction Management -- para. 5.6 and Environmental Protection Management -- para. 5.35); and (c) TA for Institutional Development (Management Development and Training -- paras. 5.10 to 5.14). Allocated costs for those TA components will be $37.7 million.
5.5 Construction of the Ertan Hydroelectric Project started in 1991 and is progressing satisfactorily. The Yalong River was diverted in November 1993 as originally scheduled. Concrete placement for the main dam commenced in September 1994, as programmed. The excavation of the underground powerhouse complex is also proceeding on schedule.
Consulting Services
5.6 Design of the Ertan development has been entrusted to Chengdu Hydroelectric Investigation and Design Institute (CHIDI), while construction management and supervision is the responsibility of EEC (para. 5.23). Due to the magnitude and complexity of the project and the use of foreign construction contractors and equipment suppliers, as well as foreign financing sources, EHDC has appointed experienced and qualified international consultants who are now playing a key role in assisting CHIDI and EEC in design and construction management. - 33 -
5.7 The main consultancy contract, which was awarded to Harza Engineering of the United States, covers assistance in contract administration, cost control, scheduling, construction inspection and quality assurance, design engineering services, and construction site administration during the entire implementation period. Terms of reference for these services and details of the collaboration with EHDC and CHIDI are given in Annex 5.2. Other contracts have been awarded to EDF of France for assistance in mechanical and electrical design and specifications, and to the Advisory Group of Norway for advice in underground excavations. In addition to the engineering consultants, there are three other groups of specialists that are assisting EHDC for the successful completion of the project: (a) Special Board of Consultants (SBC); (b) Disputes Review Board (DRB); and (c) Environmental and Resettlement Panel (ERP). SBC has been active since early in the preparation stage of the project. It is composed of international and Chinese experts and has formally convened eight times to date. Contacts are maintained between formal meetings. A mechanical and electrical branch of SBC also met to review bid documents for the main equipment. DRB was set up for the civil works contracts to enable prompt resolution of contract disputes and thereby enhance international competition, reduce bid prices, and expedite construction of the works at lowest cost. The contractors and EHDC each selected a member of the DRB and the third member, the chairman of DRB, was selected by these two. The members of DRB are independent and, as required by their rules, may not be from home countries of contractors or China. To date, they have met five times. ERP is made up of prominent foreign and Chinese experts in the area of environment and resettlement as set forth in OD 4.0, Annex B. The first meeting of ERP was in June 1992, and they have met annually since then. Assurances were obtained that EHDC will continue to employ: its Special Board of Consultants to undertake periodic review of the darn during its construction to ensure its safety; and its Environmental and Resettlement Panel to review periodically and advise on environmental aspects of the dam construction and resettlement under the project.
5.8 The total cost of engineering services is estimated at about $80 million, of which $32 million is in foreign exchange for about 1,450 staff-months of foreign consultants. This would be financed under Loan 3387-CHA and the proposed loan. Services borne by foreign grants from Norway and Technical Cooperation Credit funding used to prepare the first project are not included in the above amounts.
OrganizationImprovements, and ManagementInformation Systems
5.9 EHDC's activities are still dominated by the construction and implementation of the Ertan hydroelectric plant. To ensure a smooth transition to its future role as the most important independent power producer (IPP) in Sichuan Province, EHDC has revised its Charter to take into account the new laws and regulations enacted since its creation and set out the rules defining how the company would operate. Also, EHDC plans to introduce modern management methods, and design and implement adequate financial and information systems and procedures taking account of the new accounting regulations introduced in China and best practices in other countries. An organization and management study under the proposed project is aimed to help develop EHDC's operational and commercial capabilities. The objectives of the study are to: (a) review - 34 - the current organizational structure of EHDC, its accounting and financial management practices, and the progress achieved in implementing the new accounting rules; (b) examine staffing and employment policies; (c) recommend improvements in organization and staffing needed to prepare EHDC for its operational and commercial functions; and (d) develop accounting and financial management systems that prepares the transition of EHDC to a financially autonomous and commercially-oriented company and facilitates EHDC's access to domestic and foreign financial markets. The scope of the assistance to develop the modem accounting and financial systems, together with the terms of reference, is given in Annex 5.3. Assurances were obtained from EHDC that it would engage by March 31, 1996 consultants to assist in the review of its organization and management system, furnish the results and recommendations of such reviewvs to the Bank, and implement the recommended organizational improvements and accounting and financial management systems, taking into account Bank comments, not later than June 30, 1997.
Management Development and Training
5.10 To meet the long-term needs of EHDC's staffing requirements and to further develop EHDC's management capability, a comprehensive training program is included under the proposed project. It consists of the following: (a) training in institutional development and enterprise reform matters; (b) training in utility management and financial planning; (c) project-related training for technical and operational staff; and (d) upgrading and equipping of EHDC's training facilities.
5.11 High-level management, planning and financial staff will receive training in modem management and decision-making techniques, particularly in utility reform and management, planning of investments, engineering economics, power pricing, financial operations and management information systems. Engineering personnel will also receive training in their specific fields, especially related to construction of large hydroelectric plants, operation and maintenance, etc. Part of the training will be carried out in China in the form of seminars, conducted by Chinese and foreign experts. This will then be followed by study tours and overseas training through visits to a few selected utilities and modern hydroelectric schemes.
5.12 Project-related training will include: (a) on-the-job training for the engineering and construction management staff to be implemented by working together with the foreign consultants; (b) training of engineering staff under the contract for major project equipment; and (c) training of operation and maintenance staff at other similar power companies in China and abroad. The foreign cost component of such training will be included in the equipment contracts.
5.13 Comprehensive training on both environment and resettlement matters is provided for under the project. Environmental training will include local inservice training, out of area inservice training (elsewhere in China and overseas), and academic training. Environmental training activities actually commenced in 1993. In addition, Sichuan Province has applied for an IDF grant to support continuing operations of the Province's Resettlement and Development Center. The Center is already providing - 35 - training courses for village, county and city resettlement officials working on the Ertan resettlement program.
5.14 About 91 staff members, with total staff-months of 169, will be trained abroad, of which 21 staff-months are for senior management, 44 staff-months for legal, technical and business management staff, 60 staff-months for financial staff, 8 staff-months for environmental and resettlement staff, and 36 staff-months for power plant operations (see Annex 5.4 for details). In addition, 46 people will receive technical training with a total staff-months of 109 by foreign suppliers of goods and services. Training in China will involve 300 staff, totaling 2,520 staff-months in the form of seminars in various fields, school training, and power plant practice for operation and maintenance staff. Assurances were obtained from EllDC that it would carry out its management development and training program in accordance with a time-bound schedule acceptable to the Bank.
C. COST ESTIMATE
5.15 The total cost of the project is estimated at $2,200.2 million equivalent excluding interest during construction (IDC), of which $930 million (42.3 percent) represents the foreign exchange component. Annex 5.5 contains, in detail, the estimated cost of the project, which is summarized in Table 5. 1. -he cost estimates reflect early 1995 prices and are based on the actual costs and signed contracts for civil works and major equipment, and recent tendering information available for similar projects, including contract prices for other equipment and control systems. Physical contingencies are calculated based on remaining works at 10 percent for preparatory, land acquisition, arch dam, engineering, contract administration, technical assistance, environmental management, studies and training; 20 percent for underground works; 15 percent for resettlement; and 7 percent for the electromechanical equipment and control systems. Price contingency allowances for foreign costs estimated in US dollars are calculated according to anticipated international price increases of 2.2 percent a year on average for the period 1995-2001. The price escalation for costs expressed in local currency is calculated according to projected domestic inflation rates of 14.0 percent for 1995, 10.5 percent for 1996, 8.5 percent for 1997, 7.0 percent for 1998; 6.5 percent for 1999; and 6.2 percent thereafter.
D. FINANCING PLAN
5.16 The total financing requirements (including IDC of $739.9 million equivalent), are estimated at $2,940.1 million equivalent. The State Development Investment Company (SDIC), the Sichuan Investment Company (SIC), and the Sichuan Electric Power Company (SEPC), as shareholders of EHDC, would provide equity investment of Y 4,600 million with 48, 48, and 4 percent of the amount, respectively. The balance of the total domestic financing and IDC will be provided in the form of term loans by the State Development Bank (SDB), SIC, PCBC, and other local banks. The loans are expected to have a variable interest rate (currently about 14.76 percent a year) and a maturity of 15 years, including 5 years of grace. The local financial arrangements are acceptable to the Bank. - 36 -
Table 5.1: SUMMARY OF PROJECT COSTS
Foreign Description Local Foreign Total Local Foreign Total as % of ------(Y million) ------($ million) ------Total
Preparatory works 531.7 0.0 531.7 107.5 0.0 107.5 0.0 Land acquis. & reset. 1,282.9 0.0 1,282.9 168.2 0.0 168.2 0.0 Civil Works 3,092.7 4,606.2 7,698.9 413.3 639.9 1,053.2 60.8 Administration & other works 953.0 22.8 975.7 145.9 2.7 148.6 1.8
Electromechanical eqpt. 913.8 1,239.6 2,153.4 109.3 146.7 256.0 57.3 Power transformers 51.1 187.4 238.5 6.1 22.2 28.2 78.7 Gates/hoists, etc. 307.0 29.6 336.6 36.5 3.5 40.0 8.8
Engineering & constr. mgmt. 302.3 220.3 522.6 44.4 28.2 72.6 38.8 Environmental protection 47.1 3.9 51.0 6.8 0.5 7.3 6.8 Reform plan & fin. MIS 4.5 16.9 21.4 0.5 2.0 2.5 80.0 Training 25.9 25.4 51.3 3.1 3.0 6.1 50.0
Total Base Cost 7,512.0 6,352.0 13.864.0 1,041.5 848.6 1,890.1 44.9
Contingencies: Physical 579.9 526.0 1,105.9 68.6 62.3 130.9 47.6 Price 1,153.1 881.7 2,034.8 27.4 19.1 46.5 41.1
Taxes and duties 1,120.9 0.0 1,120.9 132.7 0.0 132.7 0.0
Total Proiect Cost 10.365.9 7,759.7 18,125.6 1,270.2 930.0 2,200.2 42.3
Interest During Const. 3,879.1 2,370.5 6,249.6 459.3 280.6 739.9 37.9
Total Financing Required 14,245.0 10,130.2 24,375.2 1,729.5 1,210.6 2,940.1 41.2
Notes: 1. Base costs are at early 1995 prices and prevailing exchange rate of $1/Y 8.5. 2. Interest during construction (IDC) is based on onlending rates for projected disbursements of loan proceeds. The foreign currency portion of IDC is based on the Bank's variable loan rate, and on respective rates for guaranteed commercial financing tranches.
5.17 The proposed Bank loan of $400.0 million plus the commercial funding of $150 million covered by the Bank's guarantee would cover the project's remaining foreign costs, excluding IDC. Details of the financing plan are summarized in Table 5.2. The Bank loan will be used to finance the following project items:
(a) major civil construction works for the dam and underground powerhouse;
(b) electromechanical equipment, goods and materials;
(c) construction and maintenance equipment; - 37 -
Table 5.2: FINANCING PLAN ($ million)
Local Foreign Total
Loan 3387-CHA 0.0 380.0 380.0 IBRD loan 0.0 400.0 400.0 SDIC (equity) 261.6 0.0 261.6 SDB (loan) 490.7 103.4 594.1 Construction Bank (central) 77.5 31.3 108.8 SIC (equity) 261.6 0.0 261.6 SIC (loan) 566.8 134.7 701.5 Construction Bank (province) 1.4 0.0 1.4 SEPC (equity) 21.8 0.0 21.8 Local bank 48.1 11.2 59.3 Guarantee financing 0.0 150.0 150.0
Total Financing Reguired 1 729.5 1,210.6 2 940.1
Note: IBRD loan + guarantee financing = $550 million. TCC and Norwegian grant financing not included.
(d) consulting services for engineering and construction management;
(e) environmental management program;
(f) consulting services for its organization and management study and for development of accounting and financial management systems; and
(g) management development and staff training.
5.18 The proposed Bank loan will be made to the People's Republic of China at the Bank's standard variable interest rate for a 20-year term, including 5 years' grace. Proceeds of the loan would be onlent from the Government through Sichuan Province to EHDC with terms and conditions satisfactory to the Bank. Assurances were obtained from the Government that it would onlend the proceeds of the proposed Bank loan to Sichuan Province for onlending to EHDC, each under a subsidiary loan agreement with a term of 20 years, including a 5-year grace period, at the Bank's standard variable interest rate. EHDC will bear the foreign exchange risk. Execution of the subsidiary loan agreements between the Government and Sichuan Province, and between Sichuan Province and EHDC will be a condition of effectiveness for the loan.
5.19 The proposed guaranteed commercial financing in the amount of $150 million will meet one of the key objectives of the project: encouraging alternative financing strategies for power development. Under the Bank guarantee program, the People's Republic of China will borrow long-term commercial funds with a maturity of 15 years - 38 - including a grace period of 5 years, and the funds will be onlent to EHDC. The Bank will provide a partial credit guarantee of principal payment due under the commercial financing. The transaction will be in two tranches, one in US dollars ($100 million) and the other in German marks ($50 million equivalent). The framework of the guarantee transaction is summarized in Annex 5.6. The Bank's exposure represented by the present value of the guarantee under the planned structure would initially be about $20 million or 14 percent of the total loan amount mobilized by the guarantee.
E. PROCUREMENT
5.20 In the past, the main issues in connection with procurement of works and goods in the power subsector in China included reluctance to use consulting services, delays in the procurement process and in domestic contract approval, lack of coordination and clarity of responsibility among agencies involved in the procurement process, and very often inappropriate contract packaging. However, significant improvements have been made in the sphere of procurement over the period of Bank involvement and these are continuing. During the execution of the first project, involvement of expatriate engineering consultants in the procurement process and the use of Model Bidding Documents contributed to efficient procurement. The project's preparatory works and some local goods (not financed by the Bank) have been procured through National Competitive Bidding (NCB). Project circumstances justified the use of NCB for these works and goods, since foreign bidders were not expected to be interested in these small, labor- intensive contracts in which Chinese contractors are well-experienced and very competitive.
5.21 Procurement arrangements are summarized in Table 5.3, and the related procurement schedules for various packages are given in Annex 5.7. Main civil works and major electromechanical equipment have already been procured through ICB under Loan 3387-CHA made in 1991; consulting services have been obtained following the Bank's Guidelines for the Use of Consultants. Disbursements against those existing contracts will continue under the proposed loan. All new procurement for works (if any) and goods to be financed by the Bank would be through ICB, except that some specialized equipment, estimated to cost less than $300,000 per contract up to an aggregate amount of $2 million will be procured through limited international bidding (LIB) and instruments, survey equipment, laboratory equipment, computer software and similar goods and equipment, estimated to cost less than $300,000 per contract, up to an aggregate amount of $3.0 million, by international or national shopping for ICB procurement. Goods manufactured in China and national contractors for works would be eligible for domestic preference in bid evaluation in accordance with Bank Procurement Guidelines. The Standard Bidding Documents for Procurement under ICB and NCB in The People's Republic of China would be used for all Bank-financed procurement. The Dispute Review Board (para. 5.7) set up for the two main civil contracts will continue to operate. The procurement procedures for non-Bank-financed components will not adversely affect the execution of the project in terms of cost, quality or completion time.
5.22 All procurement documents pertaining to bidding packages for goods and works financed by the Bank and estimated to cost more than $5.0 million equivalent will - 39 -
Table 5.3: SUMMARYOF PROPOSED PROCUREMENTARRANGEMENTS ($ million)
Total Proposed Method /a project Project item ICB Other/b NBF /c costs
Civil and Other Works Preparatory works - - 109.1 109.1 Resettlement - - 175.4 175.4 Land requisition - - 12.3 12.3 Arch dam (Lot I) 661.5 - - 661.5 (369.8) (369.8) Powerhouse (Lot II) 561.2 - - 561.2 (269.2) (269.2) Administration and other - 3.2 151.4 154.6 works (3.2) (3.2)
Goods Electromechanical equipment 335.3 5.0 - 340.3 (87.4) (5.0) (92.4) Power transformers 42.0 - - 42.0 (7.1) (7.1) Gates/hoists 3.9 - 42.7 46.6 (0.6) (0.6) Consultancies /d Engineering and construction - 79.5 - 79.5 management (31.5) (31.5) Environmental protection - 7.8 - 7.8 (0.5) (0.5) Reform plan and financial MIS - 3.0 - 3.0 (2.3) (2.3) Training - 6.9 - 6.9 (3.4) (3.4)
Total 1.604.9 104.4 490.9 2.200.2 IBRD Loan (363.3) (36.7) (400.0) Loan 3387-CHA (370.8) (9.2) (380.0) Guarantee Financing 150.0 150.0
/a Amounts include taxes and duties of $132.7 million. Figures in parentheses are the respective amounts to be financed under the prospective Bank loan. /b Consultants employed in accordance with Bank guidelines. Equipment purchased by LIB or shopping. /c NBF = Not Bank-financed. /d For details, see Annexes 5.2, 5.3 and 5.4. be subject to the Bank's prior review procedures (about 91 percent of Bank funded purchases). All new consultants' contracts costing $100,000 equivalentor more for firms and $50,000 equivalent for individuals, would be subject to the Bank's prior review. Extensions to existing contracts raising their value above these thresholds would also be subject to prior review. - 40 -
F. PROJECT IMPLEMENTATION AND OPERATION
5.23 EHDC will be responsible for the implementation and operation of the project. For the implementation phase, it has assigned design responsibility to CHIDI, and construction supervision and management responsibility to EEC. CHIDI is one of the most experienced design institutes in China and has been responsible for the design of several large hydroelectric projects. It has over 2,000 professional staff and is equipped with modem facilities and laboratories. EEC is a subsidiary of EHDC, specially established for the Ertan project. Its organizational structure is shown in Chart 3. Since the commencement of the first project, both CHIDI and EEC have been assisted by international consultants and by three expert panels: the Special Board of Consultants (SBC), a Disputes Review Board (DRB) and an Environmental and Resettlement Panel (ERP) (para. 5.7).
5.24 As noted in para. 5.5, construction of the Ertan Hydroelectric Project started in 1991 and is progressing satisfactorily. Procurement of the remaining equipment and systems is under way. The first generating unit is expected to enter commercial operation in October 1998, and the last unit in June 2000. The project completion date would be December 31, 2001 and the closing date of the Bank loan would be December 31, 2001. Chart 5 presents the implementation schedule for the various components of the project. Key dates of project implementation are given in Annex 5.8, and estimated annual payments are summarized Table 5.4.
5.25 Prior to completion of the dam, dam safety aspects are reviewed by the SBC (para. 5.7). After completion of the dam, Chinese procedures for inspecting, maintaining and monitoring high dams, which generally follow international practice, will be put into place. At negotiations, EHDC confirmed its assurance that it will prepare, by June 30, 1998, a program of annual maintenance of the project works, satisfactory to the Bank, undertake periodic inspections of the dam and associated works using independent experts whose qualifications and experience are acceptable to the Bank, and to take all necessary actions pursuant to their recommendations.
G. DISBURSEMENT
5.26 The Bank loan will be disbursed against: (a) 100 percent of foreign expenditures for civil works; (b) 100 percent of foreign expenditures for directly imported equipment and materials quoted on a c.i.f. basis; (c) 100 percent of local expenditures ex- factory for locally manufactured items, and 75 percent of local expenditures for other items procured locally; and (d) 100 percent of the expenditure for consulting services and training. For expenditures pertaining to (a) training; (b) contracts for goods and works valued at less than $5 million equivalent; and (c) contracts for consultants valued at less than $100,000 equivalent for firms and $50,000 equivalent for individuals, reimbursement will be made on the basis of Statements of Expenditures. Documentation supporting such expenditures would be retained in the EHDC offices and made available for review by the Bank's supervision mission. To facilitate disbursements under this project, a Special Account will be established with an authorized allocation of $25 million, representing Table 5.4: IMPLEMENTATION SCHEDULE: ESTIMATED ANNUAL CONTRACTUAL AND OTHER PAYMENTS ($ million equivalent)
Project Year /a Total Project element 1994 1995 1996 1997 1998 1999 2000 payments Remarks & before
Works Preparatory works 96.5 4.3 3.1 2.5 2.9 0.0 0.0 109.1 NCB Land acquisition & resettlement 59.0 56.9 52.5 17.9 1.5 0.0 0.0 187.7 NBF Civil works 468.6 180.0 211.7 190.2 105.3 32.2 34.8 1,222.7 ICB (307.1) (103.0) (77.5) (74.7) (46.5) (14.2) (16.0) (639.0) Administration & other works 111.4 7.0 7.8 14.9 4.4 4.0 5.2 154.7 NBF (0.1) (0.2) (0.2) (0.9) (0.9) (0.9) (3.2) &other Goods Electromechanical equipment 16.0 5.2 66.6 125.3 76.3 42.8 8.2 340.3 ICB (8.0) (1.5) (19.0) (36.8) (11.9) (12.2) (3.0) (92.4) Power transformer 0.0 0.3 3.5 12.3 12.7 9.2 4.0 42.0 ICB (4.8) (2.4) (7.1) Gates/hoist, etc. 0.4 3.4 10.8 18.0 13.5 0.5 0.0 46.6 ICB (0.6) (0.6) Services Engineering & construction management 31.9 8.5 8.2 9.1 8.6 8.8 4.4 79.5 Other (9.2) (4.0) (3.1) (4.0) (3.8) (3.9) (3.4) (31.5) Environmental protection 4.0 0.9 0.8 0.7 0.6 0.5 0.2 7.8 Other (0.2) (0.2) (0.1) (0.5) Reform plan & financial MIS 0.0 0.3 0.8 0.8 0.3 0.4 0.3 3.0 Other (0.2) (0.7) (0.7) (0.2) (0.3) (0.3) (2.3) Training 0.0 1.8 2.6 1.9 0.4 0.3 0.1 6.9 Other (0.8) (1.0) (1.2) (0.2) (0.2) (3.4)
Total 787.8 268.5 368.3 393.3 226.4 98.7 57.2 2,200.2 IBRD loan (54.7) (101.7) (117.8) (63.4) (36.4) (26.0) (400.0) Loan 3387-CHA (324.3) (55.7) (380.0)
/a Based on calendar year.
Note: Figures in parentheses are the respective amounts financed by the proposed Bank loan and Loan 3387-CHA. - 42 - approximately four months of average project disbursements. Applications for replenishment will be submitted monthly or when the amounts withdrawn equal 50 percent of the initial deposit, whichever comes sooner. Retroactive financing in an aggregate amount of $30 million, or 7.5 percent of the loan, would be provided for expenditures before the date of the signing of the loan but after March 30, 1995 for expenditures on ongoing contracts for works, goods or consultancy services, which were commenced under the first loan. Annex 5.9 presents the disbursement schedule for the proposed Bank loan as well as a standard profile of disbursements for all sectors in China. The disbursements are expected to be completed in six years, very close to the standard disbursement profile for China. The last year is for payment of retention money.
1I. ENVIRONMENTALCONSIDERATIONS
5.27 In accordance with OD 4.01 (Environmental Assessment), the project is designated as Category A. It is considered that all environmental aspects of the project are satisfactorily addressed and in compliance with all environmental policies and procedures. The project has been (lesigned and will be carried out in accordance with current technological practices and it is expected to cause minimum disturbance to the environment.
5.28 The EAR and EA Summary were prepared by the Beneficiary with the assistance of international consultants. Both were completed in February 1995 and the EA Summary was distributed to the Executive Directors on February 17, 1995. The EAR complied with both national and Bank policies (OD 4.01, Environmental Assessment; OD 4.0, Annex B, Environmental Aspects of Dam and Reservoir Projects; OMS 2.36, Biodiversity OD of 1995).
5.29 Biodiversitv. The main impact arises due to inundation of land and water resources by the reservoir. The reservoir will be 140 km long (on the main or Yalong River stem) with a maximum surface area of 101 kM2. The average width of the reservoir on the main stem near the dam will be in the order of 400 m while in the Ganyu River arm (a major side branch) it will be up to 1,000 m across. Overall, the average width will be in the order of 550 m which, for a dam 240 meters high and installed capacity of 330 MW, is remarkably low. The biodiversity impacts will be registered on terrestrial ecosystems, due to inundation, and on aquatic systems, due to the conversion of a riverine environment to a lacustrine environment.
5.30 Most of the terrestrial vegetation to be inundated is of neither conservation nor economic value. The total area of forest to be inundated is about 3,000 ha, of which 2,000 ha is regularly harvested fuelwood forest and 1,000 ha is broadleaf evergreen forest of the type that once used to dominate the area. These resources are comprised of numerous small plots 50 to 200 ha in area, which are essentially scattered remnants. Even though they are individually of limited conservation significance, lowland broadleafed evergreen forest has been so severely depleted throughout the subtropical and tropical zones that the value of any remnants is increased. To compensate for these losses, EHDC will assume management responsibility for a 100 m (vertical elevation) buffer zone above - 43 -
the maximum operational water surface elevation along the entire periphery of the reservoir and implement active management plans for the preservation and enhancement of remnant tracts of native broadleaf forest.
5.31 Regarding impacts on fish and other aquatic organisms, potential impacts arise due to the conversion of 140 km of riverine habitat into a lake-like habitat and the physical barrier to migratory fish posed by the dam. Surveys showed that some 50 species of fish are present in the river downstream of the site, reducing to 40 species within the reservoir section and 30 species upstream of the limit of the backwater. None of the species is anadromous (migratory) although it is possible that some species may move into the lower Yalong from upstream areas for spawning. However, the populations are relatively small and the species are widely distributed within the Jinsha and Yalong River Basins. Species requiring high-velocity flow conditions and feeding primarily on benthic (bottom-dwelling) organisms will not survive in the reservoir area although they will be replaced either naturally, or through stocking programs, by other, better-adapted species.
5.32 Public Health. Malaria was eradicated in the area in 1991 and special precautions are being financed under the project to ensure that this situation is maintained. The Ganyu River is a known endemic area for schistosomiasis; however, following implementation of a concerted control program it was believed that the disease had been eradicated by the late 1980s. In recent years the Oncomelania snail, which is an intermediate host for the disease, has been detected in the area although no new cases of the disease have been reported. The reservoir will contain more flowing than stagnant water (the latter favors the snail) and hence is not expected to contribute to spread of the vector. Nevertheless, the environmental management plan includes several specific subcomponents directed at eliminating any residual risks. In addition. WHO's Chief of Schistosomiasis is a member of the expert panel on environment and resettlement, which has been advising EHDC since 1991.
5.33 Other Impacts. Induced seismicity, sedimentation, water quality, cultural property, water weed control, reservoir biomass removal and other impacts were assessed, specific precautions formulated and are being implemented.
5.34 Monitoring and Training. A comprehensive environmental and social monitoring and training program was started in 1993 and is being accelerated in the form of a major institute financed out of loan proceeds (para. 5.13).
5.35 Environmental Management. All the recommendations of the EAR have been integrated into the EMP and the overall budget and schedule of the project, and implementation of many components has already commenced. Details of the plan are set out in Annex 5.10. Assurances were obtained from EHDC that it would carry out the environmental management program in a manner satisfactory to the Bank. - 44 -
I. RESETTLEMENT ASPECTS
5.36 Resettlement of people and reconstruction of structures being displaced by the reservoir and the construction site areas is being carried out by the Resettlement Bureau of Sichuan Provincial Government (RB/SPG). The Resettlement Plan being implemented was developed in the period 1984-89 by RB/SPG, CHIDI and EHDC, and appraised by the Bank in connection with the first Ertan loan (Loan 3387-CHA). Overall, the original plan has proven viable in implementation and has achieved satisfactory results. However, in preparation for the proposed project, RB/SPG and EHDC have presented a revised Resettlement Plan 1/ based on experience to date. The revised plan provides for replacement of housing, agricultural land, infrastructure, services, industries and other socioeconomic resources affected by the project. The affected people, both directly and through their village, towns or county leaders, have been consulted and involved in the design and implementation of the Resettlement Plan. Indeed, all resettlement receiving areas have been jointly identified and evaluated by the affected people and the resettlement planners. and several of the resettlement technical solutions to reestablishing economic productivity have been suggested by the affected people themselves. Some resettlement sites suggested by planners were rejected by resettlers, and alternative sites identified by them are now included in the plan. The consent of host populations, those already living in or near receiving areas, is obtained through direct negotiations among the hosts, the proposed resettlers and the RB/SPG, resulting in a written agreement signed by all parties.
5.37 The Ertan Project entails the resettlement of approximately 35,000 people living in 31 villages (24,000 rural people) and one town (11,000 urban people) in five counties of Sichuan Prov:ince. The 101 km2, 140 km long reservoir transverses a steep, sparsely populated mountain valley. The affected area lies in Miyi and Yanbian Counties of Panzhihua Municipality, and Yanyuan, Dechang and Xichang Counties of Liangshan Autonomous Prefecture of the Yi National Ethnic Minority. No Yi National Ethnic Minority people will be displaced by the project, since they occupy higher-altitude slopes of the valley. Those affected by the project are from the Chinese majority people who occupy the lower-altitude alluvial soils along the banks of the Yalong River and its tributaries (Akeni, Anning, Ganyu, Tengqiao, Shuwa and Pingchuan rivers).
