Document of The World Bank Public Disclosure Authorized

Report No: 29173

IMPLEMENTATION COMPLETION REPORT (SCL-42000 SCL-42001)

ON A Public Disclosure Authorized LOAN

IN THE AMOUNT OF US$430 MILLION EQUIVALENT

TO THE

PEOPLE'S REPUBLIC OF CHINA

FOR THE

XIAOLANGDI MULTIPURPOSE PROJECT: STAGE II Public Disclosure Authorized

June 28, 2004 Public Disclosure Authorized

Rural Development and Natural Resources Sector Unit East Asia and Pacific Region CURRENCY EQUIVALENTS (Exchange Rate Effective January 2004) Currency Unit = Yuan (Y) Yuan 1.00 = US$ 0.12107 US$ 1.00 = Y 8.26

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS AS - Antiepidemic Station BCM - Billion Cubic Meters CAS - Country Assistance Strategy CCPN - Central China Power Network CPLG - Central Project Leading Group CUM - Cubic Meter CUMEC - Cubic Meter per Second DRB - Disputes Review Board DSP - Dam Safety Panel EIA - Environmental Impact Assessment EMO - Environmental Management Office EMP - Environmental Management Plan EPMs - Environmental Protection Measures EPP - Emergency Preparedness Plan GOC - Government of China GWh - Gigawatt hours ICB - International Competitive Bidding IDA - International Development Association LRM - Lower Reach Model MCM - Million Cubic Meters MWR - Ministry of Water Resources NCB - National Competitive Bidding NCPN - North China Power Network NCHEI - North China Hydroelectric Institute PAB - Provincial Audit Bureau PAD - Project Appraisal Document POE - The International Panel of Experts on Environment and Resettlement PRO - Provincial Resettlement Office QAG - Quality Assurance Group RPDI - Reconnaissance Planning and Design Institute SAA - State Audit Administration SBD - Standard Bidding Document SEPA - State Environment Protection Administration SOE - Statement of Expenditures WRPI - Water Resources Protection Institute XECC - Xiaolangdi Engineering Consulting Company

XLD - Xiaolangdi Project YRCC - Yellow River Conservancy Commission YRCCRO - Yellow River Conservancy Commission Resettlement Office YRCHU - Yellow River Central Hospital Unit YRWHDC - Yellow River Water and Hydropower Development Corporation YRWHIDCRO - YRWHDC Resettlement Office

Vice President: Jemal-ud-din Kasum Country Director: Yukon Huang Sector Director: Mark D. Wilson Task Team Leader: Xiaokai Li

CHINA XIAOLANGDI MULTIPURPOSE PROJECT: STAGE II

CONTENTS

Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 5 5. Major Factors Affecting Implementation and Outcome 20 6. Sustainability 23 7. Bank and Borrower Performance 25 8. Lessons Learned 26 9. Partner Comments 28 10. Additional Information 38 Annex 1. Key Performance Indicators/Log Frame Matrix 45 Annex 2. Project Costs and Financing 47 Annex 3. Economic Costs and Benefits 49 Annex 4. Bank Inputs 51 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 53 Annex 6. Ratings of Bank and Borrower Performance 54 Annex 7. List of Supporting Documents 55 Annex 8 . Compliance with Loan Covenants 58 Annex 9 . Operation and Maintenance Plan and Emergency Preparedness Plan Summary 59 Annex 10. Loan Allocation and Disbursements 64

Project ID: P034081 Project Name: CN - XIAOLANGDI MULTI. II Team Leader: Xiaokai Li TL Unit: SASRD ICR Type: Core ICR Report Date: June 28, 2004

1. Project Data Name: CN - XIAOLANGDI MULTI. II L/C/TF Number: SCL-42000; SCL-42001 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Power (98%); Central government administration (2%) Theme: Other urban development (P); Rural services and infrastructure (P); Water resource management (P)

KEY DATES Original Revised/Actual PCD: 02/28/1997 Effective: 10/31/1997 01/12/1998 Appraisal: 02/28/1997 MTR: 07/31/1999 06/11/2002 Approval: 06/24/1997 Closing: 12/31/2003 12/31/2003

Borrower/Implementing Agency: PRC/YELLOW RIVER COMM. Other Partners:

STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Jean-Michel Severino Country Director: Yukon Huang Yukon Huang Sector Director: Mark D. Wilson Geoffrey Fox Team Leader at ICR: Xiaokai Li Daniel Gunaratnam ICR Primary Author: Daniel Gunaratnam

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: HS Sustainability: HL Institutional Development Impact: SU Bank Performance: S Borrower Performance: HS

QAG (if available) ICR Quality at Entry: HS HS Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The objectives of the project were: A. to provide flood protection for 103 million people in the North China Plain in rural areas, B. to control sediment accretion in the lower reach of the Yellow River for a period of about 20 years; C. supply water to several large and medium cities and major industrial centers, cities and industries; D. to supply irrigation water (and increase the reliability of irrigation) for some 2 million hectares and ensure more stable water supplies for downstream and E. to generate much needed hydropower to meet the peak power requirements in the Henan Grid.

3.2 Revised Objective: The above objectives remained relevant through out the entire project.

3.3 Original Components: The total Xiaolangdi multipurpose investment was supported by the Bank in two project stages. This report is concerned with the second stage project. (Stage I Project 12329-CHA). In considering the implementation completion of this stage II project, it is logical to consider as appropriate, both stages together, because the civil works and all other major contracts continued and were financed across both stages. Therefore, the objectives for both stages remained primarily the same.

Project Component 1—Dam and Appurtenant Structures and Hydropower Plant, including hydropower plant (turbine and generators), administration, engineering and consultants. The main features of this component were: l construction of Xiaolangdi rock-fill dam, 154 m high, with a crest length of 1,370 m; l construction of a common intake structure, feeding nine large diameter tunnels and surface spillway for river diversion, flood handling and sediment management, discharging into a common plunge pool; and l construction of a power station with six associated power tunnels with turbine and generators with an installed capacity of 1,800 MW (6 x 300 MW) and associated switchyards, and transformers.

This component contained the major investment under the project and supported all five project objectives (A-E) above. This component was completed well ahead of schedule and the quality of construction was excellent and is therefore rated highly satisfactory

Project Component 2—Training for Operation. The main emphasis of this component was to complete the training on construction management commenced under the previous stage 1 project and proceeded more intensified training for the post construction, management and operation skills required by YRWHDC. The main objectives of this component were: l to enable YRWHDC to function as a autonomous body in the efficient development and operation of water and hydropower projects, and be capable of exploiting opportunities expected to arise from the current wave of enterprise reform in China; and l to staff YRWHDC with appropriately skilled personnel, capable of handling the planning, general management, and financial management in order to run YRWHDC as a proper business enterprise.

This component supported component 1 and contributed heavily to the sustainability of the project. This component was fully completed ahead of schedule and has therefore been rated highly satisfactory.

Project Component 3—Environmental Management Plan Implementation. A salient feature of the environment protection program in the stage 1 project was the implementation of an Environment Management Plan. The Plan included the setting up of an Environmental Management Office (EMO)

- 2 - which, had the lead and coordinating responsibility for implementing all needed environmental protection measures including: l Management of continuing periodic monitoring for assessing the actual impact of the project; l Planning and implementation of the needed correction measures identified through the monitoring program; l Preparation of routine periodic reports (and special reports, when needed) for distribution to concerned Government agencies and to the Bank; and l Long-term monitoring of the downstream river hydrology and sediment flows and deposition.

The stage II project continued the detailed monitoring through the EMO to ensure the environmental management plan was implemented. There were five new areas of monitoring introduced: l Construction Site Monitoring. l Public Health. l Seismic Monitoring l Downstream catchment hydrology, sedimentation , etc l Special Studies and monitoring

This component supported project sustainability, addressed one of the Bank's key safeguards areas and added to the overall quality of completed works under component 1. It was completed ahead of schedule and was very thoroughly performed and is being adopted as a model for other projects and is rated highly satisfactory

Project Component 4—Flood and Sediment Forecasting and Water Dispatching System. The objective of this component was to upgrade the old flood management system to a modern integrated MIS for flood, drought, sediment and ice flow management and at the same time to establish modern institutional arrangements consistent with this integrated water resource management approach. Institutional reforms redefined the roles of the existing institutions of the YRCC for (a) data collection; (b) data base development and management; (c) model building and operation; and operation of decision support systems. The component also included the upgrading of existing facilities, computer networks, and communications systems. The component was supported by both international and national technical assistance for MIS design, modelling, training etc.

This component supported the 4 objectives A-D. The outcomes and impact go well beyond those documented in the PAD and is therefore rated highly satisfactory.

Project Component 5—Water Institutional Reform. This component consisted of reforming the water institutions to ensure that water management of the lower reach of the Yellow River is sustainable. In particular, there was a separation of the primary regulatory and operational functions and rationalization and amalgamation of both the existing functional responsibilities and the many existing institutions with responsibilities for managing the lower Yellow River. The important issues of water pricing across sectors and services, cost recovery and regulation were also address.

This component supported project sustainability and was successfully completed for the lower reach with a new management structure operating on a business basis and is therefore rated satisfactory. The outcomes were the establishment of a new agency to coordinate the Lower Yellow water distribution operations covering two of the largest provinces in China (Henan and Shandong with over 200 million people) and the successful agreement on water tariff reforms, involving the interplay of several government agencies and institutions, both at GOC and provincial level.

- 3 - 3.4 Revised Components: The components of this project were not revised in the course of implementation.

3.5 Quality at Entry: 1. The Quality at Entry was independently assessed and rated by the Bank's Quality Assurance Group (QAG) in 1997/1998 as highly satisfactory. The relevance of the objectives and matching of components in support these objectives is considered to be an important part of the quality at entry. The project objectives were consistent with GOC strategy, policy and priorities relating to flood control and management and water shortages for urban and irrigation. Therefore, the flood control objective of the project, including the requirements for sediment control to stabilize the lower reach of the River and to improve the environment and the safety of the river was the main feature of the project. The other objectives relating to water supply and irrigation stabilization were seen as very important priorities, as part of project. The generation of hydropower was an integral part of the multipurpose nature of the project. The project was consistent with the Bank’s Country Assistance Strategy (CAS), which emphasized support to environmentally responsible infrastructure development and is consistent with the Country Water Resources Assistance Strategy which emphasizes a combination of infrastructure development and institutional reforms for better water resource management. In addition, and to ensure sustainable utilization of water resources, the Government, in October 2002 issued the new national Water Law and a series of other laws/regulations that provided a legal and policy basis for the sustainable management by water management agencies and water projects. These clearly define the responsibility, duty, function and role of water management agencies and provide specific measures for the long-term development of such agencies.

2. The components were geared to achieving the objectives and all the objectives were component-supported. YRWHDC had adequate capacity as the implementing agency. It had built up its administrative capacity for physical implementation through appointment of managerial staff with successful experiences in the XLD Stage I project. Relevant lessons learned during the stage I project were applied in the stage II project design, procurement and through continuity of experienced staffing, supplemented by the hiring of experienced staff and consultants. The financial management capacity of YRWHDC had been built up during the stage I project and was operating at an adequate level for stage II. The project management arrangements set up under stage I, comprising a corporatized enterprise (YRWHDC) rather than as a government agency where already in place and functioning at a high level.

3. A feature of the design of the physical components was the support provided by timely and adequate technical studies. World-class experience was tapped through a Special Panel of Consultants throughout the design and construction process. As a result the designs were technically sound and met all applicable safeguard policies and contributed to the quality at entry assessment. The economic and financial analysis was established using river basin optimization models, which used a full 70 years series of hydrologic sequences and gave a detailed picture of the possible risks under different hydrology. The project preparation also anticipated the need for a Disputes Review Board (DRB) to resolve any disputes that arose between the international contractors and the owner. This DRB, consisted of consultants funded by the credit, proved to be very effective in dealing with complex contract variations and claims over the course of civil construction.

4. The design of the project addressed the Bank's safeguard polices for Dam Safety and the Environment. A international panel of Dam safety experts (DSP) was established to oversee the design and construction activities. The environmental analyses properly assessed adverse impacts and formed the basis of a well-defined Environment Management Plan (EMPs). Based on the experience and outputs of

- 4 - the stage I project, the Environmental Impact Assessment (EIA) was revised and upgraded and presented to the Bank's Board. The recommendation in the EIA and PAD to split the Environmental Management Office (EMO) into two functional areas, one for the Multipurpose Dam Project and the other for the Resettlement Project, which proved to be most effective. Public participation mechanisms before major decisions on environmental and resettlement issues were made, worked satisfactory.

4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The project achieved or exceeded all the objectives before the loan was closed in December, 2003. Most of the components were completed 12-15 months ahead of schedule. Therefore, the overall outcome is rated highly satisfactory. The main objectives of the project and achievements under each of the main components are presented below:

Objective A: Introduce flood control in the lower reaches of the Yellow River Basin to protect major infrastructure and 103 million people. Achievements: Starting from year 2000, the flood protection level downstream of Xiaolangdi Dam had been increased to 1:1000. The downstream ice flood hazards are eliminated. All the common floods, in particular those very frequent floods that could inundate the vast flood plains where over 1.3 million people live, are brought under control avoiding the enormous possible flood damage of the past. As an illustration prior to the completion of the dam, the 1996 flood event caused the following: (a) 251,000 ha of land (including 200,000ha farmland) was inundated; (b) 2.4 million people affected with 800,000 people entrapped; (c) estimated economic losses of Y6.46 billion. Starting from 2000 this type of damage has been avoided with the completion of the Xiaolangdi Dam. The dam is now capable of regulating the flows of the Yellow River during the flood and dry seasons. The flood forecasting system has been significantly enhanced and institutions are now in place to undertake flood forecasting. The reservoir is capable of completely reducing flood losses downstream between Huayuankou (Henan) and Lijin (Shangdong), and between Lijin and the estuary to a lesser extent. The reservoir is also capable of regulating flows so that ice floods can be completely avoided. During the 2000 winter, ice appeared on the piers in the river in Shandong, but there was no freezing of the river because adequate flow was released from the reservoir to prevent it from happening.

Objective B. Sediment Control for Downstream River Channel Siltation. Achievements: By end August 2003, a total of some 1 BCM of silt (see figure 1 below), about 14% of the storage reserved for sediment deposit (7.55 BCM), has been trapped in Xiaolangdi reservoir preventing siltation of downstream river course. In addition, an in-situ sediment-flushing test was conducted centered at Xiaolangdi July 4-15, 2002, resulting in erosion of the downstream river course with some 36.2 million tons of silt flushed into the sea. A total of 1.036 BCM of silt has been prevented from deposition in the downstream channel of the river. This level of silt control in the 3 years of operation clearly demonstrates that silt control by the dam is working very well. Silt control is extremely important because the river flow capacity has decreased from 22,000 cumecs in 1958 to 7,000 cumecs in 1996 at Huayuankou. The riverbed has been aggrading during this period and has lost 65 percent of its flow capacity. With the Xiaolangdi dam it will be possible to recover some of these losses in capacity in the river channel because the dam will release water to flush out the silt from time to time and also prevent further aggregation of silt in the channel.

- 5 - Figure 1 Sediment Trapped in Reservoir 2000-2003

1200

1000

800

600

400

Million Tons Trapped in Resevoir 200

0 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 May-97 May-98 May-99 May-00 May-01 May-02 May-03

Objective C: Supply Water to several large cities and stabilize water for 2 million ha of irrigation. Accomplishments: Since early 2000, Xiaolangdi Project has played a critical role in increasing the water supply for each user sector in the downstream areas. The downstream provinces are now able to be supplied with regulated water for urban and irrigation use when they most need it. In 2000 there was a significant drought (1/ 200 year) in the downstream areas and it affected all the North China Plain, covering some 300 million people of whom 50-70 million are urban residents. The only source of water was from Xiaolangdi Reservoir and the Government realized the strategic importance of using the reservoir to supply municipal and industrial water under severe drought, and consequently it has become the main objective of the project in the dry season above generating hydropower. Some 800 MCM of water were released from the reservoir in 2000 to supply key cities such as Tianjin to meet current demands. Table 1 for the incremental total and M& I water supplied with project.

