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Document of The World Bank FOR OFFICIAL USE ONLY /-A/ 3Vb? - 69/4' Public Disclosure Authorized * 4 4 s Report No. 7969-CHA STAFF APPRAISAL REPORT CHINA Public Disclosure Authorized DAGUANGBA MULTIPURPOSE PROJECT SEPTEMBER 30, 1991 Public Disclosure Authorized Industry and Energy Operations Division Country Department III Asia Regional Office Public Disclosure Authorized This documenthas a restriceddistribution and may be used by recipents only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCYEQUIVALENTS (As of April 1991) Currency Unit - Yuan (Y) 1 Yuan - 100 fen 1 Yuan m US$0.19 US$1.00 - Y5.24 WEIGHTSAND MEASUIRES ha - Hectare (15 mu) km ' Kilometer (0.62 miles) kWh Kilowatt hour (860 kcals) GWh - Gigawatt hour (1.000,000kilowatt hours) TWh = Terawatt hour (1,000,000,000kilowatt hours) kW Kilowatt (1,000watts) MW Megawatt (1,000 kilowatts) kV Kilovolt (1,000 volts) kVA Kilovolt-ampere(1,000 volt-amperes) MVA = Megavolt-ampere(1,000 kilovolt-amperes) toe = Tons of oil equivalent PRINCIPAL ABBREVIATIONSAND ACRONYMS USED CIECC - China InternationalEngineering Consulting Corporation GIDI - Guangxi Electric Power Bureau Investigationsand Design Institute GVIAO - Gross Value of Industrial and AgriculturalOutput HEPCO - Hainan Provincial Electric Power Company HMC - High Main Canal HPG - Hainan Provincial Government MOE - Ministry of Energy MOF - Ministry of Finance MSDI - Mid-South Design Institute for HydroelectricProjects MWR - Ministry of Water Resources MWREP - Ministry of Water Resources and Electric Power PMO - Project Management Office RCC - Roller-compacted concrete RRP - Resettlementand RehabilitationProgram SAA - State Audit Administration SBC - Special Board of Consultants SEIC - State Energy Investment Corporation SEZ - Special Economic Zone SPC - State Planning Commission TCC - Technical Cooperation Credit WREPERI - Water Resources and Electric Power Economic Research Institute YGCB - Yangtze Gezhouba ConstructionBureau FISCAL YEAR January 1 to December 31 FOR OFFICIAL USE ONLY CHINA DAGUANW4BAMULTIPURPOSE PROJECT Loan/Creditand ProiectSummary Borrower: People'sRepublic of China Beneficiaries: Hainan ProvincialGovernment (HPG) Hainan ProvincialElectric Power Company(HEPCO) Amounts IBRD loan: US$30 million equivalent IDA credit:SDR 28.1 million (US$37million equivalent) Terms: IBRD loan: 20 years, including 5 years of grace, at standardvariable interest rate. IDA credit:standard, with 35 years maturity OnlendineTerms: The proceedsof the loan/creditwill be onlent from the Government to HPG, who in turn will relend to HEPCO with the same terms under a subsidiary loan agreement with 20 years of maturity,including five years of grace, at a relending rate of 7Z p.a. HEPCO will bear the foreign exchangerisk and the commitmentcharges. Proiect Obiectives and Description: The proposedproject is designedto promoteeconomic growth and alleviatepoverty in one of the less developed provincesof China. The main projectobjectives are to: (a) increasethe developmentof non-pollutingand cost- effectivehydropower resources to provideneeded peaking power in a predominantlythermal system; (b) increase agriculturalproduction to meet the needs of the growing population;(c) increasethe income of the poor farmersby intensifyingagricultural production and increasingthe productivityof croplandby alleviatingwater shortages and optimizingthe croppingpattern; (d) improvethe environmentalquality and public health of the regionby implementingan environmentalmanagement program; (e) strengthenlocal capabilitiesin developmentplanning of both power and agriculturalsectors; (f) promote rationalpricing of power ar..irrigation water; and (g) enhancethe operationa'efficiency and financial managementof HEPCO. The project includestwo main categoriesof components, power and agriculture/resettlement.The major power componentscomprise: (a) constructionof a 56 m high, 719 m long gravitydam of roller-compactedconcrete (RCC), flankedby about 5,100 m long earth embf.ibments; (b) constructionof an undergroundpowerhouse, equipped with four 60 MW generationsets, a surge shaft and 420 m long twin tailracetunnels; (c) erectionof about 36 km This document has a restricted distribution and may be used by recipients only in the performance ui their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - double circuit 220 kV transmissionline and Changjiang substation; (d) installationof a computerizedload dispatch system for the Hlainanpower grid; and (e) tech- nical assistance and training in project design, power system planning and tariff studies, utility and financial management. The major agricultural/resettlementcompo- nents comprise: (a) constructionof about 16-km long