5.38 The Resettlement Plan agreed with the Bank for the first phase of the Ertan project based on 1984 census data has been updated through a 1992 census conducted by resettlement officials when the physical survey and demarcation of the reservoir boundary was completed. Based upon these updated surveys, a revised Resettlement Plan was prepared (see Annex 5. 11 for a detailed description). Approximately 5,500 rural people were resettled in the first phase to higher elevations in their own villages or to newly reclaimed agricultural lands in new irrigation zones. Lessons learned during that operation; such as the need for timely compensation, extensive community participation, and adequate record keepiing, have been incorporated into the revised Resettlement Plan
1/ Ertan Hydroelectric Project Phase I: Resettlement (Final Report), dated May 15, 1995. Chengdu, Sichuan, People's Republjic of China: Sichuan Provincial Resettlement Bureau and Harza Engineering Company International. - 45 -
appraised by the Bank in preparation of the proposed Ertan II loan which is under implementation. During the second phase of the Ertan project an additional 19,000 people must be resettled from rural areas. The 11,000 urban people must also be resettled from the old to the new Yanbian Town. While the revised resettlement plan was only recently completed, actions necessary to achieve resettlement of the remaining population have been under way for some time. The revised Resettlement Plan meets all requirements of the Bank's resettlement policy guidelines (OD 4.30 Involuntary Resettlement). Assurances were obtained that the Borrower would ensure that persons affected by the project are resettled in accordance with the agreed resettlement plan.
J. PROJECTRISKS
5.39 The main risks generally associated with hydroelectric projects are related to potential cost and schedule overruns due to geological and hydrological uncertainties, and contractor and construction supervision inadequacies. For the current project, foundations and all riverbed work are completed, cofferdams are designed to survive overtopping, dam concreting has commenced, underground works are of an advanced stage and the first generating unit is on schedule for commissioning in July 1998. The risk of major cost or time overruns due to unforeseen natural conditions is very low.
5.40 Design quality has been assured by the reinforcement of the very experienced design institute with foreign consultants, and through the periodic reviews by SBC composed of world-renowned Chinese and foreign experts. Construction quality is assured by the award of civil works contracts to very well qualified foreign/local joint ventures. Risks associated with the quality of the generating equipment have been minimized by the employment of well-qualified foreign manufacturers for all key equipment, and strict pre- or post-qualification criteria in all other cases. Guarantees are also backed up with performance bonds.
5.41 There is a risk of delay due to nonavailability of local funds (mainly from provincial sources). This is a generic problem in China under current macroeconomic control measures. Therefore, this issue was examined in detail by Bank staff at appraisal, and has also been given increased emphasis by national authorities in their project approval process. EHDC was able to demonstrate that, to date, funds availability has not constrained project execution, and because of the high priority of the project, such constraint is unlikely in the future.
5.42 The most critical risk regarding environmental management would be failure to implement the public health management components with direct human morbidity and mortality implications. However, all of the management and control components are more or less standard practice on large infrastructure development projects in China, and the record on recent projects has been very good. The risk that the resettlement plan will not achieve its objectives appears to be small, given the advanced stage of the process, and the demonstrated responsiveness of the responsible authorities to views of the affected people. The independent monitoring program also addresses that risk. - 46 -
5.43 The market risk relating to power sales is minimal, given current power shortages, the continuation of strong demand growth even under macroeconomic constraints, and the projected low price of the power in comparison to alternative sources. Nevertheless, risks have been further reduced by obtaining the assurances of the Government, the owner of the SEPC, on the principles of the power sales agreement. These have been elaborated in a memorandum of understanding, between SEPC and EHDC. Elimination of market risk, and the explicit inclusion of financial performance minimums in the principles of the power sales agreement, also ensure that financial risks are of a very low level.
5.44 Bank experience in other major hydroelectr. projects is that, in the Chinese context, operation and maintenance risks are relatively low. Operation and maintenance procedures are institutionalized, very experienced staff are selected for key positions, and training of other staff is commenced long before commissioning. For the proposed project, these procedures have been reinforced through Bank support to training programs, and covenants relating to inspection and maintenance procedures. Economic risks are judged to be minimal.
K. MONITORING AND REPORTING
5.45 During Project Implementation. Since the project will be owned and operated by a new entity, monitoring and reporting up until the commissioning of the first generating unit in mid-1998 will mainly be in relation to cost, schedule and quality of the Ertan Hydroelectric Schemne and its related resettlement plans, together with the activities required during construction and prior to reservoir impoundment in accordance with the environmental management plan. Activities relating to the establishment of EHDC and its commercial arrangements will also be monitored.
5.46 With regard to the construction of the Ertan dam and power station, monitoring of costs, quality and schedule is the main function of the construction manager, EEC, and their consultants. Detailed procedures for cost and schedule control, construction inspection and quality assurance are set out in Annex 5.2. The Bank will monitor procurement progress in accordance with the procurement schedule of Annex 5.7, and construction progress in accordance with the schedule of Chart 5 and key dates in the three main contracts (arch dam, underground works, generating equipment), of which major milestones are set out in Annex 5.8. Overall costs will be monitored in accordance with Annex 5.5 and Table 5.1. Since there are no quantitative indicators of quality at the macro level, the Bank will rely on construction manager reports in this area. The responsibility for environmental monitoring is comprehensively presented in Annex 5.10, together with the monitoring activities and frequency. The monitoring system for resettlement is described in detail in Annex 5. 11. Key data for the establishment of EHDC as a fully commercial entity establishing its power sales agreement are included in Annex 3.1. The key dates for its organizational and management study are included in Annex 5.3,and the anticipated timning of training is included in Tables 1 and 2 of Annex 5.4. - 47 -
5.47 Initial Operation and Key Indicators. After initial operation in mid-1998, and before closing of the loan by December 31, 2001, key financial indicators will be monitored against projections in Table 6.1 and Annex 6.2. At project completion, the EIRR will be recomputed for comparison with the calculations of Annex 7.1. The post- impoundment environmental monitoring activities and frequency are set out in Annex 5.10. The Bank supervision plan attached in Annex 5.12 will focus on the core activities of the project implementation. These include physical construction, environmental management, the resettlement action plan (including compensation), institutional development, and the above referred financial covenants. The key monitoring indicators are summarized in Annex 5.13.
5.48 Reporting. Understandings were reached that EHDC will continue to provide quarterly reports following the current format. In addition, assurances were obtained that EHDC would prepare annual reports on or about April 30 in each calendar year, integrating the results of the monitoring activities, carried out in the previous year. Both the Beneficiary and the Bank will prepare Implementation Completion Reports in accordance with Bank procedures.
5.49 The enviromnental management plan makes comprehensive provision for data collection and analysis and the results of these will be incorporated into the routine progress reports outlined in the previous paragraph. An additional monitoring tool will be available through the panel of experts commissioned by EHDC to provide technical advice, which should also be able to provide the Bank with impartial assessments of progress and the effectiveness of the program. - 48 -
6. FINANCIAL ASPECTS
A. INTRODUCTION
6.1 As a new corporation, EHDC's activities over the next few years will continue to be dominated by the construction and initial operation of the project. EHDC's operation and finances are interrelated with those of SEPC; all the power generated by EHDC would be sold in bulk to SEPC. As state-owned enterprises, EHDC and SEPC are bound by the financial regulations established by the Government. These regulations have gradually evolved over the last decade from a system in which all investment funds were provided by the Government and all surpluses remitted to it, to one that provides some autonomy and incentives for efficiency.
6.2 Established in 1988 as an independent power producer, EHDC is allowed to retain its surplus funds to finance its future investments and build up the corporation's equity base, while most provincial entities still have to rely on tax exemptions and lax debt repayment schedules to maintain their operations and only retain partial net income for future expansion programs.
6.3 The new accounting principles and financial rules effective on July 1, 1993 will also have far-reaching impacts on the sector. First, they require power entities to clarify and separate debt from equity. This is an important step for power entities moving toward limited-liability companies and eventually shareholding companies. Diversification of ownership is critical to mobilizing more resources for the sector. Second, under the new profit allocation system specified in the new financial rules issued by MOF, the adjustment tax and special fund allocations have been abolished. The management of power entities are given greater autonomy in making decisions on profit distribution. Third, enterprises are pennitted to design their own internal accounting and financial management system based on the business needs. Overall, the new financial rules together with other reforms, such as state assets management, fiscal and financial sector reforms, will lead the Government gradually to play a more limited and indirect role in the management of power entities. With new autonomy and increased accountability power entities will also have to improve their budgetary and cost controls as well as cash management in order to stay competitive in a market-oriented environment.
6.4 The Government promulgated a series of important new tax laws at the end of 1993. From 1994, the contract responsibility system was replaced with a transparent and simplified tax system. A corporate income tax rate of 33 percent is now applied to all domestic enterprises. The Government only collects income tax from enterprises based on a unified rate. Dividend distribution for Government equity contribution in enterprises is decided by the manageiment in consultation with various owners on the Board of - 49 -
Directors. The old sales taxes (25 percent) levied for power generation and distribution were also consolidated into a new value-added tax (VAT) of 17 percent. The new tax policy does not necessarily reduce the tax and remittance burden for power entities. However, it eliminates the lengthy and complicated negotiations between enterprises and the Government. More importantly, it is conducive to strengthening the planning and financial management functions of power companies.
6.5 As many critical reforms, such as property rights, investment, fiscal, financial, trade, are gradually being laid out by the Government, improving financial management is critical for EHDC to stay financially viable in a market-oriented economy. Toward this end, the proposed project would continue the process of institution building already initiated under previous Bank-financed projects, including (a) a component to develop EHDC's accounting and financial management systems (para. 5.9); (b) training in financial management for EHDC (para. 5.10); and (c) agreements with EHDC on financial performance targets that would provide a framework for financial discipline (para. 6. 11).
B. EHDC's PAST AND PRESENT FiNANCIAL PERFORMANCE
6.6 The first two units financed under Ertan Hydroelectric Project are scheduled to be commissioned in 1998. As there is no revenue generation for EHDC before 1998, only balance sheets and fund flow statements for the period 1992-94 for EHDC were prepared and set out in Annex 6. 1.
6.7 During the period 1992-94, EHDC's main activities were construction of the first phase of the proposed project, which was slightly ahead of the planned schedule. Sixty percent of the local construction costs are financed by borrowings and the balance by equity contribution. In general, availability of local funds has not been a problem. Occasionally, EHDC needs to resort to postponement of payments or short-term loans with higher interest rates to fill the gap. In spite of this, EHDC maintained its debt/equity ratio at a satisfactory level and met the first Bank loan's financial covenants.
C. FINANCIAL PERFORMANCE TARGETS
6.8 Under the first project, a self-financing target was used to monitor EHDC's financial performance. However, this indicator is no longer considered appropriate. First, as an independent power producer, EHDC's investments are not regular. While it has a mandate for developing the water resources of the Yalong River, implementation of other projects after Ertan will depend on several factors including availability of financing, and its next investment may not occur for some time. In this context, the self-financing ratio is not a satisfactory indicator of financial performance. Second, one of the power sector reform objectives is to mobilize finance from different sources, particularly from domestic and foreign markets. The rate of return target is a more commonly recognized financial performance indicator in the markets and is being used widely by the power industry. EHDC's use of a rate of return target, following market practices, could be conducive to raising funds from commercial sources in the future. Third, as a new company, EHDC's accounts are simple and are easily rearranged according to the new accounting rules - 50 - effective since July 1, 1993. Taking all these factors into account, the existing self- financing target will be replaced with a rate of return covenant. Since current cost accounting is not required by Chinese accounting rules, pro formnaaccounts that reflect annual revaluation of assets based on the price index published by the State Statistical Bureau will be prepared to calculate the rate of return.
6.9 The current values of the assets for the base year, established as the first full year after commissioning of all units, shall be established upon the completion of the project and certified by the Government. Once the current values for the base year have been determined, annual adjustments shall be made based on the price changes specific to the type of goods and works published by the National Statistical Bureau for the previous year. Interim arrangements for years prior to the base year will be established based on the above principles and included in the power sales agreement.
6.10 EHDC was reincorporated into a limited liability company under the new Company Law in February 1995. During the process, EHDC's capital structure as well as ownership have been changed as described in Chapter 3. In line with the new investment agreement, the existing debt/equity ratio targets have been modified marginally.
6.11 With a view to promoting prudent financial management, assurances were obtained from EHDC that it would:
(a) take all necessary measures, including but not limited to tariff adjustments, to ensure that its annual rate of return is not less than 12 percent of EHDC's average pro formna net revalued fixed assets in operation in 1999 and 15 percent thereafter;
(b) maintain a debt service coverage ratio of no less than 1.3 times in 1999 and 1.5 tines thereafter;
(c) not incur additional debt unless a reasonableforecast shows it would maintain a debt/equity ratio of no more than 85/15 in 1995-972/, 80/20 in 1998-2000, and 70/30 thereafter; and
(d) by April 30 of each year, furnish to the Bank a rolling eight-year financial plan containing projected income statements, statements of sources and uses of funds, and balance sheets.
D. FUTuRE FINANCES
6.12 The projections of EHDC's finances for 1995-2004 are presented in Annex 6.2, and the salient features of these finances are highlighted below in Table 6.1. The projections are based on the assumptions contained in Annex 6.3, including electricity tariff
2/ This representsa slight changeto the first Ertan project, reflectingcurrent practice in China. - 51 - setting which would allow EHDC to achieve the above financial performance targets. The final tariff level will be determined by the ongoing tariff study, which is expected to be completed before 1998. Principles for pricing of the output of the power plant have been agreed between the parties involved.
Table 6.1: KEY FINANCIAL INDICATORS, 1995-2004 (Million Yuan)
Year Ended December 31 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Energy Sales (100 GWh) 0 0 0 29 106 145 145 145 145 156 Average Price (fen/kWh) 0 0 0 35.4 38.6 46.3 56.7 55.7 54.4 57.9 Operating Revenue 0 0 0 1,024 4,087 6,734 8,241 8,104 7,909 9,060
Operating Income 0 0 0 756 2,849 4,773 6,096 5,878 5,592 6,380 Annual Capital Expenditure 4,476 4,359 4.960 3.788 2,412 2,038 1,504 2,143 3,087 2,870 Long-term Debt 9,072 12,420 16.370 18,848 20,635 20,203 18,778 17,643 17,550 16,971 Debt Service 0 0 0 426 1,852 2,834 3,775 3,588 3,421 3,500 Cash in Banks 134 203 200 278 436 1,109 1,583 1,469 1,284 1,158
Rate of Retum Historically Valued Assets(%) 0 0 0 8.2 20.0 18.2 19.6 24.5 19.1 19.8 Revalued Assets(%) 0 0 0 8.0 20.0 17.0 17.5 16.3 15.0 15.0 Self Financing Ratio (%) 0 0 0 0 27.5 82.9 104.0 81.9 58.2 60.3 Operating Ratio (%) 0 0 0 26.2 30.3 30.6 26.0 27.5 29.3 29.6 Long-term Debt/(LT Debt & Equity) 85.0 83.0 82.0 79.0 77.0 71.0 63.0 56.0 52.0 47.0 Debt Service Coverage 0 0 0 1.5 1.5 1.6 1.5 1.5 1.5 1.7
6.13 Revenue Position. The first two units of the project are scheduled to be commissioned in 1998, and the remaining four units would become fully operational by the year 2000. The estimated minimum average tariff level of 49.3 fen/kWh (28.6 fen/ kWh in 1994 prices) during 1998-2004 required to meet the above financial performance targets, is below SEPC's avoided cost of power generation.
6.14 As is typical of hydro projects, Ertan hydropower plant is expected to have relatively low operating expenses. Thus, EHDC is expected to have a robust revenue position, with a low operating ratio estimated to be no more than 31 percent during its first seven years of operation (1998-2004). Its average rate of return on historically valued and revalued net fixed assets are projected to be 18.6 and 15.6 percent a year, respectively, during the same period, which is satisfactory. However, debt service requirements would be substantial, and are expected to account for about 63 percent of projected cash generation. The projected minimum tariff levels are determined more by the debt service coverage requirements than the rate of return targets.
6.15 Funds Flow. During the project implementation period up to the year 2000, EHDC's financing plan would be dominated by the project. After commissioning of the project, EHDC is expected to generate substantial internal cash. This is attributable not only to its highly profitable position, but also to its cost structure that is dominated by depreciation, a noncash expense. As SEPC would be the sole customer and is expected - 52 - to maintain a sound liquidity position, no difficulties are envisaged in collection of receivables. Debt service requirements are forecast to account for some 50 percent of its total use of funds during its first six years of operation.
6.16 Capital Structure. During the project implementation period, compliance with the agreed debt/equity ratio target would be achieved through equity contributions by SDIC and SIC. Within the first seven years of project operations, EHDC is expected to improve its capital structure considerably through retention of after-tax profits. During the forecast period (1995-2004), its debt/equity ratio is forecast to be reduced from a peak of 91/9 in 1994 to 47/53 in the year 2004. - 53 -
7. ECONOMIC JUSTIFICATION
A. ROLE OF THE PROJECT IN SICHUAN PROVINCE
7.1 The proposed project is an essential component of the electric power development program i:n Sichuan Province, and is expected to provide over one quarter of the electrical energy needs in year 2000, and to play a major role in system peak regulation, especially by providing about 2,400 MW of peaking capabilities during the dry season. The project has been designed to promote sustainable power sector development in an economically efficient and environmentally sound manner and to initiate institutional changes that will lead to more openness and gradual introduction of competition in the power industry.
7.2 The project is superior to all competing generation alternatives, and its size and timing are economically justified, even without accounting for its environmental benefits (cf. para. 7.7). Without completion of the Ertan project, Sichuan province would continue to experience severe power shortages even after year 2000 and would have to develop less attractive hydropower projects and coal-fired power plants because prospects for the use of natural gas for power generation are very limited, and even nonexistent, in the near future. The already severe environmental problems in the province, especially in the two main load centers supplied by the project, would therefore worsen.
B. LEAST-COSTSTUDIES
7.3 Complementary studies were carried out to update the least-cost studies of the first phase of the project (SAR No. 8470-CHA) and the Sichuan Transmission Project (SAR No. 13468-CHA). Benefits and costs were evaluated using constant end-1994 economic prices, net of taxes and subsidies, and a discount rate of 12 percent. Tradable commodities were valued at border prices with the prevailing exchange rate at the time of the study (Y 8.7/$1.0). Nontradable commodities were valued at shadow prices, using a mix of standard and specific conversion factors. Methodology and presentation of shadow prices are detailed in the reports prepared by SEPC and EHDC with the assistance of BERIWREP: Economic Evaluation of the Sichuan Transmission Project and Economic Evaluation of Ertan (II) Hydropower Project.
7.4 The complementary studies focused on determining the least-cost development programs in two cases: with Ertan and without Ertan. For the economic decisions under consideration, only the incremental cost of the project must be considered in the first case and sunk costs must be added to the total cost in the second case. However, to reconfirm the original decision made several years earlier to proceed with the Ertan project, the full cost of the project was considered in the with Ertan case and sunk costs were not taken - 54 - into account in the without Ertan case. The results reconfirmed the economic viability of the original decision and the very high economic attractiveness of now completing the project.
7.5 The proposed project remains the first and most economic investment of the least-cost expansion program for Sichuan Province. Phased commissioning of Ertan in 1998, 1999, and 2000, the earliest dates now feasible, is preferred to all other alternatives under a variety of assumptions, and even in case of a slower demand growth due to more dramatic than expected gains in the efficiency of electricity use or slower than projected growth of electricity consumption. The present (1994) value of the total cost of the without Ertan program is 3 percent (Y 4.5 billion) higher than the with Ertan program. The equalizing discount rate of the programs, about 5 percent higher than the discount rate, indicates the robustness of the with Ertan program.
7.6 If sunk costs are considered in the least-cost studies, the present (1994) value of the cost of the without Ertan program is 13 percent (Y 18.5 billion) higher than the present value of the cost of the with Ertan program.
C. ENVIRONMENTALBENEFITS
7.7 The constniction of the project also provides major environmental benefits from a reduced rate of increase in coal consumption. Coal consumption and pollutants emissions were estimated based on detailed simulations of the operation of the two systems (with and without Ertan), taking into account the average characteristics of the coal used in Sichuan province (5,050 kcal/kg, 2.27 percent of sulphur content, and 33.78 percent of ash content). Table 7. 1 below presents the increase in coal consumption and associated emissions in the without Ertan case.
Table 7.1: INCREASE IN COAL CONSUMTrION AND ASSOCIATED EMISSIONS IN THE WITHouT ERTAN CASE ('000 tons per year)
Year 1998 2000 2005 2010
Coal consumption 280.0 6,500.0 5,450.0 6,940.0
Ash 94.6 2,195.7 1,841.0 2,344.3
CO2 emissions 222.1 5,155.2 4,322.4 5,504.1
SO2 emissions 10.2 236.5 198.3 252.5 - 55 -
D. ECONOMIC RATE OF RETURN
7.8 The internal economic rate of return (IERR) for the project was calculated using the estimated economic costs of the project and associated investments in transmission to the main load centers (Annex 7.1). An economic price of 37 fen/kWh, equivalent to the price paid by the system at the consumer level for electricity purchased from joint investment and independent power producers in 1994, was used as a minimum proxy for the economic value of electricity. On this basis and using updated project cost and benefit estimates, the IERR of the project is about 16 percent. Simulations of the system operation under various hydrological conditions indicate that Ertan will displace or minimize the use of the most costly units and therefore its benefits would be higher than existing joint investment or independent power plants. Moreover, industrial consumers, which account for more than three quarters of the total consumption in the province, are willing to pay higher prices (42 fen/kWh or higher) for an adequate supply, especially during the dry season. Using the current average guidance price that many consumers paid in 1994 in Sichuan (42 fen1kWh) as a somewhat less conservative estimate of the economic value of electricity, the IERR increases to about 18 percent (Annex 7.1).
7.9 In a more accurate reflection of the returns of economic decisions now under consideration, the IERR on the incremental costs to complete the Ertan project and its associated transmission is estimated at 23 percent, with an economic price of 37 fen/kWh, and an IERR 26 percent, with an economic price of 42 fen/kWh. The minimum tariff to meet the financial perfonnance targets is 28.6 fen (para. 6.12), well below willingness to pay. EIRR with this tariff is 13 percent.
7.10 The IERR of the project remains higher than the discount rate when subjected to a variety of sensitivity tests:
Base case: 16 percent Cost overrun (15 percent) 15 percent Delay in commissioning (1 year) 14 percent
7.11 Sensitivity studies were also carried out on the important test variables. The IERR would be reduced to the 12 percent discount rate if:
(a) the full cost of the project (including sunk costs) is taken into account, and: (i) the project were to experience total cost overruns of 70 percent; (ii) the commissioning of the first unit were delayed 3 years; and (iii) the plant output were reduced by 30 percent or sold at 26 fen/kWh, 30 percent lower than the base case economic price.
(b) only incremental investments costs are considered, and: (i) the project were to experience incremental cost overruns of 200 percent; (ii) the commissioning of the first unit were delayed 6 years; and (iii) the plant output were reduced by 50 percent or sold at 18 fen/kWh, 50 percent lower than the base economic price. - 56 -
8. AGREEMENTS AND RECOMMENDATION
8.1 The following assurances were obtained at negotiations:
(a) From the Borrower that it would:
(i) take necessary steps to ensure that SEPC shall enter into a power sales contract with EHDC by June 30, 1997 (para. 3.20);
(ii) onlend the proceeds of the proposed Bank loan through Sichuan Province to EHDC on terms and conditions satisfactory to the Bank (para. 5.18); and
(iii) take all measures necessary to ensure that resettlement under the project is carried out in accordance with an agreed resettlement program (para. 5.38).
(b) From EHDC that it would:
(i) furnish the Bank with the audited project accounts, statements of expenditures, and financial statements within six months of the end of each ifiscal year (para. 3.19);
(ii) take all measures required on its part to enter into the power sales contract with SEPC satisfactory to the Bank not later than June 30, 1997 (para. 3.20);
(iii) continue to employ its Special Board of Consultants and Environmental and Resettlement Panel (para. 5.7);
(iv) carry out implementation of its organizational improvements, and the development of improved accounting and financial management systems as agreed with the Bank (para. 5.9);
(v) carry out the management development and training program as agreed with the Bank (para. 5.14);
(vi) prepare, by June 30, 1998 completion of the dam, a program of annual maintenance of the project works, satisfactory to the Bank, undertake perio(lic inspections of the dam and associated works using independent experts whose qualifications and experience are acceptable to the Bank, and to take all necessary actions pursuant to their recommendations (para. 5.25); - 57 -
(vii) carry out the environmental management program in a manner satisfactory to the Bank (para. 5.35);
(viii) carry out relocation of persons affected by the project in accordance with a resettlement plan acceptable to the Bank (para. 5.38);
(ix) prepare annual reports on or about April 30 of each calendar year, integrating the results of monitoring activities carried out in the previous year (para. 5.48);
(x) take all necessary measures, including but not limited to tariff adjustments, to ensure that its rate of return is not less than 12 percent of EHDC's average net revalued fixed assets in operation during 1999 and ]15 percent thereafter [para. 6. 11(a)];
(xi) maintain a debt service coverage ratio of no less than 1.3 times in 1999, and no less than 1.5 times thereafter [para. 6.11(b)];
(xii) not incur any debt unless it can maintain a debt/equity ratio of no more than 85/15 in 1995-97, 80/20 in 1998-2000, and 70/30 thereafter [para. 6.11(c)]; and
(xiii) furnish to the Bank, by April 30 of each year, a rolling eight-year financial plan containing projected income statements, statements of sources and uses of funds, and balance sheets [para. 6.11(d)].
8.2 Execution of subsidiary loan agreements between the Borrower and Sichuan, and Sichuan and EHDC would be a condition of effectiveness of the loan (para. 5.18).
8.3 Subject to the above agreements, the proposed project would be suitable for a Bank loan of $400 million to the People's Republic of China. The loan would be for a term of 20 years, including a 5-year grace period, at the Bank's standard variable interest rate. Retroactive financing, in an aggregate amount not exceeding $30 million, is required for anticipated contractual payments between August 1, 1995 (expected date of full disbursement of the first loan) and the expected date of signing of the proposed loan (around end of September 1995). The Executive Directors are also requested to authorize the Bank to negotiate the guarantee provision for the proposed $150 million syndicated loans for China, substantially in accordance with the terms described in this report.
- 58 -
ANNEXES
- 59 - ANNEX 1.1
PRIMARY ENERGY OUTPUT IN CIUNA (1949-93)
Year Raw Crude Natural Electricity coal oil gas Total of which: (106t) (106 t) (108m3) output Hydropower (TWh) (TWh)
1949 32.0 0.12 0.07 4.3 0.7 1955 98.0 0.97 0.17 12.3 2.4 1960 397.0 5.20 10.40 59.4 7.4 1965 232.0 11.31 11.00 67.6 10.4 1970 354.0 30.65 28.70 115.9 20.5 1975 482.0 77.06 88.50 195.8 47.6 1980 620.0 105.95 142.70 300.6 58.2 1981 622.0 101.22 127.40 309.3 65.5 1982 666.3 102.12 119.30 327.7 74.4 1983 714.5 106.07 122.10 351.4 86.4 1984 789.2 114.61 124.20 377.0 86.8 1985 872.3 124.89 129.30 410.7 92.4 1986 894.0 130.69 137.60 449.5 94.5 1987 928.1 134.14 138.94 497.3 100.2 1988 979.9 137.05 142.64 545.2 109.1 1989 1,054.2 137.65 150.49 584.7 118.4 1990 . 1,079.9 138.31 152.98 621.3 126.4 1991 1,087.4 140.99 153.96 677.5 124.7 1992 1,115.0 142.10 157.90 754.2 131.5 1993 1,141.0 144.00 165.60 836.4 150.7
Source: MOEP. TOTAL PRODUCTION AND CONSUMPTION OF ENERGY VS. GNP GROWTH
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
Production (million tons of standard coal equivalent) 628 646 637 632 668 713 779 855 881 913 958 1,016 1,039 1,048 1,073 1,117 Proportion (%)
Coal 70.3 70.2 69.4 70.2 71.3 71.6 7714 72.A 72.4 72.6 73. 1 7A.1 'A74.2 '74.1 743A 7 .A2 Crude oil 23.7 23.5 23.8 22.9 21.8 21.3 21.0 20.9 21.2 21.0 20.4 19.3 19.0 19.2 18.9 18.5 Natural gas 2.9 3.0 3.0 2.7 2.4 2.3 2.1 2.0 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Hydropower 3.1 3.3 3.8 4.2 4.5 4.8 4.5 4.3 4.3 4.4 4.5 4.6 4.8 4.7 4.8 5.3 Consumption (million tons of standard coal equivalent) 571 586 603 594 621 660 709 767 809 866 930 969 980 1,038 1,087 1,122 Proportion (%) Coal 70.7 71.3 72.2 72.7 73.7 74.2 75.3 75.8 75.8 76.2 76.2 76.0 75.6 76.1 76.1 73.2 Crude oil 22.7 21.8 20.7 20.0 18.9 18.1 17.4 17.1 17.2 17.0 17.0 17.1 17.0 17.1 17.1 19.4 0 Natural gas 3.2 3.3 3.1 2.8 2.5 2.4 2.4 2.2 2.3 2.1 2.1 2.0 2.1 2.0 1.9 2.0 Hydropower 3.4 3.6 4.0 4.5 4.9 5.3 4.9 4.9 4.7 4.7 4.7 4.9 5.3 4.8 4.9 5.4 GDP Index (constant prices) 100.0 107.6 116.0 121.2 131.8 145.4 166.9 188.2 203.5 225.7 251.2 262.1 272.7 295.0 333.4 379.0 Energy Intensity Index (consumption/GNP) 100.0 95.4 91.0 85.8 82.5 75.9 74.5 71.5 69.7 67.2 65.0 65.1 62.6 61.6 57.3 51.9
Notes: (1) Excluding bio-energy, solar, geothermal and nuclear energy. (2) All fuels are converted into standard coal with thermal equivalent of 7,000 kilocalorie per kilogram. The conversion factors are: I kg of coal (5,000 kcal) =0.714 kg of standard coal I kg of crude oil (10,000 kcal) = 1.43 kg of standard coal 1 cubic meter of natural gas (9,310 kcal) =1.33 kg of standard coal (3) The conversion of hydropower is based on the specific consumption of standard coal for thermal power generation of the year. Source: China Statistical Yearbook 1991.1. Z
I. - 61- ANNEX 2.1
INSTALLED CAPACITY, ELECTRICITY GENERATION AND CONSUMPTION IN THE POWER SUBSECTOR
Installed Electricity Electricity Capacity (MW) /a Generation (GWh) /a Consumption lb Year Hydro Thermal Total Hydro Thermal Total (GWh)
1949 163 1,686 1,849 710 3,600 4,310 3,460 1952 188 1,776) 1,964 1,260 6,001 7,261 6,277 1957 1,019 3,616 4,635 4,820 14,515 19,335 16,407 1962 2,379 10,686 13,065 9,042 36,753 45,795 n.a. 1965 3,020 12,056 15,076 10,414 57,190 67,604 56,802 1970 6,235 17,535 23,770 20,450 95,420 115,870 n.a. 1971 7,804 18,478 26,282 25,060 113,300 138,360 101,274 1972 8,700 20,801 29,501 28,820 123,630 152,450 123,600 1973 10,299 23,626 33,925 38,900 127,860 166,760 135,106 1974 11,817 26,291 38,108 41,440 127,410 168,850 135,708 1975 13,428 29,978 43,406 47,630 148,210 195,840 156,969 1976 14,655 32,492 47,147 45,640 157,490 203,130 164,698 1977 15,765 35,686 51,451 47,670 175,740 223,410 181,691 1978 17,277 39,845 57,122 44,630 211,920 256,550 210,239 1979 19,110 43,906 63,016 50,120 231,827 281,947 233,577 1980 20,318 45,551 65,869 58,211 242,416 300,627 251,639 1981 21,933 47,069 69,002 65,546 243,723 309,269 258,976 1982 22,959 49,401 72,360 74,399 253,279 327,678 275,299 1983 24,160 52,280 76,440 86,450 264,990 351,440 297,126 1984 25,547 54,373 79,920 86,780 290,207 376,987 319,600 1985 26,120 60,373 86,493 92,374 318,315 410,689 348,353 1986 27,542 66,276 93,818 94,480 355,091 449,571 357,057 1987 30,193 72,704 102,897 100,229 397,092 497,321 420,019 1988 32,698 82,799 115,497 109,177 435,888 545,065 464,013 1989 34,570 92,060 126,637 118,475 466,200 584,675 495,135 1990 36,050 101,844 137,894 126,350 494,986 621,318 527,154 1991 37,884 113,589 151,473 124,845 552,649 677,494 575,219 1992 40,681 125,852 166,533 131,466 622,723 754,189 644,696 1993 44,593 138,318 182,911 150,743 685,686 836,429 698,255
/a On a countrywide basis. /b Energy consumption riot including uses by stations and line losses.
