Report and Recommendation of the President to the Board of Directors
Project Number: 41943 August 2008
Proposed Loan Inner Mongolia Wind Power Project (People’s Republic of China)
In accordance with ADB’s public communications policy (PCP, 2005), this abbreviated version of the RRP excludes confidential information and ADB’s assessment of project or transaction risk as well as other information referred to in paragraph 126 of the PCP.
Asian Development Bank
CURRENCY EQUIVALENTS (as of 21 July 2008)
Currency Unit – yuan (CNY) CNY1.00 = $0.14 $1.00 = CNY6.81
Currency Unit – yen (¥) ¥1.00 = $0.009 $1.00 = ¥107.30
Currency Unit – euro (€) €1.00 = $1.567 $1.00 = €0.638
ABBREVIATIONS
ADB – Asian Development Bank CO2 – carbon dioxide GDP – gross domestic product NDRC – National Development and Reform Commission PRC – People's Republic of China
WEIGHTS AND MEASURES
GWh – gigawatt-hour (1,000,000 kWh) kWh – kilowatt-hour (1,000 watt-hour) MW – megawatt (1,000,000 watts) TWh – terawatt-hour (1,000GWh)
NOTES
(i) The fiscal year (FY) of Datang Corporation ends on 31 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2008 ends on 31 December 2008.
(ii) The fiscal year (FY) of Kyushu Electric Power Company and Sumitomo Corporation ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2008 ends on 31 March 2008
(iii) In this report, “$” refers to US dollars.
Vice-President B. N. Lohani, Vice-President-in-Charge, Operations 1 Director General S. Chander, Officer-in-Charge, Private Sector Operations Department (PSOD) Director J. Yamagata, Infrastructure Finance Division 2, PSOD
Team leader H. Kimura, Investment Specialist, PSOD Team members A. Akanda, Head, Operations Coordination Unit, PSOD M. Manabat, Senior Investment Officer, PSOD N. Moller, Counsel, Office of General Counsel J. Munsayac, Senior Social Safeguards Officer, PSOD M. Pascua, Environment Officer, PSOD
S. Santos, Investment Officer, PSOD M. Starck, Investment Specialist, PSOD S. L. Tu, Senior Environment Specialist, PSOD K. Zheng, Senior Energy Economist, EARD
CONTENTS Page
MAP I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Wind Power in the People's Republic of China 1 B. ADB Operations 4 III. THE PROPOSED PROJECT 5 A. Project Description 5 B. Project Sponsors 5 C. Environmental Aspects and Social Dimensions 6 D. Development Impacts 6 IV. THE PROPOSED ASSISTANCE 7 A. Loan 7 B. Justification 7 C. Investment Limitations 8 D. Anticorruption Policy, and Combating Money Laundering and the Financing of Terrorism 8 V. ASSURANCES 9 VI. RECOMMENDATION 9
APPENDIX
1. Design and Monitoring and Development Effectiveness Frameworks 10
o 102 00'E 117 o 00'E
INNER MONGOLIA Jingpeng INNER MONGOLIA Wudan WIND POWER PROJECT IN THE Houngshan PEOPLE'S REPUBLIC OF CHINA Haladaukou Reservoir
Danian Zi 50 o 00'N RUSSIAN Yuanbaoshan Xinhui Genhe o Damiao Project Area FEDERATION 50 00'N Provincial Capital Yitulihe Jagdagi Chifeng City/Town Wujia National Highway Dayangshu Yakeshi Kalanqwinqi Provincial Road Manshouli Hailar HUBEI LIAONING National Road Wafang Other Road
Ningcheng River Zalantun 0 2010 40 60 Provincial Boundary HEILONGJIANG International Boundary Kilometers Boundaries are not necessarily authoritative. Zhalai Wulangao
M O N G O L I A
Xilinhot Tongliao
Zhenglanqi Chifeng
LIAONING o o 40 00'N 40 00'N Wuyuan Jining HOHHOT PROJECT AREA
Baotou Liaodong Bay GANSU Qingshuihe HEBEI Wuhai Dongsheng Wuda Korea Bay
N SHANXI Bohai Sea
Bohai 0 50 100 200 300 NINGXIA Bay
08-2628 HR SHAANXI Kilometers
o 102 o 00'E 117 00'E
I. THE PROPOSAL
1. I submit for your approval the following report and recommendation on a proposed direct loan of up to CNY164 million ($24.0 million) without government guarantee to Datang Sino- Japan (Chifeng) Renewable Power Company (the joint venture) to finance the Inner Mongolia Wind Power Project in the Inner Mongolia Autonomous Region of the People’s Republic of China (PRC). If approved, the Project will be the Asian Development Bank's (ADB’s) first nonsovereign loan for a wind power project in the PRC, and will constitute ADB’s 22nd nonsovereign financing in the PRC. The design and monitoring framework and the development effectiveness framework are presented in Appendix 1.
