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 the energy sector and support the adoption of energy-efficient and renewable energy technologies. In the 1 lth Five Year Plan (2006-2010), GoC has pledged to improve energy efficiency per unit of gross domestic product (GDP) by 20 percent. On June 4, 2007 the GoC launched the National Climate Change Program to strengthen its commitment to combating climate change. The 20 percent improvement in energy efficiency by 2010, and subsequent reduction of C02emissions, is one of the key measures to control greenhouse gases (GHGs) emissions in the Program. With respect to the iron and steel industry, the application of coke dry quenching (CDQ) technology and other advanced energy efficiency technologies are to be enhanced.
2. Energy consumption in the Chinese iron and steel industry is currently two and a half times greater than in 1980, and the sector now accounts for more than 10 percent of total energy consumption in China. Since energy consumption per ton of crude steel produced in China is about 20 percent greater than that of Japan, there is considerable potential for this sector to contribute to the overall reduction of C02emissions at the national level.
3. As part of the country's growing response to climate change, China ratified the Kyoto Protocol under the United Nations Framework Convention on Climate Change (UNFCCC) in August 2002. The Kyoto Protocol entered into force on February 16, 2005, committing Annex I (industrialized) countries to reduce their collective GHG emissions by about 5 percent below their 1990 levels on average during the period from 2008-2012. In hlfilling these commitments, the Annex I countries can achieve some of their emission reductions through several means including the Clean Development Mechanism (CDM) which provides a financial incentive to companies or entities in Non-Annex I (developing) countries to undertake projects that lead to reductions of GHG emissions. Certified emission reductions (CERs) fiom these activities can then be transferred to other entities or governments in Annex I countries at a price.
4. The GoC has agreed to collaborate with the World Bank in the emerging market for CERs under the CDM. In October 2005, Measures for Operation and Management of CDM Projects in China were put into effect to regulate project development and identify national priorities, which include energy efficiency improvements, development and utilization of new and renewable energy, and methane recovery and utilization. The GoC also established a Clean Development Mechanism Fund (CDMF) to support the country's activities on
I Source: WRI http://earthtrends.wri.org/updates/node/ 1 10 Tokyo Energy Efficiency Group (2006). Chlna Energy Efficiency Financing Project. climate change based on the National Climate Change A percentage of CER revenues from CDM projects in China will be transferred to build this CDMF. As such, China is well prepared to strengthen its participation in CDM activities.
2. Rationale for Bank Involvement 5. The World Bank manages 10 Carbon Funds including the Spanish Carbon Fund (SCF) that was created in 2004. The fund was established to purchase GHG emission reductions from projects developed under the Kyoto Protocol to mitigate climate change while promoting the use of cleaner technologies and sustainable development in developing countries. Unlike other World Bank development products, the Carbon Funds do not lend or grant resources to projects, but rather contract to purchase CERs similar to a commercial transaction, paying for them annually or periodically once they have been verified by a third party auditor. AS a result, these Carbon Finance transactions have provided an additional revenue stream that reduces financial risks and provides a means of leveraging new private and public investment into projects that reduce GHG emissions.
6. This Carbon Finance project is hlly consistent with Pillar 3 of the World Bank's Country Partnership Strategy (CPS) for China (2006-2010) which aims to manage resource scarcity and environmental challenges. In the CPS, Carbon Finance transactions are identified as a World Bank Group intervention for stabilizing GHG emissions, as well as, part of the institution's support of China's commitment to protect the global environmental commons. In line with the CPS, the World Bank has undertaken a pioneering role in developing the CDM market in China. Many World Bank-supported projects are being developed in various sectors such as coal mine methane, industrial gases, renewable energy, energy efficiency improvement, and livestock methane recovery. The World Bank, in its report (April, 2006) entitled "Clean Energy and Development: Towards an Investment Framework," identifies Carbon Finance as an important financing instrument that would reduce the cost of climate mitigation and provide incentives to assist developing countries in their transition to low carbon economies. The World Bank has also helped to formulate the China Renewable Energy Law, assess opportunities for participation in the CDM market, and design the policy and institutional framework for CDM market development including the establishment of the CDMF.
7. Energy efficiency is one of the national priorities of China for CDM development. In this domain, coke ovens and other iron and steel sector projects offer significant CDM opportunities both in terms of number and the volume of CERs (see Annex 2). Given the strategic importance and potential for carbon transactions in the iron and steel sector, the World Bank is now supervising or assisting in preparing several Carbon Finance projects, such as Nanjing Iron and Steel Converter Gas Recovery Project (P088106) (NISCO Project), Baotou Steel Industry Energy Efficiency Project (P102568), and Luojing Coal Reduction Extreme Project (P105575), in addition to this project. Moreover, as the World Bank moves. to a more strategic focus on CDM activities, development of this project has provided an
3 The CDMF collects a percentage of all carbon credit transaction income, donations from international financial organizations, and other sources approved by the State Council. In the case of energy efficiency CDM projects in the iron and steel sector, two percent of carbon credit revenues are directed to the CDMF. opportunity for the World Bank to develop a partnership with Baosteel Group Corporation (Baosteel), the parent company of the project sponsor to use Carbon Finance as an additional incentive and resource to expand its group-wide efforts on energy efficiency improvements. The World Bank Carbon Finance Unit has signed a Memorandum of Understanding with Baosteel that will engage the group in sharing its energy management experience with the World Bank for the promotion of energy efficiency in the iron and steel sector both in China and abroad.
8. With these experiences and commitment to developing Carbon Finance transactions in China, including the on-going process of strategic engagement in the iron and steel sector, the World Bank is well positioned to facilitate the transaction of CERs fiom this project. 3. Higher Level Objectives to which the Project Contributes 9. The higher level objectives of the project are to support China's continued efforts to address climate change, which is identified as a medium-term CPS goal, and ultimately to contribute to China's sustainable development. The project contributes to these objectives by increasing energy efficiency in the iron and steel sector, as well as, by providing opportunities to reduce air pollutants.
B. PROJECT DESCRIPTION
1. Lending Instrument 10. The World Bank is not financing the construction and operation of the new CDQ and electricity generating units that will result in CERs. The World Bank will purchase the CER credits resulting fiom the project on behalf of the SCF fiom the project sponsor. The estimated amount of CERs to be purchased will be negotiated between the project sponsor and the World Bank in the Emission Reduction Purchase Agreement (ERPA), based on the calculations in the Project Design Document (PDD) submitted to the LNFCCC. The exact CERs eligible for purchase will be determined by periodic verification after project registration. The ERPA payments will be made periodically subject to verification by an independent Designated Operational Entity (DOE) accredited by the CDM Executive Board (EB) that was established under the Kyoto ~rotocol.~
2. Project Background Project Sponsor 11. The project sponsor is the Baosteel Group Shanghai Meishan Iron and Steel Stock Co. Ltd. (Meishan), one of the 22 wholly-owned subsidiaries of Baosteel, a state-owned company that became China's largest iron and steel conglomerate after a series of mergers in November 1998. Baosteel has a registered capital of RMB 45.8 billion and its annual steel production capacity is about 20 million tons. Baosteel was ranked 296 in the Fortune 500 companies list for 2006 and became the first of its kind in the competitive industry and
DOE has two functions: 1) to validate and subsequently request registration of a proposed CDM project activity; and 2) to verify emission reduction of a registered CDM project, to certify it as appropriate and to request the CDM EB to issue CERs. manufacturing sector in China to enter the world's top 500 enterprises in 2003. Meishan was originally established in 1969 and became a subsidiary of Baosteel in 1998. It has an annual steel production capacity of 3 million tons with 4,500 full-time employees. The company's annual net profit has been growing rapidly in recent years, i.e., RMB 65 million in 2002, RMB 496 million in 2003, RMB 1,545 million in 2004, and RMB 1,939 million in 2005. The company hopes to build on these gains in the coming years with significant upgrades and improvements to its production facilities.
Product Structure Adjustment and Facility Improvement Plan 12. Currently, Meishan has three sinter machines, three coke ovens, four blast furnaces, two converters, one hot metal mixer, a set of continuous hot rolling mills, and other ancillary equipment. The mid-term strategic plan of Meishan, referred to as the Product Structure Adjustment and Facility Improvement Plan (hereafter referred to as "the Overall Improvement Plan"), envisages increasing the annual steel production capacity of the company from the current 3 million tons per year to 4.5 million tons by 2010, through the improvement and revamping of production facilities, such as blast furnaces, coke ovens, and hot rolling mills. The first phase of the plan will replace most of the existing capacity while the second phase will account for the production expansion.
13. The replacement of three existing coke ovens with four new ones in the Overall Improvement Plan also calls for the replacement of the current practice of Coke Wet Quenching (CWQ) with CDQ.~ The CDQ units, which will be installed in two phases (hereafter referred to Phase I and 11) that will result in emission reductions, comprise the Carbon Finance project. The other components of the Overall Improvement Plan, such as new coke ovens, blast furnaces, and hot rolling mills are not included in the Carbon Finance project as they do not directly result in the reduction of GHG emissions (see Figure 1).
Figure 1: Overall Improvement Plan and CDQ Carbon Finance Project Phase I Overall Improvement Plan Phase I1
Blast Furnace, etc. Blast Furnace, etc.
Phase I Coke Oven Project Phase I1 Coke Oven Project
Coke Ovens Coke Ovens
\ /
In the coke making process, bituminous coal is sent to ovens and heated at high temperatures in the absence of oxygen. Volatile compounds that are driven off the coal are collected and processed to recover combustible gases and other byproducts. The solid carbon remaining in the oven is coke which is taken to a quench tower, where it is cooled with a water spray (wet quenching), or alternatively cooled by circulating an inert-gas (nitrogen), also known as dry quenching. Coke is then screened and sent to a blast furnace.
4
- Approvals by Relevant Authorities 14. The new Number 1-4 coke ovens and their related CDQ units were submitted to the National Development and Reform Commission (NDRC) as part of Meishan's Overall Improvement Plan that was approved on May 22,2007.
3. Project Development Objective and Key Indicators 15. The development objective of the project is to reduce COz emissions by displacing electricity consumption at a large iron and steel company (Meishan) compared with the baseline scenario - CWQ and purchase of coal-fired electricity fiom the grid - by installing energy recovery facilities with the leverage of a Carbon Finance transaction. This Carbon Finance project will contribute to enhancing sustainable development opportunities by mitigating global climate change and promoting the expanded use of an energy efficiency technology that also reduces local air pollution associated with the current CWQ operation.
16. The primary project performance indicator will be the annual amount of CERs delivered, which will be calculated from the net annual amount of electricity supplied by making use of recovered heat from the CDQ units that .will replace the use of electricity from the commercial grid.
