INTEGRATED SAFEGUARDS DATASHEET APPRAISAL STAGE

I. Basic Information Date prepared/updated: 05/25/2007 Report No.: AC2552 Public Disclosure Authorized 1. Basic Project Data Country: Project ID: P093882 Project Name: Flue Gas Desulfurization Task Team Leader: Jianping Zhao Estimated Appraisal Date: March 30, 2007 Estimated Board Date: August 16, 2007 Managing Unit: EASTE Lending Instrument: Specific Investment Loan Sector: Power (100%) Theme: Pollution management and environmental health (P) IBRD Amount (US$m.): 70.00 IDA Amount (US$m.): 0.00 GEF Amount (US$m.): 0.00 Public Disclosure Authorized PCF Amount (US$m.): 0.00 Other financing amounts by source: Borrower 23.46 Local Sources of Borrowing Country 16.50 Sub-borrower(s) 0.00 39.96 Environmental Category: B - Partial Assessment Simplified Processing Simple [] Repeater [] Is this project processed under OP 8.50 (Emergency Recovery) Yes [ ] No [X] or OP 8.00 (Rapid Response to Crises and Emergencies)

Public Disclosure Authorized 2. Project Objectives The development objective of the proposed project is to reduce SO2 emissions in the heat and power sector and enhance the capacity of regulatory authorities to monitor and enforce compliance with their SO2 emissions reduction program.

3. Project Description Investment Component

The investment component is to finance the installation of FGD facilities in six coal- fired heat and power plants that are currently operating or are under/planned for construction. A description of each heat and power plant is given below.

Huangtai Heat and Power Plant, located in City, currently has seven boilers and

Public Disclosure Authorized eight generators with a total capacity of 1,005 MW. It supplies electric power to the Shandong power grid and heat to local district heating grid of the Jinan city. Of these plants, 660 MW are already retrofitted with FGD. Two new 300 MW units are under preparation for construction so as to shut down the remaining 345 MW of capacity as well as more than 80 small heat-only boilers spreaded across Jinan city.

The proposed sub-project will finance the installation of wet lime/limestone scrubbers to the two new 300MW units. The FGD system consists of mainly the absorbent fabrication and supply system, the SO2 absorb system, flue gas system, the gypsum processing system, the water supply system, electric system and control system. The FGD system will be located behind the boiler house of the power plant. Each boiler will be equipped with a separate pressurizing fan, an absorber tower and a heat exchanger. The two boilers will share the lime making, gypsum dewatering and oxygen supply facilities.

The SO2 absorb system is the core of the FGD facility. It consists of an absorber, defog, circulating pump, oxidizing fan etc. The SO2 in the flue gas reacts with CaCO3 in the lime and form gypsum crystal after forced oxidization at the bottom of the absorber tower. The control system continuously monitors the gas flue, SO2 and O2 at the entrance and exit of FGD.

Laiwu Heat and Power Plant, located 9 km from the Municipality, currently consists of 3 X 125 MW coal-fired units. is currently under preparation for construction. The power plant is owned by Shandong Luneng Group. The three existing units are being retrofitted with FGD facility. Two new 300 MW coal-fired units are under preparation for construction. It is planned to supply heat to meet the growing needs in Laiwu Municipality and power to the Shandong power grid.

The proposed sub-project will finance the installation of wet lime/limestone scrubbers to the two new 300MW units.

Yantai Baijao Heat and Power Plant, located in the economic development zone of the Municipality, consists of two new 300 MW coal-fired units under preparation for construction. The power plant is owned by Shandong Luneng Group. The plant is planned to supply heat to the residential, commercial and industrial consumers in the economic zone and power to the Shandong grid. The proposed sub-project will finance the installation of wet lime/limestone scrubbers to the two 300MW units. The configuration of the FGD system is similar to the FGD system proposed for Huangtai as described above. Lubei Heat and Power Plant, located in Wudi County of Municipality, consists of 2 x 300 MW heat and power units. The power plant is owned by Shandong Lubei Enterprise Group. The power plant is currently under construction. The first 300 MW unit is scheduled to be commissioned in November 2007 and the second unit in May 2008. The proposed sub-project will finance the retrofitting of wet lime/limestone scrubbers to the two 300MW units. The configuration of the FGD system is similar to the FGD system proposed for Huangtai described above.