Table 1 PAD ICR Analysis Of Water Supplied ICR Municipal and Industrial Water Supply 2020 (BCM/Yr) without Proj with Project Henan Shandong Total Henan Shandong Total Incremental Supply AVE 2.48 2.74 5.22 2.66 2.78 5.44 0.22 MAX 3.00 2.82 5.82 3.00 3.00 6.00 0.18 MIN 2.25 1.70 3.95 2.25 2.47 4.72 0.77 ICR Agriculture Water Supplied AVE 2.33 3.22 5.55 1.91 5.27 7.18 1.63 MAX 6.98 10.43 16.56 8.11 12.87 20.98 4.42 MIN 0.53 3.05 3.58 0.09 5.06 5.15 1.57 ICR Total Water Supplied AVE 4.81 5.959 10.768 4.57 8.06 12.62 1.86 MAX 9.975 13.244 22.377 11.11 15.86 26.97 4.60 MIN 2.784 4.742 7.526 2.341 7.525 9.866 2.34 PAD Municipal and Industrial Water Supply 2020 (BCM/Yr) AVE N/A N/A 4.67 N/A N/A 4.78 0.11 PAD Agriculture Water Supplied AVE 4.39 8.79 13.18 4.78 8.95 13.73 0.55

It can be observed that, with the project, an average of 220 MCM increment of M & I water per annum can be made available to cities and in a dry year up to 770 MCM will be made available.

- 6 - Objective D: Supply Irrigation Water to stabilize some 2 million ha irrigation. Achievements: For agriculture, an average of increment of 1.63 BCM/year will be made available. This will help stabilize the irrigation water supply for some 2.0 million ha. For the 75% probability hydrologic sequence for which all the irrigation schemes are designed, a total of 2.4 BCM (see figure 2) is made available for irrigation. This would give 1200 cum/ha of additional water, which is crucial for stabilizing and increasing agricultural yields. (e.g. Wheat by as much as 1.0 tons/ha).

Figure 2 Additional water supplied with Project

7 6 5 4 3 2 1

Additional water in BCM/Yr 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cumulative Probability %

The analysis based on the 90-year hydrologic record simulation shows that the incremental water supply and grain production will increase grain production by 2.4 million tons per year respectively (see Figure 2 and 3 ).

Figure 3 Incremental Grain Production

3.5

3

2.5

2

1.5

Million MT/yr 1

0.5

0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cumulative Probability

- 7 - The efficiency of water use also increases because of better regulation from the reservoir. Water is supplied at the time when plants need water. Figure 3a shows that for 1 kg of grain production, an average of 5-6 % less water is used. Analysis shows that without the project, water use is 1.7 cum per 1 kg of grain production. With the project the water use is 1.6 cum per kg of grain production.

Figure 3a. Grain Production Efficiency with and without Project

2.1 1.9 1.7 1.5 With project 1.3 without project 1.1 Kg/cum water 0.9 0.7 0% 20% 40% 60% 80% 100% Cumulative Probability

Objective E: Power Generation to supply peak power to the Henan Grid. Achievements: Power generation facilities were commissioned in January 2000, ahead of schedule. However, due to the prevailing serious drought conditions (1:200 year), the high priority given to urban water supply, power production was at a much lower level (30 percent) of power production for the first year and for the three years subsequently. Yellow River flows showed a consistent decline from 1990 to 2000. Figure 4 shows a significant decline of 30% in measured and natural flows due to a long-term drought in the 1990's. After 2003 the flows have picked up and are more normal because of a large flood in the Wei River in 2003.

- 8 - Figure 4 River Fows Upstream at Sanmenxia (1980-2000)

800.0 700.0 600.0 500.0 400.0 300.0

100 million cum 200.0 100.0 0.0 1980 1983 1986 1989 1992 1995 1998

Natural Measured

It is expected that in normal years much more water will flow in the Yellow River such as in 2003/2004 and power production will increase to almost the appraisal levels of power production (see Table 2).

Table 2 ICR and PAD Power Generation

Total PAD 90% PAD Power % of PAD Income Prob Average % of Pad Year Generation note for Average ( million GWH GWH 90% Prob ( GWH) Condition Yuan) Energy Energy

2000 613 175 actual 1651 2275 37% 27% 2001 2109 566 actual 2257 3679 93% 57% 2002 3272 910 actual 2282 4231 143% 77% 2003 3690 1021 actual 2812 5115 131% 72% 2004 4982 1365 projection 3218 5115 155% 97%

The table shows that power production is consistent with production when probability of flow is 90% exceedance flow (see Annex 4 Table A4.3 of the PAD).

Other Achievements:

The dam started to regulate water flows in 2000 and managed to keep water flowing in the lower reaches with no days when the river dried up. In contrast the river dried up for up to 180 days in 1990. The continuous flow of the Yellow River will have significant impact on the estuarial ecology. For the first time for many centuries the water below Xiaolangdi is clear and silt free. This will significantly reduce the cost of water treatment for urban and agricultural use. It will also enhance freshwater ecology in the river since most freshwater fish cannot normally survive in highly silted water.

- 9 - 4.2 Outputs by components: All components were successful completed as defined and outputs often exceeded the expectations in the PAD.

Output: Dam, Inlet and Outlet Works, Power station (turbines and generators) including administration, engineering and consultants (see photographs in Other Information)

Dam, Inlet and Outlet Works. All these works were completed ahead of schedule and to very good quality of construction standards. The preliminary work involved the construction of the main access roads, pilot tunnels for the diversion, and resettlement of the dam site resettlers. All these works were undertaken by local contractors and were completed in June 1994 before the international contractors undertook the major civil works for the dam, inlet and outlet works and the power station. The resettlement of 10,000 resettlers was also completed prior to the start of the major contracts. Resettlers at the dam site were resettled in 15 new villages and the work was professionally done.

The major works on the dam, inlet and outlet construction and hydropower plant started in July 1994 by international contractors and despite some delay due to poor geological conditions in the tunnels, all works were completed 12-15 months ahead of schedule in 2001. The interim completion dates for the diversion of the river in November 1997 were also maintained by the inlet and outlet works contractor. The quality of works were exceptionally good as remarked by many senior international and Chinese experts.

The Dam Safety Panel (DSP) of experts was established in June 1994 with 8 international experts. The aim of this panel was to review specific design and construction issues and to ensure that implementation of the project was of the highest possible standards, using the most appropriate and up-to-date techniques. The panel had nine meetings throughout the project design and construction phases. In the panel's 9th report they commented on the completed works. Essentially they indicated that the dam construction quality was satisfactory and built to a high standard; the slope in the intake and outlet were safe; the underground works quality was satisfactory. Overall rating of this set of outputs is highly satisfactory.

Turbine and gates , generator and switchyard supply and installation . The turbines (6x 300 MW Francis Type), and some high voltage cabling were supplied by international suppliers and all other parts (generators (6x 330 MVA), switchyards) were all supplied by local suppliers. The turbines were funded by export credit by USEXIM Bank. All the works as part of this component were completed by December 1999 for the first turbine to go into operation. The other five units went into operation by December 2001. For the last 3 years the operation of the turbines, gates and generators have been very satisfactory. Generation of power has been limited by the lack of water as stated above because of a prolong drought in the Yellow River. Overall these activities are rated highly satisfactory.

Administration, Engineering and Consulting Services. The administration of the project was performed by the owner Yellow River Water Hydropower Development Corporation (YRWHDC). The Engineer for the project was Xiaolangdi Engineering Consulting Company (XECC). The Reconnaissance, Planning and Design Institute (RPDI) of YRCC was the designer. Throughout the project design and implementation, YRWHDC used the services of international consulting firms to assist XECC and RPDI in design, construction management, contract administration and quality assurance. About 1200 person-months of consulting services were contracted for the Project. All these services were financed through the Bank’s loan. This TA performed satisfactorily throughout and made a major contribution to efficient project management.

- 10 - The same TA services were also retained for this stage II Project and an agreement was signed in January 1998. The services covered: (i) the core advisory group providing general support and consultation on contractual matters; (ii) the DRB; (iii) specialists in civil, underground, mechanical and electrical engineering; (iv) establishment of a cost control system; and (v) start-up coordination during the commissioning stage.

Since major problems were encountered with claims from the main contractor (change of ground conditions), a specialist claims management consultant was also hired. International consultants carried out training. YRWHDC also employed several local experts to review issues as they arose. Some 288 experts met on 27 separate occasions to review and discuss different technical issues. Input of consultants and the competence level of staffing are considered to be appropriate. This component is rated as highly satisfactory because of the high quality of works and there was a saving of time of 12-15 month to implement the project and there was also costs savings.

Output: Training for Operation

Training was an important aspect for the Project. As planned, training for YRWHDC staff during the period of 1997 to 2002 was implemented in two phases. Local training was undertaken by the international consultants for construction supervision, which included such topics as inspection of works, quality control, and construction scheduling using computer aided software, claims management, project management information systems. Some 100 staff was also trained in financial management. Specialized training of 107 staff was done overseas in the United States, Switzerland, France, Italy, Germany, England and Hong Kong SAR.

Phase 1. During the 1997-1998 period, most of the training was focused on the overall qualities and financial management skills of senior and middle-level managers, as well as on the training of power operation staff. In addition, more efforts for international project management and technology, training in the field of foreign languages, driving skills, business administration, project operation management and power plant O&M was arranged, including 440 person-months intensified training, 90 person-months counterpart professional training, and 81 person-months overseas training on financial management, project management and information management.

Phase 2. The main emphasis in the second phase from 1999 to 2000 was on institution administration, project management, project supervision, and document processing, with continued efforts devoted to the training on project operation and power plant O&M. This part of training included 329 person-months local training, 110 person-months counterpart professional training, and 145 person-months overseas training, study tour and technical exchange in the field of turbine, human resources administration, reservoir and water resources management.

Although in retrospect some of the courses should have had a longer duration, it is considered that considerable training was done during the Project and that it had a significant impact on improving the capabilities of the staff. Overall this component is rated as Satisfactory.

Output: Environmental Protection Measures

Environmental Impacts and Environmental Protection Measures. As described in the Environmental Impact Assessment (EIA) , the major adverse impacts due to the project included resettlement of some 200,000 people, risks due to reservoir-induced earthquake, and impact on cultural relics and potentials of public health disasters. Corresponding environmental protection measures (EPMs) were developed in the

- 11 - EIA to compensate, mitigate or minimize the impacts. The EPM are internalized as part of the construction contract. All these EPMs have been implemented during project implementation as described below (see chart of organization in Other Information).

Resettlement. The implementation of EPMs for resettlement program was carried out separately by Environmental Management Office for Resettlement (EMO/RS) in a separate IDA project: Xiaolangdi Resettlement Project (P003644). By the end of 2003, a total of 172,487 people have been successfully relocated. Detailed discussions on this activity are covered in the ICR for the Xiaolangdi Resettlement Project. (Report No. 29174-CN)

Dam Safety. All dam safety measures including establishment of a panel of experts, set-up of earthquake monitoring network, all earthquake resistance design measures have been implemented and all are working effectively. In addition a dam safety program, including an Emergency Preparedness Plan (EPP) has been prepared to ensure safe operation of the dam and that in event of any emergency. (See Annex 9 for details)

Cultural Relics. This activity was closely managed by the EMO. Excavation and preservation of cultural relics sites was carried out by Henan and Shanxi Provincial Archaeological Bureaus in accordance with the program plan with a budget of some Y 30 million. The program for excavation and preservation of identified relics below EL275 has been completed as planned. Two summary reports (books) have been prepared and published separately in book form by Henan and Shanxi provincial archaeological bureaus in 2000.

Public Health. Effective measures on public health, including provision of safe drinking water, food sanitation, medical screening, rat and mosquito control, and vaccination were continuously taken by all contractors and the project owner. Regular physical examinations were conducted for all workers at the construction sites.

EPMs at Construction Sites

Worker Safety. Surveillance of safety in construction areas was the responsibility of the XECC through the special Safety Department (SD/XECC). Each contractor had a corresponding safety division with responsibilities of safety management. All possible measures were taken to reduce working accidents. According to statistical safety report of YRWHDC, the number of accidental deaths was within the range of 0.5% [publications from FIDIC indicate statistical incidence of accidents in such types of projects], considering the total number of workers involved, near 10,000 at peak, and the duration, 6 years, in such a complicated project, with over 100 tunnels and a huge underground power house."

Solid Waste Management. All solid waste, including production waste such as construction spoils and wastes from camps was collected and transferred to designated disposal sites.

Water Pollution Control. All wastewater discharged from all the project construction areas and camp areas basically met the standards and continuous monitoring results have showed that the impact of the waste water discharge on the Yellow River water quality was negligible.

Dust and Noise Control. Responsibilities for dust control in all construction areas and roads was assigned to different contractors and the project owner. Regular road watering was conducted by contractors and the owner (YRWHDC) on their responsible roads. Noise due to construction was monitored and controlled at an acceptable level. Measures were taken for those noise sources with impact

- 12 - on local residents. As an example, the Heqing Village School near the construction area was relocated due to noise impacts with fund provided by the corresponding contractor and YRWHDC.

Environmental Monitoring A complete environmental monitoring system was established and functioned well for the duration of the project. Environmental monitoring tasks related to Xiaolangdi dam site such as water quality, public health, air quality, water pollution control were assigned to and carried out periodically by different monitoring institutes. Systematic and large amounts of monitoring data was generated and necessary actions taken during project implementation to resolve environmental issues identified by monitoring such as Heqing School relocation and use of wastewater treatment facilities by one of the principal contractors to name two.

Comparison of Environmental Activities The following table shows a comparison between the environmental activities required in the project appraisal document and those actually implemented during project implementation. It is clear that all the activities required have been implemented with satisfactory results and some even with highly satisfactory results.

A Comparison of PAD Requirements on Environmental Management and Implementation

PAD Requirements Implementation Evaluation 1. Establishment of EMO Established from 1994 to now Satisfactory with Competent Staff 2. Employment of Employed from 1994 to now Highly International Panel of Experts Satisfactory 3. Environmental Protection 3.1 All measures planned have been Satisfactory Measures on implemented Highly 3.1 Dam Safety 3.2 Planned program has been completed Satisfactory 3.2 Cultural Relics 3.3 All measures taken with excellent Highly 3.3 Public Health results Satisfactory 4. Resettlement Some 200,000 people have been Highly successfully Satisfactory relocated (A separate IDA project) 5. Measures to Mitigate An effective environmental management Highly adverse impacts cause by system Satisfactory project construction established and been functioned well with minimized impacts 6. Timely EMP EMP implemented with project progress Satisfactory Implementation 7. Review of detailed action Yes Satisfactory plans by Panel and Bank 8. Ensure YRCC, Henan, Yes Satisfactory Shanxi participation

Review Reports of Panel of Experts The International Panel of Experts on Environment and Resettlement (POE) was established in June 1994 under the stage I project and it continued for the duration of stage II. One of the objectives of the panel was to ensure implementation of the Environmental Management Plan and minimize adverse environmental impacts caused by the implementation of the project. By the end of March 2001, the panel was convened 12 times. Review of the panel reports indicates that the panel played a very important role in the whole process

- 13 - of environmental management in Xiaolangdi Project, especially on establishment, improvement, and effective function of the environmental management system mentioned above. Xiaolangdi experience has suggested that such a panel was necessary to ensure successful implementation of EMP especially for those large-scale projects with significant environmental management risk. Overall rating of this component is highly satisfactory.

