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 support are inadequate to meet the large investment requirements in the IMAR heating and energy subsector. In particular, the more remote municipalities and counties lack financial resources to replace and expand existing heating and natural gas systems. Therefore, the ADB loan is applied for the proposed Project to provide financial assistance in the environmental improvement in IMAR. The Project supports the PRC’s 11th Five Year Plan (2006-2010) which emphasizes resource conservation and environmental protection, and gives priority to improving energy efficiency and developing cleaner energy sources. The Project will support the 11th
Five Year Plan targets for (i) reduction of SO2 emissions by 10% through reduction in coal consumption for district heating and diversifying heating supplies to include renewable supplies and waste heat recovery, and (ii) improving energy efficiency by 20%, through improving efficiency of district heating supplies, utilizing waste heat from industrial sources and reducing losses from distribution systems. The Project also supports the goals of improving energy efficiency and resource utilization outlined in the PRC Medium and Long Term Energy Conservation Plan 2005 and the Decision of the State Council on Enhancing Energy Conservation (Guofa 2006 No. 28), which emphasizes energy conservation, particularly in the heating sector. In addition, the proposed Project is consistent with the ADB’s Medium-Term Strategy II, 2006–2008 strategic priority of ‘managing the environment’, and PRC Country Strategy and Program strategic development objective of ‘improving the environment’. It will build on continuing engagement with the GIMAR in the energy sector based on the Phase I Project.
Impact and The impact of the Project will be the improvement of energy efficiency Outcome: and environment in IMAR. The outcome of the Project will be the reduced use of coal and improved air quality through the rehabilitation and expansion of district heating and gas supply sectors, and promotion of alternative clean energy sources.
Executive Agency: The Government of IMAR (GIMAR)
Implementation A project leading group (PLG) has been established by GIMAR to Arrangement: provide overall guidance and necessary approvals. The IMAR PMO, under the IMAR DRC, is the main agency for coordination of project implementation. Project management offices have been established under municipal level governments to manage the subprojects in their IMEIP II PPTA FINAL REPORT EXECUTIVE SUMMARY - iv
respective jurisdictions. The ten subprojects will be implemented by ten separate IAs as listed below: Subproject Implementing Agency
1. Hohhot DHS Hohhot Futai Heating Supply Co. Ltd.
2. Chifeng DHS Chifeng Fulong Heating Supply Co. Ltd.
3. Baotou DHS Baotou Municipal Heating Supply Company
4. Keyouqian DHS Durui Heating and Power Supply Co. Ltd.
5. Kalaqin DHS Chifeng Jinfeng Heating Supply Co. Ltd.
6. Zhalaite DHS Zhalaite Xingda Heating Supply Co. Ltd.
7. Molidawa DHS Molidawa Rimian Heating Supply Co. Ltd.
8. Chenbaerhu DHS Bayan Economic Development Investment Co. Ltd.
9. Keyouqian NGS Keerqin Kangze Pipeline Gas Co. Ltd.
10. Ningcheng CGU Ningcheng Wenquan Investment & Development Co. Ltd.
Each IA will establish a project implementation office which will be responsible for design, construction and operation of subprojects.
Utilization Period: Until 31 December 2013
Estimate Project 30 April 2013 Completion Date:
Cost Estimates: The total investment cost of the Project is estimated to be $398 million, including a local cost of $215.41 million (54.1%) and a foreign cost of $182.59 million (45.9%). IMEIP II PPTA FINAL REPORT EXECUTIVE SUMMARY - v
Item Amount a A. Base Cost Component A: DHS 1. Hohhot DHS 97.34 2. Chifeng DHS 87.07 3. Baotou DHS 31.95 4. Keyouqian DHS 29.80 5. Kalaqin DHS 15.05 6. Zhalaite DHS 18.07 7. Molidawa DHS 14.25 8. Chenbaerhu DHS 9.47 Component B: NGS 9. Keyouqian NGS 11.11 Component C: CGU 10. Ningcheng CGU 15.87 Subtotal (A) 329.98 B. Project Management 1.75 C. Contingencies b 47.28 D. Financial Charges During Construction c 18.99 Total (A+B+C+D) 398.00 a In mid -2008 prices. Taxes and duties are about 3% of base cost. b Physical contingencies are computed at 8% of base cost. Price contingencies are based on estimated domestic and international inflation rates during the period of construction. Details are presented in Table 9.1. c Financial charges include interest and commitment charges. Interest during construction is calculated at the five-year fixed swap LIBOR (London Interbank offered Rate) rate of 3.68% plus a spread of 20 basis points. The commitment charge is assumed at 0.15%.
Financing Plan The ADB loan will finance about 37.7% of the Project costs. The remaining $248.0 million (62.3%) will be contributed by domestic bank loans (19.6%) and equity (42.7%). The ADB loan will be used for civil works, equipment and goods supplies, consulting services and training, while contingencies will be financed by the counterpart funds.
Domestic ADB Source Equity Total Loan Loan Implementing Agencies FUTAI 38.5 36.4 43.0 117.9 FULONG 39.5 30.9 39.0 109.4 BAOTOU 12.8 10.8 15.0 38.6 DURUI 24.3 0.0 10.0 34.3 JINFENG 11.0 0.0 7.5 18.5 XINGDA 13.9 0.0 7.0 20.9 RIMIAN 11.0 0.0 6.0 17.0 BAYAN 5.9 0.0 5.0 10.8 KANGZE 6.8 0.0 5.5 12.3 WENQUAN 6.3 0.0 12.0 18.3 Total 169.9 78.1 150.0 398.0 % 42.7 19.6 37.7 100.0
Loan Amount and A total loan amount of $150 million from ADB is assumed. The loan Terms: will have a term of 24 years, including a grace period of 4 years, a variable interest rate determined in accordance with ADB’s LIBOR-based lending facility, and other terms and conditions as set IMEIP II PPTA FINAL REPORT EXECUTIVE SUMMARY - vi
forth in the Loan Agreement.
Allocation and The proposed loan of US$150 million will be made available to the Relending Terms: PRC after the Project is approved by ADB. Proceeds of the loan will be passed to IMAR on the same terms and conditions as the ADB loan to the PRC. The GIMAR will have the overall responsibility for the Project as the signatory of the Project Agreement. On behalf of the GIMAR, the IMAR Finance Bureau (FB) will manage the Imprest Account, and make the loan proceeds available to the MFBs of Hohhot, Chifeng, Baotou, Xing-an and Hulunbeier on the same terms as the loan to the PRC via subsidiary loan agreements. The MFBs of Hohhot, Chifeng and Baotou will further on-lend a portion of the loan proceeds directly to FUTAI, FULONG and BAOTOU under subsidiary loan agreements on the same terms and conditions satisfied to ADB. The other MFBs will on-lend a portion of the loan proceeds to the County Level FBs, and then to the IAs with the same terms and conditionals satisfied to ADB. The detailed arrangements are: i) from Chifeng MFB to the FBs of Kalaqin and Ningcheng, then to JINFENG and WENQUAN, respectively; ii) from Xing-an League FB to the FBs of Zhalaite and Keyouqian, then from the FB of Zhalaite to XINGDA, and from the FB of Keyouqian to DURUI and KANGZE, respectively, iii) from Hulunbeier MFB to the FBs of Chenbaerhu and Molidawa, then to BAYAN and RIMIAN, respectively.
Counterpart The project counterpart funds will be mainly financed through Funding government equity infusion, commercial loans of local commercial banks, connection fees collected by the utility companies for distribution pipeline construction, capital equity from parent company or IA’s registration, and cash generated from the existing operation.
The IAs have provided commitment letters issued by the respective fund providers. These letters have been reviewed and agree with the financing plan proposed for the financial viability analysis.
Financial Viability For the Project as a whole, the FIRR is estimated at 7.1% compared with WACC of 3.0%, and the Project is financially viable. Sensitivity analysis shows that the Project is vulnerable to reductions in revenue mainly from the district heating component. As suggested above, the respective governments should institute tariff reforms in this sub-sector. The financial viability of the non-revenue generating component of Ningcheng CGU is subject to support by the economic analysis. IMEIP II PPTA FINAL REPORT EXECUTIVE SUMMARY - vii
FIRR I. II. III. IV. Combined WACC Base Investment Revenue Major Delay Case Cost +10% -10% +10% 1 year I. I II. IV. Component A. DHS 1. Hohhot DHS 2.6% 7.6% 5.8% 1.2% 6.4% 7.3% 4.3% 2. Chifeng DHS 2.7% 6.8% 6.7% 0.6% 2.4% 6.4% 2.1% 3. Baotou DHS 2.6% 7.8% 6.6% 0.9% 2.2% 7.6% 0.7% 4. Keyouqian DHS 4.2% 7.0% 5.4% 2.0% 4.2% 6.8% 2.3% 5. Kalaqin DHS 3.4% 7.9% 6.0% 0.7% 6.4% 7.7% 4.3% 6. Zhalaite DHS 3.9% 7.8% 6.3% 1.5% 4.9% 7.6% 3.0% 7. Molidawa DHS 3.8% 7.9% 6.2% 3.8% 3.7% 7.7% 3.4% 8. Chenbaerhu DHS 3.5% 5.7% 3.7% 1.2% 4.6% 5.4% 2.4% Total 3.0% 7.2% 6.2% 1.0% 3.9% 6.9% 2.8% Component B. NGS 9. Keyouqian NGS 3.6% 6.6% 5.5% 2.5% 4.4% 6.4% 3.0% Component C. CGU 10.Ningcheng CGU a. District Heating 2.8% 6.0% 5.1% 4.6% 5.9% 5.7% 4.3% b. Hot water Supply 2.8% 6.8% 6.4% 4.5% 6.6% 6.5% 4.8% c. Greenhouse & Aquaculture 2.2% 6.2% 5.3% 4.8% 6.1% 5.9% 4.4% d. Wastewater Treatment 2.8% 5.8% 4.9% 3.3% 5.0% 5.4% 2.5% Subproject Total 2.7% 6.1% 5.1% 4.0% 5.9% 5.8% 4.2% Project Total 3.0% 7.2% 6.2% 1.2% 4.0% 6.8% 2.9%
Economic Viability The EIRR of the overall Project is estimated at 24.04%, which is greater than the economic cost of capital. The sensitivity analysis of the Project shows that the Project is economically viable under (i) 20% capital cost increase; (ii) 20% benefit decrease; and (iii) 1 year lag in benefits.
Table below also shows that the overall Project is very sensitive to unfavorable changes in the economic costs and benefits. A 20% cost increase and 20% benefit decrease would not result in the Project non viable with an EIRR of 19.50% and 19.57%, respectively, and an ENPV of RMB 1,333.22 million and RMB 1,075.76 million, respectively. The Project’s EIRR and ENPV are similarly sensitive to delays in the realization of benefits, being reduced to 20.03% and RMB 1,282.84 million respectively for a 1-year delay.
Table: Sensitivity Results of Overall Project Variables EIRR (%) ENPV (Y m) Base case 24.04% 1,788.53
10% cost increase 22.04% 1,611.00 20% cost increase 19.50% 1,333.22
10% benefit decrease 21.84% 1,432.15 20% benefit decrease 19.57% 1,075.76 1 year lag in benefits 20.03% 1,282.84 IMEIP II PPTA FINAL REPORT EXECUTIVE SUMMARY - viii
Project Benefits The proposed Project will result in significant environmental benefits. and Beneficiaries The Project will result in reduced consumption of 1.085 million tons crude coal annually. This will directly lead to an annual emission
reduction of 14,260 tons of SO2, 18,260 tons of TSP, and 7,020 tons
of NOx and 1.66 million tons of CO2. The Project will close an estimated 402 small inner-city, highly polluting, coal-fired boilers. Closure of the inner-city boilers will also prevent an estimated 135,627 coal truck trips per annum through inner-city areas to supply the small boilers. This will result in reduced ground level dust, noise and vehicle pollution. Improved heating supply and extended services will result in closure of an estimated 36,572 coal-fired small stoves in residential areas. This will contribute directly to improved indoor air quality and reduced impact from respiratory diseases.
There will be improved public health benefits through reduced urban air pollution from closure of small inner city boilers, installation of more efficient heating boilers, replaced household stoves and reduced coal truck traffic through urban areas. There will be benefits to standards of living through improved quality and reliability of district heating in areas where temperatures can reach -4ć and heating seasons can last 212 days. Through improvements in air quality the Project will have 1.51 million user beneficiaries by 2015, including 0.79 and 0.72 million existing and potential user beneficiaries. 8 out of the 10 subprojects will be implemented in Eastern IMAR where it is economically poor. The estimated poor beneficiaries will be about 92,000 or 6.1% of the total, by using internationally adopted relative standards.
Land Acquisition Since majority of the subproject components will be on reserved or and Resettlement pre-acquired state land, the project’s overall land acquisition and resettlement impacts are very small. The scope of land acquisition include: (i) permanent occupation 11.08 ha of state-owned city land for the construction of infrastructure components of districting heating plants or boiler houses, control/monitoring center, waster water treatment plant and NGS stations; (ii) permanent occupation of 6.15 ha of reserved land and/or floor area for the construction new heat exchange stations; (iii) temporary occupation of 97.24 ha of sidewalks/streets for establishing heating and natural gas supply pipelines; and (iv) long term renting of 5.33 ha of farmland for establishing greenhouses.
Only one subproject, Zhalaite DHS, involves in the acquisition of 1.1 ha of land currently used by two private entities (a driver school and a closed factory); and it will also need to demolish 1,720 square meters IMEIP II PPTA FINAL REPORT EXECUTIVE SUMMARY - ix
of office and factory buildings. The long term renting of 5.33 ha of farmland, occurs to Ningcheng CGU, will affect 179 persons of 44 households.
Short resettlement plans for Zhalaite DHS and Ningcheng CGU has been prepared.
Procurement Procurement of goods and works financed from the proceeds of the ADB loan will be procured in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). Items financed with local currency funds will be procured following local competitive bidding procedures acceptable to ADB. Advance procurement action and retroactive financing was requested by GIMAR and approved by ADB. The amount to be retroactively financed will not exceed $30 million (equivalent to 20% of the ADB loan) incurred prior to loan effectiveness but not earlier than 12 months before the signing date of the loan agreement. Risks and The Project includes a number of technical, policy and management Assumptions risks. Technical risks have been mitigated by ensuring the Project is based on proven designs and conventional technologies that have been successfully used in the PRC, and that experienced design institutes have been utilized for design and construction supervision purposes. Policy risks have been mitigated by ensuring supportive regulatory framework is in place to support sustainable growth in the heating sector. Management risks have been mitigated by ensuring the PMO and IAs have sufficient capacity for Project implementation. Where IA capacity is relatively low, (i) advanced capacity building action has been undertaken during the loan preparation, (ii) improved institutional structures have been designed and agreed with the IA, and (iii) provision has been made for ongoing monitoring of institutional improvement during the loan implementation period.
Recommendations A set of recommendations for institutional strengthening, engineering design, social and poverty reduction, resettlement plan, environment protection, finance analysis, and private sector development and CDM have been developed. Some of the key recommendations are summarized below.
Institutional Strengthening 9 Utilize the resources of both the PLG and PMO established for the Phase I Project to their fullest extent. 9 Clearly define the division of responsibilities on the implementation and operational phases for the two state-owned investment companies to avoid any potential disputes on the IMEIP II PPTA FINAL REPORT EXECUTIVE SUMMARY - x
ownership of the assets, debt service, and funding for operation and maintenance. 9 Consider how market reforms could be introduced and actively support the process of market reform implementation; 9 Identify opportunities for the application of service contracts (outsourcing); 9 Provide advice on arrangements for corporate governance of DHS, NGS and CGU and service contract management; 9 Provide support to expedite the institutional reform process and to improve the operation efficiency.
Engineering Design 9 The installation supervision should be emphasized in the construction. Significant alterations in system design or material replacement should be agreed upon by the project owner, design institute and supervisor. 9 The manufacturers of key equipments should be chosen carefully according to reputation, manufacturing experience and reference to ensure quality products are purchased. 9 For the phased subprojects, installation plan should be arranged accurately to ensure the installation of all necessary components are included in the different phases. 9 In order to identify, define and provide solutions for any technical risks that may arise, the establishment of technical risk assessment and control system is highly recommended.
Social and Poverty Reduction 9 It is recommended that ADB should play a leading role in financing the reemployment action plan for affected workers. Alternatively ADB could launch a policy dialogue with IAMR and local governments to enable IAs to finance the plan. 9 The project does not need external monitoring and evaluation. It is recommended that ADB gives special supports and attentions to the internal monitoring during project implementation.
Resettlement 9 The IMAR PMO and concerned IAs should ensure that the resettlement activities are implemented as stipulated in the approved Resettlement Plan. 9 The IMAR PMO and concerned IAs should ensure proper internal monitoring of resettlement progress under the direct guidance of ADB.
Environmental Protection IMEIP II PPTA FINAL REPORT EXECUTIVE SUMMARY - xi
9 Environmental mitigation activities should be adequately funded to minimize the adverse environmental impacts of the project to acceptable levels. 9 Adequate funding shall be allocated to environmental monitoring during the project implementation period.
Financial Analysis 9 It is suggested that the PMO and the IAs closely monitor the foreign exchange rates and evaluate the impact caused by its change, and try to avoid foreign exchange risks during the project implementation in the rational strategy of hedging or any other effective countermeasures based on the principle of ensuring “safety and benefits”. 9 The financial analysis suggests that the heating tariff should be reviewed when the project facilities are put into service to ensure the IAs’ sustainable development. 9 It is suggested that a detailed subsidy program should be developed.
Economic Analysis 9 It is recommended to encourage the use of CHP coal-fired boiler as the central heating system since it is the most efficient heating system among the alternative options. 9 It is recommended to encourage the use of natural gas as an important energy since it is a clean energy and IMAR is famous for its rich natural gas resource. 9 It is recommended to use the standards of energy consumptions and emissions as benchmarks for reward and punishment. 9 It is recommended to impose the emission tax as a local tax since the current direct and indirect taxes (fees) are not effective in controlling the environmental impacts. 9 It is recommended to establish an incentive system for reduction of emission and improvement of energy efficiency.
Private Sector Development 9 Potential PSP options have been recommended with outlined action plans for Chenbaerhu DHS and Ningcheng CGU. 9 For SOEs or state owned corporative holding enterprises, for example BAOTOU and FUTAI, it is recommended that the service contracts can be adopted for some specific service tasks, such as tariff collection, meter installation, and etc. 9 A tariff regulation reform is recommended to allow the heating companies to be able to maintain cost recovery and a certain level of profit. IMEIP II PPTA FINAL REPORT EXECUTIVE SUMMARY - xii
9 The subsidized tariff structure should be gradually transformed to a market driven fee structure. The local government should be responsible to educate citizens that heating products are commodities, and therefore citizens should pay for the services and products.
CDM 9 It’s recommended that CDM related issues be discussed during the loan negotiation and formally addressed in the loan agreement. 9 Due to the complexity of the CDM approval process, potential high value and lack of knowledge and experience on CDM from the EA and IAs, it is recommended that appropriate input from international and national CDM specialists be allocated during the loan implementation period. IMEIP II PPTA FINAL REPORT TABLE OF CONTENTS-i
TABLE OF CONTENTS
CHAPTER 1 INTRODUCTION ...... 1-1 1.1 PROJECT BRIEFING...... 1-1 1.2 PROJECT RATIONALE...... 1-2 1.3 IMPACT AND OUTCOME...... 1-4 1.4 PROJECT DESCRIPTION ...... 1-5 1.5 SYNCHRONIZED ADB AND DOMESTIC PROCESSES ...... 1-8
CHAPTER 2 IMPLEMENTATION ARRANGEMENT ...... 2-1 2.1 INTRODUCTION...... 2-1 2.1.1 INSTITUTIONAL MANAGEMENT ARRANGEMENTS ...... 2-1 2.1.2 PROJECT COORDINATION MANAGEMENT...... 2-2 2.1.3 IMPLEMENTATION SUPPORT ...... 2-2 2.1.4 IMPLEMENTATION AGENCIES ...... 2-2 2.2 LENDING, RELENDING & ON-LENDING ARRANGEMENTS ...... 2-3 2.2.1 OVERALL ON-LENDING ARRANGEMENTS...... 2-3 2.2.2 ON-LENDING FOR 8 UTILITY COMPANIES ...... 2-6 2.2.3 ON-LENDING TO TWO INVESTMENT/DEVELOPMENT COMPANIES ...... 2-6 2.3 IMPLEMENTATION SCHEDULE...... 2-7 2.4 COUNTERPART FUNDING COMMITMENT...... 2-7 2.5 INSTITUTIONAL ASSESSMENT ...... 2-7 2.6 CONCLUSION, ISSUES AND RECOMMENDATIONS ...... 2-34 2.6.1 CONCLUSION...... 2-34 2.6.2 RECOMMENDATION ON THE PLG AND IMAR PMO ...... 2-34 2.6.3 RECOMMENDATION ON THE GOVERNMENT INVESTMENT COMPANY AS INVESTMENT AGENCY ...... 2-34 2.6.4 PRELIMINARY PROJECT MANAGEMENT MANUAL...... 2-34 2.6.5 FURTHER RECOMMENDATION ON THE INSTITUTIONAL CAPACITY DEVELOPMENT ...... 2-35
CHAPTER 3 TECHNICAL ANALYSIS OF DISTRICT HEATING ...... 3-1 3.1 SECTOR ANALYSIS FOR DISTRICT HEATING...... 3-1 3.2 GENERAL DESCRIPTION...... 3-5 3.3 JUSTIFICATION OF BOILERS ALTERNATIVE AND LEAST-COST ASSESSMENT ...... 3-5 3.4 TECHNICAL ANALYSIS BY SUBPROJECT...... 3-9 3.4.1 HOHHOT DHS...... 3-9 3.4.2 CHIFENG DHS ...... 3-16 3.4.3 BAOTOU DHS ...... 3-22 3.4.4 KEYOUQIAN DHS...... 3-31 3.4.5 KALAQIN DHS...... 3-35 3.4.6 ZHALAITE DHS ...... 3-38 3.4.7 MOLIDAWA DHS ...... 3-41 3.4.8 CHENBAERHU DHS ...... 3-45 IMEIP II PPTA FINAL REPORT TABLE OF CONTENTS-ii
3.5 CONTRACT PACKAGING, AND IMPLEMENTATION PLAN ...... 3-48 3.6 ENERGY EFFICIENCY ANALYSIS ...... 3-51
CHAPTER 4 TECHNICAL ANALYSIS OF NATURAL GAS SUBPROJECT ...... 4-1 4.1 GENERAL INTRODUCTION ...... 4-1 4.1.1 CURRENT STATUS OF NATURAL GAS INDUSTRY IN THE PRC...... 4-1 4.1.2 CURRENT STATUS OF NG INDUSTRY IN IMAR...... 4-5 4.1.3 NECESSITY FOR THE NG SUB-PROJECT ...... 4-6 4.2 TECHNICAL ANALYSIS ...... 4-7 4.2.1 OVERVIEW ...... 4-8 4.2.2 SCOPE OF THE SUBPROJECT ...... 4-9 4.2.3 DESIGNED SYSTEM CAPACITY...... 4-9 4.2.4 GAS SOURCE...... 4-11 4.2.5 GAS TRANSMISSION...... 4-11 4.2.6 RECEPTION, STORAGE AND DISTRIBUTION SYSTEM ...... 4-12 4.2.7 MEDIUM PRESSURE PIPELINE AND NETWORK SYSTEM ...... 4-12 4.2.8 TECHNICAL EVALUATION ...... 4-13 4.3 DEMAND ANALYSIS...... 4-13 4.3.1 PRICE COMPETITIVENESS...... 4-13 4.3.2 NG DEMAND...... 4-14 4.3.3 EVALUATION...... 4-16 4.4 MASTER PLANS OF THE PROPOSED SUBPROJECT ...... 4-18 4.5 ALTERNATIVES CONSIDERED ...... 4-18 4.5.1 SYSTEM SCHEME ALTERNATIVES FOR KEYOUQIAN NGS ...... 4-18 4.5.2 GAS STORAGE ALTERNATIVES FOR KEYOUQIAN NGS ...... 4-20 4.6 ENERGY CONSERVATION AND POLLUTION REDUCTION...... 4-21 4.6.1 ENERGY CONSERVATION OF KEYOUQIAN NGS...... 4-21 4.6.2 POLLUTION REDUCTION OF KEYOUQIAN NGS ...... 4-22 4.7 COST ESTIMATION, CONTRACT PACKAGING AND IMPLEMENTATION SCHEDULE ...... 4-23 4.7.1 COST ESTIMATION ...... 4-23 4.7.2 CONTRACT PACKAGING...... 4-24 4.7.3 PROJECT IMPLEMENTATION SCHEDULE ...... 4-24 4.8 SUMMARY OF KEYOUQIAN NGS ...... 4-25
CHAPTER 5 TECHNICAL ANALYSIS OF NINGCHENG COMPREHENSIVE GEOTHERMAL UTILIZATION SUBPROJECT ...... 5-1 5.1 GENERAL INTRODUCTION ...... 5-1 5.1.1 CURRENT STATUS OF GEOTHERMAL UTILIZATION IN THE PRC ...... 5-1 5.1.2 CURRENT STATUS OF GEOTHERMAL UTILIZATION IN IMAR...... 5-3 5.1.3 CURRENT STATUS OF GEOTHERMAL UTILIZATION IN NINGCHENG...... 5-4 5.2 AVAILABILITY AND UTILIZATION OF NINGCHENG GEOTHERMAL ENERGY...... 5-4 5.2.1 SURVEY RESULTS...... 5-4 5.2.2 GEOTHERMAL WATER SUSTAINABILITY (REINJECTION)...... 5-9 IMEIP II PPTA FINAL REPORT TABLE OF CONTENTS-iii
5.3 COMPREHENSIVE GEOTHERMAL UTILIZATION...... 5-11 5.3.1 MASTER PLAN OF NINGCHENG COUNTY AND JUSTIFICATION OF THE SUBPROJECT ...... 5-11 5.3.2 OPTIONS OF GEOTHERMAL UTILIZATION – POWER GENERATION VS. DIRECT UTILIZATION...... 5-12 5.3.3 CGU COMPONENTS ...... 5-13 5.4 SUBCOMPONENT ANALYSIS...... 5-14 5.4.1 HOT WATER EXTRACTION AND REINJECTION ...... 5-14 5.4.2 DISTRICT HEATING...... 5-15 5.4.3 HOT WATER SUPPLY...... 5-19 5.4.4 GEOTHERMAL AGRICULTURE AND AQUACULTRUE DEVELOPMENT ...... 5-20 5.4.5 WASTEWATER TREATMENT ...... 5-21 5.4.6 ROAD REHABILITATION ...... 5-23 5.5 ENERGY CONSERVATION AND POLLUTION REDUCTION...... 5-25 5.5.1 ENERGY CONSERVATION...... 5-25 5.5.2 POLLUTION REDUCTION ...... 5-25 5.5.3 CLEAN DEVELOPMENT MECHANISM (CDM) ...... 5-25 5.6 SUBPROJECT IMPLEMENTATION SCHEDULE...... 5-25
CHAPTER 6 ENVIRONMENTAL IMPACT ASSESSMENT...... 6-1 6.1 INTRODUCTION...... 6-1 6.2 DESCRIPTION OF THE PROJECT ...... 6-2 6.3 DESCRIPTION OF THE ENVIRONMENT...... 6-2 6.3.1 GEOLOGY AND CLIMATE ...... 6-2 6.3.2 AIR QUALITY AND NOISE ...... 6-3 6.3.3 WATER RESOURCES ...... 6-5 6.3.4 ECOLOGICAL RESOURCES...... 6-5 6.3.5 SOCIAL CONDITIONS ...... 6-5 6.4 ANTICIPATED ENVIRONMENTAL IMPACTS AND MITIGATION MEASURES ...... 6-8 6.4.1 ENVIRONMENTAL BENEFITS AND IMPACTS...... 6-8 6.4.2 ENVIRONMENTAL IMPACTS AND MITIGATION MEASURES – CONSTRUCTION PHASE ...... 6-9 6.4.3 ENVIRONMENTAL IMPACTS AND MITIGATION MEASURES - OPERATION PHASE ...... 6-14 6.5 ECONOMIC ASSESSMENT ...... 6-18 6.6 INSTITUTIONAL REQUIREMENTS AND ENVIRONMENTAL MANAGEMENT PLAN .. 6-20 6.6.1 INSTITUTIONAL REQUIREMENTS ...... 6-20 6.6.2 ENVIRONMENTAL MANAGEMENT PLAN ...... 6-21 6.6.3 ENVIRONMENTAL MONITORING ...... 6-21 6.7 PUBLIC CONSULTATION AND INFORMATION DISCLOSURE ...... 6-22 6.7.1 PUBLIC CONSULTATION...... 6-22 6.7.2 INFORMATION DISCLOSURE...... 6-23 6.8 CONCLUSIONS ...... 6-23 IMEIP II PPTA FINAL REPORT TABLE OF CONTENTS-iv
CHAPTER 7 SOCIAL AND POVERTY ANALYSIS...... 7-1 7.1 INTRODUCTION...... 7-1 7.1.1 BACKGROUND ...... 7-1 7.1.2 METHODOLOGY ...... 7-3 7.1.3 REPORT CONTENTS AND STRUCTURE...... 7-4 7.2 SOCIO-ECONOMIC AND POVERTY PROFILES ...... 7-4 7.2.1 IMAR...... 7-5 7.2.2 SUBPROJECT AREAS...... 7-8 7.2.3 SOCIAL PROTECTION PROGRAMS ...... 7-12 7.3 BENEFICIARY AND NEGATIVELY AFFECTED GROUPS ...... 7-14 7.3.1 BENEFICIARY GROUPS...... 7-14 7.3.2 QUANTIFICATION OF BENEFICIARIES...... 7-14 7.4 SOCIAL IMPACT ASSESSMENT ...... 7-17 7.4.1 GENERAL BENEFITS ...... 7-17 7.4.2 ATTITUDES AND CONCERNS TOWARDS THE PROJECT...... 7-20 7.4.3 AFFORDABILITY...... 7-20 7.4.4 AFFECTED WORKERS ...... 7-24 7.4.5 GENDER IMPACT ...... 7-26 7.5 POVERTY IMPACT ASSESSMENT ...... 7-28 7.5.1 GENERAL POVERTY IMPACT...... 7-28 7.5.2 POOR BENEFICIARIES...... 7-28 7.5.3 BENEFITS TO THE POOR...... 7-30 7.5.4 HEATING EXPENSES AND SUBSIDIES ...... 7-31 7.6 ETHNIC MINORITY ISSUES...... 7-33 7.6.1 GENERAL...... 7-33 7.6.2 IMPACTS ON EM ...... 7-35 7.6.3 REQUIREMENT FOR AN EMDP...... 7-36 7.7 IMPACT MONITORING AND EVALUATION...... 7-37 7.7.1 GENERAL...... 7-37 7.7.2 OBJECTIVES AND APPROACH ...... 7-38 7.7.3 SCOPE OF WORK ...... 7-38 7.7.4 REPORTING FORMAT AND SCHEDULE...... 7-39 7.7.5 ORGANIZATION AND BUDGET ...... 7-40 7.8 CONCLUSIONS AND RECOMMENDATIONS...... 7-40 7.8.1 CONCLUSIONS ...... 7-40 7.8.2 RECOMMENDATIONS...... 7-42
CHAPTER 8 SUMMARY RESETTLEMENT PLAN...... 8-1 8.1 STATUS OF THE RESETTLEMENT PLAN...... 8-1 8.2 SCOPE OF LAND ACQUISITION AND RESETTLEMENT ...... 8-1 8.3 POLICY FRAMEWORK...... 8-4 8.4 RESETTLEMENT STRATEGY...... 8-4 8.5 INSTITUTIONAL ARRANGEMENTS...... 8-4 8.6 VULNERABLE GROUPS ...... 8-5 IMEIP II PPTA FINAL REPORT TABLE OF CONTENTS-v
8.7 CONSULTATION AND GRIEVANCE REDRESS...... 8-5 8.8 MONITORING AND REPORTING...... 8-5 8.9 RESETTLEMENT COST AND IMPLEMENTATION SCHEDULE ...... 8-5
CHAPTER 9 FINANCIAL ANALYSIS...... 9-1 9.1 PRINCIPLES AND METHODOLOGIES FOR FINANCIAL ANALYSIS ...... 9-1 9.2 QUANTITIES AND UNIT COSTS ...... 9-3 9.3 PHYSICAL CONTINGENCY AND PRICE CONTINGENCY...... 9-3 9.4 FOREIGN EXCHANGE AND OTHER PARAMETERS...... 9-3 9.5 OVERALL PROJECT COST ESTIMATES...... 9-4 9.6 FINANCING PLANS...... 9-9 9.7 TARIFF ANALYSIS ...... 9-10 9.7.1 REGULATIONS ON TARIFF SETTINGS FOR DISTRICT HEATING ...... 9-10 9.7.2 CURRENT AND PROPOSED TARRIFF FOR DISTRICT HEATING ...... 9-11 9.7.3 SUMMARY OF HOUSEHOLD HEATING TARIFFS...... 9-15 9.7.4 ASSESSMENT OF TARIFF SETTING AND HEATING TARIFF REFORM ...... 9-15 9.8 FINANCIAL ANALYSIS OF SUBPROJECTS ...... 9-16 9.8.1 INTRODUCTION ...... 9-16 9.8.2 MAJOR ASSUMPTIONS ...... 9-17 9.8.3 RESULTS – DHS...... 9-17 9.8.4 RESULTS – NGS...... 9-17 9.8.5 RESULTS – CGU ...... 9-17 9.9 FINANCIAL ANALYSIS ON THE IMPLEMENTATION AGENCIES...... 9-19 9.9.1 INVESTMENT/DEVELOPMENT COMPANIES...... 9-20 9.9.2 HEATING COMPANIES...... 9-22 9.10 FINANCIAL MANAGEMENT ASSESSMENT...... 9-37 9.10.1 FINANCIAL MANAGEMENT ASSESSMENT FOR THE EA ...... 9-37 9.10.2 FINANCIAL MANAGEMENT ASSESSMENT FOR IAS ...... 9-39 9.11 FINANCIAL IMPLICATION OF THE SUBSIDY PROGRAM FOR THE HEATING SERVICE TO THE POOR...... 9-48 9.12 CONCLUSIONS AND RECOMMENDATIONS...... 9-49
CHAPTER 10 ECONOMIC ANALYSIS ...... 10-1 10.1 BACKGROUND ...... 10-1 10.1.1 ECONOMIC BACKGROUND ...... 10-1 10.1.2 ENERGY CONSUMPTION, EFFICIENCY AND REGULATIONS...... 10-2 10.1.3 TARIFF SETTING ...... 10-4 10.1.4 PROJECT COMPONENTS...... 10-4 10.1.5 ECONOMIC JUSTIFICATION OF THE PROJECT ...... 10-6 10.2 PRINCIPLE AND METHODOLOGY FOR ECONOMIC ANALYSIS ...... 10-9 10.3 DEMAND FORECAST ...... 10-11 10.4 LEAST COST ANALYSIS...... 10-16 10.5 ECONOMIC ASSESSMENT ...... 10-25 10.5.1 GENERAL ASSUMPTIONS...... 10-25 IMEIP II PPTA FINAL REPORT TABLE OF CONTENTS-vi
10.5.2 ECONOMIC COSTS ...... 10-28 10.5.3 ECONOMIC BENEFITS ...... 10-28 10.5.4 EIRR CALCULATION ...... 10-36 10.6 IMPACTS, BENEFITS AND RISKS ...... 10-37 10.6.1 RISK ANALYSIS...... 10-37 10.6.2 DIRECT BENEFITS AND IMPACTS OF THE PROPOSED PROJECT...... 10-40 10.6.3 INDIRECT BENEFITS AND IMPACTS OF THE PROPOSED PROJECT ...... 10-41 10.6.4 AFFORDABILITY ANALYSIS...... 10-43 10.7 CONCLUSIONS AND RECOMMENDATIONS...... 10-45
CHAPTER 11 PRIVATE SECTOR DEVELOPMENT...... 11-1 11.1 INTRODUCTION...... 11-1 11.2 CURRENT STATUS OF THE IAS ...... 11-3 11.2.1 DISTRICT HEATING SECTOR...... 11-4 11.2.2 NATURAL GAS SECTOR ...... 11-8 11.2.3 GEOTHERMAL SECTOR...... 11-9 11.3 ANALYSES ON PSP IN HEATING SECTOR OF IMAR ...... 11-9 11.3.1 FORECAST OF HEATING DEMANDS AND OPPORTUNITIES OF PSP ...... 11-9 11.3.2 RATIONALE ON PSP ...... 11-10 11.3.3 COMPARISON OF PERFORMANCE BETWEEN SOES AND PRIVATE COMPANIES ...... 11-11 11.3.4 MAIN BARRIERS IN HEATING SECTOR...... 11-15 11.3.5 POLICY REFORM IN HEATING SECTOR ...... 11-17 11.4 CASE STUDIES ON PSP ...... 11-18 11.4.1 PSP OPTIONS ...... 11-18 11.4.2 BAYAN ...... 11-20 11.4.3 WENQUAN ...... 11-20 11.5 ACTION PLANS FOR POTENTIAL PRIVATIZATION ON BAYAN AND WENQUAN . 11-21 11.6 DISSEMINATION OF SUCCESSFUL PSP ...... 11-23 11.7 TRAINING ON PSP...... 11-25 11.7.1 TRAINING NECESSITY ...... 11-25 11.7.2 TRAINING COMPONENTS AND APPROACHES ...... 11-26 11.7.3 TRAINING EVALUATION...... 11-27 11.8 LESSONS LEARNED...... 11-27 11.9 RECOMMENDATIONS AND CONCLUSIONS...... 11-28
CHAPTER 12 PROJECT DESIGN MONITORING FRAMEWORK AND BENEFIT EVALUATION...... 12-1 12.1 GENERAL...... 12-1 12.2 METHODOLOGY...... 12-2 12.2.1 PPMS VS. DMF ...... 12-2 12.2.2 STAKEHOLDER ANALYSIS ...... 12-3 12.3 DESIGN AND MONITORING FRAMEWORK ...... 12-11 12.3.1 THE LOGICAL STRUCTURE ...... 12-11 IMEIP II PPTA FINAL REPORT TABLE OF CONTENTS-vii
12.3.2 DESIGN SUMMARY...... 12-12 12.3.3 APPLICATION OF THE FRAMEWORK...... 12-14 12.4 BENEFIT EVALUATION...... 12-16 12.4.1 ENVIRONMENTAL BENEFIT EVALUATION ...... 12-16 12.4.2 ECONOMIC BENEFIT EVALUATION...... 12-17
APPENDIX 1 DESIGN AND MONITORING FRAMEWORK
APPENDIX 2 SECTOR ANALYSIS APPENDIX 3 RISK ANALYSIS APPENDIX 4 EXTERNAL ASSISTANCE APPENDIX 5 LESSONS LEARNED APPENDIX 6 PROJECT IMPLEMENTATION SCHEDULE APPENDIX 7 PROCUREMENT PLAN
APPENDIX 8 INSTITUTIONAL MANAGEMENT ASSESSMENT QUESTIONNAIRES FOR THE IAS
APPENDIX 9 MAIN WEATHER CONDITIONS RELATED TO SPACE HEATING
APPENDIX 10 COMPARISONS OF DIFFERENT ALTERNATIVES FOR KEYOUQIAN NGS
APPENDIX 11 METHODOLOGIES FOR CALCULATING ENERGY SAVINGS AND EMISSION REDUCTIONS APPENDIX 12 CLEAN DEVELOPMENT MECHANISM APPENDIX 13 ESTIMATED ENVIRONMENTAL BENEFITS APPENDIX 14 SUMMARY INITIAL ENVIRONMENTAL EXAMINATION APPENDIX 15 SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY APPENDIX16 REEMPLOYMENT ACTION PLAN OF AFFECTED WORKERS APPENDIX 17 RESETTLEMENT PLAN APPENDIX 18 DETAILED COST ESTIMATE AND FINANCING PLAN APPENDIX 19 FINANCIAL MANAGEMENT ASSESSMENT QUESTIONNAIRE FOR THE IAS APPENDIX 20 FINANCIAL PERFORMANCE AND PROJECTIONS (TABLES) APPENDIX 21 HEATING TARIFFS AND TARIFF REFORM APPENDIX 22 EIRRs AND SENSITIVITY RESULTS OF THE SUBPROJECTS APPENDIX 23 PROJECT PERFORMANCE MANAGEMENT SYSTEM IMEIP II PPTA FINAL REPORT 1-1
CHAPTER 1 INTRODUCTION
1.1 Project Briefing 1. The proposed Inner Mongolia Autonomous Region Environmental Improvement Project – Phase II (“the Project”) is to further improve the environmental conditions in the Inner Mongolia Autonomous Region (IMAR), provide reliable and affordable district heating and natural gas supply, and utilize alternative renewable energy resources such as geothermal energy for a number of municipalities in IMAR. This is ADB’s continuous support to the Inner Mongolia Autonomous Region Environment Improvement Project (IMEIP or “Loan 2260”), which was approved in December 2006, targeting district heating and gas distribution in the Bayannur and Wuhai Districts of IMAR. The proposed Project will assist the government of the IMAR (GIMAR) in extending improved and diversified district heating and gas supply to other urban areas, including more remote and poorer municipalities and counties. The proposed Project areas include Baotou City, Hohhot City, Chifeng City (including the urban area of Chifeng, Kalaqin Banner1 and Ningcheng County), Keyouqian Banner and Zhalaite Banner of Xing-an League2, and Chenbaerhu Banner and Molidawa Banner of Hulunbeier City. As designed, the Project will include three parts: district heating, natural gas, and geothermal utilization. The total investment for the Project is estimated to be RMB 2,786.0 million ($398.0 million), of which the ADB Loan is assumed to be $150.0 million. 2. H&J Inc. (“the Consultant”) has been selected to conduct the project prepatory technical assistance (PPTA) services for the Project. The PPTA services include the project feasibility studies reports (FSR) review, environmental impact assessment (EIA) reports review, financial analysis, institutional analysis, economic impact analysis, resettlement and poverty reduction analysis, private sector participation analysis, etc. The PPTA deliverables include an Inception, Interim, Draft Final and Final Reports. 3. The Inception Meeting held on 23 October 2007 marked the official commencement of the Project’s PPTA. The meeting emphasized the importance of and adherence to the tight scheduling of the Project. 4. Subsequent to the Inception Meeting, the Consultant Team initiated the collection of relevant first hand information by visiting the Project sites and reviewing the FSRs. Based on the information collected, the Consultant Team held three informative and detailed seminars with the implementation agencies (IAs), the design institutes (DIs) and environmental research institutes to assist them in improving FSRs and conducting professional and comprehensive EIA studies. The IAs and DIs benefited from the seminars and commenced the FSR revisions. The DIs submitted all revised FSRs by 29 February 2008 and the English translations became available by 10 March 2008. All EIAs both in Chinese and English were submitted and five of which have been approved. After approval of the remaining EIAs, the
1 Banner is a Chinese term of “county” used in IMAR. 2 League is a Chinese term of “prefecture” used in IMAR. IMEIP II PPTA FINAL REPORT 1-2
FSRs will be further submitted to the IMAR Development and Reform Commission (DRC) for assessment. 5. Based on the initial data and information collected and the revised FSRs and EIAs, the Consultant submitted the Interim Report to ADB on 15 February 2008. The Chinese Interim Report was submitted to the IMAR Project Management Office (PMO) one week later. Based on the Consultant’s submission, a Mid-term Review Mission by ADB was held from 3-10 March 2008 to review the Interim Report and discuss any outstanding issues to ensure the Project progresses forward to a successful completion. Based on the discussions and agreements reached during the Mission, the Consultant incorporated ADB’s comments and additional information and is now submitting the Draft Final Report to ADB and IMAR PMO. The Final PPTA Tripartite Mission/Loan Fact Finding Mission is scheduled to be held on 5-16 May 2008 in Hohhot, IMAR. 1.2 Project Rationale 6. The energy supply in the People’s Republic of China (PRC) is heavily dependent on coal, which comprises 69% of the primary energy supply. The 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), and other harmful emissions. SO2 and NOx are the main precursors to the formation of acid rain, one of the most challenging environmental problems in the PRC. It is well known that small particulate matter such as TSP creates serious public health implications. CO2, which is a major emission from coal combustion, is a significant pollutant and contributor to global warming. 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 an estimated $100 billion a year (approximately 5.8% of the country's GDP). Air pollution, especially in large cities, is leading to higher incidences of lung diseases, including cancer and respiratory system diseases, and as a result populations experience higher levels of work and school absenteeism.1 7. 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 20062. 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. Coal consumption by 3 households contributes to an estimated 6% of IMAR’s annual SO2 emissions . 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 (2006)4.
1 Source: http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/EXTEAPREGTOPENVIR ONMENT/0,,contentMDK:21252897~pagePK:34004173~piPK:34003707~theSitePK:502886,00.html, March 15, 2008 2 Source: IMAR Statistics Yearbook 2007. 3 Source: PRC Environment Statistics Yearbook 2007. 4 Source: http://www.nmhbj.com/mem/2007-11/20071113204135.htm IMEIP II PPTA FINAL REPORT 1-3
8. Provisions for reliable, affordable household heating is a basic necessity in IMAR due to severe winter conditions when temperatures can fall below -40°C, and the heating season can last for up to 7 months. By contrast, the heating season normally lasts for four months in some provinces in the northern PRC and no heating service is supplied in the southern PRC. In 2006 IMAR had a total population of 23.92 million. The urban population 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.1 However, some towns and cities in IMAR now are facing serious shortage of district heating.
9. 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 poverty line (2006)2. Inadequate coverage of district heating to low income urban areas results in the use of indoor coal consumption for heating purposes, which is also a major cause of respiratory disease. 10. Large energy efficiency gains are available from the district heating subsector through system replacement and upgrading of the existing heat production and distribution systems. For example, small heating boilers typically have efficiencies of approximately 40%, while new larger boilers have efficiencies exceeding 80%. Additional opportunities for improving energy efficiency and reducing environmental impacts in district heating include (i) retrofit existing heat distribution networks to reduce energy loss; (ii) using clean energy like CNG; and (iii) utilizing alternative renewable energy sources, such as geothermal energy. 11. Natural gas (NG) is a clean and high heat content fuel. The NG industry is still in the early stages of development in IMAR even though IMAR has abundant NG resources. NG is mainly used for industrial purposes while NG used for household purposes accounts for only 13.3% of the total NG consumption. By replacing a portion of coal with NG, energy utilization efficiency will be enhanced and air emissions including greenhouse emissions will be reduced. This will also make positive contributions in reducing global climate change. As for the residential living environment, it can be substantially improved during the heating season
1 Source: IMAR Statistics Yearbook 2007. 2 Source: SPA Specialist. IMEIP II PPTA FINAL REPORT 1-4 by substituting the traditional fuel dominated by coal. This will eliminate a point source of pollution and reduce the chance of diseases and CO poisoning from small heating stoves in residences. 12. Similar to NG, geothermal resource is a clean and renewable energy, and can be used for multiple purposes including power generation, district heating, hot water production, fishery farming, medical treatment, and industrial plants. IMAR has several geothermally active regions including 6 hot springs distributed throughout different parts of IMAR. Geothermal development and utilization in IMAR are small in scale and lag behind other regions in the PRC. By replacing coal with geothermal resources, not only will it provide significant reductions in pollutant emissions, but also bring significant economic benefits by energy cost savings, given the record high prices of crude oil and the increasingly higher coal prices. 13. The governments at all levels are working to address adverse environmental impacts and the issue of high energy intensity of the economy. However, the local government financial resources and central Government support are inadequate to meet the large investment requirements in the IMAR heating and energy subsector. In particular, the more remote municipalities and counties lack financial resources to replace and expand existing heating and natural gas systems. Therefore, the ADB loan is applied for the proposed Project to provide financial assistance in the environmental improvement in IMAR. 14. The Project supports the PRC’s 11th Five Year Plan (2006-2010) which emphasizes resource conservation and environmental protection, and gives priority to improving energy efficiency and developing cleaner energy sources. The Project will support the 11th Five Year
Plan targets for (i) reduction of SO2 emissions by 10% through reduction in coal consumption for district heating and diversifying heating supplies to include renewable supplies and waste heat recovery, and (ii) improving energy efficiency by 20%, through improving efficiency of district heating supplies, utilizing waste heat from industrial sources and reducing losses from distribution systems. The Project also supports the goals of improving energy efficiency and resource utilization outlined in the PRC Medium and Long Term Energy Conservation Plan 2005 and the Decision of the State Council on Enhancing Energy Conservation (Guofa 2006 No. 28), which emphasizes energy conservation, particularly in the heating sector.
15. In addition, the proposed Project is consistent with the ADB’s Medium-Term Strategy II, 2006–2008 strategic priority of ‘managing the environment’, and PRC Country Strategy and Program strategic development objective of ‘improving the environment’. It will build on continuing engagement with the GIMAR in the energy sector based on Loan 2260. 1.3 Impact and Outcome 16. The long-term goal of the Project is to support environmental improvement in IMAR aiming at energy efficiency and environmental improvement. Such impacts will be achieved by improvements in air quality and energy efficiency through development of the district heating and gas supply sectors and promotion of alternative clean energies such as comprehensive utilization of geothermal resources. IMEIP II PPTA FINAL REPORT 1-5
1.4 Project Description 17. The Project comprises a total of ten (10) subprojects described below. They can be divided into three parts: Part A - district heating supply (DHS); Part B - natural gas supply (NGS); and Part C – comprehensive geothermal utilization (CGU). Part A: DHS (8 subprojects)
i Hohhot City (Area C, D, F, G, K and M) Pipeline Rehabilitation and Heating Source Integration Project (“Hohhot DHS”), to be implemented by Hohhot Futai Heating Supply Co. Ltd. (“FUTAI”)
i Central Urban Area District Heating Pipeline Energy Saving and Expansion Project of Chifeng City (“Chifeng DHS”), to be implemented by Chifeng Fulong Heating Supply Co. Ltd. (“FULONG”)
i Baotou City District Heating (Baotou Municipal Heating Company) Rehabilitation and Expansion Project (“Baotou DHS”), to be implemented by Baotou Municipal Heating Supply Company (“BAOTOU”)
i Keerqin Youyiqian Banner District Heating Project in Xing’an League (“Keyouqian DHS”), to be implemented by Durui Heating and Power Supply Co. Ltd. (“DURUI”)
i Jinshan Town District Heating Pipeline Project in Kalaqin Banner of Chifeng City (“Kalaqin DHS”), to be implemented by Chifeng Jinfeng Heating Supply Co. Ltd. (“JINFENG”)
i Yindeer Town District Heating Project in Zhalaite Banner of Xing’an League (“Zhalaite DHS”), to be implemented by Zhalaite Xingda Heating Supply Co. Ltd. (“XINGDA”)
i Molidawa Daur Autonomous Banner District Heating Project in Hulunbeier City (“Molidawa DHS”), to be implemented by Molidawa Rimian Heating Supply Co. Ltd. (“RIMIAN”)
i Chenbaerhu Banner District Heating Project in Hulunbeier City (“Chenbaerhu DHS”), to be implemented by Bayan Economy Development Investment Co. Ltd. (“BAYAN”)
Part B: NGS (1 subproject)
i Keerqin Youyiqian Banner Natural Gas Project in Xing’an League (“Keyouqian NGS”), to be implemented by Keerqin Kangze Pipeline Gas Co. Ltd. (“KANGZE”) Part C: CGU (1 subproject)
i Reshui Town Comprehensive Geothermal Utilization Project in Ningcheng County of Chifeng City (“Ningcheng CGU”), to be implemented by Ningcheng Wenquan Investment & Development Co. Ltd. (“WENQUAN”) IMEIP II PPTA FINAL REPORT 1-6
18. Table 1.1 lists all basic information related to these subprojects, including the name, location, scope of work, IAs, ownership type of IAs, total investment, ADB loan amount, and ADB loan percentage of the total cost. 19. The Project, composed of the aforementioned 10 proposed subprojects, covers a vast area stretching from the northeast to the southwest of IMAR. In order to more efficiently manage and arrange field investigations, the Consultant Team divided the Project sites into three groups: the west region, the middle region and the east region. The west region includes Baotou City and Hohhot City, the middle region includes Chifeng City, Kalaqin Banner and Ningcheng County and the east region includes Chenbaerhu Banner and Molidawa Banner of Hulunbeier City, and Zhalaite Banner and Keyouqian Banner of Xing’an League. IMEIP II PPTA FINAL REPORT 1-7 Table 1.1 Project Basic Information List Total Perce ADB Invest ntage Part Subproject Location Scope of Works IA Ownership of IA Loan ment of USD million Loan Construction of one 3×58 MW, two 3×29 MW and one 4×29 MW new boiler plants Government shares (42%) Hohhot with a total capacity of 464 MW, and 94 HESs; placement of 41.13 km of trunk heating Employee shares (46%) Hohhot City FUTAI 118.0 43.0 36.4% DHS pipeline and retrofitting of 303 km of distribution pipeline (route length); installation of IMAR Mengyuan Investment Co. Ltd. - SOE 5 SCADA systems. The increased heating area will be 5.89 million m2 by 2010. (12%) Chifeng Dadi Infrastructure Co. Ltd. - state Construction of trunk heating pipelines of 53 km (route length), retrofitting and Chifeng holding company (99.04%) Chifeng City construction of 224 HESs, and construction of 1 control center. The increased heating FULONG 109.4 39.0 35.7% DHS Chifeng Xintai Assets Operating Co. Ltd. area will be 28.4 million m2 by 2015. (0.96%) Placement of 6 new trunk heating pipelines totaling 8.097 km (route length); retrofitting and expansion of 5 existing trunk pipelines totaling 9.907 km; construction Baotou of 56 new HESs; retrofitting of 2 heating plants with frequency converters for Baotou City BAOTOU Solely state owned company (SOE) 38.6 15.0 38.9% DHS circulating pumps; retrofitting of 183 existing HESs and associated secondary pipelines; and expansion of the existing SCADA system. The increased heating area will be 9.76 million m2 by 2010. Construction and installation of 3×70 MW hot water boilers and 28 HESs, and Keyouqian Beijing Durui Investment Co. Ltd. (holding Keyouqian placement of 12.52 km heating pipeline (route length); installation of 1 SCADA Banner, Xing-an DURUI company) - Private shares (90%) 34.3 10.0 29.2% Part A: DHS system. The increased heating area will be 2.553 million m2 and the existing service League Individual Shares – Xu Tao (10%) DHS of 0.447 million m2 will be improved by 2015. New construction of trunk heating pipelines of 15.7 km (route length); new Jinshan Town, Employee shares (42%) Kalaqin construction of 24 HESs; installation of 1 SCADA system. The increased heating area Kalaqin Banner, JINFENG Chifeng Jinfeng Copper Co. Ltd. (57.9375%) 18.5 7.5 40.5% DHS will be 0.15 million m2 and the existing service of 0.95 million m2 will be improved by Chifeng City Kalaqin Banner Welfare Office (0.0625%) 2010. Construction and installation of 4×29 MW hot water boilers and 20 heat exchange Yindeer Town, Zhalaite stations, placement of 9.252 km heating pipeline (route length); installation of 1 Zhalaite Banner, XINGDA Individual Shares - Zhang Xianfeng (100%) 20.9 7.0 33.5% DHS SCADA system. The increased heating area will be 1.5 million m2 and the existing Xing-an League service of 0.5 million m2 will be improved by 2015. Nierji Town, Construction and installation of 3×29 MW hot water boilers and 15 HESs and Individual Shares - Gao Zhi (60%) Molidawa Molidawa Banner, placement of 9.86 km trunk heating pipeline (route length); installation of 1 SCADA RIMIAN Individual Shares - Gao Fengju (30%) 17.0 6.0 35.4% DHS Hulunbeier City system. The increased heating area will be 1.226 million m2 by 2015. Individual Shares - Liu Baoyu (10%) Bayankuren Town, Chenbaerhu Administration Office - gov. Construction of a 2×29 MW hot water boiler, 7 HESs and 6.5 km primary heating Chenbaerh Chenbaerhu agency (78%) pipeline (route length), installation of 1 SCADA system. The increased heating area BAYAN 10.8 5.0 46.1% u DHS Banner, Chenbaerhu Limin Water Supply Company - will be 0.6 million m2 by 2010. Hulunbeier City SOE (22%) Keyouqian Part B: Keyouqian Placement of 27.58 km of natural gas pipeline; and construction of 1 pressure Keyouqian Banner Finance Bureau - Banner, Xing-an KANGZE 12.3 5.5 44.9% NGS NGS regulating station, and 1 CNG filling station. government agency (100%) League Geothermal groundwater extraction and reinjection wells drilling and layout of Reshui Town, pipeline; construction of geothermal pumping station with ancillary equipments for Part C: Ningcheng Ningcheng Ningcheng Reshui Investment Company - commercial hot water supply; construction of geothermal greenhouse and WENQUAN 18.3 12.0 65.6% CGU CGU County, Chifeng SOE (100%) aquaculture site; construction of a wastewater treatment plant. Auxiliary component City include 7.8 km road rehabilitation. Total Investment (million USD) 398.0 150.0 37.7% Source: the FSRs of the Project. IMEIP II PPTA FINAL REPORT 1-8
1.5 Synchronized ADB and Domestic Processes 20. The IMAR DRC approved the project identification document in December 2006. The following domestic approvals have to be obtained before ADB can proceed for loan processing: EIA, draft FSR and Resettlement Plan (RP). 21. All EIAs, including the revised EIAs, were submitted to the IMAR Environmental Protection Bureau (EPB) and municipal EPBs before 10 March 2008. Five EIAs have been approved, i.e. the EIAs for Chifeng DHS, Kalaqin DHS, Zhalaite DHS, Keyouqian NGS and Ningcheng CGU. While the rest is undergoing the approval processes. 22. The Draft FSRs have been submitted to the Municipal Development and Reform Commission (MDRC) in February 2008. Only after all EIAs are approved, can the FSRs be approved according the approval procedures in the PRC. 23. The Resettlement Specialist of the Consultant Team has provided specific comments on the preparation of the RP for each Subproject. Two short RPs have been prepared for Ningcheng CGU and Zhalaite DHS based on the assessment by the specialist. No RP is necessary for other Subprojects. A reemployment action plan has been developed for the affected workers. 24. The tripartite meeting and loan fact finding mission have been successfully conducted among ADB, the PMO, and the Consultant. The following ADB processes need to be successfully completed prior to the loan becoming effective.
i The Resettlement Plans accepted by ADB; i The Management Review Meeting; i The Loan Appraisal Mission; i The Staff Review Committee Meeting; i Loan negotiations; i Board approval; and i Loan signing. IMEIP II PPTA FINAL REPORT 2-1
CHAPTER 2 IMPLEMENTATION ARRANGEMENT
2.1 Introduction 25. The institutional analysis is conducted starting from the project implementation institutional structure, including the arrangements on institutional management, coordination, implementation support and implementation. Then it discusses the on-lending and relending arrangement. Based on the current institutional structure regarding the PMO, Municipal PMOs, IAs, the consultants propose the options for reform in the project implementation structure, which links the PMO, Municipal PMOs closely with ADB Project Units in each IA’s organizational structure. Lastly, an institutional assessment is also conducted for all IAs, including (i) analysis of existing management structure, (ii) provision of recommendations for institutional strengthening, and (iii) analysis of options for private sector participation. The analysis shows the current updated institutional arrangement can meet the project implementation requirement and realize sustainable operation of the ADB financed facilities. However, the PMO and IAs will need extensive capacity strengthening due to lack of ADB loan financed project implementation experience. In particular, the consultants have proposed options for operational restructuring and service outsource for two IAs (WENQUAN and BAYAN), as detailed in Chapter 11. 26. The Project’s institutional implementation arrangement is summarized in Figure 2.1.
Executing Agency PMO (Government of Inner Mongolia Autonomous Region) Project Implementation TA
Municipal PMOs County PMOs
Hohhot Chifeng Baotou Xing-an Hulunbeier
Kalaqin Ningcheng Zhalaite Keyouqian Chenbaerhu Molidawa
IAs FUTAI JINFENG FULONG WENQUAN BAOTOU XINGDA DURUI KANGZE BAYAN RIMIAN
Figure 2.1: Project Institutional Arrangement 2.1.1 Institutional Management Arrangements 27. The Executing Agency (EA) for the Project is the GIMAR. It has established a project leading group (PLG) to provide overall guidance during preparation and implementation, with a vice-chairman of the GIMAR as the leader and representatives from IMAR DRC, IMAR Finance Bureau (FB), IMAR Construction Bureau, and IMAR Environmental Protection Bureau as the members. The PMO has been established under the IMAR Development and Reform Commission (DRC). The PMO will be responsible for managing the Project. Similar IMEIP II PPTA FINAL REPORT 2-2
PLGs have been established at the city level. The PLG will be responsible for the Project implementation as well as taking a leadership role for the involved project cities. 2.1.2 Project Coordination Management 28. The PMO, under the IMAR DRC, is the main agency for coordination of project implementation. It was established for Loan 2260 and will be responsible for this Project as well. It will monitor the implementation progress, such as procurement activities, project costs consolidation and preparation of consolidated semi-annual progress reports. It will also be responsible for the implementation of the technical assistance and capacity building component. The PMO is the focal point of contact with ADB. Based on the PPTA consultant’s suggestion, the PMO has submitted an application to the GIMAR for a further specification of the PLG and PMO’s position in directing and supporting the Project with additional tasks and roles clarified based on those for Loan 2260. The mayors or vice mayors in charge of infrastructure development of respective proposed Project cities will be included in the PLG. 29. Five Municipal PMOs and six County Level PMOs, under respective Municipal/County DRCs, will coordinate and monitor project implementation in their respective jurisdictions, such as quality control in planning and construction, progress reports preparation, performance evaluation, overseeing of the IAs, project costs consolidation, and process disbursement applications. They are obligated to provide periodic progress reports to the PMO. 2.1.3 Implementation Support 30. The Project will have a capacity building program in the form of project implementation technical assistance (TA). The TA will provide project implementation support to the PMO and IAs for: (i) project management; (ii) procurement; (iii) construction supervision; (iv) financial management; (v) institutional capacity building; and (vi) monitoring and evaluation. There is also a grant assistance to help address a number of barriers for improving energy efficiency in the district heating sector. In addition, all IAs will utilize, through their own funds, the services of tendering companies to assist in procurement and supervision companies for construction supervision. 2.1.4 Implementation Agencies 31. The proposed project components are consistent with the sector plans and the GIMAR’s priorities for development of DHS, NGS, and CGU projects. The project implementation will be carried out by state-owned investment/development companies (acting as agents), and utility companies. 32. Through working with DIs and local tendering companies, the IAs will prepare bid documents, after which bids will be invited by the PMO. Each IA will be responsible for activities pertaining to construction and supervision. Supervision companies will assist with construction supervision and contract management, and help review and approve invoices for payments submitted by the contractors. The IAs, with the assistance of the TA consultants, will review and approve them, before sending them to the PMO, where payments to contractors will be further reviewed and certified. Based on these certificates, IMEIP II PPTA FINAL REPORT 2-3 the Municipal Finance Bureaus (MFBs) will make payments to contractors. The principles for setting up the IAs include:
i Simplification: The delegated IAs should be relatively consolidated and in charge of or in the same line of business as the proposed project component.
i Establishment of Organizational Structure: The institutional set-up should be in close cooperation with the PMO, especially in four areas of (1) procurement and engineering; (2) accounting and financial management; (3) safeguard policy; and (4) administration.
i Cost effectiveness: Existing management capacity should be extensively utilized. Staff of each IA are not required to commit a full-time working schedule. However, each staff member’s position and responsibilities should be clearly idenfitied. It is essential that the IAs be equipped with an experienced manager for the ADB project implementation. It is highly recommended that the responsible person at each IA be positioned long enough to cover the whole period of the project implementation. Table 2.1 summarizes information of the subproject IAs for the ADB project implementation. Table 2.1: Project Institutional Arrangement
No. Part Subproject IA 1 A: DHS Hohhot DHS FUTAI 2 Chifeng DHS FULONG 3 Baotou DHS BAOTOU 4 Keyouqian DHS DURUI 5 Kalaqin DHS JINFENG 6 Zhalaite DHS XINGDA 7 Molidawa DHS RIMIAN 8 Chenbaerhu DHS BAYAN 9 B: NGS Keyouqian NGS KANGZE 10 C: CGU Ningcheng CGU WENQUAN
2.2 Lending, Relending & On-lending Arrangements 2.2.1 Overall On-lending Arrangements 33. The proposed loan of US$150 million will be made available to the PRC once the Project is approved by ADB. Proceeds of the loan will be passed to IMAR on the same terms and conditions as the ADB loan to the PRC. The GIMAR will have overall responsibility for the Project as the signatory of the Project Agreement. To expedite project implementation through timely release of loan proceeds, an imprest account will be established by the GIMAR upon loan effectiveness at a commercial bank acceptable to ADB. IMEIP II PPTA FINAL REPORT 2-4
34. On behalf of the GIMAR, the IMAR FB will make the loan proceeds available to the MFBs of Hohhot, Chifeng, Baotou, Xing-an and Hulunbeier on the same terms as the loan to the PRC via subsidiary loan agreements. It will manage the imprest account, and manage the disbursements to each project city’s MFBs. 35. The MFBs of Hohhot, Chifeng and Baotou will further on-lend a portion of the loan proceeds directly to FUTAI, FULONG and BAOTOU under subsidiary loan agreements on the same terms and conditions satisfied to ADB. The other MFBs will on-lend a portion of the loan proceeds to the County Level FBs, and then to the IAs with the same terms and conditionals satisfied to ADB. The detailed arrangements are: i) from Chifeng MFB to the FBs of Kalaqin and Ningcheng, then to JINFENG and WENQUAN, respectively; ii) from Xing-an League FB to the FBs of Zhalaite and Keyouqian, then from the FB of Zhalaite to XINGDA, and from the FB of Keyouqian to DURUI and KANGZE, respectively, iii) from Hulunbeier MFB to the FBs of Chenbaerhu and Molidawa, then to BAYAN and RIMIAN, respectively. 36. The Project lending, relending and on-lending arrangements are summarized in Figure 2.2. IMEIP II PPTA FINAL REPORT 2-5
Asian Development Bank
Borrower (People’s Republic of China)
Executing Agency (Government of Inner Mongolia Autonomous Region)
Hohhot Municipal Chifeng Municipal Baotou Municipal Xing-an League Hulunbeier Municipal Government Government Government Government Government
Ningcheng County Zhalaite County Keyouqian County Kalaqin County Chenbaerhu County Molidawa County Government Government Government Government Government Government
FUTAI JINFENG FULONG WENQUAN BAOTOU XINGDA DURUI KANGZE BAYAN RIMIAN
Figure 2.2: Project Onlending Arrangement IMEIP II PPTA FINAL REPORT 2-6
2.2.2 On-lending for 8 Utility Companies 37. The Loan proceeds will be on-lent by the Baotou MFB to BAOTOU, by the Chifeng MFB to FULONG and through Kalaqin county FB to JINGFENG, by the Hohhot MFB to FUTAI, by the Hulunbeier MFB through Molidawa county FB to RIMIAN, by the Xing’an FB through Zhalaite county FB to XINGDA, and through Keyouqian county FB to DURUI and KANGZE respectively on the same terms as the ADB loan. The on-lending will be made on the basis of subsidiary loan agreements satisfactory to ADB. The utility companies are also required to maintain a separate project account to record all activities and transactions for the Project. The financial statements of the Project and the entire company should be audited annually to the satisfaction of ADB. 38. In addition, the utility companies will be required to comply with the financial performance specified in the loan agreements. The key financial performance will be as follows starting from fiscal year of 2012.
i Debt service coverage ratio (DSCR) >1.3; i Debt-Equity ratio less than 70:30; and i Current ratio 1:1. 39. At present, the government encourages utility companies to recover costs through tariffs and specifies heating tariffs should be set up as per market condition. Based on the financial projection, all IAs (except for FULONG and part of WENQUAN) will have to increase tariffs in order to comply with the financial performance requirements. Although all project cities adjusted heating tariff in 2006 due to extensive price increase of coal during 2004 to 2006, the current tariffs are not able to generate sufficient funds for operation, depreciation, debt services and investment. Therefore, the government subsidy plan (either in operation or in investment) should be considered and implemented in the initial years of the project period. In the interim of the project implementation, it is required to improve operation efficiency and achieve financial autonomy and full cost recovery tariffs. The above critical areas have been discussed and confirmed in the Memorandum of Understanding (MOU).
2.2.3 On-lending to Two Investment/Development Companies 40. The loan proceeds will also be on-lent to the Hulunbeier MFB through Chenbaerhu County FB for BAYAN and to the Chifeng MFB through Ningcheng County FB for WENQUAN, respectively, on the same terms and conditions as the ADB loan to the PRC. BAYAN and WENQUAN will use the loan proceeds, undertake procurement, execute contracts and make payments following ADB’s requirements and procedures. They will be required to maintain a separate project account to record all activities and transactions associated with the Project, and have the project account audited annually to the satisfaction of ADB. As the utility companies will generate operating revenues, they should be developed under the market oriented mechanism. However, BAYAN and WENQUAN are now designed as investment/development companies, which do not have sufficient qualification and experience in utility operation. Therefore, it is critical to strengthen their operation IMEIP II PPTA FINAL REPORT 2-7 management. The following institutional arrangements have been agreed during the Appraisal by ADB. 41. Upon completion of the construction, WENQUAN and BAYAN will retain the right of revenue collection, asset ownership and debt service obligation. They will strengthen their operation management through operational restructuring, which has been discussed in details in Chapter 11 on private sector development. WENQUAN has agreed to outsource operation of (i) district heating subcomponent, (ii) agriculture and aquaculture subcomponent, and (iii) wastewater treatment plant subcomponent. BAYAN has agreed to outsource operation of district heating operation.
2.3 Implementation Schedule 42. The project implementation is planned to take place over a period of four (4) years from April 2009 to April 2013. A detailed subproject implementation schedule and payment schedule will be provided in Appendix 7 and Chapter 9 of financial analysis, respectively. This schedule is in line with the initial project preparation together with the procurment plan and financing plan.
2.4 Counterpart Funding Commitment 43. The project counterpart funds will be mainly financed through government equity infusion, commercial loans of local commercial banks, connection fees collected by the utility companies for distribution pipeline construction, capital equity from parent company or IA’s registration, and cash generated from the existing operation. 44. The IAs have provided commitment letters issued by the respective fund providers. These letters have been reviewed and agree with the financing plan proposed for the financial viability analysis.
2.5 Institutional Assessment 45. The PPTA consultants have conducted an institutional assessment on the IMAR PMO, Municipal PMOs and project IAs in order to evaluate the current institutional capacity to implement the Project. The following summarizes our findings and recommendations. 2.5.1 Evaluation of the IMAR PMO 46. The IMAR PMO was established during Loan 2260 under the authority of PLG, and is responsible for the day-to-day project implementation management. Now it is responsible for directing and coordinating all activities of the Project during preparation period. The IMAR PMO will prepare the semi-annual progress reports and submit them by the dates specified in the Legal Agreements, generally, about one month after the end of the six-month period. The PMO will incorporate in the semi-annual progress report, progress in achieving the outputs and outcomes described in the Results Framework obtained from the IAs. 47. The existing institutional structure of the PMO is presented in Figure 2.3. IMEIP II PPTA FINAL REPORT 2-8
General Coordinator Huan Wang
General Consultant Administration Weizhen Wang Minyi Yang
Project Management Hu Ju Vice Director (General) Ze Li Institutional and PSP Ruixue Wang
Poverty & Director Resettlement Vice Director (Admin) Peng Hou Chongyi Si Ha Yang Loan Repayment Risong Na
Translator Vice Director (Finance) Lijia Li TBD
Driver Wenqing Bao
Accountant Xiujuan Guo
Figure 2.3: PMO’s Institutional Sturcture 48. Currently, the PMO comprises 12 members. Based on the current staffing, schedule of the Project preparation, as well as the Project’s appraisal target and implementation requirements, it has become apparent that a need to strengthen the PMO is urgent and justified. Specialists skilled in technical supervision, procurement, financial management, disbursement and safeguard staff are required to strengthen the PMO. Qualified staff should be further equipped with strong leadership skills to provide guidance on analyses, and coordinate logistics to facilitate the flow of vital information. Additional qualified staff in these aspects will help ensure the high quality and timely completion of PPTA preparations for the ADB loan approval, and will play a key role during the project’s implementation. 49. Figure 2.4 shows the suggested institutional structure based on the project implementation requirement. IMEIP II PPTA FINAL REPORT 2-9
IMAR PMO Director Mr. Chongyi Yang
Deputy Director Mr. Ze Li; Ms. Si Ha; Senior Consultant Mr. Huan Wang Mr. Weizhen Wang
Procurement & Financial & Safeguard & Administration Engineering Accounting Policy Department Department Department Department Mr. Huan Wang A new staff will Mr. Risong Mr. Huan be hired in July Na Wang
Members: Accountant Members: Members: Mr. Weizhen Ms. Xiujuan A new staff Ms. Minyi Wang; Guo will be hired Yang; Mr. Hu Ju in July Ms. Lijia Li Ms Yu Zhang
Figure 2.4: Suggested Institutional Structure of the PMO 50. The PMO’s responsibilities should be conducted by its four departments, as shown in the figure, under the leadership of the Director and a full-time Deputy Director. The basic responsibilities of these four departments are described as follows: (1) Financial & Accounting Department: 1) Department responsibilities (i) Review disbursement application, disbursement vouchers and disbursement procedures and handle relevant formalities, according to ADB’s requirements. (ii) Summarize the project completion and disbursement status quarterly against the work plan and loan proceeds utilization plan, and provide suggestions for improvement. (iii) Develop and review a monthly project payment settlement statement and monthly loan proceeds utilization plan statement; manage loan proceeds withdrawal and disbursement for each subproject. (iv) Review bidding documents and awarded contracts in meetings with the Procurement and Engineering Department. (v) Check and verify the accounts periodically with ADB, the Audit Bureau and the IAs. IMEIP II PPTA FINAL REPORT 2-10
(vi) As per ADB’s requirements, re-examine the disbursement application, disbursement vouchers and disbursement procedures. 2) Person-in-charge: Risong Na 3) Staff responsibilities: Risong Na: review and examination Xiujuan Guo: specific review and examination; development of relevant statements. (2) Procurement & Engineering Department 1) Department responsibilities (i) Complete the project preparation and conduct construction supervision; (ii) Assist the PPTA consultants in performing the project preparation and address questions during the evaluation. (iii) Organize supervision on the project progress and review project progress consolidated statements. (iv) Check and supervise the project progress, project quality; submit project progress consolidated statements. (v) Collect and organize project management documents and keep on file in a timely manner. (vi) Conduct random inspection each year on project progress and quality; provide reports in a written format. (vii) Develop procurement plans and organize their implementation. (viii) Organize negotiations and bidding activities. (ix) Develop and review bidding documents and contracts. (x) Issue contract awarding and conduct contract negotiation; provide advisory comments on technical issues. (xi) Summarize contract implementation status periodically and update the project work plan. (xii) Manage project contracts and supervise the contract implementation throughout the whole project implementation. (xiii) File and manage project documents. 2) Person-in-charge: A new staff 3) Staff responsibilities: Weizhen Wang: review of technical aspects of bidding documents and contracts; coordinate the work relations among all project entities. IMEIP II PPTA FINAL REPORT 2-11
New staff: project implementation management, coordination and progress control. Hu Ju/Yu Zhang: contract management, project document management, and arrangement and coordination on bidding activities. (3) Safeguard & Policy Department 1) Department responsibilities (i) Investigation on resettlement and environmental protection issues during the project preparation stage; coordination among ADB, the international consultants and IAs regarding resettlement and environment protection issues during the project implementation stage. (ii) Complete the resettlement works during the project implementation stage. Investigate environmental protection condition and coordinate with international consultants on implementation and supervision of resettlement works during the project implementation stage as well as annual follow-up survey during the post-project period. (iii) Daily routine management works in relation to resettlement and environment protection. 2) Person-in-charge: Huan Wang 3) Staff responsibilities: Huan Wang: coordination on resettlement and environment works. New staff: daily routine work management. (4) Administration Department 1) Department responsibilities (i) Provide office supplies procurement and meeting preparation works. (ii) Perform daily routine office and administrative tasks. (iii) Handle automobile insurance, maintenance, checking and other relevant procedures. (iv) Provide meeting notification and meeting minutes; draft articles on work newsletter. (v) Record and file administrative documents and various correspondences. (vi) Provide translation at meetings and with documents; perform external communication works. (vii) Manage the financial income and expenditures and cash flow of the PMO. 2) Person-in-charge: Huan Wang (concurrently) 3) Staff responsibilities IMEIP II PPTA FINAL REPORT 2-12
Minyi Yang: internal and administrative management. Lijia Li: translation and external communications. 51. More arrangements will be made to conduct capacity strengthening activities after all members of the PMO are in place. During the project Appraisal, the TOR of the related TA and training during the project implementation stage will be finalized.
2.5.2 Evaluation of the Municipal/League/County PMO 52. There is an indisputable hierarchical relationship among the IMAR PMO, Municipal/League/County PMOs and the IAs. It is not necessary to establish fully functional PMOs at the municipal/league/county levels. However, respective staff should be appointed taking charges of day-to-day coordination and project management under their jurisdiction. Up to the Final Report stage, the staff in the Municipal/League/County PMOs have all been in place. 2.5.3 Evaluation of the IAs 53. The evaluation of the IAs includes review of their business licenses, company charters, existing organizational structures, current business management regulations and the institutional arrangements to conduct the Project. Detailed questionnaires for an institutional management assessment is presented as Appendix 8. Our findings and suggestions regarding the IA’s institutional evaluation are present as follows. 2.5.3.1 Investment/Development Companies 54. Two state-owned investment/ development companies function as developers and also act as agents of various government departments. As developers, they assume the obligation to fund all infrastructures installed, while the ownership remains with the responsible sector agencies. The analysis of these two investment/development companies is presented below: (a) BAYAN will implement Chenbaerhu DHS subproject. 55. BAYAN was established in May 2006 with the funds of RMB 78 million from the Municipal Utility Management Station of Chenbaerhu Banner and RMB 22 million from Limin Water Supply Co., Ltd. of Chenbaerhu Banner. It is a state-owned shareholding limited liability company with a registered capital of RMB 100 million. The company’s business scope covers urban infrastructure construction project investment, investment services and real estate development. At present, the company has three staff members including a general manager (GM), an accountant and a cashier. The company is administered by the Chenbaerhu Construction Bureau and is currently planning for institutional strengthening to include additional departments. Figure 2.5 and 2.6 illustrates the company’s current and proposed organizational structure, respectively. IMEIP II PPTA FINAL REPORT 2-13
Board of Directors
General Manager
Financial Department
Figure 2.5: BAYAN’s Current Organizational Structure 56. BAYAN, as the IA for Chenbaerhu DHS, is both the project asset owner and the ADB loan borrower and repayment entity. It was formed in 2006 and lacks sufficient organizational capacity for project preparation, construction and operation. Institutional strengthening and capacity building are required to effectively manage the project during construction and operation. BAYAN has agreed to implement the organizational structure illustrated in Figure 2.6 during the project construction. Under the leadership of Head and Deputy Head of ADB Project Unit, four departments including those of procurement and engineering, financial and accounting, safeguard policy and administration are recommended. During the project preparation stage, each department shall have at least one staff member. Along with the project construction, each department shall recruit staff on an as needed basis.
Head of ADB Project Unit Mr. Dong Lv
Deputy Head Mr. Erdomutu; Mr. Changzhan Dai
Procurement Financial & Safeguard & Administration & Engineering Accounting Policy Department Department Department Department Gencang Meng Hongkun Fu Huili Zhang Yinghua Wu
Accountant: Yue Ling
Figure 2.6: Proposed Organizational Structure of BAYAN Note: Dash lines represent the suggested departments. IMEIP II PPTA FINAL REPORT 2-14
57. It is suggested that a Deputy Head be specifically assigned for the project preparation, construction and operation, and meanwhile, the four departments to be established will have the following identified responsibilities, respectively: (1) Engineering management department
y Coordinate work with feasibility study, DIs and the consulting firm during the subproject preparation stage;
y Manage all engineering works throughout the construction period; coordinate the work between construction supervision entities and contractors to ensure the subproject implementation progress and quality.
y Handle all works related to bidding, contract procurement and its coordination; prepare contracts for signing and manage contracts. (2) Safeguard and policy department
y Responsible for works related to environmental impacts, resettlement and land acquisition, poverty alleviation and social safeguard issues. (3) Administrative department
y Responsible for hosting daily visit, administrative matters, and translation works. (4) Financial department
y Responsible for accounting, withdrawal and reimbursement of the loan proceeds, and financial management. 58. Upon the completion of the project construction, BAYAN will outsource the operation of district heating. The outsourcing contractor will be responsible for daily operation and maintenance of the heating facilities. BAYAN will be responsible for obtaining the heating tariff permit from relevant government agencies. In order to ensure successful operation and maintenance of the facilities, two additional departments in BAYAN, namely Tariff Collection Division and Operation and Management Division, will be established. 59. As BAYAN does not have experience of large-scale project management and ADB financed project management, it is necessary to arrange the staff to attend a series of training, and participate in domestic and overseas study tours. Training topics are suggested to include ADB loan project management procedures, procurement guidelines, requirement for project management entities, bidding and tendering procedures, construction supervision and safeguard management requirement, financial management, tariff setting and collection, payment application procedures, environmental impact assessment and monitoring procedures and requirements, and land acquisition and resettlement management and requirement, etc. (b) WENQUAN will implement the Ningcheng CGU subproject. 60. This subproject contains both revenue earning subcomponents and non-revenue generating subcomponent. The revenue earning subcomponents comprise district heating, hot water supply, geothermal greenhouse and aquaculture, and wastewater treatment. The IMEIP II PPTA FINAL REPORT 2-15 non-revenue generating subcomponent is road rehabilitation, which is considered as government public service expenditure. 61. WENQUAN was established as a state-owned company in July 2007 by Fish Farming Company with a registered capital of RMB 30 million. Currently, there are 5 employees: one GM, one deputy GM for operation, one standing GM, one chief engineer and one accountant. The company is administered by the Ningcheng County Government. A completed company structure was proposed at the beginning of the company establishment as below in Figure 2.7.
Board of Directors
GM Engineering Accountant Deputy GM Deputy GM Chief Chief Quality Inspection Network Center Administrative Management Engineering Department Department Department Department Department Department Department Purchasing Financial Design Accounting Division Quality Inspection Budget and Final Cost Accounting Design Division Administrative No. 2 Division No.1 Division Purchasing Financial Division Division Division Office Office
Figure 2.7: WENQUAN’s Current Organization Structure IMEIP II PPTA FINAL REPORT 2-16
62. Although a completed organizational structure has been set up since the establishment of the company, a lot of positions are still open. In addition, recent business development of the company will be mainly associated with the construction of the ADB loan financed projects. The permanent population in Ningcheng Reshui Tourism Zone is approximately 7,000. The objective of the subproject is to develop tourism and leisure activity featured infrastructures with special geothermal resources. Hotels, sanatoriums, restaurants and entertainment locations will be the economic development and benefit return pillars for this subproject. Only if all resources focus on this development objective with economic strategy, can the project viability be realized. Therefore, the proposed business promotion, investment attraction, marketing and strategic planning are critical for the company to continuously move to a sustainable development. 63. WENQUAN is the IA for the six subcomponents of Ningcheng CGU. It is the project asset owner as well as the ADB loan borrower and repayment entity. Addressing weak capacity for construction and operation of some subcomponents, WENQUAN has agreed to restructure its organization. Under the leadership of the Board of Directors, GM and deputy GMs, seven divisions will be established, with responsibilities as detailed in Figure 2.8:
Board of Directors
GM
Deputy GM Deputy GM
District Hot Spring Market Agriculture Financial Admin. and WWTP Heating Division Division Office Development Division Division Division Aquaculture Division
Figure 2.8: Proposed Organizational Structure of WENQUAN
x District Heating Division – responsible for district heating related work, outsourcing management and coordination, heating tariff collection, and other related work;
x Hot Spring Division – responsible for the work related to hot water supply and geothermal extraction and re-injection;
x Financial Division - responsible for business planning, budgeting and accounting.
x Administration Office – responsible for human resource and general office management; IMEIP II PPTA FINAL REPORT 2-17
x Market Development Division – responsible for marketing and business development related work;
x Agriculture and Aquaculture Division – responsible for agriculture and aquaculture related work; and
x Wastewater Treatment Plant (WWTP) Division – responsible for management and coordination of outsourcing contractor for wastewater treatment facilities. 64. Once the institutional arrangement is finalized for the Ningcheng CGU subproject, the next step is to set up each division in the proposed structure prior to the completion of the ADB loan appraisal, which is expected to take place before September 30th, 2008. Relevant staff shall start working and GM shall arrange the job training accordingly. 65. The company does not have experience in large-scale project management and ADB loan project management. Therefore, it is necessary to arrange the staff to attend a series of trainings and participate in domestic and overseas study tours. Suggested training topics are the same as those for BAYAN previously mentioned. 66. It is proposed that WENQUAN manage all subcomponents’ construction, and operation of (i) groundwater extraction and re-injection, (ii) hot water supply, (iii) agriculture activities and (iv) part of aquaculture business. It is also proposed that WENQUAN outsource operation of (i) district heating, (ii) part of the aquaculture business, and (iii) wastewater treatment subcomponents. After completion of the subproject construction, the outsourcing contractors will be responsible for operation and maintenance of the outsourced subcomponents. WENQUAN will be responsible for obtaining tariff collection permit for heating and wastewater subcomponents from relevant government agencies. During the operation phase, WENQUAN will establish a Tariff Collection Division which will be responsible for tariff collection for heating and wastewater services. 67. For the road rehabilitation subcomponent, ADB requires that there shall be enough budgetary allocation for maintenance and repair of the roads. According to Mr. Zhencai Zhou, GM of WENQUAN, the maintenance and repair cost for roads is approximately RMB 10,000 for one kilometer of roads per annum. The total length of the roads will reach 7.8 km after construction. Therefore, the budgetary allocation for road maintenance and repair requirements shall be RMB 78,000 per annum. 68. WENQUAN is confident that the required technical and experienced staff can be recruited on an as needed basis. It already has some experienced staff and will attract more staff by open recruitment. 69. All the issues mentioned above have been discussed among WENQUAN, the IMAR PMO, Consultants, and ADB officers. The action plan reached will be documented in the most recent MOU.
2.5.3.2 Utility Companies 70. Eight utility companies are involved in the Project as IAs. They were established under corporate law with business licenses and company charters. Each of the IAs is introduced briefly in the following sections: IMEIP II PPTA FINAL REPORT 2-18
(A) FUTAI will implement the Hohhot DHS subproject. 71. FUTAI was established in 1983. The shareholder restructuring was conducted in 1997. The local government owns 42% of the company shares, a total of 887 employees own 46% of the shares, and IMAR Mengyuan Investment Co. Ltd., a state-owned company, owns 12% of the company shares. The total registered capital of FUTAI is RMB 62.097 million. Currently there are 1,236 employees. FUTAI has two subsidiary companies, the Heating Supply Equipment Company (100% control) and Tumotezuo Banner Fukai Heating Supply Company (52% control), 14 branch heating companies, and 1 heat source plant. The organizational chart of FUTAI is shown below in Figure 2.9.
Board of Directors Representatives from Management Level
GM
Deputy Deputy Chief Principal Deputy Deputy GM GM Accountant Engineer GM GM Tumotezuo Fukai Heating Human Resource Dept. Human Resource Engineering Mgt. Dept. Engineering Corporation Mgt. Dept. Operation Department Technical Department Technical Financial Department Department Financial Administration Office Subsidiary Company Company Subsidiary Auditing Department Department Auditing User Service Office Heating Equipment Heating Supply Co. Ltd. Sales Branch Company Sales Branch Material Supply Branch Material Supply Guangming Heating Heating Guangming Network Regulating Network Regulating Inspection & Repair Network Installation Information & Data Information & Branch Com Branch Com Safety Inspection 14 Heat Branch 14 Heat Branch Design Division Design Division Control Center Source Plant Com Laboratory Com Division Division p p anies an y p p an an y y
Figure 2.9: FUTAI Current Organizational Structure 72. FUTAI has implemented the ISO 9001 management system and has established a complete set of management manuals, which cover quality management, procedures management, and safety management etc. FUTAI has also experienced Japanese Government loan projects. The company maintains an experienced corporate staff and is proactive in staff development and training. IMEIP II PPTA FINAL REPORT 2-19
73. FUTAI set up an ADB PLG and ADB Project Office on October 20, 2007. Based on the suggestions provided by the Consultants, FUTAI reorganized the structure of the ADB Project Unit, whose organizational structure is shown in Figure 2.10 as below:
Head of ADB Project Unit Mr. Jiuling Qiao
Procurement & Financial & Safeguard & Administration Engineering Accounting Policy Kunsheng Gao Feng Miao Xiaokui Chai Changsheng Zhang
Members: Members: Members: Members: Jianmin Liu; Yu Cao; Caiqin Cunyu Yang; Shun Yong Zhang; Zhigang Zhang; Li Zhang; Siqin; Yong Gou; Zhuang Liu; Yongzhi Li; Yu Yu; Yunfei Li; Zheng Rongling Jiang; Lu; Lixia Huo Zhenying Wu; Xudong Yin; Fei Jianzhong Du Liu
Figure 2.10: Institutional Structure for FUTAI ADB Project Unit
74. The Head of ADB Project Unit is specifically assigned for the project preparation, construction and operation; meanwhile, personnel for procurement & engineering, financial & accounting, safeguard & policy, and administration areas are developed with identified responsibilities, respectively: (1) Procurement and Engineering Department
y Coordinate work with feasibility study, DIs and the consulting firm during the subproject preparation stage;
y Manage all engineering works throughout the construction period; coordinate the work between construction supervision entities and contractors to ensure the subproject implementation progress and quality;
y Handle all works related to bidding, contract procurement and its coordination; prepare contracts for signing and manage contracts. (2) Financial and Accounting Department
y Preparation of annual financial budget; y Monitoring the ADB Project financial process; y Preparation of ADB loan withdrawal and repayment plan and checking the loan reimbursement documents; IMEIP II PPTA FINAL REPORT 2-20
y Management of the Project Account and coordinating on the loan reimbursement and repayment;
y Preparing financial statements; and y Other required work. (3) Safeguard and Policy Department
y Responsible for works related to environmental impacts, resettlement and land acquisition, poverty alleviation and social safeguard issues. (4) Administrative epartment
y Responsible for daily visit receiving, administrative matters, and translation works. (B) FULONG will implement the Chifeng DHS subproject.
FULONG
Party Board of Directors Executive Board of Committee Directors
General Manager
Secretary Deputy Deputy Chief Deputy Principal Deputy Deputy Deputy Deputy of Board GM GM Accountant GM Engineer GM GM GM GM Fulong Municipal Engineering Co. Engineering Fulong Municipal Corporation Manageme Heating Inspection Department Inspection Heating Secretary of Executive Director Secretary of Executive Director Fulong Gas & Heat Design Co. Fulong Gas & Heat Design Customer Service Department Department Customer Service Human Resource Department Department Human Resource Environment Protection Dept. Environment Protection Business Development Dept. Dept. Business Development Operation Branch Company Tariff Collection Branch Co. General Manager Office Party Committee Office Financial Department Department Financial Chief Engineer Office Material Department Material Department nt Dept.
Figure 2.11: FULONG’s Organizational Structure
75. FULONG was established in November 2004, and is a subsidiary company of Chifeng Dadi Infrastructure Company Ltd. (a listed company). The registered capital of IMEIP II PPTA FINAL REPORT 2-21
FULONG was RMB 209.18 million, 99.04% of which was invested by its parent company. The company has two branch companies, i.e. Operation Branch Company and Tariff Collection Company, and two subsidiary companies, i.e. Fulong Municipal Engineering Co. Ltd. and Fulong Gas & Heat Design Co. Ltd. Currently there are 564 staff members in FULONG. The organizational chart of FULONG is shown below in Figure 2.11. 76. An ADB project office has been set up in FULONG. A detailed structural arrangement is shown in Figure 2.12 as below.
Head of ADB Project Office
Procurement Financial & Safeguard & Administration & Engineering Accounting Policy Mr. Yong Yan Mr. Limin Jiang Mr. Tu Ba Mr. Lin Yuan
Accountant Ms. Jing Chen
Figure 2.12: Proposed ADB Project Office in FULONG
i Purchasing and Engineering (i) Project purchasing, procurement and bid evaluation; (ii) Procurement management; (iii) Coordination of procurement and contract negotiations; (iv) Preparation and implementation of annual purchasing plan; (v) Preparation of project plan and contract management; (vi) Management and coordination of engineering design, construction, and supervision; (vii) QA/QC; and (viii) Management of engineering documents.
i Financial and Accounting (i) Review and approve the disbursements from contractors prior to submission to the PMO; IMEIP II PPTA FINAL REPORT 2-22
(ii) Financial management system covering areas of cost estimates, financial reporting, corporate governance, budgeting, management, administration, auditing and internal controls, and staff incentive schemes; and (iii) Internal financial management including computerized accounting software development.
i Safeguard and Policy (i) Conduct environmental impact assessment; (ii) Conduct environmental monitoring during the project implementation; (iii) Implement the environmental management plan; (iv) Develop and implement the social resettlement action plan; (v) Develop and conduct social assessment; (vi) Monitoring of project impact and mitigation measures during the project implementation.
i Administration Department (i) Administration and coordination with the PMO and DI, TA, and other related agencies; (ii) Document Translation; (iii) Reception and document management; (iv) Compliance of the ADB guidelines; review, edit and submit relevant reports to ADB. (C) BAOTOU will implement the Baotou DHS subproject. 77. BAOTOU is a solely state owned company. It was set up in August 1988. The registered capital is RMB 48.43 million. There are six branch companies and two heating source plants under BAOTOU and currently there are 1,241 staff members including 109 management and 100 technical staff members at the company headquarters. The organizational structure of BAOTOU is shown below in Figure 2.13. 78. BAOTOU has set up an ADB Project Office, which is led by the Deputy GM and Chief Engineer of the company, who have experience in other similar World Bank loan projects. The other staff members assigned to the PMO including the Director and the Chief Financial Managers have work experience in World Bank projects. The organizational structure of this office is shown below in Figure 2.14. IMEIP II PPTA FINAL REPORT 2-23
Baotou Municipal State-owned Assets Supervision and Administration Commission
Baotou Municipal Construction Commission
BAOTOU
Party Committee Secretary General Manager
Deputy Deputy Deputy GM Financial HR Six Branch Two Heat GM GM GM Assistant Dept. Dept. Companies Source Plants Safety Training Dept. Auditing Dept. Equipment Purchase Dept. Monitoring Center Administration Office Operating Dept. Technical Dept. Production Planning Dept.
ADB Project Office
Figure 2.13: BAOTOU Organizational Structure IMEIP II PPTA FINAL REPORT 2-24
ADB Project Office
Project Director Mr. Xiaofei Huang
Project Office Director Ms. Yongping Lei
Financial Division Technical Division Auditing Division Social Division Leader: Leader: Leader: Leader: Mr. Wenjun Zhao Ms. Aiping Zhang Mr. Xiaochong Liang Mr. Xiangdong
Figure 2.14: BAOTOU Organizational Structure for ADB Project Office
Board of Directors
General Manager
Deputy GM Deputy GM Financial Department Power Department General Office Department Capital Construction Technical Department Engineering Department Maintenance Department Production Operating Department Human Resource
Figure 2.15: DURUI Current Organizational Structure
Note: Dashed line represents the proposed department.