Zhenghe Subproject, sponsored by Zhenghe Group Company that currently owns two heat and power plants to supply heat and steam to the county economic development zone and urban area. The two plants currently operate five boilers (3 units @ 35 TPH and 2 units @ 75 TPH). Two new boilers each at 130 TPH are currently planned at a new location within the plant complex to substitute 113 existing small boilers in the county and meet the growing heating needs. The proposed project will include retrofitting the five existing boilers with wet limestone scrubbers and installing wet limestone scrubbers on the two new boilers.

Xintai Subproject, sponsored by Xinwen Mine Group that currently owns and operates two heat and power plants to burn coal sludge from coal washery. The two plants currently operate four boilers (3 units @ 75 TPH and one unit @ 130 TPH). Two new boilers at 480 THP are currently planned at a new location. The proposed new project will burn low grade coal and will supply power and heat to the mining complex. The proposed subproject will finance the retrofitting of one 130 t/h boiler, 3x75 t/h boilers with semi-dry FGD, and the installation of wet lime/limestone scrubber for the 2x480 TPH CFB boilers heat and power plant (2x150 MW) under preparation for construction.

Technical Assistance Component

(a) The technical assistance component is intended to strengthen the technical and institutional capacity related to SO2 emission control and reduction, particularly in the following areas: emission control planning, emission monitoring and regulation enforcement, technical and managerial training, the installation of on-line monitoring equipment. It includes both studies and capacity building activities.

Capacity Building for SO2 Control: This subcomponent comprises the following two activities: (a) develop rules, procedures and standards on installation, operation & maintenance of, and data transmission from continuous emission monitors (CEMs); (b) review the needs and make recommendations to upgrade the data information and transmission system, speed up and enforce the installation of CEMs and the associated facilities in each power plant (to link with and transfer data to SPEPB?s data system and information centers).

Policy and Regulation Development: While it is recognized that SO2 emission control in the power sector by installing FGDs in each power plant would be effective, it is equally important that Shandong Provincial Government take parallel actions to enhance and optimize its long-term policy effectiveness and sophistication in planning and implementing compliance program, designing and implementing market-based policies and instruments (e.g., emission trading) as well as enhancing environmental regulation compliance over power and non-power sectors. With regard to strategy and policy, SPEPB should optimize the design of SO2 control program to reflect the cost- effectiveness (RMB/ton of pollutant removed) for each possible environmental control project. Such optimization would achieve the same environmental benefit at a reduced compliance cost or higher environmental benefit (lower pollution) at the same cost. Also, market-based instruments would be used to optimize the compliance costs.

Staff and Managerial Training: Extensive training programs will be implemented to enhance the knowledge and capacity of government officials as well as key coal consumers on SO2 control policy and implementation. Areas of training would include: emission monitoring, data collection and analysis, CEM calibration and maintenance, and regulation enforcement, as well as operation & maintenance of SO2 emission equipment. Technical training activity will be targeted to SPEPB and local EPBs staff as well as power plant FGD operators.

4. Project Location and salient physical characteristics relevant to the safeguard analysis The proposed six sub-projects are located in different parts of Shandong Province. The specific locations are stated above in the Project Description section.

Social Impact: Out of the six subprojects, three will involve land acquisition and resettlement. A total of 112.9 ha of land area (including 71% farmland) will be acquired for the three sub-projects. Along with land acquisition, a total of 274 households and 743 persons will be physically relocated. Following national laws and regulations, appropriate compensations will be provided for acquired lands and lost properties, based on replacement values. The related subproject companies have developed their own Resettlement Action Plan (RAP), which have been reviewed by the Bank.

In terms of economic rehabilitation, different approaches will be adopted for different subprojects. For , all land loss farmers will be provided replacement farmland. In Yantai, following local policies all land loss farmers will be converted into non-farm status and provided with retirement plan, medical insurance, and job training and allocation. In Laiwu, the basic approach is to expand non-farm employment for most villagers and provide special assistance to the vulnerable so that their basic livelihood could be restored or improved.

