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World Bank Document Documentof The World Bank FOR OFFICIAL USE ONLY Lodv3/ 7 -C9 Public Disclosure Authorized ReportNo. 8470-CHA STAFF APPRAISAL REPORT Public Disclosure Authorized CHINA ERTAN HYDROELECTRIC PROJECT Public Disclosure Authorized June 11, 1991 Industry and Energy OperationsDivision Public Disclosure Authorized Country Department Asia Regional Office This doument ha a restlcted dsirbuton and may be used by redpint only in the perfonnance of their offic&adies. Its contt may no otherwise be dblosed whout World Bank atolzaton CURRENCY EQUIVALENTS (As of April 1991) Currency Yuan (Y) $1.00 Y 5.24 Y 1.00 $0.19 Y 1.00 100 fen FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES km - Kilometer (0.62 miles) kWh - kilowatt hour GWh - Gigawatt hour (1 million kWh) TWh - Terawatt hour (1 billion kWh) kW - Kilowatt (1,000 watts) MW - Megawatt (1,000 kW) GW - Gigawatt (1 million kW) kV - Kilovolt (1,000 volts) kVA - Kilovolt-ampere MVA - Megavolt-ampere(1,000 kilovolt-ampere) GVA - Gigavolt-ampere(1 million kVA) ton - 1,000 kg GLOSSARY AND ABBREVIATIONS CHIDI - Chengdu Hydro Investigationand Design Institute DRB - Disputes Review Board EEC - Ertan EngineeringCorporation EHDC - Ertan HydroelectricDevelopment Corporation EP - Environmental Panel ETIC - Energy and Transport InvestmentCorporation (SichuanProvince) GNP - Gross National Product GOC - Government of China HIPDC - Huaneng InternationalPower DevelopmentCorporation ICB - InternationalCompetitive Bidding LRMC - Long-Run Marginal Cost MOE - Ministry of Energy MWREP - Ministry of Water Resource..and Electric Power SAA - State Audit Administration SBC - Special Board of Consultants SEIC - State Energy InvestmentCorporation SPC - State Planning Commission SWCEPB - Sichuan Water Conservancyand Electric Power Bureau SCEPA - Sichuan Electric Power Administration TCC - Technical Cooperation Credit toe - tons of oil equivalent WREPERI - Water Resourcesand Electric Power Economic Research Institute FOROFFICLAL VWE ONILY CHINA ERTAN HYDROELECTRICPROJECT STAFF APPRAISAL REPORT Loan and Project Summary Borro-wer: People's Republic of China Beneficiaryt Ertan Hydroelectric Development Corporation (EHDC) Amount: $380.0 million Terms: 20 years, includinga nine-year grace period, at the Bank's standard variable interest rate. The proceeds of the loan would be onlent from the Government through Sichuan Province to EHDC under subsidiaryloan agree- ments with a 20-year term, includingnine years grace and the standard variable interest rate for Bank loans. The foreign exchange risk and commitmentcharges would be .,orne by EHDC. Project Objectives: The main objectivesof the project are tot (i) provide additionalgeneration capacity to the power system in Sichuan Province (3,300 HW and 17 TWh a year) in order to alleviate an acute shortage of electricity; (ii) assist in the transfer of modern power technology and in the introductionof efficientdam construction methods to reduce the prevailinglong gestationperiods of hydropower projects; (iii) contribute to further improvementsin the analysis of environmentaland eco- logical impacts of hydroelectricresource development; (iv) enhance the institutionaldevelopment of EHDC by strengtheningits organizationthrough a modern manage- ment training program and introducingprinciples of economic efficiency and pricing; and (v) provide tech- nical assistance in project design and implementation, and for the promotion of the optimal operation of the power system, prudent financialmanagement, and man- power development. Project Description: The proposed project would include: (i) preparatory works; (ii) constructionof a parabolic,double-curva- ture arch dam (240 m high) across the Yalong River together with an undergroundpowerhouse complex, a log conveyance system, and appurtenantworks and struc- tures; (iii) provision and installationof six 550-MW generatingunits and associatedequipment; (iv) reset- tlement of about 30,000 people; (v) an environmental management program and science station; (vi) consul- tant's services for engineering,procurement, manage- ofthek offlWduties. tscontents may not otherwise be disclosedwithout World ank authotization. - ii . ment of construction,and preparationof futurepower projects;(vii) studies of power pricingand power plant and reservoiroperation; and (viii)strengthening EIKDC'sorganization, technical assistance and staff training,together with relatedequipment and accesso- ries. Benefits: This very largeproject, based on renewableand nonpol- lutingcost-effective hydropower, would greatly increasethe generatingcapability of the Sichuanpower system. Accordingto economicanalyses, the projectis 40 percentless expensivethan its best hydrolthermal alternativesin meetingfuture power demand. The developmentof :he projectalso