II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES
A. Wind Power in the People's Republic of China
1. Problems and Opportunities
2. Energy use in the PRC is rapidly increasing to support the economic growth needed to raise the living standards of the country's large population. The PRC has been the second- largest energy consumer after the United States since 1996, and high economic growth coupled with continued industrialization and urbanization has accelerated growth in energy demand. Coal is the dominant available resource for power generation in the country and will continue to be so for the foreseeable future. The PRC accounts for significant share of global greenhouse gas emissions, even though a per capita emission is low among the countries with the highest greenhouse gas emission. Forecasts from the Intergovernmental Panel on Climate Change predicted that the PRC's carbon dioxide (CO2) emissions would rise by about 2.5%–5% each year between 2004 and 2010. Rapid increases in energy demand coupled with supply concerns have raised fuel prices, leading to deep concerns about energy security. The current energy path relies on increased use of fossil fuels and is neither environmentally nor economically sustainable.
3. Use of abundant undeveloped indigenous forms of clean energy, such as wind power, has significant potential to mitigate global climate change, address regional and local environmental concerns, reduce poverty, and increase energy security. The PRC’s vast land area and long coastline carry enormous wind power potential. The technical potential for wind power in the PRC is estimated to be about 1,000 gigawatts (GW), over 1.5 times the PRC’s current electricity generation capacity. The richest wind resources are in the north and the southeastern coastal areas, with an estimated capacity of 250 GW, and offshore along the east coast, with an estimated capacity of 750 GW. With an estimated capacity of 150 GW, Inner Mongolia has the largest share of wind resources in the country.
4. Development of the wind sector in the PRC began only recently relative to other countries. By the end of 2007, cumulative installed wind capacity was 6 GW. State-owned companies dominate the market with the country’s five big power generators (Long Yuan, Hua Neng, Datang, Hua Dian, and China Power Investment) operating the largest blocks of wind power generation facilities. At present, state utilities continue to win concession tenders, and foreign private sector investors own few assets in the PRC. For wind power projects to achieve their market potential, the market needs to open further and facilitate higher degrees of private sector participation so as to bring fresh capital and expertise into the sector.
2
5. Wind power remains by far the smallest segment of the energy portfolio. In addition to generic barriers, such as the lack of a mechanism to internalize the environment benefits of wind power, various finance-related risks and barriers are hindering faster growth. Most wind power projects have high up-front capital costs relative to carbon-emitting conventional technologies, and also have low rates of return. Many financial institutions therefore are not ready or willing to provide finance in these new areas, or will do so only under very unfavorable terms for the project sponsor. This is particularly the case in the PRC, where access to affordable finance is difficult and relies on political support. In addition, wind power projects often require local currency financing. In addition to policy frameworks, financial instruments are necessary to give financiers sufficient assurance and incentive to shift investment away from conventional technologies to more investment in wind power systems.
6. For the wind sector specifically, the Government has established targets of 10 GW for 2010 and 30 GW for 2020, to reach about 3% of total capacity by this time. With an estimated CNY190 billion ($27.9 billion) required to fund the goal by 2020, and state generators still advancing on the learning curve for assessing, building, and operating viable wind power projects, further private sector participation is necessary for the sustainable development of the wind power sector. Many private sector companies are poised to take advantage of the PRC’s vast wind power potential, and private investment is playing a growing part in wind power generation utilizing different business models.