4. Project Components 17. This Carbon Finance project consists of two distinct project components:
(a) Component A: the Phase I and I1 construction and operation of CDQ units and subsequent electricity generation that will result in CERs; and (b) Component B: Carbon Finance transaction that will facilitate the purchase of the CERs.
Component A: CDQ Construction and Operation
CDQ Technology , 18. The CERs will be achieved through recovery of the waste heat of hot coke fiom coke ovens by introducing advanced CDQ technology replacing the existing CWQ process. The hot coke produced fiom a coke oven has high energy potential. In the CWQ process, hot coke is quenched by applying water and as a result, heat is lost to the atmosphere and significant dust and other pollutants are generated. In the CDQ process, cold nitrogen gas is used as a heat exchange medium to cool down hot coke. The heated nitrogen gas produces steam in a waste heat boiler for electricity generation. The nitrogen gas, cooled down after the heat exchange, is re-used for cooling hot coke in a circular process. The CDQ process is shown in Figure 2. Figure 2: Schematic Diagram of CDQ process6
Heated Heat recm-eiy boiler
Project Description 19. This Carbon Finance project will address both Phase I and Phase I1 construction of CDQ units and their associated facilities and equipment that will result in CERs. The main components of one CDQ unit include a CDQ chamber, dust collection system, waste heat recovery boiler, and steam turbine generator. Both new CDQ units and the back-up CWQ unit have a quenching capacity of 140 tons per hour. The detailed project description is provided in Annex 3.
20. Phase I. The installation of the first CDQ unit in Phase I is associated with the replacement of two of the three existing coke ovens and the associated CWQ unit which are outdated and do not meet recommended Chinese sector cleaner production criteria. The first CDQ unit and its back-up CWQ are expected to become operational when the first two new coke ovens in the Overall Improvement Plan begin production in March 2008.' A 20 MW steam turbine generator will generate 118.84 GWh of net electricity annually and the generated electricity will displace electricity supplied through the East China Power Grid (ECPG) that is produced from coal-fired power plants that release large amounts of GHGs, thus resulting in the project's CERs.
Toshi Sakamoto (2005) "Case Study of Technology Transfer between Japan and China in Iron and Steel Industry." 7 One CDQ unit requires approximately 600 hours (25 days) of maintenance per year. When a CDQ unit is off- line the CWQ unit will be used. This has been taken into consideration when estimating potential CERs. Additionally, the probability of both CDQ units being off-line at the same time is deemed highly unlikely and therefore, the project design recommended construction of only one back-up CWQ unit. 21. Phase 11. After the Phase I CDQ unit is operational, Meishan plans to construct a second CDQ unit as part of a planned expansion of production capacity by 2010. The production capacity and technical specifications for the CDQ unit in Phase I1 are identical to those in Phase I. Once the Phase I1 CDQ unit comes on-line, its associated 20 MW steam turbine generator will be capable of generating an additional 11 8.84 GWh of net electricity annually and double the total amount to 237.68 GWh. The CWQ unit constructed during Phase I will also be used as a back-up for the Phase I1 CDQ unit. The remaining original coke oven and its CWQ unit will be decommissioned by the time Phase I1 becomes operational.
Project Financing Plan and Cost Estimates 22. The total investment cost for both Phase I and I1 CDQ units is RMB 510 million. According to the technology. provider, Anshan Coking and Refractory Engineering Consulting Corporation (ACRE), the annual operating and maintenance costs for the two units will be RMB 82 million. A more detailed estimate of project costs is in Annex 4.
23. The audited financial report for 2006 confirms that the financial performance of Meishan has been steadily improved over the past four years. The financing for the CDQ units was included in the financing plan for the coke ovens in the Overall Improvement Plan. Meishan will be financing the construction of the CDQ units and related equipment that constitute this CDM project with internal funds.
Component B: CERs Purchase 24. The World Bank-managed SCF will finance the purchase of emission reduction credits resulting from the electricity supply derived from the project to the commercial electricity grid. The expected total CERs produced from this project is estimated to be 1.87 million tons of COz equivalents (tCOze) over ten years (February 2008 - January 201 8). The purchase will be a performance-based contract under which payments are triggered by successful verification of the reduction of GHG emissions by an accredited DOE under the rules of the Kyoto Protocol. The quantity of CERs to be contracted, the length of time over which the purchase will be made, and the price paid will be agreed between the World Bank, on behalf of the SCF, and the project sponsor during ERPA negotiations. 5. Lessons Learned and Reflected in the Project Design 25. The design and preparation of this project have benefited from the experience of other Carbon Finance projects in the iron and steel sector and from the experience of other CDQ installations in China. Specific points reflected upon include:
(a) Mitigation measures to address potential technical risks. Meishan has selected ACRE, which has experience installing about 50 CDQ units in China, as the turn- key contractor for the project. The CDQ units for the company have been designed to avoid and mitigate potential technical risks identified through the experience and lessons that ACRE accumulated developing almost all CDQ units in China. (b) Estimation of CERs. Past experience suggests that actual electricity generation amounts will be determined not only by the capacity of coke ovens and CDQ units, but also by the actual operational patterns of coke ovens. Since it is difficult to project precise operational patterns in advance, a conservative estimation will be employed to determine the amount of CERs to be agreed on in the ERPA.
(c) Environmental and social due diligence approach. The CDQ units, supporting systems, and other ancillary equipment included in the project boundary were reviewed for safeguards compliance. In addition, a broader due diligence review was conducted for the coke ovens as a linked project, as well as the environmental performance of the entire plant, and past land acquisition for Phase I to make sure no significant reputation and other risks remain. This due diligence approach was based on the experience of the NISCO Project and endorsed by the EAP Safeguards Secretariat. 6. Alternatives Considered and Reasons for Rejection 26. There are two feasible technical options for the coke quenching process; i.e., CWQ and CDQ. The options and justifications for adoption or rejection for this project are summarized below.
(a) CWQ Option. The company could continue to use water to cool hot coke and purchase electricity from the grid.
(b) CDQ Option. Instead of using water to quench coke in the CWQ process, hot coke can be quenched by using inert gases within a closed environment referred to as CDQ. The heat from the coke is transferred to the inert gases which are fed into a waste heat boiler to generate steam for power generation.
27. Costs. The total investment for a CDQ unit including a back-up CWQ unit (RMB 255 million) is approximately 25 times more expensive than construction of a CWQ unit alone (RMB 10 million). Furthermore, the annual operating and maintenance costs for a CDQ unit including a back-up CWQ unit are estimated to be approximately RMB 41 million while the same costs for a CWQ unit alone are only RMB 0.3 million. While there are significant financial barriers to implementing CDQ, the technology results in significant energy savings as well as reduced costs from the improvement of coke quality from the reduction of coking coal used to produce a unit of iron. Yet, even when taking these savings into account, the feasibility study indicates that the financial internal rate of return (IRR) for the CDQ option without carbon revenue is 10.8 percent, well below the recommended industrial benchmark of 13 percent.8 However, when carbon revenue is included, the IRR improves to 13.4 percent.
According to "the economic analysis method and parameters for project construction (version 3)" issued by the NDRC and the Ministry of Construction, the recommended IRR for an investment project in the iron and steel industry is 13 percent. 28. Technology. There are considerable technology risks and no compulsory requirements to install CDQ or replace CWQ with CDQ in China. A recent study9 indicates that the capacity of coke ovens equipped with CDQ units would only account for less than 15 percent of the total coke oven capacity in China by the end of 2008. Given the lack of experience on the ground, operation of large scale CDQ units is still a challenge for the Chinese iron and steel sector.
29. Environment. The CDQ technology is categorized as a Level 1 Cleaner Production Technology under the State Government Recommendations issued in July 2006. CDQ also has advantages in energy savings and reductions of GHG emissions. Although air pollutants potentially generated from the CWQ process might be largely prevented by employing extensive emission prevention measures, the CWQ option would lose waste heat and there would be no reduction of GHG emissions.
30. The CWQ option is considered the baseline scenario as it is the most financially attractive, stable, and popular option applied in the Chinese iron and steel sector. Meishan has selected the CDQ option due to its strong commitment to being a leader in environmental protection and technology innovation supported by the incentive of revenue generated from the sale of CERs. This option offers the best opportunity for achieving project development objectives and enhancing sustainable development benefits for the company's large scale steel production.
C. IMPLEMENTATION 1. Institutional and Implementation Arrangements 31 In February 2007, Meishan established an internal working team led by a Vice- General Manager of the company for the preparation and implementation of this project. The working team is comprised of the Vice-General Manager, staff from the Energy Department, Planning Department, Financial Department, and Coking Factory. The Coking Factory will be the major project implementer under the supervision of the Energy Department, which will also be the focal point to coordinate CDM-related issues on behalf of Meishan. The Meishan Energy Management Company, an independent entity from Meishan that has extensive experience in power generation, will be contracted for the operation and maintenance of the CDQ units. The Environmental Protection and Resource Utilization Department of Baosteel will monitor and supervise the progress and performance of the project .
32. As of the end of August 2007, the construction of the Phase I CDQ unit was on schedule and a detailed plan was in place for testing and commissioning of equipment as well as training in cooperation with ACRE. Meishan has scheduled a three-month testing period for the Phase I CDQ unit that will begin in early 2008, and testing and acceptance of the equipment will be completed three months later.
9 Tokyo Energy Efficiency Group (2006). China Energy Efficiency Financing Project.
9 2. Monitoring and Evaluation of Outcomes and Results 33. According to the rules and procedures for CDM projects, project proponents must collect and archive all relevant data necessary for calculating emission reductions fiom a CDM project activity in accordance with the Monitoring Plan included in the PDD. The Monitoring Plan, established under the ERPA, provides the methodology and tools for measuring and calculating CERs generated by the project.
34. As part of project implementation, Meishan will implement the Monitoring Plan to claim CERs generated by the project. The emission reductions must be subject to periodic independent review and ex post determination of the monitored emission reductions (verification) by an independent verifier, who will be contracted for the project by the project sponsor. The verifier will determine whether the emission reductions have been achieved in compliance with applicable CDM rules and procedures and specific terms of the ERPA. Then, the CDM EB will issue CERs equal to the verified amount of emission reductions.
