INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: AC4171

Public Disclosure Authorized Date ISDS Prepared/Updated: 12/22/2009

I. BASIC INFORMATION

A. Basic Project Data

Country: China Project ID: P114069 Project Name: Shandong Energy Efficiency Project Task Team Leader: Gailius J. Draugelis Estimated Appraisal Date: May 24, 2010 Estimated Board Date: November 16, 2010 Managing Unit: EASCS Lending Instrument: Specific Investment Loan

Public Disclosure Authorized Sector: District heating and energy efficiency services (100%) Theme: Climate change (100%) IBRD Amount (US$m.): 150.00 IDA Amount (US$m.): 0.00 GEF Amount (US$m.): 0.00 PCF Amount (US$m.): 0.00 Other financing amounts by source: Borrower 150.00 150.00

B. Project Objectives [from section 2 of PCN] Public Disclosure Authorized The objective of the proposed project (Shandong Energy Efficiency Project) is to scale up energy savings investments through Energy Service Companies (ESCOs) and through the support for a limited number of direct investments.

The proposed project is part of a program (the #Program of Support#) to achieve energy savings through (a) investments in selected projects in Shandong Province and (b) strengthening suitable provincial level policies, institutional and financial mechanisms in Shandong, Shanxi and Jiangxi Provinces. This will be achieved by: (i) a GEF-financed capacity-building and technical assistance project, the GEF Provincial Energy Efficiency Scale Up Program (Project ID: P114182), implemented in Shandong, Shanxi and Jiangxi Provinces, and (ii) the investments planned as part of the proposed project, the Shandong Energy Efficiency Project (Project ID: 114069. Public Disclosure Authorized This ISDS focuses on the Shandong Energy Efficiency Project (SEEP). A separate ISDS has been prepared for the GEF Provincial Energy Efficiency Scale Up Project. However, section C below (#Project Description#) describes both projects, for easy reference and to emphasize that both projects are part of the same Program of Support. All other sections (including Section II -- #Safeguard policies that might apply# and #Environmental Category#) refer exclusively to the SEEP.

C. Project Description [from section 3 of PCN] Investment Part of the Program of Support (the Proposed Shandong Energy Efficiency Project#SEEP ) indicative GEF grant financing, US$150 million, total estimated project cost US$300 million)

(a) Scaling Up Support to Shandong Province#s Large-Scale Enterprise and Energy Service Companies (ESCOs). This component would support development and expand financing for a wide range of energy savings investments by providing a proposed IBRD loan of $50 million each to two leasing companies, the Shandong Rongshihua Leasing Company and the Guotai Leasing Company Ltd., both of which have special pilot leasing licenses from the Ministry of Commerce. A major focus of the component will be to develop and implement energy performance contracting (EPC) and risk allocation structures in more innovative ways through the use of financial leasing mechanisms to enlarge ESCO business scope and project size. An additional focus will be to expand the use of energy performance contracting in new market sectors.

The Bank will focus its appraisal on the leasing companies themselves and their operating mechanisms, rather than appraise specific subprojects, and provide credit for subprojects meeting agreed criteria. The criteria will include satisfactory completion of screening and adoption of necessary impact mitigation measures concerning environmental, involuntary resettlement, and other Bank safeguard issues. Eligible subprojects under this program will need to achieve a reduction in energy consumption per unit of output, and result in energy savings that comprise at least 50% of total benefits of the subproject or equivalent simple payback on energy savings investments (to be determined by the project team).