2. Inner Mongolia Autonomous Region
7. Rapid urbanization, industrial development, and income growth have all come late to the Inner Mongolia Autonomous Region after several decades of lagging behind the PRC’s other provinces. Inner Mongolia has a population of about 24 million, with only 48.6% living in urban areas. As one of the 12 western provinces, its economy is less developed than most eastern provinces. The average income for urban residents is CNY12,378, which is less than half that of the average of Shanghai urban residents (CNY23,623); the average level for rural residents is CNY3,953 in Inner Mongolia, compared with CNY10,222 in Shanghai. Of Inner Mongolia's 101 counties, 31 are national poverty counties and 29 are provincial poverty counties.
8. The focus of wind power development in Inner Mongolia has been on providing rural areas far from power grids with access to electricity. Some 70,000 herding households in Inner Mongolia still remain without access to electricity, and small-scale turbines are seen as an effective solution. Much of Inner Mongolia’s installed wind units were small, off-grid systems— an important source of distributed power to many of the province’s 11.3 million rural residents.
9. With abundant wind resources, developing a commercial wind sector is now an element of industrial, energy, and environmental policy. The province’s 11th Five-Year Plan emphasizes medium-to-large-scale wind facilities. Inner Mongolia has long-term plans to become a major source of power for other provinces. The province was among the leading areas in high-voltage grid investment during the 10th Five-Year Plan period, and much of this development was for high-voltage export lines to other provinces. Already, Inner Mongolia exports more power than any other province, sending 39 terawatt-hour (TWh) in 2005 across three transfer routes: to the Liaoning provincial grid, to Liaoning’s parent Northeast China Grid, and to the Beijing–Tianjin– Tangshan grid of the North China system. Future plans see Inner Mongolia becoming an even larger exporter via the northern corridor of the west–east transmission scheme. These plans will see western Inner Mongolian eventually serving eastern China markets directly.
3
3. Policies and Regulations
10. Over the past decade, the Government of the People's Republic of China has implemented a series of renewable energy policies trying to achieve a wide range of goals such as rural development, industry development, environmental protection, and energy security.
11. The five goals for the PRC’s renewable energy policy are to improve the energy structure, diversify energy supplies, safeguard energy security, protect the environment, and realize the sustainable development of the economy and society. To further encourage the development and commercialization of renewable energy in the PRC’s energy system, the Government with international support implemented a national-level renewable energy law as a new policy framework for mainstreaming renewable energy in the energy strategy. The Renewable Energy Law was passed in February 2005 by the National People’s Congress and went into affect on 1 January 2006. The law achieves a major breakthrough for the development of renewable energy in the PRC by introducing a preferential tariff mechanism. The Government will impose higher electricity tariffs on all renewable energy to guarantee certain profits for green electricity generators. The grid companies are obliged to buy all their electricity from qualified renewable energy sources at the agreed tariff (Article 13, 14), and pass on a certain portion of the additional costs associated with renewable energy purchases to be distributed among their customers (Article 20). The level of tariff will be determined by the price authorities of the Government. The Renewable Energy Law is an umbrella document that (i) gives different authorities the mandates necessary to establish volume targets so as to develop the renewable energy market, and (ii) encourages domestic and foreign investments to reach the targets set. The law is accompanied by a number of supporting regulations that extend the policy principles into specific measures that address such issues as price guidance, grid connection, and renewable energy funds.
12. The approval process for wind power generation projects is managed at the state level for projects with capacity of 50MW and above, and at the provincial level for projects below 50 MW. Large-scale projects are administered by the National Development and Reform Commission (NDRC) through a concession bidding process. The NDRC approved 11 large- scale projects under the four rounds of concessions held between 2003 and 2006, most of which were awarded to subsidiaries of the five big power generators. This is because concession tenders for large-scale projects up until then were primarily awarded to the lowest bidder. The five big state-owned power companies can afford to operate the concessions at low profit margins because they can subsidize these wind power projects with other generating assets in their large portfolio that yield higher returns. They are also strongly motivated to win concessions to meet quota requirements. The resulting low tariffs threaten the long-term sustainable development of the wind power sector, as it has discouraged private and foreign investors from investing in large-scale projects.
13. For small-scale projects, project siting and issuing of permits is initiated by the Government or by developers. Private investors have been more successful participating in small-scale projects and also find them more attractive due to the faster approval process, better tariff prospects, and smaller investment involved. Small-scale projects are negotiated directly with the relevant local authority, which determines the price for wind power. Pricing data collected from 23 nonconcession projects which the NDRC verified and approved in early 2007 shows that some progress towards a sustainable wind pricing policy is being made.