(D) DURUI will implement the Keyouqian DHS subproject. IMEIP II PPTA FINAL REPORT 2-25
79. DURUI was established on April 18th, 2006 by the Beijing Durui Investment Liability Co., Ltd., which retains 90% of the company shares with the remaining 10% shares held by an individual share holder. It is a shareholding limited liability company with registered capital of RMB 35.80 million. At present, the company has 42 employees, among which 12 are management and 30 are operational staff members. DURUI is responsible for the project implementation and operation, and it is also the asset owner of the subproject, as well as the ADB loan borrower and repayment entity. A current company organizational structure is presented in Figure 2.15. 80. From the current organizational structure, it can be seen that the company focuses more on the operational management. In order to have a clear cut of the functions between the operational management and ADB loan project development, suggestions on the company organizational structure have been proposed, as illustrated in Figure 2.16, along with the definition on department functions.
Board of Directors
GM
Deputy GM Deputy GM Deputy GM Department Human Resource Power Department General Office Department Engineering Technical Department Production and Operating Maintenance Department Department Engineering Management Department Safety and Policy Financial Department
Figure 2.16: Suggested Organizational Structure for DURUI 81. It’s suggested that one deputy GM be specifically assigned for the project preparation, construction and operation. Meanwhile, four areas of project implementation responsibility are well designed within the current organizational structure. The identified responsibilities are briefly discussed as below: (1) Engineering Management Department
i Coordinate the work with feasibility study and DIs and the consulting firm during the subproject preparation stage. IMEIP II PPTA FINAL REPORT 2-26
i Manage all engineering works throughout the construction period; coordinate the work between construction supervision entities and contractors to ensure the progress and the quality of the subproject.
i Handle all works related to bidding, contract procurement and its coordination; prepare contracts for signing and manage contracts implementation. (2) Safeguard and Policy Department
i Responsible for works related to environmental impact, resettlement and land acquisition, poverty alleviation and social safeguard issues. (3) Administrative Department
i Responsible for hosting daily visit, administrative matters, and translation works. (4) Financial Department
i Responsible for accounting, withdrawal and reimbursement of the loan proceeds, and financial management.
Board of Directors Chairman: Mr. Zhansen Zhang
GM Mr. Aiwu Chen
Deputy GM Deputy GM Deputy GM Mr. Haijun Gao Mr. Zhenhua Liu Mr. Qingyuan Liang
Technical & Administration Financial Sales Department Production Department Department Director: Department Director: Mr. Zhenhua Liu Director: Mr. Qingyuan Director: Mr. Bofeng Li Deputy: Mr. Yunchang Han Mr. Xuejun Fan Liang
Operating Workshop Inspection & Director: Maintenance Workshop Mr. Caichen Yu Director: Mr. Caichen Yu
Figure 2.17: Current Orgnizational Chart of JIFENG IMEIP II PPTA FINAL REPORT 2-27
Technical Mr. Jishan Zhao
Quality & Progress Procurement & Mr. Wei Wu Engineering Department Mr. Bofeng Li Material Mr. Yujun Yang
Bidding & Contract Mr. Guoru Zhang
Accountant Ms. Yuhua Jiang
Financial & Accounting Cashier Department Ms. Shuhua Wang Mr. Xuejun Fan ADB Project Material Keeping Unit Ms. Yinghua Wang Mr. Wei Wu
Resettlement Safeguard & Mr. Changhu Chen Policy Department Mr. Jing Li Environment Mr. Wei Wu
Construction Safety Mr. Wen Zheng
Internal Affairs Administration Mr. Changhu Chen Department Mr. Bofeng Li External Liaison
Legal Counsel
Figure 2.18: ADB Project Unit in JINFENG (E) JINFENG will implement the Kalaqin DHS subproject. 82. JINFENG was founded in April 2003, and is a subsidiary company of Chifeng Jinfeng Group. The registered capital of JINFENG is RMB 80 million, in which RMB 46.35 million WAS invested by Chifeng Jinfeng Copper Co. Ltd., which is another subsidiary company of Chifeng Jinfeng Group. Chifeng Jinfeng Copper Co. Ltd. owns 57.9375% of the company shares with the employees of Jinfeng Group retaining 42% of the company shares. The IMEIP II PPTA FINAL REPORT 2-28 remaining 0.0625% shares, equivelent to RMB 0.05 million, is owned by Kelaqin Banner Welfare Office. JINFENG implemented a thermal-power cogeneration project in June 2003. The scope of JINFENG includes power supply, heat supply, installation and maintenance, sales and purchase of heat network equipment and copper fine powder. Currently there are 238 staff members in JINFENG. The current organizational chart of JINFENG is shown below in Figure 2.17. 83. JINFENG has formally set up an ADB Project Unit according to the Consultants’ suggestions. The detailed staff allocation and responsibilities for each department is also in place. The organizational structure of ADB project unit in JINFENG is shown in Figure 2.18. The identified responsibilities are similar to those of DURUI. (F) XINGDA will implement the Zhalaite Zhalaite DHS subproject. 84. XINGDA was founded in 2007. Its predecessor was Zhalaite Xingda Heating Supply Company, which was established in 2006 and incorporated into the Group in 2007. XINGDA is responsible for project implementation and operation, and is also the owner of the project assets, as well as the borrower and repayment entity for ADB loan proceeds. It is a private enterprise with a registered capital of RMB 8 million. At present, it has 60 staff members including 7 management and 53 operating staff members. The current company organizational structure is shown in Figure 2.19.
Board of Director
GM
Financial Deputy GM Auditing Department Department Collection Department Production Technology Production Operation Technical Storage Maintenance Department Department Department Department
Figure 2.19: XINGDA Current Organizational Structure
Notes:
i The Chairman of the Board of Directors is also the GM. IMEIP II PPTA FINAL REPORT 2-29
i The candidate for Vice GM is still under discussion.
i The Finance Department is responsible for financial, accounting and funds management.
i The Technical Storage Department is responsible for inspection and acceptance of goods.
i The Production Technology Department is responsible for project construction and management. 85. The preparation for the establishment of the Production and Technology Department specifically for the ADB Project is under way. At present, it is planning to recruit 3 individuals with experience in project management to manage the initial preparation, bidding and tendering, construction management, contract and project management, final verification and acceptance of the ADB-financed project. Whether more staff members are needed will depend on the project implementation needs.
Board of Directors
GM
Financial Deputy GM Auditing Deputy GM Department Department Department Maintenance Department General Affairs De Management Engineering Department Policy Safety and Collection Department Collection Department Department Technical Storage Department Production Operating p artment
Figure 2.20: Suggested XINGDA ADB Project Unit Structure
Note: Dash lines represents the proposed entities.
86. From the current organizational structure, it can be seen that the company focuses more on the operational management. In order to have a clear cut of the functions between the operational management and ADB loan project development, suggestions on the company organizational structure have been proposed along with the definition on IMEIP II PPTA FINAL REPORT 2-30 department functions. A proposed organizational structure is illustrated as below in Figure 2.20. 87. It is suggested that one Deputy GM be specifically assigned for the project preparation, construction and operation; meanwhile, three departments be established with identified respo n sibilities, respectively: (1) Engineering Management Department
y Coordinate the work with feasibility study and DIs and the consulting firm during the subproject preparation stage.
y Manage all engineering works throughout the construction period; coordinate the work between construction supervision entities and contractors to ensure the subproject progress and quality.
y Handle all works related to bidding, contract procurement and its coordination; prepare contracts for signing and manage contracts. (2) Safeguard and Policy Department
y Responsible for works related to environmental impact, resettlement and land acquisition, poverty alleviation and social safeguard issues. (3) Administrative Department
y Responsible for daily visit receiving, administrative matters, and translation works. (4) Financial department
y Responsible for accounting, withdrawal and reimbursement of the loan proceeds, and financial management. 88. During the project preparation stage, each department shall have at least one staff member. Along with the completion of the project preparation and commencement of the construction, each department shall recruit staff on an as needed basis. 89. The company does not have experience in large-scale project management and ADB loan project management. Therefore, it is necessary to arrange the staff to attend a series of trainings and domestic and overseas study tours. Recommended training subjects are similar to other IAs as previously mentioned. (G) RIMIAN will implement theMolidawa DHS subproject. 90. RIMIAN was established in January of 2003. The registered capital is RMB 15 million with three private share holders including Mr. Fengju Gao retaining 30%, Mr. Zhi Gao with 60%, and Mr. Baoyu Liu with 10% of the shares. The three investors comprise the Board of Directors of RIMIAN. Mr. Zhi Gao acts as the Chairman of the Board of Directors. Currently there are 105 staff members in RIMIAN. The organizational chart of RIMIAN is shown below in Figure 2.21. IMEIP II PPTA FINAL REPORT 2-31
Board of Directors
GM
Administration Deputy Deputy GM Network Director of GM 1 person Deputy GM Tariff 1 person 1 person Collection
Operation Deputy GM Deputy Director Assistant Director 2 persons 1 person 1 person Safeguard Department Material Supply Office Financial Department Administration Office 3 persons 7 persons persons 3 6 persons Operation Maintenance Tariff Group Group Collection 34 persons 6 persons Group
Dadi Heat Plant Area 19 persons
Figure 2.21: RIMIAN’s Current Organizational Structure 91. There was an agreement between RIMIAN and Molidawa Banner Government on construction of the heating project in 2003. There are substantial supports provided by the local government to RIMIAN in order to ensure the provision and quality of the heating services in Molidawa Banner. The supporting policies include waiving a series of expenditures levied by local government, such as water connection fee, mine resource compensation fee, water resource fee, heating project acceptance fee etc., providing all the existing, revised and future favorable policies for business invitation, and industrial park development etc. 92. The organization structure of ADB Project Unit for RIMIAN is shown below in Figure 2.22: (H) KANGZE will implement the Keyouqian NGS subproject. 93. KANGZE is founded by Keerqin Xinxin Urban Investment Co. Ltd. with a total investment of RMB 1 million. KANGZE will be responsible for the construction and operation of the subproject. Currently, KANGZE is still under initial company registration and establishment. Essentially, KANGZE will be an ADB project implementation entity. Therefore, it is suggested that the task team for the ADB project preparation should be developed promptly. The GM, chief engineer and chief accountant should be included in the task team. The institutional structure for the ADB Project should include construction supervision, accounting and financial management, safeguard and comprehensive management functions. IMEIP II PPTA FINAL REPORT 2-32
Head of ADB Project Unit Mr. Zhi Gao
Procurement Financial & Safeguard & Administration & Engineering Accounting Policy Department Department Department Department Mr. Guangqiang Ms. Fenghua Li Mr. Baoyu Liu Mr. Zhuoyu Hong Jiang
Accountant Ms. Xiangnan Du
Figure 2.22: RIMIAN ADB Project Unit 94. KANGZE adopted PPTA consultant’s suggestion at the Mid-term Review stage and set up the organizational structure for the ADB project in March 2008 as shown in Figure 2.23.
Head of PIU Mr. Qiang Tie
Procurement & Financial & Safeguard & Administratio Engineering Accounting Policy n Department Department Department Department Mr. Jiusheng Li Mr. Songlin Huo Mr. Jianhua Wu Mr. Xianwang Meng
Members: Accountant Members: Zhiyong Yang; Mr. Yushan Wu Ms. Jie Zang Mr. Shuhai Minxiang Wang Wang; Jie Wang; Goujiang Tian
Figure 2.23: KANGZE’s Organizational Structure
x Procurement and Engineering Department: (i) Project coordination with the DI, contractor and supervision company to successfully implement the project; (ii) Construction design, budget, and bidding document specifications; IMEIP II PPTA FINAL REPORT 2-33
(iii) Coordination of biding and procurement with the selected tendering company; (iv) Management of contracts and project progress reviews; (v) Management of feasibility studies and design reviews; (vi) Monitoring of the project’s progress and quality.
x Accounting and Financial Management Department: (i) Cost estimate and financial plan; (ii) Review and approval of the disbursements from contractors prior to submission to the PMO; (iii) Accounting and financial management system; (iv) Financial reporting and budgeting; (v) Internal controls, verification, supervision and auditing; (vi) Asset management; (vii) Financial analyses and economic analyses; (viii) Tariff setting and financial projections; (ix) Review of loan covenants.
x Safeguard and Policy Department: (i) Environmental impact assessment; (ii) Environmental monitoring; (iii) Environmental management plan; (iv) Social Resettlement Action Plan; (v) Social assessment; (vi) Monitoring of project impact and mitigation measures.
x Administration Department: (i) Administration and coordination with ADB, the PMO, DI, TA, and other related agencies; (ii) Translation; (iii) Reception; (iv) Document management; (v) Compliance of the ADB guidelines; review, edit and submit relevant reports to ADB. 95. As KANGZE is a new established company, it is necessary to arrange the staff to attend a series of trainings and participate in domestic and overseas study tours. Recommended training subjects are similar to other IAs as previously mentioned. IMEIP II PPTA FINAL REPORT 2-34
2.6 Conclusion, Issues and Recommendations 2.6.1 Conclusion 96. The institutional analysis covers the project implementation structure including the arrangements of institutional management, coordination, implementation support and implementation. It also discusses the on-lending and relending arrangement. Based on the current PMO, Municipal PMO, IA’s institutional structure, the consultants proposes the project implementation structure, which will link PMO, Municipal PMOs with ADB Project Unit in each IA’s organizational structure. The ADB units will constitute functions of procurement and engineering, accounting and financial, safeguard and policy, and other administrative functions. The analysis shows the current updated institutional arrangement can meet the project implementation requirement and sustainable operation of the ADB financed facilities. However, the PMO and IAs will need extensive training due to lack of ADB financed project implementation experience. More detailed trainings will be required for the project implementation, including (1) project design; (2) bidding procedure; (3) project implementation construction supervision; (4) procurement; (5) environmental, social and resettlement; (6) institutional capacity strengthening; (7) accounting and financial management; and (8) PPMS.
2.6.2 Recommendation on the PLG and IMAR PMO 97. It is recommended that the resources of both the PLG and the PMO established for Loan 2260 be utilized for the Project to their fullest extent. Although it has not been indicated if there are any planned changes to the PLG or to the PMO, it is recommended that both the PLG and the PMO be further strengthened since there are different project subcomponents and different project cities involved in the Project. For example, it would be very beneficial to the Project’s implementation to involve mayors or vice mayors in charge of these project city’s infrastructure projects. 2.6.3 Recommendation on the Government Investment Company as Investment Agency 98. The arrangement that the state-owned investment companies (such as BAYAN and WENQUAN) will be in charge of the Project construction but will not be responsible for operation of these constructed facilities under the Project may present problems in future regarding several critical issues such as the ownership of the assets, debt service, and funding for operation and maintenance. It is now considered the principal issue in operational restructuring. It is therefore further suggested to have transparent procedures to attract the qualified operators and to involve the potential operators at the early stage of the Project implementation. It will eventually benefit the overall project implementation. 2.6.4 Preliminary Project Management Manual 99. The Project has 10 subprojects involving different types of construction works for different subprojects, various PMOs, Municipal PMOs and IAs to implement the components. Most of the IAs do not have ADB project implementation experience. Therefore, a thorough understanding of the ADB project and national project management requirements, as well as an integrated and unified form of project management in construction, accounting, financial IMEIP II PPTA FINAL REPORT 2-35 management, procurement and disbursement is highly encouraged. Early development of the project management system in key areas will considerably improve the project’s effectiveness and efficiency. The working rules and procedures on information flow will be gradually established and specified in a forthcoming project management manual. Therefore, it is suggested that the PMO realistically assess and identify the project’s management and coordination requirements, in order to prepare a preliminary project management manual that will guide the future institutional setup and management of the project.
2.6.5 Further Recommendation on the Institutional Capacity Development 100. Under the joint efforts of ADB, the PMO, IAs and PPTA consultants, most critical institutional issues have been identified and solved during the PPTA stage. However, there will be various issues arising during the project implementation stage. Based on our experience, the following tasks are identified for further institutional capacity development during the project implementation stage.
i Design organizational setup to operate the facilities after construction; i Design an operating manual and maintenance manual; i Identify staff responsibility in key positions; i Develop customer service satisfaction standards; i Consider how market reforms could be introduced; i Prepare a detailed strategy for PSP in the sectors; i Identify opportunities for the application of service contracts (outsourcing); i Provide advice on arrangements for corporate governance of DHS, NGS and CGU and service contract management;
i Actively support the process of market reform implementation; i Support to expedite the institutional reform process and to improve the operation efficiency. IMEIP II PPTA FINAL REPORT 3-1
CHAPTER 3 TECHNICAL ANALYSIS OF DISTRICT HEATING
3.1 Sector Analysis for District Heating 3.1.1 District Heating in the PRC 101. District heating is commonly used in the north, northeast and northwest of the PRC due to the extremely cold weather in winter which lasts between 4 and 6.5 months. The district heating expands geographically southward since the winter temperatures in south part of the PRC between the Yellow River and the Yangzi River can get down to 0°C or lower; therefore, space heating is necessary to maintain a comfortable indoor temperature. 102. The following table outlines the statistics on the district heating sector in each province and city directly under the jurisdiction of the PRC central government. Steam is mainly for industrial processes while hot water system is used for space heating of residential buildings in the PRC. Domestic hot water is not provided by most district heating systems because it is not economical to run the system with only small demands. The heat used for absorption-type air conditioning equipment is not supplied in summer. 103. District heating is quickly developing due to rapid economic growth and urbanization, as well as the requirements of better living standards. Compared with the statistics in 2004, the heating area in the PRC has increased from 2.16 billion to 2.66 billion m2 with an annual average increase of 12.5%. The thermal energy supplied by hot water increased from 1.25 billion to 1.48 billion GJ with an annual average increase of 9.1%. The annual heat consumption in 2006 was 0.556 GJ/m2, a decrease of 4.1% compared with the year of 2004. It roughly shows the improvement of energy efficiency during those two years. Table 3.1: District Heating Statistics in the PRC (2006)
Heating capacity Volume supplied Length of pipeline Area supplied Region Steam Hot water Steam Hot water Steam Hot water
(ton/h) (MW) (TJ) (TJ) (km) (km) 106 m2
Beijing 620 30,546 6,190 151,890 35 7,013 349.771
Tianjin 3,325 11,753 17,280 82,200 346 9,057 151.406
Hebei 9,132 15,219 83,380 88,670 1,100 5,599 189.412
Shanxi 3,570 9,421 27,960 64,200 1,037 2,412 152.644
Inner Mongolia 277 13,328 1,980 105,780 26 3,582 131.557
Liaoning 10,967 43,765 59,360 261,570 2,143 14,770 467.731
Jilin 4,515 20,143 21,490 126,990 467 5,399 201.643
Heilongjiang 4,365 23,805 20,100 245,760 405 10,442 260.569
Jiangsu 9,597 33 87,230 1,050 1,346 37.352
Zhejiang 5,056 233 54,590 540 724 11 43.38 IMEIP II PPTA FINAL REPORT 3-2
Heating capacity Volume supplied Length of pipeline Area supplied Region Steam Hot water Steam Hot water Steam Hot water
(ton/h) (MW) (TJ) (TJ) (km) (km) 106 m2
Anhui 2,613 165 13,540 380 238 38 5.35
Fujian 286 570 19 0.272
Shandong 24,896 17,881 144,050 107,930 3,768 10,318 305.175
Henan 4,713 3,078 36,310 16,140 1,324 1,763 60.431
Hubei 1,404 78 7,420 160 101 10 8.59
Sichuan 60 430 42 0.15
Shaanxi 2,947 2,672 19,370 5,190 439 432 42.083
Gansu 5,159 7,276 62,970 48,170 154 3025 74.161
Qinghai 173 3,450 72 1.144
Ningxia 869 4,482 6,190 50,600 142 1711 45.008
Xinjiang 1,119 13,362 8,080 118,890 177 4270 128.573
National total 95,204 217,699 677,940 1,480,110 14,012 79,943 2,658.531
Note: Above data are from the PRC Statistical Yearbook (2007 edition). 104. In the PRC, coal is the dominant fuel for the production of thermal energy for space heating, both in combined heat and power (CHP) plants and boiler houses, and will continue to be the primary fuel in the foreseeable future. Utilization of natural gas for district heating commenced in the end of the last century in Beijing with allowances from the government because of the high operating cost (2 to 3 times of coal). No large natural gas-fueled district heating system is operated in any other cities of the PRC. 105. As for heat sources, there is no question that CHP power plants are the least cost alternatives for district heating. The co-generation of heat and power in CHP plants can save 30% of thermal energy compared with the separate generation of the same amount of heat and power. However, it is estimated that CHP facilities contribute to less than 20% of heating supply for space heating nationwide, and most district heating systems have adopted the typical boiler house as the primary heat source in the PRC. Due to poor planning and rapid development, most cities deal with the increasing demand of space heating utilizing alternatives with a low initial investment. 106. Boiler houses are widely used in the PRC, especially in the early stages of development of district heating in medium and small cities due to low capital expenditures and ease of operation and management. These are why there are so many small and medium sized boiler houses existing in such cities, and even in large cities. 107. In the early stages of district heating development, transmission and distribution pipelines of district heating systems were installed in accessible or semi-accessible pipe ducts. Currently most pipelines are retrofitted to be directly-buried with polyurethane foam IMEIP II PPTA FINAL REPORT 3-3 insulation and a polyethylene outer protection shell. It reduces both the investment costs and thermal energy loss. 108. Most consumer systems in the existing district heating sector built prior to the 1980’s adopted a single vertical pipe in serial connection with limited control and regulation measures, which is a very inefficient and wasteful system. Currently as part of the heat metering and heating fee collection reform, double pipelines with control and regulation devices are installed in consumers’ installations, with balance valves, thermostats, etc. It greatly contributes to energy conservation and better service of the district heating system. 109. It should be mentioned that the district heating systems in the PRC used similar systems as the former Soviet Union prior to the 1980’s. With the economic reform and development in the PRC, the advanced technologies, experience and equipment from developed countries are introduced into the PRC through technical and personnel exchange, which has greatly improved the efficiency of district heating systems in the PRC. 3.1.2 District Heating in IMAR and Project Area 110. IMAR is located in the northeast of the PRC and is one of the coldest provinces in the PRC with its heating season ranging from 182 to 212 days. 111. The statistical data in the table below covers only the main cities in IMAR. The base data in the following comparison is the statistical data from 2004 which was used in the IMEIP Project report. 112. Based on the statistics the heating area increased from 92.15 million m2 in 2004 to 131.56 million m2 in 2006 in 20 cities of IMAR, an annual growth rate of 21.4%, much higher than that of the national average. The thermal energy supplied by hot water increased from 86.33 TJ in 2004 to 105.78 TJ in 2006 in the same cities, accounting for an annual growth of 11.3%. The annual unit heat consumption in 2004 was 0.937 GJ/m2 in 2004 and 0.804 GJ/m2 in 2006, a decrease of 16.5%. Compared with the national average value of 4.1% in unit energy consumption decrease, more energy efficiency improvements were made during those two years in the district heating sector in IMAR. Table 3.2: District Heating Statistics in IMAR (2006)
Length of Heating capacity Volume supplied pipeline Area Region supplied Steam Hot water Steam Hot water Steam Hot water
(ton/h) (MW) ( TJ) ( TJ) (km) (km) 106 m2
Hohhot 40 2,616 110 14,670 2 328 22.716
Baotou 3,265 22,870 1,650 33.330
Hulunbeier 388 5,170 87 4.750
Tongliao 1,003 8,030 206 7.900
Chifeng 235 2,157 1,820 12,900 18 171 24.750
Wulanchabu 254 2,200 179 1.650 IMEIP II PPTA FINAL REPORT 3-4
Length of Heating capacity Volume supplied pipeline Area Region supplied Steam Hot water Steam Hot water Steam Hot water
(ton/h) (MW) ( TJ) ( TJ) (km) (km) 106 m2
Erdos 783 5,140 76 5.734
Bayanzhuoer 444 3,000 84 6.380
Wuhai 602 4,860 275 6.420
Manzhouli 471 4,610 168 3.887
Zhalantun 80 1,920 30 1.300
Yakeshi 187 4,050 44 2.600
Genhe 91 2,870 9 0.736
Erguna 17 270 11 0.325
Wulanhaote 387 3,500 61 4.100
Aershan 17 900 10 0.175
Huolinguole 126 1,940 76 1.350
Erlianhaote 78 1,620 33 0.400
Xilinhaote 333 5,050 78 2.640
Fenzhen 2 28 50 220 6 7 0.414
Total 277 13,328 1,980 105,780 26 3,582 131.557
Note: Above data are from the IMAR Statistical Yearbook (2007 edition). 113. For carrying out the “Guideline for System Reform in District Heating Sector in Cities and Towns” issued by the Ministry of Construction of the PRC, a steering group was established and headed by Vice Director of the Region. An “Interim Provisions for Apartment Control and Heat Metering of Residential Buildings” was issued and carried out on the 1st of Aug, 2002. Hohhot and Baotou have been selected as pilot cities for the reform. In Kouan Residential Area of Baotou, apartment control and metering devices were installed in each apartment and thermostats were installed before radiators in the room.1 In Xinfu Residential Area of Hohhot, the retrofit of apartment control for 11 residential buildings was conducted in 2004, and would strive for the control of 1 to 2 million m2 of floor area in 2005 and cover the full residential area in 2010 if funds are available.2 114. Development of district heating systems with high efficiency needs significant capital investments, new technology and a careful planning. The retrofit of the existing district heating systems also requires a substantial amount of investment. Therefore, for the new cities, careful planning is more important for the effective resource application; otherwise, the new district heating systems have to be retrofitted after only a few years’ operation. For
1 Source: http://www.sygr.org.cn/jyjl_view.asp?id=623, 2006-08-30. 2 Source: http://www.nmg.gov.cn/pages/200543/20054316774374.htm, 2005-04-03 IMEIP II PPTA FINAL REPORT 3-5 example, in Jinshan Town of Kalaqin DHS, two phases of construction of district heating system were completed in 2006 and now it has to be retrofitted since the existing district heating system uses the condensate of the CHP plant as heat source and its temperature is only 60oC, which results in unsatisfactory service for customers. 3.2 General Description
115. The proposed district heating subprojects can be divided into two categories. One includes five subprojects with systems to be newly constructed, namely Chenbaerhu DHS in Bayankuren Town, Chenbaerhu Banner, Hulunbeier City; Zhalaite DHS in Yindeer Town, Zhalaite Banner, Xing-an League; Molidawa DHS in Nierji Town, Molidawa Banner, Hulunbeier City; Kalaqin DHS in Jinshan Town, Kalaqin Banner, Chifeng City; and Keyouqian DHS in Keyouqian Banner, Xing-an League. The other includes the subprojects to be constructed on the basis of the existing heating system, with both newly constructed systems and retrofitting of the existing systems, which are Baotou DHS in Baotou City, Chifeng DHS in Chifeng City and Hohhot DHS in Hohhot City. 116. Domestic hot water and industrial steam supply are not considered in all of subprojects. Most public buildings in the city adopt electrical air conditioning; the heat load for air conditioning in summer is not taken into consideration. Therefore, only heat demand for space heating in the winter is considered for all subprojects. Furthermore, all of the subprojects do not include secondary pipeline network. 3.3 Justification of Boilers Alternative and Least-cost Assessment 117. For these proposed subprojects, the excess waste heat from CHP’S are not available in regions where new boilers are to be constructed, therefore, which type of coal-fired boilers is selected will be a very important issue. 118. At present, large-scale coal-fired boiler has three different combustion modes used in the PRC, including chain grate stoker (CGS) boiler, pulverized coal (PC) firing boiler and circulating fluidized bed (CFB) boiler. PC boiler is characterized by complicated coal pulverizer system, excessive equipment capital costs, small adjustment range of load rates, and high combustion efficiency only in stable working conditions; the system is used generally for electricity generating boilers. Thus, only the other two boiler type options are considered, i.e., CGS boiler and CFB boiler. 3.3.1 Option I - CGS Boiler 119. The CGS boiler is the layered-combustion boiler. The key part of the CGS boiler is the circulating rotational grate. The CGS has features of mature technology, dependability, simple operation, and low capital cost. It has low primary flue gas emission concentration and will meet environmental protection requirements while adopting common types of dust removal. The accessory blowers and induced fans have small pressure drops, moderate air volumes, and low electricity consumption. The installation of CGS boiler is convenient and requires less construction time than other boiler types. The desulfurization system needs to be equipped with individual desulfurization facilities outside the boiler body. The CGS boiler has fewer options regarding applicable coal types and heating loads, and is less efficient compared with the CFB boiler. IMEIP II PPTA FINAL REPORT 3-6
3.3.2 Option II - CFB Boiler
120. The CFB boiler has many characteristics, including wider range of coal types and heating loads, desulfurization accomplished inside the boiler, higher combustion efficiencies and low NOX emissions. However, the CFB boiler produces a higher level of dust in the flue gas emissions and will only meet the environmental protection requirements when combined with an electrostatic precipitator or bag dust remover with 99.5% dust removal efficiency. The CFB boiler also involves higher initial capital costs and operational costs, more complex operations and management requirements. 3.3.3 Comparison Analysis
121. The following table illustrates detailed indexes comparison of the two boilers types. Table 3.3: Comparison of CGS and CFB Boiler
Boiler type CGS CFB Normal coal with minimum Acceptability to coal Any type of coal caloric value requirement Combustion temperature 1200oC 800~900oC Heat efficiency 80~85ˁ 85~90ˁ Load regulation range Narrower Wider Coal preparation system Simple More complicated Operation Simple More complicated Operation cost Lower Higher Sulfur removal Outside boiler Inside boiler Dust removal Low investment High investment NOx emission level 400~600 ppm 50~200 ppm For cement clinker or as building Ash application For road construction material material System investment Low Higher
122. From a technical aspect, both types can be selected for the proposed subprojects. The final boiler type selection needs to refer to the following least-cost assessment, sulfur content and thermal value analysis. 3.3.4 Least-cost Assessment
123. The least-cost analysis for district heating subprojects involves comparing the costs of alternative heating options, which are mutually exclusive, technically feasible in this Project, and selecting the option with the lowest costs. The possible heating options in IMAR are: (i) Individual electric boiler with a capacity of less than 1.8 MW, which is normally used in heating for an independent building; IMEIP II PPTA FINAL REPORT 3-7
(ii) Individual electric heating mats, which are laid underneath floors to provide heating for the apartment; (iii) Small coal-fired boilers with a capacity of less than 7 MW; (iv) Large coal-fired boilers with a capacity of at least 58 MW; (v) CHP coal-fired boiler. 124. The least-cost assessment is made in detail in Section 10.4 of Economic Analysis. The least-cost assessment of the CGS boiler and CFB boiler options will be analyzed here. 125. The construction of CGS or CFB boiler houses requires significant capital investments. In order to determine the least-cost alternative for the proposed boiler houses, all technically feasible alternatives have been considered and evaluated. The costs considered for each option, including capital costs, operating and maintenance costs and other costs are listed in detail as follows:
i Basic investment; i Fuel consumption; i Electricity consumption; i Water consumption; i Maintenance cost; i Salaries; and i Others. 126. In addition, coal combustion in small-scale boilers produces large quantities of air pollutants, which adversely impacts the urban environment. Since the CGS and CFB boilers are equipped with high-performance desulfurization and dust removal equipment, air emissions are remarkably reduced, thus providing substantial economic benefits. These emission reduction benefits cover:
i SO2 ;
i NOX ; i TSP; and
i CO2 . 127. Considering basic calculation parameters, including primary network efficiency, thermal amounts provided to users, boiler efficiency, total heating area, contingency, and analysis years, etc., the unit investment cost of boiler house options for the subprojects are calculated in Table 3.4. IMEIP II PPTA FINAL REPORT 3-8
Table 3.4: Least-cost Analysis Value12(yuan/m )
Item Hohhot Keyouqian Zhalaite Molidawa Chenbaerhu2 CGS 16.45 25.27 23.83 23.70 - CFB 18.52 29.25 27.84 26.05 -
Note: 1. The above data is from the FSRs of the proposed subprojects (Dec. 2007).
2. Since the coal currently used (net thermal values: 3,106 kcal/kg) for Chenbaerhu can not be burned in CGS boiler, Chenbaerhu has no least-cost analysis value. 128. From the above least-cost analysis values, it can be concluded that the investment cost of CGS boiler is less than that of the CFB boiler. Therefore, the CGS boiler is selected for the proposed subprojects. 3.3.5 Sulfur Content and Thermal Value Analysis (1) Sulfur Content Analysis
129. In regard to SO2 reduction, the CFB boiler has an advantage compared with the CGS boiler due to the fact that the CFB boiler can meet the more stringent emissions standard by directly feeding limestone into the furnace. 130. The selection of the boiler type partly depends on the sulfur content of the coal. Although the CFB boiler is more expensive and complex, it shall be considered in applications consuming high sulfur coal (>1.0%). If a CGS boiler is selected and coal sulfur levels exceed 1.0%, a more efficient flue gas cleaning system (SO2 removal efficiency >90%) must be installed. For coal with a sulfur content of less than 1.0%, a CGS boiler configured with a flue gas cleaning system (average SO2 removal rate 70%) and a dust remover can meet the emissions requirement. The proposed project boilers with SO2 removal efficiency of equal to or greater than 75% and the dust removal rate of equal to or greater than 98% will meet emissions requirement. Table 3.5 summarizes the status of boiler types vs. sulfur content of combusted coal. Table 3.5: The Status of Boiler Types vs. Sulfur Content of Combusted Coal
Subproject Boiler houses Sulfur content of using coal, % Hohhot 3×58 MW, 3×29 MW (two), 4×29 0.72 MW CGS Keyouqian 3×70 MW CGS 0.7 Zhalaite 4×29 MW CGS 0.8 Molidawa 3×29 MW CGS 0.39 Chenbaerhu 2×29 MW CFB 0.47
Note: The above data is from the FSRs of the proposed subprojects (Dec. 2007). 131. Considering the technical aspect, both types can be selected because all of the proposed subprojects have coal with sulfur contents of lower than 1%. (2) Thermal Value Analysis IMEIP II PPTA FINAL REPORT 3-9
132. The selection of the boiler type also heavily depends on the net thermal value of the coal. Due to higher combustion efficiency, the CFB boiler can burn poor quality coal. Where the thermal value of the combusted coal is low, the CFB boiler will be selected; otherwise, the CGS boiler will be selected. Table 3.6 summarizes the status of boiler types vs. net thermal value of combusted coal. Table 3.6: The Status of Boiler Types vs. Net Thermal Value of Combusted Coal
Net thermal value of Subproject Boiler houses combusted coal (kcal/kg) 3×58 MW, 3×29 MW (two), 4×29 Hohhot 4,968 MW CGS Keyouqian 3×70 MW CGS 5,000 Zhalaite 4×29 MW CGS 5,002 Molidawa 3×29 MW CGS 5,021 Chenbaerhu 2×29 MWCFB 3,106
Note: The above data is from the FSRs of the proposed subprojects (Dec. 2007). 133. For the subprojects of Hohhot, Keyouqian, Zhalaite, and Molidawa, the net thermal values of combusted coal are approximately 5,000 kcal/kg; thus, these subprojects can adopt CGS boiler as heat source. However, for Chenbaerhu DHS, the net thermal value of combusted coal is only 3,106 kcal/kg. This kind of coal can not be burned in the CGS boiler. Therefore, Chenbaerhu DHS will adopt CFB boiler as heat source. 3.4 Technical Analysis by Subproject 3.4.1 Hohhot DHS (1) Subcomponents of the Proposed Subproject 134. The objective of Hohhot DHS is to supply heat for six areas in the central area of the city and to improve the service quality of the existing district heating system. It includes the following subcomponents:
i Construction of 4 boiler plants; i Installation of 94 HESs; i Installation of 41.13 km of pipelines and retrofitting of 303 km existing pipelines. 135. Among the proposed six areas, one will be heated by a CHP plant, but the construction of CHP plant will not be included in this subproject. The other five areas will be heated by four boiler plants (one 3x58 MW, two 3x29 MW and one 4×29 MW). After completion of Hohhot DHS, the heating floor area increase will be 5.89 million m2 and the total area supplied in the six areas will reach 12.09 million m2. 136. After completion of the subproject, the existing 114 small boilers (less than 7MW each) with a total capacity of 314 t/h (about 220 MW) will be dismantled. (2) Background and Existing Problems IMEIP II PPTA FINAL REPORT 3-10
137. Hohhot City is the capital of IMAR and the political, economic, cultural, technological center of the region. It has four districts, and five banners. The main weather conditions related to space heating are shown in Appendix 9. 138. The central heating development in the City commenced in the 1960’s with scattered small boiler plants. After three phased construction, currently the floor area covered by district heating is 15.24 million m2. The total length of trunk pipelines is 115 km, and the total number of HESs is 172. 139. Similar as other district heating systems with a history of more than 20 years, the existing district heating system in Hohhot City has some problems which affect the consumer service quality. 140. Among the 537 km of secondary pipelines in the subprojects area, most were built in the 1980s. Based on the survey, the length of pipelines serving more than 15 years is 303 km. These pipelines exhibit the following problems:
i Degraded insulation properties. Pipelines used in early stages of district heating development were of lower quality. Usually the pipelines were insulated on site with polyurethane foam, epoxy and fiberglass outer pipe for protection. The protection pipes were easily damaged during installation or by external force after installation. Once breeched, the pipelines were then exposed to the environment, and underground water penetrated into insulation layer and adversely affected the insulation properties. The insulation layers were even decimated.
i Electrolysis and severe corrosion caused by long term exposure to underground water caused pipe thicknesses to be reduced to less than 3 mm and in some cases less than 1 mm.
i Severe scaling and lack of proper water treatment. After years operation some pipelines have been nearly blocked by scaling.
i Blockage of sliding expansion supports for pipelines, decreased strength of fixed supports, no-functioning sleeve compensators, all of these factors can cause pipelines to rupture and affect the safe operation of the system.
i Severe water loss. One system serving a residential area experiences a water loss of 130,000 tons per heating season. The annual water leakage in the district heating system of the city reaches 8,300,000 tons. It is not only a waste of water resources but also a significant energy loss. (3) Demand Analysis 141. For demand analysis, buildings in the subproject areas are divided into two categories. Existing buildings: For the residential buildings, the heat consumption index of 55 W/m2 is used, and for public buildings, 70 W/m2. With a proportion of 7:3 between these two, the comprehensive heat consumption index is calculated as 59.5 W/m2. IMEIP II PPTA FINAL REPORT 3-11
Newly built buildings or buildings to be built: For the residential buildings, the heat consumption index of 45 W/m2 is used; for public buildings, 60 W/m2. With a proportion of 7:3 between these two, the comprehensive heat consumption index is calculated as 49.5 W/m2. 142. In the subproject area, there are 6.20 million m2 of floor area of existing buildings and 5.89 million m2 of floor area newly built or to be built. The heat demand is shown in the table below. Table 3.7: Heat Load
Name of area C D F G K M Total Floor area, existing 0.4028 0.6518 0.6100 1,300 1.7759 1.460 6.20 (mil. m2) Floor area, newly built 1.2084 0.9125 0.9760 0.150 2.1311 0.511 5.89 (mil. m2) Total (mil. m2) 1.6112 1.5643 1.586 1.450 3.907 1.971 12.09 Maximum load (MW) 83.78 83.95 84.61 84.78 211.15 112.16 660.4 Minimum load (MW) 29.4 29.5 29.7 29.8 74.2 39.4 232 Average load (MW) 51.12 51.22 51.62 51.72 128.86 68.46 403.8 Annual heat supply (TJ) 887.3 889.1 896.1 897.9 2,236.3 1,187.9 6,995
Note: The above data is from the FSRs of the proposed subprojects (Dec. 2007). (4) Technical Analysis Heat Supply Scheme of Each Area 143. Based on the location of projected areas the heat loads and current situation of existing heating systems in each area, the heat sources, the HESs and pipelines to be installed and retrofit are shown below. 144. Area C and Area D will be treated as one area since one larger boiler plant will be constructed to supply the two areas. For Area C+D, a 3x58 MW boiler plant, 26 HESs, and 11.03 km of new primary pipelines will be installed and 51.536 km of primary and secondary pipelines will be retrofitted. 145. For Area F, a 3x29 MW boiler plant, 8 HESs, and 2.455 km of new primary pipelines will be installed and 29.809 km primary and secondary pipelines will be retrofitted. 146. For Area G, a 3x29 MW boiler plant, 8 HESs, and 4.245 km of new primary pipelines will be installed and 63.257 km primary and secondary pipelines will be retrofitted. 147. For Area K, the heat source is a CHP plant, 38 HESs and 17.273 km of new primary pipeline will be installed and 86.73 km primary and secondary pipelines will be retrofitted. 148. For Area M, a 4x29 MW boiler plant, 14 HESs, and 5.239 km of new primary pipelines will be installed and 71.346 km primary and secondary pipelines will be retrofitted. 149. The proposed subproject is summarized in the table below. IMEIP II PPTA FINAL REPORT 3-12
Table 3.8: Summary of Heat Supply Scheme of Each Area
Area name C D F G K M Total Area size (ha) 169.20 260.80 133.30 173.70 766.20 292.60 1795.80 Existing 402.8 651.8 610 1300 1775.9 1460 6201
3 To be added by the Heat supply area (10 1208.4 912.5 976 150 2131.1 511 5889 m2) project Total 1,611 1,564 1,586 1,450 3,907 1,971 12,090 (Before 2010) Heat load (MW) 167.8 84.6 84.8 211.2 112.2 660.5 Boiler (MW) 58 29 29 CHP plant 29 Heat source Sets of boiler 3 3 3 4 13 Capacity (MW) 174 87 87 220 116 684 Newly built 5.681 6.208 2.455 4.245 17.273 5.27 41.1 Pipeline length (km) To be retrofitted 19.684 31.852 29.809 63.527 86.783 71.35 303.0 HESs set 10 16 8 8 38 14 94.
Note: The above data is from the FSRs of the proposed subprojects (Dec. 2007). IMEIP II PPTA FINAL REPORT 3-13
Heat Source
150. Two types of heat source will be used in this subproject: the CHP plant and boiler plant.
CHP Plant 151. Area K will utilize the heat from a CHP plant, namely Hohhot Thermal Power Plant. The total installed capacity of the plant is 574 MW, and the rated thermal supply will reach
828.85 MWth. Four small units with a total capacity of 74 MWe will be out of service in the future. Two 300 MWe units will be installed by the year of 2010; therefore, the total installed capacity of the plant will be 1,100 MWe and the thermal supply capacity will be 1,277 MWth. The total heat supply capacity is distributed to FUTAI and another heat supplier, which belongs to the Hohhot Thermal Power Plant, and a 220 MW heat supply capacity from a 2x300 MW unit will be allocated to FUTAI to supply heat to Area K.
Boiler Plants 152. With the increasing demand of the city, the city government has to decide to build boiler plants, which have a shorter construction period, as a heat source to relieve the pressure of district heating demand. Once the new CHP plant is constructed in the future,, the boiler plant will be used as peak load shaving facility, which is nessasary for the district heating system. 153. For Areas C, D, F, G amd M, boiler plants are to be built as heat sources. Areas C and D will share one larger boiler plant with a total heating supply capacity of 174 MW (3x58 MW). For each of Areas F and G one boiler plant with a capacity of 87 MW (3x29 MW) will be constructed. For Area M, a boiler plant with a capacity of 116 MW (4x29 MW) will be installed. 154. Originally two separate 3x29 MW boiler plants were proposed for each area of C and D in the FSR. It is suggested the two boiler plants be combined into one larger boiler plant for the two areas because they are adjacent to each other. Investigations on several alternative sites and discussions with the project owner and design institute were conducted. The suggestion to utilize one larger boiler plant with a capacity of 3x58 MW is accepted. The new scheme utilizes less land, and makes the process more efficient. Due to the land or other limitations, Area F, G and M will have their own boiler plant. Boiler and Fuel Analysis 155. The least cost analysis shows that both investment and O&M cost of CFB boiler systems are higer than those of CGS systems (refer to Section 3.3). For Hohhot DHS, the CGS boilers are selected as heat source for the five areas. 156. For the CGS boiler, two-stage dust removal and a one-stage sulfur removal process will be employed for emissions control. Flue gas firstly enters the cyclone separator to remove larger particles and then passes through a water bath for further dust removal and desulphurization before being discharged into atmosphere. 157. Below is the analysis data of coal to be used in this subproject. IMEIP II PPTA FINAL REPORT 3-14
Table 3.9: Coal Analysis
Composition C H O N S Water Ash Volatile % 51.49 3.24 10.34 1.23 0.72 18.22 10.49 35.60
Note: Low caloric value: 20,801 kJ/kg (4,968 Kcal/kg) 158. The annual coal consumption is shown below. Table 3.10: Coal Consumption
Daily coal Annual coal Hourly coal Area Capacity consumption consumption consumption (t/h) (t/d) (103 t/a) C+D 3×58MW 37.24 744.72 105.43 F 3×29MW 18.62 372.36 53.27 G 3×29MW 18.62 372.36 53.38 M 4×29MW 24.83 496.48 70.61 Total 464MW 99.31 1985.92 282.69
Note: The above data is from the FSRs of the proposed subprojects (Dec. 2007). Pipeline
159. The pipelines to be installaed and retrofitted in each area are listed in the table below. Table 3.11: Pipelines to be Installed and Retrofitted in Each Area
Length of pipelines Length of pipelines Name of area to be installed (km) to be retrofitted (km) C 5.681 19.684 D 6.208 31.852 F 2.455 29.809 G 4.245 63.527 K 17.273 86.783 M 5.269 71.346 Total 41.131 303.001
Note: The above data is from the FSRs of the proposed subprojects (Dec. 2007). 160. The newly installed primary pipelines will be 41.1 km long with diameters ranging from DN150 to DN800. The retrofitted primary and secondary pipelines will be 303 km long in the six areas. For most pipelines to be retrofitted, the original pipeline routes will be used for the new pipelines. 161. Both primary and secondary pipelines will adopt pre-insulated pipe with polyurethane foam insulation and high density polyethylene protection outer pipe. The pipelines used should meet the requirement of CJ/T114-2000, which is almost eqauivalent to EN253, a European standard for the manufacture of pre-insulated pipelines. The pipelines will be direct-buried underground. IMEIP II PPTA FINAL REPORT 3-15
HESs
162. Indirect connection will be adopted to connect the heat source and consumers. This is a common way of connection for large district heating systems. The HESs will be designed according to the requirements for unmanned operation. 163. The total number of HESs will be 94 in six areas. The capacity of HESs will be in the range of 5 to 14 MW based on the requirement of the area to be supplied. 164. HESs will operate with inlet/outlet water temperature of 130oo C/70 C at the primary side and 90ooC/65 C at the secondary side. For the users who adopt floor radiation for space heating the supply and return temperature of the secondary side are 55ooC/45 C. 165. The main equipment in HESs are heat exchangers, circulating pumps, water replenishment pumps, water treatment facilities, automatic control units and etc. The plate heat exchanger is widely used in HESs and the pipe-type heat exchanger is no longer used. The circulating pumps will be driven by frequency converters so that the flow rate of the primary side can be automatically controlled based on outdoor temperatures, not by valve throttling at the oulet of the pump; in this way, significant electric energy savings can be realized. The water replenishment pump is also driven by a frequency converter for water makeup to the secondary side and also for the secondary system pressure stablization. SCADA System 166. The Supervisory Control and Data Acquisition (SCADA) system consists of five parts, namely host computer, communication controller, local controller and communication channel and associated system software. The control center will be located at the boiler plant, where servers, communication controller, operator station and engineer station, as well as printers and projector are equipped. All equipment in the control center is connected through an industrial local area network (LAN). Local controller, also called Remote Terminal Unit (RTU), is Programmable Logic Controller (PLC) based controller, and will be installed in HESs. The communication between control center and RTUs relies on General packed radio service (GPRS). The software controls the communication and operation of the district heating system. 167. The SCADA system will cover each heat source and HES in the Hohhot DHS subproject. For Areas C+D, F, G, and M the control center will be set in the boiler plant. For Area K, the remote terminal units (RTUs) of all HESs will be connected to the control center of the existing SCADA syetm in the dispatch center through GPRS radio network. In each control center, an engineering station and operator station will be equipped. (5) Justification Master Plans of the Proposed Subproject
168. The proposed subproject is based on: a) the Urban Development Master Plan for Hohhot City (1995~2010), Hohhot Administration Bureau, October 1997; b) Development Plan for Urban Heat Supply in Hohhot City (2005~2020), North China Municipal Engineering Design & Research Institute, December 2005. 169. Based on the plans, the city is divided into eight zones for district heating planning. They are Northwest Zone, Southwest Zone, Northeast Zone, Southeast Zone, Jingchuan IMEIP II PPTA FINAL REPORT 3-16
Development Zone, Ruyi Development Zone, Shihua Community, and Baita Community Zone. 170. The subproject areas of C, D and K belong to the Southwest Zone and F, G and M belong to Southeast Zone. Altogether the six areas cover 17.958 km2. The space heating in the six areas is now primarily dominated by scattered small boilers and individual coal stoves. According to the statistics, there are 114 small boilers (less than 7 MW) with a total capacity of 314 t/h (about 220 MW) in the project areas. With the completion of the subproject all such boilers will be dismantled and some of the sites will be used for installation of HESs. (6) Energy Conservation and Pollution Reduction
171. For Hohhot DHS, two-stage dust removal and one-stage sulfur removal process will be employed for emissions control. The total dust removal will reach 98% and the sulfur removal efficiency will be 75%. 172. Based on the following data, the energy conservation is calculated. After completion of the subproject the coal consumption and pollution reduction are shown below.
i Efficiency of boiler of this subproject: 81% i Efficiency of small and medium sized boiler: 60% i Annual heat supply of this subproject: 6995 TJ/a 173. The standard coal saved by the subproject is 110,300 tons per year, converted to actual coal 155,400 tons per year. The pollution reductions of the subproject will be:
i Ash 16,350 t/a i Flue dust 2,200 t/a i SO2 3,060 t/a i NOX 3,140 t/a i CO2 275,000 t/a 3.4.2 Chifeng DHS (1) Subcomponents of the Proposed Subproject 174. The objective of Chifeng DHS is to achieve the heat supply area of 28.40 million m2 in the center of the city by the year of 2015. The subcomponents of Chifeng DHS include:
i Installation of 106 km of primary hot water pipelines (i.e. 53 km in route length); i Construction and retrofitting of 224 HESs; i A SCADA system. 175. The construction of heat source is not included in Chifeng DHS. (2) Brief Introduction of the City IMEIP II PPTA FINAL REPORT 3-17
176. The name of the city, Chifeng, comes from the Red Mountain located in the east of the city. Chifeng is in the southeast of IMAR. It is connected with Hebei and Liaoning Provinces, 400 km away from Beijing and Shenyang City. The City has three districts: Hongshan District, Yuanbao District and Songshan District, seven banners and two counties. The current population of the city is approximately 530,000 and the projected population in 2020 will be 900,000. The main weather conditions related to space heating are shown in Appendix 9. (3) Background and Existing Problems 177. The development of district heating in Chifeng City started in 1970’s and involved several district heating companies. The Chifeng Fulong Heating Supply Co. Ltd. (FULONG) is the largest heat supplier in the city. Others are small heat suppliers scattered in the city supplying heat for small sections of floor areas which could not be adequately covered by FULONG. The company supplies heat for 13.4 million m2 of floor area with the heat source mainly from CHP plants and some boiler plants. The total length of district heating pipelines is 50.4 km with155 HESs. 178. The heat sources include Chifeng Fulong Thermal Power Plant (CFTPP), which belongs to Chifeng Dadi Infrastructure Co. Ltd., Chifeng Thermal Power Plant (CTPP), and Chifeng Pharmacy Thermal Power Plant (CPTPP), which belongs to Chi feng Pharmacy Company. The table below shows the current heat sources and floor areas supplie d. Table 3.12: Heat Sources and Floor Ar eas Supplied
Heat sour ce Supply capacity (MW) Floor a rea supplie d (m2) CFTPP 209 4,100,000 CTPP 395 8,700,000 CPTPP 33 610,000 Total 637 13,410,000
Note: The above data is from Chifeng Fulong Heating Supply Co. Ltd. (Feb. 2008). (4) Problems in the Existing District Heating System` a. Most of the pipelines are overloaded. With the increasing demand, the exsting pipelines can not transfer enough heat to the consumers. For example, under the current operating conditions of a supply temperature of 60ooC to 65 C and return temperature 35ooC to 45 C, the existing pipelines of CTPP can only supply heat for 2.5 million m2 . However, the area to be supplied is 4.1 million m2, which is about 60% overloaded. The existing pipelines of CPTPP can only supply heat for 0.34 million m2 and is currently attempting to supply 0.61 million m2, which is approximately 80% overloaded. b. Some HESs have adopted low temperature systems, direct connections and water mixing processes. The supply temperature is only 60ooC to 65 C. With more and more consumers connected to the system, the requirement for flow rate is increased, which causes hot water distribution in the existing pipelines to become even more unbalanced. Futheremore, such system is difficut to control the supply pressure within normal ranges. IMEIP II PPTA FINAL REPORT 3-18 c. Like most PRC cities in the early stages of district heating development, usually the alternatives with the least investment were selected to relieve the pressure of rising heating requirements. The pipelines built at the early stage were insulated with site foaming of polyurethane, and the outer protection pipe was made using fiberglass cloth or glass enforced epoxy resin, resulting in poor insulation and anti-corrosion properties. After more than 20 years of use, most of the existing pipelines have been corroded both internally and externally, and should be replaced. (5) Demand Analysis 179. According to the Chifeng District Heating Plan (2005-2020), the comprehensive heat consumption index for district heating planning is 55 W/m2. Based on this index and the floor areas to be heated, the maximum, minimum, average heat loads and annual heat supply are listed in the table below. Table 3.13: Heat Demand by 2015
Xiaoxindi Boile r Item CFTPP CTPP Plant (XBP) Floor area to be heated (million 18.54 4.2 5.66 m2) Maximum load (MW) 1019.7 231 311.3 Minimum load (MW) 368.21 83.41 112.41 Average load (MW) 685.44 155.28 209.26 Annual heat supply (TJ) 10,838 2,455 3,309
Note: The above data is from the FSRs of the proposed subprojects (Dec. 2007). (6) Technical Analysis Heat Source 180. The construction of heat sources is not included in the subproject. The heat sources involved in the subproject are CFTPP, CTPP and XBP.
i CFTPP 181. There are 2x75 t/h, 2x90 t/h steam boilers and 2x29 MW hot water boilers, 3x12 MW steam extraction units installed. A new 116 MW boiler was built in 2007. The new 2x300 MW units with heat supply capacity of 626 MW will be built in 2008 and put into operation in 2010. 182. The total heat supply capacity of the plant will be 1,031 MW, which can meet the heat supply requirement of 1019 MW for floor area of 18.54 million m2 in 2015.
i CTPP 183. 2x135 MW steam extraction units were installed and in operation at the end of 2006. The maximum heat supply capacity is 330 MW, which will meet the heat supply requirement of 311.3 MW for the floor area of 5.66 million m2 in 2015.
i XBP IMEIP II PPTA FINAL REPORT 3-19
184. A boiler plant with a 2x116 MW heat supply capacity will be built in 2010. The total capacity of 232 MW will meet the heat supply requirement of 231 MW for the floor area of 4.20 million m2 in 2015. 185. The table below summarizes the demand and heat supply capacity of each system. Table 3.14: Demand and Heat Supply Capacity of Each System
Item CFTPP CTPP XBP Heat demand (MW) 1019.7 311.3 231 Heat supply capacity (MW) 1031.0 330.0 232
Note: The above data is from the FSRs of the proposed subprojects (Dec. 2007). Pipeline
186. The proposed subproject will install 53 km of primary pipelines with diameters ranging from DN150 to DN1200. The pipelines will be direct-buried underground. The primary pipeline will operate with a supply temperature of 120oC and a return temperature of 60oC. 187. The proposed subproject will use pre-insulated pipe with polyurethane foam insulated and high density polyethylene outer pipe protected. The pipe used should meet the requirement of CJ/T114-2000. HESs
188. A total of 224 HESs will be involved in the subproject, among which 146 stations will be newly built and others are to be retrofitted with new process and equipment. 189. The newly built HESs will adopt indirect connections, i.e. heat exchangers will be equipped; both circulating pumps and replenishment pumps in the station will be driven by frequency converters, and electric valves and measurement instruments will be installed to allow automatic controls with RTUs of the SCADA system. 190. For the stations to be retrofitted, based on the requirement of indirect connections and automatic control of the stations and comparision with the new stations, all required equipment will be added to the station. For example, if the station has no frequency converters for pumps, then frequency converters will be added. All HESs will be equipped with RTUs for the system automatic control system. 191. The capacity of HESs are of six kinds based on the range of supplying heat for 50,000 m2 to 300,000 m2 of floor area. The system will be operated with temperatures of 120/60ooC at the primary side and 70/50 C at the secondary side. 192. The requirement for main equipment in the HESs is similar to that of Hohhot DHS. SCADA System 193. The SCADA is for optimization of the entire system’s operation, control and monitoring of the main system parameters for the safe and smooth operation of the district heating system. It includes a control center, which will be located at the control center building, and 228 RTUs, among which 224 RTUs are for HES and one for control in the IMEIP II PPTA FINAL REPORT 3-20
Xiaoxindi Boiler Plant, one for control of peak load shaving, and two for control of the HESs in thermal power plants. 194. The equipment, such as host computer, communication controller, operator stations, engineer stations and printers in the control center, are connected with an industrial Ethernet. Communication between the control center and RTUs is controlled by communication controller and passes through an interface connected to GPRS radio network. The schematic diagram of the SCADA system is shown below in Figure 3.1.
Figure 3.1: Schematic Diagram of SCADA System
Note: GPRS: General Packet Radio Service
HES: Heat Exchange Stations
UPS: uninterrupted power source 195. The control center will collect and store data from RTUs, send instructions to RTUs according to control requirements, make trend analysis, predict heat demand based on outdoor temperature, report formation, and deal with alarms and events. IMEIP II PPTA FINAL REPORT 3-21
196. The RTU will automatically control the local operation in the boiler plants or HESs, send main parameters to the control center, and receive and execute instructions from the control center. 197. The main parameters to be collected in boiler plants are flow rate, pressure and temperature of the primary side and secondary side, outlet pressure of circulating pump and replenishment pump, and volume of water makeup, as well as the main parameters of the boiler operation. 198. The main parameters to be collected in HESs are flow rate, pressure and temperature of the primary side and secondary side, outlet pressure of circulating pump and replenishment pump, volume of water make up, inlet and outlet temperature of heat exchanger, and water level in water replenishment tank. (7) Justification Master Plans of the Proposed Subproject 199. Based on the City’s master development plan (2002-2020) and district heating development plan (2005-2020), the city area is divided into seven district heating zones, among which Qiaobei Zone is in the north bank of Yingjin River and Hongmiaozi Zone is in the west part of the city. Those two zones are geographically independent, and the district heating systems will be independent from the other five zones and will not be involved in Chifeng DHS. Qiaobei Zone will be supplied by a boiler plant and Hongmiaozi Zone will be supplied with a CHP plant in the near future. 200. The other five zones, named Hongshan, Songshan, Dangxiao, Bajiazi and Xiaoxindi, are the main city districts. Their district heating pipe networks are planned to form a loop district heating system by the year of 2020. But before 2015, three heat sources (CFTPP, XBP and CTPP) will independently supply heat for their own district heating systems. 201. This proposed subproject is to form three district heating systems in Hongshan, Songshan, Dangxiao, Bajiazi and Xiaoxindi zones with a total heat supply area of 28.40 million m2 by the year 2015, and then connect the three systems together to form a loop system in the future. (8) Energy Conservation and Pollution Reduction Energy Conservation 202. The following energy saving measures will be taken in the subproject:
i Utilize quality pre-insulated pipelines; i Install high efficiency pumps; i Employ high efficiency heat exchangers; i Use frequency converters. Pollution Reduction
203. Based on the annual heat supply of three heat sources by the year of 2015:
i CFTPP: 10,838 TJ/a IMEIP II PPTA FINAL REPORT 3-22
i XBP: 2,455 T J/a i CTPP: 3,309 TJ/a i Total: 16,601 TJ/a i Thermal efficiency of thermal power plant: 87% i Thermal efficiency of medium and small boiler: 62% 204. The composition of the coal used in Chifeng City is Ash 19.29%, fixed carbon 43.39%, sulfur content 0.58% and the low calorie value of coal is 15074KJ/Kg (3593.9Kcal/Kg) 205. The coal savings equate to 262,560 standard tons of coal per year, and if converted to the coal actually used are 511,400 tons per year. 206. The CHP plant will be used as the main heating source. The emission reductions are calculated based on the aforementioned conditions:
i CO2: 654,700 ton/a i SO2: 4,750 ton/a i NOx: 1,260 ton/a i Ash: 98,640 ton/a i Flue dust: 1,090 ton/a 207. After completion of the subproject, 205 medium and small boilers (less than 14 MW) will be dismantled. 3.4.3 Baotou DHS (1) Subcomponents of the Proposed Subproject
208. The subcomponents of Baotou DHS include:
i Construction of six primary pipelines, totaling 8.1 km (route length); i Retrofitting of five existing primary pipelines; totaling 9.9 km (route length); i Retrofitting of the existing 183 HESs and associated secondary pipeline networks;
i Installation of 56 new HESs; i Retrofitting of existing circulating pumps with frequency converters in two boiler plants;
i Expansion of the existing SCADA systems to cope with the new development. 209. After completion of Baotou DHS, the heat supply floor area served by Baotou Municipal District Heating Company (BAOTOU) will increase 9.76 million m2. The existing 76 small-scale boiler plants, which supply heat to 3.525 million m2 of floor area, will be dismantled, and the buildings supplied by them will be incorporated into the district heating IMEIP II PPTA FINAL REPORT 3-23 system. The quality of heat supply will be significantly improved. Baotou DHS is planned to be com pleted in 3 years from 200 8 to 2010. (2) Introduction of the City
210. Baotou is located in the north of the PRC and west and middle of IMAR. It is approximately 150 km from Hohhot City. 211. It has four districts, two mining areas, three banners. The national-class rare earth metal development area is located in the south of the city. The population of the city is 2.10 million. The average elevation is 1,055 m. The main weather conditions related to space heating are shown in Appendix 9. (3) Background and Problems in the Existing District Heating System 212. As of 2006, the space heating covered 52.09 million m2 floor area in the entire city, among which, 19.01 million m2 (36.5%) was heated by CHP plants, 9.03 million m2 (17.3%) by large scale boiler plants, 9.08 million m2 (17.4%) by scattered small boiler houses and 17.97 million m2 (28.7%) by individual stoves. 213. BAOTOU is the largest district heating company in the city. It supplies heat from the First Thermal Power Plant and two large scale boiler plants, namely Aerdingdong and Qingshan Boiler Plants, to heat a floor area of 11.6 million m2, accounting for 40% of the total district heating area in the city. The company has more than 90 km of primary pipelines and 320 km of secondary pipelines and 183 HESs. In 2002 all existing heat sources are connected and operated as one pipeline network. 214. After more than 18 years of service, the existing district heating system in Baotou City is exp e riencing numerous problems which affect the service quality.
i Severe corrosion occurred in part of the pipelines resulting in frequent leaks. i With the development of the system, some pipelines have become bottle necks in the heat transmission system; the original design of pipe size can not sustain the increasing demand.
i Heat load in some areas has exceeded the original design and the end users that are far from heat source suffer a heat shortage problem.
i The circulating pumps in the two boiler plants are not properly engineered to adequately match the characteristics of pipelines and are highly inefficient resulting in substantial electric energy waste.
i The existing HESs have no integral automatic control and regulating equipment, as a result are not operating at optimum efficiencies.
i No regulation measures are provided to end users and it is difficult to implement heat metering, which is required by the central government as a reform in the district heating sector in the PRC. IMEIP II PPTA FINAL REPORT 3-24
i Heat sources are separated, and heat transmission pipelines are branched; an accident in one heat source or primary pipeline may disrupt heat supply in another area. (4) Demand Analysis 215. The heat consumption indexes are different in various categories of buildings: (1) For the existing buildings
i Residential buildings: 64 W/m2 i Public buildings: 80 W/m2 i Industrial buildings: 100 W/m2 216.Since the proportions of residential, public and industrial buildings are 65%, 33% and 2% respectively, the comprehensive heat consumption index is 70 W/m2. (2) For the new buildings,
i Residential buildings: 55 W/m2 i Public buildings: 70 W/m2 217. Since the proportions of residential, public buildings are 67% and 33%, respectively, the comprehensive heat consumption index is approximately 60 W/m2. 218. Based on the Baotou District Heating Development Plan, prapered by Baotou Construction Commission and Baotou Steel and Iron Design and Research Institute, Oct. 1997, the floor area of the newly constructed buildings will account for 50% of the total by 2010. By then Baotou DHS will have a comprehensive heat consumption of 65 W/m2, and the average heat consumption index will be 41.3 W/m2. 219. According to the Baotou District Heating Development Plant, by the year of 2010 the heat supply area for the First Thermal Power Plant will be 4.96 million m2, 4.46 million m2 for Aerdingdong Boiler Plant, 1.34 million m2 for Qingshan Bo iler Plant, and 8.60 million m2 for Kundulun Thermal Pow er Plant. The total hea t supply area will be 19.36 million m2. The heat demand is shown in the following table. Table 3.15: Heat Load
Item Unit By the year of 2010 Supply area 106 m2 19.36 Max. heat load MW 1,254.5 Average heat load MW 796.5 Annual heat supply MWh 3,479,305
Note: The above data is from the FSRs of the proposed subprojects (Dec. 2007). (5) Technical Analysis Heat Source IMEIP II PPTA FINAL REPORT 3-25
220. The proposed subproject involves four heat source plants: Baotou First Thermal Power Plant, Kundulun Thermal Power Plant, Aerdingdong Boiler Plant and Qingshan Boiler Plant. Except for Kundulun Thermal Power Plant, the others are existing plants. The first power generation unit of Kundulun Thermal Power Plant is planned to commence operations at the end of 2007 and the second in May 2008. 221. Baotou First Thermal Power Plant has 350 MW of power generation units (1x100 MW +2x125 MW) and the heat supply capacity will be up to 500 MW; the planned heat supply capacity is 203 MW. Kundulun Thermal Power Plant will build 2x300 MW power generation units with a heat supply capacity of up to 850 MW; the planned supply heat is 590 MW. Aerdingdong Boiler Plant has 4x29 MW and 4x58 MW boilers, totaling 348 MW. Qingshan Boiler Plant has a heat supply capacity of 4x29 MW totaling 116 MW. 222. The total heat supply capacity of the heat sources is higher than the heat demand of 1247 MW. Construction of 6 Primary Pipelines and Retrofitting of 5 Primar y Pipelines 223. The tables below show the pipelines to be con structed and ret rofitted respectively. Table 3.16: Pipelines to be Constructed
Name Start and end Pipeline length (m) Sanba Road to Minzu East Road 3,800 Moni Road Main Minzu East Road to Fengchan Road 880 Moni Road North Main Minzu East Road 622 Qingnian Road Main Kunhe East Road to Sanba Road 380 Linyin South Road Main Youyi Avenue to Fulin Road 795 Linyin Road to Tuan 13 230 Zili Road Main Tuan 13 to Minzu West Road 750 Youyi Avenue East Main Youyi East Avenue 640 Total 8,097
Note: The abo ve data is from the FS Rs of the proposed su bprojects (D ec. 2007). Table 3.17: Pipelines to be Retrofitted
Name Start and end Pipeline length (m) Baiyan Road Main Linyin Road to Minzu West Road 720 Kexue Road Main Minzu East Road to Fuqiang Road 880 Sanba Road to Baiyun Road 890 Wulan Road Main Baiyun Road to Minzu West Road 1,042 Minzu West Road to Shifu East Road 1,100 Sanba Road to Baiyun Road 890 Shaoxian Road Main Baiyun Road to Shifu West Road 1,530 Sanba Road Main Moni Road to Youyi Avenue 2,855 IMEIP II PPTA FINAL REPORT 3-26
Name Start and end Pipeline length (m) Total 9,907
Note: The above data is from the FSRs of the proposed subprojects (Dec. 2007). 224. The pipelines to be newly constructed are to meet the heat demand of new customers. The reasons to retrofit the existing pipelines include: (i) some pipelines have been working for 19 years and are in very poor condition, (ii) the heat load of the pipelines is increased in recent years and they are not capable of conveying enough heat to the increased number of consumers, (iii) new customers should be covered by the existing district heating system, (iv) the service quality should be improved. 225. The proposed subproject will use pre-insulated pipeline with polyurethane foam insulated and high density polyethylene outer pipe protected. The pipeline used should meet the requirement of CJ/T114-2000.The pipeline diameter ranges from ij478×8 to ij1220×12. Installation of 56 HESs
226. The proposed subproject will install 56 HESs with a capacity of supplying 80,000 m2 to 150,000 m2 of floor area based on the requirement of the area to be supplied by each HES. Indirect connections between heat source and consumers will be adopted. This is the common way of connection for large district heating system. The insertion of a heat exchanger will physically cut off the primary and the secondary sides and keep only thermal exchange; therefore, both primary and secondary sides can be operated under optimal conditions. 227. The HESs will be operated at the inlet/outlet water temperature of 115ooC/70 C at the primary side, and 85oo C/60 C at the secondary side. For the users who adopt floor radiation for space heating, the outlet and inlet temperature of the secondary side are 55oC/47oC, respectively. 228. The requirement regarding primary equipment in the HESs is similar to that of Hohhot DHS. Retrofitting of Circulating Pumps in Two Existing Boiler Plants with Frequency Converters 229. Both Aerdingdong and Qingshan heating supply systems used to adopt direct connection before and operate with a large flow rate and low differentail temperatures resulting in substantial amounts of electric energy waste. They have been retrofitted into indirect connections. The circulating pump in both boiler plants are not matched to the current situation, with low flow rate and high head, and too many sets of pumps installed. The pumps are working at a low efficiency range. The existing pumps will be replaced by new ones with adequate size and will be equipped with frequency converters for electric energy conservation. Table 3.18 below shows the change in pump selection. IMEIP II PPTA FINAL REPORT 3-27
Table 3.18: Retrofit of Circulating Pumps
Flow rate Head Motor power Total installed Name of plant Sets 3 (m /h) (m H2O) (kW) capacity (kW)
Aerdingdong After retrofit 3 1244 63 315 945 boiler plant 4 792 90 300 4×29MW Before retrofit 1,700 2 540 94 250 Aerdingdong After retrofit 3 1873 63 400 1,200 boiler plant 4×58 5 MW Before retrofit 1260 90 450 2,250 After retrofit 3 937 56 200 600 Qingshan boiler 3 792 90 300 plant 4×29MW Before retrofit 1,400 2 540 94 250
Note: The above data is from the FSRs of the proposed subprojects (Dec. 2007). 230. Larger flow rate pumps and fewer sets of pump will be employed. It is more rational to confine the pumps working in pararell to be no more than three sets, since one more pump will only contribute to a smaller flow increase. After retrofitting, the installed capacity of pumps will be reduced from 1,700 kW to 945 kW for the 4×29 MW boiler house, from 2,250 kW to 1,200 kW for the 4×58 MW boiler house in Aerdingdong Boiler Plant, and from 1,400 kW to 600 kW in Qingshan Boiler Plant. 231. Frequency converters are more and more commonly used for pump motor driving. It regulates flow rate by changing the pump speed. The electric consumption of pump is proportional to the cube of pump speed. Compared with valve throttling, the use of frequency converters will save significant amounts of electric energy in flow rate regulation; usually an energy saving of 30% will be achieved depending on the operational conditions. Retrofitting of the Existing 183 HESs
232. All existing HESs have already been modified to indirect connections, but the equipment in the HESs will not meet the requirements for automatic operation and additonal frequency converter controlled pumps need to be installed at the primary side for some HESs to obtain adequate flow rates from heat source. 233. All HESs will be equipped with automatic control equipment such as RTUs, automatic control valves and etc. For Baotou DHS, 177 HESs will have frequency converters intalled, 124 HESs should be equiped with heat metering devices, and 38 HESs will have frequency converter-controlled pumps installed at the primary side since they are located far from the heat source and can not sustain adequate flow rates. Expansion of the Existing SCADA System 234. The company has a very small data collection system for a few HESs. A new SCADA system shall be installed to match the new development. 235. The scope of the SCADA system will cover the 56 new HESs and the existing 183 HESs, as well as the operation in Aerdingdong and Qingshan Boiler Plants. The design of IMEIP II PPTA FINAL REPORT 3-28 the automatic control system in HESs is based on unmanned operation, and the HESs will be gradualy transferred from operator on duty to unmanned operation. 236. The control center will be located at the office building of the company, where main control and monitoring equipment, including servers and commnication control devices, operator stations and engineer stations will be installed. 237. The schematic diagram of SCADA system is shown below in Figure 3.2. IMEIP II PPTA FINAL REPORT 3-29
Figure 3.2: Schematic Diagram of SCADA System
Note: T: Temperature sensor P: Pressure gauge L: Level meter IMEIP II PPTA FINAL REPORT 3-30
(6) Justification Master Plans of the Proposed Subproject
238. Baotou DHS is based on the District Heating Development Plan in Baotou City (2004 Revision) prapered by Baotou Construction Commission and Baotou Steel and Iron Design and Research Institute, Oct. 1997 and Baotou CHP Development Plan (2006 – 2015) prapered by Baotou Land and Planning Administration Bureau and Baotou Planning Design and Research Institute, Oct. 1997. (7) Energy Conservation and Pollution Reduction Energy Conservation 239. Baotou DHS uses heat energy from CHP plants. It is an efficient way in the development of district heating since the waste heat in power plant is used for district heating in stead of emitting into the atmosphere through a condenser system. The CHP power generation plant will reach a thermal energy efficiency of up to 85%. Compared with the separate production of electricity and heat, coal consumption is reduced and the environmental pollution is mitigated. 240. The replacement of low-efficiency small size boilers will greatly reduce the coal consumption in the city and provide improvements in human health and benefits to the environment of the city. 241. The use of quality pre-insulated pipeline can reduce the heat transmission loss, and the application of frequency converters can reduce the electric energy consumption. The table below shows the energy savings of the subproject. Table 3.19: Energy Savings of Baotou DHS
Converter Standard coal No. Item Actual saving factor saved 1 Retrofit of pumps in the two boiler plants 2,270KWh/h 11.826MJ/KWh 26,845MJ/h Coal saving by dismantling small boiler 2 26.5t/h 29,270MJ/t 775,655MJ/h houses Water saving by dismantling small boiler 3 1,942t/h 8.782MJ/t 17,054.6MJ/h houses Electric saving by retrofit of 183 existing 4 10,901KWh/h 11.826MJ/KWh 128,915MJ/h HESs 5 Coal saving by automatic control 0.153t/h 29,270MJ/t 4,478.3MJ/h Total 952,948MJ/h
Note: The above data is from the FSRs of the proposed subprojects (Dec. 2007). 242. Baotou DHS will save electricity 155,760 MJ/h, water 17,054.6MJ/h, coal 780,133.3 MJ/h, equivalent to a total energy conservation of 952,948 MJ/h, which is equal to standard coal of 32.56 t/h. The annual energy conservation will be 0.14x106 tons of standard coal. Pollution Reduction
243. Baotou DHS will save 152,200 tons of coal per year. Therefore, the annual emissions reduction includes 1,620 tons of SO2, 630 tons of flue dust, and 670 tons of NOx. IMEIP II PPTA FINAL REPORT 3-31
3.4.4 Keyouqian DHS (1) Subcomponents of the Proposed Subproject 244. Keyouqian DHS subproject in Keyouqian Banner, Xing-an League includes the construction and installation of 3×70 MW hot water boilers and 28 HESs; placement of 12.52 km of heating pipeline (route length); installation of 1 SCADA system. The total heating area will be 3 million m2 after its completion. (2) Introduction of the Banner
245. Keyouqian Banner is located in the western region of Xing-an League of IMAR. The total district has an area of 20,725.4 km2 with an area approximately 255 km long and 136.25 km wide. The main weather conditions related to space heating are shown in Appendix 9. (3) Background and Problems Existing in District Heating
246. The 1×29 MW, 2×7 MW, and 2×1.4 MW boilers are the main heating sources for the current heating system of Keyouqian, which has no HESs. The heating network adopts the direct-buried laying model. 247. At present, Keyouqian has several small-size coal-fired boilers and stacks. The total heating area is 447,000 m2. These existing boilers are small and inefficient, equipped with either no pollution control or outdated control devices. These small boilers are spread all over the banner. They consume excessive amounts of energy and create serious air pollution problems. (4) Heat Demand 248. The total building area is 3 million m2 by 2015, including old buildings of 0.447 million m2, near-term buildings (2007-2008) of 0.5195 million m2 , and long-term buildings (2009-2015) of 2.0335 million m2. 249. Based on the percentages of different categories of buildings and their heat consumption indexes, the comprehensive heat consumption index of buildings will be calculated, and based on this index and heating area, the total heat load will be calculated. Detailed calculations are shown in the following table. Table 3.20: The Calculation List of Heat Load for Keyouqian DHS
Old Near-term buildings Long-term buildings Item buildings (2007-2008) (2009-2015) Residential Public Residential Public Industrial Buildings category - buildings buildings buildings buildings buildings Heat consumption -6070507080 indexes(W/m2) Percentages - 50% 50% 60% 30% 10% Comprehensive heat 70* 65 59 consumption index (W/m2) Building area (million m2) 0.447 0.5195 2.0335 Heat load (MW) 31.29 33.77 119.98 Total heat load (MW) 185 IMEIP II PPTA FINAL REPORT 3-32
Note: * data is from the FSRs of the proposed subprojects (Dec. 2007). (5) System Summary of District Heating Subproject
250. The system summary of Keyouqian DHS is as follows:
i Construction and installation of 3×70 MW hot water CGS boiler; i Fully enclosed coal storage field; i Fully enclosed coal conveyance corridor; transfer station has electromagnetic iron removal device; coal bunker room has ventilation and dust removal device;
i Every boiler is equipped with one blower for air supply system; i Every boiler is equipped with one coal shuttle and one coal feeding flume for fuel feeding system;
i Ash and slag elimination system has heavy frame-chain slag eliminator, belt-type conveyor, etc.;
i Flue gas system is equipped with wet-type dust removal and desulfurization equipment outside of boiler body;
i Circulating water system adopts mother tube mechanism; i Make-up water and stead pressure system adopts normal temperature sponge iron for deoxygenizing and full automatic sodium-ion exchanger for softening water;
i The heat source plants (HSPs) and HESs are equipped with electricity supply/distribution, building lighting, and grounding for protection/preventing lightning strikes for all electrical equipment;
i The supply water system of plant area uses water system for production and fire fighting;
i The drainage system of plant area has rainwater and sewage drainage system; i The newly constructed primary pipeline network adopts direct burying without compensator laying mode. The working pressure of distribution network is 1.6 MPa, the working temperature of supply and return water is 130oo C and 70 C respectively;
i The HESs select integrative heat exchange units and high efficient plate-type heat exchanger;
i The computer monitoring system contains a monitoring center, heat source automatic control system, monitoring station, and communication system. (6) Detailed Technical Analysis of the Proposed Subproject Heat Source 251. According to the newly increased heat load of 185 MW for a heating area of 3 million m2 by 2015 and the total building area of 4 million m2 by 2020, the final heat source option is confirmed to be 3×70 MW hot water CGS boilers with a 1×70 MW hot water CGS boiler as a IMEIP II PPTA FINAL REPORT 3-33 reserve. This reserve boiler can meet the requirements of future increasing heat loads over the long term. The original 1×29 MW boiler will be as the peak-adjustment boiler and other boiler houses be reconstructed to be HESs where possible. The heat source scale of Keyouqian DHS is suitable for the future development of urban heating area. The main technic a l parameters of the boilers are a s follows:
i Type: hot water CGS boilers i Model: QXL70-1.6/130/70-AII i Rated heating amount: 70 MW i Rated heating water pressure: 1.6 MP i Rated supply/return water temperature: 130/70oC i Rated circulating water amount: 1003 tons/hr i Boiler efficiency: 81% Pipeline
252. The working pressure of heating distribution network is 1.6 MPa and the working temperature of supply and return water is 130ooC and 70 C, respectively. The branch pipelines are connected to HESs along the trunk pipeline. The total length of Keyouqian DHS’ heating network is 12.52 km and the longest length from HSP to HESs is 3.1 km. 253. The hot water pipeline network adopts the direct burying without compensator laying model in principle. However, some pipelines may adopt overhead and trench laying model according to actual conditions on site. Compared with trench laying model, the direct burying laying has more advantages as follows: a) Over 30% of lower engineering cost; b) Saving energy and reducing approximately 15~20% of heat loss or coal consumption; c) Good anticorrosive and insulated performance and long working life. In general, the working life of pre-insulated pipes is over 30 years, 2~3 times higher than that of trench laying pipes; d)Less land occupation and rapid constructio n speed, which favors environmental protection and municipal facilities construction. HESs
254. The HESs sites will be adjacent to the heat load center in order to reduce the secondary network investment cost. According to distribution status of the heat load, there are 28 HESs in new urban areas of Keyouqian Banner. 255. The scale of HESs can be identified by comprehensively considering various characteristics of heating sub-areas, building areas for heating, heat load and technical and economic comparison. In general, the heating quantity scope of single unit is approximately 2~10 MW. The heating quantity scope of single unit for Keyouqian DHS is less than 8 MW. HESs are arranged at heat load centralized residential areas adjacent to road right-of-ways. IMEIP II PPTA FINAL REPORT 3-34
The land occupied by a single unit is 100~150 m2 . Besides newly constructed HESs, retrofitted boiler houses can also be utilized. 256. Through compared analysis, the integrative-type heat exchange units and high efficiency plate-type heat exchangers are adopted for Keyouqian DHS. SCADA System
The SCADA system is similar to that described previously for the other subprojects. (7) Justification of the Master Plans of the Proposed Subproject
257. According to the “Urban Master Plans of Keyouqian Banner (2002-2020)”, relevant heating implementation plans, and actual status of Keyouqian urban construction, the population and heating status are projected as follows: 258. The total urban building area will be 3 million m2 by 2015 and the total urban building area will be 4 million m2 by 2020. Thus, it is very urgent to construct a large-scale, high-efficiency, energy saving, and environmental friendly district heating system to meet the requirements of the rapidly increasing heat load. The urban heating area status is shown in the following table. The heating area of Keyouqian is approximately 3 million m2 by 2015, with a heat load of 185 MW. Table 3.21: Urban Heating Area
Years 2007 2008 2010 2012 2014 2015 Heating area (1000 m2) 447 966.5 2,000 2,560 2,800 3,000
Note: above data is from “the Urban Master Plans of Keyouqian Banner (2002-2020)”, urban construction research institute of Ministry of Construction, Aug. 2002. (8) Energy Conservation and Pollution Reduction 259. In order to save energy, numerous measures and technologies, such as heightening equipment efficiency, increasing automation level, will be adopted throughout the entire district heating system. The level of management is also a very important factor for achieving energy savings. 260. Based on 3 million m2 of heating area, the energy consumption indexes for Keyouqian DHS was calculated as listed in the following table. Table 3.22: The Energy Consumption Indexes for Keyouqian DHS
Item Unit Quantity Heat consumption GJ/ m2.a 0.6026 Coal consumption Kg/m2 .a 35.1 Limestone consumption Kg/m2 .a 0.893 Slag consumption Kg/m2 .a 9.110 Electricity consumption KWh/m2.a 3.462 Water consumption ton/m2.a 0.1296 IMEIP II PPTA FINAL REPORT 3-35
261. After Keyouqian DHS implementation, the estimated reductions of pollutant discharge are listed as follows: Table 3.23: The Reductions of Pollutant Discharge for Keyouqian DHS
Item Unit Reduction quantity Fired coal 1000 ton/yr 71 Slag ton/yr 27,350 Dust ton/yr 5,370
CO2 1000 ton/yr 126.8
SO2 ton/yr 1,630
NOX ton/yr 530
262. From the above analysis, we shall make a conclusion that Keyouqian DHS can bring significant environmental, ecological, and social benefits for Keyouqian Banner after it is implemented. 3.4.5 Kalaqin DHS (1) General Introduction
263. The objective of the subproject is to use a 33 t/h waste heat boiler and a 58 MW hot water boiler as new heat source for district heating of 1.15 million m2 and achieve total heat supply of 2.10 million m2 floor area in the town by 2015. The construction of heat sources and the secondary pipeline are not included in this subproject. Therefore, the subcomponents of the subprojects are:
i Installation of 15.7 km of pipeline; i Installation of 24 HESs; i A SCADA system. (2) Introduction of the Banner
264. Kalaqin Banner is located in the south of Chifeng City. Jinshan Town is the location where the Banner Government is located, which is the political, economic and cultural center of Kalaqin Banner. The current and projected population of the town is 50,000 and 80,000, respectively. The main weather conditions related to space heating are shown in Appendix 9. (3) Background in District Heating
265. All multi-story buildings in the town are covered by district heating totaling floor area of 950,000 m2. Among them, residential buildings are 700,000 m2, the commercial buildings 100,000 m2, and the institutional buildings 150,000 m2. Only one-story buildings are heated by individual coal stoves. All small boilers were dismantled in 2004. 266. Jinfeng Thermal Power Plant supplies heat for the floor area of 800,000 m2, accounting for 85% of the city’s total. IMEIP II PPTA FINAL REPORT 3-36
267. The system uses heat from the condenser of the CHP power plant. Therefore, the supply and return temperature of the pipeline is only 65/45oC, respectively. During the peak load period steam extraction from turbine is introduced. The pipelines are buried directly underground but the insulation property is not sufficient. (4) Demand Analysis Heat Consumption Indexes 268. The existing buildings have poor heat insulation property; the actual heat consumption index is approximately 70 W/m2. 269. The buildings to be built will have better heat insulation based on the requirements of the energy conservation standard; the heat consumption indexes are 60 W/m2 for a residential building and 70 W/m2 for public buildings. According to a proportion of 7:3 of floor area in the two types of buildings, the comprehensive heat consumption index is 63 W/m2. 270. For the buildings to be constructed beyond 2010, the heat consumption indexes will be 50 W/m2 for residential buildings, 70W/m2 for public buildings, and the comprehensive heat consumption index is 58 W/m2 (the proportion of residential and public building is 6:4). Heat demand 271. The existing floor area of the city is 0.95 million m2 . According to the city’s development plan, more than 0.15 million m2 will be built by 2010, totaling in 1.10 million m2 of floor area. By the year of 2015, the total building floor area will be 2.1 million m2, more than 1 million m2 increase based on 2010. 272. Therefore, the heat demand for the existing buildings is 66.5 MW, and will be 76 MW by the year 2010, an increase of 9.5 MW; and will be 134 MW by the year of 2015, an increase of 58 MW. (5) Technical Analysis Heat Source of Kalaqin DHS 273. The subproject will use heat from a 33 t/h waste heat boiler and a 58 MW hot water boiler. The waste heat boiler will generate steam for power generation and district heating. The heat supply capacity of the power generating unit will be 10 MWˈwhich can meet the demand increase from now to 2010. A 58 MW hot water boiler will be built, therefore, the heat demand increase from 2010 to 2015 can be met. Once CHP plan is costructed the hot water boiler will be used for peak load shaving of the district heating system 274. The supply and return temperature of the primary side will be 130oo C and 70 C, respectively. Pipeline 275. The pipelines will be direct-buried underground. From the heat source the primary pipelines will extend out into two branches, one with diameter DN500 going east to Jinping Road and another with diameter of DN450 going west to Jinshan Avenue. IMEIP II PPTA FINAL REPORT 3-37
276. The total length of the primary pipelines is 15.7 km (route length). Based on past experience the pipeline quality complying with the standard CJ/T114-2000 will be adopted. HESs
277. 24 HESs will be constructed along the pipelines based on the locations of areas to be covered. The supply and return temperatures of the HESs will be 130/70oC at the primary side and 95/65oC at the secondary side. 278. The capacity of HESs range from 2 MW to 9 MW based on the floor area to be supplied. The equipment in HESs is similar to the other subprojects described previously. SCADA System
279. The SCADA system includes a control center, which will be located in the office building of the company, and 24 RTUs, which will be installed in the HESs. 280. The structure and function of the SCADA system are the same as the other subprojects described previously. (6) Justification Master Plans of the Proposed Subproject 281. According to the “Kalaqin Banner Urban Master Development Plan (2006-2020)” prepared by the Xi’an Silu City Development Research Institute, relevant heating implementation plans, and actual status of Kalaqin’s urban construction, the heating status is projected as follows: 282. The total building area of Jinshan Town Kalaqin Banner will be 1.10 million m2 by 2010, with a heat load of 76 MW. The total building area will be 2.1 million m2 by 2015, with a heat load of 134 MW. (7) Energy Conservation and Pollution Reduction 283. After completion of Kalaqin DHS the coal consumption will be reduced by 48,200 standard tons of coal per year (converted to raw coal 67,500 tons per year) and the emissions reductions are listed in the table below. IMEIP II PPTA FINAL REPORT 3-38
Table 3.24: Emission Reduction
Item Unit Amount reduced Ash ton/y 17,900 TSP ton/y 3,970
SO2 ton/y 405
NOX ton/y 512
3.4.6 Zhalaite DHS (1) Subcomponents of the Proposed Subproject
284. The Zhalaite DHS subproject in Yindeer Town, Zhalaite Banner, Xing-an League includes the construction and installation of 4×29 MW hot water boilers and 20 HESs and placement of 9.252 km of heating pipelines (route length). The increased heating area is 1.5 million m2 and the service of the existing 0.5 million m2 of floor area will be improved. (2) Introduction of the Banner 285. Zhalaite Banner is located in the northeast region of Xing-an League of IMAR. Yindeer Town is where the Banner Government is situated and the political, economic and cultural center of Zhalaite. The populations of the town by 2010 and 2015 are estimated to be 100,000 and 130,000, respectively. The main weather conditions related to space heating are shown in Appendix 9. (3) Background and Problems Existing in District Heating Large-size Boiler House 286. The 3×14 MW boiler house of Zhalaite XINGDA Company is the main heating source of Zhalaite DHS. The heating radius of this boiler house is 4~5 km and the trunk pipeline is approximately 10 km long. The heating system has 5 HESs and provides district heating for an area of 0.5 million m2. 287. The current operational status is that the water temperature of primary and secondary pipeline network is 130/70ooC and 85/60 C, respectively; the secondary network is connected by the primary HES in the HSP. The operation with low temperature difference and large water flow results in substantial heating loss and excessive electricity/water consumption. In addition, due to long heating distances, there are many serious heating issues, such as hydraulic disorder, uneven heating distribution, and not meeting heating requirements in many areas. 288. The 1×14 MW Xishan boiler house provides heating to an area of 0.2 million m2. The above two boiler houses provide a heating area of 0.7 million m2 for Zhalaite. Small-size Boiler House 289. At present, Zhalaite has 31 small-size coal-fired boilers and 31 stacks. The total heat volume is 53 ton/hr and they provide decentralized heating for 300,000 m2 of service area. These existing boilers are small and inefficient. They are equipped with no pollution control IMEIP II PPTA FINAL REPORT 3-39 or outdated control devices. These small boilers are spread all over the banner. They waste significant amounts of energy and create serious air pollution problems. (4) Heat Demand
290. The building area of current and near term buildings is 0.95 million m2, including current buildings and buildings to be constructed prior to 2008. The building area of long-term buildings (2009-2015) is 1.05 million m2. The total heat load are calculated, and detailed calculations are provided in the following table. Table 3.25: The Calculation List of Heat Load for Zhalaite DHS
Current and near term Long-term buildings Item buildings (by 2008) (2009-2015) Residential Public Residential Public Industrial Buildings category buildings buildings buildings buildings buildings Heat consumption indexes(W/m2)- - 507080 Percentages - - 57% 30% 13% Comprehensive heat consumption 80* 60 index (W/m2) Building area (million m2) 0.95 1.05 Heat load (MW) 76 66 Total heat load (MW) 102 (minus 40 MW of original heat load)
Note: * data is from the FSRs of the proposed subprojects (Dec. 2007). (5) System Summary of the District Heating Subproject
291. The system of Zhalaite DHS is summarized as follows:
i Construction and installation of 4×29 MW hot water CGS boilers; i Flue gas system is equipped with water bath type dust removal and desulfurization equipment outside of boiler body;
i Other DHS systems are similar to those described previously in the other subprojects with boiler houses. (6) Project Description and Technical Analysis Heat Source 292. According to the newly increased heat load of 102 MW for a heating area of 1.5 million m2 in 2015, the final heat source option is confirmed to be 4×29 MW hot water CGS boilers. The original 3×14 MW boilers with a heat load of 40 MW for a heating area of 0.5 million m2 adopts a strategy for consolidated network operation with the new boilers. The heat source scale of Zhalaite DHS is suitable for the future development of urban heating area. The main technical parameters of boilers are as follows:
i Type: hot water CGS boilers i Model: DZL29-1.6/130/70-AII IMEIP II PPTA FINAL REPORT 3-40
i Rated heating amount: 29 MW i Rated heating water pressure: 1.6 MP i Rated supply/return water temperature: 130/70oC i Rated circulating water amount: 415.6 tons/hr i Boiler efficiency: 82% Pipeline
293. The working pressure of heating distribution network is 1.6 MPa and the working temperature of supply and return water is 130ooC and 70 C, respectively. The branch pipelines are connected to HESs along the trunk pipeline. The total heating network length is 9.252 km and the longest length from HSP to HESs is 3.61 km. 294. The hot water pipeline network adopts direct burying without compensator laying model in principle. However, some pipelines may adopt overhead and trench laying model according to actual conditions on site. HESs
295. The HESs sites should be adjacent to the heat load centers in order to reduce the secondary network investment cost. According to distribution status of heat load, there are 20 HESs in the new urban area of Zhalaite Banner, including 15 new ones and 5 retrofitted ones. 296. Through compared analysis, the integrative-type heat exchange units and high efficient plate-type heat exchangers are adopted for Zhalaite DHS. SCADA System 297. The SCADA system is similar to that described previously in the other subprojects. (7) Justification of the Master Plans of the Proposed Subproject
298. According to the “Zhalaite Banner Urban Master Plans (2005-2020)”, relevant heating implementation plans, and actual status of Zhalaite urban construction, the population and heating status are projected as follows: 299. The urban population of Zhalaite will reach 100,000, and the total urban building area will be 2.2 million m2 by 2015, including newly increased heating area of 1.5 million m2 with a heat load of 102 MW. 300. Thus, it is very urgent to construct a large-scale, high-efficiency, energy saving, and environmental friendly district heating system to meet the requirements of the rapidly increasing heat load. (8) Energy Conservation and Pollution Reduction
301. In order to save energy, numerous different measures and technologies, such as heightening equipment efficiency, increasing of automation levels can be adopted IMEIP II PPTA FINAL REPORT 3-41 throughout the entire district heating system. The level of management is also a very important factor for achieving energy savings. 302. Based on 1.5 million m2 heating area, the energy consumption index for Zhalaite DHS will be calculated, and will reach national or international advanced le vels. These calculated values are listed in the following table. Table 3.26: The Energy Con sumptio n Index for Zhalaite DHS
Item UnitQ uantity Heat consumption GJ/ m2.a 0.6672 Coal consumption Kg/m2 .a 38.86 Limestone consumption Kg/m2 .a 0.906 Slag consumption Kg/m2 .a 9.130 Electric ity consumption KWh/m2 .a 3.386 Water consumption ton/m2.a 0.1693
303. After Zhalaite DHS implementation, the reductions of pollutant discharge are listed as follows: Table3.27: The Reduc tions of Pol lutant Discharge for Zhalaite DHS
Item UnitReduction quantity Fired coal 1000 ton/y r 39.3 Slag ton/yr 11,436 Dust ton/yr 2,080
CO2 1000 ton/yr 70.1
SO2 ton/yr 960
NOX ton/yr 270
304. From the above analysis, we shall make a conclusion that Zhalaite DHS can provide measurable environmental, ecological, and social benefits for Zhalaite Banner after its implementation. 3.4.7 Molidawa DHS (1) Subcomponents of the Proposed Subproject 305. The Molidawa DHS subproject in Nierji Town, Molidawa Banner, Hulunbeier Municipality includes installation of 3×29 MW hot water boilers, 15 HESs and placement of 9.86 km of trunk heating pipeline (route length). The increased heating area is 1,226,000 m2 by 2015. (2) Introduction of the Banner 306. Molidawa Banner is located in the eastern region of Hulunbeier City of IMAR. Nierji Town is the location where the Banner Government is located, which is the political, economic and cultural center of Molidawa Banner. The projected population of the town is IMEIP II PPTA FINAL REPORT 3-42
estimated to be 140,000 in 2010. The main weather conditions related to space heating are shown in Appendix 9. (3) Background and Problems Existing in District Heating Large-size Boiler House 307. The 2×29 MW boiler house of Molidawa RIMIAN Company is the main heating source of Molidawa DHS. The heating radius of this boiler house is 4.5 km and the trunk pipeline is approximately 16 km long. So far, this boiler house has been operating nearly with full capacity. 308. The current operation status is that the water temperature of the primary and secondary pipeline network is 130/70oo C and 65/50 C, respectively. The secondary network is connected by the primary HES in the HSP. The operation with low temperature difference and large water flow results in large heating loss and electricity/water consumption. 309. The 2×7 MW boiler house of Dadi Heating Co. is the peak adjustment and backup heating source of the RIMIAN boiler house. These two boiler houses provide a heating area of 0.8 million m2 for eastern region of Molidawa Banner. Small-size Boiler House 310. The western region of Molidawa Banner has 12 small-size coal-fired boilers and 8 stacks. The total heat volume is 25 ton/hr and it provides decentralized heating for a 150,000 m2 service area. These existing boilers are small and inefficient. They are equipped with no pollution control or outdated control devices. These small boilers are spread all over the banner. They are inefficient, waste substantial amounts of energy and create serious air pollution problems. (4) Heat Demand
311. The building area of current buildings and near term buildings is 0.451 million m2, including current buildings and buildings to be constructed prior to 2008. The buildin g area of long-term buildings (2009-2015) is 0.775 million m2 . Th e total heat load will be calcu lated, detailed calculations are shown as following table. Table 3.28: The Ca lculation Li st of Heat Lo a d for Molid aw a DHS
Curren t and near t er m Long-term buildings Item buildings (by 2008) (2009-2015) Residential Public Residential Public Industrial Buildings category buildings buildings buildings buildings buildings Heat consumption indexes(W/m2) - - 50 70 80 Percentages - - 55% 30% 15% Comprehensive heat 77* 60.5 consumption index (W/m2) Building area (million m2) 0.451 0.775 Heat load (MW) 34.5 47.5 Total heat load (MW) 82 IMEIP II PPTA FINAL REPORT 3-43
Note: * data is from the FSRs of the proposed subprojects (Dec. 2007). (5) System Summ ary of District Heating Subproject
312. The system summary of Molidawa DHS is as follows:
i Construction and installation of 3×29 MW hot water Chain Grate Stoker (CGS) boilers;
i Flue gas system is equipped with water bath type dust removal and desulfurization equipment outside of boiler body;
i Other DHS systems are similar to that described previously in the other subprojects with boiler houses. (6) Project Description and Technical Analysis Heat Source 313. According to the newly increased heat load of 82 MW for the heating area of 1.226 million m2 i n 2015, the final heat source o ption is confirmed to be 3×29 MW hot water CGS boilers. The heat source scale of Molidawa DHS is suitab le for the future development of urban heating area. 314.The main technical parameters of th e boilers are as follows:
i Type: hot water CGS boilers
i Model: DZL29-1.25/130/70-AĊ i Rated heating amount: 29 MW i Rated heating water pressure: 1.25 MP i Rated supply/return water temperature: 130/70oC i Rated circulating water amount: 415.6 tons/hr i Boiler efficiency: 82% Pipeline
315. The working pressure of heating distribution network is 1.6 MPa and the working temperature of supply and return water is 130ooC and 70 C, respectively. The branch pipelines are connected to HESs along the trunk pipeline. The total heating network length is 9.86 km and the longest length from HSP to HESs is 3.4 km. 316. The hot water pipeline network adopts direct burying without compensator laying model in principle. However, some pipelines may adopt overhead and trench laying model according to actual conditions on site. HESs
317. The HESs sites should be adjacent to the heat load centers in order to reduce the secondary network investment cost. According to the distribution status of the heat load, there are 15 HESs in the new urban area of Molidawa Banner. IMEIP II PPTA FINAL REPORT 3-44
318. HESs are arranged at heat load centralized areas of various residential areas where they are adjacent to road right-of-ways. The land occupied area of single unit is 100~150 m2. Besides newly constructed HESs, it also can utilize retrofitted boiler houses. 319. Through compared analysis, the integrative-type heat exchange units and high efficient plate-type heat exchangers are adopted for Molidawa DHS. SCADA S ystem 320. The SCADA system will be similar to other subprojects as described previously. (7) Justification of Master Plans of the Proposed Subproject 321. According to “the Urban Master Plans of Nierji Town, Molidawa Banner (2006-2020)”, relevant heating implementation plans, and actual status of Molidawa urban construction, the population and heating status are projected as follows: 322. The population of Molidawa Banner will reach 140,000, and the total urban building area will reach 1.6 million m2 by 2010, including newly increased heating area of 0.826 million m2. The total urban building area will be 2 million m2 by 2015, including newly increased heating area of 1.226 million m2. 323. Thus, it is very urgent to construct a large-scale, high-efficiency, energy saving, and environmental protection district heating system to meet the requirements of its rapidly increasing heat load. 324. The newly increased urban heat area status is shown as in the followin g table. The newly increased heating area of Molidawa Banner is approximately 1.226 million m2, with a heating load of 82 MW. Table 3.29: Newly Increased Urban Heating Area in Molidawa
Years 2007 2008 2010 2012 2014 2015 Heating are a (1000 m2) 250 451 826 1,000 1,100 1,226
Note: above data is from “the Urban Master Plans of Nierji Town, Molidawa Banner (2006-2020)”, prepared by the Urban Planning and Design Research Ins titute of Heilongjiang Province, Aug. 2006. 325. (8) Energy Conservation and Pollution Reduction
326. Based on 1.226 million m2 heating area, the energy consumption index for Molidawa DHS is calculated, which can reach national or international advanced levels. These calculated values are listed in the following table. IMEIP II PPTA FINAL REPORT 3-45
Table 3.30: The Energy Consumption Index for Molidawa DHS
Item Unit Quantity Heat consumption GJ/ m2.a 0.6386 Coal consumption Kg/m2 .a 36.96 Limestone consumption Kg/m2 .a 0.902 Slag consumption Kg/m2 .a 11.09 Electricity consumption KWh/m2.a 3.981 Water consumption ton/m2.a 0.221
327. After project implementation, the reductions of pollutant discharge are listed as follows: Table 3.31: The Reductions of Pollutant Discharge for Molidawa DHS
Item Unit Reduction quantity Fired coal 1000 ton/yr 30.7 Slag ton/yr 9,211 Dust ton/yr 1,710
CO2 1000 ton/yr 54.8
SO2 ton/yr 340
NOX ton/yr 240
328. From the above analysis, we shall make a conclusion that Molidawa DHS can bring environmental benefits, ecological benefits, and social benefits for Molidawa Banner after it is implemented. 3.4.8 Chenbaerhu DHS (1) Subcomponents of the Proposed Subproject
329. Chenbaerhu DHS Subproject in Bayankuren Town, Chenbaerhu Banner, Hulunbeier City includes the construction of 2×29 MW hot water boilers, 7 HESs and 6.5 km of primary heating pipeline (route length). The increased heating area is 600,000 m2. (2) Introduction of the Banner
330. Chenbaerhu Banner is located in the western region of Hulunbeier City of IMAR. Bayankuren Town is where the Banner Government is located and the political, economic and cultural center of the banner. The main weather conditions related to space heating are shown in Appendix 9. (3) Background and Problems Existing in District Heating Large-size Boiler House 331. The 2×14 MW boiler house is the main heating source of Chenbaerhu district heating system. The supply/return water temperature is 130/80oC and working pressure is 1.25 MP. These boilers are operating at nearly full capacity. This plant area has reserved a place for constructing a new boiler house. IMEIP II PPTA FINAL REPORT 3-46
Small-size Boiler House
332. In this heating area, 49 small boiler houses and 52 small-size coal-fired boilers have been demolished. The total heat volume is 83 ton/hr and they provide decentralized heating for 800,000 m2 of service area. The existing boilers are small and inefficient. They are equipped with either no pollution control or outdated control devices. These small boilers are spread all over the banner, and consume excessive amounts of energy and create serious air pollution problems. (4) Heat Demand 333. The total area of newly added building is 0.6 million m2 by 2010, including current buildings (by 2009) of 0.35 million m2 and long-term buildings (in 2010) of 0.25 million m2 . The total heat load will be calculated, detailed calculations are shown below in the following table. Table 3.32: The Calculation List of Heat Load for Chenbaerhu DHS Current buildings Long-term buildings Item (by 2009) (in 2010) Residential Public Residential Public Industrial Buildings category buildings buildings buildings buildings buildings Heat consumption - - 50 70 80 indexes(W/m2) Percentages - - 60% 30% 10% Comprehensive heat 77* 59 consumption index (W/m2) Building area (million m2) 0.35 0.25 Heat load (MW) 27 15 Total heat load (MW) 42
Note: * data is from the FSRs of the proposed subprojects (Dec. 2007). (5) System Summary of District Heating Subproject The system summary of Chenbaerhu DHS is as follows:
i Construction and installation of 2×29 MW hot water Circulating Fluidized Bed (CFB) boiler;
i Flue gas realizes desulfurization inside of boiler body and dust removal by bag-type dust remover outside of boiler body;
i Other DHS systems are similar to that described previously in the other subprojects with boiler houses. (6) Detailed Technical Analysis of the Proposed Subproject Heat Source
334. According to the newly increased heat load of 42 MW for heating area of 0.6 million m2 in 2010, the final heat source option is confirmed to be 2×29 MW hot water CFB boilers. The heat source scale of Chenbaerhu DHS is suitable for the future development of urban heating area. IMEIP II PPTA FINAL REPORT 3-47
335. The main technical parameters of boilers are as follows:
i Type: hot water CFB boilers i Model: QXF29-1.6/130/70-AII i Rated heating amount: 29 MW i Rated heating water pressure: 1.6 MP i Rated supply/return water temperature: 130/70oC i Boiler efficiency: 86% Pipeline
336. The pipeline is similar to that described in the previous subprojects. HESs
337. The HESs sites should be adjacent to the heat load center in order to reduce the secondary network investment cost. According to the distributing status of heat load, there are 7 HESs in the new urban area of Chenbaerhu Banner. 338. Through compared analysis, the integrative-type heat exchange units and high efficient plate-type heat exchangers are adopted for Chenbaerhu DHS. SCADA System
339. The SCADA is similar to that of the other subprojects in the previous section. (7) Energy Conservation and Pollution Reduction
340. In order to save energy, numerous measures and technologies, such as improving equipment efficiency and increasing automation levels will be adopted throughout the entire district heating system. 341. Based on 0.6 million m2 heating area, the energy consumption indexes for Chenbaerhu DHS are calculated, and reach the national or international advanced levels. These calculated values are listed in the following table. Table 3.33: The Energy Consumption Indexes for Chenbaerhu DHS
Item Unit Quantity Heat consumption GJ/ m2.a 0.745 Coal consumption Kg/m2 .a 68.3 Slag consumption Kg/m2 .a 1.10 Electricity consumption KWh/m2 .a 6.08 Water consumption ton/m2 .a 0.17
342. After Chenbaerhu DHS implementation, the estimated reductions of pollutant discharge are listed as follows: IMEIP II PPTA FINAL REPORT 3-48
Table 3.34: The Reductions of Pollutant Discharge for Chenbaerhu DHS
Item Unit Reduction quantity Fired coal 1000 ton/yr 28.7 Slag ton/yr 6,667 Dust ton/yr 1,280
CO2 1000 ton/yr 31.8
SO2 ton/yr 440
NOX ton/yr 200
343. From the above analysis, we shall conclude that Chenbaerhu DHS will bring significant environmental, ecological, and social benefits for Chenbaerhu Banner after its implementation. (8) Justification Master Plans of the Proposed Subproject 344. According to the “Urban Master Plans of Bayankuren Town of Chenbaerhu Banner (2006-2020)”, prepared by the Urban Construction Research Institute of Ministry of Construction, Oct. 2006, relevant heating implementation plans, and actual status of Chenbaerhu urban construction, the heating status are projected as follows: 345. The newly increased heating area of Bayankuren Town will be approximately 0.6 million m2, with a heat load of 42 MW. 346. Thus, it is very urgent to construct a large-scale, high-efficiency, energy saving, and environmentally friendly district heating system to meet the requirements of its rapidly increasing heat load. 3.5 Contract Packaging, and Implementation Plan 347. Table 3.35 and Table 3.36 show the package plan and implementation schedule of all the DHS subprojects respectively. IMEIP II PPTA FINAL REPORT 3-49
Table 3.35: Package Plan of the DHS Subprojects
Subproject Investment Investment ADB Loan Package Contents Name (RMB million) ($ million) ($ million)
Part A: District Heating Supply (DHS) 1.Civil work and installation for boilers house in Area D and HESs in Area C and D 43.27 6.18 0 2.Civil work and installation for boilers house and HESs in Area F, G and M 70.92 10.13 0 3. Equipment procurement for boilers house in Area D 38.95 5.56 4. Equipment procurement for boilers house in Are F, G and M 68.33 9.76 5. Equipment procurement for HESs in Area C and D 27.43 3.92 6. Equipment procurement for HESs in Area K 34.49 4.93 7. Equipment procurement for HESs in Area F, G and M 38.52 5.50 43 Hohhot 8. Equipment and pipeline material purchase in Area C and D 39.02 5.57 DHS 9. Equipment and pipeline material purchase in Area F and G 45.22 6.46 10. Equipment and pipeline material purchase in Area K 65.16 9.31 11. Equipment and pipeline material purchase in Area M 32.33 4.62 12. Pipeline installation in Area C and D 16.56 2.37 0 13. Pipeline installation in Area F and G 25.63 3.66 0 14. HESs and Pipeline installation in Area K 43.92 6.27 0 15. Pipeline installation in Area M 19.15 2.74 0 1. Civil work of HESs 31.82 4.55 0 2. HESs and SCADA system installation 44.28 6.33 0 3. Installation of pipeline and accessories 70.99 10.14 0 4. Civil work for primary pipeline installation 49.90 7.13 0 Chifeng 5. Equipment procurement of automatic control system and instruments 8.21 1.17 DHS 6. Equipment procurement of HESs 74.52 10.65 7. Procurement of primary pipelines (DN 1200 to DN 500) 96.70 13.81 39 8. Procurement of primary pipelines (DN450 to DN150) 67.46 9.64 9. Procurement of primary pipeline accessories 96.77 13.82 1. Civil work and installation of HES 14.40 2.06 0 2. Pipelines installation and retrofitting 13.61 1.94 0 3. Civil work and installation of boilers house 15.41 2.20 0
Baotou 4. Equipment procurement of boilers house 14.90 2.13 0 DHS 5. Equipment procurement of electrical equipment 16.78 2.40 0 6. Equipment procurement for automatic control system and instruments 22.10 3.16 7. Equipment procurement for pipelines 83.23 11.89 15 8. Equipment procurement of HESs 31.32 4.47 1. Equipment procurement of boilers house (including HESs automatic control equipment) 47.57 6.80 10 Keyouqian 2. Equipment procurement of HESs 28.84 4.12 DHS 3. Equipment procurement of pipelines 35.72 5.10 0 4. Civil work and installation of boilers house, auxiliary buildings, HESs buildings and pipelines 67.68 9.67 0 1. Civil work and installation of all HESs 7.78 1.11 0
Kalaqin 2. Equipment procurement of HESs and SCADA system 22.32 3.19 7.5 DHS 3. Equipment and pipeline material procurement of the pipeline 37.80 5.40 4. Civil work and installation of pipeline 13.90 1.99 0 1. Equipment procurement of boilers house (including HESs automatic control equipment) 27.60 3.94 7 Zhalaite 2. Equipment procurement of HESs 24.77 3.54 DHS 3. Equipment procurement of pipelines 17.79 2.54 0 4. Civil work and installation of boilers house, auxiliary buildings, HESs buildings and pipelines 37.80 5.40 0 1. Equipment procurement of boilers house (including HESs automatic control equipment) 20.95 2.99
Molidawa 2. Equipment procurement of HESs 15.62 2.23 6 DHS 3. Equipment procurement of pipelines 16.39 2.34 4. Civil work and installation of boilers house, auxiliary buildings, HESs buildings and pipelines 30.74 4.39 0 1. Equipment procurement of boilers house (including HESs automatic control equipment) 18.35 2.62
Chenbaerhu 2. Equipment procurement of HESs 7.49 1.07 5 DHS 3. Equipment procurement of pipelines 11.55 1.65 4. Civil work and installation of boilers house, auxiliary buildings, HESs buildings and pipelines 20.74 2.96 0
Notes: 1. Exchange rate: $1=̞7.0. IMEIP II PPTA FINAL REPORT 3-50
Table 3.36: Implementation Schedule of the DHS Subprojects 2008 2009 2010 2011 132341 23412 41234 Hohhot DHS Design and tender documentation Tender invitation, assessment and contract award Civil works construction: boiler plant and HESs Equipment and pipeline installation (boiler, HESs, SCADA) Testing and commissioning Chifeng DHS Design and tender documentation Tender invitation, assessment and contract award Civil works construction: HESs Equipment and pipeline installation (HESs, SCADA) Testing and commissioning Baotou DHS Design and tender documentation Tender invitation, assessment and contract award Civil works construction: boiler plant and HESs Equipment and pipeline installation (boiler, HESs, SCADA) Testing and commissioning Keyouqian DHS Design and tender documentation Tender invitation, assessment and contract award Civil works construction: boiler plant and HESs Equipment and pipeline installation (boiler, HESs, SCADA) Testing and commissioning Kalaqin DHS Design and tender documentation Tender invitation, assessment and contract award Civil works construction: boiler plant and HESs Equipment and pipeline installation (boiler, HESs, SCADA) Testing and commissioning Zhalaite DHS Design and tender documentation Tender invitation, assessment and contract award Civil works construction: boiler plant and HESs Equipment and pipeline installation (boiler, HESs, SCADA) Testing and commissioning Molidawa DHS Design and tender documentation Tender invitation, assessment and contract award Civil works construction: boiler plant and HESs Equipment and pipeline installation (boiler, HESs, SCADA) Testing and commissioning Chenbaerhu DHS Design and tender documentation Tender invitation, assessment and contract award Civil works construction: boiler plant and HESs Equipment and pipeline installation (boiler, HESs, SCADA) Testing and commissioning IMEIP II PPTA FINAL REPORT 3-51
3.6 Energy Efficiency Analysis
348. A district heating system comprises three sub-systems: heat source, heat transmission and distribution sub-system, and consumer sub-system. The heat for space heating can come from a CHP plant, boiler plant, geothermal energy, nuclear energy, industrial waste heat or heat upgraded by heat pump, etc. For a larger system, consumers are not directly connected to the heat source through heat transmission and distribution pipeline; instead, HESs are employed. The heat transmission and distribution sub-system consist of primary pipelines, which start from heat source and end at HESs, HESs, and secondary pipelines, which start from HESs and connect with consumers. The energy conservation analysis will focus on each subsystem respectively. 3.6.1 Heat Source
349. Normally, CHP plant is the least cost alternative for heat source, since the heat used for space heating is the waste heat in the power plant. The plant can be operated in a back pressure model and steam extraction model. If the heat demand is stable and well matched with the power generation unit, the power plant operated in back pressure model can reach an energy efficiency of 85%. If the heat demand varies, steam extraction unit should be selected for CHP. In this case the efficiency of the plant varies with heat output. 350. If without heat demand, the power plant can only reach an efficiency rate up to 40%, and the other 45% of thermal energy produced in the plant has to be emitted to the atmosphere for keeping the plant in power generation. With the increase of heat output, the efficiency of plant will increase accordingly, till 85%. The heat demand for space heating varies following outdoor temperature with a peak value at the lowest designed outdoor temperature. The CHP plant can be used to meet the base heat demand and usually a boiler house is installed for peak load shaving. The peak load boiler is operated only during the coldest period. 351. The international and domestic experience shows that usually the co-generation of heat and power in CHP plant can save 30% thermal energy compared with the separate generation of same amount of heat and power. 352. Boiler plants are widely used for heat sources in the PRC. Its efficiency depends greatly on its capacity. Usually the higher the capacity, the higher the efficiency it can achieve. There is no strict definition of small, medium and large boilers; it is changing with the development of district heating scale, for example, in 1980’s 20 t/h (14 MW) boiler was considered a large boiler, but now it is in the category of medium-sized boiler. Now the boiler with a capacity equal to or more than 29 MW is considered a large-scale boiler. The following are the efficiencies of boilers with different capacities. (1) Small coal–fired boiler efficiency
i <1.4 MW 55%-60% i 1.4~2.8 MW 60%-65% i 4.2~7.0 MW 65%-70% IMEIP II PPTA FINAL REPORT 3-52
i >7.0 MW 70%-75% (2) Large boiler
i Coal-fired CGS boiler 80%-86% i Coal-fired CFB boiler 82%-90% i Gas/oil-fired boiler 88%-92% 353. As for the household-used coal stove, only the efficiency test for cooking is conducted, and the result is less than 20%. No test report is available for its use for both cooking and space heating in winter. Rough estimations regarding their efficiency is no more than 35%. 354. In addition to high efficiency, large boiler allows more investment in pollutant removal facilities with higher pollutant removal efficiency; therefore, it is more environmental friendly. 355. With the development of urban district heating, it is advisable to build a CHP plant as the heat source to meet the base heat demand, and as it increases to a certain scale, some of the existing boilers can be used for peak load shaving. That is an ideal approach for district heating development, which should be taken into consideration in the cities’ master plans and district heating development plans. 3.6.2 Heat Transmission and Distribution System 356. The heat loss of heat transmission and distribution system is estimated to be 5% of the thermal energy transmitted in system design. The actual heat loss depends on the insulation property of the pipeline used. Now most district heating systems adopt pre-insulated pipeline directly buried underground. The pipeline is made in the factory with polyurethane foam insulation layer and high density polyethylene outer pipe for protection. The thermal conductivity is no more than 0.033 W/m.k (European and Danish standard DS/EN253 and Chinese standard CJ/T 114-2000). 357. However, in the early stages of district heating development in the PRC, to save investment, pipelines insulated with polyurethane foaming on site with glass cloth wound and epoxy coated protection layer, were employed in some cities. The insulation performance and strength of the protection layer are poor. The installation of welded pipe segments is simplified, even no insulation. It can be easily identified by infrared thermo-graphic images. The actual heat loss of heat transmission and distribution system is much higher than 5%. The use of this kind of pipeline should be forbidden. 358. HES is one of the important subcomponents in a district heating system. Now the integrated unit is available, and is easy to transport and install. Except from the water replenishment tank, all equipment such as heat exchangers, circulating and water replenishment pumps, and connection pipes, are installed in a steel frame in the factory. The automatic control devices can also be installed in a box and fixed on the steel frame according to users’ control requirement. The unit is compact and pressure tested before leaving the warehouse with after-sale service for one or two heating seasons. The quality is better than the site assembled. Most of the subprojects will adopt this kind of HES. IMEIP II PPTA FINAL REPORT 3-53
359. Water loss is another factor which affects the energy efficiency. It is mainly caused by pipeline leakage and pipeline repair since a large amount of water should be drained before repairing. Hot water loss is a waste of both water resource and thermal energy. Usually the total water loss of the entire system is controlled less than 2%. Some district heating systems suffer heavy water loss in the consumer system because some customers drain hot water of district heating system for household cleaning and other purpose. Dyes are normally put into water to prevent customers from illegal use of hot water in district heating system. 3.6.3 Consumer Connection and Installation 360. The secondary pipeline and consumer system is not included in this Project. The consumer connection and installation are important for energy savings. Most district heating systems built before 1980’s adopted single vertical pipes in series connections for radiators in the room. The consumer connection was only valves and pressure gauges. Now a balance valve and a flow limiter are installed to control the flow rate to the consumer based on the thermal requirement. The situation of overheating near the HES and under-heating far from the HES is mitigated, the service quality is improved, and energy is saved. The installation of thermostats before the radiator is a practical and inexpensive measure for energy savings. The consumer can set room temperatures according to their own life style rather than opening windows to release heat for overheating problems. Usually those installations can save approximately 10% of thermal energy. 3.6.4 Energy Conservation Measures for the Subprojects 361. The following energy conservation measures are to be applied in the eight subprojects:
i Large efficient boilers; i Quality pipelines; i SCADA system for system operation and optimization; i Indirect connections by integrated HESs; i Frequency converters for driving circulating pumps. 3.6.5 Coal Savings 362. The energy conservation of this Project lies mainly in coal savings. The table below shows the coal saving of each subproject. IMEIP II PPTA FINAL REPORT 3-54
Table 3.37: Coal Saving of the DHS Subprojects
No. Subproject Crude coal to be saved (ton) Converted to standard coal (ton) 1 Hohhot DHS 155,400 110,300 2 Baotou DHS 152,200 108,720 3 Chifeng DHS 511,400 262,560 4 Kalaqin DHS 67,500 48,200 5 Zhalaite DHS 39,300 28,080 6 Keyouqian DHS 71,000 50,720 7 Molidawa DHS 30,700 22,020 8 Chenbaerhu DHS 28,700 12,730 Total 1,056,200 643,330
363. From the table we can see that the district heating part of the Project will save about 643,000 tones of standard coal per year after completion of the subprojects. The contribution of the Project to the IMAR is obvious in terms of energy conservation and environmental improvement. 364. Although major system energy conservation measures will be taken in each subproject, the system operation and management are also critical to realize the energy conservation. District heating system’s integrity should be kept at a high level during the lifetime of the system. 3.7 Technical Risk Analysis 365. Generally, there is no excessive technical risk in the proposed 8 heating subprojects since all technologies and equipments selected are mature and well proven in the PRC. 366. Due to the uncertainty in system design and installation, and the experience of past projects, the following points should be put forward. 367. The drawings and information of detailed design provided by the design institutes should be carefully checked to ensure the integrity and correctness. 368. The installation supervision should be emphasized in the construction. Significant alterations in system design or material replacement should be agreed upon by the project owner, DI and supervisor. 369. Boiler, blower, draft fan, and pump are key equipments in the district heating systems. Their manufacturers should be chosen carefully in terms of reputation, manufacturing experience and reference to ensure quality products are purchased. 370. For the phased subprojects, installation plans should be arranged accurately to ensure the installations of all necessary components are included in different phases. 371. In order to identify, define and provide solutions for any technical risk that may arise, the establishment of a technical risk assessment and control system is highly recommended. IMEIP II PPTA FINAL REPORT 4-1
CHAPTER 4 TECHNICAL ANALYSIS OF NATURAL GAS SUBPROJECT
4.1 General Introduction
4.1.1 Current Status of Natural Gas Industry in the PRC
372. Natural gas (NG), as a high-efficiency and cleaner fuel, has been increasingly valued in the PRC and the development of the NG industry has become one of the best choices for improving the environment and promoting sustainable economic development. Along with the rapid economic development in the PRC and the population growth in recent years, energy consumption continues to grow and air emissions of various pollutants including greenhouse gas have also increased substantially. This puts tremendous pressure on the limited natural resources and the environment in the PRC. The heat value of coal gas is more than 3000 kilocalories while that of the NG is as high as 8500 kilocalories. Thus NG is a high value fuel and it also has higher energy conversion rate compared with other fuels. The NG combustion technologies have been improved significantly in recent years. The thermal efficiency of NG gas-fired power plants was below 40% not that many years ago and now it approaches 60%. At some cogeneration and combined cooling, heating and power (CCHP) plants, thermal efficiency can be as high as 90%. Moreover, the pollution associated with NG combustion is much less compared with other fossil fuels. Researches have demonstrated that NG among all fossil fuels discharges the smallest amount of carbon dioxide to generate the same amount of electricity or thermal energy1. Greenhouse gases generated from NG combustion is only 1/2 and 2/3 of that generated from coal and petroleum combustion, respectively. Compared with fuel oil and coal, NG combustion emits much less sulfur dioxide and nitrogen oxides as well.