(b) Direct Investment Platform for Innovative Subprojects: The component will finance energy savings subprojects that have been screened by the Shadong Provincial Department of Finance (SPDF) and Shandong Development and Reform Commission (SDRC) using the following criteria: (i) consistent with Provincial and relevant municipal authorities# efforts to meet its energy savings targets; (ii) it follows relevant provincial industrial policies; (iii) subprojects have innovative aspects; (iv) minimize resettlement or other social or environmental adverse impacts. Subprojects that have been initially identified include:

# Shandong/Feicheng Chemical Acid Co. Ltd.: conversion of waste CO2 gas of its parent company to usable fuel and by-products. [WB financing $10 million out of RMB 142.6 million, $20.5 million total investment]. Proposed investments would enable the fertilizer factory to capture waste gas (CO2) that is currently vented from the ammonium production process into the atmosphere and convert it to CO to be used the existing plant as raw gas feed for the production of formic acid, the main product of Feicheng Chemical Acid Co. Since no additional coal would be needed for this process, it would reduce CO2 emissions both by recovering CO2 that is currently vented and by eliminating coal currently used to produce CO. No land acquisition is anticipated. # Anqiu Shengyuan Biomass CHP Company # financing of new 30 MW biomass CHP plant to generate power and heat in Weifang County. [WB: $16 million out of a $34 million total investment]. The proposal includes (a) 2x15 MWe units (condensing extraction turbines, air cooled generators, boilers); (b) network of at least 3 km (distance from plant to heat load). Feedstock (171,400 tons per annum) of corn stalk, wheat stalk and wood chips will be organized at six collection points.

# Jinan West Railway District Heating: -- Jinan municipality has indicated a potential interest in financing a greenfield district heating plant as part of its new high-speed railway station development. The initial scope of the project includes construction of a 3 x 70MW new boiler plant, network and substations to supply commercial and residential buildings. The Bank has indicated that this type of greenfield investment might be considered if the client accepts design changes that would increase system efficiency through use of variable flow technologies, smaller substations, metering and other heating supply system design modes that are compatible with ongoing district heating supply sector reform

Selection of substitute subprojects under (b). There may be during the course of project preparation that some of the above projects would be replaced with new ones. The Bank will accept new subprojects if they can show i) that 50% of the benefits come from energy savings or equivalent simple payback on energy savings investments (to be determined by the project team); ii) that safeguards impacts are minimized; iii) readiness in relation to other subprojects in the Project; and iv) link up with key energy conservation programs developed by the Province.

Technical Assistance Part of the Program of Support (The GEF Provincial Energy Efficiency Scale Up Project-Project ID: P114182) indicative GEF grant financing US$ 13.386 million

The proposed GEF project objective is to achieve energy savings through strengthening suitable provincial level policies, institutional and financial mechanisms in Shandong, Shanxi and Jiangxi Provinces. The proposed GEF project will support technical assistance, capacity building, including international and domestic training/workshops, potentially a limited amount of software and equipment (i.e. for monitoring activities) and special studies to strengthen institutions, policy making, and financial mechanisms that would scale up adoption of energy efficiency practices, technology and programs. The proposed component is to be used as a vehicle to introduce new ideas, innovations and lessons from other provinces and from outside China into the large-scale, ongoing energy efficiency programs of the Provinces. Critically, the component is proposed to be implemented over a period of 5 years so as to focus attention beyond achieving the current 11th 5yr plan targets.

Three subcomponents are proposed, each supported by 1/3rd and tailored to the priorities and requirements of each Province. The proposed component would, inter alia, focus on strengthening of institutional systems and implementation capacity development as well as moving toward creating incentives for energy efficiency investments such as through fiscal and pricing policies.

D. Project location (if known) The proposed project (the Shangdon EE Project) will be located in Shandong Province. Direct investments shall be made in Feicheng and Anjiu municipalities.

E. Borrower’s Institutional Capacity for Safeguard Policies [from PCN] Only one of the four companies in the proposed Project has had experience (through Energy Conservation project) with the World Bank safeguards procedures. During project preparation, the Bank Team safeguards specialists will evaluate the institutional capacity of the PMO, once established, and project sponsors for environmental assessment, involuntary resettlement(IR), and IR and environmental management supervision of the subprojects (implementation of safeguards framework procedures). If this capacity is deficient, technical assistance will be defined and incorporated into the project to strengthen this capacity accordingly.

