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Inner Mongolia Autonomous Region Environment Improvement Project (Phase II)

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Inner Mongolia Autonomous Region Environment Improvement Project (Phase II) Project Administration Manual Project Number: 40634-01 Loan No.: 2658 December 2016 People's Republic of China: Inner Mongolia Autonomous Region Environment Improvement Project (Phase II) Contents ABBREVIATIONS 3 I. PROJECT DESCRIPTION 1 A. Rationale, Location and Beneficiaries 1 B. Impact and Outcome 2 C. Outputs 2 II. IMPLEMENTATION PLANS 3 III. PROJECT MANAGEMENT ARRANGEMENTS 6 A. Project Stakeholders – Management Roles and Responsibilities 6 B. Key Persons Involved in Implementation 7 IV. COSTS AND FINANCING 9 A. Detailed Cost Estimates by Expenditure Category 9 B. Detailed Cost Estimate by Financiers 11 C. Allocation and Withdrawal of Loan Proceeds 11 D. Contract and Disbursement S-curve 12 E. Fund Flow Diagram 12 V. FINANCIAL MANAGEMENT 13 A. Financial Management Assessment 13 B. Financial 13 C. Disbursement Arrangements 15 D. Accounting 15 E. Auditing 16 VI. PROCUREMENT AND CONSULTING SERVICES 16 A. Advance Contracting and Retroactive Financing 16 B. Procurement of Goods, Works and Consulting Services 16 C. Procurement Plan 17 D. Procurement Thresholds, Review, and 18-Month Procurement Plan 17 National Competitive Bidding 19 D. Consultant's Terms of Reference 21 VII. SAFEGUARDS 26 A. Land Acquisition and Resettlement 26 B. Environment 26 C. Social Impacts and Poverty Reduction 26 VIII. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION 27 A. Project Design and Monitoring Framework 27 B. Project Performance Monitoring 28 C. Project Review 34 D. Reporting 34 IX. ANTICORRUPTION POLICY 34 X. ACCOUNTABILITY MECHANISM 35 XI. RECORD OF PAM CHANGES 35 Project Administration Manual Purpose and Process The project administration manual (PAM) describes the essential administrative and management requirements to implement the project on time, within budget, and in accordance with Government and Asian Development Bank (ADB) policies and procedures. The Government of Inner Mongolia Autonomous Region (GIMAR), which is the Executing Agency (EA) and the six Project Implementing Agencies (PIAs) (Hohhot Futai Heating Supply Co. Ltd.; Chifeng Fulong Heating Supply Co. Ltd.; Baotou Municipal Heating Supply Company; Zhaqi Xingda Heating Supply Co. Ltd., Aershan Xinguang Heating Supply Co. Ltd; Tuquan Xinguang Heating Supply Co. Ltd.,; and Wengniute Xingyang Heating Co. Ltd.,) are wholly responsible for the implementation of ADB financed projects, as agreed jointly between the borrower and ADB, and in accordance with Government and ADB’s policies and procedures. ADB staff is responsible to support implementation including compliance by the EA and six IAs of their obligations and responsibilities for project implementation in accordance with ADB’s policies and procedures. At Loan Negotiations on 28 June 2010, the borrower and ADB have agreed to the PAM and it ensures consistency with the Loan agreement. In the event of any discrepancy or contradiction between the PAM and the Loan Agreement, the provisions of the Loan Agreement shall prevail. After ADB Board approval of the project's report and recommendations of the President (RRP), changes in implementation arrangements are subject to agreement and approval pursuant to relevant Government and ADB administrative procedures (including the Project Administration Instructions) and upon such approval they will be subsequently incorporated in the PAM. Abbreviations ADB = Asian Development Bank CO2 = carbon dioxide DHS = district heating supply DRC = Development and Reform Commission EA = executing agency GDP = gross domestic product GIMAR = government of Inner Mongolia Autonomous Region HES = heat-exchange station IA = implementing agency IMAR = Inner Mongolia Autonomous Region IMAR DRC = IMAR Development and Reform Commission NOx = Nitrogen oxide PAM = project administration memorandum PMO = project management office PRC = People's Republic of China SIEE = summary initial environmental examination SCADA = supervisory control and data acquisition SO2 = sulfur dioxide TSP = total suspended particulates 1 I. PROJECT DESCRIPTION A. Rationale, Location and Beneficiaries 1. The PRC has experienced a rapid increase in energy consumption in tandem with sustained economic growth, especially since 2000. By the end of 2010, the primary energy demand in the PRC had increased to more than 3.00 billion tons of standard coal equivalent (btce), compared to 1.39 btce in 2000. The PRC relies heavily on carbon- intensive coal, which provided about 70% of its primary energy in 2010. 