Source: MOEP. - 62 - ANNEX 2.2
ELECTRICITY CONSUMPTION BY SECTORS /a
Total Industry Agri- Resi- Trans- Municipal consumption Sub- cul- den- porta- and Year (TWh) Heavy Light total tural tial tion commercial
1985 411.7 63.8 15.9 79.7 7.7 5.4 1.5 5.7
1986 456.7 64.9 15.8 80.7 7.1 5.5 1.5 5.2
1987 498.5 64.0 16.4 80.4 7.2 5.7 1.5 5.2
1988 546.7 62.8 17.0 79.8 6.9 6.3 1.6 5.4
1989 586.5 63.0 16.2 79.2 7.0 6.7 1.7 5.4
1990 623.0 62.2 16.0 78.2 6.9 7.7 1.7 5.5
1991 680.4 61.2 16.2 77.4 7.1 8.0 1.7 5.8
1992 745.5 (51.2 15.9 77.1 6.8 8.5 1.8 5.8
1993 820.1 61.2 15.4 76.6 6.3 8.9 1.9 6.3
/a On a countrywide basis, including station uses and line losses for power industry.
Source: MOEP. - 63 - ANNEX 2.3
MAJOR ONGOING POWER PROJECTS WITH EXTERNAL FINANCING OTHER THAN IBRD
Installed Construc- Loan capacity tion amount (Unit x MW) Location period Source of finance ($ min)
A. HYDRO POWER East China Mianhuatan 4 x 150 Fujian 1995-2002 ADB 200.0
North China Shisanling pumped storage 4 x 200 Hebei 1990-96 OECF 100.0 Zhangjiawan 4 x 250 Hebei 1996-2001 ADB 250.0
Central China Wuqiangqi hydro 5 x 240 Hunan 1988-95 OECF 200.0 Lingjintan 8 x 300 Hunan 1994-99 ADB 100.0 Geheyan 6 x 200 Hubei 1988-95 Canada
Southwest China Tienshengqiao (11) hydro 4 x 220 Guizhou 1988-96 OECF 478.5 Tienshengqiao (I) hydro 4 x 300 Guizhou 1991-2002 OECF 160.0 Hongjiadu hydro 3 x 180 Guizhou 1995-2001 ADB 200.0
South China Guangzhou Pumped Storage (1) 4 x 300 Guangdong 1988-94 France 200.0 Guangzhou Pumped Storage (11) 4 x 300 Guangdong 1994-98 ADB 290.0 Joint financing 71.1 Other Part Huanggou 4 x 300 Heilongjiang 1999-2004 OECF Gongbuoxia S x 300 Qinghai 1997-2005 OECF Jilintai 4 x 115 Xinjiang 1997-2002 OECF
Subtotal 15,820 2049.6
B. THERMAL POWER North China Sanhe 2 x 300/350 Hebei 1994-98 OECF 250.0 Hejin 2 x 300/350 Shanxi 1994-98 OECF 250.0
Central China Ezhou 2 x 300 Hubei 1992-97 OECF 250.0 Jiujiang 2 x 300/350 Jiangxi 1994-98 OECF 250.0
Subtotal 2,700 1,000.0
C. TRANSMISSION & SUBSTATION Tienshengqiao (I)-Guangdong 1,200 km - 1994-98 OECF 140.0 (DC) Subtotal 140.0
Total 14,620 MW in generating capacity 1,200 km for 500-kV transmission line 3,189.6
Source: MOEP. -64 - ANNEX 2.4
FUTURE THERMAL POWER PROJECTS UNDER BOT OR BOO ARRANGEMENTS /a
Installed capacity Construction Projects (No. x MW) period Location
Waigaoqiao (phase 2) 2x800 or 1997-2002 Shanghai 2x1,000 Jiaxing (phase 2) 4x600 1996-2002 Zhejiang Ligang (phase 3) 2x600 1995-98 Jiangsu Yangcheng 6x350 1995-2001 Shanxi Tuoketuo No. 2 4x600 1999-2005 Inner Mongolia Daihai 4x600 1997-2001 Inner Mongolia Datong No. 2 2x600 1998-2002 Shanxi Shalingzi (phase 2) 2x600 1996-2000 Hebei Shuangyashan 2x600 1997-2001 Heilongjiang Zhuhai 2x660 1995-2000 Guangdong Beihai 2x350 1996-2000 Guangxi Shenzhen East 4x660 1997-2003 Guangdong Rizhao 2x350 1995-98 Shandong Shiliquan 2x300 1997-2000 Shandong Laicheng 2x600 1995-98 Shandong Shiheng (phase 2) 2x300 1996-99 Shandong Hanfeng 2x600 1996-2000 Hebei Meizhouwan 2x600 1993-97 Fujian Songyu 2x350 1993-97 Fujian Hanchuan (phase 2) 2x300 1998-2003 Hubei Gaobeidian 2x145 1995-99 Beijing 2x180 Dalian (phase 2) 2x350 1995-98 Liaoning Dandong 2x350 1995-98 Jilin Nantong (phase 2) 2x350 1996-98 Jiangsu Fuzhou (phase 2) 4x660 1995-98 Fujian Yueyang (phase 2) 2x350 1996-99 Hunan Luohuang (phase 2) 2x350 1996-2000 Sichuan Shantou (phase 2) 2x350 1997-2000 Guangdong Yingkou (phase 2) 2x600 1997-2000 Liaoning Shajiao C 3x660 1994-96 Guangdong Yahekou 2x350 1994-97 Henan Huanggang 2x600 1997-2001 Hubei
/a BOT: Build-Own (Operate)-Transfer BOO: Build-Own-Operate Source: MOEP. - 65 - ANNEX 2.5
POWER PRICING IN SICHUAN PROVINCE
Overview of the Power Pricing System
1. As in other provinces, the power pricing system for electricity supplied through the Sichuan Power Grid includesthree components:
(a) State CatalogPrices. Theseare the prices charged for electricitygenerated by capacity financedby the Central Governmentand managedby provincial power companies such as SEPC. This capacity includes (i) virtually all power plants constructedbefore 1985, primarilywith grant funding, and (ii) plants, or shares of plants, constructed with loan funds allocated by the Central Governmentsince 1985. The state catalog prices provide the basis for the revenue of SEPC and other provincialpower companies. Since the 1993 reform in state catalog prices, prices built into the state catalog price tables for electricity from capacityconstructed since 1985 should allow for full repayment of loans and interest, plus a small profit margin. State catalog price tables are reviewed, revised and reissued every year by MOEP, in consultationwith provincialgovernments.
(b) Prices for PurchasedPower. Prices for power purchased by provincial power cornpaniessuch as SEPC from capacity not financedby the Central Governmentare determinedon a plant-by-plantbasis, at levels allowingfull repayment of loans and interest, usually over a period of 10 years, plus a reasonable profit margin. These types of plants include joint-investment plants (financed through a combination of central, provincial and local governmentfunding sources), plants of independentpower producers such as the Huaneng Corporation, and plants owned by local governments or industriesthat sell surplus power to the grid.
(c) AdditionalFees and Surcharges. A varietyof surchargesare levied on the various consumer categories, primarily for different types of investment funds for the power sector. The most common and important include provincial and local governmentpower investmentsurcharges, surcharges to raise funds for specialprojects (e.g., the Three Gorges Project), and local fees to raise funds for distribution system investment.
2. In most parts of Chinatwo types of consumertariffs remain. Administered prices, or "in-planprices," include the state catalog prices plus the additional fees and surcharges. These prices are charged for electricity suppliedto enterprises under in-plan quotas, generally set at 1985 consumptionlevels. Guidanceprices include state catalog - 66 - ANNEX 2.5 prices, markups for the higher cost of purchased power, plus the additional fees and surcharges.
Power Pricing in Sichuan Compared to Other Provinces
3. Complexity. While the power pricing system in China is complicated in general, the current system in Sichuan is particularly complex. One factor is the interaction between the Sichuan Power Grid and the province's numerous semiautonomous or autonomous local plants and systems. SEPC's power purchasing arrangements number in the hundreds. Especially in the countryside, there are ever-changing combinations of different categories of grid and local supply, priced in different ways for different consumers.
4. During the 1980s, Prefectural and County Power Supply Bureaus allocated new sources of supply, under the guidance price system, separately to individual consumers, with different prices for each supply source. By the early 1990s, this system had become unmanageable. The province is reforming the system, to pool all of the sources of supply subject to guidance prices together, and charge consumers a weighted average price, as is now common in most other parts of China. Because the reform will result in some enterprises paying more, and some paying less, than before, the reform is being pursued over several years, prefecture-by-prefecture. The unreformed guidance price system remained in force in 5 of the province's 14 prefectures in July 1994. In Deyang Prefecture, where the reform has not yet been implemented, there are 14 separate sources of "out-of-plan" supply, each priced and allocated to consumers separately.
5. Low Price Levels. Electricity prices in Sichuan are among the lowest in China. Both the average unit revenue level accruing to SEPC from the state catalog prices and the average consumer price levels in Sichuan are only some 65-75 percent of the levels in the coastal provinces of Jiangsu and Zhejiang. Consumer prices are significantly below the long-run average incremental costs of supply (see below). Recently, however, prices levels in Sichuan have been increasing more sharply, so that the gap compared to other provinces is narrowing somewhat. Based on increases in the state catalog price, SEPC's unit revenue levels are projected to rise by 21 percent in 1994, compared to 1993. In Zhejiang, by comparison, the average state catalog price was increased by about 8 percent between 1993 and 1994.
6. One reason for the relatively low state catalog prices in Sichuan is the relatively high share of hydroelectric generation. During the late 1980s and early 1990s, the driving factor behind the increases in catalog prices throughout China was the increasing costs of coal supply and delivery, which directly resulted in increased operating costs. There has been greater resistance to increases in prices for power from existing hydroelectric facilities, which were financed on a grant basis prior to the mid-1980s, to levels approaching the incremental costs of new capacity. State catalog prices also are relatively low in other provinces with a concentration of hydropower, such as Fujian. - 67 - ANNEX 2.5
7. Another factor is that the certain types of industries which are eligible for subsidized electricity prices according to national policy, such as the chemical fertilizer industry, account for a larger share of the overall load than in most other provinces. Sales based on the special subsidized prices accounted for about 9 percent of SEPC's total sales in 1993.
8. Factors contributing to the low levels of consumer prices compared with the coastal provinces, in addition to the low state catalog prices, include the facts that (a) power supplied at the at the catalog prices (as opposed to power purchased from independent or quasi-independent producers) accounts for a higher share of total sales, and (b) price levels for power purchased from other sources by SEPC are somewhat lower. In Sichuan, sales at administered prices account for about 60 percent of SEPC's sales, while sales at guidance prices based on power purchased from outside of SEPC account for about 40 percent. In the fast-growing coastal provinces, sales at administered prices account for one half or less of total sales. In Sichuan, average guidance price levels also are lower than on the coast, in part due to a high portion of power from small hydro plants in the total amount of purchased power. Prices for power from small hydro plants tend to be relatively low, as much of the power is supplied during the wet season when its value to the overall system is less.
9. Time-of-I)ay and Seasonal Tariffs. Compared with other areas, Sichuan Province is particularly advanced in implementation of time-of-day and seasonal tariffs. Beginning in 1993, the province has been implementing a program to apply both daily peak and off-peak rates, and wet, dry and shoulder season rates for major consumers. By 1995, these tariff schedules will apply to about 60 percent of SEPC's total sales. (See also Table 2 and para. 16 below.)
The Electricity Price Buildup in Sichuan
10. State Catalog Prices. The state catalog prices for Sichuan Province in 1994 are shown in Table 1. Prices are highest for commercial sector use, followed by industry. Large industrial consumers face both an energy charge and a demand charge; the demand charge amounts to an average of 2-4 f/kWh for most consumers. Consumer categories provided with special subsidized rates include certain metals and chemicals, chemical fertilizers, and irrigation in poor counties. The 1994 prices for regular and large industry increased by 11 percent and 14 percent, respectively, compared to 1993. With projected shifts in the composition of the load and other adjustments, SEPC's average revenue, based on these prices, is expected to reach about 20 f/kWh (US¢2.3/kWh) in 1994, up from 16.54 f/kWh in 1993.
11. Purchased Power. Key sources of purchased power include several large joint-investment or independent plants, including two owned by Huaneng Corporation, and a large number of small hydro and captive thermal plants. Supply sources and their prices vary in different parts of the province. In the case of Chengdu Prefecture, power from three large plants supply accounts for about one half of the purchased power, with selling prices to the grid of 21.7 f/kWh (Chengdu Power Plant), 25.2 f/kWh (Jiangyou Power - 68 - ANNEX 2.5
Plant), and 27.8 f/kWh (Luohuang Power Plant), and retail prices set 3-5 f/kWh higher, plus the additional surcharges and fees. The other one half of purchased supply comes from small hydro plants, with selling prices to the grid of 13.0-18.5 f/kWh, and small thernal plants, with selling prices onto the grid of 27.5 f/kWh.
12. Consumer Prices. As in other parts of China, surcharges added to the state catalog prices in Sichuan to form the retail administered price schedule include (a) a local surcharge for urban grid construction-levied, in this case, at 10 percent of the catalog price for residential and commercial consumers, and 8 percent of the catalog price for industrial consumers; (b) the national 0.4 f/kWh levy for mobilization of funds for the Three Gorges Project; and (c) a surcharge to mobilize funds for provincial government investment in power, amounting to 2.5 f/kWh in the case of Sichuan. Additional levies in this case also include (a) a 5.5 f/kWh surcharge to pay for the higher cost of power supplied by two particular large plants, (b) a 0.13 f/kWh fee to support small hydro plant development, and (c) a 1.0 f/kWh surcharge to raise funds for Sichuan's Ertan Hydroelectric Project.
13. In Chengdu City, "out-of-plan" sources of purchased power are pooled together and charged to consumers at one weighted average price of 28 f/kWh. Adding in a 2 f/kWh fee for the Ertan project, guidance prices in 1994 were 30 f/kWh. In Chengdu, the guidance prices were applied to 32 percent of total sales, and administered prices were applied to the remaining 68 percent.
14. Considering current load characteristics, the average consumer price in Chengdu in mid-1994 is estimated at about 30 f/kWh (US¢3.4/kWh). Consumer prices in the neighboring Deyang Prefecture also were reviewed in detail, yielding about the same average price.
15. The administered and guidance price levels are now relatively close (adding in the demand charge, typically amounting to 2-4 f/kWh, in the administered price for large industry). In the case of Sichuan, a number of the surcharges that other provinces often apply only in guidance prices are levied in the administered prices, whereas the surcharges on guidance prices are relatively small.
16. Table 2 shows the tariff for industrial consumers in use in Deyang Prefecture in 1994. Rates are sharply differentiated according to season and time-of-day. During the wet season, average prices are 10 percent below the catalog price, and during the dry season, they are 20 percent higher: During each season, then, peak and off-peak time-of- day rates apply. Addecl together, therefore, the price of peak load energy during the dry season is four times the price of off-peak energy during the wet season. This tariff is relatively advanced compared with those used in other parts of China. It provides a much improved signal to consumers as to the actual costs of supply at different times-costs that vary dramatically in Sichuan's system-and provides a good incentives framework for proper load management. - 69 - ANNEX 2.5
Comparisonof ConsumerPrices and the EconomicCost of Supply
17. Average consumer prices in Sichuan in 1994, represented by the cases of Chengdu and Deyang, were about 70-80 percent of the estimated long-run average incremental cost (LRAIC) of supply, calculated in economic shadow prices. This gap betweenaverage consumer prices and the estimatedeconomic cost of supplycontrasts with the situation in the coastal provinces, where averageconsumer prices are very close to, or exceed the LRAIC of supply.
18. As part of the economicanalysis for this project, BERIWREPestimated the LRAIC of the least-costexpansion program for the Sichuan ProvincialGrid during 1994- 2010 at 40.5 f/kWh (US¢4.7/kWh). Incrementalsupply costs in Sichuan are low because of (a) the availability of inexpensivehydropower (the investment costs for most of the projects in Sichuan's hydropower expansionprogram are less than $1,000/kW); (b) the availability of low-cost coal (shadow-priced at about $31/ton of 6,000 kcal/kg coal delivered), and; (c) relatively low costs for developmentof new thermal power capacity, as in other parts of China. Incrementaldistribution system investment and operatingcosts in BERIWREP's calculations include only those costs incurred by SEPC or its subdivisions, amounting to only about 10 percent of total incremental costs. Actual distribution system costs are substantiallyhigher, but much of the cost is paid for by consumers, through their own investment,connection fees and other means not included in the average consumer price. Hence, BERIWREP's estimate may be the most appropriate calculationto compare with the estimated consumer price levels.
19. Compared with the weighted average price levels for different consumer categories in Chengdu City, commercialsector prices are close to the economic cost of supply, while industrialprices are on the order of 75-80 percent of supply cost. Prices for residential, agricultural and industrieswith special subsidiesare the furthest from the cost of supply. - 70 - ANNEX 2.5
Table 1: STATE CATALOGPRICES IN SICHUANPROVINCE, 1994
Demandcharge Energv charge (f/kWh) Maximum Substation Low 35 kVA load capacity Consumercategories voltage 1-10 kVA & above (Y/kW/mo) (Y/kVA/mo)
Residences 22.0 21.0
Commercialsector 30.6 29.8
Regular industry 21.1 20.6 19.8
Large industry 14.2 13.5 13.5 9.0 Specialsubsidies Certain metals & chemicals 13.2 12.5 13.5 9.0 Calcium carbide 12.2 11.5 13.5 9.0 Chemical fertilizer /a 6.1 5.8 13.5 9.0
Agriculturalproduction 16.6 16.1 15.3
Irrigation in poor counties 7.6 7.4 7.1
/a Small- and medium-scalechemical fertilizer plants are charged 12.2 f/kWh for 1-10 kVA supply and 11.7 f/kWh for supply at 35 kVA and above.
Source: SEPC. - 71- ANNEX 2
Table 2: ELECTRIcrrY PRICESFOR INDUSTRnALCONSUMERS, DEYANGPREFECrURE, SICHUAN PROVINcE, 1994 (f/kWh)
Regular industra Large indust=r /a LV 1-10 kV 235 kV 1-10 kV 235 kV
Catalog price 21.10 20.60 19.80 14.20 13.50
Wet-season average price (decreased 10%) 18.99 18.54 17.82 12.78 12.15
Dry-season average price (increased 20%) 25.32 24.72 23.76 17.04 16.20
Base Tariff Wet season Peak 28.49 27.81 26.73 19.17 18.23 Off-peak 9.50 9.27 8.91 6.39 6.08 Shoulder season Peak 31.65 30.90 29.70 21.13 20.25 Off-peak 10.55 10.30 9.90 7.10 6.75 Dry season Peak 37.98 37.08 35.64 25.50 24.30 Off-peak 12.66 12.36 11.88 8.52 8.10
Surcharges Small hydro fee 0.13 0.13 0.13 0.13 0.13 Three Gorges fee 0.40 0.40 0.40 0.40 0.40 Two-plant fee 5.50 5.50 5.50 5.50 5.50 Ertan fee 1.00 1.00 1.00 1.00 1.00
/a Energy charge only.
Source: Deyang Prefecture Power Supply Bureau.
- 72 - ANNEX 3.1
ERTAN HYDROPOWER DEVELOPMENT COMPANY REFORM IMPLEMENTATION PLAN
1. The Chinese Government has undertaken in the recent years a far-reaching reform program to: (a) improve the power sector efficiency, gradually introduce competition and encourage further diversification in financing power development, including private sector participation; and (b) establish a modem enterprise system characterized by clear definition of property rights, autonomous management, commercial orientation, financial independence, and the separation of government ownership and regulation from enterprise management. In addition, the Sichuan Electric Power Company (SEPC) and Sichuan Electric Power Administration (SEPA) have worked out an action plan, approved by the Ministry of Electric Power on September 19, 1994, that focuses, among other objectives, on improving the efficiency of the power industry in Sichuan Province, paying special attention to the establishment of fair power purchase and sales agreements and introducing competition. The Ertan Hydropower Development Company (EHDC) supports these principles and is committed to cooperate with all other operators in the sector to implement them.
2. Accordingly, EHDC has worked out the following reform implementation plan for corporatization of EHDC, commercialization of its operation and introduction of adequate contractual arrangements to protect EHDC's commercial interests and result in the most efficient use of power sector assets in Sichuan Province. This plan takes account of the Government's "Decision on Several Problems in Establishing the Socialist Market Economy," the "Company Law of the People's Republic of China," the "Regulations for Transfer of the Operating Mechanism of Enterprises Owned by the Whole People," and the conclusions of the joint Chinese Government/World Bank report on power sector reform in China.
Objectives of the Reform
3. EHDC, by law, a self-operated legal entity with independent accounting and responsibility for its owii profits and losses, will be in the near future one of the major power generators in Sichuan Province. Based on the requirements of the modern enterprise system, EHDC will be restructured into an independent power producer (IPP) through the following actions:
(a) incorporation of EHDC into a limited liability company fully in accordance with the Company Law with increased autonomy and accountability of management; - 73 - ANNEX 3.1
(b) restructuring its internal organization, improvement of its management and control systems and development and implementation of suitable financial management and accounting systems adapted to restructured internal organization;
(c) negotiation of appropriate power sales agreement to protect its commercial interests and ensure the most efficient use of its assets.
Corporatizationof EHDC
4. Consistent with government policy and regulations, EHDC is being incorporated as a limited liability company under the new Company Law. EPH prepared, with the assistance of corporate lawyers, Articles of Association, consistent with the Company Law. The Articles of Association were discussed and approved by the Board of Directors on Februaiy 8, 1995. The name of the company has been changed to conform with Article 18 of the Company Law to Ertan Hydropower Development Limited Liability Company. The Articles of Association were approved by the three promoters of the EHDC, which are authorized by the State to make investments.
5. As required by law and administrative regulations, EHDC submitted a request to the State Administration of Industry and Commerce to register the limited liability company and obtain a company business license, in accordance with Article 21 of the Company Law. The company was registered and a business license issued in February 1995.
6. EHDC will prepare, within six months of the registration of the limited liability company, transitional internal regulations that will govern the relationship between the Board of Directors and the managers of the company. The internal regulations will include management reporting requirements and procedures, the transitional organization of the enterprise, and the rights and responsibilities of senior management positions. The temporary internal regulations will be revised and finalized within six months of the completion of the Organizational and Financial Management Systems Study (cf. para. 7 below).
Restructuringof Internal Organizationand Implementationof Adequate Accountingand FinancialSystems
7. To make a successful transition towards a business and profit oriented independent power proclucer and potential developer, EHDC will implement an organizational structure a,nd management systems and procedures more adapted to its corporate objectives and conducive to effective management and increased accountability of managers at high and intermediary levels. EHDC will undertake the following actions:
(a) a diagnostic review of the internal organization, operating and administrative procedures with particular attention to the responsibilities of the existing business units and their functional relations, excessive centralization of - 74 - ANNEX 3.1
decisionmaking and organizational deficiencies. Particular attention will be given to: (i) the noncore businesses and social activities carried out by EHDC, (ii) the engineering and construction unit after the completion of the ongoing project, and (iii) the needed organizational changes to prepare EHDC for its operational and commercial functions;
(b) development of a new organizational structure more adapted to EHDC's new role and with the objective of improving operational efficiency, avoiding excessive centralization of decisionmaking, establishing the social functions as cost centers to be separated from the company once the Government establishes the proper institutions and mechanisms to carry them out, and increasing accountability of managers at all levels;
(c) assessment of accounting procedures, documentation, reporting formats and nature of financial transactions between various departments and critical assessment of cost accounting, financial planning, and internal audit procedures; and
(d) design and implementation of adequate accounting, financial, control and reporting systems that address the weaknesses identified during the first phase, satisfy EHDC's long-term corporate objectives and increase the managers' cost consciousness.
8. Terms of reference of the above study have been prepared by EHDC and the procurement process for employment of consultants has commenced. The international consultants to perform aind assist in the study and implementation activities will be financed through the technical assistance component for power sector reform to be included int he proposed project.
9. The study will be completed by end-1996 and full implementation of the revised organizational structure and proposed accounting, financial, budgeting and control system will be completed by June 30, 1997.
Power Sales Agreement
10. A carefully designed power sales agreement is essential to ensure a long- term business relationship between EHDC and SEPC, protect their respective commercial interests and ensure efficient dispatch and use of power assets at the provincial level. To successfully achieve a successful transition to a fully independent power producer, EHDC will undertake the following actions:
(a) completion of the ongoing study on bulk power sales carried out in cooperation with SEPC with the assistance of the Beijing Economic Research Institute for Water Resources and Electric Power and a foreign consultant prior to end-1995. A preliminary report has been provided to the World Bank. - 75 - ANNEX 3.1
(b) preparation, negotiationand signature of a Memorandumof Understanding (MOU) with SEPC identifying the principles that will govern the power sales agreementbetween the two companies,the major topics to be included in the agreementand committingboth parties to finalize the negotiationsand sign the agreementno later than June 30, 1997. EHDC will financeneeded technicalassistance and legal advice with availablefunds earmarked for this purpose in the first phase of the project; and
(c) completion of the reservoir optimization study, based on the terms of reference prepared during the first stage of the project, and any other needed technical or economicstudies to prepare the power sales agreement no later than June 30, 1995.
11. EHDC will discuss with SEPC to include, subject to the approval of higher authorities, in the power reform study to be carried out under the World Bank's Sichuan Transmission Project, a full evaluation of the option of direct sales of power, generated by the Ertan power plant and/or future projects promoted by EHDC, to large customers or other provincial utilities.
OrganizationMeasure for Reform
12. EHDC will set up a joint reform executive team prior to April 30, 1995 in charge of planning and implementingthe above-mentionedreforms. The reform will also be periodically reviewed by the Board of Directors. - 76 - ANNEX 3.2
STAFFING OF EHDC
Classification Number Percentage
EHDC Headquarters:
Engineers and economists 70 14 Accountants 28 6 Administrators 51 10 Service personnel (including warehouses and material handling) 351 70
Subtotal 500 100
Site Management (EEC):
Supervising engineers 194 61 Contract engineers 43 14 Financial personnel 7 2 Administrative personnel 20 6 Service personnel 53 17
Subtotal 317 100
Total 817
/a Excludes short-termLcontract labor. /b Hydrological, meteorological and seismic observation operations will be subcontracted to specialized institutions. /c Excludes staff for c,peration of the project when completed.