35. The project will make use of tested systems to monitor, verify, and certify the emission reductions in accordance with the rules and procedures for the CDM. The intermediate outcome of the project will be "the annual net amount of electricity supplied by the project" which is obtained by subtracting "the annual amount of electricity consumed by the project" fiom "the annual amount of electricity generated by the project." These electricity data will be obtained through automatic and continuous measurements with electricity meters. The project outcome is the annual amount of delivered CERs which have been verified by the verifier and certified by the CDM EB. These outcomes are evaluated against the estimated amounts of annual net electricity supply and emission reductions as provided in Table A3- 1. 3. Sustainability 36. The sustainability of the project is strong given the facts that:
(a) Meishan's strong commitment to and ownership of the project is evident since this project is part of Meishan's Overall Improvement Plan endorsed by Baosteel and,, with respect to both Phase I and I1 CDQ units, necessary governmental approvals have been obtained and the construction work has already started.
(b) Based on the financial analysis, anticipated carbon revenue could improve the IRR for the Carbon Finance project to be higher than the recommended industrial benchmark of 13 percent, but it would be below that number without carbon revenue. This indicates that the carbon revenue will make the application of the CDQ technology financially viable and sustainable.
(c) The application of the CDQ technology instead of the CWQ technology is strongly encouraged by Chinese national policies for energy efficiency improvement and climate change mitigation. This project is completely aligned with these national policies as the promotion of CDQ is specifically encouraged in the policies. (d) In addition to global benefits, this project will also facilitate local environmental and social benefits, which are necessary to ensure continued support fiom local governments and communities.
4. Critical Risks and Possible Controversial Aspects 37. A number of risks have been identified with this project. However, all of them are deemed manageable and the overall risk rating is considered low. Table 1: Risks and Mitigation Measures
supporting many World Bank and other CDM projects
institutional capacity to profit has been growing rapidly in recent years, and was implement the project. almost RMB 2 billion in 2005. It is evident that Meishan, as part of Baosteel, has significant financial and institutional capacity to implement this project. CDQ technology might M Meishan has selected ACRE as the turn-key contractor fail due to the lack of and ACRE has experience installing about 50 CDQ units technical capacity of in China. The contract includes the provision of warranty the company and and training for the management and operation of the technology shift to CDQ units. The main issues and risks identified fiom CDQ might not be previous CDQ experience have been fully considered and materialized. mitigation measures have been incorporated into the design and implementation of the project. Electricity generation M To avoid power generation fluctuation, all steam from the might be overestimated waste heat boiler is designed to be used for power so that anticipated generation. Conservative assumptions are used.for key emission reductions parameters such as emission factor for commercial power might not be achieved. grid and the operation rate of CDQ units. T~Eproject might N Compliance with the World Bank's safeguards cause local requirements and Chinese regulations has been confirmed. environmental and In addition, the environmental performance of the entire social problems due to plant was reviewed for due diligence and the liabilities of inadequate Meishan were addressed. A Post-Evaluation of environmental Resettlement (PER) survey confirmed that the past land measures and land acquisition complied with national regulations and no acquisition practices. evidence of adverse effects on affected people's livelihoods was found. Overall risk rating N Risk Ratings: H (High), S (Substantial), M (Modest), N (Negligible or low risk) D. APPRAISAL SUMMARY 1. Economic and Financial Analysis 38. In the absence of the CDM component, the installation of CDQ units is not financially attractive compared with the baseline alternative of CWQ and purchase of electricity from ECPG. A new CWQ unit would cost approximately RMB10 million, and the operating and maintenance costs of CWQ (RMB 0.3 million) are minimal as the process essentially consists of transporting the coke for a short distance to be quenched with water. The construction of the proposed CDQ project requires a large investment (RMB 255 million) and the annual maintenance cost (RMB 41 million) is considerably higher than for CWQ. The CDQ technology does have several advantages over CWQ including energy savings, improvements to coke quality, and decrease of coke input. However these factors alone do not result in an IRR that meets the benchmark for investment projects in the Chinese iron and steel sector.
39. Table 2 illustrates the improvement in IRR when revenue from CERs is included. In the absence of CER revenue, the project IRR is only 10.8 percent, significantly lower than the benchmark 13 percent, making the proposed project financially unattractive. When the CER revenue is included, the project IRR increases to 13.4 percent, slightly higher than the benchmark. Table 2: Financial Indicator Comparison: With and Without CER Revenue Item Unit Without income Benchmark With income from from CERs parameter CERs Project IRR % 10.8 13 13.4
40. Further sensitivity analysis confirms the importance of electricity supply (and subsequent emission reductions) to the financial viability of the project. The lRR is most sensitive to the net electricity supply, while it is least affected by operating and maintenance . costs.
41. Based on the above analysis, Meishan decided to maximize the use of steam through electricity generation rather than for less economical uses such as heating. As a result, the total electricity generating capacity of Phase I was increased from an original 12 MW to 20 MW based on the total steam that could be recovered. An additional 20 MW of power generation capacity is envisaged for Phase 11. The first 20 MW generating unit will provide 118.84 GWh of net electricity to Meishan's internal grid annually and once the second unit is on line after the completion of Phase 11, the amount will double' to 237.68 GWh. Detailed financial analysis is in Annex 5.
2. Technical Analysis 42. The CDQ technology is a mature and proven technology in the iron and steel industry and widely used in developed countries. In addition to the significant energy saving benefits, it is commonly recognized that CDQ will reduce the cokeliron ratio by 2 percent and increase the production capacity of a blast furnace by 1 percent. As a result of these benefits, CDQ is strongly encouraged by the GoC in various policies and sector guidelines.
43. Notwithstanding, in China the CDQ technology is at the early stage of market penetration due to its higher upfront costs. Approximately 50 CDQ units have been constructed in China mainly through various forms of development assistance. However, these units and their coke production capacity account for less than 15 percent of the total 300 million tons of coke production capacity in China. In addition, existing performance records indicate that the previously installed generating units could only achieve 60-80 percent of power generation capacity.I0 The lower than estimated power generation rates for other CDQ units in China is largely due to the practice of using steam for production activities first and allocating the balance of steam for power generation. Under this practice, the amount of power produced was dependent on the amount of steam left from other production purposes.
44. The general contractor for the CDQ units, ACRE, has been involved in installing almost all CDQ units in China. The CDQ units for the project are designed based on experience and lessons accumulated by ACRE, as well as the use of ACRE'S patented technology and equipment. The main issues and risks from the previous CDQ experiences are fully considered and mitigation measures are summarized in Table 3. Table 3: Technical Issues/Risks and Mitigation Measures
following technical assistance: - Staff training on central control, routine inspection, spot
'O The efficiency of 60-80 percent is based on the operation record of Ma'anshan Iron and Steel Company during an I8 month period and verified through interviews with iron and steel design institutions. 3. Environmental Analysis 45. This Carbon Finance project will result in significant benefits of energy recovery and subsequent reductions of GHG emissions, and not result in any significant negative environmental impacts. Therefore, this project is categorized as a Category B project.
46. Each CDQ installation is covered in one of the two comprehensive environmental impact assessments (EIAs) prepared for each phase of the Overall Improvement Plan. The EIAs were approved by the Jiangsu Provincial Environmental Protection Bureau (EPB) for Phase I and State Environmental Protection Administration (SEPA) for Phase I1 in November 2005. A separate Environmental Management Plan (EMP) for the CDQ units has been developed and will be attached to the ERPA and its implementation will be monitored.
47. The main pollution sources of CDQ are waste gases from (a) top of CDQ,chamber; (b) blow-off outlet of the circulation fan; (c) coke discharge point; (d) coke'transfer station; and (e) coke screens. The main pollutant related to these processes is dust. The waste gases will be collected with a sucking system and treated through a bag filter, and then discharged into the air. The dust collected from the bag filter will be reused in coal preparation processes. At the back-up CWQ unit, water spraying and baffle stack will be used to treat top gas, while other waste gases will be treated by a bag filter.
48. Public consultation was carried out in April and May 2005 through public meetings followed by a questionnaire survey. A total of 504 project-affected people were consulted. The main concerns of the public were enforcement of emission controls during operation, noiseldust during construction, and resettlement issues. These concerns have been incorporated into the project design and operation. The EIA reports for Phase I and Phase I1 have been disclosed locally and in the World Bank's Infoshop.
49. While not included in the project boundary, the environmental performance of Meishan's other facilities was reviewed by the task team and an independent consultant for due diligence. The results verified that the company has established a good environmental management system and practice, and there were no cases of serious violation of national and local environmental regulations. Therefore, there will be low reputational risk for the World Bank's involvement in this Carbon Finance project.
4. Social Analysis 50. There are six communities around the Meishan plant site and the total population is around 30,000. More than 95 percent of the families are employed by the company, so the communities and the company are closely tied to each other. Meishan is operating extensive corporate social responsibility activities, including contributions of medical equipment and training courses to the Meishan Hospital (RMB 780,000); infrastructure construction for surrounding communities (including RMB 850,000 for city plaza construction and RMB 150,000 for poor areas improvement); and equipment for Meishan School (32 projectors, 85 computers, and 32 televisions).
51. This Carbon Finance project may involve land acquisition and involuntary resettlement for Phase 11. It is estimated that the project will result in the permanent land acquisition of 180.5 mu and the demolition of 27 residential houses with an area of 3,935.25 m2; six enterprises with an area of 6,890 m2 and six shops with an area of 185 m2. The total number of project-affected persons will be 33 1. Meishan and Yuhua District Land Bureau have jointly prepared a Resettlement Action Plan (RAP) for Phase 11, which will be attached to the ERPA and its implementation will be monitored. In addition, Meishan will submit an updated resettlement implementation plan satisfactory to the World Bank prior to the commencement of Phase I1 land acquisition. The RAP has been disclosed locally and in the Infoshop. All the people affected by the project are ethnically Han and no ethnic minority households are affected.
52. Public consultation during the preparation of this project was carried out using a questionnaire survey, expert consultation, workshops, and public hearings. Project-affected persons and organizations have been informed of the project and its impact through meetings during the preparation of the RAP. Comments received from these meetings have been incorporated as appropriate in the RAP.
53. The land acquisition of 515.75 mu for Phase I was completed before the World Bank's involvement in the project. The PER concluded that the resettlement practices were in line with Chinese laws and regulations and the livelihoods of affected households have been improved. No resettlement-related reputational risks have been identified. 5. Safeguard Policies 54. Table 4 lists the applicable safeguard policies. See Annex 6 for more details. Table 4: Safeguard Policies
6. Policy Exceptions and Readiness 55. No policy exceptions are being requested. Annex 1: Country and Sector Background CHINA: CN-PCF-Meishan CDQ Project
1. Iron and Steel Sector in China 1. China has witnessed remarkable industrial development in the past half century. This is particularly notable in the steel industry, where crude steel production increased from 148,000 tons in 1949 to a forecasted 475 million tons in 2007. In 1996 China became the largest producer of crude steel in the world and it is the only country with output exceeding 200 million tons. With an average annual production growth rate of about 20 percent since 2000, China's growth is far beyond the 5.7 percent annual global increase in the iron and steel sector.