1 Electricity generation and heat supplies account for about half of the total coal consumption in the PRC. The Government of the PRC has recognized the challenges posed by the rapid rise in energy consumption and associated emissions. It has committed to achieve 40%– 45% carbon intensity reduction by 2020 compared with 2005, primarily by targeting energy intensity reductions.2 During the Eleventh Five-Year Plan, 2006–2010 the energy intensity was reduced by 19.06% compared with a target of 20.00%. During the Twelfth Five-Year Plan, 2011–2015 the PRC has set a further energy intensity reduction target of 16%, an 8% reduction of sulfur dioxide (SO2), and a 10% reduction of nitrogen oxide (NOx). 2. Inner Mongolia Autonomous Region (IMAR) heavily depends on coal, which accounts for 90% of primary energy supply and for 95% of district heating supply. Due to rapid economic growth and aging inefficient energy infrastructure, IMAR is one of the top five energy intensive economies in PRC with 1.92 tons of standard coal equivalent (tsce) per CNY 10,000 of gross regional domestic product (GRDP), while the national average of 1.03 tons. IMAR is also one of the top five air pollutant emitters in PRC with 1.39 million tons of sulfur dioxide (SO2) and 1.31 million tons of nitrogen oxide (NOx) emissions, which account 6.1% of SO2 emission and 5.7% of NOx emission in PRC. During the twelfth five-year-plan (2011-2015), GIMAR has set the target of reducing energy intensity by 15%, SO2 emission by 3.8% (53,000 tons), and NOx emission by 5.8% (76,000 tons) by 2015 compared to 2010 3 . Reliance on coal has a high environmental cost for urban areas in IMAR—out of 15 cities being monitored for air quality, only 6 cities reach class II air quality standards. 3. Due to its remoteness and low population density, IMAR includes some of the poorest areas in the PRC. The population of IMAR was 24.72 million in 2011, which is 1.84% of the national total, though IMAR occupies 12.3% of the land area. Demand for district heating is growing rapidly due to strong economic growth, higher incomes, and the privatization of housing that has increased sharply in recent years. Single-storied residences that are expensive to supply with district heating are rapidly being replaced with high-rise residential buildings that are more suitable for district heating. Relocation policies for rural herders, intended to reduce environmental pressure on fragile pastures, are causing urbanization and increased demand for district heating. The urban share of IMAR’s population increased from 42.2% in 2000 to 56.6% in 2011.4 As a consequence, the district heating area has expanded rapidly, increasing by more than 80% during 2007–2011. This rapid increase has resulted in a demand–supply imbalance. 1 China Statistics Press. 2010. China Energy Statistical Year Book. Beijing. 2 Carbon intensity is the amount of greenhouse gas emissions per unit of gross domestic product (GDP). Energy intensity is the amount of energy consumed per unit of GDP. In the PRC, the energy intensity is generally measured in tons of coal equivalent per CNY10,000 of GDP. 3 State Council. 2011. Circular of the State Council on Issuing the Comprehensive Work Plan for Energy Conservation and Emission Reduction during the Twelfth Five-Year Plan Period. Decree No. 26 4 National Bureau of Statistics of China. 2009. Statistical Communiqué of the Inner Mongolia Autonomous Region on the 2008 National Economic and Social Development. Beijing. 2 4. The existing district heating infrastructure consists largely of inefficient neighborhood coal-fired boilers with low capacity and efficiency and an aging and poorly insulated pipe network that suffers high distribution losses. The existing coal-fired boilers are highly polluting and lack emission-control devices. In many urban areas, district heating systems were installed in the 1970s and have exceeded their design lives, resulting in unreliable service. Relatively poor economic conditions mean that remote areas have inadequate heating supply, which disproportionately affects the poor. 5. While coal will continue to be a fuel of choice for meeting the heating requirements in IMAR, there are significant opportunities to reduce the use of coal. These include (i) maximizing heat recovery from existing combined heat and power plants, (ii) improving the energy efficiency of district heating systems, (iii) recovering waste heat from industrial processes, and (iv) developing alternative sources. Significant environmental benefits will come from improving the energy efficiency of heating systems, both on the supply side and the demand side. Supply-side energy-efficiency improvements are available from (i) replacing existing small, inefficient boilers with larger, more efficient units; (ii) replacing poorly insulated transmission and distribution pipelines; (iii) optimizing heat-supply management through supervisory control and data acquisition (SCADA) systems; and (iv) rehabilitating heat-exchange substations. Demand-side energy-efficiency improvements are attainable through
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