373. Modern NG industries in the PRC were only developed in recent years although it has a long history in NG utilization. As more NG reserves were discovered and the completion of the West-to-East NG Transmission Project, the NG industry has gained tremendous developmental momentum in recent years. The three largest oil companies in the PRC have conducted extensive oil and gas resource explorations, evaluations and assessments in their respective prospecting zones since 2000. It’s estimated that the current NG resources in the PRC are approximately 47 trillion m3 and recoverable NG resources in the PRC are 10̚14 trillion m3. The accumulated proven recoverable NG resources nationwide reached 3.5 trillion m3 and the remaining recoverable NG reserves are approximately 2.85 trillion m3. Most NG resources are distributed in the middle and western parts of the country in six basins including Erdos, Sichuan, Tarim, Songliao, East China Sea and Yinggehai, with a total recoverable NG resources of 8.8 trillion m3, accounting for 62.8% of the total NG resources in the PRC. The specific distribution2 of major NG resources in the PRC is shown in Figure 4.1.
1 Status and future outlook of natural gas for heating, Beijing Energy Conservation, Issue No.2, 2000. 2 Songliao Basin 9869x108 m3, Tuha Basin 3651.02x108 m3, Bohai Basin 21181.26x108 m3, Yangtze River estuary Basin 6513.02x108 m3, Sichuan Basin 73575.21x108 m3, Donghai Basin 24803.4 x108 m3, Erdos Basin 41797.4x108 m3, Southeast Basin of Hainan 16253.4x108 m3, Junggar Basin 12289x108 m3, Yinggehai Basin IMEIP II PPTA FINAL REPORT 4-2
Figure 4.1: Distribution of Major NG Resources in PRC
374. NG supply and consumption in the PRC have been increasing steadily since the 1990s. Specifically, nationwide NG production has increased from 15.3 billion m3 in 1990 to 58.591 billion m3 in 2006 with an average annual increase rate of 19%. On the demand side, the annual NG consumption in the PRC has increased by more than 2 billion m3 from 1998 to 2005, with an increase rate of approximately 10%. It is estimated that by 2010 the gap between NG demand and supply in the PRC will be around 20 billion m3. According to the “Energy Development Report of the PRC 2006”, the increase rate of NG demand in the PRC will visibly exceed that of coal and petroleum. Currently, NG accounts for 3% of the total demand for energies and the proportion of NG will increase to 6% by 2010 and further to 10% by 2020.
22390x108 m3, Qaidam Basin 9000x108 m3, Eastern Pearl River Mouth Basin 12987x108 m3, Tarim Basin 83896.15x108 m3, with the total amount 338205.86x108 m3 . Source of the information: Huajing Zhongheng Economy and Information Center. IMEIP II PPTA FINAL REPORT 4-3
Figure 4.2: Major NG Transmission Pipelines in the PRC
375. The development of the NG industry in the PRC is closely connected with that of NG transmission pipelines, which help to transport NG to where it’s most needed. Recently, along with the completion and operation of such NG projects as the West-to-East Gas Transmission Project, Zhongwu Line, and Se’ninglan, Shaanxi-Beijing Line I and II, the construction of the Sichuan-to-East Gas Transmission Project, and the preliminary preparation of the West-to-East Gas Transmission Project II etc., a NG pipeline network is beginning to evolve in the PRC, which covers major areas of the country and allows dispatch of NG from production areas to regions and areas with high demands. The main NG pipelines in the PRC are shown in Figure 4.2.
376. By the end of 2005, the total length of NG pipelines in the PRC was approximately 28,000 km, and a NG pipeline network is being formed with two major north-south pipelines (Dayu1, Jining2) and four east-west pipelines (Seninglan3, West-to-East4, Shaanxi-Beijing1,
1 Dayu Line starts from Daniudi Gas Field in IMAR Wushen Qi, ending in Yulin City of Shaanxi Province, with a total length of 82 km and the designed gas transmission ability of 3 billion m3. 2 Jining Lianluo Pipeline connects Shanjing II Line Hebei Anping branch transmission station in the north and west-to-east gas transmission pipeline Jiangsu Qingshan branch transmission station in the south, with 890 km backbone pipelines and 1498 km of 9 branch pipelines. 3 Se (Qinghai Sebei) Ning (Xining) Lan (Lanzhou): it starts from Qinghai Sebei Region, passing Qinghai Xining to Gansu Lanzhou, with a total length of 953 km and a designed annual gas transmission ability of 2 billion m3. 4 West-to-east gas transmission pipeline is 4000 km in length, with the backbone pipeline diameter 1016 mm, starting from Xinjiang Tarim Basin Lunnan Oil and Gas Field, passing Gansu, Ningxia, Shaanxi, Shanxi, Henan, Anhui, Jiangsu and Zhejiang Province, etc and ultimately stretching to Baihe Town in the suburb of Shanghai City. IMEIP II PPTA FINAL REPORT 4-4 and Zhongwu2). According to the “NG Pipeline Network Distribution and the 11th Five Year Development Plan”, during the period from 2006 to 2010, a nationwide main NG network will be initially completed. It is planned to construct approximately 16,000 km of NG pipeline during this period. The planned major transmission NG pipelines include: Sichuan-to-East Gas Transmission Line3 and West-to-East Gas Transmission Line II4. By 2010, the total length of NG pipeline in the PRC will reach 44,000 km, meeting the national NG supply goals of “west-to-east gas transmission, north-to-south gas transmission, sea-to-land gas transmission and supplying to areas nearby NG production”.
377. NG is mainly used in the PRC for fertilizer production, residential cooking, power generation, urban industries, as well as small amount as automobile fuel. At present, NG used for fertilizer production accounts for approximately 42% of the total consumption and that for urban cooking gas accounts for about 15%. NG used for power generation and other purposes accounts for a relatively smaller proportion. However, in the future, the consumption of and demand for NG will change to a certain degree. The “NG Utilization Policy” was promulgated on 30 August 2007 by the central government of the PRC which divided NG utilization into four categories: priority, allowed, restricted and prohibited. Residential use of NG was classified as the “Priority” category.
378. Historically NG did not play a significant role in urban energy structure in the PRC and only accounted for approximately 1% or less. Coal has been the primary energy source in urban areas for many decades. The direct combustion of coal results in severe indoor and urban air pollution, and the transportation and treatment of coal ash and residues have also become a difficult issue for urban waste disposal. It is imperative to expand the use of NG in urban areas for improving quality of life, protecting the environmental as well as energy diversity. In 2005, the total supply of urban coal gas, NG and liquefied petroleum gas (LPG) were 25.58 billion m3, 21.05 billion m3 and 12.22 million tons, respectively. The length of the urban gas pipelines reached 162,108 km, among which the total length of NG pipelines was
Shanjing Line I, together with Line II, starts from Shaanxi Jingbian, with a total length of 910 km and an annual transmission capacity of 3.6 billion m3; Line II is 932 km in length with an annual transmission capacity of 12 billion m3. Zhongwu Line starts from Zhong County, Chongqing, ending at Hubei Wuhan, with a total length of 760 km and together with the branch lines in Hubei and Hunan Provinces, the total length is 1375 km. The total investment of the project is as high as RMB 10 billion, with a designed annual gas transmission volume of 3 billion m3. Chuan-to-east gas transmission project starts from Puguang Town, Xuanhan County, Dazhou City, Sichuan in the west, ending at Shanghai Qingpu, with a total length of 1674 km and an annual gas transmission volume of 12 billion m3. The west-to-east gas transmission Line II has the designed annual gas transmission scale of 30 billion m3/year. It starts from Xinjiang Huoerguosi, pasts Xian and Nanchang, down to Guangzhou in the south and stretches to Shanghai in the east, past Xinjiang, Gansu, Ningxia, Shaanxi, Henan, Anhui, Hubei, Hunan, Jiangxi, Guangxi, Guangdong, Zhejiang and Shanghai. The length of the main pipeline is 4859 km, plus the several branch lines, the total length is over 7,000 km. IMEIP II PPTA FINAL REPORT 4-5
92,043 km and that of the coal gas pipelines was 51,403.7km. The total urban gas using population was 194.858 million, and the gas access rate1 was 82.1%2.
4.1.2 Current Status of NG Industry in IMAR3
379. NG industry in IMAR is still in the early stages of development but has a very promising future. IMAR is the base for energy production in the PRC and has produced 223.7 million tons of equivalent standard coal in 2006. It ranked the first in coal production in the PRC. However, large scale NG production in IMAR only commenced in 2001. NG production over the last few years in IMAR is shown in Table 4.1. The proportion of NG in the total energy consumption continues to rise from minuscule amounts at the turn of the century to about 1.5% in 2006. This proportion is lower than the national average even though IMAR is one of the main NG production areas. The NG consumption structure in IMAR is provided in Table 4.2. It can be seen from the table that NG is mainly used for industrial purposes while NG used for household use accounts for only 13.3% of the total NG consumption. Consumption of various gases including NG, coal gas, and LPG etc. are shown in Table 4.3. It shows that the LPG and coal gas consumption were decreasing while the NG consumption had increased from 2005 to 2006 and this trend is expected to continue. The gas energy supply status as well as relevant infrastructure of Wulanhaote City, the nearest city to the proposed NG subproject at Keyouqian Banner, is provided in Table 4.4.
Table 4.1: NG Production and consumption in IMAR (2006)
Year 2001 2002 2003 2004 2005 2006 Yield (103 tons of coal equivalent) 853 1028 1406 2089 5133 7046 Proportion in the total energy 1.41 1.22 1.30 1.34 2.69 3.15 production (%) Consumption volume (103 tons of 17.8 26 271 43 840 1904 coal equivalent) Proportion in the total energy 0.04 0.05 0.41 0.05 0.78 1.49 consumption (%)
Source: Inner Mongolia Year Book 2007
1 Gas access rate: the percentage of people who use gas (including coal gas, NG, LPG etc.) as household fuel. 2 Data source: PRC Fuel Gas Industry Analysis, http://www.51report.com/free/detail/38180.html 3 Data source: Inner Mongolia Year Book 2007 IMEIP II PPTA FINAL REPORT 4-6
Table 4.2: NG Consumption Structure in IMAR (2006)
Power, heating and fuel Industry Living gas Chemic Smeltin Smelting Special Power and Gas Consumptio al and g and and devices heat production n for living Total raw pressin pressing manufactu manufacturing and material g of of ring and supplying supplying s black non-ferrou industry industry industry metals s metals Consumption volume 500 100 300 100 100 200 200 1500 (million m3) Proportion 66.7 20 13.3 100 ď%Đ
Source: Inner Mongolia Year Book 2007
Table 4.3: Consumptions of Various Gas in IMAR (2006)
Coal gas 6 3 3 NG (10 m ) LPG (10 ton) (106 m3) Length of coal gas Gas access rate pipeline (km) (%) total household total household total household 2005 68.9 53.2 94.4 14.4 138.3 127.3 1008 68.18 2006 61.1 42.3 183.7 25.6 99.6 90.4 1024 71.03
Source: Inner Mongolia Year Book 2007
Table 4.4: Gas Energy Supply Status in Wulanhaote1 (2006)
Pipeline length 3 Annual total gas supply Gas using population (10 ) (km) Region coal gas LPG coal gas NG NG coal gas LPG NG (104Nm3) (tons) Total in IMAR 1024 740 6113 99616 18370 79.00 3154.9 1090.2 Wulanhaote City - - 2982 - - 128 -
Source: Inner Mongolia Year Book 2007
4.1.3 Necessity for the NG Sub-project
380. The Project includes one NG sub-project in Keyouqian Banner, Xing'an League, i.e. Keyouqian NGS. The subproject aims at providing clean energy infrastructures to the newly built small city to improve the local energy structure. Overall, the NG subproject has the following advantages:
(i) Improving the local environment. The NG subproject will develop and improve the local NG delivering infrastructure thus leading to more NG consumption in the local
1 Wulanhaote City is just 5~6 km to the projected city—Keyouqian Banner, which is a new building city with no data to show its gas consumption. IMEIP II PPTA FINAL REPORT 4-7
areas. As NG will replace some coal and petroleum gas, energy utilization efficiency will be enhanced and air pollutants emissions including greenhouse emissions will be reduced which will make positive contributions to slowing down global climate change and environmental pollution.
(ii) Reducing poverty and improving standards of living. Initially, as the air quality improves during the heating season, so will local people’s health. This is especially true for poor people as they are more likely to be the users of small coal-fired stoves for heating in the winter time, which deteriorates the indoor air quality and people’s health, and sometimes may cause CO poisoning and threaten lives from small heating stoves in people’s homes. They will spend less on health care related expenses. Secondly, NG is a fuel with high energy conversion efficiency so residents don’t need to consume as much to meet their daily needs. Thus, savings are expected assuming NG is reasonably priced by the local government. Thirdly, as the NG infrastructure is improved, it will promote economic and urban development, which will increase job opportunities for the poor people and increase income considering Keyouqian Banner is one of the poorest counties in the IMAR. The implementation of the NG subproject will certainly contribute to poverty reduction in the local area.
(iii) Promotion of economic development in IMAR. Agriculture and husbandry play a dominant role in local areas of the NG subproject. The rural areas lack of public service facilities and the economic structure is singular. The NG subproject will ensure reliable NG supply to the underdeveloped local area, attract more investments, alter the local singular economic structure, and promote economic development. In the meantime, through the improvement of the supply of highly efficient and clean fuel, it can boost the local industrial development in the direction of cleaner, more energy-saving and environmental protection, thus attracting nearby farmers and herdsmen scattered in the neighboring places to move to the newly developed area in cities. It can reduce over reclamation and grazing, thereby indirectly protecting the local fragile ecological environment. For instance, Keyouqian NGS will help to attract the county and town farmer residential areas on the periphery of the city into the agricultural products processing industry, which will be developed in the area and thus, will help to change economic structure.
4.2 Technical Analysis
381. NG supply refers to the process of transmitting NG produced at the gas sources to areas where NG use is concentrated (cities) and then distributing it to end users (see Figure 4.3). NG can be transported via pipeline transmission, road transportation using tanker trucks after being compressed, or being liquefied. NG transported to the cities needs to be further transmitted to the customers through the urban NG pipeline network. In this process, attention should be paid to solving the great imbalance or unevenness between the gas supply volume and gas consumption volume at different times of the day or season. NG should be stored during off-peak hours and distributed to users during peak hours. Gas storage facilities mainly include the following options: (1) high-pressure pipeline; (2) surface IMEIP II PPTA FINAL REPORT 4-8 container; (3) high-pressure well; and (4) underground storage (rock formation or cave). Keyouqian NGS involves both NG transportation and storage.
NG reception, City Gas NG storage Pipeline End User source transportation distribution network system system
Figure 4.3: NG Supply System
382. Selecting the method of transporting NG mainly depends on the transportation distance and quantity to be transported. Generally speaking, the economical transportation distance of compressed natural gas (CNG1) is preferably within 300 km and should not exceed 500 km. The gas supply scale should not be too large, usually for 50,000 households or less and small to medium demand from industrial users. For large-scale industrial enterprises using NG as a raw material or the main fuel, the gas supply using CNG is unsuitable. The economical transportation distance of LNG and pipeline NG transportation varies considerably with the gas consumption scale and should be analyzed on a case-by-case basis. The selection of NG transportation method also depends on gas source conditions, such as the availability of CNG or LNG, etc.
383. The selection of the NG storage method is also closely related to the capacity and actual conditions. For example, high-pressure gas storage should consider pressure gas storage capacities from high-pressure pipelines first in many medium and small cities. Cave gas storage method is usually used for large city gas storage. Both methods depend on the availability of high-pressure pipeline and caves. If the conditions can not be met, high (medium and low) pressure gas storage facilities can be utilized.
4.2.1 Overview
384. Keyouqian Banner is located in the eastern part of IMAR, with a total area of 20,000 km2, a total population of 420,000, of which the agricultural population is 340,000. The local government’s head offices are being constructed in Dabagou Town. In November 2005, the local government organizations were moved from Wulanhaote City to the current location, and a new city will be built for future long-term development. The planned urban area is 8.36 km2, with the planned city population of 160,000. Wulanhaote City is only 6.5 km from the newly constructed Keyouqian Banner City which has a developed area of 23 km2, with a total population of 287,000 and urban population of 222,000, and has jurisdiction over 8 street offices and 2 counties.
385. Along with the acceleration of the construction of Keyouqian Banner City, the gas pipeline, as an important part of the public infrastructure, has been included in the construction agenda. Planning of gas supply at the beginning of the new city’s construction has many advantages including improving the local environment, raising the city’s
1 Application of Compressed NG in Small Urban-Town, http://www.egas.cn/lwen/ljshu/200709/967.html IMEIP II PPTA FINAL REPORT 4-9 competitiveness and attraction, accelerating the urbanization pace and city construction, promoting merchant and investment, boosting economic development, improving people’s standard of living, and protecting the ecological environment.
4.2.2 Scope of the Subproject
386. Keyouqian NGS aims at: purchasing CNG at the Compression Master Station in Songyuan oil field, transporting CNG to Keyouqian Banner using vehicles, providing CNG to local taxies and buses and transmitting it to the end users by a local medium pressure natural distribution pipeline network, which is part of this subproject as well. The IA for this subproject is Keerqin Kangze Pipeline Gas Company, Ltd. (KANGZE). The subproject is illustrated in Figure 4.4. The scope of Keyouqian NGS has been provided in Table 1.1 in Chapter 1. The CNG pressure-reducing station also contains 20 gas storage wells and a monitoring center.
Pressure- City medium- reducing pressure pipeline Songyuan station network CNG Master Station Vehicle gas filling station
Figure 4.4 Diagram for Keyouqian NGS
4.2.3 Designed System Capacity
387. The designed annual gas supply volume of the system will increase year over year and the major design parameters are shown in Table 4.5. According to the city plan, the residential NG users would be 35,000 households in near term and 56,000 households in the long term. The designed annual NG supply is 10.908 million m3 in the near term and 25.764 million m3 in the long term. According to the proportion of the near-tem and long-term residential users in Keyouqian Banner City in the total gas consumption, as well as the reference to similar cities, the gas storage coefficient is calculated at 30%. The peak adjustment amounts are 7,193 m3 and 12,161 m3 by 2010 and 2015, respectively. The gas storage days for emergency purposes are determined as 2 days and the corresponding residential and commercial gas consumption is 47,954 m3. With regard to the storage capacity, based on experience, the gas storage coefficient should be 40-50% when the home use gas accounts for 50% of daily gas consumption. Therefore, the designed gas storage capacity of this system in the FSR is slightly small. But considering the actual operation time, we can apply the emergency gas storage capacity to the peak adjustment or IMEIP II PPTA FINAL REPORT 4-10 properly increase tank vehicles to increase the gas storage capacity, which is relatively simple to do. Some typical gas storage coefficients are provided in Table 4.6.
Table 4.5: Major Technical Indexes for Keyouqian NGS
No. Technical index 2010 2015 1 Annual gas supply volume (103 m3) 10,908 25,764 2 Peak-adjusting gas storage volume (m3) 7,193 12,161 3 Emergency gas storage volume (m3) 50,000 80,000 4 Residential users (103 households) 35 56
Source: Feasibility Study of Keyouqian NG Project, December 2007
Table 4.6: Typical Gas Storage Coefficient
No. Item Value range (%) Percentage of the home use gas consumption in the daily gas Below Above 1 50 consumption 40 60 2 Gas storage coefficient 30-40 40-50 50-60
Source: Natural Gas Handbook, Mechanical Industry Press
388. The average daily NG consumption is estimated at 29,885 m3. The system capacity is determined by the capacity of CNG transportation vehicles. Each CNG tanker has a capacity of 4,000 m3 and eight tankers and eight transportation vehicles with a total capacity of 32,000 m3 will meet the daily demand. Two additional tankers with a total capacity of 8,000 m3 are included in this subproject for peak-adjusting purpose, which is more than the designed peak adjusting gas storage volume of 7,193 m3. Thus, there will be a total of 10 CNG tankers and 8 transportation vehicles for this subproject. If one of the CNG transportation vehicles needs to be repaired or maintained for an extended period of time, delivery services from CNG suppliers will be arranged to ensure there will be no interruption of NG supply to users. The 10 tankers and 8 transportation vehicles will be in one bidding package. However, as the demand of NG will increase gradually, it is recommended that the deliver of equipment be in 2 or 3 phases so inflation and foreign exchange risks are shifted to the supplier.
389. The NGS is designed to have 20 underground wells initially for emergency gas storage and the capacity of each well is 2,500 m3. The total system capacity of emergency gas storage is 50,000 m3, more than the designed storage volume. As the demand for NG increases after 2010, additional 15 storage wells will be added to ensure there is adequate CNG storage for emergency purposes. Since there are more CNG suppliers within the economic distance, the risk of not having enough emergency storage is minimum. As the system is relatively flexible, the storage capacity could be expanded easily according to the actual demands of NG. IMEIP II PPTA FINAL REPORT 4-11
4.2.4 Gas Source
390. The gas source nearest to Keyouqian Banner is from Jilin Songyuan Oil Field, which plans to produce 1.5 billion m3 annually by the end of the “11th Five-Year Plan” period. The compressing master stations of the two NG compressing companies in the oil field, Jilin Oil Field Company and Shuangxing Fuel Gas Company, are approximately 250 km from Keyouqian Banner, with a daily production capacity of CNG 0.2 million m3, but the sale of CNG from the two stations is only 0.1 million m3, far less than their capacity even with Keyouqian NGS’ demand. In terms of economical transportation distance (500 km), there are other choices for CNG supply (see table 4.7), such as Jilin Ganghua Master Station, Nongyuan Master Station, Jiao Master Station, Daqing Oil Field Sinopec. The total production capacity of the above stations is approximately 1 million m3 CNG per day. The current production to meet the demand is only 0.49 million m3 per day. Thus, there is enough excess capacity to meet the demand of Keyouqian Banner City which is approximately 20000~70000 m3 per day.
391. Although it is necessary to ensure the CNG supply, it is not common practice to sign a long-term contract with a supplier. In order to reduce cost, the IA plans to negotiate with several suppliers and select the most cost-effective supplier. At the same time, the supplier will not sign a long-term contract considering the uncertainty and escalating energy prices. Since there are more CNG capacities within the economic distance of the subproject than demand, CNG supply is not a problem. However, KANGZE, the NG subproject operator, is discussing with CNG suppliers and a supply contract will be signed before the construction of the subproject is completed.
Table 4.7: CNG Sources
Distance to Capacity Sale (consumption) No. Company Keyouqian (103 Nm3/d) (103 Nm3/d) (km) 1 Jilin Ganghua Master station 350 200 Changchun (30), Shenyang (20),Jilin (30) 2 Jilin Nongyuan NG Development 350 150 Changchun (20), Shenyang Co. Ltd. (20), Jilin (10) 3 Jilin Jiao Fuel Gas Co. 350 350 Changchun (50), Shenyang (20), Jilin (30) 4 Jilin Oilfield 250 100 Changchun (20), Songyuan (20), Wulanhaote (10) 5 Jilin Shuangxin Fuel Gas Co. 280 100 Songyuan (50) 6 Daqing Oilfield of PetroChina 420 300 Daqing (60), Harbin (100) Total 1,200 490
Source: Feasibility Study of Keyouqian NG Project, December 2007
4.2.5 Gas Transmission
392. According to the gas source conditions, the transportation methods available include CNG vehicle transportation and high-pressure pipeline transportation. As there are no local IMEIP II PPTA FINAL REPORT 4-12
NG liquefaction plants, liquefied NG transportation was not feasible and thus not considered further in this technical analysis. Given that the gas source is nearly 300 km from Keyouqian Banner and the gas consumption scale is small, CNG vehicle transportation is the most economically feasible option. Ultimately CNG tanks are chosen for NG transportation for Keyouqian NGS. The volume of a tank is 18 m3, which has the gas storage capacity of 2,500 m3 (under the pressure of 25 MPa). In the case of the loading pressure of 23 MPa and the unloading pressure of 0.6 MPa, the NG volume transported is 4,000 m3 per day. According to the average daily gas consumption of approximately 30×103 Nm3/d, a total of 10 tanker cars and 8 trailers will be needed for the subproject. Two of the 10 tanker cars will be used for peak adjustment and gas storage purposes.
4.2.6 Reception, Storage and Distribution System
393. High-pressure CNG is transported by the tankers. After pressure adjustment at the pressure unloading station, NG enters the city medium pressure pipeline network for gas supply. The pressure unloading station includes unloading sets and storage systems. At the same time, it can provide to automobiles directly or through a vehicle gas-filling station. With regard to the storage system, there are several choices, such as high-pressure wells, high pressure sphere tanks, as well as low pressure cabinets, etc. The FSR, through comprehensive comparisons, selected the high pressure well as the gas storage system. With the recent gas consumption scale, 20 gas storage wells with the water capacity of 10 m3 will be constructed initially. Additionally, 15 gas storage wells with the gas storage pressure of 25 MPa will be added later on.
4.2.7 Medium Pressure Pipeline and Network System
394. Medium pressure pipelines and networks have different operating pressures. According to the city area for NG supply as well as the distribution of the residential users in Keyouqian Banner, the medium pressure level I gas supply system is adopted. Supply gas with medium pressure and singular pressure level system will be utilized. To meet the gas transmission requirements, the starting-point pressure is 0.4 MPa (absolute pressure) and the lowest pressure in the system will be 0.3 MPa (absolute pressure). The total length of the transmission and distribution system pipeline in this design is 27.58 km in the near term and the long-term plan is to reach 45.27 km. The material of the pipeline will be PE pipe and the summary information of pipelines is shown in Table 4.8.
Table 4.8: Length of the Gas Pipelines in the Urban Area
No. Specification Short-term length (m) Long-term length (m) 1 PE pipeline ĭ90 (branch pipeline) 10000 10000 2 PE pipeline ĭ160 1098 4732 3 PE pipeline ĭ200 12297 2956 4 PE pipeline ĭ250 4181 Total 27576 17688
Source: Feasibility Study of Keyouqian NG Project, December 2007 IMEIP II PPTA FINAL REPORT 4-13
4.2.8 Technical Evaluation
395. The main components of Keyouqian NGS include: medium pressure pipeline and network, pressure reducing station, vehicle gas-filling station, and CNG transportation. Major equipment and construction methods will use domestically mature technologies. Some equipment, such as specialty valves might need to be imported but they are widely used in successful applications in the PRC. So there are no obvious technical risks. The local maximum frozen depth is 2.4 meters. Therefore, the burial depth of the medium pressure pipeline is correspondingly increased from the FSR. Thus the unit price in the pipeline investment was increased to reflect this consideration.
396. Conservative design of system capacity is adopted to reduce the uncertainty. The greatest risk for Keyouqian NGS is the assumption regarding the expansion of the city. If the growth rate and scale of the city population fail to reach the targets specified in the Master Plan, the design capacity of the system will not be achieved. To avoid this scenario, more conservative assumptions were made when determining NG access rate indices to reduce risks. Thus the system capacity design is justifiable.
397. The systematic flexibility is enough to reduce the risks due to inconsistency between expectation and reality. The transportation, storage, distribution facilities could be constructed step by step with the demand development. At the same time the pressure level of pipeline network is reasonably selected, which is favorable for system capacity increases when the city development exceeds expectations. Safety risks caused by increased pressure can be easily resolved. The construction difficulty in a newly built city is relatively small.
4.3 Demand Analysis
4.3.1 Price Competitiveness
398. The major users of NG fall into three categories: residential use, NG vehicle use as well as industrial boiler use. However, the demand for NG depends on price competitiveness as well as availability. If the comparable price of NG is equal to or lower than other fuels, NG will undoubtedly replace the demand for other fuels under the condition of adequate supply and feasible technologies. On the other hand, if the comparable price of NG is higher than that of other fuels, the demand will rely on whether the users are willing to pay more for environmental improvement and other benefits, which will in turn rely on the financial ability of the residents.
399. According to the FSR, the NG purchasing price in Keyouqian Banner is 1.8 yuan/Nm3,1 the finished product price is 2.35 yuan/Nm3, and the average selling price is 3.7 yuan/Nm3 (not considering the price differences among residential, industrial and commercial users). The selling prices of various energy sources are provided in Table 4.9. The comparable prices are shown in Table 4.10.
1 In the suburbs in Beijing such as Changping, the price of CNG at the master station is 1.9 yuan/Nm3. Given the energy consumption for CNG production per m3 is 0.25 kwh, as well as other factors such as labor, investment cost and enterprise profits, etc., 1.8 yuan/m3 is a reasonable price. IMEIP II PPTA FINAL REPORT 4-14
Table 4.9: Price of the Energy in Keyouqian Banner
NG Electric power1 LPG Coal2 Petroleum3 (yuan/Nm3) (yuan/kwh) (yuan/kg) (yuan/ton) (yuan/litre) Keyouqian 3.7 0.42 7.2 330/640 5.4 Banner
Source: Consultant’s investigation and estimation.
Table 4.10: Comprable Unit Prices of Various Energy Sources4
NG Electric power LPG Coal Petroleum Keyouqian Banner (yuan/Mj) 0.0832 0.1167 0.1636 0.0298/0.0254 0.1649
Source: Consultant’s investigation and estimation.
400. As it can be seen from the table above, NG has price advantages over electric power, LPG and petroleum in Keyouqian Banner. Therefore it is an attractive option for the current LPG users (mainly families and commercial users) and petroleum users (mainly vehicles) while it does not appeal to coal users just from the cost point of view. If the environmental protection benefits of NG are taken into consideration, NG has considerable advantages. However, at present, the PRC lacks enforcement in environmental protection policies and collection of emission fees.
4.3.2 NG Demand
401. The annual NG demand is estimated based on the estimated population growth rate and gasification rate. NG demands from residential use, commercial (public welfare), industrial gas users and other (i.e. vehicle) gas users are estimated and then the total NG demand is obtained. Some important assumptions are made including population, gasification rate, per capita gas consumption index, the proportion index of resident gas consumption to industrial gas consumption, etc.
402. Various parameters and assumptions are made for estimating NG demands in Keyouqian Banner (see Tables 4.11 through 4.13), which includes assumptions of the residential gas consumption, industrial, commercial gas consumption proportion coefficient, as well as vehicle NG consumption assumption.
1 The local resident power price 2 There are mainly two types of coals consumed in Keyouqian Banner: brown coal with the heat value of 2,800 kcal/kg and the price of 330 yuan/ton, and the other with the heat value of 6,000 kcal/kg at 640 yuan/ton. 3 Based mostly on 93# gasoline price. 4 The heat value of the NG can be provided according to the FSR. The average heat value of the NG in Keyouqian Banner is 10625 kcal/m3. The conversion for power and heat value is: 3.6 Mj/kwh. The heat value of LPG is 44 Mj/kg and that of petroleum is 32.7 Mj/l. IMEIP II PPTA FINAL REPORT 4-15
Table 4.11: Assumption of Residential Gas Consumption
Project location Assumption index 2010 2015 Planned polulation (thousand people) 160 200 Keyouqian Banner Gasification rate (%) 70 90 Per capita heat consumption (1,000 kcal/person.year) 550 600
Source: Feasibility Study of Keyouqian NG Project, December 2007
Table 4.12: Proportion Coefficients of Commercial and Industrial Gas Consumption to Residential Gas Consumption
Project location Assumed project 2010 2015 Commercial 0.2 0.25 Keyouqian Banner Industrial 0.1 0.2
Source: Feasibility Study of Keyouqian NG Project, December 2007
Table 4.13: Parameters for Prediction of Vehicle Gas Consumption
Project location Parameter 2010 2015 Pubic traffic vehicle number (including taxis) 460 1000 Number of buses owned per thousand persons 4 6 Keyouqian Banner Gasification rate 40 75 Gas consumption index of bus (m3/d per bus) 44 44 Gas consumption index of taxis (m3/d. per taxi) 36 36
Source: Feasibility Study of Keyouqian NG Project, December 2007
403. According to above assumptions, the estimated NG demands in Keyouqian Banner City are shown in Table 4.14 below:
Table 4.14: Estimation of Keyouqian NG Demands
Near term – 2010 Long term – 2015 Gas consumption Annual gas Annual gas Gas consumption Gas consumption type consumption consumption proportion (%) proportion (%) (106 Nm3/a) (106 Nm3/a) Resident users 6.0775 55.72 10.6642 41.39 Commercial users 1.2155 11.14 1.6661 6.47 Industrial gas 0.6078 5.57 2.1325 8.28 consumption Vehicle gas-filling 2.4878 22.81 10.0740 39.10 Unpredictable 0.51943 4.76 1.2268 4.76 Total 10.9080 100 25.7636 100
Source: Feasibility Study of Keyouqian NG Project, December 2007 IMEIP II PPTA FINAL REPORT 4-16
4.3.3 Evaluation
404. The most important assumption made in estimating NG demands is the gas consumption by residential users.
(i) The demand forecast is more practical because the Keyouqian Banner government is taking measures to develop the city population. The planned data for the population in Keyouqian Banner were used. This city is a new one under development with a small population now. In order to accelerate the city’s development, the city government commenced the population attraction project to develop the city. Major measures undertaken include: (1) moving the government office building to the new area and at the same time constructing affordable houses, which have been sold out, and in which approximately 12,000 people will live. In the meantime, Biguiyuan Neighborhood is being developed, which can accommodate 100,000 people. The average apartment price is far lower than that in the neighboring cities. The functional facilities in the neighborhood are complete and have great appeal to potential residents. This project has already been started and is expected to be finished by 2010. (2) In terms of the employment promotion, pubic undertakings are vigorously developed, such as education, medical care as well as public transportation, etc. to partially solve the employment problem. At the same time, a non-resources industrial processing park is being developed to attract the neighboring farmers and herdsmen to work here. The above-mentioned two measures will promote the local population growth. If the policies are properly implemented, the goal of population growth in the subproject area can be materialized. According to the current and planned city construction, the predicted population is provided in Table 4.15.
Table 4.15: Population Assembling Plan for Keyouqian Banner City
Affordable Biguiyuan Non-resources industrial Education Parameter Others Total house subdivision processing park park Construction area 410 2320 120 (103 m2) Predicted population 12 100 50 10 30 202 (103 people)
Source: Feasibility Study of Keyouqian NG Project, December 2007
(ii) The pre-installed NG supply system can increase the competitiveness of the newly built city of Keyouqian Banner. Local government can adjust planning and implementation arrangements in advance to realize electricity, water and gas supply before people formally take residence. This will not only add appeal to the apartment but also promote sales and attract people to come. Moreover, it can reduce the unnecessary troubles and waste caused by the new design and installation after the city’s construction. At the same time, the concentrated buildings take a dominant position, without any obstacles to gas development caused by scattered bungalows (in many PRC old cities there are considerable population IMEIP II PPTA FINAL REPORT 4-17
living in scattered bungalows). Consequently, it is predicted that a 70% gasification rate can be easily realized by 2010.
(iii) The assumption regarding per capita heat consumption is directly related to variables including the local climate, economic development level, as well as the availability of central heat supply, etc. Per capita gas consumption indices in some regions of the PRC are provided in Table 4.16.
Table 4.16: Home Use Gas Consumption in the PRC (103 kcal /person. year)
No. Urban area Users with central heat Users without central heat 1 Northeast region 550-750 450-550 2 East and south central region —— 500-550 3 Beijing 650-750 600-700 4 Chengdu —— 600-700 5 Shenzhen —— 690-750
Source: http://secretary.gasshow.com/xms_rqtb_desc.asp?GASGRAPH_REC_NO=210
It is assumed that in Keyouqian Banner, the per capita heat consumption will be 0.55 million kcal by 2010, and 0.6 million kcal by 2015. In view of the local economic development level and climate conditions (annual average temperature at 4.2ć), the assumptions are reasonable.
(iv) Assumptions regarding gas consumption by commercial and industrial users, etc. are also reasonable. The city is cautious about the prediction of industrial users, 10% - 25% of the home use gas consumption. In this respect, as the State has promulgated the policy to give priority to the development of residential NG utilization and restrict and even prohibit some industrial programs with NG as raw material, it is reasonable to have conservative prediction of industrial users. With regard to the prediction of commercial users, 20% for Keyouqian Banner, given the levels of the economic development situation, the assumption is reasonable.
(v) Estimations regarding vehicle gas consumption in the FSR for the subproject are also reasonable. The Keyouqian Banner plans to build a municipal bus station, which can accommodate 60 buses. Investigations into the neighboring cities (Wulanhaote City) were made which now has approximately 0.2 million city population with 1,000 taxies. There are 5 taxies for every thousand people. As Keyouqian Banner is a newly constructed city area, the construction standard for public service facilities is slightly higher than that in Wulanhaote City. Meanwhile, given that taxies have great mobility, it is assumed that the per capita taxi possession rate in the new area in 2010 will be 4 per thousand people and will be 6 per thousand people by 2015. The daily average NG consumption by buses is 44 Nm3/d.bus, and that by taxis is 36 Nm3/d.taxi. The assumptions are reasonable.
(vi) Overall, the prediction of NG demand in Keyouqian Banner is reasonable. The residential gas consumption and automobile gas filling consumption in Keyouqian IMEIP II PPTA FINAL REPORT 4-18
Banner account for 75-80% of the total gas consumption. Whether the designed capacity can be reached depends on whether the prediction of residential gas consumption and automobile gas consumption are reliable, which in turn mainly depends on whether the city population development is up to the planned level.
4.4 Master Plans of the Proposed Subproject
405. Keyouqian Banner is an old, remote and poverty-stricken area.1 Over the recent decades, it has no centralized town of its own, which leads to the lack of central economy radiation and inadequate development, severely restricting and hindering the economic as well as social progress. According to statistics2 in 2006, of the 101 banners and counties in IMAR, Keyouqian Banner ranked the 92nd in terms of pure income of the farmers and herdsmen, only 2,119 yuan/year. The average salary of the town workers was 10,404 yuan/year, ranking the 99th. The per capita GDP was only RMB 6579, ranking the 95th. The proportion of the production value of primary industry was as high as 48.5%; hence, it is a county dominated by agriculture and husbandry. This has much to do with the fact that this banner has no central city of its own. Through Keyouqian NGS, NG is to be provided to the newly built city to accelerate urbanization pace and energetically promote local economic prosperity, thus reducing poverty so that the low-income population can get out of poverty as soon as possible.
406. The IMAR Chairman Office Meeting in September 2002 formally approved that Keyouqian Banner move to Dabagou County to construct its own central city. On 24th June 2003, the foundation was laid for the Banner Government, inaugurating the city construction. In the same year, commissioned by the Banner Government, the Construction Research Institute of Ministry of Construction prepared the “Keyouqian Banner City Overall Planning”, specifying that the gas source will use LPG with LPG storage and distribution and supply stations set up in the short term. In the long run, NG would be developed as the gas source. The short-term LPG mixing stations as emergency and peak-adjusting gas source will be retained. The city’s neighboring regions and counties will adopt LPG steel bottles for gas supply. However, this planning now has been revoked. The new city planning is being prepared, which has not yet obtained the approval from the authority. However, the city construction pace will not cease accordingly. Pipeline NG as an important infrastructure should be planned and constructed as a high priority.
4.5 Alternatives Considered
4.5.1 System Scheme Alternatives for Keyouqian NGS
407. Keyouqian NGS in theory has three alternatives: first, transporting CNG at the Songyuan City NG compression master station with dedicated trailers through highway to the Keyouqian pressure reducing station where CNG, after pressure regulation, is supplied to the city pipeline network as well as users. Second, transporting LPG with the dedicated
1 Old, remote and poverty-stricken areas refer to the old revolutionary area, border area, minority group area as well as poverty-stricken area. 2 Data source: IMAR Statistics Year Book 2007 IMEIP II PPTA FINAL REPORT 4-19 transportation vehicles from the gas source plant at Daqing Oil Field or Songyuan Oil Filed to the Keyouqian gasification station prior to being supplied to the city street pipeline network as well as users by means of gasification supply. Thirdly, transporting NG with long transmission pipelines from nearby Songyuan Oil Field to Keyouqian Banner with gate station constructed in Keyouqian Banner for user supply. The distance of the long transmission pipeline in Alternative Three is approximately 250 km. If 250 km of D273×7 long transmission pipeline is adopted, the estimated cost is RMB 0.85 million multiplied by 250 km totaling RMB 212.5 million, with the selling price of the fuel gas above 4.3 yuan/Nm3. Therefore, after preliminary analysis it can be easily eliminate this alternative due to high investment and unit operating costs. Thus, this report only makes comparison and cost analyses for CNG and LPG alternatives.
a. Alternative One (CNG)
408. By utilizing the NG compression master station at Songyuan Oil Field or Daqing Oil Field, CNG will be transported with high pressure gas transportation vehicles to Keyouqian Banner and after pressure regulating at the pressure reducing station, gas will be supplied to the city for use.
b. Alternative Two (LPG)
409. LPG will be transported from the source plant with vehicles to the city’s LPG storage and distribution station for storage. Then, it will be gasified into ambient temperature gas, mixed with air and supplied to the city for home use after pressure regulation, metering and addition of the odorizing agent. The greatest advantage is liquid transportation, hence leading to higher transportation efficiency and relatively lower transportation fees.
410. The similarity of the two alternatives is that the medium pressure pipeline and network are identical. The differences lie in: (1) fuel type; (2) transportation costs; and (3) pressure unloading stations. The investment estimation and the operating cost of the two alternatives and the comprehensive cost analysis are provided in Appendix 10. According to the comprehensive comparison (see Table 4.17), Alternative One, though having a relatively higher early stage investment, enjoys lower operating expenses and lower unit product cost. Therefore, Alternative One using CNG is the optimal alternative for the subproject.
Table 4.17: Comparison between the Two Alternatives
No. Items to be compared Unit CNG LPG+Air 1 Gas source price yuan/Nm3 1.80 4500 yuan/t 2 Transportation distance km 253 400 3 Consumption 106Nm3/a 18.25 15.48 8 Project total investment 106 yuan 87.55 57.48 9 Price after arriving at the station yuan/Nm3 2.20 5.47 10 Unit cost yuan/Nm3 2.362 5.79
Comprehensive average selling 3 11 yuan/Nm 3.70 6.10 price IMEIP II PPTA FINAL REPORT 4-20
No. Items to be compared Unit CNG LPG+Air 12 Unit heat value MJ/Nm3 42.40 45.78 MJ/kg 13 Price of the unit heat value yuan/MJ 0.087 0.133
Source: Feasibility Study of Keyouqian NG Project, December 2007
411. Based on above comparison, it is seen that Alternative One has a higher initial investment but lower operating expenses. It’s overall costs are lower than Alternative Two. Following the ADB recommended methodology, the least cost analysis (see Table II of Appendix 10) was performed based on the investment and operation costs of both alternatives (see Table I of Appendix 10), and the unit costs of the two alternatives being 0.087 yuan/Mj and 0.133 yuan/Mj, respectively. As a result, Alternative One of CNG is selected for this subproject.
4.5.2 Gas Storage Alternatives for Keyouqian NGS
412. According to Alternative One (CNG), Keyouqian NGS needs to construct gas storage facilities. There are several NG storage methods practiced in the PRC and other countries. Considering that the CNG pressure is high (25MPa), three types of high pressure gas storage facilities were selected to carry out technical and economic contrastive analysis (see Table 4.18), including underground gas storage wells, ground gas storage bottle group and storage tanks.
Table 4.18: Economic and Technical Comparison of Gas Storage Alternatives
Technical and Underground gas No. Steel bottle group Storage tank economic features storage well Specification D=ĭ244.2×11.05 m, D=26.7 cm, Spherical tank L=258 m/well, L=181 cm/bottle, CNC/Q-3, 3 1 VwaterĤ10 m /well į=0.81 cm, ij=198cm×9cm×244.5 3 Water=801 cm, Water=3 m /tank, W=985 t/tank, n=50 Material N80 steel sleeve, 35CrMo 19Mn6 2 material 30Mn4 or 28CrMo6; 3 Quantity (set) 20 2000 50 Unit investment (103 600 1.4 150 4 yuan/set) Total investment (106 12 4 9.5 5 yuan) Security The security Production experiment In accordance with coefficient at the weak and verification are GB150 Standard, 6 points of the well is safe and reliable CNG performance will only 2.5, needing be verified in during enhancement commissioning 7 Land area (m2) 24 200 60 Unit gas storage 218 58 209 8 construction cost (yuan/Nm3) IMEIP II PPTA FINAL REPORT 4-21
Technical and Underground gas No. Steel bottle group Storage tank economic features storage well Operating cost (103 200 1670 750 9 RMB/year) Cash value of the total 4737.8 21937.5 11681.7 10 cost within the life span (103 yuan)
Note: The present value of total cost within the life span in the table above is calculated as: profit ratio 6%, 25 years. Source: Feasibility Study of Keyouqian NG Project, December 2007.
413. According to the above analysis, the early-stage construction cost for an underground well is the highest yet with the lowest operating costs. Over the period of 25 years, the total cost for this option is the smallest. Consequently, high pressure gas storage well option was selected for the subproject.
4.6 Energy Conservation and Pollution Reduction
414. Because the average energy efficiency of NG is higher than that of coal and petroleum products, Keyouqian NGS will create energy saving benefits. As a result of less emissions from NG combustion compared with other fossil fuels, environmental benefits will be achieved as well. The EIA and FSR calculated the energy savings and emission reductions as follows:
i Crude coal savings: 23,500 ton/annum
i SO2 emission reduction: 800 ton/annum
i Flue dust reduction: 250 ton/annum
i CO2 emission reduction: 41,800 ton/annum
415. To validate the reliability of above results, a methodology was developed to calculate energy savings as well as pollution reductions (see Appendix 11 for details). The assumptions used and calculation results are described as follow.
4.6.1 Energy Conservation of Keyouqian NGS
416. To calculate of the energy saving, the following assumptions were made:
i The average energy conversion efficiency for coal in the PRC is 30%.
i The average energy conversion efficiency for NG in the PRC is 60%1
i The ratio of CNG automobile efficiency to the gasoline automobile efficiency 1:04:1.2
1 Data source: A Fact about Energy Consumption, http://www.china.com.cn/info/06nengyuan/txt/2006-08/29/content_7115012.htm. 2 Data source: As the FSR makes an investigation into petroleum and gas consumption per 100 km, so it is deducted according to the FSR. IMEIP II PPTA FINAL REPORT 4-22
i The energy efficiencies for coal-fired and NG-fired industrial kiln are 25%1 and 65%, respectively.
i The efficiencies of coal-fired and NG-fired boilers are 65% 2 and 80%, 3 respectively.
i Energy efficiencies for large commercial kilns burning coal and NG are 17% and 60%, respectively.
417. Based on the assumptions above and methodology described in Appendix 11, the standard coal saved by Keyouqian NGS is 0.384 million tons over 20 years, an average 19000 tons per year with approximately 22,400 ton/annum raw coal with thermal value of 6000 kcal/kg. This result is different from the results from the FSR which is 23,500 ton/annum. However the small difference indicates that the energy saving estimations of the FSR and EIA are reasonable and acceptable.
4.6.2 Pollution Reduction of Keyouqian NGS
To calculate the pollution reduction, the following emission factors (see Table 4.19, 20, 21) were adopted.
Table 4.19: Emission Factors for Different Types of Fuel4 Unit: kg/toe Pollutant Petroleum products Coal NG
CO2 3,100 4,800 2,300
SO2 20 6 0
NOx 6 11 4 CO 6l30 4.52 0.53 CnHm 0.5 0.3 0.045 Ash 0 220 0 Fly ash 0 1.4 0
1 Data source: Energy Resources and Utilization in China, http://combust.hit.edu.cn/cgi-bin/topic.cgi?forum=86&topic=314 2 Data source: Mid-Long Term Plan for Energy Saving 3 Data source: Energy Resources and Utilization Status of the PRC, http://combust.hit.edu.cn/cgi-bin/topic.cgi?forum=86&topic=314 4 Status and future outlook of natural gas for heating, Beijing Energy Conservation, Issue No.2, 2000. IMEIP II PPTA FINAL REPORT 4-23
Table 4.20: Emission Factors for Different Combustion Equipment (kg/ton)
No. Type TSP PM10 SO2 NOx CO THC Industrial 1.4 0.87 12.5 4.19 7.97 2.31 1 Coal-boiler 2 Industrial furnace 3.4 0.87 11.46 1.49 7.97 2.31 3 Small coal stove 0.25 0.87 2.59 0.94 32.4 1.8 4 Big stove 2.17 0.87 11.2 2.81 11.8 2.48 Emission factors of NGďkg/1000 Nm3Đ 5 NG - - 0.18 1.76 0.35 -
Source: Environmental Impact Assessment of China’s Energy Plan and Management Policy Research, report for sustainable energy project in China funded US Energy Fundation Table 4.21: Automobile Emission Factors (kg/ton)
No. Type PM SO2 NOx CO HC 1 Petroleum bus 0.12 0.3 11.217 35.819 7.092 2 CNG bus - - 6.842 2.632 8.421 3 Petroleum taxi 0.12 0.3 2.703 41.441 3.604 4 CNG taxi - - 8.632 5.214 10.25
Source: Environmental Impact Assessment of China’s Energy Plan and Management Policy Research, report for sustainable energy project in China funded US Energy Fundation 418. Based on above assumptions, the pollution reductions were calculated and the results are shown in Table 4.22. There are differences between the EIA and FSR estimations of pollution reductions and the results in Table 4.22. The estimation of CO2 emission reductions are quite close and the difference of SO2 reductions are acceptable. However, the difference of fly ash reduction is quite large. The difference may be due to the different assumptions in ash content of raw coal. The EIA and FSR estimation is based on site investigation while the validation calculations were based on average index of the PRC. Thus, the results from the EIA and FSR are acceptable.
Table 4.22: Main Pollution Reduction (over 20 years) of Keyouqian NGS
Pollutant Ash Fly ash CO2 SO2 NOx CO Reduction (103 ton) 71 0.45 882.5 3.3 2.4 12.6 EIA & FS estimation 5 836 1.6
4.7 Cost Estimation, Contract Packaging and Implementation Schedule
4.7.1 Cost Estimation
419. The cost estimations are based on information provided in the FSR and other costs estimated by the Consultant. The investment by category is shown in Table 4.23. Overall, the cost estimations in the FSR are reasonable. The estimated total investment for IMEIP II PPTA FINAL REPORT 4-24
Keyouqian NGS is $12.3 million (RMB 85.8 million), of which $5.5 million will be financed by ADB representing approximately 45% of the total investment.
Table 4.23: Total Cost Estimation of Keyouqian NGS
Cost Category Investment (RMB million) Proportion (%) Civil work 25.6 30 Equipment and installation 44.6 52 Survey and design 7.5 9 Other costs 8.1 9 Total investment 85.8 100.0
4.7.2 Contract Packaging
420. According to the FSR, the contract packaging and tendering for this subproject is provided in Table 4.24.
Table 4.24: Contract Packaging of Keyouqian NGS
Investment Package Investment ADB Loan Package Description (RMB Number ($ million) ($ million) million)
Civil work and installation of Pressure Reduction Station (PRS), Gas Filling 1 16.41 2.34 0 Station (GFS), and Dispatching Station (DS) Equipment of pipelines (including valves, 2 and accessories) 8.28 1.18 1.18 Installation of pipeline and related civil 3 work 9.14 1.31 0 Equipment of PRS, GFS, and DS 4 11.52 1.65 1.65
Equipment and installation of 5 high-pressure storage wells 11.74 1.68 0.81 Equipment for transporting CNG (tankers 6 and vehicles) 13.03 1.86 1.86
Total 70.12 10.02 5.5
Note: Exchange rate: $1=RMB7.0. Source: Feasibility Study of Keyouqian NG Project, December 2007.
4.7.3 Project Implementation Schedule
421. Since Keyouqian Banner is a newly developing city with relatively simple construction conditions, it is recommended that pipeline network projects and the city neighborhood house development and construction projects should be constructed simultaneously. The specific implementation plan is provided in Table 4.25. IMEIP II PPTA FINAL REPORT 4-25
Table 4.25: Implementation Plan for Keyouqian NGS
4.8 Summary of Keyouqian NGS
422. Keyouqian NGS aims at providing NG energy for the newly built city. After analysis, it is believed that it has significant strength in improving the local environment, promoting energy savings and reducing emissions, boosting local economic development as well as attracting merchants and investment, and improving local people’s standard of living.
(i) Based on the least cost analysis methodology, the selected alternative for Keyouqian NGS is not only technically feasible but also has cost advantages.
(ii) The technologies adopted by Keyouqian NGS are common and mature and thus there is little technical risk.
(iii) Through analysis, for the local residents and pubic undertakings, NG has strong price advantages. Except for the local less expensive coal, it has price advantages over other fuels.
(iv) The consultant believes that the predictions of NG demands as well as various assumptions are overall reasonable.
(v) The subproject will bring significant environmental benefits. After the calculation of energy savings and emissions reduction, it’s estimated that during the project period (20 years) , the subproject will save approximately 3.84 million tons of coal
equivalent in total, reduce an estimated 0.88 million tons of CO2, 3300 tons of SO2,
2400 tons of NOx and 71,000 tons of ash.
(vi) The estimated subproject costs have been evaluated. The capital raising plan is in accordance with the ADB requirements, and the contract packaging and implementation plan for the subproject have also been proposed. IMEIP II PPTA FINAL REPORT 5-1
CHAPTER 5 TECHNICAL ANALYSIS OF NINGCHENG COMPREHENSIVE GEOTHERMAL UTILIZATION SUBPROJECT
5.1 General Introduction
423. Hot springs have been utilized for human beings for thousands of years. The modern development and utilization of geothermal resources started in 1904 in Larderello, Italy. In the 1970’s, the world petroleum crisis initiated a surge of geothermal energy development worldwide. Due to the highly demand for the fossil fuel around the world, the search for renewable energy resources has been supported by the governments of many countries with geothermal resources.
5.1.1 Current Status of Geothermal Utilization in the PRC
424. There are over 3,000 locations of natural hot springs throughout the PRC as shown in Figure 5.1. The hot springs with the higher temperatures are located mainly within two geographic zones. One is in the area from Tibet to western Yunnan Province, and the other is along the southeastern coastal area, including Fujian, Guangdong, Taiwan and Hainan Provinces. These areas hold more than 70% of hot springs of the PRC.
425. There are about 3,000 geothermal wells in the PRC. Over 100 geothermal fields and a total of annual 333 million m3 geothermal water per year have been explored. Detailed surveys for another 214 geothermal fields with potential of 500 million m3 of geothermal water annually have been conducted. The most exploitative geothermal energy resources have been estimated to be 73.61u1020J. It is equivalent to the heat energy released by 250 billion tons of standard coal. The potentially exploitable geothermal water resources are 6.85 billion m3 annually. It is equivalent to 32.85 million tons of standard coal.
426. Geothermal resources have been used in various aspects in the PRC. High temperature geothermal resources are used for power generation while most of medium-low temperature resources are used for directly applications.
427. According to a report from the Geothermal Energy Society of the PRC in 2005, there was an installed capacity of 25.18 MW of geothermal power generation in the PRC. Yangbajing Geothermal Power Plant in Tibet Autonomous Region, being the highest elevation in the world among geothermal power plants, installed 8 units with a total capacity of 24.18 MW. It operated for 6,260 hours in 2007 and generated 115.8 GWh of electricity. The station presently provides 20% of the power supply for Lhasa, the capital of Tibet. IMEIP II PPTA FINAL REPORT 5-2
Figure 5.1: Distribution Map of Hot Springs in China with Main Exploration Geothermal Fields IMEIP II PPTA FINAL REPORT 5-3
428. Medium to low temperature geothermal water has been widely used for direct utilization such as space heating for residential and greenhouse, aquaculture fish farming, spa and therapeutic center, and other residential applications in the PRC. The total geothermal energy used in the PRC has been ranked near the top of the world with a total capacity of 12,604 GWh in 2004 and 18,900 GWh in 2007 (including geothermal heat pumps).
429. Geothermal district heating has also experienced rapid growth in recent years worldwide. District heating in Reykjavik, the capital city of Iceland, is 100% from geothermal resources and 87% of district heating in Iceland is from hot spring water. In Tianjin, there are approximately 1 million people using geothermal district heating for their homes and 4 million people using geothermal heated water. It saves approximately 300,000 tons of standard coal annually, equivalent to an estimated CO2 emission reduction of 700,000 tons per year. For the entire country of the PRC, the annual geothermal energy utilization is equivalent to a saving of 2.53 million tons of standard coal and CO2 emissions reduction of approximately 6.0 million tons per year, which makes a significant contribution to the improvement to the environment.
5.1.2 Current Status of Geothermal Utilization in IMAR
430. IMAR has limited geothermal resources, only 6 hot springs have been found in different parts of IMAR. Geothermal utilizations in IMAR are small in scale and lag behind other regions in the country.
431. Arxan Hot Spring is located in the northeast of IMAR. Its traditional utilization has a history dating back several hundred years ago. Many hot springs with the temperatures in the range of 25-48qC with a total flow rate of approximately 40 m3/h were mainly used for therapeutic center and recreation.
432. There are potential geothermal resources in Hulunbeier Grassland, Hunshandak Sand-land, Maowusu Desert and Badanjilin Desert. A deep geothermal well was drilled in Hohhot in 2000 with a depth of 3,005 m, which yields approximately 300 m3/d geothermal water. The well-head temperature is 57qC. The Shuiyuecheng Spa Hotel is using the geothermal water to meet the customers’ needs.
a) Arxan Hot Spring Sanatorium; b) Shuiyuecheng Spa Hotel in Hohhot
Figure 5.2: Geothermal Utilization in IMAR IMEIP II PPTA FINAL REPORT 5-4
5.1.3 Current Status of Geothermal Utilization in Ningcheng
5.1.3.1 Geography of Reshui Town/Ningcheng County
433. The Ningcheng CGU subproject is located in Reshui Town, Ningcheng County, Chifeng City. In 2005, the Chifeng Government changed the name of Reshui Town to Reshui Tourism Zone (the Zone) in an attempt to attract tourists and promote the town’s economic development. Reshui Town is approximately 60 km west of Ningcheng County, 120 km from Chifeng City in the north and approximately 300 km northeast of Beijing. It includes three villages: Reshui, Tangqian and Baosheng with a total land area of 30 km2. Approximately 8,000 residents and 10,000 non-residents are living in the area. The subproject will cover the central area of the town that is located south of Reshui River with the total area of 1.55 km2.
5.1.3.2 Current Utilization of Geothermal Resources
434. The geothermal utilization in Reshui is mainly for bathing, spa, therapeutic treatment and other activities such as aquaculture (fish farming) and space heating.
(a) Spa, therapeutic treatment and tourism˖This is the major utilization of geothermal resources in Ningcheng which includes: i) 3 to 5 unit of sanatoriums and healing centers; ii) approximately 30 privately-run hotels; iii) 3 grand hot spring hotels and resorts run by the State.
(b) Fish farming and breeding: the existing Ningcheng Reshui Aquaculture Site has an area of 0.0733 km2 (110 Mu). It utilizes artesian hot water from a previous exploration well, R31, for fish farming. The aquaculture site includes: a commercial breeding pool, an incubating pool of 3,000 m2, a greenhouse and a fish pool. It is able to incubate 5,000-8,000 fry, 5 million fingerlings and 30,000 adult fish and 20,000 kg of commercial fish for the market.
(c) Space heating: In Reshui Town space heating is currently limited to individual users, who pump hot water from shallow wells and circulate it in old-fashioned radiators. The total heated area is estimated approximately 50,000 m2.
5.2 Availability and Utilization of Ningcheng Geothermal Energy
435. The availability of geothermal resources in the subproject area is the fundamental for the Ningcheng CGU subproject. This section summarizes the information, data and evidence to show that Ningcheng area has sufficient geothermal resources to support the proposed subproject.
5.2.1 Survey Results
(1) Geological Survey
436. Most of the field surveys were conducted by the Hydrogeological Team of Liaoning Hydrogeological Bureau from 1972 to 1973. They completed a 1:25,000 mapping of an area of 50 km2 and drilled 23 shallow exploration wells with a total depth of 335.33 m. They also drilled 8 deep wells with a total depth of 1536.18 m, conducted 8 drawdown (underground IMEIP II PPTA FINAL REPORT 5-5 water table changes during a pumping test) tests with an accumulative 215-hour pumping, observed 36 water table levels changes with the pumps running, obtained 124 water temperature readings and analyzed rock and water sample specimens. In September 1973, their findings were summarized in “Report on Hydrogeological Reconnaissance in Ningcheng County”. The report predicted that there would be 1327.2 m3/d of hot water potential within the area of 0.4 km2 without creating any drawdown. The estimation was based on the assumption that the amount of production of hot water depends on replenish of the natural cycle.
437. In 2007, the Liaoning Engineering Institute (LEI, the former Hydrogeological Team of Liaoning Hydrogeological Bureau) was invited by the Administrative Council of Reshui Town to re-evaluate the geothermal resources in the region. In July 2007 LEI prepared “Feasibility Study Report on the Development of the Geothermal Resources in Reshui Town” which was mainly based on the previous field work. With the help of computer models, LEI predicted that two production wells would generate about 6,000 m3/d with 8 m drawdown.
438. There are some uncertainties in LEI’s analyses due to the lack of geological information. Geophysical survey has never been conducted previously in Reshui Town. There is no three-dimensional geological map due to the fact that previous geological maps were in two dimensions because of lack of data. In order to have a better understanding of the geophysical background of the area and subsequently the more reliable data for design and construction of the subproject, the ADB Mission and PPTA consultants suggested the IA to conduct additional surveys.
(2) Recent Surveys
439. In November 2007, WENQUAN, the IA of this subproject entrusted the Geothermal Engineering Institute of Beijing Geological Engineering Institute (GEI) to carry out a pre-feasibility study for geothermal resources development (the “Pre-FSR”). The institute is a reputable professional hydrogeological organization nationwide. GEI carried out the geological, hydrogeological and geochemical surveys in the Zone. Three methods have been used for the geophysical surveys: controllable source audio magneto-telluric (CSAMT), radioactive radon method, and soil mercury method. Their discoveries are summarized as follows:
(i) General geology
440. The general geological background is well known through decades of geological survey. Most of bed rocks in the region are Archaeozoic granite-gneiss with Cretaceous sandstone and shale covered on top in the eastern area. There are approximately 20 meters of Quaternary loose coverage in the plain. With this stratigraphic profile in the area, geothermal water can only accumulate in fault zones with fractures of granite-gneiss in the bed rocks. It is called fractured reservoir. The data from the three geophysical methods reveal that the geological structure in the working areas is rather complicated. The well-known Balihan Fault passes through this area in NNE direction. The western part of the fault is covered by approximately 20 meters of thick Quaternary deposits. The eastern part of IMEIP II PPTA FINAL REPORT 5-6 the fault is the Cretaceous sandstone and shale with unknown thickness covered on the bed rock.
441. The Balihan Fault is in the bed rock of hard and brittle granite-gneiss. It has a steep dip angle towards SEE direction and the deepest part is almost vertical. This fault cuts through the Cretaceous sandstone and shale. It is possible that the fault in the Cretaceous shale is partially filled up. It is also possible that the fault fracture is filled by scaling from geothermal fluid. The interpretation of Radon and Mercury surveys with cross-sections 1, 2 and 3 of CSAMT shows that the Cretaceous sandstone and shale covered on the top of granite-gneiss at east of the cross-section 5, which passes through the previous exploration well R31 in NNE direction. The Cretaceous has a thickness of approximately 100 m in the western part but becomes more than 200 m thick in the eastern part and is detected more than 400 m deep from the ground surface at the eastern boundary of the area, which indicates a deeper drilling well will be required if the new wells to be located at this area.
(ii) Hot Spring Physical Features
442. The conductivity of various water bodies in the area strongly suggests that the existence of geothermal water, surface water and mixed water. Water type analysis further proves relationship of the three water bodies. Mixture of geothermal water and surface water which is mainly from meteoric precipitation is formed at various ratios. Different ratios of mixture show different chemical composition and therefore affect the water bodies in the area. Chemical geothermometers show the highest temperature in the deep reservoir exceeded (at least once) 100qC. Water/rock equilibrium suggests that the strength of geothermal activity was medium and the highest temperature reached 130qC. The geochemical environment in the reservoir is reductive and the permeability is poor.
(iii) Geophysical Background
443. The CSAMT geophysical survey was conducted with a depth of 3,000 meters. Thus, it can provide solid evidence for a reliable interpretation regarding the subsurface geology in the area. The CSAMT cross-section map is shown in Figure 5.3. The figure clearly shows the horizontal distance along the measured Resistivity line and vertical depth from the ground : m surface. Different color represents different resistivity. The faults always occur in lower Figure 5.3 The newly interpreted Balihan fault in CSAMT cross-section 2 (vertical black line resistivity zone, especially F3 as shown. shows selected well site) . IMEIP II PPTA FINAL REPORT 5-7
444. The bedrock granite-gneiss has high resistivity. In eastern part of the area, lower resistivity suggests that the Cretaceous is covered on granite-gneiss. There is no obvious faulted fracture in the Cretaceous even at a depth of 100-400 meters. It is possible that the fractures in argillaceous shale are filled, or self-sealed by geothermal scaling. Natural hot springs occurred at the boundary between shale covered area and non-shale area. On the contrary, there is rather high resistivity exhibited at the deep part of this boundary, which proves that there is no fault in granite-gneiss on the bed rock. Low resistivity affiliated with faulted granite-gneiss and hydrothermal alteration occurrs approximately 100-120 m east of the initial main fault. It extends in NNE direction with a steep dip angle towards SEE. It is almost vertical at its deepest part. Based on the interpretations from three geophysical methods, the Line F3 in Figure 5.4 is identified as the location of the Fault. This interpretation is also supported by the anomalies of Radon and Mercury which is very accurate for detecting an active fault lying underneath a thin layer of Quaternary deposit. Therefore, we determine the F3 fault has a NNE vector, which is also proven by CSAMT, as the main fault in the subproject area. It should be the actual location of the regional Balihan fault occurred in the Ningcheng area. Figure 5.4 clearly indicates the direction of the main fault.
Ar Archaeozoic granite-gneiss K Cretaceous sandstone
Figure 5.4: Geophysical Interpretation and Well Sites Selection in Reshui Town IMEIP II PPTA FINAL REPORT 5-8
(iv) Geothermal Background
445. The purpose of the additional surveys is to determine the accurate locations for the most productive geothermal wells within Reshui Town, which should be supported by the understanding of the geothermal background in the area. Geothermal field usually consists of three basic elements: reservoir, cap rock and heat source, which are briefly discussed below.
(a) “Reservoir” is a space and concourse for reserving geothermal fluid which exists as hot water at low temperature and steam at high temperature within a reachable depth. The basic requirement for the space is aquiferous and permeable. It can be loose sand and gravel, porous sandstone, karstic fissures of limestone, or fractures and fault zones. Granite-gneiss is formed by ancient metamorphism and is usually impermeable without fractures caused by faulting. Due to the existing fault, the Reshui Town geothermal field has fractured reservoir which consists of major faults and associated fractures in granite-gneiss.
(b) Cap rock is a layer of geological stratum covering the reservoir. It may be impermeable rock or loose deposit of clayey soil with low permeability. In Reshui Town, it consists of a thin layer of Quaternary loose deposit, or Cretaceous shale (sandstone) and weathered granite-gneiss with lower heat conductivity. All of these provide excellent heat preservation.
(c) Heat source includes heat fluid in the reservoir or during its migration to the reservoir, heat convection, which is the main fluid flow along fault zone, and heat conduction, which provides heat transfer from high temperature zones to low temperature zones.
(3) Geothermal Water Utilization Assessment
(i) Geothermal Water Quantity
446. Based on the analysis of geological, geochemical and geophysical data mentioned above, a complete conceptual model can be established for the Reshui Town geothermal field. The Pre-FSR has recommended the locations for two production wells and one reinjection well in Reshui Town based on the model to ensure accuracy of the new well location.
447. The selected geothermal production wells are designed to be drilled 500 meters in depth, with a diameter of 340 millimeter casing for the smooth production. It is projected to have a water yield about 3,000m3/d at each production well. With the help of proper reinjection operation, this amount of extraction will be sustainable. So the two production wells will generate a total of about 6,000 m3/d of hot water. Wellhead temperatures will be about 95qC.