The resettlement implementation will be carried out by subproject companies along with relevant city government agencies. To ensure successful resettlement implementation, a Resettlement Leading Group (RLG) will be established in each project city, under which a resettlement unit will be set up in each subproject company and will be responsible for planning and implementing the RAP. In the process of resettlement planning extensive consultations have been organized by the subproject companies. More efforts will be made during the resettlement implementation to encourage further participation by the resettlers. Following both Chinese law and the World Bank policy, the subproject companies will disclose the RAPs prior to implementation, which will inform the affected people about their impacts, compensation policies, rehabilitation options, and grievance procedure. To ensure smooth implementation of the resettlement and restoration of resettlers? livelihood, both internal monitoring and external monitoring & evaluation will be carried out during the resettlement implementation.

Environmental Impact: The project is in full compliance with all environmental regulations and procedures of the Peoples Republic of China, Shandong Province and the Bank. In accordance with the Bank policies and procedures for environmental assessment (EA, OP/BP/GP 4.01) the project has been assigned Category B. To meet Chinese requirements, Environmental Impact Assessment (EIA) reports were prepared for each subproject either for the FGD unit alone or for the combined FGD unit and associated boiler(s). To meet the Bank requirements, Environmental Management Plans (EMPs) were prepared for each FGD subproject. English language versions of the EMPs were received by the World Bank on November 18 and disclosed in the Infoshop on November 22, 2006).

The project is expected to provide overall positive environmental impacts with potentially minor negative impacts. Installation of FGD systems on coal-fired boilers will result in significant reductions of sulfur dioxide (SO2) and dust emissions. In turn these reductions are likely to lead to overall improvements in air quality for these pollutants. The Government has established that both SO2 and dust are in serious violation of Chinese air quality standards in many regions of Shandong Province. The potential negative impacts are primarily associated with the disposal of the gypsum by-product that is the chief component of the spent sorbent. Generally, this material will be utilized by construction industries. The amount will depend on its? physical and chemical quality and market demand. Any excess material will be disposed of in accordance with Chinese regulations at sites officially approved by either Provincial and/or local environmental authorities. The material is not hazardous

During construction, potential adverse impacts are of short duration, limited in areal extent and wholly reversible. They are primarily associated with the movement of men, machinery and materials (dust, noise, waste construction materials etc.). Mitigation measures are standard procedures constituting good engineering and construction practice.

E. Borrower’s Institutional Capacity for Safeguard Policies

The Shandong provincial government will be the borrower of the Bank’s loan proceeds. The Shandong Provincial Environmental Protection Bureau (SPEPB) has been designated as the coordinating agency and has established a PMO. Shandong as a whole appears to have strong capacity to implement projects including those financed by the Bank. SPEPB’s capacity is less well tested. However, each of the subproject companies has extensive experience of power plant construction and operations. EIAs are prepared by specialized institutes and approved by relevant Government authorities. EMPs and RAPs have been prepared by the subproject companies, which the Bank has reviewed and found in good quality.

To ensure successful resettlement implementation, a Resettlement Leading Group will be established in each subproject city. Each subproject company will set up a resettlement unit. Internal and external monitoring and evaluation mechanisms will also be in place.

5. Environmental and Social Safeguards Specialists Mr Bernard Baratz (EASTE) Mr Youxuan Zhu (EASTE)

6. Safeguard Policies Triggered Yes No Environmental Assessment (OP/BP 4.01) X Natural Habitats (OP/BP 4.04) X Forests (OP/BP 4.36) X Pest Management (OP 4.09) X Physical Cultural Resources (OP/BP 4.11) X Indigenous Peoples (OP/BP 4.10) X Involuntary Resettlement (OP/BP 4.12) X 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

II. Key Safeguard Policy Issues and Their Management A. Summary of Key Safeguard Issues 1. Describe any safeguard issues and impacts associated with the proposed project. Identify and describe any potential large scale, significant and/or irreversible impacts: The project is expected to provide overall positive environmental impacts with potentially minor negative impacts. Installation of FGD systems on coal-fired boilers will result in significant reductions of sulfur dioxide (SO2) and dust emissions. In turn these reductions are likely to lead to overall improvements in air quality for these pollutants. The Government has established that both SO2 and dust are in serious violation of Chinese air quality standards in many regions of Shandong Province. The potential negative impacts are primarily associated with the disposal of the gypsum by-product that is the chief component of the spent sorbent. Generally, this material will be utilized by construction industries. The amount will depend on its? physical and chemical quality and market demand. Any excess material will be disposed of in accordance with Chinese regulations at sites officially approved by either Provincial and/or local environmental authorities. The material is not hazardous.