14. While most national concession tenders have been won by the large state-owned power generators or their wholly-owned subsidiaries, some state utilities such as Datang are also
4
partnering with local and foreign private sector developers for small-scale projects at the provincial level. State utilities benefit from the additional capital and operational expertise private sector companies bring, while private investors benefit from the local relationships already established by the state utilities.
B. ADB Operations
1. Country Strategy
15. The Government’s 11th Five-Year Plan for the period 2006–2010 aims to build a harmonious and moderately prosperous (xiao kang) society, and differs from the previous five- year plan by taking a broader view of growth that is more inclusive and environmentally sustainable. ADB’s country partnership strategy (CPS) for the PRC 1 is based on four development thrusts: (i) inclusive growth and balanced development, in part by focusing operations on poorer provinces such as in the central, western, and northeastern parts of the country; (ii) resource efficiency and environmental sustainability; (iii) regional cooperation and public goods; and (iv) promoting an environment conducive to private sector development.
16. The PRC has been steadily transforming into a market economy, which has become the basis and driving force for economic growth and job creation. In addition to policy advice to the Government on private sector development, ADB also provides project-based financial assistance. ADB’s private sector operations in the PRC have focused on the infrastructure and energy sectors, the financial sector, and environmental improvements. In the infrastructure and energy sectors, ADB prioritizes pioneering projects with innovative contractual and financial structuring to encourage private sector participation, enhance management expertise, and improve corporate governance.
2. Long-Term Strategic Framework
17. ADB's Long-Term Strategic Framework2 emphasizes a higher proportion of support in ADB's lending portfolio for environmentally sustainable development and private sector development. The strategy seeks to meet the region's growing energy demand by helping developing member countries move their economies onto low-carbon growth paths. Specifically, ADB will address improving energy efficiency and expanding the use of clean energy sources. The strategy also aims to promote a larger role for the private sector in financing infrastructure by supporting public-private partnerships.
3. ADB’s Sector Strategy
18. ADB’s overall energy sector strategy is built upon three key pillars: (i) meeting the rapidly increasing energy demand in the Asia and Pacific region in a sustainable way, (ii) providing modern energy access to all, and (iii) addressing sector reforms and governance. Since 2000, more attention has been paid to environment and climate change issues. In the most recent CPS for the PRC, the target areas of ADB’s energy sector road map specifically include renewable energy. In its public sector operations, ADB is involved in a number of efforts to help improve the use of renewable and clean energy in the PRC.
1 ADB. 2008. Country Partnership Strategy (2008–2010): People’s Republic of China. Manila. 2 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank 2008–2020. Manila.
5
4. The Energy Efficiency Initiative
19. ADB’s Energy Efficiency Initiative aims to expand ADB operations in energy efficiency and clean energy to at least $1 billion a year. The initiative taskforce identified the PRC as a priority developing member country in the Asia and Pacific region with the highest potential for energy efficiency and clean energy investments.
III. THE PROPOSED PROJECT
A. Project Description
20. The Inner Mongolia Wind Power Project is located in Danian Zi township, Songshan District, Chifeng City in Inner Mongolia. The Project involves the construction and operation of 49.5 MW of wind power generation facilities which will generate an average of 133 GWh of electricity annually.
B. Project Sponsors
1. China Datang Corporation
21. China Datang Corporation, one of the five large-scale power generation enterprises in the PRC, was established in December 2002 as part of the division of generation assets of the former State Power Corporation of China. It is a solely state-owned corporation directly managed by the Chinese Communist Party Central Committee and is the experimental state- authorized investment and state shareholding enterprise ratified by the State Council.
22. Datang is involved in all aspects of power generation, with almost 65 GW of installed capacity, operating 97 power plants across 19 municipalities, and generating close to 305,000 GWh in 2007 using thermal, hydropower, and renewable resources. In wind power, Datang currently owns and manages 1,030 MW of installed capacity and has an additional 1,000 MW under development.
