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World Bank Document Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 40636 - CN PROJECT APPRAISAL DOCUMENT Public Disclosure Authorized OF THE CHINA: MEISHAN COKE DRY QUENCHING PROJECT FOR A SPANISH CARBON FUND EMISSION REDUCTION PURCHASE AGREEMENT IN THE AMOUNT OF APPROXIMATELY US$10 MILLION WITH Public Disclosure Authorized BAOSTEEL GROUP SHANHAI MEISHAN IRON & STEEL CO., LTD. October 11,2007 Rural Development, Natural Resources & Environment Sector Unit Sustainable Development Department Public Disclosure Authorized East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUWALENTS (Exchange Rate Effective October 1 1, 2007) Currency Unit = Renminbi (RMB) RMB 7.50 = US$1 US$0.13 = RMB 1 FISCAL YEAR January 1 - December 3 1 ABBREVIATIONS AND ACRONYMS ACRE Anshan Coking and Refractory Engineering Consulting Corporation Baosteel Baosteel Group Corporation BaP Benzo (a) pyrene BP Bank Policy CDM Clean Development Mechanism CDMF Clean Development Mechanism Fund CDQ Coke Dry Quenching CER Certified Emission Reductions co2 Carbon Dioxide COD Chemical Oxygen Demand CPS Country Partnership Strategy cWQ Coke Wet Quenching DNA Designated National Authority DOE Designated Operational Entity EAP East Asia and Pacific EAPVP East Asia and Pacific Regonal Vice President EB Executive Board ECPG East China Power Grid EM Environmental Impact Assessment EMP Environmental Management Plan EPB Environment Protection Bureau ERPA Emission Reduction Purchase Agreement GDP Gross Domestic Product GHG Greenhouse Gas GoC Government of China GWh Gigawatt Hour H2S Hydrogen Sulfide HFC-23 Trifluoromethane IRR Internal Rate of Return IS0 International Standards Organization kwh kilowatt hour mZ Square meters MW Megawatt Meishan Baosteel Group Shanghai Meishan Iron and Steel Stock Co. Ltd. mu Measurement of land in China: 1 mu=O.O67ha N2O Nitrous Oxide NCCCC National Climate Change Coordination Committee NDRC National Development and Reform Commission NH3 PLmmonia NISCO Nanjing Iron and Steel Company NO2 Nitrogen dioxide NRCR National Research Center for Resettlement O&M Operating and Maintenance OHSAS Occupational Health and Safety Advisory Services OP Operational Policy PCF Prototype Carbon Fund PCM Project Concept Memo PDD Project Design Document PER Post-Evaluation of Resettlement PMl0 Particulate matter of 10 micrometres or less PPAH Pollution Prevention and Abatement Handbook RAP Resettlement Action Plan RMB Renrninbi (Chinese yuan) SCF Spanish Carbon Fund SEPA State Environmental Protection Administration so2 Sulfur Dioxide tC02e Tons of carbon dioxide equivalent TRT Top Gas Pressure Recovery Turbine TSP Total Suspended Particulate UNFCCC United Nations Framework Convention on Climate Change Vice President: James W. Adarns, EAPVP Country Director: David Dollar, EACCF Sector Director: Christian Delvoie, EASSD Sector Manager: Rahul Raturi, EASRE Task Team Leader: Hiroshi Ono, EASRE CHINA Meishan Coke Dry Quenching Project CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE ........................................................ 1 1. Country and Sector Issues ...........................................................................................1 2 . Rationale for Bank Involvement .................................................................................2 3 . Higher Level Objectives to which the Project Contributes ........................................3 B. PROJECT DESCRIPTION ....................................................................................... 3 1. Lending Instrument .....................................................................................................3 2 . Project Background .....................................................................................................3 3 . Project Development Objective and Key Indicators ...................................................5 4 . Project Components ....................................................................................................5 5. Lessons Learned and Reflected in the Project Design ................................................ 7 6 . Alternatives Considered and Reasons for Rejection ...................................................8 C . IMPLEMENTATION ................................................................................................. 9 1. Institutional and Implementation Arrangements ........................................................ 9 2 Monitoring and Evaluation of Outcomes and Results ..............................................10 . ... 3 . Sustainability............................................................................................................. 