2. Describe any potential indirect and/or long term impacts due to anticipated future activities in the project area: During construction, potential adverse impacts are of short duration, limited in areal extent and wholly reversible. They are primarily associated with the movement of men, machinery and materials (dust, noise, waste construction materials etc.). Mitigation measures are standard procedures constituting good engineering and construction practice.

3. Describe any project alternatives (if relevant) considered to help avoid or minimize adverse impacts.

4. Describe measures taken by the borrower to address safeguard policy issues. Provide an assessment of borrower capacity to plan and implement the measures described. Shandong as a whole appears to have strong capacity to implement projects including those financed by the Bank. SPEPB’s capacity is less well tested. However, each of the subproject companies has extensive experience of power plant construction and operations. EIAs are prepared by specialized institutes and approved by relevant Government authorities. EMPs and RAPs have been prepared by the subproject companies, which the Bank has reviewed and found in good quality.

5. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people. Social impact

Out of the six subprojects, three will involve land acquisition and resettlement.Following national laws and regulations, appropriate compensations will be provided for acquired lands and lost properties, based on replacement values. The related subproject companies have developed and disclosed their own Resettlement Action Plans (RAP), which have been reviewed by the Bank.

Economic rehabilitation

Different approaches will be adopted for different subprojects. For Xintai, all land loss farmers will be provided replacement farmland. In Yantai, following local policies all land loss farmers will be converted into non-farm status and provided with retirement plan, medical insurance, and job training and allocation. In Laiwu, the basic approach is to expand non-farm employment for most villagers and provide special assistance to the vulnerable so that their basic livelihood could be restored or improved.

Affected people have been widely consulted either via questionaire or via public meetings nearby the affected villages, schools and power plants.

All six EMPs and RAPs have been disclosed to the public in October 2006.

B. Disclosure Requirements Date Environmental Assessment/Audit/Management Plan/Other: Date of receipt by the Bank 10/30/2006 Date of "in-country" disclosure 10/30/2006 Date of submission to InfoShop 11/22/2006 For category A projects, date of distributing the Executive

Summary of the EA to the Executive Directors Resettlement Action Plan/Framework/Policy Process: Date of receipt by the Bank 10/30/2006 Date of "in-country" disclosure 10/30/2006 Date of submission to InfoShop 11/22/2006 * If the project triggers the Pest Management and/or Physical Cultural Resources, the respective issues are to be addressed and disclosed as part of the Environmental Assessment/Audit/or EMP. If in-country disclosure of any of the above documents is not expected, please explain why:

C. Compliance Monitoring Indicators at the Corporate Level (to be filled in when the ISDS is finalized by the project decision meeting)

OP/BP/GP 4.01 - Environment Assessment Does the project require a stand-alone EA (including EMP) report? Yes If yes, then did the Regional Environment Unit or Sector Manager (SM) Yes review and approve the EA report? Are the cost and the accountabilities for the EMP incorporated in the No credit/loan? OP/BP 4.12 - Involuntary Resettlement Has a resettlement plan/abbreviated plan/policy framework/process Yes framework (as appropriate) been prepared? If yes, then did the Regional unit responsible for safeguards or Sector Yes Manager review the plan? The World Bank Policy on Disclosure of Information Have relevant safeguard policies documents been sent to the World Bank’s Yes Infoshop? Have relevant documents been disclosed in-country in a public place in a Yes form and language that are understandable and accessible to project-affected groups and local NGOs? All Safeguard Policies Have satisfactory calendar, budget and clear institutional responsibilities Yes been prepared for the implementation of measures related to safeguard policies? Have costs related to safeguard policy measures been included in the project Yes cost? Does the Monitoring and Evaluation system of the project include the Yes monitoring of safeguard impacts and measures related to safeguard policies? Have satisfactory implementation arrangements been agreed with the Yes borrower and the same been adequately reflected in the project legal documents? D. Approvals

Signed and submitted by: Name Date Task Team Leader: Mr Jianping Zhao 04/11/2007 Environmental Specialist: Mr John Morton 04/22/2007 Social Development Specialist Mr Chaohua Zhang 04/24/2007 Additional Environmental and/or Social Development Specialist(s): Approved by: Regional Safeguards Coordinator: Mr Panneer Selvam Lakshminarayanan 04/27/2007 Comments: Sector Manager: Ms Junhui Wu 05/24/2007 Comments: