TECHNICAL ASSISTANCE COMPLETION REPORT Division: Energy Division

TA No., Country and Name: Amount Approved: $500,000

TA 7443-PRC: Energy Efficiency Improvements in Inner Revised Amount: not applicable Mongolia Autonomous Region Executing Agency: Source of Funding: Amount Undisbursed: Amount Utilized: Inner Mongolia Autonomous Climate Change $ 97,744.92 $ 402,255.08 Region Finance Bureau Fund1 TA Approval TA Signing Fielding of First TA Completion Date Date: Date: Consultants: Original: 30 June 2011 Actual: 28 December 2012 29 April 2010 14 December 2009 26 January 2010 Account Closing Date Original: 30 September 2011 Actual: 19 March 2013 Description The People’s Republic of China (PRC) depends heavily on coal, which made up 68% of the primary energy supply in 2009. This has brought substantial environmental damage caused by emissions of carbon dioxide, sulfur dioxide, nitrogen oxide, and total suspended particulates which are the main causes of global warming and air pollution. The Inner Mongolia Autonomous Region (IMAR) depended on coal to meet more than 90% of its energy demand in 2009 resulting in only 6 out of 15 cities meeting class II air quality standards. District heating in IMAR depended primarily on coal, which provided 95% of space heating requirements and was one of the major causes of air pollution in the cities during winter time. Moreover, most of the existing district heating infrastructures were old and inefficient. In 2007, Asian Development Bank (ADB) approved a loan to help in upgrading district heating system (DHS) in Wuhai and Bayannur Cities in the western part of IMAR under Loan 2260-PRC: IMAR Environment Improvement Project to improve the energy efficiency of DHS and reduce air pollution. Another Loan 2658-PRC: IMAR Environment Improvement Project Phase II covering cities in central and eastern part of IMAR including Baotou and Huhhot was also approved in 2010.

Loan 2260-PRC had a one year start-up delay that led to slower implementation up to early 2009 because most of the implementing agencies were not familiar with ADB project implementation requirements. To fill in critical capacity gaps in implementing Loan 2260-PRC and to avoid similar start-up delay in the subsequent project (Loan 2658-PRC), the IMAR government requested ADB to provide assistance to enhance project management capacity of the executing and implementing agencies under both loan projects. Expected Impact, Outcome and Outputs The impact of the TA was improved energy efficiency and environment in IMAR. The outcome was enhanced capacity in planning and implementing energy-efficiency projects. The TA was expected to deliver three outputs: (i) enhanced project management capacity in implementing DHS projects, (ii) monitoring and reporting procedure for district heating, and (iii) best practice paper consisting of strategies on demand-side conservation and development of public awareness material.

Delivery of Inputs and Conduct of Activities The executing agency was the IMAR Finance Bureau. The executing agency provided counterpart staff, office accommodation and other logistical support in a timely manner and its performance was satisfactory. The TA comprised of two components: Part 1 addressed the critical project management capacity strengthening needs of executing and implementing agencies under ADB loans, and Part 2 focused on monitoring, reporting, and demand side management issues to improve energy efficiency in DHS. Part 1 comprised of one international and six national consultants, and Part 2 comprised of one international and one national consultant who were engaged in accordance with ADB Guidelines on the Use of Consultants (2007, as amended from time to time). They together provided total inputs of 50 person-months including 5 person-months international and 45 person-months national. The performance of the consultants for both parts was rated satisfactory since they carried out all planned and additional activities to strengthen capacity of three heating companies in Aershan, Tuquan, and Wengniute cities which were implementing Loan 2658-PRC. ADB provided guidance, fielded missions for the TA's inception, mid-term and final reviews. The TA was completed 18 months later than the original completion date to accommodate new project implementing agencies under Loan 2658-PRC due to a change in scope and implementation arrangement. The TA was carried out efficiently that allowed some saving of TA resources even after addressing the full scope of the TA.

1 Established by ADB. Evaluation of Outputs and Achievement of Outcome The TA achieved its designed outcome. Loans 2260-PRC and 2658-PRC are currently on-track and progressing satisfactorily. Improved capacity of the executing agency in planning energy-efficiency projects directly contributed to a low-carbon wind and natural gas hybrid district heating project in Huhhot which is included now in the country operations business plan, 2013-2015.

All designed outputs were delivered as planned and were well received by the executing agency, and the implementing agencies under both loans. The TA provided trainings in procurement, disbursement, project administration, and monitoring and evaluation to the provincial finance bureau, provincial reform and development commissions and the local heating companies, which contributed to improve performance of both loan projects. The TA also developed monitoring and reporting procedures in assessing energy efficiency in DHS. A best-practice paper and public awareness material on demand side energy efficiency in DHS was also prepared. The TA recommendation including consumption based billing, heat metering, and two-part heating tariff to enhance demand side energy conservation has already been piloted in DHS in Wuhai City and planned to be gradually replicated to the other DHS subprojects under both loans.

Overall Assessment and Rating The TA is rated successful. The designed outcome was achieved with measurable improvement in the ongoing project performance and development of a new ADB loan project. All outputs and designed activities were successfully completed. The TA was well designed and was flexible to accommodate emerging capacity development needs. The TA was also highly relevant in support of the IMAR government’s priority on strengthening demand-side energy conservation practice in DHS.

Major Lessons First, critical capacity in early-stage implementation of a DHS loan project should preferably be addressed within accompanying project preparatory technical assistance. Second, multi-component DHS demands flexible approach to address emerging capacity gaps as new subprojects may get included. In this case, both loan projects had major change in scope that required this capacity development TA to respond to the emerging needs.

Recommendations and Follow-Up Actions Low-carbon and low-emission DHS is critical to reduce air pollution in major cities in IMAR. ADB should incorporate lessons learned from implementing Loans 2260 and 2658 in any future DHS project in IMAR. The TA helped the IMAR government to initiate scaling-up energy efficiency and less air pollutant DHS, combined with demand side energy conservation. Implementation of demand side energy conservation measures which is recommended in the TA should be monitored through Loans 2260-PRC and 2658-PRC administration.

Prepared by: Shigeru Yamamura Designation: Senior Energy Specialist, EAEN

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.