2. Kyushu Electric Power Company
23. Kyushu Electric Power Company (Kyuden) is the fourth-largest of the 10 Japanese integrated electric power companies. The company generates, transmits, and distributes electricity to the Kyushu region, which covers about 11% of Japan's territory, 10.5% of the population, and 8.7% of the national gross domestic product (GDP) (comparable to the national GDP of Australia). In FY2007, Kyuden supplied 88.08 billion kWh of electricity for power and lighting to 8.42 million users. The company operates 194 generation facilities with a total capacity of 19.42 GW. Kyuden is constructing a 50.4 MW wind power generation facility which will be operational in October 2008. Kyuden’s investment in the Project will be made via its wholly owned subsidiary, Kyuden International Corporation.
3. Sumitomo Corporation
24. Sumitomo Corporation (Sumitomo) is Japan’s third-largest general trading company. It was established in 1919 and has a global network that includes 100,000 business partners and customers and 180 offices and subsidiaries. Sumitomo’s Infrastructure Business Unit is promoting the broadening of Sumitomo’s earnings base in the fields of electric power, power plant engineering, eco and energy-saving businesses, and social and industrial infrastructure,
6
especially in Asia. The company aims to establish a retail power supply capacity of 500 MW domestically and increase its retained power generation capacity to 6,300 MW outside of Japan by 2010 by concentrating on independent water and power producer projects, particularly in Asia. At the same time, Sumitomo plans to expand the supply of renewable energy, especially wind power and biomass projects, as well as promote greenhouse gas reduction projects in developing countries. In wind power generation, Sumitomo currently has two sites under management, both in Japan, totaling 32 MW.
C. Environmental Aspects and Social Dimensions
1. Environmental Aspect
25. Comprehensive environmental impact studies were completed in line with ADB’s environmental safeguard policies for environmental category B projects. The perceptible environmental impacts are noise and visual impacts, but both are considered to be insignificant at most, given the considerable setback of turbines from the nearest settlements and the landscape values of the site. The impact from the operating turbines is unlikely to be significant since the turbines are set 5 km from the nearest village. The landscapes that are to be affected visually from turbine placement do not appear to have any unique features. The environmental disturbance normally associated with construction activities (i.e., land disturbance, vegetation clearance, erosion and sedimentation, construction noise and traffic, and waste generation) is considered temporary due to the limited extent and significance of consequences. Implementation of the environmental management plan, which includes monitoring arrangements during project operations, will largely mitigate these impacts.
2. Social Aspect
26. The Project site is hilly barren land in a remote area, it is not being used for grazing, and no herders live around it. No resettlement or social hardships are anticipated as a result of the Project. The potential social impacts on the local communities are considered minimal. There are no indigenous people or ethnic minorities in the Project site or along transmission lines. No lands or natural resources used for cultural and social activities are involved in the construction of the Project and other supporting facilities. Thus, under the IP policy, no action will be required. The Project is considered to be category C in terms of both involuntary resettlement and indigenous people.
D. Development Impacts
1. Impact, Outcome, and Output
27. The Project will promote sustainable growth and environmental improvement in the PRC through contributions towards achieving minimum-share targets for renewable energy in the generation mix, and for wind power generation in particular. The impact of catalyzing private sector investment in the PRC’s renewable energy sector will mitigate significant greenhouse gas emissions and improve the energy security of the country by developing indigenous energy sources. The Project features a strong model for private sector participation in renewable energy through a successful collaboration between one of the five established big local power companies and foreign strategic investors with expertise in wind power, and thus encourages the private sector to invest in wind power projects beyond the Project’s interventions.
7
2. Development Effectiveness
28. The Project has been assessed and described from the perspectives of development effectiveness and project framework in terms of private sector development, business success, and economic sustainability as per the good practice standards for evaluation of private sector investment operations, which were prepared by the evaluation cooperation group of the multilateral development banks.
29. Beyond enhancing the Project’s financial and economic sustainability, the Project will support private sector development by strengthening a new business model of collaboration between a state-owned enterprise and foreign private sector investors. Further private sector participation will increase the competition, operational efficiency, and corporate governance in the wind power generation sector. Being the first private sector wind farm funded by ADB private sector operations in the county, the Project will have a demonstration effect for future private sector investments in wind generation using this model. In its modest way, the Project will also contribute to the implementation process of the newly introduced Renewable Energy Law, and mandatory off-take and preferential tariff revision in particular. Moreover, the longer tenor and local currency offered by the ADB loan, which is not available to foreign investors in the local market, will improve private sector financial institutions’ confidence in the wind power sector to provide such financial assistance to similar projects going forward.