Source: EHDC.
- 77 - ANNEX 4.1
INSTALLED GENERATING CAPACITY OF SICHUAN POWER GRID (as of end-1993)
No. of Installed units Commissioning Dependable Annual Name of plant capacity & sizes date capacity output (MW) (MW) (MW) (GWh)
A. SEPC Hydro 1. Changshou 132 13 (1-15) 1954/64 120 625 2. Gongzui 700 7 x 100 1971/77 700 3,690 3. Yinxiuwan 135 3 x 45 1971172 59 713 4. Mofanggou 37.5 3 x 12.5 1971/73 10 210 5. Yuzixi 320 8 x 40 1972/87 320 1,760 6. Nanyahe 120 3 x 40 1983/84 31 650 7. Tongjezhi 450 3 x 150 1992/93 450 3.210 8. Longchi 10.5 5 (1.85 - 2.5) 1957/59 0 45 9. Others 48.7
Subtotal 1,953.7
Thermal 1. Chongqing 600 4 x 50 1960/69 600 2 x 200 1986/87 2. Huayingshan 300 2 x 50 1978/79 300 2 x 100 1980/82 3. Wanyuan 24 2 x 12 1971/74 24 4. Chengdu 325 5 x 25 1958/65 325 1 x 200 1990 5. Jiangyou 860 4 x 50 1966/71 860 2 x 330 1991 6. Wutonqiao 112 1 x 12 1977 112 2 x 50 1979/87 7. Yibin 500 2 x 50 1970 500 2 x 100 1974 1 x 200 1993 8. Baima (Neijiang) 400 2 x 200 1988/89 400 9. Panzhihua 36 3 x 12 1966/67 36 10. Hemenkou 200 4 x 25 1966/70 200 2 x 50 1972/85 11. Xinzhuang 100 2 x 50 1975/77 100 12. Baihe (Kaixian) 100 2 x 50 1991/92 100 13. Others 136
Subtotal 3.693.0
Total 5.646.7
B. Huaneng Plants 828.3 C. Local Plants 3,037.3 D. Captive Plants 1,014.8
GRAND TOTAL (MW) 10,527.1
Source: SEPC. - 78 - ANNEX 4.2
TRANSMISSION NETWORK OF SICHUAN POWER GRID (As of end 1993)
Province as a whole Owned by SEPC Number of Circuit Number of Circuit lines length lines length (km) (km)
A. Transmission Lines
220 kV 114 5,064.1 106 4,795.0 110 kV 397 9,257.4 324 7,379.2 35 kV 1,425 20,410.5 408 4,862.3
Total 1,936 34.736.0 838 16.996.5
Province as a whole Owned by SEPC Number of Capacity Number of Capacity substations (MVA) substations (MVA) & transformers & transformers
B. Substations
220 kV 33/55 6,356.0 33/55 6,356.0 110 kV 186/307 8,116.7 162/273 7,361.4 35 kV 613/967 3,967.7 208/332 1,881.2
Total 832/1,329 18440.4 403/660 15,598.6
Source: SEPC. -79- ANNEX 4.3
ENERGY GENERATION OF SICHUAN POWER GRID (Above 0.5 MW Only - Unit: GWh)
Name of plant 1987 1988 1989 1990 1991 1992 1993
GRAND TOTAL 26,287 29,402 32.695 43,565 37.957 41.940 47,087 Hydro 11.604 13,152 14.684 14,854 15,505 16.830 19586 Thermal 14,683 16.250 18,011 19,711 22,452 25,110 27,501
A. SEPC Plants 1,9696.0 21.751.0 23,284.0 24017..0 5 .0 24,708.0 27,145.0 1. Changshou Hydro 518.8 500.5 692.7 580.4 514.7 542.3 597.8 2. Gongzui Hydro 3,268.2 3,404.0 3,448.8 3,298.1 3,215.8 3,172.6 2,997.5 3. Yinxiuwan Hydro 1,999.3 2,357.3 2,356.7 2,343.1 2,387.1 2,326.3 2,220.1 4. Mofanggou Hydro 190.2 179.8 190.7 214.4 196.1 154.2 148.1 5. Nanyahe Hydro 522.9 568.3 614.7 644.8 560.4 630.0 583.8 6. Tongiezhi Hydro ------1,211.4 7. Chungqing Thermal 3,171.7 4,178.6 4,203.6 4,290.9 4,210.9 3,200.1 3,721.8 8. Huayingshan Thermal 2,158.3 2,204.9 2,208.6 2,118.5 2,208.8 1,959.5 1,923.6 9. Wanyuan Thermal 181.7 159.0 169.8 168.8 170.6 164.0 165.2 10. Chengdu Cogenerationl,092.9 1,027.6 1,032.2 1,463.4 2,137.1 2,050.5 2,086.6 11. Jianyou Thermal 1,492.2 1,346.2 1,303.8 1,285.1 1,759.3 3,157.2 3,834.2 12. Wutongqiao Thermal 34.8 7.5 4.0 78.0 79.4 83.1 89.4 13. Douba Thermal 2,012.4 2,202.1 2,076.3 1,915.9 2,009.1 1,855.7 1,812.6 14. Baima Thermal 725.8 1,049.2 2,444.1 3,071.7 3,240.9 2,834.4 2,083.4 15. Panzhihua Thermal 191.5 232.9 208.5 223.9 226.6 233.5 225.2 16. Hemenkou Thermal 1,242.8 1,416.1 1,463.1 1,402.4 1,438.9 1,447.6 1,378.9 17. Xinzhuang 630.6 656.5 661.5 709.8 657.3 624.0 681.2 18. Baihe - - - - 52.3 199.1 420.2
B. Huaneng Plants - - 27.0 119.0 770.0 2,301.0 3.151.3
C. Local Plants 5.003.0 6,138.0 7,471.0 8363.0 7,206.0 8,859.0 13,255.7
D. CaDtive Plants 1.550. 1,493.0 0 1.959.0 2479.0 3470.0 3,534.2
E. Others 38.0 20.0 30.0 35.6 2.294.0 2,602.0 -
Source: SEPC. - 80 - ANNEX 4.4
ENERGY CONSUMPTION BY CATEGORY OF CONSUMERS IN SICHUAN PROVINCE /a (Unit: GWh)
Category of users 1987 1988 1989 1990 1991 1992 1993
A. Agriculture 436 370 364 394 579 626 919 1. Irrigation 174 102 90 120 137 110 155 2. Forestry 5 2 2 2 3 2 3 3. Cattling 6 8 8 10 13 15 19 4. Others 251 258 264 262 426 499 742
B. Industry 19,506 21,106 23,292 24.177 25,833 27.750 29,524 1. Heavy 16,058 17,520 19,611 20,257 21,912 23,736 24,810 2. Light 3,448 3,586 3,681 3,920 3,921 4,014 4,714
C. Transportation 554 593 593 591 619 659 732
D. Cormmercial 70 90 100 107 165 201 264
E. Residential 1,232 1.528 1,736 2,117 2,162 2.610 2:721 1. Municipal 936 1,175 1,317 1,632 1,635 2,010 2,061 2. Rural 296 353 419 485 527 600 660
F. Others 651 731 763 843 1.160 1.205 1185
Total 22 449 24,418 26.848 28,229 30 518 33.051 35.345
/a Including generation and purchased energy.
Source: SEPC. - 81 - ANNEX 4.5
ENERGY FORECAST FOR SICHUAN POWER GRID
19,94 1995 1996 1997 1998 1999 2000 2005
A. Enernv Reauirement (GWh)
Agriculture 546.6 571.6 593.3 615.7 638.5 655.8 670.3 855.5 Industry 27,593.2 29,653.2 32,050.8 34,633.3 37,432.9 39,994.0 42,562.0 56,877.4 Transport 1,043.7 1,154.6 1,267.8 1,391.9 1,526.9 1,659.0 1,793.7 2,888.8 Building 282.0 314.6 348.5 386.0 427.1 468.2 510.7 829.0 Tertiary 1,613.4 1,849.6 2,086.4 2,352.9 2,651.6 2,959.5 3,287.0 5,792.8 Residential 2,515.6 2,834.4 3,125.5 3,445.5 3,796.1 4,141.3 4,496.3 7,576.5 Line loss & station use 5,405.3 5,922.0 6,427.7 6,974.7 7,526.9 8,122.2 8,680.0 12,180.0
Total 39.000 42300 45.900 49.800 54Q000 58Q000 62,000 87,000
B. Peak Load (MW) 6.180 6730 7.330 8,000 8.700 9,400 10,000 14.100
Utilization hours of maximum load6,311 6,285 6,262 6,225 6,207 6,170 6,200 6,170
Source: SEPC. - 82 - ANNEX 4.6
SEPC'S POWER DEVELOPMENT PROGRAM (1994-2003)
A. GENERATION PROJECTS
Construction Scheduled Installed No. of Unit starting commissioning Name of plant capacity units size date date (MW) (MW)
A. Hydro
Tongjiezi 150 1 150 1991 1994 Baozhushi 700 4 175 1994 1994/96 Zhilanba 102 3 68 1994 1994/95 Taipingyi 260 2 130 1994 1995/96 Yaoheba 120 1 120 1994 1996 Ertan 3,300 6 550 1991 1998-2000 Yele 220 2 110 1995 1999/2001 Lizipin 120 3 40 1998 2000/02 Pubugou 3,300 6 550 1997 2003/05 Tongzilin 400 4 100 1995 2000/02 Jinping 3,000 6 500 2000 2010/12 Pengshui 1,080 6 180 1998 2007/10
B. Thermal
Jiangyou 1,200 2 600 1998 2002/03 Baima 200 1 200 1993 1995 Chungqing 200 1 200 1993 1995 Luohuang Extension 700 2 350 1994 1997 Huangjiachuang II 600 2 300 1997 2000/01 Guangan 600 2 300 1994 1997/98 - 83 - ANNEX 4.6
B. 500-KV TRANSMISSIONNETWORK
Transmission lines Lenh (Ian) Commissioning date
Ertan - Zigong 3 x 470 1998, 1999, 2000 Zigong - Chongqing 2 x 162 1994, 1998 Zigong - Chengdu 2 x 190 1999, 2000 Chongqing - Changshou 100 2000 Ertan - Panzhihua 46 1999
Pubugou - Xingjin 2 x 200 2003, 2005 Xingjin - Longwang 1 x 65 2003 Longwang - Deyang 1 x 65 2004 Pubugou - Ziyang 2 x 235 2004 Hongxian - Zigong 1 x 90 2004 Luohuang - Changshou 1 x 95 1999 Hongxian - Luzhou 1 x 95 2004 Luzhou - Qijiang 1 x 129 2005 Qijiang - Luohuang 1 x 60 2001 Qijiang - Chengjiaqiao 1 x 70 2001
Substations Capacity (MVA) Commissioning date
Zhaojue Switching Station 1993 Honggou (Zigong) 1 x 750 1998 Chengjiaqiao (Chongqing) 2 x 750 1998 Longwang (Chengdu) 2 x 750 1999 Changshou 1 x 750 2000 Panzhihua 1 x 750 1999 Xingjin 2 x 750 2003, 2005 Deyang I x 750 2004 Gucheng 1 x 750 2003 Ziyang I x 500 2004 Hongxian 1 x 500 2004 Luzhou 1 x 500 2004 Qijiang 1 x 500 2001
Source: SEPC. SYSTEM DEMAND AND ENERGY BALANCE OF SICHUAN POWER GRID
1994 1995 1996 1997 1998 1999 2000 2005 Wet Dry Wtc Dry Wet Dry we! Dry Wet Drv Wet Dry Wet Dry Wet Dry
I. System Demand (a) Peak load (MW) 6,180 5,750 6,730 6,270 7,330 6,820 8.000 7.450 8,700 8,100 9.400 8,750 10,000 9,310 14.100 13,120 (b) Energy (GWh) 39,000 42,300 45,900 49.800 54,000 58,000 62,000 87,000
2. Installed Capacity (MW) 6,510.3 6,925.3 7,093.3 7,758.3 8,039.3 8,664.3 9,202.3 9,593.3 10,077.3 10,411.3 12,116.3 12,116.3 13,411.3 13,766.3 18.750 20,000 Hydro 1,913.0 2,128.0 2,368.0 2,433.0 2,714.0 2,889.0 3,139.0 3,180.0 3,764.0 3,798.0 5,503.0 5,503.0 6,798.0 6,853.0 10.250 10,500 Thermal 4,597.3 4,797.3 4,725.3 5,325.3 5,325.3 5,775.3 6,063.3 6,413.3 6,313.3 6,613.3 6,613.3 6,613.3 6,613.3 6,913.3 8.500 9,500
3. Available Hydro Capability (MW) 1,738 1,650 2,103 1,950 2,408 2,150 2,864 2,750 3,705 3,350 4,873 4.000 5,728 4,800 10,200 7,150 CO Working capacity 1,650 1,350 2,000 1,450 2,290 1,550 2,624 2,100 3,440 2,500 4,593 3,000 5,400 3,600 9,800 5,150 Reserve capacity 88 300 103 500 118 600 240 650 265 850 280 1,000 328 1,200 400 1,400
4. Available Thermal Capability (MW) 4,497.3 4,497.3 4,725.3 4,725.3 5,325.3 5,325.3 5,775.3 5,775.3 6,313.3 6,313.3 6,613.3 6,613.3 6,613.3 6,613.3 7.650 8,330 Working capacity 3,560 3,840.0 3,730 4,250 4,140 4,720 4,676 4,870 4.760 5,120 4,807 5,750 4,300 5,710 4,300 7,370 Reserve capacity 937.3 657.3 995.3 475.3 1,185.3 605.3 1,099.3 905.3 1,553.3 1,193.3 1,806.3 863.3 2,313.3 903.3 3,350 960
5. Purchased power (a) Capacity (MW) 950 560 1,000 570 900 550 700 480 700 480 150 100 - - - - (b) Energy (GWh) 5,240 5,200 3,820 2,340 2,340 563.8
6. Power Balance (MW) (3) + (4) + (5) - (I)a 1,005.3 957.3 1,098.3 975.3 1,303.3 1,205.3 1,339.3 1,555.3 2,018.3 2,043.3 2,236.3 1,963.3 2,341.3 2,103.3 3,750 2,360
7. Reserve Margin (%) 16.26 16.65 16.32 15.56 17.78 17.67 16.74 20.87 23.20 25.22 23.80 22.4 23.41 22.50 26.5 18.0
8. Energy Generating Capability (GWh) 33,516.2 37,252.2 41,578.2 46,403.2 49,817.2 57,437.0 65,387.8 88,423 >
9. Energy Balance (GWh) 4Z (8) + (5)b- (I)b -243.8 152.2 -501.8 -1,056.8 -1,842.8 - 3,387.8 1,423
Source: SEPC. - 85 - ANNEX 5.1
PROJECT DESCRIPTION
1. The proposed project consists of the Ertan Hydroelectric Station, resettlement of about 35,000 people, an environmental management program and a science station, technical assistance and consulting services, studies and staff training, with an objective to provide a reliable supply of electric power to consumers in Southwest China.
Ertan Hydroelectric Station
2. The Ertan hydroelectric power station will be a major project in a series of power stations to be built on the Yalong river. With an installed capacity of 3,300 MW and an annual production of 17 TWh, the main purpose of the project is power generation. The power station will include a 240 m high concrete arch dam, two tunnel spillways, an overflow spillway, mid- and low-level outlet works, a plunge pool and a tunnel for conveying logs around the dam. The underground power complex consists of an intake structure, water conductors, a power chamber, a transformer chamber, a tailrace surge chamber, and two tail race tunnels. Power will be transmitted through four 500 kV transmission lines to the Sichuan provincial grid.
3. Project Location and Geology. The project is located in the south west of Sichuan Province, 33 krmupstream from the river mouth near Panzhihua City, an important iron and steel industrial base. The damsite is 730 km by railroad south of Chengdu, the capital of Sichuan. The 1'ongzilin railroad station on the Chengdu-Kunming railway is 28 km downstream from the damsite. In an area of high mountains and deep canyons, the Ertan gorge is composed of Permian basalt with large intrusions of syenite, a granite-like rock. The damsite is formed by a deep, narrow gorge with the mountains on both sides rising to heights of 300 to 400 meters. The Yalong River has a width of 80 to 100 meters during the dry season. Overburden in the river bed at the damsite is generally 20 to 30 m thick. Local geologic mapping started in 1972. A large amount of geologic exploration and investigation was accomplished with 571 boreholes totaling 30,450 m, and 8,130 m of adits with four shafts adding another 200 meters. Numerous tests have been conducted to determine rock mechanics parameters f:r design and stability analyses. The site is in an area with an earthquake potential of 7 MM.
4. Climate and Hydrology. The climate of the river basin shows distinct dry and wet seasons. It is dry from November to April. From May to October, the southwest monsoon prevails and the weather is warm and humid. Temperatures range from O°C to 40.8°C, with an average of 19.7°C. River water temperatures vary from 6.0 to 22.5°C with a mean of 14.6°C. The Yalong River has a length of 1,500 km with a drainage area of - 86 - ANNEX 5.1
130,000 km2. Over its down stream length of 350 km, the river has a hydraulic head of 990 m and an estimated exploitable potential of 11,000 MW, making it one of China's ten principal hydro power bases. Ertan will be the first project for the initial stage of development on this stretch of the river. A gaging network was established in 1953. The closest station near Ertan at Xiaodeshi, 12 km downstream from the damsite, has collected streamflow data continuously since 1953. The long-term average streamflow at the damsite is 1,570 m3/s and the mean annual runoff there amounts to 52.7 billion m3 . The reservoir has a total capacity of 5.8 billion m3 and an effective capacity of 3.37 billion m3. With a normal pool level at the dam at E.l. 1,200 the reservoir will extend 145 km upstream. Based on the available data it is considered that the reservoir will be secure and safe from leakages and disruptive land slides. T'he maximum flood recorded at the damsite was 11,100 m3/s on August 1, 1965. The minimum flow of 353 m3/s occurred on March 15, 1984. The design flood (1,000 year) has been established at 20,500 m3/s, check flood (5,000 year) at 23,850 m 3/s. Since the 1970s, the sediment load in the river has increased due to deforestation for land reclamation and road construction. Mean annual suspended load at Xiaodeshi is 28.4 million tons.
5. Arch Dam. The double-curvature arch dam will have a maximum height of 240 m, a crest length of 775 m, and a concrete volume of 4.20 million in3 . Maximum thickness at the base of the crown is 55.7 m, base thickness to height ratio is 0.23, and the span to height ratio is 2.82. The static analysis of the arch dam was carried out with a trial- load type program and its results were verified by finite element analysis and structural model tests. Dynamic analyses were also carried out by the trial-load method. Stresses were computed for normal, unusual, and extreme loading conditions. Normal Loading (N.L.) is normal reservoir elevation plus dead load, design temperature drop, and silt loading. Unusual Loading (U.L.) is normal load with maximum reservoir level due to flood passing. Extreme Loading (E.L.) is normal loading plus seismic loading. The maximum stresses are shown below:
MaximumStresses in kg/cm2
Allowable Computed Normal Extreme Normal Extreme
Compressive: Downstream face 80 105 86 99
Tensile: Upstream face 10 15 11 17 Downstream face 15 20 3 4 - 87 - ANNEX 5.1
These stresses were obtained using the trial load method. The results of the finite element analysis show a similar stress distribution for both static and dynamic loading conditions. Local stress concentrations occur in the vicinity of the openings, but the overall stress distribution and the structuiralbehavior of the dam are not affected. The dead weight stresses during construction are within the allowable stresses.
6. Concrete Placement. In view of the location of the dam in a narrow valley, concrete placement will be achieved by means of two sets of high-speed cableways located at different levels. These cableways will also handle the heavy parts of the metal structures for gates and outlet works. Concrete in the dam will be placed in 1.5 and 3 m lifts in 39 blocks separated by contraction joints spaced at about 30 m. There is no longitudinal joint. Extensive tests have been performed to deternnine concrete properties. Three zones of concrete strength will be used. A large number of instruments will be embedded in the concrete of the dam, including direct and inverted plumb lines. A network of observation posts and targets for geocletic measurements surround the damsite. Instruments will monitor temperatures during construction and check the structural behavior of the arch dam during and after construction.
7. Dam Foundation. Parametric analyses were performed to evaluate the stability of the abutmenits of the dam against sliding failures of rock wedges. Detailed investigations were carried out for the two most critical wedges on both abutments. The results of the analyses inclicate that joint sets with low dips downstream and towards the river are the critical planes for stability. The semi-radial foundation of the arch dam will be excavated generally to slightly weathered rock. Lightly to moderately weathered rock will be adequate after consolidation grouting. A grout curtain and a drainage curtain are provided to minimize and control seepage flow around and underneath the dam. On the left abutment, this curtain is continuous with a similar curtain upstream of the powerhouse chamber. Drainage adits and drainage curtains are arranged downstream of the main curtain at a distance of about 10 meters. Foundation galleries in the dam, and grouting and drainage adits in the abutments are provided to facilitate drilling and grouting operations. These will serve also if remedial work in the future is necessary.
8. Energy Dissipation. Because of the relatively small size of the reservoir, limited flood storage capacity, and a narrow gorge downstream, floods have to be released frequently and energy dissipation problems are potentially serious. In order to provide a safe spillway operation, an arrangement with three spillways was adopted. This will enable discharge of floods up to about 13,000 m3/s (30-year flood) over two spillways in the event the third is not available. The three impact zones are separate, and each spillway can operate independently of the other two. The overflow spillway on the dam consists of seven 11 m- wide openings controlled by radial gates (11 x 11.5 m). The openings are provided with differential flip buckets and dental sills to spread the impact pattern and reduce impact pressures on the base slab of the 300 m-long plunge pool. The thickness of the slab varies from five meters at the upstream end to three meters over most of its length to the downstream auxiliary dam. - 88 - ANNEX 5.1
9. The tunnel spillway in the rignt abutment consists of an intake structure and two concrete lined tunnels 887.0, and 1,150.8 m-long with a modified horseshoe section. The intake structure contains two operating radial gates (13 x 15 m) and two emergency closure gates (13 x 17 m). The flow velocities reach a maximum value of about 45 m/s at the exit. Aeration grooves are provided to mitigate against cavitation damage. The flip buckets are designed to spread the impact zone in the river. The mid-level outlets consist of six steel- lined openings through the dam, controlled by 6 x 5 m radial gates at the downstream face. Different exit angles spread the area of impact in the plunge pool. The emergency gates at the upstream face are normally closed and will be opened only during the flood releasing periods. Four low-level outlet works with inverts at El. 1,080 are provided for lowering the reservoir. The steel-lined. openings are controlled by 3.0 x 5.0 m slide gates and hydraulic hoists at the downstream end. The gates are designed for operation with a head of 80 m. Each opening also has a 3.0 x 8.5 m emergency wheel gate at the upstream end, which is normally closed.
10. Underground Powerhouse. The power complex, located some 200 to 350 m underground, in the left abutment, consists of three large chambers for power generation, transformers and tailrace surge action. The six 550 MW turbine generators are each fed by separate 9.00 m internal diameter concrete lined water conduits. The 85 m-high intake structure will be provided with a set of trashracks, 7 x 9 m slide gates with hydraulic cylinder hoists, and 7.32 x 9.30 m bulkhead gates operated by a gantry crane. The water conduits are steel lined along the lower elbows and the lower horizontal section immediately upstream of the power chamber. The excavated dimensions of the power chamber are 191.9 m-long, 25.5 m-wide and 65.0 m-high. The total length of power chamber plus erection and service bays will be 280.29 m. The axis of the power chamber is oriented to bisect the angle with the two predominant sets of joints, which facilitates efficient layout of all hydraulic features of the power generation system. The rock in the area of the three underground chambers is mainly syenite with some altered basalt. The compressive strength ranges from 1,500- 2,600 kg/cm2 . A maximum insitu stress of 200-300 kg/cm2 has been measured. Two- and three-dimensional finite element analyses have been performed to study stresses due to construction. These demonstrated that the rock is stable with appropriate measures of rock bolting and shotcreting during construction. Prestressed rock anchors will be provided for permanent stability of the high walls in the power chamber.
11. Transformer Chamber. The six main transformers and the SF6 equipment are located in the transformer chamber, which is 214.9 m-long, 18.3 m-wide and 19.5 m- high. The power chamber and transformer chamber are connected by six bushbar galleries and both are connected to the access road on the left abutment by a 1,340 m-long access tunnel, 10 m-wide and 8 m-high. Service and emergency access to the power chamber are also provided by means of an elevator in the service bay which connects with the access road to the crest of the dam. A. bus tunnel leads from the transformer chamber to the outgoing trans mission line yard near the top of the left abutment of the arch dam.
12. Surge Chamber. The tailrace surge chamber is downstream of the transformer chamber at a distance of 30 meters. This chamber has a length of 203.0 m, a width of 19.8 m, and varies in height from 71.3 m to 66.0 m. Below El. 1,027, the surge - 89 - ANNEX 5.1 chamber is divided into two parts by means of a concrete wall. Draft tube gates are provided for each unit and are operated from a movable hoist in the surge chamber.
13. Log-Passing Facilities. The Yalong River Basin is rich in forest reserves which are economically inmportantto Sichuan Province. Every year from June to September a large number of logs drift down the river from the felling area to Panzhihua and downstream cities on the Yangtze. The log-passing facility will have a design capacity of 1.1 million cubic meters of timber during a three-month period. The overall length of the system will be 2,394 m and will include a tunnel section 819 m-long, with a height of 7.0 and a width of 15.0 m.
14. River Diversion. The diversion scheme consists of one concrete-lined tunnel on each abutment 17 m-wiide and 23 m-high. Intake and outlet structures are provided for each, with closure gates at each intake. The downstream portion of the left bank tunnel will be utilized as the downstream part of tailrace tunnel No. 2. Non-overflow, fill-type cofferdams complete the dliversionscheme. The design capacity of the scheme is 13,500 m 3 /s for a 30-year flood. A risk-based optimization study was carried out to determine the height of the upstream cofferdam. This included identification of events that led to overtopping and an evaluation of their likelihood of occurrence, followed by a determination of the consequences of overtopping, calculation of risk costs and, finally a comparison of these costs with the cost of construction to determine the least overall project cost. Four 4 x 8 m temporary sluice ways, equipped with closure gates and hoists, will be provided in the lower central portion of the arch dam to be used after closure of the diversion tunnel. The openings will be sized for a maximum dry season discharge of 1,500 m 3 /s during the period from mid- November to the end of May.
15. Main Data. The main particulars of the Ertan Hydroelectric Station are given below:
Hydrology Catchment area above damsite 116,400 sq km Flow records used in design 1953-82 Maximum recorded flow 11,100 m3 /s Average annual discharge 1,670 Maximum flood expected (10,000 years) 25,200 " Designed flood discharge (p = 0.1 %) 20,600 " Check flood discharge (5000 year flood) 23,600 " Mean annual silt discharge 27.2 million t
Reservoir Normal pool level 1,200 masl Dead water level 1,155 " Reservoir area (at normal pool level) 101 sq km Total reservoir volume 5.8 cu km Effective reservoir capacity 3.4 " - 90 - ANNEX 5.1
Diversion Works Upstream cofferdam: Maximum height 56 m Crest elevation 1,062 masl Length of crest 260 m Width of crest 15 m
Downstream cofferdami: Maximum height 30 m Crest elevation 1,030 masl Width of crest 10 m
Dimensions of diversion tunnels (width x height) 17.5 x 23.0 m Design flood 13,5090 m3/s Left diversion tunnel length 1,090 m Right diversion tunnel length 1,189 m
Arch Dam Crest elevation 1,205 masl Maximum height 240 m Crest length 775 m Maximum thickness of arch end 58.5 m Base thickness of the crown cantilever 55.7 m Thickness of the top arch 11.0 m Concrete volume of the dam 3.9 million cu m
Spillways Overflow spillway, number and size 7 - 11 x 11.5 m Overflow spillway discharge 6,659 m3/s Middle level spillway, number and size 6 - 6 x 5.0 m Middle level spillway discharge 6,293 m3/s Spillway tunnels, number and size 2 - 13 x 13 m Spillway tunnels discharge 7,400 m3 /s Length of tunnel No. 1 941 m Length of tunnel No. 2 1,281 m
Eimptving Outlet Number and size 4 - 3 x 5 m Design flow discharge 2,000 cu m/s
Penstocks Number 6 Length 300 m of which steel liner length 101 m Inside diameter 9 m Thickness of steel 30 mm -91- ANNEX 5.1
Underground Powerhouse Underground rock excavation 1.5 million cu m Dimensions (Length x Width x Height) 280 x 26.5 x 65.3 m Number of generating units 6 Unit capacity 550 MW
Turbines Type Francis Maximum head 189.2 m Minimum head 135.0 m Design head 165.0 m Rated head 165.0 m Rated output 560.0 MW Specific speed 158.0 M-kW Rated specific speed 125 rpm
Generators Rated output 550 MW Rated voltage 18 kV Power factor 0.9
Main Transformers Type single phase Rated capacity 3 x 204 MVA Rated voltage range 550/18 kV/kV
Station Supply Transformiers Type single phase Number 18 Rated capacity 1,050 kVA Rated voltage range 18/6 kV/kV
Switchgear Type of circuit breakers GIS Number of 500-kV circuit breakers 17 Rated current 3,250 A Rated breaking current 40 kA
Annual Output Total energy output 17,035 TWh Firm energy 8,760 TWh Firm power 1,000 MW -92 - ANNEX 5.1
Quantities of Works Open cut earth and rock excavation 6.2 million m3 Underground excavation 3.1s Earth and rock fill 1.2 Total volume of concrete 5.3 Reinforcement bar 33,938 tons Steel 7,502 tons Metal structures 13,766 tons Peak labor force 6,000
Log Transport Annual amount of logs 1.1 million m' - 93 - ANNEX 5.2
CONSULTING SERVICES (TERMS OF REFERENCE)
A. DESCRIPTION OF PROJECT
1. The multipurpose Ertan Hydroelectric Project is one of a series of power stations on the Yalong River and it will be developed mainly for power generation with a total installed capacity of 3,300 MW. The dam site is located on the lower reaches of the Yalong River at a distance approximately 46 km from Panzhihua City. The dam site is accessible by highway from Panzhihua via Tongzilin which is 17 km downstream from the dam site. Tongzilin is a railway station on the Chengdu-Kunming Railway 727 km from Chengdu and 373 km from Kunming. The closer airports to the project site are Chengdu airport and Kunming airport. Regular direct flights to and from Beijing, Shanghai, Guangzhou and Hong Kong are available at both the aforesaid airports. The detailed description of the project will be made available to the selected consultant.