(ii) Geothermal Water Quality Assessment
448. The surveys showed that the new production wells will directly extract hot water from the geothermal “source”, which will exhibit the expected geothermal water quality. The geothermal water is of the sodium sulfate type with high concentration of the components IMEIP II PPTA FINAL REPORT 5-9 such as metasilicates and fluorides. The existing geothermal water contains metasilicate with a concentration of 139.0 mg/l and fluorides of 15.2 mg/l. It is categorized as high quality silicon and fluorine mineral water, which have good therapeutic effect on human body. The water quality data are shown in Table 5.1 below.
Table 5.1: Geothermal Water Composition in Reshui Town of Ningcheng
Potassium 26.4 Bicarbonate 67.1 pH 8.65* Sodium 292 Carbonate 0.0 TDS 983.5 Calcium 20.4 Sulfate 549 Metasilicate 131 Magnesium 0.6 Chloride 39.8 Metaborate 0.92 Lithium 0.467 Fluoride 15.2 COD 0.69 Iron 0.028 Bromine 0.10 Hardness 53.5** Manganese 0.002 Iodine 0.02 Alkalinity 65.1** Zinc 0.001 Nitrate 0.05 Acidity 0.0**
Ammonium 0.03 Nitrite 0.001 Free CO2 0.0
Unit in the table: * Non-unit, ** CaCO3 mg/L, All others in mg/L
449. The geothermal water will not have scaling problems if the system is properly designed. Based on calculations for SiO2, Fe, Al, Mg and Ca contents, its scaling coefficient
H0 equals 170.81, indicating it is low scaling water (125 H0 250). The excessive concentration (131 mg/L) of metasilicate is attributed to the current scaling problem. Silica deposition will only occur when the temperature approaches 17.3qC, meaning no scaling problem when the temperature is higher than 17.3qC. Therefore it is recommended the temperature of the rejected water back to the aquifer be higher than 17.3qC.
450. The geothermal water also exhibits little potential for corrosion. Based on the calculations for Ca, Mg, Al, Fe, HCO3 contents and pH value, its corrosion coefficient Kk is 1.05, and the Kk+0.0503 Ca is 0.03 which is at a very low or neglectful level of corrosion. The only concern for minor risk of corrosion lays on the fact that the water contains slightly higher concentration of sulfate (549 mg/L). Necessary measures are recommended to minimize the corrosion.
451. The geothermal water quality fully meets the Fishery Water Quality Standard (TJ 35-79) of the PRC except that the fluoride content is a little higher. Aquaculture research shows that Tilapia mossambica (the major kind of fish for geothermal fish farming) accumulates fluoride in its bones when growing in high-fluoride-concentrated geothermal water. Since the fluoride in not accumulated in the fish meat, there will be no adverse effects on human health.
5.2.2 Geothermal water sustainability (Reinjection)
452. Supply of geothermal energy is the key to the success of this subproject. Sustainable supply of hot water depends on proper extraction of geothermal water from the reservoir. Excessive extraction will cause decline of regional water level, which is called drawdown in IMEIP II PPTA FINAL REPORT 5-10 geoscience. Recharging water back to the aquifer is essential to maintain production of the geothermal system. LEI conducted a pumping test in a 130 m well in Pingzhuang Sanatorium in the summer of 2007. The test results show that with a larger drawdown of 3.40 m for a yield of 1,200 m3/d and with a smaller drawdown of 1.65 m for a yield of 720 m3/d. By extrapolating based on a model developed by LEI, a maximum drawdown of 20 meters would occur with an extraction of 6,000m3/d when suing two wells. This is a reasonable number particularly with a planned reinjection to recharge the geothermal water aquifers.
453. A successful and sustainable operation of CGU needs a sound plan for monitoring and reinjection. The following paragraphs will discuss these important issues.
(1) Monitoring
454. The comprehensive monitoring of the thermal water wells will play an important role in the initial stage of the project and also in the later stage of production when the project completes. The implementation of the monitoring will ensure the success of the project in the future decades. Accurate prediction of the thermal water reservoir that is deep down in the earth totally depends upon accurate monitoring as pumping the water out of aquifer and injecting the water back to the aquifer. The monitoring readings should cover static water level, dynamic water level, water yield, temperature, water quality, pumping time and any anomaly. All the readings should be recorded first, and then compiled into the database. A prediction model will be expected based on the accumulation of the data and will be used to predict the reservoir behavior in order to provide advice on the management of the future production.
455. Before the construction starts, the 130 m well at Pingzhuang Sanatorium can be a candidate for special monitoring well for the early stage. The well is currently a production well used by WENQUAN as the pump station. Once Ningcheng CGU commences, the shallow well at the pump station will not be suitable for the monitoring due to the expected drawdown. Then the 130 m well will be turned into a production well. And two more new production wells will be added to the production system. All of three production wells will be monitored simultaneously. By then we will need the R31 well of 500 m deep to be the special monitoring well after the completion. The actual monitoring work is laid out in Table 5.2.
Table 5.2: Layout of Geothermal Monitoring Work in Reshui Town of Ningcheng
Classification Location Item Specification Special monitoring 500 m well R31 Static water Once per 10 days, i.e. 5th, 15th and 25th per well level month at morning Production 130 m well and Dynamic Once per 10 days, i.e. 5th, 15th and 25th per monitoring well new drilled water level month when pumping production Water yield Once per day. Install flow meter. Record 1 wells No.1 & minute reading & sum No. 2 Temp. Once per day. Install thermometer. Water quality Once per 6 months. At March and September take sample for analysis IMEIP II PPTA FINAL REPORT 5-11
Classification Location Item Specification Pumping time Record when start and stop pumping Anomaly When it happens
(2) Reinjection Test
456. Reinjection test is an important measure for sustainable development for this subproject. After the thermal water exchanges energy with the space heaters, it will be injected back to the reservoir. The returned water, though with lower temperature, still maintains its chemical composition. Injected water will be reheated by the underground reservoir and recovered for recirculation. This procedure not only supports the renewable energy usage, but also prevents further pollution from the high contents of fluoride, unnecessary energy loss and preservation of the local surface groundwater.
457. Reinjection test is also necessary for the fact that geological background of the geothermal reservoir is a fairly complex system. If recycled water passes into fractured reservoir and the pathway is unobstructed, the recycled water will pass into the reservoir without any additional pressure. If the water runs into a porous stratum additional pressure will be needed to ensure the water reaching the heating reservoir in a timely manner. Reinjection needs to be tested regularly and progressively.
458. Similar reinjection operations have been used in the cities with similar geological situations and proven to be effective. For example, a large-scale geothermal injection has been continuously carried out in Beijing Xiaotangshan Geothermal Field for 7 years without any geothermal water level declining. At the 5th year’s reinjection, the underground water table started to rise dramatically. The recent reinjection ratio has reached approximately 50-60% at the facility.
5.3 Comprehensive Geothermal Utilization
5.3.1 Master Plan of Ningcheng County and Justification of the Subproject
5.3.1.1 Master Plan of Ningcheng County
459. The Administration Council of the Zone compiled the “Master Plan for the Zone” in June 2007, which combines tourism development and town’s infrastructure. The cornerstone of the Master Plan is the Reshui hot spring zone. It will rely on geothermal resources as a key to the tourism, especially for recreation in order to promote economic development of the region.
460. The hot spring zone will be laid out around the center of hot spring with the background of the scenic mountains from the north and south, and the Reshui River running through the zone. Based on rehabilitation of the existing facilities and new construction, it will improve services and promote hot spring tourism.
461. Ningcheng County and Chifeng city, a prefecture jurisdiction above the county have restructured the township government and gave full authority to WENQUAN, a state run cooporation to implement the Zone development. IMEIP II PPTA FINAL REPORT 5-12
5.3.1.2 Justification of the Subproject
462. The proposed subproject will be benefitial for meeting the heating market demands, environmental conservation, hot spring tourism development, and economic growth.
(1) Geography and Climate
463. Ningcheng has a semi-dry continental monsoon climate. It has long cold winters with little snow and constant northerly winds. A large temperature difference exists between day and night with the annual average temperature being 6.6qC. The average temperature in January is 11.8qC with the lowest temperature of 36.5qC. The highest temperature is 38.7qC. There is a total of 160 days when average daily temperature is below 5qC. The population is about 7,000 in the Zone. The heating area for existing buildings is approximately 140,000 m2, with primitive low efficient heating methods. A well planned geothermal space heating is an economic way to improve the heating condition.
(2) Environmental Benefits
(a) Reducing Emission and Environmental Protection
464. Local heating season is approximately 6 months, from mid-October to mid-April of the following year. If coal is used for heating, it will cause additional emissions of 22,400 tons of CO2, 210 tons of SO2, 80 tons of NOX and 100 tons of suspended particles compared the utilization of geothermal resource (see calculation and analyses in Environmental chapter of this report, i.e. Chapter 6).
465. Compared with conventional heating, the geothermal district heating will annually save 12,600 tons of coal and reduce corresponding pollutions. Therefore, Ningcheng CGU is encouraged by the national policy for environmental protection. The environmental benefits are obvious.
(b) Sustainable Development
466. Geothermal resources development and utilization in the subproject area is still at a primitive stage. The existing utilization, including residential, fish farming, spa and therapeutic center and recreation, is of low efficiency and excessive waste of geothermal resources. Along with the growth of family inns and sanatoria, depredating and blind exploitation have occurred. So Ningcheng CGU’s implementation will be favorable for reasonable use of local geothermal resources for protecting the resources and promoting sustainable development.
5.3.2 Options of Geothermal Utilization – Power Generation vs. Direct Utilization
467. Geothermal utilization is commonly divided into two categories: electricity generation and direct application. Conventional electric power generation is limited to fluid temperatures of above 150°C, but considerably lower temperatures can be used in binary fluids for power generation (outlet temperatures commonly of approximately 70°C). The binary technology usually needs complex control system and expensive equipment. The cost of maintenance for the binary fluid system is also higher compared with general geothermal power IMEIP II PPTA FINAL REPORT 5-13 generation. Therefore, most geothermal electricity generation facilities were established on proven large-scale resources with higher pump head temperature. The current scope of this subproject will focus on direct utilizations of the Ningcheng geothermal resources. Power generation, however, could be an option for Ningcheng CGU when drilling and testing are done to show the quantities and qualities of the geothermal resources.
5.3.3 CGU Components
468. As mentioned above, this subproject will directly utilize the geothermal resources. Six subcomponents are proposed for this subproject as follows:
(1) Geothermal extraction and reinjection: 2 production wells, 1 reinjection well and 1 pump station with a central control room;
(2) Geothermal district heating: passing through distribution pipelines to provide space heating, including a service heat pump for peak load adjustment;
(3) Hot water supply: passing through hot water distribution pipelines to provide living hot water to hotels and apartment buildings;
(4) Geothermal greenhouse and aquaculture: greenhouses for planting and gardening for fruit and vegetable picking, fish farming, in-door fishing, and recreational swimming;
(5) Waste water treatment: construction of 4.94 km sewage collection network and a waste water treatment plant (WWTP) for residential and industrial wastewater treatment; and
(6) Road rehabilitation: construction of 14 roads with a total length of 7.8 km and 2 bridges. The road program is included to allow easy implementation of pipeline construction.
469. A conceptual heat flow of each component in Figure 5.5 shows the processes of 3 stages and 2 extracts for these components. Stages 1 through 3 are for space heating of the buildings and aquaculture structures. The geothermal water transfers heat to the space through the radiators and floor heaters without contacting other fluid. Therefore, this stream is uncontaminated and will be reinjected back to geothermal aquifer. The two extracts were contaminated through their usage. They will be collected and treated after their usage. Figure 5.5 also presents graphic temperature gradient through staged utilization. This flow of energy enables a maximum usage of the geothermal energy. IMEIP II PPTA FINAL REPORT 5-14
Geothermal WaterGeothermal Flow at Different Temperatures 3 95qC 6,000m /d STAGE 1 District Heating Through Radiators Energy Utilized in this Stage: 11.34 MWt
56qC
56qC 4,000m3/d STAGE 2 EXTRACT 1 EXTRACT 2 Floor Heater for Greenhouses Energy Utilized in this Stage: 3.10MWt 1,400m3/d 600 m3/d 40qC Hot Water Aquaculture Supply 40qC 4,000 m3/d STAGE 3 Floor Heater for Residential Buildings Energy Utilized in this Stage: 4.85MWt 30qC Discharging to Reshui River 17.3qC After Wastewater Reinjection Treatment
UNCONTAMINATED WATER CONTAMINATED WATER
Figure 5.5: Geothermal Flow Chart of the Ningcheng Subproject
5.4 Subcomponent Analysis
5.4.1 Hot Water Extraction and Reinjection
470. The hot water production and reinjection require two production wells, one reinjection well and one corresponding pump station with a central control room to operate the system.
5.4.1.1 Prerequisite Analysis
471. Geothermal production wells are the fundamentals for this subproject. Geothermal water needs to be extracted from the two production wells. For water balance and sustainable utilization one injecting well is required to recharge aquifer in order to maintain the reservoir pressure and sufficiently use of the natural resources.
472. When implementing Ningcheng CGU, a total output of 6,000 m3/d will potentially cause a drawdown of around 20 meters. Therefore, the existing shallow wells and also the four wells that currently under use will dry up. Existing wells now in Reshui are either too small in diameter or too shallow to produce enough flow to meet the Project’s need. Considering season demand and operation flexibility, two production wells and one reinjection well with a diameter of 340 mm casing will be installed. The depth of the wells is set at 500 m according to the findings of the most recent geological surveys. The proper well site locations have been selected by GEI in the Pre-FSR IMEIP II PPTA FINAL REPORT 5-15
5.4.1.2 Technical Analysis
473. Well drilling is the first important step for implementing the subproject. Large diameter and deep wells have never been utilized in the PRC. The drilling plans are prepared based on the knowledge from previous and recent surveys.
474. The daily extraction of hot water in winter peak time is estimated at about 6,000 m3. However, it’s difficult to predict the actual yield from the existing wells prior to the new well drilling and testing. More detailed data and information such as well yield, hot water temperature and water level drawdown etc. will be monitored and analyzed after wells are installed.
475. Phased approach is adapted to gain more first hand information on the geothermal water flow before full scale implementation. One production well and one reinjection well will be drilled on the selected sites. A test of pumping and drawdown will be performed to obtain flow and temperature of the extracted geothermal water. Then decision will be made on whether any adjustment is needed for the location of the second production well. The implementation plan at the end of this chapter has shown this phased approach.
5.4.2 District Heating
476. District heating system supplies hot water through the pipeline to the radiators and floor heaters (Stages 1 and 3 in Figure 5.5) in the buildings to provide amicable room temperature.
5.4.2.1 Demand Analysis
477. The existing space heating in Ningcheng area mainly relies on small boilers and individual stoves by burning coal. Some primitive geothermal space heaters are currently used. Along with the local economy in the Zone growing rapidly in recent years, the total building area will be about 300,000 m2 by 2020, compared to the existing area of 140,000 m2. All new buildings will need space heaters, preferably through central heating system to prevent serious air pollution.
478. Considering the climate in Ningcheng and insulation of buildings, the subproject adopts the heating index of 50W/m2 for the heat supply system. Heating demand for 300,000 m2 area of buildings will need 15MWt in total (The data are referred as heating index of 50W/m2 in Beijing while there are cases of good example of energy conservation buildings with only 38 W/m2). The total heat supply from stages 1 and 3 is 16.19 MWt, which meet the growth projection for the master plan.
479. Stage 2 is for green house heating. Green house gardening requires a higher heating index, between 100a120 W/m2. The 80 Mu of green house in the design equals to 53,300 m2 The actual area in the green house gardening will be 16,128 m2 (10368 m2 of fruit trees and 760 m2 of gardening). 3.1 MWt heat energy is required for floor heaters underneath the soil to keep the greenhouse temperature. 4,000m3/d of hot water discharging from the radiators of residential buildings as heating resources will be used for the stage. The required energy IMEIP II PPTA FINAL REPORT 5-16 will be released by decreasing water temperature from 56qC to 40qC as indicated in Figure 5.5.
5.4.2.2 Technical Analysis
(1) Geothermal District Heating Technology
480. A heating station will distribute heat to radiators in existing buildings and heater for hotels, and floor heater for new apartment buildings
481. New buildings are planned to install low temperature floor heaters with its inlet and outlet temperatures of 40/30qC respectively (Figure 5.5). The reasons for this design include:
(a) Floor heater has been widely used in northern PRC due to the matured technology;
(b) Floor heaters have advantage over conventional heater in utilizing low temperature water with high efficiency, i.e. conventional heater can only use hot water with temperatures from 95qC to 63qC while the geothermal ones can use hot water at 95qC to 30qC.
(c) Floor heater is able to use the hot water already used by the old radiators which can only use higher temperature water, so as to promote the highest efficient usage of the natural resources. The geothermal district heating uses the floor heating after the traditional radiator to realize staged usage of geothermal resource for higher efficiency.
482. In addition, to further utilize thermal energy in the hot water after floor heaters, the heat pump technology can be applied to the system. Passing through the heat pump, the heat can be exchanged from used hot water after floor heater to higher temperature geothermal water, thus further lower the temperature of the discharged water to increase the efficiency of the system.
483. In summary, there are three methods for lowering the temperature of circulated geothermal water in order to increase the efficiency of the utilization.
(a) Use two heating methods, radiator heating and floor heating as staged utilization of the geothermal resources;
(b) Construct new buildings using floor heaters;
(c) Use heat pump to extract heat from circulated geothermal water. Lower the temperature of the reinjected water.
All of these have been adopted in the Ningcheng CGU’s design in order to reduce cost and environmental impact, increase efficiency, and maximize economic and social benefit.
(2) Current Status of Heating
484. Currently, Reshui Town is using the following 3 types of heating, i.e. district heating, simplified geothermal space heating and household stoves: IMEIP II PPTA FINAL REPORT 5-17
(i) District Boiler Heating
485. Ningcheng Shuntong Cogeneration Co., Ltd., a private enterprise, provides district heating for totally 30,000 m2 using coal-fired boilers. There are a total of four boilers: two of them are horizontal boilers, each with a capacity of 4 tons per hour, while the other two are vertical boilers, each with a capacity of 3 tons per hour.
(ii) Simplified Geothermal Space Heating
486. There are approximately 40 shallow geothermal wells with an average well depth of 6 m. Most individual families made their own wells and used small centrifugal pumps of one-inch diameter outlet to access hot water. Shallow geothermal water is sent into simplified radiator for heating. The total heating space is about 50,000 m2.
(iii) Household Stove for Cooking and Heating
487. About 60,000 m2 of building area is using family stoves for heating and also for cooking.
(3) Geothermal Space Heating
488. This subproject will utilize geothermal heat to replace all of the above-mentioned three types of heatings in Reshui Town. Compared with conventional heating boilers, the geothermal space heating has many advantages. Some of these major factors are summarized in Table 5.3.
Table 5.3: Comparison between Geothermal Space Heating and Conventional Heating
No. Item Conventional Space Heating Geothermal Space Heating 1 Type of energy Coal, oil or gas Geothermal water 2 Loss of energy Higher than 1000qC burning to 95qC geothermal water transferring grade get hot water of 80-70qC into 80-70qC thermal water 3 Energy efficiency Coal burning 60% Efficiency for heat transfer more Oil burning 90% than 95% 4 Construction land More land for boiler room, coal Less land, about 0.7% of the need site, ash site & oil storage etc. by other space heating 5 Investment Boiler room construction: RMB 57 About RMB 45 /m2, saving 20% /m2 more 6 Operational cost Coal burning RMB 20 /m2 RMB 7-11/m2, much less Gas burning RMB 30-40 /m2
(4) Analysis of the heat energy balance
489. Figure 5.5 presents staged use of geothermal water from its extraction to its reinjection/discharge.
490. Stage 1 through 3 shows geothermal water flowing through the pipes, radiators or floor heater without contamination. Extracts 1 and 2 are mixed or contaminated through their uses.
(5) Adjustment of Peak Season’s Energy Usage IMEIP II PPTA FINAL REPORT 5-18
491. To avoid any shortage of geothermal heating supply in energy usage peak season, it is necessary to install a peak-adjusting heat source with a capacity of 5,800 kW to satisfy a total heating demand for 300,000 m2. A number of options for the peak capacity have been considered for comparison.
(a) Oil Burning Peak-Adjusting
492. Considering the environmental issue for reducing suspended particles, CO2, SO2 and
NO2, and the fact that no natural gas is available in the subproject area, light-diesel boiler is recommended for peak-adjusting.
493. Two units of oil burning boilers are suggested in the scenario, each of which has a capacity of 2.8 MW and consumes 252 kg/h light-diesel. The affiliated establishment for the peak boiler includes diesel storage tank, boiler room and fire protection facilities.
Table 5.4: Facilities for Oil Burning Peak Boiler
No. Item Unit Quantity Remarks 1 Oil burning boiler unit 2 2.8 MW unit 2 Storage tank unit 1 3 Water pipe m 200 4 Valve piece 40
The initial investment for oil burning boiler and auxiliaries is approximately RMB 1.27 million excluding costs for fuel supply system and oil pipeline.
494. Estimation of diesel consumption: The heat value of light diesel is 10,240 kcal/kg and its heat efficiency is 93%. The sum of heat demand for peak boiler is 9.625 million kWh (= 2unith2.8 MWh71.6 dayh24 hour) for one heating season. So diesel consumption is estimated at 869,300 kg. If the price is 5.70 yuan/kg, then the cost for fuel is RMB 4.955 million for the entire heating season. Thus, the additional unit heating cost is RMB 14/m2.
(b) Heat Pump Peak-Adjusting
495. Heat pumps consume a part of high grade electric energy to transfer lower temperature heat energy into higher temperature. It has distinguished advantages of high efficiency, energy saving and environmental friendliness. Heat pumps can not only generate heat for peak-adjusting demand, but also exchange energy to lower the temperature of reinjected water back to the aquifer. So it will increase the efficiency.
496. In this scenario four units of heat pumps are needed, each with an output heating capacity of 1,547 kW and input of 334 kW. The affiliated establishment for heat pump system includes circulation pump, heat exchanger for circulated geothermal water. IMEIP II PPTA FINAL REPORT 5-19
Table 5.5: Facilities for Heat Pump Peak-Adjusting
No. Item Unit Quantity Remarks 1 Water source Unit 4 heat pump 2 Heat exchanger unit 2 3 Pump unit 6 4 Water pipe m 200 5 Valve piece 40
497. The initial investment for heat pump peak-adjusting and associated equipments is about RMB 5.416 million, excluding costs for a transformer station.
498. Heat pumps are widely recognized as energy saving equipment. It uses heat exchange technology to drive a water-water media “air-conditioning” and to conduct heat energy from low temperature water to the other part of circulating water. So the heated water can be reused for further energy consumption. Its energy coefficient of performance (COP) usually can reach 3-4, i.e. consuming 1 kW of electricity to get equivalent 3-4 kW heat energy. Assuming heat pump’s actual COP equals to 3.7, the total heat from the peak-adjusting can be estimated as 9.625 million kWh for one heating season. Its electricity consumption is 2.60 million kWh. If the price for electricity is RMB 1.2 /kWh, then the total expense for heat pump peak-adjusting would be RMB 3.12 million for a whole heating season. So its additional unit cost is RMB 8.8/m2.
499. Obviously the heat pump is the better choice for peak adjustment. The actual rural electricity price is less than RMB1.2/kWh, so the real “additional cost” will be less than RMB8.8/m2.
(6) Direct Heating or Indirect Heating
500. Geothermal direct heating system involves pumping geothermal water from the well through a pipeline into radiators. It is very popular for geothermal heating but corrosion problems will occur in this case. Indirect heating uses heat exchangers between geothermal water and users’ heating system. It can reduce geothermal corrosion for pipelines and radiators.
501. Geothermal water in the subproject area is of sodium sulfate, corrosive type. Ningcheng CGU covers a wide range of usage and will heat a fairly large building area. In order to avoid corrosion and reduce the maintenance cost, indirect heating is recommended. Considering the effect on corrosion at high temperatures, the first stage of heat exchanger will use the Titanium plate, while stainless steel, SMO material can be used for the second and third stages.
5.4.3 Hot Water Supply
5.4.3.1 Prerequisite Analysis
There are approximately 200,000 tourists visiting the Zone annually. They stay in hotels, IMEIP II PPTA FINAL REPORT 5-20 sanatoria or spa resorts to enjoy therapeutic effect of hot spring water and various way of recreation. Assume that the usage of hot water is 0.20 m3 per person per day with an average stay of 3 days in the town, the annual consumption of hot water will be 120,000 m3, which is equivalent to 330 m3/d. The seasonal residents who are living in the commercial housings are around 8,000 with the assumption of 0.1 m3 /d/person, they will need 800 m3/d water. The hot water subcomponent is designed to provide 1,400 m3/d supply which has reasonable room for potential growth.
5.4.3.2 Technical Analysis
502. Geothermal water supply can be divided into two systems. One is geothermal water for greenhouse gardening and fish farming, for which water treatment is not necessary (Extract II). The other one is geothermal water for recreation and heating resources, which needs to be treated to remove iron and manganese (Extract I). Even though iron-manganese contents are under the national limits, they will still cause a rust-looking coat on bath tubs or containers. The geothermal water will be treated to remove Ferro ions.
503. The iron-manganese treatment tank filled with the minerals is a simple steel tank with inlet and outlet and will be installed in the pumping station.
5.4.4 Geothermal Agriculture and Aquacultrue Development
504. One of the important parts in Ningcheng CGU is to utilize the geothermal resources to support local agriculture and aquaculture. This part includes quality indoor game fishing, recreation; and greenhouse for gardening and fruit tree growing.
5.4.4.1 Demand Analysis
505. Assuming 200,000 tourists coming to Ningcheng every year with an average stay of 3 days and a daily vegetable consumption of 0.5 kg per person, the amount of product for each year will reach 300,000 kg. The market will be certainly increased with more tourists in the future. Furthermore, this greenhouse agriculture and aquaculture will supply vegetable not only for local residents but also for the adjacent cities nearby like Chifeng, Chengde, Chaoyang as there is high demand from these cities in the winter due to the scarcity of fresh vegetables.
506. Based on the same reasoning, the yearly fish consumption will be 120,000 kg for 200,000 tourists with 3 days’ stay and an average of 0.2 kg fish consumption. In addition, tourists could also enjoy indoor fishing and fresh vegetable and fruit picking in geothermal greenhouse in winter.
507. The calculation amount of Extract 2 is based on the following: Fish farming has 40 Mu, 20,160 m2 in area. The depth of fish pool is 1.5m, and the total volume of the water body is 30,240 m3. Assume that the temperature loss of 0.5qC daily, equivalent to 0.73MWt. An amount of 600 m3/d hot water is needed to supply 0.75MWt with a temperature drop 56qC to 30qC. This will be able to provide sufficient heat energy to keep an constant temperature of the pool. IMEIP II PPTA FINAL REPORT 5-21
5.4.5 Wastewater Treatment
508. Currently there is no any wastewater treatment in Reshui Town. Waste water from the therapeutic centers and residential buildings is discharged into the rivers, or seepages into the ground. Considering the future development of Reshui Town, the designed WWTP plans to collect all waste water from the geothermal usage and from the residential housings to treat them comprehensively.
5.4.5.1 Demand Analysis
509. The WWTP is designed to treat 4,000m3 waste water daily. The waste water will come from three resources:
(1) Waste water after the usage of the subproject
510. Contaminated geothermal water (Extract 1 and 2) could not be injected back to the aquifer and will be collected as waste water. Due to the loss through evaporation and other reasons, an estimated 1,200m3/d will be collected.
(2) Current waste water from the residential buildings
511. There are about 7,000 permanent residents and around 8,000 seasonal residents in Reshui Town. Assuming 100 liters per person daily, they will contribute 1500 m3/d.
(3) Projected growth
512. As the subproject is implemented and the local people’s living standard is constantly improved, the average waste water produced by local people and tourists will increase dramatically. The master plan has projected 1,300 m3/d more waste water generation in next 10 years.
513. To sum up, a 4,000 m3/d treatment capacity is the result of considering the current situation of the waste water treatment and the projected growth.
5.4.5.2 Technical Analysis
(1) Components and Output
514. The wastewater treatment subcomponent comprises construction of a 4,000 m3/d WWTP and industrial wastewater and 4.94 km of sewage collection network. The proposed new sewage network will provide coverage to all areas of the Subproject that currently have no collection system. The WWTP will treat the collected wastewater to improve the quality of the surface water.
(2) Evaluation of the Proposed Process
515. The temperature of waste water that needs to be treated is less than 35qC by the time it reaches the WWTP. It will be also mixed with other domestic waste water. So the waste water will not have any heat pollution problem and will not have any problem of mitigation of bacterial propagation in the WWTP. IMEIP II PPTA FINAL REPORT 5-22
516. The essential urban WWTP is generally made up of sections of pre-treatment, primary treatment, secondary biological treatment and sludge treatment. The pre-treatment section normally includes bar racks, fine screenings, lift station houses and a grit tank.
517. The primary treatment section is normally referred as the primary sedimentation basin and is also considered as a mechanical/physical treatment process. After the sewage is discharged into the primary sedimentation basin for the specified retention period, the solid suspension (SS) and BOD5 will be reduced by approximately 50% and 20–30%, respectively.
518. The secondary treatment section includes biological treatment facilities and a secondary sedimentation basin. A number of biological dephosphorization and denitrification processes are commonly used in urban WWTPs, such as the conventional active sludge process, A/O dephosphorization process, A/O denitrification process, A2/O process, Oxidation Ditch process, SBR process. Most COD, BOD, N and P are removed at this stage.
519. The surplus sludge produced in the bio-treatment section will be pumped to the sludge thickening basin where the thickened sludge will be mechanically dewatered.
520. Different wastewater treatment processes are selected for different applications and different waste streams. The WWTP for the Zone will use the CASS process, a very successful biological treatment process. The advantages of CASS process are quick treatment flow, less land occupation, high treatment efficiency and low capital cost since primary and secondary clarifier and sludge return equipments are not used. The process is technically feasible. Figure 5.6 shows the CASS process flow. The comparison between conventional SBR process and CASS process are shown in Table 5.6.
ClO2 Generator
Raw Disinfection Discharge Grit Tank CASS Tank Wastewater Tank
Sludge Disposal Sludge Dewater
Figure 5.6: Process Flow Chart of CASS IMEIP II PPTA FINAL REPORT 5-23
Table 5.6: Summary of WWTP Process Evaluation in FSR
Treatment Conventional SBR process CASS process process Advantages 1. Mature and efficient process; 1. Mature and efficient process; 2. Less sludge, no digestion 2. Higher wastewater loading; required; 3. Simultaneous nitrification and denitrification; 3. The secondary clarifier built 4. Less sludge, no digestion required; in together with the oxidation 5. The secondary clarifier built in together with ditch, reduces land occupation; the oxidation ditch, reduces land occupation; and 6. No seasonal low temperature problem; and 4. Low capital cost. 7. Low capital cost. .
Disadvantages 1. More surplus sludge; 1. Higher maintenance and management 2. Seasonal low temperature required; problem; 2. Higher operation costs. 3. Higher maintenance and management required; and 4. Higher operation costs.
5.4.6 Road Rehabilitation
521. This subcomponent is located in the central area of the Zone, covering 1.55 km2 according to the county’s master plan.
5.4.6.1 Prerequisite Analysis
522. The conditions of infrastructure in Reshui Town are very primitive. In order to implement the CGU, various pipelines affiliated with the subproject need to be laid along with road network after the groundwork starts. Two bridges will be built with the road work. It is also economical to lay pipelines and build roads simultaneously to avoid land usage and reduce resettlement. Figure 5.7: Map of Road Rehabilitation in Reshui Town 5.4.6.2 Technical Analysis
(1) Road Technical Specifications
523. Road construction specifications are briefly summarized in Table 5.7. The existing roads in the Subproject area are very poorly maintained with excessive potholes and cracks. Due to the work of heating pipeline network, some of the existing roads will be rehabilitated and rebuilt. Based on a preliminary estimate, there will be 14 roads for rehabilitation. The total area is approximately 102,500 m2 and the total length is 7.8 km. IMEIP II PPTA FINAL REPORT 5-24
Table 5.7: Data for Road Technical Specifications
Design Road Road Length Road Name Road Class Speed Width (m) (m) (km/h) Reshui Street Trunk Road 30 20 2,000 Tanghou Yi Road (Zong San Road) Access Road 20 8 500 Tanghou Er Road (Zong Er Road) Access Road 20 8 200 Jiaoliao Houshan Road (Zhong Yi Access Road 20 8 200 Road) Shichang Road (Zong Yi Road) Access Road 20 9 200 Jiashuyuan Dong Road Access Road 20 9 200 Reshuiguangchang Dong Road Access Road 20 9 150 (Zong Er Road) Reshuiguangchang Xi Road Secondary 25 9 150 (Shengwen Road) Road Secondary Erbinguan Road (Heng Er Road) 25 9 900 Road GuoheShuini Road (Qinghe Road) Access Road 20 9 700 Wushuichang Road (Heng Si Road) Access Road 20 51 200 Binhe Street Access Road 20 20 1,200 Henan Road Access Road 20 8 1,200 Total 7,800
524. The road layout is in rectangular grid pattern, and the road network is in accordance with the town’s master plan, therefore the proposed road layout is appropriate.
(2) Bridge Technical Specifications
525. There are two bridges involved in this road subcomponent: Reshui Bridge and Tangqian Bridge, with a total area of 1,030 m2. The design criteria are summarized in the following:
(i) Design load: Urban trunk road: City-A class;
(ii) Earthquake intensity: Basic design earthquake acceleration is 0.15 g;
(iii) Bridge deck overlay type: Same as road pavement type; and
(iv) Design clearance and navigation request: No navigation request; according to the specifications, the minimum bridge clearance is identified as 0.5 meter.
526. The summary of the bridge data is shown in the following table.
1 It is suggested that 5 m of road width shall be widened into 6-8 m. IMEIP II PPTA FINAL REPORT 5-25
Table 5.8: Summary of the Bridge Data
Item Reshui Bridge Tangqian Bridge Width of river-way (m) 70 50 Simply support girder Simply support girder Type of bridge bridge bridge Length of bridge (m) 70 50 Width of bridge (m) 9 8 Quantity of Span 7 x 10 5 x 10
527. All bridges adopt single span prestressed reinforced concrete block with the standard of10 meters’ length span. The structure of the bridge is a simple support girder with the surface of bituminous concrete pavement. Reinforced concrete cantilever abutments and piers will be used, all of which will be founded on 1.0 meter reinforced concrete caissons. The bridge foundation adopts drilled shaft with the diameter same as that of piers.
528. Based on the preliminary evaluation, the schematic design presented in the FSR is suitable to serve the general objectives of the proposed subproject.
5.5 Energy Conservation and Pollution Reduction
5.5.1 Energy Conservation
529. The earth is a huge heat energy storage tank and geothermal energy is considered as a renewable natural energy. Utilizing geothermal energy will reduce fossil fuel consumption and thus contribute to sustainable development. In order to fully utilizing geothermal energy in Ningcheng area, staged utilization approach was adopted for the Subproject. To avoid over-extraction of hot water in the subproject area, a substantial amount of reinjection is designed for this subproject, which is an important measure to naturally recover the resource loss. Reinjection water can absorb heat from source rocks in reservoir and be renewed repeatedly to reach our goal of energy conservation.
5.5.2 Pollution Reduction
530. There is a great influence on environment improvement and an enormous social and economic impact in the Zone once the subproject is implemented. Geothermal resources substituting conventional fuel of coal will reduce emissions: 22,400 tons of CO2, 210 tons of
SO2, 80 tons of NO2 and 100 tons of suspended particles.
5.5.3 Clean Development Mechanism (CDM)
531. By initial review conducted by a CDM specialist, this subproject qualifies for a CDM application. Since the IAs and PMOs are not familiar with the procedures of CDM application, a training by the CDM specialist engaged by ADB program was given to those IAs whose subprojects are potentially qualified for the CDM credits. Appendix 21 provides a detailed discussion on CDM’s principal criteria and application procedures. IMEIP II PPTA FINAL REPORT 5-26
5.6 Subproject Implementation Schedule
532. A proposed implementation schedule for this subproject is shown in Table 5.9. It is a preliminary plan and necessary adjustment will be made according to the ADB loan program. Additional adjustment may be needed pending on phase I drilling and testing results. IMEIP II PPTA FINAL REPORT 5-27
Table 5.9: Preliminary Implementation Schedule for CGU Subproject
2008 2009 2010 2011
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
Pump station engineering component (Phased Implementation)
1 Design and tender documentation
2 Tender invitation, assessment and contract award*
3 Equipment and pumps installation
4 Testing and commissioning
Pipeline network engineering component
1 Design and tender documentation
2 Tender invitation, assessment and contract award
3 Civil works construction, pipeline installation
4 Testing and commissioning
Heat exchange and control engineering component
1 Design and tender documentation
2 Tender invitation, assessment and contract award
3 Equipment & installation,
4 Testing and commissioning
Waste water treatment plant engineering component
1 Design and tender documentation IMEIP II PPTA FINAL REPORT 5-28
2008 2009 2010 2011
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2 Tender invitation, assessment and contract award
3 Civil works construction, equipment & installation
4 Testing and commissioning
Green house engineering component
1 Design and tender documentation
2 Tender invitation, assessment and contract award
3 Civil works construction, equipment and pipeline installation
4 Testing and commissioning
Road and bridge engineering component
1 Design and tender documentation
2 Tender invitation, assessment and contract award
3 Civil works construction
*Solid line for Phase I drilling and testing, and dot line for Phase II. IMEIP II PPTA FINAL REPORT 5-29
5.7 Conclusion
533. The subproject area has abundant geothermal resources, which can be utilized commercially. Previous artesian hot springs had a temperature of 90qC. At present the geothermal pump station and individual users are extracting geothermal waters from shallow wells for residential use, therapeutic purposes, hot spring aquaculture fish farming and small scale geothermal district heating. The proposed CGU subproject will utilize geothermal energy much more efficiently in a sustainable manner. Ningcheng CGU is consistent with the national policy of promoting the development of renewable energy.
534. Ningcheng CGU Subproject consists of drilling two production wells and one reinjection well, laying pipelines, construction of a geothermal pumping station with relevant ancillary equipment and a control center. Geothermal water of 95qC will be used to provide district heating for 300,000 m2. Most of the circulated thermal water will be reinjected to ensure sustainability of the geothermal resources. It will construct an agriculture boosting base including geothermal greenhouse planting and aquaculture fish farming. Other utilization of the resources includes hot water supply for hotels and guest houses. In addition, a road rehabilitation subcomponent for approximately 7.8 km road is included under the subproject to restore roads after pipeline installation and improve the infrastructure of the Reshui Town.
535. There will be enormous positive influence on environment improvement and social and economic development of the Zone once the subproject is implemented. Geothermal resources substituting conventional fuel of coal will reduce emissions: 22,400 tons of CO2,
210 tons of SO2, 80 tons of NO2 and 100 tons of suspended particulars.
536. It has been demonstrated in the FSR that Ningcheng CGU is both technically and economically feasible. The detailed analyses of investment, financial internal rates of return, and investment payoff period are discussed in the financial and economic analyses
537. Even though extensive studies and surveys have been conducted, there are still some uncertainties about the quantity and quality of the geothermal resources. Phased approaches are taken to minimize the risks. IMEIP II PPTA FINAL REPORT 6-1
CHAPTER 6 ENVIRONMENTAL IMPACT ASSESSMENT
6.1 Introduction
538. This section presents the assessment of environmental issues relating to development of the Project. The Summary Initial Environmental Examination (SIEE) has been prepared by the PPTA Consultant in accordance with the “Environmental Assessment Guidelines (2003) and Environment Policy (2002)” of ADB. The Project is classified as Category B in accordance with ADB environmental classification criteria. The total cost of the Project is approximately $398 million including an ADB loan of $150 million. The anticipated project implementation period is 4 years. 539. This Project supports the PRC’s 11th-Five-Year-Plan (2006-2010) which emphasizes resource conservation, environmental protection, and gives priority to improving energy efficiency and developing cleaner energy sources. The Project specifically supports the following targets of the 11th-Five-Year-Plan: (i) SO2 emission reduction of 10%, through reduction in coal consumption for district heating and other sectors, (ii) energy consumption reduction of 20% per unit GDP, through replacing obsolete and inefficient heating systems, improving boiler efficiency and reducing of losses from heating distribution systems, and (iii) optimizing development of renewable energy resources. 540. The Project includes three parts consisting of DHS, NGS and CGU in nine cities/towns of five administrative municipalities/leagues of Hohhot, Baotou, Chifeng, Hulunbeier and Xing’an in IMAR. The Summary Environmental Impact Assessment (SEIA) is 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. A summary of the authors and the approval status of the EIAs is presented in table 6.1 below: Table 6.1: Summary of Subproject EIAs Status
Completion Approval Part No. Subproject EIA Author Approval Status Date EPB IMAR Coal A: Will be approved before 1 Hohhot Industrial Research 11 Jan 2008 IMAR EPB DHS the end of June 2008 Institute Dongfang Eng. & 2 Baotou Tech. Co. of China 25 Dec 2007 IMAR EPB Has been approved Metallurgical Corp. Chifeng 3 Chifeng Chifeng MESRI 11 Jan 2008 Has been approved EPB Chifeng 4 Kalaqin Chifeng MESRI 11 Jan 2008 Has been approved EPB 5 Zhalaite Tongliao MESRI 25 Dec 2007 IMAR EPB Has been approved 6 Keyouqian Tongliao MESRI 25 Dec 2007 IMAR EPB Has been approved Will be approved before 7 Molidawa CNMEDRI 15 Jan 2008 IMAR EPB the end of June 2008 IMEIP II PPTA FINAL REPORT 6-2
Will be approved before 8 Chenbaerhu CNMEDRI 31 Jan 2008 IMAR EPB the end of June 2008 B: 9 Keyouqian Tongliao MESRI 25 Dec 2007 IMAR EPB Has been approved NGS C: Chifeng 10 Ningcheng Chifeng ESRI 22 Jan 2008 Has been approved CGU EPB
MESRI – Municipal Environment Science & Research Institute
NCMEDRI = North China Municipal Engineering Design and Research Institute 6.2 Description of the Project See Chapter 1 for the detailed description of the Project. 6.3 Description of the Environment 6.3.1 Geology and Climate
541. The locations of the ten subprojects are spread throughout five geological regions of vast IMAR. The distance between the subproject locations in the southwest and northeast of IMAR is over 2,400 km. The total Project area is 205,149 km2 with a population of 10.8 million (urban population approximately 2.43 million). The Project area can be divided into five regions as below. 542. The Area of Hohhot and Baotou. This region involves two DHS subprojects in the cities of Hohhot and Baotou. The area is located in the southwest of IMAR, which covers 44,900 km2 and has a total population of 5.07 million (non-agriculture population is 3.36 million). The urban area of Baotou is located in the foothills of Daqing Mountain with an average elevation of 1,050 meters (m) above sea level; and the urban Hohhot is situated in the Tumochuan Plain with an average elevation of 1,050 m. The area has a semi-arid temperate continental climate which is characterized by distinct seasonal variations and sharp temperature changes. Average annual precipitation is 309–605 mm with the majority occurring between June and September; the annual average temperature is 6.2–6.4ºC; the annual average relative moisture is 51–67%; and the annual heating days are approximately 182 to 187. Continued industrialization and agricultural expansion, specifically over pasture lands, have caused ecological deterioration in the area, which is a major contributor to strong sandstorms in the northern PRC. The region is primarily located on the desert steppe with grassland vegetation, farmland and planted forests. Both the subprojects of Hohhot and Baotou are located in the urban areas with a population of 707,000 and 983,000, respectively. 543. Chifeng City and South. The region involves two DHS subprojects in Chifeng City and Kalaqin Banner, and the CGU subproject in Ningcheng County. The area is located in southeastern part of IMAR, on the intermediate zone between the Mongolian Plateau and the Liao River Plain, which covers 97,400 km2 and has a total population of 4.39 million (non-agriculture population is 860,000). The region has a semi-arid temperate continental climate. Average annual precipitation is 381–440 mm with the majority occurring in summer. The annual average temperature is 6.4–7.6ºC; the annual average relative moisture is 51%; and the annual heating days are 183. The vegetation in the area consists of mainly IMEIP II PPTA FINAL REPORT 6-3 grassland, farmland and planted forests. Chifeng DHS is situated in the urban area of Chifeng City with an urban population of 440,000 and an urban area of 39.6 km2; Kalaqin DHS is located in the Jinshan Town of Kalaqin Banner with an urban population of 38,000 and an urban area of 6 km2; and Ningcheng CGU is located in the Reshui Town of Ningcheng County with an urban population of 18,000 and urban area of 1.55 km2. 544. East of Xing’an League. The region involves two DHS subprojects in Zhalaite Banner and Keyouqian Banner, and a NGS subproject also in Keyouqian Banner. The project area is located in the intermediate zone between the Great Xing’an Mountain and the Song-Nen Plain in the eastern part of IMAR, which covers 31,200 km2 and has a total population of 748,000 (non-agriculture population is 150,000). The project area has a temperate continental climate which is characterized by distinct seasonal variations and long cold winters. Average annual precipitation is 403–441 mm with the majority occurring in summer; the annual average temperature is 4.0–4.2ºC; and the annual heating days are approximately 183. The major vegetation in the project area consists of grassland, farmland and planted forests. The town of Keyouqian Banner is a newly developing area with an urban population of 60,000 and the planned area of 10 km2; Zhalaite DHS is sited in Yindeer Town of Zhalaite Banner with an urban area of 16 km2 and an urban population of 70,000. 545. West of Hulunbeier. Chenbaerhu DHS is located in this region. The area is situated on the Hulunbeier Great Grassland at the western foot of the Great Xing’an Mountain, which covers 21,200 km2 with a population of 60,000 (urban population is 25,000). The project area has a semi-arid temperate continental climate which is characterized by long and harsh winter and sharp temperature changes. The average annual temperature is -2.5ºC, the average temperature in January is -28.2ºC, the extreme minimum temperature is -49ºC; and the annual heating days are 212; average annual precipitation is 240 mm; and the maximum depth of frozen earth is 2.4 m. The vegetation in the area is mainly natural grassland. The subproject is sited in Bayankuren Town of Chenbaerhu Banner with an urban area of 10 km2 and an urban population of 25,000. 546. East of Hulunbeier. Molidawa DHS is located in this area. The area is located on the eastern foothills of the Great Xing’an Mountain near the upper reaches of the Nenjiang River, which covers 10,400 km2 and has a total population of 330,000. The project area has a semi-humid temperate continental climate which is characterized by long and harsh winters with heavy snows. The average annual temperature is 4.2ºC, and the extreme minimum temperature is -45ºC; and the annual heating days are 195. The maximum depth of frost is 2.51 m; and the average annual precipitation is 444 mm. The vegetation in the area consists of farmland, natural and planted forests. The subproject is located in the Nierji Town of Molidawa Banner with an urban area of 9 km2 and an urban population of 90,000. 6.3.2 Air Quality and Noise 547. The air qualities in the six small towns mostly meet Category II of the PRC Ambient Air Quality Standards1 in winter, with the exception of TSP in Kalaqin exceeding the standard. Due to numerous small coal-fired boilers, the air qualities in the cities of Chifeng and Baotou
1 Ambient Air Quality Standards (GB3095-1996): Category II applies to urban residential areas, commercial areas, general industrial areas and countryside. IMEIP II PPTA FINAL REPORT 6-4
exceed the standards of SO2 and particulate matter; and Hohhot barely meets the daily
average standard of SO2, but exceeds in particulate matter. The World Bank standards for ambient air quality are more stringent1, which are also shown in Table 6.2. The background ambient noise levels at subproject areas were monitored, which are presented below. The data are within the Category II of PRC’s Environmental Noise Standard of Urban Area (GB3096-1993). 548. The annual monitoring data of ambient air qualities and noise levels at three subproject towns of Kalaqin, Zhalaite, and Molidawa were provided by the local environmental monitoring centers, which are presented in Table 6.2 below. The majority of the data meet Category II of PRC’s standard; but the annual maximum concentrations of the
PM10 and the TSP exceed the World Bank Standards. Table 6.2: Background Monitoring Data of Ambient Air and Noise
Subproject SO PM TSP NO Noise No. 2 10 2 Remark Location (mg/m3) (mg/m3) (mg/m3) (mg/m3) dB(A) Monitoring Data of Ambient Air and Noise in Vicinities of the Subproject Sites Supplied by the EIA Institutes 47-54.5(d) 6 pts 5 days 1 Hohhot 0.124 0.197 0.42 0.040 38-42(n) average for air 2 Chifeng 0.092 0.134 0.033 annual average 55.2(d); annual city 3 Baotou 0.07 0.136 0.036 45.2(n) average annual average 39.4-44.6(d); 4 Keyouqian 0.012 0.054 0.112 0.008 for air, 8 pts for 38.2-40.0 (n) noise Reach II 5 Kalaqin 0.022 0.334 0.020 annual average standard 62.8(d); 6 Zhalaite 0.010-0.041 0.014-0.102 annual average 54.6(n) 39.2-40.1(d); 7 Molidawa 0.0175 0.0874 0.140 3 pts 5 days 33.2-33.7 (n) average for air; 46.8-52.1(d); and 4 pts for 8 Chenbaerhu 0.012 0.016 0.005 41.6-46.5 (n) noise Reshui 9 0.032 0.119 0.020 44.4 annual average Town Monitoring Data of Ambient Air and Noise of the Towns in Winters Supplied by the Local Environment Monitoring Centers Kalaqin 2006-07 0.005-0.017 0.062-0.186 0.010-0.021 44.2-64.2 Annual range for the whole town 2007-08 0.005-0.020 0.060-0.150 0.010-0.023 46.0-65.3 Zhalaite 2006-07 0.010-0.069 0.014-0.140 53.1-69.8 2007-08 0.010-0.074 0.014-0.150 54.5-70.8 Molidawa 2006-07 0.002-0.062 0.0108-0.1507 0.0532-0.2866 38.5-43.8
1 The World Bank “Pollution Prevention and Abatement Handbook (Chinese) 1998 – Toward Cleaner Production”, translated and published by PRC’s NDRC, Beijing. IMEIP II PPTA FINAL REPORT 6-5
Subproject SO PM TSP NO Noise No. 2 10 2 Remark Location (mg/m3) (mg/m3) (mg/m3) (mg/m3) dB(A) 2007-08 0.002-0.045 0.0088-0.1491 0.0433-0.2665 33.2-40.1 Pollution World Bank Standard Prevention and 0.125/ 0.07/ 0.15/ 0.15/ 55(d); (daily /annual Abatement 0.05 0.05 0.07 0.10 45(n) average)* Handbook (1998) Category II of National Standards (GB3095-1996) ; 0.15/0.06 0.15/0.10 0.30/0.20 0.08/0.04 60(d); 50(n) (daily /annual (GB3096-1993) average)
6.3.3 Water Resources
549. The major rivers flowing through the subproject areas include the Yellow River and the Kundulun River in the area of Hohhot and Baotou; the Xibo River and the Laoha River in Chifeng and south; the Zuoer River, the Guiliu River and the Taoer River in Xing’an League, as well as the Nenjiang River in the east and the Erguna River in the west of Hulunbeier Municipality. 550. The Reshui River flows through the proposed CGU subproject area. It is a mountainous seasonal river flowing 27 km from the Gounao Maintain in the north, receiving the majority of the area’s storm waters, domestic and industrial wastewaters in the catchments area, and then flowing south into the Balihan River at Shaliyingzi Village. The river is polluted with organic pollutants according to the EIA and fails to meet Category III of the PRC’s Environment Quality Standard for Surface Water (GB3838-2002). 6.3.4 Ecological Resources 551. The ecologic systems in the vast Project areas include mountain grassland, forest grassland, desert grassland, desert, forest and farmland with various vegetation including wild trees, grass, shrubs and herbs, as well as planted forests and crops. The main trees include Xing’an larch, Japanese birch, oak, Mongolian Scotch pine, dragon spruce and Chinese pine. The main species of wild mammals and birds include deer, roe deer, Mongolian gazelle, badger, fox, squirrel, Mongolian Lark, hickwall, pheasant, hawk and vulture. The individual EIA reports indicate that there are no rare, threatened, or endangered species recorded in the immediate vicinity of the proposed subprojects, which are primarily located in urban areas. Therefore, the Project is not anticipated to impact these species. 552. The subproject sites will not encroach upon any cultural, historical or archaeological and environmental protection areas according to the EIAs. 6.3.5 Social Conditions 553. IMAR has 31 national poverty and 29 provincial poverty counties/banners with 697,000 people living below the poverty line (2005). There are over 40 ethnic minority groups in the Project areas according to the data provided by the local authorities. Seven groups were encountered during the household surveys undertaken as part of the PPTA. IMEIP II PPTA FINAL REPORT 6-6
They are Mongolian, Manchu, Daur (Dawoer), Oroqen (Elunchun), Korean, Hui and Tujia. The highest proportion of poor households is in Molidawa Banner, where 23% of the households in the subproject vicinity (Nierji Town) are under the minimum living guarantee (MLG) program. The next highest is Chenbaerhu Banner with 12.5% poor households. The highest proportion of ethnic minority households is in Chenbaerhu Banner where 95% of households belong to ethnic minority groups. The next highest is the Hongshan District, Chifeng City with 27% ethnic minority households, followed by Yindeer Town of Zhalaite Banner with 22% of households. 554. The key social indicators of the Project area and the detailed for each subproject area are summarized in Table 6.3 and Table 6.4 below: Table 6.3: Key Social Indicators of the Project Area
Item Indicator Population Total population: 11.54 million (IMAR: 23.92 million) ; Non-agricultural population: 4.63 million ; Agricultural population: 6.91 million. Land Total area: 205,149 km2 (IMAR: 1.8 million km2). Urbanization 3 cities, 6 towns. Economy GDP: RMB 248.92 billion in 2006 (IMAR: RMB 479.15 billion); Major industrial products: Coal, cement, sugar, dairy, coke, paper; Major crops: wheat, corn, beans, beetroots, tubers and oil bearing crops. 26 universities/colleges with total enrollment of 205,701; 700 middle schools with total students of 754,374˗ Education 2,881 primary schools with total pupils of 746,206; 112 vocational schools with total enrollment of 136,404; and 760 kindergartens with total children of 117,142. Culture 28 libraries; 5 museums; and 28 cultural centers. Medical Service 578 Hospitals/clinics with total beds of 29,891 and 20,109 licensed doctors.
Source: IMAR 2007 Yearbook (IMAR Statistic Bureau) IMEIP II PPTA FINAL REPORT 6-7
Table 6.4: Key Social Indicators of the Subprojects Areas
City/Town Hohhot ChifengBaotou Keyouqian KalaqinZhalaite Molidawa Chenbaerhu Ningcheng Population (million) 2.61 4.39 2.46 0.36 0.34 0.39 0.33 0.06 0.6 Non-agr. population 1.52 0.86 1.84 0.06 0.04 0.09 0.09 0.05 0.08 Land area (km2) 17,200 90,000 27,700 19,375 3050 11,837 10,500 21,182 4,305 GDP (2006) RMB billion 90.01 42.8 101.01 2.3 2.1 2.2 3 1.9 3.6 19 3 4 University/college (enrollment) (150,920) (9580) (45201) 142 273 133 29 15 28 29 5 46 Middle school (enrollment) (154,644) (313,592) (176610) (18,124) (19,011) (15,939) (16,660) (3430) (36,364) 693 1085 317 182 142 131 150 6 175 Primary school (enrollment) (183,966) (303,526) (136,261) (23,188) (22,221) (18,803) (19,669) (3,676) (34,896) 51 42 19 Vocational school (enrollment) (60,444) (46,564) (29,396) 131 426 105 Kindergarten (children) 11 8 19 33 1 26 (31,728) (59,910) (25,504 Libraries 9910 Museums 221 Cultural centers 9910 Hospital/clinic 143 204 114 1 3 5 6 5 4 Hospital bed 8,969 11,064 8,870 207 240 384 281 113 618 Licensed doctor 6,246 7,475 6,388
Source: IMAR 2007 Yearbook published by IMAR Statistic Bureau. IMEIP II PPTA FINAL REPORT 6-8
6.4 Anticipated Environmental Impacts and Mitigation Measures 6.4.1 Environmental Benefits and Impacts 555. Increases in Heating Areas. The full implementation of the DHS subprojects will result in a total increased heating area of 39.1 million m2. In regions where winter temperatures drop to -20 to -30oC regularly with extremes of -49oC (Chenbaerhu Banner), this increase in heating area is of critical importance to the health and quality of life, especially for the elderly, children and the poor. 556. Pollution Reduction. All subprojects in total, to varying degrees, will close or replace 402 existing small, high pollution, inefficient coal-fired boilers and more than 36,500 single-family heating stoves by using environmental-friendly high-efficiency boilers with advanced emission control equipment in the Project area. The emission reductions from these inefficient and polluted combustion sources will result in significant reductions in air pollution loads. The subprojects will improve public health, quality of life and living environments in the areas now impacted by emissions, noise and flue dust from the existing small boilers. The EIAs and supplementary information provided by the EIA institutes have quantified these reductions in pollution loads illustrated in Table 6.5. Gaps in the information have been filled by calculations undertaken by the PPTA environmental consultants. Water and soil pollution will indirectly improve as a result of the reduction of particulate matter, NOx and SO2 emissions, and the harmful compounds that contribute to acid rain and decreased crop production and water pollution. The reduction of the single-family stoves, a major point source for indoor air pollution, will have a significant positive impact on residents’ health and quality of life. 557. Greenhouse Gas Reduction. Reductions in the coal consumption will reduce approximately 1.65 million tons of CO2 emissions annually (also included in Table 6.5 below).
The reductions in CO2 will contribute to global environmental benefits in terms of reduction of greenhouse gas emissions, and contribute to the Project’s eligibility for registration by the CDM program under the Kyoto Protocol. 558. Coal Saving and Reductions in Coal Transport. The Project will totally reduce coal consumption of 1.085 million tons, and will reduce the traffic hazards caused by coal transport vehicles in urban areas. This in turn will improve the urban environment by reducing vehicle emissions, traffic noise and improving road safety. Additionally, the NGS subproject will replace indoor coal burning for cooking with natural gas in the subproject area, contributing to improved indoor air quality. This will not only reduce the need for coal transport trucks to access urban areas, but in addition will improve the urban environment by reducing dust levels, noise and reduce urban vehicle emissions. 559. Comprehensive Utilization of Geothermal Energy. The geothermal energy in the subproject area, Reshui Town of Ningcheng County is particularly good natural resource providing hot water with an average temperature of 95°C. Geothermal energy is a clean, abundant, and reliable source of renewable energy that does not consume any fossil fuel or produce significant emissions. The subproject will use geothermal energy for district heating, replacing coal-fired boilers, significantly improve local air quality as well as the local economy and residents’ health and quality of life. The subproject is also an integrated IMEIP II PPTA FINAL REPORT 6-9
geothermal utilization project that offers demonstration for geothermal utilization in the fields of agriculture and urban infrastructure in small towns. Table 6.5: Estimated Reductions of Emissions and Coal Consumption
Coal Estimated emissions Small Family transport Crude coal reduction (ton/annum) boilers stoves to be saved Data No. Subproject vehicles to to be to be or replaced Source be Flue closed closed 1 (ton/annum) SO NOx CO reduced 2 dust 2 (no./annum) Hohhot 1 144 19,425 155,400 3,0602,200 3,140 275,000 IMAR CIRI DHS Chifeng LNMCPI 2 37 15,000 63,925 511,400 4,750 1090 1260 654,700 DHS (FS) Baotou 3 159 19,025 152,200 1,620 630 670 271,000 DETCCMC DHS
Keyouqian 2 NCMDRI 4 11 0 8,875 71,000 1,630 5,370 530 126,800 DHS (FS)
Kalaqin 3 5 0 3,200 7,525 60,200 450 3,550 630 107,200 CMESRI DHS Zhalaite 6 27 4,913 39,300 960 2,080 270 70,100 TMESRI DHS Molidawa 7 13 10,780 3,838 30,700 340 1,710 240 54,800 NCMDRI DHS Chenbaerhu 8 1 7,568 3,588 28,700 440 1,280 200 31,800 NCMDRI DHS Keyouqian NCEMDRI 9 2,938 23,500 800 250 41,800 NGS (FS) Ningcheng GRDITU 10 10 24 1,575 12,600 210 100 80 22,400 CGU (FS) Total 402 36,572 135,627 1,085,000 14,260 18,260 7,020 1,655,600
CNEMEDRI = China Northeast Municipal Engineering Design and Research Institute; CMESRI = Chifeng Municipal Environment Science Research Institute; DETCCMC = Dongfang Eng. & Tech. Co. of China Metallurgical Corp; GRDITU = Geothermal Design Institute of Tianjin University; IMAR CIRI: IMAR Coal Industrial Research Institute; LNPCPI = Liaoning Provincial Construction & Planning Institute; NCMEDRI = Northern China Municipal Engineering Design and Research Institute; SC = Standard Coal; TMESRI = Tongliao Municipal Environment Science Research Institute;
Source: EIAs and FSs 6.4.2 Environmental Impacts and Mitigation Measures – Construction Phase 1) Soil
1 Calculated as 8 tons per truck for coal transport. 2 11 small boilers are supplying heat to the institutes and residents currently living in the new developing town, and will be closed after proposed subproject completion. 3 All the small boilers had been closed in 2004 according to the IA and the EIA Institute. IMEIP II PPTA FINAL REPORT 6-10
560. Potential environmental impacts on soil by the Project include (i) soil erosion, (ii) soil contamination, (iii) temporary and permanent acquisition of urban and agricultural land, and (iv) impacts from construction machinery operation and traffic. Soil erosion may be caused by (i) the construction of DHPs, HESs, and NGS stations, (ii) excavation of pipe trenches and spoil earthwork from pipeline construction, (iii) demolition and site preparation for the construction activity, and (iv) soil contamination caused by inappropriate storage and disposal of hazardous materials and waste. Mitigation measures will include: (i) Covering or seeding temporary soil stockpiles; watering construction sites and hauling roads; (ii) Minimizing active open excavation areas during trenching activities and using appropriate compaction techniques for pipe trenches; (iii) Installing sediment fences or sedimentation ponds where appropriate to minimize sediment runoff; (iv) Properly revegetating disturbed surfaces, such as earth borrow and fill areas, as well as compacted pipeline trenches to minimize erosion; (v) Properly storing petroleum products, hazardous materials, and wastes on impermeable surfaces in secure, covered areas, and using best management practices to avoid soil contamination; (vi) Limiting construction and material handling during periods of rain and high winds to minimize soil erosion; (vii) Removing all construction wastes from the site to approved waste disposal sites; (viii) Providing spill cleanup measures and equipment at each construction site (this requirement will be included in bidding documents) and requiring contractors to conduct training on emergency spill response procedures. (ix) Developing an erosion protection plan and having it approved before construction. Approved locations of borrowed pits and spoils piles will be defined in contractors’ tender documents. (x) Stabilizing as far as possible all erosion-prone working areas while work is going on. All earthwork disturbance areas will be stabilized within 30 days after earthwork ceases at the site. (xi) Designing temporary construction camps and storage areas to minimize land area required and impact on soil erosion. 561. Agricultural and urban lands will be acquired for permanent structures as well as for temporary material storage areas and construction camps. It is estimated that approximately 17.23 hectares will be permanently acquired and 102.57 hectares will be temporarily occupied by construction activities while pipelines are being laid and DHPs and HESs are being constructed. Construction traffic may degrade surface soils during the construction period. Mitigation measures will include confining vehicles to existing roads and limiting access to agricultural land. IMEIP II PPTA FINAL REPORT 6-11
2) Water
562. Potential environmental impacts on water by the Project include (i) increased sedimentation of adjacent water resources from construction activities, and (ii) inappropriate wastewater disposal. Construction activities will disturb surface soils and potentially increase sediment runoff into adjacent waterways. Inappropriate disposal of domestic wastewater from construction camps and disposal of wash down water from construction equipment and vehicles could affect adjacent surface water resources. Mitigation measures will include: (i) Installing appropriate septic disposal systems at construction camps, along with proper maintenance protocols; (ii) Equipping all construction drainage areas with water collection basins and sediment traps. All construction equipment wash-down areas will have oil separators installed. (iii) Storing all toxic, hazardous, or harmful construction materials including petroleum products on an impermeable surface and managing these materials in such a way as to prevent spillage or leakage, which could spread and affect surface water or groundwater systems; and (iv) Handling solid waste disposal in consultation with local authorities to protect surface water and groundwater resources. 3) Air Quality and Noise 563. Potential environmental impacts on air quality and noise during construction include (i) dust from construction activities, (ii) construction vehicle emissions, and (iii) construction noise. Fugitive dust may be caused by excavation, demolition, vehicle movement, and materials handling, particularly downwind from the construction sites. Air pollution may be caused by emissions from vehicles and construction machinery. Noise may be caused by construction equipment and vehicular movement, potentially affecting residents of nearby residential areas, hospitals and schools. Mitigation measures will include: (i) Water spraying of transportation routes and materials handling sites where dust is being generated; (ii) Particular attention will be paid to dust suppression adjacent to sensitive receptors such as schools or residential areas; (iii) Materials will be stored at appropriate places and covered or sprayed to minimize fugitive dust; (iv) Materials will be covered during transportation to avoid spillage or dust generation; (v) Vehicles and construction machinery will be required to be properly maintained and to comply with emission and noise standards; (vi) Excavation will be limited during windy days (wind is greater than Grade 5); (vii) Construction will be prohibited between 19:00 and 06:00 in sites adjacent to residential areas; and (viii) Ongoing noise monitoring will be undertaken to ensure compliance. IMEIP II PPTA FINAL REPORT 6-12
4) Solid Wastes
564. Inappropriate waste storage and disposal has the potential to impact soil, groundwater and surface water resources, and consequently public health. Mitigation measures will include the following activities: (i) Minimizing the storage of petroleum products, hazardous, reactive, ignitable and flammable materials on site, and conducting regular inspections; (ii) Contractors must have an agreement with a spill response organization or ensure employees are properly trained to safely respond to an emergency of hazardous material or petroleum spill, which will be included in all bidding documents and contracts for civil works; (iii) Appropriate storage of petroleum products, hazardous materials and wastes on an impermeable surface in a secure, covered area; hazardous waste will be stored separately from non hazardous waste; (iv) All wastes (hazardous and non-hazardous) will be removed from sites to approved waste disposal sites by an approved contractor with the proper credentials following the appropriate standards. There will be no on-site landfills permitted at any of the construction sites; (v) If significant residual materials remain on the ground after completion of construction, the contractor will be held responsible for and make arrangements to properly remove and dispose of the materials and contaminated soils; if the area is to be paved or vegetated, pave or vegetate it as soon as the materials are removed to stabilize soil; and (vi) Burning of waste will be prohibited. 5) Flora and Fauna
565. Potential impact to flora and fauna from the proposed Project includes the removal of vegetation and disruption of the ecosystem during construction activities. In general, the proposed development will occur within urban areas and is not expected to significantly impact flora and fauna. However, road construction in Reshui Town may have some impact on terrestrial vegetation. However, there are no rare, threatened or endangered species recorded within the vicinity of the proposed subproject. Mitigation measures will include following activities: (i) Trees or shrubs will only be removed as a last resort if they impinge directly on the permanent works or approved necessary temporary works; (ii) After pipe-laying construction, the trenches will be properly compacted and revegetated; (iii) Compensatory planting of any trees and grassland rehabilitation will be carried out if these areas are disturbed. IMEIP II PPTA FINAL REPORT 6-13
6) Historical, Culture, and Archaeological Sites
(i) Construction activities could disturb cultural sites; however, at the present time no historical, cultural or archaeological sites have been identified in the proposed subproject areas. Procedures will be established so that relevant sites can be identified and protected in the event they are discovered during construction. Mitigation measures will include the immediate suspension of construction activities if any archaeological or other cultural relics are encountered. The relevant cultural authority, as well as the PMO, will be promptly notified, and construction will resume only after a thorough investigation and permission granted from the appropriate authority. As no cultural or archeological sites have been identified in the subproject areas so far, the possibility for discovering a cultural site is considered to be low. 7) Socioeconomic Impacts (i) Potential social and economic impacts during constructions include traffic congestion, threat to public safety as a result of construction activities and heavy equipment traffic, unexpected interruption to municipal services and utilities such as damaging existing pipelines for water supply, drainage, heating supply and town gas, as well as underground power cables and communication optical cables. Any of these disruptions in service can have serious impacts on the economy, industries and residents’ daily life. Traffic congestion may worsen due to an increase in construction traffic in urban areas during rush hour; roads may be fully or partially closed during construction, causing temporary inconvenience to residents’ travels, commercial operations, and institutions. Construction may require the relocation of municipal utilities such as sewer, gas, water supplies, communication cables, and power supplies which may require temporary suspension of services to adjacent communities. Construction sites may be located in residential and commercial urban areas which may present a threat to public safety. Mitigation measures will include:
Construction scheduling of contractors will consider impacts to traffic. A traffic control and operation plan will be prepared and be approved by local traffic management administration prior to pipeline constructions; the plan will include diverting or scheduling construction traffic to avoid peak traffic hours, regulating traffic at the road crossings, selecting transport routes to reduce disturbance to regular traffic, reinstating the roads and opening to traffic as soon as possible after completion of the pipeline construction;
Construction activities will be planned in such a manner that disturbances to utility services will be kept to a minimum. Temporary land occupation will be planned well ahead of construction to minimize the impact of the disturbance. Land will be reinstated to its original condition upon completion of construction; and
Implementation of safety measures at the construction sites to protect the public, including warning signs to alert the public of potential safety hazards and barriers to prevent public access to construction sites. IMEIP II PPTA FINAL REPORT 6-14
8) Land Acquisition and Resettlement
(i) The Project will permanently acquire and temporarily occupy lands of 17.23 ha and 102.67 ha respectively. A total of 1,271 workers currently working at the 256 existing small boiler houses will lose their jobs as a result of the Project. And 44 rural households in Ningcheng CGU subproject area will lease their farmland to the IA for high efficiency agriculture and aquaculture. (ii) Resettlement plans (RPs) and frameworks have been prepared for relevant subprojects in accordance with the PRC and ADB policies and requirements on resettlement, which describe the resettlement and compensation procedures for the affected households and residents. The workers losing job will either be reemployed by their former employers or find other jobs after receiving skill training according the RPs. 6.4.3 Environmental Impacts and Mitigation Measures - Operation Phase 1) DHS subprojects (i) Adverse environmental impacts as a result of the DHS subprojects during the operational stage include (i) air pollution from the boiler stacks, (ii) noise, (iii) industrial and domestic wastewater disposal, and (iv) solid wastes disposal from the boiler stations and HESs. (ii) Potential air pollution from boiler stacks applies to the 5 proposed subprojects with boilers at Hohhot, Keyouqian, Zhalaite, Molidawa and Chenbaerhu. The designs for these boilers include post-combustion emission controls which comprise dry multi-cyclone dust collection for the initial removal of particulate matter followed by a
lime slurry wet scrubber which absorbs SO2 and fine particulates. The pollution control waste streams are added to the fly ash and bottom ash for disposal. The two-stage particulates filtration at peak efficiency reduces TSP by 98%. The lime
slurry wet scrubber at peak efficiency reduces SO2 by 85%. Table 6.6 and 6.7 show the estimated pollutants emission concentrations and total loads at the stack. It shows that they all comply with the PRC standard1. Table 6.6 Predicted Concentration of Pollutants Emission
3 3 Subproject (mg/m ) SO2 TSP (mg/m ) Hohhot DHS 317 123 Keyouqian DHS 299.3 48.1 Zhalaite DHS 359.6 94.3 Molidawa DHS 545 151 Chenbaerhu DHS 155 58.5 Discharge Standard 900 200
1 Emission Standards for Boiler Air Pollutants (B13271-2001). IMEIP II PPTA FINAL REPORT 6-15
Table 6.7 Estimated Amounts of Pollutants during the DHS Operational Stage
Discharge value of Pollutants No. Subproject SO2 NOx Flue dust Industrial solid Domestic garbage Wastewater (t/a) (t/a) (t/a) wastes (t/a) (t/a) (m3/a) 1 Hohhot DHS 977 331 156 47 65,491 2 Keyouqian DHS 468 703 75 51,919 35 837 3 Zhalaite DHS 4 Molidawa DHS 261 73 13,620 18 5 Chenbaerhu DHS 74 237 28 6,500 11 Total 1,780 1,271 332 72,039 111 66,328
Source: Chinese EIA Reports and data from IAs
(i) Using dispersion modeling, the EIAs for these developments have calculated the impact on ambient air quality at selected monitoring sites (at the boiler yard wall and ranging up to 2 km from the site). These analyses reveal that, under all wind conditions, the emissions will not result in ambient air quality standards at the monitoring points being exceeded. Installation of online automatic monitors for
monitoring SO2 and flue dust will ensure that this performance level is maintained. (ii) Three other DHS subprojects at Baotou, Chifeng and Kalaqin are cogeneration projects with existing thermal power stations. Although the heat sources are not part of the ADB Loan, their environmental performance is relevant to the environmental due diligence reporting of the integrated Project. Accordingly, the emissions of the three thermal power stations were examined and their compliance with the PRC standards1 confirmed (see Table 6.8). The Emission Standard stipulates different criteria applying to the time of commissioning of the plant. The first time period is prior to 31 December 1996; the second one is from 1 January 1997 to 31 December 2003; and the third one is after 1 January 2004. The data shows that the emissions of the three thermal power stations currently reach the standard and that Baotou could comply with higher standards. Table 6.8 Emissions at Existing Cogeneration Thermal Power Plants
3 3 3 Subproject SO2 (mg/m ) Flue Dust (mg/m ) NOx (mg/m ) Winter 2006/07 Chifeng DHS 1,350-1,886 62.7-414.5 361-463 Baotou DHS 400 50 450 Kalaqin DHS 1,000-1,190 170-195 600-620 Winter 2007/08 Chifeng DHS 1,444-1889 84.5-474.2 365-446 Baotou DHS 50-125 35-50 430 Kalaqin DHS 1,000-1200 150-190 500-550
1 Emission Standards for Thermal Power Stations (GB13223-2003) IMEIP II PPTA FINAL REPORT 6-16
Emission Standard Criteria for the first time period 2,100 600 1,500 Criteria for the second time 1200 200 650 period Criteria for the third time period 400 50 650
(i) Other significant operational impacts from the DHS subprojects are associated with the storage and handling of coal, the disposal of ash and operational noise levels. Mitigation measures have been identified and described in the Project Environmental Management Plan (EMP). (ii) In addition to strictly complying with the standards, the environmental impacts from the district heating facilities during the operation stage will be mitigated by ensuring:
The boiler stack is 75-120 m high to disperse and minimize direct impacts of emissions on adjacent areas;
Utilization of dry multi-cyclone dust collection for the initial removal of particulate matter followed by a lime slurry wet scrubber, of which the dust removal efficiency is not less than 98%; and the desulfurization efficiency is no less than 85%;
Dust suppression activities, such as spraying water on coal and fly-ash and covering coal stockyards, can minimize the dispersion of airborne dust during coal and ash offloading, stockpiling, and handling at the boiler station;
Both bottom-ash and fly-ash will be sold to local construction material factories as a raw material and to be used as material for road base gravel;
The ash stockyards and coal bunkers will be constructed as fire-proof closed or semi-closed facilities;
Wastewater from wet fly-ash disposal and coal spraying is recycled to conserve water and reduce disposal;
Soundproof covers and walls in the DHPs and HESs will be either constructed or improved to reduce noise;
The boilers are equipped with air-intake-volume regulators to optimize and control air supply to the boilers to minimize NOx and CO generation as well as increase energy efficiency; and
Installations of an online automatic monitor on smoke stack of heating supply
station for monitoring SO2 and flue dust (the environmental monitoring centers of the local EPB will be responsible for data collections and instrument calibration). (iii) The main risks of the DHS subprojects include boiler failure (potential rupture) and improper operation and maintenance. The risks will be mitigated by:
Procurement of good quality boilers through bidding; IMEIP II PPTA FINAL REPORT 6-17
Operating and maintaining in accordance with boiler and emission reduction equipment specifications;
Establishing an emergency response program by the IA to respond to accidents. 2) NGS Subproject
(i) Adverse environmental impacts from the NGS activities during the operation period will be mitigated by ensuring:
Domestic wastewater from NGS stations will be treated in septic tanks and then discharged into a municipal sewer or used for watering trees and grass;
Low-noise equipment and the planting of trees around the stations will minimize the noise impact on adjacent residents;
In conjunction with local fire brigades, prepare an emergency response protocol for responding to severe accidents and evacuating residents in case of an emergency situation;
Gas leakage monitoring will be conducted regularly at the stations and along the pipeline alignment; and
Revegetation will be inspected along the pipeline routes for at least three years after completion of construction. 3) CGU Subproject
(i) The impacts during operation of the CGU Subproject includes: (i) over-extraction of groundwater; (ii) disposal impacts of 1.44 million tons/annum of domestic wastewater with COD concentration of 300-500 mg/L, which may pollute adjacent surface waters if not treated properly; (iii) nuisance odors will be generated from the WWTP; and (iv) disposal of approximately 800 tons/annum of dry sludge from the WWTP. The mitigation measures will include:
Conduct injection for avoiding ground subsidence; Construct a WWTP with a capacity of 4,000 m3/day; the quality of effluent will be COD 100mg/L, SS 60 mg/L, which will meet Grade II water quality of Intergraded Wastewater Discharge Standard (GB8978-96);
Locate the WWTP at least 500 m away from residential areas and schools; The proposed aerobic treatment process generates fewer odors, in addition, odors source control will be conducted, through proper ventilation for the sludge dewatering room and planting trees around the WWTP;
Proper disposal of dry sludge for agricultural application and landfill at approved disposal sites;
Operational procedures will ensure sludge disposal facilities are operated as designed; IMEIP II PPTA FINAL REPORT 6-18
Low noise equipment and sound approve workshops will be used in WWTP, geothermal HESs and pumping houses; and
Effluent monitoring to ensure compliance with national discharge standards. 6.5 Economic Assessment (ii) The current cost estimate for the Project is approximately RMB 2.786 billion ($398 million). The cost related to environmental mitigation is RMB 141.1 million ($19.6 million), approximately 4.92% of the total estimated cost of the Project. The mitigation costs for each subproject are shown in Tables 6.9 to 6.11 below. IMEIP II PPTA FINAL REPORT 6-19
Table 6.9: Estimated Major Environmental Mitigation Costs during Construction and Equipment Installation – DHS Costs (104 RMB) Item Hohhot Baotou Chifeng Kalaqin Zhalaite Keyouqian Molidawa Chenbaerhu Total Mitigate dust from construction and transport 5 20 30 20 50 30 25 180 Mitigate domestic wastewater generated from 7 10 28 15 20 20 100 construction Measures for controlling construction noise 3 10 35 20 15 10 93 Disposal of construction solid wastes 3 10 43.2 20 25 20.5 121.7 Measures for prevention of soil erosion during 8 80 719.2 5 812.2 construction Desulphurization and dust-control equipment in DHPs 2,300 96 200 220 150 2966 Closed structure and water spraying facilities for the 1,080 30 coal storages 144 332 197 2,233 Closed structure for slag stockyards with a wastewater 260 190 treatment and circulation system Installation of sound-proof facilities in the DHP 78 80 20 50 30 794 Installation of sound-proof facilities in the HESs 51 93 300 72 20 Construction of a septic tank in DHPs 20 20 15 40 36 131 Landscaping (plant trees and grasses in DHPs and 1,080 120 10 10 40 15.5 1,275.5 HESs) Purchase environment monitoring instruments and 300 100 20 70 50 540 equipment Environmental monitoring during construction 113 6 6 50 10 3 3 191 Total 5,282 125 436 1,197.4 310 685 845 557 9,437.4 Estimated budget of the subproject 82,600 27,020 76,580 12,950 14,630 24,010 11,900 7,560 257,250 Percentage of the total budget 6.39% 0.463% 0.569% 9.25% 2.12% 2.85% 7.10% 7.37% 3.67% IMEIP II PPTA FINAL REPORT 6-20
566. The current total cost estimate for the 8 DHS subprojects is RMB 2.5725 billion ($367.5 million), the total cost related to environment protection is RMB 94.374 million ($13.482 million), which is about 3.67% of the total estimated cost of the subprojects. Table 6.10: Estimated Major Environmental Mitigation Costs during Construction - NGS
Item Costs (104 RMB) Mitigate dust from construction and transportation 15 Measures for controlling construction noise 50 Mitigate construction generated domestic wastewater 25 Disposal of construction solid wastes and garbage 80 Measures for prevention of soil erosion and landscaping 65 Environmental monitoring and training 25 Total 260 Estimated budget of the subproject 8,610 Percentage of the total budget 3.02%
Table 6.11: Estimated Major Environmental Mitigation Costs - CGU
Item Costs (104 RMB) Wastewater treatment facility 4,407.11 Estimated budget of the subproject 12,810 Percentage of the total budget 34.4%
6.6 Institutional Requirements and Environmental Management Plan 6.6.1 Institutional Requirements (i) The IMAR DRC, on behalf of the GIMAR, will be the EA for the Project. A PMO has been established under the EA to manage Project implementation. The Project municipalities/league of Hulunbeier, Chifeng and Xing’an, where there is more than one subproject in the administrative area, will establish sub-PMOs under the Municipal/League DRC to manage their subprojects. The Project consists of 10 subprojects, each of which will be managed and implemented by a separate IA. (ii) Prior to Project construction, the PMO will set up an environmental management unit (EMU) for environmental management and operation. The IAs will designate environmental personnel to coordinate the environmental management. The IA environmental representative will oversee environmental management during construction and operation. The EMU and the IA environmental representative will ensure implementation of the EMP and environmental monitoring plan during construction and operation of the Project. The construction contractors will be responsible for conducting all environmental impact mitigation measures during the IMEIP II PPTA FINAL REPORT 6-21
construction. The construction supervision team selected by the IA will engage an environmental engineer to supervise the contractors’ environmental impacts mitigation actions during the construction. 6.6.2 Environmental Management Plan (i) The PMO has the overall responsibility for ensuring that all environmental standards and procedures are followed. This will be updated during the engineering design stage, translated into Chinese and incorporated into all bidding documents and civil contracts. Contractors will be responsible for preparing comprehensive environmental mitigation action plans (EMAP), based on the summary EMP, and will designate an environmental manager who will manage environmental issues during construction. The IA environmental representative will be responsible for reviewing and approving the EMAPs, and for ensuring that the contractors comply with their provisions during the construction. The IA environmental representative will be responsible for ensuring that EMAPs are updated periodically during the construction period. (ii) Some of the 10 EIA reports are currently under review by the IMAR EPB and the local EPBs. The PMO and the IAs will ensure that any changes required by the EPBs are reflected in the updated EMPs and the subprojects’ final designs. The EMPs will be strictly implemented by the contractors under supervision of the EMU and the IA environmental representative. 6.6.3 Environmental Monitoring
(i) The environmental monitoring plans have been organized by subproject. Monitoring requirements have been clearly defined, including the parameters to be monitored, the numbers and locations of monitoring points, as well as monitoring frequencies and durations. The monitoring will be undertaken by local environmental monitoring centers under the supervision of the local EPBs. The monitoring costs will be covered by contractors during the construction and by IAs/end-users during the operation. Table 6.12: Environmental Monitoring Framework
Monitoring Monitoring Monitoring Location Authority Parameter Frequency Construction Near construction sites and in the Once a Contractor/ Air TSP, PM10 vicinity of sensitive areas (residences, month Local EMC schools, kindergartens, hospitals etc.) Twice a Contractor/ Noise L Boundaries of construction sites eq quarter Local EMC Operation Stage Flue gas from stack, and in the vicinity IAs/Local Air NO , SO , TSP, PM of sensitive areas (residences, schools, Twice a year 2 2 10 EMC kindergartens, hospitals etc.)
Noise Leq Along boundaries of DHPs and HESs Once a IAs/Local IMEIP II PPTA FINAL REPORT 6-22
quarter EMC
pH, SS, BOD5-, Outlet of wastewater discharge in DHP Surface 2+ 2+ IAs/Local COD , Ca , Mg , and HESs; and outlet of WWTP of CGU Twice a year Water Cr EMC sulfate, phosphate, CI- subproject
(ii) The EMU will collect environmental monitoring data and reports from the IAs environmental representatives, and prepare environmental monitoring reports which shall be submitted to ADB semi-annually. The environmental monitoring reports will include:
Monitoring data; Environmental mitigation measures undertaken; Monitoring activities undertaken and physical monitoring data collected; Analysis of monitoring data against relevant standards; Additional mitigation measures required (if any); Environmental training conducted; and Environmental regulatory violations. 6.7 Public Consultation and Information Disclosure 6.7.1 Public Consultation
(i) The public consultations on environmental impacts of the subprojects were held between November 2007 and January 2008, following the SEPA Environmental Impact Assessment Technical Guidelines and ADB’s Environmental Assessment Guidelines (2003). 1) DHS Subprojects (i) Using random sampling, multiple-choice questionnaires were distributed to 720 affected people and 692 valid returns were received in seven of the eight subproject areas (these is no data in the EIA report of Zhalaite DHS). The surveys solicited attitudes toward the proposed components and their impacts on the air, water, vegetation, soil, ecology, environment, public health, and economic development. Of the respondents, 88-100% were positive regarding the proposed subprojects; the main issues concerned include potential impacts from air and noise pollution during both construction and operation. The opinions expressed during the activity are: (i) the subprojects would improve local air quality and living standards and should be implemented as soon as possible; (ii) heat meters should be installed in each household for energy saving; (iii) the EMPs and the mitigation measures are supported and should be strictly adhered to; and (iv) advanced and efficient equipment for desulphurization and dust elimination should be installed in the proposed boilers to control emissions. 2) NGS Subproject IMEIP II PPTA FINAL REPORT 6-23
(i) There is not any data and information regarding public consultation in the brief EIA of Keyouqian subproject even through the EIA has been approved by the EPB. 3) CGU Subproject
(i) Chifeng MESRI conducted the public participation activities for the CGU subproject in Reshui Town of Ningcheng County. Fifty multiple-choice questionnaires were distributed to the people concerned with the subprojects and those living near the subproject area, and 50 valid returns were received. Of the respondents, 100% of the participants expressed support for the subproject according to the Chinese EIA Report. The opinions expressed during the public consultation are: (i) the subproject should be implemented as soon as possible; (ii) measures should be taken for ensuring the construction quality; (iii) the environmental management plans and the mitigation measures should be strictly adhered to in order to protect the water resources and ambient air. 6.7.2 Information Disclosure (i) The following environmental information disclosure will be made:
The EIA reports for individual subproject are available for review in pollution supervision and management departments of local EPBs;
The SIEE will be available for review at www.adb.org; Copies of the SIEE will be made available upon request. 6.8 Conclusions (i) It is anticipated that the proposed Project will have significant positive environmental impacts on the Project area, including the increase of 39.1 million m2 of heating area, annual savings of 1.085 million tons of coal, and a reduction of 1.66 million tons in
CO2 greenhouse gas generation, and will achieve remarkable improvement in local
ambient air quality by reducing substantial amounts of TSP, SO2 and NOx annually. (ii) Potential environmental impacts and environmental risks have been identified. Measures have been developed to mitigate the impacts. Based on the findings of the EIAs and SEIA, the adverse environmental impacts of the project can be minimized to acceptable levels by implementing the adequately funded environmental mitigation activities. IMEIP II PPTA FINAL REPORT 7-1
CHAPTER 7 SOCIAL AND POVERTY ANALYSIS
7.1 INTRODUCTION
7.1.1 Background
567. This Social and Poverty Analysis (SPA) is part of the PPTA for the IMAR Environment Improvement Project Phase II (the “Project”). The Project consists of 8 district heating supply (DHS) subprojects, 1 natural gas supply (NGS) subproject and 1 comprehensive geothermal utilization (CGU) subproject spanning 9 locations and stretching over 2,000 km in IMAR. The DHS and NGS subprojects are to be implemented to serve current and future urban residents and the CGU subproject will directly benefit both rural and urban residents in a rural township. Specifically:
(i) Baotou DHS. It is to be implemented in most parts of Kundulun and Qingshan Districts of Baotou City. The subproject is designed to upgrade the existing heating system through rehabilitating pipelines, retrofitting heat exchangers and building new exchangers. The increased heat supply capacity, as a result of higher efficiency from the rehabilitation and other efforts, will be used for replacing 76 small boiler houses and for new buildings from the city’s expansion.
(ii) Hohhot DHS. It is to be implemented in some urban wards of Xincheng, Saihan and Huimin Districts. It is designed to rehabilitate the degraded pipelines of a heat-power plant, to construct 4 large-scale district heating plants that will replace 103 small and medium-sized boiler houses, and to expand heat supply to new residential areas and new establishments.
(iii) Chifeng DHS. It will cover some of the existing and future urban wards of Hongshan, Yuanbaoshan and Songshan Districts of Chifeng City. Similar to Baotou DHS, it is designed to upgrade the existing heating system through rehabilitating existing pipelines, retrofitting existing heat exchangers and building new ones. The increased heat supply capacity, as a result of higher efficiency from the rehabilitation and other efforts, will be used for replacing 37 small boiler houses and for planned new residential areas.
(iv) Kalaqin DHS. It is to be implemented in the banner town of Jinshan of Kalaqin Banner in Chifeng Municipality. The subproject, together with the capacity expansion of a heat-power plant by using other investment sources, is designed to meet the future needs of the banner town and industrial expansions1.
1 Specifically the electrolytic copper program that has an annual production capacity of 100,000 tons. IMEIP II PPTA FINAL REPORT 7-2
Ningcheng CGU. It will be implemented in the rural town of Reshui in Ningcheng County of Chifeng Municipality. Components of this subproject include district heating, hot water supply, wastewater treatment, greenhouse, aquaculture, road rehabilitation and etc. This subproject is designed to provide district heating for replacing an existing boiler house and for new residential areas; to promote high-efficiency agriculture/aquaculture and to reduce rural poverty; to promote urban development; and to promote tourism. This subproject will benefit urban residents in the town and rural residents from in and around the town.
(v) Keyouqian DHS and NGS. They will be implemented in the banner town, currently under construction and yet unnamed, of Keyouqian Banner in Xing’an League. These two subprojects are purely designed to meet future needs of the new banner town that had no residents by 2007.
(vi) Zhalaite DHS. It is to be implemented in the central town of Yindeer in Zhalaite Banner of Xing’an League. This subproject is planned to expand an existing district heating plant for replacing 31 small boiler houses and for meeting urban expansion needs in the near future.
(vii) Molidawa DHS. It will be implemented in the banner town of Nierji in Molidawa Banner of Hulunbeier Municipality. This subproject is designed to build a new district heating plant for replacing 8 small boiler houses and for meeting urban expansion needs of the banner town according to its development plan.
(viii) Chenbaerhu DHS. It is to be implemented in the banner town of Bayankuren of Chenbaerhu Banner in Hulunbeier Municipality. This subproject, similar to the previous ones in banner towns, is designed to meet urban expansion needs, especially for serving forthcoming workers from the coal mining and coal-chemical industries1.
568. The proposed Project is consistent with the ADB (i) Medium-Term Strategy II, 2006– 2008 strategic priority of ‘managing the environment’, and (ii) PRC Country Strategy and Program strategic development objective of ‘improving the environment’. The Project will build on continuing engagements within the GIMAR in the energy sector. The long-term goal of the Project is to support environmental improvement in IMAR. The specific objectives of the Project are: (i) to promote efficient and reliable district heating and gas supply to households in the Project areas by replacing small coal-fired boilers with larger energy-efficient and cleaner burning boilers and necessary rehabilitation of the relevant infrastructures; and (ii) utilization of clean fuel, such as integrated utilization of geothermal resources. It will provide substantial environmental and health benefits in selected urban centers of IMAR, including decreased coal consumption (both indoors and outdoors) which will result in a reduction of TSP, SO2, NOx, and CO2 emissions. This will lead to
1 Chenbaerhu Coalfield, about 20 km away from the town, covers an area of 900 square kilometer with a total reserve of 10.5 billion tons. IMEIP II PPTA FINAL REPORT 7-3 improvements in public health, reductions in acid rain and control of emissions leading to climate change.
569. All subprojects, in addition to their environmental objectives, are exceptionally designed to support urban expansion, in accordance with their respective city or town development plans.
570. This SPA is in accordance with the PPTA Terms of Reference (TOR) and it presents and analyses the social issues that have interactions with the proposed Project. It examines the extent to which current social patterns are influenced by the Project including the identification of any adverse effects. It also assesses the current status of poverty within the subproject areas and analyzes the poverty impact resulting from the Project. Finally it analyzes and proposes activities which would complement the Project by enhancing the livelihood of the vulnerable people within the Project area. For this purpose, a reemployment plan for the workers of small boilers, which are to be closed by the Project, has been prepared.
7.1.2 Methodology
571. The methodology for this SPA was primarily based on ADB guidelines, the TOR of the PPTA and experience gained in similar projects in the PRC. The bulk of this study was a field survey that was contracted to a local consultancy firm, the Hohhot HeRun Consulting Firm, who is experienced in social surveys in IMAR. This firm had mobilized a number of professional surveyors from the official survey teams of the State Statistical Bureau of IMAR and the respective municipalities/leagues1. The field survey, combined with local agency consultation, included secondary data collection, community interview, local clinic interview, household and small boiler worker questionnaire surveys. The field survey was supplemented with visits to all subproject sites by the PPTA consultants.
572. The field survey only targeted at 7 out of the 9 subproject locations. The reasons for the two missing locations are: (i) there is no resident in the new banner town of Keyouqian Banner where the two subprojects are to be implemented; (ii) the late addition of Kalaqin DHS into the Project, when field survey had been basically planned and implemented.
573. In total, 16 urban communities, 8 clinics, 75 small boiler workers and 1,104 potential beneficiary households were interviewed and surveyed. The distribution of the survey samples is given in Table 7.1. It needs to be noted that the sample sizes for each subproject is basically in proportion to its investment scale.
1 The State Statistical Bureau directly and independently manages its survey teams in each province, all municipalities and some counties. These teams are independent to the local statistical bureaus. IMEIP II PPTA FINAL REPORT 7-4
Table 7.1: Distribution of Sample Size
Subproject DHS NGS CGU Total type Location Baotou Hohhot Chi- Zhalaite Chenba- Molida Erdos1 Ning- feng erhu wa cheng Community 2 4 4 1 1 1 3 0 16 Clinic 2 3 3 8 Potential 300 300 300 40 40 40 40 44 1,104 beneficiary families Small boiler 20 30 10 5 5 5 0 0 75 workers Source: field survey by Hohhot HeRun Consulting Company in December 2007. 7.1.3 Report Contents and Structure
574. This Report is structured as follows:
i Section 7.1 briefs the Project and subproject locations.
i Section 7.2 presents socio-economic and poverty profiles of IMAR and the subproject areas.
i Section 7.3 defines and quantifies project beneficiaries and negatively affected small boiler workers.
i Section 7.4 analyzes social impacts including gender effects.
i Section 7.5 assesses the poverty impact.
i Section 7.6 review ethnic minority (EM) issues.
i Section 7.7 proposes an impact M&E plan.
i Section 7.8 contains the conclusions and recommendations.
575. It should be noted that this SPA does not consider the impacts related to loss of land and property resulting from the Project. These impacts are examined in details in Chapter 8 (Resettlement Plan).
7.2 SOCIO-ECONOMIC AND POVERTY PROFILES
576. This sector primarily presents the socioeconomic and poverty profiles of IMAR and the specific subproject areas. These profiles provide a foundation of follow-up impact
1 This subproject quit the Project, but the survey data is still very useful for analysis. IMEIP II PPTA FINAL REPORT 7-5 assessments. Secondary data is the major source for preparing this section.
7.2.1 IMAR
577. Table 7.2 presents main socioeconomic indicators of IMAR in comparison with the PRC. IMAR is one of five minority autonomous regions in the PRC and it is the third largest, in terms of territory, among PRC's 31 provinces, municipalities, and autonomous regions. It covers an area of 1.18 million km2, or 12.3% of the entire country's territory. IMAR, located in the middle latitude area, is well-known for its spacious plateaus, grasslands and deserts. It is popularly known as a cold region in the PRC with long harsh winters and consequently long heating period of 6-8 months.