2. Along with this unprecedented growth, the expansion of iron and steel output has increased demands for resources and increased pollution, including GHGs. The Chinese iron and steel industry is undergoing structural change as the government and the market address what is still a highly fragmented and inefficient sector. The government has begun to encourage value-added vertical integration and horizontal consolidation among Chinese steelmakers. China has also attempted to slow the rate of investment in commodities by imposing stringent technology, energy consumption, safety, and environmental standards. Particular importance has been attached to structural reorganization and technology upgrades to rationalize companies in the industry. Steps taken now and in the near future will play a large role in improving market structure and energy efficiency.
2. Energy Efficiency in the Chinese Iron and Steel Sector 3. At the beginning of economic reforms in the 1980s, China had a highly energy- inefficient economy. The introduction of market mechanisms and increases in the price of energy encouraged conservation of energy use and as a result, energy use per constant RMB of GDP dropped significantly. Since 2000, however, energy use has risen more rapidly than GDP reflecting the growing capital and energy intensity of industry, as well as growing motorization and the rise of an urban middle class. China's overall energy efficiency is well ahead of other developing countries such as India, but far lower than developed countries such as Japan. The energy efficiency of many Chinese firms often lags behind that of developed economies by 50 percent or more.
4. The iron and steel industry has for years been China's top energy consumer, accounting for one-tenth of the country's total energy consumption. According to NDRC statistics published in February 2007, China's crude steel output increased 18.48 percent in 2006 to 418.78 million tons, while the production of pig iron jumped 19.78 percent to 404.17 million tons, and the output of steel products was up 24.45 percent to 466.85 million tons. Yet, despite this large increase in output, the overall energy consumption of China's major iron and steel enterprises fell by 8.8 percent in 2006 and the unit energy consumption for producing each ton of steel was down by 7.1 percent. Analysis of the statistics concluded that in 2006 the overall energy consumption of the country's large and rnid-sized iron and steel enterprises totaled 198 million tons of coal equivalent, or 645.12 kilograms of coal equivalent for producing each ton of steel.
5. Despite progress in energy efficiency, there is still room for improvement when compared with developed countries. The main reasons for low energy efficiency include: (i) prevalence of small-scale facilities; (ii) out-dated production processes; and (iii) low operational efficiency. To date, energy saving technologies such as CDQ and Converter Gas Recovery Systems has not been fully introduced. For instance, coke ovens with CDQ represent less than 15 percent of the total coke oven capacity, and the capacity of converters with gas recovery systems accounts for only 30-40 percent of the total crude steel production.
3. Actions for Improving Energy Efficiency and Addressing Climate Change 6. The GoC has a good understanding of the importance of addressing problems such as energy efficiency and climate change and has made efforts to reform the energy sector by supporting the adoption of energy-efficient and renewable energy technologies. For the I lth Five Year Plan (2006-1 O), China pledged to improve energy efficiency by 20 percent.
7. According to the plan for medium-and-long-term energy conservation in the 1 1th five-year period, China will focus on energy savings in the industrial, transportation, and construction sectors, as well as commercial power use. In the industrial sector, efforts will be focused on power, iron and steel, nonferrous metal, oil and petrochemicals, construction material, coal, and machinery. In total, ten programs have been planned for energy efficiency in the 11th five-year period. One of these programs is aimed directly at exploiting the use of exhaust heat and pressure in the iron and steel sector. This particular program encourages the application of CDQ and power generation through the pressure difference in blast furnaces, renovation of all blast furnace gas power generation, and implementation of converter gas recovery.
8. On June 4, 2007, the GoC launched the National Climate Change Program to strengthen its commitment to combating climate change. The target of 20 percent improvement of energy efficiency by 2010 is one of the key measures to control GHG emissions in the Program. With respect to the iron and steel industry, the Program strongly encourages that coke ovens should be equipped with CDQ facilities and newly constructed blast fiunaces should be equipped with furnace top pressure differential power generating equipment Top Gas Pressure Recovery Turbines (TRTs) and other advanced technologies and equipment should be applied. Annex 2: Overview of CDM Projects in China CHINA: CN-PCF-Meishan CDQ Project
1. National Policies and Priorities 1. In June 2004, the GoC issued the national "Interim Measures for Operation and Management of Clean Development Mechanism Projects in China" which regulate project development and identify CDM priorities. These measures identified the National Climate Change Coordination Committee (NCCCC) as the lead authority on all CDM project policies, and the Climate Change Coordination Office in NDRC as the "Designated National ~uthority"(DNA, or focal point) to approve CDM projects.
2. The identified priority areas for CDM projects include energy efficiency improvement, development and utilization of new and renewable energy, and methane recovery and utilization. With on-going support from donor countries in CDM capacity building measures, and the government's commitment to CDM projects, China has experienced rapid growth in CDM activities. China's distinction as the top destination of global foreign direct investment will likely mean that the country will continue to be a leader in CDM project development as well.
2. Current State of the CDM Market in China 3. By 2006, China dominated the CDM market on the supply side with a 61 percent market share of CER volumes transacted (Figure A2-1). China is an attractive source of CERs for buyers, despite some concerns about geographical concentration of such high volumes of CERs. While buyers attempt to diversify the geographical distribution of their portfolios, the huge potential for CDM in China and its favorable carbon investment climate, including strong support from institutions and experienced project developers, will continue . to make the country a dominant player in the CDM market.
4. As of June 2007, almost 100 projects in China had been registered with the CDM EB (see Table A2-1). In addition, approximately 400 more CDM projects were under preparation. Figure A2-2 and A2-3 show the number of projects as well as the volume of CERs registered or under development by sector in China. In terms of number, nearly half of China's CDM projects are in the hydro sector, and wind and energy efficiency projects also make up a significant share. However, many of these projects are small in scale, especially compared to the large volume of CERs created by a relatively few Trifluoromethane (HFC- 23) destruction and coal bedmine methane projects." Energy efficiency projects, which include coke ovens and other iron and steel sector projects, represent the third largest number of projects and the fifih largest amount of CERs in China.
I I HFC-23 has a significant climate change impact, and has 11,700 times the global warming potential of carbon dioxide (measured in tons of carbon dioxide equivalent, or TCOZe). Therefore the destruction of a relatively small amount of HFC-23 can result in a far greater volume of CERs than other CDM projects that target other GHGs. Figure A2-1: Geographical Location of CDM Projects
500 India -'P 0 y 400 /' - R. of Asla rn
J 7% 6
Africa China 3% ai 61% ? -, 200 C 7% $ Brsil 8 - -- 4% E 100 ' R. of lath Ameriw 6% 0 2002 2301 2033 2005 1W
(.As a share of vo1111nessupplied.) Source: Reprinted from World Bank State and Trends of the Carbon Market 2007. p24.
Table A2-1: Overview of Registered CDM Project in China Cumulative Emission UNFCCC Sectoral- Number of Annual Emission Reductions through 2012 Scope@) Projects Reductions (kt C02e) (kt C02e) Biomass energy 6 92 8 5.335 1 Coal bedmine methane
4 3,523 21,385 EE own generation 6 2.533 14.906
111 bJ I 0 1 JU,UU-t I Hydro 25 1 2,509 1 .,-- . ( Landfill gas 6 1 1,268 1 8,554 N20 2 1 4,396 1 24,006
Reforestation 1 1 26- - 1 174 I Wind 41 1 4.327 1 26.361 1 1 Total 99 1 418,347 ( Source of Data: http://www.cdmuipeline.org/ Status as of July 20,2007 Figure A2-2: Number of CDM Projects by Sector (Registered or Under Development)
- .... ~-. ~ --.-- Number of China CDM Projects by Type
1 I - Biogas, 4 I -Biomass hergy. 19 - - .- --. ------Biogas CoalBedlMine Methane. Biomass Energy CoalBedlM~neMethane Reforestation, 2- Energy Effic~ency Energy Eff~ciency,84 Foss 11 Fuel Sw itch
GaslCorrposting, 24 - --Fossil Fuel Sw lch, 19 Landfill GaslCompost~ng
Reforestation Hydro. 208
I ~ource:www.CD4CDM.org,June 2007
Figure A2-3: Volume of CERs by Sector (Registered or Under Development)
__... _ __ - _ - . . - - . ~ - - .~ ~- Chinese CDM Project Total ERs by Type (000 tons by 2012)
Source:www.CD4CDM.org,June 2007 5. Figure A2-4 provides a breakdown of the various types of energy efficiency CDM pro-jects that have been registered or under development in China. Coke ovens or other iron and steel facilities constitute the majority of energy efficiency CDM projects both in terms of number of projects and the volume of CERs.
Figure A2-4: Breakdown of Energy Efficiency CDM Projects in China (Registered or Under Development) ------Chinese Energy Efficiency Projects by Subtype
Cement, 27
-UlelllLa13, .I - - .------. er ton and SteeVCoke Ovens Cement Other. 4 Chemicals Other
Source:www.CD4CDM.org,June 2007 i I Chinese Energy Efficiency Projects Tota I ERs by Subtype (000 tons by 2012)
I i Cement, 14,951
------. -- --- ton and SteeVCoke Ovens 1
I - Chemcals, 3,850 Cement Cherncals Iron and SteeUCok Other, 485 I -- . Ovens, 77,296 Other -. ------
1 - -- _. - - _ .- - -- - .------Source:www.CD4CDM.org,June 2007 3. Future Potential 6. It is also estimated that China could generate total CERs between 150 and 225 million tCO2e per year and a potential annual revenue stream of up to US$2.25 billion. The recent publication, "China and the Clean Development Mechanism Study" estimated China's energy-related CDM market potential in the year 20 10 at between 24.9-1 1 1.6 million tC02e.
7. The analysis concluded that the power generation sector could account for around 50 percent of total CDM potential in China. Considering the options for demonstrating technology additionally and cost effectiveness, significant CDM potential also exists in various other sectors including energy efficiency in the iron and steel and the cement sectors (10 percent); the chemical industry such as ammonia production, calcium, and soda ash (5 percent); industries such as glass, brick production, aluminum, copper, zinc, lead, paper, ethylene, as well as transport, service sectors, and urban and rural residential improvements (1 5 percent); and projects abating non-C02 GHGs in the industrial sector (10 percent). Annex 3: Detailed Project Description CHINA: CN-PCF-Meishan CDQ Project
1. Overview of Meishan 1. Meishan is a wholly-owned subsidiary of Baosteel located in Nanjing City, to the east and adjacent to the Yangtze River. The company is comprised of a sintering plant, iron making plant (including coking), steel making plant (including continuous casting), and a rolling mill. These plants are equipped with three sintering machines, three coke ovens, three blast furnaces, two converters, one hot metal mixer, a set of continuous hot rolling mills, and other ancillary equipment. In 2004, the company produced 4.8 million tons of sinter, 1.2 million tons of coke, 3 million tons of pig iron, 3 million tons of continuously cast blooms, and 2.9 million tons of hot rolled coils.