B. GENERAL
2. The overall responsibility for the development and construction of the Ertan Hydroelectric Project has been assigned to the Ertan Hydroelectric Development Corporation (EHDC) and its engineering branch the Ertan Engineering Corporation (EEC), who is the designated project engineer.
3. Due to the magnitude and complexity of the project and because of the intended use of foreign construction contractors and foreign equipment suppliers, international type contractual arrangements, and foreign financing sources, EHDC would appoint an international consultant to assist in construction management and work closely with EEC and Chengdu Hydroelectric Investigation and Design Institute (CHIDI).
4. These d.raft terms of reference have been prepared as an outline of the scope of work required. The consultant should elaborate on his proposed scope of work and may modify the required activities based on his own findings, specifying any reasons for the modifications. The TORs should be amended before sending them to the consultants to specify clearly responsibilities and roles of foreign and local consultants, as well as consultants who will be selected to assist in the finalization of bidding documents for elec- tromechanical equipment. The scope of work will include the following basic tasks:
(a) Management Requirements During Construction;
(b) Contract Administration; - 94 - ANNEX 5.2
(c) Construction Inspection and Quality Assurance
(d) Design Engineering Services; and
(e) Construction Site Administration.
These above tasks are described in more detail in the ensuing paragraphs.
C. MANAGEMENTREQUIREMENTS DURING CONSTRUCTION
5. The consultant and EEC will form an organization for managing and coordinating all aspects of the design and construction of the works. This organization will be designated as the Construction Manager (CM) which will report to EHDC. However, the CM should be independent in its professional activities. The foreign consultant will be the lead firm and as such will be responsible for carrying out the policies established by EHDC, and for the "day to day" running of the project. The goal of the CM will be to build a safe, reliable project on schedule and within the planned budget.
6. The principal management responsibilities of the CM organization are:
* Contract administration, including control of costs, schedule monitoring and coordination, change control, communication and document control, and the establishment of corresponding procedures.
* Construction inspection and quality assurance, including site survey, construction inspection, and inspection in manufacturers' facilities to confirm the compliance with the drawings and specifications.
* )Designengineering services, including preparation of material and equipment specifications, construction drawings, incorporation of design changes, review of contractor and manufacturer submittals, record drawings and review board support.
* Site administration services, including safety, camp management, inventory control, office services, project services, etc.
EHDC will arrange for land acquisition, reservoir clearance, relocations and resettlement and power transmission.
D. CONTRACT ADMINISTRATION
7. Timely completion of construction of the Ertan Hydroelectric Project will require the satisfactory performance and completion of each part of the works by a number of contractors and suppliers. It will be the responsibility of the CM to coordinate and administer the work of each of these parties to bring about successful completion of the works. The CM organization will therefore be structured to enable a safe and reliable project - 95 - ANNEX 5.2 to be constructed within budget and on schedule. This is the primary aimnof the organization for project construction. Checks and safeguards will be set up to monitor the technical adequacy, quality, costs and progress of each contractor, and to provide management with information for early corrective action if required.
8. The main responsibilities of CM in the area of Contract Administration include the following:
(a) Control of Costs. Under the various contracts, the CM is responsible for measuring and certifying the works for the purpose of making interim and final payments to the contractors and suppliers. Inspection, testing, and approval of the contractor's mate- rials and workmanship will be required prior to certification.
At the construction site, the physical dimensions of the various parts of the structures will be measured or verified by the CM inspection staff as part of their routine checks for compliance with the designs and specifications. Reports of concrete placement, reinforcement steel and formwork check-outs for each placement, and other construction items must be compiled daily by the inspectors in the field. This daily information must be made accessible to the con tract administrators in order for them to check the interim accounts submitted by the construction contractors, to agree with contractors on interim measurements, and to issue interim payment certificates.
Computation for the final measurement of excavation, structure or section will be undertaken by staff on site as soon as all the necessary information is available. Each contractor will almost certainly undertake his own independent measurements, and the CM contract administrators must investigate and reconcile any discrepancies and arrive at an agreed final measurement. Progress payments for the various supply contracts will be certified after the CM confirms the percentage of each unit completed by the manufacturer, or on the basis of defined milestones in the manufacturing or testing program.
Completion, maintenance and final payment certificates will be required for the various contracts. Rigorous tests will be under taken before final acceptance certificates are issued for mechanical and electrical plants, and each final payment will not be certified until the CM is satisfied that the contractor has met his obligations. These obligations include completion of all tasks such as certification, record drawings, reports and data submittals.
(b) Schedule Monitoring and Coordination. Once a contract has been awarded for any of the construction or supply contracts, the contractor will prepare a detailed construction schedule. Each contract will have defined dates by which the various critical stages of the project must be completed, and each contractor will have the freedom to prepare his own schedule for approval within these defined dates. This schedule may or may not be the construction schedule that has been used for pre- tender planning purposes, or the construction schedule submitted with the - 96 - ANNEX 5.2
contractor's tender. However, once this schedule is reviewed and approved by the CM, it will form the basis on which the contractor's performance will be monitored.
The CM also will be responsible for ensuring that the schedule for each part of the work performed by each contractor meshes with the schedule for other parts of the work performed by other contractors. Each contractor's incentive to keep on schedule may be affected by interference and delays which the contractor may con- sider attributable to others. The management role of the CM therefore will include checking of all interfaces between the various contractors and monitoring the progress of each of the contracts very closely.
The key to managing the schedule of a fast moving construction project is to have accurate and up-to-date information in a form that will enable any factors that could delay progress to be identified early, so that measures can be taken to avoid or overcome the delays.
(c) Change Control. The organization must be equipped to facilitate settlement of disputes and clairns within the terms of the contract, since the contractors will inevitably argue that in a number of instances extra payment or an extension of time for completion is justified. A detailed analysis must be made for every such claim that is formally submitted which evaluates its merits in accordance with the Contract; this analysis must be made available to the Disputes Review Board.
(d) Communication and Document Control. Crucial to effective contract administration will be the flow and control of correspondence to and from the contractors. This correspondence will include certifications, schedules, material deliveries, submittals and contractual correspondence. Computers will be used to record and process all the data rapidly so that it can be used for daily planning and for rapid evaluation of disputes with the contractors.
(e) Corresponding Establishment of Procedures. The performance of these duties will require a set of procedures to be established to effectively exercise control of the project without introducing avoidable costs or delays. These procedures will encompass all aspects of contract administration including measurement and payment, schedule control, cost control, certifications, management of correspondence, preparation and issuance of change orders, inspection, testing, information for decision making, site administration services, compliance with drawings and specifications, and handling of claims formally submitted by the contractors.
E. CONSTRUCTIONINSPECTION ANDQUALITY ASSURANCE
9. The CM organization will be responsible for developing and executing the inspection and testing progra.m to ensure that each item which forms a part of the permanent works has been constructed in accordance with the design and construction specifications. This program should include inspection of materials and equipment produced off-site in various suppliers' shops as wvellas inspection of on-site work. - 97 - ANNEX 5.2
(a) Site Surveys. The CM will provide survey teams to check the contractors' basic layouts and to establish and maintain a permanent network of monuments and markers for precise measurement of deformations. The survey teams will also spot check local survey controls established by the contractors for setting formwork, etc.
(b) Construction Inspection. At the construction site, inspection services must be maintained whenever work is in progress. For much of the construction period, full coverage will be required for 24 hours per day and six days per week.
Backfills will be controlled by moisture content and density tests, and concrete by aggregate gradation, slump, air content, temperature and compression tests. These laboratory procedures will be supplemented by field procedures such as nuclear density gauges and Swiss Hammer tests as well as inspections of the placement of reinforcing steel, embedments, and form location and accuracy. In addition, welds will be inspected and tested with the latest radiographic equipment and techniques. This program should be based upon routine quality control measurements which, after processing, will provide a record of trends and enable early adjustments and corrections to be made if necessary. The program must measure and record what is done and process this data so that the design parameters can be checked and usable records developed for future safety appraisals.
(c) Inspection in Manufacturers' Facilities. The quality assurance pro gram will also incorporate audits of manufacturers' facilities to confirm compliance with national and international standards with respect to design, manufacture and testing. The inspection engineers will visit manufacturers' facilities not only to audit the facilities but also to check the various stages of the manufacturing progress, to examine materials and test certificates, to witness tests and, if appropriate, to arrange for independent tests. Manufacturing may be undertaken in a number of widely separated locations within and out side China and the CM will arrange for routine inspection visits to be made by a local resident staff of an approved inspection agency. In other cases, the CM will arrange for inspecting engineers to temporarily reside at the manufacturers' shops when this is justified by the inspection work load.
An additional important function of inspection visits to the various manufacturers' facilities will be to check on progress in manufacture, testing and preparation for shipment. With the tight construction schedule planned for this project and its remote location, it is imperative that all the employer-furnished plant and equipment is delivered on time and in good condition. Thus, the inspection staff must monitor all stages of the manufacture of the equipment from award of contract to delivery, and recommend to management any measures needed to expedite matters.
(d) Start-up and Commuissioningof the Works. The start-up and testing of large hydroelectric units requires a team approach. This team will be composed of personnel from the CM, the construction and installation contractors, and the equipment manufacturers, each entity being responsible for fulfilling its contractual obligations during the equipment check-outs, start-ups and testing. A team leader, - 98 - ANNEX 5.2
experienced in start-up procedures, will be assigned by the CM to direct the day-to- day activities of the start-up team.
Start-up and test procedures are complex and exacting, and inevitably, the results of the tests form the basis for recommendations which may modify the future operating procedures and which the CM must incorporate in the project operation and maintenance procedures manual.
The objectives of' the CM in the area of start-up and commissioning are as follows:
* To coordinate the performance of tests with the various manufacturers' engineers and other entities involved in the commissioning and start-up.
* To assist with the development of accurate and safe start-up and test procedures.
* To assist in performing tests and evaluating test results.
* To ccordinate the preparation of final start-up and test reports and formulate recommendations for future operating procedures and manuals.
F. DESIGNENGINEERING SERVICES
10. The CM will utilize the services of the CHIDI as the nominated project designer for the preparation of specifications, final designs and construction drawings. During the construction peiriod the CM will be responsible for the following activities:
* Preparing specifications and control documents for Employer-supplied permanent materials and equipment.
* Preparing detailed construction drawings which incorporate final design computations, results of tests and studies which continue into the construction period, and details of mechanical and electrical equipment.
* Incorporating design changes to meet unanticipated conditions encountered during construction.
* Ensuring the designs and drawings prepared by the construction con tractors are completed in accordance with the requirements of the contract documents.
* Ensuring that the design and drawings prepared by the equipment sup pliers are completed in accordance with the requirements of the con tract documents and are compatible with the other designs.
* Producing permanent record drawings showing actual dimensions and details of the finished work. - 99 - ANNEX 5.2
Providing support for meetings with review boards.
These duties are explained more fully in the following sections:
(a) PermanentMaterial/Equipment Specifications. It will be the responsibilityof the CM (utilizingCHIDI) to produce technicalspecifications and related special contract conditions(testing and warrantyclauses, etc.) for all permanentequipment and mate- rials. For equipmentand materials purchasedfrom internationalsources, this work will include a technical analysis of bids received.
(b) ConstructionDrawings. During the constructionprocess, the CM (utilizingCHIDI) will continue to amplify the details of the tender drawings, to provide final verification of design computations, to make revisions to final design taking into account the results of the tests and studies that will continue into the construction period, and to prepare details when the manufacturers' designs for mechanical and electrical equipment are available.
The CM, with assistance from CHIDI, will supply the following informationto the contractor on supplementarydrawings approved for construction:
D The exact locations for major structures such as the powerhouse,intake structure, spillwaysand log-passingtunnel.
D Detaileddimensions of all member outlines, openings, projections,pads and locations of embedments(such as anchor bolts and welding pads), waterstops, constructionjoints and control joints.
D Reinforcementshowing location, size, and spacing of all reinforcing bars.
* Details of miscellaneousmetalwork.
* Mechanicalconstruction details showingthe general equipmentlayout as well as the size and approximatephysical locationof pipes, ducts, valves and other piping components. The drawings should include generic componentdesignations which will be used to identifyadditional require- ments contained in the specificationssuch as material type, rating, etc. Detailed informationon Employer furnishedequipment will need to be provided to the contractor in order for it to be incorporatedas necessary on the contractors' drawings.
* SchemLaticand interconnectiondiagrams for electric power and control cables.
* Layouts of power and control cable routes, conduits, and trays and location of groundingcables and grounding inserts. - 100 - ANNEX 5.2
* Lighting fixture layouts and circuiting information.
* Schedules for conduits and cables required.
This information must be provided to the contractor in a timely manner as required by the construction plan and schedule.
(c) Design Changes. Although thorough investigations have been under taken at the site over a number of years, and the subsurface conditions can be predicted with a fair degree of confidence, it is inevitable that the major excavations will reveal foundation conditions in some locations that are not the same as those previously inferred. The differences may not be significant, but it is possible that in some areas it will be necessary to modify the designs. In this regard, the flow of information and data from the site should enable timely design modifications to meet unan- ticipated conditions with the minimum delay and cost.
The CM must, however, take care to avoid introducting of design modifications to effect marginal changes if there is any risk that such changes could disrupt the contractor's construction plan and schedule. However, modifications should be made when necessary for project safety, and when it is judged that substantial improvements or savings will result for the project as a whole.
(d) Design Checks (Construction Contractor Drawings). The construction contractors will have their ownIdesign offices on site to design temporary works, formwork and reinforcing details, and to prepare concrete lift or other placement drawings. These designs and drawings must be checked by the CM to ensure that they are in accordance with the requirements of the contract documents.
(e) Design Checks (Manufacturers' Drawings). The manufacturers of mechanical and electrical equipment will prepare and submit designs and drawings to the CM for review and approval. All such designs and drawings must be checked to ensure that they meet the contract requirements and are compatible with the other designs. This may necessitate several revisions of the drawings, but it is an important part of coordinating the design and must be carried out expeditiously if manufacturing delays are to be avoided. Such delays might affect the overall project schedule.
(f) Permanent Recordls. Many of the permanent records of the project will be in the form of drawings including construction drawings, the con tractors' lift and reinforcement drawings, manufacturers' shop drawings, geological maps of foundations and survey plots. It is the responsibility of the CM to compile a complete set of these permanent records. A final design report will be prepared by the CM which will document the final design as modified during construction.
The CM will also compile a set of "Record" drawings which record actual measurements of all features of the project. The data on which these drawings are developed will be compiled by the inspection staff, and once a structure is - 101 - ANNEX 5.2
completed, the CM will incorporate this data in the construction drawings to provide a permanent record of actual construction of each project feature.
(g) Review Board Support. EHDC will continue to employ the Special Board of Consultants (comprising both national and international experts) to review all major questions regarding design and the impact of construction methods and field conditions on the design shown on the drawings. This Board will meet at periodic intervals throughout the construction period. Therefore, the CM will have the responsibility for preparing materials for these meetings and implementing the decisions made during these meetings which will be a continuing process throughout the construction period and the first filling of the reservoir.
G. SITEADMINISTRATION
it. The CM organization will be responsible for all matters pertaining to administration of site services and project lands, as follows:
* Safety, including monitoring of the contractors' safety programs.
* Inventory control including purchasing and warehouse management.
* Project services including accounting and auditing.
H. CONSTRUCTIONMANAGER ORGANIZATION
12. The following are guidelines to be used in preparing the proposed CM organization:
(a) The international consultant will be required to enter into an agreement with EEC for performing the construction management services. The CM will be responsible for the "day-to-day" management and administration of the project.
(b) The international consultant will be designated as the lead firm of the CM organization.
(c) The construction contractors and equipment supply contractors will be officially advised by EHDC of the role of the CM.
(d) The CM will be a fully integrated team of personnel from both EEC and the consultant.
(e) The consultant will develop a functional organization chart clearly indicating his proposed concepts for managing the project. The consultant will also present his proposed staffing requirements for the duration of the project together with an organization chart. - 102 - ANNEX 5.2
(f) All positions assigned to the consultant staff will have an EEC counterpart who will be trained to assume that position at the earliest practical opportunity.
(g) CHIDI, who prepared the basic project tender documents and drawings, will be retained by the CM as the nominated project designer for services related to the final detailed design and construction drawings. CHIDI will be fully responsible for this work. However, it is intended that CM will appoint several design engineers to CHIDI to coordinate and monitor design activities. - 103 - ANNEX 5.3
ERTAN HYDROELECTRIC DEVELOPMENT COMPANY TERMS OF REFERENCE ORGANI]ZATIONAL RESTRUCTURING AND FINANCIAL MANAGEMENT SYSTEMS
Background
1. Ertan Hydropower Development Company (EHDC) has undertaken major changes to meet requirements of power sector reforms by the Chinese government and to meet its future operational changes and challenges of its transformation into a limited-liability company under the new company law and an independent producer by clear definition of property rights, autonomous management, commercial orientation and financial independence.
2. Like most state-owned enterprises, EHDC is still facing the following problems: (a) government interference in management, administrative and operational decisions reflecting the former planning of the economy; (b) lack of full accountability of managers stemming from an inadequate, highly decision-making and nonavailability of timely and accurate financial information at different activity levels; and (c) lack of transparency in that the financial statements that are prepared based on the new accounting regulation, still do not provide full disclosure of EHDC's financial portion. In addition, EHDC is still focused on construction of the Ertan Hydropower Plant and not fully prepared to undertake its future operational and commercial functions.
3. The proposed study is designed to address the above-mentioned issues and problems, improve management practices and operational and financial efficiency of EHDC. It focuses on the needed changes to the internal organization to prepare EHDC to its new role as one of the major independent power producers in Sichuan Province, improvement of management practices, and the introduction of appropriate accounting, budgeting and financial management systems. The project not only requires consulting services from consultants, but also training to EHDC staff, both in China and overseas, so as to ensure the project can be implemented in future EHDC's operation. To achieve the full benefits of organizational reform and improved financial reporting and monitoring systems, it is proposed to carry out the project in three distinct but fully integrated phases:
(a) a comprehensivc diagnostic review of the current organizational structure, management practices and financial/accounting practices and reporting systems, with particular attention to division of responsibilities, flow of information and quality of reporting, and budgeting and accounting systems and procedures; - 104 - ANNEX 5.3
(b) development of an improved organizational structure, design of the required accounting and financial and budgeting system to meet the needs of efficient management and clecentralized decision-making, and preparation of a detailed plan for implementation; and
(c) implementation of the organizational structure and systems approved by EHDC, including computer software and training needs.
Scope of Work
4. The project will include, but not necessarily be limited to, the following tasks.
Phase 1: Diagnostic Review and Analysis
5. During the first phase, the consultants are required to carry out a detailed assessment of the current organizational structure and financial management practices. The scope of this review will include:
(a) Review and assessment of EHDC's internal organization and operating and administrative procedures with particular attention to the responsibilities and their functional relations, overlap in lines of responsibility, excessive centralization of decision-making and organizational deficiencies.
(b) Review of EHDC's Articles of Association and Internal Regulations.
(c) Review and analysis of accounting procedures, documentation, reporting formats and the nature of financial transactions between the various departments, power generation and supply entities, and service subsidiaries.
(d) Critical assessment of cost accounting, financial planning, budgeting, and internal audit systems and procedures. Special attention will be given to the existing organization of accounting units and reporting requirements.
(e) Evaluation of performance monitoring system, establishment of performance targets and indicators, methods of communicating, controlling and monitoring them.
Phase 2: Master Plan for Internal Reorganization and Financial Management Systems
6. During the second phase, the consultants will, jointly with EHDC, develop an organizational structure and related management, accounting, financial, control and reporting systems that address the deficiencies and weaknesses identified during the first phase, satisfy EHDC's long-term corporate objectives and increase its cost consciousness and business orientation. The work of this phase is organized in three subactivities. - 105 - ANNEX 5.3
Organizationaland ManagementStructure
(a) Redefinition of the functional boundaries and responsibilities of the different departments, work units and subsidiaries. Special attention should be given to EHDC's new operational and commercial functions and financial operations at the headquarters and operational unit levels. The recommended organization should also prepare EHDC to its role of major Independent Power Producer in a more competitive power sector.
(b) Recommendations of changes to be made to the Articles of Association and internal regulations, especially clear relationship between the Board of Directors and the managers of the company and the rights and limited responsibility of senior management personnel.
(c) Definition of interorganizational relationships, communication and reporting channels between the different units.
(d) Assistance in thie preparation of an Operational Manual that describes the organizational structure, functional boundaries, job descriptions, communication and reporting channels, limits of authority, etc. Special attention should be given to accounting and financial units.
(e) Recommendation of optimal staffing and preparation of job description and qualification requirements for all posts of reasonable importance in the recommended organizational structure.
Accounting Systems and Practices
(f) Redefinition of accounting units and activities clearly identifying cost and profit centers, reporting requirements, formats for information flow and frequency of information exchange. This task will develop a basic design for the new financial and accounting information system. It is of crucial importance that this basic design of the financial and accounting management information system be totally consistent with the proposed reorganization of business processes and procedures.
(g) Development of a Standard Financial Accounting System and general accounts classification detailing balance sheets, income statements, and cash flow statements. This should include policies and system procedures, recommended principles for accounting classification, and follow-up methods. The system should develop and provide for the timely collection of accounts receivable and settlement of accounts payable. It should also contain standards for depreciation for fixed asset accounting.
(h) Assistance in the preparation of an Accounting Manual setting forth a coded chart of accounts, income accounts, functional and department accounts, cost/profit centers, objective accounts, policies, standard procedure instructions, report formats (including an inventory of reports describing their purpose and method of - 106 - ANNEX 5.3
preparation, assigning responsibilities for preparation, timetable, frequency and distinguishingcapital items and items charged directly to expense).
(i) Improvementof the Internal Control and Audit System through approval and audit procedures,internal reviewsystems-especially for purchasing,inventory and stores, handling of cash, and payroll.
Budgeting and Performance-BasedManagement Information Systems
(j) Redefinition of the process of setting performance targets, and the systems for controlling and monitoring them in practice. This would include policies and procedures, related analytical techniques, and mechanical tools to ensure project planning, formulation,justification, managementand control of budgets, including analysis of budget variances.
(k) Procedures to integrate MIS with the cost accountingsystem so that it can generate informationfor assigningresponsibility, measure labor and input productivityagainst standards, analyze and control cost variances (i.e., input and labor price and quantity, efficiency,overheads, and capacityvariances) from standards. This should facilitate the determinationof the level of profitability of EHDC so that pricing decisions can be taken with the full knowledgeof costs.
(1) Development of a Financial Planning System, including the introduction of operational objectivesand planned allocationof resources in the form of Operating Expense Budgets and Capital ExpenditureBudgeting System should be coordinated with the financial accounts in order to reconcile budget variances with financial figures.
(m) Improvementof the planningand control of operationalsupport functionsor central service functions, such as maintenance and work planning/preparation, materials management, procurement, quality control, transportation,personnel management, etc.
(n) The consultant will prepare a detailed scope of tasks and a clearly defined implementationstrategy for a smooth transition from the current organizational structure to the recommendedone and progressive replacementof existing systems by the newly designed ones. The implementationstrategy will be divided into actions and targets with a timetableand should identifythe priorities of and sequence in organizationalchange and systemsdevelopment.
Phase 3: Implementation
7. During this phase, the consultant will assist EHDC in implementing the recommendedchanges in organizationalstructure, business practices, financial management and reporting, and reporting system. The work will include: - 107 - ANNEX 5.3
(a) Assistance in implementing the new organizational structure and organizing work sessions/seminars/training programs to help managers and financial/accounting staff fully understand the proposed changes.
(b) Assistance in selecting and installing suitable hardware and software, especially a new general ledger package and appropriate centralized/distributed computer systems to be linked to desktop terminals.
(c) Identification of staffing and skills required to implement the new financial/ accounting systems and appropriate inhouse and/or external training programs, and assistance in preparation of training manuals.
Approach, Reporting, Outputs and Time Schedule
8. The international consultants will submit a proposal to cover all three phases of the work. The proposal will detail: (a) the proposed work plan, approach and organization of the consultant's project team; (b) the tasks to be undertaken by each member of the team; and (c) his/her assignment. Apart from providing a full complement of skills to undertake this task, the consultants will be required to demonstrate work experience on similar assignments and good knowledge of the power utility industry.
9. The task will be supervised and coordinated by a Steering Committee of senior management and department directors to ensure that decisions are made in a timely manner, especially at the end of the first and second phases. The Committee will designate a high- level project manager and a multidisciplinary working group to work with the consultants and to ensure timely availability of data and full cooperation of staff at various levels of the company; the international consultant will report problems and difficulties in carrying out his assignment to the project manager and Steering Committee, and make recommendations to address them and ensure smooth and timely progress of the assignment. The foreign consultant's assignment and the working group will work as a joint team to carry out the project in the above-mentioned three phases; however, the foreign consultant will remain responsible for the quality of the work and for the recommendations presented to the Steering Committee at the end of each phase of the process.
10. Reporting. The Consultant will prepare interim reports for each phase of work to be submitted to the Steering Committee for review and decisions. The report should, in addition to the Consultant's conclusions and recommendations, clearly identify: (a) outstanding issues and/or problems encountered; and (b) decisions that need to be made by the Steering Committee and/or EHDC management. All reporting will be in English. The Consultant will provide ten (10) copies of all interim and final reports. - 108 - ANNEX 5.3
11. Time Schedule and Outputs
1995 Jul 15 Deadline for submission of proposals
Aug Evaluation of bids
Sep Award and negotiation of contract
Dec Presentation of diagnostic review findings to EHDC and World Bank. Submission of report on Phase 1.
1996 Mar Delivery of interim master plan report (Phase 2) and recommendations
May Deadline for EPH and World Bank comments on review and changes
Jul Submission of draft final report (Phase 2) and implementation strategy
Aug Submission of final report and implementation strategy (Phase 2)
Sep Begin implementation (Phase 3)
1997 Jan-Dec Implementation (Phase 3) continues
1998 Mar Implementation completed. Consultant transfers systems to EHDC counterpart - 109 - ANNEX 5.4
MANAGEMENT DEVELOPMENT AND TRAINING
A. OBJECTIVES
1. The management development and staff training program is designed to enhance EHDC's managerial, technical, and financial capabilities. EHDC is still in a formative stage, recruiting its staff from other entities, such as the Lubuge Project Construction Management Bureau, Yangtze Valley Planning Office (Three Gorges Project), CHIDI, construction companies experienced in large hydroelectric projects, and research institutions. Ertan is a very challenging and attractive project and no problems have been experienced so far in employing high caliber managerial and technical staff. The main objectives of the program are:
(a) to enable EHDC to function as an autonomous specialized entity in the efficient and accelerated development of hydropower resources on the Yalong River, able to manage large hydropower projects, and later on to operate them optimally;
(b) to staff EHDC with professionally skilled personnel capable of handling development planning, financial planning, construction, management, and business operations.
2. The training program will consist of the following four main categories:
(a) Training in institutional development and enterprise reform matters;
(b) Training in utility management and financial planning;
(c) Project-related training for technical staff by working together with consultants and those financed under vendors' contracts;
(d) School training and practical training for plant operators; and
(e) Equipping of EHDC's management information system and training facilities. - 110 - ANNEX 5.4
B. ORGANIZATIONOF TRAINING
3. EHDC will be responsible for planning and organizing the training program with the approval and support of MOEP. The training program will be conducted both abroad and in China. Initial training activities would aim at providing a general overview of the selected topics by a series of training seminars in China. Both local and foreign experts will be invited to give lectures on these specific topics. Study tours and overseas training will then be followed for senior management and financial and technical staff.
C. IMPLEMENTATION
4. An implementationplan for the managementdevelopment and staff training programis presented below:
(a) Domestic Training. About 300 staff of various fields, totaling 2,520 staffmonths will be trained in China (Table 1) including training by seminars and training in schools and power plants; 20 staffmonths of foreign experts will be required for lectures in China.
(b) Overseas Training. Study tours and overseas training will be conducted in 1995-97 for 91 staff, totaling 169 staffmonths. The number of trainees, duration of training, staff-months and timing of different specialties of personnel are show in Table 1.
(c) Project-RelatedTraining for TechnicalStaff. A total of 46 trainees with a total staff-monthsof 109 will be trained in manufacturers' offices and factories.