578. IMAR consists of 9 municipalities 1 and 3 leagues 2 : (i) municipalities of Hohhot, Baotou, Wuhai, Chifeng, Tongliao, Erdos, Hulunbeier, Ulanchabu and Bayannaoer; and (ii) leagues of Xing’an, Xilinguole and Alashan. These municipalities and leagues further administer 101 districts and counties/banners3.
579. In 2006, the total population of IMAR was approximately 23.92 million, of which 48.6% and 51.4% were urban and rural residents, respectively. There are 49 EM groups present in IMAR, and these groups accounted for approximately 21% of the total population in 2006. Mongolian, as expected, is the largest EM group and accounted for 17.4% of IMAR’s total population in 2006. Apart from Mongolian (17.4%) and Manchurian (2.1%), none of other ethnic minorities accounted for more than 1% of IMAR’s total population.
580. IMAR’s economy, same as in other parts of the PRC, has now experienced uninterrupted growth for more than two decades, but IMAR is the best among the 31 provinces in PRC in recent years. Its annual GDP growth, an average of over 16% from 2000 to 2006, ranked the first amongst the 31 provinces in the PRC. IMAR’s total GDP in 2006 reached approximately RMB 479 billion and was an 18% increase over 2005 (Table 7.1). The per capita GDP of RMB 20,053 in 2006 represented an increase of 17.8% over 2005 and was 126% of the national average of RMB 15,930; while the same figure of RMB 8,975 for 2003 was only 85% of the national average. The per capita urban disposable and rural net incomes were RMB 10,358 and RMB 3,342 in IMAR in 2006, which ranked 12th and 16th respectively amongst the 31 provinces in the PRC. While in 2003, their per capita urban and rural incomes of RMB 7,013 and RMB 2,133 only ranked 20th and 18th respectively.
581. IMAR’s economic growth is characterized by booming industrial development in recent years. From 2000 to 2006, the contribution of secondary industry to total GDP had
1 A municipality often consists of a regional central city and several rural counties/banners. The central city is consists of one or several districts. 2 A league, equal to a prefecture in other provinces, is consists of several counties/banners. League is usually headquartered in a relatively better off county/banner, but named as a county level city. 3 District means urban area, county means Han dominated rural area and banner refers to minority dominated rural area. Banner is the Mongolian word for county and non-Han dominated counties are exceptionally named as banner in IMAR. IMEIP II PPTA FINAL REPORT 7-6 increased 8.9 percentage points, while contribution of primary industry consequently decreased 11.4 percentage points. The primary, secondary and tertiary industries accounted for 13.6%, 48.6% and 37.8% of the GDP, respectively, in 2006. In comparison, the corresponding figures were 25.0%, 39.7% and 35.3% in 2000.
582. IMAR has been the national production base for energy sources, minerals and steel. In recent years, energy resources, particularly coal and natural gas, have played a leading role in promoting its economic development. IMAR’s raw coal outputs had been increased by 300% from 2000 to 2006 and accounted for 12.5% of the total outputs of the PRC in 2006, while it was only 8.8% in 2003. By the end of 2006, 427,541 rural poor (3.5% of rural population) and 724,082 urban poor (6.2% of urban population) were respectively covered by the rural and urban Minimum Living Guarantee (MLG)1 programs in IMAR.
Table 7.2: Socio-Economic Indicators of IMAR
Indicator Unit 2006 2003 IMAR % of PRC IMAR % of PRC Population Million 23.92 1.8 23.79 1.8 Urban population % 48.6 111 44.7 110 Total GDP RMB billion 479.2 2.1 215.0 1.6 GDP growth over previous year % 18.7 130 16.8 151 Per capita GDP RMB 20,053 126 8,975 85 Ranking among 31 provinces 10th 15th Raw coal output Million ton 297.6 12.5 147.1 8.8 Grain output Million ton 17.05 3.4 13.61 3.2 Local financial revenue RMB billion 46.2 2.5 16.3 1.7 Per capita disposable income RMB 10,358 88.1 7,013 82.8 of urban residents Ranking among 31 provinces 12th 20th Per capita rural net income RMB 3,342 93.2 2,133 94.3 Ranking among 31 provinces 16th 18th Source: IMAR and the PRC Statistic Yearbooks 2007 and 2001. 583. Socio-economically and ecologically IMAR is divided into three zones:
(i) Eastern IMAR. This zone has extensive farming (south) and the best pasture (north) both in IMAR and in the PRC. It includes Chifeng, Tongliao and Hulunbeier Municipalities, Xing’an and Xilinguole Leagues. This zone, unfortunately, is economically poor. With 53.4% of population and 56.0% land area, it only
1 “Minimum Living Guarantee” (MLG) set poverty lines below which a person is entitled to relief benefits. Urban MLG is a mature program (since 1999) while rural MLG has just started a couple of years ago. By 2006, only 23 out of the 31 provinces have initiated rural MLG program, including IMAR. In 2006, 15.93 million rural poor or 7.77 million poor households were covered by the program all over the country. The government set the poverty threshold (MLG) at: RMB 625 per capita income for farmers, RMB 825 per capita income for herder men, and the subsidy for every poor is not less than RMB 360 per year. IMEIP II PPTA FINAL REPORT 7-7
contributed to 31% of IMAR’s total GDP in 2006 (Table 7.3). 8 out of the 10 subprojects will be implemented in this economically poorer zone (see Figure 7.1).
(ii) Central IMAR. It is an industrial zone with extensive and irrigated farming. This zone includes Hohhot, Baotou, Erdos, Wuhai, Ulanchabu and Bayannaoer Municipalities. This zone, with 45.7% of population and 21.3% of land area, contributed to 67.3% of IMAR’s total GDP. The Hohhot-Baotou-Erdos area in this zone is popularly known as the golden triangle (small golden triangle) in IMAR because of rich mineral resources and relatively developed industries. Slightly going beyond IMAR to Ningxia, the Hohhot-Baotou-Yinchuan1 area is known as the big golden triangle in middle Yellow River Reach. The big triangle is also known as the Great Bend of the Yellow River with the best irrigated farming area (Yellow River Bend Plain) in northwest PRC.
(iii) Western IMAR. This is the least populated Gobi-desert zone and it includes Alashan League solely. This zone contributed to 22.7%, 0.9% and 1.7% of IMAR’s total land area, population and GDP, respectively. Residents, very small in quantity, are concentrated in resource rich pockets. As a result, this zone is the richest in terms of per capita GDP.
584. Table 7.3 further compares the three zones while Figure 7.1 illustrates the three zones and the distribution of the subprojects.
Table 7.3: Comparisons among the Three IMAR Zones
Indicator Zone Eastern IMAR Central IMAR Western IMAR IMAR total Area (000’ km2) 664.9 252.8 270.2 1,187.9 % of IMAR 56.0 21.3 22.7 100.0 Population (000’ person) 12,783.5 10,925.6 214.2 23,923.3 % of IMAR 53.4 45.7 0.9 100.0 Population density (person/km2) 19.2 43.2 0.8 20.1 % of IMAR 95.7 215.0 3.9 100.2 GDP (RMB billion) 157.8 342.6 8.6 509.0* % of IMAR 31.0 67.3 1.7 100.0 Per capita GDP (RMB) 12,345 31,357 40,163 21,276* % of IMAR 58.0 147.4 188.8 100.0 Source: IMAR Statistical Yearbook 2007 *: Calculated based on data of the three zones.
1 Capital of Ningxia Hui Autonomous Region, very close to Erdos Municipality of IMAR. IMEIP II PPTA FINAL REPORT 7-8
Figure 7.1: Zoning of IMAR and Distribution of Subprojects
7.2.2 Subproject Areas
585. The Project area is defined as the sub-areas where the respective subprojects are to be implemented. For this analysis, the subproject areas or sub-areas are specifically defined as: (i) Kundulun and Qingshan Districts for Baotou DHS; (ii) Xincheng, Huimin and Saihan Districts for Hohhot DHS; (iii) Hongshan, Yuanbaoshan and Songshan Districts for Chifeng DHS; (iv) the Banner Town of Jinshan for Kalaqin DHS; (v) the Reshui Town for Ningcheng CGU; (vi) the unnamed Banner Town for Keyouqian DHS and NGS; (vii) the Banner Town of Yindeer for Zhalaite DHS; (viii) the Banner Town of Nierji for Molidawa DHS; and (ix) the Banner Town of Bayankuren for Chenbaerhu DHS. Locations of the subprojects are shown in Figure 7.1. General socioeconomic data of the 9 subproject areas, from west to east, is presented in Table 7.4.
7.2.2.1 Baotou DHS
586. This subproject is to be implemented in most parts of Kundulun and Qingshan Districts of Baotou Municipality. Kundulun, Qingshan, together with the third district of IMEIP II PPTA FINAL REPORT 7-9
Donghe, are known as Baotou City, or urban districts of Baotou Municipality1. Baotou City has the highest per capita GDP and urban disposable income for year in IMAR. As shown in Table 7.4, the per capita GDP of RMB 54,500 and urban disposable income of RMB 15,122 of the subproject area (i.e., Kundulun and Qingshan districts) in 2006 were 272% and 146% of IMAR’s averages. Baotou also had the least urban poverty incidence of 1.8%, which was only 29% of IMAR’s average of 6.2% in 2006.
7.2.2.2 Hohhot DHS
587. Hohhot City is the capital of IMAR. The City consists of Xincheng, Huimin, Saihan and Yuquan Districts. These four districts, together with 5 rural banners and counties, form Hohhot Municipality.
588. The subproject is to be implemented in some urban wards of Xincheng, Saihan and Huimin Districts. The subproject area (i.e., the three districts), next to Baotou, ranks second in per capita GDP, per capita urban disposable income and urban poverty incidence2. The per capita GDP, per capita urban disposable income and urban poverty incidence in 2006 were 256%, 136% and 44% of IMAR’s averages.
7.2.2.3 Chifeng DHS
589. This subproject will cover some of the existing and future urban wards of Hongshan, Yuanbaoshan and Songshan districts of Chifeng Municipality. The urban parts of these three districts are popularly known as Chifeng City. These three districts and 9 banner/counties form Chifeng Municipality.
590. Chifeng is the largest city in eastern IMAR, but it is economically poor if compared with Hohhot, Baotou and even IMAR as a whole. Chifeng City’s per capita GDP and per capita urban disposable income in 2006 only accounted for 80% and 82% of IMAR’s averages. The urban poverty level was identical to that of IMAR as a whole. The situations of the banner/counties in Chifeng Municipality, as will be discussed when describing the following two subprojects, are worse.
1 Baotou Municipality, in addition to the three urban districts, administers another four rural banners/counties and two diggings. 2 The least incidence ranks first and the highest ranks last among the 9 sub-areas. IMEIP II PPTA FINAL REPORT 7-10
Table 7.4: Socio-Economic Indicators of Subproject Areas and IMAR
Bao- Hohho Chifeng Municipality Xing’an League Hulunbeier tou t City Municipality City
Bao- Hohho Chifeng Kalaqi Ningche Keyouqian Zhalait Molida Chenbae Indicator Unit IMAR tou t DHS DHS n DHS ng CGU DHS & NGS e DHS wa DHS rhu DHS DHS
2 3 Reshui 3 Banner Banner Banner Banner Banner district district Townshi 1 districts town town town town town s s p
Total 000' person 23,920 983 921 1,150 64 8.2 No residents 48 86 21 population
EM 000' person 5,111 34 175 267 27 1.0 n.p. 24 22 14 population % 21.4 3.5 19.0 23.2 41.5 12.0 n.p. 50.6 25.6 67.2
Urban 000' person 11,625 983 707 522 33.8 3.0 n.p. 37.0 41.4 20.6 population % 48.6 100.0 76.8 45.4 52.8 36.6 n.p. 77.1 48.2 99.0
Per capita RMB 20,053 54,500 51,32016,030 5,642 6,061 6,579 5,607 9,182 31,343 GDP* % of IMAR 100 272 256 80 28 30 33 28 46 156
Rank 1 2 4 8 7 6 9 5 3
Urban per RMB 10,358 15,122 14,0558,451 4,989 7,808 7,612 7,120 8,434 7,764 capita disposable % of IMAR 100 146 136 82 48 75 73 69 81 75 income* Rank among sub- 1 2 3 9 5 7 8 4 6 areas
Rural per capita RMB 3,342 n.p. 6,800 4,500 2,722 2,380 2,119 1,969 2,911 4,963 net income*
Urban per capita m2 n.a. 27.7 26.8 26.9 25.0 25.0 25.3 25.1 25.5 27.3 housing area*
Urban poor** 000' person 724.1 17.7 19.4 32.3 3.5 0.2 3.3 1.9 4.9 9.4
% 6.2 1.8 2.7 6.2 10.5 6.4 5.5 5.3 11.9 4.6
% of IMAR 100 29 44 100 169 103 89 85 192 74
Rank among sub- 1 2 6 8 7 5 4 9 3 areas
Rural poor** (5 000' person 427.5 n.p. 3.8 13.2 7.2 1.1 6.2 0.4 0.8 persons)
% 3.5 n.p. 1.8 2.1 2.4 21.8 2.1 3.9 1.9 2.5
% of IMAR 100 51 60 69 623 60 111 54 71 Source: IMAR Statistical Yearbook 2007; IMAR Economic and Social Survey Yearbook 2007; Local Governments Websites; Local Governments’ Statistical Communiques 2007. *: Banner/county data for banner level subprojects; **: calculations based on banner/county level poverty incidences, except for the rural poverty incidence in Ningcheng. n.a.: not available; n.p.: not applicable.
1 Banner town under establishment, data are that of the county as a whole. IMEIP II PPTA FINAL REPORT 7-11
7.2.2.4 Kalaqin DHS
591. This subproject will be implemented in the central town of Jinshan of Kalaqin Banner in Chifeng Municipality. Kalaqin Banner is a national level poverty county1. As shown in Table 7.4, the Kalaqin sub-area has: (i) the least per capita urban disposable income; (ii) the second least per capita GDP; and (iii) the second highest urban poverty incidence.
7.2.2.5 Ningcheng CGU
592. This subproject is to be implemented in the central area of Reshui Town 2 of Ningcheng County in Chifeng Municipality. This subproject will benefit urban residents in the town and rural residents from around the town and from nearby townships.
593. Reshui is a small rural town in Ningcheng County and it has approximately 8,000 urban and rural residents in 2006. As a poverty stricken area, the town’s rural poverty incidence was 623% of IMAR’s average. The per capita GDP and urban disposable income, by applying the county level data, were only 30% and 75% of IMAR’s averages, respectively.
7.2.2.6 Keyouqian DHS and NGS
594. These two subprojects will be implemented in the new banner town, currently under establishment and unnamed yet, of Keyouqian Banner in Xing’an League. The banner town had just commenced establishment in 20033 and it is currently under construction and expansion. The new town is a huge construction site at present since everything is still under construction except some government buildings. According to the central government’s approval, this new town covers an area of 191 square kilometers with 8.36 km2 for construction by 2020, when the town will accommodate approximately 60,000 residents from currently none. At present, only government office buildings are in use4 and the government employees, who work in the new town during the daytime, still live in their old banner town, now a county level city named as Wulanhaote and serviced as the capital city of Xing’an League.
595. Keyouqian Banner itself is economically poor in IMAR. By 2006, its per capita GDP, per capita urban disposable income and urban poverty incidence were 33%, 73% and 89%, respectively, of IMAR’s averages. These 4 indicators respectively ranked 6th, 7th and 5th among the 9 subproject areas.
7.2.2.7 Zhalaite DHS
1 It is officially described as “Key Working County for Poverty Reduction and Development”. 2 It is also named “Hot Water Tourism and Recreation Town”. 3 Its former banner town, Wulanhaote, was separated as a county level city in 1980. Since then there were endless conflicts between old banner and new city on identity management, revenue distribution and many other issues. As a result, the banner has to move to a new site upon the final approval the Ministry of Civil Affaire of PRC in 2003. 4 These buildings were supported by three temporary boiler houses before 2007 when one two boilers were under installation in the district heating plant. IMEIP II PPTA FINAL REPORT 7-12
596. It is to be implemented in the central town of Yindeer in Zhalaite Banner of Xing’an League. The town is expecting a booming expansion and its population is planned to reach over 80,000 by 2015 from its current population of 48,000.
597. Zhalaite, together with Kalaqin and Ningcheng, are national level poverty counties. In 2006, Zhalaite’s per capita GDP, per capita urban disposable income and urban poverty incidence were 46%, 81% and 192% of IMAR’s averages, respectively; and these 3 indicators respectively ranked the last or 9th, second to the last or 8th and 4th among the 9 sub-areas.
7.2.2.8 Molidawa DHS
598. It will be implemented in the banner town of Nierji in Molidawa Banner of Hulunbeier Municipality. The town will expect to experience a population growth to 100,000 by 2015 from its current 75,000. Molidawa is a provincial level poverty county in IMAR. The subproject area’s per capita GDP, per capita urban disposable income and urban poverty incidence were 28%, 69% and 85% of IMAR’s averages, respectively, in 2006; and they respectively ranked 5th, 4th and 9th among the 9 sub-areas.
7.2.2.9 Chenbaerhu DHS
599. It is to be implemented in the banner town of Bayankuren of Chenbaerhu in Hulunbeier Municipality. The town is expecting a booming population growth to 30,000 by 2010 and 60,000 by 2015 from its current 21,000. The banner town itself is small and relatively rich due to abundant coal resources and coal mining. By 2006, the per capita GDP, per capita urban disposable income and urban poverty incidence of the town were 156% (ranked 3rd), 75% (ranked 6th) and 74% (ranked 3rd) of IMAR’s averages, respectively.
7.2.3 Social Protection Programs
600. All urban poor are supported by the government MLG Program and are officially registered as MLG households1. The minimum living standards range from RMB 140 per capita per month in Chenbaerhu Banner and RMB 173 in Chifeng City to RMB 230 in Hohhot City and RMB 210 in Baotou City in 20072. The gap between a poor’s actual income and the minimum living standard will be covered by the MLG program. In addition, they are also, if not fully, supported by various other social protection programs including: (i) heating expense exemption or reduction; (ii) schooling subsidy, including for university students; (iii) medical subsidy; (iv) free access to digital TV converter and free expense; (v) holiday gifts, (vi) employment skill training; and (vii) job introduction. Table 7.5 presents the survey results of 13 urban communities 3 . As shown in the table, the urban poor are indeed supported by such programs.
1 Number of MLG households is dynamic and is periodically re-identified by the urban communities. 2 RMB 150 in Zhalaite and Keyouqian Banners; RMB 145 in Kalaqin Banner and Ningcheng County. 3 Results of 3 communities from Erdos were dropped since the subproject quitted the Project. IMEIP II PPTA FINAL REPORT 7-13
601. The exemptions or subsidies to urban poor for heating had been proven by sample household questionnaire surveys (Table 7.25). Overall, 76% of the 154 MLG families admitted that they were receiving heating expense subsidies or exemptions from government and heating suppliers. More details regarding heating exemptions or subsidies are discussed in Section 7.5--Poverty Impact Assessment.
602. 69% of MLG families also admitted that they received other types of subsidies (schooling, healthcare, food during festivals, free access to digital TV converter, etc.).
603. The rural poor in Reshui Town in Ningcheng County are also supported by the rural MLG program since 2006. The minimum living standard for the rural poor in Ningcheng was set at RMB 825 per capita per annum. In practice, each individual poor got RMB 438 (1.2 per day) in 2007 and RMB 360 (1.0 per day) in 2006.
Table 7.5: Supports to the Urban Poor
Subproject area Community / Ward Supports to the poor1 Kundulun District Enhe Community, Shifudonglu Ward, MLG subsidy Baotou City No. 7 Community, Aerding Ward Heating expense exemption Schooling subsidy Holiday gifts to the poorest Social donations Employment skill training Job introduction Xincheng District and Zhaojun Community, Dongfenglu Ward MLG program Saihan Districts, Dengpaochang Community, Renminlu Holiday gifts Hohhot City Ward Caoyuansu Community, Wudonglu Medical subsidy Ward University entrance reward (RMB Shuangshu Community, Qiaobao Ward 2,000 per student for MLG HHs) Heating subsidy Hongshan District, Tiejiangying Community, Yongju Ward MLG subsidy Chifeng City Yuanding Community, Zhanqian Ward Housing subsidy Xitun Community, Xitun Ward Holiday gifts to the poorest of Zhaowuda Community, Zhanqian Ward poor Schooling subsidy Medical subsidy Benevolence supermarket Heating expense exemption Zhalaite Banner Zuoer Community, Yindeer Town MLG subsidy Holiday gifts Heating subsidy Molidawa Banner Buxi Community, Nierji Town MLG subsidy Holiday gifts Heating subsidy Chenbaerhu Banner Bayankuren Town MLG subsidy Special supports (in kinds) Source: field survey.
1 Those under the MLG program. IMEIP II PPTA FINAL REPORT 7-14
7.3 BENEFICIARY AND NEGATIVELY AFFECTED GROUPS
7.3.1 Beneficiary Groups
604. This social assessment is specifically concerned with the beneficiary groups that are likely to be impacted by the Project. The impacts could be either positive or negative. Given the nature of the subprojects, they can be separated into three broad groups:
(i) User or primary beneficiaries. They include: (i) current and potential heat or gas user beneficiaries; and (ii) labors for project construction and operation after subproject completion. The latter is ignorable if compared with the former.
(ii) Secondary beneficiaries. They are basically the long term residents of sub-areas who will benefit from improved environment resulting from the respective subprojects. In addition, farmers nearby Reshui Town will also benefit from the green house agriculture and aquaculture components of the Ningcheng CGU in the forms of high quality vegetables and fishes.
(iii) Negatively affected groups. They include: (i) workers in the small boiler houses to be closed under the Project; and (ii) persons affected by resettlement. Resettlement affected persons under this Project are separately addressed in Chapter 8.
605. The Project will surely benefit people from outside the subproject areas in the same nature as that of the secondary beneficiaries, but to a much less extent and mostly temporary. These non-project area beneficiaries include (i) contractors and skilled construction workers, (ii) tourists; and (iii) a very few others.
7.3.2 Quantification of Beneficiaries
7.3.2.1 User Beneficiaries
606. Table 7.6 presents the quantified subproject user beneficiaries. In total, there will be 1.51 million user beneficiaries by 2015, including 0.79 and 0.72 million existing and potential user beneficiaries:
(i) Baotou DHS. In total, there will be 0.45 million user beneficiaries. The rehabilitation of existing pipelines and HESs will benefit some 0.25 million residents, and the increased heating capacity will potentially benefit approximately 0.20 million people by 2015. Interesting is that this is identical to the Feasibility Study (FS) estimate.
(ii) Hohhot DHS. In total, there will be 0.26 million user beneficiaries. The rehabilitation of existing pipelines and replacing existing small and medium-sized boiler houses will benefit 0.14 million urban residents. The increased heat supply capacity will benefit 0.12 million potential users. IMEIP II PPTA FINAL REPORT 7-15
(iii) Chifeng DHS. All current and forthcoming urban residents are the user beneficiaries since trunk pipelines of the entire city are to be rehabilitated under this subproject. The rehabilitation of pipelines and replacement of small heating boilers could benefit 0.36 million current users. The increased capacity will benefit 0.24 million future users. In total, user beneficiaries will be an estimated 0.65 million by 2015.
(iv) Kalaqin DHS. This subproject will benefit 50% of the urban residents in the banner town of Jinshan by 2015. The total beneficiaries of 45,800 by 2015 will include 22,800 current users and 23,000 potential users.
(v) Ningcheng CGU. The heat supply components of this subproject will benefit all current and future urban residents within Reshui Town. Current residents are approximately 2,300 and future comers will be approximately 5,000. Specifically, the residual hot water, after heating buildings, will be further used in vegetable/fruit and aquaculture green houses of approximately 80 mu, thus benefiting approximately 400 farmers of 100 households or so.
(vi) Keyouqian DHS and NGS. The DHS subproject will benefit all forthcoming residents to the new banner town. A boiler was installed in the district heating plant by 2007 and it has replaced three temporary and directly heating boiler houses, but it will only be of supportive use during peak hours once the subproject’s boilers are installed. The NGS subproject’s users are identical to the DHS. By 2015, the total potential user beneficiaries could reach 70,000 if all existing and future residential houses could be sold out.
(vii) Zhalaite DHS. In total, there will be 42,000 user beneficiaries. The rehabilitation of existing pipelines and replacing small boiler houses will benefit 12,000 current users and the increased supply capacity will benefit 30,000 potential users. Overall this subproject will benefit approximately 53% of the banner town’s total urban population of 80,000 by 2015.
(viii) Molidawa DHS. There will be 25,000 user beneficiaries in the banner town of Nierji, including 3,500 and 21,500 current and potential beneficiaries. The current users are those currently supported by small boilers.
(ix) Chenbaerhu DHS. It will benefit 12,000 potential users in the banner town of Bayankuren by 2015. The town is expecting a population growth to 30,000 by 2010 and 60,000 by 2015 from current 21,000. IMEIP II PPTA FINAL REPORT 7-16
Table 7.6: Distribution of User Beneficiaries by 2015
Type Baotou Hohhot Chifeng Kalaqin Ning- Keyouqian Zhalaite Molidawa Chenba- Total DHS DHS DHS DHS cheng DHS & NGS DHS DHS erhu DHS CGU Existing user Existing heat supply 11.6 6.21 16.2 0.95 0.19 0 0.5 15 0 36 beneficiaries capacity to be rehabilitated or replaced* (mil. m2) Residential buildings (%) 60 60 60 60 30 60 60 Per capita housing area 27.7 26.8 26.9 25.0 25.0 25.1 25.5 (m2) Urban beneficiaries 251.3 139.0 361.3 22.8 2.3 12.0 3.5 792 (000' person) Potential user Increased heat supply 9.76 5.89 12.2 1.15 0.15 3.0 1.5 1.1 0.6 35 beneficiaries capacity (mil. m2) Residential buildings (%) 60 60 60 60 100 70 60 60 60 Per capita housing area 30 30 30 30 30 30 30 30 30 (m2) Urban beneficiaries 195.2 117.8 244.0 23.0 5.0 70.0 30.0 21.5 12.0 719 (000' person) Urban user beneficiaries (000' person) 446.5 256.8 605.3 45.8 7.3 70.0 42.0 25.0 12.0 1,511 Rural beneficiaries (000' person) 0.4 0.4 Total user beneficiaries (000' person) 446.5 256.8 605.3 45.8 7.7 70.0 42.0 25.0 12.0 1,511 Source: Consultant’s estimations based on the FSRs and secondary data *: Replacing refers to areas supported by small boiler houses. IMEIP II PPTA FINAL REPORT 7-17
7.3.2.2 Small Boiler Workers
607. Table 7.7 lists the boiler houses to be closed and the resultant number of workers to be affected for each subproject. It has to be noted that self-run tiny boilers of tiny entities or agencies, mentioned under environmental impact assessment reports, are not included in Table 7.7.
Table 7.7: Distribution of Affected Workers
Subproject Boiler houses to be closed* No. of workers affected Baotou DHS 76 530 Hohhot DHS 103 365 Chifeng DHS 37 258 Kalaqin DHS 0 (all closed by 2004) 0 Ningcheng CGU 1 11 Keyouqian DHS None (3 were closed by 2007) (12 workers of the IA, not affected) Zhalaite DHS 31 76 Molidawa DHS 8 31 Chenbaerhu DHS 0 0 Total 256 1,271 Source: FSRs and the IA’s notices. *: Excluding tiny ones managed by tiny agencies or entities.
7.4 SOCIAL IMPACT ASSESSMENT
7.4.1 General Benefits
608. General benefits of this Project, as could be expected, will be improved environmental conditions and public health in the respective subproject cities and towns. Local people are well aware of such benefits (Table 7.8) and community clinic surveys in banner towns indicated that improved public health could be very significant. The survey of 8 clinics in 3 banner towns1 shows that most of their winter season patients are directly and indirectly caused by poor air quality related to poor heating since over 80% of them are respiratory tract infections victims (Table 7.9), and there are also light gas poisoning cases caused by heating stoves. This Project, according to clinic doctors, will be very helpful in prevention and treatment of their winter season patients (Table 7.9).
609. In addition, due to the Project’s overall nature of district heating2 and closing small boilers and family-run heating stoves in some cases, beneficiaries will get: (i) improved and
1 Environments are worse than in big cities in heating seasons due to large numbers of single storey houses with simple coal stoves and short chimneys. 2 9 out of the 10 subprojects are district heating. IMEIP II PPTA FINAL REPORT 7-18 secured heating services; (ii) reduced workload; (iii) life improving conveniences from the improved heating and cooking; and (iv) reduced incidence of air-related and cold-related diseases. 5 out of the 16 consulted communities reported that there were 5 fire accidents caused by improper management of personal heating stoves (single storey house) in the previous 3 years.
Table 7.8: Perceptions on the Project
Subproject1 Community/ Ward Project benefits Baotou DHS Enhe/ Shifudonglu Safe, convenient, less pollution No. 7/ Aerding Hohhot DHS Zhaojun/ Dongfenglu Enable standardized community management Dengpaochang/ Renminlu Secured temperature, easier maintenance, convenience Caoyuansu/ Wudonglu Secured heating supply Good service Shuangshu Community, Less conflicts between residents and real estate Qiaobao Ward management company Less workload for community workers Chifeng DHS Tiejiangying/ Yongju Enable standardized and institutionalized community management Yuanding/ Zhanqian Secured and timely heating supply Xitun/ Xitun Constant temperature and comfort Better health Environment protection Zhaowuda/ Zhanqian Energy saving, pollution reduction, secured safety Zhalaite DHS Zuoer/ Yindeer Town Easier fireproofing work, less pollution, hygiene environment, better health condition Molidawa DHS Buxi/ Nierji, Less pollution, less respiratory tract infections Chenbaerhu Bayankuren Town Pollution free, convenient, no danger DHS Source: field survey.
1 3 communities from Erdos were dropped since its subproject quitted. IMEIP II PPTA FINAL REPORT 7-19
Table 7.9: Community Clinic Survey Results
Subproject Community Daily patients Main diseases in winter Any disease Is district related to HH heating Summary Winter stove heating helpful Total M F Total M F 1 2 3 Disease % Disease % Disease % Zhalaite Zuoer 6 3 3 8 4 4 Flu 70 Cerebral 20 Others 10 No Yes DHS thrombosis Dongsheng 30 0 30 30 0 30 Women 50 Physical 30 Family 20 No Yes disease examination planning Molidawa Wuerkuo 8 26 10 64 Flu 10 Respiratory 70 Others 20 Respiratory tract Yes DHS tract infection infection, light gas poisoning Nawenmoren 3 2 1 2 1 1 Respiratory 70 Flu 10 Others 20Respiratory tract Yes tract infection infection, light gas poisoning Yakesa 10 46 20 614 Flu 40 Respiratory 55 Others 5 pneumonia Yes tract infection Chenba- Bayan 30 1020 45 1530 Respiratory 90 Heart blood 5Flu 5No Yes erhu DHS tract infection vessel Duoyan 100 30 70 100 40 60 Flu 70 Brain blood 25 Others 5 Gas poisoning Yes vessel Red 40 15 25 40 15 25 Respiratory 80 High pressure 10 Flu 10 No Yes cross tract infection Source: field survey. IMEIP II PPTA FINAL REPORT 7-20
7.4.2 Attitudes and Concerns towards the Project
610. At the community level, as indicated in Table 7.8, the Project (district heating, natural gas supply and geothermal utilization) is considered very helpful to urban community management and development. Among the 1,020 households surveyed on districting heating, 90.5% of them support the Project1. Households who reserved their support to district heating are mainly concerned about increasing expenses, and they are evenly distributed among various household types (Table 7.10). All households interviewed support the natural gas supply subproject2.
Table 7.10: Households for District Heating
Types HHs % of the type By ethnic identity Han 71 10.4 EM 26 8.0 By wealthy status Poor 17 11.0 Non-poor 80 9.2 By heating source Own coal/wood/cow dung 9 9.2 stoves Small boilers of employers 24 11.2 District heating HHs 63 9.0 Geothermal 1 14.3 Total 97 9.5 Source: Filed survey 611. Regarding district heating, 91.2% of the concerns from respondents are related to additional or increased heating expenses (Table 7.11). In fact, long heating season (6-7 months) is indeed expensive for some families, and this will be discussed in details in the following section regarding affordability.
Table 7.11: Concerns and Suggestions on District Heating
Concerns and Suggestions Number of times % Accumulative mentioned % Expense related Don’t raise prices 150 66.1 66.1 Installation of heat meter for each HH 36 15.9 81.9 (payment per actual heat) No permission fee 9 4.0 85.9 Subsidy to the poor 12 5.3 91.2 Management Regular measurement of temperatures 7 3.1 94.3 related Don’t mix with real estate management 6 2.6 96.9 Pipeline maintenance in summer 4 1.8 98.7
1 Including 12.8% of them who have indifference. 2 Survey results in Erdos City, the city quitted the Project unfortunately. IMEIP II PPTA FINAL REPORT 7-21
Concerns and Suggestions Number of times % Accumulative mentioned % Districting heating to single-storey house 3 1.3 100.0 area Total 227* 100.0 Source: Filed survey 612. Similarly, concerns regarding natural gas supply are concentrated on pricing (4 out of 7 respondents), connection fees (2 out of 7) and safety (1 out of 7).
7.4.3 Affordability
7.4.3.1 District Heating
613. 9 out of the 10 subprojects are involved in district heating. As has already been mentioned, local people’s concerns are concentrated on heating expenses in the future because heating itself is expensive for some households due to the extensive heating season (6-7 months). As shown in Table 7.12 below, 71.5% of interviewed households spent more than RMB 1,000 on heating in a heating season, yet heating expenses account for over 5% of their income for 75.9% of them (Table 7.13).
Table 7.12: Expenditure on Heating
Level of heating expense per HH per season (RMB) Total >2000 1500-2000 1000-1500 500-1000 <500 Respondent HH 87 192 451 177 114 1,020 % 8.5 18.8 44.2 17.4 11.2 100 Accu. % 8.5 27.3 71.5 88.9 100 Source: Filed survey Table 7.13: Heating Expenditure and Household Income
Level of expense (% of HH income) Total >20% 10-20% 5-10% <5% Respondent HH 61 270 443 246 1,020 % 6.0 26.5 43.4 24.1 100 Accu. % 6.0 32.5 75.9 100 Source: Filed survey 614. As for affordability, an exaggerating number of respondents (52.4%) subjectively considered they will be unable to bear even slightly increasing prices1 on heating (Table 7.14). This is understandable and could be considered as a kind of complaint regarding ever-increasing commodity prices in recent years. A careful analysis of urban residents’ income growth and expenditure situations could reveal that affordability will not be a problem for the majority of future users. Table 7.15 gives the representative income and IMEIP II PPTA FINAL REPORT 7-22 expenditure data of various income groups of urban residents of Chifeng City2. It highlights that only the lowest income group (i.e., the poor) can’t afford their consumption expenditure, with heating expense included.
615. Table 7.16 further analyses current and predicts future affordability situations for the representative Chifeng DHS sub-area and the poorest Kalaqin DHS sub-area with conservative income growth and bold price increase. In the table, the heating price by 2010 is assumed to increase by over 10% from a current ceiling price of RMB 3 per m2 per season3; while the IAs and local authorities had assured that the growth could surely be below 10% since pricing of this public welfare service is strictly controlled by the government. Also in the table, annual income growth is set at 10% for 2007-2110 and 8% for 2011-2015, while actual annual growth over 2003-2006 was approximately 13.8% in IMAR. Table 7.16 then highlights that heating expenditures by 2010 and 2015, in proportion to income, will remain the same even under conservative income and bold price growth predictions. In conclusion, affordability will not be a problem for the majority of potential users. As for the poor who might still be unable to balance their consumption, they will be supported by social protection programs that are ever strengthening.
616. Table 7.16 also highlights that the survey results in Table 7.13 are highly reliable. In Table 7.13, 67.5% of respondents spent less than 10% of total income for heating.
Table 7.14: Perceptions on Affordability for District Heating
Affordability in case of controlled price growth Total No problem Basically ok Difficult Respondent HH 116 370 534 1,020 % 11.4 36.3 52.4 100 Accu. % 11.4 47.7 100 Source: Filed survey Table 7.15: Urban Income and Expenditure by Income Groups-2006
Income group Lowest Low Middle High Total/ income income income income average Disposable income (yuan/capita) 3,367 4,910 7,781 11,582 8,451 Consumption expenditure 3,534 4,416 6,294 7,964 6,480 (yuan/capita) Balance (yuan/capita) -167 494 1,487 3,618 1,971 Source: Chifeng Statistical Yearbook 2007
1 Possible future prices were cited to respondents during interviews. 2 As indicated in Tables 4 and 7, Chifeng is representative among the subproject areas in per capita income and GDP and in beneficiary population. 3 (i) < RMB 12 per squire meter per season: 10% sample HH; (ii) RMB 12-15: 4% HH; (iii) RMB 15-18: 4% sample HH; and (iv) RMB 18: 82% sample HH. IMEIP II PPTA FINAL REPORT 7-23
Table 7.16: Present and Future Heating Expenditure
Item Unit Average level Poorest sub-project area Note (Chifeng City) (Kalaqin Banner) 07-08 10-11 15-16 07-08 10-11 15-16 heating heating heating heating heating heating season season season season season season
2 5% annual Heating price yuan/m 18* 20.8 26.6 18* 20.8 26.6 growth 5% annual Per capita 2 growth for m 28.2 ** 32.7 37.9 26.3*** 30.4 35.2 housing area 07-10 and 3% for 11-15 10% annual Per capita growth for disposable RMB 9,296 12,373 18,180 5,488 7,304 10,733 07-10 and income 8% for 11-15 Per capita RMB 508 681 1008 473 633 937 heating % of 5.5 5.5 5.5 8.6 8.7 8.7 expenditure income Source: Consultant’s estimations *: ceiling price among the sub-areas in old apartments; **: 26.9 square meters in 2006; ***: 25 square meters in 2006
7.4.3.2 Natural Gas Supply
617. Natural gas supply applies to future residents and commercial users in the new banner town of Keyouqian1 where coal stoves2 will not be allowed. Future residents have to use either piped natural gas (PNG) of the subproject or bottled liquefied petroleum gas (LPG). According to various sources, the average prices of LPG and PNG were RMB 100 per bottle3 (14.5 kg) and 2.2 per cubic meter4 respectively by October 2007. Given that 1 kg of LPG is equivalent to 1.4 cubic meters of PNG, PNG is 56% cheaper than LPG for a representative household of 3.2 persons that consumes 220 cubic meters of PNG or 11 bottles of LPG a year (Table 7.17).
618. In a word, affordability is not an issue for NGS subproject. Even if the price rises, as what is happening globally, affordability will still not be a problem since fuel expense only account for approximately 2.1% of a household’s total income or so (Table 7.17 and Table 7.18).
1 Full name is Keyouqian Banner. 2 Exceptionally high buildings according to city construction plan. 3 RMB 110 and RMB 100 in Hohhot and Chifeng in March 2008 respectively. 4 RMB 1.6, 2.1, 2.3, 2.2 and 2.1 per cubic meter in Hohhot, Tianjin, Shanghai, Wuhan, Shijiazhuang and Taiyuan respectively by October 2007 according to: http://news.xinhuanet.com/fortune/2007- 04/01/content_5920063.htm. IMEIP II PPTA FINAL REPORT 7-24
Table 7.17: Comparisons between PNG and LPG Expenses
Fuel Annual Unit price Expense % of HH Fuel expense (%) consumption income1 (PNG=100) LPG=100 PNG 220 m3 2.2 484 2.1 100 44 LPG 11 bottles 100 1,100 4.8 227 100
Sources: (i) Survey results in Hohhot and Chifeng cities, (ii) Erdos FSR (a subproject dropped). Table 7.18: Present Fuel Expenditures for Cooking and Other Daily Uses-2007
Expense on cooking and other daily uses Note (yuan/HH/year) <120 120-240 240-360 360-480 >480 % of HH Average urban income of RBM % 0.5 0.5-1.0 1.0-1.4 1.4-1.9 >1.9 income 25,000 for all subproject areas 2007 based on income level of Respondents HH 36 118 136 226 504 2006 % 3.5 11.6 13.3 22.2 49.4 Source: Filed survey 7.4.4 Affected Workers
7.4.4.1 Impacts
619. The distribution of affected small boiler workers, totaled to 1,271, is given in Table 7.7. The Project, if there are no specific intervention measures, will result in most of them losing their employment from the heating sector.
620. This SPA has conducted questionnaire survey of 75 affected workers out of 1,271, and their distribution is given in Table 7.1. The survey results, presented in Table 7.19, highlight:
(i) 15% of small boiler workers are formal employees of the host entities (mostly government related entities). The remaining 85% are mainly rural labors (migrants).
(ii) 55% of them don’t know the general policy on district heating and closing small boilers, but 44% of them are aware that their boilers will be closed sooner or later.
(iii) 29% of them are working as stokers for the first time and 37% of them have approximately 2-5 years’ experience in small boiler houses.
(iv) 84% of them (i.e., basically all the casual workers) have their contract for one heating season only (6 months or so).
1 Average urban income of RBM 23,158 per HH per annum in 2007 in Keyouqian Banner, assuming a 10% increase over 2006. IMEIP II PPTA FINAL REPORT 7-25
(v) 65% of them don’t have other employment skills. 24% of them are engaged in farming of their own during the non-heating season. In addition, 29% are engaged in other migratory jobs.
(vi) 80% of the casual workers considered that it is difficult to find urban employment.
(vii) 77% of them contribute to over 50% of their families’ annual income.
(viii) 48% of them wish local governments or the IAs would offer new jobs or introduce employment opportunities to them.
(ix) 11% of them, mostly the formal employees, wish to obtain a lay-off subsidy.
Table 7.19: Survey Results of Affected Workers
Content Result Group 18-25 25-35 35-45 45-65 >65 1. Age Respondent 0 18 13 41 3 % 0 24 17 55 4 Level Junior middle & primary school High school 2. Education Respondent 54 21 % 72 28
3. District Awareness Known Partly known Unknown heating Respondent 18 16 41 policy % 24 21 55
4. Aware of Awareness Yes No closing small Respondent 33 42 boiler houses % 44 56 Nature Formal staff Casual Contract 5. Nature of employment Respondent 19 54 2 % 25 72 3
6. Contract Duration < 1 3 5 >5 duration Respondent 54 1 1 8 (year) % 84 2 2 13
7. Experience Experience <1 1-5 5-10 >10 as stokers Respondent 22 28 3 22 (year) % 29 37 4 29 Income 300-500 500-800 800-1100 1100 8. Income per month (RMB) Respondent 18 38 4 14 % 24 51 5 19 IMEIP II PPTA FINAL REPORT 7-26
Content Result
9. Contribution <10% 10-30% 30-50% >50% Contribution Respondent 1 9 7 58 to HH income % 1 12 9 77
10. Job in Job Migration Farming Maintenance Boiler house Others non-heating Respondent 22 18 13 12 10 season % 29 24 17 16 13
11. Job Perception Difficult Easy hunting after Respondent 43 11 the Project % 80 20 12. Other Skill Yes No urban Respondent 19 35 employment skills % 35 65 Type of Provision of Introducing Laid off Others 13. Support support new job new jobs subsidy required Respondent 20 16 8 8 % 27 21 11 11 Concerns Closing time Laid off subsidy Deployment 14. Concerns Respondent 13 3 3 % 17 4 4 Source: Filed survey 7.4.4.2 Reemployment Action Plan
621. Given the large number of affected workers and the above-mentioned considerations and results, an action plan is needed for safeguarding their interests. For this Project, an employment action plan is prepared and it is separately presented in Appendix 16 (Reemployment Action Plan for Affected Workers).
7.4.5 Gender Impact
7.4.5.1 Impact
622. Women and men are basically equal or similar in terms of education and employment according to the household survey results (Table 7.20 and Table 7.21)1.
1 Situations of minority women are much better than the average and than the Han. IMEIP II PPTA FINAL REPORT 7-27
Table 7.20: Educational Levels of Able-bodied Females and Males
Education level Male Female Person % Person % Illiterate 6 0.6 9 0.9 Primary school 35 3.6 65 6.4 Junior high school 279 28.5 268 26.2 High school 249 25.5 282 27.6 Technical secondary school 74 7.6 78 7.6 Junior college 158 16.2 172 16.8 University & above 177 18.1 148 14.5 Total 978 100.0 1022 100.0 Source: field survey. Table 7.21: Occupation of Able-bodied Females and Males
Occupation Total EM Male Female Male Female Person % Person % Person % Person % Government employee, teacher, 178 18.2 166 16.2 64 26.8 76 27.0 doctor Factory workers 187 19.1 145 14.2 45 18.8 32 11.3 Farming/dairy cow raising 6 0.6 6 0.6 1 0.4 3 1.1 Migration employment 172 17.6 175 17.1 27 11.3 37 13.1 Schooling 72 7.4 64 6.3 22 9.2 23 8.2 Business 78 8.0 65 6.4 20 8.4 24 8.5 Retired and others 285 29.1 401 39.2 60 25.1 87 30.9 Total 978 100.0 1022 100.0 239 100.0 282 100.0 Source: field survey. 623. Women in the Project area, same as in other parts of the PRC, are taking the major responsibilities for household chores (e.g., cooking, heating in case of single storey houses) and for looking after elders and children. Specifically, in the context of this Project, some potential district heating user beneficiaries will be those who are currently using coal stoves for heating. Survey results related to workload, time spent (i.e., time-saving after Project completion), labor division and coal stove-related accidents from the coal-stove heating households are presented in Table 7.22. As shown in the table, women are accepting the main responsibilities in handling the heating stoves or mini-boilers. Therefore, women from this type of potential user beneficiaries will benefit more from the Project because of: (i) improved conveniences from the improved heating; (ii) reduction in household workload for cooking and heating; (iii) improvement of the living environment and life quality; iv) reduced incidence of air-related and cold-related diseases; (v) reduction of possible gas poisoning and fire accidents; and (v) additional employments, though small in absolute number, due to the operation of district heating. There are hardly any female employees in operating small boiler houses due to heavy workload; once district heating is in place, a certain portion IMEIP II PPTA FINAL REPORT 7-28
(20% or more) of females will be recruited in sub-stations for collecting fees from individual user households.
Table 7.22: Surveys Results on Household Mini-Boiler and Stove Heating
Contents Results Times 2 3 4 5 >5 1. Times of coal/water adding per day Respondent 9 7 14 5 44 % 11.4 8.9 17.7 6.3 55.7 Workload 20 30 40 50 >50 2. Daily workload (minutes) Respondent 3 10 3 15 48 % 3.8 12.7 3.8 19.0 60.8 Who Female Male 3. Who is responsible Respondent 49 30 % 62.0 38.0 4. Gas poisoning and fire Accidents Poisoning Fire accidents of neighbors in last 3 years Respondent 1 10 Source: field survey. 7.4.5.2 Requirement for a Gender Action Plan
624. No specific gender action plan is needed since the Project will not have any negative impact on women but benefiting them more than men.
7.5 POVERTY IMPACT ASSESSMENT
7.5.1 General Poverty Impact
625. 8 out of 10 subprojects will be implemented in eastern IMAR (Figure 7.1) where the area is economically poor. With 53.4% of population and 56.0% land area, eastern IMAR only contributed to 31% of IMAR’s total GDP in 2006, yet its per capita GDP was only 58% of IMAR average (Table 7.3). User beneficiaries of these 8 subprojects in eastern IMAR will be approximately 0.81 million or 53.5% of the total.
626. Overall, this Project can be categorized as pro-poor.
7.5.2 Poor Beneficiaries
627. Over 99% of this Project’s beneficiaries will be urban residents, but it is almost impossible to define poor urban beneficiaries at present since the PRC central and local governments were constantly raising minimum living standards in recent years in order to safeguard more people. In Chenbaerhu Banner, for instance, the standards were RMB 104, 120 and 140 per person per month in 2005, 2006 and 2007, respectively; constantly 2,211, 2,371 and 2,722 urban residents were respectively under the MLG program in these three years. IMEIP II PPTA FINAL REPORT 7-29
628. By using internationally adopted relative standards, i.e., the 10% least income group as the poverty population, the estimated poor beneficiaries will be approximately 92,000 or 6.1% of the total (Table 7.23).
Table 7.23: Distribution of Poor Beneficiaries by 2015
Bao- Hoh- Chi- Kala- Ning- Keyou- Zha- Moli- Chen- Total tou hot feng qin cheng qian laite dawa baerhu Existing urban user beneficiaries 251.3 139 361.3 22.8 2.3 12 3.5 792 (000' person) Poor (000' person) 25.13 13.9 36.13 2.28 0.23 1.2 0.35 79.2 % 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Potential urban user beneficiaries 195.2 117.8 244 23 5 70 30 21.5 12 719 (000' person) Poor (000' person) 3.9 2.4 4.9 0.5 0.6 0.4 0.2 12.9 % 2.0 2.0 2.0 2.0 2.0 2.0 2.0 1.8 Total (000' 446.5 256.8 605.3 45.8 7.7* 70 42 25 12 1,511 person) Poor (000' person) 29.0 16.3 41.0 2.7 0.3 1.8 0.8 0.2 92.1 % 6.5 6.3 6.8 6.0 3.5 4.3 3.1 2.0 6.1 Source: consultant’s estimation *: including rural beneficiaries. 629. The assumptions for calculating poor beneficiaries in Table 7.23 include:
(i) 10% are poor among existing beneficiaries. It is assumed that they represent the average level of income distributions of the city (the 10% least income group is poor).
(ii) 2.0% are poor among the potential beneficiaries in Baotou, Hohhot, Chifeng, Kalaqin, Zhalaite, Molidawa and Chenbaerhu sub-areas. Potential beneficiaries will be those in commercial residential areas to be established. As a common knowledge, those who can afford new commercial houses are not poor. However, 10% of them could be original residents who lose old houses, mostly single storey ones, and get new ones in return. These original residents, living in single storey houses, are poorer and it is assumed 20% of them could belong to poor of the city. During the field survey, in order to catch up 10% poor households among total DHS samples, surveyors had to intensify their visits to single storey house areas. Among the total 154 MLG households, 28 or 18% are from the single storey houses; although only 84 single storey houses (8%), out of 1,020, were targeted.
(iii) No poor among the potential beneficiaries in Keyouqian Banner Town (with both DHS and NGS) and in Reshui Town of Ningcheng CGU. The former is a town under establishment and all residential houses will be exceptionally commercial. IMEIP II PPTA FINAL REPORT 7-30
Similarly, Reshui Town is very small and the existing urban residents are too limited.
7.5.3 Benefits to the Poor
7.5.3.1 Urban Poor
630. Urban poor will benefit in the same manner as all beneficiaries as described in the previous chapter. Similarly, the urban poor will enjoy: (i) improved and secured heating services; (ii) reduced workload; (iii) life conveniences from the improved heating and cooking; iv) reduced incidence of air-related and cold-related diseases; and (v) reduction in possible gas poisoning and fire accidents.
7.5.3.2 Rural Poor
631. Rural poor only occurs in Ningcheng CGU. This group, though very small in absolute number1 (a few dozens only), will get considerable benefits from the subproject’s green house components by leasing their land and providing laborers. The poor’s average per capita net income was only RMB 661 in 20062, of which over 80% was from cropping on 2 mu or 0.13 ha of poor quality farmland. Through land leasing and labor provision, the rural poor could get stable and ever-increasing income. According to the field survey and local records, the average annual output value (AAOV) of their farmland, salty and poor in quality due to high water table resulting from the hot spring, is only approximately RMB 812 per mu3 or 12,185 per hectare in the previous three years. Given the 30% production costs (for seeds, fertilizers and others) the net profit was only approximately RMB 570 per mu or 8,550 per hectare. While the IA will give a base rental fee of RMB 800 per mu per year during the first 3 years and then incrementally rise it afterwards. Employment in green houses will bring a labor an annual income of approximately RMB 7,200 per year4, and this alone could enable a poor rural household of 4.0 persons to rise out of poverty.
632. In addition, this subproject will greatly promote tourism and urban development. In 2007, some 200,000 person-times of tourists5 had visited the town and the local authority is expecting a booming growth in the coming years as a result of the subproject. As for urban development, the town is planned to accommodate another 5,000 urban residents by 2015 from its current 2,300. The tourism and urban development will also provide employment opportunities for the rural poor.
1 The total rural beneficiaries will be about 400, of which 21.8% were poor and under the rural MLG program. 2 Source: Hot Water Town Government. 3 650, 650 and 650 kgs of maize per mu in 2007, 2006 and 2005 respectively; and the corresponding market prices were RMB 1.30, 1.20 and 1.20 per kg respectively. 4 Current labor price working in green houses in Ningcheng County. 5 Who were from Liaoning, Hebei, Tianjin, Beijing and IMAR. IMEIP II PPTA FINAL REPORT 7-31
7.5.4 Heating Expenses and Subsidies
7.5.4.1 Heating Expenses and Affordability
633. Rough sorting of the household survey results indicated that the average housing area of the poor is 55 square meters1 per household2; this could mean a maximum heating expense of approximately RMB 1,100 or 9.3% of a poor household’s3 total annual income in 20074 by using the current ceiling heating price of RMB 20 per square meter per season. This is indeed in accordance with heating expense survey results shown in Table 7.24. The table shows that 64% of the poor households spent less than RMB 1,000 on heating.
634. However, as has been analyzed earlier and presented in Table 7.15, the poor could not afford their consumption expenditures including heating expenses. Therefore, support has to be provided to the poor households on heating since it is a very big expenditure for them, as has been analyzed above and given in Table 7.24. Table 7.24: Heating Expenses of Poor and Non-poor HH type Unit Heating expense (RMB per HH per annum) <500 500-1,000 >1,000 Total MLG HH 29 70 55 154 % 19 45 36 100 Non-MMG HH 75 107 684 866 % 8 12 79 100 Total HH 104 177 739 1,020 % 10 17 73 100 Source: field survey. 7.5.4.2 Exemptions and Subsidies
635. Fortunately, there are exemptions and subsidies on heating for the poor in all subproject areas. The exemptions or subsidies had been proven by community consultations (see Table 7.5) and household questionnaire surveys (Table 7.25). Overall, 76% of the 154 MLG families admitted that they were receiving heating subsidies or exemptions from the government and heating suppliers.
636. Further consultation of local authorities and the heat suppliers indicated that the levels of exemptions differ from place to place:
(i) 100% exemption for poor households under district heating in Hohhot, Chifeng and Baotou Cites. Actual costs occurred for the poor households are partly covered by the municipal governments (through Civil Affairs Bureaus). In Hohhot, the government bears 60% of the cost during 2007-2008 heating season if one’s
1 (i) <50 square meters: 29%; (ii) 50-70: 55%; (iii) > 70 square meters: 16%. 2 85 square meters per household fro the non-poor. 3 3.2 persons. 4 Income growth by 10% over 2006 based on date in Table 7.. IMEIP II PPTA FINAL REPORT 7-32
housing area is below 60 square meters 1 ; while the heat suppliers bear the remaining cost. Households using personal coal stoves for heating could receive an equivalent amount of coal or cash subsidies. In Baotou and Chifeng, the governments provide a lump sum subsidy of RMB 400 for each MLG household; and the subsidy directly goes to heat suppliers if the poor is serviced by district heating. The remaining expense is covered by the supplier.
(ii) A lump sum government subsidy of RMB 400 is given to each MLG household during the 2006-2007 and 2007-2008 heating seasons in the banners and counties of Chifeng Municipality 2 and Xing’an League (Zhalaite and Keyouqian Banners included). This government subsidy itself accounts for approximately 40-60% of the total heating expenses of an individual poor household under district heating3 and approximately 80% by personal coal stove heating. Similarly, this subsidy directly goes to heating suppliers if MLG households are covered by district heating. In addition, suppliers also give some exemptions in some cases.
(iii) In Molidawa Banner, the heat supplier (the IA) charges 26% of the actual price to the vulnerable families with disabled household head (e.g., deaf and dummy), 50% to single worker MLG families, and 0% to families without any income source.
637. Among the 117 MLG households who admitted heating exemptions or subsidies, 35.0% got free heating, 8.5% got free coal and 56.4% got cash subsidies. The amount of exemptions and subsidies reported by sample households, given in Table 7.26, are well in accordance with the local authorities’ statements.
Table 7.25: Poor Households Receiving Heating Subsidies
Heating source MLG (HHs) Heating expense exemption HHs % Own coal stoves 28 19 67.9 Small boilers of employers 36 36 100.0 District heating HHs 83 57 68.7 Geothermal 2 1 50.0 Firewood & others 5 4 80.0 Total 154 117 76.0 Source: field survey.
1 One has to pay 100% for the extra housing area. 2 Kalaqin DHS and Ningcheng CGU sub-areas are included. 3 According to household survey, 19% and 54% of the MLG households spent less than RMB 500 and RMB 500-1000 for heating. IMEIP II PPTA FINAL REPORT 7-33
Table 7.26: Amount of Heating Subsidies to MLG Households
Amount (yuan/year) <100 100-300 300-500 500-700 >700 HHs 2 14 62 16 23 Proportion (%) 1.7 12.0 53.0 13.7 19.7 Source: HH questionnaire survey 7.5.4.3 Requirement for Tariff Assistance Programs
638. The Consultancy TOR requests the design of tariff assistance programs1 in favor of the poor. However, the design of specific tariff assistance programs for this Project is not needed given the facts of (i) large portion heating expenses are formally exempted in all subproject areas through government subsidy programs1; and (ii) the PRC, as well as IMAR government are ever-strengthening their social protection efforts.
7.6 ETHNIC MINORITY ISSUES
7.6.1 General
639. There are over 40 EM groups present in the subproject locations according to local authorities. Seven groups were encountered during the household surveys, and they are Mongolian, Manchu, Daur (Dawaer), Oroqen (Elunchun), Korean, Hui and Tujia respectively. All ethnic groups live in harmony with each other in the subproject areas and they are fully mixed with each other and with the Han. Intermarriages of these groups are very common. As shown in the table below, out of the 333 officially registered EM households surveyed, intermarriages account for 58% (Table 7.27).
Table 7.27: Composition of Surveyed Households
EM Han Total HH surveyed 333 727 1,060* Pure Mongolian 93 (27.9%) Pure Hui 41 (12.3%) Pure Man 6 (1.8%) Other pure EM 5 (1.5%) EM and Han mix 175 (52.6%) EM mix 13 (3.9%) Source: field survey. *: Both DHS and NGS households. 640. Chinese government has various central and local preferential policies on EM for education, employment and other socioeconomic activities. Interesting is that, for the sake
1 Design tariff assistance programs that are consistent with ADB policy requiring that tariff subsidies to the poor be transparent and explicit, and funded by the government budget, which will separate the welfare objectives from commercial management of the public utilities. IMEIP II PPTA FINAL REPORT 7-34 of taking the advantage of those preferential policies, children from the EM-Han intermarriage families are exceptionally registered as EM. As a result, the proportion 26.4% of young people (below 20 years old) of the EM families is much higher than that 19.7% of the Han families (Table 7.28).
Table 7.28: Age Composition of Han and EM Residents
Age group EM Han Total People % Accu. People % Accu. People % Accu. (%) (%) (%) 0-6 52 6.9 6.9 57 2.7 2.7 109 3.8 3.8 7-18 123 16.2 23.1 252 12.0 14.7 375 13.1 16.9 19-20 25 3.3 26.4 56 2.7 17.3 81 2.8 19.7 21-30 117 15.4 41.8 269 12.8 30.1 386 13.5 33.2 31-40 155 20.4 62.2 420 20.0 50.1 575 20.1 53.3 41-50 142 18.7 80.9 473 22.5 72.5 615 21.5 74.8 51-60 82 10.8 91.7 262 12.4 85.0 344 12.0 86.8 61-70 36 4.7 96.4 201 9.5 94.5 237 8.3 95.0 71 & above 27 3.6 100 115 5.5 100 142 5.0 100 Total 759 100 2105 100 2864 100 Source: field survey. 641. Also due to these policies in the past years, the EM people, who are living in cities or local central towns and were interviewed during household questionnaire surveys, are superior to their Han neighbors in education (Table 7.29) and employment (Table 7.30). As shown, the proportion of junior college and university gradates of able-bodied EM is as high as 42.7%, while it is only 29.5% for the Han. As for employment, 26.9% of the surveyed able-bodied EM people are having good jobs (government officials, teachers and medical workers), while it is only 13.8% for the Han.
Table 7.29: Educational Levels of Able-bodied EM and Han Unit: % Level of education Age group 19-30 31-40 41-50 51-60 Total EM Illiterate 0.0 0.7 0.0 3.7 0.8 Primary school 0.7 1.3 2.1 15.9 3.7 Junior high school 16.2 13.1 22.5 19.5 17.5 High school 22.5 24.2 31.7 28.0 26.4 Technical secondary school 9.2 8.5 9.2 8.5 8.9 Junior college 19.7 34.6 18.3 12.2 22.5 University & above 31.7 17.6 16.2 12.2 20.2
1 Most of the heat suppliers have the involvements of local governments. IMEIP II PPTA FINAL REPORT 7-35
Total 100.0 100.0 100.0 100.0 100.0 Han Illiterate 0.3 0.5 0.0 1.1 0.4 Primary school 1.8 2.9 1.7 21.0 5.5 Junior high school 16.6 28.3 37.6 40.1 30.8 High school 23.7 26.2 33.8 18.7 26.7 Technical secondary school 7.1 9.5 6.6 4.6 7.2 Junior college 19.4 19.3 11.1 6.1 14.4 University & above 31.1 13.3 9.2 8.4 15.1 Total 100.0 100.0 100.0 100.0 100.0 Source: field survey. Table 7.30: Employment Status of Able-bodied EM and Han
Job types EM Han Total People % People % People % Government employee, teacher, doctor 140 26.9 204 13.8 344 17.2 Factory workers 77 14.8 255 17.2 332 16.6 Farming/dairy cow raising 4 0.8 8 0.5 12 0.6 Migration employment 64 12.3 283 19.1 347 17.3 Schooling 45 8.6 86 5.8 131 6.5 Business 44 8.4 104 7.0 148 7.4 Retired and others 147 28.2 540 36.5 687 34.3 Total 521 100.0 1480 100.0 2001 100.0 Source: field survey. 642. 92% and 100% of the surveyed EM households support the DHS and NGS subprojects respectively. Similarly, 90.6% and 100% of Han families support the two types of subprojects. Those who are against the districting heating mainly worried about higher expenditures on heating in the future.
643. All urban poor, both EM and Han, are covered by the government’s social protection program of MLG (minimum living standard guarantee). In addition, 76% of surveyed MLG families, both EM and Han, reported that they received subsidies or exemptions for heating expenses1.
7.6.2 Impacts on EM
644. Table 7.31 summarizes the standard EM issues that ADB concerns in subproject areas. As shown, answers to the positively stated issues are yes and to the negatively stated issues are exceptionally no.
1 However, according to the civil affairs department of the government, the coverage rate should be 100% for heating expense subsidy or exemption for the urban poor. IMEIP II PPTA FINAL REPORT 7-36
645. Table 7.32 presents the anticipated impacts on EM people by the three types of subprojects. In general, the Project has many superior positive impacts on EM. The negative effects are mostly ignorable.
Table 7.31: Identification of EM Issues in the Subproject Area
EM related issues Not Yes No Remarks or identified known problems, if any Are there EM groups present in Project ɏ locations? Do they maintain distinctive customs or ɏ No, according to local economic activities that may make them consultations and field vulnerable to hardship? surveys Will the Project restrict their economic and ɏ No, according to social activity and make them particularly community, existing and vulnerable in the context of Project? potential EM beneficiary HHs consultations Will the Project change their socioeconomic ɏ No, according to local and cultural integrity? consultations Will the Project disrupt their community life? ɏ No EM community in cities Will the Project positively affect their health, ɏ Yes, according to education, livelihood or social security status? community consultation and medical clinic survey results Will the Project negatively affect their health, ɏ No, according to education, livelihood or social security status? community consultation and medical clinic survey results Will the Project alter or undermine the ɏ No, according to local recognition of their knowledge, preclude consultations customary behaviors or undermine customary institutions? In case no disruption of EM community life as a ɏ No, according to feasibility whole, will there be loss of housing, strip of study and resettlement land, crops, trees and other fixed assets owned surveys or controlled by individual EM HHs?
7.6.3 Requirement for an EMDP
646. This Project should be categorized as a C project regarding EM issues and project impact on EM according to the results of Table 7.31 and Table 7.32. Consequently, no ethnic minority development plan (EMDP) or any other specific action plan is required. IMEIP II PPTA FINAL REPORT 7-37
Table 7.32: Anticipated Project Impacts on EM
Project activity Anticipated positive effect Anticipated negative effect and output 1. DHS 1. Safer heating compared with Cost will increase compared with own self-heating stoves1 in case people coal/cow dung/wood stoves in case moved to high buildings from single residents move to high buildings from storey houses their original single storey houses. But 2. Improved environment, officially recognized poor families will especially better air quality in heating get free heating service in the future as season2, for better health what is happening now. 3. Reduced workload for both women and men 2. NGS 1. Safer cooking compared with Cost will slightly increase compared coal stoves with coal stoves, but surveyed families 2. Time saving in cooking considered that they can afford. compared with coal stoves and other source. (15-min daily saving is expected according to all surveyed HHs). 3. Cost-saving compared with LPG 4. Improved environment, especially better air quality in heating season, for better health 3. CGU 1. Same as the above mentioned No free access to hot water for local 3.1 DHS component effects of district heating residents in the future who could at 2. Cost saving for heating service present compared with current small boiler heating 3.2. Green houses 1. Employments of rural residents No free access to hot water for local and other in green houses and in tourism sector residents in the future who could at components 2. Improved environment present 3. Secured and higher incomes of farmers from leasing land and from non-farm employments
7.7 IMPACT MONITORING AND EVALUATION
7.7.1 General
647. This Section presents the Impact Monitoring and Evaluation (M&E) Plan, as required by the TOR3. It is expected that the M&E Plan will generate data and information required to assess and quantify the potential socioeconomic and poverty benefits of the Project, as implementation progresses. This M&E Plan will form an integral part of the Project’s
1 There were cases of gas poisoning. 2 Air quality is extremely poor in banner towns in later afternoons in heating season when many families are using coal-stoves for cooking. 3 Design a time-bound plan for monitoring, and outline the plan and resources required to implement the monitoring plan. Incorporate indicators into the project performance monitoring system. IMEIP II PPTA FINAL REPORT 7-38 performance monitoring system that is to be designed by an M&E specialist under this PPTA.
7.7.2 Objectives and Approach
648. The objective of the M&E is to assess changes in the social and economic conditions of the local population consequent upon the Project. It will:
(i) Generate data and information to identify general impacts of the Project to describe social and economic changes;
(ii) Analyze and document progresses in Project implementation; and
(iii) Focus on key actions and processes learned from the Project for replication in other areas.
649. The approach proposed consists of only conventional methodology and techniques (i.e., secondary data collection, review and analysis). The monitoring program will be of long-term, starting from the beginning of the Project. Once initiated, the monitoring by the IAs, assisted by domestic and/or international consultant team (i.e., construction supervision team), will continue.
7.7.3 Scope of Work
650. Two simply structured monitoring forms, shown below, will be adopted for the monitoring. The first form (Table 7.33) is identical to Table 7.4 and it consists of a set of major indicators for assessing overall changes in social, economic and poverty status. The second form (Table 7.34) concerns the Project specific activities and services.
Table 7.33: Main Socioeconomic Indicators
Indicator Bao- Hoh- Chi- Kala- Ning- Keyou- Zha- Moli- Chen- IMAR tou hot feng qin cheng qian laite dawa baerhu Total population Ethnic minority population Urban pop. Per capita GDP Urban per capita disposable income Baseline values of 2006 are given in Table 7.4 Rural per capita net income Urban per capita housing area Urban poor Rural poor IMEIP II PPTA FINAL REPORT 7-39
Table 7.34: Project Specific Indicators
Indicator Unit Bao- Hoh- Chi- Kala- Ning- Keyou- Zha- Moli- Chen- tou hot feng qin cheng qian laite dawa baerhu Increased heating area Heating price Heating subsidy to poor From gov’t % From the IA % New employments Training of affected worker Reemployment of affected workers Employment of rural labors (Ningcheng only) Employment of rural poor (Ningcheng only) Number of tourists (Ningcheng only)
651. What is important is to have continuous data flow for before, during and after project construction. Therefore, these forms, once being recorded initially (i.e., monitoring), shall be updated annually. These forms will be further modified according to actual needs by the monitoring staff.
652. The 2006 baseline values for overall socioeconomic and poverty conditions of IMAR and subproject areas have already been included in Table 7.4.
7.7.4 Reporting Format and Schedule
653. The core of the monitoring reports will be the above forms with brief explanations. The following simple format shall be applied as monitoring report:
(i) Introduction: simply summaries whether the overall implementation of subprojects are as planned or not. If not, highlight the major causes;
(ii) Monitoring results, i.e., impact Indicators (adding new tables for the year of reporting while keeping the old tables there), and simple analysis;
(iii) Conclusions.
654. Monitoring report shall be submitted to ADB by the EA annually during the period of 2008-2012. ADB, based on the continuous monitoring reports and possibly additional data IMEIP II PPTA FINAL REPORT 7-40 by site visits and interviews, will prepare a final evaluation report when preparing the Project Completion Report.
7.7.5 Organization and Budget
655. The monitoring work is relatively simple and it will be managed by the IAs and be summarized by the EA. Expense for monitoring is included in their daily management budget.
7.8 CONCLUSIONS AND RECOMMENDATIONS
7.8.1 Conclusions
656. A Summary Poverty Reduction and Social Strategy is provided in Appendix 15 of this Final Report.
7.8.1.1 General Impacts
657. Overall this Project will benefit 1.51 million users by 2015, including 0.79 and 0.72 million existing and potential users of district heating and natural gas supply.
658. General benefits of this Project will be improved environmental conditions and improved public health in the respective subproject cities and towns. In addition, due to the overall nature of the Project of district heating and closing small boilers and family-run heating stoves in some cases, beneficiaries will realize: (i) improved and secured heating services; (ii) reduced workload; (iii) life conveniences from the improved heating and cooking; and (iv) reduced incidence of air-related and cold-related diseases.
7.8.1.2 Poverty Impact
659. 8 out of the 10 subprojects will be implemented in eastern IMAR where the area is economically poor. With 53.4% of population and 56.0% land area, eastern IMAR only contributed to 31% of IMAR’s total GDP in 2006, yet its per capita GDP was only 58% of IMAR’s average. User beneficiaries of these 8 subprojects in eastern IMAR will be approximately 0.81 million or 53.5% of the total by 2015.
660. By using internationally adopted relative standards, i.e., the 10% least income group as the poverty population, the estimated poor beneficiaries will be approximately 92,000 or 6.1%1 of the total by 2015.
661. Urban poor will benefit in the same manner as all beneficiaries as described in the previous chapter. Similarly, the urban poor will enjoy: (i) improved and secured heating services; (ii) reduced workload; (iii) life conveniences from the improved heating and
1 Potential user beneficiaries are mostly not poor because they have the ability to buy commodity houses in new residential areas to be supported the subprojects’ district heating services. IMEIP II PPTA FINAL REPORT 7-41 cooking; iv) reduced incidence of air-related and cold-related diseases; and (v) reduction of possible gas poisoning and fire accidents.
662. Rural poor only occurs in Ningcheng CGU. This group, a very small population, will get considerable benefits from leasing their land and providing labors.
663. All poor are supported by various government social protection programs. Heating subsidies are available in all subproject areas.
7.8.1.3 Gender Impact
664. Women will benefit more from the Project because of: (i) life conveniences from improved heating; (ii) reduction in household workload for cooking and heating; (iii) improvement of the living environment and quality of life; iv) reduced incidence of air-related and cold-related diseases; (v) reduction of possible gas poisoning and fire accidents; and (v) additional employment opportunities. There are hardly any female employees employed in operating small boiler houses; once district heating is in place, a certain portion (20% or more) of females will be recruited in sub-stations for collecting fees from individual user households.
7.8.1.4 Affected Workers
665. In total, 1,271 workers will be affected due to the closing of small boiler houses. A reemployment action plan has been prepared for them and is separately presented in Appendix 16.
7.8.1.5 Ethnic Minorities
666. There are over 40 EM groups present in the subproject locations. All ethnic groups live in harmony with each other in the subproject areas, as well as in entire IMAR, and they are fully mixed with each other and with the Han in cities and towns. Intermarriages are very common. Out of the 333 officially registered EM covered by the SPA household questionnaire surveys, intermarriages account for 58%.
667. EM people, who were interviewed during the SPA social surveys, are superior to their Han neighbors in education and employment. The proportion of junior college and university gradates of able-bodied EM is as high as 42.7%, while it is only 29.5% for the Han among the surveyed households. As for employment, 26.9% of the surveyed able- bodied EM people are having good jobs (government officials, teachers and medical workers), while it is only 13.8% for the Han.
668. EM people will benefit in the same manner as others for enjoying improved environment and livelihood. IMEIP II PPTA FINAL REPORT 7-42
7.8.1.6 Overall Conclusions
669. The Project will have substantial beneficial environmental and socio-economic impacts on user beneficiaries and the majority of the population in the respective subproject cities and towns.
670. The Project is basically pro-poor and 8 out of the 10 subprojects are to be implemented in the poorer eastern zone of IMAR.
7.8.2 Recommendations
671. One of the objectives of this assessment is to identify and propose a set of complementary activities to enhance and maximize the positive impacts and to mitigate and minimize the possible negative impacts of the Project. Given that a large number of small boiler workers will be affected, a reemployment action plan has been prepared (Appendix 16 - Reemployment Action Plan for Affected Workers). However, the IAs (i.e., actual ADB loan users) will have difficulties to finance the plan according to the current PRC policies and practices. It is therefore recommended that ADB should play a leading role in financing this reemployment action plan. Alternatively ADB could launch a policy dialogue to convince the local governments and the IAs to finance the plan; it should be understood that this dialogue may be extensive even though ADB supports the promotion of policy changes or reorientations.
672. The Project is basically simple and does not need external monitoring and evaluation in terms of social aspects. It is recommended that ADB give special support and attention to the internal monitoring during project implementation. IMEIP II PPTA FINAL REPORT 8-1
CHAPTER 8 SUMMARY RESETTLEMENT PLAN
8.1 Status of the Resettlement Plan 673. The proposed IMAR Environment Improvement Project (Phase II) (the “Project) consists of 10 subprojects, of which 8, 1 and 1 are district heating supply (DHS), natural gas supply (NGS) and comprehensive geothermal utilization (CGU) respectively. This summary resettlement plan addresses the impacts caused by the subprojects and it is based on the feasibility studies and specifically on two short resettlement plans (SRPs). Prior to engineering works, the IAs will update and finalize their SRPs based on detailed designs and detailed measurement surveys if necessary. The updated SRPs, if any, will be submitted to ADB for approval. The main contents of the SRPs had already been disclosed to affected households and entities by March 2008 through mutual consultations, group meetings and census surveys. During implementation, if there are significant changes in project scope or other causes, the SRPs will be further updated, disclosed to affected persons (APs) and submitted to ADB for approval prior to commencement of such changes. The detailed Resettlement Plan is shown in Appendix 17. 674. If any of the remaining 8 subprojects involve in land acquisition and resettlement due to significant changes in design or scope or other causes, the SRPs will be timely prepared according to ADB requirements and be submitted to ADB for approval before implementing the changes. 8.2 Scope of Land Acquisition and Resettlement 675. The 10 subprojects will be implemented in 9 locations, including urban districts of 3 prefecture level cities, 5 banner towns and 1 rural town. According to the impact surveys during the feasibility studies, each subproject will need to permanently occupy a certain area of land and/or floor area for the construction of one or more components such as (i) heating plant; (ii) heat exchange station; (iii) regulating/control center; and (iv) waste water treatment plant. The DHS and NGS subprojects will also temporarily occupy walkways of streets for 1-2 months during pipeline establishment. The CGU subproject will need to rent farmland for piloting high-efficiency agriculture and aquaculture. Details for land acquisition for each subproject are shown in Table 8.1. 676. However, only two subprojects, Zhalaite DHS and Ningcheng CGU, need to prepare SRPs. For Zhalaite DHS, the expansion of an existing plant will need to acquire 1.1 ha of government-owned land that is currently used by two private entities, an operating driver school and a closed factory. In addition, 1,740 m2 of office/factory buildings of the two entities will have to be demolished. The 9.252 km of truck pipelines under this subproject, according to the feasibility study, will temporarily occupy 3.0 ha of 5 city streets/walkways for 1-2 months. The streets are 20-30 meters in width while the pipelines need to temporarily occupy the streets for 2.5-4.2 meters in width during the establishment. The SRP of this subproject only addresses the land acquisition and structure demolition issues of these two entities. The temporary land occupation issues will be simply included in the civil works. IMEIP II PPTA FINAL REPORT 8-2
677. For Ningcheng CGU, the greenhouse agriculture and aquaculture component1 will need to rent 5.33 ha farmland of 179 residents from 44 households. In addition, this subproject will also permanently occupy 0.66 ha of pre-reserved state land for the construction of a waste water plant and a geothermal heat supply station. The road rehabilitation component will be on the existing right of ways that are state owned. The SRP of Ningcheng GCU only addresses the involuntary land leasing of the 44 households.
1 Using residual geothermal heat of district heating for greenhouses. IMEIP II PPTA FINAL REPORT 8-3
Table 8.1: Land Requirement and Access Means of Individual Subproject Permanent land occupation (ha) Temporary land occupation Boiler house/ monitoring center/NGS New heat exchange station* Short term Long term Subproject station/ waste water treatment plant Total (ha) Area Ownership and Means of Area/floor Ownership and Means of Area Means of Means of access Area (ha) (ha) current use access area (ha) current use access (ha) access 1 Baotou DHS 0 0.77 0.77 13.50 State land, Allocation by 2 Hohhot DHS 3.34 existing boiler 1.97 5.31 51.41 gov’t houses IA's own land 3 Chifeng DHS 0.10 Own land 1.81 1.91 12.46 unused 4 Kalaqin DHS 0 0.30 0.30 2.0 State land, Allocation by Reserved by 5.33, 5 Ningcheng CGU 0.66 0.66 1.0 Renting reserved gov’t future users of Use according to farmland district heating city plan and State land, Acquisition 6 Zhalaite DHS 1.1 0.24 services Free 1.34 3.0 under the private use of use right according to access guidance of city approved construction Allocation by 7 Keyouqitan DHS 0 0.60 construction 0.60 5.0 bureaus gov’t plans State land, Allocation by 8 Keyouqian NGS 0.96 reserved and 0.96 4.0 gov’t unused State land, Allocation by 9 Molidawa DHS 3.50 0.33 3.83 2.87 unused gov’t State land, Allocation by 10 Chenbaerhu DHS 1.42 reserved and 0.13 1.55 2.0 gov’t unused Total 11.08 6.15 17.23 97.24 5.33 Source: Feasibility study reports. *: Area for heat exchange station: 100-150 square meters for one set of exchanger (2-9MW), and 200-260 square meters for 2 sets of exchangers. IMEIP II PPTA FINAL REPORT 8-4
678. Land plots for the remaining subprojects are either reserved or will be allocated freely by local governments or by heat users in case of constructing heat-exchange stations within district heating networks.
8.3 Policy Framework 679. For people unavoidably affected, the resettlement objective is to achieve equal or better income and living standards in line with the PRC Land Administration Law (1998) and Contract Law (1999), and the ADB’s Policy on Involuntary Resettlement. IMAR project management office, as well as the subproject IAs and local governments, will ensure that any people losing land use rights and other assets will be assisted to fully restore their living standards. The IMAR Government in 2000 issued a Land Administration Decree to implement the 1998 Land Administration Law, which stipulated the regulations for land compensation, resettlement subsidies, standing crop compensation, and other measures to carry out resettlement. Local governments also issued their respective regulations on land acquisition and resettlement. According to the policy and basic socioeconomic conditions of Zhalaite Banner of Xing’an League and Ningcheng County of Chifeng Municipality, compensation rates are preliminarily determined and will be finalized afterwards (see the entitlement matrixes). For structures to be demolished, compensations will be based on replacement values. 680. Entitlement matrixes were prepared and included in the respective SRPs for Zhalaite DHS and Ningcheng CGU. 8.4 Resettlement Strategy 681. Efforts to minimize resettlement effects have been made based on the consultations with the local officials during the feasibility studies and PPTA consultations, which avoided acquiring plots with residential houses in two towns for two subprojects. For those unavoidably affected, small in absolute number, the resettlement strategy is to replace their losses of land, assets and income. 682. Based on consultations, the two affected entities of Zhalaite DHS prefer cash compensations for losing land use rights and structures. The 44 households who have to lease their land under Ningcheng CGU prefer guaranteed long term or intermediate term land leasing contracts. IMAR PMO and the concerned IAs will ensure that the resettlement entitlements are provided to: (i) the entities affected prior to the ground clearance and demolition commencement in the case of Zhalaite DHs; and (ii) the affected households shortly after contract conclusion in the case of Ningcheng CGU. Compensations/rental fees will be provided directly to households/entities losing those assets and land use rights. Compensations for infrastructures due to temporary walkway/street occupation/destruction will be included in civil works and paid to the concerned government agencies for restoration. The two affected entities under Zhalaite DHS will receive transport allowances. 8.5 Institutional Arrangements 683. The concerned IAs will assume the overall responsibility for implementing their respective approved SRPs. For Zhalaite DHS, the Banner Land Resource Bureau will take the primary responsibility for the land acquisition, resettlement consultation, implementation IMEIP II PPTA FINAL REPORT 8-5 and timely delivery of entitlements, with assistance from other government agencies and the IA. For Ningcheng GCU, the IA will directly sign land leasing contracts with individual households, based on consultation of county land resource bureau, township government and affected village committee. 8.6 Vulnerable Groups 684. 2 out of the 44 affected households or 4 out of 179 affected persons are poor under Ningcheng CGU. One household consists of an old woman of 71 years old, and the other consists of a sick couple and their old mother. Each poor received an allowance of RMB 1.2 per day from the Rural Minimum Living Standard Guarantee Program in 20071. These two households are now having difficulties in cultivating their farmland due to lack of laborers and inputs, the subproject could enable them to have stable and secured income. Therefore they will benefit more than others. 685. There are no vulnerable people affected by land acquisition and resettlement in other subprojects. 8.7 Consultation and Grievance Redress 686. The 1998 Land Law requires disclosure and consultation with APs. They have been notified regarding the key elements of the RP during meetings and interviews when preparing the SRPs. A draft land leasing contract had been discussed with and distributed to affected village and households in the case of Ningcheng CGU. In addition, a census survey of affected households was carried out. In Zhalaite DHS, more than 3 sessions of consultation meetings had been held among the Banner Land Resource Bureau, the IA and the affected entities. There will be further consultations to discuss specific issues with affected households and entities before actual construction commencements. 687. In case of grievances, all complaints will be timely processed. Households affected under Ningcheng CGU will be addressed in the civil court. In the case of Zhalaite DHS, oral or written complaints will directly go to the banner government, and if not settled in two weeks, the IA will try to achieve a solution. If necessary, the final redress would also be sought in the civil court system.
8.8 Monitoring and Reporting 688. Internal monitoring and reporting system will be established by the IAs and the IMAR PMO. The IMAR PMO will forward the IAs’ quarterly progress reports to ADB on the progress of land acquisition and resettlement. After two years, resettlement completion reports will also be prepared and submitted to ADB. 689. This project, due to its overall minor land acquisition and resettlement, does not need external monitoring. ADB’s irregular or regular review missions could play the role of external monitoring.
8.9 Resettlement Cost and Implementation Schedule 690. The RP budget estimate is RMB 3.54 million for Zhalaite DHS, including
1 RMB 1.0 per day in 2006. IMEIP II PPTA FINAL REPORT 8-6 compensation for land use right, non-residential houses, other assets, moving allowances, administration and internal monitoring, and contingencies. The IMAR PMO and the IA will guarantee to supplement the resettlement budget, as may prove necessary, to meet any shortfall which emerges in achieving the resettlement objectives. 691. The annual farmland rental fee for Ningcheng CGU will be RMB 64,000 in the first 5 years. Rental rate will be adjusted after 5 years based on mutual agreements between the IA and affected households. 692. The resettlement implementation schedules for the two subprojects have been prepared based on the construction timetable given in the feasibility study reports. Zhalaite DHS is planned to complete land acquisition and structures demolition before April 2009 and to start construction in April 2009. The greenhouse components of Ningcheng CGU are planned to start construction in October 2008 and be completed by October 2009. 693. The implementation schedules for the two subprojects are shown in Tables 8.2 and Table 8.3 respectively. Table 8.2: Implementation Schedule of Ningcheng CGU No Resettlement tasks Target Responsible Status 1 Preparation of SRP 1.1 Draft SRP IA Done 1.2 Information disclosure 44 HHs Done 1.3 Posting on ADB website ADB 1 May 2008 1.4 Approval farmland leasing RMB 800 per mu IA, Ningcheng May 2008 contract and SRP per year in the County first 5 years Government 2 SRP implementation 2.1 Signing contracts 44 HHs IA, affected HHs Oct. -Dec. 2008 3.2 Disbursement of 1st rental fee 44 HHs Affected HHs, IA Oct.- Dec. 2008 3 Monitoring & reporting 3.1 Quarterly reports 2 reports IA Sept. 2008-March 2009 3.2 Completion report 1 report IA November 2009 IMEIP II PPTA FINAL REPORT 8-7
Table 8.3: Implementation Schedule of Zhalaite DHS No Resettlement tasks Target Responsible Status 1 Preparation of SRP 1.1 Draft SRP IA Done 1.2 Information disclosure 2 entities Done 1.3 Posting on the ADB website ADB 1 May 2008 1.4 Detailed measurement survey IA, design institute Before Oct. 2008 1.5 Updating SRP IA Before Oct. 2008 1.6 Approval updated SRP and RMB 3.54 IA, Zhalaite Banner Before Oct. 2008 budget million Government 2 Land use permit approval Land resource bureau Before Oct. 2008 3 SRP implementation 3.1 Real estate replacement value 2 entities IA Oct. -Dec. 2008 evaluation, negotiation and agreement, compensation disbursement 3.3 Ground clearance and 2 entities Affected entities, IA Jan-March 2009 structure demolishment 4 Civil works April 2009- Dec 2012 5 Monitoring & reporting 5.1 Internal monitoring & quarterly 2 reports IA Sept. 2008-March reports 2009 5.2 Completion report 1 report IA November 2009 IMEIP II PPTA FINAL REPORT 9-1
CHAPTER 9 FINANCIAL ANALYSIS
9.1 Principles and Methodologies for Financial Analysis 694. The proposed Project is to further improve the environmental conditions, provide reliable and affordable district heating and natural gas, and utilize alternative renewable energy resources (such as geothermal energy) in a number of municipalities of IMAR. The proposed Project is ADB’s continuous support to Loan 2260, which was approved in December 2006 for district heating and gas distribution in the cities of Bayannur and Wuhai of IMAR. The Project will assist GIMAR in extending improved and diversified district heating and gas supply to other urban areas, including more remote and impoverished municipalities and counties. As designed, the Project will include district heating supply (DHS), natural gas supply (NGS), and comprehensive geothermal utilization (CGU) subprojects. 695. The implementation arrangement is summarized as follows: (1) DHS subprojects:
i Hohhot Futai Heating Supply Co. Ltd. (FUTAI) will implement the Hohhot District Heating Subproject (Hohhot DHS);
i Chifeng Fulong Heating Supply Co. Ltd. (FULONG) will imlement the Chifeng District Heating Subproject (Chifeng DHS);
i Baotou Municipal Heating Supply Company (BAOTOU) will implement the Baotou District Heating Subproject (Baotou DHS);
i Durui Heating and Power Supply Co. Ltd. (DURUI) will implement the Keyouqian Banner District Heating Subproject (Keyouqian DHS);
i Chifeng Jinfeng Heating Supply Co. Ltd. (JINFENG) will implement the Kalaqin Banner District Heating Subproject (Kalaqin DHS);
i Zhalaite Xingda Heating Supply Co. Ltd. (XINGDA) will implement the Zhalaite Banner District Heating Subproject (Zhalaite DHS);
i Molidawa Rimian Heating Supply Co. Ltd. (RIMIAN) will implement the Molidawa Banner District Heating Subproject (Molidawa DHS);
i Bayan Economy Development Investment Co. Ltd. (BAYAN) will implement the Chenbaerhu Banner District Heating Subproject (Chenbaerhu DHS). (2) NGS subproject:
i Keerqin Kangze Pipeline Gas Co. Ltd. (KANGZE) will implement the Keyouqian Banner Natural Gas Subproject (Keyouqian NGS). (3) CGU subproject: IMEIP II PPTA FINAL REPORT 9-2
i Ningcheng Wenquan Investment & Development Co. Ltd. (WENQUAN) will implement the Reshui Town Comprehensive Geothermal Utilization Subproject (Ningcheng CGU). 696. The financial analysis will start with the cost estimates and financing plans. It is to ensure that the investment cost estimates are reviewed based on the technical justification. The funding sources proposed in financing plans are eligible for the Project implementation. Commitment letters prepared by the domestic commercial banks and municipal/league financial bureaus will be assessed based on the final financing plans. 697. Except for the subcomponent of road rehabilitation under Ningcheng CGU subproject implemented by WENQUAN, all other subprojects will be able to generate operating revenues. Therefore, with the project implementation, all IAs should be developed as independent companies under the market-oriented mechanism. The project investment costs, operating costs and debt services should be eventually fully recovered through tariffs. 698. It is worth mentioning that the state-owned investment/development companies of WENQUAN and BAYAN, functioning as developers on behalf of various government departments, will be involved in project construction. As they do not have enough qualification and experience in heating system operation, the fixed assets constructed by them will be transferred to relevant heating companies for operation upon completion of the construction. Thus, more than one company will be involved in the project construction and operation. It was decided during the Appraisal that WENQUAN and BAYAN will retain the right of revenue collection, asset ownership and debt service obligation. They will strengthen their operation management through operational restructuring. The financial terms will need to be specified in the business contract with the operational companies. Therefore, financial analysis will project major financial indicators that can be used as performance indicators or financial conditions in the next stage of project development. 699. Tariff analysis will review the current tariff settings and charges structures for the district heating systems. The analysis of tariff together with the connection fees collections will project tariff requirements in achieving full cost recovery, meeting counterpart fund requirements and IA’s sustainable development during the project implementation and operational period. The residents’ tariffs before the project and after the project are compared for each project city/league, which demonstrates that tariff increase will be lower than the domestic inflation. More discussions are conducted on the tariff assessment and tariff reforms, and the key areas that should be paid greater attention to in the next stage of tariff system improvement are also highlighted. 700. Assessment of the financial management system is conducted for the EA and IAs during the PPTA stage in order to identify issues for capacity building and strengthening. Development of financial performance indicators will help monitor the Project implementation throughout the Project implementation period. 701. In-depth financial analysis will evaluate the financial viability of the Project and sustainability of the project IAs. For each subproject except for the non-revenue generating subcomponent in Ningcheng CGU, the discounted cash flow (DCF) analyses are to be IMEIP II PPTA FINAL REPORT 9-3 conducted to assess the Project viability based on the result of financial internal rates of return (FIRR), weighted average cost of capital (WACC), and sensitivity analysis. It will be considered financially viable when the FIRR exceeds the WACC by an adequate margin, which means, the margin gives reasonable protection should adverse circumstances be encountered. 702. Based on the data provided by the local government, IMAR has 31 national poverty counties and 29 provincial poverty counties with 697,000 people living below the poverty line (year 2005 data). The proposed new and extended facilities will have a significant financial impact on the tariff for those lowest income households. The PPTA report will recommend appropriate subsidy programs to ensure that the lowest income households can afford the heating service and share the benefits of district heating.
9.2 Quantities and Unit Costs 703. During the PPTA stage, there have been various reviews and revisions conducted by the DIs, IAs and EA in terms of investment options, project costs, contract procurement packages and financing plans in order to make the Project more feasible. Based on the most recent feasibility study reports prepared by the DIs and the comments from ADB during the Appraisal Mission, the information regarding physical quantities and unit costs for each subproject was updated to incorporate the latest project development. 9.3 Physical Contingency and Price Contingency 704. The base cost estimate does not include contingencies. Physical contingency and price contingency are estimated after the base cost estimate is finalized. Contingency allowances reflect probable physical and price changes arising from such situations in addition to the base cost estimates. As the construction period is assumed to be 3-4 years, the associated physical contingency is assumed at 8%. The assumptions for domestic and foreign inflation are displayed in Table 9.1. Table 9.1: Domestic and Foreign Inflation Rate
Year 2008 2009 2010 2011 Domestic 5.5 5.0 5.0 5.0 Foreign 0.8 0.8 0.8 0.8
9.4 Foreign Exchange and Other Parameters 705. It has been witnessed that the Chinese RMB is appreciating in value. Its total appreciation has reached over 15% in the past two years. The PPTA report reflects the changes and assumes a foreign currency exchange rate of 7.00 RMB to 1.00 USD in the financial projection during the construction period. 706. Due to the RMB appreciation, the ADB loan’s buying power will be substantially reduced. Testing of the market-oriented exchange rates shows that the higher the Chinese RMB appreciates, the larger the ADB loan is required during the construction period. Table 9.2 shows the ADB loan requirement in different foreign exchange rate assumption IMEIP II PPTA FINAL REPORT 9-4 scenarios. Once the ADB loan is approved, the changes in the foreign exchange rate will have an impact on the total loan proceeds that will be converted to local funds. In other words, if the US dollar further depreciates, the project IAs would have to bear the risk of having to obtain more counterpart funds to cover the difference between the ADB loan converted RMB amount and the project total financing requirement.
Table 9.2: ADB Loan Requirement at Different Foreign Exchange Rates
Foreign Exchange Foreign Exchange Foreign Exchange Year Rate 1 Rate 2 Rate 3 2009 7.00 6.5 6.0 2010 7.00 6.5 6.0 2011 7.00 6.5 6.0 ADB Loan Requirement 150 162 175 ($ million)
707. Additionally, it is realized that if the RMB keeps appreciating at the same pace until the Project enters into its repayment period, the same amount of USD debt service will require less amount of RMB for conversion. This should be an advantage for the Project. On the contrary, if RMB depreciates, it would increase the actual amount of RMB for repayment of USD loan, which will be a disadvantage for the Project. The uncertainty of foreign exchange rate is clearly seen as a potential risk for the Project. Therefore, it is suggested that the PMO and the IAs closely monitor the foreign exchange rates and evaluate the impact that could be caused by any changes of the foreign exchange rate. It is also recommended that the PMO and IAs try to avoid foreign exchange risks during the project implementation with the rational strategy of hedging or any other effective countermeasures based on the principle of ensuring “safety and benefits”. 708. ADB will waive front-end fees if the loan is approved during the period from July 1, 2007 to June 30, 2008. It is noted that the time left for gaining this waiver nearly expires when this report is written. The cost estimate considers financial charges during the construction period, which includes interests and commitment fees. The interest rate for the ADB loan is assumed at current 5-year fixed swap rate of 3.68% plus ADB spread of 20 basis points. Therefore, the financial projection uses an interest rate of 3.88%. The commitment fee is assumed at 0.15%.
