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TA 4951 Consultants Final Report: Inner Mongolia Autonomous

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TA 4951 Consultants Final Report: Inner Mongolia Autonomous FINAL REPORT FOR INNER MONGOLIA ENVIRONMENT IMPROVEMENT PROJECT (Phase II) (TA 4584-PRC) VOLUME I Submitted to: Mr. Anthony Maxwell, Task Manager Department/Office: EARD/EAEN, ADB Submitted by: H&J, Inc. 6265 Sheridan Drive, Suite 212 Buffalo, NY. 14221, U.S.A. (716) 633 8288 June 2008 IMEIP II PPTA FINAL REPORT i IMEIP II PPTA FINAL REPORT ii ABBREVIATION AAOV average annual output value ADB Asian Development Bank AIFC average incremental financial cost BAOTOU Baotou Municipal Heating Supply Company BAYAN Bayan Economy Development Investment Co. Ltd. BME benefit monitoring and evaluation CB Construction Bureau CER certified emission reductions CFB circulating fluidized bed CFDHC Chifeng Fulong District Heating Company CFTPP Chifeng Fulong Thermal Power Plant CGS chain grate stoker CGU comprehensive geothermal utilization CHP combined heat and power CNG compressed natural gas CPS country planning and strategy CPTPP Chifeng Pharmacy Thermal Power Plant CSAMT controllable source audio magneto-telluric CTPP Chifeng Thermal Power Plant DCF discounted cash flow DHS district heating supply DI design institute DMC developing member country DMF Design & Monitoring Framework DRC Development and Reform Commission DURUI Durui Heating and Power Supply Co. Ltd. EA executing agency EIA environmental impact assessment EIRR economic internal rates of return EMAP environmental mitigation action plans EMP environment management plan EMU environmental management unit EPB Environmental Protection Bureau ERI environment research institute IMEIP II PPTA FINAL REPORT iii FB Finance Bureau FIRR financial internal rates of return FNPV financial net present value FS feasibility study FSR feasibility study report FULONG Chifeng Fulong Heating Supply Co. Ltd. FUTAI Hohhot Futai Heating Supply Co. Ltd. GEI Geothermal Engineering Institute of Beijing Institute of Geological Engineering GIMAR Government of IMAR HP high pressure HSP heating source plant IA implementing agency IMAR Inner Mongolia Autonomous Region IMEIP Inner Mongolia Environment Improvement Project JINFENG Chifeng Jinfeng Heating Supply Co. Ltd. KANGZE Keerqin Kangze Pipeline Gas Co. Ltd. LEI Liaoning Engineering Institute LIBOR London Interbank offered Rate LPG liquified petroleum gas LRMC long run marginal costs MDRC Municipal Development and Reform Committee MESRI Municipal Environment Science Research Institute MFB Municipal Finance Bureau MfDR managing for development results MOC Ministry of Construction MOF Ministry of Finance MOU Memorandum of Understanding NCMEDRI North China Municipal Engineering Design & Research Institute NDRC National Development Reform Commission NG natural gas NGO non-government organization NGS natural gas supply PC pulverized coal PCR Project Completion Report PLC programmable logic controller PMO Project Management office IMEIP II PPTA FINAL REPORT iv PNG piped natural gas PPAR project performance audit report PPMS Project Performance Management System PPR project performance report PPTA Project Preparatory Technical Assistance PRC People’s Republic of China RIMIAN Molidawa Rimian Heating Supply Co. Ltd. RME results monitoring and evaluation RONFA return of net fixed assets RP resettlement plan RTU remote terminal unit SAB Support-Poor Agriculture Base SCADA supervisory control and data acquisition SEPA State Environmental Protection Administration SIEE Summary Initial Environmental Examination SOE state owned enterprise SPR short resettlement plan SS solid suspension TA Technical Assistance TOR Terms of Reference TSP total suspended particulates UCMO Urban Construction Management Office UPS uninterruptible power source VAT value-added tax VOC vehicle operating costs WACC weighted average cost of capital WENQUAN Ningcheng Wenquan Investment &Development Co. Ltd. WWTP wastewater treatment plant XINGDA Zhalaite Xingda Heating Supply Co. Ltd. NOTES (i) In this report, “$” refers to US dollars and “tons” refers to metric tons. IMEIP II PPTA FINAL REPORT EXECUTIVE SUMMARY - i Executive Summary Project Name Inner Mongolia Autonomous Region Environmental Improvement Project (Phase II) Borrower: The People’s Republic of China (PRC) Classification: Targeting classification: General intervention Sector: Energy Subsector: Transmission and Distribution Themes: Sustainable economic growth, environmental sustainability Sub-themes: Developing urban areas, natural resources conservation, cleaner production, control of industrial pollution Environmental The Project is classified as Category B in accordance with ADB Assessment: environmental classification criteria. The Summary Initial Environmental Examination (SIEE) was prepared by the PPTA Consultants based on ten (10) separate