IV. THE PROPOSED ASSISTANCE
A. Loan
30. ADB will provide a local currency loan of up to CNY164 million from its ordinary capital resources to the joint venture without a government guarantee. The loan will carry an interest rate, as well as commitment and front-end fees, to be approved by ADB’s pricing and credit enhancement committee.
31. The loan agreement will include (i) appropriate representations and warranties; (ii) covenants, including affirmative, negative, financial, and information covenants; and (iii) events of default.
B. Justification
32. The proposed loan merits ADB’s support for the following reasons:
(i) The Project will support the Government’s policy to protect the environment and increase energy security by increasing the proportion of electricity generated with indigenous renewable energy and by diversifying the energy mix. The Project is in line with the Government’s strategy of encouraging private sector participation in renewable energy infrastructure, given the substantial level of investment required. The Project will contribute to the economic development of Inner Mongolia, which is also in line with the Government’s Western Region Development Strategy and the 11th Five-Year Plan to enhance economic development and reduce poverty in the central and western PRC.
(ii) The Project is in line with ADB’s CPS for the PRC (footnote 2), which is based on four PRC development objectives: (i) promoting equitable and inclusive growth, (ii) making markets work better, (iii) improving the environment, and (iv)
8
promoting regional cooperation. The CPS specifically includes clean energy development and inclusive growth. The Project will help to raise the standards of the population in Inner Mongolia, arrest environmental degradation, and advance sustainable inclusive development.
(iii) The Project is consistent with ADB’s private sector operations in the PRC, which focus on the infrastructure and energy sectors, the financial sector, and environmental improvements. In the infrastructure and energy sectors, ADB prioritizes playing a pioneering role, enhancing management expertise, and improving corporate governance. This Project will provide highly skilled employment and know-how transfer opportunity to the joint venture.
(iv) The Project is also consistent with ADB’s Energy Policy that recommends a reorientation of energy sector activities to address regional and global environmental impacts. By introducing clean technologies, the Project will address regional and global environmental problems by reducing greenhouse gas emissions.
(v) The presence of ADB will reassure the sponsors that the local government will continue to support this Project throughout its life. ADB’s participation in the Project is expected to establish more confidence in future private sector participation and financing in wind power projects in the PRC.
(vi) The proposed loan, which will provide long-term yuan financing, will offer the best possible solution to the joint venture under current market circumstances. The joint venture values such financing by ADB since such a product is not available to foreign companies in the current PRC markets. As all of the joint venture’s revenues are in yuan, local currency financing helps avoid a currency mismatch between revenue and expenditure. The long-term loan will increase stability of the Project’s operation. This will also help to make wind energy generation in the PRC more sustainable, thereby encouraging more investments by private sector companies.
C. Investment Limitations
33. The proposed loans, which comprise ADB’s 22nd nonsovereign financing in the PRC, will increase ADB’s total nonsovereign exposure in the PRC from 20.35% to 20.82% of ADB’s aggregate nonsovereign operations portfolio. The proposed loan is within ADB’s aggregate country, industry, single, and group exposure limits for nonsovereign investments.
D. Anticorruption Policy, and Combating Money Laundering and the Financing of Terrorism
34. ADB’s Anticorruption Policy (1998, as amended to date) and Combating Money Laundering and the Financing of Terrorism Policy (2003) were explained to the joint venture. Consistent with its commitment to good governance, accountability, and transparency, ADB will require the joint venture to maintain and comply with internal procedures and controls following international best practice standards for the purpose of preventing corruption or money laundering activities or the financing of terrorism, and covenant with ADB to refrain from engaging in such activities. The financing documentation between ADB and the joint venture will further allow ADB to investigate any violation or potential violation of these undertakings.
9
V. ASSURANCES
35. Consistent with the Agreement Establishing the Asian Development Bank, the Government will be requested to confirm that it has no objection to the proposed assistance to the joint venture. No funding will be disbursed until ADB receives such confirmation. ADB will enter into suitable documentation, in form and substance satisfactory to ADB, following approval of the proposed financing by the Board of Directors.