F. Environmental and Social Safeguards Specialists Mr Youxuan Zhu (EAPCO) Ms Xin Ren (EASCS)

II. SAFEGUARD POLICIES THAT MIGHT APPLY Safeguard Policies Triggered Yes No TBD Environmental Assessment (OP/BP 4.01) X Overall, the Program of Support, which includes the proposed project, are expected to have a net positive environmental impact by expanding use of energy efficient technologies. The potential environmental impacts of the investments that will be carried out as part of the proposed project, the IBRD Shandong Energy Efficiency Project (SEEP), vary significantly, as described below.

The ESCO investment component of the SEEP will likely involve retrofits or replacement of existing plant and equipment, possibly with capacity expansion, but all of the specific investments will not fully be identified by appraisal. In order to deal with uncertainties involving unidentified subprojects during implementation, an Environmental Safeguards Framework will be developed by the ESCOs to ensure SEEP-financed subprojects comply with Bank and national environmental requirements. The Framework will include a subproject screening procedure and requirements for EA document preparation, approval, disclosure, supervision and reporting. This Framework shall be disclosed prior to appraisal. In addition, all subprojects will need to meet national and provincial environmental requirements.

The Direct Investment Component of the SEEP is proposed to include: a) Feicheng Acid Chemical: The installation and operation of the CO2 conversion chambers and gas network are not expected to have major, irreversible negative environmental impacts.

b) Anqiu Biomass CHP Plant: this plant will replace use of coal fired steam boilers used in industrial applications and expand use of district heating for residential and commercial buildings. Emissions from the boiler will be mitigated through well identified and known mitigation measures. Wastewater will be treated on-site according to domestic requirements before being channeled into Anqiu WWTP. As major solid waste, fly ash and bottom ash from combustion of agro-wastes can be used as raw material for fertilizer production. Arrangements are being made for sale of ash to a fertilizer manufacturer in Shandong Province. Temporary Safeguard Policies Triggered Yes No TBD negative environmental impacts during construction (such as earthwork) and building access roads to the site are well identified with standard mitigation measures.

c) Jinan West Railway District Heating. At the time of the Project Concept Note, a potential new district heating plant built in Jinan may be introduced as a new project. This would construct new coal-based boilers and therefore emissions and other environmental standards by the Chinese government and OP 4.01 will need to be strictly followed. Designs shall be more energy efficient than traditional constant flow designs. According to Chinese procedures, EAs will be required for all three direct investments. Natural Habitats (OP/BP 4.04) X SEEP is not expected to involve natural habitats. For the SEEP investment component (a) on ESCOs, although the subprojects are not identified, the proposed investments are expected to be energy savings investments in existing plant sites and therefore will not to pose any adverse impacts on critical natural habitats or other protected area. For investment component (b), both Feicheng and Anqiu subprojects have no natural habitat or any protected area found in their vicinity.

The screening process described in the Environmental Safeguards Framework will avoid any poitential impacts on Natural Habitat, Physcial Cultural Resources and Forests from the ESCO subprojects considered for funding. Forests (OP/BP 4.36) X Under the proposed project, the Anqiu CHP sponsor is exploring an option to establish a fast- growing tree plantation on mountainous barren land as reserve for fuel supply. Should they decide to establish the plantation, this safeguard policy will be applicable. Even if the Bank may not finance this commercial plantation, it will constitute a linked project. Their environmental impact assessment (EIA) needs to include such element as it is required by EIA regulations in China. The screening process described in the Environmental Safeguards Framework will avoid any poitential impacts on Natural Habitat, Physcial Cultural Resources and Forests from the ESCO subprojects considered for funding. Pest Management (OP 4.09) X None of the identified investments trigger the policy and energy conservation projects under the ESCO component do not normally trigger this policy. The Anqiu CHP sponsor is exploring an option to establish a fast-growing tree plantation on mountainous barren land as reserve for fuel supply. Should they decide to establish the plantation, this safeguard policy will be applicable. In this event, a pest management plan will be prepared as part of the environmental management plan for the project. Physical Cultural Resources (OP/BP 4.11) X For the investment component (a) on ESCOs, the environmental screening criteria for subprojects would include requirements to avoid cultural properties and the Environmental Framework will incorporate chance-find procedures. For investment component (b) both Feicheng, Anqiu and Jinan district heating subprojects have not identified to date any cultural properties on site but chance-find procedure will be included in their environmental management plan.