Environmental Impact Assessment (EIA) reports prepared by five (5) local EIA institutes in accordance with the PRC infrastructure development EIA process. The Project is consistent with the ADB policies in the publication “Environmental Policy of Asian Development Bank” and ADB procedural guidelines. Project The Project consists of the following: (i) rehabilitation of inefficient and Description: polluting district heating systems; (ii) construction of natural gas distribution systems; (iii) comprehensive utilization of geothermal resources energy; and (iv) implementation of district heating sector reforms and capacity building. The possibility of qualifying clean development mechanism (CDM) under Kyoto Protocol for some subprojects will also be examined. The Project comprises a total of ten (10) subprojects in three parts: Part A – district heating supply (DHS). This part includes 8 subprojects, including Hohhot DHS in Hohhot City, Chifeng DHS in Chifeng City, the Baotou DHS in Baotou City, Keyouqian DHS in Keyouqian Banner of Xing'an League, Kalaqin DHS in Kalaqin Banner of Chifeng City, Zhalaite DHS in Yindeer Town of Zhalaite Banner of Xing-an League, Molidawa DHS in Nierji Town of Molidawa Banner of Hulunbeier City, and Chenbaerhu DHS in Bayankuren Town, Chenbaerhu Banner, Hulunbeier City. Part B – natural gas supply (NGS). This part includes Keyouqian NGS in Keyouqian Banner of Xing'an League. Part C – comprehensive geothermal utilization (CGU). This part includes the Ningcheng CGU in Reshui Town of Ningcheng County, IMEIP II PPTA FINAL REPORT EXECUTIVE SUMMARY - ii Chifeng City. Rationale: The PRC energy supply is heavily dependent on coal, which makes up 69% of the primary energy supply. Such heavy dependence on coal has resulted in significant environmental degradation as a result of emissions such as sulfur dioxide (SO2), nitrogen oxides (NOx), total suspended particulates (TSP), CO2, and other harmful emissions. According to the study by the World Bank in late 2007, the combined health and non-health cost of outdoor air and water pollution for the PRC economy is estimated to be $100 billion a year (approximately 5.8% of the country's GDP). IMAR is the base for energy production in the PRC producing 223.7 million tons of equivalent standard coal in 2006. IMAR, ranked first in coal production in the PRC, is heavily dependent on coal use with coal supplying 90% of the primary energy in 2006. While its population is only 1.82% of the national total, IMAR discharged 1.557 million tons of SO2, representing 6.0% of the national total SO2 emissions in 2006. Reliance on coal results in excessive environmental costs for urban areas in IMAR with only 42.8% of its 14 key monitored cities achieving Class II Air Quality Standards in 2006. Provisions for reliable, affordable household heating is a basic necessity in IMAR due to severe winter conditions where temperatures can fall below -40°C, and the heating season can last for up to 7 months. The urban population has increased from 42.2% in 2000 to 48.6% in 2006 due to Government relocation policies for animal herders in an effort to reduce environmental pressure on fragile pasture lands. Urbanization, increase of resident’s income, house privatization have facilitated the rapid development of towns and cities, and also led to an increased demand for district heating in IMAR. Currently, approximately 50% of the IMAR population is living in towns and cities. In the past eight years, the districting heating area of IMAR has grown from 43 million m2 to 131.56 million m2, increasing by 17% every year. However, some towns and cities in IMAR now are facing serious shortage of district heating. In IMAR, a large proportion of the existing heating systems are small capacity, highly polluting, inefficient, neighborhood coal-fired boilers coupled with an aging pipeline network with excessive distribution losses. In many urban areas the district heating systems were installed in the 1970s and have significantly exceeded their designed service lives, resulting in high distribution losses and unreliable services. The low efficiency of the existing IMAR heating systems, both in generation and distribution, leads directly to adverse impacts to the environment and to human health. Additionally, due to relatively poor economic conditions, remote areas in IMAR are burdened with an inadequate heating supply, which has a proportionally high impact on the poor. IMAR has 31 national poverty counties and 29 provincial poverty counties with approximately 697,000 people living below the IMEIP II PPTA FINAL REPORT EXECUTIVE SUMMARY - iii poverty line (2006). The governments at all levels are working to address adverse environmental impacts and the issue of high energy intensity of the economy in the PRC. However, the local government financial resources and central Government
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