2. Project Background 2. Meishan's Number 1 and Number 2 coke ovens (both Type 58-11 with 65 holes) have been in operation for more than 30 years, since 1970 and 1971 respectively. The company's Number 3 coke oven (Type JNX43-58 with 65 holes) has been in operation since 1996. These three coke ovens all use the CWQ process and there are 2 CWQ units in total; the Number 1 and Number 2 coke ovens share one CWQ unit, and the Number 3 coke oven uses the second CWQ unit. In 2004, total production from the three coke ovens was 1.2 million tons of coke.
3. The Number 1 and Number 2 coke ovens are emitting large amounts of black smoke. The Number 3 coke oven, although newer, contains no dust collection facility at the coal charging and coke pushing ground station. None of the three coke ovens meet new recommended Chinese "sector cleaner production criteria." Given such technological and . environmental drawbacks, the company decided to dismantle these existing coke ovens and construct four new coke ovens on a 20 hectare site adjacent to the existing plant under its Overall Improvement Plan. 1n'Phase I, to be operational in 2008, two Type JN60-6 coke ovens with 55 holes will be constructed and capable of producing a total of one million tons of coke per year. In Phase II, two identical coke ovens will be constructed and expected to be operational in 2010 producing another one millions tons of coke. Upon completion of the two coke ovens in the second phase, the company will have four coke ovens, two CDQ units each equipped with a 20 MW generator, as well as four blast furnaces and an estimated annual steel production capacity 4.5 million tons.
4. The relevant facilities to be installed include a coal preparation plant (e.g. coal blending room, pulverizer room, top layer of coal tower, belt conveyor, and transfer station), coking plant (e.g. coke ovens, CWQ unit, coke sieving and storage facilities, and belt conveyor), CDQ unit (e.g. CDQ chamber, dust collection equipment, waste heat recovery boiler, and steam turbine), coal gas purification plant, and auxiliary common utilities. 3. Project Components 5. This Carbon Finance project consists of two distinct project components: (c) Component A: the Phase I and I1 construction and operation of CDQ units and subsequent electricity generation that will result in CERs; and (d) Component B: a Carbon Finance transaction that will facilitate the purchase of the CERs.
Component A: CDQ Construction and Operation 6. As part of the Meishan's Overall Improvement Plan, CDQ units will be installed in two phases to replace the current practice of using CWQ. It is the installation of the CDQ units that forms the basis of this Carbon Finance transaction. Technical benefits of CDQ in comparison with CWQ are summarized in Table A3- 1. Table A3-1: Technical Benefits of CDQ Item Technical benefits of CDQ in comparison with CWQ Energy saving Recovery of 0.5 ton of steam per ton of coke (no steam recovery in case of CWQ) Water usage 60 percent less than CWQ Coke quality No increase in water content (5 percent increase in case of CWQ) 1.5 percent increase in mechanical strength of coke
7. In order to recover the heat of hot coke, reduce energy consumption, and improve the quality of coke, Meishan has decided to install two CDQ units with a quenching capacity of 140 tons per hour (24 hour continuous operation) for the four new coke ovens. One CWQ unit will be installed as a back-up for regular overhaul and operational failure of the two CDQ units. The schematic diagram of the CDQ process is shown in Figure A3-1.
8. Red-hot coke from coke ovens is pushed out and led into a coke drum car. The coke drum car, hlly loaded with red-hot coke, is towed by an electric locomotive to the bottom of the hoisting shaft 0f.a CDQ unit where a hoisting machine will raise the coke drum to the top of a CDQ chamber. At the top, a feeder charges the coke into the CDQ chamber. In the chamber, coke and inert gas make direct heat exchange where the sensible heat of the red-hot coke is transferred to the inert gas. After being cooled, the coke is loaded at the coke discharging unit onto a belt conveyer by which it is delivered to a coke sieving and storage facility. The heated inert gas is then fed into a waste heat boiler to generate steam. Steam from the waste heat boiler is used for power generation at a power station equipped with a condensation steam turbine and a 20 MW generator where 126.48 GWh of electricity will be generated annually. After dust collection and heat recovery, the inert gas is circulated and reused. The total project cost for Phase I and I1 CDQ units is RMB 510 million. Figure A3-1: Schematic Diagram of CDQ Process
$ Red-hot coke Atmosphere
Dust collecting ground
Water water transport to outside
Secondary dust collector
9. High temperature flue gas generated from the top of the coke drum and the blow-off outlet of the circulation fan is caught by a capturing hood (collection rate: 98 percent). The captured flue gas is cooled down and then mixed with low temperature dust captured at the coke discharging outlet, the belt conveyor, and the new coke transfer tower. The mixed flue gas enters a pulse bag type dust collector at the dust collecting ground station with a dust collection efficiency of 99.5 percent. Primary and secondary dust collectors gather dust from the ground station and from the cooling gas and then the dust is delivered to a dust storage tank where it is humidified and removed by trucks on a regular basis.
Component B: CERs Purchase 10. The project is expected to generate 252.96 GWh of electricity annually from the two 20 MW steam turbine generators. It is also expected to consume 15.28 GWh of electricity annually. Overall, the annual net electricity supply from the project will be 237.68 GWh, which will replace the equivalent amount of electricity from the ECPG, and reduce the GHG emissions from the coal-dominated ECPG. The expected total emission reductions from this project are estimated to be 1,873,874 tCOze over ten years (See Table A3-2). The estimation is made in accordance with the methodology "Consolidated baseline and monitoring methodology for waste gas and/or heat and/or pressure for power generation" ACM0004 (version 2) approved by the CDM EB. Table A3-2: Estimated Amount of Electricity Supply and Emission Reductions
I Annual estimation of net Annual estimation of Years electricity supply (GWh) emission reductions (tCO2e) 2008(Feb.- Dec.) 108.94 94,122 2009 138.65 1 19,791 2010 237.68 201 1 237.68 2012 237.68
2015 237.68 205,356 2016 237.68 205,356 2017 237.68 205,356 20 18(Jan.) 19.81 17,113 Total estimated reductions 1,873,874 (tCOze) Total number of crediting 10 years Annual average over the 187,387 crediting period of estimated reductions (tCO2e) Annex 4: Project Costs CHINA: CN-PCF-Meishan CDQ Project
1. The total cost for the two CDQ units, including the back-up CWQ unit is RMB 51 0 million (See Table A4-1). Meishan is self-financing the construction of Phase I and I1 CDQ units and their related equipment that comprise the CDM project. According to the technology provider, ACRE, the operating and maintenance costs for the two CDQ units and associated equipment will be RMB 82 million (See Table A4-2).
Table A4-1: Project Cost Estimates for CDQ
Items Total Cost ( RMB million) CDQ units (including two 20 MW generators) 278.82 CDQ installation fee 76.30 Construction of civil works 60.42 Administrative costs 28.84 CWQ unit 10.00 Other fees 56.00 Total 5 10.38
Table A4-2: Breakdown of O&M Cost for Each Set of CDQ Unit price Items Unit Amount Cost (RMB 10,000) Water consumption 1000 lo3m3 1624.98 162.50 Electricity consumption Gas consumption Steam consumption 80 ton 75348 Salaries Depreciation Administrative and other 70.00
pp , Total 4,104.87 Annex 5: Ecbnomic and Financial Analysis CHINA: CN-PCF-Meishan CDQ Project
1. Overall Performance of Meishan and Baosteel 1. Meishan was originally established in 1969 and acquired by Baosteel in November 1998. Baosteel is recognized as a producer of the highest quality steel in China and has entered into joint ventures with international firms to gain knowledge and advanced technologies. In addition, Baosteel has also been very proactive in developing in-house research and development to sustain the long-term competitive advantages for its subsidiaries such as Meishan and reduce earnings volatility. The organizational structure of Baosteel is shown in Figure A5-1.
Figure A5-1: Organizational Structure of Baosteel
Shareholders of Baosteel Group
Supervision Commission I
+General Manger f Stratagic Management Department Baogang Branch Company 7 Financial Department Baogang International Environmental Protection and Resource Stamless Company Utilization Department Meishan etc. etc. \ J \ /
2. The operations of both Meishan and Baosteel are expected to be sustainable as China's economy and steel outputs have been increasing at near record paces. While Baosteel's overall profitability in 2005 declined 9.3 percent from 2004 due to increasing costs and competitive pressures, continued growing demand for high quality steel products, as well as infrastructure and efficiency upgrades, should improve the long-term prospects for the company.
3. Meishan has an annual steel production capacity of 3 million tons with 4,500 hll- time staff. The company's annual income has been growing rapidly in recent years. Table A5-1 provides an overview of Meishan's financial performance from 2002-2005. Table AS-1: Financial Performance of Meisban
2. Project Financial Analysis 4. The construction of the proposed CDQ project requires a large investment and the annual maintenance costs are high. Although the CDQ technology has several benefits over the baseline CWQ including energy savings, improvements of coke quality, and decrease of coke input, these factors alone do not result in a project IRR that meets the benchmark for investment projects in the Chinese iron and steel sector. In the absence of revenue from the sale of CERs, the installation of CDQ is not economically attractive compared with the alternative of CWQ and purchase of power fiom the grid.
5. The following analysis illustrates the importance of net electricity supply to the overall performance of the project. All the assumptions are based on the feasibility study prepared by ACRE in 2006. Table A5-2 presents the parameters for the analysis of the two CDQ units. Table AS-2: Parameters Used for the Analysis of the Two CDQ Units One Unit Two Units Assumptions Gross electricity supply to the grid (GWh) 126.48 252.96
Net electricity supply to the grid (GWh) 118.84 1 237.68 P VAT Tax 1 l~rbanconstruction fee and education surcharge (% of VAT) -1 10.0% 1 10.0% 1 1 \unit cost of electricity (RMBIkWh) 1 0.59 1 0.59 1 Total Investment(mil1ion RMB) 255.00 - 510.00 1 Carbon Price (US$/CER) 14 14 Extended Benefit on Coke Powder (million RMB) 21.50 I 43.00 1 ~O&Mcost (million RMB) 1 41.05 1 82.10 1 6. Table A5-3 presents detailed financial analysis based on the above parameters. The results show the improvement in IRR when revenue fiom CERs is included. In the absence of CER revenue, the project IRR is only 10.8 percent, significantly lower than the benchmark 13 percent, making the proposed project financially unattractive. When the CER revenue is included, the project IRR increases to 13.4 percent, slightly higher than the benchmark for the iron and steel industry.