(d) Training Facilities and Equipment. Training facilities and equipment to be procured under the proposed project is given in Table 4.
(e) Estimated Training Cost. The total training cost will be Y 3.0 million equivalent in local currency and $3.0 million in foreign currency (Table 5). - 111 - ANNEX 5.4
Table 1: DoMEsTIcTRAINING
Experts Duration of required Estimated No. of training Staff- (staff- cost trainees (months) months months) Timing (S'000)
A. Training by seminars Modern power utility management 25 2 50 2 1995/96 50 Cost estimating and control 25 2 50 2 1995/96 50 Engineering and evaluation 25 2 50 2 1995/96 50 Financial management and planning 25 2 50 4 1995/96 100 Power sales contract 15 2 30 2 1995/96 50 Environment and resettlement 15 2 30 2 1995/96 50 Operation and management of large hydro stations 50 2 100 6 1996/97 150
Total 180 360 20 500
B. Training for Operators Training in school: for high school graduates 60 12 720 1995/96 for college graduates 60 12 720 1995/96 Practical training in power plants 120 6 720 1996/97
Total 120 2.160 - 112 - ANNEX 5.4
Table 2: OVERSEASTRAINING
Field Estimated to be No. of Duration Staff cost Specialty of Staff trained Trainees (months) (months) Timing ($'000)
Senior Management: (1) Modern utility management 8 1 8 1995/96 (2) Cascade development of a river basin 8 1 8 1996/97 (3) Power sales contracting and management policy 5 1 5 1996/97
Subtotal 21 21 250
Technical and business staff: (1) Utility management 12 1 12 1995/96 (2) Construction supervision and contract management 5 2 10 1995/96 (3) Construction safety for dam and underground works 4 2 8 1995/96 (4) Reservoir operation optimization 4 2 8 1995/97 (5) Claims and dispute settlement 3 2 6 1995/97
Subtotal 28 44 520
Financial staff: (1) Engineering economics 4 2 8 1996/97 (2) Engineer's cost estimate and control 4 2 8 1996/97 (3) Power pricing 2 2 4 1995/96 (4) Financial management 5 4 20 1995/96 (5) Management information system 5 4 20 1995/96
Subtotal 20 60 750
Environmental and resettlement: (I) Overall planning on environ- mental aspects of the river basin 2 2 4 1996/97 (2) Biological investigation and protection 2 2 4 1996/97
Subtotal 4 8 100
Power station: (1) Plant operation and maintenance 10 2 20 1996/97 (2) Dam and reservoir maintenance 4 2 8 1996/97 (3) Safety monitoring and data acquisition 4 2 8 1996/97
Subtotal 18 36 450
Total 91 169 1.840 - 113 - ANNEX 5.4
Table 3: PROJECT-RELATED TRAINING PROGRAM FOR TECHNICAL STAFF/a
Contract of Training Estimated Equipment No. of Period Staff cost and Studies Trainees (months) (months) ($'000)
Turbine and generator 12 4 48 320 Computer control 3 4 12 80 500 kV GIS 4 2 8 56 500 kV cable 5 1 5 35 Circuit breaker 4 1 4 28 Transformer 4 1 4 28 Technical studies 14 2 28 186
Total 46 109 743
/a Not including a total of 58.8 staff-months for the design coordinate meetings and 81 staff-months for shop inspection and testing financed under the various contracts.
Table 4: TRAININGFACILITIES
Quantity Unit Estimated Item (Set/Lot) Price ($ '000)
MIS including mainframe computer, terminals and FMIS system 1 460 460 Facilities for environmental monitoring center 1 100 100 Facilities for the training center 1 100 100
Total 660 - 114 - ANNEX 5.4
Table 5: SUMMARY OF TRAINING COST
Duration of Estimated No. of training foreign cost Trainees (staff-months) ($ '000)
Staff training in China 180 360 500 Training abroad 91 167 1,840 Project-related training 46 109 (743)/a Training facilities and equipment - - 660 Domestic training for operators 120 2,160
Total 437 2.520 3,000
/a To be financed under the vendors' and technical assistance contracts. -115 - ANNEX 5.5
PROJECT COST ESTIMATE
Description Local Foreign Total ------($ million) ------
1. Preparator Works Base cost 107.5 0.0 107.5 Physical contingencies 1.1 0.0 1.1 Price contingencies 0.5 0.0 0.5 Taxes and duties 0.0 0.0 0.0
Total 109.1 0.0 109.1
2. Land Acquisition & Resettlement Base cost 168.2 0.0 168.2 Physical contingencies 16.2 0.0 16.2 Price contingencies 3.4 0.0 3.4 Taxes and duties 0.0 0.0 0.0
Total 187.7 0.0 187.7
3. Civil Works Base cost 413.3 639.9 1,053.2 Physical contingencies 35.0 48.0 83.1 Price contingencies 13.8 17.1 30.9 Taxes and duties 55.6 0.0 55.6
Total 517.7 705.0 1.222.7
4. Electromechanical Equipment Base cost 109.3 146.7 256.0 Physical contingencies 7.1 9.7 16.8 Price contingencies 3.2 0.0 3.2 Taxes and duties 64.3 0.0 64.3
Total 183.9 156.4 340.3 - 116 - ANNEX 5.5
Description Local Foreign Total ------($ million) ------
5. Transformers Base cost 6.1 22.2 28.2 Physical contingencies 0.4 1.6 2.0 Price contingencies 0.5 0.0 0.5 Taxes and duties 11.3 0.0 11.3
Total 18.3 23.7 42.0
6. Gates & Hoists Base cost 36.5 3.5 40.0 Physical contingencies 2.6 0.3 2.8 Price contingencies 2.2 0.1 2.3 Taxes and duties 1.5 0.0 1.5
Total 42.7 3.9 46.6
7. Engineering & Construction Mgmt. Base cost 44.4 28.2 72.6 Physical contingencies 2.2 1.9 4.1 Price contingencies 1.4 1.4 2.8 Taxes and duties 0.0 0.0 0.0
Total 48.0 31.5 79.5
8. Administration & Other Works Base cost 145.9 2.7 148.6 Physical contingencies 3.4 0.3 3.7 Price contingencies 2.1 0.2 2.4 Taxes and duties 0.0 0.0 0.0
Total 151.5 3.2 154.7
9. Environmental Protection Base cost 6.8 0.5 7.3 Physical contingencies 0.3 0.0 0.3 Price contingencies 0.2 0.0 0.2 Taxes and duties 0.0 0.0 0.0
Total 7.3 0.5 7.8 -117- ANNEX5.5
Description Local Foreign Total ------($ million)------
10. Reform Plan & Financial MIS Base cost 0.5 2.0 2.5 Physical contingencies 0.1 0.2 0.3 Price contingencies 0.1 0.1 0.2 Taxes and duties 0.0 0.0 0.0
Total 0.7 2.3 3.0
11. Training Base cost 3.1 3.0 6.1 Physical contingencies 0.3 0.3 0.6 Price contingencies 0.1 0.1 0.2 Taxes and duties 0.0 0.0 0.0
Total 3.5 3.4 6.9
12. Total Project Costs Base cost 1,041.5 848.6 1,890.1 Physical contingencies 68.6 62.3 130.9 Price contingencies 27.4 19.1 46.5 Taxes and duties 132.7 0.0 132.7
GRAND TOTAL 1,270.2 930.0 2.200.2 -118- ANNEX5.6
IBRD GUARANTEE OPERATION
1. Background. China has been interested in the use of the guarantee program to cofinance some of the Bank infrastructure projects, and the Bank has also been encouraging diversification of financing sources and mobilization of private funds. The first guarantee transaction of the Bank for China (under the ECO program) to cofinance the Yangzhou Thermal Power Project was in the amount of $120 million equivalent and approved by the Board in March 1994 and closed in May 1994. The Board approved the second guarantee operation for the Zhejiang Power Development Project (also a thermal power project) in the amount of $150 million equivalent in February 1995 and the financing was closed in March 1995. The proposed project was identified as an appropriate candidate for the third guarantee operation for China both by the Bank and Chinese authorities, and the possibility of utilizing the guarantee program has been pursued.
2. Financing Framework. The amount of the prospective Bank-guaranteed financing will be approximately $150 million equivalent, utilized to help cofinance the project along with a direct Bank loan of $400 million. The Bank guarantees will be partial credit guarantees of principal payment due under the commercial financing. People's Republic of China represented by MOF will be the borrower of the commercial funds supported by the Bank guarantee, and the funds will be onlent to EHDC.
3. MOF and EHDC have decided to pursue a two-tranche financing in US dollars and German mairks (DM). Following the endorsement of the Guarantee Review Committee of the proposed guarantee operation in May 1995, the MOF conducted competitive bidding for the financing in June 1995 and awarded a conditional mandate to a winning underwriting group. The summary terms are as below:
Borrower: People's Republic of China (PRC) represented by MOF Beneficiary: EHDC Guarantor: World Bank Amount: (a) $100 million Eurodollar syndicated bank loan (b) $50 million equivalent EuroDM syndicated bank loan Maturity: 15 years Availability Period: 3 to 4 years Grace Period: 5 years Repayment: Semiannual equal installments after the grace period Bank Guarantees: Principal amount outstanding on and after 12 years or a later point of time on an accelerable basis starting at that point - 119 - ANNEX 5.6
Guarantee Release: Lender's option to release the guarantees will be included Prepayment: Borrower's option to prepay will be included Interest Rate: 0.3 percent per annum over the relevant LIBOR, payable semiannually in arrears.
4. Leverage Effect. The Bank guarantees would become callable on an accelerable basis only from year 12. The guaranteed amount and the maximum exposure of the Bank would be $50 million equivalent or 33 percent of the initial financing mobilized guarantee. The Bank's exposure represented by the present value of the guaranteed amount would initially amount to $20 million or 14 percent of the total loan amount.
5. A guarantee release option of the lender similar to the one introduced in the previous Zhejiang financing would be incorporated in the proposed transaction. Upon release of the guarantee, the option would entitle the lender to receive additional loan interest equivalent to the guarantee fee otherwise charged by the Bank to the borrower, for the remaining life of the loan. Such an option would encourage the lender to reexamine the borrower credit to take advantage of the higher loan spread and release the guarantee when it is no longer needed. This is a feature which potentially enables the Bank to further reduce its exposure to China over the life of the loan, while the total financial cost to the borrower (including the Bank's guarantee fee) would remain unchanged by exercise of the option.
6. Availability of Long-Term Funds. The proposed guarantees will enable China to mobilize foreign currency funds with maturity beyond current market terms. Although Chinese sovereign entities have recently started issuing debt with long-term maturities in the international capital markets, the final maturity currently available in the loan market remains around 5 to 7 years for Chinese borrowers. The amount China can raise in foreign commercial markets is still limited compared with its enormous funding requirements to develop its infrastructure. Its funding capability could be severely influenced by market conditions, due to its ongoing yet insufficient macroeconomic development and prevailing concerns on its future political situations perceived in the market. The proposed guarantee is to enable China to achieve a reliable and diversified source of long-term capital required for the completion of the project.
7. Currency Flexibility. The guarantee operation would provide EHDC with the flexibility of borrowing in currencies of its choice. EHDC preference for the US dollar is based on the fact that its revenues are denominated in the local currency, RMB, which is most closely linked to the US dollar. Its choice of DM borrowing is to meet civil works contract payments in DM over time.
8. Favorable Interest Rate. The mandated pricing of both loans is at an interest rate for six-month LIBOR + 0.3 percent per annum and an up-front managementt fee of 0.5 percent (i.e. an all-in cost of LIBOR + 0.35 percent on a simple yield basis). This very favorable pricing for loans with a final maturity of 15 years is well below the - 120 - ANNEX 5.6 average pricing of commercial bank borrowing (about LIBOR + 0. 5-0. 6 percent all-in) by Chinese sovereign entities for a much shorter maturity of S to 7 years. PROCUREMENT SCHEDULE
Turbines Generators 5OOkV Generator Main Gates. & Acces- & Acces- Computer! Dry Circuit 500kV Trans- Hoists, a;uipment sories sofies SCADA Cabie Breakers GIS formers Cranes
Begin preparation of tender documents 04/ /91 04/ /91 04/ /91 07/21/93 07/12/93 07/12/93 01/ /95 04/ /95
Approval by China Government 10/ /92 10/ /92 10/ /92 04/ /95 04/ /95 04/ /95 07/ /95
Review by the World Bank 10/ /92 10/ /92 10/ /92 06/ /95 06/ /95 06/ /95
Issue the tender documents 11/30/92 11/30/92 11/30/92 08/ /95 08/ /95 08/ /95 09/ /95 10/ /95 L
Prebid conference 02/14/93 02/1193 02/14/93 - - -
Bid opening 05/14/93 05/14/93 05/14/93 10/ /95 10/ /95 10/ /95 11/ /95 11/ /95
Bid evaluation 05/25/93 05/25/93 05/25/93 11/ /95 11/ /95 11/ /95
Approval by China Government 10/05/93 10/05/93 10/05/93 12/ /95 12/ /95 12/ /95
Confirmation by the World Bank 12/16/93 12/16/93 12/22/93 01/ /96 01/ /96 01/ /96
Issue letter of acceptance 01/17/94 01/17/94 01/17/94 01/ /96 01/ /96 01/ /96 12/ /96 12/ /96
Contract signing 03/28/94 03/28/94 11/04/94 02/ /96 02/ /96 02/ /96 01/ /96 01/ /96
Source: EHDC. - 122 - ANNEX 5.8
KEY DATES OF PROJECT IMPLEMENTATION
Completiondate
Instruction to commence work September 14, 1991 River diversion November 26, 1993 Dam foundationexcavation completion December 1994 Dam concrete starter February 1995 Diversion tunnel closure June 1, 1998 Completionof powerhouse draft tube liners: Unit 6 October 1, 1996 Unit 1 June 1, 1998 Commercialoperation: Unit 6 October 1, 1998 Unit 1 June 1, 2000 More detailed key dates are included in three signed contracts: Contract 1 - Arch Dam Contract 2 - Underground works Contract 3 - Generating units - 123 - ANNEX 5.9
SCHEDULE OF DISBURSEMENTS ($ million)
Bank FY and Semester Cumulative Project Bank profile /a semester ------($ million) ------
1996 First 54.7 54.7 13.7 0 Second 50.0 104.7 26.2 6
1997 First 51.7 156.4 39.1 18 Second 58.9 215.3 53.8 26
1998 First 58.9 274.2 68.6 38 Second 31.7 305.9 76.5 50
1999 First 31.7 337.6 84.4 58 Second 18.2 355.8 89.0 66
2000 First 18.2 374.0 93.5 74 Second 13.0 387.0 96.8 78
2001 First 13.0 400.0 100.0 82
LaBankwide standard disbursementprofile for the power sector in China (August 1993). - 124 - ANNEX 5.10
ENVIRONMENTAL MANAGEMENT PROGRAM
Introduction
1. Environmental Assessment (EA) of the Ertan Hydro project started in 1980. The EA report was approved by Provincial and National Environmental regulatory authorities in 1986, and revised and translated into English before the 1989 appraisal, thus complying with the Bank's policies (e.g., OMS 2.36 of 5/84 and OPN 11.02 of 6/86) for the first loan. Since then, China substantially strengthened its national EA procedures. Also, in late 1989, the Bank adopted formal EA policies for the first time, and strengthened them in 1991 (OD 4.00 of 1989 and OD 4.01 of 1991), as well as adopting a specific policy on the environmental effects of dams and reservoirs (OD 4.AB3). For these reasons, and as part of preparation for the current project, the Borrower prepared a new EA, with the help of international EA consultants, to meet current national and international standards. This was issued in February 1995. The EA Summary, which outlines the main environmental issues associated with the project, was distributed to the Executive Directors on February 17, 1995. Transmission lines were financed under a separate loan and have their own already approved EA report. All resettlement and other social impacts are covered in a separate social assessment report and SAR Annex 5.11.
Basis for Design of the Environmental Management Program
2. The EA concluded that the main, unavoidable impacts of the project arise due to its type and scale. The type of project dictates that the hydrologic regime in the river will change significantly both downstream and within the reservoir itself. These changes have physical, biological and water quality/quantity implications. Some of these implications can be mitigated (e.g. impacts of increased dry season flows on physical infrastructure) while others may be subject to management based on observed (monitored) trends (e.g. sediment inflows to the reservoir). The scale of the project dictates the extent of inundation of land aLndwater resources (total area of the reservoir is 10,100 ha.) although the level of impact is mediated by topographical conditions (the river is deeply incised into the surrounding landform so that the degree of inundation, given the installed capacity, is comparatively low) and the significance of the impact is mediated by the generally degraded conclition of the areas to be inundated (only about 10 percent of the inundation area support subtropical broadleaf forest which once dominated the area).
3. The Environmental Management Program was developed from the findings and conclusions of the EA and has three objectives: (a) to monitor environmental conditions of the Yalong River as impacted by the project; (b) to monitor the effectiveness of environmental protecition measures being implemented; and, (c) to expand the base of information regarding the effects of large dams in Sichuan Province to assist in the - 125 - ANNEX 5.10 evaluation of future projects. The plan comprises two main parts: the mitigation activities to control, avoid or minimize potential adverse impacts; and, the monitoring activities designed to assess the effectiveness of these actions.
Mitigation Activities
4. Ten groups of mitigation activities are proposed and are fully described in the EA. They cover: establishment of a conservation management zone around the periphery of the reservoir; studies on reservoir fish resources related to the development of commercial fisheries on the reservoir; reconstruction of Yuzha Ferry to counteract the impacts of increased downstream flows; cultural property protection to recover artifacts identified during the environmental studies program; vermin control to reduce public health impacts due to movement of rats, etc. out of the inundation area during reservoir filling; financial assistance for increased schistosomiasis prevention activities in villages near the reservoir; installation of a downstream alarm system to provide warnings when releases will be made from the dam; construction worker health inspections to avoid possible importation of contagious diseases to the area; post construction landscaping for erosion control and aesthetic improvement; and, reservoir clearing to reduce nutrient release into the newly-filled reservoir and reduce algal growths.
MonitoringActivities
5. The monitoring plan addresses seven major resource areas: hydrology, sedimentation and climate; seismic activity; bankslope deformation; water quality and biological monitoring; construction management; public health; and, short-term monitoring programs. The activities proposed within each resource area are described in detail in Chapter 7 of the EA report from which the following brief descriptions and the detailed cost and other tables attached have been derived.
6. Hydrology, Sedimentation and Climate. Eight hydrological monitoring stations were established to provide baseline design data and these will continue to be operated on a continuous basis for the life of the investment. Sediment loads are also being monitored upstream and downstream of the site and in the Ganyu River. These stations will continue to be monitored for the life of the project. They will be supplemented by an add itional 64 monitoring sections in the main reservoir and the Ganyu Arm at which sediment accumulation will be monitored. Three meteorological monitoring profiles with 18 observation sites will be established throughout the reservoir area. The existing 15 precipitation stations and Xiaodeshi Climatic Station will continue in operation and three additional stations will be established as part of the landslide monitoring program.
7. Seismic Monitoring. An earthquake monitoring station was established prior to commencement of construction. This station will continue to be operated throughout the operational phase. - 126 - ANNEX 5.10
8. Bankslope Deformation. A landslide monitoring program has already been established in the vicinity of areas having potential to become unstable due to partial saturation as a result of reservoir filling. The program is presently gathering baseline data. The frequency of surveys will be intensified as the reservoir is filled and will continue indefinitely at an intensity determined on the basis of observed behavior of the monitored areas.
9. Water Quality and Biological Monitoring. Water quality is already being monitored at eight locations in the reservoir and downstream areas with samples being collected three times per year and analyzed for all parameters covered in the National Water Quality regulations. This program will be continued. Aquatic Ecology surveys will be undertaken both to optimize commercial fish harvests and document changes in aquatic life due to reservoir creation. Samples of fish and invertebrates are being collected at eight locations three times per year and this will continue for the first five years of operations. Terrestrial fauna and vegetation are being monitored to detect changes in the management area around the reservoir during both construction and operation. Baseline studies are being undertaken to assist in development of management objectives for the buffer and conservation zones.
10. Protection and Rehabilitation of the Construction Area. This is a construction-phase activity which mainly requires supervision of contractors to ensure their compliance with the environmental provisions in their contracts.
11. Public Health. Monitoring of public health will be undertaken by the Public Health Departments of the various counties affected with the focus being on the control of malaria, schistosomiasis and other waterborne and water-related diseases which might become established in the area.
12. Temporary Monitoring Programs. There are two programs presently underway which will continue only until completion of the construction program. These are: (a) inventory of the reservoir area to further evaluate biodiversity of the impoundment and buffer zones; and, (b) inventory of natural and human resources in the impoundment zone for planning and inmplementationof reservoir clearing operations. The biodiversity work is being carried out with the assistance of the Chief Biodiversity Officer of the International Union for the Conservation of Nature and Natural Resources (IUCN).
Managementand Cooridination
13. As shown in the attached tables, a feature of the plan is the degree to which management and monitoring activities and responsibilities will be contracted out to eight government agencies, design institutes and academic institutions, most of whom also participated in the environmental studies program. This minimizes the degree to which EHDC will have to develop in-house technical expertise and maximizes the use of existing "installed" physical and technical capacity. - 127 - ANNEX 5.10
14. EHDC has entered into an agreement with the Department of Environmental Sciences and Technolcigy of Sichuan Union University to serve as an independent supervisor of the overall management and monitoring plan although ultimate responsibility for effective implementaztionwill continue to reside with EHDC through its Environmental Monitoring Center, which has already been established. In addition, a five person Environmental Monitoring and Evaluation Panel has been established by EHDC to provide overall advice on the program. Members will include Chinese and International experts in both environmental science and resettlement. Two international experts who have already indicated their willingness to participate are the Chief Biodiversity Officer of the IUCN and WHO's Chief of Schistosomiasis.
Training
15. The budget includes provision for three general types of technical training: local inservice training; out of area inservice training; and, academic training. Training activities commenced in 1993.
16. Finance will also be provided through the project to support the continuing operations of a Provinciial Environment and Social Training Institute (see Annex 5.11).
Budget and Schedules
17. The attached tables summarize various aspects of the plan including: implementation and reporting assignments; general elements of the plan; and, estimated costs by project year.
Monitoring and Training
18. EHDC was created specifically to construct Ertan, so this is its first project. EHDC and others are contemplating up to 21 more hydro projects on the same river, and other major hydro projects elsewhere in the same province. In addition, environmental concerns are not yet as fully internalized as engineering and economic factors. For these reasons, comprehensive environmental monitoring and training, which began in 1993, are being strongly promoted under this loan. Monitoring and evaluation components with their schedules and costs are shown in the attached tables. The Government of Sichuan Province is also applying for a grant for the Bank's Institutional Development Fund to cover foreign exchange costs to strengthen the training programs. A standalone provincial environmental and resettlement training center (para. 14) has already started operating.
Mitigation Plan, Budgiet and Schedule
19. All the recommendations and findings of the EA report have been consolidated into a mitigation plan. The attached table summarizes such plans, shows who is responsible, by when, together with costs disaggregated by year from 1993 through 2000. All such costs have been integrated into the overall project costs. Implementation of many of the mitigation plan components has begun, some as early as 1993. - 128 - ANNEX 5.10
Environmental Mitigation and Monitoring Plan Summary Persons and Agencies Responsible for Programs
EHDC Coordinator Agency Contracted Agency Supervisory Agency Supervisor _ for Prograrm Representativel
1. MitigationProgram _ _|
Conservation Cui Zijun Sichuan Scientific Yan Yu Po Sichuan Union Ding Sanglan Management Zone Institute for University Forestation Reservoir Fish Cui Zijun Sichuan Scientfic Zhang Yi Yun Sichuan Union Ding Sanglan Resources Recovery Institute for Aquatic University Products Yuzhai Ferry Cui Zijun Panzhihua Road and Cai Zue Ti Sichuan Union Ding Sanglan Reconstruction Bridge Company University Cultural Property Li Reniun Panzhihua Culture Ran Guangjiu Sichuan Union Ding Sanglan Protection Bureau University Public Health Cui Zijun Panzhihua Health Hu Shengzhong Sichuan Union Ding Sanglan (Reservoir Area) Agency University
Schistosomiasis Cui Zijun Panzhihua Hu Shengzhong Sichuan Union Ding Sanglan Treatment (Subsidies) Schistosomiasis University Prevention Agency Downstream Alarm Cui Zijun Sichuan Construction You Shaoxiao Sichuan Union Ding Sanglan System Company for University _ Electricity Public Health Cui Zijun Panzhihua Health Sichuan Union Ding Sanglan (Construction Area) Bureau University Post-Construction Cui Zijun Ertan Joint Venture, Sichuan Union Ding Sanglan Landscaping Sino-Gemian Ertan University Joint Venture Reservoir Clearing Liu Xiaopu Sichuan Resettlement Cheng Zongyi Sichuan Union Ding Sanglan Office University 2. Environmental Monitoring Systems Sediment Monitoring Cui Zijun Chengdu Hydraulics Li Yougui Sichuan Union Ding Sanglan System Investigation and University Design Institute
Water Level/ Cui Zijun Chengdu Hydraulics Li Yougui Sichuan Union Ding Sanglan Precipitation Monitoring Investigation and University Design Institute
Climate/Ecological Cui Zijun Sichuan Meteorology Zhang Yong Sichuan Union Ding Sanglan Resources Monitoring Bureau University Houses & Buildings Cui Zijun Sichuan Construction You Shaoxiao Sichuan Union Ding Sanglan Company for University _ Electricity
Instruments & Cui Zijun Sichuan Construction Zhang Yong Sichuan Union Ding Sanglan Equipment Company for University _ Electricity Preparation Work & Cui Zijun Sichuan Construction Sichuan Union Ding Sanglan Others Company for University _ Electricity
3. Environmental Monitoring During Construction Operation & Cheng Xiumei EHDC Su Zhou Sichuan Union |Ding Sanglan Management l University - 129 - ANNEX 5.10
| EHDC Coordinator | Agency Contracted Agency Supervisory Agency Supervisor ______I_____ I for Program Representative I Aquatic Resources Cheng Xiumei Sichuan Normal Yu Zhiwei Sichuan Union Ding Sanglan Monitoring College University Water Quality Cheng Xiumei Panzhihua Institute of Xiao Yong Sichuan Union Ding Sanglan Monitoring Environmental University Sciences Public Health Cheng Xiumei Panzhihua Health Hu Shengzhong Sichuan Union Ding Sanglan Monitoring Bureau University Waste Water, Noise & Cheng Guochar EJV-SGEJV Sichuan Union Ding Sanglan Air Quality University
Terrestrial Wildlife & Cheng Xiumei Sichuan Normal Yu Zhiwei Sichuan Union Ding Sanglan Vegetation College University Land Use Monitoring Li Rehlun Sichuan Resettlement Cheng Zhongyi Sichuan Union Center University 4. Staff Training and Study Tour Meetings & Liu Xiaopu EHDC Cui Zijun Sichuan Union Ding Sanglan Consultation University
College Training Liu Xiaopu EHDC Cui Zijun Sichuan Union Ding Sanglan University Study Tour to Domestic Liu Xiaopu EHDC Cui Zijun Sichuan Union Hydro Projects University
S. Scientific Research Biodiversity Assessment Cheng Xiumei Sichuan Normal Yu Zhiwei Sichuan Union Ding Sanglan of Reservoir Area College University Environmental Planning Liu Xiaopu CHIDI Hu Dunyu Sichuan Union for Yalong Catchment University
6. Environmental Evaluation Panel Panel Liu Xiaopu Sichuan Union Ding Sanglan University - 130 - ANNEX 5.10
Environmental Mitigation and Monitoring Plan Summary General Elements of Plans Year IIType of Program to Sampling/Study | Data Collection Type of Data Data Start Locations Sampling Frequency Methods Co_ected Analysis
1. MitigationProgram Conservation Manage- 1995 Appropriate Twice: pre- and post- Observation Descriptive, ment Zone locations around construction lists, densities reservoir Reservoir Fish 1997 Commercial fishing Twice annually Observation; net Counts; yields Statistical Resources Recovery ports; river mouths; samples summaries selected locations & analyses Yuzha Ferry 1997 30 km downstream Once Engineering/constructi Reconstruction from Jinjiang on ______Railway Station Cultural Property 1995 Ganyu Village Pre-construction Excavation, removal Artifacts Protection Public Health 1995 Resettlement areas Annual Small habitat (Reservoir Area) of inundation zone destruction Schistosomiasis Treat- 1995 Yanbian, Yongxin Annual Chemical treatment ment (Subsidies) Huimin, & other villages Downstream Alarm 1996 Dam to Jinsha to Continuous Construction of system System mouth of Yalong . Public Health 1991 Jinlong Gully to Continuous Medical Examination Medical (Construction Area) Santan Gully of Workers Samples Post-Construction 1996 Jinlong Gully to At end of construction Regrading/seeding Landscaping Santan Gully Reservoir Clearing 1993 Inundation zone of At end of construction Removal of vegetation reservoir l
2. Enviromnental Monitoring Systems Sediment Monitoring 1994 14 cross sections in As scheduled Survey Section Statistics & Systems reservoir profiles summary Water Level/Precipitation 1996 Jinlong Mountain 3 times per day Automatic Rainfall and Statistics & Monitoring & 18 rainfall reservoir level summary stations Climate/Ecological 1995 19 stations 3 times pre day Automatic Temperature, Statistics & Resources Monitoring rainfall summary
Houses & Buildings 1995 L Instruments & Equipment 1995
Preparation Work & 1995 Others
3. Environmental Monitoring During Construction Operation & Management 1995 . Aquatic Resources 1995 Xiaodeshi and 8 3 times per day Nets, traps, etc. Number of fish Species & Monitoring locations on & invertebrate relative reservoir species abundances - 131 - ANNEX 5. 10
Year JJType of
Program to Sampling/Study Data Collection Type of Data Data || _StartLocations Sampling Frequency Methods Collected Analysis
Water Quality Monitoring 1993 Xiaodeshi and 8 3 times per day Grab samples, Chemical Reference locations on laboratory analysis analysis for 32 to State reservoir parameters standards Public Health Monitoring 1993 Yongxin, Shengli Diagnosis of Jinhe, etc. diseases
Waste Water, Noise & 1994 Dam to powerhouse Random check Sampling, analysis & Chemical & Reference Air Quality monitors noise data to standards
Terrestrial Wildlife & 1995 Ganyu to Yanbian Twice annually Sampling on section Observation of Statistics & Vegetation lines plants & charts animals
Land Use Monitoring 1995 El 1200-1300 m Prior to impoundment Site observations Determination Charts & around reservoir of use of land tables 4. Staff Training and Study Tour Meetings & Consultation 1991 To be arranged. College Training 1996 To be arranged. Study Tour to Domestic 1993 To be arranged. Hydro Projects
5. Scientific Research
Biodiversity Assessment 1995 Ganyu to Yanbian 3 times per year Point Check along line Land Animals Statistics & of Reservoir Area Observed charts Environmental Planning 1996 Kala River End Continuous for Yalong Catchment
6. Enviromnenal Evaluation Panel Panel :19:9:4: Not applicable. - 132 - ANNEX 5.10
Environmental Mitigation and Monitoring Plan Summary Estimated Costs by Year (From Table 7.4 of EA) (Given in Yuan X 103)
| Total Estimated 1993 I| 1994 1995 | 1996 | 1997 [ 1998 ] 1999 | 2000 l | ~~~~~~~~CostslI lll l
1.N MitigationProgram || Conservation Management 1,933 300 400 400 400 300 133 Zone
Reservoir Fish Resources 820 100 400 200 120 Recovery
Yuzhai Ferry Construction 100 100
Cultural Property Protection 30 100 100 100 Public Health (Reservoir 1,299 400 500 399 Area)
Schistosomiasis Treatment 889 300 400 189 Subsidies
Downstream Alarm System 320 160 160
Public Health (Construction 1,415 100 400 300 300 150 100 65 Area)
Post-Construction 250 100 100 50 Landscaping _ . -
Reservoir Clearing 0 Included as part of resettlement plan
Annual Total - 7,326 01 100| 1,5001 1,860[ 1,748[ 1,050 700 368
2. Environmental Monitoring Systems
Sediment Monitoring System 1,171 165 500 506 Water Level/Precipitation 227 100 127 Monitoring Climate/Ecological 610 250 360 Resources Monitonng
Houses & Buildings 2,957 400 1,210 700 647 Instruments & Equipment 2,585 150 250 150 150 900 800 185 Preparation Work & Others 1,412 200 680 350 100 50 32
Annual Total 8,962 0 1,165 2,500 1,100 883 1,650 1,479 185
3. Environmental Monitoring During Construction Wages 1,754 50 260 260 260 330 330 264 Operation & Management 1,637 270 270 270 270 270 286 Aquatic Resources 200 80 60 60 Monitoring
Water Quality Monitoring 95 35 | 30 30 E Public Health Monitoring 0 Included in Reservoir Area Public Health Mitigation Waste Water, Noise & Air 717 70 120 120 120 120 120 47 Quality l_l_l l_l_
Terrestrial Wildlife & 100 t10 Vegetationl l l lll - 133 - ANNEX 5.10
a Total Estimatedl 1993 1994| 1995 I 1996 1997 11998 1 1999 | 200 Costs
LandUseMonitoring 120 _ 60 60 1 Annual Totals | 4,622 1151 120 8101 800 7401 720 720 597 4. Staff Training and Study Tour Meetings & Consultation 45 45
College Training 100 30 40 30 Study Tour to Domestic 60 30 30 Hydro Projects b Annual Totals 205 0 0 75 40 30 0 0 5. Scientific Research Biodiversity Assessment of 256 93 163 Reservoir Area Environmental Planning for 205 205 Yalong Catchment
Annual Totals 461 0 0 93 368 0 0 01 0
6. Environmental Evaluation Panel
Panel | 2,020 | | 100 320 1 3201 320 | 3201 320 [ 320 Annual Totals 2,020| 0 1 100 | 320| 3201 320 | 3201 320 | 320 - 134 - ANNEX 5.11
RESETTLEMENT ACTION PLAN
1. Overview. The updated revised Resettlement Action Plan incorporating lessons of experience from the first phase of the Ertan Hydroelectric Project was appraised by a Bank mission in March 1995 and found satisfactory. Below is displayed the updated information on the origins and destinations of the approximately 35,000 people who are being resettled by the Ertan Hydroelectric Project in both phases.