Output: Flood, Sediment, Ice and Drought Management According to the Government laws/regulations and MWR stipulations, flood, sediment, ice and drought management in the whole Yellow River basin (including Xiaolangdi reservoir area) is under the control of YRCC. Institutional reforms were initiated by YRCC in the course of project implementation. Organizations and their responsibilities for planning, allocation and management of water resources, including water supply, flood, sediment, and ice and drought management are summarized as follows:

Chief Engineer’s Office. Assist the chief engineer and the deputy chief engineer in performing the overall technical responsibility of YRCC; make arrangements for the study of the Yellow River management strategies and significant technical issues, undertake the “Digital Yellow River” project planning and construction management; and fulfill the routine duties of YRCC Commission of Science and Technology.

Water Resources Management and Allocation Bureau. Organize investigation and assessment of basin-wide water resources, develop trans-province water distribution schemes, annual schedules and water resource allocation options for the purpose of unified water allocation; organize and/or steer justification of important water developments in the basin; organize the implementation of the water extraction permits as authorized; direct water saving activities in the basin; and publish basin-wide water resources communiques.

Flood Control Office. Make arrangements for or take part in developing basin-wide flood control schemes and supervise the implementation thereof; perform flood/drought management of important water projects as required and authorized; direct and supervise the management and compensation of flood detention basins; and organize and direct the justification of important water projects in respect of flood control.

Flood, Sediment, Ice and Drought Management Information System. As part of the Project an automatic water regime forecasting system consisting of data collecting subsystem, data transmission, data processing and flood forecasting subsystem was developed. This system comprises 54 precipitation stations, 11 hydrologic stations and 7 water level stations, with data automatically collected and then transmitted via ultra-short wave and satellite communication. There are 2 central stations, one in Zhengzhou and the other at Xiaolangdi, with PCs connected to satellite terminals and databases developed using Foxpro. This system was implemented by YRCC Hydrology Bureau in 1997 and completed in 2001 at a total cost of Y 13.37 million.

At the same time, YRWHDC has invested Y 54 million and US$ 390,000 in hydrological and sediment survey since 1997, with a considerable amount of measuring equipment purchased for these purposes. The survey provides some baseline data for establishing the database of the Yellow River flood, sediment, and ice and drought management information system. This part of work was completed and taken over in early 2002.

- 14 - To improve sediment management, YRWHDC has also provided Y 41.72 million for YRCC to study the Xiaolangdi reservoir operation mode. This study was completed in 2001, with findings already applied to the recent water/sediment regulation tests. This provides a new solution to the problem of sediment in the Yellow River.

In addition, YRCC is now developing the “Digital Yellow River", which, when completed, will qualitatively improve the flood, sediment, ice and drought information system of the whole middle and lower Yellow River reaches in respect of technology and management (see chart of the network in Other Information). Overall evaluation of this component is satisfactory.

Output: Institutional Support to YRCC For the institutional support the YRCC which was the executing has undertaken two items:

First, YRCC has set up a water dispatch office within YRCC, which monitors and collects charges at 90 points downstream. This water dispatch office coordinates with the YRCC's Henan and Shandong River Bureaus. For efficient distribution of water, the following is now being contracted with the lower reach water users:

l Contracts are in process of being signed between YRCC's River Bureau's and the relevant Irrigation districts at each diversion point along the Lower Yellow River. Contracts will also be signed with all irrigation areas within the dikes.

l The contracts will contain the timing and quantity of water to be delivered. It will be the responsibility of YRCC's River Bureaus to ensure that there is no siltation of the entrances to the diversion points.

l Measuring devices with continuous recording instruments will be installed at each diversion point to ensure that water delivered will be accurately measured.

l Communications by computer data connections will transmit the water data diverted each week to YRCC's headquarters for computation of charges.

l Charges will be imposed on all water diverted from the river based on the following principles: a) All charges will be on a volumetric basis. Municipal and Industrial (M&I) water will be charged much higher rates than irrigation water; b) water charges will recover all operation and maintenance costs and capital costs allocated for irrigation and M&I; c)Charges will be based on the scarcity of water according to the seasons: dry-season water will be charged much higher than wet-season water; and discounts will be provided when water has very high silt content, and d) Penalties will be imposed for late payment by irrigation districts. Cost recovery would cover, among others, flood and sediment control. A system of rationing has been agreed between YRCC and the irrigation districts for water delivery during periods of drought. A monitoring system has been established to indicate water deliveries and charges collected on a real-time basis to measure efficiency of delivery( see chart of the procedures in Other Information).

The implementation of this component has clearly had significant impact on the downstream flows and the availability of water. The lower reach up to 800km from the estuary was drying up. After the implementation, it was found that even under extreme drought conditions continuous minimum flows could be regulated through a rational dispatching arrangement. (see Figure 5). Overall assessment of this component is satisfactory.

- 15 - Figure 5. Drying up of Yellow River from Lijin (river mouth)

800 250

700 200 600

500 150

400 100

km Dry 300

200 50 No of days dry

100 0 0

-100 1972 1974 1975 1976 1978 1979 1980 1981 1982 1983 1987 1988 1989 1991 1992 1993 1994 1995 1996 1997 1998 2000 2001 2002 -50 Year

km of river dry Days dry

4.3 Net Present Value/Economic rate of return:

The economic benefits were determined based on the value added to agriculture, M & I water, Flood Control, Sediment Control and hydropower as described in the PAD. The basic analysis to evaluate the benefits for added values used a simulation program using a 70 year hydrologic series (1919-1989). The PAD analysis did not capture the 1990-2000 period when a major drought occurred and all the major benefits for irrigation and power production declined significantly.

Incremental Production: Irrigation. Figure 6 shows that incremental production of grain increased to 1.84 million tons in 2000, but declined to 1.46 million tons. Since the water flows vary from year to year the variation showing the highs and lows is presented on the graph. The details of M & I water supplied is given in Table 1 above and is 0.22 BCM for an average year and 0.77 BCM for a dry year. However, the benefits are integrated over the whole probabilistic flow supply. For power the incremental power production follows the actual production from 2000-2004 from the table 2 and it levels off to 5800 Gwh forecasted after 2008. Detailed scenarios were looked at and 5800Gwh was the most likely production that could be sold to the Henan grid.

- 16 - Figure 6 Incremental Production of Grain with Project

2.50

2.00

1.50

Expon. (Average 1.00 52%) Million Tons Expon. (98% Prob) 0.50 Expon. (33% 0.00 Probability) 1990 2000 2010 2020 2030

Incremental benefits. The net incremental benefits have been worked for the five sets of benefits streams using the simulation model also used for the PAD economic analysis: (a) flood control; (b) Sediment control; (c) Irrigation; (d) hydropower; and (e) municipal and industrial water. The incremental benefits are incremental production multiplied by the economic prices. The price methodology is similar to that used in the PAD, but updated. The prices used to develop the flood control is essentially the damage reduced with the project in areas between the dikes, detention basins and losses when the dikes breach. Sediment benefits were estimated based on the cost foregone in raising the dikes because the reservoir will radically reduce the sediment downstream of the dam. Irrigation benefits have been updated using economic farm gate prices for all outputs and inputs, including labor based on the latest border prices as proxy for economic prices. M & I water was valued conservatively based on present tariffs of water for M & I water of Y1.2/cum. Hydropower was valued on the present tariffs (equivalent to willingness to pay) from the Power Purchase Agreement of Y0.3/Kwh. Since peak power is valued the same as the base power the average tariff undervalues the hydropower. Based on this methodology the discounted benefits are as indicated in Table 4. Economic cash flow is presented in Annex 7.

Table 4 Discounted benefits ICR PAD % of Total ICR/PAD

Bil Y Bil Y Agriculture 9.87 12.089 30% 82% M & I 1.94 1.717 6% 113% Hydropower 6.17 16.536 19% 37% Flood Control 11.39 7.345 35% 155% Sediment 3.40 2.817 10% 121% Total 32.77 40.50 100% 81%

- 17 - Figures 7 PAD and ICR Project Benefits

PAD Benefit Estimation ICR Benefits

Sediment, 2.817, Sediment, 3.40, 7% 10%

Agriculture, Agriculture, 9.87, Flood Control, 12.089, 30% 30% 7.345, 18%

Flood Control, 11.39, 35%

M & I, 1.717, 4% M & I, 1.94, 6%

Hydropower, Hydropower, 6.17, 16.536, 41% 19%

Based on Table 4 and Figure 7 it is clear that the benefit structure is similar, but hydropower share has declined (41% to 19%) because of the lower tariffs and lower generation rates due to lower flows. The tariffs declined from 0.52 fen/Kwh to 0.275 fen/Kwh. There was a surplus of power in China between 2000-2002 and it was impossible to negotiate higher rates. However, with the growth of China pushing upwards and the power sector reforms for a two part tariff it is expected that tariffs will not remain low for long. The share of flood control has increased (18%-35%) especially after a Y 6.5 billion damage in the downstream areas of the 1996 floods. Sediment benefits have also increased because of the constrictions in the channel due to sedimentation in the 1990's and these costs have been updated. The agriculture benefit declined because of lower flows (90-year series shows lower averages). M & I benefits essentially remain the same. Decline in benefits due to several factors is Y 8.73 billion or 21%. However, Y32.8 billion in benefits is still very large for the project

Economic Costs. Economic cost includes the cost of the dam and all the associated structures and the cost of compensation for resettlement (proxy for benefits foregone). All interest and transfer payments were remove to obtain the economic costs. Resettlement cost have increased by about $200 million. The discounted costs are Y29.0 billion in 1997 which have increased from Y21.7 billion (33%), all due to resettlement cost increases.

Economic Rate of Return Analysis: Detailed economic cash flow streams are shown in the Annex 3. The EIRR for the base case is 13.2%, which is down from 20.8% in the PAD because of the 21% decline in benefits and 33 % increase in costs. However, an ERR of 13.2% for such a large project is still considered to be good.

Risk Analysis. Risk analysis was performed examining the effects of decline in agricultural prices, hydropower decline in generation or tariff rates or decline in M & I water rates and values. The EIRR shows that the project is robust and declines in prices or tariffs only cause a decline in EIRR of less than 1% (see table 6) despite 20% decline in the benefits. In addition to the economic benefits, the project delivers huge social benefits arising from the protection of more than a 100 million people from floods, enhanced security and water supply to 40 million people in urban areas, and enhanced stability and supply to some 25 million farmers.

- 18 - Table 6 Risk Analysis ICR PAD Base case 13.2% 20.8% -20% Agriculture value 13.0% 19.7% -20% in Power Price 12.6% n/a -20% in generation 12.6% 17.8% -20% in M& I valuation 13.1% n/a

4.4 Financial rate of return: Detailed financial analysis was performed for the YRWHDC. It can be observed that the financial covenants for the project have been met fully in terms of debt service coverage and current ratio, but the rate of return on revalued assets for power will be satisfied only in 2010 and that for the whole company by 2020. This essentially would mean that the Xiaolangdi Project, with water charge collection and subsidies for flood and sediment operation, can have funds to pay back the loan and meet its obligations for operation and maintenance. However, the Rate of Return on Assets of the entire project will not be met until 2020. The project is reasonably healthy since all such public utility projects with large flood control, irrigation and sediment control components in the UK and US only achieve rates of return of 2-4%. Table 7 shows essentially all the financial requirements as required by the Bank at appraisal have been satisfied. The analysis at ICR was based on the 2002 financial statement. The 2003 statement should have much higher power revenues and therefore should show a better financial situation.

Table 7. Financial Ratio's for YRWHDC Year 2002 2005 2010 2015 2020 2021 Rate of Return(%) Net Revalued Fixed Assets 0.4 0.5 3.0 4.1 5.0 5.2 Bank Covenant 2.0 2.0 5.0 5.0 5.0 5.0 Rate of Return on Power(%) Return On Net Fixed Assets - Power 7.5 7.9 13.9 17.6 20.8 21.5 Bank Covenant 5 10 10.0 10 10 10 Current ratio Current Ratio 2.2 2.1 3.3 5.1 7.8 8.4 Bank Covenant 1 1 1.0 1 1 1 Debt Service Ratio Debt Service Coverage Ratio 1.4 1.1 2.7 6.8 29.7 30.2 Debt Service Coverage Ratio (considering DSRF) 1.4 1.5 3.6 8.8 38.1 38.7 Bank Covenant 1.3 1.3 1.6 1.6 1.6 1.6

4.5 Institutional development impact: The impact on institutional development is rated high. Under the total project (stages I and II), the Ministry of Water Resources, for the first time formed a corporate entity to manage the project and to ensure that the management entity had the right training so as to be financially self-sustaining into the future. Because of the strategic nature of the project, the YRWHDC is still under the supervisory control of YRCC for its strategic operations for floods and water supply to cities. However, YRWHDC is the first attempt to create

- 19 - a water resources entity, which will be essentially be financially autonomous for it's commercial undertakings (except for the flood and sediment control-considered public goods). YRWHDC is also paying back the World Bank Loans, including the IDA Credit for the resettlement project and also the other local and foreign loans. With the construction of the Qijiayuan re-regulating dam, the power production capability and supply more peak power to the Henan Grid should increase. The second most important institutional impact is the development of the institutional arrangement for water dispatching to the lower reach. No other major river basin has this type of dispatching system with solid contractual arrangement with water users in the two downstream provinces. This arrangement will also ensure that the that water is released for environmental purposes and the flow in the Yellow River will reach the estuary (see Figure 5). Thirdly, institutional rearrangements now ensure the integrated management of the water resources of the lower river, including the complex arrangements for flood, ice flood, sediment and drought forecasting and management will be undertaken properly.

5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: Since many of the large contracts were with international contractors - German, French and Italians the exchange rate fluctuations which caused initial losses to the US$. In early 1995, the RMB Yuan depreciated by some 50% against the US$. In 1996-1997 the exchange rate of the DM versus the RMB Yuan was considerably increased. All these factors have largely increased the budget funds of Xiaolangdi Project at the time of budget adjustment in 1997. In the earlier stages of the Project the Employer had foreign exchange losses of up to US$30 million, but with the DM 2.0 = US$ 1.00 between 1998 and 2001, it subsequently recovered most of these losses. The final status is that $70 million dollars was cancelled from this loan because of the foreign exchange saving which occurred in the later part of the project 2000-2002.

5.2 Factors generally subject to government control: Strong commitment by the implementing agency MWR enabled the project to be completed on time with all interim dates of completion being kept. When problems resulted the MWR committed a Vice Minister to be in charge of the Corporation.

Other factors:

a) In 1993-1995, the yearly increase of commodity prices in the domestic market rose quickly 10-14%% due to inflation. This considerably increased some of the Project components cost. Most cost increases could have been prevented by Government by reducing the tariffs on imported goods so that imported goods could substitute for local goods, especially for some construction materials such as timber and steel. This would have prevented the price hikes.

b) In the course of economic transformations, the Government made changes to some legislation in 1993 and promulgated some new laws such as Tax Law, Labor Law amongst others. All these new laws had a great impact on the contractors and gave rise to the contractors’ claims and increased the Project costs components to some extent.

5.3 Factors generally subject to implementing agency control: Strong commitment by the implementing agency, YRWHDC, enabled the project to exceed PAD expectations in human resource development, project coordination, design and construction management, and cost control.