9.5 Overall Project Cost Estimates 709. The project cost estimates are finalized after confirming the subprojects’ detailed and itemized cost estimates. The overall project cost estimates combine the subproject cost estimates under the same line items and present an overall one afterwards. Table 9.3 presents the overall project cost estimates, which are $398.00 million, including a local cost of $215.41 million and a foreign cost of $182.59 million. The project management including consulting service and training will be $1.75 milliion as per ADB’s suggestion. The detailed cost estimate and financing plan of each subproject are shown in Appendix 18. 710. Among the proposed 10 subprojects, the total base cost for the 8 DHS subprojects is $367.44 million including a foreign cost of $165.98 million and a local cost of $202.46 million. IMEIP II PPTA FINAL REPORT 9-5
For the NGS subproject, the total base cost will be $18.3 million, including a foreign cost of $10.52 million and a local cost of $7.78 million. For the CGU subproject with six components, the total base cost will be $12.26 million, including a foreign cost of $7.09 million and a local cost of $5.17 million. Detailed cost estimates for each subproject are presented in Table 9.4. Table 9.3: Project Cost Estimates ($ Million)
Item Amount a A. Base Cost Component A: DHS 1. Hohhot DHS 97.34 2. Chifeng DHS 87.07 3. Baotou DHS 31.95 4. Keyouqian DHS 29.80 5. Kalaqin DHS 15.05 6. Zhalaite DHS 18.07 7. Molidawa DHS 14.25 8. Chenbaerhu DHS 9.47 Component B: NGS 9. Keyouqian NGS 11.11 Component C: CGU 10. Ningcheng CGU 15.87 Subtotal (A) 329.98 B. Project Management 1.75 C. Contingencies b 47.28 D. Financial Charges During Construction c 18.99 Total (A+B+C+D) 398.00
a In mid -2008 prices. Taxes and duties are about 3% of base cost. b Physical contingencies are computed at 8% of base cost. Price contingencies are based on estimated domestic and international inflation rates during the period of construction. Details are presented in Table 9.1. c Financial charges include interest and commitment charges. Interest during construction is calculated at the five-year fixed swap LIBOR (London Interbank offered Rate) rate of 3.68% plus a spread of 20 basis points. The commitment charge is assumed at 0.15%. IMEIP II PPTA FINAL REPORT 9-6
Table 9.4: Detailed Cost Estimates ($ Million)
Estimated Cost Total Contract/Package a b Cost FX LC A. Hohhot DHS 1. Base Cost a. Civil Works 31.35 31.35 b. Equipment 42.50 13.14 55.64 c. Implementation costs 10.36 10.36 d. Project management 0.50 0.50 2. Contingencies a. Physical 3.40 4.39 7.79 b. Price 0.55 6.04 6.59 3. Financing Charges During Construction 2.53 3.23 5.75 Subtotal Component A 49.48 68.50 117.97 B. Chifeng DHS 1. Base Cost a. Civil Works 28.14 28.14 b. Equipment 38.55 10.55 49.10 c. Implementation costs 9.83 9.83 d. Project management 0.45 0.45 2. Contingencies a. Physical 3.08 3.88 6.97 b. Price 0.50 5.76 6.26 3. Financing Charges During Construction 3.80 4.81 8.61 Subtotal Component B 46.39 62.97 109.35 C. Baotou DHS 1. Base Cost a. Civil Works 6.20 6.20 b. Equipment 14.82 9.22 24.05 c. Implementation costs 1.70 1.70 d. Project management 0.18 0.18 2. Contingencies a. Physical 1.19 1.37 2.56 b. Price 0.19 1.71 1.90 3. Financing Charges During Construction 0.88 1.10 1.98 Subtotal Component C 17.26 21.30 38.56 D. Keyouqian DHS 1. Base Cost IMEIP II PPTA FINAL REPORT 9-7
Estimated Cost Total Contract/Package a b Cost FX LC a. Civil Works 9.67 9.67 b. Equipment 16.02 16.02 c. Implementation costs 4.12 4.12 d. Project management 0.12 0.12 2. Contingencies a. Physical 1.29 1.10 2.39 b. Price 0.28 1.07 1.35 3. Financing Charges During Construction 0.62 0.62 Subtotal Component D 18.33 15.96 34.29 E. Kalaqin DHS 1. Base Cost a. Civil Works 3.10 3.10 b. Equipment 7.41 1.18 8.59 c. Implementation costs 3.36 3.36 d. Project management 0.09 0.09 2. Contingencies a. Physical 0.59 0.61 1.20 b. Price 0.16 1.31 1.47 3. Financing Charges During Construction 0.73 0.73 Subtotal Component E 8.98 9.55 18.54 F. Zhalaite DHS 1. Base Cost a. Civil Works 5.40 5.40 b. Equipment 10.02 10.02 c. Implementation costs 2.65 2.65 d. Project management 0.08 0.08 2. Contingencies a. Physical 0.81 0.64 1.45 b. Price 0.18 0.71 0.88 3. Financing Charges During Construction 0.43 0.43 Subtotal Component F 11.52 9.40 20.92 G. Molidawa DHS 1. Base Cost a. Civil Works 4.39 4.39 b. Equipment 5.93 1.64 7.57 c. Implementation costs 2.29 2.29 d. Project management 0.07 0.07 IMEIP II PPTA FINAL REPORT 9-8
Estimated Cost Total Contract/Package a b Cost FX LC 2. Contingencies a. Physical 0.47 0.67 1.14 b. Price 0.13 1.00 1.13 3. Financing Charges During Construction 0.36 0.36 Subtotal Component G 6.97 9.99 16.96 H. Chenbaerhu DHS 1. Base Cost a. Civil Works 2.96 2.96 b. Equipment 5.34 5.34 c. Implementation costs 1.16 1.16 d. Project management 0.06 0.06 2. Contingencies a. Physical 0.43 0.33 0.76 b. Price 0.09 0.33 0.43 3. Financing Charges During Construction 0.14 0.14 Subtotal Component H 6.06 4.79 10.85 I. Keyouqian NGS 1. Base Cost a. Civil Works 3.65 3.65 b. Equipment 6.37 6.37 c. Implementation costs 1.09 1.09 d. Project management 0.06 0.06 2. Contingencies a. Physical 0.51 0.38 0.89 b. Price 0.03 0.05 0.08 3. Financing Charges During Construction 0.11 0.11 Subtotal Component I 7.09 5.17 12.25 J. Ningcheng CGU 1. Base Cost a. Civil Works 5.36 5.36 b. Equipment 9.25 9.25 c. Implementation costs 1.26 1.26 d. Project management 0.14 0.14 2. Contingencies a. Physical 0.75 0.53 1.28 b. Price 0.12 0.63 0.75 3. Financing Charges During Construction 0.26 0.26 IMEIP II PPTA FINAL REPORT 9-9
Estimated Cost Total Contract/Package a b Cost FX LC Subtotal Component J 10.52 7.78 18.30 Total Project Cost 182.59 215.41 398.00 The table is developed based on the same assumptions as in Table 9.3. a FX = foreign exchange b LC = local currency
9.6 Financing Plans 711. The financing plans in details are presented based on the total financial requirement of $398.0 million. It is proposed that ADB loan will be $150 million, which is proposed to come from ADB’s ordinary capital resources. The loan will carry an interest rate in accordance with the five-year fixed swap LIBOR rate of 3.68% plus a spread of 20 basis points, a commitment charge of 0.15% per annum, and such other terms and conditions set forth in the draft Loan Agreement. The loan will have a term of 24 years, including a grace period of 4 years. 712. The ADB loan will finance about 37.7% of the Project costs. The remaining $248.0 million (62.3%) will be contributed by domestic bank loans (19.6%) and equity (42.7%). The ADB loan will be used for civil works, equipment and goods supplies, consulting services and training, while contingencies will be financed by the counterpart funds. 713. As discussed in the section of Implementation Arrangement, the Borrower will be the PRC Government through its MOF that will re-lend to the GIMAR via a subsidiary loan agreement. The IMAR’s FB will make the loan proceeds available to the municipalities/leagues’ FBs (i.e. MFBs) of Baotou, Chifeng, Hohhot, Hulunbeier, and Xing-an under the same terms as the loan to the PRC. The MFBs will on-lend a portion of the loan proceeds to the County Finance Bureaus, and then to the IAs via subsidiary loan agreements with the same terms and conditionals satisfied to the ADB. It is understood that all re-lending and on-lending will be under the same terms and conditions as the ADB loan. The IAs will assume the foreign exchange and interest rate variation risks for their portions of the ADB’s loan. A summary of the financing plan is provided in Table 9.5. 714. The counterpart funding will be provided by the local government and owners’ equity infusion. The commercial bank loans and internal cash will be generated from the existing operation. The availability of the counterpart funds is ensured by respective fund providers through issuing commitment letters. Hence, with available funding sources, the Project will not encounter any funding difficulties during the construction. During the Appraisal, the commitment letters were provided in accordance with the financing plans. IMEIP II PPTA FINAL REPORT 9-10
Table 9.5: Financing Plans ($ million) Domestic Source Equity ADB Loan Total Loan Implementing Agencies FUTAI 38.5 36.4 43.0 117.9 FULONG 39.5 30.9 39.0 109.4 BAOTOU 12.8 10.8 15.0 38.6 DURUI 24.3 0.0 10.0 34.3 JINFENG 11.0 0.0 7.5 18.5 XINGDA 13.9 0.0 7.0 20.9 RIMIAN 11.0 0.0 6.0 17.0 BAYAN 5.9 0.0 5.0 10.8 KANGZE 6.8 0.0 5.5 12.3 WENQUAN 6.3 0.0 12.0 18.3 Total 169.9 78.1 150.0 398.0 % 42.7 19.6 37.7 100.0
Note: Figures may not add due to rounding. 9.7 Tariff Analysis 9.7.1 Regulations on Tariff Settings for District Heating 715. The NDRC and the Ministry of Construction (MOC) issued the Tentative Regulations on the Urban Heating Tariffs (GF Price [2007] No.1195) in June 3rd, 2007. The regulations stipulate that the commercialization of heating tariffs as per market conditions will be implemented gradually. The tentative regulations set the heating tariff levels: (1) If the heating tariffs are set up based on Cost to Profit ratio, the Cost to Profit ratio shall be less than 3%; (2) If the heating tariffs are set up based on Return of Net Fixed Assets (RONFA), the RONFA shall be set at 2-3% above the rate of national bond (over five years term). 716. Due to extensive price increase of major O&M costs of coal and heating1 in the past three years, all project cities or banners approved the tariff adjustment around 2006 in order for the heating companies to recover operating cost and achieve marginal profit. In the financial projection, heating tariffs are set up based on the full cost recovery requirement, in which tariff should be able to recover O&M cost and more of the depreciation cost or debt service. While some of the counterpart funds need to be generated from operation revenue, the IAs also need to recover the portion of funds from the proposed tariff revenue. 717. The tariff adjustment mechanism is defined based on review of the tariff in terms of full cost recovery schemes. The financial analysis demonstrates that the suggested tariffs can withstand adverse cases such as 10% variation of investment cost increase, deterioration in tariff collection, delay in project implementation and overrun of major operating cost, etc. Due to extensive coal and heating price adjustments in recent years,
1 Some IAs purchase heating from other heating source plants, such as FULONG. IMEIP II PPTA FINAL REPORT 9-11 coal and heating cost have constituted about 70% of the total operating cost. Both coal and heating cost will play important roles in operating cost changes. The results of sensitivity indicators reveal that the financial performance is most sensitive to tariff collection efficiency and changes in major cost items. The financial analysis suggests that the heating tariff should be reviewed under a regular basis when the project facilities are put into service. This is essential to ensure the IAs’ sustainable development. 9.7.2 Current and Proposed Tarriff for District Heating 718. The detailed current and proposed tariffs are displayed in Appendix 21. The tariff and financial situation for associated district heating subprojects are elaborated as follows:
a) Hohhot DHS 719. FUTAI is eligible to collect district heating tariffs. The district heating tariff is charged during the heating season for a total of 187 days according to the construction areas of heating supply. Previously, the heating tariff was 15 yuan/m2 per annum for residents and 18 yuan/m2 per annum for non-residential users. Due to extensive price increase of coal and heating, which was increased at 75% and 54% respectively during 2004 to 2006, FUTAI encountered continuous business loss in 2005 and 2006. The heating tariff was then adjusted to 18 yuan/m2 per annum for residents and 20 yuan/m2 per annum for non-residential users on October 15th, 2006. The tariff collection rate was 92% for residents and 96% for non-residential users, respectively. 720. According to the documents issued by the IMAR DRC and Construction Bureau dated on November 28, 2000, the public utility expansion fee was increased from 60 yuan/m2 to 120 yuan/m2. The incremental portion will be used especially for the subproject and water supply development. The allocation will be 50 yuan/m2 for district heating and 10 yuan/m2 for water supply. Therefore, FUTAI will be able to collect the 50 yuan/m2 portion as the company revenue and will utilize it as counterpart fund for pipeline network construction. The government has provided a total of RMB 14.01 million for project preparation, including fund of RMB 2.2 million and value added tax (VAT) exemption at RMB 1.98 million in 2005, VAT exemption at RMB 3.45 million in 2006, and VAT exemption at RMB 4.58 million and fund of RMB 1.8 million in 2007 respectively. 721. The financial analysis shows that the project counterpart funds can be generated from the domestic bank loan and incremental portion of the public utility expansion fee. The project implementation will improve the operational efficiency of FUTAI. Current tariff will be sufficient for project implementation during the innitial years of construction as long as the increase of coal and heating price will not exceed 10%. However, tariff has to increase to 21 yuan/m2 per annum for residents and 23 yuan/m2 per annum for non-residential users in 2014 to ensure FUTAI’s sustainable development.
b) Chifeng DHS 722. FULONG is eligible to collect the district heating tariff, but the connection fee has been waived for a certain period. However, the connection fee at 50 yuan/m2 based on construction areas will be imposed again as it was approved by the IMAR DRC recently. The heating tariff and connection fee, together with the government VAT exemption of RMB IMEIP II PPTA FINAL REPORT 9-12
13.09 million in 2005, will consitute as the counterpart fund for the project. The provision of the domestic bank loan will also support the project counterpart fund. 723. The district heating tariff is charged during the heating season for a total of 183 days based on the construction areas of heating supply. The price for souce of heating was at 14.87 yuan/Mwh in 2004. It gradually increased to 16.22 yuan/Mwh in 2005, and further to 16.73 yuan/Mwh in 2006 respectively. The accumulated cost increase reached 12.5% in three years. The most recent tariff adjustment was implemented on October 15th, 2007. The current district heating tariffs are 20.1 yuan/m2 per month for residents and 25.2 yuan/m2 per annuam for non-residential customers. The tariff increase is much less than the cost increase. FULONG achieved tariff collection rate over 95% for both residential and non-residential customers. 724. Based on the financial statements of the past three years provided by FULONG, the financial performance is impressive. The net profit reached RMB 37.37 million in 2006. FULONG has an efficient team that effectively control operational costs and improve the financial performance. The financial analysis shows that FULONG’s financial performance is sensitive to the tariff collection and cost of heating purchase. As long as FULONG can continuously maintain and improve collection performance and operating efficiency, current tariff can meet the operational requirements during the construction period. c) Baotou DHS 725. BAOTOU is eligible to collect two types of charges – the district heating tariff, and the distribution pipeline connection fees. The distribution connection fee is charged at 50 yuan/m2 to all new consumers based on their construction areas. The district heating tariff is charged during the heating seasons according to the areas of heating supply. To support BAOTOU’s project preparation, government waived its VAT at RMB 6.77 million in 2005 and 7.89 million in 2006 accordingly. 726. Previously, heating tariff was 16 yuan/m2 per annum for residents and 18 yuan/m2 per annum for non-residential customers. During 2004 to 2007, BAOTOU encountered substantial operating cost increase, which was a direct result from coal price increase. The total coal price increase reached a total of 111% in three years, of which 65% in 2005, 32% in 2006 and 15% in 2007, respectively. The collection rate is 91% for residents and 95% for non-residential customers. Although heating tariff was adjusted on October 15, 2006, it is not sufficient to catch up with the coal price increase. The current heating tariff is 18 yuan/m2 per annum for residents and 20 yuan/m2 per annum for non-residential customers. 727. However, BAOTOU still suffers from business loss in 2007 and 2008. In order to improve operating efficiency, it is proposed that heating supply be sourced from the local power generation company instead of producing in-house. By this way, it will fully utilize available resources, and its O&M costs will not be fully subject to the coal price. Based on the assumption and improvement in tariff collection, BAOTOU will commence to make profit in 2009. According to financial analysis, BAOTOU can tolerate coal or heating price increase of 10% during the projection period. In order to ensure the sustainable development, BAOTOU needs to increase heating tariff again in 2013 to 21 yuan/m2 per annum for residents and 23.4 yuan/m2 per annum for non-residential customers. IMEIP II PPTA FINAL REPORT 9-13
d) Keyouqian DHS 728. According to the financing plan, the counterpart fund will come from government equity contribution and distribution connection fee. DURUI will be eligible to collect connection fee at 30 yuan/m2 to all new consumers based on their construction areas. 729. Currently, DURUI is eligible to collect a heating tariff at 23 yuan/m2 per annum for residents, 28 yuan/m2 per annum for public utilities and 29 yuan/m2 per annum for commercial users respectively based on the construction areas. According to the financial analysis, the current tariffs have to increase to 26.5 yuan/m2 per annum for residents, 31.5 yuan/m2 per annum for public utilities and 32.5 yuan/m2 per annum for commercial users in 2011 in order to achieve financial sustainable development. The tariff collection rates for domestic users and public buildings have both reached 99%, which are assumed to remain the same during the projection period. Along with the implementation of the district heating subproject, operational costs of the company will be managed to reach a better status. The business and operational management level of the company will be improved continuously. DURUI has excellent potential for a sustainable development.
e) Kalaqin DHS 730. JINFENG is eligible to collect the district heating charges. With regard to the connection fees for construction of the transmission networks and connections, JINFENG has received the indicated permission by the local government to collect 50 yuan/m2 from newly connected users once it is connected to the network system. Kalaqin Banner is under the administration management of Chifeng Municipality, so JINFENG is under the same situation as FULONG (described above as in Part (b)). The connection fees will soon be formally and legally implemented since it has been approved by the IMAR DRC. Together with the connection fee, JINFENG will also obtain some government support for the counterpart fund. It received RMB 2 million in 2005 and 2006 respectively for initial project preparation. It also received RMB 3.5 million in 2007 from its parent company, Jinfeng Copper Co. Ltd., for initial project preparation. 731. The district heating tariff is charged during the heating season (183 days) according to the construction areas of heating supply. Previously the heating tariff was 16.2 yuan/m2 per annum for residents and 20.4 yuan/m2 per annum for non-residential users. Due to major cost increase in the past three years, tariff was adjusted on October 15th, 2007. The current district heating tariffs are 19.2 yuan/m2 per annum for residents and 25.2 yuan/m2 per annum for non-residential users respectively. The tariff collection rate has reached 97% for residents and 99% for the non-residential users over the past two years. In order to achieve full cost recovery and sustainable development, tariff has to further increase to 21.6 yuan/m2 per annum for residents and 27.6 yuan/m2 per annum for non-residential users in 2011, respectively. f) Zhalaite DHS 732. XINGDA is eligible to collect two types of charges – the district heating tariff, and the distribution pipeline connection fees. The connection fee will be 30 yuan/m2 to all new IMEIP II PPTA FINAL REPORT 9-14 consumers based on their construction areas. It is mainly designed for XINGDA to generate required counterpart fund. 733. At present, XINGDA is eligible to collect a heating tariff at 25.5 yuan/m2 per annum for residents and 28.5 yuan/m2 per annum for public buildings based on the construction areas. According to the financial analysis, the current tariffs will have to incease to 29 yuan/m2 per annum for residents and 32 yuan/m2 per annum for public buildings in 2011, and further incease to 31 yuan/m2 per annum for residents and 34 yuan/m2 per annum for public buildings in 2015 in order to meet full cost recovery and company sustainable development. At present, the collection rate is 97% for residents and 100% for public building consumers, respectively. The collection rate is assumed to remain the same during the projection period. g) Molidawa DHS 734. RIMIAN is eligible to collect the district heating tariffs and the connection fees at 50 yuan/m2 for construction of the transmission and distribution networks. But the connection revenues do not constitute the revenue of RIMIAN. The connection income will be collected by RIMIAN first and then transferred to the construction company that is responsible for the network construction. Supporting the project, the local government gave exemption to the VAT for project preparation. 735. The district heating tariff is charged during the heating seasons (198 days) according to the construction areas of heating supply. Previously the heating tariff was 23 yuan/m2 per annum for residents and 38 yuan/m2 per annum for non-residential users. Due to extensive price increase of coal, RIMIAN encountered continuous business loss in 2005 and 2006. Tariff was then adjusted on January 1, 2006. The current district heating tariffs are 25 yuan/m2 per annum for residents and 38 yuan/m2 per annum for non-residential users. The tariff collection rate was 85.6% and 89% in 2004 and 2005, respectively, and was improved to 92% in 2006. With implementation of the subproject and institutional capacity strengthening, it is assumed that tariff collection rate will be continuously improved to 97% in 2017. 736. According to the financial analysis, to keep paces with the domestic inflation, tariffs need to be adjusted again in 2013 in order to ensure sustainable development of the construction and operation. The annual heating tariff needs to increase to 27.3 yuan/m2 per annum for residents, and 40.2 yuan/m2 per annum for non-residents. h) Chenbaerhu DHS 737. At present, the heating tariff is 23 yuan/m2 for residents per annum, 34.5 yuan/m2 for public utilities per annum and 51.75 yuan/m2 for commercials per annum in Chenbaerhu Banner based on construction areas for a whole heating season of six months. As a new company, it is assumed that heating tariff will be set at the same level as elsewhere in Chenbaerhu Banner with starting collection rate of 94%. According to the investment financing plan, RMB 30 million counterpart fund has to be generated from BAYAN. The connection fee at 30 yuan/m2 will only meet 25% of the internal cash generation requirement. Therefore, tariff has to increase to 26.5 yuan/m2 per annum for residents, 38 yuan/m2 per annum for public utilities and 55.25 yuan/m2 per annum for commercial customers in 2011 IMEIP II PPTA FINAL REPORT 9-15 for construction. The collection rate will be gradually improved from 94% in 2009 to 99% in 2013. The heating tariff has to further increase to 29.5 yuan/m2 per annum for residents, 40 yuan/m2 per annum for public utilities and 57.25 yuan/m2 per annum for commercial customers in 2014 in order to ensure sustainable development. Financial performance is most sensitive to the tariff collection. Therefore, BAYAN should monitor tariff collection closely and try to achieve the performance targets. 9.7.3 Summary of Household Heating Tariffs 738. The summary of household heating tariffs is presented in the following Figure 9.1. The blue bars stand for the current annual heating tariffs and the orange ones outline the future annual tariff increase requirements after implementing the Project. Generally, the required tariff increse is between 3-3.6 yuan/m2 per annum per heating season. However, Zhalaite DHS and Chenbaerhu DHS will need two adjustments. Therefore, the total increase will be around 5.5 yuan/m2, and 6.5 yuan/m2 per annum for Zhalaite DHS and Chenbaerhu DHS, respectively. The results show that Hohhot DHS, Chifeng DHS, Baotou DHS and Kalaqin DHS can still maitain the residential tariff below 20 yuan/m2 per annum after the Project is implemented.
35.00
30.00
25.00 /Annual) 2 20.00
15.00
10.00
Tariff (RMB/M 5.00 t g u n n e a u o n o a i it h h e t i q a w r h if o q la l a e o a u a id a h B o a h l b H C y K Z o n e M e K h C
Note: The household Heating Tariff Summary is developed based on current tariffs and future tariff requirements;
Figure 9.1: Summary of Household Heating Tariff
9.7.4 Assessment of Tariff Setting and Heating Tariff Reform 739. The assessment of the current tariff settings demonstrates that the IAs are now implementing the full cost recovery tariffs. The current tariff can help the IAs to recover the existing investment cost and realize sustainable operation. 740. In order to provide the project counterpart funds, the local governments have approved that the IAs are eligible to collect heating connection fees. By collecting connection fee along with government equity contribution and application for commercial loans, the IAs would be able to provide sufficient counterpart funds during the construction period. 741. As the government regulation specified, if the heating tariffs are set up based on RONFA, the RONFA shall be set at 2-3% above the rate of national bond (over five years IMEIP II PPTA FINAL REPORT 9-16 term). It is in line with the ADB’s requirements that the utility company should be operated on a commercial basis and developed as independent company. The RONFA should be over 6%. Therefore, the heating tariff should be adjusted to follow the national and ADB guidelines. 742. Heating tariff reform will explore the possible better tariff setting and adjustment mechanism to gradually implement the commercialization of heating tariffs as per market conditions. The principle of “the more heating consumed, the more billing should be charged” should be applied. By reviewing the current tariff settings, obvious limitations are identified as follows. 743. Heating is charged based on construction areas. The tariff is not closely linked with actual heating consumption. The reform should enable the charge system gradually to be based on actual heating consumption. 744. Another area which should be addressed is tariff adjustment mechanism. Tariff adjustment mechanisms will explore the policies and principles in establishing and adjusting the tariff. For example, the financial suitability of the IAs should be protected under the Government’s heating reform policy and regulations, which allows for negotiation of tariff adjustments if the changes in major cost items exceed 10%. 745. Tariff adjustment should be conducted through a transparent process. During the course of tariff review, the tariff adjustment impact will be clearly demonstrated. Government policy and its impact on heating sector will be applied. In this circumstance, the heating company should first improve operating efficiency in order to be eligible for applying a tariff adjustment. Therefore, the users will understand the situation and be willing to pay the service. 746. Lastly, the current heating sector is still mainly under the monopoly operation especially in the metropolitan cities, although private setor has been gradually introduced in the small or medium sized cities. In this regard, tariff setting can not fully reflect the value of heating service. Tariff reform should further introduce competition and reflect market oriented mechanism, encourage operation efficiency and good service. The tariff will therefore, reflect the actual value of the service. 9.8 Financial Analysis of Subprojects 9.8.1 Introduction 747. Financial analysis of the DHS, NGS, and CGU subprojects is undertaken to assess the financial viability of each subproject. It measures the ability of each subproject to generate sufficient revenue from operations to meet full cost recovery requirement, including operation and maintenance (O&M), debt service, depreciation, and a reasonable rate of return on investment. 748. The financial analysis is carried out in real terms using 2008 prices. The FIRR is determined using incremental annual net cash flows over 24 years of project period. The residual value of physical assets is assumed to be equal to its remaining book value at the end of the evaluation period. The analysis is carried out for the project components that IMEIP II PPTA FINAL REPORT 9-17 feature cost recovery through tariffs. Tariffs have been calculated based on the full cost recovery principle. This is reasonable since the Project will help improve operation efficiency and service quality. The base case model compares each subproject’s FIRR with the WACC. Sensitivity analyses are conducted to assess the impact of changes in various adverse conditions.
9.8.2 Major Assumptions 749. An income tax rate of 25% is used in the financial analysis for all the subprojects. The subprojects are assumed to be constructed over 4 years. Project capital expenditures are estimated based on the proposed implementation schedules with physical contingencies of 8%. Current prices of raw materials and fuel are used as the basis for financial projections and analysis; these prices are assumed to increase by 5% per annum from 2009 in real terms. Depreciation rates range between 4% - 5% per annum. O&M costs are calculated in nominal terms in the financial projections, and adjusted by the domestic inflation rates. International inflation rate is estimated at 0.8%, while domestic inflation is estimated at 5.5% in 2008, and 5% in 2009 and thereafter. The WACC varies based on ADB loans, local government equity contributions and domestic bank borrowing. The cost of ADB loan is based on the current London interbank offered rate on 5-year fixed-rate swap (3.68% p.a.) plus the ADB loan spread of 0.20% p.a. The cost of equity is assumed to be 10.0% p.a. and the cost of domestic borrowing is 7.83% p.a.
9.8.3 Results – DHS 750. The after-tax FIRR for the whole district heating component is estimated at 7.1% for the base case scenario and varies between 5.7% - 7.9% for the project subcomponents. These compare favorably with the WACC of 3%. The sensitivity analysis tests the following four scenarios: (i) project investment costs increase by 10%, (ii) major operating cost increases by 10%, (iii) revenue decreases by 10%, (iv) a one year delay in implementation, and (v) scenarios (i), (ii) and (iv) happen at the same time. The resulting FIRRs are 6.2% for scenario (i), 4.0% for scenario (ii), 1.2% for scenario (iii), 6.8% for scenario (iv), and 2.9% for scenario (v). The sensitivity analysis shows that the Project is vulnerable to decreases in revenue; however, this is considered unlikely to happen because tariffs and the heating areas to be serviced are not likely to decrease, and collection rates will continue to be high. Improved financial management, particularly cost control, is an important factor to assure a successful project outcome.
9.8.4 Results – NGS 751. The FIRR for the base case scenario for this component is estimated at 6.6%. Sensitivity analysis for similar scenarios as the DHS component is carried and results show that the component will be able to maintain an FIRR higher than the WACC under the various adverse scenarios. 9.8.5 Results – CGU 752. This component consists of (i) geothermal groundwater extraction and reinjection, (ii) use of geothermal groundwater for district heating, (iii) centralized supply of hot water to tourism facilities, (iv) development of geothermal agriculture and aquaculture, (v) IMEIP II PPTA FINAL REPORT 9-18 rehabilitation of roads (7.8 km) damaged during installation of district heating networks, and (vi) development of a wastewater treatment plant (4,000 m3/day). All except rehabilitation of roads are revenue-generating. Financial analyses are carried out for each of the following subcomponents: district heating; hot water supply; geothermal agriculture and aquaculture, and wastewater treatment plant. The cost of extracting and reinjection groundwater is shared between the district heating (85%) and hot water supply subcomponents (15%). 753. The base case FIRR for the whole subproject is estimated at 6.1% compared with WACC of 2.7%, with FIRRs for the subcomponents ranging from 2.5% to 6.6%. The component is sustainable under the various adverse scenarios. 754. For the Project as a whole, the FIRR is estimated at 7.1% compared with WACC of 3.0%. Sensitivity analysis shows that the Project is vulnerable to reductions in revenue mainly from the district heating component. As suggested above, the respective governments should institute tariff reforms in this sub-sector. A summarized sensitivity analysis is presented in Table 9.6. Table 9.6: Sensitivity Analysis FIRR I. II. III. Major IV. Combined WACC Base Investment Revenue Cost Delay Case +10% -10% +10% 1 year I. I II. IV. Component A. DHS 1. Hohhot DHS 2.6% 7.6% 5.8% 1.2% 6.4% 7.3% 4.3% 2. Chifeng DHS 2.7% 6.8% 6.7% 0.6% 2.4% 6.4% 2.1% 3. Baotou DHS 2.6% 7.8% 6.6% 0.9% 2.2% 7.6% 0.7% 4. Keyouqian DHS 4.2% 7.0% 5.4% 2.0% 4.2% 6.8% 2.3% 5. Kalaqin DHS 3.4% 7.9% 6.0% 0.7% 6.4% 7.7% 4.3% 6. Zhalaite DHS 3.9% 7.8% 6.3% 1.5% 4.9% 7.6% 3.0% 7. Molidawa DHS 3.8% 7.9% 6.2% 3.8% 3.7% 7.7% 3.4% 8. Chenbaerhu DHS 3.5% 5.7% 3.7% 1.2% 4.6% 5.4% 2.4% Total 3.0% 7.2% 6.2% 1.0% 3.9% 6.9% 2.8% Component B. NGS 9. Keyouqian NGS 3.6% 6.6% 5.5% 2.5% 4.4% 6.4% 3.0% Component C. CGU 10.Ningcheng CGU a. District Heating 2.8% 6.0% 5.1% 4.6% 5.9% 5.7% 4.3% b. Hot water Supply 2.8% 6.8% 6.4% 4.5% 6.6% 6.5% 4.8% c. Greenhouse & 2.2% 6.2% 5.3% 4.8% 6.1% 5.9% 4.4% Aquaculture d. Wastewater 2.8% 5.8% 4.9% 3.3% 5.0% 5.4% 2.5% Treatment Subproject Total 2.7% 6.1% 5.1% 4.0% 5.9% 5.8% 4.2% Project Total 3.0% 7.2% 6.2% 1.2% 4.0% 6.8% 2.9% IMEIP II PPTA FINAL REPORT 9-19
9.9 Financial Analysis on the Implementation Agencies 755. Objectives of the financial analysis are to determine the viability and sustainability of the IAs. Based on the financial statements in the previous years and the proposed project financial condition to develop financial models, the financial analysis will be able to project the financial situations of the IAs during the construction and operation period. The financial projection will cover the construction period and operating period of 25 years. Detailed financial statement projections will be in nominal price terms including inflation adjusted costs and revenues in each year from 2008 to 2019. The projected pro forma income statements, balance sheets and cash flow statements of each IA are presented in Appendix 20. 756. The sections below provide a summary of financial data and ratios generated from the financial projections for the IAs that are useful for assessing financial sustainability. The key financial requirements that will be defined in the loan agreement include the following:
i Operating ratio > 1; i Rate of return on net fixed assets > 6%; i Debt service coverage ratio (DSCR) >1.3; i Debt-Equity ratio < 70:30; and i Current ratio >1.5. 757. Major assumptions used for financial projection are:
i Income tax rate: 25%. i It’s assumed that the domestic inflation rate is 5.5% in 2008, 5% in 2009 and thereafter. International inflation rate is 0.8% throughout the projection period.
i Exchange rate (USD/RMB): 7.0. i Terms and conditions for the ADB loan: a repayment period of 24 years including a grace period of 4 years; a commitment fee at 0.15% per annum; a front-end fee at 0%. The interest rate is the floating rate based on the LIBOR. The current interest rate is 3.88%, which remains the same for the projection period.
i Revenues collected from domestic consumers prior to the year of 2008 are exempted from VAT. VAT will be charged for all consumers in 2009 and thereafter. Service tax will be charged to the connection fees.
i O&M costs include labor costs, coal, electricity, water and materials (chemical costs etc.), maintenance fees, other production fees and other management fees. Assumptions for maintenance costs, other production costs and other management costs are obtained from the feasibility study report and taking into account of the IA’s historical financial records in the most recent years. Average prices for salaries, coal, electricity, water and materials during the projection period are in line with the domestic inflation and actual price changes. Cost assumptions made on the staff IMEIP II PPTA FINAL REPORT 9-20
increase, incremental coal, electricity, water and materials consumption after the ADB loan project is put into service are provided by the DIs with reference to the IA’s current operating records.
i Turnover days: the prepaid account turnover is 30 days, the stock turnover is 30 days and the account payable turnover is 30 days.
9.9.1 Investment/Development Companies (a) BAYAN 758. BAYAN is a state-owned company established in May 2006 with a registered capital of RMB 78 million from the Municipal Utility Management Station and RMB 22 million from Limin Water Supply Co. Ltd. of Chenbaerhu Banner. It will construct boilers, heat exchangers and pipelines in Chenbaerhu. Its business includes construction of urban infrastructure, investment and real estate development, and district heating. Its area of coverage after completion of this project will be 600,000 m2, including areas served by small boiler operators. Connection fees are a one-time fee and collected based on newly constructed areas. It is charged at 30 yuan/m2. It will only meet 25% of the internal cash generation requirement. Therefore, tariff has to increase from the current level of 23 yuan/m2 to 26.5 yuan/m2 per annum for residents, 34.5 yuan/m2 to 38 yuan/m2 per annum for public utilities and 51.75 yuan/m2 to 55.25 yuan/m2 per annum for commercial customers in 2011. Collection rate will be gradually improved from 94% in 2009 to 99% in 2013. The heating tariff has to further increase to 29.5 yuan/m2 per annum for residents, 40 yuan/m2 per annum for public utilities and 57.25 yuan/m2 per annum for commercial customers in 2014 in order to ensure sustainable development. Income from the connection fee is calculated based on the newly constructed heating areas projected as per the project implementation schedule. Upon completion of the subproject, operation and maintenance of the district heating system will be outsourced. BAYAN, however, will retain the responsibility of collecting tariffs and will pay the operator service fees based on the contract. 759. On the cost side, it is assumed that there will not be any actual price increase of the major cost contributors such as heating, coal, salary, water in addition to the domestic inflation. The maintenance fees will be 1.2% of fixed asset cost, and it will increase by 0.2% every five years. Other production costs will be 1.0% of the total production cost. The management cost is assumed at 3% of sales revenue. The comprehensive depreciation rate will be 4.3% throughout the projection period. 760. Based on the above assumptions, the financial projection is conducted through financial modeling. The pro forma financial statements are generated and presented in Appendix 20. Along with the implementation of the district heating subproject, BAYAN will strengthen its financial management and outsource its operation. The financial projections indicate that BAYAN will be able to sustain the project construction, manage the operations, and service its debt. Table 9.7 illustrates the financial performance indicators for BAYAN in the next 7 years. IMEIP II PPTA FINAL REPORT 9-21
Table 9.7: Financial Performance Indicators for BAYAN
Financial Ratios 2009 2010 2011 2012 2013 2014 2015 Operating Ratios (%) 68.45 47.95 55.24 79.59 82.01 79.07 83.08 Return on Net Fixed Assets (%) 2.73 9.38 8.52 2.47 2.11 3.20 2.48 Accounts Receivables (months) 0.68 0.54 0.41 0.27 0.14 0.05 0.05 Debt/Equity Ratio (%) 6.56 19.33 21.78 20.97 20.18 19.29 18.44 Debt Service Ratio (times) 10.27 9.26 7.50 4.68 2.37 2.60 2.36
(b) WENQUAN 761. In order to effectively utilize geothermal resources and achieve sustainable development, the Ningcheng County Government of Chifeng City decided to apply the ADB loan proceeds in Reshui Town through WENQUAN. As designed, WENQUAN will be in charge of the subproject preparation, implementation and future operation and management for some subcomponents of the subproject. 762. WENQUAN was established in July 13th, 2007 as a wholly state-owned legal representative enterprise with a registered capital of RMB 30 million. Its business scope mainly includes municipal infrastructure facility construction investment and tourism development services. 763. Revenues will be generated from the revenue generating subcomponents of the subproject including: i) geothermal extraction and re-injection; ii) district heating supply; iii) hot water supply; iv) green-house and aquaculture; and v) wastewater treatment. 764. Along with the project facilities established and operating over the next few years, WNEQUAN will achieve i) a heating supply capacity of 300,000 m2; ii) a hot water supply capacity of 36,560 m3 per annum; iv) an agricultural production base area of 80 mu per annum; and v) a wastewater treatment capacity of 4,000 m3/day by 2014. 765. Based on the financial analysis under the cost recovery principle, i) the suggested heating tariff should be 33 yuan/m2 per annum based on construction areas; ii) the suggested hot water tariff should be 8 yuan/m3; and iii) the suggested wastewater treatment tariff should be 1.00 yuan/m3 before 2014 and 1.30 yuan/m3 afterwards. It’s assumed that the collection rate will be 98% throughout the projection period. 766. On the cost side, it is assumed that there will not be any actual price increase of the major cost contributors such as heating, coal, salary, water in addition to the domestic inflation. The maintenance fees will be 1.2% of fixed asset cost. Other production costs will be 1.0% of the total production cost. The management cost is assumed 3% of sales revenue. The comprehensive depreciation rate will be 4.7% throughout the projection period. 767. WENQUAN will implement many components with different technical perspectives, therefore, its operation capacity needs substantial enhancement after the construction. It was decided during the Appraisal, the asset ownership and debt service responsibility would be retained in WENQUAN for the revenue generating components. WENQUAN has agreed to outsource operation of (i) district heating, (ii) agriculture and aquaculture, and (iii) IMEIP II PPTA FINAL REPORT 9-22 wastewater treatment plant. Operation and maintenance of the non-revenue generating component will be transferred to the Urban Construction Management Office of the Ningcheng Reshui Tourism Zone after the construction is completed. The operating and maintenance costs for this portion will be arranged through the government fiscal budget of over RMB 1 million each year. 768. Based on the above assumptions, the pro forma financial statements of balance sheet, income statement and fund flow statement of WENQUAN for the next 10 years are developed as presented in Appendix 20. However, in order to achieve financial sustainable development, WENQUAN has to implement very high tariffs comparing with those of its surrounding cities. The assumptions are also based on the operation of the full design capacity. However, whether there are sufficient market demands is highly depending on the business promotion and tourism business development. Therefore, WENQUAN should work diligently on the market promotion while implementing the project. Table 9.8 illustrates the financial performance indicators for WENQUAN over the next 7 years. Table 9.8: Financial Performance Indicators for WENQUAN
Financial Ratios 2010 2011 2012 2013 2014 2015 Operating Ratios (%) 84.9 79.8 70.0 62.7 60.6 62.0 Return on Net Fixed Assets (%) 0.3 1.3 3.6 3.3 4.5 4.6 Accounts Receivables (months) 0.3 0.2 0.2 0.2 0.2 0.2 Debt/Equity Ratio (%) 62.61 62.08 59.86 57.80 55.36 52.95 Debt Service Ratio (times) 1.51 6.72 2.87 1.59 1.81 1.77
9.9.2 Heating Companies (c) FUTAI 769. FUTAI is a state-owned enterprise that has been supplying heat to Hohhot city since 1983 and was incorporated in 1997. The company owns subsidiaries in the heat supply business and a heat generation plant. It employs about 1,200 people. Considering the existing service area of 7.3 million m2, FUTAI will be able to expand the service area to 26.86 million m2 after implementation the subproject. FUTAI has implemented the ISO 9001 quality management system and produced the required working procedures and policies. Due to extensive price increase in coal, heating and electricity, it made business losses in 2005 and 2006. FUTAI increased tariff by the end of 2006 and managed to make a net income of RMB 24.2 million in 2007. The tariff collection rate is assumed at 92% for residents and 96% for non-residents respectively throughout the projection period. 770. The financial analysis assumed that the actual prices of coal, heating and electricity will increase by 5% in 2008 and will keep constant with the changes of the domestic inflation. The maintenance fees will be 2% of fixed asset cost. Other production costs will be 4% of the total production cost. The management cost is assumed 3% of sales revenue. The comprehensive depreciation rate will be 3.2% throughout the projection period. IMEIP II PPTA FINAL REPORT 9-23
771. In order to ensure financial sustainable development, tariffs will have to increase again in 2014 to 21 yuan/m2 per annum for residents and 23 yuan/m2 per annum for non-residential users, respectively. 772. Based on the assumptions, the projected balance sheets, income statements and fund flow statements are developed for the next 10 years as shown in Appendix 20 through financial modeling. Table 9.9 summarizes the major financial ratios calculated to evaluate the financial performance. The financial projection reveals that FUTAI will be able to meet its operating target and debt obligations throughout projection period by implementation of the subproject. However, the financial analysis shows that the project is most sensitive to the revenues. 10% tariff collection deterioration or less tariff increase will affect the financial performance. Therefore, it is suggested that FUTAI carefully monitor tariff collection efficiency and timely adjust the suggested tariff. Table 9.9: Financial Performance Indicators for FUTAI
Financial Ratios 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Operating Ratios (%) 104.7 75.7 63.6 34.2 32.2 46.9 63.0 70.2 73.4 76.4 Return on Net Fixed -3.2 19.8 33.9 109.6 117.1 12.9 6.8 4.6 4.0 3.7 Assets (%) Accounts Receivables 0.0 0.8 0.8 0.8 0.8 0.8 0.8 0.9 0.9 0.9 (months) Debt/Equity Ratio (%) 44.2 37.5 21.4 51.2 44.6 40.6 38.9 37.4 34.6 33.1 Debt Service Ratio 0.3 5.9 11.6 9.2 5.4 3.5 2.3 1.6 1.3 1.3 (times)
(d) FULONG 773. FULONG registered in 2004 as part of a group company, Chifeng Fulong Thermal Power Co. Ltd., that engages in the production and distribution of heat and electric power, infrastructure and real estate development. FULONG supplies 82% of the heating needs of Chifeng city and the subproject is part of its plan to improve the district heating system in Chifeng. It currently employs about 560 people and has two branches to operate the district heating system and collections of receivables. FULONG has managed to maintain a profitable financial record in the past five years. Based on the financial statements over the past three years provided by FULONG, their financial performance is impressive. The net profit reached RMB 37.37 million in 2006. By implementing the subproject, the service areas can expand to 27.8 million m2. FULONG has an efficient team that effectively control operational costs and improve the financial performance. The financial statements and financial information can be timely recorded and provided. 774. The financial analysis assumes that the actual prices of coal, heating and electricity will increase by 5% in 2008 and will keep constant with the changes of the domestic inflation. The maintenance fees will be 3.6% of fixed asset cost. Other production costs will be 13.5% of the total production cost. The management cost is assumed at 5.7% of sales revenue. The comprehensive depreciation rate will be 4.4% throughout the projection period. IMEIP II PPTA FINAL REPORT 9-24
775. Based on the assumptions, the projected balance sheets, income statements and fund flow statements for the future 10 years are developed for FULONG through financial modeling as shown in Appendix 20. Table 9.10 displays the major financial ratios calculated to evaluate the financial performance. Table 9.10: Financial Performance Indicators for FULONG
Financial Ratios 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Operating Ratios (%) 76.5 78.6 79.7 82.7 85.9 89.1 67.0 80.5 86.6 92.7 Return on Net Fixed 15.2 12.9 14.8 13.5 12.0 10.1 9.3 5.9 4.5 2.1 Assets (%) Accounts Receivables 4.1 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 (months) Debt/Equity Ratio (%) 9.8 9.1 8.4 51.6 53.8 51.9 44.8 39.4 34.5 30.1 Debt Service Coverage 3.0 464.2 483.5 4.1 1.7 1.2 2.1 1.6 1.5 1.2 Ratio
776. It shows that the current ratio and quick ratio are higher than 1 after entering into the repayment period. The debt/equity ratio and return on net fixed assets ratio are acceptable. The debt service coverage ratio reveals that FULONG can service the debt. Overall, FULONG can develop as an independent and sustainable development company by implementing the subproject.
(e) BAOTOU 777. BAOTOU is a state-owned enterprise established in 1988 and distributes heat to a major portion of BAOTOU City covering an area of 11.6 million m2. It has six branch companies and a heating source plant. BAOTOU currently employs about 1,200 people, and has set up a project office to implement the Project, staffed by personnel with experience in other multilateral loan projects. 778. The financial statements show that although its revenue has grown steadily between 2005 and 2007, and heating tariffs were adjusted to 18 yuan/m2 per annum for residents and 20 yuan/m2 per annum for non-residential customers in 2006. It has incurred business loss during these years. It was mainly caused by insufficient tariff increase and actual operating cost increase. Heating tariff setting and adjustment in BAOTOU are controlled by the government and have not fully reached market-oriented level. The government considers more on customer’s affordability and social harmony and stability. With the continuous price increase of coal and power etc. in the past three years, the tariff adjustment can not catch up with and reflect the cost increases. It was also due to inefficient tariff collection, which was around 85% to 90%, ranking low compared to the other similar cities. 779. BAOTOU still suffers from business loss in 2007 and 2008. In order to improve operating efficiency, it plans to purchase heating from a power generation company instead of producing heating in house. Therefore, it will fully utilize resource and its O&M cost will not fully rely on coal price. Meantime, BAOTOU’s management has diligently improved the collection rate. A computerized tariff collection system has been installed and is being utilized to monitor and improve the collection performance. A new tariff collection policy with IMEIP II PPTA FINAL REPORT 9-25 incentive terms is adopted to encourage timely tariff payment. It is assumed to achieve a collection rate of 95% in 2008. By implementation of the subproject, its heating service area will increase to 9,760,000 m2. Based on the assumption and further improvement in tariff collection, BAOTOU will commence to make profit in 2009. According to financial analysis, BAOTOU can tolerate coal or heating price increase of 10% during the projection period. In order to ensure sustainable development, BAOTOU needs to increase heating tariff again in 2013 to 21 yuan/m2 per annum for residents and 23.4 yuan/m2 per annum for non-residential customers. 780. The financial analysis assumes that the actual prices of coal, heating and electricity will increase by 5% in 2008 and will keep constant with the changes of the domestic inflation. The maintenance fees will be 3.6% of fixed asset cost. Other production costs will be 13.5% of the total production cost. The management cost is assumed 5.7% of sales revenue. The comprehensive depreciation rate will be 4.4% throughout the projection period. 781. The financial analysis assumed that the actual prices of salary, coal, heating and electricity will increase by 5% in 2008 and will keep constant with the changes of the domestic inflation. The maintenance fees will be 2.5% of fixed asset cost. Other production costs will be 2.9% of the total production cost. The management cost is assumed at 8.2% of sales revenue. The comprehensive depreciation rate will be 4.8% throughout the projection period. 782. Based on the comprehensive assumptions, the projected balance sheets, income statements and fund flow statements of BAOTOU for the next 10 years are developed through financial modeling as presented in Appendix 20. Table 9.11 shows the major financial ratios calculated to evaluate the financial performance.
Table 9.11: Financial Performance Indicators for BAOTOU
Financial Ratios 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Operating Ratio (%) 108.5 103.7 111.5 92.7 92.1 89.4 89.4 91.8 91.3 92.2 Return on Net Fixed -2.5 -3.1 -7.0 1.7 2.5 1.8 2.6 2.1 3.2 3.4 Assets (%) Accounts Receivables 0.1 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 (Months) Debt/Equity Ratio (%) 0.0 0.0 0.0 21.3 21.5 20.0 18.1 16.2 14.3 12.3 Debt Service 0.9 7.1 2.6 5.7 2.0 2.8 3.3 2.8 3.0 3.0 Coverage Ratio
783. Based on the assumptions, BAOTOU can achieve sustainable development and service the debt in the projection period. However, any substantial change in revenues and costs will cause critical impacts on BAOTOU’s sustainable development. It is suggested that BAOTOU should keep extra attention on the collection efficiency and effectively control the operating cost.
(f) DURUI 784. DURUI was formed in 2006 by Beijing Durui Investment Liability Co., Ltd., which owns 90% of the company shares and is a state-owned enterprise. It is the sole distributor of IMEIP II PPTA FINAL REPORT 9-26 heat to Keyouqian Banner, which is a new city. Net losses were incurred in the first two years of operation due to initial start-up costs. Subsequent increases in revenue are derived from an expansion of the area it services, from 90,000 m2 in 2006 to 220,000 m2 at the end of 2007. Along with the investment and implementation of subproject over the next four years, the company will be able to serve a total area of 3 million m2 by 2012. 785. The financial analysis assumes that the actual prices of salary, coal, heating and electricity will increase in line with the changes of the domestic inflation. The maintenance fees will be 1% of fixed asset cost. Other production costs will be 1% of the total production cost. The management cost is assumed 3% of sales revenue. The comprehensive depreciation rate will be 4.2% throughout the projection period. The ratios assumed are relatively low compared with other IAs. Therefore, it is suggested that DURUI should contribute extra effort to the control of the operating cost. 786. The analysis shows that, for DURUI to be financially viable, it will have to increase its residential tariff in 2011 from RMB 23 to 26.5 per m2 per annum, and commercial tariff from RMB 28 to 31.5 per m2. This assumption is not unreasonable as this is in line with the periodic increases in previous years and is in pace with inflation. DURUI employs about 42 people and will grow as the business develops. With the expected growth, its operating performance is expected to be stable. 787. Based on the assumptions presented, the projected balance sheets, income statements and fund flow statements for the next 10 years are developed for DURUI through financial modeling as shown in Appendix 20. Along with the implementation of the district heating subproject, operational costs of the company will be managed to reach a better status; and business and operational management level of the company will be improved continuously. DURUI has excellent potential for sustainable development. Table 9.12 illustrates the financial performance indicators for DURUI in the next 7 years. Table 9.12: Financial performance indicators for DURUI
Financial Ratios 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Operating Ratio (%) 163.6 111.0 28.9 42.3 48.8 48.7 62.0 82.9 86.2 89.4 Return on Net Fixed -4.4 -4.6 85.3 104.3 120.0 167.4 8.5 3.2 2.6 1.9 Assets (%) Accounts 0.0 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Receivables (Months) Debt/Equity Ratio (%) 0.0 0.0 0.0 13.2 25.2 26.4 23.8 22.5 21.4 20.4 Debt Service 164.7 54.8 15.7 11.9 11.1 4.2 3.8 3.5 Coverage Ratio
(g) JINFENG 788. JINFENG is a private company established in 2003. It operates an 18 MW co-generation plant that produces and supplies heating to Kalaqin Banner with a service area of 1.1 million m2, and electric power to Chifeng Jinfeng Copper Co. Ltd. (Jingfeng Copper), which is a majority shareholder of JINFENG. IMEIP II PPTA FINAL REPORT 9-27
789. Based on the historical financial statements provided by JINFENG, with the subsidized revenues from the parent company, Jinfeng Copper, JINFENG entered into positive net profit in 2006 and 2007. The financial statements and financial information can be provided timely. 790. To reach the maximum service capacity, JINFENG has to rely on the heating source generated by the Jinfeng Copper to meet the additional demand of 200,000 m2 in 2008. It will be arranged as a trading between JINFENG and Jingfeng Copper. JINFENG will take charge of the operation of the co-generation facility in Jingfeng Copper to get the source of heating for free. 791. According to the investment plan, the subproject only includes the investment for pipelines and HESs. It does not contain any investment in heating boilers to generate heating. To facilitate the future project implementation and meet the incremental heating supply areas of 0.8 – 1.0 million m2, it is a necessity to construct heating boilers at least with a capacity of 58 MW before the heating season of 2009. Therefore, the financial analysis considers both the project and the boilers in the capital investment. 792. During the projection period, JINGFENG will steadily expand its service area to 2.3 million m2 in 2014. JINFENG achieved the collection rate of 97% for residents and 99% for non-residential users in 2007. It will maintain the efforts in collection efficiency. In order to achieve full cost recovery and sustainable development, the tariff has to be further increased to 21.6 yuan/m2 per annum for residents and 27.6 yuan/m2 per annum for non-residential users in 2011, respectively. 793. On the cost side, it is assumed that price increase of the major cost contributors such as heating, coal, salary, water will be in line with the domestic inflation. The maintenance fees will be 1.0% of fixed asset cost. Other production costs will be 1.3% of the total production cost. The management cost is assumed 5% of sales revenue. The comprehensive depreciation rate will be 5% throughout the projection period. 794. Based on the assumptions, the projected balance sheets, income statements and fund flow statements for the next 10 years are developed for JINFENG through financial modeling as shown in Appendix 20. Along with the implementation of the heating subproject, operating costs of JINFENG will be better managed; business and operational management level of the company will be improved continuously. JINFENG has excellent potential to develop sustainably in the projection period. Table 9.13 illustrates the financial performance indicators for the company in the next 7 years. 795. However, boiler construction is not included in the current project investment plan. There is no any feasibility study report prepared for the purpose either. Therefore, it is reminded any delay in boiler construction will jeopardise the project viability. The related party should seriously consider it and take prompt actions. IMEIP II PPTA FINAL REPORT 9-28
Table 9.13: Financial Performance Indicators for JINFENG
Financial Ratios 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Operating Ratio (%) 102.2 90.2 68.6 69.6 70.8 69.3 73.1 81.7 82.7 89.6 Return on Net Fixed 1.0 3.6 12.1 12.9 11.1 13.5 6.8 4.6 4.8 2.7 Assets (%) Accounts Receivables 1.1 1.6 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 (Months) Debt/Equity Ratio (%) 15.9 0.0 0.0 9.5 16.0 14.8 13.6 12.8 12.0 11.4 Debt Service 0.6 3.6 1171.0 49.2 19.1 16.3 11.9 8.3 8.1 6.7 Coverage Ratio
(h) XINGDA 796. XINGDA is a privately-owned company and is the only distributor of heat in Yindeer town of Zhalaite Banner. It was formally incorporated in 2006 by a sole proprietor who had been supplying heat to the area. Currently, the total heating area served by XINGDA has reached 700,000 m2. As the Second Thermal Power Plant and the subproject gradually commence operation in 2012, the heating area served by XINGDA will reach 3,200,000 m2, which includes 2,000,000 m2 served by the subproject, 500,000 m2 served by the First Thermal Power Plant and 700,000 m2 served by the Second Thermal Power Plant. 797. The connection fee is calculated based on the newly constructed building area and charged only once. The current price is 30 yuan/m2. The connection fee will be calculated based on the annual additional building construction areas according to the project implementation plan. 798. At present, XINGDA is eligible to collect a heating tariff at 25.5 yuan/m2 per annum for residents and 28.5 yuan/m2 per annum for public buildings based on the construction areas. According to the financial analysis, the current tariffs will have to incease to 29 yuan/m2 per annum for residents and 32 yuan/m2 per annum for public buildings in 2011, and further incease to 31 yuan/m2 per annum for residents and 34 yuan/m2 per annum for public buildings in 2015 in order to meet full cost recovery and company sustainable development. At present, the collection rate is 97% for residents and 100% for public building consumers, respectively. The collection rate is assumed to remain the same during the projection period. 799. On the cost side, the number of staff, which is based on the current central heating areas and the incremental heating supply areas of the current implemented heating supply expension project and the subproject, is provided by the company. It is assumed that price increase of the major cost contributors such as heating, coal, salary, water will be in line with the domestic inflation. The maintenance fees will be 1.2% of fixed asset cost. Other production costs will be 1.0% of the total production cost. The management cost is assumed at 3% of sales revenue. The comprehensive depreciation rate will be 4.3% throughout the projection period. 800. Based on the assumptions presented, the projected balance sheets, income statements and fund flow statements for the next 10 years are developed for XINGDA as shown in Appendix 20 through financial modeling. Along with the implementation of the IMEIP II PPTA FINAL REPORT 9-29 heating project, operating costs of the company will be better managed; business and operational management level of the company will be improved continuously; the company has excellent potential to be sustainable for development in the future. Table 9.14 illustrates the financial performance indicators for the company in the next 7 years. 801. Financial data indicate that the average operating ratio meets the target of less than 1.0. This should continue since there is sufficient funds from tariff revenues to cover operating costs. The projection suggests a significent improvement in accounts receivables in 2008. XINGDA should develop a working plan and take actions to achieve it. Table 9.14: Financial Performance Indicators for XINGDA
Financial 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Ratios Operating Ratio 87.00 86.60 78.14 53.67 72.00 72.53 78.01 90.67 94.46 92.98 (%) Return on Net 30.05 67.02 51.58 292.63 215.70 66.44 9.22 2.68 1.35 2.23 Fixed Assets (%) Accounts Receivables 3.28 3.09 0.26 0.26 0.25 0.25 0.25 0.25 0.25 0.25 (Months) Debt/Equity 0.00 0.00 0.00 11.11 24.48 25.34 22.75 21.62 20.73 19.69 Ratio (%) Debt Service 57.15 92.48 19.23 14.22 12.14 4.04 3.37 3.73 Coverage Ratio
(i) RIMIAN 802. RIMIAN is a private-owned company established in 2003. It was given the concession by the government of Molidawa Banner to construct and operate the district heating services. The government has also provided various incentives to support and ensure the quality of heating services. The financial statements and financial information can be provided in a timely manner. RIMIAN suffered from operating losses during 2004 to 2006. However, there are some favorable factors for RIMIAN to improve operating performance: 1) another heating tariff increase was implemented on January 1, 2006; 2) RIMIAN’s intention to develop its own coal mine; 3) rapid economic development in Molidawa Banner; and 4) support from local government. 803. The current district heating tariffs are 25 yuan/m2 per annum for residents and 38 yuan/m2 per annum for non-residential users. The tariff collection rate was 85.6% and 89% in 2004 and 2005, respectively, and was improved to 92% in 2006. With implementation of the subproject and institutional capacity strengthening, it is assumed that the tariff collection rate will be continuously improved to 97% in 2017. According to the financial analysis, tariffs need to be adjusted again in 2010 in order to ensure sustainable development of the construction and operation. The heating tariff will increase to 27.3 yuan/m2 per annum for residents, and increase to 40.2 yuan/m2 per annum for non-residents, which keep paces with the domestic inflation. IMEIP II PPTA FINAL REPORT 9-30
804. On the cost side, it is assumed that price of major cost contributors such as heating, coal and electricity will increase by 2% in 2008 and then increase in line with the domestic inflation. The maintenance fees will start from 0.3% of fixed asset cost in 2009, and increase to 0.4% in 2012 and thereafter. Other production costs will be 1.0% of the total production cost. The management cost is assumed 3% of sales revenue. The comprehensive depreciation rate will be 3.5% throughout the projection period. 805. Based on the assumptions presented, the projected balance sheets, income statements and fund flow statements for the next 10 years are developed for RIMIAN as showed in Appendix 20 through financial modeling. Table 9.15 demonstrates the major financial ratios calculated to evaluate the financial performance. The financial performance ratios indicate that RIMIAN will be financially sustainable. Estimated operating ratios, returns on net fixed assets, debt/equity ratios and debt service coverage ratios are all acceptable. It is suggested that RIMIAN carefully monitor collection efficiency and diligently control operating cost as they are most sensitive to the company’s sustainable development. Table 9.15: Financial Performance Indicators for RIMIAN
Financial Ratios 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Operating Ratio (%) 96.1 87.7 89.5 65.2 65.5 80.5 88.3 91.5 94.4 97.6 Return on Net Fixed -1.9 4.2 3.8 17.8 22.6 12.2 1.9 1.5 0.9 0.0 Assets (%) Accounts Receivables 1.8 1.0 1.0 0.9 0.9 0.9 0.9 0.9 0.7 0.7 (Months) Debt/Equity Ratio (%) 71.6 67.5 64.3 47.6 47.1 47.1 45.8 44.6 43.7 43.2 Debt Service Coverage 0.7 248.1 228.9 56.4 18.5 6.4 5.8 3.7 3.3 2.8 Ratio
(j) KANGZE 806. KANGZE was formed in March 2008 specifically for implementation of the natural gas transmission and distribution subproject. It is a state owned enterprise and the subsidiary of Keerqin Xinxin Urban Investment Co. Ltd. with a total investment of RMB 1 million. The government of Keyouqian Banner has relocated its offices to a new area, where a new city will be built with a size of 8.36 square kilometers. Natural gas infrastructure is being developed for environmental reasons. Upon the project’s completion in 2011, the sales volume of natural gas will reach 10,908,000 m3/year. For financial projections, the tariff for natural gas (RMB 3.65 per m3 for residents and RMB 3.80 per m3 for non-residents) in a nearby city of Wulanhaote has been used to project the operating revenues. Based on the preliminary analysis, KANGZE will start obtaining revenues of RMB 34.3 million in 2010 with a collection rate of 99%. To ensure the full cost recovery, the tariff will have to increase to RMB 3.90 per m3 for residents and RMB 4.05 per m3 for non-residents in 2013. The revenue will be expected to grow to RMB 87.66 million in 2015. 807. On the cost side, it is assumed that price increase of major cost items such as natural gas, diesel and salary will be in line with the domestic inflation. The maintenance fees will start from 1.2% of fixed asset cost in 2010 and increase by 0.2% every five years during the projection period. Other production costs will be 1.0% of the total production cost. The IMEIP II PPTA FINAL REPORT 9-31 management cost is assumed 3% of sales revenue. The comprehensive depreciation rate will be 4.3% throughout the projection period. 808. Based on the assumptions summarized, the projected balance sheet, income statement and fund flow statement for the next 10 years are developed for KANGZE as shown Appendix 20. The company will achieve sustainable development should the proposed gas tariffs be implemented. Table 9.16 illustrates the financial performance indicators for KANGZE in the next 7 years.
Table 9.16: Financial Performance Indicators for KANGZE
Financial Ratios 2010 2011 2012 2013 2014 2015 Operating Ratio (%) 61.4 74.5 82.2 90.8 92.2 93.3 Return on Net Fixed Assets (%) 27.0 17.3 3.6 1.7 1.6 1.5 Accounts Receivables (Months) 0.9 0.9 0.9 0.9 0.7 0.7 Debt/Equity Ratio (%) 46.2 45.5 43.5 42.3 41.2 40.2 Debt Service Coverage Ratio 21.5 8.4 7.6 3.8 3.7 3.6
809. KANGZE’s financial performance will be stable with an operating ratio of 90%. It will be able to achieve full cost recovery and service the debt. Since the revenue is most sensitive to the tariff collection, it is highly suggested that KANGZE well design a tariff collection system to achieve the collection rate of 99%. 810. Summary of financial projections for each IA is presented in the Table 9.17 as below. IMEIP II PPTA FINAL REPORT 9-32
Table 9.17: Summary Financial Projections (RMB million) Year Ending December 31 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
A.1: FUTAI Financial Accounts Operating Revenues 83.0 153.5 195.4 495.4 664.0 587.6 523.2 501.6 507.1 507.2 Net Income -2.4 24.2 52.4 243.7 336.9 197.3 107.4 74.2 65.8 58.7 Total Assets 189.5 222.1 315.8 1,317.2 2,200.8 2,577.5 2,813.8 2,993.9 2,975.4 2,949.5 Capital Expenditures 45.1 - 39.6 820.2 500.2 143.6 104.0 104.0 - - Financial Ratios Operating Ratioa (%) 104.7 75.7 63.6 34.2 32.2 46.9 63.0 70.2 73.4 76.4 Return on Net Fixed Assetsb (%) -3.2 19.8 33.9 109.6 117.1 12.9 6.8 4.6 4.0 3.7 Accounts Receivablesc (months) - 0.8 0.8 0.8 0.8 0.8 0.8 0.9 0.9 0.9 Debt/Equity Ratiod (%) 44.2 37.5 21.4 51.2 44.6 40.6 38.9 37.4 34.6 33.1 Debt Service Ratioe (times) 0.3 5.9 11.6 9.2 5.4 3.5 2.3 1.6 1.3 1.3
A.2: FULONG Financial Accounts Operating Revenues 166.0 213.7 213.7 213.8 213.8 213.9 436.9 500.4 563.9 627.6 Net Income 37.4 29.5 31.5 26.5 21.6 16.3 83.2 49.7 35.6 15.9 Total Assets 391.6 425.6 457.5 885.1 972.5 1,013.4 1,062.2 1,069.6 1,063.5 1,038.3 Capital Expenditures 86.0 - - 529.2 129.0 47.0 - - - - Financial Ratios Operating Ratio(%) 76.5 78.6 79.7 82.7 85.9 89.1 67.0 80.5 86.6 92.7 Return on Net Fixed Assets (%) 15.2 12.9 14.8 13.5 12.0 10.1 9.3 5.9 4.5 2.1 Accounts Receivables (months) 4.1 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Debt/Equity Ratio (%) 9.8 9.1 8.4 51.6 53.8 51.9 44.8 39.4 34.5 30.1 Debt Service Ratio (times) 3.0 464.2 483.5 4.1 1.7 1.2 2.1 1.6 1.5 1.2 IMEIP II PPTA FINAL REPORT 9-33
Year Ending December 31 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
A.3:BAOTOU Financial Accounts Operating Revenues 183.3 199.0 194.3 250.1 272.4 318.3 355.2 374.5 402.9 428.5 Net Income -12.4 -14.2 -29.5 6.7 9.0 10.6 13.8 10.3 13.9 13.1 Total Assets 761.7 741.8 713.0 886.6 901.8 904.2 910.2 908.2 910.0 911.3 Capital Expenditures 19.7 - - 226.3 29.8 - - - - - Financial Ratios Operating Ratio (%) 108.5 103.7 111.5 92.7 92.1 89.4 89.4 91.8 91.3 92.2 Return on Net Fixed Assets (%) -2.5 -3.1 -7.0 1.7 2.5 1.8 2.6 2.1 3.2 3.4 Accounts Receivables (months) 0.1 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 Debt/Equity Ratio (%) - - - 21.3 21.5 20.0 18.1 16.2 14.3 12.3 Debt Service Ratio (times) 0.9 7.1 2.6 5.7 2.0 2.8 3.3 2.8 3.0 3.0
A.4: DURUI Financial Accounts Operating Revenues 0.5 2.9 31.3 45.1 55.7 73.8 82.2 75.7 75.7 75.8 Net Income -0.3 -0.3 16.7 19.5 21.4 28.4 21.4 7.7 5.9 4.2 Total Assets 11.1 22.6 49.0 129.3 250.1 303.3 331.1 337.2 341.0 343.0 Capital Expenditures 2.8 90.8 114.7 27.4 Financial Ratios Operating Ratio (%) 163.6 111.0 28.9 42.3 48.8 48.7 62.0 82.9 86.2 89.4 Return on Net Fixed Assets (%) -4.4 -4.6 85.3 104.3 120.0 167.4 8.5 3.2 2.6 1.9 Accounts Receivables (months) - 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Debt/Equity Ratio (%) - - - 13.2 25.2 26.4 23.8 22.5 21.4 20.4 Debt Service Ratio (times) 164.7 54.8 15.7 11.9 11.1 4.2 3.8 3.5
A.5: JINFENG Financial Accounts Operating Revenues 20.6 52.1 84.1 86.9 90.5 98.1 102.2 99.7 101.9 97.2 IMEIP II PPTA FINAL REPORT 9-34
Year Ending December 31 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Net Income 1.2 6.1 19.8 19.8 19.8 22.6 19.1 12.1 11.7 6.1 Total Assets 197.8 232.9 250.7 301.1 354.5 381.8 401.3 412.0 422.2 426.9 Capital Expenditures 51.3 21.5 - 80.6 59.4 20.4 - - - - Financial Ratios Operating Ratio(%) 102.2 90.2 68.6 69.6 70.8 69.3 73.1 81.7 82.7 89.6 Return on Net Fixed Assets (%) 1.0 3.6 12.1 12.9 11.1 13.5 6.8 4.6 4.8 2.7 Accounts Receivables (months) 1.1 1.6 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 Debt/Equity Ratio (%) 15.9 - - 9.5 16.0 14.8 13.6 12.8 12.0 11.4 Debt Service Ratio (times) 0.6 3.6 1,171.0 49.2 19.1 16.3 11.9 8.3 8.1 6.7
A.6: Zha Qi Xingda Heating Supply Co. Ltd. Financial Accounts Operating Revenues 12.7 16.7 23.1 66.5 73.2 88.5 93.6 84.9 85.0 90.6 Net Income 1.5 4.6 3.8 23.6 18.6 23.4 16.4 4.6 2.2 3.5 Total Assets 13.1 33.0 48.9 96.0 168.9 203.6 221.5 225.0 226.1 228.4 Capital Expenditures - - 13.7 49.2 70.8 24.7 1.0 1.0 1.0 1.0 Financial Ratios Operating Ratio (%) 87.0 86.6 78.1 53.7 72.0 72.5 78.0 90.7 94.5 93.0 Return on Net Fixed Assets (%) 30.1 67.0 51.6 292.6 215.7 66.4 9.2 2.7 1.4 2.2 Accounts Receivables (months) 3.3 3.1 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 Debt/Equity Ratio (%) - - - 11.1 24.5 25.3 22.7 21.6 20.7 19.7 Debt Service Ratio (times) 57.2 92.5 19.2 14.2 12.1 4.0 3.4 3.7
A.7: Mo Qi Rimian Heating Supply Co. Ltd. Financial Accounts Operating Revenues 20.0 23.6 23.6 41.1 51.6 47.3 50.9 58.3 62.3 66.3 Net Income -1.3 2.8 2.4 11.0 13.3 6.9 3.2 2.4 1.4 0.0 Total Assets 84.8 83.8 86.5 124.8 183.5 202.3 207.7 211.6 214.2 215.6 Capital Expenditures 4.7 - - 43.3 59.1 13.8 - - - - IMEIP II PPTA FINAL REPORT 9-35
Year Ending December 31 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Financial Ratios Operating Ratio(%) 96.1 87.7 89.5 65.2 65.5 80.5 88.3 91.5 94.4 97.6 Return on Net Fixed Assets (%) -1.9 4.2 3.8 17.8 22.6 12.2 1.9 1.5 0.9 0.0 Accounts Receivables (months) 1.8 1.0 1.0 0.9 0.9 0.9 0.9 0.9 0.7 0.7 Debt/Equity Ratio (%) 71.6 67.5 64.3 47.6 47.1 47.1 45.8 44.6 43.7 43.2 Debt Service Ratio (times) 0.7 248.1 228.9 56.4 18.5 6.4 5.8 3.7 3.3 2.8
A.8: BAYAN Financial Accounts Operating Revenues - - - 8.1 16.8 21.6 18.1 18.1 19.5 19.5 Net Income - - - 1.9 6.6 6.3 1.8 1.4 2.1 1.5 Total Assets - 100.0 100.1 110.0 146.2 162.2 164.0 164.3 165.3 165.6 Capital Expenditures 0.1 28.1 37.5 9.3 - Financial Ratios Operating Ratio (%) 68.5 48.0 55.2 79.6 82.0 79.1 83.1 Return on Net Fixed Assets (%) 2.7 9.4 8.5 2.5 2.1 3.2 2.5 Accounts Receivables (months) 0.7 0.5 0.4 0.3 0.1 0.1 0.1 Debt/Equity Ratio (%) 6.6 19.3 21.8 21.0 20.2 19.3 18.4 Debt Service Ratio (times) 10.3 9.3 7.5 4.7 2.4 2.6 2.4
A.9: KANGZE Financial Accounts Operating Revenues - - - - 34.3 43.8 53.2 66.9 77.0 87.1 Net Income - - - - 6.6 6.6 7.9 11.6 12.4 12.4 Total Assets - - 48.8 88.2 96.4 103.6 112.0 123.0 134.7 146.5 Capital Expenditures 48.7 36.3 - - Financial Ratios Operating Ratio (%) 70.0 76.4 77.5 74.6 76.7 79.5 Return on Net Fixed Assets (%) 7.9 7.8 9.2 13.5 14.2 14.2 Accounts Receivables (months) 0.1 0.1 0.1 0.1 0.1 0.1 IMEIP II PPTA FINAL REPORT 9-36
Year Ending December 31 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Debt/Equity Ratio (%) - - 30.1 43.0 40.0 37.3 33.9 29.8 26.2 23.1 Debt Service Ratio (times) - - - - 6.8 8.1 9.1 6.3 6.6 6.6
A.10: WENQUAN Financial Accounts Operating Revenues - - - 3.5 9.2 15.0 18.4 19.8 19.8 Net Income - - - 0.2 1.1 3.1 2.7 3.5 3.3 Total Assets 30.0 30.0 69.8 134.7 137.9 139.7 139.2 139.8 140.1 Capital Expenditures - 54.5 71.8 - Financial Ratios Operating Ratio(%) 84.9 79.8 70.0 62.7 60.6 62.0 Return on Net Fixed Assets (%) 0.3 1.3 3.6 3.3 4.5 4.6 Accounts Receivables (months) 0.3 0.2 0.2 0.2 0.2 0.2 Debt/Equity Ratio (%) 57.0 62.6 62.1 59.9 57.8 55.4 53.0 Debt Service Ratio (times) - 1.5 6.7 2.9 1.6 1.8 1.8 a Operating Ratio is to measure operating efficiency. It is operating expenses, including adequate maintenance and depreciation, as a percentage of revenues. b Return on Net Fixed Assets is to measure the productivity of net fixed assets in use. It is net operating income as a percentage of average net fixed assets in service. c Accounts Receivables is to measure the effectiveness of the IA in collecting its receivables or bills. It is expressed in equivalent of the IA’s average monthly billing. d Debt/Equity Ratio is to measure the IA’s proportions of these two sources of funds in the capital structure. e Debt Service Ratio is to measure the extent of the coverage of the IA’s debt service by its internal cash generation over the projection period. IMEIP II PPTA FINAL REPORT 9-37
9.10 Financial Management Assessment 811. Effective financial management is a critical factor for the project implementation. The purpose is to ensure that the Project has adequate planning. The EA/IAs’ financial management and arrangements should be capable of recording all transactions and balances, supporting the preparation of regular and reliable financial statements, safeguarding the entity’s assets, and are subject to audit. By providing necessary financial information, the Project can be well managed and therefore ensure its smooth implementation. 812. Financial management assessment has been conducted under the PPTA to assess the financial management capacity, funds flow arrangements, staffing, accounting policies and procedures, internal and external auditing arrangements, reporting and monitoring aspects, and information system of the IAs. Issues or risks associated with the entities’ financial management systems are identified, and appropriate risk mitigation measures are suggested to facilitate more effective project design and implementation. 9.10.1 Financial Management Assessment for the EA 813. Under the direct leadship of the GIMAR, the IMAR PMO has successfully conducted the project preparation for Loan 2260. Continuing its effort, it is now the lead agency for implementing and managing the project preparation and implementation, conducting business on behalf of GIMAR, and is the focal point of contact for ADB during the Project implementation. Under the PPTA Consultant’s assistance, the Project preparation is going smoothly and approaching the final stage. 814. By reviewing the Circular On Establishment of IMEIP PMO for IMAR to Utilize ADB Loans and the current routine management of the PMO, it has been realized that the tasks of the PMO are very broad. Currently, there are only two staff members working at the PMO for financial related tasks. Under the suggestion of the PPTA consultants, the responsibilities of the two accountants have been specified. However, as for financial management, the following important responsibilities should be included: (a) Review and certification of contractor payments; (b) Preparation of reimbursement applications; (c) Maintaining consolidated financial and physical progress reports; (d) Monitoring of special account and counterpart fund utilization; (e) Monitoring progress of loan utilization; (f) Preparation of reports, as necessary, for submission to the Government; (g) Preparation of the semi-annual progress reports to be submitted to ADB; (h) Conducting all correspondence with ADB; and (i) Monitoring implementation progress (through project monitoring software), etc. 815. The Project will involve district heating supply, natural gas supply and comprehensive geothermal resource utilization. It has ten subprojects, of which the geothermal subproject IMEIP II PPTA FINAL REPORT 9-38 will involve six subcomponents in completely different sectors (such as groundwater extraction and reinjection, district heating, wastewater treatment, hot water supply, geothermal greenhouse and aquaculture, and road rehabilitation). Secondly, the IAs involved are at different stage of development. Their institutional capacity and financial management capacity are subject to further strengthening. In addition, some additional operating entities will be involved. Some assets will be transferred upon the completion of the Project’s implementation. Therefore, a thorough understanding of the ADB and national management requirements, as well as an integrated and unified form of project management in accounting, financial management, procurement and disbursement, is highly encouraged. Early development of the project management system in key areas will considerably improve the project effectiveness and efficiency. The working rules and procedures will be gradually established and specified in a forthcoming project management manual. In order to fully take charges of the financial management of the Project, it is suggested that more capacity strengthening training should be conducted in financial areas for the PMO and IAs. The training and technical assistance during project implementation will cover the following areas:
i To assist in the selection of software for computer-based systems for accounting and financial management;
i To assist setting up computerized accounting systems; i To develop norms for accounting and financial management, and direct the IAs to establish the financial management and accounting system that complies with the ADB requirement and relevant PRC laws and regulations;
i To ensure proper internal financial control and accounting supervision on the Project execution;
i To provide advices to the IAs for conducting the accounting work in a cost-efficient way, and directing important accounting affairs and issues for the project execution;
i To prepare the financial monitoring report and financial/accounting statements during the project execution, so as to meet the multi-sided rules/regulations and requirements set down by ADB, domestic banking institutions, the responsible government agencies and industrial administration bureaus;
i To establish an internal audit system during the project’s execution, and direct the system’s operation in line with the actual needs and the work planning in order to identify the existing problems and strengthen the management for the construction cost control;
i To establish a working system of fund withdrawal and reimbursement; i To direct the IAs to conduct dynamic management to track the expense of the project fund on a real time basis including the monitoring of the project progress. This is to ensure the effective use of the fund for the project construction, avoiding/reducing the financial risk and controlling the project cost; IMEIP II PPTA FINAL REPORT 9-39
i To establish the cost control system during the project execution, which shall include but not be limited to the budgetary process for the IAs, foreign exchange risk management, application and approval process of budget preparation and execution;
i To conduct training seminars and courses on financial management and accounting computation in cooperation with the project execution;
i To annually review and forecast the tariffs, and provide suggestions on adjustment of tariffs, including working out the time bound action plan. 9.10.2 Financial Management Assessment for IAs 816. The financial management assessment of the IAs has been conducted based on the responses to the questionnaires as attached in Appendix 19 and the meetings held with the financial staffs of the IAs. 817. It is our understanding that the following companies have more than five years of experience in project management and operation:
i FUTAI i FULONG i BAOTOU i JINFENG i RIMIAN 818. Results of financial management assessment of the above IAs indicate that they have adequate financial management staffs working in their financial departments and they have developed some financial management regulations for business activities. Under the PPTA, the preliminary responsibilities for the financial staffs are specified to manage the Project. 819. It is noticed that BAYAN, KANGZE, DURUI, XINGDA and WENQUAN are relatively weak in the institutional capacity and financial management. They are basically newly established for the implementation of the Project. They have adopted some of the PPTA consultants’ suggestions for institutional and financial management setup. However, up to the time when this report is prepared, the required professional financial staff and financial management regulation are not fully in place yet. 820. As encountered in other project cities, none of the above IAs has any experience of working with ADB, although BAOTOU has worked with other international organizations. Existing accounting and financial management systems are mainly for operational activities. The IAs may be required to improve in order to satisfy the ADB project management procedures and requirements relating to procurement, disbursement, financial reporting and monitoring, particularly regarding the conflicts of interest and the anti-corruption safeguards aspects. Special training programs have been arranged for the IAs with support of the PPTA consultants to help the IAs gain thorough understanding of ADB policies and project IMEIP II PPTA FINAL REPORT 9-40 management requirements. Further trainings are arranged in the Capacity Development (PMO section) and Institutional Strengthening component under the Project. 821. Each IA will maintain separate accounts of their operations and of the Project, and submit through GIMAR to ADB audited project accounts, including the imprest account, and agency financial statements in English not later than 6 months after the end of each financial year. The submitted audited project accounts and agency financial statements should be of acceptable quality and be prepared in accordance with internationally accepted accounting standards. Financial statements with negative opinions or disclaimers from auditors are considered unacceptable and cannot be submitted for this purpose. GIMAR and the IAs, through the PMO, will submit to ADB reports and information concerning the use of the loan proceeds, project implementation, and the performance of each IA. The reports will include (i) quarterly progress reports on project implementation; (ii) two environmental monitoring reports every year, (iii) annual reports on resettlement and social objectives, (iv) annual financial reports; and (v) a project completion report no later than 3 months after completion of the project facilities. The IAs will engage auditing firms with experience and qualifications acceptable to ADB to carry out the annual audits. In addition to the above reports, ADB reserves the right to conduct random financial and performance audits during the implementation of the Project to ensure the economy (keeping the cost low), efficiency (getting best outputs from available resources), and effectiveness (achieving these stipulated objectives) of the Project. 822. Individual financial management assessment of each IA is presented below.
1) Investment/Development Companies (a) BAYAN 823. There is a financial department in the company directly managed by the GM. Two staff members work in the Financial Department, one accountant and one cashier. The job description has been established at the Financial Department, which clearly defines the duties for the two individuals, who previously have no financial management experience related to the World Bank or ADB loan projects. Figure 9.2 presents the organizational structure of the Financial Department.
GM
Financial Department
Accountant Cashier
Figure 9.2: Financial Department Organization Structure in BAYAN IMEIP II PPTA FINAL REPORT 9-41
824. The company adopts an enterprise accounting system to carry out accounting activities. However, bookkeeping is performed manually. It will be required to maintain a separate project account, record all activities associated with the Project, and have the project account audited annually. The infrastructure accounting principals should be applied for accounting activities. A special bank account for the ADB loan will be set up. The company needs to strengthen its capacity in the areas of accounting, budgeting, cost management, internal control and loan withdrawal and disbursement, etc. (b) WENQUAN 825. WENQUAN currently has five staff members. To implement the subproject, it is designed to establish a Financial Department under the direct leadership of the GM. Figure 9.3 presents the future organizational structure of the Financial Department at WENQUAN. 826. The Financial Department’s organization structure looks too comprehensive to a newly established company. WENQUAN can gradually build up its accounting and financial management team and strengthen its capacity. For the current stage it is urgent to recruit two experienced project accountants to work for the project implementation. It is suggested that WENQUAN should set up a separate project account and adopt infrastructure accounting principles for the project accounting regardless of revenue generating or non-revenue generating subcomponents. A special bank account should be set up for the ADB loan proceeds transaction and settlement. Trainings should be conducted on accounting, budgeting, cost management, internal control and ADB loan disbursement, etc.
GM
Financial Department
Financial Division Cost Accounting Division
Funding Accountant Planning and Cost Materials Group Analysis Group Accounting Storage
Figure 9.3: Financial Department Organization Structure at WENQUAN
2) Utility Companies (a) FUTAI 827. FUTAI’s organizational structure in the financial department is displayed in Figure 9.4. IMEIP II PPTA FINAL REPORT 9-42
Director of Financial Department Ms. Xiaokui Zhai
Deputy Director Mr. Yu Cao
Accountant Planning Director of Computer Clerk Cashier Supervisor Accountant Settlement 1 person 2 persons 1 person 1 person Center 1 person
Accountant 2 persons
Figure 9.4: Financial Department Organizational Structure in FUTAI 828. FUTAI has established a complete financial management system and has an efficient financial team. The financial information and data can be recorded and provided in a timely manner. User-friendly accounting software is currently being utilized. FUTAI has an integrated company financial management manual, which has been applied in cost management, fixed assets management, working in progress management etc. The tasks and responsibilities of the staff in the Financial Department are clearly defined. A computerized heating tariff collection system is also in service. FUTAI has many capable financial staff members including Ms. Chai, Director of the Financial Department, a senior accountant who obtained ACCA certification in 2005, and Mr. Cao, Deputy Director of the Financial Department who graduated from IMAR University of Finance & Economics with a major in financial accounting. (b) FULONG 829. The Financial Department of FULONG is directly under the management of the Deputy GM, who is also the Chief Accountant of the company. The organizational structure of the Financial Department at FULONG is shown in Figure 9.5. IMEIP II PPTA FINAL REPORT 9-43
Deputy GM (Chief Accountant) Mr. Tu Ba
Director of Financial Department Ms. Hong Zhang
Accounting Controller 1person
Cashier Supervisor Cost Material Management Taxation 1 person Accountant Accountant Accountant Accountant 1 person 1 person 1 person 1 person
Accounts Junior Junior Accounts Cashier Receivable Clerk Accountant Payable 1 person Clerk 1 person 1 person Clerk
Figure 9.5: Financial Department Organizational Structure of FULONG 830. FULONG has developed a complete financial management system and also has an efficient financial team. The financial information and data can be provided in a timely manner. The user-friendly accounting software is applied. The operation of the company complies with corporation laws and its accounting system follows the enterprise accounting standards and regulations. FULONG has an integrated company financial management manual, which includes cash management, assets management, and financial reporting management etc. The tasks and responsibilities of the staff in the Financial Department are defined. A computerized heating tariff collection system is also in service and works efficiently. (c) BAOTOU 831. The Financial Department of BAOTOU is under the direct leadership of the GM with 22 staff members. Its organizational structure is presented in Figure 9.6. IMEIP II PPTA FINAL REPORT 9-44
Director of Financial Department Mr. Wenjun Zhao
Deputy Director 1 person
File Keeper Cashier Cost Accountant AR & AP 1 person 8 persons Management 9 persons Management Clerk 1 person 1 person
Constructio Production Cashier for Cashier for n Cashier Cashier Branch Source of 1 person 1 person Companies Heating Plants 4 persons 2 persons
Accountant Accountant Material Construction for Branch for Heating Accountant Accountant Companies Source Plants 1 person 1 person 5 persons 2 persons
Figure 9.6: Financial Department Organizational Structure at BAOTOU 832. BAOTOU has a long operating history and has developed a functional financial management system according to the nature of its business. A dynamic and systematic financial management structure has been developed. The financial information is adequately and effectively recorded in the financial system. The accounting records and financial statements are reliable. BAOTOU has an integrated financial management regulation, which covers each financial area including accounting archive management, cost management, budget management, and work in progress management etc. A computerized accounting system is adopted and user-friendly accounting software is used to generate financial statements. The network based financial information is utilized in the headquarters, branch companies and heating source plants. 833. A computerized tariff collection system is in service. The tariff collection system is capable of integrating with the financial system as of late in 2007. This kind of network connection will improve collection efficiency and increase actual revenue collection. 834. BAOTOU has experience in foreign funded projects, such as World Bank projects, and projects with bilateral loans from the Finland Government. Involvement in the international projects can help the BAOTOU staff easily understand and accept the ADB procedures during the project implementation stage. Director of the Financial Department, IMEIP II PPTA FINAL REPORT 9-45
Mr. Wenjun Zhao, has been previously involved in World Bank projects, which is a significant advantage for the BAOTOU subproject implementation. (d) DURUI 835. The Financial Department of DURUI is under the direct leadership of the GM. There are three staff members in the Financial Department including chief accountant, material supply staff, and cashier who have clearly assigned position responsibilities. The company’s accountants have some experience in infrastructure construction accounting. However, they do not have any experience in World Bank or ADB project implementation. The organizational structure of the Financial Department is displayed in the following Figure 9.7.
GM
Chief Accountant
Material Supply Cashier
Figure 9.7: Financial Department Organizational Structure of DURUI 836. It is planned that separate accounting books should be prepared for the subproject. The infrastructure accounting system will be adopted for the project accounting work and a special bank account for the ADB loan will be established. (e) JINFENG 837. There are three staff members working in the Financial Department of JINFENG including one director, one accountant and one cashier. The Financial Department is under the direct leadership of the GM. The organizational structure of the Financial Department is displayed in Figure 9.8.
GM
Director of Financial Department
Accountant Cashier
Figure 9.8: Financial Department Organizational Structure of JINFENG IMEIP II PPTA FINAL REPORT 9-46
838. JINFENG has set up a complete set of company management regulations including financial management regulations. General responsibilities and associated duties for the Financial Department and each position are also specified respectively. User-friendly accounting software is currently utilized to record financial activities and generate financial statements. It is suggested that JINFENG recruit additional financial professional staff for project construction and engineering, timely update the financial management regulations with detailed procedure descriptions for each financial transaction, such as cash management, asset management, receivable and payable management etc, and develop a separated financial management manual in order to strengthen the capability of the Financial Department. (f) RIMIAN 839. The Financial Department of RIMIAN is directly managed by the Deputy GM. There are three staff members working in the Financial Department, which includes two accountants and one cashier.
Deputy GM
Accountant Cashier 2 persons 1 person
Figure 9.9: Financial Department Organizational Structure in RIMIAN 840. The financial management regulation has been in place, in which duties for each position are clearly defined. The financial information and data can be recorded and provided in a timely manner. RIMIAN is still using the hand log accounting system. Along with capacity strengthening, a computerized accounting system is recommended to be implemented. The company realizes the advantages of utilizing a computerized accounting system and has already purchased computers for project accounting. At the project preparation stage, it is suggested to select a suitable software program, provide related training on project accounting and financial management to the financial staff, and promptly update the financial management regulations. It is strongly recommended that RIMIAN strengthen the capability of financial staff by hiring a senior accountant or providing training to the financial staff so that the requirements of business development can be met. (g) XINGDA 841. The company has its Financial Department under the direct leadership of the GM. There are three staff members in the department: one accountant, one bookkeeper and one cashier. Figure 9.10 presents its organizational structure. IMEIP II PPTA FINAL REPORT 9-47
GM
Chief Accountant
Bookkeeper Cashier
Figure 9.10: Organizational Structure of the XINGDA Financial Department 842. XINGDA adopts an enterprise accounting system to carry out its accounting activities. Accounting work is performed using the accrual basis. Nanbei accounting software is used for accounting work. Monthly financial statements are produced directly by the accounting software, including balance sheets and profit and loss statements. 843. A comprehensive budgetary system is yet to be established. Only the daily cost control is conducted. 844. Responsibilities of each department of the company have been clearly defined. The Financial Department has set up a detailed posting procedure. All the business activities have to be approved by the Board of Director (with his signature attached to the document). Accounting staff member shall check and verify the relevant documents and make disbursements accordingly. 845. An auditing department has also been established. The recruited auditing staff have been working in an auditing bureau for many years, thus they have rich experiences in conducting audit. The Auditing Department is under the direct supervision of the Board of Directors. At the beginning of each year, an accounting firm will be engaged to conduct auditing on all financial statements for the previous year. 846. It is planned that separate accounting books will be set up for the Project. The capital construction accounting system will be adopted for accounting work and a special bank account for the ADB loan will be established. The company’s accountants have experiences in capital construction accounting. But none of the staff in the Financial Department has financial management experiences related to the World Bank or ADB loan projects. 847. Though a preliminary assessment on financial management reveals that the company’s financial management can basically meet the current operational management requirements, its financial management needs to be further strengthened since the company is at the initial stage of business development and expansion. Currently, the urgent task is to set up a comprehensive budgetary management system, and to conduct overall supervision regarding revenues, disbursement, investment and financing. Moreover, training needs to be provided to the financial staffs in terms of accounting and disbursement procedures of ADB loans so that the financial management requirements of ADB loans can be understood as soon as possible. IMEIP II PPTA FINAL REPORT 9-48
(h) KANGZE 848. KANGZE will be responsible for the construction and operation of the subproject. KANGZE is a subsidiary of Keerqin Xinxin Urban Investment Co. Ltd. with a total investment of RMB 1 million. Currently, KANGZE’s business registration was just approved and the business license was issued on March 20, 2008. Substantial institutional setup and capacity strengthening work should be conducted as soon as possible. As revealed by the financial management assessment, it is suggested that professional financial staff be recruited and in place. In addition, KANGZE needs substantial training and should promptly establish its accounting and financial management systems in terms of accounting, budgeting, cost management, internal control and ADB loan disbursement, etc. before the ADB Loan Appraisal.
9.11 Financial Implication of the Subsidy Program for the Heating Service to the Poor 849. As reported, IMAR has 31 national poverty counties and 29 provincial poverty counties with 697,000 people living below the poverty line (year 2005 data). The proposed new and extended facilities will have a significant financial impact on the tariff for those IAs. The Socio-Economic Survey included the questionnaire for the investigation on the household satisfaction with the heating service provided, its ability to pay and willingness to pay. The results of the survey were used to confirm and verify the assumptions used in the following affordability study. 850. Table 9.18 demonstrates the proportion of the household heating cost to the disposable income in the lowest income household class. The baseline analysis shows that the ratio of heating cost to the disposable income is relatively affordable in Hohhot. However, the ratios reach as high as 5.3% to 11.0% for the municipalities of Chifeng, Baotou, Hulunbeier and Xing’an League. Thus they rate as unaffordable for the lowest income households. In addition, three scenarios are tested based on three subsidy levels. It is assumed in Scenario 1 where the GIMAR will provide a heating subsidy to the lowest income households at 0.50 yuan/m2 for a space up to 70 m2, the affordability ratio will be reduced to 4.3% for Baotou City. More subsidies are tested assuming the GIMAR will provide a heating subsidy of 1.00 yuan/m2 in Scenarios 2 and 1.50 yuan/m2 in Scenarios 3 to the lowest income households for a space up to 70 m2. The affordability ratios will be reduced to 5.5% to 6.8% in Scenario 2, which are still considered unaffordable for the three cities or league. Under Scenario 3, the affordability ratios will reduce to below 5% for all project cities. It is suggested that the GIMAR and district heating companies adequately consider the lowest income group’s heating demand and their affordability. It is suggested that a detailed subsidy program should be developed. A certain amount of subsidy has to be provided to the lowest income group so that this low income group can have the equal privilege to share the benefit of district heating. IMEIP II PPTA FINAL REPORT 9-49
Table 9.18: Affordability Analysis
Item Hohhot Chifeng Baotou Hulunbeier Xing-an Base Case 4.5% 10.5% 5.3% 8.9% 11.0% Scenario 1 3.6% 8.5% 4.3% 7.2% 8.9% Scenario 2 2.8% 6.5% 3.3% 5.5% 6.8% Scenario 3 1.9% 4.4% 2.3% 3.8% 4.7%
9.12 Conclusions and Recommendations 851. The cost estimates and the financing plans are finalized. The commitment letters are provided and confirmed during the Appraisal. However, cost estimates are not unchanged melodies. While the Project enters into the detailed design stage, some of the cost estimates are subject to further updates in order to reflect the project needs. The financing plan need catch up with the project cost variation, and raise sufficient funds for the project implementation. Therefore, it is suggested that the IAs develop a complete planning and budget system, fully utilize project resources, promptly update project information, timely raise funds and effectively control project costs. 852. While some of the IAs are newly established and most of the IAs do not have sufficient ADB project experience, it is highly suggested that more professional staffs be engaged in the PMO and IAs. Systematic trainings covering project accounting, financial management, disbursement, internal control and financial statements, etc. should be provided as soon as possible. Draft financial management manuals have to be prepared and in place for the project implementation. 853. Based on the above comprehensive financial analysis, it can be concluded that the Project is financially viable. The financial viability analysis of the non-revenue generating component in Ningcheng CGU is to be supported by the economic analysis. As most IAs are utility companies, they should develop as independent companies under market oriented scheme to control their revenues, expenses and profits. Therefore, government regulation regarding tariff settings, tariff adjustment mechanisms, as well as IAs operational performance assessment should extensively consider IA’s financial autonomous and sustainable development. 854. The detailed financial sensitivity analysis reveals that JINFENG’s financial viability can be jeopardized by insufficient source of heating supply. WENQUAN’s financial viability will only be achieved once the designed capacity of CGU facilities is fully utilized after they are put into service. Therefore, while implementing the subprojects, JINFENG and WENQUAN should pay extra attentions to the construction of the boiler system, comprehensive development of tourism facilities and promotion of tourism resources. 855. Most subprojects can tolerate 5% of revenue decrease. However, 10% of revenue decrease will cause the subprojects’ FIRR to be lower than WACC. Generally, revenue decrease will be caused by i) less service area expansion, ii) deteriorated collection efficiency and iii) less tariff increase. Therefore, the IAs should stick to the business IMEIP II PPTA FINAL REPORT 9-50 development plans to timely deliver heating service and meanwhile, strengthen tariff collection and implement incentive programs to improve tariff collection. As it will take a certain period to get tariff adjustment approved, the IAs should work with the government entities closely. New tariffs should be implemented in a timely fashion. 856. Based on the above comprehensive financial analysis, it can be concluded that the Project is financially viable. The financial viability of the non-revenue generating component of Ningcheng CGU needs to be supported by its merits from the perspective of the economic analysis. IMEIP II PPTA FINAL REPORT 10-1
CHAPTER 10 ECONOMIC ANALYSIS
857. This Chapter 10 describes the economic evaluation of the Project. This project consists of three parts: Part A – district heating supply (DHS) in 8 small and medium sized cities, Part B – natural gas supply (NGS) in Keyouqian Banner, and Part C – comprehensive geothermal utilization (CGU) in Ningcheng County, which includes six subcomponents. The economic analysis is conducted by part and subcomponent in line with the ADB Guidelines for economic analysis.