Origins J Number of people__Receiving Areas i Comments Yanbian 10,500 rural Honnge, Pinshan, New irrigated agricul- County dwellers Yongquing, ture villages, settlers Xinjian receiving 0.1 ha/capi- ta, house, infrastruc- ture 5,100 rural "Moving up" in New irrigated lands dwellers same village reclaimed, settlers re- ceiving 0.1 ha/capita, house, infrastructure 1,700 rural Covered to indus- Children of farmers dwellers trial employment who wish to leave (silk factory, agriculture mining) 11 300 rural dwellers Converted to fish- Farmers near future ing reservoir who wish to change jobs 1,970 rural dwell- Protected by dike Farmers who re- ers (not resettled) in backwater area quested protection by dike rather than reset- tlement 2,000 rural Ertan Clay Mine Current employees dwellers who retain jobs but get new housing site 97,000 urban New Yanbian Near railway station dwellers Town and project site, retain original employment in relocated industries_ - 135 - ANNEX 5.11 l Origins Number of people l ReceivingAreas Comments Miyi County 2,400 rural Absorbed into In agreementwith host dwellers nearby villages villagers, allocated 0. 1 ha/capita of reclaimed irrigated agricultural land, house, infra- structure Yanyuan 1,280 rural 880 "Movingup" Provided 0.1 ha/capita County dwellers in same village; reclaimedirrigated 400 to new 34 ha agricultural land, site house, infrastructure Dehang County 430 rural dwellers 130 "Movingup" Provided 0.1 ha/capita in same village; reclaimed irrigated 300 to new 29 ha agricultural land, site house, infrastructure
TOTAL 35,380
Of total, those 5,500 rural dwell- Pinshan irrigated Provided 0.1 ha re- resettled ers from construc- area; other vil- claimed irrigated agri- through March tion site and coffer lages of the cultural land, house, 1995 dam inundation Anning River infrastructure areas in Yanbian Valley (tributary and Miyi Counties of Yalong)
2. LessonsLearned in the First Phase. The importanceof direct participation of the affected populationas well as the host populationin the design and implementation of the resettlement operations was underscoredduring the first phase. The resettlement operations are jointly planned by the Resettlement Bureau of Sichuan Provincial Government (RB/SPG), local governmentofficials, resettlementofficers at the township and village levels (who are themselvesaffected) and the affected people themselves. The process of consultant began as early as 1984 and has continued through the stages of issuance of identify cards to each affected family listing all property and persons affected signed by the family head and resettlementofficer, throughthe process of resettlementsite selection, through the design work for new settlementsand economicproduction systems, into the mobilization and transfer phases. As a result of this process of participation, numerous changes have been made in original resettlement plans that reflect the suggestions of the affected people as well as the host populations among whom they are moving. Some examplesof the fruits of this participationfollow.
3. Yizhishan receiving area for rural families suggested by planners was abandonedin 1993 because of the need to relocate numerousresidents of the area to make room for the relocated people. The affected families proposed two alternatives: moving to other villages in the Anning River Valley where relatives lived and wastelandcould be - 136 - ANNEX 5.11 reclaimed in sufficient quantity to sustain them or moving to higher elevations in their present villages and opening new lands to cultivation where sufficient land would remain to accommodate them. Resettlement officials accepted both suggestions and acted accordingly. In another case, the proposed Jinhe resettlement area was abandoned in 1995 when affected families expressed preference for construction of a dike at the upper end of the Ganyu Arm of the future reservoir. The suggestion was investigated and accepted by planners, an alternative that enables 1,980 persons to remain in their existing homes and farms. Similarly, in planning the new site for Yanbian Town, approximately 730 people who live in the old town but farm adjacent lands expressed the desire to continue farming. Since the new town site has no agricultural lands nearby, these families are being allocated reclaimed irrigated farmland and new houses in villages near the old town where they have relatives. Another 1,584) people in the old town were engaged in agriculture; many comprise families who have children employed in shops and industries of the urban sector while the parents continue in farming. They expressed their wish to change occupations to urban ones, and they are included in plans for the new town. In summary, an important lesson learned is flexibility to examine proposed plans with the affected people to ensure that detailed designs address actual social and economic conditions effectively and efficiently.
4. The importance of prior consultation with host populations was another important lesson learned in the first phase. This requirement occurs in those instances where rural people are relocating to adjacent villages (for those "moving up" in the same village, negotiations are entirely internal). Resettlement planners assist affected villagers in preparing applications expressing interest in relocating to a certain village, which is signed by all the affected families and the resettlement officer(s) resident in their village. This is followed by visits to the receiving village and face-to-face negotiations. The responses from host villagers to these applications are issued in writing and signed by every family head of the receiving village as well as village authorities and resettlement officers.
5. Resettlement Planning, Organization and Institutional Responsibility. Planning of the resettlement operation began in 1983 and continues to the present. Baseline studies were conducted in 1984 and were updated in 1992 by RB/SPG, the Bureau of City and County C'onstruction, Environment Protection Bureau and CHIDI. Implementation is the responsibility of RB/SPG which employs 68 officials in the capital city of Chengdu. Another 33 officials are posted at the level of county (prefecture), some 60 are posted to the town level and an additional 67 are placed in villages and townships throughout the affected areas for a total of 228 staff. Affected families are in daily communication with resettlement officials in their own communities. In the affected communities, resettlement committees composed of affected families exist at the village, township, county, city and provincial levels. Resettlement officials and members of resettlement committees have been trained in the performance of their assigned tasks (see below Training).
6. Resettlement Policy and Legal Framework. Compensation and resettlement is based on the "Land Administration Regulations" and "Statute for Land Requisition for - 137 - ANNEX 5. 11
Construction Use by the State" issued by the People's Republic of China State Council, the "Design Norms of Reservoir Submersion for Water Resources Projects" issued by the Ministry of Water Resources and Electric Power (MWEP), and the "Provisional Regulations for Land Management of the Sichuan Province" promulgated by the Sichuan Provincial Government. These statutes provide the major policy elements and administrative procedures to be followed in resettlement operations. Basically, compensation amounts are determined on the basis of replacement value of assets which are acquired by a project. Money paid as compensation to individual families for housing is utilized by the families for reconstruction in a new location. Money paid to villages, townships and counties is used to replace infrastructure (water supply, drainage, sanitation, electricity, access and internal roads, communications systems) and to open up new irrigated farmlands. Money paid to enterprises is utilized by the enterprise to reconstruct facilities in a new location. The affected populations and properties are defined based on 1-in-20-year flood levels for structures and 1-in-5-year flood levels for agricultural and other lands. The overall objective of these resettlement policies is to enable the affected people to reconstruct their social and economic production systems to improved levels compared to standards of living prior to the relocation.
7. Receiving Areas. The bulk of the rural population is being resettled to new irrigated settlements reclaimed from wastelands. The areas are Honnge, Pinshan, Yongquin and Xinjian. Detailed site development plans and layouts have been developed for the first three, and construction is under way. The last site is a standby area in the event the demand for irrigated farmland is greater than anticipated. Of these, the Honnge site is the largest, designed to accommodate about 8,000 rural people. The land selected is 1,862 ha of abandoned plantation and wasteland, out of which about 400 ha are currently planted seasonally to upland crops on a contract basis with farmers in neighboring communities. To offset the loss of this use for neighboring communities, the project allocates 78 ha of irrigated land to them and includes the costs of preparation and irrigation of this section in the overall Honnge resettlement plan. A similar plan is in place for each of the other rural population receiving areas.
8. Detailed cropping patterns and schedules for economic development of the sites he been prepared, evaluated and found satisfactory. Based on results of the first phase, plans of this nature are realistic. Each plan includes arrangements for construction of housing, irrigation systems and infrastructure by RB/SPG together with local construction units from the county concerned. Distribution of water and the control of quotas, inputs, crops, marketing and operation and maintenance of the systems is handled by local institutions in each area. Fuel and fodder requirements are built into the plan. Electricity to provide pumping of water to storage reservoirs or canals will eventually be provided by Ertan Project, and in the interim is paid by the RB/SPG. Net benefit calculations of the agricultural production systems introduced in these areas is based on an allocation of 1.5 mu (1 ha = 15 mu) per capita, 1 mu of irrigated land and 0.5 mu of dry land; an electricity price of Y 0.04 per kWh; a gravity irrigation system; and a dry year with a 1-in-5-year return period. Income streams are calculated from paddy (irrigated rice), upland crops such as corn and sweet potatoes, and livestock (principally pigs). Off- farm and sideline occupations common throughout the villages are not taken into account, - 138 - ANNEX 5.11 but represent a bonus on top of agricultural incomes. The net benefit from agricultural production is projected to be Y 940 per capita per year compared to the present income of about Y 450 per capita per year. This improvementis due in large part to an increase in the per capita allocation of irrigated land (double the present distribution pattern in affected communities).
9. Site preparation of new Yanbian Town is completed, and construction is scheduledto begin in June 1995. Detailedengineering designs and layouts were evaluated for zoning, electrification, water supply, drainage, waste disposal, sanitation, communicationssystems and access and internal roads. The following figuresdisplay the occupationalstructure of the populationof the town.
Total Population (1992) Yanbian Town 10,416 of which, farmers moving up 731 PopulationMoving to New Yanbian Town 9,685
Persons in Government Employ 2,635 Persons Employed in Industry 2,659 Persons Employed in Commerce, Trade 2,804 Part-time Farmers/Shopkeepers 1.587 Total Moving to New Town 9,685
10. The industries being relocated are an Agricultural Machinery Factory, Vegetable Oil Processing Plant, Agricultural Tools Factory, Paper Mill and Cement Factory. The Cement Factory will be converted into the manufactureof steel doors and windows to supply the constructionindustry. The new town site is close to PanzuihuaCity (about 10 Iam), and market research conducted by the Cement Factory indicates an abundanceof cement and a shortageof steel doors and windows. The other industrieswill continue as before, but will enjoy dramatically reduced transport costs for both raw materials and finished products (all currently buy raw materials in Panzuihua City, transport them by truck 24 hours to old Yanbian Town, and then must export back to Panzuihua City). With regard to commerceand trade, these businessesare represented in the main by two large stores: a cooperativeselling general merchandiseand a department store providing consumer goods. Smaller family businessessuch as market stalls, noodle shops, tea rooms, bars and homes that rent lodging to travelers employ family members in what are considered sideline or secondary occupations. Replacement of the market function of old Yanbian Town serving the needs of surrounding villages are being developed in Yumen Township and Ganyu Township located about 5 km and 3 km respectively from the old YanbianTown site. Incomes in the new town are expected to improve due to lower production costs and economic growth. The location of the new town along a major highway linking PanzuihuaCity and the rest of Sichuan Province is expected to attract new investment. The new town is planned for an additional 5,000 people for a total population of 15,000 by the year 2000 in anticipationof this growth.
11. Resettlement Cost Estimate. The reservoir will inundate 959 ha of grassland, 1,165 ha of fuelwoodforest, 937 ha of paddy field, 1,033 ha of dry agricultural - 139 - ANNEX 5.11 land, 6,046,300 economic trees, 9 ha of fish ponds, 1,366 ha of wasteland, and other land and assets that in property surveys include 1,481,800 m2 of houses, 146,000 m2 of other buildings, 16 small hydropower stations (2.3 MW), 358 km of highways, 397 km of communications lines, 648 km of electricity transmission and distribution lines, 819 km of broadcast line in addition to large livestock populations which will be moved composed of about 7,000 cattle and 30,000 pigs. Annual requirements for agricultural development, transportation of portable assets (an estimated 42,000 truck trips), acquisition of steel, cement and timber for construction, personnel salaries (calculated at over 542,000 person- days), etc. have been calculated and checked against experience during phase one. The following figures provides an overview of the cost estimate (in Million Yuan) by year. The detailed resettlement budget, including unit costs for compensation, is provided in the two tables attached to this annex.
|Item |TotalCost| 1989-93| 1994] 19951 1996[ 19971 1998| Rural Relocation 198 7 80 100 10 1 Urban Relocation 521 45 22 180 152 120 2 Industry Relocation 77 7 2 25 33 10 HighwayRelocation 301 55 42 120 80 4 CommunicationsSystems 80 40 20 20 Electricity Lines 40 1 25 14 Telecom System 20 15 5 BroadcastSystem 15 10 5 Cultural Property 3 2 _ Irrigation Systems 101 1 60 40 Reservoir Clearing 4 2 2 Social Support Services 68 3 27 23 9 6 Admin. M&E 41 3 1 16 14 5 2 Contingencies 13 6 3 3 1 Clay Mine Comp. 30 28 2 TOTALS | 1,5121 1491 771 6071 4901 178 11]
12. Financing of Resettlement. The project owner is providing resettlement finance is satisfactory amounts at the beginning of each year and official of RB/SPG have expressed satisfaction with the arrangement. In was confirmed by the Bank that Y 300 million were allocated for resettlement operations at the beginning of 1995 and the remainder of the approximately Y 607 million will be made available in the middle of the fiscal year. - 140 - ANNEX 5.11
13. Monitoring System for Resettlement.EHLDC has signed a contract for independent monitoring and evaluation of the resettlement programs in October 1994 with the Resettlement and Development Center of Sichuan Province (the "Center"). The Center is composed of four sections and has a staff of 25 professionals: an administrative unit, a planning and supervision unit, a training unit, and a monitoring and evaluation unit.
14. The methodology developed by the Center consists of measuring the performance of key indicators in three subsamples of the affected population utilizing a stratified cluster sampling technique in each subsample. Subsamples are (a) rural settlers, (b) relocated administrative centers, and (c) urban settlers. In each case a 10 percent sample of the universe will be maintained (increasing over time as number in each category increase). Each subsample is composed of families representing three strata of the population based on baseline data collected in 1992: 30 percent of the sample drawn from those classified as "better off"; 50 percent of the sample drawn from those classified as "middle income"; and 20 percent of the sample drawn from those classified as "poorest." Baseline data constitute the benchmarks against which performance of the resettlement program will be evaluated. The baseline data for which key indicators are being followed include: housing, land use, water supply, compensation received, how compensation was invested, income before and after resettlement, public facilities and services available. Data collected are analyzed and evaluated and recommendations are made for improvements in reports to the project owner each 6 months. The first Center monitoring report dated December 1994 was made available to the Bank in March 1995.
15. Training. The Government of Sichuan Province is applying to the Bank's Institutional Development Fund for a grant to cover the foreign exchange costs to strengthen the training program of the Resettlement and Development Center of Sichuan Province (the "Center") in the amount of $550,000. The provincial government will provide about $430,000 for the domestic costs, and it is expected that the Ertan Project will spend the equivalent of $200,000 for training services to the project. These three amounts equal the total operations budget for two years of the Center's improved training program. In the interim, the Center has provided training courses for village, county and provincial resettlement officials and citizen leaders of the affected people associated with the Ertan Project (March 17-30, April 10-24, and June 10-24 of 1995).
16. The training program is directly linked to the monitoring function of the Center (above paras. 13-14). The training curriculum provides students with information on international and Chinese experience with involuntary resettlement operations. Classroom instructors are members of the monitoring and evaluation unit of the Center responsible for monitoring resettlement in the Ertan Project, and bring the results of data collection and analysis conducted in connection with Ertan to bear upon classroom instruction. In addition, approximately one-third of the curriculum entails fieldwork in the impact area of the Ertan Project during which instructors and students verify information provided in the classroom and gather additional information. Table 1 COST EST7MATE FOR ERTAN PROJECT RESETTLEME.7T (in 1995 plices) tUnit Yanblian County M4l Cuntv phango Yan an Countv
Unit Cost (Y) Ouantity Cost (1000 Y) Ouantity Cost OuantitY C8ost Caouty iu ity ost duint.ty Cost Rural Migration
I .Land coampensation 74250 50740 1190 3960 8110 250 Cultivated land ha 40.000 1591.70 63670 1033.7 41350 260.57 10420 O6 5 3860 194.63 7760 6.15 255 Vgtbl.& constr. fund ha 40 000 27.25 1090 27.25 1090 Houseplots ha 40 000 237.28 9490 207.33 8300 19.34 770 2.47 100 8.07 320
2.Resettlement subsidization 41350 10420 3860 7790 250 Cult.ivated land ha 40. 000 1591 70 m no70 1033.7 41350 260.5 104250 6 5 3860 104 7 7790 6.16 250
3 House reconstruction cost s 140590 86540 23810 3710 26280 350 Houses mSilO 40840 7600 310 3760 Brick-cement ml 171.5 5031.87 860 4731 810 300.87 50 Brick-wood ml 105 37070.52 3900 35160 3690 1283 140 429.18 50 197.64 20 Earth-wood m9 60 791042.00 47460 598817 35930 11801 7090 14228 8 850 59867.38 3590 28.1 1.7 Thatched cottages m 40 22068.40 880 10141 410 8040.61 320 233 62 10 3643 17 Io0 Appurtenant structures 12920 11370 800 140 6.1 Grain drving areas m' 15.15 496936 7530 438331 6650 25088.2 380 5324.37 80 27692.12 420 Manure pits m 26.83 84879.40 2270 65357 1750 11204.2 300 1956.07 50 6362.01 170 Methane -generating pits ml 100 11861.00 1180 01230 1120 586.45 60 42 2.9 Surrounding walls 104.6 133699 1940 126712 1850 4216.83 60 928.94 10 1526.48 20 Extended population 74660 34330 15410 2660 21910 350
4 Material removament cost 19827 12420 2100 2040 3250 10 Long-distance relocation 1o500 1iOO 16650 7000 10500 1200 1800 1100 1650 1800 2700 Moving backward 300 10580 3177 6400 1920 1005 300 1302 391 1840 550 41 12
S9.ther subsidies 1302 810 130 150 220 3 Work lost 20 21688 404 13400 270 2205 40 2402 50 3640 70 41 1 other 40 21688 868 13400 540 2200 90 2402 100 3640 150 40 2 1
6.Admsinistration 3% 8990 5760 1430 410 1370 30
I Tndirect costs 5s 14990 9590 2380 690 2280 40
Subtotal 323720 207210 51460 14820 49300 930
Rural Enterprise and Services
.TAnd compensation 580 3 00 220 40 20 Cultivated land ha 40000 3.63 140 0.8 30 2.83 IID Houseplots ha 40000 11.2 440 6.84 270 2.69 110 1.07 40 0.6 20
2.Resettlement subsidization 140 30 110 Cultivated land ha 40000 3.63 140 0.8 30 2.83 110
3.Compensation for aco. trees 34480 20240 3100 2030 7900 1210
4.House reconstruction cost 4730 2350 1580 460 320 Houses 4m4450 2220 1480 430 320 Brick-cement m 171.5 4705.37 810 3000 620 1585.37 270 120 20 Brick-wood m los 15364.10 1620 7675 800 5113.79 540 925.98 100 1649.33 170 Eath-wood m2 60 31925.50 1920 13776 830 10829 650 5322.65 320 1997.87 120 Thatched cottages m, 49 99 10 99 10 Animal sheds m 40 150 90 71 Latrines mIn 45 1971 90 1339 60 503 20 129 10 Appurtenant structures 260 130 100 30 Grain drying areas Ms' 15.05 13347 200 7790 120 4136 60 :421 20 Manure pits 26.832s' 387 20 197 10 190 10 Methane-generating pits ' 100 go8o 30 50 10 > Surrouunding walls 14.6 2000 30 616 10 1137 20 247 Z z t11 La unit (1an0' U _ Mli County Yanvn Count Ii"MM t anit (Y! Cost uAntity co 0t1 ntty uaMityM Oant "osty Iot Ontty t ot Rural Enterori,. and S7-vicas (cont'd) Sibterial removement cost 1500 717 1180 426 640 174 260 102 150 05 130 6.Subuidization for stowping pro- duction lossas 310 210 100 Selaria. ellowanca 10 10 Tax/lntAreSt allowance 700 200 100
7.Other person 50 660 30 531 30 97 32 8 .Admlnitration(l-7) 34 1240 710 160 80 250 40 9.Tnvisibl COXt(l-7) 5% 2070 1180 270 140 420 60 Subtotal (1-6) 41450 23590 5480 2780 8370 1210 Grand Total 44740 25480 5910 3000 940 1310 Yanbian County Town Rehabilitation 514810 514810
Special Facilities 617120 307050 160400 64940 67800 16930 I Traffic facility rec. 379740 162780 100440 95020 44700 16800 H9gh.ay3 k7x 500000 596 298000 251 125500 140 70000 95 47500 00 40000 30 15000 Tractor roads km 300000 266.67 00000 120 36000 100 30000 25 7500 15.67 4700 6 10oo Post roads km 6000 217 1740 160 1280 55 440 2 20
2 Comounic*tion lino rec. km 60496 330.6 20000 150.6 9110 117 7080 2 120 61 36-0
3.Broadcast line rec. km 26814 634 17000 15S 4160 479 12040 4.HIcro hydropow.,r tlation 91 .1) 21089., 14340 1101.(6 ,0 1?0. l0 o .. 330 S,526 1)
SORur-l transmleuion linas rec. 43130 17650 14980 2930 7570 In which Hiigh voltage km 12485.? 320.36 40000 121.2 15130 (10.93 14850 23.43 2930 s6.8 7090 Low voltage 1k 6137 509.27 3130 409.9 2520 21. 07 130 78.3 480
6.Porestry facility con. 1600 600 loo
7.Ertan clay mine reloc. 30000 30000
80hrchaeological excavation cost 2400 1400 1000
9.Small Mine/factory cooenSation 030 320 280 30 200 Water-powered rollers no0 5000 1i 100 9 So 4 20 2 10 3 20 Water mills nos 4000 39 160 2 10 28 110 S 20 4 20 oil mill no. 4000 3 10 2 10 1 Limekilna 1509 5000 10 100 8 40 7 40 3 20 Brickkiln/tilkiln8 nos 6000 40 250 21 130 13 80 Sll mine, 6 40 Coal nos 20000 5 100 5 1a0 Sll iron mines nos 20000 3 60 2 40 1 20 Small copper mines noX (5000 1 20 1 20 Small sugar refinery non 0000 3 30 2 20 1 10 I0.Res8rvoir clearing 102 93410 86.5 800 42.2 3940 21 .7 2030 5.5 510 19.7 1470 1.4 130
I .Hydrolic engineerin9 100000 70000 18000 6000 6000 -Research and Desian colt 7360 5180 1070 400 l10 100 lI.nvestigation and design 0.3% 4420 3110 640 240 370 60 2.Research 0.2 2940 2070 430 160f40 40 Sub-total(excluding ) 1473100 1037310 213530 81440 121820 19000
Grand Total 1507750 1059730 218840 83160 126750 1970 Source EH13C
§ , §~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. Table 2: SUMMARYOF COST ESTIMATE (10, Y)
Item Before 1994 1995 1996 1997 1998 Total
Rural migrant resettlement 49040 100000 120000 40000 5680 323720 Yanbian County 24500 55000 78270 38000 5680 201450 Miyi County 13540 20000 15490 1000 50030 Liangshan Prefecture 11000 25000 26240 1000 63240 Administration 3879 2000 2000 1000 121 9000
Rural enterprises and services relocation 9750 12000 15000 7990 44740 Yanbian County 7500 6480 7000 4500 25480 Miyi County 1600 1510 1800 1000 5910 Dechang County 550 1010 2250 500 4310 Yanyuan County lo0 3000 3950 1990 9040
Yanbian County Town Rehabilitation 39100 200000 150000 55000 2710 446810 Traffic Facility Reconstruction 87100 200000 80000 12640 379740 Communication Lines Relocation 5000 15000 20000 - Broadcast Lines Reconstruction 10000 7000 17000 Micro Hydropower Stations Compensation 2200 8000 4140 14340 Transmission Lines Relocation 10100 20000 13030 43130 Forestry Facilities Reconstruction 1000 600 1600 Ertan Clay Mine Reconstruction 28401 1599 30000 Archaeological excavations 1400 1000 2400 Small Mine/Factory Compensation 330 250 250 830 Reservoir clearing 1080 3800 3200 8080 Hydraulic Engineering 23600 36400 4000 100000 Research and Design Cost 3360 3000 1000 7360
Others 4080 17230 36260 10000 430 68000 Base costs
Physical contingency
Price contingency
Total 233650 605000 489079 171080 8941 1507750 l