- 20 - The implementation of such a large project with all sorts of technical complexities was a real challenge. Changes in scope due to underground geological changes created problems. This was the first time that YRWHDC executed a major set of international contracts. The entire FIDIC conditions of contract was new. The need for the "Engineer" to be independent according to FIDIC conditions of contract was also new. So initial stage of the implementation the implementation agency was on a learning curve, which took about two years. In addition some of the international contractors were also new to such large contracts in China. After this initial stage things seem to settle down and work moved very rapidly and was completed 12-15 months ahead of schedule. In addition except for one major claim (changed of ground conditions), which dragged on for 2 years before being settled all other claims were expeditiously settled. The international consulting services working along side the Chinese staff greatly assisted not only the technical aspects of the project but also the contractual and claims aspects of the project implementation. The appointment of the Disputes Review Board (DRB) helped considerably to solve a lot of the claims issues.

Training was key to success of the construction implementation. The stage I training (see section on training) which included contract management and claims management proved to be extremely useful.

In early 1995, construction progress of Lot II was seriously delayed due to several tunnel collapses, which cast a shadow over the river diversion objective. One of the main reasons for the delay was that one Contractor failed to obtain qualified local techniques and labor. As recommended by the Employer, the Contractor agreed to introduce a new subcontractor and take active acceleration measures.

Measures were set in place by the Employer and by the MWR, to ensure that the River Diversion interim completion date was achieved. YRWHDC's major effort resulted also in the completion of the inlet and outlet tunnels, plunge pool and spillway construction by September 2000, some 6 months ahead of schedule.

The same applies to the civil works of the underground facilities (power house cavern, power tunnels, the main transformer chamber, the valve chamber, tailrace tunnels and outlet structures), which were completed in September 1999, 7 months ahead of schedule. Power conduits and penstocks were also completed in advance of the date required.

During the implementation of the Project, many additional reinforcement measures were adopted in design for underground excavations and high slopes particularly for safety reasons and long-term stability. Whilst this did not affect the timing it nevertheless became design adjustments resulting in variations and hence in the increase of some of the Project components costs.

5.4 Costs and financing: In considering the costs and financing for the whole project covering both stage I and stage II, it is logical to consider both stages together because the civil works and all other major contracts continued and were financed across both stages. The total project appraisal cost, excluding interest during construction (IDC) was US$2855.8 million equivalent, of which $1307.2 million (46%) was foreign costs. The actual competed cost was US$2,688.8 million equivalent, of which US$843 million (31.3%) was foreign costs. The total savings in foreign cost ($464.2 million) came mainly from project investments because the government decided to finance many small items totalling US$121 million and another US$343 million saved in IDC because government directly funded all local costs, instead of borrowing from local banks.

- 21 - Overall cost savings, net of inflation originated from: (i) sharp local competitive bidding for mechanical and electric equipment , (ii) efficient contract and funds management, especially for foreign contract claims; (iii) a design that minimized change orders; and (iv) savings due to the devaluation of the Deuch Mark against the US dollar.

Figure 8. Cost Comparison of Major Items

900 800 700 600 500 Estimated 400 Actual

Million $ 300 200 100 0 Lot 1 Lot 2 Lot 3 Electrical Admin/Eng Mechanical

Since the loan financed the second stage of the total project, it is necessary to look at the total financing picture, including both stage 1 and stage 11 project loans and the role they played in the overall financing. All funds provided are shown in table below. Government resources from budget were Y15014 million; Local loan funds from China Development Bank and Construction Bank amounted, $2,723 million All the funds needed for the construction of Xiaolangdi Project were in place on time, which greatly assisted project implementation according to the planned schedule. The total available foreign funds were US$ 999 million of which Bank loan Stage I was $460 million and Stage II Loan of $430 million equivalent and export Credit and loan funds of $109 million. Funds used were, Y12.555 billion from the central government; Y2.523 billion from China Development Bank; Y200 million from China Construction Bank; US$459.78 million from World Bank stage I loan; US$216 million (US $ portion) and $91.6 million equivalent (DM portion) from World Bank stage II loan ; and export credits totaling US$74.00, US$55.84 million from American Import and Export Bank and US$18.16 million from Tokyo Mitsubishi Bank. There were a saving totaling US122.4 million for in Bank the Bank loan (US$108.4 million equivalent and US $14 million) from stage II and this amount was cancelled. The actual sources and uses of funds for the whole Xiaolangdi Multipurpose Dam project is summarized in the table below. Details of loan allocation and disbursements for the stage I and II loans are shown in Annex 10.

- 22 - Xiaolangdi Project Financing Arrangements (Unit: million US$ and Y or RMB)

Financial Source Estimated Actual Percentage RMB $ RMB $ RMB $

Funds from Government 15,014.00 12,555.00 83.6% China Development Bank 2,523.00 2,523.00 100.0% China Construction Bank 200.00 200.00 100.0% World Bank Stage I Loan\a 460.00 459.58 99.9% World Bank Stage II Loan($)\b 230.00 216.00 93.9% World Bank Stage II Loan (DM)\c 200.00 91.60 45.8% Export Credit\d 109.00 74.00 67.9% Total 17,737.00 999.00 15,278.00 841.18 86.1% 84.2% \a Pooled currency loan $430million for project and $30 million for IDC capitalized \b Single Currency Loan in $ and DM \c The DM single currency loan was DM 346.5 million and equivalent to $200 million \d From US EXIM Bank

At the completion of the project, the actual total expenditure of funds was less than the estimate. The was due mainly to the active and effective management measures to control project investment costs, favorable exchange rate variations and some changes of commodity prices used in construction.

6. Sustainability 6.1 Rationale for sustainability rating: Sustainability is rated highly likely. All physical components were constructed in a technically sound manner and all of the components have been operating for 3 years with all operating targets achieved, i.e. all six units hydro generation units are operational and functioning well; the operation of sediment tunnels and flushing test indicate that these work well; the main outlet tunnels have been operated and erosion on these tunnels is very minimal. MWR has done a detailed evaluation of the project through a panel of experts and has accepted the project in terms of quality and functionality of all the elements of the project. The international panel of experts from Norway, Italy, Brazil, USA and Canada made a final inspection and prepared their final report and indicated that all safety measures on the dam and the structures have been complied with and are thoroughly satisfied with the project quality.

All dam safety requirements in terms of future monitoring of the structures are operational and working well. Some 3500 gauges are in place to monitoring the deflections, pore pressures, settlement etc of the dam and structures. Emergency power to the gates have been completed so that gates and other structures can be operated even if the main and secondary line power fails. In addition a set of seismographs telemeter via microwave stations the micro-seismicity due reservoir induced seismic activities. Many of the reservoir banks are also being monitored for stability. The major dam safeguards of an Emergency Preparedness Program has been prepared and will be operated by YRCC in event of any emergency in Sanmenxia or Xiaolangdi Dams.

Organization for Operation : The YRWHDC has been reorganized and reoriented from construction management to undertake operation of the dam and powerhouse and ensure full financial accountability. All staff (524) are in place in the new organization and all departments had been established and are functional. About 107 staff have gone through intense financial management training.

- 23 - Implementation of flood, sediment, ice and drought systems has improve the level of project management and boosted the project benefits. The Project Operator has formulated various rules and regulations, including operation specifications, project maintenance procedures, operation systems, and system of responsibilities, to ensure well-organized management and smooth operation of the Project. Adequate rules and regulations are the legal basis of adequate project operation.

To ensure sustainable utilization of water resources, the Government has recently issued the new Water Law and a series of other laws/regulations that provides a legal and policy basis for the sustainable management by water management agencies and water projects. These clearly define the responsibility, duty, function and role of water management agencies and provide specific measures for the long-term development of such agencies.

In May 2000 YRWHDC signed an agreement with the Henan Power Bureau for sales/purchase of power generated by Xiaolangdi to the provincial grid. This agreement will allow YRWHDC to cover all operating costs, portion of repayment of loan principal and interests. The Government of China (GOC) recognizes that Xiaolangdi is a strategic project for water supply as well as flood and sediment control, all of which have economic benefits that cannot necessarily derive financial revenues directly from the beneficiaries. Hence the GOC will compensate the operation of the dam, if it cannot meet its financial obligations.

6.2 Transition arrangement to regular operations: As a State-Owned Enterprise, YRWHDC owns and operates all of the project facilities, and has a well trained staff complement of 524. It has three profit centers, namely, Hydropower, Irrigation and M&I Water Supply, and Flood Control. The following Departments are considered key to operation

Hydropower Station. The Hydro-Power Station is responsible for the entire operation and maintenance aspects of the Project. There is 111 staff at the station. The organization chart indicates a good set-up of the offices and workshop units. The station carries out cost calculations for the various activities related to power generation and the release of water. Hydropower production is based on the presently installed capacity of six units of 300 MW each.

Finance Department. The Finance Department is headed by a Chief Accountant and two Finance Directors and has a total staff of 10 distributed in 4 units. The Department is responsible for all accounting and computerization of financial information. The staff has received the necessary training on how to operate the system. One unit, the "Investment Settlement Section" is responsible of the raising, disbursing, monitoring and repayment of the World Bank Loans. The unit is headed by a competent and trained accountant and has a total staff of three.

Business Management Department. The Business Management Department is the planning and commercial center and is responsible for the marketing and sales of the outputs from the XLD, i.e. hydropower, irrigation and M & I water. The Department plans and establishes the overall YRWHDC budgets for the operation, together with the Finance Department and the Power/Water Management Department. The Business Management Department, together with the Chief Economist and the Hydropower Station Director, is responsible for negotiation of contracts with the main clients, YRCC, the power distribution companies (Henan Electricity Power Company) and the Henan and Shandong Municipal authorities. The Department is headed by two directors and with staff of 9.

Operation and Maintenance. The technical operation and maintenance rules and procedures formulated and followed by YRWHDC for the dam/power plant operators are satisfactory and in line with the pertinent codes/specifications and regulations of the Chinese Government. As for the O & M Plan specified in the

- 24 - legal agreement for this project, a document entitled “Management and Maintenance Program for the Operation of the Power Plant” was prepared together with the “Operation, Maintenance and Surveillance Manual for Xiaolangdi Dam Safety” and some related guidelines developed with the assistance of an international consultant team (see Annex 9).

Emergency Preparedness Plan (EPP). The YRCC has prepared the EPP for both Xiaolangdi and Sanmenxia Dams, as required by the Loan Agreement, with the assistance of YRWHDC. These procedures will be activated in terms of emergency procedures in event of an emergency and a plan to evacuate people and to provide for all necessary shelter, food and public heath until the emergency is averted (see Annex 9).

7. Bank and Borrower Performance Bank 7.1 Lending: The Bank performance from Project preparation to implementation was highly satisfactory. This started during the Project preparation for stage I and continued in the stage II project. The Bank assisted in the following aspects via technical assistance credits: (i) Inviting foreign experts and consultants to review the Project; (ii) Establishing a system to identify the duties and responsibilities of the Employer, Engineer and Contractor; and (iii) Determining procurement of the civil works by lots and the relationship between foreign and local contractors, to enable technical transfer and good international practices. The Bank also exerted special influence on developing a separate resettlement project and in defining the environmental requirement; and the Bank also supported the establishment of YRWHDC as a commercially independent entity responsible for construction of the Project, instead of Central Government Project Office as was the practice at that time in China. In addition, during the preparation, considerable effort, were focused on works quality and institutional development for sustainability of the project.

7.2 Supervision: The Bank had 6 supervision missions for Stage II to review the Project. The Bank performance during project supervision was satisfactory. QAG undertook a review of the supervision arrangements and found it essentially satisfactory. The Bank regularly supervised the Project and attached high priority to implementation issues related to technical, quality control, and financial and environmental aspects. These supervision missions, provided many valuable comments and recommendations on implementation of the Project. Clear and prompt responses to the questions raised by the Implementing Agency were given. A close cooperation with the Implementing Agency prevailed. All these contributed greatly to a successful Project implementation.

In the initial phases the Bank’s supervision focused on technical and implementation issues. In the later phases the focus was more on technical and environmental and financial matters. This included promoting the creation of a Dispute Review Board and providing a workshop on claims. Overall the Bank supervision brought significant added value to YRWHDC in ensuring the Project was on track on all aspects. (financially, quality, schedule wise, solution to disputes, etc.)

7.3 Overall Bank performance: The Bank’s overall performance is rated as satisfactory. It was able to guide and assist the YRWHDC in a timely manner which resulted in the completion of such a large and complex Project ahead of schedule and below budget. The project involved a lot of technically challenging aspects, but the Bank was able to maintain the cooperation with the Borrower and the Implementing Agency throughout. The Bank was also effective in providing adequate coordination for all parties involved the project that lead to the completion of such a large project.

- 25 - Borrower 7.4 Preparation: The Government and the Implementing Agency’s performance in preparation of the Project were highly satisfactory. The Government was very responsive to all comments made by the Bank missions and independent panels. YRWHDC was fully responsible for all the design and tender document preparation with the assistance of foreign consultants. Most preparation work was done in record time of two years to ensure timely start-up of the Project. YRWHDC invested considerable amounts of funds and prepared the resettlement and environmental plans to very high quality, which was highly favorable to the Bank Project appraisal and the implementation of the Project

7.5 Government implementation performance: MWR, who represented the Government for this Project played a leading role at all stages of the Project preparation and implementation, and successfully coordinated the understanding of various ministries and provinces and strongly supported the Project implementation effort. The Borrower (MOF) and MWR have fully complied with all the loan covenants (See Annex 8) except for the water charge covenant, which is partially complied with as it is still under negotiation with the provinces. They do however collect water charges, but do revenues do not to cover all the O & M costs at this stage.

Since 1996 when there were delays of 11 months in the critical interim completion date with potential serious consequences, MWR took critical measures to coordinate all parties and stationed a vice-minister at the site to ensure that the Project problems were solved and adequate counterpart funds were made available. This ensured the achievement of river diversion by October 1997, as scheduled. MWR organized 27 meetings to review the Project at different stages to ensure that any special issue that arose from design or implementation was solved. Overall MWR’s performance was highly satisfactory.

7.6 Implementing Agency: The Implementation Agency, YRWHDC was established as agreed at the time of Project appraisal of the stage I project in 1993. The stage II, YRWHDC remained fully responsible for the Project implementation, guided and coordinated by MWR and other relevant ministries.

YRWHDC has successfully implemented both phases of the Project. Its primary achievement was to meet all the milestone dates of the physical construction and to ensure that the quality of works was excellent. The Project has been essentially completed one year ahead of schedule and to high international quality standards. YRWHDC has been open to new technologies and construction management techniques and able to adopt the best practice in terms of organization and Project management systems. YRWHDC has successfully incorporated foreign and local panels of experts into project management, which greatly contributed to successful implementation management. When delays occurred at various stages of construction, YRWHDC was able to promptly identify the problems on the critical path and take measures to solve them.

7.7 Overall Borrower performance: The Borrower’s performance was highly satisfactory because it demonstrated strong ownership of the Project, completed all the project activities well ahead of schedule, below budget and to high quality standards.

8. Lessons Learned The Xiaolangdi project (stages I and II) is the largest Bank-financed project in China to date. On the international scale, it was a very challenging project because of its huge size, predominantly large underground caverns, high degree of technical difficulties, and complex subsurface conditions. Principal

- 26 - lessons learned from the Project include the following: a) High risk/high reward projects can be effectively implemented with the right skills on the Bank side, and high commitment by the client to good organization and competent management, combined with the judicious use of international technical assistance and review. b) Implementing a project of the magnitude and complexity of Xiaolangdi will be greatly assisted if the implementation organization is in place prior to the start of the project. It should be independent, have full decision-making authority and be accountable and responsibility for implementation performance. c) The separation of the large and complex technical and civil works construction activities from large resettlement activities into two separate project operations worked very well and contributed to the effective and successful implementation of both. It allowed both the Bank and the implementation agencies to concentrate their resources and efforts on the two activities, as separate operations. This provides a valuable lessons for the Bank on how to manage large-scale resettlement associated with a major infrastructure investment. d) The establishment and maintenance of effective forum for communications amongst various parties (owner, engineer, designer, advisors and contractors) should be actively pursued from the onset, to avoid misunderstandings that could cause delays and /or losses to the project. Communication difficulties were perhaps the most difficult to resolve in construction of the Xiaolangdi scheme. This issue is not simply of translation between different languages, but of communicating ideas and concepts across international boundaries of training and culture. Most of the communication issues seem to decrease substantially in the second stage project because of the judicious use of consultants to interface between the contractor and the owner and there seemed to be significant communication between the various parties. e) The use of the International Panel of Experts substantially reduced the time for resolving conflicts in understanding technical problems. The POE for Xiaolangdi finally rested on 4 international experts and one Chinese Leader/Coordinator and this arrangement worked well.