7. Sensitivity analysis of the project includes the economic impact of three parameters: total project investment, electricity supply, and operational and maintenance costs. When the above parameters vary in the range of -10 percent to +10 percent, the project IRR (without CER revenue) changes accordingly. Variations in project IRR are shown in Table A5.-4 and Figure A5-2.
Table A5-4: Variations of IRR Due to the Changes of Sensitivity Factors Variation ratio of Sensitivity factor 10% 5% 0 -5% -10% Total Investment 9.5% 10.1% 10.8% 11.5% 12.2% Electricity supply 12.6% 11.7% 10.8% 9.8% 8.9% O&M Cost 9.7% 10.2% 10.8% 1 1.3% 1 1.8%
Figure AS-2: Project IRR Variations
~ p~ ~~.. -~.-- ~ ~.- I I -w- Investment Cost Electricity Supply - 08M Cost
8. The IRR is most sensitive to the net electricity supply, while it is least affected by operational and maintenance costs. Based on this analysis, Meishan decided to maximize the use of steam through electricity generation rather than for less economical uses such as heating. As a result, the total electricity generating capacity of Phase I was increased from an original 12 MW to 20 MW based on the total steam that could be recovered. An additional 20 MW of power generation capacity is planned for Phase 11. The first 20 MW generating unit will provide 118.84 GWh of electricity to the internal grid and once the second unit is on line after the completion of Phase 11, the amount will double to 237.68 GWh. Annex 6: Safeguard Policy Issues CHINA: CN-PCF-Meishan CDQ Project
ENVIRONMENT 1. Applied Policies and EA Preparation 1. The installation of the CDQ units is part of the Overall Improvement Plan and will result in significant benefits for energy recovery and emission reductions of GHGs and minimal negative environmental impacts. Air pollutants emissions from the coking process will be reduced by 88 percent in terms of smoke and dust, and 87 percent in terms of SOz. Therefore, this Carbon Finance project is categorized as Category B. The project boundary for safeguards compliance is limited to the CDQ related facilities, including: (i) CDQ chamber; (ii) dust collection system; (iii) waste heat recovery boiler; (iv) steam turbine generator; (v) all equipment that supports the CDQ technology (e.g., fans, pumps, ducts, pipes); (vi) all equipment whose performance is affected by the characteristics of coke processed in the CDQ units (e.g., coke conveyors and coke screens); and (vii) all equipment/systems necessary to compensate for the any unavailability of the CDQ units (e.g., backup CWQ unit).
2. A comprehensive EIA has been prepared for the first phase of the Overall Improvement Plan Coke Oven Project, in which the Phase I CDQ unit is covered. This EIA was approved by the Jiangsu Provincial EPB in November 2005. The EIA for the second phase of the Overall Improvement Plan Coke Oven Project covering the Phase I1 CDQ unit was approved by SEPA in November 2005. The task team reviewed these two EIAs retrospectively and found them to be in line with the national regulations and acceptable to the World Bank. A separate EMP was developed solely for this Carbon Finance project.
3. Within the project boundary, the main environmental issue is dust emissions from coke feeding and the coke discharging processes, where dust will be collected and treated with a bag-filter. The comparison between the Chinese and World Bank Pollution Prevention and Abatement Handbook (PPAH) standards related to dust are shown in Table' A6-1. There is no wastewater discharge from the CDQ units and all solid waste collected will be reused in the plant.
Table A6-1: Comparison of Chinese and PPAH Standards Emission Standard China* PPAH ( Design adopted in project Air Emission Particulate matter (rngIm3'1 120 5 0 3 5 ..d , I I I Noise 9 Residential/Educational area (dB) 55/45 55/45 Industrial area (dB) 65/55 70170 * Integrated Emission Standards of Air Pollutant fGB16297-1996)and Standard of Environmental Noise of 2. Baseline Environment 4. The project site is located to the southwest of Nanjing City in China's Jiangsu Province. The area is planned as an industrial zone, but there are 6 communities around the Meishan plant, which form a "corporate town." The total population of the town is approximately 30,000. More than 95 percent of the families are employed by the company. The project site is adjacent to and outside of the existing plant boundary. The existing coke ovens and CWQ units will be demolished, and the new coke ovens and CDQ units will be installed at this new site. The effluent from Meishan's wastewater treatment plant is discharged into the Yangtze River, 2 km away from the company.
5. Baseline environmental monitoring results for air quality indicated compliance with applicable standards for ambient air quality in terms of SOz, NOz, BaP, HIS, and NH3, while TSP/PMloexceeded the standards. Meishan is the biggest industrial emission source in the project area (e.g. its dust and smoke emission is 11 thousand toniyear that account for 97 percent of the total industrial dust and smoke emission in the project area), while massive infrastructure projects also contribute to the air pollution. Water quality of the Yangtze River is in compliance with such standards. Noise monitoring results also indicated compliance with the standards at both the plant border and surrounding residential areas. The land to be acquired for the project is farmland, therefore, no site contamination by hazardous materials is envisaged.
3. Environmental Issues related to CDQ Units 6. The installation of CDQ units will have significant benefits in recovering energy from hot coke, which otherwise would be lost in the case of the CWQ process. It will also reduce water consumption by approximately 400 tons per day compared with CWQ.
7. The main pollution sources of CDQ include waste gas from: (i) top of CDQ chamber; (ii) blow-off outlet of the circulation fan; (iii) coke discharge point; (iv) coke transfer station; and (v) coke screens. The main pollutant related to these processes is dust. The waste gases will be collected with a sucking system and treated through a bag filter, and then discharged into the air. The dust collected from the bag filter will be reused in coal preparation processes. There is no waste water from the CDQ unit.
8. At the back-up CWQ unit, water spraying and baffle stack will be used to treat top gas, while other waste gases will be treated by a bag filter. The water will be reused in the quenching process, and the solid waste will be reused for coal preparation.
4. Alternative Analysis for CDQ Unit 9. There are two feasible technical options for the coke quenching process; i.e. CWQ and CDQ. The options and justifications for adoption or rejection are summarized below.
10. CWQ Option. The company could continue to use water to cool hot coke and purchase electricity fiom the grid. This is the most financially attractive, stable, and popular option applied in the Chinese iron and steel sector. A recent study indicates that the capacity of coke ovens equipped with CDQ units would only account for 13 percent of the total coke oven capacity in China by the end of 2008. Therefore, CWQ technology will continue to be dominant in the Chinese iron and steel sector for the near future. Although air pollutants potentially generated by the CWQ process could be largely prevented by employing extensive emission prevention measures, the waste heat would be lost and there would be no reduction of GHG emissions and therefore no potential for Carbon Finance revenues.
11. CDQ Option. The CDQ technology is categorized as a Level 1 Cleaner Production Technology under the State Government Recommendations issued in July 2006. CDQ has several advantages including energy savings, reductions of GHG emissions, and the improvement of coke quality. However, the total investment for a CDQ unit including a back-up CWQ unit (RMB 255 million) is approximately 25 times more expensive than construction of a CWQ unit alone (RMB 10 million). Furthermore, the annual operational and maintenance costs for a CDQ unit including a back-up CWQ unit are estimated to be approximately RMB 41 million while the same costs fir a CWQ unit alone are only RMB 0.3 million. As a result of such higher costs, the feasibility study indicates that the IRR for this option without carbon revenue is below the recommended industrial benchmark of 13 percent. In addition, there are considerable technical risks and no compulsory requirements to install CDQ or replace CWQ with CDQ.
11. The company has selected the CDQ option due to its strong commitment to being a leader in environmental protection and the incentive of revenue generated from the sale of CERs. The feasibility study indicated that with carbon revenue the IRR would be improved to 13.4 percent which is above the recommended benchmark. This option offers the best opportunity for achieving project development objectives and enhancing sustainable development benefits for large scale steel production.
5. Environmental Management Plan 12. A separate EMP has been developed solely for this Carbon Finance project, which specifies environmental management practices for Meishan with specific description of CDQ-related department/staff responsibilities, staff training plan, mitigation measures, environmental monitoring plan, and reporting mechanism. The EMP will be attached to the ERPA and its implementation will be monitored by the World Bank.
6. Public Consultation and Information Disclosure 13. Public consultation was carried out for both EIAs through public meetings followed by a questionnaire survey. A total of 504 project-affected people were consulted. The main concerns of the public were the enforcement of emission controls during operation, noiseldust during construction, and resettlement issues. Meishan has committed to address these in the project design and operation.
14. Upon request from the World Bank, the EIA reports for Phase I and Phase I1 were disclosed in the offices of local village comrnitteeslcornmunity committees on March 6 and July 3,2007, respectively, with announcements made through local bulletin boards. 7. Environmental Issues related to Overall Improvement Plan 15. The motivation for the Overall Improvement Plan is to upgrade the production processes of Meishan to be in compliance with the national cleaner production requirements, improve environmental performance, promote energy efficiency, and improve product quality. Therefore, the Overall Improvement Plan will have significant environmental benefits of increased water recycling, improvement of waste water treatment units, reduction of dust, reuse of solid waste, and more efficient desulphurization.
16. The EIA report for first phase of the Overall Improvement Plan which included the first two new coke ovens and supporting CDQ unit thoroughly addressed the environmental issues related to coal preparation, coke ovens, CDQ, and coal gas purification. The EIA report for the second phase of the Overall Improvement Plan comprehensively addressed the environmental impacts and mitigation measures related to both phases of the Overall Improvement Plan. It is concluded that upon completion of the Overall Improvement Plan, pollution discharges from Meishan will be substantially reduced by 43 percent for dust, 7 percent for SO2, 83 percent for COD, and 98 percent for suspended solids.
17. As the biggest pollution load contributor in the project area (accounting for 97 percent of dust and smoke, 89 percent of SO2 and 89 percent of COD in the industrial sources), implementation of the Overall Improvement Plan will result in significant local environmental quality improvements.
8. Environmental Performance Review of Entire Plant 18. Although not included in the project boundary, the overall environmental performance of Meishan was reviewed by the task team and an independent consultant for due diligence. This process was comprised of interviews with site employees, review of available documentation, and visual observation of the site. The key documents reviewed included the EIA reports, Environmental Reports and Environmental Plan, Pollutants Discharge Permit, Energy Audit Report, Energy Saving Plan, and other relevant documents.