10.1 Background
10.1.1 Economic Background
858. The Chinese economy has been growing rapidly for the last 15 years. The GDP in the PRC grew from RMB 8,818.90 billion in 1999 to RMB 20,940.70 billion in 2006, an average rate of 9.05% in real term over the last 8 years. The GDP in the PRC increased by 10.7% in 2006 relative to the previous year. Similar to many other western provinces or regions in the PRC, IMAR has experienced a strong growth over the same period due to the reform and open-door policy, and also the national strategy of western development developed by the central government. The GDP in IMAR grew from RMB 137.90 billion in 1999 to RMB 479.00 billion in 2006, an average rate of 15.46% over the past 8 years. The GDP in IMAR increased by 18.7% in 2006 over last year. The economic performances in both the PRC and IMAR in 2006 are shown in Table 10.1.
Table 10.1: Economic Performances in the PRC and IMAR in 2006
Economic Indicators PRC IMAR GDP in 2006 (m RMB) 20940700 479148 GDP growth rates in 2006 (%) 10.7 18.7 GDP by sectors (%) Primary 11.80 15.10 Secondary 48.70 45.50 Tertiary 39.50 39.40 Urban income per capita (RMB) 11759 10358 Rural income per capita (RMB) 3587 2772
Sources: PRC Statistical Year Book, 2007 and IMAR Statistical Year Book, 2007.
859. Obviously IMAR had an exceptional performance in economic development in 2006. Its GDP growth rate reached 18.7%, significantly higher than the average of the PRC. However, IMAR has a higher proportion of primary sector and lower proportion of secondary sector than the average of the PRC primarily due to the region’s traditional livestock industry. Furthermore, both urban and rural income per capita are significantly lower than the average of the PRC. Therefore, from macroeconomic point of view, lower income and lower economic development provide the strong rationale for GIMAR to facilitate the local IMEIP II PPTA FINAL REPORT 10-2 economy through the proposed Project.
10.1.2 Energy Consumption, Efficiency and Regulations
860. As shown in Table 10.2, the energy consumption in IMAR increased rapidly over the last two decades, from 19.67 million tce in 1987 to 127.77 million tce in 2006. Obviously, the energy conservation is a major issue in IMAR. In addition, coal dominates the energy consumption, accounting for 90% of total energy consumption. As a consequence, the air emission is another issue in the region.
Table 10.2: Energy Consumption in IMAR
Energy Consumption % (10000 tce) Coal Oil NG Hydropower 1987 1,967.11 55.76 0.07 0.20 1988 2,035.52 54.25 0.04 0.14 1989 2,250.36 54.89 0.04 0.12 1990 2,423.51 52.77 0.04 0.22 1991 2,505.19 53.30 0.03 0.20 1992 2,554.99 50.50 1.65 0.17 1993 2,676.11 93.00 4.94 0.05 1994 2,812.19 94.63 4.87 0.07 1995 3,268.44 82.38 3.82 0.05 1996 3,144.36 93.87 4.56 0.05 1997 3,708.95 93.23 4.36 0.05 1998 3,440.06 95.44 4.78 0.09 1999 3,634.88 94.97 4.96 0.06 2000 3,937.54 93.14 4.58 0.14 2001 4,453.48 93.34 4.27 0.04 0.16 2002 5,190.12 93.47 3.47 0.05 0.16 2003 6,612.77 95.58 2.78 0.41 0.15 2004 8,601.81 96.71 1.14 0.05 0.16 2005 10,764.90 92.30 1.75 0.78 0.17 2006 12,777.61 89.86 1.55 1.49 0.13
Note: total energy consumption is not equal to 100% due to data problem. Sources: IMAR Statistical Year Book, 2007
861. However, the energy efficiency in IMAR is extremely low as compred to other similar provinces in China. As shown in Table 10.3, the energy consumption per GDP and energy consumption per industrial output, and power consumption per GDP were 2.413, 5.37, and 1913.1, respectively in 2006, significantly higher than the three provinces in Northeast China. IMEIP II PPTA FINAL REPORT 10-3
Table 10.3: Energy Efficiency in IMAR and Northeast China
Energy Energy Power Consumption/ Consumption/Ind Consumption 2005 2006 2005 2006 2005 2006 GDP(tce/ ustrial Output /GDP (kwh/ 10000yuan) (tce/10000yuan) 10000yuan) IMAR 2.48 2.413 IMAR 5.67 5.37 IMAR 1714.1 1913.1 Liaoning 1.83 1.775 Liaoning 3.11 2.92 Liaoning 1386.6 1372.6 Jilin 1.65 1.591 Jilin 3.25 2.80 Jilin 1044.7 990.9 Heilongjiang 1.46 1.412 Heilongjiang 2.34 2.23 Heilongjiang 1008.5 965.9
Sources: China Statistical Year Book, 2007
862. During the 11th Five Year Plan, the central government established a target for energy efficiency at 20% reduction of energy consumption per unit of GDP and 10% reduction of emissions. IMAR also established its own target: 25% reduction of energy consumption per unit of GDP over the end of 10th Five Year Plan, or at average rate of 5.59%; and 10% reduction of emissions.
863. On April 29, 2007, the GIMAR established the Office of Energy Saving and Emission Reduction. In order to achieve the targets, the regional government, municipal governments and county governments established the similar offices headed by the governors in charge of the efficiency. In the same time, the GIMAR enacted the Implementation details of Chinese Law on Energy Conservation, Regulations on Comprehensive Utilization of Energy, Quotas on Power Consumption on the Products with High Energy Consumption, and Regulations on Energy Savings and Reduction of Waste Emission.
864. Based on the Implementing Details of Chinese Law on Energy Conservation, the municipal governments should be responsible for the energy conservation and should ensure the certain expenditures on pilot projects and development of renewable energy. In addition, the municipal governments have the right to monitor the big energy users. In practice, the GIMAR has implemented the policies to promote the development of industries with low energy consumption, and established the standards on unit energy consumption. In addition, it has encouraged the import of equipment with low energy consumption, and the research and development on energy conservation. Furthermore, it has established the policies to facilitate the development of wind power, solar power, and biomass energy. In rural areas, it has encouraged the development of high-efficiency stoves, biogas, and geothermal energy.
865. Concurrently, the GIMAR has imposed strict regulation on CO2 emissions and monitored the big energy users in some industries. It has also encouraged the firms to dispose of the old units with low efficiency and high energy consumption.
866. The above law and regulations will help the GIMAR achieve its target of 25% reduction of energy consumption per unit of GDP and 10% reduction of waste emissions. IMEIP II PPTA FINAL REPORT 10-4
867. Some municipal governments established the regulations on heating sector, such as Regulations on Huhot Urban Heating. Based on this regulation, the heating companies can not stop heating service without the approval of the regulators and should maintain the average indoor temprature of 18° Celsius and minimum 16° Celsius. Obviously, this regulation will ensure the supply of heating service in the IMAR.
868. On the other hand, the regulation requires that the heating plan should be consistent with the master plan. In addition, the heating facilities should be consistent with the needs for new heating areas. This regulation will ensure the quality of the heating serive and the increase of demand for the service.
869. Loan 2260 emphasizes the environmental improvements through the development of central heating supply and NG supply. However, the Project will focus on both energy conservation and environmental improvements through the development of district heating supply, NG supply and comprehensive geothermal utilization.
10.1.3 Tariff Setting
870. The principle of tariff setting in IMAR is based on the cost recovery. In other words, the heating tariff is designed to ensure that the revenues collected from tariffs will cover the costs.
871. The procedures of tariff setting in IMAR are similar to other provinces in China. First of all, the heating companies (and other utilities companies) conduct the detailed cost analysis, including investment costs, operating costs, financial charge and other expenses. Secondly, the heating companies establish the base tariff based on the cost components, certain return on the investment, and government regulations on the heating sector. Thirdly, the heating companies prepare the proposal and submit it to the city pricing bureau for review and approval. Fourthly, the city pricing bureau reviews the proposal. Fifthly, the city pricing bureau arranges the public hearing for tariff setting and tariff change. The city pricing bureau approves the tariff if the proposed tariff is acceptable to the public.
872. In the next few years, the heating tariff is automatically adjusted with the escalation of fuel cost based on the approved tariff adjustment mechanisms. The heating companies can adjust the tariff without the pre-approval from the city pricing bureau if the adjustments are within the range of tariff increase. In the fifth year, the city pricing bureau reviews the effective tariff and sees whether the tariff is sound under the new economic and financial environments.
10.1.4 Project Components
873. There are three components or three parts in this project: district heating supply, natural gas supply, and comprehensive geothermal utilization. IMEIP II PPTA FINAL REPORT 10-5
Part A DHS (8 subprojects)
(i) Hohhot District Heating (Hohhot DHS) subproject in Hohhot City - Construction of one 3×58 MW, two 3×29 MW and one 4×29 MW new boiler plants with a total capacity of 464 MW, and 94 heat exchange stations; placement of 41.13 km trunk heating pipeline and retrofitting of 303 km distribution pipeline. The total heating area of the 6 districts involved in the project will be increased by 5.89 million m2 after the completion of the project.
(ii) Chifeng District Heating (Chifeng DHS) subproject in Chifeng City - New construction of trunk heating pipelines of 106 km, retrofitting and construction of 224 heating exchange stations, and construction of 1 control center. The total heating supply areas will be increased by 28.4 million m2 after completion of the project.
(iii) Baotou District Heating (Baotou DHS) subproject in Baotou City – Placement of 6 new trunk heating supply pipelines with a total length of 18 km; retrofitting and expansion of 5 existing trunk pipelines totaling 8.9 km; construction of 56 new heating exchange stations; retrofitting of 2 heating plants with frequency converters for circulating pumps; retrofitting of 183 existing heating exchange stations and associated secondary pipelines; and expansion of the existing SCADA system. After completion of the project the increased heating area will accommodate 9.76 million m2.
(iv) Keyouqian Banner District Heating (Keyouqian DHS) subproject in Keyouqian Banner, Xing'an League - Construction and installation of 3×70 MW hot water boilers and 28 heating stations, and placement of 12.52km heating pipeline. The total heating area will be 3 million m2 after the completion of the subproject.
(v) Kalaqin Banner District Heating (Kalaqin DHS) subproject in Jinshan Town, Kalaqin Banner, Chifeng City - New construction of trunk heating pipelines of 15.7 km and new construction of 24 heating exchange stations. The total heating supply areas will be 2.1 million m2 after the completion of the subproject.
(vi) Zhalaite Banner District Heating (Zhalaite DHS) subproject in Yindeer Town, Zhalaite Banner, Xing-an League - Construction and installation of 4×29MW hot water boilers and 20 heat exchange stations, and placement of 9.252 km heating pipeline. The increased heating area is 1.5 million m2 and the service of existing 0.5 million m2 floor area will be improved.
(vii) Molidawa Banner District Heating (Molidawa DHS) subproject in Nierji Town, Molidawa Banner, Hulunbeier Municipality - Construction and installation of 3×29MW hot water boilers and 15 heating stations and placement of 9.86km trunk heating pipeline. The increased heating area is 1,226,000 m2. IMEIP II PPTA FINAL REPORT 10-6
(viii) Chenbaerhu Banner District Heating (Chenbaerhu DHS) subproject in Bayankuren Town, Chenbaerhu Banner, Hulunbeier City - Construction of a 2×29 MW hot water boiler, 7 heating exchange stations and 6.5 km primary heating pipeline. The increased heating area is 600,000 m2.
Part B NGS (1 subproject)
(i) Keyouqian Banner Natural Gas (Keyouqian NGS) subproject in Keyouqian Banner, Xing'an League - Placement of 27.58 km NG pipeline; and construction of 1 pressure regulating station, 1 CNG filling station, and 1 set of SCADA system.
Part C CGU (1 subproject)
874. The CGU part consists of 6 subcomponents, which can be divided into three subcomponents based on the needs of economic analysis:
(i) Geothermal utilization: geothermal utilization for central heating and hot water supply;
(ii) Waste water treatment system: construction of water and waste water treatment and pipeline;
(iii) Urban road development: construction of 14 local roads with 9.1 km and two bridges with 1030 m2.
10.1.5 Economic Justification of the Project
875. The significant improvements of the environment and efficient utilization of energy in IMAR provide the economic rationale for the Project from micro economic point of view.
Part A DHS
876. DHS is considered to be one of the most important infrastructures and one of the important indicators of urbanization in the Northern PRC. It is essential for the quality of life in the Northern PRC, where outdoor tempratures are usully below 0° Celsius in winter and can be even much lower in some regions. The outdoor tempratures during the heating season in IMAR normally range between -0° Celsius and -30° Celsius. Therefore, it is necessary to develop and improve the central heating system in IMAR.
877. However, most of the areas in IMAR, currently not covered by central heating, are served by two types of heating systems: small boilers (with one boiler for one building) or household coal stoves. Both small boilers and stoves have low efficiency, usually around 30% and 50% respectively. In addition, those heating systems do not have any pollution control facilities. As a result, air pollution from small coal-fired heating and household coal stoves is considered to be the dominant source of pollution in Northern PRC. It is estimated that the PRC is now the second largest emitter of greenhouse gases and will be the largest emitter in the world by 2020. In Northern PRC, measured levels of air pollution usually IMEIP II PPTA FINAL REPORT 10-7 exceed that of some developed countries, particularly in winters when heating systems are dominated by household stoves and small coal-fired boilers.
878. As shown in Table 10.4, the demand for urban heating in the PRC increased by 15.83% annually between 2000 and 2006 due to rapid growth of economy and housing sector. The demand for heating in IMAR has increased at 17.22%, higher than average of the PRC for the same period. It is expected that the demand for urban heating, especially central heating, in IMAR will continue to increase for the coming years due to rapid growth of urbanization and housing sector.
879. The proposed central heating system characterized by large-boiler and CHP coal- fired boiler in the Project areas will significantly reduce the emission and fuel consumption in IMAR during winters. Therefore, reduction in air pollution and operating costs and consequently improvement of health conditions and efficiency in energy consumption contribute to the major economic benefits and thus provide the strong economic rationale for the proposed DHS.
Table 10.4: Demand for Urban Heating in the PRC and IMAR
PRC Growth Rate IMAR Growth Rate Year 10,000 m2 % 10000 m2 % 1999 96,774.83 4,335.32 2000 110,766.45 14.46 5,215.51 20.30 2001 146,329.00 32.11 5,903.06 13.18 2002 155,567.00 6.31 6,930.42 17.40 2003 188,955.60 21.46 7,907.18 14.09 2004 216,266.20 14.45 9,214.97 16.54 2005 252,056.20 16.55 11,253.90 22.13 2006 265,853.10 5.47 13,155.70 16.90 Average Growth Rate 15.83 17.22
Sources: PRC Statistical Year Book, 2007 and IMAR Statistical Year Book, 2007.
Part B NGS
880. NG is a source of clean energy and is charcterized by its flexibility in transportation, less intensive capital, easy transmission and distribution, safety and reliability.
881. As compared with countries such as the United States and Russia, the PRC used to be considered as a relatively poor country in NG reserves. However, over the last decades, several important discoveries have been made in the exploration of NG in the PRC. As of 2006, the PRC’s reserves of NG were estimated at 2.45 trillion m3, accounting for approximate 1.3% of the world’s NG reserves. Currently, there are 32 large-scale commercial gas fields in the PRC, among which 7 contain reserves in excess of 100 billion m3, including Sulige, Yulin, Daniudi, Wushen Banner, Jingbian, Kela 2 and Puguang. IMEIP II PPTA FINAL REPORT 10-8
882. IMAR is famous for its rich resource in NG. Its reserves of NG account for approximately 41% of total reserves in the PRC. Currently there are 4 large NG fields in IMAR: Changqing, Wushenqi, Da Niu Di, and Su Li Ge, among which Sulige is the largest NG field in the PRC with proven reserves of more than 100 billion m3.
883. As shown in Table 10.5, the PRC’s NG supply reached 24.48 billion m3 in 2006, accounting for less than 1% of the world’s NG production. As also shown in Table 10.5, IMAR’s NG supply amounted to 1.8 million m3 in 2006, representing less than 1% of the PRC’s NG supply. Obviously, IMAR has a potential for NG utilization as compared to its rich natural reserve.
Table 10.5: NG Supply in the PRC and IMAR
NG Supply Year PRC IMAR 10,000 m3 10,000 m3 1999 800,556.00 NA 2000 821,476.00 NA 2001 1,055,196.00 NA 2002 1,259,334.00 NA 2003 1,416,415.30 33.00 2004 1,693,364.30 4,021.00 2005 2,104,951.00 9,444.00 2006 2,447,742.00 18,370.00
Sources: PRC Statistical Year Book, 2007 and IMAR Statistical Year Book, 2007.
884. Natural gas has been utilized for multiple purposes: power generation, central heating, industrial plants, household cooking, and automobiles. However, the PRC’s NG only supplies approximately 3% of its primary energy needs.
885. The PRC’s air pollution in some large and medium-sized cities is primarily from soot as results of coal combustion and exhaust emissions from automobiles. Therefore, it is necessary to promote more NG use and other alternative clean energies so as to improve the PRC’s urban environment and quality of life. Thus, utilization of gas is an effective and efficient measure to reduce the emission of CO2, SOX, NOX, and TSP.
886. However, currently in Keyouqian Banner, most residents still use LPG and coal for household cooking and most industrial plants use coal and other fuels for production. For Keyouqian Banner as an example, coal is imported from neighbouring provinces such as Heilongjiang and Shanxi at higher prices (around RMB 400 - 500 per ton). Thus, long distance transportation produces additional pollution.
887. As a consequence, utilization of NG will significantly improve the local environment and energy savings, and thus provide strong economic justification for NGS from micro IMEIP II PPTA FINAL REPORT 10-9 economic point of view.
Part C CGU
888. Ningcheng CGU can be classified into three subcomponents: geothermal utiliztion, wastewater treatment, and urban roads. Both geothermal utilization and waste water treatment are revenue related subcomponents while urban roads is a non-revenue generating subcomponent. (i) Geothermal Utilization 889. Similar to NG, geothermal energy is a clean and renewable energy, and can be used for multiple purposes: power generation, district heating, hot water production, fishery farming, medical treatment, and industrial plants. It is produced from local sources and is easy to be transported. It is also less expensive than most of other clean energies such as NG (1/4), oil (1/6) and electricity (1/11). Those benefits provide the strong economic justification for this subcomponent. (ii) Wastewater Treatment System 890. The establishment of the wastewater treatment system is an integrated part of this clean energy utilization. The proposed subcomponent will reduce the costs related to wastewater disposal, and thus improve the local environment. (iii) Urban Road Development 891. The proposed urban roads are the main network system in the project area. Thus, the proposed subcomponent will improve the communication inside the project area and between the project areas and the rural areas.
892. In summary, the implementation of the proposed Porject will significantly improve the local environment, urban infrastructure, and public utility, and therefore facilitate the further development of local economy.
10.2 Principle and Methodology for Economic Analysis
893. The principle and methodology for economic analysis on this Project consist of the five steps and are shown in Figure 10.1.
Impact, Demand Least Valuation of Evaluation Benefit Forecast Cost Economic Results and Analysis Costs and Analysis and Risk Benefits Analysis
Figure 10.1: Principle and Methodology for Economic Analysis
Step 1: Demand Forecast
The methodologies used for demand forecast depend on Parts (components) and subcomponents of the Project. The demand forecast for DHS is determined, to a great extent, by the projection of residential houses and office spaces, which is defined in the IMEIP II PPTA FINAL REPORT 10-10 municipal master plans. The demand forecast for NGS is based on the potential NG consumption by sectors in the project areas. The demand forecast for CGU depends on the forecast of central heating and hot water consumption, normal traffic, and wastewater collection.
Step 2: Least Cost Analysis
894. After conducting the demand forecast of the Project, the next step is to identify the least-cost or most cost-effective alternative to realize the objective of the Project. The least- cost analysis aims at identifying the least-cost alternatives to meet the potential demand. It involves comparing the costs of the various mutually exclusive, technically feasible alternatives and selecting the one with the lowest cost. As a usual approach, the alternative with the lowest present value of costs is the least-cost option. For DHS, the least cost analysis involves comparing the different heating options: individual electric boiler, individual electric heating mat, small coal-fired boiler, large coal-fired boiler, CHP (combined heating and power) coal-fired boiler. For NGS, the least cost analysis involves comparing NG with other alternative fule options: coal, heavy oil, LPG, water gas, electricity, gasoline and diesel, depending on the potential uses of NG in the Project area. For geothermal utilization subcomponent, the least cost analysis includes comparison between geothermal energy and alternative fuel options such as coal. For wastewater treatment system subcomponent, the least cost analysis involves comparing alternative wastewater treatment schemes. For urban road subcomponent, the comparison is between the case with the project and the case without the project.
Step 3: Valuation of Economic Benefits and Costs
895. The valuation of the economic benefits depends on the Parts of the Project. For DHS, the economic benefits are estimated at the more efficient heat production and reduction of emmission from large coal fired boiler or CHP coal-fired boiler against small boiler, the base case. For NGS, the economic benefits are calculated at fuel cost savings and reduction of emissions from NG against other fuel options. For CGU, the economic benefits related to geothermal utilization include energy saving and reduction of emissions. The economic benefits related to wastewater treatment subcomponents are estimated at reduction and ultimate elimination of water-related diseases. The economic benefits associated with urban road development subcomponent consist of VOC savings, passenger travel time savings and accidence savings.
896. The economic costs consist of capital costs, fuel costs and other operating and maintenance (O&M) costs related to the proposed Project in economic prices. The economic capital costs are estimated by converting the financial capital costs with certain conversion factors. The economic O&M costs are estimated at border price and financial costs with conversion factors.
Step 4: Evaluation Results and Analysis IMEIP II PPTA FINAL REPORT 10-11
897. After the economic benefits and costs are valued, the next step is to derive the evaluation results and reach the final decision. The evaluation results are derived for each Part and overall Project respectively based on the least-cost analysis. The final decision is made in accordance with two criteria: (i) the economic net present value (ENPV) should be greater than zero, and (ii) the economic internal rate of return (EIRR) should be greater than economic cost of capital, or 12%.
Step 5: Impact, Benefits and Risk Analysis
898. The final step of the economic analysis involves identifying and analying other major economic benefits and costs, which are not quantified through the above 4 steps. Sensitivity analysis is employed to test the impacts of any unfavourable changes in the Project’s viability.
10.3 Demand Forecast
Part A DHS
899. The demand forecast for district heating supply by floor area for the economic life of the Project depend, to great extent, on the projection of housing sector and municipal heating plan in the project areas.
(i) Hohhot DHS. The incremental heating areas, as indicated in the Hohhot Municipal Heating Plan, are 58,890,000 m2, covering District C, D, F, G, K, and M located mainly in southwest of Hohhot City.
(ii) Chifeng DHS. Based on the Chifeng Municipal Heating Plan, the planned heating areas will be 28,400,000 m2 by 2011, among which 8,540,000 m2, 5,660,000 m2, and 4,200,000 P will be supplied by Fulong, Chifeng, and Xiaoxin heating plants respectively.
(iii) Baotou DHS. According to the Baotou Municipal Heating Plan established in 2004 and Baotou CHP Coal-fired Plan for 2006-2015, the demand for urban heating by floor areas is projected at 9,760,000 P, which covers:ķ west of Kun District served by the First Heating Plant,ĸ east and south of Kun District served by Aerdingdong Heating Plant,Ĺ north of Kun District and some areas in Qingshan District served by North Kun Heating Plant,ĺwest of Baiyun Road and Kun District served by Baogang Youyi Heating Plant, andĻ most areas in Qingshan District served by the Baotou Second Heating Plant.
(iv) Keyouqian DHS. Based on the Keyouqian Banner Master Plan, Heating Plan, and the FSR, the incremental floor areas for urban heating will reach 2,560,000 m2 by 2011, 2,800,000 m2 by 2014, 3,000,000 m2 by 2015, and 4,000,000 m2 by 2020. IMEIP II PPTA FINAL REPORT 10-12
(v) Kalaqin DHS. It is estimated that the incremental heating areas will be 1,100,000 m2 by 2011 and 2,100,000 m2 by 2020.
(vi) Zhalaite DHS. In accordance with the Zhalaite Banner Master Plan, Heating Plan and the FSR, the floor areas for urban heating will increase by 150,000 m2 per year, starting from 900,000 m2 in 2011. By 2015, the incremental areas will be 1,500,000 m2, plus 500,000 m2 through improving existing facilities.
(vii) Molidawa DHS. In accordance with the Molidawa Banner Master Plan, Heating Plan, and the FSR, the incremental floor areas for urban heating will be 826,000 m2 by 2011 when the subproject commences operation, 1,000,000 m2 by 2012, 1,100,000 m2 by 2014, and 1,226,000 m2 by 2015.
(viii) Chenbaerhu DHS. The floor areas in the project site are currently 350,000 m2 and it is expected that the areas will reach 600,000 m2 by 2010 when the subproject is completed.
900. The demand forecast for all DHS subprojects is summarized in Table 10.6. It is noted that the deviation from the demand forecast in Table 10.6 is negligible since the floor areas served by the central heating system are already defined in the municipal master plans. The proposed large coal-fired boiler or CHP coal-fired boiler will replace the existing small boiler heating system to meet the potential heating demand. Therefore, the incremental demand forecast as indicated in Table 10.6 for the economic analysis is certain to great extent.
Table 10.6: Demand Forecast for District Heating by Sectors Unit: 10,000 m2 2020- 2011 2012 20132014 2015 2016 2017 2018 2019 2030 Hohhot Residential 412.2 412.2 412.2 412.2 412.2 412.2 412.2 412.2 412.2 412.2 Public 88.3 88.3 88.3 88.3 88.3 88.3 88.3 88.3 88.3 88.3 Commercial 88.3 88.3 88.3 88.3 88.3 88.3 88.3 88.3 88.3 88.3 Total 588.9 588.9 588.9 588.9 588.9 588.9 588.9 588.9 588.9 588.9 Chifeng Residential 1988.0 1988.0 1988.0 1988.0 1988.0 1988.0 1988.0 1988.0 1988.0 1988.0 Public 426.0 426.0 426.0 426.0 426.0 426.0 426.0 426.0 426.0 426.0 Commercial 426.0 426.0 426.0 426.0 426.0 426.0 426.0 426.0 426.0 426.0 Total 2840.0 2840.0 2840.0 2840.0 2840.0 2840.0 2840.0 2840.0 2840.0 2840.0 Baotou Residential 653.9 653.9 653.9 653.9 653.9 653.9 653.9 653.9 653.9 653.9 Public 161.0 161.0 161.0 161.0 161.0 161.0 161.0 161.0 161.0 161.0 Commercial 161.0 161.0 161.0 161.0 161.0 161.0 161.0 161.0 161.0 161.0 IMEIP II PPTA FINAL REPORT 10-13
2020- 2011 2012 20132014 2015 2016 2017 2018 2019 2030 Total 976.0 976.0 976.0 976.0 976.0 976.0 976.0 976.0 976.0 976.0 Keyouqian Banner Residential 128.0 128.0 128.0 140.0 150.0 150.0 150.0 150.0 150.0 200.0 Public 64.0 64.0 64.0 70.0 75.0 75.0 75.0 75.0 75.0 100.0 Commercial 64.0 64.0 64.0 70.0 75.0 75.0 75.0 75.0 75.0 100.0 Total 256.0 256.0 256.0 280.0 300.0 300.0 300.0 300.0 300.0 400.0 Jinshan Town of Kalaqin Banner Residential 77.0 77.0 77.0 77.0 126.0 126.0 126.0 126.0 126.0 126.0 Public 16.5 16.5 16.5 16.5 42.0 42.0 42.0 42.0 42.0 42.0 Commercial 16.5 16.5 16.5 16.5 42.0 42.0 42.0 42.0 42.0 42.0 Total 110.0 110.0 110.0 110.0 210.0 210.0 210.0 210.0 210.0 210.0 Yindeer Town of Zhalaite Banner Residential 51.3 59.9 68.4 77.0 85.5 85.5 85.5 85.5 85.5 85.5 Public 27.0 31.5 36.0 40.5 45.0 45.0 45.0 45.0 45.0 45.0 Commercial 11.7 13.7 15.6 17.6 19.5 19.5 19.5 19.5 19.5 19.5 Total 90.0 105.0 120.0 135.0 150.0 150.0 150.0 150.0 150.0 150.0 Nierji Town of Molidawa Banner Residential 45.4 55.0 55.0 60.5 67.4 67.4 67.4 67.4 67.4 67.4 Public 24.8 30.0 30.0 33.0 36.8 36.8 36.8 36.8 36.8 36.8 Commercial 12.4 15.0 15.0 16.5 18.4 18.4 18.4 18.4 18.4 18.4 Total 82.6 100.0 100.0 110.0 122.6 122.6 122.6 122.6 122.6 122.6 Bayankuren Town of Chenbaerhu Banner Residential 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 36.0 Public 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 Commercial 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Total 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 Grand Total 5003.5 5035.9 5050.9 5099.9 5247.5 5247.5 5247.5 5247.5 5247.5 5347.5
Sources: the FSRs and consultants’ estimate.
Part B NGS
(1) Methodology for NG Forecast
901. The demand for NG is forecasted by end users: residential consumption, commercial consumption, industrial consumption, big user, central heating and automobile consumption.
(i) Residential consumption of NG depends on population, unit consumption, and gas coverage ratio. IMEIP II PPTA FINAL REPORT 10-14
(ii) Commercial consumption is estimated at a certain percentage of residential consumption.
(iii) Similar to commercial consumption, industrial consumption is estimated at a certain percentage of residential consumption.
(iv) Large-scale user’s consumption is estimated at certain percentage of residential consumption.
(v) Central heating is projected at the current consumption and certain growth in the future.
(vi) Automobile consumption is forecasted at gas coverage ratio, km per day, and gas consumption per day.
(vii) Contingency.
(2) Results of NG Forecast
902. The demand forecast for the NG supply in Keyouqian Banner was conducted by Northeast China Municipal Design Institute and is considered appropriate by the consultants. The forecast results are summarized in Table 10.7.
Table 10.7: Demand Forecast for NG Supply in Keyouqian Banner
Unit: 10,000 m3 Year 2011 2015 Sectors Residential 607.75 1066.42 Commercial 121.55 166.61 Industrial 60.78 213.25 Large-scale users Keyouqian Banner Central Heating Automobile 248.78 1007.40 Contingency 51.943 122.68 Total 1090.80 2576.36
Sources: the FSR and consultants’ estimate.
Part C CGU
(1) Geothermal Utilization
903. The load forecast for this subcomponent depends on the projection on the floor areas and hot water consumption. As shown in Table 10.8, the demand for heating by floor areas through geothermal utilization in the project area is projected at 336,560 m2. As IMEIP II PPTA FINAL REPORT 10-15 illustrated in Table 10.9, the demand for hot water in the project area is estimated at 2000 m3 per day or 385,000 m3 per annum.
Table 10.8: Heating Areas through the Subcomponent
Sectors 10,000 m2 2011-2030 Existing Customers with Heater 14 Existing Customers with Air Conditioner 1 New Floor Areas 15 Greenhouse 1.576 Aquaculture 2.08 Total 33.656
Sources: the FSR.
Table 10.9: Hot Water Supply through the Subcomponent
Daily Consumption (m3/d) Sectors 2011-2030 Commercial and Residential 1200 Greenhouse and Aquaculture 800 Total 2000
Sources: the FSR.
(2) Wastewater Treatment System
904. Currently there is no wastewater treatment facility and sewage network in Ningcheng. As shown in Table 10.10, total waste water treatment volume in the subcomponent area is projected at 1,750,000 m3 per annum, or 4000 m3 per day.
Table 10.10: Waste Water Treatment Projection
Daily Consumption Daily Consumption Sectors (m3/d) (m3/d) 2011-2020 2020-2030 Residential 1200 1200 Non-residential 1000 1000 Others 1800 1800 Total 4000 4000
Sources: FSR.
(3) Urban Road Development
905. The standard traffic forecast methodology adopted by most design institutes in the PRC is utilized for this subcomponent and is characterized by the following four steps: IMEIP II PPTA FINAL REPORT 10-16
(i) Step 1: Define the corridor directly influenced by the proposed roads and adjoining areas of indirect influence, and develop a traffic zone system for coding trip origins and destinations.
(ii) Step 2: Estimate the changing vehicle fleet mix over the analysis period and the consequent change in average load carrying capacity of passenger vehicles.
(iii) Step 3: Forecast generated traffic using a model due to the improved zone-to-zone accessibility.
(iv) Step 4: Assign the traffic by utilizing the equilibrium allocation method, i.e. minimize the traveling costs and the network costs.
906. The traffic forecast for this subcomponent is conducted by the design institute and is considered appropriate by the consultants. The results of the traffic forecast for 2015 are shown in Table 10.11. To be conservative, only normal traffic is taken into account.
Table 10.11: Traffic Forecast for Urban Roads in Ningcheng with the Subcomponent Unit: pcu/h
Possible Designed Traffic during Normal Traffic Roads Capacity Capacity Peak Hour (pcu) (pcu) (pcu) (pcu) Reshui 1640 1092 5000 550 Tanghou No. 1 1380 472 1800 198 Tanghou No. 2 1380 472 1950 215 Jiaoliaohoushan 1380 472 1960 216
Shichang 1380 472 1550 171 Jiashuyuandong 1380 472 1670 184 Reshuiguangchangdong 1380 472 1400 154 Reshuiguangchangxi 1550 501 1800 198 Erbinguang 1380 472 1800 198 Guoheshuini 1380 472 1500 165 Wushuichang 1380 472 2100 231 Lubayiti 1380 472 1789 197 Henan 1380 472 1678 185 Xiaoxuebei 1550 501 2100 231
Sources: the FSR.
10.4 Least Cost Analysis
Part A DHS IMEIP II PPTA FINAL REPORT 10-17
907. The least cost analysis for DHS involves comparing the costs of alternative heating options, which are mutually exclusive, technically feasible, and selecting the option with the lowest cost. The possible heating options in IMAR are:
(i) Individual electric boiler with less than 1.8 MW, which is normally utilized in heating for an independent building. It is assumed that there is no environmental cost for this alternative. In fact, electricity through coal-fired boiler will definitely produce environmental costs.
(ii) Individual electric heating mat, which is laid underneath floors to provide heating for individual apartment. Similar to electric boiler, it is assumed that there is no environmental cost for this alternative.
(iii) Small coal-fired boiler with less than 7 MW, which is the reference case. This alternative is characterized by its low efficiency (lower than 55%), less capital intensive and no air emission control devices. In IMAR, this is still the most popular heating system in some areas of big cities and most of areas in small cities. Therefore, there is a potential to replace this alternative with more efficient heating systems.
(iv) Large coal-fired boiler with at least 58 MW, which is the proposed system for Hohhot DHS, Keyouqian DHS, Kalaqin DHS, Zhalaite DHS, Molidawa DHS, and Chenbaerhu DHS. This alternative will be utilized to meet the heating demand with the Project. This alternative is characterized by its high efficiency (greater than 80%), more capital intensive and better air emission control devices.
(v) CHP coal-fired boiler, which is the proposed system for Baotou DHS, Kalaqin DHS and Chifeng DHS. With this alternative, heat from CHP plant is used to meet the forecast demand while a large heat boiler is employed to provide reserve capacity to meet the peak heating demand. This alternative is the most efficient and most capital intensive among all possible heating options.
908. The least cost analysis of possible heating options is undertaken for DHS. The characteristics and assumptions of the alternative heating options are summarized in Table 10.12. IMEIP II PPTA FINAL REPORT 10-18
Table 10.12: Characteristics and Assumptions of the Heating Options
Individual Alternative Individual Electric Small Coal-fired Large Coal-fired CHP Coal-fired Heating Electric Heating Boilers Boilers Boiler System Boiler Mat 1.8MW (2.5 Less than 7 MW At least 58 MW At least 58 MW Capacity ton/h) (10 ton/h) (80 ton/h) (80 ton/h) Annual 4591 TJ 4640 TJ 4640 TJ Production Line Losses 5% 6% 6% Heating 57% 84% 84% Efficiency Electricity 31% Efficiency Economic Life 10 years 10 years 20 years 20 years 20 years Capital Costs 70 yuan/m2 65 yuan/m2 32.31 yuan/m2 44.65 yuan/m2 44.65 yuan/m2 Fuel 70 kwh/m2 70 kwh/m2 385,000 tons 264,000 tons 1,004,000 tons Consumption Economic 0.56 0.56 283.33 yuan/ton 283.33 yuan/ton 283.33 yuan/ton Energy Price yuan/kwh yuan/kwh 2% of 2% of Other O&M capital capital 180.2 million yuan 123.5 million yuan 145.4 million yuan costs costs 0.03 million 0.03 million Supply Areas 9.76 million m2 9.76 million m2 9.76 million m2 m2 m2
Sources: consultants’ estimate and ADB TA 4818 Consultant Report.
909. The economic costs incorporated in the least cost analysis include capital cost, fuel cost, and other O&M costs valued at economic prices during the construction and operation period for all possible heating options. Furthermore, the environmental costs of the alternative heating options are also inccorporated in the analysis except for individual electric boiler and electric heating mat.
910. The least cost analysis is conducted using 2008 constant prices and an economic discount rate of 12%. The results of the least cost analysis without and with environmental costs are summarized in Table 10.13. IMEIP II PPTA FINAL REPORT 10-19
Table 10.13: Long Run Marginal Costs (LRMC) of the Alternative Heating Options Unit: Yuan/GJ Individual Small Large Individual CHP Coal- Economic Cost Electric Coal-fired Coal-fired Electric Boiler fired Boiler Heating Mat Boiler Boiler LRMC without 154.75 145.27 36.16 34.04 38.05 environmental costs LRMC with 154.75 145.27 51.54 43.21 40.17 environmental costs
911. Table 10.13 shows that CHP coal-fired boiler is the least cost heating option followed by large coal-fired boiler with environmental costs based on the comparison among the five heating alternatives.
912. The result of the least cost analysis is consistent with the existing situations in IMAR where very few electric boilers and electric heating mats exist and small coal-fired boilers are being substituted by the central heating systems with large coal-fired boiler and CHP boiler. The GIMAR has encouraged domestic and foreign direct investment in local central heating systems and closing of small boilers for the last decades for enviornmental purpose. Finally, the central heating system with large coal-fired boiler or CHP coa-fired boiler is more reliable, efficient and safer than other alternative heating options.
Part B NGS
913. As mentioned above, NG can be utilized for multiple purposes. In this subproject, NG is utilized to replace the existing fuels in industrial uses, household uses, and automobile uses.
(1) Industrial Uses
914. For industrial uses, NG will replace coal, water gas and heavy oil, which currently exist in Keyouqian Banner. Thus, the following four alternatives are the fule options for industrial uses:
(i) Natural gas
(ii) Water gas
(iii) Heavy oil
(iv) Coal
915. The characteristics and assumptions of the four fuel options for industrial uses are shown in Table 10.14, which shows that NG, water gas and heavy oil do not produce TSP,
SO2, NOx, but produce CO2, while coal produces TSP, SO2, NOx, and CO2. IMEIP II PPTA FINAL REPORT 10-20
Table 10.14: Characteristics and Assumptions of the Alternative Fuel Options for Industrial Uses
NG Water Gas Heavy Oil Coal Economic Price 1.85 Yuan/m3 0.31 Yuan/m3 2.4 Yuan/kg 283.33 Yuan/ton Efficiency 80% 50% 60% 20% Fuel Quality LHV 8000 kcal/m3 1700 kcal/m3 10000 kcal/kg 5300 kcal/kg Assumed Fuel Demand 500 GJ 500 GJ 500 GJ 500 GJ Emission TSP 0 kg/m3 0 kg/m3 0 kg/kg 0.116 kg/kg 3 3 SO2 0 kg/m 0 kg/m 0 kg/kg 0.008 kg/kg 3 3 NOx 0 kg/m 0 kg/m 0 kg/kg 0.006 kg/kg 3 3 CO2 1.03 kg/m 0.125 kg/m 2.493 kg/kg 1.777 kg/kg
Sources: consultants’ estimate and ADB TA 4584 Consultant Report.
916. Table 10.15 presents the results of the least cost analysis, which show that NG is the least cost option with environmental costs among the four alternatives, followed by coal.
Table 10.15: LRMC of the Alternative Fuel Options for Industrial Uses
Unit: Yuan/GJ Economic Cost NG Water Gas Heavy Oil Coal LRMC without 104.95 117.78 127.88 86.00 environmental costs LRMC with 107.71 120.28 134.95 125.57 environmental costs
917. The above least cost analysis is consistent with the current industrial uses in the project area. NG is seldom used for industrial purposes due to lack of supply. Instead, water gas, heavy oil, and especially coals are commonly used.
(2) Household Uses
918. For household uses, NG will be the alternative to the existing types of fuels such as LPG and electricity in Keyouqian Banner. Thus, the following three alternatives are the fuel options for household uses:
(i) Natural gas
(ii) LPG
(iii) Electricity IMEIP II PPTA FINAL REPORT 10-21
919. The characteristics and assumptions of the three fuel options for household uses are shown in Table 10.16, which indicates that NG and LPG only emit CO2, while electricity is free from emission.
Table 10.16: Characteristics and Assumptions of the Alternative Fuel Options for Household Uses
NG LPG Electricity Economic Price 1.85 Y/m3 2.81 Y/kg 0.560 Y/kWh Efficiency 80% 55% 70% Fuel Quality LHV 8000 kcal/m3 15000 kcal/kg 860 kcal/kg Assumed Fuel Demand 500 GJ 500 GJ 500 GJ Emission TSP 0 kg/m3 0 kg/kg 0 kg/kg 3 SO2 0 kg/m 0 kg/kg 0 kg/kg 3 NOx 0 kg/m 0 kg/kg 0 kg/kg 3 CO2 1.03 kg/m 2.493 kg/kg 0 kg/kg
Sources: Consultants’ estimate and ADB TA 4584 Consultant Report.
920. Table 10.17 presents the results of the least cost analysis, which indicates that NG is the least cost option by incorporating the environmental costs among the three alternatives, followed by LPG.
Table 10.17: LRMC of the Alternative Fuel Options for Household Uses
Unit: Yuan/GJ Economic Cost NG LPG Electricity LRMC without environmental 104.95 110.08 275.33 costs LRMC with environmental 107.71 115.22 275.33 costs
921. The above least cost analysis is consistent with the existing situation in the subproject area. LPG is commonly used for household cooking.
(3) Automobile Uses
922. For automobile uses, NG will replace gasoline and diesel in Keyouqian Banner. Thus, the following three alternatives are the fuel options for automobile uses:
(i) Natural gas
(ii) Gasoline IMEIP II PPTA FINAL REPORT 10-22
(iii) Diesel
923. The characteristics and assumptions of the three fuel options for automobile uses are illustrated in Table 10.18, which shows that NG does not produce TSP, SO2, and NOx, but produces CO2, which has negative impact on human health. In contrast, gasoline and diesel produce TSP, SO2, and NOx in addition to CO2.
Table 10.18: Characteristics and Assumptions of Alternative Fuel Options for Automobile Uses
NG Gasoline Diesel Economic Price 1.85 Y/m3 2.88 Y/kg 3.82 Y/kg Efficiency 80% 40% 45% Fuel Quality LHV 8000 kcal/m3 11000 kcal/m3 10100 kcal/kg Assumed Fuel Demand 500 GJ 500 GJ 500 GJ Emission TSP 0 kg/m3 0.00012 kg/kg 0.002 kg/kg 3 SO2 0 kg/m 0.0016 kg/kg 0.004 kg/kg 3 NOx 0 kg/m 0.03055 kg/kg 0.04514 kg/kg 3 3 CO2 1.03 kg/m 2.981489 kg/m 3.1246 kg/kg
Sources: the US Energy Foundation, Institute for Energy in NDRC, and IPCC.
924. Table 10.19 presents the results of the least cost analysis for automobile uses and shows that NG is the least cost option without and with environmental costs among the three alternatives.
Table 10.19: LRMC of the Alternative Fuel Options for Automobile Uses Unit: Yuan/GJ Economic Cost NG Gasoline Diesel LRMC without 104.95 136.94 266.22 environmental costs LRMC with environmental 107.71 149.41 279.38 costs
925. The above least cost analysis is consistent with the fact in the project area. In Keyouqian Banner, currently there are 60 buses and 1000 taxis, most of which are currently using gasoline or diesel due to lack of NG stations or not enough NG supply.
Part C CGU
(1) Geothermal Utilization
926. For geothermal utilization subcomponent, geothermal energy will be used as the fuel option to replace coal for multiple purposes in the project area: central heating, hot water IMEIP II PPTA FINAL REPORT 10-23 supply, greenhouse agriculture and aquaculture. Thus, the least cost analysis involves comparing the following two fuel options:
(i) Geothermal energy
(ii) Coal
927. The characteristics and assumptions of the two fuel options for heating and hot water supply are illustrated in Table 10.20.
Table 10.20: Characteristics and Assumptions of the Alternative Fuel Options for Heating and Hot Water Supply
Geothermal Energy Coal Economic Price 0 Y/m3 283.33 Y/ton Efficiency 95% 75% Fuel Quality LHV 44,785 kcal/m3 5300 cal/kg Assumed Fuel Demand 281794 GJ 281794 GJ Emission TSP 0 kg/m3 0.116 kg/kg 3 SO2 0 kg/m 0.008 kg/kg 3 NOx 0 kg/m 0.006 kg/kg 3 CO2 0kg/m 1.777 kg/kg
Sources: consultant’s estimate and ADB TA 4584 Consultant Report.
928. Table 10.21 presents the results of the least cost analysis and shows that geothermal energy is the least cost option with environmental costs among the two alternatives.
Table 10.21: LRMC of the Alternative Fuel Options for Heating and Hot Water Unit: Yuan/GJ Economic Cost Geothermal Energy Coal LRMC without environmental costs 37.96 34.50 LRMC with environmental costs 37.96 45.37
929. Geothermal utilization, in fact, is a savings of the alternative energy consumption in addition to environmental benefits.
(2) Wastewater Treatment System
930. As a normal practice, the following technologies and materials are used for wastewater treatment:
(i) Activated sludge process (or system), which includes: IMEIP II PPTA FINAL REPORT 10-24
(ii) Conventional activated sludge processes
(iii) Oxidation ditches
(iv) Activated biofilters (AB)
(v) Sequential batch reactors (SBR)
(vi) Cyclic activated sludge systems (CASS)
(vii) Membrane bio-reactor(s), which include:
(viii) Biological filter(s)
(ix) Rotating biological contactor(s)
931. The least cost analysis for this subcomponent involves comparing the following two wastewater treatment technologies:
(i) Cyclic activated sludge systems (CASS)
(ii) Sequential batch reactors (SBR)
932. The major parameters of the two schemes are illustrated in Table 10.22 and the results of the least cost analysis are summarized in Table 10.23. The results show that CASS has a lower present value of economic costs.
Table 10.22: Major Parameters of the Alternative Schemes for Wastewater Treatment
Economic Economic Demand Schemes Description Operating Costs Capital Costs (m3/day) (Yuan/m3) (million Yuan) CASS sludge system 4000 15.67 7.989 SBR batch reactor 4000 15.57 10.968
Source: the FSR.
Table 10.23: LRMC of the Alternative Schemes for Waste Water Treatment Unit: Yuan/m3 Economic Cost CASS (Yuan/m3) SBR (Yuan/m3) LRMC 1.67 1.92
(3) Urban Road Development
933. The least cost analysis for the urban road development subcomponent involves comparing construction and upgrading of the urban roads (with the subcomponent case) and continuing to use and maintain the existing urban roads (without the subcomponent case). IMEIP II PPTA FINAL REPORT 10-25
10.5 Economic Assessment
10.5.1 General Assumptions
934. All projected costs and benefits are expressed in constant 2008 prices and measured using the domestic price numeraire method.
935. The financial costs of foreign component are adjusted to their respective economic values using a shadow exchange rate factor (SERF) of 1.011 since the shadow exchange rate is close to the official exchange rate to the extent that domestic market prices for goods and services are close to their border price equivalent value.
936. All other local currency costs (including equipment, O&M, and other costs) are assumed to equal their economic costs after taxes and duties are deducted with the exception of ķ unskilled labor, ĸ fuels, and Ĺ land. Unskilled labor is valued at a shadow wage rate of 0.67, or 67% of the estimated wage rate on the project. This is low, but is intended to reflect the low productivity and lower payment of unskilled labor as compared to the skilled labor in the western region of the PRC.
937. The economic unit cost of electricity is derived from an updated version of a World Bank estimate of the long run marginal cost for electricity in the PRC, or RMB 0.56/kwh.2
938. Coal is a tradable good and should be valued at border price. Coal, the major input of DHS, major alternative of NGS and CGU, can be met by local sources. In fact, IMAR is a net export region of coal. Since coal is an export substitute, its economic price should be adjusted by the difference in costs between the point of port and the project site. Therefore, the economic price of coal in IMAR should be derived by excluding freight cost from IMAR where the Project is located in to the FOB price at Qinhuangdao Port, a major seaport for coal export.
Table 10.24: Calculation of Economic Price for Coal
Items Unit Economic Price FOB for Export $/t 55.00 Port Handling $/t 1.41 Value at Port in USD $/t 53.59 Exchange Rate Yuan/$ 7.25 Value at Port in RMB Yuan/t 388.53 Transportation from Port to IMAR Yuan/t 78.00 Transportation Losses (2%) Yuan/t 7.77
1 A SERF of 1.01 is equivalent to standard conversion factor (SCF) of 0.99, which is widely accepted as the appropriate value for PRC, and has been extensively used in similar projects, such as ADB PPTA 4639 and ADB PPTA 4818. 2 See ADB PPTA 4584. IMEIP II PPTA FINAL REPORT 10-26
Items Unit Economic Price Wholesaler’s margin (5%) Yuan/t 19.43 Coal Equivalent Yuan/t 283.33
Source: consultant’s estimate.
939. It is assumed that the average transportation cost for coal is RMB 0.046/ton-km; the handling cost is $1.41/ton; the wholesaler’s margin is 5%; and the transportation loss is 2%. The derivation of the economic price for coal is shown in Table 10.24.
940. The environmental cost per unit is estimated below:
(1) CO2
941. Recent CO2 trading with price information at the historical exchange rate from the PRC CDM Website is shown in Table 10.25.
Table 10.25: CO2 Prices
Date CO2 Prices (RMB/ton) April 2005 170.15 April 2007 89.17 November 2007 122.83
Sources: PRC CDM Website: http://cdm.ccchina.gov.cn.
942. It was estimated that the total turnover of CO2 traded in North European Power Exchange in 2005 reached 2.3 tons at unit price between Euro 15.85 and 15.90. Based on the information on April 18, 2005, the closing price on 2005 CO2 was Euro 15.90. The closing price on 2006 CO2 was Euro 15.98 per ton, and price on 2007 CO2 was Euro 16.05 (RMB 170.15) per ton.
943. On April 17, 2007, Japanese Government purchased 638 tons of CO2 at 1900 yen (RMB 89.17) per ton.
944. On November 14, 2007, MGM, a Luxembourg company, agreed to purchase 10,000 tons of CO2 from Hong Shi Co, a Chinese company at Euro 8.2 (RMB 122.83) per ton between 2007 and 2012.1
945. To be conservative, RMB 89.17 is used to value the CO2 for this Project.
(2) SOx
946. Recent SOx trading price information is shown in Table 10.26.
1 Source: http://cdm.ccchina.gov.cn IMEIP II PPTA FINAL REPORT 10-27
Table 10.26: SOx Prices
Date SOx Prices (yuan/ton) May 2007 2000 December 2007 1500
Sources: China Daily on May 17, 2005 and Taizhou New Website: http://www.tznews.cn/.
947. Based on China Daily on May 17, 2005, Taichangjiulong Paper Mill purchased 1400 tons of SOx from Suzhou Municipal Government at RMB 2000 per ton.
948. As shown on the Taizhou News Website on December 1, 2007, the price for SOx increased from RMB 1000 to 1500. 1
949. To be conservative, RMB 1500 is used to value SOx for this Project.
(3) NOx
950. Based on the regulation on emission charges imposed by the PRC government, the emission fee is equal to RMB 0.6 multiplied by the emission and divided by the predetermined parameter. Since the predetermined parameter for NOx is RMB 0.95, the price of NOx is RMB 631.58 per ton2.
(4) TSP
951. Based on the regulation on emission charges imposed by the PRC government, the emission fee is equal to RBM 0.6 multiplied by the emission and divided by the predetermined parameter. Since the predetermined parameter for TSP is RMB 0.95, the price of TSP is RMB 275.23 per ton3.
952. The economic price of CO2, SOx, NOx and TSP emissions are estimated at RMB 89.17, RMB 1500, RMB 631.58 and RMB 275.23 per ton respectively.
953. Based on the current PRC regulations, land is a state-owned asset and is not fully marketable at current stage. Land in this Project is valued at its best alternative utilization since land is a scarce resource in the PRC.
954. The economic opportunity cost of capital is used as the discount rate to value all economic benefits and economic costs, i.e. 12 % per annum.
955. For all Parts, the economic analysis was conducted for an operating period of 20 years and a construction period of 2 years.
1 Source:http://www.tznews.cn/ 2 Source: PRC Standards on Emission Charges 3 Source: PRC Standards on Emission Charges IMEIP II PPTA FINAL REPORT 10-28
956. The investment composition is assumed at 50% (year 1) and 50% (year 2) for all Parts.
10.5.2 Economic Costs
957. The financial costs, including physical contingencies, are converted to economic costs by different approaches, depending on the Parts and Subcomponents. The resultant values represent the economic costs of the Parts (components) and subcomponents in domestic price numeraire.
958. For all Parts, the economic costs consist of the capital cost, fuel cost, and other O&M costs.
(1) Capital costs
959. The capital costs of DHS include costs related to boilers, pipe lines, heat exchangers, other associated costs, and physical contingency. The capital costs for individual electric boiler, individual electric heating mat and small coal-fired boiler are estimated at the capital costs per square meter.
960. The capital costs of NGS include costs related to purchase of vehicles for transmission and distribution, pressure regulating stations, CNG filling stations; and other capital investments.
961. The capital costs of CGU include costs related to construction of geothermal pumping house with ancillary equipment, geothermal wells and pipelines, construction and upgrading of urban roads, and construction of wastewater treatment plants and pipelines.
(2) Fuel costs and other O&M costs
962. The fuel costs are estimated at fuel consumption multiplied by economic price of fuels.
963. Other O&M costs are estimated at certain portions of fuel consumption for DHS, NGS and geothermal utilization subcomponent in CGU. The O&M costs of the urban road subcomponent and wastewater treatment system subcomponent include power, maintenance, labor and overhead.
964. The financial capital costs for all components, including physical contingencies, are converted to economic capital costs by deducting taxes and duties, and then applying the relevant conversion factors to the shares of foreign costs, unskilled labor, and other costs.
10.5.3 Economic Benefits
Part A DHS
(1) Major Assumption for Heating IMEIP II PPTA FINAL REPORT 10-29
965. For DHS, some assumptions need to be made before identifying and quantifying the economic benefits. Table 10.27 summarizes the major parameters used in quantifying the economic benefits.
Table 10.27: Major Assumptions in Economic Assessment
Unit Parameters Heating Season hours 3600 Heat utilization hours hours 2600 Heat losses for Small boilers % 5% Heat losses for large boilers % 6% Heat losses for CHP % 6% Demand conversion for residential GJ/M2 0.432 Demand conversion for public GJ/M2 0.504 Demand conversion for commercial GJ/M2 0.450 Heating efficiency for small boilers % 57% Heating efficiency for large boilers % 84% Overall efficiency for CHP % 50% Electricity efficiency % 33%
Sources: consultant’s estimate.
(2) Coal Quality
966. The economic benefits depend, to a great extent, on the quality of coals in the Project areas in IMAR, which is shown in Table 10.28.
Table 10.28: Heat Value of Coals in the Project Areas
Subprojects Heat Value (kal/kg) Hohhot 4,968 Chifeng 3,594 Baotou 5,000 Keyouqian 5,000 Kalaqin 3200 Zhalaite 5,002.3 Molidawa 5,021.3 Chenbaerhu 3,106 Ningcheng 5,000
Source: the FSRs.
(3) Quantifying the Economic Benefits
967. The economic benefits for DHS include two sources: ķ improvements of heating IMEIP II PPTA FINAL REPORT 10-30 efficiency through reduction of coal consumption, and ĸ improvements of environment through reduction of air emissions. These benefits are estimated through the least cost heating system against the small boiler heating system, which is served as the base case to meet the existing heating demand in the Project area.
(a) Improvements of Heating Efficiency
968. The economic benefits from improvements of heating efficiency come from two sources: ķ coal consumption savings between the large coal-fired boiler or CHP boiler heating system and small coal-fired boiler heating system multiplied by economic coal price, and ĸ reduction of operating costs due to efficient operation of the large coal-fired boiler heating system or CHP boiler heating system against the small coal-fired boiler heating system.
(b) Improvements of Environment
969. The economic benefits from improvement of environment are reflected in the reduction of environmental costs from the large coal-fired boiler heating system or CHP boiler heating system against the small coal-fired boiler heating system. The environmental costs are estimated at coal-fired emission multiplied by environmental cost per unit. The coal-fired emissions mainly consist of SOx, TSP, NOx, and CO2 and are calculated by multiplying the emission factors in terms of KG/GJ by total heat production in terms of GJ per year over the total production period.
970. The emission factors are estimated based on the standard formulas of air emission adjusted by types of boilers and content of coals. The resulting emission factors are shown in Table 10.29.
Table 10.29: Emission Factors for the Alternative Heating Options
SOx NOx TSP CO2 Small boiler 610 g/GJ 500 g/GJ 2710 g/GJ 95 kg/GJ Large boiler 180 g/GJ 480 g/GJ 140 g/GJ 95 kg/GJ CHP boiler 180 g/GJ 480 g/GJ 140 g/GJ 95 kg/GJ
Sources: the FSRs and consultants’ estimate.
Part B NGS
971. The economic benefits for NGS are derived from: ķ fuel cost savings from alternative fuel options, and ĸ improvements of environment through reduction of emissions. These benefits are estimated through the least cost fuel option or NG supply against the reference fuel options. The major assumptions for quantifying the economic benefits for NGS are shown in Table 10.30. IMEIP II PPTA FINAL REPORT 10-31
Table 10.30: Major Assumptions for NG Utilization
Heating Season hours 3600 Heat utilization Hours hours 2600 Coal heat value GJ/ton 22.2 LPG heat value GJ/m3 0.0627 NG heat value GJ/m3 0.0334 Gasoline heat value GJ/ton 46.0 Heat losses % 1% Efficiency of Coal % 20% Efficiency of LPG % 55% Efficiency of NG % 80% Efficiency of Gasoline % 35%
Source: consultant’s estimate.
(1) Fuel Cost Savings
972. The economic benefits from fuel cost savings include: ķ fuel consumption savings between NG and alternative fuel options; and ĸ reduction of other operating costs due to efficient operation of NG against alternative fuel options. Alternative fuel options are the base cases to meet the existing demand in the project area: coal for industrial uses, LPG for household uses, and gasoline for automobile uses in the project area.
(2) Improvement of Environment
973. The economic benefits from environmental improvement include the reduction of environmental costs due to the use of NG against alternative fuel options. The environmental costs are estimated at emissions multiplied by environmental cost per unit.
The emissions of coal and other fuel options include SOx, TSP, NOx, and CO2. The emissions are determined by the emission factors in terms of KG/GJ multiplied by the heat production in terms of GJ per year over the whole operating period. The emission factors for the alternative fuel options are shown in Table 10.31.
Table 10.31: Emission Factors of NG against the Alternative Fuel Options
SOx NOx TSP CO2 NG 0 0 0 1.03 kg/m3 LPG 0 0 0 2.493 kg/kg Coal 0.008 kg/kg 0.006 kg/kg 0.166 kg/kg 1.777 kg/kg Gasoline 0.00160 kg/kg 0.03055 kg/kg 0.00012 kg/kg 2.98149 kg/kg
Sources: the FSRs and consultants’ estimate. IMEIP II PPTA FINAL REPORT 10-32
Part C CGU
(1) Geothermal Utilization
974. Similar to DHS and NGS, the economic benefits for geothermal utilization are derived from: ķ fuel cost savings from alternative fuel options, or coal in this subproject, and ĸ improvement of environment. These benefits are estimated through the least costs analysis of geothermal energy against the referenced fuel option, which is used to meet the existing demands in the project area. The major assumptions for quantifying the economic benefits are shown in Table 10.32.
Table 10.32: Major Assumptions for Geothermal Energy Utilization
Heating Season hours 3600 Heat utilization Hours hours 2600 Coal heat value GJ/ton 20.9 Heat losses % 3% Specific Demand-Residential GJ/M2 0.46 Specific demand-Agricultural GJ/M2 0.70 Efficiency of Coal % 75% Efficiency of Geothermal Energy % 95%
Sources: the FSRs and consultants’ estimate.
(a) Fuel Cost Saving
975. The economic benefits from fuel cost savings include: ķ fuel consumption savings between geothermal energy and alternative fuel; and ĸ reduction of operating costs because of geothermal utilization.
(b) Improvement of Environment
976. The economic benefits from environment improvements are derived from the reduction of environmental costs due to geothermal utilization. The emission factors for alternative fuel options are shown in Table 10.33.
Table 10.33: Emission Factors of Geothermal Energy and Coal
Coal Geothermal TSP (kg/kg) 0.166 0
SO2 (kg/kg) 0.008 0
NOx (kg/kg) 0.006 0
CO2 (kg/kg) 1.777 0 HV (kcal/kg) 5000 44,785 Efficiency (%) 75% 95% IMEIP II PPTA FINAL REPORT 10-33
Sources: the FSR and consultants’ estimate.
(2) Wastewater Treatment System
977. The economic benefits of wastewater treatment subcomponent are derived mainly from health benefits, which include reduction and ultimate elimination of waterborne diseases. The benefits are estimated based on ķavoided costs of the surface water contamination imposed by the PRC government with the project, and ĸ avoided private and public medical expenses with the Project.
978. The avoided cost of the surface water contamination is estimated at the unit cost multiplied by total emission. The unit cost is based on the regulation on emission charges imposed by Chinese government.
979. The basic data for health benefits is taken from the EA and the design institutes on the number of cases of waterborne diseases experienced, and also from certain assumptions of other similar projects in the PRC. The major assumptions for morbidity rate, proportion of the population affected with waterborne diseases and average daily income are shown in Table 10.34.
Table 10.34: Major Assumptions for Waste Water Treatment
Economically active population (%) 100 Morbidity rate (%) 9.35 Percentage of person who consult doctor (%) 20 Average day lost (days) 4 Average daily income (RMB) 23.29 Average medical expenses (RMB) 5169
Sources: Feasibility Study, data from EA and the design institute, and similar ADB financed projects.
(3) Urban Road Development
980. The economic benefits of the urban roads subcomponent are derived from savings resulting from improvements in urban roads and traffic condition between with the project and without the project: ķ vehicle operating costs (VOCs) savings, ĸ passenger travel time savings, and Ĺ accident cost savings. To be conservative, the economic benefits from diverted traffic and transit traffic are ignored.
(a) VOCs Savings
981. The VOCs savings account for the most important part of the economic benefit for urban road subcomponent. The new and upgraded urban roads will produce savings in fuel consumption, engine oil consumption, tire wear, maintenance costs, and a portion of vehicle depreciation due to shorter distance. In addition, the new and upgraded urban roads will IMEIP II PPTA FINAL REPORT 10-34 also produce savings in remaining portion of depreciation, crew costs, insurance, license fees, taxes and administration and management costs due to shorter travel time.
982. The VOCs are estimated for 4 categories of vehicles: light and medium bus, large bus, light and medium truck, and heavy truck, which are likely to take the urban roads in the future.
983. The assumptions of fleet composition are shown in Table 10.35. The average speed of the vehicles is 30 km per hour with the project against 15 km per hour without the project.
Table 10.35: Fleet Composition
Light and Medium and Vehicles Medium Bus Large Bus Light Truck Heavy Truck % 80 10 0 10
Sources: the FSR and consultant’s estimate.
984. The VOCs are all costs directly related to the vehicles because of shorter distance and savings of travel time (only for drivers and crews). The VOCs savings for this subcomponent are estimated by utilizing the following three models1:
For light and medium buses, C=2313.45V-0.534648(1+r)T-1987
For large bus, C=2675.41V-0.358008(1+r)T-1987
For light and medium trucks, C=2719.43V-0.380216(1+r)T-1987
For heavy truck, C=3003.98V-0.40676(1+r)T-1987
Where, C is VOCs (yuan/1000 vehicle km); V is speed (Km/h); r is inflation rate and is estimated at 3% per annum; T is number of years.
985. The annual VOCs savings are calculated by deducting the operating costs with the project by the operating costs without the subcomponent, which are estimated by applying the cost equations above to the length and traffic per year given 70% vehicle utilization rate.
(b) Travel Time Savings
986. The new and updated urban roads will also reduce the travel time of passengers. The economic benefits derived from the travel time savings are commonly estimated
1 The models were developed by Shanghai Municipal Research Institite and were widely employed for urban road projects in PRC. IMEIP II PPTA FINAL REPORT 10-35 through the three methodologies: ķ revealed or stated preference surveys; ĸ empirical relationship between passenger travel time savings and GDP per capita through regression; Ĺ appropriate income levels. The last one is employed in this economic analysis.
987. The economic benefits of travel time reduction for business trips are assumed to be related to personal income in the project area for light and medium bus and large buses. GDP per capital in the project area in 2007 is estimated at RMB 8500. The time value per employee in 2008 is estimated at RMB 4.23 per hour for 2008 hours a year (see Table 10.36). It is expected that GDP per capital will increase at an annual average rate of 12% for the subcomponent period, derived from an average growth rate of GDP in IMAR over the past 15 years. Table 10.36: Economic Value of Savings in Travel Time Annual Value of % of Value of time income per Average passenger Types of passengers savings per passenger passengers time savings Vehicles traveling in average passenger- traveling for per vehicle per vehicle- work time hour business trip hour Light and 8500 70 4.23 (8500/2008) 4 16.92 medium buses Large bus 8500 70 4.23 (8500/2008) 39 164.97
Notes: assumed that one year has 2,008 hours, or (365-104-10)*8 =2,008 Sources: the FSR and consultant’s estimate.
988. The economic benefits of travel time reduction by freight are associated with goods in transit or inventory costs. Given that opportunity cost for freight time is 12% and representative values of RMB 1 and 5 per kg are used for medium and light trucks, and heavy trucks respectively, the travel time savings by freight are estimated at value of goods per kg, opportunity costs, and freight traffic. The economic benefits from freight travel time savings is relatively small as compared to other economic benefits.
(c) Accident Cost Savings
989. A higher proportion of vehicle km will be running on the new and updated roads in the project area with the subcomponent. These are inherently safer than the old roads. The economic benefits of accident reduction are estimated at applying the typical PRC accident rates (shown in Table 10.37), the economic losses per accident (RMB 8000 per accident based on historical data), and traffic by vehicle km.
Table 10.37: Accident Rates in the PRC Year Times per 100 million vehicle km Times per 100 million vehicle km with the Subcomponent without the Subcomponent 2003 77 187 2010 103 245 2022 171 367 Sources: The FSR and consultant’s estimate. IMEIP II PPTA FINAL REPORT 10-36
10.5.4 EIRR Calculation
Part A DHS
990. The economic analysis of DHS is conducted by incorporating all economic benefits and costs.
991. Table 10.38 summarizes the results of EIRR calculation for DHS. The EIRRs without and with environmental costs for DHS are 13.44% and 24.17% respectively, greater than 12%, the required economic rate of return. Therefore, DHS is viable.
Table 10.38: Summary of Economic Analysis for DHS
EIRR without E Cost ENPV without E Cost EIRR with E Cost ENPV with E Cost (%) (m yuan) (%) (m yuan) 13.44 179.74 24.17 1652.17
Part B NGS
992. The economic analysis of NGS is undertaken by incorporating all economic information.
993. Table 10.39 shows the results of EIRR estimation without and with environmental costs for NGS, which are 21.68% and 29.25% respectively, greater than 12%, the economic cost of capital. Therefore, NGS is also feasible.
Table 10.39: Summary of Economic Analysis for NGS
EIRR without E Cost ENPV without E Cost EIRR with E Cost ENPV with E Cost (%) (m yuan) (%) (m yuan) 21.68 55.11 29.25 109.31
Part C CGU
994. The economic analysis of CGU is conducted by incorporating all information related to economic benefits and costs.
995. Table 10.40 indicates that EIRRs without and with environmental costs for CGU are 12.63% and 16.12% respectively, which are greater than 12%, the economic cost of capital. Obviously, CGU is viable.
Table 10.40: Summary of Economic Analysis for CGU
EIRR without E Cost ENPV without E Cost EIRR with E Cost ENPV with E Cost (%) (m yuan) (%) (m yuan) 12.63 4.15 16.12 27.05
10.5.5 EIRR Calculation of the Overall Project IMEIP II PPTA FINAL REPORT 10-37
996. As shown in Table 10.41, the EIRR of the overall Project is 24.04%, which is greater than 12%, the economic cost of capital. Therefore, the overall Project is economically feasible.
Table 10.41: Economic Analysis of the Overall Project Unit: million Yuan at constant 2008 price DHS NGS CGU Total 2009 (976.81) (31.61) (44.29) (1,052.71) 2010 (976.81) (31.61) (39.47) (1,047.89) 2011 510.18 12.91 11.78 534.88 2012 520.16 12.91 12.13 545.20 2013 521.86 12.91 12.52 547.30 2014 527.39 12.91 12.97 553.28 2015 550.78 36.47 12.84 600.08 2016 550.78 36.47 14.05 601.29 2017 550.78 36.47 14.70 601.94 2018 550.78 36.47 15.44 602.68 2019 550.78 36.47 16.27 603.52 2020 562.06 36.47 15.52 614.04 2021 562.06 36.47 18.29 616.81 2022 562.06 36.47 19.49 618.02 2023 562.06 36.47 20.85 619.38 2024 562.06 36.47 22.39 620.92 2025 562.06 36.47 22.99 621.51 2026 562.06 36.47 26.08 624.61 2027 562.06 36.47 28.29 626.81 2028 562.06 36.47 30.77 629.30 2029 562.06 36.47 33.57 632.10 2030 1,538.87 68.07 71.57 1,678.52 EIRR with E Costs 24.17% 29.25% 16.12% 24.04% ENPV with E Costs 1,652.17 109.31 27.05 1,788.53
997. The results of the EIRR estimates (with environmental costs, with local environmental costs, and without environmental costs) for the subprojects are detailed in Appendix 22.
10.6 Impacts, Benefits and Risks
10.6.1 Risk Analysis
(1) Sensitivity Analysis IMEIP II PPTA FINAL REPORT 10-38
998. Due to uncertainties inherent in the economic projections, a project is tested to see whether it remains viable if certain unfavorable assumptions are realized. Sensitivity analysis is employed to test the uncertainties of each Part and overall Project. It involves varying the value of one or more variables in the economic analyses and deriving the results of each Part and overall Project’s EIRR and ENPV. Sensitivity tests are conducted for each Part and overall Project to assess the impact of a 10% cost increase, a 10% benefit decrease, a 20% cost increase and a 20% benefit decrease, and a one-year lag in benefits. The results are shown in Table 10.42 through Table 10.45.
999. Table 10.42 summarizes the result of the sensitivity test for DHS and indicates that it (with environmental costs) is fairly sensitive to changes in both the economic benefits and costs.
Table 10.42: Sensitivity Results of DHS
ENPV without E ENPV with E EIRR without E EIRR with E Variables Costs (million Costs (million Costs (%) Costs (%) yuan) yuan) Base case 13.44% 179.74 24.17% 1,652.17 10% cost increase 8.56% -474.09 17.87% 877.85 20% cost increase 4.44% -1,127.92 12.64% 103.53 10% benefit decrease 12.04% 4.75 21.96% 1,329.94 20% benefit decrease 10.60% -170.23 19.67% 1,007.71 1 year lag in benefits 11.77% -30.48 20.29% 1,265.45
1000. Table 10.43 shows that unfavorable changes of economic costs will have significant negative impact on NGS’s viability by taking into account the environmental costs, while unfavorable changes of economic benefit will not.
Table 10.43: Sensitivity Results of NGS
ENPV without E ENPV with E EIRR without E EIRR with E Variables Costs (million Costs (million Costs (%) Costs (%) yuan) yuan) Base case 21.68% 55.11 29.25% 109.31 10% cost increase 12.62% 3.40 20.88% 56.24 20% cost increase 2.24% -48.30 12.52% 3.18 10% benefit decrease 20.06% 44.51 27.19% 93.30 20% benefit decrease 18.34% 33.92 25.02% 77.29 1 year lag in benefits 18.92% 41.95 24.95% 89.46
1001. Table 10.44 shows that the EIRRs with environmental costs for CGU are significantly greater than 12% under any scenarios. IMEIP II PPTA FINAL REPORT 10-39
Table 10.44: Sensitivity Results of Utilization of CGU
ENPV without E ENPV with E EIRR without E EIRR with E Variables Costs (million Costs (million Costs (%) Costs (%) yuan) yuan) Base case 12.63% 4.15 16.12% 27.05 10% cost increase 11.58% -2.95 14.82% 19.95 20% cost increase 10.20% -13.83 13.17% 9.07 10% benefit decrease 11.47% -3.37 14.69% 17.24 20% benefit decrease 10.23% -10.88 13.20% 7.44 1 year lag in benefits 10.58% -8.90 13.72% 11.26
1002. Table 10.45 shows that the overall Project is not fairly sensitive to unfavorable changes in the economic costs and benefits. A 20% cost increase and 20% benefit decrease would not result in the Project non viable with an EIRR of 19.50% and 19.57% respectively, and an ENPV of RMB 1,333.22 million and RMB 1,075.76 million respectively. The Project’s EIRR and ENPV are similarly sensitive to delays in the realization of benefits, being reduced to 20.03% and RMB 1,282.84 million respectively for a 1-year delay. Moreover, these EIRRs and ENPVs represent extremely conservative estimates of the economic value of the Project, given the limited scope of benefits considered in the analysis.
Table 10.45: Sensitivity Results of Overall Project
Variables EIRR (%) ENPV (Y m) Base case 24.04% 1,788.53 10% cost increase 22.04% 1,611.00 20% cost increase 19.50% 1,333.22 10% benefit decrease 21.84% 1,432.15 20% benefit decrease 19.57% 1,075.76 1 year lag in benefits 20.03% 1,282.84
1003. The results of the sensitivity analysis for the subprojects (with environmental costs, with local environmental costs, and without environmental costs) are detailed in Appendix 22.
(2) Sources of Risk
1004. The major factors that may have impact on the Project are: ķchange of macro economic variables, which might have impact on the disposal income, thus the supply and demand for heating service; ĸ temperature in the winder, when colder (warmer) temperature will increase (decrease) the heating demand; Ĺ nature disaster, such as earthquake and tsunami. IMEIP II PPTA FINAL REPORT 10-40
10.6.2 Direct Benefits and Impacts of the Proposed Project
(1) Direct Benefits from Energy Efficiency
1005. The Project’s direct contribution to the IMAR heating service sub-sector in terms of energy efficiency improvement is derived from economic analysis and amounts to RMB 338.26 million per year (see Table 10.46). The energy efficiency improvements consist of reduction of energy consumption and reduction of operating costs.
Table 10.46: The Direct Benefits due to Energy Efficiency for the Subprojects
Total Energy Efficiency Subprojects (MY/year) Hohhot DHS 34.27 Chifeng DHS 154.32 Baotou DHS 41.76 Keyouqian DHS 27.28 Kalaqin DHS 26.77 Zhalaite DHS 9.98 Molidawa DHS 7.97 Chenbaerhu DHS 5.71 Keyouqian NGS 24.45 Ningcheng CGU 5.75 Total 338.26
(2) Impact on the IMAR’s Target of Energy Efficiency
1006. The impact of the Project in terms of assistance to IMAR to achieve its energy efficiency improvement target during the 11th Five-year Plan period is minimal since the Project will be implemented next year and start operation earliest in 2011. However, as shown in Table 10.47, the Project will definitely produce the direct benefits of RMB 874.87 million and RMB 2335.19 in terms of energy efficiency for the first three years of operation period and total operating period respectively, and will have positive impact on the achievement of IMAR’s target on energy efficiency during the 12th Five-year Plan period.
Table 10.47: The Expected Direct Benefits from Energy Efficiency for the Subprojects
Total Operating Period Energy The First Three Years Energy Efficiency(MY) Efficiency (MY) Hohhot DHS 255.99 102.81 Chifeng DHS 1152.71 462.97 Baotou DHS 311.95 125.29 Keyouqian DHS 149.48 44.06 Kalaqin DHS 163.58 44.40 IMEIP II PPTA FINAL REPORT 10-41
Total Operating Period Energy The First Three Years Energy Efficiency(MY) Efficiency (MY) Zhalaite DHS 65.21 19.46 Molidawa DHS 53.48 17.31 Chenbaerhu DHS 42.64 17.13 Keyouqian NGS 105.91 24.19 Ningcheng CGU 34.23 17.24 Total 2335.19 874.87
(3) Benefit Sharing from Energy Efficiency Improvemenet
1007. The potential savings and benefit-sharing from energy efficiency improvement for Chenbaerhu Banner, Kalaqin Banner, Molidawa Banner, Zhalaite Banner and Hohhot are shown in Table 10.48.
Table 10.48: Benefit Sharing
Coal Consumption Operating Cost Total Energy Efficiency Reduction per Capita Reduction per Capita per Capita (Y/year) (Y/year) (Y/year) Hohhot DHS 20.75 13.48 34.23 Chifeng DHS 291.71 388.12 679.84 Baotou DHS 0.56 22.70 23.25 Keyouqian DHS 794.49 721.04 1515.53 Kalaqin DHS 192.70 342.60 535.30 Zhalaite DHS 76.82 65.76 142.58 Molidawa DHS 109.55 89.62 199.16 Chenbaerhu DHS 230.67 149.94 380.60
10.6.3 Indirect Benefits and Impacts of the Proposed Project
1008. Economic benefits are usually more difficult to identify and quantify in almost all economic analyses of projects. This is because public sector projects, particularly public utility and infrastructure projects, have diversified benefits that are intangible. Although these intangible benefits are real, it is extremely difficult and costly to quantify and estimate them.
Part A DHS
1009. In addition to the economic benefits mentioned above, other benefits for DHS include:
(i) The proposed heating option will indirectly increase the income of the poor. Due to warmer indoor temperatures in the winter, the poor can work longer hours or IMEIP II PPTA FINAL REPORT 10-42
increase training time to improve their skill. As a consequence, the total personal income will increase.
(ii) The proposed DHS will improve the people’s health since the new heating system provides comfortable indoor temperature and reduces the likelihood of illness, such as heart attack, strokes, influenza and respiratory disease caused by the cold.
(iii) As the new heating system is cheaper than the existing heating system by incorporating the environmental costs, the poor will benefit from more disposable income and more consumption.
(iv) More comfortable indoor temperature will improve productivity, or high output with certain input for some sectors. Therefore, the consumers will benefit from the lower prices.
Part B NGS
1010. In addition to the economic benefits mentioned above, other benefits for NGS include:
(i) By replacing coal and other fuels, the proposed NGS will reduce the additional costs related to transportation of alternative energies.
(ii) Associated with the above, the proposed NGS will reduce the emissions of coal during the transportation.
(iii) The use of clean energy will facilitate the development of some new labor intensive sectors. As a result, total employment will increase in the project area.
(iv) NG is safer than LPG and other fuel options. As a consequence, the costs related to accidents will decrease.
Part C CGU
1011. In addition to the economic benefits mentioned above, other benefits for CGU include:
(i) For the whole Part, other economic benefits also include incremental outputs of tourist industry, incremental inward foreign direct investment, and thus incremental employment in the project area.
(ii) For geothermal utilization subcomponent, other economic benefits include health improvement due to special water content, incremental output of agriculture and other benefits related to heating subcomponent mentioned above.
(iii) For wastewater treatment system subcomponent, other economic benefits include other health benefits related to human exposure to untreated wastewater. IMEIP II PPTA FINAL REPORT 10-43
(iv) For urban road subcomponent, other economic benefits include VOCs saving, travel time savings, and accident cost savings related to diverted and transit traffic. It will also produce savings in environmental costs related to noise and air pollution.
10.6.4 Affordability Analysis 1012. The affordability analysis involves examining the share of the expenditure on heating services against the total disposable income. As shown in Table 10.49 through Table 10.56, the households’ expenditure on the heating service account for about2.93-1.21% of their disposable income for Baotou City, 2.74-1.13% for Hohhot City, 5.78-2.38% for Chifeng City, 4.68-1.92% for Zhalaite Banner, 5.19-2.14% for Molidawa Banner, 3.03-1.24% for Kalaqin Banner, 7.45-3.06% for Keyouqian Banner, 5.09-2.09% for Chenbaerhu Banner. The existing expenditure presents reasonable proportion of households’ disposable income except for Keyouqian Banner. It is assumed that the household disposable income grew at GDP growth rate of IMAR and tariff grew at average CPI between 2003 and 2007 every 5 years.
Table 10.49: Affordability Analysis for Hohhot City
2009 20102011 2012 2013 2014 2015 Household RMB / year 14055 16683 19803 23506 27902 33119 39313 disposable income Average heat m2 / year 22.69 22.69 22.69 22.69 22.69 22.69 22.69 consumption Heat tariff RMB / m2 17.00 17.40 17.81 18.23 18.66 19.10 19.55 Average bill per year RMB 385.73 394.83 404.15 413.69 423.45 433.45 443.68 Heat bill / Household % 2.74% 2.37%2.04% 1.76% 1.52% 1.31% 1.13% income ratio
Table 10.50: Affordability Analysis for Chifeng City
2009 2010 2011 2012 2013 2014 2015 Household RMB / 8451 10032 11908 14134 16777 19915 23639 disposable income year Average heat m2 / year 24.29 24.29 24.29 24.29 24.29 24.29 24.29 consumption Heat tariff RMB / m2 20.10 20.57 21.06 21.56 22.07 22.59 23.12 Average bill per RMB 488.23 499.75 511.55 523.62 535.98 548.62 561.57 year Heat bill / Household income % 5.78% 4.98% 4.30% 3.70%3.19% 2.75% 2.38% ratio IMEIP II PPTA FINAL REPORT 10-44
Table 10.51: Affordability Analysis for Baotou City
2009 2010 2011 2012 2013 2014 2015 Household RMB / year 15122 17949 21306 25290 30019 35633 42296 disposable income Average heat m2 / year 24.91 24.91 24.91 24.91 24.91 24.91 24.91 consumption Heat tariff RMB / m2 17.79 18.21 18.64 19.08 19.53 19.99 20.46 Average bill per year RMB 443.15 453.61 464.31 475.27 486.49 497.97 509.72 Heat bill / Household % 2.93% 2.53% 2.18% 1.88% 1.62% 1.40% 1.21% income ratio
Table 10.52: Affordability Analysis for Keyouqian Banner
2009 2010 2011 2012 2013 2014 2015 Household disposable RMB / year 7,670 9104 10807 12828 15226 18074 21454 income Average heat m2 / year 24.83 24.83 24.83 24.83 24.83 24.83 24.83 consumption Heat tariff RMB / m2 23 23.54 24.10 24.67 25.25 25.85 26.46 Average bill per year RMB / year 571.17 584.65 598.44 612.57 627.02 641.82 656.97 Heat bill / Household % 7.45% 6.42% 5.54% 4.78% 4.12% 3.55% 3.06% income ratio
Table 10.53: Affordability Analysis for Kalaqin Banner
2009 2010 2011 20122013 2014 2015 Household disposable RMB / year 8,325 9882 11730 13923 16527 19617 23286 income Average heat m2 / year 14.00 14.00 14.00 14.00 14.00 14.00 14.00 consumption Heat tariff RMB / m2 18.00 18.42 18.86 19.30 19.76 20.23 20.70 Average bill per year RMB / year 252.00 257.95 264.03 270.27 276.64 283.17 289.86 Heat bill / Household % 3.03% 2.61% 2.25% 1.94% 1.67% 1.44% 1.24% income ratio IMEIP II PPTA FINAL REPORT 10-45
Table 10.54: Affordability Analysis for Zhalaite Banner
2009 2010 2011 2012 2013 2014 2015 Household disposable RMB / year 7,640 9069 10765 12777 15167 18003 21370 income Average heat m2 / year 14.29 14.29 14.29 14.29 14.29 14.29 14.29 consumption Heat tariff RMB / m2 25.00 25.59 26.19 26.81 27.44 28.09 28.76 Average bill per year RMB / year 357.25 365.68 374.31 383.14 392.19 401.44 410.92 Heat bill / Household % 4.68% 4.03% 3.48% 3.00% 2.59% 2.23% 1.92% income ratio
Table 10.55: Affordability Analysis for Molidawa Banner
2009 2010 2011 2012 2013 2014 2015 Household disposable RMB / year 9,639 11441 13581 16121 19135 22714 26961 income Average heat m2 / year 20.00 20.00 20.00 20.00 20.00 20.00 20.00 consumption Heat tariff RMB / m2 25.03 25.62 26.23 26.84 27.48 28.13 28.79 Average bill per year RMB / year 500.60 512.41 524.51 536.89 549.56 562.53 575.80 Heat bill / Household % 5.19% 4.48% 3.86% 3.33% 2.87% 2.48% 2.14% income ratio
Table 10.56: Affordability Analysis for Chenbaerhu Banner
2009 2010 2011 20122013 2014 2015 Household disposable RMB / 9,037 10727 12733 15114 17940 21295 25277 income year Average heat m2 / year 20.00 20.00 20.00 20.00 20.00 20.00 20.00 consumption heat Tariff Rate RMB / m2 23.00 23.54 24.10 24.67 25.25 25.85 26.46 RMB / Average hear bill per year 460.00 470.86 481.97 493.34 504.99 516.90 529.10 year Heat bill / Household % 5.09% 4.39% 3.79% 3.26% 2.81% 2.43% 2.09% income ratio
10.7 Conclusions and Recommendations
1013. The main conclusions of the above economic analysis are:
(i) In IMAR, the proportion of primary industry is higher and that of secondary industry is lower than the average of the PRC. Thus, IMAR is still characterized as a traditionally agricultural region. IMEIP II PPTA FINAL REPORT 10-46
(ii) For DHS, among five alternative heating options, the least cost analysis shows that CHP coal-fired boiler is the least cost option, followed by large coal-fired boiler.
(iii) For NGS, NG is the least cost option for industrial uses, household uses, and automobile uses among alternative fuel options.
(iv) For geothermal utilization subcomponent, the geothermal energy is the least cost option between the two alternative fuel options.
(v) For wastewater treatment subcomponent, the least cost option is SBR among the two waste water treatment options.
(vi) For urban road subcomponent, the comparison is between with the project case and without the project case.
(vii) The EIRR of DHS is estimated at 24.17%, which is greater than the economic cost of capital. The sensitivity analysis of DHS shows that it is viable under (i) 20% capital cost increase; (ii) 20% benefit decrease; and (iii) 1 year lag in benefits.
(viii) The EIRR of NGS is derived at 29.25%, which is greater than 12%. The sensitivity analysis of NGS shows that it is feasible under (i) 20% capital cost increase; (ii) 20% benefit decrease; and (iii) 1 year lag in benefits.
(ix) The EIRR of CGU is calculated at 16.12%, which is greater than the required economic rate of return. The sensitivity analysis of CGU shows that it is viable under (i) 20% capital cost increase; (ii) 20% benefit decrease; and (iii) 1 year lag in benefits.
(x) The EIRR of the overall Project is estimated at 24.04%, which is greater than the economic cost of capital. The sensitivity analysis of the Project shows that the Project is economically viable under (i) 20% capital cost increase; (ii) 20% benefit decrease; and (iii) 1 year lag in benefits.
1014. Based on the analysis above, it is therefore recommended that IMAR should adopt the following policies in order to realize its target of energy efficiency and other objectives.
(i) The GIMAR should encourage the use of CHP coal-fired boiler as the central heating system since it is the most efficient heating system among the alternative options although some of the CHP coal-fired boilers in the Project are not well established.
(ii) The GIMAR should encourage the use of natural gas as an important energy for household cooking, automobiles, and industrial use in the region since it is a clean energy and IMAR is famous for its rich natural gas resource. The use of NG will improve the energy efficiency and reduce the environmental costs. IMEIP II PPTA FINAL REPORT 10-47
(iii) The GIMAR should use its standards of energy consumptions and emissions as benchmarks for reward and punishment.
(iv) The GIMAR should impose the emission tax as a local tax since the current direct and indirect taxes (fees) are not effective in controlling the environmental impacts. The purpose of this kind of taxes is to correct market imperfection and protect the environment. The emission tax is levied on TSP, SO2 and NOx emissions.
(v) The GIMAR should establish an incentive system for reduction of emission and improvement of energy efficiency. For example, the GIMAR should provide direct subsidy for any improvements of old generators and boilers.
(vi) Other energy efficiency measures in the region include: (i) building shell (exterior walls, windows, roofs, etc.) insulation improvement; (ii) sealing of window and door cracks; (iii) energy audits and energy education.
(vii) The necessary early-warning and mitigation measures to cope with these risk factors mentioned above include: (i) forecast of macro economic variables such inflation, unemployment, GDP growth rate, balance of payment, exchange rate and interest rate; (ii) weather forecast, and (iii) natural disaster forecast and monitoring. The GIMAR can either rely on state government’s forecast or establish its own forecast.
(viii) The GIMAR should establish its heating subsidy programs for the poor and ask the central government to partially support the subsidy programs as currently the GIMAR does not have the ability to finance the programs.
(ix) The subsidy programs should cover the households with income below MLG (minimum living guarantee), who have difficulty paying their heating bill. In addition, the dwelling unit (apartment unit or individual house), not household or person should be used as the basis for heating subsidy.
(x) The GIMAR should establish and ensure the long-term sustainability of low-income energy efficiency programs. It is noted that funding for low-income energy efficiency improvement programs is more desirable than funding for the heating subsidy program.
(xi) The GIMAR should estimate of the heating subsidy – The recommended formula for calculating the heating subsidy is:
Household’s Monthly Subsidy = Household’s MLG + Household’s Standard Monthly Heating Bill – Household’s Monthly Income
Where: Household’s Heating Subsidy = yuan / month; Household’s MLG = the MLG (minimum living guarantee) defined by the city government; Household’s Standard Monthly Heating Bill = 60 m2 x heating tariff (yuan / m2) / number of IMEIP II PPTA FINAL REPORT 10-48
heating months (=5); Heating Subsidy Limit = 100% of the household’s standard monthly heating bills for households with incomes below the MLG; 50% of the standard monthly heating bills for households with incomes up to 1.5 times of the MLG. Effective Period = From November to March heating season IMEIP II PPTA FINAL REPORT 11-1
CHAPTER 11 PRIVATE SECTOR DEVELOPMENT
11.1 Introduction 1015. SOEs were dominant in the economical development in the PRC from 1949 to 1980. The private economy in the PRC has been recognized since the late 1980s. The legal position of private companies was established in April 1988 as a result of the issuance of the “Revised Constitution of the PRC”. In June, the “Temporary Management Statutes for Private Companies in the PRC” was accordingly issued by the State Council. A total of 90,581 private companies were registered in 1989. 1016. The private sector has gained tremendous momentum since 1989. As of 2006, the total number of registered private companies in the PRC reached 4.95 million with an average yearly growth rate of over 285,000 per year or nearly 800 per day, accounting for 57% of the total number of enterprises in the PRC (Source: the PRC Industrial and Commercial League). The private sector with tremendous growth has played an increasingly important role in the PRC economical development. 1017. International official data has also demonstrated that the post-privatization performance of 60 companies reveals an 11% improvement in efficiency, 44% improvement in investment, and 45% improvement in profitability; employment and tax payments also increased (Source: Yale F&ES Bulletin: The Role of the Private Sector in Sustainable Infrastructure Development). 1018. In regard to private companies in IMAR, the total number of non-SOEs was 552,000 as of 2006, including 54,000 private companies, 496,000 individual owners, and over 1,000 enterprises funded by foreigners (Source: IMAR Private Enterprise Website). The number of private companies in IMAR accounts for 1% of the total in the PRC in 2006, while the total number for six east-coastal developed provinces and two metropolises account for approximately 65%. These statistics indicate private sector development in IMAR is much slower than other developed areas in the PRC. 1019. As a result of private sector participation (PSP) in IMAR, the amount of both urban employment and investment in fixed assets by private companies had significantly increased from 1995 to 2006. Table 11.1 shows the statistical data on urban employment by ownerships in IMAR from 1995 to 2006. Table 11.2 shows the comparison on total investment in IMAR by ownership. These two tables demonstrate that the private sector has grown much stronger and played a more and more important role in the economic sustainable development in IMAR. Table 11.1: Urban Employment by Ownerships in IMAR (Unit: 1000 Persons)
Item 1995 2000 2005 2006 Total 4400 4301 3503 3650 SOE 3023 2011 1620 1655 Private Sector 76 286 471 533 Share-holding Corporations 0 82 143 143 IMEIP II PPTA FINAL REPORT 11-2
Source: IMAR Statistical Yearbook, 2007 Table 11.2: Comparisons on Total Investment in Fixed Assets by Ownership in IMAR
Increase Rate in Increase Rate in Item 2004 2005 2006 2005 over 2004 (%) 2006 over 2005 (%) Total Investment 180.89 268.78 340.64 48.59 26.75 (RMB 1,000 Million ) SOE 79.75 112.54 127.75 41.12 13.52
Cooperative 1.09 3.13 4.32 187.79 37.88 Enterprises Private Enterprises 14.22 20.04 37.41 48.89 86.73
Source: IMAR Statistical Yearbook, 2007 1020. At the same time, PSP in the IMAR heating sector is experiencing a similar process under the circumstances of a rapidly increasing urban population and heating demand. IMAR, located in northern PRC, is colder than most areas in the country. Temperatures can dip to below -35°C. The heating period in IMAR varies from six to seven and a half months, much longer than that of other northern provinces of the PRC. The heating areas in IMAR have increased tremendously due to rapid economic development, such as urbanization, rising income, housing privatization, and urban development. Table 11.3 lists district heating areas and populations in IMAR from 1999 to 2006. Table 11.3: District heating Area and Population in IMAR
Urban Percentage of Urban District Total Population Growth Population Urban Heating Year (1,000 Person) Rate (1,000 Person) Population Area IMAR % IMAR % (1,000 m2) 1999 23619 9678 41.0 43353.2 2000 23724 10011 42.2 52155.1 20.30 2001 23775 10351 43.5 59030.6 13.18 2002 23786 10479 44.1 69304.2 17.40 2003 23796 10646 45.7 79071.8 14.09 2004 23844 10935 46.7 92149.7 16.54 2005 23864 11264 47.2 112539 22.13 2006 23924 11636 48.6 131557 16.90
Source: IMAR Statistical Yearbook, 2007 1021. Table 11.3 illustrates the district heating area in 2006 was 131.6 million m2, and the total heating area in 2006 can be calculated to be 263.2 million m2 based on an approximate average district heating rate of 50% in IMAR. 1022. Since 8 out of the 10 subprojects of the Project are district heating subprojects, this chapter mainly focuses on private sector participation in the heating sector, though discussions are also made for non-district heating subprojects. Successful results of private sector participation in the Project will serve as a good example to entire IMAR as well as the IMEIP II PPTA FINAL REPORT 11-3 rest of the country in terms of the effectiveness of PSP.