(f) Experience suggests that an International Panel of Experts for environmental management was necessary to ensure successful implementation of EMP, especially for large-scale projects with significant environmental management risk. g) The use of the Environment Supervising Engineer (ESE) and International Environmental Panel clearly demonstrated that all environmental issues were observed early and corrective actions were taken. The ESE in the second phase of the project ensured that the contractors followed all environment requirements to offset negative impacts. h) The use of Disputes Review Board (DRB) to resolved claims issues proved to be extremely useful and resulted in most claims being expeditiously resolved. i) Training of staff on all aspects of implementation prior to the start of the project - scheduling, construction supervision, contract management, claims management and cost control averted many of the problems and issues encountered in the project, especially with the international contractor; j) Training of staff prior to completion of the project in financial management, business management and tariff negotiations added significantly the sustainability of the project.

- 27 - 9. Partner Comments (a) Borrower/implementing agency:

Borrower’s Project Evaluation Summary (by YRWHDC, February 2004)

I. ACHIEVEMENTS OF PROJECT OBJECTIVES

The project objectives are all achieved as planned and explained as follows:

a) Flood Control Flood Control Objective Achievement The objective was to introduce flood control in the lower reaches of the Yellow River Basin and to protect major infrastructure as well as some 103 million people.With the completion of the Xiaolangdi Dam in early 2000 the dam is now capable of regulating floods for return periods up to 1/1000 years as planned as well as regulating water during the dry seasons. Flood forecasting systems have been significantly strengthened and the institutions are in place to undertake forecasting. Further, ice flooding can be completely avoided and ice formation avoided downstream by adequate and controlled water release from the reservoir as was e.g. achieved in the winter of 2002.

b) Sediment Reduction Sediment Reduction Objective Achievement Control siltation in the 800 km downstream channel of the Yellow River and prevent further aggradation. The reservoir began storage in the year 2000. The reservoir stored some 233 million tons of silt and a further 19 million tons of was eroded in the downstream river channel totaling 252 million tons in its first year of operation. This is in itself a remarkable achievement. It is estimated that for an average year some 300 million tons of sediment will be controlled. In the past 3 years some 900 million tons of silt were trapped by the Dam

c) Water Supply Water Supply Objective Achievement The objective was to provide water for guaranteed irrigation and more reliable water supplies for downstream urban areas and industries The reservoir began supplying water for irrigation, industries and cities in the year 2000, one year ahead of the original schedule. Some 2 billion m3 were supplied during one of the worst droughts of the last 100 years. As such Tianjin received some 860 million m3 , whilst the remainder was supplied downstream for irrigation, industry, such as the Shengi Oil fields, and urban areas. Some 21 billion m3 of additional water from the Xiaolangdi reservoir has been supplied to the downstream areas in the past 3 years.

d) Power Generation Power Generation Objectives Achievements The objective was to generate hydropower for supplementing the base load of thermal power stations in Henan and the Central China Power Network Power generation started in February 2000, albeit on a reduced scale, since first priority has been given to use of water to offset the serious drought conditions, with a total water release of 48 billion m3 and a power output of 550 Gwh by the end of 2000 compared to the 1650 Gwh anticipated. This change in priority deprived the system of water supply and water heads for power generation. However, from January 2001 until December 31, 2001 power generation was 2112 Gwh, compared to 2257 anticipated or 93 % and from January 2002 until December 30, 2002 power generation was 3280 Gwh.

- 28 - e) Other benefits

The Xiaolangdi Dam Project managed to keep water flowing to the lower reaches of the river with no days when the river dried up. This continuous flow has a significant impact on the ecology of the estuary. Further, reduced silt content of or silt free water will greatly enhance the freshwater ecology in the river since most freshwater fish cannot normally survive in highly silted water. In addition, silt free water will significantly reduce the cost for water treatment for urban or agricultural use.

On environmental management, to minimize or mitigate the impacts environmental protective measurers were put into place and organizations established by YRWHDC according to the EIA/EMP. With joint efforts made by the Employer, Contractors, Engineer and local governments, significant environmental damage and diseases prevalence were never encountered during the construction period, the environment in the project and beneficiary areas have been protected to the extent possible. The government’s environmental authority, SEPA, is planning to make the environmental protection implementation at Xiaolangdi a model for infrastructure projects in China.

II. MAJOR FACTORS AFFECTING IMPLEMENTATION AND OUTCOME

Factors outside the Control of Government or Implementing Agency

The factors outside the control of Government or Implementing Agency mainly include: a. Change of geological conditions

A number of large tunnels and complex geological structures are the features of Xiaolangdi Project. The rock formation consists of mudstones, siltstones and sandstones with widespread clay intercalations. These complex geological conditions created considerable difficulties to the construction process and lead to some collapses of significant size. This was the main reason for implemented design changes. All these factors have given rise to contractor’s claim and increased the Project costs component at that stage. b. Contract Management

Some contractors were relatively new to China and were in the earlier stages of the Project implementation not necessarily familiar with China’s labor market and its way of management. At the early stages of the Project, some contractors hired a number of unqualified labors from the free labor market and managed them with foreign management method which failed to achieve expected results. All these factors impacted the progress of the Project at that stage. c. Exchange rate In early 1995, the RMB Yuan was depreciated by some 50% against the US$. In 1996-1997 the exchange rate of the DM versus the RMB Yuan was considerably increased. All these factors have largely increased the budget funds of Xiaolangdi Project at the time of budget adjustment in 1997. In the earlier stages of the Project the Employer had foreign exchange losses of up to US$30 million, but with the DM 2.0 = US$ 1.00 between 1998 and 2001, it subsequently recovered most of these losses.

- 29 - Factors Generally Subject to Government Control a. During the implementation of the Project, the central government, some related ministries and the government of two provinces have attached great importance to the Project. Their great care and support have been the guarantees for the successful implementation of the Project. Moreover, the direct leadership of MWR, the active participation and effective work of some departments has laid a solid foundation for the smooth implementation of the Project. Also for the same reason, the Project has never been impacted by the unavailability of funds. b. The Government at high level has placed great confidence in YRWHDC and fully empowered it, in order for it to make timely and effective decisions. YRWHDC was given the authority to make independent decisions with regard to some problems directly related to project quality and progress such as technical, financial and management issues. YRWHDC was also empowered to fully deal with claims and contract disputes. c. In 1993-1995, the yearly increase of commodity prices in the domestic market was as high as 6-10% due to inflation. This considerably increased some of the Project components costs. d. Inflation for local materials and labor was originally clear and payments were made which were acceptable to the contractors. Subsequently, it was established that local escalation figures were computed such as it created a considerable dispute between the contractors and the Employer. The local labor escalation particularly created a major problem. e. In the course of economic transformations, the Government made changes to some legislation in 1993 and promulgated some new laws such as Tax Law, Labor Law amongst others. All these new laws had a great impact on the contractors and gave rise to the contractors’ claims and increased the Project costs components to some extent.

Factors Generally Subject to Implementation Agency Control a. Implementation Organization

In accordance with the requirements of the World Bank and FIDIC, the Project Employer grouped a capable and effective management organization and appointed the Xiaolangdi Engineering Consulting Company (XECC as the Engineer. XECC was formed from staff from several design institutes and construction companies. The Employer has fully empowered XECC in field supervision, management and certification for payment. The technical commission composed by the Employer’s Canadian consulting experts and domestic experts has given valuable advice to the Employer in management. The Yellow River Commission Design Institute Xiaolangdi Branch, Reconnaissance Planning and Design Institute (RPDI) was responsible for the design of the Project and ensured timely and full communication between various parties. RPDI in China has been responsible for the design of several large dam projects and is highly qualified.

A Dispute Review Board (DRB was set up in 1998 to facilitate prompt resolution of dispute related to the ICB civil works contracts. Both the Employer and the Contractors selected each one member of the DRB and the two elected members selected the chairman of the DRB.

- 30 - The institutional setup for project implementation at Xiaolangdi proved to be one of the key successful factors for this project.

b. Implementation Schedule

The implementation schedule as established in the Staff Appraisal Report (SAR) established the commencement of the civil works in July 1994, river diversion by November 1997, commissioning of the first unit in January 2000 and the last unit by December 2001. Project competition was scheduled by the middle of 2002.

This schedule therefore required building this complex scheme in 7 years instead of the originally planned 12 years; a very big challenge for all involved indeed.

With joint efforts, reorganizations and other measures implemented by the different parties, inclusive by the Employer and by the MWR, the first objective of ·7 River Diversion·was timely achieved. These major efforts resulted also in the completion of the inlet and outlet tunnels, plunge pool and spillway construction by September 2000, some 6 months ahead of schedule.

The same applies to the civil works of the underground facilities (power house cavern, power tunnels, the main transformer chamber, the valve chamber, tailrace tunnels and outlet structures) which were completed in September 1999, 7 months ahead of schedule. Power conduits and penstocks were also completed in advance of the date required.

During the implementation of the Project, many additional reinforcement measures were adopted in design for underground excavations and high slopes particularly for safety reasons and long term stability. Whilst this did not affect the timing it nevertheless became design adjustments resulting in variations and hence in the increase of some of the Project components costs.

III. SUSTAINABILITY

Rationale Great importance is attached by the Chinese government at various levels to, high construction quality, reform and constant improvement of the management system. Subsequent auxiliary projects shall guarantee the sustainability of the Project.

The Project is considered sustainable because all necessary conditions have been achieved and can essentially be summarized as follows: 1. The Project was completed in time and to the necessary quality and expectation; 2. Key components subject to testing all performed satisfactorily; 3. The Project implementation was structured following modern management practice and has already a proven record of working efficiently over the past 7 years; 4. The institutional capability of YRWHDC has been strengthened in the course of implementation and 5. Transfer of modern management was achieved over the past 7 years. The following elements also contribute to the sustainability of the project.

High Attention of the Government The Xiaolangdi Multipurpose Dam Project is very important for the prevention of potential disasters due to the Yellow River and is also extremely critical for the development of Yellow River water usage

- 31 - and management. It plays an important role in the effective use of Yellow River water resources and in ensuring stable development of the economy and the society in the lower reaches of the Yellow River. A serious drought occurred in the Yellow River Basin at the early period of its operation. The actual annual runoff of the Yellow River was only 60-70% percent of the design runoff. Adequate operation of Xiaolangdi Project has under the circumstances nevertheless ensured water supply to the lower reaches thereby ending the history of the river drying out in the lower reaches over many years in the past. As such, in the year 2000 the Xiaolangdi Dam was able to supply some 2 billion m3 of water to key cities such as Tianjin despite of a major drought affecting Northern China. Therefore, the Chinese government at various levels pays great attention to the Xiaolangdi Project especially to its expected role and function. This is the precondition to ensure the sustainability of the Project.

Quality The Xiaolangdi Project has been checked preliminary and accepted in December 2002 by experts grouped by MWR. In 2003, it will be completely accepted by the State Development and Planning Committee.

Impounding acceptance results completed in 1999 showed that the Project quality is excellent in general. At the preliminary operation period, it passed through the test of impounding to a level of 240.87m with water and sand regulation. Test results indicated that each part of the Project was working properly and as intended. The high quality of the Project lays a good foundation for its sustainable development.

Implementation of environment protection and water and soil preservation has effectively improved the ecological environment nearby and also in the lower reaches by insuring continuous flow, enabling the preservation of the estuary ecology. The provision of silt free water is another benefit. This also creates good conditions for the sustainable development of the Project.

Management and Policy Framework Management Framework

At the end of September 2002, the Chinese government issued a special implementation outline regarding the structural reform of water management departments. Classification, qualitative determination, management and sources of funds, etc. for these departments are clearly defined. This establishes a basis for the constant improvement of Xiaolangdi management system and shall have a great impact on sustainable development of Xiaolangdi Project.

YRWHDC has recently established a capable and highly effective management agency to ensure the normal management of the Project. Following further system reform of water management departments and carrying out of the compensation channels for social benefits such as flood control, etc,. the maintenance fund required by Xiaolangdi Multipurpose Dam Project shall be guaranteed in terms of policy.

Management System

Implementation of flood, sediment, ice and drought systems will improve the level of project management and boost the Project benefits. The Project Management Agency has formulated various rules and regulations, including operation specifications, project maintenance procedures, operation systems, and system of responsibilities, to ensure well-organized management and smooth operation of the Project. Adequate rules and regulations are the legal basis of adequate Project operation.

- 32 - Policy Guarantee

To ensure sustainable utilization of water resources, the Government has recently issued the Law of Water and a series of other laws/regulations, clearly defining the responsibility, duty, function and role of water management agencies and providing specific measures for the long-term development of such agencies. This provides a legal and policy basis for the sustainable development of water management agencies and water projects.

Commercial Factor In May 2000 YRWHDC signed an agreement with the Henan Power Bureau for sales/purchase of power generated by Xiaolangdi to the provincial grid. This agreement will allow YRWHDC to cover all operating costs, portion of repayment of loan principal and interests.

The Government of China (GOC) realizes that Xiaolangdi will be a strategic project for water supply as well as flood and sediment control, all of which have economic benefits that cannot necessarily derive revenues from user charges. Hence the GOC will subsidize the operation of the dam, if it cannot meet its final obligations.

Follow-up Project Construction of the Xixiayuan Dam 16 km downstream, as a supporting project of Xiaolangdi, will commence. This will help to make better use of Xiaolangdi benefits and improve its sustainable development. Considering the operation mode of Xiaolangdi as a peaking station Xixiayuan will be able to store water during peak production and regulate needed water for the lower reaches.

Transition Arrangements to Regular Operation As a State-Owned Enterprise, YRWHDC owns and operates all of the project facilities, the total staff right now is 524. It has three profit centers: Hydropower, irrigation and M&I Water Supply, and Flood Control. So far the main revenue comes from the power generation but expects to be able to collect fees for Irrigation and M&I Water Supply in future.

Operation and Maintenance

Procedures The technical operation and maintenance rules/procedures formulated and followed by YRWHDC for the dam/power plant operators are satisfactory and in line with the pertinent codes/specifications and regulations of the Chinese Government.

O&M Plan As for the O & M Plan specified in the legal agreement for this project, a document entitled ·anagement and Maintenance Program for the Operation of the Power Plant·was prepared together with the · peration, Maintenance and Surveillance Manual for Xiaolangdi Dam Safety·and some related guidelines developed with the assistance of an international consultant team.

Emergency Preparedness Plan (EPP) MWR has entrusted YRCC to prepare the EPP for both Xiaolangdi and Sanmenxia Dams, as required by the Loan Agreement, with the assistance of YRWHDC. This has been based on the following documents:

- 33 - 1. O & M and Surveillance for Dam Safety· January 2002 (2 Volumes), prepared by CIPM. 2. Threshold Values of Monitoring, July 2002, prepared by the RPDI; 3. Operation and Maintenance Manual· October 2002. 4. Flood Response Plan· Flood Information Center, YRCC

IV. WORLD BANK AND BORROWER’S PERFORMANCE

World Bank Lending: The Bank performance from Project preparation to implementation was highly satisfactory.During the Project preparation, the Bank assisted in the following aspects via technical assistance credits: l Inviting foreign experts and consultants to review the Project; l Establishing a system to identify the duties and responsibilities of the Employer, Engineer and Contractor; l Determining procurement of the civil works by lots and the relationship between foreign and local contractors, to enable technical transfer and good international practices; l The Bank has exerted special influence on developing a separate resettlement project and in defining the environmental requirement; l Supporting the establishment of YRWHDC as a commercially independent entity responsible for construction of the Project, instead of Central Government Project Office as was the practice at that time in China.