10 4 . Critical Risks and Possible Controversial Aspects ................................................... 11 D .APPRAISAL SUMMARY ........................................................................................ 12 1. Economic and Financial Analysis .............................................................................12 2 . Technical Analysis ............................................................ ........................................ 12 3 . Environmental Analysis ............................................................................................14 4 . Social Analysis ..........................................................................................................14 5 . Safeguard Policies .....................................................................................................15 6 . Policy Exceptions and Readiness.............................................................................. 15 Annex 1: Country and Sector Background Annex 2: Overview of CDM Projects in China Annex 3: Detailed Project Description Annex 4: Project Costs Annex 5: Economic and Financial Analysis Annex 6: Safeguard Policy Issues Annex 7: Project Preparation and Supervision Annex 8: Documents in the Project File Annex 9: Country at a Glance Annex 10: Statement of Loans and Credits Map IBRD 35617 CHINA MEISHAN COKE DRY QUENCHING PROJECT PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC EASRE Date: October 11,2007 Team Leader: Hiroshi Ono Country Director: David Dollar Sectors: Iron and steel industry Sector ManagerDirector: Rahul Themes: Climate Change RaturiIChristian Delvoie Project ID: PI04601 Environmental screening category: B Lending Instrument: Carbon Finance Project Finanekg Dab [ ] Loan [ ] Credit [ ] Grant [ ] Guarantee [XI Other: For Loans/Credits/Others: Total Bank financing (US$m.): 10 Proposed terms: In negotiated prices designated in Euro per ton of Certified Emission Reductions (CERs), paid annually Financing Plan (US$m) Source Local Foreign Total Borrower 68 68 IBRDIIDA Spanish Carbon Fund 10 10 Total: 68 10 78 Borrower: NIA. The World Bank, as trustee for the Spanish Carbon Fund, will sign the Emission Reduction Purchase Agreement with Baosteel Group Shanghai Meishan Iron & Steel Co. Ltd. Responsible Agency: N/A Estimated disbursemeats (Bank FY/US$m) FY 1 2008 1 2009 1 2010 1 2011 1 2012 1 Annual da da da da da Cumulative da da da da 10 Project implementation period: 10 years (5 years for CERs purchase) Expected starting date for CERs purchase: February 1,2008 ~xpectedendingdate for CERs purchase: ~ecembir3 1,2012 Does the vroiect denart from the CAS in content or other simificant res~ects? r lYes TX1 No Does the project require any exceptions from Bank policies? [ ]Yes [XI No Have these been approved by Bank management? N/A - - 1 Is approval for any policy exception sought fiom the Board? N/ A Does the project include any critical risks rated "substantial" or "high"? [ ]Yes [XI No Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ] No Project development objective: The development objective of the project is to reduce C02emissions by displacing electricity consumption at a large iron and steel company compared with the baseline scenario - CWQ and purchase of coal-fired electricity from the grid - by installing energy recovery facilities with the leverage of a Carbon Finance transaction. 1 Project description: I Component A: Construction and operation of CDQ units and subsequent electricity generation that will result in CERs, and Component B: A Carbon Finance transaction that will facilitate the purchase of the CERs. Which safeguard policies are triggered, if any? Environmental Assessment Policy (OPBP 4.0 1) Involuntary Resettlement Policy (OPBP 4.12) Significant, non-standard conditions, if any, for: N/A Board presentation: N/A I Loadcredit effectiveness: N/A I Covenants applicable to project implementation: 1. Registration of the project with the CDM Executive Board 2. Annual certification of Emission Reductions, including the implementation of Environmental Management Plan and Resettlement Action Plan for Phase I1 (based on an updated resettlement implementation plan submitted prior to for the commencement of Phase I1 land acquisition). A. STRATEGIC CONTEXT AND RATIONALE 1. Country and Sector Issues 1. With a rapidly growing coal-dependent economy, China has a critical role to play in global efforts to address climate change. China is already the second largest emitter of carbon dioxide (C02) in the world, and it could surpass the U.S., the current leader, by the end of this decade.' The Government of China (GoC) has made commendable efforts to reform
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