19. The results verified that Meishan has established a good environmental management system and practice accredited with IS014000 and OHSAS 18000 certifications. According to a result of compliance monitoring by Nanjing EPB, there were no cases of serious violation of national and local environmental regulations over the last three years although occasional excesses in wastewater and air emission discharges have been experienced at internal measurements. It is also noted that the company is making continuous efforts to be an environmentally and socially friendly enterprise. Therefore, there will be low reputational risk for the World Bank's involvement in this Carbon Finance project. SOCIAL 1. Resettlement Action Plan for Phase I1 20. Phase I1 of this Carbon Finance project triggers OP 4.12, Involuntary Resettlement because of expected land acquisition and involuntary resettlement. In accordance with Chinese law and the requirements of the World Bank, a RAP was prepared jointly by Meishan and Yuhua District Land Bureau.
21. Scope of impacts. Table A6-2 summarizes the impacts of land acquisition and resettlement. The project resettlement impacts include permanent land acquisition, residential house demolition, enterprise and public institution demolition, and infrastructure and ground attachment removal. A total of 31.16 mu of cultivated land will be acquired, which account for, 17.26 percent of the total area of the land being acquired, and account for 1.3 percent of the total cultivated land that the village owned. Table A6-2: Summary of Land Acquisition and Resettlement
Component Land Acquisition House Demolition Relocated Resettlement Cost (mu) (m2> Households (RMB mil.) Total 180.5 10825.25 33 (6 enterprises) 31.25
22. Policy objectives and legal framework. The RAP was prepared in line with the relevant Chinese laws and regulations and World Bank OP 4.12 on Involuntary Resettlement. Key considerations and activities in the design of the project and preparation of the RAP included: (a) A socio-economic survey conducted to determine baseline conditions, especially of project affected persons. (b) Compensation for houses or other properties to be set at full replacement value. (c) All project affected persons, including those who lack house registration or other documents, such as business documents and legal documents, and shop operators, will be compensated. (d) Basic infrastructure and service facilities will be provided in the areas where the project affected persons will be resettled. (e) Plans for acquisition of land and other assets and provision of rehabilitation will be carried out in consultation with the affected persons. (f) Financial and physical resources for resettlement and rehabilitation will be made available as and when required. (g) Special consideration will be given to vulnerable groups. (h) Institutional arrangements will ensure effective and timely design, planning, consultation, and implementation of the RAP. (i) Effective and timely supervision and monitoring and evaluation of the implementation will be carried out. 23. Compensation Standards. Compensation for the land acquisition includes land compensation, a resettlement subsidy, and standing crop compensation. The land acquisition hnd is calculated based on the District Comprehensive Value according to local regulations. The compensation rates for structures have been determined based on their replacement costs. The prices for newly constructed replacement housing were used as the main reference to determine the replacement costs.
24. Rehabilitation Program. All land losses, house demolition, and business losses will be compensated according to the local regulations. According to local regulations, those that will lose land must enroll in a Social Pension Insurance Scheme and the local government will create job opportunities and provide free training programs for them. In this project, those that will lose land could decide on a voluntary basis whether to enroll in the scheme or not. The compensation rate for those that will lose houses is higher than the price of local replacement housing, so these people can buy a replacement house near the local commercial center without paying additional money.
25. Affected Enterprises. Compensation for business losses has been provided in the RAP.
26. Affected public infrastructure. Compensation' based on replacement value will be paid to relevant government agencies or local governments to restore the affected infrastructure and services.
27. Implementation arrangements. The Meishan Resettlement Office has been established for the implementation of the RAP, together with the Yuhua District Land Bureau. An independent monitor will be selected for the assessment of resettlement implementation and livelihood restoration. Details of staffing and their responsibilities are provided in the RAP.
28. Budget and funding arrangement. Meishan will prepare sufficient budget to conduct the resettlement due to the project.
29. Public participation. Project-affected persons and organizations have been informed about the project and its impact through meetings during the preparation of the RAP. Comments and recommendations received from these meetings have been incorporated as appropriate in the RAP and public participation will continue during RAP implementation. Project information will be provided to the affected persons through newspapers, bulletins and posters. The RAP will be summarized into a resettlement information booklet and distributed to affected households.
30. Vulnerable groups. There are three households being identified as vulnerable groups. The floor areas of their existing houses are below 40 m2. Special additional compensation was provided due to their house demolition to ensure they could buy resettlement houses nearby. 3 1. Gender issues. Gender issues have been considered and a gender sensitive approach has been applied in resettlement planning and social assessment. Both men and women have been consulted in the RAP preparation. It has been found that there are no discrepancies between the expected resettlement impacts on men and women. Both men and women will benefit equally from the proposed project.
32. Grievance redressing mechanism. A grievance mechanism was established during the preparation of the RAP. All relevant telephone numbers were disclosed to project- affected persons. They can, therefore, prosecute any resettlement aspect, if needed. All prosecuted cases will be recorded in writing.
33. Monitoring. Meishan will be responsible for internal monitoring and will provide semi-annual internal monitoring reports to the World Bank. The National Research Center for Resettlement (NRCR) has been engaged as the independent monitoring and evaluation agency for resettlement, and will report on progress and problems, as well as offer suggestions to Meishan and the World Bank.
2. Post-Evaluation of Resettlement for Phase I 34. For Phase I, OP 4.12 is not triggered because resettlement activities were completed before the involvement of the World Bank. However, a PER was conducted for due diligence to review retroactively the process of the resettlement which took place in 2001 and assess the impacts on the livelihoods of the affected households after resettlement.
35. Methodology. Meishan commissioned NRCR to carry out the PER. The terms of reference for the PER was reviewed by the World Bank before Meishan and NRCR signed their contract. NRCR carried out a desk review of relevant project documents and local social economic data, conducted semi-structured interviews, and organized focus group meetings with affected households as well as Meishan staff, government officials, and village heads who were involved in the resettlement activities. The PER report was submitted to the World Bank on April 10,2007.
36. Resettlement related risks. No resettlement-related reputational risk has been identified. The PER report concluded that: (i) the land acquisition process hlly complied with Chinese laws and regulations, (ii) all affected families were resettled and their livelihoods improved, and (iii) they were satisfied with the results of the resettlement.
37. Resettlement impacts. The land acquired for Phase I was 34.3838 ha (515.8 mu) in total, which includes 30.3027 ha of village-owned land in Sanshan village in Yuhua district and 4.081 1 ha of state-owned land that was occupied by Meishan before the project. The total rural population affected is 851 (318 households), and all project-affected persons needed to be relocated. All of them are ethnically Han, and no ethnic minority households were affected.
38. Compensation. Although the compensation policy applied to this project followed the common Chinese practice, i.e., fixed rates set up by Nanjing Municipal Government in 2004, Meishan provided additional compensation to the displaced households to ensure they could purchase homes in nearby areas.
3 9. Income rehabilitation. All affected households are farmers, but a significant proportion of their income came from the service sector (88.5 percent in 2004 and 100 percent in 2006) rather than the agricultural sector. Most of the relocated households settled in new homes near their places of work and in some cases, closer to the service centers than before. Therefore, little income of the affected households was affected by land acquisition. Income rehabilitation measures were also provided to all affected households by Yuhua District Labors Protection Bureau, which included resettlement assistance allowances and job training. Overall, the PER found that the land acquisition did not adversely affect the livelihoods of affected households, and the incomes of the affected households increased after land acquisition, even after factoring in inflation.
40. Consultation. Public consultation was held during implementation to discuss compensation options and rehabilitation measures. Grievance redressing procedures were also provided. Additional compensation was also offered to ensure that every displaced household could buy a house nearby.
4 1. Information Disclosure. The resettlement plan (covering compensation, rehabilitation, and other assistance) which was approved by the Nanjing Municipal Government was publicly disclosed before the commencement of the resettlement.