Safeguard Policies Triggered Yes No TBD The screening process described in the Environmental Safeguards Framework will avoid any poitential impacts on Natural Habitat, Physcial Cultural Resources and Forests from the ESCO subprojects considered for funding. Indigenous Peoples (OP/BP 4.10) X The proposed project is not expected to trigger the Indigenous Peoples safeguard policy. The initial screening done by the social development specialist in the task team has confirmed that there are no indigenous people in the overall project area. Involuntary Resettlement (OP/BP 4.12) X The proposed SEEP will trigger this safeguard policy due to potential, but limited, land acquisition and resettlement in the ESCO component, the Anqiu Biomass CHP component, and the Jinan District Heating Component. Due to potential negative impacts, a Resettlement Policy Framework will be developed for both ESCOs. In terms of individual investment subprojects, no land acquisition will be required for Feicheng Chemical Acid Plant subproject since all rehabilitation works will be located within the existing plant. For Anqiu Biomass CHP Plant, the implementation will involve permanent land acquisition of 7.57 ha of plant site, and limited temporary land occupation for both heat pipeline and water supply pipeline outside the plant. No house demolition is required. Since the land acquisition for the plant site is basically completed, a due diligence review will be carried out by an independent agency to ensure that basic national laws and regulations are followed and basic interests of affected people are protected. For Jinan District Heating Component, it consists of a heat supply plant and 15.6km of primary heating pipelines. The plant site will acquire a total of 7.84 ha of land areas from two villages with no house demolition. For the heating pipelines, they will be located along the proposed road networks in the West Terminal Development Area. Since the land acquisition for both plant site and related road areas is being carried out, a due diligence review will be carried out to ensure that the national laws and regulation are followed in a manner consistent with the policy. Safety of Dams (OP/BP 4.37) X Projects on International Waterways (OP/BP 7.50) X Projects in Disputed Areas (OP/BP 7.60) X

Environmental Category: A - Full Assessment

III. SAFEGUARD PREPARATION PLAN

A. Target date for the Quality Enhancement Review (QER), at which time the PAD-stage ISDS would be prepared: 10/14/2009

B. For simple projects that will not require a QER, the target date for preparing the PAD-stage ISDS: N/A

C. Time frame for launching and completing the safeguard-related studies that may be needed. The specific studies and their timing1 should be specified in the PAD-stage ISDS. The specific studies and their timing should be specified in the PAD-stage ISDS.

The following safeguards documents shall be prepared for review by the Bank by September 2009. These documents shall be disclosed following normal practices before appraisal.

# Environmental Safeguard Framework for the ESCO component # Environmental Assessment for Feicheng, Anjiu and Jinan subprojects # Resettlement Policy Framework for the ESCO component # Resettlement Due Diligence Reviews for Anjiu and Jinan

IV. APPROVALS

Signed and submitted by: Task Team Leader: Mr Gailius J. Draugelis 09/11/2009 Approved by: Regional Safeguards Coordinator: Mr Bekir A. Onursal 12/22/2009 Comments: Sector Manager: Mr Ede Jorge Ijjasz-Vasquez 09/28/2009 Comments:

1 Reminder: The Bank’s Disclosure Policy requires that safeguard-related documents be disclosed before appraisal (i) at the InfoShop and (ii) in-country, at publicly accessible locations and in a form and language that are accessible to potentially affected persons.