would enhanceindus- trial and agriculturalproduction in nearbyundeveloped areas. The projectwould help to improvethe subsec- tor's institutionaldevelopment, system operations, and managementand staffing. Purthermore,the projectwill avoidmining, transporting, and burningof some ten milliontons of raw coal a year in SichuanProvince vhich has the highestatmospheric pollution in China. The internaleconomic rate of returnbased on the cove- nantedtariff is about15 percent. However,if based on the willingnessto pay, this returnwould increase to 18 percent. Risks: Constructionrisks are withinreasonable limits and would be manageablewith the continuoussupervision arrangementsby foreignand Chineseconsultants who have been retainedfor the constructionphase. The consultantsare alreadyinvolved in reviewingpossible physicalrisks and proposingmeans and proceduresfor their avoidanceand mitigation.To minimizepotential risksassociated with the executionof the projectand its resettlementprogram, assurances were obtainedfrom the Governmentthat it would ensurean adequateand timelyflow of funds,and establishand maintaineffec- tive projectimplementation management. No major envi- ronmentalproblems are expectedunder this projectand the implementationof the proposedenvironmental man- agementprogram (including a monitotingprocess) would enhancethe environmentalquality in the projectarea. - iii.- Estimated Costs Local Foreign Total -- $--------million ---------- Preparatoryworks 102.4 0.0 102.4 Resettlement 82.3 0.0 82.3 Land acquisition 7.1 0.0 7.1 Arch dam (lot no. 1) 217.8 284.3 502.2 Powerhouse (lot no. 2) 159.8 212.4 372.3 E&M equipment 54.6 139.9 194.5 Transformere 15.3 1.8 17.1 Gateslhoists,etc. 38.8 7.0 45.8 Contract administration 26.8 2.1 28.9 Engineeringand technicalassistance 25.5 17.3 42.8 Training 0.6 0.8 1.4 Environmentalprotection 1.6 0.3 1.9 Studies 0.6 1.1 1.6 Base Cost (early-1991prices) 733.1 667.0 1,400.1 Contingencies: Physical 80.8 83.2 164.0 Price 107.9 120.8 228.7 Taxes and duties 67.3 25.5 92.8 Total Project Cost 989.1 896.4 1,885.5 Interest during construction 342.9 258.7 601.6 Total Fin&ncing Required 1,332.0 1,155.1 2,487.1 Project FinancingPlan IBRD loan - 380.0 380.0 IDA (TCC) La - 3.3 3.3 US Exim Bank Credit - 30.0 30.0 Norwegian Grant - 5.0 5.0 GOC (throughSEIC) 666.0 129.4 795.4 Sichuan Province (throughETIC) 666.0 129.4 795.4 Other Financing - 478.0 478.0 Total 1,332.0 1,155.1 2,487.1 Estimated Disbursements IBRD FY 1992 1993 1994 1995 -------------- million ------ Annual 110.0 103.0 73.0 94.0 Cumulative 110.0 213.0 286.0 380.0 Economic Rate of Return: 15Z la Credit 1664-CHA ($3.3 million used in 1989-91). iv - CHINA ERTANHYDROELECTRIC PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE ENERGYSECTOR . 1 A. Overview . *. a1 Energy Resources . .. 1 Coal . I HydroelectricPotential . 2 Crude Oil . .. 2 Natural Gas . 2 Biomass . 2 Nuclear Energy . 2 Other Energy Resources . 2 Institutionsof the Energy Sector . 3 Energy Investments. ... 3 B. Energy Sector Issues . , . 4 Intensityof Energy Use . 4 The Dominmace of Coal and Related Enviromental Problems . 4 Scale and Technology in Energy Industries . 5 Coal Subsector . 5 Electric Power Subsector . 5 Petroleun Subsector . 5 Energy Pricing . 5 Investment Funding System . 7 C. Energy Sector Strategy . 7 D. Bank Role in the Energy Sector . .. 7 II. THE POWER SUBSECTOR . 9 A. Background . 9 B. Institutions,Planning, and TechnologyTransfer . 10 Institutions . 10 Power System Planning . 11 Modern Technology Transfer . 11 C. Power Pricing . 12 D. Subsector Issues and Strategy . .. 13 E. Role of the Bank in the Power Subsector . 13 This report was prepared based on the findings of an appraisalmission which visited China in December 1989, and an updatingmission in February 1991. The appraisalmission consisted of V. Mastilovic (Task Manager), Y. Albouy (Prin- cipal Economist), S. Shum (SeniorFinancial Analyst), W. Partridge (Anthropol- ogist), and D. Graybill and C. Killoran (Consultants). Peer reviewerswere A. Mejia (AS4TE),W. Cao (EM4EE), and K. Jechoutek (ASTEG). Division Chief is R. Stern and Department Director is S.J. Burki. PaLe No. III. THE BENEFICIARY . 15 Introduction . 15 Organizationa M adanagement .1.5... ... ... iS Staffingand Training. 15 Planning,Budgeting and Control . 16 Accounting . .. 17 Audit . 17 Power Salesto SCEPA . ... ........ ..... 18 Billing and Collection . ... i 8. Insurance. 19 IV. THE POWER MARKETAND THE PROGRAM . 20 Background . 20 The SichuanPower System . 20 DemandForecast . 21 DevelopmentProgram . 22 V. THE PROJECT . 24 ProjectObjectives and Rationale for Bank Involvement . 24 Project Description . 24 Project Origin and Investigations. 26 Project Cost Estimate . 4 . 26 Financing Plan . .. 28 Procurement . 29 Disbursements . 30 Project
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