42. Implementation. All affected properties including land and houses were measured and registered before -an agreement on resettlement and compensation was reached by the households and-the implementing agencies. All compensation, rehabilitation, and other assistance provided in the resettlement plan were fully and promptly distributed to affected households. All displaced families resettled in new houses nearby. Annex 7: Project Preparation and Supervision CHINA: CN-PCF-Meishan CDQ Project
Table A7-1: Project ~re~arationtimeline
PCM review I 1 I August 3 1.2007 I Approval to sign ERPA October 19,2007 Negotiation IVovember 30,2007 ERPA siming November 30.2007 I Planned closing date / January 31,2018 I
Nuyi Tao ( Technical SpecialistDeal Manager ENVCF Xueman Wang Senior Counsel LEGCF Peishen Wanp. Environmental S~ecialist EASRE Jun Zeng Social Development Specialist EASSO Ziiun Li Consultant ENVCF William Nicholas Bowden Consultant EASRE Zhuo Cheng Consultant EASRE Yan Wang Team Assistant EACCF Annex 8: Documents in the Project File CHINA: CN-PCF-Meishan CDQ Project
Audited Financial Report for Meishan Company 2006
Due Diligence Review Report of Environmental Performance, July 2007
Environmental Impact Report for 1# and 2# Coke Ovens Relocated Overhaul System Project (Phase I), October 2005
Environmental Impact Report for Product Matrix and Process Equipment Upgrading and Technical Transformation Project (Phase 11), October 2005
Environmental Management Plan for Meishan Coke Dry Quenching Project, August 2007
Post-Resettlement Evaluation Report for Meishan Coke Dry Quenching Project (Phase I), April 2007
Resettlement Action Plan for Meishan Coke Dry Quenching Project (Phase 11), July 2007 Annex 9: Country at a Glance CHINA: CN-PCF-Meishan CDQ Project
East Lower- POVERTY and SOCIAL Asla (L middle- Paclflc income ,Oevaloprnont dlamond' 2005 1 Populat~on,mid-year (miilions) 1885 2.475 Llfe expectancy GNI per caplta (Atlas method. US$) 1627 198 GNIfAllas method. US$ bilimns) 3.067 4.747 -
Average annual growlh. 1999-05
Population (%) 08 10 Gross Laborforce(%) 13 14 GNI per - - --- pnmav Most recent estlrnate (latest year avallable, 1999-05) caplta enro llment Poverty (%of population beb wnationalpoverty line] 0 Urban population (%of total population) 41 50 Lifeexpectancy at birth (@an) 70 70 Infant mortality (per 1000 five births) 29 33 Child malnutrition(%of children under5) 15 a Access lo ~mprovedwatersource Access to an ~mpmvedmatersource (%ofpopulation) 78 82 Literacy(%of population age d+j 91 88 Gross primaryenmllment (%of school-agepopulation) 115 in -Chfna Male 115 I8 -- Loner-middle-mcomegroup Female ln 10 . KEY ECONOMIC RATIOS and LONG-TERM TRENDS 2004 2o05 -- Economic ratlos' GDP (US$ billions) 304.8 728.0 18317 22288 Gross capital format~onIGDP 37.8 38.3 38 7 Trade Eworts of goods and se~iceslGDP 0.0 23.1 34 0 Gross domestic savings1GDP 33.6 415 412 Gross national sav~ngslGDP 34.0 40.1 422
Current account balanceIGDP -38 08 3 6 5 0 Domestlc Interest payments1GDP 02 06 02 Captal savings 4-formation Total debtlGDP 55 62 ae Total debt serv~celexports I Present value of debt1GDP Present value of debtleqmrts Indebtedness
(average annual gm wth) GD P 9.7 8.8 D.1 8.9 8.0 Chrna
GDP per caplta 8.2 8.0 9.4 8.2 7.3 -.. - - Lonsr-middle-incomegroup Eworls Of goods and services 8.4 8 7 284 23.6 0.3
STRUCTURE of the ECONOMY 1985 1995 2004 2005 Growlh of capltal and GDP (K) (%of GDP) Agriculture 284 88 0 1 Industry 431 472 462 Manufacturing 34 9 Services 285 331 407 0 --c-----+- c --- HOuSeholdfinal consumption ewenditure 532 475 485 00 01 02 03 w 05 General gov't final consumption expenditure 02 110 02 GCF -GDP Imports of goods and services 14 1 208 3 14
1985-95 1995-05 2004 2005 ~o~h~,po;,y;n~;mp;r~s-(Xj- (average annual gmuth) Agriculture 42 33 6 3 50 a. Industry Q8 89 Manufaclunng 0 0 Serv~ces 85 87
Household final consumption expenditure 02 5.7 H o - .. .- - . . - General gov't final consumption e$$enditure 84 8.9 6.8 00 01 Lt2 03 W 05 Gmss capltal formation 9.4 0.1 0.0 1 -Exports -elworts Imports of goods and services 0.3 7.4 22.5 15 3
Note: 2005 data are prelimlnaryestimates. This tablewas producedfrom theDevelopment Economics LDB database. 'Thediamonds show four keyindicators In the country(in bold) compared with its incomegroupaverage. H dataare miss#ng.thedlamondwill be Incomplete. China
PRICES and GOVERNM ENT FINANCE
Domestic prlces (%change) Consumerpnces Implicit GDP deflator Government llnance (%or GDP, includes cumnt grants) Current revenue Current budget balance Overall surplusldeficit TRADE ------Export and Import levels (US$ mlll.) (USS millions) 1 Total~xports(fob) Food Mineral fuels. lubricants, and related material! M anufactures Total imports (cif) Food Fuel and energy Capital goods
E~ortprice index (2000=00) Import price Index (2000=W) Terms of trade (2000=00)
BALANCE of PAYM ENTS 1985 1995 2004 2005 .------Current account balance to GDP (X) (US$ m~ll~ons) morls of goods andservlces 30.469 67.974 655.827 843.537 6 - Imports of goods andserv~ces 43.092 61882 606.543 748.60 Resource balance -Q.602 6.082 49284 97.386 4 - Net lncorne 841 -t1774 -3.523 4.668 Net current transfers 243 1434 22.898 0,000 Current account balance -1158 5,752 68859 1QP55 zrd F~nanc~ngItems (net) 6.096 6,711 07,705 88.000 Changes ln net reserves 5.422 -22.463 -206.364 -20.055 99 00 01 02 03 M ffi Memo: I Reserves ~ncludinggold (USS millions) . 80.277 622.945 826.303 Conversion rate (DEC,local/US$) 2.9 8.4 8.3 82
EXTERNAL DEBT and RESOURCE FLOWS 1985 1995 2004 2005 Composltlon of 2004 debt (US$ rnlll.) (USS mrlllons) Total debt outsland~ngand disbursed 6.696 l8.090 248.934 -1 IBRD IDA Total debt servlce 18 RD IDA Compositionof net resourceflows Official grants Offic~alcreditors Private creditors Foreign direct investment (net inflows) Porlfolio equity (net inflows) Wodd Bank program Commitments A - IBRD E- Bilasd Disbursements 1.l .KIA O-CWer~d~dF-.I-e Principal repayments 1004 IMF G- 4 c- smn-ter Net flows Q7 Interest payments 430 Net transfers -303
Note:This tablewas producedfrom the Development Econom~csLDB database. 81 9/06
CN-Inner Mongolia Highway & Trade Comd CN-TAI BASIN URBAN ENVMT CN-Hubei Shiman Highway CN-GEF GUANGDONG PRD URB ENV CN-GEF-Gansu & Xinjiang Pastoral Develop CN-4th Inland Waterways CN-GUANGDONGIPRD UR ENVMT CN-Gansu & Xinjiang Pastoral Development CN-2nd National Railways (Zhe-Gan Line) CN - GEF-Hai Basin Integr. Wat. , Env.Man. CN-Basic Education in Westem Areas CN-Jiangxi Integrated Agric. Modem. CN-ZHEJIANG URBAN ENVMT CN-Wuhan Urban Transport CN-2nd GEF Energy Conservation CN-TIANJIN URB DEV 11 CN-Yixing Pumped Storage Project CN-SHANGHAI URB ENVMT APLl CN-Hubei Xiaogan Xiangfan Hwy CN-3rd Xinjiang Hwy Project CN-2nd Anhui Hwy CN-GEF-Sustain. Forestry Dev CN-Natl Railway Project CN-Sustainable Forestry Development CN-Hubei Hydropower Dev in Poor Areas CN-Inner Mongolia Hwy Project CN-Tuberculos~sControl Project CN-Urumqi Urban Transport CN-HUAI RIVER POLLUTION CONTROL CN-L1AO RIVER BASIN CN3rd Inland Waterways CN-Shijiazhuang Urban Transport CN-BEIJING ENVIRONMENT I1 CN-HEBEI URBAN ENVIRONMENT CN-Yangtze Dike Strengthening CN-GEF-BEUING ENVMT I1 CN-CHONGQING URBAN ENVMT CN-Tongbai Pumped Storage CN-Accounting Reform & Development CN-GEF-Renewable Energy Development CN-Tec Coop Credit IV CN-Health 1X CN-GUANGXI URBAN ENVMT PO03614 1998 CN-Guangzhou City Transport 200.00 0.00 0.00 0.00 20.00 44.79 64.79 44.79 P003539 1998 CN-Sustainable Coastal Resources Dev. 100.00 0.00 0.00 0.00 2.06 10.50 12.56 10.50 Total: 9,205.40 110.60 0.00 265.67 216.89 6,287.32 1,563.67 145.44
CHINA STATEMENT OF IFC's Held and Disbursed Portfolio In Millions of US Dollars
cornmittid Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Part~c. 2002 ASlMCO 0.00 10.00 0.00 0 .OO 0.00 10.00 0.00 0 .OO 2006 ASIMCO 0.00 0.00 4.12 0.00 0.00 0.00 3.61 0.00 2005 BCCB 0.00 59.21 0.00 0.00 0.00 59.03 0.00 0.00 2003 BCIB 0.00 0.00 12.04 0.00 0.00 0.00 0.00 0.00 2006 BUFH 8.14 0.00 0.00 0.00 8.14 0.00 0.00 0.00 Babei Babei Necktie Bank of Shanghai Bank of Shanghai Bank of Shanghai BioChina CDH China Fund CDH China 11 CDH Venture CT Holdings CUNA Mutual 2006 Capital Today 0.00 25.00 0.00 0.00 0.00 0.32 0.00 0.00 2005 Changyu Group 0.00 18.07 0.00 0.00 0.00 18.07 0 .OO 0.00
1998 Chengdu Huarong 3.36 3.20 '- 0.00 3.13 3.36 3.20 0.00 3.13 2004 China Green Ener 20.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 2004 China Re Life 0.00 0.27 0.00 0.00 0.00 0.27 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.0 1 0.00 0.00 2006 Chinasoft 0.00 0.00 15.00 0.00 0.00 0.00 10.00 0 .OO 2004 Colony China . 0.00 15.31 0.00 0.00 0.00 9.29 0.00 0.00 2004 Colony China GP 0.00 0.84 0.00 0.00 0.00 0.49 0.00 0.00 2006 Conch 81.50 40.93 0.00 0.00 81.50 0.00 0.00 0.00 2006 Dagang Newspring 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 Darong 10.00 0.24 0.00 8.00 6.67 0.24 0.00 5.33 2006 Deqingyuan 0.00 2.85 0.00 0.00 0.00 2.85 0.00 0.00 1994 Dynamic Fund 0.00 2.2 1 0.00 0.00 0.00 2.01 0.00 0.00 2007 Epure 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Fenglin 17.64 0.00 6.00 13.47 13.64 0.00 6.00 12.53 2006 Fenglin HJ MDF 0.23 0.00 0.00 3.27 0.00 0.00 0.00 0.00 2005 Five Star 0.00 0.00 7 .OO 0.00 0.00 0.00 0.00 0.00 GDIH Great Infotech Hangzhou RCB HiSoft Tech HiSoft Tech IB Jiangxi Chenming Launch Tech Maanshan Carbon Maanshan Carbon Minsheng Minsheng & IB Minsheng Bank Minsheng Bank NCCB Nanjing Kumho Nanjing Kumho Neophotonics New China Life New Hope Newbridge Inv. North Andre PSAM RAK China Renaissance Sec Rongde SAC HK Holding SAIC SBCVC SEAF SSIF SH Keji IT SHCT SIBFI Shanghai Krupp Shanshui CToup Shanxi SinoSpring Stora Enso Stora Enso Stora Enso TBK VeriSilicon Wanjie High-Tech Wumart XACB Xinao Gas Zhejiang Glass Zhengye-ADC Zhong Chen 2006 Zhongda-Yanjin 21.89 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total oortfolio: 733.58 577.30 181.40 340.89 470.95 371.06 29.61 108.03
Approvals Pending Commitment FY Approval Company Loan EqulV Quasi Part~c. 2002 SML 0.00 0 .OO 0.00 0.00 2004 NCFL 0.00 0.00 0.02 0 00 2007 X~naoCTC 0.04 0.01 0.00 0.14 2004 China Green 2006 Launch Tech 2005 MS Shipping 0.00 0.01 0.00 0.00 2003 Peak Pacific 2 0.00 0.01 0.00 0.00 Total pending commitment: 0.05 0.03 0.03 0.14