During implementation of the Project Phase I, adjustment to the loan proceeds by categories was always applied for YWRHDC and approved by the Bank in the right time. This helped implementation of the Project. To meet the implementation schedule, the Bank arranged the second loan in a timely manner to allow for the continuation of construction without interruption.

Supervision: The Bank regularly supervised the Project and attached high priority to implementation issues related to technical, implementation, financial and environmental aspects. The Bank had 16 supervision missions to review the Project. These supervision missions, headed by Messrs. D. Gunaratnam and Li Xiaokai, provided many valuable comments and recommendations on implementation of the Project, Clear and prompt responses to the questions raised by the Implementing Agency were received. A close cooperation with the Implementing Agency prevailed. All these contributed greatly to a successful Project implementation. In the initial phases the Bank’s supervision focused on technical and implementation issues. In the later phases the focus was more on technical and environmental and financial matters. This included promoting the creation of a Dispute Review Board and providing a workshop on claims. Overall the Bank supervision brought significant added value to YRWHDC in ensuring the Project was on track on all aspects. (financially, quality, schedule wise, solution to disputes, etc.).

Overall Performance: The Bank’s overall performance is highly satisfactory since it was able to guide YRWHDC to timely completion of such a large Project. By receiving the largest Bank loan in China, involving a lot of aspects and Project components and encountering complicated conditions, it maintained a good cooperation with the Borrower and the Implementing Agency. It moreover provided adequate coordination for all parties to complete such a large Project on schedule and with some cost savings.

- 34 - Borrower

Preparation: The Government and the Implementing Agency’s performance in preparation of the Project were highly satisfactory. The Government was very responsive to all comments made by the Bank missions. YRWHDC was fully responsible for all the design and tender document preparation with the assistance of foreign consultants. Most preparation work was done in record time of two years to ensure timely start-up of the Project. YRWHDC invested considerable amounts of funds and prepared the resettlement and environmental plans to very high quality, which was highly favorable to the Bank Project appraisal and the implementation of the Project.

Government’s Performance: MWR who represented the Government for this Project played a leading role at all stages of the Project preparation and implementation, and successfully coordinated the understanding of various ministries and provinces of the Project objectives and components, which greatly promoted the Project implementation. Particularly in 1996 when there were delays of 11 months in the critical interim completion date with potential serious consequences, MWR took critical measures to coordinate all parties and stationed a vice-minister at the Site to ensure that the Project problems were solved and adequate counterpart funds were made available for the Project. This ensured the achievement of river diversion in October 1997 as scheduled. MWR organized 27 meetings to review the Project at different stages to ensure that any special issue that arose from design or implementation was solved. Overall the government’s performance was highly satisfactory.

Implementing Agency’s Performance: YRWHDC has successfully implemented both phases of the Project. Its primary achievement was to meet all the milestone dates of the physical construction and to ensure that the quality of works was excellent. The Project has been essentially completed one year ahead of schedule and to high international quality standards. YRWHDC has been open to new technologies and construction management techniques and able to adopt the best practice in terms of organization and Project management systems. YRWHDC has successfully incorporated foreign and local panels of experts into project management, which has greatly contributed to successful construction management. When delays occurred at various stages of construction, YRWHDC was able to promptly identify the problems on the critical path and take measures to solve them. The actual project costs were less than that evaluated both by World Bank and the State Development and Planning and Development Committee. YRWHDC has a strong sense of project ownership and the overall performance is highly satisfactory.

Overall Borrower’s Performance The Borrower’s performance is highly satisfactory because it demonstrated ownership of the Project, completed a complex Project as Xiaolangdi one year ahead on schedule, with high quality of works. The borrower is now deeply involved in ensuring that the project operation is successful.

V. LESSONS LEARNED

Xiaolangdi is the largest Bank-financed project in China and also a worldwide challenging project for its huge size, predominantly large underground caverns, high degree of technical difficulties, and complex subsurface conditions. The planned schedule was quite long, but it appeared rather tight in comparison with the large quantity of works and the high degree of difficulty. Due to the special role of the Xiaolangdi Project in the Yellow River flood control, the schedule allowed for no delay. The large size of investment also represented demanding requirements for financial arrangements. Introduction of international contractors challenged the Employer in terms of management and coordination. The

- 35 - Project involved a resettlement population of about 200,000 people, which represented a hard task for the Employer. YRWHDC also encountered many difficulties in the course of implementation. With the support and solicitude of governments at different levels and the well-organized efforts of all parties involved in the Project, however, major Project components have been all completed ahead of schedule and within the cost estimate, and Project objectives have been achieved as planned. The Government and the Implementing Agency’s competence in respect of large-sized flood control project planning, design, research, organization, management and implementation is remarkably improved. Principal lessons learned from the Project include the following:

GOVERNMENT ATTENTION

The Government has shown adequate attention and solicitude to the Project, which is the precondition of successful implementation. The SPC (State Development and Planning Commission) and MWR were greatly interested in the project management and progress, with adequate support provided in terms of policies and funds and independent and full authority given to the Employer in respect of decision. These have ensured timely decision and an efficient management.

PROJECT MANAGEMENT

YRWHDC practiced the "Three systems" in project management, namely, System of Employer’s Responsibility, System of Bidding and System of Construction Supervision· This provided institutional guarantee for the success of the Project. While attaching importance to his leading role in important decisions on management, technical and financial issues, the Employer also vested the Engineer with full authority in accordance with the Contract and gave full play to his important role in project management and contract administration. As proven by practice, this is more than important to raise the level of project management.

Moreover, it cannot be stressed enough that a well designed and computerized project management system is a basis for success. A document control system module, especially related to claims should be a full part of the system. Such a system should be put into operation as early as possible in the Project Implementation. Even if the contract is ICB , the system should be operable in both the contract language (generally English in ICB) and in the Chinese language.

As one of China’s few water projects implemented on an ICB basis, Xiaolangdi also encountered many difficulties in initial management as a result of inadequate authority and improper decision. Based on MWR correct and timely decisions, YRWHDC made important adjustment to his leading body and adopted effective measures to completely offset delays, which placed a solid ground for the success of river diversion in 1997 and final earlier than foreseen completion at lower cost than anticipated.

CONSULTANT SERVICES

YRWHDC paid attention to cooperation with local and foreign consultants. Many valuable suggestions were provided by the Panel of Experts, Consultants and YRWHDC’s Technical Commission.

EXPERIENCE AND COMPETENCY OF PROJECT ENTITY

Implementation of the Project provided YRWHDC with much experience in international project management, design, construction and resettlement among other aspects, and also a large number of competent managerial and technical staff. This is significant to modernize water development and

- 36 - management. Implementation of the Project made YRWHDC staff more competent to cooperate with foreign contractors and experts, and provided more opportunities for local consultants and contractors to be involved in international projects.

MANAGEMENT AND DISPUTE RESOLUTION

During implementation of the Project, claims by the Contractor and disputes between the Contractor and the Employer resulted from complex geological conditions, variations, delays, acceleration and subsequent legislation. These disputes were more than complicated and took a lot of time to solve by both parties. However, they were finally solved through discussions on the basis of DRB recommendations and mediations. DRB recommendations further provided a platform for discussions between the parties which finally resulted in an amicable settlement of the disputes. The introduction and functioning of the DRB process provided very valuable experience for use in other projects in China. Some adjustment to the Clause 67 of the General Conditions of Contract (Dispute Resolutions) might be required and useful for future use.

The development of claims and disputes involved technical, engineering, legal and other external factors, but it cannot be categorically denied that the Contractor took full advantage of the ambiguous and inoperable clauses of the Contract. While emphasizing the Contractor’s rights, these clauses did not provide adequate protection for the Employer. This is one of the reasons that the disputes were or became complicated. The major lesson from this is to provide clear and unambiguous technical specifications and contract documents for future contracts. Extreme care should be taken when formulating conditions or particular application- as allowed for by FIDIC-or special conditions and ensuring that both these do not contradict other standard clauses or create a situation where ambiguity is present, which can and will be construed against the drafter, i.e the Employer. Conformed documents should be prepared and made available to all parties.

Claim avoidance or mitigation is another factor to consider and early resolution of dispute is beneficial to both parties. The longer the disputes drag on, the more complex and expensive it will turn out to be at the end. Early and prompt resolution of claims, disputes should therefore whenever feasible be addressed as early as possible, but requires a competent and efficient team, backed-up by higher management with adequate authority to make decisions.

TRANSLATION AND COMMUNICATION

In case ICB contracts are considered it is of the highest importance that proper translation and communications are provided in order to avoid misunderstandings. Improvement communication between various parties (owner, engineer, designer, consultants and contractors, etc.) is not simply of translation between different languages, but of communicating ideas and concepts across international boundaries of culture and training. (b) Cofinanciers: The EXIM Bank of the US which is the main co-financing partner has no comments. (c) Other partners (NGOs/private sector):

- 37 - 10. Additional Information Organisation Charts and Other Information

Figure 1 XLD Environmental Management System

YRWHDC World Bank

Construction EMO/Dam POE Department

Engineer ESE EMIs

Construction Area (CEO)

Note: ---- = Coordination Relationship YRWHDC= Yellow River Water and Hydropower Development Corporation EMO/Dam= Environmental Management Office at Dam Site POE = Panel of Environment Experts; ESE = Environmental Supervision Engineer; EMIs = Environmental Monitoring Institutes; CEO = Contractor’s Environmental Officer.

- 38 - Figure 2 Organization of YRWHDC in 2002 for Operation

Typical Organization Chart : Yellow River Water and Hydroelectric Power Development Corporation Year: 2002 Figure 3 YELLOW RIVER WATER AND HYDROELECTRIC POWER DEVELOPMENT CORPORATION (YRWHDC) (Including Includes Fund Business & Supervision Department Department Management Central Office Environmental Production and Resources and Waterborne Traffic) Personnel Affairs Department De partment CCP Working Including Staff Insurance Auditing Department Department Workers Union Public Security Financial Department Management's Center Technical Department (Former E & M Department) & Workers Department Xixiayuan Project (Former Contract & Planning) Zhehgzhou Production and Dispatching Center Functional Departments CCP & Peoples Project Management Department Dep. Zhengzhou Management Headquarters Plant XECC Center Company Department Beijing Trading Industrial Company Hydro-Electric Power Resettlement Bureau Service Departments Xiaolangdi Engineering Luoyang Administration Production and Logistic Comprehensive Service OPERATION DEPARTMENT

Secondary Units

- 39 - Figure 3 System of Water Allocation for the Downstream Areas of the Yellow River

Yellow River water allocation decison support system

roting

treatment

dynamic compiling task

adjusting management

scheme simulation management management information service water crisis adjusting water resource water allocation Water resource forecasting adjusting Operation situation moni

Water adjusting application service platform (model base)

Data saving management platform (database and its management)

Communication and computer net system (data transmition)

Information (whether, water quality, water diversion and drought situation) collecting system

Figure 3 System for Water Allocation for Yellow River Downstream Areas

- 40 - Figure 4 Computer Network for Flood, Sediment, Drought and Ice Flood Management.

hwh computer net center water allocation net

11province Liujiaxia junction Henan Bureau net Longyangxia Junction Wanjiazai junction Center center exchanger exchanger Shandong Bureau ? Informatio net n center

Shandong bureau communication water allocation management center PIX edge exchanger Work unit exchager ATM ? ? ? Information net( DDN? X.25? PSTN ?) Henan bureau water allocation center edge slb water exchanger Satellite conservancy communication net Guxian junction bureau net Sanmenxia junction

bureau water resource protection bureau Luhun reservoir net Xiaolangdi reservoir

hydrological hydrological situation sub- Optical fibre situation center under subordinate center Sanmenxia Twisted pair in the upriver of hydrographic bureau net line Sanmenxia Remote line

Picture 5.2-3 net topology

- 41 - Picture 1. Xiaolangdi Intake Structure

- 42 -

Picture 2. Dam and Outlet facilities

- 43 - Picture 3. Dam Body and intake

- 44 - Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Project Development Objectives Flood damage within dikes is reduced from Starting from year 2000, the flood protection 2-year recurrence to 7-year downstream of Xiaolangdi Dam has reached 1. ·Reduce flood damage within the dikes and ·Catastrophic flood damage will be eliminated one-in-a-thousand years-floods. The eliminate catastrophic damage from major Eliminate annual flood damage of $91 million downstream ice flood hazards are eliminated. floods-Indicators are: per year All the common floods, in particular those ·MWR annual report of floods very frequent floods that could inundate the vast flood plains where over 1.3 million people live, are brought under control. With Xiaolangdi dam put into operation, enormous possible flood damage has been avoided. Take the 1996 flood as an example. The flood at Xiaolangdi was only 7,800 m3/s in 1996, much smaller than the design flood of Xiaolangdi (Q=40,000m3/s), the following damage occurred in the downstream areas: (a) 251,000 ha of land (including 200,000ha farmland) inundated; (b) 2.4 million people affected with 800,000 people entrapped; (3) estimated economic losses of Y6.46 billion as reported by YRCC. Such damage would not have happened with Xiaolangdi dam. In August 2003 for a major flood of 1 in 60 years the entire damage downstream was avoided. Flood damage for large and small floods has been eliminated. The 2003 flood of 1/60 years caused no damage. Improve the safety of the dikes by sediment · 800 km of the Yellow River dikes do not On sedimentation control, by end August control and is key to the river safety and its have to be raised between 2000-2025 2003, a total of some 1 BCM of silt (see assurance it does not divert. figure below), about 14% of the storage reserved for sediment deposit (7.55 BCM), . has been trapped in Xiaolangdi reservoir preventing siltation of downstream river course. In addition, a in-situ sediment flushing test was conducted centered at Xiaolangdi July 4-15, 2002, resulting in erosion of the downstream river course with some 36.2 million tons of silt flushed into the sea. ·Improved performance of urban and Industrial down-time reduced to 2 days/y due Over the past 3.5 years (2000-2003 June), industrial growth through provision of water to lack of water; Riverbed ceases to rise the estimated incremental water supply by additional · 2001-2025. Xiaolangdi with the benefits produced to · Shandong and Hehan provinces are as follows: (1) M&I: 0.399 BCM ( or 8.2%; Henan: 0.388, Shandong: 0.011), benefit of 1.197 billion Yuan. In 2000 alone some 800 million cum water released for Tianjin to avert a major water shortage in the city. Overall industrial downtime from water shortage has completely been reversed Improve Irrigation Water supply Industrial Stabilize irrigation water so that grain and Farm production increases will be about 1.2 downtime is reduced to two days/year due to cotton production increase farm income by t/ha for grain from 3.8t/ha and 130 kg/ha for lack of water· 30% , labor productivity by 25% in ginned cotton from 1t/ha. Grain production Henan.·Grain yields will increase by 20% increased by 32%; cotton production from 4.0 tons/ha to 4.8 tons/ha and increased by 9%. Farm incomes from this production will increase by 0.515 million tons source would have increased by 33% from Y16/day to Y20/day. Overall production will increase by 1.6 million tons per year ·Generate peak hydroelectric power Power production increased from 1600 GwH Power production increased from 1600 GwH for the Henan Grid which is essentially in FY2000, 2700 GwH in 2001, 3100 GwH in in FY2000, 2700 GwH in 2001, 3100 GwH in thermal base power and thereby reduce the 2002, 3700 GwH in 2003 and 4200 Gwh in 2002, 3700 GwH in 2003 and 4200 Gwh in loss of downtime in industry 2004 2004 and is expected to continue to increase to 5800 Gwh by 2008 onwards