VI. RECOMMENDATION
36. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the loan of up to CNY164,000,000, without government guarantee, to Datang Sino-Japan (Chifeng) Renewable Power Company Limited for the Inner Mongolia Wind Power Project from ADB’s ordinary capital resources, and on such terms and conditions as are substantially in accordance with those set forth in this report and as may be reported to the Board.
Haruhiko Kuroda President
11 August 2008
10 Appendix 1
DESIGN AND MONITORING AND DEVELOPMENT EFFECTIVENESS FRAMEWORKS
Table A1.1: Design and Monitoring Framework
Data Sources Performance and/or Assumptions Design Summary Targets and/or Reporting and Risks Indicators Mechanisms
Impact Assumptions
Sustainable growth Renewable energy National • Continued of PRC’s economy comprises 16% of total macroeconomic data macroeconomic and by diversifying the power generation by 2020 political stability energy mix through the addition of Government target for Power sector • Continued support for renewable energy wind is 10 GW by 2010 statistics, as reported wind power sector capacity and 30 GW by 2020 by local and national reforms regulators Protection of the Reduction in greenhouse environment gas emissions through replacement of electricity produced by conventional coal-fired plants
Outcome Assumptions
Increased installed Increased private sector Statistics and • The Project is capacity of participation in wind information disclosed completed in a timely renewable energy power projects by 10% in by the regulator and manner Inner Mongolia by 2013 state government Increased private agencies • Offtaker‘s compliance sector finance in Increased commercial with their purchase and PRC’s renewable banks’ finance in wind Joint venture reports payment commitments energy sector power projects by 10% in Inner Mongolia by 2013 • Stable and consistent regulatory policies for Mitigation of Project generates savings the renewable energy greenhouse gas of about 140,000 tons of sector and private emissions CO2 annually during the sector investment first 25 years of operation
Outputs Assumption
Installation and Completion of Joint venture reports • Construction and O&M operation at construction by October contractors perform in a designed 2009 Statistics and timely manner and in performance level of information accordance with 49.5 MW wind power Sale of 133 GWh per year disclosure by the guaranteed generating facility regulator and state performance standards and associated government as per respective infrastructure agencies contracts
Appendix 1 11
Data Sources Performance and/or Assumptions Design Summary Targets and/or Reporting and Risks Indicators Mechanisms
Risks
• Wind conditions are insufficient in meeting projected generation levels • Grid availability is lower than expected
Activities with Milestones Inputs
1. Facilitation agreements signed (September 2008) Equity 2. Commencement of construction work (October 2008) CNY167 million from the 3. Commercial operation date (October 2009) Project sponsors
ADB CNY164 million loan
Other co-lenders CNY170 million loan
ADB = Asian Development Bank, CO2 = carbon dioxide, MW = megawatt, GWh = gigawatt-hour, O&M = operation and maintenance, PRC = People's Republic of China.
12 Appendix 1
Table A1.2: Development Effectiveness Framework
Objective Impact Performance Targets Measurement
Private Sector Project Company Impact Development Introduces the company to Technically and Joint venture’s the wind power sector in PRC operationally viable operating, financial, performance of 49.5 MW and environmental power plant performance reports
Successfully introduces Joint venture’s success international standards for in identifying and wind technology developing other projects in the renewable sector
Possible revenue generation Statistics and from sale of greenhouse gas information by central emissions reduction and local government.
Beyond-Company Impact
Has a demonstration effect Replication of the new for future private sector business model of investments in the wind collaboration between power sector private turnkey developer and strategic investor. Supports development of technical and operational Increased scale of wind skills to develop and manage power projects wind power generating undertaken by the private stations in Inner Mongolia sector
Increased private sector participation in the renewable energy power sector
Business Financially profitable and Timely repayment of debt Amortization of loans Success sustainable operations Satisfactory financial Financial internal rate internal rate of return of return (greater than weighted average cost of capital) Joint venture’s financial reports
Economic Contributes to economic Increase in per capita Sustainability growth through mitigation of consumption of power power shortages Reduction in greenhouse Improvement of the gas emission
Appendix 1 13
Objective Impact Performance Targets Measurement environment
Decreases reliance on energy imports CER = certified emission reduction, MW = megawatt, PRC = People's Republic of China.