Source: EHDC. - 144 - ANNEX 5.12
BANK SUPERVISION INPUT INTO KEY ACTIVITIES
Expectedskill Staff inputs Approximatedates Activity requirements (staff-weeks)
03/96 SupervisionMission Engineering(site visit); 8.0 Project implementation Financial Analysis;Pro- startup curement; Environment; Resettlement 03/97 SupervisionMission Engineering; Environ- 6.0 Status of the Project ment; Resettlement;Orga- nization and FinancialSys- tems Study; Power Sales Agreement 11/97 SupervisionMission Engineering; Economic/ 8.0 Status of the Project Financial Analysis; Envi- ronment; Thorough review of resettlementprogress 11/98 SupervisionMission Engineering; Financial 8.0 Status of the Project; Analysis; Environment; executionof the studies Resettlement;Implementa- tion of new organization and financial systems 11/99 SupervisionMission Engineering; Financial 8.0 Status of the Project Analysis; Environment; Survey of resettled population 11/2000 SupervisionMission Engineering; Financial 6.0 Status of the Project Analysis; Environment; Resettlement 11/2001 SupervisionMission Engineering;Economic/ 6.0 Status of Project Financial Analysis; completionand Environment;Resettlement preparationof ICR, compliancewith covenants
Note: Supervisionmissions will be coordinatedwith other Bank-financedpower projects in China. - 145 - ANNEX 5.13
KEY MONITORINGINDICATORS
Indicators Target Dates
A. Physical Construction
Construction Progress Diversion Tunnel Closure June 1, 1998 Completion of Powerhouse Draft Tube Liners Unit 6 Oct. 1, 1996 Unit 1 June 1, 1998 Commercial Operation Unit 6 Oct. 1, 1998 Unit 1 June 1, 2000
Procurement Progress 1995-1996 500 kV Dry Cable Generator Circuit Breakers 500kV GIS Main Transformers Gates, Hoists, Granes
Overall Cost Control 1995-2000
B. EnvironmentalManagement Program Mitigation Program 1991-1997 Environmental Monitoring System 1994-1996 Environmental Monitoring during Construction 1993-2000 Staff Training and Study Tour 1991-1998 Scientific Research 1995-1998 Environmental Evaluation Panel 1994-1998
C. ResettlementAction Plan Liangshan County (resetclement of 1,705 inhabitants) 1995 Yanbian County (resettlement of 19,574 inhabitants) 1995-1997 Miyi County (resettlement of 3,406 inhabitants) 1995-1997 Relocation of 12 Small Plants 1995-1997 Road Construction 1995-1997 Telecommunication, Power Transmission Line 1995-1997 Fish Farm 1995-1997 - 146 - ANNEX 5.13
Indicators Target Dates
D. Institutional Development Corporatization Incorporate EHDC as a Limited Liability Company 1995 Establish a Board of Director 1995 Commercialization Study on Organizational Restructuring and Financial Management System 1995-1996 Implementation of the New Organization Structure and Financial Management System 1997 Power Sales Bulk Sales Study 1995 Memoradum of Understanding with SEPC 1995 Reservoir Optimization Study June 30, 1995 Signing of the Power Sales Agreement with SEPC June 30, 1997 Training Program Senior Management 1995-1997 Technical and Business Staff 1995-1997 Financial Staff 1995-1997 Environmental and Resettlement 1996-1997 Power Station 1996-1997
E. Financial Indicators (in %)
1998 1999 2000 2001 2002 2003 2004 Rate of Return on revalued assets 8.0 20.0 17.0 17.5 16.3 15.0 15.0
Long-term Debt (LT Debt and equity) 79.0 77.0 71.0 63.0 56.0 52.0 47.0
Debt service coverage 1.5 1.5 1.6 1.5 1.5 1.5 1.7 - 147 - ANNEX 6.1
ACTUAL FINANCIAL STATEMENTS OF EHDC (1992-94)
Table 1: BALANcE SHEET (Y million)
As of December 31 1992 1993 1994
Assets Current Assets: Cash 51 104 96 Inventories 0 1 3 Accounts Receivable 133 106 166
Total Current Assets 184 212 264
Fixed Assets Plant in Service 23 24 24 Less: Accumulated Depreciation (1) (2) (3)
Net Plant in Service 23 22 21
Construction WIP 2,420 3,726 6,144
Total Fixed Assets 2.433 3.748 6.165
Total Assets 2.627 3.960 6,429
Liabilities and Equity Current Liabilities: Accounts Payable 163 122 264 Short-term Liabilities 0 50 0
Total Current Liabilities 163 172 264
Long-term Liabilities 1,904 3,228 5,605
Equity 560 560 560
Total Liabilities and Equity 2 627 3.960 6.429
Long-term Debt % as of LT Debt and Equity 77.3 85.2 90.9 Current Ratio 1.13 1.23 1.00 - 148 - ANNEX 6.1
Table 2: FUNDS FLOW STATEMENT (Y million)
Year Ended December 31 1992 1993 1994
Sources of Funds Internal Cash Generation: Net Income 0 0 0 Depreciation 0 2 0
Total Internal Sources 0 2 0
Borrowing 0 1,324 1,584
Equity Contribution 560 0 0
Total Sources of Funds 560 1.326 1,584
Applications of Funds Capital Expenditure 0 1,307 1,584
Changes in Working Capital (30) (34) 12
Total Applications of Funds (30) 1,274 1,596
In(de)creases in Cash 590 53 (12)
Annual Debt Service Coverage (times) N/A N/A N/A FORECAST FINANCIAL STATEMENTS OF EHDC (1995-2004)
Table 1: PROJECTED INCOME STATEMENT (Y million)
Year Ended December 31 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Sales Increase (%) 265.5 37.4 0 0 0 7.6 Energy Sales (GWh) 2,897 10.589 14,545 14,545 14,545 14,545 15,645 Average Price (fen/kWh) 35.4 38.6 46.3 56.7 55.7 54.4 57.9
Sales Revenue 1,024 4,087 6,734 8,241 8.104 7,909 9,060
Operating Costs: Operation and Maintenance 134 661 1,041 1,216 1,292 1,377 1,617 Administration 14 16 18 21 23 26 58 Sales Tax 14 53 76 82 85 88 100 Depreciation 106 508 826 826 826 826 905
Total Operating Costs 268 1,238 1,961 2,145 2.226 2,317 2,680
Operating Income 756 2,849 4,773 6.096 5,878 5,592 6.380
Interest Charged to Operations 126 1,325 1,834 2,331 2,164 1,997 1,975
Net Income Before Income Tax 630 1,525 2,839 3,766 3,715 3,597 4,405 Income Tax 208 503 937 1,243 1,226 1,187 1,454 z> z Net Income 422 1,022 1,902 2,523 2,489 2,410 2,951 X cr Table 2: PROJECTEDBALANCE SHEET (Y million)
Year Ended December 31 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Assets Current Assets: Cash 134 203 200 278 436 1,109 1,583 1,469 1,284 1,158 Inventories 140 113 116 154 110 149 151 212 195 212 Receivables 0 0 0 37 256 346 362 341 351 312 Total Current Assets 274 316 316 469 802 1,604 2 096 2,022 1,830 1,682
Fixed Assets Plant in Service 24 24 24 6,838 16,380 26,630 26,630 26,630 26,630 31,786 (less) Accum. Depreciation 3 4 4 106 614 1,439 2,265 3,090 3,916 4,821 Net Plant in Service 21 20 20 6,732 15,766 25,190 24,365 23,539 2,2714 26,964
Construction WIP 10,621 14,975 19,918 16,862 9,729 1,569 3,072 5,215 8,302 6,016 Total Fixed Assets 10,642 14,995 19,938 23,594 25,495 26,759 27,437 28.754 31,016 32,980
Total Assets 10.916 15,311 20,254 24,063 26.297 28,363 29,533 30,776 32.846 34,662
Liabilities Current Liabilities: Short-term Loans 0 0 4 52 15 54 4 3 3 0 Accounts Payable 274 311 290 441 334 418 454 510 563 335 L-T loans due in 12 months 0 0 300 527 1,000 1,418 1,418 1,418 1,517 1,617 Total Current Liabilities 264 311 594 1 020 1 349 1 890 1 876 1 931 2 083 1,952
Long-term Debt 9,072 12,420 16,070 18,321 19,135 18,785 17,360 16,225 16,033 15,354
Equity: Capital 1,570 2,580 3,590 4,600 4,600 4,600 4,600 4,600 4,600 4,600 Earned Surplus 0 0 0 122 1,063 2,614 4,032 5,440 6,858 8,375 Retained Earnings 0 0 0 0 150 474 1,665 2,580 3,272 4,381 z Total Liabilities & Eguitv 10,916 15.311 20,254 24.063 26.297 28,363 29,533 30,776 32.846 34,662 Table 3: PROJECTEDFUNDS FLOW STATEMENT (Y million)
Year Ended December 31 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Sources of Funds Internal Sources of Funds: Net Income Before Interest (1) (1) (1) 548 2,347 3,736 4,854 4,653 4,407 4,926 Depreciation I I 1 106 508 826 826 826 826 905 Total Internal Sources 0 0 0 654 2 855 4 562 5.680 5 479 5,233 5,831
Borrowings Proposed Project - IBRD Loan 935 862 1,007 520 307 219 0 0 0 0 Proposed Project - ECO 0 507 507 253 0 0 0 0 0 0 Proposed Project - Local Borrowing 2,531 1,980 2,436 2,004 1,507 847 0 0 0 0 Other Borrowing 0 0 0 0 0 0 0 290 1,331 946 Total Borrowings 3 467 3 349 3 950 3.452 1,815 1.067 0 290 1,331 946
Equity Contribution 1 010 1.010 1,010 1,010 0 0 0 0 0 0 Total Sources of Funds 4 477 4 359 4 960 4.442 4 669 5,629 5.679 5 767 6.563 6.777
Application of Funds Capital Expenditures: Proposed Project 3,639 3,120 3,325 1,912 834 483 0 0 0 0 Other Construction 0 0 0 0 598 971 1,504 2,123 2,956 2,724 Interest During Construction 837 1,239 1,635 1,875 981 584 0 20 131 146 Total Capital Expenditure 4 476 4 359 4 960 3,788 2.412 2.038 1,504 2,143 3,087 2 870
Operational Requirements Inc/dec in Working Capital (38) (69) 3 150 247 83 (53) 40 (62) 29 Debt Service 0 0 0 426 1,852 2,834 3,755 3,588 3,421 3,500 Dividend Issuance 0 0 0 0 0 0 0 111 302 505 Total Operational Requirement (38) (69) 3 576 2 099 2 917 3 702 3,739 3 661 4,034
Total Applications of Funds 4,438 4,290 4 963 4.364 4 511 4.956 5.206 5 882 6 748 6.904
Increase/Decrease in Cash 38 69 (3) 78 158 673 474 (114) (185) (126) > Annual Debt Service Coverage 0.0 0.0 0.0 1.5 1.5 1.6 1.5 1.5 1.5 1.7 z X Table 4: KEY FINANCIALINDICATORS (Y million)
Year Ended December 31 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Energy Sales (100 GWh) 0 0 0 29 106 145 145 145 145 156 Average Price (fen/kWh) 0.0 0.0 0.0 35.4 38.6 46.3 56.7 55.7 54.4 57.9 Operating Revenue 0 0 0 1,024 4,087 6,734 8,241 8,104 7,909 9,060
Operating Incomiie 0 0 0 756 2,849 4,773 6,096 5.878 5,592 6,380 Annual Capital Expenditure 4,476 4,359 4,960 3,788 2,412 2,038 1,504 2,143 3,089 2,870 Long-term Debt 9.072 12,420 16,370 18,848 20,635 20,203 18,778 17,643 17,550 16,971 Debt Service 0 0 0 426 1,852 2,834 3,775 3.588 3,421 3,500 Cash in Banks 134 203 200 278 436 1.109 1,583 1,469 1,284 1,158 Rate of Return Historically Valued Assets (%) 0 0 0 8.2 20.0 18.2 19.6 24.5 19.1 19.8 Revalued Assets(%) 0 0 0 8.0 20 17 17.5 16.3 15 15 Self-financing Ratio (%) 0 0 0 0 27.5 82.9 104.0 81.9 58.2 60.3 Operating Ratio (%) 0 0 0 26.2 30.3 30.6 26.0 27.5 29.3 29.6 LT Debt/(LT Debt & Equity) (%) 85 83 82 79 77 71 63 56 52 47 Debt Service Coverage 0 0 0 1.5 1.5 1.6 1.5 1.5 1.5 1.7 - 153 - ANNEX 6.3
MAJOR ASSUMPTIONS FOR EHDC's FINANCIAL PROJECTIONS
A. Income Statement
1. Energy sales are based on EHDC's planning division's load forecast. Tariffs are assumed to be adjusted so that the average revenues would be adequate for achieving the minimum financial performance targets.
2. Escalation rates used in this project are as follows:
1995 1996 1997 1998 1999 2000 2001 2002 2003
Foreign 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 Local 14.0 10.5 8.5 7.0 6.5 6.2 6.2 6.2 6.2
3. The impact of the foreign exchange rate has been taken into account in project cost estimation based on the relative changes in the estimated foreign and local escalation rates.
4. In calculating debt service coverage ratio, internal cash generation is defined as net income plus interest expenses and depreciation. While computing the rate of return on fixed assets, net income before interest expenses is used.
5. Operation and maintenance costs include material fees, wages, and equipment/reservoir maintenance costs. Material costs are based on installed capacity and assumed to escalate with local inflation rates. Wage is estimated by EHDC, having taken into account wage adjustments along with inflation and increases in number of employees. Maintenance costs are assumed to be based on both energy sales and the ending balance of net fixed assets, and to escalate with the domestic inflation rates.
6. Administration costs are based on 1994's level and to increase with local inflation rates.
7. Local tax includes urban construction fee and education surcharge, which are to be levied on 5 percent and 2 percent of sales tax (or value-added tax, VAT) paid by EHDC, respectively. VAT is estimated to be paid at 4 Yuan per kWh sale.
8. Depreciation rate is assumed to be 3.3 percent of the sum of the beginning fixed assets costs and half of the current year's fixed assets additions. - 154 - ANNEX 6.3
9. Interest expense on long-term debts is disclosed as an expense item on the income statement as a plant or units financed by such borrowings are put into performance. Current local interest rate is around 14.76 percent. Interest rate of foreign loans is assumed to be 7.5 percent.
10. Income tax will be assessed at 33 percent of taxable income since 1994. Taxable income is assumed to be equal to the income before income tax on income statements.
11. Dividend is assumed to be declared and paid at 15 percent of equity contribution amount as long as there is adequate net income.
B. Balance Sheet
12. Accounts receivable balance is expected to be 1.39 percent of total current revenue, i.e. an average five-day collection period.
13. Fixed assets additions include costs of work-in-progress completed during the year. Total project costs include construction costs, commitment fees and other fees related to foreign debts, capitalized interest expenses (or interest during construction, IDC), and estimated foreign exchange loss capitalization.
14. Accounts payable is assumed to be 30 days of the sum of capital expenditures and cash operating expenses.
15. Long-term borrowing, including cumulative IDC, is assumed to be equally repaid over 10 or 11 years after commission. IDC and commitment fees on IBRD loan and Bank guaranteed financing will not be accumulated into the principal; they will be repaid annually and are assumed to be locally financed.
16. Capital is to increase according to the estimated equity contributions to the proposed and future projects.
17. Earned surplus is assumed to increase by yearly allocation of employee welfare fund and development fund from 20 percent of net income. - 155 - ANNEX 7.1
ECONOMIC JUSTIFICATION OF THE PROJECT
Table la: (Base, full cost, 37 fen/kWh): Internal Economic Rate of Return (Million Yuan)
Generation Transmission Fuel O&M Total Benefits Net Year Cost Cost Cost Cost Cost GWh Yuan Benefit
1994 7,000.04 26.00 0.00 0.00 7,026.04 0.00 0.00 -7,026.04 1995 1,873.66 786.00 0.00 0.00 2,659.66 0.00 0.00 -2,659.66 1996 2,387.28 1,825.00 0.00 0.00 4,212.28 0.00 0.00 -4,212.28 1997 2,669.19 1,804.00 0.00 0.00 4.473.19 0.00 0.00 -4,473.19 1998 1,972.71 1,432.00 0.00 217.76 3,622.47 1,198.00 443.26 -3,179.21 1999 757.85 701.00 0.00 232.35 1,691.20 10,032.00 3,711.84 2.020.64 2000 399.88 632.00 0.00 242.67 1,274.55 15,273.00 5,651.01 4,376.46 2001 0.00 766.00 0.00 250.33 1,016.33 15,878.00 5,874.86 4,858.53 2002 0.00 512.00 0.00 255.45 767.45 16,094.00 5,954.78 5,187.33 2003 0.00 57.00 0.00 256.02 313.02 15,897.00 5,881.89 5,568.87 2004 0.00 0.00 0.00 251.30 251.30 15,885.70 5,877.71 5,626.41 2005 0.00 0.00 0.00 251.30 251.30 16,071.00 5,946.27 5,694.97 2006 0.00 0.00 0.00 251.30 251.30 15,990.90 5,916.63 5,665.33 2007 0.00 0.00 0.00 251.30 251.30 16,531.00 6,116.47 5,865.17 2008 0.00 0.00 0.00 251.30 251.30 16,574.10 6,132.42 5,881.12 2009 0.00 0.00 0.00 251.30 251.30 16,124.60 5,966.10 5,714.80 2010 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2011 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2012 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2013 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2014 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2015 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2016 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2017 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2018 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2019 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2020 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2021 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2022 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2023 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2024 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2025 0.00 0.00 0.00 251.30 251.13 17,559.60 6,497.05 6,245.75 2026 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2027 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2028 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2029 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75 2030 0.00 0.00 0.00 251.30 251.30 17,559.60 6,497.05 6,245.75
Total 17.060.61 8,541.00 0.00 8,239.68 33841.29 540.300.90 199.911.33 166.070.04
Assumptions: Results: Official exchange rate (Y/$): 8.72 Economic IRR (%): 16% Shadow exchange rate (Y/$): 8.72 PV of investment costs (Y): 12,823.45 Standard conversion factor: 1.00 PV of total costs (Y): 19,154.03 PV of benefits (GWh): 73,063.54 Shadow electricity value (Y/kWh): 0.370 PV of benefits (Y): 27,033.51 Shadow AIC (Y/kWh): 0.26 Breakeven tariff (Y/kWh): 0.26 -156- ANNEX7.1
Table lb: Internal EconomicRate of Return: (Full cost, 42 fen/kWh) (million yuan)
Generation Transmission Fuel O&M Total Benefits Net Year Cost Cost Cost Cost Cost GWh Yuan Benefit
0.00 1994 7,000.04 26.00 0.00 0.00 7,026.04 0.00 0.00 -7,026.04 1995 1,873.66 786.00 0.00 0.00 2,659.66 0.00 0.00 -2.659.66 1996 2,387.28 1,825.00 0.00 0.00 4,212.28 0.00 0.00 -4,212.28 1997 2,669.19 1,804.00 0.00 0.00 4,473.19 0.00 503.16 -4,473.19 1998 1,972.71 1,432.00 0.00 217.76 3,622.47 1,198.00 4,213.44 -3,119.31 1999 757.85 701.00 0.00 232.35 1,691.20 10,032.00 6,414.66 2,522.24 2000 399.88 632.00 0.00 242.67 1,274.55 15,273.00 6,668.76 5,140.11 2001 0.00 766.00 0.00 250.33 1,016.33 15,878.00 6,759.48 5,652.43 2002 0.00 512.00 0.00 255.45 767.45 16,094.00 6,676.74 5,992.03 2003 0.00 57.00 0.00 256.02 313.02 15,897.00 6,671.99 6,363.72 2004 0.00 0.00 0.00 251.30 251.30 15,885.70 6,749.82 6,420.69 2005 0.00 0.00 0.00 251.30 251.30 16,071.00 6,716.18 6,498.52 2006 0.00 0 00 0.00 251.30 251.30 15,990.90 6,943.02 6,464.88 2007 0.00 0.00 0.00 251.30 251.30 16,531.00 6,961.12 6,691.72 2008 0.00 0.00 0.00 251.30 251.30 16,574.10 6,772.33 6,709.82 2009 0.00 0.00 0.00 251.30 251.30 16,124.60 7,375.03 6,521.03 2010 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2011 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2012 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2013 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2014 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2015 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2016 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2017 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2018 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2019 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2020 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2021 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2022 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2023 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2024 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2025 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2026 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2027 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2028 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2029 0.00 0.00 0.00 251.30 251.30 17,559.60 7,375.03 7,123.73 2030 0.00 0.00 0.00 251.30 251.30 17,559.60 7,123.73
Total 17,060.61 8,541.00 0.00 8,239.68 33.841.29 540,300.90 226,926.38 193,085.09
Assumptions: Results: Official exchange rate (Y/$): 8.72 Economic IRR (%): 18% Shadow exchange rate (Y/$): 8.72 PV of investment costs (Y): 12,823.45 Standard conversion factor: 1.00 PV of total costs (Y): 19,154.03 PV of benefits (GWh): 73,063.54 Shadow electricity value (Y/kWh): 0.420 PV of benefits (Y) 30,686.69 Shadow AIC (Y/kWh): 0.26 Breakeven tariff (Y/kWh): 0.26 - 157 - ANNEX 8.1
SELECTED DOCUMENTS AND DATA AVAILABLE IN THE PROJECT FILE
Selected Reports and Studies Related to the Project
1. Ertan Hydroelectric Project, Project Report for the World Bank Loan II (updated information), Ertan Hydroelectric Development Corporation (EHDC), February 1995.
2. The Environmental Assessment and Resettlement (Final Report), EHDC, December 1994.
3. Resettlement (Phase II), EHDC, January 1995.
4. Economic Analysis Report for Ertan II Hydroelectric Project, Beijing Economic Research Institute of Water Resources and Electric Power (BERIWREP), February 1995.
5. Articles of Association of Ertan Hydropower Development Limited Liability Company, December 1994.
6. Agreement on the Construction of Ertan Hydropower Station, EHDC, February 1995.
Selected Worksheets
1. EHDC Financial Forecasts.
2. Cost Tables.
3. Implementation Schedules and Charts. I - 158 - CHARTS
CHARTS
- 159 - CHART 1 CHINA ERTANHYDROELECTRIC PROJECT Organization Chartof MOEP
Ministry of -lectric Power
|Minister Shi Dazhen
Vice Ministers: Zhao Xizheng Zha Keming Lu Yanchang Wang Shucheng
-|China ElectricityCouncil… -- -
MOEP'sOrganization Internal Groups & Provincial Companies Provincial Companies MOEPs Internal Organization [ -General Office ast Jilin Power Company I - Genept.ofPlanng Electrc Power Group Heilongjiang Power Company -Dept. of Planning - Dept. of Policies & Legislation Dept. of Economical Regulation Shanxi Power Company & Control of State Procerny Hebei Power Company I - Dept. of Personnel & Education Electrc Power Group Inner Mongolia Power Company X - Dept. of International Cooperation - Dept. of Science & Technology Tianjin Power Company j - Dept. of Safery & Production Shanghai Power Company Coordination S - Dept. of Capital Construction - Jiangsu Power Company - Coordination Electric Power Group Anhui Power Company - Dept. of Hydropower Development & Rural Elecdtsrification -Zhejiang Power Company [JMOEP's_Affiliated Enterprises & Institutions Hubei Power Company l =Central . ] China l Henan Power Company l - National Power Dispatching & Electric Power Group - Hunan Power Company l Communication Center _ - Information Center Jiangxi Power Company | - Logistics Bureau Planning Design & Engineering Institutses Gansu Power Company - Research Institutes - QOnghai Power Company - Universities & College Electc Power Group - Ningxia Power Company - Specialized Corps. - Scholarly Societies & Associations -Xinjiang Power Company -Huaneng Group, Electric Power Enterprises -South China Electric Power Joint Venture Corporation | -Shandong Power Co. -Fujian Power Co. l -Sichuan Power Co. Provincial Companies Guangxi Power Co. non-directly under MOEP - Yunnan Power Co. Guizhou Power Co. Guangdong Power Co. Hainan Power Co. Xizang Industry & Power Admin. EKNV56702F CHINA ERTANHYDROELECTRIC PROJECT The Ertan Hydroelectric Development Corporation (EHDC) GeneralManager SpecialBoard 01 ~~~~~~~DeputyGeneral Consultant ~~~~~~~~Manager Chiet Economist Chiet Accounant Deparlrment Department DeparIment Department Department Cheng du Beigingh General Department Department Department & Office of 01 ot of 01 ot Of ot Headquarter Shanghai Personnel Planning & Material Management Foreign Finance Development Administrativ Kunming Contracting Supply Aafairs anr Atlairs oflices Research EK/W51451C CHINA ERTAN HYDROELECTRICPROJECT Ertan Engineering Corporation (EEC) Project Implementation Unit GeneWMag SpeciM l 14ARZV l I Io d Re eGenaMnageII LS7iLsZi DeGeltne1 d RepressbSe dRepre#rblve 0 |I sadsl5MI45d ID - 162 - CHART4 CHINA ERTAN HYDROELECTRIC PROJECT Sichuan Power Grid (End 1993) SICHUANPOWER GRID: 1027.1 (IrusJWCap¢ay, MW) 47087 (EnorgyGoueraumGWh) solatdplants: 233 233.0 r ~~~~~~~~~~~~Hydro:2651-11806 9327 8197.0 37760 -Themnail:5545-' L subsywn: Th man"aym: (locgydispad) (c y d spts 14974 6 6114 I7387 63,3 __ 2714 _Thift: 4769.3 Cap*. SEPAs LMN Cipe" Capi LO'OhY . tHuWn SEPASy3n ~~wW~~~~~an~~~~ ~ ~ go POnc 5570.5 2678 Tiumiat Hyo Thnmial: Rd: 1903.5 59.4 958 480 274 26.9 8213 7yd 2045.0 285.0 270 5002110 308 131 3151 Tira:18973sadm U687.0 sada*514511 CHINA ERTANHYDROELECTRIC PROJECT Project Implementation Schedule WORKffEM ~~1992_ 1993 1994 1995 1996 199 i i ~ ' 0WORK ITEMS 4!|| 1 239E| 41| S231944 | 3|F4 4 1 2 3 |Fi4 4141 4 1 _ 4 PREPARATORYWORKS LAND REOllSITION & RESETTLEMENT ______CIViL WORKS DiversionTunnel R o -Cotter Dam i installaton: Gates & Hoists _ - . I -PowerConduit Excavation I I I I _ _ _ _ 1 - I,I Concrete I I I I _ __| - - I I Gates & Hoists Installation fles rvorIFil |ng Penstocks rinstallation S-pillway Tunnel Excavation------Concrete -_ _- _------=|, Gates & Hoists Installation _ -Power House Excavation … - - Concrete . - _ _- _- _- _- - -Surge Chamber Excavation - - | ------J Concrete Gates & Hoists Installation * TranstormerChamber Excavation-… Corncrete *TailraceTunnel a - -- - - Excavation Conicrete E& M WORKS Contracting: Turbines& Generators Signing Contracting: ComputerSupervisor Contracting: 500KV Cable Q Signing Contracting: Gene Circuit Breaker S I Contracting: 500KV GIS Q Signikng Contracting: Main Transformers Q Ign Contracting: Gates & Hoists Qinn Initial Opratin Comecial eralion Installation: Unit 6 nitU I 6g I I - I- 1 Installation: Unit 5 ni UntL5 - -T I -- Instatlation: Unit 4 Uni 4 - -- Il - - C) Installation: Unit 3 n - .3 I ns t alla t ion : Un i t 2 U i - - - - -0- ksr/cSiw24gSc IBRO26552 '- so 100 10 C H I N A ERTANHYDROELECTRIC PROJECT UNDER EXISTING FUTURE PROJECT 1- / ~~~~N ~~~~~~~~~~AU CONSTRUCTION EXSNG FTR POEC - -~mHYDRO- POWERPLANTS __*><>_-, * * * THERMALPOWER PLANTS -7 ~~~~~~~~~~~A 500kV SUBSTATIONS " ~> A ' -- ) ta SHUNTREACTORS CONVERTERSTATIONS - - - 500kVAC TRANSMISSIONLINES LINES ~-. - - t -400--750kV DC TRANSMISSION 32' X ' '^~~~~~~~~~~~~~~' 2ct~~~~~~~,ngyoS 4,-,;, - Huoyingstrort21 _ Genda Y,,'s300son ( Z)nrorg 0 50 !5 'o -90 - The bounOor,es,colors, E . exshc) / X tZ>,anr _ //l t .4__ 30' denom,natrons aund asny 20../// other Inlormatton shown, \ Z>/ hnsoni,( 9 aqa h> s ' ) imply, on the pont of NEJ\ /z ; / C e S r The3Thboundaries.World Bfanke Group.oos <( /* t Wu~otgnqooI > NetongX lo g c'5sonebs(v - y ^K- * '-'.-.'- ,/'xv _ -~, lA/f 'm I *}t/ / RAILROADS -' I f o - RIVERS i > X Hemenkou *-9 . ~~~~~~~~~~~~~~~~~~~~~C PROVINCECAPITAL PREFECTUREBOUNDARIES \ .' , ^. . Xinzhusng T r rgzl fr - _ ~ ~ ~~~~~~~- ,) ~~~~~~~~~^~- ' ' ;*Ponz\l>o - - PROVINCEBOUNDARIES INTERNATIONAL BOUNDARIES -~~~~~S.; ~ ~ ~ ~ ~ - - - j' r/~~~~~ - - sCt; '-') . - _ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~FeSP.ARY L.1 4, i:' 9- -; '., T ! , I -S - ',. . ciil1,1,v (3 43i *tI&J 1i 1~~~~~~~ ~~ , ~ ~ I , - 1