High Main Canal (HMC), about 154 km long branch/lateralcanals and on-farm works for the first stage development of irrigation totalllng about 12,700 ha in Dongfang County, of which about 1,400 ha would be related to resettlement; (b) resettlementof about 23,800 people in Dongfang and Ledong Counties, and provision of housing, infrastructure, on-farm works and land development for irrigation of about 2,300 ha; (c) provision of agriculturalsupport services; (d) provision of environmentalmanagement; and (e) tech- nical assistance fcr the preparationof an agricultural deve'lopmentplan. Benefits: Cost-effectivesupply of needed peaking power and irriga- tion water under the project would promote economic development and raise the standard of living in an impoverishedregion. The proposed power component is part of a least-cost power developmentprogram in Hainan. The overall economic rate of return of the project is 15 percent. Average per capita income of the farmers in the project area would increase from about US$75 to US$253 at full development. These ir;comeincreases would be significantin reducing the income imbalance of some 5,000 of the poorest families in Hainan. Farming activities under the project would generate abcut 14,300 new jobs, including increased employment opportunitiesfor women. Other unquantifiablebenefits of the project include institutionalbuilding, improved water supplies in a drought-proneregion and mitigation of environmental degradation. The development of renewable hydropower resourceswould mitigate air pollutior through the avoid- ance of burning some 300,000 tons of raw coal per year in Hainan. The water quality and public health in the region would also be enhanced by the implementationof the environmentalmanagement program (includingwastewater treatmentand a monitoring process) under this project. Risks: No major risks, includingenvironmental pro..lems, are foreseen for the proposed project. The tecehiicaland geological risks are expected to be minimal, as the project has been well investigatedand site conditions favor rapid constructionof the dam. To minimize potential risks associatedwith the execution of the project, including resettlement,assurances were obtained from the Government that it would ensure an adequate and timely flow of funds, and maintain effective project implementationmanagement. - lii - Estimated Costs: Local Forsizn Total ------ (USS million) ------ Preparatory Works 4.9 0.2 5.1 Resettlement 25.9 2.9 28.8 Environmental Management 1.2 0.7 1.9 Civil Works (Dam and Power Facilities) 35.3 0.9 36.2 HMC and Sanjiaolu canal system 7.5 2.5 10.0 Canals and on-farm works beyond resettlement 12.0 3.1 15.1 Major construction materials 1.0 25.7 26.7 Gates and Hoists 3.0 1.3 4.3 Turbines and Generators, and other plant equipment 13.5 1.2 14.7 T & G Governors and Static Excitation 0.2 3.8 3.9 PLC Equipment, transmission line, substation 2.2 5.1 7.3 Load Dispatch System for Hainan Island Grid 0.0 2.5 2.5 Agricultural f.pport Services 0.8 0.0 0.8 Project Management and Engineering 5.2 1.3 6.3 Technical Assistance and Training 1.0 1.4 2.3 Total Base Costs /a 113.6 52.2 165.8 Contingencies: Physical 10.5 2.9 13.4 Price 9.8 4.0 13.7 Total Prolect Costs 133.8 59.1 193.0 Interest during Constructions IBRD loan /b 4.8 2.0 6.8 Other loans 17.9 0.0 17.9 Total Financing Required /c 156.5 61.1 217.7 Project Financina Plan IBRD/IDA 17.0 50.0 67.0 TCC II 1d _ 0.3 0.3 UNDP - 0.1 0.1 Ministry of Water Resources 12.0 - 12.0 State Energy Investment Corporation 21.0 - 21.0 Hainan Provincial Government Loans 98.5 10.7 109.2 Grants 8.0 - 8.0 Total 156.5 61.1 217.7 Estimated IBRD/IDA Disbursements IBRD/IDA Fiscal Year 1992 1993 1994 1995 1996 -___________----- (US$ million) ---------- Annual 27.1 17.5 14.7 7.2 0.5 Cumulative 27.1 44.6 59.3 66.5 67.0 Economic Rate of Return: 15L La The project is exempt from taxes and import duties. /b Interest during construction (IDC) is based on onlending rate for projected disbursements of loan/credit proceeds. Foreign currency portion of ITDCis based on Bank loan variable rate for projected disbursements of loan proceeds. .L Figures may not add exactly due to rounding. /d Credit 1664-CHA. - iv - CHINA DAGUANGBA MULTIPURPOSEPROJECT STAFF APPRAISAL REPORT Table of Contents Paxe No. I. THE POWER AND AGRICULTURALSECTORS . 1 A. The Power Sector . 1 B. The Agricultural Sector . 6 II. THE PROJECT AREA .............. 10 A. Background on Hainan Island . 10 B. The Power Narket and the Program . 11 C. Agriculture in Hainan . 14 III. THE BENEFICIARY . 18 A. Introduction . s18 B. The Hainan Provincial Electric Power Company . 1i IV. THE PROJECT .... 22 A. Project Objectives and Rationale for Bank/IDA Participation .... 22 B: Project Description