- 45 - Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Component 1 · River diversion in 11/97 River diversion took place Oct 1997. 1. Dam and Power house including · First generator installed by 12/99 All generators were installed by 2001. Consultants services. Indicators are · Sixth generator installed by 1/2001 Reservoir started operation in Jan 2000 and Supervision reports of YRWHDC and · Project completion by 2002 power generation was also at the same time . YRWHDC progress reports Also in 2000 some 800 mil cum of water was supplied to Tianjin city Component 2. 1998-50 staff trained (finance/organizational 1998---58 staff trained operation of dam Training Indicators are YRWHDC's progress management 1999---80 staff train in O & M and another reports · 1999-50 staff trained (as above) 81 staff on finance and management · 2000-50 staff trained (as above) 2000--34 staff trained on dam safety and another--145 on detail technical and financial issues 2001--120 staff trained on dam safety and office automation 2002--174 staff trained on dam surveillance 2003---123 staff trained on reservoir sedimentation and O & M and concrete repair

Component 3 Most EMP work was completed and Detailed environmental supervision was Environmental Management and contractors had left the site. Detailed reports undertaken by YRCC Design Institute Monitoring--Indicies are the monthly progress on dam implementation monitoring, dam Environment Group. In addition monitoring reports safety monitoring was being undertaken by was undertaken by YRWHDC the owner. the government and the environment The Environmental and Resettlement Panel supervisors. was spilt into two groups one for the Resettlement Project and other for the Dam Project. The environmental protection measures undertaken were as follows: -a) Dam safety monitoring -b) Cultural relics restoration -c) public health and worker safety in the construction areas -d) pollution control of air, water and land areas in the construction site Component 4 Most of the work for this component was YRCC decided not to hire consultants but to Flood/Sediment/Ice Forecasting --progress already completed by the Government. undertake to do the setup of the reported in the twice annual progress reports YRCC the executing agency used its own flood/sediment/ice/drought forecasting resources to develop and even go further system. than what was required in the Bank -The only consultants that were hired were component. RPDI of YRCC for the downstream dispatching of the flows especially in the dry season which will ensure that water is supplied for M & I needs, river is kept flowing, and irrigation needs are optimally met. -Flood forecasting which is highly developed will use the existing system with YRCC Hydrology Bureau working with the Flood Information Center. All flood management will be done with these two bureaus -Sediment forecasting will be done by YRCC-RPDI Component 5 Consultants had already built a water The water dispatch system for the Lower Institutional support for YRCC to develop a dispatch system and a State Council Yellow River has 90 dispatch points Lower Yellow River Institution Regulation had been passed for YRCC downstream. A Dispatching office has been institution to establish within Shandong and established and a water fee collection study Henan Provinces to collect fees has been completed. In addition a state council regulation is being implemented for water fee collection.

1 End of project

- 46 - Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Major Civil Works 1150.44 1377.02 119.7 Minor Civil Works + Preparatory Works 369.85 383.84 103.8 Electro-mechanical works + metal works 253.07 150.70 59.6 Electrical Works 209.64 105.33 50.2 Administration and Engineering 235.48 201.40 85.5 Institutional Support 5.06 4.59 91 Environment Management 10.10 13.80 136.6 Sediment/Flood/Drought/Ice Forecast Component 14.80 14.68 99.2

Total Baseline Cost 2248.44 2251.36 Total Project Costs 2248.44 2251.36 Interest during construction 607.40 437.40 72.00 Total Financing Required 2855.84 2688.76

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB 2 N.B.F. Total Cost NCB Other 1. Works 1142.98 0.00 0.00 372.16 1515.14 (809.30) (0.00) (0.00) (0.00) (809.30) 2. Goods 27.69 0.00 12.20 431.70 471.59 (9.54) (0.00) (5.13) (0.00) (14.67) 3. Services 0.00 0.00 42.22 196.32 238.54 (0.00) (0.00) (28.21) (0.00) (28.21) 4. Miscellaneous 0.00 0.00 10.12 0.00 10.12 Training and (0.00) (0.00) (8.28) (0.00) (8.28) Environmental Monitoring 5. Other services 0.00 0.00 0.00 13.05 13.05 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 1170.67 0.00 64.54 1013.23 2248.44 (818.84) (0.00) (41.62) (0.00) (860.46)

- 47 - Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB 2 N.B.F. Total Cost NCB Other 1. Works 1212.20 0.00 0.00 345.31 1557.51 (726.21) (0.00) (0.00) (0.00) (726.21) 2. Goods 1.20 0.00 0.00 446.27 447.47 (1.32) (0.00) (1.15) (0.00) (2.47) 3. Services 0.00 0.00 29.76 199.69 229.45 (0.00) (0.00) (21.28) (0.00) (21.28) 4. Miscellaneous 0.00 0.00 10.00 6.93 16.93 Training and (0.00) (0.00) (0.67) (0.00) (0.67) Environmental Monitoring 5. Other services 0.00 0.00 0.00 (0.00) (0.00) () (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 1213.40 0.00 39.76 998.20 2251.36 (727.53) (0.00) (23.10) (0.00) (750.63) Capitalized Interest of $30 million is excluded from the table. If this included the total disbursements for Stage I and Stage two loans disbursed would be $780.63 million compared to the original loans of $890 million. There was a saving of $109.37 million which was cancelled in the second loan 1/ Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies. 2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

Project Financing by Component (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF. Major Civil Works 818.10 332.30 726.21 486.20 88.8 146.3 Local Works 369.90 345.30 93.3 Mechanical & Electric Plt 7.90 393.21 74.00 2.47 371.00 74.00 31.3 94.4 100.0 Admin and Engineering 196.00 199.60 101.8 Consultant Services 24.50 12.40 21.28 8.46 86.9 68.2 Training & Inst. Develop 6.50 4.00 0.47 2.34 7.2 58.5 Environmental 3.00 7.10 0.20 13.80 6.7 194.4 Management Total 860.00 1314.91 74.00 750.63 1426.70 74.00 87.3 108.5 100.0 Notes: 1. US$74.00 million from Cofinancier, US Exim Bank for the Turbines. 2. The Bank loan was $460 m stage I and $430 m stage II, total available $890 m. Total applied to the proejct was $860 m with anotehr $30 m for IDC. However, the final disbursed amount was $750.63 m and $30 m for IDC. Stage I loan was fully disbursed

- 48 - Annex 3. Economic Costs and Benefits The main benefits listed in the Economic Cashflow are the: agriculture benefits, municiple and industrial water and hydropower benefits are derived using the optimization simulation model using a 90 year hydrologic sequences. The prices for agriculture commodities were economic farm gate prices derived from border prices for the three major crops: wheat, corn cotton and rice. Sidelines and off-farm values were valued at local prices excluding taxes and transfer payment. M & I water was valued at tariffs paid for water (Y1.2/cum) as a proxy for willingness to pay, although previous analysis shows that the value of industrial water is about Y6/cu m and municipal water should be about Y3/cu. m. The value of hydropower benefits were at current and forecasted tariffs of Y0.3/ KhWhr. Flood control and sediment control benefits were based on similar methodology as in the PAD Annex 4. The discounted benefits are presented in table 1 and the economic cash flow is present below in Table 2.

Table 1. Discounted Benefits (Billion Yuan)

ICR Mission PAD % of Total ICR/PAD benefits Adjusted 1994 1997 1997 Agriculture 5.81 9.87 12.089 30% 82% M & I 1.14 1.94 1.717 6% 113% Hydropower 3.63 6.17 16.536 19% 37% Flood Control 6.70 11.39 7.345 35% 155% Sediment 2.00 3.40 2.817 10% 121% Total 19.28 32.77 40.50 100% 81%

- 49 - Table 2. Economic Cashflow (Billion Yuan)

Agriculture M & I Hydropower Flood ControlSediment EIRR 13% HN-VAGRSD-VAGRTOT-VAGR VA-M+ISMX-VAEGYXLD-VAEGYTOT-VAEGYFlood ControlSediment Total BenefitsCapital costsO & M CostsTotal CostsNPV 2% 28% 30% 6% 0% 19% 19% 35% 10% 100% PV in Bil Y0.37 5.44 5.81 1.14 (0.00) 3.63 3.63 6.70 2.00 19.28 17.39 0.97 18.36 0.92 1994 0 0 0 0 0 0 0 0 0 0 1.31 0 1.31 -1.31 1995 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.56 0.00 2.56 -2.56 1996 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.93 0.00 2.93 -2.93 1997 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.41 0.00 3.41 -3.41 1998 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.95 0.00 0.95 4.31 0.00 4.31 -3.36 1999 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.99 0.00 0.99 4.13 0.00 4.13 -3.14 2000 0.09 1.32 1.41 0.27 0.00 0.14 0.14 1.06 0.51 3.38 4.13 0.00 4.13 -0.75 2001 0.09 1.32 1.41 0.27 0.00 0.45 0.45 1.09 0.51 3.72 3.95 0.00 3.95 -0.23 2002 0.09 1.32 1.41 0.27 0.00 0.73 0.73 1.12 0.51 4.03 2.42 0.29 2.72 1.31 2003 0.09 1.32 1.41 0.27 0.00 0.82 0.82 1.15 0.51 4.15 2.12 0.29 2.41 1.74 2004 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.18 0.51 4.46 1.27 0.29 1.56 2.89 2005 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.22 0.51 4.49 0.29 0.29 4.20 2006 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.25 0.51 4.52 0.29 0.29 4.23 2007 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.28 0.51 4.56 0.29 0.29 4.26 2008 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.32 0.51 4.59 0.29 0.29 4.30 2009 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.35 0.51 4.63 0.29 0.29 4.34 2010 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.39 0.51 4.66 0.29 0.29 4.37 2011 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.43 0.51 4.70 0.29 0.29 4.41 2012 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.47 0.51 4.74 0.29 0.29 4.45 2013 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.51 0.51 4.78 0.29 0.29 4.49 2014 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.55 0.51 4.83 0.29 0.29 4.53 2015 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.60 0.51 4.87 0.29 0.29 4.58 2016 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.64 0.51 4.91 0.29 0.29 4.62 2017 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.69 0.51 4.96 0.29 0.29 4.67 2018 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.74 0.51 5.01 0.29 0.29 4.72 2019 0.09 1.32 1.41 0.27 0.00 1.09 1.09 1.78 0.51 5.06 0.29 0.29 4.77 2020 0.09 1.14 1.23 0.33 0.00 1.02 1.02 1.84 0.20 4.61 0.29 0.29 4.32 2021 0.09 1.14 1.23 0.33 0.00 1.02 1.02 1.89 0.20 4.66 0.29 0.29 4.37 2022 0.09 1.14 1.23 0.33 0.00 1.02 1.02 1.94 0.20 4.72 0.29 0.29 4.42 2023 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.00 0.20 4.77 0.29 0.29 4.48 2024 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.06 0.20 4.83 0.29 0.29 4.54 2025 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.12 0.20 4.89 0.29 0.29 4.60 2026 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.18 0.20 4.95 0.29 0.29 4.66 2027 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.24 0.20 5.01 0.29 0.29 4.72 2028 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.30 0.20 5.08 0.29 0.29 4.79 2029 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.37 0.20 5.15 0.29 0.29 4.85 2030 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.44 0.20 5.21 0.29 0.29 4.92 2031 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.51 0.20 5.29 0.29 0.29 4.99 2032 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.59 0.20 5.36 0.29 0.29 5.07 2033 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.66 0.20 5.44 0.29 0.29 5.14 2034 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.74 0.20 5.51 0.29 0.29 5.22 2035 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.82 0.20 5.60 0.29 0.29 5.30 2036 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.91 0.20 5.68 0.29 0.29 5.39 2037 0.09 1.14 1.23 0.33 0.00 1.02 1.02 2.99 0.20 5.77 0.29 0.29 5.47 2038 0.09 1.14 1.23 0.33 0.00 1.02 1.02 3.08 0.20 5.86 0.29 0.29 5.56 2039 0.09 1.14 1.23 0.33 0.00 1.02 1.02 3.17 0.20 5.95 0.29 0.29 5.66 2040 0.09 1.14 1.23 0.33 0.00 1.02 1.02 3.27 0.20 6.04 0.29 0.29 5.75 \Discounting at 12%

Note: HN-VAG, SD-VAG represent the incremental value-added for agriculture for Henan and Shandong Provinces; VA-M&I is incremental value added for urban industrial water; SMX-VA,XLD-VA are for value added for hydropower for Sanmenxia and Xiaolangdi hydropower stations. These values are derived from reruns of the simulation models using the latest prices. Sediment and flood control benefits follow the PAD calculations when surveys were done in 1997 when the project were appraised. These values were not changed but it is believed that most of the values could have been increased after 1996 flood damage values which were not available for appraisal. The capital cost include the costs of resettlement which were completed at the time of appraisal.

- 50 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 3/10/97

Appraisal/Negotiation 03/11/1997 Mission Leader/Water Resources (1), Economist (5), Dam Specialist (3), Resettlement Specialist (1), Environmental Specialist (3), Financial Specialist (2), Flood Forecasting Specialist (1), Sediment Specialist (1), Reservior Operations (1)

Supervision

06/03/1998 8 MISSION LEADER (1); DAM S HS ENGINEER (1); FINANCIAL ANALYST (1); DAM/TUNNEL SPECIALIST (1); GEOTECH. SPECIALIST (1); ENVIRONMENT SPECIALIST (1); HYDRAULICS SPECIALIST (1); FLOOD FORECAST SPL. (1) 11/02/1998 6 WATER RESOURCES ENG (1); S HS WATER RESOURCES SPEC. (1); DAM/TUNNEL SPECIALIST (1); GEOTECH. SPECIALIST (1); ENVIRONMENT SPECIALIST (1); FINANCIAL ANALYST (1) 03/30/2000 10 WATER RESOURCES SPL (3); S HS CLAIMS SPECIALIST (1); FINANCIAL ANALYST (2); DAM/TUNNEL SPECIALIST (1); GEOTECHNICAL SPL (1); ENVIRONMENTAL SPL (2) 09/06/2001 5 TASK TEAM LEADER (1); S HS WATER RESOURCES SPCL. (1); ENVIRONMENTAL SPCL. (1); FINANCIAL SPECIALIST (1); DAM SPECIALIST (1) 11/03/2002 6 TTL, WATER RESOURCES (1); S HS DAM SPECILAIST (1);

- 51 - WATER ENGINEERING (1); GEOTECHNICAL ENGINEER (1); ENVIRONMENT MANAGEMENT (1); ECONOMIC ANALYSIS (1)

ICR 10/03/2003 6 TASK TEAM LEADER (1); S HS WATER RESOURCES SPCL/ECONOMIST. (1); ENVIRONMENTAL SPCL. (1); FINANCIAL SPECIALIST (1); DAM SPECIALIST/MODELLER (1) AND IRRIGATION SPECIALIST(1)

(b) Staff:

Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 130 650 Appraisal/Negotiation 50 200 Supervision 64 460 ICR 8 25 Total 252 1305