11.2 Current Status of the IAs 1023. There are ten entities participating in the Project as the IAs. Among them, there are four privately owned companies, three state-owned corporative holding entities, and three solely state-owned enterprises. The clear management structure proposal for each IA is discussed in Chapter 2 of Implementation Arrangement, and the current status of each IA is summarized in Table 11.4.
Table 11.4: Ownerships, Share Structures and Locations of IAs
IA Ownership Share Structure Location 1. FUTAI State and Staff Government shares (42%) Employee holding corporative shares (46%) IMAR Mengyuan Investment Hohhot City holdings Co. Ltd. - SOE (12%) 2. FULONG State Owned, Chifeng Dadi Infrastructure Co. Ltd. - State Corporative Holding Company (99.04%) Chifeng Xintai Chifeng City holdings Assets Operating Co. Ltd. (0.96%) 3. BAOTOU State Owned Solely State Owned Company Baotou City Enterprises 4. DURUI Private, Personal Beijing Durui Investment Co. Ltd. (Holding holdings Company) - Private shares (90%) Keyouqian Banner, Individual Shares – Xu Tao - Private shares Xing-an League (10%) 5. JINFENG Private, Staff Employee shares (42%) Chifeng Jinfeng holdings Copper Co. Ltd. (57.9375%) Kalaqin Chifeng City Banner Welfare Office (0.0625%) 6. XINGDA Private, Personal Individual Share - Zhang Xianfeng - Private Yindeer Town, holdings shares (100%) Zhalaite Banner, Xing-an League 7. RIMIAN Private, Personal Individual Shares - Gao Zhi – Private Nierji Town, holdings shares (60%) Individual Shares - Gao Molidawa Banner, Fengju - Private shares (30%) Individual Hulunbeier Shares - Liu Baoyu - Private shares (10%) Municipality 8. BAYAN State Owned, Chenbaerhu Banner Municipality Bayankuren Town, Corporative Administration Office - Government Agency Chenbaerhu holdings (78%) Chenbaerhu Banner Limin Water Banner, Hulunbeier Supply Company - SOE (22%) Municipality 9. KANGZE State Owned Keyouqian Banner Finance Bureau - Keyouqian Banner, Enterprise Government Agency (100%) Xing-an League 10. WENQUAN State Owned Ningcheng Reshui Investment Company - Reshui Town, Enterprise SOE (100%) Ningcheng County, Chifeng City
Private, Staff holdings – private company, owned by management and employees
Private, Personal holdings – private company, owned by individuals
Private, Corporative holdings – private company, owned by other private companies
State Owned, Corporative holdings – company is incorporated; all shareholders are state owned enterprises. (In the PRC, such companies are considered State Control Holdings Companies, and are in the same classification as State Owned Enterprises) IMEIP II PPTA FINAL REPORT 11-4
State Owned Enterprises – government backed and run organizations/company 11.2.1 District Heating Sector 1024. Eight IAs are involved in the proposed heating subprojects. Among them, there are four private enterprises, three SOEs, and one government investment entity. Following are discussions regarding the funding structures and current situations of them.
(1) FUTAI 1025. FUTAI is the IA for the subproject of Hohhot DHS located in Hohhot City. The total project investment and ADB loan are $118 million and $43.00 million, respectively. FUTAI is a state-owned corporative holding company with a registered capital of $8.87 million. Among the shareholders of FUTAI, the municipal government holds 42% of the shares, employees hold 46%, and IMAR Mengyuan Investment Co. Ltd., an SOE, holds 12%. The core business of FUTAI is district heating. The current heating supply area is 6.2 million m2. After the completion of the subproject, the heating area is expected to increase by 5.89 million m2. 1026. FUTAI was established in 1983, formerly named as Hohhot Heating Company. It was the first district heating supply enterprise in Hohhot City. In 1997, the company was transformed into a share-holding corporation. The core businesses include cogeneration district heating and regional boiler heating. FUTAI is a well-established enterprise with comprehensive businesses of production, operation, design and developing construction. Currently, the corporation has the functional divisions in marketing, production, accounting, engineering, human resources, management, and customer service; branch companies/offices in thermal power, supplies, research, maintenance, etc.; offices in executive affairs, auditing, etc. The company has 1,236 employees. 1027. The corporation has a full set of policies, procedures and incentive programs in production, accounting and other management aspects. And as previously mentioned, the government tax code is in favor of SOEs in district heating. Therefore, FUTAI takes the advantage of tax benefits. In general, FUTAI is in good standing with mature corporation governance and sensible corporate culture. 1028. However, this state-owned share-holding company has been experiencing operational losses in three consecutive years. The government provides subsidies to the company with an average RMB 3.6 million per year, approximately 5% of company’s main operational revenue. (2) FULONG 1029. FULONG is the IA for the subproject of Chifeng DHS located in Chifeng City. The project investment and ADB loan are $109.3 million and $39.00 million, respectively. FULONG is a share holding company with a registered capital of $29.88 million. The main shareholder is Chifeng Dadi Infrastructure Co., Ltd. (DADI), which is a state-owned corporation which retains 99.04% of the shares. The other shareholder is Chifeng Xintai Assets Operating Co. Ltd. which owns only 0.96% of the shares. District heating is the core business of FULONG. Currently, the total heating supply area in Chifeng City is 13.4 million m2, and FULONG covers 11.1 million m2, which is 82% of the total district heating area. After the completion of the subproject, the heating area is expected to increase by 28.4 million m2. IMEIP II PPTA FINAL REPORT 11-5
The city of Chifeng is expanding its boundary, which is expected to reach nearly 50 million m2 in the year 2020. The heating demand area will increase by 4 times accordingly. 1030. DADI was established in 1994 by Chifeng Fulong Public (Group) Co. Ltd. by restructuring of a state-owned enterprise and raising funds from targeted sources. In August 1, 1996, through a successful initial public offering, the company’s shares started trading in Shenzhen Stock Exchange with the stock code of 000426. DADI becomes the first listed company in the heating industry in the PRC. Being a medium-sized cogeneration company, and as the sole provider, FULONG took over the district heating operation for the city of Chifeng in 2004. DADI is growing steadily through many years of development. Currently it is mainly engaged in electricity, heating, and roads, supplemented with real estate, non-metal mineral resources, sugar manufacturing, chemical industry and etc. It has established a basic industry system with the resources industries combined with profitable industries, and stable industries supported by developmental industries. The company is ranked at #47 in the IMAR Top 100 Large-scale and Medium-scale Industrial Enterprises in terms of total profit in 2006 (Source: IMAR Statistical Yearbook, 2007). 1031. Thermal power is the main business of the company. Chifeng Fulong Thermal Power Plant and FULONG together make a complete heating industry chain. FULONG is a national middle-sized cogeneration enterprise. Established in 2004 with the unique concession to heating in the central urban area of the city, FULONG takes charge of all districting heating tasks in the central urban area of Chifeng City. Even though FULONG is classified as State owned share holding enterprise, the concession type is similar to the PSP. 1032. FULONG was formed by the local government to provide district heating in the city of Chifeng. It currently has 564 employees. It has a complete set of policies, procedures and incentive programs in various aspects, such as financial management and tariff collection. 1033. FULONG is a profitable public company with an effective management team. The company’s management has worked closely with the municipality and the city council in its significant efforts to reduce costs and improve the quality of district heating. Measures taken so far include implementing a cost monitoring system, installing meters, raising customer awareness, introducing customer care, developing a marketing campaign, and optimizing staff work. These and other measures have resulted in improved energy efficiency, lower costs and greater customer satisfaction. 1034. FULONG has established an attractive tariff incentive system. The customers enjoy up to a 7% discount if the heating fees are paid two months in advance or 5% discount if paid one month in advance. This incentive program has been very successful and as a result, the average tariff collection rate has reached approximately 95%. (3) BAOTOU 1035. BAOTOU is the IA for the subproject of Baotou DHS located in Baotou City. The project investment and ADB loan are $38.6 and $15.0 million, respectively. BAOTOU is a solely SOE with a registered capital of $6.92 million. The core business of BAOTOU is district heating and pipeline maintenance. The current heating supply area is 11.6 million m2, which is 40% of the total district heating area in Baotou City. After the completion of the IMEIP II PPTA FINAL REPORT 11-6 subproject, the heating area is expected to increase by 9.76 million m2. 1036. Established in 1988, BAOTOU is a well developed corporation. Currently, the corporation has ten functional divisions, six branches, two thermal power plants under the direction of the general management; five customer service oriented divisions under the direction of the CCP Committee of the corporation; and 1241 employees. The corporation has well established operating procedures and incentive programs in production, accounting and other management aspects. And as previously mentioned, the government tax code is in favor of SOE in district heating and BAOTOU takes advantage of the tax code. The gross revenues have considerably increased. Generally speaking, BAOTOU is in good standing with mature corporate governance. 1037. However, as previously mentioned, the heating price is controlled by the local government, while the coal prices are market oriented. BAOTOU has been experiencing net operational losses for many years due to the policy constrains, high operational costs, inefficient operation, and low tariff recovery rates. In addition, the tariff collection has been a problem in BAOTOU’s operation. The tariff collection rate is approximately 85-90%. To outsource the tariff collection to improve uncollected account might be one of the solutions. In order to ensure the heating services in the winter, the government provides subsidies to BAOTOU, which account for 6% of company’s main operating revenues each year. 1038. BAOTOU went through an unsuccessful ownership transformation in 2004. In order to diversify the capital structure and attract more capital, BAOTOU intended to remise some of its shares to non-SOEs. There were numerous factors affecting the outcome and many lessons have been learned by BAOTOU. The main reason of the failure was that the non-SOEs had insufficient funds to buy off the shares. The lesson has been learned that an enterprise transform needs to be carefully planned and executed. An unsuccessful privatization can result in adverse impact on the company growth and development. Detailed lessons learned are further discussed in Section 11.7.
(4) DURUI 1039. DURUI is the IA for the subproject of Keyouqian DHS located in Keyouqian Banner, Xing'an League. The total investment for the subproject and ADB loan are $34.3 million and $10.0 million, respectively. DURUI is a privately owned company with the main share holder, Beijing Durui Investment Co. Ltd., retaining 90% of the shares and the remaining 10% held by a private individual named Xu Tao. The registered capital of the company is $5.11 million. The core business of DURUI is heating and it currently provides heating to approximately 447,000 m2. After completion of the subproject, the district heating area is expected to increase to 3 million m2 in 2015. 1040. Established in April 2006, DURUI is a medium sized privately owned company in IMAR. However, it is the sole district heating supplier in the local area with 42 employees with a higher than average education background. Among the 42 employees, 5 have M.S. degrees and 15 have college degrees. The company has 3 senior engineers, 3 senior economists and 1 CPA. IMEIP II PPTA FINAL REPORT 11-7
1041. The average tariff collection rate over the past three years is 97%. The high tariff collection rate is due to the fact that the majority of its customers are from government buildings. The company is still suffering for an operational loss even though it has excellent tariff collection rate. (5) JINFENG 1042. JINFENG is the IA for the subproject of Kalaqin DHS located in Jinshan Town of Kalaqin Banner, Chifeng City. The total investment for the subproject and ADB loan are $18.5 million and $7.5 million, respectively. JINFENG is a private majority owned share-holding company with a registered capital of $10.81 million. Among the shareholders of JINFENG, the managerial staff holds 42% of the shares, Chifeng Jinfeng Copper Co. Ltd., a privately owned enterprise, retains 57.94% of shares, and Kalaqin Banner Welfare Office, a collective unit, holds 0.06% of shares. JINFENG is a power generation and heating company. Its core business is to generate electric power and heating using a cogeneration set. The current heating area is 0.95 million m2. After the completion of the subproject, the heating area is expected to increase by approximately 2.1 million m2. 1043. JINFENG was established in 2003 and currently it has 238 employees. There are four departments, including production, administration, sales, and finance. The company is a profitable enterprise with gross revenues and net profit of approximately RMB 20.6 million and RMB 1.22 million, respectively in 2006. JINFENG has an excellent tariff collection system with an average tariff collection rate of 98.5%. 1044. The government provides the subsidies to the company with an average amount of RMB 2.5 million each year. The subsidies can help the company to cover the coal prices increase in recent years. The company also takes advantage of the tax reduction policy, which provides the company extra working capital and positive cash flow.
(6) XINGDA 1045. XINGDA is the IA for the subproject of Zhalaite DHS located in Yindeer Town, Zhalaite Banner, Xing'an League. The total investment for the subproject and ADB loan are $20.9 million and $7.0 million, respectively. XINGDA is a private company owned by an individual named Zhang Xianfeng with 100% ownership. The registered capital of the company is $1.14 million. Its core business is district heating and civil water supply. Currently, XINGDA provides heating to 1 million m2 in Yindeer Town of Zhalaite Banner. The existing boilers have been overloaded and their operational condition continues to deteriorate. It’s doubtful whether they can be repaired and maintained to continue providing heating in the coming years. After the completion of the subproject, the heating area is expected to increase by 1.5 million m2. 1046. The existing heating plant was previously an SOE. XINGDA took over the heating supply operations in 2004 by signing a lease with the local government, and purchased shares in 2006. There are 60 employees.
(7) RIMIAN IMEIP II PPTA FINAL REPORT 11-8
1047. RIMIAN is the IA for the subproject of Molidawa DHS located in Nierji Town, Molidawa Banner, Hulunbeier Municipality. The total investment for the subproject and ADB loan are $17.0 million and $6.0 million, respectively. RIMIAN is a private corporative holding company owned by three individuals: Gao Zhi (60%), Gao Fengju (30%) and Liu Baoyu (10%). The registered capital of the company is $2.14 million. The core business of RIMIAN is district heating with a current heating area of 800,000 m2. The existing two boilers have already reached their maximum heating capacity. After the completion of the subproject, the heating area is expected to increase by 1.226 million m2. 1048. Established in 2003, RIMIAN is a medium size privately owned share-holding corporation. The company has a board of directors and a total of 105 employees, among which there are 10 managerial staff members, 15 technical staff, and 23 workers. The annual revenue of RIMIAN is RMB 24 million. In order to implement the subproject, the company will establish a leading group and project management office. 1049. The company is currently suffering an operational loss due to the dramatic increase in coal prices over the past few years, heavy debit, and low tariff collection rate (92%).
(8) BAYAN 1050. BAYAN is the IA for the subproject of Chenbaerhu DHS located in Bayankuren Town, Chenbaerhu Banner, Hulunbeier Municipality. The subproject investment and the ADB loan are $10.8 and $5.0 million, respectively. Established in May 2006, BAYAN is solely owned by the Chenbaerhu government. The company consists of two entities: Chenbaerhu Banner Administration Office, which is a government agency, retains 78% of the shares, and Chenbaerhu Limin Water Supply Company, which is an SOE, holds 22% shares. The registered capital of this company is $14.3 million. Currently, the core business of BAYAN is investment in public utility facilities, as well as real estate. Currently, the heating area in Chenbaerhu Banner is approximately 800,000 m2, of which 350,000 m2 is provided by Guangming Thermal Co., Ltd., the existing heating supplier, and 450,000 m2 is provided by other heating suppliers with small boilers or individual home heaters. After the completion of the proposed project, the heating area is expected to increase by 600,000 m2. 1051. BAYAN has a Board of Directors overseeing company’s financial and operation matters. There are five people in the Board of Directors which appoints a general manager. The company has four main departments, namely project, financial, safety and administration. After the dialogue between the Consultant and the Client, BAYAN has agreed to consider PSP on this project through an open bidding process. In addition, institutional strengthening and capacity building in terms of the project implementation is extremely important to BAYAN. An action plan on its privatization or commercialization will be further discussed in Section 11.4 as a case study.
11.2.2 Natural Gas Sector (1) KANGZE 1052. KANGZE is the IA for the subproject of Keyouqian NGS located in Keyouqian Banner, Xing'an League. The subproject investment and ADB loan are $12.3 and $5.5 million, respectively. KANGZE is 100% owned by Keyouqian Banner Finance Bureau which is a IMEIP II PPTA FINAL REPORT 11-9 government agency. The registered capital is $2.70 million. 1053. The IA is a government agency with no qualifications and experience to operate the natural gas project. According to local government officials, the local government is going through the procedures to register a natural gas subsidiary company under Xinxin Urban Investment Company, but this transformation has not been completed yet. In addition, the local government proposed to operate jointly with Changchun Xinghai Gas Company. Currently, operations are still under negotiation.
11.2.3 Geothermal Sector (1) WENQUAN 1054. WENQUAN is the IA for the subproject of Ningcheng CGU located in Reshui Town, Ningcheng County, Chifeng City. The total investment for the subproject and ADB loan are $18.3 million and $12.0 million, respectively. WENQUAN is 100% owned by an SOE named as Ningcheng Wenquan Investment Company. The registered capital of WENQUAN is $4.05 million. 1055. WENQUAN is a new company established in July 2007 for Ningcheng CGU under the ADB Project. Currently, there are only 15 people in the company, and all of them have college degrees. WENQUAN was previously a government agency, and is inexperienced in both ADB projects and the operations after the project’s completion. 1056. The Consultant has organized onsite training programs and a seminar for high level management in Hainan, and has had several meetings with the local government officers and senior managerial people of WENQUAN. The potential privatization on the revenue generating components is being discussed. The strategic PSP for this subproject is discussed in Section 11.4.3.
11.3 Analyses on PSP in Heating Sector of IMAR 1057. It has been determined that the heating sector in larger cities like Baotou and Hohhot is dominated by SOEs, while in smaller and remote areas, such as Keyouqian, Zhalaite and Molidawa, the private sector is dominating. This ADB-financed Project intends to promote PSP in the heating sector in IMAR for small heating companies in remote areas as well as the SOEs in the larger cities. It aims at solving the urban heating shortage problems, improving the financial viability of heating service companies, and ensuring an adequate and affordable price for the poor. 11.3.1 Forecast of Heating Demands and Opportunities of PSP 1058. The current heating areas, proposed incremental heating areas from the subprojects, percentages of each IA covering for local district heating, and the heating demands in 2010 and 2015 are listed in Table 11.5. IMEIP II PPTA FINAL REPORT 11-10
Table 11.5: Heating Parameters for the IAs
Proposed Current Local Long Term District Current Incremental Heating District Heating Heating Area Heating IAs Area from the Coverage in the Projection Area* (1,000 2 subproject (1,000 Project Area by (1000 m ) m2) m2) Each IA (%) 2010 2015 FUTAI 6200 5890 37 25000 - FULONG 13400 28400 82 - 28400 BAOTOU 11600 9760 40 19360 - DURUI 447 3000 N/A 2000 3000 JINFENG 950 2100 85 1100 2100 XINGDA 1000 1500 80 - 2200 RIMIAN 800 1230 100 1600 2000 BAYAN 800 600 N/A 900 -
Source: Data provided by the IAs
* Current Heating Area include district heating and non-district heating areas 1059. It is anticipated that the total heating demand in IMAR in 2010 can reach 460 million m2 with an incremental area of 190 million m2 based on an increase rate of 15%. In 2015, it may be 740 million m2 based on an increase rate of 15% from 2006-2010 and of 10% from 2010-2015, including an incremental heating area of 470 million m2. The tremendous heating demands in IMAR have resulted in severe heating supply shortages during the winter in recent years. This will provide great opportunities for private enterprises to engage in heating sector development and operate profitable ventures. 1060. The coverage rates of the current district heating areas provided by the IAs are also listed in Table 11.5. It indicates that FULONG, JINFENG, and XINGDA are the major heating suppliers for their cities/towns. The coverage rates for FUTAI and BAOTOU are only 37% and 40%. More competition opportunities exist in these cities. DURUI and BAYAN have none district heating areas at current stage, because the former is still providing local heating services by several small boilers, while the latter is a government agency. 1061. The tremendous increase of heating demands within the next eight years indicates that there will be enormous capital investment and growth requirements in the district heating sector of the subproject cities. Capital investment from the private sector will become one of the primary fund sources to meet the growing heating demand in IMAR in coming years.
11.3.2 Rationale on PSP 1062. In the next 5 years, the GIMAR will need RMB 15 billion in capital investments for new construction and rehabilitation of existing heating systems in IMAR. However, the central and local bank can only provide approximately 20-30% of the estimated capital requirements (ADB IMEIP Final Report). It is also difficult to attract the loans from foreign commercial banks due to the nature of the heating industry, which requires large initial investments, long recovery periods, and relatively stricter governmental regulations in fee IMEIP II PPTA FINAL REPORT 11-11 structure and collections. Private investments that are properly regulated can relieve pressure on the public budgets of IMAR. PSP in infrastructure can also improve the delivery efficiency of essential services and extend these to the poor (Private Sector Development, ADB, 2005). 1063. However, the private companies in remote areas on the district heating projects are fairly small and have difficulty in obtaining access to financing from local banks. Therefore, the local governments of IMAR have arranged public financing and ADB supports PSP into the districting heating sector. Identifying the private sector is the key to the sustainable and rapid growth in the heating sector, the ADB PSP strategy aims to expand and strengthen PSP in this Project. A successful model of PSP is a winning solution for the government, the private sector and customers. 1064. In regard to larger SOEs, significant heating demands in bigger cities are requiring expansions of new heating facilities and pipelines, while aging pipelines installed in the 1980s are exceeding their life cycles and outdated heating facilities are urgently needed to be rehabilitated. As a result, a significant amount of funds is requested to resolve the aforementioned issues. Since local governments are not able to provide sufficient funds, and local banks do not intend to provide loans in the heating sector due to its lean profits and huge initial expenditures, the local governments encourage financing from outside resources. Furthermore, the heating sector belongs to public utilities and is playing an important role in social stabilities and environmental improvement. In these circumstances, ADB supports the SOEs in the construction of heating projects for larger cities.
11.3.3 Comparison of Performance between SOEs and Private Companies 11.3.3.1 Operational Efficiency and Performance 1065. Numerous factors will influence the operational and financial performance of the IAs. Most factors can be directly influenced through institutional strengthening and management enhancement. This is why under similar market conditions some enterprises can achieve superior operational performance than others. 1066. Table 11.6 and 11.7 provide comparison of corporate operations and performance based on their heating operation as their core business for seven IAs. BAYAN’s data is not listed in these tables as it is in a special situation of being solely owned by Chenbaerhu government. Currently, the core business of BAYAN is investment in public utility facilities, as well as real estate. Financial data from previous district heating operations are not considered in a position to be used as a comparison with other district heating enterprises. However, an action plan on BAYAN’s privatization or commercialization will be developed in Section 11.4 as a case study. 1067. In order to further compare the effectiveness of the IAs’ performance, some parameters were calculated based on Table 11.6. These parameters include: (i) average heating areas per employee - the overall company efficiencies; (ii) revenues collected per employee - the value created by each employee; (iii) income collected per employee – the income generated by each employee; (iv) management costs per employee; and (v) labor costs per employee. The results are summarized in Table 11.7. From the tables we can see: IMEIP II PPTA FINAL REPORT 11-12
i FULONG and XINGDA have higher overall heating efficiencies than the others; i FULONG and XINGDA also have lower management and labor costs than the others;
i FUTAI and BAOTOU have higher management and labor costs than the others; and i JINFENG, DURUI, and RIMIAN show better performance results than BAOTOU and FUTAI. 1068. The main reason for the better operation efficiency of FULONG and XINGDA can be drawn from the data of heating area per employee. Among the three medium sized companies of BAOTOU, FULONG and FUTAI, BAOTOU provides approximately the same heating areas as FULONG does, but FULONG hires less than half of the employees as BAOTOU does. On the other hand, FUTAI supplies approximately 60% of heating areas as FULONG does, but FUTAI has a double employee number of FULONG’s. This indicates that FULONG has a far larger number in heating area per employee. Thanks to the successful SOE restructure and capital raising effort in the mid 1990s, FULONG is now a profitable public company with an efficient institutional structure and an effective management team. That also explains the fact that FULONG has lower management and labor cost, thus generating higher profits. 1069. Among the four small sized private companies of JINFENG, DURUI, RIMIAN, and XINGDA, the same analysis as for the medium sized companies applies. As the data indicates, XINGDA has a larger number in heating area per employee than the other three small sized companies, as well as lower management and labor costs. XINGDA is a well established privately owned firm with quality services and efficient operation and management. Besides XINGDA’s own efficient operation and management, some of the local government policies are very favorable towards its operation, both leading to its better operational efficiency. The thorough discussion on existing and future financial viable analysis for the IAs is provided in Chapter 9 of Financial Analyses.
Table 11.6: Comparisons of the IAs’ Operational Performances
Heating Operating Operating Mgmt. Employment Mgmt. Labor Cost IA Areas Revenue Income Cost (Persons) (Persons) (106 RMB) (103 m2) (106 RMB) (106 RMB) (106 RMB) FUTAI 6200 1236 209 84.3 8.83 10.74 17.51 FULONG 13400 564 136 48.01 7.05 5.99 BAOTOU 11600 1241 109 175.53 -2.9 22.37 21.05 DURUI* 447 42 12 2.88 0.23 0.55 0.29 JINFENG* 950 238 18 20.59 1.02 1.59 1.59 XINGDA* 1000 60 6 12.69 2.2 0.32 0.35 RIMIAN* 800 105 37 19.8 1.95 0.90 0.63
Source: FSRs and Income Statement from the IAs.
Note: All the financial data are for 2006 except DURUI for 2007. IMEIP II PPTA FINAL REPORT 11-13
Note: IAs with * marks are private companies, otherwise SOEs. Table 11.7: Comparison of the IAs’ Operation and Management Effectiveness
Heating Area Revenue Income Collected Management Labor Cost IA (103 Collected (103 (103 yuan/ Cost (yuan/m2 (yuan/m2 m2/Employee) yuan/Employee) Employee) heating area) heating area) FUTAI 50 68.2 7.1 17.3 28.2 FULONG 23.8 295.1 85.1 5.3 4.5 BAOTOU 9.3 141.4 -2.3 19.3 18.2 DURUI* 10.6 68.6 5.5 12.3 6.5 JINFENG* 4.2 86.5 4.3 15.9 15.9 XINGDA* 13.3 211.5 36.7 4.0 4.4 RIMIAN* 7.6 188.6 18.6 11.3 7.9
Source: Consultant’s estimates based on Income Statement Provided by the IAs.
Note: IAs with * marks are private companies, otherwise SOEs. 1070. Therefore, private companies have huge potentials to make more profits than SOEs through higher heating efficiency and lower costs in labor and management, as well as providing better service quality.
11.3.3.2 Tariff Recoveries 1071. Timely tariff collection is essential for the IAs in the Project to improve their financial performance. Table 11.8 lists the tariff collection rates for the selected seven companies. It is shown that the private and share-holding corporative ownerships have better tariff recovery rates than the SOEs. JINFENG, XINGDA, DURUI and FULONG have higher tariff collection rates than BAOTOU, FUTAI and RIMIAN due to their effective and efficient tariff collection system, such as tariff incentive programs as mentioned in Section 11.2.1.
Table 11.8: Current Tariff Collection Rate of Selected IAs
IAs BAOTOU FULONG FUTAI JINFENG DURUI RIMIAN XINGDA Tariff Collection Rate 85-90% 95% 90% 98.5% 97% 85-90% 97%
Source: data provided by IAs 11.3.3.3 Government Incentives and Subsidies 1072. As it is well known that heating ventures face large initial investment, long investment cycles, and relatively low return rates, and furthermore, when the district heating users are below the poverty line, they can not even afford the low heating tariff, the governments often subsidize the heating suppliers in various ways. The subsidy programs include tax deductions, direct financing, and government tangible assets redistribution. The incentive programs include:
i Low cost or free land usage, for example, Zhalaite Banner government has granted free land usage as incentives to XINGDA; IMEIP II PPTA FINAL REPORT 11-14
i Tax incentives to specifically compensate coal price hiking, such as 100% local value added tax reimbursement;
i 100% local tax exemption for first three years; 50% for 4th and 5th years; and 30% for 6th and 7th years to private companies;
i Some local governments support the enterprises by giving properties. For example, the government had granted the usage of a productive coal mine to FULONG, helping the company to lower the heating generation cost; and
i Government compensates the loss through direct financial subsidies. 1073. The government supports are essential to ensure (1) heating affordability for the residents including the poor; (2) positive cash flow for the heating suppliers; and (3) social stability, etc. Table 11.9 lists the government subsidies to seven IAs from 2005 to 2007. BAYAN is not listed due to its newly established status. The subsidy amounts received by the IAs varied from 0 to 13 million within three years. The variety of subsidy amount indicates that there is no explicit official subsidy policy in the heating sector. The current subsidies from the local governments were established case by case. Among seven listed IAs, six received no direct subsidies; only JINFENG received the subsidies with amount of 2.0 to 3.5 million during entire three years. Its increasing trend may be caused by the coal price hiking in recent years. 1074. In December 2005, an official document from the Ministry of Construction was issued concerning subsidies and heating tariff adjustment. It indicates that if coal prices increase by 10% within one year, the following two measures can be taken to ensure normal heating supply: (i) subsidies from local government can be applied to address the issue of coal price increase; and (ii) heating tariffs can be adjusted accordingly. In addition, subsidies for low-income people shall be made by the governments.
Table 11.9: Government Subsidies to Selected IAs from 2005 to 2007
Unit: Million RMB
IAs BAOTOU FULONG FUTAI JINFENGDURUI RIMIAN XINGDA Ownership SOE State State Private Private Private Private Owned Owned Corp. Corp. 2005 0 0 0 2.0 0 0 0 2006 0 0 0 2.0 0 0 0
2007 0 0 0 3.5 0 0 0
Source: data provided by IAs 1075. In the long run, however, heating subsidies for both SOEs and private companies will not be necessary when the heating tariffs are linked with coal prices and the heating markets get mature. A new NDRC regulation, the Provisional Regulation for Urban Heating Tariff Management (October 1, 2007) in regard to heating tariff management has indicated that the temporary subsidies may be provided by the provincial and municipal governments to the IMEIP II PPTA FINAL REPORT 11-15 heating companies for the areas where heating tariff can neither cover the regular heating cost nor be adjusted in time. In other words, when the heating cost can be covered by heating tariff, the government subsidies to the heating companies will be phased out.
11.3.4 Main Barriers in Heating Sector 1076. Based on the Consultant’s experience, research and onsite investigations in IMAR, the main barriers regarding PSP can be summarized as follows: (i) Poor Revenue Collection 1077. Low heating revenue collection rate results in a significant reduction in company revenue. For example, Table 11.10 illustrates the circumstances of heating tariff collection from 2005 to 2007 for RIMIAN. The average rate of uncollected tariffs is approximately 15%. Table 11.10: Heating Tariff Collection for RIMIAN
Heating Seasons 2005/2006 (Million RMB) 2006/2007 (Million RMB) Tariff Receivables 21.65 24.04 Tariff Collected 18.41 20.53 Tariff Uncollection Rate 15.0% 14.6%
Source: data provided by IAs (ii) Slow Tariff Reform 1078. It takes a substantial amount of time to reform the heating tariffs in many parts of the PRC, and IMAR is of no exception. Government policies and tariff reform will play an important role in the development of the heating industry. Heating companies, regardless of its ownership, can not raise tariffs based on market conditions at their own will. They must go through a process that validates its proposal and justifies the increased tariffs, and the local governments make the final decision on whether to grant or deny the request. Table 11.11 shows the coal prices and heating tariffs in selected project cities. In Baotou, for example, the coal price has increased 117% from 2004 to 2006, while the heating tariff stays the same. In Molidawa Banner, the coal price increased by 40.6%, while the heating tariff increased only by 12.5%. At the same time, the government wants to ensure an affordable heating tariff to its residents, and does not allow the heating tariff increase by enterprises themselves. Therefore, it is difficult for the enterprises to realize profits under the current situation.
Table 11.11: Comparison between Coal Price and Ave. Heating Tariff* from 2004 to 2006
Incremental in City Category 2004 2005 2006 2004-2006 Hohhot Coal Price (yuan/ton) 120 145 210 75% Ave. Heating Tariff 16.5 16.5 16.5 0% (yuan/m2) Baotou Coal Price (yuan/ton) 141 232 306 117% Ave. Heating Tariff 17 17 17 0% (yuan/m2) IMEIP II PPTA FINAL REPORT 11-16
Molidawa Coal Price (yuan/ton) 175 255 246 40.6% Ave. Heating Tariff 28 30.5 31.5 12.5% (yuan/m2)
Source: Data provided by the IAs
Note: The heating tariff is an average of residential and non-residential customers. 1079. In addition, all the urban heating tariffs are based on a simple fixed rate per square meter (e.g. yuan/m2). This kind of tariff structure does not encourage efficient use of heat, Therefore, the tariff reforms need to focus on the tariff structure based on the effective implementation of heat consumption measures. 1080. The heating tariff is currently controlled by the local government. Final approval of tariff adjustment has to be provided by IMAR DRC. If the tariff adjustment is needed by the heating suppliers, a complex procedure is required for the approval. The following steps are the current tariff adjustment processes in IMAR: (1) a heating company needs to submit an application of heating tariff adjustment to the local responsible government department with the proposed heating tariffs and its operational costs, including a breakdown such as unit coal consumption cost, electricity cost, water cost, depreciation, etc.; (2) the responsive administration department reviews the application and provides its comments; (3) the local department submits the application to local Price Bureau for review and approval; (4) the local Price Bureau holds a hearing meeting for feedback comments, and representatives from different levels participate in the hearing meeting; (5) local Price Bureau investigates similar heating prices in surrounding areas and calculates the affordability of local residents as regards the heating tariff adjustment; (6) local Price Bureau submits an updated heating tariff adjustment application to IMAR DRC for final approval; (7) the local government issues an official document regarding heating tariff adjustment once it is approved by IMAR DRC. (iii) Lack of Legal and Regulatory Framework 1081. In 2005, the “Comments on Encouraging, Supporting and Instructing the Development of non-SOEs” was issued by the State Council, including 36 clauses of key policies and measures. Its main purpose is 1) to loosen the market access restriction; 2) to provide favorable financial supports; 3) to improve social services, and 4) to treat non-SOEs and SOEs equally. It is the first legal document aiming at accelerating the development of private companies over the past 50 years. 1082. However, the guidance and regulatory directives from the Central Government are still too vague and general. The policies regarding PSP in the heating sector from the Central Government and local governments need to be more explicitly stated so that the directions are provided for the private sector. The inconsistency with which different arms of the same local government interpret the rules has created difficulties on PSP. The deficiency in government policies imposes extra risks to private companies and can potentially discourage many private enterprises from attempting to enter the heating sector. 1083. In recent years, the local governments of IMAR have already realized that PSP can alleviate the urgent capital demand for the heating sector, and also undertook a variety of approaches to encourage private companies to participate in the sector. However, creating IMEIP II PPTA FINAL REPORT 11-17 an appropriate and consistent regulatory, legal, and structural framework to facilitate PSP in the heating sector is not a straightforward process. Nontransparent and inconsistent implementation of the policies and regulations has resulted in a great deal of barriers for PSP in the heating sector. In addition, the government needs to continually create enabling conditions and environment to ensure PSP in the heating sector effectively and efficiently.
(iv) Aging Pipeline Network and Obsolete Equipment 1084. The antiquated leaking pipeline networks and obsolete equipment make the heating supply companies face almost certain financial losses, risk of accidents and heating quality issues. These make the heating sector less attractive for PSP.
(v) Lack of Corporate Governance and Nontransparent Property Right 1085. The corporate governance for the IAs is not transparent. Some private companies have some issues in corporate governance and their property rights are not transparent. Most of the IAs have charters and a Board of Directors. However, the corporate charters need to clearly state the rights, duties, and responsibilities of the owners, board of directors, board of supervisors, and senior management. In addition, none of the IAs has independent board members. It is suggested that the system with independent board members having no affiliation to the senior management and owner of the companies be established, and independent board members should represent at least 25% of the Board. (vi) Lack of Knowledge and Preparation on PSP or Enterprise Transform 1086. A common problem in introducing PSP for the governments is moving too quickly to implement too sophisticated models of PSP before they have sufficient capacity to manage them. Lack of knowledge and preparation regarding PSPs can result in failure of privatization. Some lessons learned from the unsuccessful experience at BAOTOU on privatization transformed from SOEs are discussed in Section 11.7.
11.3.5 Policy Reform in Heating Sector 1087. The policy reform, such as the requirements for heat meter installation and energy efficient buildings, in the heating sector has been gradually implemented over the past few years. In June 2006, the “Comment on Acceleration of Installing Heat Meters” was issued by the Ministry of Construction. It puts forward the following two major objectives: (i) Before the 2008-2009 heating season, the installation of heat meters for government buildings should be substantially completed; and (ii) In the period of the 11th Five-Year Plan of the PRC (2006-2010), buildings that are not energy efficient should be rehabilitated to enhance energy efficiency, and the pilot percentages for heat meter installation should be 35%, 25% and 15% for large-, middle- and small-sized cities. 1088. In May 2007, the “Comments on Energy Efficient Buildings Process” was issued by the GIMAR. It was stressed that the pilot heat meters should be installed to collect reliable and scientific data for future tariff collections based on heat consumption. IMEIP II PPTA FINAL REPORT 11-18
1089. The pilot heat meter installation and non-energy efficient building rehabilitated have been basically conducted in bigger project cites in IMAR. For example, in Baotou, heat meters have been installed in Shangri-La Hotel and Kouan Residential Quarters with a heat area of 100,000 m2. Currently, the heating meter installation processes in IMAR are at the preliminary stage and need more time to be accelerated. 1090. As mentioned previously, the new heating tariff management regulation has specified the following issues:
i Heating tariff classification and structures; i Heating tariff setting and adjustment; and i Heating tariff implementation and monitoring. 1091. This regulation indicates that the heating tariff consists of heating costs, taxes, and profits. The heating costs include fuel, electricity, water, fixed asset depreciation, maintenance fees, salaries, and other direct costs. The profit is currently calculated based on cost profit rate of the heating enterprises, and will be calculated based on equity rate in the near future. If the profit is calculated based on the cost profit rate, it should be less than 3%; if the profit is calculated based on equity rate, it should be 2-3% higher than the interest rate of State Bond. 1092. It is also learnt from this policy that the PRC encourages the development of cogeneration and district heating, allows non-state owned capital investment in heating facilities, construction and operations, and therefore expedites heating commercialization.
11.4 Case Studies on PSP 1093. Two IAs currently in nature of government structures have been selected as case studies on potential PSP with simple models as described below in this section. The PSP options have also been introduced during the training sections and the dialogues between the Consultant and the IAs. 11.4.1 PSP Options 1094. There are several options of private sector involvement in the heating sector. The options include:
i Service contracts; i Management contracts; i Leases; i Concessions; i Build Operate Transfer (BOT) or Transfer Operate Transfer (TOT); i Full or partial divestures; and i Other options. IMEIP II PPTA FINAL REPORT 11-19
1095. In addition to the PSP options, the government decision makers need to understand that the objectives for introducing the private sector can potentially include one or more of the following:
i Provision of investment capital; i Improvements in the efficiency of capital investments; i Improvements in the efficiency of operations and maintenance; i Improved service levels; i Improved customer responsiveness; i Reductions in government involvement in sector management; i Access to extensive technical expertise; and i Access to management expertise. 1096. It is important that the government makes a clear decision on its objectives in adopting PSP because some PSP options are better suited than the others. The identification of objectives is therefore crucial to successful PSP design. It is also possible to combine several PSP models as a means of achieving the objectives. 1097. As previously mentioned, BAYAN and WENQUAN are the IAs currently solely owned by the governments of Chenbaerhu Banner and Ningcheng County, respectively. The action plans for these IAs with privatization framework are proposed below. In Chenbaerhu Banner, Guangming Thermal Co., Ltd, the existing heating supplier in the area with 350,000 m2, is encouraged to participate in the open bid process together with other competitors. In Ningcheng, Shuntong Thermal Co., Ltd, a private-owned company, is the current heat supplier to the area. Its current heating area is 70,000 m2. WENQUAN will explore the opportunities with open tender procedures as well. 1098. In January 2008, onsite training was provided by the Consultant to both IAs and possible PSP approaches were discussed with the local government decision makers. In March 2008, a targeted PSP training for high level management was held in Hainan, and the dissemination of a successful PSP case was provided during this training session. During the Tripartite Meeting in Hohhot in May 2008, the Consultant communicated with BAYAN and WENQUAN. Both of them have agreed to obtain heating tariff collection permits from relevant government agencies for the proposed heating facilities financed by ADB once the facilities are operational. In order to ensure successful operation and maintenance of the facilities, two additional departments in BAYAN, namely Tariff Collection Department and O&M Management Department, are recommended once the facilities are operational. The former is responsible for tariff collection and the latter is for O&M outsourcing activities, coordination and management. 1099. As these two are investment-type entities without any operation and management capabilities in the heating sector, appropriate actions and effective steps need to be taken for the operation and management of the future heating facilities financed by ADB. Therefore, it IMEIP II PPTA FINAL REPORT 11-20 is realized that the possible PSP strategies should be developed for these two cases. And the institutional strengthening and capacity building of the IAs are significantly important. 11.4.2 BAYAN 1100. BAYAN, owned by Chenbaerhu Banner Administration Office - government agency (78%) and Chenbaerhu Limin Water Supply Company - SOE (22%), is the IA for the current district heating subproject in Bayankuren Town. The subproject consists of the construction of hot water boilers with 2×29 MW, 7 HESs and 13 km primary heating pipeline. 1101. On 25 January 2008, a training seminar concerning PSP was held in Wulanhaote City, and representatives from four IAs in northeast IMAR attended this seminar. Particularly, officials from the Chenbaerhu Banner government, such as the county level DRC, Construction Department, Financial Department, Civil Department, Environmental Protection Bureau, and BAYAN participated in this training. 1102. The training content includes: (i) basic options of PSP, (ii) PSP processes; (iii) ADB policies on PSP; (iv) sample discussions on comparison between SOEs and private companies including revenues, costs, profits, management, and corporate governance; and (v) dissemination of successful PSP. 1103. The onsite training has been appreciated by the Chenbaerhu Banner government, the PMO and the IA as a beneficial learning process on PSP strategy for the subproject. Based on the dialogues in January 2008, the local government and BAYAN agreed to consider PSP on this subproject through an open bidding process to award an operational contract if a private company wins. All interested heating SOEs or private companies can participate in competition for quality services and efficient operation and management. Further dialogues and discussion will be carried out in near future to identify an appropriate approach on PSP. In addition, the institutional strengthening and capacity building was strongly recommended to implement the ADB Project. 11.4.3 WENQUAN 1104. WENQUAN is the IA for Ningcheng CGU, which covers the following six components: (i) geothermal extraction/reinjection; (ii) hot water supply; (iii) district heating; (iv) wastewater treatment; (v) geothermal greenhouse and aquaculture; and (vi) road rehabilitation. All are revenue-earning components except road rehabilitation. WENQUAN is a newly established company for the ADB Project and is inexperienced in either ADB project preparation or the operations of the above-mentioned components after the subproject completion, especially for the four revenue-earning components. Based on the investigation on current situation of WENQUAN, the Consultant observes great PSP potential on the WENQUAN case. A successful implementation of PSP will improve its economic efficiency, introduce new technical and knowledge expertise, and make customer service more responsive. 1105. On January 28, 2008, an on-site training was provided by the Consultant in Chifeng City. Participants included high level government officials from the local government of Chifeng City, Ningcheng County, Kalaqin Banner; and senior management from WENQUAN, JINFENG, and FULONG. During the training program, the Consultant presented a seminar on PSP, which includes the following issues: IMEIP II PPTA FINAL REPORT 11-21
i Motives and advantages of PSP; i Comparison between SOEs and private firms in terms of their performance in operation and cost efficiency: the SOEs are generally larger scaled, with more employees, more management personnel, easier access to funds; while the private firms are generally smaller, with fewer employees, fewer management personnel, but higher operational efficiency and lower production cost;
i PSP cycles; i Detailed discussions on PSP options including the features and benefits, suitable time periods, suitable projects, and etc.
i Case specific issue with WENQUAN on viable options and preferred timing for PSPs. 1106. To further explore the opportunities of PSP on Ningcheng CGU, several meetings between the Consultant and the decision makers including the local government officials and senior management from WENQUAN were held in Ningcheng and Hohhot over the past months. The main topics of the meetings focused on PSP strategies and an action plan on this specific subproject. It is recommended that the private firms should be chosen in an open tender procedure, and selection should be based on predetermined and pre-announced criteria. These criteria should include factors such as the financial and technical credibility of the bidders and their experience in running similar systems. During the dialogues, WENQUAN was willing to consider PSP on the revenue-generating components of the CGU subproject. 1107. Subsequently, a PSP outline of a strategic action plan has been designed by the Consultant. It includes (i) possible PSP options which are especially suitable for the WENQUAN subproject, and (ii) questionnaire for WENQUAN in terms of PSP actions including choices of PSP type, potential target private firms to be involved, and intended time frame for PSP implementation. Two documents were sent to the WENQUAN decision makers, and the response was received promptly. WENQUAN had made tentative decisions on PSP with the potential outsourcing options for all revenue-generating components. The Consultant worked together with the IA and developed a preliminary Action Plan for these two components as shown in Table 11.13. WENQUAN realized that there are substantial tasks involved with the privatization and expressed the interests in getting more supports from additional technical assistances on PSP related processes. 11.5 Action Plans for Potential Privatization on BAYAN and WENQUAN 1108. The Consultant has worked with BAYAN and WENQUAN for the suitable PSP options for their subprojects. The action plans proposed on privatization and commercialization with time bound targets have been developed and presented in Table 11.12 and 11.13, respectively. IMEIP II PPTA FINAL REPORT 11-22
Table 11.12: Action Plan on Privatization and Commercialization for BAYAN
No Description Time Study existing conditions, assess PSP options, prepare PSP 1 Late June 2008 strategy, and determine a PSP option to be applied 2 PSP Training for decision making group July 2008 3 Visit successful PSP in the same sector in IMAR or nearby provinces July 2008 Prepare bidding document (including commercial, financial, From July to 4 operational, technical, etc) and prequalification September 2008 5 Construction preparation July 2008 6 Construction commencement August 2008 Announcement in local and regional media according to national 7 October 2008 tendering regulation 8 Bidding for operation company November 2008 9 Conduct pre-bid contact negotiation December 2008 10 Conduct bidding evaluation December 2008 11 Determine the winning bidder December 2008 12 Negotiation December 2008 13 Contract format of concession December 2008 14 Construction end December 2008 15 Sign contract and contract becomes effective December 2008 16 Commence operation December 2008 17 Set up monitoring, evaluating and reporting systems December 2008 18 Training on operational workers and technical people at middle level December 2008
Table 11.13: Action Plans on Privatization and Commercialization for WENQUAN
Time No Description Action Plan 1* Action Plan 2** Study existing conditions, assess PSP options, 1 prepare PSP strategy, and finally identify a PSP option April 2009 April 2010 to be applied 2 PSP Training May 2009 May 2010 Visit successful PSP in the same sector in IMAR or 3 May 2009 May 2010 nearby provinces Prepare bidding document (including commercial, From June to From June to 4 financial, operational, technical, etc) and July 2009 July 2010 prequalification if necessary 5 Construction preparation June 2009 June 2010 6 Construction commencement June 2009 June 2010 7 Bidding for potential contractors/operator if any August 2009 August 2010 8 Conduct pre-bid contact negotiation September 2009 September 2010 9 Conduct bidding and evaluate proposals September 2009 September 2010 IMEIP II PPTA FINAL REPORT 11-23
Time 10 Determine the winning bidder September 2009 September 2010 11 Negotiation September 2009 September 2010 12 Contract format for outsourcing September 2009 September 2010 13 Construction end October 2009 October 2010 14 Sign contract and contract become effective October 2009 October 2010 15 Operation commencement if any October 2009 October 2010 From November From November to 16 Set up monitoring, evaluating and reporting systems to December December 2009 2010 From November Training on operational workers and technical people From November to 17 to December at middle level December 2009 2010
* Action plan 1 is for subprojects of Geothermal Extraction/ Reinjection and Hot Water Supply and District Heating
** Action plan 2 is for subprojects of Wastewater Treatment and Geothermal Greenhouse and Aquaculture 1109. Based on this action plan, the IA is trying to obtain retroactive funding from ADB for the proposed subproject. Since it takes time for ADB’s approval, the proposed action plan will be adjusted accordingly if any unforeseen event occurs.
11.6 Dissemination of Successful PSP 1110. As discussed in Section 11.3, FULONG and XINGDA are better profitable enterprises among the eight IAs in the heating sector. In this section, XINGDA is focused as a successful privately owned firm well established with quality services and efficient operation and management. The capital injection from the firm has significantly reduced the financial burdens on the local government. Meanwhile, the strong government support and favorable policies and regulations have also provided XINGDA with an enabling environment to become a viable and sustainable growing private enterprise in the district heating sector. 1111. XINGDA’s mother company is Tailai Xingda Heating Supply Co. Ltd., established in 2001 in Tailai County, Heilongjiang Province, a completely privately owned firm. In 2004, as the winner of 9 competitors in an open tender procedure on providing management services for newly installed heating facilities, XINGDA’s mother company expanded into Zhalaite Banner, IMAR from Tailai County, Heilongjiang Province. However, an accident caused by aging pipeline leakage almost eliminated it from the heating sector in IMAR during 2004 to 2005. The lessons have been learnt and the management has been improved. 1112. In order to operate more efficiently, XINGDA was formally established in 2006. In June 2006, a lease agreement for assets was signed between the Zhalaite Banner government and XINGDA. The government intends to first lease the heating assets and later liquidate them if possible. Under the same conditions, XINGDA has the priority to purchase the assets. The period of lease is from June 2006 to a date when the ownership of heating assets is sold. IMEIP II PPTA FINAL REPORT 11-24
1113. The government has several favorable policies and regulations to XINGDA as follows:
i The government provides land use right to XINGDA free of charge (XINGDA pays and gets reimbursed);
i 100% local taxes collected will be reimbursed to XINGDA; i 25% State taxes will be reimbursed; i XINGDA just pays business taxes, while the government not only pays urban maintenance tax, education attached fee, and environmental protection fees, but also pays asset insurance fees, land use taxes, and house property taxes;
i The government is responsible for completing legal procedures to obtain operating licenses, billing certificates, tax registered certificates, and other necessary official documents;
i The concession from the government promising no self-heating facilities for newly constructed buildings is allowed. Furthermore, all the smaller and less efficient heating facilities will be gradually decommissioned or demolished. These buildings will be connected with XINGDA’s heating system;
i The heating network connecting fees are collected by XINGDA for newly constructed buildings with a tariff of 30 yuan/m2; meanwhile XINGDA is responsible for the installation of connecting pipelines with the heating network;
i The heating fees proportioned by local financial department will be disbursed to XINGDA prior to July each year for XINGDA to purchase coals to ensure timely heating supply; and
i The vehicles to load/unload coals will get easy accesses in Zhalaite Banner for convenience. 1114. On December 5, 2006, upon a consideration of payment abilities of local residents and a hearing meeting concerning heating tariff adjustments, the government issued an approval on the heating tariff increases proposed by XINGDA. The heating tariffs were increased to RMB 25.5 per m2 for residential users and RMB 28.8 per m2 for public and industrial users. In addition, the poor households are required by the local government to pay their heating tariffs since they have already received government subsidies each year. All these government policies and regulations created the favorable conditions to ensure XINGDA’s cost recovery and profitable operations. 1115. In 2007, with a significant increase of construction of new buildings in Zhalaite Banner, the heating supply demand has been increased accordingly due to a newly constructed government building and residential quarters. XINGDA was appointed by the local government after a termination of a bidding contract in August 2007. XINGDA embraced this opportunity, overcame difficulties encountered, and injected capital to install three chain-grate hot water boilers with a total capacity of 3x20 ton/hour. Therefore, the IMEIP II PPTA FINAL REPORT 11-25 heating supply capacity of XINGDA has been significantly enlarged, and it gradually becomes a mature and experienced heating company. 1116. As of the end of 2007, the amount of total injected capital in Zhalaite Banner reached RMB 23.4 million, while the amount of total assets reached RMB 33 million. The total existing heating area is 700,000 m2, while the heating capacity is 1,100,000 m2. There are 2 heating plants with 6 hot water boilers with a total of 12 km pipelines. In addition, there are 60 staff members. 1117. In the same year, Zhalaite DHS financed by ADB was proposed with a total project cost of RMB 146.5 million, and 4 sets of CFB boilers with a total capacity of 4x40 ton/hour will be installed. Upon completion of the project, the total heating capacity will reach 1.6 million m2. The existing boilers will become peak shaving boilers with a total heating capacity of 1.1 million m2. Moreover, a project office with 4 persons has been established to respond to any requirement from ADB and IMAR PMO. 1118. In late March 2008, a representative at high level from XINGDA was invited as a key speaker to disseminate its successful PSP experience to the other IAs, particularly to the high level management individuals from Chenbaerhu Banner and Ningcheng County. It is believed that XINGDA will gain more valuable experience through this ADB financed subproject and become a more mature private company with viable financial capability and sustainable development.
11.7 Training on PSP 1119. Based on the onsite investigation, the Consultant has learned that most of above IAs have no experience regarding ADB-financed projects and lack the understanding on ADB policies and procedures. Private sector engagement requires different options for their participation such as service/management contracts, leases, concessions, BOT, full or partial divestiture, or some other form of privatization. A training program is needed to assist the officials and technical staff of the PMO, IAs and other relevant government agencies in developing PSP strategies with objectives to aid in expanding and strengthening PSP in IMAR, and to ultimately strengthen the IA’s and assist them in the planning and reform necessary to sustain the benefits brought by the Project. 1120. Therefore, the PPTA team has arranged four workshops with PSP as one of the primary focuses of the training. 1121. The Consultants understand that the proposed training plan on PSP for the PPTA includes technical and administrative/management aspects of the Project. And the training program on PSP has supported the integrity of the overall project and as such, has been an extremely important part of the Project. 11.7.1 Training Necessity 1122. The PSP training program is designed to provide a systematic and coherent framework to promote PSP. This training program provides institutional strengthening, capacity building and technical assistance, and dissemination of successful PSP to the high level management and the IAs. The goal of the training program is to achieve the transfer of IMEIP II PPTA FINAL REPORT 11-26 knowledge from expatriate personnel to the city and local managers, as well as the technical staff. Effective training programs can help the local personnel to obtain advanced knowledge from the technical aspect, and more importantly, the management skills and techniques from international experts on private sector development in the fields of district heating, natural gas and geothermal utilizations.
11.7.2 Training Components and Approaches 1123. The PSP training plan is to provide technical assistance and knowledge transfer in the following areas:
i ADB guidelines and procedures; i PSP in the fields of district heating; i Institutional strengthening and capacity building; i Corporate governance; and i Price/tariff reform. 1124. The trainings have been carried out in two parallel phases: on site hands-on management and PSP training workshops attended by the targeted IAs and senior level management. Specific trainings are summarized as follows: (i) As mentioned above, onsite training sessions (Training Workshop No. 2 mentioned in the Inception Report) for the selected IAs were performed in late January 2008. The training contents include the following issues:
i Identifying the barriers on PSP; i Institutional strengthening and capacity building; i PSP options and their applications to different cases on the subprojects; i Issues to consider in choosing a private sector arrangement; i Possible privatization from SOE to PSP (partial or full); i Business planning and budgeting; i Corporate governance; and i Tariff reform. 1125. As mentioned in Section 11.4.2 and 11.4.3, the Consultant has worked closely with the selected IAs, particularly BAYAN and WENQUAN. The opportunities of PSP and the action plans with potential PSP options have been discussed and developed after this training. (ii) The High Level PSP Management Workshop (Training Workshop No. 3 mentioned in the Inception Report) was completed from March 24 to 27, 2008. There were approximately 30 participants including senior level government officials, local IMEIP II PPTA FINAL REPORT 11-27
policy decision makers, the PMO, and senior managers of the IAs. The training content is summarized as follows:
i Motives for PSP; i Evolution of PSP in the PRC; i PSP profile and contribution in the PRC; i ADB PSP strategies and policies; i PSP options and their applications to various subprojects; i Issues to consider in choosing a private sector arrangement; i Corporate governance of private sector; i The barriers on PSP in the heating sector in IMAR; i Dissemination on successful PSP cases; and i Lessons learned on PSP. 1126. The GM of XINGDA, Mr. Zhang Xianfeng, was invited as a guest speaker for the purpose of dissemination of a successful PSP case during this session. Through this Project, XINGDA and the other IAs have realized that the ADB-financed heating subprojects focus on not only corporate profitability and sustainability, but also the long term social impact and poverty relief. It’s beneficial by participating in the Project by learning advanced international technologies and experience, and therefore, improving company management, institutional strengthening and capacity building, financial management, corporate governance etc. 1127. In addition, two guest speakers from Hunan and Liaoning Provinces were invited to give a presentation as well. Their valuable experiences on ADB finance projects were shared with all the workshop participants.
11.7.3 Training Evaluation 1128. The training questionnaires and dialogues between the Consultants and IAs have been processed to identify the priority and highlight training topics according to the IAs’ concerns. And then the training materials were accordingly developed. When the training was being provided, the IAs were encouraged to raise questions and issues for discussion during the seminars. The training evaluation sheets were distributed to each participant for evaluating if the training meets the IAs’ requirement. The comments and evaluations collected have been used to improve the subsequent training sessions.
11.8 Lessons Learned 1129. A number of lessons from previous attempts at private sector development have been learned over the past periods, and the following lessons can be applied by relevant governments at different levels to ensure a sustainable and successful PSP in the heating sector in IMAR. IMEIP II PPTA FINAL REPORT 11-28
1130. For privatization, the government may initiate the PSP with simpler forms and then move up to more complex models as expertise and capacity to manage them are built. A lesson has been learned for BAOTOU, as mentioned previously, that lack of knowledge and preparation may result in failure of the privatization from SOE. Another advantage in this staged approach is that simpler models are easier to manage, usually shorter in duration, and easier to correct or terminate if something goes wrong. 1131. The service contract is commonly suitable for heating tariff collections. However, FUTAI’s unsuccessful experience on outsourcing tariff collection indicated that although the service contract is relatively simple, it must be properly specified and monitored. The vague contract clauses on job responsibilities may result in the breach of the contract. 1132. The respective administration department under local government can monitor the situations of a private company according to the detailed contract clauses. If failing to comply with any of the relevant contract clauses, penalties should be paid and/or measures should be taken to mitigate any adverse affects in due course to avoid severe and negative affects. 11.9 Recommendations and Conclusions 1133. Based on the onsite investigation at this stage, it can be concluded that private sector has played an important role in this Project and has made positive impact on the social and economic development in the heating sector of IMAR. The recommendations and conclusions are summarized as follows: (i) Even though SOEs and state owned corporative holding enterprises are still dominant in the heating supply sector in IMAR, PSP has been increased and has great potential to develop due to the increasing heating demand and insufficient government fund. (ii) It is relatively more difficult to get access to financing from the local commercial banks, especially for small private companies with lean profits in the remote areas. This ADB-financed Project, therefore, has created enabling conditions and generated opportunities to catalyze the private investments in the heating sector of IMAR. (iii) In Chenbaerhu Banner and Ningcheng County, there exist the opportunities of privatization and commercialization for both government entities. Dialogues and training on PSP have been performed and potential PSP options have been recommended. The local government decision makers and IAs have agreed to consider PSP through the open tender procedures. Promoting competition and PSP in the heating sector have been emphasized. (iv) In the cases of Chenbaerhu and Ningcheng, it is recommended that open bidding processes can be applied to attract qualified bidders to be involved in the proposed PSP procedures. Effective bidding processes request several critical parameters for the candidates, which may include similar heating operation experience of over 3-5 years and specified amounts of operational revenue, fixed assets and current cash flow audited by an independent audit agency. IMEIP II PPTA FINAL REPORT 11-29
(v) After bidding is completed, a contract between a local government and a heating company should be properly signed. Detailed and quantitative clauses should be clearly specified in the contract regarding financial, institutional, operational, maintenance, technical, energy efficiency, environmental protection, services, supply guarantees, and penalties if either of the parties breaches the contract. (vi) For SOEs or state owned corporative holding enterprises, for example BAOTOU and FUTAI, it is recommended that the service contracts can be adopted for some specific service tasks, such as tariff collection, meter installation, and etc. (vii) In IMAR, the heating price is controlled by the government, while the coal price is increasing with market prices. This resulted in an operational loss for many years due to the policy constrains, high operation costs, inefficient operation, and uncollected revenue for most of heating companies. This requires the tariff regulation reform to allow the heating companies to be able to maintain cost recovery and a certain level of profit. To attract investment, communal services operations must be able to generate a positive cash flow. (viii) The barriers in promoting PSP include: (i) poor revenue collection; (ii) slow tariff reform; (iii) lack of legal regulatory framework; (iv) high risks with aging pipelines and obsolete heating systems; (v) lack of corporate governance and unclear property rights; and (vi) lack of knowledge and expertise on PSP and enterprise transforms. (ix) The subsidized tariff structure should be gradually transformed to a market driven fee structure. The local government is responsible to educate citizens that heating products are commodities, and therefore citizens should pay for the services and products. (x) Compared with SOEs, private firms have the advantages in operating the heating sector: (i) higher heating efficiency and lower costs in labor and management; (ii) higher tariff collection rate; (iii) better service quality and etc. The experience has shown that, when properly regulated and operated under competitive market conditions, the private sector can generally operate more efficiently than SOEs. XINGDA has established an excellent example on PSP with their successful experience, quality services, efficient operation and management. (xi) Institutional strengthening and capacity building are strongly recommended for all the privately owned IAs to ensure the implementation of the ADB-financed subprojects. Most private companies have previous experience of operating heating business, but they lack the experience on ADB-financed projects. The local governments, PMO and IAs will benefit significantly for their management of heating service business through participation in this Project on institutional, regulatory, staffing and financial improvement. Trainings to the IAs have been provided and will be continued regarding private sector development and dissemination of successful PSP models. IMEIP II PPTA FINAL REPORT 12-1
CHAPTER 12 PROJECT DESIGN MONITORING FRAMEWORK AND BENEFIT EVALUATION
12.1 General
1134. ADB is increasingly required to demonstrate the development effectiveness of its operations and to be accountable for its performance to a range of internal and external stakeholders. In response, ADB has moved to improve project quality at entry and to introduce more effective project performance management during implementation. ADB has progressively developed, tested, refined and introduced a project performance management system (PPMS). This is a coherent and results based approach to monitor and evaluate the implementation performance and development impact at various stags of the project cycle. Outside ADB, results monitoring and evaluation (RME) is a more commonly used term for such a system.
1135. The PPMS is a results-based design, monitoring, and evaluation process that provides feedback throughout the project cycle. The project (logical) framework is used for project design and establishes targets and performance indicators. These indicators are used during project implementation for project monitoring and management, and reported via a project performance report (PPR - an ADB reporting format). The same performance indicators are used for self-evaluation by operational developments at completion (project completion report - PCR) and for post-evaluation (project performance audit report - PPAR) by ADB’s Operations Evaluation Department (OED). While a number of the PPMS elements have been used for some time, recent refinements have sought to ensure a common framework for monitoring and evaluation throughout the project cycle. Important among recent changes, a significantly enhanced PPR became operational on 1 July 2001.
1136. The PPMS extends and replaces the benefit monitoring and evaluation (BME) formerly used by ADB. It serves the same ends as the BME but achieves them in a different manner. The PPMS goes beyond BME and seeks to establish a cause and effect relationship between the project and its expected impact. It does this by using the targets and indicators determined in the project framework during design. During project implementation, the PPMS reviews project progress and requires an assessment of the likelihood that the development objectives will be achieved. A preliminary assessment of impacts or their likely magnitude is then made at completion via the PCR and a more detailed impact assessment is made for a sample of project, via the PPAR. In contrast, the BME measures changes in a range of social economic indicators at fixed points of project implementation (typically at the start, midpoint, and completion), but focused only on benefits, and provided little or no information of immediate utility to project managers.
1137. The PPMS requires an effective project reporting system and is very dependent on collaboration with and inputs from project EAs. Establishing an effective project monitoring and reporting system is an integral part of all ADB-financed projects, many of which have included capacity building technical assistance to strengthen EA’s capabilities in this. In addition, assistance has been provided to central planning and evaluation offices to help IMEIP II PPTA FINAL REPORT 12-2 build capacity. The PPMS is expected to be part of the day-to-day project management, providing regular updates on project progress and early warning to project managers and others of emerging problems that require corrective action. It aims to contribute to improved project performance, and is part of the ADB’s accountability framework. The use of the PPMS is mandatory for all loan-financed projects assisted by ADB.
1138. Building an effective project performance management capacity in a country can be a long-term development process. This process has been evolving in the PRC since the early 1980s and remarkable progress has been achieved since then, although much remains to be done in building an effective evaluating system to improve the quality of investment projects. ADB has extended several evaluation oriented TAs to a number of PRC Government agencies since 1994, including the People’s Bank of China, China Development Bank, and the China National Audit Office. The TAs training inputs have been provided for enhancing project staff capability in project performance monitoring and evaluation in general and in institutionalizing a results-based management system.
1139. ADB has attached great importance to the PPMS of this Project. With the coordination of the Project Manager, a Project Management Office from the ADB PRC Resident Mission has given guidance on the Design and Monitoring Framework (DMF) and its core part of PPMS. The ADB officials presided over the first phase of the Project DMF seminars, and provided the training to the DMF consultant of the Project. With this assistance from ADB officials and the Team Leader of the PPTA, the DFM and PPMS study of the Project has been carried out smoothly.
12.2 Methodology
12.2.1 PPMS vs. DMF
1140. The international development community is committed to improving aid effectiveness. Managing for development results (MfDR) is a cornerstone of this engagement. ADB fully subscribes to MfDR, applies the principles in its own operations, and is actively promoting MfDR within its developing member countries (DMCs). At the country level, MfDR is being operationalized through the introduction of results-based country strategies and programs. At the project level, MfDR is based on a participatory approach to project design and adapting the logical framework.
1141. The PPMS outlines a systematic way of designing and implementing projects. The DMF, the key element of the PPMS, is a results-based tool for analyzing, conceptualizing, designing, monitoring, and evaluating projects. It structures the project planning process and helps communicate essential information on the project to stakeholders in an efficient, easy-to-read format. The DMF approach distinguishes between the DMF design process and the DMF itself. The process refers to the steps involved in designing a project – stakeholder analysis, problems and objectives analysis, and analysis of alternatives. The results of the DMF process are then summarized and presented in a matrix format, referred to as the DMF. In ADB, the DMF, previously called project or technical assistance (TA) framework, has been mandatory since 1996 and is included in TA papers and the report and recommendation of the President (RRP) as Appendix 1. The DMF approach can be applied IMEIP II PPTA FINAL REPORT 12-3 to analysis and planning of country programs, sector strategies, and program, project, and technical assistance interventions. For this report, the focus is placed on its application at the project and TA level.
1142. The DMF establishes the basis for performance monitoring and evaluation during and after implementation. It is not a static planning document. Rather, it is revised and updated regularly to reflect the necessary changes in project scope during implementation. Key stakeholders are involved in all phases, from analysis and conceptualization through feasibility to final design and implementation. This participatory process involves the borrower, EA and IAs, other government organizations and non-government organizations (NGOs), the private sector, beneficiaries, and the ADB project team and consultants.
12.2.2 Stakeholder Analysis
1143. Stakeholder participation in the design process of development assistance projects is essential to make aid more effective. It ensures that the principles of MfDR are fully implemented. The DMF is a powerful tool that brings structure and logic to any project. It makes development interventions focus on achievable and measurable results through performance targets and indicators and it draws attention to the risks that projects may face during implementation. However, achieving results is, to a large extent, dependent on stakeholder involvement, cooperation, and consensus. The participatory approach in developing the DMF builds country ownership and helps to achieve results.
1144. Stakeholder analysis is the first diagnostic tool and the first step in the DMF approach. It helps clarify which people and organizations are directly or indirectly involved in or affected by a specific development problem. It helps identify which groups are supportive and which groups may oppose the project strategy and subsequently obstruct project implementation. This provides a sound basis for taking appropriate actions to gain the support of opponents and to get key supporters more involved. Stakeholder analysis plays an important role in identifying the development problems.
1145. Stakeholder consultations for development of the Draft DMF of the Project were undertaken in Wulanhaote City on 24 January 2008, and Chifeng City on 28 February 2008. Final consultation was undertaken with the EA on 7 March 2008 in Hohhot City. Stakeholder analysis was carried out in facilitated workshops and brainstorming sessions. The important information on the stakeholder analysis has been defined in Table 12.1.
Table 12.1: Result of Stakeholder Analysis
Stakeholder’s Perceived Stakeholder Resource Mandate Interest Problem Heating users Access to reliable, Indoor temperature Willingness to pay Not applicable clean heating is below the for reliable heating services standard service requirement Heating supply Owning central Aging pipeline Nearly monopoly Providing district enterprises heating supply network and on heating service heating service sources, and/or obsolete heating control and equipment; IMEIP II PPTA FINAL REPORT 12-4
Stakeholder’s Perceived Stakeholder Resource Mandate Interest Problem network Low heating equipment; coverage providing heating service
Small boiler To get the Poor labor Boiler operation Not applicable workers employment protection technology and opportunities in the conditions; boiler post period of heating Hope to get new certification season employment opportunities after the small boiler room closed; With the boiler post card to find appropriate employment opportunity The agency Lack of access to Management of Paying network To provide the running small the district heating the small boiler construction fee for basic facility, such boiler network, was difficult and of connecting to the as land for HESs construction of high cost district heating and infrastructure small boiler and Hope to get access networks for pipeline running it as the to the district construction heating sources to heating network provide heating and close the small service boilers as soon as possible Competent central To improve the Aging pipeline Management of Management on heating authorities local heating network and district heating construction of the (local Urban facility; obsolete enterprises; heating, Construction At construction equipment; Preparation of geothermal Bureau) phase of the Low heating planning for district development of the project, coverage; heating supply and infrastructure responsible for Occurrence of network construction coordinating heating fee dispute relevant departments; To conduct acceptance completion for the engineering of the project Project EA and Implementation of Waste heat from To decide heating To seek new local DRC development power plant have prices projects and planning; not be used; funding sources Project Energy waste identification Local EPBs Small heating The small heating Environmental Approving projects boiler emission; boilers and indoor quality monitoring; EIA documents; Untreated heating stoves are Environmental Acceptance of wastewater the serious management; environmental discharge atmospheric Enforcement of protection facilities pollution sources environmental IMEIP II PPTA FINAL REPORT 12-5
Stakeholder’s Perceived Stakeholder Resource Mandate Interest Problem standards Local tourism Administration of The poor quality of Provision of Implementation of bureaus tourism affairs tourism services; information for tourism policies; Regional geothermal Address the infrastructure was tourism complaints on backward tourism service quality Local Poverty Boosting poverty Inadequacy of Providing Explaining the Alleviation Office alleviation; poverty alleviation information on pro-poor policies Project projects poverty alleviation development for poverty alleviation Enterprises on Using geothermal Lack of steady and Participation in Not applicable geothermal hot water for reliable geothermal geothermal medical and medical, health hot water development and convalescence care and resources the regional convalescence infrastructure construction; Payment for geothermal hot water Enterprises on Using geothermal Lack of steady and Participation in Not applicable geothermal hot water for reliable geothermal geothermal aquaculture aquaculture hot water development and development the regional infrastructure construction; Payment for geothermal hot water
12.2.3 Problem Analysis
1146. Problem analysis, through the development of a problem tree, is the second diagnostic tool applied in the situation analysis. The analysis is derived from system analysis. This tool is used to:
(1) analyze the existing situation in a given development problem context;
(2) identify the major related problems and constraints associated with the development problem; and
(3) visualize the cause-effect relationship in a diagram – a problem tree (see Figure 12.1).
1147. The problem analysis is performed with participation of the key stakeholder groups that were identified during the stakeholder analysis. It can be carried out in a half-day to 2-day workshop, depending on the nature and complexity of the development problem, e.g., national, sector, and cross-sector. The problem analysis can also be performed in a series of smaller stakeholder workshops and the results of each merged into a comprehensive problem tree. IMEIP II PPTA FINAL REPORT 12-6
1148. Generally, the problem analysis is performed through the following steps:
(1) Discuss the general situation and issues and identify the development problem with stakeholders.
(2) Write the development problem on a card and pin it at the center of the board.
(3) Write the problems that are the direct causes of the development problem on cards and place them in a horizontal line under the development problem. The group should restrict itself to existing problems and not anticipate future problems; determine the direct causes for each of these problems (direct causes) and place them as a horizontal line under each card. Broaden the problem tree as you work downwards until you reach very specific root causes.
(4) The space above the development problem is for the direct effects of the development problem. Write them on cards and place them in a horizontal line above the development problem.
(5) Continue to work upward by placing the perceived effects of each problem in a horizontal line above.
(6) Review the problem tree and analyze the interrelationship of problems at different levels and move cards around accordingly.
(7) Then, draw lines with arrows pointing from each problem that is a cause to the problem that represents an effect.
1149. 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 high distribution losses. In many urban areas the district heating systems were installed in the 1970s and have 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 environmental impacts. Inadequate coverage of district heating to low income urban areas results in use of indoor coal burning for heating purposes, which is also a major cause of respiratory disease.
1150. After more than 15 years of service, the existing district heating system is experiencing numerous problems which affect the service quality to consumers.
(1) Severe corrosion occurred in part of the pipelines resulting in frequent leaks.
(2) With the development of the system, some pipelines have developed bottle necks in the heat transmission system; the original design of pipe size can not sustain the increasing demand.
(3) Load distribution has exceeded the original design and the end users that are far from heat source suffer a heat shortage problem.
(4) The circulating pumps in the two boiler plants are not properly engineered to adequately match the characteristics of pipelines and are highly inefficient resulting IMEIP II PPTA FINAL REPORT 12-7
in substantial energy waste.
(5) The existing HESs have no integral automatic control and regulating equipment, as a result are not operating at optimum efficiencies.
(6) No regulation measures are provided to end users and it is difficult to implement the heat metering, which is called for by the central government as a reform in the district heating sector in PRC.
(7) Heat sources are separated, and heat transmission pipelines are branched; an accident in one heat source or primary pipeline may disrupt heat supply in another area.
1151. Along with the rapid economic development and population growth in the PRC in recent years, energy consumption continues to grow and air emissions of various pollutants including greenhouse gas have also increased substantially. This puts tremendous pressure on limited natural resources and the environment. As a cleaner fuel, NG with high heat value has been increasingly valued and the development of NG industry has become one of the best choices for improving the environment and promoting sustainable economic development. The heat value of coal gas is more than 3000 kilocalories while that of the NG is as high as 8500 kilocalories. Thus NG is a high value fuel and it also has higher energy conversion rate comparing to other fuels. The NG combustion technologies have been improved significantly in recent years. The thermal efficiency of NG gas-fired power plants previously was below 40% not that many years ago and now it approaches 60%. At some cogeneration and combined cooling, heating and power (CCHP) plants, the thermal efficiency can be as high as 90%. Moreover, the pollution associated with NG combustion is much less comparing to other fuels. Researches have demonstrated that NG, among all fossil fuels, discharges the smallest amount of carbon dioxide to generate the same amount of electricity or thermal energy. The greenhouse gas generated by NG combustion is only 1/2 and 2/3 of that generated by coal and petroleum, respectively. Compared with fuel oil and coal, NG combustion emits much less sulfur dioxide and nitrogen oxides.
1152. On the demand side, the annual consumption of NG in the PRC has increased by more than 2 billion m3 from 1998 to 2005, with an increase rate of approximately 10%. It is estimated that by 2010 the gap between NG demand and supply in the PRC will be around 20 billion m3. According to the “Energy Development Report of the PRC 2006”, the increase rate of NG demand in the PRC will visibly exceed that of coal and petroleum. Currently, NG accounts for 3% of the total demand for energies. The proportion of NG will increase to 6% by 2010 and further to 10% by 2020.
1153. Geothermal resources development and utilization in the subproject area is still at an elementary stage. Existing utilization including bathing, feeding, medical treatment and swimming is of low efficiency and excessive waste without staged use. Along with the growth of low level hotels and sanatoria, depredating and blind exploitation have occurred. So Ningcheng CGU implementation will be favorable for reasonable use of local geothermal resources to create great significance for protecting resource, eliminating waste and implementation of sustainable development. IMEIP II PPTA FINAL REPORT 12-8
Air pollutant Geothermal Degradation of emission, resources become land & water Energy waste Delayed Effects indoor exhausted resources Complaint pollution & Response ash waste
Short-term and intensive development of geothermal resources
Insufficient use of Use of new Poor tourism Waste heat from small boiler Weak development Weak development of service quality power plant & stove of geothermal geothermal tourism aquaculture
Low coverage of DHS Heavy reliance CGU is of low Ineffective and poor DHS quality on coal efficiency management
Development Inadequacy of reliable facilities for Problem energy efficiency
Inadequacy of DHS facilities and Shortage of Shortage of sustainable CGU ineffective management NGS facility facility and tourism resources
Aging pipes Small boilers Unreasonable Shortage of Lack of Poor quality & outdated with low layout of heating reliable geothermal infrastructures of tourism heating capacity networks resources services technology
Shortage of funds Ineffective planning and for update of difficulty to implement heating pipelines Geothermal resource unproved
Causes
Weak local Fast urbanization & Weak awareness of financial high demand for local authority in capability energy & heating geothermal utilization
Figure 12.1: Problems Tree IMEIP II PPTA FINAL REPORT 12-9
12.2.4 Objectives Analysis
1154. During the analysis of objectives, the problems identified in the problem tree are transformed into objectives – future solutions for the problem. Objectives analysis (i) describes a situation after the problems have been resolved, (ii) identifies the means-end relationship, and (iii) visualizes the means-end relationship in a diagram referred to as an “objectives tree”. Generally, the objective analysis is performed through the following steps:
(1) Reformulate the development problem at the highest level of the problem tree into a positive desirable condition or objective.
(2) Write the potential direct means for achieving the development objective on cards and place them in a horizontal line under the development objective.
(3) Repeat step 2: determine the means for achieving each of the objectives above (direct means) and place them in a horizontal line under each card.
(4) The space above the development objective is for objectives that flow directly from the development objective at positive, desirable ends.
(5) Review the objectives, checking that all means-ends relationships are valid and that there are no means-ends relationships missing. Complete the objectives tree by connecting the cards with lines.
1155. Large energy efficiency gains are available from the district heating subsector through system replacement and upgrading of the existing heat production and distribution systems. For example, small heating boilers typically have efficiencies of approximately 40%, while new larger boilers have efficiencies exceeding 80%. Additional opportunities for improving energy efficiency and reducing environmental impact in the Project areas (i) utilizing alternative renewable energy sources, such as geothermal energy; and (ii) capturing waste heat from existing industrial processes.
1156. The master plan of Ningcheng County has designed a tourism development program with the subject of “Green grassland, hot spring and ancient capital”. The Administration Council of the Tourism Zone compiled the “Master Plan for Ningcheng Reshui Tourism Zone” in June 2007.
1157. In previous divisions, geothermal utilization has considered comprehensive use and staged use. Comprehensive use includes geothermal district heating, hot spring physical therapy and baths, hot spring entertainment, greenhouse planting, warm water feeding and hot spring sightseeing. Staged use arranges space heating first with prior radiator heating and later floor heating. Then the circulated geothermal water will be used for bath and medical treatment, and then for greenhouse planting and feeding, and for hot spring entertainment. Finally the used circulated thermal water will be re-injected. The waste water from bath, medical care and aquaculture feeding will be simply treated and then use for sight water. IMEIP II PPTA FINAL REPORT 12-10
Conservation of Conservation Timely geothermal of land & water response to Ends Energy Reduction of air resources resources complaints conservation pollution & indoor pollution
Cascade use of geothermal & setup of sustainable utilization mechanism
High quality of Full use of power Setup of tourism and plant waste heat large-scale Enhancement of Enhancement hotwater heath DHS network geothermal of geothermal care services aquaculture health care
Promotion of DHS Promotion of NGS Sustainable use of Enhancement of coverage & and optimization of geothermal resources & management service quality energy mix wastewater treatment efficiency
Development Establishment of reliable energy facilities and Objective efficient management mechanism
Adequate DHS facilities & Reliable NGS Facilities for sustainable management mechanism facilities geothermal development
Network Demolitio Layout of DHS rehabilitation by n of small network to Construction Construction Enhancement new technology boilers match plan of reliable of related of tourism wells infrastructure service quality
Planning for DHS, NGS Conduct geothermal according the urban exploration plans
Active participation Capacity-building, strengthening Means Multiple in urban panning and of awareness for CGU funds sources infrastructure
Figure 12.2: Objective Tree IMEIP II PPTA FINAL REPORT 12-11
12.3 DESIGN AND MONITORING FRAMEWORK
12.3.1 The Logical Structure
1158. The logical framework or logframe approach has been used by ADB since the early1990s. Known then as the project or technical assistance framework, it became a mandatory attachment to all project documents in 1996. It was also adopted by most development agencies, DMCs, and NGOs. It has since evolved and is now widely appreciated as a powerful design and management tool that helps development practitioners identify clear objectives, build consensus among stakeholders, and implement result-based development interventions. It is renamed as DMF to reflect its application in all stages of the project cycle. It is the core link between project design, implementation, and evaluation and the basis for ADB’s PPMS.
1159. The DMF presents the following information:
(1) how the project will achieve results by converting a series of inputs into a defined set of outputs that are expected to achieve a desired development result or outcome, and contribute to a broader sector or sub-sector impact;
(2) time-bound and quantifiable indicators and targets that allow the project to be monitored throughout implementation and evaluated subsequently;
(3) identified project risks that may adversely affect achievement of desired results and appropriate mitigation measures; and
(4) specific assumptions that must remain valid for the project to succeed.
1160. The end product of the analytical and planning process, based on participatory techniques, is the DMF, a 14-box matrix (Table 12.2) that answers the following questions:
(1) Why do we do this project in the first place (impact)?
(2) What is the project going to accomplish (outcome)?
(3) What is the scope of the project (outputs) and what key activities need to be carried out?
(4) What resources (inputs) are required?
(5) What are the potential problems (risks) that could affect the success of the project?
(6) What are the fundamental assumptions underlying the project design?
(7) How do we measure (performance indicators) and verify (data sources) that we have been successful? IMEIP II PPTA FINAL REPORT 12-12
Table 12.2: DMF Structure
Design Summary Performance Data Sources/Reporting Assumptions and Risks Targets / Mechanisms (Conditions beyond direct Indicators (Sources of information to assess control of the project, but (Quantity and/or performance vs. indicators, and necessary for success) quality, & timing) frequency of data collection) Impact (Long Term Development Objective) Outcomes (Describe end of (Output to Impact) (Immediate project success Development status) Objective) Outputs (Immediate (Output to Outcome) (Deliverable) Development Objective)
Activities with Milestones Inputs
12.3.2 Design Summary
1161. Impact. The impact, also termed as goal or longer-term objective, refers to the sector, sub-sector, or in some cases national objectives. The impact, wide in scope, will accrue at a date—medium to long-term—following the project completion, and is influenced by many factors other than the project itself. The impact statement provides the link between the project and the Country Planning and Strategy (CPS). Specifically, the project represents one of the CPS outcomes.
1162. For this proposed Project, the long term benefit will be environmental quality improvement in the Project areas. Such impact is matched to the Chinese Country Planning and Strategy. To realize the impact, air pollutant emission from the heating supply system will be reduced significantly. The present existing emission patterns, low point and surface emission from small boilers and home stoves for heating, will be replaced by the higher chimney emission from district central heating system. That will lead to stronger air diffusing capacity and further, improvement of the environmental air quality and living standard in the urban areas.
1163. The Project supports the PRC’s 11th Five Year Plan (2006-2010) which emphasizes resource conservation and environmental protection, and gives priority to improving energy efficiency and developing cleaner energy sources. The Project will support the 11th Five
Year Plan targets for (i) reduction of SO2 emissions by 10% through reduction in coal consumption for district heating and diversifying heating supplies to include renewable supplies and waste heat recovery, and (ii) improving energy efficiency by 20%, through improving efficiency of district heating supplies, utilizing waste heat from industrial sources and reducing losses from distribution systems. The Project also supports the goals of improving energy efficiency and resource utilization outlined in the PRC Medium and Long IMEIP II PPTA FINAL REPORT 12-13
Term Energy Conservation Plan 2005 and the Decision of the State Council on Enhancing Energy Conservation, (2006) No.28, which emphasizes energy conservation, particularly in the heating sector. The proposed Project is consistent with the ADB’s Medium-Term Strategy II, 2006–2008 strategic priority of ‘managing the environment’, and PRC Country Strategy and Program strategic development objective of ‘improving the environment’. The Project will build on continuing engagement with the GIMAR in the energy sector.
1164. Project Outcome. The project outcome is the key anchor of the project design. It describes what the project intends to accomplish by the end of the project implementation and by doing so makes it clear what development problems the project will address. The decision on and phrasing of the outcome statement determines the nature and scope of the outputs that will be necessary to achieve the outcome.
1165. By completion of this Project, the energy efficiency will be promoted and natural resources (geothermal water) will be available for sustainable utilization. Reliable natural gas supply will make great contribution to the energy mix improvement in the subproject areas.
(1) Baotou DHS uses heat energy from a CHP plant. It is the efficient way in the development of district heating since the waste heat in power plant is used for district heating in stead of emitting into the atmosphere through a condenser system. The CHP power generation plant can reach a thermal energy efficiency of up to 85%. Compared with the separate production of electricity and heat, coal consumption is reduced and the environmental pollution is mitigated.
(2) The replacement of low-efficiency small size boilers will greatly reduce the coal consumption in the city and provide improvements in human health and benefits to the environment of the city.
(3) The use of quality pre-insulated pipelines can reduce the heat transmission loss, and the application of frequency converters can reduce the electric energy consumption.
1166. Outputs. Outputs are the physical and /or tangible goods and/or services delivered by the project and describe the scope of the project. These outputs must be the necessary to achieve the outcome and the means-end relationship has to be clearly identified.
1167. The outputs of this proposed Project will comprise:
(1) To deliver the reliable district heating systems with heating supply sources and heating pipeline systems in the 8 urban (town) areas;
(2) To deliver one gas pipeline system; and
(3) To deliver the facilities for geothermal comprehensive and sustainable utilization in the subproject area with geothermal water pumping and reinjection systems, hot water supply and wastewater treatment system, geothermal utilization facilities for pro-poverty fishery and cropping.
1168. Activities. Activities are the groups of tasks carried out using project inputs to IMEIP II PPTA FINAL REPORT 12-14 produce the desired outputs. The core activities form the basis for preparing the implementation schedule. Discussions with the EA, during PPTA implementation and at the latest during the loan processing, will provide the necessary information on the time frame for implementing each activity. This information is essential not only for preparing the implementation schedule, but also as the basis for a critical path analysis, which gives a more realistic view of the necessary project implementation period.
1169. Implementation Schedule; The project implementation is planned to take place over a period of five (5) years from 2009 to 2013. The Project completion is expected to be December 31, 2013. A detailed subproject implementation schedule will be provided in Appendix 6 of the Draft Final Report. This schedule is in line with the initial project preparation together with the procurment plan and financing plan.
1170. Inputs. Inputs are the main resources required to undertake the activities and to produce the outputs. These include consulting services, personnel, civil works, equipment, materials, and operational funds, which are provided by ADB, the government, co-financiers, and others, including beneficiaries if applicable. Inputs to be listed should include, as a minimum, the following:
(1) Inputs by financier and main cost categories in financial and/or physical terms;
(2) In-kind contributions from other stakeholders.
12.3.3 Application of the Framework
1171. Performance Targets and Indicators. Performance targets and indicators include both qualitative and quantitative specifications for the desired project results. As performance measures, they include how to recognize the successful accomplishment of objectives. An indicator outlines what will be measured. A performance target specifies quantity and time – how much and when. Listed in the second column of the DMF, they specify precisely each result at the output level, at the outcome level, and at the impact level. The key concepts related to indicators are:
(1) If we can measure it, we can manage it;
(2) All indicators have to be measurable and therefore expressible in numeric terms, in terms of quality, time, access, cost/price or customer satisfaction.
1172. Impact-level Indicators. Performance indicators at the impact level specify the expected medium to long-term impact at program, sub-sector, or sector level to which the present project, several other projects, and initiatives described in the Country Planning and Strategy (CPS) will contribute. Hence, the impact level indicator includes targets beyond the scope of the project. It is essential that the responsibility for monitoring and measuring the impact indicators is clearly defined during project processing.
1173. Outcome-level Indicators. The outcome or end-of-project indicator defines the project’s immediate effect on or the behavioral change of beneficiaries, and improvement to systems or institutions. They are the performance targets that the project takes full accountability to deliver and they are the basis on which the project will be judged a success IMEIP II PPTA FINAL REPORT 12-15 or a failure. The responsibility for monitoring and measuring the outcome indicators lies with the EA.
1174. The direct objective of the Project is to support environmental improvement in IMAR by improvement of energy efficiency and primary energy mix. The specific objectives of the Project are: (i) to promote efficient and reliable district heating and gas supply to households in the project areas by replacing small coal-fired boilers with larger energy-efficient and cleaner burning boilers and necessary rehabilitation of the relevant infrastructures; and (ii) utilization of clean fuel, such as integrated utilization of geothermal resources. It will provide substantial environmental and health benefits in selected urban centers of IMAR, including decreased coal consumption (both indoors and outdoors) which will result in a reduction of
TSP, SO2, NOx, and CO2 emissions. This will lead to improvements in public health, reductions in acid rain and control of emissions leading to improved climate change.
1175. Output-level Indicators. Output indicators are the key tangible goods and services the project will deliver. They define the project management’s terms of accountability that have to be achieved by the end of the project implementation. It is the project management’s responsibility to monitor the performance indicators at output level.
1176. Baseline Data˗ Baseline and target values should be determined after approval of the project, because they provide the basis for any investment decision. No major private sector investment would take place without this information and neither should public sector development projects. Consequently, the baseline information needs to be collected and target values agreed on during project design. The task of collecting baseline data has to be reflected in the PPTA DMF and included in the TOR of the PPTA consultancy.
1177. Data Sources and Reporting Mechanisms. The data sources and reporting mechanisms, previously called monitoring mechanisms, are recorded in the third column of the DMF. Data sources show where information on the status of each indicator can be obtained, who provides the information, and how the information is collected, e.g., surveys. Reporting mechanisms state where the information is documented.
1178. Assumptions and Risks. Projects are not isolated from external events and are influenced by factors outside the direct control of the project management. These include political, social, financial, environment, institutional, and climatic factors. Termed as assumptions and risks, they are highlighted in the fourth column of the DMF. Assumptions are positive statements of conditions, events, or actions that are necessary to achieve the results at each level of the DMF. Risks are negative statements of conditions, events, or actions that would adversely affect or make it impossible to achieve the intended results. Three types of risks and assumptions can be distinguished:
(1) Those that are or can be brought under the control of the project;
(2) Those that concern factors in the wider policy and institutional environment and that are dependent on decision makers elsewhere (e.g., policy environment, institutional capability, and political will); and IMEIP II PPTA FINAL REPORT 12-16
(3) Those associated with uncontrollable events or conditions (e.g., political stability, world prices, interest rates, and natural disasters).
1179. Assumptions and risks not within the control of the project are explicitly listed in the DMF. Assumptions falling within the control of the project should be taken into account in the project design and are the responsibility of project management. Loan covenants very often are of the nature of assumptions. They are outside the scope of the project, but are necessary for its success and should be reflected in the DMF.
1180. Project Coordination Management. The IMAR PMO, under the IMAR DRC, is the main agency for coordination of project implementation. The PMO will monitor implementation progress, including procurement activities, consolidate project costs and prepare consolidated semi-annual progress reports. It will also be responsible for the implementation of the technical assistance and capacity building component. The PMO will be the focal point of contact with the ADB. The MPMOs in the respective regional municipalities will coordinate and monitor project implementation including quality control in planning and construction, prepare progress reports, oversee performance of implementing agencies, consolidate project costs, and process disbursement applications. They will provide periodic progress reports to the PMO.
1181. The DMF Framework for the Project is presented in Appendix 1, while the PPMS table is shown in Appendix 23 of this Draft Final Report.
12.4 Benefit Evaluation
12.4.1 Environmental Benefit Evaluation
1182. The economic benefit from improvement of the environment is reflected in the reduction of environmental costs due to the use of district heating system to replace the small boilers and house stoves, NG against alternative fuel options and utilization of geothermal energy. The environmental costs are estimated as emissions multiplied by environmental costs per unit. The emissions of coal and other fuel options are SOx, TSP, NOx, and CO2. The SIEE concludes that the Project will provide an overall benefit to the environment in the project area. Regional air quality will improve with closure of small coal-fired boilers, more efficient gas distribution systems, and reduction in coal use because of more efficient boilers. The environmental benefits from the Project include coal savings of
1,085,000 t/yr, and an emission reduction of TSP of 18,260 t/y, SO2 of 14,260 t/y, NOx of
7,020 t/y, and greenhouse gas of CO2 equivalent of 1,655,600 t/y. Water and soil pollution will be indirectly reduced due to lower rates of pollutant transfer from air to water, with reduced stress on local ecosystems. The quantifiable local environmental benefits over the project life are expected to be approximately RMB 178.47 million annually for air environmental benefits in net present value at 2008 prices. The global environmental benefits of greenhouse gas reduction (CO2) are expected to be approximately RMB 147.63 million annually in net present value at 2008 prices. Unquantifiable environmental benefits, such as damages from the wastewater of small boilers and gas leakage, are also significant. IMEIP II PPTA FINAL REPORT 12-17
1183. The economic price of CO2, SOx, NOx and TSP emissions are estimated at RMB 89.17, RMB 1500, RMB 631.58 and RMB 275.23 per ton, respectively.
CO2 1,655,600 t/y X 89.17 yuan/t = approximately 147.63 million yuan/annum.
SO2 of 14,260 t/y X 1500 yuan/t = approximately 4.53 21.39 million yuan/annum
TSP of 18,260 t/y X 275.23 yuan /t = approximately 3.82 5.02 million yuan/annum
NOx of 7,020 t/y X 631.58 yuan /t = approximately 0.86 4.43 million yuan/annum
Total approximately 178.47 million yuan/annum for air environmental benefits.
12.4.2 Economic benefit evaluation
1184. The direct economic benefits from fuel cost savings include: (1) coal savings from fuel consumption savings between NG and alternative fuel options; (2) coal savings from fuel consumption savings between district heating systems and small boiler heating patterns; and (3) coal savings from comprehensive utilization of geothermal energy. The total crude coal to be saved or replaced is 1,085,000 ton/annum according to the EIA results. The price for crude coal is set at 250 yuan/ton. The direct economic benefits from coal saving is approximately RMB 271.25 million per year.