- 52 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA

Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA

- 53 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU

6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU

- 54 - Annex 7. List of Supporting Documents

Origin Title Date 1 Bank Reports Staff Appraisal Report March 25, 1994 Xiaolangdi Multipurpose Project, Report 12339-CHA Project Appraisal Document June 23 1997 Xiaolangdi Multipurpose Project (Phase II), Report 16274-CHA Xiaolangdi Multipurpose Project: Stage March 11, 1997 II-Environmental Assessment Update (EIA/1997 Update)Prepared by Yellow River Reconnaissance, Planning and Design Institute, February 1997 (submitted to the World Bank Board as SecM97-179 Report on the Revised Resettlement Plan and February 1997 Implementation Progress, by Yellow River Water and Hydropower Development Corporation and the Reconnaissance, Planning and Design Institute, YRCC 2 Bank Mission Negotiations 1997 Reports Agreed Minutes Supervision 1997-2003 Mission Reports ICR 2003 Mission Report 3 Reports Negotiations 1997 Prepared by Agreed Minutes Employer for World Bank Missions Supervision 1997-2003 Implementation Progress Reports ICR February 2003 Borrower's ICR 4 Technical Report Dam Safety Panel Visit No.1 September 1994 Reports prepared by Employer for Dam Safety Panel Report Dam Safety Panel Visit No.2 September 1995 Report Dam Safety Panel Visit No.3 March 1996 Report Dam Safety Panel Visit No.4 September 1196 Report Dam Safety Panel Visit No.5 March 1997 Report Dam Safety Panel Visit No.6 September 1997

- 55 - Report Dam Safety Panel Visit No.7 June 1998 Report Dam Safety Panel Visit No.8 August 1008 Report Dam Safety Panel Visit No.9 September 2000 5 Dam Safety Dam Safety Panel Report No.1 October 23, 1994 Panel Reports Dam Safety Panel Report No.2 October 22, 1995 Dam Safety Panel Report No.3 March 27, 1996 Dam Safety Panel Report No.4 September 26, 1996 Dam Safety Panel Report No.5 April 10, 1997 Dam Safety Panel Report No.6 September 26, 1997 Dam Safety Panel Report No.7 June 12, 1998 Dam Safety Panel Report No.8 September 7, 1999 Dam Safety Panel Report No.9 September 29, 2000 6 Other Pertinent Technical Reports 7 Pertinent Report prepared for Orientation Visit April 1998 Claims and Variations Reports (Prepared for DRB Hearings/Visits) Report prepared for Site Visit No.1 August 1998 Report prepared for Site Visit No.2 December 1998 Report prepared for Site Visit No.3 March 1998 Report prepared for Site Visit No.4 May 1999 Report prepared for Site Visit No.5 August 199 Report prepared for Site Visit No.6 January 2000 Report prepared for Site Visit No.7 May 2000 Report prepared for Site Visit No.8 October 2000 Report prepared for Site Visit No.9 February 2001 8 DRB Reports Lot 2 – R1 Price Adjustment for Local Labour September 1998 HEARINGS BINDING Lot 2 Referral: Diversion Tunnels; February, 25, 1999 SUGGESTIONS Lot 2 - R2: Diversion Tunnels - Excavation & March 19, 1999 Support Extension of Time and Costs NOT BINDING Lot 2 – R3: Diversion Tunnels - Extension of Time July 22, 1999 and Acceleration NOT BINDING Lot2- R4: Measurement and Payment of Fault Zone February 15.,2000 Excavation in Open Excavation BINDING Lot 2 – Ann.B Diversion Tunnels Excavation & June 16, 2000 Rock Support

- 56 - SUGGESTIONS Lot 2 –R5: Post-ICD6 Acceleration September 13,2000 BINDING Lot 2 – SS2: Diversion Tunnels Concrete Lining November 14, 2000 Acceleration SUGGESTIONS Lot 2 – R6: Indirect Cost, Overhead, Supplementary December 20. 2000 Expenses BINDING 9 DRB Reports Orientation Visit April 18-23, 1998 Site Visits

Report on Site Visit No.1 August 23 –September 1, 1998 Report on Site Visit No.2 December 7-15, 1998 Report on Site Visit No.3 March 8-19. 1999 Report on Site Visit No.4 May 31 – June 12, 1999 Report on Site Visit No.5 August 12-26, 1999 Report on Site Visit No.6 January 23 –February 3, 2000 Report on Site Visit No.7 May 4-14, 2000 Report on Site Visit No.8 October 8-15, 2000 Report on Site Visit No.9 February 11-22, 2001 10 Financial Reports 1998-2003 11 Environmental 1997-2000 Reports Panel of Experts 12 Institutional 1999 Reports 13 Training Reports 1997-2000 14 Monthly Reports Monthly Reports prepared by XECC and CIPM Every Month - Submitted to the Bank 15 6 Monthly Reports 6 Monthly Reports prepared by XECC and CIPM Every 6 months – Submitted to the Bank

- 57 - Additional Annex 8. Compliance with Loan Covenants

Section Covenant Fulfillment Description of Covenant Comments Agreement Type Loan 3.04 0 C Dam Safety inspection arrangements for Sanmenxia Dam 3.05(a) 7 C Implement resettlement plan satisfactorily 3.05(b) 7 C Coffer dam is not closed if resettlement lags by four months 3.05(c) 10 Not yet due Ensure water in damn does not go over level 265m before resettlement over 265m is completed 3.06 10 Not required Transmission lines will be constructed for Transmission lines power grids to Shanxi and Hunan to Shanxi were not required and therefore canceled 5 para 1 5 C Maintain project coordinating groups at all levels

5 para 2 10 C Undertake all technical assistance and training for the institutional component satisfactory to the Bank 5 para 4 9 C Borrower/YRWHDC shall carry out a Mid-term review YRCC and Project Provinces carry out their 5 para 5 6 C respective parts of the EMP YRWHDC shall enter into a power sales 5 para 3 2 PC agreement with power companies Borrower/YRWHDC shall carry out a Project Para 7 9 C mid-term review YRWHDC shall enter into a power sales Power sales 3.04 2 C agreement with power companies agreement on principles is agreed 4.02 2 C Financial covenant-debt service ratio 4.04 2 PC Charge water rates to recover full costs including depreciation and rate of collection should not be less than 85 percent. It is being negotiated 2 para 3 5 C YRWHDC maintain its PMO with competent staff with adequate numbers, 2 para 4 5 C YRWHDC furnish annual financing plan and implementation program 2 para 5 10 C YRWHDC shall employ international panel of experts for reviewing dam safety

2 para 6 6 C YRWHDC shall: (a) employ intl. Panel of experts for reviewing implementation of the Environmental Management Plan (EMP); (b) maintain an Environmental Management Office. Acceptable to the Bank and (c) EMP is undertaken in timely and acceptable manner. 4.01 1 C Borrower shall have records audited for all financial project accounts including the Special Account. Furnish to the Bank no later than June 30 audit reports of the last year C: Complied with NC: Not Complied with CP: Partially Complied with

- 58 - Additional Annex 9. Operation and Maintenance Plan and Emergency Preparedness Plan Summary

1. Procedures

The technical operation and maintenance rules/procedures formulated and followed by YRWHDC for the dam/power plant operators are satisfactory and in line with the pertinent codes/specifications and regulations of the Chinese Government. The newly revised technical manuals and specifications for Xiaolangdi Project operation and maintenance include the following:

S Specifications of reservoir regulation S Specifications of surveillance for hydraulic structures S Specifications of maintenance of hydraulic structures S Specifications of generating system operation S Specifications of maintenance of high voltage system S Specifications of maintenance of power protection system S Specifications of maintenance of automatic control system S Specifications of maintenance of hydro-mechanical system S Specifications of operation and maintenance of gates and hoists

The analysis of monitoring data is clearly specified in the Specifications of surveillance for hydraulic structures. However, due to lack of personnel, this work was not carried out timely.

2. O & M Plan

As for the O & M Plan specified in the legal agreement for this Project, a document entitled Management and Maintenance Program for the Operation of the Power Plant was prepared together with the Operation, Maintenance and Surveillance Manual for Xiaolangdi Dam Safety and some related guidelines developed with the assistance of an international consultant team.

The O&M Plan which covers the following aspects and will be updated at appropriate intervals: l General Project Information l Institutional Setup and Financing Plan l Operation l Reservoir operational rules l Sediment management l Flood forecasting l Flood operating procedures l Emergency operating procedures l Maintenance l As built-drawings and reports (historical document) l Performance indicators l Preventive measures

- 59 - l Instrumentation Plan l Surveillance l Standards l Regular inspections l Tests l Emergency Operations Plan

3. Emergency Preparedness Plan (EPP)

The preparation of EPP for both Xiaolangdi and Sanmenxia Dams as required by the Loan Agreement, MWR would entrust YRCC to prepare, with the assistance of YRWHDC, the EPP for both dams.

The Emergency Preparedness Plan (EPP), is based on normal international as well as Chinese practice for dam projects. It identifies the procedures and processes that the dam operators would follow in the event of an emergency, such as e.g.

1. failure of essential equipment such as flood gates, 2. slope failure(s) having the potential to cause dam failure, or 3. a complete failure of the dam caused by overtopping, earthquake or piping.

The EPP allows for planning by municipalities, army and local police, provincial agencies, telephone and transportation companies and other parties affected in the event of a dam break flood, and the coordination of efforts between provincial and municipal levels of government. In the event of an emergency, the EPP will save lives and has the potential to reduce property damage by:. l Hydrographic observation and flood warning scheme; l Drawdown and flood control operation of reservoir; l Emergency emptying of the reservoir; l Inundation maps for flows up to the design flood, and for catastrophic conditions caused by dam failure; l Evacuation of flood-threatened areas; l Rescue operations and other emergency provisions; l Equipment, material and support available for emergency relief; l Coordination of emergency relief actions with third parties (for instance: civil defense, police, hospitals, etc.); l Emergency standby of public utilities; l Emergency operation of power plant, water supply scheme associated with the dam; l Emergency warning; l Emergency communication; l Emergency transportation; l Emergency access to the damsite; l Emergency decision-making process and procedures.

The Response Level is summarized on the table below and details of the type of events are not provided in the table as these are very extensive and are only in the detailed manuals.

- 60 - Type of Event RESPONSE Hydrological Event LEVEL Flooding Emergency release from upstream reservoirs Earthquake Leakage causing internal erosion or piping Abnormal Instrument Readings Gate Failure/ power Loss/ Equipment Failure Sabotage Accident Internal Alert V: The Situation can I:V: be managed I:V: internally. Outside I:V: notification is NOT I:V: required I:V: I:V: I: Response V: Level 1 I:V: Conditions are such I:V: that they may cause I:V: downstream flooding. I:V: I:V: I:V: I: Response V: Level 2 I:V: Prepare for I:V: Evacuation I:V: I:V: I:V: I:V: I: Response V: Level 4 I:V: Evacuation is I:V: necessary I: Major V: YES I:V: I: Yes V: I:V: Major I: V: Visual Observations I: Monitoring/Instrumentation Readings

4. PERFORMANCE OF SANMENXIA DAM

Dam:

The Sanmenxia Dam was completed in the early 60s. In 1983, the Sanmenxia Project Management Bureau was established, and has since been in charge of all the project structures, while YRCC is in charge of reservoir dispatching. The dam safety monitoring center was established in Sanmenxia Project Management Bureau. The basic O & M manuals and specifications for monitoring, inspection and surveillance are available in the center, as required by the government rules on dam safety.

The dam is located in high seismicity region (with intensity of 8 degree). In order to improve the seismicity monitoring work, a seismic monitoring station was established in 1978 at 3 km west of the dam. This station is now included in the national seismic observation network.

Since the dam was designed against higher head and is now operated against lower head, there should be no problem regarding the safety of dam including its stability, stress and deformation, etc. However, after many years of operation most of the stress, strain and temperature monitoring instruments are either under aging conditions or out of work.

- 61 - Replacement and renovation of key monitoring instruments not functioning as well as an overall dam safety assessment is in progress.

Water releasing structures:

The water releasing structures at Sanmenxia consist of 27 items (excluding the hydro power units), namely, 2 tunnels, 12 deep outlets, 12 bottom outlets and 1 penstock. Sanmenxia Project Management Bureau has been undertaking various repairs to the damaged parts of the tunnels and outlets.

Regular inspection and repairing of all the water releasing structures as needed will be conducted timely in future so as to guarantee the functionality of those important works

Gantry cranes at dam crest:. The following problems exists: l The lifting range of 72m is shorter than the 85m required; l The present lifting load 380t exceeds the design capacity of 350t; l At present, 10 hours are needed to open all 17 gates, which is longer than 8 hours as required by flood control dispatching; l The two cranes were put into use in 1962 and 1965 respectively, their service life exceeded the design life of 35 years. Replacement and renovation of these cranes are urgently needed.

Operation of Sanmenxia Dam:

The guiding principles of operation and maintenance of Sanmenxia Dam are as follows: l Conjunctive dispatching of the four reservoirs (Sanmenxia, Guxian, Luhun and Xiaolangdi) as managed by YRCC; l Storing the clear water and releasing the muddy water so as to maintain sufficient effective storage volume of the reservoir for a rather long period, thus to exploit the comprehensive benefit of the project flood control, ice flood control, irrigation, water supply, power generation, sedimentation reduction and eco-environmental protection etc.; l To maintain relative stability of the river bed elevation at Tongguan to protect the Weihe River plain; l At present, monthly dispatching plan is worked out by Sanmenxia Project Management Bureaus. This plan will be timely modified through instruction orders issued by YRCC. Modifications are more frequent in flood season; l From 1989 to now, the operation pool level in flood season is controlled at 305m. After 1993, the non-flood season pool level is controlled at 322m or lower.

EPP Sanmenxia Dam

The Sanmenxia Dam Management Bureau has studied the actions to be taken in emergency of strong storm and in emergency of strong earthquake, which needs to be incorporated in the EPP for Sanmenxia Dam:

(1) Actions to be taken in case of strong storms include: l Analyze and compute the forces acting on the dam for pool levels 335m and 340m; l Check the bearing capacity of dam for pool levels 335m and 340m; l Plug all galleries vulnerable to the entrance of flood water; l Guarantee the availability of stand-by power source and the reliability of E/M and metallic equipment; l Utilize turbine units to help to lower the pool level;

- 62 - l Evacuate people living under pool levels of 335m and 340m; l Timely close or open the gates according to the flood information; l Guarantee the safety of Xiaolangdi Reservoir and the downstream reaches of the Yellow River through real-time dispatching; l Prompt and precise communication with the Yellow River Flood Control Headquarters; l Prevent the flooding of power house by overtopping water coming from both downstream side and the upstream side.

(2) Actions to be taken in case of strong earthquakes include: l Rescue operation and other emergency provisions; l Equipment, material and support available for post disaster relief; l Emergency communication; l Emergency transportation; l Coordination of relief actions with third parties; l Emergency access to dam site and disaster areas.

- 63 - Additional Annex 10. Loan Allocation and Disbursements

Stage I Loan Allocation and disbursements

Revised Category Allocation Allocation Actual Withdrawal % Works ICB 386.00 410.49 414.47 100.97% Equipment & Materials 4.90 4.90 1.32 26.94% Vehicles 2.53 1.06 1.06 100.00% Consultant Service 12.35 12.35 12.32 99.76% Training 1.20 1.20 0.60 50.26% IDC 30.00 30.00 30.00 100.00% Unallocated 23.02 0.00% Total 460.00 460.00 459.77 99.95%

Stage II Loan Allocation and Disbursements $ portion Revised Category Allocation Allocation Actual Withdrawal % Works ICB 206.00 206.00 205.74 99.87% Goods 4.75 4.75 0.09 1.96% Consultant Service 17.10 17.10 8.96 52.41% Training 2.15 2.15 0.07 3.27% Total 230.00 230.00 214.87 93.42%

Stage II Loan Allocation and Disbursements DM Portion Revised Category Allocation Allocation Actual Withdrawal % Works ICB 200.00 200.00 91.60 45.80% Goods 0.00 0.00 0.00 0.00% Consultant Service 0.00 0.00 0.00 0.00% Training 0.00 0.00 0.00 0.00% Total 200.00 200.00 91.60 46%

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